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NOVATEK announces consolidated IFRS results for second quarter and first half 2014

Moscow, 30 July 2014. OAO NOVATEK today released its consolidated interim condensed financial information as of and for the three and six months ended 30 June 2014 prepared in accordance with International Financial Reporting Standards (“IFRS”).

IFRS Financial Highlights
(in millions of Russian roubles)

2Q 2014	2Q 2013		1H 2014	1H 2013
87,881	57,918	Oil and gas sales	176,414	138,366
489	112	Other revenues	632	229
88,370	58,030	Total revenues	177,046	138,595
(55,670)	(39,613)	Operating expenses	(109,545)	(90,669)
-	-	Net gain on disposal of interests in joint ventures	2,623	-
1,791	(34)	Other operating income (loss)	1,750	657
34,491	18,383	Profit from operations	71,874	48,583
36,895	21,613	Normalized EBITDA of subsidiaries*	75,862	54,470
40,323	23,426	Normalized EBITDA including share in EBITDA of joint ventures*	83,302	58,286
808	(3,455)	Finance income (expense)	(3,512)	(5,379)
3,768	(472)	Share of profit (loss) of joint ventures, net of income tax	2,046	(309)
39,067	14,456	Profit before income tax	70,408	42,895
31,874	11,583	Profit	57,023	34,396
31,950	11,602	Normalized Profit attributable to OAO NOVATEK shareholders*	55,006	34,428
10.58	3.83	Normalized basic and diluted earnings per share* (in Russian roubles)	18.19	11.36

* Excluding the effect from disposal of interests in joint ventures in 1Q 2014.

In the second quarter and first half 2014, our total revenues increased by 52.3% and 27.7%, respectively, compared to the corresponding periods of 2013. The growth was mainly due to an increase in average prices for natural gas and liquid hydrocarbons, as well as higher liquid hydrocarbons sales volumes. Average liquid hydrocarbon sales price was positively impacted by the launch of the Ust-Luga Gas Condensate Fractionation Complex in June 2013. Growth in the average natural gas sales price was driven among other factors by higher share of end customers in our overall natural gas sales volumes mix.

The Company’s Normalized EBITDA, inclusive of subsidiaries, amounted to RR 36.9 billion in the second quarter 2014, representing a 70.7% increase as compared to the second quarter 2013. The Normalized EBITDA, including our respective share in the EBITDA of joint ventures, increased by 72.1% as compared to the second quarter 2013 to RR 40.3 billion. In the first half 2014, our Normalized EBITDA, inclusive of subsidiaries, amounted to RR 75.9 billion, and our EBITDA, including our respective share in the EBITDA of joint ventures, was RR 83.3 billion, which represents an increase of 39.3% and 42.9%, respectively, as compared to the first half 2013. The growth in our Normalized EBITDA was positively impacted by a higher share of liquid hydrocarbons in our overall sales volumes mix as well as higher liquids sales margins due to the launch of the Ust-Luga Complex.

In the second quarter 2014, Normalized Profit attributable to NOVATEK shareholders increased by 175.4% to RR 32.0 billion or RR 10.58 per share. In the first half 2014, Normalized Profit attributable to NOVATEK shareholders (adjusted for the effect on disposal of the share in Artic Russia B.V.) amounted to RR 55.0 billion (RR 18.19 per share), representing an increase of 59.8% as compared to the first half 2013. Our profit dynamics over the respective reporting periods were positively impacted by non-cash foreign exchange effects (including at the joint ventures level).

Production and Purchased Volumes

2Q 2014	2Q 2013		1H 2014	1H 2013
13,131	12,784	Natural gas production by subsidiaries, million cubic meters (mmcm)	26,529	26,449
1,375	1,870	Natural gas purchases from joint ventures, mmcm	1,659	3,823
1,848	1,365	Other purchases of natural gas, mmcm	3,525	3,479
16,354	16,019	Total natural gas production and purchases, mmcm	31,713	33,751
1,085	1,103	Liquids production by subsidiaries, thousand tons (mt)	2,179	2,199
564	265	Liquids purchases from joint ventures, mt	1,060	504
6	2	Other purchases of liquids, mt	13	4
1,655	1,370	Total liquids production and purchases, mt	3,252	2,707

Sales Volumes

2Q 2014	2Q 2013		1H 2014	1H 2013
15,528	14,628	Natural gas, mmcm	33,300	33,367
14,604	13,008	including sales to end-users, mmcm	31,281	29,640
1,087	-	Stable gas condensate products, mt	2,052	-
331	261	Liquefied petroleum gas, mt	682	526
223	164	Crude oil, mt	418	301
43	632	Stable gas condensate, mt	75	1 842
3	3	Other oil products, mt	5	5

In the second quarter 2014, our natural gas sales volumes increased to 15.5 billion cubic meters (bcm), or by 6.2%, as compared with the corresponding period in 2013, mainly due to the increase in production volumes of our subsidiaries and less gas injected into the underground storages. Natural gas sales volumes in the first half 2014 remained practically unchanged as compared to the first half 2013 and amounted to 33.3 bcm. The positive impact of higher production volumes and change in gas inventory in the underground storages was fully offset by the termination of natural gas purchases from Sibneftegas due to the divestment of our share in this joint venture in December 2013. The share of end-customers in our overall gas sales volumes mix increased from 89% in the first half 2013 to 94% in the same period of 2014. As at 30 June 2014, the total amount of natural gas recorded as inventory aggregated 1.6 bcm as compared to 1.4 bcm as at 30 June 2013.

Liquid hydrocarbon sales volumes in the second quarter and first half 2014 increased by 59.2% and 20.9%, respectively, as compared to the same periods of 2013 due to a significant increase in our liquid inventory balances in the second quarter 2013 prior to the launch of the Ust-Luga Complex. Sales volumes were positively impacted by higher volumes of gas condensate purchased from our joint ventures due to production growth at Nortgas and the SeverEnergia fields. As at 30 June 2014, 357 thousand tons of stable gas condensate and oil products were in transit or storage and recognized as inventory compared to 447 thousand tons as at 30 June 2013.

Selected Balance Sheet Items
(in millions of Russian roubles)

ASSETS	30 June 2014	31 December 2013
ASSETS
Non-current assets	526,731	515,569
Property, plant and equipment	268,405	243,688
Investments in joint ventures	189,304	210,066
Total current assets	107,483	82,426
Total assets	634,214	597,995
LIABILITIES AND EQUITY
Non-current liabilities	182,267	165,065
Long-term debt	155,347	141,595
Current liabilities	34,137	59,873
Total liabilities	216,404	224,938
Equity attributable to OAO NOVATEK shareholders	415,142	370,198
Non-controlling interest	2,668	2,859
Total equity	417,810	373,057
Total liabilities and equity	634,214	597,995

The full set of consolidated interim condensed IFRS financial information, the notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations are available on the Company’s web site (www.novatek.ru).

PAO NOVATEK is the largest independent natural gas producer in Russia, and in 2017, entered the global LNG market by successfully launching the Yamal LNG project. Founded in 1994, the Company is engaged in the exploration, production, processing and marketing of natural gas and liquid hydrocarbons. Upstream activities of the Company’s subsidiaries and joint ventures are concentrated mainly in the prolific Yamal-Nenets Autonomous Region, which is the world’s largest natural gas producing area and accounts for approximately 80% of Russia’s natural gas production and approximately 15% of the world’s gas production. NOVATEK is a public joint stock company established under the laws of the Russian Federation.

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