Lukoil

Governance Information • May 24, 2021

APPENDICES

PJSC LUKOIL ANNUAL REPORT 2020

CONTENTS

1 APPENDIX 1

Corporate Governance Code Compliance Report

31 APPENDIX 2

Risks

41 APPENDIX 3 Major and Interested Party Transactions

53 APPENDIX 4

Transactions with PJSC LUKOIL Ordinary Shares by Members of the Board of Directors and Management Committee of PJSC LUKOIL

55 APPENDIX 5

Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations

ПРИЛОЖЕНИЕ 1

APPENDIX 1

Corporate Governance Code Compliance Report

Отчет о соблюдении принципов и рекомендаций Кодекса корпоративного управления

to executive bodies and eral meeting. timely manner.	1.1.3 In preparation for the gen- 1. In the reporting period, » Full eral meeting and during the shareholders were given an » Partial general meeting. share- opportunity to put questions » None holders shall be enabled to to members of executive receive information about, bodies and members of the and all materials related to, board of directors in advance the meeting, put questions of and during the annual gen- members of the board of di- 2. The position of the board rectors, as well as com- of directors (including dis- municate with each other. senting opinions entered in in an unobstructed and the minutes) on each item on the agenda of general meet- ings held in the reporting pe- riod was included in the ma- terials for the general share- holders meeting. 3. The company gave duly authorized shareholders access to the list of persons entitled to participate in the general meeting, as from the date when such list was received by the company, in all instances of general meetings held in the reporting period.		Note. Criterion 1 may not be fully applica- ble, since the Annual General Shareholders Meeting was held in 2020 in the form of absentee vot- ing pursuant to the resolution made by the Board of Directors on May 18, 2020 in accordance with Article 2 of Federal Law No. 50-FZ dated March 18, 2020.
governance bodies, and to spective calendar year. meeting.	1.1.4 Shareholders shall not en- 1. In the reporting period, » Full counter unjustified difficul- shareholders had an oppor- » Partial ties in exercising their right tunity to make proposals for to request that a general the agenda of the annual gen- meeting be convened, to eral meeting for at least 60 nominate candidates to days after the end of the re- make proposals for the 2. In the reporting period, agenda of the general the company did not reject proposals for the agenda or candidates to governance bodies due to misprints or other insignificant flaws in the shareholder's proposal.	» None
ient way.	1.1.5 Each shareholder shall be 1. The internal document » Full enabled to freely exercise (internal policy) contains pro- » Partial his/her voting right in the visions stipulating that every » None simplest and most conven- participant in the general meeting may, before the end of the respective meeting, re- quest a copy of the ballot filled in by them and certified by the counting commission.

	APPENDIX 1

APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4 APPENDIX 5 LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

	1.1.6 The general meeting proce- 1. During general sharehold- » Full dure established by the ers meetings held in the re- » Partial are = = ====================================================================================================================================================================== ble all persons attending a meeting (joint presence of the meeting to voice their shareholders), sufficient time opinion and ask questions. was allocated for reports on and discussion of the agenda items. 2. Nominees to the company's governance and control bod- ies were available to answer shareholders' questions dur- ing the meeting at which their nominations were put to vote. 3. When passing resolutions on the preparation and holding of general shareholders meetings, the board of directors the considered use of telecommunications means to provide shareholders with remote access to general meetings in the reporting	Note. Criterea 1-3 may not be fully since the Annual applicable, General Shareholders Meeting was held in 2020 in the form of absentee voting pursuant to the resolution made by the Board of Directors on May 18, 2020 in accordance with Article 2 of Federal Law No. 50-FZ dated March 18, 2020. Along with that the Company usually complies with this principle when it helds in-person general shareholder meetings.
	period. 1.2 Shareholders have equal and fair rights to share profits of the company by receiving dividends.
mechanism for determining disclosed. paying dividends.	1.2.1 The company has devel- 1. The company's dividend » Full oped and introduced a policy is developed, approved » Partial transparent and and clear by the board of directors and » None the dividend amount and 2. If the company's dividend policy uses the company's re- porting figures to determine the dividend amount, then the respective provisions of the dividend policy shall take into account the consolidated financial statements.
not economically feasible out dividends. and may lead to a false rep- resentation of the com- pany's performance.	1.2.2 The company shall not re- 1. The company's dividend » Full solve to pay out dividends if policy contains clear indica- » Partial such resolution, while for- tions of financial/ economic » None mally remaining in line with circumstances under which statutory restrictions, is the company shall not pay
impaired.	1.2.3 The company shall not allow 1. In the reporting period, » Full the dividend rights of its ex- the company did not take any isting shareholders to be actions that would lead to the » None impairment of the dividend rights of its existing share- holders.

	1.2.4 The company shall strive to 1. To exclude any ways for » Full exclude any ways for its its shareholders to receive » Partial shareholders to receive profit (income) from the com- » None profit (income) from the pany other than dividends company other than divi- and liquidation value, the dends and liquidation value. company's internal docu- ments provide for controls to	Criterion 1 is partially not complied with. The Company's internal documents prior detail procedures for consent or subsequent approval of
	ensure timely identification and procedure for approval of transactions with affiliates (associates) of the company's significant shareholders (per- sons entitled to use the votes attached to voting shares) in cases when the law does not formally recognize these transactions as interested party transactions.	recognized transactions interested party transactions only for relationships covered by the Federal Law On Joint Stock Companies. The Company's internal documents. however. set additional transaction controls. The Company has in place the Regulations on LUKOIL Group Entities and Their Employees in Conflict of Interest Situations. which establish a uniform procedure for avoiding conflicts of interest, and if such a situation arises - for measures to avoid its adverse impact on the business process and performance of LUKOIL Group entities. Moreover, according to the Rules Contracting of PJSC "LUKOIL", the Department for Corporate Security should inform the Company's business units on available information that could the Company from prevent entering into contracts. Such contracts are subject to further analysis. In accordance with the Federal Law On Joint Stock Companies, mem- bers of the Company's governance bodies, including significant share- holders, also send PJSC "LUKOIL" notifications on whether they may be deemed interested in a joined stock company making transac- tions as per the form recom- mended by the Bank of Russia's Di- rective No. 4338-U dated April 3. 2017.

Corporate governance system and practices ensure equal treatment for all shareholders owning the same type
(class) of shares, including minority and non-resident shareholders, and their equal treatment by the company.

jor shareholders.	1.3.1 The company has created 1. In the reporting period. » Full conditions for fair treat- the procedures for managing > Partial ment of each shareholder potential conflicts of interest by the governance bodies among significant sharehold- and the company's control- ers were efficient, and the ling entities, including condi- board of directors paid due tions ruling out abuse of mi- attention to conflicts among nority shareholders by ma- shareholders, if such conflicts occurred.
tribution of corporate con- period. trol.	1.3.2 The company shall not per- 1. Quasi-treasury shares do » Full form actions which lead or not exist or did not partici- > Partial may lead to artificial redis- pate in voting in the reporting » None

्			Shareholders are provided with reliable and effective methods for recording their rights in shares, as well as are
		enabled to freely dispose of their shares without any hindrance. 1.4.1 Shareholders are provided 1. The quality and reliability » Full with reliable and effective of the securities register » Partial
		methods for recording their maintained by the company's » None rights in shares, as well as registrar meet the require-
	pose of their shares without shareholders.	are enabled to freely dis- ments of the company and its
	any hindrance.
		of the company's executive bodies, and perform other key functions.	2.1 The board of directors shall carry out the strategic management of the basic principles of and approaches to, setting up a risk management and internal control system in the activities
2.1.1	the company's core lines of pany's strategy. business.	The board of directors shall 2. The board of directors » Full be responsible for passing has the authority stipulated in » Partial resolutions related to ap- the charter to appoint and re- » None pointment and removal of move members of executive executive bodies, including bodies and to set out the due to their inadequate per- terms and conditions of their formance. The board of di- contracts, 2. The board of di- rectors shall also ensure rectors reviewed the re- that the company's execu- port(s) by the sole executive tive bodies act in accord- body or members of the col- ance with the approved lective executive body on the growth strategy and along implementation of the com-
	business.	2.1.2 The board of directors shall 1. In the reporting period, » Full define the main long-term the board of directors re- » Partial targets of the company's viewed at its meetings mat- » None operations, assess and ap- ters related to the progress prove its key performance in the implementation of the indicators and key business strategy and its updates, ap- goals, as well as the strat- proval of the company's fi- egy and business plans for nancial and business plan the company's core lines of (budget), and consideration of the implementation criteria and performance (including interim criteria and perfor- mance) of the company's strategy and business plans.
	the company.	2.1.3 The board of directors shall 1. The board of directors has » Full determine the principles of, determined the principles of. » Partial and approaches to, organiz- and approaches to, organiz- » None ing a risk management and ing a risk management and in- internal control system in ternal control system in the company. 2. The board of directors as- sessed the risk management and internal control system in the company during the re- porting period.

		2.1.4 The board of directors shall 1. The company has devel- » Full define the company's policy oped and put in place the pol- » Partial on remuneration due to icy (policies) on remuneration » None and/or reimbursement and/or reimbursement (com- (compensation) of costs in- pensation) of costs incurred curred by members of the by members of the board of board of directors, execu- directors, executive bodies, tive bodies, and other key and other key executives, ap- executives of the company. proved by the board of direc- tors. 2. In the reporting period, the board of directors re- viewed at its meetings mat- ters related to the said policy (policies).
	internal conflicts between nal conflicts. ees.	2.1.5 The board of directors shall 1. The board of directors » Full play a key role in prevent- plays a key role in preventing, » Partial ing, identifying and settling identifying and settling inter- » None the company's bodies. 2. The company has set up a shareholders and employ- system for identification of transactions involving a con- flict of interest, and a set of measures to resolve such conflicts.
	the company's transpar- on information policy. hindered access to the com- the information policy. pany's documents for shareholders.	2.1.6 The board of directors shall 1. The board of directors » Full play a key role in ensuring has approved the regulations > Partial ency, the timeliness and 2. The company has desig- completeness of its infor- nated the persons responsi- mation disclosures, and un- ble for the implementation of	» None
	its significant corporate practices. events.	2.1.7 The board of directors shall 1. In the reporting period, » Full control the company's cor- the board of directors consid- » Partial porate governance prac- ered the matter of the com- » None tices and play a key role in pany's corporate governance
2.2		The board of directors shall be accountable to the company shareholders.
	to the shareholders.	2.2.1 Performance of the board 1. The company's annual re- » Full of directors shall be dis- port for the reporting period » Partial closed and made available includes the information on individual attendance at board of directors and com- mittee meetings. 2. The annual report con- tains key results of assess- ment of the board of direc- tors' work in the reporting period.	» None
	company shareholders.	2.2.2 The chairman of the board 1. The company has in place » Full of directors shall be availa- a transparent procedure en- » Partial ble to communicate with the abling shareholders to for- » None ward questions to the chair- man of the board of directors and express their respective position.

		ITE BANCE OF BILDERE BEINLEINDER BELL BALLERIER BELLE BELLE BELLE BELLE BELLE BELLE CONTRACTE CONSULE THE pendent judgements and decisions in line with the best interests of the company and its shareholders.
of the board of directors of the board members.	2.3.1 Only persons with impecca- 1. The procedure for as- » Full ble business and personal sessing the board of direc- » Partial reputation, possessing the tors' performance estab- » None knowledge and expertise lished in the company in- required to make decisions cludes, inter alia, assessment falling within the authority of professional qualifications and to perform its functions 2. In the reporting period, efficiently, shall be elected the board of directors (or its to the board of directors. nomination committee) as- sessed nominees to the board of directors in terms of hav- ing the required experience, knowledge, business reputa- tion, absence of a conflict of interest, etc.
sional qualities.	2.3.2 The company's board of di- 1. Whenever the agenda of ■ Full rectors shall be elected as the general shareholders » Partial per a transparent proce- meeting included election of » None dure enabling shareholders the board of directors, the to receive information company provided to share- about nominees which is holders the biographical de- sufficient to get an idea of tails of all nominees to the their personal and profes- board of directors, the re- sults of their assessment car- ried out by the board of direc- tors (or its nomination com- mittee), and the information on whether the nominee meets the independence cri- teria set forth in Recommen- dations 102-107 of the Code. as well as the nominees' writ- ten consent to be elected to the board of directors.
	2.3.3 The board of directors shall 1. As part of assessment of » Full be balanced, including in the board of directors car- » Partial terms of qualifications of its ried out in the reporting pe- » None members, their experience, riod, the board of directors knowledge and business analyzed its needs in terms of qualities, and it shall have professional qualifications, the trust of shareholders. experience, and business skills.
holders to elect a nominee to the board of directors for whom they vote.	2.3.4 The company has a suffi- 1. As part of the assessment » Full cient number of directors to of the board of directors car- » Partial organize the board of direc- ried out in the reporting pe- » None tors' activities in the most riod, the board of directors efficient way, including the considered whether the num- ability to set up committees ber of members on the board of the board of directors of directors was in line with and enable the company's the company's needs and with significant minority share- the interests of shareholders.

2.4 The board of directors shall include a sufficient number of independent directors.
dependent from the com- the board of directors. pany's executive bodies, particular groups of share- holders or other stakehold- ers. It should also be taken into account that in normal conditions a nominee (elected member of the board of directors) cannot be considered independent if he/she is related to the company, its significant shareholder or contractor, the company's competitor, or the government.	2.4.1 An independent director 1. In the reporting period, all » Full shall be a person of suffi- independent members of the » Partial Shall 'De 'd' per 2017-11-11 Shall 'De 'd' per 2017-11-11 - 11:21:20 PM ====================================================================================================== rience and selfreliance to dependence criteria set forth form his/her own opinion, in Recommendations 102-107 able to make impartial of the Code, or were deemed judgements in good faith in- independent by resolution of
shall be performed. Sub- holders.	2.4.2 The compliance of nominees 1. In the reporting period, the » Full to the board of directors board of directors (or the » Partial with the criteria for inde- nomination committee of the » None pendence shall be assessed, board of directors) formed its and a regular review of opinion on the independence compliance of independent of each nominee to the board members of the board of di- of directors and presented rectors with such criteria respective opinions to share- stance shall prevail over 2. In the reporting period, the form in such assessments. board of directors (or the nomination committee of the board of directors) reviewed at least once the independ- ence of the current members of the board of directors listed by the company in its annual report as independent directors. 3. The company has devel- oped procedures defining the actions to be taken by a mem- ber of the board of directors if he/she ceases to be inde- pendent, including the obliga- tion to timely notify the board of directors thereof.
	2.4.3 At least one third of the to- 1. At least one third of the » Full tal elected number of mem- total number of members of > Partial bers of the board of direc- the board of directors is con- » None

APPENDIX 1

APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4 APPENDIX 5 LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

terial corporate actions.	2.4.4 Independent directors shall 1. Independent - directors » Full play a key role in preventing (who do not have a conflict of > Partial internal conflicts in the com- interest) carry out a prelimi- » None pany and in the perfor- nary assessment of material mance by the latter of ma- corporate actions implying a possible conflict of interest, and the results of such as- sessment are presented to the board of directors.		Criterion 1 is partially not complied with.
			The Company's Charter includes no list of transactions or other actions deemed to be material corporate actions.
		In the context of absence of a uniform approach to defining "material corporate actions" in the Russian legislation, the Company intends to amend its internal alongside documents with amendments to the applicable laws.
			The Company also organizes meetings of its President with Directors prior to each scheduled in-person meeting of the Board of Directors, to brief them on ongoing material transactions, negotiations underway, etc., to enable the Directors to assess their decisions, including for possible conflicts of interest.
			In connection with COVID-19 pan- demic the number of such meetings has been reduced to meet recom- mendations on social distancing.
directors.			2.5 The chairman of the board of directors shall facilitate the best performance of assigned duties by the board of
elected independent direc- directors.	2.5.1 The board of directors shall 1. The board of directors is » Full be chaired by an independ- chaired by an independent di- » Partial ent director, or a senior in- rector, or a senior independ- dependent director shall be ent director is appointed chosen from among the from among the independent tors to coordinate the ac- 2. The role, rights and duties tivities of independent di- of the chairman of the board rectors and enable the in- of directors (and, if applicable, teraction with the chairman of the senior independent di- of the board of directors. company's internal docu- ments.	» None	Criterion 1 is not complied with. In the reporting year, the office of the Chairman of the Board of Direc- tors was held by non-executive di- rectors, whereas independent di- rectors did not appoint a senior in- dependent director. The Chairman of the new Board of Directors was elected unanimously by all Directors in 2020. He excels in professional skills and industry expertise, having worked with the Company for a long time in man- agement positions responsible for one of the Group's core business streams. The Company admits that all Direc- tors have equal rights and that in- dependent directors did not pro- pose to appoint a senior independ- ent director.
of resolutions passed by the porting period. board of directors.	2.5.2 The chairman of the board 1. The performance of the » Full of directors shall maintain a chairman of the board of di- » Partial of a 25th = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = = at meetings, enable free dis- of the procedure for as- cussions of agenda items, sessing the efficiency of the and supervise the execution board of directors in the re-

2.5.3 The chairman of the board 1. The company's internal » Full of directors shall take all documents set out the duty Partial steps necessary for the of the chairman of the board timely provision to mem- of directors to take all steps bers of the board of direc- necessary for the timely pro- tors of information required vision to members of the to pass resolutions on board of directors of materi- als regarding items on the agenda items. agenda of the board meeting.

» None

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based on all information member of the board of di- » None available, without conflict of rectors shall notify the board
interest, subject to equal of directors if he/she has a treatment of the company conflict of interest in respect shareholders, and assuming of any item on the agenda of normal business risks. the board meeting or the board's committee meeting, prior to the discussion of the relevant agenda item. 2. The company's internal documents provide that a member of the board of di- rectors shall abstain from	According Director to the Compensation Expense and Reimbursement Policy of PJSC "LUKOIL", expenses are reimbursed to Directors, including the costs incurred to engage advisors and experts and to receive relevant opinions on matters pertaining to the activities of the Board of Directors, with the total not exceeding the budget allocated by the Company.
voting on any item in connec- tion with which he/she has a conflict of interest. 3. The company has in place a procedure enabling the board of directors to get pro- fessional advice on matters within its remit at the ex- pense of the company.	The procedure for reimbursing to Directors their actual expenses related to engaging advisors and experts and receiving relevant opinions on matters pertaining to the activities of the Board of Directors is set out in the Procedure for Remuneration and Reimbursement of Expenses of Members of the Board of Directors Commission Audit of and PJSC "LUKOIL". Regulations on Committees of the Board of Directors also entitle Committees to accept professional services from third-party organi- zations within the Committee's budget.

ties.	2.6.3 Members of the board of di- 1. Individual attendance at » Full rectors shall have sufficient board and committee meet- » Partial time to perform their du- ings, as well as time devoted to preparation for attending meetings, was recorded as part of the procedure for as- sessing the board of direc- tors in the reporting period. 2. In accordance with the company's internal docu- ments, members of the board of directors shall inform the board of their intentions to join governance bodies of other organizations (except for entities controlled by, or affiliated to, the company), or of the relevant appointment made.	» None
soon as possible.	2.6.4 All directors have equal ac- 1. In accordance with the » Full cess to the company's doc- company's internal docu- » Partial uments and information. ments, members of the board » None Newly elected directors are of directors are entitled to furnished with sufficient in- have access to documents formation about the com- and make queries regarding pany and performance of the company and entities un- the board of directors as der its control, and the com- pany's executive bodies must provide relevant information and documents. 2. The company has in place a formalized induction pro- gram for newly elected mem- bers of the board of direc- tors.
	directors shall ensure efficient performance by the board of directors.	2.7 Meetings of the board of directors, preparation for such meetings and participation of members of the board of
needed, taking into account the reporting year. the scale of operations and goals of the company at a particular time.	2.7.1 Meetings of the board of di- 1. The board of directors » Full rectors shall be held as held at least six meetings in > Partial	None
in a proper manner.	2.7.2 Internal regulations of the 1. The company has an ap- » Full company shall provide a proved internal document » Partial procedure preparation and holding of for arranging and holding the board - meetings, meetings of the board of di- enabling members of the rectors and sets out, in par- board of directors to ticular, that the notice of the prepare for such meetings meeting shall be given, as a rule, at least five days prior to such meeting.

	2.7.3 The format of the meeting 1. The company's charter or » Full of the board of directors internal document provides » Partial	Criterion 1 is partially not complied with.
dealt with at meetings of of directors. the board of directors held in person.	shall be determined taking for the most important mat- » None into account the im-ters (as per the list set out in portance of items on the Recommendation 168 of the agenda. The most im- Code) to be discussed at in- portant matters shall be person meetings of the board	The Regulations on the Board of Di- rectors of PJSC "LUKOIL" list mat- ters to be discussed only at in-per- son meetings of the Board of Direc- tors. This list largely matches the list set out in Recommendation 168 of the Code; however, it reflects the exist- ing practices of the Company's cor- porate governance and the distri- bution of roles among its govern- ance bodies. For instance, due to the large num- ber of the Company subsidiaries, coordination of their operations, in- cluding approvals of material transactions, are referred to the jurisdiction of the Management Committee in order to increase the efficiency of the decision-making process. On the other hand, the level of de- cision-making on applying for delisting has been raised much higher than required by the Code - the Charter of PJSC "LUKOIL" re- fers this matter to the General Shareholders Meeting (to be con- vened as resolved by the meeting
	2.7.4 Resolutions on most im- 1. The company's charter » Full	of the Board of Directors held in person). Criterion 1 is partially not complied
members.	portant matters relating to provides for resolutions on » Partial the company's operations the most important matters » None shall be passed at a meeting set out in Recommendation of the board of directors by 170 of the Code to be passed a qualified majority or by a at a meeting of the board of majority of all elected board directors by a qualified major- ity of at least three quarters or by a majority of all elected board members.	with. The Company's Charter provides for resolutions on certain material matters within the scope of au- thority of the Board of Directors (such as an increase in the charter capital, or public offering by the Company of its bonds or other is- sue-grade securities) to be passed unanimously by all Directors. most essential matters The brought up for approval by the Board of Directors are subject to preliminary discussion by core Committees of the Board of Direc- tors, which ensures a unanimous approach to the final decision in most cases. In 2020, resolutions on the matters set out in paragraphs 1, 4, 10 of Rec- ommendation 170 of the Code were passed by the Company's Board of

lated to the business of the company.			2.8 The board of directors shall set up committees for preliminary consideration of the most important matters re-
ness activities, it is recom- dependent directors.	2.8.1 To preview matters related 1. The board of directors » Full to controlling the Com- has set up an audit committee pany's financial and busi- comprised solely of independ- 2. The company's internal mended to set up an audit documents set out the tasks committee comprised of in- of the audit committee, in- cluding those listed in Recom- mendation 172 of the Code. 3. At least one member of the audit committee repre- sented by an independent di- rector has experience and knowledge of preparing, ana- lyzing, assessing and auditing accounting (financial) state- ments. 4. Meetings of the audit com- mittee were held at least once a quarter during the report- ing period.	» Partial » None
scheme, a remuneration of independent directors. is not the chairman of the directors. board of directors.	2.8.2 To preview matters related 1. The board of directors » Full to adopting an efficient and has set up a remuneration > Partial transparent remuneration committee comprised solely » None committee shall be set up, 2. The remuneration com- comprised of independent mittee is chaired by an inde- directors and headed by an pendent director who is not independent director who the chairman of the board of 3. The company's internal documents set out the tasks of the remuneration commit- tee, including those listed in Recommendation 180 of the Code.		Criterion 3 is partially not complied with. The Company combines the func- tions of the remuneration commit- tee and the nomination committee within the HR and Compensation Committee of the Board of Direc- tors. The functions and tasks of the HR and Compensation Committee of the Board of Directors, provided for by the Regulations on the HR and Compensation Committee of the Board of Directors of PJSC "LUKOIL", include the tasks listed in Recommendation 180 of the Code, save for the task specified in paragraph 5 of Recommendation 180 - selection of an independent advisor on remuneration of members of executive bodies and other key employees. This is due to the fact that until now the Company has never en- gaged an independent advisor for such purposes and does not intend to do so in the short term. The Company believes that such engagement will involve additional time to be spent on preparing and sending all necessary information to the advisor, as well as additional financial expenses for the Com- pany, and will eventually affect shareholders' income. However, the Company may engage such in- dependent advisor should any sig- niticant shareholders express their interest. The HR and Compensation Commit- tee of the Board of Directors regu- larly considers at its meetings mat- ters related to remuneration of members of executive bodies and other key employees, which ena-
			bles the Committee to oversee the introduction and implementation of the Company's policy on remuner- ation of members of executive hodies and other kev employees.

	2.8.3 To preview matters related 1. The board of directors » Full to talent management (suc- has set up a nomination com- » Partial cession planning), profes- mittee (or its tasks listed in	Criterion 2 is partially not complie with.
shall be set up, predomi- rectors. pendent directors.	» None sional composition and effi- Recommendation 186 of the ciency of the board of di- Code are fulfilled by another rectors, a nomination (ap- committee) - predominantly pointments, HR) committee comprised of independent di- nantly comprised of inde- 2. The company's internal documents set out the tasks of the nomination committee (or the tasks of the commit- tee with combined functions), including those listed in Rec- ommendation 186 of the Code.	The Company combines t functions of the remunerati committee and the nominati committee within the HR a Compensation Committee of the Board of Directors. The functions and tasks of the F and Compensation Committee the Board of Directors, provide for by the Regulations on the and Compensation Committee Board of Directors the PJSC "LUKOIL", include (with min text revisions) the tasks listed Recommendation 186 of the Coc save for the task set out paragraph 4 of Recommendati 186 (description of individual duti of directors and the Chairman the Board of Directors, includi the time to be spent on t company's activities, both inside and outside meetings, as part scheduled and unscheduled work

prehensive discussions of dependent directors. versity of opinions.	2.8.5 Committees shall be com- 1. Committees of the board » Full posed so as to enable com- of directors are headed by in- > Partial matters under preview, 2. The company's internal taking into account the di- documents (policies) include provisions stipulating that persons who are not mem- bers of the audit committee, the nomination committee and the remuneration com- mittee may attend commit- tee meetings only by invita- tion of the chairman of the respective committee.	» None
tees on a regular basis. tees on a regular basis.	2.8.6 Committee chairmen shall 1. During the reporting pe- » Full inform the board of direc- riod, committee chairmen re- » Partial tors and its chairman on ported to the board of direc- » None the work of their commit- tors on the work of commit-

	2.9.1 The board of directors' per - 1. Self-assessment or ex- » Full formance assessment shall ternal assessment of the » Partial be aimed at determining the board of directors' perfor-	Criterion 1 is partially not complied with.
stering the work of the tors in general. provement.	efficiency of the board of mance carried out in the re- directors, its committees porting period included per- and members, consistency formance assessment of of their work with the com- committees, individual mem- pany's development re- bers of the board of direc- quirements, as well as bol- tors, and the board of direc- board of directors and 2. Results of self-assess- identifying areas for im- ment or external assessment of the board of directors' performance carried out in the reporting period were re- viewed at the in-person meeting of the board.	The self-assessment of the Board of Directors' performance carried out in the reporting period included the assessment of performance of Committees and the Board of Directors in general but did not include any formal assessment of individual Directors (except for assessment of the performance of the Chairman of the Board of Directors and Chairmen of the Board of Directors' Committees). The incumbent Directors of PJSC "LUKOIL" are unique in terms of their expertise, reputation, and involvement in other activities. They are representatives of busi- ness culture of different countries and, therefore, it is hard to formal- ize the procedure for their individ- ual assessment.

	2.9.2 Performance of the board 1. The company engaged an » Full of directors, its committees external advisor to conduct » Partial and members shall be as- an independent assessment » None sessed regularly at least of the board of directors' once a year. An external performance at least once advisor shall be engaged at over the last three reporting	Criterion 1 is partially not complied with.
least once in three years to periods. conduct an independent as- sessment of the board of directors' performance.		In 2018-2020, the assessment of the Board of Directors' perfor- mance was carried out using the effective internal assessment pro- cedure developed with the help of an internationally recognized inde- pendent advisor.
		In December 2020, the Board of Di- rectors resolved to conduct an in- dependent assessment of the Board of Directors' performance for 2000 and sporoved an inde-

his/her duties, as well as an tary.	3.1.1 The corporate secretary 1. The company has » Full shall have the knowledge, adopted and published an in- » Partial experience and qualifica- ternal document - regula- » None tions sufficient to perform tions on the corporate secre- impeccable reputation and 2. The biographical data of the trust of shareholders. the corporate secretary are published on the corporate website and in the company's annual report with the same level of detail as for members of the board of directors and the company's executives.
the powers and resources secretary. required to perform his/her tasks.	3.1.2 The corporate secretary 1. The board of directors » Full shall be sufficiently inde- approves the appointment. » Partial pendent of the company's dismissal and additional re- » None executive bodies and have muneration of the corporate	Note. In accordance with paragraph 5.1 of the Regulations on the of Corporate Secretary PJSC "LUKOIL", the the size of remuneration (official salary) of the Corporate Secretary is determined by the Board of Directors of PJSC "LUKOIL"; in accordance with paragraph 5.2 of the same, the cost of living adjustments and bonus payments for the Corporate Secretary are made in compliance with the Company's local regulations on remuneration, unless otherwise established by resolution of the Board of Directors.

retain competent and quali- of the above persons. fied specialists. At the same time, the company shall avoid unnecessarily high remuneration, as well as unjustifiably large gaps be- tween remunerations of the above persons and the company employees.	4.1.1 "The amount of Temunera- 1. "The Company has in place "Full tion paid by the company to an internal document (inter- » Partial tion paid by end of di- nal documents) – the policy » None members of the board of di- nal documents) – the policy » None members of the board of di- nal documention of rectors, executive bodies (policies) on remuneration of and other key executives members of the board of di- shall create sufficient in- rectors, executive bodies and centives for them to work other key executives, which efficiently, while enabling clearly defines (define) the the company to engage and approaches to remuneration
over the introduction and tors as required. implementation of the com- pany's remuneration policy, revising and amending it as required.	4.1.2 The company's remunera- 1. During the reporting pe- » Full tion policy shall be devised riod, the remuneration com- » Partial by the remuneration com- mittee considered the remu- » None mittee and approved by the neration policy (policies) and board of directors. The the practical aspects of its board of directors, assisted (their) introduction and pre- by the remuneration com- sented relevant recommen- mittee, shall ensure control dation to the board of direc-
to such persons.	4.1.3 The company's remunera- 1. The company's remuner- » Full tion policy shall include ation policy (policies) includes » Partial eler = pene) transparent = mechanisms (include) transparent mecha- = ========================================================================================================= for determining the amount nisms for determining the of remuneration due to amount of remuneration due members of the board of di- to members of the board of rectors, executive bodies directors, executive bodies and other key executives of and other key executives of the company, and regulate the company, and regulates all types of expenses, bene- (regulate) all types of ex- fits and privileges provided penses, benefits and privi- leges provided to such per- sons.

tors, executive bodies and other key executives of the company can claim. Such policy can make part of the company's remuneration policy.	4.1.4 The company shall define a 1. The remuneration policy » Full policy on reimbursement (policies) defines (define) the » Partial (compensation) of expenses rules for reimbursement of > None detailing a list of reimburs- costs incurred by members able expenses and specify- of the board of directors, ex- ing service levels that mem- ecutive bodies and other key bers of the board of direc- executives of the company.
	directors with long term financial interests of shareholders.		4.2 The system of remuneration of members of the board of directors shall ensure alignment of financial interests of
rectors or its committees. The company shall not ap- ply any form of short-term motivation or additional fi- nancial incentive for mem- bers of the board of direc- tors.	4.2.1 The company shall pay 1. Fixed annual remunera- » Full fixed annual remuneration tion was the only form of » Partial നിർമ്മ directors. The company able to members of the board shall not pay remuneration of directors for their service for attending particular on the board of directors meetings of the board of di- during the reporting period.
and members of the board shares. of directors shall not par- ticipate in stock option plans.	4.2.2 Long-term ownership of 1. If the company's internal » Full the company's shares shall document(s) - the remunera- » Partial help align the financial inter - tion policy (policies) stipulates ests of members of the (stipulate) provision of the board of directors with company's shares to mem- long-term interests of bers of the board of direc- shareholders to the ut- tors, clear rules for share most. At the same time, the ownership by board mem- company shall not link the bers shall be defined and dis- right to dispose of shares closed, aimed at stimulating to performance targets, long-term ownership of such	» None	Note. Internal of documents PJSC "LUKOIL" do not stipulate any share options for its Directors.
sons whatsoever.	4.2.3 The company shall not pro- 1. The company does not » Full vide for any extra pay- provide for any extra pay- » Partial ments or compensations in ments or compensations in » None the event of early termina- the event of early termina- tion of powers of members tion of powers of members of of the board of directors the board of directors result- resulting from the change ing from the change of con- of control or any other rea- trol or any other reasons whatsoever.

tion, depending on the com- tives of the company. tion.	4.3.1 Remuneration due to mem- 1. In the reporting period, » Full bers of executive bodies annual performance results » Partial and other key executives of approved by the board of di- » None the company shall be deter- rectors were used to deter- mined in a manner provid- mine the amount of the vari- ing for reasonable and jus- able part of remuneration tified ratio of the fixed and due to members of executive variable parts of remunera- bodies and other key execu- pany's results and the em- 2. During the latest assess- ployee's personal contribu- ment of the system of remu- neration of members of exec- utive bodies and other key executives of the company, the board of directors (remu- neration committee) made sure that the company ap- plies efficient ratio of the fixed and variable parts of remuneration. 3. The company has in place a procedure that guarantees return to the company of bo- nus payments illegally re- ceived by members of execu- tive bodies and other key ex- ecutives of the company.	Criterion 3 is not complied with. The Company does not have in place a procedure that guarantees return to the Company of bonus payments illegally received by members of executive bodies and other key executives of the Com- pany since the Company has a clear framework of bonus pay- ments to members of executive bodies and other executives. Should any such situations arise, the Company will solve these is- sues in compliance with the appli- cable law.
ments where the company shares). asset).	4.3.2 The company shall put in 1. The company has in place » Full place a long-term incentive a long-term incentive pro- » Partial program for members of gram for members of execu- » None executive bodies and other tive bodies and other key ex- key executives of the com- ecutives of the company with pany with the use of the the use of the company company shares (options shares (financial instruments and other derivative instru- based on the company shares are the underlying 2. The long-term incentive program for members of ex- ecutive bodies and other key executives of the company implies that the right to dis- pose of shares and other fi- nancial instruments used in this program shall take effect at least three years after such shares or other financial instruments are granted. The right to dispose of such shares or other financial in- struments is linked to the company's performance tar- gets.	Criterion 2 is partially not complied with. The Long-Term Incentive Program for Key Employees of LUKOIL Group for 2018-2022 provides for other terms and conditions for the right to dispose of the shares distributed to members of the Program during its term. The Company believes, however, that the terms of the above Pro- gram more efficiently support the interest of the Program members in achieving long-term goals.

remuneration.	4.3.3 The compensation (golden 1. In the reporting period, » Full parachute) payable by the the compensation (golden = Partial company in case of early parachute) payable by the termination of powers of company in case of early ter- members of executive bod- mination of powers of mem- ies or key executives at the bers of executive bodies or company's initiative, pro- key executives at the com- vided that there have been pany's initiative, provided no actions in bad faith on that there have been no ac- their part, shall not exceed tions in bad faith on their the double amount of the part, did not exceed the dou- fixed part of their annual ble amount of the fixed part of their annual remuneration.
assurance in the achievement of the company's goals.		5.1 The company shall put in place an effective risk management and internal control system providing reasonable
company.	5.1.1 The company's board of di- 1. Functions of different » Full rectors shall determine the management bodies and = Partial principles of, and ap- units of the company in the » None proaches to, organizing a risk management system and risk management and inter- internal control are clearly nal control system at the defined in the company's in- ternal documents/relevant policy approved by the board of directors.
company.	5.1.2 The company's executive 1. The company's executive » Full bodies shall ensure estab- bodies ensured the distribu- » Partial lishment and continuous tion of functions and powers = » None operation of an efficient related to risk management risk management and inter- and internal control between nal control system in the the heads (managers) of units and departments accounta- ble to them.
as well as reasonable and of ethics. acceptable risk exposure.	5.1.3 The company's risk man- 1. The company has in place » Full agement and internal con- the anti-corruption policy. J Partial trol system ensures an ob- 2. The company has ar- » None jective, fair and clear repre- ranged for accessible means sentation of the current of notifying the board of di- state of the company and rectors or the board's audit its future prospects, the in- committee about violations tegrity and transparency of the law, the company's in- of the company's reporting, ternal procedures and code
the board of directors, and nual report. that the system is function- ing efficiently.	5.1.4 The company's board of di- 1. In the reporting period, » Full rectors shall take neces- the board of directors or the = Partial sary measures to make board's audit committee as- sure that the company's sessed the efficiency of the risk management and inter- company's risk management nal control system is con- and internal control system. sistent with the principles The information on the key of, and approaches to, its results of this assessment is organization determined by included in the company's an-	» None

	APPENDIX 1

APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4 APPENDIX 5 LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

ness of the risk management and internal control system and corporate governance.
separated. The internal au- ple of subordination. dit unit shall functionally re- port to the board of direc- tors.	5.2.1 The company shall set up a 1. To perform internal au- » Full separate business unit or dits, the company has set up » Partial engage an independent ex- a separate internal audit unit ternal carry out internal audits. board of directors or the au- The functional and adminis- dit committee, or engaged an trative subordination of the independent external organi- internal audit unit shall be zation under the same princi-	» None
The company shall apply procedure. ards of internal audit.	5.2.2 The internal audit unit shall 1. In the reporting period, » Full assess the performance of the performance of the inter- » Partial the internal control, risk nal control and risk manage- » None management, and corpo- ment system was assessed rate governance systems. as part of the internal audit generally accepted stand- 2. The company applies gen- erally accepted approaches to internal audit and risk management.
		6.1 The company and its business shall be transparent for shareholders, investors, and other stakeholders.
between the company, its recommendations.	6.1.1 The company shall develop 1. The company's board of » Full and adopt an information directors approved an infor- » Partial and seep policy ensuring an efficient mation policy developed in » None exchange of information accordance with the Code's shareholders. investors, 2. The board of directors (or and other stakeholders. sidered matters related to the company's compliance with its information policy at least once in the reporting period.
and recommendations of corporate website. the Code.	6.1.2 The company shall disclose 1. The company discloses in- » Full information on its corpo- formation on its corporate » Partial rate governance system governance system and gen- » None and practices, including de- eral principles of corporate tailed information on com- governance applied in the pliance with the principles company, in particular, on the 2. The company discloses in- formation on the composition of executive bodies and the board of directors, independ- ence of the board members and their membership in the board's committees (as de- fined in the Code). 3. If the company has a con- trolling person, the company publishes a memorandum of the controlling person setting out the latter's plans for the company's corporate gov- ernance.

closed data.	6.2.1 The company shall disclose 1. The company' infor- » Full information based on the mation policy defines the ap- » Partial principles of regularity, proaches to, and criteria of, consistency and prompt- identification of information ness, as well as availability, that can have a material im- reliability, completeness pact on the company's evalu- and comparability of dis- ation and the price of its se- curities, as well as proce- dures ensuring timely disclo- sure of such information. 2. If the company securities are traded on foreign regu- lated markets, the company shall ensure concerted and equivalent disclosure of ma- terial information in the Rus- sian Federation and in the said markets in the reporting period. 3. If foreign shareholders hold a significant amount of the company shares, during the reporting year, infor- mation was disclosed not only in the Russian language, but also in one of the most foreign widespread lan- guages.	» None	Note. The Regulations on Information Policy of PJSC "LUKOIL" include a reference the Insider to Regulations Information of PJSC "LUKOIL" which contain prescribed provisions by criterion 1.
by law.	6.2.2 The company shall strive to 1. In the reporting period, » Full avoid a formalistic ap- the company disclosed an- » Partial proach to information dis- nual and 6M financial state- closure, and to disclose ments prepared under the critical information about IFRS. The company's annual its operations even if such report for the reporting pe- disclosure is not required riod contains annual financial statements prepared under the IFRS, along with the audi- tor's report. 2. The company discloses complete information on its capital structure, as stated in Recommendation 290 of the Code, in its annual report and on the official website of the company.	» None
stakeholders, shall contain nancial results. ing year.	6.2.3 The annual report, as one of 1. The company's annual re- » Full the most important tools of port contains information on » Partial the most mation exchange with the key aspects of the com- » None shareholders and other pany's operations and its fi- information enabling as- 2. The company's annual re- sessment of the company's port contains information on performance in the report- the environmental and social aspects of the company's op- erations.

	APPENDIX 1

APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4 APPENDIX 5 LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

	6.3.1 The company shall provide 1. The company's infor- » Full information and documents mation policy establishes the » Partial as per the requests of procedure for providing	Criterion 1 is partially not complied with.
and ease of access.	> None shareholders in compliance shareholders with easy ac- with principles of fairness cess to information, including information on legal entities controlled by the company, as requested by sharehold- ers.	The Company's information policy establishes the procedure for providing shareholders with easy access to the Company's information and documents, where shareholders are entitled to receive such information. The procedures for providing the shareholders with Company information and documents are detailed in the Regulations on Provision of Information to Shareholders of PJSC "LUKOIL". When providing information requested by shareholders, the Company is guided by Article 91 of the Federal Law On Joint Stock Companies that provides for no obligation of the Company to share information on legal entities controlled it with its by shareholders. The Company discloses brief information on legal entities controlled by it in the List of Affiliates and more detailed information on controlled legal entities material to the Company in quarterly issuer reports. In addition, the majority of PJSC "LUKOIL" subsidiaries, includ- ing those material to the Company,
		have their own websites which de- scribe their operations. These websites can also be accessed via
	6.3.2 When providing information 1. In the reporting period, » Full	PJSC LUKOIL's official website. Note.
	to shareholders, the com- the company did not refuse » Partial pany shall ensure reasona- shareholders' requests for » None his halance hatween the in- information, or such refucate	The Regulations on Information Policy of PJSC "LUKOIL" include a

7.1.2 The board of directors shall 1. The company has in place » Full play a key role in making de- a procedure enabling inde- » Partial cisions or working out rec- pendent directors to express ommendations regarding their opinions on material material corporate actions, corporate actions prior to relying on the opinions of approval thereof. the company's independent directors.	» None	Criterion 1 is partially not complied with. The Company's Charter includes no list of transactions or other actions deemed to be material corporate actions (see also the note to paragraph 2.4.4). At the same time, in accordance with procedures provided for by the Regulations on the Board of Di- rectors of PJSC "LUKOIL", all mem- bers of the Board of Directors may participate in debates, put forward proposals, make comments, and speak on the substance of the mat- ter under discussion.
7.1.3 When taking material cor- 1. Taking into account the » Full porate actions affecting the specifics of the company's » Partial rights and legitimate inter- operations, the company's » None ests of shareholders, equal charter establishes lower terms and conditions shall minimum criteria for the be ensured for all share- company's transactions to be holders of the company, deemed material corporate and, in case of insufficient actions than those provided statutory mechanisms for by law. protecting rights, additional measures material corporate actions shall be taken to protect were subject to the approval the rights and legitimate in- procedure prior to execution. terests of the company shareholders. In doing so, the company shall be guided by the corporate governance principles set Complete Callery Comments of Concerner Comments of Concerner Comments of Concerner Comments of Concerner Comments of Concern Comments of Comments of Comments of Comments of C		Criterion 1 is partially not complied with. The Company's Charter includes no list of transactions or other actions deemed to be material corporate actions (see also the note to paragraph 2.4.4). At the same time, under the Com- pany's Charter, the authority of the Board of Directors covers ap- proval of a transaction or several associated transactions related to acquisition, disposal or potential disposal of property worth from 10% to 25% of the book value of the Company's assets, which exceeds the statutory requirements.

7.2.1	Information about material 1. In the reporting period, » Full corporate actions shall be the company disclosed infor- » Partial disclosed with explanations mation about its material	None	Criterion 1 is partially not complied with.
	of the grounds, circum- corporate actions in due time stances and consequences. and in detail, including the grounds for, and timelines of, such actions.		The Company's Charter includes no list of transactions or other actions deemed to be material corporate actions (see also the note to paragraph 2.4.4). In the roporting pariod there were

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

Risk description	Risk management

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Risk description	Risk management
Group entities and its contractors purchase the majority of We currently have a one-year supply of spare parts, well construction equipment and materials from suppliers in equipment, and materials for use in the Company's pro- the EU and USA. The ban on the imports of equipment and jects, and we have developed a set of measures which al- materials could have an adverse effect on our operations.	low to substitute chemical reagents that are being sourced at present from the EU and USA, used to prepare and condition drilling muds, with products from Russia and other countries.
	We actively deploy Russian technologies and consistently substitute imported equipment with Russian equivalents. We are conducting pilot tests of the Russian equipment and gradually deploying Russian multi-zone fracturing systems.

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Risk description	Risk management
Nor-discovery of commercially productive oil and gas re- We have been consistently improving our exploration serves and/or discovery of reserves that do not meet the technologies and phasing our operations when plans for levels projected during prospecting drilling or new project the next phase are based on results of the one prior. implementation poses a risk, which may require expensing By working with leading global oil and gas players, we can the subsequent costs while our financial performance is neg- study and successfully implement their best exploration
atively affected.	practices at the Group's assets.

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

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Risk description

Risk management

Well intervention and production drilling programs may not PJSC "LUKOL" takes a range of measures to allow it to result in their projected technological effect, which could lead promptly respond to this risk in case it occurs, such as to the downgrading of hydrocarbon production targets and adversely affect the Company's financial performance.

by preemptively preparing an additional set of effective well interventions, and by maintaining a reserve pool of potential production drilling wells. We plan main types of well interventions by designing targeted programs aimed at delivering on the hydrocarbon production plan and de- velopment targets. These programs rely on state-of-the- art tools of field geological analysis and geological and hy- drodynamic modeling. For certain facilities, we also use integrated modeling, which significantly improves field management quality based on the objective assessment of correlations among various production elements, in- cluding the formation, well and surface facilities. We make appropriate adjustments to current well intervention and production drilling programs based on actual monthly and quarterly performance.

Risk description	Risk management
Restarting wells shut down as a result of Russia's commit- As much as anything else, we selected wells for shutting ments under the OPEC agreement could give rise to geologi- down with a view to minimizing negative effects on our cal and technological risks of delayed recovery of oil produc- development. The wells to be shut down (both production tion depending on, inter alia, the well sea- and significant injection wells) are mostly grouped within sonality, and region of production.	a single area, deposit or field, which minimizes the risks of development imbalances.
	In case of a longer shut-down period continuing into win- ter, efforts are made to mothball wells and pipelines in order to prevent freezing.

Risk description

Risk management

High volatility in prices for hydrocarbons and their Our main tool for Group-wide centralized liquidity derivatives, as well as foreign currency exchange rates, management is a global liquidity management system of challenges of energy demand recovery, and other exogenous factors could cause discrepancies in our plans, budgets, and investment programs, thus leading to a shortage of liquidity operational and strategic management of LUKOL and financing sources.

LUKOIL Group comprising automatic cash concentration and disbursement, and corporate dealing. As part of the Group's consolidated cash balance, we regularly forecast consolidated cash flows and cash position in the mid- and long-term, and continuously monitor liquidity ratios, assessing the sensitivity of the figures laid out in our plans, budgets, and investment programs in relation to macroeconomic changes. If necessary, we adjust plans, reduce spending in transitioning to the stress scenario, shift payment and project implementation dates, include optional projects in the current plan if the macroeconomic situation improves, as well as ensure timely financing of our business activities. Currently, PJSC "LUKOIL" has investment-grade ratings from three major international rating agencies - S&P (BBB), Fitch (BBB+), and Moody's (Baa2). We regularly monitor our financials to ensure they meet the requirements of rating agencies. Our Treasury also maintains revolving credit lines to provide sufficient li- quidity in a volatile market environment.

Risk description	Risk management
The bulk of our revenues is derived from oil and petroleum We manage FX risks using a comprehensive approach, in- product sales in US dollars, while the majority of operating cluding natural hedging techniques, managing currency and capital expenses are denominated in rubles. Therefore, FX fluctuations could have a significant effect on	balances of monetary assets and obligations.
our financial performance.

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

Risk description	Risk management

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Risk description	Risk management
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Risk description	Risk management

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LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

Risk description

Risk management

LUKOL Group operates in several countries with a high risk Given the specific situation in each of the countries of our of terrorism and other criminal acts made against the presence, we mitigate these risks by: Group's assets. The risk of wrongful acts against our employees and assets may also increase as a result of various destabilizing factors, including social degradation caused by the epidemic. We are also exposed to the risks of unlawful competitive practices, including unfair competition, financial abuse or other kinds of abuse by employees, embezzlement, and theft of moneys or tangible assets.

· ensuring sufficient and adequate engineering, spe- cial and physical protection of our personnel and fa- cilities in compliance with local statutory require- ments, interacting with local competent bodies to prevent possible terrorist and criminal acts against the LUKOIL. In Russia, we participate in events or- ganized by the National Anti-Terrorism Committee to enhance anti-terrorist security of our facilities; · identifying employees who may damage the inter- ests of PJSC "LUKOIL" through act or omission; and · planning and hosting events aimed at strengthening information security.

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Risk description	Risk management

-

-

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Risk description	Risk management
When implementing our investment projects, we face risks of We manage this risk by tracking the progress of all our cost overruns and delays in commissioning production facili- projects on a quarterly basis. The availability of initial per- ties. Project delays including delays related to preparing design documentation and cost estimates, obtaining permits, enter- ing into contracts, failing to meet deadlines, and changing field development roadmaps based on new geological data may lead to a deterioration in operating performance in fu- ture years and a decrease in investment project efficiency. Given the deteriorating macro environment and the risk of further COVID-19 spread, the additional risks of non-delivery of the investment program include a potentially weaker fi- nancial position or bankruptcy of contractors and our inabil- ity to contract out a part of the work due to epidemic-related restrictions.	mits for the coming year is monitored when drafting the investment program. The Company has put in place an Integrated Project Man- agement System aimed at ensuring quality decision-mak- ing and predictability of large-scale CAPEX projects, and works to improve it. We are also flexible in managing our investment activities. Given the unstable macro environment, we have made it possible to adjust the approved investment program dur- ing the year.
Furthermore, as the Company is part of the global supply chain, a lasting epidemiological crisis may cause a delay in the

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

Risk description	Risk management

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Insufficient skills or qualifications of personnel may have an To mitigate this risk, we focus on the comprehensive de- adverse effect on our financial performance.	Risk description	Risk management
and developing talent.		velopment of our talent pool. LUKOIL's talent manage- ment strategy is aligned with its development strategy and the staffing demand of its business segments based on planning and budgeting processes that enable the workforce to be efficiently reallocated through insourc- ing as well as flexible recruitment, professional training,

Risk description	Risk management

Risk description

Risk management

In addition to cyber risks threatening the confidentiality, in- In addressing risks related to running projects that build tegrity, and availability of information in the IT systems used and upgrade IT systems, we apply and improve modern by the issuer, the information technology used to supportits development practices and focus on management and financial activities is exposed to risks not proventechnical solutions with reliable technical support. related to a breach of information security. These risks in- clude the failure of projects aimed at the building and upgrad- ing of IT systems, faults and failures in IT systems, an inability to obtain IT services from external suppliers (due to ex- tended international sanctions as well), and the loss of our market share caused by a lag in deploying innovative digital technology.

In addition to preventive measures aimed at mitigating risks, including the creation of a resilient IT infrastruc- ture, testing IT systems prior to their commissioning, and monitoring changes, we also pay close attention to plan- ning proactive actions upon a risk's occurrence to re- sume critical business operations and decision-making processes before the resulting impact becomes unac- ceptable. We mitigate risks related to external suppliers' participa- tion in our IT services through our robust supplier selec- tion and monitoring processes, as well as building internal skills for developing the most critical IT services for the Group. Sanction risk management activities are also in progress, and an action plan to respond to the toughened sanction regime has been prepared. We have included digitalization initiatives into our IT Strategy.

kisk description	Risk management
e Company's securities are traded both on the domestic We keep track of changes made to listing rules and other d foreign regulated markets. Changes to issuer require- requirements of stock exchanges and regulatory bodies. ents brought in by regulatory authorities and stock ex- hanges may require us to modify our corporate governance amework and adopt additional obligations in information sclosure and shareholder relations. Failure to comply with suer requirements or meet obligations in a timely manner ould cause a change of listing level for the Company's secu- ties or delisting, potentially having an adverse effect on eir liquidity and value.	Our representatives participate in workshops and other events for issuers organized by stock exchanges and other organizations providing consulting and informa- tional services to issuers. We also strive to implement in- ternational best practices of corporate governance.

Risk description

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

APPENDIX 3

ПРИЛОЖЕНИЕ 3

Major and Interested Party Transactions

Крупные сделки и сделки, в совершении которых имеется заинтересованность

2.	Price	Not more than USD 1,000,000 - Insurance premium for coverage A, B and C.
ന്	Names of parties	PJSC "LUKOIL" (Policyholder)
		Ingosstrakh Insurance Company (Insurer)
র্ব	Names of beneficiaries	Under Cover A - the sole executive body, members of governing bodies, employees of PJSC "LUKOIL" and/or subsidiaries of PJSC "LUKOIL", and/or other organisations with the participation of PJSC "LUKOIL" and/or its subsidiary based on whose proposals the sole executive body and/or members of governing bodies of such organisations were elected (hereinafter, the Insured Person).
		Under Cover B - PJSC LUKOIL®, subsidiaries of PJSC LUKOIL", other organisations with the participation of PJSC "LUKOIL" and/or its sub- sidiary based on whose proposals the sole executive body and/or members of governing bodies of such organisations were elected (hereinafter, the Company for the purposes of Cover B).
		Under Cover C - PJSC "LUKOIL", subsidiaries of PJSC "LUKOIL" (hereinafter the "Company").
		The above parties are collectively named the Insured Party.
ແກ່	Name of the transaction	Contract (Policy) on Directors, Officers and Companies Liability In- surance (hereinafter the "Policy").
	6. Subject of the transaction	The Insurer undertakes, for the payment stipulated in the Policy (In- surance Premium), to pay the insurance coverage (indemnification) under the Policy to (as the case may be) the respective Insured Party and/or any other person entitled to such indemnification should any insured event specified in the Policy occur, within the in- surance premium (liability limit) determined by the Policy.
		An insured event for the purposes of Cover A in respect of cover for the liability of any Insured Person for any Loss incurred by any third parties shall be deemed to be the onset of all of the following circumstances: (a) the liability of any Insured Person arising at any time prior to or during the Policy Period pursuant to applicable law as a consequence of the incurrence by any third parties of any Loss in connection with any Wrongful Act of the Insured Person, and (b) any Claim made against such Insured Person during the Period of Insurance (means the effective period during which the insurance set forth in the Policy shall be valid, starting from the first day of the Policy Period and ending on the expiry date of the Policy Period or, if there is a Discovery Period (a 60-day the period immediately following the expiry of the Policy Period or early termination/can- cellation of the Policy, during which written notice may be given to the Insurer of any Claim first made during such period or during the Policy Period in connection with any Wrongful Act committed prior to the end of the Policy Period), ending on the expiry date of the Discovery Period). An insured event shall be deemed to have oc- curred upon the Claim being made subject to subsequent confirma- tion by the Insurer that the insured event has occurred or to a rul- ing that such insured event has occurred by a court, arbitral court, arbitral tribunal or other similar competent body/institution. The Policy also covers any Loss incurred by any Insured Person and/or which any Insured Person will incur subsequent to the Period of In- surance relating to liability for Loss incurred by any third parties

	8. Other material terms of the transaction	The policy is effective from 19 July 2020 through 18 July 2021.
		The insurance premium (liability limit) is at least USD 50,000,000 (total aggregate limit for coverage A. B and C, including legal defense costs).
		The insurance premium will be paid in roubles at the exchange rate determined by the Parties as of the date the Policy is signed, pursu- ant to the terms of the Policy.

1. Reference Number of the transaction 1
2.1. Price (amount in US dollars)	The approximate interest fee to maturity of the Loan Agreement is USD 29,242,628.77.
2.2. Price (amount in roubles)	The approximate interest fee to maturity of the Loan Agreement is RUB 1,828,541,576.93.
3. Names of parties	PJSC "LUKOIL" (Lender) 000 "TsentrCaspneftegaz" (Borrower)
4. Names of beneficiaries
5. Name of transaction	Supplemental Agreement to Loan Agreement No.0710253 of 09.04.2007 (hereinafter the "Agreement").
6. Subject of the transaction	In accordance with the Agreement and the Supplemental Agreements thereto, the Lender provides the Borrower with a special-purpose loan in an amount of up to RUB 1,920,000,000,000, and the Borrower un- dertakes to repay the funds received and to pay interest thereon by the dates and pursuant to the procedure indicated in the Agreement.
	In accordance with the Supplemental Agreement to the Loan Agree- ment:
	1. Point 4.1 of the Agreement shall be revised to extend the Loan through 25.12.2020, with the early repayment option.
	2. From 01.01.2020, the interest rate under the Agreement and point 5.1 of the Agreement shall be revised whereby the Borrower shall pay the Lender an interest on the loan amount received, based on 110 per- cent of the Bank of Russia reference rate effective on the interest accrual date for the entire term of the actual use of borrowed funds under the Agreement.
such	7. Interested party, basis for being recognised as Iya Emmanuilovich Mandrik, a member of the Management Committee of PJSC "LUKOIL", is simultaneously a member of the Board of Direc- tors of 000 "Tsentr Caspneftegaz".
8. Other material terms of the transaction	The Supplemental Agreement enters into force from the date of its signing and applies to the legal relations between the Parties arising from 24.12.2019, except Point 1.2 of the Supplemental Agreement. Point 1.2 of the Supplemental Agreement applies to the legal relations between the Parties arising from 01.01.2020.
1. Reference Number of the transaction 2
2.1. Price (amount in US dollars)	The approximate interest fee to maturity of the Loan Agreement is USD 29,588,014.82.
2.2. Price (amount in roubles)	The approximate interest fee to maturity of the Loan Agreement is RUB 1,850,138,566.56.
3. Names of parties	PJSC "LUKOIL" (Lender)
	000 "TsentrCaspneftegaz" (Borrower)
4. Names of beneficiaries
5. Name of transaction	Supplemental Agreement to Loan Agreement No. 0810300 of 29.04.2008 (hereinafter the "Agreement").

6. Subject of the transaction	In accordance with the Agreement and the Supplemental Agreements thereto, the Lender provides the Borrower with a special-purpose loan in an amount of RUB 2,346,217,000, and the Borrower under- takes to repay the funds received and to pay interest thereon by the dates and pursuant to the procedure indicated in the Agreement.
	In accordance with the Supplemental Agreement to the Loan Agree- ment:
	1. From 01.01.2020, the interest rate under the Agreement and point 2.1 of the Agreement shall be revised whereby the Borrower shall pay the Lender an interest on the loan amount received, based on 110 per- cent on the Bank of Russia reference rate effective on the interest accrual date for the entire term of the actual use of borrowed funds under the Agreement.
	2. Point 3.1 of the Agreement shall be revised to extend the Loan through 25.12.2020, with the early repayment option.
7. Interested party, basis for being recognised as such	llya Emmanuilovich Mandrik, a member of the Management Committee of PJSC "LUKOIL", is simultaneously a member of the Board of Direc- tors of 000 "Tsentr Caspneftegaz".
8. Other material terms of the transaction	The Supplemental Agreement enters into force from the date of its signing and applies to the legal relations between the Parties arising from 24.12.2019, except Point 1.1 of the Supplemental Agreement. Point 1.1 of the Supplemental Agreement applies to the legal relations be- tween the Parties arising from 01.01.2020.

1. Reference Number of the transaction 3
2.1. Price (amount in US dollars)	Credit line of USD 500,000,000, plus interest of no more than USD 15,424,400.
2.2. Price (amount in roubles)	Credit line of RUB 38,605,000,000, plus interest of no more than RUB 1,190,917,924.
3. Names of parties	PJSC "LUKOIL" (Guarantor)
	CITIBANK N.A., LONDON BRANCH (Bank)
4. Names of beneficiaries	LUKINTER FINANCE B.V. (Principal)
5. Name of transaction	Corporate Guarantee for Specific Liabilities (hereinafter - Guarantee).
6. Subject of the transaction	Pursuant to the Guarantee, the Guarantor irrevocably and uncondi- tionally guarantees to the Bank the due and punctual performance by the Principal of all the Principal's obligations totaling USD 500,000,000 under the Facility Agreement signed between the Principal and the Bank (the Facility Agreement), plus all accrued inter- est, penalties, fees, documented costs, expenses and other amounts payable (or stated to be payable) to the Bank under or in connection with the Facility Agreement.
such	7. Interested party, basis for being recognised as Alexander Kuzmich Matytsyn, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously the Chairman of the Supervi- sory Board of LUKINTER FINANCE B.V.
	Liubov Nikolaevna Khoba, a member of the Board of Directors of PJSC "LUKOIL" and the spouse of Alexander Kuzmich Matytsyn, the Chairman of the Supervisory Board of LUKINTER FINANCE B.V.
8. Other material terms of the transaction	Interest rate: LIBOR + 2 percent per annum. This Guarantee and any non-contractual obligations arising out of or in connection with it shall be governed by, and construed in accordance with, English law.

1. Reference Number of the transaction 4
2.1. Price (amount in US dollars)	Credit line of USD 500,000,000, plus interest of no more than USD 15,424,400; the fee of no more than USD3,750,000.
2.2. Price (amount in roubles)	Credit line of RUB 38,605,000,000, plus interest of no more than RUB 1,190,917,924; the fee of no more than RUB 289,537,500.
3. Names of the parties	PJSC "LUKOIL" (Guarantor)
	LUKINTER FINANCE B.V. (Debtor)
4. Name of the beneficiary
5. Name of the transaction	Contract of Indemnification (hereinafter the "Contract").
6. Subject of the transaction	The Parties signed the Contract in connection with the Corporate Guarantee for Specific Liabilities issued by the Guarantor (the Guar- antee) as a guarantee to CITIBANK N.A., LONDON BRANCH. (the "Bank") for meeting the Debtor's liabilities worth USD 500,000,000 under the Facility Agreement, plus interest, penalties, forfeits, fines and other amounts due and payable (the Facility Agreement). The Parties have agreed to deem the amount paid by the Guarantor to the Bank in ful- fillment of obligations under the Guarantee the amount payable by the Debtor to the Guarantor plus interest for the use of funds on the terms, within the deadlines and in accordance with the procedure de- fined by the Contract.
7. Interested parties, basis for being recognised as such	Alexander Kuzmich Matytsyn, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously the Chairman of the Supervi- sory Board of LUKINTER FINANCE B.V.
	Liubov Nikolaevna Khoba, a member of the Board of Directors of PJSC "LUKOIL" and the spouse of Alexander Kuzmich Matytsyn, the Chairman of the Supervisory Board of LUKINTER FINANCE B.V.
8. Other material terms of the transaction	The Debtor undertakes obligation to pay a remuneration to the Guar- antor for the provision of services to ensure the obligation of the Debtor by the Guarantee.
	The service charge for providing guarantee for the Debtor's liabilities shall be 0.75% per annum of the liabilities to the Bank covered by the surety of the Debtors's obligations to the Bank under the Facility
	late the amount of payment for the surety of the Borrower's perfor- mance.
	Agreement, calculated for each day of the settlement period. The rate specified above shall remain unchanged throughout the term of the Agreement, unless otherwise duly agreed in writing by the Parties. The actual number of days in a year (365/366) shall be used to calcu- The Debtor shall pay the Guarantor an interest at LIBOR 3M+3% per annum on the funds transferred by the Guarantor to the Bank. LIBOR 3M shall mean for any payment the London Inter-Bank offered USD deposit rate administered by ICE Benchmark Administration Limited (or any other person which takes over the administration of that rate) with a three-months maturity as of 15:00 Moscow time for two (2) business days before the Guarantee obligations are executed by the Guarantor.
1. Reference Number of the transaction 5
2.1. Price (amount in US dollars)	Credit line of USD 200,000,000,000, plus interest of no more than USD 12,780,520.
2.2. Price (amount in roubles)	Credit line of RUB 15,546,000,000, plus interest of no more than RUB 993, 429, 819.60.
3. Names of the parties	PJSC "LUKOIL" (Guarantor)

4. Name of the beneficiaries	LUKINTER FINANCE B.V. (Borrower).
5. Name of the transaction	Confirmation and Amendment Deed to Deed of Guaranty No. 1810371 of 07.06.2018 (hereinafter - the Guarantee).
6. Subject of the transaction	Under the Guarantee the Guarantor unconditionally and irrevocably guarantees the Lender the due and timely fulfilment of all of the obli- gations undertaken by the Borrower under the Facility Agreement signed between the Lender and the Borrower (the Facility Agree- ment), for the amount of USD 200,000,000 plus all accrued interest, penalties, fees, documented costs, expenses and other amounts pay- able (or stated to be payable) to the Lender under the Facility Agree- ment or in connection with it.
	Pursuant to the Confirmation and the Amendment Deed to the Guar- antee the Guarantor confirms its obligations under the Guarantee in connection with Supplemental Agreement No.1 to the Facility Agree- ment, providing for the extension of the validity of the Facility Agree- ment for two years from the date the Supplemental Agreement No. 1 is signed and appoints LUKOIL Capital Markets Limited, as its agent for service of process in relation to any proceedings commenced in accordance with this Guarantee.
7. Interested parties, basis for being recognised as such	Alexander Kuzmich Matytsyn, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously the Chairman of the Supervi- sory Board of LUKINTER FINANCE B.V.
	Liubov Nikolaevna Khoba, a member of the Board of Directors of PJSC "LUKOIL" and the spouse of Alexander Kuzmich Matytsyn, the Chairman of the Supervisory Board of LUKINTER FINANCE B.V.
8. Other material terms of the transaction	This Confirmation and Amendment Deed to Deed of Guaranty and any non-contractual obligations arising out of or in connection with it are governed by English law.
1. Reference Number of the transac- tion	5
2.1. Price (amount in US dollars)	Credit line of USD 200,000,000, plus interest of no more than USD 12,780,520; the fee of no more than USD 3,000,000.
2.2. Price (amount in roubles)	Credit line of RUB 15,546,000,000, plus interest of no more than RUB 993,429,819.60; the fee of no more than RUB 233,190,000.
3. Names of the parties	PJSC "LUKOIL" (Guarantor)
	LUKINTER FINANCE B.V. (Borrower)
4. Name of the beneficiary
5. Name of the transaction	The Supplemental Agreement to the Contract of Indemnification No.1810361 of 07.06.2018 (hereinafter the "Contract").

APPENDIX 1

APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4 APPENDIX 5 LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

6. Subject of the transaction	The Parties have entered into the Contract in connection with the Deed of Guarantee (hereinafter - the Guarantee) to be signed by the Guarantor and UNICREDIT S.P.A. (the Bank) to ensure the Borrower's obligations before the Bank under the Facility agreement entered into on the date of the Deed (or a date close thereto) to the total amount of USD 200,000,000 (hereinafter - the Facility Agreement) plus all interest, forfeits, fines, penalties and other guaranteed amounts pay- able. The Parties have agreed that the amount paid by the Guarantor to the Bank in fulfillment of obligations under the Guarantee shall be deemed the amount payable by the Debtor to the Guarantor plus the interest for using the money on the terms and conditions, by the deadlines and in accordance with the procedure determined by the Contract.
	Under the Supplemental Agreement to the Contract and in connection with the extension of the validity of the Deed of Guarantee No. 1810371 of 07.06.2018 by the Confirmation and Amendment Deed to the Guar- antee Clause 3.2 of the Article 3 of the Contract is being revised to stipulate that the cost of the Guarantee Service for the Debtor's ob- ligation amounts to 0.75% per annum of the amount of the Debtor's obligations to the Bank under the Facility Agreement covered by the Guarantee and calculated for each day of the reporting period. The said rate shall not change during the validity of the Contract unless duly stipulated by the Parties in writing. In calculating the amount pay- able for the Guarantee Service provided the actual number of days in a year shall be used (365/366).
7. Interested parties, basis for being recognised as such	Alexander Kuzmich Matytsyn, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously the Chairman of the Supervi- sory Board of LUKINTER FINANCE B.V.
	Liubov Nikolaevna Khoba, a member of the Board of Directors of PJSC "LUKOIL" and the spouse of Alexander Kuzmich Matytsyn, the Chairman of the Supervisory Board of LUKINTER FINANCE B.V.
8. Other material terms of the transaction	The Contract shall enter into force from the date of signing by the Parties.
1. Reference Number of the transaction
2.1. Price (amount in US dollars)	approximate amount of the transaction will be The USD 2,517,923,972.60 (loan amount - up to USD 2,500,000,000, ac- crued interest of not more than USD 17,923,972.60).
2.2. Price (amount in roubles)	The approximate amount of the transaction will be RUB 179,024,394,451.86 (loan amount) - up to RUB 177,750,000,000, accrued interest of not more than RUB 1,274,394,445.86).
3. Names of the parties	LUKINTER FINANCE B.V. (Lender)
	PJSC "LUKOIL" (Borrower)
4. Name of the beneficiaries
5. Name of the transaction	Loan Agreement (hereinafter the "Agreement").
6. Subject of the transaction	Pursuant to this Agreement, the Lender agrees to provide a USD 2,500,000,000 (two billion five hundred million) special-purpose loan facility to the Borrower on a revolving basis under the terms and conditions of Agreement, while the Borrower undertakes to repay the amount received along with the interest within the timeline and in line with the procedure specified in the Agreement. The loan may be pro- vided in full or in parts upon the Borrower's instructions. The loan shall be repayable, subject to a term, interest, and purpose.

7. Interested parties, grounds for being recognised as such, interested parties' equity share in the charter (joint stock) capital (percentage of the shares that belonged to the interested parties) of PJSC "LUKOIL" and the legal entity, a party to the transaction as of the transaction date]	Alexander Kuzmich Matytsyn, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously the Chairman of the Supervi- sory Board of LUKINTER FINANCE B.V., interested party's equity share in the charter capital of PJSC "LUKOIL" - 0.39%, interested party's eq- uity share in the charter capital of LUKINTER FINANCE B.V. - O%. Liubov Nikolaevna Khoba, a member of the Board of Directors of PJSC "LUKOIL" and the spouse of Alexander Kuzmich Matytsyn, the Chairman of the Supervisory Board of LUKINTER FINANCE B.V., inter- ested party's equity share in the charter capital of PJSC "LUKOIL" - O.44%, interested party's equity share in the charter capital of LUKINTER FINANCE B.V. - O%.
8. Other material terms of the transaction	The loan funds shall be provided to finance the Borrower's activities according to its Articles of Association. The Borrower shall not utilize the loan funds for any purposes other than those specified in Agree- ment. The Borrower shall pay to the Lender the interest at the rate of LIBOR + 0.83% per annum. The interest shall accrue on the Borrower's actual debt on a monthly basis.
	The loan shall be repaid on or before 31.12.2020, with the right of early repayment. If neither Party notifies the other in writing to the con- trary on or before December 30, the term of the Loan shall be auto- matically extended to December 31 of the following year.
	This Agreement becomes effective the moment the funds are trans- ferred to the Borrower, and shall cease to be in force the moment the Parties have performed their respective obligations.
	This Agreement shall be governed by and construed in accordance with the law of the Russian Federation (without regard to conflict of law principles).
1. Reference Number of the transaction 8

2.1. Price (amount in US dollars	Credit line of USD 200,000,000, plus interest of no more than USD 10,960,000.
2.2. Price (amount in roubles)	Credit line of RUB 15,122,000,000, plus interest of no more than RUB 828,685,600.
3. Names of the parties	PJSC "LUKOIL" (Guarantor) CITIBANK N.A., LONDON BRANCH (Lender)
4. Name of the beneficiaries	LUKINTER FINANCE B.V. (Borrower).
5. Name of the transaction	Amended Facility Agreement – Second Guarantee Confirmation and Second Amendment to the Guarantee No.1710237 of 12.04.2017 in con- nection with amendment to the Facility Agreement (Guarantee Con- firmation).

6. Subject of the transaction	In accordance with the Guarantee No.1710237 of 12.04.2017 (hereinaf- ter, the Guarantee), the Guarantor shall guarantee performance of the Borrower's obligations to the Lender under the Facility Agree- ment dated 12 April 2017 (hereinafter, the "Facility Agreement") for the principal amount of debt of USD 250,000,000, plus all accrued inter- est, penalties, fees, documented costs, expenses and other amounts due and payable to the Lender.
	According to the Guarantee Confirmation:
	1) the Guarantor confirms its consent to the amendments made by the Amendment Letter to the Facility Agreement, which provide for:
	- reduction of the loan amount to USD 200,000,000;
	- reduction of the Commitment Fee Rate for using the credit line limit to 0.5% per annum;
	- extension of the term of the Facility Agreement for 2 years from the date of signing the specified Amendment Letter;
	2) the Guarantee shall be amended as follows:
	- the definition of the term "Facility Agreement" in point 1.1 shall be revised to reduce the loan amount from USD 250,000,000 to USD 200,000,000;
	- Sub-point (b) of point 2.8 (Term and Amount of Guarantee) of the Guarantee shall be amended by replacing "USD 250,000,000" with "USD 200,000,000";
	3) the Guarantor confirms that its obligations under the Guarantee shall remain in full force and effect, subject to the above changes.
7. Interested parties, basis for being recognised as such	Alexander Kuzmich Matytsyn, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously the Chairman of the Supervi- sory Board of LUKINTER FINANCE B.V.
	Pavel Vladimirovich Zhdanov¹ , a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously a Member of the Supervisory Board of LUKINTER FINANCE B.V.
	Liubov Nikolaevna Khoba, a member of the Board of Directors of PJSC "LUKOIL" and the spouse of Alexander Kuzmich Matytsyn, the Chairman of the Supervisory Board of LUKINTER FINANCE B.V.
8. Other material terms of the transaction	Guarantee Confirmation shall be governed by, and construed in ac- cordance with English law. Any dispute shall be referred to and finally resolved by arbitration under the LCIA Rules.
1. Reference Number of the transaction 9
2.1. Price (amount in US dollars)	Credit line of USD 200,000,000,000, plus interest of no more than USD 10,960,000; the fee of no more than USD 3,000,000.
2.2. Price (amount in roubles)	Credit line of RUB 15,122,000,000, plus interest of no more than RUB 828,685,600; the fee of no more than RUB 226,830,000.
3. Names of the parties	PJSC "LUKOIL" (Guarantor)
	LUKINTER FINANCE B.V. (Debtor)
4. Name of the beneficiaries
5. Name of the transaction	Supplemental Agreement to the Indemnity Agreement No.1710198 of 12 April 2017 (hereinafter the Agreement).

6. Subject of the transaction	The Parties signed the Agreement in connection with the Deed of Guarantee No.1710237 of 12 April 2017 (hereinafter, the Guarantee) is- sued by the Guarantor as a guarantee to CITIBANK N.A., LONDON BRANCH (the "Bank") for meeting the Debtor's liabilities worth USD 250,000,000 under the Facility Agreement between the Debtor and the Bank, plus interest, penalties, forfeits, fines and other amounts due and payable (the Facility Agreement). The Parties have agreed to deem the amount paid by the Guarantor to the Bank in ful- fillment of obligations under the Guarantee the amount payable by the Debtor to the Guarantor plus interest for the use of funds on the terms, within the deadlines and in accordance with the procedure de- fined by the Agreement. The Debtor undertakes to pay the Guarantor a fee for the service of providing the Guarantee for the Debtor's ob- ligation amounting to 1% per annum of the amount of the Debtor's ob- ligations to the Bank covered by the Guarantee under the Facility Agreement and calculated for each day of the reporting period.
	In accordance with the Supplemental Agreement to the Agreement:
	- due to reduction of the loan amount to USD 200,000,000 and ex- tension of the validity period of the Guarantee in point 1.1. of the Agreement shall be revised to replace "USD 250,000,000" with "USD 200,000,000".
	- point 3.2 of the Agreement shall be revised to stipulate that the cost of the service of the Guarantee for the Debtor's obligation shall amount to 0.75% per annum of the amount of the Debtor's obligations to the Bank under the Facility Agreement and calculated for each day of the reporting period. The said rate shall not change during the va- lidity of the Agreement unless duly stipulated by the Parties in writing. In calculating the amount payable for the Service provided the actual number of days in a year shall be used (365/366).
7. Interested parties, basis for being recognised as such	Alexander Kuzmich Matytsyn, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously the Chairman of the Supervi- sory Board of LUKINTER FINANCE B.V.
	Pavel Vladimirovich Zhdanov, a member of the Management Commit- tee of PJSC "LUKOIL", is simultaneously a Member of the Supervisory Board of LUKINTER FINANCE B.V.
	Liubov Nikolaevna Khoba, a member of the Board of Directors of PJSC "LUKOIL" and the spouse of Alexander Kuzmich Matytsyn, the Chairman of the Supervisory Board of LUKINTER FINANCE B.V.
8. Other material terms of the transaction	Supplemental Agreement shall become effective upon being signed by the Parties.

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

APPENDIX 4

ПРИЛОЖЕНИЕ 4

Transactions with PJSC LUKOIL Ordinary Shares by Members of the Board of Directors and Management Committee of PJSC LUKOIL

Сделки с акциями, совершенные членами Совета директоров и Правления ПАО «ЛУКОЙЛ»

	11.03.2020	200 ,000
	24.07.2020	50 ,000
	24.07.2020	20 ,000
	28.08.2020	3 ,000
	24.07.2020	25 ,000
	05.06.2020	549
	05.06.2020	13 ,180
	24.07.2020	20 ,000
	24.07.2020	20 ,000
	24.07.2020	30 ,000
	24.07.2020	20 ,000
	24.07.2020	20 ,000
	24.07.2020	25 ,000
	24.03.2020	10 ,000
	24.07.2020	20 ,000
	24.07.2020	15 ,000
	24.07.2020	20 ,000
	24.07.2020	20 ,000
	24.07.2020	20 ,000
	24.07.2020	20 ,000
	24.07.2020	20 ,000
	24.07.2020	20 ,000

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

11.03.2020 200,000 24.07.2020 50,000 24.07.2020 20,000 28.08.2020 3,000 24.07.2020 25,000 05.06.2020 549 05.06.2020 13,180 24.07.2020 20,000 24.07.2020 20,000 24.07.2020 30,000 24.07.2020 20,000 24.07.2020 20,000 24.07.2020 25,000 24.03.2020 10,000 24.07.2020 20,000 24.07.2020 15,000 24.07.2020 20,000 24.07.2020 20,000 24.07.2020 20,000 24.07.2020 20,000 24.07.2020 20,000 24.07.2020 20,000

APPENDIX 5

Consolidated Financial Statements and Management's Discussion and Analysis of Financial Condition and Results of Operations

Please refer to the Note 13 in the consolidated financial statements.
The key audit matter	How the matter was addressed in our audit
Due to continuing volatility in prices for oil and oil products, caused by COVID-19 and the decline in oil extraction, there is a risk of impairment of the Group's PP&E, which are material to the consolidated financial statements as at 31 December 2020. Because of inherent uncertainty the involved in forecasting and discounting future cash flows, which are the basis of the assessment of impairment, this is one of the key judgmental areas that our audit is concentrated on.	In this area our audit procedures included testing of the principles and integrity of the Group's discounted cash flow models. We used our own valuation specialists to assist us in evaluating the assumptions and methodologies used by the Group. We assessed management's macroeconomic assumptions, which include both short-term and long-term views on commodity prices, inflation rates and interest rates. We compared the short-term price assumptions used by management to the market forward curves. We also compared the short and long-term assumptions to views published by brokers, economists, consultancies and respected industry bodies. We compared the volumes of oil and gas reserves and resources used in the impairment test to the volumes estimated by reservoir engineers. Analyzing the exploration and evaluation assets for impairment, we considered the license terms, the management's plans to conduct further exploration and evaluation works in the respective areas and the expenditures for exploration and evaluation, included in the approved investment programs. We also considered the adequacy of the PP&E impairment disclosure included in the consolidated financial statements.

The key audit matter	How the matter was addressed in our audit
The estimate of oil and gas reserves and resources has a significant impact on the consolidated financial statements. particularly impairment testing and depreciation, depletion and amortization (DD&A) charges. The volumes of oil and gas are mainly used by the	In this area our audit procedures included the assessment of the competence, capabilities and objectivity of reservoir engineers, to satisfy ourselves they were appropriately qualified to carry out the volumes estimation. Where volumetric movements had a material impact on the consolidated financial statements, we validated these volumes against underlying information and documentation, along with checking that assumptions used to estimate reserves and resources were made in compliance with relevant

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-

-

PJSC LUKOIL

Current assets

Liabilities and equity Current liabilities

Assets

(Millions of Russian rubles)

Consolidated Statement of Financial Position

Equity 24

Treasury shares (including obligation to repurchase common

The accompanying notes are an integral part of these consolidated financial statements.

President of PJSC LUKOIL Chief accountant of PJSC LUKOIL

Alekperov V.Y. Verkhov V.A.

7

Note 31 December 2020 31 December 2019

Cash and cash equivalents 6 343,832 516,032 Accounts receivable, net 7 370,271 437,052 Other current financial assets 8 8,350 49,706 Inventories 9 426,536 413,910 Prepaid taxes 10 78,822 95,075 Other current assets 11 48,649 42,412 Total current assets 1,276,460 1,554,187 Property, plant and equipment 13 4,264,474 4,026,007 Investments in associates and joint ventures 12 281,637 220,004 Other non-current financial assets 14 68,692 38,231 Deferred income tax assets 29 16,298 28,673 Goodwill and other intangible assets 16 50,159 43,108 Other non-current assets 33,859 36,840 Total non-current assets 4,715,119 4,392,863 Total assets 5,991,579 5,947,050

Accounts payable 17 597,932 607,734 Short-term borrowings and current portion of long-term debt 18 82,636 130,300 Taxes payable 20 142,458 142,471 Provisions 22, 23 27,136 37,232 Other current liabilities 21 35,497 168,952 Obligation to repurchase common shares 24 - 120,988 Total current liabilities 885,659 1,207,677 Long-term debt 19 577,075 422,932 Deferred income tax liabilities 29 268,956 264,159 Provisions 22, 23 126,665 77,045 Other non-current liabilities 2,458 1,788 Total non-current liabilities 975,154 765,924 Total liabilities 1,860,813 1,973,601

Share capital 938 968

shares) (71,920) (308,160) Additional paid-in capital 39,298 39,277 Other reserves 296,641 30,141 Retained earnings 3,858,057 4,203,138 Total equity attributable to PJSC LUKOIL shareholders 4,123,014 3,965,364 Non-controlling interests 7,752 8,085 Total equity 4,130,766 3,973,449 Total liabilities and equity 5,991,579 5,947,050

PJSC LUKOIL Consolidated Statement of Financial Position (Millions of Russian rubles)

	Note	31 December 2020	31 December 2019
Assets
Current assets
Cash and cash equivalents	6	343,832	516,032
Accounts receivable, net	7	370,271	437,052
Other current financial assets	8	8,350	49,706
Inventories	9	426,536	413,910
Prepaid taxes	10	78,822	95,075
Other current assets	11	48,649	42,412
Total current assets		1,276,460	1,554,187
Property, plant and equipment	13	4,264,474	4,026,007
Investments in associates and joint ventures	12	281,637	220,004
Other non-current financial assets	14	68,692	38,231
Deferred income tax assets	29	16,298	28,673
Goodwill and other intangible assets	16	50,159	43,108
Other non-current assets		33,859	36,840
Total non-current assets		4,715,119	4,392,863
Total assets		5,991,579	5,947,050
Liabilities and equity
Current liabilities
Accounts payable	17	597,932	607,734
Short-term borrowings and current portion of long-term debt	18	82,636	130,300
Taxes payable	20	142,458	142,471
Provisions	22, 23	27,136	37,232
Other current liabilities	21	35,497	168,952
Obligation to repurchase common shares	24	-	120,988
Total current liabilities		885,659	1,207,677
Long-term debt	19	577,075	422,932
Deferred income tax liabilities	29	268,956	264,159
Provisions	22, 23	126,665	77,045
Other non-current liabilities		2,458	1,788
Total non-current liabilities		975,154	765,924
Total liabilities		1,860,813	1,973,601
Equity	24
Share capital		938	968
Treasury shares (including obligation to repurchase common shares)		(71,920)	(308,160)
Additional paid-in capital		39,298	39,277
Other reserves		296,641	30,141
Retained earnings		3,858,057	4,203,138
Total equity attributable to PJSC LUKOIL shareholders		4,123,014	3,965,364
Non-controlling interests		7,752	8,085
Total equity		4,130,766	3,973,449
Total liabilities and equity		5,991,579	5,947,050

The accompanying notes are an integral part of these consolidated financial statements.

Alekperov V.Y. Verkhov V.A.

President of PJSC LUKOIL Chief accountant of PJSC LUKOIL

PJSC LUKOIL Consolidated Statement of Profit or Loss and Other Comprehensive Income (Millions of Russian rubles, unless otherwise noted)

	Note	2020	2019
Revenues
Sales (including excise and export tariffs)	33	5,639,401	7,841,246
Costs and other deductions
Operating expenses		(439,973)	(457,710)
Cost of purchased crude oil, gas and products		(3,000,916)	(4,308,073)
Transportation expenses		(292,899)	(278,798)
Selling, general and administrative expenses		(199,027)	(197,172)
Depreciation, depletion and amortisation		(405,440)	(415,094)
Taxes other than income taxes		(569,078)	(928,190)
Excise and export tariffs		(444,300)	(425,763)
Exploration expenses		(6,114)	(9,348)
Profit from operating activities		281,654	821,098
Finance income	26	13,051	25,134
Finance costs	26	(44,122)	(44,356)
Equity share in income of associates and joint ventures	12	11,474	18,246
Foreign exchange (loss) gain		(26,110)	923
Other expenses	27	(137,160)	(27,691)
Profit before income taxes		98,787	793,354
Current income taxes		(61,362)	(144,615)
Deferred income taxes		(20,792)	(6,518)
Total income tax expense	29	(82,154)	(151,133)
Profit for the year		16,633	642,221
Profit for the year attributable to:
PJSC LUKOIL shareholders		15,175	640,178
Non-controlling interests		1,458	2,043
Other comprehensive income (loss), net of income taxes
Items that may be reclassified to profit or loss:
Foreign currency translation differences for foreign operations		268,707	(164,117)
Items that will never be reclassified to profit or loss:
Change in fair value of equity instruments at fair value through other comprehensive income		(767)	(348)
Remeasurements of defined benefit liability / asset of pension plan	23	(1,423)	(1,976)
Other comprehensive income (loss)		266,517	(166,441)
Total comprehensive income for the year		283,150	475,780
Total comprehensive income for the year attributable to:
PJSC LUKOIL shareholders		281,675	473,765
Non-controlling interests		1,475	2,015
Earnings per share
Profit for the year attributable to PJSC LUKOIL shareholders per share of common stock (in Russian rubles):	24
Basic		23.31	963.28
Diluted		22.46	934.73

The accompanying notes are an integral part of these consolidated financial statements.

PJSC LUKOIL Consolidated Statement of Changes in Equity (Millions of Russian rubles)

	Share capital	Treasury shares	Additional paid-in capital	Other reserves	Retained earnings	Total equity attributable to PJSC LUKOIL shareholders	Non controlling interests	Total equity
31 December 2019	968	(308,160)	39,277	30,141	4,203,138	3,965,364	8,085	3,973,449
Profit for the year	-	-	-	-	15,175	15,175	1,458	16,633
Other comprehensive
income	-	-	-	266,500	-	266,500	17	266,517
Total comprehensive income				266,500	15,175	281,675	1,475	283,150
Dividends on common stock	-	-	-	-	(258,389)	(258,389)	-	(258,389)
Stock purchased	-	(2,026)	-	-	-	(2,026)	-	(2,026)
Equity-settled share
based compensation plan	-	-	-	-	15,381	15,381	-	15,381
Obligation to repurchase common shares	-	120,988	-	-	-	120,988	-	120,988
Share capital reduction	(30)	117,278	-	-	(117,248)	-	-	-
Changes in non controlling interests	-	-	21	-	-	21	(1,808)	(1,787)
31 December 2020	938	(71,920)	39,298	296,641	3,858,057	4,123,014	7,752	4,130,766
31 December 2018	1,015	(134,810)	39,173	196,554	3,963,628	4,065,560	7,966	4,073,526
Profit for the year	-	-	-	-	640,178	640,178	2,043	642,221
Other comprehensive loss	-	-	-	(166,413)	-	(166,413)	(28)	(166,441)
Total comprehensive (loss) income				(166,413)	640,178	473,765	2,015	475,780
Dividends on common
stock	-	-	-	-	(229,669)	(229,669)	-	(229,669)
Stock purchased	-	(240,767)	-	-	-	(240,767)	-	(240,767)
Equity-settled share based compensation plan	-	-	-	-	17,359	17,359	-	17,359
Obligation to repurchase common shares	-	(120,988)	-	-	-	(120,988)	-	(120,988)
Share capital reduction	(47)	188,405	-	-	(188,358)	-	-	-
Changes in non
controlling interests	-	-	104	-	-	104	(1,896)	(1,792)
31 December 2019	968	(308,160)	39,277	30,141	4,203,138	3,965,364	8,085	3,973,449

The accompanying notes are an integral part of these consolidated financial statements.

PJSC LUKOIL Consolidated Statement of Cash Flows (Millions of Russian rubles)

	Note	2020	2019
Cash flows from operating activities
Profit for the year attributable to PJSC LUKOIL shareholders		15,175	640,178
Adjustments for non-cash items:
Depreciation, depletion and amortisation		405,440	415,094
Equity share in income of associates and joint ventures, net of dividends received		(2,903)	(11,387)
Dry hole write-offs		4,425	7,694
Loss on disposals and impairments of assets		125,535	16,975
Income tax expense		82,154	151,133
Non-cash foreign exchange loss (gain)		26,037	(1,120)
Finance income		(13,051)	(25,134)
Finance costs		44,122	44,356
Allowance for expected credit losses		5,811	9,340
Equity-settled share-based compensation plan		31,366	31,366
All other items, net		5,538	1,823
Changes in operating assets and liabilities:
Trade accounts receivable		128,139	(48,023)
Inventories		37,868	(69,171)
Accounts payable		(69,305)	88,977
Other taxes		10,200	24,053
Other current assets and liabilities		(23,725)	(2,617)
Income tax paid		(57,250)	(148,314)
Dividends received		9,448	6,636
Interests received		11,550	19,985
Net cash provided by operating activities		776,574	1,151,844
Cash flows from investing activities
Acquisition of licenses		(235)	(8,925)
Capital expenditures		(495,443)	(449,975)
Proceeds from sale of property, plant and equipment		657	1,759
Purchases of financial assets		(8,232)	(7,198)
Proceeds from sale of financial assets		12,323	17,774
Sale of subsidiaries, net of cash disposed		17	9,261
Sale of associates		312	259
Acquisitions of interests in the projects and subsidiaries, net of cash acquired		(1,040)	(71,693)
Acquisitions of associates		(1,128)	(1,388)
Net cash used in investing activities		(492,769)	(510,126)
Cash flows from financing activities
Proceeds from issuance of short-term borrowings		1,971	264
Principal repayments of short-term borrowings		(815)	(6,186)
Proceeds from issuance of long-term debt		108,796	-
Principal repayments of long-term debt		(171,980)	(106,625)
Interest paid		(39,100)	(41,589)
Dividends paid on Company common shares		(407,309)	(180,747)
Dividends paid to non-controlling interest shareholders		(3,589)	(4,040)
Financing received from non-controlling interest shareholders		47	297
Purchase of Company's stock		(2,026)	(243,691)
Purchases of non-controlling interest		-	(27)
Net cash used in financing activities		(514,005)	(582,344)
Effect of exchange rate changes on cash and cash equivalents		58,000	(35,992)
Net (decrease) increase in cash and cash equivalents		(172,200)	23,382
Cash and cash equivalents at beginning of year		516,032	492,650
Cash and cash equivalents at end of year	6	343,832	516,032

The accompanying notes are an integral part of these consolidated financial statements.

Note 1. Organisation and environment

The primary activities of PJSC LUKOIL (the "Company") and its subsidiaries (together, the "Group") are oil exploration, production, refining, marketing and distribution. The Company is the ultimate parent entity of this vertically integrated group of companies.

The Group was established in accordance with Presidential Decree No. 1403, issued on 17 November 1992. Under this decree, on 5 April 1993, the Government of the Russian Federation transferred to the Company 51% of the voting shares of fifteen enterprises. Under Government Resolution No. 861 issued on 1 September 1995, a further nine enterprises were transferred to the Group during 1995. Since 1995, the Group has carried out a share exchange program to increase its shareholding in each of the twenty-four founding subsidiaries to 100%.

From formation, the Group has expanded substantially through consolidation of its interests, acquisition of new companies and establishment of new businesses.

Business and economic environment

The accompanying consolidated financial statements reflect management's assessment of the impact of the business environment in the countries in which the Group operates on the operations and the financial position of the Group. The future business environments may differ from management's assessment.

COVID-19

In December 2019, the emergence of a new strain of coronavirus (COVID-19) was reported in China and has subsequently spread globally. On 11 March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Mobility restrictions, quarantines and similar lockdown measures implemented in different countries to cope with the pandemic had a significant negative impact on the global economy. Deceleration of economic activity resulted in a substantial decrease in demand for hydrocarbons leading to oversupply on the international oil market and a sharp decline in oil prices. On 12 April 2020, OPEC+ countries entered into a new agreement to reduce their collective output starting from 1 May 2020. This coordinated production cut together with the negative impact of low oil prices on crude oil production in different countries resulted in lower supply of crude oil, reduction of surplus on the crude oil market and led to a gradual recovery of oil prices. This upward oil price trend was further supported by the start of gradual lifting of lockdowns in different countries, recovery in economic activity and respective growth in demand for hydrocarbons. Acceleration of COVID-19 spread in October 2020 resulted in a renewal of lockdown measures in different countries and a decline in oil prices. However, progress with testing of vaccines against COVID-19 pushed the oil prices up by the end of December 2020. This upward trend continued in the beginning of 2021.

From the beginning of COVID-19 pandemic the Group has taken necessary measures to avoid direct impact of the pandemic on its operations with a special focus on protection of the health of employees and clients and uninterrupted production processes.

The major impact of COVID-19 on the macroeconomic environment in the oil and gas industry resulted in a number of consequences on operational and financial performance of the Group. For example, due to the OPEC+ agreement the Group cut its crude oil production in Russia and at some international projects.

Management has considered the impact of COVID-19 and oil price decline on these consolidated financial statements. Current market conditions create additional estimation uncertainties and impact certain key assumptions in the valuation of assets used for preparation of these consolidated financial statements.

Management believes that the Group is in a solid financial condition as of the end of 2020. This represents an incremental support for continuous operations and meeting all of the Group's obligations, as well as adequate financing of the investment program in any macroeconomic situation. Management will continue monitoring the situation closely to ensure prompt reaction to the rapidly changing environment.

Note 2. Basis of preparation

Statement of compliance

The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS").

These consolidated financial statements have been prepared on a historical cost basis, except certain assets and liabilities measured at fair value.

The consolidated financial statements were authorised by the President of the Company on 10 March 2021.

Functional and presentation currency

The functional currency of each of the Group's consolidated companies is the currency of the primary economic environment in which the company operates. The management has analysed factors that influence the choice of functional currency and has determined the functional currency for each Group company. For the majority of them the functional currency is the local currency. The functional currency of the Company is the Russian ruble ("RUB").

The presentation currency of the Group is the RUB. All financial information presented in the RUB has been rounded to the nearest million, except when otherwise indicated.

The results and financial position of Group companies whose functional currency is different from the presentation currency of the Group are translated into presentation currency using the following procedures. Assets and liabilities are translated at period-end exchange rates, income and expenses are translated at rates which approximate actual rates at the date of the transaction. Resulting exchange differences are recognised in other comprehensive income.

Note 3. Summary of significant accounting policies

Principles of consolidation

These consolidated financial statements include the financial position and results of operations of the Company and controlled subsidiaries. A company controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Investments in companies that the Group does not control, but where it has the ability to exercise significant influence (Group's interests are between 20% and 50%) over operating and financial policies, are accounted for using the equity method. These investments include the Group's interests in associates, joint ventures and investments where the Company owns the majority of the voting interest but has no control. Associates are those entities in which the Group has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement.

Interests in associates and joint ventures are accounted for using the equity method and are recognised initially at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the Group's share of the profit or loss and other comprehensive income of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases. When the Group's share of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest including any long-term investments, is reduced to zero, and the recognition of further losses is discontinued, except to the extent that the Group has an obligation or has made payments on behalf of the investee.

Note 3. Summary of significant accounting policies (сontinued)

Group's share in jointly controlled operations is recognised in the consolidated financial statements based on its share in assets, liabilities, income and expenses. Jointly controlled operations are arrangements in which parties that have joint control over operating or financial policies have respective rights to use assets and responsibility for liabilities in the arrangements.

Certain of Group's unincorporated joint exploration and production activities are conducted through arrangements that are not jointly controlled, either because unanimous consent is not required among all parties involved, or no single group of parties has joint control over the activity. Such activities where control can be achieved through agreement between more than one combination of involved parties are considered to be outside the scope of IFRS 11 Joint Arrangements. In relation to its interests in these arrangements, the Group recognises its share of any assets, liabilities, income and expenses.

Business combinations

For each business combination the Group measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus
• the recognised amount of any non-controlling interests in the acquiree; plus
• if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquire; less
• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The consideration transferred does not include amounts related to the settlement of previous transactions. Such amounts are generally recognised in profit or loss.

Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent consideration is classified as equity, it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.

Non-controlling interests

Non-controlling interests are measured at their proportionate share of the fair value of acquiree's identifiable net assets at the acquisition date.

Changes in the Group's interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated during the process of consolidation. Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group's interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.

Note 3. Summary of significant accounting policies (сontinued)

Foreign currency

Foreign currency transactions

Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the period, adjusted for effective interest and payments during the period, and the amortised cost in foreign currency translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are translated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising in translation are recognised in profit or loss, except for differences arising on the translation of financial assets measured at fair value through other comprehensive income which are recognised in other comprehensive income.

Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the presentation currency at the exchange rates at the reporting date. The income and expenses of foreign operations are translated to the presentation currency at exchange rates at the dates of the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in the foreign currency translation reserve in equity. However, if the foreign operation is a non-wholly owned subsidiary, then the relevant proportionate share of the translation difference is allocated to non-controlling interests. When a foreign operation is disposed of in a way that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate or joint venture that includes a foreign operation while retaining significant influence or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable future, foreign exchange gains and losses arising from such item form part of a net investment in a foreign operation and are recognised in other comprehensive income, and presented in the translation reserve in equity.

Revenues

Revenues are recognised when a customer obtains control of the goods or services which usually occurs when the title is passed, provided that risks and rewards of ownership are assumed by the customer and the customer obtains obligation to pay for the goods or services.

Revenues include excise on petroleum products' sales and duties on export sales of crude oil and petroleum products.

Revenue from the production of oil and natural gas in which the Group has an interest with other producers is recognised based on the Group's working interest and the terms of the relevant production sharing contracts.

Revenues from non-cash sales are recognised at the fair value of the crude oil and petroleum products sold. If the fair value of the non-cash consideration cannot be reasonably estimated, the consideration shall be measured indirectly by reference to the stand-alone selling price of the goods or services promised to the customer in exchange for the consideration.

Note 3. Summary of significant accounting policies (сontinued)

Cash and cash equivalents

Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less.

Financial assets

The Group classifies financial assets into the following categories, as appropriate: measured at amortised cost, fair value through other comprehensive income and fair value through profit or loss.

A financial asset is measured at amortised cost if both of the following conditions are met:

• the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset is measured at fair value through other comprehensive income if both of the following conditions are met:

• the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and
• the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset is measured at fair value through profit or loss unless it is measured at amortised cost or at fair value through other comprehensive income. However, the Company may make an irrevocable election at initial recognition for particular instruments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income.

The Group initially recognises as financial assets loans and receivables on the date when they are originated and debt securities on the date when they are acquired. All other financial assets are recognised initially on the trade date at which the Group becomes a party to the contractual provisions of the instrument.

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.

Non-derivative financial liabilities

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.

The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

Note 3. Summary of significant accounting policies (сontinued)

Derivative instruments

The Group uses various derivative financial instruments to hedge its commodity price risks. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and subsequently re-measured at fair value. Resulting realised and unrealised gains or losses are presented in profit or loss on a net basis. The Group does not use hedge accounting.

Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of inventories includes expenditure incurred in acquiring the inventories, production or conversion costs and other delivery costs. In the case of manufactured inventories, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The disposal of finished goods is accounted for using the first-in first-out principle, the disposal of other inventories by using the "average cost" method.

Property, plant and equipment

Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. The cost of property, plant and equipment of major subsidiaries at 1 January 2014, the Group's date of transition to IFRSs, was determined by reference to its fair value at that date.

The Group recognises exploration and evaluation costs using the successful efforts method. Under this method, all costs related to exploration and evaluation are capitalised and accounted for as construction in progress in the amount incurred less impairment (if any) until the discovery (or absence) of economically feasible oil and gas reserves has been established. When the technical feasibility and commercial viability of reserves extraction is confirmed, exploration and evaluation assets should be reclassified into property, plant and equipment. Prior to reclassification these assets should be reviewed for impairment and impairment loss (if any) expensed to the financial results. If the exploration and evaluation activity is evaluated as unsuccessful, the costs incurred should be expensed.

Depreciation, depletion and amortisation of capitalised costs of oil and gas properties is calculated using the unit-of-production method based upon proved reserves for the cost of property acquisitions and proved developed reserves for exploration and development costs.

Depreciation, depletion and amortisation of the capitalised costs of oil and gas properties related to risk service contract is calculated using a depletion factor calculated as the ratio of value of the applicable crude oil production for the period to the total capitalised costs to be recovered.

Depreciation of assets not directly associated with production is calculated on a straight-line basis over the economic lives of such assets, estimated to be in the following ranges:

Buildings and constructions 5 – 40 years Machinery and equipment 3 – 20 years

Depreciation methods and useful lives are reviewed at each reporting date and adjusted if appropriate.

Production and related overhead costs are expensed as incurred.

In addition to production assets, certain Group companies also maintain and construct social assets for the use of local communities. Such assets are capitalised only to the extent that they are expected to result in future economic benefits to the Group. If capitalised, they are depreciated over their estimated economic lives.

Note 3. Summary of significant accounting policies (сontinued)

Impairment of non-current non-financial assets

The carrying amounts of the Group's non-current non-financial assets, other than inventories and deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset's recoverable amount is estimated. For goodwill and intangible assets that have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or related cash-generating unit ("CGU").

Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to group of CGUs that are expected to benefit from the synergies of the combination. The Group's corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognised if the carrying amount of an asset or its related CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

Significant unproved properties are assessed for impairment individually on a regular basis and any estimated impairment is charged to expense.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset's carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

Asset retirement obligations

The Group records the present value of the estimated future costs to settle its legal obligations to abandon, dismantle or otherwise retire tangible non-current non-financial assets in the period in which the liability is incurred. A corresponding increase in the carrying amount of the related non-current non-financial assets is also recorded. Subsequently, the liability is accreted for the passage of time and the related asset is depreciated using the same method as asset to be abandoned, dismantled or otherwise retired. Changes in the estimates of asset retirement obligations ("ARO") occur as a result of changes in cost and timing of liquidation or change of discount rates and are accounted as part of cost of property, plant and equipment in the current period.

Lease

A single, on-balance sheet lease accounting model is used by lessees. A contract is, or contains, a lease if it conveys a right to control the use of an identified asset for a period of time in exchange for consideration. A lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. The Group has elected not to apply provided exemptions for short-term leases and leases for which the underlying asset is of low value. Lessors classify leases as finance or operating leases.

Note 3. Summary of significant accounting policies (сontinued)

The Group recognises a depreciation charge for right-of-use assets and interest expense on lease liabilities.

Assets classified as held for sale

Assets classified as held for sale are separately presented in the consolidated statement of financial position and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities classified as held for sale are presented in current assets and liabilities of the consolidated statement of financial position.

Income taxes

Deferred income tax assets and liabilities are recognised in respect of the future tax consequences attributable to temporary differences between the carrying amounts of existing assets and liabilities for the purposes of the consolidated statement of financial position and their respective tax bases. But as opposed to deferred tax liabilities, deferred tax assets are recognised only to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. Similarly a deferred tax asset shall be recognised for the carryforward of unused tax losses to the extent that it is probable that future taxable profit will be available. At the end of each reporting period realizability of deferred tax assets (both recognised and unrecornized) should be reassessed. In case of existence of previously unrecognised deferred tax assets, they can be recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to reverse and the assets be recovered and liabilities settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognised in profit or loss in the reporting period which includes the enactment date.

Employee benefits

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods. That benefit is discounted to determine its present value and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the terms of the Group's obligations and that are denominated in the same currency in which the benefits are expected to be paid.

The calculation is performed annually by a qualified actuary. When the calculation results in a potential asset for the Group, the recognised asset is limited to the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or on settlement of the plan liabilities.

Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The Group determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in profit or loss.

Note 3. Summary of significant accounting policies (сontinued)

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises gains and losses on the settlement of a defined benefit plan when the settlement occurs.

Treasury shares

Purchases by Group companies of the Company's outstanding shares are recorded at cost and classified as treasury shares within equity. Shares shown as Authorised and Issued include treasury shares. Shares shown as Outstanding do not include treasury shares.

Earnings per share

Basic earnings per share is computed by dividing profit available for distribution to common shareholders of the Company by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is determined by adjusting profit available for distribution to common shareholders of the Company and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise convertible notes and share options granted to employees.

Provisions and contingencies

Certain conditions may exist as of the consolidated financial statements date, which may result in losses to the Group but the impact of which will only be resolved when one or more future events occur or fail to occur.

Liabilities of the Group with high level of probability of loss are recognised in the consolidated financial statements as provisions. Liabilities of the Group with the level of probability that do not meet the conditions in order to be recognised as provisions are considered to be contingent liabilities. Contingent liabilities are not recognised in the consolidated financial statements but are disclosed in the notes to the consolidated financial statements if probability of disposal of certain resources aimed to settle this liability is not remote. If probability of disposal of certain resources is remote the information about such contingencies is not disclosed.

Environmental expenditures

Estimated losses from environmental remediation obligations are generally recognised no later than completion of remedial feasibility studies. Group companies accrue for losses associated with environmental remediation obligations when such losses are probable and reasonably estimable. Such accruals are adjusted as further information becomes available or circumstances change.

Share-based payments

The Group accounts for cash-settled share-based payment awards to employees at fair value on the grant date and as of each reporting date. Expenses are recognised over the vesting period. Equity-settled share-based payment awards to employees are valued at fair value on the grant date and expensed over the vesting period.

Changes in accounting policies and disclosures

The accounting policies adopted are consistent with those of the previous financial year except for the adoption of the amendments to the existing standards effective as of 1 January 2020. These amendments did not have a significant impact on the consolidated financial statements:

• amendments to references to Conceptual Framework in IFRS Standards. In particular, the amendments introduced new definitions of assets and liabilities, as well as amended definitions of income and expenses;
• definition of a business (amendments to IFRS 3 Business Combinations);

Note 3. Summary of significant accounting policies (сontinued)

definition of a material (amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors).

Note 4. Use of estimates and judgments

Preparation of the consolidated financial statements in accordance with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from those estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are the following:

• estimation of oil and gas reserves;
• estimation of useful lives of property, plant and equipment;
• impairment of non-current assets;
• assessment and recognition of provisions and contingent liabilities;
• definition of leases.

Oil and gas reserves estimates that are used for the reporting purposes are made in accordance with the requirements adopted by U.S. Securities and Exchange Commission. Estimates are reassessed on an annual basis.

Note 5. New standards and interpretations not yet adopted

The following amendments to the standards are effective for annual periods beginning after 1 January 2021, available for early adoption:

• Onerous contracts Cost of Fulfilling a Contract (Amendments to IAS 37 Provisions, Contingent Liabilities and Contingent Assets);
• COVID-19-Related Rent Concessions (Amendment to IFRS 16 Leases);
• Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16 Property, Plant and Equipment);
• Reference to Conceptual Framework (Amendments to IFRS 3 Business Combinations);
• Classification of Liabilities as Current or Non-current (Amendments to IAS 1 Presentation of Financial Statements).

However, the Group did not make an early adoption of the amended standards in the preparation of these consolidated financial statements, which are not expected to have a significant impact on the Group's consolidated financial statements.

Note 6. Cash and cash equivalents

	31 December 2020	31 December 2019
Cash held in RUB	16,537	189,055
Cash held in US dollars	256,841	303,046
Cash held in EUR	59,009	14,909
Cash held in other currencies	11,445	9,022
Total cash and cash equivalents	343,832	516,032

Note 7. Accounts receivable, net

	31 December 2020	31 December 2019
Trade accounts receivable (net of allowances of 32,762 million RUB and 26,593 million RUB
at 31 December 2020 and 2019, respectively)	357,159	428,415
Other current accounts receivable (net of allowances of 4,930 million RUB and
4,694 million RUB at 31 December 2020 and 2019, respectively)	13,112	8,637
Total accounts receivable, net	370,271	437,052

Note 8. Other current financial assets

	31 December 2020	31 December 2019
Financial assets measured at amortised cost
Short-term loans	8,350	6,814
Financial assets measured at fair value through profit or loss
Short-term loans	-	42,892
Total other current financial assets	8,350	49,706

Note 9. Inventories

	31 December 2020	31 December 2019
Crude oil and petroleum products	373,290	366,795
Materials for extraction and drilling	25,582	22,811
Materials and supplies for refining	4,681	4,449
Other goods, materials and supplies	22,983	19,855
Total inventories	426,536	413,910

Note 10. Prepaid taxes

	31 December 2020	31 December 2019
Income tax prepaid	17,983	17,120
VAT and excise tax recoverable	21,290	30,660
Export duties prepaid	8,009	11,968
VAT prepaid	26,407	30,199
Other taxes prepaid	5,133	5,128
Total prepaid taxes	78,822	95,075

Note 11. Other current assets

	31 December 2020	31 December 2019
Advance payments	15,904	10,246
Prepaid expenses	21,622	23,673
Other assets	11,123	8,493
Total other current assets	48,649	42,412

Note 12. Investments in associates and joint ventures

Carrying value of investments in associates and joint ventures:

		Ownership
Name of the company	Country	31 December 2020 31 December 2019		31 December 2020 31 December 2019
Joint ventures:
Tengizchevroil (TCO)	Kazakhstan	5.0%	5.0%	146,611	119,924
Caspian Pipeline Consortium (CPC)	Kazakhstan	12.5%	12.5%	56,027	40,670
South Caucasus Pipeline Company (SCPC)	Azerbaijan	10.0%	10.0%	34,663	30,241
Others				-	655
Associates:
Associates				44,336	28,514
Total				281,637	220,004

TCO is engaged in development of hydrocarbon resources in Kazakhstan. The Group has classified its interest in TCO as a joint venture as it has rights to the net assets of the arrangement.

31 December 2020	TCO	CPC	SCPC	Others	Associates	Total
Current assets	185,179	49,950	17,923	85	37,049	290,186
Non-current assets	3,398,159	449,020	363,283	-	222,001	4,432,463
Current liabilities	153,329	39,529	17,584	85	22,011	232,538
Non-current liabilities	1,228,347	11,224	16,995	-	127,928	1,384,494
Net assets (100%)	2,201,662	448,217	346,627	-	109,111	3,105,617
Share in net assets	146,611	56,027	34,663	-	44,336	281,637
31 December 2019	TCO	CPC	SCPC	Others	Associates	Total
Current assets	127,066	21,376	10,196	3,183	36,785	198,606
Non-current assets	2,641,370	410,517	315,987	1,770	193,540	3,563,184
Current liabilities	195,807	88,698	9,311	568	136,443	430,827
Non-current liabilities	825,320	17,838	14,467	3,076	31,737	892,438
Net assets (100%)	1,747,309	325,357	302,405	1,309	62,145	2,438,525
Share in net assets	119,924	40,670	30,241	655	28,514	220,004
2020	TCO	CPC	SCPC	Others	Associates	Total
Revenues	657,608	151,648	50,221	4,627	74,160	938,264
Net income (loss), 100%	113,342	57,684	24,251	1,402	(6,194)	190,485
Share in net income (loss)	3,407	7,210	2,425	701	(2,269)	11,474
2019	TCO	CPC	SCPC	Others	Associates	Total
Revenues	1,055,783	146,646	37,944	6,988	122,041	1,369,402
Net income (loss), 100%	296,060	46,918	18,234	167	(8,219)	353,160
Share in net income (loss)	12,474	5,865	1,823	84	(2,000)	18,246

Note 13. Property, plant and equipment

	Exploration and production	Refining, marketing and distribution	Other	Total
Cost
31 December 2019	4,795,674	1,510,515	76,246	6,382,435
Additions	424,751	144,941	4,864	574,556
Acquisitions	1,209	-	-	1,209
Disposals	(37,156)	(42,014)	(6,592)	(85,762)
Foreign currency translation differences	272,259	143,409	2,704	418,372
Other	(23,473)	(201)	(216)	(23,890)
31 December 2020	5,433,264	1,756,650	77,006	7,266,920
Depreciation and impairment
31 December 2019	(1,766,575)	(589,636)	(21,153)	(2,377,364)
Depreciation for the period	(278,237)	(135,596)	(3,705)	(417,538)
Impairment loss	(48,740)	(58,129)	-	(106,869)
Disposals	18,358	38,776	3,477	60,611
Foreign currency translation differences	(144,090)	(60,206)	(1,032)	(205,328)
Other	25,550	1,914	45	27,509
31 December 2020	(2,193,734)	(802,877)	(22,368)	(3,018,979)
Advance payments for property, plant and equipment
31 December 2019	6,791	13,314	831	20,936
31 December 2020	10,218	5,757	558	16,533
Carrying amounts
31 December 2019	3,035,890	934,193	55,924	4,026,007
31 December 2020	3,249,748	959,530	55,196	4,264,474
Cost
31 December 2018	4,476,824	1,373,743	75,882	5,926,449
Adjustment on adoption of IFRS 16	54,335	102,189	5,527	162,051
1 January 2019	4,531,159	1,475,932	81,409	6,088,500
Additions	397,031	120,221	2,133
				519,385
Acquisition of the interest in the project	72,171	529	-	72,700
Disposals	(55,461)	(19,197)	(2,833)	(77,491)
Foreign currency translation differences	(165,027)	(71,067)	(1,804)	(237,898)
Other	15,801	4,097	(2,659)	17,239
31 December 2019	4,795,674	1,510,515	76,246	6,382,435
Depreciation and impairment
31 December 2018	(1,586,508)	(513,668)	(19,380)	(2,119,556)
Depreciation for the period	(288,349)	(121,721)	(4,064)	(414,134)
Impairment loss	(21,559)	(1,324)	-	(22,883)
Impairment reversal	9,797	-	-	9,797
Disposals	36,114	15,289	789	52,192
Foreign currency translation differences	83,848	27,564	723	112,135
Other	82	4,224	779	5,085
31 December 2019	(1,766,575)	(589,636)	(21,153)	(2,377,364)
Advance payments for property, plant
and equipment
31 December 2018	5,916	15,669	686	22,271
31 December 2019	6,791	13,314	831	20,936
Carrying amounts 31 December 2018	2,896,232	875,744	57,188	3,829,164
31 December 2019	3,035,890	934,193	55,924	4,026,007

Note 13. Property, plant and equipment (сontinued)

The cost of assets under construction included in property, plant and equipment was 458,265 million RUB and 369,926 million RUB at 31 December 2020 and 2019, respectively.

Exploration and evaluation assets

	2020	2019
1 January	129,951	107,105
Capitalised expenditures	36,881	41,446
Acquisitions through business combinations	362	-
Reclassified to development assets	(5,238)	(8,742)
Charged to expenses	(3,542)	(7,159)
Foreign currency translation differences	6,244	(3,537)
Other movements	(1,407)	838
31 December	163,251	129,951

Due to a significant deterioration in the macroeconomic environment in the first quarter of 2020, the Company revised the scenario conditions used in the impairment test at the end of 2019 and performed an impairment test for assets at 31 March 2020.

As a result, in the first quarter of 2020, the Group recognised an impairment loss for its exploration and production assets in Russia in the amount of 5,219 million RUB, for its international exploration and production assets in the amount of 2,209 million RUB and for its international refining, marketing and distribution assets in the amount of 28,859 million RUB.

The recoverable amounts of CGUs subject to impairment in the first quarter of 2020 in the amount of 139,180 million RUB were determined as value in use equal to the present value of the expected cash flows. Value in use was estimated using 9% discount rate for exploration and production assets in Russia, 8.2% discount rate for international exploration and production assets and 7.5% discount rate for international refining, marketing and distribution assets.

For impairment test purposes at 31 March 2020 the following Brent Blend price assumptions have been used: \$40.0 per barrel in 2020–2021, \$45.0 per barrel in 2022, \$50.0 per barrel in 2023, \$55.0 per barrel in 2024 and \$60.0 per barrel from 2025.

Also, in the second quarter of 2020, the Group recognised an impairment loss for its international exploration and production assets in the amount of 38,148 million RUB. Of this amount, 35,986 million RUB relates to gas projects in the Republic of Uzbekistan and are determined based on the revised business model, which takes into account conservative approaches to assessing the structure of gas supplies and pricing.

The recoverable amounts of CGUs in the amount of 106,003 million RUB which relate to impaired assets were determined as value in use equal to the present value of the expected cash flows. Value in use was estimated using 11.2% discount rate.

The Company performs a regular annual impairment test of its assets. The test is based on geological models and development programs, which are revised on a regular basis, at least annually.

In the fourth quarter of 2020, the Group recognised an impairment loss for its exploration and production assets in Russia in the amount of 3,020 million RUB, for its international exploration and production assets in the amount of 144 million RUB, for its refining, marketing and distribution assets in Russia in the amount of 7,656 million RUB and for its international refining, marketing and distribution assets in the amount of 21,614 million RUB.

Note 13. Property, plant and equipment (сontinued)

The recoverable amounts of CGUs subject to impairment in the fourth quarter of 2020 in the amount of 51,843 million RUB were determined as value in use equal to the present value of the expected cash flows. Value in use was estimated using the following discount rates: for exploration and production assets in Russia – 8%, for refining, marketing and distribution assets in Russia – from 10% to 13% and for international refining, marketing and distribution assets – 6.4%.

For impairment test purposes at 31 December 2020 the following Brent Blend price assumptions have been used: \$50.0 per barrel in 2021, \$54.0 per barrel in 2022, \$57.0 per barrel in 2023, \$58.0 per barrel in 2024 and \$60.0 per barrel from 2025.

In the fourth quarter of 2019, the Group recognised an impairment loss for its exploration and production assets in Russia in the amount of 20,142 million RUB, for its international exploration and production assets in the amount of 1,270 million RUB, for its refining, marketing and distribution assets in Russia in the amount of 476 million RUB and for its international refining, marketing and distribution assets in the amount of 848 million RUB. Also the Group recognised an impairment reversal of 9,651 million RUB, which was mainly a result of improvement of economic parameters of our production projects in Western Siberia and European part of Russia.

The recoverable amounts of CGUs subject to impairment and impairment reversal in 2019 in the amount of 55,822 million RUB and 100,270 million RUB, respectively, were determined as value in use equal to the present value of the expected cash flows. Value in use was estimated using the following discount rates: for exploration and production assets in Russia – 8.5%, for refining, marketing and distribution assets in Russia – from 10% to 13%.

Impairment reversal and impairment loss are included in "Other income (expenses)" in the consolidated statement of profit or loss and other comprehensive income.

The measurement of recoverable amounts of property, plant and equipment is most sensitive to the volatility of oil and gas prices. However, price reductions would also result in changes in other factors used when estimating recoverable amounts. Quantitative assessment of suchlike impacts is very complicated, as it demands detailed technical, geological and economical evaluations based on hypothetical scenarios rather than existing business or development plans.

	31 December 2020	31 December 2019
Financial assets measured at fair value through other comprehensive income
Equity instruments	2,491	2,656
Financial assets measured at amortised cost
Long-term loans	31,075	26,008
Non-current accounts and notes receivable	1,916	1,371
Other financial assets	15	34
Financial assets measured at fair value through profit or loss
Long-term loans	33,195	8,162
Total other non-current financial assets	68,692	38,231

Note 14. Other non-current financial assets

Note 15. Acquisition of interests in the projects

In the second quarter of 2019, a Group company entered into a contract with New Age M12 Holdings Limited to acquire a 25% interest in the Marine XII license in the Republic of Congo (Congo-Brazzaville) developed under the production sharing agreement. In September 2019, the transaction in the amount of 51.4 billion RUB (\$768 million) was closed after all the customary conditions, including approval by the Government of the Republic of Congo, were fulfilled. The Company has completed allocation of the purchase price to the fair value of assets acquired and liabilities assumed which includes property plant and equipment and assets under construction in the amount of 51.3 billion RUB (\$767 million), inventories in the amount of 0.9 billion RUB (\$13 million), accounts receivable in the amount of 0.5 billion RUB (\$7 million) and asset retirement obligations in the amount of 1.3 billion RUB (\$19 million).

After acquisition the Group accounts for this project similar to accounting for jointly controlled operations.

Note 16. Goodwill and other intangible assets

		Other internally
	Internally	generated	Acquired
	generated software	intangible assets	intangible assets	Goodwill	Total
Cost
31 December 2019	19,532	4,975	52,782	32,337	109,626
Additions as result of internal
developments	1,914	1,859	-	-	3,773
Additions - separately acquired	-	-	5,597	-	5,597
Disposals	(190)	(23)	(11,088)	-	(11,301)
Foreign currency translation
differences	281	4	3,617	6,239	10,141
Other	284	(242)	87	-	129
31 December 2020	21,821	6,573	50,995	38,576	117,965
Amortisation and impairment
31 December 2019	(14,797)	(1,306)	(40,491)	(9,924)	(66,518)
Amortisation for the year	(917)	(299)	(4,881)	-	(6,097)
Impairment loss	-	(1)	(18)	-	(19)
Disposals	164	-	10,950	-	11,114
Foreign currency translation
differences	(260)	(4)	(2,851)	(3,025)	(6,140)
Other	55	(2)	(199)	-	(146)
31 December 2020	(15,755)	(1,612)	(37,490)	(12,949)	(67,806)
Carrying amounts
31 December 2019	4,735	3,669	12,291	22,413	43,108
31 December 2020	6,066	4,961	13,505	25,627	50,159

Note 16. Goodwill and other intangible assets (continued)

		Other internally
	Internally generated software	generated intangible assets	Acquired intangible assets	Goodwill	Total
Cost
31 December 2018	17,714	3,538	50,296	35,681	107,229
Additions as result of internal
developments	1,678	1,886	-	-	3,564
Acquisitions	-	-	16	-	16
Additions - separately acquired	-	-	6,922	-	6,922
Disposals	(7)	(7)	(1,030)	-	(1,044)
Foreign currency translation
differences	(289)	(2)	(3,287)	(3,344)	(6,922)
Other	436	(440)	(135)	-	(139)
31 December 2019	19,532	4,975	52,782	32,337	109,626
Amortisation and impairment
31 December 2018	(14,242)	(1,001)	(38,503)	(11,718)	(65,464)
Amortisation for the year	(837)	(298)	(5,329)	-	(6,464)
Disposals	7	5	706	-	718
Foreign currency translation
differences	274	2	2,398	1,794	4,468
Other	1	(14)	237	-	224
31 December 2019	(14,797)	(1,306)	(40,491)	(9,924)	(66,518)
Carrying amounts
31 December 2018	3,472	2,537	11,793	23,963	41,765
31 December 2019	4,735	3,669	12,291	22,413	43,108

Goodwill was tested for impairment and no impairment was identified.

Note 17. Accounts payable

	31 December 2020	31 December 2019
Trade accounts payable	533,598	555,823
Other accounts payable	64,334	51,911
Total accounts payable	597,932	607,734

Note 18. Short-term borrowings and current portion of long-term debt

	31 December 2020	31 December 2019
Short-term borrowings from third parties	18,736	13,940
Short-term borrowings from related parties	2,522	2,222
Current portion of long-term debt	61,378	114,138
Total short-term borrowings and current portion of long-term debt	82,636	130,300

Short-term borrowings from third parties include amounts repayable in US dollars of 17,510 million RUB and 12,694 million RUB and amounts repayable in other currencies of 1,226 million RUB and 1,246 million RUB at 31 December 2020 and 2019, respectively. The weighted-average interest rate on short-term borrowings from third parties was 2.63% and 4.00% per annum at 31 December 2020 and 2019, respectively. At 31 December 2020, short-term borrowings from third parties are unsecured.

Note 19. Long-term debt

	31 December 2020	31 December 2019
Long-term loans and borrowings from third parties	112,660	117,864
6.125% non-convertible US dollar bonds, maturing 2020	-	61,866
6.656% non-convertible US dollar bonds, maturing 2022	36,901	30,905
4.563% non-convertible US dollar bonds, maturing 2023	110,737	92,769
4.750% non-convertible US dollar bonds, maturing 2026	73,751	61,786
3.875% non-convertible US dollar bonds, maturing 2030	110,532	-
Lease obligations	193,872	171,880
Total long-term debt	638,453	537,070
Current portion of long-term debt	(61,378)	(114,138)
Total non-current portion of long-term debt	577,075	422,932

Long-term loans and borrowings

Long-term loans and borrowings from third parties include amounts repayable in US dollars of 101,376 million RUB and 104,819 million RUB and amounts repayable in euros of 11,284 million RUB and 13,045 million RUB at 31 December 2020 and 2019, respectively. This debt has maturity dates from 2021 through 2028. The weighted-average interest rate on long-term loans and borrowings from third parties was 2.54% and 4.08% per annum at 31 December 2020 and 2019, respectively. A number of long-term loan agreements contain certain financial covenants which are being met by the Group. Approximately 51% of total long-term loans and borrowings from third parties at 31 December 2020 are secured by shares in a PSA project, export sales and property, plant and equipment.

Non-convertible bonds

On 6 May 2020, a Group company issued non-convertible bonds totaling \$1.5 billion (110.8 billion RUB). The bonds were placed with a maturity of 10 years and a coupon yield of 3.875% per annum. All bonds were placed at face value and have a half year coupon period.

In November 2016, a Group company issued non-convertible bonds totaling \$1 billion (73.9 billion RUB). The bonds were placed with a maturity of 10 years and a coupon yield of 4.750% per annum. All bonds were placed at face value and have a half year coupon period.

In April 2013, a Group company issued two tranches of non-convertible bonds totaling \$3 billion (221.6 billion RUB). The first tranche totaling \$1.5 billion (110.8 billion RUB) was placed with a maturity of 5 years and a coupon yield of 3.416% per annum. The second tranche totaling \$1.5 billion (110.8 billion RUB) was placed with a maturity of 10 years and a coupon yield of 4.563% per annum. All bonds were placed at face value and have a half year coupon period. In April 2018, a Group company redeemed all issued bonds of the first tranche in accordance with the conditions of the bond issue.

In November 2010, a Group company issued two tranches of non-convertible bonds totaling \$1 billion (73.9 billion RUB) with a maturity of 10 years and a coupon yield of 6.125%. The first tranche totaling \$800 million (59.1 billion RUB) was placed at a price of 99.081% of the bond's face value with a resulting yield to maturity of 6.250%. The second tranche totaling \$200 million (14.8 billion RUB) was placed at a price of 102.44% of the bond's face value with a resulting yield to maturity of 5.80%. All bonds have a half year coupon period. In November 2020, a Group company redeemed all issued bonds of the first and second tranches in accordance with the conditions of the bond issue.

Note 19. Long-term debt (continued)

In November 2009, a Group company issued two tranches of non-convertible bonds totaling \$1.5 billion (110.8 billion RUB). The first tranche totaling \$900 million (66.5 billion RUB) with a coupon yield of 6.375% per annum was placed with a maturity of 5 years at a price of 99.474% of the bond's face value with a resulting yield to maturity of 6.500%. The second tranche totaling \$600 million (44.3 billion RUB) with a coupon yield of 7.250% per annum was placed with a maturity of 10 years at a price of 99.127% of the bond's face value with a resulting yield to maturity of 7.375%. All bonds have a half year coupon period. In November 2014 and 2019, a Group company redeemed all issued bonds of the first and second tranches in accordance with the conditions of the bond issue.

In June 2007, a Group company issued two tranches of non-convertible bonds totaling \$1 billion (73.9 billion RUB). \$500 million (36.95 billion RUB) were placed with a maturity of 10 years and a coupon yield of 6.356% per annum. Another \$500 million (36.95 billion RUB) were placed with a maturity of 15 years and a coupon yield of 6.656% per annum. All bonds were placed at face value and have a half year coupon period. In June 2017, a Group company redeemed all issued bonds of the first tranche in accordance with the conditions of the bond issue.

Reconciliation of liabilities arising from financing activities

	Loans and borrowings	Bonds	Lease obligations	Other liabilities	Total
31 December 2019	134,026	247,326	171,880	135,920	689,152
Changes from financing cash flows:
Proceeds from issuance of short-term
borrowings	1,971	-	-	-	1,971
Principal repayments of short-term borrowings	(815)	-	-	-	(815)
Proceeds from issuance of long-term debt	-	108,796	-	-	108,796
Principal repayments of long-term debt	(30,686)	(78,456)	(62,838)	-	(171,980)
Interest paid	-	-	(10,501)	(28,599)	(39,100)
Dividends paid on Company common stock	-	-	-	(407,309)	(407,309)
Total changes from financing cash flows	(29,530)	30,340	(73,339)	(435,908)	(508,437)
Other changes:
Interest accrued	1,853	128	10,501	26,810	39,292
Dividends declared on Company common stock	-	-	-	258,389	258,389
The effect of changes in foreign exchange rates	27,010	54,125	29,688	1,082	111,905
Non-cash additions to lease obligations	-	-	50,009	-	50,009
Other changes	559	2	5,133	16,972	22,666
Total other changes	29,422	54,255	95,331	303,253	482,261
31 December 2020	133,918	331,921	193,872	3,265	662,976

Note 20. Taxes payable

31 December 2020	31 December 2019
16,614	12,031
49,332	61,464
2,881	3,380
35,650	38,566
22,733	14,359
5,675	5,120
9,573	7,551
142,458	142,471

Note 21. Other current liabilities

	31 December 2020	31 December 2019
Advances received	31,142	30,868
Dividends payable	1,610	135,034
Other	2,745	3,050
Total other current liabilities	35,497	168,952

Note 22. Provisions

	Asset	Provision for	Provision for		Provision for
	retirement obligations	employee compensations	environmental liabilities	Pension liabilities	unused vacations	Other provisions	Total
31 December 2020	111,614	10,939	4,204	13,794	6,326	6,924	153,801
Incl.: Non-current	110,916	175	1,329	11,678	322	2,245	126,665
Current	698	10,764	2,875	2,116	6,004	4,679	27,136
31 December 2019	63,387	9,762	3,783	12,544	5,861	18,940	114,277
Incl.: Non-current	62,667	263	1,175	10,310	153	2,477	77,045
Current	720	9,499	2,608	2,234	5,708	16,463	37,232

Asset retirement obligations changed as follows:

	2020	2019
1 January	63,387	36,424
Provisions made during the period	39,826	2,158
Reversal of provisions	(154)	(387)
Provisions used during the period	(325)	(119)
Accretion expense	3,882	2,707
Change in discount rate	8,921	23,092
Changes in estimates	(9,395)	1,360
Foreign currency translation differences	5,450	(1,882)
Other	22	34
31 December	111,614	63,387

Note 23. Pension liabilities

The Group sponsors a postretirement defined benefit pension plan that covers the majority of the Group's employees. One type of pension plan is based on years of service, final remuneration levels as of the end of 2003 and employee gratitude, received during the period of work. The other type of pension plan is based on salary. These plans are solely financed by Group companies. Simultaneously employees have the right to receive pension benefits with a partial payment by the Group (up to 4% of the annual salary of the employee).

Plan assets and pensions payments are managed by a non-state pension fund, JSC "NPF Otkritie" (former "NPF LUKOIL-GARANT"). The Group also provides several long-term social benefits, including lump-sum deathin-service benefit, in case of disability and upon retirement payments. Also certain payments are received by retired employees upon reaching a certain old age or invalidity.

The Company uses 31 December as the measurement date for its pension obligation. An independent actuary has assessed the benefit obligations at 31 December 2020 and 2019.

Note 23. Pension liabilities (сontinued)

The following table sets out movement in the pension liabilities before taxation during 2020 and 2019.

	2020	2019
1 January	12,544	8,910
Components of defined benefit costs recorded in profit or loss	1,771	3,182
Components of defined benefit costs recorded in other comprehensive loss	1,680	2,510
Contributions from employer	(1,566)	(1,385)
Benefits paid	(693)	(680)
Opening balance adjustment	49	(5)
Liability assumed in business combination	9	12
31 December	13,794	12,544

Note 24. Equity

Common shares

	31 December 2020	31 December 2019
	(thousands of	(thousands of
	shares)	shares)
Issued common shares, par value of 0.025 RUB each	692,866	715,000
Treasury shares	(40,367)	(62,119)
Outstanding common shares	652,499	652,881

The Company has the right to issue additional 85,000 thousands of common shares.

On 3 December 2019, at the extraordinary general shareholders' meeting a decision was made to reduce the share capital of the Company by purchase of a portion of issued shares in order to reduce the total number thereof. At 31 December 2019, the Group recognised an obligation to repurchase common shares in the amount of 120,988 million RUB. Share capital reduction to 693 million common shares by purchase and cancellation of 22 million common shares was executed on 10 February 2020. Most of the common shares were purchased from a Group company.

On 20 June 2019, at the annual general shareholders' meeting a decision was made to reduce the share capital of the Company to 715 million common shares by purchase and cancellation of 35 million common shares. Share cancellation and share capital reduction was executed on 28 August 2019. Out of 35 million common shares 15.5 million common shares were purchased from a Group company.

In 2019, a Group company purchased 24.5 million common shares and depositary receipts of the Company as part of the open market buyback programme announced on 30 August 2018.

Dividends

At the extraordinary general shareholders' meeting on 3 December 2020, interim dividends for 2020 were approved in the amount of 46.00 RUB per common share.

At the annual general shareholders' meeting on 23 June 2020, dividends for 2019 were approved in the amount of 350.00 RUB per common share. At the extraordinary shareholders' meeting on 3 December 2019, interim dividends for 2019 were approved in the amount of 192.00 RUB per common share. Total dividends for 2019 were approved in the amount of 542.00 RUB per common share.

Dividends on the Company's shares payable of 699 million RUB and 133,514 million RUB are included in "Other current liabilities" in the consolidated statement of financial position at 31 December 2020 and 2019, respectively.

Note 24. Equity (сontinued)

Earnings per share

The calculation of basic and diluted earnings per share was as follows:

	2020	2019
Profit for the year attributable to PJSC LUKOIL shareholders	15,175	640,178
Weighted average number of common shares (thousands of shares)	650,965	664,578
Dilutive effect of equity-settled share-based compensation plan (thousands of shares)	24,827	20,122
Dilutive effect related to obligation to repurchase common shares (thousands of shares)	-	180
Weighted average number of common shares, assuming dilution (thousands of shares)	675,792	684,880
Profit per share of common stock attributable to PJSC LUKOIL shareholders (in Russian rubles):
Basic	23.31	963.28
Diluted	22.46	934.73

Note 25. Personnel expenses

Personnel expenses were as follows:

	2020	2019
Payroll costs	154,093	143,602
Statutory insurance contributions	35,063	33,417
Share-based compensation	31,366	31,366
Total personnel expenses	220,522	208,385

Note 26. Finance income and costs

Finance income was as follows:

	2020	2019
Interest income from deposits	6,244	15,452
Interest income from loans	4,245	4,878
Other finance income	2,562	4,804
Total finance income	13,051	25,134

Finance costs were as follows:

	2020	2019
Interest expenses	37,333	39,145
Accretion expenses	4,505	2,752
Other finance costs	2,284	2,459
Total finance costs	44,122	44,356

Note 27. Other income and expenses

Other income was as follows:

	2020	2019
Gain on disposal of assets	2,618	10,496
Reversal on impairments of assets	7,267	13,468
Other income	8,085	8,837
Total other income	17,970	32,801

Note 27. Other income and expenses (сontinued)

Other expenses were as follows:

	2020	2019
Loss on disposal of assets	20,755	18,056
Impairments loss	114,665	22,883
Charity expenses	8,423	9,228
Other expenses	11,287	10,325
Total other expenses	155,130	60,492

Note 28. Lease

Primarily the Group leases such assets as transport (vessels, tank cars), land, drilling rigs and other equipment, storage facilities. The lease typically runs for a period of 3–5 years. Some leases include an option to renew the lease for additional period after the end of the non-cancellable period. The Group has applied judgement to determine the lease term for some lease contracts in which it is a lessee that includes renewal option. Moreover, in determining the lease term the Group also took into account economic factors, which influence asset usage duration in its activity.

	Exploration and production	Refining, marketing and distribution	Other	Total
Carrying amounts
Property, plant and equipment owned	3,214,181	820,657	49,574	4,084,412
Right-of-use assets	35,567	138,873	5,622	180,062
31 December 2020	3,249,748	959,530	55,196	4,264,474
Property, plant and equipment owned	2,995,944	802,364	51,518	3,849,826
Right-of-use assets	39,946	131,829	4,406	176,181
31 December 2019	3,035,890	934,193	55,924	4,026,007

Right-of-use assets:

	Exploration	Refining, marketing
	and production	and distribution	Other	Total
1 January 2020	39,946	131,829	4,406	176,181
Additions	2,589	45,573	1,868	50,030
Depreciation for the period	(10,322)	(54,497)	(754)	(65,573)
Other movements	3,354	15,968	102	19,424
31 December 2020	35,567	138,873	5,622	180,062
1 January 2019	54,335	125,657	5,527	185,519
Additions	7,513	35,011	94	42,618
Depreciation for the period	(13,326)	(31,850)	(818)	(45,994)
Other movements	(8,576)	3,011	(397)	(5,962)
31 December 2019	39,946	131,829	4,406	176,181

Lease liabilities:

31 December 2020	193,872
Incl.: Non-current	159,340
Current	34,532
31 December 2019	171,880
Incl.: Non-current	143,902
Current	27,978

Note 28. Lease (сontinued)

Within the consolidated statement of profit or loss and other comprehensive income the following expenses were recognized: interest on lease liabilities in the amount of 9,435 million RUB and 9,836 million RUB and variable lease payments not included in the measurement of lease liabilities in the amount of 10,853 million RUB and 9,418 million RUB during 2020 and 2019, respectively. Income from sub-leasing right-of-use assets was not material.

Within the consolidated statement of cash flows the total cash outflow under leases, including variable lease payments attributable to capital expenditure, amounted to 170,990 million RUB and 120,755 million RUB during 2020 and 2019, respectively.

Note 29. Income tax

Operations in the Russian Federation are subject to a 20% income tax rate. For the period from 2017 till 2024 (inclusive) the Federal income tax rate is set as 3.0% and the regional income tax rate is set as 17.0%. Regional income tax rate may be reduced for certain categories of taxpayers by the laws of constituent entities of the Russian Federation, however certain restrictions apply on the application of the reduced regional rates.

The Group's foreign operations are subject to taxes at the tax rates applicable to the jurisdictions in which they operate.

A number of Group companies in Russia are paying income tax as a consolidated taxpayers' group ("CTG"). This allows taxpayers to offset taxable losses generated by certain participants of a CTG against taxable profits of other participants of the CTG.

Income tax was as follows:

	2020	2019
Current income tax expense for the year	63,458	149,032
Adjustment for prior periods	(2,096)	(4,417)
Current income taxes	61,362	144,615
Deferred income tax	20,792	6,518
Total income tax expense	82,154	151,133

The following table is a reconciliation of the amount of income tax expense that would result from applying the Russian combined statutory income tax rate of 20% applicable to the Company to profit before income taxes to total income taxes.

	2020	2019
Profit before income taxes	98,787	793,354
Notional income tax at the Russian statutory rate	19,757	158,671
Increase (reduction) in income tax due to:
Non-deductible items, net	9,483	18,056
Domestic and foreign rate differences	7,907	(17,709)
Adjustment for prior periods	(2,096)	(4,417)
Change in recognised deductible temporary differences	47,103	(3,468)
Total income tax expense	82,154	151,133

The following table sets out the tax effects of each type of temporary differences which give rise to deferred income tax assets and liabilities.

Note 29. Income tax (сontinued)

	31 December 2020	31 December 2019
Property, plant and equipment	9,221	5,332
Investments	53	60
Inventories	6,658	4,768
Accounts receivable	1,586	1,583
Accounts payable and provisions	9,691	11,052
Tax loss carry forward	22,614	35,344
Other	522	514
Total deferred income tax assets	50,345	58,653
Set off of tax	(34,047)	(29,980)
Deferred income tax assets	16,298	28,673
Property, plant and equipment	(290,641)	(276,175)
Investments	(1,863)	(1,517)
Inventories	(3,149)	(4,557)
Accounts receivable	(4,662)	(8,551)
Accounts payable and provisions	(652)	(1,518)
Other	(2,036)	(1,821)
Total deferred income tax liabilities	(303,003)	(294,139)
Set off of tax	34,047	29,980
Deferred income tax liabilities	(268,956)	(264,159)
Net deferred income tax liabilities	(252,658)	(235,486)

				Foreign currency translation
	31 December 2019	Recognition in profit or loss	Acquisitions and disposal	differences and	other 31 December 2020
Property, plant and equipment	(270,843)	(9,859)	244	(962)	(281,420)
Investments	(1,457)	(306)	-	(47)	(1,810)
Inventories	211	3,110	(9)	197	3,509
Accounts and notes receivable	(6,968)	4,385	(13)	(480)	(3,076)
Accounts payable and provisions	9,534	(1,406)	(17)	928	9,039
Tax loss carry forward	35,344	(16,687)	(75)	4,032	22,614
Other	(1,307)	(29)	-	(178)	(1,514)
Net deferred income tax liabilities	(235,486)	(20,792)	130	3,490	(252,658)

	31 December 2018	Recognition in profit or loss	Acquisitions and disposal	Foreign currency translation differences and	other 31 December 2019
Property, plant and equipment	(259,171)	(12,358)	(1,477)	2,163	(270,843)
Investments	(2,326)	835	-	34	(1,457)
Inventories	1,224	(1,016)	-	3	211
Accounts and notes receivable	(9,145)	1,742	-	435	(6,968)
Accounts payable and provisions	10,349	(217)	-	(598)	9,534
Tax loss carry forward	32,989	4,264	(4)	(1,905)	35,344
Other	(1,715)	232	-	176	(1,307)
Net deferred income tax liabilities	(227,795)	(6,518)	(1,481)	308	(235,486)

Note 29. Income tax (сontinued)

Deferred tax assets have not been recognised in respect of the temporary differences related to the following items:

	31 December 2020	31 December 2019
Property, plant and equipment	15,136	1,412
Tax loss carry forward	39,126	10,374
Other	5,670	1,043
Total unrecognised deferred tax assets	59,932	12,829

Management believes that it is not probable that taxable profit will be available against which these deductible temporary differences can be utilised.

Amounts recognised in other comprehensive income during 2020:

	Before tax	Tax	Net of tax
Foreign currency translation differences for foreign operations	268,707	-	268,707
Change in fair value of financial assets at fair value through other comprehensive income	(767)	-	(767)
Remeasurements of defined benefit liability/asset of pension plan	(1,680)	257	(1,423)
Total	266,260	257	266,517

Amounts recognised in other comprehensive income during 2019:

	Before tax	Tax	Net of tax
Foreign currency translation differences for foreign operations	(164,117)	-	(164,117)
Change in fair value of financial assets at fair value through other comprehensive income	(348)	-	(348)
Remeasurements of defined benefit liability/asset of pension plan	(2,510)	534	(1,976)
Total	(166,975)	534	(166,441)

Retained earnings of foreign subsidiaries for which deferred taxation has not been provided included 1,361,368 million RUB and 1,109,000 million RUB at 31 December 2020 and 2019, respectively. This liability was not recognised because the Group considers such amounts to be indefinitely invested, i.e. management believes that they will not be returned in the foreseeable future. Moreover the Group controls the dividend policy of its subsidiaries and is able to veto the payment of dividends.

The consequences of taxation in Russia of certain profits of controlled foreign corporations in accordance with applicable tax legislation are accounted for within current and deferred tax liabilities.

Note 30. Commitments and contingencies

Capital commitments

Capital commitments of the Group relating to construction and acquisition of property, plant and equipment amount to 501,550 million RUB and 517,977 million RUB at 31 December 2020 and 2019, respectively.

Insurance

To provide insurance protection, the Group uses the services of Russian and international insurance companies with high ratings. The Group's most significant risks are reinsured at the first-class foreign markets. In respect of liability to third parties for damages to property and the environment resulting from accidents related to the Group's property or activities, the Group has insurance coverage that is generally higher than the limits set by law. Management believes that the Group has sufficient insurance coverage of its core operating assets, as well as risks, which could have a material effect on the Group's operations and financial position.

Note 30. Commitments and contingencies (сontinued)

Environmental liabilities

Group companies and their predecessor companies have operated in the Russian Federation and other countries for many years, which resulted in certain environmental consequences. Environmental regulations are currently in development stage in the Russian Federation and other countries where the Group has operations. Group companies routinely assess and evaluate their environmental obligations in response to new and changing legislation.

As liabilities in respect of the Group's environmental obligations are able to be determined, they are recognised in profit or loss. The likelihood and amount of liabilities relating to environmental obligations under proposed or any future legislation cannot be reasonably estimated at present and could become material. Under existing legislation, however, management believes that there are no significant unrecorded liabilities or contingencies, which could have a material adverse effect on the operating results or financial position of the Group.

Social assets

Certain Group companies contribute to Government sponsored programs, the maintenance of local infrastructure and the welfare of their employees within the Russian Federation and elsewhere. Such contributions include assistance with the construction, development and maintenance of housing, hospitals and transport services, recreation and other social needs. The funding of such assistance is periodically determined by management and is appropriately capitalised or expensed as incurred.

Taxation environment

The taxation systems in the Russian Federation and other emerging markets where Group companies operate are relatively new and are characterised by numerous taxes and frequently changing legislation, which is often unclear, contradictory, and subject to interpretation. Often, differing interpretations exist among different tax authorities within the same jurisdictions and among taxing authorities in different jurisdictions. Taxes are subject to review and investigation by a number of authorities, who are enabled by law to impose substantial fines, penalties and interest charges. In the Russian Federation a tax year remains open for review by the tax authorities during three subsequent calendar years. However, under certain circumstances a tax year may remain open longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive position in their interpretation and enforcement of tax legislation. Such factors significantly increase taxation risks in the Russian Federation and other emerging markets where Group companies operate, comparing to other countries where taxation regimes have been subject to development and clarification over longer periods.

The tax authorities in each region of the Russian Federation may have a different interpretation of similar taxation issues which may result in taxation issues successfully defended by the Group in one region being unsuccessfully defended by the Group in another region. There is some direction provided from the central authority based in Moscow on particular taxation issues.

The Group has implemented tax planning and management strategies based on existing legislation. The Group is subject to tax authority audits on an ongoing basis, which is a normal practice in the Russian Federation and other republics of the former Soviet Union, and, at times, the authorities have attempted to impose additional significant taxes on the Group. Management believes that it has adequately met the requirements and provided for tax liabilities based on its interpretation of existing tax legislation. However, the relevant tax authorities may have differing interpretations and the effects on the consolidated financial statements, if the authorities were successful in enforcing their interpretations, could be significant.

Note 30. Commitments and contingencies (сontinued)

Litigation and claims

In July 2015, the prosecutors with the Ploesti Court of Appeals (hereinafter the "Prosecutor's Office") charged the general director and several officers of PETROTEL-LUKOIL S.A., a Group company, with bad faith use of the company's credit and money laundering. Similar charges were brought against LUKOIL Europe Holdings B.V., a Group company, for 2010–2014. On 10 May 2016, the Prahova Tribunal lifted all preventive measures that were in effect against the accused individuals. Upon preliminary hearings the Prosecutor's Office revised the amount of damage claimed from \$2.2 billion (162.5 billion RUB) to \$1.5 billion (110.8 billion RUB). An expertise of all relevant issues of the criminal case was carried out during 2017, the results of which were accepted by the Tribunal on 12 February 2018. At the final hearing on the case which was held on 23 October 2018 the court issued a not guilty decision to all the accused, including general director of PETROTEL-LUKOIL S.A., his deputies and PETROTEL-LUKOIL S.A. and LUKOIL Europe Holdings B.V. themselves. As a result freezing injunction in the amount of approximately \$1.5 billion (110.8 billion RUB) was removed from all assets of the refinery, shares and accounts of PETROTEL-LUKOIL S.A. and LUKOIL Europe Holdings B.V. On 1 November 2018, this decision was appealed by the Prosecutor's Office to the Ploesti Court of Appeals. On 27 November 2019, the Ploesti Court of Appeals issued a decision to return the case for a new examination in the court of first instance. On 24 December 2019, the defendants appealed the decision in an order of extraordinary appeal to the Ploesti Court of Appeals. On 17 June 2020, the Ploesti Court of Appeals rejected the appeal of PETROTEL-LUKOIL S.A. and transferred the case to the Prahova Tribunal. On 9 December 2020, the Prahova Tribunal issued a repeated acquittal due to the absence of an event of a crime. On 16 December 2020, the Prosecutor's Office filed a protest against the court's verdict. Management does not believe that the outcome of this matter will have a material adverse effect on the Group's financial position.

LUKOIL Overseas Karachaganak B.V., a Group company, among other contractors, is involved in the disputes with the Republic of Kazakhstan arising from the Final Production Sharing Agreement relating to the Contract area of the Karachaganak Oil and Gas Condensate Field. Currently, within the framework of the dispute with respect to cost recovery in 2010-2016 the parties are making efforts to resolve the existing controversies by way of negotiations. Management believes that the ultimate outcome of this dispute will not have a material adverse effect on the financial position of the Group. Within the framework of the arbitration proceedings regarding the correctness of the calculation of the "Fairness index", the parties signed a settlement agreement. On 11 December 2020, after the fulfillment of conditions stipulated by the agreement, the arbitration dispute was settled (the Group's share in the settlement was \$196 million). The case is over.

On 21 May 2020, the Federal Antimonopoly Service of Russia (hereinafter – FAS of Russia) filed a claim to the Arbitration court of the Arkhangelsk region for invalidating the transaction of PJSC LUKOIL for the sale of 100% of shares of JSC Arkhangelskgeoldobycha to LLC Otkritie Promyshlennye Investitsii in May 2017 and applying the consequences of its invalidity. On 31 July 2020, the Arbitration court of Arkhangelsk region passed the case to Arbitration court of Moscow. The hearing date was postponed to 19 March 2021. The transaction to sell shares of JSC Arkhangelskgeoldobycha was concluded after a five-month due diligence and verification of information provided by the seller and the buyer, without any objections from regulatory authorities, in strict compliance with the Russian legislation, after an approval was obtained from the Governmental Commission for Control over Foreign Investments in the Russian Federation. In addition, a written approval was obtained from FAS of Russia to conduct this transaction. The price of the asset was agreed by the parties of the transaction as a result of the lengthy negotiations where largest investment banks were involved as advisers, which confirms the market nature of the deal. In this regard, the Company does not agree with the arguments set out in the claim of FAS of Russia and regards itself as a bona fide seller in this transaction, and will take all necessary measures to protect its rights and legitimate interests. Management does not believe that the outcome of this matter will have a material adverse effect on the Group's financial position.

The Group is involved in various other claims and legal proceedings arising in the normal course of business. While these claims may seek substantial damages against the Group and are subject to uncertainty inherent in any litigation, management does not believe that the ultimate resolution of such matters will have a material adverse impact on the Group's operating results or financial position.

Note 30. Commitments and contingencies (сontinued)

Political situation

In July – September 2014, the United States ("US"), the European Union ("EU") and several other countries imposed a set of sanctions on Russia, including sectoral sanctions which affect several Russian oil and gas companies. The US Department of the Treasury has placed the Company onto the Sectoral Sanctions Identifications List subject to Directive 4 of the Office of foreign assets control (OFAC). Directive 4 prohibits US companies and individuals from providing, exporting, or re-exporting directly or indirectly, goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area spreading from the Russian territory and claimed by the Russian Federation.

From January 2018 (based on acts adopted in August – October 2017), the US expanded abovementioned sanctions to include certain categories of international oil projects initiated on or after 29 January 2018 in any part of the world, in which companies placed on the Sectoral Sanctions Identifications List subject to Directive 4 (including the Company) have an ownership interest of 33% or more, or ownership of a majority of the voting interests.

Management believes that current sanctions do not have a material adverse effect on the current or planned Group's oil projects. At the same time the Company continues to monitor and evaluate potential risks for its operations in connection with sanctions.

The Group is exposed to political, economic and legal risks due to its operations in Iraq. Management monitors these risks and believes that there is no adverse effect on the Group's financial position that can be reasonably estimated at present.

Other matters

The Company and other Group companies have been notified by various counterparties of claims in respect of off-specification quantities of crude oil volumes delivered through the Druzhba pipeline (owned and operated by the state-owned company, PJSC Transneft) in the second quarter of 2019. The claims assert that the oil had an average organic chlorine content in excess of the contractual specification, which may allegedly cause the purchasers to suffer certain financial losses. According to publicly available information, this situation was caused by unlawful actions of certain third parties that were aimed at concealing thefts of oil from the pipeline. Currently, agreements have been signed between the Company, PJSC Transneft and all counterparties, which have settled all submitted claims related to this incident.

Note 31. Related party transactions

The senior management of the Company believes that the Group has appropriate procedures in place to identify and properly disclose transactions with related parties and has disclosed all of the relationships identified which it deemed to be significant. Related party sales and purchases of oil and oil products were primarily to and from associates and joint ventures. Other financial assets mostly represent loans given to associates and joint ventures. Short-term borrowings and long-term debt mostly represent lease obligations.

31 December 2020 31 December 2019 Accounts receivable and other current assets 2,474 1,645 Other financial assets 32,403 51,053 Total assets 34,877 52,698 Accounts payable 6,902 5,002 Short-term borrowings and long-term debt 17,649 13,759 Total liabilities 24,551 18,761

Outstanding balances with related parties were as follows:

Note 31. Related party transactions (сontinued)

Related party transactions were as follows:

	2020	2019
Sales of oil and oil products	15,351	31,028
Other sales	2,707	2,356
Purchases of oil and oil products	57,915	84,400
Other purchases	18,342	18,936
Proceeds from sale of other financial assets, net	5,075	10,872
Proceeds from issuance of short-term borrowings and long-term debt, net	2,080	2,964

Key management remuneration

Key management personnel includes members of the Board of Directors and members of the Management Board. Remuneration of key management personnel, including basic salary, bonuses and other payments, amounted to 1,728 million RUB and 1,866 million RUB during 2020 and 2019, respectively.

Also, a provision under the compensation plan (disclosed in Note 32 "Compensation plan") was accrued in relation to the Company's key management personnel in the amount of 3,137 million RUB during 2020 and 2019.

Note 32. Compensation plan

In late December 2017, the Company announced a compensation plan based on approximately 40 million shares available to certain members of management and key employees for the period from 2018 to 2022, which was implemented in July 2018 and recognised as equity-settled share-based compensation plan.

The fair value of the plan was estimated at the grant date at 156.8 billion RUB based on forecasting principles of Monte-Carlo model and is not going to be recalculated in the future. The fair value was estimated assuming a spot-price of the Company's share in the amount of 4,355 RUB at the grant date, discount for illiquidity in the amount of 9.95% per annum, a risk-free interest rate of 7.50% per annum, an expected dividend yield of 4.99% per annum, an expected time to maturity of five years and a volatility factor of 25.68%. The expected volatility factor was estimated based on the historical volatility of the Company's shares for the previous five years. The vesting of shares is contingent on meeting the requisite service period, certain KPIs and share price appreciation. The Group is planning to recognise expenses related to the plan evenly during the vesting period.

Related to this share plan the Group recognised compensation expenses of 31,366 million RUB during 2020 and 2019.

Note 33. Segment information

The Group has the following operating segments – exploration and production; refining, marketing and distribution; corporate and other. These segments have been determined based on the nature of their operations. Management on a regular basis assesses the performance of these operating segments.

The exploration and production segment explores for, develops and produces crude oil and gas. The refining, marketing and distribution segment includes refining, petrochemical and transport operations, marketing and trading of crude oil, natural gas and refined products, generation, transportation and sales of electricity, heat and related services. The corporate and other business operating segment includes activities of the Company and businesses beyond the Group's traditional operations.

Geographical segments are based on the area of operations and include two segments: Russia and International.

Note 33. Segment information (сontinued)

Operating segments

		Refining,
	Exploration and	marketing and	Corporate and
2020	production	distribution	other	Elimination	Consolidated
Sales and other operating revenues
Third parties	164,993	5,455,680	18,728	-	5,639,401
Inter-segment	1,377,246	70,300	40,892	(1,488,438)	-
Total revenues	1,542,239	5,525,980	59,620	(1,488,438)	5,639,401
Operating expenses	262,343	195,558	14,875	(32,803)	439,973
Selling, general and administrative
expenses	48,670	120,607	62,838	(33,088)	199,027
Profit (loss) for the year attributable to
PJSC LUKOIL shareholders	125,192	(4,882)	(102,523)	(2,612)	15,175
EBITDA	500,081	243,322	(39,378)	(16,931)	687,094
Income tax expense					(82,154)
Finance income					13,051
Finance costs					(44,122)
Foreign exchange loss					(26,110)
Equity share in income of associates
and joint ventures					11,474
Other expenses					(137,160)
Depreciation, depletion and
amortisation					(405,440)
Profit for the year attributable to
non-controlling interests					(1,458)
Profit for the year attributable to PJSC
LUKOIL shareholders					15,175

		Refining,
	Exploration and	marketing and	Corporate and
2019	production	distribution	other	Elimination	Consolidated
Sales and other operating revenues
Third parties	270,842	7,548,121	22,283	-	7,841,246
Inter-segment	2,093,342	76,077	45,601	(2,215,020)	-
Total revenues	2,364,184	7,624,198	67,884	(2,215,020)	7,841,246
Operating expenses	274,934	228,576	19,709	(65,509)	457,710
Selling, general and administrative
expenses	47,964	121,383	63,515	(35,690)	197,172
Profit (loss) for the year attributable to
PJSC LUKOIL shareholders	473,517	190,998	(35,569)	11,232	640,178
EBITDA	893,950	371,642	(39,962)	10,562	1,236,192
Income tax expense					(151,133)
Finance income					25,134
Finance costs					(44,356)
Foreign exchange gain					923
Equity share in income of associates
and joint ventures					18,246
Other expenses					(27,691)
Depreciation, depletion and
amortisation					(415,094)
Profit for the year attributable to
non-controlling interests					(2,043)
Profit for the year attributable to PJSC
LUKOIL shareholders					640,178

Note 33. Segment information (continued)

Geographical segments

	2020	2019
Sales of crude oil within Russia	23,522	22,528
Export of crude oil and sales of crude oil by foreign subsidiaries	1,918,944	2,684,320
Sales of petroleum products within Russia	785,663	923,715
Export of petroleum products and sales of petroleum products by foreign subsidiaries	2,548,961	3,748,364
Sales of chemicals within Russia	36,386	40,971
Export of chemicals and sales of chemicals by foreign subsidiaries	57,036	91,687
Sales of gas within Russia	32,649	32,490
Sales of gas by foreign subsidiaries	68,200	138,997
Sales of energy and related services within Russia	53,607	53,276
Sales of energy and related services by foreign subsidiaries	10,451	14,604
Other sales within Russia	40,169	42,270
Other export sales and other sales of foreign subsidiaries	63,813	48,024
Total sales	5,639,401	7,841,246

2020	Russia	International	Elimination	Consolidated
Sales and other operating revenues
Third parties	1,041,967	4,597,434	-	5,639,401
Inter-segment	994,845	1,670	(996,515)	-
Total revenues	2,036,812	4,599,104	(996,515)	5,639,401
Operating expenses	314,341	91,499	34,133	439,973
Selling, general and administrative expenses	91,727	110,938	(3,638)	199,027
Profit (loss) for the year attributable to PJSC LUKOIL
shareholders	202,309	(184,450)	(2,684)	15,175
EBITDA	590,553	105,065	(8,524)	687,094

2019	Russia	International	Elimination	Consolidated
Sales and other operating revenues
Third parties	1,221,549	6,619,697	-	7,841,246
Inter-segment	1,606,632	2,726	(1,609,358)	-
Total revenues	2,828,181	6,622,423	(1,609,358)	7,841,246
Operating expenses	329,688	118,256	9,766	457,710
Selling, general and administrative expenses	93,963	106,939	(3,730)	197,172
Profit for the year attributable to PJSC LUKOIL shareholders	577,939	52,593	9,646	640,178
EBITDA	1,032,126	199,811	4,255	1,236,192

In the International segment the Group receives the most substantial revenues in Switzerland, the USA and Singapore.

	2020	2019
Sales revenues
in Switzerland	2,449,415	3,503,238
in the USA	680,033	1,128,181
in Singapore	357,647	482,132

These amounts are attributed to individual countries based on the jurisdiction of subsidiaries making the sale.

Note 34. Subsidiaries

The most significant subsidiaries of the Group are presented below:

		31 December 2020		31 December 2019
	Country of	Total	Voting	Total	Voting
Subsidiary	incorporation	shares	shares	shares	shares
LUKOIL-West Siberia LLC	Russia	100.00%	100.00%	100.00%	100.00%
LUKOIL-PERM LLC	Russia	100.00%	100.00%	100.00%	100.00%
LUKOIL-Komi LLC	Russia	100.00%	100.00%	100.00%	100.00%
RITEK LLC	Russia	100.00%	100.00%	100.00%	100.00%
LUKOIL-Permnefteorgsintez LLC	Russia	100.00%	100.00%	100.00%	100.00%
LUKOIL-Nizhegorodnefteorgsintez LLC	Russia	100.00%	100.00%	100.00%	100.00%
LUKOIL-Nizhnevolzhskneft LLC	Russia	100.00%	100.00%	100.00%	100.00%
LUKOIL-Volgogradneftepererabotka LLC	Russia	100.00%	100.00%	100.00%	100.00%
ISAB S.r.l.	Italy	100.00%	100.00%	100.00%	100.00%
LITASCO SA	Switzerland	100.00%	100.00%	100.00%	100.00%
LUKARCO B.V.	Netherlands	100.00%	100.00%	100.00%	100.00%
LUKOIL INTERNATIONAL GmbH	Austria	100.00%	100.00%	100.00%	100.00%
LUKOIL International Upstream Holding B.V.	Netherlands	100.00%	100.00%	100.00%	100.00%
LUKOIL Neftohim Burgas AD	Bulgaria	99.85%	99.85%	99.85%	99.85%
LUKOIL Overseas Karachaganak B.V.	Netherlands	100.00%	100.00%	100.00%	100.00%
LUKOIL Overseas Shah Deniz Ltd.	Cyprus	100.00%	100.00%	100.00%	100.00%
LUKOIL Overseas Uzbekistan Ltd.	Cyprus	100.00%	100.00%	100.00%	100.00%
LUKOIL Securities B.V.	Netherlands	100.00%	100.00%	100.00%	100.00%
LUKOIL Pan Americas LLC	USA	100.00%	100.00%	100.00%	100.00%

Note 35. Fair value

There are the following methods of fair value measurement based on the valuation method:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly;

Level 3 – unobservable inputs.

The following tables show the carrying amounts and fair values of financial assets and financial liabilities included in the consolidated statement of financial position at 31 December 2020 and 2019.

31 December 2020	Fair value
	Carrying amount	Level 1	Level 2	Level 3	Total
Financial assets:
Commodity derivative contracts	316	-	316	-	316
Financial assets at fair value through profit or loss	33,195	-	-	33,195	33,195
Financial assets at fair value through other comprehensive income	2,491	2,491	-	-	2,491
Financial liabilities:
Commodity derivative contracts	418	-	418	-	418
Loans and borrowings	638,453	362,818	-	307,832	670,650

Note 35. Fair value (сontinued)

	Fair value
31 December 2019	Carrying amount	Level 1	Level 2	Level 3	Total
Financial assets:
Commodity derivative contracts	180	-	180	-	180
Financial assets at fair value through profit or loss	51,054	-	-	51,054	51,054
Financial assets at fair value through other comprehensive income	2,656	2,656	-	-	2,656
Financial liabilities:
Commodity derivative contracts	550	-	550	-	550
Loans and borrowings	537,070	265,109	-	295,726	560,835

The fair values of cash and cash equivalents (Level 1), accounts receivable and long-term accounts receivable (Level 3), short-term borrowings (Level 3) are approximately equal to their value as disclosed in the consolidated statement of financial position. The fair value of long-term receivables was determined by discounting with estimated market interest rates for similar financing arrangements. The fair value of long-term loans (Level 3) was determined as a result of discounting using estimated market interest rates for similar financing instruments. These amounts include all future cash outflows associated with the long-term debt repayments, including the current portion and interest. Market interest rates mean the rates of raising long-term debt by companies with a similar credit rating for similar tenors, repayment schedules and other similar main terms. The fair value of bonds (Level 1) was determined based on market quotations at 31 December 2020 and 2019.

Note 36. Capital and risk management

The Group's governing bodies pay great attention to risk management issues to provide a reasonable guarantee for the achievement of the set objectives under the conditions characterized by uncertainties and negative impact factors. The Group is constantly identifying, describing, estimating and monitoring the possible events that may affect its activities, and is elaborating measures to prevent them or mitigate their negative impact to the greatest extent possible if such events do take place.

The Group seeks to actively promote risk management and is presently focusing its efforts on the improvement of a general enterprise risk management system (ERM) based on the best international practices. The Group is constantly improving the applicable regulatory methodological risk management base that establishes requirements aimed at organizing the risk management process at all stages, and defines management standards for certain risk types of utmost importance, which are uniform for all of Group organizations. The Risk Committee, a dedicated body under the President of the Company, was set up and began its work in 2011.

The information with regard to key financial risks of the Group is presented below.

Credit risk

The Group's most significant credit risks include first of all the risk of failure by its counterparties to perform their obligations in terms of payment for the products supplied by the Group. In order to mitigate these risks, the Group focuses on partnerships with counterparties that have high credit ratings, accepts letters of credit and guarantees issued by reputable banks and sometimes demands prepayment for the products supplied. In addition, it utilizes tools to limit the credit risks of a given counterparty.

Another group of credit risks includes risks associated with contractor banks' activities and potential impairment of their financial stability. In order to mitigate these risks, the Group is involved in centralized treasury operations, part of which are aimed at fund raising, investment and operations involving currency exchange and financial derivatives. The credit ratings of contractor banks are monitored on a regular basis.

44

The carrying amount of financial assets represents the maximum exposure to credit risk.

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PJSC LUKOIL Notes to Consolidated Financial Statements (Millions of Russian rubles, unless otherwise noted)

Note 36. Capital and risk management (сontinued)

Trade and other receivables

Analysis of the aging of receivables:

	31 December 2020	31 December 2019
Not past due	342,930	402,713
Past due less than 45 days	10,895	21,299
Past due from 46 to 180 days	4,315	8,809
Past due from 181 to 270 days	635	963
Past due from 271 to 365 days	11,053	587
Past due more than 365 days	443	2,681
Total trade and other receivables	370,271	437,052

Not past due accounts receivable are not considered of high credit risk.

Allowance for expected credit losses changed as follows during 2020:

31 December 2019	31,287
Increase in allowance charged to profit or loss	5,771
Write-off	(2,379)
Foreign currency translation differences	3,679
Other	(666)
31 December 2020	37,692

Allowance for expected credit losses changed as follows during 2019:

31 December 2018	27,798
Increase in allowance charged to profit or loss	9,270
Write-off	(3,381)
Foreign currency translation differences	(2,492)
Other	92
31 December 2019	31,287

Financial instruments used by the Group and potentially exposed to concentrations of credit risk consist primarily of cash equivalents, over-the-counter production contracts and trade receivables. The cash and cash equivalents are held with banks, which are generally highly rated.

The credit risk from the Group's over-the-counter derivative contracts, such as forwards and swaps, derives from the counterparty to the transaction, typically a major bank or financial institution. Individual counterparty exposure is managed within predetermined credit limits and includes the use of cash-call margins when appropriate, thereby reducing the risk of significant non-performance. The Group also uses futures contracts, but futures have a negligible credit risk because they are traded on the New York Mercantile Exchange or the Intercontinental Exchange (ICE Futures).

Liquidity risk

The Group's liquidity is managed on a centralized basis. There is an efficient global system in place to manage the Group's liquidity, which includes an automated system of concentrating and re-distributing the funds, corporate dealing and also rolling cash-flow forecasts. The liquidity indicators are monitored on a continuous basis.

PJSC LUKOIL Notes to Consolidated Financial Statements (Millions of Russian rubles, unless otherwise noted)

Note 36. Capital and risk management (сontinued)

Contractual maturities of the Group's financial liabilities (the Group itself determines the grouping of the maturity based on contractual maturities and, where relevant, on judgment):

		Contractual
	Carrying	cash flows	Less than 12
	amount	(undiscounted)	months	1-2 years	2-5 years	Over 5 years
Loans and borrowings, including interest expense	134,150	173,227	50,966	23,218	47,289	51,754
Bonds, including interest
expense	334,255	407,958	15,295	50,764	135,780	206,119
Lease obligations	193,872	257,533	44,232	27,429	67,514	118,358
Trade and other payables	597,406	597,406	595,465	1,437	141	363
Derivative financial liabilities	418	418	418	-	-	-
31 December 2020	1,260,101	1,436,542	706,376	102,848	250,724	376,594

	Carrying amount	Contractual cash flows (undiscounted)	Less than 12 months	1-2 years	2-5 years	Over 5 years
Loans and borrowings,
including interest expense	134,484	174,563	45,260	25,980	49,746	53,577
Bonds, including interest
expense	249,274	290,545	71,091	9,225	136,712	73,517
Lease obligations	171,880	235,613	37,069	26,742	59,077	112,725
Trade and other payables	606,566	606,566	605,203	932	350	81
Derivative financial liabilities	550	550	550	-	-	-
31 December 2019	1,162,754	1,307,837	759,173	62,879	245,885	239,900

Currency risk

The Group is subject to foreign exchange risks since it operates in a number of countries. The exchange rate of the Russian ruble to the US dollar produces the greatest impact on transaction results, since the Group's export proceeds are denominated in dollars, while the major costs are incurred in Russia and are denominated in Russian rubles.

As part of the centralized approach to management of the treasury operations and liquidity of the Group, the risks associated with unfavorable changes in the exchange rates are generally consolidated at the corporate level. The Company uses an integrated approach to manage its currency risks, including the application of natural hedging mechanisms, which encompass management of the currency structure of its monetary assets and liabilities.

The carrying amounts of the Group's assets and liabilities which form currency risk at 31 December 2020 and 2019 are presented in the tables below and contain balances between Group companies whose functional currency is different from the currency of the contract.

31 December 2020	USD	EUR	Other currencies
Financial assets:
Cash and cash equivalents	2,014	56,041	778
Trade and other receivables	79,401	181	4,516
Loans	260,894	3,452	-
Other financial assets	1,698	2	90
Financial liabilities:
Loans and borrowings	(354,100)	(41,051)	(8,470)
Trade and other payables	(29,350)	(8,622)	(19,875)
Net exposure	(39,443)	10,003	(22,961)

PJSC LUKOIL Notes to Consolidated Financial Statements (Millions of Russian rubles, unless otherwise noted)

Note 36. Capital and risk management (сontinued)

31 December 2019	USD	EUR	Other currencies
Financial assets:
Cash and cash equivalents	64,708	12,309	761
Trade and other receivables	144,336	6,699	4,765
Loans	199,764	4,794	-
Other financial assets	2,651	54	124
Financial liabilities:
Loans and borrowings	(399,921)	(37,104)	(3,651)
Trade and other payables	(51,560)	(14,655)	(11,696)
Net exposure	(40,022)	(27,903)	(9,697)

The following exchange rates applied:

	31 December 2020	31 December 2019
USD	73.88	61.91
EUR	90.68	69.34

Sensitivity analysis

Analysis of the currency position shows that the Group mainly uses RUR, US dollar and EUR in its operating activity. Thus sensitivity analysis shows how strengthening (weakening) of these currencies at 31 December 2020 and 2019 would have affected the measurement of financial assets and liabilities denominated in foreign currencies and affected profit (loss) before taxes. The analysis assumes that all other variables remain constant.

		Profit (loss)
	2020	2019
US Dollar (increase by 10%)	(5,262)	(1,952)
Euro (increase by 10%)	1,121	222
Russian ruble (increase by 10%)	3,873	1,113

The weakening of these currencies by 10% will have equal effect on profit (loss) but with opposite sign.

Interest rate risk

The Group is exposed to a significant interest rate risk both in the short- and long-term. A change in interest rates may affect the cost of funds borrowed by the Group as well as the size of cash flows.

To mitigate this risk, the Group is constantly monitoring market conditions, taking measures to improve the debt structure by reaching an optimum balance between fixed and variable interest rates, controlling the need for additional financing and outstanding debt refinancing, extending the term of debt obligations.

The interest rate profiles of the Group are presented below:

	31 December 2020	31 December 2019
Fixed rate instruments:
Financial assets	35,603	44,970
Financial liabilities	(527,063)	(420,239)
Net exposure	(491,460)	(375,269)
Variable rate instruments:
Financial assets	39,523	41,596
Financial liabilities	(132,648)	(132,993)
Net exposure	(93,125)	(91,397)

(Millions of Russian rubles, unless otherwise noted)

Notes to Consolidated Financial Statements

Note 36. Capital and risk management (сontinued)

Sensitivity analysis for variable rate instruments

A reasonably possible change of 100 basis points in interest rates at 31 December 2020 and 2019 would have increased (decreased) profit (loss) before taxes by the amounts shown below. This analysis assumes that all other variables remain constant.

		Profit (loss) before taxes
	100 bp increase	100 bp decrease
2020
Net financial liabilities	(931)	931
2019
Net financial liabilities	(914)	914

Capital management

The Group's capital management objectives are to secure the ability to continue as a going concern and to optimize the cost of capital in order to enhance value to shareholders. The Company's management performs regular assessment of the net debt to equity ratio to ensure it meets the Company's current rating requirements. Equity includes share capital, reserves and retained earnings, as well as non-controlling interests. Net debt is a non-IFRS measure and is calculated as a sum of loans and borrowings, as presented in the consolidated statement of financial position, less cash and cash equivalents. Net debt to equity ratio enables the users to see how significant net debt is.

The Group's net debt to equity ratio was as follows:

	31 December 2020	31 December 2019
Total debt	659,711	553,232
Less cash and cash equivalents	(343,832)	(516,032)
Net debt	315,879	37,200
Equity	4,130,766	3,973,449
Net debt to equity ratio	7.65%	0.94%

Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited) (Millions of Russian rubles, unless otherwise noted)

Supplementary Information on Oil and Gas Exploration and Production Activities

IFRS do not require the information on oil and gas reserves to be disclosed in consolidated financial statements. However, management believes that this supplementary information will benefit the users of consolidated financial statements of the Group.

The information on oil and gas exploration and production activities is presented in six separate tables:

• I. Capitalised costs relating to oil and gas producing activities.
• II. Costs incurred in oil and gas property acquisition, exploration, and development activities.
• III. Results of operations for oil and gas producing activities.
• IV. Reserve quantity information.
• V. Standardised measure of discounted future net cash flows.
• VI. Principal sources of changes in the standardised measure of discounted future net cash flows.

Amounts shown for equity method companies represent the Group's share in its exploration and production associates and joint ventures, which are accounted for using the equity method of accounting.

I. Capitalised costs relating to oil and gas producing activities

31 December 2020	International	Russia	Total consolidated companies	Group's share in equity method companies
Unproved oil and gas properties	105,907	123,493	229,400	37,901
Proved oil and gas properties	1,645,275	3,558,589	5,203,864	370,006
Accumulated DD&A	(980,878)	(1,212,856)	(2,193,734)	(120,843)
Net capitalised costs	770,304	2,469,226	3,239,530	287,064

31 December 2019	International	Russia	Total consolidated companies	Group's share in equity method companies
Unproved oil and gas properties	84,203	109,313	193,516	28,692
Proved oil and gas properties	1,305,806	3,296,352	4,602,158	300,337
Accumulated DD&A	(720,304)	(1,046,271)	(1,766,575)	(99,189)
Net capitalised costs	669,705	2,359,394	3,029,099	229,840

II. Costs incurred in oil and gas property acquisition, exploration, and development activities

2020	International	Russia	Total consolidated companies	Group's share in equity method companies
Acquisition of properties - Unproved	-	1,443	1,443	-
Exploration costs	8,151	30,862	39,013	237
Development costs	43,959	311,355	355,314	10,824
Total costs incurred	52,110	343,660	395,770	11,061

			Total consolidated	Group's share in equity method
2019	International	Russia	companies	companies
Acquisition of properties - Proved	31,393	2,317	33,710	-
Acquisition of properties - Unproved	32,419	14,937	47,356	-
Exploration costs	13,439	17,014	30,453	4,336
Development costs	53,495	309,797	363,292	11,254
Total costs incurred	130,746	344,065	474,811	15,590

Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited) (Millions of Russian rubles, unless otherwise noted)

III. Results of operations for oil and gas producing activities

The Group's results of operations for oil and gas producing activities are presented below. Sales and transfers to Group companies are based on market prices, income taxes are based on statutory rates. The results of operations exclude corporate overhead and interest costs.

			Total	Group's share in
2020	International	Russia	consolidated companies	equity method companies
Revenue
Sales	123,966	645,991	769,957	33,879
Transfers	-	572,660	572,660	1,039
Total revenues	123,966	1,218,651	1,342,617	34,918
Production costs (excluding production taxes)	(40,583)	(158,328)	(198,911)	(7,395)
Exploration expenses	(3,163)	(2,951)	(6,114)	-
Depreciation, depletion and amortisation	(77,736)	(191,707)	(269,443)	(8,632)
Taxes other than income taxes	(755)	(611,640)	(612,395)	(8,864)
Related income taxes	(1,163)	(56,455)	(57,618)	(4,161)
Total results of operations for producing activities	566	197,570	198,136	5,866

2019	International	Russia	Total consolidated companies	Group's share in equity method companies
Revenue
Sales	211,230	961,273	1,172,503	60,642
Transfers	-	985,859	985,859	1,420
Total revenues	211,230	1,947,132	2,158,362	62,062
Production costs (excluding production taxes)	(40,277)	(170,590)	(210,867)	(5,899)
Exploration expenses	(7,493)	(1,855)	(9,348)	(33)
Depreciation, depletion and amortisation	(83,726)	(193,696)	(277,422)	(11,144)
Taxes other than income taxes	(531)	(1,035,635)	(1,036,166)	(15,446)
Related income taxes	(11,736)	(104,585)	(116,321)	(11,384)
Total results of operations for producing activities	67,467	440,771	508,238	18,156

IV. Reserve quantity information

Proved reserves are the estimated quantities of oil and gas reserves which according to geological and engineering data are going to be recoverable with reasonable certainty in future years from known reservoirs under existing economic and operating conditions. Existing economic and operating conditions are based on the 12-months average price and the year-end costs. Proved reserves do not include additional quantities of oil and gas reserves that may result from applying secondary or tertiary recovery techniques not yet tested and determined to be economic.

Proved developed reserves are the quantities of proved reserves expected to be recovered through existing wells with existing equipment and operating methods.

Due to the inherent uncertainties and the necessarily limited nature of reservoir data, estimates of reserves are inherently imprecise, require the application of judgment and are subject to change as additional information becomes available.

Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited) (Millions of Russian rubles, unless otherwise noted)

Management has included within proved reserves significant quantities which the Group expects to produce after the expiry dates of certain of its current production licenses in the Russian Federation. The Subsoil Law 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. Since the law applies to both newly issued and old licenses and the Group has currently renewed 66% of its licenses, management believes that licenses will be renewed upon their expiration for the remainder of the economic life of each respective field.

Estimated net proved oil and gas reserves and changes thereto for 2020 and 2019 are shown in the tables set out below.

Millions of barrels	Consolidated subsidiaries	Group's share in equity method
Crude oil	International	Russia	Total	companies
31 December 2018	316	11,478	11,794	288
Revisions of previous estimates	43	(55)	(12)	1
Purchase of hydrocarbons in place	29	18	47	-
Extensions and discoveries	26	531	557	2
Production	(30)	(614)	(644)	(18)
31 December 2019	384	11,358	11,742	273
Revisions of previous estimates	140	(268)	(128)	6
Extensions and discoveries	28	373	401	2
Production	(39)	(549)	(588)	(16)
31 December 2020	513	10,914	11,427	265
Proved developed reserves
31 December 2019	219	7,464	7,683	116
31 December 2020	283	7,210	7,493	104

The non-controlling interest share included in the above total proved reserves was 61 million barrels and 71 million barrels at 31 December 2020 and 2019, respectively. The non-controlling interest share included in the above proved developed reserves was 38 million barrels and 37 million barrels at 31 December 2020 and 2019, respectively. All non-controlling interests relate to reserves in the Russian Federation.

Billions of cubic feet	Consolidated subsidiaries	Group's share in equity method
Natural gas	International	Russia	Total	companies
31 December 2018	6,352	16,500	22,852	241
Revisions of previous estimates	(106)	124	18	18
Purchases of hydrocarbons in place	138	-	138	-
Extensions and discoveries	70	428	498	-
Production	(586)	(626)	(1,212)	(26)
31 December 2019	5,868	16,426	22,294	233
Revisions of previous estimates	204	73	277	11
Extensions and discoveries	15	350	365	-
Production	(381)	(617)	(998)	(26)
31 December 2020	5,706	16,232	21,938	218
Proved developed reserves
31 December 2019	4,504	5,753	10,257	133
31 December 2020	4,118	5,746	9,864	113

The non-controlling interest share included in the above total proved reserves was 23 billion cubic feet and 26 billion cubic feet at 31 December 2020 and 2019, respectively. The non-controlling interest share included in the above proved developed reserves was 15 billion cubic feet and 14 billion cubic feet at 31 December 2020 and 2019, respectively. All non-controlling interests relate to reserves in the Russian Federation.

PJSC LUKOIL Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited) (Millions of Russian rubles, unless otherwise noted)

V. Standardised measure of discounted future net cash flows

Estimated future cash inflows from hydrocarbons production are computed by applying the 12-months average price for oil and gas and the year-end exchange rates to year-end quantities of estimated net proved reserves. Adjustments in this calculation for future price changes are limited to those required by contractual arrangements in existence at the end of each reporting year. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end estimated proved reserves based on year-end cost indices, assuming continuation of year-end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are applied to estimated future pre-tax net cash flows, less the tax bases of related assets. Discounted future net cash flows have been calculated using a ten percent discount factor. Discounting requires a year-byyear estimate of when future expenditures will be incurred and when reserves will be produced.

The information provided in the tables set out below does not represent management's estimate of the Group's expected future cash flows or of the value of the Group's proved oil and gas reserves. Estimates of proved reserve quantities are imprecise and change over time as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The arbitrary valuation requires assumptions as to the timing and amount of future development and production costs. The calculations should not be relied upon as an indication of the Group's future cash flows or of the value of its oil and gas reserves.

31 December 2020	International	Russia	Total consolidated companies	Group's share in equity method companies
Future cash inflows	2,361,227	28,537,502	30,898,729	639,463
Future production and development costs	(1,462,485)	(23,445,365)	(24,907,850)	(392,022)
Future income tax expenses	(108,293)	(679,792)	(788,085)	(76,904)
Future net cash flows	790,449	4,412,345	5,202,794	170,537
Discount for estimated timing of cash flows (10% p.a.)	(306,616)	(2,345,485)	(2,652,101)	(84,307)
Discounted future net cash flows	483,833	2,066,860	2,550,693	86,230
Non-controlling share in discounted future net cash flows	-	12,861	12,861	-

31 December 2019	International	Russia	Total consolidated companies	Group's share in equity method companies
Future cash inflows	2,567,902	39,282,386	41,850,288	877,924
Future production and development costs	(1,488,826)	(30,022,601)	(31,511,427)	(537,056)
Future income tax expenses	(91,906)	(1,514,998)	(1,606,904)	(105,121)
Future net cash flows	987,170	7,744,787	8,731,957	235,747
Discount for estimated timing of cash flows (10% p.a.)	(375,184)	(4,129,628)	(4,504,812)	(110,174)
Discounted future net cash flows	611,986	3,615,159	4,227,145	125,573
Non-controlling share in discounted future net cash flows	-	26,963	26,963	-

Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited) (Millions of Russian rubles, unless otherwise noted)

VI. Principal sources of changes in the standardised measure of discounted future net cash flows

Consolidated companies	2020	2019
Discounted present value at 1 January	4,227,145	5,636,665
Net changes due to purchases and sales of minerals in place	23	31,212
Sales and transfers of oil and gas produced, net of production costs	(525,197)	(901,981)
Net changes in prices and production costs estimates	(4,640,038)	(4,542,732)
Net changes in mineral extraction taxes	2,622,343	2,640,183
Extensions and discoveries, less related costs	86,574	210,417
Previously estimated development cost incurred during the year	360,474	308,689
Revisions of previous quantity estimates	20,422	(6,476)
Net change in income taxes	381,202	389,446
Accretion of discount	461,076	616,850
Other changes	(443,331)	(155,128)
Discounted present value at 31 December	2,550,693	4,227,145

Group's share in equity method companies	2020	2019
Discounted present value at 1 January	125,573	158,208
Net changes due to purchases and sales of minerals in place	(60)	-
Sales and transfers of oil and gas produced, net of production costs	(18,659)	(40,684)
Net changes in prices and production costs estimates	(116,411)	(122,290)
Net changes in mineral extraction taxes	74,626	69,049
Extensions and discoveries, less related costs	1,047	452
Previously estimated development cost incurred during the year	26,199	38,478
Revisions of previous quantity estimates	2,013	1,254
Net change in income taxes	14,268	18,370
Accretion of discount	17,621	22,222
Other changes	(39,987)	(19,486)
Discounted present value at 31 December	86,230	125,573

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

The following report contains a discussion and analysis of the financial position of PJSC LUKOIL at 31 December 2020 and results of its operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019, as well as significant factors that may affect its future performance. It should be read in conjunction with our International Financial Reporting Standards ("IFRS") consolidated financial statements, including notes and supplementary information on oil and gas exploration and production activities.

References to "LUKOIL," "the Company," "the Group," "we" or "us" are references to PJSC LUKOIL and its subsidiaries and associates. All ruble amounts are in millions of Russian rubles ("RUB"), unless otherwise indicated. Income and expenses of our foreign subsidiaries were translated to rubles at rates, which approximate actual rates at the date of the transaction. Tonnes of crude oil and natural gas liquids produced were translated into barrels using conversion rates characterizing the density of crude oil from each of our oilfields and the actual density of liquids produced at our gas processing plants. Hydrocarbon extraction expenses per barrel were calculated using these actual production volumes. Other operational indicators expressed in barrels were translated into barrels using an average conversion rate of 7.33 barrels per tonne. Translations of cubic meters to cubic feet were made at the rate of 35.31 cubic feet per cubic meter. Translations of barrels of crude oil into barrels of oil equivalent ("BOE") were made at the rate of 1 barrel per BOE and of cubic feet – at the rate of 6 thousand cubic feet per BOE.

This report includes forward-looking statements – words such as "believes," "anticipates," "expects," "estimates," "intends," "plans," etc. – that reflect management's current estimates and beliefs, but are not guarantees of future results. Please see "Forward-looking statements" on page 44 for a discussion of some factors that could cause actual results to differ materially.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Business overview

The primary activities of LUKOIL and its subsidiaries are hydrocarbon exploration, production, refining, marketing and distribution.

LUKOIL is one of the world's largest publicly traded vertically integrated energy companies. Our proved reserves under SEC standards amounted to 15.4 billion BOE at 1 January 2021 and comprised of 11.7 billion barrels of crude oil and 22.2 trillion cubic feet of gas. Most of our reserves are conventional. We undertake exploration for, and production of, crude oil and gas in Russia and internationally. In Russia, our major oil producing regions are West Siberia, Timan-Pechora, Ural and Volga region. Our international upstream segment includes stakes in PSAs and other projects in Kazakhstan, Azerbaijan, Uzbekistan, Romania, Iraq, Egypt, Ghana, Norway, Cameroon, Nigeria, Mexico, the Republic of Congo and the UAE. Our daily hydrocarbon production in 2020 amounted to 2.1 million BOE, with liquid hydrocarbons representing approximately 78% of our overall production volumes.

LUKOIL has geographically diversified downstream assets portfolio primarily in Russia and Europe. Our downstream operations include crude oil refining, petrochemical and transport operations, marketing and trading of crude oil, natural gas and refined products, retail sales of refined products, power generation, transportation and sales of electricity, heat and related services.

We own and operate four refineries located in European Russia and three refineries located outside Russia – in Bulgaria, Romania, and Italy. Moreover, we have a 45% interest in the Zeeland refinery in the Netherlands. We also own two petrochemical plants in Russia and have petrochemical facilities at our refineries in Bulgaria and Italy. Along with our own production of refined products, we refine crude oil at third party refineries depending on market conditions and other factors. Throughput at our refineries in 2020 amounted to 1.2 million barrels per day, and we produced 1.2 million tonnes of petrochemicals, including olefins, polyolefins and products of organic synthesis.

We market our own and purchased crude oil and refined products through our sales channels in Russia, Europe, South-East Asia, Central and North America and other regions. We own petrol stations in 19 countries. Most of our retail networks are located close to our refineries. Our retail sales in 2020 amounted to 12.7 million tonnes of refined products. We also supply jet fuel to airports and bunker fuel to sea and river ports in and outside Russia.

We are involved in production, distribution and marketing of electrical energy and heat both in Russia and internationally. In 2020, our total output of commercial electrical energy was 17.1 billion kWh.

Our operations and finance activities are coordinated from headquarters in Moscow. We divide our operations into three main business segments: "Exploration and production," "Refining, marketing and distribution," and "Corporate and other".

Impact of COVID-19 on the Group's operations

In December 2019, the emergence of a new strain of coronavirus (COVID-2019) was reported in China and has subsequently spread globally. On 11 March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. Mobility restrictions, quarantines and similar lockdown measures implemented in different countries to cope with the pandemic had a significant negative impact on the global economy. Deceleration of economic activity resulted in a substantial decrease in demand for hydrocarbons leading to oversupply on the international oil market and a sharp decline in oil prices. Failure of OPEC+ countries to reach a new agreement on crude oil production quotas in the beginning of March put an incremental pressure on oil prices. As a result, the price for Brent collapsed to a 20-years minimum of \$13 per barrel in April. On 12 April 2020, OPEC+ countries entered into a new agreement to reduce their collective output by 9.7 million barrels per day starting from 1 May 2020. This coordinated production cut together with the negative impact of low oil prices on crude oil production in different countries resulted in lower supply of crude oil and reduction of surplus on the crude oil market and led to a gradual recovery of oil prices. This upward oil price trend was further supported by the gradual lifting of lockdowns in different countries, recovery in economic activity and respective growth in demand for hydrocarbons. As a result, the price for Brent exceeded \$46 per barrel in August 2020. Acceleration of COVID-19 spread in October 2020 resulted in a renewal of lockdown measures in different countries and a decline in the price for Brent to \$36 per barrel. Progress with testing of vaccines against COVID-19 pushed the price for Brent up to \$52 per barrel by the end of December 2020.

From the beginning of COVID-19 pandemic the Group has taken necessary measures to avoid direct impact of the pandemic on its operations with a special focus on protection of the health of employees and clients and uninterrupted production processes.

The major impact of COVID-19 on the macroeconomic environment in the oil and gas industry resulted in a number of consequences on operational and financial performance of the Group.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

From February through August 2020, we reduced production of gas at our projects in Uzbekistan to approximately 20% of the projects capacity due to lower demand for Uzbek gas from China. At the same time, since September we have been recovering our gas production in Uzbekistan on the back of growing demand for gas from China, and as of December 2020 production was back to the project levels.

Due to the new OPEC+ agreement we cut our crude oil production in Russia in May 2020 by approximately 310 thousand barrels per day, or by 19%, as compared to our daily crude oil production in Russia in the first quarter of 2020. To minimize the negative impact of this production cut on our financial performance the cut was implemented at the least profitable fields. By the end of 2020, production stepped up sequentially by approximately 100 thousand barrels per day as compared to the May level. Due to the agreement crude oil production was also cut at some of our international projects. For example, production at the West Qurna-2 project in Iraq was 90 thousand barrels per day below its capacity as at the end of 2020.

Our refining and marketing segment was also affected as demand for jet fuel and motor fuels declined substantially, which had a negative impact on the benchmark refining margins and sales volumes. We adjusted the product slate and optimized utilization rates at our refineries starting from the second quarter of 2020 in order to efficiently react to the adverse macro changes. As a result of optimization, as well as major scheduled maintenance works at several refineries, average daily refinery throughput volumes in 2020 were approximately 25% lower at our European refineries and approximately 9% lower at our Russian refineries as compared to 2019.

We also faced a steep decline in the retail sales volumes of motor fuels at our filling stations in Russia and other countries in April 2020, when volumes were 40% lower compared to April 2019. However, from May 2020 retail sales volumes started recovering on the back of the recovery in economic activity in different countries and, in the second half of 2020, reached approximately 94% of the level of the second half of 2019.

The impact of the pandemic on the Group's financial performance in 2020 is discussed in detail in the below discussion and analysis. Management expects that as a result of the effects of the pandemic the macroeconomic environment in the oil and gas industry will remain volatile. Management will continue monitoring the situation closely to ensure prompt reaction to the rapidly changing environment.

Management believes that the Group is in a solid financial condition and has adequate liquidity with net financial debt position (excluding lease obligations) of only 122 billion RUB at the end of 2020. This represents an incremental support for continuous operations and meeting all of the Group's obligations, as well as adequate financing of the investment programme.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Key financial and operational results

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
			(millions of rubles)
Sales	1,530,339	1,456,650	5.1	5,639,401	7,841,246	(28.1)
EBITDA¹, including	189,612	202,223	(6.2)	687,094	1,236,192	(44.4)
Exploration and production segment	166,567	151,979	9.6	500,081	893,950	(44.1)
Refining, marketing and distribution segment	46,649	77,638	(39.9)	243,322	371,642	(34.5)
EBITDA¹ net of West Qurna-2 project	182,496	196,008	(6.9)	655,098	1,214,502	(46.1)
Profit for the period attributable to LUKOIL
shareholders	29,435	50,420	(41.6)	15,175	640,178	(97.6)
Capital expenditures	135,161	112,826	19.8	495,443	449,975	10.1
Free cash flow²	85,482	114,623	(25.4)	281,131	701,869	(59.9)
Free cash flow before changes in working capital	61,252	88,318	(30.6)	197,954	708,650	(72.1)
	(thousand BOE per day)
Production of hydrocarbons, including our share in
associates and joint ventures	2,099	1,927	8.9	2,117	2,380	(11.1)
crude oil and natural gas liquids	1,573	1,545	1.8	1,651	1,815	(9.0)
gas	526	382	37.7	466	565	(17.5)
Refinery throughput at the Group refineries	1,047	1,183	(11.5)	1,174	1,381	(15.0)

¹ Profit from operating activities before depreciation, depletion and amortization.

² Cash flow from operating activities less capital expenditures.

In the fourth quarter of 2020, compared to the previous quarter, our results were positively impacted by an increase in international gas production volumes, higher crude oil production volumes, the ruble depreciation, an increase in international hydrocarbon prices, higher positive export duty lag effect, as well as positive inventory effect at our refineries. At the same time, these were more than offset by the accounting specifics of our international trading operations, lower refinery throughput volumes, weaker refining and trading margins.

The dynamics of our results compared to 2019 was largely defined by the impacts of the COVID-19 pandemic, such as a decrease in international hydrocarbon prices and refining margins, lower hydrocarbon production and refinery throughput volumes, a decrease in sales volumes at our filling stations, as well as negative export duty lag effect and negative inventory effect at our refineries. At the same time, our results were supported by the ruble depreciation, higher trading margin and accounting specifics of our international trading operations and an increase in share of high-margin volumes in our domestic crude oil production.

As a result, our EBITDA decreased by 6.2% and by 44.4% compared to the third quarter of 2020 and the full year 2019, respectively.

Stronger ruble as at the fourth quarter end as compared to the beginning of the quarter resulted in a currency exchange gain of 12 billion RUB in the fourth quarter of 2020 compared to a loss of 27 billion RUB in the third quarter of 2020. The ruble depreciation in 2020 resulted in a currency exchange loss of 26 billion RUB in 2020, as opposed to a gain of 1 billion RUB in 2019 as a result of the ruble appreciation.

Compared to the third quarter of 2020 and the full year 2019, our depreciation, depletion and amortization expenses decreased by 12.5% and by 2.3%, respectively. The decrease in the fourth quarter of 2020 was mainly due to positive effect of an increase in proved developed hydrocarbon reserves at Group's certain fields at the end of 2020 and consequent recalculation of depletion of respective fixed assets for the full year, despite an increase in depletion expenses in Uzbekistan following the recovery of gas production volumes.

Due to a significant deterioration in the macroeconomic environment, the Group recognized impairment loss of property, plant and equipment and other non-current assets in the total amount of 115 billion RUB during 2020.

In the fourth quarter of 2020, profit attributable to LUKOIL shareholders amounted to 29 billion RUB, compared to profit in the amount of 50 billion RUB in the third quarter of 2020. In 2020, profit attributable to LUKOIL shareholders amounted to 15 billion RUB compared to profit in the amount of 640 billion RUB in 2019.

Our capital expenditures increased by 22 billion RUB, or by 19.8%, compared to the third quarter of 2020, and by 45 billion RUB, or by 10.1%, compared to 2019.

Our free cash flow amounted to 85 billion RUB in the fourth quarter of 2020, a decrease of 25.4% compared to the third quarter of 2020, that was mainly a result of an increase in capital expenditures, as well as the dynamics of the working capital.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Our free cash flow amounted to 281 billion RUB in 2020, a decrease of 59.9% compared to 2019. Such decline was a result of a decrease in profitability of our core operations, as well as higher capital expenditures.

The Group's average daily hydrocarbon production increased by 8.9% compared to the third quarter of 2020 mainly as a result of gas production recovery in Uzbekistan, as well as due to partial lifting of external limitations on oil production under the new OPEC+ agreement. In 2020, the Group's average daily hydrocarbon production decreased by 11.1% compared to 2019 mainly due to the new OPEC+ agreement and a temporary decrease in gas supplies from Uzbekistan to China, that were driven by the negative impact of the COVID-19 pandemic on hydrocarbon demand.

Compared to the third quarter of 2020 and full year 2019, average daily throughput volumes at our refineries decreased by 11.5% and by 15.0%, respectively, mainly due to throughput optimization at some of the Group's refineries on the back of lower demand for petroleum products and decline in refining margins due to the COVID-19 pandemic, as well as scheduled maintenance works.

Changes in the Group structure

In October 2019, a Group company acquired a 5% interest in the Ghasha Concession in the United Arab Emirates from the Abu Dhabi National Oil Company for approximately 13.8 billion RUB (\$214 million).

In the second quarter of 2019, a Group company entered into a contract with New Age M12 Holdings Limited to acquire a 25% interest in the Marine XII license in the Republic of Congo (Congo-Brazzaville). In September 2019, the transaction in the amount of 51.4 billion RUB (\$768 million) was closed after all the customary conditions, including approval by the government of the Republic of Congo, were fulfilled.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Main macroeconomic factors affecting our results of operations

International crude oil and refined products prices

The price at which we sell crude oil and refined products is the primary driver of the Group's revenues.

The dynamics of our realized prices on international markets generally matches the dynamics of commonly used spot benchmarks such as Brent crude oil price, however our average prices are usually different from such benchmarks due to different delivery terms, quality mix, as well as specifics of regional markets in case of petroleum product sales.

During 2020, the price for Brent crude oil dropped sharply from \$70.0 per barrel in January to \$13.2 per barrel in the end of April as a result of a substantial decrease in global demand for crude oil due to the COVID-19 pandemic. Gradual recovery of global demand together with the new OPEC+ agreement led to a price increase to \$52.0 per barrel by the end of December. As a result, average price increased by 3.0% compared to the third quarter of 2020, and decreased by 35.0% compared to 2019.

The following tables show the average crude oil and refined product prices.

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
	(US dollars per barrel)
Brent FOB dated	44.24	42.93	3.0	41.79	64.28	(35.0)
Urals crude (average MED and Rotterdam)	44.31	43.24	2.5	41.39	63.89	(35.2)
	(US dollars per tonne)
Diesel fuel 10 ppm (FOB Rotterdam)	364.68	353.88	3.1	367.07	591.28	(37.9)
High-octane gasoline (FOB Rotterdam)	397.03	394.45	0.7	382.61	614.96	(37.8)
Naphtha (FOB Rotterdam)	389.10	372.17	4.5	351.35	501.31	(29.9)
Jet fuel (FOB Rotterdam)	376.52	340.70	10.5	361.50	630.10	(42.6)
Vacuum gas oil (FOB Rotterdam)	311.54	297.22	4.8	297.95	450.36	(33.8)
Marine fuel 0.5% (FOB Rotterdam)	326.37	296.40	10.1	311.50	451.30	(31.0)
Fuel oil 3.5% (FOB Rotterdam)	255.45	240.35	6.3	221.37	329.97	(32.9)

Source: Platts, Argus.
	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
			(rubles per barrel)
Brent FOB dated	3,372	3,158	6.8	3,015	4,161	(27.5)
Urals crude (average MED and Rotterdam)	3,377	3,181	6.2	2,986	4,136	(27.8)
	(rubles per tonne)
Diesel fuel 10 ppm (FOB Rotterdam)	27,797	26,031	6.8	26,483	38,277	(30.8)
High-octane gasoline (FOB Rotterdam)	30,263	29,015	4.3	27,604	39,810	(30.7)
Naphtha (FOB Rotterdam)	29,658	27,377	8.3	25,349	32,453	(21.9)
Jet fuel (FOB Rotterdam)	28,700	25,062	14.5	26,081	40,790	(36.1)
Vacuum gas oil (FOB Rotterdam)	23,746	21,863	8.6	21,496	29,154	(26.3)
Marine fuel 0.5% (FOB Rotterdam)	24,877	21,803	14.1	22,473	29,215	(23.1)
Fuel oil 3.5% (FOB Rotterdam)	19,471	17,680	10.1	15,971	21,361	(25.2)

Translated to rubles using average exchange rate for the period.

Domestic crude oil and refined products prices

Most of the crude oil in Russia is produced and then refined or exported by vertically integrated oil companies. As a result, there is no liquid spot market for crude oil in Russia and no publicly available spot price benchmark. Domestic prices may deviate significantly from export netbacks and they also vary between different regions of Russia driven by supply-demand balance on regional markets.

Domestic prices for refined products correlate to some extent with export netbacks, but are also materially affected by supply-demand balance on regional markets.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

The table below represents average domestic wholesale prices for refined products for the respective periods.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(rubles per tonne)
Diesel fuel	39,226	38,892	0.9	37,292	40,724	(8.4)
High-octane gasoline (Regular)	39,139	42,049	(6.9)	39,727	38,243	3.9
High-octane gasoline (Premium)	40,944	44,292	(7.6)	41,866	40,487	3.4
Fuel oil	13,889	10,625	30.7	10,990	14,514	(24.3)

Source: InfoTEK (excluding VAT).

Changes in ruble exchange rate and inflation

A substantial part of our revenue is either denominated in US dollars and euro or correlated to some extent with US dollar crude oil prices, while most of our costs are settled in Russian rubles. Therefore, a depreciation of the ruble against the US dollar and euro generally causes our revenues to increase in ruble terms, and vice versa. Ruble inflation also affects the results of our operations.

The following table provides data on inflation in Russia and change in the ruble-dollar and the ruble-euro exchange rates.

	Q4	Q3	12 months of
	2020	2020	2020	2019
Ruble inflation (CPI), %	2.0	0.2	4.9	3.0
Ruble to US dollar exchange rate
Average for the period	76.2	73.6	72.1	64.7
At the beginning of the period	79.7	70.0	61.9	69.5
At the end of the period	73.9	79.7	73.9	61.9
Ruble to euro exchange rate
Average for the period	90.8	86.0	82.4	72.5
At the beginning of the period	93.0	78.7	69.3	79.5
At the end of the period	90.7	93.0	90.7	69.3

Source: CBR, Federal State Statistics Service.

Taxation

Key upstream tax rates. The following tables represent average statutory enacted rates applicable to our upstream operations in Russia with no taxation incentives:

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(US dollars per tonne)
Mineral extraction tax¹	131.34	127.87	2.7	120.87	201.40	(40.0)
Export duty on crude oil	43.21	44.03	(1.9)	45.87	93.77	(51.1)
¹ Translated from rubles using average exchange rate for the period.

	Q4 2020	Q3	Change,	12 months of		Change,
		2020	%	2020	2019	%
	(rubles per tonne)
Mineral extraction tax	10,011	9,406	6.4	8,720	13,038	(33.1)
Export duty on crude oil¹	3,294	3,239	1.7	3,309	6,070	(45.5)

¹ Translated to rubles using average exchange rate for the period.

These rates are linked to international crude oil prices and change in line with them.

Tax manoeuvre. The Russian Government has been implementing the so-called tax manoeuvre in the oil industry, which involves reduction of export duty rate and increase in the crude oil extraction tax and excise tax rates, as well as an introduction of a negative excise tax on refinery feedstock.

In 2018, new laws were adopted which came into effect on 1 January 2019. These laws provide for concluding the tax manoeuvre by 2024 through the gradual reduction of crude oil export duty rate to zero and the equivalent increase in the mineral extraction tax rate for crude oil. To eliminate the negative effect of export duty reduction on refining margins, a negative excise on refinery feedstock was introduced. To reduce the sensitivity of domestic prices for motor fuel to changes in international prices, a so-called damper coefficient was included into the negative excise formula, which also led to increase in mineral extraction tax rate.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Crude oil extraction tax rate is calculated on a monthly basis. Crude oil extraction tax is payable in rubles per metric tonne extracted. The tax rate is calculated according to the formula below:

$$\begin{array}{c} \text{Rate} = 919 \times {\text{Price} - 15} \times \frac{\text{Exchange Rate}}{261} \text{--Incentre} + 428 \ + \text{ Tax Manoeuvre Factor} + \text{Damper Factors}, \end{array}$$

where Price is a Urals blend price in US dollars per barrel and Exchange Rate is an average ruble exchange rate to US dollar during the period. The Incentive Factor represents incentives discussed further in this section. The Tax Manoeuvre Factor is derived as Export duty reduction factor multiplied by the base export duty rate. The two fixed Damper Factors are applicable when the corresponding components of a negative excise formula are positive. From 2020, a new variable Damper Factor was added to the formula in addition to the fixed factors. The new factor is linked to the export netbacks for gasoline and diesel fuel.

The table below sets out key fixed components of the extraction tax formula for crude oil.

	1 January to 30 September 2019	1 October to 31 December 2019	2020	2021	2022	2023	2024 and further
Export duty reduction factor	0.167	0.167	0.333	0.500	0.667	0.833	1
			(rubles)
Damper Factor for gasoline	125	200	105	105	105	105	105
Damper Factor for diesel fuel	110	185	92	92	92	92	92

Mineral extraction tax on crude oil has the following types of tax incentives applied to our fields and deposits:

• A special reducing coefficient is applied to the standard tax rate depending on location, size and complexity of a particular field. This type of incentive with different coefficients is applied to our Yu. Korchagin field located in the Caspian offshore, a number of fields in the Nenets Autonomous region, as well as to our new small-sized fields (recoverable reserves less than 5 million tonnes) and fields and deposits with low permeability like V. Vinogradov, Sredne-Nazymskoye and Imilorskoye fields and Tyumen deposits. Before the end of 2020 the incentive was applied to our highly depleted fields (more than 80% depletion), the Permian layers of our Usinskoye field in Timano-Pechora producing high-viscous crude oil as well as our Yaregskoye field producing extra-viscous crude oil. After the adoption of amendments to the Russian Tax Code in October 2020 these tax incentives have been cancelled as of 1 January 2021. The cancellation of mineral extraction tax incentives for our highly depleted fields was followed by allowance of inclusion of the respective license areas into Group 3 of tax on additional income (hereinafter TAI) regime (see below) as of beginning of 2021;
• A fixed tax rate of 15% of the Urals price is applied to our V. Filanovsky offshore field and other greenfields, located in the Caspian Sea;
• A fixed tax rate of 30% of the Urals price is applied to our offshore greenfields, located in the Baltic Sea;
• A special tax rate is applied to crude oil produced at license areas with TAI regime. For Groups 1 and 4 of TAI a discount to special tax rate is applied depending on the duration of commercial production at the particular license area. For highly depleted license areas in Group 3 of TAI a 20% discount is applied to special tax rate starting from 1 January 2024.

Some of the mineral extraction tax incentives are limited in time or capped by cumulative oil production volumes.

Tax on additional income. Starting from 2019, a tax on additional income from the crude oil and gas condensate production has been implemented for certain license areas. The TAI rate is set at 50% and is applied to the estimated sales revenue less actual and estimated costs, where actual costs include both operating expenses and capital expenditures. Moreover, TAI tax base may be reduced by the historical cumulative losses attributable to the license area. For crude oil production subject to TAI, a special mineral extraction tax rate formula is applied. The special mineral extraction tax rate (in US dollars per barrel) equals to 50% of the difference between Urals oil price and \$15 less the enacted export duty rate.

TAI is implemented for five groups of license areas. In Group 1, LUKOIL has nineteen license areas with greenfields in the Yamal-Nenets Autonomous District, including Pyakyakhinskoye field, and a number of fields in Timan-Pechora. In Group 3, LUKOIL has eight license areas with brownfields in West Siberia adopted TAI regime as of 1 January 2019, as well as 105 license areas with depleted reserves in different regions transferred to TAI regime since 1 January 2021. In Group 4, LUKOIL has two license areas with greenfields in traditional regions (West Siberia). LUKOIL has license areas neither in Group 2 nor in Group 5 of the TAI regime.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Crude oil export duty rate is denominated in US dollars per tonne of crude oil exported and is calculated by multiplying the base export duty rate calculated on a monthly basis by the adjusting factor from tables below.

International Urals price	Base export duty rate
Less than, or equal to, \$109.5 per tonne (\$15 per barrel)	\$0 per tonne
Above \$109.5 but less than, or equal to, \$146.0 per tonne (\$20 per barrel)	35%	of the oil price over \$15 per barrel)	difference \$109.5 per tonne (or \$0.35 per barrel per each \$1 increase in crude	between the	actual	price and
Above \$146.0 but less than, or equal to, \$182.5 per tonne (\$25 per barrel)	\$12.78 per tonne plus 45% of the difference between the actual price and \$146.0 per tonne (or \$1.75 plus \$0.45 per barrel per each \$1 increase in crude oil price over \$20 per barrel)
Above \$182.5 per tonne (\$25 per barrel)			\$29.2 per tonne plus 30% of the difference between the actual price and \$182.5 per tonne (or \$4 plus \$0.3 per barrel per each \$1 increase in crude oil price over \$25 per barrel)
	2019	2020	2021	2022	2023	2024 and further
Adjusting factor 0.833		0.667	0.500	0.333	0.167	0

The rate for the next month is being based on average Urals price for the period from the 15th day of the previous month to the 14th day of the current month. This calculation methodology results in the so-called "export duty lag effect," when export duty rate lags the oil price changes, which may result in sizeable impact on our financial results in the periods of high oil price volatility. As a result of the tax manoeuvre, the lag effect will gradually migrate from the export duty to the mineral extraction tax by 2024.

	Q4 2020	Q3 2020	Change,	12 months of		Change,
			%	2020	2019	%
	(US dollars per barrel)
Urals price (Argus)	44.31	43.24	2.5	41.39	63.89	(35.2)
Export duty on crude oil	5.92	6.03	(1.8)	6.28	12.85	(51.1)
Mineral extraction tax on crude oil	17.99	17.52	2.7	16.56	27.59	(40.0)
Net Urals price¹	20.40	19.69	3.6	18.55	23.45	(20.9)
Export duty lag effect	0.61	0.28	>100	(0.39)	0.20	-
Mineral extraction tax lag effect	0.31	0.14	>100	(0.20)	0.03	-
Net Urals price¹ assuming no lag	19.48	19.27	1.1	19.14	23.22	(17.6)
	(rubles per barrel)²
Urals price (Argus)	3,377	3,181	6.2	2,986	4,136	(27.8)
Export duty on crude oil	451	444	1.6	453	832	(45.6)
Mineral extraction tax on crude oil	1,371	1,288	6.4	1,195	1,786	(33.1)
Net Urals price¹	1,555	1,449	7.3	1,338	1,518	(11.9)
Export duty lag effect	46	21	>100	(28)	13	-
Mineral extraction tax lag effect	23	10	>100	(14)	2	-
Net Urals price¹ assuming no lag	1,486	1,418	4.8	1,380	1,503	(8.2)

¹ Urals price net of export duty and mineral extraction tax on crude oil.

² Translated to rubles for Urals and export duty on crude oil using average exchange rate for the period.

Crude oil produced at some of our fields and license areas under special tax regimes is subject to zero export duty. In particular, a zero rate applies to crude oil of our V. Filanovsky field and other offshore greenfields located in the Caspian Sea, the offshore greenfields in the Baltic Sea as well as license areas belonging to the Group 1 of the TAI regime.

A reduced rate was applied to crude oil produced at our Yaregskoye field producing extra-viscous crude oil and our Yu. Korchagin field in the Caspian offshore. In October 2020, amendments to the Russian customs legislation were adopted, providing for the cancellation of reduced export duty rates applied to crude oil produced at these fields starting from 1 January 2021.

Crude oil exported to member countries of the Customs Union in the Eurasian Economic Union of Russia, Belarus, Kazakhstan, Armenia and the Kyrgyz Republic (Customs Union) is not subject to export duties.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Crude oil and refined products exported from Russia are subject to two steps of customs declaration and duty payments: temporary and complete. A temporary declaration is submitted based on preliminary exports volumes and the duty is paid in rubles translated from US dollars at the date of the temporary declaration. A complete declaration is submitted after receiving the actual data on the exported volumes, but no later than six months after the date of the temporary declaration. The final amount of the export duty is adjusted depending on the actual volumes, the ruble-US dollar exchange rate at the date of the complete declaration (except for pipeline deliveries for which the exchange rate at the temporary declaration date is used) and the export duty rate. If temporary and complete declarations are submitted in different reporting periods, the final amount of the export duty is adjusted in the period of submission of the complete declaration. The high volatility of the ruble-dollar exchange rates may lead to significant adjustments. For the purposes of the IFRS consolidated financial statements, data from temporary declarations at the reporting period end is translated to rubles from US dollars using the period-end exchange rate.

Tax incentives

The table below illustrates the impact of tax incentives on taxation of crude oil production from different fields and deposits in our portfolio calculated at \$50 per barrel Urals price and zero damper factors.

	Mineral extraction	tax Export duty (in US dollars per barrel)	Total	As % of oil price
Under 2020 tax formulas
Standard	21.6	7.7	29.3	58.6
Yu. Korchagin field	7.5	0.0	7.5	15.0
V. Filanovsky field	7.5	0.0	7.5	15.0
D41 field	15.0	0.0	15.0	30.0
V. Vinogradov and Imilorskoye fields	13.4	7.7	21.1	42.1
New fields with reserves below 5 million tonnes	15.2–21.6	7.7	22.9–29.3	45.7–58.6
Tyumen deposits	19.5	7.7	27.2	54.5

Natural gas extraction tax rate is calculated using a special formula depending on average regulated wholesale natural gas price in Russia, Urals price, the share of gas production in total hydrocarbon production at particular license area, regional location and complexity of particular gas field. Reinjected natural gas and associated petroleum gas are subject to zero extraction tax rate.

Gas produced from our two major fields in Russia, Nakhodkinskoye and Pyakyakhinskoye, is taxed at the rates subject to application of reducing coefficients due to the fields' geographical location and the depth of reservoir.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(US dollars per thousand cubic meters)¹
Nakhodkinskoye field	5.42	5.56	(2.5)	5.63	5.48	2.7
Pyakyakhinskoye field	7.05	7.06	(0.1)	6.97	8.26	(15.6)

¹ Translated from rubles using average exchange rate for the period.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(rubles per thousand cubic meters)
Nakhodkinskoye field	413	409	1.0	406	355	14.4
Pyakyakhinskoye field	537	519	3.5	503	535	(6.0)

Export duty rates on refined products are calculated by multiplying the enacted crude oil export duty rate by a coefficient according to the table below.

	2019 and further
Multiplier for:
Gasolines, diesel fuel and other light and middle distillates	0.30
Straight-run gasoline 0.	0.55
Fuel oil	1.00

12

Refined products exported to member countries of the Customs Union are not subject to export duties.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Excise taxes on refined products. The responsibility to pay excises on refined products in Russia is imposed on refined product producers (except for straight-run gasoline). Only domestic sales volumes are subject to excises.

Excise tax expense on straight-run gasoline used as a petrochemical feedstock is reimbursed with a coefficient of 1.7, and excise tax expense on middle distillates used as refinery feedstock, bunker fuel or fuel at power plants is reimbursed in double amount. Since 1 April 2020, the fixed excise tax rate for middle distillates was replaced with formula-based rate linked to the level of damper for diesel fuel.

In other countries where the Group operates, excise taxes are paid by either producers or retailers depending on the local legislation.

Excise rates on motor fuels in Russia are tied to the ecological class of fuel. Average excise tax rates for the periods considered are listed below.

	Q4 Q3		Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
		(rubles per tonne)
Gasoline (below Euro-5)	13,100	13,100	-	13,100	13,100	-
Gasoline (Euro-5)	12,752	12,752	-	12,752	12,314	3.6
Diesel fuel	8,835	8,835	-	8,835	8,541	3.4
Motor oils	5,616	5,616	-	5,616	5,400	4.0
Middle distillates*	13,766	15,075	(8.7)	14,524	9,241	57.2

*Excise tax rates for middle distillates after 1 April 2020 are calculated by formula.

Established excise tax rates are listed below.

	2020	2021	2022	2023
Gasoline (below Euro-5)	13,100	13,624	14,169	14,736
Gasoline (Euro-5)	12,752	13,262	13,793	14,345
Diesel fuel	8,835	9,188	9,556	9,938
Motor oils	5,616	5,841	6,075	6,318

Negative excise tax on refinery feedstock

The reduction of export duties on crude oil in the course of the tax manoeuvre in Russia leads to an increase in feedstock costs for the domestic refineries. This negative effect is partially compensated by a decrease in export duties on refined products, with the remaining part of the negative effect being fully offset by the negative excise tax implemented from 1 January 2019. The negative excise tax is payable by the Government to the refineries. The negative excise tax rate is calculated separately for each refinery based on the average Urals crude oil price and refinery slate during the month. Our Ukhta refinery benefits from a special uplift regional coefficient of 1.3 applied to the negative excise tax.

The negative excise tax formula also includes the damper coefficient for gasoline and diesel fuel sold on the domestic market and starting from 2021 also includes an investment factor. The damper coefficient is calculated by multiplying the corresponding Compensation Coefficients and a difference between gasoline and diesel fuel export netbacks at North-Western Russia delivery basis and corresponding Fixed benchmarks. When the damper coefficient is positive, it is payable by the Government to the refinery, and vice versa.

The investment factor is a multiplier to the negative excise tax excluding the damper, which is applicable when a special agreement is signed with the Government providing for at least 60 billion RUB of investments into development of а refinery. The amount of the multiplier depends on the refinery's geography.

The Fixed benchmarks and Compensation Coefficients are presented in the tables below:

	1 January to 30 June	1 July to 31 December
	2019	2019	2020	2021	2022	2023	2024
			(rubles per tonne)
Fixed benchmark for gasoline	56,000	51,000	53,600	56,300	59,000	62,000	65,000
Fixed benchmark for diesel fuel	50,000	46,000	48,300	50,700	53,250	56,000	58,700
			1 January to		1 July to
			30 June		31 December		2020 and
			2019		2019		further
Compensation coefficient for gasoline			0.60		0.75		0.68
Compensation coefficient for diesel fuel			0.60		0.70		0.65

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

The following tables present the average enacted damper coefficients for the respective periods:

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(US dollars per tonne)¹
Gasoline	(45.90)	(61.19)	(25.0)	(89.65)	56.52	-
Diesel fuel	(54.85)	(74.63)	(26.5)	(78.06)	72.93	-
¹ Translated from rubles using average exchange rate for the period.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
			(rubles per tonne)
Gasoline	(3,498)	(4,501)	(22.3)	(6,468)	3,659	-
Diesel fuel	(4,181)	(5,490)	(23.8)	(5,632)	4,721	-

Income tax. Operations in the Russian Federation are subject to a 20% income tax rate. For the period from 2017 till 2024 (inclusive) a Federal income tax rate is set as 3.0% and a regional income tax rate is set as 17.0%. Regional income tax rate may be reduced for certain categories of taxpayers by the laws of constituent entities of the Russian Federation, however certain restrictions apply on the application of the reduced regional rates.

The Company and its Russian subsidiaries file income tax returns in Russia. A number of Group companies in Russia are paying income tax as a consolidated taxpayers' group ("CTG"). This allows taxpayers to offset taxable losses generated by certain participants of a CTG against taxable profits of other participants of the CTG.

The Group's foreign operations are subject to taxes at the tax rates applicable to the jurisdictions in which they operate.

Transportation tariffs on crude oil, natural gas and refined products in Russia

Many of our production assets are located relatively far from our customers. As a result, transportation tariffs are an important factor affecting our profitability.

Сrude oil produced at our fields in Russia is transported to refineries and exported primarily through the trunk oil pipeline system of the state-owned company, Transneft. In some cases, crude oil is also shipped via railway infrastructure of the state-owned company, Russian Railways.

Refined products produced at our Russian refineries are transported primarily by railway (Russian Railways) and the pipeline system of Transnefteproduct, a subsidiary of Transneft.

Gas that is not sold at the wellhead is transported through the Unified Gas Supply System owned and operated by Gazprom.

Transneft, Russian Railways and Gazprom are state-controlled natural transportation infrastructure monopolies and their tariffs are regulated by the Federal Antimonopoly Service of Russia and set in rubles.

The following table sets forth the changes in the average tariffs charged by the state-controlled transportation service providers in Russia.

	Q4 2020 to Q3 2020	12 months of 2020 to 12 months of 2019
Transneft (crude oil)	0.0%	3.4%
Russian Railways (crude oil and refined products)	0.0%	3.5%

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Reserves base

The tables below summarize the net proved reserves of our consolidated subsidiaries and our share in net proved reserves of our associates and joint ventures under the standards of the US Securities and Exchange Commission (until the economic limit of commercial production is reached) that have been derived from our reserve reports audited by Miller and Lents Ltd, our independent reservoir engineers, at 31 December 2020 and 2019.

(hydrocarbons, millions of BOE)	31 December 2020	Production(1)	Extensions, discoveries and changes in structure	Revision of previous estimates	31 December 2019
West Siberia	7,884	(319)	284	(265)	8,185
Timan-Pechora	2,403	(113)	42	60	2,414
Ural region	2,156	(124)	93	(60)	2,247
Volga region	1,116	(90)	40	(8)	1,173
Other in Russia	163	(11)	3	(5)	176
Outside Russia	1,663	(118)	2	205	1,574
Proved oil and gas reserves	15,385	(775)	464	(73)	15,769
Probable oil and gas reserves	5,581				6,217
Possible oil and gas reserves	2,802				3,000

¹ Gas production shown before own consumption.

	31 December		Extensions, discoveries and changes in	Revision of previous	31 December
(crude oil, millions of barrels)	2020	Production	structure	estimates	2019
West Siberia	5,789	(245)	235	(271)	6,070
Timan-Pechora	2,278	(102)	39	52	2,289
Ural region	2,030	(115)	88	(55)	2,112
Volga region	756	(80)	36	(10)	810
Other in Russia	160	(11)	3	(6)	174
Outside Russia	679	(51)	2	168	560
Proved oil reserves	11,692	(604)	403	(122)	12,015
Probable oil reserves	4,105				4,671
Possible oil reserves	2,314				2,506

(gas, billions of cubic feet)	31 December 2020	Production(1)	Extensions, discoveries and changes in structure	Revision of previous estimates	31 December 2019
West Siberia	12,572	(444)	289	39	12,688
Timan-Pechora	750	(65)	20	47	748
Ural region	754	(51)	31	(38)	812
Volga region	2,159	(58)	25	10	2,182
Other in Russia	16	(2)	-	4	14
Outside Russia	5,905	(404)	-	226	6,083
Proved gas reserves	22,156	(1,024)	365	288	22,527
Probable gas reserves	8,861				9,275
Possible gas reserves	2,927				2,966

¹ Gas production shown before own consumption.

The Company's proved hydrocarbon reserves at 31 December 2020 amounted to 15.4 billion BOE and comprised of 11.7 billion barrels of crude oil and 22.2 trillion cubic feet of gas.

As a result of geological exploration and production drilling conducted in 2020, LUKOIL added 464 million barrels of oil equivalent to proved reserves. The largest contribution was made by the assets in West Siberia, Ural region and Russian sector of the Caspian Sea.

Optimization of development systems and wellwork programmes at existing fields, as well as conversion of contingent resources to reserves added 258 million barrels of oil equivalent to proved reserves, which was more than offset by a 34% decrease in annual average oil price used for reserves estimate.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Segments highlights

Our operations are divided into three main business segments:

• Exploration and Production which includes our exploration, development and production operations related to crude oil and gas. These activities are primarily located within Russia, with additional activities in Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, Northern and Western Africa, Norway, Romania and Mexico.
• Refining, Marketing and Distribution which includes refining, petrochemical and transport operations, marketing and trading of crude oil, natural gas and refined products, generation, transportation and sales of electricity, heat and related services.
• Corporate and other which includes operations related to our headquarters (which coordinates operations of the Group companies), finance activities, and certain other activities, that are not primary to the Group.

Each of our segments is dependent on the others, with a portion of the revenues of one segment being a part of the costs of the others. In particular, our Refining, Marketing and Distribution segment purchases crude oil from our Exploration and Production segment. As a result of certain factors considered in the "Domestic crude oil and refined products prices" section on p. 8, benchmark crude oil market prices in Russia cannot be determined with certainty. Therefore, the prices set for inter-segment purchases of crude oil reflect a combination of market factors, primarily international crude oil market prices, transportation costs, regional market conditions, the cost of crude oil refining and other factors. We present the financial data for each segment in Note 33 "Segment information" to our consolidated financial statements.

Exploration and production

The following table summarizes key figures on our Exploration and production segment:

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
			(millions of rubles)
EBITDA	166,567	151,979	9.6	500,081	893,950	(44.1)
in Russia	147,964	136,108	8.7	421,573	729,077	(42.2)
outside Russia and Iraq	11,487	9,656	19.0	46,512	143,183	(67.5)
in Iraq	7,116	6,215	14.5	31,996	21,690	47.5
Hydrocarbon extraction expenses	51,037	46,670	9.4	198,911	210,867	(5.7)
in Russia	39,532	37,552	5.3	158,328	170,590	(7.2)
outside Russia and Iraq	6,567	5,297	24.0	23,371	23,267	0.4
in Iraq	4,938	3,821	29.2	17,212	17,010	1.2
			(rubles per BOE)
Hydrocarbon unit extraction expenses (excluding
Iraq)	249	254	(1.8)	247	232	6.4
in Russia	251	241	4.0	243	237	2.2
outside Russia and Iraq	240	404	(40.6)	282	200	41.3
			(US dollars per BOE)
Hydrocarbon unit extraction expenses (excluding
Iraq)	3.27	3.45	(5.2)	3.42	3.59	(4.5)
in Russia	3.29	3.28	0.3	3.36	3.67	(8.3)
outside Russia and Iraq	3.15	5.50	(42.7)	3.91	3.09	26.3

Our upstream EBITDA increased by 9.6% compared to the third quarter of 2020. In Russia, the increase was mainly a result of the effect of the ruble depreciation, higher crude oil prices, higher positive export duty lag effect, as well as higher crude oil production volumes, while an increase in operating expenses was a restraining factor. Outside Russia and Iraq, our EBITDA increased mainly as a result of an increased gas production volumes in Uzbekistan on the back of a recovery of demand for Uzbek gas from China. This was also supported by an increase in crude oil production volumes, the effect of the ruble depreciation and an increase in international hydrocarbon prices.

Compared to 2019, our upstream EBITDA decreased by 44.1%. In Russia, the decrease was mainly due to lower crude oil prices, negative export duty lag effect, and crude oil production cut due to the new OPEC+ agreement, that was partially offset by the ruble depreciation, lower operating expenses and bigger share of high-margin volumes in crude oil production. Outside Russia and Iraq, our upstream EBITDA decreased mainly owing to a decrease in international hydrocarbon prices and gas production volumes in Uzbekistan. The weaker ruble and higher volumes of crude oil production outside Russia and Iraq partially offset the impact of these negative factors.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

The dynamics of EBITDA of the West Qurna-2 project was mainly a result of changes in cost compensation.

The following table summarizes our hydrocarbon production by major regions.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(thousand BOE per day)
Crude oil and natural gas liquids
Consolidated subsidiaries
West Siberia	641	620	3.4	669	765	(12.5)
Timan-Pechora	250	255	(2.0)	274	317	(13.6)
Ural region	314	304	3.3	313	334	(6.3)
Volga region	209	212	(1.4)	217	235	(7.7)
Other in Russia	27	29	(6.9)	29	32	(9.4)
Total in Russia	1,441	1,420	1.5	1,502	1,683	(10.8)
Iraq¹	34	42	(19.0)	53	30	76.7
Other outside Russia	57	44	29.5	53	52	1.9
Total outside Russia	91	86	5.8	106	82	29.3
Total consolidated subsidiaries	1,532	1,506	1.7	1,608	1,765	(8.9)
Our share in associates
in Russia	11	10	10.0	11	13	(15.4)
outside Russia	30	29	3.4	32	37	(13.5)
Total share in production of associates	41	39	5.1	43	50	(14.0)
Total crude oil and natural gas liquids	1,573	1,545	1.8	1,651	1,815	(9.0)
Natural and petroleum gas²
Consolidated subsidiaries
West Siberia	194	200	(3.0)	203	201	1.0
Timan-Pechora	28	27	3.7	29	33	(12.1)
Ural region	26	21	23.8	23	23	-
Volga region	25	25	-	26	28	(7.1)
Other in Russia	0	0	-	0	1	(100.0)
Total in Russia	273	273	-	281	286	(1.7)
Uzbekistan	191	58	>100	128	228	(43.9)
Other outside Russia	50	40	25.0	46	40	15.0
Total outside Russia	241	98	>100	174	268	(35.1)
Total consolidated subsidiaries	514	371	38.5	455	554	(17.9)
Share in associates
in Russia	2	2	97.8	1	1	28.9
outside Russia	10	9	(2.0)	10	10	(4.3)
Total share in production of associates	12	11	9.2	11	11	(0.3)
Total natural and petroleum gas	526	382	37.7	466	565	(17.5)
Total daily hydrocarbon production (excluding
the West Qurna-2 project)	2,065	1,885	9.5	2,064	2,350	(12.2)
Total daily hydrocarbon production	2,099	1,927	8.9	2,117	2,380	(11.1)
Including natural gas liquids produced at the gas
processing plants	39	34	15.3	39	44	(11.6)

¹ Compensation crude oil related to the Group.

² Natural and petroleum gas production excluding flaring, reinjected gas and gas used in production of natural gas liquids.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Crude oil production by major regions is presented in the table below.

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
			(thousands of tonnes)
West Siberia	7,802	7,558	3.2	32,448	36,999	(12.3)
Timan-Pechora	3,335	3,275	1.8	14,102	16,099	(12.4)
Ural region	3,664	3,554	3.1	14,565	15,527	(6.2)
Volga region	2,509	2,531	(0.9)	10,339	11,207	(7.7)
Other in Russia	353	374	(5.6)	1,486	1,626	(8.6)
Crude oil produced in Russia	17,663	17,292	2.1	72,940	81,458	(10.5)
Iraq¹	463	565	(18.1)	2,843	1,616	75.9
Other outside Russia	605	496	22.0	2,256	2,110	6.9
Crude oil produced outside Russia	1,068	1,061	0.7	5,099	3,726	36.8
Total crude oil produced by consolidated
subsidiaries	18,731	18,353	2.1	78,039	85,184	(8.4)
Our share in crude oil produced by associates:
in Russia	138	124	11.3	519	610	(14.9)
outside Russia	349	338	3.3	1,491	1,694	(12.0)
Total crude oil produced	19,218	18,815	2.1	80,049	87,488	(8.5)

¹ Compensation crude oil related to the Group.

Our main oil producing region is West Siberia where we produced 41.7% and 41.6% of our crude oil in the fourth quarter and the full year 2020 (41.2% in the third quarter of 2020 and 43.4% in 2019). Our crude oil production increased by 2.1% compared to the third quarter of 2020, and decreased by 8.5% compared to 2019.

The dynamics of our crude oil production volumes in Russia since the beginning of 2017 has been driven by external limitations due to an agreement of OPEC and some of the non-OPEC countries, including Russia, (the OPEC+ countries) to cap production levels in order to stabilize the global crude oil market. In December 2018, the OPEC+ countries agreed to decrease crude oil production relative to October 2018 levels until June 2019, which subsequently was prolonged until March 2020. Following these agreements, the Group limited production in its traditional regions (West Siberia, Timan-Pechora, and Ural) at the least-productive fields and fields with high water-cuts.

In April 2020, OPEC+ countries entered into a new agreement to reduce their collective output by 9.7 million barrels per day starting from 1 May 2020 as a response to a dramatic contraction in demand for crude oil due to the COVID-19 pandemic. The agreement expires at the end of April 2022. Initially it provided for stepped increases in crude oil production from August 2020 and January 2021, but this schedule has been adjusted depending on the market situation. Russia committed to reduce its crude oil production to 8.5 million barrels per day from May 2020 with further increases according to the agreement. Due to the agreement, from May 2020, the Group reduced its crude oil production in Russia by approximately 310 thousand barrels per day, or by 19%, as compared to the average daily crude oil production level in the first quarter of 2020. The Group then increased crude oil production in Russia by approximately 20 thousand barrels per day in July and incrementally by approximately 60 thousand barrels per day in August. By the end of 2020 crude oil production in Russia was gradually increased by approximately 100 thousand barrels per day as compared to the May level.

The new OPEC+ agreement also led to limitations on oil production by the Group at certain international projects.

Despite a sharp decrease in oil prices and external limitations on production volumes, the active development of the priority projects continued. In particular, in West Siberia aggregate crude oil and gas condensate production in 2020 at the V. Vinogradov, Imilorskoye, Sredne-Nazymskoye and Pyakyakhinskoye fields increased by 20.4% year-on-year and exceeded 4.2 million tonnes.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

In 2020, high viscosity oil production at the Yaregskoye field and Permian reservoir of the Usinskoye field increased by 6.2% year-on-year, to 5.2 million tonnes.

Implementation of drilling programs at the V. Filanovsky and Yu. Korchagin fieldsin the Caspian Sea allowed to maintain production at project levels. In 2020, total oil and gas condensate production totaled 7.4 million tonnes. The V.Grayfer field development continues: jackets have been installed in the Caspian Sea for the fixed ice-resistant platform and accommodation platform, topsides of both platforms are being built at the shipyards.

Gas production (excluding flaring, reinjected gas and gas used in production of natural gas liquids) by major regions is presented in the table below.

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
	(millions of cubic meters)
West Siberia, including:	3,038	3,118	(2.6)	12,592	12,492	0.8
Nakhodkinskoye field	1,296	1,355	(4.4)	5,376	4,848	10.9
Pyakyakhinskoye field	880	902	(2.4)	3,599	3,433	4.8
Other fields	862	861	0.1	3,617	4,211	(14.1)
Timan-Pechora	434	415	4.6	1,810	2,050	(11.7)
Ural region	407	336	21.1	1,451	1,432	1.3
Volga region	388	394	(1.5)	1,593	1,711	(6.9)
Other in Russia	2	4	(50.0)	17	24	(29.2)
Gas produced in Russia	4,269	4,267	-	17,463	17,709	(1.4)
Uzbekistan	2,994	910	>100	7,947	14,130	(43.8)
Other outside Russia	765	622	23.0	2,861	2,478	15.5
Gas produced outside Russia	3,759	1,532	>100	10,808	16,608	(34.9)
Total gas produced by consolidated subsidiaries	8,028	5,799	38.4	28,271	34,317	(17.6)
Our share in gas produced by associates:
in Russia	40	32	25.0	115	88	30.7
outside Russia	157	138	13.8	619	641	(3.4)
Total gas produced	8,225	5,969	37.8	29,005	35,046	(17.2)

In the fourth quarter and the full year 2020, LUKOIL Group's gas production was 8.2 billion cubic meters and 29.0 billion cubic meters, respectively, which was 37.8% higher quarter-on-quarter, and 17.2% lower year-on-year. In Russia, our major gas production region is West Siberia (Bolshekhetskaya depression), where gas is produced from the Nakhodkinskoe and Pyakyakhinskoe fields. Our gas production in Russia did not change significantly compared to the third quarter of 2020, and decreased by 1.4% compared to 2019 due to lower associated petroleum gas production that followed the crude oil production cut. Outside Russia, the main gas production region is Uzbekistan where we have shares in two PSAs. Our international gas production (including our share in associates' production) increased by 134.5% quarter-on-quarter as a result of a recovery of gas production in Uzbekistan, and decreased by 33.8% year-on-year, mainly due to temporarily lower demand from China for gas produced in Uzbekistan amid the COVID-19 pandemic.

West Qurna-2 project

The West Qurna-2 field in Iraq is developed under the service contract, signed in January 2010. In May 2018, a Group company and Iraqi party signed a new field development plan, according to which, crude oil production is planned to increase to 800 thousand barrels per day. Starting from 1 May 2020, crude oil production at the field was reduced following the request from the Iraqi government due to the new OPEC+ agreement. As of the end of 2020, production at the field was approximately 90 thousand barrels per day below its capacity.

Accounting for the cost compensation within the West Qurna-2 project in our consolidated statement of financial position and consolidated statement of profit or loss and other comprehensive income is as follows.

Capital expenditures are recognized in Property, plant and equipment. Extraction expenses are recognized in Operating expenses in respect of all the volume of crude oil production at the field regardless of the volume of compensation crude oil the Group is eligible for. As the compensation revenue is recognized, capitalized costs are amortized.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

There are two steps of revenue recognition:

• The Iraqi party, on a quarterly basis, approves invoice for cost recovery and remuneration fee for which the Group is eligible for in the reporting period. Amount of the invoice depends on crude oil production volumes during the period and amount of costs claimed for reimbursement. Approved invoice amount for the reporting quarter is recognized in crude oil sales revenue.
• Based on the approved invoices, the Iraqi party arranges schedule of crude oil shipments against its liability for cost compensation and remuneration. As this crude oil is actually shipped, its cost is recognized at current market price in Cost of purchased crude oil, gas and products. Further, revenue from sales of this crude oil, or products from its refining, is recognized in Sales. Unsold crude oil and refined products are recognized in Inventories.

The following table summarizes data on capital and operating costs incurred, compensation crude oil received, costs yet unrecovered and remuneration fee.

Сosts	Remunera	Crude oil	Crude oil to
incurred¹	tion fee	received	be received
9,229	548	9,242	535
549	127	626	50
9,778	675	9,868	585

¹ Including prepayments.

The West Qurna-2 project summary is presented below:

	Q4		Q3
	2020		2020		Change, %
	(thousand barrels)	(thousand tonnes)	(thousand barrels)	(thousand tonnes)
Total production	28,783	4,208	27,002	3,948	6.6	6.6
Production related to cost compensation and
remuneration	3,168	463	3,864	565	(18.1)	(18.1)
Shipment of compensation crude oil¹	3,726	545	5,572	814	(33.0)	(33.0)
	(millions	(millions of	(millions	(millions of
	of rubles)	US dollars)	of rubles)	US dollars)
Cost compensation	10,788	142	8,441	114	27.8	24.6
Remuneration fee	1,894	25	1,409	19	34.4	31.6
	12,682	167	9,850	133	28.8	25.6
Cost of compensation crude oil, received as liability settlement (included in Cost of purchased crude oil,
gas and products)¹	11,994	157	17,193	234	(30.2)	(32.9)
Extraction expenses	4,938	65	3,821	52	29.2	25.0
Depreciation, depletion and amortization	5,940	78	4,678	63	27.0	23.8
EBITDA	7,116	93	6,215	85	14.5	9.4

¹ This crude oil is sold to third party customers or delivered to our refineries. After realization of these products, respective sales revenues are recognized.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

	12 months of
	2020		2019		Change, %
	(thousand barrels)	(thousand tonnes)	(thousand barrels)	(thousand tonnes)
Total production	124,295	18,172	142,684	20,860	(12.9)	(12.9)
Production related to cost compensation and remuneration	19,447	2,843	11,054	1,616	75.9	75.9
Shipment of compensation crude oil¹	18,996	2,777	9,412	1,376	>100	>100
	(millions of rubles)	(millions of US dollars)	(millions of rubles)	(millions of US dollars)
Cost compensation	42,604	597	35,836	554	18.9	7.8
Remuneration fee	7,694	107	8,023	124	(4.1)	(13.7)
	50,298	704	43,859	678	14.7	3.8
Cost of compensation crude oil, received as liability settlement (included in Cost of purchased crude oil,
gas and products)¹	45,428	626	36,225	560	25.4	11.8
Extraction expenses	17,212	239	17,010	263	1.2	(9.1)
Depreciation, depletion and amortization	25,630	361	18,950	293	35.3	23.2
EBITDA	31,996	450	21,690	334	47.5	34.7

¹ This crude oil is sold to third party customers or delivered to our refineries. After realization of these products, respective sales revenues are recognized.

Refining, marketing and distribution

The following table summarizes key figures on our Refining, marketing and distribution segment:

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
	(millions of rubles)
EBITDA	46,649	77,638	(39.9)	243,322	371,642	(34.5)
in Russia	43,573	42,357	2.9	180,753	301,136	(40.0)
outside Russia	3,076	35,281	(91.3)	62,569	70,506	(11.3)
Refining expenses at the Group refineries	25,563	24,165	5.8	92,613	96,543	(4.1)
in Russia	12,539	10,961	14.4	42,614	42,555	0.1
outside Russia	13,024	13,204	(1.4)	49,999	53,988	(7.4)
				(rubles per tonne)
Unit refining expenses at the Group refineries	1,945	1,628	19.5	1,580	1,404	12.5
in Russia	1,295	1,074	20.6	1,062	964	10.2
outside Russia	3,760	2,845	32.2	2,703	2,195	23.1
	(US dollars per tonne)
Unit refining expenses at the Group refineries	25.51	22.13	15.3	21.90	21.70	0.9
in Russia	16.99	14.60	16.4	14.73	14.90	(1.2)
outside Russia	49.33	38.68	27.5	37.46	33.91	10.5

Our refining, marketing and distribution EBITDA was 39.9% lower than in the third quarter of 2020. At the same time, in Russia, refining, marketing and distribution EBITDA increased by 2.9% largely due to a seasonal increase in profitability of our power generation business, positive inventory effect at our refineries, better results of our petrochemical and retail businesses. This growth was restrained by a decrease in refining margins, higher operating expenses at refineries and lower refinery throughput volumes. Outside Russia, our refining, marketing and distribution EBITDA decreased by 91.3% primarily due to the accounting specifics of our international trading operations. Moreover, our results outside Russia were negatively affected by lower refinery throughput volumes, refining and trading margins and weaker results of our retail network due to COVID-19 related lockdowns in Europe. The positive inventory effect at our foreign refineries partially offset the impact of these negative factors.

Compared to 2019, our refining, marketing and distribution EBITDA decreased by 34.5%. In Russia, our downstream EBITDA decreased largely due to a decline in refining margin, negative inventory effect at our refineries, weaker results of petrochemical and retail businesses, lower refinery throughput volumes, that was partially offset by optimization of refinery product slate. Outside Russia, our downstream EBITDA decreased by 11.3%. A decline in benchmark refining margin and negative inventory effect at our refineries were largely offset by an increase in trading margin, the accounting specifics of our international trading operations, as well as the ruble depreciation.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Refining and petrochemicals

The following table summarizes key figures for our refining and petrochemical volumes.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
Refinery throughput at the Group refineries	13,145	14,848	(thousands of tonnes) (11.5)	58,608	68,746	(14.7)
in Russia	9,682	10,207	(5.1)	40,109	44,154	(9.2)
outside Russia, including	3,463	4,641	(25.4)	18,499	24,592	(24.8)
crude oil	3,085	4,215	(26.8)	16,888	22,673	(25.5)
refined products	378	426	(11.3)	1,611	1,919	(16.1)
Refinery throughput at third party refineries	28	41	(31.7)	146	4,460	(96.7)
Total refinery throughput	13,173	14,889	(11.5)	58,754	73,206	(19.7)
Production of the Group refineries in Russia¹	9,234	9,722	(5.0)	38,090	41,831	(8.9)
diesel fuel	3,760	4,010	(6.2)	16,084	16,532	(2.7)
motor gasoline	1,479	2,104	(29.7)	7,076	7,864	(10.0)
fuel oil	965	839	15.0	3,142	4,657	(32.5)
jet fuel	487	692	(29.6)	2,182	2,843	(23.3)
lubricants and components	255	202	26.2	923	963	(4.2)
straight-run gasoline	636	430	47.9	2,458	2,655	(7.4)
vacuum gas oil	438	131	>100	589	332	77.4
bitumen	145	275	(47.3)	904	908	(0.4)
coke	257	265	(3.0)	1,108	1,072	3.4
bunker fuel	576	385	49.6	2,022	1,546	30.8
gas products	68	90	(24.4)	307	317	(3.2)
petrochemicals	53	82	(35.4)	298	392	(24.0)
other products	115	217	(47.0)	997	1,750	(43.0)
Production of the Group refineries outside
Russia	3,163	4,246	(25.5)	16,874	23,250	(27.4)
diesel fuel	1,599	2,146	(25.5)	8,334	10,570	(21.2)
motor gasoline	608	1,064	(42.9)	3,778	5,065	(25.4)
fuel oil	77	193	(60.1)	754	2,121	(64.5)
jet fuel	127	86	47.7	539	1,149	(53.1)
straight-run gasoline	449	284	58.1	1,616	2,285	(29.3)
coke	24	16	50.0	76	107	(29.0)
bunker fuel	116	103	12.6	438	99	-
gas products	88	122	(27.9)	462	588	(21.4)
petrochemicals	11	11	-	45	43	4.7
other products	64	221	(71.0)	832	1,223	(32.0)
Refined products produced by the Group	12,397	13,968	(11.2)	54,964	65,081	(15.5)
Refined products produced at third party refineries	26	37	(29.7)	139	4,215	(96.7)
Total refined products produced	12,423	14,005	(11.3)	55,103	69,296	(20.5)
Reference: Net of cross-supplies of refined products
between the Group refineries	158	455	(65.3)	1,397	1,561	(10.5)
Products produced at petrochemical plants and
facilities	332	283	17.3	1,228	1,137	8.0
in Russia	253	198	27.8	898	790	13.7
outside Russia	79	85	(7.1)	330	347	(4.9)

¹ Net of cross-supplies of refined products among the Group.

In the fourth quarter and the full year 2020, refinery throughput at the Group refineries was 13.1 million tonnes and 58.6 million tonnes, respectively, which is 11.5% lower quarter-on-quarter and 14.7% lower year-on-year. The decline was attributable to throughput optimization at some of the Group's refineries on the back of lower demand for petroleum products and decline in refining margins due to the COVID-19 pandemic, as well as to scheduled maintenance works.

In the fourth quarter of 2020, refinery throughput decreased by 5.1% in Russia mainly due to scheduled maintenance works at Volgograd and Nizhny Novgorod refineries, and decreased by 25.4% outside Russia, mainly due to scheduled maintenance works and throughput optimization at refineries in Italy and Bulgaria.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

In 2020, refinery throughput in Russia was 9.2% lower year-on-year due to scheduled maintenance works and throughput optimization at refineries. Our refinery throughput in Europe was 24.8% lower year-on-year due to scheduled maintenance works at refineries in Bulgaria, Italy and the Netherlands, as well as throughput optimization.

In the periods considered, we processed our crude oil at third party refineries in Belarus and Kazakhstan.

In 2016, a Group company entered into a tolling agreement with a Canadian refinery originally valid through 2019. Subsequently, it was prolonged until 31 August 2022 with modification of certain provisions that changed its substance from a tolling agreement to a financial arrangement. Therefore, from September 2019, we ceased to recognize throughput and production costs related to this arrangement. The Group recognizes interest it earns on the financing provided and administrative fee.

Marketing and trading

In addition to our production, we purchase crude oil in Russia and on international markets. In Russia, we primarily purchase crude oil from associated producing companies and other producers. Then we either refine or export purchased crude oil. Crude oil purchased on international markets is used for trading activities, for supplying our international refineries or for processing at third party refineries.

In Russia, we purchase refined products on occasion, primarily to manage supply chain bottlenecks. Refined products purchases outside Russia are either traded or supplied to our international refineries and our retail chains.

We undertake trading operations on international markets through our 100% subsidiary LITASCO SA. We use traditional physical volumes hedging techniques to hedge our trading operations to secure trading margin.

The following table shows the volumes of crude oil purchases by the Group during the periods considered.

	Q4 2020	Q3 2020	Change,	12 months of		Change,
			%	2020	2019	%
	(thousands of tonnes)
Crude oil purchases
In Russia	245	85	>100	704	756	(6.9)
For trading internationally	10,807	13,728	(21.3)	51,678	52,299	(1.2)
For refining internationally	2,880	3,761	(23.4)	13,241	21,686	(38.9)
Shipment of the West Qurna-2 compensation
crude oil	545	814	(33.0)	2,777	1,376	>100
Total crude oil purchased	14,477	18,388	(21.3)	68,400	76,117	(10.1)

The table below summarizes figures for our refined products and petrochemicals marketing and trading activities.

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
		(thousands of tonnes)
Refined products purchases
In Russia	227	114	99.1	730	920	(20.7)
For trading internationally	14,820	11,840	25.2	49,455	51,179	(3.4)
For refining internationally	266	392	(32.3)	1,558	2,095	(25.6)
Total refined products purchased	15,313	12,346	24.0	51,743	54,194	(4.5)
Petrochemical products purchases
In Russia	34	36	(5.6)	135	39	>100
For trading internationally	130	134	(3.1)	606	863	(29.7)
For refining internationally	48	46	4.6	177	186	(5.0)
Total petrochemical products purchased	212	216	(1.9)	918	1,088	(15.6)

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Exports of crude oil, refined and petrochemical products from Russia by our subsidiaries and export revenues (both to the Group companies and third parties) are summarized as follows:

		Q4 Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
			(millions of rubles)
Exports of crude oil to Customs Union	11,675	12,633	(7.6)	29,913	63,879	(53.2)
Exports of crude oil beyond Customs Union	170,215	138,690	22.7	584,474	996,096	(41.3)
Total crude oil exports	181,890	151,323	20.2	614,387	1,059,975	(42.0)
			(thousands of tonnes)
Exports of crude oil to Customs Union	664	664	-	1,779	2,716	(34.5)
Exports of crude oil beyond Customs Union	7,371	6,121	20.4	30,330	34,378	(11.8)
Total crude oil exports	8,035	6,785	18.4	32,109	37,094	(13.4)
Exports of crude oil through Transneft,
excluding ESPO pipeline	4,675	3,268	43.1	18,440	21,255	(13.2)
ESPO pipeline	600	599	0.2	1,739	1,738	0.1
CPC pipeline	1,402	1,341	4.5	5,317	5,281	0.7
Exports of crude oil through the Group's
transportation infrastructure	1,358	1,577	(13.9)	6,613	8,820	(25.0)
Total crude oil exports	8,035	6,785	18.4	32,109	37,094	(13.4)
Supply of exported crude oil to refineries	239	395	(39.5)	3,131	3,354	(6.6)

	Q4 2020	Q3		12 months of		Change,
		2020	Change, %	2020	2019	%
Refined and petrochemical products exports	119,827	89,799	33.4	419,665	623,632	(32.7)
			(thousands of tonnes)
Refined products exports
diesel fuel	2,050	2,227	(7.9)	9,716	10,205	(4.8)
gasoline	2	-	-	654	491	33.2
fuel oil	744	631	17.9	1,916	1,962	(2.3)
jet fuel	10	2	>100	19	10	90.0
lubricants and components	167	128	30.5	607	629	(3.5)
gas refinery products	146	145	0.7	695	769	(9.6)
other products	1,377	629	>100	4,314	4,663	(7.5)
Total refined products exports	4,496	3,762	19.5	17,921	18,729	(4.3)
Total petrochemicals exports	102	110	(7.3)	388	302	28.5

The volume of our crude oil exports from Russia increased by 18.4% compared to the third quarter of 2020 as a result of lower throughput at our domestic refineries and higher crude oil production volumes, and decreased by 13.4% compared to 2019 due to crude oil production cut resulting from the new OPEC+ agreement. In the fourth quarter and the full year 2020, we exported 45.5% and 44.0% of our domestic crude oil production (39.2% in the third quarter of 2020 and 45.5% in 2019), respectively.

The volume of our refined products exports increased by 19.5% compared to the third quarter of 2020 due to a seasonal decrease in domestic demand, and decreased by 4.3% compared to 2019 due to lower production.

Substantially, we use the Transneft infrastructure to export our crude oil. Nevertheless, a sizeable amount of crude oil is exported through our own infrastructure that allows us to reduce transportation costs and preserve the premium quality of crude oil and thus enables to achieve higher netbacks. All the volume of crude oil exported that bypassed Transneft was routed beyond the Customs Union.

Besides our own infrastructure, we also export the light crude oil through the Caspian Pipeline Consortium and Eastern Siberia – Pacific Ocean pipelines that also allows us to preserve the premium quality of crude oil and to achieve higher netbacks compared to traditional export routes.

Priority sales channels. We develop our priority sales channels aiming at increasing our margin on sale of refined products produced by the Group. In 2020, our retail sales of motor fuels and jet fuel supplies both in and outside Russia were negatively affected by a decrease in demand due to the consequences of the COVID-19 pandemic.

In the fourth quarter and the full year 2020, we sold 2.3 million tonnes and 9.0 million tonnes of motor fuels via our domestic retail network, which was 10.3% less compared to the third quarter of 2020 and 9.1% less compared to 2019. Outside Russia, retail sales decreased by 7.3% compared to the third quarter of 2020 and by 12.6% compared to 2019.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

In the fourth quarter and the full year 2020, our jet fuel deliveries volume net of trading operations amounted to 0.6 million tonnes and 2.5 million tonnes compared to 0.7 million tonnes in the third quarter of 2020 and 3.4 million tonnes in 2019.

In the fourth quarter and the full year 2020, our bunkering volume net of trading operations amounted to 0.5 million tonnes and 2.7 million tonnes compared to 0.6 million tonnes in the third quarter of 2020 and 4.3 million tonnes in 2019.

Power generation. We own commercial electricity and heat generation facilities in the Southern regions of European Russia, Romania and Italy. We also own renewable energy capacity in Russia and abroad. In the fourth quarter and the full year 2020, our total output of commercial electrical energy was 4.4 billion kWh and 17.1 billion kWh (3.7 billion kWh in the third quarter of 2020 and 18.3 billion kWh in 2019), and our total output of commercial heat energy was approximately 3.6 million Gcal and 10.0 million Gcal (0.8 million Gcal in the third quarter of 2020 and 10.1 million Gcal in 2019), respectively.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Financial results

The table below sets forth data from our consolidated statements of profit or loss and other comprehensive income for the periods indicated.

	Q4 2020	Q3 2020	Change, % 2020 (millions of rubles)		12 months of 2019	Change, %
Revenues
Sales (including excise and export tariffs)	1,530,339	1,456,650	5.1	5,639,401	7,841,246	(28.1)
Costs and other deductions
Operating expenses	(113,987)	(108,953)	4.6	(439,973)	(457,710)	(3.9)
Cost of purchased crude oil, gas and products	(843,611)	(790,660)	6.7		(3,000,916) (4,308,073)	(30.3)
Transportation expenses	(71,893)	(61,388)	17.1	(292,899)	(278,798)	5.1
Selling, general and administrative expenses	(56,018)	(45,488)	23.1	(199,027)	(197,172)	0.9
Depreciation, depletion and amortization	(90,558)	(103,439)	(12.5)	(405,440)	(415,094)	(2.3)
Taxes other than income taxes	(148,479)	(133,550)	11.2	(569,078)	(928,190)	(38.7)
Excise and export tariffs	(104,160)	(113,950)	(8.6)	(444,300)	(425,763)	4.4
Exploration expenses	(2,579)	(438)	>100	(6,114)	(9,348)	(34.6)
Profit from operating activities	99,054	98,784	0.3	281,654	821,098	(65.7)
Finance income	1,930	3,625	(46.8)	13,051	25,134	(48.1)
Finance costs	(10,853)	(11,697)	(7.2)	(44,122)	(44,356)	(0.5)
Equity share in income of associates and joint
ventures	3,017	4,029	(25.1)	11,474	18,246	(37.1)
Foreign exchange gain (loss)	12,460	(27,280)	-	(26,110)	923	-
Other expenses	(44,790)	(1,293)	>100	(137,160)	(27,691)	>100
Profit before income taxes	60,818	66,168	(8.1)	98,787	793,354	(87.5)
Current income taxes	(19,321)	(17,325)	11.5	(61,362)	(144,615)	(57.6)
Deferred income taxes	(11,535)	2,069	-	(20,792)	(6,518)	>100
Total income tax expense	(30,856)	(15,256)	>100	(82,154)	(151,133)	(45.6)
Profit for the period	29,962	50,912	(41.1)	16,633	642,221	(97.4)
Profit for the period attributable to:
PJSC LUKOIL shareholders	29,435	50,420	(41.6)	15,175	640,178	(97.6)
Non-controlling interests	527	492	7.1	1,458	2,043	(28.6)
Earnings per share Profit for the period attributable to PJSC LUKOIL shareholders per share of common stock (in Russian rubles):
Basic	45.11	77.27	(41.6)	23.31	963.28	(97.6)
Diluted	43.38	74.42	(41.7)	22.46	934.73	(97.6)

26

The analysis of the main financial indicators of the financial statements is provided below.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Sales breakdown	Q4	Q3	Change,		12 months of	Change,
	2020	2020	%	2020	2019	%
			(millions of rubles)
Crude oil
Export and sales on international markets other
than Customs Union	455,450	476,913	(4.5)	1,838,509	2,575,571	(28.6)
Export and sales to Customs Union	11,610	12,648	(8.2)	30,137	64,890	(53.6)
Domestic sales	4,031	8,457	(52.3)	23,522	22,528	4.4
	471,091	498,018	(5.4)	1,892,168	2,662,989	(28.9)
Cost compensation and remuneration at the West
Qurna-2 project	12,682	9,850	28.8	50,298	43,859	14.7
	483,773	507,868	(4.7)	1,942,466	2,706,848	(28.2)
Refined products
Export and sales on international markets
Wholesales	661,087	555,275	19.1	2,245,940	3,403,202	(34.0)
Retail	82,813	85,153	(2.7)	303,021	345,162	(12.2)
Domestic sales
Wholesales	81,085	94,013	(13.8)	340,320	443,667	(23.3)
Retail	115,573	129,610	(10.8)	445,343	480,048	(7.2)
	940,558	864,051	8.9	3,334,624	4,672,079	(28.6)
Petrochemicals
Export and sales on international markets	14,921	13,244	12.7	57,036	91,687	(37.8)
Domestic sales	10,474	7,356	42.4	36,386	40,971	(11.2)
	25,395	20,600	23.3	93,422	132,658	(29.6)
Gas
Sales on international markets	30,280	7,973	>100	68,200	138,997	(50.9)
Domestic sales	8,190	8,119	0.9	32,649	32,490	0.5
	38,470	16,092	>100	100,849	171,487	(41.2)
Sales of energy and related services
Sales on international markets	1,923	3,796	(49.3)	10,451	14,604	(28.4)
Domestic sales	15,903	10,010	58.9	53,607	53,276	0.6
	17,826	13,806	29.1	64,058	67,880	(5.6)
Other
Export and sales on international markets	13,923	22,741	(38.8)	63,813	48,024	32.9
Domestic sales	10,394	11,492	(9.6)	40,169	42,270	(5.0)
	24,317	34,233	(29.0)	103,982	90,294	15.2

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Sales volumes	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
			(thousands of tonnes)
Crude oil
Export and sales on international markets other
than Customs Union	18,687	20,670	(9.6)	81,391	84,281	(3.4)
Export and sales to Customs Union	669	669	-	1,799	2,753	(34.7)
Domestic sales	190	449	(57.7)	1,415	947	49.4
	19,546	21,788	(10.3)	84,605	87,981	(3.8)
Crude oil volumes related to cost compensation
and remuneration at the West Qurna-2 project	463	565	(18.1)	2,843	1,616	75.9
	20,009	22,353	(10.5)	87,448	89,597	(2.4)
Refined products
Export and sales on international markets
Wholesales	21,703	19,569	10.9	80,095	92,392	(13.3)
Retail	933	1,006	(7.3)	3,667	4,194	(12.6)
Domestic sales
Wholesales	2,726	3,230	(15.6)	12,011	14,506	(17.2)
Retail	2,327	2,595	(10.3)	9,032	9,935	(9.1)
	27,689	26,400	4.9	104,805	121,027	(13.4)
Petrochemicals
Export and sales on international markets	284	295	(3.7)	1,269	1,547	(18.0)
Domestic sales	190	163	16.6	771	699	10.3
	474	458	3.5	2,040	2,246	(9.2)
			(millions of cubic meters)
Gas
Sales on international markets	4,223	1,616	161.3	11,288	15,785	(28.5)
Domestic sales	3,107	3,171	(2.0)	12,777	12,942	(1.3)
	7,330	4,787	53.1	24,065	28,727	(16.2)

Realized average sales prices		Q4	Q3	Change,		12 months of	Change,
		2020	2020	%	2020	2019	%
Average realized price on international
markets
Crude oil (beyond Customs Union)¹	(RUB/barrel)	3,325	3,148	5.6	3,082	4,169	(26.1)
Crude oil (Customs Union)	(RUB/barrel)	2,368	2,579	(8.2)	2,285	3,216	(28.9)
Refined products
Wholesales	(RUB/tonne)	30,461	28,375	7.3	28,041	36,834	(23.9)
Retail	(RUB/tonne)	88,760	84,645	4.9	82,635	82,299	0.4
Petrochemicals	(RUB/tonne)	52,539	44,895	17.0	44,946	59,268	(24.2)
Gas (excluding royalty)	(RUB/1,000 m3)	7,170	4,934	45.3	6,042	8,806	(31.4)
Crude oil (beyond Customs Union)¹	(\$/barrel)	43.62	42.79	1.9	42.71	64.40	(33.7)
Crude oil (Customs Union)	(\$/barrel)	31.06	35.06	(11.4)	31.68	49.67	(36.2)
Refined products
Wholesales	(\$/tonne)	400	386	3.6	389	569	(31.7)
Retail	(\$/tonne)	1,164	1,151	1.2	1,145	1,271	(9.9)
Petrochemicals	(\$/tonne)	689	610	12.9	623	916	(32.0)
Gas (excluding royalty)	(\$/1,000 m3)	94	67	40.3	84	136	(38.4)
Average realized price within Russia
Crude oil	(RUB/barrel)	2,894	2,570	12.6	2,268	3,245	(30.1)
Refined products
Wholesales	(RUB/tonne)	29,745	29,106	2.2	28,334	30,585	(7.4)
Retail	(RUB/tonne)	49,666	49,946	(0.6)	49,307	48,319	2.0
Petrochemicals	(RUB/tonne)	55,126	45,129	22.2	47,193	58,614	(19.5)
Gas²	(RUB/1,000 m3)	2,636	2,560	3.0	2,555	2,510	1.8

¹ Excluding cost compensation and remuneration at the West Qurna-2 project.

² The price does not include cost of transportation by Unified Gas Supply System of Gazprom, as most of our gas production in Russia is sold ex-field.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

In the fourth quarter of 2020, our revenues were positively affected by higher volumes of refined products trading, recovery of gas production in Uzbekistan, an increase in crude oil production as a result of partial lifting of the external limitations on oil production under the new OPEC+ agreement, the ruble depreciation as well as an increase in international hydrocarbon prices. Among main adverse factors were lower volumes of crude oil trading and a decrease in retail sales volumes.

In 2020, our revenues were negatively affected by a sharp decrease in international hydrocarbon prices, crude oil production cut in Russia due to the new OPEC+ agreement, a decrease in refinery throughput volumes, refined products trading volumes and retail sales volumes, as well as a reduction in gas production in Uzbekistan due to temporary lower demand for Uzbek gas from China.

Sales of crude oil

Compared to the third quarter of 2020, our crude oil sales revenue decreased by 52.3% in Russia due to lower domestic sales volumes because of their redirection to export, and by 4.5% outside Russia largely as a result of lower international trading volumes, that was partially offset by the ruble depreciation and an increase in crude oil prices.

Compared to 2019, our international crude oil sales revenue decreased by 28.6% mainly as a result of a decrease in crude oil prices by 26.1%. Our domestic crude oil sales revenue increased by 4.4%, despite a decrease in crude oil prices by 30.1%, due to an increase in sales volumes by 49.4%.

Sales of refined products

Sales breakdown	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
Wholesales outside Russia	661,086	555,275	19.1	2,245,939	3,403,202	(34.0)
diesel fuel	260,898	230,128	13.4	937,614	1,637,550	(42.7)
motor gasoline	122,540	135,036	(9.3)	440,292	637,327	(30.9)
fuel oil	127,681	107,307	19.0	414,171	521,882	(20.6)
jet fuel	5,017	5,925	(15.3)	20,866	97,202	(78.5)
lubricants and components	18,500	15,477	19.5	67,454	65,726	2.6
gas products	21,336	17,545	21.6	76,703	53,515	43.3
others	105,114	43,857	>100	288,839	390,000	(25.9)
Retail outside Russia	82,813	85,153	(2.7)	303,021	345,162	(12.2)
Wholesales in Russia	81,085	94,013	(13.8)	340,320	443,667	(23.3)
diesel fuel	26,104	28,645	(8.9)	110,395	116,906	(5.6)
motor gasoline	10,327	15,411	(33.0)	43,959	48,539	(9.4)
fuel oil	2,514	2,492	0.9	8,789	33,124	(73.5)
jet fuel	16,779	20,217	(17.0)	77,138	128,672	(40.1)
lubricants and components	6,513	7,397	(12.0)	25,866	25,265	2.4
gas products	4,038	3,683	9.6	11,805	10,903	8.3
others	14,810	16,168	(8.4)	62,368	80,258	(22.3)
Retail in Russia	115,573	129,610	(10.8)	445,343	480,048	(7.2)
Total refined products sales	940,557	864,051	8.9	3,334,623	4,672,079	(28.6)

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Sales volumes	Q4	Q3	Change,		12 months of	Change,
	2020	2020	%	2020	2019	%
Wholesales outside Russia	21,704	19,569	(thousands of tonnes) 10.9	80,096	92,392	(13.3)
diesel fuel	7,796	7,310	6.6	29,745	39,002	(23.7)
motor gasoline	3,648	4,284	(14.8)	13,926	15,015	(7.3)
fuel oil	5,400	5,410	(0.2)	20,415	20,121	1.5
jet fuel	143	213	(32.9)	654	2,323	(71.8)
lubricants and components	289	217	33.2	1,075	997	7.8
gas products	641	645	(0.6)	2,855	1,902	50.1
others	3,787	1,490	>100	11,426	13,032	(12.3)
Retail outside Russia	933	1,006	(7.3)	3,667	4,194	(12.6)
diesel fuel	645	676	(4.6)	2,508	2,814	(10.9)
motor gasoline	251	287	(12.5)	1,012	1,195	(15.3)
gas products	37	43	(14.0)	147	185	(20.5)
Wholesales in Russia	2,726	3,230	(15.6)	12,011	14,506	(17.2)
diesel fuel	650	712	(8.7)	2,720	2,733	(0.5)
motor gasoline	256	353	(27.5)	1,091	1,257	(13.2)
fuel oil	190	224	(15.2)	899	2,184	(58.8)
jet fuel	556	691	(19.5)	2,401	3,138	(23.5)
lubricants and components	88	103	(14.6)	373	361	3.3
gas products	163	158	3.2	598	648	(7.7)
others	823	989	(16.8)	3,929	4,185	(6.1)
Retail in Russia	2,327	2,595	(10.3)	9,032	9,935	(9.1)
diesel fuel	905	940	(3.7)	3,450	3,715	(7.1)
motor gasoline	1,408	1,640	(14.1)	5,527	6,161	(10.3)
gas products	14	15	(6.7)	55	59	(6.8)
Total refined products volumes	27,690	26,400	4.9	104,806	121,027	(13.4)

Compared to 2019, our refined products sales revenue was significantly affected by lower sales volumes and prices as a result of a sharp decrease in demand due to the COVID-19 pandemic.

The fourth quarter of 2020 vs. the third quarter of 2020

• Our revenue from the wholesales of refined products outside Russia increased by 19.1% due to an increase in average realized prices by 7.3% and volumes by 10.9% as a result of an increase in volumes of trading operations.
• International retail revenue decreased by 2.7% due to a decrease in sales volumes by 7.3% as a result of lower demand for refined products due to a resumption of COVID-19 related restrictions in Europe, as well as a seasonality factor.
• Revenue from the wholesale and retail sales of refined products on the domestic market decreased by 13.8% and by 10.8%, respectively, mainly as a result of a seasonal decrease in sales volumes.

Full year 2020 vs. full year 2019

• Our revenue from the wholesales of refined products outside Russia decreased by 34.0% as a result of a decrease in average realized prices by 23.9% and sales volumes by 13.3% due to a decrease in volumes of trading operations and production.
• Our international retail revenue decreased by 12.2% as a result of a decrease in sales volumes and prices that was partially offset by the ruble depreciation.
• Our revenue from the wholesales of refined products on the domestic market decreased by 23.3% as a result of a decrease in sales volumes and our average realized prices.
• Our revenue from refined products retail sales in Russia decreased by 7.2% as a result of a decrease in sales volumes that was partially offset by an increase in our average realized prices.

Sales of petrochemical products

Compared to the third quarter of 2020, our revenue from sales of petrochemical products increased by 23.3%, as a result of higher production volumes in Russia, as well as an increase in realized prices.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Compared to 2019, our revenue from sales of petrochemical products decreased by 29.6%, mainly as a result of a decline in trading volumes outside Russia and realized prices.

Sales of gas

Compared to the third quarter of 2020, our revenue from gas sales increased by 139.1% as a result of a recovery of gas production in Uzbekistan that followed the resumption of gas exports from Uzbekistan to China.

During 2020, as a result of temporary decline in demand for Uzbek gas from China, we reduced gas production. As a result, our revenue from gas sales decreased by 41.2% compared to 2019.

Sales of energy and related services

Our revenue from sales of energy and related services increased by 29.1% compared to the third quarter of 2020, mainly due to a seasonality factor in Russia, and decreased by 5.6% compared to 2019, mainly due to changes in energy tariffs and sales volumes in Italy.

Other sales

Other sales include non-petroleum sales through our retail network, transportation services, rental revenue, crude oil extraction services, and other revenue of our production and marketing companies from sales of goods and services not related to our primary activities.

Compared to the third quarter of 2020, revenue from other sales decreased by 29.0% largely as a result of a decrease in non-petrol revenue of our retail network due to seasonality in Russia and Europe, as well as lower demand due to a resumption of COVID-19 related restrictions in Europe.

Compared to 2019, revenue from other sales increased by 15.2% largely as a result of an increase in revenues from transportation services outside Russia due to higher tariffs and volumes, as well as an increase in non-petrol revenue of our retail network.

Moreover, other sales revenue for the third quarter and the full year 2020 included 5.9 billion RUB (approximately €68 million) of loss compensation in relation to energy supplies in Sicily, Italy in 2015 (other sales revenue for 2019 included 2.2 billion RUB (approximately €30 million) of similar compensation related to 2016 supplies).

Operating expenses

Operating expenses include the following:

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
Hydrocarbon extraction expenses¹	46,099	42,849	7.6	181,699	193,857	(6.3)
Extraction expenses at the West Qurna-2 field	4,938	3,821	29.2	17,212	17,010	1.2
Own refining expenses	25,563	24,165	5.8	92,613	96,543	(4.1)
Refining expenses at third-party refineries	103	148	(30.4)	524	7,175	(92.7)
Expenses for feedstock transportation to refineries	10,715	11,919	(10.1)	51,693	52,884	(2.3)
Power generation and distribution expenses	8,250	7,406	11.4	29,991	30,432	(1.4)
Petrochemical expenses	3,700	3,057	21.0	12,731	12,463	2.2
Other operating expenses	14,619	15,588	(6.2)	53,510	47,346	13.0
Total operating expenses	113,987	108,953	4.6	439,973	457,710	(3.9)

¹ Excluding extraction expenses at the West Qurna-2 field.

The method of allocation of operating expenses above differs from the approach used in preparing data for Note 33 "Segment information" to our consolidated financial statements. Expenditures in the segment reporting are grouped depending on the segment to which a particular company belongs, are not divided by the type of expenses within one company and do not include adjustments related to elimination of intra-group service margin. Operating expenses for the purposes of this analysis are grouped based on the nature of the costs incurred.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Hydrocarbon extraction expenses

Our extraction expenses include expenditures related to repairs of extraction equipment, labour costs, expenses on artificial stimulation of reservoirs, fuel and electricity costs, cost of extraction of natural gas liquids, property insurance of extraction equipment and other similar costs.

	Q4 2020	Q3	Change, %	12 months of		Change,
		2020		2020	2019	%
			(millions of rubles)
Hydrocarbon extraction expenses	46,099	42,849	7.6	181,699	193,857	(6.3)
in Russia	39,532	37,552	5.3	158,328	170,590	(7.2)
outside Russia¹	6,567	5,297	24.0	23,371	23,267	0.4
			(rubles per BOE)
Hydrocarbon unit extraction expenses	249	254	(1.8)	247	232	6.4
in Russia	251	241	4.0	243	237	2.2
outside Russia¹	240	404	(40.6)	282	200	41.3

¹ Excluding extraction expenses at the West Qurna-2 field.

Compared to the third quarter, our extraction expenses in Russia increased by 5.3% mainly due to higher production volumes and a seasonal increase in energy and transport costs. At the same time, hydrocarbon unit extraction expenses in Russia increased by only 4.0%. Our extraction expenses outside Russia increased by 24.0% due to a recovery of gas production in Uzbekistan, that also led to a decrease in our hydrocarbon unit extraction expenses outside Russia by 40.6% as gas has lower unit extraction expenses compared to crude oil.

Compared to 2019, our extraction expenses in Russia decreased by 7.2% mainly due to lower production volumes and cost reduction programme. However, our hydrocarbon unit extraction expenses increased by 2.2% due to certain share of fixed costs. Outside Russia, our hydrocarbon extraction expenses were flat despite lower production volumes. A decrease in extraction expenses in Uzbekistan as a result of production cut was offset by higher expenses due to the effect of acquisition of a share in the Marine XII project in the Republic of Congo. Our hydrocarbon unit extraction expenses outside Russia increased by 41.3% mainly as a result of a decrease in share of gas in our hydrocarbon production, which has lower unit extraction expenses compared to crude oil. The ruble depreciation also contributed to the increase in extraction expenses outside Russia.

Own refining expenses

	Q4 2020	Q3	Change, %	12 months of		Change,
		2020		2020	2019	%
	(millions of rubles)
Refining expenses at the Group refineries	25,563	24,165	5.8	92,613	96,543	(4.1)
in Russia	12,539	10,961	14.4	42,614	42,555	0.1
outside Russia	13,024	13,204	(1.4)	49,999	53,988	(7.4)
			(rubles per tonne)
Unit refining expenses at the Group refineries	1,945	1,628	19.5	1,580	1,404	12.5
in Russia	1,295	1,074	20.6	1,062	964	10.2
outside Russia	3,760	2,845	32.2	2,703	2,195	23.1

Compared to the third quarter of 2020, refining expenses at the Group refineries increased by 5.8%. In Russia, refining expenses increased by 14.4% mainly as a result of an increase in maintenance costs. Outside Russia, refining expenses decreased by 1.4% due to lower throughput volumes that was partly offset by an increase in energy and fuel costs and effect of ruble depreciation against euro.

Compared to 2019, expenses at our refineries decreased by 4.1%. In Russia, refining expenses did not change, as the effect of lower throughput volumes was offset by higher maintenance cost. Outside Russia, expenses at our refineries decreased by 7.4% mainly due to lower throughput volumes, as well as a decline in fuel and energy costs, despite the ruble depreciation against euro.

Refining expenses at third-party refineries

Along with our own production of refined products, we process crude oil at third-party refineries.

At the end of 2016, as part of our trading business development, a Group company entered into a 3-year tolling agreement with a Canadian refinery. Related refining expenses represented variable toll that was mostly the difference between the price of feedstock supplied, including various related costs, and the selling price of the refined products taken. When the refined products were sold, this toll was naturally offset by the respective refined products sales revenue. The agreed compensation was received by the Group company for execution of this agreement.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

In August 2019, the agreement was extended till 2022 with modification of certain provisions. As a result, the agreement is now treated as a financing arrangement with recognizing in the profit or loss statement only interest earned on the financing provided and administrative fee. Thus, we do not recognize the tolling fee starting from September 2019.

Expenses for feedstock transportation to refineries

Expenses for feedstock transportation to refineries include pipeline, railway, freight and other costs related to delivery of crude oil and refined products to refineries for further processing.

Our expenses for feedstock transportation to refineries decreased by 10.1% compared to the third quarter of 2020 mainly due to lower refinery throughput and decreased by 2.3% compared to 2019.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(millions of rubles)
Own feedstock transportation to our domestic refineries Own feedstock transportation from Russia to our	9,618	10,910	(11.8)	41,179	40,648	1.3
international refineries	460	155	>100	5,175	6,182	(16.3)
Other feedstock transportation costs outside Russia	637	854	(25.4)	5,339	6,054	(11.8)
Feedstock transportation to refineries	10,715	11,919	(10.1)	51,693	52,884	(2.3)

Power generation and distribution expenses

Power generation and distribution expenses increased by 11.4% compared to the third quarter of 2020 mainly due to a seasonal factor, and decreased by 1.4% compared to 2019.

Petrochemical expenses

Compared to the third quarter of 2020, our petrochemical expenses increased by 21.0% mainly due to an increase in output in Russia. In 2020, petrochemical expenses increased by 2.2% compared to 2019, an effect of higher production volumes was nearly offset by lower maintenance costs in Russia in 2020.

Other operating expenses

Other operating expenses include expenses of the Group's upstream and downstream entities that do not relate to their core activities, namely transportation and extraction services, costs of other services provided and goods sold by our production and marketing companies, and of non-core businesses of the Group.

Compared to the third quarter of 2020, other operating expenses decreased by 6.2%, largely as a result of lower volumes of non-petrol sales through our retail network. Compared to 2019, they increased by 13.0%, as a result of an increase in volumes of non-petrol sales through our retail network and increase in volumes of transportation services rendered.

Cost of purchased crude oil, gas and products

Cost of purchased crude oil, gas and products includes cost of crude oil and refined products purchased for trading or refining, gas and fuel oil to supply our power generation entities and the result of hedging of crude oil and refined products sales.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(millions of rubles)
Cost of purchased crude oil in Russia	5,354	1,637	>100	13,788	18,123	(23.9)
Cost of purchased crude oil outside Russia	331,310	394,981	(16.1)	1,461,688	2,229,352	(34.4)
Compensation crude oil related to West Qurna-2
project	11,994	17,193	(30.2)	45,428	36,225	25.4
Cost of purchased crude oil	348,658	413,811	(15.7)	1,520,904	2,283,700	(33.4)
Cost of purchased refined products in Russia	9,846	5,573	76.7	31,043	37,146	(16.4)
Cost of purchased refined products outside Russia	457,157	351,106	30.2	1,420,226	1,930,711	(26.4)
Cost of purchased refined products	467,003	356,679	30.9	1,451,269	1,967,857	(26.3)
Other purchases	24,380	11,767	>100	64,139	82,157	(21.9)
Net loss/(gain) from hedging of trading operations	38,224	(3,690)	-	(79,614)	61,333	-
Change in crude oil and petroleum products
inventory	(34,654)	12,093	-	44,218	(86,974)	-
Total cost of purchased crude oil, gas and
products	843,611	790,660	6.7	3,000,916	4,308,073	(30.3)

In the fourth quarter and the full year 2020, cost of purchased crude oil, gas and products increased by 6.7% quarter-onquarter and decreased by 30.3% year-on-year.

An increase in domestic purchases of crude oil and refined products compared to the previous quarter was mostly related to refinery and petrochemical feedstock. Outside Russia, a decrease in crude oil purchases and an increase in refined products purchases compared to the third quarter of 2020 were both driven by the respective changes in volumes of trading. A more than two-fold quarter-on-quarter increase in other purchases was largely a result of development of our gas trading activities in Europe.

A year-on-year decrease was mostly driven by the dynamics of international crude oil and refined products prices.

Transportation expenses

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
	(millions of rubles)
Crude oil transportation expenses	23,260	21,562	7.9	107,147	98,406	8.9
in Russia	11,387	10,938	4.1	46,110	46,946	(1.8)
outside Russia	11,873	10,624	11.8	61,037	51,460	18.6
Refined products transportation expenses	41,205	36,832	11.9	169,526	162,648	4.2
in Russia	19,385	19,402	(0.1)	84,723	89,842	(5.7)
outside Russia	21,820	17,430	25.2	84,803	72,806	16.5
Other transportation expenses	7,428	2,994	>100	16,226	17,744	(8.6)
in Russia	836	1,310	(36.2)	3,269	2,200	48.6
outside Russia	6,592	1,684	>100	12,957	15,544	(16.6)
Total transportation expenses	71,893	61,388	17.1	292,899	278,798	5.1

Compared to the third quarter of 2020, our expenses for transportation of crude oil and refined products increased by 7.9% and 11.9%, respectively. In Russia, our expenses for transportation of crude oil increased mainly as a result of higher export volumes, while our expenses for transportation of refined products did not change significantly. Outside Russia, our expenses increased as a result of higher volumes of refined products transportation, higher volumes of crude oil transportation by pipeline transport and the ruble depreciation, which was partly offset by lower volumes of crude oil transportation by sea.

Compared to 2019, our expenses for transportation of crude oil and refined products increased by 8.9% and 4.2%, respectively. In Russia, our expenses for transportation of crude oil decreased as a result of lower export volumes, that was partly offset by tariffs indexation, negative inventory effect and higher domestic sales volumes. Our expenses for transportation of refined products in Russia decreased as a result of lower supplies, despite tariffs indexation. Outside Russia, our expenses for transportation of crude oil and refined products increased mainly as a result of higher freight rates, storage expenses increase and the ruble depreciation, despite lower volumes of supplies.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

An increase in other transportation expenses compared to the third quarter of 2020 was due to commencement of gas supplies from our project in Azerbaijan to Europe and resumption of gas supplies from our projects in Uzbekistan to China. A decrease in other transportation expenses compared to 2019 resulted mainly from a decline of gas supplies from our projects in Uzbekistan to China.

Selling, general and administrative expenses

Selling, general and administrative expenses include payroll costs (excluding production staff costs of extraction entities, refineries and power generation entities), insurance costs (except for property insurance related to extraction, refinery and power generation equipment), costs of maintenance of social infrastructure, movement in allowance for expected credit losses and other expenses. Our selling, general and administrative expenses are roughly equally split between domestic and international operations.

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
	(millions of rubles)
Payroll costs included in selling, general and
administrative expenses	18,563	18,204	2.0	75,257	68,380	10.1
Other selling, general and administrative expenses	22,991	21,561	6.6	86,593	88,086	(1.7)
Share-based compensation	7,841	7,841	-	31,366	31,366	-
Expenses on allowance for expected credit losses	6,623	(2,118)	-	5,811	9,340	(37.8)
Total selling, general and administrative
expenses	56,018	45,488	23.1	199,027	197,172	0.9

Our selling, general and administrative expenses increased by 23.1% compared to the third quarter of 2020 mainly as a result of a change in an allowance for expected credit losses, as well as the ruble depreciation.

Compared to 2019, our selling, general and administrative expenses did not change significantly. A decrease in expenses on allowance for expected credit losses was partially offset by an increase in payroll costs of our international subsidiaries due to the ruble depreciation.

Depreciation, depletion and amortization

Compared to the third quarter of 2020, our depreciation, depletion and amortization expenses decreased by 12.5% mainly due to positive effect of an increase in proved developed hydrocarbon reserves at Group's certain fields as at the end of 2020 and consequent recalculation of depletion of respective fixed assets for the full year. This was partially offset by an increase in depletion expenses in Uzbekistan following the recovery of gas production volumes. Compared to 2019, our depreciation, depletion and amortization expenses decreased by 2.3%

Equity share in income of associates and joint ventures

The Group has investments in equity method associates and corporate joint ventures. These companies are primarily engaged in crude oil exploration, production, marketing and distribution operations in the Russian Federation, crude oil production and marketing in Kazakhstan. Currently, our largest associates are Tengizchevroil, an exploration and production company, operating in Kazakhstan, Bashneft-Polus, an exploration and production company that develops the Trebs and Titov oilfields in Timan-Pechora, Russia, South Caucasus Pipeline Company and Caspian Pipeline Consortium, midstream companies in Azerbaijan and Kazakhstan, respectively.

In the fourth quarter of 2020, our share in income of associates and joint ventures decreased by 25.1%.

In 2020, our share in income of associates and joint ventures decreased by 37.1%, compared to 2019, mainly due to a decrease in hydrocarbon prices.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Taxes other than income taxes

	Q4	Q3 2020	Change,	12 months of		Change,
	2020		%	2020	2019	%
			(millions of rubles)
In Russia
Mineral extraction taxes	129,118	115,938	11.4	495,877	849,445	(41.6)
Tax on additional income	2,985	1,026	>100	6,645	16,229	(59.1)
Social security taxes and contributions	6,471	7,072	(8.5)	28,437	27,308	4.1
Property tax	6,189	6,110	1.3	24,800	22,663	9.4
Other taxes	491	671	(26.8)	2,112	2,515	(16.0)
Total in Russia	145,254	130,817	11.0	557,871	918,160	(39.2)
International
Mineral extraction taxes	4	7	(42.9)	23	22	4.5
Social security taxes and contributions	1,849	1,674	10.5	6,626	6,109	8.5
Property tax	331	235	40.9	1,005	906	10.9
Other taxes	1,041	817	27.4	3,553	2,993	18.7
Total internationally	3,225	2,733	18.0	11,207	10,030	11.7
Total taxes other than income taxes	148,479	133,550	11.2	569,078	928,190	(38.7)

Our taxes other than income taxes increased by 11.2% compared to the third quarter of 2020 mainly as a result of an increase in mineral extraction tax expense on the back of an increase in the tax rate by 6.4% due to higher crude oil prices and the ruble depreciation, as well as due to higher crude oil extraction volumes, which was partially compensated by inventory effect. TAI expenses increased due to higher crude oil prices. Also, TAI expenses for the third quarter of 2020 include a downward adjustment related to 2019 in the amount of 1.5 billion RUB.

Compared to 2019, our taxes other than income taxes decreased by 38.7% mainly as a result of a decrease in mineral extraction tax expense on the back of a decrease in the tax rate by 33.1% due to lower crude oil prices and lower crude oil extraction volumes. TAI expenses decreased due to a decline of crude oil prices.

The following table summarizes data on application of reduced and zero mineral extraction tax rates for crude oil produced in Russia (excluding special tax regimes).

		Q4 Q3		12 months of		Change,
	2020	2020	Change, %	2020	2019	%
	(millions of rubles)
Decrease in extraction taxes from application of reduced rates for crude oil production						(37.7)
		23,235 21,322 9.0 79,146 127,018 (thousands of tonnes)
Volume of crude oil production subject to:
reduced rates (ultra-high viscosity)	599	624	(4.0)	2,427	2,157	12.5
reduced rates (tax holidays for specific regions and
high viscosity oil)	1,146	1,074	6.7	4,289	4,221	1.6
reduced rates (low permeability deposits)	434	409	6.1	1,628	1,422	14.5
reduced rates (Tyumen deposits)	174	168	3.6	736	725	1.5
reduced rates (depleted fields)	4,358	4,339	0.4	18,456	19,050	(3.1)
reduced rates (other)	595	482	23.4	2,216	2,503	(11.5)
Total volume of production subject to reduced
rates	7,306	7,096	3.0	29,752	30,078	(1.1)

A special tax regime is applied for crude oil production at certain Group's offshore fields and deposits. In the fourth quarter and the full year 2020, volumes of production subject to such regimes amounted to 1,533 thousand tonnes and 6,389 thousand tonnes, respectively (compared to 1,659 thousand tonnes in the third quarter of 2020 and 6,436 thousand tonnes in 2019).

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

The table below summarizes our production from license areas subject to TAI in the respective periods.

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
	(millions of rubles)
Mineral extraction tax for crude oil and gas condensate on license areas under TAI	5,483	5,084	7.8	18,521	25,429	(27.2)
	(thousands of tonnes)
Group 1	496	525	(5.5)	2,071	2,011	3.0
Group 3	748	747	0.1	3,030	2,896	4.6
Group 4	23	25	(8.0)	95	41	>100
Total volume of crude oil and gas condensate
production at license areas subject to TAI	1,267	1,297	(2.3)	5,196	4,948	5.0

Excise and export tariffs

	Q4 2020	Q3 2020	Change, %	12 months of		Change,
				2020	2019	%
In Russia
Excise tax on refined products	31,438	39,168	(19.7)	132,303	140,659	(5.9)
Excise tax on oil feedstock (excluding damper)	(9,781)	(10,515)	(7.0)	(37,881)	(31,212)	21.4
Damper	11,807	18,334	(35.6)	73,086	(57,237)	-
Crude oil еxport tariffs	14,895	9,162	62.6	70,885	141,622	(49.9)
Refined products еxport tariffs	7,781	4,720	64.9	26,460	46,058	(42.6)
Total in Russia	56,140	60,869	(7.8)	264,853	239,890	10.4
International
Excise tax and sales taxes on refined products	47,875	53,002	(9.7)	179,179	186,078	(3.7)
Crude oil еxport tariffs	15	14	7.1	48	51	(5.9)
Refined products еxport and import tariffs, net	130	65	100.0	220	(256)	-
Total internationally	48,020	53,081	(9.5)	179,447	185,873	(3.5)
Total excise and export tariffs	104,160	113,950	(8.6)	444,300	425,763	4.4

Compared to the third quarter of 2020, crude oil export tariffs increased mainly due to an increase in crude oil export volumes beyond Customs Union and a simultaneous decrease in the share of crude oil subject to export duty incentives in overall export volume, and also due to inventory effect. An increase in refined products export tariffs was influenced by an increase in total export volume of refined products beyond Customs Union and an increase in the share of exports of heavy refined products with a higher export duty rate.

In the fourth quarter of 2020, excise tax on refined products in Russia and internationally decreased compared to the previous quarter mainly due to lower sales volumes subject to excise taxes as a result of a seasonal decrease in demand. Internationally, this effect was partially compensated by the ruble depreciation.

Compared to 2019, crude oil and refined products export tariffs declined mainly due to a decline in crude oil prices and a decrease in export duty rates as a result of ongoing tax manoeuvre, which was partially offset by the export duty lag effect, inventory effect and the ruble depreciation. Export tariffs also declined due to a decrease in volumes of crude oil and refined products export beyond Customs Union.

Compared to 2019, excise tax in Russia and internationally decreased due to lower sales volumes. In Russia this effect was partially offset by excise tax rates increase. Internationally, a decrease was partially compensated by the ruble depreciation.

Proceeds from excise tax on feedstock, excluding damper, decreased by 7.0% compared to the third quarter of 2020 as a result of decreased volumes of refined products output and changes in refined products slate, which was partially compensated by excise tax rate increase due to higher crude oil prices and the ruble depreciation. Compared to 2019, proceeds from excise tax on feedstock, excluding damper, increased by 21.4% due to ongoing tax manoeuvre and as a result of improvements in refined products slate and the ruble depreciation, which was almost entirely offset by a decline in crude oil prices.

In 2020, the damper became negative as a result of a decrease in export netbacks for gasoline and diesel fuel below respective fixed benchmarks and was paid to the budget. In the fourth quarter of 2020, damper expenses decreased as a result of higher gasoline and diesel fuel export netback and a decrease in sales volumes in Russia due to a decrease in demand.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Negative values of international refined products export and import tariffs in 2019 are a result of the compensation of import tariffs in the USA.

Exploration expenses

In 2020, we charged to expense the costs of dry exploratory wells in Romania, Norway and Timan-Pechora region of Russia.

In 2019, we charged to expense approximately 5.8 billion RUB related to dry exploratory well in Romania.

Foreign exchange gain (loss)

Foreign exchange gains or losses are mostly related to revaluation of US dollar and euro net monetary position of the Group entities that largely consists of accounts receivables of our international subsidiaries and loans, mostly intra-group, given or received in currencies other than the entities' functional currencies ("other currencies").

Foreign exchange gains in the fourth quarter and foreign exchange losses in 2020 resulted mostly from the ruble appreciation in the fourth quarter and the ruble depreciation in 2020. That was amplified by an increase in negative net monetary position in other currencies due to a decrease in accounts receivables after the crude oil price drop and an increase in indebtedness in US dollars. A foreign exchange loss in the third quarter of 2020 was a result of the ruble depreciation during that period. In 2019, the Group's net monetary position in other currencies was more balanced and the ruble exchange rate was less volatile that both resulted in a relatively insignificant foreign exchange gains.

Other expenses

Other income (expenses) include the financial effects of disposals of assets, impairment losses, revisions of estimates and other non-operating gains and losses.

In the fourth quarter of 2020, the Group recognized an impairment loss for its exploration and production assets in Russia in the amount of 3.0 billion RUB and abroad in the amount of 0.1 billion RUB. The Group also recognized an impairment loss for its refining, marketing and distribution assets in Russia and abroad in the amount of 7.7 billion RUB and 21.6 billion RUB, respectively.

In the third quarter of 2020, the Group recognized a reversal of impairment of receivables related to our project in Egypt in the amount of 5.3 billion RUB.

In the second quarter of 2020, the Group recognized an impairment loss for its international exploration and production assets in the amount of 38 billion RUB, 36 billion RUB of which related to the projects in Uzbekistan, and a reversal of impairment of receivables related to our project in Egypt in the amount of 2 billion RUB.

In the first quarter of 2020, the Group recognized an impairment loss for its exploration and production assets in Russia and abroad in the amount of 8 billion RUB, as well as fixed assets and other non-current assets for its refining, marketing and distribution assets outside Russia in the amount of 36 billion RUB.

In the fourth quarter of 2019, the Group recognized an impairment loss for its exploration and production assets in Russia and abroad in the amount of 21.4 billion RUB, as well as for its refining, marketing and distribution assets in Russia and abroad in the amount of 1.3 billion RUB. At the same time, the Group recognized an impairment reversal of 9.7 billion RUB in 2019, which was mainly a result of improvement of economic parameters of our production projects in West Siberia and European part of Russia.

Income taxes

The maximum statutory income tax rate in Russia is 20%. Nevertheless, the actual effective income tax rate may be higher due to non-deductible expenses or lower due to certain non-taxable gains and application of reduced regional income tax rates in Russia.

Our total income tax expense increased by 16 billion RUB, or by 102.3%, compared to the third quarter of 2020, and decreased by 69 billion RUB, or by 45.6%, compared to 2019.

High effective income tax rate in 2020 resulted from write-offs of deferred tax assets related to tax loss carry forwards in certain international downstream subsidiaries as it is not probable that taxable profit will be available against which these temporary differences can be utilized, and changes in tax rates of certain regional income tax incentives.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Non-GAAP items reconciliation

EBITDA reconciliation

EBITDA is not defined under IFRS. We define EBITDA as profit from operating activities before depreciation, depletion and amortization. We believe that EBITDA provides useful information to investors because it is an indicator of the strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions and other investments and to raise and service debt. EBITDA should not be considered in isolation as an alternative to profit or any other measure of performance under IFRS.

	Q4	Q3		12 months of
	2020	2020	2020	2019
Profit for the period attributable to PJSC LUKOIL shareholders	29,435	(millions of rubles) 50,420	15,175	640,178
Add back
Profit for the period attributable to non-controlling interests	527	492	1,458	2,043
Income tax expense	30,856	15,256	82,154	151,133
Financial income	(1,930)	(3,625)	(13,051)	(25,134)
Financial costs	10,853	11,697	44,122	44,356
Foreign exchange (gain) loss	(12,460)	27,280	26,110	(923)
Equity share in income of associates and joint ventures	(3,017)	(4,029)	(11,474)	(18,246)
Other expenses	44,790	1,293	137,160	27,691
Depreciation, depletion and amortization	90,558	103,439	405,440	415,094
EBITDA	189,612	202,223	687,094	1,236,192
EBITDA by operating segments
Exploration and production segment
Sales (including excise and export tariffs)	448,851	403,379	1,542,239	2,364,184
Operating expenses	(65,934)	(62,166)	(262,343)	(274,934)
Cost of purchased crude oil, gas and products	(12,546)	(19,819)	(52,784)	(40,350)
Transportation expenses	(19,893)	(13,375)	(63,364)	(69,589)
Selling, general and administrative expenses	(16,297)	(9,009)	(48,670)	(47,964)
Taxes other than income taxes	(149,506)	(135,366)	(540,587)	(891,051)
Excise and export tariffs	(15,529)	(11,227)	(68,309)	(136,998)
Exploration expenses	(2,579)	(438)	(6,101)	(9,348)
EBITDA of Exploration and production segment	166,567	151,979	500,081	893,950
Refining, marketing and distribution segment
Sales (including excise and export tariffs)	1,491,819	1,434,361	5,525,980	7,624,198
Operating expenses	(55,063)	(51,013)	(195,558)	(228,576)
Cost of purchased crude oil, gas and products			(1,203,280) (1,110,035) (4,302,803) (6,362,401)
Transportation expenses	(60,222)	(56,781)	(269,656)	(229,007)
Selling, general and administrative expenses	(31,593)	(28,590)	(120,607)	(121,383)
Taxes other than income taxes	(6,508)	(6,538)	(25,908)	(25,323)
Excise and export tariffs	(88,504)	(103,766)	(368,126)	(285,866)
EBITDA of Refining, marketing and distribution segment	46,649	77,638	243,322	371,642
EBITDA of Corporate and other segment	(10,629)	(12,619)	(39,378)	(39,962)
Elimination	(12,975)	(14,775)	(16,931)	10,562
EBITDA	189,612	202,223	687,094	1,236,192

	Q4	Q3		12 months of
	2020	2020	2020	2019
Net cash provided by operating activities	220,643	227,449	776,574	1,151,844
Capital expenditures	(135,161)	(112,826)	(495,443)	(449,975)
Free cash flow	85,482	114,623	281,131	701,869

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Liquidity and capital resources

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
	(millions of rubles)
Net cash provided by operating activities	220,643	227,449	(3.0)	776,574	1,151,844	(32.6)
including decrease (increase) in working capital	24,230	26,305	(7.9)	83,177	(6,781)	-
Net cash used in investing activities	(139,024)	(109,703)	26.7	(492,769)	(510,126)	(3.4)
Net cash used in financing activities	(156,988)	(343,008)	(54.2)	(514,005)	(582,344)	(11.7)

Changes in operating assets and liabilities:

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
		(millions of rubles)
Decrease (increase) in accounts receivable	33,137	(56,609)	-	128,139	(48,023)	-
(Increase) decrease in inventory	(48,398)	4,509	-	37,868	(69,171)	-
Increase (decrease) in accounts payable	57,014	65,549	(13.0)	(69,305)	88,977	-
(Decrease) increase in net taxes other than on
income payable	(9,639)	26,789	-	10,200	24,053	(57.6)
Change in other current assets and liabilities	(7,884)	(13,933)	(43.4)	(23,725)	(2,617)	>100
Total decrease (increase) in working capital	24,230	26,305	(7.9)	83,177	(6,781)	-

Operating activities

Our primary source of cash flow is funds generated from our operations. Our cash generated from operations decreased by 3.0% and by 32.6% compared to the third quarter of 2020 and full year 2019, respectively, as a result of a decrease in profitability of our core operations. Moreover, our operating cash flow was positively impacted by the dynamics in working capital.

Investing activities

Compared to the previous quarter, our cash used in investing activitiesincreased by 26.7% largely as a result of an increase in capital expenditures. Compared to 2019, our cash used in investing activities decreased by 3.4%, an increase in capital expenditures was more than offset by lower spending on acquisitions of subsidiaries.

40

Our capital expenditures increased by 19.8% compared to the third quarter of 2020, and by 10.1% compared to 2019.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

	Q4 2020	Q3		Change,	12 months of		Change,
		2020	%	2020	2019	%
			(millions of rubles)
Capital expenditures
Exploration and production
West Siberia	31,921	31,614	1.0	150,167	141,266	6.3
Timan-Pechora	19,103	19,844	(3.7)	81,967	66,808	22.7
Ural region	9,280	9,374	(1.0)	39,733	37,243	6.7
Volga region	25,974	16,649	56.0	61,739	43,798	41.0
Other in Russia	2,803	2,962	(5.4)	9,686	10,778	(10.1)
Total in Russia	89,081	80,443	10.7	343,292	299,893	14.5
Iraq	6,565	4,620	42.1	26,379	22,833	15.5
Other outside Russia	6,732	5,166	30.3	29,882	42,214	(29.2)
Total outside Russia	13,297	9,786	35.9	56,261	65,047	(13.5)
Total exploration and production	102,378	90,229	13.5	399,553	364,940	9.5
Refining, marketing and distribution
Russia	25,277	17,090	47.9	72,486	62,740	15.5
refining	16,152	12,563	28.6	51,566	39,912	29.2
retail	1,883	562	>100	4,528	4,189	8.1
other	7,242	3,965	82.6	16,392	18,639	(12.1)
International	6,298	4,882	29.0	20,558	18,400	11.7
refining	4,753	4,121	15.3	16,506	12,327	33.9
retail	1,216	695	75.0	3,479	4,318	(19.4)
other	329	66	>100	573	1,755	(67.4)
Total refining, marketing and distribution	31,575	21,972	43.7	93,044	81,140	14.7
Corporate and other	1,208	625	93.3	2,846	3,895	(26.9)
Total capital expenditures	135,161	112,826	19.8	495,443	449,975	10.1

Compared to the third quarter of 2020, an increase in our upstream capital expenditures in Russia was mainly due to development of V. Grayfer field in the Caspian Sea.

Quarter-on-quarter dynamics of capital expenditures of our refining and marketing segment in Russia was mainly defined by construction schedule of delayed coker unit at our refinery in Nizhny Novgorod.

Year-on-year increase in exploration and production capital expenditures in Russia was mainly due to active development of fields in Timan-Pechora and of V. Grayfer field in the Caspian Sea. Year-on-year increase in capital expenditures of our refining and marketing segment in Russia was mainly a result of construction of delayed coker unit at our refinery in Nizhny Novgorod. Outside Russia, the increase in capital expenditures of our refining and marketing segment was due to modernization works and overhauls at our refineries. Dynamics of our capital expenditures was also affected by the ruble depreciation.

The table below presents exploration and production capital expenditures at our growth projects.

	Q4	Q3	Change,	12 months of		Change,
	2020	2020	%	2020	2019	%
		(millions of rubles)
West Siberia (Yamal)	3,547	2,112	67.9	16,920	21,383	(20.9)
Caspian region (Projects in Russia)	24,265	15,450	57.1	56,083	36,362	54.2
Timan-Pechora (Yaregskoye field)	390	3,660	(89.3)	9,871	7,756	27.3
Iraq (West Qurna-2 project)	6,028	4,163	44.8	24,235	19,967	21.4
Iraq (Block-10)	537	457	17.5	2,144	2,866	(25.2)
Uzbekistan	1,126	19	>100	3,890	11,605	(66.5)
Total	35,893	25,861	38.8	113,143	99,939	13.2

Financing activities

In the fourth quarter of 2020, net movements of short-term and long-term debt generated an outflow of 108 billion RUB, compared to an outflow of 96 billion RUB in the third quarter of 2020. In 2020, net movements of short-term and longterm debt generated an outflow of 62 billion RUB, compared to an outflow of 113 billion RUB in 2019.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

On 6 May 2020, a Group company raised new debt via issuance of non-convertible bonds totaling \$1.5 billion. The bonds were placed with a maturity of 10 years and a coupon yield of 3.875% per annum. All bonds were placed at face value and have a half year coupon period. LUKOIL intends to use the net proceeds of the issuance for general corporate purposes. The bonds have been assigned a rating of BBB+ by Fitch and BBB by Standard & Poor's.

In November 2020, a Group company repaid the bonds issued in 2010 in the amount of \$1 billion.

In August 2018, we announced the start of an open market buyback programme, which was completed on 20 August 2019. In 2019, a Group company spent 243,691 million RUB in relation to this programme. From the start of the programme and also taking into account tender offers that took place in July–August 2019 and December 2019–January 2020, 57.1 million ordinary shares and depositary receipts of the Company were purchased in aggregate. All of the purchased shares were cancelled.

Credit rating

Standard & Poor's Ratings Services set the Company's issuer credit rating to BBB.

Moody's set the Company's long-term issuer rating to Baa2.

Fitch Ratings set the Company's long-term issuer default rating to BBB+.

Debt maturity

The following table displays the breakdown of our total debt obligation by maturity dates.

	Total	2021	2022	2023	2024	2025	After
	(millions of rubles)
Short term debt	21,258	21,258	-	-	-	-	-
Long-term bank loans and borrowings .	112,660	26,846	21,082	15,499	15,452	12,708	21,073
6.656% Non-convertible US dollar
bonds, maturing 2022	36,901	-	36,901	-	-	-	-
4.563% Non-convertible US dollar
bonds, maturing 2023	110,737	-	-	110,737	-	-	-
4.750% Non-convertible US dollar
bonds, maturing 2026	73,751	-	-	-	-	-	73,751
3.875% Non-convertible US dollar
bonds, maturing 2030	110,532	-	-	-	-	-	110,532
Lease obligation¹	193,872	34,532	19,609	17,744	17,029	15,699	89,259
Total	659,711	82,636	77,592	143,980	32,481	28,407	294,615

¹ Discounted amounts. Undiscounted cash flows are presented in Note 36 «Capital and risk management» to our consolidated financial statements.

Litigation and claims

The Group is involved in various claims and legal proceedings arising in the normal course of business. While these claims may seek substantial damages against the Group and are subject to uncertainty inherent in any litigation, management does not believe that the ultimate resolution of such matters will have a material adverse impact on the Group's operating results or financial condition. See Note 30 "Commitments and contingencies" to our consolidated financial statements for detailed information on claims and legal proceedings involving the Group.

Critical accounting policies

The preparation of financial statements in conformity with IFRS requires management to select appropriate accounting policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. See Note 3 "Summary of significant accounting policies" to our consolidated financial statements for descriptions of the Company's major accounting policies. Certain of these accounting policies involve judgments and uncertainties to such an extent that there is a reasonable likelihood that materially different amounts would have been reported under different conditions, or if different assumptions had been used.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Other information

Sectoral sanctions against the Russian companies

In July–September 2014, the United States ("US"), the European Union ("EU") and several other countries imposed a set of sanctions on Russia, including sectoral sanctions, which affect several Russian oil and gas companies. The US Department of the Treasury has placed the Company onto the Sectoral Sanctions Identifications List subject to Directive 4 of the Office of foreign assets control (OFAC). Directive 4 prohibits US companies and individuals from providing, exporting, or re-exporting directly or indirectly, goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area spreading from the Russian territory and claimed by the Russian Federation.

From January 2018 (based on acts adopted in August–October 2017), the US expanded abovementioned sanctions to include certain categories of international oil projects initiated on or after 29 January 2018 in any part of the world, in which companies placed on the Sectoral Sanctions Identifications List subject to Directive 4 (including the Company) have an ownership interest of 33% or more, or ownership of a majority of the voting interests.

Management believes that current sanctions do not have a material adverse effect on the current or planned Group's oil projects. At the same time, the Company continues to monitor and evaluate potential risks for its operations in connection with sanctions.

Operations in Iraq

The Group is exposed to political, economic and legal risks due to its operations in Iraq. Management monitors these risks and believes that there is no adverse effect on the Group's financial position that can be reasonably estimated at present.

Management's discussion and analysis of financial condition and results of operations for the three-month periods ended 31 December and 30 September 2020 and for the years 2020 and 2019

Forward-looking statements

Certain statements in this document are not historical facts and are "forward-looking." We may from time to time make written or oral forward-looking statements in reports to shareholders and in other communications. Examples of such forward-looking statements include, but are not limited to:

• statements of our plans, objectives or goals, including those related to products or services
• statements of future economic performance
• statements of assumptions underlying such statements.

Forward looking statements that may be made by us from time to time (but that are not included in this document) may also include projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital structure or other financial items or ratios. Words such as "believes," "anticipates," "expects," "estimates," "intends" and "plans" and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties, both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements will not be achieved. You should be aware that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements.

These factors include:

• inflation, interest rate and exchange rate fluctuations
• the price of oil
• the effects of, and changes in, Russian government policy
• the effects of competition in the geographic and business areas in which we conduct operations
• the effects of changes in laws, regulations, taxation or accounting standards or practices
• our ability to increase market share for our products and control expenses
• acquisitions or divestitures
• technological changes
• our success at managing the risks of the aforementioned factors.

This list of important factors is not exhaustive. When relying on forward-looking statements, you 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, and, subject to any continuing obligations under the Listing Rules of the U.K. Listing Authority, 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.

Reference Information

About the Company

LUKOIL | APPENDICES TO THE ANNUAL REPORT 2020

Public Joint Stock Company "Oil Company 'LUKOIL' (hereinafter, the "Company") was established in accordance with Decree No. 1403 of the President of the Russian Federation On Specific Features of the Privatization and Transformation into Joint Stock Companies of State Enterprises and Industrial

and Research Industrial Associations in the Oil and Oil Refining Industries and Oil Product Supply, dated November 17, 1992 and Directive No. 299 of the Council of Ministers – Government of the Russian Federation On the Establishment of Open Joint Stock Company "Oil company 'LUKoil', dated April 5, 1993, for the purpose

APPENDIX 1 APPENDIX 2 APPENDIX 3 APPENDIX 4 APPENDIX 5

of industrial, economic, financial, and investment activity. PJSC LUKOIL is the corporate center of LUKOIL Group (hereinafter, the "Group") which coordinates the operations of the Group entities. It focuses on coordination and management of subsidiaries in terms of organizational set-up, investments and financial operations.

Legal address and head office

Postal address: 11, Sretensky Blvd, Moscow, 101000, Russia Website: www.lukoil.ru (Russian), www.lukoil.com (English)

Central Information Service

Tel.: +7 495 627 4444, +7 495 628 9841 Fax: +7 495 625 7016

Shareholder Relations

Tel.: +7 800 200 9402 (Russia toll-free) Fax: +7 495 627 4564 Email: shareholder@lukoil.com Shareholder's personal account:

Investor Relations

Tel.: +7 495 627 1696 Email: ir@lukoil.com

Press Service

Tel.: +7 495 627 1677 Email: media@lukoil.com

Filling Stations Hotline

Tel.: +7 800 100 0911 Email: hotline@lukoil.com

Business Ethics Commission

Tel.: +7 495 627 8259 Email: ethics@lukoil.com

Registrar

LLC Registrator "Garant" Postal address: 8, Krasnopresnenskaya Embankment, Moscow, 123100, Russia Tel.: Tel.: +7 495 221 3112, +7 800 500 2947 Fax: +7 495 646 9236 Email: mail@reggarant.ru

Depositary in the depositary receipt program

Citibank, N.A. Russian office: 6, Gasheka St., Moscow, 125047, Russia UK office: GB E14 5LB, London, 25 Canada Square US offices: 10013, New York, NY, 388 Greenwich Street; NJ 07310, Jersey City, NJ, 480 Washington Boulevard, 30th Floor Tel.: +7 495 642 7644 Email: michael.klochkov@citi.com, drdividends@citi.com

Auditor

JSC KPMG (Joint Stock Company KPMG) Postal address: 16, Olimpiyskiy Ave., Bld. 5, 3d floor, premises 1, office 24e, Moscow, 129110, Russia Tel.: +7 495 937 4477 Fax: +7 495 937 4499 Email: moscow@kpmg.ru

Self-Regulatory Organization of Auditors

Russian Union of Auditors (Association) Postal address: 8, Petrovskiy Side St., Bld. 2, Moscow, 107031, Russia Tel.: +7 495 694 0156 Fax: +7 495 694 0108.

Business proposals

Postal address: 11, Sretensky Blvd, Moscow, 101000, Russia Fax: +7 495 625 7016, +7 495 627 4999 Business proposals are to be made in writing on the official letterhead and sent by mail or fax. Business proposals submitted by email will not be considered.