Source: https://ar2016.gazprom-neft.com/financial-results/consolidated-financial-statements
Timestamp: 2018-06-22 09:10:40
Document Index: 509761642

Matched Legal Cases: ['art 168', 'art 23', 'art 121', 'art 25', 'art 151', 'art 36']

Consolidated IFRS – Financial results – Gazprom Neft 2016 Annual Report
Main macroeconomic factors( + ←)
Message from of the Board of Directors( + →)
(RUB mn)
Cash and cash equivalents 6 33,621 114,198
Short-term financial assets 7 42,113 65,157
Trade and other receivables 8 115,559 95,241
Inventories 9 100,701 102,378
Current income tax prepayments 10,353 13,903
Other taxes receivable 10 53,482 57,700
Other current assets 11 40,503 62,167
Total current assets 396,332 510,744
Property, plant and equipment 12 1,726,345 1,587,653
Goodwill and other intangible assets 13 70,151 75,090
Investments in associates and joint ventures 14 201,548 169,611
Long-term trade and other receivables 5,129 8,867
Long-term financial assets 16 40,167 50,884
Deferred income tax assets 17 8,039 22,099
Other non-current assets 18 101,100 60,518
Total non-current assets 2,152,479 1,974,722
Total assets 2,548,811 2,485,466
Short-term debt and current portion of long-term debt 19 80,187 147,319
Trade and other payables 20 95,624 104,830
Other current liabilities 21 28,680 32,870
Current income tax payable 2,296 1,096
Other taxes payable 22 67,259 49,011
Provisions and other accrued liabilities 23 15,406 13,938
Total current liabilities 289,452 349,064
Long-term debt 24 596,221 670,779
Other non-current financial liabilities 25 89,744 115,375
Deferred income tax liabilities 17 81,347 68,752
Provisions and other accrued liabilities 23 45,942 31,065
Other non-current liabilities 1,938 1,942
Total non-current liabilities 815,192 887,913
Share capital 26 98 98
Treasury shares 26 (1,170) (1,170)
Additional paid-in capital 51,047 44,326
Retained earnings 1,276,210 1,078,626
Other reserves 33,955 35,189
Equity attributable to Gazprom Neft shareholders 1,360,140 1,157,069
Non-controlling interest 37 84,027 91,420
Total equity 1,444,167 1,248,489
Total liabilities and equity 2,548,811 2,485,466
A.V. Dyukov Chief Executive Officer PJSC Gazprom Neft
A.V. Yankevich Chief Financial Officer PJSC Gazprom Neft
of Profit and Loss and Other Comprehensive Income
(RUB mn, except per share data)
Sales 1,695,764 1,655,775
Less export duties and sales related excise tax (150,156) (187,832)
Total revenue from sales 39 1,545,608 1,467,943
Purchases of oil, gas and petroleum products (351,294) (345,909)
Production and manufacturing expenses (201,862) (214,267)
Selling, general and administrative expenses (108,981) (100,176)
Transportation expenses (132,984) (133,320)
Depreciation, depletion and amortisation (129,845) (114,083)
Taxes other than income tax 22 (381,131) (353,145)
Exploration expenses (1,195) (922)
Total operating expenses (1,307,292) (1,261,822)
Operating profit 238,316 206,121
Share of profit of associates and joint ventures 14 34,116 24,956
Net foreign exchange gain / (loss) 29 28,300 (67,910)
Finance income 30 11,071 14,732
Finance expense 31 (34,282) (33,943)
Other (loss) / gain, net 28 (17,982) 1,494
Total other income / (expenses) 21,223 (60,671)
Profit before income tax 259,539 145,450
Current income tax expense (21,290) (38,026)
Deferred income tax (expense) / benefit (28,524) 8,774
Total income tax expense 32 (49,814) (29,252)
Profit for the period 209,725 116,198
Currency translation differences (48,319) 43,739
Cash flow hedge, net of tax 33 31,501 (9,333)
Other comprehensive loss (166) (199)
Other comprehensive (loss) / income for the period (16,984) 34,207
Total comprehensive income for the period 192,741 150,405
Gazprom Neft shareholders 200,179 109,661
Non-controlling interest 9,546 6,537
Gazprom Neft shareholders 198,945 133,746
Non-controlling interest (6,204) 16,659
Earnings per share attributable to Gazprom Neft shareholders
Basic earnings (RUB per share) 42.43 23.24
Diluted earnings (RUB per share) 42.43 23.24
Weighted-average number of common shares outstanding (millions) 4,718 4,718
Attributable to Gazprom Neft shareholders
Balance as of 1 January 2016 98 (1,170) 44,326 1,078,626 35,189 1,157,069 91,420 1,248,489
Profit for the period – – – 200,179 – 200,179 9,546 209,725
Currency translation differences – – – – (32,569) (32,569) (15,750) (48,319)
Cash flow hedge, net of tax – – – – 31,501 31,501 – 31,501
Other comprehensive loss – – – – (166) (166) – (166)
Total comprehensive income / (loss) for the period – – – 200,179 (1,234) 198,945 (6,204) 192,741
Transactions with owners, recorded in equity
Dividends to equity holders – – – (2,595) – (2,595) (1,273) (3,868)
Transaction under common control 25 – – 6,835 – – 6,835 – 6,835
Acquisition through business combination – – (114) – – (114) 84 (30)
Total transactions with owners – – 6,721 (2,595) – 4,126 (1,189) 2,937
Balance as of 31 December 2016 98 (1,170) 51,047 1,276,210 33,955 1,360,140 84,027 1,444,167
Balance as of 1 January 2015 98 (1,170) 50,074 1,005,642 11,104 1,065,748 64,037 1,129,785
Profit for the period – – – 109,661 – 109,661 6,537 116,198
Currency translation differences – – – – 33,617 33,617 10,122 43,739
Cash flow hedge, net of tax – – – – (9,333) (9,333) – (9,333)
Other comprehensive loss – – – – (199) (199) – (199)
Total comprehensive income for the period – – – 109,661 24,085 133,746 16,659 150,405
Dividends to equity holders – – – (36,677) – (36,677) (1,842) (38,519)
Transaction under common control – – (5,748) – – (5,748) 12,566 6,818
Total transactions with owners – – (5,748) (36,677) – (42,425) 10,724 (31,701)
Balance as of 31 December 2015 98 (1,170) 44,326 1,078,626 35,189 1,157,069 91,420 1,248,489
Share of profit of associates and joint ventures 14 (34,116) (24,956)
(Gain) /loss on foreign exchange differences 29 (28,300) 67,910
Finance income 30 (11,071) (14,732)
Finance expense 31 34,282 33,943
Depreciation, depletion and amortisation 13 129,845 114,083
Net impairement of receivables and other assets 7,587 2,090
Write-off payables – (16,107)
Other non-cash items 3,801 4,488
Operating cash flow before changes in working capital 361,567 312,169
Accounts receivable (30,397) 16,019
Inventories (3,462) 6,128
Taxes receivable 4,218 1,704
Other assets 8,999 6,294
Accounts payable 12,288 (2,245)
Taxes payable 19,729 (2,905)
Other liabilities 3,841 (6,653)
Total effect of working capital changes 15,216 18,342
Income taxes paid (22,158) (19,522)
Interest paid (36,476) (28,229)
Dividends received 3,148 2,415
Net cash provided by operating activities 321,297 285,175
Acquisition of subsidiaries and joint operations, net of cash acquired (1,040) 303
Increase in cash due to acquisition of a subsidiary under common control – 2,229
Proceeds from disposal of subsidiaries, net of cash disposed – (9)
Acquisition of associates and joint ventures (988) (106)
Bank deposits placement (1,425) (128,298)
Repayment of bank deposits 49,942 174,043
Acquisition of other investments – (4,476)
Proceeds from sales of other investments 3,241 –
Short-term loans issued (6,940) (26,169)
Repayment of short-term loans issued 10,815 27,883
Long-term loans issued (21,904) (25,578)
Repayment of long-term loans issued 12,684 5,737
Purchases of property, plant and equipment and intangible assets (384,817) (349,036)
Proceeds from sale of property, plant and equipment and intangible assets 1,008 982
Proceeds from sale of other non-current assets 18 11,186 –
Interest received 4,384 7,984
Net cash used in investing activities (323,854) (314,511)
Proceeds from short-term borrowings 81,319 35,171
Repayment of short-term borrowings (95,656) (13,691)
Proceeds from long-term borrowings 142,947 153,748
Repayment of long-term borrowings (192,539) (53,663)
Transaction costs directly attributable to the borrowings received (649) (350)
Dividends paid to Gazprom Neft shareholders (2,598) (36,346)
Dividends paid to non-controlling interest (1,254) (2,676)
Net cash (used in) / provided by financing activities (68,430) 82,193
(Decrease) / increase in cash and cash equivalents (70,987) 52,857
Effect of foreign exchange on cash and cash equivalents (9,590) 8,174
Cash and cash equivalents as of the beginning of the period 114,198 53,167
Cash and cash equivalents as of the end of the period 33,621 114,198
to the Consolidated Financial Statements As of and for the year ended 31 December 2016
(RUB mn, unless otherwise stated)
Gazprom Neft PJSC (the ‘Company’) and its subsidiaries (together referred to as the ‘Group’) is a vertically integrated oil company operating in the Russian Federation, CIS and internationally. The Group’s principal activities include exploration, production and development of crude oil and gas, production of refined petroleum products and distribution and marketing operations through its retail outlets.
The Company was incorporated in 1995 and is domiciled in the Russian Federation. The Company is a public joint stock company and was set up in accordance with Russian regulations. Gazprom PJSC (‘Gazprom’, a state controlled entity), the Group’s ultimate parent company, owns 95.7% of the shares in the Company.
The Group maintains its books and records in accordance with accounting and taxation principles and practices mandated by legislation in the countries in which it operates (primarily the Russian Federation). The accompanying Consolidated Financial Statements were primarily derived from the Group’s statutory books and records with adjustments and reclassifications made to present them in accordance with International Financial Reporting Standards (‘IFRS’).
Subsequent events occurring after 31 December 2016 were evaluated through 21 February 2017, the date these Consolidated Financial Statements were authorised for issue.
The Consolidated Financial Statements are prepared on the historical cost basis except that derivative financial instruments, financial investments classified as available-for-sale, and obligations under the Stock Appreciation Rights plan (SARs) are stated at fair value.
The functional currency of each of the Group’s consolidated entities is the currency of the primary economic environment in which the entity operates. In accordance with IAS 21 the Group has analysed several factors that influence the choice of functional currency and, based on this analysis, has determined the functional currency for each entity of the Group. For the majority of the entities the functional currency is the local currency of the entity.
Monetary assets and liabilities have been translated into the functional currency at the exchange rate as of reporting date. Non-monetary assets and liabilities have been translated at historical rates. Revenues, expenses and cash flows are translated into functional currency at average rates for the period or exchange rates prevailing on the transaction dates where practicable. Gains and losses resulting from the re-measurement into functional currency are included in profit and loss, except when deferred in other comprehensive income as qualifying cash flow hedges.
The presentation currency for the Group is the Russian Rouble. Gains and losses resulting from the re-measurement into presentation currency are included in a separate line of equity in the Consolidated Statement of Financial Position.
The translation of local currency denominated assets and liabilities into functional currency for the purpose of these Consolidated Financial Statements does not indicate that the Group could realise or settle, in functional currency, the reported values of these assets and liabilities. Likewise, it does not indicate that the Group could return or distribute the reported functional currency value of capital to its shareholders.
The consolidated financial statements include the accounts of subsidiaries in which the Group has control. Control implies rights or exposure to variable returns from the involvement with the investee and the ability to affect those returns through the power over the investee. An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee’s returns. An investor is exposed, or has the rights to variable returns from its involvement with investee when the investor’s return from its involvement have the potential to vary as a result of the investee’s performance. The financial statements of subsidiaries are included in the Consolidated Financial Statements of the Group from the date when control commences until the date when control ceases.
In assessing control, the Group takes into consideration potential voting rights that are substantive. Investments in entities that the Group does not control, but where it has the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method except for investments that meet criteria of joint operations, which are accounted for on the basis of the Group’s interest in the assets, liabilities, expenses and revenues of the joint operation. All other investments are classified either as held-to-maturity or as available for sale.
The Group accounts for its business combinations according to IFRS 3 Business Combinations. The Group applies the acquisition method of accounting and recognises assets acquired and liabilities assumed in the acquiree at the acquisition date, measured at their fair values as of that date. Determining the fair value of assets acquired and liabilities assumed requires Management’s judgment and often involves the use of significant estimates and assumptions. Non-controlling interest is measured at fair value (if shares of acquired company have public market price) or at the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets (if shares of acquired company do not have public market price).
Goodwill is measured by deducting the fair value 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 (‘bargain purchase’) is recognised in profit or loss, after Management identified all assets acquired and all liabilities and contingent liabilities assumed and reviewed the appropriateness of their measurement.
The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognised in profit or loss. Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination, are expensed as incurred.
Ownership interests in the Group’s subsidiaries held by parties other than the Group entities are presented separately in equity in the Consolidated Statement of Financial Position. The amount of consolidated net income attributable to the parent and the non-controlling interest are both presented on the face of the Consolidated Statement of Profit and Loss and Other Comprehensive Income.
Changes in ownership interests in subsidiaries without change of control
Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.
When the Group ceases to have control any retained interest in the entity is remeasured to its fair value at the date when control is lost, with the change in carrying amount of the investment to the entity recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.
Acquisitions from entities under common control
Business combinations involving entities under common control are accounted for by the Group using the predecessor accounting approach from the acquisition date. The Group uses predecessor carrying values for assets and liabilities, which are generally the carrying amounts of the assets and liabilities of the acquired entity from the consolidated financial statements of the highest entity that has common control for which consolidated financial statements are prepared. These amounts include any goodwill recorded at the consolidated level in respect of the acquired entity.
An associate is an entity over which the investor has significant influence. Investments in associates are accounted for using the equity method and are recognised initially at cost. The consolidated financial statements include the Group’s share of the profit or loss and other comprehensive income of equity accounted investees, after adjustments to align accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement.
A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement.
Where the Group acts as a joint operator, the Group recognises in relation to its interest in a joint operation:
With regards to joint arrangements, where the Group acts as a joint venturer, the Group recognises its interest in a joint venture as an investment and accounts for that investment using the equity method.
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with equity accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment.
Cash represents cash on hand and in bank accounts, that can be effectively withdrawn at any time without prior notice. Cash equivalents include all highly liquid short-term investments that can be converted to a certain cash amount and mature within three months or less from the date of purchase. They are initially recognised based on the cost of acquisition which approximates fair value.
The Group has the following non-derivative financial assets: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets.
The Group initially recognises loans and receivables on the date that they are originated. All other financial assets (including assets designated as at fair value through profit or loss) are recognised initially on the trade date, which is the date that the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.
A financial asset is classified at fair value through profit or loss category if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through profit or loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognised in profit and loss.
If the Group has the positive intent and ability to hold to maturity debt securities that are quoted in an active market, then such financial assets are classified to held-to-maturity category. Held-to-maturity financial assets are recognised initially at fair value. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses. Any sale or reclassification of a more than insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the Group from classifying investment securities as held-to-maturity for the current and the following two financial years.
Loans and receivables is a category of financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Allowances are provided for doubtful debts based on estimates of uncollectible amounts. These estimates are based on the aging of the receivable, the past history of settlements with the debtor and current economic conditions. Estimates of allowances require the exercise of judgment and the use of assumptions.
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the above categories of financial assets. Such assets are recognised initially at fair value. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses and foreign currency differences on available-for-sale debt instruments, are recognised in other comprehensive income and presented within equity in the other reserves line. When an investment is derecognised or impaired, the cumulative gain or loss in equity is reclassified to profit and loss.
The Group initially recognises debt securities issued and liabilities on the date that they are originated. All other financial liabilities are recognised initially on the trade date on which the Group becomes a party to the contractual provisions of the instrument. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. The Group classifies non-derivative financial liabilities into the other financial liabilities category. Financial liabilities are recognised initially at fair value. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective interest method. Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other payables.
Derivative instruments are recorded at fair value on the Consolidated Statement of Financial Position in either financial assets or liabilities. Realised and unrealised gains and losses are presented in profit and loss on a net basis, except for those derivatives, where hedge accounting is applied.
The estimated fair values of derivative financial instruments are determined with reference to various market information and other valuation methodologies as considered appropriate, however significant judgment is required in interpreting market data to develop these estimates. Accordingly, the estimates are not necessarily indicative of the amounts that the Group could realise in a current market situation.
The Group applies hedge accounting policy for those derivatives that are designated as a hedging instrument (currency exchange forwards and interest-rate swaps).
The Group has designated only cash flow hedges – hedges against the exposure to the variability of cash flow currency exchange rates on a highly probable forecast transaction.
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. Changes in the fair value of certain derivative instruments that do not qualify for hedge accounting are recognised immediately in profit and loss.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity until the forecast transaction occurs. Any ineffective portion is directly recognised in profit and loss. When a forecast transaction is no longer expected to occur, the cumulative gain or loss on any associated hedging instrument that was reported in equity is immediately transferred to profit and loss.
The fair value of the hedge instrument is determined at the end of each reporting period with reference to the market value, which is typically determined by the credit institutions.
Inventories, consisting primarily of crude oil, refined oil products and materials and supplies are stated at the lower of cost and net realisable value. The cost of inventories is assigned on a weighted average basis, and includes expenditure incurred in acquiring the inventories, production or conversion costs, and other costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.
Goodwill that arises on the acquisition of subsidiaries is included in intangible assets. Subsequently goodwill is measured at cost less accumulated impairment losses.
Other intangible assets that are acquired by the Group, which have finite useful lives, are measured at cost less accumulated amortisation and accumulated impairment loss.
Intangible assets that have limited useful lives are amortised on a straight-line basis over their useful lives. Useful lives with respect to intangible assets are determined as follows:
Intangible asset group
Licenses and software 1-5 years
Land rights 25 years
Property, plant and equipment is stated at cost, net of accumulated depreciation and any impairment. The cost of maintenance, repairs and replacement of minor items of property, plant are expensed when incurred; renewals and improvements of assets are capitalised. Costs of turnarounds and preventive maintenance performed with respect to oil refining assets are expensed when incurred if turnaround does not involve replacement of assets or installation of new assets. Upon sale or retirement of property, plant and equipment, the cost and related accumulated depreciation and impairment losses are eliminated from the accounts. Any resulting gains or losses are recorded in profit and loss.
Acquisition costs include amounts paid for the acquisition of exploration and development licenses.
Exploration and evaluation assets include:
Costs of topographical, geological, and geophysical studies and rights of access to properties to conduct those studies, that are directly attributable to exploration activity;
Costs of carrying and retaining undeveloped properties;
Bottom hole contribution;
The costs incurred in finding, acquiring, and developing reserves are capitalised on a ‘field by field’ basis.
Costs of topographical, geological, and geophysical studies, rights of access to properties to conduct those studies are considered as part of oil and gas assets until it is determined that the reserves are proved and are commercially viable. On discovery of a commercially-viable mineral reserve, the capitalised costs are allocated to the discovery.
If no reserves are found, the exploration asset is tested for impairment. If extractable hydrocarbons are found then it should be subject to further appraisal activity, which may include drilling of further wells. If they are likely to be developed commercially (including dry holes), the costs continue to be carried as oil and gas asset as long as some sufficient/continued progress is being made in assessing the commerciality of the hydrocarbons. All such carried costs are subject to technical, commercial and Management review as well as review for impairment at least once a year to confirm the continued intent to develop or otherwise extract value from the discovery. When this is no longer the case, the costs are written off.
Other exploration costs are charged to expense when incurred.
An exploration and evaluation asset is reclassified to property, plant and equipment and intangible assets when the technical feasibility and commercial viability of extracting a mineral resource are demonstrable. Exploration and evaluation assets are assessed for impairment, and any impairment loss is recognised, before reclassification. Exploration and development licenses are classified as property, plant and equipment after transfer from exploration and evaluation assets.
Development costs are incurred to obtain access to proved reserves and to provide facilities for extracting, treating, gathering and storing oil and gas. They include the costs of development wells to produce proved reserves as well as costs of production facilities such as lease flow lines, separators, treaters, heaters, storage tanks, improved recovery systems, and nearby gas processing facilities.
Expenditures for the construction, installation, or completion of infrastructure facilities such as platforms, pipelines and the drilling of development wells are capitalised within oil and gas assets.
Depletion of acquisition and development costs of proved oil and gas properties is calculated using the unit-of-production method based on proved reserves and proved developed reserves. Acquisition costs of unproved properties are not amortised.
Depreciation and amortisation with respect to operations other than oil and gas producing activities is calculated using the straight-line method based on estimated economic lives. Depreciation rates are applied to similar types of buildings and equipment having similar economic characteristics, as shown below:
Buildings and constructions 8-35 years
Machinery and equipment 8-20 years
Vehicles and other equipment 3-10 years
Catalysts and reagents mainly used in the refining operations are treated as other assets.
Borrowing costs directly attributable to the acquisition, construction or production of assets (including oil and gas properties) that necessarily take a substantial time to get ready for intended use or sale (qualifying assets) are capitalised as part of the costs of those assets. Exchange differences arising from foreign currency borrowings to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs eligible for capitalisation.
The carrying amounts of the Group’s non-current assets, other than assets arising from goodwill, inventories, long-term financial assets and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment.
Goodwill is tested for impairment annually or more frequently if impairment indicators arise. An impairment loss recognised for goodwill is not reversed in a subsequent period.
If any indication of impairment exists, the group makes an estimate of the asset’s recoverable amount. Individual assets are grouped for impairment assessment purposes at the lowest level at which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets (cash-generated units - CGUs). The carrying amount of the CGUs (including goodwill) is compared with their recoverable amount. The recoverable amount of CGUs to which goodwill is allocated is the higher of value in use and fair value less costs of disposal. Where the recoverable amount of the CGUs to which goodwill has been allocated is less than the carrying amount, an impairment loss is recognised.
An impairment loss is recognised in profit and loss.
Financial assets are assessed at each reporting date to determine whether there is any objective evidence of impairment. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably.
The Group considers evidence of impairment for loans and receivables and held-to-maturity investments at both a specific asset and collective level. All individually significant loans and receivables and held-to-maturity investments are assessed for specific impairment. Loans and receivables and held-to-maturity investments that are not individually significant are collectively assessed for impairment by grouping together loans and receivables and held-to-maturity investments with similar risk characteristics.
An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held-to-maturity investments.
The Group has decommissioning obligations associated with its core activities. The nature of the assets and potential obligations is as follows:
The Group’s activities in exploration, development and production of oil and gas in the deposits are related to the use of such assets as wells, well equipment, oil gathering and processing equipment, oil storage tanks and infield pipelines. Generally, licenses and other permissions for mineral resources extraction require certain actions to be taken by the Group in respect of liquidation of these assets after oil field closure. Such actions include well plugging and abandonment, dismantling equipment, soil recultivation, and other remediation measures. When an oil field is fully depleted, the Group will incur costs related to well retirement and associated environmental protection measures.
Refining, marketing and distribution.
The Group’s oil refining operations are carried out at large manufacturing facilities that have been operated for several decades. The nature of these operations is such that the ultimate date of decommissioning of any sites or facilities is unclear. Current regulatory and licensing rules do not provide for liabilities related to the liquidation of such manufacturing facilities or of retail fuel outlets. Management therefore believes that there are no legal or contractual obligations related to decommissioning or other disposal of these assets.
Management makes provision for the future costs of decommissioning oil and gas production facilities, wells, pipelines, and related support equipment and for site restoration based on the best estimates of future costs and economic lives of the oil and gas assets. Estimating future 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. The Group applies risk-free rate adjusted for specific risks of the liability for the purpose of estimating asset retirement obligations.
Changes in the measurement of existing obligations can result from changes in estimated timing, future costs or discount rates used in valuation.
The amount recognised as a provision is the best estimate of the expenditures required to settle the present obligation at the reporting date based on current legislation in each jurisdiction where the Group’s operating assets are located, and is also subject to change because of revisions and changes in laws and regulations and their interpretation. As a result of the subjectivity of these provisions there is uncertainty regarding both the amount and estimated timing of such costs.
The estimated costs of dismantling and removing an item of property, plant and equipment are added to the cost of the item either when an item is acquired or as the item is used during a particular period. Changes in the measurement of an existing decommissioning obligation that result from changes in the estimated timing or amount of any cash outflows, or from changes in the discount rate are reflected in the cost of the related asset in the current period.
Currently some Group companies including Gazprom Neft PJSC exercise the option to pay taxes as a consolidated tax-payer and are subject to taxation on a consolidated basis. The majority of the Group companies do not exercise such an option and current income taxes are provided on the taxable profit of each subsidiary. Most subsidiaries are subject to the Russian Federation Tax Code, under which income taxes are payable at a rate of 20% after adjustments for certain items, that are either not deductible or not taxable for tax purposes. In some cases income tax rate could be set at lower level as a tax concession stipulated by regional legislation. Subsidiaries operating in countries other than the Russian Federation are subject to income tax at the applicable statutory rate in the country in which these entities operate.
Deferred income tax assets and liabilities are recognised in the accompanying Consolidated Financial Statements in the amounts determined by the Group using the balance sheet liability method in accordance with IAS 12 Income Taxes. This method takes into account future tax consequences attributable to temporary differences between the carrying amounts of existing assets and liabilities for the purpose of the Consolidated Financial Statements and their respective tax bases and in respect of operating loss and tax credit carry-forwards. Deferred income tax assets and liabilities are measured using the enacted tax rates that are expected to apply to taxable income in the years in which those temporary differences are expected to reverse and the assets recovered and liabilities settled. 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 utilised.
Mineral extraction tax and excise duties
Mineral extraction tax and excise duties, which are charged by the government on the volumes of oil and gas extracted or refined by the Group, are included in operating expenses. Taxes charged on volumes of goods sold are recognised as a deduction from sales.
Common stock represents the authorised capital of the Company, as stated in its charter document. The common shareholders are allowed one vote per share. Dividends paid to shareholders are determined by the Board of Directors and approved at the annual shareholders’ meeting.
Common shares of the Company owned by the Group as of the reporting date are designated as treasury shares and are recorded at cost using the weighted-average method. Gains on resale of treasury shares are credited to additional paid-in capital whereas losses are charged to additional paid-in capital to the extent that previous net gains from resale are included therein or otherwise to retained earnings.
Basic and diluted earnings per common share are determined by dividing the available income to common shareholders by the weighted average number of shares outstanding during the period. There are no potentially dilutive securities.
The Group accounts for its best estimate of the obligation under cash-settled stock-appreciation rights (‘SAR’) granted to employees at fair value on the date of grant. The estimate of the final liability is re-measured to fair value at each reporting date and the compensation charge recognised in respect of SAR in profit and loss is adjusted accordingly. Expenses are recognised over the vesting period.
Retirement and other benefit obligations
The Group and its subsidiaries do not have any substantial pension arrangements separate from the State pension scheme of the Russian Federation, which requires current contributions by the employer calculated as a percentage of current gross salary payments; such contributions are charged to expense as incurred. The Group has no significant post-retirement benefits or other significant compensated benefits requiring accrual.
Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset.
Other leases are operating leases and the leased assets are not recognised on the Group’s statement of financial position. The total lease payments are charged to profit or loss for the year on a straight-line basis over the lease term.
Revenues from the sales of crude oil, petroleum products, gas and all other products are recognised when deliveries are made to final customers, title passes to the customer, collection is reasonably assured, and the sales price to final customers is fixed or determinable. Specifically, domestic crude oil sales and petroleum product and materials sales are recognised when they are shipped to customers, which is generally when title passes. For export sales, title generally passes at the border of the Russian Federation and the Group is responsible for transportation, duties and taxes on those sales.
Revenue is recognised net of value added tax (VAT), excise taxes calculated on revenues based on the volumes of goods sold, customs duties and other similar compulsory payments.
Sales include revenue, export duties and sales related excise tax.
Purchases and sales under the same contract with a specific counterparty (buy-sell transaction) are eliminated under IFRS. The purpose of the buy-sell operation, i.e. purchase and sale of same type of products in different locations during the same reporting period from / to the same counterparty, is to optimise production capacities of the Group rather than generate profit. After elimination, any positive difference is treated as a decrease in transportation costs and any negative difference is treated as an increase in transportation costs.
Transportation expenses recognised in profit and loss represent expenses incurred to transport crude oil and oil products through the ‘AK ‘Transneft’ PJSC pipeline network, costs incurred to transport crude oil and oil products by maritime vessel and railway and all other shipping and handling costs.
All other comprehensive income / loss is presented by the items that are or may be reclassified subsequently to profit or loss, net of related deferred tax.
Changes in presentation and classification
In 2016 the Group changed presentation of asset impairement loss and gain in the Consolidated Statement of Profit and Loss and Other Comprehensive Income. These items were reclassified to financial statements line item Depreciation, depletion and amortisation from Other gain and loss line item. The Group believes that the change provides reliable and more relevant information. Impairment loss in the amount of RUB 15,582 million recognised in 2015 was reclassified to financial statements line item Depreciation, depletion and amortization to conform to the current year’s presentation. Such reclassifications have no effect on profit for the period, net cash flow or shareholders’ equity. Since the reclassification has no effect on Consolidated Statement of Financial Position line items the Consolidated Statement of Financial Position as of 01 January 2015 was not presented.
Actual results may differ from the judgements, estimates made by the management if different assumptions or circumstances apply.
The following are examples of impairment indicators, which are reviewed by the Management: changes in the Group’s business plans, changes in oil and commodity prices leading to sustained unprofitable performance, low plant utilisation, evidence of physical damage or, for oil and gas assets, significant downward revisions of estimated reserves or increases in estimated future development expenditure or decommissioning costs. In case any of such indicators exist the Group makes an assessment of recoverable amount.
The long-term business plans (models), which are approved by the Management, are the primary source of information for the determination of value in use. They contain forecasts for oil and gas production, refinery throughputs, sales volumes for various types of refined products, revenues, costs and capital expenditure.
As an initial step in the preparation of these plans, various market assumptions, such as oil prices, refining margins, refined product margins and inflation rates, are set by the Management. These market assumptions take into account long-term oil price forecasts by the research institutions, macroeconomic factors such as inflation rate and historical trends.
In assessing value in use, the estimated future cash flows are adjusted for the risks specific to the asset group or CGU and are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money.
Engineering estimates of oil and gas reserves are inherently uncertain and are subject to future revisions on annual basis. The Group estimates its oil and gas reserves in accordance with rules promulgated by the US Securities and Exchange Commission (SEC) for proved reserves. Oil and gas reserves are determined with use of certain assumptions made by the Group, for future capital and operational expenditure, estimates of oil in place, recovery factors, number of wells and cost of drilling. Accounting measures such as depreciation, depletion and amortisation charges that are based on the estimates of proved reserves are subject to change based on future changes to estimates of oil and gas reserves.
Proved reserves are defined as the estimated quantities of oil and gas which geological and engineering data demonstrate recoverability in future years from known reservoirs under existing economic conditions with reasonable certainty. 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.
Leases under the terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Risks include the possibilities of losses from idle capacities or technological obsolense and of variations in return because of changing economic conditions. Rewards may be represented by the expectation of profitable operation over the the assets’s economic life and of gain from appreciation in value or realization of a residual value.
Other leases are classified as operating leases. In most cases leasing of vessels under time-charter agreements are accounted for as operating leases under IAS 17 Leases.
4. Application of new IFRS
The following standards or amended standards became effective for the Group from 1 January 2016, but did not have any material impact on the Group:
IFRS 14 - Regulatory Deferral Accounts (issued in January 2014 and effective for annual periods beginning on or after 1 January 2016).
Amendments to IFRS 11 – Joint Arrangements (issued in May 2014 and effective for annual periods beginning on or after 1 January 2016).
Amendments to IAS 16 – Property, Plant and Equipment and IAS 38 – Intangible Assets (issued in May 2014 and effective for annual periods beginning on or after 1 January 2016).
Disclosure Initiative Amendments to IAS 1 – Presentation of Financilal Statements (issued in December 2014 and effective for annual periods on or after 1 January 2016).
Amendments to IFRS 7 – Financial instruments: Disclosures (issued in September 2014 and effective for annual periods on or after 1 January 2016).
Amendments to IAS 19 – Employee Benefits (issued in September 2014 and effective for annual periods on or after 1 January 2016).
Amendments to IAS 34 – Interim Financial Reporting Presentation of Financial Statements (issued in September 2014 effective for annual periods beginning on or after 1 January 2016).
Certain new standards and interpretations have been issued that are mandatory for the annual periods beginning on or after 1 January 2017 or later, and that the Group has not early adopted.
IFRS 9 – Financial Instruments: Classification and Measurement (amended in July 2014 and effective for annual periods beginning on or after 1 January 2018). Key features of the new standard are:
Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value (either through profit and loss or other comprehensive income), and at amortised cost. The decision is to be made at initial recognition.
An instrument is subsequently measured at amortised cost only if it is a debt instrument and both (i) the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and (ii) the asset’s contractual cash flows represent payments of principal and interest only. All other debt instruments are to be measured at fair value through profit or loss.
All equity instruments are to be measured subsequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity investments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other comprehensive income rather than profit or loss. There is no recycling of fair value gains and losses to profit or loss.
The Group is currently assessing the impact of the new standard on its Consolidated Financial Statements.
IFRS 15 – Revenue from Contracts with Customers (issued in May 2014 and effective for annual periods beginning on or after January 1, 2018). The new standard introduces the core principle that revenue must be recognised when the goods and services are transferred to the customer, at the transaction price. Any bundled goods and services that are distinct must be separately recognised, and any discounts or rebates on the contract price must generally be allocated to the separate elements. When the consideration varies for any reason, minimum amounts must be recognised if they are not at significant risk of reversal. Costs incurred to secure contracts with customers have to be capitalised and amortised over the period when the benefits of the contract are consumed.
IFRS 16 – Leases (issued in January 2016 and replaces the previous IAS 17 Leases, effective for annual periods beginning on or after January 1, 2019 with early adoption permitted in case of implementation of IFRS 15 Revenue from Contracts with Customers). Key features of the standard are:
IFRS 16 changes the lessees accounting requirements given in IAS 17 and eliminates the classification of leases as either operating leases or finance leases. Instead, introduces a single lessee accounting model where a lessee is required to recognise:
IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17.
IFRS 16 does not change the accounting for services.
The amendments to IAS 7 – Statement of Cash Flow (issued in January 2016 effective for annual periods beginning on or after 1 January 2017) require entities to provide disclosures that enable investors to evaluate changes in liabilities arising from financing activities, including changes arising from cash flows and non-cash changes. The Group will present this disclosure in the Consolidated Financial Statements for 2017.
The following other new standards are not expected to have any material impact on the Group when adopted:
The amendments to IAS 12 – Income Taxes: Recognition of Deferred Tax Assets for Unrealised Losses (issued in January 2016 effective for annual periods beginning on or after 1 January 2017).
Amendments to IFRS 15 – Revenue from Contracts with Customers (issued in April 2016 and effective for annual periods beginning on or after 1 January 2018).
Amendments to IFRS 2 – Share-based Payment (issued in June 2016 effective for annual periods beginning on or after 1 January 2018).
Unless otherwise described above, the new standards and interpretations are not expected to affect significantly the Group’s Consolidated Financial Statements.
Cash and cash equivalents as of 31 December 2016 and 2015 comprise the following:
31 December 2015 -->
Cash on hand 882 986
Cash in bank 21,284 39,937
Deposits with original maturity of less than three months 8,647 69,891
Other cash equivalents 2,808 3,384
Total cash and cash equivalents 33,621 114,198
7. Short-term financial assets
Short-term financial assets as of 31 December 2016 and 2015 comprise the following:
Short-term loans issued 41,136 15,802
Deposits with original maturity more than 3 months less than 1 year 886 49,206
Forward contracts - cash flow hedge 91 –
Financial assets held to maturity – 149
Total short-term financial assets 42,113 65,157
The loans issued in 2016 mainly comprise loans issued to a joint venture.
Trade and other receivables as of 31 December 2016 and 2015 comprise the following:
Trade receivables 121,229 112,572
Other financial receivables 6,604 7,254
Less impairment provision 34 (12,274) (24,585)
Total trade and other receivables 115,559 95,241
Trade receivables represent amounts due from customers in the ordinary course of business and are short-term by nature.
Inventories as of 31 December 2016 and 2015 consist of the following:
Petroleum products and petrochemicals 47,467 41,692
Materials and supplies 26,277 38,782
Crude oil and gas 20,059 16,947
Other 8,378 8,497
Less provision (1,480) (3,540)
Total inventory 100,701 102,378
As part of the management of inventory the Group may enter transactions to buy and sell crude oil or petroleum products from the same counterparty. Such transactions are referred to as buy / sell transactions and are undertaken in order to reduce transportation costs or to obtain alternate quality grades of crude oil. The total values of buy / sell transactions undertaken for the years ended 31 December are as follows:
Buy / sell transactions for the year ended 31 December 92,932 92,949
10. Other taxes receivable
Other taxes receivable as of 31 December 2016 and 2015 comprise the following:
Value added tax receivable 44,936 47,616
Prepaid custom duties 6,419 6,728
Other taxes prepaid 2,127 3,356
Total other taxes receivables 53,482 57,700
Other current assets as of 31 December 2016 and 2015 comprise the following:
Advances paid 27,671 40,080
Prepaid expenses 1,104 999
Other assets 34 11,728 21,088
Total other current assets, net 40,503 62,167
The movement in impairement provision in respect of other current assets is presented in Note 34.
Movement in property, plant and equipment for the years ended 31 December 2016 and 2015 is presented below:
O&G properties
As of 1 January 2016 1,355,282 308,037 152,795 17,933 369,274 2,203,321
Additions 2,280 1,365 – – 319,426 323,071
Acquisitions through business combinations – 38 – 452 16 506
Changes in decommissioning obligations 9,626 – – – – 9,626
Capitalised borrowing costs – – – – 13,840 13,840
Transfers 248,107 21,528 10,280 4,473 (284,388) –
Internal movement 25,813 (6,474) 6,192 1,711 (27,242) –
Disposals (5,588) (1,250) (1,753) (604) (4,530) (13,725)
Translation differences (65,995) (15,052) (14,643) (434) (17,092) (113,216)
As of 31 December 2016 1,569,525 308,192 152,871 23,531 369,304 2,423,423
As of 1 January 2016 (489,288) (81,461) (41,440) (3,479) – (615,668)
Depreciation charge (83,199) (13,083) (11,305) (1,918) – (109,505)
Impairment (14,763) – – – – (14,763)
Internal movement 828 1,558 (1,240) (1,146) – –
Disposals 5,222 221 1,050 561 – 7,054
Translation differences 28,060 3,659 3,883 202 – 35,804
As of 31 December 2016 (553,140) (89,106) (49,052) (5,780) – (697,078)
As of 1 January 2016 865,994 226,576 111,355 14,454 369,274 1,587,653
As of 31 December 2016 1,016,385 219,086 103,819 17,751 369,304 1,726,345
As of 1 January 2015 1,120,873 260,219 134,430 18,659 245,847 1,780,028
Additions 12,641 1,016 – – 311,871 325,528
Acquisitions through business combinations – – 24 283 47 354
Changes in decommissioning obligations (214) – – – – (214)
Capitalised borrowing costs – – – – 14,558 14,558
Transfers 183,139 38,093 16,543 1,921 (239,696) –
Internal movement (12,394) (75) (483) (394) 11,893 (1,453)
Disposals (12,249) (1,061) (2,747) (2,800) (2,871) (21,728)
Translation differences 63,486 9,845 5,028 264 27,625 106,248
As of 31 December 2015 1,355,282 308,037 152,795 17,933 369,274 2,203,321
As of 1 January 2015 (383,053) (68,395) (32,593) (2,187) – (486,228)
Depreciation charge (70,978) (11,032) (10,552) (1,256) – (93,818)
Impairment (15,582) – – – – (15,582)
Acquisitions through business combinations – – – (143) – (143)
Internal movement 222 (31) 1,114 148 – 1,453
Disposals 8,246 199 1,600 62 – 10,107
Translation differences (28,143) (2,202) (1,009) (103) – (31,457)
As of 31 December 2015 (489,288) (81,461) (41,440) (3,479) – (615,668)
As of 1 January 2015 737,820 191,824 101,837 16,472 245,847 1,293,800
As of 31 December 2015 865,994 226,576 111,355 14,454 369,274 1,587,653
As of 31 December 2016 the exploration and evaluation assets relating to Garmian block in Iraq region were reclassified to proved oil and gas assets due to start of commercial development. The reclassification is presented as internal movement.
Capitalisation rate for the borrowing costs related to the acquisition of property, plant and equipment equals to 6.0% for the year ended 31 December 2016 (11.0% for the year ended 31 December 2015). Capitalised borrowing costs for the year ended 31 December 2015 include exchange losses arising from foreign currency borrowings in the amount of RUB 5.9 billion.
The information regarding Group’s exploration and evaluation assets (part of O&G properties) is presented below:
As of January 1 83,005 75,294
Additions 13,670 26,032
Impairment (9,362) (4,024)
Unsuccessful exploration expenditures derecognised (628) (132)
Transfer to proved property (2,214) (26,323)
Disposals (268) (279)
Translation differences (8,860) 12,437
As of December 31 75,343 83,005
During 2016 the Group performed impairment testing and recognised an impairment loss in relation to upstream oil and gas assets and exploration and evaluation assets located in Iraq region in the amount of RUB 14.4 billion. The impairement loss is included in Depreciation, depletion and amortisation line item in the Consolidated Statement of Profit and Loss and Other Comprehensive Income.
The Group recognized the impairment loss for the amount by which the book value of these assets exceeded its recoverable amount of RUB 79.0 billion (translated into Roubles at the exchange rate as of date of impairement testing). The impairment loss was due to revision of expected economic performance of the assets (decrease in international oil prices, changes in exploration and development programs and investment plans).
The recoverable amount was determined as the present value of estimated future cash flows using available forecasts of oil prices from globally recognised research institutions and production quantities based on reserve reports and long-term strategic plans. The pre-tax discount rate reflects current market assessments of the time value of money and the risks specific to the asset and amounts to 11.1% per annum in real terms.
The information regarding movements in Group’s intangible assets is presented below:
As of 1 January 2016 36,537 24,243 17,582 15,451 93,813
Additions – 3,556 9 2,238 5,803
Acquisitions through business combinations – 7 – 865 872
Internal movement – 1,250 31 (1,281) –
Disposals – (520) – (1,007) (1,527)
Translation differences (4,431) (1,557) (101) (260) (6,349)
As of 31 December 2016 32,106 26,979 17,521 16,006 92,612
As of 1 January 2016 (228) (11,030) (4,457) (3,008) (18,723)
Amortisation charge – (3,528) (759) (1,290) (5,577)
Internal movement – 35 – (35) –
Disposals – 318 – 149 467
Translation differences 48 1,145 2 177 1,372
As of 31 December 2016 (180) (13,060) (5,214) (4,007) (22,461)
As of 1 January 2016 36,309 13,213 13,125 12,443 75,090
As of 31 December 2016 31,926 13,919 12,307 11,999 70,151
As of 1 January 2015 33,635 19,327 17,513 14,881 85,356
Additions – 3,529 – 1,881 5,410
Internal movement – 989 – (711) 278
Disposals – (767) – (830) (1,597)
Translation differences 2,902 1,165 69 230 4,366
As of 31 December 2015 36,537 24,243 17,582 15,451 93,813
As of 1 January 2015 (196) (7,778) (3,829) (2,313) (14,116)
Amortisation charge – (3,035) (627) (1,021) (4,683)
Internal movement – (309) – 31 (278)
Disposals – 666 – 400 1,066
Translation differences (32) (574) (1) (105) (712)
As of 31 December 2015 (228) (11,030) (4,457) (3,008) (18,723)
As of 1 January 2015 33,439 11,549 13,684 12,568 71,240
As of 31 December 2015 36,309 13,213 13,125 12,443 75,090
Goodwill acquired through business combination has been allocated to Upstream and Downstream in the amounts of RUB 25.1 billion and RUB 6.8 billion as of 31 December 2016 (RUB 29.2 billion and RUB 7.1 billion as of 31 December 2015). Goodwill was tested for impairment and no impairment was identified.
The carrying values of the investments in associates and joint ventures as of 31 December 2016 and 2015 are summarised below:
Slavneft Joint venture 49.9 97,084 83,301
SeverEnergy Joint venture 46.7 86,599 72,128
Northgas Joint venture 50.0 11,517 8,196
Others 6,348 5,986
Total investments 201,548 169,611
The principal place of business of the most significant joint ventures and associates disclosed above is the Russian Federation. The reconciliation of carrying amount of investments in associates and joint ventures as of the beginning of the reporting period and as of the end of the reporting period is shown below:
Carrying amount as of 1 January 169,611 150,727
Share of profit of associates and joint ventures 34,116 24,956
Dividends declared (3,152) (2,862)
Share of other comprehensive (loss) / income of associates and joint ventures (174) 141
Other changes in cost of associates and joint ventures 1,147 (3,351)
Carrying amount as of 31 December 201,548 169,611
The total amount of dividends received from joint ventures in 2016 amounts to RUB 3,144 million (RUB 2,415 million in 2015).
The Group’s investment in NGK Slavneft OJSC and various minority stakes in Slavneft subsidiaries (Slavneft) are held through a series of legal entities. Slavneft is engaged in exploration, production and development of crude oil and gas and production of refined petroleum products. The control over Slavneft is divided equally between the Group and NK Rosneft PJSC.
The Group’s investment in SeverEnergy LLC (SeverEnergy) is held through Yamal Razvitie LLC (Yamal Razvitie, an entity jointly controlled by the Group and NOVATEK PJSC). SeverEnergy, through its subsidiary Arctic Gas Company OJSC (Arcticgas), is developing the Samburgskoye, Urengoiskoe and Yaro-Yakhinskoye oil and gas condensate fields and some other small oil and gas condensate fields located in the Yamalo-Nenetskiy autonomous region of the Russian Federation.
The carrying amount of the Group’s investment exceeds the Group’s share in the underlying net assets of SeverEnergy by RUB 18.2 billion as of 31 December 2016 due to complex holding structure, current financing scheme and goodwill arising on acquisition (RUB 18.3 billion as of 31 December 2015).
The Group’s investment in Northgas CJSC (Northgas) is held through Gazprom Resource Northgas LLC which is controlled by the Group based on signed management agreement and charter documents. Gazprom Resource Northgas LLC owns a 50% share in Northgas. Northgas is engaged in development of natural gas and oil field.
The summarised financial information for the significant associates and joint ventures as of 31 December 2016 and 2015 and for the years ended 31 December 2016 and 2015 is presented in the table below.
Cash and cash equivalents 4,333 8,078 13,530 13,875 277 2,160
Other current assets 22,505 15,830 16,506 13,941 3,280 3,131
Non-current assets 312,935 288,077 357,480 363,513 52,986 49,695
Current financial liabilities (46,727) (49,748) (53,439) (31,762) (2,677) (6,110)
Other current liabilities (25,368) (18,294) (12,368) (9,309) (54) (2,001)
Non-current financial liabilities (42,876) (54,562) (123,252) (185,376) (24,990) (24,841)
Other non-current liabilities (36,587) (30,034) (51,995) (49,297) (4,415) (3,645)
Net assets 188,215 159,347 146,462 115,585 24,407 18,389
Year ended 31 Dec. 2015
Revenue 214,509 224,224 133,229 125,450 25,692 28,888
Depreciation and amortisation (33,732) (32,169) (23,445) (20,786) (2,600) (2,328)
Finance income 1,652 2,074 1,080 2,354 1,332 1,151
Finance expense (6,593) (5,279) (26,100) (36,041) (3,697) (5,275)
Total income tax expense (6,224) (6,486) (3,447) (3,570) (1,608) (2,004)
Profit for the period 29,101 19,566 30,877 20,991 6,019 8,008
Total comprehensive income 28,698 19,054 30,877 20,991 6,019 8,008
The aggregate carrying amount of all individually immaterial joint ventures and associates as well as the Group’s share of those joint ventures’ and associates’ profit or loss and other comprehensive income is not significant.
15. Joint operations
Under IFRS 11 Joint Arrangements the Group assessed the nature of its 50% share in joint arrangements and determined investments in Tomskneft and Salym Petroleum Development as Joint operations. Tomskneft and Salym Petroleum Development are engaged in production of oil and gas in the Russian Federation and all of the production is required to be sold to the parties of the joint arrangement (that is, the Group and its partners).
16. Long-term financial assets
Long-term financial assets as of 31 December 2016 and 2015 comprise the following:
Long-term loans issued 34,015 41,047
Available for sale financial assets 7,549 11,534
Financial assets held to maturity – 3
Less impairment provision (1,397) (1,700)
Total long-term financial assets 40,167 50,884
17. Deferred income tax assets and liabilities
Recognised deferred tax assets and liabilities are attributable to the following:
Property, plant and equipment 5,424 (96,586) (91,162)
Intangible assets 1 (3,662) (3,661)
Investments 719 (988) (269)
Inventories 894 (962) (68)
Trade and other receivables 2,321 (30) 2,291
Loans and borrowings – (2,152) (2,152)
Provisions 7,258 (8) 7,250
Tax loss carry-forwards 14,152 – 14,152
Other 2,857 (2,546) 311
Net-off (25,587) 25,587 –
Tax assets / (liabilities) 8,039 (81,347) (73,308)
Property, plant and equipment 11,775 (93,593) (81,818)
Intangible assets 6 (3,887) (3,881)
Investments 732 (630) 102
Inventories 747 (997) (250)
Trade and other receivables 611 (27) 584
Loans and borrowings – (1,066) (1,066)
Provisions 5,498 (29) 5,469
Tax loss carry-forwards 32,896 – 32,896
Other 2,897 (1,586) 1,311
Net-off (33,063) 33,063 –
Tax assets / (liabilities) 22,099 (68,752) (46,653)
Movement in temporary differences during the period:
As of 1 January 2016
Acquired/ disposed of
Property, plant and equipment (81,818) (12,029) 2,684 1 (91,162)
Intangible assets (3,881) 290 – (70) (3,661)
Investments 102 (108) (263) – (269)
Inventories (250) 182 – – (68)
Trade and other receivables 584 1,827 (120) – 2,291
Loans and borrowings (1,066) (1,086) – – (2,152)
Provisions 5,469 1,911 (130) – 7,250
Tax loss carry-forwards 32,896 (18,587) (164) 7 14,152
Other 1,311 (924) (78) 2 311
(46,653) (28,524) 1,929 (60) (73,308)
Property, plant and equipment (64,043) (14,552) (3,346) 123 (81,818)
Intangible assets (4,137) 256 – – (3,881)
Investments 1,715 1,132 (2,745) – 102
Inventories (516) 266 – – (250)
Trade and other receivables 330 183 71 – 584
Loans and borrowings (1,132) 66 – – (1,066)
Provisions 2,989 2,368 28 84 5,469
Tax loss carry-forwards 13,958 19,088 (150) – 32,896
Other 1,264 (33) 82 (2) 1,311
(49,572) 8,774 (6,060) 205 (46,653)
18. Other non-current assets
Other non-current assets are primarily comprised of advances provided on capital expenditures (RUB 97.2 billion and RUB 55.2 billion as of 31 December 2016 and 2015, respectively).
In 2016 the Group transferred advances for tanker vessels to a third party under agreement of novation with the intention to lease the vessels back under finance lease agreements. The cash inflow from the transaction in the amount of RUB 11.2 billion is presented as proceeds from sale of other non-current assets in the Consolidated Statement of Cash Flows.
19. Short-term debt and current portion of long-term debt
As of 31 December 2016 and 2015 the Group has short-term loans and current portion of long-term debt outstanding as follows:
Bank loans 6,321 24,193
Other borrowings 1,061 1,731
Current portion of long-term debt 72,805 121,395
Total short-term debt and current portion of long-term debt 80,187 147,319
In 2015 the Group obtained revolving loan USD 300 million under the club term and revolving facilities agreement with a number of banks (facility agent – Commerzbank) at an interest rate of Libor +1% per annum. In September 2016 the Group performed full repayment according to the payment schedule.
Short-term bank loans and other borrowings include interest payable on short-term debt. Current portion of long-term debt includes interest payable on long-term borrowings.
Accounts payable as of 31 December 2016 and 2015 comprise the following:
Trade accounts payable 78,161 76,372
Forward contracts - cash flow hedge 11,358 23,545
Dividends payable 2,115 2,659
Other accounts payable 3,990 2,254
Total trade and other payables 95,624 104,830
21. Other current liabilities
Other current liabilities as of 31 December 2016 and 2015 comprise the following:
Advances received 21,293 23,008
Payables to employees 2,627 2,864
Other non-financial payables 4,760 6,998
Total other current liabilities 28,680 32,870
22. Other taxes payable
Other taxes payable as of 31 December 2016 and 2015 comprise the following:
Mineral extraction tax 25,261 14,898
VAT 20,140 17,578
Excise tax 11,389 6,738
Social security contributions 4,721 4,275
Other taxes 5,748 5,522
Total other taxes payable 67,259 49,011
Tax expense other than income tax expense for the years ended 31 December 2016 and 2015 comprise the following:
Year ended31 December 2016
Mineral extraction tax 237,300 256,477
Excise tax 112,102 68,358
Social security contributions 18,530 15,599
Other taxes 13,199 12,711
Total taxes other than income tax 381,131 353,145
23. Provisions and other accrued liabilities
Movement in provisions and other accrued liabilities for the years ended 31 December 2016 and 2015 is below:
Carrying amount as of 1 January 2015 23,456 20,984 44,440
Short-term part 168 18,396 18,564
Long-term part 23,288 2,588 25,876
New obligation incurred 2,085 8,634 10,719
Utilisation of provision / accrual (123) (11,557) (11,680)
Change in estimates (2,939) – (2,939)
Unwind of discount 2,172 – 2,172
Translation differences 1,446 845 2,291
Carrying amount as of 31 December 2015 26,097 18,906 45,003
Short-term part 121 13,817 13,938
Long-term part 25,976 5,089 31,065
New obligation incurred 5,783 13,134 18,917
Utilisation of provision / accrual (182) (5,665) (5,847)
Change in estimates 3,987 – 3,987
Unwind of discount 2,308 – 2,308
Translation differences (1,632) (1,388) (3,020)
Carrying amount as of 31 December 2016 36,361 24,987 61,348
Short-term part 151 15,255 15,406
Long-term part 36,210 9,732 45,942
24. Long-term debt
As of 31 December 2016 and 2015 the Group has long-term outstanding loans as follows:
Bank loans 348,142 451,887
Loan participation notes 231,250 280,193
Bonds 81,879 51,748
Other borrowings 7,755 8,346
Less current portion of long-term debt (72,805) (121,395)
Total long-term debt 596,221 670,779
In May 2011 the Group signed a USD 870 million Club term loan facility with the syndicate of international banks (facility agent – SMBC) at an interest rate of Libor+1.5% per annum and final maturity date in September 2016. In February and August 2016 the Group performed principal repayment in the total amount of USD 348.0 million (RUB 24.6 billion) according to the payment schedule. The loan is fully repaid.
In July 2012 the Group signed EUR 258 million ECA-covered term loan facility with the group of international banks (facility agent – HSBC) at an interest rate of Euribor+1.45% per annum and final maturity date in December 2022. During 2016 the Group performed principal repayment in the total amount of EUR 25.8 million (RUB 1.8 billion) according to the payment schedule. The outstanding balance as of 31 December 2016 is EUR 154.8 million (RUB 9.9 billion).
In April 2013 the Group signed USD 700 million club term loan facility with the group of international banks (facility agent – Commerzbank) at an interest rate of Libor+1.75% per annum and final maturity date in October 2018. In March and September 2016 the Group performed partial principal repayment in the total amount of USD 200 million (RUB 13.2 billion) according to the payment schedule. The outstanding balance as of 31 December 2016 is USD 400 million (RUB 24.3 billion).
In November 2013 the Group signed USD 2,150 million club term loan facility with the group of international banks (facility agent – Mizuho) at an interest rate of Libor+1.50% per annum and final maturity date in March 2019. In March and September 2016 the Group performed partial principal repayment in the total amount of USD 614 million (RUB 41.5 billion) according to the payment schedule. The outstanding balance as of 31 December 2016 is USD 1,536 million (RUB 93.3 billion).
In September 2014 the Group signed a RUB 30 billion term loan facility with Rosselkhozbank JSC at an interest rate of 11.9% per annum and final maturity date in September 2019. In June and December 2016 the Group performed pre-scheduled repayment. As of 31 December 2016 the term loan facility is fully repaid.
In September 2014 the Group signed RUB 35.0 billion term loan facilities with Sberbank PJSC with final maturity date in September 2019. As of 31 December 2016, the interest rates vary from 10.98% to 11.08% per annum and the outstanding balance is RUB 35.0 billion.
In March 2015 the Group signed USD 350 million term loan facilities with one of the Russian privately owned banks due in September 2020 at an interest rate of Libor +5% per annum. In December 2016 the Group made an amendment of the term loan facilities to revolving loan facilities. As of 31 December 2016 the outstanding balance is RUB 0.
In first half 2015 the Group signed several long-term facility agreements with final settlement in August 2019. As of 31 December 2016 the amount outstanding is RUB 60.7 billion.
In August 2015 the Group signed a long-term facility agreement in the amount of RUB 13.9 billion with Sberbank. The interest rate is determined as the interest rate offered to the Russian local bank by the Central Bank of Russia for refinancing of loan provided under this agreement in accordance with the Program of support of investment projects + margin 2.5% per annum (the margin was lowered to 1,5% from 18 January 2017); the final maturity date is August 2025. The outstanding balance as of 31 December 2016 is RUB 7.2 billion.
In February and October 2016 the Group signed several long-term facility agreements with PJCS Bank VTB with the due dates in June - December 2021. As of 31 December 2016 the Group borrowed RUB 49.6 billion under the agreements.
In November 2016 the Group signed term loan facilities with Sberbank with final maturity date in November 2021 at an interest rate of 10.28-10,3% per annum. In 2016 the Group borrowed RUB 30.0 billion under the agreements.
In November 2016 the Group signed a long-term facility agreement with Sberbank PJSC with the final maturity date in November 2022. As of 31 December 2016 the outstanding balance is RUB 7.7 billion.
The loan agreements contain one financial covenant that limits the Group’s ratio of ‘Consolidated financial indebtedness to Consolidated EBITDA’. The Group is in compliance with the covenant as of 31 December 2016.
In February 2016 the Group redeemed Rouble bonds (series 8, 9 and 11) with the total par value of RUB 30 billion, including RUB 9.6 billion of series 11 repurchased by the Group in February 2015.
In March 2016 the Group placed thirty-year Rouble exchange traded bonds (series BO-02 and BO-07) with the total par value of RUB 25 billion. The bonds bear interest of 10.65% per annum. The issue has an embedded five-year put-option, providing the bondholders with the right to make the Group to repurchase them, and a two-year call option, allowing the early redemption of the bonds at the Group’s decision.
In June 2016 the Group placed thirty-year Rouble exchange traded bonds (series BO-03) with the total par value of RUB 10 billion. The bonds bear interest of 9.8% per annum. The issue has an embedded three-year put-option, providing the bondholders with the right to make the Group to repurchase them.
In August 2016 the Group placed thirty-year Rouble exchange traded bonds (series BO-01 and BO-04) with the total par value of RUB 15 billion. The bonds bear interest of 9.4% per annum. The issue has an embedded five-year put-option, providing the bondholders with the right to make the Group to repurchase them.
As of 31 December 2016 the outstanding balance of Rouble Bonds placed in 2009, 2011, 2012 and 2016 is RUB 81.9 billion. The bonds bear interest of 8.2-10.65% per annum and are due for repayment in 2017-2021.
In years 2012 and 2013 the Group raised USD 3,000 million and EUR 750 million by issuing 10 years USD and 5 years EUR Loan Participation Notes. The outstanding balance as of 31 December 2016 is RUB 232.4 billion.
25. Other non-current financial liabilities
Other non-current financial liabilities as of 31 December 2016 and 31 December 2015 comprise the following:
Deferred consideration 60,384 60,603
Forward contracts - cash flow hedge 28,015 52,714
Other liabilities 1,345 2,058
Total other non-current financial liabilities 89,744 115,375
Deferred consideration represents liability to Gazprom PJSC for assets relating to Prirazlomnoye project. In December 2016 the payment schedule was extended. The effect of the change in carrying value of liability due to the contract term revision in amount of RUB 6.8 billion was reflected in additional paid-in capital.
26. Share capital and treasury shares
Share capital as of 31 December 2016 and 2015 comprise the following:
Number of shares (million) 4,741 4,741 23 23
Authorised shares (million) 4,741 4,741 23 23
Par value (RUB per share) 0.0016 0.0016 0.0016 0.0016
On issue as of 31 December, fully paid (RUB million) 8 8 (1,170) (1,170)
The nominal value of share capital differs from its carrying value due to the effect of inflation.
On 10 June 2016 the annual general shareholders’ meeting of Gazprom Neft PJSC approved a dividend on the ordinary shares for 2015 in the amount of RUB 6.47 per share.
On 30 September 2015 the general shareholders’ meeting of Gazprom Neft PJSC approved an interim dividend on the ordinary shares for the six months ended 30 June 2015 in the amount of RUB 5.92 per share.
On 5 June 2015 the annual general shareholders’ meeting of Gazprom Neft PJSC approved a dividend on the ordinary shares for 2014 in the amount of RUB 6.47 per share.
27. Employee costs
Employee costs for the years ended 31 December 2016 and 2015 comprise the following:
Wages and salaries 66,987 71,288
Stock appreciation rights (SAR) 3,730 657
Other costs 6,751 5,103
Total employee costs 77,468 77,048
Social security contributions (social taxes) 18,530 15,593
Total employee costs (with social taxes) 95,998 92,641
28. Other loss / gain, net
Other loss / gain, net for the years ended 31 December 2016 and 2015 comprise the following:
Impairment of advances and other receivables (11,546) 1,041
Write-off of assets (4,456) (7,772)
Penalties 277 4
Write-off payables 243 16,107
Other losses, net (2,500) (7,886)
Total other (loss) / gain, net (17,982) 1,494
Loss from impairement of advances and other receivables mainly relates to allowance for impairment in respect of advances given to a brokerage company.
29. Net foreign exchange gain / loss
Net foreign exchange gain / loss for the years ended 31 December 2016 and 2015 comprise the following:
Net foreign exchange gain / (loss) on financing activities, including: 69,159 (111,816)
foreign exchange gain 101,320 53,989
foreign exchange loss (32,161) (165,805)
Net foreign exchange (loss) / gain on operating activities (40,859) 43,906
Net foreign exchange gain / (loss) 28,300 (67,910)
30. Finance income
Finance income for the years ended 31 December 2016 and 2015 comprise the following:
Interest income on loans issued 7,630 7,383
Interest on bank deposits 1,885 5,076
Other financial income 1,556 2,273
Total finance income 11,071 14,732
31. Finance expense
Finance expense for the years ended 31 December 2016 and 2015 comprise the following:
Interest expense 45,814 40,411
Decommissioning provision: unwinding of discount 2,308 2,172
Less: capitalised interest (13,840) (8,640)
Finance expense 34,282 33,943
32. Income tax expense
The Group’s applicable income tax rate for the companies located in the Russian Federation is 20%.
Total income tax expense 55,751 21.2 34,943 23.1
Profit before income tax excluding share of profit before tax of associates and joint ventures 225,423 120,494
Profit before income tax of associates and joint ventures 37,720 30,645
Profit before income tax 263,143 151,139 –
Tax at applicable domestic tax rate (20%) 52,629 20.0 30,228 20.0
Effect of tax rates in foreign jurisdictions 2,363 0.9 > 3,892 2.6
Difference in statutory tax rate in domestic entities (4,290) (1.6) (2,983) (2.0)
Non-deductible income and expenses 3,220 1.2 3,517 2.3
Adjustment for prior years (232) (0.1) 2,803 1.9
Change in tax rate 714 0.3 – –
Foreign exchange loss / (gain) of foreign non-operating units 1,347 0.5 (2,514) (1.7)
Current year 19,318 34,057
Adjustment for prior years 1,972 3,969
21,290 38,026
Deferred income tax expense / (benefit)
Origination and reversal of temporary differences 27,810 (8,774)
Change in tax rate 714 –
28,524 (8,774)
Total income tax expense 49,814 29,252
Share of tax of associates and joint ventures 5,937 5,691
Total income tax expense including share of tax of associates and joint ventures 55,751 34,943
33. Cash flow hedges
The following table indicates the periods in which the cash flows associated with cash flow hedges are expected to occur and the fair value of the related hedging instrument:
Assets 91 91 – – –
Liabilities (39,373) (692) (10,667) (25,232) (2,782)
Total (39,282) (601) (10,667) (25,232) (2,782)
Liabilities (76,258) (22,609) (935) (49,280) (3,434)
Total (76,258) (22,609) (935) (49,280) (3,434)
As of 31 December 2016 and 2015 the Group has outstanding forward currency exchange contracts and interest rate swaps for a total notional value of US Dollars 2,166 million and US Dollars 2,830 million respectively. During the year ended 31 December 2016 loss in the amount of RUB 26,281 million was reclassified from equity to net foreign exchange gain / (loss) in the Consolidated Statement of Profit and Loss and Other Comprehensive Income (RUB 13,044 million for the year ended 31 December 2015).
The impact of foreign exchange cash flow hedges recognized in other comprehensive income is set out below:
Total recognised in other comprehensive (loss) / income as of the beginning of the year (76,258) 10,498 (65,760) (58,312) 1,885 (56,427)
Foreign exchange effects recognised during the year 10,695 (2,025) 8,670 (30,990) 5,819 (25,171)
Recycled to Net foreign exchange (loss) / gain on operating activities 26,281 (3,450) 22,831 13,044 (1,382) 11,662
Tax adjustments related to prior years – – – – 4,176 4,176
Total recognised in other comprehensive (loss) / income for the year 36,976 (5,475) 31,501 (17,946) 8,613 (9,333)
Total recognised in other comprehensive (loss) / income as of the closing of the year (39,282) 5,023 (34,259) (76,258) 10,498 (65,760)
A schedule of the expected reclassification of the accumulated foreign exchange loss from other comprehensive income to profit or loss as of 31 December 2016 is presented below:
Total, net of tax (10,023) (21,644) (2,592) (34,259)
The Group uses an estimation of the fair value of forward currency exchange contracts prepared by independent financial institutes. Valuation results are regularly reviewed by the Management. No significant ineffectiveness occurred during the reporting period.
Gazprom Neft Group has a risk management policy that defines the goals and principles of risk management in order to make the Group’s business more secure in both the short and the long term.
The Group’s goal in risk management is to increase effectiveness of Management decisions through detailed analysis of related risks.
The Group’s Integrated Risk Management System (IRMS) is a systematic continuous process that identifies, assesses and manages risks. Its key principle is that responsibility to manage different risks is assigned to different management levels depending on the expected financial impact of those risks. The Group is working continuously to improve its approach to basic IRMS processes, with special focus on efforts to assess risks and integrate the risk management process into such key corporate processes as business planning, project management and mergers and acquisitions. v
Management of the Group’s financial risks is the responsibility of employees acting within their respective professional spheres. The Group’s Financial Risk Management Panel defines a uniform approach to financial risk management at the Company and its subsidiaries. Activities performed by the Group’s employees and the Financial Risk Management Panel minimise potential financial losses and help to achieve corporate targets.
In the normal course of its operations the Group has exposure to the following financial risks:
market risk (including currency risk, interest rate risk and commodity price risk);
The Group is exposed to currency risk primarily on borrowings that are denominated in currencies other than the respective functional currencies of Group entities, which are primarily the local currencies of the Group companies, for instance the Russian Rouble for companies operating in Russia. The currency in which these borrowings are denominated in is mainly US Dollar.
The Group’s currency exchange risk is considerably mitigated by its foreign currency assets and liabilities: the current structure of revenues and liabilities acts as a hedging mechanism with opposite cash flows offsetting each other. The Group applies hedge accounting to manage volatility in profit or loss with its cash flows in foreign currency and hedges predominantly its borrowings.
The carrying amounts of the Group’s financial instruments by currencies they are denominated in are as follows:
Cash and cash equivalents 10,811 12,024 3,061 5,685 2,040
Bank deposits 56 341 215 – 274
Loans issued 41,007 16 113 – –
Forward exchange contracts – 91 – – –
Trade and other financial receivables 39,243 55,595 6,341 12,495 1,885
Trade and other financial receivables 797 – 4,332 – –
Loans issued 33,895 – 120 – –
Available for sale financial assets 6,083 – – 69 –
Short-term debt (18,353) (50,981) (10,826) – (13)
Trade and other financial payables (59,004) (11,750) (6,071) (6,072) (1,369)
Forward exchange contracts – (11,358) – – –
Long-term debt (191,103) (329,248) (75,418) – (287)
Forward exchange contracts – (28,015) – – –
Other non-current financial liabilities (61,728) – (1) – –
Net exposure (198,296) (363,285) (78,134) 12,177 2,530
Cash and cash equivalents 22,142 81,112 2,514 6,271 2,159
Bank deposits 1,956 45,959 636 – 655
Loans issued 15,728 – 74 – –
Trade and other financial receivables 37,553 35,464 6,063 14,716 1,445
Trade and other financial receivables 1,184 – 7,684 – –
Loans issued 33,983 6,959 91 – –
Held to maturity financial assets – 3 – – –
Available for sale financial assets 9,748 – – 99 –
Short-term debt (23,774) (117,713) (5,813) – (19)
Trade and other financial payables (57,946) (9,046) (4,133) (8,076) (2,084)
Forward exchange contracts – (23,545) – – –
Long-term debt (107,072) (479,958) (83,255) (1) (493)
Forward exchange contracts – (52,713) – – –
Other non-current financial liabilities (62,654) (7) – – –
Net exposure (129,152) (513,485) (76,139) 13,009 1,663
The following exchange rates applied during the period:
USD 1 60.66 72.88
EUR 1 63.81 79.70
RSD 1 0.52 0.66
The Group has chosen to provide information about market and potential exposure to hypothetical gain / (loss) from its use of financial instruments through sensitivity analysis disclosures.
The sensitivity analysis shown in the table below reflects the hypothetical effect on the Group’s financial instruments and the resulting hypothetical gains/losses that would occur assuming change in closing exchange rates and no changes in the portfolio of investments and other variables at the reporting dates.
Weakening of RUB
USD/RUB (30% increase) 988 (98,662)
EUR/RUB (30% increase) (4) (23,588)
RSD/RUB (30% increase) (21,572) –
USD/RUB (30% increase) (19,357) (135,791)
EUR/RUB (30% increase) (3) (22,923)
RSD/RUB (30% increase) (19,891) (2)
Decrease in the exchange rates will have the same effect in the amount, but the opposite effect on Equity and Profit and loss of the Group.
Part of the Group’s borrowings is at variable interest rates (linked to the Libor or Euribor rate). To mitigate the risk of unfavourable changes in the Libor or Euribor rates, the Group’s treasury function monitors interest rates in debt markets and based on it decides whether it is necessary to hedge interest rates or to obtain financing on a fixed-rate or variable-rate basis.
Changes in interest rates primarily affect debt by changing either its fair value (fixed rate debt) or its future cash flows (variable rate debt). However, at the time of any new debts Management uses its judgment and information about current/expected interest rates on the debt markets to decide whether it believes fixed or variable rate would be more favourable over the expected period until maturity.
The interest rate profiles of the Group are presented below:
Financial assets 109,645 220,239
Financial liabilities (501,086) (474,639)
(391,441) (254,400)
Financial liabilities (175,143) (343,459)
(175,143) (343,459)
The Group’s financial results and equity are sensitive to changes in interest rates. If the interest rates applicable to floating debt increase by 100 basis points (bp) at the reporting dates, assuming all other variables remain constant, it is estimated that the Group’s profit before taxation will change by the amounts shown below:
Increase by 100 bp (1,751)
Increase by 100 bp (3,435)
A decrease by 100 bp in the interest rates will have the same effect in the amount, but the opposite effect on Profit and loss of the Group.
The Group’s financial performance relates directly to prices for crude oil and petroleum products. The Group is unable to fully control the prices of its products, which depend on the balance of supply and demand on global and domestic markets for crude oil and petroleum products, and on the actions of supervisory agencies.
The Group’s business planning system calculates different scenarios for key performance factors depending on global oil prices. This approach enables Management to adjust cost by reducing or rescheduling investment programs and other mechanisms.
Such activities help to decrease risks to an acceptable level.
Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations, and arises principally from the Group’s receivables from customers and in connection with investment securities.
The Group’s trade and other receivables relate to a large number of customers, spread across diverse industries and geographical areas. Gazprom Neft has taken a number of steps to manage credit risk, including: counterparty solvency evaluation; individual credit limits and payment conditions depending on each counterparty’s financial situation; controlling advance payments; controlling accounts receivable by lines of business, etc.
The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. Credit limit is established for each customer individually as maximum amount of credit risk taking into account a number of characteristics, such as:
financial statements of the counterparty;
history of relationships with the Group;
planned sales volume;
duration of relationships with the Group, including ageing profile, maturity and existence of any financial difficulties.
As a rule, an excess of receivables over approved credit limit is secured by either bank guarantee, letter of credit from a bank, pledge, third party guarantee or advance payment.
The Management of the Group regularly assesses the credit quality of trade and other receivables taking into account analysis of ageing profile of recevables and duration of relationships with the Group.
Management believes that not impaired trade receivables and other current assets are fully recoverable.
As of 31 December 2016 and 2015, the ageing analysis of financial receivables is as follows:
Not past due 113,222 (8) 95,916 (134)
Past due 0 - 180 days 3,828 (272) 11,190 (4,796)
Past due 180 - 365 days 3,566 (89) 3,199 (3,012)
Past due 1 - 3 year 7,206 (6,898) 7,976 (6,371)
Past due more than three years 5,140 (5,007) 10,412 (10,272)
132,962 (12,274) 128,693 (24,585)
The movement in the allowance for impairment in respect of trade and other receivables during the period was as follows:
Balance at the beginning of the year 24,585 12,976
Increase during the year 528 6,284
Amounts written off against receivables (5,520) 110
Decrease due to reversal (2,614) (4,426)
Reclassification to other lines (1,212) 7,946
Other movements (50) (610)
Translation differences (3,443) 2,305
Balance at the end of the year 12,274 24,585
The movement in the allowance for impairment in respect of other current assets during the period was as follows:
Balance at the beginning of the year 8,993 16,951
Increase during the year 10,770 1,410
Amounts written off against receivables (5,851) (4,047)
Decrease due to reversal (1,239) –
Reclassification to other lines 1,212 (7,946)
Other movements 2 903
Translation differences (1,917) 1,722
Balance at the end of the year 11,970 8,993
In 2016 the Group recognised an allowance for impairment in respect of advances given to a brokerage company.
Release in provision in respect of trade and other receivables and other current assets during 2016 in the amount of RUB 3.9 billion mainly relates to the positive outcome of negotiations with the Serbian Government for collection of receivables from Serbian state owned companies. The negotiations ended in adoption of the Law on taking over the receivables by the Government. As a result the receivables were restructured and the Group will collect them in the following two years. In December 2016 the Group received the first instalment.
The Group limits its exposure to credit risk mainly by investing in liquid securities. Management actively monitors credit ratings and does not expect any counterparty to fail to meet its obligations.
The Group does not have any held-to-maturity investments that were past due but not impaired as of 31 December 2016 and 2015.
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates:
Cash and cash equivalents 2,402 20,333 7,196 29,931
Short-term loans issued – – 41,136 41,136
Deposits with original maturity more than 3 months less than 1 year – 886 – 886
Long-terms loans issued – – 34,015 34,015
Cash and cash equivalents 84,361 19,825 5,642 109,828
Short-term loans issued – – 15,802 15,802
Deposits with original maturity more than 3 months less than 1 year 42,652 6,554 – 49,206
Long-terms loans issued – – 41,047 41,047
Liquidity risk is the risk that the Group will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.
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 losses or risking damage to the Group’s reputation. In managing its liquidity risk, the Group maintains adequate cash reserves and actively uses alternative sources of loan financing in addition to bank loans. The Group’s stable financial situation helps it to mobilise funds.
The following are the contractual maturities of financial liabilities, including estimated interest payments:
Bank loans 354,463 423,818 38,717 57,491 117,135 191,904 18,571
Bonds 81,879 107,991 6,063 14,155 16,431 71,342 –
Loan Participation Notes 231,250 298,019 8,252 4,720 58,029 28,322 198,696
Other borrowings 8,637 11,182 398 988 5,269 1,942 2,585
Other non-current financial liabilities 61,729 61,729 – – 5,853 55,876 –
Trade and other payables 84,266 84,266 81,736 2,362 20 148 –
822,224 987,005 135,166 79,716 202,737 349,534 219,852
Bank loans 476,080 540,886 67,680 68,683 108,054 282,073 14,396
Bonds 51,748 63,783 25,678 2,159 14,272 21,674 –
Loan Participation Notes 280,193 363,090 10,104 5,672 12,509 94,967 239,838
Other borrowings 10,077 11,928 5,024 690 2,807 1,413 1,994
Other non-current financial liabilities 62,662 62,662 – – 60,601 2,061 –
Trade and other payables 81,285 81,285 78,774 2,511 – – –
962,045 1,123,634 187,260 79,715 198,243 402,188 256,228
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern, to provide sufficient return for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure the Group may revise its investment program, attract new or repay existing loans or sell certain non-core assets.
On the Group level capital is monitored on the basis of the net debt to EBITDA ratio and return on the capital on the basis of return on average capital employed ratio (ROACE). Net debt to EBITDA ratio is calculated as net debt divided by EBITDA. Net debt is calculated as total debt, which includes long and short term loans, less cash and cash equivalents and short term deposits. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortisation, foreign exchange gain (loss), other non-operating expenses and includes the Group’s share of profit of equity accounted investments. ROACE is calculated in general as Operating profit adjusted for income tax expense divided by the average for the period figure of Capital Employed. Capital employed is defined as total equity plus net debt.
The Group’s net debt to EBITDA ratios at the end of the reporting periods were as follows:
Long-term debt 596,221 670,779
Short-term debt and current portion of long-term debt -> 80,187 147,319
Less: cash, cash equivalents and deposits (34,507) (163,404)
Net debt 641,901 654,694
Total EBITDA 402,277 345,160
Net debt to EBITDA ratio at the end of the reporting period 1.60 1.90
Operating profit 220,334 207,615
Operating profit adjusted for income tax expenses 171,645 157,213
less share of profit of associates and joint ventures 34,116 24,956
Average capital employed 1,994,626 1,733,285
ROACE 10.32% 10.51%
There were no changes in the Group’s approach to capital management during the period.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an ordinary transaction between market participants at the measurement date.
The following assets and liabilities are measured at fair value in the Group’s Consolidated Financial Statements:
Derivative financial instruments (forward exchange contracts and interest-rate swaps used as hedging instruments),
Stock Appreciation Rights plan (SAR),
Financial investments classified as available for sale except for unquoted equity instruments whose fair value cannot be measured reliably that are carried at cost less any impairment losses.
Derivative financial instruments and SAR refer to Level 2 of the fair value measurement hierarchy, i.e. their fair value is determined on the basis of inputs that are observable for the asset or liability either directly (as prices) or indirectly (derived from prices). There were no transfers between the levels of the fair value hierarchy during the year ended 31 December 2016 and 2015. There are no significant assets or liabilities measured at fair value categorised within Level 1 or Level 3 of the fair value hierarchy. The fair value of the foreign exchange contracts is determined by using forward exchange rates at the reporting date with the resulting value discounted back to present value.
As of 31 December 2016 the fair value of bonds and loan participation notes is RUB 315,488 million (RUB 307,493 million as of 31 December 2015). The fair value is derived from quotations in active market and related to Level 1 of the fair value hierarchy. The carrying value of other financial assets and liabilities approximate their fair value.
The table below analyses financial instruments carried at fair value, which refer to Level 2 of the fair value hierarchy.
Forward exchange contracts 91
Total assets 91
Forward exchange contracts (39,373)
Other financial liabilities (3,730)
Total liabilities (43,103)
Forward exchange contracts –
Total assets –
Forward exchange contracts (76,258)
Other financial liabilities (657)
Total liabilities (76,915)
The Company implements a cash-settled stock appreciation rights (SAR) compensation plan. The plan forms part of the long term growth strategy of the Group and is designed to reward Management for increasing shareholder value over a specified period. Shareholder value is measured by reference to the Group’s market capitalisation. The plan is open to selected Management provided certain service conditions are met. The awards are fair valued at each reporting date and are settled in cash at the conclusion of the three years vesting period. The awards are subject to certain market and service conditions that determine the amount that may ultimately be paid to eligible employees. The expense recognised is based on the vesting period. In 2015 the new three years period of SAR plan commenced.
The fair value of the liability under the plan is estimated using the Black-Scholes-Merton option-pricing model by reference primarily to the Group’s share price, historic volatility in the share price, dividend yield and interest rates for periods comparable to the remaining life of the award. Any changes in the estimated fair value of the liability award will be recognised in the period the change occurs subject to the vesting period.
The following assumptions are used in the Black-Scholes-Merton model as of 31 December 2016 and 2015:
Volatility 3.6% 4.1%
Risk-free interest rate 8.7% 10.3%
Dividend yield 5.5% 6.1%
In the Consolidated Statement of Profit and Loss and Other Comprehensive Income for the year ended 31 December 2016 and 2015 the Group recognised compensation expense of RUB 3,730 million and RUB 657 million, respectively. This expense is included within selling, general and administrative expenses. A provision of RUB 4,387 million has been recorded in respect of the Group’s estimated obligations for two years under the plan as of 31 December 2016. As of 31 December 2015 the amount of the one year provision was equal to RUB 657 million.
35. Operating leases
Less than one year 14,267 8,179
Between one and five years 36,081 17,169
More than five years 95,944 65,404
146,292 90,752
The Group rents mainly land plots under pipelines, office premises and vessels under time-charter agreements.
Russian tax and customs legislation is subject to frequent changes and varying interpretations. Management’s treatment of such legislation as applied to the transactions and activity of the Group, including calculation of taxes payable to federal, regional and municipal budgets, may be challenged by the relevant authorities. The Russian tax authorities may take a more assertive position in their treatment of legislation and assessments, and there is a risk that transactions and activities that have not been challenged in the past may be challenged later. As a result, additional taxes, penalties and interest may be accrued. Generally, taxpayers are subject to tax audits for a period of three calendar years immediately preceding the year in which the decision to carry out a tax audit has been taken. Under certain circumstances tax audits may cover longer periods. The field tax audit with regard to the years 2013 and 2014 is performing now, the years 2015 and 2016 are currently open for tax audit. Management believes it has adequately provided for any probable additional tax accruals that might arise from these tax audits.
Russian tax legislation on tax control over prices applied for tax purposes in related party transactions (‘transfer pricing rules’) was amended starting from 1 January 2012 to introduce significant reporting and documentation requirements regarding market environment at the date of transaction. Compared to the old rules the new transfer pricing rules appear to be more technically elaborate and better aligned with the Transfer Pricing Guidelines developed by the Organisation for Economic Cooperation and Development (OECD). The transfer pricing rules allow the tax authorities to make transfer pricing adjustments to the respective tax bases and impose additional tax liabilities in respect of controllable transactions (transactions with related parties and some transactions with unrelated parties), in cases where the prices of such transactions do not correspond to the ranges of prices deemed to be fair market prices for tax purposes defined in compliance with the said rules.
The compliance of the prices of the Group’s controllable transactions with related parties with the transfer pricing rules is subject to regular internal control. Management believes that the transfer pricing documentation that the Group has prepared to confirm its compliance with the transfer pricing rules provides sufficient evidence to support the Group’s tax positions and related tax returns. In addition in order to mitigate potential risks, the Group regularly negotiates approaches to defining prices used for tax purposes for major controllable transactions with tax authorities in advance. Twelve pricing agreements between the Group and tax authorities regarding major intercompany transactions have been concluded in 2012-2015.
However, given that the practice of enforcement of the new transfer pricing rules has not yet developed and some clauses of the applicable law are ambiguous and contain contradictions, the impact of the transfer pricing rules on the Group’s tax liabilities cannot be reliably estimated.
The Russian Federation displays certain characteristics of an emerging market. Tax, monopoly, currency and customs legislation of the Russian Federation is subject to varying interpretations and contributes to the challenges faced by companies operating in the Russian Federation. The political and economic instability, uncertainty and volatility of the financial markets and other risks may have negative effects on the Russian financial and corporate sectors. The future economic development of the Russian Federation is dependent upon external factors and internal measures undertaken by the government to sustain growth and to change the tax, legal and regulatory environment. Management believes it is taking all necessary measures to support the sustainability and development of the Group’s business in the current business and economic environment.
In 2014 the U.S., the EU and certain other countries imposed sanctions on the Russian energy sector that partially apply to the Group. The information on the main restrictions related to sanctions was disclosed in the Consolidated Financial Statements for 2015. There were no significant changes in sanctions during the year ended 31 December 2016.
The enforcement of environmental regulation in the Russian Federation is evolving and the enforcement posture of government authorities is continually being reconsidered. The Group periodically evaluates its potential obligations under environmental regulation. Management is of the opinion that the Group has met the government’s requirements concerning environmental matters, and therefore the Group does not have any material environmental liabilities.
As of 31 December 2016 the Group has entered into contracts to purchase property, plant and equipment for RUB 323,053 million (RUB 342,544 million as of 31 December 2015).
37. Group entities
The most significant subsidiaries of the Group and the ownership interest are presented below:
Ownership interest. %
Gazprom Neft-Noyabrskneftegaz JSC Russian Federation 100 100
Gazprom Neft Orenburg LLC Russian Federation 100 100
Zapolyarneft LLC Russian Federation 100 100
Gazprom Neft Shelf LLC Russian Federation 100 100
Gazprom Neft-Khantos LLC Russian Federation 100 100
Gazprom Neft-Vostok LLC Russian Federation 100 100
Gazprom neft Yamal LLC Russian Federation 90 90
Uzhuralneftegaz JSC Russian Federation 87.5 87.5
Gazprom Neft-Omsk Refinery JSC Russian Federation 100 100
Gazprom Neft-Moscow Refinery JSC Russian Federation 100 100
Gazpromneft-Tumen PJSC Russian Federation 99.5 99.5
Gazpromneft-Omsk JSC Russian Federation 100 100
Gazpromneft-Ural JSC Russian Federation 100 100
Gazprom Neft-Novosibirsk JSC Russian Federation 100 100
Gazpromneft-Yaroslavl OJSC Russian Federation 92.5 92.5
Gazpromneft-Centre LLC Russian Federation 100 100
Gazpromneft Regional Sales LLC Russian Federation 100 100
Gazprom Neft-Severo-Zapad JSC Russian Federation 100 100
Gazpromneft-Kuzbass JSC Russian Federation 100 100
Gazprom Neft-Aero JSC Russian Federation 100 100
Gazprom Neft Marin Bunker LLC Russian Federation 100 100
Gazpromneft-Lubricants LLC Russian Federation 100 100
Gazpromneft-Bitumen Materials LLC Russian Federation 100 100
Gazpromneft-NTC LLC Russian Federation 100 100
Gazpromneftfinance LLC Russian Federation 100 100
Gazpromneft-Invest LLC Russian Federation 100 100
Naftna industrija Srbije A.D. Serbia 56.2 56.2
The following table summarises the information relating to the non-contrilling interest of Naftna industrija Srbije A.D. and its subsidiaries and Gazprom Resource Northgas LLC. The carrying amount of non-controlling interests of all other subsidiaries are not significant individually.
Naftna industrija Srbije A.D. and its subsidiaries 58,792 71,528 3,273 26,616
Gazprom Resource Northgas LLC 19,502 15,460 3,304 3,319
The table below summarises financial information for Naftna industrija Srbije A.D. and its subsidiaries and Gazprom Resource Northgas LLC as of 31 December 2016 and 2015 and for the years ended 31 December 2016 and 2015:
Naftna industrija Srbije A.D. and its subsidiaries
Gazprom Resource Northgas LLC
Current assets 48,388 56,620 12,346 2,009
Non-current assets 195,271 243,131 11,517 8,197
Current liabilities (35,641) (43,006) (22) (7)
Non-current liabilities (57,136) (76,400) – –
Revenue 189,781 183,022 – –
Profit 7,483 7,071 4,039 4,058
Dividends paid in 2016 by Naftna industrija Srbije A.D. to the non-controlling share comprised RUB 1.0 billion (RUB 2.6 billion in 2015). Gazprom Resource Northgas LLC didn’t pay dividends in 2016 and 2015.
For the purpose of these Consolidated Financial Statements parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operational decisions as defined by IAS 24 Related Party Disclosures. Related parties may enter into transactions which unrelated parties might not, and transactions between related parties may not be effected on the same terms, conditions and amounts as transactions between unrelated parties.
The Group has applied the exemption as allowed by IAS 24 not to disclose all government related transactions, as the parent of the Company is effectively being controlled by the Russian Government. In the course of its ordinary business the Group enters into transactions with natural monopolies, transportation companies and other companies controlled by the Russian Government. Such purchases and sales are individually insignificant and are generally entered into on market or regulated prices. Transactions with the state also include taxes which are detailed in Notes 10, 22 and 32. The tables below summarise transactions in the ordinary course of business with either the parent company or associates and joint ventures.
The Group enters into transactions with related parties based on market or regulated prices. Short-term and long-term loans provided as well as debt are based on market conditions available for not related entities. The tables below summarise transactions in the ordinary course of business with either the parent company or parent’s subsidiaries and associates or associates and joint ventures of the Group.
As of 31 December 2016 and 2015 the outstanding balances with related parties were as follows:
Parent’s subsidiaries and associates
Cash and cash equivalents – 7,723 –
Short-term financial assets – 860 40,381
Trade and other receivables 3,693 4,160 13,212
Other assets 614 4,290 1,224
Long-term financial assets – – 30,273
Total assets 4,307 17,033 85,090
Short-term debt and other current financial liability – – 1,029
Trade and other payables 1,921 3,236 8,066
Other current liabilities 772 392 201
Long-term debt and other non-current financial liability 60,276 60,657 –
Total liabilities 62,969 64,285 9,296
Cash and cash equivalents – 15,402 –
Short-term financial assets – 3,135 14,901
Trade and other receivables 1,232 2,895 17,941
Other assets – 4,527 1,253
Long-term financial assets 10 503 30,791
Total assets 1,242 26,462 64,886
Short-term debt and other current financial liability – – 1,672
Trade and other payables 3,203 2,737 1,567
Other current liabilities 2,107 1,107 241
Long-term debt and other non-current financial liability 62,650 72,883 –
Total liabilities 67,960 76,727 3,480
For the years ended 31 December 2016 and 2015 the following transactions occurred with related parties:
Crude oil, gas and oil products sales 28,680 35,165 48,407
Other revenue 29 6,349 5,571
Purchases of crude oil, gas and oil products – 41,457 98,508
Production related services 29 20,317 18,749
Transportation costs 7,557 1,753 7,106
Interest expense 6,616 3,627 142
Interest income – 167 6,770
Crude oil, gas and oil products sales 18,678 34,597 56,641
Other revenue 8 1,088 31,739
Purchases of crude oil, gas and oil products – 41,799 98,785
Production related services 31 14,332 17,730
Transportation costs 6,000 1,811 8,130
Interest expense 5,993 94 160
Interest income 370 1,588 3,580
For the years ended 31 December 2016 and 2015 remuneration of key management personnel (members of the Board of Directors and Management Committee) such as salary and other contributions amounted RUB 1,635 million and RUB 1,432 million, respectively. Besides the Group implements a long-term stock appreciation rights (SAR) compensation plan. The plan forms part of the long-term growth strategy of the Group and is designed to reward management for increasing shareholder value over a specified period. For the abovementioned periods the provision under the long-term motivation plan for key management amounted RUB 749 million and RUB 132 million.
39. Segment information
Presented below is information about the Group’s operating segments for the years ended 31 December 2016 and 2015. Operating segments are components that engage in business activities that may earn revenues or incur expenses, whose operating results are regularly reviewed by the chief operating decision maker (CODM), and for which discrete financial information is available.
The Group manages its operations in 2 operating segments: Upstream and Downstream.
Upstream segment (exploration and production) includes the following Group operations: exploration, development and production of crude oil and natural gas (including joint ventures results), oil field services. Downstream segment (refining and marketing) processes crude into refined products and purchases, sells and transports crude and refined petroleum products. Corporate centre expenses are presented within the Downstream segment.
Eliminations and other adjustments section encompasses elimination of inter-segment sales and related unrealised profits, mainly from the sale of crude oil and products, and other adjustments.
Intersegment revenues are based upon prices effective for local markets and linked to market prices.
Adjusted EBITDA represents the Group’s EBITDA and its share in associates and joint ventures’ EBITDA. Management believes that adjusted EBITDA represents useful means of assessing the performance of the Group’s ongoing operating activities, as it reflects the Group’s earnings trends without showing the impact of certain charges. EBITDA is defined as earnings before interest, income tax expense, depreciation, depletion and amortisation, foreign exchange gain (loss), other non-operating expenses and includes the Group’s share of profit of associates and joint ventures. EBITDA is a supplemental non-IFRS financial measure used by Management to evaluate operations.
External customers 131,242 1,414,366 – 1,545,608
Inter-segment 523,155 18,463 (541,618) –
Total revenue from sales 654,397 1,432,829 (541,618) 1,545,608
Adjusted EBITDA 337,085 119,113 – 456,198
Depreciation, depletion and amortisation, including: 98,110 31,735 – 129,845
Impairment of assets 14,763 – – 14,763
Capital expenditure 245,994 138,823 – 384,817
External customers 74,802 1,393,141 – 1,467,943
Inter-segment 520,390 18,373 (538,763) –
Total revenue from sales 595,193 1,411,514 (538,763) 1,467,943
Adjusted EBITDA 266,879 137,932 – 404,811
Depreciation, depletion and amortisation, including: 86,735 27,348 – 114,083
Impairment of assets 15,582 – – 15,582
Capital expenditure 244,958 104,078 – 349,036
The geographical segmentation of the Group’s revenue and capital expenditures for the years ended 31 December 2016 and 2015 is presented below:
Export and international operations
Sales of crude oil 94,809 23,657 279,344 397,810
Sales of petroleum products 743,721 72,969 391,084 1,207,774
Sales of gas 30,116 – 1,853 31,969
Other sales 45,050 2,050 11,111 58,211
Less custom duties and sales related excises – (1,260) (148,896) (150,156)
Revenues from external customers, net 913,696 97,416 534,496 1,545,608
Sales of crude oil 81,187 28,416 189,386 298,989
Sales of petroleum products 740,520 78,134 432,480 1,251,134
Sales of gas 28,243 – 3,411 31,654
Other sales 66,235 2,085 5,678 73,998
Less custom duties and sales related excises – (899) (186,933) (187,832)
Revenues from external customers, net 916,185 107,736 444,022 1,467,943
Non-current assets as of 31 December 2016 1,822,912 11,396 310,132 2,144,440
Capital expenditures for the уear ended 31 December 2016 354,392 898 29,527 384,817
Impairment of assets for the уear ended 31 December 2016 – – 14,763 14,763
Non-current assets as of 31 December 2015 1,548,036 13,861 390,726 1,952,623
Capital expenditures for the уear ended 31 December 2015 301,070 1,277 46,689 349,036
Impairment of assets for the уear ended 31 December 2015 4,023 – 11,559 15,582
Adjusted EBITDA for the years ended 31 December 2016 and 2015 is reconciled below:
Finance income (11,071) (14,732)
Depreciation, depletion and amortisation 129,845 114,083
Net foreign exchange gain / (loss) (28,300) 67,910
Other (loss) / gain, net 17,982 (1,494)
EBITDA 402,277 345,160
less share of profit of associates and joint ventures (34,116) (24,956)
add share of EBITDA of associates and joint ventures 88,037 84,607
Total adjusted EBITDA 456,198 404,811
on oil and gas activities
The accompanying consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (‘IFRS’). In the absence of specific IFRS guidance, the Group has reverted to other relevant disclosure standards, mainly US GAAP, that are consistent with practices established for the oil and gas industry. While not required under IFRS, this section provides unaudited supplemental information on oil and gas exploration and production activities.
The Group makes certain supplemental disclosures about its oil and gas exploration and production that are consistent with practices. While this information was developed with reasonable care and disclosed in good faith, it is emphasised that some of the data is necessarily imprecise and represents only approximate amounts because of the subjective judgments involved in developing such information. Accordingly, this information may not necessarily represent the current financial condition of the Group or its expected future results.
The Group voluntarily uses the SEC definition of proved reserves to report proved oil and gas reserves and disclose certain unaudited supplementary information associated with the Group’s consolidated subsidiaries, share in joint operations, associates and joint ventures.
The proved oil and gas reserve quantities and related information regarding standardised measure of discounted future net cash flows do not include reserve quantities or standardised measure information related to the Group’s Serbian subsidiary, NIS, as disclosure of such information is prohibited by the Government of the Republic of Serbia. The disclosures regarding capitalised costs relating to and results of operations from oil and gas activities do not include the relevant information related to NIS.
Presented below are capitalised costs relating to oil and gas producing activities:
Consolidated subsidiaries and share in joint operations
Unproved oil and gas properties 68,046 78,442
Proved oil and gas properties 1,424,023 1,199,223
Less: Accumulated depreciation, depletion and amortisation (537,277) (474,857)
Net capitalised costs of oil and gas properties 954,792 802,808
Group’s share of associates and joint ventures
Proved oil and gas properties 538,829 472,931
Less: Accumulated depreciation, depletion and amortisation (135,809) (101,596)
Net capitalised costs of oil and gas properties 403,020 371,335
Total capitalised costs consolidated and equity interests 1,357,812 1,174,143
Presented below are costs incurred in acquisition, exploration and development of oil and gas reserves for the years ended 31 December:
Exploration costs 1,195 922
Development costs 234,925 242,400
Costs incurred 236,120 243,322
Exploration costs 533 311
Development costs 65,898 55,792
Total costs incurred consolidated and equity interests 302,551 299,425
Results of operations from oil and gas producing activities for the years ended:
Sales 165,153 120,476
Transfers 432,301 426,604
Total revenues 597,454 547,080
Production costs (96,835) (99,138)
Depreciation, depletion and amortisation (83,199) (70,978)
Taxes other than income tax (206,338) (268,750)
Pretax income from producing activities 209,887 107,292
Income tax expenses (27,606) (19,211)
Results of oil and gas producing activities 182,281 88,081
Total revenues 172,288 165,500
Production costs (21,607) (19,521)
Exploration expenses (533) (311)
Depreciation, depletion and amortisation (27,636) (24,046)
Taxes other than income tax (65,619) (64,248)
Pretax income from producing activities 56,893 57,374
Income tax expenses (4,301) (5,274)
Results of oil and gas producing activities 52,592 52,100
Total consolidated and equity interests in results of oil and gas producing activities 234,873 140,181
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 and operating 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. Proved undeveloped reserves are those reserves which are expected to be recovered as a result of future investments to drill new wells, to recomplete existing wells and/or install facilities to collect and deliver the production from existing and future wells.
As determined by the Group’s independent reservoir engineers, DeGolyer and MacNaughton, the following information presents the balances of proved oil and gas reserve quantities (in millions of barrels and billions of cubic feet respectively):
Proved Oil Reserves Quantities - in MMBbl
Beginning of year 4,842 5,051
Production (343) (315)
Purchases of minerals in place – –
Revision of previous estimates 354 106
End of year 4,853 4,842
Minority’s share included in the above proved reserves (30) (27)
Proved reserves, adjusted for minority interest 4,823 4,815
Proved developed reserves 2,707 2,573
Proved undeveloped reserves 2,146 2,270
Beginning of year 1,414 1,362
Production (95) (92)
Purchases of minerals in place – 73
Revision of previous estimates 132 71
End of year Including 82% NCI share in Gazprom Resource Northgas. 1,451 1,414
Proved developed reserves 707 681
Proved undeveloped reserves 744 734
Total consolidated and equity interests in reserves - end of year 6,304 6,256
Proved Gas Reserves Quantities - in Bcf
Beginning of year 6,137 6,321
Production (516) (479)
Revision of previous estimates 766 295
End of year 6,387 6,137
Minority’s share included in the above proved reserves (41) (51)
Proved reserves, adjusted for minority interest 6,346 6,086
Proved developed reserves 4,261 3,598
Proved undeveloped reserves 2,126 2,539
Beginning of year 13,357 10,188
Production (622) (557)
Purchases of minerals in place – 3,202
Revision of previous estimates 466 524
End of year Including 82% NCI share in Gazprom Resource Northgas. 13,201 13,357
Proved developed reserves 7,254 6,846
Proved undeveloped reserves 5,947 6,511
Total consolidated and equity interests in reserves - end of year 19,588 19,494
Standardised measure of discounted future net cash flows relating to proved oil and gas reserves
Estimated future cash inflows from production are computed by applying average first-day-of-the-month price for oil and gas for each month within the 12 month period before the balance sheet date to year-end quantities of estimated proved reserves. Adjustment in this calculation for future price changes is limited to those required by contractual arrangements in existence at the end of each reporting period. Future development and production costs are those estimated future expenditures necessary to develop and produce year-end proved reserves based on year-end cost indices, assuming continuation of year-end economic conditions. Estimated future income taxes are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions and tax credits and are applied to estimated future pre-tax cash flows, less the tax bases of related assets. Discounted future net cash flows have been calculated using a 10% discount factor. Discounting requires a year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.
The information provided in tables set out below does not represent Management’s estimate of the Group’s expected future cash flows or of the value Group’s proved oil and gas reserves. Estimates of proved reserves quantities are imprecise and change over time, as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The calculations should not be relied upon as an indication of the Group’s future cash flows or of the value of its oil and gas reserves.
Future cash inflows 9,962,668 10,101,648
Future production costs (5,236,343) (6,506,491)
Future development costs (771,656) (804,747)
Future income tax expenses (545,985) (428,252)
Future net cash flow 3,408,684 2,362,158
10% annual discount for estimated timing of cash flow (1,759,813) (1,237,504)
Standardised measure of discounted future net cash flow 1,648,871 1,124,654
Future cash inflows 3,305,653 3,560,911
Future production costs (1,590,138) (1,840,372)
Future development costs (240,299) (231,270)
Future income tax expenses (241,235) (243,400)
Future net cash flow 1,233,981 1,245,869
10% annual discount for estimated timing of cash flow (734,334) (752,451)
Standardised measure of discounted future net cash flow 499,647 493,418
Total consolidated and equity interests in the standardised measure of discounted future net cash flow 2,148,518 1,618,072