Annual Report 2021
3
Contents
Letter to Shareholders.................................................4
Strategic Priorities........................................................6
Sustainability Management......................................... 7
Key Events and Achievements.....................................8
Business Model............................................................. 10
Key Indicators ...............................................................12
Hydrocarbon Reserves ................................................14
Arctic LNG 2 ..................................................................16
Geological Exploration and Production ....................18
Processing of Gas Condensate.................................19
Natural Gas Sales........................................................20
LNG Sales......................................................................22
Liquid Hydrocarbons Sales.........................................24
Environmental and Social Responsibility..................26
Climate Change...........................................................28
Management and Corporate Governance
59
Corporate Governance System ...............................59
General Meeting of Shareholders.............................60
Board of Directors .....................................................60
Board Committees .....................................................63
Management Board ....................................................66
Remuneration to Members of the Board
of Directors and Management Board ...................... 67
Risk Management and Internal Control System..... 67
Share Capital ............................................................... 74
Dividends ..................................................................... 75
Information Transparency ......................................... 75
Additional Information
77
About the Company
30
31
Key business risks........................................................ 77
Information on Members of NOVATEK’s
Board of Directors ......................................................86
Information on Members of NOVATEK’s
Management Board ....................................................89
Report on major, and interested-party
transactions that the Company did in the
reporting year..............................................................93
Corporate Governance Code
Compliance Report ....................................................93
Forward–looking Statements................................... 116
Conversion Factors.................................................... 116
Terms and Abbreviations ...........................................117
Contact Information.................................................. 118
Constructing Our Future
Energy Transition Today
Review of Operating Results
Licenses.........................................................................31
Hydrocarbon Reserves ..............................................32
Geological Exploration ...............................................33
Field Development.......................................................35
Hydrocarbon Production............................................35
LNG Projects ................................................................37
Processing of Gas Condensate................................40
Natural Gas Sales .......................................................42
Liquid Hydrocarbons Sales ........................................44
The theme for this year’s Annual Review is “Constructing Our
Future Energy Transition Today” as we made great strides with
our next large-scale LNG project, Arctic LNG 2, and the build out
our LNG platform to meet the world’s growing energy needs.
The style we chose as our design concept for the Annual Review
was based on the “Constructivism” and “Suprematism” period
of architecture and art that redefined Russia’s contribution to
the global art world and established one of the most influential
art movements of the 20th Century led by revolutionary artists
such as Kazimir Malevich, Vladimir Tatlin, El Lissitzky and
Alexander Rodchenko.
Environmental and Social Responsibility
46
Environmental Protection ..........................................46
Occupational Health and Safety..............................49
Human Resources........................................................52
Social Policy and Charity............................................55
2021
Annual Report 2021. Constructing future energy transition today
Letter to Shareholders
4–5
Letter to Shareholders
In September 2021, the first modules for Train 1 of
field in the fourth quarter of 2021) fully offset the
declines in hydrocarbons production at mature
fields of our subsidiaries and joint ventures.
first of three stages of international certification
for long-term CO underground storage sites in the
Yamal and Gydan2peninsulas.
Arctic LNG 2 were successfully delivered to the
LNG Construction Center that represented an
important milestone towards launching this project
on time. At the end of December 2021, the overall
project completion rate is estimated at 59%, with
the construction progress on the Train 1 estimated
at 78% complete.
Our 2021 hydrocarbon production totaled 626.3
mln boe, including 79.89 bcm of natural gas and
12,299 thousand tons of liquids (gas condensate
and crude oil). Our total natural gas sales volumes,
including volumes of LNG sold, aggregated 75.8
bcm. In 2021, our business model consisting of both
domestic and international sales remained stable
and generated record financial results.
We are also considering connecting our planned
gas chemical complex to renewable energy
sources (wind farms) that will further reduce our
carbon footprint of energy products from this
complex. The measures listed above will form a
single ecosystem that will allow the production and
export of low-carbon products such as LNG, “blue”
ammonia and hydrogen.
Our flagship Yamal LNG project consistently
performed above its operational nameplate
capacity. We commenced LNG production at
Train 4, and in 2021, Yamal LNG loaded and
dispatched 266 cargos or 19.5 million tons of LNG.
Total revenues amounted to RR 1,157 bln, the
highest level in the Company’s history, while our
normalized EBITDA(2) amounted to RR 748 bln,
demonstrating a significant increase of 91%
compared to last year period. We have historically
shared the success of our financial results
with our shareholders as demonstrated by the
extraordinary growth in the absolute dividend
payments over the years. Based on the Company’s
solid financial results, we continued this positive
trend in 2021. Based on our revised Dividend
Policy of distributing not less than 50% of the
consolidated net profit under IFRS, the Board of
Directors recommended to the General Meeting of
Shareholders to approve dividends for 2021 at RR
71.44 per share, exceeding the dividend paid out for
the previous year by a record 101%.
“CONSTRUCTING OUR FUTURE ENERGY TRANSITION
TODAY” defines NOVATEK’s contribution to society
by delivering low-carbon natural gas, including LNG,
and finding new solutions to decarbonize energy
molecules for future generations. Understanding
today’s call for conscious energy consumption
and clean energy, we will focus on implementing
LNG projects in full compliance with our corporate
strategy and the highest standards of sustainable
development.
ALEXANDER NATALENKO
Chairman of the Board
of Directors
Dear Shareholders,
NOVATEK always places the interests of its
employees, shareholders and all of its stakeholders
at the forefront. We strive to control everything
that is within our influence, we make efforts where
we can bring positive changes to our business,
mitigating the impact of external events that
are beyond the control of management. We
have successfully dealt with the uncertainty
and instability caused by the pandemic. Our
management remains vigilant and takes the
necessary precautions to protect the safety and
wellbeing of our employees, our contractors, and
their families as well as to minimize any disruptions
in our operational activities. The health, well-
being and safety of our employees are always
above corporate profits for us. Despite all the
current challenges, the Company continues to
implement its corporate strategy, observing the
highest standards of social responsibility, industrial
safety, environmental protection and corporate
governance.
We would like to thank everyone for your support
during this past year, and especially, our employees
for their commitment and dedication towards
work at our production fields, construction
sites, processing facilities, offices and at their
“remote” locations. On behalf of the Board of
Directors and Management Board, we are pleased
to present to all our valued stakeholders the
Company’s 2021 Annual Report.
LEONID MIKHELSON
Chairman of the
Management Board
In 2021, the importance of natural gas to fuel
renewed economic growth was quite evident.
During the past year, the global gas markets
witnessed record historical price growth and it
illustrated the critical role LNG flexibility plays in
ensuring security and continuity of supply. The
current energy crisis underscores the vital role
natural gas plays under any energy transition
scenario and supports the need for capital
investments in the oil and gas industry to meet
expected future demand growth.
During the past year, NOVATEK continues active
exploration work on the Gydan and Yamal
peninsulas, as well as in the UGSS zone, which
will contribute to the future growth of our
proven reserves according to the international
classification. Correspondingly, as a result of
geological exploration, as of 31 December 2021,
our overall hydrocarbon proved reserves increased
to 16,409 million barrels of oil equivalent (boe)
under SEC(1), including 2,261 billion cubic meters
(bcm) of natural gas and 189 million tons of liquid
hydrocarbons. Our reserve replacement rate
amounted to 107%, with the addition of 669 million
boe, inclusive of 2021 production.
Sincerely,
ALEXANDER NATALENKO, Chairman of the Board of
Directors
LEONID MIKHELSON, Chairman of the Management
Board
We agree with the current common opinion that
the transition to a net zero economy will take time.
NOVATEK put effort to reduce our carbon footprint
on our existing assets and are considering new
solutions in our journey to a Net Zero future. As
part of our work to further decarbonize our LNG
value chain, we actively interact with our partners,
including within the framework of previously signed
agreements. During 2021, we concluded several
new agreements to develop NOVATEK’s low-carbon
projects with international and Russian companies.
In February 2022, we successfully completed the
The main achievement of TWO THOUSAND AND
TWENTY-ONE for NOVATEK became the exceptional
progress in constructing our LNG Construction
Center in Murmansk, the world’s first facility
for “large-scale manufacture” of natural gas
liquefaction trains on gravity-based structures.
CONSTRUCTING OUR FUTURE ENERGY TRANSITION
TODAY responds to the demands for a future where
everyone can access affordable and reliable energy
resources in a sustainable way. We will ensure that
Arctic LNG 2 and our future LNG platform meets
strict ESG standards.
The commissioning of gas condensate deposits
within the fields of the North-Russkiy cluster (the
North-Russkoye and East-Tazovskoye fields in the
third quarter of 2020, as well as the Kharbeyskoye
1.
Including the Company’s share in JVs.
2. Excluding the effects from the disposal of interests in subsidiaries and joint ventures and including the share in EBITDA of JVs.
Annual Report 2021. Constructing future energy transition today
Overview
6–7
Strategic Priorities
Sustainability Management
The energy sector has a vital role to play in the transition to a low-carbon economy. Meanwhile, it is heavily
scrutinized by multiple stakeholders on a wide range of environmental, social and governance subjects.
Conservative financial
policies
NOVATEK's approach to sustainability is based on our firm belief in the continued demand for natural gas
as industry and society adapt to the energy transition to a low-carbon economy. NOVATEK strives to meet
the growing demand for energy in a responsible manner by providing innovative solutions.
Our sustainable development concept encompasses economic, environmental and social responsibility
and is incorporated into our corporate strategy. We endeavor to mitigate the environmental impact as
much as possible and be resource efficient.
Optimize
marketing
channels
Our ESG Priorities
E. Environmental
Increase
hydrocarbon
production
Build low cost
scalable LNG
platform
Sustainable
development
Corporate
governance
S. Social
G. Governance
RESOURCE
BASE
GROWTH
Climate and environmental
impact mitigation
Ensuring safe working conditions
and contributing to community
development
Continuous improvement
in corporate governance
Maintain
low cost
structure
Reduce air pollutant
emissions per unit of
production by 20% by 2030
Reduce LTIFR by 5% among
the Company's employees
Continuously improve
governance practices
Maintain high transparency
Reduce greenhouse gas
emissions
Provide good education
to employees
Efficient investment
decisions
Combating corruption
in all its forms
Increase the share of waste
directed to utilization and
disposal to 90% by 2030
Support educational
institutions, implement
educational programs in the
regions where the company
operates
Resourse base growth
Maintain low cost structure
• Organic resource growth from exploration
and development activities on the Yamal
and Gydan peninsulas
• Strategic acquisitions and active
participation in license tenders
• Remain one of the lowest cost hydrocarbon
producers in the global oil & gas industry
• Optimize cost structure through strategic
investment of capital
• Develop low cost LNG value chain
Learn more about our Environmental
and Climate Change Targets on the
Company's website
Sustainable development
Optimize marketing channels
• Reduce and prevent negative
environmental impact
• Maximize use of Northern Sea Route and
develop key transshipment points
• Increase the efficiency and rational use
of natural resources, energy efficiency
• Build diversified LNG trading portfolio
• Develop strategic partnerships with industry
partners in key markets
Our contribution to the UN Sustainable Development Goals
In 2019, following the analysis of the Company's operations, we identified five priority UN Sustainable
Development Goals where we can make the greatest contribution. To achieve these five goals, NOVATEK
has already set its own internal targets and launched the implementation of relevant action plans. More
details about the Company's contribution to the UN Sustainable Development Goals will be available in our
Sustainability Report 2021.
Increase hydrocarbon production
Build low cost scalable LNG platform
• Increase gas production through
development of projects within the UGSS
and LNG projects in the Arctic
• Development of deeper Jurassic
and Achimov layers
• Increase production through development
of scalable LNG projects
• Development of proprietary LNG technologies
• Integrated projects for production and
• liquefaction of natural gas
• Fully utilize processing capacity
of Ust-Luga complex
Good Health
Quality
Affordable
Decent Work
Climate Action
and Well-being
Education
and Clean Energy
and Economic Growth
Annual Report 2021. Constructing future energy transition today
Overview
8–9
Key Events
and Achievements
Sales and transportation
• We sold to TotalEnergies a 10% participation
interest in Arctic Transshipment, which will
operate two LNG transshipment complexes
currently under construction in the Kamchatka
Territory and the Murmansk Regions.
• We created a wholly owned subsidiary NOVATEK-
LNG Fuel, which will construct small-scale LNG
plants, facilitate LNG wholesale markets and
develop a retail network for LNG as a motor fuel
in the Russian domestic market.
Sustainable Development
• As part of our work to further decarbonize our
LNG value chain and develop the Company’s
low-carbon projects, we signed agreements with
international and Russian companies.
• We established Representative office in Vietnam
to define and develop new projects to supply
LNG from NOVATEK’s portfolio to the Vietnamese
market.
• NOVATEK became signatory to the Principles of
the UN Global Compact regarding human rights,
labor standards, environmental protection, and
anti-corruption. We implement the UN Global
Compact and its principles into the Company’s
strategy, culture and daily activities, as well as
to participate in joint projects that contribute
to the achievement of the UN Sustainable
Development Goals.
Development of LNG business
• We launched the 4th train of the Yamal LNG plant
with a nameplate capacity of 0.9 mmtpa of LNG.
The total nameplate capacity was increased to
17.4 mmtpa.
• The Board of Directors of PAO NOVATEK approved Cooperation
the Company’s Human Rights Policy.
• We signed Cooperation agreement with the
• At the end of 2021, the overall project completion
rate of the Arctic LNG 2 was estimated at 59%,
with the progress on the construction of GBS #1
estimated at 78% complete.
• We established a Subcommittee on Climate
and Alternative Energy under the Company’s
Strategy Committee of the Board of Directors.
Leningrad Region covering social and economic
development in the Leningrad Region and
Cooperation agreement with the Government
of the Kamchatka Territory and Rosprirodnadzor
on the environmental monitoring of the water
area adjacent to the Kamchatka Peninsula. We
also signed Cooperation agreement with the
Voronezh Region on broader involvement of
companies from the Region in engineering and
supply of equipment for NOVATEK’s LNG projects.
Expanding the resource base
and production
• We joined the Arctic Economic Council, an
international business forum established
in 2014 at the initiative of the Arctic Council in
order to facilitate business-to-business activities
and promote responsible economic development
of the Arctic region.
• We completed concrete casting works for GBS
#1 at Arctic LNG 2 project. All 14 modules for the
GBS #1 arrived at the LNG Construction Center in
Murmansk from the contractors’ shipyards(1).
• We obtain mineral licenses for the North-
Gydanskiy license area, Arkticheskoye and
Neytinskoye fields, which will expand the
Company’s resource base for our future LNG
projects.
• Arctic LNG 2 signed the loan agreements for
external financing with Russian and international
financial institutions and commercial banks with a
maximum aggregate volume of 9.5 billion euros for
up to 15 years.
• NOVATEK signed Memorandum of cooperation
on ammonia, hydrogen and carbon capture,
utilization and storage with the Ministry of
Economy, Trade and Industry of Japan.
• We started production from gas condensate
deposits at the Kharbeyskoye field, part of the
North-Russkiy cluster to maintain production
output in the area of the Unified Gas Supply
system.
• We commissioned the new Airport Utrenniy built
specifically for the Arctic LNG 2 project on the
Gydan Peninsula in the Yamal-Nenets Autonomous
Region, the facility started receiving regular
flights.
1. As of February 2022.
Annual Report 2021. Constructing future energy transition today
Overview
10–11
Sales volume
Business Model
international
market
domestic
market
90% 10%
70%
30%
84%
16%
LNG projects
LNG
75.8 3.9
3.5
bcm
mmt
mmt
Natural gas by pipeline
Producing
fields
Crude oil
LPG
Natural gas
Separation
and treatment
Crude oil by pipeline
84%
16%
100%
25% Stable gas condensate
Unstable gas
condensate
by pipeline
2.3 6.8
tankers
mmt
mmt
Purovsky Plant
(nameplate
capacity –
condensate
Stable gas
Petroleum
27% LPG
12 mmtpa)
products
Stabilization of gas
condensate
63% Naphtha
16% Jet fuel
10% Fuel oil
73% Stable gas
condensate
Ust-Luga Complex
(nameplate capacity –
7.0 mmt
6 mmtpa)
Fractionation
12.8mmt
of stable gas
condensate
75% Stable gas condensate by rail
11% Gasoil
Annual Report 2021. Constructing future energy transition today
Overview
12–13
Key Indicators
Unit
2020
2021
Change
Unit
2020
2021
Change
Operating indicators(1)
Financial indicators
Total revenues(3)
RR mln
RR mln
RR mln
RR mln
711,812
160,766
392,008
169,020
1,156,724
278,384
748,337
421,304
62.5%
73.2%
90.9%
149.3%
Proved natural gas reserves (SEC)
Proved liquid hydrocarbon reserves (SEC)
Total hydrocarbon reserves (SEC)
Natural gas production
bcm
2,244
197
2,261
189
0.8%
(4.1%)
0.3%
3.3%
0.5%
5.4%
3.0%
3.3%
mmt
Normalized profit from operations(4)
Normalized EBITDA (including share in EBITDA of JVs)(4)
mmboe
bcm
16,366
77.4
16,409
79.9
Normalized profit attributable to shareholders of PAO
NOVATEK(4) excluding the effect of foreign exchange
gains (losses)(5)
Liquid hydrocarbons production
Proportionate share in LNG production of JVs
Total production
mt
12,237
11,553
608.2
1.66
12,299
12,180
626.3
1.72
mt
Normalized earnings per share, basic and diluted(4)
excluding the effect of foreign exchange gains
(losses)(5)
RR
56.26
140.36
149.5%
mmboe
mmboe/day
Daily production
Net cash provided by operating activities
Cash used for capital expenditures(6)
Free cash flow(7)
RR mln
RR mln
RR mln
171,896
204,577
(32,681)
419,466
191,251
228,215
144.0%
(6.5%)
n/a
Positions in Russia
Share in natural gas production(2)
Share in liquid hydrocarbons production
%
%
11.0%
2.4%
10.5%
2.3%
(0.5 p.p.)
(0.1 p.p.)
Total proved hydrocarbon reserves (SEC),
mmboe
Proved natural gas reserves (SEC), bcm
Operating cash flow, RR bln
Normalized EBITDA(4), RR bln
16,366
16,409
2,261
16,265
2,234
2,244
15,789
2,177
2,098
15,120
180.4
2017
216.3
2018
307.4
2019
171.9
419.5
2021
256.5 415.3
461.2
2019
392.0
748.3
2021
39%
61%
39%
61%
2017
2018
2019
2020
2021
2017
2018
2019
2020
2021
2020
2017
2018
2020
Proved developed
Proved undeveloped
Liquids production, mmt
Natural gas production, bcm
Normalized profit attributable to shareholders of
PAO NOVATEK(4) excluding the effect of foreign
exchange gains (losses)(5), RR bln
Dividends per share, RR
12.3
12.2
12.1
11.8
11.8
71.44(8)
2021
156.2
2017
232.9
2018
245.0
2019
169.0
2020
421.3
2021
14.95 26.06
2017 2018
32.33
2019
35.56
63.4
2017
68.8
2018
74.7
77.4
79.9
35%
65%
2017
2018
2019
2020
2021
2019
2020
2021
2020
Gas condensate
Crude oil
3. Net of VAT, export duties, excise and fuel taxes, where applicable.
4. Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal and subsequent non-cash
revaluation of contingent consideration).
5. Excluding the effect of foreign exchange gains (losses) of subsidiaries and our proportionate share in foreign exchange gains (losses) of our joint ventures.
6. Cash used for capital expenditures represents purchases of property, plant and equipment, materials for construction and capitalized interest paid per
Consolidated Statement of Cash Flows net of payments for mineral licenses and acquisition of subsidiaries.
7. Free cash flow represents the difference between Net cash provided by operating activities and Cash used for capital expenditures.
8. Recommendation of the Board of Directors.
1. Oil and gas production and reserves are calculated based on 100% of production and reserves of our subsidiaries and our proportionate share in the
production and reserves of our joint ventures including fuel gas. Production and reserves of the South-Tambeyskoye field of Yamal LNG are reported at 60%.
2. According to CDU TEK information.
Annual Report 2021. Constructing future energy transition today
Overview
14–15
Hydrocarbon Reserves
31
Our production and processing assets are
located in the Russian Federation.
33
Krasnoyarsk
Territory
57
40
58
59
63
62
44
29
32
77
56
69
12
60
74
53
36
37
41
45
75
64
38
51
54
43
54
bln
Yamal-Nenets
Autonomous Region
78
25
52
16.4boe
61
Total proved hydrocarbons
reserves (SEC)
39
30
50
76
34
66
79
Producing fields
and license areas
Prospective fields
and license areas
73
Fields and
Gydan
35
peninsula
Yamal
license areas
peninsula
20.Yumantilskiy LA
53.Ladertoyskiy 1 LA
1. Yurkharovskoye field
2. East-Tarkosalinskoye field
3. Khancheyskoye field
4. Olimpiyskiy LA (Urengoyskoye,
Dobrovolskoye, Sterkhovoye
fields)
5. West-Yurkharovskoye field
6. Samburgskiy LA (Samburgskoye,
Urengoyskoye, East-
Urengoyskoye+North-
Esetinskoye fields)
7. North-Urengoyskoye field
8. North-Khancheyskoye field
9. Yaro-Yakhinskiy LA
10. Termokarstovoye field
11. Yarudeyskoye field
12. South-Tambeyskoye field
13. West-Yaroyakhinskiy LA
14. Beregovoy LA
15. North-Russkoye field
16. Syskonsynyinskiy LA (located in
KMAO)
17. South-Khadyryakhinskoye field
18. Dorogovskoye field
19. East-Tazovskoye field
42.Kharbeyskoye field
49. Ust-Yamsoveyskiy LA
73
71
5
21. West-Urengoiskiy LA
22.North-Yubileynoye field
23.North-Russkiy LA
24.Ukrainsko-Yubileynoye field
25.Geofizicheskiy 1 LA
26.West-Chaselskoye field
27. Yevo-Yakhinskiy LA
28.North-Chaselskiy LA
29.Utrenneye field
54.Gydanskiy 1 LA
55.Dorogovskiy 1 LA
56.South-Leskinskiy LA
57. Dorofeevskiy LA
1
67
19
7
58.West-Dorofeevskiy LA
59.Khalmeriakhskiy LA
60.Shtormovoy 1 LA
61. Soletsko-Khanaveyskoye field
62.South-Dorofeevskiy LA
63.South-Khalmeriakhskiy LA
64.East-Ladertoyskiy LA
65.South-Yamburgskiy LA
66.Bukharinskiy LA
67. East-Tazovskiy 1 LA
68.East-Tarkosalinskiy 1 LA
69.Syadorskiy 1 LA
70.West-Urengoiskiy 1 LA
71. West-Yurkharovskiy 1 LA
72.Yaro-Yakhinskiy 2 LA
73.Nyakhartinskiy 1 LA
74.North-Gydanskiy LA
75. Neytinskoye field
65
23
15
18, 55
42
46
48
9, 72
30.Geofizicheskiy LA
31. North-Obskiy LA
32.East-Tambeyskiy LA
33.North-Tasiyskiy LA
34.Trekhbugorniy LA
35.Nyakhartinskiy LA
36.Ladertoyskiy LA
Novy
Urengoy
22
6
11
13
28
21
27
47
49
14
24
70
26
10
37. Nyavuyahskiy LA
38.West-Solpatinskiy LA
39.North-Tanamskiy LA
40.Syadorskiy LA
4
8
20
17
2
Yamal-Nenets
Autonomous Region
41. Tanamskiy LA
68
3
43.Gydanskiy LA
44.Shtormovoy LA
76. Arkticheskoye field
77. Obskiy LA
45.Verhnetiuteyskiy+West-
Seyakhinskiy LA
78.Tadebyayakhinskiy LA
79. North-Vrangelevskiy LA
(located in the eastern
part of the East Siberian Sea
and the western part
46.Osenniy LA
NOVATEK’s gas
condensate pipelines
47. Chernichnoye field
48.Raduzhnoye field
50.Payutskiy LA
of the Chukchi Sea)
51. Central-Nadoyakhskiy LA
52.Palkurtoiskiy LA
16
Arctic LNG 2
Yamal LNG
Ust-Luga Complex
Purovsky Plant
Khanty-Mansiysk
Autonomous Region
Annual Report 2021. Constructing future energy transition today
Overview
16–17
LNG Construction Center is the world’s first facility
for “mass production” of natural gas liquefaction
trains on gravitybased structures (GBS).
Arctic LNG 2
bcm
Key advantages:
537of gas
• Optimize and reduce CAPEX per ton of LNG liquefaction
• Low cost, onshore conventional natural gas
• Reduce construction and logistical costs as main LNG equipment is built and
installed at the LNG construction center
• High local content
and 22 mmt of liquid
hydrocarbons – proved
reserves of the field (SEC)
as of 31 December 2021
• Modular construction minimizes scope of work in the Arctic area, directly at
the Center’s sites, in conditions of undeveloped infrastructure and the harsh
climate of the Far North
19.8mmtpa
Total design capacity
of the three LNG trains
September 2021 — The first modules for Train 1 of Arctic
LNG 2 were successfully delivered to the LNG Construction
Center in Murmansk. As of February 2022, all 14 modules
for the GBS #1 arrived from the contractors’ shipyards.
We completed concrete casting works for GBS #1.
2021
The resource base of the project:
Utrenneye field
October 2020 — Arctic LNG 2’s ice-class tanker fleet
formation was completed and long-term charter
agreements were signed for 21 Arc7 ice-class LNG tankers.
2020
LNG Construction
Center
Belokamenka
September 2019 — Final investment decision (FID) made.
Utrenneye field
Arctic LNG 2
2019
Yamal-Nenets
Autonomous Region
October 2018 — Front-end engineering design (FEED)
was completed.
2018
Project status as of 31 December 2021
The LNG Construction Center main parts:
Arctic LNG 2 participants*, %
Concrete casting of
the first GBS platform
Overall
Project
progress
• GBS yard including two dry docks
• Topsides yard
• Marine infrastructure
• Utilities
• Accommodation camp and administrative
facilities
wells
60%
10%
10%
10%
10%
NOVATEK
TotalEnergies
CNPC
56drilled
Utrenneye field' development
CNOOC
59%
78%
100%
91%
Consortium of
Mitsui&Co
and JOGMEC
Completion
progress on the
first GBS-based
LNG train
Concrete casting
of the second
GBS platform
*
As of 31 December 2021.
Annual Report 2021. Constructing future energy transition today
Overview
18–19
Geological Exploration and
Production
Processing of Gas
Condensate
NOVATEK uses a systematic and comprehensive approach to exploration and development of its fields and
license areas, beginning with the collection and interpretation of seismic data to the creation of dynamic
field models for the placement of exploration and production wells. We employ modern geological and
hydrodynamic modelling as well as new well drilling and completion techniques to maximize the ultimate
recovery of hydrocarbons in a cost effective manner. With this approach, we are able to carry out
prospecting, exploration and production in a cost effective and environmentally prudent manner.
Stabilization
of gas
condensate
Unstable
gas condensate
NGL
Stable gas
condensate
Fractionation and
transshipment
of stable gas
condensate
Production
Hydrocarbon production breakdown, including share in
of marketable LPG
production by JVs, %
626.3mmboe
26%
NOVATEK-YURKHAROVNEFTEGAS'
fields
Hydrocarbon production
22%
20%
11%
ARCTICGAS' fields
South-Tambeyskoye
North-Russkiy cluster
(NOVATEK-TARKOSALENEFTEGAS)
Our subsidiaries and JVs are producing natural gas
with a significant content of liquid hydrocarbons
(gas condensate). After being separated and de-
ethanized at the field, the main part of unstable
(de-ethanized) gas condensate is delivered via
a system of condensate pipelines owned and
operated by the Company for further stabilization
at our Purovsky Plant.
9%
NOVATEK-TARKOSALENEFTEGAS'
other fields
Yarudeyskoye
North-Urengoyskoye
Termokarstovoye
Others
SIBUR’s Tobolsk
Petrochemical
Complex
5%
3%
2%
2%
Purovsky Plant
Ust-Luga Complex
bln
16.4boe
Total proved hydrocarbons reserves
(SEC) as of 31 December 2021
The Purovsky Plant provides us complete
1,000 m
1,700 m
Total output of the Purovsky Plant in 2021, mt
operational control over our processing needs and
access to higher yielding marketing channels for
our stable gas condensate. The Purovsky Plant
processes unstable gas condensate into stable gas
condensate and natural gas liquids (NGL).
Cenomanian layers
"Dry" gas not containing liquid
hydrocarbons
9,352
Stable gas
condensate
21%
65%
14%
USD
0.65 per boe
3,390
24
NGL and LPG
Regenerated
methanol
Lifting costs
Most of the stable gas condensate volumes
produced at the Purovsky Plant are delivered
by rail to Ust-Luga for further processing or
transshipment to exports, with the remaining
volume of stable gas condensate sold directly
from the plant to the domestic market. All of
the NGL volumes (feedstock for LPG production)
produced at the plant are delivered by pipeline to
SIBUR’s Tobolsk Petrochemical Complex for further
processing. The Ust-Luga Complex processes
stable gas condensate into light and heavy
naphtha, jet fuel, ship fuel component (fuel oil)
and gasoil, and enables us to ship the value-added
petroleum products to international markets.
Valanginian layers
Gas containing liquid hydrocarbons —
"wet" gas
RR
90.98bln
3,200 m
Investments in resource base
development
Achimov layers
"Wet" gas with high share of liquid
hydrocarbons. The layers have low
permeability and require special
development techniques.
Total output of the Ust-Luga Complex in 2021, mt
2,253
2,091
1,062
725
Heavy naphtha
Light naphtha
Jet fuel
Ship fuel
component
46years
Proved and probable reserve to
production ratio (PRMS)
Jurassic layers
"Wet" gas with the highest share of liquid
hydrocarbons. The deposits are
characterized with complex geology and
difficult drilling conditions due to abnormally
high formation pressure.
648
Gasoil
Annual Report 2021. Constructing future energy transition today
Overview
20–21
Natural Gas Sales
Our sales of natural gas in the Russian domestic market are mainly through
trunk pipelines and regional distribution networks, as well as sales of LNG
produced at our small-scale LNG plant in the Chelyabinsk Region through our
refueling complexes.
Total natural gas sales in 2021, bcm
Natural gas sales breakdown on the Russian
domestic market by customers in 2021, %
7,949
Sales
on international
markets
42
34
14
Power generation
companies
Large industrial
consumers
67,868
Sales in the Russian
Federation
Wholesale traders,
ex-field
75,817
8
2
Others
16 24
Households
Main regions
of gas sales
Other regions
of gas sales
1
NOVATEK has a key role in ensuring supplies of
natural gas to the domestic market. During 2021,
the Company supplied natural gas to 40 regions
within the Russian Federation.
Our sales of natural gas on international markets
are sales of LNG purchased primarily from our joint
ventures, Yamal LNG and Cryogas-Vysotsk.
3
2
4
6
In 2021, the total volume of natural gas sold in
the Russian Federation amounted to 67.87 bcm,
increasing by 1.8% compared to the previous year.
5
16
7
10
8
9
12
15
Execute high-value added projects to develop new growth areas
in domestic gas market
14
13
11
NOVATEK is implementing a pilot project for the sale of LNG as a motor fuel
and for autonomous gasification. The implementation of this project is
operated by our wholly owned subsidiary OOO NOVATEK–LNG Fuel, registered
in 2021, which will construct small-scale LNG plants, facilitate LNG wholesale
markets and develop a retail network for LNG as a motor fuel in the Russian
domestic market.
40regions
Natural gas sales in the
Russian Federation
1. Leningrad Region
Smolensk Region
3. Vologda Region
4. Moscow
5. Moscow Region
6. Kostroma Region
7. Tula Region
8. Lipetsk Region
15. Khanty-Mansiysk
Autonomous Region
16. Yamal-Nenets
2
9. Belgorod Region
10. Nizhny Novgorod Region
11. Stavropol Territory
12. Perm Territory
Autonomous Region
13. Chelyabinsk Region
14. Tyumen Region
NOVATEK's strengths at the Russian domestic gas market
• High proportion of wet gas resources (81%) to
monetize through liquids value chain
• Low cost conventional natural gas resources
• Uninterrupted access to the UGSS pipeline
structure
• Leading edge technology to develop deeper
producing horizons at existing fields
• Diversified consumer base
67.9 bcm of natural gas
was sold in the Russian
Federation in 2021
13 LNG refueling
stations for
automobile transport
were in operations
In 2021, the volume of
sales at filling stations
increased fivefold
In 2021, over 14 thousand
tons of LNG were sold
from the Magnitogorsk
LNG plant
Annual Report 2021. Constructing future energy transition today
Overview
22–23
LNG transportation
LNG Sales
In 2021, an all-time record was set for performing voyages via the eastern part of the Northern Sea Route
(NSR). 44 LNG cargoes were delivered to the Asia-Pacific Region market by Yamal LNG both under long-
term contracts and as part of spot optimization deliveries.
In 2021, NOVATEK sold 7.9 bcm of gas (5.7 mmt of LNG). Our sales of
natural gas on international markets are sales of LNG purchased
primarily from our joint ventures, Yamal LNG and Cryogas-Vysotsk. In
addition, we sell on the European market regasified liquefied natural
gas arising during the transshipment of LNG (boil-off gas), as well as
during the regasification of purchased LNG at our own regasification
stations in Poland and Germany.
Longer period of navigation along the NSR due to almost halving the distance and time of shipping to
ports in Asia-Pacific Region compared to the traditional southern route through the Suez Canal makes
it possible to mitigate carbon footprint of our LNG.
Arctic
ocean
Yamal LNG
Murmansk
Russia
Finland
Norway
Sweden
Estonia
Lithuania
Poland
South
Korea
Japan
China
73
India
Pacific
ocean
UAE
Large-scale
LNG cargos were
sold by NOVATEK
in 2021
Thailand
Indian
ocean
Atlantic
ocean
Brazil
Cryogas-Vysotsk
United Kingdom
Delivery point
Transshipment
Small- and medium-scale LNG
Netherlands
Belgium
NOVATEK's large-scale LNG
since the Yamal LNG launch
France
LNG
thousand
tons
Carbon emissions
reduction per round trip
bcm
44cargos
7
7.9 of gas
Spain
Delivered to the Asia-Pacific
Region via NSR by Yamal LNG
Sold internationally in 2021
Annual Report 2021. Constructing future energy transition today
Overview
24–25
Liquid Hydrocarbons
Sales
Arctic
Ocean
NOVATEK sells liquid hydrocarbons (stable gas condensate, petroleum
products, light hydrocarbons, LPG and crude oil) domestically and
internationally. We strive to respond quickly to changing market conditions by
optimizing our customer base and supply geography, as well as developing and
maintaining an efficient and profitable logistics liquids infrastructure.
In 2021, NOVATEK’s liquids sales volumes reached 16,555 mt and our liquids sales
revenues increased to RR 611.1 billion, or by 79.4% as compared to 2020, mainly
driven by higher global benchmark prices.
Russia
Purovsky Plant
Ust-Luga Complex
United Kingdom
Atlantic
Ocean
Canada
France
South
Korea
Japan
China
USA
Finland
UAE
Norway
Taiwan
Saudi
Arabia
Pacific
Ocean
Estonia
Sweden
Indian
Ocean
Latvia
Denmark
Malaysia
Singapore
Liquid hydrocarbons sales, %
Stable gas
condensate
Heavy
naphtha
Netherlands
Belgium
Poland
LPG
Jet fuel
Gasoil
Light naphtha
Crude oil
41
Ust-Luga
products
Crude oil
Germany
Fuel oil
24
14
RR
Stable gas
condensate
NGL
LPG
Others
16.6mmt 611bln
Export markets
13
Liquid hydrocarbons sales
volumes
Liquid hydrocarbons sales
revenues
8
<0.1
Annual Report 2021. Constructing future energy transition today
Overview
26–27
RR
Environmental and Social
Responsibility
2.8bln
Social expenses and compensatory
payments directly invested by NOVATEK
and its subsidiaries on charitable and
medical projects and activities, cultural
and educational programs, and support
for indigenous communities
NOVATEK adheres to the principles of effective and responsible business conduct and considers the
welfare of its employees and their families, environmental and industrial safety, the creation of a stable
and beneficial social environment as well as contributing to Russia’s overall economic development as
priorities and responsibilities of the Company. In 2021, the Company continued to pay close attention to
projects aimed at supporting the culture, preserving and revitalizing national values and spiritual legacy of
Russia, developing mass and high-performance sports.
December 2021
The Board of Directors
approved NOVATEK’s
Human Rights Policy
that incorporates all
the fundamental human
rights principles
November 2021
NOVATEK carried out
an experimental study
of methane leaks
detection in the Arctic
zone involving space
monitoring based on
Social expenses for employees, %
October 2021
An independent
NOVATEK held the first
evaluation of NOVATEK’s
Board of Directors was
conducted
39
Targeted compensation and social support
payments program
Arctic LNG Vessel Owners a geo-information
Conference to promote
green shipping and
introduce sustainable
technical solutions with a
view to reducing carbon
footprint during marine
operations in the Arctic
platform
July 2021
14
13
13
7
Therapeutic resort treatment and rehabilitation program
Voluntary medical insurance for employees program
Repayable financial aid program
The Company
adopted a Biodiversity
Conservation
Management Standard,
which establishes
universal principles
and approaches
to biodiversity
conservation for
NOVATEK operations
NOVATEK established
a Subcommittee on
Climate and Alternative
Energy within the Board
of Directors’ Strategy
Committee
Pension program
6
State guarantees support program
Cultural and sports events program
NOVATEK-Veteran social protection foundation
Rehabilitation of children with disabilities
Others
4
2
1
1
Environmental expenses, %
41
17
Environmental and climate change targets
program
Environmental protection against production
and consumption waste
13
12
7
Land and soil protection
Protection and use of water resources
Measures for the protection of flora and fauna
and preservation of biodiversity
5
2
Environmental monitoring
Atmospheric air protection and climate
change mitigation
2
1
Environmental management
Subsurface protection
Environmental damage compensation
Others
RR
RR
<0.2
<0.1
2.0bln
18,404employees
2.9 bln
Social expenses for
employees in 2021
at NOVATEK, its subsidiaries and joint ventures
as of 31 December 2021
Environmental expenses in 2021(1)
1. Including NOVATEK’s share in JVs.
Annual Report 2021. Constructing future energy transition today
Overview
28–29
Controlled emissions reduction
Climate Change
We are making significant efforts to further
reduce greenhouse gas emissions at existing
assets and considering new solutions towards
carbon neutrality.
Our approach
As the global economy transitions to low-carbon development, the world is faced with the challenge of
meeting the growing energy demand while reducing greenhouse gas emissions and achieving the goals
of the Paris Agreement. NOVATEK is part of the solution to both these objectives and seeks to become
a leading company in low-carbon hydrocarbon production by providing reliable, affordable and clean
energy.
In the reporting year, we continued the energy
efficiency improvement activities and approved
the Energy-Saving Program for 2022-2024. As
part of our study of in-house renewable power
generation development opportunities, we began a
cycle of wind measurements in Yamal. In early 2022,
we signed an agreement with Fortum to supply
renewable electricity to the Cryogas-Vysotsk plant.
Green product development
As part of the development efforts to produce low-
carbon ammonia, hydrogen, and other low-carbon
gas processing products, we started our pre-FEED
study for our gas chemical complex to produce
low-carbon “blue” ammonia to be produced with
carbon capture and storage (CCS) facilities. In
2021, NOVATEK and Uniper signed a Term Sheet on
long-term supply of up to 1.2 mmt of low-carbon
ammonia per annum to primarily German market.
The imported low-carbon ammonia will be used
as hydrogen carrier, transformed into gaseous
hydrogen and fed into the future German hydrogen
pipeline system, as well as supplied directly as a
clean feedstock and as a fuel.
As a Russian natural gas producer, we strongly support Russia's efforts to achieve carbon neutrality by
2060. NOVATEK set its Environmental and Climate Change Targets for the period up to 2030 back in 2020.
We assessed potential CO2 storage sites in
Yamal and Gydan and started investigating CO2
sequestration opportunities.
Our targets
Reinforcing climate change governance
Climate change matters are monitored at the
strategic (Board of Directors, Strategy Committee,
Management Board) and operational (heads of
business units, heads of subsidiaries) management
levels.
Reduce methane emissions per unit of
production in the Production, Processing
and LNG segments by 4% by 2030
In 2021, NOVATEK's Board of Directors established
the Subcommittee on Climate and Alternative
Energy (within the Strategy Committee), which
had four sessions over six months. A business unit
responsible for decarbonization projects was also
created in the reporting year.
Reduce greenhouse gas emissions per
unit of production in the Upstream
segment by 6% by 2030
Climate-related voluntary undertakings
In 2021, NOVATEK became a signatory
to the Ten Principles of the UN Global
Compact to facilitate responsible
governance.
Since 2019, when disclosing
information we take into account the
recommendations of the Task Force
on Climate-related Financial Disclosure
(TCFD), which seeks to improve voluntary
reporting on climate-related financial
risks.
Reduce greenhouse gas emissions per
ton of LNG produced by 5% by 2030
Increasing data transparency, accuracy
and reliability
NOVATEK supports UN Sustainable
Development Goals (SDG). We identified
five priority goals, including SDG 13 –
Climate action, and SDG 7 – Affordable
and clean energy.
In 2008, NOVATEK started to disclose carbon
reporting as part of its participation in the CDP
project. The company has been considering TCFD
recommendations when disclosing information in
sustainability reports from 2019. We are committed
to increasing the level of climate information
disclosure every year. For instance, 2021 became
the first time when we published a number of
major indicators, including Scope 3 greenhouse
gas emissions, as well as Scope 1 greenhouse gas
emissions broken down by source. In accordance
with TCFD recommendations, we have expanded
the description of climate risks and relevant risk
management actions.
Increase the associated petroleum gas
utilization rate to 99% by 2030
NOVATEK is a member of the International
Group of LNG Importers (GIIGNL), which
is actively working to improve the
sustainability of LNG import operations
and improve transparency of information
on greenhouse gas emissions from LNG
cargoes.
We take an active part in the global
Methane Guiding Principles (MGP)
initiative, which identifies areas for
actions to reduce methane emissions
across the natural gas value chain.
In order to improve data accuracy, we launched a
satellite project to monitor methane emissions at
our fields.
In order to improve data reliability, greenhouse
gas emissions were certified for the first time
by an independent auditor separately from the
Sustainability Report verification process, and
our greenhouse gas management system was
validated for compliance with international ISO
standards.
Details on the progress towards our
Environmental and Climate Change Targets
will be available in the Sustainability
Report 2021
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
30–31
About the Company
Review of Operating Results
NOVATEK is one of the largest independent natural
gas producers in Russia.
The Company is ranked 3rd globally among publicly
traded companies in terms of proven natural
gas reserves under the Security and Exchange
Commission (SEC) reserves methodology and is
ranked among the 10 top companies globally in
terms of natural gas production. The Company is
also considered one of the lowest-cost producers
in the global oil and gas industry in key industry
metrics regarding “finding and development”,
“reserve replacement” costs and “lifting” costs.
We adhered to our goals and objectives for the
Licenses
In the reporting year, NOVATEK significantly
expanded its portfolio of licenses:
year ended 31 December 2021 as outlined in our
long-term corporate strategy covering the period
up to 2030 presented in 2017.
NOVATEK’s core fields and license areas are located
in the Yamal-Nenets Autonomous Region and in
the Kransoyarsk Territory. In 2021, we obtained new
licenses in the Yamal-Nenets Autonomous Region
where the Company operates, in close proximity to
existing licenses.
• following the results of auctions, 3 new licenses
were obtained for geological study, exploration
and production for the North-Gydanskiy subsoil
license area and two subsoil license areas, which
includes the Arkticheskoye and Neytinskoye
fields;
The Company has a number of key competitive
advantages to successfully implement our
corporate strategy: the size and structure of its
hydrocarbon resource base; the close proximity
of existing infrastructure to core producing fields;
a well-developed customer base for natural gas
sales; natural gas liquefaction capacity and LNG
project execution experience; and facilities for
gas condensate processing and product exports.
The development of a low-cost LNG platform and
delivering cost-competitive LNG export sales to
key consuming regions are key strategic priorities
for the Company. Another core priority is to
increase production within the reach of the UGSS
through sustainable and responsible development
of new fields and exploration activities, targeting
lower producing horizons and complimented
by acquisitions meeting certain financial and
operational criteria. Our high level of operational
flexibility and our consistent and efficient use
of leading edge technologies in production and
processing practices as well as our adherence to
sound and prudent business management support
our competitive position.
The Yamal-Nenets Autonomous Region is one of
the world’s largest natural gas producing regions
and accounts for approximately 80% of Russian
natural gas production and around 15% of global
natural gas production. The concentration of the
Company’s fields in this prolific gas-producing
region provides favorable opportunities for
increasing NOVATEK’s shareholder value with
a minimum level of risks, low finding cost, and
efficient replacement of reserves. With more
than 25 years of operational experience in the
region, NOVATEK is in a good position to efficiently
monetize its resource base.
• geological study, exploration and production
licenses for Nyakhartinskiy 1 license area (deposit
flank of the Nyakhartinskoe field); and
NOVATEK plays a significant role in the Russia’s
energy sector: in 2021, the Company accounted
for 10.5% of total Russian natural gas production.
NOVATEK sells its natural gas on the Russian
domestic market through the Unified Gas Supply
System (UGSS) and on international markets mainly
in the form of liquefied natural gas (LNG) since
December 2017.
• within the decarbonization program, two
licenses were obtained for geological study
and assessment of the suitability of the the
Obskiy and Tadebyayakhinskiy license areas for
the construction and operation of underground
facilities not related to hydrocarbon production.
In February 2022, the first stage of international
certification for long-term CO2 underground
storage sites was successfully completed.The
Company boasts a vast resource base in the
Yamal-Nenets Autonomous Region. With new
licenses, NOVATEK is expanding its resources to
support LNG projects as well as able to maintain
the resource base for its existing fields to ensure
stable hydrocarbons production.
NOVATEK’s main businesses are the exploration
and production, processing, transportation and
marketing of natural gas and liquid hydrocarbons.
The Company’s production assets are located
mainly in the Yamal-Nenets Autonomous Region
(YNAO), one of the largest and most prolific natural
gas regions in the world.
Exploration and production of hydrocarbons in
Russia is subject to federal licensing regulations.
As of 31 December 2021, NOVATEK’s subsidiaries and
joint ventures held a total 79 subsoil licenses for
areas within Russia. There are also exploration and
production agreements in place for four offshore
blocks in Montenegro and two offshore blocks in
Lebanon.
NOVATEK’s main strategic priorities are:
Our commitment to the principles of sustaible
development, social responsibility and to
observing the latest environmental, health and
safety standards are integral parts of NOVATEK’s
development strategy and managerial philosophy.
NOVATEK strives to strictly observe all of its license
obligations and conducts continuous monitoring
of license tenders in order to expand its resource
base in strategically important regions.
• Ensuring development of the Company’s
hydrocarbon resource base, including efficient
reserve management;
The duration of licenses for the Company’s core
fields exceeds 13 years. In particular, the license for
the Utrenneye field is valid until 2120, for the East-
Tarkosalinskoye – until 2043, for the Yurkharovskoye
field – until 2034, for the Samburgskiy license area
of ARCTICGAS – until 2130. In accordance with
standard practice, licenses are extended based on
design documents by the field development time.
• Growing its hydrocarbon production;
• Maintaining a low-cost structure;
• Optimizing marketing channels;
• Building a low cost, scalable LNG platform; and
• Operating according to sustainable development
principles.
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
Field / license area
32–33
Hydrocarbon Reserves
(SEC) or reserves-to-production ratio (R/P ratio)
was 26 years.
Participating
interest
Duration
of license
Natural gas
reserves, bcm
Liquids
reserves, mmt
Most of the Company’s reserves are located, or
can be developed from, onshore and fall into the
conventional hydrocarbon categories (capable of
being exploited using conventional technologies, in
contrast to unconventional gas deposits such as
shale gas or coal-bed methane).
Urengoyskoye (Ust-Yamsoveyskiy LA)
Beregovoy LA
100%
100%
100%
100%
100%
2198
2070
2034
2043
2059
2124
43
39
37
28
25
18
5
3
As of 31 December 2021, the Company’s total
PRMS proved and probable reserves, including the
Company’s proportionate share in joint ventures,
aggregated 28,970 mmboe, including 3,948 bcm of
natural gas and 363 mmt of liquid hydrocarbons,
with the total R/P ratio of 46 years.
Urengoyskoye (Yevo-Yakhinskiy LA)
Nyakhartinskoye
8
2
DeGolyer and MacNaughton (“D&M”), an
independent petroleum engineers firm, estimates
the Company’s reserves on an annual basis
under both the SEC and PRMS reserves reporting
standards.
Olimpiyskiy LA
2
The reserves growth in 2021 was driven by positive
exploration results at the Geofizicheskoye,
Gydanskiy, South-Tambeyskoye, Urengoyskoye
field (Samburgskiy LA), production drilling at the
Utrenneye, South-Tambeyskoye, Urengoyskoye
(Samburgskiy and Yevo-Yakhinskiy license
Yarudeyskoye
51%
(100% of
reserves)
19
Samburgskoye
50%
100%
51%
2130
2025
2097
2130
17
17
16
10
1
1
As of 31 December 2021, NOVATEK’s SEC proved
reserves, including the Company’s proportionate
share in joint ventures, aggregated 16,409 million
barrels of oil equivalent (mmboe), including
East-Urengoyskoye + North-Yesetinskoye
(West-Yaroyakhinskiy LA)
areas), North-Russkoye fields as well as recovery
improvement at the Yurkharovskoye field.
Termokarstovoye
4
1
2,261 billion cubic meters (bcm) of natural
The Company continues intensive exploration on
the Gydan and Yamal Peninsulas and within the
UGSS, thus contributing to the future growth of
proved reserves according to the international
classification.
East-Urengoyskoye + North-Yesetinskoye
fields (ARCTICGAS)
gas and 189 million metric tons (mmt) of liquid
hydrocarbons. The Company’s proved reserves
grew by 0.3% (excluding the 2021 production), and
the reserve replacement ratio stood at 107%, which
corresponds to the reserves addition of 669 mmboe
including production. Our gas reserve replacement
ratio was 120%, which corresponds to the reserves
addition of 96 bcm including production. At year-
end 2021, the Company’s proved reserves life
50%
Khancheyskoye
Other
100%
—
2044
—
5
1
41
6
The high quality of the reserve base enables
NOVATEK to maintain its position as one of the
lowest cost producers in the global oil and gas
industry.
Geological Exploration
was confirmed. Following the testing of a well
with horizontal drain and multi-stage hydraulic
fracturing, a commercial inflow of gas and
condensate was achieved at more than 1 mmcm
per day. A high-density 3D seismic campaign
covering 1,300 square km has been completed. By
exploring Jurassic deposits and bringing Jurassic
wells onstream, the South-Tambeyskoye field’s
resource base and the production plateau could be
further extended. We have launched the project for
pilot production of Jurassic deposits.
NOVATEK aims to expand its resource base
through geological exploration at fields and
license areas not only in close proximity to existing
transportation and production infrastructure, but
also in new potentially prospective hydrocarbon
areas. The Company ensures the efficiency of
geological exploration work by deploying state-of-
the-art technologies and relying on the experience
and expertise of the specialists in its geology
department, and the Company’s Scientific and
Technical Center located in Tyumen.
SEC proved reserves as of 31 December 2021
(based on the Company’s equity ownership interest in joint ventures) and duration of licenses
Field / license area
Participating
interest
Duration
of license
Natural gas
reserves, bcm
Liquids
reserves, mmt
Total reserves
2,261
189
South-Tambeyskoye
50.1%
(59.97% of
reserves)
2045
394
12
Further appraisal of the Southern Dome within
the Utrenneye field has been completed. Two well
tests demonstrated the commercial reserves held
within 12 reservoirs of the field’s Southern Dome.
The field’s proved reserves (SEC) have increased
by 170 mmboe and reached 537 bcm of gas
and 22 mmt of condensate while the proved and
probable reserves (PRMS) are estimated at 1,446
bcm of gas and 92 mmt of condensate.
The Company uses a systematic and
Utrenneye
60%
50%
2120
2130
2034
2044
2034
2031
2044
2046
2119
322
213
195
168
142
87
13
49
2
comprehensive approach to exploration and
development of its fields and license areas,
beginning with the collection and interpretation
of seismic data to the creation of dynamic field
models for the placement of exploration and
production wells. We employ modern geological
and hydrodynamic modelling as well as new well
drilling and completion techniques to maximize
the ultimate recovery of hydrocarbons in a cost
effective manner. With this approach, we are
able to carry out prospecting, exploration and
production in a cost effective and environmentally
prudent manner.
Urengoyskoye (ARCTICGAS)
Geofizicheskoye
100%
100%
100%
100%
100%
100%
50%
Verkhnetiuteyskoye+West-Seyakhinskoye
Yurkharovskoye
6
6
A large-scale exploration campaign is underway at
the fields belonging to the Arctic LNG 1 project. In
2021, we drilled exploration wells at all five license
areas of the project, namely the Geofizicheskiy,
Trekhbugorniy, Gydanskiy, Bukharinskiy, and
Soletsko-Khanaveyskiy areas. 3D seismic surveys
covered 1,580 square km, 6 exploration wells were
drilled, drilling of two more wells is underway.
The overall progress since the start of activities
at Arctic LNG 1 project’s license areas is 7,975
square km of 3D seismic and 14 drilled wells. The
exploration campaign has been completed at the
Geofizicheskoye field.
North-Russkoye
5
Gydanskoye
67
3
Soletsko-Khanaveyskoye
Yaro-Yakhinskoye
61
0.3
9
58
In 2021, NOVATEK mostly conducted geological
exploration in the Yamal and Gydan peninsulas
to ensure timely and efficient preparation of the
resource base for future LNG projects.
North-Chaselskoye
100%
lifetime of
the field
57
2
East-Tarkosalinskoye
Kharbeyskoye
100%
100%
50%
2043
2036
2141
56
51
12
7
Following seismic surveys and exploration drilling,
proved and probable Jurassic reserves within the
South-Tambeyskoye field under PRMS standards
increased by 339 mmboe (including production
for 2021) to 425 mmboe and their commerciality
North-Urengoyskoye
East-Tazovskoye
51
4
6
As a result of drilling and testing wells of the
Geofizicheskoye and Trekhbugorniy fields, the
unified structure of the Cenomanian deposit was
100%
2033
43
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
34–35
confirmed. The Geofizicheskoye field’s proved
The exploration campaign resulted in an increase
in the Urengoyskoye field’s proved Achimov
reserves (SEC) by 202 mmboe (including production
for 2021) to 3,634 mmboe and 5,557 mmboe
under PRMS standards. The tests in the Achimov
interval without hydraulic fracturing resulted in a
commercial gas flow, with the condensate content
reaching as high as 800 g per m3 of gas. The work
is ongoing within the Osenniy license area for
the purposes of maturation and development of
Achimov deposits. The logs show that there are
pay zones exceeding 20 m in thickness. The testing
campaign involving hydraulic fracturing is underway.
Geological Exploration
reserves (SEC) increased by 60 mmboe to 1,287
mmboe, the proved and probable reserves (PRMS)
are at 2,153 mmboe. Exploration drilling targeting
Achimov deposits is underway within the Gydanskiy
and the Soletsko-Khanaveyskiy license areas.
Units
2020
2021
Change
2D seismic
linear km
linear km
linear km
757
757
—
2,090
275
176%
(64%)
n/a
Subsidiaries
Joint ventures
The successful testing of an exploration well at
the Bukharinskiy license area discovered a gas and
condensate field and identified reserves with a
high condensate content. The field holding around
35–40 bcm of gas and 2.2 mmt of condensate in
estimated recoverable reserves will be the part of
Arctic LNG 1 project’s resource base.
1,815
3D seismic
square km
square km
square km
5,893
3,784
2,109
3,996
2,232
1,764
(34%)
(44%)
(16%)
Subsidiaries
Joint ventures
Successful wells drilling and testing in the eastern
portion of the North-Russkoye field resulted in an
increase in proved reserves (SEC). The field’s proved
reserves (SEC) increased by 138 mmboe (including
production for 2021) to 622 mmboe, the proved and
probable reserves (PRMS) are at 777 mmboe.
Exploration drilling
Subsidiaries
'000 m
'000 m
'000 m
45.4
22.8
22.6
61.6
40.7
20.9
39%
85%
(8%)
Exploration campaign is nearing completion at the
Verkhnetiuteyskoye and West-Seyakhinskoye fields.
These helped demonstrate the productivity of the
Aptian-Albian and Neocomian deposits with high
condensate content and allowed us to acquire
data on fluid composition for the purposes of LNG
plant design.
Joint ventures
Following the exploration campaign at the
Kharbeyskoye field, an oil production project was
launched that could potentially produce more
than 1 mmtpa.
Field Development
NOVATEK’s Scientific and Technical Center put
into operation a laboratory and research center
in Tyumen, which includes a core storage with a
capacity of 150 linear km, 6 different laboratories
to perform a full range of core, fluids, drilling fluids
and permafrost soils studies. The laboratories are
equipped with modern facilities that will allow us
to quickly solve the main technological challenges
facing the Company without involving third-party
organizations.
In order to maintain the pipeline gas production
level and the volumes sent to the Purovsky Plant,
exploration is ongoing within the fields and license
areas located in the Purovsky and Tazovsky
In 2021, NOVATEK continued ongoing development
activities at producing and prospective fields as
well as building field infrastructure. In the reporting
year, the Company’s subsidiaries invested RR 90.98
bln in resource base development.
districts of the Yamal-Nenets Autonomous Region.
In 2021, production drilling, including joint ventures,
totaled 723,000 m, which is a 13% increase year
on year. Production drilling was conducted at the
Beregovoye, East-Tazovskoye, East-Tarkosalinskoye,
West-Seyakhinskoye, Samburgskoye, North-
Russkoye, North-Urengoyskoye, Urengoyskoye
(at the Olimpiyskiy LA, Yevo-Yakhinskiy and Ust-
Yamsoveyskiy LA), Utrenneye, Kharbeyskoye, South-
Tambeyskoye, Yumantilskoye, Yurkharovskoye,
Yaro-Yakhinskoye and Yarudeyskoye fields.
Hydrocarbon Production
In 2021, NOVATEK carried out commercial
hydrocarbon production at 25 fields. The
Company’s production, including our attributable
share in the production of JVs, amounted to 626.3
mmboe, up 3.0% versus 2020. The key contributor
to the production increase was the start of
production from gas condensate deposits at
the North-Russkiy cluster (the North-Russkoye
and East-Tazovskoye fields in 3Q 2020 and the
Kharbeyskoye field in 4Q 2021).
Technologies to develop deep layers
New
technology
A total of 104 production wells were brought
onstream, including 78 natural gas and gas and
condensate wells and 26 oil wells.
Technology previously
used
Achimov
Mid-Jurassic
Low-Jurassic
Achimov
layers
In 2021, the Company started pilot production
of hot commissioning quantities of gas and
condensate at the Kharbeyskoye field that is part
of the North-Russky cluster. An integrated gas
treatment plant, a booster compressor station
(BCS) and a condensate de-ethanization unit were
commissioned, and two well pads were launched.
An export gas pipeline and an export condensate
pipeline were commissioned.
The production decline at mature fields of our
subsidiaries and joint ventures was mainly due
to natural drop in formation pressure within the
current gas producing horizons.
1,500 m
Jurassic
layers
> 4,000 m
Total production of natural gas including the
Company’s share in production of joint ventures
aggregated 79.89 bcm, representing 83.4% of
our total hydrocarbon output. The share of gas
produced from gas condensate bearing layers (or
“wet gas”) in proportion to total gas production
was 81.3%. Production of natural gas increased by
3.3%, as compared to 2020 volumes.
600 m
1,500–2,000 m
Construction of upstream facilities began within
the Yevo-Yakhinsky and Ust-Yamsoveysky license
areas, export transport facilities were built
(a gas pipeline with a gas metering station and
a condensate pipeline), and 6 wells at the well
pad were hooked up. At the Urengoyskoye field,
construction and commissioning of a 72-MW BCS
was completed. At the Yaro-Yakhinskoye field,
a low-temperature APG separation line was
commissioned.
Increase in wells productivity,
Including increase in low permeable formations
Hydrofracking
Production of liquid hydrocarbons including the
Company’s share in production of joint ventures
totaled 12,299 mmt, of which gas condensate
accounted for 65% of this volume and crude oil –
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
36–37
for the remaining 35%. Marketable production
In 2021, we continued to achieve some of the lowest
lifting costs in the industry. The Company’s lifting
costs were RR 47.8 (USD 0.65) per boe this year.
LNG Projects
Russian production. In November 2021, Yamal LNG
successfully tested the first three technological
trains in operation mode at a load of up to 120%
of the design capacity. Based on the results of
the tests, the design institute developed design
documentation for increasing the design capacity
and we received the approval of a technical expert
review that three Trains can effectively operate
at 120% of nameplate capacity at below-zero
temperatures.
of liquid hydrocarbons increased by 0.5%,
as compared to 2020, with gas condensate
production amounting to 7,995 mmt and crude oil
production totaling 4,304 mmt.
Yamal LNG Project
Yamal LNG is an integrated project including
production, liquefaction and sales of natural
gas and gas condensate. OAO Yamal LNG is the
operator and the owner of all the assets. The
shareholder structure of Yamal LNG: NOVATEK –
50.1%, TotalEnergies – 20%, CNPC – 20%, and the
Silk Road Fund – 9.9%.
Hydrocarbon production (including share in production by joint ventures)
Units
2020
2021
Change
In 2021, the first planned overhaul of the first
train was completed. The actual reliability
of technological installations of three Trains
for 2021 was 99%, which is one of the best
indicators in the industry.
The South-Tambeyskoye field located in the North-
East of the Yamal Peninsula is the resource base
of the Project. As of 31 December 2021, the field’s
SEC proved reserves totaled 656 bcm of natural
gas and 20 mmt of liquid hydrocarbons. According
to the PRMS standards, the proved and probable
reserves of the South-Tambeyskoye field as of
the end of 2021 totaled 954 bcm of natural gas
and 37 mmt of liquid hydrocarbons. The field is
being developed with horizontal wells with total
drilled lengths up to 5,000 meters and horizontal
sections of up to 1,500 meters.
Total
mmboe
mmcm
mmboe
mt
608.2
77,367
506.0
12,237
102.2
626.3
79,894
522.5
12,299
103.8
3.0%
Gas
3.3%
In 2021, Yamal LNG produced 19.6 mmt of LNG and
0.9 mmt of stable gas condensate.
Liquid hydrocarbons
0.5%
mmboe
Fifteen unique Arc7 ice class LNG carriers were
specifically designed and built for the Yamal LNG
project, capable of navigating the Northern Sea
Route (NSR) without icebreaker support. In 2021,
266 LNG cargos (19.5 mmt) and 21 stable gas
condensate cargos (0.9 mmt) were shipped. Since
the project launch in 2017, over 65 mmt of LNG were
produced and 890 tankers were shipped.
Gross hydrocarbon production (including share in production by joint ventures)
Gas, mmcm
2020
Liquids, mt
Construction and start-up of three trains with
the total design capacity of 16.5 mmtpa (5.5
mmtpa each) was completed. Yamal LNG was
commissioned ahead of initial schedule and on
budget, which is an outstanding achievement in the
global oil and gas industry. The second and third
trains of the plant were started up six months and
more than a year ahead of the initial schedule,
respectively. The three trains of Yamal LNG reached
its full capacity in December 2018.
Change
Change
2021
2020
2021
In 2021, ООО Arctic Transshipment, NOVATEK’s joint
venture (90%)(2), completed 9 ship-to-ship LNG
transshipments in the Kildin Strait of the Barents
Sea in the Russian Federation.
Total
77,367
79,894
3.3%
12,237
12,299
0.5%
NOVATEK-YURKHAROVNEFTEGAS’
fields (100%)(1)
26,106
24,891
(4.7%)
1,380
1,384
0.3%
NOVATEK-TARKOSALENEFTEGAS’
fields (100%)
12,890
16,518
28.1%
1,914
2,473
29.2%
In December 2021, the Extraordinary General
Meeting of Shareholders of Yamal LNG resolved
to pay dividends to the Project’s shareholders for
the first nine months of 2021. The total dividend
payments will amount to RR 31.4 billion.
ARCTICGAS’ fields (50%)
South-Tambeyskoye (59.97%)
North-Urengoyskoye (50%)
Termokarstovoye (51%)
Yarudeyskoye (100%)
Other
15,383
17,093
2,931
1,269
1,648
47
15,073
18,008
2,513
1,325
1,478
88
(2.0%)
5.4%
4,479
701
4,468
605
206
384
2,779
—
(0.2%)
(13.7%)
(14.5%)
0.3%
In 2Q 2021, we commissioned Train 4 of the
plant with the design capacity of 0.9 mmtpa,
which was built using the main equipment of
(14.3%)
4.4%
241
383
3,139
—
(10.3%)
87.2%
(11.5%)
—
Yamal LNG
In 2021:
Our first integrated project for
production, liquefaction and sales
of natural gas.
• We launched the 4th train of the Yamal LNG plant
with a nameplate capacity of 0.9 mmtpa of LNG,
which was built using the main equipment of
Russian production.
• Yamal LNG produced 19.6 mmt of LNG and 0.9
mmt of stable gas condensate.
• 266 LNG cargos (19.5 mmt) and 21 stable gas
condensate cargos (0.9 mmt) were shipped.
The resource base of the project
South-Tambeyskoye field
Since the project launch in 2017:
20mmt
656bcm
• Over 65 mmt of LNG were produced
and 890 tankers were shipped.
• LNG from the Yamal LNG plant has been
consumed in 33 countries.
Total proved liquid
hydrocarbons reserves (SEC)
as of 31 December 2021
Total proved natural
gas reserves (SEC)
as of 31 December 2021
1. As a result of AO NOVATEK-Pur dissolution in August 2021 and its merger with OOO NOVATEK-Yurkharovneftegas, AO NOVATEK-Pur production is included
in 2020 and 2021 production.
2. In July 2021, the Group sold a 10 percent participation interest in ООО Arctic Transshipment, which was a Group’s subsidiary at that time, to TOTAL E&P
Transshipment SAS.
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
38–39
Arctic LNG 2 Project
As of year-end 2021, the overall project completion
external finance requirements. As of year-end 2021,
more than 5.3 billion US dollars were financed by the
Project’s participants.
NOVATEK’s commercial activities to provide clean-
burning LNG for the consumers in the Murmansk
Region and the Company’s network of LNG fueling
stations.
status was estimated at 59%. GBS #1 concrete
works have been completed, and installation
of equipment and topside modules started:
all 14 modules of the project’s first train have
arrived to Murmansk from the contractors’ yards.
As of 31 December 2021, a total of 56 wells were
drilled with five drilling rigs being in operation.
Enough production wells have now been drilled to
ensure the loading of the project’s first train during
start-up. As at the end of 2021, production drilling
was carried out by 5 drilling rigs.
Arctic LNG 2 is the second large-scale LNG project.
The Utrenneye field, the resource base for Arctic
LNG 2, is located in the Gydan Peninsula in YNAO
approximately 70 km across the Ob Bay from the
Yamal LNG project.
Cryogas-Vysotsk Project
In June 2021, NOVATEK and European energy
company Fortum signed a Memorandum of
Understanding on cooperation in renewable power.
In line with the Memorandum, a power purchase
agreement for green electricity was signed.
According to the Agreement, the electricity
requirements of the Company’s Cryogas-Vysotsk
LNG plant are fully covered with energy produced
at Russian wind farms of Fortum and its joint
ventures. Purchasing the green electricity allows
NOVATEK to reduce Scope 2 carbon footprint
(purchased electricity) of the LNG produced by the
Vysotsk plant.
One of our LNG strategic initiatives is to develop
small- to medium-scale projects. This approach
allows us to build premium marketing channels to
sell our products in different markets. We see vast
prospects in using LNG as marine fuel and motor
fuel to substitute for fuel oil and diesel, that will
contribute to curbing emissions and improving the
environment.
As of 31 December 2021, proved reserves of
the field under the SEC reserves methodology
totaled 537 bcm of gas and 22 mmt of liquid
hydrocarbons. According to the PRMS reserve
standards, the proved and probable reserves
totaled 1,446 bcm of natural gas and 92 mmt of
liquid hydrocarbons.
ООО Arctic LNG 2 is the project operator and
owner of all of the assets and holds the LNG export
license.
Cryogas-Vysotsk is our first medium-scale LNG
project. The Cryogas-Vysotsk shareholders are
NOVATEK (51%) and Gazprombank (49%).
59%
As of the end of 2021, the project’s participants
are NOVATEK (60%), TotalEnergies (10%), CNPC
(10%), CNOOC (10%), and Japan Arctic LNG, a
consortium of Mitsui & Co and JOGMEC (10%). In
September 2019, the project participants made the
Final Investment Decision.
In 2019, Cryogas-Vysotsk commenced operations
and began regular shipments of LNG.
Low-carbon Projects
Arctic LNG 2 overall progress
as of 31 December 2021
In 2021, we started our pre-FEED study for our gas
chemical complex to produce low-carbon “blue”
ammonia to be produced with carbon capture and
storage (CCS) facilities. The nameplate capacity of
the complex will be 2.2 mmt of ammonia per year
(two ammonia synthesis trains of 1.1 mmtpa).
The project’s core facility is the LNG production
and transshipment terminal in the port of Vysotsk,
located in the Leningrad Region. The 660 mmtpa
plant, consisting of two gas liquefaction trains with
the capacity of 330 mmtpa each, is located in the
North-West of Russia near the Gulf of Finland, 140
km away from St. Petersburg.
All three sections of the Utrenny terminal’s
quayside were commissioned. Prior to the GBS
arrival, the quayside is used to receive materials
and equipment. Ice barriers construction was
progressed.
The Project involves the development of the field,
construction of the Utrenniy terminal and three
natural gas liquefaction trains on gravity-based
structures (GBS), with the capacity to produce
6.6 mmtpa of LNG each and cumulative stable
gas condensate capacity up to 1.6 mmtpa. The
total LNG capacity of the three trains will be
19.8 mmtpa. The GBS design concept as well as
extensive localization of equipment and materials
manufacturing in Russia will considerably reduce
the capital expenditures per ton of LNG produced;
thus, ensuring low liquefaction cost per ton of LNG
produced.
The Verkhnetiuteyskoye and West-Seyakhinskoye
fields located in the north-eastern part of the
Yamal Peninsula are the project’s resource base.
As of 31 December 2021, proved reserves under
the SEC reserves methodology totaled 168 bcm
of gas and 6 mmt of gas condensate. According
to the PRMS standards, the proved and probable
reserves totaled 251 bcm of gas and 16 mmt of gas
condensate.
The project infrastructure also includes a 42 mcm
LNG storage tank and a loading terminal designed
to receive LNG carriers with a capacity of up
to 30 mcm. The project targets small- and medium-
scale LNG deliveries to regional markets by LNG
trucks and gas carriers. The growing bunkering
segment in the Baltics region is another important
sales market. In October 2021, the first delivery of
LNG was shipped to a bunkering vessel.
At the site of the complex for topside modules
within the framework of the Arctic LNG 2 project,
steel pretreatment and cutting workshops,
a metalwork assembly workshop for modules
of the topside modules of the LNG plant, as
well as abrasive processing and painting of
metal structures workshops are operated. The
integration assembly of modules of the 2nd and
3rd technological trains of the LNG plant is on
progress. At the site of the complex for the
manufacture of pipelines and air ducts for the
modules of the topside modules of the LNG plant,
all production workshops are also being operated.
As part of the project, NOVATEK received
licenses for the Obskiy (Yamal peninsula) and
Tadebyayakhinskiy (Gydan peninsula) with the
purpose of CO2 injection and long-term storage.
In early 2022, the first stage of international
certification for long-term CO underground
storage sites in the Yamal and2Gydan Peninsulas
has been successfully completed and that site
feasibility certificates have been issued for further
study of the sites and subsequent certification
stages. Det Norske Veritas (DNV), an independent
certification and classification society, issued
certificates of conformity with international
standards ISO 27914:2017 Carbon Dioxide Geological
Storage and DNVGL-SE-0473 Certification of Sites
and Projects for Geological Storage of Carbon
Dioxide.
NOVATEK is building an LNG Construction Center
in Belokamenka near Murmansk to fabricate the
GBSs, and assemble and install topside modules.
The center’s infrastructure comprises two dry
docks and production facilities to build GBSs and
topside modules. The center is a state-of-the-art
technical foundation for LNG technologies in Russia,
creates new jobs, and contributes to the economic
development of the region. The plant’s first train is
scheduled to be launched in 2023, Train 2 – in 2024,
and Train 3 scheduled for launch in 2025.
Our Cryogas-Vysotsk project also demonstrated
strong operational results during 2021, operating at
115% of its nameplate capacity, and produced an
all-time high volume of 757 mmt, or one third more
than in 2020. The increase in annual productivity
in 2021 was achieved by debottlenecking and
removing production restrictions, as well as
achieving a higher reliability rate for the complex
compared to the initially planned. To further
improve the productivity of the complex,
The construction of dormitories of the shift
residential complex in the village of Belokamenka
with a capacity of up to 17 thousand seats has
been completed.
In June 2021, the first plane landed at the Utrenniy
airport built specifically for the Arctic LNG 2 project
on the Gydan Peninsula. The airport increased the
efficiency of rotational personnel logistics for the
project by replacing helicopter operations with
aircraft. In 2021, the airport handled more than two
thousand flights.
construction of a booster compressor station is
being considered for 2023, which will increase the
LNG output level to 820 mmt per year.
In 2020, Arctic LNG 2’s ice-class tanker fleet
formation was completed and long-term charter
agreements were signed for 21 Arc7 ice-class
LNG tankers: 15 tankers to be built at the Zvezda
shipyard in Russia and 6 tankers to be built at
Daewoo Shipbuilding & Marine Engineering in
Korea. The state-of-the-art Arc7 ice-class gas
tanker fleet together with Russia’s new nuclear
icebreakers will allow for the year round eastbound
transport of LNG along the NSR to the Asia-Pacific
Region.
Since the project commenced operations in 2019,
overall volume of LNG produced was 1.66 mmt. In
2021, Cryogas-Vysotsk dispatched 721 thousand
tons of LNG – 130 LNG carriers and more than 2,000
trucks.
Pursuant to the issued certificates, the
geological formations within the Obskiy and
Tadebyayakhinskiy license areas have the capacity
to store at least 600 million tons of CO each,
which is supported by calculations. The2calculations
were made by NOVATEK’s Scientific and Technical
Center with the involvement of international service
companies.
In 2021, we signed credit facility agreements with
international financial institutions and commercial
banks. The maximum aggregate loan amount
under the facilities to be provided by the Russian
and international banks is EUR 9.5 billion for up
to 15 years. The facilities fully cover the project’s
Sales geography includes Finland, Sweden,
Lithuania, the Netherlands, Estonia, Poland and
Spain. The project supplied more than 1,030
trucks to the Russian domestic market as part of
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
40–41
In December 2021, NOVATEK and Uniper signed a
Ust-Luga Complex
High value-added petroleum products produced
Term Sheet on long-term supply of up to 1.2 mmt
of low-carbon ammonia per annum to primarily
German market. The product price will be indexed
to relevant European and global benchmarks.
The Term Sheet details the terms of the supply
by NOVATEK to Uniper of low-carbon ammonia
to be produced at the Company’s planned gas
chemical complex, which will include CCS facilities,
and delivered to Uniper’s planned ammonia import
terminal in Wilhelmshaven, equipped with an
ammonia cracker operating with renewable power.
The imported low-carbon ammonia will be used
as hydrogen carrier, transformed into gaseous
hydrogen and fed into the future German hydrogen
pipeline system, as well as supplied directly as a
clean feedstock and as a fuel.
at the Ust-Luga Complex have a significant
positive impact on the profitability of our liquid
hydrocarbons sales and the Company’s cash flow
generation.
The Gas Condensate Fractionation and
Transshipment Complex (the “Ust-Luga Complex”)
is located at the all-season port of Ust-Luga on
the Baltic Sea. The Ust-Luga Complex processes
stable gas condensate into light and heavy
naphtha, jet fuel, ship fuel component (fuel oil)
and gasoil, and enables us to ship the value-added
petroleum products to international markets. The
Ust-Luga Complex also allows for transshipment
of stable gas condensate to the export markets.
After launching in 2013, the complex improved our
logistics and reduced transportation costs.
12,820
As the Ust-Luga Complex reached full processing
capacity we transshipped stable gas condensate
to the export markets by sea.
thousand tons
Processing volumes of de-ethanized
condensate of the Purovsky
Plant in 2021
In the reporting year, the Ust-Luga Complex
processed 6,957 mt of stable gas condensate into
6,779 mt of end products, including 4,344 mt of light
and heavy naphtha, 1,062 mt of jet fuel and 1,373
mt of ship fuel component (fuel oil) and gasoil.
of the Purovsky Plant is in line with the total
production capacity of NOVATEK and its joint
ventures fields that supply feedstock to the
Purovsky Plant. The 2021 output mix included 9,352
mt of stable gas condensate, 3,390 mt of NGL and
LPG and 23.8 mt of regenerated methanol.
Processing of Gas Condensate
In 2019, the Ust-Luga Complex commenced
Purovsky Plant
constructing a hydrocracker unit and capacity
expansion of the complex. The launch will increase
the depth of processing of stable gas condensate
into higher grade value-added petroleum products.
The Purovsky Plant is connected via its own railway
line to the Russian rail network at the Limbey rail
station. Subsequent to the launch of the Ust-
Luga Complex in 2013, most of the stable gas
condensate volumes produced at the Purovsky
Plant are delivered by rail to Ust-Luga for further
processing or transshipment to exports, with the
remaining volume of stable gas condensate sold
directly from the plant to the domestic market.
Our subsidiaries and joint ventures are producing
natural gas with a significant content of liquid
hydrocarbons (gas condensate). After being
separated and de-ethanized at the field the main
part of unstable (de-ethanized) gas condensate
is delivered via a system of condensate pipelines
owned and operated by the Company for further
stabilization at our Purovsky Plant located in the
YNAO in close proximity to the city of Tarko-Sale.
All of the NGL volumes (feedstock for LPG
production) produced at the plant are delivered by
pipeline to SIBUR’s Tobolsk Petrochemical Complex
for further processing.
The Purovsky Plant is the central element in our
vertically integrated value chain that provides us
complete operational control over our processing
needs and access to higher yielding marketing
channels for our stable gas condensate. The
Purovsky Plant processes unstable gas condensate
into stable gas condensate and natural gas
liquids (NGL).
In the reporting period, the Purovsky Plant
processed 12,820 mt of de-ethanized gas
condensate, representing a 8.8% increase
compared to 2020. The processing capacity
Processing volumes and output of the Purovsky Plant, thousand tons
Processing of de-ethanized condensate
Processing volumes and output of the Ust-Luga Complex, thousand tons
2020
2021
Change
2020
2021
Change
11,786
12,820
8.8%
Stable gas condensate processing
7,007
6,957
(0.7%)
Output:
Output:
Stable gas condensate
NGL and LPG
8,934
2,788
14.0
9,352
3,390
23.8
4.7%
21.6%
70.0%
Heavy naphtha
Light naphtha
Jet fuel
2,298
2,087
1,036
749
2,253
2,091
1,062
725
(2.0%)
0.2%
Regenerated methanol
2.5%
Ship fuel component (fuel oil)
Gasoil
(3.2%)
(2.8%)
667
648
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
42–43
Natural Gas Sales
(boil-off gas), as well as during the regasification of
purchased LNG at our own regasification stations
in Poland and Germany.
than 94% of our total gas sales in the Russian
Federation.
of LNG), 63 tanker cargoes and about 2,000 truck
cargo lots in the small-scale and mid-scale LNG
markets (totalling 0.3 mmt), including 61 tanker
cargo lots and about 900 truck cargoes from the
Cryogas-Vysotsk plant, as well as boil-off gas
(0.1 mmt).
Our sales of natural gas in the Russian domestic
market are mainly through trunk pipelines and
regional distribution networks, as well as sales of
LNG mainly through its own refueling complexes.
The LNG sold on the domestic market is produced
at our small-scale LNG plant in the Chelyabinsk
Region, or purchased mainly from our joint venture
OOO Cryogaz-Vysotsk. Our sales of natural gas on
international markets are sales of LNG purchased
primarily from our joint ventures, OAO Yamal LNG
and OOO Cryogas-Vysotsk. In addition, we sell on
the European market regasified liquefied natural
gas arising during the transshipment of LNG
In order to manage seasonal gas demand, NOVATEK
has entered into an agreement with Gazprom
for underground storage services. Natural gas
inventories are accumulated during warmer
periods when demand is lower and then used to
meet increased demand during periods of colder
weather. At year-end 2021, our inventories of
natural gas amounted to 0.77 bcm.
In 2021, natural gas sales volumes, including volumes
of LNG sold, aggregated 75.8 bcm, representing a
marginal increase of 0.3% as compared to 2020.
An increase in natural gas volumes sold on the
domestic market completely offset a decline
in natural gas volumes sold on the international
markets. The increase in natural gas volumes
sold on the domestic market resulted from the
launch of additional production facilities, as well
as higher demand from end-customers due to
weather conditions. The decline in natural gas
volumes sold on the international markets was due
to a decrease in LNG sales volumes purchased
primarily from our joint venture OAO Yamal LNG, as
a result of an increase in the share of Yamal LNG’s
direct LNG sales under long-term contracts and
the corresponding decrease in LNG spot sales to
shareholders, including the Group.
The decrease in international sales volumes was
due to the reduction of LNG volumes acquired
from our joint venture Yamal LNG because of the
increase of Yamal LNG direct sales share under
long-term contracts and respective reduction of
LNG spot sales via shareholders, including NOVATEK.
NOVATEK is implementing a pilot project for the
sale of LNG as a motor fuel and for autonomous
gasification. The implementation of this project
is operated by our wholly owned subsidiary OOO
NOVATEK–LNG Fuel, registered in 2021, which will
construct small-scale LNG plants, facilitate LNG
wholesale markets and develop a retail network
for LNG as a motor fuel in the Russian domestic
market.
One of our key priorities is to expand the
geography of supplies and enhance our presence in
key markets. To achieve these goals, the Company
continues to actively increase the cargo turnover
via the Northern Sea Route and is working to
expand the navigation window for LNG deliveries
from our Arctic projects along the eastern sector
of the NSR.
LNG sales are carried out from our small-scale LNG
plant in Magnitogorsk, launched in 2020, located in
the Chelyabinsk Region. In 2021, over 14 thousand
tons of LNG were sold from the Magnitogorsk
LNG plant.
Our natural gas revenues amounted to RR 524.1
billion, representing an increase of 46.0%, as
compared to 2020 largely due to an increase in
sales prices on international markets, as well as
an increase in prices and sales volumes on the
domestic market.
In 2021, an all-time record was set for performing
voyages via the eastern part of the NSR – 44 LNG
cargoes were delivered to the Asia-Pacific Region
market both under long-term contracts and
as part of spot optimization deliveries. Among
these deliveries were two voyages that delivered
cargoes via the NSR in January 2021 to China and
South Korea two months later than the traditional
navigation season closure.
75.8bcm
Total natural gas sales in 2021,
including LNG
Additionally, to provide fuel for automobile
transport in the North-Western and Central
Federal Districts, LNG is purchased from Cryogaz-
Vysotsk. In 2021, the sold volume amounted to more
than 15 thousand tons.
Longer period of navigation along the NSR due
to almost halving the distance and time of LNG
shipping to ports in Asia-Pacific Region compared
to the traditional southern route through the
Suez Canal makes it possible to mitigate carbon
footprint and reduce carbon emissions by 7,000
tons per round trip.
At the end of 2021, 13 LNG refueling stations for
automobile transport were in operations in the
Urals, as well as North-Western, Central and Volga
Federal Districts of Russia (two of them were built
in the reporting year in Naberezhnye Chelny and
Samara). These stations are located on the main
federal highways, in cities and on the territory of
industrial enterprises and allow to provide clean-
burning fuel to commercial and municipal transport,
as well as heavy haul and highway trucks. In 2021,
the volume of sales at filling stations increased
fivefold.
Natural gas sales, mmcm
2020
2021
Change
Total gas sales
75,620
8,928
75,817
7,949
0.3%
(11.0%)
1.8%
The transshipment facility in the Murmansk Region
is another important step in the development of
the LNG supply chain from the Russian Arctic to
global gas markets. Building the transshipment
infrastructure allows the Company to develop its
own competences and perform LNG transshipment
in Russia, as well as optimize the operation of its
own unique Arctic-class tanker fleet.
International sales
Sales within the Russian Federation, including:
End customers
66,692
63,632
3,060
67,868
64,868
3,000
95.6%
1.9%
Traders
(2.0%)
0.2 p.p.
Sales on International Markets
Share of end customers in domestic gas sales
95.4%
In 2021, NOVATEK sold 7.9 bcm of gas (5.7 mmt of
LNG). We sold 73 tanker cargo lots of large-scale
LNG (including 71 cargoes from the Yamal LNG
plant) totalling 7.3 bcm of gas (5.2 mmt of LNG); in
the small-scale and mid-scale LNG markets, the
Company sold 0.6 bcm of gas (0.4 mmt of LNG),
including 92 tanker cargo lots and over 3,800 truck
cargo lots, which included 82 tanker cargoes and
about 1000 truck cargoes from the Cryogas-
Vysotsk plant, and also we sold a total of 0.1 mmt
of boil-off gas. In 2020, we sold a total of 8.9 bcm
of gas (6.4 mmt of LNG), with 85 large-scale tanker
cargo lots of LNG (including 81 cargoes from the
Yamal LNG plant) totalling 8.4 bcm of gas (6.0 mmt
As part of its long-term strategy, NOVATEK has
been implementing a plan to build a network of LNG
retail stations in Europe to provide clean-burning
fuel for heavy-duty trucks at key transport nodes
in Germany and Poland.
Sales in the Russian Federation
within the Russian Federation. Our end customers
and traders were located primarily in the following
regions: Chelyabinsk Region, Moscow and Moscow
Region, Khanty-Mansiysk Autonomous Region,
Lipetsk Region, Perm Territory, YNAO, Vologda,
Stavropol, Tula, Tyumen, Smolensk, Nizhny
In 2021, the Company commissioned 10 cryogenic
filling stations (8 in Germany and 2 in Poland)
and 27 regasification units in Poland. The total
number of operating facilities on the European
market at the end of 2021 was 16 LNG filling stations
(12 in Germany, 4 in Poland) and 48 regasification
units (1 in Germany, 47 in Poland).
In 2021, the total volume of natural gas sold in
the Russian Federation amounted to 67.87 bcm,
increasing by 1.8% compared to the previous year.
NOVATEK has a key role in ensuring supplies of
natural gas to the domestic market. During 2021,
the Company supplied natural gas to 40 regions
Novgorod, Leningrad, Belgorod and Kostroma
Regions. The above regions accounted for more
Annual Report 2021. Constructing future energy transition today
Review of Operating Results
44–45
In November 2021, the first delivery of bioLNG was
performed to a cryogenic filling station in Rostock,
Germany.
large wholesale supplies to the domestic market
stood at 615 mt, representing 81% of our domestic
LPG sales. We also sold 144 mt of LPG via our retail
network and small wholesale stations located
mainly in the Chelyabinsk, Volgograd, Rostov and
Astrakhan Regions. As of the end of the year, sales
were made through 86 retail gas stations and 6 gas
filling stations.
Sales of crude oil in 2021 totaled 3,909 mt, which
is 13% lower compared with 2020. We sold 70% of
our crude oil volumes in the domestic market, with
the remaining volumes exported to international
markets.
NOVATEK’s strategy as a natural gas and LNG
producer implies greater involvement in the
promotion of natural gas as motor fuel both
in Russia and abroad. This market segment
represents significant growth potential in the
context of increasingly stringent environmental
standards. Compared to diesel, LNG significantly
reduces the emissions of nitrogen oxides,
carbon dioxide and almost completely eliminates
particulate matter emissions.
611RR bln
Liquid hydrocarbons sales
revenues in 2021
Liquid hydrocarbons sales, thousand tons
2020
2021
Change
In 2021, the Company signed Memorandums of
Understanding on LNG supply decarbonization with
TotalEnergies and RWE Supply&Trading GmbH. The
parties intend to explore opportunities in the area
of carbon-neutral LNG supply.
Total
16,387
6,773
4,468
2,169
1,591
1,368
18
16,555
6,785
3,909
2,341
2,180
1,326
14
1.0%
0.2%
Petroleum products (Ust-Luga)
Crude oil
In 2021, our liquids sales revenues increased to RR
611.1 billion, or by 79.4% as compared to 2020, mainly
driven by higher global benchmark prices.
(12.5%)
7.9%
Stable gas condensate
Light hydrocarbons
LPG
In September 2021, NOVATEK signed a Strategic
Cooperation Agreement on Low Carbon Footprint
Projects with the Japan Bank for International
Cooperation (JBIC). NOVATEK and Ministry of
Economy, Trade and Industry of Japan signed
a Memorandum of Cooperation on Ammonia,
Hydrogen and Carbon Capture, Storage and
Utilization. The parties intend to provide bilateral
support for projects in the field of production and
sale of ammonia and hydrogen, as well as carbon
capture and storage technologies in Russia and
Japan.
37.0%
(3.1%)
(22.2%)
High-value added petroleum products from the
Ust-Luga Complex accounted for a 41% share of
our overall liquids sales volumes. We sold a total
of 6,785 mt of stable gas condensate products,
including 4,398 mt of naphtha, 1,039 mt of jet fuel
and 1,348 mt of fuel oil and gasoil. The majority of
petroleum products (95%) were exported. Export
volumes were distributed as follows: Europe – 38%,
Asia-Pacific Region – 41%, North America – 16%
and Middle East – 5%. Most of our heavy naphtha
was exported to Asia-Pacific Region markets, light
naphtha – to Asia-Pacific Region and Northwest
Europe markets, and jet fuel, gasoil and fuel oil –
to Northwest Europe.
Other
The successful sales of our LNG to the world’s
leading markets, the variability and optimization
of logistics solutions to reduce the already low
carbon footprint of our LNG demonstrate the high
competitiveness of Arctic LNG around the world.
We estimate that so far LNG from the Yamal LNG
plant has been consumed in 33 countries since the
launch of the Project.
Export and domestic sales of stable gas
condensate continued in 2021. Total stable gas
condensate sales volumes amounted to 2,341 mt.
A portion of light hydrocarbons produced at
the Purovsky Plant is processed on tolling terms
at SIBUR’s Tobolsk Petrochemical Complex into
marketable LPG, which is then delivered to
NOVATEK’s customer base, while the rest of the
light hydrocarbons volumes sold to SIBUR. We sold
2,180 mt of light hydrocarbons in 2021.
Liquid Hydrocarbons Sales
NOVATEK sells liquid hydrocarbons (stable
gas condensate, petroleum products, light
hydrocarbons, LPG and crude oil) domestically
and internationally. We strive to respond quickly
to changing market conditions by optimizing our
customer base and supply geography, as well
as developing and maintaining an efficient and
profitable logistics liquids infrastructure.
Marketable LPG sales volumes totaled 1,326 mt
in 2021, representing a 3% decrease compared
to 2020. LPG export sales volumes amounted
to 567 mt or 43% of the total LPG sales volumes.
Novatek Green Energy, our wholly owned LPG
trading company in Poland, sold all of our LPG
export volumes.
In 2021, NOVATEK’s liquids sales volumes reached
16,555 mt, or 1.0% more than in 2020. In 2021,
our export sales volumes decreased by 8.1% as
compared to 2020 and amounted to 8,517 mt.
In the domestic market, our LPG is sold through
large wholesale channels as well as through our
retail network and small wholesale stations. In 2021,
Annual Report 2021. Constructing future energy transition today
Environmental and Social Responsibility
46–47
Force on Climate-related Financial Disclosure
(TCFD), which seeks to improve voluntary reporting
on climate-related financial risks. Details on the
progress towards the climate targets will be
available in our 2021 Sustainability Report.
In 2021, as a member of International Group of
LNG Importers (GIIGNL), NOVATEK participated in
MRV and GHG Neutral Framework methodology
elaboration aimed at GHG emissions measurement,
reporting, verification and neutrality.
Environmental and Social
Responsibility
In 2020, NOVATEK joined the Methane Guiding
Principles (MGP), a global oil and gas initiative in
the areas of climate neutrality and a low-carbon
economy.
In October 2021, NOVATEK held the Company’s first
Arctic LNG Vessel Owners Conference to promote
green shipping and introduce sustainable technical
solutions with a view to reducing the carbon
NOVATEK adheres to the principles of effective and responsible
business conduct and considers the welfare of its employees and
their families, environmental and industrial safety, the creation of
a stable and beneficial social environment as well as contributing
to Russia’s overall economic development as priorities and
responsibilities of the Company.
footprint during marine operations in the Arctic.
From November to December 2021, we carried out
an experimental study of methane leaks detection
in the Arctic zone involving space monitoring based
on a geo-information platform. Three license areas
of two NOVATEK subsidiaries, including the most
significant sources of methane emissions, such
as well pads, gas and condensate transportation
and treatment facilities, were selected as pilot
sites. No methane leaks were detected during the
test period. The studies demonstrated that these
methods could be feasible and efficient in the
future.
Environmental Protection
Urengoyskoye and North-Yesetinskoye fields,
helping to reduce gross GHG and air pollutants
emissions. The equipment used for these studies
was connected to existing gas gathering lines.
After the process was completed, the gas was
returned to the gas header and then sent to the
gas processing plant;
NOVATEK’s core producing assets are located in the
Far North, a harsh Arctic region with vast mineral
resources and a fragile and vulnerable environment.
The Company is committed to environmental
protection in its operations. In 2021, the Company’s
overall expenses on environment protection and
sustainable nature management amounted to
RR 2.9 billion (including NOVATEK’s share in joint
ventures).
2.9RR bln
Environmental expenses in 2021
• The certification of the relevant state authority
was secured for the Automated Industrial
Emissions Monitoring System (AIEMS) of the
Vysotsk LNG Production and Transshipment
Terminal. Following the certification process,
the system was registered with the Federal
Information Fund for Ensuring the Uniformity
of Measurements. This allowed to improve
measurement accuracy and achieve compliance
with international best practices. Furthermore,
in order to ensure reliable accounting of
In 2020, the NOVATEK Board of Directors approved
the Company’s Environmental and Climate Change
targets for the period up to 2030, which include the
reduction of specific emissions, methane emissions
reduction in upstream, processing and LNG
production segments as well as greenhouse gas
emissions reduction in upstream and LNG. Moreover,
the Company intends to improve its associated
petroleum gas utilization rate as well as waste
disposal and utilization rate.
greenhouse gases in flue gases, the AIEMS was
upgraded and equipped with CO2 sensors at the
end of the year, hence the plan to re-certify the
measurement system in 2022.
In 2021, we started the implementation of the
action plan under the Integrated program to
achieve environmental targets. Below are some of
the key results achieved so far:
In the reporting year, the Company continued its
participation in the Carbon Disclosure Project
(CDP), whereby information on greenhouse gas
emissions and operations energy efficiency is
disclosed, as well as in the CDP Water Disclosure
Project to disclose data on the use of water
resources. Taking part in these projects, the
Company strives to achieve a balance between the
climate change risks and efficiency of investment
projects. The Company offers all stakeholders full
access to its environmental information, including
by publications in federal and local printed media,
on its website, and social media.
• At the end of the year, an experimental launch
was performed at the process water treatment
and re-injection unit at the Yurkharovskoye
field. This will pave the way for a significant
reduction of air pollutants and GHG emissions
from wastewater flaring, as well as for lower gas
losses to flaring;
• Gas dynamic and gas condensate studies
without emitting gas into the atmosphere were
carried out at several wells at the Urengoyskoye,
Yurkharovskoye, West-Yurkharovskoye, East-
Since 2019, when disclosing information, we take
into account the recommendations of the Task
Annual Report 2021. Constructing future energy transition today
Environmental and Social Responsibility
48–49
The Company pursues a responsible approach
Occupational Health and Safety
gas and liquid hydrocarbons, which implies setting
up complex technological processes for operating
fire and explosion hazardous facilities. Fire and
explosion hazardous industrial facilities are
operated in accordance with OHS legislation. Group
entities have licenses to operate Hazard Class
I, II and III fire, explosion and chemical hazardous
industrial facilities.
to preservation of natural ecosystems in all the
regions of operation, actively cooperates with
scientific and environmental organizations and
implements the principles of rational and efficient
use of natural resources at all operational levels. In
its operations, NOVATEK abides by the requirements
of Russian environmental legislation as well as
international practices, standards and conventions.
In 2021, our key biodiversity conservation activities
included:
NOVATEK is fully committed to putting the life and
health of its employees above its business results,
and is aware of its responsibility for ensuring
accident-free operations and safe labor conditions
for its personnel, as well as for protecting the
health of the population in the Company’s regions
of operations.
604ha
Total reforestation area
In 2021, regional branches of Rostechnadzor
registered 267 hazardous production facilities that
are in operation, including:
Given the scale of the Company’s business,
including operations in the challenging Arctic
climate, and the significant scope of work
associated with developing large-scale projects,
NOVATEK strives to maintain an adequate level of
monitoring at all levels of operations and continues
to implement the existing Occupational Health and
Safety (OHS) Action Plan, despite the environment
created by the new coronavirus spread.
• Adopting NOVATEK’s Biodiversity Conservation
Management Standard, which establishes
universal principles and approaches to
• Class I (extremely high hazard) – 14 facilities;
• Class II (high hazard) – 53 facilities;
• Class III (medium hazard) – 174 facilities;
• Class IV (low hazard) – 26 facilities.
biodiversity conservation for NOVATEK operations
both in the Russian Federation and abroad;
In line with our focus on implementing our LNG
projects in full compliance with the highest
sustainable development standards, in 2021, we
disclosed several Arctic LNG 2 project documents
on its website, including the Environmental, Safety
and Health Impact Assessment, the Biodiversity
Implementation Strategy and the GHG and Energy
Efficiency Management Plan.
• Signing an agreement on cooperation to
preserve biological diversity in Kamchatka
Territory with Kronotsky Nature Reserve, as
well as an agreement with the Government of
Kamchatka Territory and Rosprirodnadzor on
cooperation to implement a comprehensive
program of scientific study of the offshore area
around the Kamchatka Peninsula;
The Company continuously improves its OHS
management system, involving its employees and
management, as well as contractors. We do our
best to implement a “zero injury” culture, wherein
a safe environment is the main priority for each
employee.
For Class I and II hazardous industrial facilities,
industrial safety management systems and
industrial safety declarations were developed
providing estimates and specifying actions for:
The Company is actively promoting cooperation
between various industries in order to establish
an efficient dialog on the natural resources
rational use and the climate change mitigation.
Thus, NOVATEK and TotalEnergies signed the
Memorandum of Cooperation on Decarbonization,
Hydrogen and Renewables in 2021. The Parties
intend to cooperate on reducing GHG emissions
at joint projects by implementing carbon capture
and storage technologies and utilizing renewable
energy sources at joint LNG projects as well
as the production and usage of hydrogen as a
low-carbon fuel. To this end, a Working Group
encompassing seven workstreams was created,
including a workstream on Nature Based Solutions.
This workstream aims to develop and support
the investment projects for carbon capture and
GHG emissions reduction taking into account the
interests of all stakeholders.
• identifying, assessing and forecasting accident
risks;
• Conducting comprehensive survey and
Below are the key principles that all the Company’s
employees must follow:
monitoring of the environmental condition of
the Ob Bay’s offshore area with the involvement
of leading Russian research institutes. These
studies are aimed to develop an efficient
• planning and implementing accident risk
mitigation measures;
1. Responsible attitude to the population and
the area of the Company’s operations through
compliance with all safety requirements;
action plan to monitor major environmental
risks, including cumulative impacts, and an
assessment (supported by scientific data)
of changes in hydrological features, fishery
indicators, state of rare and protected species,
unique ecosystems, and local communities’
access to natural resources, associated with the
implementation of the Company’s projects in the
Ob Bay. The efforts made during the reporting
period resulted in determining the boundaries of
the projects’ impact on the Ob Bay ecosystems
(including noise impact), assessing the current
state of the pinniped and marine mammal
population based on aerial surveys, as well as the
environmental condition of the Sabetta port’s
offshore area (it was confirmed that there were
no non-native species in the offshore area);
• coordinating accident and incident prevention
measures;
2. Continuous development of industrial safety
expertise across the working career;
• production supervision procedures; and
3. Management involvement in identifying hazards
and reducing levels of operational risks;
• employees’ involvement in the development
and implementation of accident risk mitigation
measures.
4. Acknowledgment of the right to refuse to
perform the work in case of danger to the
employees life or health; and
To compensate for the damage inflicted to
third parties and the environment as a result of
an accident at a hazardous industrial facility,
all hazardous industrial facilities are insured in
accordance with Federal Law No. 225-FZ On
Mandatory Third Party Liability Insurance for
Owners of Hazardous Facilities for Damage Inflicted
by Accidents at Hazardous Facilities.
With the majority of the Company’s production
facilities located in the Russian Arctic zone, the
front-end engineering, design, construction and
operation of buildings and facilities is performed
with a particular focus on research, evaluation,
forecast and monitoring of permafrost and
cryogenic processes. Across the lifecycle of its
projects, the Company focuses on identifying
and forecasting permafrost hazards considering
the global and regional climate trends. Advanced
engineering technologies combined with thermal
calculations, which are subsequently verified
based on geotechnical monitoring data, enable
a top-notch assessment of the permafrost and
engineering facilities condition. Moreover, the
local environmental monitoring program includes
actions to identify areas with intensifying cryogenic
processes. In 2021, the Company continued its
geotechnical monitoring.
5. Priority of prevention over reaction.
According to effective legislation, workplaces
undergo special assessment of working conditions.
As of 31 December 2021, special assessment
of working conditions was completed at 10,302
workplaces with 9,065 (87.9%) workplaces
certified to have acceptable working conditions.
At workplaces with harmful working conditions,
we implemented a set of measures to eliminate
or mitigate harmful factors. No workplaces with
hazardous working conditions were identified.
• In 2021, compensatory fish stocking was
performed in rivers belonging to the Ob-Irtysh
(within the Khanty-Mansiysk and Yamal-Nenets
Autonomous Regions) and North-Western Basins.
Several subsidiaries were involved in releasing
the juvenile fish of Siberian sturgeon, salmon and
whitefishes (including muksun) into the water
bodies to re-stock commercially important fish
species. A total of more than 11 mln juvenile fish
were released;
Executives and specialists of the Group’s
subsidiaries and joint ventures subject to
Rostechnadzor supervision undergo certification
on industrial safety rules on a regular basis.
Industrial safety assessment commissions are
set up in the entities to evaluate staff and
permit them to independently work at hazardous
production facilities using the Unified Testing Portal
Information System.
The Company places an emphasis on safety
culture, ensures efficient emergency response,
as well as records all incidents in accordance with
applicable laws, regulations and internal standards,
enabling timely root cause analysis and the
development of corrective action plans.
OHS training is mandatory for all categories
of employees and is in place at all entities. In
accordance with the Russian legislation, chief
executives, their deputies, and managers in charge
of workplace organization receive safety training
and undergo knowledge check in licensed training
• In 2021, reforestation works were mainly carried
out in the Tarkosalinskoye, Noyabrskoye and
Nadymskoye forest districts of Yamal-Nenets
Autonomous Region. The reforestation area
totaled 604.3 ha.
The Company is engaged in exploration, production,
transportation, processing and sales of natural
Annual Report 2021. Constructing future energy transition today
Environmental and Social Responsibility
50–51
centers. To offer in-house training to white-collar
2. The Company organizes drills and exercises on
possible accident containment and response
scenarios and actions for the personnel
involved in the maintenance of equipment items,
buildings, and structures within hazardous
production facilities. 5,658 training sessions were
held in 2021.
subcontractors, other individuals) and healthcare
workers at first-aid posts, as well as their
interaction with other business units participating
in the emergency response in accordance with the
statutory employer obligations to ensure timely and
high-quality first aid to its employees.
identification of infection by medical staff at
employees, the Company has developed training
programs and set up certification commissions to
assess trainees’ knowledge of OHS regulations.
Training classes in each entity are equipped with
process flow diagrams, dummies to practice first-
aid skills, information boards and training materials.
production facilities continue;
• Data on the epidemiological situation at
production facilities are collected and analyzed,
and the condition of those infected is monitored,
including by information systems;
At NOVATEK fields, emergency medical response
plans aimed at minimizing the consequences of
an accident or acute illness are put in place. The
plans are developed on the basis of production
risk assessment, as well as employees health risks,
conducted at particular production sites, and are
necessary to ensure timely first aid and medical
evacuation to the appropriate medical facilities
providing healthcare services. Training sessions are
held to test the effectiveness and relevance of
these plans.
As of the end of 2021, 14,979 employees received
OHS training, which is in line with the established
training plan. In 2021, standing OHS control
commissions carried out 631 compliance checks
in subsidiaries and joint ventures. The results
were documented in relevant reports and special
measures were elaborated to eliminate identified
non-compliances. Employees in charge submit
monthly remedial action reports to their respective
OHS units to further analyze risks of possible
hazardous situations.
In 2021, there were:
• 13 work-related incidents;
• 2 accidents:
• Telecommuting procedure was defined
along with the introduction of electronic
interaction protocols and IT actions to enable
telecommuting;
• COVID-19 testing of employees is arranged; and
– On 23 January 2021 in ARCTICGAS (destruction
of an air cooler unit with the depressurization
of the tubes and subsequent combustion);
– On 17 August 2021 in YARGEO (destruction of
a tank with mechanical damage to the tank
walls and basement).
• Medical response measures were put in place:
isolation and observation facilities were
deployed and equipped, medical equipment was
purchased, a stock of medications was created,
the number of medical personnel, including
specialists in various disciplines (pulmonologists,
cardiologists, infectious disease specialists), was
increased.
To secure sanitary and epidemiological welfare at
the Company’s facilities, NOVATEK monitors water
supply and disposal, sanitary and hygienic condition
of public catering facilities, accommodation and
industrial premises and waste disposal. In the
reporting year, there were no cases of infectious
diseases among employees, related to catering
services or water supply.
In 2021, the Compaby continued targeted
audits of its subsidiaries and joint ventures for
compliance with OHSE requirements by a NOVATEK
committee. In the reporting year, targeted audits
of YARGEO, NOVATEK-Ust-Luga and ARCTICGAS
were performed. Based on the findings, relevant
reports were produced and remedial actions were
developed.
In accordance with the legislation, an investigation
of the causes and circumstances of accidents
was performed. Based on the results of the
investigation, preventive measures were taken
on the similar equipment, and additional safety
measures were introduced in the entities’ internal
regulations. When developing action plans, one of
the key priorities is to mitigate the risks of work-
related incidents, accidents and emergencies at
the equipment in operation.
The timely and efficient measures together allowed
to maintain the production facilities in operation.
With the help of coordinated efforts of all
stakeholders in the healthcare management, high
work efficiency was maintained amid the COVID-19
pandemic during the reporting year.
Fire Safety, Civil Defence and Emergency Response
At the Company level, data are collected and
analyzed regarding remediation of all violations of
both scheduled and unscheduled audits carried
out by the government supervisory authorities and
integrated and targeted audits of the Company’s
committee.
Since the Group’s business directly involves
operation of facilities exposed to fire and explosion
risks, fire safety is a top priority for NOVATEK. The
Group has a fire safety system compliant with the
Russian legislation. The system’s objective is to
prevent fires and protect people and property in
case of a fire or an emergency.
Employee Health Protection
We continued our operations in accordance
with the Action Plan to Safeguard against the
Coronavirus at NOVATEK and its Controlled Entities
to protect employees and prevent transmission and
spread of the new coronavirus at the Company’s
facilities.
Healthcare management is an integral part of the
Company’s OHS Management System.
To prevent accidents and incidents at hazardous
operating facilities:
The healthcare management system used for
NOVATEK employees health protection, including
prevention of diseases and promotion of employees
health, is continuously improving. The system
is maintained by NOVATEK and its subsidiaries
and joint ventures management, responsible for
occupational health, OHS specialists, as well as
third-party medical organizations (healthcare
providers). At NOVATEK fields’ residential and
production areas, the Company’s and contractors’
first-aid posts operate 24/7.
In 2021, 8 controlled entities held active
1. Each year the Company develops and
consistently implements technical inspection,
certification and test schedules for various
types of technical equipment (external and
internal inspection, hydrostatic and pneumatic
tests, and industrial safety audits). In 2021, the
Company performed industrial safety audits
of 630 equipment items and extended their safe
operating life.
licenses to service firefighting equipment
and 6 controlled entities to perform firefighting
as well as emergency response and rescue
operations, a large share of licensed fire safety
services are outsourced to contractors. There
are 29 professional emergency response and
rescue teams to ensure the safety of the
controlled entities operating hazardous production
facilities that produce, collect, process and
manufacture explosive and flammable substances.
In addition, we have decided to build fire stations
and establish emergency response and rescue
teams within prospective field development and
field infrastructure projects.
The following anti-COVID emergency response
centers continue their operations: PAO NOVATEK,
Novy Urengoy, Tarko-Sale, Leningrad Region,
Murmansk, YNAO LNG projects. Special action plans
have been developed and introduced:
• Algorithms of observation and logistic schemes
of rotation personnel transportation were
prepared to minimize the risks of coronavirus
spread into the production areas (the duration
of the rotation shift was reduced to two
months);
NOVATEK’ subsidiaries and joint ventures have in
place an integrated OHS management system. In
accordance with the international standard ISO
45001:2018, the integrated management system
also includes provisions on employees healthcare
management. NOVATEK subsidiaries and joint
ventures adopted OHS policies approved by the
corporate orders, assuming responsibility for the
lives and health of employees and contractors.
• Campaigns continued to raise employees’
awareness on prevention of acute respiratory
viral infections and the need for vaccination
against the COVID-19;
In 2021, the total headcount of fire and emergency
brigades serving the facilities on a 24-hour basis
stood at 1,123 certified rescue workers. There
were 87 engineers in the controlled entities who
directly monitored and supervised the fire safety
and emergency response preparedness at our
facilities.
14,979
• Briefing of employees is performed about
the use of personal protective equipment
(masks). The necessary amount of personal
protective equipment, means and equipment
for disinfecting premises, hand treatment, as
well as contactless means for temperature
measurement is ensured; daily temperature
measurement of employees and active
The subsidiaries and joint ventures developed
regulations and standards on ensuring
preparedness for emergency medical
assistance and evacuation, as well as other
first-aid requirements for production facilities.
The documents describe the actions of
incident witnesses (employees, contractors,
employees
Inspections are regularly carried out at controlled
entities to assess the emergency response
preparedness of the Company’s business units and
personnel, and evaluate the capabilities of in-house
and external professional emergency response and
Received OHS training in 2021
Annual Report 2021. Constructing future energy transition today
Environmental and Social Responsibility
52–53
rescue teams. The controlled entities’ facilities
competitiveness. In 2021, the primary activities of
training and professional development included:
are fully compliant with the requirements to oil,
petroleum product, and other hydrocarbon spill
response. Materials and equipment available to the
emergency response and rescue teams comply
with all existing requirements. The Company
ensures timely re-equipment of both basic and
specialized fire vehicle fleets.
• Implementing In-house Training program to
improve the competences of the Company’s
employees;
• Implementing the Steps in Discovering Talents
program for young specialists targeted at
training highly qualified personnel whose
competence level fully meets business needs;
Fire safety, civil defense and emergency response
training, as well as fire and emergency drills, are
an important element of the overall system of
fire safety and readiness to respond to fires and
emergencies. In 2021, the Company organized
33,972 fire safety briefings that featured guidance
materials and visual aids, as well as hands-on
presentations. Basic fire safety training was
provided to 10,084 people, with 2,409 tactical
fire exercises performed as part of the Oil Spill
Response Plan, Emergency Containment and
Response Action Plan as well as evacuation drills.
Oil Spill Response Plan and Emergency Containment
and Response Action Plan have been developed
and implemented within the Company’s production
facilities. In 2021, a fire occurred at a non-
• Developing and improving the Corporate System
for the Evaluation of Technical Competencies;
and
• Engaging Company’s young specialists to take
part in research and practice conferences; and
• Cooperating with higher education institutions
to train specialists in the area of LNG.
NOVATEK Scientific and Technical Center has
hosted an In-House Training Program since 2016.
In 2021, NOVATEK Scientific and Technical Center
experts delivered classroom training courses
on the following subjects: Seismic Exploration
Fundamentals; Integrated Interpretation of
Seismic and Logging Data; Complexing Logging
Methods to Address Geological Tasks. Basics
of Log Interpretation and Practical Application;
Application of Regulations for Selection, Storage,
Transportation, Laboratory Research and Entering
into the Core Database; Interpretation and Planning
of Hydrodynamic Studies; Production Engineering
For Underexplored Fields; Basics of Hydraulic
Fracturing; Basics of Hydrodynamic Modeling;
Dynamic Simulation of Multiphase Streams in
Pipelines and Wells using Software OLGA: Principal
Tasks and Examples of their Solution. Practical
Modelling Experience in the Software Environment,
Software OLGA; Basics of Intra- and Inter-Field
Hydrocarbons Transportation. The training course
Basics of Hydraulic Fracturing was also conducted
online. A total of 46 of the Company’s employees
received training under this program in 2021.
production facility (warehouse). No one was injured
as a result of the accident.
the Mentoring Culture training courses together
with their mentors. In total, 22 mentors attended
the training.
Moscow State Technical University and NOVATEK’s
experts with extensive practical experience are
engaged in the program. The Company considers
successful graduates of the Program holding a
master’s degree for hiring and engaging in the
implementation of Russia’s major LNG projects.
During the training, “A” students and “B” students
also receive an additional scholarship from the
Company. In 2021, the first students graduated
from the program (2019–2021 enrollment): 22
students having a master’s degree, 18 of whom
graduated with honors. 11 graduates were employed
by NOVATEK Group companies. 15 first-year
master’s students (2020–2022 enrollment) passed
summer on-the-job training at the entities of Yamal
LNG, Arctic LNG 2 and Cryogas-Vysotsk. In 2021,
25 master’s students (2021–2023 enrollment) were
assigned to the Program.
NOVATEK fully complies with fire safety, civil
defense and emergency response standards and
regulations: all of its facilities are equipped with
automatic fire detection, alarm and extinguishing
systems. NOVATEK Group’s controlled entities are
ready to respond to, contain and mitigate fires and
emergencies.
In October 2021, Moscow hosted the 16th
Interregional Research-to-Practice Conference
for the Company’s young specialists attended
by 74 employees from 14 subsidiaries and joint
ventures. 55 projects were submitted for
consideration by the contest committee. All the
conference winners received cash prizes. After
the release of restrictive measures caused by
COVID-19, 12 first place winners will be awarded a
trip to one of the foreign countries to visit oil and
gas and energy companies. In 2021, 19 winners of
the 14th and 15th Interregional Research-to-Practice
Conferences were able to visit oil and gas facilities
of the Caspian Area, Azerbaijan and Astrakhan.
In 2021, РАО NOVATEK, NOVATEK-PUROVSKY ZPK,
NOVATEK-TARKOSALENEFTEGAS, NOVATEK Scientific
and Technical Center, Arctic LNG 2, NOVATEK –
Ust-Luga and NOVATEK-YURKHAROVNEFTEGAS were
awarded the Laureate Diploma of the International
competition of scientific, technical and innovative
solutions for the energy and mining sectors For
Contribution to Innovative Development of the Fuel
and Energy Industry.
Human Resources
Employees are NOVATEK’s most valuable resource,
allowing the Company to grow rapidly and
effectively. The Company’s human resource
management system is based on the principles
of fairness, respect, equal opportunities for
professional development, dialogue between
management and employees, as well as continuous,
comprehensive training and personal development
opportunities for the Company’s employees at all
levels.
In 2017, the Innovator Corporate Idea Management
System was launched in NOVATEK. Currently,
21 Group entities are connected to the System.
The Innovator System is an automated framework
to collect and process employees’ proposals on
improving and developing business of the Company.
718 ideas on improving business operations,
reduction of production costs and implementation
of new work methods were submitted by the
employees in 2021. More than 1,700 ideas have
been submitted over 5 years of operation of the
Innovator System, of which 339 were approved for
implementation and 175 ideas were implemented.
They generated a positive economic effect of
RR 4.57 bln.
In 2021, NOVATEK continued its efforts to
advance the professional capabilities of its
employees, improve working conditions and
train its personnel on safe working practices
at its production facilities. A total of 56.8% of
employees upgraded their skills. In 2021, the
Corporate System for the Evaluation of Technical
Competencies tested 1,240 employees across the
Group, including 58 persons who were tested at
recruitment and 162 persons at promotion.
As of the end of 2021, NOVATEK, its subsidiaries and
joint ventures had 18,404 employees, with 32.5%
working in exploration and production, 25.8% in LNG
production, 12.5% in marketing, 8.1% in processing,
7.3% in power supply, 6% are administrative
personnel, 5.2% in transportation, and 2.6% are
engaged in ancillary services. The predominant age
of the personnel is between 30 and 50. The average
age of the Company’s employees is 41 years.
In 2018, NOVATEK launched cooperation with the
Gubkin Russian State University of Oil and Gas
under the master’s degree program on cryogenic
technologies and gas-related equipment. The
program is being implemented by the Department
of Oil Refining and Gas Processing Equipment of
the Faculty of Mechanical Engineering. This unique
program pursues a multi-disciplinary approach to
deliver a combination of management skills and
technical knowledge in LNG production, storage
and regasification. Apart from the faculty staff
of the university, visiting tutors from Bauman
In 2021, 84 young specialists participated in the
Steps in Discovering Talents Program. We held
our ninth class and 34 specialists graduated
from the on-the-job adaptation and professional
development program, while 18 young specialists
guided by 17 mentors completed the first step of
the Program. In autumn 2021, another 32 young
specialists and 26 mentors assigned to them
joined the Program. Young specialists received
Personnel Training and Development
Amid the rapid development of technologies and
management systems, our multilevel training and
professional development program enable our
employees to contribute to raising the Company’s
Annual Report 2021. Constructing future energy transition today
Environmental and Social Responsibility
54–55
Social Programs
Social Policy and Charity
Cooperation with Indigenous Peoples of the
Far North
Our focus in employee relations is on implementing social programs. According to the Core Concept of
the Company’s social policy, adopted in 2006, the social benefits package for employees includes the
following programs:
Social Policy and Charity make up an important
part of NOVATEK’s activities. In 2021, the Company
continued to pay close attention to projects
aimed at supporting the culture, preserving and
revitalizing national values and spiritual legacy of
Russia, developing mass and high-performance
sports. NOVATEK continued to fulfill the Agreements
with local governments in the regions of the
Company’s operations, by further implementing the
plan for promoting living standards and preserving
distinctive cultural identity of indigenous peoples of
the Far North.
NOVATEK participates in organizing and staging
traditional ethnic festivals of indigenous peoples
(Reindeer Herder’s Day, Fisherman’s Day, Indigenous
Peoples of the Far North Day as well as events
commemorating anniversaries and memorable
dates of Nenets writers and poets) and supports
cultural heritage site preservation. In particular,
the Company funds the Limbya Nomad Camp
ethnographic park, implements the Choree Project
to develop a Literary Map of Yamal and finances
activities to preserve traditional lifestyle, culture
and language of the indigenous people of the Far
North. To make pre-school education available to
nomadic communities at the Nareidalva camp in
the village of Nakhodka, the Company financed
the acquisition and equipping of a modular
kindergarten, as well as and supported athletes
from among the indigenous peoples of the Far
North. NOVATEK distributes food packages as a
matter of financial and humanitarian aid to those
in need from among the indigenous peoples of the
Far North.
Voluntary medical insurance
for employees
Targeted compensation and social
support payments
The program includes full outpatient care, dental
care, and emergency and scheduled hospitalization.
To reduce the risk of occupational diseases in the
Company’s subsidiaries and joint ventures located
in the Far North, in-depth medical examinations of
employees are conducted once every two years.
This program provides targeted free support
to the Company’s employees in specific life
circumstances, including childbirth, to large
families, the event of natural disasters or fire,
compensation for care of a child up to three years
of age, financial aid for care of disabled children,
financial aid for burial, compensation for sports and
recreation classes for employees, as well as on the
occasion of the jubilee.
In 2021, Social expenses and compensatory
payments directly invested by NOVATEK and its
subsidiaries on charitable and medical projects
and activities, cultural and educational programs,
and support for indigenous communities amounted
to RR 2.8 billion, including RR 71.4 million to assist
the regions in their epidemic containment efforts
(purchase of medical and laboratory equipment,
medical protective suits and masks for hospitals).
Therapeutic resort treatment and
rehabilitation
Employees and their families can purchase health
resort vouchers at a discount. Under this program
the NOVATEK employees may spend their vacations
in 50 health resorts located in Russia’s most
picturesque settings. In 2021, 6,253 employees took
advantage of the program.
Pension program
Cooperation with the Regions
The Company also finances fueling services as well
as the purchase of snowmobiles and a boat motor
for indigenous communities, including for delivering
forage to prevent mass reindeer mortality.
The Company keeps in touch with the people whose
work contributed to the Company’s achievements,
and continues to take care of them after their
retirement. Since 2007, the Regulations on Social
Benefits for Retired NOVATEK Group Employees has
come into effect. The procedure for calculating
monthly social benefit is determined in accordance
with the above Regulations and the benefit
amount is subject to the employee’s average
salary, employment track record and geographical
location. As of 31 December 2021, the number of
participants in the program was 1,254 people.
Under the agreements signed with various regions,
the Company invested in the Yamal-Nenets and
Khanty-Mansiysk Autonomous Regions, the Tyumen,
Chelyabinsk, Leningrad, Murmansk and Kostroma
Regions and the Kamchatka Territory throughout
2021. The Company allocated funds for social and
youth policy implementation, educational programs,
support for culture and sports, kindergartens and
art schools, indigenous peoples of the Far North.
The elderly, veterans, severely ill and disabled
children, as well as people who faced hardships
received aid.
During the reporting year, NOVATEK provided
financial support to the Yamal for Descendants
Association of indigenous peoples of the Far North
and its district branches.
Repayable financial aid
program
Educational Programs
The special-purpose loans program has two focus
areas:
For years, NOVATEK has been developing its
continuing education program, which enables the
Company to recruit highly qualified and educated
youth from the regions of our operation.
In 2021, the Company together with the
• Short-term special-purpose loans intended for
employees who experience economic hardship;
Government of the Yamal-Nenets Autonomous
Region continued to implement a unique “Teacher
for Russia” program aimed at engaging graduates
of Russia’s leading universities to teaching in small
regional schools and preparing young specialists
for teaching, as well as ensuring equal educational
opportunities for children in different regions and
towns of Russia.
NOVATEK-Veteran social protection
foundation
Recruitment and career guidance for potential
future employees start with the Gifted Children
Program implemented at School No. 8 in
Novokuybyshevsk, school No. 2 in Tarko-Sale, school
No. 81 in Tyumen, and school No. 2 in Salekhard. In
2021, school No. 36 in Murmansk joined the program.
• Special-purpose interest-free home loans to
employees residing in Tarko-Sale, Novy Urengoy,
Moscow, Nadym, Sosnovy Bor, Tyumen and
Vysotsk.
The NOVATEK-Veteran social protection fund was
established in 2005 to provide social assistance
to people who have worked for a long time in the
Russian oil and gas industry in the Far North. The
Fund provides retired people with quarterly financial
assistance, allocates lump-sum benefits, pays
for treatment and the purchase of medicines,
organizes therapeutic resort treatment and
rehabilitation and also provides other types of
required assistance.
As part of a pilot project for converting boiler
houses in the Murmansk Region to LNG, the
Special classes are formed on a competitive basis
from the most talented grade 10 and 11 students
with above-average test scores.
Rehabilitation of children
with disabilities
supply of equipment for receiving, storing and
regasification of LNG was financed for two boiler
houses located in Murmansk and Severomorsk. In
addition, in 2021, NOVATEK financed the design and
construction of a recreational zone on the territory
of the Harbeysky geological natural monument.
In 2021, as part of an agreement between NOVATEK
and the Higher School of Economics, all students
in the classes had the opportunity to use an online
school to better prepare for the Unified State Exam
in the Russian language, specialized mathematics,
physics, and computer science.
This program is aimed at supporting the employees
families who raise children with disabilities. As
part of the program, children undergo individual
rehabilitation courses and receive qualified
medical care.
NOVATEK acquired for the Tula Region’ hospital
two mobile medical units with medical offices
“Diagnostics” and “Laboratory” with specialization
“Women’s Health” and “X-ray diagnostics”.
In 2017, a resource center for industry-relevant
student training – the Natural Science Center –
was built and fully equipped in Tarko-Sale, Purovsky
Annual Report 2021. Constructing future energy transition today
Environmental and Social Responsibility
56–57
District, Yamal-Nenets Autonomous Region. The
payments. During their studies, the students are
offered paid internships. This experience allows
them to apply the knowledge obtained at lectures
and seminars to real-life situations and gain
experience in the professions they’ve chosen, while
the Company receives an opportunity to meet
potential employees.
Sports Projects
Basketball Association regional division, in which
Center began to operate in 2018. At year-end
2021, the Center is attended by 641 students
from Tarko-Sale and 33 students from the
settlement of Khanymei, aged 5 to 18 years. The
Center offers 29 additional education programs
and 25 individual learning paths focusing on natural
sciences and technologies. Activities in all subjects
include solving of problems at an advanced level
and training of students for national contests and
competitions.
about 9 teams participate annually.
NOVATEK attaches great importance to
programs for the development of mass and high-
performance sports. The Company, its subsidiaries
and joint ventures regularly hold tournaments
in the most popular and wide-spread sports:
football, volleyball, swimming, ski, etc. In 2021, all
tournaments were held in full compliance with the
requirements of the Russian Federal Service for
Surveillance on Consumer Rights Protection and
Human Wellbeing (Rospotrebnadzor).
In addition, in 2021, various regions hosted master
classes and exhibition performances by athletes
arranged by the Student Basketball Association,
Federation of Dancesport and Acrobatic
Rock’n’Roll.
Preserving Cultural Heritage
In the reporting period, NOVATEK continued
cooperation with the Russian Football Union as the
General Partner of the Russian National Football
Teams. The Company supported women’s volleyball
club Dinamo (Moscow) and the NOVA Volleyball Club
(Novokuybyshevsk).
In 2021, NOVATEK continued its cooperation with
Russia’s leading museums, including the Russian
State Museum, the State Tretyakov Gallery, the
Moscow Museum of Modern Art (ММОМА).
The Company is also implementing two Grants
programs for schoolchildren and teachers living
in the Purovsky District of the Yamal-Nenets
Autonomous Region.
Throughout the year NOVATEK continued to
promote development of children and youth
sports in the regions of its operations by providing
teams participating in indoor football, acrobatic
rock’n’roll and student basketball competitions
with equipment, official competition balls, uniform,
prizes, cups and medals.
The Russian Museum hosted the exhibition
“Cosmism in Russian Art” with the Company’s
support (17 November 2021 – 10 March 2022). The
exhibition for the first time brought together
paintings and graphics of famous and lesser-known
artists of the beginning of the 20th century: Wassily
Kandinsky, Kazimir Malevich, Alexander Labas, Kuzma
Petrov-Vodkin and other artists, who sought to
understand the laws of the Universe and a man’s
place in it.
The Grants program for schoolchildren is aimed
at academic and creative development and
encouraging a responsible attitude towards
studies. Under the program, pupils of 5th-11th grades
are awarded grants from the Company. In 2021, the
Company awarded 52 grants to students under
this program. The Grants program for teachers
is intended to raise the prestige of the teaching
profession and create favorable conditions for
developing new and talented teachers. In 2021,
eight teachers from the Purovsky District received
grants under this program.
Help to Children in Desperate Need
In 2021, pursuant to NOVATEK’s corporate charity
policy the Company continued to implement
projects aimed at helping children in desperate
need in the regions of the Company’s operations.
The Company continued to support the pilot
federal innovative project “Become a Champion”
intended for identifying children’s predisposition to
certain sports through testing.
Under the “Health Territory” project, leading
doctors from the Russian Children’s Clinical Hospital
(RCCH) visited eight towns: Tarko-Sale, Novy
Urengoy, Kostroma, Chelyabinsk, Magnitogorsk,
Petropavlovsk-Kamchatsky, Murmansk and Tyumen.
As a result, 716 severely ill children received help.
153 children were hospitalized to the RCCH and
other federal hospitals. During examinations
and consultations by the RCCH visiting teams,
the necessary safety measures were taken; the
Company also provided children, parents and
doctors with personal protective equipment.
In the reporting year, the Company held
NOVATEK supported the exhibition “Vyacheslav
Koleichuk. Live line” (3 June 2021– 26 September
2021) organized by the Tretyakov Gallery and
dedicated to one of the pioneers of kinetic art in
Russia and a talented engineer. Koleichuk embodied
his passion for physics, optics, and design in his
works.
“NOVATEK – Step to Bigger Football” Indoor Football
Championships that have already become a
tradition among the schools of the Chelyabinsk
and Kostroma Regions and the Kamchatka Territory.
More than 17,000 boys and girls took part in the
competition in these regions. In 2021, indoor
football pitches were built for the schools of
the winning teams of the Championship: three in
the Chelyabinsk Region and two in the Kostroma
Region. In total, starting from 2013, 45 football
pitches have been built within the “Step to Bigger
Football” project.
In an effort to create conditions for more effective
use of university and college resources in preparing
students for future professional activities,
the Company has developed and successfully
implemented the NOVATEK-University program. The
program is an action plan for focused, high-quality
training for specialists with higher education in key
areas of expertise in order to grow the Company’s
business and meet its needs for young specialists.
The program is based at the Saint-Petersburg
University of Mines, the Gubkin Russian State
University of Oil and Gas in Moscow and the Tyumen
Industrial University.
In the Year of Germany in Russia, the Company
supported the opening of the international project
“Diversity. Unity. Contemporary Art of Europe.
Berlin. Moscow. Paris” (23 November 2021 – 13
March 2022) in the Tretyakov Gallery. The project
has already been exhibited in Berlin. Then it was
brought to Moscow and it will later go to Paris. The
project explores the European art created over
the past 30 years, the main message of which is to
show how important it is to preserve European unity
in times of turbulence. In their works, 90 artists
from 34 countries discuss the issues of public
concern, including pandemics, climate disasters,
inequality, democracy, disputes and conflicts
between states.
In 2021, the work under the Telemedicine Center
project to equip and connect the Kamchatka
Territory Children’s Hospital and the Magnitogorsk
Maternal Health and Childhood Protection Center
to the unified telemedical network, was completed.
Currently, the unified telemedical network connects
the RCCH multimedia center with regional partner
clinics of Novy Urengoy, Tarko-Sale, Murmansk,
Chelyabinsk, Magnitogorsk, Petropavlovsk-
Kamchatsky, Tyumen and Kostroma.
In 2021, as part of the development of corporate
sports, the All Russian Federation of Dancesport
and Acrobatic Rock’n’Roll successfully continued
to implement a joint project Corporate Clubs for
Acrobatic Rock’n’Roll with NOVATEK. The project
is currently being implemented in 5 cities of the
Russian Federation: Moscow, Kostroma, Murmansk,
Tyumen and Chelyabinsk. More than 220 boys
and girls, including children of employees of
the NOVATEK Group companies, attend clubs in
these cities. Despite the pandemic, trainings and
competitions continued to be held in 2021. Students
of corporate clubs took part in regional acrobatic
rock’n’roll competitions. In early December,
athletes of corporate clubs participated in the
All-Russian Championship and Competition held in
Moscow.
Students who have passed their exams with good
and excellent results receive additional monthly
In 2021, as part of the Targeted Therapy project
aimed at helping children with cancer undergoing
treatment in the Dmitry Rogachev National
Medical Research Center of Pediatric Hematology,
Oncology and Immunology, 74 children received
molecular tests to select individual treatment,
which significantly increases their chances of
recovery.
In cooperation with NOVATEK, the Moscow Museum
of Modern Art organized a retrospective exhibition
of the art group “World Champions. Strokes of Joy”
(December 15, 2021 – February 13, 2022), a late-
1980s association of Moscow artists, who started
their artistic journey as school friends. The group
is famous for their absurd, provocative and often
hooligan actions that satirize contemporary art.
The exhibition displays more than 200 paintings,
graphics and works on fabric.
2.8RR bln
The project to help children with vision impairments
has also moved forward. In 2021, vision protection
rooms were set up in specialized kindergartens
in Chelyabinsk and Petropavlovsk-Kamchatsky,
where 236 children with visual impairments
underwent rehabilitation. Earlier, the Company
set up vision protection rooms in kindergartens of
Kostroma, Murmansk and Novy Urengoy.
Social expenses and compensatory
payments on charitable and medical
projects and activities, cultural and
educational programs, and support
for indigenous communities
In 2021, NOVATEK continued its cooperation with the
Student Basketball Association. With the support
of NOVATEK, the Student Basketball Association
held competitions for student basketball teams
across the country with more than 800 teams and
10,000 athletes participating from over 70 regions
of the Russian Federation. Since 2017, the Kostroma
Region has hosted the competition of the Student
In 2021, NOVATEK remained a General Partner of
the Moscow Soloists Chamber Ensemble under the
direction of Yuri Bashmet.
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
58–59
As part of the “High-Tech Equipment” project,
Other Charitable Activities
the Company financed the purchase of medical
equipment: two medical ventilators and one
ultrasonography machine for the Kostroma
Regional Children’s Hospital, one medical ventilator
for the Mother and Child Health Center of
Magnitogorsk and neonatal screening equipment
for the Mother and Child Center of the Kostroma
Region.
Management and Corporate
Governance
In the Chelyabinsk Region in 2021, the Company
provided financial assistance for restoration of
memorials in nine municipalities, provided charitable
gas supply throughout the Region for gasified
Eternal Flame memorials, landscaped areas of
restored memorials in the Trotsky and Kunashaksky
districts. As part of the Childhood Protection
social project, the Company financed Chelyabinsk
Boarding School No. 13 and Aistenok Center to
repair their classrooms and living quarters, as well
as organized vacation for children at a children’s
sanatorium in Anapa.
Throughout the year, the Company provided
targeted support to orphans and disabled
Corporate Governance System
standards. NOVATEK’s supreme governing body
is the General Meeting of Shareholders. The
corporate governance system comprises the
Board of Directors, the Board Committees, and
the Management Board, as well as internal control
and audit bodies and the Corporate Secretary.
The activity of all these bodies is governed by
the applicable laws of the Russian Federation,
NOVATEK’s Articles of association and internal
documents available on our website
children, and people with disabilities. The Company
donated funds to the orphanage of the Trinity
Church in Kolomna to purchase an annual supply of
medicines and pay for medical services, re-equip
children’s bedrooms and buy winter clothes and
shoes for its care recipients. NOVATEK financed
a playground installation for the St. Petersburg
Psychoneurological Treatment Centre № 6 for
children from 0 to 4 years of age, as well as
financed the purchase of roller blinds for 17 wards in
the RCCH kidney transplantation department.
NOVATEK strives to commit to the highest
standards of corporate governance. We believe
that such standards are an essential prerequisite
to business integrity and performance and provide
a framework for socially responsible management
of the Company’s operations.
A regional children drawing contest, with
over 400 children participating, was conducted by
NOVATEK-Kostroma together with the Department
of Education and Science. Winners and medalists
were awarded diplomas, prizes and gifts by the
Company.
The Company has established an effective and
transparent system of corporate governance
complying with both Russian and international
(www.novatek.ru/en/).
Throughout 2021, NOVATEK traditionally supported
projects aimed at preserving and increasing rare
animal populations: Siberian tiger and Amur leopard.
Supreme
governing body
Financial and business
activity control bodies
In 2021, the key activities of the volunteer
movement All Together also remained unchanged:
support for orphans and children with various
illnesses, seniors and disabled people.
General Meeting
of Shareholders
Revision
Commission
In June 2021, NOVATEK annual charity auction was
held to mark the International Day for Protection
of Children. NOVATEK employees offered 334 lots
for the auction, all the money raised was used for
treatment and rehabilitation of the Company’s
employees’ children.
Strategic
governance body
Board Committees
Board
of Directors
Remuneration
and Nomination
Committee
Strategy
Committee
Audit
Committee
Subcommittee
on Climate
and Alternative Energy
Chairman of
the Management
Board (CEO)
Internal
Audit Division
Collegial
executive body
716
children
Management Board
Subdivisions
Received help under the "Health
Territory" project in 2021
Corporate
Secretary
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
60–61
NOVATEK strives to consider the principles of
General Meeting of Shareholders
The current members of the Board of Directors
were elected at the Annual General Meeting
of Shareholders on 23 April 2021. The Board
of Directors is comprised of 9 members(1),
of which 8 are non-executive directors,
including 3 directors who are considered to be
independent. The Board Chairman is Alexander
Natalenko. The Chairman is responsible for leading
the Board and ensuring its effectiveness.
• recommended an interim dividend payment for
first half 2021, based on interim financial results
for the period, and a full year dividend payment
for 2021, based on full year financial results;
corporate governance outlined in the Corporate
Governance Code recommended by the Central
Bank of Russia (Letter № 06-52/2463 dated 10 April
2014). The Company follows the recommendations
of the Code, as well as offering to our shareholders
and investors other solutions that are intended to
protect their rights and legitimate interests.
The General Meeting of Shareholders is NOVATEK’s
supreme governing body. The activity of the
General Meeting of Shareholders is governed by
the laws of the Russian Federation, the Company’s
Articles of association, and the Regulations on the
General Meetings approved by NOVATEK’s General
Meeting of Shareholders in 2005 (Minutes No. 95
of 28 March 2005) with further alterations and
amendments.
• made decisions to convene an Extraordinary
and Annual General Meetings of shareholders.
During the meetings in 2020 telecommunications
facilities were used to provide shareholders with
remote access to participate and to fill out an
electronic form of ballots;
Since the Company’s shares are listed on the
London Stock Exchange in the form of depositary
receipts, NOVATEK places great emphasis on the
UK Corporate Governance Code and the Regulation
of the European Parliament and of the Council on
Market Abuse and follows their recommendations
as far as practicable.
The members of NOVATEK’s Board have a wide
range of expertise as well as significant experience
in strategic, operational, financial, commercial
and oil and gas activities. The Board members
hold regular meetings with NOVATEK’s senior
management to enable them to acquire a detailed
understanding of NOVATEK’s business activities and
strategy and the key risks impacting the business.
In addition to these formal processes, Directors
have access to the Company’s medium-level
managers for both formal and informal discussions
to ensure the regular exchange of information
needed to participate in the Board meetings and
make balanced decisions in a timely manner.
The General Meeting of Shareholders is responsible
for the approval of annual reports, annual financial
statements, the distribution of profit, including
dividends payout, the election of the Board of
Directors and the Revision Commission, approval of
the Company’s Auditor and other corporate and
business matters.
• reviewed and approved NOVATEK’s business plan
for 2022;
• changed the composition of the Management
Board;
The Company also adheres to the internal Code
of Business Ethics approved by the Board of
Directors in 2011 (Minutes No. 133 of 24 March 2011).
The Code establishes general norms and principles
governing the conduct of members of the Board of
Directors, the Management Board and the Revision
Commission, as well as NOVATEK’s management
and employees, which were drafted on the basis
of moral and ethical values and professional
standards. The Code also determines the rules
governing mutual relationships inside the Company
and NOVATEK’s relationships with its subsidiaries
and joint ventures, shareholders, investors, the
government and public, consumers, suppliers, and
other stakeholders.
• reviewed and approved NOVATEK’s Sustainability
Report 2020;
On 23 April 2021, the Annual General Meeting of
Shareholders approved the annual report, annual
financial statements (in accordance with the
Russian Accounting Standards), distribution of
profit and the size of dividends based on the
results of FY2020. The meeting also elected the
Board of Directors and the Revision Commission
and approved remuneration to members of the
Board of Directors, Revision Commission and the
Company’s external auditor for 2021.
• approved a new edition of NOVATEK’s Regulations
on Risk Management and Internal Control
System;
Efficient operation of the Board of Directors is
supported by the Corporate Secretary, who has
sufficient independence (appointed and dismissed
by the Board of Directors) and endowed with the
necessary powers and resources to carry out its
tasks in accordance with the Regulations on the
Corporate Secretary (approved by the Board of
Directors, Minutes No. 168 of 28 April 2014 with
further alterations and amendments).
• made decision to acquire a 100% share of
the NOVATEK–LNG Fuel by NOVATEK in order to
implement the investment project “Small scale
LNG production and sales of LNG and CNG
(compressed natural gas) as motor fuel”;
On 30 September 2021, the Extraordinary General
Meeting of Shareholders approved the amount of
interim dividend for the first half of 2021.
• made decision on NOVATEK’s participation in
the International Marine Forum of Oil Companies
(OCIMF);
In December 2021, the Board of Directors of PAO
NOVATEK approved the Company’s Human Rights
Policy. The Policy formalizes the Company’s
position on human rights and incorporates all
the fundamental principles, including respect for
human dignity, providing safe working conditions,
non-discrimination, as well as respect for the
rights, distinctive culture, and customs of local
communities, including indigenous minorities.
• made decision on creation of the Subcommittee
on Climate and Alternative Energy within
Strategy Committee;
Board of Directors
The Board of Directors membership (elected at the
Annual General Meeting of Shareholders on 23 April
2021):
The Board of Directors (the Board, BoD) activity is
governed by the laws of the Russian Federation,
the Company’s Articles of association and the
Regulations on the Board of Directors approved
by NOVATEK’s General Meeting of Shareholders
in 2005 (Minutes No. 96 of 17 June 2005) with further
alterations and amendments.
• approved NOVATEK’s Human Rights Policy;
• Alexander E. Natalenko – Chairman of the Board
of Directors
• approved a new NOVATEK Buyback Program; and
• Andrei I. Akimov
The Company monitors changes of the current
legislature and the Listing Rules of PAO Moscow
Exchange and London Stock Exchange and
harmonizes its internal documents according to
the changes. NOVATEK’s current regulations on the
Company’s corporate bodies, Internal Audit Policy,
Regulations on Risk Management and Internal
Control System, Regulations on the Corporate
Secretary, and other regulations are up to date and
don’t require any amendments.
• Arnaud Le Foll
• approved the plan of activities of the Internal
audit Department of NOVATEK for 2022.
• Dominique Marion
• Robert Castaigne
• Leonid V. Mikhelson
• Tatyana A. Mitrova
• Victor P. Orlov(1)
The Board carries out the overall strategic
In order to improve efficiency of corporate
governance and in accordance with the
recommendations of the Russian Corporate
Governance Code the Company carried out an
external assessment of the BoD and the BoD
Committees activities by engaging an external
independent consultant once every three years and
self assessment annually.
management of the Company’s activity on behalf
of and in the interests of all its stakeholders, and
ensures the Company’s efficient and effective
performance with the aim to increase shareholder
value in a prudent and responsible manner.
• Gennady N. Timchenko
Board activities during the 2021 corporate year(2)
The Board determines the Company strategy
and priority lines of business, endorses long-
term and annual business plans, reviews financial
performance, internal control, risk management
and other matters within its competence, including
optimization of corporate structure, approval of
major transactions, making decisions on investment
projects and recommendations on the size of
dividend per share and its payment procedure,
and convening General Meeting of Shareholders.
The General Meeting of Shareholders elects the
members of the Board of Directors.
NOVATEK’s corporate governance practices make
it possible for its executive bodies to effectively
manage ongoing operations in a reasonable and
good faith manner and to the benefit of the
Company and its stakeholders.
To ensure the Company’s efficient performance,
the Board meetings are convened on a regular
basis at least once every two months. During
corporate year 2021, the Board of Directors
met 10 times, of which 4 meetings were held in the
form of joint attendance. The following key issues
were discussed and respective decisions made:
During the period from December 2021 to February
2022, an independent external consultant OOO
PricewaterhouseCoopers Advisory conducted an
independent evaluation of the Board of Directors
of PAO NOVATEK. The results of the evaluation
were considered at the meeting of the Board of
Directors.
• reviewed and approved the Company’s 2021 full
year operating and financial results;
1.
The powers of the elected member of the Board of Directors Victor P. Orlov were prematurely terminated on 23 August 2021 due to his premature death.
2. From the Annual General Meeting of Shareholders on 23 April 2021 until 21 April 2022.
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
62–63
The assessment perimeter included the following
The activity of the Board of Directors of NOVATEK
and its committees was analyzed and assessed in
terms of its compliance with the recommendations
of the Corporate Governance Code of the Russian
Federation, Moscow Exchange Listing Rules, the
recommendations of the Central Bank of the
Russian Federation on the organization of risk
management, internal control, internal audit, the
work of the committee of the Board of Directors
(Supervisory Board) on audit in public joint stock
companies, the recommendations of the Central
Bank on the formation and succession of the Board
of Directors, as well as the best international and
Russian practices.
Board Committees
specific decisions are analyzed and the necessary
recommendations are issued prior to general
Board discussions. The minutes of the Committees
meetings are circulated to the Board members
and are accompanied by necessary materials and
explanatory notes.
areas:
The Company has 3 Board Committees: the Audit
Committee, the Remuneration and Nomination
Committee and the Strategy Committee. The
Committees’ activities are governed by the specific
Committee Regulations approved by the Board of
Directors and are available on our website. In 2021,
the Board of Directors made decision to create the
Subcommittee on Climate and Alternative Energy
within Strategy Committee.
• evaluation of the effectiveness of the Board of
Directors as a whole;
• evaluation of the effectiveness of each
committee of the Board of Directors;
In order to carry out their duties, the Committees
may request information or documents from
members of the Company’s executive bodies or
heads of the Company’s relevant departments. For
the purpose of considering any issues being within
their competence, the Committees may engage
experts and advisers having necessary professional
knowledge and skills.
• evaluation of the effectiveness of the Chairman
of the Board of Directors; and
• evaluation of the effectiveness of the Corporate
Secretary.
The Committees play a vital role in ensuring that
the high standards of corporate governance are
maintained throughout the Company and that
The assessment methodology involves a survey
(questionnaire) of members of the Board of
Directors, individual interviews with members of
the Board of Directors and some key executives of
the Company, as well as an analysis of the Charter
and internal documents of PAO NOVATEK that
regulate the activities of the Board of Directors
and its committees, materials for meetings and
minutes of meetings of the Board of Directors and
committees, etc.
During the appraisal process the key areas of the
BoD and the Committees activities were analyzed,
including the formation of strategy, supervisory
and control functions, effectiveness of interaction
with the top management, risk management,
remuneration, succession and development of key
managers.
Board of Directors’ Committees membership:
Audit Committee
Strategy Committee
Subcommittee on
Climate and Alternative Nomination Committee
Energy
Remuneration and
Chairman
Members
Robert Castaigne
Tatyana A. Mitrova
Dominique Marion
Victor P. Orlov(1)
Based on the evaluation we determined directions
for increasing the Board of Directors performance
efficiency.
Tatyana A. Mitrova(2)
Robert Castaigne
Tatyana A. Mitrova
Victor P. Orlov(1)
Andrei I. Akimov
Arnaud Le Foll
Alexander E. Natalenko(3)
Arnaud Le Foll
Robert Castaigne
Tatyana A. Mitrova
Alexander E. Natalenko
Board and Committee meetings attendance in the 2021 corporate year
Alexander E. Natalenko(3)
Dominique Marion
Alexander E. Natalenko
Gennady N. Timchenko
Member
Independence
Board of
Directors
Audit
Committee
Remuneration and
Nomination Committee
Strategy
Committee
Alexander E. Natalenko
Andrei I. Akimov
10/10
10/10
10/10
9/10
4/4
4/4
4/4
4/4
Tatiana A. Mitrova
Dominique Marion
Robert Castaigne
Arnaud Le Foll
independent
independent
Audit Committee
audit report of the Company’s activities for the
year end;
The primary function of the Audit Committee is
control over financial and operating activities
of the Company. In order to assist the Board
in performing control functions the Committee
is responsible for but not limited to evaluating
accuracy and completeness of the Company’s
full year financial statements, the candidature of
the Company’s external auditor and the auditor’s
report, and the efficiency of the Company’s
internal control procedures and risk management
system.
10/10
9/10
4/4
4/4
5/5
5/5
• reviewed the risk register of NOVATEK Group;
4/4
4/4
• reviewed the reports on compliance with the
Information Policy and Anti-corruption policy;
Leonid V. Mikhelson
Victor P. Orlov(1)
executive
10/10
4/10
independent
1/4
2/5
• reviewed quarterly financial indicators of the
Company;
Gennady N. Timchenko
10/10
• approved the reports on the activities of the
Company’s Internal Audit Department for the
first six months and full year;
The Audit Committee works actively with the
Revision Commission, the external auditor and the
Company’s executive bodies, inviting NOVATEK’s
managers responsible for the preparation of the
financial statements to attend the Committee
meetings.
• made recommendations to the Board of
Directors on approval of the Company’s Annual
report and Internal Audit Plan;
• made recommendations on the Company’s
Auditor nominee and amount of remuneration;
In corporate year 2021, the Audit Committee
met 4 times, including 3 meetings in presentia,
where:
• considered the conclusion of the Internal
Audit Department on assessing the reliability
and effectiveness of the risk management
system, internal control system, and corporate
governance;
• held two meetings with the Company’s external
Auditor to discuss the Audit Plan and review an
2. The Chairwoman of the Remuneration and Nomination Committee since 07 December 2021, the member of the Committee until 07 December 2021.
3. Since 07 December 2021.
1.
The powers of the elected member of the Board of Directors Victor P. Orlov were prematurely terminated on 23 August 2021 due to his premature death.
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
64–65
• preliminarily reviewed and made
In corporate year 2021, the Remuneration
and Nomination Committee met 5 times,
including 2 meetings in presentia, where:
Strategy Committee
Subcommittee on Climate and Alternative Energy
(within Strategy Committee)
recommendations to the Board of Directors
on approval of a new edition of NOVATEK’s
Regulations on Risk Management and Internal
Control System; and
The primary functions of the Strategy Committee
are the determination of strategic objectives of
the operations and control over the implementation
of the strategy, as well as recommendations on the
dividend policy.
In July 2021, the Board of Directors established a
Subcommittee on Climate and Alternative Energy
(Subcommittee) within the Board’s Strategy
Committee. The dedicated Board Subcommittee
will facilitate regular in-depth reviews of NOVATEK’s
climate strategy implementation and submit timely
proposals on climate mitigation and abatement for
consideration by the Board of Directors.
• reviewed NOVATEK’s 2020 Sustainability Report
and recommended for approval by the BoD;
• considered other issues within the competence
of the Audit Committee.
• reviewed NOVATEK Group’s 2020 HSE
performance report;
In carrying out its responsibilities and assisting the
members of the Board in discharging their duties,
the Strategy Committee is responsible for but not
limited to:
Remuneration and Nomination Committee
• made recommendations in accordance with
NOVATEK Group’s Executive Bodies and Other
Key Employees Remuneration and Expense
Reimbursement Policy;
The primary functions of the Remuneration and
Nomination Committee is the development of
an efficient and transparent compensation
practice of members of the Company’s
management, enhancement of the professional
expertise, improvement of the Board of
Directors’ effectiveness, and preparation of
recommendations for the Company’s Board of
Directors for decisions making to determine priority
areas of activity in sustainable development,
industrial safety, environmental protection, climate
impact, corporate governance and social activities.
In order to assist the Board, the Committee
performs the following functions:
The Subcommittee will review various aspects of
the Company’s business operations and develop
recommendations for the Board on the Company’s
strategy on climate and decarbonization issues,
development of renewable energy sources and the
potential production of low carbon fuels, including
hydrogen.
• evaluating the effectiveness of the Company’s
operations in the long-term;
• reviewed NOVATEK’s HR management policy
performance report in 2021;
• preliminarily reviewing and making
recommendations on the Company’s
participation in other organizations;
• reviewed the report on NOVATEK’s social
performance in the regions where the Company
operated in 2021;
• assessing voluntary and mandatory offers to
acquire the Company’s securities;
In corporate year 2021, the Committee met 4 times,
including 3 meetings in presentia, where:
• made recommendations to the BoD to form
the BoD’s Committees in accordance with
recommendations of the Corporate Governance
Code a well as information about members of
the BoD;
• considering the financial model and business
valuation of the Company and its business
• reviewed principles and criteria for selecting
projects on renewable and alternative energy;
segments in order to make recommendations to
the Board of Directors in making decisions on the
definition of business priorities of the Company;
• presented status update on the low-carbon
ammonia project implementation as part
of NOVATEK’s hydrogen energy business
development;
• develop and regularly review the Company’s
policy on remuneration of the members of the
Board of Directors, members of the collective
executive body and the sole executive body of
the Company, oversee its implementation and
realization;
• made recommendations to the General Meeting
of Shareholders on remuneration to the BoD
members;
• providing recommendations to the Board of
Directors on transactions subject to approval by
the Board of Directors; and
• presented status update on the Sabetta
wind farm project implementation as part
of NOVATEK’s renewable energy business
development;
• held a meeting with representatives of
OOO PricewaterhouseCoopers Advisory to
review information on the upcoming external
assessment of the activities of the Board of
Directors and Committees;
• providing recommendations to the Board of
Directors with respect to the Company’s policy
on the use of its non-core assets.
• preliminarily assess the work of the executive
body of the Company for the year in accordance
with the Company’s remuneration policy;
• reviewed status update on the efforts to achieve
NOVATEK’s environmental and climate targets
until 2030;
In corporate year 2021, the Committee met 4 times,
including 3 meetings in presentia, where:
• annual detailed and formalized performance
self-appraisal or external appraisal of the Board
of Directors and its members, as well as of
BoD Committees, determination of the priority
areas for reinforcing the Board of Director’s
composition;
• reviewed the report on external appraisal
of NOVATEK’s Board of Directors and BoD
Committees’ Performance;
• made recommendations regarding the amount
and form of dividend payment for the first half
and full year 2020;
• reviewed status update on CCS project
implementation in Yamal as part of NOVATEK’s
LNG and gas chemical decarbonization (carbon
footprint reduction) projects development; and
• preliminarily reviewed and made
recommendations to the Board of Directors on
approval of the Company’s Human rights Policy;
and
• reviewed information on the implementation of
the Corporate Strategy of PAO NOVATEK for the
period up to 2030 in terms of:
• interaction with shareholders, which shall not be
limited to major shareholders only, with a view to
generate recommendations to the shareholders
with respect to voting on the election of
• reviewed NOVATEK’s LNG marketing strategy
amid the advancing climate agenda: green LNG,
global emissions trading, EU taxonomy.
• considered other issues within the competence
of the Committee.
– analysis of domestic and international
markets, logistics, risks and their assessment,
targets;
nominees to the Company’s Board of Directors;
– implementation of the Arctic LNG 2 project;
– status and preparation progress of the
hydrocarbon resource base for the Arctic
LNG 1 project; and
• plan appointments of members of the executive
body and the sole executive body on the base of
continuity principles;
– development of the NSR: the status of
development of icebreaking and tanker fleets;
• supervision over disclosure of information on the
Company’s shares owned by the members of the
Board of Directors and Management Board, and
other key management employees; and
• preliminary reviewed and made recommendations
on the approval of the main parameters of
NOVATEK’s business plan (consolidated) for 2022,
including sensitivity analysis of the business plan
for 2022 depending on macro parameters; and
• annual review reports on industrial safety,
environmental protection, climate impact,
corporate governance and social activities,
as well as review the Company’s Sustainability
Reports.
• considered other issues within the competence
of the Committee.
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
66–67
Management Board
Remuneration to Members of the Board of remuneration for the performance of its functions
in the amount of RR 30 million per corporate year.
Directors and Management Board
NOVATEK’s Management Board is a collegial executive body responsible for the day-to-day management
of the Company’s operations. The Management Board is governed by the laws of the Russian Federation,
NOVATEK’s Articles of Association, resolutions of the General Meetings of Shareholders and the Board
of Directors and by other internal documents. More information regarding the Management Board’s
competence is provided in NOVATEK’s Articles of Association.
Members of the Board of Directors are also paid
remuneration for attending the meetings of the
The procedure for calculating the remuneration
and compensations to members of NOVATEK’s
Board of Directors is governed by the Regulations
on Remuneration and Compensations payable to
members of NOVATEK’s Board of Directors approved
by the Annual General Meeting of Shareholders
(Minutes No. 122 of 24 April 2015) with subsequent
changes made by the decision of the Annual
General meeting of shareholders on 23 April 2019.
According to the Regulations the remuneration
consists of the following types:
Board of Directors in the maximum amount of RR
4.5 million per corporate year and remuneration
for attending the meetings of the committees of
the Board of Directors in the maximum amount
of RR 3 million per corporate year. The Board
members are also compensated for travel and
lodging expenses related to implementation of
their functions as NOVATEK’s Board of Directors’
members.
Members of the Management Board are elected by the Board of Directors from among the Company’s key
employees. The Management Board is subordinated to the Board of Directors and the General Meeting of
Shareholders. The Chairman of the Management Board is responsible for leading the Board and ensuring
its effectiveness as well as organizing the Management Board meetings and implementing decisions of
the General Meeting of Shareholders and the Board of Directors. The Management Board was elected by
the Board of Directors on 25 August 2017 (Minutes No. 198 of 25 August 2017) with further amendments by
resolution of the Board of Directors on 12 July 2018, 21 September 2018, 14 November 2018, 14 December
2018, 19 March 2019, 02 November 2020, 17 December 2021.
The procedure for and criteria of calculating
remuneration to the Chairman and members
of NOVATEK’s Management Board, as well
as the compensation of their expenses, are
prescribed in the Regulations for the Management
Board, the NOVATEK group Executive Bodies
and other Key Employees Remuneration And
Expense Reimbursement Policy (approved by
the BoD on 17 December 2019, Minutes No. 226
of 17 December 2019) and the employment
contracts they sign with the Company.
• fixed part of remuneration;
Management Board Members from 1 January 2021 to 31 December 2021:
• remuneration for attending the Board of
Directors meetings; and
• Leonid V. Mikhelson – Chairman
• Vladimir A. Kudrin – Deputy Chairman of the
Management Board – Director for Geology
(elected on 17 December 2021)
• remuneration for attending the meetings of the
committees of the Board of Directors.
• Lev V. Feodosyev – First Deputy Chairman
The fixed part of remuneration to a Board member
constitutes RR 15 million per corporate year. The
Chairman of the Board of Directors is paid a fixed
• Evgeniy N. Ambrosov – Deputy Chairman of
the Management Board – Director for Marine
Operations, Shipping and Logistics
• Tatyana S. Kuznetsova – Deputy Chairman
of the Management Board
• Denis B. Solovyоv – Deputy Chairman of the
Management Board – Director of Information
Policy Department
• Vladimir A. Baskov – Deputy Chairman of the
Information on remuneration of members of NOVATEK’s Board of Directors and Management Board
in 2021, RR mln
Management Board
Board of Directors(1)
Management Board
• Viktor N. Belyakov – Deputy Chairman of the
• Sergey G. Solovyov – Deputy Chairman
of the Management Board – Director for
Prospective Projects (since 17 December 2021;
until 17 December 2021 Deputy Chairman of the
Management Board – Director for Geology)
Management Board for Economics and Finance
Total paid, including:
192.6
—
3,295.3
1,036.0
2,259.3
—
• Eduard S. Gudkov – Deputy Chairman of the
Salaries
Management Board
Bonuses
—
• Mark A. Gyetvay – Deputy Chairman of the
• Ilya V. Tafintsev – Deputy Chairman of the
Fees
192.4
0.2
Management Board
Management Board
Other property advancements
—
• Evgeny A. Kot – Deputy Chairman of
the Management Board – LNG Director
(the authorities were terminated
on 17 December 2021)
• Sergey V. Vasyunin – Deputy Chairman of the
Management Board – Operations Director
Risk Management and Internal Control
System
The Company’s RMICS is implemented on a constant
basis and covers all levels of corporate governance,
areas of activities and business processes in all
NOVATEK structural and standalone units.
Risk Management and Internal Control System
Model
The Company’s RMICS functioning implies the
involvement of all levels of corporate governance
in the activity for timely risks and discrepancies
identification and management and includes the
alignment of RMICS at strategic and tactical
management levels as well as ensuring independent
evaluation and oversight over the RMICS functioning
(see the table below).
The Company has a comprehensive Risk
Management and Internal Control System (RMICS)
aimed at protecting assets, improving business
processes, enhancing operational efficiency and
complying with applicable laws and regulations.
Timely identification of discrepancies and sources
of inefficiency, analysis and forecasting of future
scenarios, development of measures to prevent
or reduce risks impact contribute sufficiently to
achieving the Company’s operational and strategic
goals.
1.
Some members of NOVATEK’s Board of Directors are simultaneously members of the Management Board. Payments to such members in relation to their
activities as members of the Management Board are included in the total payments to members of the Management Board.
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
68–69
NOVATEK’s Risk Management and Internal Control System model
Internal Audit Division
Organizational Independence
Internal Audit Division is:
In order to assist the Company’s Board of
Directors and its executive bodies in preserving and
increasing the value of the NOVATEK Group, the
NOVATEK Internal Audit Division performs objective
internal audits based mainly on the risk-oriented
approach.
Strategic governance
• functionally subordinated to the Board of
Board of Directors
Board of Directors Audit Committee
• Oversight over RMICS reliability and efficiency
Directors, which, among other things, approves
the Internal Audit Policy and the Internal Audit
Division Working Plan; and
•
•
Approval of RMICS policy
Recommendations on RMICS improvement
The internal audit function in NOVATEK is
centralized.
• administratively subordinated to the
sole executive body, the Chairman of the
Management Board, who facilitates the
implementation of the Internal Audit Policy and
internal audit activities.
Tactical management
1st Line
Owners of business processes and controls
In its activities, the Internal Audit Division is guided
by the applicable laws of the Russian Federation,
NOVATEK’s internal documents and International
Standards for the Professional Practice of Internal
Auditing. The main document regulating internal
audit activities is NOVATEK’s Internal Audit Policy, in
which the Board of Directors defined the internal
audit’s goals, objectives, functions and powers, as
well as the internal audit’s place in the Company’s
organizational structure.
Management Board,
Chairman of the Management
Board
Day-to-day
risk
management
•
Risk management in structural units and at
facilities by business functions
To efficiently perform the internal audit function:
•
•
Establishment and
maintenance of RMICS
Arrangement of actions to
identify and assess risks and
develop RMIC actions by
business streams and
processes
• the Internal Audit Division is provided unimpaired
access to any assets, documents, accounting
entries and other information related to the
activities of the NOVATEK Group; and
2nd Line
Risk Control Division and Controlling Units
Internal
control and
support
•
Coordination and operational control over risk
management, assessment of efficiency of the
risk management activities
Development of RMIC methodology, compliance,
training
• the Internal Audit Division head may directly
approach the Chairman of the Board of
•
Updates to the Board of
Directors on the RMICS
results
•
Directors, the Chairman of the Audit Committee
and the Chairman of the Management Board.
Independent assessment and supervision
Revision Commission
External audit
3rd Line
Internal Audit Division
Internal audit
•
Assessment of RMICS reliability and efficiency
Administrative
reporting
Key documents governing NOVATEK’s RMICS(1)
Board of Directors
Supplier Code of Conduct
Regulations on Risk
Management and
Internal Control
System
Insider Information
Access and
Distribution Policy
Anti-Corruption Policy
Internal Audit Policy
Chairman of
the Management
Board
Audit Committee
Code of Business Ethics
Human Rights Policy
The main RMICS principles and approaches,
goals and targets, participants obligations and
cooperation procedures are regulated by the
Regulations on NOVATEK Risk Management and
Internal Control System approved by the Board of
Directors.
organizing the RMICS, as well as the changes in the
Company’s organization structure.
Internal
Audit Division
In order to implement the Regulations on
NOVATEK RMICS, the Company developed Internal
Documents, governing various aspects of the
RMICS functioning, including internal audit,
combating corruption, compliance with business
ethics, control over insider information distribution,
processing and use of personal data, etc. Most
of the documents are available at the Company’s
official website.
The 2021 updated version of the Regulations on
NOVATEK RMICS (BoD meeting Minutes No. 247
of 27 August 2021) takes into account the best
international practices used in the Company,
Russian Central Bank’s recommendations on
Functional
reporting
1. The list includes only the main high-level policies and does not include Internal Regulations on individual aspects of RMICS, developed
pursuant to these documents.
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
70–71
Activities in the reporting period
Risk Management System
Risk Insurance
All of NOVATEK’s insurance programs are
implemented with the engagement of major
In 2021, the Internal Audit Division carried out its
activities based on the annual plan prepared using
mainly risk-oriented approach and approved by
the Board of Directors after preliminary review by
the Audit Committee. The Internal Audit Division
monitored the implementation of recommendations
to eliminate the risks identified by internal audits
and improve the internal control system.
NOVATEK has built a risk management system to
ensure sustainable development in the context of
uncertainty and ambiguous environment, which
involves systemic assessment and response to
all risks that may hinder the achievement of the
Company’s goals.
Given the scale of operations and complexity
of the projects being implemented, NOVATEK
extensively applies compulsory and voluntary
insurance programs, described in the table below.
Russian and international insurance and reinsurance
companies with trustworthy reputations and high
ratings.
In 2021, no insured major accidents or incidents
occurred.
The Company’s risk management system implies
identifying and quantifying risks, designing activities
to prevent or mitigate the adverse effects of
possible risk materialization, and an ongoing
monitoring of the implementation thereof during
the year.
In 2021, the Internal Audit Division monitored the
hotline for Code of Business Conduct and Ethics
compliance and, from December 2021, the hotline
for Human Rights Policy compliance.
Property Damage and Business
Interruption (PD/BI) insurance
program
Investment projects risks insurance
programs
Includes insurance coverage for property,
inter alia risk of mechanical failures, and
business interruption with respect to the
Group's key assets, with the view to mitigat-
ing the consequences of possible accidents
and loss of profit
Comprehensive insurance programs for major
projects (such as Yamal LNG, Arctic LNG 2,
etc.) across the project's lifecycle stages
(engineering, exploration and production,
construction, operation, transportation of
finished products)
As the third element of the risk management and
internal control system, internal audit annually
evaluates the system reliability and efficiency.
Based on the 2021 performance, the Internal
Audit Division issued an opinion on the reliability
and efficiency of the RMICS, which is referred by
the Federal Law “On Joint Stock Companies” to
information (materials) to be provided to persons
entitled to participate in a general meeting of
shareholders.
Risk management is an integral part of the
Company’s operational and strategic planning
process and is carried out in accordance with the
principles and approaches established by the RMICS
Regulations and other internal regulations, which
detail the following aspects of the risk management
process:
1. risk identification;
2. risk classification;
The results of the NOVATEK Internal Audit Division
work in 2021 were reviewed by the Audit Committee
comprised of independent directors who
recognized NOVATEK’s internal audit performance
in 2021 as efficient.
3. risk assessment;
Liability insurance program for
owners of HPF and vehicles
Third-party and environmental
liability insurance program
4. risk management practices; and
Includes assessment and insurance of
liability risks in the operation of HPF and
vehicles of the Company (injuries and death
from incidents and accidents)
Third-party liability and environmental
pollution insurance program, including
against personal injury or property damage
to third parties and environmental damage
as a result of incidents at the Company's
facilities
5. control over risk management activities and their
development.
Internal and external quality assessment
To describe risks, the Company uses risk maps that
systematize the risks of all business processes and
business lines of the Company which may create
threats to the achievement of the Company’s goals
over a period of 1-3 years.
The Internal Audit Division implements a program to
assess and improve the quality of the internal audit
function, whereby:
• internal quality assessment is performed
annually; and
The Company regularly informs the Management
Board and the Board of Directors about the results
of risk management activities.
• an independent external quality assessment is
performed once every five years.
Property damage insurance
program
Well insurance program
The Additional Information section of this report
contains a list of the Company’s key risks and
an overview of measures to prevent/mitigate the
negative impact of these risks on the Company’s
business.
In 2018, the Internal Audit Division initiated the first
independent external assessment. The initiative
was supported by executive management and the
Audit Committee. The assessment by EY identified
the compliance of NOVATEK’s Internal Audit
Division activities with International Standards
for the Professional Practice of Internal Auditing
(Certificate dated 22 March 2019).
Insurance program for non-production
facilities (administration buildings, accommo-
dation camps and other social infrastructure
facilities)
The Group's producing subsidiaries and
affiliates procure control of well insurance as
well as insurance against risks of damage to
drilling equipment
Coordination of activities with other parties
Directors and officers (D&O) liability
insurance program
Marine risks insurance program
The Internal Audit Division interacts with an external
auditor in sharing information related to working
plans, inspection results and other matters of
relevance. To improve the efficiency and optimize
the costs, the Internal Audit Division employees
serve on the revision commissions of the Company
affiliates.
Insurance for senior executives and the
Group's liability and in case of third-party
claims related to improper actions or deci-
sions by the management bodies
Insurance of finished products and project
cargoes during transportation, marine hull
and machinery insurance, ship owner's and
charterer's liability insurance
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
72–73
Business continuity plans
Company operates. The commitment to maintaining
Business Ethics Compliance
Directors regarding the candidatures of external
auditors and the price of their services. Based
on the Committee’s recommendations, the
Board proposes the auditor’s candidature for
the consideration and for approval by the Annual
General Meeting of Shareholders.
advanced legal and ethical standards is the
Company’s corporate governance standard, which
applies not only to the Company’s employees,
but also to all partners with whom the Company
interacts.
In addition to the requirements under Russian
legislation for regular identification and control
of risks at hazardous production facilities,
since 2018 the Company develops business
continuity plans for large production facilities.
The purpose of developing continuity plans is to
secure rapid recovery of production processes
by implementing previously developed measures
and procedures for staff interaction to mitigate
consequences of accidents at the key Company’s
facilities. The development of business continuity
plans covers all of the Group’s subsidiaries and
joint ventures and continued on a systematic
basis in 2021.
In order to comply with the Code of Business
Conduct and Ethics approved by the Board of
Directors (Minutes No. 133 of 24 March 2011), any
interested person can report known violations to
the following address: ethics@novatek.ru, or by
other means of communication indicated on the
Company’s website. All queries related to ethics
issues are received by the Internal Audit Division.
Supplier Code of Conduct for NOVATEK Group
suppliers includes the principles of business
transparency and integrity, business ethics and
sustainable development which NOVATEK’s suppliers
are expected to follow.
AO PricewaterhouseCoopers Audit (an
internationally recognized audit firm) was chosen
as the Company’s external auditor to conduct
the audit of the annual financial statements
for 2021 under RAS, as well as independent reviews
of the Company’s quarterly consolidated financial
statements and audit of the annual consolidated
financial statements under IFRS and Sustainability
report.
Queries through the 24/7 hotline are also available
at ethics@novatek.ru for any problems or concerns
about human rights violations. NOVATEK guarantees
confidentiality and the prevention of pressure
or influence measures against a person who has
reported such violations conscientiously.
NOVATEK’s Human Rights Policy formalizes
the Company’s position on human rights and
incorporates all the fundamental principles,
including respect for human dignity, providing safe
working conditions, non-discrimination, as well
as respect for the rights, distinctive culture, and
customs of local communities, including indigenous
minorities.
In selecting the auditor’s candidature, attention is
paid to the level of their professional qualifications,
independence, possible risk of any conflict of
interest, terms of the contract, and the amount of
remuneration requested by the candidates.
Revision Commission
Compliance with Law Requirements
The Revision Commission consisting of four
members is elected at the Annual General
Meeting of Shareholders for a period of
one year. The competence of the Revision
Commission is governed by the Russian
Federation Law On Joint Stock Companies
No. 208-FZ dated 26 December 1995 as well as
the PAO NOVATEK Articles of Association and
the Regulations on the Revision Commission
Procedures approved by the General Meeting of
Shareholders in 2005 (Minutes No. 95 of 25 March
2005) for the matters which are not set out in the
aforementioned law.
NOVATEK’s activities are based on the fundamental
principle of full compliance with the norms and
requirements established by Russian legislation,
international legislation and all international
treaties and agreements.
Compliance with Anti-Corruption Laws
The Audit Committee oversees the external
auditor’s independence and objectivity as well as
the quality of the audit conducted. The Committee
annually provides to the Board of Directors the
results of review and evaluation of the audit opinion
regarding the Company’s financial statements.
The Audit Committee meets with the auditor’s
representatives at least twice per year.
NOVATEK believes that one of the most important
conditions for sustainable business development is
strict compliance with applicable anti-corruption
laws.
As part of RMICS, the Company continuously
implements control procedures to ensure
compliance with applicable laws in all areas of
the Company’s operations and disclosure of
information about the Company’s activities as
required by law.
The Anti-Corruption Policy, approved by the
Board of Directors, is in place since 2014(Minutes
No. 170 of 1 September 2014). The Company hereby
declares that it rejects unlawful business practices
and assumes anti-corruption obligations in all areas
of its activities and in its interaction with partners.
NOVATEK’s management is aware of and accepts
recommendations on the independence of the
external auditor by restricting such auditor’s
involvement in providing non-audit services.
The Revision Commission is an internal control
body responsible for oversight of the Company’s
financial and business activities. The Revision
Commission performs audits of the Company’s
financial and business performance for the year,
as well as any other period as may be decided
by its members or other persons authorized in
accordance with Russian Federation law and the
Company’s Articles of Association. The results are
presented in the form of findings by the Revision
Commission.
External Auditor
The Company develops and implements best
international and Russian anti-corruption practices,
analyzes potential corruption-related risks on a
regular basis, and implements the required internal
control procedures to prevent corruption. Given
the importance of compliance with anti-corruption
laws for the Company’s reputation as an honest
and reliable partner, NOVATEK regularly trains its
employees in the Anti-Corruption Policy norms and
the Company’s ethical values.
The Annual General Meeting of Shareholders
approved an external auditor to conduct
independent review of NOVATEK’s financial
statements. The Audit Committee gives
recommendations to the Company’s Board of
In accordance with auditing standards, in order to
maintain independence, the Company’s External
Auditor regularly rotates its key audit partner, at
least once every seven years. The previous key
audit partner was rotated in 2018.
Auditor’s fees in 2021, RR mln
In March 2022, the Revision Commission completed
the on-site audit revision of financial and business
activities of the Company for the year 2021. As a
result, the conclusions about the reliability of the
data contained in the Company’s 2021 Financial
Statements (under the Russian accounting
standards), 2021 Annual Report and Report on
interested-party transactions were prepared
and submitted to the Annual General Meeting of
Shareholders.
Audits of PAO NOVATEK (audit of the Group’s consolidated financial statements
and audit of statutory financial statements of PAO NOVATEK)
38
The Company also has a security hotline (https://
www.novatek.ru/en/about/Hotline/), which any
employee, counterparty or other stakeholder can
contact to report any facts or signs of corruption
in relation to any aspect of the Company’s
activities. Following each report, an internal
investigation is arranged within the Company, with
relevant mitigation actions taken.
Other services
11
Total auditor’s fees and services
49
The Company ensures regular provision of
information to the Board of Directors on the
results of activities aimed at compliance with
Anti-Corruption Policy and about all the reports
submitted to the Security Hotline.
Corporate Ethics and Compliance
In performing its operations and interacting with
partners, NOVATEK focuses on compliance with
ethical standards and ensuring that its activities
comply with the laws of the countries where the
Annual Report 2021. Constructing future energy transition today
Management and Corporate Governance
74–75
Share Capital
The Federal Financial Market Service issued to
Dividends
of Directors consider the current competitive and
financial position of the Company, as well as its
development prospects, including operating cash
flow and capital expenditure forecasts, financing
requirements, debt servicing and other such
factors as it may deem relevant to maintaining
financial stability and flexible capital structure of
the Company. NOVATEK is strongly committed to its
dividend policy.
NOVATEK a permit for circulation of shares beyond
the Russian Federation of 910,589,000 ordinary
shares comprising 29.99% of the Company’s share
Our share capital is RR 303,630,600 and consists of
3,036,306,000 ordinary shares, each with a nominal
value of RR 0.1. As of 31 December 2021, NOVATEK did capital.
not have preference shares.
The Company’s Dividend Policy is regulated by the
Regulations on Dividend Policy of PAO NOVATEK,
with its new amendments approved by the Board
of Directors on 18 December 2020 (Minutes No.
236 of 18 December 2020). The new Dividend
Policy increased the minimum target payout level
from 30% to 50% of the adjusted consolidated
net profit according to the International
Financial Reporting Standards (IFRS), considering
sustainably strong operating and financial results
as well as significant growth in the scale of the
Company’s operations. The changes are aimed
at strengthening NOVATEK’s investment case and
increasing total shareholder returns.
Our Global Depositary Receipts (GDR) are listed
Our shares are traded in Russian roubles on the
Moscow Exchange and have a first grade listing
(symbol: NVTK).
on the London Stock Exchange (symbol: NVTK),
with each GDR representing 10 ordinary shares. As
of 31 December 2021, NOVATEK’s GDRs were issued
on 530,043,850 ordinary shares comprising 17.46% of
the Company’s share capital.
On 18 March 2022, the Board of Directors of PAO
NOVATEK recommended to the Annual General
Meeting of Shareholders to pay dividends for
FY 2021 in the amount of RR 43.77 per ordinary share
or RR 437.70 per one Global Depositary Receipt
(GDR), exclusive of RR 27.67 of interim dividends per
ordinary share or RR 276.70 per one GDR paid for
the first six months of 2021.
Equity stakes in NOVATEK’s share capital and the number of shares owned by members of the Board of
Directors and Management Board(1)
As of
Equity
stake
Number of ordinary shares,
including GDRs certifying rights of ordinary shares
NOVATEK’s dividend policy is based on keeping the
balance between the Company’s business goals
and shareholder’s interests. A decision to pay
dividends as well as the amount of the dividend,
the payment deadline and form of the dividend
is passed by the Annual General Meeting of
Shareholders according to the recommendation
of the Board of Directors. Dividends are paid twice
a year. In determining the recommended amount
of dividend payments to be distributed the Board
Thus, should the General Meeting of Shareholders
approve the recommended dividend, the dividends
for 2021 will total RR 71.44 per ordinary share
(RR 714.40 per one GDR), and the total amount of
dividends payable for 2021 will be RR 216,913,700,640.
This will represent a 101% increase in dividend per
share compared to 2020.
Board of Directors
Alexander E.Natalenko
Andrei I. Akimov
31.12.2021
31.12.2021
23.04.2021
31.12.2021
31.12.2021
31.12.2021
31.12.2021
23.08.2021
31.12.2021
31.12.2021
—
—
—
—
Michael Borrell
—
—
Robert Castaigne
Dominique Marion
Leonid V. Mikhelson
Tatyana A. Mitrova
Victor P. Orlov
—
—
—
—
Accrued and paid dividends on NOVATEK shares for the period 2016 to 2021
0.0067
202,238
Dividend Accrual Period
Amount of dividends,
RR per share
Total amount of
dividends accrued, RR
Total amount of
dividends paid, RR
—
—
—
—
—
—
—
—
2016
13.90
14.95
26.06
32.33
35.56
27.67
42,204,653,400
45,392,774,700
79,126,134,360
98,163,772,980
107,971,041,360
84,014,585,664
42,204,606,695
45,392,729,448
78,746,621,007
97,207,985,267
106,783,857,524
83,046,005,167
Gennady N. Timchenko
Arnaud Le Foll
2017
2018
Management Board
Evgeniy N. Ambrosov
Vladimir A. Baskov
Viktor N. Belyakov
Lev V. Feodosyev
Mark A. Gyetvay
Eduard S. Gudkov
Evgeny A. Kot
2019
31.12.2021
31.12.2021
31.12.2021
31.12.2021
31.12.2021
31.12.2021
17.12.2021
31.12.2021
31.12.2021
31.12.2021
31.12.2021
31.12.2021
31.12.2021
—
—
2020
0.0288
874,408
First half 2021
—
—
The amount of paid dividends accrued for
the years 2016 to 2020, and for the first six
months 2021 is reported as of 31 December 2021.
Partial payment of the accrued dividends was
made due to provision by shareholders of incorrect
postal and/or banking details, as well as due to the
return of unpaid dividends by nominal shareholders.
authorized disclosure channels and by posting
such information on the Company’s website. The
information is disclosed in full compliance with
Russian and international legal requirements. The
Company discloses quarterly financial statements
in accordance with the Russian (“RAS”) and
International Financial Reporting Standards (“IFRS”),
Management’s Discussion and Analysis of Financial
Condition and Results of Operations as well as
presentations for investors.
—
—
—
—
—
—
—
—
Vladimir A. Kudrin
Tatyana S. Kuznetsova
Denis B. Solovyov
Sergey G. Solovyov
Ilya V. Tafintsev
—
—
0.1944
—
5,903,035
—
Information Transparency
NOVATEK complies with the best practices for
information disclosure while adhering to a maximum
level of information transparency. The Regulations
on Information Policy approved by the Board of
Directors as amended and restated in 2017 (Minutes
No. 198 of 25 August, 2017), define main principles
for disclosing information and increasing
The Company’s website provides detailed
information on all aspects of its activities, including
our Sustainability Report. NOVATEK has been
annually reporting on its GHG emissions and energy
efficiency of its operations via the global Carbon
Disclosure Project (CDP), as well as other industry’s
publications and studies.
0.0012
0.0012
0.0003
37,660
35,000
9,320
Sergey V. Vasyunin
information transparency.
The Company maintains an ongoing dialog with
shareholders and investors in order to ensure full
awareness of investment community about its
activities. The main channels of communication
Material information about the Company is
disclosed in a timely manner in the form of press
releases and notification of material facts through
1. The equity stakes are given based on the records in the register of NOVATEK’s shareholders and notification received from members of the Board of
Directors and Management Board, in accordance with the Russian Federation laws.
Annual Report 2021. Constructing future energy transition today
Additional Information
76–77
with the investment community are through the
Last year, there was a significant increase in
the number of public events that covered the
Company’s operations. A large-scale press tour
for the Russian and international mass media
journalists was arranged to visit the operation sites
of the LNG Construction Center and Arctic LNG 2.
During the Contractors and Suppliers Forum held at
LNG Construction Center in Murmansk, a tour and
a press conference for journalists were arranged,
which made it possible to talk about the progress
of the LNG Construction Center construction
and the Arctic LNG 2 prospects. Visits of regional
and federal media to the Company’s production
facilities in the Murmansk Region and the Yamal-
Nenets Autonomous Region were organized. A
series of public events with participation of the
Chairman of the Management Board were held,
including media briefings, online speeches, in-
person signing ceremonies with partners.
Chairman of the Management Board, Deputy
Chairman and the Investor Relations department.
The Company’s representatives meet on a regular
base with key financial audiences to discuss issues
of interest to them.
Additional Information
In 2021, the effective implementation of the
Regulations on NOVATEK Information Policy allowed
NOVATEK to build a steady goodwill as Russia’s
largest independent natural gas producer and one
of the global leaders in LNG production.
Key business risks
Criticality of risk
The Company’s business is associated with
operating in complex and rapidly evolving
environments. The Company’s ability to achieve its
targets and ambitions is maintained through timely
risk identification, assessment and management.
High
Medium
Low
Pursuant to the information policy principles,
NOVATEK is actively involved in relations with
federal, international and regional media. Following
the 2021 results, there were more than 78 thousand
publications about the Company, which is a 30%
increase year on year. Beyond that, the number
of publications in federal mass media increased
significantly and reached 66% (compared to
57% in the previous year), which testifies to the
strengthening of the NOVATEK’s position in the
media space. 25% of all pieces were publications
in local media, and 9% came from the international
media.
The criticality of risk is an integral
indicator of the risk impact on the
Company’s operations, including the
combined impact of current forecasts of
the probability of risk and a quantitative
assessment of the consequences of
its implementation. It is calculated
based on the internal risk assessment
methodology used by PAO NOVATEK.
The table below represents NOVATEK’s key business
risks, which may have the most significant
impact on the achievement of the Company’s
operational and strategic goals, the operation of
the Company’s business model and the shareholder
value generation, with its estimated potential
impact on the Company’s operations.
The active interaction with federal, local and
international journalists made it possible to
increase significantly the quality of the Company
positioning in the media.
The following corporate periodicals are published
to position the Company and inform its employees,
their family members and third parties of the
Company activities: the NOVATEK newspaper and
the NOVATEK PLUS magazine, containing materials
on production plans and results as well as on
cultural, sports and charity programs and projects.
Risk
Risk causes and consequences
Actions to mitigate risk impact
The news topics included Yamal LNG and Arctic
LNG 2 projects development, LNG Construction
Center construction progress, as well as the
Company’s active involvement in the Arctic
exploration, expanding of the navigation window
via the NSR, LNG transshipment terminals
OPERATIONAL RISKS
Process risks
•
•
Risks of property damage and The Company continuously monitors the compliance with
business interruption due to
accidents at key production
facilities
Russian laws related to industrial safety and control over
process parameters of machines and equipment across all
production sites and industrial facilities of NOVATEK’s entities.
construction in Kamchatka and Murmansk, entering
new sales markets, localization of production
and cooperation with Russian manufacturers
of equipment for LNG plants. In addition to
traditional production-related topics, great
attention in 2021 was given to news related to
the ESG agenda. In the Company’s strategy for
the period up to 2030, sustainable development
is one of the key elements. NOVATEK continues its
work to reduce the Company’s carbon footprint,
reduce GHG emissions at its facilities, provide
consumers with cleaner energy and produce low-
carbon products. The ESG topics in the Company’s
business were widely covered in the media.
The main NOVATEK news are published on the
Company’s official website and intranet portal.
For interaction with public, NOVATEK makes use of
up-to-date channels of information dissemination
through social media. The Company keeps its
accounts in English and Russian on Facebook,
VKontakte, Twitter, Instagram, and Youtube,
Telegram where the channel subscribers stay
updated on the Company’s activities and its
projects’ implementation. Around 850 publications
were posted in the Company’s accounts in 2021. At
year-end, the number of subscribers was 40,593
people (year on year growth is over 20%). Over
12,000 posts and comments with references to
the Company were published in social media in the
reporting period.
Risks of damage to third
In compliance with OHSAS 18001:2007 and ISO 45001:2018, the
Company has developed and deployed an integrated safety
parties, life or health of the
Company’s employees during management system, which is used to implement approaches
operation of hazardous
production facilities
and action plans based on international standards to mitigate
incident and accident risks for the purposes of reducing
potential losses and avoiding occupational health risks.
•
Risks of damage to third
parties during operation of
vessels and other production incident response. Each of the Company’s entities has internal
facilities
The Company’s Central Dispatch Office enables prompt
regulations and standards for prevention and containment of
accidents and emergency situations (Emergency Containment
Action Plans, Oil Spill Response Plans, etc.) and undergoes
regulatory inspections for compliance with OHS requirements.
When engineering and developing of new facilities and
projects, the Company uses technology and equipment with
high reliability and safety indexes for accident risk avoidance.
In 2021, the qualitative indicators of media activity
improved with the nature of publications about
the Company taking a more positive tone. The
number of positive publications rose by 19%. This
resulted from the focused efforts to highlight the
prospective projects, ESG topics, in particular,
decarbonization. High citation index (14%) testifies
to the weight of the Company’s and its speakers’
opinion in the media.
In order to mitigate the risk of damage to third parties
and potential damage or interruption of operations due to
accidents, the Company uses insurance covering a wide
range of areas: damages and business interruption, cargo
transportation, liability, etc.
The Company develops and implements business continuity
plans enabling prompt accidents containment and recovery.
Annual Report 2021. Constructing future energy transition today
Additional Information
78–79
Risk
Risk causes and consequences
Actions to mitigate risk impact
Risk
Risk causes and consequences
Actions to mitigate risk impact
Environmental risks
•
Risks of impact on (damage
to) the environment and
biodiversity in the course of
the Company’s operation and operations on the environment.
as a result of accidents at
production facilities
The Company has an environmental management system
according to ISO 14001:2015 to ensure rational use of resources
and minimize potential adverse effects of the Company’s
•
Risks associated with the
global Energy Transition
and international
efforts to combat climate
change (changes in value
chains due to the transition
to a low-carbon economy,
renewables, changes in
The introduction of carbon policies in Russia and in the EU
may entail incremental costs for the Company to meet the
requirements. The Company monitors carbon initiatives as
they are being adopted, in order to remain aware of the
requirements of policymakers and customers of the Company.
The Company has developed a procedure to notify and
coordinate subdivisions in the event of emergency situations
In 2020, the Company committed to 2030 environmental
targets aiming to reduce man-made climate impact across
•
Risks of stricter environmental in order to prevent damage to production facilities and the
laws and new policies
environment.
demand and requirements of the globe. In 2021, the action plan to achieve these targets
customers for the Company’s was being implemented.
The Company has a corporate greenhouse gas emission
management system, which provides for incorporation of
accounting, monitoring and emission mitigation planning into
the Integrated Management System. The Company develops
a GHG emission reporting system and uses efficient modern
technologies for emission reduction during production,
processing and transportation of hydrocarbon gases and
liquids, natural gas liquefaction, power generation and other
processes.
products, etc. (transition
risks)
Force Majeure risks
(terrorism, mass
epidemics)
•
•
Risks of business interruption/ The Company has put in place action plans to prevent terrorist
damage due to terrorist
attacks at the Company’s
upstream and transportation comprehensive inspections of counter terrorist security of the
facilities
threats at production facilities, transportation facilities and
general infrastructure. Russian supervisory authorities conduct
Company’s facilities on a regular basis.
Risks associated with to
the COVID-19 pandemic
(maintaining occupational
health and uninterrupted
operation of facilities,
ensuring compliance with
regulatory requirements to
working remotely, coping with
global demand fluctuations,
etc.)
For the purposes of maintaining occupational health and
uninterrupted operation across the Company’s entities in
the face of the spread of COVID-19, in 2021 the Company
continued to implement the action plans and fulfill the orders
of Russian authorities aiming to prevent the spread of the
coronavirus infection, including:
When preparing and executing its large-scale projects,
including all LNG projects, the Company always analyzes and
implements actions to prevent and mitigate potential impact
of the Company’s operations on local ecosystems in regions
and areas where the Company operates in order to prevent
damage to vegetation, soil, air, and animals.
•
regular testing of the Company’s employees in order to
promptly detect and prevent the spread of the infection;
monitoring the health of rotational workers;
encouraging vaccination and promoting mass immunity
among employees;
In 2020, the Company’s Board of Directors approved its
environmental and climate targets to 2030, including CO2
emission reduction, utilization of associated petroleum gas,
and waste disposal.
•
•
•
•
•
•
organizing remote work for employees;
providing employees with PPE;
In 2021, the Company was searching for and developing
engineering solutions to reduce greenhouse gas emissions in
line with the 2030 emission reduction targets.
online monitoring of infection cases dynamics; and
complying with the orders of local authorities with regard to
employees’ work mode, etc.
In 2020, the Company also joined the International Methane
Guiding Principles initiative (MGP), whereunder many actions
have been taken during 2021.
Despite the relative recovery of the global economy from the
year 2020’s coronavirus epidemic, COVID-19 was still causing
a major impact across the globe in 2021. In 2021, the Company
continuously monitored the epidemiological situation and
responded promptly to any changes.
To reduce environmental risks, the Company uses insurance
covering risks of damage to the environment in case of
accidents.
Vendor and
contractor risks
•
Risks of not meeting the
deadlines for maintenance
The Company has implemented comprehensive approaches
to control the quality and timing of the counterparties’
and commissioning capacities performance of their obligations under goods, materials
Climate risks
•
•
Risks associated with
All entities continuously monitor temperatures, speed and
operating in adverse weather strength of wind and other factors to maintain safe operation
due to the failure by
counterparties to perform
their obligations (quality
and timing of materials and
equipment supply, works
execution and services
provision)
and equipment supply contracts, construction contracts,
and service agreements, including inspections of fabrication
plants during equipment manufacturing and testing, as well as
offloading control and incoming inspection at the Company
facility.
conditions of the Far North
(low temperatures, ice
navigation, polar night and
day, etc.)
and occupational health in the Far North. Project cargoes
and end products are delivered to customers using ice class
vessels taking into account weather and ice conditions.
Permafrost soils are monitored during engineering and
operation of production facilities. Works are performed using
piling technologies with thermal stabilization of soil. The risks
of air temperature rise and permafrost thawing are being
analyzed on a regular basis and relevant mitigation plans are
being developed.
Risks of the negative
impact of climate change
on the Company’s business
(global warming, rising
sea-levels, increased
number of hurricanes and
floods, increase in ambient
temperature and other
climate anomalies (physical
risks))
To eliminate the risks of contracting unreliable suppliers and
vendors, the Company has introduced a procedure to qualify
counterparties against the criteria of reliable performance
of obligations, as well as financial, fiscal, and legal standing.
The Company implements a long-term contracting approach
•
•
Risks of cost increase due
to procurement of materials
and equipment, works and
services at prices higher than towards strategic and successful counterparties.
the market ones
Suppliers and contractors are selected under transparent
competitive procedures aimed at ensuring free access to
restriction and malpractice by all participants, which makes it possible to achieve the best
employees commercial terms for the contracts.
To avoid the impact of climate risks on production facilities
and business processes the Company uses insurance covering
its production facilities and liability.
Risks of the competition
Annual Report 2021. Constructing future energy transition today
Additional Information
80–81
Risk
Risk causes and consequences
Actions to mitigate risk impact
Risk
Risk causes and consequences
Actions to mitigate risk impact
•
Risks of longer vessel return
voyages, a disruption of
The Company has implemented modern methods procurement
aimed at reducing the cost of purchasing feedstock, materials
At each exploration stage, the Company engages Russian and
foreign experts and contractors that use modern equipment
and technologies and undergo annual audit for compliance
with the Company’s requirements. Quality control and analysis
of the data obtained is performed by our own research and
development (NOVATEK Scientific and Technical Center).
marketable products offtake, and equipment, works and services, including long-term
and tank tops, as well as
default on obligations to
buyers in terms of timely
cargo delivery via the NSR
contracting strategies, direct contracts with manufacturers
to remove intermediaries, and conducting procurement
procedures through electronic trading platforms etc.
The Company’s procurement activities are organized in
accordance with the applicable internal regulations, which
set forth distribution of authority, corporate approval of
The Company’s exploration management approaches enable
cost efficient prospecting, exploration and production of
hydrocarbons and annual confirmation of its resource base’s
sufficiency to maintain the Company’s operations in the
long term.
•
Risks of monopoly suppliers
of transportation services
(Gazprom, Transneft, Russian procurement procedures and control over the Company’s
Railways) (transportation
tariffs growth, access to
responsible employees at all stages – from qualification of
suppliers and signing contracts to provision of services and
transportation infrastructure) delivery of goods, materials and equipment, to contract
performance, to payment.
IT and information
security risks
(cyber risks)
•
•
Risks of loss of key
information, integrity and
stable operation of the IT
To mitigate IT risks, the Company uses modern tools and
technologies to ensure information security, protect
confidentiality and maintain integrity and security of critical
systems due to cyber attacks IT infrastructure and key data. The Company has internal
documents and procedures in place across all its business
The Company openly declares zero tolerance to corruption
and conducts its interactions with suppliers and vendors in
adherence to the rules set forth by the following NOVATEK’s
documents:
Risk of losses/interruption
of production as a result of
incidents at IT infrastructure
facilities
units and entities to ensure protection of infrastructure
against malware, viruses, fishing, etc.
The risks of unauthorized access to any IT infrastructure
elements is reduced through a wide range of actions using
modern equipment and software. The Company has internal
regulations in place governing the use of software, protection
of confidential information, organization of data access and
data handling. The Company continuously monitors compliance
with these regulations.
•
•
•
Anti-Corruption Policy;
Code of Business Conduct and Ethics; and
Supplier Code of Conduct.
The Company continuously monitors the compliance with the
above documents.
The Company has approved the NOVATEK Group’s IT
development strategy that maintains the Company’s
information security at a high level in the long term.
The Company uses the Northern Sea Route (NSR) for LNG
and gas condensate shipping, including by ice-class carriers.
To mitigate the risks related to transportation via NSR, the
Company has signed long-term contracts with Atomflot,
Rosmorport, and Northern Sea Route Administration to ensure
necessary icebreaker support along the NSR and required
that all vessels’ officers have necessary experience in ice
navigation.
The Company complies with all legal requirements to
ensure information security of Russian strategic assets. In
accordance with the requirements of Federal Law No. 187-FZ
dated July 26, 2017, essential elements of the Company’s
critical information infrastructure were broken down into
categories and the relevant centralized information security
system was designed. Each element of the security system
is being constantly monitored in terms of its condition and
reliability.
To reduce dependence on monopoly suppliers of
transportation services, the Company enters into long-term
contracts and exercises ongoing control over the offtake
schedule and transportation tariffs. To reduce the risks,
the Company concludes agreements enabling it to use
alternative methods of product transportation (an agreement
with SIBUR for the supply of light hydrocarbons to Tobolsk
Petrochemical Complex) and develops its own pipeline system
for transporting gas condensate.
Project risks
•
Risks of project execution
delays and/or incremental
project costs due to:
The Company implements large-scale and ambitious projects
to expand existing and build new LNG production and
petroleum processing facilities in various regions of Russia.
– updated or new technical
legislation relating to
engineering, construction
and operation;
The Company analyzes and develops forecasts for all
stages of future projects, including risk identification and
assessment as well as elaboration of action plans to manage
the identified risks. The matters related to arranging financing
Geological risks
•
•
Risks of non-confirmation of
commercial hydrocarbons
reserves
The Company makes an annual assessment and evaluation of
its commercially significant reserves based on the exploration
and production drilling and other research information.
DeGolyer and MacNaughton (“D&M”), an independent
petroleum engineers firm, validates the Company’s reserves
on an annual basis under both the SEC and PRMS reserves
– increasing cost of relevant and contracting of the products of the Company’s major
materials, equipment,
services and works;
– contractors’ failure to
maintain the schedule;
investment project are addressed long before the project
is put into operation and include detailed schedules of all
stages and operational control of compliance therewith. When
selecting projects, the investments are channeled only to
Risks of inconsistency
between the actual
hydrocarbon volumetrics and reporting standards.
reserves held within developed
– delays in project financing, those projects that are most likely to achieve their strategic
goals in the long term with risk exposure manageable by the
Company.
etc.
fields and the simulations
To reduce the risks of non-confirmation of commercial
hydrocarbons reserves, the Company carries out a
comprehensive analysis of the geological and geophysical
data, including geotechnical simulations of the fields using
state-of-the-art software and methodologies. Based on the
simulations and the analysis of features of each license area
or field, research plans and actions are developed to reduce
the risks given the actual natural, technical and technological
restrictions.
•
Risks of change in initial
project execution plans due to
changes in market conditions
for the sale of the Company’s
products
The Company follows a strategy of LNG projects
standardization and application of technical design
solutions that were well-proven in the Company’s previously
implemented LNG projects.
The Company is focused strongly on sourcing materials and
equipment as well as on selecting contractors to perform
works and services. Suppliers and contractors certified by the
Company are involved for project implementation. The control
of compliance with the developed activity-based schedules
is carried out at all stages of project implementation. The
investment project implementation status is regularly reviewed
by the Company’s top management.
Annual Report 2021. Constructing future energy transition today
Additional Information
82–83
Risk
Risk causes and consequences
Actions to mitigate risk impact
Risk
Currency risks
Risk causes and consequences
Actions to mitigate risk impact
•
The risk of changes in the
Company’s budget revenue
and spending on the
The Company’s activities are connected with foreign currency
transactions (export of products, import of foreign equipment
and technologies, attract external financing raising, etc.).
FINANCIAL AND MARKET RISKS
Market risks
•
Risks of lower revenue in case The Company continuously monitors pricing environment and
Company’s operations in
of a drop in prices for the
Company’s products in the
international markets
price outlooks in the international oil, gas, and LNG markets.
foreign currencies as a result The Company’s overall strategy is aimed at eliminating the
of changes in foreign and
domestic currency exchange
rates
significant risk of exchange rate differences due to changes in
currency exchange rates. Foreign currency transactions in the
revenue and spending part of the Company’s budget, mainly
in USD and EUR, counterbalance each other and are a natural
mechanism for hedging currency risks. The Company may use
foreign currency derivatives to manage currency risks.
To mitigate the risks of falling prices, the Company implements
a wide range of measures including entering into efficient sale
and purchase agreements with protective pricing mechanisms
(for instance, S-curves in oil-linked contracts), using derivative
financial instruments (linked to European gas hubs) and
entering into commodity derivative contracts for price risk
hedging purposes.
•
•
Risks associated with state
regulation of prices for gas
sold in Russia
Risks of increased costs due
to rising consumer prices in
The Company also carries out operational control of all its
currency transactions in order to forecast the impact of
exchange rate differences on current financial results. In the
short- and long-term models of the Company’s operations, a
scenario analysis of the Company’s financial flow sensitivity to
changes in foreign exchange rates is conducted.
Russia and rising inflation rate The Company takes into account potential price volatility in
the international markets by exercising prompt monitoring
and relocating supply volumes, considers price changes
in operational financial plans, and conducts an ongoing
assessment and analysis of the contract portfolio sensitivity
to changes in global prices and macro parameters.
Credit risks
•
•
Risks of increased debt
burden in case of growth
of interest rates on the
Company’s external
borrowings
As a major borrower, the Company is exposed to risks
associated with an increased debt burden with variable
interest rates (i.e. rates linked to floating international
and Russian base rates). The Company conducts real-time
monitoring of the loan resources market in order to choose
the best financing option. The Company pursues a balanced
To mitigate the impact of price risks, the Company strives to
maximize the output of products with high added value and
expands its deep hydrocarbon processing capacities at the
Purovsky Gas Condensate Processing Plant and the Ust-Luga
Stable Gas Condensate Fractionation and Transshipment
Complex.
Risk of early demand of banks policy of maximizing the share of long-term commitments with
for repayment of issued funds fixed rates and maintaining the flexibility of its investment
in case of non-compliance
with the terms and conditions
of loan agreements
program.
The vertically integrated value chain, large resource base,
and high rate of new facilities’ commissioning enhance the
Company’s resilience to price volatility in the international
markets by enabling prompt management of production and
marketing cycles.
In the event of significant increase in base rates, the Company
may resort to refinancing the debt at a more favorable rate.
•
•
Risk of failure to perform
obligations in due time
(liquidity risk)
The Company’s centralized approach to funds managing
allows it to promptly adjust the level of its consolidated debt
burden and meet its subsidiaries’ financing needs, which
contributes significantly to reduction of the Company’s
sensitivity to the volatility of external lending interest rates.
The level of the Company’s investment potential and financial
standing is regularly confirmed by such global and Russian
rating agencies as Moody’s, Standard & Poor’s, Fitch and
Expert RA. The Company was assigned investment grade
ratings at the level of the Russian sovereign rating.
The unprecedented rally in prices for oil, gas and other
hydrocarbons in 2021 created favorable market conditions for
the Company.
Risks of losses due to
customers’ failure to pay for
shipped products (overdue
accounts receivable)
Despite the announcements by some countries in 2021 about
transition to renewable energy, the Company expects no
significant change in the global energy balance and forecasts
the price volatility in the world markets to remain high.
As an independent gas producer, the Company is not subject
to state regulation of natural gas prices, except for the
quantities sold to the household market. At the same time,
the Company’s gas prices for the domestic market are
largely driven by the prices set by the government for natural
monopolies in the energy and transportation sector. Despite
that the state-regulated gas prices in the domestic market
are not characterized as highly volatile, the Company still
considers them as a factor when planning its activities. To
diversify its natural gas marketing portfolio, the Company
engages in trading natural gas on the St. Petersburg
International Mercantile Exchange.
The Company may use various short-term borrowings, for
example, credit facilities and bank overdrafts, to meet its
short-term financing needs.
When selling products in foreign and domestic markets, the
Company uses a number of instruments to mitigate the
risks of late payment and overdue indebtedness including, if
applicable, the following:
•
customer solvency analysis through KYC (know your
customer/client) procedure and regular updating of this
status;
The current inflation level does not present threats for the
Company’s financial standing.
•
•
•
sales on the basis of advance payment;
grant of injunctive relief (bank guarantee, surety, etc.); and
claim-related work with non-payers.
The Company forecasts its performance by regular modeling
of its activities for different scenarios and analyzing cash flow
sensitivity to changes in market parameters.
Annual Report 2021. Constructing future energy transition today
Additional Information
84–85
Risk
Risk causes and consequences
Actions to mitigate risk impact
Risk
Strategic risks
Risk causes and consequences
Actions to mitigate risk impact
•
Risk of the Company’s
failure to meet its strategic
The Company endeavors to achieve its strategic targets and
objectives as well as analyzes and manages the risks that
REGULATORY AND STRATEGIC RISKS
targets due to major changes impede their achievement.
in external or internal
Legislative and
regulatory risks
•
Risks of the legislative
regulation impact on the
Company’s activities in the
following areas:
The Company carries out its activities in full compliance
with the legislative norms established by the Government of
the Russian Federation and other governmental authorities
exercising control over certain areas of the Company’s
activities. The Company constantly monitors changes in
legislative initiatives, participates in the work of special-
purpose committees under the Russian Government and the
Russian State Duma on the activities of the fuel and energy
complex and relevant associations.
environment, including:
The Company’s management is always focused on any
matters related to the development of new energy
technologies. The Company pursues the policy of adaptation
– risks associated with the
development of alternative to these changes by implementing a number of programs
fuel and energy production and activities, such as setting long-term environmental goals
– taxes, excises, duties,
mandatory payments;
– control over hydrocarbon
production, processing,
storage and sales activities
(HSE, etc.);
– licensing requirements
for natural resource
extraction;
technologies;
by 2030, developing and adopting technologies to reduce
emissions from gas and liquid hydrocarbons production and
processing, analyzing opportunities to use renewable energy
sources and alternative fuels and energy, including through
joint partnerships with global fuel and energy companies.
– risks associated with
significant increase in
competition for LNG
technologies and sales
markets;
The Company operates under state regulation of product
transportation prices and tariffs of natural monopolies
(Gazprom, Russian Railways, and Transneft).
– risks of material events
affecting the Company’s
operational or financial
activities (materialization
of one or more risks listed
in this section)
In implementing its long-term strategy, the Company takes
into account the increased role of the Energy Transition,
decarbonization, and alternative energy agendas and
develops programs to adapt to all emerging changes. Given
the low carbon footprint of natural gas and LNG compared to
other non-renewable energy sources, the Company considers
the development of LNG projects as a contribution to the
advancement of low-carbon energy in Russia and worldwide.
– state regulation of Russian In performing its subsoil use activities, the Company complies
gas prices and tariffs of
natural monopolies;
– control of operations in
certain economic zones
(the Arctic)
with the terms and conditions or makes timely adjustments to
the terms and conditions set forth in license agreements.
Litigation risks
•
•
Risk of potential losses
in case legal claims by
counterparties against the
Company are satisfied
When conducting its business, the Company adheres to the
principle of prudence and checks and qualifies counterparties
prior to concluding cooperation agreements with them. If the
counterparties fail to perform and it is impossible to reach a
pre-trial settlement, the Company may take legal recourse.
The Company, through its subsidiary Novatek Gas & Power
Asia Pte. Ltd., is a member of the international association of
major LNG producers and consumers (GIIGNL) since December
2019. Membership in GIIGNL allows the Company to receive
information and exchange experience on advanced solutions
in the field of LNG production, transportation and sales as
well as represent a coordinated position of LNG producers in
addressing issues related to the development of the global
LNG market.
Risks of potential losses
in case the Company
loses litigation against
counterparties
The Company implements a program of liability insurance
of officials (Directors & officers liability insurance, D&O) to
decrease the impact of litigation risks.
In 2021, the Company was not involved in any material
litigation.
The Company takes into account the increased competition
on the global LNG markets with other producers in terms of
technologies and sales markets when developing its strategic
plans.
Political risks
•
Risks of impact on the
Company’s business from
In 2014, the Company was designated in the US sectoral
sanctions list whereby the US persons are prohibited to
sanctions imposed by foreign participate in long-term financing of the Company.
states on the Company or its
The Company expands its footprint in the global LNG market,
increases its customer base and makes spot, mid-term and
long-term LNG sale and purchase agreements, long-term time
charter parties for carriers, optimizes its supplies through
swaps and supply diversions, which enables mitigating risks
associated with a specific market or counterparty.
business partners, including:
The Company raises external financing in the Russian,
European, and Asian capital markets to implement its major
investment projects.
– due to ban on the use of
foreign software;
– due to restrictions
introduction on the supply
The Company pursues imports substitution and localization of
foreign equipment production in Russia whenever appropriate.
To reduce the impact of risks on its strategic goals, the
Company applies a scenario-based approach to long-
term financial and economic forecasting of the Company’s
development and updates these forecasts on a regular basis.
When making strategic decisions, the Company is guided
by the principles of prudence and financial stability and
promptly responds to all changes in the external and internal
environment.
of imported equipment and For instance, the Company in conjunction with Russian
technologies
and foreign manufacturers builds and implements plans
for technology transfer and competence development to
manufacture equipment and materials for LNG projects in
•
Risks of impact on the
Company’s business because Russia.
of political and economic
situation in Russia and other
The Company invests in developing in-house production
countries where the Company capabilities to build LNG trains and in creating proprietary
operates
liquefaction technologies, including through state support
mechanisms.
When making decisions on the use of foreign software,
equipment and information technology, the Company always
investigates the alternative of using Russian software.
In case stricter US sanctions or new sanctions of other states
are imposed on the Company or its counterparties, the
Company’s management will use every effort to mitigate the
impact of sanction restrictions on the Company’s business.
To reduce political risks in Russia and other countries where
the Company operates, the Company always keeps track
of changes in Russian and foreign legislation, analyzes the
political situation and builds long-term partnership relations
with authorities and concerned parties.
Annual Report 2021. Constructing future energy transition today
Additional Information
86–87
Information on Members of
NOVATEK’s Board of Directors
the Chairman of the Management Board, the
of Economy, and L. Chatel, Secretary of State
in charge of Industry.
the Board of Directors of PAO SIBUR Holding
Deputy Chairman of the Board of Directors of
Gazprombank (OAO). He is a member of Board of
Directors of PAO Gazprom, AO Rosneftegaz.
and from 2011 to 2013 he was a member of the
Supervisory Board of the OAO Russian Regional
Development Bank. Mr. Mikhelson is the recipient
of the Russian Federation’s Order of the Badge
of Honor, the 2 Degree Order of Merit for the
Fatherland and the title of honor “Honored
man of the gas industry”, Medal “for the
Arctic preservation” and the First Degree “for
development of the energy sector”.
Arnaud Le Foll joined Total in 2010 as Analyst
Strategy, Total Holding. In 2010 he was promoted to
a position of Vice-president strategy and business
development Asia-Pacific, Total Marketing &
Services (Singapore). From 2013 to 2016 he headed
Total Maroc affiliate as Managing Director.
MR. ALEXANDER E. NATALENKO
Born in 1946
MR. ROBERT CASTAIGNE
Born in 1946
In 2016 Arnaud Le Foll moved from Marketing
& Services branch of Total to Exploration &
Production, and was appointed Strategy and
Portfolio Management Director, Total E&P Angola.
• Chairman of NOVATEK’s Board of Directors
• Member of NOVATEK’s Strategy Committee
• Independent member of NOVATEK’s Board of
Directors
MS. TATYANA A. MITROVA
Born in 1974
• Member of NOVATEK’s Subcommittee on
Climate and Alternative Energy (within Strategy
Committee)
• Chairman of NOVATEK’s Audit Committee
From January 1, 2018 to the end of 2021, Arnaud
Le Foll held the position of General Director,
• Member of NOVATEK’s Remuneration and
Nomination Committee
TotalEnergies EP Russie. From July 2020, he has
been appointed Senior Vice President North Sea
and Russia, which comprises the United Kingdom,
Norway, Denmark, the Netherlands and Russia. From
September 2021, Arnaud Le Foll is appointed Senior
Vice President North Sea-Russia – New Business.
• Independent member of NOVATEK’s Board of
Directors
Mr. Natalenko completed his studies at the
Irkutsk State University in 1969 with a primary
focus in Geological Engineering. Subsequently, he
worked with the Yagodinskaya, Bagdarinskaya,
Berelekhskaya, Anadirskaya and East-Chukotskaya
geological expeditions. In 1986, Mr. Natalenko
headed the North-East Industrial and Geological
Association and, in 1992, he was elected president
of ZАО “Magadan Gold & Silver Company”. He
subsequently held various executive positions
in Russian and foreign geological organizations.
From 1996 to 2001, Mr. Natalenko held the position
of Deputy Minister of Natural Resources of
the Russian Federation. From 2013 to 2015 he
was a member of the Board of Directors of AO
Rosgeologia. From 2004 to present he is the
Chairman of NOVATEK’s Board of Directors.
• Member of NOVATEK’s Subcommittee on
Climate and Alternative Energy (within Strategy
Committee)
• Chairman of NOVATEK’s Strategy Committee
• Member of NOVATEK’s Audit Committee
Mr. Castaigne graduated from the Ecole Centrale
de Lille in 1968 and the Ecole nationale supérieure
du pétrole et des moteurs, he holds a doctorate in
economics. He has spent his whole career at TOTAL
SA, first as an engineer, then in various positions.
From 1994 to 2008, he was Member of the Executive
Committee, Executive Vice-President and Chief
Financial Officer of TOTAL SA. From 2000 to 2018,
he was Member of the Board of Directors of Sanofi
and from 2009 to 2018 – Member of the Board of
Directors of Societe General. He is Member of of
VINCI’s Board of Directors. He is Chevalier of the
National Order of the Legion of Honour.
• Member of NOVATEK's Remuneration and
Nomination Committee
MR. LEONID V. MIKHELSON
Born in 1955
• Member of NOVATEK’s Subcommittee on
Climate and Alternative Energy (within Strategy
Committee)
• Member of NOVATEK’s Board of Directors
• Chairman of NOVATEK’s Management Board
In 1995, Ms. Mitrova graduated from the Department
of Economics, the Lomonosov Moscow State
University. From 1993 to 2002, Ms. Mitrova worked
for consulting companies in the energy sector.
In 2002, Ms. Mitrova joined the Energy Research
Institute of the Russian Academy of Science (ERI
RAS) where she held various positions from a
researcher to the Head of Research Group. Since
2011, she has led the Global and Russian Energy
Outlook Until 2040 Project. Since 2008, Ms. Mitrova
has been associate professor in the Gubkin Russian
State University of Oil and Gas. Ms. Mitrova has
been a Visiting Professor at the Institute of Political
Studies, School of International Affairs (Sciences
Po, France) since 2014. Ms. Mitrova has been a
Senior Researcher of Oxford Institute of Energy
Studies (OIES) since 2015. Since 2016, Ms. Mitrova
has been a Visiting Researcher of the Center on
Global Energy Policy, Columbia University (CGEP,
USA). In 2016-2017, she was a Visiting Researcher at
the King Abdullah Petroleum Studies and Research
Center (KAPSARC, Saudi Arabia).
Mr. Mikhelson received his primary degree from
the Samara Institute of Civil Engineering in 1977,
where he specialized in Industrial Civil Engineering.
That same year, Mr. Mikhelson began his career
as foreman of a construction and assembling
company in Surgut, Tyumen Region, where he
worked on the construction of the first section
of Urengoi-Chelyabinsk gas pipeline. In 1985,
Mr. Mikhelson was appointed Chief Engineer of
Ryazantruboprovodstroy. In 1987, he became
General Director of Kuibishevtruboprovodstroy,
which in 1991, was the first company in the region
to sell its shares and became private company,
AO SNP NOVA. Mr. Mikhelson remained AO SNP
NOVA’s Managing Director from 1987 through 1994.
Subsequently, he became a General Director of the
management company “Novafininvest”.
Mr. Natalenko is the recipient of the State Prize of
the Russian Federation and an Honored Geologist
of Russia.
MR. ARNAUD LE FOLL
Born in 1978
MR. ANDREI I. AKIMOV
Born in 1953
• Member of NOVATEK’s Board of Directors
• Member of NOVATEK’s Strategy Committee
• Member of NOVATEK’s Board of Directors
• Member of NOVATEK’s Strategy Committee
• Member of NOVATEK’s Subcommittee on
Climate and Alternative Energy (within Strategy
Committee)
Mr. Akimov graduated from the Moscow Financial
Institute in 1975 where he specialized in international
economics. Between 1974 and 1987, Mr. Akimov held
various executive positions in the Bank for Foreign
Trade of the USSR. From 1985 to 1987 he served
as Deputy Chief General Manager of the Bank
for Foreign Trade branch in Zurich (Switzerland)
and between 1987 and 1990, Mr. Akimov was the
Chairman of the Management Board of Donau
Bank in Vienna (Austria). From 1991 to 2002 he
was Managing Director of financial company,
IMAG Investment Management & Advisory Group
AG (Austria). Since 2003, Mr. Akimov has been
Graduate of “École polytechnique” and “École
des mines de Paris” (France) Arnaud Le Foll began
his professional career in French ministries and
administrations. Between 2003 and 2006 he
was Head of Regional Industrial Environment
Inspectorate, Rhône-Alpes (Lyons, France), then
he moved to a position of Auditor at General
Inspectorate of Finance, Ministry of Finance, where
he served from 2006 to 2007. In 2007 he became an
Advisor on matters related to environment, energy
and industry in the offices of C. Lagarde, Minister
Since 2003, Mr. Mikhelson has served as a
member of the Board of Directors and Chairman
of the Management Board of NOVATEK. From
March 2008 to December 2010, he has been
a member of the Board of Directors and the
Chairman of the Board of Directors of AO
Stroytransgas. From 2009 to 2010 he was
the Chairman of the Board of Directors of
ОАО Yamal LNG and from 2008 to 2011 he was
a member of the Board of Directors of OOO
Art Finance. From 2011 he is the Chairman of
From 2020 – Professor, Head of Research,
SKOLKOVO Energy Centre. Between 2014 and 2017,
Ms. Mitrova was a member of Unipro’s Board of
Directors (E.ON Russia before June 2016), and from
July 2018 she served on the Board of Directors of
Schlumberger NV, a global oilfield services company.
Ms. Mitrova has been member of the International
Supervisory Board of Energy Academy Europe
Annual Report 2021. Constructing future energy transition today
Additional Information
88–89
since 2013. Ms. Mitrova has written more
MR. GENNADY N. TIMCHENKO
Born in 1952
Information on Members of
and the Russian Government Marine Board; For
than 200 articles in scientific and business journals
and digests focused on energy issues as well as co-
authored 10 monographs.
Merits in Developing Russia’s Transportation Industry,
as well as the Order For Naval Merits awarded by
a Russian Presidential Executive Decree. Elected a
member of the Management Board of PAO NOVATEK
in November 2020.
NOVATEK’s Management Board
• Member of NOVATEK’s Board of Directors
• Member of NOVATEK’s Strategy Committee
Since July 2020, he has been the Chairman of the
Supervisory Board of the association of energy
industry professionals “WOMEN IN ENERGY”.
MR. LEONID V. MIKHELSON
Born in 1955
In 1976, Mr. Timchenko graduated with a Master’s
of Science from the Mechanical University in
Leningrad. He began his career at the Izjorskii
Factory in Leningrad, an industrial plant which
made components for the energy industry.
Between 1982 and 1988, he was a Senior Engineer
at the Ministry of Foreign Trade. Mr. Timchenko
has more than 20 years of experience in Russian
and International energy sectors and he has built
interests in trading, logistics and transportation
related companies.
MR. VLADIMIR A. BASKOV
Born in 1960
• Chairman of NOVATEK’s Management Board
• Member of NOVATEK’s Board of Directors
MR. DOMINIQUE MARION
Born in 1961
• Deputy Chairman of NOVATEK’s Management
Board
Details on Mr. Leonid V. Mikhelson are available in
the “Information on Members of NOVATEK’s Board
of Directors” section.
• Member of NOVATEK’s Board of Directors
• Member of NOVATEK’s Strategy Committee
In 1986, Mr. Baskov graduated from the Moscow
Higher Police School of the USSR. In 2000, he
completed courses at the Management Academy at
the Russian Ministry for Internal Affairs. From 1981 to
2003, he served in various departments within the
Russian Ministry for Internal Affairs. From 1991 to
2003, Mr. Baskov held managerial positions within the
aforementioned Ministry’s organizational structures.
• Chairman of NOVATEK’s Subcommittee on
Climate and Alternative Energy (within Strategy
Committee)
In 1988, Mr. Timchenko became a Vice President
of Kirishineftekhimexport, the export and trading
arm of the Kirishi refinery. In 1991, he worked
MR. EVGENIY N. AMBROSOV
Born in 1957
Dominique Marion is a graduate of Ecole Nationale
Supérieure de Géologie de Nancy, France
(MSc, 1983) and Stanford University, California
(PhD, 1990). He joined TOTAL in 1990 and has worked
in France and affiliate companies in Gabon, UK,
Qatar, where he held senior management positions
in Geosciences, Reservoir Engineering, and
Research and Development.
for Urals Finland which specialized in oil and
petrochemical trading. Between 1994 and 2001,
Mr. Timchenko was Managing Director of IPP OY
Finland and IPP AB Sweden. Between 1997 and 2014,
he co-founded Gunvor, a leading independent oil-
trading company. Mr. Timchenko was a member of
the Board of Directors of OOO Transoil and OOO
BalttransService, and Airfix Aviation OY. Since 2009,
he is a member of the Board of Directors of PAO
NOVATEK. He is a member of the Board of Directors
of PAO SIBUR Holding, the Chairman of the Board
of Directors of the Ice Hockey Club SKA St-
• Deputy Chairman of NOVATEK’s Management
Board – Director for Marine Operations, Shipping
and Logistics
In 2003, he was appointed Director of the Business
Support Department for NOVATEK. In 2005, Mr. Baskov
was appointed Deputy Chairman of NOVATEK’s
Management Board and in 2007, he became a
member of NOVATEK’s Management Board.
In 1979, Mr. Ambrosov graduated from the
Navigation Department, Admiral Nevelskoy
Far Eastern Higher Marine Engineering College,
where he specialized in the operation of water
transport. After graduating, he was employed by
the Far Eastern Shipping Company where he rose
through the ranks from a cargo officer to Deputy
General Director – Director of the Core Operations
Department. In January 2000, Mr. Ambrosov
was appointed First deputy General Director of
Sovcomflot. In September 2002, he was approved
as the General Director and Chairman of the
Management Board, Far Eastern Shipping Company.
In 2008-2009, Mr. Ambrosov worked as President
of the FESCO Transportation Group Management
Company and Chairman of the Management Board,
Far Eastern Shipping Company. Since 2009, he has
been the First Deputy General Director, Member
of the Management Board of Sovcomflot. Since
2014, Mr. Ambrosov has been Deputy Chairman and
Member of the Executive Committee of the Arctic
Economic Council. In May 2021, he was appointed
Chairman of the Arctic Economic Council. Mr.
Ambrosov received the following state and industry
awards: Honorary Maritime Fleet Worker; Honorary
Transportation Worker of Russia; Traditions and
Standards badge of honor from the Russian
Chamber of Shipping, the Star of Seafarers from
the Russian Fleet Support Foundation, the Russian
Ministry of Transportation. He was also awarded
with the following medals: 300th Anniversary of
the Russian Navy, Admiral Gorshkov, Russian
Shipowners Association medal, the Medal For
Maritime Excellence by the Russian Government
Mr. Baskov is Ph.D. in Law. He was awarded the Order
For Personal Courage, the Russian Federation’s
Order of the Badge of Honor and other state and
departmental awards: Honorary Diplomas of the
President of the Russian Federation, the Minister of
Internal Affairs, the Governor of the Moscow Region.
Mr. Baskov also has the awards of the Russian
Orthodox Church (Order of Holy Prince Daniel of
Moscow, Order of Saint Seraphim of Sarov and a
medal of St. Sergius).
Beginning 2007, he held the position of Vice
President Corporate Reserves, based in Paris. In
2011, he became E&P Vice President Reservoir and
Geosciences in France and was the member of
Total E&P Norge Board of Directors. In 2018, he was
appointed General Manager of Total Austral and
Country Сhair Argentina. On January 1, 2022 he took
the position of General Director, TotalEnergies EP
Russie.
Petersburg, as well as the Chairman of the Board
of Directors of OOO Kontinental Hockey League, a
member of the Board of Trustees of the All-Russian
public organization Russian Geographical Society,
the Chairman of the Supervisory Board of the
Russian Chinese Business Council, Vice-President
and member of the Executive Committee of the
Olympic Committee of the Russian Federation,
Co-Chairman of the Economic Council of the
Franco-Russian Chamber of Commerce (CCIFR).
MR. VICTOR P. ORLOV
Born in 1940
MR. VIKTOR N. BELYAKOV
Born in 1973
MS. ZULMIRA A. RAZAKOVA
Born in 1981
• Independent member of NOVATEK’s Board of
Directors
• Deputy Chairman of NOVATEK’s Management
Board for Economics and Finance
• Chairman of NOVATEK’s Remuneration and
Nomination Committee
Mr. Belyakov graduated from Tver State Technical
University majoring in Automated Data Processing
and Management Systems (1995) and in Information
Systems in Economics (1997). In 2000, he completed
an MBA degree program with Kingstone University
(UK). A holder of CMA (Certified Management
Accountant).
• NOVATEK’s Corporate Secretary
• Member of NOVATEK’s Audit Committee
Ms. Razakova holds a higher Legal education
degree and began working for NOVATEK in 2004.
Between 2007 and 2012, Ms. Razakova held the
position of lead specialist of the Management
Board and Board of Directors staff. In April 2012,
Ms. Razakova was elected as Secretary of the
Board of Directors. Since 2014, Ms. Razakova has
been NOVATEK’s Corporate Secretary.
The powers of the elected member of the Board
of Directors Victor P. Orlov were prematurely
terminated on 23 August 2021 due to his premature
death. His biography can be found in the section
Information on Members of NOVATEK’s Board of
Directors in our Annual Report 2020.
From 2004 until 2014 Mr. Belyakov worked for PAO
Uralkali, where he successively held the positions
of Head of Division, Deputy Chief Financial Officer,
Annual Report 2021. Constructing future energy transition today
Additional Information
90–91
Chief Financial Officer, Vice President for Finance,
Mr. Gyetvay is the recipient of the Extel’s award as
“Best CFO For IR – Oil and gas” for 2019 and 2020.
2012, Mr. Gudkov worked at the Executive Office
of the Russian Federation Government. In 2013, he
was appointed Assistant to Deputy Prime Minister
of the Russian Federation – Head of the Executive
Office of the Russian Federation Government.
Director, Deputy General Director – Chief Engineer,
ARCTICGAS, and in 2015 he headed ARCTICGAS. In
2016, Mr. Kudrin received the NOVATEK Certificate of
Commendation. In 2020, he received the Certificate
of Merit from the Russian Ministry of Energy.
Deputy General Director, Executive Director. In 2015,
he was appointed Vice President for Economics and
Finance of PAO Far East Shipping Company (FESCO
group). In February 2016, Viktor Belyakov joined PAO
NOVATEK in the position of Deputy Chairman of the
Management Board for Economics and Finance.
From 2003 to 2014, Mr. Gyetvay was a member of
NOVATEK’s Board of Directors and served on the
Investment and Strategy Committee. From 2003 to
2014, he has been Chief Financial Officer and, in
August 2007, Mr. Gyetvay was elected to NOVATEK’s
Management Board. In July 2010, he became Deputy
Chairman of NOVATEK’s Management Board.
Since September 2018, Mr. Gudkov has been Deputy
Chairman of NOVATEK’s Management Board. In 2018,
Mr. Gudkov was awarded the Medal of the II Degree
Order for Merits and Dedicated Service to the
Country.
MS. TATYANA S. KUZNETSOVA
Born in 1960
MR. MARK A. GYETVAY
Born in 1957
• Deputy Chairman of NOVATEK’s Management
Board
MR. SERGEY V. VASYUNIN
Born in 1967
MR. EVGENY A. KOT
Born in 1974
• Deputy Chairman of NOVATEK’s Management
Board
Ms. Kuznetsova graduated from the Far East
State University with a degree in Law. From 1986,
she was Senior Legal Advisor for a legal bureau.
In 1993, Ms. Kuznetsova became Deputy General
Director for Legal Issues and from 1996, Marketing
Director for OAO Purneftegasgeologiya. In 1998,
she was appointed Deputy General Director of
OAO Nordpipes. Since 2002, she has been Director
of the Legal Department at NOVATEK. Since 2005,
she has been the Deputy Chairman of NOVATEK’s
Management Board and in August 2007, she
became a member of NOVATEK’s Management
Board. Ms. Kuznetsova has the title “Honored
employee of PAO NOVATEK”, and is awarded
the 2 Degree Order of Merit for the Fatherland.
• Deputy Chairman of NOVATEK’s Management
Board – Operations Director
Mr. Gyetvay studied at Arizona State University
(Bachelor of Science, Accounting, 1981) and later
at Pace University, New York (Graduate Studies in
Strategic Management, 1995). After graduation, Mr.
Gyetvay worked in various capacities at a number
of U.S. independent oil and gas companies where
he specialized in financial and economic analysis for
both upstream and downstream segments of the
petroleum industry.
• Deputy Chairman of NOVATEK’s Management
Board – Director for LNG(1)
In 1993, Sergey Vasyunin graduated from
the Ufa Oil Institute, specializing in the
Mr. Kot graduated from the Tyumen State Academy
of Architecture and Civil Engineering. He received
PhD in Economics from the Saint Petersburg State
University of Engineering and Economics.
Development and Operation of Oil and Gas Fields.
Between 1993 and 1997, Mr. Vasyunin was employed
with Condor as deputy director, Stroykomplekt
as head of sales department, and with OAO
Spetsnefteenergomontazhavtomatika – as
marketing engineer. From 1998, he worked in the
Urengoygazprom industrial association of OAO
Gazprom where he served in the capacity of an
oil, gas and condensate production foreman.
Between 2002 and 2017, Mr. Vasyunin was
employed in the positions of Gas Condensate
Production Shop Manager, Deputy General
Director for operations, and First Deputy General
Director – Chief Engineer of OOO NOVATEK-
YURKHAROVNEFTEGAS. In April 2017, he was
appointed Deputy Chairman of the Management
Board – Director for Operations of NOVATEK.
Between 1997 and 2001, Mr. Kot worked in the
Tyumen branch of Gazprombank. From 2001 to
2002, he was employed by OAO SNP NOVA and OAO
Oil and Gas Company ITERA.
In 1994, Mr. Gyetvay began his work at Coopers and
Lybrand, as Director, Strategic Energy Advisory
Services. He subsequently moved to Moscow
in 1995 with Coopers & Lybrand to lead the oil and
gas practice. He was admitted as a partner of
PricewaterhouseCoopers Global Energy where he
assumed the role of client service engagement
partner, Utilities and Mining practice, based
in Russia (Moscow office). Mr. Gyetvay was an
engagement partner on various energy and mining
clients providing overall project management,
financial and operational expertise, maintaining
and supporting client service relationships as well
as serving as concurring partner on transaction
services to the petroleum sector.
In 2002, Mr. Kot joined NOVATEK. Between 2009 and
2011, he held the position of Deputy Chairman of
the Management Board – Director of LNG Business
Development of NOVATEK. Between 2010 and 2014,
he was Chairman of the Board of Directors of
Yamal LNG. From 2014 to 2018, Mr. Kot was General
Director of Yamal LNG.
MR. DENIS B. SOLOVYOV
Born in 1977
• Deputy Chairman of NOVATEK’s Management
Board – Director of Information Policy
Department
In December 2018, he was appointed Deputy
Chairman of the Management Board – Director for
LNG of NOVATEK.
In 2005, the Russian Ministry of Industry and Energy
issued a commendation to Sergey Vasyunin. He
holds the Honored Employee of NOVATEK title.
In 2000, Mr. Solovyev graduated from the
Lomonosov Moscow State University (Philosophy
faculty) with a degree in Political Science. In
2003, he completed postgraduate studies at
the Lomonosov Moscow State University with
a degree in History. In 2000, he was appointed
Deputy General Director of Senat PR LLC. In 2004,
Denis Solovyov assumed the role of an adviser
to the Krasnoyarsk Territory Deputy Governor
and Assistant First Deputy Governor at the
Krasnoyarsk Territory Board of Administration.
Between 2006 and 2008, he headed an election
projects group of the United Russia Central
Electoral Commission Directorate.
Mr. Gyetvay is a Certified Public Accountant
(inactive status), a member of the American
Institute of Certified Public Accountants and an
associate member of the Society of Petroleum
Engineers. He is a recognized expert in the oil
and gas industry, a frequent speaker at various
industry and investor conferences, has published
numerous articles on various oil and gas industry
topics and was a former member of PwC’s
Petroleum Thought Leadership team. He has
been recognized by Investor Relations Magazine
as one of the best CFO’s in Russia and the CIS,
and by Institutional Investor magazine as one of
the Top Five CFO’s in Europe’s Oil and Gas sector.
Institutional Investor voted him as the Best CFO
in the EMEA Oil and Gas category for 2017 and
2018. Finance Monthly magazine named Mark
Gyetvay the Best CFO in Russia for the consecutive
years of 2015 to 2020, and he received the
Game Changer 2017 and 2018 Award for Russia.
MR. VLADIMIR A. KUDRIN
Born in 1979
MR. EDUARD S. GUDKOV
Born in 1980
• Deputy Chairman of NOVATEK’s Management
Board – Director for Geology(2)
• Deputy Chairman of NOVATEK’s Management
Board
In 2001, Mr. Kudrin graduated from the Tyumen
State Oil and Gas Institute, specializing in the
Oil and Gas Fields Development and Exploitation.
From 2001 to 2011, he worked in Northgas and
NOVATEK-Yurkharovneftegas, where he rose through
the ranks from gas extraction operator to the head
of operational dispatch service. In 2011, he was
transferred to Sibneftegas as First Deputy General
Director – Chief Engineer. Since 2014, he held
positions of Deputy General Director – Technical
In 2002, Mr. Gudkov graduated from the Penza
State University where he specialized in law. In
2006, he received PhD in Law.
Mr. Solovyev has been working for NOVATEK since
2008: in the capacity of Public Relations Director
(until 2014), and Communications Director – Director
of Public Relations Department (from January 2014.).
Between 1999 and 2003, Mr. Gudkov worked in the
Russian Ministry for Antitrust Policy and Support
of Entrepreneurship. In 2003, he joined the Russian
Supreme Arbitrazh Court where he held the position
of Assistant to the First Deputy Chairman. From
1.
The authorities were terminated from 17 December 2021.
2. Since 17 December 2021.
Annual Report 2021. Constructing future energy transition today
Additional Information
92–93
Since Septembetr 2018, Mr. Solovyev was appointed
MR. ILYA V. TAFINTSEV
Born in 1985
Report on major, and interested-party
transactions that the Company did
in the reporting year
Corporate Governance Code
Compliance Report
Deputy Chairman of NOVATEK’s Management
Board and Director of Corporate Communications
Department.
• Deputy Chairman of the NOVATEK’s
Management Board
Mr. Solovyev has received several letters of
recognition, honorable mentions from the Russian
Ministry of Natural Resources and the Environment
as well as from the Parliament of the Khanty-
Mansiysk Autonomous Region. In 2018, he received
an award from the Russian Ministry of Energy and
an honorable mention from the Governor of the
Yamal-Nenets Autonomous Region. In January 2022,
he was awarded the medal of the Order of Merit for
the Fatherland of the II degree.
The list of transactions made by the Company
in the reporting year, recognized in accordance
with the Federal Law “On Joint Stock Companies”
as major transactions and (or) interested-party
transactions, is not disclosed in accordance with
Resolution of the Government of the Russian
Federation No. 400 dated 4 April 2019.
This Corporate Governance Code Compliance
Report (hereinafter “the Report”) was reviewed at
the meeting of PAO NOVATEK’s Board of Directors
on 18 March 2022 (Minutes No. 252).
In 2006, Mr. Tafintsev obtained a BA in Economics
from the Higher School of Economics in Moscow. In
2007, he graduated from the University of London
(UK), where he majored in investment and finance.
The Board of Directors certifies that data in this
Report contain full and reliable information on
compliance by the Company with the principles and
recommendations of the Corporate Governance
Code for 2020.
From 2007 to 2011, Mr. Tafintsev held the position
of Deputy Director of NOVATEK’s Representative
Office in London. Between 2011 and 2014, he was a
Finance and Investment Advisor with United Bureau
of Consultants Limited.
When assessing our compliance with corporate
governance principles as set out in the Code we
were guided by the Guidelines for Reporting on
Compliance with the Corporate Governance Code
recommended by the Bank of Russia in its Letter
No. IN-06-28/102 dated 27 December 2021.
MR. SERGEY G. SOLOVYOV
Born in 1978
From 2013 to 2015, he served as Strategic Projects
Director of NOVATEK. From 2013 to 2018, Mr.
Tafintsev was Member of the Board of Directors
of SIBUR Holding. Between 2014 and 2016, he held
the position of Chairman of the Board of Directors
of Yamal LNG. In December 2015, Mr. Tafintsev was
appointed Member of the Management Board –
Director for Strategic Projects of NOVATEK.
• Deputy Chairman of the Management Board –
Director for Prospective Projects(1)
An overview of the most relevant aspects of
the corporate governance model and practices
in the Company is presented in the Corporate
Governance section of this Annual Report.
Graduated from the Gubkin Russian State
University of Oil and Gas in 2001 with a
degree in Oil and Gas Fields Development and
Operation, in 2003 – with a degree in Economics
and Management in Oil and Gas Industry.
Since September 2018, he has been Deputy
Chairman of NOVATEK’s Management Board.
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
From 2002 to 2004, worked in Nortgas as well
diagnostics operator and well diagnostics foreman.
From 2004 to 2005, worked in Yurkharovneftegas as
engineer and lead engineer in the Field Development
Group. In 2005, he was employed by NOVATEK
where he worked as chief specialist and head of
Field Development Analysis Group. In 2007, he was
transferred to NOVATEK-YURKHAROVNEFTEGAS to
the position of Deputy General Director – Chief
Geologist. Since 2009, he held the position of
managing director of OOO NEU, in 2010 he became
the general director of ZAO Investgeoservis. In
2011, he was elected General Director of NOVATEK-
YURKHAROVNEFTEGAS. In 2014, he was elected
General Director of Arctic LNG 2. In 2017, he became
the General Director of Cryogas-Vysotsk.
1.1
The Сompany should ensure equitable and fair treatment of every shareholder exercising their right to take
part in managing the Сompany.
MR. LEV V. FEODOSYEV
Born in 1979
1.1.1
The Сompany ensures
the most favorable
conditions for its
1. The Сompany provides
This principle
is complied
with.
—
accessible means of
communication via hotline, e-mail
or an online forum for shareholders
to voice their opinions and
submit questions on the agenda
in preparing for the General
Meeting. The above means of
communication were organized
by the Company and provided
to shareholders in the course
of preparation for each General
Meeting held in the reporting
period.
• First Deputy Chairman of NOVATEK’s
Management Board
shareholders to
participate in the
General Meeting,
develop an informed
position on agenda
items of the General
Meeting, coordinate
their actions, and voice
their opinions on items
considered.
In 2002, Mr. Feodosyev graduated from the Bauman
Moscow State Technical University with a degree in
Machinery and Foundry Engineering Technologies. In
2002, Mr. Feodosyev was appointed lead specialist
at the Ministry of Energy of the Russian Federation.
From 2003, he has served as lead specialist, senior
specialist, adviser, deputy head of section, Deputy
Director of Department at the Ministry of Economic
Development and Trade of the Russian Federation.
Since October 2007, Lev Feodosyev has worked
for NOVATEK. Before 2011, he worked in NOVATEK as
Director of the Strategic Planning and Development
Department. From 2011, he was appointed as
Deputy Commercial Director, Director of the
In April 2019, Sergey Solovyov was appointed
NOVATEK’s Deputy Chairman of the Management
Board – Director for Geology. In December 2021,
was appointed NOVATEK’s Deputy Chairman of
the Management Board – Director for Prospective
Projects.
1.1.2 The procedure for giving 1. In the reporting period, the
This principle
is complied
with.
—
notice of, and providing
relevant materials for,
the General Meeting
enables shareholders
to properly prepare for
attending the General
Meeting.
notice of an upcoming General
Meeting of shareholders is posted
(published) on the Company's
website online at least 30 days
prior to the date of the General
Meeting, unless a longer time
period is required by the applicable
Russian law.
Marketing and Gas Sales Department of NOVATEK.
Since February 2015, Mr. Feodosyev has been
2. The notice of an upcoming
meeting specifies the documents
required for admission.3.
appointed Deputy Chairman of the Management
Board, Commercial Director of NOVATEK.
Shareholders were given access
to the information on who
proposed the agenda items and
who proposed nominees to the
Company’s Board of Directors and
the revision commission.
From February 2018, he was appointed First Deputy
Chairman of NOVATEK’s Management Board. In 2014,
Mr. Feodosyev was awarded NOVATEK’s Honorary
Certificate.
1.
Since 17 December 2021, until 17 December 2021 – Deputy Chairman of the Management Board – Director for Geology.
Annual Report 2021. Constructing future energy transition today
Additional Information
94–95
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
—
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
—
1.1.6 The procedure for
holding a General
1. General Meetings of Shareholders
held in the reporting period in the
form of a meeting (i.e. joint presence with.
of shareholders) provided for
sufficient time for making reports
on and for discussing agenda items.
The shareholders were given the
opportunity to voice their opinions
and ask questions on agenda items.
This principle
is complied
1.1.3 In preparing for, and
holding of, the General
Meeting, shareholders
were able to receive
clear and timely
1. In the reporting period,
shareholders were able to put
questions to members of executive with.
bodies and members of the Board of
Directors during the preparation for
the meeting and in the course of the
General Meeting of shareholders.
This principle
is complied
Meeting set by the
Company provides
equal opportunities for
all persons attending
the Meeting to voice
their opinions and ask
questions.
information on the
meeting and related
materials, put questions
to the Company’s
2. The position of the Board of
Directors (including dissenting
opinions entered into the minutes,
if any) on each agenda item of
General Meetings held in the
reporting period was included
in the materials to the General
Meeting of Shareholders.
This principle When convening General
is not fully
complied
with.
Meetings of Shareholders, the
Board of Directors reviews all
agenda items of the relevant
meeting and presents them to
the Meeting for consideration or
provides necessary advice.
executive bodies and
the Board of Directors,
and to communicate
with each other.
2. The Company invited nominees
to the Company’s governing
and control bodies and took all
necessary actions to ensure their
participation in the General Meeting
of Shareholders at which their
nominations were put to vote. The
candidates for the management and
control bodies of the Company who
were present at the General Meeting
of shareholders were available to
answer questions from shareholders.
This principle
is complied
with.
—
Materials to the General
Meeting of Shareholders include
recommendations of the Board
of Directors as required by law.
In accordance with paragraph 1
of Art. 54 of the Russian Federal
Law “On Joint Stock Companies”,
the list of information (materials)
provided to shareholders in
preparation for the General
Meeting of Shareholders is
determined by the Board of
Directors. Accordingly, the
Board of Directors, if it deems
it necessary, to include its
position on the issues on the
agenda of the General Meeting
of shareholders, if it deems it
necessary.
3.The Company's sole executive
body, person in charge of
This principle
is complied
with.
—
—
accounting, Chairman or other
members of the Audit Committee
of the Board of Directors were
available to answer questions
of shareholders at the General
Meetings of Shareholders held in
the reporting period.
4. In the reporting period the
This principle
is complied
with.
Company used telecommunication
means for the shareholders to
participate remotely in the General
Meetings or the Board of Directors
passed a justified decision that
there was no need (possibility) to use
such means in the reporting period.
The Company considers the
established procedure to be
balanced, not bearing any
risks for the Company and its
shareholders, and does not plan
to change the existing approach.
1.2
Shareholders are given equal and fair opportunities to share profits of the Company in the form of dividends.
3. The Company gave duly
This principle
is complied
with.
—
1.2.1 The Company has
designed and put in
place a transparent
1.The Company's Regulations on the This principle
—
authorized shareholders access
to the list of persons entitled to
attend the General Meeting, as
from the date of its receipt by the
Company, for all General Meetings
held in the reporting period.
dividend policy is approved by the
Board of Directors and disclosed
is complied
with.
and clear mechanism to through the Company's website.
determine the dividend
amount and payout
procedure.
2. If the dividend policy of the
Company, issuing consolidated
financial statements, uses
reporting figures to determine
the dividend amount, then
relevant provisions of the dividend
policy take into account the
consolidated financial statements.
1.1.4 There were no unjustified 1.The Company's Articles of
This principle
is complied
with.
—
difficulties preventing
shareholders from
exercising their right to
request that a General
Meeting be convened,
to propose nominees
to the Company’s
Association determines the
deadline for shareholders to
submit proposals for the agenda
of the Annual General Meeting
which is at least 60 days after the
end of the relevant calendar year.
3. Justification of the proposed
distribution of net profit, including
for dividend payment and the
Company's own needs, and an
assessment of its compliance with
the Company's dividend policy,
with explanations and economic
justification of the need to direct
a particular part of net profit to
the Company's own needs in the
reporting period, was included
in the materials to the General
Meeting of Shareholders, where the
agenda included an item on profit
distribution (including on payment
(declaration) of dividends).
governing bodies, and to 2. In the reporting period, the
make proposals for the
agenda of the General
Meeting.
Company did not reject any
proposals for the agenda or
nominees to the Company’s
governing bodies due to misprints
or other insignificant flaws in the
shareholder’s proposal.
1.1.5 Each shareholder was
able to freely exercise
their voting right in
1. The Company's Articles of
Association provide for the
possibility to fill in the electronic
voting ballot at a website,
specified in the notice of the
General Meeting of Shareholders.
This principle
is complied
with.
—
the simplest and most
convenient way.
Annual Report 2021. Constructing future energy transition today
Additional Information
96–97
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
—
1.2.2 The Company does
not resolve to pay out
1. The Company's Regulations on
the dividend policy identifies, in
This principle
is complied
with.
2.1
The Board of Directors provides strategic management of the Company, determines key principles of,
and approaches to, setting up a corporate risk management and internal control framework, monitors
performance by the Company’s executive bodies, and performs other key functions.
dividends if such payout, addition to restrictions imposed
while formally compliant by law, the financial and economic
with law, is economically circumstances wherein the
unjustified and may lead Company shall not resolve to pay
to a false representation out dividends.
of the Company’s
2.1.1 The Board of Directors
is responsible for
1. The Board of Directors has the
authority stipulated in the Articles
of Association to appoint and
remove members of executive
bodies and to set out the terms
and conditions of their contracts.
This principle The issue of determining
is not fully
complied
with.
the amount of remuneration
appointing and
paid to the Chairman of the
Management Board based on the
results of the work for the year,
falls withing the authority of the
Board of Directors.
dismissing executive
bodies, including for
improper performance
of their duties. The
Board of Directors
also ensures that
the Company’s
performance.
1.2.3 The Company does
not allow for dividend
rights of its existing
shareholders to be
impaired.
1. In the reporting period, the
Company did not take any actions
that would lead to the impairment
of the dividend rights of its
existing shareholders.
This principle
is complied
with.
—
In accordance with the
Company's Articles of
Association, the members of
the Management Board are
elected by the Board of Directors
from among the Company's
employees, solely on the
executive bodies act
in accordance with the
Company’s approved
development strategy
and core lines of
1.2.4 The Company makes
every effort to prevent
its shareholders from
using other means to
profit (gain) from the
Company other than
1. In the reporting period the
Company's controlling persons did
not use any means of receiving
profit (gain) from the Company
(for example, transfer pricing,
unjustified provision of services
This principle This principle is not complied
is complied
with.
with as the Company believes
that statutory controls are
sufficient for relevant purposes.
The Company does not transact
with persons under control
by substantial shareholders,
which prevents substantial
shareholders from profiting
(gaining) from the Company.
business.
recommendation of the Chairman
of the Management Board. The
amounts of official salaries and
other terms of employment
contracts with the Company's
employees, including members
of the Management Board, are
determined by the Chairman of
the Management Board taking
into account the parameters
of the Company's business
plan approved by the Board of
Directors in accordance with
the NOVATEK Group Executive
Bodies and other Key Employees
Remuneration And Expense
Reimbursement Policy approved
by the Board of Directors.
dividends and liquidation to the Company at an inflated
value.
price by the Company's controlling
person, provision of internal loans
substituting dividends to the
Company's controlling person or to
his or her persons under control)
other than dividends.
The Company does not see any
risks in the established practice,
as the system of procurement
procedures introduced in
the Company ensures the
conclusion of contracts on
market terms.
1.3
Corporate governance framework and practices should ensure equality for the shareholders owning the same
type (class) of shares, including minority and non-resident shareholders, and their equitable treatment by the
Company.
The Company considers the
1.3.1 The Company has
created conditions for
fair treatment of each
shareholder by the
1. In the reporting period the
Company's controlling persons
did not allow abusing rights
with respect to the Company's
shareholders; there were
This principle
is complied
with.
—
established procedure to be
effective, balanced, not bearing
any risks for the Company and its
shareholders, and does not plan
to change the existing approach.
Company’s governing
and control bodies,
including conditions that Company's controlling persons
rule out abuse by major
shareholders against
minority shareholders.
no conflicts between the
2. In the reporting period, the
nomination/HR committee
reviewed the compliance of
professional qualification, skills
and experience of members
of the executive bodies with
the Company's current and
expected needs determined by
the approved strategy of the
Company.
This principle The Remuneration and
and shareholders, and if there
were any, they have been duly
addressed by the Board of
Directors.
is not fully
complied
with.
Nomination Committee of the
Board of Directors considers
the compliance of professional
qualification, skills and experience
of the nominees to the
1.3.2 The Company does not
take any actions that
lead or may lead to
1. No quasi-treasury shares were
issued or used to vote in the
reporting period.
This principle
is complied
with.
—
Company’s Management Board.
The compliance of professional
qualification, skills and experience
of the elected members of
the Management Board with
the Company’s current and
expected needs determined
by the approved strategy of
the Company is not assessed
regularly. The Company considers
the established procedure to be
appropriate and does not plan to
change the existing approach.
artificial redistribution of
corporate control.
1.4
Shareholders are provided with reliable and efficient means of recording their rights to shares and are able
to freely dispose of their shares without any hindrance.
1.4.
Shareholders are
1. The technology used by
This principle
is complied
with.
—
provided with reliable
and efficient means of
recording their rights
to shares and are able
to freely dispose of
the Company's registrar and
the conditions of services
provision are in line with the
needs of the Company and its
shareholders, ensure accounting
3. In the reporting period, the Board This principle
—
their shares without any of rights to shares and exercise
hindrance.
of Directors reviewed the report(s)
by the sole executive body or
members of the collective executive
body on the implementation of the
Company’s strategy.
is complied
with.
of shareholders' rights in the most
efficient manner.
Annual Report 2021. Constructing future energy transition today
Additional Information
98–99
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
—
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
2.1.2 The Board of Directors
sets key long-term
targets for the
1. At its meetings in the reporting
period, the Board of Directors
reviewed strategy implementation
and updates, approval of the
Company’s financial and business
This principle
is complied
with.
2.2
The Board of Directors is accountable to the Company’s shareholders.
2.2.1 Performance of the
Board of Directors is
disclosed and made
available to the
1. The Company’s annual report for
the reporting period includes the
information on the attendance
of the Board of Directors and
committee meetings by each of
the Board of Directors' members.
This principle
is complied
with.
—
Company, assesses
and approves its key
performance indicators plan (budget), and criteria and
and key business goals,
as well as the strategy
and business plans for
the Company’s core
lines of business.
performance (including interim)
of the Company’s strategy and
business plans.
shareholders.
2. The annual report discloses key
results of the Board of Directors'
performance assessment (self-
assessment) in the reporting
period.
2.1.3 The Board of Directors
defines the Company's
risk management
1. The Company's risk management This principle In the reporting period, the Audit
and internal control principles and
approaches are defined by the
Board of Directors and established
the Company's internal documents
that define the risk management
and internal control policy.
is not fully
complied
with.
Committee did not consider
issues related to the Company's
risk appetite, respectively, the
Company did not comply with
criterion 2 in 2021. The Corporate
Governance Code does not
contain a recommendation
to assess risk appetite
annually. The Company's Board
of Directors or the Audit
Committee reviews the risk
appetite as necessary.
and internal control
principles and
approaches.
2.2.2 The chairman of the
Board of Directors
is available to
1. The Company has in place a
transparent procedure enabling
shareholders to address the
chairman of the Board of Directors
and obtain the relevant feedback.
This principle
is complied
with.
—
communicate with
the Company’s
shareholders.
2. In the reporting period, the
Board of Directors approved
(reviewed) the amount of risks
(risk appetite) which is acceptable
for the Company; or the Audit
Committee and/or Risk Committee
(if available) considered the
advisability of submitting the issue
of revising the Company's risk
appetite to the approval by the
Board of Directors.
2.3
The Board of Directors manages the Company in an efficient and competent manner and make fair and
independent judgments and decisions in line with the best interests of the Company and its shareholders.
2.3.1 Only persons of
impeccable business
1. In the reporting period,
the Board of Directors (or its
This principle
is complied
with.
—
and personal reputation nomination committee) assessed
who have knowledge,
expertise and
nominees to the Board of
Directors for required experience,
knowledge, business reputation,
absence of conflicts of interest,
etc.
experience required to
make decisions within
the authority of the
Board of Directors and
essential to perform its
functions in an efficient
way are elected to the
Board of Directors.
2.1.4 The Board of Directors
determines the
1. The Company developed and
put in place a remuneration and
This principle
is complied
with.
—
Company’s remuneration reimbursement (compensation)
and reimbursement
(compensation) policy
for its directors,
members of executive
bodies and other key
executives.
policy (policies), approved by
the Board of Directors, for its
directors, members of executive
bodies and other key executives.
2.3.2 The Company’s
1. Whenever the General Meeting
of shareholders was held in the
reporting period, the agenda
This principle
is complied
with.
—
2. In the reporting period, the Board
of Directors discussed matters
related to such policy (policies).
directors are elected
via a transparent
procedure that enables of which included election of
shareholders to obtain the Board of Directors, the
information on nominees Company provided shareholders
sufficient to judge
on their personal and
professional qualities.
2.1.5 The Board of Directors
plays a key role in
1. The Board of Directors plays a
key role in preventing, identifying
and resolving internal conflicts.
This principle
is complied
with.
—
—
with the biographical data of
all nominees to the Board of
Directors and the results of
assessing the compliance of
their professional qualifications,
experience and skills with the
Company's current and expected
needs by the Board of Directors
(or its nomination committee),
as well as the information on
whether the nominee meets the
independence criteria set forth in
Recommendations 102–107 of the
Code, as well as the nominees’
written consent to be elected to
the Board of Directors.
preventing, identifying
and resolving internal
conflicts between the
Company’s bodies,
shareholders and
2. The Company set up mechanisms
to identify transactions leading to
a conflict of interest and to resolve
such conflicts.
employees.
2.1.6 The Board of Directors
plays a key role in
1. The Company's internal
documents identify persons
responsible for implementing the
This principle
is complied
with.
ensuring that the
Company is transparent, information policy.
timely and fully discloses
its information, and
provides its shareholders
with unhindered access
to the Company’s
documents.
2.3.3 The Board of Directors
has a balanced
1. In the reporting period the
Board of Directors reviewed its
requirements to professional
qualifications, experience and
business skills, and determined
competence level requirements for
the Board of Directors in the short
and long term.
This principle
is complied
with.
—
2.1.7 The Board of Directors
1. In the reporting period the
This principle
is complied
with.
—
controls the Company’s Board of Directors reviewed the
membership, including
in terms of directors’
qualifications,
corporate governance
practices and plays
a key role in material
results of self-assessment and/
or external assessment of the
Company’s corporate governance
experience, expertise
and business qualities,
and enjoys its
corporate events of the practices.
Company.
shareholders’ trust.
Annual Report 2021. Constructing future energy transition today
Additional Information
100–101
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
—
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
2.3.4 The Company has a
sufficient number of
directors to organize
the Board of Directors’
activities in the
1. In the reporting period, the
Board of Directors considered
whether the number of directors
met the Company’s needs and
shareholders’ interests.
This principle
is complied
with.
2.4.3 Independent directors
make up at least one
third of the elected
board members.
1. Independent directors make up
at least one third of the Board
members.
This principle Because of the passing of
is not fully
complied
with.
an independent member of
the board Viktor P. Orlov, the
Company's independent directors
were making up less than a third
of the Board of Directors between
August 23 and December 31, 2021.
most efficient way,
including ability to set
up committees of the
Board of Directors and
enable the Company’s
substantial minority
shareholders to elect a
nominee to the Board of
Directors for whom they
vote.
In order to maintain full
functionality of the Board's
committees, the audit committee
and the remunerations and
nominations committee
comprising 3 members were
set up at the Board meeting
on December 07, 2021. Two
independent members of the
Board of Directors (Robert
Castaigne and Tatyana Mitrova)
were elected to the committees,
as well as Alexander Natalenko,
Chairman of the Board, who is not
an independent director.
2.4
The Board of Directors includes a sufficient number of independent directors.
2.4.1 An independent director 1. In the reporting period, all
This principle
is complied
with.
—
is a person who is independent directors met all
sufficiently professional, independence criteria set out
experienced and in Recommendations 102–107
independent to develop of the Code or were deemed
their own position, and
capable of making
unbiased judgements
in good faith, free
of influence by the
independent by the Board of
Directors.
Partial compliance with this
principle is limited in time.
The upcoming annual General
Meeting of shareholders of the
Company is expected to elect
a Board of Directors comprising
the necessary number of
Company’s executive
bodies, individual groups
of shareholders or
other stakeholders. It
should be noted that
a nominee (elected
director) who is related
to the Company, its
substantial shareholder,
substantial counterparty
or competitor of the
Company, or related
to the government,
may not be considered
as independent under
normal circumstances.
independent directors, and the
newly elected Board of Directors
will form the Audit Committee and
Remunerations and Nominations
Committee, comprising
independent directors only.
2.4.4 Independent directors
play a key role in
1. In the reporting period
independent directors (with
no conflicts of interest) run a
This principle In accordance with the
is not fully
complied
Company’s Articles of
preventing internal
Association, the Regulations on
the Board of Directors and the
Regulations on the Committees
of the Board of Directors, a
large block of issues related to
significant corporate actions
is preliminarily considered by
the Audit Committee and the
Remuneration Committee
consisting of independent
directors. In addition, most of
such decisions shall be approved
by the Board of Directors, if 8
out of 9 directors voted for the
corresponding decision. Thus,
any two independent directors
may block the adoption of an
undesirable decision in their
opinion.
conflicts in the Company preliminary assessment of material with.
and in ensuring that
the Company performs
material corporate
actions.
corporate actions implying a
potential conflict of interests and
submitted the results to the Board
of Directors.
2.4.2 The Company
1. In the reporting period,
This principle
is complied
with.
—
assesses compliance
of nominees to the
Board of Directors and
reviews compliance of
independent directors
with independence
criteria on a regular
basis. In such
the Board of Directors (or its
nomination committee) made a
judgment on independence of
each nominee to the Board of
Directors and provided its opinion
to shareholders.
2. In the reporting period the
assessment, substance Board of Directors (or its
should prevail over form. nomination committee) reviewed,
at least once, the independence
of incumbent directors (after their
election).
The Company believes that
independent directors have
sufficient capacity to assess
significant corporate actions.
3. The Company has in place
procedures defining the actions
to be taken by a member of the
Board of Directors if they cease
to be independent, including the
obligation to timely notify the
Board of Directors thereof.
Annual Report 2021. Constructing future energy transition today
Additional Information
102–103
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
2.6.2 The rights and duties
of directors are clearly
1. The Company adopted and
published an internal document
This principle
is complied
with.
—
2.5
The chairperson of the board ensures that the Board of Directors discharges its duties in the most effective
and efficient way.
stated and incorporated that clearly defines the rights and
in the Company’s
internal documents.
duties of directors.
2.5.1 The Board of Directors
is chaired by an
1. The Board of Directors is chaired
by an independent director, or
a senior independent director
This principle The role of independent directors
is not fully
complied
with.
on the Company's Board of
Directors is very important, since
the Audit Committee and the
Remuneration and Nomination
Committee of the Board of
Directors are comprised of
independent director,
2.6.3 Directors have sufficient 1. Individual attendance at Board
This principle
is complied
with.
—
or a senior independent is appointed from among the
time to perform their
duties.
and Committee meetings, as well
as sufficient time devoted to
work on the Board of Directors,
including in its committees, was
recorded as part of the procedure
for assessing (self-assessing) the
Board of Directors' performance in
the reporting period.
director supervising
the activities of other
independent directors
independent directors.
2. The role, rights and duties of
and interacting with the the Chairman of the Board of
independent directors only.
Formally, the Chairman of the
Board of Directors is not an
Independent Director. However, the
Chairman of the Board of Directors
meets all independence criteria,
except for his tenure on the Board
of Directors. For chairmanship
purposes, the directors elected
the most experienced of the
Board members who is not an
independent director.
chairman of the Board
of Directors is chosen
Directors (and, if applicable, of
the senior independent director)
from among the elected are duly set out in the Company’s
independent directors.
internal documents.
2. Under the Company’s internal
documents, directors notify
the Board of Directors of their
intentions to be elected to
governing bodies in other entities
(apart from the entities controlled
by the Company), and of their
election to such bodies.
The Company considers the
established procedure to be
balanced and does not plan to
change the existing approach.
2.6.4 All directors shall have
equal access to the
1. In accordance with the
This principle
is complied
with.
—
Company's internal documents
directors are entitled to receive
information and documents
they need to perform their
Company’s documents
and information. Newly
elected directors are
2.5.2 The chairman of the
Board of Directors
1. Performance of the Chairman
of the Board of Directors was
This principle
is complied
with.
—
furnished with sufficient duties related to the Company
maintains a constructive assessed as part of assessment
information about
the Company and
performance of the
Board of Directors as
soon as possible.
and controlled entities, and the
Company's executive bodies
shall ensure provision of relevant
information and documents.
environment at
(self-assessment) of the Board
of Directors’ performance in the
reporting period.
meetings, enables free
discussion of agenda
items, and supervises
the execution of
2. The Company has in place a
formalized onboarding program for
newly elected Directors.
resolutions passed by
the Board of Directors.
2.5.3 The chairman of the
1. The Company’s internal
This principle
is complied
with.
—
Board of Directors takes documents set out the duty
2.7
Meetings of the Board of Directors, preparation for such meetings and participation of board members therein
ensure efficient performance by the Board of Directors.
all steps necessary for
the timely provision
to members of the
Board of Directors of
information required
to pass resolutions on
agenda items.
of the Chairman of the Board
of Directors to take all steps
necessary for the timely
provision of complete and reliable
information on agenda items of
the Board meeting to members of
the Board of Directors.
2.7.1 Board meetings are held 1. The Board of Directors held at
This principle
is complied
with.
—
as needed, taking into
account the scale of
operations and goals
of the Company at a
particular time.
least six meetings in the reporting
year.
2.6
Directors act reasonably and in good faith in the best interests of the Company and its shareholders, on a fully
informed basis and with due care and diligence.
2.7.2 The Company's internal
1. The Company has an approved
This principle
is complied
with.
—
regulations stipulate the internal document that describes
procedure to prepare
for and hold the board's holding meetings of the Board
meetings, enabling
the directors to make
proper preparations for meeting shall be given, as a rule,
them.
the procedure for arranging and
2.6.1 Directors pass
resolutions on a
1. The Company’s internal
This principle
is complied
with.
—
documents provide that a director
should notify the Board of Directors
of any existing conflict of interest
as to any agenda item of the
meeting of the Board of Directors
or its committee, prior to discussion
of the relevant agenda item.
of Directors and sets out, in
particular, that the notice of the
fully informed basis,
with no conflict of
interest, subject
to equal treatment
of the Company’s
shareholders, and
assuming normal
business risks.
at least five days prior to such
meeting.
2. In the reporting period members
of the Board of Directors absent
from the venue of the meeting
were given an opportunity to
participate in discussions on
agenda items and vote remotely
via video or telephone conference
calls.
2. The Company’s internal
documents provide that a director
should abstain from voting on any
item in connection with which he
has a conflict of interest.
3. The Company has in place a
procedure enabling the Board
of Directors to get professional
advice on matters within its remit
at the expense of the Company.
Annual Report 2021. Constructing future energy transition today
Additional Information
104–105
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
—
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
2.7.3 The format of the
1. The Company’s Articles of
This principle
is complied
with.
2.8
The Board of Directors sets up committees for preliminary consideration of the most important issues related
to the business of the Company.
meeting of the Board of Association or internal documents
Directors is determined
taking into account the matters (as per the list set
provide for the most important
2.8.1 To preview matters
related to controlling
1. The Board of Directors has set
up an audit committee comprised
This principle See comment to item 2.4.3.
importance of items on
the agenda. The most
important matters are
dealt with at meetings
of the Board of
out in Recommendation 168 of
the Code) to be passed at in-
person meetings of the Board of
Directors.
is not fully
complied
with.
the Company’s financial solely of independent directors.
and business activities,
it is recommended
to set up an audit
committee comprised of
independent directors.
2. The Company’s internal
documents set out the tasks
of the audit committee,
including those listed in
Recommendation 172 of the Code.
This principle
is complied
with.
—
Directors held in person.
2.7.4 Resolutions on most
important matters
relating to the
1. The Company’s Articles of
This principle The Company’s Articles of
Association provides for the most
important matters set out in
Recommendation 170 of the Code
to be passed at a meeting of the
is not fully
complied
with.
association do not provide for
resolutions of the Board to be
passed by qualified majority on
the following matters:
Company’s operations
are passed at a
meeting of the Board of Board of Directors by a qualified
Directors by a qualified majority of at least three quarters
majority or by a majority or by a majority of all elected
of all elected board
members.
3. At least one member of the
audit committee represented
by an independent director has
experience and knowledge of
preparing, analyzing, assessing
and auditing accounting (financial)
statements.
•
submission to the General
Meeting of matters relating
to the Company’s liquidation
board members.
•
submission to the General
Meeting of matters relating
to amendments to the
Company’s Articles of
association
4. Meetings of the audit
committee were held at least once
a quarter during the reporting
period.
•
review of material issues
relating to operations of legal
entities controlled by the
Company.
2.8.2 To preview matters
related to adopting
an efficient and
1. The Board of Directors has set
up a remuneration committee
comprised solely of independent
directors.
This principle See comment to item 2.4.3.
is not fully
complied
with.
transparent
remuneration scheme, a
remuneration committee
is set up, comprised of
independent directors
and headed by an
independent director
who is not the chairman
of the Board of
The Company deems sufficient
the existing norm stipulated in
the legislation and the Articles
of Association according to
which decisions on amendments
and additions in the Company's
Articles of Association,
including approval of the latter
in a new wording, as well as
on Company's liquidation,
appointment of a winding up
commission and approval of
the interim and final liquidation
balance shall be made by the
general shareholders meeting by
the three-forths majority of the
votes of shareholders holding
the voting shares and taking
part in the general shareholders
meeting.
2. The Remuneration Committee
is headed by an independent
director who is not the Chairman
of the Board of Directors.
This principle
is complied
with.
—
3. The Company's internal
documents set out the tasks of
the Remuneration committee,
including those listed in
Directors.
Recommendation 180 of the Code,
as well as events (circumstances)
upon the occurrence of which
the Remuneration Committee
considers reviewing the Company's
policy on remunerating its
directors, executive body members
and other key executives.
2.8.3 To preview matters
related to talent
management
1. The Board of Directors
has set up a Nomination
Committee (its tasks listed in
Recommendation 186 of the Code
are fulfilled by another committee)
predominantly comprised of
independent directors.
This principle Due to the fact that this
is not
complied
with.
criteria was recommended
by the Bank of Russia at the
end of December 2021, the
Company had no opportunity
to assess the possibility of its
implementation.
(succession planning),
professional
The Company considers the
established procedure to be
balanced, not bearing any risks,
and does not plan to change the
existing approach.
composition and
efficiency of the
Board of Directors,
a nomination (HR)
committee is set
up, predominantly
comprised of
2. The Company’s internal
documents set out the tasks
of the Nomination Committee
(or the tasks of the committee
with combined functions),
including those listed in
independent directors.
Recommendation 186 of the Code.
Annual Report 2021. Constructing future energy transition today
Additional Information
106–107
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
3. To form a Board of Directors
that best meets the goals and
objectives of the Company,
2.9
The Board of Directors ensures performance assessment of the Board of Directors, its committees
and members of the Board of Directors.
the Nomination Committee,
2.9.1 The Board of Directors’
performance
1. The Company's internal
documents outline the procedures
for performance assessment
(self-assessment) of the Board of
Directors.
This principle
is complied
with.
—
independently or together with
other committees of the Board
of Directors or the Company's
division authorized to interact
with shareholders, organized
interaction with shareholders in
the reporting period, not limited
to major shareholders only, with
a view to select nominees to the
Company's Board of Directors.
assessment is aimed
at determining the
efficiency of the
Board of Directors,
its committees and
members, consistency
of their work with the
2. Performance assessment
(self-assessment) of the Board of
Directors carried out in the reporting
Company’s development period included performance
requirements, as well as assessment of the committees,
bolstering the work of
the Board of Directors
each individual member of the
Board of Directors, and the Board
2.8.4 Taking into account
the Company’s
1. In the reporting period, the
Company's Board of Directors
considered whether the structure
of the Board of Directors was
consistent with the scope and
nature, goals and needs, and risk
profile of the Company. Additional
committees were either set up or
not deemed necessary.
This principle
is complied
with.
—
and identifying areas for of Directors in general.
improvement.
scope of business
3. Results of performance
and level of risks, the
Company’s Board of
Directors made sure
that the composition
of its committees
assessment (self-assessment)
of the Board of Directors carried
out in the reporting period were
reviewed at the in-person meeting
of the Board.
is fully in line with
Company’s business
goals. Additional
2.9.2 Performance of the
Board of Directors,
1. The Company engaged an
external advisor to conduct an
independent assessment of the
This principle
is complied
with.
—
committees were either
set up or not deemed
necessary (strategy
committee, corporate
governance committee,
ethics committee,
risk management
committee, budget
committee, health,
safety and environment
committee, etc.).
its committees and
directors is assessed on Board of Directors’ performance
a regular basis at least
once a year. An external reporting periods.
organization (advisor)
is engaged at least
once in three years to
conduct an independent
assessment of the
Board of Directors’
performance.
at least once over the last three
2.8.5 Committees are
composed so as to
enable comprehensive
discussions of matters
under preview, taking
into account the
1. The Audit Committee, the
Remuneration Committee, the
Nomination Committee (or the
relevant committee with combined
functions) were headed in the
reporting period by independent
directors.
This principle
is complied
with.
—
3.1
The Company’s corporate secretary ensures efficient ongoing interaction with shareholders, coordinates the
Company’s efforts to protect shareholder rights and interests and supports the activities of the Board of
Directors.
3.1.1 The corporate secretary 1. The biographical data (including
This principle
is complied
with.
—
diversity of opinions.
has the knowledge,
experience and
age, education, qualification, track
record) of the corporate secretary
2. The Company’s internal
qualifications sufficient as well as information on positions in
documents (policies) include
provisions stipulating that
persons who are not members
of the Audit Committee, the
Nomination Committee (or the
relevant committee with combined
functions) and the Remuneration
committee may attend committee
meetings only by invitation of
the Chairman of the respective
committee.
to perform his/her
duties, as well as an
impeccable reputation
and the trust of
other legal entities' governing bodies
held by the corporate secretary for
at least 5 most recent years are
published on the corporate website
and in the Company’s annual report.
shareholders.
3.1.2 The corporate
1. The Company has adopted and
This principle
is complied
with.
—
secretary is sufficiently published an internal document –
independent of the
Company’s executive
bodies and has the
powers and resources
regulations on the corporate
secretary.
2. The Board of Directors approves
2.8.6 Committee chairmen
inform the Board
1. During the reporting period,
committee chairmen reported
regularly to the Board of Directors
This principle
is complied
with.
—
required to perform his/ the nomination for the corporate
her tasks.
secretary position and terminates
the corporate secretary's powers,
decides on the payment of
additional remuneration to the
corporate secretary.
of Directors and its
chairman on the work of on the work of committees.
their committees on a
regular basis.
3. Pursuant to the Company's internal
documents, the corporate secretary
may seek and obtain the Company's
documents and information from
the Company's governing bodies,
business units and officials.
Annual Report 2021. Constructing future energy transition today
Additional Information
108–109
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
4.1
Remuneration paid by the Company is sufficient to attract, motivate and retain persons who have
competencies and qualifications required by the Company. Directors, executive body members and other key
managers are remunerated as per the Company's remuneration policy.
4.2
Directors' remuneration ensureS that their financial interests are aligned with long-term financial interests
of shareholders.
4.2.1 The Company pays fixed 1. In the reporting period, the
This principle
is complied
with.
—
4.1.1 The amount of
1. The remuneration of the
remuneration paid by the Company's Board of Directors,
Company to members of executive bodies, and other key
This principle
is complied
with.
—
annual remuneration
to members of the
Board of Directors. The
Company does not
pay remuneration for
attending particular
meetings of the Board
of Directors or its
Company paid remuneration
to members of the Board of
Directors as per the Company's
remuneration policy.
the Board of Directors,
executive bodies and
other key executives
creates sufficient
executives is set forth based
on benchmarks for comparable
companies' remuneration level.
2. In the reporting period, the
Company did not apply any
form of short-term motivation
or additional financial incentive
contingent on the Company's
performance results (indicators)
for members of the Board of
Directors. No remuneration was
paid for attending particular
incentives for them to
work efficiently, while
enabling the Company
to engage and retain
competent and qualified
specialists. At the same
time, the Company
committees.
The Company does
not apply any form of
short-term motivation
or additional financial
avoids unnecessarily high
remuneration, as well as
unjustifiably large gaps
between remunerations
of the above persons
and the Company’s
employees.
incentive for members of meetings of the Board of Directors
the Board of Directors. or its committees.
4.2.2 Long-term ownership of 1. If the Company’s internal
This principle Not applicable, since the
the Company’s shares
helps align the financial
document(s) – the remuneration
policy (policies) stipulates
is complied
with.
Regulations on Remuneration
and Compensations Payable to
Members of PAO NOVATEK Board
of Directors does not provide for
remuneration of the directors
with Company shares.
interests of members of (stipulate) provision of the
the Board of Directors Company’s shares to members
with long-term interests of the Board of Directors, clear
4.1.2 The Company’s
1. During the reporting period,
the remuneration committee
considered the remuneration
This principle
is complied
with.
—
—
—
remuneration policy
is developed by the
of shareholders to the
utmost. At the same
time, the Company
does not link the right
to dispose of shares to
performance targets,
and members of the
Board of Directors do
not participate in stock
option plans.
rules for share ownership by
board members are defined and
disclosed, aimed at stimulating
long-term ownership of such
shares.
remuneration committee policy (policies) and/or the
and approved by the
Board of Directors. The
Board of Directors,
assisted by the
practical aspects of its (their)
introduction, assessed their
efficiency and transparency,
and presented relevant
remuneration committee, recommendations to revise the
ensures control over
the introduction and
implementation of the
Company’s remuneration
policy, revising and
same to the Board of Directors as
required.
4.2.3 The Company does
not provide for any
extra payments or
compensations in
1. The Company does not provide
for any extra payments or
compensations in the event of
early termination of office of
members of the Board of Directors
This principle
is complied
with.
—
amending it as required.
4.1.3 The Company’s
1. The Company’s remuneration
policy (policies) includes (include)
transparent mechanisms for
determining the amount of
This principle
is complied
with.
the event of early
remuneration policy
includes transparent
mechanisms for
termination of office of resulting from the change of
members of the Board
of Directors resulting
from the change of
control or any other
reasons whatsoever.
control or any other reasons
whatsoever.
determining the amount remuneration due to members of
of remuneration due to
members of the Board
of Directors, executive
bodies and other key
executives of the
the Board of Directors, executive
bodies and other key executives
of the Company, and regulates
(regulate) all types of expenses,
benefits and privileges provided to
4.3
Remuneration of executive body members and other key managers is linked to the Company's results and their
personal contribution thereto.
Company, and regulates such persons.
all types of expenses,
benefits and privileges
provided to such
4.3.1 Remuneration due to
members of executive
bodies and other key
executives of the
1. In the reporting period, annual
performance results approved by
the Board of Directors were used
to determine the amount of the
This principle The procedure for defining
is complied
with.
and payment of bonuses to
members of the Management
Board and other key executives
existing in the Company does
not allow illegal receipt of
persons.
Company is determined variable part of remuneration due
4.1.4 The Company defines a 1. The remuneration policy
policy on reimbursement (policies) defines (define) the
This principle
is complied
with.
in a manner providing
for reasonable and
justified ratio of the
fixed and variable
parts of remuneration,
depending on
to members of executive bodies
and other key executives of the
Company.
bonus payments by the persons
named. The Company believes
the executive bodies' members'
civil liability norms set out in the
applicable law to be sufficient.
(compensation) of
rules for reimbursement of costs
incurred by members of the Board
of Directors, executive bodies
and other key executives of the
Company.
costs detailing a list of
reimbursable expenses
and specifying service
levels that members of
the Board of Directors,
executive bodies and
other key executives of
the Company can claim.
Such policy can make
part of the Company’s
remuneration policy.
2. During the latest assessment
of the system of remuneration
for members of executive bodies
and other key executives of the
Company, the Board of Directors
(remuneration committee) made
sure that the Company applies
efficient ratio of the fixed and
variable parts of remuneration.
the Company’s
performance and the
employee’s personal
contribution.
Annual Report 2021. Constructing future energy transition today
Additional Information
110–111
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
5.1.3 The Company’s risk
management and
1. The Company has an approved
anti-corruption policy.
This principle
is complied
with.
—
3. In order to to avoid incentivizing
excessively risky management
decisions, the Company's risks
are factored in when establishing
the remuneration for members
of executive bodies and other
key executives of the Company is
established.
internal controls
ensure an objective,
fair and clear view of
the current state and
future prospects of the Board of Directors or the board’s
Company, the integrity audit committee of breaches
and transparency of the of any violations of the law, the
Company’s reporting,
as well as reasonable
and acceptable risk
exposure.
2. The Company established a
safe, confidential and accessible
method (hotline) of notifying the
4.3.2 The Company put in
place a long-term
1. If the Company has in place a
long-term incentive program for
incentive programme for members of executive bodies
This principle Currently, The Company
Company’s internal procedures
and code of ethics.
is not
does not consider necessary
implementing a long-term
incentive program for members
of executive bodies and other
key executives of the Company
with the use of the Company’s
shares (financial instruments
based on the Company’s
shares).
complied
with.
members of executive
bodies and other key
executives of the
and other key executives of the
Company with the use of the
Company’s shares (financial
instruments based on the
5.1.4 The Company’s Board
of Directors shall take
necessary measures
to make sure that
1. In the reporting period, the
Board of Directors (Audit
Committee and/or Risk Committee
(if any) arranged assessment of
the reliability and efficiency of
the risk management and internal
controls.
This principle
is complied
with.
—
Company with the
use of the Company’s
shares (options and
other derivative
Company’s shares), the program
implies that the right to dispose
of such shares and other financial
instruments takes effect at least
three years after such shares or
other financial instruments are
granted. The right to dispose of
such shares or other financial
instruments is linked to the
the Company’s risk
management and
instruments where the
Company’s shares are
the underlying asset).
internal controls are
consistent with the
principles of, and
2. In the reporting period, the
Board of Directors considered
results of the assessment of the
reliability and efficiency of the
Company's risk management and
internal controls, and data on the
results of the consideration are
included in the Company's annual
report.
approaches to, its
setup determined by
the Board of Directors,
and that the system is
functioning efficiently.
Company’s performance targets.
4.3.3 The compensation
(golden parachute)
payable by the
1. In the reporting period, the
compensation (golden parachute)
This principle
is complied
—
payable by the Company in case of with.
early termination of the powers of
executive bodies or key executives
at the Company’s initiative,
provided that there have been no
actions in bad faith on their part,
did not exceed the double amount
of the fixed part of their annual
Company in case of
early termination of
powers of members
of executive bodies or
key executives at the
Company’s initiative,
provided that there
5.2
The Company arranges for an internal audit, to assess reliability and performance of the risk management and
internal control system on a regular and independent basis.
5.2.1 The Company set up
a separate business
unit or engaged an
1. To perform internal audits,
the Company set up a separate
business unit – internal audit
division, functionally reporting
to the Board of Directors, or
engaged an independent external
organization with the same line of
reporting.
This principle
is complied
with.
—
have been no actions in remuneration.
bad faith on their part,
does not exceed the
independent external
organization to carry
out internal audits.
double amount of the
fixed part of their annual
remuneration
Functional and
administrative reporting
lines of the internal
audit department are
delineated. The internal
audit unit functionally
reports to the Board of
Directors.
5.1
The Company put in place an effective risk management and internal control system to guarantee, in a
reasonable manner, fulfillment of the Company's goals.
5.1.1 The Board of Directors
of the Company has
defined the Company's
risk management
1. Functions of different
This principle
is complied
with.
—
management bodies and
divisions of the Company in the
risk management and internal
controls are clearly defined in the
Company’s internal documents /
relevant policy approved by the
Board of Directors.
5.2.2 The internal audit
division assesses the
performance of the
internal controls, risk
management, and
corporate governance.
The Company applies
generally accepted
standards of internal
audit.
1. In the reporting period,
This principle
is complied
with.
—
and internal control
principles and
approaches.
assessment of the reliability and
efficiency of the risk management
and internal controls was made as
part of the internal audit.
5.1.2 The Company’s
executive bodies
1. The company’s executive
This principle
is complied
with.
—
bodies ensured the distribution of
duties, powers and responsibility
related to risk management and
internal controls between the
heads (managers) of divisions and
departments accountable to them.
1. In the reporting period,
ensure establishment
and continuous
operation of efficient
risk management and
internal controls in the
Company.
assessment of the corporate
governance framework (practices)
was made within the internal audit
framework, including information
interaction procedures (i.a. those
concerning internal control and risk
management) at all levels of the
Company's governance, including
interaction with stakeholders.
Annual Report 2021. Constructing future energy transition today
Additional Information
112–113
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
6.2.2 The Company avoids a
1. The Company's information
This principle The Company discloses its
6.1
The Company and its operations are transparent for its shareholders, investors and other stakeholders.
formalistic approach to policy sets out approaches to
is not fully
complied
with.
capital structure to the extent
required by the applicable laws.
information disclosure
and discloses material
information on its
operations, even if
disclosure of such
information is not
required by law.
disclosing information information
on other events (actions) that
have a material impact on the
Company’s evaluation and the
price of its securities, disclosing
information on which is not
required by law.
6.1.1 The Company has
developed and
1. The Company’s Board of
This principle
is complied
with.
—
Directors approved an information
policy developed in accordance
with the Code’s recommendations.
implemented an
information policy
ensuring an efficient
exchange of information 2. In the reporting period, the
by the Company, its Board of Directors (or one of its
shareholders, investors, committees) considered efficiency
and other stakeholders. of the exchange of information of
Company, shareholders, investors
2. The Company discloses
information on its capital
structure in accordance with
recommendation 290 of the Code
both in the annual report and on
the Company’s website.
and other stakeholders and the
feasibility (necessity) to revise the
Company's information policy.
6.1.2 The Company discloses
information on its
1. The Company discloses
This principle
is complied
with.
—
3. The Company makes disclosures
on controlled entities that are
material to the Company, including
disclosures on their core business
areas, mechanisms ensuring
their accountability, the Board
of Directors' authority in respect
of shaping the strategy and
assessing the performance of
controlled entities.
information on its corporate
governance and general principles
of corporate governance, including
disclosure on its website.
corporate governance
and practice, including
detailed information
on compliance with
the principles and
2. The Company discloses
recommendations of the information on the membership
Code.
of its executive bodies and Board
of Directors, independence of the
directors and their membership
in the board’s committees (as
defined by the Code).
4. The Company makes
non-financial disclosures
through the sustainability
report, the environmental
report, the corporate social
responsibility report or any
other report containing non-
financial information, including
environmental aspects (e. g.
ecological aspects and aspects
related to climate change),
social aspects, and governance
aspects, excluding the report of
the issuer of securities and the
annual report of the joint-stock
Company.
3. If the Company has a controlling
person, the Company publishes a
memorandum of the controlling
person setting out this person’s
plans for the Company’s
corporate governance.
6.2
The Company discloses up-to-date, complete and reliable information on its operations in due time, to enable
its shareholders and investors to make informed decisions.
6.2.1 The Company discloses
information based
1. The Company has defined
the procedure to align all the
structural units and employees
of the Company whose activities
are related to or may require
information disclosure.
This principle
is complied
with.
—
on the principles of
regularity, consistency
and promptness, as
well as availability,
reliability, completeness
and comparability of
disclosed data.
6.2.3 The Company’s annual
report, as one of the
1. The Company’s annual report
contains information on the audit
This principle
is complied
with.
—
most important tools of committee's assessment of third-
its information exchange party and internal audit process
2. If the Company’s securities
are traded on foreign organized
markets, the Company ensured
concerted and equivalent
disclosure of material information
in the Russian Federation and in
the said markets in the reporting
year.
with shareholders and
other interested parties,
contains information
efficiency.
2. The Company’s annual report
enabling assessment of contains information on the
the Company’s annual
performance results.
Company's environmental policy
and social policy.
6.3
The Company provides information and documents requested by its shareholders in accordance with principles
of fairness and ease of access.
3. If foreign shareholders hold a
material portion of the Company’s
shares, information was disclosed
both in the Russian language
and one of the most widely used
foreign languages in the reporting
period.
6.3.1 The Company provides
information and
1. The Company's information
policy (internal documents
This principle The Company’s Information
is not fully
complied
with.
Policy determines an easy
procedure for providing
documents requested
by its shareholders
in accordance with
principles of fairness
and ease of access.
governing the information policy)
sets forth an easy procedure for
providing shareholders with access
to the Company's information and
documents upon request.
shareholders with access to
information, with the exception
of information on legal entities
controlled by the Company,
the provision of which is not
prescribed for by law.
Annual Report 2021. Constructing future energy transition today
Additional Information
114–115
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
No.
Corporate Governance
Principles
Compliance criteria
Compliance
status
Reasons for non-compliance
7.1.3 When taking material
1. Due to specifics of the
This principle
is complied
with.
—
2. The information policy
corporate actions which Company’s operations, the
(internal documents governing
the information policy) makes
provisions for the Company to use
necessary efforts to obtain from
the Company-controlled entities
the information on the relevant
Company-controlled entities as
requested by a shareholder.
would affect rights or
legitimate interests
of shareholders, equal
terms and conditions
are guaranteed for all
shareholders; if the
statutory procedure
designed to protect
shareholders’ rights
proves insufficient,
additional measures are approved before they were taken.
taken to protect their
rights and legitimate
interests. In doing so,
Company’s Articles of Association
stipulate that the Board of
Directors has the jurisdiction over
the approval of other transactions
that are material to the Company
in addition to the transactions set
forth in the legislation.
6.3.2 When providing
information to
1. In the reporting period,
the Company did not refuse
any shareholder requests for
information, or such refusals were
justified.
This principle
is complied
with.
—
2. All material corporate actions
in the reporting period were duly
shareholders, the
Company shall ensure
reasonable balance
between the interests of
particular shareholders
and its own interests
consisting in preserving
the confidentiality of
important commercial
information which may
materially affect its
competitiveness.
2. In cases defined by the
information policy, shareholders
are warned of the confidential
nature of the information
and undertake to maintain its
confidentiality.
the Company is guided
by the corporate
governance principles
set forth in the Code,
as well as by formal
statutory requirements.
7.2
The Company provides a procedure for taking material corporate actions that would enable its shareholders
to receive full information about such actions in due time and influence them, and also guarantee that the
shareholder rights are observed and duly protected when such actions are taken.
7.1
Actions which will or may materially affect the Company's share capital structure and its financial position and
accordingly the position of its shareholders (“material corporate actions”) are taken on fair terms ensuring
that the rights and interests of the shareholders and other stakeholders are observed.
7.2.1 Information about
material corporate
1. If the Company performed
material corporate actions during
the reporting period, the Company
This principle
is complied
with.
—
7.1.1
Material corporate
actions include
restructuring of the
Company, acquisition
of 30% or more of the
Company’s voting shares to the Company’s Articles of
(takeover), execution by Association, resolutions on
the Company of major
transactions, increase
or decrease of the
Company’s authorised
capital, listing or de-
listing of the Company’s to the jurisdiction of the general
shares, as well as
other actions which
may lead to material
changes in the rights of
shareholders or violation
of their interests. The
Company’s Articles of
Association provide a list
(criteria) of transactions
or other actions
classified as material
corporate actions within
the authority of the
Company’s Board of
Directors.
1. The Company’s Articles of
Association include a list of
(criteria for) transactions or other
actions deemed to be material
corporate actions. According
This principle The Company’s Articles of
actions is disclosed
is not fully
complied
with.
Association do not contain a
separate section with a list of
significant corporate actions. At
the same time, decision-making
on issues related to significant
corporate actions falls within
the authority of the Board of
Directors.
with explanations of the disclosed, timely and in detail,
grounds, circumstances information on such actions,
and consequences.
including the reasons, conditions
and consequences of such actions
for shareholders.
7.2.2 Rules and procedures
related to material
1. The Company’s internal
documents define the cases
This principle The need to involve an
is not
complied
with.
material corporate actions are
referred to the jurisdiction of
the Board of Directors. When
execution of such corporate
actions is expressly referred by law
appraiser for the valuation
of the purchase price of the
Company's shares is provided
by the current legislation.
There is no need to duplicate
this requirement in the internal
documents of the Company.
corporate actions taken and a procedure for engaging an
by the Company are set appraiser to estimate the value
out in the Company’s
internal documents.
The Company does not see any
risks in this.
of assets either disposed of or
acquired in a major transaction or
a related-party transaction.
shareholders meeting, the Board
of Directors presents relevant
recommendations to shareholders.
2. The Company’s internal
documents set out a procedure
for engaging an appraiser to
estimate the value of shares
acquired and redeemed by the
Company.
3. If there is no formal interest of a
member of the Board of Directors,
the sole executive body, a member
of the collegial executive body of
the Company or a person being
the Company's controlling person
or a person entitled to give the
Company binding instructions, in
the Company's transactions, but
if there is a conflict of interest
or other actual interest of them,
the internal documents of the
Company provide that such
7.1.2 The Board of
Directors plays a
1. The Company has in place a
procedure enabling independent
directors to express their opinions
on material corporate actions
prior to approval thereof.
This principle Relevant comments are provided
is not fully
complied
with.
in items 2.4.4. and 2.5.1 hereof.
key role in passing
resolutions or making
recommendations on
material corporate
actions, relying on
the opinions of the
Company’s independent
directors.
persons shall not participate in
the voting on the approval of such
transaction.
Annual Report 2021. Constructing future energy transition today
Additional Information
116–117
Forward–looking Statements
and/or independent petroleum reservoir
engineers;
Terms and Abbreviations
This Annual Review includes ‘forward-looking
information’ within the meaning of Section 27A of
the US Securities Act of 1933, as amended, and
Section 21E of the US Securities Exchange Act of
1934, as amended. Certain statements included in
this Annual Report and Accounts, including, without
limitation, statements concerning plans, objectives,
goals, strategies, future events or performance,
and underlying assumptions and other statements,
which are other than statements of historical
facts. The words “believe,” “expect,” “anticipate,”
“intends,” “estimate,” “forecast,” “project,”
“will,” “may,” “should” and similar expressions
identify forward-looking statements. Forward-
looking statements include statements regarding:
strategies, outlook and growth prospects; future
plans and potential for future growth; liquidity,
capital resources and capital expenditures; growth
in demand for our products; economic outlook and
industry trends; developments of our markets;
the impact of regulatory initiatives; and the
strength of our competitors. The forward-looking
statements in this Annual Review are based upon
various assumptions, many of which are based, in
turn, upon further assumptions, including without
limitation, management’s examination of historical
operating trends, data contained in our records
and other data available from third parties.
Mentions in this Annual Report of “PAO NOVATEK”,
“NOVATEK”, “the Company”, “we” and “our” refer to
PAO NOVATEK and/or its subsidiaries (according to
IFRS methodology) and/or joint ventures (accounted
for on an equity basis according to IFRS standards),
depending upon the context, in which the terms are
used.
• inherent uncertainties in interpreting geophysical
data;
• changes to project schedules and estimated
completion dates;
• our success in identifying and managing risks
to our businesses;
barrel
one stock tank barrel, or 42 US gallons of liquid
volume
• the effects of changes to the Russian legal
framework concerning currently held and any
newly acquired oil and gas production licenses;
bcm
boe
km
billion cubic meters
barrels of oil equivalent
kilometer(s)
mboe
mcm
mt
thousand boe
thousand cubic meters
thousand metric tons
• changes in political, social, legal or economic
conditions in Russia and the CIS;
• the effects of technological changes;
mmboe million boe
mmcm
mmt
mmtpa
mtpa
ton
million cubic meters
million metric tons
million metric tons per annum
thousand metric tons per annum
metric ton
• the effects of changes in accounting standards
or practices.
This list of important factors is not exhaustive.
When relying on forward-looking statements, one
should carefully consider the foregoing factors
and other uncertainties and events, especially in
light of the political, economic, social and legal
environment in which we operate. Such forward
looking statements speak only as of the date
on which they are made. Accordingly, we do not
undertake any obligation to update or revise any
of them, whether as a result of new information,
future events or otherwise. We do not make
any representation, warranty or prediction that
the results anticipated by such forward-looking
statements will be achieved, and such forward-
looking statements represent, in each case, only
one of many possible scenarios and should not be
viewed as the most likely or standard scenario.
The information and opinions contained in this
document are provided as at the date of this
review and are subject to change without notice..
CCS
CDP
ESG
GBS
GDR
GHG
LA
Carbon capture and storage
Carbon Disclosure Project
Environmental, Social, Governance
Gravity-based structures
Global Depositary Receipts
Greenhouse gases
Although we believe that these assumptions were
reasonable when made, these assumptions are
inherently subject to significant uncertainties and
contingencies, which are difficult or impossible to
predict and are beyond our control. As a result, we
may not achieve or accomplish these expectations,
beliefs or projections. In addition, important
factors that, in our view, could cause actual results
to differ materially from those discussed in the
forward-looking statements include: :
License area
LPG
Liquified petroleum gases
Liquified natural gas
Methane Guiding Principles
Natural gas liquids
Open joint-stock company
Occupational health and safety
Limited liability company
Northern Sea Route
LNG
MGP
NGL
OAO
OHS
OOO
NSR
• changes in the balance of oil and gas supply and
demand in Russia and Europe;
PAO
PRMS
RR
Public joint-stock company
Petroleum Resources Management System
Russian rouble
• the effects of domestic and international oil and
gas price volatility and changes in regulatory
conditions, including prices and taxes;
Conversion Factors
SEC
United States Securities and Exchange
Commission
• the effects of competition in the domestic and
export oil and gas markets;
1,000 cubic meters of gas = 6.54 boe.
TCFD
Task Force on Climate-related Financial
Disclosures
To convert crude oil and gas condensate reserves
from tons to barrels we used various coefficients
depending on the liquids density at each field.
UGSS
UN
Unified Gas Supply System
United Nations
• our ability to successfully implement any of our
business strategies;
YNAO
Yamal-Nenets Autonomous Region
• the impact of our expansion on our revenue
potential, cost basis and margins;
• our ability to produce target volumes in the
event, among other factors, of restrictions on
our access to transportation infrastructure;
• the effects of changes to our capital
expenditure projections on the growth of our
production;
• potentially lower production levels in the future
than currently estimated by our management
Annual Report 2021. Constructing future energy transition today
APPROVED
Contact Information
by a resolution of the annual
General Meeting of Shareholders
of PAO NOVATEK
on 21 April 2022
Minutes No.138
Office in Tarko-Sale
GDR program Administrator
22-A, Pobedy Street, 629850,
The Bank of New York Mellon,
Depositary Receipts
240 Greenwich Street, New York,
NY 10286, USA
New York +1 212 815 4158
London +44 207 163 7512
Moscow +7 495 967 3110
PRE-APPROVED
Tarko-Sale, Purovsky district,
Yamal-Nenets Autonomous Region, Russia
by a resolution
of the Board of Directors
of PAO NOVATEK
on 18 March 2022
Minutes No.252
Office in Moscow
2, Udaltsova Street, 119415,
Moscow, Russia
DATA ACCURACY CERTIFIED
Independent Auditor
by PAO NOVATEK’s Revision Commission
on 4 March 2022
AO PricewaterhouseCoopers Audit
White Square Office Center,
Butyrsky Val 10, 125047 Moscow, Russia
Tel: +7 495 967-6000
Central Information Service
Tel: +7 495 730-6000
Fax: +7 495 967-6001
Fax: +7 495 721-2253
E-mail: novatek@novatek.ru
Independent Reserves Auditor
Press Service
DeGolyer and MacNaughton
5001 Spring Valley Road, Suite 800,
East Dallas
Tel: +7 495 721-2207
E-mail: press@novatek.ru
Texas 75244, USA
Tel: +1 214 368-6391
Fax: +1 214 369-4061
E-mail: degolyer@demac.com
Investor Relations
Tel: +7 495 730-6013
Fax: +7 495 730-6000
E-mail: ir@novatek.ru
Website:
www.novatek.ru/ru/ (Russian version)
www.novatek.ru/en/ (English version)
Registrar
IRC – R.O.S.T.
18/5B office IX, Stromynka Street,
Moscow, Russia 107076
Tel: +7 495 989-76-50
Fax: +7 495 780-73-67
E-mail: info@rrost.ru
RESPONSIBILITY STATEMENT
I hereby confirm that to the best of my knowledge:
(a) the set of financial statements, which has been prepared in accordance with International
Accounting Standards, gives a true and fair view of the assets, liabilities, financial position and
profit or loss of the undertakings included in the consolidation as a whole as required by the
Disclosure and Transparency Rule (DTR) 4.1.6R;
(b) the management report includes a fair review of the information required by DTR 4.1.9R-4.1.11R,
being a balanced and comprehensive analysis of development and performance of the business and
the position of the company and the undertakings included in the consolidation taken as a whole,
together with a description of the principal risks and uncertainties that the company faces.
Viktor Belyakov,
Deputy Chairman of the Management Board for Economics and Finance
Consolidated
Financial Results
2021
PAO NOVATEK
IFRS Consolidated
Financial Statements
for the Year Ended
31 December 2021
and Independent
Auditor’s Report
CONTENTS
Page
Independent Auditor’s Report ................................................................................................................................. 3
Consolidated Statement of Financial Position......................................................................................................... 9
Consolidated Statement of Income........................................................................................................................ 10
Consolidated Statement of Comprehensive Income.............................................................................................. 11
Consolidated Statement of Cash Flows................................................................................................................. 12
Consolidated Statement of Changes in Equity ...................................................................................................... 14
Notes to the Consolidated Financial Statements:
Note 1. Organization and principal activities.................................................................................................... 15
Note 2. Basis of preparation.............................................................................................................................. 15
Note 3. Critical accounting estimates and judgments........................................................................................ 16
Note 4. Acquisitions and disposals.................................................................................................................... 18
Note 5. Property, plant and equipment.............................................................................................................. 20
Note 6. Investments in joint ventures................................................................................................................ 22
Note 7. Long-term loans and receivables.......................................................................................................... 28
Note 8. Other non-current assets....................................................................................................................... 29
Note 9. Inventories............................................................................................................................................ 29
Note 10. Trade and other receivables.................................................................................................................. 30
Note 11. Prepayments and other current assets................................................................................................... 30
Note 12. Cash and cash equivalents .................................................................................................................... 31
Note 13. Long-term debt..................................................................................................................................... 31
Note 14. Short-term debt and current portion of long-term debt......................................................................... 32
Note 15. Pension obligations............................................................................................................................... 32
Note 16. Trade payables and accrued liabilities.................................................................................................. 34
Note 17. Shareholders’ equity............................................................................................................................. 34
Note 18. Oil and gas sales ................................................................................................................................... 35
Note 19. Purchases of natural gas and liquid hydrocarbons................................................................................ 35
Note 20. Transportation expenses ....................................................................................................................... 36
Note 21. Taxes other than income tax................................................................................................................. 36
Note 22. Materials, services and other ................................................................................................................ 36
Note 23. General and administrative expenses.................................................................................................... 37
Note 24. Finance income (expense) .................................................................................................................... 37
Note 25. Income tax ............................................................................................................................................ 38
Note 26. Financial instruments and financial risk factors ................................................................................... 41
Note 27. Contingencies and commitments.......................................................................................................... 52
Note 28. Principal subsidiaries and joint ventures .............................................................................................. 57
Note 29. Related party transactions..................................................................................................................... 58
Note 30. Segment information ............................................................................................................................ 60
Note 31. Summary of significant accounting policies......................................................................................... 61
Note 32. New accounting pronouncements......................................................................................................... 68
Unaudited supplemental oil and gas disclosures ................................................................................................... 69
Contact Information .............................................................................................................................................. 74
Independent Auditor’s Report
To the Shareholders and Board of Directors of PAO NOVATEK:
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects,
the consolidated financial position of PAO NOVATEK (the “Company”) and its subsidiaries (together –
the “Group”) as at 31 December 2021, and the Group’s consolidated financial performance and
consolidated cash flows for the year then ended in accordance with International Financial Reporting
Standards (IFRS).
What we have audited
The Group’s consolidated financial statements comprise:
the consolidated statement of financial position as at 31 December 2021;
the consolidated statement of income for the year then ended;
the consolidated statement of comprehensive income for the year then ended;
the consolidated statement of cash flows for the year then ended;
the consolidated statement of changes in equity for the year then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs).
Our responsibilities under those standards are further described in the Auditor’s responsibilities
for the audit of the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Group in accordance with the International Code of Ethics for Professional
Accountants (including International Independence Standards) issued by the International Ethics
Standards Board for Accountants (IESBA Code) and the ethical requirements of the Auditor’s
Professional Ethics Code and Auditor’s Independence Rules that are relevant to our audit of the
consolidated financial statements in the Russian Federation. We have fulfilled our other ethical
responsibilities in accordance with these requirements and the IESBA Code.
AO PricewaterhouseCoopers Audit
White Square Office Center 10 Butyrsky Val Moscow, Russian Federation, 125047
T: +7 (495) 967 6000, F:+7 (495) 967-6001, www.pwc.ru
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in
the context of our audit of the consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
We updated our understanding of approach to
measurement and recognition of commodity
derivative contracts by the Group.
Accounting for trading activities in Europe
The Group conducts natural gas foreign
trading in active markets under long-term and
short-term purchase and sales contracts, as
well as purchases and sells various derivative
instruments (with reference to the European
natural gas hubs) for delivery optimization and
to decrease exposure to the risk of negative
impact of natural gas prices changes.
We assessed the appropriateness of the valuation
methodology applied and the integrity of the models
used.
We ensured that all valid significant commodity
derivative contracts were taken into account for the
purpose of fair value measurement of commodity
derivative contracts.
For significant commodity derivative contracts we
identified the market data inputs used by the Group
and tested these against independent data.
These contracts include pricing terms that are
based on a variety of commodities and indices,
and/or volume flexibility options. Certain
contracts involve the physical delivery of
hydrocarbons.
For significant commodity derivative contracts we
tested the accuracy of the contractual inputs and
the appropriateness of key valuation inputs to
ensure that the resulting valuation is reasonable.
The fair value of commodity derivative
contracts is determined based on available
futures quotes in the active market or valuation
techniques and models.
We reviewed the disclosures relating to commodity
derivative contracts against requirements of IFRS 7
and IFRS 13.
We focused on this area because of the
commodity price volatility that may have a
significant impact on the Group’s results from
natural gas foreign trading and derivative
instruments.
Information on the trading activities is
disclosed in Note 26 of the consolidated
financial statements.
ii
Other matter – Materiality and Group audit scope
Overview
Materiality
Overall Group materiality: Russian Roubles (“RUB”) 13,500 million
which represents 4% of adjusted profit before tax excluding
currency exchange differences, net gain on disposal of interests in
subsidiaries and joint ventures and the Group’s share of joint
ventures’ currency exchange differences net of income tax.
Group scoping
We conducted audit work covering all significant
components in Russia, Switzerland, Singapore and Republic
of Cyprus.
Our audit scope addressed more than 99% of the Group’s
revenues and more than 99% of absolute value of income and
expense items forming the Group’s underlying profit before tax.
Materiality
As part of designing our audit, we determined materiality and assessed the risks of material
misstatement in the consolidated financial statements. In particular, we considered where management
made subjective judgements; for example, in respect of significant accounting estimates that involved
making assumptions and considering future events that are inherently uncertain. As in all of our audits,
we also addressed the risk of management override of internal controls, including among other matters
consideration of whether there was evidence of bias that represented a risk of material misstatement
due to fraud.
The scope of our audit was influenced by our application of materiality. An audit is designed to obtain
reasonable assurance whether the consolidated financial statements are free from material
misstatement. Misstatements may arise due to fraud or error. They are considered material if individually
or in aggregate, they could reasonably be expected to influence the economic decisions of users taken
on the basis of the consolidated financial statements.
Based on our professional judgement, we determined certain quantitative thresholds for materiality,
including the overall Group materiality for the consolidated financial statements as a whole as set out in
the table below. These, together with qualitative considerations, helped us to determine the scope of
our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of
misstatements, if any, both individually and in aggregate on the consolidated financial statements as a
whole.
Overall Group materiality
How we determined it
RUB 13,500 million
4% of adjusted profit before tax excluding currency
exchange differences, net gain on disposal of
interests in subsidiaries and joint ventures and
share of joint ventures’ currency exchange
differences net of income tax.
iii
Rationale for the materiality benchmark
applied
We chose profit before tax as the benchmark
because, in our view, it is the benchmark against
which the performance of the Group is most
commonly measured by users, and is a generally
accepted benchmark. The use of adjusted profit
before tax mitigates the effect of volatility (that could
be material) caused by non-recurring factors such
as gains on disposals of assets and foreign
exchange differences and provides a more stable
basis for determining materiality, focusing on the
underlying profitability of the Group.
We chose 4% which is consistent with quantitative
materiality thresholds used for profit-oriented
companies in this sector and prior year approach.
How we tailored our Group audit scope
We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion
on the consolidated financial statements as a whole, taking into account the structure of the Group, the
accounting processes and controls and the industry in which the Group operates.
In establishing the overall group audit strategy and plan, we determined the type of work that needed to
be performed at the reporting units by the group engagement team and by the component auditors from
other PwC network firms. For each reporting unit we issued specific instructions to the component
auditors within our audit scope. We determined the level of involvement for component auditors whom
we need to engage in the audit process at those reporting units so as to be able to conclude whether
sufficient appropriate audit evidence had been obtained as a basis for our opinion on the consolidated
financial statements as a whole. We determined whether we required an audit of full scope of financial
information or whether a defined scope of specified procedures was sufficient.
The Group’s consolidated financial statements disclosures and a number of financial statement line
items are audited directly by the PAO NOVATEK audit engagement team. Our procedures included,
among others, the assessment of accounting estimates and judgements applied by management in
respect of fair values and classification of financial assets and liabilities, deferred income tax asset
recognition, estimation of oil and gas reserves, expected credit loss allowance of financial assets and
impairment of non-financial assets, pension obligations and asset retirement obligations.
By performing the procedures described above at the individual component level, combined with the
additional procedures performed at the group level, we have obtained sufficient and appropriate audit
evidence regarding the financial information of the Group to provide a basis for our opinion on the
consolidated financial statements.
Other information
Management is responsible for the other information. The other information comprises report
“Management’s discussion and analysis of financial condition and results of operations
of PAO NOVATEK for the years ended 31 December 2021 and 2020” (but does not include the
consolidated financial statements and our auditor’s report thereon), which we obtained prior to the date
of this auditor’s report, and “Securities Issuer’s Report for the 12 months 2021” as well as “Annual Report
of PAO NOVATEK for 2021”, which are expected to be made available to us after that date.
Our opinion on the consolidated financial statements does not cover the other information and we do
not and will not express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read
iv
the other information identified above and, in doing so, consider whether the other information is
materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit,
or otherwise appears to be materially misstated.
If, based on the work we have performed on the other information that we obtained prior to the date of
this auditor’s report, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
When we read the “Annual Report of PAO NOVATEK for 2021” and “Securities Issuer’s Report for the
12 months 2021”, if we conclude that there is a material misstatement therein, we are required to
communicate the matter to those charged with governance.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement
when it exists. Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of these consolidated financial statements.
As part of an audit in accordance with ISAs, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the
override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
v
Conclude on the appropriateness of management’s use of the going concern basis of accounting
and, based on the audit evidence obtained, whether a material uncertainty exists related to events
or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s
report to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the Group audit. We remain
solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, actions
taken to eliminate threats or safeguards applied.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
The certified auditor responsible for the audit resulting in this independent auditor’s report is
Maxim E. Timchenko.
15 February 2022
Moscow, Russian Federation
M.E. Timchenko ibehalf of the general director of AO PricewaterhouseCoopers
Audit (Principal Rhe Record in the Register of Auditors and Audit Organizations
(PRNR) – 12006020338), certified auditor (PRNR – 21906100451)
vi
PAO NOVATEK
Consolidated Statement of Financial Position
(in millions of Russian roubles)
Notes
At 31 December 2021
At 31 December 2020
ASSETS
Non-current assets
Property, plant and equipment
Investments in joint ventures
Long-term loans and receivables
Other non-current assets
5
6
7
8
Total non-current assets
Current assets
Inventories
9
Current income tax prepayments
Trade and other receivables
Prepayments and other current assets
Short-term bank deposits
with original maturity more than three months
Cash and cash equivalents
Total current assets
10
11
12
Total assets
LIABILITIES AND EQUITY
Non-current liabilities
Long-term debt
13
26
25
Long-term lease liabilities
Deferred income tax liabilities
Asset retirement obligations
Other non-current liabilities
Total non-current liabilities
Current liabilities
Short-term debt and current portion of long-term debt
Current portion of long-term lease liabilities
Trade payables and accrued liabilities
Current income tax payable
14
26
16
Other taxes payable
Total current liabilities
Total liabilities
Equity attributable to PАО NOVATEK shareholders
Ordinary share capital
Treasury shares
(33,293 )
(20,386 )
Additional paid-in capital
Currency translation differences
Asset revaluation surplus on acquisitions
Retained earnings
Total equity attributable to PАО NOVATEK shareholders
17
Non-controlling interest
Total equity
Total liabilities and equity
The accompanying notes are an integral part of these consolidated financial statements.
L.V. Mikhelson
V.N. Belyakov
Chairman of the Management Committee
Deputy Chairman of the Management Board
for Economics and Finance
15 February 2022
9
PAO NOVATEK
Consolidated Statement of Income
(in millions of Russian roubles, except for share and per share amounts)
Year ended 31 December:
2021 2020
Notes
Revenues
Oil and gas sales
Other revenues
18
Total revenues
Operating expenses
Purchases of natural gas and liquid hydrocarbons
Transportation expenses
(497,282 )
(161,506 )
(88,506 )
(56,599 )
(34,442 )
(34,250 )
(9,582 )
(235,224 )
(154,757 )
(54,501 )
(39,238 )
(29,577 )
(26,795 )
(9,103 )
19
20
21
5
Taxes other than income tax
Depreciation, depletion and amortization
Materials, services and other
General and administrative expenses
Exploration expenses
22
23
5
Impairment expenses, net
(1,908 )
(254 )
Changes in natural gas,
liquid hydrocarbons and work-in-progress
Total operating expenses
(875,159 )
(2,613 )
(552,062 )
Gain on disposal of interests in subsidiaries, net
Other operating income (loss), net
(3,181 )
(46,807 )
4
26
Profit from operations
Finance income (expense)
Interest expense
Interest income
Change in fair value of non-commodity financial instruments
Foreign exchange gain (loss), net
Total finance income (expense)
(8,464 )
(37,255 )
(10,119 )
(4,939 )
(7,397 )
24
24
26
24
Share of profit (loss) of joint ventures, net of income tax
(143,981 )
6
Profit before income tax
Income tax expense
Current income tax expense
Deferred income tax benefit (expense), net
Total income tax expense
(44,731 )
(4,852 )
(49,583 )
(52,016 )
(51,010 )
25
Profit
Profit attributable to:
Non-controlling interest
Shareholders of PAO NOVATEK
Basic and diluted earnings per share (in Russian roubles)
Weighted average number of shares outstanding (in millions)
The accompanying notes are an integral part of these consolidated financial statements.
10
PAO NOVATEK
Consolidated Statement of Comprehensive Income
(in millions of Russian roubles)
Year ended 31 December:
2021 2020
Notes
Profit
Other comprehensive income (loss)
Items that will not be reclassified subsequently to profit (loss)
Remeasurement of pension obligations
Share of remeasurement
(92 )
15
of pension obligations of joint ventures
(80 )
(172 )
Items that may be reclassified subsequently to profit (loss)
Currency translation differences
Share of currency translation differences of joint ventures
(43 )
(1,119 )
(1,162 )
Other comprehensive income (loss)
Total comprehensive income
(1,334 )
Total comprehensive income attributable to:
Non-controlling interest
Shareholders of PAO NOVATEK
The accompanying notes are an integral part of these consolidated financial statements.
11
PAO NOVATEK
Consolidated Statement of Cash Flows
(in millions of Russian roubles)
Year ended 31 December:
2021 2020
Notes
Profit before income tax
Adjustments to profit before income tax:
Depreciation, depletion and amortization
Impairment expenses, net
Foreign exchange loss (gain), net
Gain on disposal of interests in subsidiaries, net
Interest expense
(662 )
(16,000 )
(232,277 )
(19,600 )
(147,461 )
(69 )
4
6
Interest income
(25,440 )
Share of loss (profit) of joint ventures, net of income tax
Change in fair value of non-commodity financial instruments
Revaluation of commodity derivatives and contingent
consideration through profit or loss
Other adjustments
26
Decrease (increase) in long-term advances given
Working capital changes
Decrease (increase) in trade and other receivables,
prepayments and other current assets
Decrease (increase) in inventories
(78,254 )
(9,739 )
(13,766 )
Increase (decrease) in trade payables and accrued liabilities,
excluding interest and dividends payable
Increase (decrease) in taxes payable, other than income tax
(8,615 )
Total effect of working capital changes
(24,722 )
(16,889 )
Dividends and cash received from joint ventures
Interest received
Income taxes paid excluding payments
relating to disposal of interests in subsidiaries
(28,135 )
(40,977 )
Net cash provided by operating activities
Cash flows from investing activities
Purchases of property, plant and equipment
Payments for mineral licenses
Purchases of materials for construction
Purchases of intangible assets
Capital contributions to joint ventures
Proceeds from disposal of interests in
subsidiaries and joint ventures, net of cash disposed
Income tax payments relating to disposal
of interests in subsidiaries
(171,620 )
(14,182 )
(13,659 )
(804 )
(181,195 )
(434 )
(17,039 )
(1,264 )
5
5
(1,749 )
6
6
(73 )
(5,972 )
(23 )
(6,343 )
4, 25
5
Interest paid and capitalized
Net decrease (increase) in bank deposits
with original maturity more than three months
Payments for acquisition of joint ventures
Guarantee fees paid
(1,655 )
(855 )
4
Loans provided to/acquisition of loans of joint ventures
Repayments of loans provided to joint ventures
(103,445 )
(120,798 )
7
7
Net cash used for investing activities
(253,135 )
(47,872 )
12
PAO NOVATEK
Consolidated Statement of Cash Flows
(in millions of Russian roubles)
Year ended 31 December:
2021 2020
Notes
Cash flows from financing activities
Proceeds from long-term debt
Repayments of long-term debt
(76,184 )
(5,935 )
13
Proceeds from short-term debt
with original maturity more than three months
Repayments of short-term debt
with original maturity more than three months
Increase (decrease) in short-term debt
with original maturity three months or less, net
Loan commitment fee
(441 )
(534 )
Interest on debt paid
(2,253 )
(154,332 )
(19,943 )
(3,687 )
(12,963 )
(2,402 )
(89,857 )
(11,858 )
(4,649 )
(8,271 )
Dividends paid to shareholders of PAO NOVATEK
Dividends paid to non-controlling interest
Payments of lease liabilities
17
17
Purchases of treasury shares
Net cash used for financing activities
(237,898 )
(2,220 )
(78,075 )
Net effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
(73,787 )
Cash and cash equivalents at the end of the period
The accompanying notes are an integral part of these consolidated financial statements.
13
PAO NOVATEK
Consolidated Statement of Changes in Equity
(in millions of Russian roubles, except for number of shares)
Equity
attributable
to PAO
NOVATEK
shareholders
Asset
revaluation
surplus on
acquisitions
Number of
ordinary shares
(in millions)
Ordinary
share
capital
Additional
paid-in
Currency
translation
differences
Non-
controlling
interest
Treasury
shares
Retained
earnings
Total
equity
capital
At 1 January 2020
(12,308 )
Profit
-
-
-
-
-
-
-
-
-
-
-
(172 )
(1,334 )
-
(1,334 )
Other comprehensive loss
(1,162 )
Total comprehensive income (loss)
-
-
-
-
(1,162 )
-
Dividends (Note 17)
-
-
-
-
-
-
(89,857 )
(89,857 )
(11,858 )
(101,715 )
Effect from other changes in
joint ventures’ net assets (Note 6)
Purchase of treasury shares (Note 17)
-
-
-
-
-
-
-
-
-
-
-
(8,078 )
-
-
(8,078 )
(8.4 )
(8,078 )
At 31 December 2020
(20,386 )
Profit
-
-
-
-
-
-
-
-
-
-
-
-
Other comprehensive income (loss)
Total comprehensive income (loss)
-
-
-
-
-
Dividends (Note 17)
-
-
-
-
-
-
(154,332 )
(154,332 )
(20,090 )
(174,422 )
Effect from other changes in
joint ventures’ net assets (Note 6)
Purchase of treasury shares (Note 17)
-
-
-
-
-
-
-
-
-
-
-
(12,907 )
-
-
(12,907 )
(7.2 )
(12,907 )
At 31 December 2021
(33,293 )
The accompanying notes are an integral part of these consolidated financial statements.
14
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
1
ORGANIZATION AND PRINCIPAL ACTIVITIES
PAO NOVATEK (hereinafter referred to as “NOVATEK” or the “Company”) and its subsidiaries (hereinafter jointly
referred to as the “Group”) is an independent oil and gas company engaged in the acquisition, exploration, development,
production, processing, and marketing of hydrocarbons with its oil and gas operations located mainly in the Yamal-
Nenets Autonomous District (hereinafter referred to as “YNAO”) of the Russian Federation. The Group delivers its
natural gas and its liquid hydrocarbons on both the Russian domestic and international markets.
The Group sells its natural gas on the Russian domestic market mainly through trunk pipelines and regional distribution
networks, as well as sells liquefied natural gas (“LNG”), mainly through its refueling complexes. LNG sold on the
domestic market is produced at the Group’s small-scale LNG plant in the Chelyabinsk region or purchased primarily
from the Group’s joint venture OOO Cryogas-Vysotsk.
The Group sells natural gas in Russia at unregulated market prices (except for deliveries to residential customers);
however, the majority of natural gas sold on the Russian domestic market by all producers is sold at prices regulated
by the governmental agency of the Russian Federation that carries out state regulation of prices and tariffs for goods
and services of natural monopolies in energy, utilities and transportation. The Group’s natural gas sales volumes on the
domestic market fluctuate on a seasonal basis mostly due to Russian weather conditions, with sales peaking in the
winter months of December and January and troughing in the summer months of July and August.
The Group’s joint ventures OAO Yamal LNG and OOO Cryogas-Vysotsk produce liquefied natural gas at their LNG
plants. The Group purchases a portion of the LNG produced by Yamal LNG and Cryogas-Vysotsk and sells it primarily
on the international markets. The Group’s LNG sales volumes are not subject to significant seasonal fluctuations.
The Group also purchases and sells natural gas on the European market under long- and short-term supply contracts to
carry out its foreign commercial trading activities, as well as conducts LNG regasification in Europe.
The Group processes unstable gas condensate at its Purovsky Gas Condensate Processing Plant located in close
proximity to its fields into stable gas condensate and liquefied petroleum gas. The majority of stable gas condensate is
further processed at the Group’s Gas Condensate Fractionation and Transshipment Complex located at the port of Ust-
Luga on the Baltic Sea into higher-value refined products (naphtha, jet fuel, gasoil and fuel oil). The remaining stable
gas condensate volumes are sold on domestic and international markets. The Group sells its liquid hydrocarbons at
prices that are subject to fluctuations in underlying benchmark crude oil, naphtha and other gas condensate refined
products prices. The Group’s liquids sales volumes are not subject to significant seasonal fluctuations.
In July 2021, the Group acquired from PAO Gazprom Neft a 49 percent participation interest in ООО Gazpromneft-
Sakhalin, the holder of the license for exploration and development of the Severo-Wrangelevskiy license area located
in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea (see Note 4).
In July 2021, the Group sold a 10 percent participation interest in ООО Arctic Transshipment to TOTAL E&P
Transshipment SAS, a subsidiary of TotalEnergies SE (see Note 4). ООО Arctic Transshipment operates two LNG
transshipment terminals currently under construction in the Kamchatka and Murmansk regions.
2
BASIS OF PREPARATION
The accompanying consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”) under the historical cost convention, as modified by the initial recognition of financial
instruments based on fair value, and by the revaluation of financial instruments categorised at fair value through profit
or loss or other comprehensive income. In the absence of specific IFRS guidance for oil and gas producing companies,
the Group has developed accounting policies in accordance with other generally accepted accounting principles for oil
and gas producing companies, mainly US GAAP, insofar as they do not conflict with IFRS principles.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates.
It also requires management to exercise judgment in the process of applying the Group’s accounting policies. The areas
involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the
consolidated financial statements are disclosed in Note 3.
15
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
2
BASIS OF PREPARATION (CONTINUED)
Functional and presentation currency. The consolidated financial statements are presented in Russian roubles, the
Group’s presentation currency and the functional currency for the Company and the majority of the Group’s
subsidiaries.
Transactions denominated in foreign currencies are converted into the functional currency of each entity at the exchange
rates prevailing on the date of transactions. Monetary assets and liabilities denominated in foreign currencies are
converted into the functional currency of each entity by applying the year end exchange rate. Non-monetary assets and
liabilities denominated in foreign currencies valued at cost are converted into the functional currency of each entity at
the historical exchange rate. Non-monetary assets that are remeasured to fair value, recoverable amount or realizable
value, are converted at the exchange rate applicable to the date of remeasurement. Exchange gains and losses resulting
from foreign currency remeasurement into the functional currency are included in profit (loss) for the reporting period.
On consolidation the assets and liabilities (both monetary and non-monetary) of the Group entities whose functional
currency is not the Russian rouble are translated into Russian roubles at the closing exchange rate at each balance sheet
date. All items included in the shareholders’ equity, other than profit or loss, are translated at historical exchange rates.
The financial results of these entities are translated into Russian roubles using exchange rates at the dates of the
transactions or the average exchange rate for the period when this is a reasonable approximation. Exchange adjustments
arising on the opening net assets and the profits for the reporting period are taken to other comprehensive income and
reported as currency translation differences in the consolidated statement of changes in equity and the consolidated
statement of comprehensive income.
Exchange rates for foreign currencies in which the Group conducted significant transactions or had significant assets
and/or liabilities in the reporting period were as follows:
Average rate for the year ended
At 31 December:
2021 2020
31 December:
2021 2020
Russian roubles to one currency unit
US dollar (USD)
Euro (EUR)
Polish zloty (PLN)
74.29
84.07
18.30
73.88
90.68
20.01
73.65
87.19
19.10
72.15
82.45
18.54
Significant accounting policies. The principal accounting policies are disclosed in Note 31. In 2021, the Group adopted
all IFRS, amendments and interpretations which are effective 1 January 2021 and relevant to its operations. None of
them had material impact on the Group’s consolidated financial statements. In addition, the following amendments to
the standards were early adopted by the Group starting from 1 January 2021:
Amendments to IAS 16, Property, Plant and Equipment (issued in May 2020 and effective for annual periods beginning
on 1 January 2022, early adoption permitted). These amendments prohibit deducting from the cost of an item of
property, plant and equipment any proceeds received from selling items produced while the entity is preparing the asset
for its intended use. The proceeds from selling such items, together with the costs of producing them, are now
recognized in profit or loss. The Group assessed that the adoption of these amendments did not have a material impact
on the Group’s consolidated financial position as at the date of their initial application.
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
Consolidated financial statements prepared in accordance with IFRS require management to make estimates which the
Group’s management reviews on a continuous basis, by reference to past experience and other factors considered as
reasonable. Adjustments to accounting estimates and assumptions are recognized in the period in which the estimate is
revised if the change affects only that period or in the period of the revision and subsequent periods, if both are affected.
The Group’s management also makes certain judgments, apart from those involving estimations, in the process of
applying the Group’s accounting policies.
Judgments and estimates that have the most significant effect on the amounts reported in these consolidated financial
statements are described below.
16
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)
Fair value of financial instruments. The fair value of financial assets and liabilities, other than financial instruments
that are traded in active markets, is determined by applying various valuation methodologies. The Group’s management
uses its judgment to make assumptions primarily based on market conditions existing at each reporting date.
For commodity derivative contracts where observable information is not available, fair value estimations are determined
using mark-to-market analysis and other acceptable valuation methods, for which the key inputs include future prices,
volatility, price correlation, counterparty credit risk and market liquidity. Fair values of the Group’s commodity
derivative contracts and sensitivities are presented in Note 26.
In some cases, judgment is required to determine whether contracts to buy or sell commodities meet the definition of a
derivative. Contracts to buy or sell LNG are not considered to meet the definition of a derivative, as they are not
considered capable of being net settled. Therefore, such contracts are not within the scope of IFRS 9, Financial
Instruments, and are accounted for on an accruals basis.
Fair value estimation of shareholders’ loans to joint ventures is determined using benchmark interest rates adjusted for
the borrower credit risk and free cash flows from the borrower’s strategic plans approved by the shareholders of the
joint ventures. Fair values of the shareholders’ loans to joint ventures and sensitivities are presented in Note 26.
Discounted cash flow analysis is used for loans and receivables as well as debt instruments that are not traded in active
markets. The effective interest rate is determined by reference to the interest rates of financial instruments available to
the Group in active markets. In the absence of such instruments, the effective interest rate is determined by reference
to the interest rates of active market financial instruments available adjusted for the Group’s specific risk premium
estimated by management.
Deferred income tax asset recognition. Management assesses deferred income tax assets at each reporting date and
determines the amount recorded to the extent that realization of the related tax benefit is probable. In determining future
taxable profits and the amount of tax benefits that are probable in the future management makes judgments and applies
estimations based on prior years taxable profits and expectations of future income that are believed to be reasonable
under the circumstances.
Estimation of oil and gas reserves. Oil and gas reserves have a direct impact on certain amounts reported in the
consolidated financial statements, most notably depreciation, depletion and amortization, as well as impairment
expenses and asset retirement obligations. The Group’s principal oil and gas reserves have been independently
estimated by internationally recognized petroleum engineers whereas other oil and gas reserves of the Group have been
determined based on estimates of hydrocarbon reserves prepared by the Group’s management in accordance with
internationally recognized definitions.
Depreciation rates on oil and gas assets using the unit-of-production method are based on proved developed reserves
and total proved reserves estimated by the Group in accordance with rules promulgated by the Securities and Exchange
Commission (SEC) for proved reserves. The Group also uses estimated probable and possible reserves to calculate
future cash flows from oil and gas properties, which serve as an indicator in determining their economic lives and
whether or not property impairment is present.
A portion of the reserves estimated by the Group includes reserves expected to be produced beyond license expiry
dates. The Group’s management believes that there is requisite legislation and past experience to extend mineral
licenses at the initiative of the Group and, as such, intends to extend its licenses for properties expected to produce
beyond the current license expiry dates.
Due to the inherent uncertainties and the limited nature of reservoir data, estimates of underground reserves are subject
to change over time as additional information becomes available, such as from development drilling and production
activities or from changes in economic factors, including product prices, contract terms or development plans. In
general, estimates of reserves for undeveloped or partially developed fields are subject to greater uncertainty over their
future life than estimates of reserves for fields that are substantially developed and depleted.
17
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
3
CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS (CONTINUED)
Impairment of investments in joint ventures and property, plant and equipment. Management assesses whether there
are any indicators of possible impairment of investments in joint ventures and property, plant and equipment at each
reporting date based on events or circumstances that indicate that the carrying value of assets may not be recoverable.
Such indicators include changes in the Group’s business plans, changes in commodity prices leading to unprofitable
performances, changes in product mixes, and for oil and gas properties, significant downward revisions of estimated
proved reserves. When value in use calculations are undertaken, management estimates the expected future cash flows
from the asset or cash generating unit and chooses a suitable discount rate in order to calculate the present value of
those cash flows.
Pension obligations. The costs of defined benefit pension plans and related current service costs are determined using
actuarial valuations. The actuarial valuations involve making demographic assumptions (mortality rates, age of
retirement, employee turnover and disability) as well as financial assumptions (discount rates, expected rates of return
on assets, future salary and pension increases). Due to the long-term nature of these plans, such estimates are subject to
significant uncertainty.
Asset retirement obligations. The Group’s exploration, development and production activities involve the use of wells,
related equipment and operating sites, oil and gas gathering and treatment facilities and in-field pipelines. Generally,
licenses and other regulatory acts set requirements to decommission such assets upon the completion of production, in
accordance with which the Group is obliged to decommission wells, dismantle equipment, restore the sites and perform
other related activities. The Group’s estimates of these obligations are based on current regulatory or license
requirements, as well as actual dismantling costs and other data.
The Group’s management believes that due to the limited history of gas and gas condensate processing plants activities,
the useful lives of these assets are indeterminable (while certain of the operating components and equipment have
definite useful lives). Because of these reasons, and the lack of clear legal requirements as to the recognition of
obligations, the present value of an asset retirement obligation for such processing facilities cannot be reasonably
estimated and, therefore, legal or contractual asset retirement obligations related to these assets are not recognized.
In accordance with the guidelines of IFRIC 1, Changes in Existing Decommissioning, Restoration and Similar
Liabilities, the amount recognized as a provision is the best estimate of the expenditures required to settle the present
obligation at the reporting date based on current legislation where the Group’s respective operating assets are located,
and is subject to change because of modifications, revisions and changes in laws and regulations and their interpretation
thereof. Estimating asset retirement obligations is complex and requires management to make estimates and judgments
with respect to removal obligations that will occur many years in the future.
4
ACQUISITIONS AND DISPOSALS
Acquisition of a participation interest in ООО Gazpromneft-Sakhalin
In June 2021, the Group entered into an agreement for acquisition from PAO Gazprom Neft of a 49 percent participation
interest in ООО Gazpromneft-Sakhalin for a cash consideration of RR 1,655 million. The transaction was closed in
July 2021. ООО Gazpromneft-Sakhalin holds the license for exploration and development of the Severo-
Wrangelevskiy license area located in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea.
The Charter of Gazpromneft-Sakhalin stipulates that key financial and operating decisions regarding its business
activities require effectively the unanimous approval by both participants. Therefore, the voting mechanism effectively
establishes joint control over ООО Gazpromneft-Sakhalin and the Group accounts for the investment in this entity
under the equity method.
In accordance with IFRS 11 “Joint Arrangements”, the Group assessed fair values of the identified assets and liabilities
of OOO Gazpromneft-Sakhalin at the acquisition date, which primarily related to the property, plant and equipment.
Purchase consideration approximated fair value of the Group’s share in net assets of OOO Gazpromneft-Sakhalin.
18
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
4
ACQUISITIONS AND DISPOSALS (CONTINUED)
Disposal of a 10 percent participation interest in OOO Arctic Transshipment
In June 2021, the Group and TOTAL E&P Transshipment SAS, a subsidiary of TotalEnergies SE, entered into an
agreement for acquisition by TOTAL E&P Transshipment SAS of a 10 percent participation interest in ООО Arctic
Transshipment, the operator of two LNG transshipment terminals currently under construction in the Kamchatka and
Murmansk regions. The transaction was closed in July 2021.
Consideration comprises the cash payment in the amount of RR 368 million (equivalent of USD 5 million) which was
received in July 2021, as well as potential payments in the amount of up to USD 20 million equivalent subject to certain
events in the future.
The Group retained a 90 percent participation interest in OOO Arctic Transshipment after closing the transaction; at
the same time, the terms of the transaction stipulate that key strategic, operational and financial decisions are subject to
unanimous approval by participants. As a result of these changes, upon closing the transaction, the Group’s control
over Arctic Transshipment was replaced by joint control. The Group determined Arctic Transshipment to be a joint
venture and accounts for this investment under the equity method.
At 30 June 2021, the conditions for recognition of OOO Arctic Transshipment as an asset held for sale had been met in
accordance with IFRS 5, Non-current assets held for sale and discontinued operations.
The Group treated the transaction on the sale of a 10 percent participation interest in Arctic Transshipment as a
contribution of a non-monetary asset to a newly formed joint venture. In accordance with IAS 28, Investments in
associates and joint ventures, the Group recognized within the gain on the transaction the part of a gain resulting from
the remeasurement at fair value of the participation interest retained only to the extent of the unrelated investor’s interest
in the new joint venture.
The gain on disposal of a 10 percent participation interest amounted to RR 662 million, before associated current
income tax of RR 73 million.
Below is a breakdown of major classes of assets and liabilities of Arctic Transshipment at the date of disposal:
RR million
Property, plant and equipment
Other non-current assets
Cash and cash equivalents
Other current assets
Long-term debt
Other non-current liabilities
Other current liabilities
3,137
62
137
1,211
(4,091)
(115)
(111)
Total identifiable net assets at disposal
230
Disposal of OOO Chernichnoye
In the fourth quarter of 2020, the Group sold a 100 percent participation interest in OOO Chernichnoye to the Group’s
joint venture ZAO Terneftegas for RR 730 million. Chernichnoye is a holder of the license for exploration and
production of hydrocarbons within the Chernichniy license area located in YNAO. The carrying value of the net assets
of Chernichnoye at the disposal date was RR 591 million. The Group’s gain on the disposal after the elimination of an
unrealized gain on the consolidation level amounted to RR 69 million, before associated income tax of RR 23 million.
19
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
5
PROPERTY, PLANT AND EQUIPMENT
Movements in property, plant and equipment are as follows:
Assets under
construction
and advances
Oil and
gas properties
and equipment for construction
Other
Total
Cost
609,958
(238,633)
371,325
168,743
-
22,294
800,995
Accumulated depreciation,
depletion and amortization
(5,564)
(244,197)
Net book value at 1 January 2020
168,743
16,730
556,798
Additions
Transfers
3,267
124,504
(613)
1,352
(36,852)
(5)
206,770
(130,369)
-
5,865
(1)
210,037
-
Disposal of subsidiary (see Note 4)
Change in asset retirement costs
Depreciation, depletion and amortization
Disposals, net
(19)
(633)
1,352
(38,543)
(1,852)
2,248
-
-
-
(1,691)
(108)
56
(1,739)
230
Currency translation differences
1,962
Cost
737,953
(273,013)
464,940
243,616
-
28,107
(7,256)
20,851
1,009,676
(280,269)
729,407
Accumulated depreciation,
depletion and amortization
Net book value at 31 December 2020
243,616
Additions
Transfers
16,590
167,396
(3,608)
(54,289)
(229)
(1,263)
(198)
(364)
189,576
(171,811)
-
-
4,415
-
(1,823)
-
206,166
-
(3,608)
(56,112)
(576)
(3,137)
(1,146)
(453)
Change in asset retirement costs
Depreciation, depletion and amortization
Impairment
Reclassification to assets held for sale (see Note 3)
Disposals, net
-
(347)
(1,863)
(870)
(71)
(11)
(78)
(18)
Currency translation differences
Cost
915,098
(326,123)
588,975
258,230
-
32,169
(8,833)
23,336
1,205,497
(334,956)
870,541
Accumulated depreciation,
depletion and amortization
Net book value at 31 December 2021
258,230
Included in additions to property, plant and equipment for the years ended 31 December 2021 and 2020 are capitalized
interest and foreign exchange differences of RR 8,453 million and RR 10,624 million, respectively.
Included within assets under construction and advances for construction are advances to suppliers for construction and
equipment of RR 65,307 million and RR 66,415 million at 31 December 2021 and 2020, respectively.
In September 2021, the Group purchased through auctions oil and gas exploration and production licenses for the
Arkticheskoye and Neytinskoye license areas located on the Yamal peninsula in the YNAO for the total amount of
RR 13,155 million, which was included within oil and gas properties and equipment.
In March 2021, the Group won an auction for an oil and gas exploration and production license for the North-Gydanskiy
license area located in the YNAO on the Gydan peninsula and partly in the shallow waters of the Gydan Bay of the
Kara Sea for a payment of RR 775 million, which was included within oil and gas properties and equipment.
20
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
5
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
The table below summarizes the Group’s carrying values of total acquisition costs of proved and unproved properties
included in oil and gas properties and equipment:
At 31 December 2021
At 31 December 2020
Proved properties acquisition costs
118,738
103,002
Less: accumulated depreciation, depletion and
amortization of proved properties acquisition costs
Unproved properties acquisition costs
(23,509)
11,837
(21,856)
10,924
Total acquisition costs
107,066
92,070
The Group’s management believes these costs are recoverable as the Group has plans to explore and develop the
respective fields.
Reconciliation of depreciation, depletion and amortization (DDA):
Year ended 31 December:
2021
2020
Depreciation, depletion and amortization of property, plant and equipment
Add: DDA of intangible assets
Less: DDA capitalized in the course of intra-group construction services
56,112
716
(229)
38,543
1,091
(396)
DDA as presented in the consolidated statement of income
56,599
39,238
At 31 December 2021 and 2020, no property, plant and equipment were pledged as security for the Group’s borrowings.
In 2021, the Group recognized an impairment of property, plant and equipment in the amount of RR 576 million in
respect of assets related to Yumantylskiy license area as a result of the decision to return the license in 2022. In 2020,
no impairment of property, plant and equipment was recognized.
Capital commitments are disclosed in Note 27.
Leases. Included in property, plant and equipment at 31 December 2021 and 2020 are the right-of-use assets primarily
related to long-term agreements on time chartering of marine tankers. Movements in the carrying amounts of the right-
of-use assets are as follows:
Oil and gas properties
and equipment
Other
Total
Net book value at 1 January 2020
9,745
466
10,211
Additions
547
(2,864)
1,755
409
(264)
45
956
(3,128)
1,800
Depreciation, depletion and amortization
Other movements
Net book value at 31 December 2020
9,183
656
9,839
Additions
13
(2,901)
-
59
(215)
(5)
72
(3,116)
(5)
Depreciation, depletion and amortization
Disposals, net
Other movements
(148)
(17)
(165)
Net book value at 31 December 2021
6,147
478
6,625
The maturity analysis of lease liabilities is disclosed in Note 26.
21
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
5
PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
Included in property, plant and equipment at 31 December 2021 are the assets subject to operating lease agreements
where the Group is a lessor with carrying value of RR 139,299 million and accumulated depreciation of
RR 12,590 million (2020: RR 39,328 million and RR 1,415 million). These operating lease agreements primarily relate
to leasing of facilities of the Group’s the LNG construction center located in the Murmansk region, used for the
construction of LNG plants, as soon as these facilities become ready for their intended use.
Income from operating lease is recognized in the line item “Other revenues” in the consolidated statement of income,
and for the years ended 31 December 2021 and 2020 was RR 11,103 million and RR 5,668 million, respectively.
At 31 December 2021, future undiscounted lease payments to be received under operating lease agreements, where the
Group is a lessor, for the period up to their maturity (primarily through 2024) amounted to RR 70 billion (2020:
RR 73 billion).
Exploration for and evaluation of mineral resources. The amounts of assets, liabilities, expense and cash flows arising
from the exploration and evaluation of mineral resources comprise the following:
Year ended 31 December
2021
2020
Net book value of assets at 1 January
15,310
20,382
Additions
Write off to exploration expenses
Reclassification to proved properties and development expenditures
17,989
(405)
(17,437)
10,998
(1,372)
(14,698)
Net book value of assets at 31 December
15,457
15,310
Liabilities
Cash flows used for operating activities
Cash flows used for investing activities
842
9,106
16,837
190
8,466
10,453
For the years ended 31 December 2021 and 2020, the Group has recognized exploration expenses within operating
expenses in the amount of RR 9,582 million and RR 9,103 million, respectively. These expenses included employee
compensations in the amount of RR 697 million and RR 621 million, respectively.
6
INVESTMENTS IN JOINT VENTURES
At 31 December 2021
At 31 December 2020
Joint ventures:
OOO Arctic LNG 2
OAO Yamal LNG
AO Arcticgas
ZAO Nortgas
ZAO Terneftegas
OOO Cryogas-Vysotsk
ООО Gazpromneft-Sakhalin
ООО Arctic Transshipment
OOO SMART LNG
Rostock LNG GmbH
264,035
132,505
118,387
43,701
5,771
3,835
3,288
492
250,470
-
151,886
43,805
4,157
-
-
-
170
28
286
-
Total investments in joint ventures
572,184
450,632
The Group considers that Arctic LNG 2, Yamal LNG, Arcticgas, Nortgas, Terneftegas, Cryogas-Vysotsk,
Gazpromneft-Sakhalin, Arctic Transshipment and SMART LNG constitute jointly controlled entities based on existing
contractual arrangements. The charters and/or participants’ agreements of these entities stipulate that strategic and/or
key decisions of a financial, operating and capital nature require effectively the unanimous approval by all participants
or by a group of participants. The Group accounts for its interests in joint ventures under the equity method.
22
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
OOO Arctic LNG 2. The Group holds a 60 percent ownership in OOO Arctic LNG 2, along with TotalEnergies SE
(10 percent), CNPC (10 percent), CNOOC Limited (10 percent) and Japan Arctic LNG B.V. (10 percent). Arctic LNG 2
undertakes a project to construct a liquefied natural gas plant on the Gydan peninsula based on the hydrocarbon
resources of the Salmanovskoye (Utrenneye) field (the “Arctic LNG 2 project”). The project will have an annual
nameplate capacity of 19.8 million tons (three LNG trains of 6.6 million tons of LNG per annum each).
For the year ended 31 December 2020, the Group received cash transfers in the amount of RR 195,324 million (the
equivalent of USD 2,800 million) from the sales of a 40 percent participation interest in OOO Arctic LNG 2 in 2019.
At 31 December 2021, the Group’s 60 percent ownership in Arctic LNG 2 was pledged in connection with credit line
facility agreements signed by Arctic LNG 2 to obtain external project financing.
OAO Yamal LNG. The Group holds a 50.1 percent ownership in Yamal LNG, along with TotalEnergies SE
(20 percent), CNPC (20 percent) and Silk Road Fund Co. Ltd. (9.9 percent). Yamal LNG undertakes a project on natural
gas production, liquefaction and shipping based on the feedstock resources of the South-Tambeyskoye field located in
YNAO (the “Yamal LNG project”). Annual nameplate capacity of the liquefaction plant after the launch of the fourth
LNG train in May 2021 is 17.4 million tons of LNG (5.5 million tons for the first three trains and 0.9 million tons for
the fourth train).
At 31 December 2021 and 2020, the Group’s 50.1 percent ownership in Yamal LNG was pledged in connection with
credit line facility agreements signed by Yamal LNG with a number of Russian and foreign banks to obtain external
project financing.
The Group’s investment in Yamal LNG at 31 December 2020 was valued at RR nil in the consolidated statement of
financial position due to the Group’s proportionate share of accumulated losses exceeding the Group’s cost of
investment in the amount of RR 27,763 million as a result of significant non-cash foreign exchange losses. For the year
ended 31 December 2021, the Group’s share of profit of Yamal LNG amounted to RR 175,756 million of which
RR 27,763 million were not recognized in the consolidated statement of income as were offset against the previously
unrecognized share of losses.
AO Arcticgas. The Group holds a 50 percent ownership in Arcticgas, its joint venture with PAO Gazprom Neft.
Arcticgas operates the Samburgskoye, Urengoyskoye, East-Urengoiskoye+North-Esetinskoye fields within the
Samburgskiy license area and the Yaro-Yakhinskoye field, located in the YNAO.
ZAO Nortgas. The Group holds a 50 percent ownership in Nortgas, its joint venture with PAO Gazprom Neft. Nortgas
operates the North-Urengoyskoye field, located in the YNAO.
ZAO Terneftegas. The Group holds a 51 percent ownership in Terneftegas, its joint venture with TotalEnergies SE.
Terneftegas operates the Termokarstovoye field, located in the YNAO.
OOO Cryogas-Vysotsk. The Group holds a 51 percent participation interest in Cryogas-Vysotsk, its joint venture with
AO Gazprombank. Cryogas-Vysotsk operates a medium-scale LNG plant with annual capacity of 660 thousand tons,
located at the port of Vysotsk on the Baltic Sea.
At 31 December 2021 and 2020, the Group’s 51 percent participation interest in Cryogas-Vysotsk was pledged in
connection with credit line facility agreements signed by the joint venture to obtain project financing.
The Group’s investment in Cryogas-Vysotsk at 31 December 2020 was valued at RR nil in the consolidated statement
of financial position due to the Group’s proportionate share of accumulated losses exceeding the Group’s cost of
investment in the amount RR 2,483 million as a result of significant non-cash foreign exchange losses. For the year
ended 31 December 2021, the Group’s share of profit in OOO Cryogas-Vysotsk amounted to RR 6,318 million of which
RR 2,483 million were not recognized in the consolidated statement of income as were offset against the previously
unrecognized share of losses.
ООО Gazpromneft-Sakhalin. The Group holds a 49 percent participation interest in ООО Gazpromneft-Sakhalin
acquired in July 2021 (see Note 4). ООО Gazpromneft-Sakhalin is a joint venture with PAO Gazprom Neft
(51 percent). The joint venture holds the license for exploration and development of the Severo-Wrangelevskiy license
area located in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea.
23
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
ООО Arctic Transshipment. In July 2021, the Group sold a 10 percent participation interest in ООО Arctic
Transshipment, which was a Group’s subsidiary at that time, to TOTAL E&P Transshipment SAS (see Note 4).
The Group retained a 90 percent participation interest in OOO Arctic Transshipment after closing the transaction and
began to exercise joint control over the company. The Group determined Arctic Transshipment to be a joint venture
and accounts for this investment under the equity method.
Arctic Transshipment operates two LNG transshipment terminals currently under construction in the Kamchatka and
Murmansk regions.
OOO SMART LNG. The Group holds a 50 percent participation interest in OOO SMART LNG, its joint venture with
PAO Sovcomflot. SMART LNG will lease Arctic ice-class LNG tankers to transport LNG from the Arctic LNG 2
project.
At 31 December 2021, the Group’s 50 percent participation interest in SMART LNG was pledged in connection with
lease agreements for Arctic ice-class LNG tankers entered into by SMART LNG.
Rostock LNG GmbH. As at 31 December 2020, the Group held a 49 percent ownership interest in Rostock LNG GmbH,
its joint venture with Fluxys Germany Holding GmbH. In September 2021, shareholders made a decision to liquidate
Rostock LNG GmbH.
The table below summarizes the movements in the carrying amounts of the Group’s joint ventures:
Year ended 31 December:
2021
2020
At 1 January
450,632
585,340
Share of profit from operations
Share of finance income (expense)
Share of total income tax benefit (expense)
Unrecognized share of loss (profit) of joint ventures
330,357
(10,205)
(57,630)
(30,245)
113,952
(325,707)
37,529
30,245
Share of profit (loss) of joint ventures, net of income tax
232,277
(143,981)
Share of other comprehensive income (loss) of joint ventures
320
(1,198)
Dividends and cash from joint ventures
Effect from other changes in joint ventures’ net assets
Capital contributions
(118,786)
933
(10,920)
3,892
-
1,794
Sale of interests in subsidiaries resulting in the recognition
of investments in joint ventures (see Note 4)
Acquisitions of joint ventures (see Note 4)
525
1,655
(71)
-
Effect from initial measurement of loans provided by the Group to joint
ventures (see Note 26) net of deferred income tax
Group’s costs capitalized in investments
-
-
17,418
1,173
Elimination of the Group’s share in unrealized profits of joint ventures
from balances of hydrocarbons purchased from joint ventures
2,834
(1,021)
At 31 December
572,184
450,632
For the years ended 31 December 2021 and 2020, Arcticgas declared and paid dividends in the total amount of
RR 198.7 billion and RR 20.5 billion, respectively, of which RR 99.4 billion and RR 10.25 billion, respectively, were
attributable to NOVATEK.
For the years ended 31 December 2021 and 2020, the Group received from Terneftegas cash and dividends distributed
to the Group in the total amount of RR 3.7 billion and RR 0.67 billion, respectively.
For the year ended 31 December 2021, Yamal LNG declared and paid dividends in the total amount of RR 31.4 billion,
of which RR 15.7 billion were attributable to NOVATEK.
24
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
For the year ended 31 December 2021, the capital of OOO Gazpromneft-Sakhalin was increased through proportional
contributions by its participants totalling RR 3,351 million, of which RR 1,642 million were contributed by the Group.
In 2021, the participants of OOO SMART LNG made a decision to increase its capital through proportional
contributions totaling RR 304 million, of which RR 152 million are attributable to the Group.
For the year ended 31 December 2020, the capital of OOO Arctic LNG 2 was increased by RR 57,647 million through
the cash contributions made by the other participants in the form of contributions to the assets representing a part of the
consideration for the disposal of a 40 percent participation interest in OOO Arctic LNG 2 (see Note 4). The difference
between the Group’s share in the contributions made and the amount previously recognized within the investment in
OOO Arctic LNG 2 comprised RR 4,512 million and was recorded as an increase in the investment in OOO Arctic
LNG 2, with the corresponding effect recognized in the consolidated statement of changes in equity in accordance with
the Group’s accounting policy. The Group’s participation interest in OOO Arctic LNG 2 did not change as a result of
these transactions.
For the year ended 31 December 2020, the Group recorded a decrease in equity in the amount of RR 949 million from
initial measurement of the loans (net of deferred income tax) provided to OOO Arctic LNG 2 by the other participants.
The Group eliminates its share in unrealized profits of joint ventures from the balances of natural gas and liquid
hydrocarbons purchased from the joint ventures.
The summarized statements of financial position and statements of comprehensive income (loss) for the Group’s
principal joint ventures as at and for the year ended 31 December 2021 are as follows (100 percent base):
At 31 December 2021
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Property, plant and equipment
and materials for construction
Other non-current non-financial assets
Non-current financial assets
Total non-current assets
1,284,025
112
421,917
1
53
421,971
2,394,640
2,918
110,614
23
18
110,655
-
-
1,284,137
2,397,558
Cash and cash equivalents
Other current financial assets
Current non-financial assets
Total current assets
70,044
6,299
23,120
99,463
2,568
29,491
4,232
49,647
79,497
38,683
167,827
1,361
1,834
449
36,291
3,644
Non-current financial liabilities
Non-current non-financial liabilities
Total non-current liabilities
(739,346)
(48,991)
(788,337)
(120,000) (1,842,965)
(55,011) (10,003)
(175,011) (1,852,968)
-
(20,839)
(20,839)
Trade payables and accrued liabilities
Other current financial liabilities
Current non-financial liabilities
Total current liabilities
(46,795)
(152,235)
(1,119)
(13,146)
(10,000)
(23,331)
(46,477)
(22,449)
(413,328)
(12,016)
(690)
(3,876)
(1,493)
(6,059)
(200,149)
(447,793)
Net assets
395,114
236,774
264,624
87,401
25
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
For the year ended 31 December 2021
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Revenues
3,995
(131)
294,834
(26,546)
668,861
(115,859)
19,028
(9,673)
Depreciation, depletion and amortization
Profit (loss) from operations
(1,029)
163,383
477,471
212
Interest expense
(349)
(6,570)
(112,588)
(635)
Change in fair value
of non-commodity financial instruments
Foreign exchange gain (loss), net
(7,895)
41,423
-
27
(59,896)
119,290
-
-
Profit (loss) before income tax
32,460
157,500
424,315
(357)
Income tax benefit (expense)
(9,850)
(25,865)
(73,279)
72
Profit (loss), net of income tax
22,610
131,635
351,036
(285)
Ownership
60%
50%
50.1%
50%
Total based on ownership interest
13,566
65,818
175,774
(143)
Elimination of the Group’s share in unrealized profits
of joint ventures from balances of hydrocarbons
purchased from joint ventures
-
-
(2,389)
-
(18)
(139)
-
Unrecognized share of profit of joint ventures
(27,763)
Share of profit (loss)
of joint ventures, net of income tax
13,566
63,429
147,993
(282)
Reconciliation of the summarized financial information presented to the Group’s share in net assets of the joint ventures:
As at and for the year ended 31 December 2021
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Net assets at 1 January 2021
372,505
303,771
(55,446)
87,610
Profit (loss), net of income tax
Other comprehensive income (loss)
Dividends
22,610
131,635
117
(198,749)
351,036
453
(31,419)
(285)
76
-
(1)
-
Net assets at 31 December 2021
395,114
236,774
264,624
87,401
Ownership
60%
50%
50.1%
50%
Group’s share in net assets
237,068
118,387
132,505
43,701
Future capital contributions
26,967
-
-
-
Investments in joint ventures
264,035
118,387
132,505
43,701
At 31 December 2021, the Group’s investment in OOO Arctic LNG 2 totaled RR 264,035 million, which differed from
its share in the net assets of Arctic LNG 2. This difference of RR 26,967 million related to the Group’s share in the
future cash payments in the form of capital contributions by other participants representing a part of the consideration
for the disposal of a 40 percent interest in OOO Arctic LNG 2.
26
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
The summarized statements of financial position and statements of comprehensive income (loss) for the Group’s
principal joint ventures as at and for the year ended 31 December 2020 are as follows (100 percent base):
At 31 December 2020
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Property, plant and equipment
and materials for construction
Other non-current non-financial assets
Non-current financial assets
802,388
118
411,279
6
2,470,727
27,561
120,307
28
937
63
12,619
12
Total non-current assets
803,443
411,348
2,510,907
120,347
Cash and cash equivalents
Other current financial assets
Current non-financial assets
Total current assets
2,001
1,551
14,180
17,732
6,123
22,581
14,930
43,634
22,812
24,813
34,137
81,762
81
1,699
343
2,123
Non-current financial liabilities
Non-current non-financial liabilities
Total non-current liabilities
(373,463)
(40,436)
(413,899)
(30,000) (2,339,045)
(55,991) (4,421)
(85,991) (2,343,466)
(3,860)
(23,057)
(26,917)
Trade payables and accrued liabilities
Other current financial liabilities
Current non-financial liabilities
Total current liabilities
(29,934)
(4,359)
(478)
(14,479)
(36,151)
(14,590)
(65,220)
(13,795)
(290,541)
(313)
(975)
(5,821)
(1,147)
(7,943)
(34,771)
(304,649)
Net assets
372,505
303,771
(55,446)
87,610
For the year ended 31 December 2020
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Revenues
-
171,076
(30,645)
328,640
(109,950)
15,296
(6,938)
Depreciation, depletion and amortization
(20)
Profit (loss) from operations
(2,015)
73,677
151,821
(485)
Interest expense
(103)
(3,061)
(162,618)
(980)
Change in fair value
of non-commodity financial instruments
Foreign exchange gain (loss), net
(681)
(40,523)
-
31,172
(444,213)
-
-
(45)
Profit (loss) before income tax
(43,268)
70,923
(423,780)
(1,393)
Income tax benefit (expense)
13,343
(11,376)
66,976
260
Profit (loss), net of income tax
(29,925)
59,547
(356,804)
(1,133)
Ownership
60%
50%
50.1%
50%
Total based on ownership interest
(17,955)
29,774
(178,662)
(567)
Elimination of the Group’s share in unrealized profits
of joint ventures from balances of hydrocarbons
purchased from joint ventures
-
-
819
-
(1)
107
-
Unrecognized share of loss of joint ventures
27,763
Share of profit (loss)
of joint ventures, net of income tax
(17,955)
30,593
(150,900)
(460)
27
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
6
INVESTMENTS IN JOINT VENTURES (CONTINUED)
Reconciliation of the summarized financial information presented to the Group’s share in net assets of the joint ventures:
As at and for the year ended 31 December 2020
Arctic LNG 2
Arcticgas
Yamal LNG
Nortgas
Net assets at 1 January 2020
317,347
264,798
301,446
88,744
Profit (loss), net of income tax
Other comprehensive income (loss)
Capital contributions
Other equity movements
Dividends
(29,925)
(11)
57,647
27,447
-
59,547
(356,804)
(2,430)
(1,133)
(74)
(1)
-
-
-
2,342
-
-
-
-
(20,500)
Net assets at 31 December 2020
372,505
303,771
(55,446)
87,610
Ownership
60%
50%
50.1%
50%
Group’s share in net assets
223,503
151,886
(27,763)
43,805
Unrecognized share of loss of joint ventures
Future capital contributions
-
-
-
27,763
-
-
-
26,967
Investments in joint ventures
250,470
151,886
-
43,805
At 31 December 2020, the Group’s investment in OOO Arctic LNG 2 totaled RR 250,470 million, which differed from
its share in the net assets of Arctic LNG 2. This difference of RR 26,967 million related to the Group’s share in the
future cash payments in the form of capital contributions by other participants representing a part of the consideration
for the disposal of a 40 percent interest in OOO Arctic LNG 2.
7
LONG-TERM LOANS AND RECEIVABLES
The following table presents long-term loans (including interest accrued) and receivables:
At 31 December 2021
At 31 December 2020
Long-term loans receivable
Other long-term receivables
472,872
602
431,880
426
Total
473,474
432,306
Less: current portion of long-term loans receivable
(163,473)
(41,253)
Total long-term loans and receivables
310,001
391,053
The Group’s long-term loans receivable by borrowers are as follows:
At 31 December 2021
At 31 December 2020
OOO Arctic LNG 2
OAO Yamal LNG
OOO Cryogas-Vysotsk
OOO Arctic Transshipment
296,195
151,084
20,674
4,919
215,336
209,637
6,907
-
Total long-term loans receivable
472,872
431,880
OOO Arctic LNG 2. The Group provided euro credit line facilities to Arctic LNG 2, the Group’s joint venture. The
loans interest rates are set based on market interest rates and interest rates on borrowings of participants. The repayment
schedules are linked to free cash flows of the joint venture.
In 2021, Arctic LNG 2 signed agreements for bank project financing, and subsequent to the balance sheet date, in
January 2022, repaid a part of the loans and accrued interest to the Group in the total amount of RR 84,765 million.
28
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
7
LONG-TERM LOANS AND RECEIVABLES (CONTINUED)
OAO Yamal LNG. In prior years the Group provided US dollar and euro credit line facilities to Yamal LNG, the
Group’s joint venture. The loans interest rates are set based on market interest rates, interest rates on borrowings of
shareholders and/or combination thereof. The repayment schedules are linked to free cash flows of the joint venture.
For the years ended 31 December 2021 and 2020, Yamal LNG repaid to the Group a part of the loans and accrued
interest in the total amount of RR 61,221 million and RR 48,297 million, respectively. Subsequent to the balance sheet
date, in January 2022, Yamal LNG repaid to the Group a part of the loans and accrued interest in the total amount of
RR 31,538 million.
OOO Cryogas-Vysotsk. The Group provided Russian rouble denominated loans under agreed credit line facilities to
Cryogas-Vysotsk, the Group’s joint venture. In November 2021, the Group also acquired a portion in the project
financing previously provided to OOO Cryogas-Vysotsk by the second participant in euros. The loans are repayable
from 2021 to 2033 and bear variable interest rates.
For the year ended 31 December 2021, Cryogas-Vysotsk repaid to the Group a part of the loans and accrued interest in
the total amount of RR 2,541 million.
ООО Arctic Transshipment. The Group provided euro credit line facilities to OOO Arctic Transshipment, the Group’s
joint venture. The repayment schedules are linked to free cash flows of the joint venture and bear variable interest rates.
No provisions for expected credit losses for long-term loans and receivables were recognized at 31 December 2021 and
2020. The carrying values of long-term loans and receivables approximate their respective fair values.
8
OTHER NON-CURRENT ASSETS
At 31 December 2021
At 31 December 2020
Financial assets
Contingent consideration (see Note 26)
Commodity derivatives
79,782
684
76,918
13
Other financial assets
38
13
Non-financial assets
Deferred income tax assets
Materials for construction
Intangible assets, net
Long-term advances
Other non-financial assets
22,565
21,186
2,896
-
22,694
18,341
2,820
3,536
817
720
Total other non-current assets
127,871
125,152
At 31 December 2020, the “Long-term advances” line item represented advances to OAO Russian Railways. The
advances were paid in accordance with the Strategic Partnership Agreement signed with Russian Railways in 2012.
9
INVENTORIES
At 31 December 2021
At 31 December 2020
Natural gas and liquid hydrocarbons
Materials and supplies (net of provision of
RR 1 million and RR 4 million at 31 December 2021 and 2020)
Other inventories
13,036
7,055
4,519
126
3,609
59
Total inventories
17,681
10,723
No inventories were pledged as security for the Group’s borrowings or payables at both dates.
29
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
10
TRADE AND OTHER RECEIVABLES
At 31 December 2021
At 31 December 2020
Trade receivables (net of provision for expected credit losses
of RR 1,838 million and RR 506 million at 31 December 2021 and 2020,
respectively)
104,576
64,073
Other receivables (net of provision for expected credit losses
of RR 293 million and RR 305 million at 31 December 2021 and 2020,
respectively)
24,923
7,182
Total trade and other receivables
129,499
71,255
Credit risks attributable to trade and other receivables are described in Note 26.
At 31 December 2020, other receivables included RR 575 million of receivables in relation to the sale of
OOO Chernichnoye (see Note 4). These receivables were fully paid in 2021.
The carrying values of trade and other receivables approximate their respective fair values. Trade and other receivables
were categorized as Level 3 in the fair value measurement hierarchy described in Note 26.
Movements in the Group’s provision for impairment of trade receivables are as follows:
Year ended 31 December:
2021
2020
At 1 January
506
362
Additional provision for expected credit losses recorded
Receivables written off as uncollectible
Provision reversed
1,382
(19)
(31)
295
(115)
(36)
At 31 December
1,838
506
The provision for expected credit losses for trade and other receivables has been included in the consolidated statement
of income in “Impairment expenses, net” line item.
11
PREPAYMENTS AND OTHER CURRENT ASSETS
At 31 December 2021
At 31 December 2020
Financial assets
Current portion of long-term loans receivable (see Note 7)
Commodity derivatives (see Note 26)
Other financial assets
163,473
113,467
265
41,253
13,041
1,316
Non-financial assets
Value-added tax receivable
Prepayments and advances to suppliers
Recoverable value-added tax
Deferred transportation expenses for liquid hydrocarbons
Deferred transportation expenses for natural gas
Prepaid customs duties
22,589
9,159
4,424
2,090
1,910
971
15,703
9,088
10,767
1,996
1,779
616
Deferred export duties for liquid hydrocarbons
Other non-financial assets
871
4,021
649
1,863
Total prepayments and other current assets
323,240
98,071
30
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
12
CASH AND CASH EQUIVALENTS
At 31 December 2021
At 31 December 2020
Cash at current bank accounts
Bank deposits with original maturity of three months or less
32,290
13,630
41,247
78,460
Total cash and cash equivalents
45,920
119,707
Credit risks related to cash and cash equivalents are described in Note 26.
13
LONG-TERM DEBT
At 31 December 2021
At 31 December 2020
Eurobonds – Ten-Year Tenor
(par value USD 1 billion, repayable in 2022)
Eurobonds – Ten-Year Tenor
(par value USD 650 million, repaid in 2021)
Loan from Silk Road Fund
Bank loans
74,265
73,820
-
24,079
75,421
48,012
46,076
54,232
Total
173,765
222,140
Less: current portion of long-term debt
(106,751)
(53,152)
Total long-term debt
67,014
168,988
Eurobonds. In December 2012, the Group issued US dollar denominated Eurobonds in the amount of USD 1 billion.
The US dollar denominated Eurobonds were issued with an annual coupon rate of 4.422 percent, payable semi-annually.
The Eurobonds have a ten-year tenor and are repayable in December 2022.
In February 2011, the Group issued US dollar denominated Eurobonds in the amount of USD 650 million.
The US dollar denominated Eurobonds were issued with an annual coupon rate of 6.604 percent, payable
semi-annually. The Eurobonds have a ten-year tenor and were fully repaid according to their maturity schedule
in February 2021.
Loan from Silk Road Fund. In December 2015, the Group obtained a loan from China’s investment fund Silk Road
Fund that is repayable until December 2030 by semi-annual equal installments starting from December 2019 and
includes the maintenance of certain restrictive financial covenants.
In December 2021, the Group decided to repay the loan ahead of its maturity schedule by two equal instalments – in
December 2021 and after the reporting date in February 2022. The amortized cost of the liability was recalculated based
on the new repayment schedule, and the difference of RR 3,886 million was recognized in the consolidated statement
of income within the “Interest expense” line item (see Note 24).
Bank loans. In December 2016, the Group obtained EUR 100 million under a revolving credit line facility from the
Russian subsidiary of a foreign bank. The loan was initially repayable until April 2020. In March 2020, it was extended
to March 2022. The loan includes the maintenance of certain restrictive financial covenants.
In June 2020, the Group obtained a credit line facility from a Russian bank in the amount up to EUR 1.5 billion with a
variable interest rate available to withdraw until March 2022. Interest is paid on a quarterly basis. At the reporting date,
EUR 800 million were withdrawn under the credit line facility, repayable until September 2025. The credit line facility
includes the maintenance of certain restrictive financial covenants.
The fair value of long-term debt including its current portion was RR 176,198 million and RR 235,473 million at
31 December 2021 and 2020, respectively. The fair value of the corporate bonds was determined based on market quote
prices (Level 1 in the fair value measurement hierarchy described in Note 26). The fair value of other long-term loans
was determined based on future cash flows discounted at the estimated risk-adjusted discount rate (Level 3 in the fair
value measurement hierarchy described in Note 26).
31
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
13
LONG-TERM DEBT (CONTINUED)
Scheduled maturities of long-term debt are disclosed in Note 26.
Available credit line facilities. In addition to disclosed above, at 31 December 2021, the Group had available long-term
bank credit line facilities with credit limits for the total amount of RR 160 billion. The facilities include the maintenance
of certain restrictive financial covenants.
14
SHORT-TERM DEBT AND CURRENT PORTION OF LONG-TERM DEBT
At 31 December 2021
At 31 December 2020
Loans with original maturity three months or less
6,278
-
Total
6,278
-
Add: current portion of long-term debt
106,751
53,152
Total short-term debt and current portion of long-term debt
113,029
53,152
Available credit line facilities. At 31 December 2021, the Group had available short-term bank credit line facilities with
credit limits for the total amount of RR 20 billion and EUR 235 million. At 31 December 2021, EUR 75 million were
withdrawn under these credit line facilities, which were repaid after the reporting date in January 2022.
Furthermore, at 31 December 2021, the Group had available revolving credit line facilities under which the Group may
obtain loans with original maturities of three months or less to finance trade activities, secured by cash revenues from
specifically determined liquid hydrocarbons export sales contracts. At 31 December 2021, these loans were repaid.
15
PENSION OBLIGATIONS
Defined contribution plan. For the years ended 31 December 2021 and 2020, total amounts recognized as an expense
in respect of payments made by employer on behalf of employees to the Pension Fund of the Russian Federation were
RR 3,802 million and RR 3,907 million, respectively.
Defined benefit plan. The Group operates a post-employment benefit program for its retired employees. Under the
current terms of the pension program, employees who are employed and retire from the Group on or after the statutory
retirement age will receive from the Group pension benefits in the form of a lump sum retirement benefit and/or monthly
life payments unless they are reemployed. The type and amounts of payments to be disbursed depend on the employee’s
average salary, duration and location of employment.
The program represents an unfunded defined benefit plan and is accounted for as such under provisions of IAS 19,
Employee Benefits. The present value of the defined benefit obligation is included in “Other non-current liabilities” line
item in the consolidated statement of financial position. The impact of the program on the consolidated financial
statements is disclosed below.
32
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
15
PENSION OBLIGATIONS (CONTINUED)
The movements in the present value of the defined benefit obligation are as follows:
Year ended 31 December:
2021 2020
At 1 January
5,687
5,111
Interest cost
Current service cost
Past service cost
358
515
286
242
423
-
Benefits paid
(170)
(181)
Actuarial gains (losses) arising from:
- changes in financial assumptions
- changes in demographic assumptions
- experience adjustments
(1,095)
(73)
(238)
(91)
421
113
At 31 December
5,621
5,687
Defined benefit plan costs were recognized in:
Year ended 31 December:
2021
2020
Materials, services and other (as employee compensation
General and administrative expenses (as employee compensation
Other comprehensive loss (income)
)
762
397
(1,055)
390
275
92
)
The principal actuarial assumptions used are as follows:
At 31 December 2021
At 31 December 2020
Weighted average discount rate
Projected annual increase in employee compensation
Expected increases to pension benefits
8.4%
6.5%
5.0%
6.4%
5.1%
5.0%
The discount rate was determined by reference to Russian rouble denominated bonds issued by the Government of the
Russian Federation chosen to match the duration of the post-employment benefit obligations.
The assumed average salary and pension payment increases for Group employees have been calculated on the basis of
inflation forecasts, analysis of increases of past salaries and the general salary policy of the Group.
Mortality assumptions are based on the Russian mortality tables published by the Federal State Statistics Service from
the year 2018 adjusted for estimates of mortality improvements in the future periods.
The Group’s management has assessed that reasonable changes in the principal significant actuarial assumptions will
not have a significant impact on the consolidated statement of income or the consolidated statement of comprehensive
income or the liability recognized in the consolidated statement of financial position.
33
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
16
TRADE PAYABLES AND ACCRUED LIABILITIES
At 31 December 2021
At 31 December 2020
Financial liabilities
Commodity derivatives (see Note 26)
Trade payables
Interest payable
Dividends payable to non-controlling interest
Other payables
118,173
91,680
199
147
14,711
14,278
55,149
1,529
-
3,786
Non-financial liabilities
Advances from customers
Salary payables
6,408
1,073
14,028
4,245
1,042
3,966
Other liabilities and accruals
Total trade payables and accrued liabilities
246,419
83,995
The carrying values of trade payables and accrued liabilities approximate their respective fair values. Trade and other
payables were categorized as Level 3 in the fair value measurement hierarchy described in Note 26.
During the years ended 31 December 2021 and 2020, advances from customers in the amount of RR 4,177 million and
RR 4,194 million, respectively, remained at the beginning of the respective period were recognized as revenue.
17
SHAREHOLDERS’ EQUITY
Ordinary share capital. Share capital issued and paid in consisted of 3,036,306,000 ordinary shares with a par value of
RR 0.1 each at 31 December 2021 and 2020. The total authorized number of ordinary shares was 10,593,682,000 shares
at both dates.
Treasury shares. In accordance with the Share Buyback Programs authorized by the Board of Directors, the Group’s
wholly owned subsidiary, Novatek Equity (Cyprus) Limited, purchases ordinary shares of PAO NOVATEK in the form
of Global Depository Receipts (GDRs) on the London Stock Exchange (LSE) and ordinary shares on the Moscow
Exchange through the use of independent brokers. NOVATEK also purchases its ordinary shares from shareholders
where required by Russian legislation.
During the years ended 31 December 2021 and 2020, the Group purchased 7.2 million and 8.4 million ordinary shares
at a total cost of RR 12,907 million and RR 8,078 million, respectively. At 31 December 2021 and 2020, the Group
held in total 40.7 million and 33.5 million ordinary shares at a total cost of RR 33,293 million and RR 20,386 million,
respectively. The Group has decided that these shares do not vote.
Dividends. Dividends (including tax on dividends) declared and paid were as follows:
Year ended 31 December:
2021
2020
Dividends payable at 1 January
Dividends declared (*)
Dividends paid (*)
-
-
89,857
(89,857)
154,332
(154,332)
Dividends payable at 31 December
-
-
Dividends per share declared during the year (in Russian roubles)
Dividends per GDR declared during the year (in Russian roubles)
51.41
514.10
29.92
299.20
(*) – Excluding treasury shares.
34
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
17
SHAREHOLDERS’ EQUITY (CONTINUED)
The Group declares and pays dividends in Russian roubles. Dividends declared in 2021 and 2020 were as follows:
Final for 2020: RR 23.74 per share or RR 237.40 per GDR declared in April 2021
Interim for 2021: RR 27.67 per share or RR 276.70 per GDR declared in September 2021
72,082
84,015
Total dividends declared in 2021
156,097
Final for 2019: RR 18.10 per share or RR 181.00 per GDR declared in April 2020
Interim for 2020: RR 11.82 per share or RR 118.20 per GDR declared in September 2020
54,957
35,889
Total dividends declared in 2020
90,846
Distributable retained earnings. The basis for distribution of profits of a company to shareholders is defined by Russian
legislation as net profit presented in its statutory financial statements prepared in accordance with the Regulations on
Accounting and Reporting of the Russian Federation, which may differ significantly from amounts calculated on the
basis of IFRS. At 31 December 2021 and 2020, NOVATEK’s closing balances of the accumulated profit including the
respective year’s net statutory profit totaled RR 1,142,851 million and RR 980,624 million, respectively.
18
OIL AND GAS SALES
Year ended 31 December:
2021 2020
Natural gas
Naphtha
Crude oil
524,071
208,713
123,179
100,170
99,142
359,040
112,963
78,381
58,913
48,725
41,728
Other gas and gas condensate refined products
Liquefied petroleum gas
Stable gas condensate
79,931
Total oil and gas sales
1,135,206
699,750
19
PURCHASES OF NATURAL GAS AND LIQUID HYDROCARBONS
Year ended 31 December:
2021
2020
Natural gas
258,989
245,400
10,764
125,844
102,568
12,221
Unstable gas condensate
Other liquid hydrocarbons
Reverse excise
(17,871)
(5,409)
Total purchases of natural gas and liquid hydrocarbons
497,282
235,224
The Group purchases not less than 50 percent of the natural gas volumes produced by its joint venture ZAO Nortgas,
some volumes of natural gas produced by its joint venture AO Arcticgas, all volumes of natural gas produced by its
joint venture ZAO Terneftegas and some volumes of liquefied natural gas produced by its joint ventures OAO Yamal
LNG and OOO Cryogas-Vysotsk (see Note 29).
The Group purchases all volumes of unstable gas condensate produced by its joint ventures Nortgas, Arcticgas and
Terneftegas at ex-field prices primarily based on benchmark reference crude oil prices, as well as some volumes of
stable gas condensate produced by its joint venture Yamal LNG (see Note 29).
In accordance with tax legislation, the Group obtains reverse excise on raw oil (blend of hydrocarbons comprised of
one or more components of crude oil, stable gas condensate, vacuum gasoil, tar and fuel oil) sent for processing. The
amount of reverse excise on raw oil is reported as a deduction to expense for purchases of hydrocarbons in the “Reverse
excise” line item, as the Group obtains most of its raw oil from unstable gas condensate purchased from its joint
ventures.
35
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
20
TRANSPORTATION EXPENSES
Year ended 31 December:
2021 2020
Natural gas transportation by trunk and low-pressure pipelines
Stable gas condensate and liquefied petroleum gas transportation by rail
Stable gas condensate and refined products,
crude oil and liquefied natural gas transportation by tankers
Crude oil transportation by trunk pipelines
106,628
36,499
100,594
34,198
9,907
6,754
1,718
10,283
8,042
1,640
Other
Total transportation expenses
161,506
154,757
21
TAXES OTHER THAN INCOME TAX
The Group is subject to a number of taxes other than income tax, which are detailed as follows:
Year ended 31 December:
2021 2020
Unified natural resources production tax
Property tax
Other taxes
83,281
4,803
422
50,204
3,929
368
Total taxes other than income tax
88,506
54,501
22
MATERIALS, SERVICES AND OTHER
Year ended 31 December:
2021 2020
Employee compensation
Repair and maintenance
Materials and supplies
Preparation and processing of hydrocarbons
Electricity and fuel
Transportation services
Fire safety and security expenses
Liquefied petroleum gas volumes reservation expenses
Insurance expenses
17,033
3,791
2,412
2,227
1,818
1,304
1,304
1,205
634
14,027
3,294
1,833
2,323
1,702
1,140
1,152
1,205
462
Rent expenses
591
592
Labor safety expenses
565
703
Other
1,558
1,144
Total materials, services and other
34,442
29,577
36
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
23
GENERAL AND ADMINISTRATIVE EXPENSES
Year ended 31 December:
2021 2020
Employee compensation
Social expenses and compensatory payments
Legal, audit, and consulting services
Advertising expenses
26,122
2,753
1,358
988
17,849
4,128
1,289
599
Repair and maintenance expenses
Fire safety and security expenses
Business travel expense
740
616
283
947
581
187
Rent expenses
161
184
Other
1,229
1,031
Total general and administrative expenses
34,250
26,795
Auditor’s fees. AO PricewaterhouseCoopers Audit has served as the independent external auditor of PAO NOVATEK
for each of the reported financial years. The independent external auditor is subject to appointment at the Annual
General Meeting of shareholders based on the recommendations from the Board of Directors. The aggregate fees for
audit and other services rendered by PricewaterhouseCoopers Audit to the parent company of the Group included within
legal, audit, and consulting services are as follows:
Year ended 31 December:
2021
2020
Audits of PAO NOVATEK
(audit of the Group’s consolidated financial statements and
audit of statutory financial statements of PAO NOVATEK)
Other services
38
11
37
11
Total auditor’s fees and services
49
48
24
FINANCE INCOME (EXPENSE)
Year ended 31 December:
2021 2020
Interest expense (including transaction costs)
Interest expense on fixed rate debt
Interest expense on variable rate debt
6,849
1,076
9,879
172
The effect from recalculating of the amortized cost of a financial
liability due to a change in the repayment schedule (see Note 13)
3,886
11,811
(4,768)
-
10,051
(6,641)
Total
Less: capitalized interest
Interest expense on debt
7,043
3,410
Provisions for asset retirement obligations:
effect of the present value discount unwinding
Interest expense on lease liabilities
Other interest expense
886
426
109
960
566
3
Total interest expense
8,464
4,939
37
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
24
FINANCE INCOME (EXPENSE) (CONTINUED)
Year ended 31 December:
2021 2020
Interest income
Interest income on loans receivable classified
as at amortized cost
Interest income on loans receivable classified
as at fair value through profit or loss
Interest income on cash,
1,113
10,935
936
20,329
4,175
cash equivalents, deposits and other assets
3,952
Total interest income
16,000
25,440
Year ended 31 December:
Foreign exchange gain (loss)
2021
2020
Gains
23,069
340,662
Losses
(60,324)
(193,201)
Total foreign exchange gain (loss), net
(37,255)
147,461
25
INCOME TAX
Reconciliation of income tax. The table below reconciles actual income tax expense and theoretical income tax,
determined based on the applicable rates for each of the Group’s entities and their accounting profit before income tax.
Year ended 31 December:
2021
2020
Profit before income tax
501,204
129,596
Theoretical income tax expense at applicable rate of the Group’s entities
Increase (decrease) due to:
93,873
21,079
Permanent differences in respect
of the Group’s share of loss (profit) of joint ventures
Other differences
(47,022)
2,732
29,000
931
Total income tax expense
49,583
51,010
Domestic and foreign components of current income tax expense were:
Year ended 31 December:
2021
2020
Russian Federation income tax
Foreign income tax
42,511
2,220
50,602
1,414
Total current income tax expense
44,731
52,016
Effective income tax rate. The Russian statutory income tax rate for 2021 and 2020 was 20 percent. A number of the
Group’s investment projects were included by the government authorities in the list of priority projects, in respect of
them the Group was able to apply a reduced income tax rate. Profits of the Group’s foreign subsidiaries are taxed at
rates applicable in accordance with legislation of the respective jurisdiction.
The Group recognizes in profit before income tax its share of net profit (loss) from joint ventures, which influences the
consolidated profit of the Group but does not result in additional income tax expense (benefit) at the Group’s level. Net
profit (loss) of joint ventures was recorded in their financial statements on an after-tax basis. The dividend income
received from the joint ventures in which the Group holds at least a 50 percent interest is subject to a zero withholding
tax rate according to the Russian tax legislation.
38
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
25
INCOME TAX (CONTINUED)
For the years ended 31 December 2021 and 2020, the Group made cash payments for income tax in the amount of
RR 28.2 billion and RR 41 billion, respectively, and offset other taxes by applying a refund against income tax in the
amount of RR 14.4 billion and RR 7.1 billion, respectively.
Without the effect of net profit (loss) from joint ventures and effects from disposal of interests in subsidiaries and joint
ventures (initial recognition of gain on disposal and subsequent non-monetary revaluation of contingent consideration),
the effective income tax rate for the years ended 31 December 2021 and 2020 was 18.7 percent and 18.8 percent,
respectively.
In respect of PAO NOVATEK and the majority of its Russian subsidiaries, the Group submits a single consolidated
income tax return in accordance with Russian tax legislation (see Note 31).
Deferred income tax. Differences between IFRS and tax regulations give rise to certain temporary differences between
the carrying value of certain assets and liabilities for financial reporting purposes and for income tax purposes.
Deferred income tax balances are presented in the consolidated statement of financial position as follows:
At 31 December 2021
At 31 December 2020
Long-term deferred income tax assets (other non-current assets)
Long-term deferred income tax liabilities
22,565
(69,113)
22,694
(64,132)
Net deferred income tax liabilities
(46,548)
(41,438)
Deferred income tax assets expected to be realized within twelve months as at 31 December 2021 and 2020 were
RR 12,037 million and RR 6,194 million, respectively. Deferred tax liabilities expected to be reversed within twelve
months as at 31 December 2021 and 2020 were RR 4,435 million and RR 1,420 million, respectively.
Movements in deferred income tax assets and liabilities during the years ended 31 December 2021 and 2020 were as
follows:
Other
Statement of
Financial At 31 December
At 31 December
2020
Statement of Comprehensive
Income effect
Income effect Position effect
2021
Property, plant and equipment
Contingent consideration
Other
(54,290)
(15,383)
(1,420)
(5,027)
(573)
(3,078)
3
-
4
34
-
59
(59,280)
(15,956)
(4,435)
Deferred income tax liabilities
Less: deferred tax assets offset
Total deferred income tax liabilities
(71,093)
6,961
(8,678)
3,597
7
-
93
-
(79,671)
10,558
(64,132)
(5,081)
7
93
(69,113)
Tax losses carried forward
Property, plant and equipment
Asset retirement obligations
Inventories
Trade payables and accrued liabilities
Loans receivable
10,922
3,844
2,895
5,627
175
4,151
(3,146)
(299)
4,314
1,594
(2,737)
(51)
-
-
-
2
(60)
2
16
1
(18)
-
15,013
700
2,612
9,944
1,747
2,761
346
(4)
(302)
5
5,800
392
Other
-
Deferred income tax assets
29,655
(6,961)
22,694
3,826
(3,597)
229
(299)
-
(59)
-
33,123
(10,558)
22,565
Less: deferred tax liabilities offset
Total deferred income tax assets
Net deferred income tax liabilities
(299)
(292)
(59)
34
(41,438)
(4,852)
(46,548)
39
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
25
INCOME TAX (CONTINUED)
Other
Statement of
Financial At 31 December
At 31 December
2019
Statement of Comprehensive
Income effect
Income effect Position effect
2020
Property, plant and equipment
Contingent consideration
Other
(44,931)
(20,278)
(1,845)
(9,345)
4,895
510
(4)
-
(85)
(10)
(54,290)
(15,383)
(1,420)
-
-
Deferred income tax liabilities
Less: deferred tax assets offset
Total deferred income tax liabilities
(67,054)
4,908
(3,940)
2,053
(89)
-
(10)
-
(71,093)
6,961
(62,146)
(1,887)
(89)
(10)
(64,132)
Tax losses carried forward
Property, plant and equipment
Asset retirement obligations
Inventories
Trade payables and accrued liabilities
Loans receivable
8,241
3,545
2,542
1,950
1,412
1,349
669
2,686
299
352
3,681
(1,257)
(451)
(364)
2
-
-
(7)
-
1
-
10,922
3,844
2,895
5,627
175
(4)
20
2,414
87
-
2,488
-
5,800
392
Other
Deferred income tax assets
19,708
(4,908)
14,800
4,946
(2,053)
2,893
2,519
-
2,482
-
29,655
(6,961)
22,694
Less: deferred tax liabilities offset
Total deferred income tax assets
Net deferred income tax liabilities
2,519
2,430
2,482
2,472
(47,346)
1,006
(41,438)
At 31 December 2021, the Group had recognized deferred income tax assets of RR 15,013 million (31 December 2020:
RR 10,922 million) in respect of unused tax loss carry forwards of RR 75,215 million (31 December 2020:
RR 54,752 million). In accordance with the effective tax legislation of the Russian Federation, taxable profits can be
reduced in the amount of tax losses carried forward for relief during unlimited period of time, and at the same time
during the periods till the end of 2024 tax losses carried forward cannot exceed 50 percent of taxable profits. In
determining future taxable profits and the amount of tax benefits that are probable in the future, the Group’s
management makes judgments including expectations regarding the Group’s ability to generate sufficient future taxable
income and the projected time period over which deferred tax benefits will be realized.
40
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS
The accounting policies and disclosure requirements for the Group’s financial instruments have been applied to the line
items below:
At 31 December 2021
At 31 December 2020
Financial assets
Non-current
Current
Non-current
Current
At amortised cost
Long-term loans receivable
Trade and other receivables
Short-term bank deposits
with original maturity more than three months
Cash and cash equivalents
Other
26,847
602
7,941
129,499
11,558
426
6,017
71,255
-
-
38
60,177
45,920
265
-
-
13
62,876
119,707
1,316
At fair value through profit or loss
Long-term loans receivable
Contingent consideration
Commodity derivatives
282,552
79,782
684
155,532
-
113,467
379,069
76,918
13
35,236
-
13,041
Total financial assets
390,505
512,801
467,997
309,448
Financial liabilities
At amortised cost
Long-term debt
Long-term lease liabilities
Short-term debt
Interest payable
Trade and other payables
Dividends payable to non-controlling interest
67,014
3,426
106,751
3,589
6,278
199
106,391
147
168,988
6,670
53,152
3,798
-
1,529
58,935
-
-
-
-
-
-
-
-
-
At fair value through profit or loss
Commodity derivatives
682
118,173
880
14,278
Total financial liabilities
71,122
341,528
176,538
131,692
Fair value measurement. The Group evaluates the quality and reliability of the assumptions and data used to measure
fair value in accordance with IFRS 13, Fair Value Measurement, in the three hierarchy levels as follows:
i.
quoted prices in active markets (Level 1);
ii. inputs other than quoted prices included in Level 1 that are directly or indirectly observable in the market
(externally verifiable inputs) (Level 2); or
iii. inputs that are not based on observable market data (unobservable inputs) and require applying judgment by the
Group (Level 3).
Commodity derivative instruments. The Group conducts natural gas foreign trading in active markets under long-term
and short-term purchase and sales contracts, as well as purchases and sells various derivative instruments (with
reference to the European natural gas hubs) for delivery optimization and to decrease exposure to the risk of negative
impact of natural gas prices changes. In addition, from time to time, the Group enters into commodity derivative
contracts to manage price risks relating to the Group’s own use liquid hydrocarbons purchase agreements.
These contracts include pricing terms that are based on a variety of commodities and indices, and/or volume flexibility
options that collectively qualify them under the scope of IFRS 9, Financial Instruments, although the activity
surrounding certain contracts involves the physical delivery of hydrocarbons. All contracts mentioned above are
recognized in the consolidated statement of financial position at fair value with movements in fair value recognized in
the consolidated statement of income.
41
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The amounts recognized by the Group in respect of the commodity derivative contracts measured in accordance with
IFRS 9, Financial Instruments, are as follows:
At 31 December 2021
Level 1
Level 2
Total
Within other non-current and current assets
Within other non-current and current liabilities
67,384
(63,275)
46,767
(55,580)
114,151
(118,855)
At 31 December 2020
Within other non-current and current assets
Within other non-current and current liabilities
2,751
(2,542)
10,303
(12,616)
13,054
(15,158)
Year ended 31 December:
Included in other operating income (loss)
2021
2020
Operating realized income (loss)
Change in fair value
(1,278)
(2,600)
1,479
(1,689)
The fair value of commodity derivative contracts related to Level 1 is determined based on available quotes on an active
market (mark-to-market analysis).
The fair value of commodity derivative contracts related to Level 2 is determined based on different valuation
techniques and models (the mark-to-market and mark-to-model analysis), mainly based on input data directly or by
implication observable on an active market.
The table below represents the effect on the fair value estimation of portfolio of commodity derivative contracts that
would occur from hydrocarbon prices changes by ten percent:
Year ended 31 December:
Effect on the fair value
2021
2020
Increase by ten percent
Decrease by ten percent
1,537
(1,537)
(285)
285
Recognition and remeasurement of the shareholders’ loans to joint ventures. Terms and conditions of certain
shareholders’ loans provided by the Group to its joint ventures OAO Yamal LNG and OOO Arctic LNG 2 contain
certain financial (benchmark interest rates adjusted for the borrower credit risk) and non-financial (actual interest rates
on the borrowings of shareholders, expected free cash flows of the borrower and expected maturities) variables and in
accordance with the Group’s accounting policy were classified as financial assets at fair value through profit or loss.
The following table summarizes the movements in the carrying amounts of shareholders’ loans provided to joint
ventures, which are accounted for at fair value through profit or loss:
Year ended 31 December:
2021
2020
At 1 January
414,305
268,024
Loans provided
86,931
(60,051)
120,552
(48,380)
Repayment of loans and accrued interest
Initial measurement at fair value allocated
to increase the Group’s investments in joint ventures (see Note 6)
Subsequent remeasurement
-
(19,906)
at fair value recognized in profit or loss as follows:
– Interest income (using the effective interest rate method)
– Foreign exchange gain (loss), net
10,935
(33,636)
20,329
81,083
– Remaining effect from changes in fair value
(attributable to free cash flows of the borrowers and interest rates)
19,600
(7,397)
At 31 December
438,084
414,305
42
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
Fair value measurement of shareholders’ loans to joint ventures is determined using benchmark interest rates adjusted
for the borrower credit risk and internal free cash flows models based on the borrower’s strategic plans approved by the
shareholders of the joint ventures. Due to the assumptions underlying fair value estimation, shareholders’ loans are
categorized as Level 3 in the fair value hierarchy, described above.
The fair value of the shareholders’ loans is sensitive to benchmark interest rates changes. The table below represents
the effect on fair value of the shareholders’ loans that would occur from one percent changes in the benchmark interest
rates.
Year ended 31 December:
Effect on the fair value
2021
2020
Increase by one percent
Decrease by one percent
(9,948)
10,399
(15,975)
16,909
Contingent consideration. According to the terms of the transactions on the sale in 2019 of a 40 percent participation
interest in OOO Arctic LNG 2, total consideration comprises, inter alia, contingent cash payments in total of up to
USD 3,200 million equivalent depending on average crude oil benchmark prices level for the year preceding each
payment. The contingent payments dates are linked to the dates of launching the Arctic LNG 2 project’s LNG trains.
Under IFRS 9, Financial Instruments, this contingent consideration contains a commodity based embedded derivative
and was classified as a financial asset measured at fair value through profit or loss. Interest income, foreign exchange
differences and the remaining effect from fair value remeasurement of the contingent consideration (included in “Other
operating income (loss)” line item) are disclosed separately in the consolidated statement of income.
The following table summarizes the movements in the carrying amounts of the contingent consideration:
Year ended 31 December:
2021
2020
At 1 January
76,918
101,391
Subsequent remeasurement
at fair value recognized in profit or loss as follows:
– Interest income (using the effective interest rate method)
– Foreign exchange gain (loss), net
2,409
455
2,730
20,620
– Remaining effect from changes in fair value
(attributable to crude oil benchmark prices forecast)
-
(47,823)
At 31 December
79,782
76,918
Fair value measurement of the contingent consideration is determined based on cash flow model using a discount rate,
internal projections of the crude oil benchmark price dynamics and the Arctic LNG 2 project’s realization schedule.
Due to the assumptions underlying fair value estimation, the contingent consideration is categorized as Level 3 in the
fair value hierarchy, described above.
The table below represents the effect on the fair value estimation of the contingent consideration that would occur from
crude oil price changes throughout the valuation period:
Year ended 31 December:
Effect on the fair value
2021
2020
Increase by one percent
Decrease by one percent
5,238
(5,522)
5,048
(5,321)
Financial risk management objectives and policies. In the ordinary course of business, the Group is exposed to market
risks from fluctuating prices on commodities purchased and sold, prices of other raw materials, currency exchange rates
and interest rates. Depending on the degree of price volatility, such fluctuations in market prices may create volatility
in the Group’s financial results. To effectively manage the variety of exposures that may impact financial results, the
Group’s overriding strategy is to maintain a strong financial position.
43
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The Group’s principal risk management policies are established to identify and analyze the risks faced by the Group,
to set appropriate risk limits and controls, and to monitor risks and adherence to these limits. Risk management policies
and systems are reviewed regularly to reflect changes in market conditions and the Group’s activities.
Market risk. Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates, and
commodity and equity prices, will affect the Group’s financial results or the value of its holdings of financial
instruments. The primary objective of mitigating these market risks is to manage and control market risk exposures,
while optimizing the return on risk.
The Group is exposed to market price movements relating to changes in commodity prices such as crude oil, oil and
gas condensate refined products and natural gas (commodity price risk), foreign currency exchange rates, interest rates,
equity prices and other indices that could adversely affect the value of the Group’s financial assets, liabilities or expected
future cash flows.
(a) Foreign exchange risk
The Group is exposed to foreign exchange risk arising from various exposures in the normal course of business,
primarily with respect to the US dollar and euro. Foreign exchange risk arises primarily from future commercial
transactions, recognized assets and liabilities when assets and liabilities are denominated in a currency other than the
functional currency.
44
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The Group’s overall strategy is to have no significant net exposure in currencies other than the Russian rouble, the US
dollar and euro. The Group may utilize foreign currency derivative instruments to manage the risk exposures associated
with fluctuations on certain firm commitments for sales and purchases, debt instruments and other transactions that are
denominated in currencies other than the Russian rouble, and certain non-Russian rouble assets and liabilities.
The carrying amounts of the Group’s financial instruments are denominated in the following currencies:
Russian
At 31 December 2021
Financial assets
rouble
US dollar
Euro
Other
Total
Non-current
Long-term loans receivable
Trade and other receivables
Contingent consideration
Commodity derivatives
Other
5,408
348
-
-
303,991
-
252
-
-
38
309,399
602
79,782
684
2
-
684
-
-
-
-
79,782
-
-
38
Current
Current portion
of long-term loans receivable
Trade and other receivables
Commodity derivatives
Short-term bank deposits with original
maturity more than three months
Cash and cash equivalents
Other
-
35,191
-
-
35,588
-
163,473
56,980
113,467
-
1,740
-
163,473
129,499
113,467
-
25,870
-
60,177
4,292
-
-
14,831
265
-
927
-
60,177
45,920
265
Financial liabilities
Non-current
Long-term debt
Long-term lease liabilities
Commodity derivatives
-
(124)
-
-
(1,851)
-
(67,014)
(1,251)
(682)
-
(200)
-
(67,014)
(3,426)
(682)
Current
Current portion of long-term debt
Short-term debt
-
-
(98,343)
-
(8,408)
(6,278)
-
-
(106,751)
(6,278)
Current portion
of long-term lease liabilities
Interest payable
(115)
-
(2,235)
(198)
(1,089)
(1)
(150)
-
(3,589)
(199)
Trade and other payables
Dividends payable
(55,208)
(4,976)
(45,762)
(445)
(106,391)
to non-controlling interest
Commodity derivatives
(147)
-
-
-
-
-
-
(147)
(118,173)
(118,173)
Net exposure
11,223
72,236
405,035
2,162
490,656
45
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
Russian
At 31 December 2020
Financial assets
rouble
US dollar
Euro
Other
Total
Non-current
Long-term loans receivable
Trade and other receivables
Contingent consideration
Commodity derivatives
Other
6,907
348
14,227
369,493
-
78
-
-
13
390,627
426
76,918
13
-
-
-
13
-
-
-
-
76,918
-
-
13
Current
Trade and other receivables
33,089
26,963
9,758
1,445
71,255
Current portion
of long-term loans receivable
Commodity derivatives
Short-term bank deposits with original
maturity more than three months
Cash and cash equivalents
Other
-
-
35,166
-
6,087
13,041
-
-
41,253
13,041
-
13,056
908
62,876
78,812
-
-
26,519
408
-
1,320
-
62,876
119,707
1,316
Financial liabilities
Non-current
Long-term debt
Long-term lease liabilities
Commodity derivatives
-
(276)
-
(114,755)
(3,706)
-
(54,233)
(2,367)
(880)
-
(321)
-
(168,988)
(6,670)
(880)
Current
Current portion of long-term debt
Current portion
-
(53,152)
-
-
(53,152)
of long-term lease liabilities
Interest payable
Trade and other payables
Commodity derivatives
(260)
(2,220)
(1,528)
(4,487)
-
(1,162)
(1)
(6,500)
(14,278)
(156)
(3,798)
(1,529)
(58,935)
(14,278)
-
(47,568)
-
-
(380)
-
Net exposure
6,204
115,114
345,898
1,999
469,215
The Group chooses to provide information about market risk and potential exposure to hypothetical loss from its use of
financial instruments through sensitivity analysis disclosures in accordance with IFRS requirements.
The sensitivity analysis depicted in the table below reflects the hypothetical profit (loss) that would occur assuming a
ten percent increase in exchange rates and no changes in the portfolio of instruments and other variables at 31 December
2021 and 2020, respectively:
Year ended 31 December:
Effect on profit before income tax
Increase in exchange rate
2021
2020
RUB / USD
RUB / EUR
10%
10%
7,224
40,504
11,511
34,590
The effect of a corresponding ten percent decrease in exchange rate is approximately equal and opposite.
(b) Commodity price risk
The Group’s overall commercial trading strategy in natural gas and liquid hydrocarbons is centrally managed. Changes
in commodity prices could negatively or positively affect the Group’s results of operations. The Group manages the
exposure to commodity price risk by optimizing its core activities to achieve stable price margins.
46
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
Natural gas supplies on the Russian domestic market through the Unified Gas Supply System. As an independent
natural gas producer, the Group is not subject to the Government’s regulation of natural gas prices, except for those
volumes sold to residential customers. Nevertheless, the Group’s prices for natural gas sold are strongly influenced by
the prices regulated by the governmental agency of the Russian Federation that carries out state regulation of prices and
tariffs for goods and services of natural monopolies in energy, utilities and transportation.
Wholesale natural gas prices for sales to all customer categories on the domestic market were increased by the Federal
Anti-Monopoly Service by 3 percent effective 1 August 2020 and remained unchanged through the end of the second
quarter 2021. Effective 1 July 2021, the wholesale prices were increased by 3 percent.
Management believes it has limited downside commodity price risk for natural gas in the Russian Federation and does
not use commodity derivative instruments for trading purposes. The Group’s natural gas purchase and sales contracts
in the domestic market are not considered to meet the definition of a derivative and are not within the scope of IFRS 9,
Financial Instruments. However, to effectively manage the margins achieved through its natural gas trading activities,
management has established targets for volumes sold to wholesale traders and end-customers.
LNG supplies. The Group sells liquefied natural gas purchased primarily from its joint ventures Yamal LNG and
Cryogas-Vysotsk mainly on international markets under short- and long-term contracts at prices based on benchmark
natural gas prices at the major natural gas hubs and benchmark crude oil prices. The Group sells liquefied natural gas
produced at its small-scale LNG plant in the Chelyabinsk region mainly on the domestic market through its refueling
complexes at prices depending on oil products prices on the domestic market. The Group’s LNG purchase and sales
contracts are not considered to meet the definition of a derivative and are not within the scope of IFRS 9, Financial
Instruments.
LNG regasification activity in Europe. The Group purchases and sells regasified LNG in Europe primarily at prices
linked to natural gas prices at major European natural gas hubs. Regasified LNG purchase and sales contracts are not
considered to meet the definition of a derivative and are not within the scope of IFRS 9, Financial Instruments.
Natural gas trading activities on the European markets. The Group purchases and sells natural gas on the European
markets under short- and long-term supply contracts, as well as purchases and sells different derivative instruments
based on formulas with reference to benchmark natural gas prices quoted for the North-Western European natural gas
hubs, crude oil and oil products prices and/or a combination thereof. Therefore, the Group’s results from natural gas
foreign trading and derivative instruments foreign trading are subject to commodity price volatility based on
fluctuations or changes in the respective benchmark prices.
Liquid hydrocarbons supplies. The Group sells its crude oil, stable gas condensate and gas condensate refined products
under short-term contracts. Stable gas condensate and naphtha volumes sold to the Asia-Pacific Region, European and
North American markets are primarily based on benchmark crude oil prices of Brent and/or naphtha prices, mainly of
Naphtha Japan or Naphtha CIF NWE, plus a premium or a discount, depending on current market situation. Other gas
condensate refined products volumes sold mainly to the European market are based on benchmark jet fuel prices of Jet
CIF NWE and gasoil prices of Gasoil 0.1 percent CIF NWE plus a premium or a discount, depending on current market
situation. Crude oil sold internationally is based on benchmark crude oil prices of Brent or Dubai, plus a premium or a
discount, and on a transaction-by-transaction basis or based on benchmark crude oil prices of Brent or Urals or a
combination thereof for volumes sold domestically.
As a result, the Group’s revenues from the sales of liquid hydrocarbons are subject to fluctuations in the crude oil and
gas condensate refined products benchmark prices. The Group’s liquid hydrocarbons purchase and sales contracts are
mainly concluded to meet supply requirements to fulfill contract obligations or for own consumption and are not within
the scope of IFRS 9, Financial Instruments. From time to time, the Group also enters into commodity derivative
contracts to manage price risks relating to the Group’s own use liquid hydrocarbons purchase agreements. Such
commodity derivative contracts are accounted for in accordance with IFRS 9, Financial Instruments.
47
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
(c) Cash flow and fair value interest rate risk
The Group is subject to interest rate risk on financial liabilities with variable interest rates. Changes in interest rates
impact primarily debt by changing either their fair value (fixed rate debt) or their future cash flows (variable rate debt).
To mitigate this risk, the Group’s treasury function performs periodic analysis of the current interest rate environment
and depending on that analysis management makes decisions whether it would be more beneficial to obtain financing
on a fixed-rate or variable-rate basis. In cases where the change in the current market fixed or variable interest rates is
considered significant management may consider refinancing a particular debt on more favorable interest rate terms.
The interest rate profiles of the Group’s interest-bearing financial instruments are as follows:
At 31 December 2021
At 31 December 2020
RR million
Percentage
RR million
Percentage
At fixed rate
At variable rate
113,029
67,014
63%
37%
176,623
45,517
80%
20%
Total
180,043
100%
222,140
100%
The Group centralizes the cash requirements and surpluses of controlled subsidiaries and the majority of their external
financing requirements, and applies, on its consolidated net debt position, a funding policy to optimize its financing
costs and manage the impact of interest rate changes on its financial results in line with market conditions. In this way,
the Group is able to ensure that the balance between the floating rate portion of its debt and its cash surpluses has a low
level of exposure to any changes in interest rates over the short-term. This policy makes it possible to significantly limit
the Group’s sensitivity to interest rate volatility.
The Group’s financial results are sensitive to changes in interest rates on the floating rate portion of the Group’s debt
portfolio. If the interest rates applicable to floating rate debt were to increase by 100 basis points (one percent) at the
reporting dates, assuming all other variables remain constant, it is estimated that the Group’s profit before taxation
would decrease by the amounts shown below:
Year ended 31 December:
Effect on profit before income tax
2021
2020
Increase by 100 basis points
670
455
The effect of a corresponding 100 basis points decrease in interest rate is approximately equal and opposite.
Credit risk. Credit risk refers to the risk exposure that a potential financial loss to the Group may occur if a counterparty
defaults on its contractual obligations.
Credit risk is managed on a Group level and arises from cash and cash equivalents, other bank deposits, as well as credit
exposures to customers, including outstanding trade receivables and committed transactions. Cash, cash equivalents
and deposits are placed only with banks that are considered by the Group during the whole deposit period to have
minimal risk of default.
The Group’s trade and other receivables consist of a large number of customers, spread across diverse industries and
geographical areas. The Group has developed standard credit payment terms and constantly monitors the status of trade
and other receivables and the creditworthiness of the customers.
Most of the Group’s international natural gas and liquid hydrocarbons sales are made to customers with independent
external ratings; however, if the customer has a credit rating below BBB-, the Group requires the collateral for the trade
receivable to be in the form of letters of credit from banks with an investment grade rating. Most of domestic sales of
liquid hydrocarbons are made on a 100 percent prepayment basis.
As a result of the domestic regional natural gas trading activities, the Group is exposed to the risk of payment defaults
of small and medium-sized industrial users and individuals. To minimize credit risk the Group monitors the
recoverability of these debtors by analyzing ageing of receivables by type of customers and their respective prior
payment history.
48
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the consolidated
statement of financial position.
The table below highlights the Group’s trade and other receivables to published credit ratings of its counterparties
and/or their parent companies:
Moody’s, Fitch and/or Standard & Poor’s
At 31 December 2021
At 31 December 2020
Trade and other receivables secured by letters of credit
Trade and other receivables not secured by letters of credit:
– investment grade rating
51,059
14,568
54,109
984
37,073
205
– non-investment grade rating
– no external rating
23,347
19,409
Total trade and other receivables
129,499
71,255
The table below highlights the Group’s cash, cash equivalents and short-term bank deposits with original maturity more
than three months to published credit ratings of its banks and/or their parent companies:
Moody’s, Fitch and/or Standard & Poor’s
At 31 December 2021
At 31 December 2020
Investment grade rating
Non-investment grade rating
No external rating
106,020
45
182,542
34
7
32
Total cash, cash equivalents and short-term bank
deposits with original maturity more than three months
106,097
182,583
As at 31 December 2021, the Group’s bank deposits with original maturity more than three months included financial
instruments for the total amount of RR 37 billion, consisting of multiple arrangements, structured to be economically
equivalent to a bank deposit, which in accordance with the Group’s accounting policy were accounted as a single
transaction (as a bank deposit at amortised cost).
Investment grade ratings classification referred to as Aaa to Baa3 for Moody’s Investors Service, and as AAA to BBB-
for Fitch Ratings and Standard & Poor’s.
In addition, the Group provides long-term loans receivable to its joint ventures for development, construction and
acquisitions of oil and gas assets. Required amount of loans and their maturity schedules are based on the budgets and
strategic plans approved by the shareholders of the joint ventures.
Liquidity risk. Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due.
The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the
Group’s reputation. In managing its liquidity risk, the Group maintains adequate cash reserves and debt facilities,
continuously monitors forecast and actual cash flows and matches the maturity profiles of financial assets and liabilities.
The Group prepares various financial plans (monthly, quarterly and annually) which ensures that the Group has
sufficient cash on demand to meet expected operational expenses, financial obligations and investing activities for a
period of 30 days or more. The Group has entered into a number of short-term credit facilities. Such credit lines and
overdraft facilities can be drawn down to meet short-term financing needs. To fund cash requirements of a more
permanent nature, the Group will normally raise long-term debt in available international and domestic markets.
49
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
The following tables summarize the maturity profile of the Group’s financial liabilities, except for commodity
derivative contracts, based on contractual undiscounted payments, including interest payments:
Less than
Between
Between
More than
5 years
At 31 December 2021
1 year 1 and 2 years 2 and 5 years
Total
Debt
Principal
Interest
113,566
5,064
3,774
106,391
147
-
1,585
3,031
-
67,255
2,745
-
-
72
-
180,821
9,394
7,189
106,391
147
Lease liabilities
Trade and other payables
Dividends payable to non-controlling interest
312
-
-
-
-
Total financial liabilities
228,942
4,616
70,312
72
303,942
At 31 December 2020
Debt
Principal
Interest
Lease liabilities
Trade and other payables
53,159
8,322
3,949
88,083
6,416
3,819
-
60,758
7,690
3,436
-
25,696
3,194
71
227,696
25,622
11,275
58,935
58,935
-
Total financial liabilities
124,365
98,318
71,884
28,961
323,528
The following tables represent the maturity profile of the Group’s commodity derivative contracts based on
undiscounted cash flows:
Less than
1 year
Between
1 and 2 years
At 31 December 2021
Total
Cash inflow
430,578
2,151
432,729
Cash outflow
(435,686)
(2,151)
(437,837)
Net cash flows
(5,108)
-
(5,108)
At 31 December 2020
Cash inflow
155,732
18,975
174,707
Cash outflow
(156,944)
(19,843)
(176,787)
Net cash flows
(1,212)
(868)
(2,080)
50
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
26
FINANCIAL INSTRUMENTS AND FINANCIAL RISK FACTORS (CONTINUED)
Reconciliation of liabilities arising from financing activities. The movements in the Group’s liabilities arising from
financing activities were as follows:
Debt and
interest payable
Long-term lease
liabilities
Total
163,852
26,902
At 1 January 2020
153,389
10,463
Cash flows (*)
30,751
(3,849)
Non-cash movements
Non-cash additions
Interest accrued
-
10,051
29,478
956
566
2,332
956
10,617
31,810
Foreign exchange movements
At 31 December 2020
223,669
10,468
234,137
Cash flows
(52,945)
(3,687)
(56,632)
Non-cash movements
Non-cash additions
Interest accrued
-
11,811
(2,293)
72
426
(264)
72
12,237
(2,557)
Foreign exchange movements
At 31 December 2021
180,242
7,015
187,257
(*)
–
Excluding prepayments under lease agreements, in respect of which lease liabilities were not recognized.
Capital management. The primary objectives of the Group’s capital management policy are to ensure a strong capital
base to fund and sustain its business operations through prudent investment decisions and to maintain investor, market
and creditor confidence to support its business activities.
At 31 December 2021, the Group had investment grade ratings of BBB by Standard & Poor’s, BBB by Fitch Ratings
and Baa2 by Moody’s Investors Service. The Group has established certain financial targets and coverage ratios that it
monitors on a quarterly and annual basis to maintain its credit ratings.
The Group manages its capital on a corporate-wide basis to ensure adequate funding to sufficiently meet the Group’s
operational requirements. The majority of external debts raised to finance NOVATEK’s wholly owned subsidiaries are
centralized at the parent level, and financing to Group entities is facilitated through inter-company loan arrangements
or additional contributions to share capital.
The Group has a stated dividend policy that distributes not less than 50 percent of the Group’s consolidated net profit
determined according to IFRS, adjusted for one-off profits or losses (until December 2020, the minimum dividend
payout level was set at 30 percent of the Group’s adjusted consolidated net profit). The dividend payment for a specific
year is determined after taking into consideration the Group’s development strategy. Dividends are recommended by
the Board of Directors of NOVATEK and approved by the NOVATEK’s shareholders.
The Group defines the term “capital” as equity attributable to PAO NOVATEK shareholders plus net debt (total debt
less cash and cash equivalents and bank deposits with maturity more than three months). There were no changes to the
Group’s approach to capital management during 2021. At 31 December 2021 and 2020, the Group’s capital totaled
RR 1,968 billion and RR 1,660 billion, respectively.
51
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
27
CONTINGENCIES AND COMMITMENTS
Operating environment. The Russian Federation continues to display some characteristics of an emerging market. In
addition, the Russian economy is particularly sensitive to world oil and gas prices. The tax, currency and customs
legislation is subject to varying interpretations and frequent changes. The Group’s business operations are primarily
located in the Russian Federation and are thus exposed to the economic and financial markets of the Russian Federation.
The spread of the COVID-19 virus in 2020 has caused financial and economic stress to the global markets that is out
of the Group’s management control. In particular, the COVID-19 pandemic has led to lower demand for crude oil,
natural gas and oil products, which combined with the increase in the supply of crude oil due to the cancellation of the
OPEC+ production agreement in March 2020 has led to a fall in global hydrocarbon commodity prices. From the second
quarter 2020, global economic activity began a gradual recovery following the partial removals of restrictions aimed at
preventing the epidemic spread, as well as a partial recovery in benchmark crude oil prices following the new OPEC+
production agreement reached in April 2020 and the compliance to the target cuts by its participants.
In 2021, the OPEC+ participants continued to restrict their production targets due to the ongoing instability caused by
the spread of the COVID-19 virus and its variants, as well as stricter quarantine measures enforced by some countries.
The maintenance of the restricted production targets as well as an increase in hydrocarbons consumption due to the
severe cold weather in Europe, Asia and North America have led to a significant increase in benchmark hydrocarbons
prices in the first quarter 2021.
Starting from May 2021, OPEC+ began to gradually lift the restrictions on crude oil production targets due to the
increased mobility of population, signs of renewed economic activities and crude oil demand recovery in the major
consumer countries. In July 2021, the OPEC+ participants made a decision to further increase crude oil production
volumes and extended the agreement on production restrictions until the end of 2022. Nevertheless, the crude oil supply
still lagged behind global demand due to faster than expected economic recovery resulting in further price increases in
the second and third quarters 2021. In addition, actual crude oil production by OPEC+ was not consistent with the
increased production plans due to accidents and repair works on oil facilities in a number of countries, which has led to
a growth in a deficit in crude oil and an increase in benchmark prices in the fourth quarter. As a result, during 2021,
benchmark crude oil prices returned to the pre-pandemic levels of 2019 and continued further growth.
The European and Asian natural gas markets in 2021 were impacted by faster than expected recovery of demand after
it was hit by the COVID-19 pandemic, weather factors (cold winter and hot summer, low wind speeds in Europe and
droughts in South America) and supply disruptions that have led to low storage levels in key consuming regions and a
strong price rally in the second half of 2021.
Further developments surrounding the COVID-19 virus spread remain uncertain and may continue to influence our
future earnings, cash flows and financial position.
The Group’s management is taking necessary precautions to protect the safety and well-being of employees, contractors
and their families against the infectious spread of COVID-19, while maintaining commitment to meet the energy needs
of customers domestically and internationally. The Group’s management continues to work closely with federal,
regional and local authorities, as well as partners, to contain the spread of the coronavirus and to take appropriate
actions, where necessary, to minimize the possible disruptions of the Group’s business operations.
Sectoral sanctions imposed by the U.S. government. On 16 July 2014, the Office of Foreign Assets Control (OFAC)
of the U.S. Treasury included PAO NOVATEK on the Sectoral Sanctions Identification List (the “List”), which
prohibits U.S. persons or persons within the United States from providing new financing to the Group for longer than
60 days. Whereas all other transactions, including financial, carried out by U.S. persons or within the United States
with the Group are permitted. The inclusion on the List has not impacted the Group’s business activities, in any
jurisdiction, nor does it affect the Group’s assets and debt.
Management has reviewed the Group’s capital expenditure programs and existing debt portfolio and has concluded that
the Group has sufficient liquidity, through internally generated (operating) cash flows, to adequately fund its core oil
and gas business operations including financing planned capital expenditure programs of its subsidiaries, as well as to
repay and service Group’s short-term and long-term debt existing at the current reporting date and, therefore, inclusion
on the List does not adversely impact the Group’s operational activities.
The Group together with its foreign partners currently raises necessary financing for our joint ventures from
non-US debt markets and lenders.
52
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
27
CONTINGENCIES AND COMMITMENTS (CONTINUED)
Contractual commitments. At 31 December 2021, the Group had contractual capital expenditures commitments
aggregating approximately RR 221 billion (at 31 December 2020: RR 248 billion) mainly for development of LNG
projects (through 2025), and for development at the Kharbeyskoye (through 2023) and Geofizicheskoye (through 2022)
fields, the Yevo-Yakhinskiy (through 2024) license area and the Gydanskoye (through 2023) field, all in accordance
with duly signed agreements as well as for construction of a hydrocracker unit with related expansion of the Gas
Condensate Fractionation and Transshipment Complex located at the port of Ust-Luga on the Baltic Sea (through 2023).
At 31 December 2021 and 2020, the Group was a participant of joint operations on exploration and production in
Montenegro (50 percent participation interest) and in Republic of Lebanon (20 percent participation interest) under the
agreements concluded with the State of Montenegro and the Ministry of Energy and Water of Republic of Lebanon,
respectively. Jointly with other participants of these agreements, the Group committed to conduct mandatory work
program exploration activities during the established periods, as stipulated by these agreements. At the date of the
issuance of these financial statements, the maximum amount to be paid by the Group in case of non-performance of
work program exploration activities is EUR 6 million to the State of Montenegro and EUR 4.6 million to the Republic
of Lebanon (at 31 December 2020: EUR 42.5 million and EUR 5.8 million, respectively).
The Group has entered into a number of marine tankers time charter agreements for the period from 12 to 29 years,
under which provision of the services has not yet commenced. At 31 December 2021, the Group’s future minimum
payments under these charter agreements amounted to RR 201 billion (at 31 December 2020: RR 135 billion).
At 31 December 2020, OOO Arctic Transshipment, which was a Group’s subsidiary at that time and starting from July
2021 became a Group’s joint venture (see Note 4), entered into floating gas storage units bareboat charter agreements
for the period of 20 years, under which provision of the services has not yet commenced. These floating gas storage
units will become a part of the two LNG transshipment terminals currently under construction in the Kamchatka and
Murmansk regions. In the second quarter 2021, OOO Arctic Transshipment signed a long-term take-or-pay agreement
with the Group’s joint venture OOO Arctic LNG 2 on the usage of these LNG terminals. At 31 December 2020, future
minimum payments of OOO Arctic Transshipment under these bareboat charter agreements amounted to RR 99 billion.
Guarantees issued. In accordance with the project financing agreements of OAO Yamal LNG, the Group issued
guarantees, financial and non-financial, which cover only limited specific risks of the project. Non-financial guarantees
represent undertakings to provide repayable funds to the project to the extent necessary for the project to fulfil its
obligations to creditors, upon occurrence of limited events, and may not exceed USD 5.9 billion at 31 December 2021
and 2020. Payments under financial guarantees may be claimed only upon Yamal LNG’s default on its obligations to
creditors, and the amount of these financial guarantees depends on macroeconomic factors (benchmark hydrocarbon
prices and foreign exchange rates), but may not exceed USD 2.4 billion and EUR 1.0 billion at 31 December 2021
and 2020. Based on the current estimations and long-term macroeconomic forecasts of the Group’s management, the
likelihood of claims under these financial guarantees is remote.
The aggregated amount of non-financial guarantees in respect of the Arctic LNG 2 project issued by the Group to a
number of third parties (LNG-vessels owners, LNG-terminals operators and banks) in favor of the Group’s joint venture
OOO Arctic LNG 2 totaled EUR 3.0 billion and USD 2.1 billion at 31 December 2021 (at 31 December 2020:
USD 2.0 billion). These non-financial guarantees have various terms depending mostly on the successful project
completion (finalization of the LNG plant construction and achievement of its full production capacity).
53
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
27
CONTINGENCIES AND COMMITMENTS (CONTINUED)
At 31 December 2020, the aggregated amount of non-financial guarantees issued by the Group to a Russian bank in
respect of the Group’s joint venture Cryogas-Vysotsk totaled EUR 276 million. In 2021, these guarantees have been
withdrawn as all the conditions proving successful project completion have been met.
The Group also issued non-financial performance guarantees to OOO Arctic LNG 2 in respect of the obligations of the
joint venture OOO SMART LNG relating to provision of services under long-term marine tankers time charter
agreements, to the extent of the Group’s participation interest in OOO SMART LNG.
The outflow of resources embodying economic benefits required to settle the obligations under the aforementioned
guarantees issued by the Group is not probable; therefore, no provision for these liabilities was recognized in the
consolidated financial statements.
Taxation. Russian tax, currency and customs legislation is subject to varying interpretations, and changes, which can
occur frequently. Correspondingly, the relevant regional and federal tax authorities may periodically challenge
management’s interpretation of such taxation legislation as applied to the Group’s transactions and activities.
Furthermore, events within the Russian Federation suggest that the tax authorities may be taking a more assertive
position in its interpretation of the legislation and assessments, and it is possible that transactions and activities that
have not been challenged in the past may be challenged. As a result, significant additional taxes, penalties and interest
may be assessed. Fiscal periods remain open to review by the authorities in respect of taxes for three calendar years
preceding the year of review. Under certain circumstances reviews may cover longer periods.
Management believes that its interpretation of the relevant legislation is appropriate and that it is probable that the
Group’s tax, currency and customs positions will be sustained. Where management believes it is probable that a position
cannot be sustained, an appropriate amount has been accrued in the consolidated financial statements.
Mineral licenses. The Group is subject to periodic reviews of its activities by governmental authorities with respect to
the requirements of its mineral licenses. Management cooperates with governmental authorities to agree on remedial
actions necessary to resolve any findings resulting from these reviews. Failure to comply with the terms of a license
could result in fines, penalties or license limitation, suspension or revocation. The Group’s management believes any
issues of non-compliance will be resolved through negotiations or corrective actions without any material adverse effect
on the Group’s financial position, results of operations or cash flows.
The majority of the Group’s oil and gas fields and license areas are located in the YNAO. Licenses are issued by the
Federal Agency for the Use of Natural Resources of the Russian Federation and the Group pays unified natural resources
production tax to produce crude oil, natural gas and unstable gas condensate from these fields and contributions for
exploration of license areas.
54
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
27
CONTINGENCIES AND COMMITMENTS (CONTINUED)
The principal licenses of the Group and its joint ventures and their expiry dates are:
Field
License holder
License expiry date
Subsidiaries:
Geofizicheskoye
Gydanskoye
Soletskoye+Khanaveyskoye
Verhnetiuteyskoye and West Seyakhinskoye
Yurkharovskoye
OOO Arctic LNG 1
OOO Arctic LNG 1
OOO Arctic LNG 1
2034
2044
2046
2044
2034
OOO Obskiy GCC
OOO NOVATEK-Yurkharovneftegas
Urengoyskoye (within the Yevo-Yakhinsky
and Ust-Yamsoveysky license areas)
North Chaselskoye
Beregovoye
Nyakhartinskoye
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
2034/2198
Life of field
2070
2043
East Urengoyskoye+North Yesetinskoye
(
within the Yevo-Yakhinsky and
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
2034/2025
2029
West Yaro Yakhinsky license areas)
West Yurkharovskoye
Yevo-Yakhinskoye
Syskonsyninskoye
North Russkoye
East Tarkosalinskoye
Kharbeyskoye
East Tazovskoye
2034
2054
2031
2043
2036
2033
Urengoyskoye (within the
Olimpiyskiy license area)
Dorogovskoye
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
2059
2033
2044
2031
Khancheyskoye
South Khadyryakhinskoye
Dobrovolskoye (within the
Olimpiyskiy license area)
North Khancheyskoye+Khadyryakhinskoye
Sterkhovoye (within the Olimpiyskiy license area)
Yarudeyskoye
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO NOVATEK-Tarkosaleneftegas
OOO Yargeo
2059
2076
2059
2124
2048
2048
Arkticheskoye
Neytinskoye
OOO Yamal LNG Resource
OOO Yamal LNG Resource
Joint ventures:
South-Tambeyskoye
Salmanovskoye (Utrenneye)
Urengoyskoye
OAO Yamal LNG
OOO Arctic LNG 2
2045
2120
AO Arcticgas
AO Arcticgas
2130
2119
(within the Samburgskiy license area)
Yaro-Yakhinskoye
Samburgskoye
AO Arcticgas
2130
(within the Samburgskiy license area)
East Urengoyskoye+North Esetinskoye
(within the Samburgskiy license area)
North Urengoyskoye
AO Arcticgas
ZAO Nortgas
ZAO Terneftegas
2130
2141
2097
Termokarstovoye
Management believes the Group has the right to extend its licenses beyond the initial expiration date under the existing
legislation and intends to exercise this right on all of its fields.
55
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
27
CONTINGENCIES AND COMMITMENTS (CONTINUED)
Environmental liabilities. The Group operates in the oil and gas industry in the Russian Federation and abroad. The
enforcement of environmental regulation in the Russian Federation and other countries of operation is evolving and the
enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its
obligations under environmental regulations and, as obligations are determined, they are recognized as an expense
immediately if no future benefit is discernible. Potential liabilities arising as a result of a change in interpretation of
existing regulations, civil litigation or changes in legislation cannot be estimated. Under existing legislation,
management believes that there are no probable liabilities, which will have a material adverse effect on the Group’s
financial position, results of operations or cash flows.
Legal contingencies. The Group is subject of, or party to a number of court proceedings (both as a plaintiff and a
defendant) arising in the ordinary course of business. In the opinion of management, there are no current legal
proceedings or other claims outstanding, which could have a material effect on the result of operations or financial
position of the Group and which have not been accrued or disclosed in the consolidated financial statements.
56
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
28
PRINCIPAL SUBSIDIARIES AND JOINT VENTURES
The principal subsidiaries and joint ventures of the Group and respective effective ownership in the ordinary share
capital at 31 December 2021 and 2020 are set out below:
Ownership percent
at 31 December:
Country of
incorporation
Principal activities
2021
2020
Subsidiaries:
OOO NOVATEK-Yurkharovneftegas
OOO NOVATEK-Tarkosaleneftegas
100
100
100
100
Russia
Russia
Exploration and production
Exploration and production
Exploration, development
and production
OOO Yargeo
51
51
Russia
AO NOVATEK-Pur
(merged with OOO NOVATEK-
Yurkharovneftegas from August 2021)
-
100
100
100
Russia
Russia
Russia
Exploration and production
Exploration and development
Exploration and development
OOO Arctic LNG 1
OOO Arctic LNG 3
100
100
Scientific and
technical support of
OOO NOVATEK-NTC
100
100
100
100
Russia
Russia
exploration and development
Construction of
large-scale offshore structures
OOO NOVATEK-Murmansk
Gas Condensate
Processing Plant
Transportation services
OOO NOVATEK-Purovsky ZPK
OOO NOVATEK-Transervice
100
100
100
100
Russia
Russia
Fractionation
OOO NOVATEK-Ust-Luga
OOO NOVATEK-AZK
100
100
100
100
100
100
100
100
100
100
100
100
Russia
Russia
Russia
Russia
Russia
Russia
and Transshipment Complex
Wholesale and retail trading
Trading and marketing
Trading and marketing
Trading and marketing
Trading and marketing
Preparation and undertaking
of LNG and gas-chemical
projects
OOO NOVATEK-Chelyabinsk
OOO NOVATEK-Kostroma
OOO NOVATEK-Perm
OOO NOVATEK Moscow Region
OOO Obskiy GCC
(before June 2021
OOO Obskiy LNG)
100
100
100
100
100
100
Russia
Switzerland
Singapore
Novatek Gas & Power GmbH
Trading and marketing
Trading and marketing
Novatek Gas & Power Asia Pte. Ltd.
Novatek Green Energy Sp. z o.o.
(before February 2020
100
100
Poland
Trading and marketing
Novatek Polska Sp. z o.o.)
57
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
28
PRINCIPAL SUBSIDIARIES AND JOINT VENTURES (CONTINUED)
Ownership percent
at 31 December:
Country of
incorporation
Principal activities
2021
2020
Joint ventures:
Exploration and development,
production of LNG
OAO Yamal LNG
50.1
50.1
Russia
Exploration and development,
construction of LNG plant
OOO Arctic LNG 2
AO Arcticgas
ZAO Nortgas
60
50
50
51
60
50
50
51
Russia
Russia
Russia
Russia
Exploration and production
Exploration and production
Exploration and production
ZAO Terneftegas
Operation of
ООО Cryogas-Vysotsk
OOO SMART LNG
51
50
51
50
Russia
Russia
medium-scale LNG plant
Leasing of LNG tankers
Construction of LNG
transshipment complexes
Exploration and development
OOO Arctic Transshipment
(subsidiary until July 2021)
90
49
100
-
Russia
Russia
ООО Gazpromneft-Sakhalin
29
RELATED PARTY TRANSACTIONS
Transactions between NOVATEK and its subsidiaries, which are related parties of NOVATEK, have been eliminated
on consolidation and are not disclosed in this Note.
For the purposes of these consolidated financial statements, parties are generally considered to be related if one party
has the ability to control the other party, is under common control, or can exercise significant influence or joint control
over the other party in making financial and operational decisions. Management has used reasonable judgments in
considering each possible related party relationship with attention directed to the substance of the relationship, not
merely the legal form. Related parties may enter into transactions, which unrelated parties might not, and transactions
between related parties may not be affected on the same terms, conditions and amounts as transactions between
unrelated parties.
Year ended 31 December:
Related parties – joint ventures
2021
2020
Transactions
Revenues from oil and gas sales
Other revenues
5,586
17,960
4,136
7,375
Purchases of natural gas and liquid hydrocarbons
Transportation expenses
(473,208)
(76)
(214,228)
(283)
Materials, services and other
(158)
(214)
Materials, services and other
(82)
(25)
(437)
(9)
(capitalized within property, plant and equipment)
General and administrative expenses
Purchases of property, plant and equipment
and materials for construction
Gain on disposal of interests in subsidiaries, net
Interest income on loans receivable
Dividends declared and cash received
(330)
-
11,962
118,786
(316)
69
21,170
10,920
58
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
29
RELATED PARTY TRANSACTIONS (CONTINUED)
Related parties – joint ventures
At 31 December 2021
At 31 December 2020
Balances
Long-term loans receivable
Current portion of long-term loans receivable
Trade and other receivables
Trade payables and accrued liabilities
309,399
163,473
4,398
390,627
41,253
2,974
62,858
27,532
The terms and conditions of the loans receivable from the joint ventures are disclosed in Note 7.
The Group issued guarantees in favor of its joint ventures as described in Note 27.
Year ended 31 December:
2021 2020
Related parties – entities with significant influence and their subsidiaries
Transactions
Revenues from oil and gas sales
Other revenues
Purchases of natural gas and liquid hydrocarbons
Gain on disposal of interests in subsidiaries, net
Other operating income (loss), net
Interest income
67,501
171
(3,091)
662
(707)
672
36,436
-
(443)
-
(10,789)
741
Related parties – entities with significant influence and their subsidiaries
At 31 December 2021
At 31 December 2020
Balances
Contingent consideration
Trade and other receivables
Trade payables and accrued liabilities
22,269
325
21,470
8,943
114
621
Year ended 31 December:
Related parties – parties under control of key management personnel
2021
2020
Transactions
Transportation expenses
Purchases of construction services
(capitalized within property, plant and equipment)
(11,615)
(12,280)
(10,815)
(18,268)
Related parties – parties under control of key management personnel
At 31 December 2021 At 31 December 2020
Balances
Advances for construction
Prepayments and other current assets
Trade payables and accrued liabilities
5,799
685
1,060
4,768
585
2,126
Key management personnel compensation. The Group paid to key management personnel (members of the Board of
Directors and the Management Committee) short-term compensation, including salary, bonuses and excluding
dividends, in the following amounts:
Year ended 31 December:
Related parties – members of the key management personnel
2021
2020
Board of Directors
192
211
Management Committee
3,295
7,125
Total compensation
3,487
7,336
59
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
29
RELATED PARTY TRANSACTIONS (CONTINUED)
Such amounts include personal income tax and are net of payments to non-budget funds made by the employer. Some
members of key management personnel have direct and/or indirect interests in the Group and receive dividends under
general conditions based on their respective shareholdings.
30
SEGMENT INFORMATION
The Group’s activities are considered by the chief operating decision maker (hereinafter referred to as “CODM”,
represented by the Management Committee of NOVATEK) to comprise one operating segment: “exploration,
production and marketing”.
The Group’s management reviews financial information on the results of operations of the reporting segment prepared
based on IFRS. The CODM assesses reporting segment performance based on profit comprising among others revenues,
depreciation, depletion and amortization, interest income and expense, income tax and other items as presented in the
Group’s consolidated statement of income. The CODM also reviews capital expenditures of the reporting segment for
the period defined as additions to property, plant and equipment (see Note 5).
Geographical information. The Group operates in the following geographical areas:
•
•
Russian Federation – exploration, development, production and processing of hydrocarbons, and sales of natural
gas, stable gas condensate, other gas and gas condensate refined products, liquefied petroleum gas and crude oil;
Countries of Europe (primarily, France, the Netherlands, the United Kingdom, Belgium, Spain, Poland, Norway,
Latvia, Lithuania, Finland, Estonia, Denmark, Germany, Sweden, Italy and Montenegro) – sales of natural gas,
naphtha, stable gas condensate, gas condensate refined products, liquefied petroleum gas, crude oil and exploration
activities within joint operations;
•
Countries of the Asia-Pacific Region (primarily, China, including Taiwan, South Korea, Japan, Singapore,
Malaysia, Philippines, Thailand and India) – sales of naphtha, natural gas, crude oil and stable gas condensate;
•
•
Countries of North America (primarily, the USA) – sales of naphtha and stable gas condensate refined products;
Countries of the Middle East (primarily, Saudi Arabia, the United Arab Emirates, Oman, Turkey and Lebanon) –
sales of naphtha, stable gas condensate, crude oil, natural gas and exploration activities within joint operations.
Geographical information of the Group’s oil and gas sales for the year ended 31 December 2021 and 2020 is as follows:
Year ended 31 December:
2021
2020
Russia
533,492
393,358
Europe
327,734
230,068
48,508
17,136
55
178,245
108,142
25,434
12,133
2
Asia-Pacific Region
North America
The Middle East
Other
Less: export duties
(21,787)
(17,564)
Total outside Russia
601,714
306,392
Total oil and gas sales
1,135,206
699,750
Revenues pertaining to geographical information are prepared based on the products geographical destination. For
products transported by tankers, the geography is determined based on the location of the port of
discharge/transshipment designated by the Group’s customer. Substantially all of the Group’s operating assets are
located in the Russian Federation.
60
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
30
SEGMENT INFORMATION (CONTINUED)
Major customers. For the year ended 31 December 2021 and 2020, the Group had one major customer to whom
individual revenue exceeded 10 percent of total external revenues, which represented 11.9 percent (RR 138.1 billion)
and 16 percent (RR 113.7 billion) of total external revenues, respectively. The Group’s major customer resides within
the Russian Federation.
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of consolidation. These consolidated financial statements present the assets, liabilities, equity, income,
expenses and cash flows of PAO “NOVATEK” and its subsidiaries as those of a single economic entity. Subsidiaries
are all entities (including structured entities) over which the Group has control. The Group controls an entity when the
Group is exposed to, or has rights to, variable returns from its involvements with the entity and has the ability to affect
those returns through its power over the entity. Subsidiaries are consolidated from the date on which control is
transferred to the Group (acquisition date) and are deconsolidated from the date that control ceases.
Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated.
Accounting policies of the Group’s subsidiaries have been changed where necessary to ensure consistency with the
Group’s policies.
Joint arrangements. The Group undertakes a number of business activities through joint arrangements, which exist
when two or more parties have joint control. Joint arrangements are classified as either joint operations or joint ventures,
based on the contractual rights and obligations between the parties to the arrangement.
Interests in joint ventures are accounted for using the equity method. With regard to joint operations, the Group records
its share of assets, liabilities, revenues and expenses of its joint operations in the consolidated financial statements on a
line-by-line basis.
Under the equity method, an investment in a joint venture is initially recognized at cost. The difference between the
cost of an acquisition and the share of the fair value of the joint venture’s identifiable net assets represents goodwill
upon acquiring the joint venture.
Post-acquisition changes in the Group’s share of net assets of a joint venture are recognized as follows: (a) the Group’s
share of profits or losses is recorded in the consolidated profit or loss for the year as share of financial result of joint
ventures; (b) the Group’s share of other comprehensive income or loss is recognized in other comprehensive income or
loss and presented separately; (c) dividends received or receivable from a joint venture are recognized as a reduction in
the carrying amount of the investment; (d) all other changes in the Group’s share of the carrying value of net assets of
a joint venture are recognized within retained earnings in the consolidated statement of changes in equity.
After application of the equity method, including recognizing the joint venture’s losses, the entire carrying amount of
the investment is tested for impairment as a single asset whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
When the Group’s share of losses in a joint venture equals or exceeds its interest in the joint venture, the Group does
not recognize further losses, unless it has incurred obligations or made payments on behalf of the joint ventures. The
interest in a joint venture is the carrying amount of the investment in the joint venture together with any long-term
interests that, in substance, form part of the Group’s net investment in the joint venture, including receivables and loans
for which settlement is neither planned nor likely to occur in the foreseeable future.
Unrealized gains on transactions between the Group and its joint ventures are eliminated to the extent of the Group’s
interest in joint ventures; unrealized losses are also eliminated unless the transaction provides evidence of an impairment
of the asset transferred.
Accounting policies of joint ventures have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Business combinations. The acquisition method of accounting is used to account for acquisitions of subsidiaries.
Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured at
their fair values at the acquisition date, irrespective of the extent of any non-controlling interest.
61
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill is measured by deducting the net assets of the acquiree from the aggregate of the consideration transferred
for the acquiree, the amount of non-controlling interest in the acquiree and fair value of an interest in the acquiree held
immediately before the acquisition date. Any negative amount (“negative goodwill”) is recognized in profit or loss,
after management reassesses whether it identified all the assets acquired and all liabilities and contingent liabilities
assumed and reviews appropriateness of their measurement.
The consideration transferred for the acquiree is measured at the fair value of the assets transferred, equity instruments
issued and liabilities incurred or assumed, including fair value of assets or liabilities from contingent consideration
arrangements but excludes acquisition related costs such as advisory, legal, valuation and similar professional services.
Disposals of subsidiaries, associates or joint ventures. When the Group ceases to control a subsidiary as a result of its
contribution to a joint venture, a joint operation or an associate, the subsidiary is deconsolidated and the retained interest
in the entity is remeasured to its fair value only to the extent of the unrelated investors’ interest in the joint venture, the
joint operation or the associate, with the change in carrying amount recognized in profit or loss.
If the ownership interest in a joint venture is reduced but joint control is retained or replaced with significant influence,
the Group continues to apply the equity method and does not remeasure the retained interest.
Extractive activities. The Group follows the successful efforts method of accounting for its oil and gas properties and
equipment whereby property acquisitions and development costs are capitalized, whereas exploration costs (geological
and geophysical expenditures, expenditures associated with the maintenance of non-proven reserves and other
expenditures relating to exploration activity), excluding exploratory drilling expenditures and exploration license
acquisition costs, are recognized within operating expenses in the consolidated statement of income as incurred.
Exploration license acquisition costs and exploratory drilling costs are recognized as exploration assets within property,
plant and equipment until it is determined whether proved reserves justifying their commercial development have been
found. If no proved reserves are found, the relevant costs are charged to the consolidated statement of income. When
proved reserves are determined, exploration license acquisition costs are reclassified to proved properties acquisition
costs and exploratory drilling costs are reclassified to development expenditure categories within property, plant and
equipment. Exploration license acquisition costs and exploratory drilling costs recognized as exploration assets are
reviewed for impairment on an annual basis.
The costs of 3-D seismic surveys used to assist production, increase total recoverability and determine the desirability
of drilling additional development wells within proved reservoirs are capitalized as development costs. All other seismic
costs are expensed as incurred.
Production costs and overheads are charged to expense as incurred.
Property, plant and equipment. Property, plant and equipment are carried at historical cost of acquisition or
construction and adjusted for accumulated depreciation, depletion, amortization and impairment.
The cost of self-constructed assets includes the cost of direct materials, direct employee related costs, a pro-rata portion
of depreciation of assets used for construction and an allocation of the Group’s overhead costs.
Depreciation, depletion and amortization of oil and gas properties and equipment is calculated using the unit-of-
production method for each field based upon total proved reserves for costs associated with acquisitions of proved
properties and common infrastructure facilities, and proved developed reserves for other development costs, including
wells. Where unit-of-production method does not reflect useful life and pattern of consumption of particular oil and gas
assets, such as processing facilities serving several properties, those assets are depreciated on a straight-line basis.
Property, plant and equipment, other than oil and gas properties and equipment, are depreciated on a straight-line basis
over their estimated useful lives. Land and assets under construction are not depreciated.
62
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The estimated useful lives of the Group’s property, plant and equipment depreciated on a straight-line basis are as
follows:
Years
Machinery and equipment
Processing facilities
Buildings
5-15
20-30
25-50
At each reporting date management assesses whether there is any indication of impairment in respect of property, plant
and equipment. If any such indication exists, management estimates the recoverable amount, which is determined as
the higher of an asset’s fair value less selling costs and its value in use. For the purposes of assessing impairment, assets
are grouped at the lowest levels for which there are separately identifiable cash inflows which are largely independent
of the cash inflows from other assets or groups of assets (cash generating units). The carrying amount is reduced to the
recoverable amount and the impairment loss is recognized in profit or loss for the respective period. An impairment
loss recognized for an asset in prior years is reversed if there has been a change in the estimates used to determine the
asset’s recoverable amount.
Borrowing costs. Interest costs on borrowings and exchange differences arising from foreign currency borrowings (to
the extent that they are regarded as an adjustment to interest costs) used to finance the construction of property, plant
and equipment are capitalized during the period of time that is required to complete and prepare the asset for its intended
use. All other borrowing costs are recognized in the consolidated statement of income.
Asset retirement obligations. An asset retirement obligation is recognized when the Group has a present legal or
constructive obligation to dismantle, remove and restore items of property, plant and equipment whose construction is
substantially completed. The obligation is recognized when incurred at the present value of the estimated costs of
dismantling the assets, including abandonment and site restoration costs, and are included within the carrying value of
property, plant and equipment.
Changes in the asset retirement obligation relating to a change in the expected pattern of settlement of the obligation,
or in the estimated amount of the obligation or in the discount rates, are treated as a change in an accounting estimate
in the current period. Such changes are reflected as adjustments to the carrying value of property, plant and equipment
and the corresponding liability. Changes in the obligation resulting from the passage of time are recognized in the
consolidated statement of income as interest expense.
Leases. A contract is (or contains) a lease if it conveys the right to control the use of an identified asset for a period of
time in exchange for consideration.
Right-of-use assets are initially measured at cost and depreciated by the earlier of the end of the useful life of the right-
of-use asset or the end of the lease term. The cost of right-of-use assets comprises initial measurement of the lease
liability, any lease payments made before or at the commencement date and initial direct costs. After the commencement
date, the right-of-use assets are carried at cost less accumulated depreciation and impairment losses in accordance with
IAS 16, Property, Plant and Equipment.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement
date and subsequently measured at amortised cost with the interest expense recognized within finance income (expense)
in the consolidated statement of income.
In accordance with IFRS 16, Leases, the Group elected not to apply accounting requirements under this standard to
short-term leases.
Lease contracts where the Group acts as the lessor are classified as operating leases when substantially all the risks and
rewards incidental to ownership do not transfer to the lessee. Lease payments under such contracts are recognized on a
straight-line basis within other revenue in the consolidated statement of income.
Non-current assets held for sale. Non-current assets are classified as held for sale if their carrying amount will be
recovered principally through a sale transaction rather than through continuing use, and the sale within a year from the
date of classification is highly probable. They are measured at the lower of their carrying amount and fair value less
costs to sell.
63
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property, plant and equipment are not depreciated once classified as held for sale.
The Group ceases to use the equity method of accounting in relation to an interest in a joint venture or an associate
classified as an asset held for sale.
Inventories. Natural gas, gas condensate, crude oil and gas condensate refined products are valued at the lower of cost
or net realizable value. The cost of natural gas and liquid hydrocarbons includes direct cost of materials, direct operating
costs, and related production overhead expenses and is recorded on weighted average cost basis. Net realizable value
is the estimate of the selling price in the ordinary course of business, less selling expenses.
Materials and supplies are carried at amounts which do not exceed their respective recoverable amounts in the normal
course of business.
Financial instruments. Financial assets are classified in the following measurement categories: those to be measured
subsequently at amortised cost, those to be measured at fair value through profit or loss, and those to be measured at
fair value through other comprehensive income. The classification depends on the Group’s business model for
managing the financial assets and the contractual terms of the cash flows. If a hybrid contract contains a host that is a
financial asset, the classification requirements apply to the entire hybrid contract.
Financial assets are classified as at amortised cost only if both of the following criteria are met: the asset is held within
a business model with the objective of collecting the contractual cash flows, and the contractual terms give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal outstanding.
Certain shareholders’ loans provided by the Group to its joint ventures include embedded derivatives that modify cash
flows of the loans based on financial (market interest rates) and non-financial (interest rate on borrowings of the lender
and free cash flows of the borrower) variables. The risks relating to these variables are interrelated; therefore, terms and
conditions of each of these loans related to those variables were defined as a single compound embedded derivative.
The Group classified these loans as financial assets at fair value through profit or loss (see Note 26).
The difference between the loans provided and the fair value at initial recognition is recorded as the Group’s investment
in the joint ventures. Subsequently, the loans are measured at fair value at each reporting date with recognition of the
revaluation through profit or loss. Interest income (calculated using the effective interest method), foreign exchanges
differences and the remaining effect from fair value remeasurement of such loans are disclosed separately in the
consolidated statement of income.
Other shareholders’ loans provided by the Group, trade and other financial receivables, and cash and cash equivalents,
are classified as at amortised cost. The Group does not have financial assets classified as at fair value through other
comprehensive income.
The Group’s non-derivative financial liabilities are measured at amortised cost. Derivatives are classified as at fair value
through profit or loss. The Group does not apply hedge accounting.
Where there is an active market for a commodity, commodity contracts are accounted for as derivatives except for
contracts that were entered into and continue to be held for the purpose of the receipt or delivery of a commodity in
accordance with the Group’s expected purchase, sale or usage requirements. Gains or losses arising from changes in
the fair value of commodity derivatives are recognized within other operating income (loss) in the consolidated
statement of income (see Note 26).
An allowance for expected credit losses (“ECL”) shall be recorded for financial assets classified as at amortised cost.
Loss allowances are measured on either of the following bases: 12-month ECLs that result from possible default events
within the 12 months after the reporting date; and lifetime ECLs that result from all possible default events over the
expected life of a financial instrument.
For trade receivables, the Group measures loss allowances applying a simplified approach at an amount equal to lifetime
ECLs. To measure the expected credit losses, expected loss rates are applied to trade receivables grouped based on the
days past due. For other financial assets classified as at amortised cost, including some shareholders’ loans provided,
loss allowances are measured as 12-month ECLs unless there has been a significant increase in credit risk since
origination, in which case the allowance is based on the lifetime ECLs.
64
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The effective interest rate is the rate that exactly discounts future cash payments and receipts through the expected life
of the financial instrument or, when appropriate, a shorter period to the net carrying value of the financial asset or
financial liability.
Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position
only when there is a legally enforceable right to offset the recognized amounts, and there is an intention to either settle
on a net basis, or to realize the asset and settle the liability simultaneously.
Provisions for liabilities and charges. Provisions are recognized when the Group has a present legal or constructive
obligation as a result of past events; when it is probable that an outflow of resources embodying economic benefits will
be required to settle the obligation; and a reliable estimate of the amount of the obligation can be made.
Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a
pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation.
Provisions are reassessed at each reporting date, and those changes in the provisions resulting from the passage of time
are recognized in the consolidated statement of income as interest expense. Where the Group expects a provision to be
reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain.
Pension obligations. The Group performs mandatory contributions to the Pension Fund of the Russian Federation on
behalf of its employees based on gross salary payments. These contributions represent a defined contribution plan, are
expensed when incurred and are included in the employee compensation in the consolidated statement of income.
The Group also operates a non-contributory post-employment defined benefit plan based on employees’ years of service
and average salary (see Note 15).
The liability recognized in the consolidated statement of financial position in respect of the defined benefit pension plan
is the present value of the defined benefit obligations at the balance sheet date. The defined benefit obligations are
calculated annually by independent actuaries using the projected unit credit method.
Actuarial gains and losses on assets and liabilities arising from experience adjustments and changes in actuarial
assumptions are charged or credited to other comprehensive income in the period in which they arise. They are not
reclassified to profit or loss in subsequent periods. Past-service costs are recognized in profit or loss in the period when
a plan is amended or curtailed.
Guarantees issued. The Group issued a number of guarantees, financial and non-financial, for the obligations of its
joint ventures.
Non-financial guarantees contracts issued by the Group meet the definition of insurance contracts and are accounted in
accordance with IFRS 4, Insurance Contracts. Liabilities in respect of non-financial guarantee contracts are recognized
when an outflow of funds (economic benefits) required to settle the liability is probable. Liabilities are recognized based
on the best estimate of such an outflow.
Financial guarantees contracts issued are initially recognized as a liability at fair value. They are subsequently measured
at the higher of two amounts: the amount of the loss allowance determined in accordance with IFRS 9, Financial
Instruments, and the amount initially recognized less, where applicable, the accumulated income recognized in
accordance with IFRS 15, Revenue from Contracts with Customers.
Income taxes. The income tax charge or benefit comprises current tax and deferred tax and is recognized in the
consolidated statement of income unless it relates to transactions that are recognized, in the same or a different period,
in other comprehensive income or directly in equity.
Current tax is the amount expected to be paid to or recovered from the tax authorities in respect of taxable profits or
losses for the current and prior periods. Russian tax legislation allows to prepare and file a single, consolidated income
tax declaration by the taxpayers’ group comprised of a holding company and any number of entities with at least 90
percent ownership in each (direct or indirect). Eligible taxpayers’ group must be registered with tax authorities and
meet certain conditions and criteria. The tax declaration can be submitted then by any member of the group. The Group
prepares a consolidated tax return for the taxpayers’ group including the Company and majority of its subsidiaries in
Russia.
65
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred tax assets and liabilities are recognized on temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax base. Deferred tax balances are measured at tax rates
enacted or substantively enacted at the balance sheet date which are expected to apply to the period when the temporary
differences will reverse or when the tax loss carry forwards will be utilized. The Group applies a net-basis accounting
in respect of temporary differences arising from right-of-use assets and long-term lease liabilities. Deferred tax assets
for deductible temporary differences and tax loss carry forwards are recorded only to the extent that it is probable that
future taxable profit will be available against which the deductions can be utilized.
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income taxes balances relate to the same taxation authority and the
same taxable entity, consolidated tax group of entities or different taxable entities where there is an intention to settle
the balances on a net basis. Deferred tax assets and liabilities are netted only with respect to individual companies of
the Group (for companies outside the consolidated tax group of companies) and within the consolidated tax payers’
group of companies.
The Group controls the reversal of temporary differences relating to taxes chargeable on dividends from subsidiaries or
on gains upon their disposal. The Group does not recognize deferred tax liabilities on such temporary differences except
to the extent that management expects the temporary differences to reverse in the foreseeable future.
Treasury shares. Where any Group company purchases PAO NOVATEK’s equity share capital (treasury shares), the
consideration paid, including any directly attributable incremental costs (net of income taxes), is deducted from equity
attributable to PAO NOVATEK shareholders until the shares are cancelled or reissued or disposed. Where such shares
are subsequently reissued or disposed, any consideration received, net of any directly attributable incremental
transaction costs and the related income tax effects, is included in equity attributable to PAO NOVATEK shareholders.
Treasury shares are recorded at weighted average cost. Gains or losses resulting from subsequent sales of shares are
recorded in the consolidated statement of changes in equity, net of associated costs including taxation.
Dividends. Dividends are recognized as a liability and deducted from equity at the balance sheet date only if they are
declared before or on the balance sheet date. Dividends are disclosed when they are proposed or declared after the
balance sheet date but before the consolidated financial statements are authorized for issue.
Revenue recognition. Revenues represent the fair value of consideration received or receivable for the sale of goods
and services in the normal course of business, net of discounts, export duties, value-added tax, excise and fuel taxes.
Revenues from oil and gas sales are recognized when control over such products has transferred to a customer, which
refers to ability to direct the use of, and obtain substantially all of the remaining benefits from the products. The Group
considers indicators of the transfer of control, which include, but are not limited to the following: the Group has a
present right to payment for the products; the Group has transferred physical possession of the products; the customer
has legal title to the products; the customer has the significant risks and rewards of ownership of the products; the
customer has accepted the products. Not all of the indicators have to be met for management to conclude that control
has transferred and revenue could be recognized. Management uses judgment to determine whether factors collectively
indicate that the customer has obtained control over the products. Revenues from services are recognized in the period
in which the services are rendered.
When the consideration includes a variable amount, minimum amounts must be recognized that are not at significant
risk of reversal. If sales contract includes the variability associated with market price it represents a separated embedded
derivative that is treated as part of revenue. Accordingly, at the date of sale the sales price is determined on a provisional
basis, and the fair value of the final sales price adjustment is re-estimated continuously with changes in fair value
recognized as an adjustment to revenue.
Trade receivables are recognized when the goods are transferred as this is the point in time that the consideration is
unconditional and only the passage of time is required before the payment is due. No significant element of financing
is deemed present as the sales are made with short-term credit terms consistent with market practice.
66
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
31
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In 2019, with the commencement of the completion stage of the tax maneuver in the oil and
Reverse excise on raw oil
.
gas industry in the Russian Federation, a reverse excise on raw oil (a mixture of hydrocarbons composed of one or more
components of crude oil, stable gas condensate, vacuum gasoil, tar, and fuel oil) was introduced. This deduction was
introduced to compensate economic losses of oil and gas refining companies arising from the tax maneuver and the
transfer of tax burden from export duties to the UPT in the amount of full export duty rate for crude oil while export
duties for oil products are paid at a discount to crude oil export duty rate. In 2021, an investment premium to the reverse
excise on raw oil was also introduced for companies, which concluded an investment agreement with the Ministry of
Energy of the Russian Federation prior to 1 October 2021 for construction or modernization of raw oil deep processing
facilities.
The Group receives the reverse excise on raw oil based on volumes of stable gas condensate sent for processing to its
Gas Condensate Fractionation and Transshipment Complex at Ust-Luga. Effective July 2021, the reverse excise the
Group receives also includes the investment premium under an investment agreement for construction of a hydrocracker
unit with the respective expansion of the Ust-Luga complex.
The Group assessed the requirements of IAS 20 and applied judgement in decision to account for the reverse excise on
raw oil on an accruals basis in the consolidated statement of income, as a deduction to expense for purchases of
hydrocarbons for the respective period, as most of unstable gas condensate volumes used to produce stable gas
condensate the Group purchases from its joint ventures.
General and administrative expenses. General and administrative expenses represent overall corporate management
and other expenses related to the general management and administration of the business unit as a whole. They include
management and administrative compensation, legal and other advisory expenses, insurance of administrative
buildings, social expenses and compensatory payments of general nature not directly linked to the Group’s oil and gas
activities, charity and other expenses necessary for the administration of the Group.
Accounting for certain multiple arrangements as a single transaction. The Group accounts for certain multiple
arrangements as a single transaction considering their terms, conditions and economic effects. One or more of the
following may indicate that multiple arrangements should be accounted as a single transaction: they are entered into at
the same time or in contemplation of each other; they form a single transaction designed to achieve an overall
commercial effect; the occurrence of one arrangement is dependent on the occurrence of at least one other arrangement;
one arrangement considered on its own is not economically justified, but it is economically justified when considered
together with other arrangements.
Earnings per share. Earnings per share are determined by dividing the profit or loss attributable to
PAO NOVATEK shareholders by the weighted average number of shares outstanding during the reporting period.
Consolidated statement of cash flows. Cash and cash equivalents comprises cash on hand, cash deposits held with
banks and short-term highly liquid investments which are easily convertible to known amounts of cash and which are
not subject to significant risk of change in value and have an original maturity of three months or less.
The Group reports cash receipts and the repayments of short-term borrowings which have a maturity of three months
or less on a net basis in the consolidated statement of cash flows.
67
PAO NOVATEK
Notes to the Consolidated Financial Statements
(in Russian roubles [tabular amounts in millions], unless otherwise stated)
32
NEW ACCOUNTING PRONOUNCEMENTS
The following amendments to standards have been issued, which the Group has not early adopted:
Amendments to IFRS 10, Consolidated Financial Statements, and IAS 28, Investments in Associates and Joint Ventures
(issued in September 2014, in November 2015 the effective date was postponed indefinitely). These amendments
address an inconsistency between the requirements in IFRS 10 and those in IAS 28 in dealing with the sale or
contribution of assets between an investor and its associate or joint venture. The amendments stipulate that a full gain
or loss is recognized when a transaction involves a business. A partial gain or loss is recognized when a transaction
involves assets that do not constitute a business, even if these assets are held by a subsidiary. The Group is considering
the implications of these amendments for the Group’s consolidated financial statements, and the timing of their adoption
by the Group.
68
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES
The accompanying consolidated financial statements have been prepared in accordance with International Financial
Reporting Standards (“IFRS”). In the absence of specific IFRS guidance for the oil and gas industry, the Group has
reverted to other relevant disclosure standards, mainly US GAAP, that are consistent with norms established for
companies in the oil and gas industry. While not required under IFRS, this section provides unaudited supplemental
information on oil and gas exploration and production activities but excludes disclosures regarding the standardized
measures of discounted cash flows related to oil and gas activities.
The Group’s exploration and production activities are mainly within the Russian Federation; therefore, the majority of
the information provided in this section pertains to this country. The Group operates through various oil and gas
production subsidiaries, and also has an interest in oil and gas companies that are accounted for under the equity method.
Oil and Gas Exploration and Development Costs
The following tables set forth information regarding oil and gas acquisition, exploration and development activities.
The amounts reported as costs incurred include both capitalized costs and costs charged to expense, and are presented
comprising amounts classified as assets held for sale and amounts allocated to fair values of the identified assets in
acquisitions of subsidiaries (see Note 4), except for the effects from non-monetary transactions. These costs do not
include LNG liquefaction and transportation operations (amounts in millions of Russian roubles).
Year ended 31 December:
2021
2020
Costs incurred in exploration and development activities
Acquisition of unproved properties
Acquisition of proved properties
Exploration costs
775
13,348
27,200
85,805
317
58
21,156
Development costs
112,213
Total costs incurred in exploration and development activities
The Group’s share in joint ventures’
127,128
49,898
133,744
cost incurred in exploration and development activities
52,630
At 31 December 2021
At 31 December 2020
Capitalized costs relating to oil and gas producing activities
Proved and unproved properties
Wells, related equipment and facilities
Support equipment and facilities
130,575
396,203
188,679
145,199
113,926
348,900
176,171
106,086
Uncompleted wells, related equipment and facilities
Total capitalized costs relating to oil and gas producing activities
860,656
745,083
Less: accumulated depreciation, depletion and amortization
(283,101)
(246,111)
Net capitalized costs relating to oil and gas producing activities
577,555
498,972
The Group’s share in joint ventures’
capitalized costs relating to oil and gas producing activities
585,642
565,843
69
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
Results of Operations for Oil and Gas Producing Activities
Results of operations for oil and gas producing activities of the Group’s subsidiaries and the Group’s share in the results
of operations of joint ventures are shown below (amounts in millions of Russian roubles).
Year ended 31 December:
2021
2020
Subsidiaries
Revenues from oil and gas sales (less transportation)
314,973
204,417
Lifting costs
(20,572)
(87,939)
(38,207)
(9,581)
(607)
(18,732)
(54,024)
(30,235)
(9,103)
(1,926)
(537)
Taxes other than income tax
Depreciation, depletion and amortization
Exploration expenses
Social expenses and charity (1)
Other operating expenses (2)
Total operating expenses
(574)
(157,480)
(114,557)
Results of operations for oil and gas
producing activities before income tax
157,493
89,860
Less: related income tax expenses
(29,831)
(16,987)
Results of operations for oil and gas
producing activities of the Group’s subsidiaries
127,662
72,873
Group’s share in joint ventures
Revenues from oil and gas sales (less transportation)
404,738
167,334
Lifting costs
(8,221)
(55,109)
(26,266)
(1,858)
(444)
(7,193)
(34,994)
(25,959)
(2,225)
(32)
Taxes other than income tax
Depreciation, depletion and amortization
Exploration expenses
Social expenses and charity (1)
Other operating expenses (2)
Total operating expenses
(553)
(92,451)
(433)
(70,836)
Results of operations for oil and gas
producing activities before income tax
312,287
96,498
Less: related income tax expenses
(52,134)
(16,049)
Group’s share in results of operations for oil and gas
producing activities of joint ventures
260,153
387,815
80,449
Total results of operations for oil and gas producing activities
of the Group’s subsidiaries and joint ventures
153,322
(1)
Represent social expenses and compensatory payments related mainly to continued support of charities and social programs
in the regions where production and development activities are performed.
Represent mainly materials, services and other expenses, as well as administrative expenses being by nature operating
expenses relating to fields in exploration and development stage.
(2)
The results of operations for hydrocarbons producing activities are presented only for volumes produced by the Group’s
subsidiaries and joint ventures and do not include general corporate overheads, processing costs incurred after saleable
hydrocarbons are received, such as stable gas condensate processing costs and natural gas liquefaction costs. Revenues
from oil and gas sales are calculated based on hydrocarbons production volumes and netback prices determined at the
point of marketable products production and do not include export duties, transportation expenses to customers, storage,
sales and other similar expenses.
70
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
Operating expenses include only the amounts directly related to the extraction of natural gas, gas condensate and crude
oil, such as lifting costs (materials, services and other expenses, as well as administrative expenses being by nature
operating expenses of oil and gas producing activities), taxes other than income tax, depreciation, depletion and
amortization and other expenses. Income tax expense is calculated based on income tax rates applicable to each Group’s
subsidiary and joint venture.
Proved Oil and Gas Reserves
The following information presents the quantities of proved oil and gas reserves and changes thereto as at and for the
years ended 31 December 2021 and 2020.
The Group estimates its oil and gas reserves in accordance with rules promulgated by the Securities and Exchange
Commission (SEC) for proved reserves.
The Group’s oil and gas reserves estimation and reporting process involves an annual independent third party reserve
appraisal as well as internal technical appraisals of reserves. The Group maintains its own internal reserve estimates
that are calculated by qualified engineers and technical staff working directly with the oil and gas properties. The
Group’s technical staff periodically updates reserve estimates during the year based on evaluations of new wells,
performance reviews, new technical information and other studies.
The oil and gas reserve estimates reported below are determined by the Group’s independent petroleum reservoir
engineers, DeGolyer and MacNaughton (“D&M”). The Group provides D&M annually with engineering, geological
and geophysical data, actual production histories and other information necessary for the reserve determination. The
Group’s and D&M’s technical staffs meet to review and discuss the information provided, and upon completion of this
process, senior management reviews and approves the final reserve estimates issued by D&M.
The following reserve estimates were prepared using standard geological and engineering methods generally accepted
by the petroleum industry. The method or combination of methods used in the analysis of each reservoir is tempered
by experience with similar reservoirs, stages of development, quality and completeness of basic data, and production
history.
Extensions of production licenses are assumed to be at the discretion of the Group. Management believes that proved
reserves should include quantities which are expected to be produced after the expiry dates of the Group’s production
licenses. The principal licenses of the Group for exploration and production expire between 2029 and 2198. Legislation
of the Russian Federation states that, upon expiration, a license is subject to renewal at the initiative of the license
holder provided that further exploration, appraisal, production or remediation activities are necessary and provided that
the license holder has not violated the terms of the license. Management intends to extend its licenses for properties
expected to produce beyond the license expiry dates.
Proved reserves are defined as the estimated quantities of oil and gas which geological and engineering data demonstrate
with reasonable certainty to be recoverable in future years from known reservoirs under existing economic conditions.
In some cases, substantial new investment in additional wells and related support facilities and equipment will be
required to recover such proved reserves. Due to the inherent uncertainties and the limited nature of reservoir data,
estimates of underground reserves are subject to change over time as additional information becomes available.
Proved developed reserves are those reserves which are expected to be recovered through existing wells with existing
equipment and operating methods. Undeveloped reserves are those reserves which are expected to be recovered as a
result of future investments to drill new wells, to re-complete existing wells and/or install facilities to collect and deliver
the production.
Net reserves exclude quantities due to others when produced.
The reserve quantities below include 100 percent of the net proved reserve quantities attributable to the Group’s
consolidated subsidiaries and the Group’s ownership percentage of the net proved reserves quantities of the joint
ventures including volumes of natural gas consumed in hydrocarbons production and development activities.
Production and reserves of the South-Tambeyskoye field of Yamal LNG are reported at 60 percent including an
additional 9.9 percent interest not owned by the Group, since the Group assumes certain economic and operational risks
related to this interest.
71
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
For convenience, reserves estimates are provided both in English and Metric units.
Net proved reserves of natural gas are presented below:
Group’s share in
Net proved reserves
Billions
joint ventures
Total net proved reserves
Billions
Billions
of cubic
meters
Billions of
cubic feet
of cubic
meters
Billions of
cubic feet
Billions of
cubic feet
of cubic
meters
At 31 December 2019
40,597
1,149
38,299
1,085
78,896
2,234
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Acquisitions (*)
471
1,075
138
13
30
4
(603)
2,018
-
(17)
57
(132)
3,093
138
(4)
87
4
-
Production
(1,435)
(40)
(1,297)
(37)
(2,732)
(77)
At 31 December 2020
40,846
1,156
38,417
1,088
79,263
2,244
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Production
(566)
2,891
(1,515)
(15)
82
(43)
(311)
1,377
(1,306)
(9)
39
(37)
(877)
4,268
(2,821)
(24)
121
(80)
At 31 December 2021
41,656
1,180
38,177
1,081
79,833
2,261
Net proved developed reserves (included above):
At 31 December 2019
At 31 December 2020
At 31 December 2021
11,527
12,128
13,630
326
343
386
18,612
17,922
17,179
527
508
486
30,139
30,050
30,809
853
851
872
Net proved undeveloped reserves (included above):
At 31 December 2019
At 31 December 2020
At 31 December 2021
29,070
28,718
28,026
823
813
794
19,687
20,495
20,998
558
580
595
48,757
49,213
49,024
1,381
1,393
1,389
(*) – Relate to an additional 50 percent interest in reserves of the Yevo-Yakhinskiy license area acquired by the Group as a result
of the reorganization of Arcticgas in 2019 (part of reserves was estimated in 2020).
The net proved reserves of natural gas reported in the table above included reserves attributable to a non-controlling
interest in a Group’s subsidiary of 311 billion cubic feet (9 billion cubic meters) and 337 billion cubic feet (10 billion
cubic meters) at 31 December 2021 and 2020, respectively, and reserves attributable to an additional 9.9 percent
interest in Yamal LNG not owned by the Group (see above) of 2,294 billion cubic feet (65 billion cubic meters) and
2,341 billion cubic feet (66 billion cubic meters) at 31 December 2021 and 2020, respectively.
72
PAO NOVATEK
Unaudited Supplemental Oil and Gas Disclosures
UNAUDITED SUPPLEMENTAL OIL AND GAS DISCLOSURES (CONTINUED)
Net proved reserves of crude oil, gas condensate and natural gas liquids are presented below:
Group’s share in
Net proved reserves
joint ventures
Total net proved reserves
Millions
of barrels
Millions of
metric tons
Millions
of barrels
Millions of
metric tons
Millions
of barrels
Millions of
metric tons
At 31 December 2019
822
98
832
95
1,654
193
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Acquisitions (*)
30
50
5
3
6
1
(16)
66
(2)
8
-
14
116
5
1
14
1
-
Production
(52)
(6)
(50)
(6)
(102)
(12)
At 31 December 2020
855
102
832
95
1,687
197
Changes attributable to:
Revisions of
previous estimates
Extension and discoveries
Production
(48)
49
(55)
(6)
6
(7)
(15)
55
(49)
(2)
6
(5)
(63)
104
(104)
(8)
12
(12)
At 31 December 2021
801
95
823
94
1,624
189
Net proved developed reserves (included above):
At 31 December 2019
At 31 December 2020
At 31 December 2021
335
349
350
42
43
42
457
439
422
52
50
49
792
788
772
94
93
91
Net proved undeveloped reserves (included above):
At 31 December 2019
At 31 December 2020
At 31 December 2021
487
506
451
56
59
53
375
393
401
43
45
45
862
899
852
99
104
98
(*) – Relate to an additional 50 percent interest in reserves of the Yevo-Yakhinskiy license area acquired by the Group as a result
of the reorganization of Arcticgas in 2019 (part of reserves was estimated in 2020).
The net proved reserves of crude oil, gas condensate and natural gas liquids reported in the table above included
reserves attributable to a non-controlling interest in a Group’s subsidiary of 72 million barrels (9 million metric tons)
and 82 million barrels (11 million metric tons) at 31 December 2021 and 2020, respectively, and reserves attributable
to an additional 9.9 percent interest in Yamal LNG not owned by the Group (see above) of 18 million barrels (2 million
metric tons) and 19 million barrels (2 million metric tons) at 31 December 2021 and 2020, respectively.
73
PAO NOVATEK
Contact Information
the
Russian Federation
The Group’s registered office is:
Ulitsa Pobedy 22a
629850 Tarko-Sale
Yamal-Nenets Autonomous District
Russian Federation
The Group’s office in Moscow is:
Ulitsa Udaltsova 2
119415 Moscow
Russian Federation
Telephone:
Fax:
7 (495) 730-60-00
7 (495) 721-22-53
www.novatek.ru
74
PAO NOVATEK
Management’s
Discussion and Analysis
of Financial Condition
and Results of Operations
for the Year Ended
31 December 2021
CONTENTS
Page
General provisions...................................................................................................................................................3
Overview.................................................................................................................................................................3
Recent developments...............................................................................................................................................4
Basis of presentation ...............................................................................................................................................6
Selected data............................................................................................................................................................7
Selected macro-economic data................................................................................................................................9
Certain factors affecting our results of operations................................................................................................. 10
Current economic environment ......................................................................................................................... 10
Natural gas prices .............................................................................................................................................. 11
Stable gas condensate and refined products, crude oil and liquefied petroleum gas prices............................... 12
Transportation tariffs......................................................................................................................................... 13
Our tax burden and obligatory payments........................................................................................................... 15
Oil and gas reserves............................................................................................................................................... 18
Operational highlights ........................................................................................................................................... 21
Results of operations for the year ended 31 December 2021 compared to the year ended 31 December 2020 .... 28
Total revenues ................................................................................................................................................... 29
Operating expenses............................................................................................................................................ 32
Net gain on disposal of interests in subsidiaries................................................................................................ 36
Other operating income (loss) ........................................................................................................................... 36
Profit from operations and EBITDA ................................................................................................................. 37
Finance income (expense) ................................................................................................................................. 37
Share of profit (loss) of joint ventures, net of income tax ................................................................................. 38
Income tax expense ........................................................................................................................................... 39
Profit attributable to shareholders and earnings per share................................................................................. 40
Liquidity and capital resources.............................................................................................................................. 41
Cash flows ......................................................................................................................................................... 41
Liquidity and working capital............................................................................................................................ 44
Capital expenditures .......................................................................................................................................... 45
Quantitative and qualitative disclosures and market risks..................................................................................... 47
Terms and abbreviations........................................................................................................................................ 49
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
GENERAL PROVISIONS
You should read the following discussion and analysis of our financial condition and results of operations as of
31 December 2021 and for the year then ended in conjunction with our audited consolidated financial statements
as of and for the year ended 31 December 2021. The consolidated financial statements and the related notes thereto
have been prepared in accordance with International Financial Reporting Standards (IFRS).
The financial and operating information contained in this “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” comprises information of PAO NOVATEK, its consolidated subsidiaries
and joint ventures (hereinafter jointly referred to as “we” or the “Group”).
OVERVIEW
We are Russia’s second largest natural gas producer and one of the world leaders in terms of proved natural gas
reserves under the Petroleum Resources Management System (“PRMS”) and the Securities and Exchange
Commission (“SEC”) reserve reporting methodologies.
Our exploration and development, production and processing of natural gas, gas condensate and crude oil are
conducted mainly within the Russian Federation.
The natural gas assets of our subsidiaries and joint ventures include projects where we sell natural gas through the
Unified Gas Supply System in the Russian domestic market and liquefied natural gas (“LNG”) delivered mainly
to international markets.
The Group’s LNG producing projects are Yamal LNG, Cryogas-Vysotsk and an LNG plant in the Chelyabinsk
region.
The Group through its joint venture OAO Yamal LNG undertakes a project on natural gas production, liquefaction
and shipping based on the feedstock resources of the South-Tambeyskoye field located in YNAO (the “Yamal
LNG project”). The total annual nameplate capacity of the liquefaction plant is 17.4 million tons of LNG, including
the first three LNG trains with an annual capacity of 5.5 million tons for each and the fourth train, launched in
May 2021, with an annual capacity of 0.9 million tons of LNG. Yamal LNG is one of the largest suppliers of LNG
to international markets and one of the lowest in terms of greenhouse gas emissions per ton of produced LNG
globally. We purchase a part of the LNG volumes produced by Yamal LNG and sell these volumes to international
markets via tankers under long-term contracts and on a spot basis.
Through its joint venture OOO Cryogas-Vysotsk, the Group undertakes a project on a medium-scale LNG
production at the plant located at the Russian port of Vysotsk on the Baltic Sea. We purchase a part of the LNG
volumes produced at the project and sell these volumes mainly to international markets via tankers and trucks, as
well as through refueling complexes, and also sell LNG used for marine bunkering.
We also produce LNG at our small-scale domestic plant in the Chelyabinsk region. The LNG is sold through the
Group’s refueling complexes in the Chelyabinsk region and neighboring areas, as well as directly from the LNG
plant without incurring additional transportation expenses.
In addition, through our joint venture OOO Arctic LNG 2, we are presently undertaking a project on LNG plant
construction on the Gydan peninsula that will utilize the hydrocarbon resources of the Salmanovskoye (Utrenneye)
field (the “Arctic LNG 2 project”). The project includes the construction of an LNG plant built on gravity-based
platforms with an annual capacity of 19.8 million tons of LNG per annum (three processing trains of 6.6 million
tons of LNG each) and up to 1.6 million tons of stable gas condensate per annum. The launch of the first train is
expected to be in 2023, the second train – in 2024 and the launch of the third train is planned in 2025.
We deliver unstable gas condensate produced by our subsidiaries and our joint ventures Arcticgas, Nortgas and
Terneftegas to our Purovsky Gas Condensate Plant (the “Purovsky Plant”) for processing into stable gas
condensate and natural gas liquids (“NGL”). The Purovsky Plant allows us to process more than 13 million tons
of unstable gas condensate per annum.
3
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Most of our stable gas condensate is sent for further processing to our Gas Condensate Fractionation and
Transshipment Complex located at the port of Ust-Luga on the Baltic Sea (the “Ust-Luga Complex”). The Ust-
Luga Complex processes our stable gas condensate into light and heavy naphtha, jet fuel, gasoil and fuel oil, nearly
all of which we sell to the international markets allowing us to increase the added value of our liquid hydrocarbons
sales. The Ust-Luga Complex allows us to process about seven million tons of stable gas condensate annually.
The excess volumes of stable gas condensate received from the processing at the Purovsky Plant over volumes
sent for further processing to the Ust-Luga Complex are sold on both the domestic and international markets (from
the Purovsky Plant without incurring additional transportation expenses, by rail or from the port of Ust-Luga on
the Baltic Sea by tankers).
A significant part of our NGL volumes produced at the Purovsky Plant is dispatched via pipeline for further
processing at the petrochemical complex of PAO SIBUR Holding group in Tobolsk (the “Tobolsk Refining
Facilities”). The remaining volumes are sold directly from the Purovsky Plant without incurring additional
transportation expenses. After processing at the Tobolsk Refining Facilities, we receive liquefied petroleum gas
(“LPG”) with higher added value, the majority of which are transported by rail to our end-customers in the
domestic and international markets with the remaining portion sold directly from the Tobolsk Refining Facilities
without incurring additional transportation expenses. NGL sold directly from the Purovsky Plant and sales of LPG
received from the processing at the Tobolsk Refining Facilities are presented within LPG sales in this report.
We deliver our crude oil to both domestic and international markets.
RECENT DEVELOPMENTS
Arctic LNG 2 project
The Group, jointly with international partners TotalEnergies SE, China National Petroleum Corporation
(“CNPC”), CNOOC Limited and Japan Arctic LNG B.V. (a joint venture of Mitsui & Co., Ltd and Japan Oil, Gas
and Metals National Corporation (“JOGMEC”)), through its joint venture OOO Arctic LNG 2 is implementing an
integrated project for natural gas production, liquefaction and shipping based on the hydrocarbon resources of the
Salmanovskoye (Utrenneye) field on the Gydan peninsula (the “Arctic LNG 2 project”).
The Arctic LNG 2 plant is built on gravity-based structures (“GBS”) and will consist of three processing trains
with an annual capacity of 6.6 million tons of LNG each, or an aggregated capacity of 19.8 million tons of LNG
per annum, and up to 1.6 million tons of stable gas condensate. The final investment decision (FID) on the Arctic
LNG 2 project was made in September 2019. The first train is expected to be launched in 2023, the second train –
in 2024 and the launch of the third train is planned in 2025.
Gravity-based structures and other major units for the plant are built at our own LNG construction center in the
Murmansk region (the “Murmansk yard”), which will also be used for the Group’s subsequent LNG projects. At
present, the casting of the first GBS for the first train of the Arctic LNG 2 plant is completed at the Murmansk
yard, and the topsides installation on it is in process. In addition, the casting of the second GBS for the second
train is underway, the topsides for this platform are under construction.
The use of gravity-based structures technology for the plant construction, as well as localizing fabrication in the
Russian Federation will contribute to lower LNG liquefaction costs compared to other LNG projects and allows
to minimize the impact on the environment.
The Salmanovskoye (Utrenneye) field’s development is ongoing. By the end of 2021, 56 production wells were
drilled, which is sufficient to launch the first LNG train. In December 2021, commissioning works at the gas
turbine power plant, the main power generation facility for the Arctic LNG 2 project, have begun. At present, the
construction of the water treatment facility, the sewage pumping stations site and the landfill has been completed.
Regular flights to the Utrenniy airport have begun. The berthing facilities for the GBS installation have been put
into operation. Construction of the first gas treatment plant necessary for the launch and ongoing operation of the
first LNG train is underway.
4
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
All volumes of LNG produced by the Arctic LNG 2 project will be sold to the project’s participants under long-
term agreements in proportion to their equity interest. At present, the agreements with all participants have been
signed. The Group, in turn, continues its consistently effort to contract its share of volumes through active
negotiations and signing long-term and medium-term agreements for LNG deliveries with major LNG industry
players mainly from the Asian-Pacific region countries.
To ensure LNG deliveries from the Arctic LNG 2 project, long-term agreements on time chartering of 21 Arc7
ice-class tankers were signed: 15 tankers will be built by the Zvezda Shipbuilding Complex in Russia and 6 tankers
– by Daewoo Shipbuilding & Marine Engineering in South Korea.
In 2021, Arctic LNG 2 entered into credit facility agreements with international and Russian banks for external
financing in the total amount of up to EUR 9.5 billion for the period until the end of 2035, marking an important
step in the project implementation.
The launch of the fourth train of the LNG plant at Yamal LNG project
In the second quarter 2021, the Groups’ joint venture OAO Yamal LNG launched the plant’s fourth liquefaction
train with a nameplate annual capacity of 0.9 million tons of LNG. The fourth LNG train was constructed using
equipment almost entirely manufactured in Russia and based on a proprietary natural gas liquefaction technology
developed by the Group’s specialists utilizing our patented technology “Arctic Cascade”. The launch of the fourth
train increased the total nameplate capacity of the plant from 16.5 million tons to 17.4 million tons of LNG per
annum.
Low-carbon projects
The Group is considering the construction of a gas chemical complex to produce “blue” ammonia, other low-
carbon emitting products, and hydrogen near the Sabetta village. Currently, the Group is conducting pre-front-end
engineering design works (Pre-FEED) with engineering companies and licensors possessing advance low-carbon
technologies to select the most efficient technical solutions for the gas chemical complex and define the key project
parameters.
At the end of 2021, we obtained the licenses for the Obskiy and Tadebyayakhinskiy license areas located in the
Yamal and Gydan peninsulas in YNAO to make possible the capturing of carbon dioxide generated at our own
production facilities and its long-term underground storage. In the beginning of 2022, we completed the first of
three stages of international certification for these license areas, which confirmed that the geological formations
within the license areas have the geological storage capacity of at least 600 million tons of carbon dioxide each.
Having certified carbon dioxide geological storage sites will allow reducing the carbon footprint of the Group’s
existing and prospective projects and is an important element of the Group’s strategy to decarbonize production
clusters for LNG and low-carbon gas chemicals.
Sale of a 10% participation interest in OOO Arctic Transshipment
In July 2021, the Group sold a 10% participation interest in its subsidiary OOO Arctic Transshipment to TOTAL
E&P Transshipment SAS, a member of the TotalEnergies SE group. Arctic Transshipment will be an operator of
the two LNG transshipment complexes currently under construction in the Kamchatka and Murmansk regions.
The terminals will ensure efficient LNG transportation from the Arctic LNG 2 and other Group’s projects through
arranging LNG transshipments from Arc7 ice-class tankers to conventional tankers.
Upon closing the transaction, the key project’s financial and operational decisions are approved unanimously by
all participants, implying joint control over the company. As a result, the Group started to treat Arctic
Transshipment as a joint venture and to account for the investment retained under the equity method.
Increasing our resource base and production facilities
In November 2021, the Group launched the Kharbeyskoye field within the North-Russkiy cluster with the
estimated annual production capacity of 3.6 billion cubic meters of natural gas and 0.6 million tons of gas
condensate. The launch of the Kharbeyskoye field contributes significantly to the maintenance of hydrocarbons
production levels in the area of the Unified Gas Supply System.
5
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
In 2021, the Group obtained rights for geological research works, exploration and production of hydrocarbons at
three license areas located in the YNAO in close proximity to the Group’s existing assets:
In September 2021, we won auctions for the rights to use license areas, which include the Arkticheskoye
and Neytinskoye fields. Combined hydrocarbon reserves of the two fields appraised under the Russian
resource classification are estimated at 413 billion cubic meters (bcm) of natural gas and 28 million tons
of liquids, or approximately 2.9 billion barrels of oil equivalent (boe). The license areas are located on
the Yamal Peninsula in YNAO in close proximity to the Group’s other license areas. The aggregate
payment for the licenses amounted to RR 13.2 billion. The licenses for the rights to use license areas,
which include the Arkticheskoye and Neytinskoye fields, were obtained in October 2021.
In March 2021, the Group won an auction for the right to use the North-Gydanskiy license area. The
license area has estimated hydrocarbon resources of 1,244 bcm of natural gas and 209 million tons of
liquids, or approximately 9.8 billion boe, under the Russian resource classification. The North-Gydanskiy
license area is located in the YNAO on the Gydan peninsula and partly in the shallow waters of the Gydan
Bay of the Kara Sea and borders with the Group’s other license areas: the Salmanovskiy (Utrenniy),
Gydanskiy, Shtormovoy and the flank of the Ladertoyskiy license area. The payment for the license
amounted to RR 775 million. The license for the right to use the North-Gydanskiy license area was
obtained in June 2021.
The acquisition of these license area expands our resource base for implementing new LNG projects.
In July 2021, PAO NOVATEK and PAO Gazprom Neft closed a transaction to form a joint venture to develop the
North-Vrangelevskiy license area. As part of the transaction, the Group purchased a 49% participation interest in
OOO Gazpromneft-Sakhalin, which was a subsidiary of PAO Gazprom Neft. Gazpromneft-Sakhalin owns a
license for geological research works, exploration and production of hydrocarbons at the North-Vrangelevskiy
license area located in the eastern part of the East Siberian Sea and the western part of the Chukchi Sea. The
creation of a new joint venture to develop the North-Vrangelevskiy license area expands our long-term resource
base for implementation of new projects in the Arctic Zone of Russia.
BASIS OF PRESENTATION
Oil and gas production and reserves in the current report are calculated based on 100% of our subsidiaries
production and reserves and our proportionate share in the production and reserves of our joint ventures including
volumes of natural gas consumed in oil and gas producing and development activities. Meanwhile, production
costs per barrel of oil equivalent are calculated based on production volumes net of the volume of consumed natural
gas. Production and reserves of the South-Tambeyskoye field developed by the Group’s joint venture OAO Yamal
LNG are reported at 60% including an additional 9.9% interest not owned by the Group, since the Group assumes
certain economic and operational risks related to this interest.
Our oil and gas revenues and average realized net prices are presented net of VAT, export duties, and fuel taxes,
where applicable, and excise on stable gas condensate refined products sales on the domestic market and
hydrocarbons sales in Poland. The Group also receives the reverse excise on raw oil based on volumes of stable
gas condensate sent for processing to our Ust-Luga Complex and reports it as a deduction to our operating expenses
in the line “Purchases of natural gas and liquid hydrocarbons” in our consolidated statement of income (see “Our
tax burden and obligatory payments” below).
6
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
SELECTED DATA
Year ended 31 December:
Change
%
millions of Russian roubles except as stated
2021
2020
Financial results
(1)
Total revenues
1,156,724
(875,159)
748,337
711,812
(552,062)
392,008
62.5%
58.5%
90.9%
Operating expenses
Normalized EBITDA
(2),(3)
Normalized profit attributable to
shareholders of PAO NOVATEK (3)
Normalized profit attributable to
shareholders of PAO NOVATEK (3)
432,338
106,044
307.7%
,
excluding the effect of foreign exchange gains (losses) (4)
Normalized earnings per share (3) (in Russian roubles)
Normalized earnings per share (3), excluding the effect of
foreign exchange gains (losses) (4) (in Russian roubles)
Net debt (5)
421,304
144.04
169,020
35.30
149.3%
308.1%
140.36
73,946
56.26
39,557
149.5%
86.9%
Production volumes (6)
Hydrocarbons production (million barrels of oil equivalent)
Daily production (million barrels of oil equivalent per day)
626.3
1.72
608.2
1.66
3.0%
3.3%
Sales volumes
Natural gas (million cubic meters)
Naphtha (thousand tons)
Crude oil (thousand tons)
Liquefied petroleum gas (thousand tons)
Other stable gas condensate refined products (thousand tons)
Stable gas condensate (thousand tons)
75,817
4,398
3,909
3,506
2,387
2,341
75,620
4,294
4,468
2,959
2,479
2,169
0.3%
2.4%
(12.5%)
18.5%
(3.7%)
7.9%
Oil and gas SEC reserves (6)
Total proved reserves (billion barrels of oil equivalent)
Total natural gas proved reserves (trillion cubic meters)
Total liquids proved reserves (million tons)
16.4
2.26
189
16.4
2.24
197
0.3%
0.8%
(4.1%)
Cash flow results
Net cash provided by operating activities
419,466
191,251
228,215
171,896
204,577
(32,681)
144.0%
(6.5%)
n/a
(7)
Cash used for capital expenditures
(8)
Free cash flow
(1)
Net of VAT, export duties, excise and fuel taxes, where applicable.
(2)
EBITDA represents profit (loss) adjusted for the add-back of depreciation, depletion and amortization, net impairment
expenses (reversals), finance income (expense), income tax expense, as well as income (loss) from changes in fair value
of derivative financial instruments. EBITDA includes EBITDA from subsidiaries and our proportionate share in the
EBITDA of our joint ventures.
Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on
disposal and subsequent non-cash revaluation of contingent consideration).
Excluding the effect of foreign exchange gains (losses) of subsidiaries and our proportionate share in foreign exchange
gains (losses) of our joint ventures (see “Profit attributable to shareholders and earnings per share” below).
Net debt represents our total debt net of cash, cash equivalents and bank deposits with original
maturity more than three months.
(3)
(4)
(5)
(6)
Oil and gas production and reserves are calculated based on 100% of production and reserves of our subsidiaries and our
proportionate share in the production and reserves of our joint ventures including fuel gas. Production and reserves of the
South-Tambeyskoye field of Yamal LNG are reported at 60% (see “Basis of presentation” above).
Cash used for capital expenditures represents purchases of property, plant and equipment, materials for construction and
capitalized interest paid per Consolidated Statement of Cash Flows net of payments for mineral licenses and acquisition
of subsidiaries.
Free cash flow represents the difference between Net cash provided by operating activities and Cash used for capital
expenditures. For the analysis of factors that impacted our free cash flow, please refer to “Net cash provided by operating
activities” and “Capital expenditures” below.
(7)
(8)
7
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Reconciliation of normalized EBITDA is as follows:
Year ended 31 December:
Change
%
millions of Russian roubles
2021
2020
Profit
451,621
78,586
n/a
Depreciation, depletion and amortization
Impairment expenses (reversals), net
Loss (income) from changes in fair value
of commodity derivative instruments
Total finance expense (income)
Total income tax expense
56,599
1,908
39,238
254
44.2%
n/a
2,600
10,119
49,583
1,689
(160,565)
51,010
53.9%
n/a
(2.8%)
Share of loss (profit) of joint ventures,
net of income tax
(232,277)
143,981
n/a
EBITDA from subsidiaries
340,153
154,193
120.6%
Net gain on disposal of interests in subsidiaries
Changes in fair value of contingent consideration
reported within the “Other operating income (loss)”
(662)
-
(69)
n/a
n/a
47,823
Normalized EBITDA from subsidiaries
Share in EBITDA of joint ventures
339,491
408,846
201,947
190,061
68.1%
115.1%
including:
OAO Yamal LNG
AO Arcticgas
others
297,082
92,477
19,287
131,085
52,885
6,091
126.6%
74.9%
216.6%
Normalized EBITDA
748,337
392,008
90.9%
8
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
SELECTED MACRO-ECONOMIC DATA
Exchange rate, RR for one
foreign currency unit (1)
1Q
2Q
3Q
4Q
Year
2021 2020
Change
Y-o-Y, %
2021
2020
2021
2020
2021
2020
2021
2020
US dollar (USD)
Average for the period
At the beginning of the
period
74.34 66.38 74.22 72.36 73.47 73.56 72.61 76.22
73.88 61.91 75.70 77.73 72.37 69.95 72.76 79.68
73.65 72.15
2.1%
73.88 61.91
74.29 73.88
19.3%
0.6%
At the end of the period 75.70 77.73 72.37 69.95 72.76 79.68 74.29 73.88
Depreciation
(appreciation)
of RR to US dollar
2.5% 25.6% (4.4%) (10.0%) 0.5% 13.9% 2.1% (7.3%)
0.6% 19.3%
87.19 82.45
n/a
Euro
Average for the period
At the beginning of the
period
89.70 73.23 89.39 79.65 86.66 85.97 83.07 90.81
90.68 69.34 88.88 85.74 86.20 78.68 84.88 93.02
5.7%
90.68 69.34
84.07 90.68
30.8%
(7.3%)
At the end of the period 88.88 85.74 86.20 78.68 84.88 93.02 84.07 90.68
Depreciation
(appreciation)
of RR to Euro
(2.0%) 23.7% (3.0%) (8.2%) (1.5%) 18.2% (1.0%) (2.5%)
(7.3%) 30.8%
n/a
(1)
Based on the data from the Central Bank of Russian Federation (CBR). The average rates for the period are calculated as
the average of the daily exchange rates on each business day (rate is announced by the CBR) and on each non-business
day (rate is equal to the exchange rate on the previous business day).
●
●
●
1Q
2Q
3Q
4Q
Year
2021 2020
Change
Y-o-Y, %
Average for the period
2021
2020
2021
2020
2021
2020
2021
2020
Benchmark natural gas prices, USD per mmbtu (2)
NBP (National
Balancing Point)
TTF (Title Transfer
Facility)
6.9
3.2
3.1
9.1
9.0
1.6
16.4
16.7
2.7
30.5
31.4
5.4
15.8
16.0
3.2
393.8%
400.0%
6.6
1.7
2.7
5.1
3.2
Benchmark crude oil prices (3)
Brent, USD per barrel
Urals, USD per barrel
Urals, RR per barrel
61.1
59.6
50.1
48.0
69.0
66.8
29.6
31.6
73.5
70.6
42.9
43.0
79.8
77.8
44.2
44.5
70.9
68.8
5,067 3,023
41.8
41.9
69.6%
64.2%
67.6%
4,431 3,186 4,958 2,287 5,187 3,163 5,649 3,392
Benchmark crude oil prices excluding export duties (4)
Urals, USD per barrel
Urals, RR per barrel
53.6
37.8
59.0
28.5
61.8
37.0
68.1
38.6
60.7
4,471 2,569
35.6
70.5%
74.0%
3,985 2,509 4,379 2,062 4,540 2,722 4,945 2,942
Benchmark oil products (5) and liquefied petroleum gas (6) prices, USD per ton
Naphtha Japan
Naphtha CIF NWE
Jet fuel
Gasoil
Fuel oil
559
544
512
493
408
502
437
411
484
467
348
322
606
596
577
555
432
456
276
240
242
281
196
240
676
667
627
599
468
642
397
376
336
353
268
362
744
731
719
680
510
721
408
393
374
365
301
388
647
636
610
583
455
582
381
357
360
367
279
331
69.8%
78.2%
69.4%
58.9%
63.1%
75.8%
Liquefied petroleum gas
Export duties, USD per ton (7)
Crude oil, stable gas
condensate
Naphtha
Jet fuel, gasoil
Fuel oil
44.0
74.2
40.7
22.2
74.2
1.3
57.1
31.3
17.1
57.1
11.8
22.4
12.3
6.7
22.4
0.0
64.6
35.5
19.3
64.6
26.3
44.1
24.2
13.2
44.1
70.5
38.7
21.1
70.5
43.2
23.7
12.9
43.2
0.0
59.1
32.4
17.7
59.1
42.1
46.0
25.2
13.7
46.0
0.4
28.5%
28.6%
29.2%
28.5%
n/a
24.1
13.2
44.0
0.0
Liquefied petroleum gas
0.0 130.4
(2)
(3)
(4)
(5)
Based on spot natural gas prices at natural gas hubs in the United Kingdom (NBP) and the Netherlands (TTF).
Based on Brent (dtd) and Russian Urals CIF Rotterdam spot assessments prices.
Export duties per barrel were calculated based on export duties per ton divided by the coefficient 7.3.
Based on Naphtha C+F (cost plus freight) Japan, Naphtha CIF NWE, Jet CIF NWE, Gasoil 0.1% CIF NWE,
Fuel Oil 1.0% CIF NWE prices.
Based on spot prices for propane-butane mix at the Belarusian-Polish border (DAF, Brest).
Export duties are determined by the Russian Federation government in US dollars and are paid in Russian roubles
(see “Our tax burden and obligatory payments” below).
(6)
(7)
9
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
CERTAIN FACTORS AFFECTING OUR RESULTS OF OPERATIONS
Current economic environment
Commodity price volatility continues to exert significant influence on financial and operational results in the global
oil and gas industry. Our financial results are obviously impacted by these global developments as our export sales
are linked to the specific underlying benchmark commodity prices, but we believe our business model, representing
one of the lowest cost producers in the world, insulates us from severe financial and operational stress. In each
reporting period, the Group demonstrated sustainable operating and financial results.
The declines in hydrocarbon prices on commodity markets in 2020 negatively impacted oil and gas companies.
The main reasons for the financial and economic stress on the global commodity markets were the spread of
COVID-19 and its negative effect on economic activities, as well as the cancellation of the OPEC+ production
agreement in the first quarter 2020. From the second quarter 2020, global economic activity began a gradual
recovery following the partial removals of restrictions aimed at preventing the epidemic spread, as well as a partial
recovery in benchmark crude oil prices following the new OPEC+ production agreement reached in April 2020 and
the compliance to the target cuts by its participants.
In 2021, the OPEC+ participants continued to restrict their production targets due to the ongoing instability caused
by the spread of the COVID-19 virus and its variants, as well as stricter quarantine measures enforced by some
countries. The maintenance of the restricted production targets as well as an increase in hydrocarbons consumption
due to the severe cold weather in Europe, Asia and North America have led to a significant increase in benchmark
hydrocarbons prices in the first quarter 2021.
Starting from May 2021, OPEC+ began to gradually lift the restrictions on crude oil production targets due to the
increased mobility of population, signs of renewed economic activities and crude oil demand recovery in major
consumer countries. In July 2021, the OPEC+ participants made a decision to further increase crude oil production
volumes and extended the agreement on production restrictions until the end of 2022. Nevertheless, the crude oil
supply still lagged behind global demand due to faster than expected economic recovery resulting in further price
increases in the second and third quarters 2021. In addition, actual crude oil production by OPEC+ was not
consistent with the increased production plans due to accidents and repair works on oil facilities in a number of
countries, which has led to a growth in a deficit in crude oil and an increase in benchmark prices in the fourth
quarter 2021. As a result, during 2021, benchmark crude oil prices returned to the pre-pandemic levels of 2019 and
continued further growth.
The European and Asian natural gas markets were impacted by faster than expected recovery of demand after it
was hit by the COVID-19 pandemic, declared energy transition policy, as well as weather factors (cold winter and
hot summer, low wind speeds in Europe and droughts in South America) and the supply disruptions. All this caused
storage level reduction in key consuming regions and a strong price rally in the second half of 2021.
Further developments surrounding the COVID-19 virus spread remains uncertain and may continue to influence
our future earnings, cash flows and financial position.
The Group’s management is taking necessary precautions to protect the safety and well-being of our employees,
our contractors and our families against the infectious spread of COVID-19, while maintaining our commitment
to meet the energy needs of our valued customers domestically and internationally. We continue working closely
with federal, regional and local authorities, as well as our partners, to contain the spread of the virus and will take
appropriate actions, where necessary, to minimize the possible disruptions of our operations.
Management continues to closely monitor the economic and political environment in Russia and abroad, including
the domestic and international capital markets, to determine if any further corrective and/or preventive measures
are required to sustain and grow our business. We also closely monitor the present commodity price environment
and its impact on our business operations. We do not expect any asset impairments or write-offs resulting from a
lower commodity price environment.
We conduct regular reviews of our capital expenditure program and existing debt obligations. In our opinion, the
Group’s financial position is stable and expected operating cash flows are sufficient to service and repay our debt,
as well as to execute our planned capital expenditure programs.
10
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Political events in Ukraine in the beginning of 2014 have prompted a negative reaction by the world community,
including economic sanctions levied by the United States of America, Canada and the European Union against
certain Russian individuals and legal entities. In July 2014, NOVATEK was included on the OFAC’s Sectoral
Sanctions Identification List (the “List”), which imposed sanctions that prohibit individuals or legal entities
registered or working on the territory of the United States from providing new credit facilities to the Group for
longer than 60 days.
Despite the inclusion on the List, the Group may conduct any other activities, including financial transactions,
with U.S. investors and partners. NOVATEK was included on the List even though the Group does not conduct
any business activities in Ukraine, nor does it have any impact on the political and economic processes taking
place in this country. Management has assessed the impact of the sanctions described above on the Group's
activities taking into consideration the current state of the world economy, the condition of domestic and
international capital markets, the Group’s business, and long-term projects with foreign partners. We have
concluded that the inclusion on the List does not significantly impede the Group’s operations and business
activities in any jurisdiction, nor does it affect the Group’s assets and debt, and does not have a material effect on
the Group’s financial position.
We together with our international partners are undertaking all necessary actions to implement our joint investment
projects on time as planned, including, but not limited to, attracting financing from domestic and non-US capital
markets.
Natural gas prices
Our sales of natural gas in the Russian domestic market are mainly natural gas sales through trunk pipelines and
regional distribution networks, as well as sales of LNG mainly through our refueling complexes. LNG sold on the
domestic market is produced at our small-scale LNG plant in the Chelyabinsk region or purchased primarily from
our joint venture OOO Cryogas-Vysotsk.
Our sales of natural gas on international markets are sales of LNG purchased primarily from our joint ventures,
OAO Yamal LNG and OOO Cryogas-Vysotsk. In addition, we sell on the European market regasified liquefied
natural gas arising during the transshipment of LNG (boil-off gas), as well as during the regasification of purchased
LNG at our own regasification stations in Poland and Germany.
The Group’s natural gas prices in Russia are strongly influenced by the prices set by the Federal Anti-Monopoly
Service, a federal executive agency of the Russian Federation that carries out governmental regulation of prices
and tariffs for products and services of natural monopolies in energy, utilities and transportation (the “Regulator”),
as well as present market conditions.
In 2020, wholesale natural gas prices for sales to all customer categories on the domestic market were increased
by the Regulator by 3.0% effective 1 August 2020 and remained unchanged through the end of the second quarter
2021. Effective 1 July 2021, the wholesale prices were increased by 3.0%.
In September 2021, the Ministry of Economic Development of the Russian Federation published the “Forecast of
Socio-economic Development of the Russian Federation for 2022 and the planned period 2023 and 2024”,
providing for an increase in wholesale natural gas prices for sales to all customer categories, except for residential
customers, from July 2022 by 5.0% and from July 2023 to 2024 by 4.0% on an annual basis. Wholesale natural
gas prices for sales to residential customers are expected to be increased from July 2022 to 2024 by 3.0% on an
annual basis. The Russian Federation government continues to discuss various concepts relating to the natural gas
industry development, including natural gas prices and transportation tariffs growth rates on the domestic market.
The specific terms for delivery of natural gas affect our average realized prices. The majority of our natural gas
volumes on the domestic market are sold directly to end-customers in the regions of natural gas consumption, so
transportation tariff to the end-customer’s location is included in the contract sales price. The remaining volumes
of natural gas are sold “ex-field” to wholesale gas traders, in which case the buyer is responsible for the payment
of further gas transportation tariff. Sales to wholesale gas traders allow us to diversify our natural gas sales without
incurring additional commercial expenses.
We deliver natural gas to residential customers in the Chelyabinsk and Kostroma regions of the Russian Federation
at regulated prices through our subsidiaries OOO NOVATEK-Chelyabinsk and OOO NOVATEK-Kostroma,
respectively. We disclose such residential sales within our end-customers category.
11
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
In addition, we periodically sell natural gas at the Saint-Petersburg International Mercantile Exchange based on
market conditions. We disclose such sales within our sales to end-customers category.
The Group’s prices for LNG sold in Russia are based on oil products prices on the domestic market.
The Group’s natural gas prices on international markets are influenced by many factors, such as the balance
between supply and demand fundamentals, weather, the geography of sales, and the delivery terms to name a few.
The Group sells LNG on international markets under short- and long-term contracts with prices based on the prices
for natural gas at major natural gas hubs and on benchmark crude oil prices. We sell boil-off gas in Europe at
prices linked to natural gas prices at major European natural gas hubs. The Group’s prices for regasified LNG sold
as natural gas on the Polish market are based on the prices regulated by the Energy Regulatory Office of Poland.
The following table shows our aggregate average realized natural gas sales prices on the domestic and international
markets (excluding VAT, where applicable):
Year ended 31 December:
2021 2020
Change
%
Average natural gas price, RR per mcm
6,912
94.0
4,748
65.9
45.6%
42.6%
Average natural gas price, USD per mcm (1)
(1)
Operations initially priced in Russian roubles were translated into US dollars using the average exchange rate for the
period.
In 2021, our aggregate average price for natural gas in Russian roubles increased by 45.6% primarily due to an
increase in LNG prices on international markets, as well as an increase in the regulated Russian domestic price (by
3.0% effective 1 August 2020 and 1 July 2021).
Stable gas condensate and refined products, crude oil and liquefied petroleum gas prices
Crude oil, stable gas condensate, LPG and oil products prices on international markets have historically been
volatile depending on, among other things, the balance between supply and demand fundamentals, the ability and
willingness of oil producing countries to sustain or change production levels to meet changes in global demand
and potential disruptions in global crude oil supplies due to war, geopolitical developments, terrorist activities,
natural disasters, or pandemics.
The actual prices we receive for our liquid hydrocarbons on both the domestic and international markets are
dependent on many external factors beyond the control of management. Among many other factors volatile
movements in benchmark crude oil and oil products prices can have a positive and/or negative impact on the
contract prices we receive for our liquids sales volumes.
In addition, our actual realized net export prices for crude oil, stable gas condensate and its refined products are
affected by the so-called “export duty lag effect”. This lag effect is due to the differences between actual crude oil
prices for a certain period and crude oil prices based on which export duty rate is calculated for the same period
(see “Our tax burden and obligatory payments” below). In periods when crude oil prices are rising, the duty lag
effect normally has a positive impact on the Group's financial results, as the export duty rates are set on the basis
of lower crude oil prices compared to the actual prices. Conversely, in periods of declining crude oil prices, the
export duty rate is calculated based on higher prices compared to the actual prices, resulting in a negative financial
impact.
Most of our liquid hydrocarbons sales prices on both the international and domestic markets include transportation
expenses in accordance with the specific terms of delivery. The remaining portion of our liquids volumes is sold
without additional transportation expenses (ex-works sales of liquefied petroleum gas from the Purovsky Plant and
the Tobolsk Refining Facilities, as well as certain other types of sales).
We commonly sell our stable gas condensate and refined products, as well as liquefied petroleum gas to the
international markets with a premium to the respective international benchmark reference products prices. We
export SILCO (low-sulfur “Siberian Light Crude Oil”) and ESPO (“East Siberia – Pacific Ocean”) grades of crude
oil to international markets with a premium or a discount to the benchmark Brent and Dubai crude oil depending
on current market situation.
12
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
The following table shows our average realized net stable gas condensate and refined products, crude oil and LPG
sales prices. Average realized net prices are shown net of VAT, export duties, excise and fuel taxes, where
applicable:
Year ended 31 December:
2021 2020
Change
%
Russian roubles or US dollars per ton (1)
Naphtha
Average net price, RR per ton
Average net price, USD per ton
47,454
26,311
80.4%
75.3%
645
368
Other stable gas condensate refined products
Average net price, RR per ton
Average net price, USD per ton
41,649
566
23,426
328
77.8%
72.6%
Crude oil
Average net price, RR per ton
Average net price, USD per ton
31,511
428
17,541
245
79.6%
74.7%
LPG
Average net price, RR per ton
Average net price, USD per ton
28,283
384
16,467
228
71.8%
68.3%
Stable gas condensate
Average net price, RR per ton
Average net price, USD per ton
34,140
463
19,239
264
77.5%
75.4%
(1)
Operations initially priced in Russian roubles were translated into US dollars using the average exchange rate for the
period.
In 2021, our weighted-average realized net prices for our liquid hydrocarbons increased compared to the
corresponding period in prior year due to an increase in the underlying benchmark prices for these products
excluding export duties (see “Selected macro-economic data” above).
The dynamics of our weighted average realized net prices for each product category also reflects changes in
volumes sold within periods and changes in the geography of shipments that may significantly impact our average
prices in periods of high benchmark prices volatility on international markets. In addition, the specifics of pricing
mechanism for each particular product (such as time lag of international benchmark crude oil prices and export
duty rates used in price calculation, price setting on an individual transaction basis for some deliveries and other
factors) also have an impact on the dynamics of our weighted-average realized net prices.
Transportation tariffs
Natural gas by pipelines
We transport our natural gas within the Russian Federation territory through our own pipelines into the Unified
Gas Supply System (“UGSS”), which is owned and operated by PAO Gazprom, a Russian Federation government
controlled monopoly. Transportation tariffs charged to independent producers for the use of the Gas Transmission
System (“GTS”), as part of the UGSS, are set by the Regulator (see “Terms and abbreviations” below).
In accordance with the existing methodology of calculating transportation tariffs for natural gas produced in the
Russian Federation for shipments to consumers located within the customs territory of the Russian Federation and
the member states of the Customs Union Agreement (Belarus, Kazakhstan, Kyrgyzstan, and Armenia), the
transportation tariff consists of two parts: a rate for the utilization of the trunk pipeline and a transportation rate
per mcm per 100 kilometers (km). The rate for utilization of the trunk pipeline is based on an “input/output”
function, which is determined by where natural gas enters and exits the trunk pipeline and includes a constant rate
for end-customers using Gazprom’s gas distribution systems. The constant rate is deducted from the utilization
rate for end-customers using non-Gazprom gas distribution systems.
In 2020 and 2021, the average tariff for natural gas transportation through the trunk pipeline did not change. The
transportation rate amounted to RR 13.04 per mcm per 100 km (excluding VAT), and the rate for utilization of the
trunk pipeline was set in the range from RR 62.57 to RR 2,014.16 per mcm (excluding VAT).
13
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
In September 2021, the Ministry of Economic Development published the Forecast for 2022 and the planning
periods for 2023 and 2024, which does not provide for any increase in the tariffs for natural gas transportation
through the trunk pipeline in 2022 to 2024. The Russian Federation government continues to discuss various
concepts relating to the natural gas industry development, including natural gas prices and transportation tariffs
growth on the domestic market.
Stable gas condensate and LPG by rail
Substantially all of our stable gas condensate and LPG (excluding volumes sold ex-works from the Purovsky Plant
and the Tobolsk Refining Facilities) we transport by rail owned by Russia’s state-owned monopoly railway
operator – OAO Russian Railways (“RZD”).
The railroad transportation tariffs are set by the Regulator and vary depending on the type of product, and the
direction and the length of the transport route. In addition, the Regulator sets the range of railroad tariffs as a
percentage of the regulated tariff within which RZD may vary railroad transportation tariffs within the Russian
Federation territory based on the type of product, direction and length of the transportation route, and taking into
account current railroad transportation and market conditions.
Effective January 2021, railroad freight transportation tariffs for all types of hydrocarbons were increased by 3.7%
relative to the 2020 tariffs and did not change until the end of 2021. In January 2022, the Regulator increased the
aforementioned tariffs by 6.8% relative to the 2021 tariffs.
In 2020 and 2021, we applied the discount coefficient of 0.94 to the existing railroad transportation tariffs for
stable gas condensate deliveries from the Limbey rail station to the port of Ust-Luga and to end-customers on the
domestic and international markets. The discount coefficient is set by the decision of the Management Board of
RZD as part of the Strategic Partnership Agreement between the Group and RZD.
In addition, from April and through the end of 2020, we applied discount coefficients to the existing railroad
transportation tariffs for LPG deliveries within the Russian Federation territory from the Tobolsk rail station, which
were temporarily introduced due to unfavorable macroeconomic environment. In the second quarter 2020, the
coefficients were initially set at 0.75 and 0.872 depending on the transportation distance and, from mid-June, a
single discount coefficient of 0.6 applied.
Stable gas condensate, refined products and liquefied natural gas by tankers
We deliver part of our stable gas condensate and substantially all stable gas condensate refined products, as well
as liquefied natural gas (excluding volumes purchased and sold to customers in the same location) to international
markets by chartered tankers. In addition to time chartering expenses, we may also incur transshipment, bunkering,
port charges and other expenses depending on the delivery terms, which are included in the transportation by
tankers expense category. The distance to the final port of destination, tanker availability, seasonality of deliveries
and other factors also influence our tanker transportation expenses.
Crude oil
We transport nearly all of our crude oil through the pipeline network owned by PAO Transneft, Russia’s state-
owned monopoly crude oil pipeline operator. The Regulator sets tariffs for transportation of crude oil through
Transneft’s pipeline network, which includes transport, dispatch, pumping, loading, charge-discharge,
transshipment and other related services. The Regulator sets tariffs for each separate route of the pipeline network,
so the overall expense for the transport of crude oil depends on the length of the transport route from the producing
fields to the ultimate destination, transportation direction and other factors.
Effective 1 January 2021, crude oil transportation tariffs through the pipeline network within the Russian
Federation territory were increased by an average of 3.6% relative to the 2020 tariffs and remained unchanged
until the end of 2021. Effective 1 January 2022, transportation tariffs were increased by an average of 4.3% relative
to the 2021 tariffs.
14
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Our tax burden and obligatory payments
We are subject to a wide range of taxes imposed at the federal, regional, and local levels, many of which are based
on revenue or volumetric measures. In addition to income tax, significant taxes and obligatory payments to which
we are subject include VAT, unified natural resources production tax (“UPT”, commonly referred as “MET” –
mineral extraction tax), export duties, excise, property tax and social contributions to non-budget funds.
In practice, Russian tax authorities often have their own interpretation of tax laws that rarely favors taxpayers, who
have to resort to court proceedings to defend their position against the tax authorities. Differing interpretations of
tax regulations exist both among and within government ministries and organizations at the federal, regional and
local levels, creating uncertainties and inconsistent enforcement. Tax declarations and other documentation such
as customs declarations, are subject to review and investigation by a number of tax authorities, each of which may
impose fines, penalties and interest charges. Generally, taxpayers are subject to an inspection of their activities for
a period of three calendar years immediately preceding the year in which the audit is conducted. Previous audits
do not completely exclude subsequent claims relating to the audited period. In addition, in some instances, new
tax regulations may have a retroactive effect.
We have not employed any tax minimization schemes using offshore or domestic tax zones in the Russian
Federation.
Detailed information regarding UPT, export duties, excise and social contributions to non-budget funds is
described below based on the current versions of the Tax Code of the Russian Federation and the law “On Customs
Tariff”.
In 2019, the completion stage of the tax maneuver in the oil and gas industry in the Russian Federation began and
will continue until the end of 2024. The tax maneuver envisages a gradual decrease in export duties for crude oil
and oil products with a respective increase in unified production taxes for crude oil and gas condensate, as well as
the introduction of reverse excise for raw oil.
The legislation changes aimed at the completion of the tax maneuver, with other factors being equal, influence line
items in our consolidated financial statements by increasing our liquids net prices and revenues due to a gradual
decrease in export duties, increasing our UPT expenses and increasing our hydrocarbons purchases as a result of
opposite effects of increased purchase prices and excise tax deductions for raw oil.
Export duties
Procedure for the calculation and payment of export duties is set in the Law of the Russian Federation “On Customs
Tariff”. According to this law, we are subject to export duties on our exports of liquid hydrocarbons (stable gas
condensate and refined products, LPG and crude oil).
Crude oil export duty rate formulas are set by the Russian Federation government and are based on the average
Urals crude oil price (Mediterranean and Rotterdam) for the so called “monitoring period” (the period from the
15th calendar day in the previous month to the 14th calendar day of the current month):
Average Urals crude oil price
for the monitoring period, USD per ton (Р)
Formula for export duty rate calculation
less 109.5 (inclusive)
Zero rate
К × [0.35 × (Р – 109.5)]
К × [0.45 × (Р – 146) + 12.78]
К × [0.3 × (Р – 182.5) + 29.2]
between 109.5 and 146 (inclusive)
between 146 and 182.5 (inclusive)
above 182.5
К – adjusting coefficient
The adjusting coefficient (K) will gradually decrease on an annual basis from 0.833 in 2019 to zero in 2024, thus
gradually decreasing the export duty rate for crude oil to zero by 2024. In 2020 and 2021, the adjusting coefficient
amounted to 0.667 and 0.5, respectively; in 2022, the coefficient is set at 0.333.
We pay export duties for our stable gas condensate export sales volumes at the export duty rate for crude oil.
15
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
The export duty rates for oil products are calculated based on the export duty rate for crude oil adjusted by a
coefficient (discount) set for each category of oil products. The export duty rates for our exported stable gas
condensate refined products as a percentage of the crude oil export duty rate are presented below:
% from the crude oil export duty rate
Naphtha
Jet fuel
Gasoil
55%
30%
30%
Fuel oil
100%
The export duty rate for LPG for the next calendar month is calculated based on the average LPG price at the
Polish border (DAF, Brest) for the current monitoring period and is calculated using the formula presented in the
table below:
Average LPG price, USD per ton (P)
Formula for export duty rate calculation
less 490 (inclusive)
Zero rate
0.5 × (Р – 490)
75 + 0.6 × (Р – 640)
135 + 0.7 × (Р – 740)
between 490 and 640 (inclusive)
between 640 and 740 (inclusive)
above 740
We record export duties as a deduction to our revenues in the consolidated statement of income.
UPT – natural gas
We pay UPT for natural gas on a monthly basis. The UPT rate for natural gas is set in Russian roubles per one
mcm of extracted natural gas.
The UPT rate for natural gas is calculated as a product of the base UPT rate (RR 35 per mcm), the base value of a
standard fuel equivalent and a coefficient characterizing the difficulty of extracting natural gas and gas condensate
from each particular field. The result is then increased by a parameter characterizing natural gas transportation
costs (was set at zero in both reporting periods).
The base value of a standard fuel equivalent is calculated by a taxpayer based on a combination of factors including
natural gas prices, Urals crude oil prices and crude oil export duty rate.
UPT – crude oil
We pay UPT for crude oil on a monthly basis. The UPT rate for crude oil is set in Russian roubles per ton of
extracted crude oil.
The UPT rate is calculated as a product of a coefficient characterizing the dynamics of world crude oil prices and
the base UPT rate (RR 919 per ton) adjusted for parameters characterizing crude oil production peculiarities (the
reserves’ depletion (only in 2020), complexity of extraction, the region, crude oil properties). The result is then
increased by a fixed amount (RR 428 per ton in both reporting periods). Further, the UPT rate for crude oil is
gradually increased by the amount of the corresponding decrease in the crude oil export duty rate due to the
completion of the tax maneuver (see “Export duties” above).
According to the Tax Code of the Russian Federation, a reduced UPT rate is applied to the license areas that are
located to the north of the 65th degree of the northern latitude in the YNAO. The reduced UPT rate is effective
until the latest of the dates: 1 January 2022 or the end of a certain period after the date of the state registration of
the subsoil use license (10 or 15 years depending on the type of a license). The reduced base UPT rate amounted
to RR 360 per ton in both reporting periods, and we applied it in respect of the crude oil produced at our East-
Tarkosalinskoye, Khancheyskoye, Yarudeyskoye and Kharbeyskoye (launched in the end of 2021) fields. Starting
from 2022, we will continue to use this benefit only in respect of the crude oil produced at the Kharbeyskoye field,
for which it will remain effective till the end of 2026.
16
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Where the average export alternative prices for petrol and diesel fuel exceed the regulated wholesale prices for
these products on the Russian domestic market, the UPT rate for crude oil is also increased by the so called “petrol
and diesel fuel premiums”, which depend on the export and domestic price differentials for these products. The
petrol and diesel fuel premiums are payable by all crude oil producers regardless of whether the extracted crude
oil volumes will be further sold or refined.
UPT – gas condensate
We pay UPT for gas condensate on a monthly basis. The UPT rate for gas condensate is set in Russian roubles per
ton of extracted gas condensate.
The UPT rate for gas condensate is calculated as a product of the base UPT rate (RR 42 per ton), the base value of
a standard fuel equivalent, a coefficient characterizing the difficulty of extracting natural gas and gas condensate
from each field and an adjusting coefficient of 6.5. The base value of a standard fuel equivalent is calculated by a
taxpayer based on the combination of factors including natural gas prices, Urals crude oil prices and crude oil
export duty rate.
The Group reduces its overall UPT expense accrued for gas condensate production volumes by applying a UPT
tax deduction on gas condensate volumes produced for processing into NGL. The amount of the tax deduction is
calculated monthly by multiplying a coefficient of NGL recovery from gas condensate processing, the quantity of
gas condensate produced and processed, and the tax deduction rate in Russian roubles per ton of NGL derived.
The tax deduction rate was set at RR 147 per ton for January 2018 and since then was increasing monthly by the
same amount until the end of 2020. Starting from December 2020, the tax deduction rate is fixed at RR 5,280 per
ton of produced NGL.
The UPT rate for gas condensate is increased by 75% of the decrease in the crude oil export duty rate. The share
of 75% is deemed to represent volumes of produced gas condensate excluding the share of NGL received from
gas condensate processing.
Excise for raw oil
In 2019, with the commencement of the completion stage of the tax maneuver in the oil and gas industry in the
Russian Federation, a reverse excise on raw oil was introduced. Raw oil represents a mixture of hydrocarbons
composed of one or more components of crude oil, stable gas condensate, vacuum gasoil, tar, and fuel oil. This
deduction was introduced to compensate economic losses of oil and gas refining companies arising from the tax
maneuver and the transfer of tax burden from export duties to the UPT in the amount of full export duty rate for
crude oil while export duties for oil products are paid at a discount to crude oil export duty rate.
We receive the reverse excise on raw oil based on volumes of stable gas condensate sent for processing to our Ust-
Luga Complex.
The excise tax rate on raw oil is calculated based on the average Urals crude oil prices, the mix of processed
products, region of processing, and the adjusting coefficient, which will be gradually increased on an annual basis
from 0.167 in 2019 to 1.0 in 2024 as part of the completion stage of the tax maneuver in the oil and gas industry.
In 2020 and 2021, the adjusting coefficient amounted to 0.333 and 0.5, respectively; in 2022, the coefficient is set
at 0.667.
In 2021, an investment premium to the reverse excise on raw oil was introduced for companies, which concluded
an investment agreement with the Ministry of Energy of the Russian Federation prior to 1 October 2021 for
construction or modernization of raw oil deep processing facilities. Effective July 2021, the reverse excise we
receive includes the investment premium, which we obtain under an investment agreement for construction of a
hydrocracker unit with the respective expansion of our Ust-Luga Complex.
We report the reverse excise on raw oil as a deduction to our operating expenses in the line “Purchases of natural
gas and liquid hydrocarbons” in our consolidated statement of income as most of our unstable gas condensate
volumes used to produce stable gas condensate we purchase from our joint ventures.
17
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Social contributions
The Group makes contributions to the Pension Fund, the Federal Compulsory Medical Insurance Fund, and the
Social Insurance Fund on behalf of employees in Russia. The base for social contributions accrual is the amount
of salaries and similar employee compensation stipulated by the employment contracts.
The rates for social contributions depend on the fund and the employee’s annual income:
2020
2021
2022
Base,
Base,
Base,
RR thousand
Rate, %
RR thousand
Rate, %
RR thousand
Rate, %
Pension Fund of the
Russian Federation
less 1,292
above 1,292
22.0%
10.0%
less 1,465
above 1,465
22.0%
10.0%
less 1,565
above 1,565
22.0%
10.0%
Federal Compulsory
Medical Insurance Fund
No limit
5.1%
No limit
5.1%
No limit
5.1%
Social Insurance Fund of
the Russian Federation
less 912
above 912
2.9%
0.0%
less 966
above 966
2.9%
0.0%
less 1,032
above 1,032
2.9%
0.0%
18
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
OIL AND GAS RESERVES
We do not file with the Securities and Exchange Commission (“SEC”) nor we are obliged to report our reserves
in compliance with these standards. However, we have consistently disclosed proved oil and gas reserves as
unaudited supplemental information in the Group’s IFRS audited consolidated financial statements. The Group’s
total proved reserves, comprised of proved developed and proved undeveloped reserves, as of 31 December
2021 and 2020, are provided using the SEC reserves reporting classification. We also provide additional
information about our hydrocarbon reserves based on the widely-industry accepted PRMS reserves reporting
classification, which in addition to total proved reserves discloses information on our probable and possible
reserves.
The Group’s reserves are located in the Russian Federation, primarily in the Yamal-Nenets Autonomous Region
(Western Siberia), thereby representing one geographical area.
The Group’s oil and gas estimation and reporting process involves an annual independent external appraisal, as
well as internal technical appraisals of reserves. The internal technical appraisals of reserves are performed by the
Group’s qualified technical staff working directly with the oil and gas reserves and are periodically updated during
the year based on evaluations of new wells, performance reviews, new technical information and other studies.
The annual independent external appraisal of our reserves is performed by independent petroleum engineers,
DeGolyer and MacNaughton (“D&M”). The Group provides D&M annually with engineering, geological and
geophysical data, actual production histories and other information necessary for reserves appraisal. The method
or combination of methods used in the analysis of each reservoir is tempered by experience with similar reservoirs,
stages of development, quality and completeness of basic data, and production history. Our reserves estimates
were prepared using standard geological and engineering methods generally accepted in the oil and gas industry.
The Group and D&M’s technical staffs meet to review and discuss the information provided, and upon completion
of the process, senior management reviews and approves the final reserves estimates issued by D&M.
The Reserves Management and Assessment Group (“RMAG”) is comprised of qualified technical staff from
various departments responsible for geology and geophysics, gas and liquids commercial operations, engineering
and capital construction, production, and long-term financial planning, and also includes representatives from the
Group’s subsidiaries, which are the principal holders of the mineral licenses for geological research works,
exploration and production of hydrocarbons. The person responsible for overseeing the work of the RMAG is a
member of the Management Board.
The approval of the final reserve estimates is the sole responsibility of the Group’s senior management.
The information below about the Group’s oil and gas production and reserves under SEC and PRMS reserve
classifications is presented based on 100% of production and reserves attributable to all consolidated subsidiaries
(whether or not wholly owned) and our proportionate share in the production and reserves in companies accounted
for by the equity method based on our equity ownership interest, including volumes of natural gas consumed in
oil and gas production and development activities (primarily, as fuel gas). Production and reserves of the South-
Tambeyskoye field of Yamal LNG are reported at 60% including an additional 9.9% interest not owned by the
Group, since the Group assumes certain economic and operational risks related to this interest (see “Basis of
presentation” above).
19
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
The table below provides proved oil and gas reserves under SEC reserve classification and the change in reserves
in metric units and on a total barrel of oil equivalent basis:
As of and for the year
ended 31 December:
Change
%
2021 2020
Natural gas, billions of cubic meters
Subsidiaries
Share in joint ventures
2,261
1,180
1,081
2,244
1,156
1,088
0.8%
2.1%
(0.6%)
Liquids, millions of metric tons
Subsidiaries
Share in joint ventures
189
95
94
197
102
95
(4.1%)
(6.9%)
(1.1%)
Combined reserves, millions of boe
16,409
16,366
0.3%
Change in total reserves, millions of boe
Production
43
(626)
-
101
(608)
31
Acquisitions (1)
Organic growth (2)
669
678
Reserves replacement ratio (3), %
107%
107%
117%
112%
Normalized reserves replacement ratio (3), (4), %
(1)
Relate to an additional 50% interest in reserves of the Yevo-Yakhinskiy license area acquired by the Group as a result of
the reorganization of Arcticgas in 2019 (a part of these reserves was appraised in 2020).
(2)
(3)
Represents change due to extensions and discoveries, revisions of previous estimates.
The reserves replacement ratio is calculated as the change in reserves increased for the production for the year divided by
production for the year.
(4)
Excluding reserves acquisitions and disposals.
The Groups’ total proved reserves under the SEC reserve classification methodology as at the end of
2021 increased by 43 million boe, or 0.3%, to 16,409 million boe, representing a reserve replacement ratio of
107%.
The increase in total proved hydrocarbons reserves under the SEC reserve classification was primarily due to
successful exploration works and production drilling at our subsidiaries and joint ventures.
Our subsidiaries obtained positive exploration results at the Geofizicheskoye and Gydanskoye fields, successfully
performed production drilling at the North-Russkoye field and the Urengoyskoye field of the Yevo-Yakhinskiy
license area, as well as increased recovery rate at the Yurkharovskoye field. The dynamics of the reserves of our
joint ventures was positively affected by successful exploration and production drilling at the South-Tambeyskoye
field of Yamal LNG and at the Urengoyskoye field of the Samburgskiy license area of Arcticgas, as well as
production drilling at the Salmanovskoye (Utrenneye) field of Arctic LNG 2.
The following table provides for the Group’s PRMS proved, proved and probable, and proved, probable and
possible reserves in metric units and on a total barrel of oil equivalent basis:
Natural gas,
billions of cubic meters
Liquid hydrocarbons,
millions of metric tons
Combined reserves,
millions of boe
31 December 31 December
31 December 31 December
31 December 31 December
2021
2020
2021
2020
2021
2020
Proved reserves (1P reserves)
Proved and probable reserves
(2P reserves)
Proved, probable and
possible reserves (3P reserves)
2,484
2,477
213
227
18,085
18,148
3,948
5,206
3,981
5,257
363
502
380
529
28,970
38,444
29,318
38,986
As we continue to invest capital into the development of our fields, we anticipate that we will increase our resource
base, as well as migrate reserves among the reserve categories.
20
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
The below table contains information about reserve to production ratios as of 31 December 2021 and 2020 under
both reserves reporting methodologies:
SEC
PRMS
At 31 December:
At 31 December:
Number of years
2021
2020
2021
2020
Total proved reserves to production
Total proved and probable reserves to production
Total proved, probable and possible reserves to production
26
-
-
27
-
-
29
46
61
30
48
64
21
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
OPERATIONAL HIGHLIGHTS
Oil and gas production costs per unit of production
Oil and gas production costs on a barrel of oil equivalent basis are calculated by dividing oil and gas production
costs by the barrel of oil equivalent of hydrocarbons produced during the year.
Oil and gas production costs include only the amounts directly related to the extraction of natural gas, gas
condensate and crude oil and exclude processing costs incurred after saleable hydrocarbons are received, such as
stable gas condensate processing costs and natural gas liquefaction costs, as well as transportation and other
marketing expenses. Oil and gas production costs comprise of lifting costs (materials, services and other expenses,
as well as administrative expenses being by nature operating expenses of oil and gas producing activities), taxes
other than income tax and depreciation, depletion and amortization which are disclosed in the “Unaudited
Supplemental Oil and Gas Disclosures” in the consolidated financial statements.
Natural gas, gas condensate and crude oil volumes produced are converted to a barrel of oil equivalent based on
the relative energy content of each fields’ hydrocarbons. Natural gas production volumes used for calculation of
production costs per boe differ from the volumes presented in the section “Natural gas production volumes” as the
former excludes volumes of natural gas consumed in oil and gas production and development activities (see “Basis
of presentation” above).
The following tables set forth information with respect to oil and gas production costs on a barrel of oil equivalent
basis of our subsidiaries and joint ventures, as well as combined weighted average oil and gas production costs for
the Group’s subsidiaries and joint ventures for the reporting periods in Russian roubles and US dollars.
Year ended 31 December:
2021 2020
Change
%
RR per boe
Subsidiaries
Production costs per boe:
Lifting costs
63.9
61.2
4.4%
Taxes other than income tax
272.8
176.0
55.0%
41.9%
18.5%
Total production costs before DDA per boe
336.7
237.2
Depreciation, depletion and amortization
115.4
97.4
Total production costs of subsidiaries per boe
452.1
334.6
35.1%
Joint ventures
Production costs per boe:
Lifting costs
Taxes other than income tax
29.8
191.7
26.1
121.9
14.2%
57.3%
Total production costs before DDA per boe
221.5
148.0
49.7%
Depreciation, depletion and amortization
95.9
94.6
1.4%
Total weighted average production costs
of joint ventures per boe (1)
317.4
242.6
30.8%
Subsidiaries and joint ventures
Production costs per boe:
Lifting costs
47.8
44.2
8.1%
Taxes other than income tax
234.6
149.8
56.6%
Total production costs before DDA per boe
282.4
194.0
45.6%
Depreciation, depletion and amortization
106.2
96.0
10.6%
Total weighted average production costs
of subsidiaries and joint ventures per boe (2)
388.6
290.0
34.0%
(1)
Calculated based on the Group’s share in the production of each joint venture.
(2)
Calculated based on 100% of the Group’s subsidiaries production and our share in the production of each joint venture.
22
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Year ended 31 December:
Change
%
USD per boe (1)
2021
2020
Subsidiaries
Production costs per boe:
Lifting costs
Taxes other than income tax
0.87
3.70
0.85
2.44
2.4%
51.6%
38.9%
16.3%
Total production costs before DDA per boe
4.57
3.29
Depreciation, depletion and amortization
1.57
1.35
Total production costs of subsidiaries per boe
6.14
4.64
32.3%
Joint ventures
Production costs per boe:
Lifting costs
Taxes other than income tax
0.40
2.60
0.36
1.69
11.1%
53.8%
Total production costs before DDA per boe
3.00
2.05
46.3%
Depreciation, depletion and amortization
1.31
1.31
0.0%
Total weighted average production costs
of joint ventures per boe (2)
4.31
3.36
28.3%
Subsidiaries and joint ventures
Production costs per boe:
Lifting costs
Taxes other than income tax
0.65
3.19
0.61
2.08
6.6%
53.4%
Total production costs before DDA per boe
3.84
2.69
42.8%
Depreciation, depletion and amortization
1.44
1.33
8.3%
Total weighted average production costs
of subsidiaries and joint ventures per boe (3)
5.28
4.02
31.3%
(1)
Production costs in US dollars per boe were translated from Russian roubles amounts using the average exchange rate
for the period (see “Selected macro-economic data” above).
(2)
(3)
Calculated based on the Group’s share in the production of each joint venture.
Calculated based on 100% of the Group’s subsidiaries production and our share in the production of each joint venture.
Hydrocarbon production and sales volumes
In 2021, our total natural gas and liquids production including the proportionate share in the production of our
joint ventures increased by 3.3% and 0.5%, respectively. The commissioning of gas condensate deposits within
the fields of the North-Russkiy cluster (the North-Russkoye and East-Tazovskoye fields in the third quarter 2020,
as well as the Kharbeyskoye field in the fourth quarter 2021) fully offset the declines in hydrocarbons production
at mature fields of our subsidiaries and joint ventures.
In 2021, our total natural gas sales volumes marginally increased by 197 mmcm, or 0.3%. An increase in natural
gas sales volumes on the domestic market fully offset a decline in volumes sold on the international markets. The
increase in volumes sold on the domestic market resulted from the launch of additional production facilities, as
well as higher demand from end-customers due to weather conditions. The decline in natural gas volumes sold on
the international markets was due to a decrease in LNG sales volumes purchased primarily from our joint venture
OAO Yamal LNG as a result of an increase in the share of Yamal LNG’s direct LNG sales under long-term
contracts.
In 2021, our liquids sales volumes increased by 168 thousand tons, or 1.0%, primarily due to an increase in gas
condensate production.
23
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Natural gas production volumes
The following table presents natural gas production of the Group’s subsidiaries by major production fields and our
proportionate share in natural gas production of joint ventures by entities:
Year ended 31 December:
2021 2020
Change
%
millions of cubic meters if not stated otherwise
Production by subsidiaries from:
Yurkharovskoye field
21,626
23,104
(6.4%)
North-Russkiy cluster (1)
East-Tarkosalinskoye field
Beregovoye field
9,318
4,644
1,947
1,478
1,021
984
4,831
5,305
1,905
1,648
1,312
1,055
92.9%
(12.5%)
2.2%
(10.3%)
(22.2%)
(6.7%)
Yarudeyskoye field
Khancheyskoye field
Olimpiyskiy license area (2)
East-Urengoyskoye + North-Esetinskoye field
(West-Yaroyakhinskiy license area)
Other fields
477
1,397
530
957
(10.0%)
46.0%
Total natural gas production by subsidiaries (3),(4)
42,892
40,647
5.5%
Group’s proportionate share in the production of joint ventures:
Yamal LNG (5)
Arcticgas
Nortgas
Terneftegas
Arctic LNG 2
18,008
15,073
2,513
1,325
83
17,093
15,383
2,931
1,269
44
5.4%
(2.0%)
(14.3%)
4.4%
88.6%
Total Group’s proportionate share
in the natural gas production of joint ventures (3),(4)
37,002
79,894
218.9
36,720
77,367
211.4
0.8%
3.3%
3.5%
5.4%
Total natural gas production including
proportionate share in the production of joint ventures
Average daily natural gas production including
proportionate share in the production of joint ventures
Total LNG production including proportionate share
in the production of joint ventures (thousands of tons) (5)
12,180
11,553
(1)
Includes production at the North-Russkoye, East-Tazovskoye, Dorogovskoye and Kharbeyskoye fields.
Includes production at the Urengoyskoye, Dobrovolskoye and Sterkhovoye fields.
Excluding natural gas volumes injected to maintain reservoir pressure.
(2)
(3)
(4)
Natural gas production includes natural gas volumes consumed in oil and gas production and development activities
(primarily, as fuel gas):
in subsidiaries
in joint ventures (Group’s proportionate share)
2,033
547
1,785
491
13.9%
11.4%
(5)
Natural gas and LNG production at Yamal LNG are reported at 60% (see “Basis of presentation” above).
In 2021, our total natural gas production (including our proportionate share in the production of joint ventures)
increased by 2,527 mmcm, or 3.3%, to 79,894 mmcm from 77,367 mmcm in 2020.
The main factor positively impacting our production growth was an increase in natural gas production within the
North-Russkiy cluster resulting from the commissioning of gas condensate deposits at the North-Russkoye field
and the launch of the East-Tazovskoye field in the third quarter 2020, as well as the launch of the Kharbeyskoye
field in the fourth quarter 2021. This factor fully offset the declines in production at mature fields of our
subsidiaries (the Yurkharovskoye, East-Tarkosalinskoye and Khancheyskoye fields) and joint ventures (Nortgas
and Arcticgas) resulted mainly from natural declines in the reservoir pressure at the current gas producing horizons.
In the second quarter 2021, Yamal LNG launched the fourth LNG train (see “Recent developments” above), which
together with the achievement of increased productivity of LNG trains and the shorter planned maintenance works
in 2021 resulted in an increase in production in the current year compared to the prior year.
24
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Natural gas sales volumes
In 2021, our total natural gas sales volumes marginally increased by 197 mmcm, or 0.3%, to 75,817 mmcm from
75,620 mmcm in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of cubic meters
Production by subsidiaries
Purchases from the Group’s joint ventures
Other purchases
42,892 40,647
5.5%
(5.2%)
2.7%
27,383
7,801
28,870
7,597
Total production and purchases
78,076
77,114
1.2%
Own usage (1) and other movements
Decrease (increase) in natural gas inventory balance
(2,132)
(127)
(1,920)
426
11.0%
n/a
Total natural gas sales volumes
75,817
75,620
0.3%
Sold to end-customers
Sold ex-field
Subtotal sold in the Russian Federation
64,868
3,000
67,868
63,632
3,060
66,692
1.9%
(2.0%)
1.8%
Sold on international markets
7,949
8,928
(11.0%)
(1)
Own usage represents volumes of natural gas consumed in oil and gas producing and development activities (primarily,
as fuel gas), as well as used to maintain the refining process at the Purovsky Plant and production of LNG and methanol.
In 2021, natural gas purchases from our joint ventures decreased by 1,487 mmcm, or 5.2%, to 27,383 mmcm from
28,870 mmcm in 2020 primarily due to a decrease in spot LNG purchases from our joint venture Yamal LNG. The
decrease in LNG purchases resulted from an increase in the share of Yamal LNG’s direct sales under long-term
contracts and the corresponding decrease in LNG spot sales to shareholders, including the Group.
Other natural gas purchases are included in our natural gas volumes for sale, which allows us to coordinate sales
across geographic regions as well as to optimize our end-customers portfolios. In the years ended 31 December
2021 and 2020, we purchased from third parties 7,529 mmcm and 7,169 mmcm of natural gas, respectively, on
the Russian domestic market, and 272 mmcm and 428 mmcm, respectively, on international markets.
At 31 December 2021, our cumulative natural gas inventory balance, mainly representing our inventory balances
of natural gas in the UGSF, aggregated 924 mmcm and increased by 127 mmcm during the year as compared to a
decrease by 426 mmcm in 2020. Natural gas inventory balances tend to fluctuate period-to-period depending on
the Group’s demand for natural gas withdrawal from the UGSF for the sale in the subsequent periods.
25
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Liquids production volumes
The following table presents liquids production of the Group’s subsidiaries by major production fields and our
proportionate share in the liquids production of joint ventures by entities:
Year ended 31 December:
2021 2020
Change
%
thousands of tons
Production by subsidiaries from:
Yarudeyskoye field
East-Tarkosalinskoye field
North-Russkiy cluster (1)
Yurkharovskoye field
Beregovoye field
2,779
1,203
1,070
972
3,139
1,294
392
1,021
267
(11.5%)
(7.0%)
173.0%
(4.8%)
0.0%
267
Khancheyskoye field
Other fields
142
203
162
158
(12.3%)
28.5%
Total liquids production by subsidiaries
6,636
6,433
3.2%
including crude oil
including gas condensate
3,944
2,692
4,355
2,078
(9.4%)
29.5%
Group’s proportionate share in the production of joint ventures:
Arcticgas
4,468
605
384
4,479
701
383
(0.2%)
(13.7%)
0.3%
Yamal LNG (2)
Terneftegas
Nortgas
206
241
(14.5%)
Total Group’s proportionate share
in the liquids production of joint ventures
5,663
5,804
(2.4%)
0.5%
0.8%
Total liquids production including
proportionate share in the production of joint ventures
Average daily liquids production including
proportionate share in the production of joint ventures
12,299
12,237
33.7
33.4
(1)
Including production at the North-Russkoye, East-Tazovskoye and Kharbeyskoye fields.
(2)
Production at the South-Tambeyskoye field of Yamal LNG is reported at 60% (see “Basis of presentation” above).
In 2021, our total liquids production (including our proportionate share in the production of joint ventures)
increased by 62 thousand tons, or 0.5%, to 12,299 thousand tons from 12,237 thousand tons in 2020.
The launch of gas condensate production within the North-Russkiy cluster (the North-Russkoye and East-
Tazovskoye fields in the third quarter 2020, as well as the Kharbeyskoye field in the fourth quarter 2021) fully
offset a decrease in production at mature fields of our subsidiaries and joint ventures, which was mainly due to
natural declines in the concentration of liquids as a result of decreasing reservoir pressure at the current producing
horizons.
26
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Liquids sales volumes
In 2021, our total liquids sales volumes increased by 168 thousand tons, or 1.0%, to 16,555 thousand tons from
16,387 thousand tons in 2020.
Year ended 31 December:
2021 2020
Change
%
thousands of tons
Production by subsidiaries
Purchases from the Group’s joint ventures
Other purchases
6,636
9,841
429
6,433
10,028
141
3.2%
(1.9%)
204.3%
Total production and purchases
16,906
16,602
1.8%
Losses (1), own usage (2) and other movements (3)
Decreases (increases) in liquids inventory balances
(284)
(67)
(215)
-
32.1%
n/a
Total liquids sales volumes
16,555
16,387
1.0%
Naphtha export
4,398
2,031
356
4,294
2,259
220
2.4%
(10.1%)
61.8%
0.2%
Other stable gas condensate refined products export (4)
Other stable gas condensate refined products domestic (4)
Subtotal stable gas condensate refined products
6,785
6,773
Crude oil export
Crude oil domestic
Subtotal crude oil
1,157
2,752
3,909
1,559
2,909
4,468
(25.8%)
(5.4%)
(12.5%)
LPG export
LPG domestic
Subtotal LPG
567
2,939
3,506
568
2,391
2,959
(0.2%)
22.9%
18.5%
Stable gas condensate export
Stable gas condensate domestic
Subtotal stable gas condensate
364
1,977
2,341
589
1,580
2,169
(38.2%)
25.1%
7.9%
Other oil products
14
18
(22.2%)
(1)
Losses associated with processing at the Purovsky Plant, the Ust-Luga Complex and the Tobolsk Refining Facilities, as
well as during railroad, trunk pipeline and tanker transportation.
(2)
(3)
(4)
Own usage associated primarily with the maintaining of refining process at the Ust-Luga Complex, as well as bunkering
of chartered tankers.
Other movements relate to volumes of natural gas received from the deethanization of unstable gas condensate purchased
from third parties.
Other stable gas condensate refined products include jet fuel, gasoil and fuel oil received from the processing of stable
gas condensate at the Ust-Luga Complex.
Other purchases of liquid hydrocarbons increased due to purchases of unstable gas condensate from a Gazprom
group’s company for deethanization and further processing at our Purovsky Plant at the suggestion of Gazprom.
Our sales volumes of naphtha and other stable gas condensate refined products fluctuate from period-to-period
depending on changes in inventory balances, with volumes of the products received from processing at the Ust-
Luga Complex staying relatively flat. Our sales volumes of stable gas condensate represent the volumes remaining
after we deliver most of our stable gas condensate for further processing to our Ust-Luga Complex, as well as
volumes purchased by the Group for subsequent sale on international markets, including purchases from our joint
venture Yamal LNG.
In 2021, our liquids inventory balances increased by 67 thousand tons to 868 thousand tons as of 31 December
2021. In 2020, our liquids inventory balances did not change and amounted to 801 thousand tons as of
31 December 2020 and 2019. Our liquids inventory balances may vary period-to-period depending on shipping
schedules and final destinations (see “Changes in natural gas, liquid hydrocarbons and work-in-progress” below).
27
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
RESULTS OF OPERATIONS FOR THE YEAR ENDED 31 DECEMBER 2021
COMPARED TO THE YEAR ENDED 31 DECEMBER 2020
The following table and discussion are a summary of our consolidated results of operations for the years ended
31 December 2021 and 2020. Each line item is also shown as a percentage of our total revenues.
Year ended 31 December:
% of total
revenues
% of total
revenues
millions of Russian roubles
2021
2020
Total revenues (1)
including:
1,156,724
100.0%
711,812
100.0%
natural gas sales
liquids sales
524,071
611,135
45.3%
52.8%
359,040
340,710
50.4%
47.9%
Operating expenses
Gain on disposal of interests in subsidiaries, net
Other operating income (loss)
(875,159)
662
(3,181)
(75.7%)
0.1%
(0.3%)
(552,062)
69
(46,807)
(77.6%)
0.0%
(6.6%)
Profit from operations
279,046
278,384
(10,119)
24.1%
24.1%
(0.9%)
113,012
160,766
160,565
15.9%
22.6%
22.6%
Normalized profit from operations (2)
Finance income (expense)
Share of profit (loss) of joint ventures,
net of income tax
232,277
20.1%
(143,981)
(20.2%)
Profit before income tax
501,204
43.3%
129,596
18.2%
Total income tax expense
(49,583)
(4.3%)
(51,010)
(7.2%)
Profit
451,621
39.0%
78,586
11.0%
Less: profit (loss) attributable to
non-controlling interest
(18,694)
(1.6%)
(10,754)
(1.5%)
Profit attributable to
shareholders of PAO NOVATEK
Normalized profit attributable to shareholders
of PAO NOVATEK (2), excluding the effect of
foreign exchange gains (losses)
432,927
37.4%
67,832
9.5%
421,304
36.4%
169,020
23.7%
(1)
Net of VAT, export duties, excise and fuel taxes, where applicable.
(2)
Excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on
disposal and subsequent non-cash revaluation of contingent consideration).
28
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Total revenues
The following table sets forth our sales (excluding VAT, export duties, excise and fuel taxes, where applicable)
for the years ended 31 December 2021 and 2020:
Change (1)
Year ended
31 December:
Change
%
Due to
Due to
millions of Russian roubles
2021 2020
Total
volume (2) price (3)
Natural gas sales
524,071 359,040
46.0%
165,031
936 164,095
597 136,488
Stable gas condensate refined products sales
Naphtha
Other refined products
308,123 171,038
208,713 112,963
80.1%
84.8%
71.2%
137,085
95,750
41,335
2,759
(2,162)
92,991
43,497
99,410
123,179
99,142
79,931
760
58,075
78,381
48,725
41,728
838
Crude oil sales
57.2%
103.5%
91.6%
44,798
50,417
38,203
(78)
(9,810)
8,999
3,315
n/a
54,608
41,418
34,888
n/a
Liquefied petroleum gas sales
Stable gas condensate sales
Other products sales
(9.3%)
Total oil and gas sales
1,135,206 699,750
21,518 12,062
62.2%
435,456
n/a
n/a
Other revenues
78.4%
9,456
n/a
n/a
Total revenues
1,156,724 711,812
62.5%
444,912
n/a
n/a
(1)
(2)
(3)
The figures reflect the impact of sales volumes and average realized net prices factors on the change in total revenues
from hydrocarbons sales in millions of Russian roubles for the respective periods.
The amount of the change in total revenues due to sales volumes is calculated for each product category as a product of
the average realized net price for the previous reporting period and the change in sales volumes.
The amount of the change in total revenues due to average realized net prices is calculated for each product category as a
product of the volume sold in the current reporting period and the change in average realized net prices.
Natural gas sales
Revenues from natural gas sales represent our revenues from natural gas sales in the Russian Federation (to end-
customers and wholesale traders), and revenues from LNG sales to international and domestic markets, as well as
revenues from sales of regasified LNG to customers in Europe.
In 2021, our total revenues from natural gas sales increased by RR 165,031 million, or 46.0%, compared to
2020 due to higher gas prices on international markets, as well as an increase in sales prices and volumes in the
Russian domestic market (see “Natural gas prices” and “Natural gas sales volumes” above).
Stable gas condensate refined products sales
Stable gas condensate refined products sales represent revenues from sales of naphtha, jet fuel, gasoil and fuel oil
produced from our stable gas condensate at the Ust-Luga Complex.
In 2021, our revenues from sales of stable gas condensate refined products increased by RR 137,085 million, or
80.1%, to RR 308,123 million from RR 171,038 million in 2020 mainly due to an increase in average realized
prices (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” and “Liquids
sales volumes” above).
Revenues from sales of naphtha increased by RR 95,750 million, or 84.8%, as compared to 2020. In the years
ended 31 December 2021 and 2020, we exported 4,398 thousand tons and 4,294 thousand tons of naphtha,
respectively, mainly to the APR, and the European and North American markets. Our average realized net price,
excluding export duties, where applicable, increased by RR 21,143 per ton, or 80.4%, to RR 47,454 per ton from
RR 26,311 per ton in 2020.
29
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Revenues from sales of jet fuel, gasoil and fuel oil increased by RR 41,335 million, or 71.2%, as compared to
2020. In the years ended 31 December 2021 and 2020, we exported in aggregate 2,031 thousand tons and
2,259 thousand tons of these products mainly to the European markets, or 85.1% and 91.1% of total sales volumes
(on both the domestic and export markets), respectively. Our average realized net price, excluding export duties,
where applicable, increased by RR 18,223 per ton, or 77.8%, to RR 41,649 per ton from RR 23,426 per ton in
2020.
Crude oil sales
In 2021, our revenues from crude oil sales increased by RR 44,798 million, or 57.2%, compared to 2020 due to an
increase in average realized prices, the effect of which was partially offset by a decrease in sales volumes.
We sold 2,752 thousand tons, or 70.4% of our total crude oil sales volumes, domestically as compared to sales of
2,909 thousand tons, or 65.1%, in 2020 (see “Liquids sales volumes” above). The remaining 1,157 thousand tons
of crude oil, or 29.6% of our total crude oil sales volumes, in 2021, and 1,559 thousand tons, or 34.9%, in
2020 were sold to customers with destination points in the APR markets in both periods, as well as in the European
and the Middle East markets in 2020.
Our average realized net price, excluding export duties, where applicable, increased by RR 13,970 per ton, or
79.6%, to RR 31,511 per ton from RR 17,541 per ton in 2020 (see “Stable gas condensate and refined products,
liquefied petroleum gas and crude oil prices” above).
Liquefied petroleum gas sales
In 2021, our revenues from sales of LPG increased by RR 50,417 million, or 103.5%, compared to 2020 mainly
due to an increase in average realized prices and, to a lesser extent, sales volumes.
We sold 2,939 thousand tons of LPG, or 83.8% of our total LPG sales volumes, on the domestic market compared
to sales of 2,391 thousand tons, or 80.8%, in 2020 (see “Liquids sales volumes” above). The remaining
567 thousand tons of LPG, or 16.2% of our total LPG sales volumes, in 2021 and 568 thousand tons, or 19.2%, in
2020 were sold primarily to the Polish market.
Our average realized LPG net price, excluding export and import duties, excise, and fuel taxes expense, where
applicable, in 2021 increased by RR 11,816 per ton, or 71.8%, to RR 28,283 per ton from RR 16,467 per ton in
2020 (see “Stable gas condensate and refined products, liquefied petroleum gas and crude oil prices” above).
Stable gas condensate sales
In 2021, our revenues from sales of stable gas condensate increased by RR 38,203 million, or 91.6%, compared to
2020 primarily due to an increase in average realized prices, as well as in sales volumes.
We sold 1,977 thousand tons of stable gas condensate, or 84.5% of our total stable gas condensate sales volumes,
on the domestic market as compared to sales of 1,580 thousand tons, or 72.8%, in 2020 (see “Liquids sales
volumes” above). The remaining 364 thousand tons of stable gas condensate, or 15.5% of our total stable gas
condensate sales volumes, in 2021, and 589 thousand tons, or 27.2%, in 2020 were sold to the European, APR and
Middle East (only in 2020) markets.
Our average realized net price, excluding export duties, where applicable, increased by RR 14,901 per ton, or
77.5%, to RR 34,140 per ton from RR 19,239 per ton in 2020 (see “Stable gas condensate and refined products,
liquefied petroleum gas and crude oil prices” above).
Other products sales
Other products sales represent our revenues from sales of purchased oil products (diesel fuel and petrol) through
our retail stations, as well as sales of other liquid hydrocarbons, including methanol from our own production. In
2021, our revenues from other products sales decreased by RR 78 million, or 9.3%, to RR 760 million from
RR 838 million in 2020.
30
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Other revenues
Other revenues include revenue from transportation, geological and geophysical research services, repair and
maintenance of energy equipment services, rent and other services.
In 2021, other revenues increased by RR 9,456 million, or 78.4%, to RR 21,518 million from RR 12,062 million
in 2020 primarily due to an increase in revenues from leasing of facilities of our LNG construction center located
in the Murmansk region, used for the construction of the LNG plant at the Arctic LNG 2 project. Other revenues
also increased due to additional license fees received from the joint venture Yamal LNG for our technology “Arctic
Cascade” as a result of the launch of the fourth LNG train, as well as due to an increase in revenues from geological
and geophysical research services provided to our joint ventures.
31
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Operating expenses
In 2021, our total operating expenses increased by RR 323,097 million, or 58.5%, to RR 875,159 million
compared to RR 552,062 million in 2020 mainly due to an increase in global hydrocarbon commodity prices,
which resulted in an increase in average hydrocarbon purchase prices (see “Purchases of natural gas and liquid
hydrocarbons” below) and UPT rates (see “Taxes other than income tax” below).
Year ended 31 December:
% of total
revenues
% of total
revenues
millions of Russian roubles
2021
2020
Purchases of natural gas and liquid hydrocarbons
Transportation expenses
Taxes other than income tax
Depreciation, depletion and amortization
Materials, services and other
General and administrative expenses
Exploration expenses
497,282
161,506
88,506
56,599
34,442
34,250
9,582
43.0%
14.0%
7.7%
4.9%
3.0%
3.0%
0.8%
0.2%
235,224
154,757
54,501
39,238
29,577
26,795
9,103
33.0%
21.7%
7.7%
5.5%
4.2%
3.8%
1.3%
n/a
Impairment expenses, net
1,908
254
Changes in natural gas, liquid hydrocarbons
and work-in-progress
(8,916)
n/a
2,613
0.4%
Total operating expenses
875,159
75.7%
552,062
77.6%
Purchases of natural gas and liquid hydrocarbons
In 2021, our purchases of natural gas and liquid hydrocarbons increased by RR 262,058 million, or 111.4%, to
RR 497,282 million as compared to RR 235,224 million in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Natural gas
258,989 125,844
105.8%
Unstable gas condensate
Other hydrocarbons
Reverse excise
245,400
10,764
(17,871)
102,568
12,221
(5,409)
139.3%
(11.9%)
230.4%
Total purchases of natural gas and liquid hydrocarbons
497,282
235,224
111.4%
Purchases of natural gas increased by RR 133,145 million, or 105.8%, as compared to 2020 mainly due to an
increase in LNG purchase prices that are based on natural gas prices at major natural gas hubs and benchmark
crude oil prices (see “Selected macro-economic data” above), as well as due to domestic gas prices indexation (see
“Natural gas prices” above). The impact of these factors was partially offset by a decrease in volumes of LNG
purchased from our joint venture OAO Yamal LNG for subsequent sale on international markets due to an increase
in the share of direct sales of Yamal LNG under long-term contracts and the corresponding decrease in the share
of LNG spot sales to shareholders, including the Group.
Purchases of unstable gas condensate increased by RR 142,832 million, or 139.3%, as compared to 2020 mainly
due to an increase in purchase prices, which are primarily impacted by international crude oil and LPG prices
excluding export duties (see “Selected macro-economic data” above).
Other hydrocarbon purchases represent our purchases of crude oil, LPG, stable gas condensate and oil products
for subsequent resale depending on the demand for these types of products. Purchases of other hydrocarbons
decreased by RR 1,457 million, or 11.9%, as compared to 2020 mainly due to purchases of stable gas condensate
from Yamal LNG for subsequent sale in 2020 (there were no such purchases in 2021).
We receive the reverse excise on raw oil based on volumes of stable gas condensate sent for processing to our Ust-
Luga Complex on a monthly basis (see “Our tax burden and obligatory payments” above). We report the amount
of reverse excise as a deduction to our operating expenses in the line “Purchases of natural gas and liquid
hydrocarbons” in our consolidated statement of income as most of our unstable gas condensate volumes used to
produce stable gas condensate we purchase from our joint ventures.
32
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Transportation expenses
In 2021, our total transportation expenses increased by RR 6,749 million, or 4.4%, to RR 161,506 million as
compared to RR 154,757 million in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Natural gas transportation
by trunk and low-pressure pipelines
Stable gas condensate and
106,628
100,594
6.0%
liquefied petroleum gas transportation by rail
Stable gas condensate and refined products,
crude oil and liquefied natural gas transportation by tankers
Crude oil transportation by trunk pipelines
Other
36,499
34,198
6.7%
9,907
6,754
1,718
10,283
8,042
1,640
(3.7%)
(16.0%)
4.8%
Total transportation expenses
161,506
154,757
4.4%
Expenses for natural gas transportation by trunk and low-pressure pipelines increased by RR 6,034 million, or
6.0%, to RR 106,628 million from RR 100,594 million in 2020 due to an increase in the transportation distance as
a result of, inter alia, production growth at the fields within the North-Russkiy cluster, and a 1.9% increase in our
natural gas sales volumes to our end-customers, for which we incurred transportation expenses.
Expenses for stable gas condensate and LPG transportation by rail increased by RR 2,301 million, or 6.7%, to
RR 36,499 million from RR 34,198 million in 2020. The increase was due to an increase in the weighted average
transportation cost per unit resulted from a 3.7% growth in the regulated railroad transportation tariffs effective
January 2021 (see “Transportation tariffs” above), as well as a 2.4% increase in volumes of liquids sold and
transported via rail.
Transportation expenses for our hydrocarbons delivered by tankers to international markets decreased by
RR 376 million, or 3.7%, to RR 9,907 million from RR 10,283 million in 2020 mainly due to a decrease in liquids
volumes delivered.
Expenses for crude oil transportation to customers by trunk pipeline decreased by RR 1,288 million, or 16.0%, to
RR 6,754 million from RR 8,042 million in 2020 due to a 12.5% decrease in sales volumes, as well as an increase
in the proportion of sales to our domestic customers located at closer regions from our production fields.
Other transportation expenses mainly include our short-term vessels time charter expenses and other expenses
related to our revenues from hydrocarbons transportation by tankers and transshipment services rendered to our
joint ventures and third parties (see “Other revenues” above), as well as expenses for hydrocarbons transportation
by trucks.
Taxes other than income tax
In 2021, taxes other than income tax increased by RR 34,005 million, or 62.4%, to RR 88,506 million from
RR 54,501 million in 2020 primarily due to an increase in unified natural resources production tax expense.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Unified natural resources production tax (UPT)
83,281 50,204
65.9%
Property tax
Other taxes
4,803
422
3,929
368
22.2%
14.7%
Total taxes other than income tax
88,506
54,501
62.4%
33
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Unified natural resources production tax expense increased by RR 33,077 million, or 65.9%, to RR 83,281 million
from RR 50,204 million in 2020 primarily due to an increase in UPT rates, as well as an increase in gas condensate
and natural gas production volumes (see “Hydrocarbon production and sales volumes” above). The increase in
UPT rates was due to an increase in benchmark crude oil prices and changes in the UPT rates formulas caused by
the completion of the tax maneuver in the oil and gas industry (see “Our tax burden and obligatory payments”
above).
Property tax expense increased by RR 874 million, or 22.2%, to RR 4,803 million from RR 3,929 million in
2020 primarily due to the launch of new production assets in both reporting periods.
Depreciation, depletion and amortization
In 2021, our depreciation, depletion and amortization (“DDA”) expense increased by RR 17,361 million,
or 44.2%, to RR 56,599 million from RR 39,238 million in 2020 primarily due to additions of new assets: launch
of the fields within the North-Russkiy cluster and production facilities of our LNG construction center located in
the Murmansk region, used for construction of LNG plant at our Arctic LNG 2 project. We accrue depreciation
and depletion on oil and gas assets using the “units-of-production” method and straight-line method for other
facilities.
Materials, services and other
In 2021, our materials, services and other expenses increased by RR 4,865 million, or 16.4%, to RR 34,442 million
compared to RR 29,577 million in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Employee compensation
Repair and maintenance
Materials and supplies
Preparation and processing of hydrocarbons
Electricity and fuel
Transportation services
Fire safety and security expenses
Liquefied petroleum gas
volumes reservation expenses
Insurance expense
17,033 14,027
21.4%
3,791
2,412
2,227
1,818
1,304
1,304
3,294
1,833
2,323
1,702
1,140
1,152
15.1%
31.6%
(4.1%)
6.8%
14.4%
13.2%
1,205
634
1,205
462
0.0%
37.2%
(0.2%)
(19.6%)
36.2%
Rent expenses
Labor safety expenses
Other
591
592
565
703
1,558
1,144
Total materials, services and other
34,442
29,577
16.4%
Employee compensation relating to operating personnel increased by RR 3,006 million, or 21.4%, to
RR 17,033 million compared to RR 14,027 million in 2020 due to an increase in average number of employees
resulting from the launch of new production assets at our subsidiaries and provision of servicing of new assets to
our joint ventures (mainly, Arctic LNG 2 and Arcticgas), as well as an indexation of base salaries effective from
1 January 2021, and the related increase in social contributions for medical and social insurance and to the Pension
Fund of the Russian Federation.
The launch of gas condensate deposits at the fields within the North-Russkiy cluster in 2020 and 2021 (at the
North-Russkoye and East-Tazovskoye fields in the third quarter 2020, as well as at the Kharbeyskoye field in the
fourth quarter 2021) resulted in an increase in maintenance expenses, expenses for materials and supplies required
to maintain the technological process, as well as the expenses for its transportation. In addition, the launch of new
assets resulted in an increase in insurance, fire safety and security expenses.
In addition to factors mentioned above, repair and maintenance expenses also increased due to an increase in
current repair works performed on wells at our core production subsidiaries. Materials and supplies expenses also
increased due to a growth in power generation for our joint ventures due to the expansion of their operations at our
service subsidiary NOVATEK-Energo, as well as due to outfitting a new crew camp at one of our production
subsidiaries.
34
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
The line “Other” increased due to expenses related to the provision of geological and geophysical research services
to our joint ventures, which was in line with an increase in revenues from these services (see “Other revenues”
above).
General and administrative expenses
In 2021, our general and administrative expenses increased by RR 7,455 million, or 27.8%, to RR 34,250 million
compared to RR 26,795 million in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Employee compensation
Social expenses and compensatory payments
Legal, audit and consulting services
Advertising expenses
Repair and maintenance expenses
Fire safety and security expenses
Business travel expense
26,122 17,849
46.3%
(33.3%)
5.4%
64.9%
(21.9%)
6.0%
51.3%
(12.5%)
19.2%
2,753
1,358
988
4,128
1,289
599
740
947
616
581
283
187
Rent expense
Other
161
184
1,229
1,031
Total general and administrative expenses
34,250
26,795
27.8%
Employee compensation relating to administrative personnel increased by RR 8,273 million, or 46.3%, to
RR 26,122 million in 2021 from RR 17,849 million in 2020 primarily due to an increase in accrued provision for
bonuses to management personnel, as well as an increase in average number of employees resulting from the
expansion of the Group's activities, an indexation of base salaries effective from 1 January 2021, and the related
increase in social contributions for medical and social insurance and to the Pension Fund of the Russian Federation.
Social expenses and compensatory payments amounted to RR 2,753 million compared to RR 4,128 million in
2020. In 2021, we recorded compensatory payments in the total amount of RR 537 million, which primarily related
to the development of the East-Tambeyskiy and North-Obskiy license areas and the East-Tarkosalinskoye field.
In 2020, compensatory payments amounted to RR 1,602 million and mainly related to the development of the
Yurkharovskoye and West-Yurkharovskoye fields, the Nyakhartinskiy and West-Yaroyakhinskiy license areas.
The remaining expenses represented our social expenses and related to continued support of charities and social
programs in the regions where we operate. Social expenses and compensatory payments fluctuate period-to-period
depending on the implementation schedules of specific programs we support.
Advertising expenses amounted to RR 988 million compared to RR 599 million in 2020 and mainly related to
advertising during sporting events, forums and conferences. Advertising expenses fluctuate period-to-period
depending on timing of events.
Repair and maintenance expenses decreased by RR 207 million, or 21.9%, to RR 740 million from RR 947 million
in 2020 mainly due to settling in and outfitting a new office building for our subsidiaries in Novy Urengoy last
year.
Other items of our general and administrative expenses changed marginally.
Exploration expenses
In 2021, our exploration expenses amounted to RR 9,582 million, of which the major part related to exploration
works at the Soletsko-Khanaveyskiy, North-Russkiy and Nyakhartinskiy license areas, on the flank of the East-
Tazovskoye field, as well as on an offshore block in Montenegro. In 2020, our exploration expenses amounted to
RR 9,103 million and related to exploration works at the Gydanskiy, Soletsko-Khanaveyskiy, Shtormovoy,
Nyakhartinskiy and North-Russkiy license areas, as well as on an offshore block in Lebanon.
Exploration works ensure timely preparation of reserves at our promising fields for development and further
progress of the Group’s hydrocarbons production projects in line with our long-term strategy. Exploration
expenses fluctuate period-to-period in accordance with the approved exploration work schedule at our production
subsidiaries.
35
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
In accordance with our accounting policies, exploration expenses include geological and geophysical research
services, expenditures associated with the maintenance of license areas with non-proven reserves, expenses of our
science and technology center associated with the exploration activities at our fields, costs related to exploratory
wells drilling when reserves are not found, and other expenditures relating to exploration activity.
Impairment expenses
In 2021 and 2020, we recognized net impairment expenses of RR 1,908 million and RR 254 million, respectively,
which in both periods mainly related to impairments of trade accounts receivables, as well as to an impairment of
property, plant and equipment in 2021 in the amount of RR 576 million in respect of assets related to the
Yumantylskiy license area as a result of the decision to return the license in 2022.
Changes in natural gas, liquid hydrocarbons and work-in-progress
In 2021, we recorded a reversal of RR 8,916 million to changes in inventory expense due to an increase in most
of our hydrocarbons inventory balances and the cost of hydrocarbons purchases as a result of an increase in
benchmark crude oil prices. In 2020, we recorded a charge of RR 2,613 million to changes in inventory expense
due to a decrease in natural gas inventory balances and a decrease in the cost of hydrocarbons purchases as a result
of a decrease in benchmark crude oil prices.
In the current year, our cumulative natural gas inventory balance increased by 127 mmcm as compared to a
decrease by 426 mmcm in 2020. Natural gas inventory balances tend to fluctuate period-to-period depending on
the Group’s demand for natural gas withdrawal for the sale in the subsequent periods.
In 2021, our cumulative liquid hydrocarbons inventory balances, recognized as inventory in transit or in storage,
increased by 67 thousand tons mainly due to an increase in inventory balances of stable gas condensate in rail cars
in transit not realized at the reporting date. In 2020, our cumulative liquid hydrocarbons inventory balances did
not change. Inventory balances of stable gas condensate and refined products tend to fluctuate period-to-period
depending on shipment schedules and final destination of our shipments.
The following table highlights movements in our hydrocarbons inventory balances:
2021
2020
Inventory balances in
transit or in storage
At
At Increase /
1 January (decrease)
At
At Increase /
1 January (decrease)
31 December
31 December
Natural gas (millions of cubic meters)
924
797
127
797
1,223
(426)
incl. Gazprom’s UGSF
771
698
73
698
982
(284)
Liquid hydrocarbons (thousand tons)
incl. stable gas condensate
refined products
868
801
67
801
801
-
357
293
99
380
238
81
(23)
55
18
380
238
81
331
272
94
49
(34)
(13)
stable gas condensate
crude oil
Net gain on disposal of interests in subsidiaries
In the third quarter 2021, the Group sold a 10% participation interest in its subsidiary OOO Arctic Transshipment
to TOTAL E&P Transshipment SAS, a member of the TotalEnergies SE group, and recognized a gain on the
disposal in the amount of RR 662 million before income tax (see “Recent developments” above).
In 2020, we sold a 100% participation interest in OOO Chernichnoye to our joint venture ZAO Terneftegas and
recognized a gain on the disposal in the amount of RR 69 million before income tax.
Other operating income (loss)
Other operating income (loss) includes realized income (loss) from hydrocarbons trading on the international
markets, income (loss) from the change in the fair value of the aforementioned contracts, as well as other income
(loss) relating to penalty charges, disposal of materials, fixed assets and other transactions. In 2021, we recognized
other operating loss of RR 3,181 million compared to other operating loss of RR 46,807 million in 2020.
36
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
In 2021, we purchased and sold approximately 11.6 bcm of natural gas, as well as various derivative commodity
instruments within our trading activities, and recognized an aggregate realized loss from trading activities of
RR 1,278 million as compared to an income of RR 1,479 million in 2020. At the same time, we recognized a non-
cash loss of RR 2,600 million in 2021 due to a decrease in the fair value of the aforementioned contracts as
compared to a non-cash loss of RR 1,689 million in 2020. The effect of the change in fair value of the commodity
contracts fluctuates from period-to-period depending on the forecast prices for hydrocarbons on international
markets and other macroeconomic parameters and may or may not reflect actual future cash flows from trading
activities.
In addition, in 2020, we recognized a loss of RR 47,823 million due to the non-cash revaluation of fair value of
contingent consideration related to the sale of a 40% participation interest in OOO Arctic LNG 2 in 2019, resulting
from a decrease in long-term crude oil benchmark prices forecast, which may be revised subject to world market
conditions and may or may not reflect actual future cash inflows.
Profit from operations and EBITDA
In 2021, our profit from operations and EBITDA including our proportionate share of joint ventures, but excluding
the effects from the disposal of interests in subsidiaries and joint ventures, increased to RR 608,741 million and
RR 748,337 million, respectively, compared to RR 274,718 million and RR 392,008 million in 2020.
Profit from operations and EBITDA of our subsidiaries, excluding the effects from the disposal of participation
interests, also increased to RR 278,384 million and RR 339,491 million, respectively, compared to
RR 160,766 million and RR 201,947 million in 2020.
Increases in normalized profit from operations and EBITDA were mainly due to an increase in hydrocarbon
commodity prices on international markets in the current year compared to the prior year, as well as the launch
of new production assets within the fields of the North-Russkiy cluster in 2020 and 2021.
Finance income (expense)
In 2021, we recorded net finance expense of RR 10,119 million compared to net finance income of
RR 160,565 million in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Accrued interest expense on loans received
Less: capitalized interest
(7,925) (10,051)
(21.2%)
(28.2%)
4,768
6,641
The effect from recalculating of the amortized cost of a financial
liability due to a change in the repayment schedule
Provisions for asset retirement obligations:
(3,886)
-
n/a
effect of the present value discount unwinding
Interest expense on lease liabilities and other expenses
(886)
(535)
(960)
(569)
(7.7%)
(6.0%)
Interest expense
(8,464)
(4,939)
71.4%
Interest income
Change in fair value of non-commodity financial instruments
Foreign exchange gain (loss), net
16,000
19,600
(37,255)
25,440
(7,397)
147,461
(37.1%)
n/a
n/a
Total finance income (expense)
(10,119)
160,565
n/a
Interest expense increased by RR 3,525 million, or 71.4% primarily due to the Group’s decision to repay the loan
obtained from China’s investment fund Silk Road Fund ahead of its maturity schedule, in late 2021 – early 2022.
The amortized cost of the liability was recalculated based on the new repayment schedule, and the difference of
RR 3,886 million, representing a non-cash expense, was recognized within “Interest expense” line.
37
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Interest income decreased by RR 9,440 million, or 37.1%, to RR 16,000 million from RR 25,440 million in
2020 as a result of the termination starting from 2021 of interest income recognition on the shareholders’ loans
issued to our joint venture Yamal LNG and accounted for at fair value in accordance with IFRS 9 “Financial
instruments”. A portion of the change in fair value of such loans attributable to interest income is determined
based on the amortized cost of the loans using the effective rate method based on initial interest rates and
anticipated repayment schedules. Upon the expiration of initially anticipated repayment schedules, a portion of the
change in the loans fair value reflecting the time value of money is no longer recorded within “Interest income”
line but is instead recorded within “Change in fair value of non-commodity financial instruments” line, which also
includes other effects of changes in the fair value of these loans (such as changes in interest rates and expected
maturities).
In 2021, we recognized a non-cash gain of RR 19,600 million compared to a non-cash loss of RR 7,397 million in
2020 due to the remeasurement of the shareholders’ loans issued by the Group to our joint ventures in accordance
with IFRS 9 “Financial instruments”. The effect of the fair value remeasurement of shareholders’ loans may
change period-to-period due to the change in market interest rates and other macroeconomic parameters and does
not affect real future cash flows of loans repayments.
The Group continues to record non-cash foreign exchange gains and losses each reporting period due to
movements between currency exchange rates. In 2021, we recorded a net foreign exchange loss of
RR 37,255 million compared to a net foreign exchange gain of RR 147,461 million in 2020 due to the revaluation
of our foreign currency denominated borrowings and loans received and provided, cash balances in foreign
currency, trade receivables and contingent consideration related to the transactions on the sale of participation
interests in Arctic LNG 2.
Share of profit (loss) of joint ventures, net of income tax
In 2021, the Group’s proportionate share of profit of joint ventures amounted to RR 232,277 million as compared
to the share of loss in the amount of RR 143,981 million in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles (Group’s share)
Share of profit from operations
330,357
113,952
189.9%
Share of finance income (expense)
excluding foreign exchange effects
(96,379)
(71,685)
34.4%
Interest income (expense), net
Change in fair value of
(61,132)
(85,502)
(28.5%)
non-commodity financial instruments
(35,247)
13,817
n/a
Share of income tax excluding foreign exchange effects
(42,539)
(5,303)
n/a
Share of profit (loss) of joint ventures, net of income tax
and excluding foreign exchange effects
191,439
36,964
n/a
Share of foreign exchange gain (loss), net
Share of income tax
86,174
(254,022)
n/a
related to foreign exchange gain (loss)
(15,091)
42,832
n/a
Total
262,522
(174,226)
n/a
Unrecognized share of loss (profit) of joint ventures
(30,245)
30,245
n/a
Total share of profit (loss) of joint ventures,
net of income tax
232,277
(143,981)
n/a
38
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
The following table presents the Group’s proportionate share of profit (loss) of our joint ventures by entities:
Yamal LNG
Arcticgas
Others
millions of Russian roubles (Group’s share)
2021
2020
2021
2020
2021
2020
275
Share of profit from operations
239,066
76,020
79,303
37,657
11,988
Share of finance income (expense)
excluding foreign exchange effects
(86,349) (65,789)
(2,955)
(1,355)
(7,075)
(4,541)
Interest income (expense), net
Change in fair value of
(56,357) (81,398)
(2,955)
(1,355)
(1,820)
(2,749)
non-commodity financial instruments
(29,992)
15,609
-
-
(5,255)
(1,792)
Share of income tax
excluding foreign exchange effects
(26,837)
(3,163) (12,930)
(5,691)
(2,772)
3,551
Share of profit (loss) of joint ventures,
net of income tax and excluding
foreign exchange effects
125,880
7,068
63,418
30,611
2,141
(715)
Share of foreign exchange gain (loss), net
Share of income tax
related to foreign exchange gain (loss)
59,732 (222,431)
(9,856) 36,700
13
(22)
26,429
(31,569)
(2)
4
(5,233)
6,128
Total
175,756 (178,663)
(27,763) 27,763
63,429
30,593
23,337
(26,156)
Unrecognized share of loss (profit) of joint ventures
-
-
(2,482)
2,482
Total share of profit (loss) of joint ventures,
net of income tax
147,993 (150,900)
63,429
30,593
20,855
(23,674)
Our proportionate share in the profit from operations of our joint ventures increased by RR 216,405 million, or
189.9%, from RR 113,952 million to RR 330,357 million mainly due to increases in LNG and liquids average
realized prices.
Our proportionate share in interest expense decreased by RR 24.4 billion, or 28.5%, primarily due to the
termination starting from 2021 of interest expense recognition on the shareholders’ loans issued to our joint venture
Yamal LNG and accounted for at fair value in accordance with IFRS 9 “Financial Instruments”. A portion of the
change in the fair value of these loans reflecting the time value of money is now recorded within “Change in fair
value of non-commodity financial instruments” line (see “Finance income (expense)” above).
In 2021, our share in foreign exchange gains amounted to RR 86.2 billion as compared to our share in foreign
exchange losses of RR 254.0 billion in 2020. These foreign exchange gains (losses) in both reporting periods were
mainly non-cash and primarily related to the revaluation of foreign currency denominated loans in our joint
ventures Yamal LNG and Arctic LNG 2. We assess that the impact of foreign currency risk relating to the debt
portfolio of OAO Yamal LNG and OOO Arctic LNG 2 is largely mitigated by the fact that all of their products
are targeted for the delivery to international markets at prices denominated in foreign currencies.
In 2021, a portion of our share of profit of OAO Yamal LNG and OOO Cryogas-Vysotsk in the amount of
RR 30.2 billion was not recognized in the consolidated statement of income as it was offset against the
unrecognized share of losses in 2020 resulted from the significant foreign exchange losses.
Income tax expense
The Russian statutory income tax rate for both reporting periods was 20%.
The Group recognizes in profit before income tax its share of net profit (loss) from joint ventures, which influences
the consolidated profit of the Group but does not result in additional income tax expense (benefit) at the Group’s
level. Net profit (loss) of joint ventures was recorded in their financial statements on an after-tax basis. The Group’s
dividend income from the joint ventures in which it holds at least a 50% interest is subject to a zero withholding
tax rate according to the Russian tax legislation, and also does not result in a tax charge.
39
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Without the effect of net profit (loss) from joint ventures and excluding the effects from the disposal of interests
in subsidiaries and joint ventures, the effective income tax rate (total income tax expense calculated as a percentage
of profit before income tax) for the years ended 31 December 2021 and 2020 was 18.7% and 18.8%, respectively.
Profit attributable to shareholders and earnings per share
As a result of the factors discussed in the respective sections above, profit attributable to shareholders of
PAO NOVATEK increased by RR 365,095 million, or 6.4 times, to RR 432,927 million in 2021 compared to
RR 67,832 million in 2020.
Excluding the effects from the disposal of interests in subsidiaries and joint ventures and foreign exchange gains
(losses), our profit attributable to shareholders of PAO NOVATEK increased by RR 252,284 million, or 149.3%,
and amounted to RR 421,304 million in 2021 compared to RR 169,020 million in 2020.
Reconciliation of normalized profit attributable to shareholders of PAO NOVATEK is as follows:
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Profit attributable to shareholders of PAO NOVATEK
432,927
67,832
n/a
Gain on disposal of interests in subsidiaries, net
Income tax expense related to
the disposal of interests in subsidiaries
Changes in fair value of contingent consideration
reported within the “Other operating income (loss)”
Income tax expense (benefit) related to changes in
fair value of contingent consideration
(662)
(69)
23
n/a
73
-
217.4%
n/a
47,823
(9,565)
-
n/a
Normalized profit attributable to
shareholders of PAO NOVATEK
432,338
106,044
307.7%
including:
profit from subsidiaries
share of profit (loss) of joint ventures
200,061
232,277
250,025
(143,981)
(20.0%)
n/a
Reconciliation of normalized profit attributable to shareholders of PAO NOVATEK excluding the effect of foreign
exchange gains (losses) is as follows:
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Normalized profit from subsidiaries
attributable to shareholders of PAO NOVATEK
200,061
250,025
(20.0%)
Foreign exchange (gains) losses, net
Income tax expense relating to foreign exchange (gains) losses
37,255
(7,451)
(147,461)
29,492
n/a
n/a
Normalized profit from subsidiaries
attributable to shareholders of PAO NOVATEK
excluding the effect of foreign exchange gains (losses)
229,865
132,056
74.1%
Share of profit (loss) of joint ventures,
net of income tax and excluding foreign exchange effects (1)
191,439
36,964
n/a
Normalized profit attributable to
shareholders of PAO NOVATEK,
excluding the effect of foreign exchange gains (losses)
421,304
169,020
149.3%
(1) See “Share of profit (loss) of joint ventures, net of income tax” above.
In 2021, our weighted average basic and diluted earnings per share, calculated from the profit attributable to
shareholders of PAO NOVATEK, increased by RR 121.65, or 6.4 times, to RR 144.23 per share compared to
RR 22.58 per share in 2020. Excluding the effects from the disposal of interests in subsidiaries and joint ventures
and foreign exchange gains (losses), our weighted average basic and diluted earnings per share increased by
RR 84.10, or 149.5%, to RR 140.36 per share in 2021 from RR 56.26 per share in 2020.
40
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
LIQUIDITY AND CAPITAL RESOURCES
Cash flows
The following table shows our net cash flows from operating, investing and financing activities for the years ended
31 December 2021 and 2020:
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Net cash provided by operating activities
Net cash used for investing activities
Net cash used for financing activities
419,466 171,896
144.0%
n/a
204.7%
(253,135)
(237,898)
(47,872)
(78,075)
Net cash provided by operating activities
Our net cash provided by operating activities increased to RR 419,466 million from RR 171,896 million in
2020 mainly due to an increase in profit from operations and dividends received from joint ventures.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Profit from operations, excluding the effects
from the disposal of interests in subsidiaries and joint ventures
Non-cash adjustments (1)
Changes in working capital and long-term advances given
Dividends and cash received from joint ventures
Interest received
278,384
160,766
73.2%
62,785
(21,186)
118,786
8,832
43,121
(10,876)
11,420
8,442
45.6%
94.8%
n/a
4.6%
Income taxes paid excluding payments
relating to disposal of interests in subsidiaries
(28,135)
(40,977)
(31.3%)
1
Total net cash provided by operating activities
419,466
171,896
144.0%
(1)
Include adjustments for depreciation, depletion and amortization, net impairment expenses (reversals), change in fair
value of non-commodity financial instruments and some other adjustments.
In 2021, profit from operations, excluding the effects from the disposal of interests in subsidiaries and joint
ventures, and adjusted for non-cash items increased primarily due to a strong growth in hydrocarbon prices on
international markets, as well as an increase in our hydrocarbon production volumes.
At the same time, income tax payments, on the contrary, decreased in 2021 due to the recognition of foreign
exchange losses in our subsidiaries as compared to the recognition of substantial foreign exchange gains in 2020.
Moreover, the Group offset other taxes refund in the amount of RR 14.4 billion against income tax in the current
year compared to RR 7.1 billion in 2020.
In 2021 and 2020, we received RR 99,375 million and RR 10,750 million, respectively, of dividends from our
joint venture Arcticgas, as well as RR 3,679 million and RR 670 million, respectively, of cash distributed in favor
of the Group and dividends from our joint venture Terneftegas. In addition, in 2021, we received
RR 15,732 million of dividends from our joint venture Yamal LNG.
The “Interest received” line primarily represents interest on deposits, as well as interest on loans provided to our
joint ventures. In 2021 and 2020, we received RR 7.1 billion and RR 6.9 billion, respectively, of interest on loans
provided to our joint ventures Yamal LNG and Cryogas-Vysotsk (only in 2021).
41
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Net cash used for investing activities
In 2021, our net cash used for investing activities amounted to RR 253,135 million compared to RR 47,872 million
in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Cash used for capital expenditures
Proceeds from disposal of interests in
subsidiaries and joint ventures, net of cash disposed
Actual income tax payments relating to disposal
of interests in subsidiaries
(191,251) (204,577)
(6.5%)
806
195,479
(99.6%)
(73)
(14,182)
(103,445)
57,551
(23)
(434)
(120,798)
41,543
217.4%
n/a
(14.4%)
38.5%
n/a
Payments for mineral licenses
Loans provided to/acquisition of loans of joint ventures
Repayments of loans provided to joint ventures
Acquisition of joint ventures
Capital contributions to joint ventures
Net decrease (increase) in bank deposits
with original maturity more than three months
Other
(1,655)
(1,749)
-
-
n/a
1,667
(804)
43,057
(2,119)
(96.1%)
(62.1%)
Net cash used for investing activities
(253,135)
(47,872)
n/a
In 2021, cash used for capital expenditures amounted to RR 191,251 million compared to RR 204,577 million in
2020. A significant part of our capital investments related to the development of the infrastructure for our LNG
projects, the ongoing development and the launch of the fields within the North-Russkiy cluster (the North-
Russkoye, East-Tazovskoye, Dorogovskoye and Kharbeyskoye fields), the construction of a hydrocracker unit at
our Ust-Luga Complex, the development of the Yevo-Yakhinskiy, Ust-Yamsoveyskiy, Verhnetiuteyskiy and
West-Seyakhinskiy license areas, and exploratory drilling (see “Capital expenditures” below).
In 2021, proceeds from disposal of interests related to the sale of the 100% participation interest in
OOO Chernichnoye to our joint venture ZAO Terneftegas in the end of 2020 (RR 575 million) and to the sale of
a 10% participation interest in OOO Arctic Transshipment to the TotalEnergies SE group (RR 231 million).
In 2020, we received the second part of cash payments from the sale of a 40% participation interest in OOO Arctic
LNG 2 in 2019 in the aggregate amount of RR 195,324 million (income tax related to this transaction was paid in
2019), as well as RR 155 million from the sale of a participation interest in OOO Chernichnoye.
In 2021, we paid in aggregate RR 13,930 million for the acquisition of a license for the rights to use the North-
Gydanskiy license area and the license areas, which include the Arkticheskoye and Neytinskoye fields, as well as
made a one-time payment fee in the amount of RR 193 million to expand the borders of our Geofizicheskiy license
area. In addition, in 2021, we made a final payment in the amount of RR 59 million for the acquisition of the
exploration and production license for our discovered Kharbeyskoye field (in 2020, the payment also amounted to
RR 59 million). In 2020, we paid an aggregate amount of RR 317 million for the acquisition of the licenses for the
East-Ladertoyskiy, South-Yamburgskiy and Bukharinskiy license areas, as well as made a one-time payment fee
of RR 58 million to expand the borders of our Ust-Yamsoveyskiy license area.
In 2021, we provided loans in the aggregate amount of RR 103,445 million compared to RR 120,798 million in
2020. In both reporting periods, the main part of loans was provided to OOO Arctic LNG 2 for developing its
activities. In addition, in November 2021, the Group acquired a portion in the project financing, previously
provided to OOO Cryogas-Vysotsk by its second participant. In both periods, the Group received partial repayment
of the loans provided in the amount of RR 57,551 million and RR 41,543 million, respectively, mainly from Yamal
LNG.
In 2021, the Group acquired a 49% participation interest in ООО Gazpromneft-Sakhalin for RR 1,655 million and
made capital contributions to the company in the amount of RR 1,642 million. In addition, in 2021, we made
capital contributions to our joint venture OOO SMART LNG in the amount of RR 107 million.
42
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
The Group’s cash management involves periodic cash placement on bank deposits with different maturities.
Deposits are reported in “Cash and cash equivalents” if opened for three months or less, or otherwise in “Short-
term bank deposits with original maturity more than three months”. Transactions with bank deposits with original
maturity more than three months are classified as investing activities in the Consolidated Statement of Cash Flows.
In 2021, the net decrease in bank deposits with original maturity more than three months amounted to
approximately RR 2 billion compared to the net decrease of approximately RR 43 billion in 2020.
Net cash used for financing activities
In 2021, our net cash provided by financing activities increased by RR 159,823 million, or 204.7%, to
RR 237,898 million as compared to RR 78,075 million in 2020.
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Dividends paid to shareholders of PAO NOVATEK
Dividends paid to non-controlling interest
Proceeds from (repayments of) long-term debt, net
Proceeds from (repayments of) short-term debt
with original maturity three months or less, net
Loan commitment fee
(154,332) (89,857)
71.8%
68.2%
n/a
(19,943)
(51,265)
(11,858)
39,460
6,545
-
36
(534)
n/a
n/a
Purchases of treasury shares
Payments of lease liabilities
Interest on debt paid
(12,963)
(3,687)
(2,253)
(8,271)
(4,649)
(2,402)
56.7%
(20.7%)
(6.2%)
Net cash used for financing activities
(237,898)
(78,075)
204.7%
In both reporting periods, our major financing cash flows related to payment of dividends.
In addition, in 2021, the Group fully repaid ten-year US dollar denominated Eurobonds and partially repaid a loan
obtained from China’s investment fund Silk Road Fund in the aggregate amount of RR 76,184 million
(USD 1.0 billion). In 2020, the aggregate amount of long-term borrowings repayments totaled RR 5,935 million
and related to a partial repayment of a loan from Silk Road Fund in the amount of RR 4,928 million
(USD 70 million) and full repayment of a loan obtained under a credit line facility from a Russian bank in the
amount of RR 1,007 million, respectively. At the same time, in 2021 and 2020, we obtained long-term loans from
a Russian bank under a non-revolving credit line facility in the amount of RR 24,919 million (EUR 300 million)
and RR 45,395 million (EUR 500 million), respectively.
In both reporting periods, we obtained short-term loans to finance trade activities. In 2021, net proceeds of short-
term loans amounted to RR 6,545 million, while in 2020 the total amount of short-term loans repayments
substantially corresponded to the amount of proceeds.
Other cash flows from financing activities related primarily to shares buy-back, payments of lease liabilities and
interest on borrowings.
43
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Liquidity and working capital
The following table shows the Group’s liquidity and credit measures as of 31 December 2021 and 2020:
31 December 2021
31 December 2020
Change, %
Absolute amounts, RR million
Net debt (1)
73,946
188,284
39,557
202,938
86.9%
(7.2%)
Net working capital position (2)
Liquidity and credit ratios
Current ratio (3)
Total debt to total equity
Long-term debt to long-term debt and total equity
Net debt to total capitalization (4)
Net debt to normalized EBITDA from subsidiaries (5)
Interest coverage ratio (6)
1.48
0.09
0.03
0.03
0.22
29
2.27
0.14
0.09
0.02
0.20
20
(34.8%)
(35.7%)
(66.7%)
50.0%
10.0%
45.0%
(1)
Net debt represents total debt less cash, cash equivalents and bank deposits with original maturity more than three
months.
(2)
(3)
(4)
(5)
Net working capital position represents current assets less current liabilities.
Current ratio is calculated as current assets divided by current liabilities.
Total capitalization represents total debt, total equity and deferred income tax liability.
Net debt to normalized EBITDA from subsidiaries ratio is calculated as Net debt divided by EBITDA from subsidiaries
excluding the effects from the disposal of interests in subsidiaries and joint ventures (recognition of a net gain on disposal
and subsequent non-cash revaluation of contingent consideration) for the last twelve months.
(6)
Interest coverage ratio is calculated as normalized EBITDA from subsidiaries divided by accrued interest on debt,
including capitalized interest.
The Group has consistently demonstrated sustainable operating and financial results, and even in the periods of
unfavorable macroeconomic conditions had generated cumulative positive free cash flow. This allowed to maintain
sufficient liquidity to increase investments in our main projects in both reporting periods. The Group’s
management believes that it presently has and will continue to have the ability to generate sufficient cash flows
(from operating and financing activities) to repay all its current liabilities as they become due and to finance the
Group’s capital construction programs.
44
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Capital expenditures
In both reporting periods, our capital expenditures represent our investments primarily relating to developing our
oil and gas assets. The following table shows capital expenditures at our main fields, processing facilities and other
assets:
Year ended 31 December:
millions of Russian roubles
2021
2020
Infrastructure for LNG projects (1)
North-Russkiy cluster (2)
Ust-Luga Complex
Yevo-Yakhinskiy license area
Verhnetiuteyskiy and West-Seyakhinskiy license area
Geofizicheskoye field
53,326
35,869
13,362
10,265
9,035
8,334
6,309
4,946
4,116
4,079
3,577
3,445
3,415
2,827
1,979
1,734
1,299
981
78,338
39,692
7,781
2,741
10,316
5,723
5,769
4,318
4,066
286
3,951
356
553
5,398
1,097
1,402
162
4,121
563
Yarudeyskoye field
Gydanskiy license area
Ust-Yamsoveyskiy license area
Laboratory research center in Tyumen
East-Tarkosalinskoye field
Soletsko-Khanaveyskiy license area
Olimpiyskiy license area
Yurkharovskoye field
Nyakhartinskiy license area
Novatek Green Energy
North-Chaselskiy license area
West-Yurkharovskoye field
Bukharinskiy license area
Trekhbugorniy license area
NOVATEK-AZK
924
867
755
30
770
Beregovoye field
Administration facilities
Other
362
14,793
5,372
5,143
10,147
15,983
Capital expenditures
191,971
208,706
(1)
Mainly includes expenditures related to the project for the LNG construction center located in the Murmansk region.
Includes expenditures related to the North-Russkoye, East-Tazovskoye, Dorogovskoye and Kharbeyskoye fields.
(2)
Total capital expenditures on property, plant and equipment in 2021 decreased by RR 16,735 million, or 8.0%, to
RR 191,971 million from RR 208,706 million.
In both reporting periods, a significant part of our capital expenditures related to the development of the
infrastructure for our LNG projects, mainly to the project for the LNG construction center located in the Murmansk
region. We also invested in the development and launch of the fields within the North-Russkiy cluster: the
preparation for production commencement and the launch of the Kharbeyskoye field, further development of the
North-Russkoye field, the launch and the development of the East-Tazovskoye and Dorogovskoye fields. In
addition, we continued the development of the Yevo-Yakhinskiy, Ust-Yamsoveyskiy, Verhnetiuteyskiy and West-
Seyakhinskiy license areas, the development of our producing assets (the Yurkharovskoye field, Olimpiyskiy
license area, the East-Tarkosalinskoye and Yarudeyskoye fields’ crude oil deposits), as well as exploratory drilling,
which in 2021 mainly related to the Geofizicheskoye field, as well as the Gydanskiy, North-Chaselskiy, Soletsko-
Khanaveyskiy and Nyakhartinskiy license areas.
In both reporting periods, we continued to invest in the project for construction of a hydrocracker unit with the
respective expansion of our Ust-Luga Complex, which will increase the depth and volume of processing of stable
gas condensate and output of light oil products.
We also continued to expand the filling stations network at our subsidiary NOVATEK-AZK and to develop our
LPG and LNG wholesale and retail network in Germany and Poland through our subsidiary Novatek Green Energy
Sp. Z o.o. (Novatek Polska Sp. z o.o. prior to February 2020).
The “Administration facilities” line in the table above represents our capital expenditures of an administrative
nature, of which a significant part related to construction of our new office building in Moscow.
45
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
In addition, we are constructing a Laboratory research center in Tyumen, which includes a laboratory building
with core storage and other supporting facilities.
The “Other” line represents our capital expenditures related to other fields and processing facilities of the Group,
as well as unallocated capital expenditures as of the reporting date. The allocation of capital expenditures by fields
or processing facilities takes place upon the completion of the fixed assets construction stages and depends on the
approved fixed assets launch schedule.
The following table presents the reconciliation of our capital expenditures and additions to property, plant and
equipment per Note “Property, plant and equipment” in the Group’s IFRS Consolidated Financial Statements, and
cash used for capital expenditures:
Year ended 31 December:
2021 2020
Change
%
millions of Russian roubles
Total additions to property, plant and equipment per
Note “Property, plant and equipment” in the Group’s
IFRS Consolidated Financial Statements
206,166
210,037
(1.8%)
Less: acquisition of mineral licenses
Less: right-of-use assets additions (1)
(14,123)
(72)
(375)
(956)
n/a
(92.5%)
Capital expenditures
191,971
208,706
(8.0%)
Less: advance payments under lease agreements
Add (less): change in accounts payable, capitalized
foreign exchange losses and other non-cash adjustments
-
(801)
n/a
(720)
(3,328)
(78.4%)
Cash used for capital expenditures (2)
191,251
204,577
(6.5%)
(1)
Related mainly to long-term agreements on energy equipment leases and office premises rentals in 2020.
(2)
Represents purchases of property, plant and equipment, materials for construction and capitalized interest paid per
Consolidated Statement of Cash Flows net of payments for mineral licenses and acquisition of subsidiaries and joint
ventures.
In 2021, the Group won auctions for geological research works, exploration and production of hydrocarbons at the
North-Gydanskiy license area, as well as at license areas, which include the Arkticheskoye and Neytinskoye fields,
and paid RR 13,930 million in aggregate. In addition, in 2021, we paid a one-time fee in the amount of
RR 193 million to expand the borders of our Geofizicheskoye license area (see “Net cash used for investing
activities” above).
In 2020, we made final payments in the aggregate amount of RR 317 million for the auctions won in December
2019 for the right to use the East-Ladertoyskiy, South-Yamburgskiy and Bukharinskiy license areas (an advance
payment of RR 3,176 million was made in the end of 2019). In addition, we paid a one-time fee in the amount of
RR 58 million to expand the borders of the Ust-Yamsoveyskiy license area.
46
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
QUANTITATIVE AND QUALITATIVE DISCLOSURES AND MARKET RISKS
We are exposed to market risk from changes in commodity prices, foreign currency exchange rates and interest
rates. We are exposed to commodity price risk as our prices for crude oil, stable gas condensate and refined
products destined for export sales are linked to international crude oil prices and other benchmark price references.
We are exposed to foreign exchange risk to the extent that a portion of our sales, costs, receivables, loans and debt
are denominated in currencies other than Russian roubles. We are subject to market risk from changes in interest
rates that may affect the cost of our financing. From time to time we may use derivative instruments, such as
commodity forward contracts, commodity price swaps, commodity options, foreign exchange forward contracts,
foreign currency options, interest rate swaps and forward rate agreements, to manage these market risks, and we
may hold or issue derivative or other financial instruments for trading purposes.
Foreign currency risk
Our principal exchange rate risk involves changes in the value of the Russian rouble relative to the US dollar and
the Euro. As of 31 December 2021, all our debt was denominated in foreign currencies. Changes in the value of
the Russian rouble relative to foreign currencies will impact the value in Russian rouble terms of our foreign
currency-denominated costs, debt, receivables at our foreign subsidiaries and loans provided to our joint ventures.
We believe that the risks associated with our foreign currency exposure are partially mitigated by the fact that
52.3% of our total revenues in 2021 was denominated in foreign currencies.
In addition, our share of profit (loss) of joint ventures is also exposed to foreign currency exchange rate movements
due to the significant amount of foreign currency-denominated borrowings in our joint ventures, mostly in
OAO Yamal LNG and OOO Arctic LNG 2. We assess that the impact of foreign currency risk relating to the debt
portfolio of OAO Yamal LNG and OOO Arctic LNG 2 is largely mitigated by the fact that all of their products
are targeted for the delivery to international markets at prices denominated in foreign currencies.
As of 31 December 2021, the Russian rouble depreciated by 0.6% against the US dollar and appreciated by 7.3%
against the Euro compared to 31 December 2020.
Commodity risk
Our export prices for natural gas, stable gas condensate and refined products, LPG and crude oil are primarily
linked to international natural gas, crude oil and oil products prices and/or a combination thereof. External factors
such as geopolitical developments, natural disasters and the actions of the Organization of Petroleum Exporting
Countries affect crude oil prices and thus our export prices.
The weather is another factor affecting demand for natural gas. Changes in weather conditions from year to year
can influence demand for natural gas and to some extent stable gas condensate and refined products.
From time to time we may employ derivative instruments to mitigate the price risk of our sales activities. In our
consolidated financial statements, all derivative instruments are recognized at their fair values. Unrealized gains
or losses on derivative instruments are recognized within other operating income (loss), unless the underlying
arrangement qualifies as a hedge.
Within our trading activities, the Group purchases and sells natural gas on the European market under long-term
contracts based on formulas with reference to benchmark natural gas prices quoted for the North-Western
European natural gas hubs, crude oil and oil products prices and/or a combination thereof. Therefore, the Group’s
financial results from natural gas foreign trading activities are subject to commodity price volatility based on
fluctuations or changes in the respective benchmark reference prices.
47
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
Pipeline access
We transport substantially all of our natural gas within the Russian Federation territory through the Gas
Transmission System (“GTS”) owned and operated by PAO Gazprom, which is responsible for gathering,
transporting, dispatching and delivering substantially all natural gas supplies in the domestic market. Under
existing legislation, Gazprom must provide access to the GTS to all independent suppliers on a non-discriminatory
basis provided there is capacity available that is not being used by Gazprom. In practice, Gazprom exercises
considerable discretion over access to the GTS because it is the sole owner of information relating to capacity.
There can be no assurance that Gazprom will continue to provide us with access to the GTS; however, we have
not been denied access in prior periods.
Ability to reinvest
Our business requires significant ongoing capital expenditures in order to grow our production and meet our
strategic plans. An extended period of reduced demand for our hydrocarbons available for sale and the
corresponding revenues generated from these sales would limit our ability to maintain an adequate level of capital
expenditures, which in turn could limit our ability to increase or maintain current levels of production and
deliveries of natural gas, gas condensate, crude oil and other associated products; thereby, adversely affecting our
financial and operating results.
Forward-looking statements
This report includes forward-looking statements concerning future possible events that can impact operational and
financial results of the Group. Forward-looking statements can be identified by words such as “believes”,
“anticipates”, “expects”, “estimates”, “intends”, “plans” and similar expressions. Forward-looking statements are
made based on the current situation with definite and indefinite risks and uncertainties. Actual future results could
differ materially from those discussed in the forward-looking statements as they are dependent on various factors
beyond and under the control of management.
Off balance sheet activities
As of 31 December 2021, we did not have any relationships with unconsolidated entities or financial partnerships,
such as entities often referred to as structured finance or special purpose entities, which are typically established
for the purpose of facilitating off-balance sheet arrangements.
48
PAO NOVATEK
Management’s Discussion and Analysis of Financial Condition and Results of Operations
for the year ended 31 December 2021
TERMS AND ABBREVIATIONS
APR
Asian-Pacific Region
bbl
barrel
bcm
billion cubic meters
boe
btu
barrels of oil equivalent
British thermal unit
CBR
CIF
DDA
FEED
Central Bank of Russian Federation
“Cost, insurance and freight”
depreciation, depletion and amortization
Front-End Engineering Design
Final Investment Decision
FID
Forecast of the
Ministry of
Economic
Development
GTS
IFRS
List
The document “Forecast of Socio-economic Development of the Russian Federation
for the period till 2024” prepared by the Ministry of Economic Development of the
Russian Federation or the similar document prepared for another period
Gas Transmission System part of the UGSS
International Financial Reporting Standards
the OFAC’s Sectoral Sanctions Identification List
liquefied natural gas
LNG
LPG
liquefied petroleum gas
mcm
thousand cubic meters
MET
mineral extraction tax
Murmansk yard
NBP
LNG construction center located in the Murmansk region
National Balancing Point
NGL
natural gas liquids
OFAC
PRMS
Purovsky Plant
Regulator
U.S. Treasury Department’s Office of Foreign Assets Control
Petroleum Resources Management System
Purovsky Gas Condensate Plant
A federal executive agency of the Russian Federation that carries out governmental
regulation of prices and tariffs for products and services of natural monopolies in
energy, utilities and transportation. Effective July 2015, Federal Anti-Monopoly
Service fulfills the Regulator’s role.
RR
Russian rouble(s)
RZD
SEC
OAO Russian Railways, Russia’s state-owned monopoly railway operator
Securities and Exchange Commission
Tobolsk Refining
Facilities
TTF
Petrochemical complex of PAO SIBUR Holding group in Tobolsk
Title Transfer Facility
UGSF
UGSS
UPT
USD, US dollar
Ust-Luga Complex
Underground Gas Storage Facilities
Unified Gas Supply System owned and operated by PAO Gazprom
unified natural resources production tax
United States Dollar
Gas Condensate Fractionation and Transshipment Complex located at the port of Ust-
Luga on the Baltic Sea
VAT
value added tax
YNAO
Yamal-Nenets Autonomous Region
49