Business Strategy

Vision

OUR VISION is to be the leading independent natural gas producer in Russia by harnessing the creative knowledge, enthusiasm and power of our human capital in all spheres of operations and in all regions in which we operate.

OUR STRATEGIC OBJECTIVE is to leverage our competitive strengths to increase our hydrocarbon production on a sustainable and profitable basis. 

Strategy

Substantially Increase Our Production of Hydrocarbons, Particularly Natural Gas. Despite the recent economic slowdown globally and in Russia, industry experts, including the International Energy Agency, estimate that long-term demand for natural gas will be greater than current supply. We believe we are well positioned to supply a significant portion of the expected growth in incremental natural gas demand on the Russian domestic market due to the proximity of our core fields to pipeline infrastructure, the successful development of our fields, and our commercial marketing capabilities. We plan to continue making targeted capital investments and prioritize our investment program to focus on expansion of our fields' production capacity. At the same time, we are carefully assessing potential acquisition opportunities of producing assets or assets with a short-and/or mid-term production start, provided that these acquisitions will be value accretive for our business and our security holders.

Maintain Our Low Cost Structure. We intend to maintain our low cost track record through the prudent use of modern technology and production techniques across our hydrocarbon resource base. In the past few years, our three year weighted average lifting cost, our finding and development costs and our reserve replacement costs remained among the lowest in the global oil and gas industry based on industry peer reviews and performance metrics. Furthermore, we expect that the geographic concentration of the majority of our resource base, which is in close proximity to the UGSS, the Purovsky Plant and our production infrastructure, and the resulting economies of scale will continue to be a major factor in helping us maintain our low cost structure. Moreover, we currently strive to maintain consistently low costs in all other areas of our business operations and tightly control administrative overhead costs.

Maximize Risk-Adjusted Margins on Sales of Natural Gas and Liquids and Expand Our Customer Base. Our marketing and sales teams continue to optimize our sales of natural gas between end-customers and wholesale traders and our sales of liquid products between export and domestic markets in order to realize superior risk-adjusted margins. We intend to penetrate new regional markets and increase the proportion of our natural gas sales made under long-term contracts as well as maintain our leading position among independent gas producers. In addition, as we increase the production of liquid hydrocarbons, we intend to continue to geographically diversify our stable gas condensate and LPG markets and expand our customer base, while at the same time developing deeper refining capabilities. As a part of this process, we plan on investing capital into the construction of the Ust-Luga transshipment and fractionation facility for processing of our stable gas condensate, allowing us to further enhance refining depth and capture additional margins on end products, as well as expand our marketing capabilities and product offerings. In addition, we expect our participation in the Yamal LNG project will allow us to diversify and expand our customer base across different geographical markets.

Increase Our Resource Base and Manage Reserves Effectively. We intend to manage our resource base in order to grow our proved reserves as we develop and explore for hydrocarbons on our fields and license areas. We believe our established resource base in the Nadym-Pur-Taz region of the YNAO, and its proximity to the Region's existing gas transportation and processing infrastructure, as well as our newly acquired resources in the Yamal peninsula, including, in particular the South-Tambeyskoye field we acquired through our majority interest in Yamal LNG, will enable us to leverage our experience in developing complex gas condensate reserves to further expand our resource base both organically and through potential and recent acquisitions. In November 2010, for instance, Yamal Development, our 50/50 joint venture with Gazprom Neft, completed its acquisition of a 51% participation interest in SeverEnergia, which holds licenses for the exploration and development of oil and gas deposits in the YNAO. In addition, in December 2010, we also closed the transaction to acquire a 51% interest in Sibneftegas, which is involved in the exploration and production of oil and gas in the YNAO.