Additional Information

Main macroeconomic factors impacting Company performance

The Main macroeconomic factors that have an impact on the Company’s performance include:

  • Changing market prices for crude oil and petroleum products;
  • Fluctuation of the ruble-dollar exchange rate and inflation;
  • Taxation;
  • Changing transportation tariffs for crude oil and petroleum products.

Changing market prices for crude oil and petroleum products

Prices for crude oil and products on the global and Russian markets are the main factor influencing the Company’s business performance. The average price in 2011 for one barrel of Brent oil was USD 111.26, which is 40.0% more than in 2010.

Petroleum product prices on global and Russian markets are mainly determined by global prices for crude oil, supply and demand for petroleum products, and competition on different markets. Price dynamics differ for different products.

Ruble-dollar exchange rate and inflation

The Company’s management chose the US dollar as the operating and reporting currency, since most revenues, and most financial and trading liabilities are receivable, payable, redeemable, or otherwise represented in the US currency. Therefore, changes in the ruble-dollar exchange rate can influence the Company’s performance. The Company uses derivative financial instruments in order to mitigate the effect of ruble-dollar exchange rate fluctuations.

Taxation

Crude oil export customs duty. The export customs duty on crude oil is set monthly by the Russian Government based on the average Urals brand price during the monitoring period. The monitoring period begins on the 15th calendar day of the previous month, and ends on the 14th calendar day of the current month. The rate is effective from the first day of the next calendar month after the monitoring period

Crude oil exported to CIS countries that are member states of the Customs Union (Kazakhstan and Belarus) are exempt from export customs duty for crude oil. Until 2010, crude exports to Belarus were subject to lower export duties calculated using a special coefficient. The following coefficients were set between 2007 and 2009: 0.293 in 2007, 0.335 in 2008, and 0.356 in 2009.

In October 2011, the new 60/66/90 export duty regime for crude oil and petroleum products came into effect. The new regime lowers the percentage in the bottom line of the above table from 65% to 60%.

Export duties for petroleum products. Export duty rates for petroleum products are set by the Russian Government. Products exported to member states of the Customs Union (Kazakhstan and Belarus) are exempt from export customs duties.

Until February 2011, export duty rates for light and medium distillates were calculated using the formula:

0,438 x (Price x 7,3 — 109,5),

where Price means average monthly price of Urals crude oil in US dollars per barrel. Export duties for heavy petroleum products were calculated using the formula:

0,236 x (Price x 7,3 — 109,5).

The system for calculating export duty rates for petroleum products was changed by Russian Government Decree No. 1155 (December 27, 2010), which took effect from February 1, 2011. From that date, export duty rates for petroleum products are calculated by the formula:

R = Ê x Roil,

where Roil is the export duty per ton of crude oil, and Ê is a coefficient that calculates the duties applicable for various types of petroleum products as a percentage of the crude oil duty, as shown in the table below:

2011

2012

2013

Light and medium distillates

0.67

0.64

0.60

Fuel oil

0.47

0.53

0.60

From May 2011, a restrictive duty was imposed on exports of saleable gasoline, equal to 90% of the crude export rate, in order to address gasoline shortages in the domestic market. From June 2011, the same duty was placed on exports of straight-run gasoline.

In August 2011, the Federal Government Decree No. 1155 of December 27, 2010 was modified, setting new levels for the K-coefficient with effect from October 2011. As a result, export duties for petroleum products as a share of the crude oil duty were set as follows.

Excise on oil products. Excise on oil products in the Russian Federation is paid by the producers of petroleum products. In other countries where the Company operates, excise is paid by producers or by sellers, as specified by law.

Russian Federal Law No. 338-FZ (28.11.2011) established the following excise rates for petroleum products effective from January 1, 2012 (RUB/t).

2011

2010

2009

Change, %
2011/2010

Change, %
2010/2009

International market (USD per barrel)

Brent

111.26

79.50

61.67

40.0%

28.9%

Urals Spot (ñðåäíåå Med. + NWE)

109.10

78.28

61.22

39.4%

27.9%

International market (USD per ton)
Premium gasoline (avg. NWE)

983.88

735.26

578.99

33.8%

27.0%

Naphtha (avg. Med. + NWE)

920.81

704.68

527.28

30.7%

33.6%

Diesel fuel (avg. NWE)

958.97

689.65

536.98

39.1%

28.4%

Gasoil 0.2% (avg. Med. + NWE)

931.87

672.65

512.67

38.5%

31.2%

Fuel oil 3.5% (avg. NWE)

602.55

436.17

341.66

38.1%

27.7%

Domestic market (USD per ton)
High-octane gasoline

836.87

715.05

600.06

17.0%

19.2%

Low-octane gasoline

751.86

569.15

494.07

32.1%

15.2%

Diesel fuel

709.40

507.28

419.88

39.8%

20.8%

Fuel oil

296.23

250.73

204.38

18.1%

22.7%

Source: Platts (international market), Cortez (domestic market).

2011

2010

2009

Change of Consumer Price Index (CPI), %

6.1%

8.8%

8.8%

Change of Producer Price Index (PPI), %

12.0%

16.7%

13.9%

Ruble-dollar rate, end of period

32.20

30.48

30.24

Average ruble-dollar rate for the period

29.39

30.37

31.72

Real appreciation (depreciation) of the ruble against the dollar, %

0.4%

7.9%

5.7%

Nominal appreciation (depreciation) of the ruble against the dollar, %

3.3%

4.4%

(21.6)%

Taxation

2011

2010

2009

Change, %
2011/2010

Change, %
2010/2009

Export customs duty (USD per ton)
Crude oil

408.92

273.61

179.33

49.5%

52.6%

Light and medium distillates

274.08

196.66

133.13

39.4%

47.7%

Fuel oil

208.21

105.94

71.74

96.5%

47.7%

Mineral extraction tax (rubles per t)

Crude oil (rubles per ton)

4,455

3,074

2,299

44.9%

33.7%

Crude oil (USD per barrel)

21

14

10

49.7%

39.7%

Gas (rubles per 1,000 cubic cm)

237

147

147

61.2%

Export duty rates for crude oil
Urals price, USD per ton Maximum duty rate payable (P = Urals price)
0 — 109.50 0%
109.50 — 146.00 35.0 % x (P — 109.50)
146.00 — 182,50 USD 12.78 + 45.0 % x (P — 146.00)
>182.50 USD 29.20 + 65.0 % x (P — 182.50)
effective tariff rates for the Company’s main transportation routes

2009

2010

2011

Change, %
2011/2010

Change, %
2010/2009

Crude oil (RUB/tons)

Export

Pipeline

937.19

1,273.93

1,424.27

11.8%

35.9%

CIS

Pipeline

749.33

994.75

1,217.41

22.4%

32.8%

Transportation to refineries

Omsk Refinery

351.51

416.17

446.25

7.2%

18.4%

Moscow Refinery

629.22

945.49

667.00

(29.5)%

50.3%

YANOS

705.57

860.70

903.75

5.0%

22.0%

Petroleum products
Exports from Omsk Refinery

Gasoline

1,718.86

1,964.06

2,105.71

7.2%

14.3%

Fuel oil

2,717.20

3,036.06

3,224.28

6.2%

11.7%

Diesel fuel

2,056.74

2,573.51

2,578.56

0.2%

25.1%

Exports from Moscow Refinery

Gasoline

1,263.82

1,569.28

732.56

(53.3)%

24.2%

Fuel oil

1,075.39

1,287.96

1,340.74

4.1%

19.8%

Diesel fuel

1,347.11

1,361.91

1,419.03

4.2%

1.1%

Exports from Yaroslavl Refinery

Gasoline

1,574.17

1,699.24

1,407.73

(17.2)%

7.9%

Fuel oil

1,130.93

1,269.50

1,368.56

7.8%

12.3%

Diesel fuel

1,005.33

927.40

1,232.97

32.9%

(7.8)%

Excise on oil products

2011

2012

2013

2014

01.01–30.06
01.07–31.12

Gasoline

Class 3

5,672

7,382

7,882

9,750

10,725

Class 4

5,143

6,822

6,822

8,560

9,416

Class 5

5,143

6,822

5,143

5,143

5,657

Straight-run

6,089

7,824

7,824

9,617

10,579

Other

5,995

7,725

8,225

10,100

11,110

Disel fuel

Class 3

2,485

3,814

4,300

5,860

6,446

Class 4

2,247

3,562

3,562

4,934

5,427

Class 5

2,247

3,562

2,962

4,334

4,767

Other

2,753

4,098

4,300

5,860

6,446

Engine oils

4,681

6,072

6,072

7,509

8,260

Mineral extraction tax (MET). The rate of mineral extraction tax for crude oil in 2011 (R) was calculated by the formula:

R = 419 * Kp * Kd * Kr,

The terms are explained as follows:

Êp = (Ð – 15) * D / 261,

where Ð is the average monthly price of Urals brand at the Rotterdam and Mediterranean Commodity Exchanges (USD/barrel), and D is the average monthly ruble-dollar exchange rate.

Êd is a coefficient that describes the extent of depletion of deposits at a specific license area; this entails lowering of the MET rate for highly depleted deposits.

If the extent of depletion of deposits at a specific area is between 0.8 and 1, the Êd coefficient is discovered by the formula:

Êd = 3.8 – 3.5 * N / V,

where N is the total accrued production of oil at the specific area, and V is the initial recoverable oil reserves (total À, Â, Ñ1 and Ñ2 reserves at the area, according to information in the National Balance of Mineral Reserves as of January 01, 2006).

If the extent of deposit depletion at a specific area exceeds 1, the Êd coefficient is assumed to be equal to 0.3.

In other cases, Êd is made equal to 1.

Êr is a coefficient that describes the size of reserves at a specific license area; it is designed to entail a lower MET rate for small fields with initial reserves under 5 mn t.

If initial recoverable reserves of oil (Vr) at a specific area are less than 5 mn t, and the extent of reserve depletion (Ñdr) is 0.05 or less, the Êr coefficient is discovered by the formula:

Êr = 0.125 * Vr + 0.375,

where Vr is initial recoverable oil reserves, defined as total reserves in categories À, Â, Ñ1 and Ñ2 at the area, according to the approved National Balance of Mineral Reserves in the year prior to the tax period.

Federal Law No. 307 (27.11.2010), set base rates of MET between 2011 and 2013 as follows:

       
 

2011

 

2012

 

2013

MET for crude oil (RUB per ton)

419

446

470

2012

2013

2014

MET for natural gas (RUB/ 000 m3)

251

265

278

509

582

622

Transportation tariffs for crude oil and products

Transportation tariff policy is designed by the Government and aims to ensure a balance of interests between the Government and all parties involved in the process of transportation. Transportation tariffs for natural monopolies are set by the Federal Tariff Service of the Russian Federation (FTS). The tariffs depend on the transport route, volume of supplies, distance and other factors. Tariffs are adjusted to account for the inflation rate as forecast by the Russian Ministry for Economic Development, capital financing needs of the owners of transportation infrastructure, other macroeconomic factors, and the breakeven point for justifiable costs incurred by natural monopolies. The FTS reviews the tariffs at least once a year, including tariffs for cargo handling, transshipment, and others.

In 2011, the Company exported 49.4% of its total oil supplies (48.0% in 2010) through the Baltic port of Primorsk; 21.67% of crude was exported through the Druzhba pipeline (24.9% in 2010), mostly to Germany and the Czech Republic; 6.42% of crude exports were delivered by sea through Novorossiysk seaport, including 1.88% of Siberian Light Crude (3.7% in 2010), and 8.31% through Tuapse seaport (9.7% in 2010); 14.2% of crude oil exports were sent through the East Siberia-Pacific Ocean transit pipeline via the port of Kozmino (13.7% in 2010). The structure of crude exports to the CIS countries in 2011 was as follows: 88.97% to Belarus (76.39% in 2010) and 11.03% to Kazakhstan (23.61% in 2010).