About Us

 

Our core strategy is to maintain our position as the leading independent natural gas producer in Russia, based on reserves and production, by increasing our hydrocarbon production on a sustainable and profitable basis, while efficiently expanding our hydrocarbon resource base, optimizing our marketing channels and exploring complementary and value added projects. We supply natural gas to Russia’s domestic market and are focused on meeting the anticipated growing demand in Russia, and, as such, we expect to benefit from expected increases in regulated prices for natural gas sold and forecasted increases in power generation capacity and infrastructure investments in Russia.

 

Our exploration, development, production and processing of natural gas and liquid hydrocarbons are primarily conducted within the Russian Federation and our principal operating areas are concentrated in the YNAO in Western Siberia. According to Government Statistics and BP’s 2009 Statistical Review, the YNAO is the most significant gas producing region in Russia, accounting for approximately 83% of Russia’s natural gas production and approximately 16% of global natural gas production. Our three core fields—Yurkharovskoye, East-Tarkosalinskoye and Khancheyskoye—accounted for approximately 64% of our total proved reserves, as appraised using the SEC’s reserve methodology, as of 31 December 2010, and 99.7% of our production volumes in 2010. We also hold licenses for prospective fields and license areas located in the YNAO and we acquired a 50% interest in a concession for an offshore block in Egypt in 2007.

 

Since 2007, we have consistently increased our natural gas production. Our net natural gas and liquid hydrocarbons production totaled 28.3 bcm and 2.4 mmt in 2007, 30.4 bcm and 2.6 mmt in 2008, 32.4 bcm and 3.0 mmt in 2009 and 37.2 bcm and 3.6 mmt in 2010, respectively. As of 31December 2010, we had 8,088 mm boe of proved reserves, of which approximately 93% were natural gas reserves, as appraised using the SEC’s reserve methodology. Over the past three years, our average reserve replacement ratio has been 551%, on a boe basis, as appraised based on proved reserves using the SEC’s reserve methodology.

 

We generate revenues primarily from natural gas and gas condensate sales and, to a lesser extent, sales of other liquid hydrocarbons. Prior to the disposal of our 100% interest in NOVATEK Polymer in September 2010, we also generated revenues from sales of polymers. In 2010, (i) our natural gas, (ii) stable gas condensate and (iii) LPG, crude oil and oil related products accounted for 61.7%, 25.8% and 11.1% of our total revenues, respectively and we generated total revenues and EBITDA of RR117.0 billion and RR57.0 billion, respectively, in the same period.

 

We are currently required to sell 100% of our natural gas to customers in the Russian Federation. Our customers are primarily power generation companies, industrial users, regional gas distributors and wholesale gas traders. As an independent natural gas producer, we are not subject to the government’s regulation of natural gas prices; however, the regulated price as set by the FTS significantly influences the market conditions in our regions of delivery as well as the price in our natural gas contracts with end-customers and wholesale traders. We transport our natural gas through our pipelines into the UGSS, which we use to deliver our gas to end-customers in accordance with the relevant transportation contracts we enter into with Gazprom. The UGSS transports substantially all of the natural gas sold in Russia and is owned and operated by Gazprom. UGSS transportation tariffs are set by the FTS.

 

Substantially all of our stable gas condensate is sold internationally, whereas our other liquid hydrocarbons, including LPG, crude oil and oil related products, are sold domestically and internationally. Gas condensate is produced in an unstable form and requires processing before it can be delivered to our customers. We currently process substantially all of our unstable gas condensate at our Purovsky Plant. Following processing, we export substantially all of our stable gas condensate to international markets, via the Port of Vitino on the White Sea in the Murmansk region, where the price for this product has historically exceeded domestic prices.

 

At the end of 2010, we entered into two significant transactions which we believe will enhance our position as a leading independent natural gas producer in Russia. In November 2010, Yamal Development, our 50/50 joint venture with Gazprom Neft, acquired a 51% interest in SeverEnergia from Gazprom. SeverEnergia, which has not yet commenced commercial production, holds 100% of the shares of Arcticgas, Urengoil Inc. and Neftegaztechnologia, which hold licenses for the development of oil and gas condensate fields in the YNAO. We expect that the acquisition of an interest in SeverEnergia, which has fields located in close proximity to our existing transportation and processing infrastructure, will enhance our reserve base and future production levels.

 

In December 2010, we closed the transaction to acquire a 51% interest in Sibneftegas, by our wholly-owned subsidiary NOVATEK Severo-Zapad from Gazprombank. Sibneftegas holds licenses for the development of oil and gas condensate fields within the following license areas located in the YNAO: Beregovoy license area, Khadyryakhinskiy license area, Pyreinoye gas condensate field and Zapadno-Zapolyarnoye gas field. In 2010, Sibneftegas’ gross natural gas production totaled 9.9bcm. We expect that the acquisition of an interest in Sibneftegas, which has fields located in close proximity to our existing transportation and processing infrastructure, will enhance our reserve base and future production levels.

 

In September 2011, we increased our shareholding in OAO Yamal LNG to 100% by exercising two options for the remaining 49% and in October we reduced our shareholding to 80% as a result of the sale of a 20% stake in OAO Yamal LNG to Total, our strategic partner in the project. 

 

We are currently rated ‘‘Baa3’’ (stable) by Moody’s, ‘‘BBB-’’ (stable outlook) by Standard & Poor’s and ‘‘BBB-’’ (stable outlook) by Fitch. To maintain our credit rating, we have established certain financial targets and coverage ratios that we monitor on a quarterly and annual basis. A security rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization.