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NOVATEK announces consolidated IFRS results for the year ended 31 december 2014

Moscow, 27 February 2015. OAO NOVATEK today released its audited consolidated financial statements for the year ended 31 December 2014 prepared in accordance with the International Financial Reporting Standards (“IFRS”).

IFRS Financial and Operational Highlights
(in millions of Russian roubles)

	FY 2014	FY 2013
Oil and gas sales	355,673	297,499
Other revenues	1,970	659
Total revenues	357,643	298,158
Operating expenses	(236,512)	(192,761)
Net gain on disposal of interest in joint ventures	2,623	37,649
Other operating income	4,009	880
Profit from operations^*	125,140	106,277
Normalized EBITDA of subsidiaries^*	140,371	121,903
Normalized EBITDA including share in EBITDA of joint ventures^*	159,631	129,370
Finance income (expense)	(46,745)	(6,684)
including foreign exchange loss	(25,881)	(3,678)
Share in gain (loss) in joint ventures net of income tax	(28,175)	(112)
including the effect of foreign exchange loss	(57,209)	(342)
Normalized profit before income tax^*	50,220	99,481
Normalized Profit attributable to OAO NOVATEK shareholders^*	35,197	79,825
Normalized earnings per share^* (in Russian roubles)	11.65	26.35

^* excluding net gain (loss) on disposal of interests in joint ventures.

Total revenues grew by 20.0% year-on-year to RR 357.6 billion for the twelve months ended 31 December 2014 from RR 298.2 billion in 2013, largely due to an increase in natural gas and liquids sales volumes and prices.

The start of higher value added products sales from the Ust-Luga Gas Condensate Fractionation and Transshipment Complex (the “Ust-Luga Complex”), launched in June 2013, had a positive impact on the average price of liquids, whereas the growth in the average natural gas sales price was driven by higher share of end customers in our overall natural gas sales volumes mix.

In 2014, we recorded a year-on-year increase of 15.1% in the Company’s Normalized EBITDA, inclusive of subsidiaries, which totaled RR 140.4 billion. The Normalized EBITDA, including our respective share in the EBITDA of joint ventures, increased by 23.4% as compared to 2013 and amounted to RR 159.6 billion. 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 2014, Normalized Profit attributable to NOVATEK shareholders, adjusted for the net gain from disposal of interest in joint ventures, decreased by 55.9% to RR 35.2 billion, or RR 11.65 per share, as compared to RR 79.8 billion, or RR 26.35 per share, in 2013. Our profit dynamics over the respective reporting periods were negatively impacted by non-cash foreign exchange effects (including at the joint ventures level) as the Russian rouble depreciated against the US dollar by 71.9% in 2014 as compared with 7.8% in 2013. Net of these effects, our normalized profit in 2014 increased by 36%.

Selected Operating Highlights

Production and Purchased Volumes	2014	2013
Natural gas production including proportionate share in the production of joint ventures, million cubic meters (mmcm)	62,129	61,216
including natural gas production by subsidiaries, mmcm	52,598	52,214
Natural gas purchases from joint ventures, mmcm	5,402	7,799
Other purchases of natural gas, mmcm	7,165	6,443
Total natural gas production of subsidiaries and purchases, mmcm	65,165	66,456
Liquids production including proportionate share in the production of joint ventures, thousand tons, mt	6,036	4,751
including liquids production by subsidiaries, mt	4,340	4,327
Liquids purchases from joint ventures, mt	3,180	1,170
Other purchases of liquids, mt	49	15
Total liquids production by subsidiaries and purchases, mt	7,569	5,512

Hydrocarbon Sales Volumes

Sales Volumes	2014	2013
Natural gas, mmcm	67,231	64,152
including sales to end-users, mmcm	63,281	57,021
Liquids, mt	7,089	5,438
including: Stable gas condensate products, mt	4,438	1,606
Liquefied petroleum gas (including light hydrocarbons fraction), mt	1,434	1,078
Crude oil, mt	903	627
Stable gas condensate, mt	303	2,117
Other oil products, mt	11	10

In 2014, natural gas sales volumes increased to 67.2 billion cubic meters (bcm), or by 4.8%, as compared with 2013, due to an increase in production volumes of our subsidiaries at the Olimpiyskiy license area and Yurkharovskoye field, and the North-Urengoyskoye field of the Nortgas joint venture, as well as decrease in gas volumes in underground storage as compared with an increase in storage in 2013, which was partially offset by a decrease in sales volumes of purchased gas due to the termination of natural gas purchases from Sibneftegas following the divestment of our share in this joint venture in December 2013.

The share of end-users in our total gas volumes sales mix increased from 89% in 2013 to 94% in 2014. As at 31 December 2014, the total amount of natural gas recorded as inventory aggregated 1.0 bcm.

Liquid hydrocarbon sales volumes aggregated 7.1 mln tons in 2014 representing an increase of 30.4% as compared with 2013. 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 well as by an increase in crude oil production by our subsidiaries. This positive impact, however, was partially offset by an increase in liquid hydrocarbon inventory balances in 2014 as compared with a decrease in 2013. The share of high value-added petroleum products produced at the Ust-Luga Complex in the overall liquids sales volume mix increased to 63% as compared with 30% in 2013. As at the year-end, 739 thousand tons of liquid hydrocarbons were in transit or storage and recognized as inventory, as compared with 535 thousand tons as at 31 December 2013.

Selected Balance Sheet Items

(in millions of Russian roubles)

	31December 2014	31December 2013
ASSETS
Non-current assets	572,548	515,569
Property, plant and equipment	291,726	243,688
Investments in joint ventures	166,231	210,066
Total current assets	126,591	82,426
Total assets	699,139	597,995
LIABILITIES AND EQUITY
Non-current liabilities	230,807	165,065
Long-term debt	204,699	141,595
Current liabilities	81,208	59,873
Total liabilities	312,015	224,938
Equity attributable to OAO NOVATEK shareholders	384,755	370,198
Non-controlling interest	2,369	2,859
Total equity	387,124	373,057
Total liabilities and equity	699,139	597,995

The full set of audited consolidated IFRS financial statements for the year ended
31 December 2014 and the related notes thereto as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations are available on the Company’s website (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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