RUEN
2019 Interactive Sustainability Report

Joint address

R.N. MINNIHANOV
The President of the Republic
of Tatarstan. Chairperson of the Board
of Directors, PJSC Tatneft

N.U. MAGANOV
General Director of PJSC TATNEFT,
Chairperson of the Management Board,
PJCS Tatneft

Significant for the Company is the consistency of corporate interests with the UN Global Compact Agenda, which Tatneft became a party to in 2019. We see a high potential in combining our common efforts - integrating experience, scientific and technical developments and concrete actions into achieving the Sustainable Development Goals.

DEAR SHAREHOLDERS, INVESTORS AND PARTNERS!

The reporting year 2019 was the year of the 25th anniversary of the Company’s status as a public joint stock company.

Geography of our shareholders covers more than 30 countries. Securities of PJSC TATNEFT, presented at the highest quotation level of the Moscow Exchange and at leading international stock exchanges, are among the most popular and profitable investment instruments that increase the invested capital. This is evidence of effective corporate governance of the assets entrusted to us. Throughout its history, the Company has repeatedly overcome difficulties, always maintaining confident stability.

Summing up the results of 2019, Tatneft shows good performance, despite the economic difficulties in the form of a decrease in global oil consumption and restrictions on production under the OPEC + Agreement, unstable oil and gas prices during the year, and a slowdown in global growth, and the national economy, and decrease in international trade.

Tatneft was ranked the Top 10 of the rating “100 most expensive by capitalization of public Russian companies” and the Top 10 of the world leaders in the oil and gas industry by added value in shareholder value (BCG Rating).

In 2019, we ensured a free cash flow of 152.8 billion rubles. This made it possible to pay interim dividends for the results of 6 and 9 months of 2019 in the amount of 149 billion 970 million rubles. In total, according to the results of 2019, taking into account previously accrued interim dividends, it is proposed to allocate 150 billion 118 million rubles to pay dividends.

The value of consolidated assets of the Company by the results of 2019 increased by 3.1% and amounted to 1,238.6 billion rubles. The drivers for strengthening the structure and growth in the value of assets are the “Exploration and Production” and “Refining and Sale of Oil and Petroleum Products” segments. In the reporting year, assets were acquired in the retail business of -75 Neste filling stations located in the North-West of Russia and a terminal in St. Petersburg. Also, as part of strengthening the tire segment and implementing the Company’s petrochemical strategy, assets for the production of various types of synthetic rubber in Togliatti were acquired.

The Tatneft Group year-end consolidated revenue amounted to 932.3 billion rubles, 2.4% growth to 2018. Net profit of the Group’s shareholders amounted to 192.3 billion rubles. The Company has consistently demonstrated a high level of profitability and a low level of debt burden. Adjusted EBITDA grew by 4.3% amounting to 328.4 billion rubles. Return on capital employed (ROACE) 24.8%.

The Company successfully implements the Strategy-2030 approved by the Board of Directors. In 2019, the Company consistently implemented planned production goals and reached a new level of performance, while maintaining leadership positions among Russian vertically integrated oil companies on a number of indicators. The total oil production across the Group in the reporting year amounted to 29.8 million tonnes with the average daily production of 581.5 thousand barrels a day. The company maintains one of the highest recovery factors in the industry at 44%. Due to the development of our own capacities, we increased the average daily processing to 206.7 thousand barrels with a total increase in oil refining by 15.5% compared to the previous year. 10.3 million tonnes of oil products and 1.2 million tonnes of gas products have been produced for the year.

At the TANECO Complex, one of the best indicators in the industry was achieved in terms of refining depth - 98.98% and light oil products - 80.87%. In 2019, TANECO began comprehensive testing of the second distillation unit and vacuum distillation of crude oil CDU VDU-6 which allowed to increase the rated capacity of the oil refining complex to 15.3 million tonnes a year. Prior to the completion and launch of the additional deep processing unit, it is planned to use the expanded oil refining capacities at a level that ensures the maximum economic efficiency of the Complex.

We are improving the structure and quality characteristics of the petroleum product basket. All products of the TANECO fuel line including gasoline grades AI-92, AI-95, AI-98, AI-100 and diesel fuel meets EURO-6 environmental standard and is one of our hallmarks. The petrol formulations according to this standard, selected and controlled by TANECO online, allow the production of gasolines with optimal operational and environmental characteristics. High-quality products of the TANECO fuel line have become the hallmark of the Tatneft petrol station network.

The Company’s tire business operating under the brand name «KAMA TYRES» holds one of the leading positions in Russia. In 2019, 10.3 million tires were produced on 400 product lines. We are expanding international distribution channels, Tires are shipped to 50 countries. At the same time, 64% of production goes to the domestic market.

Our generating capacities generate electricity of more than 1.5 billion kWh per year for industrial facilities and the community. We invest resources to modernize equipment to increase its reliability and diversify sources of raw materials.

As new growth points, we are developing a petrochemical industry with large long-term potential.

The Company maintains a high level of hydrocarbon resource availability, which allows it to confidently increase production. In early 2020, the hydrocarbon reserves of the Tatneft Group, according to an independent estimate by Miller & Lents, were 1,381.4 million tonnes of oil equivalent, including 998.3 million tonnes of oil equivalent - proved reserves.

In the context of growing competition with developing shale oil production, the Company maximizes the existing potential of oil deposits by widely applying its accumulated technological experience and competencies to strengthen its positions both in the Russian and global energy markets.

By selling the oil produced, the Company ensures an optimal balance of oil shipment distribution in order to increase operating profitability under the market conditions. In 2019, Tatneft Group exported to the near and far abroad about 60% of all crude oil sold. With that, the Company fully provides raw materials for loading its own refining capacity.

In order to improve profitability, the Company develops premium distribution routes and provides optimization for oil products logistics. Oil products, gas products and petrochemicals produced by the Company are sold in bulk both abroad and in the domestic market, and also delivered to the Company’s sales subsidiaries to be further sold in Russia.

In the reporting year, sales of petroleum products through the Company’s retail network increased by 19.9%, consisting of 802 filling stations, and 111 filling stations outside the Russian Federation.

We pay close attention to strengthening the technological base of the Company and digital solutions, moving to innovative patterns of management and organization of business processes. The value chain is constantly being improved and the margin of the business is increased due to the efficient building of business processes, a high share of added value, quality and safety standards. We carry out strict control of financial discipline, the level of costs and returns on existing assets.

The Company implements a well-balanced investment policy that takes into account the interests of shareholders and the goals of future development of Tatneft Group. In 2019, the volume of investments amounted to 129.6 billion rubles, of which 99.9 billion rubles were capital investments.

The activity of the Company, as one of the largest taxpayers in the main region of its presence, plays an important role in ensuring the revenues to the federal and regional budgets, which contributes to the stable socio-economic development of the territories where our enterprises are located. At the same time, as part of target corporate programs, the Company annually allocates over 20 billion rubles to the development of healthcare, science and education, the cultural environment, preservation of the spiritual heritage, and support of sports. The Tatneft Charity Fund plays a major role in this process.

Significant for the Company is the consistency of corporate interests with the UN Global Compact Agenda, which Tatneft became a party to in 2019. We see a high potential in combining our common efforts - integrating experience, scientific and technical developments and concrete actions into achieving the Sustainable Development Goals.

When making business decisions, we take into account the objectives of socio-economic growth, expanding innovative opportunities and improving the quality of life in our territories based on an open dialogue with stakeholders, including local communities. This increases the targeting of the Company’s initiatives and the transparency of decisions. Tatneft Group provides about 60 thousand jobs at 105 enterprises in the Russian Federation and abroad. Currently in order to ensure effective implementation of the personnel policy, the HR strategy of Tatneft Group is being formed. In the context of the development of operational activities, we focus on the tasks of training and enhancing staff competencies, improving the motivation system, and creating a talent pool. We pay great attention to corporate culture and youth policy.

An important aspect of our work is our commitment to fundamental principles of human rights, including the right to a safe environment.

Ensuring safety, protecting human life and health, and maintaining a favorable environment are among the key priorities of the Company. In 2019, the Board of Directors approved a new version of the Company’s Policy in industrial safety, labor protection and the environment with considerations to climate change, based on international best practice and a risk-based approach. Guidelines of the Company in this area are recognition of the priority of life and health of people to production activities; high level of industrial safety, ensuring the level for ecosystem restoration potential, reducing carbon footprint. Now we are successfully completing the implementation of the Environmental Program designed for the period of 2016–2020, and are setting ambitious goals for the future. 

In 2019, 12.3 billion rubles were allocated for environmental safety and environmental protection. At the same time, we are constantly increasing investments in the environment. Over the past years, the annual growth of investments in environment protection reached over one billion rubles. Behind these numbers are concrete actions and results.

The Company clearly sees its contribution to a sustainable energy future in the context of the transition of global economy to a low-carbon path of development associated with the climate change and ensuring global economic growth. We are implementing a number of projects focused on the task of reducing the carbon footprint and integrating this task into the business processes of the Company. To this end, advanced international platforms and standards on climate initiatives are applied. High environmental characteristics of our products, energy efficiency indicators of production processes and a model of rational consumption of resources contribute to the continued reduction of specific greenhouse gas emissions into the air.

In 2019, a detailed inventory of emission sources was started and a lot of work was done to analyze and select advanced techniques for reducing emissions, capturing and processing carbon dioxide. Renewable energy is indisputable for cleaner low-carbon energy generation, and we pay special attention to this development as part of our strategy.

Compensation measures are equally important in combating the climate change. In order to create a favorable environment in the area of its activity and increase the absorption of greenhouse gases, Tatneft Group, since 2000, has been implementing a greening program. During this period, over 10 million seedlings of trees and shrubs have been planted.

The area of continuous attention of the Company’s management is occupational safety and health. First, these are the programs for the prevention of industrial injuries, staff training, and a set of long-term and preventive measures.

 Over one billion rubles are allocated annually to labor protection measures. The beginning of 2020 was a turbulent challenge for all of us caused by spread of Covid-19 pandemic. This problem has affected people all over the world and has become an extreme test for sustainability and, most importantly, for our readiness for sustainable development of our society as a whole and business in particular. Tatneft did everything possible to stop the spread and consequences of the pandemic wherever we work. We aim to protect our employees, clients and the local population; we provide serious support to healthcare institutions and social assistance to vulnerable groups. At this stage, our goal, as a diversified energy company, was to ensure the sustainability and continuity of our production processes, including supply of fuel and energy resources to our consumers - industrial enterprises, social institutions and the population.

We assess all current macroeconomic and industry risks and adjust our actions to move forward. We greatly appreciate your confidence and assure that we will continue to implement our strategic plans for further growth of shareholder value and sustainable development of the Company!

We thank the shareholders, investors, partners, employees of Tatneft Group enterprises for their joint activities and we feel optimistic about the future!

R.N. MINNIHANOV
The President of the Republic
of 
Tatarstan. Chairperson of the Board
of 
Directors, PJSC Tatneft

N.U. MAGANOV
Chief Executive Officer,
Chairperson of the Management Board,
PJCS Tatneft