TOWARDS IDEALS OF EURASIAN INTEGRATION - Rosneft · Asia-Pacific Regions of energy consumption Regions of energy production Greater Eurasia energy demand / production ratio, % Gas

TOWARDS IDEALS OF EURASIAN

INTEGRATION

October 2017

I.I. Sechin

CEO Rosneft

2

Disclaimer

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

available at the moment of materials preparation and may be changed without prior notice. The Company fully relies on information

obtained from sources, which it believes reliable. However, the Company does not guarantee either its accuracy or completeness.

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

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

risks, uncertainties and other factors, for which reason our actual results, conclusions and achievements may differ significantly from any

future results, inferences or achievements reflected in or asserted by forward-looking assumptions. We do not assume any liability for

due updating of any forward-looking assumptions contained herein, so that they would reflect actual results, changes in assumptions or

changes in factors that influenced such representations.

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deemed for any purposes as complete, precise or impartial. Information of this presentation shall be subject to verification, finalization

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incurred as a result of any use of this presentation or the content hereof, or otherwise in connection herewith.

3

Changing Needs of Global Economy

Source: EIA, IEA, OPEC, BP

Oil global Consumption Forecast, mmbpd liquids Global primary energy consumption structure

• Global oil demand will continuously grow in mid-term and long-term perspective. Yearly growth in the

next 10 years will be 770 kbpd on average.

• The share of liquid hydrocarbons will remain around 30% of global primary energy consumption.

85

95

105

115

2015 2020 2025 2030 2035 2040

WEO 2016 EIA 2017

OPEC 2016 BP 2017

33% 32% 35% 31% 30%

24% 25% 26% 29% 25%

28% 28% 27% 27% 25%

4% 7% 6% 6% 5%

3% 4% 4% 4% 8%

0%

20%

40%

60%

80%

100%

120%

WEO2016

EIA2017

OPEC2016

BP2017

2016 2030

Renew.

Hydro

Атом

Coal

Gas

Oil

4

Financial Players Dominance in Crude Oil Pricing

Source: СFTC, ICE

NYMEX and ICE crude oil futures open positions Money managers’ WTI/Brent/Prod futures net positions

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2012 2013 2014 2015 2016 2017

млн баррелей

Тыся

чи Brent WTI Нефтепродуты

-1000

-500

0

500

1000

1500

2012

2013

2014

2015

2016

2017

млн баррелей

Тыся

чи Короткие позиции

Длинные позиции

Нетто-позиция

Mln. barrels Refined products WTI Brent Mln. barrels Short positions

Long positions

Net positions

5

43 45 47 49 51 54 60%

30%

0

28

2010

38

1995 2015

32

2005

34

2000

44

1990

46

Urban population share Slums share

10 11 13 17 21 30

37 40 60%

30%

0 2017F 14 13 16 15 12 11 2010

Global population growth 1960 – 2030, billion people Global urbanization growth and decreasing

share of slums

Share of SUVs in total car sales in China

The Fundamental Driver Behind the Increasing Consumption –

Growing Population and Life Quality

Source: World Bank, UN Habitat, UMTRI, Bloomberg; WIND, Barclays

4.0

3.0

0.0

5.0

1.0

2.0

7.0

9.0

6.0

8.0

6,1

4,4

7,4

8,5

2016 1960 1980 2000 2030F

6

Crude Oil and Refined Products Stocks Dynamics

2500

2600

2700

2800

2900

3000

3100

3200

01

.14

05

.14

09

.14

01

.15

05

.15

09

.15

01

.16

05

.16

09

.16

01

.17

05

.17

млн барр. МЭА EIA ОПЕК

Средний уровень запасов в 2012-2016 гг.

Запасы на момент Соглашения

Текущие запасы180 млнбарр

60

-50

0

50

100

150

2016 2017

млнбарр.

Европа Сев. Америка АТР

Commercial stocks of oil and refined products in

OECD countries, mln. barrels

Changes in commercial stocks of crude oil in OECD

countries, mln. barrels cumulative since 2016

Source: EIA, IEA, OPEC

OPEC EIA IEA

mln.

barrels

60

80

Average stocks level

2012-2016

Current stocks

Stocks before OPEC deal

Asia -

Pacific North America Europe

7

Short-Term Priorities of Financial Markets Have a Severe Impact on

Oil Majors Long-Term Investments

Majors’ capital expenditures*

110 126

147 166

149

126

67

0

25

50

75

100

125

0

20

40

60

80

100

120

140

160

180

2010 2011 2012 2013 2014 2015 2016

CAPEX % of operation Cash Flow

$ Billion

-55%

Brent price

* ExxonMobil, Shell, BP, Chevron, Total

Source: Companies data

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017

$/bbl

8

Since 2010, the Largest US Shale Oil Companies Had a Negative

Free Cash Flow in 28 Quarters Out of 29

-7

-6

-5

-4

-3

-2

-1

0

1

2

2010 2011 2012 2013 2014 2015 2016 2017

Source: Wood MacKenzie

Free cash flow for top-5 US shale oil companies, $/boe

9

Rosneft Leadership in Reserves, Production and Efficiency

Hydrocarbon reserves1

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

commercial reserves; (2) PetroChina for 1Q 2017, Lukoil – preliminary data for 1H 2017; other companies –data for 1H 2017 (3) Rosneft, BP and Petrobras – for 1H 2017, other companies – data for 2016.

5,7 137

bn boe MMboed

Liquids Gas

2,5

$/boe

Hydrocarbon production2 Lifting costs3

10

The Sustainability of the Russian Oil Industry

Source: IEA, Wood Mackenzie, IHS Markit, assessments of analysts

• A lot of new projects of Heavy oil, Canadian Oil Sands, as well as projects in mature basins on the shelf of West Africa,

North Sea and Gulf of Mexico are not economically feasible for oil price below $50/barrel.

• Projects worth more than $800 billion with production of more than 12 MMbpd will not be approved at prices below $50 per

barrel

Costs by type of resource

США

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

20

10

0

100

90

80

70

60

50

40

30 Russia

Iran Saudi Arabia

OPEC IRAQ

USA

(conv.)

Non-OPEC OPEC

Non-OPEC

Others

North

Europe

(shelf)

USA

Canada

Sands

USA

NGL

Bre

ake

ve

n p

rice

, $

./b

arr

el

Onshore non-OPEC

Onshore OPEC

Deepwater shelf

Shelf

Tight oil / shale oil

Average

Production of liquids, mmbpd

11

Demand Growth for Petrochemicals will Outpace the Growth of the

Global Economy

Demand growth for petrochemicals

and world GDP growth rates Demand for petrochemical products, million tons/y

Source: McKinsey & Co

0

100

50

250

150

300

200

200 350

400

100

0

250

50

125

75

150

175

25

225

World GDP Trillion USD in 2010 prices

Demand Million tons

2025 2015 2010 2000 1990 1980

Multiplier

to GDP 2х 1.5х

GDP

Petrochemical products (final products)

1.1х

146

40

47

459

139

+38%

2025

60

59

201

99

2016

332

Ethylene

Propylene

Benzene

Paraxylene

12

Natural Gas – a Promising Area for Growth in the

Energy Sector

Source: IHS, BP Energy Outlook 2035, Rosneft

Natural Gas Global Demand, billion toe/y Rosneft Strategic Goals:

Gas Production , billion m3\/y

70

100

+43%

2020 F 2016

4,3

+50%

2035 30

4,1

25

3,8

20

3,5

15

3,1

2010

2,9

13

Greater Eurasia – Key Player on the Global Energy Market

• By «Greater Eurasia» we refer to countries that are on the territory of the Eurasian continent. Large Eurasia includes 91

countries (excluding micro-states)

• Greater Eurasia represents two-thirds of the world based on the main socio-economic indicators

Greater Eurasia

5,1

2,3

16,1

5,2

82,9

37,4

Population,

billion

Export of goods and

services, billion $

GDP parity,

Trillion $

Source : IMF, UN, EIA, BP - 2016 data

Socio-Economic Indicators

Energy Indicators

9,2

4,1

2,2

1,3

60,6

36,0

Primary energy

consumption,

billion toe

Natural gas

Consumption,

Trillion m3

Liquids consumption,

MMbpd

17,1

7,7

Electricity generation,

thousand TWh

Countries of Large Eurasia Other countries

31% 69% 37% 63% 31% 69% 37% 63%

32% 69% 24% 76% 31% 69%

14

Greater Eurasia is a Balanced Region in Terms of Energy

Resources

Europe

Middle

East

Caspian

Russia and

Arctics

Asia-Pacific

Regions of energy consumption Regions of energy production

Greater Eurasia energy

demand / production ratio, %

Gas

102%

Oil

104%

68

48

Gas

Oil

Greater Eurasia energy

reserves / demand, years

Source: BP Statistical Review of World Energy 2016

• Collectively Greater

Eurasia is a perfectly

balanced region in

energy resources for

the long-term

• Existing financial

centers will provide

financial services to

growing energy

flows

Financial and Trade centers

Large Eurasia consists of two regions of energy

consumption and three regions of energy

production in between

15

Geography of Greater Eurasia Provides Opportunities to Create a

Unified Economic Landscape

• Construction of alternative logistics routes is

required for the development of Eurasian

integration and trade:

− The New Silk Road will connect China

and Europe through Central Asia and the

Middle East in the near future

− The Northern Sea Route will connect

Europe and Asia directly in the long term

− High-speed trade routes by land need to

be developed

Source: Rosneft

Sea route Europe-Suez-Asia

Europe

Middle

East

Caspian

Russia

Asia

Pacific

Trans-Siberian Route

The New Silk Road

The Northern Sea Route

16

Rosneft Shareholder Capital is an Example of the Effective

Eurasian Integration

Europe

Middle

East

Russia and Arctic

Asia Pacific

Region of energy consumption Region of energy production

Rosneft shareholders*

Financial and trading centers

19,75%

50,0%

10,75%

14,2%

Free float

4,7%

Investments into Rosneft

shareholder capital

* After the deal between Glencore/QIA consortium and CEFC announced on 8 Sep 2017 is closed

• Eurasian integration implies involvement of energy

consumers into energy production through investments

into shareholder capital of producers

• Being shareholders of energy producers, consumers

participate wisely in energy distribution by balancing their

interests with producers’ goal of continued business

development

17

China

India

Japan

Germany

Egypt

Vietman

Indonesia

SODECO Sakhalin-1

Zohr

Tuban

Offshore gas

Vadinar

Tianjin

Vankor

Taas-Yuryakh

E&P

Refining

Source: Rosneft

• Cooperation and integration

between companies and regions

should not become a zero-sum

game

• All participants of the integration

can create value for themselves

while pursuing their interests:

• Access to resources

• Financing

• Technologies

• Markets

• Human capital

Eurasia Integration Projects

Udmurt-

neft

18

Total Amount of Rosneft’s Cooperation with the World’s Leading

Companies Exceeds $0.5 trillion

Source: Rosneft

2013 2014 2015 2016 2017

>$110 bn

+ >$400 bn

(trade flows, swap

operations and

prepayments)

Rosneft partnerships and deals with the world’s leading companies

Strategic

Agreements

19

Key Conclusions

• Greater Eurasia – is a huge economic and energy space that has all the prerequisites for

cooperation and economic integration.

• Eurasian gravity is stronger than any external influences. The movement towards united

Eurasia is organic and natural.

• In the energy sector of Greater Eurasia mutual investments, the exchange of assets and

technologies have already reached a large scale, despite such factors as sanctions pressure.

Rosneft is one of the largest participants and drivers of such processes.

• Desynchronization of the investment cycle in the oil and gas industry with global economic

dynamics creates prerequisites for a future oil shortage and price volatility increase.

• The strategy of the responsible hydrocarbon producer should account for both risks and

uncertainties of the current state of the world oil market and the long-term outlook of the global

economic development.