National Storage Mechanism

Additional information You don't have Javascript enabled. For full functionality this page requires javascript to be enabled. RNS Number : 6102X Rosneft Oil Company 30 April 2019

Consolidated financial statements

Rosneft Oil Company for the year ended December 31, 2018 with independent auditor's report

Page

Independent auditor's report 3

Consolidated balance sheet 9

Consolidated statement of profit or loss 10

Consolidated statement of other comprehensive income 11

Consolidated statement of changes in shareholders' equity 12

Consolidated statement of cash flows 13

Notes to the consolidated financial statements

General
Basis of preparation
Significant accounting policies
Significant accounting judgments, estimates and assumptions
New and amended standards and interpretations issued but not yet effective
Capital and financial risk management
Acquisitions of subsidiaries and shares in joint operations
Segment information
Taxes other than income tax
Export customs duty
Finance income
Finance expenses
Other income and expenses
Personnel expenses
Operating leases
Income tax
Non-controlling interests
Earnings per share
Cash and cash equivalents
Other short-term financial assets
Accounts receivable
Inventories
Prepayments and other current assets
Property, plant and equipment and construction in progress
Intangible assets and goodwill
Other long-term financial assets
Investments in associates and joint ventures
Other non-current non-financial assets
Accounts payable and accrued liabilities
Loans and borrowings and other financial liabilities
Other current tax liabilities
Provisions
Prepayment on long-term oil and petroleum products supply agreements
Other non-current liabilities
Pension benefit obligations
Shareholders' equity
Fair value of financial instruments
Related party transactions
Key subsidiaries
Contingencies
Supplementary oil and gas disclosure (unaudited)

Independent auditor's report

Details of the audited entity

Name: Rosneft Oil Company Record made in the State Register of Legal Entities on July 19, 2002, State Registration Number 1027700043502. Address: Russia 115035, Moscow, Sofiyskaya embankment, 26/1.

Details of the auditor

Name: Ernst & Young LLC Record made in the State Register of Legal Entities on 5 December 2002, State Registration Number 1027739707203. Address: Russia 115035, Moscow, Sadovnicheskaya naberezhnaya, 77, building 1. Ernst & Young LLC is a member of Self-regulated organization of auditors "Russian Union of auditors" (Association) ("SRO RUA"). Ernst & Young LLC is included in the control copy of the register of auditors and audit organizations, main registration number 11603050648.

Consolidated balance sheet

(in billions of Russian rubles)

As of December 31,	Notes	2018	2017 (restated)
ASSETS
Current assets
Cash and cash equivalents	19	832	322
Restricted cash	19	12	13
Other short-term financial assets	20	633	336
Accounts receivable	21	642	843
Inventories	22	393	324
Prepayments and other current assets	23	510	454
Total current assets		3,022	2,292
Non-current assets
Property, plant and equipment	24	8,445	7,923
Intangible assets	25	75	75
Other long-term financial assets	26	239	606
Investments in associates and joint ventures	27	735	635
Bank loans granted		239	121
Deferred tax assets	16	28	26
Goodwill	25	85	265
Other non-current non-financial assets	28	295	285
Total non-current assets		10,141	9,936
Total assets		13,163	12,228
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities	29	1,130	971
Loans and borrowings and other financial liabilities	30	978	2,229
Income tax liabilities		23	39
Other tax liabilities	31	327	278
Provisions	32	43	29
Prepayment on long-term oil and petroleum products supply agreements	33	354	264
Other current liabilities		19	26
Total current liabilities		2,874	3,836
Non-current liabilities
Loans and borrowings and other financial liabilities	30	3,413	1,783
Deferred tax liabilities	16	837	814
Provisions	32	244	245
Prepayment on long-term oil and petroleum products supply agreements	33	1,072	1,322
Other non-current liabilities	34	46	45
Total non-current liabilities		5,612	4,209
Equity
Share capital	36	1	1
Additional paid-in capital	36	633	627
Other funds and reserves		(191)	(322)
Retained earnings		3,610	3,313
Rosneft shareholders' equity		4,053	3,619
Non-controlling interests	17	624	564
Total equity		4,677	4,183
Total liabilities and equity		13,163	12,228

Chief Executive Officer ________ I.I. Sechin

February______, 2019

Consolidated statement of profit or loss

(in billions of Russian rubles, except earnings per share data, and share amounts)

For the years ended December 31,	Notes	2018	2017 (restated)*
Revenues and equity share in profits of associates and joint ventures
Oil, gas, petroleum products and petrochemicals sales	8	8,076	5,877
Support services and other revenues		80	77
Equity share in profits of associates and joint ventures	27	82	57
Total revenues and equity share in profits of associates and joint ventures		8,238	6,011
Costs and expenses
Production and operating expenses		642	607
Cost of purchased oil, gas, petroleum products and refining costs		1,099	837
General and administrative expenses		167	172
Pipeline tariffs and transportation costs		638	596
Exploration expenses		11	15
Depreciation, depletion and amortization	24, 25	635	586
Taxes other than income tax	9	2,701	1,919
Export customs duty	10	1,061	658
Total costs and expenses		6,954	5,390
Operating income		1,284	621
Finance income	11	122	107
Finance expenses	12	(290)	(225)
Other income	13	49	110
Other expenses	13	(294)	(75)
Foreign exchange differences		107	3
Cash flow hedges reclassified to profit or loss	6	(146)	(146)
Income before income tax		832	395
Income tax expense	16	(183)	(98)
Net income		649	297
Net income attributable to:
- Rosneft shareholders		549	222
- non-controlling interests	17	100	75
Net income attributable to Rosneft per common share (in RUB) - basic and diluted	18	51.80	20.95
Weighted average number of shares outstanding (millions)		10,598	10,598

Some amounts for the twelve months ended December 31, 2017 have been restated - see Note 7.

Consolidated statement of other comprehensive income

(in billions of Russian rubles)

For the years ended December 31,	Notes	2018	2017
Net income		649	297
Other comprehensive income - to be reclassified to profit or loss in subsequent periods
Foreign exchange differences on translation of foreign operations	4		51
Foreign exchange cash flow hedges	6	146	145
(Loss)/income from changes in fair value of debt financial assets at fair value through other comprehensive income		(2)	10
Increase in loss allowance for expected credit losses on debt financial assets at fair value through other comprehensive income		7	-
Equity share in other comprehensive loss of associates and joint ventures		1	-
Income tax related to other comprehensive income - to be reclassified to profit or loss in subsequent periods		(30)	(31)
Total other comprehensive income - to be reclassified to profit or loss in subsequent periods, net of tax		126	175
Other comprehensive income - not to be reclassified to profit or loss in subsequent periods
Income from changes in fair value of equity financial assets at fair value through other comprehensive income	6		-
Income tax related to other comprehensive income - not to be reclassified to profit or loss in subsequent periods		(1)	-
Total comprehensive income - not to be reclassified to profit or loss in subsequent periods, net of tax		5	-
Total comprehensive income, net of tax		780	472
Total comprehensive income, net of tax, attributable to:
- Rosneft shareholders		680	397
- non-controlling interests		100	75

Consolidated statement of changes in shareholders' equity

(in billions of Russian rubles, except share amounts)

	Number of shares (millions)	Share capital	Additional paid-in capital	Other funds and reserves	Retained earnings	Rosneft share-holders' equity	Non-controlling interests	Total equity
Balance at January 1, 2017	10,598	1	603	(497)	3,195	3,302	480	3,782
Net income	-	-	-	-	222	222	75	297
Other comprehensive income	-	-	-	175	-	175	-	175
Total comprehensive income	-	-	-	175	222	397	75	472
Dividends declared (Note 36)	-	-	-	(104)	(104)	(43)	(147)
Change of interests in subsidiaries (Note 17)	-	-	24	-	-	24	44	68
Disposal of subsidiaries	-	-	-	-	-	-	(1)	(1)
Other movements	-	-	-	-	-	-	9	9
Balance at December 31, 2017	10,598	1	627	(322)	3,313	3,619	564	4,183
Adjustment on initial application of IFRS 9	-	-	-	(27)	(27)	(1)	(28)
Balance at January 1, 2018 adjusted for the effect of IFRS 9	10,598	1	627	(322)	3,286	3,592	563	4,155
Net income	-	-	-	-	549	549	100	649
Other comprehensive income	-	-	-	131	-	131	-	131
Total comprehensive income	-	-	-	131	549	680	100	780
Dividends declared (Note 36)	-	-	-	(225)	(225)	(61)	(286)
Change of interests in subsidiaries (Note 17)	-	-	5	-	-	5	21	26
Other movements	-	-	1	-	-	1	1	2
Balance at December 31, 2018	10,598	1	633	(191)	3,610	4,053	624	4,677

Consolidated statement of cash flows

(in billions of Russian rubles)

For the years ended December 31,	Notes	2018	2017 (restated)
Operating activities
Net income		649	297
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation, depletion and amortization	24, 25	635	586
Loss on disposal of non-current assets	13	14	13
Dry hole costs		3	3
Offset of prepayments received on oil and petroleum products long term supply agreements	33	(283)	(255)
Offset of prepayments made on oil and petroleum products long term supply agreements		205	-
Foreign exchange gain on non-operating activities		(77)	(24)
Cash flow hedges reclassified to profit or loss	6	146	146
Offset of other financial liabilities		(164)	(105)
Equity share in profits of associates and joint ventures	27	(82)	(57)
Non-cash income from acquisitions, net	13	(26)	(1)
Gain on out-of-court
(in billions of Russian rubles)

For the years ended December 31,
| Notes | 2018 | 2017 (restated) |
|---|---|---|
| Operating activities | | |
| Income from operations | | |
| Profit for the year | 202 | 189 |
| Adjustments to reconcile profit for the year to net cash provided by operating activities: | | |
| Depreciation, depletion and amortization | 705 | 772 |
| Impairment of assets | 244 | 238 |
| Loss from disposal of non-production assets | 13 | 1 |
| Changes in provisions for financial assets | 6 | 16 |
| Loss from changes in estimates and impairment of assets | 238 | 23 |
| Finance expenses | 12,290 | 225 |
| Finance income | 11 | (122) | (107) |
| Income tax expense | 16 | 183 | 98 |
| Changes in operating assets and liabilities | | |
| Decrease/(increase) in accounts receivable, gross | 215 | (184) |
| Increase in inventories | (68) | (41) |
| Decrease/(increase) in restricted cash | 5 | (10) |
| Increase in prepayments and other current assets | (74) | (27) |
| Increase in long-term prepayments made on oil and petroleum products supply agreements | (72) | (207) |
| (Decrease)/increase in accounts payable and accrued liabilities | (29) | 24 |
| Increase in other tax liabilities | 48 | 56 |
| Decrease in other current liabilities | (8) | - |
| Increase in other non-current liabilities | 8 | - |
| Interest paid on long-term prepayment received on oil and petroleum products supply agreements | (6) | (10) |
| Net increase in operating assets of subsidiary banks | (139) | (144) |
| Net increase in operating liabilities of subsidiary banks | 144 | 170 |
| Proceeds from sale of trading securities | - | 3 |
| Net cash provided by operating activities before income tax and interest | 1,640 | 391 |
| Income tax payments | (221) | (112) |
| Interest received | 67 | 37 |
| Dividends received | 16 | 21 |
| Net cash provided by operating activities | 1,502 | 337 |

Consolidated statement of cash flows (continued)

(in billions of Russian rubles)

For the years ended December 31,
| Notes | 2018 | 2017 (restated) |
|---|---|---|
| Investing activities | | |
| Capital expenditures | (936) | (922) |
| Acquisition of licenses and auction fee payments | (3) | (34) |
| Acquisition of short-term financial assets | (419) | (103) |
| Proceeds from sale of short-term financial assets | 189 | 258 |
| Acquisition of long-term financial assets | 26 | (71) | (58) |
| Proceeds from sale of long-term financial assets | 466 | 127 |
| Financing of joint ventures | (2) | (2) |
| Acquisition of interest in associates and joint ventures | 27 | (2) | (219) |
| Proceeds from sale of investments in joint ventures | 7 | - |
| Acquisition of interest in subsidiaries, net of cash acquired, and joint arrangements | 7 | (35) | (215) |
| Proceeds from sale of property, plant and equipment | 7 | 5 |
| Placements under reverse REPO agreements | - | (1) |
| Receipts under reverse REPO agreements | - | 2 |
| Net cash used in investing activities | (799) | (1,162) |

Financing activities

| Proceeds from short-term loans and borrowings | 30 | 429 | 1,431 |
| Repayment of short-term loans and borrowings | (1,366) | (787) |
| Proceeds from long-term loans and borrowings | 30 | 1,311 | 508 |
| Repayment of long-term loans and borrowings | (289) | (806) |
| Proceeds from other financial liabilities | 338 | 336 |
| Repayment of other financial liabilities | (64) | (22) |
| Interest paid | (284) | (219) |
| Repurchase of bonds | (40) | - |
| Proceeds from sale of non-controlling share in subsidiary | 23 | 73 |
| Other financing | 4 | 9 |
| Dividends paid to Rosneft shareholders | 36 | (225) | (104) |
| Dividends paid to non-controlling shareholders | (65) | (38) |
| Net cash (used in) / provided by financing activities | (228) | 381 |

| Net increase/(decrease) in cash and cash equivalents | 475 | (444) |
| Cash and cash equivalents at the beginning of the year | 19 | 322 | 790 |
| Effect of foreign exchange on cash and cash equivalents | 35 | (24) |
| Cash and cash equivalents at the end of the year | 19 | 832 | 322 |

1. General

Public Joint Stock Company ("PJSC") Rosneft Oil Company ("Rosneft") and its subsidiaries (collectively, the "Company") are principally engaged in exploration, development, production and sale of crude oil and gas and refining, transportation and sale of petroleum products in the Russian Federation and in certain international markets. Rosneft State Enterprise was incorporated as an open joint stock company on December 7, 1995. All assets and liabilities previously managed by Rosneft State Enterprise were transferred to the Company at their book value effective on that date together with ownership rights to other privatized oil and gas companies belonging to the Government of the Russian Federation (the "State"). The transfer of assets and liabilities was made in accordance with Russian Government Resolution No. 971 dated September 29, 1995, On the Transformation of Rosneft State Enterprise into Open Joint Stock Company "Oil Company Rosneft". These transfers involved the reorganization of assets under the common control of the State and, accordingly, were accounted for at their book value. In 2005, the State contributed the shares of Rosneft to the share capital of JSC ROSNEFTEGAS. As of December 31, 2005, 100% of the shares of Rosneft less one share were owned by JSC ROSNEFTEGAS and one share was owned by the Russian Federation Federal Agency for the Management of Federal Property. Subsequently, JSC ROSNEFTEGAS's ownership interest decreased through the additional issue of shares during Rosneft's Initial Public Offering ("IPO") in Russia, an issue of Global Depository Receipts ("GDR") for shares on the London Stock Exchange and the share swap completed during the merger of Rosneft and certain subsidiaries in 2006. In March 2013 in the course of the acquisition of TNK-BP Limited and TNK Industrial Holdings Limited, its subsidiary (collectively with their subsidiaries, "TNK-BP"), JSC ROSNEFTEGAS sold 5.66% of Rosneft shares to BP plc. ("BP"). In December 2016 JSC ROSNEFTEGAS signed an agreement to sell 19.5% of Rosneft shares to a consortium of foreign investors. As of December 31, 2018 JSC ROSNEFTEGAS's ownership interest in Rosneft amounted to 50% plus one share.

Under Russian legislation, natural resources, including oil, gas, precious metals and minerals and other commercial minerals situated in the territory of the Russian Federation, are the property of the State until they are extracted. Law of the Russian Federation No. 2395-1, On Subsurface Resources, regulates relations arising in connection with the geological study, use and protection of subsurface resources in the territory of the Russian Federation. Pursuant to the law, subsurface resources may be developed only on the basis of a license. A license is issued by the regional governmental body and contains information on the site to be developed and the period of activity, as well as financial and other conditions. The Company holds licenses issued by competent authorities for the geological study, exploration and development of oil and gas blocks, fields, and shelf in areas where its subsidiaries are located. The Company is subject to export quotas set by the Russian Federation State Pipeline Commission to allow equal access to the limited capacity of the oil pipeline system owned and operated by PJSC AK Transneft. The Company exports certain quantities of crude oil through bypassing the PJSC AK Transneft system thus achieving higher export capacity. The remaining production is processed at the Company's and third parties' refineries for further sale on domestic and international markets.

2. Basis of preparation

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards, including all International Financial Reporting Standards ("IFRS") and Interpretations issued by the International Accounting Standards Board ("IASB") and effective in the reporting period, and are fully compliant therewith. These consolidated financial statements have been prepared on a historical cost basis, except certain financial assets and liabilities measured at fair value (Note 37). Rosneft and its subsidiaries maintain their books and records in accordance with statutory accounting and taxation principles and practices applicable in respective jurisdictions. These consolidated financial statements were derived from the Company's statutory books and records. The Company's consolidated financial statements are presented in billions of Russian rubles ("RUB"), unless otherwise indicated. The consolidated financial statements were approved and authorized for issue by the Chief Executive Officer of the Company on February 5, 2019. Subsequent events have been evaluated through February 5, 2019, the date these consolidated financial statements were issued.

3. Significant accounting policies

The accompanying consolidated financial statements differ from the financial statements issued for statutory purposes in that they reflect certain adjustments, not recorded in the Company's statutory books, which are appropriate for presenting the financial position, results of operations and cash flows in accordance with IFRS. The principal adjustments relate to: (1) recognition of certain expenses; (2) valuation and depreciation of property, plant and equipment; (3) deferred income taxes; (4) impairment of assets; (5) accounting for the time value of money; (6) accounting for investments in oil and gas property and conveyances; (7) consolidation principles; (8) recognition and disclosure of guarantees, contingencies, commitments and certain other assets and liabilities; (9) business combinations and goodwill; (10) accounting for derivative instruments; (11) purchase price allocation to the identifiable assets acquired and the liabilities assumed.

The consolidated financial statements include the accounts of majority-owned, controlled subsidiaries and special-purpose entities where the Company holds a beneficial interest. All significant intercompany transactions and balances have been eliminated. The equity method is used to account for investments in associates in which the Company has the ability to exert significant influence over the associates' operating and financial policies. Investments in entities where the Company holds the majority of shares, but does not exercise control, are also accounted for using the equity method. Investments in other companies are accounted for at fair value or cost adjusted for impairment, if any.# 3. Significant accounting policies (continued)

Business combinations, goodwill and other intangible assets

Acquisitions by the Company of controlling interests in third parties (or interest in their charter capital) are accounted for using the acquisition method. The date of acquisition is the date when effective control over the acquiree passes to the Company. The cost of an acquisition is measured as an aggregate of the consideration transferred, measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the Company elects whether it measures the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree's identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. Any contingent consideration to be transferred by the acquirer is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or a liability should be recognized within profit or loss for the period if they do not represent measurement-period adjustments. If the contingent consideration is classified as equity, it should not be re-measured.

Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests over the fair value of net identifiable assets acquired and liabilities assumed. If the aggregate of the consideration transferred and the amount of non-controlling interest is lower than the fair value of the net assets of the subsidiary acquired and liabilities assumed, the difference is recognized in profit or loss for the period.

Associates

Investments in associates are accounted for using the equity method unless they are classified as non-current assets held for sale. Under this method, the carrying value of investments in associates is initially recognized at the acquisition cost. The carrying value of investments in associates is increased or decreased by the Company's reported share in the profit or loss and other comprehensive income of the investee after the acquisition date. The Company's share in the profit or loss and other comprehensive income of an associate is recognized in the Company's consolidated statement of profit or loss or in the consolidated statement of other comprehensive income, respectively. Dividends paid by the associate are accounted for as a reduction of the carrying value of investments.

The Company's net investments in associates include the carrying value of the investments in these associates as well as other long-term investments that are, in substance, investments in associates, such as loans. If the share in losses exceeds the carrying value of the investments in associates and the value of other long-term investments related to investments in these associates, the Company ceases to recognize its share in losses when the carrying value reaches zero. Any additional losses are provided for and liabilities are recognized only to the extent that the Company has legal or constructive obligations or has made payments on behalf of the associate. If the associate subsequently makes profits, the Company resumes recognizing its share in these profits only after its share of the profits equals the share of losses not recognized.

The carrying value of investments in associates is tested for impairment by reconciling its recoverable amount (the higher of its value in use and fair value less costs to sell) to its carrying value, whenever impairment indicators are identified.

3. Significant accounting policies (continued)

Joint arrangements

The Company participates in joint arrangements either in the form of joint ventures or joint operations. A joint venture implies that the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venture involves establishing a legal entity where the Company and other participants have respective equity interests. Equity interests in joint ventures are accounted for under the equity method. The Company's share in net profit or loss and in other comprehensive income of joint ventures is recognized in the consolidated statement of profit or loss and in the consolidated statement of other comprehensive income, respectively, from the date when joint control commences until the date when joint control ceases.

A joint operation implies that the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. In relation to its interest in a joint operation the Company recognizes its assets, including its share of any assets held jointly, its liabilities, including its share of any liabilities incurred jointly, its revenue from the sale of its share of the output arising from the joint operation, its share of the revenue from the sale of the output by the joint operation, and expenses, including its share of any expenses incurred jointly.

Cash and cash equivalents

Cash represents cash on hand, in the Company's bank accounts, in transit and interest bearing deposits which can be effectively withdrawn at any time without prior notice or any penalties reducing the principal amount of the deposit. Cash equivalents are highly liquid, short-term investments that are readily convertible to known amounts of cash and have original maturities of three months or less from their date of purchase. They are carried at cost plus accrued interest, which approximates fair value. Restricted cash is presented separately in the consolidated balance sheet if its amount is significant.

Financial assets

The Company recognizes financial assets in its balance sheet when, and only when, it becomes a party to the contractual provisions of the financial instrument. When financial assets are recognized initially, they are measured at fair value, which is usually the price of the transaction, i.e. the fair value of consideration paid or received.

When financial assets are recognized initially, they are classified as one of the following, as appropriate: (1) financial assets at fair value through profit or loss, (2) financial assets at fair value through other comprehensive income, or (3) financial assets at amortised cost. The Company classifies financial assets on the basis of both: the Company's business model for managing the financial assets, as well as the contractual cash flow characteristics of the financial assets. A financial asset shall be 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.

All derivative instruments are recorded in the consolidated balance sheet at fair value in either current financial assets, non-current financial assets, current liabilities related to derivative instruments, or non-current liabilities related to derivative instruments. The recognition and classification of a gain or loss that results from recognition of an adjustment of a derivative instrument at fair value depends on the purpose for issuing or holding the derivative instrument. Gains and losses from derivatives that are not accounted for as hedges under International Financial Reporting Standard ("IFRS") 9 Financial Instruments are recognized immediately in the profit or loss for the period.

3. Significant accounting policies (continued)

Financial assets (continued)

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Subsequent to initial recognition, the fair value of financial assets at fair value that are quoted in an active market is defined as bid prices for assets and ask prices for issued liabilities as of the measurement date. If no active market exists for financial assets, the Company measures the fair value using the following methods:

analysis of recent transactions with peer instruments between independent parties;
current fair value of similar financial instruments;
discounting future cash flows.

The discount rate reflects the minimum return on investment an investor is willing to accept before starting an alternative project, given its risk and the opportunity cost of forgoing other projects.

A financial asset shall be measured at amortised cost if both of the following conditions are met: (a) the financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows and (b) 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. Examples of financial assets that may fall into this category are loans given, accounts receivable, bonds and notes issued by 3rd parties, which are not quoted at active market - if they fulfill the requirements set above.# 3. Significant accounting policies (continued)

A financial asset shall be measured at fair value through other comprehensive income if both of the following conditions are met: (a) the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets and (b) 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. In particular, this category includes shares of other companies, which are not included in the category of measured at fair value through profit or loss. Dividends and interest income are recognized in the consolidated statement of profit or loss on an accrual basis. The amount of accrued interest income is calculated using the effective interest rate. Upon de-recognition of debt financial assets (bonds, notes etc.) classified as financial instruments at fair value through other comprehensive income, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss. In case of equity financial assets (shares, stocks etc.), classified as financial instruments at fair value through other comprehensive income, such cumulative gain or loss shall never be subsequently transferred to profit or loss. Interest income as a component of finance income is disclosed in the notes to financial statements separately for each category of financial assets. Regular way purchases and sales of financial assets are accounted for at trade date.

3. Significant accounting policies (continued)

Financial liabilities

The Company recognizes financial liabilities on its balance sheet when, and only when, it becomes a party to the contractual provisions of the financial instrument. When financial liabilities are recognized initially, they are measured at fair value, which is usually the price of the transaction, i.e. the fair value of consideration paid or received. When financial liabilities are recognized initially, they are classified as one of the following:

financial liabilities at fair value through profit or loss;
other financial liabilities.

Financial liabilities at fair value through profit or loss are financial liabilities held for trading unless such liabilities are linked to the delivery of unquoted equity instruments. At the initial recognition, the Company may include in this category any financial liability, except for equity instruments that are not quoted in an active market and whose fair value cannot be reliably measured. After initial recognition, however, the liability cannot be reclassified. Financial liabilities not classified as financial liabilities at fair value through profit or loss are designated as other financial liabilities. Other financial liabilities include, inter alia, trade and other accounts payable, and loans and borrowings payable. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, with changes in fair value recognized in profit or loss in the consolidated statement of profit or loss. Other financial liabilities are carried at amortized cost. The Company writes off a financial liability (or part of a financial liability) from its balance sheet when, and only when, it is extinguished - i.e. when the obligation specified in the contract is discharged, cancelled or expires. The difference between the carrying value of a financial liability (or a part of a financial liability) extinguished or transferred to another party and the redemption value, including any transferred non-monetary assets and assumed liabilities, is recognized in profit or loss. Any previously recognized components of other comprehensive income pertaining to this financial liability are also included in the financial result and are recognized as gains and losses for the period.

Certain prior period indicators have been reclassified to conform to the current year presentation. In particular, due to significant increase in the operating activities of subsidiary banks of the Company and the need for reliable and consistent reporting in the consolidated financial statements, the presentation of cash flows from the operating activities of subsidiary banks was revised. Such activities are now included within operating activities of the Consolidated Statement of Cash Flows. Further, the operating assets of the subsidiary banks, including short-term interbank deposits placed, were reclassified to Accounts Receivable, operating liabilities, including interbank loans, customer deposits, promissory notes and REPO obligations reclassified from Loans and borrowings and other financial liabilities to Accounts payable and accrued liabilities.

Earnings per share

Basic earnings per share is calculated by dividing net earnings attributable to common shares by the weighted average number of common shares outstanding during the corresponding period. In the absence of any securities-to-shares conversion transactions, the amount of basic earnings per share stated in these consolidated financial statements is equal to the amount of diluted earnings per share.

3. Significant accounting policies (continued)

Treasury shares

Treasury shares are outstanding Treasury shares purchased from the shareholders. The Company acquires shares of Rosneft in accordance with the program of acquisition of shares in the open market (Note 36). Treasury shares are presented in the consolidated balance sheet as a deduction from equity at cost of repurchase.

Inventories

Inventories consisting primarily of crude oil, petroleum products, petrochemicals and materials and supplies are accounted for at the weighted average cost unless net realizable value is less than cost. Materials that are used in production are not written down below cost if the finished products into which they will be incorporated are expected to be sold above cost.

Repurchase and resale agreements

Securities sold under repurchase agreements ("REPO") and securities purchased under agreements to resell ("reverse REPO") generally do not constitute a sale of the underlying securities for accounting purposes, and so are treated as collateralized financing transactions. Interest paid or received on all REPO and reverse REPO transactions is recorded in Finance expense or Finance income, respectively, at the contractually specified rate using the effective interest method.

Exploration and production assets

Exploration and production assets include exploration and evaluation assets, mineral rights and oil and gas properties (development assets and production assets).

Exploration and evaluation costs

The Company recognizes exploration and evaluation costs using the successful efforts method as permitted by IFRS 6 Exploration for and Evaluation of Mineral Resources. Under this method, costs related to exploration and evaluation (license acquisition costs, exploration and appraisal drilling) are temporarily capitalized in cost centers by field (well) until the drilling program results in the discovery of economically feasible oil and gas reserves. The length of time necessary for this determination depends on the specific technical or economic difficulties in assessing the recoverability of the reserves. If a determination is made that the well did not encounter oil and gas in economically viable quantities, the well costs are expensed to Exploration expenses in the consolidated statement of profit or loss. Exploration and evaluation costs, except for costs associated with seismic, topographical, geological, and geophysical surveys, are initially capitalized as exploration and evaluation assets. Exploration and evaluation assets are recognized at cost less impairment, if any, as property, plant and equipment until the existence (or absence) of commercial reserves has been established. The initial cost of exploration and evaluation assets acquired through a business combination is formed as a result of purchase price allocation. The cost allocation to mineral rights to proved properties and mineral rights to unproved properties is performed based on the respective oil and gas reserves information. Exploration and evaluation assets are subject to technical, commercial and management review as well as review for indicators of impairment at least once a year. This is to confirm the continued intent to develop or otherwise extract value from the discovery. When indicators of impairment are present, an impairment test is performed. If, subsequently, commercial reserves are discovered, the carrying value, less losses from impairment of the respective exploration and evaluation assets, is classified as oil and gas properties (development assets). However, if no commercial reserves are discovered, such costs are expensed after exploration and evaluation activities have been completed.

3. Significant accounting policies (continued)

Development and production

Oil and gas properties (development assets) are accounted for on a field-by-field basis and represent (1) capitalized costs to develop discovered commercial reserves and to put fields into production, and (2) exploration and evaluation costs incurred to discover commercial reserves reclassified from exploration and evaluation assets to oil and gas properties (development assets) following the discovery of commercial reserves. The cost of oil and gas properties (development assets) also includes the expenditures to acquire such assets, directly identifiable overhead expenses, capitalized financing costs and related asset retirement (decommissioning) obligation costs. Oil and gas properties (development assets) are generally recognized as construction in progress. Following the commencement of commercial production, oil and gas properties (development assets) are reclassified as oil and gas properties (production assets).# 3. Significant accounting policies (continued)

Other property, plant and equipment

Other property, plant and equipment is stated at historical cost as of the acquisition date, except for property, plant and equipment acquired prior to January 1, 2009, which is stated at deemed cost, net of accumulated depreciation and impairment. The cost of maintenance, repairs, and the replacement of minor items of property is charged to operating expenses. Renewals and betterments of assets are capitalized. Upon the sale or retirement of property, plant and equipment, the cost and related accumulated depreciation are eliminated from the accounts. Any resulting gains or losses are included in profit or loss.

Depreciation, depletion and amortization

Oil and gas properties are depleted using the unit-of-production method on a field-by-field basis starting from the commencement of commercial production. In applying the unit-of-production method to mineral licenses, the depletion rate is based on total proved reserves. In applying the unit-of-production method to producing wells and the related oil and gas infrastructure, the depletion rate is based on proved developed reserves. Other property, plant and equipment are depreciated using the straight-line method over their estimated useful lives from the time they are ready for use, except for catalysts which are amortized using the unit-of-production method.

Components of other property, plant and equipment and their respective estimated useful lives are as follows:

Property, plant and equipment	Useful life, not more than
Buildings and structures	30-45 years
Plant and machinery	5-25 years
Vehicles and other property, plant and	6-10 years
equipment
Service vessels	20 years
Offshore drilling assets	20 years

Land generally has an indefinite useful life and is therefore not depreciated. Land leasehold rights are amortized on a straight-line basis over their expected useful life, which averages 20 years.

Construction grants

The Company recognizes construction grants from local governments when there is a reasonable assurance that the Company will comply with the conditions attached and that the grant will be received. The construction grants are accounted for as a reduction of the cost of the asset for which the grant is received.

Impairment of non-current assets

The Company assesses at each balance sheet date whether there is any indication that an asset or cash-generating unit may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset or cash-generating unit. In assessing whether there is any indication that an asset may be impaired, the Company considers internal and external sources of information. It considers at least the following:

External sources of information:

during the period, an asset's market value has declined significantly more than would be expected as a result of the passage of time or normal use;
significant changes with an adverse effect on the Company have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the Company operates or in the market to which an asset is dedicated;
market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset's value in use and decrease the asset's recoverable amount materially;
the carrying amount of the net assets of the Company is more than its market capitalization.

Internal sources of information:

evidence is available of obsolescence or physical damage of an asset;
significant changes with an adverse effect on the Company have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used (e.g., the asset becoming idle, or the useful life of an asset is reassessed as finite rather than indefinite);
information on dividends from a subsidiary, joint venture or associate;
evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected. Such evidence includes the existence of:
- cash flows on acquiring the asset, or subsequent cash needs for operating or maintaining it, that are significantly higher than those originally budgeted;
- actual net cash flows or operating profit or loss flowing from the asset that are significantly worse than those budgeted;
- a significant decline in budgeted net cash flows or operating profit, or a significant increase in budgeted losses, flowing from the asset;
- operating losses or net cash outflows for the asset, when current period amounts are aggregated with budgeted amounts for the future.

Impairment of non-current assets (continued)

The following factors indicate that exploration and evaluation assets may be impaired:

the period for which the Company has the right to explore in the specific area has expired during the period or will expire in the near future, and is not expected to be renewed;
substantive expenditure on further exploration for and evaluation of mineral resources in the specific area is neither budgeted nor planned;
exploration for and evaluation of mineral resources in the specific area have not led to the discovery of commercially viable quantities of mineral resources and the Company has decided to discontinue such activities in the specific area;
sufficient data exist to indicate that, although a development in the specific area is likely to proceed, the carrying amount of the exploration and evaluation asset is unlikely to be recovered in full from successful development or by sale.

The recoverable amount of an asset or a cash-generating unit is the higher of:

the value in use of an asset (cash-generating unit); and
the fair value of an asset (cash-generating unit) less costs to sell.

If the asset does not generate cash inflows that are largely independent of those from other assets, its recoverable amount is determined for the asset's cash-generating unit. The Company initially measures the value in use of a cash-generating unit. When the carrying amount of a cash-generating unit is greater than its value in use, the Company measures the unit's fair value for the purpose of measuring the recoverable amount. When the fair value is less than the carrying value an impairment loss is recognized. Value in use is determined by discounting the estimated value of the future cash inflows expected to be derived from the asset or cash-generating unit, including cash inflows from its sale. The value of the future cash inflows from a cash-generating unit is determined based on the forecast approved by management of the business unit to which the unit in question pertains.

Impairment of financial assets

At each balance sheet date the Company recognizes a loss allowance for expected credit losses on a financial asset measured at amortised cost, and at fair value through other comprehensive income, a lease receivable, a contract asset or a loan commitment and a financial guarantee contract to which the impairment requirements apply. Requirements of IFRS 9 concerning impairment do not apply to equity instruments of any category as well as to the instruments at fair value though profit or loss. The loss allowance for financial asset at amortised cost is recognized in profit or loss in correspondence with a balance sheet account reducing the carrying amount of the financial asset. The loss allowance for financial assets at fair value through other comprehensive income shall be recognized in other comprehensive income and shall not reduce the carrying amount of the financial asset in the statement of financial position. Expected credit losses for significant counterparties, including banks, are determined based on credit rating of particular counterparty and relevant probability of default.

Capitalized interest

Interest expense on borrowed funds used for capital construction projects and the acquisition of property, plant and equipment is capitalized provided that the interest expense could have been avoided if the Company had not made capital investments. Interest is capitalized only during the period when construction activities are actually in progress and until the resulting properties are put into operation. Capitalized borrowing costs include exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs.

Leasing agreements

Leases, which transfer to the Company substantially all the risks and benefits incidental to ownership of the asset, are classified as financial leases and are capitalized at the commencement of the lease at the fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance expenses and reduction of the lease liability in order to achieve a constant rate of interest on the remaining balance of the liabilities. Finance expenses are charged directly to the consolidated statement of profit or loss. Leased property, plant and equipment are accounted for using the same policies applied to the Company's own assets. In determining the useful life of a leased item of property, plant and equipment, consideration is given to the probability of the title being transferred to the lessee at the end of the lease term. If there is no reasonable certainty that the lessee will obtain ownership by the end of the lease term, the asset shall be fully depreciated over the shorter of the lease term and its useful life. Where such certainty exists, the asset is depreciated over its useful life.# 3. Significant accounting policies (continued)

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the consolidated statement of profit or loss on a straight-line basis over the lease term.

Asset retirement (decommissioning) obligations

The Company has asset retirement (decommissioning) obligations associated with its core business activities. The nature of the assets and potential obligations are as follows: The Company's exploration, development and production activities involve the use of wells, related equipment and operating sites, oil gathering and treatment facilities, tank farms and in-field pipelines. Generally, licenses and other regulatory acts require that such assets be decommissioned upon the completion of production. According to these requirements, the Company is obliged to decommission wells, dismantle equipment, restore the sites and perform other related activities. The Company's estimates of these obligations are based on current regulatory or license requirements, as well as actual dismantling and other related costs. These liabilities are measured by the Company using the present value of the estimated future costs of decommissioning of these assets. The discount rate is reviewed at each reporting date and reflects current market assessments of the time value of money and the risks specific to the liability.

In accordance with IFRS Interpretations Committee ("IFRIC") Interpretation 1 Changes in Existing Decommissioning, Restoration and Similar Liabilities, the provision is reviewed at each balance sheet date as follows:

upon changes in the estimates of future cash flows (e.g., the costs of and timeframe for abandoning one well) or the discount rate, changes in the amount of the liability are included in the cost of the item of property, plant, and equipment, whereby such cost may not be negative and may not exceed the recoverable value of the item of property, plant, and equipment;
any changes in the liability due to its nearing maturity (change in the discount) are recognized in Finance expenses.

The Company's refining and distribution activities involve refining operations, marine and other distribution terminals, and retail sales. The Company's refining operations consist of major petrochemical operations and industrial complexes. Legal or contractual asset retirement (decommissioning) obligations related to petrochemical, oil refining and distribution activities are not recognized due to the limited history of such activities in these segments, the lack of clear legal requirements as to the recognition of obligations, as well as the fact that decommissioning periods for such assets are not determinable. Because of the reasons described above, the fair value of an asset retirement (decommissioning) obligation in the refining and distribution segment cannot be reasonably estimated. Due to continuous changes in the Russian regulatory and legal environment, there could be future changes to the requirements and contingencies associated with the retirement of long-lived assets.

Income tax

Since 2012 Russian tax legislation has allowed income taxes to be calculated on a consolidated basis. The main subsidiaries of the Company were therefore combined into a consolidated group of taxpayers (Note 40). For subsidiaries which are not included in the consolidated group of taxpayers, income tax is calculated on an individual subsidiary basis. Deferred income tax assets and liabilities are recognized in the accompanying consolidated financial statements in the amount determined by the Company in accordance with IAS 12 Income Taxes. Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. A deferred tax liability is recognized for all taxable temporary differences, except to the extent that the deferred tax liability arises from:

the initial recognition of goodwill;
the initial recognition of an asset or liability in a transaction which:
- is not a business combination; and
- affects neither accounting profit, nor taxable profit;
investments in subsidiaries when the Company is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.

A prior period tax loss planned to be used to reduce the current or future amount of income tax is recognized as a deferred tax asset. A deferred tax asset is recognized only to the extent that it is probable that taxable profit will be available against which the deductible temporary differences can be utilized, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that:

is not a business combination; and
at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss).

The Company recognizes deferred tax assets for all deductible temporary differences arising from investments in subsidiaries and associates, and interests in joint ventures, to the extent that the following two conditions are met:

the temporary difference will reverse in the foreseeable future; and
taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets and liabilities shall be measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the taxation authority of the same jurisdiction and the Company intends to settle its current tax assets and liabilities on a net basis. The carrying amount of a deferred tax asset is reviewed at each balance sheet date. The Company reduces the carrying amount of a deferred tax asset to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized. Deferred tax assets and liabilities are classified as Non-current Deferred tax assets and Non-current Deferred tax liabilities, respectively. Deferred tax assets and liabilities are not discounted.

Recognition of revenues

Revenues are recognized when (or as) the Company satisfies a performance obligation by transferring a promised good or service (i.e. an asset) to a customer. An asset is transferred when (or as) the customer obtains control of that asset, which usually occurs when the title is passed, provided that the contract price is fixed or determinable and collectability of the receivable is reasonably assured. Specifically, domestic sales of crude oil and gas, as well as petroleum products and materials are usually recognized when title passes. For export sales, title generally passes at the border of the Russian Federation. Revenue is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts, volume rebates and reimbursable taxes. Sales of support services are recognized as services are performed provided that the service price can be determined and no significant uncertainties regarding the receipt of revenues exist.

Transportation expenses

Transportation expenses recognized in the consolidated statement of profit or loss represent all expenses incurred by the Company to transport crude oil for refining and to end customers, and to deliver petroleum products from refineries to end customers (these may include pipeline tariffs and any additional railroad transportation costs, handling costs, port fees, sea freight and other costs).

Refinery maintenance costs

The Company recognizes the costs of overhauls and preventive maintenance performed with respect to oil refining assets as expenses when incurred.

Environmental liabilities

Expenditures that relate to an existing condition caused by past operations, and do not have a future economic benefit, are expensed. Liabilities for these expenditures are recorded when environmental assessments or clean-ups are probable and the costs can be reasonably estimated.

Accounting for contingencies

Certain conditions may exist as of the date of these consolidated financial statements which may further result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. The Company's management makes an assessment of such contingent liabilities which is based on assumptions and is a matter of opinion. In assessing loss contingencies relating to legal or tax proceedings that involve the Company or unasserted claims that may result in such proceedings, the Company, after consultation with legal or tax advisors, evaluates the perceived merits of any legal or tax proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein. If the assessment of a contingency indicates that it is probable that a loss will be incurred and the amount of the liability can be estimated, then the estimated liability is accrued in the Company's consolidated financial statements.# 3. Significant accounting policies (continued)

If the assessment indicates that a potentially material loss contingency is not probable, but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. Loss contingencies considered remote are generally not disclosed unless they involve financial guarantees, in which case the nature of the guarantee would be disclosed. However, in some instances in which disclosure is not otherwise required, the Company may disclose contingent liabilities or other uncertainties of an unusual nature which, in the judgment of management after consultation with its legal or tax counsel, may be of interest to shareholders or others.

Taxes collected from customers and remitted to governmental authorities Refundable taxes (excise and value-added tax ("VAT")) are deducted from revenues. Other taxes and duties are not deducted from revenues and are recognized as expenses in Taxes other than income tax in the consolidated statement of profit or loss. VAT and excise receivable and payable are recognized as Prepayments and other current assets and Other tax liabilities in the consolidated balance sheet, respectively.

3. Significant accounting policies (continued)

Functional and presentation currency

The consolidated financial statements are presented in Russian rubles, which is the functional currency of Rosneft Oil Company and all of its subsidiaries operating in the Russian Federation. The functional currency of the foreign subsidiaries is generally the U.S. dollar.

Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of these transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at year-end exchange rates are recognized in the profit or loss for the period. Foreign exchange gains and losses resulting from the translation of monetary assets and liabilities designated as foreign currency cash flow hedging instruments are recognized within other comprehensive income and reclassified to profit or loss in the period when the hedged item affects profit or loss. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.

The Company's subsidiaries

The results and financial position of all of the Company's subsidiaries, joint ventures and associates that have a functional currency which is different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at that reporting date;
income and expenses for each statement of profit or loss and each statement of other comprehensive income are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the rate on the dates of the transactions); and
all resulting exchange differences are recognized as a separate component of other comprehensive income.

Prepayment on oil and petroleum products supply agreements

In the ordinary course of business, the Company enters into long-term oil supply contracts. The contract terms may require the buyer to make a prepayment. The Company considers long-term oil supply contracts to be regular-way sale contracts entered into and continued to be held for the purpose of the receipt or delivery of non-financial items in accordance with the Company's expected purchase, sale or usage requirements. Regular-way sale contracts are exempted from the scope of IAS 32 Financial Instruments: Presentation and IFRS 9 Financial Instruments.

3. Significant accounting policies (continued)

Prepayment on oil and petroleum products supply agreements (continued)

Conditions for meeting the definition of a regular-way sale are not met if either of the following applies:

the ability to settle net in cash or another financial instrument, or by exchanging financial instruments, is not explicit in the terms of the contract, but the Company has a practice of settling similar contracts net in cash or via another financial instrument or by exchanging financial instruments (whether with the counterparty, by entering into offsetting contracts or by selling the contract before its exercise or lapse);
for similar contracts, the Company has a practice of taking delivery of the underlying goods and selling them within a short period after delivery for the purpose of generating a profit from short-term fluctuations in price or from a dealer's margin.

Prepayments received for the delivery of goods or respective deferred revenue are accounted for as non-financial liabilities because the outflow of economic benefits associated with them is the delivery of goods and services rather than a contractual obligation to pay cash or another financial asset.

Changes in accounting policies and disclosures

The accounting policies adopted are consistent with those of the previous financial year except for the adoption of new standards, interpretations and amendments to standards effective as of January 1, 2018. The following standards were applied for the first time in 2018:

IFRS 9 Financial Instruments. The final version of IFRS 9 issued in 2014 replaces IAS 39 Financial Instruments: Recognition and Measurement, as well as all previous versions of IFRS 9. IFRS 9 brings together the requirements for the classification and measurement, impairment and hedge accounting of financial instruments. In respect of impairment, IFRS 9 replaces the "incurred loss" model used in IAS 39 with a new "expected credit loss" model that will require a more timely recognition of expected credit losses. According to the new standard, expected credit losses for significant debt balances were estimated based on the credit risk of the debtors. Also due to the new requirements, certain of the financial instruments of the Company were measured to their fair value as a consequence of the change in classification category from measured at amortized cost to measured at fair value through profit or loss. Together with IFRS 9 the Company early adopted amendments to IAS 28 Investments in Associates and Joint Ventures effective for annual periods beginning on or after January 1, 2019. These amendments clarify that the companies should apply IFRS 9, including impairment requirements, for the long-term investments in associates and joint ventures, which are accounted for otherwise than using the equity method, including long-term loans given to associates and joint ventures.
IFRS 15 Revenue from Contracts with Customers. IFRS 15 establishes a single framework for revenue recognition and contains requirements for related disclosures. The new standard replaces IAS 18 Revenue, IAS 11 Construction Contracts, and the related interpretations on Revenue recognition. As a result of the analysis performed by the Company, the conclusion was made that the standard has no significant impact on the consolidated financial statements.
Amendments to IFRS 2 Share-based Payment entitled Classification and Measurement of Share-based Payment Transactions. The amendments provide requirements for the accounting for the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payments; share-based payment transactions with a net settlement feature for withholding tax obligations; a modification to the terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to equity-settled. The amendments did not have a material impact on the consolidated financial statements.

3. Significant accounting policies (continued)

Changes in accounting policies and disclosures (continued)

Amendments to IFRS 4 Insurance Contracts entitled Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts. The amendments address concerns arising from implementing the new financial instruments Standard, IFRS 9, before implementing the replacement. Standard that the Board is developing for IFRS 4. The amendments introduce two approaches, which should reconcile the timing of the application of the two new standards. Under the first approach, the amendments become effective on the date of first-time adoption of IFRS 9; under the second, the amendments become effective for annual periods beginning on or after January 1, 2018. The amendments did not have a material impact on the consolidated financial statements.
Amendments to IAS 40 Investment Property entitled Transfers of Investment Property. The amendments clarify the requirements for transfers to, or from, investment property. The amendments did not have a material impact on the consolidated financial statements.
IFRIC 22 Interpretation entitled Foreign Currency Transactions and Advance Consideration. The IFRIC addresses how to determine the date of the transaction for the purpose of determining the exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the de-recognition of a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration in a foreign currency. The interpretation did not have a material impact on the consolidated financial statements as its requirements were already previously incorporated in the accounting policy of the Company.# Effect of the first application of IFRS 9 Financial Instruments

Financial assets by categories | Carrying amount as of December 31, 2017 | Remeasurement due to reclassification | Total as of January 1, 2018 | Loss allowance per IAS 39 as at January 1, 2018 | Increase in allowance | Loss allowance per IFRS 9 as at January 1, 2018
---|---|---|---|---|---|---|
I. Cash and cash equivalents | | | | | |
Cash on hand and in bank accounts in RUB | 44 | - | 44 | - | (1) | (1)
Cash on hand and in bank accounts in foreign currencies | 124 | - | 124 | - | - | -
Deposits and other cash equivalents in RUB | 142 | - | 142 | - | - | -
Other | 12 | - | 12 | - | - | -
Total Cash and cash equivalents | 322 | - | 322 | - | (1) | (1)
II. Other short-term financial assets | | | | | |
Financial assets at fair value through other comprehensive income | | | | | |
Notes from Loans and receivables | 66 | - | 66 | - | (2) | (2)
Notes from Available for Sale | 19 | - | 19 | - | - | -
Bonds from Available for Sale | 116 | - | 116 | - | - | -
Government bonds from Held to Maturity | 1 | - | 1 | - | - | -
Stocks and shares from Available for Sale | 44 | - | 44 | - | - | -
Financial assets at amortized cost | | | | | |
Loans given from Loans and receivables | 13 | - | 13 | - | - | -
Loans given to associates from Loans and receivables | 32 | - | 32 | - | (6) | (6)
Deposits and certificates of deposit from Loans and receivables | 43 | - | 43 | - | - | -
Bonds from Held to Maturity | 1 | - | 1 | - | - | -
Financial assets at fair value through profit or loss | | | | | |
Deposits and certificates of deposit from Loans and receivables | 1 | - | 1 | - | - | -
Total Other short-term financial assets | 336 | - | 336 | - | (8) | (8)

Significant accounting policies (continued)

Effect of the first application of IFRS 9 Financial Instruments (continued)

Financial assets by categories | Carrying amount as of December 31, 2017 | Remeasurement due to reclassification | Total as of January 1, 2018 | Loss allowance per IAS 39 as at January 1, 2018 | Increase in allowance | Loss allowance per IFRS 9 as at January 1, 2018
---|---|---|---|---|---|---|
III. Accounts receivable | | | | | |
Trade receivables | 658 | - | 658 | (26) | (9) | (35)
Bank loans to customers | 108 | - | 108 | - | - | -
Other accounts receivable | 116 | - | 116 | (13) | (2) | (15)
Total Accounts receivable | 882 | - | 882 | (39) | (11) | (50)
IV. Other long-term financial assets | | | | | |
Financial assets at fair value through profit or loss | | | | | |
Bank deposits from Held to Maturity | 493 | (5) | 488 | - | - | -
Financial assets at amortized cost | | | | | |
Bonds from Held to Maturity | 13 | - | 13 | - | - | -
Bank deposits from Held to Maturity | 49 | - | 49 | - | - | -
Loans given to associates and joint ventures from Loans and receivables | 26 | - | 26 | - | (8) | (8)
Long-term loans given from Loans and receivables | 4 | - | 4 | - | - | -
Other accounts receivable | 3 | - | 3 | - | - | -
Financial assets at fair value through other comprehensive income | | | | | |
Shares of PJSC INTER RAO UES | 4 | - | 4 | - | - | -
Shares of PJSC Russian Grids | 1 | - | 1 | - | - | -
Shares of JSC Modern Shipbuilding Technology | 11 | - | 11 | - | - | -
Other shares | 2 | - | 2 | - | - | -
Total Other long-term financial assets | 606 | (5) | 601 | - | (8) | (8)
Subtotal | 2,146 | (5) | 2,141 | (39) | (28) | (67)
Pre-tax effect on retained earnings | (33) | | | | |
After-tax effect on retained earnings | (28) | | | | |

4. Significant accounting judgments, estimates and assumptions

The preparation of consolidated financial statements requires management to make a number of accounting estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities. The actual results, however, could differ from those estimates. The most significant accounting estimates and assumptions used by the Company's management in preparing the consolidated financial statements include:

estimation of oil and gas reserves;
estimation of rights to, recoverability and useful lives of non-current assets;
impairment of goodwill and fixed assets (Note 25 "Intangible assets and goodwill" and Note 24 "Property, plant and equipment and construction in progress");
estimated credit losses for accounts receivable (Note 21 "Accounts receivable");
assessment of asset retirement (decommissioning) obligations (Note 3 "Significant accounting policies", section: "Asset retirement (decommissioning) obligations", and Note 32 "Provisions");
assessment of legal and tax contingencies, recognition and disclosure of contingent liabilities (Note 40 "Contingencies");

4. Significant accounting judgments, estimates and assumptions (continued)

assessment of deferred income tax assets and liabilities (Note 3 "Significant accounting policies", section: "Income tax", and Note 16 "Income tax");
assessment of environmental remediation obligations (Note 32 "Provisions" and Note 40 "Contingencies");
fair value measurements (Note 37 "Fair value of financial instruments");
assessment of the Company's ability to renew operating leases and to enter into new lease agreements;
purchase price allocation to the identifiable assets acquired and the liabilities assumed (Note 7 "Acquisition of subsidiaries and shares in joint operations").

Significant estimates and assumptions affecting the reported amounts are those used in determining the economic recoverability of reserves. Such estimates and assumptions may change over time when new information becomes available, e.g.:

more detailed information on reserves was obtained (either as a result of more detailed engineering calculations or additional exploration drilling activities);
supplemental activities to enhance oil recovery were conducted;
changes were made in economic estimates and assumptions (e.g. a change in pricing factors).

5. New and amended standards and interpretations issued but not yet effective

In January 2016, the IASB issued IFRS 16 Leases. IFRS 16 eliminates the classification of leases as either operating leases or finance leases and establishes a single lessee accounting model. The most significant effect of the new requirements for the lessee will be an increase in right-of-use assets and financial liabilities. The new standard replaces the previous leases standard, IAS 17 Leases, and the related interpretations. The standard is effective for annual periods beginning on or after January 1, 2019. The Company will apply the Standard using modified retrospective approach which presumes recognition of cumulative effect of initial application at the date of the initial application i.e. January 1, 2019. According to preliminary estimates made by the Company, one-off recognition of non-current assets and financial liabilities will total 220‑300 bln RUR as of January 1, 2019.

In May 2017, the IASB issued IFRS 17 Insurance Contracts. IFRS 17 establishes a single framework for the accounting for insurance contracts and contains requirements for related disclosures. The new standard replaces IFRS 4 Insurance Contracts. The standard is effective for annual periods beginning on or after January 1, 2021. The Company does not expect the standard to have a material impact on the consolidated financial statements.

In June 2017, the IASB issued IFRIC 23 Interpretation entitled Uncertainty over Income Tax Treatments. The IFRIC clarifies that for the purposes of calculating current and deferred tax, companies should use a tax treatment of uncertainties, which will probably be accepted by the tax authorities. IFRIC 23 is effective for annual periods beginning on or after January 1, 2019. The Company does not expect the interpretation to have a material impact on the consolidated financial statements.

In October 2017, the IASB issued amendments to IFRS 9 Financial instruments named Prepayment Features with Negative Compensation. The amendments relate to financial assets with an option of early prepayment, the conditions of which allow early prepayment in a variable amount, which in turn may exceed as well as may be lower than remaining outstanding cash flows. The amendments allow to measure such prepayable financial assets with so-called negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met - instead of at fair value through profit or loss. The amendments are effective for annual periods beginning on or after January, 2019. The Company does not expect the amendments to have a material impact on the consolidated financial statements.

5. New and amended standards and interpretations issued but not yet effective (continued)

In February 2018, the IASB issued amendments to IAS 19 Employee benefits named Plan Amendment, Curtailment or Settlement. The amendments specifies how companies determine pension expenses when changes to a defined benefit pension plan occur. The amendments are effective for annual periods beginning on or after January, 2019. The Company does not expect the amendments to have a material impact on the consolidated financial statements.

In March 2018, the IASB issued a revised version of Conceptual Framework for Financial Reporting. In particular, the revised version introduces new definitions of assets and liabilities, as well as amended definitions of income and expenses. The new version is effective for annual periods beginning on or after January, 2020. The Company is currently assessing the impact of the revised version of Conceptual Framework on the consolidated financial statements.

In October 2018, the IASB issued amendments to IFRS 3 Business Combinations. The amendments enhance definition of a business set out by the standard. The amendments are effective for acquisitions to occur on or after January 1, 2020; earlier application is permitted. Possible impact of the amendments on the consolidated financial statements as well as the necessity of early adoption will be assessed in course of accounting support for future significant transactions.

In October 2018, the IASB issued amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting policies, Changes in Accounting Estimates and Errors. The amendments to IAS 1 and IAS 8 introduce new definition of material. The amendments are effective on or after January 1, 2020; earlier application is permitted. The Company does not expect the amendments to have a material impact on the consolidated financial statements.

6.# Capital and financial risk management

Capital management

The Company's capital management objectives are to ensure its ability to continue as a going concern and to optimize the cost of capital in order to enhance value to shareholders. Total capital employed and financial liabilities less liquid financial assets are non-IFRS measures. The Company's management performs a regular assessment of the financial liabilities less liquid financial assets to capital employed ratio to ensure it meets the Company's requirements to fulfil the Company's commitments and to retain strong financial stability. The Company's employed capital is calculated as the sum of equity attributable to equity holders of Rosneft: share capital, reserves, retained earnings and non-controlling interests; financial liabilities, which include long and short-term loans and borrowings, other financial liabilities, as reported in the consolidated balance sheet, less liquid financial assets, including cash and cash equivalents, other short-term financial assets and certain long-term deposits.

The Company's financial liabilities less liquid financial assets to capital employed ratio was as follows:

	As of December 31, 2018	2017 (restated)
Financial liabilities less liquid financial assets to capital employed ratio, %	37.9%	40.8%

Financial risk management

In the normal course of business the Company is exposed to the following financial risks: market risk (including foreign currency risk, interest rate risk and commodity price risk), credit risk and liquidity risk. The Company has introduced a risk management system and developed a number of procedures to measure, assess and monitor risks and select the relevant risk management techniques. The Company has developed, documented and approved the relevant policies pertaining to market, credit and liquidity risks and the use of derivative financial instruments.

Foreign currency risk

The Company undertakes transactions denominated in foreign currencies and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the U.S. dollar and euro. Foreign exchange risk arises from assets, liabilities, commercial transactions and financing denominated in foreign currencies. The carrying values of monetary assets and liabilities denominated in foreign currencies are presented in the table below:

	As of December 31, 2018	As of December 31, 2017	As of December 31, 2018	As of December 31, 2017
	Assets	Assets	Liabilities	Liabilities
US$	864	903	(1,969)	(1,885)
EUR	684	425	(340)	(67)
Total	1,548	1,328	(2,309)	(1,952)

The Company seeks to identify and manage foreign exchange rate risk in a comprehensive manner, including an integrated analysis of natural economic hedges, in order to benefit from the correlation between income and expenses. The Company chooses the currency in which to hold cash, such as the Russian ruble, U.S. dollar or other currency for short-term risk management purposes. The long-term risk management strategy of the Company may involve the use of derivative or non-derivative financial instruments in order to minimize foreign exchange rate risk exposure.

Cash flow hedging of the Company's future exports

The Company designated certain U.S. dollar-denominated borrowings as a hedge of the expected highly probable U.S. dollar-denominated export revenue stream in accordance with IFRS 9 Financial Instruments. A portion of future monthly export revenues expected to be received in U.S. dollars was designated as a hedged item. The nominal amounts of the hedged item and the hedging instruments were equal. To the extent that a change in the foreign currency rate impacts the fair value of the hedging instrument, the effects are recognized in other comprehensive income or loss and then reclassified to profit or loss in the period in which the hedged item affects the profit or loss. The Company's foreign currency risk management strategy is to hedge future export revenue in the amount of the net monetary position in U.S. dollars. The Company aligns the hedged nominal amount to the net monetary position in U.S. dollars on a periodical basis.

Changes in the nominal hedging amount during 2018 are presented in the table below:

	US$ million	The equivalent amount at the CBR exchange rate as of December 31, 2018, RUB billion
Nominal amount as of December 31, 2017	873	61
Hedging instruments designated	-	-
Realized cash flow foreign exchange hedges	(55)	(4)
Hedging instruments de-designated	(818)	(57)
Nominal amount as of December 31, 2018	-	-

The impact of foreign exchange cash flow hedges recognized in other comprehensive income is set out below:

| | \multicolumn{3}{c|}{2018} | \multicolumn{3}{c|}{2017} |
| :--- | :--- | :--- | :--- | :--- | :--- |
| | Before income tax | Income tax | Net of tax | Before income tax | Income tax | Net of tax |
| Total recognized in other comprehensive (loss)/income as of the beginning of the year | (290) | 58 | (232) | (435) | 87 | (348) |
| Foreign exchange effects recognized during the year | - | - | - | (1) | - | (1) |
| Foreign exchange effects reclassified to profit or loss | 146 | (29) | 117 | 146 | (29) | 117 |
| Total recognized in other comprehensive (loss)/income for the year | 146 | (29) | 117 | 145 | (29) | 116 |
| Total recognized in other comprehensive (loss)/income as of the end of the year | (144) | 29 | (115) | (290) | 58 | (232) |

The schedule of the expected reclassification of the accumulated foreign exchange loss from other comprehensive income to profit or loss, as of December 31, 2018, is presented below:

	Year 2019	Year 2020	Year 2021	Total
Reclassification	(146)	2	-	(144)
Income tax	29	-	-	29
Total, net of tax	(117)	2	-	(115)

Analysis of sensitivity of financial instruments to foreign exchange risk

The level of currency risk is assessed on a monthly basis using mathematical modeling methods (Monte Carlo method), as well as sensitivity analysis and is maintained within the limits adopted in line with the Company's policy. The table below summarizes the impact on the Company's income before income tax and equity of the depreciation/(appreciation) of the Russian ruble against the U.S. dollar and euro.

	\multicolumn{2}{c	}{U.S. dollar effect}	\multicolumn{2}{c	}{Euro effect}
	2018	2017	2018	2017
Currency rate change in %	13.97%	10.09%	13.64%	11.34%
Gain/(loss)	85/(85)	72/(72)	42/(42)	19/(19)
Equity	(112)/112	(91)/91	(3)/3	2/(2)

Interest rate risk

Loans and borrowings raised at variable interest rates expose the Company to interest rate risk arising from the possible movement of variable elements of the overall interest rate. As of December 31, 2018, the Company's variable rate liabilities totaled RUB 2,656 billion (net of interest payable). The Company analyzes its interest rate exposure, including by performing scenario analysis to measure the impact of an interest rate shift on annual income before income tax. The table below summarizes the impact of a potential increase or decrease in interest rates on the Company's profit before tax, as applied to the variable element of interest rates on loans and borrowings. The increase/decrease is based on the management estimates of potential interest rate movements.

	\multicolumn{2}{c	}{2018}	\multicolumn{2}{c	}{2017}
Increase/decrease in interest rate	Effect on income before income tax	basis points	RUB billion	Effect on income before income tax
	+5	(1)	1	+5
	-5	1		-5

The sensitivity analysis is limited to variable rate loans and borrowings and is conducted with all other variables held constant. The analysis is prepared with the assumption that the amount of variable rate liability outstanding at the balance sheet date was outstanding for the whole year. The interest rate on variable rate loans and borrowings will effectively change throughout the year in response to fluctuations in market interest rates. The impact measured through the sensitivity analysis does not take into account other potential changes in economic conditions that may accompany the relevant changes in market interest rates.

Credit risk

The Company controls its own exposure to credit risk. All external customers and their financial guarantors, other than related parties, undergo a creditworthiness check (including sellers of goods and services who act on a prepayment basis). The Company performs an ongoing assessment and monitoring of the financial position and the risk of default. As of December 31, 2018, management assessed the impact of credit risk (if materialized) on the Company's financial indicators as low. The Company's exposure to credit risk is limited to the carrying value of financial assets recognized on the consolidated balance sheet, taking into consideration the information disclosed in Note 40 "Contingencies. Guarantees and indemnities issued".

In addition, as part of its cash management and credit risk function, the Company regularly evaluates the creditworthiness of financial and banking institutions where it deposits cash and performs trade finance operations. The Company primarily has banking relationships with the Russian subsidiaries of large international banking institutions and certain large Russian banks.

Liquidity risk

The Company has mature liquidity risk management processes covering short-term, mid-term and long-term funding. Liquidity risk is controlled through maintaining sufficient reserves and the adequate amount of committed credit facilities and loan funds. Management regularly monitors projected and actual cash flow information, analyzes the repayment schedules of the existing financial assets and liabilities, including upcoming un-accrued interest payments, and performs annual detailed budgeting procedures.The contractual maturities of the Company's financial liabilities are presented below:

Year ended December 31, 2018

On demand	< 1 year	1 to 5 years	> 5 years	Total
Loans and borrowings and other financial liabilities	-	1,169	3,379	752
Finance lease liabilities	-	9	19	18
Accounts payable to suppliers and contractors	-	452	-	-
Salary and other benefits payable	-	88	-	-
Current operating liabilities of subsidiary banks	77	376	17	-
Dividends payable	-	1	-	-
Other accounts payable	-	63	-	-
Derivative financial liabilities	-	33	-	-

Year ended December 31, 2017

On demand	< 1 year	1 to 5 years	> 5 years	Total
Loans and borrowings and other financial liabilities	-	2,247	1,407	814
Finance lease liabilities	-	9	24	21
Accounts payable to suppliers and contractors	-	451	-	-
Salary and other benefits payable	-	81	-	-
Current operating liabilities of subsidiary banks	89	247	-	-
Dividends payable	-	5	-	-
Other accounts payable	-	46	-	-
Derivative financial liabilities	-	74	-	-

7. Acquisitions of subsidiaries and shares in joint operations

Acquisitions of 2018

Acquisition of a share in a joint venture

In the third quarter of 2018, the Company completed acquisition of a share in a joint venture engaged in exploration and evaluation activities. The following table summarizes the Company's allocation of the purchase price to the fair value of assets acquired and liabilities assumed:

ASSETS
Current assets
Cash and cash equivalents	1
Accounts receivable	2
Inventories	1
Total current assets	4
Total assets	4
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	1
Other current liabilities	1
Total current liabilities	2
Total liabilities	2
Identifiable net assets excluding intercompany liabilities and claims existing prior to the acquisition	2
Fair value of cash consideration transferred	-
Fair value of the Company's investment in the joint venture	1
Intercompany liabilities existing prior to the acquisition	(5)
Total gain on bargain purchase	6

The gain on re-measurement of the Company's investment in the joint venture to the fair value at acquisition date amounted to RUB 1 billion and is included in Other income.

Acquisitions of 2018 (continued)

Acquisition of interests in joint ventures with ExxonMobil

During the second quarter of 2018, following ExxonMobil withdrawal from several joint projects, the Company completed acquisition of interests in the joint ventures with ExxonMobil and obtained control. As of June 30, 2018 the Company prepared preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed. The purchase price allocation was finalized in December 2018. The following table summarizes the Company's allocation of the purchase price to the fair value of assets acquired and liabilities assumed:

ASSETS
Current assets
Cash and cash equivalents	1
Restricted cash	4
Other current assets	2
Total current assets	7
Non-current assets
Property, plant and equipment	2
Total non-current assets	2
Total assets	9
Identifiable net assets excluding intercompany liabilities and claims existing prior to the acquisition	9
Fair value of cash consideration transferred	-
Fair value of the Company's investments in joint ventures	6
Changes in the Company's liabilities as a result of acquisition of control	(11)
Total gain on bargain purchase	14

The gain on re-measurement of the Company's investments in joint ventures to the fair value at acquisition date amounted to RUB 5 billion and is included in Other income.

Acquisition of shares in research and development institutions

In June 2018 the Company acquired controlling interests in a number of institutions engaged in research, development and engineering services in oil and gas industry in line with the program of the federal and municipal property privatization. The cost of acquisition amounted to RUB 2 billion.

Acquisitions of 2017

Acquisition of a 30% interest in the concession agreement for the development of the Zohr field

In October 2017 the Company finalized the acquisition of a 30% stake in the concession agreement for the development of the Zohr field from Eni S.p.A. Participation in the exploration of this deep-water gas field in offshore Egypt allows the Company to substantially increase its gas production abroad within a short timeframe and strengthen its positions in this promising and strategically significant region. The acquisition price amounted to US$ 1.1 billion, while the compensation of the 30% share of past project costs to Eni S.p.A., which is subject to reimbursement according to the terms of the concession agreement, amounted to US$ 1.2 billion.

Acquisitions of subsidiaries and shares in joint operations (continued)

Acquisitions of 2017 (continued)

The acquired interest in the concession agreement was classified as a joint operation, and was accounted for through the recognition of assets, liabilities, income and expenses in respect of the Company's interests in accordance with IFRS 11, Joint Arrangements. Allocation of purchase price to the fair value of assets acquired and liabilities assumed is finalized. Fair value of assets acquired was property, plant and equipment in amount of US$ 2.3 billion.

Finalization of the purchase price allocation of JSCB Peresvet acquisition

In June 2017, the Company acquired a 99.9% share in JSCB Peresvet, a financial institution engaged in banking services. As of December 31, 2017, the purchase price allocation of the acquisition to the fair value of assets acquired and liabilities assumed was preliminary and was finalized in the third quarter of 2018. The following table summarizes the Company's finalized allocation of the purchase price to the fair value of assets acquired and liabilities assumed:

ASSETS
Cash and cash equivalents	1
Obligatory reserves with the Bank of Russia	1
Loans to customers	27
Investment securities available for sale	21
Investment securities held to maturity	13
Expected future benefits from DIA's financial aid in the form of a reduced rate loan	19
Investment property	3
Current profit tax assets	2
Total assets	87
LIABILITIES
Amounts due to credit institutions	18
Amounts due to customers	15
Debt securities issued	7
Other borrowings	32
Other liabilities	15
Other provisions	2
Total liabilities	89
Total identifiable net assets at fair value	(2)
JSCB Peresvet's liabilities to the Company existing prior to the acquisition	16
Identifiable net assets excluding intercompany liabilities and claims existing prior to the acquisition	14
Fair value of cash consideration transferred	-
Intercompany liabilities and claims existing prior to the acquisition	16
Consideration transferred to be included for the purpose of goodwill	16
Excluding identifiable net assets of JSCB Peresvet	(14)
Goodwill	2

As of December 31, 2017, the Company recognized impairment of goodwill arising from the JSCB Peresvet acquisition. The loss of RUB 2 billion is recognized in Other expenses of the Company's consolidated statement of profit or loss for the year ended December 31, 2017 (Note 13). The estimated equity component of convertible bonds representing a non-controlling interest is zero.

Acquisitions of subsidiaries and shares in joint operations (continued)

Acquisitions of 2017 (continued)

The fair value of the cash consideration transferred at the acquisition date was RUB 10 million.

Cash flows arising from the JSCB Peresvet acquisition:


Cash acquired as a result of the JSCB Peresvet acquisition	1
Cash paid	-
Net cash inflow	1

The carrying value of the loans to customers approximates the fair value as of the date of the acquisition. Had the JSCB Peresvet acquisition taken place at the beginning of the reporting period (January 1, 2017), revenues and net income of the combined entity would have been RUB 6,016 billion and RUB 312 billion, respectively, for the year ended December 31, 2017.

Acquisition of LLC Independent Petroleum Company - Projects and LLC Drilling Service Technology

In April, 2017 the Company completed the acquisition of 100% of shares in LLC Independent Petroleum Company - Projects, engaged in the development of the Kondinsky, Zapadno-Erginsky, Chaprovsky and Novo-Endyrsky license areas in the Khanty-Mansiysk Autonomous District and of 100% of shares in LLC Drilling Service Technology, engaged in the provision of drilling services in the Khanty-Mansiysk region. The consideration amounted to RUB 49 billion, net of cash acquired. The following table summarizes the Company's allocation of the purchase price to the fair value of assets acquired and liabilities assumed:

ASSETS
Current assets
Cash and cash equivalents	5
Other current assets	5
Total current assets	10
Non-current assets
Property, plant and equipment	101
Deferred tax assets	2
Total non-current assets	103
Total assets	113
LIABILITIES
Current liabilities
Other current liabilities	9
Total current liabilities	9
Non-current liabilities
Deferred tax liabilities	15
Loans and borrowings	44
Total non-current liabilities	59
Total liabilities	68
Total identifiable net assets at fair value	45
Goodwill	9
Total consideration transferred	54

Acquisitions of subsidiaries and shares in joint operations (continued)

Acquisitions of 2017 (continued)

Acquisition of TNK Trading International S.A.

In December 2017, the Company obtained control over TNK Trading International S.A. ("TTI") through concluding a number of agreements. Until December 2017 the Company considered its interest in TTI to be a part of investments in joint operations and accounted for it using the equity method.# Acquisitions of subsidiaries and shares in joint operations (continued)

Acquisitions of 2017 (continued)

The following table summarizes the Company's allocation of the purchase price to the fair value of assets acquired and liabilities assumed:

ASSETS
Current assets
Cash and cash equivalents	11
Prepayments and other current assets	130
Accounts receivable	13
Other current financial assets	9
Total current assets	163
Non-current assets
Intangible assets	11
Total non-current assets	11
Total assets	174
LIABILITIES
Current liabilities
Accounts payable and accrued liabilities	12
Profit tax payable	2
Total current liabilities	14
Non-current liabilities
Loans and borrowings and other financial liabilities	130
Deferred tax liabilities	1
Total non-current liabilities	131
Total liabilities	145
Total identifiable net assets at fair value	29
Intercompany liabilities and claims existing prior to the acquisition (net payable from TTI)	120
Identifiable net assets excluding intercompany liabilities and claims existing prior to the acquisition	149
Fair value of cash consideration transferred	-
Fair value of the Company's investment in joint operations	14
Intercompany liabilities and claims existing prior to the acquisition	120
Consideration transferred to be included for the purpose of goodwill	134
Finance liability to the bank	19
Excluding identifiable net assets of TTI	(149)
Goodwill	4

No cash consideration was paid. As of December 31, 2017, the Company recognized an impairment of goodwill arising on TTI acquisition due to the existence of significant impairment indicators. Net effect recognized from the loss on impairment of goodwill arising on the acquisition and the gain on re-measurement of the Company's investments in joint ventures to the fair value at acquisition date amounted to RUB 1 billion and is included in Other income of the Consolidated Statement of profit or loss.

Acquisitions of 2017 (continued)

The identifiable intangible asset amounting to RUB 11 billion represents an estimate of the future benefits arising from the oil trading agreements between TTI and its major oil supplier.

Cash flows arising from the TTI acquisition:


Cash acquired as a result of the TTI acquisition	11
Cash paid	-
Net cash inflow	11

The book value of the accounts receivable approximates their fair value as of the date of acquisition. There are no accounts receivable that are not expected to be collected. Had TTI's acquisition taken place at the beginning of the reporting period (January 1, 2017), revenues and net income of the combined entity would have been RUB 6,043 billion and RUB 305 billion, respectively, for the twelve month period ended December 31, 2017.

In 2017 the Company completed several acquisitions, including a 99.9% share in JSCB Peresvet, a 30% stake in the Zohr field and obtained control over TNK Trading International S.A. At the date of the issuance of the consolidated financial statements for the year ended December 31, 2017 the Company made a preliminary allocation of the purchase price of these acquisitions. The allocation of the purchase prices of these acquisitions was finalized during 2018.

The following table summarizes the effect from the finalized purchase price allocations on the consolidated balance sheet as of December 31, 2017:

ASSETS	Preliminary allocation	Effects from final allocation	Final allocation JSCB Peresvet	TTI	Other acquisitions	Total
Total current assets	2,292	-	-	-	-	2,292
Non-current assets
Property, plant and equipment	7,923	-	-	-	-	7,923
Intangible assets	71	2	2	-	-	75
Other long-term financial assets	606	-	-	-	-	606
Investments in associates and joint ventures	638	-	-	(3)	-	635
Bank loans granted	121	-	-	-	-	121
Deferred tax assets	26	-	-	-	-	26
Goodwill	265	-	-	-	-	265
Other non-current non-financial assets	285	-	-	-	-	285
Total non-current assets	9,935	2	2	(3)	-	9,936
Total assets	12,227	2	2	(3)	-	12,228
LIABILITIES AND EQUITY
Total current liabilities	3,836	-	-	-	-	3,836
Total non-current liabilities	4,208	-	1	-	-	4,209
Equity
Share capital	1	-	-	-	-	1
Additional paid-in capital	627	-	-	-	-	627
Other funds and reserves	(322)	-	-	-	-	(322)
Retained earnings	3,313	2	1	(3)	-	3,313
Rosneft shareholders' equity	3,619	2	1	(3)	-	3,619
Non-controlling interests	564	-	-	-	-	564
Total equity	4,183	2	1	(3)	-	4,183
Total liabilities and equity	12,227	2	2	(3)	-	12,228

Acquisitions of 2017 (continued)

The following table summarizes the effect from the finalized estimations on the consolidated statement of profit or loss for the year ended December 31, 2017:

	Before finalized estimation	Effect from finalized estimation JSCB Peresvet	TTI	Other acquisitions	After finalized estimation
Revenues and equity share in profits of associates and joint ventures
Oil, gas, petroleum products and petrochemicals sales	5,877	-	-	-	5,877
Support services and other revenues	77	-	-	-	77
Equity share in profits of associates and joint ventures	60	-	-	(3)	57
Total revenues and equity share in profits of associates and joint ventures	6,014	-	-	(3)	6,011
Total costs and expenses	5,390	-	-	-	5,390
Operating income	624	-	-	(3)	621
Finance income	107	-	-	-	107
Finance expenses	(225)	-	-	-	(225)
Other income	109	-	1	-	110
Other expenses	(77)	2	-	-	(75)
Foreign exchange differences	3	-	-	-	3
Cash flow hedges reclassified to profit or loss	(146)	-	-	-	(146)
Income before income tax	395	2	1	(3)	395
Income tax expense	(98)	-	-	-	(98)
Net income	297	2	1	(3)	297
Net income attributable to:
- Rosneft shareholders	222	2	1	(3)	222
- non-controlling interests	75	-	-	-	75
Net income attributable to Rosneft per common share (in RUB) - basic and diluted	20.95	-	-	-	20.95
Weighted average number of shares outstanding (millions)	10,598	-	-	-	10,598

Segment information

The Company determines its operating segments based on the nature of their operations. The performance of these operating segments is assessed by management on a regular basis. The Exploration and production segment is engaged in field exploration and the production of crude oil and natural gas. The Refining and distribution segment is engaged in processing crude oil and other hydrocarbons into petroleum products, as well as in the purchase, sale and transportation of crude oil and petroleum products. Corporate and other unallocated activities are not part of any operating segment and include corporate activity, activities involved in field development, the maintenance of infrastructure and the functioning of the first two segments, as well as banking and finance services, and other activities. Substantially all of the Company's operations and assets are located in the Russian Federation. Segment performance is evaluated based on both revenues and operating income, which are measured on the same basis as in the consolidated financial statements, but with intersegment transactions revalued at market prices.

The performance of the operating segments in 2018 is shown below:

	Exploration and production	Refining and distribution	Corporate and other unallocated activities	Adjustments	Consolidated
Total revenues and equity share in profits of associates and joint ventures	4,679	8,255	136	(4,832)	8,238
Including: equity share in profits of associates and joint ventures	76	5	1	-	82
Costs and expenses
Costs and expenses other than depreciation, depletion and amortization	2,863	8,092	196	(4,832)	6,319
Depreciation, depletion and amortization	504	123	8	-	635
Total costs and expenses	3,367	8,215	204	(4,832)	6,954
Operating income	1,312	40	(68)	-	1,284
Finance income	-	-	122	-	122
Finance expenses	-	-	(290)	-	(290)
Total finance expenses	-	-	(168)	-	(168)
Other income	-	-	49	-	49
Other expenses	-	-	(294)	-	(294)
Foreign exchange differences	-	-	107	-	107
Cash flow hedges reclassified to profit or loss	-	-	(146)	-	(146)
Income before income tax	1,312	40	(520)	-	832
Income tax expense	(246)	(8)	71	-	(183)
Net income	1,066	32	(449)	-	649

Segment information (continued)

The performance of the operating segments in 2017 (restated) is shown below:

	Exploration and production	Refining and distribution	Corporate and other unallocated activities	Adjustments	Consolidated
Total revenues and equity share in profits of associates and joint ventures	3,180	6,096	123	(3,388)	6,011
Including: equity share in profits of associates and joint ventures	42	13	2	-	57
Costs and expenses
Costs and expenses other than depreciation, depletion and amortization	2,076	5,919	197	(3,388)	4,804
Depreciation, depletion and amortization	462	116	8	-	586
Total costs and expenses	2,538	6,035	205	(3,388)	5,390
Operating income	642	61	(82)	-	621
Finance income	-	-	107	-	107
Finance expenses	-	-	(225)	-	(225)
Total finance expenses	-	-	(118)	-	(118)
Other income	-	-	110	-	110
Other expenses	-	-	(75)	-	(75)
Foreign exchange differences	-	-	3	-	3
Cash flow hedges reclassified to profit or loss	-	-	(146)	-	(146)
Income before income tax	642	61	(308)	-	395
Income tax expense	(120)	(10)	32	-	(98)
Net income	522	51	(276)	-	297

Oil, gas, petroleum products and petrochemicals sales comprise the following (based on the country indicated in the bill of lading):

	2018	2017
International sales of crude oil, petroleum products and petrochemicals	5,791	3,986
International sales of crude oil, petroleum products and petrochemicals - CIS, other than Russia	357	262
Domestic sales of crude oil, petroleum products and petrochemicals	1,694	1,414
Sales of gas	234	215
Total oil, gas, petroleum products and petrochemicals sales	8,076	5,877

The Company is not dependent on any of its major customers or any one particular customer, as there is a liquid market for crude oil and petroleum products.

Taxes other than income tax

Taxes other than income tax for the years ended December 31 comprise the following:

	2018	2017
Mineral extraction tax	2,258	1,488
Excise tax	327	326
Property tax	42	38
Social charges	67	61
Other	7	6
Total taxes	2,701	1,919

11. Finance income

Finance income for the years ended December 31 comprises the following:

	2018	2017
Interest income on Financial assets* measured:
- at amortized cost	46	44
- at fair value through other comprehensive income	14	13
- at fair value through profit or loss	9	8
Long-term advances issued (Note 28)	41	29
Total interest income	110	94
Decrease in loss allowance for expected credit losses on debt financial assets at amortized cost	1
Change in fair value of financial assets measured at fair value through profit or loss	2
Net gain from operations with derivative financial instruments	1	10
Gain from disposal of financial assets	3	3
Other finance income	5
Total finance income	122	107

Comparative information is presented in accordance with the classification of financial assets according to IFRS 9 Financial Instruments, applied from January 1, 2018, for similar types of financial assets.

12. Finance expenses

Finance expenses for the years ended December 31 comprise the following:

	2018	2017
Interest expenses on Loans and borrowings	(133)	(113)
Prepayment on long-term oil and petroleum products supply agreements (Note 33)	(91)	(81)
Other interest expenses	(10)	(5)
Total interest expenses	(234)	(199)
Increase in provision due to the unwinding of a discount	(19)	(17)
Increase in loss allowance for expected credit losses on debt financial assets:
- at fair value through other comprehensive income	(4)
- at amortized cost	(3)
Change in fair value of financial assets measured at fair value through profit or loss	(12)
Net loss from operations with derivative financial instruments	(17)
Loss from disposal of financial assets		(8)
Other finance expenses	(1)	(1)
Total finance expenses	(290)	(225)

13. Other income and expenses

Other income for the years ended December 31 comprises the following:

	2018	2017 (restated)
Compensation payment for licenses from joint venture parties	1	1
Insurance indemnity	3	-
Gain on re-measurement of fair value of the Company's investments in joint ventures	6	-
Gain on bargain purchase	20	1
Gain on out-of-court settlement	13	100
Other	6	8
Total other income	49	110

Other expenses for the years ended December 31 comprise the following:

	2018	2017 (restated)
Sale and disposal of property, plant and equipment and intangible assets	(14)	(13)
Impairment of assets	(219)	(24)
Disposal of non-production assets	(1)	(3)
Provision for legal claims	(13)	-
Social payments, charity, financial aid	(23)	(20)
Other	(24)	(15)
Total other expenses	(294)	(75)

14. Personnel expenses

Personnel expenses for the years ended December 31 comprise the following:

	2018	2017
Salary	271	249
Statutory insurance contributions	68	62
Expenses on non-statutory defined contribution plan	12	7
Other employee benefits	15	13
Total personnel expenses	366	331

Personnel expenses are included in Production and operating expenses, General and administrative expenses and Other expenses in the consolidated statement of profit or loss.

15. Operating leases

Operating lease agreements have various terms and conditions and primarily consist of indefinite tenancy agreements for the lease of land plots under oilfield pipelines and petrol stations, agreements for the lease of rail cars and rail tank cars for periods over 12 months, and agreements for the lease of land plots for industrial sites of the Company's oil refining plants. The agreements provide for an annual revision of the rental rates and contractual terms and conditions.

Total operating lease expenses for the years ended December 31, 2018 and 2017 amounted to RUB 29 billion and RUB 28 billion, respectively. The expenses were recognized within Production and operating expenses, General and administrative expenses and Other expenses in the consolidated statement of profit or loss.

Future minimum lease payments under the above operating lease agreements as of December 31 are as follows:

	2018	2017
Less than 1 year	35	29
From 1 to 5 years	78	82
Over 5 years	199	198
Total future minimum lease payments	312	309

16. Income tax

Income tax expenses for the years ended December 31 comprise the following:

	2018	2017
Current income tax expense	175	120
Deferred tax expense /(benefit) due to the origination and reversal of temporary differences	8	(22)
Total income tax expense	183	98

In 2018 and 2017, the Company's subsidiaries domiciled in the Russian Federation applied the standard Russian income tax rate of 20%, except for applicable regional tax relief. The income tax rates applicable for subsidiaries incorporated in foreign jurisdictions are based on local regulations and vary from 0% to 34%.

16. Income tax (continued)

Temporary differences between these consolidated financial statements and tax records gave rise to the following deferred income tax assets and liabilities:

Consolidated balance sheet as of December 31,	2018	2017 (restated)	Consolidated statement of profit or loss for the years, ended December 31,	2018	2017
Short-term accounts receivable	9	7	-	-	-
Property, plant and equipment	14	14	-	4	4
Short-term accounts payable and accrued liabilities	15	13	2	2	4
Loans and borrowings and other financial liabilities	9	20	(11)	(5)	(5)
Provisions	13	9	4	(1)	(1)
Tax loss carry forward	51	58	(7)	28	28
Other	23	11	11	(1)	(1)
Less: deferred tax liabilities offset	(106)	(106)	-	-	-
Deferred tax assets	28	26	(1)	29	29
Inventories	(13)	(13)	-	(3)	(3)
Property, plant and equipment	(637)	(615)	(11)	(15)	(15)
Mineral rights	(264)	(267)	3	7	7
Intangible assets	(9)	(5)	(4)	1	1
Investments in associates and joint ventures	(8)	(12)	-	(2)	(2)
Other	(12)	(8)	5	5	5
Less: deferred tax assets offset	106	106	-	-	-
Deferred tax liabilities	(837)	(814)	(7)	(7)	(7)
Deferred income tax (expense)/benefit	-	-	(8)	22	22
Net deferred tax liabilities	(809)	(788)

Recognized in the consolidated balance sheet as following:
Deferred tax assets 28 26
Deferred tax liabilities (837) (814)
Net deferred tax liabilities (809) (788)

The reconciliation of net deferred tax liabilities is as follows:

	2018	2017 (restated)
As of January 1	(788)	(791)
Adjustment on initial application of IFRS 9	5	-
Deferred income tax (expense)/benefit, recognized in the consolidated statement of profit or loss	(8)	22
Acquisition of subsidiaries and shares in joint operations (Note 7)	(9)	(14)
Deferred tax expenses recognized in other comprehensive income	(9)	(5)
As of December 31	(809)	(788)

16. Income tax (continued)

The reconciliation between actual income tax expense and theoretical income tax expense calculated as accounting profit multiplied by the 20% tax rate for the years ended December 31 is as follows:

	2018	2017 (restated)
Income before income tax	832	395
Income tax at statutory rate of 20%	166	79
Increase/(decrease) resulting from:
Effect of change in unrecognized deferred tax assets	13	4
Effect of income tax rates in other jurisdictions	-	2
Effect of special tax treatments	3	2
Effect of income tax relief	(24)	(12)
Effect of equity share in profits of associates and joint ventures	(14)	(8)
Effect of tax on intercompany dividends	6	1
Effect of tax on controlled investments in foreign subsidiaries	(3)	2
Effect from goodwill write-off	36	2
Effect from acquisition of interests in joint ventures	(8)	-
Effect from obtaining control over a subsidiary	-	(1)
Effect from disposal of subsidiaries	-	(1)
Effect from sale of shares in subsidiaries	1	-
Effect of prior period adjustments	(10)	1
Effect of non-taxable income and non-deductible expenses	17	27
Income tax	183	98

Unrecognized deferred tax assets in the consolidated balance sheet for the years ended December 31, 2018 and 2017 amounted to RUB 72 billion and RUB 55 billion, respectively, related to unused tax losses. In respect of recognized deferred tax assets on tax losses carried forward management considers it probable that future taxable profits will be available for the Company against which these tax losses can be utilized. The total amount of temporary differences associated with investment in subsidiaries, for which deferred tax liabilities have not been recognized, amounted to RUB 849 billion as of December 31, 2018. According to Russian tax legislation undistributed profit of foreign subsidiaries recognized as controlled foreign companies may form an additional tax base for Rosneft (and for certain Russian subsidiaries holding investments in foreign entities). In particular, undistributed 2018 profits of controlled foreign companies are included in the Company's tax base as of December 31, 2019 and recorded in the tax declaration. The consequences of taxation of controlled foreign companies are considered in the determination of current and deferred tax liabilities.

17. Non-controlling interests

Non-controlling interests include:

	Non- controlling interest (%)	Non- controlling interest as of the end of the year	Non- controlling interest in net income	Non- controlling interest (%)	Non- controlling interest as of the end of the year (restated)	Non- controlling interest in net income (restated)
As of December 31, 2018
PJSC Bashneft Oil Company	39.67	240	30	39.67	221	40
JSC Vankorneft	49.90	143	38	49.90	140	28
LLC Taas-Yuriakh Neftegazodobycha	49.90	119	24	49.90	104	3
JSC Verkhnechonskneftegaz	20.05	48	10	20.05	43	3
LLC Kharampurneftegas	49.00	24	-	-	-	-
LLC Sorovskneft	39.67	21	1	39.67	20	1
PJSC Ufaorgsintez	42.66	18	-	42.66	19	1
LLC Bashneft-Dobycha	39.67	7	1	39.67	7	1
Non-controlling interests in other entities	various	4	(4)	various	10	(2)
Total non-controlling interests		624	100		564	75

In December 2017, the Company and BP have entered into an agreement to develop certain subsoil resources.17. Non-controlling interests (continued)

Summarized statement of profit or loss for 2018
| | PJSC Bashneft Oil Company | JSC Vankorneft | LLC Taas-Yuriakh Neftegazodobycha |
|---|---|---|---|
| Revenues | 803 | 426 | 99 |
| Costs and other income and expenses | (707) | (335) | (41) |
| Income before income tax | 96 | 91 | 58 |
| Income tax expense | (19) | (15) | (10) |
| Net income | 77 | 76 | 48 |
| incl. attributable to non-controlling interests | 30 | 38 | 24 |

Summarized statement of profit or loss for 2017
| | PJSC Bashneft Oil Company | JSC Vankorneft | LLC Taas-Yuriakh Neftegazodobycha |
|---|---|---|---|
| Revenues | 614 | 330 | 29 |
| Costs and other income and expenses | (486) | (260) | (21) |
| Income before income tax | 128 | 70 | 8 |
| Income tax expense | (27) | (12) | (2) |
| Net income | 101 | 58 | 6 |
| incl. attributable to non-controlling interests | 40 | 28 | 3 |

Summarized balance sheet as at December 31, 2018
| | PJSC Bashneft Oil Company | JSC Vankorneft | LLC Taas-Yuriakh Neftegazodobycha |
|---|---|---|---|
| Current assets | 849 | 70 | 33 |
| Non-current assets | 768 | 302 | 223 |
| Total assets | 1,617 | 372 | 256 |
| Current liabilities | 698 | 43 | 8 |
| Non-current liabilities | 222 | 32 | 27 |
| Equity | 697 | 297 | 221 |
| Total equity and liabilities | 1,617 | 372 | 256 |
| incl. non-controlling interests | 240 | 143 | 119 |

Summarized balance sheet as at December 31, 2017
| | PJSC Bashneft Oil Company | JSC Vankorneft | LLC Taas-Yuriakh Neftegazodobycha |
|---|---|---|---|
| Current assets | 324 | 71 | 11 |
| Non-current assets | 792 | 292 | 215 |
| Total assets | 1,116 | 363 | 226 |
| Current liabilities | 234 | 36 | 7 |
| Non-current liabilities | 234 | 35 | 28 |
| Equity | 648 | 292 | 191 |
| Total equity and liabilities | 1,116 | 363 | 226 |
| incl. non-controlling interests | 221 | 140 | 104 |

Earnings per share

For the years ended December 31 basic and diluted earnings per share comprise the following:

	2018	2017
Net income attributable to shareholders of Rosneft	549	222
Weighted average number of issued common shares outstanding (millions)	10,598	10,598
Total basic and diluted earnings per share (RUB)	51.80	20.95

Cash and cash equivalents

Cash and cash equivalents comprise the following:

As of December 31,	2018	2017
Cash on hand and in bank accounts in RUB	30	44
Cash on hand and in bank accounts in foreign currencies	572	124
Deposits	221	142
Other	9	12
Total cash and cash equivalents	832	322

Cash accounts denominated in foreign currencies primarily comprise cash in euro and U.S. dollars. Deposits are interest bearing and denominated in U.S. dollars, RUB, and euro. Restricted cash includes the obligatory reserve of subsidiary banks with the CBR in the amount of RUB 6 billion and RUB 4 billion as of December 31, 2018 and 2017, respectively.

Other short-term financial assets

Other short-term financial assets comprise the following:

As of December 31,	2018	2017
Financial assets at fair value through other comprehensive income
Bonds	162	117
Promissory notes	151	85
Stocks and shares	42	44
Loans granted under reverse repurchase agreements	56	-
Financial assets at amortized cost
Bonds	1	1
Loans granted	-	13
Loans issued to associates	2	32
Deposits and certificates of deposit	218	43
Financial assets at fair value through profit or loss
Deposits	1	1
Total other short-term financial assets	633	336

As of December 31, 2018 and 2017 bonds and notes at fair value through other comprehensive income comprise the following:

Type of security	2018		2017
	Balance	Interest rate p.a.	Date of maturity	Balance
State and municipal bonds	18	2.5-14.15%	May 2019 - March 2033	34
Corporate bonds	144	2.95-14.25%	January 2019 - September 2032	79
Bank of Russia bonds	-			4
Promissory notes	151	3.8-9.0%	January 2019 - December 2023	85
Total	313			202

As of December 31, 2018, deposits and certificates of deposit are denominated mainly in U.S. dollars and earn interest from 3.7% to 6.05% p.a.

Other short-term financial assets (continued)

Financial assets at amortized cost are presented net of allowance for expected credit losses in the amount of RUB 3 billion as of December 31, 2018. The allowance for expected credit losses on financial assets at fair value through other comprehensive income in the amount of RUB 7 billion as of December 31, 2018 is recognized in other comprehensive income.

Set out below is the movement in the loss allowance for expected credit losses on other short-term financial assets:

	As of January 1, 2018	Increase in allowance	Decrease in allowance	Reclassifica-tion	As of December 31, 2018
Loss allowance at an amount equal to 12-month expected credit losses:
- on financial assets at fair value through other comprehensive income	2	5	-	-	7
- on financial assets at amortized cost	1	-	-	-	1
Loss allowance at an amount equal to lifetime expected credit losses:
- on financial assets at amortized cost	5	1	-	(4)	2

As of December 31, 2018 the Company has no financial assets, which were credit-impaired at initial recognition.

Accounts receivable

Accounts receivable include the following:

As of December 31,	2018	2017
Trade receivables	523	658
Bank loans to customers	124	108
Other accounts receivable	51	116
Total	698	882
Allowance for expected credit losses	(56)	(39)*
Total accounts receivable, net of allowance	642	843

In accordance with the requirements of IAS 39 Reconciliation of allowance balances from IAS 39 to IFRS 9 at January 1, 2018 is presented in Note 3 "Significant accounting policies"

As of December 31, 2018 and 2017 accounts receivable were not pledged as collateral for loans and borrowings provided to the Company.

Set out below is the movement in the loss allowance for expected credit losses on accounts receivable:

	As of January 1, 2018	Increase in allowance	Decrease in allowance	As of December 31, 2018
Loss allowance at an amount equal to 12-month expected credit losses on trade receivables	35	13	(11)	37
Allowance for expected credit losses on other accounts receivable	15	7	(3)	19
Total	50	20	(14)	56

Accounts receivable (continued)

Due to the high credit quality and short term-nature of trade receivables, the loss allowance for expected credit losses for significant counterparties is determined based on 12-month expected credit losses. The Company has no trade receivables assets of buyers and customers that are credit impaired upon initial recognition.

Inventories

Inventories comprise the following:

As of December 31,	2018	2017
Crude oil and gas	91	88
Petroleum products and petrochemicals	205	158
Materials and supplies	97	78
Total inventories	393	324

Petroleum products and petrochemicals include those designated both for sale and for own use.

For the years ended December 31:

	2018	2017
Cost of inventories recognized as an expense during the period	1,306	977

The cost of inventories recognized as expense during the period is included in Production and operating expenses, Cost of purchased oil, gas, petroleum products and refining costs and General and administrative expenses in the consolidated statement of profit or loss.

Prepayments and other current assets

Prepayments and other current assets comprise the following:

As of December 31,	2018	2017
Value added tax and excise receivable	221	180
Prepayments to suppliers:	217	210
Current portion of long-term prepayments issued	148	154
Settlements with customs	41	37
Profit and other tax payments	20	19
Other	11	8
Total prepayments and other current assets	510	454

Settlements with customs primarily represent export duties related to the export of crude oil and petroleum products (Note 10).

Property, plant and equipment and construction in progress

	Exploration and production	Refining and distribution	Corporate and other unallocated activities	Total
Cost as of January 1, 2017	7,513	2,052	119	9,684
Depreciation, depletion and impairment losses as of January 1, 2017	(2,174)	(371)	(30)	(2,575)
Net book value as of January 1, 2017	5,339	1,681	89	7,109
Prepayments for property, plant and equipment as of January 1, 2017	21	16	5	42
Total as of January 1, 2017	5,360	1,697	94	7,151

Cost
Acquisitions of subsidiaries and shares in joint operations (Note 7)	277	-	4	281
Additions	948	125	20	1,093
Including capitalized expenses on loans and borrowings	105	39	-	144
Disposals and other movements	(25)	(17)	(2)	(44)
Foreign exchange differences	(23)	12	(2)	(13)
Cost of asset retirement (decommissioning) obligations	29	-	-	29
As of December 31, 2017	8,719	2,172	139	11,030

Depreciation, depletion and impairment losses
Depreciation and depletion charge	(474)	(113)	(9)	(596)
Disposals and other movements	11	8	1	20
Impairment of assets	(4)	(2)	(7)	(13)
Foreign exchange differences	13	-	1	14
As of December 31, 2017	(2,628)	(478)	(44)	(3,150)
Net book value as of December 31, 2017	6,091	1,694	95	7,880
Prepayments for property, plant and equipment as of December 31, 2017	9	7	27	43
Total as of December 31, 2017	6,100	1,701	122	7,923

Cost
Acquisitions of subsidiaries and shares in joint operations (Note 7)	2	-	2	4
Additions	995	130	5	1,130
Including capitalized expenses on loans and borrowings	143	48	-	191
Disposals and other movements	(61)	14	(8)	(55)
Foreign exchange differences	129	31	3	163
Cost of asset retirement (decommissioning) obligations	(27)	-	-	(27)
As of December 31, 2018	9,757	2,347	141	12,245

Depreciation, depletion and impairment losses
Depreciation and depletion charge	(519)	(113)	(8)	(640)
Disposals and other movements	40	(14)	3	29
Impairment of assets	(17)	(12)	-	(29)

Category	2018	2017	2018	2017
Foreign exchange differences	(59)	(3)	(1)	(63)
As of December 31, 2018	(3,183)	(620)	(50)	(3,853)
Net book value as of December 31, 2018	6,574	1,727	91	8,392
Prepayments for property, plant and equipment as of December 31, 2018	9	15	29	53
Total as of December 31, 2018	6,583	1,742	120	8,445

The cost of construction in progress included in property, plant and equipment was RUB 2,351 billion and RUB 2,013 billion as of December 31, 2018 and 2017, respectively. The depreciation charge includes depreciation which was capitalized as part of the construction cost of property, plant and equipment and the cost of inventory in the amount of RUB 18 billion and RUB 15 billion for the years ended December 31, 2018 and 2017, respectively. The Company capitalized RUB 191 billion (including RUB 147 billion in capitalized interest expense) and RUB 144 billion (including RUB 117 billion in capitalized interest expense) of expenses on loans and borrowings in 2018 and 2017, respectively. During 2018 and 2017 the Company received government grants for capital expenditures in the amount of RUB 10 billion and RUB 8 billion, respectively. Grants are accounted for as a reduction of additions in the Exploration and production segment. The weighted average rates used to determine the amount of borrowing costs eligible for capitalization are 11.63% and 8.31% p.a. in 2018 and 2017, respectively. Due to the factors and circumstances leading to the impairment of goodwill in the Refining and distribution segment (Note 25), the Company performed an impairment test of its refining assets by individual refinery (groups of refineries) which resulted in the impairment of the segment's property, plant and equipment in the amount of RUB 12 billion, recognized in Other expenses (Note 13). The key assumptions used in calculating the value in use of property, plant and equipment largely coincide with those presented in Note 25, but take into consideration the more favorable macroeconomic indicators and forecasts for this segment, as well as the clarification of the regulatory parameters of taxation in the oil refining industry in the fourth quarter of 2018.

Exploration and evaluation assets

Exploration and evaluation assets included in the Exploration and production segment, including mineral rights to unproved properties, comprise the following:

	2018	2017
Cost as of January 1	386	243
Impairment losses as of January 1	-	-
Net book value as of January 1	386	243
Cost
Acquisition of subsidiaries (Note 7)	-	47
Acquisition of interest in joint arrangements	-	37
Capitalized expenditures	42	71
Reclassified to development assets	(43)	(8)
Expensed	(1)	(2)
Utilization of impairment reserve	-	-
Foreign exchange differences	13	(2)
As of December 31	397	386
Impairment losses
Accrual of impairment reserve	(17)	-
As of December 31	(17)	-
Net book value as of December 31	380	386

Property, plant and equipment and construction in progress (continued)

Provision for asset retirement (decommissioning) obligations

The provision for asset retirement (decommissioning) obligations was RUB 80 billion and RUB 98 billion as of December 31, 2018 and 2017, respectively, and included in Property, plant and equipment.

25. Intangible assets and goodwill

Intangible assets and goodwill comprise the following:

Category	Rights for land lease	Other intangible assets	Total intangible assets	Goodwill
Cost as of January 1, 2017	34	48	82	256
Amortization as of January 1, 2017	(13)	(10)	(23)	-
Net book value as of January 1, 2017	21	38	59	256
Cost
Additions	-	10	10	-
Acquisition of subsidiaries (Note 7)	-	30	30	15
Disposals	-	(18)	(18)	(6)
Foreign exchange differences	-	-	-	-
As of December 31, 2017 (restated)	34	70	104	265
Amortization
Amortization charge	(2)	(5)	(7)	-
Disposal of amortization	-	1	1	-
Foreign exchange differences	-	-	-	-
As of December 31, 2017 (restated)	(15)	(14)	(29)	-
Net book value as of December 31, 2017 (restated)	19	56	75	265
Cost
Additions	-	15	15	-
Acquisition of subsidiaries (Note 7)	-	-	-	-
Disposals	-	(4)	(4)	(180)
Foreign exchange differences	1	3	4	-
As of December 31, 2018	35	84	119	85
Amortization
Amortization charge	(1)	(14)	(15)	-
Disposal of amortization	-	2	2	-
Foreign exchange differences	(1)	(1)	(2)	-
As of December 31, 2018	(17)	(27)	(44)	-
Net book value as of December 31, 2018	18	57	75	85

Intangible assets and goodwill (continued)

Category	December 31, 2018	December 31, 2017
Goodwill
Exploration and production	85	85
Refining and distribution	-	180
Total	85	265

Goodwill acquired through business combinations is allocated to the relevant groups of cash generating units that are operating segments - the Exploration and production segment and the Refining and distribution segment. In assessing whether goodwill has been impaired, the current value of the operating segments (including goodwill) is compared with their estimated value in use. The Company estimates the value in use of the operating segments using a discounted cash flow model. Future cash flows are adjusted for risks specific to each segment and discounted using a rate that reflects current market assessments of the time value of money and the risks specific to each segment, for which the future cash flow estimates have not been adjusted. The Company's business plan, approved by the Company's Board of Directors, is the primary source of information for the determination of the operating segments' value in use. The business plan contains internal forecasts of oil and gas production, refinery throughputs, sales volumes of various types of refined products, revenues, operating and capital expenditures. As an initial step in the preparation of these plans, various assumptions, such as concerning oil prices, natural gas prices, refining margins, petroleum product margins and cost inflation rates, are set. These assumptions take into account the current prices, U.S. dollar and RUB inflation rates, other macroeconomic factors and historical trends, as well as market volatility. In determining the value in use for each of the operating segments, twelve-year period cash flows calculated on the basis of the Company management's forecasts are discounted and aggregated with the segments' terminal value. The use of a forecast period longer than five years originates from the industry's average investment cycle. For the calculation of the terminal value of the Company's segments in the post-forecast period the Gordon model is used. The Company performs its annual goodwill impairment test as of October 1 of each year. The impairment test was performed at the beginning of the fourth quarter of each year using the most actual information available at the date of the impairment test. As a result of the annual test, no impairment of goodwill was identified in 2017. In the beginning of August 2018, the laws on the completion of the tax maneuver in the Russian oil industry were adopted, involving a significant change in the parameters of the fiscal regime. These laws, in a number of scenarios, combined with the current macroeconomic environment and taking into account the measures on stabilizing the prices for petroleum products in the domestic market could create conditions in which the value in use of the oil refining, marketing and logistics business of the Company would be exposed to additional risks. Considering that for the six months of 2018 Refining and distribution segment demonstrated an operating loss, the Company decided to revise the key assumptions used for determining the estimated value in use of the Refining and distribution segment. As a result the carrying amount exceeded its value in use, and RUB 47 billion of impairment loss was recognized in the Interim condensed consolidated financial statements for six months ended June 30, 2018.

Intangible assets and goodwill (continued)

In the third quarter of 2018 the impairment test was updated following further ruble depreciation and oil prices growth along with the corresponding change of the long-term macroeconomic forecast, as well as an uncertainty about the changes to the calculation and administration procedures in respect of the reverse excise for refineries and its price-shocks reducing component. As a result of the update, the excess of carrying amount over its value in use was identified for the Refining and distribution segment and the impairment of the full amount of goodwill was recognized. The lag in the growth rate of market prices for petroleum products compared to the growth rate of crude oil prices is the main factor that led to the impairment of goodwill of the Refining and distribution segment. The impairment loss of RUB 133 billion was recognized in Other expenses of the Interim consolidated statement of profit or loss for three months ended September 30, 2018. The total amount of goodwill impairment loss recognized in Other expenses of the Consolidated statement of profit or loss for twelve months ended December 31, 2018 is RUB 180 billion. Due to the recognized impairment of the Refining and distribution segment goodwill the Company also performed impairment test of its refining property, plant and equipment, as a result of which the impairment loss was identified and recognized in Property, plant and equipment (Note 24). As a result of the annual goodwill impairment test, no impairment of goodwill was identified in 2018 for the Exploration and production segment due to the substantial headroom in the esteemed value in use over identified net assets for the segment.

Key assumptions applied to the calculation of value in use

Discounted cash flows are most sensitive to changes in the following factors:

The discount rate
The discount rate calculation is based on the Company's weighted average cost of capital adjusted to reflect the pre-tax discount rate and the discount rate was 10.3% p.a. in 2018 (12.4% p.a. in 2017).
The estimated average annual RUB / U.S.# dollar exchange rate

The average annual RUB / U.S. dollar exchange rate was forecasted as follows: RUB 63.9 for 2019, RUB 63.8 for 2020, RUB 64.0 for 2021, RUB 64.7 for 2022, RUB 66.3 for 2023 and RUB 68.0 from 2024 onwards.

Oil and petroleum products prices

The Urals oil price was forecasted as follows: RUB 4,051 per barrel for 2019, RUB 3,811 per barrel for 2020, RUB 3,703 per barrel for 2021, RUB 3,647 per barrel for 2022, RUB 3,651 per barrel for 2023 and RUB 3,636 per barrel from 2024 onwards. These prices, in turn, form the basis of the forecasted purchase prices for oil consumed in refining and export sales prices for Company's petroleum products. Oil purchases of the Refining and distribution segment are based on "netback" (export market prices for oil and gas condensate, minus transportation costs, export duties, storage costs, selling expenses and other sales‑related expenses).

The weighted average price of petroleum products (excluding petrochemicals) was forecasted as follows: RUB 34.5 thousand per tonne, RUB 33.3 thousand per tonne and RUB 33.0 - 34.0 thousand per tonne for 2019, 2020 and from 2021 onwards, respectively.

Production volumes

Estimated production volumes were based on detailed data for the fields and refineries and the field development plans and refineries utilization rates approved by management through the long-term planning process were taken into account. As of December 31, 2018 and 2017 the Company did not have any intangible assets with indefinite useful lives. As of December 31, 2018 and 2017 no intangible assets have been pledged as collateral.

26. Other long-term financial assets

Other long-term financial assets net of future credit losses comprise the following:

	As of December 31,
	2018	2017
Financial assets at fair value through other comprehensive income
Stocks and shares	18	18
Financial assets at amortized cost
Bonds	28	13
Loans granted	18	4
Loans issued to associates	31	26
Deposits and certificates of deposit	23	49
Other accounts receivable	11	3
Financial assets at fair value through profit or loss
Deposits	110	493
Total other long-term financial assets	239	606

Bank deposits of the Company are placed in rubles, US dollars and euros at interest rates ranging from 1.5% to 8.75% p.a. Bonds mainly include federal loan bonds owned by JSCB Peresvet and JSC Russian Regional Development Bank (VBRR). No long-term financial assets were pledged as collateral as of December 31, 2018 and 2017. As of December 31, 2018 and 2017, no long-term financial assets were received by the Company as collateral.

Set out below is the movement in the loss allowance for expected credit losses on other long-term financial assets:

	As of January 1, 2018	Increase in allowance	Decrease in allowance	Reclassifica-tion	As of December 31, 2018
Loss allowance at an amount equal to 12-month expected credit losses:
- on financial assets at amortized cost	1	-	-	-	1
Loss allowance at an amount equal to lifetime expected credit losses:
- on financial assets at amortized cost	7	3	-	4	14

As of December 31, 2018 the Company has no financial assets, which were credit-impaired at initial recognition.

27. Investments in associates and joint ventures

Investments in associates and joint ventures comprise the following:

Name of investee	Country	Company's share as of December 31, 2018, %	As of December 31,
			2018	2017 (restated)
Joint ventures
PJSC NGK Slavneft	Russia	49.94	167	156
Petromonagas S.A.	Venezuela	40.00	77	46
Taihu Ltd (OJSC Udmurtneft)	Cyprus	51.00	58	47
Messoyahaneftegaz JSC	Russia	50.00	37	15
Petrovictoria S.A.	Venezuela	40.00	31	25
National Oil Consortium LLC	Russia	80.00	30	24
Fuel-filling complex of Vnukovo	Russia	50.00	17	18
SIA ITERA Latvija	Latvia	66.00	3	4
Arktikshelfneftogaz JSC	Russia	50.00	2	2
RN Pechora LLC	Russia	1.00	-	8
Associates
Nayara Energy Limited	India	49.13	251	224
Purgaz CJSC	Russia	49.00	34	39
Petrocas Energy International Ltd	Cyprus	49.00	11	9
Nizhnevartovskaya TPP JSC	Russia	25.01	4	4
Other associates	various	various	13	14
Total associates and joint ventures			735	635

The equity share in profits/(losses) of associates and joint ventures comprises the following:

Name of investee	Company's share as of December 31, 2018, %	Share in income/(loss) of equity investees
		2018	2017 (restated)
Messoyahaneftegaz JSC	50.00	31	11
Petromonagas S.A.	40.00	19	8
PJSC NGK Slavneft	49.94	11	7
TNK Trading International S.A.	59.95	-	10
Other various		21	21
Total equity share in profits of associates and joint ventures		82	57

The unrecognized share of losses of associates and joint ventures comprises the following:

Name of investee	As of December31,
	2018	2017
LLC Veninneft	2	2
LLP Adai Petroleum Company	8	7
Boqueron S.A.	6	6
Petroperija S.A.	4	3
Total unrecognized share of losses of associates and joint ventures	20	18

27. Investments in associates and joint ventures (continued)

Financial information of significant associates and joint ventures as of December 31, 2018 and 2017 is presented below:

Nayara Energy Limited

As of December 31,	2018	2017
Current assets	162	264
Non-current assets	396	359
Total assets	558	623
Current liabilities	(242)	(415)
Non-current liabilities	(284)	(187)
Total liabilities	(526)	(602)
Net assets	32	21
The Company's share, %	49.13	49.13
The Company's total share in net assets	16	10
Goodwill	235	214
Total	251	224

Nayara Energy Limited

	2018	2017
Revenues	912	282
Finance expenses	(27)	(15)
Depreciation, depletion and amortization	(16)	(6)
Other expenses	(860)	(257)
Income before tax	9	4
Income tax	(4)	(1)
Net income	5	3
The Company's share, %	49.13	49.13
The Company's total share in net income	2	2

The Company's share of the currency translation effect amounted to an income of RUB 25 billion and a loss of RUB 8 billion for the years ended December 31, 2018 and 2017, respectively, which was included in foreign exchange differences in the translation of foreign operations in the consolidated statement of other comprehensive income for 2018 and 2017.

As of December 31,

PJSC NGK Slavneft

As of December 31,	2018	2017
Current assets	93	60
Non-current assets	473	447
Total assets	566	507
Current liabilities	(63)	(66)
Non-current liabilities	(168)	(129)
Total liabilities	(231)	(195)
Net assets	335	312
The Company's share, %	49.94	49.94
The Company's total share in net assets	167	156

27. Investments in associates and joint ventures (continued)

PJSC NGK Slavneft

	2018	2017
Revenues	314	241
Finance income	-	1
Finance expenses	(9)	(7)
Depreciation, depletion and amortization	(47)	(47)
Other expenses	(228)	(171)
Income before tax	30	17
Income tax	(8)	(4)
Net income	22	13
The Company's share, %	49.94	49.94
The Company's total share in net income	11	7

As of December 31,

Messoyahaneftegaz JSC

As of December 31,	2018	2017
Current assets	24	17
Non-current assets	180	145
Total assets	204	162
Current liabilities	(19)	(25)
Other non-current liabilities	(110)	(120)
Total liabilities	(129)	(145)
Net assets	75	17
The Company's share, %	50.00	50.00
The Company's total share in net assets	37	9

Messoyahaneftegaz JSC

	2018	2017
Revenues	126	61
Finance income	-	-
Finance expenses	(6)	(7)
Depreciation, depletion and amortization	(12)	(8)
Other expenses	(2)	(1)
Income before tax	75	28
Income tax	(13)	(6)
Net income	62	22
The Company's share, %	50.00	50.00
The Company's total share in net income	31	11

27. Investments in associates and joint ventures (continued)

As of December 31,

Taihu Ltd

As of December 31,	2018	2017
Current assets	67	42
Non-current assets	80	89
Total assets	147	131
Current liabilities	(19)	(17)
Other non-current liabilities	(15)	(15)
Total liabilities	(34)	(32)
Net assets	113	99
One-off adjustment in accordance with the joint-stock agreement	-	(6)
The Company's share, %	51.00	51.00
The Company's total share in net assets	58	47

28. Other non-current non-financial assets

Other non-current non-financial assets comprise the following:

	As of December 31,
	2018	2017
Long-term advances issued	293	282
Other	2	3
Total other non-current non-financial assets	295	285

Long-term advances issued include RUB 125 billion (US$ 1.8 billion) of the prepayment for the Company's contribution to the newly created Joint Venture - an operator of the infrastructure project for the operation of the oil pipeline in Kurdish Autonomous Region of Iraq.

29. Accounts payable and accrued liabilities

Accounts payable and accrued liabilities comprise the following:

	As of December 31,
	2018	2017
Financial liabilities
Accounts payable to suppliers and contractors	452	451
Current operating liabilities of subsidiary banks	451	333
Salary and other benefits payable	88	81
Dividends payable	1	5
Other accounts payable	63	46
Total financial liabilities	1,055	916
Non-financial liabilities
Short-term advances received	75	55
Total accounts payable and accrued liabilities	1,130	971

Trade and other payables are non-interest bearing.

30. Loans and borrowings and other financial liabilities

Loans and borrowings and other financial liabilities comprise the following:

	Currency	As of December 31,
		2018	2017
Long-term
Bank loans	RUB	423	326
Bank loans	US$, euro	921	878
Bonds	RUB	461	427
Eurobonds	US$	177	213
Borrowings	RUB	77	71
Other borrowings	RUB	704	16
Other borrowings	US$	691	224
Less: current portion of long-term loans and borrowings		(202)	(545)
Total long-term loans and borrowings		3,252	1,610
Finance lease liabilities		27	32
Other long-term financial liabilities		139	146
Less: current portion of long-term finance lease liabilities		(5)	(5)
Total long-term loans and borrowings and other financial liabilities		3,413	1,783
Short-term
Bank loans	RUB	326	237
Bank loans	US$, euro	16	10
Other borrowings	RUB	209	919
Other borrowings	US$	25	346
Current portion of long-term loans and borrowings		202	545
Total short-term loans and borrowings and current portion of long-term loans and borrowings		778	2,057
Current portion of long-term finance lease liabilities		5	5
Other short-term financial liabilities		162	93
Short-term liabilities related to derivative financial instruments		33	74
Total short-term loans and borrowings and other

Long-term loans and borrowings

Long-term bank loans comprise the following:

Currency	Interest rate p.a.	Maturity date	As of December 31, 2018	2017
US$	3.23% - LIBOR + 3.50%	2020-2029	915	869
EUR	EURIBOR + 0.35% - EURIBOR + 2.00%	2019-2020	6	10
RUB	8.25% - 9.75%	2020-2024	423	326
Total			1,344	1,205
Debt issue costs			-	(1)
Total long-term bank loans			1,344	1,204

Long-term bank loans from a foreign bank to finance special-purpose business activities denominated in U.S. dollars are partially secured by oil export contracts. If the Company fails to make timely debt repayments, the terms of such contracts normally provide the lender with the express right of claim to contractual revenue in the amount of the late loan repayments, which the purchaser generally remits directly through transit currency accounts with the lender banks. The outstanding balance of Accounts receivable arising from such contracts amounts to RUB 28 billion and RUB 22 billion as of December 31, 2018 and 2017, respectively, and is included in Trade receivables of purchasers and customers. In March 2013, the Company drew down four long-term unsecured loans from a group of international banks for a total of US$ 31 billion to finance the acquisition of TNK-BP. Three out of four were fully repaid in previous years. In February 2018 the Company repaid the fourth one for a total amount of US$ 0.2 billion (RUB 11.4 billion at the CBR official exchange rate on the date of transaction). For the year ended December 31, 2018, the Company drew down long-term funds from Russian banks under a floating and fixed rate loans. In the first quarter of 2018 the Company raised funds through the placement of three series of documentary non-convertible fixed interest-bearing long-term bonds with a nominal amount of RUB 75 billion and maturity periods of 3 and 10 years: the first one with nominal amount of RUB 5 billion, coupon 7.8% and maturity period of 3 years; the second one with nominal amount of RUB 50 billion, coupon 7.5% and maturity period of 10 years; the third one with nominal amount of RUB 20 billion, coupon 7.3% and maturity period of 10 years. Coupon payments will be made on a semi-annual basis. Bonds with maturity periods of 10 years allow early repurchase at the request of the bond holder, as set out in the respective offering documents. Such purchase/repayment of the bonds does not constitute early redemption. The funds received are used for general corporate purposes. In March 2018, the Company fully repaid Eurobonds (Series 6) of US$ 1.1 billion (RUB 62.3 billion at the CBR official exchange rate at the transaction date) assumed through the TNK-BP acquisition.

Long-term loans and borrowings (continued)

Interest-bearing RUB denominated bearer bonds in circulation comprise the following:

Security ID	Date of issue	Date of maturity	Total volume in RUB billions	Coupon (%)	As of December 31, 2018	2017
Bonds 04,05	10.2012	10.2022[1]	20	7.90%	20	20
Bonds 07,08	03.2013	03.20231	30	7.30%	31	31
Bonds 066,096,106	06.2013	05.20231	40	7.00%	1	40
SE Bonds БО-056, БО-066	12.2013	12.2023	40	8.50%5	10	11
SE Bonds БО-01, БО-07	02.2014	02.2024	35	8.90%	36	36
SE Bonds БО-02, БО-03, БО-04 БО-094	12.2014	11.20241	65	9.40%	55	55
SE Bonds4 БО-08, БО-10 БО-11, БО-12, БО-13 БО-14	12.2014	11.20241	160	9.40%5	-	-
SE Bonds4 БО-15, БО-16 БО-17, БО-24	12.20142	12.20201	400	7.85%5	-	-
SE Bonds4 БО-18, БО-19, БО-20 БО-21, БО-22, БО-23 БО-25, БО-26	01.20152	01.2021	400	7.60%5	-	-
SE Bonds4 001Р-01	12.20162	11.2026	600	7.60%5	-	-
SE Bonds 001Р-02	12.2016	12.2026	30	9.39%5	30	30
SE Bonds 001Р-03	12.2016	12.20261	20	9.50%5	20	20
SE Bonds 001Р-04	05.2017	04.2027	40	8.65%5	41	41
SE Bonds 001Р-05	05.20172	05.20251	15	8.60%5	15	15
SE Bonds4 001Р-06, 001Р-07	07.2017	07.2027	266	8.50%5	-	-
SE Bonds4 001Р-08	10.2017	09.2027	100	7.60%5	-	-
SE Bonds4 002Р-01, 002Р-02	12.2017	11.2027	600	7.60%5	-	-
SE Bonds 002Р-03	12.2017	12.2027	30	7.75%5	30	30
SE Bonds 002Р-04	02.2018	02.2028	50	7.50%5	51	-
SE Bonds 002Р-05	03.2018	02.2028	20	7.30 %5	21	-
Bonds of subsidiary banks:
SE Bonds 001Р-01	10.2017	10.20201	10	8.50%5	10	10
SE Bonds 001Р-02	02.2018	07.20211	5	7.80%5	5	-
SE Bonds БО-02	08.20143	08.20341	3	0.51%5	-	-
SE Bonds БО-03	07.20153	06.20351	4	0.51%5	-	-
SE Bonds БО-04	04.20152	04.20181	3	13.25%5	-	3
SE Bonds БО-П01	09.20153	08.20351	5	0.51%5	-	-
SE Bonds БО-П02	10.20153	09.20351	4	0.51%5	1	1
SE Bonds БО-П03	11.20153	10.20351	1	0.51%5	-	-
SE Bonds БО-П05	06.20163	06.20361	5	0.51%5	-	-
Convertible Bonds С-01	02.20173	02.20321	69	0.51%5	2	2
Bashneft SE Bonds:
Bonds 046	02.2012	02.2022	10	7.00%5	-	-
Bonds 06, 08	02.2013	01.20231	15	7.70%5	15	15
Bonds 07, 09	02.2013	01.2023	15	8.85%5	16	16
SE Bonds БО-06, БО-08	05.2016	04.2026	15	10.90%5	16	16
SE Bonds БО-09	10.2016	10.2026	5	9.30%5	5	5
SE Bonds БО-10	12.2016	12.2026	5	9.50%5	5	5
SE Bonds 001P-01R	12.2016	12.20241	10	9.50%5	10	10
SE Bonds 001P-02R	12.2016	12.20231	10	9.50%5	10	10
SE Bonds 001P-03R	01.2017	01.20241	5	9.40%5	5	5
Total long-term RUB bonds					461	427

All of the bonds, excluding certain issues, allow early repurchase at the request of the bond holder as set in the respective offering documents. In addition, the issuer, at any time and at its discretion, may purchase/repay the bonds early with the possibility of subsequently placing the bonds in the market. Such purchase/repayment of the bonds does not constitute an early redemption. Certain RUB denominated non-convertible bonds were acquired through the acquisitions of PJSC Bashneft Oil Company and JSCB Peresvet (Note 7). Through the JSCB Peresvet acquisition the Company reported RUB denominated bonds with coupon payments at the end of the redemption and maturity periods of 3, 15 and 20 years. Part of the RUB denominated bonds series С01 consisted of convertible bonds.

Corporate Eurobonds comprise the following:

	Coupon rate (%)	Currency	Maturity	As of December 31, 2018	2017
Eurobonds (Series 2)	4.199%	US$	2022	141	117
Eurobonds (Series 6)	7.875%	US$	2018	-	65
Eurobonds (Series 8)	7.250%	US$	2020	36	31
Total long-term Eurobonds				177	213

In the fourth quarter of 2018 the Company continued to settle other long-term borrowings under repurchasing agreement operations and entered into new transactions. As of December 31, 2018, the liabilities of the Company under those transactions amounted to the equivalent of RUB 1,395 billion at the CBR official exchange rate as of December 31, 2018. The Company's own corporate bonds were used as an instrument for those transactions. The Company is obliged to comply with a number of restrictive financial and other covenants contained in several of its loan agreements. Such covenants include maintaining certain financial ratios. As of December 31, 2018 and December 31, 2017 the Company was in compliance with all restrictive financial and other covenants contained in its loan agreements.

Short-term loans and borrowings

In 2018 the Company drew down funds under short-term fixed and float rates loans from Russian and foreign banks. In 2018 the Company continued to meet its obligations in relation to other short-term floating and fixed rate borrowings under repurchasing agreement operations and had entered into new long-term and short-term transactions. As of December 31, 2018 the liabilities of the Company under those transactions amounted to the equivalent of RUB 234 billion (at the CBR official exchange rate as of December 31, 2018). Own corporate bonds were used as an instrument for those transactions. In 2018 the Company was current on all payments under loan agreements and interest payments.

Finance leases

Repayments of finance lease obligations comprise the following:

As of December 31, 2018

	Minimum lease payments	Finance expenses	Present value of minimum lease payments
Less than 1 year	9	(4)	5
From 1 to 5 years	19	(9)	10
Over 5 years	18	(6)	12
Total	46	(19)	27

As of December 31, 2017

	Minimum lease payments	Finance expenses	Present value of minimum lease payments
Less than 1 year	9	(4)	5
From 1 to 5 years	24	(11)	13
Over 5 years	21	(7)	14
Total	54	(22)	32

Finance leases entered into by the Company do not contain covenants and are long-term agreements, with certain leases having purchase options at the end of the lease term. Finance leases are denominated in RUB and US$.

Property, plant and equipment under capital leases recognized in Property, plant and equipment (Note 24) comprise the following:

	As of December 31, 2018	2017
Buildings	4	4
Plant and machinery	27	27
Vehicles	16	16
Total cost	47	47
Less: accumulated depreciation	(24)	(18)
Total net book value of leased property	23	29

Liabilities related to derivative financial instruments

Short-term liabilities related to derivative financial instruments include liabilities related to cross-currency rate swaps. In accordance with its foreign currency and interest rate risk management policy the Company enters into cross-currency rate swaps to sell US$. The transactions balance the currency of revenues and liabilities and reduce the overall interest rates on borrowings. The cross-currency rate swaps are recorded in the consolidated balance sheet at fair value. The measurement of the fair value of the transactions is based on a discounted cash flow model and consensus forecasts of foreign currency rates. The consensus forecasts include forecasts of the major international banks and agencies. The Bloomberg system is the main information source for the model.31. Other current tax liabilities

Other short-term tax liabilities comprise the following:

	As of December 31, 2018	2017
Mineral extraction tax	163	160
VAT	121	78
Excise duties	27	26
Property tax	10	10
Personal income tax	3	2
Other	3	2
Total other tax liabilities	327	278

Provisions

	As of January 1, 2017, including	Provisions charged during the year (Note 40)	Increase/(decrease) in the liability resulting from:	As of December 31, 2017, including	Provisions charged during the year (Note 40)	Increase/(decrease) in the liability resulting from:	As of December 31, 2018, including
	Non-current	Current	Non-current	Current	Changes in estimates	Change in the discount rate	Foreign exchange differences
Asset retirement obligations	174	4	6	-	(5)	28	(1)
Environmental remediation provision	28	13	5	-	(1)	-	-
Legal, tax and other claims	1	12	7	-	-	-	-
Total	203	29	18	-	(6)	28	(1)

Asset retirement (decommissioning) obligations and Environmental remediation provision represent an estimate of the costs of liquidating oil and gas assets, the reclamation of sand pits, slurry ponds, and disturbed lands, and the dismantling of pipelines and power transmission lines. The budget for payments under asset retirement obligations is prepared on an annual basis. Depending on the current economic environment the Company's actual expenditures may vary from the budgeted amounts.

Prepayment on long-term oil and petroleum products supply agreements

During 2013-2014 the Company entered into a number of long-term crude oil and petroleum products supply contracts which require the buyer to make a prepayment. The total minimum delivery volume under those contracts at inception approximated 400 million tonnes. The crude oil and petroleum product prices are based on current market prices. The prepaymens are settled through physical deliveries of crude oil and petroleum products. Deliveries of oil and petroleum products that reduce the prepayment amounts commenced in 2015. The Company considers these contracts to be regular-way contracts.

	2018	2017
As of January 1	1,586	1,841
Received	123	-
Reimbursed	(283)	(255)
Total prepayment on long-term oil and petroleum products supply agreements	1,426	1,586
Less current portion	(354)	(264)
Long-term prepayment as of December 31	1,072	1,322

The off-set amounts under these contracts were RUB 283 billion and RUB 255 billion (US$ 7.03 billion and US$ 7.59 billion at the CBR official exchange rate at the prepayment dates, the prepayments are not revalued at each balance sheet date) for 2018 and 2017, respectively.

Other non-current liabilities

Other non-current liabilities comprise the following:

	As of December 31, 2018	2017
Joint project liabilities	1	23
Liabilities for investing activities	2	4
Liabilities for joint operation contracts in Germany	21	14
Operating liabilities of subsidiary banks	17	1
Other	5	3
Total other non-current liabilities	46	45

Pension benefit obligations

Defined contribution plans

The Company makes payments to the State Pension Fund of the Russian Federation. These payments are calculated by the employer as a percentage of salary expense and are expensed as accrued. The Company also maintains a defined contribution corporate pension plan to finance the non-state pensions of its employees. Pension contributions recognized in the consolidated statement of profit or loss were as follows:

	2018	2017
State Pension Fund	52	53
NPF Neftegarant	12	7
Total pension contributions	64	60

Shareholders' equity

Common shares

As of December 31, 2018 and 2017:

Authorized common shares quantity, millions: 10,598
amount, billions of RUB: 0.6
Issued and fully paid shares quantity, millions: 10,598
amount, billions of RUB: 0.6
Nominal value of 1 common share, RUB: 0.01

On June 22, 2017 the Annual General Shareholders' Meeting approved dividends on the Company's common shares for 2016 in the amount of RUB 5.98 per share, which comprised RUB 63.4 billion. On September 29, 2017 the Extraordinary Shareholders' Meeting approved interim dividends on the Company's common shares for the first half of 2017 in the amount of RUB 3.83 per share, which comprised RUB 40.6 billion. On June 21, 2018 the Annual General Shareholders' Meeting approved dividends on the Company's common shares for 2017 in the amount of RUB 6.65 per share, which comprised RUB 70.5 billion. On September 28, 2018 the Extraordinary Shareholders' Meeting approved interim dividends on the Company's common shares for the first half of 2018 in the amount of 14.58 per share, which comprised RUB 154.5 billion. The dividends are distributed from the net profit of PJSC Rosneft Oil Company calculated in compliance with the current legislation of the Russian Federation.

Program for the acquisition of own shares

In accordance with the Program for the acquisition of shares on the market, including in the form of global depositary receipts certifying the rights to such shares, approved by the Board of Directors in August 2018 (hereinafter - the Program) ordinary shares of PJSC Rosneft Oil Company can be purchased up to a maximum amount of US$ 2 billion. The Program will run from the date of approval by the Board of Directors to December 31, 2020 inclusive. The maximum volume of shares and global depositary receipts that can be purchased under the Program is set to be no more than 340,000,000. The Program aims to sustain high returns to shareholders in case of significant market volatility. During 2018 there were no such share purchase transactions.

Fair value of financial instruments

The fair value of financial assets and liabilities is determined as follows:

The fair value of financial assets and liabilities quoted on active liquid markets is determined in accordance with market prices;
The fair value of other financial assets and liabilities is determined in accordance with generally accepted models and is based on discounted cash flow analysis that relies on prices used for existing transactions in the current market;
The fair value of derivative financial instruments is based on market quotes. In illiquid and highly volatile markets fair value is determined on the basis of valuation models that rely on assumptions confirmed by observable market prices or rates as of the reporting date.
Fair value of financial instruments (continued)

Assets and liabilities of the Company that are measured at fair value on a recurring basis in accordance with the fair value hierarchy are presented in the table below.# Fair value measurement

As of December 31, 2018

Level 1	Level 2	Level 3	Total
Assets
Current assets
Financial assets at fair value through other comprehensive income	39	372	-
Financial assets at fair value recognized in profit or loss	-	1	-
Non-current assets
Financial assets at fair value through other comprehensive income	-	18	-
Financial assets at fair value recognized in profit or loss	-	110	-
Total assets measured at fair value	39	501	-
Liabilities
Derivative financial instruments	-	(33)	-
Total liabilities measured at fair value	-	(33)	-

The fair value of financial assets at fair value through other comprehensive income, financial assets at fair value through profit or loss and derivative financial instruments included in Level 2 is measured at the present value of future estimated cash flows, using inputs such as market interest rates and market quotes of forward exchange rates. The carrying value of cash and cash equivalents and derivative financial instruments recognized in these consolidated financial statements equals their fair value. The carrying value of accounts receivable and accounts payable, loans issued, other financial assets and other financial liabilities recognized in these consolidated financial statements approximates their fair value. There were no transfers of financial liabilities between Level 1 and Level 2 during the reporting period.

Carrying value	Fair value (Level 2)		As of December 31, 2018	As of December 31, 2017
Financial liabilities
Financial liabilities at amortized cost:
Loans and borrowings with a variable interest rate	(2,669)	(1,549)	(2,614)	(1,467)
Loans and borrowings with a fixed interest rate	(1,361)	(2,118)	(1,316)	(2,038)
Finance lease liabilities	(27)	(32)	(30)	(36)

38. Related party transactions

For the purpose of these consolidated financial statements, parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. In 2018 and 2017 the Company entered into transactions with shareholders and companies controlled by shareholders (including enterprises directly or indirectly controlled by the Russian Government and the BP Group), associates and joint ventures, key management and pension funds (Note 35). Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms as transactions between unrelated parties. The disclosure of related party transactions is presented on an aggregate basis for shareholders and companies controlled by shareholders, joint ventures and associates, and non-state pension funds. In addition, there may be additional disclosures of certain significant transactions (balances and turnovers) with certain related parties. In the course of its ordinary business, the Company enters into transactions with other companies controlled by the Russian Government. In the Russian Federation, electricity and transport tariffs are regulated by the Federal Antimonopoly Service, an authorized governmental agency of the Russian Federation. Bank loans are recorded based on market interest rates. Taxes are accrued and paid in accordance with applicable tax law. The Company sells crude oil and petroleum products to related parties in the ordinary course of business at prices close to average market prices.

Transactions with shareholders and companies controlled by shareholders

Revenues and income	2018	2017
Oil, gas, petroleum products and petrochemicals sales	888	784
Support services and other revenues	9	6
Finance income	19	26
	916	816

Costs and expenses	2018	2017
Production and operating expenses	8	14
Cost of purchased oil, gas, petroleum products and refining costs	97	73
Pipeline tariffs and transportation costs	500	473
Other expenses	21	15
Financial expenses	26	8
	652	583

Other operations	2018	2017
Acquisition of subsidiaries and interest in associates	(3)	-
Loans received	266	297
Loans repaid	(111)	(58)
Loans and borrowings issued	(9)	-
Repayment of loans and borrowings issued	2	1
Deposits placed	(69)	(7)
Deposits repaid	463	2

38. Related party transactions (continued)

Transactions with shareholders and companies controlled by shareholders (continued)

Settlement balances

As of December 31,	2018	2017
Assets
Cash and cash equivalents	498	57
Accounts receivable	77	68
Prepayments and other current assets	65	61
Other financial assets	325	636
	965	822
Liabilities
Accounts payable and accrued liabilities	47	32
Loans and borrowings and other financial liabilities	904	655
	951	687

Transactions with joint ventures

Crude oil is purchased from joint ventures at Russian domestic market prices.

Revenues and income	2018	2017
Oil, gas, petroleum products and petrochemicals sales	13	11
Support services and other revenues	3	10
Finance income	5	26
	21	47

Costs and expenses	2018	2017
Production and operating expenses	3	5
Cost of purchased oil, gas, petroleum products and refining costs	297	285
Pipeline tariffs and transportation costs	12	9
Other expenses	3	4
Finance expenses	1	1
	316	304

Other operations	2018	2017
Acquisition of interest in associates and joint ventures	-	(8)
Loans and borrowing issued	(6)	(2)
Repayment of loans and borrowings issued	29	127

Settlement balances

As of December 31,	2018	2017
Assets
Accounts receivable	3	6
Other financial assets	17	52
	20	58
Liabilities
Accounts payable and accrued liabilities	141	85
Loans and borrowings and other financial liabilities	30	15
	171	100

38. Related party transactions (continued)

Transactions with associates

Revenues and income	2018	2017
Oil, gas, petroleum products and petrochemicals sales	364	222
Support services and other revenues	1	5
Finance income	4	-
	369	227

Costs and expenses	2018	2017
Production and operating expenses	13	11
Cost of purchased oil, gas, petroleum products and refining costs	42	14
Pipeline tariffs and transportation costs	1	1
Other expenses	17	13
Finance expenses	2	-
	75	39

Other operations	2018	2017
Loans and borrowing issued	(31)	(32)
Repayment of loans and borrowings issued	17	-

Settlement balances

As of December 31,	2018	2017
Assets
Accounts receivable	26	33
Prepayments and other current assets	13	1
Other financial assets	57	41
	96	75
Liabilities
Accounts payable and accrued liabilities	16	8
Loans and borrowings and other financial liabilities	239	124
	255	132

Transactions with non-state pension funds

Costs and expenses	2018	2017
Other expenses	12	7

As of December 31,	2018	2017
Loans received	7	-
Loans repaid	(4)	-

38. Related party transactions (continued)

Transactions with non-state pension funds (continued)

Settlement balances

As of December 31,	2018	2017
Liabilities
Accounts payable and accrued liabilities	4	1
Loans and borrowings and other financial liabilities	3	-
	7	1

Compensation to key management personnel

For the purpose of these consolidated financial statements key management personnel include members of the Management Board of PJSC Rosneft Oil Company and members of the Board of Directors. Short-term gross benefits of the Management Board members, taking into account personnel rotation, including payroll, bonuses and compensation payments totaled RUB 3,854 million and RUB 3,927 million in 2018 and 2017, respectively (social security fund contributions, which are not Management Board members' income, totaled RUB 567 million and RUB 579 million, respectively). Short-term gross benefits for 2018 are disclosed in accordance with the Russian securities law on information disclosure.

On June 21, 2018, the Annual General Shareholders Meeting approved remuneration to the following members of the Company's Board of Directors for the period of their service in the following amounts:

Mr. Gerhard Schröder - US$ 600,000 (RUB 38.2 million at the CBR official exchange rate on June 21, 2018);
Mr. Faisal Alsuwaidi - US$ 530,000 (RUB 33.7 million at the CBR official exchange rate on June 21, 2018);
Mr. Matthias Warnig - US$ 580,000 (RUB 36.9 million at the CBR official exchange rate on June 21, 2018);
Mr. Oleg Viyugin - US$ 565,000 (RUB 35.9 million at the CBR official exchange rate on June 21, 2018);
Mr. Ivan Glasenberg - US$ 530,000 (RUB 33.7 million at the CBR official exchange rate on June 21, 2018);
Mr. Donald Humphreys - US$ 580,000 (RUB 36.9 million at the CBR official exchange rate on June 21, 2018).

Remuneration does not include compensation of travel expenses. No remuneration was paid to members of the Board of Directors who are state officials (Andrey Belousov and Alexander Novak) or to Mr. Igor Sechin, the Chairman of the Management Board, for their Board of Directors service.

On June 22, 2017, the Annual General Shareholders Meeting approved remuneration to the following members of the Company's Board of Directors for the period of their service in the following amounts:

Mr. Andrey Akimov - US$ 545,000 (RUB 32.7 million at the CBR official exchange rate on June 22, 2017);
Mr. Matthias Warnig - US$ 580,000 (RUB 34.8 million at the CBR official exchange rate on June 22, 2017);
Mr. Oleg Viyugin - US$ 580,000 (RUB 34.8 million at the CBR official exchange rate on June 22, 2017);
Mr. Donald Humphreys - US$ 565,000 (RUB 33.9 million at the CBR official exchange rate on June 22, 2017).

39.# Key Subsidiaries

Name	Country of incorporation	Core activity	2018 Preferred and common shares %	2018 Voting shares %	2017 Preferred and common shares %	2017 Voting shares %
Exploration and production
JSC Orenburgneft	Russia	Oil and gas development and production	100.00	100.00	100.00	100.00
JSC Samotlorneftegaz	Russia	Oil and gas development and production	100.00	100.00	100.00	100.00
JSC Vankorneft	Russia	Oil and gas development and production	50.10	50.10	50.10	50.10
LLC RN-Yuganskneftegaz	Russia	Oil and gas production operator services	100.00	100.00	100.00	100.00
PJSC Bashneft Oil Company	Russia	Oil and gas development and production	60.33	70.93	60.33	70.93
Refining, marketing and distribution
JSC RORC	Russia	Petroleum refining	100.00	100.00	100.00	100.00
JSC Angarsk Petrochemical Company	Russia	Petroleum refining	100.00	100.00	100.00	100.00
JSC Novokuybyshev Refinery	Russia	Petroleum refining	100.00	100.00	100.00	100.00
LLC RN-Komsomolsky Refinery	Russia	Petroleum refining	100.00	100.00	100.00	100.00
JSC Syzran Refinery	Russia	Petroleum refining	100.00	100.00	100.00	100.00
JSC Achinsk Refinery	Russia	Petroleum refining	100.00	100.00	100.00	100.00
JSC Kuybyshev Refinery	Russia	Petroleum refining	100.00	100.00	100.00	100.00
LLC RN-Tuapse Refinery	Russia	Petroleum refining	100.00	100.00	100.00	100.00
LLC RN-Bunker	Russia	Marketing and distribution	100.00	100.00	100.00	100.00
LLC RN-Aero	Russia	Marketing and distribution	100.00	100.00	100.00	100.00
LLC RN-Commerce	Russia	Marketing and distribution	100.00	100.00	100.00	100.00
LLC RN-Trade	Russia	Investing activity	100.00	100.00	100.00	100.00
Rosneft Trading S.A.	Switzerland	Marketing and distribution	100.00	100.00	100.00	100.00
Rosneft Deutschland GmbH	Germany	Marketing and distribution	100.00	100.00	100.00	100.00
Other
JSC RN Holding	Russia	Holding company	100.00	100.00	100.00	100.00
JSC Russian Regional Development Bank (VBRR)	Russia	Banking	98.34	98.34	98.34	98.34
LLC RN-GAZ	Russia	Holding company	100.00	100.00	100.00	100.00
Rosneft Singapore Pte. Ltd.	Singapore	Holding company	100.00	100.00	100.00	100.00
LLC RN-Foreign Projects	Russia	Holding company	100.00	100.00	100.00	100.00
Rosneft Holdings LTD S.A.	Luxemburg	Holding company	100.00	100.00	100.00	100.00
TOC Investments Corporation Limited	Cyprus	Other services	100.00	100.00	100.00	100.00

40. Contingencies

Russian business environment

Russia continues economic reforms and the development of its legal, tax and regulatory frameworks as required by a market economy. The future stability of the Russian economy is largely dependent upon these reforms and developments and the effectiveness of economic, financial and monetary measures undertaken by the government. The Russian economy has been negatively impacted by sanctions imposed on Russia by a number of countries. Ruble interest rates remained high. The combination of the above has resulted in reduced access to capital, a higher cost of capital and uncertainty regarding economic growth, which could negatively affect the Company's future financial position, results of operations and business prospects. Management is taking appropriate measures to support the sustainability of the Company's business in the current circumstances.

The Company also has investments in associates and joint ventures and advances issued to contractors operating in foreign jurisdictions. Besides commercial risks being a part of any investment operation, assets in a number of regions of the Company's activities also bear political, economic and tax risks which are analyzed by the Company on a regular basis. The Company continuously monitors projects in Venezuela realized with its participation. Commercial relations with the Venezuelan state oil company PDVSA are carried out on the basis of existing contracts and in accordance with applicable international and local legislation.

Guarantees and indemnities issued

An unconditional unlimited guarantee issued in 2013 in favor of the Government and municipal authorities of Norway is effective in respect of the Company's operations on the Norwegian continental shelf. That guarantee fully covers all potential ongoing environmental liabilities of RN Nordic Oil AS. A parent company guarantee is required by Norwegian legislation and is an essential condition for licensing the operations of RN Nordic Oil AS on the Norwegian continental shelf jointly with Equinor (until July 2018 - Statoil ASA). The Company's agreements with Eni S.p.A, Equinor (until July 2018 г. - Statoil ASA) and the ExxonMobil Oil Corporation under the Russian Federation shelf exploration program contain mutual guarantees provided in 2013 and 2014 that are unconditional, unlimited and open-ended. The partnership agreement with the ExxonMobil Oil Corporation for difficult to extract oil reserves in Western Siberia contains mutual guarantees that are unconditional, unlimited and open-ended. In the fourth quarter of 2015 in accordance with the cooperation agreement on difficult to extract oil reserves with Equinor (until July 2018 г. - Statoil ASA), both parties issued parent guarantees on the discharging of the mutual liabilities of their related parties. These guarantees are unconditional, unlimited and open-ended. During 2018, as part of the operating activities of Rosneft, an unconditional irrevocable guarantees were issued in favor of the Government of the Republic of Mozambique providing the coverage of potential liabilities for geological exploration on the Mozambique continental shelf (4 years). In the course of its investing activities, the Company issued guarantees and sureties to third parties up to the RUB 57 billion. As of the period-end the Company assesses the probability of settlement as remote.

Legal claims

Rosneft and its subsidiaries are involved in litigations which arise from time to time in the course of their business activities. Management believes that the ultimate results of these litigations will not materially affect the performance or financial position of the Company.

Taxation

Legislation and regulations regarding taxation in Russia continue to evolve. Various legislative acts and regulations are not always clearly written, and their interpretation is subject to the opinions of the taxpayers, and local, regional, and national tax authorities, and the Ministry of Finance of the Russian Federation. Instances of inconsistent opinions are not unusual.

In Russia, tax returns remain open and subject to inspection for a period of up to three years. The fact that a year has been reviewed does not close that year, or any tax return applicable to that year, from further review during the period of three calendar years preceding the year when the inspection started. In accordance with Russian tax legislation, if an understatement of a tax liability is detected as a result of an inspection, penalties and fines to be paid might be material in respect of the tax liability misstatement. During the reporting period, the tax authorities continued their inspections of Rosneft and some of its subsidiaries for 2014-2017. The Company's management does not expect the outcome of the inspections to have a material impact on the Company's consolidated balance sheet or results of operations. As part of the new regime for fiscal control over the pricing of related party transactions, the Company and the Federal Tax Service signed a number of pricing agreements in 2012-2018 with respect to the taxation of oil sales transactions in Russia. To date, the Russian Federal Tax Service has not exercised its right to conduct tax audits under the rules of transfer pricing for 2012-2015 and these periods are now "closed" for tax control purposes. For subsequent periods the Company has provided explanations to the Russian Federal Tax Service and the regional tax authorities to the extent necessary for the completed transactions. The Company believes that transfer pricing risks in relation to intragroup transactions during the twelve months of 2018 and earlier will not have a material effect on its financial position or results of operations. In 2012 the Company has created a consolidated group of taxpayers (hereinafter "CGT") which includes Rosneft and its 21 subsidiaries. Rosneft became the responsible taxpayer of the CGT. At present, under the terms of the agreement the number of members of the consolidated group of taxpayers has been 64. The Company follows the rules of tax legislation on de-offshorization, including income tax rules for controlled foreign companies to calculate its current and deferred income tax estimates. Overall, management believes that the Company has paid and accrued all taxes that are applicable. For taxes where uncertainty exists, the Company has accrued tax liabilities based on management's best estimate of the probable outflow of resources that will be required to settle these liabilities.

Capital commitments

The Company and its subsidiaries are engaged in ongoing capital projects for the exploration and development of production facilities and the modernization of refineries and the distribution network. The budgets for these projects are generally set on an annual basis. The total amount of contracted but not yet delivered goods and services related to the construction and acquisition of property, plant and equipment amounted to RUB 758 billion and RUB 716 billion as of December 31, 2018 and 2017, respectively.

Environmental liabilities

The Company periodically evaluates its environmental liabilities pursuant to environmental regulations. Such liabilities are recognized in the consolidated financial statements as and when identified.Potential liabilities, that could arise as a result of changes in existing regulations or the settlement of civil litigation, or as a result of changes in environmental standards, cannot be reliably estimated but may be material. With the existing system of control, management believes that there are no material liabilities for environmental damage other than those recorded in these consolidated financial statements.

41. Supplementary oil and gas disclosure (unaudited)

IFRS do not require information on oil and gas reserves to be disclosed. While this information has been developed with reasonable care and is disclosed in good faith, it is emphasized that the data represents management's best estimates. Accordingly, this information may not necessarily represent the current financial condition of the Company and its future financial results. The Company's activities are conducted primarily in Russia, which is considered as a single geographic area.

Capitalized costs relating to oil and gas production are presented below

Consolidated subsidiaries and joint operations	As of December 31:
	2018	2017
Oil and gas properties related to proved reserves	9,377	8,333
Oil and gas properties related to unproved reserves	380	386
Total capitalized costs	9,757	8,719
Accumulated depreciation, depletion and impairment losses	(3,183)	(2,628)
Net capitalized costs	6,574	6,091

Costs incurred in oil and gas property acquisition, exploration and development activities are presented below

Consolidated subsidiaries and joint operations	For the years ended December 31:
	2018	2017
Acquisition of properties - proved oil and gas reserves	2	193
Acquisition of properties - unproved oil and gas reserves	12	123
Exploration costs	40	45
Development costs	951	876
Total costs incurred	1,005	1,237

The results of operations relating to oil and gas production are presented below

Consolidated subsidiaries and joint operations	For the years ended December 31:
	2018	2017
Revenue	4,603	3,138
Production costs (excluding production taxes)	(407)	(379)
Selling, general and administrative expenses	(99)	(104)
Exploration expense	(16)	(15)
Depreciation, depletion and amortization, impairment and liquidation losses	(536)	(478)
Taxes other than income tax	(2,341)	(1,574)
Income tax	(246)	(120)
Results of operations relating to oil and gas production	958	468

41. Supplementary oil and gas disclosure (unaudited) (continued)

Reserve quantity information

Since 2014 the Company has disclosed its reserves calculated in accordance with the Petroleum Resources Management System (PRMS). For the purpose of the evaluation of reserves as of December 31, 2018 and 2017, the Company used oil and gas reserve information prepared by DeGolyer and MacNaughton, independent reservoir engineers.

Proved reserves are those estimated quantities of petroleum which, through the analysis of geoscience and engineering data, can be estimated with reasonable certainty to be commercially recoverable from a given date forward from known reservoirs and under defined economic conditions and operating methods. In certain cases, the recovery of such reserves may require considerable investments in wells and related equipment. Proved reserves also include additional oil and gas reserves that will be extracted after the expiry date of license agreements or may be discovered as a result of secondary and tertiary extraction which have been successfully tested and checked for commercial benefit.

Proved developed reserves are those quantities of crude oil and gas expected to be recovered from existing wells using existing equipment and operating methods.

Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage are limited to those drilling units offsetting productive units that are reasonably certain of production when drilled.

Due to inherent industry uncertainties and the limited nature of deposit data, estimates of reserves are subject to change as additional information becomes available. The Company management included in proved reserves those reserves which the Company intends to extract after the expiry of the current licenses. The licenses for the development and production of hydrocarbons currently held by the Company generally expire between 2019 and 2202, and the licenses for the most important deposits expire between 2038 and 2150.

In accordance with the effective version of the law of the Russian Federation On Subsurface Resources (the "Law"), licenses are currently granted for a production period determined on the basis of technological and economic criteria applied to the development of the mineral deposit which guarantee the rational use of subsurface resources and necessary environmental protection. In accordance with the Law and upon the gradual expiration of old licenses issued under the previous version of the Law, the Company extends its hydrocarbon production licenses for the whole productive life of the fields. Extension of the licenses depends on compliance with the terms set forth in the existing license agreements. As of the date of these consolidated financial statements, the Company is generally in compliance with all the terms of the license agreements and intends to continue complying with such terms in the future.

The Company's estimates of net proved liquid hydrocarbons and sales gas reserves and changes thereto for the years ended December 31, 2018 and 2017 are shown in the table below and expressed in million barrels of oil equivalent (liquid hydrocarbons production data was recalculated from tonnes to barrels using field specific coefficients; sales gas production data was recalculated from cubic meters to barrels of oil equivalent ("boe") using an average ratio).

Consolidated subsidiaries and joint operations	2018	2017
million boe	million boe	million boe
Beginning of year	43,781	43,217
Revisions of previous estimates	1,183	909
Extensions and discoveries	1,289	1,046
Improved recovery	1	1
Purchase of new reserves	-	470
Production	(1,896)	(1,862)
End of year	44,358	43,781
Proved developed reserves	20,838	20,436
Minority interest in total proved reserves	3,446	2,049
Minority interest in proved developed reserves	1,605	1,306

41. Supplementary oil and gas disclosure (unaudited) (continued)

Standardized measure of discounted future net cash flows and changes therein relating to proved oil and gas reserves

The standardized measure of discounted future net cash flows related to the above oil and gas reserves is based on PRMS. Estimated future cash inflows from oil, condensate and gas production are computed by applying the projected prices the company uses in its long-term forecasts to year-end quantities of estimated net proved reserves. Future development and production costs are those estimated future expenditures necessary to develop and produce estimated proved reserves as of year-end based on current expenses and costs and forecasts. In certain cases, future values, either higher or lower than current values, were used as a result of anticipated changes in operating 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 estimate future net pre-tax cash flows, net of the tax bases of related assets. Discounted future net cash flows are calculated using a 10% p.a. discount factor. Discounting requires year-by-year estimates of future expenditures to be incurred in the periods when the reserves are extracted.

The information provided in the table below does not represent management's estimates of the Company's expected future cash flows or of the value of its proved oil and gas reserves. Estimates of proved reserves 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 the amount of future development and production costs. The calculations should not be relied upon as an indication of the Company's future cash flows or of the value of its oil and gas reserves.

Standardized measure of discounted future net cash flows

Consolidated subsidiaries and joint operations	2018	2017
Future cash inflows	123,444	79,122
Future development costs	(6,575)	(6,105)
Future production costs	(75,728)	(42,748)
Future income tax expenses	(9,670)	(5,206)
Future net cash flows	31,471	25,063
Discount for estimated timing of cash flows	(20,495)	(15,996)
Discounted value of future cash flows as of the end of year	10,976	9,067

Share of other (non-controlling) shareholders in discounted value of future cash flows
Consolidated subsidiaries and joint operations
UOM
RUB billion
2018
832
2017
717

41. Supplementary oil and gas disclosure (unaudited) (continued)

Changes therein relating to proved oil and gas reserves

Consolidated subsidiaries and joint operations

	2018	2017
Discounted value of future cash flows as of the beginning of year	9,067	10,344
Sales and transfers of oil and gas produced, net of production costs and taxes other than income taxes	(1,756)	(1,081)
Changes in price estimates, net	3,514	(1,689)
Changes in estimated future development costs	(969)	(1,185)
Development costs incurred during the period	951	876
Revisions of previous reserves estimates	466	188
Increase in reserves due to discoveries, less respective expenses	508	216
Net change in income taxes	(1,712)	252
Accretion of discount	907	1,034
Net changes due to purchases of oil and gas fields	-	112
Discounted value of future cash flows as of the end of year	10,976	9,067

Company's share in costs, inventories and future cash flows of the joint ventures and associates

UOM	2018	2017
Share in capitalized costs relating to oil and gas producing activities (total)	285	250
Share in results of operations for oil and gas producing activities (total)	74	42
Share in estimated proved oil and gas reserves	2,004	2,078
Share in estimated proved developed oil and gas reserves	1,122	1,119
Share in discounted value of future cash flows	673	483

Contact information

PJSC Rosneft Oil Company

Legal address: Russian Federation, 115035, Moscow, Sofiyskaya embankment, 26/1
Mailing address: Russian Federation, 117997, Moscow, Sofiyskaya embankment, 26/1
Phone: +7 (499) 517-88-99
Fax: +7 (499) 517-72-35
E-mail: [email protected]
Corporate website: www.rosneft.ru (Russian) www.rosneft.com (English)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED DECEMBER 31, 2018 AND SEPTEMBER 30, 2018 AND FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2018 AND 2017

The following discussion of Rosneft's financial condition and results of operations is based on, and should be read in conjunction with, the Company's financial statements and the notes thereto for the periods ended December 31, 2018 and 2017 and September 30, 2018 (the "Consolidated Financial Statements"). Such terms as "Rosneft", "Company" and "Group" in their different forms in this report mean PJSC Rosneft Oil Company and its consolidated subsidiaries, and its equity share in associates and joint ventures. This report contains forward‑looking statements that involve risks and uncertainties. Rosneft's actual results may materially differ from those discussed in such forward‑looking statements as a result of various factors.

Except as otherwise indicated, oil and gas reserves and production are presented pro-rata for associates and joint ventures and 100% for fully consolidated subsidiaries. Except as otherwise indicated, all amounts are provided in billions of RUB. All figures are rounded, however, figures per unit of production are provided based on the actual data. To convert tonnes of liquid hydrocarbon (except gas condensate of JSC "Rospan International") to barrels a 7.404 ratio is used. To convert Rospan gas condensate to barrels a 8.3 ratio is used. To convert a thousand of cubic meters of gas to barrels of oil equivalent a 6.09 ratio is used.

Overview

Rosneft is a vertically integrated oil and gas company with core activities and assets located principally in Russia. The Company is primarily engaged in exploration and production of hydrocarbons, oil refining and product marketing mainly in the Russian Federation. According to oil and marketable gas reserve information prepared by DeGolyer and MacNaughton, independent reservoir engineers, proved hydrocarbon reserves reached 41 billion boe per SEC classification and 47 billion boe per PRMS classification as of December 31, 2018 and amounted to 40 billion boe per SEC classification and 47 billion boe per PRMS classification as of December 31, 2017.

In the fourth quarter of 2018 crude oil and NGL production of the Company amounted to 59.5 mln tonnes, the production of natural and associated gas was 17.31 bcm. In the twelve months of 2018 crude oil and NGL production of the Company amounted to 230.19 mln tonnes, the production of natural and associated gas was 67.26 bcm.

In the fourth quarter of 2018 the Company's total crude oil processing amounted to 29.53 mln tonnes at the refineries in Russia and abroad. The remaining volumes of crude oil are exported to Europe, Asia and the CIS.

Financial and operating highlights

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017*	% change
Financial results, RUB billion
Revenues and equity share in profits of associates and joint ventures	2,165	2,286	(5.3)%	8,238	6,011	37.0%
EBITDA	488	643	(24.1)%	2,081	1,400	48.6%
Net income attributable to Rosneft shareholders	109	142	(23.2)%	549	222	>100%
Capital expenditures	257	227	13.2%	936	922	1.5%
Free cash flow**	261	509	(48.7)%	1,133	245	>100%
Operational results
Hydrocarbon production (th. boe per day)	5,938	5,826	1.9%	5,795	5,718	1.3%
Crude oil and NGL production (th. barrels per day)	4,792	4,726	1.4%	4,673	4,577	2.1%
Gas production (th. boe per day)	1,146	1,100	4.2%	1,122	1,141	(1.7)%
Production of petroleum products and petrochemical products in Russia (mln tonnes)	25.80	25.82	(0.1)%	99.73	96.90	2.9%
Production of petroleum products and petrochemical products outside Russia (mln tonnes)	2.84	3.10	(8.4)%	11.93	12.18	(2.1)%

* Financial results for 12 months of 2017 are adjusted due to the allocation of the final purchase price of the assets acquired in 2017.

** Free cash flow estimation includes interest expenses on the prepayment on long-term oil and petroleum products supply agreements. Interest expenses on the prepayment on long-term oil and petroleum products supply agreements are composed of interests accrued for the reporting period and offset against crude oil supply under the contracts in the amount of RUB 22 billion and interests paid of RUB 2 billion in the fourth quarter of 2018; offsetting of RUB 23 billion and interests paid of RUB 1 billion in the third quarter of 2018; offsetting of RUB 85 billion and interests paid of RUB 6 billion in the 12 months of 2018, and offsetting of RUB 71 billion and interests paid of RUB 10 billion in the 12 months of 2017.

For reference only: Financial highlights in USD terms*

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change
Financial results, USD billion
Revenues and equity share in profits of associates and joint ventures	33.1	35.8	(7.5)%	133.7	106.4	25.7%
EBITDA	7.4	9.8	(24.5)%	33.1	24.0	37.9%
Net income attributable to Rosneft shareholders	1.6	2.3	(30.4)%	8.9	3.8	>100%
Capital expenditures	3.9	3.5	11.4%	15.0	15.8	(5.1)%
Free cash flow	4.0	7.8	(48.7)%	17.9	4.1	>100%

*Calculated using average monthly exchange rates of Bank of Russia for the reporting periods (Attachment 2).

Significant events of the fourth quarter of 2018

Rosneft and ChemChina sign an oil supply contract

Rosneft and China National Chemical Corporation (ChemChina) signed an oil supply contract which provides for supplies of ESPO crude oil in the amount of up to 2.4 million tonnes through the Kozmino port for a year.

Macroeconomic factors affecting results of operations

Main factors affecting Rosneft's results of operations are:

Changes in crude oil, gas and petroleum product prices;
USD/RUB and EUR/RUB exchange rates and inflation;
Taxation including changes in mineral extraction tax, export customs duty and excises;
Changes in tariffs of natural monopolies (for pipeline and railway transport);
Reduction of crude oil production under the Agreement reached earlier by OPEC countries and major non-OPEC oil producing countries (OPEC+ Agreement) in 2017-2018;
Changes in electricity prices.

Changes in Crude Oil, Petroleum Product and Gas Prices

World crude oil prices are highly volatile and fluctuate depending on the global balance of supply and demand on the world crude oil market, political situation mainly in the oil producing regions of the world and other factors. Crude oil exported by Rosneft via the Transneft's pipeline system is blended with crude oil of varying quality from other producers. The resulting Urals blend is traded at a discount to Brent. Crude oil exported via Eastern Siberia - Pacific Ocean ("ESPO") pipeline is sold at a price which is linked to the price of "Dubai" blend.

Petroleum product prices on international and domestic markets are primarily determined by the level of world prices for crude oil, supply and demand for petroleum products and competition on different markets. Price dynamics depends on the type of petroleum products.

The table below sets forth the average crude oil and petroleum products prices worldwide and in Russia in USD and RUB.

	For 3 months ended December 31, 2018	Change %	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	Change %	For 12 months ended December 31, 2017
World market (USD per barrel)
Brent (dated)	67.8	(9.9)%	75.2	71.1	31.0%	54.3
Urals (average Med and NWE)	67.3	(9.3)%	74.2	69.8	31.4%	53.1
Urals (FOB Primorsk)	65.5	(10.1)%	72.9	68.5	31.8%	52.0
Urals (FOB Novorossiysk)	65.2	(11.0)%	73.2	68.6	31.3%	52.3
Dubai	67.4	(9.2)%	74.3	69.5	30.5%	53.2
(USD per tonne)
Naphtha (av. FOB/CIF Med)	528	(17.7)%	642	588	24.5%	472
Naphtha (av. FOB Rotterdam/CIF NWE)	542	(16.8)%	651	600	24.3%	483
Naphtha (CFR Japan)	573	(14.1)%	667	615	24.6%	494
Fuel oil (av. FOB/CIF Med)	400	(6.2)%	426	397	31.4%	302
Fuel oil (av. FOB Rotterdam/CIF NWE)	395	(6.2)%	421	391	31.9%	297
High sulphur fuel oil 180 cst (FOB Singapore)	437	(4.1)%	456	424	31.5%	323
Gasoil (av. FOB/CIF Med)	624	(5.9)%	663	630	30.3%	484
Gasoil (av. FOB Rotterdam/CIF NWE)	625	(5.1)%	658	628	29.5%	485
Gasoil (FOB Singapore)	602	(7.4)%	651	616	28.1%	480
(th. RUB per barrel)

(th. RUB per tonne) % (th. RUB per tonne) %


Naphtha (av. FOB/CIF Med)	35.1	42.1	(16.5)%	36.9	27.6	33.8%
Naphtha (av. FOB Rotterdam/CIF NWE)	36.0	42.7	(15.5)%	37.6	28.2	33.5%
Naphtha (CFR Japan)	38.1	43.7	(12.9)%	38.6	28.8	33.9%
Fuel oil (av. FOB/CIF Med)	26.6	27.9	(4.9)%	24.9	17.6	41.2%
Fuel oil (av. FOB Rotterdam/CIF NWE)	26.3	27.6	(4.8)%	24.5	17.3	41.8%
High sulphur fuel oil 180 cst (FOB Singapore)	29.0	29.9	(2.7)%	26.6	18.8	41.3%
Gasoil (av. FOB/CIF Med)	41.5	43.4	(4.6)%	39.5	28.2	40.0%
Gasoil (av. FOB Rotterdam/CIF NWE)	41.5	43.1	(3.7)%	39.4	28.3	39.2%
Gasoil (FOB Singapore)	40.0	42.6	(6.1)%	38.6	28.0	37.7%

Russian market (net of VAT, including excise tax)

	(th. RUB per tonne)	%	(th. RUB per tonne)	%
Crude oil	18.2	23.3	(21.7)%	20.2
Fuel oil	15.8	15.9	(0.6)%	14.0
Summer diesel	41.4	40.1	3.2%	39.3
Winter diesel	48.7	43.5	12.1%	42.7
Jet fuel	42.5	38.6	10.1%	38.3
High octane gasoline	41.2	40.8	0.9%	39.9
Low octane gasoline	41.7	37.1	12.5%	37.2

Sources: average prices and changes are calculated based on the unrounded data of analytical agencies. The difference between price movements denominated in USD and those denominated in RUB is explained by nominal RUB depreciation against USD of 1.4% in the fourth quarter of 2018 compared with the third quarter of 2018 and 6.9% compared with the twelve months of 2017.

The Russian Government regulates the price of the gas sold in Russia by Gazprom and its affiliates, which is considered as the benchmark for the domestic gas market. Starting from July 2017, regulated gas price for all groups of end-users grew up by 3.9%. The indexation of gas price intended for subsequent implementation to all consumer groups was 3.4% in 2018 (since July - in part of the price of realization to the population, since 21th of August - in part of price for industrial consumers).

USD/RUB and EUR/RUB Exchange Rates and Inflation

The USD/RUB and EUR/RUB exchange rates and inflation in Russia affect Rosneft's results as most of the Company's revenues from sales of crude oil and petroleum products are denominated in USD, while most of the Company's expenses are denominated in RUB. The table below provides information on the exchange rates movements and inflation during the periods analysed:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
Consumer price index (CPI) for the period*	1.7%	0.4%	4.3%	2.5%
Average RUB/USD exchange rate for the period**	66.48	65.53	62.71	58.35
RUB/USD exchange rate at the end of the period	69.47	65.59	69.47	57.60
Average RUB/EUR exchange rate for the period	75.92	76.18	73.95	65.90
RUB/EUR exchange rate at the end of the period	79.46	76.23	79.46	68.87

Source: the Central Bank of the Russian Federation.
Producer price index amounted to 15.3% q-o-q in the fourth quarter of 2018.
*See Average monthly RUB/USD exchange rates in the Attachment 2.

MET, Export Duties and Excise Taxes

	For 3 months ended December 31, 2018	% change*	For 12 months ended December 31, 2018	% change*	For 12 months ended December 31, 2017
Mineral extraction tax
Crude oil (RUB per tonne)	12,549	14,011	(10.4)%	12,468	8,134
Export customs duty for crude oil
Crude oil (USD per tonne)	141.4	134.9	4.8%	128.5	86.7
Crude oil (RUB per tonne)	9,400	8,832	6.4%	8,094	5,058
Crude oil (RUB per barrel)	1,270	1,193	6.4%	1,093	683
Export customs duty for petroleum products
Gasoline (RUB per tonne)	2,818	2,649	6.4%	2,426	1,516
Naphtha (RUB per tonne)	5,169	4,856	6.5%	4,449	2,779
Light and middle distillates (RUB per tonne)	2,818	2,649	6.4%	2,426	1,516
Liquid fuels (fuel oil) (RUB per tonne)	9,400	8,832	6.4%	8,094	5,058

*Calculated based on unrounded data.
1 See detailed disclosure on Tax legislation in Attachment 1.

The excise tax rates on the petroleum products are as follows:

Excise duties (RUB per tonne)	Since January 1 through December 31, 2017	Since January 1 through May 31, 2018	Since June 1 through December 31, 2018	Since January 1 through December 31, 2019
High octane gasoline
High octane gasoline non-compliant with euro-5	13,100	13,100	13,100	13,100
High octane gasoline euro-5	10,130	11,213	8,213	12,314
Naphtha	13,100	13,100	13,100	13,912
Diesel	6,800	7,665	5,665	8,541
Jet fuel	2,800	2,800	2,800	2,800
Lubricants	5,400	5,400	5,400	5,400
Benzol, paraxylene, ortoxylene	2,800	2,800	2,800	2,929
Middle distillates	7,800	8,662	6,665	9,241

Effective tax burden of the Company was 48.7% and 47.7% in the fourth quarter of 2018 and the third quarter of 2018, respectively, and 47.9% in the twelve months of 2018 and 44.5% in the twelve months of 2017, respectively. The mineral extraction tax and the export customs duty accounted for approximately 42.2% and 40.6% of Rosneft's total revenues in the fourth and third quarters of 2018, respectively, and approximately 40.3% in the twelve months of 2018 and 35.7% in the twelve months of 2017. Tax withdrawing share in the financial results was up to 85.9% in the twelve months of 2018.

Changes in Transport Tariffs of Pipeline and Railway Monopolies

Rosneft transports most of its crude oil and petroleum products via pipeline network owned and operated by PJSC "AK "Transneft" ("Transneft"), which is a natural state-owned pipeline monopoly. Rosneft also transports crude oil and petroleum products via railway network mainly owned and operated by JSC Russian Railways ("RZD"), another natural state-owned monopoly.

Recent changes of Transneft transportation tariffs

Crude oil
Starting from January 1, 2019 Transneft tariffs for oil pipeline transportation increased by 3.87%.
Starting from January 1, 2018 Transneft tariffs for oil pipeline transportation increased by 3.95%.

Recent changes in railroad transportation tariffs

Starting from January 1, 2019 railroad transportation tariffs increased by 3.5%.
In January 2018 railroad transportation tariffs increased by 5.4% to December 2017 level.
In 2018 RZD adopted a number of decisions on the application of decreasing coefficients to the current tariffs for the transportation of cargoes of the Company in certain directions.

47. Consolidated statement of profit or loss for the three months ended December 31, 2018 and September 30, 2018 and for the twelve months ended December 31, 2018 and 2017, respectively in RUB billions

	For 3 months ended December 31, 2018	% change	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017*
Revenues and equity share in profits of associates and joint ventures
Oil, gas, petroleum products and petrochemicals sales	2,117	(5.7)%	2,245	8,076	37.4%	5,877
Support services and other revenues	22	29.4%	17	80	3.9%	77
Equity share in profits of associates and joint ventures	26	8.3%	24	82	43.9%	57
Total revenues and equity share in profits of associates and joint ventures	2,165	(5.3)%	2,286	8,238	37.0%	6,011
Costs and expenses
Production and operating expenses	184	8.2%	170	642	5.8%	607
Cost of purchased oil, gas, petroleum products and refining costs	283	(5.4)%	299	1,099	31.3%	837
General and administrative expenses	54	54.3%	35	167	(2.9)%	172
Pipeline tariffs and transportation costs	165	2.5%	161	638	7.0%	596
Exploration expenses	4	100%	2	11	(26.7)%	15
Depreciation, depletion and amortization	163	-	163	635	8.4%	586
Taxes other than income tax	706	(5.2)%	745	2,701	40.8%	1,919
Export customs duty	317	9.7%	289	1,061	61.2%	658
Total costs and expenses	1,876	0.6%	1,864	6,954	29.0%	5,390
Operating income	289	(31.5)%	422	1,284	>100%	621
Finance income	33	10.0%	30	122	14.0%	107
Finance expenses	(73)	(9.9)%	(81)	(290)	28.9%	(225)
Other income	1	(95.2)%	21	49	(55.5)%	110
Other expenses	(57)	(62.0)%	(150)	(294)	>100%	(75)
Foreign exchange differences	7	(74.1)%	27	107	>100%	3
Cash flow hedges reclassified to profit or loss	(37)	2.8%	(36)	(146)	-	(146)
Income before income tax	163	(30.0)%	233	832	>100%	395
Income tax expense	(31)	(44.6)%	(56)	(183)	86.7%	(98)
Net income	132	(25.4)%	177	649	>100%	297
Net income attributable to
- Rosneft shareholders	109	(23.2)%	142	549	>100%	222
- non-controlling interests	23	(34.3)%	35	100	33.3%	75

*The consolidated financial statements of 12M 2017 were revised in connection with the finalization of the assessment of the fair value of the assets acquired in 2017.

50. Business Segments and Intersegment Sales

Most of all Rosneft's operations and assets are located in the Russian Federation. As geographical regions of the Russian Federation have similar economic and legal characteristics, Rosneft does not present geographical segments separately. Rosneft also carries out projects outside Russia, including exploration and production projects in Norway, United Arab Emirates, Brazil, Vietnam, Venezuela, Iraqi Kurdistan, Egypt and also stakes in refineries in Germany and Belarus.

Operating Segments

As at the reporting date, the activities of Rosneft are divided into two main operating segments based on the nature of their operations:
● Exploration and production (Upstream). Geological exploration and development of fields and crude oil and gas production both onshore and offshore in Russia and abroad, and internal oilfield service entities;
● Refining and distribution (Downstream). Refining of crude oil, as well as the purchase, transportation, sale of crude oil and petroleum products and petrochemicals to the third parties in Russia and abroad;
● Other activities form the "Corporate" segment and include banking, financial services and other corporate services.# Intersegment Sales

Intercompany sales present operational activity of segments as if the segments operate separately from each other within the vertically integrated company using transfer prices for settlements between segments. For the estimation of upstream revenues within vertically integrated company the sale price of Upstream (and the purchase price of Downstream) was recalculated using the export market price minus transportation cost, minus export duty, dispatches and other expenses relating to current sales. The price is established at oil gathering facility (point of sales) or connection point to Gasprom transportation system where Upstream dispatches the oil and gas to Downstream. All intercompany operations, including transactions from internal oilfield service entities and corporate service entities, are eliminated at the consolidated level.

53. Upstream Operating Results

The segment includes Rosneft Group entities that provide operating services, the independent enterprises that produce oil, gas and gas condensate in Russia and abroad, the joint ventures and exploration units in Russia and abroad, oil service entities. The segment includes revenues generated by the transfer of oil, gas and NGL to the Downstream segment for subsequent processing and sales to third parties and all operating costs associated with production and exploration, and also revenues and costs of oil service entities that provide services to the Group entities. The results are set in the table below:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
Operational results
Hydrocarbon production (th. boe per day)	5,938	1.9%	5,795	1.3%	5,718
Crude oil and NGL production (th. barrels per day)	4,792	1.4%	4,673	2.1%	4,577
Gas production (th. boe per day)	1,146	4.2%	1,122	(1.7)%	1,141
Hydrocarbon production (mln boe)¹	507.1	1.7%	1,964.3	1.4%	1,938.0
Hydrocarbon production (mln toe)	73.7	1.8%	285.5	1.3%	281.7
Financial results, RUB billions
EBITDA	463	(22.6)%	1,978	52.5%	1,297
Capital expenditures²	219	6.3%	840	5.3%	798
Upstream operating expenses	104.2	8.5%	381.2	6.2%	359.0
Indicators per boe
EBITDA, RUB/boe¹	868	(24.8)%	968	49.4%	648
Capital expenditures, RUB/boe	432	4.6%	428	3.9%	412
Upstream operating expenses, RUB/boe	205	6.2%	194	4.9%	185
Upstream operating expenses, USD/boe³	3.1	6.9%	3.1	(3.1)%	3.2

¹ Excluding effect of associates and joint ventures.
² Ref. to "Capital expenditures".
³ Calculated using average monthly exchange rates of Bank of Russia for the reporting periods (Attachment 2).

Upstream EBITDA

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
Revenues and equity share in profits of associates and joint ventures	1,178	(11.8)%	4,679	47.1%	3,180
Including equity share in profits of associates and joint ventures	23	-	76	81.0%	42
Expenses net of depreciation	751	(5.5)%	2,863	37.9%	2,076
including Upstream operating expenses¹	104	8.5%	381	6.2%	359
General and administrative expenses	18	5.9%	65	14.0%	57
Hydrocarbon procurement costs²	8	14.3%	26	(25.7)%	35
Pipeline tariffs and transportation costs and other costs³	9	50.0%	34	6.3%	32
Exploration expenses	6	100.0%	16	(15.8)%	19
Taxes other than income tax	606	(9.0)%	2,341	48.7%	1,574
Effect of prepayments offsetting	36	(37.9)%	162	(16.1)%	193
EBITDA	463	(22.6)%	1,978	52.5%	1,297

¹ Percentage is calculated based on the unrounded data.
² Starting from the first quarter of 2018 the part of gas trading activity was reclassified to Downstream operating segment.
³ Other costs include revision of ecological reserves of RUB 1.8 billion and RUB 0.4 billion in the fourth and third quarters of 2018, respectively; and RUB 3.4 billion and RUB 1.8 billion in the twelve months of 2018 and 2017, respectively.

Operating indicators

Production of Crude Oil and NGL

Rosneft has main fully consolidated production and development enterprises, which produce crude oil in Western Siberia, Eastern Siberia, Timan Pechora, Central Russia, Southern part of European Russia and the Russian Far East. The Company also has a 20% stake in the Sakhalin-1 project and a 50% stake in JSC "Tomskneft" VNK, both accounted for using proportionate consolidation method. In addition, Rosneft participates in major production joint ventures accounted for using the equity method: Slavneft - 49.94%, Udmurtneft - 49.57% and Messoyakhaneftegaz - 50.0%. The Company also participates in international projects in Vietnam, Venezuela and Egypt. The following table sets forth Rosneft's crude oil and NGL production:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
(million of barrels)
RN-Yuganskneftegaz (Western Siberia)	133.1	1.4%	519.8	5.5%	492.6
Projects of the Vankor group (Eastern Siberia)	38.6	(4.5)%	159.0	(2.9)%	163.7
Samotlorneftegaz (Western Siberia)	36.3	0.8%	143.8	(0.5)%	144.5
Bashneft-Dobycha (Central Russia)	30.8	1.0%	121.4	(1.1)%	122.7
Orenburgneft (Central Russia)	28.4	-	110.4	(5.1)%	116.3
Samaraneftegaz (Central Russia)	23.9	5.3%	89.7	(4.3)%	93.7
RN-Uvatneftegaz (Western Siberia)	20.3	8.0%	78.3	9.8%	71.3
Verkhnechonskneftegaz (Eastern Siberia)	15.7	4.7%	61.0	(0.5)%	61.3
Varyeganneftegaz (Western Siberia)	11.7	(1.7)%	44.1	(4.3)%	46.1
RN-Nyaganneftegaz (Western Siberia)	12.5	1.6%	43.3	(2.5)%	44.4
RN-Purneftegaz (Western Siberia)¹	9.8	(1.0)%	36.2	(6.7)%	38.8
Tomskneft (Western Siberia)	8.1	(2.4)%	32.4	(6.4)%	34.6
RN-Severnaya Neft (Timan Pechora)	5.7	(3.4)%	22.4	(6.7)%	24.0
Taas-Yuryakh (Far East)	6.6	8.2%	21.5	>100%	9.2
Offshore projects (Far East)²	5.2	2.0%	19.6	(10.9)%	22.0
Vostsibneftegaz (Eastern Siberia)	4.9	16.7%	17.1	>100%	5.5
Kondaneft (Western Siberia)	4.4	29.4%	11.8	>100%	1.7
Sorovskneft (Western Siberia)	2.5	(13.8)%	11.0	(27.6)%	15.2
Bashneft-Polyus (Timan Pechora)³	2.0	(4.8)%	8.1	(44.9)%	14.7
Other	9.5	3.3%	36.7	2.2%	35.9
Crude oil and NGL production by fully and proportionately consolidated enterprises	410.0	1.4%	1,587.6	1.9%	1,558.2
Slavneft (Western and Eastern Siberia)	13.2	0.8%	51.1	(3.4)%	52.9
Udmurtneft (Central Russia)	5.6	-	22.3	(0.4)%	22.4
Messoyakhaneftegaz (Western Siberia)	4.5	4.7%	16.5	41.0%	11.7
Other	7.6	2.7%	28.1	11.1%	25.3
Total share in production of associates and JV	30.9	1.6%	118.0	5.1%	112.3
Total crude oil and NGL production	440.9	1.4%	1,705.6	2.1%	1,670.5
Daily crude oil and NGL production (th. barrels per day)	4,792	1.4%	4,673	2.1%	4,577

¹ Including Kharampurneftegaz and Sevkomneftegaz.
² Net of royalty and government share.
³ Refers to 100% consolidated share in production.

In the fourth quarter of 2018 daily crude oil and NGL production amounted to 4.79 mln barrels per day, exceeding the daily production level of the third quarter of 2018 by 1.4% driven by increased production at RN‑Yuganskneftegaz, RN-Uvatneftegaz, and rapid production recovery at a number of oil fields after removing of restrictions under the OPEC+ Agreement. According to the results of the twelve months of 2018, daily crude oil and NGL production of the Company reached 4.67 mln barrels per day (230.2 mln tonnes), which is 2.1% higher than the level of the twelve months of 2017. Key growth factors were: achieving record production at one of the major Company's unit - RN‑Yuganskneftegaz, launching new large fields (the second stage of Srednebotuobinskoye, Tagulskoye, Russkoye and Kuyumbinskoye fields) and continued active development of existing projects in terms of production restrictions under the OPEC+ Agreement during the year. In the twelve months of 2018 the development drilling almost remained at the level of the twelve months of 2017 and amounted to more than 12 mln meters, while the construction volume of complex multilateral wells doubled. The number of new wells commissioning increased by 3.5% up to 3.4 th. wells. Horizontal wells share increased up to 48% and the number of new horizontal wells with multistage fracturing up by 51%. In-house drilling share is more than 50%.

Production of Gas

The table below sets forth Rosneft's used gas¹ production:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
bcm
Sibneftegas (Western Siberia)	2.89	(4.0)%	11.96	(4.9)%	12.58
Projects of the Vankor group (Eastern Siberia)²	1.72	(8.0)%	7.25	(13.4)%	8.37
Rospan International (Western Siberia)	1.69	6.3%	6.63	2.8%	6.45
Samotlorneftegaz (Western Siberia)	1.54	13.2%	5.90	1.4%	5.82
RN-Purneftegaz (Western Siberia)³	1.45	0.7%	5.61	(7.6)%	6.07
RN-Yuganskneftegaz (Western Siberia)	1.26	4.1%	4.77	2.8%	4.64
Varyeganneftegaz (Western Siberia)	1.05	7.1%	4.06	2.3%	3.97
Offshore projects (Far East)²,⁴	0.71	7.6%	3.12	(24.5)%	4.13
Zohr project (Egypt)⁴	0.87	19.2%	2.16	>100%	0.02
RN-Krasnodarneftegaz (Southern Russia)	0.50	8.7%	1.99	(19.4)%	2.47
RN-Nyaganneftegaz (Western Siberia)	0.52	4.0%	1.78	(0.6)%	1.79
Orenburgneft (Central Russia)	0.34	6.3%	1.38	(20.7)%	1.74
Tomskneft (Western Siberia)	0.25	4.2%	0.95	1.1%	0.94
Verkhnechonskneftegaz (Eastern Siberia)	0.28	7.7%	0.87	>100%	0.23
Rosneft Vietnam B.V.

1Production volume equals extracted volume minus flared volume and gas used for NGL production. Gross gas production amounted to 19.1 bcm in the fourth quarter of 2018, 18.4 bcm in the third quarter of 2018; 74.2 bcm and 73.3 bcm in the twelve months of 2018 and 2017, respectively.
2Including gas injection to maintain reservoir pressure.
3Including Kharampurneftegaz and Sevkomneftegaz.
4Net of royalty and government share.

Gas production in the fourth quarter of 2018 amounted to 17.31 bcm, increasing by 4.2 % compared with the third quarter of 2018. The increase in gas production was mainly driven by the completion of scheduled preventive maintenance at Sibur gas processing plants and Rospan fields in the third quarter of 2018, a seasonal increase in demand during the autumn-winter period, higher gas production due to the increase in the capacity of the Zohr project in Egypt. The decrease in gas production in the twelve months of 2018 of 1.7% compared with the same period of 2017 was mainly due to a reduction of associated gas production on the fields with developing infrastructure and on a number of other assets based on the back of economic efficiency of development and external constraints.

Financial indicators

Equity share in financial results of upstream associates and joint ventures

The equity share in financial results of upstream associates and joint ventures was RUB 23 billion in the fourth quarter of 2018, remaining at the level of the third quarter of 2018. Considerable income growth in the twelve months of 2018 up to RUB 76 billion compared with the same period of 2017 (RUB 42 billion) is mainly due to improved macroeconomic conditions and increased production volumes of Messoyakhneftegaz, and growth of equity income of international JV.

Upstream production and operating expenses

Upstream production and operating expenses include materials and supplies, equipment maintenance and repairs, wages and salaries, activities to enhance oil and gas recovery, procurement of fuel and lubricants, electricity and other costs of Rosneft consolidated exploration and production units. In the fourth quarter of 2018 compared with the third quarter of 2018 an increase in the upstream production and operating expenses of 8.5% (an increase of 6.2% per boe) to RUB 104.2 billion was mainly due to higher tariffs of natural monopolies, increased costs in technological transport and production growth after removing of restriction under OPEC+ Agreement. Upstream production and operating expenses increased in the twelve months of 2018 by 6.2% to RUB 381.2 billion (an increase of 4.9% per boe) compared with the same period of 2017 which is mainly due higher electricity tariffs, increased cost of repair and maintenance of a growing stock of wells and other oilfield services, and higher costs for material and transport.

Exploration Expenses

Exploration expenses mainly relate to exploratory drilling, seismic and other geological and geophysical works. Exploratory drilling costs are generally capitalized, if commercial reserves of crude oil and gas are discovered or expensed in the current period in the event of unsuccessful exploration results. Exploration expenses in the fourth quarter of 2018 and in the third quarter of 2018 were RUB 4 billion and RUB 2 billion, respectively. In the twelve months of 2018 and 2017, exploration expenses amounted to RUB 11 billion and RUB 15 billion, respectively. The decrease of 26.7% is caused by implementation of large-scale work on seismic exploration in the strategically important regions of presence in 2017 and continued processing and interpretation of the data in the current year.

Mineral extraction tax

The decrease in MET expense in the fourth quarter of 2018 compared with the third quarter of 2018 was mainly due to enacted MET rate decrease of 10.4%, caused by lower Urals price (by 8.0% in RUB terms). The increase in MET expense in the twelve months of 2018 compared with the same period of 2017 was mainly due to enacted MET rate increase of 53.3%, caused by higher Urals price (by 41.2% in RUB terms).

The following table sets actual mineral extraction tax rates for the periods analysed:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change
Average enacted mineral extraction tax rate (per tonne)	12.55	(10.4)%	12.47	53.4%
Actual mineral extraction tax expense per tonne of oil produced	10.37	(12.4)%	10.44	47.8%
Actual mineral extraction tax expense per tonne of oil equivalent produced1	8.45	(12.7)%	8.50	48.1%
Actual gas extraction tax rate per thousand cubic meters	547	(2.0)%	551	5.8%
Actual extraction tax rate on gas condensate2 per tonne	4,231	(8.2)%	4,309	15.0%

1Including consolidated oil and gas volumes
2 The main volumes of condensate assessed at the MET rate for gas condensate are extracted on fields of Rospan, for which the rates are set in the table

The actual mineral extraction tax rate is lower than generally established tax rates for the analyzed periods primarily due to tax exemptions, which are active in the form of zero rates and reduced extraction tax rate by "Dm" coefficient, which characterizes complexity of crude oil production at a particular oil field (See Attachment 1).

54. Downstream Operating Results

The segment includes Group entities that provide services for oil and gas processing, petrochemical production in Russia and abroad, joint ventures, sales units of oil, gas and petroleum products to counterparties in Russia and abroad. The segment includes revenue generated from the sale of oil, gas, petrochemical products and petroleum products to third parties, and all operating costs associated with processing, trading and logistics. The results are set in the table below:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change
Operational results, mln tonne
Crude oil processing at refineries	29.53	(1.0)%	115.04	2.0%
Processing at Company's own refineries in Russia	24.78	0.2%	95.40	3.0%
Processing at Company's own refineries outside Russia	2.62	(12.7)%	11.53	(3.9)%
Processing at Associates' refineries	2.13	1.4%	8.11	(1.0)%
Financial results, RUB billion
EBITDA	46	(23.3)%	163	(7.9)%
Capital expenditures of refineries1	21	61.5%	55	(15.4)%
Operating expenses of processing in Russia	39.4	19.8%	130.0	11.3%
Operating expenses of processing outside Russia	7.2	10.8%	26.9	19.0%
Indicators per tonne of the output, RUB per tonne
EBITDA3	1,569	(27.5)%	1,478	(5.7)%
Capital expenditure of refineries	766	63.3%	514	(17.2)%
Operating expenses for processing in Russia	1,590	19.5%	1,364	8.2%
Operating expenses for processing outside Russia	2,748	26.8%	2,333	23.9%

1Refer to "Capital expenditures".
2Calculated from unrounded data.
3Excluding effect of associates and joint ventures.

Downstream EBITDA

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change
RUB billion
Revenues and equity share in profits of associates and joint ventures	2,155	(6.5)%	8,255	35.4%
Including equity share in profits of associates and joint ventures	3	−	5	(61.5)%
Expenses net of depreciation including	2,109	(6.0)%	8,092	36.7%
Operating expenses at refineries, cost of additives	51	8.5%	182	11.7%
Operating expenses of retail entities	15	7.1%	55	10.0%
Cost of purchased oil, gas, petroleum products and refining costs including intersegment turnover	1,443	(12.1)%	5,767	41.3%
Administrative expenses, including loss allowance for expected credit losses	16	>100%	47	20.5%
Pipeline tariffs and transportation costs	165	3.1%	635	8.2%
Taxes other than income tax	86	-	361	0.3%
Export customs duty	317	9.7%	1,061	61.2%
Effect of intragroup inventory and others expense/(income)	16	>100%	(16)	11.1%
EBITDA	46	(23.3)%	163	(7.9)%

Operating indicators

Petroleum Product Output

Rosneft processes produced and procured crude oil at its refineries: the Tuapse refinery on the Black Sea coast in the South of Russia, the Komsomolsk refinery in the Russian Far East, the Achinsk and Angarsk refineries in Eastern Siberia, the Kuibyshevsk, Novokuibyshevsk and Syzran refineries in the Samara region, the Saratov and Ryazan refineries in the European part of Russia, Bashneft refineries and others. Rosneft also processes crude oil in Belarus and in Germany.The following table sets forth Rosneft's crude oil processing and petroleum product output volumes:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
	mln of tonnes		mln of tonnes		mln of tonnes
Crude oil processing at refineries in Russia¹	26.79	0.1%	103.34	2.8%	100.55
Crude oil processing at refineries outside Russia	2.74	(10.2)%	11.70	(4.5)%	12.25
including crude oil processing in Germany²	2.62	(12.7)%	11.53	(3.9)%	12.00
including crude oil processing in Belarus	0.12	>100.0%	0.17	(32.0)%	0.25
Total Group crude oil processing	29.53	(1.0)%	115.04	2.0%	112.80
Petroleum product output:
High octane gasoline	3.81	(4.3)%	14.99	(1.3)%	15.18
Low octane gasoline	0.02	(33.3)%	0.09	(18.2)%	0.11
Naphtha	1.68	2.4%	6.40	2.9%	6.22
Diesel	8.86	0.6%	34.07	3.2%	33.01
Fuel oil	6.30	2.1%	23.99	4.1%	23.04
Jet fuel	0.80	(25.2)%	3.56	7.6%	3.31
Petrochemicals	0.42	35.5%	1.57	3.3%	1.52
Other	3.91	2.6%	15.06	3.8%	14.51
Product output at Rosneft's refineries in Russia	25.80	(0.1)%	99.73	2.9%	96.90
Product output at refineries outside Russia	2.84	(8.4)%	11.93	(2.1)%	12.18
including crude oil output in Germany	2.75	(10.1)%	11.80	(1.3)%	11.95
including product output in Belarus	0.09	>100.0%	0.13	(43.5)%	0.23
Total Group product output	28.64	(1.0)%	111.66	2.4%	109.08

¹Including processing at YANOS refinery.
²Excluding additives received and other raw materials for processing.

Rosneft's total refinery throughput in Russia in the fourth quarter of 2018 amounted to 26.79 mln tonnes. If compared to the third quarter of 2018 the increase is mainly due to the regulation of utilisation rate in terms of current demand. In the fourth quarter of 2018, processing at the refineries in Germany decreased by 12.7% in comparison with the third quarter of 2018 that was mainly caused by the unscheduled partial shutdown of the refinery in September 2018. In the twelve months of 2018 crude oil production at the German refineries decreased by 3.9% if compared with the same period of 2017, mainly caused by unscheduled partial shutdown of the refinery in September 2018.

Financial indicators

Revenues and equity share in profits of associates and joint ventures¹

Increase in revenues in RUB terms for year 2018 compared with year 2017 is mainly due to worldwide crude oil price growth (41.2% in RUB terms compared to year 2017) was accompanied by increase in petroleum products sales volumes. The table below presents revenues from sales of crude oil, gas, petroleum and petrochemical products and other revenues in billions of RUB²:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
	RUB billion, except %		RUB billion, except %		RUB billion, except %
	% of revenue		% of revenue		% of revenue
Crude oil
International Sales to non-CIS	930 42.9%	(0.9)%	3,419 41.5%	50.0%	2,279 38.0%
Europe and other directions	440 20.3%	(0.9)%	1,673 20.3%	26.4%	1,324 22.1%
Asia	490 22.6%	(0.8)%	1,746 21.2%	82.8%	955 15.9%
International sales to CIS	49 2.3%	(10.9)%	203 2.5%	40.0%	145 2.4%
Domestic sales	28 1.3%	(20.0)%	123 1.5%	6.0%	116 1.9%
Total crude oil	1,007 46.5%	(2.0)%	3,745 45.5%	47.4%	2,540 42.3%
Gas	70 3.2%	27.3%	234 2.8%	8.8%	215 3.6%
Petroleum products
International Sales to non-CIS	540 25.0%	(16.0)%	2,272 27.6%	39.7%	1,626 27.1%
Europe and other directions	391 18.1%	(17.9)%	1,700 20.7%	40.5%	1,210 20.2%
Asia	149 6.9%	(10.8)%	572 6.9%	37.5%	416 6.9%
International Sales to CIS	42 1.9%	(4.5)%	151 1.8%	29.1%	117 1.9%
Domestic sales	411 19.0%	(2.8)%	1,489 18.1%	21.5%	1,226 20.4%
Sales of bunker fuel to end-users	24 1.1%	(11.1)%	85 1.0%	49.1%	57 0.9%
Total petroleum products	1,017 47.0%	(10.6)%	3,997 48.5%	32.1%	3,026 50.3%
Sales of LNG	−	−	−	−	12 0.2%
Petrochemical products	23 1.1%	(8.0)%	100 1.2%	19.0%	84 1.4%
International sales	10 0.5%	0.0%	41 0.5%	32.3%	31 0.5%
Domestic sales	13 0.6%	(13.3)%	59 0.7%	11.3%	53 0.9%
Sales of petroleum products petrochemicals and LNG	1,040 48.1%	(10.5)%	4,097 49.7%	31.2%	3,122 51.9%
Support services and other revenues	22 1.0%	29.4%	80 1.0%	3.9%	77 1.3%
Equity share in profits of associates and joint ventures	26 1.2%	8.3%	82 1.0%	43.9%	57 0.9%
Total revenues and equity share in profits of associates and joint ventures	2,165 100.0%	(5.3)%	8,238 100.0%	37.0%	6,011 100.0%

¹Under IFRS consolidated financial statements.
²The difference between percentages presented in the above table and other sections is caused by rounding.

Sales Volumes

The table below analyses crude oil, gas, petroleum and petrochemical product sales volumes:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
	mln bbl % of total volume		mln bbl % of total volume		mln bbl % of total volume
Crude oil
International Sales to non-CIS	228.7 49.4%	7.3%	851.4 46.9%	1.4%	839.6 46.9%
Europe and other directions	109.5 23.7%	12.9%	413.1 22.7%	(15.1)%	486.4 27.2%
Asia	119.2 25.7%	2.6%	438.3 24.2%	24.1%	353.2 19.7%
International Sales to CIS	16.3 3.5%	5.2%	64.4 3.6%	3.5%	62.2 3.5%
Domestic	8.9 1.9%	(14.4)%	40.0 2.2%	(21.7)%	51.1 2.9%
Total crude oil	253.9 54.8%	6.2%	955.8 52.7%	0.3%	952.9 53.3%
Crude oil	mln tonnes		mln tonnes		mln tonnes
International Sales to non-CIS	30.9 49.4%	7.3%	115.0 46.9%	1.4%	113.4 46.9%
Europe and other directions	14.8 23.7%	12.9%	55.8 22.7%	(15.1)%	65.7 27.2%
Asia	16.1 25.7%	2.6%	59.2 24.2%	24.1%	47.7 19.7%
International Sales to CIS	2.2 3.5%	5.2%	8.7 3.6%	3.5%	8.4 3.5%
Domestic sales	1.2 1.9%	(14.4)%	5.4 2.2%	(21.7)%	6.9 2.9%
Total crude oil	34.3 54.8%	6.2%	129.1 52.7%	0.3%	128.7 53.3%
Petroleum products
International Sales to non-CIS	15.4 24.5%	(8.9)%	66.0 26.9%	3.6%	63.7 26.3%
Europe and other directions	10.9 17.3%	(11.4)%	49.0 20.0%	6.5%	46.0 19.0%
Asia	4.5 7.2%	(2.2)%	17.0 6.9%	(4.0)%	17.7 7.3%
International Sales to CIS	1.1 1.8%	0.0%	4.1 1.7%	(6.8)%	4.4 1.8%
Domestic sales	10.3 16.5%	(5.5)%	39.9 16.3%	3.1%	38.7 16.0%
Sales of bunker fuel to end-users	0.8 1.3%	(11.1)%	3.1 1.3%	10.7%	2.8 1.2%
Total petroleum products	27.6 44.1%	(7.4)%	113.1 46.2%	3.2%	109.6 45.3%
Sales of LNG	−	−	−	−	0.6 0.2%
Petrochemical products	0.7 1.1%	16.7%	2.8 1.1%	0.0%	2.8 1.2%
International sales	0.3 0.5%	50.0%	1.1 0.4%	0.0%	1.1 0.5%
Domestic sales	0.4 0.6%	0.0%	1.7 0.7%	0.0%	1.7 0.7%
Total crude oil and products, LNG	62.6 100.0%	(0.2)%	245.0 100.0%	1.4%	241.7 100.0%
	bcm		bcm		bcm
Gas sales volumes	16.63	15.1%	62.03	(2.9)%	63.91

Average Sales Prices

The following table sets forth Rosneft's average export and domestic prices of crude oil, gas, petroleum products and petrochemical products (the average sales prices may differ from official market prices provided by specialized agencies due to different quality of products and sales terms)*:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
	th.RUB/ barrel		th.RUB/ tonne		th.RUB/ barrel
Average prices on foreign markets
Crude oil, non-CIS	4.25	(10.0)%	4.23	42.9%	2.95
Europe and other directions**	4.04	(12.1)%	4.08	41.1%	2.89
Asia**	4.45	(7.6)%	4.38	43.4%	3.06
Crude oil, CIS	3.09	(12.3)%	3.16	36.8%	2.32
Petroleum products, non- CIS			35.5	34.5%	25.8
Europe and other directions			36.4	31.6%	26.6
Asia			33.4	44.1%	23.6
Petroleum products, CIS			38.3	37.5%	26.7
Sales of LNG	−	−	−	(100.0)%	18.9
Petrochemical products	39.6	(3.6)%	38.3	31.6%	29.1
Average domestic prices
Crude oil	2.96	(13.1)%	3.06	35.3%	2.26
Petroleum products	40.0	3.1%	37.4	18.0%	31.7
Gas (th. RUB./the cubic meter)***	3.60	10.8%	3.39	1.8%	3.33
Petrochemical products	32.4	(15.0)%	34.7	8.4%	32.0
Sales of bunker fuel to end-users	29.4	0.3%	27.3	36.5%	20.0

Average price is calculated from unrounded figures.
Price excludes the effect of prepayments offsetting under prepaid long-term crude oil supply contracts and revenues from crude oil sales to Transneft (RUB 39 billion and RUB 44 billion in the fourth and third quarters of 2018, respectively;RUB 151 billion and RUB 111 billion in the twelve months 2018 and 2017, respectively).
**Including gas sales outside Russian Federation average gas prices were 4.17 th. RUB./th. cubic meter in the fourth quarter of 2018 and 3.80 th. RUB./th. cubic meter in the third quarter of 2018; 3.77 th. RUB./th. cubic meter and 3.36 th. RUB./th. cubic meter in the twelve months of 2018 and 2017, respectively.

International Crude Oil Sales to non-CIS

Revenue decrease in international crude oil sales to non-CIS countries in the fourth quarter of 2018 compared with the third quarter of 2018 was due to the downturn of 10.0% in average price or RUB 102 billion, which was partially offset by growth of sales volumes by 7.3% (favorable impact on revenue of RUB 72 billion). Revenue growth of international crude oil sales to non-CIS countries in the twelve months of 2018 compared with the same period of 2017 was mostly due to the upturn of 42.9% in average price or RUB 1 061 billion and growth of sales volumes by 1.4% (favorable impact on revenue of RUB 44 billion).# International Crude Oil Sales to CIS

Revenue of international crude oil sales to CIS countries in the fourth quarter of 2018 decreased due to the downturn of 12.3% in average sales price (unfavorable impact on revenues of RUB 7 billion), which was offset by an increase in sales volume by 5.2% (positive impact on revenue of RUB 1 billion). Revenue from international crude oil sales to CIS countries increased in the twelve months of 2018 compared with the same period of 2017 that was due to growth in average sales price of 36.8% (positive impact on revenues of RUB 54 billion) and was accompanied by sales volume growth of 3.5% (favorable impact on revenue of RUB 4 billion).

Domestic Sales of Crude Oil

Revenue downturn of domestic sales of crude in the fourth quarter of 2018 compared with the third quarter of 2018 was due to downturn of average sales price of 13.1% (negative impact on revenue of RUB 2 billion), was accompanied by volume downturn of 14.4% (unfavorable impact on revenue of RUB 5 billion). Revenue upturn of domestic sales of crude oil in the twelve months of 2018 compared with the same period of 2017 is mainly attributable to upturn of average sales price of 35.3% (positive impact on revenue of RUB 32 billion) and was partially offset by downturn in crude oil sales volumes of 21.7% (negative effect on revenues of RUB 7 billion).

International Petroleum Product Sales to Non-CIS

The table below sets forth Rosneft's revenue, volume and average price per tonne of petroleum products sold to non-CIS countries in the fourth and third quarters of 2018*:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change
	RUB billion	mln of tonnes	Average price th. RUB/ tonne
High octane gasoline	6	0.1	47.4
Naphtha	56	1.6	35.1
Diesel (Gasoil)	118	3.5	39.4
Fuel oil	184	6.5	26.9
Other	7	0.2	33.9
Petroleum products exported to non-CIS	371	11.9	32.0
Petroleum products sold from German refineries	132	2.4	55.1
Petroleum products bought and sold outside Russia	37	1.1	31.7
Trading of petroleum products outside Russia	169	3.5	47.4
Total	540	15.4	35.5

*Average price is calculated from unrounded figures.

Revenue decrease in the international sales of petroleum products to non-CIS countries in the fourth quarter of 2018 compared with the third quarter of 2018 was due to downturn in average price up to 7.1% (negative impact on revenues of RUB 40 billion) and was accompanied by sales volumes decrease of 8.9% (unfavorable impact on revenues of RUB 63 billion).

The table below sets forth Rosneft's revenues, volume and average price per tonne of petroleum products sold to non-CIS countries in the twelve months of 2018 and 2017*:

	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change
	RUB billion	million of tonnes	Average price th.RUB/ tonne
High octane gasoline	30	0.7	42.1
Naphtha	227	6.2	36.8
Diesel (Gasoil)	581	15.8	37.9
Fuel oil	658	25.4	25.9
Other	27	0.8	35.7
Petroleum products exported to non-CIS	1,523	48.9	31.6
Petroleum products sold from German refineries	537	10.7	50.1
Petroleum product purchased and sold outside Russia	212	6.4	33.0
Trading of petroleum products outside Russia	749	17.1	43.7
Total	2,272	66.0	34.7

*Average price is calculated based on the unrounded figures.

Revenue from sales of petroleum products to non-CIS countries increased in the twelve months of 2018 compared with the same period of 2017 was mainly attributable to average price upturn of 34.5% (favorable impact on revenues of RUB 589 billion), and was accompanied by sales volumes increase of 3.6% (favorable impact on revenues of RUB 61 billion). Growth in sales of petroleum products purchased and sold outside Russia resulted from an upturn in trading activity of the foreign division of the Company.

International Petroleum Product Sales to CIS

Revenue decrease in the international sales of petroleum products to CIS countries in the fourth quarter of 2018 compared with the third quarter of 2018 attributable to average price downturn of 5.7% (unfavorable impact on revenues of RUB 4 billion). Revenue from international sales of petroleum products to CIS countries increased in the twelve months of 2018 compared with the same period of 2017 that was mainly attributable to average price upturn of 37.5% (favourable impact on revenues of RUB 41 billion), and was partially offset by sales volumes downturn by 6.8% (unfavorable impact on revenues of RUB 7 billion).

Sales of bunker fuel

The Company sells bunker fuel (fuel oil, low-viscosity marine fuel, diesel fuel and other) in the seaports (the Far East, the North, the North West and the South of the European part of Russia) and river ports (the Volga-Don basin and in the rivers of Siberia) of the Russian Federation and in the ports outside the Russian Federation. Revenues from sales of bunker fuel in the fourth quarter of 2018 compared with the third quarter of 2018 decreased mainly due to a decrease in sales volume by 11.1% (unfavorable effect on revenue of RUB 3 billion). Revenues growth of sales of bunker fuel in the twelve months of 2018 compared with the same period of 2017 was due to average sales price upturn of 36.5% (favorable effect on revenue of RUB 22 billion) and growth of sales volume by 10.7% (favorable effect on revenue of RUB 6 billion).

Petrochemical Products Sales

Petrochemical products sales volumes from the German refineries amounted to 0.11 mln tonnes in the fourth and 0.13 mln tonnes third quarters of 2018, respectively. In the fourth quarter of 2018 compared with the third quarter of 2018 international revenues of petrochemical products did not change and remained at the level of RUB 10 billion. Domestic sales of petrochemical products in the fourth quarter of 2018 compared with the third quarter of 2018 decreased by 13.3% and amounted to RUB 13 billion mainly due to average sales price downturn of 15.0%. In the twelve months of 2018 compared with the same period of 2017 international revenues increased due to upturn in average sales price by 31.6% (positive impact on revenues of RUB 10 billion). Domestic sales of petrochemical products in the twelve months of 2018 compared with the twelve months of 2017 increased mainly due to upturn in average sales price by 8.4% (positive impact on revenues of RUB 6 billion).

Gas Sales

The table below sets forth revenues, volumes and average price of gas sales by Rosneft*:

	For 3 months ended December 31, 2018	% change	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	% change	For 12 months ended December 31, 2017
	RUB billion		RUB billion	RUB billion		RUB billion
Revenue
In the Russian Federation	56.1	26.9%	44.2	200.5	(4.7)%	210.4
Outside the Russian Federation	13.4	25.2%	10.7	33.3	>100%	4.4
Total	69.5	26.6%	54.9	233.8	8.8%	214.8
Sales volumes
bcm			bcm	bcm		bcm
In the Russian Federation	15.59	14.9%	13.57	59.13	(6.5)%	63.22
Outside the Russian Federation	1.04	18.2%	0.88	2.90	>100%	0.69
Total	16.63	15.1%	14.45	62.03	(2.9)%	63.91
Average price
th. RUB/th. of cubic metres			th. RUB/th. of cubic metres	th. RUB/th. of cubic metres		th. RUB/th. of cubic metres
In the Russian Federation	3.60	10.8%	3.25	3.39	1.8%	3.33
Outside the Russian Federation	12.76	3.8%	12.29	11.46	80.8%	6.34
Average price of the Company	4.17	9.7%	3.80	3.77	12.2%	3.36

*Average price is calculated from unrounded figures.

Increase in gas sales volumes in the Russian Federation of 14.9% in the fourth quarter of 2018 compared with the third quarter of 2018 was due to seasonal factor accompanied by average sales price upturn of 10.8%. Significant growth of gas revenues outside Russia was mainly due to the production growth at Zohr project. In the Russian Federation gas sales downturn in the twelve months of 2018 compared with the same period of 2017 resulted from decrease in gas sales volumes of 6.5% (negative impact on revenues of RUB 13.6 billion), caused by reduction of gas production and procurement, that was partially offset by the average sales price upturn of 1.8% (positive impact on revenues of RUB 3.7 billion). Significant growth of gas revenues outside Russia was mainly due to the production growth at Zohr project.

Support Services and Other Revenues

Rosneft owns service entities that render drilling, construction, repairs and other services mainly to the entities within the Group. Revenues from services rendered to third parties are included in the consolidated statements of profit or loss.# Rosneft's Other Revenues

The following table sets forth Rosneft's other revenues for the periods analysed:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change
	billion RUB, except %	billion RUB, except %		billion RUB, except %	billion RUB, except %
Drilling services	1.0	0.7	42.9%	3.0	4.3	(30.2)%
% of total revenue	4.6%	4.0%		3.7%	5.6%
Sales of materials	7.4	6.5	14.3%	30.7	27.4	12.0%
% of total revenue	34.0%	37.1%		38.3%	35.6%
Repairs and maintenance services	0.6	0.4	50.0%	2.0	2.5	(20.0)%
% of total revenue	2.8%	2.3%		2.5%	3.2%
Rent services	1.6	1.4	14.3%	5.3	5.3	0.0%
% of total revenue	7.3%	8.0%		6.6%	6.9%
Construction services	0.0	0.2	(100.0)%	0.5	0.5	0.0%
% of total revenue	0.0%	1.1%		0.6%	0.6%
Transport services	4.3	2.9	48.3%	15.2	14.7	3.4%
% of total revenue	19.7%	16.6%		18.9%	19.0%
Electric power sales and transmission	3.1	2.1	47.6%	10.5	9.9	6.1%
% of total revenue	14.2%	12.0%		13.1%	12.8%
Other revenues	3.8	3.3	15.2%	13.1	12.6	4.0%
% of total revenue	17.4%	18.9%		16.3%	16.3%
Total	21.8	17.5	24.6%	80.3	77.2	4.0%
% of total revenue	100.0%	100.0%		100.0%	100.0%

Equity share in profits of downstream associates and joint ventures

The equity share in net financial results (profits) of downstream[3] associates and joint ventures amounts to RUB 5 billion in the twelve months of 2018. In the twelve months of 2017, the equity income was RUB 13 billion.

Downstream production and operating costs

Downstream operating expenses include*:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change
	billion RUB, except %	billion RUB, except %		billion RUB, except %	billion RUB, except %
Operating expenses at refineries in Russia	39.4	32.9	19.8%	130.0	116.8***	11.3%
Operating expenses at refineries and cost of additives and materials procured for processing outside Russia	12.2	13.2	(7.6)%	52.2	46.5	12.3%
Operating expenses of retail entities including:	14.8	14.1	5.0%	54.6	49.8	9.6%
operating expenses	10.9	9.5	14.7%	38.8	35.2	10.2%
purchase cost of other inventories	3.9	4.6	(15.2)%	15.8	14.6	8.2%
Downstream operating expenses	66.4	60.2	10.3%	236.8	213.1	11.1%
Intragroup inventory effect and others	15.8	2.8	>100%	(15.5)	(18.5)***	˗
Total Downstream Operating expenses	82.2	63.0	30.5%	221.3	194.6	13.7%

*The difference between percentages presented in the above table and other sections is a result of rounding.
**Cost of materials for blending at the retail entities was presented in the "Cost of Purchased Oil, Gas and Petroleum Products and Refining Costs". The comparative periods were adjusted respectively.
***Adjusted for intercompany purchases.

Operating expenses of refineries and retail entities (net of intragroup inventory effect) in the fourth quarter of 2018 compared with the third quarter of 2018 increased by 10.3% due to seasonal factor and scheduled rise of production expenses.

Operating expenses of refineries and retail entities (net of intragroup inventory effect) in the twelve months of 2018 compared with the twelve months of 2017 increased by 11.1%, that is mainly due to growth of volumes of scheduled turnarounds at refineries, higher electricity expenses, indexation of wages and also due to RUB depreciation against EUR.

Operating expenses of refineries and retail entities (net of intragroup inventory effect)

The table below shows operating expenses at Rosneft's refineries:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change
Operating expenses at refineries in Russia (RUB billion)	39.4	32.9	19.8%	130.0	116.8	11.3%
Operating expenses per tonne of petroleum product and petrochemical output (RUB per tonne)	1,650	1,378	19.7%	1,410	1,306	8.0%
Operating expenses per tonne of crude oil throughput (RUB per tonne)	1,590	1,331	19.5%	1,364	1,261	8.2%
Operating expenses at refineries outside Russia (RUB billion)*	7.2	6.5	10.8%	26.9	22.6	19.0%
Operating expenses per tonne of petroleum product and petrochemical output (RUB per tonne)	2,618	2,124	23.3%	2,280	1,891	20.6%
Operating expenses per tonne of crude oil throughput (RUB per tonne)	2,748	2,167	26.8%	2,333	1,883	23.9%
Total operating expenses at Rosneft's refineries (RUB billion)	46.6	39.4	18.3%	156.9	139.4	12.6%

*Refineries outside Russia also procured the additives and materials for processing: in the fourth quarter of 2018- RUB 5.0 billion, in the third quarter of 2018 - RUB 6.7 billion; in the twelve months of 2018 and 2017 - RUB 25.3 billion and RUB 23.9 billion, respectively.

Operating expenses of Rosneft's refineries in Russia in the fourth quarter of 2018 compared with the third quarter of 2018 increased by 19.8% to RUB 39.4 billion (an increase of 19.5% per tonne), mainly due to scheduled growth of turnaround expenses and production expenses, and seasonal growth of energy consumption.

Operating expenses of Rosneft's refineries in Russia in the twelve months of 2018 compared with the twelve months of 2017 increased by 11.3% (an increase of 8.2% per tonne) because of growth of electricity tariffs, indexation of wages and scheduled increase in turnaround expenses.

Operating expenses of Rosneft's refineries outside Russia in the fourth quarter of 2018 increased by 10.8% if compared with the third quarter of 2018, due to planned growth of production services and higher seasonal energy consumption. Growth of 26.8% of operating expenses per tonne of refineries outside Russia was driven by seasonal growth of expenses on the back of decrease in production capacity in the fourth quarter of 2018. The increase in the operating expenses of Rosneft's refineries outside Russia (and operating costs per tonne) in the twelve months of 2018 compared with the twelve months of 2017 was mainly driven by growth of planned turnaround expenses and RUB depreciation against EUR of 10.9%.

Cost of Purchased Oil, Gas and Petroleum Products and Refining Costs and others

The following table shows Rosneft's crude oil, gas and petroleum products procurement costs and volumes, and third-party refining costs*:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change
	billion RUB	billion RUB		billion RUB	billion RUB
Crude oil and gas procurement
Cost of crude oil and gas procured (RUB billion)**	236	242	(2.5)%	846	651	30.0%
including Domestic market	109	106	2.8%	395	273	44.7%
International market	127	136	(6.6)%	451	378	19.3%
Volume of crude oil procured (millions of barrels)	65.9	61.0	8.0%	232.9	243.9	(4.5)%
including Domestic market	32.2	29.9	7.7%	118.1	108.7	8.6%
International market	33.7	31.1	8.4%	114.8	135.2	(15.1)%
Volume of gas procured (bcm)	4.01	1.93	>100%	12.87	15.25	(15.6)%
LNG procurement
Cost of LNG (RUB billion)	−	−	−	11	−	(100.0)%
Volume of LNG procured (millions of tonnes)	−	−	−	0.62	−	(100.0)%
Petroleum products procurement
Cost of petroleum products procured (RUB billion)***	40	50	(20.0)%	225	146	54.1%
Volume of petroleum products procured (millions of tonnes)	1.33	1.56	(14.7)%	7.24	5.67	27.7%
Crude oil, gas and petroleum, products refining services
Cost of refining of crude oil, gas and petroleum products under processing agreements (RUB billion)	6.4	7.3	(12.3)%	27.9	29.0	(3.8)%
Volumes of crude oil and petroleum products produced under processing agreements (millions of tonnes)	2.2	2.1	4.8%	8.3	9.6	(13.5)%
Volumes of gas produced under processing agreements (bcm)	2.4	2.6	(7.7)%	10.4	10.4	0.0%
Cost of products procured for blending on retail entities (RUB billion)	14.8	7.8	89.7%	34.8	24.7	40.9%
Including intercompany purchases (RUB billion)	14.8	7.8	89.7%	34.8	24.1	44.4%
Total cost of procured oil, gas and petroleum products, and refining costs (RUB billion)	283	299	(5.4)%	1,099	837	31.3%

*Cost of purchases under IFRS consolidated financial statements (net of intercompany turnover).
**Including costs of Upstream segment in the amount of RUB 9 billion in the fourth quarter of 2018, RUB 7 billion in the third quarter of 2018 and RUB 27 billion and RUB 35 billion in the twelve months of 2018 and 2017, respectively.
***Average procurement price of petroleum products purchased from third parties may be higher than the average selling price of petroleum products due to differences in the mix of procured and sold petroleum products.

Crude oil and Gas procurement

Rosneft purchases crude oil primarily from its associates to process it at its own refineries or export. Rosneft procures crude oil on the international market to supply it to the refineries in Germany. The decrease in crude oil and gas procurement of 2.5% in the fourth quarter of 2018 compared with the previous quarter is mainly attributable to reduction of crude oil prices.

The structure of crude oil purchases is set in the table below:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change
	mln barrels	mln barrels		mln barrels	mln barrels
International market	33.7	31.1	8.4%	114.8	135.2	(15.1)%
Udmurtneft	6.7	6.2	8.1%	24.8	23.6	5.1%
Slavneft	14.3	13.0	10.0%	51.1	51.4	(0.6)%
Messoyahaneftegaz	4.5	4.3	4.7%	16.4	11.7	40.2%
Lukoil-Reservnefteproduct	−	0.2	(100.0)%	0.6	1.5	(60.0)%
Others	6.7	6.2	8.1%	25.2	20.5	22.9%
Total	65.9	61.0	8.0%	232.9	243.9	(4.5)%

Rosneft performs oil swaps operations in order to optimize transportation costs of deliveries to refineries. Revenues and costs related to these operations are presented on a net basis in the "Pipeline tariffs and Transportation costs" line of the consolidated statement of profit or poss. The volume of swaps was 11.2 mln barrels and 10.9 mln barrels in the fourth quarter of 2018 and in the third quarter of 2018, respectively; 39.9 mln barrels and 34.6 mln barrels in the twelve months of 2018 and 2017, respectively.

Petroleum products procurement

Petroleum products from third parties are primarily procured to cover current needs of Rosneft's retail subsidiaries. Procurement of petroleum products is exposed to seasonal fluctuations in volumes and mix. Procurement prices may vary significantly depending on regional markets. Petroleum products outside Russia are procured primarily for sale on the international markets.The table below sets forth Rosneft's costs, volumes and average prices per tonne of petroleum products procured from third parties in the fourth and third quarters of 2018, respectively:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	% change RUB billion	% change mln tonnes	% change th. RUB/ tonne*
RUB billion	7	6	16.7%
mln tonnes	0.18	0.20		(10.0)%
th. RUB/ tonne*	16.7	16.7			0.0%
Petroleum products procurement in Russia
High octane gasoline	2	2	0.0%	20.0%	7.1%
Diesel	4	3	33.3%	0.0%	2.5%
Jet fuel	0	0	0.0%	0.0%	1.3%
Others	1	1	0.0%	(42.9)%	(18.2**)%
Petroleum products procured outside Russia	33	44	(25.0)%	(15.4)%	(10.2)%
Total	40	50	(20.0)%	(14.7)%

*Calculated based on unrounded data.
** The decrease is due to product mix.

The table below sets forth Rosneft's costs, volumes and average prices per tonne of petroleum products procured from third parties in the twelve months of 2018 and 2017, respectively:

	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017	% change RUB billion	% change mln tonnes	% change th. RUB/ tonne*
RUB billion	26	30	(13.3)%
mln tonnes	0.77	1.01		(23.8)%
th. RUB/ tonne*	35.1	32.8			7.0%
Petroleum products procurement in Russia
High octane gasoline	9	9	0.0%	0.0%	7.0%
Diesel	13	12	8.3%	(8.8)%	14.6%
Jet fuel	0	0	0.0%	(100)%	44.7%
Others	4	9	(55.6)%	(50.0)%	(7.4)%
Petroleum products and petrochemicals procured outside Russia	199	116	71.6%	38.8%	33.3%
Total	225	146	54.1%	27.7%

*Calculated based on unrounded data.
Average purchase prices may be different from average sale prices depending on different regional structure of purchases and mix structure of the petroleum products.
Volume of petroleum products procured outside Russia increased in the twelve months of 2018 compared with the same period of 2017 due to growth of the Company's trading activity.

Petroleum products and petrochemicals procurement outside Russia
Procurement of petroleum products outside Russia meets the contractual obligations under long-term agreements on sales of petroleum products. The increase in procurement of petroleum products and petrochemicals outside Russia in the twelve months of 2018 by 71.6% in comparison with the same period of 2017 was driven by average procurement price growth due to mix of crude oil products and the upturn of supply under the project in India (procurement from Nayara Energy Limited) in the twelve months 2018.

Crude oil and gas processing, petroleum products processing
Starting from April 2014, associated petroleum gas sales to PJSC "Sibur" and purchases of dry stripped gas from PJSC "Sibur" are presented on a net basis in the Company's financial statements in processing costs in the amount of RUB 5.1 billion and RUB 4.1 billion in the fourth and third quarters of 2018, respectively, and RUB 15.3 billion and RUB 14.0 billion in the twelve months of 2018 and 2017, respectively.

Pipeline Tariffs and Transportation Costs
Transportation costs are costs incurred by Rosneft to transport crude oil for refining and to end customers and to deliver petroleum products from refineries to end customers (these may include pipeline tariffs and railroad tariffs, handling costs, port fees, sea freight and other costs) and also costs to transport gas via gas pipeline system. The increase in transportation costs by 2.5% in the fourth quarter of 2018 compared with the previous quarter was mainly caused by increase in share of high cost routes and increased share of railroads due to termination of the navigation.

The table below sets forth the comparison of costs per tonne of crude oil and petroleum products transported by pipeline, railroad and mixed transportation and gas transportation costs via gas pipeline system in the fourth and third quarters of 2018, respectively:

	For 3 months ended December 31, 2018		For 3 months ended September 30, 2018		% change Volume	% change Cost	% change Cost per tonne
	Volume, mln tonnes	Share in export volumes	Cost, bln RUB	Cost per tonne, th.RUB/t*
CRUDE OIL
International sales
Pipeline	29.3	88.5%	63.5	2.17	3.5%	3.9%	0.5%
Railroad and mixed	0.4	1.2%	1.6	3.85	(20.0)%	-	8.5%
Pipeline and FCA**		10.3%	2.0		6.5%
Transportation to refineries
Pipeline***	26.6		20.1	0.76	(1.8)%	(2.0)%	1.3%
Railroad and mixed	2.9		10.3	3.61	3.6%	6.2%	3.1%
PETROLEUM PRODUCTS
International sales
Pipeline	1.7	9.8%	4.5	2.65	(22.7)%	(18.2)%	4.3%
Railroad and mixed	12.4	71.2%	33.9	2.72	(7.5)%	0.6%	7.8%
Pipeline and FCA***	3.3	19.0%	3.5		(5.7)%
GAS			bcm	RUB/ bcm
Pipeline***	11.4		11.6	1.02	12.9%	2.7%	(8.9)%
Other transportation expenses***			19.5		17.6
Total	80		165	79.8	0.3%	2.5%	161

Calculated based on unrounded data.
Rosneft exported part of crude oil on FCA terms and through the foreign trading subsidiary of the Company, where Rosneft does not bear transportation expenses directly, except for transshipment and dispatching cargo costs.
Including crude oil purchased on international market, which was delivered to the German refineries.
Rosneft exported part of petroleum products through its own export terminal in Tuapse.
Part of gas volumes was dispatched on terms under which Rosneft does not bear transportation expenses. In the fourth quarter of 2018 and in the third quarter of 2018 the volumes were 5.2 bcm and 4.4 bcm, respectively.
*Other transportation expenses include cost of railroad transportation of petroleum products from refineries to tank farms and road transportation from tank farms to fuel filling station.

Crude oil pipeline transportation cost per tonne of international sales in the fourth quarter of 2018 remained practically unchanged to compare to third quarter and amounted to RUB 2.17 thousand per tonne. Crude oil pipeline transportation cost per tonne of supplies to refineries increased by 1.3% in the fourth quarter of 2018 compared to the third quarter of 2018 that was caused by change in structure of transportation routes. Crude oil railroad and mixed transportation cost per tonne of supplies to refineries in the fourth quarter of 2018 increased by 3.1% compared with the third quarter of 2018 due to change in transportation routes. The increase in railroad and mixed transportation per tonne of petroleum products international sales by 7.8% in the fourth quarter of 2018 compared with the previous quarter was mainly due to change in transportation structure. In the fourth and third quarters of 2018 indexation of gas transportation tariffs was not carried out.

The table below sets forth comparison for costs per tonne of crude oil and petroleum products transported by pipeline, railway and mixed transportation and gas transportation costs via gas pipeline system in the twelve months of 2018 and 2017, respectively:

	For 12 months ended December 31, 2018		For 12 months ended December 31, 2017		% change Volume	% change Cost	% change Cost per tonne
	Volume, mln tonnes	Share in export volumes	Cost, bln RUB	Cost per tonne, th.RUB/t*
CRUDE OIL
International sales
Pipeline	112.8	91.2%	241.6	2.14	6.1%	12.1%	5.4%
Railroad and mixed	1.9	1.5%	7.0	3.63	(13.6)%	(4.1)%	9.0%
Pipeline and FCA**	9.0	7.3%	13.3		(32.3)%
Transportation to refineries
Pipeline***	104.4		79.6	0.76	1.9%	5.0%	2.7%
Railroad and mixed	10.6		37.0	3.51	3.9%	7.9%	4.5%
PETROLEUM PRODUCTS
International sales
Pipeline	7.8	10.6%	20.8	2.67	(2.5)%	(5.9)%	(3.4)%
Railroad and mixed	52.4	71.1%	135.3	2.58	0.6%	5.8%	4.9%
Pipeline and FCA***	13.5	18.3%	11.3		19.5%
GAS			bcm	RUB/bcm
Pipeline***	41.9		45.1	1.08	(2.8)%	(11.2)%	(8.5)%
Other transportation expenses***			71.6		63
Total	312.4		638	305.9	2.1%	7.0%	596

Calculated based on unrounded data.
Rosneft exported part of crude oil on FCA terms and through the foreign trading subsidiary of the Company, where Rosneft does not bear transportation expenses directly, except for transshipment and dispatching cargo costs.
Including crude oil purchased on international market, which was delivered to the German refineries.
Rosneft exported part of petroleum products through its own export terminal in Tuapse.
Part of gas volumes was dispatched on terms where Rosneft does not bear transportation expenses. These volumes amounted to 20.1 bcm and 20.9 bcm in the twelve months of 2018 and 2017, respectively.
*Other transportation expenses include cost of railroad transportation of petroleum products from refineries to tank farms and road transportation from tank farms to fuel filling stations.

The change in transportation costs per tonne of products sold (for crude oil and petroleum products) for the twelve months of 2018 compared with the same period of 2017 mainly resulted from tariffs indexation.

Excise Taxes
Excise tax in the fourth quarter of 2018 was RUB 80 billion (including excise tax related to processing outside Russia in the amount of RUB 28 billion) compared with excise tax of RUB 77 billion in the third quarter of 2018, caused by higher volumes of production in the fourth quarter of 2018. Excise tax in the twelve months of 2018 was RUB 327 billion compared to RUB 326 billion in 2017, respectively.

Export Customs Duties
Export customs duties include crude oil and petroleum products export customs duties. Export customs duty rates are presented above under "Macroeconomic Factors Affecting the Results of Operations - MET, Export Duties and Excise Taxes" and more information on export duty taxation is provided further in the Attachment 1 "Taxation".## 55. Operating results of segment "Corporate and others"

Segment includes the Group entities that provide corporate services and holdings' expenses.

For 3 months ended	% change	For 12 months ended	% change
December 31, 2018	September 30, 2018	2018	2017
RUB billion		RUB billion
EBITDA	(21)	(15)	(40.0)%
Capital expenditures*	8	4	100.0%

*Refer to "Capital expenditures".

56. Separate indicators of the consolidated financial statements

Costs and Expenses

General and Administrative Expenses

General and administrative expenses include wages, salaries and social benefits (except for wages and social benefits of technical staff of production and refining entities), banking commissions, third-party fees for professional services, insurance expenses (except for insurance of oil and gas production and refining entities), maintenance of social infrastructure, lease expenses, changes in loss allowance for expected credit losses and other general expenses. General and administrative expenses, net of the allowance for expected credit losses, were RUB 163 billion in the twelve months of 2018 and RUB 158 billion - in the twelve months of 2017, respectively.

Depreciation, Depletion and Amortization

Depreciation, depletion and amortization include depreciation of crude oil and gas producing assets and other production and corporate assets. In the fourth quarter of 2018 DDA was RUB 163 billion and did not change compared with the third quarter of 2018. The DDA grew in the twelve months of 2018 compared to the same period of 2017 due to the acquisition of new assets in 2017 and production growth at some assets.

Taxes Other than Income Tax

Taxes other than income tax include the mineral extraction tax, the excise tax, the property tax and other taxes. The basis for calculation of mineral extraction tax is set in the section "Taxation" in the Attachment 1.

The following table sets forth Rosneft's taxes other than income tax for the periods analysed (in RUB billion):

For 3 months ended	% change	For 12 months ended	% change
December 31, 2018	September 30, 2018	2018	2017
RUB billion		RUB billion
Mineral extraction tax	597	640	(6.7)%
Excise tax	80	77	3.9%
Social security tax	17	16	6.3%
Property tax	10	10	-
Other taxes, interest, penalties and other payments to budget	2	2	-
Total taxes other than income tax	706	745	(5.2)%

Taxes other than income tax in the fourth quarter of 2018 compared with the third quarter of 2018 reduced by 5.2% caused by decrease in the mineral extraction tax expense by 6.7%. In the twelve months of 2018 compared with the same period of 2017, taxes other than income tax increased by 40.8% mainly due MET base rate growth.

Finance Income and Expenses

In the fourth quarter of 2018, net finance expenses were RUB 40 billion compared with RUB 51 billion in the third quarter of 2018. In the twelve months of 2018, net finance expenses increased to RUB 168 billion compared with RUB 118 billion in the twelve months of 2017. The changes were caused by the fair value re-measurement of derivative financial instruments and re-measurement of other financial assets in accordance with IFRS 9 Financial Instruments.

Other Income and Expenses

In the fourth quarter of 2018, other income amounted to RUB 1 billion compared to RUB 21 billion in the third quarter of 2018 due to the recognition of the gain on bargain purchase and other income in the third quarter of 2018. In the twelve months of 2018 and 2017 the amount of other income amounted to RUB 49 billion and RUB 110 billion, respectively. One-off income of RUB 100 billion was recognized in the Profit or loss statement in the fourth quarter of 2017 as a result of the achieved out-of-court settlement with AFK "Sistema". Other expenses include assets impairment, effect of fixed assets disposal in the course of operating activities and other expenses. In the fourth quarter of 2018, other expenses increased up to RUB 57 billion compared to RUB 150 billion in the third quarter of 2018, including the recognition of goodwill impairment of RUB 133 billion in the segment "Refining and distribution". In the twelve months of 2018 other expenses amounted to RUB 294 billion and RUB 75 billion in the twelve months of 2017. The growth of other expenses was manly caused by recognition of impairment of goodwill in the segment "Refining and distribution" and other assets.

Foreign Exchange Differences

Foreign exchange effects are mostly attributable to monthly revaluation of assets and liabilities denominated in foreign currency at the exchange rate at the end of the period. Foreign exchange effects in the fourth quarter of 2018 was profit in the amount of RUB 7 billion and RUB 27 billion in the third quarter of 2018 that was due to negative effect of RUB revaluation of assets nominated in EUR proceeding from the dynamics of exchange rates. Capitalized exchange differences resulting from foreign currency borrowings used for capital construction projects and the acquisition of property, plants and equipment were RUB 44 billion in the twelve months of 2018 and RUB 27 billion in the twelve months of 2017.

Cash flow hedges reclassified to profit or loss

Cash flow hedges reclassified to profit or loss recognized in the consolidated statement of profit or loss in the fourth and third quarters of 2018 were RUB 37 billion and RUB 36 billion, respectively. In the twelve months of 2018 and 2017, cash flow hedges reclassified to profit or loss recognized in the consolidated statement of profit or loss were RUB 146 billion and RUB 146 billion, respectively.

Income Tax

The following table sets forth the Company's effective income tax rate under IFRS for the periods analysed:

For 3 months ended	For 12 months ended
December 31, 2018	December 31, 2017
September 30, 2018	2018
Effective rate of income tax (IFRS)	19.0%

The Company applies the provisions of IAS 12 "Income taxes" to determine income tax in the consolidated profit or loss statement. The effective income tax rate for reported periods differs from the statutory rate of 20% because of differences in recognition of expenses and income for IFRS and tax purposes and due to application of tax relief.

57. Net Income

In the fourth quarter of 2018, the net income was RUB 132 billion (RUB 109 billion attributable to Rosneft shareholders) in comparison with RUB 177 billion (RUB 142 billion attributable to Rosneft shareholders) the third quarter of 2018. Reduction is mainly caused by the negative dynamic of operating income (-31.5% to the third quarter of 2018) and lower positive effect of forex and other income. In the twelve months of 2018 and 2017, the net income amounted to RUB 649 billion (RUB 549 billion attributable to Rosneft shareholders) and RUB 297 billion (RUB 222 billion attributable to Rosneft shareholders), respectively. Increased net income, including non-cash effect of goodwill impairment, is mainly driven by positive FX impact and one-off gain from recognizing net income from the share acquisition in upstream JV with a foreign partner and recognition of fair value of previously held interest in JV.

60. Liquidity and Capital Resources

Cash Flows

The principal items of the statement of cash flows for the periods analysed are as follows:

For 3 months ended	% change	For 12 months ended	% change
December 31, 2018	September 30, 2018	2018	2017
RUB billion		RUB billion
Net cash received from operating activities	376	507	(25.8)%
Net cash used in investing activities	(51)	(178)	(71.3)%
Net cash (used in)/received from financing activities	55	(193)	-

Net cash received from operating activities

Net cash provided by operating activity for the analysed periods is presented in the table below:

For 3 months ended	% change	For 12 months ended	% change
December 31, 2018	September 30, 2018	2018	2017
RUB billion		RUB billion
Net cash provided by operating activity	376	507	(25.8)%
Offset of prepayments received under long term supply contracts at average ex.rate	48	110	(56.4)%
Offset of other financial liabilities2	38	55	(30.9)%
Interest expense for prepayments under long term supply contracts1	24	24	-

Interest expenses for prepayments under long term supply contracts are included into adjusted operating cash flows. Interest expenses on the prepayment on long-term oil and petroleum products supply agreements are composed of interests accrued for the reporting period and offset against crude oil supply under the contracts in the amount of RUB 22 billion and interests paid of RUB 2 billion in the fourth quarter of 2018; offsetting of RUB 23 billion and interests paid of RUB 1 billion in the third quarter of 2018; offsetting of RUB 85 billion and interests paid of RUB 6 billion in the twelve months of 2018 and offsetting of RUB 71 billion and interests paid of RUB 10 billion in the twelve months of 2017, respectively.
Other financial liabilities are offset by deliveries.

The decrease in operating cash flow in the fourth quarter of 2018 is mainly associated with reduction of EBITDA.

Net cash (used in)/received from investing activities

In the fourth quarter of 2018 the Company's investing activity mainly referred to capital expenditures. The decrease in cash used in investing activities compared with the third quarter of 2018 is attributable to returns of current and non-current financial assets. In the twelve months of 2018 compared with the same period of 2017 decline in investing activity was mainly due to a significant acquisition of new assets, interests in associates and joint ventures in 2017.

Net cash (used in)/received from financing activities

In the twelve months of 2018, net cash used in financing activities was mainly used for the scheduled repayment of loans and dividend repayments of RUB 225 billion to the Company's shareholders and RUB 65 billion to non-controlling shareholders. In the twelve months of 2017, net cash received from financial activities was RUB 381 billion by attracting long-term and short-term ruble funds, which was partially compensated by dividend repayments of RUB 104 billion to the Company's shareholders and RUB 38 billion to non-controlling shareholders.

Capital Expenditures

The table below sets forth Rosneft's capital expenditures by operating segments and license acquisition costs:

	For 3 months ended December 31, 2018	% change	For 12 months ended December 31, 2018	% change
RUB billion	September 30, 2018		2017
RN-Yuganskneftegaz	50	51	(2.0)%	213
Vankor projects	19	18	5.6%	71
Samotlorneftegaz	18	16	12.5%	62
Upstream projects (Zohr)	15	14	7.1%	46
Rospan International	8	8	−	33
Orenburgneft	8	8	−	32
RN-Uvatneftegaz	9	8	12.5%	29
Samaraneftegaz	7	6	16.7%	28
Vostsibneftegaz	5	7	(28.6)%	27
RN-Purneftegaz*	7	7	−	24
RN-Nyaganneftegaz	7	6	16.7%	24
Kondaneft	6	5	20.0%	24
Taas-Yuryakh Neftegazodobycha	6	5	20.0%	23
Bashneft-Dobycha	7	6	16.7%	22
Tyumenneftegaz	5	5	−	21
Varyoganneftegaz	6	4	50.0%	19
RN-Severnaya Neft	4	4	−	17
Kharampurneftegaz	9	2	>100%	16
Verkhnechonskneftegaz	2	4	(50.0)%	15
Bashneft-Polyus	4	4	−	15
Upstream projects (Sakhalin-1)	3	3	−	12
Tomskneft VNK	3	2	50.0%	8
Sibneftegaz	2	1	100.0%	5
Sorovskneft	1	1	−	5
Other	15	14	7.1%	59
Government grants	(7)	(3)	>100%	(10)
Total upstream segment	219	206	6.3%	840
Novokuibyshevsk refinery	1	2	(50.0)%	6
Tuapse refinery	2	1	100.0%	5
Kuibyshev refinery	2	−	−	4
Syzran refinery	2	1	100.0%	4
Ryazan refinery	1	1	−	4
Komsomolsk refinery	2	1	100.0%	4
Angarsk refinery	−	1	(100.0)%	3
Bashneft refineries	1	−	−	3
Saratov refinery	1	−	−	2
Achinsk refinery	−	−	−	1
Other refineries	9	6	50.0%	19
Marketing Business Units and others	9	4	>100%	22
Total downstream segment	30	17	76.5%	77
Total other activities	8	4	100.0%	19
Total capital expenditures	257	227	13.2%	936
Acquisition of licenses	1	−	−	3
Return of auction advances	−	−	−	−

*Including Sevkomneftegaz.

In the fourth quarter of 2018 total capital expenditures amounted to RUB 257 billion (increase by 13.2%) compared with RUB 227 billion in the third quarter of 2018. In the twelve months of 2018 and 2017 total capital expenditures were RUB 936 billion and RUB 922 billion, respectively (increase by 1.5%).

In the fourth quarter of 2018 upstream capital expenditures slightly changed compared to the level of the third quarter and amounted to RUB 219 billion in comparison with RUB 206 billion in the third quarter of 2018. In the twelve months of 2018 upstream capital expenditures were RUB 840 billion (increase by 5.3%) in comparison with RUB 798 billion in the same period of 2017. Upstream capital expenditures are mainly directed to the increasing volumes of construction objects and construction of oil and development of new projects.

In the fourth quarter of 2018 downstream capital expenditures were RUB 30 billion, including capital expenditures of investment tariffs, in comparison with RUB 17 billion in the third quarter of 2018. In the twelve months of 2018 downstream capital expenditures were RUB 77 billion.

Capital expenditures of other activities are mainly related to scheduled purchases of IT equipment, vessels, transport and other equipment assets. The license acquisition costs of RUB 3 billion in the twelve months of 2018 referred to the acquisition of new licenses for research, exploration and production at Samara region, Republic of Bashkortostan and the Khanty-Mansi Autonomous area.

Financial liabilities and liquid funds

Financial liabilities detailed by currencies and liquid funds are set in the table below:

currency in bln	As of the date December 31, 2018	As of the date September 30, 2018	As of the date December 31, 2017
	USD	RUB	Euro
Financial liabilities	(26.7)	(2,227)	(3.9)
Liquid funds2	9.3	417	5.9
Net financial liabilities	(17.4)	(1,810)	2.0

1 Calculated based on unrounded data
2 Include cash and cash equivalents. short-term financial assets and part of bank deposits

The level of financial liabilities and liquid funds, which generate additional yield to fulfil the Company's commitments, remained at the point which strongly secured the Company's high financial stability.

Key consolidated financial highlights (in RUB terms)

Rosneft monitors and evaluates its activities on an ongoing basis. Key financial ratios are set forth below:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
EBITDA margin	22.2%	27.4%	24.8%	22.6%
Net income margin attributable to Rosneft shareholders	5.0%	6.2%	6.7%	3.7%
Current ratio	1.05	0.91	1.05	0.60
RUB / bbl
EBITDA*/bbl	1,127	1,531	1,259	862
Upstream capital expenditures/bbl	534	509	529	512
Upstream operating expenses/bbl	254	238	240	230
Free cash flow/bbl	637	1,259	714	157
RUB / boe
EBITDA*/boe	911	1,242	1,018	693
Upstream capital expenditures/boe	432	413	428	412
Upstream operating expenses/boe	205	193	194	185
Free cash flow/boe	515	1,021	577	126

*The effect of income from associates and joint ventures is excluded for calculation.

The Company considers EBITDA/bbl, Upstream operating expenses/bbl, Upstream operating expenses/boe and the related indicators as important measures of its operating performance. In addition, these measures are frequently used by financial analysts, investors and other interested parties in the evaluation of oil and gas companies. These measures have limitations as analytical tools and should not be considered in isolation, or as a substitute for analysis of the Company's operating results as reported under IFRS.

The following tables set forth relevant numbers relating to these measures for the periods and as of the dates indicated:

Upstream Measures*

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
Crude oil and NGL production (mln bbl)	410.0	404.4	1,587.6	1,558.2
Crude oil, NGL and gas production (mln boe)	507.1	498.4	1,964.3	1,938.0

Excluding share in production of associates and joint ventures.

Calculation of EBITDA

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
RUB billion
Revenues and equity share in profits of associates and joint ventures	2,165	2,286	8,238	6,011
Effect of prepayments offsetting	36	58	162	193
Costs and expenses	(1,876)	(1,864)	(6,954)	(5,390)
Depreciation, depletion and amortization	163	163	635	586
EBITDA	488	643	2,081	1,400

Calculation of Free Cash Flow

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
RUB billion
Operating cash flow	376	507	1,502	337
Capital expenditures	(257)	(227)	(936)	(922)
Offset of prepayments under long-term supply agreements*	48	110	240	437
Offset of other financial liabilities	38	55	164	105
Interest expense on prepayments under long-term supply agreements**	24	24	91	81
Financing of future deliveries	32	40	72	207
Free cash flow (RUB equivalent)	261	509	1,133	245

Based on average exchange rates during the reporting periods (monthly basis).
** Free cash flow estimation includes interest expenses on the prepayments on long-term oil and petroleum products supply agreements.Interest expenses on the prepayments on long-term oil and petroleum products supply agreements are composed of interests accrued for the reporting period and offset against crude oil supply under the contracts in the amount of RUB 22 billion and interests paid of RUB 2 billion in the fourth quarter of 2018; the offsetting of RUB 23 billion and interests paid of RUB 1 billion in the third quarter of 2018; the offsetting of RUB 85 billion and interests paid of RUB 6 billion in the twelve months of 2018 and offsetting of RUB 71 billion and interests paid of RUB 10 billion in the twelve months of 2017.

Calculation of EBITDA Margin

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
RUB billion (except %)
EBITDA	488	643	2,081	1,400
Revenues and equity share in profits of associates and joint ventures	2,165	2,286	8,238	6,011
Effect of prepayments offsetting	36	58	162	193
Adjusted revenues	2,201	2,344	8,400	6,204
EBITDA margin	22.2%	27.4%	24.8%	22.6%

Calculation of Net Income Margin attributable to Rosneft shareholders

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
RUB billion (except %)
Net income attributable to Rosneft shareholders	109	142	549	222
Revenues and equity share in profits of associates and joint ventures	2,165	2,286	8,238	6,011
Net income margin	5.0%	6.2%	6.7%	3.7%

Calculation of Current ratio

	As of December 31, 2018	As of September 30, 2018	As of December 31, 2017
RUB billion (except ratios)
Current assets	3,022	2,603	2,292
Current liabilities	2,874	2,870	3,836
Current ratio	1.05	0.91	0.60

Calculation of Return on Average Capital Employed (ROACE)

	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
RUB billion, except %)
Revenue and equity share in profits of associates and joint ventures	8,238	6,011
Total costs and expenses	(6,954)	(5,390)
Effect of prepayments offsetting	162	193
Income tax expense	(183)	(98)
Return used for the calculation of ROACE	1,263	716
Average capital employed	7,272	6,212
ROACE	17.4%	11.5%

Calculation of Return on Average Equity (ROAE)

	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
RUB billion, except %)
Net income attributable to Rosneft shareholders	549	222
Average equity, including non-controlling interests	4,462	3,970
ROAE	12.3%	5.6%

62. Consolidated financial highlights (in USD terms)

Consolidated statement of profit or loss*

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
USD billion
Total revenues and equity share in profits of associates and joint ventures	33.1	35.8	133.7	106.4
Costs and expenses
Production and operating expenses	2.7	2.6	10.2	10.4
Cost of purchased oil, gas, petroleum products and refining costs	4.3	4.5	17.5	14.3
General and administrative expenses	0.8	0.5	2.6	2.9
Pipeline tariffs and transportation costs	2.5	2.4	10.2	10.2
Exploration expenses	0.1	−	0.2	0.3
Depreciation, depletion and amortization	2.5	2.5	10.2	10.0
Taxes other than income tax	10.6	11.6	43.1	33.0
Export customs duty	4.7	4.4	16.8	11.3
Total costs and expenses	28.2	28.5	110.8	92.4
Operating income	4.9	7.3	22.9	14.0
Finance income	0.5	0.4	1.9	1.8
Finance expenses	(1.1)	(1.2)	(4.6)	(3.9)
Other income	−	0.3	0.8	1.9
Other expenses	(0.9)	(2.1)	(4.5)	(1.3)
Foreign exchange differences	(0.4)	(0.4)	(0.7)	(3.3)
Cash flow hedges reclassified to profit or loss	(0.5)	(0.6)	(2.3)	(2.5)
Income before income tax	2.5	3.7	13.5	6.7
Income tax expense	(0.5)	(0.9)	(3.0)	(1.6)
Net income	2.0	2.8	10.5	5.1
Net income attributable to Rosneft shareholders	1.6	2.3	8.9	3.8

*Calculated using average monthly USD exchange rates based on the Central Bank of Russia data for the reporting period (Attachment 2).

Key consolidated financial highlights (in USD terms)

Key financial ratios in USD equivalent for the periods indicated are set forth below:

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
EBITDA margin	22.4%	27.4%	24.8%	22.6%
Net income margin attributable to Rosneft shareholders	4.8%	6.4%	6.7%	3.6%
Current ratio	1.05	0.91	1.05	0.60
USD/bbl*
EBITDA/bbl	17.1	23.2	20.0	14.8
Upstream capital expenditures/bbl	8.0	7.8	8.5	8.8
Upstream operating expenses/bbl	3.8	3.6	3.8	3.9
Free cash flow/bbl	9.6	19.2	11.3	2.6
USD/boe
EBITDA/boe	13.8	18.9	16.2	11.9
Upstream capital expenditures/boe	6.5	6.3	6.8	7.1
Upstream operating expenses/boe	3.1	2.9	3.1	3.2
Free cash flow/boe	7.8	15.6	9.1	2.1

*Calculated from unrounded data.

Calculation of Free Cash Flow

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
USD billion
Operating cash flow	5.7	7.8	23.9	5.6
Capital expenditures	(3.9)	(3.5)	(15.0)	(15.8)
Offset of prepayments under long-term supply agreements	0.7	1.6	3.7	7.5
Offset of other financial liabilities	0.6	0.8	2.6	1.8
Interest expense on prepayments under long-term supply contracts	0.4	0.5	1.6	1.4
Financing of future deliveries	0.5	0.6	1.1	3.6
Free cash flow	4.0	7.8	17.9	4.1

Calculation of EBITDA Margin

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
USD billion (except %)
Revenues and equity share in profits of associates and joint ventures	33.1	35.8	133.7	106.4
Operating expenses	(28.2)	(28.5)	(110.8)	(92.4)
Depreciation, depletion and amortization	2.5	2.5	10.2	10.0
EBITDA	7.4	9.8	33.1	24.0
Revenues and equity share in profits of associates and joint ventures	33.1	35.8	133.7	106.4
EBITDA margin	22.4%	27.4%	24.8%	22.6%

Calculation of Net Income Margin

	For 3 months ended December 31, 2018	For 3 months ended September 30, 2018	For 12 months ended December 31, 2018	For 12 months ended December 31, 2017
USD billion (except %)
Net income attributable to Rosneft shareholders	1.6	2.3	8.9	3.8
Revenues and equity share in profits of associates and joint ventures	33.1	35.8	133.7	106.4
Net income margin	4.8%	6.4%	6.7%	3.6%

Calculation of Current ratio

	As of December 31, 2018	As of September 30, 2018	As of December 31, 2017
USD billion (except ratios)
Current assets	43.5	39.7	39.8
Current liabilities	41.4	43.8	66.6
Current ratio	1.05	0.91	0.60

63. Attachment 1: Taxation

Mineral Extraction Tax (MET)

The rate of mineral extraction tax (MET) for crude oil is tied to the Urals price in the international market, and is calculated in USD per barrel of crude oil produced using average exchange rate established by the Central Bank of Russia for the respective month. In 2017 and 2018 the mineral extraction tax rate is calculated by multiplying the tax rate of RUB 919 per tonne by the adjustment ratio of ((P − 15) × Eхchange rate / 261), where "P" is the average Urals price per barrel in USD and "Exchange rate" is the average RUB/USD exchange rate established by the Central Bank of Russia in the respective month and minus the factor which characterizes crude oil production at a particular oil field, "Dm"[4].

In accordance with the legislation tax relieves are applicable to certain fields. In 2018 the Company applied different tax relieves and special tax treatment of crude oil MET:

Tax relieves in 2018	Applicable in the Company
Zero rates	Oil fields with hard to recover reserves, including bazhenov, abalak, khadum, domanic formations
MET reduced by "Dm" coefficient, which characterizes crude oil production at a particular oil field	Oil fields located: · In Irkutsk region, the Republic of Sakha (Yakutia) and Krasnoyarsk Territory which is applicable for the first 25 million tonnes of production · On the territory of the Nenets Autonomous district, Yamalo-Nenets Autonomous district - for the first 15 million tonnes of production · Okhotsk sea fields subject to zero mineral extraction tax rate which is applicable for the first 30 million tonnes of production
	Oil fields with reserve depletion rate of over 80%. Oil fields with the volume of initial recoverable reserves being less than 5 million tonnes. Oil fields with high-viscosity crude oil (in-situ viscosity more than 200 mPas and less than 10 000 mPas)
Tax deduction	At production from oil fields located in the region of the Republic of Bashkortostan
	At fields located entirely within the boundaries of the Nizhnevartovsk region of KHMAO - Yugra, the initial recoverable oil reserves of which amount to 450 million tonnes or more as of January 1, 2016 (total amount of the deduction in 2018 was RUB 35 billion)
Special tax regime for offshore projects in the Russian Federation	The offshore projects are categorized into one of four groups depending on its complexity and specify MET rates for each project group ranging from 5% to 30% of hydrocarbon prices
Special tax regime exempting the Company from paying mineral extraction tax.	Exploration projects in the Sakhalin-1 PSA.

MET rate calculation for natural gas and gas condensate

The production of gas condensate is mainly subject to MET rate for crude oil because the purification of gas condensate is compounded in the crude oil production. Mineral extraction gas condensate tax rate is applied in case of separate purification of gas condensate. In line with the formula base rate for gas condensate is RUB 42 per 1 tonne and for natural gas - RUB 35 per 1 th. cubic metres. Base rates are multiplied by basic rate of standard fuel unit and reduced coefficient which estimates the difficulty level of natural gas and (or) gas condensate production. Starting from January 1, 2017 the tax rate for mineral extraction gas condensate is adjusted by the multiplying coefficient 6.5.

Reducing coefficient in 2018	Applicable in the Company
0.5	License areas: Rospan and Russko-Rechenskoe licensed fields and also at fields of Krasnodar and Stavropol regions
0.64	License areas: Kynsko-Chaselskoye fields and at a number of fields of Sibneftegaz, and also at Nenets Autonomous District, the Chechen republic and Krasnodar region
0.1	License areas: Irkutsk region, Krasnoyarsk region and the region of Far East or the sea of Okhotsk
0.21	License areas: Turon deposits reserves of the Kharampurskoye field
0.5-1	Fields with reserve depletion rate of over 70%.

On July 19, 2018 Federal Law No. 199-FZ "On amending parts one and two of the Tax Code of the Russian Federation" was adopted. It provides for the introduction of the tax on additional income from production of hydrocarbons from January 1, 2019. The tax will be charged at the rate of 50% of the oil revenues calculated as the difference between the estimated revenue and costs (losses). The new tax regime requires maintaining the MET but with a reduced rate and keeping export duties with exemption from their payment for a certain period for new fields in Eastern Siberia (groups 1-2).

New tax regime will be applicable to the following groups of oil fields:

Groups	Geographic location	Proficiency as of 01.01.17
1	Greenfields of Eastern Siberia	The Republic of Sakha, Irkutsk region, NAO
2	The Yamal-Nenets Autonomous district, Krasnoyarsk region, Caspian sea	Deposits specified in the Note to the Common Customs Tariff as of 01.01.2018.
3	Brownfields of Western Siberia	KHMAO, YANAO, Komi Republic, Tyumen region
4	Greenfields of Western Siberia	KHMAO, YANAO, Komi Republic, Tyumen region

For the fields that will pay the tax on additional income from hydrocarbon production, the MET rate will be calculated as:

(P - 15) × 7.3 × 0.5 × "K" × "Exchange rate" - "Export duty" × "Exchange rate",

Where:
"P" − Urals price;
"Export duty" (further in the text);
"K" - the coefficient characterizing the period of time elapsed from the date of the beginning of commercial oil production at the field (further "grace period"):

Groups	"К"	Note
1,2	0.4	prior to the expiration of the first 5 years of commercial production
	0.6	the 6th year of commercial production
	0.8	the 7th year of commercial production
	1.0	from 8 year
4	0.5	before the end of the 1st year of industrial production
	0.75	the 2nd year of industrial production
	1.0	from the 3rd year of industrial production

The Federal law of 03.08.2018 No. 301-FZ "On amendments to part two of the Tax code of the Russian Federation" (subject to statements of provisions of the Federal law of 27.11.2018 № 424-FZ) provides for amendments to the procedure for the MET. The procedure for determining MET rate on oil has been adjusted:

new terms have been added to the formula for calculating MET rate for oil since 2019, increasing the amount of MET in connection with the reduction of export customs duties and the introduction of "reverse excise duty" in case of crude oil raw materials refining operations (Kman × Svn and Cabd);
for 2021 the "additional term" to MET rate in the amount of 428 RUB/t (the coefficient of Kk reducing the indicator characterizing features of oil production (Dm) and increasing thereby the rate of MET) is prolonged;

The procedure for determining MET rate on gas condensate is adjusted - from 2019, MET rate is increased by the amount of reduction of export customs duties multiplied by 0.75. A tax deduction and the procedure for determining it have been introduced for deposits in respect of which export duty exemptions are applied. This deduction is aimed at compensating the loss of economic effect from the granted export duty benefits in connection with the completion of the tax maneuver (due to which the duties are gradually reduced to zero from 2024).

Excise duties

Taxpayers of an excise on oil products in the territory of the Russian Federation are producers of oil products. Besides, the tax is paid by legal entities when importing excise goods into the territory of the Russian Federation. The Company as an owner of raw materials applies the deductions to excises on particular types of oil products in the cases provided by the legislation.

New changes in the Tax code from 2019

Federal law of 03.08.2018 No. 301-FZ (subject to the provisions of Federal law of 27.11.2018 № 424-FZ) provides for amendments to the taxation of excise duties. New excisable goods (crude oil raw materials and dark bunker fuel) and new operations subject to excise taxation are introduced, with the possibility of applying the mechanism of "reverse excise" (deduction of the accrued excise tax with an increasing coefficient):

for oil raw materials (for the organizations-owners of crude oil raw materials processed in the Russian Federation which received special certificate from the tax authorities);
dark bunker fuel (when using fuel for bunkering (refuelling) of vessels and (or) machinery and constructions located in internal sea waters and continental shelf of the Russian Federation, etc.).

The law sets the procedure of application of "reverse excise" on oil raw materials, including:

arrangements for obtaining a special certificate, required for the application of "reverse excise";
the approach for calculating the excise rate on oil raw materials (based on market oil prices, forex rates and the number and types of oil products);
the approach for calculating the "damping component" of the excise deduction aimed at reducing the effect of macroeconomic fluctuations on the domestic market of motor fuels.

There is an increase of 1,000 RUB/t from 01.01.2022 of the current excise tax deduction in respect of production of medium distillates for bunkering (refuelling) of vessels and (or) machinery and constructions located in internal sea waters and continental shelf of the Russian Federation, etc., as well as for the sale of medium distillates exported outside the territory of the Russian Federation as supplies on vessels or placed under the export customs procedure.

For the period from 2019 to 2021 excise rates are set for excise goods, including gasoline (non-compliant to class 5 and compliant to class 5), diesel, motor oils for diesel and (or) injector engines, jet fuel, medium distillates. Also the law introduces the new procedure for determining the excise tax rate on straight-run gasoline, gasoline, paraxylene, orthoxylene, excise tax rate on dark marine fuel.

Export Customs Duty on Crude Oil

The rate of export customs duty on crude oil is tied to the Urals price in the international market and is denominated in USD per tonne. The table below sets forth the calculation of the ordinary export customs duty for crude oil:

Urals price (USD per tonne)	Export customs duty (USD per tonne)
Below and including 109.5 (15 USD per barrel)	Export customs duty is not levied
Above 109.5 to 146 including……………………… (15 to 20 USD per barrel)	35% of the difference between the average Urals price in USD per tonne and USD 109.5
Above 146 to 182.5 including....................... (20 to 25 USD per barrel)	USD 12.78 plus 45% of the difference between the average Urals price in USD per tonne and USD 146
Above 182.5 (25 USD per barrel)..................	USD 29.2 plus 30% of the difference between the average Urals price in USD per tonne and USD 182.5

The export customs duty changes every month and the duty for the next month is based on the average Urals price denominated in USD for crude oil for the period from the 15th day of the previous month to the 14th day (inclusive) of the current month.

The law on the introduction of a special tax regime in respect of projects on the continental shelf of the Russian Federation provides a full exemption of hydrocarbons produced at offshore fields from the export customs duties, which commercial production starting from January 1, 2016. Such an exemption is set for various terms depending on complexity of a field development project. In 2016, the exemption was set for the East-Messoyakh field (zero customs duty rate could be applied to the export of 28.9 mln tonnes) and Srednebotuobinskoe field (zero customs duty rate could be applied to the export of 10.8 mln tonnes). Starting from 2017, the exemption was set for Kuyumbinskoe field (zero customs duty rate could be applied to the export of 29.0 mln tonnes)[5]. In December 2017, by results of the annual monitoring which is carried out by the Ministry of Energy of the Russian Federation within an established order of application of special formulas of calculation of rates of the export customs duties, the oil volume which can be exported with application of zero customs duty rate from the East-Messoyakh field has been reduced to 21.2 mln tonnes in connection with improvement of investment indicators of development of this field.

Export customs duty on crude oil export to countries that are members of Eurasian Economic Agreement

In accordance with the Eurasian Economic Agreement dated May 29, 2014 and effective from January 1, 2015 export duties are not payable on crude oil export to countries-participants of Eurasian Economic Agreement. Meanwhile, the Eurasian Economic Agreement enables some export limits on oil and oil products. Export duties are not payable on crude oil exports to countries that are members of Eurasian Economic Agreement. At the same time quotes for tax-free sale of crude oil and petroleum products are set. In accordance with agreement with Armenia and the Kyrgyz republic all supplies above the quotes are subject for the duties. In accordance with agreement between the Governments of Russian Federation and the Kazakhstan Republic on trade and economic cooperation in crude oil and petroleum products supplies dated December 9, 2010 the export ban was set for a specified list of petroleum products exported from Russian Federation to the Kazakhstan Republic. The Protocol on amendments to the Agreement between the Government of the Russian Federation and the Government of the Republic of Belarus on measures to regulate trade and economic cooperation in the export of oil and oil products dated January 12, 2007 introduced quotas for duty-free export of oil and oil products to the Republic of Belarus and a ban on export in excess of the established quotas from November 1, 2018.Export customs duty on petroleum products except liquefied petroleum gas (LPG) is set every month as the marginal export customs duty rate on crude oil multiplied by the estimated ratio depending on the type of petroleum product. Export customs duty on LPG is based on the average price of LPG at Poland board (DAF Brest) denominated in USD per tonne for the period from the 15th day of the previous month to the 14th day (inclusive) of the current month. Marginal export customs duties for petroleum products are set as a percentage of the marginal export customs duty for crude oil as listed in table below:

Type of petroleum product	Marginal export customs duty (% of the marginal export customs duty for crude oil) for the period
Light and middle distillates (excluding: naphtha and gasoline), benzene, toluene, xylenes, lubricants, diesel	30*
Naphtha	55*
Gasoline	30*
Fuel oil, bitumen oil, other dark oil products	100

*In accordance with the Federal law of 19.07.2018 № 201-FZ, the Government of the Russian Federation was granted the authority to establish export duty rates for the indicated oil products for the period from 01.08.2018 to 31.12.2018 in the amount of up to 90% of the maximum duty rate for crude oil. In 2018 and 2017, marginal export customs duties are set for estimation of customs duty, depending on the type of oil product.

New changes from 2019

According to the Federal law of 19.07.2018 № 201-FZ "On amendments to articles 3.1 and 35 of the Law of the Russian Federation "On customs tariff", the export of oil produced in the subsoil areas that have passed on the tax on additional income from production of hydrocarbons (1,2 group), will be exempt from payment of export customs duties before the expiration of 7 years of industrial production, after the expiration of the exemption - standard duty rates. The Federal law № 305-FZ "On amendments to article 3.1 of the law of the Russian Federation "On customs tariff" introduces the following amendments to the procedure for calculating export duties on oil and oil products.

1) Duty rate for crude oil will be calculated as the product of the marginal rate and the adjusting factor, which reflects the gradual reduction of the export duty rate until zero in 2024.

2) The Government of the Russian Federation has the right to impose "protective" duties on crude oil (in an amount not exceeding the level of 29.2 + 45% x (the price of "Urals")./t) - USD 182.5) / t) and oil products with a significant change in oil prices and the price of oil above USD 182.5 per ton. "Protective" duties are applied within six consecutive calendar months, starting from the calendar month following the calendar month in which a significant change in oil prices is recorded in the manner prescribed by law. When applying the "protective" duty on crude oil, the rates of export duties on petroleum products may be set by the Government of the Russian Federation in the amount of 60% of the duty on crude oil.

3) At the level of the law, the list of fields and the maximum accumulated volume of oil that can be exported using special formulas for calculating the export duty rate shall be fixed. The above-mentioned East-Messoyakh field (the total amount of oil that can be exported using the "preferential" rate − 32.08 mln tonnes), Srednebotuobinskoye field (32.742 mln tonnes) and Kuyumbinskoye field (76.433 mln tonnes) are named in the Law.

Attachment 2: Average monthly RUB/USD exchange rates, calculated using the Bank of Russia data

	2018	2017
January	56.79	59.96
February	56.81	58.40
March	57.03	58.11
April	60.46	56.43
May	62.21	57.17
June	62.71	57.83
July	62.88	59.67
August	66.12	59.65
September	67.66	57.70
October	65.89	57.73
November	66.24	58.92
December	67.31	58.59

05 CORPORATE GOVERNANCE

Implementing the Growth Prospects

The market capitalization growth by more than 40% since the approval of the Rosneft 2022 Strategy - despite the volatility of the oil market - indicates a high appreciation of management's decisions by the investment community

Message from the Chairman of the Board of Directors

Dear shareholders and investors,

In 2018, our Company continued to implement one of the most ambitious strategies in the industry - Rosneft - 2022. Due to diligent efforts of the Company's management and employees, we managed to increase business profitability, improve the quality of project management and corporate culture, and enhance our technological capabilities. During 2018, the Board of Directors has maintained continuous contact with the executive bodies regarding key management matters. The Board of Directors focused on the issues of risk management and audit, assessment of performance of governing bodies' members, accelerated technological development, KPIs monitoring, etc. The Board of Directors understands the Company's role and responsibilities in the Russian and in the world economy. We are giving considerable attention to the security matters, introducing the best risk management practices and training methods for the Company's employees and our counterparties. Sustainable development is our strategic priority. In the reporting year, the Board of Directors reaffirmed its commitment to the UN sustainable development goals. We firmly intend to pursue this course to enhance the Company's advantage as a responsible world energy leader. In 2018, the Technological Council was established comprising the Board members, representatives of leading research institutes, businessmen, and innovation and technology experts. The Technological Council is an advisory board aimed at promoting the Company's development strategy in technologies and innovations. The Company is one of the major issuers in the Russian stock market. With our shareholders in mind, we expand our portfolio of assets, improve management efficiency and quality of corporate governance:

in 2018, the Company has ensured a high level of dividend payout;
the Board of Directors approved the share repurchase program intended for market price support.

We mean to continue taking steps for long-term sustainable growth of the Company's shareholder value.

5.1 Key Principles and Improvement of the Corporate Governance System in 2018

Rosneft is one of the leaders in the global oil market and national capital market, and one of the largest taxpayers and employers in the Russian Federation. Commitment towards sustainability is governed by the Company's role in the national and global economy, which is considered in corporate management approaches.

CORPORATE GOVERNANCE TARGET
maintaining the long-term sustainable growth of shareholder value.

Guidelines of the Company's Governing Bodies

CARE FOR SHAREHOLDERS

The Company operates in line with the best practices in corporate governance, the requirements of the CBR Corporate Governance Code, and ensures:

equal and fair opportunities for exercising shareholder rights;
strategic management by an efficient and competent Board of Directors with an adequate number of independent directors, accountability of the Board of Directors to shareholders;
efficient risk management and supervision of significant corporate actions, including those in affiliated organizations;
full disclosure of most important aspects of the Company's operations to shareholders and investors.

The Company allocates a substantial portion of net income for dividend payouts. A total of RUB 225 bln was paid out by the Company to the shareholders as dividend in 2018 (see more on p. 260). The Company is committed to developing effective communication with the shareholders (see more on p. 264).

INNOVATIONS AND GLOBAL LEADERSHIP

The Company strives to achieve global leadership in the industry and invests in modern technologies (see more on p. 201). The Technological Council comprising the leaders of business, science and technology sector was established in the Company. In 2018, new developments related to advanced materials creation, exploration and oil production were demonstrated (see more on p. 202).

FAVORABLE ENVIRONMENT FOR THE COMPANY'S SUSTAINABLE GROWTH

The Company cares about people: employees and their families, as well as local community members in the regions of the Company's operation (see more on p. 172). The Company cares about the environment by gradually introducing clean extraction technologies for mineral raw materials (see more on p. 168). The Company supports the development of culture and sports, invests in healthcare and contributes to reviving spiritual values (see more on p. 187). The Company's relations with its counterparties and employees are based on the commitment to high ethical standards and universally recognized values (see more on p. 199).

PARTNERSHIP WITH PUBLIC ORGANIZATIONS AND COOPERATION WITH STATE INSTITUTIONS

The Company is a participant in the UN Global Compact. In 2018, the Board of Directors reaffirmed its commitment to UN sustainable development goals (see more on p. 26). The Company is one of the largest taxpayers in Russia (see more on p. 31).

SECURITY TO SHAREHOLDERS AND KEY STAKEHOLDERS

Company's care about consumers and counterparties is implemented by introducing the best practices of risk management and internal control, developing the industrial safety and cyber risk protection technologies, and ensuring products safety (see more on p. 246).

Key Achievements in 2018

Self-assessment of performance of the Board of Directors was undertaken.
Performance assessment of the Board of Directors was initiated with the involvement of an outside consultant. The assessment results will be presented in 2019.
Performance of the corporate governance framework was audited.
The Company's Regulations on Insider Information were updated.
The performance audit of the risk management framework and internal controls was completed.# 5. Corporate Governance

5.1 Corporate Governance Principles and Practices

The Company's corporate governance system is aimed at protecting shareholder rights and increasing shareholder value. The corporate governance practices are continuously improved by the Company's management and Board of Directors to ensure that the Company's operations and strategic development are conducted in compliance with the best international practices and the interests of the shareholders.

Assessments were carried out to check that Board candidates and the elected members of the Board of Directors meet the independence criteria.
Compliance monitoring in the Company was finished. The effectiveness of the current framework was confirmed by the Board of Directors.
The pilot implementation of the analysis information system "Corporate Governance" was started. This system is established for enhancing shareholder relations, automating the key corporate governance processes and achieving a high level of information protection. The system production start-up is expected in 2019.

2019 Priorities

Improving the corporate governance system to ensure shareholder value protection and capitalization growth.
Sustaining our leadership in corporate governance practices among Russian publicly quoted companies.
Updating the Company's Charter and internal documents to accommodate the amendments to corporate law applied in 2018.

THE COMPANY'S CORPORATE GOVERNANCE complies with 93.2% of recommendations of the CBR Code, which is higher than the 2017 indicator by 0.8% and significantly higher than the minimum threshold (65%) recommended by the Federal Agency for State Property Management - Rosimushchestvo (the results of assessment for compliance with the recommendations of the Bank of Russia's Code are given in Appendix 3 to this Annual Report).

Corporate Governance and Control Structure

The Company maintains a two-level management model involving a division of management functions between the Board of Directors and the executive bodies.

Board of Directors

The Board of Directors has two key functions in line with the Law of the Russian Federation:

control over the executive bodies;
strategic management of the Company's activities involving the approval of strategic documents and major transactions.

Executive bodies

The legislation provides for the mandatory sole executive body (Chief Executive Officer) authorized to act in relations with third parties on behalf of Rosneft without a power of attorney.
The Company has established the Collective Executive Body (the Management Board) headed by the sole executive body. In compliance with the Law of the Russian Federation, the Management Board and its members are not authorized to take legal action and close any deals on behalf of the Company without a power of attorney.

The structure of the Company’s governance bodies is presented in the diagram below:

GENERAL SHAREHOLDERS MEETING
A supreme governing body responsible for decision-making on key matters of the Company's business.

BOARD OF DIRECTORS
The Board of Directors provides strategic management of the Company's activities; it is accountable to the General Shareholders Meeting and acts within the prescribed limits.

COMMITTEES OF THE BOARD OF DIRECTORS
* Audit Committee
The Committee gives recommendations on the following issues: reviewing the Company's accounting (financial) statements and other reports for completeness, accuracy, and reliability; monitoring the reliability and effectiveness of internal control and risk management systems; compliance and corporate governance; and safeguarding the independence and objectivity of the internal and external audit functions.
* HR and Remuneration Committee
The Committee gives recommendations on assessing the effectiveness of HR and succession policies, and the appointment and remuneration system; assessing the Board and management candidates; reviewing the independence of independent directors; and conducting performance assessments of the Board of Directors, the executive bodies, and top managers of the Company.
* Strategic Planning Committee
The Committee gives recommendations on the Company's strategic development, long-term performance, strategic and business planning, defining the Company's business priorities and growth targets.

EXECUTIVE BODIES
* Chief Executive Officer and Management Board
Manages the day-to-day operations for the benefit of the Company, and are accountable to the General Shareholders Meeting and the Board of Directors.

Coordinating and consultative bodies
Coordinating and consultative bodies under the Company's Chief Executive Officer for enabling further elaboration of individual matters:
* Technological Council;
* Investment Committee;
* Budget Committee.

Other coordinating and consultative bodies under the management system:
* Council for Business Ethics;
* Central Procurement Committee;
* Information Technology Review Board;
* Review Board for Quality and Safety of Petroleum Products;
* other Company's coordinating and consultative bodies.

INTERNAL AUDIT SERVICE
Assesses the robustness and effectiveness of the Company's business processes, identifying the internal potential for improving the Company's financial and business performance, including that of the Group Subsidiaries.

CORPORATE SECRETARY
Ensures the compliance of the Company's governing bodies with the legislation, the Charter and internal documents, which guarantee exercising of the rights and legitimate interests of shareholders. Supports activities of the Board of Directors and effective communications between shareholders, the governing and supervisory bodies, and the Company's management.

EXTERNAL AUDITOR
A commercial organization selected through the procurement process and approved by the General Shareholders Meeting of the Company upon the recommendation of the Board of Directors based on the assessment by the Audit Committee.

AUDIT COMMISSION
Supervises the financial and business operations of the Company and performance of its governing bodies, executives, units and services, branches and representative offices.

5.2 General Shareholders Meeting

The General Shareholders Meeting is the supreme governing body. In the reporting year, two General Shareholders Meetings were held - one Annual and one Extraordinary Meeting.

Annual General Shareholders Meeting

On 21 June 2018, Rosneft's Annual General Shareholders Meeting was held in Krasnoyarsk, attended by holders of 92.5% of the Company's shares. The Annual General Shareholders Meeting approved the Annual Report, the Company's Annual Accounting (Financial) Statements, and Net Profit Distribution of Rosneft for 2017 (including dividend payouts). The Meeting also elected the Board of Directors and the Audit Commission, determined their remuneration at the end of the reporting period, and approved the External Auditor of the Company. The Meeting was broadcast live to shareholders in locations where the Company operates and on its production sites1. While viewing the broadcast, shareholders could ask their questions on the agenda.

Extraordinary General Shareholders Meeting

On 28 September 2018, Rosneft's Extraordinary General Shareholders Meeting was held by absentee voting. The Meeting resolved to pay out dividend based on 1H 2018 results. The voting was attended by holders of 92.4% of the Company's shares.

ALL RESOLUTIONS ADOPTED BY THE GENERAL SHAREHOLDERS MEETING were fully complied with in 2018 as at 31 December 2018.

Board of Directors

The Board of Directors is elected by the General Shareholders Meeting and provides strategic management of the Company's activities for the benefit of the Company and its shareholders. A Chairman and a Deputy Chairmen of the Board of Directors are elected at the first face-to-face meeting of the Board. The responsibility of the Board of Directors and Management Board members, Chief Executive Officer and key employees is insured by the Company (see more on p. 241). Details on the membership and proceedings of the Board of Directors are disclosed on Rosneft's official website.

5.3 Members of Rosneft's Board of Directors as at 31 December 2018

On 21 June 2018, the General Shareholders Meeting elected a new Board of Directors among the candidates with considerable experience in strategic management and competencies sufficient to make well-informed and unbiased decisions on economic, financial and risk management issues. The composition of the Board of Directors is in line with the scope of the Company's business and needs.

Gerhard SCHROEDER

Chairman of the Board of Directors, Independent Director
Born in 1944.
1976 Graduated from the University of Goettingen, the Department of Law. Foreign fellow of the Russian Academy of Sciences.
1998-2005 Chancellor of Germany.
Since September 2017 Elected as a member of Rosneft's Board of Directors.
Holds no shares of Rosneft.
Chairman of the Shareholders' Committee of Nord Stream AG (Switzerland), Chairman of the Board of Directors at Nord Stream 2 AG (Switzerland), Chairman of the Supervisory Board at Hannover 96 GmbH&Co. KG (Germany), Deputy Chairman of the Supervisory Board at Herrenknecht AG (Germany).

Igor SECHIN

Deputy Chairman of the Board of Directors, Chief Executive Officer, Chairman of the Management Board of Rosneft
Born in 1960.
1984 Graduated from Leningrad State University. PhD in Economics.
2000-2004 Deputy Head of the Executive Office of the President of the Russian Federation.
2004-2008 Deputy Head of the Executive Office of the President of the Russian Federation - Aide to the President of the Russian Federation.
2008-2012 Deputy Prime Minister of the Russian Federation.
2012 - present Chief Executive Officer, Chairman of the Management Board of Rosneft.
Since June 2004 Elected for the first time as a member of Rosneft's Board of Directors. From 2004 to June 2011 Chairman of the Board of Directors. Re-elected to Rosneft's Board of Directors in November 2012. Since June 2013: Deputy Chairman of Rosneft's Board of Directors. Chairman of the Board of Directors at JSC ROSNEFTEGAZ, LLC National Oil Consortium, and PJSC Inter RAO, Chairman of the Supervisory Board at LLC CSKA Professional Hockey Club.
Holds 13,489,350 shares of Rosneft (0.1273% of Rosneft's share capital).
Has been actively involved in the development of social sphere, science, sports and education, being the Chairman of the Board of Trustees at St.# Directors and Executive Officers

Ivan SECHIN

Deputy Chairman of the Supervisory Board of Petersburg Academic University of the Russian Academy of Sciences, Deputy Chairman of the Supervisory Board Russian Volleyball Federation, member of the Board of Trustees of Lomonosov Moscow State University, National Intellectual Development Foundation, St. Petersburg State University, the Graduate School of Management of St. Petersburg State University, State Federal-Funded Educational Institution of Higher Professional Training Saint-Petersburg Mining University, Federal State Budgetary Institution Russian Academy of Education, MGIMO University of the Ministry of Foreign Affairs of the Russian Federation, Non-Government Organization Russian Geographical Society, member of the Supervisory Board at the Global Energy Association, Chairman of the Board of Trustees at FSBI Granov Russian Research Center for Radiology and Surgery Technologies under the Ministry of Health of the Russian Federation, member of the Board of Trustees at the Foundation for Churches Construction in Moscow, University gymnasium (boarding school) of Lomonosov Moscow State University, member of the Supreme Supervisory Board of the Russian Boxing Federation.

Matthias WARNIG

Deputy Chairman of the Board of Directors, Independent Director, Chairman of the HR and Remuneration Committee, Member of the Audit Committee of the Board of Directors
Born in 1955.
1981 Graduated from the Bruno Leuschner Higher School of Economics (Berlin).
2006-2016 Managing Director of Nord Stream AG (Switzerland).
2008 - present Director of Interatis AG (Switzerland).
Holds 92,633 shares of Rosneft (0.0009% of Rosneft's share capital).
2015 - present Executive Officer of Nord Stream 2 AG (Switzerland).
Since June 2011 Elected as a member of Rosneft's Board of Directors.
Member of the Supervisory Board at VTB Bank (PJSC), member of the Administrative Board at GAZPROM Schweiz AG (Switzerland), member of the Board of Directors at PJSC Transneft, Chairman of the Administrative Board at Gas Project Development Central Asia AG (Switzerland), and Interatis Consulting AG (Switzerland).

Faisal ALSUWAIDI

Member of the Strategic Planning Committee of the Board of Directors
1978 Graduated from Merton Technical College (Great Britain).
1992-2010 Member of the Board of Directors at Qatar Petroleum.
1992-2010 Chief Executive Officer, Deputy Chairman at Qatar LNG Company.
1992-2011 Chief Executive Officer at Qatar Fertilizers Company.
2004-2010 Deputy Chairman at Qatar Gas Transport Company.
2005-2010 Member of the Board of Directors at Ras Laffan LNG Company.
2012-2018 President of Research and Development at Qatar Foundation.
2018 - present Member of the Board of Trustees at Qatar University.
2018 - present Representative of Qatar Investments Authority
Since June 2017 Elected as a member of Rosneft's Board of Directors.
Holds no shares of Rosneft.
Decorate by the French Government - «Ordre national de la Légion d'honneur».
Awarded the «Certificate of Excellence» by His Highness Sheikh Mohammed Bin Rashid Al Maktoum, Prime Minister of UAE and Ruler of Dubai distinguished Arab Manager category.

Andrey BELOUSOV

Member of the Strategic Planning Committee of the Board of Directors
Born in 1959.
1981 Graduated from Lomonosov Moscow State University. Doctor of Economics.
2006 - present Chief research fellow (part-time) at the Institute of Economic Forecasting of the Russian Academy of Sciences.
2008-2012 Director of the Economics and Finance Department of the Government of the Russian Federation.
2012-2013 Minister of Economic Development of the Russian Federation.
2013 - present Aide to the President of the Russian Federation.
Since June 2015 Elected as a member of Rosneft's Board of Directors.
From June 2015 to September 2017: Chairman of Rosneft's Board of Directors.
Member of the Board of Directors at JSC ROSNEFTEGAZ.
Holds no shares of Rosneft.
Has been actively involved in the development of social and business sphere, church and culture, being the Chairman of the Supervisory Board at State Space Corporation ROSCOSMOS, member of the Supervisory Board of State Development Corporation VEB. RF, Chairman of the Supervisory Board at Autonomous Non-Profit Organization Digital Economy, Autonomous Non-Profit Organization Agency for Strategic Initiatives to Promote New Projects, member of the Board of Trustees at the Charity Foundation Deaf-blind Support Foundation So-edinenie (Connection), State Tretyakov Gallery, and Holy Trinity-Saint Seraphim-Diveyevo Monastery of the Nizhny Novgorod Diocese of Russian Orthodox Church (Moscow Patriarchate), member of the Board of Trustees for Restoration of Sarov Hermitage and Diveyevo Monastery of the Religious Organization Holy Dormition Monastery - Sarov Hermitage, the Nizhny Novgorod Diocese of the Russian Orthodox Church (Moscow Patriarchate).

Oleg VIYUGIN

Member of the Strategic Planning Committee of the Board of Directors, member of the Audit Committee of the Board of Directors, Independent Director
Born in 1952.
1974 Graduated from Lomonosov Moscow State University. PhD in physics and mathematics.
2007 - present Professor at the School of Finance of the Department of Economic Sciences of the National Research University Higher School of Economics.
2013-2015 Senior Advisor for Russia and the CIS to LLC Morgan Stanley Bank (civil contract).
Since June 2015 Elected as a member of Rosneft's Board of Directors.
Holds no shares of Rosneft.
Chairman of the Supervisory Board at PJSC Moscow Exchange, Chairman of the Board of Directors at NAUFOR and PJSC SAFMAR Financial Investments, member of the Board of Directors of LLC Skolkovo - Venture Investments and PJSC Unipro, member of the Supervisory Board of the National Settlement Depository.
Has been actively involved in strategic development, promotion of entrepreneurship, corporate governance and education, being the member of the Board at the Center for Strategic Developments Foundation and the AGATE Foundation for Young Entrepreneurs, member of the Board of Trustees at the European University at St. Petersburg Endowment Fund, New Economic School Endowment Fund, and Non-Commercial Foundation Forum Analytical Center, member of the Presidium at the Non-Commercial Partnership National Council on Corporate Governance.

Ivan GLASENBERG

Member of the Strategic Planning Committee of the Board of Directors
Born in 1957.
1981 Graduated from the University of the Witwatersrand, 1983 Graduated from the University of Southern California.
2002 - present Chief Executive Officer of Glencore International AG.
2011 - present Chief Executive Officer of Glencore plc.
Since June 2017 Elected as a member of Rosneft's Board of Directors.
Holds no shares of Rosneft.

Robert DUDLEY

Chairman of the Strategic Planning Committee of the Board of Directors of Rosneft
Born in 1955.
In 1977 graduated from University of Illinois, In 1979 graduated from Thunderbird School of Management
2010 - present - Chief Executive Officer of BP Group.
In June 2013 was elected as member of the Board of Directors of Rosneft Oil Company
Does not own any Rosneft shares.
Participates in the social activity in the sphere of geography and applied (associated) sciences, being a member of the Board of Trustees of the Russian Geographical Society (All-Russian NGO) and the Royal Academy of Engineering in the UK. Chairs the Oil and Gas Community of the World Economic Forum and has chaired the Oil and Gas Climate Initiative (OGCI) since 2016.

Guillermo QUINTERO

Rosneft Board of Directors HR and Remuneration Committee member
Born in 1957.
In 1979 graduated from University of Southern California.
2010-2015 - Regional President Brazil, Uruguay, Venezuela and Colombia BP Energy do Brasil Ltda and President and Director of BP Brasil Ltda
2011-2015 - President BP Exploration do Brasil Ltda
2011-2016 - Director BP Petroleo y Gas S.A.
2014-2016 - President BP Exploracion de Venezuela S.A.
2016 - present - Director of GQO Consultants LTD.
June 2015 - elected as member of the Board of Directors of Rosneft Oil Company.
Does not own any Rosneft shares.

Alexander NOVAK

Deputy Chairman of the Strategic Planning Committee of the Board of Directors
Born in 1971.
1993 Graduated from Norilsk Industrial Institute, 2009 Graduated from Lomonosov Moscow State University.
2008 - 2012 Deputy Minister of Finance of the Russian Federation.
2012 - present Minister of Energy of the Russian Federation.
June 2015 - June 2017 Elected for the first time as a member to Rosneft's Board of Directors.
September 2017 Re-elected to Rosneft's Board of Directors.
Holds no shares of Rosneft.
Chairman of the Board of Directors of PJSC ROSSETI, PJSC Transneft, member of the Board of Directors at PJSC Gazprom.
Actively involved in the development of education and sport, in the field of power industry - Member of the Supervisory Board at ROSATOM, Chairman of the Board of Guardians at National Research University Moscow Power Engineering Institute, member of the Board of Guardians at Siberian Federal University, at Gubkin Russian State University of Oil and Gas, Russian Motorcycle Federation, Chairman of Russian National Committee of the World Energy Council and Head of the Board of Guardians at Russian Athletics Federation.

Hans-Joerg RUDLOFF

Chairman of the Audit Committee of the Board of Directors, member of the HR and Remuneration Committee of the Board of Directors, Independent Director
Born in 1940.
1965 Graduated from the University of Bern.
1998-2014 Chairman of the Board of Barclays Capital Bank.
2002 - present Chairman of the Management Board of Marcuard Holding.2003 - present Executive Director of ABD Capital S.A.
2015 - present President of ABD Capital Eastern Europe S.A.
June 2006 - June 2013 Elected for the first time as a member the Rosneft's Board of Directors.
June 2018 Re-elected to Rosneft's Board of Directors.
Member of the Council of International Center for Monetary and Banking Studies (ICMB), member of Advisory Council TBG Holdings NV (Thyssen-Bornemisza Group), and member of the Board of Directors of Decolef, Guardian Capital.

Key Competencies of the Board's Members

Members of the Board of Directors

Fields of Competence	Gerhard Schroeder	Igor Sechin	Matthias Warnig	Faisal Alsuwaidi	Andrey Belousov	Oleg Viyugin	Ivan Glasenberg	Robert Dudley	Guillermo Quintero	Alexander Novak	Hans-Joerg Rudloff	Donald Humphreys (resigned from the Board of Directors on 21 June 2018)
Strategy	X	X	X	X	X	X		X	X	X	X	X
Oi&Gas		X			X
Corporate Governance and M&A	X	X	X	X	X	X	X	X	X	X	X	X
Law	X
Finances & Audit	X	X	X	X	X	X	X	X	X	X	X	X
Risk Management		X	X	X	X	X	X	X	X		X	X
Policy/GR		X			X
HSE		X			X
HR		X	X		X

Directors' Attendance at the Board and Committee Meetings in 2018[6]

Director	Status (Executive/Non- Executive/Independent)	Attendance at meetings	Board of Directors	Audit Committee	The HR and Remuneration Committee	Strategic Planning Committee
Gerhard Schroeder	Independent	24/24	24/24
Igor Sechin	Executive	23/24	23/24
Matthias Warnig	Independent	24/24	24/24	14/14	13/13
Faisal Alsuwaidi	Non-Executive	24/24	24/24	13/13
Andrey Belousov	Non-Executive	22/24	22/24	13/13
Oleg Viyugin	Independent	24/24	24/24	14/14	13/13
Ivan Glasenberg	Non-Executive	24/24	24/24	13/13
Robert Dudley	Non-Executive	24/24	24/24	13/13
Guillermo Quintero	Non-Executive	24/24	24/24	13/13
Alexander Novak	Non-Executive	22/24	22/24	13/13
Hans-Joerg Rudloff	Independent			13/13	6/6	6/6
Donald Humphreys (resigned from the Board of Directors on 21 June 2018)	Independent	11/11	11/11	8/8	7/7	5/5

Chairman of the Board of Directors

Gerhard Schröder and the members of the Board of Directors Igor Sechin, Matthias Warnig, Robert Dudley, Hans-Joerg Rudloff, and Donald Humphreys were not entitled to vote on agendas, which could give rise to a potential conflict of interests of legal and (or) business grounds.

Initiation

The Company established the initiation procedure for newly elected directors to ensure their prompt entry into the work of the Board of Directors and efficient use of their professional skills. Due to the change of the Board of Directors composition in 2018, the management promptly introduced Hans-Joerg Rudloff to the current activities of the Company, its strategy, corporate and organizational structure, and corporate governance practices. For the efficient exercise of his powers, Hans-Joerg Rudloff was given recommendations on non-disclosure behavior, the procedure of attendance of the Board of Directors meetings and committees.

Performance of the Board of Directors

In 2018, 24 meetings of the Board of Directors were held (4 meetings in person, 20 meetings by absentee voting), 127 issues were reviewed (23 issues in person and 104 at virtual meetings).

Major decisions

Additional initiatives to Rosneft-2022 Strategy have been approved in the field of social development, human resources, environment, regional development, accelerated digitization, and technological capacity development (Digital Rosneft).
The Information Technology Strategy has been approved for 2018-2022 (IT-strategy), defining the focus areas and basic development scenario for the Company's information technologies, the target model of meeting the demands in the field of information technologies, metrology, automatic process control systems, test instruments, and automatics.
The strategic guidelines and Public statement of the Company - "Rosneft: contributing to implementation of UN Sustainable Development Goals" have been approved, and five goals of strategic priority which are directly supported by its core operations have been determined: Good health and well-being, Affordable and clean energy, Decent work and economic growth, Climate action, and Partnerships for the goals.
The Long-Term Development Program has been updated to reflect new strategic guidelines and to review its progress in 2017.
The financial and business plan has been approved, its results have been reviewed and the 2017 plan has been normalized.
Carrying out instructions given by the President of the Russian Federation and the Government of the Russian Federation, the issues have been reviewed in the field of:
* implementing recommendations on managing intellectual property rights and inventory auditing intellectual property rights;
* introducing professional standards into the Company's operations;
* innovative development;
* compliance with the laws on the procurement of goods, works, and services;
* approval of planning and program-targeted documents on the development of the Far East by the Ministry for Development of the Russian Far East.
Implementation of business projects on developing the Zohr field in Shoruk block (Egypt), the Chupalsky license area, the East Messoyakhsky license area and the Suzunskoye field has been approved.
Compliance of the members of Rosneft's Board of Directors (Gerhard Schröder, Matthias Warnig, Oleg Vyugin, and Hans-Joerg Rudloff) with the independence criteria has been assessed.
The progress against the Roadmap for Incorporating Key Provisions of the Bank of Russia's Corporate Governance Code in Rosneft's operations has been reviewed.
Parameters and layout of the Rosneft's shares acquisition plan at an open market (share repurchase program) have been approved.
The amendments have been approved or incorporated into the following internal documents:
* the Policy on Anti-Corruption and Prevention of Corporate Fraud;
* the HSE Policy;
* the Policy on the Risk Management and Internal Control System;
* the Regulations on Procurement of Goods, Works, and Services;
* the Regulations on Rosneft's Audit Committee of the Board of Directors;
* the Regulations on Insider Information;
* the Regulations on the Procedure for communications via Interagency website of State Property Management;
* the Regulations on the Procedure for Managing Conflicts of Interest at Rosneft and Group Subsidiaries.
The following programs and reports have been reviewed/approved:
* the performance reports of the Committees of the Board of Directors in the 2017-2018 corporate year;
* the progress report on the 2017-2021 Energy Saving Program in 2017;
* the progress reports on Non-Core Assets Disposal Program for 2017 Q4 and 2018 Q1-Q3;
* the report on Rosneft's related party transactions in 2017;
* the reports on the Company's HSE activities;
* the report on the Company's internal audit results for 2017 and H1 2018;
* the report on the Company's compliance with the legislative requirements to countering the misuse of insider information and market manipulation for H2 2017 and H1 2018;
* the progress report on the Company's Information Policy for 2018;
* the progress report on the Company's Innovative Development Program for 2017;
* the progress report on the Company's Risk Management and Internal Control Holistic Development Plan for 2017;
* the progress report on the Action Plan of Introducing Professional Standards in the Company's Operations as at 1 November 2018.
The following have been approved in the sphere of incentive system:
* 2018 KPIs for Rosneft's top managers;
* normalized top management KPIs for the purposes of the 2017 annual bonus program, as well as the achievement of these KPIs by top managers and their remuneration in 2017.
Over 150 related party transactions have been approved.
In the reporting year, the self-assessment of the Board of Directors' performance has been carried out for 2017/2018 corporate year. According to the results of the assessment, the members of the Board of Directors have confirmed their high level of organization and performance in the core activities. The members of the Board of Directors provided recommendations on the ways to improve certain focus areas of the Board of Directors' operation, these improvements being recorded in the approved 2019 Improvement Plan of the Board of Directors.

2019 Priorities

Meetings of the Board of Directors are held on a scheduled basis. The Plan is approved by the Board of Directors semiannually and considers the following matters:
* implementation of the Strategy;
* financial and business plans and results;
* implementation (of results) / updating of the Long-Term Development Program;
* approval of team and individual management KPIs;
* preparations for, and conduct of, the general shareholders meeting.
Strategic matters, which are listed in the Rosneft's Charter, are discussed by the Board of Directors in person. An additional list of matters the Board of Directors tends to discuss in person is stipulated by the Rosneft's Corporate Governance Code. With due account to the schedule of the Board of Directors' meetings, the Board Committees shall approve their own action plans.

Committees of the Board of Directors

The Company put in place three Committees of the Board of Directors:
* Audit Committee;
* HR and Remuneration Committee;
* Strategic Planning Committee.
Members and chairmen of the Committees are elected at the first in-person meeting of the Board of Directors.

AUDIT COMMITTEE'S MEMBERS

Hans-Joerg Rudloff[7] - Chairman (Independent Director)
Matthias Warnig (Independent Director)
Oleg Viyugin (Independent Director)

HR AND REMUNERATION COMMITTEE'S MEMBERS

Matthias Warnig - Chairman (Independent Director)
Hans-Joerg Rudloff (Independent Director)
Guillermo Quintero

STRATEGIC PLANNING COMMITTEE'S MEMBERS

Robert Dudley - Chairman
Alexander Novak - Deputy Chairman
Faisal Alsuwaidi
Andrey Belousov
Oleg Viyugin (Independent Director)
Ivan Glasenberg

Performance of the Board's Committees.# Message from Hans-Joerg Rudloff, Chairman of Audit Committee

Ensuring the compliance with international and Russian financial reporting standards is one of the key factors for the investors to take a decision on acquiring the Company's shares. The Audit Committee together with the Company's top managers and Ernst & Young LLC auditing company seek to ensure the compliance with the above-said standards and internal documents and to improve audit management and risk management and internal control processes. In 2018, the Audit Committee held 14 meetings and reviewed 36 matters.

Major decisions

The Board of Directors was recommended to approve the proposals to the General Shareholders Meeting on the distribution of the Company's profit for the financial year 2017, the amount of dividend and dividend payout procedure for 2017 and H1 2018.

As part of preparing the Company's accounting (financial) statements and safeguarding the objectivity and independence of the external audit function:

the Company's consolidated financial results and financial statements, as well as their audit results, were reviewed (on a quarterly basis);
a nominee to the Company's auditor - LLC Ernst & Young - and the auditing cost were recommended to the Board of Directors;
an issue of overseeing the audit tendering process in 2019-2021 was discussed.

As part of ensuring an efficient internal control and risk management system, the following was preliminarily reviewed:

the report on corporate risks monitoring for 2017;
the progress report on Internal Control Development, Implementation, and Maintenance Plan for 2017;
the reports on the identification of the current financial and business corporate risks for 2019;
the amendments to the Rosneft's Regulations on the Audit Committee of the Board of Directors and to the Policy on the Risk Management and Internal Control.

As part of assuring objective and independent internal audit, the following was reviewed:

internal audit reports for 2017 and H1 2018, and information on independence and objectivity of the internal audit;
information on assessment and monitoring of potential conflicts of interest related to the Head of Internal Audit holding the position of a Member of the Management Board (on a quarterly basis).

As part of corporate governance, the amendments to the Company's Regulations on Insider Information were previewed and recommended for approval by the Board of Directors. The matters of financial statements and data prepared by the auditor had been discussed at conference calls attended by Committee's members, the Company's management, and representatives of the External Auditor.

Message from Matthias Warnig, Chairman of HR and Remuneration Committee

In 2018, the Committee reviewed the key issues on the efficiency of the Company's HR and Social Policy, the appointment and remuneration system, and assessment of the Board of Directors', executives' and top managers' performances. The Board of Directors was recommended to improve the top managers' remuneration system. In 2018, the HR and Remuneration Committee held 13 meetings and discussed 22 matters.

Major decisions

As part of involving the best talent in the Company's management and creating incentives to drive their performance:

reviewed the proposed remuneration of members of the Board of Directors and the Audit Commission for the 2017-2018 corporate year, and reimbursement of expenses they incurred when discharging their duties;
recommended top manager candidates for appointment to the Management Board;
evaluated the compliance of the candidates to the Board of Directors with independence criteria.

As part of assessing the performance of the Company's governing bodies:

reviewed the 2018 team and individual KPIs for top managers, as well as normalized criteria for achievement of the top manager KPIs for 2017 and the progress against the KPIs for the purposes of the 2017 annual bonus program;
preliminarily reviewed the amendments to the Regulations on Annual Remuneration of Top Managers and Heads of the Company's Units and recommended them to the Board of Directors;
evaluated the expedience of implementing the long-term incentive program for the Company's top managers;
reviewed the results of the self-assessment of the Board of Directors' performance for the 2017-2018 corporate year;
the Board of Directors was recommended to assess their performances (efficiency) in 2019, involving an independent consultant.

A report on PJSC NK Rosneft sustainable development in 2017 was negotiated.[8] Upon an initiative of Matthias Warnig, phone conferences with the members of the Company's Committee and management were held to discuss the key aspects of the Committee's activities.

Message from Robert Dudley, Chairman of Strategic Planning Committee

In the reporting year, aside from focusing on the key issues of the strategic development and business planning, the Committee recommended to the Board of Directors to review the sustainable development principles and approve the public statement of the Company in relation to ESG.[9] Commitment to 17 UN sustainable development goals confirms that one of the Company's core values is corporate social responsibility. In 2018, the Strategic Planning Committee held 13 meetings and reviewed 25 matters.

Major decisions

As part of defining the business priorities:

reviewed the progress of Rosneft - 2022 Strategy, approved additional initiatives to Rosneft - 2022 Strategy;
approved the strategic sustainable development guidelines and the public statement of the Company - "Rosneft: contributing to implementation of UN Sustainable Development Goals";
approved the updated Long-term Development Program;
approved the financial and business plan for 2019-2020, and reviewed the results of implementation and normalization of the Rosneft's financial and business plan for 2018.

As part of health, safety, and environment, the following have been approved:

the reports on the Company's HSE activities;
the HSE Policy;
the Policy on offshore hydrocarbon exploration and production.

As part of implementing the Company's business projects, the Board of Directors was recommended to approve key performance indicators and investment for several business projects.

As part of innovation activities:

approved the progress report on the Company's Innovative Development Program for 2017;
agreed the Terms of Reference to benchmark the technological development level and KPI values of the Company's innovative activities against the leading foreign peer companies.

While considering the key issues, the Chairman and the member of the Committee consulted with the Company's management, requested additional information, and received written and verbal explanations.

5.4 Executive Bodies

EXECUTIVE BODIES: Chief Executive Officer and Management Board

As stated by the Charter, the Chief Executive Officer acts as a sole executive body and as a Chairman of the Management Board of Rosneft. Igor Sechin has been the Chief Executive Officer of the Company since 2012. He manages the current activities of the Company, prepares an agenda for the Management Board's meeting, and chairs the Board meeting. The procedure for forming the Management Board, the rights, duties and responsibilities of the members of the Management Board, the procedures and guidelines for the Management Board's activities are governed by the Regulations on the Collective Executive Body (the Management Board) of the Company.

Changes to the membership of the Management Board

In 2018, Yury Narushevich, a member of the Management Board, has served his full term in office. Elena Zavaleeva, Vice President of the Company, was elected to the Board as a State Secretary. The size of the Management Board was not changed in the reporting year and totals 11 members. The Management Board includes the heads of key business lines, operation service, and support function segments of the Company.

Members of Rosneft's Management Board

Igor SECHIN

Chairman of the Management Board, Chief Executive Officer

Born in 1960. Graduated from Leningrad State University in 1984, PhD in Economics. Holder of government and ministerial awards.
2000-2004: Deputy Head of the Executive Office of the President of the Russian Federation.
2004-2008: Deputy Head of the Executive Office of the President of the Russian Federation - Aide to the President of the Russian Federation.
2008-2012: Deputy Prime Minister of the Russian Federation.
2012 - present: Chief Executive Officer, Chairman of the Management Board of Rosneft.
Holds positions in different non-profit organizations, participates in the development of social sphere, science, sport, and education (for the full list of other organizations, see Section "Board of Directors" on page 217 at official website).
Holds 13,489,350 shares of Rosneft (0.1273% of the Company's share capital).

Yuri KALININ

Deputy Chairman of the Management Board, Vice President for HR and Social Policy

Born in 1946.
1979: Graduated from Saratov Institute of Law. Holder of government and ministerial awards.
1998-2004: Deputy Minister of Justice of the Russian Federation.
2004-2009: Director of the Federal Penitentiary Service (FPS) of Russia.
2009-2010: Deputy Minister of Justice of the Russian Federation.
2010-2012: representative of the Penza Region Legislative Assembly in the Federation Council of the Federal Assembly of the Russian Federation.
Since December 2012: Vice President of Rosneft.
Since March 2013: Vice President for HR and Social Policy of Rosneft.
February 2013: Appointed to the Management Board of Rosneft; since October 2014: Deputy Chairman of the Management Board of Rosneft.
Board member of JSC NEFTEGARANT Non-State Pension Fund, member of boards of directors of LLC RN-Upstream, LLC RN-Commerce, LLC RN-Resource, and LLC RN-Refining.
Holds 203,916 shares of Rosneft (0.0019% of the Company's share capital).Eric Maurice LIRON
First Vice President

Born in 1954.
1980: Graduated from the School of Radio Engineering, Electronics, and Computer Science (Paris, France).
2000-2005: Manager of Complex Projects in Russia, managing the oilfield services project for Sibneft at Schlumberger Oilfield Services (Russia).
2006-2013: Held various executive positions at TNK-BP Management, was the Vice President of the Wells Division.
Since April 2013: Vice President of Rosneft for Drilling, Development, and Services.
Since July 2013: First Vice President of Rosneft overseeing the production business.
Since September 2013: Member of Rosneft's Management Board.
Chairman of the board of directors at JSC Verkhnechonskneftegaz and LLC RN-Upstream, member of the board of directors at OJSC NGK Slavneft, LLC National Petroleum Consortium, LLC RN-GAZ, LLC RN-Resource, and LLC RN-Foreign Projects.
Holds 543,804 shares of Rosneft (0.0051% of the Company's share capital).

Gennady BUKAEV
Vice President, Head of Internal Audit

Born in 1947.
1971: Graduated from Ufa State Oil Technical University.
PhD in Economics. Holder of government and ministerial awards.
2000-2004: Minister of the Russian Federation for Taxes and Levies.
2004-2012: Assistant to the Prime Minister of the Russian Federation.
2012-2013: Advisor to the President of the Republic of Bashkortostan.
Since 2013: Advisor to the President of Rosneft.
Since March 2015: Head of Internal Audit of Rosneft.
Since June 2016: Vice President, Head of Internal Audit of Rosneft.
Member of Rosneft's Management Board since June 2016.
General Director, member of the Board of Directors at JSC ROSNEFTEGAZ, Chairman of the Supervisory Board at Gubkin Russian State University of Oil and Gas, member of the Management Board at Autonomous Non-Profit Organization Hockey Club Salavat Yulaev.
Holds no shares of Rosneft.
Gennady Bukaev is not entitled to vote on matters within the Management Board's competence related to the Company's operations, which could potentially be subject to audit / management decision-making with regard to audited entities, that is a subject for review by the Board of Directors (see more on p. 253).

Didier CASIMIRO
Vice President for Refining, Petrochemical, Commerce, and Logistics

Born in 1966.
1991: Graduated with distinction from Ghent University, Belgium,
1992: Graduated from Ghent University, Belgium/Lisbon University, Portugal.
1996-2005: Held executive positions at BP.
2005-2012: Held executive positions at TNK-BP.
Since May 2012: Vice President of Rosneft.
Since March 2013: Vice President of Rosneft for Commerce and Logistics.
Since January 2015: Vice President of Rosneft for Refining, Petrochemical, Commerce, and Logistics.
Since June 2012: Member of Rosneft's Management Board.
Chairman of the board of directors at PJSC Saratov Refinery, Rosneft - MP Nefteprodukt, CJSC Rosneft-Armenia, LLC RN-Yerevan, Rosneft Trading S.A., LLC RN-Commerce, LLC RN-Refining, Chairman of the Supervisory Board at PRJSC LINIK, member of the board of directors at OJSC NGK Slavneft, OJSC NGK Slavneft-YANOS, Rosneft Global Trade S.A., JSC SPIMEX, Rosneft Techno S.A., PJSOC Bashneft, LLC RN-Foreign Projects, Nayara Energy Limited, and member of the Board of Directors at SIA ITERA Latvija.
Holds 457,598 shares of Rosneft (0.0043% of the Company's share capital).

Yuri KURILIN
Vice President, Chief of Staff

Born in 1972.
1994: Graduated from Lomonosov Moscow State University,
1998 graduated from California State University, Hayward, with an MBA degree.
2003-2008: Head of Administration of the Office of the President and Chief Executive Officer, Head of the Office of the President at TNK-BP Management.
2008-2011: Commercial Director at BP Group companies.
2011-2014: worked at BP America, Houston (in procurement performance planning and management).
2014-2017: Director for Corporate Affairs and Interaction with Business Partners at BP Exploration Operating Company Ltd.
Since March 2017: Vice President, Chief of Staff of Rosneft.
Since April 2017: Member of Rosneft's Management Board.
Member of the Supervisory Board at RRDB Bank (JSC), member of the board of directors at LLC RN-GAZ, LLC RN-Upstream.
Holds no shares of Rosneft.

Peter LAZAREV
Financial Director

Born in 1967.
1990: Graduated from the Plekhanov Moscow Institute of National Economy.
2000-2004: Head of the Promissory Note and Investment Programs in the Finance Department of Rosneft, Deputy Departmental Director, Head of Securities in the Finance Department.
2004-2012: Head of Treasury at Rosneft.
Since February 2012: Financial Director of Rosneft.
Since June 2011: Member of Rosneft's Management Board.
Chairman of the Board at NEFTEGARANT Non-State Pension Fund, Chairman of the board of directors at LLC RN-Resource, Deputy Chairman of the Board at JSC DSRC, member of the board of directors at Rosneft - MP Nefteprodukt, JSC FESRC, CJSC TEK-Torg, LLC RN-Upstream, LLC RN-Commerce, LLC RN-Assets, and LLC RN-Foreign Projects, General Director of LLC RN-Foreign Projects and JSC RN Holding, Executive Financial Director of JSC RN Management.
Holds 448,066 shares of Rosneft (0.0042% of the Company's charter capital).

Elena ZAVALEEVA
State Secretary - Vice President

Born in 1981.
2003: Graduated from the Moscow State Social University of the Ministry of Labor and Social Development, majoring in Legal.
Holder of a government award.
In 2008: joined PJSC NK Rosneft.
2013-2017: Held the leading positions
Since September 2017: State Secretary - Vice President of PJSC NK Rosneft.
Since April 2018: Member of Rosneft's Management Board.
Chairman of the Board of Directors at LLC Reestr-RN, member of the Board of Directors at PJSOC Bashneft, LLC RN-Refining, LLC RN-Upstream.
Holds 6,250 shares of Rosneft (0.00006% of the Company's charter capital).

Zeljko RUNJE
Vice President for Offshore Projects

Born in 1954.
Graduated with honors from the University of Alaska in 1979.
Holder of government awards.
1997-2012: held various executive positions in the Sakhalin-1 project in his capacity as Vice President of ExxonMobil Russia Inc.
Since October 2012: Vice President of PJSC NK Rosneft.
Since March 2013: Vice President for Offshore Projects of PJSC NK Rosneft.
Since November 2012: Member of Rosneft's Management Board.
Chairman of the Supervisory Board at PJSC RosneftSakhalin, Chairman of the board of directors at LLC RN-Foreign Projects and JSC RN-Shelf-Far East, member of the board of directors at RN Nordic Oil AS, CJSC Rosshelf, JSC FESRC, LLC RN-GAZ, and LLC RN-Commerce.
Holds 377,318 shares of Rosneft (0.0036% of the Company's charter capital).

Vlada RUSAKOVA
Vice President

Born in 1953.
Graduated from the Gubkin Moscow Institute of the Petrochemical and Gas Industry in 1977 and completed a post-graduate program there in 1984.
Holder of government and ministerial awards.
1998-2003: Head of the Prospective Development Forecasting Division, Prospective Development, Science and Ecology Department at PJSC Gazprom.
2003-2012: Head of the Prospective Development, Science and Ecology Department, Head of the Strategic Development Department, Head of the Prospective Development Department at PJSC Gazprom.
Since April 2013: Vice President of PJSC NK Rosneft in charge of the Gas Business.
Since July 2017: Member of Rosneft's Management Board.
Chairman of the board of directors at LLC RN-GAZ and SIA ITERA Latvija, member of the Supervisory Board at the Union of Oil and Gas Organizations Russian Gas Society, member of the board of directors at LLC RN-Foreign Projects, LLC RN-Refining.
Holds 4,071 shares of Rosneft (0.00004% of the Company's charter capital).

Andrey SHISHKIN
Vice President for Energy, Localization and Innovations

Born in 1959.
Graduated from the Gubkin Moscow Institute of the Petrochemical and Gas Industry in 1985, Finance Academy under the Government of the Russian Federation in 1996, and Moscow International Higher Business School MIRBIS in 2002.
Holder of government and ministerial awards.
2005-2010: General Director of OJSC Ural Energy Management Company, OJSC TGK-10, OJSC Tyumen Energy Selling Company.
2008-2009: First Vice President of OJSC Integrated Energy Systems (IES Holding).
2010-2012: Deputy Minister of Energy of the Russian Federation.
Since July 2012: Vice President of PJSC NK Rosneft.
Since March 2013: Vice President of Rosneft for Energy, Health, Safety and Environment.
Since August 2014: Vice President of Rosneft for Energy and Localization.
Since April 2016: Vice-President of Rosneft for Energy, Localization and Innovations.
Since April 2015: Member of Rosneft's Management Board.
Chairman of the board of directors at JSC FESRC, JSC 82 SRF, JSC Okhinskaya TETS, LLC Zvezda-Hyundai, JSC Lazurit CDB, JSC TomskNIPIneft; member of the board of directors at RIG Research Pte. Ltd., PJSC RusHydro, JSC USC, LLC SNGT, LLC Zvezda Marine Technology, Antares Singapore Pte. Ltd., LLC RN-Assets, LLC RN-Upstream, LLC RN-Commerce, LLC RN-Refining, OJSC SPA Burovaya Technika, General Director at LLC RN-Assets, President, Chairman of the Management Board, Deputy Chairman of the Board of Directors at PJSOC Bashneft, member of the Supervisory Board at the National Assosiation of Technology Transfer, member of the Board of Trustees at the Gubkin Russian State University of Oil and Gas.
Holds 377,114 shares of Rosneft (0.0036% of the Company's charter capital).

THE MEMBERS OF THE MANAGEMENT BOARD SPEAK RUSSIAN, ENGLISH, FRENCH, GERMAN, SPANISH, PORTUGUESE, DUTCH, AND CROATIAN.# Duration of work in the Management Board
Igor Sechin Since 2012 (6 years)
Yuri Kalinin Since 2013 (5 years)
Eric Maurice Liron Since 2013 (5 years)
Gennady Bukaev Since 2016 (2 years)
Didier Casimiro Since 2012 (6 years)
Yuri Kurilin Since 2017 (1 year)
Peter Lazarev Since 2011 (7 years)
Elena Zavaleeva Since 2018 (under 1 year)
Zeljko Runje Since 2012 (6 years)
Vlada Rusakova Since 2017 (1 year)
Andrey Shishkin Since 2015 (3 years)

Performance of the Management Board in 2018

In 2018, the Management Board held 59 meetings, reviewed and made resolutions on 195 matters:
* reviewed the status of Rosneft - 2022 Strategy implementation;
* implemented the long-term incentive program for executives of the Group Subsidiaries;
* established the Technological Council, Science and Technology Committee, Information Technology Expert Council, Import Substitution Committee, created and approved internal documents that specify their operation procedures;
* updated the Company-wide register of non-core and non-performing assets;
* approved implementation of eight business projects for field development and construction, oil pipelines retrofitting, conducting geological surveys, oil refining development;
* approved 79 related party transactions for oil and oil products supply to foreign and domestic markets, for gas supply to the domestic market, for provision of oil sales services on a commission basis;
* liquidated/reorganized ten Group Subsidiaries to optimize the Company's corporate structure;
* approved participation of the Company in 23 organizations;
* approved the Company's internal documents on:
* health, safety, and environment;
* risk management and internal control;
* organization of operation of Technical and Technology Expert Council and Science and Technical Council;
* quality control of oil products, etc.;
* reviewed the results of the Company's management activities for 2017 and approved the KPI values for senior managers of Rosneft business units and executives of key Group Subsidiaries for 2018;
* approved the candidates for election to the boards of directors and executive bodies of key Group Subsidiaries.

Planning of the Management Board's work

The Management Board works on a scheduled basis. The Management Board's action plans are developed quarterly with regard to proposals submitted by the members of the Management Board and top managers of the Company. In 2019, the Management Board will continue works on implementation of the Company's Development Strategy in accordance with resolutions of the Board of Directors.

Corporate Secretary

In May 2014, the functions of the Corporate Secretary were vested in the Director of Rosneft's Corporate Governance Department Svetlana Gritskevich.[10] The Corporate Governance Department is the Company's business unit exercising functions of the Corporate Secretary Administration. The Corporate Secretary reports to the Board of Directors, is appointed and dismissed by the Chief Executive Officer based on the resolution of the Board of Directors. The Corporate Secretary's activities are governed by the Regulations on the Corporate Secretary. Key functions are as follows:
* enhancement of the corporate governance system;
* organization of preparations for, and conduct of the General Shareholders Meetings;
* support of activities of the Board of Directors and its Committees, execution of functions of the Management Board Secretary;
* prevention of corporate conflicts;
* ensuring the exercise of shareholder rights;
* implementation of the information disclosure policy;
* organization of works for Company's compliance with the requirements of the Russian legislation on countering the misuse of insider information and market manipulation;
* monitoring of Company's compliance with the requirements of the Russian legislation on countering the misuse of insider information and market manipulation;
* communication with the registrar and government bodies authorized to regulate corporate relations and the securities market.

Svetlana GRITSKEVICH

Born in 1974. Graduated from the Institute of Modern Knowledge, Belarus State University (Minsk), in 1996 and the Russian Presidential Academy of Public Administration in 2011. Has an MBA degree from MIRBIS (Moscow International Business School, 2011); has strong experience in corporate governance (since 1998) and expertise in fuel and energy sector companies' business (since 1996), as well as management experience (since 2003) and work experience as a member of board of directors at several joint stock companies.

Since 2013: Rosneft's Department Director for Corporate Governance. Member of the Moscow Exchange Share Issuers Committee. Holds 393 shares of Rosneft (0.000004% of the Company's share capital).

To provide efficient work of the Company's Board of Directors, a shared information space has been created for the members of the Board of Directors and the Corporate Secretary Administration - Portal of the Board of Directors - with round-the-clock access to materials (agendas, minutes, bulletins, documents) of meetings of the Board of Directors and a possibility to communicate on the points of interest from any place in the world. Has held the first positions[11] in the corporate governance ratings in the energy and fuel sector according to the Kommersant Publishing House and the Association of Managers (TOP-1000 Russian Managers rating). Ranked among the 25 Best Corporate Governance Directors / Corporate Secretaries for 2018 according to the assessment of the Association of Independent Directors and the Russian Union of Industrialists and Entrepreneurs in a partnership with PwC.

5.5 Remuneration of Members of the Board of Directors

The Company's Regulations on Payment of Remuneration and Reimbursement of Expenses of Members of the Board of Directors specify the entire list of types and terms of payments to directors, which ensures transparent remuneration payment process.

ON 21 JUNE 2018, THE ANNUAL GENERAL SHAREHOLDERS MEETING RESOLVED TO PAY THE FOLLOWING REMUNERATION AMOUNTS TO MEMBERS OF THE BOARD OF DIRECTORS PRO-RATA TO THE TIME SERVED:

Gerhard Schroeder - USD 600,000 (for discharging the functions of a Chairman of the Board of Directors);
Faisal Alsuwaidi - USD 530,000 (for discharging the functions of a Board member and a Strategic Planning Committee Member);
Matthias Warnig - USD 580,000 (for discharging the functions of a Chairman of the Board of Directors, a Chairman of the HR and Remuneration Committee, and a member of Audit Committee);
Oleg Viyugin - USD 565,000 (for discharging the functions of a Board member, a Chairman[12]/a member of the Strategic Planning Committee, and a member of Audit Committee);
Ivan Glasenberg - USD 530,000 (for discharging the functions of a Board member and a Strategic Planning Committee Member);
Donald Humphreys - USD 580,000 (for discharging the functions of a Board member and a Chairman of the Audit Committee);

No remuneration for 2017/2018 corporate year was paid to Andrey Belousov, Robert Dudley, Guillermo Quintero, Alexander Novak, Igor Sechin.

The total remuneration to the members of the Board of Directors for the 2017-2018 corporate year amounted to USD 3,385,000 mln.

5.6 Remuneration of the Management

The complex incentive system in force ensures that managers are interested in the results of their work and in achieving the Company's strategic goals.

THE INCENTIVE SYSTEM INCLUDES THE FOLLOWING:
* Monetary remuneration
* Social package
* Non-financial incentives

The remuneration to top managers depends on the Company's performances and implementation of key projects. It is based on the team and individual KPIs achieved. The KPIs, their implementation and annual bonuses are approved every year by the Board of Directors, with due account to the recommendations of the HR and Remuneration Committee. The KPI system and its interrelation with the Company's Strategy are detailed in Section 1.3 "Company KPIs of this Report".

The total remuneration to the members of the Board of Directors for 2018 amounted to RUB 3.8 bln[13], down 1.9% year-on-year. Considering the changes in the nominal roll, the annual average of payouts per one member of the Management Board in 2018 decreased by 13% year-on-year.

No loans and borrowings have been provided for the members of the Board of Directors and the Management Board in the reporting year.

5.7 Civil liability for the Members of the Board of Directors and the Management

Civil liability covers management bodies and employees of the Company and all the Group Subsidiaries according to the insurance contract signed with SOGAZ JSC in 2017 and approved by the decision of the Annual General Shareholders Meeting on 22 June 2017. The insurance contract is signed to cover all possible risks in case of harm inflicted to third parties for the period from 10 July 2017 to 10 July 2020 with the retrospective risk coverage from 10 July 2006. The contract liability limit is USD 150 mln.

Additional limits of liability:
* for all independent directors - USD 6 mln, and separately for each independent director - USD 1 mln;
* for protection in case of environmental pollution - USD 2.5 mln, and in the sphere of environmental management - USD 5 mln.

5.8 Managing Possible Conflicts of Interest

Possible conflicts of interest are managed at all levels of the Company.# Shareholders

For the avoidance of any potential conflicts among its shareholders, the Company provides equal opportunities for exercising shareholder rights established by the applicable laws. Ensuring the Company's interaction with shareholders and participating in the prevention of any corporate conflicts are within the competence of the Corporate Secretary. The Corporate Secretary has to promptly notify the Board of Directors of any threatened violation of the applicable laws, shareholder rights or any conflicts of interest. The Company has arranged activities on shareholder relations, including explanations of the Company's position by the shareholders' requests.

Board of Directors

The Board of Directors is responsible for managing any conflicts of interest in the Company. The Charter specifies the procedure for the Board of Directors to review the related party transactions. The Regulations on the Board of Directors specifies the duties of the Board of Directors' members related to avoidance and management of any conflicts of interest. When considering agenda items, members of the Board of Directors assess a potential conflict between their interests and those of the Company. With respect of any issue that may, in the opinion of a member of the Board of Directors, result in such a conflict of interest, the director shall not participate in voting and, where necessary, in the discussion of such issue. Any actual/potential conflicts of interest are communicated by members to the Chairman of the Board of Directors and/or the Corporate Secretary. For the avoidance of any potential conflicts among the Company's employees, the Board of Directors specified the rules of conducting transactions in financial instruments by persons included in the insider list, as well as the rules for disclosing insider information, and checks adherence to these rules on a regular basis.

Executive bodies

According to the internal documentation, the members of the Management Board and the Chief Executive Officer:
* should refrain from any actions that may cause a conflict of interest, and should such conflict arise - immediately notify the Chairman of the Management Board / the Chairman of the Board of Directors and/or the Corporate Secretary;
* while in office, may not hold and/or control 20 or more percent of voting shares (interests or stakes) in any entity competing with the Company or having any business interest in maintaining relations with the Company;
* may not accept any gifts from persons interested in resolutions passed as part of their duties, or other benefits from such persons.

Top-managers and employees

The rules of avoidance and prevention of conflicts of interest are regulated by the Code of Business and Corporate Ethics, which defines the terms 'conflict of interest' and 'corruption' and specifies the procedure of corporate frauds prevention. The Company has in place the Council for Business Ethics. Managing the conflicts of interest is among the functions of this Council. Special rules on prevention of corporate frauds are listed in the Company's Policy on Anti-Corruption and Countering Corporate Fraud. The Policy stipulates the key principles and the organizational structure of the Company's for countering corporate fraud, monitoring procedures, and anti-corruption training for the employees, including the algorithms in case of threatened violation of anti-corruption rules. Special rules aimed at preventing the securities market manipulation and the misuse of insider information are stipulated in the Regulations on Insider Information, which define the rules for disclosing insider information and conducting transactions in financial instruments by persons included in the insider list. The Corporate Secretary - Svetlana Gritskevich - was appointed by the Board of Directors to be a person responsible for all required arrangements for execution of legislative and internal requirements in relation to countering the misuse of insider information. The Board of Directors on a quarterly basis should review information on assessment and monitoring of potential conflicts of interest related to the head of Internal Audit holding the position of a Member of the Management Board, and consider the measures taken by the Company to minimize this risk as adequate.

Prevention of Corruption

In the reporting period, the Company continued to focus on improving anticorruption and anti-fraud efforts, ensure compliance by top managers and employees with international and Russian anticorruption legislation, and the applicable local regulations. As part of anti-corruption practices:
* The Company has been consistently working on improving the framework for building its culture elements, organizational structure, and rules and procedures designed to prevent corporate fraud and corruption, and to mitigate reputational risks and risks that the Company will be held liable for bribing officials; for that purpose, Rosneft's Comprehensive AntiFraud and Anti-Corruption Program for 2019-2020 was drafted and approved by Rosneft's Council for Business Ethics on 10 December 2018;
* Rules and a procedure for anticorruption examination of draft local regulations and administrative documents of the Company were determined to exclude the risk that they would encourage corruption; a standard anti-corruption clause is included in agreements with legal entities and individuals; in 2018, due diligence was conducted on 122,048 potential bidders (to supply inventories, perform capital construction projects, and provide oilfield and nonoperating services), with 2,593 bids rejected;
* the Company's Regulations on the Procedure for Charitable Activities of Rosneft and Group Subsidiaries, and on Sponsorship by Rosneft and Group Subsidiaries are applied across the Company;
* The Company is vetting job applicants on an ongoing basis to identify potential conflicts of interest, including affiliation;
* Additionally, the Company has in place a number of organizational measures to meet the requirements for hiring former government officials;
* Collect and verify information on income, property, and property obligations for certain categories of employees;
* enhance the commitment of the Company's management to preventing corruption, including conflicts of interest, by entering relevant provisions into employment contracts, and including provisions on liability for failure to comply with antifraud and anti-corruption requirements of the Company's local regulations in employee job descriptions.
* The Company is working on instilling zero tolerance for corruption in its employees.
* The Company operates a 24/7 Security Hotline to report on cases of corporate fraud and corruption. Members of the Company's Board of Directors are updated on the Security Hotline operation on a quarterly basis.


27,081 calls received by the Hotline in 2018	34.52 RUB mln the amount of damage prevented	32 employment contracts terminated
THE CORRUPTION CONTROL SECTION ON THE OFFICIAL CORPORATE WEBSITE HAS:
* The Company's statement on its zero tolerance for corruption;
* key provisions of international and Russian anti-corruption legislation;
* local corruption control regulations of the Company (Rosneft's Code of Business and Corporate Ethics, and AntiCorruption Policy);
* security hotline contacts;
* information on cooperation with law enforcement authorities, etc.
90 employees got disciplinary sanctions	Findings of 20 audits were submitted to law enforcement authorities	5.9

Audit Commission

The Audit Commission is a body responsible for auditing the Company's financial and business operations. The Commission comprises five members, who are elected on an annual basis. The Audit Commission audits the Company's financial and business operations, verifies accuracy and reliability of data included in Rosneft's annual reports, annual accounting (financial) statements, and prepares proposals and recommendations for improving the efficiency of asset management and streamlining the risk management and internal control systems.

UNDER THE RESOLUTION OF THE GENERAL SHAREHOLDERS MEETING DATED 21 JUNE 2018, THE FOLLOWING PERSONS WERE ELECTED TO THE AUDIT COMMISSION:

Chairman of the Audit Commission
Zakhar Sabantsev
Born in 1974. Graduated from the Moscow State University of Economics, Statistics, and Informatics. Section Head, Bank Sector Monitoring, Consolidated and Analytical Work Section, Financial Policy Department, Ministry of Finance of the Russian Federation.

Members of the Audit Commission
Olga Andrianova
Born in 1958. Graduated from the All-Russian State Distance Learning Institute of Finance and Economics (ARDLIFE). Holder of a ministerial award - Certificate of Honor of the Russian Ministry of Energy. Chief Accountant - Head of the Finance and Economics Service of JSC ROSNEFTEGAZ.

Alexander Bogashov
Born in 1989. Graduated from the State University of Management. Department Director for Corporate Governance, Price Environment, Control and Audit Activity in the Fuel Producing Industries of the Ministry of Energy of the Russian Federation.

Sergey Poma
Born in 1959. Graduated from Nakhimov Black Sea Higher Naval School, Saint Petersburg State University. Vice President of the National Association of Securities Market Participants (NAUFOR).

Pavel Shumov
Born in 1978. Graduated from the Moscow State University of Economics, Statistics, and Informatics. Acting Deputy Department Director at the Department for State Regulation of Tariffs and Infrastructure Reforms, Ministry of Economic Development of the Russian Federation.

In 2018, the Audit Commission held three meetings, which included, among other things, the approval of the action plan and the financial and business audit program of the Audit Commission, and the review of the audit results.# 5.10 The Risk Management and Internal Control System

The goals and objectives of the Risk Management and Internal Control System (RM&ICS) are set out in the Company's Policy on the Risk Management and Internal Control System[14], developed based on recommendations of international agencies specializing in risk management, internal control, and audit services. They are aimed at reasonable assurance that the Company will achieve the goals that can be grouped into four main categories:

Strategic goals contributing to the accomplishment of the Company's mission
Operational goals related to the Company's financial and business performance, and asset integrity
Goals of compliance of the Company's activities with the applicable laws and local regulations, including HSE requirements, requirements for information and personal security
Goals of timely preparation of reliable financial statements or non-financial reports, internal and/or external reports

Key RM&ICS Stakeholders

I. GOAL-SETTING AND CONTROL

The Board of Directors and the Audit Committee of the Board of Directors:
- approve RM&ICS focus areas, control of their implementation
- approve corporate reports on the financial and business risks
- approve risk appetite
- monitor the RM&ICS reliability and performance

II. RISK MANAGEMENT AND EXECUTION OF RESOLUTIONS

Chief Executive Officer
- validates RM&ICS focus areas
- validates RM&ICS reports
- validates risk appetite
Risk Management Committee
- validates the RM&ICS issues reported to the Chief Executive Officer
- resolves RM&ICS operational Disputes
Management
- allocates powers and responsibilities among employees
- manages risks
- develops and executes controls
- conducts self-assessment of internal control

III. RISK MANAGEMENT AND DECISION-MAKING

JVCos performing separate RM&ICS functions
- compile and consolidate reports on RM&ICS
- manage the rollout of RM&ICS elements and develop proposals for risk management methodology
- assist the Company's management in conducting self-assessment of internal control
Rosneft's employees
- execute risk management controls and projects
- assist the Company's management in managing risks
- help identify, assess, and report on risks and internal controls, conduct self-assessment of internal control
Risk and internal control experts
- coordinate the risk management and internal control process in the business unit
- identify, assess, and develop risk management initiatives
- develop, implement, and update business process controls
- develop, monitor/implement projects to eliminate gaps identified in business process controls

IV. RM&ICS INDEPENDENT MONITORING AND PERFORMANCE ASSESSMENT

Internal Audit Service
- assesses the RM&ICS reliability and performance
- conducts audits
- monitors the incorporation of RM&ICS improvement proposals made by internal auditors
- assists the Company's executive bodies in investigating wrongdoings / unlawful acts by the Company's employees and third parties
Audit Commission
- audits the Company's financial and business operations, verifies the accuracy and reliability of data included in the Annual reports and annual accounting (financial) statements

V. COORDINATION AND GUIDELINES

Risks and Internal Control Department
- plans RM&ICS focus areas
- develops, implements, and updates Company-wide RM&ICS guidelines
- prepares reports on risks and internal controls
- coordinates the RM&ICS rollout and operation across Rosneft's units and Group Subsidiaries
- provides guidelines to key RM&ICS stakeholders, trains in risk management and internal control
- develops, implements, and supports insurance programs
- reinsures the Company's risks in Russian and international insurance markets
- settles insurance claims on risks realized
Security Service
- develops, updates, and introduces local regulations and administrative documents on anti-corruption and prevention of corporate fraud
- enforces the compliance with the local regulations and the implementation of anti-corruption and corporate fraud prevention initiatives taken by the Rosneft's executive bodies
- manages security Hotline
- conducts inspections / investigations of wrongdoings / unlawful acts of the Company's employees and third parties

Enhancement of the Risk Management and Internal Control System

Consistent development and enhancement of the Company's RM&ICS enable to promptly and adequately respond to changes in the external and internal environment, improve operational efficiency and effectiveness, and maintain and add value. The Company has in place the RM&ICS holistic development plan for the short and medium terms. This plan sets goals, objectives, and key initiatives contributing to the achievement of the Company's established goals for the RM&ICS. The RM&ICS holistic development plan for 2018-2020 is endorsed by the Company's Risk Management Committee, Chief Executive Officer and approved by the Rosneft's Board of Directors.

Initiatives on RM&ICS in 2018

The RM&ICS focus areas include:

Key results

Improving the guidelines on the RM&ICS. Training the Company's employees
- The Company's local documents regulating the RM&ICS were updated, including:
  - the Company's Policy on the Risk Management and Internal Control System;
  - the Company's Standard on the Corporate-Wide Risk Management System (CWRMS);
  - the Company's Standard on the Internal Control System.
- Over 350 employees of Rosneft and Group Subsidiaries were trained on RM&ICS.
Developing the risk management and internal control infrastructure and procedures at the Company
- The Company-wide Register of Risks and Control Procedures is kept updated.
- A number of quantitative models for evaluating the Company's key risks have been developed, and the existing quantitative risk assessment models have been verified.
Introducing and maintaining the Internal Control System
- The development, implementation, and streamlining of the Company's business controls is ongoing.
Producing and improving the information resources of the development and maintenance of the RM&ICS
- The Risk Management and Internal Control information resources on the basis of SAS information system were launched into commercial operations.

Internal Control System

THE INTERNAL CONTROL SYSTEM IS AN INTEGRAL PART OF THE RM&ICS

Both systems have aligned goals.
The ICS is organized as per the Company's Policy on the Risk Management and Internal Control System, the Company's Standard on the Internal Control System, and the Company's Regulations on Development, Implementation, and Maintenance of the Internal Control System.
The Company relies on these documents to reveal the risks inherent to business processes and implement controls so as to make business processes more efficient and manageable while ensuring the reliability of its financial statements and compliance with legislation and local regulations of the Company.

To achieve the ICS objectives, the Company needs to:

Define and update the ICS focus areas that have to be aligned with the Company's needs and stakeholders' requirements
Develop, adopt, and follow controls, including the development of uniform guidelines for the organization and high performance of the Company's ICS
Identify shortcomings in existing controls, develop and implement measures to address them; streamline and ration the controls
Develop and implement tools to enhance communication and internal control information sharing among all RM&ICS stakeholders, including via information systems

The Corporate-Wide Risk Management System (CWRMS)

Key CWRMS components:

ANNUAL PLANNING
RISK IDENTIFICATION
RISK ASSESSMENT
RESPONDING TO RISKS
REPORTING
MONITORING
RISK MANAGEMENT PROCESS: A combination of risk management elements supported by the existing organization, internal policies and regulations, risk management procedures and methods, applied across the Company and its functions to make the Company's risks acceptable in the context of achieving Rosneft's strategic goals.
INFRASTRUCTURE: A set of elements that provide Company-wide basis, organizational tools, and framework for risk management.

The risk management process at the Company is regulated by the Company's Policy on the Risk Management and Internal Control System and the Company's Standard on the Corporate-Wide Risk Management System (CWRMS). The CWRMS is a combination of interrelated elements embedded into various business processes of the Company (including strategic and business planning processes) and implemented at all management levels by all employees of the Company.

All key risks of the Company are reported within the CWRMS, including the risks affecting the implementation of its Long-Term Development Program and the risks related to day-to-day financial and business operations. Risk reports are delivered for review / approval to the members of the Board's Audit Committee / the Board of Directors and communicated to the management. Heads of the Company's businesses organize and coordinate risk management processes within the scope they are responsible for. When choosing a risk response and specific mitigation measures, risk owners seek to find an optimal trade-off while maintaining an acceptable risk level (risk appetite).# Rosneft's Risks

INDUSTRY-WIDE RISKS

On-the-job injury risk
Risk related to reducing the quality of crude hydrocarbons delivered for processing
Risk related to failure to achieve the oil and gas condensate production target
Risk related to failure to achieve the natural gas and gas condensate production target
Accident risk
Risk related to failure to comply with the repair plan for the Oil Refining business
Risk related to rising power purchase prices
Risk to receive tax claims and to lose the right to use tax incentives

COUNTRY AND REGIONAL RISKS

Risk related to international projects

FINANCIAL RISK

Market risk
Credit risk related to the crude oil, petroleum products, gas, petrochemicals, and gas processing products supply agreements

US AND EU SANCTIONS

Starting from 2014, the USA, European Union, and some other countries have been consistently imposing the sanctions on the Russian Federation, including sectoral sanctions affecting the operations of individual companies in the energy and other sectors of the Russian economy (including Rosneft and some its subsidiaries). Rosneft takes the current sanctions into account in its operations and monitors them on a regular basis in order to minimize the negative effects, takes measures and consulting with existing and potential partners, and consistently implements the Program on Import Substitution and Equipment Localization in the Russian Federation. Due to the intense discussions of various initiatives in the USA aimed at strengthening the sanctions against Russia, probable extension of sanctions may influence the individual promising projects of the Company.

CHANGES IN LEGISLATION AND REGULATORY ENVIRONMENT

The Company's operating results can be strongly affected by the changes in the applicable legislation, including tax, currency exchange, customs regulations, etc. Rosneft ensures continuous monitoring of the changes in legislation, assesses, and predicts degree of impact on the Company's operations. The Company's experts are regularly involved in working groups responsible for drafting laws in various areas of legislation.

The Company's Risk Appetite

IN 2018, THE ROSNEFT'S BOARD OF DIRECTORS APPROVED THE COMPANY'S RISK APPETITE FOR 2019

Financial and Economic Performance

The Company strictly complies with the covenants. The Company ensures that all its short- and long-term commitments are discharged as they fall due.

Health, Safety, and Environment

Recognizing the nature and scale of the footprint of its business, products, and services, the Company realizes the responsibility for safe operation and protects the health and safety of its employees and the local residents in the regions of operation. To prevent potential adverse impacts, the Company makes relevant commitments and carries out all necessary activities focused on environmental safety and natural resource conservation and restoration.

Corporate Governance

The Company adheres to the principle of zero tolerance to corporate fraud and corruption of any kind and form.

Corporate Insurance

Rosneft uses insurance as a risk management tool enabling it to pass financial losses caused by insured occurrence through to insurers. The Rosneft's corporate insurance program covers:

the Company's fixed production assets;
civil liability;
business risks.

For its fixed main production assets, Rosneft has insurance coverage in place against the risk of damage to (loss of) property and potential losses resulting from business interruption due to accidents and other accidental emergencies, and liability insurance against the risk of legal action by third parties related to its onshore and offshore operations. The most material risks are reinsured on the international market with companies having the reliability rating of at least A- by S&P, AM Best, and Fitch. Rosneft insures its liability as required by federal legislation, including Federal Law No. 225 On Compulsory Insurance of Owners of Hazardous Facilities against Civil Liability for Damage Caused by Accidents at Hazardous Facilities. The compulsory insurance requirement under Federal Law No. 225 applies to property interests of the facility's owner, which relate to its obligation to indemnify for damage caused to the affected party (Part 1 of Article 1 of the Federal Law).

Internal Audit

The Company has in place the following local regulatory documents on internal audit:

the Company's Policy on Internal Audit No. P4-01 P-02;
the Company's Standard on the Organization of Internal Audit No. P4-01 S-0021;
the Company's Regulations on the Internal Audit Quality Assurance and Improvement Program No. P4-01 R-0038;
the Company's Regulations on the Procedure for Cooperation between the Internal Audit Service and Business Units of Rosneft and Group Subsidiaries when Performing Internal Audit No. P4-01 R-0041;
Rosneft's Instruction on the Procedure for Internal Assessment of Internal Audits · No. P4-01 I-01014 YuL-001;
Rosneft's Instruction on the Procedure for Internal Audits No. P4-01 I-0013 YuL-001;
Rosneft's Instruction on the Annual Internal Audit Action Planning No. P4-01 I-01016 YuL-001;
and other the Company's local regulations governing internal audit operations.

The internal audit function assists Rosneft's Board of Directors and the Company's executive bodies in increasing the Company's governance efficiency and improving overall financial and business performance, particularly through application of a consistent systematic approach to reviewing and assessing the Risk Management and Internal Control System (hereinafter - RM&ICS), as well as corporate governance, therefore providing reasonable assurance that the Company will achieve its goals. It also helps ensure:

the accuracy, reliability, and integrity of information on the Company's financial and business operations, including those of Group Subsidiaries;
the efficiency and effectiveness of the Company's operations, including those of Group Subsidiaries;
identification of internal reserves for improving the Company's financial and business performance, including that of Group Subsidiaries;
protection of the Company's assets, including those of Group Subsidiaries.

Rosneft's internal audit function is performed by the Vice President - Head of Internal Audit; and the structural units - the Operational Audit Department, the Corporate Audit Department, the Regional Audit Department, the Internal Audit Methodology and Management Division, and the Economic and Organizational Analysis Division. In accordance with Rosneft's organizational structure approved by the Board of Directors, units of the Internal Audit Service report directly to the Vice President - Head of Internal Audit.

THE MAIN FUNCTIONS OF THE INTERNAL AUDIT SERVICE UNITS ARE:

assessing the reliability and efficiency of the Risk Management and Internal Control System, its compliance with the scale and complexity of the Company's business;
assessing corporate governance;
conducting audits in line with the internal audit action plan approved by Rosneft's Chief Executive Officer and endorsed by the Audit Committee of Rosneft's Board of Directors;
performing other inspections and tasks as instructed by Rosneft's Board of Directors (the Audit Committee of the Board of Directors) and / or Rosneft's Chief Executive Officer within the competence, including those based on the information received via the security hotline of Rosneft;
carrying out comprehensive inspections (auditing) of the activities of auditees, which imply the documentary and physical verification of the legality of conducted financial and business transactions, their accurate and correct reporting in the accounting (financial) statements, subsequent control of the financial and business activities of the auditee;
analyzing the auditees in order to study specific aspects of their activity and estimation of the state of an auditee's certain sphere;
consulting the Company's executive bodies on risk management, internal control, and corporate governance (assuming the preservation of the independence and neutrality of the Internal Audit);
monitoring the incorporation of RM&ICS and corporate governance improvement proposals made by internal auditors, addressing shortcomings and violations identified during inspections;
assisting the Company's executive bodies in investigating wrongdoings / unlawful acts by the Company's employees and third parties, including negligence, corporate fraud, corrupt practices, abuses, and various improprieties that inflict damage to the Company;
developing the Internal Audit action plan for the period prioritizing the internal audit activities (one year, within the three-year planning horizon);
cooperating between the Internal Audit Service and Business Units of Rosneft and Group Subsidiaries on Internal Audit issues;
conducting quality controls and evaluating the results obtained;
performing the other functions essential in solving the tasks assigned to the Internal Audit Service by the Company.

Reporting and Accountability Lines of the Internal Audit Service

Functionally, the Internal Audit Service reports to Rosneft's Board of Directors. Functional management of the Internal Audit implies:

approving the Policy-level local regulations on Internal Audit (the Regulations on Internal Audit governing the goals, objectives, and authorities of the Internal Audit);
taking a decision on the appointment and dismissal of the Head of Internal Audit;
reviewing the internal audit action plans and reports on the internal audit results;
approving a budget of Rosneft's Internal Audit Service and the remuneration to the Head of Internal Audit;
reviewing by the Audit Committee of Rosneft's Board of Directors the significant limitations of authorities and other restrictions that could impinge upon the effective implementation of the internal audit function.# Rosneft

Item 1. Business

Internal Audit

Administratively, the Internal Audit Service reports directly to Rosneft's Chief Executive Officer. Administrative management of the Internal Audit implies: · allocating the necessary funds within the approved budget; · approving the internal audit action plans; · reviewing reports on the internal audit results; · facilitating the cooperation between Rosneft and joint venture companies of Group Subsidiaries; · administering the internal audit policies and procedures (among them, approving local regulations on internal audit and amendments thereto, approving organizational documents of Rosneft's Internal Audit Service, approving business trips, and validating the involvement of external experts to internal audits). The existing reporting lines, by which the Vice President as the Head of Internal Audit reports to the Board of Directors and the Company's executive bodies, provide sufficient independence for performing internal audit functions. Heads of units within the Internal Audit Service do not participate in managing functional areas of the Company's business that require management decisions on audited entities. The Head of Internal Audit was appointed to Rosneft's Management Board following a decision made by the Rosneft's Board in July 2016. The Head of Internal Audit is not entitled to vote on matters requiring management decisions on audited entities. The internal audit action plan is based on an audit model using information and requests received from Rosneft's executive bodies and Board of Directors, as well as Rosneft's risk evaluation results. The internal audit action plan comprises scheduled audits and other internal audit activities for the planned period (one year, within the three-year planning horizon) and is submitted to Rosneft's Chief Executive Officer and the Audit Committee of Rosneft's Board of Directors for approval. Details of the action plan are presented to the Board of Directors for review together with the internal audit report for the previous period. The functions of the Head of Internal Audit include the following activities: preparing the internal audit report and submitting this report to Rosneft's Board of Directors and executive bodies (this report includes information about material risks, violations and shortcomings, results and efficiency of internal audit proposals on eliminating identified violations or shortcomings, results of implementing the internal audit action plan, and assessment results on the actual condition, reliability, and efficiency of the Company's RM&ICS and corporate governance).

The 1H 2018 and 2018 internal audit reports were reviewed by the Audit Committee of the Board of Directors and the Board of Directors of Rosneft. Based on the results from the risk management and internal control system (RM&ICS) efficiency assessment in 2018, the internal audit concluded that the RM&ICS ensured overall support of the risk management process and effective functioning of the internal control system, providing reasonable assurance that Rosneft would achieve its goals. The assessment results were reviewed by the Rosneft's Board of Directors. The internal auditors provide written confirmation of their personal objectivity to the heads of Internal Audit Service's divisions and to the Head of Internal Audit at least once a year, thereby raising awareness among the Service's employees of potential conflicts of interest and related factors, as well as response procedures to situations, which may influence the independence and objectivity of an internal audit. The Head of Internal Audit provides Rosneft's Chief Executive Officer, Board of Directors (its Audit Committee) with confirmation of the organizational independence of internal auditing and individual objectivity of internal auditors at least once a year, as part of the internal audit report.

The basic internal audit task for the reporting period is to improve the performance and increase the labor efficiency, including through: · standardizing the audits and internal audit procedures; · digitalizing the internal audits; · training and developing the skills of the Internal Audit Service's employees. In the reporting period, the automated information system for managing internal audit, internal control, and risk management processes - AIS SAS - was launched. The system will significantly reduce the time spent on planning, preparing and recording audits, as well as monitoring the elimination of violations and shortcomings identified during internal audit inspections. All employees of the Internal Audit Service utilize the SAS AIS while executing their internal audit functions. During 2018, more than 300 inspections were carried out, covering most of the risks related to the Company's critical business processes and the financial and business risks of its Key Group Subsidiaries. Over 90% of the total number of inspections are thematic inspections and audits assessing the RM&ICS performance, improving the efficiency of the Company's business processes in Key Group Subsidiaries, and assessing the business performance of Group Subsidiaries. In cooperation with the heads of business units, the Internal Audit Service prepares proposals based on its inspection results aimed at improving business processes and RM&ICS optimization, as well as resolutions for eliminating the violations and shortcomings identified during inspections. In the reporting period, the Internal Audit Service conducted the regular in-house self-assessment on its internal audit quality. This in-house regular self-assessment was aimed at ensuring and improving the performance and efficiency of both the internal audit, in general, and individual internal audit inspections. The self-assessment findings are as follows: internal audit operations generally comply with the requirements of the Company's Policy on Internal Audit and local internal audit regulations, the International Standards for the Professional Practice of Internal Auditing, and the Code of Ethics of the International Institute of Internal Auditors. The Internal Audit Service developed and approved the Company's Policy on Internal Audit, local regulations on internal audit, and put them in practice. The Internal Audit Service is involved in a range of activities, such as facilitating the effective interaction with the Audit Committee of Rosneft's Board of Directors (and also in in-person meetings with the Audit Committee's Chairman), Rosneft's Chief Executive Officer (including through personal reports on substantial audit results), Rosneft's management, and Group Subsidiaries' management. The Head of Internal Audit interacts with Rosneft's Audit Commission, the external auditor, and the audit commissions of the Group Subsidiaries.

Appendix 2 Key Risk Factors

Risk type	Focus area	Risk	Risk description	Risk Supervisor
Company's risk management practice	Industry-wide risks Industrial safety	On-the-job injury risk	The on-the-job injury risk is linked with the lost time injuries of the Company's employees or contractors	Vice President for HSE

Rosneft has its own HSE management system, which combines resources and procedures needed for both the prevention of and response to harmful events. Key measures related to on-the-job injury risk management include, but are not limited to, the following: · training (including briefings) and knowledge checks (certification) in health and safety; · implementation of target programs aimed at the promotion of the industrial safety culture; · conducting occupational safety campaigns at Group Subsidiaries; · monitoring of observation of health and safety requirements and production discipline by the Company's employees and contractors; · inclusion of responsibility for industrial safety violation into contracts, development and approval of interaction procedures for counterparties

| Financial risk | Downstream; Upstream; Gas business; Corporate functions | Market risk # 4.8 Research, Design, and Innovations

Research and Innovations

Rosneft carries out its innovative activities in accordance with the Innovative Development Program approved by the Company's Board of Directors. The Program is focused on the Company's strategic goals and is based on its strategic priorities, such as efficiency, sustainable growth, transparency, social responsibility, and innovations. The Program provides for a range of activities with a focus on:

development and deployment of new technologies;
development, production, and launch of new, world-class innovative products and services;
assistance in the Company's modernization and technological development through significant improvements in key performance indicators for operating processes;
increasing the Company's capitalization and competitive advantages in the global market.

In 2018, to confirm the justified selection of focus areas and KPI targets for the Company's innovative development, the technological development level and the Program KPIs were compared with the same KPIs of the leading peer companies. R&D costs in 2018 amounted to RUB 32.1 bln.

Target Innovative Projects

Over the reporting year, comprehensive works were executed for the implementation of R&D results and registering intellectual property rights. Following the results of innovation activities in 2018, the Company filed 57 applications for obtaining security documents.

Industry-wide risks
Downstream
Risk related to reducing the quality of crude hydrocarbons delivered for processing
Adverse changes in the Company's financial and operational indicators due to reducing the quality of feedstock delivered for processing
Vice President for Oil Refining
The Company's influence on the quality of the feedstock delivered to oil refineries via Transneft's trunk pipelines is limited
Rosneft responds by conducting the following risk management measures:
* comparative analysis of actual feedstock quality with the planned one for timely changing the current production plan;
* offsetting the changed quality and feedstock composition with the range of the feedstock processed;
* correction of installation operation modes

Industry-wide risks
Corporate functions
Risk to receive tax claims and to lose the right to use tax incentives
The risk of financial losses resulting from the claims of the tax authorities or the Company's loss of the right to use tax incentives
First Vice President for Economics and Finance
Rosneft continuously monitors amendments to tax laws, evaluates and forecasts the degree of their potential impact on its operations, follows the latest legal precedents taking into account amendments to the legislation in its operations; the Company's experts are regularly involved in various working groups responsible for drafting tax legislation

Financial risk
Downstream
Credit risk related to the crude oil, petroleum products, gas, gas processing products, and petrochemicals supply agreements
Probable losses due to the counterpart's failure to meet, untimely or incomplete performance of its obligations to the Company relative to revenue and expenditure contracts of Rosneft and Group Subsidiaries
Vice President for Refining, Petrochemical, Commerce, and Logistics
For credit risk management, the Company among others undertakes the following measures:
* use of injunctive measures to cover the contractual credit risks (bank guarantees, letters of credit, etc);
* more frequent financial assessments of the counterparties in major transactions involving the credit risks without contracts security;
* use of software to develop, unload and issue the primary documents with a possibility to establish the payment conditions for each counterparty in terms of each contract for limits monitoring

Legal risk
Corporate functions
Risk of negative court orders on disputes participated by the Company
The risk of financial losses due to the adverse decisions taken by the courts on disputes participated by Company
State Secretary - Vice President
Rosneft continuously monitors changes in legislation, court rulings and legal precedents, actively use them during the settlement of legal issues occurring in the Company's operations, in particular, for protection of own rights and legal interests in courts. Rosneft is involved in a number of other legal proceedings that arise in the course of carrying out business. In case of changes in legal precedents and negative court orders on disputes participated by the Company, the impact of the resolution of such proceedings on the Company's financial and business operations is considered to be minor.

Industry-wide risks
Upstream
Risk related to failure to achieve the oil and gas condensate production target
The risk is linked with a failure to achieve the oil and gas condensate production target specified in the approved business plan of the Company (including failures resulted from provision of the Russian Federation obligations under international agreements, with production cuts under OPEC Agreements among them)
First Vice President for Exploration and Production
Rosneft is a global leader in terms of oil reserves and has huge potential to increase its resources. Rosneft's SEC-proved reserve replacement ratio stays well above 100% for many years. Rosneft intends to replace at least 100% of its hydrocarbon production by increasing its SEC-proved reserves going forward. Key measures for such risk management include the following:
* constant monitoring and timely correction of the production drilling program;
* monitoring of the well interventions program execution;
* regular monitoring of major projects implementation status and timely changing of the plans of their development

Industry-wide risks
Gas business
Risk related to failure to achieve the natural gas and gas condensate production target
The risk is linked with a failure to achieve the natural gas and gas condensate production targets specified in the approved business plan of the Company
Vice President for Gas Business
The basic measures for management of the risk related to failure to achieve the natural gas and gas condensate production target comprise the following:
* provision of actual well operation conditions that do not exceed permissible ones;
* timely updating of the scheduled repair plans and budgets, monitoring of the turnaround maintenance execution;
* observation of the infrastructure construction and commissioning schedules

Country and regional risks
Upstream; Downstream
Risk related to international projects
The Company handles projects in different regions of the world, some of which have noticeable risks linked with an unstable political, social and economic situation. Implementation of such risks can have a major impact on the successful performance of these projects

As regards to exploration and production:
First Vice President for Exploration and Production

As regards to commerce and logistics:
Vice President for Commerce and Logistics

In case of political, economic, or social risks arising in Rosneft's regions of operation, the Company's management will take every reasonable step to minimize their potential adverse impact. The actual profile of such measures will be decided on a case-by-case basis and may include negotiations with the authorities, opex reduction, optimization of the investment program, and provision of the employees' safety.

Industry-wide risks
Industrial safety
Accident risk
The risk is related to the destruction of buildings and/or technical equipment used at hazardous production facilities, an uncontrolled explosion and/or a hazardous substances emission
Vice President for HSE
Rosneft has its own HSE management system, which combines resources and procedures needed for both the prevention of and response to harmful events. Among others, key measures for accident risk management include the following:
* monitoring of including the architectural, functional, technological, structural, and engineering solutions providing observation of HSE requirements into the design and operational documentation;
* certification of the employees in industrial safety;
* timely execution of necessary expert reviews, examinations, audits and diagnostics of the equipment, buildings and facilities being operated;
* timely performance of the production facilities repair;
* monitoring of observation of safety requirements and production discipline by the Company's employees and contractors;
* inclusion of responsibility for industrial safety violation into contracts, development and approval of interaction procedures for counterparties

Industry-wide risks
Downstream
Risk related to failure to comply with the repair plan for the Oil Refining business
The risk is linked with a decline of the Company's financial and operational indexes due to a failure to comply with the repair schedules for the Oil Refining business production facilities
Vice President for Oil Refining
Key risk management measures comprise the following:
* monitoring the implementation of the contracts in relation to the supply terms;
* keeping a register of responsible contractors;
* filing the breach of contract claims

Industry-wide risks
Gas business; Upstream; Downstream
Risk related to rising electric power purchase prices
The risk is linked with the volatility of electric power purchase prices in the wholesale market pricing zones, indexation of electric power transmission tariffs, as well as with setting the price markups for power
Vice President for Energy, Localization and Innovations
Rosneft has a restrict influence on the power and electric power purchase prices, as well as that of electric power transmission. While planning own activities, the Company considers the impact of the electric power price variation on its operation and pays attention to forecasts on market and regulated prices fluctuations# Key Project Results Achieved in 2018

Upstream

Positive results were obtained when testing the low-permeability reservoir production technology based on horizontal producing and injection wells with multi-stage hydraulic fracturing at a pilot site of the Prirazlomnoye field. Development elements involving horizontal wells as injection ones (HW for reservoir pressure maintenance) proved to be effective:
- the average specific injectivity index of horizontal wells was three times higher than that of vertical wells;
- the fluid flow rate decline in the pilot wells (HW for reservoir pressure maintenance) was above the basic engineering technology.
Based on the testing results, the technology was rolled out at LLC RN-Yugansneftegaz, involving 77 wells (41 producing wells and 36 injection wells).
At the Priobskoye field, testing of highspeed hydraulic fracturing technology was continued based on proprietary designs for testing development technologies for argillaceous and siliceous low-permeability rocks in Upper Jurassic deposits. The tests demonstrated that accident-free use of this hydraulic fracturing technology was technologically possible.
Approaches to the localization of potentially productive zones in argillaceous and siliceous low-permeability rocks of Upper Jurassic deposits were developed. Exploitability categories of these deposits were mapped, and LLC RN-Yuganskneftegaz planned the horizontal drilling with multi-stage hydraulic fracturing, accordingly.
An integrated solution on decontamination and disposal of petroleum-contaminated soil with a high content of natural radionuclides was developed. Design inputs for a pilot production plant for technology testing were prepared.
Rosneft developed procedures and technologies of the survey, localization, and development of reserves, as well as the assessment of potential resources at the Berezovskaya suite deposits. While implementing the project, the Company booked significant В1В2 gas reserves in 2018.
Technologies of structure remodeling and prediction of oil and gas occurrence in paleobasins were developed to improve the exploration efficiency and build up the Company's resource base.
A technology has been developed for the integration of multi-scale studies to research deposits of the Jurassic high-carbon formation (Bazhenov suite) of the Tomsk-Tyumen zone, Western Siberia. Maps of relative density distribution of formed hydrocarbon compounds were constructed.
The Company developed the design documentation for a mobile modular unit of early initial water separation and electricity generation from the separated APG. This unit reduces the time period for putting the field on production and obtaining commercial products and minimizes the risk of unreasonable expenses for capital construction facilities.

Science-Intensive Technological Software

RN-GRID software package designed by Company, the first industrial hydraulic fracturing simulator in Eurasia, was brought into commercial production. The Company has become the first in Russian to phase out the import hydraulic fracturing simulation software. The simulator makes all calculations required for the hydraulic fracturing design and analysis. In 2018, RN-GRID software was used to conduct over 4 thousand hydraulic fracturing operations with the complete design cycle.
The corporate RN-SIGMA software suite for industrial use was designed for the geomechanical modeling of the bore hole stability during drilling. The designed software suite allows mitigating the risks of drilling troubles. The software suite is undergoing pilot testing at the Company's Subsidiaries.
RN-KIM hydrodynamic simulator software modules were developed to examine geological and hydrodynamic models, to model hysteresis of relative permeability and capillary forces, to simulate horizontal multilateral and multihole wells. In 2018, 67% hydrodynamic models were generated in RN-KIM, the software solution is handed over to the industry-related departments at the leading universities for training the Company's specialists. According to the results of the project, the own simulator will not only cover 80-90% of the Company's need for hydrodynamic modeling, but also allow the active use of artificial intelligence technologies for field development planning.
Geological modeling software modules of RN-Geosim software suite were designed to ensure task flow control, well logging data visualization and processing, 2D and 3D visualization of geological features, and structural surfaces design. Based on the project results, RN-Geosim software suite will satisfy 80% of the Company's demand for hydrodynamic modeling.
Process modeling software modules of RN-Simtep software suite were designed for calculation of physical and chemical properties, the pipelines network, and surface infrastructure facilities. According to the project results, RN-Simtep will satisfy up to 80% of the Company's demand for production process modeling. The software is planned to be further developed to fit the oil refinery and petrochemicals areas.
A prototype intelligent management system of Company's standard design system has been developed for collecting, storing and using the documentation in the preparation of the Company's design specifications, design and procurement activities.

Arctic Shelf

The Kara-Summer 2018 research expedition was organized and conducted in the Kara and Laptev Seas. The obtained research results will be used to design facilities and to perform operations in the Company's license areas on the Arctic shelf. During the expedition, the recently installed measuring infrastructure facilities were maintained.
The meteorological surveys were conducted in the area of the Khastyr temporary field base (the Khatanga Bay, the Laptev Sea) during the summer and autumn 2018. The data collected in course of the meteorological and actinometric observations will be also used to forecast the ice evolution in the Khatanga Bay depending on the thermodynamic conditions.
The wellhead and wellhead setup winterization methods were studied during a two-year cycle of exploration drilling on the Arctic shelf for Ragozinskaya-1 and Ragozinskaya-2 sites, the Vostochno-Prinovozemelsky-2 license area in the Kara Sea. Conceptual solutions have been developed for protective structures that provide shelter for wellhead setup from dangerous ice formations under various geotechnical conditions.
As part of the research work «Comprehensive Study of International Legal Problems of the Development of Hydrocarbon Resources in the Arctic», the international legal regime of oil and gas development on the continental shelf were studied and proposals were made to amend the current legislation of the Russian Federation accordingly.

Associated Petroleum Gas Monetization Technology

Design inputs for GTL-1.5 pilot production plant were prepared.
A sample of synthetic crude oil with higher isoalkane content was generated to investigate the impact of synthetic crude oil on qualitative parameters of commercial oil products.

Oil Refining and Petrochemicals

The design inputs and basic design of the pilot production plant for manufacturing synthetic high-viscosity polyalphaolefin base oils were developed. These oils are used as feedstock for gearbox oils and oils for high-load assemblies and mechanisms.
The design inputs for industrial production of the third-generation fire-resistant oil used in high-power turbines, including nuclear power plants installations, were completed. Technical and regulatory documentation to produce the fire-resistant oil test batch was prepared: specifications, industry standards, and quality certificates for target and intermediate products.
Design inputs for a pilot production plant of isopropyl alcohol by hydrogenation of acetone using a proprietary technology were developed.
Technologies for producing own line of reagents for oilfield chemistry, including corrosion inhibitors, salting inhibitors, inhibitors/solvents for asphalt, resin and paraffin deposits, hydrate inhibitor/solvents, and mutual solvent, have been developed.
The composition and method of obtaining depressant-dispersant additives for diesel fuels, with the advantage of bifunctionality - a combination of depressant-dispersant and anti-wear properties. The performances were confirmed by independent testing at the Company's refineries.
A pilot batch of Ht-100RN diesel fuel hydrotreating catalyst was produced and loaded into one of the diesel fuel hydrotreating units of the Company's refinery. The catalyst was developed by LLC RN-TsIR to obtain winter and arctic diesel fuel with Sulphur content of 7 ppm maximum.
The preparation technology of the catalyst for hydrotreating the mixture of straight run diesel and secondary process diesel fractions was developed and issued as specifications and process manuals to prepare the catalyst test batch.
A technology was developed to prepare the synthetic component of RN-RKM-7, RN-RKM-10 oil bases for the aerospace industry.
The Russian-made Mixoil V4-38 thickening agent was selected and adapted for the additive package for all-season energy efficient hydraulic oils of HVLP level. Test batches of the additive package and all-season energy efficient hydraulic oils were produced according to the technologies developed.

Polymeric Materials for Oil Production

A test batch of ultra-lightweight polymeric proppant based on polydicyclopentadiene (PDCPD) was generated. At the end of 2018, the first stage of the pilot project was delivered, including the low-capacity hydraulic fracturing operations with the use of proppant at three wells of the Samotlor field. The hydraulic fracturing performed proved that the proppant could be injected to the formation without any technical problems.# Utilization of PDCPD proppant in the Company's operations will efficiently develop previously unprofitable, and thus, undeveloped hydrocarbon deposits.

CORPORATE RESEARCH AND DESIGN COMPLEX

Rosneft includes 29 corporate research and design institutes employing over 13.5 thousand highly qualified specialists, about 5% of them holding ScD and PhD degrees. Specialized institutes were established on the basis of the corporate research and design institutes that have become competence centers in focused and difficult activity areas. 100% of Rosneft's oil and gas production projects were supported as part of the Corporate Research And Design Complex operation. Starting this year, 361 project design documents for field development (including those related to the Company's key fields - Russkoye, Suzunskoye, Verkhnechonskoye, Kuyumbinskoye, Kharampur, and Northern tip of the Chaivo field) were developed and approved by the Central Development Commission of the Federal Agency for Subsurface Use of Russia (Central Development Commission of Rosnedra).

Adaptation and Adoption of Advanced Technologies in 2018

As part of its efforts to adopt promising efficient technologies developed by Russian and foreign companies, the Company organized testing, adaptation, and adoption of new technologies as part of pilot test projects in 2018. During the tests, the key features of the technologies were evaluated, and feasibility studies were conducted to assess the case for, and effectiveness of, their use in the geological and technical conditions of the Company's producing subsidiaries. In 2018, 20 Group Subsidiaries tested 149 technologies. A total of 721 tests was conducted as part of pilot test projects, and 119 thousand tonnes of incremental oil production were recovered as a result. The Company and relevant business units review the results and assess the economic viability of implementing the proposed new technologies, as well as prepare plans for their roll-out and implementation. As part of the implementation program, the Company implemented and rolled out 92 new technologies that had been previously tested as part of the pilot tests and of which the economic viability had been confirmed. The scope of implementation and roll-out amounted to 3.9 thousand items, with funding totaling RUB 1,889 mln.

Implementation of projects for new technologies testing

Activity	Quantity, pcs	Total incremental oil production, thousand tonnes	Total economic benefit, RUB mln
Testing of new technologies	149	119	905
Implementation of tested technologies	92	552	5,898

As part of the efforts to implement the results of Target Innovative Projects, 10 license agreements worth a total of RUB 66.8 mln were signed for the transfer of software solutions (RN-KIM, RN-GRID, Gorizont+, technology of synthetic high-index low-cold-test base oils, technology for detection of cavernous fractured reservoirs and their parameters specification by the innovative methods of scattered wave processing and interpretation), including to train students in industry-related programs at leading Russian universities. In 2018, the combined proven economic benefit from the results of Targeted Innovative Projects implemented over the last three years exceeded RUB 21 bln.

Responsibility Statement

I hereby confirm that to the best of my knowledge:
(a) the financial statements, prepared in accordance with IFRS, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a whole,
(b) the management report includes a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face.

Igor Sechin
Chief Executive Officer
Rosneft Oil Company

February 5, 2019

[1] Early repurchase at the request of the bond holder is not allowed.
2 Coupon payments every three months.
3 Coupon payments at the maturity day.
4 On the reporting date these issues are fully or partially used as an instrument for other borrowings under repurchasing agreement operations.
5 For the coupon period effective as of December 31, 2018.
6 As of December 31, 2018 part of issue early repurchased.
[2] Net of intercompany turnover of RUB 2 billion and RUB 1 billion in the fourth quarter of 2018 and in the third quarter of 2018, respectively and RUB 5 bln and RUB 4 bln in 2018 and 2017, respectively.
[3] See the equity share in net financial results of upstream associates and joint ventures in the section "Upstream operating results".
[4] The coefficient "Dm" is calculated using base rate and factors which characterize the degree of depletion of a particular field, reserves of a particular field, the degree of difficulty of extraction and region of production and oil properties. Starting from January 2017, additional MET withdrawals are introduced for the period of 2017-2021:+ 306 RUB/tonne in 2017 (357 RUB/tonne in 2018, 428 RUB/tonne in 2019-2021).
[5] East-Messoyakh and Kuyumbinskoe fields are developed by the Company within the framework of JV projects.
[6] The first figure shows the number of meetings attended by a member of the Board of Directors, and the second figure is the total number of meetings they were entitled to attend
[7] From 1 January 2018 to 21 June 2018, Donald Humphreys was the Chairman of the Committee. On 21 June 2018, he resigned from the Board of Directors upon the expiry of term of his powers.
[8] The report is posted on the Company's official website.
[9] ESG (Environment, Social, Governance) is corporate responsibility in relation to the environment, social and governance issues
[10] Minutes No. 34 dated 5 May 2014.
[11] The first place according to the results of 2016-2017; the third place according to the results of 2018 in TOP-50 Corporate Governance Directors rating.
[12] Acted as the Chairman of the Strategic Planning Committee till 29 September 2017.
[13] Information on remuneration and reimbursement of expenses of the collective executive body (the Management Board) was published on 5 February 2019, in accordance with the requirements of the Russian legislation for disclosure of information by issuers of issue-grade securities as part of the Quarterly Report of Rosneft for Q4 2018.
[14] The Company's Policy on the Risk Management and Internal Control System No. P4-01 P-01 approved by Rosneft's Board of Directors, Minutes No. 8 dated 16 November 2015.
[15] Details of the Rosneft's basic risks are given in Appendix 2, Basic Risks.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.

END
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AI Terminal

Rosneft

6489_10-k_2019-04-30_ccf5def3-b16a-40f8-a914-fde87bddec3e.html

National Storage Mechanism

Consolidated financial statements

Contents

Independent auditor's report

Details of the audited entity

Details of the auditor

Consolidated balance sheet

Consolidated statement of profit or loss

Consolidated statement of other comprehensive income

Consolidated statement of changes in shareholders' equity

Consolidated statement of cash flows

Consolidated statement of cash flows (continued)

Financing activities

1. General

2. Basis of preparation

3. Significant accounting policies

Business combinations, goodwill and other intangible assets

Associates

3. Significant accounting policies (continued)

Joint arrangements

Cash and cash equivalents

Financial assets

3. Significant accounting policies (continued)

Financial assets (continued)

3. Significant accounting policies (continued)

Financial liabilities

Earnings per share

3. Significant accounting policies (continued)

Treasury shares

Inventories

Repurchase and resale agreements

Exploration and production assets

Exploration and evaluation costs

3. Significant accounting policies (continued)

Development and production

Other property, plant and equipment

Depreciation, depletion and amortization

Construction grants

Impairment of non-current assets

External sources of information:

Internal sources of information:

Impairment of non-current assets (continued)

Impairment of financial assets

Capitalized interest

Leasing agreements

Asset retirement (decommissioning) obligations

Income tax

Recognition of revenues

Transportation expenses

Refinery maintenance costs

Environmental liabilities

Accounting for contingencies

3. Significant accounting policies (continued)

Functional and presentation currency

Transactions and balances

The Company's subsidiaries

Prepayment on oil and petroleum products supply agreements

3. Significant accounting policies (continued)

Prepayment on oil and petroleum products supply agreements (continued)

Changes in accounting policies and disclosures

3. Significant accounting policies (continued)

Changes in accounting policies and disclosures (continued)

Effect of the first application of IFRS 9 Financial Instruments (continued)

4. Significant accounting judgments, estimates and assumptions

4. Significant accounting judgments, estimates and assumptions (continued)

5. New and amended standards and interpretations issued but not yet effective

5. New and amended standards and interpretations issued but not yet effective (continued)

6.# Capital and financial risk management

Capital management

Financial risk management

Foreign currency risk

Cash flow hedging of the Company's future exports

Analysis of sensitivity of financial instruments to foreign exchange risk

Interest rate risk

Credit risk

Liquidity risk

7. Acquisitions of subsidiaries and shares in joint operations