Key Risk Factors

Type	Description and mitigation	Risk management operations
INDUSTRY-WIDE RISKS
Related to crude oil, gas and petroleum product prices	Crude oil, gas and petroleum product prices are key factors that impact the Rosneft financial performance and indirectly, its operations. The prices of the Company's products mainly depend on the global market environment, as well as demand and supply balance in some regions of Russia. Rosneft’s abilities to control its own product prices are significantly limited. A decline in oil, gas and petroleum product prices has an adverse impact on Rosneft’s performance and financial standing. Decreasing prices may result in less profitable oil and gas production by the Company which will in turn entail the reduction of Rosneft’s effective reserves and financial viability of exploration.	Rosneft has sufficient capabilities to re-distribute its commodity flows in case of a significant price difference between the domestic and international markets. Furthermore, the Company may promptly reduce its CAPEX and OPEX to fulfill its commitments in case of a sharp decline in oil, gas, and petroleum product prices. Besides, negative impact of price risk on financial performance of the Company is partially offset by FX rates changing (natural hedge effect).
Related to the dependency on monopoly service providers of oil, gas, and petroleum product transport and their tariffs	Rosneft depends on monopoly service providers of oil, gas, and petroleum product transport and cannot control the infrastructure they operate and payments they charge. JSC Transneft is a national monopoly providing oil and petroleum product transport services via its main pipelines. During their cooperation, the Company did not incur any substantial loss due to failures or leaks in Transneft pipelines. However, any serious failure in Transneft pipeline operation or limited access to Transneft capacities may disrupt oil and petroleum product export and adversely impact Rosneft’s performance and financial standing. Rosneft similarly to other Russian oil producers, shall pay for Transneft transportation services. Transneft charges are regulated by the Federal Tariffs Service. Transneft periodically increases charges for the use of its network. Tariff increase results in higher costs for the Company which adversely impacts its performance and financial standing. Similar risks may result from the use of Gazprom's pipeline system. The Company is dependent on the railway transportation of its oil and petroleum products. Russian Railways (hereinafter, RZhD) is a national monopoly rendering railway transportation services. RZhD tariffs are subject to anti-monopoly control and traditionally they tend to grow. Further tariff increase entails higher costs for oil and petroleum product export and may have a negative effect on the Company's performance and financial standing.	Rosneft takes into account negative impact of changes in the natural monopolies’ rate for hydrocarbons transportation for the Company future business operations planning. Decisions to change transportation flows and optimize the schedule of the Company products supply via the oil and gas pipeline system of Russia are made depending on the amount of the risk impact.
Related to geographical and climatic conditions	The regions where Rosneft operates have a stable climate and are mainly not exposed to natural calamities and disasters. However abnormally low temperatures in winter in some northern regions can make the operation of the Company's oil producing sites more difficult. Delays at export terminals can be caused by climate peculiarities at their locations. Rosneft exports some oil via its own offshore terminals and Transneft-controlled terminals. Petroleum products are exported via its offshore terminals in Tuapse (Krasnodar Territory) and Nakhodka (Primorsky Territory). Export via the terminals in the Black Sea to Mediterranean ports may be limited by the capacity of the Bosporus and weather conditions of the Black Sea (storms) in fall. Complex ice conditions in winter may require the shutdown of export terminals in the Baltic Sea and DeKastri (Khabarovsk Territory). Any long delay in export terminal operation may have a negative effect on the Company's performance and financial standing.	Rosneft offers options for redistribution of commodity flows with account of climatic conditions, including alternatives for oil and petroleum products transfer as well as the shipment schedule adjustment.
Related to the sale of own gas	The key factor that may have negative impact on gas sales of the Company — failure to take the required volume of gas by the consumers. The natural gas sales are also affected by the factors as follows: Nonconformance to the current Gasprom requirements to the quality of gas sent to gas transportation system, which may entail the risk of restricting the volume of gas accepted by the transportation system due to qualitative parameters as well as Gazprom penalties. Risk of Gazprom’s restriction of the Company gas accepting to the transportation system by the volume of undistributed scopes.	The Company diversifies the consumers portfolio to ensure the planned gas consumption scopes, and lays claims to ensure efficient cash funds receipt for the sold gas. Mitigation of risk due to the quality of gas sent to the natural gas transportation system may be performed by carrying out technical steps to raise the quality indicators up to the set standards. The Company performs constant monitoring of conditions and ensures non-discriminating access to the Gazprom gas transportation system. We also developed the action plan for mitigating the occurred risk of restricted access to the transportation system, including changes in gas supply schedules, volumes redistribution among various consumers and alternative gas supply scenarios to the consumers via the third producers.
Related to actual reserves	Oil and gas reserves are mere estimates and are inevitably uncertain. Actual reserves may significantly differ from these estimates. Oil and gas reserves mentioned in this Report are estimations mainly based on the results of analytical work performed by DeGolyer&MacNaughton, Rosneft's independent consultant for oil production technology. An oil production technology is subjective evaluation of underground oil and natural gas reserves which may not be accurately measured. Estimation and scoping of profitably recovered oil and gas reserves, production volumes, future funds, as well as expense periods for reserves development inevitably depend on a number of variables and assumptions. Many of the assumptions used for reserves estimation do not depend on the Company and may turn out to be false with time. Estimation of reserves and use of alternative calculation systems according to the Russian classification system inevitably imply a high degree of uncertainty. The accuracy of estimation of any reserves and resources depends on the quality of available information and interpretation of oil production technology and geological data available. Post-evaluation exploration drilling, data interpretation, testing, and production may require significant upward or downward adjustment of Rosneft reserves and resources. Moreover, different specialists responsible for reserves and resources estimation may evaluate reserve and funds differently using the same data. Actual production volumes, revenue, and costs related to reserves and resources might significantly differ from the operations estimate. Uncertainty is related to the Russian reserves classification system. It can consider geological factors only and ignores the feasibility of production. Prospecting drilling also entails multiple risks, including the risk of the oil companies' failure to find pay oil or gas zones.	Rosneft is a global leader in oil production and has extensive resources which minimize any risk of lower oil production as a result of future reserves re-estimation.
Related to actual reserves	The Company performs prospecting in different geographical regions, including areas with unfavorable climate conditions and high costs. Well drilling, infrastructure, and operation costs are often uncertain. Therefore, Rosneft may incur additional costs or will have to downscale, suspend, or terminate drilling due to many factors. They include contingent geological conditions, abnormally high or low formation pressure; unforeseen non-homogeneity of geological formations; equipment breakdown or emergencies; unfavorable weather conditions; shortage or untimely delay of drilling rigs and equipment. If Rosneft cannot perform efficient exploration or acquire assets with proven reserves, its proven reserves will decrease as it produces oil and gas and developed fields are depleted. The Company’s future production efforts significantly depend on successful detection, acquisition, and development of oil- and gas-bearing fields. If Rosneft attempts do not pay off, it will have fewer proven reserves and decrease its hydrocarbon production, which will in turn have an adverse effect on the Company’s performance and financial standing.
Competition-related	There is strong competition within the oil and gas industry. Rosneft mainly competes with other leading Russian oil and gas companies to: obtain exploration and development licenses at auctions and during bidding procedures held by Russian authorities; acquire other Russian companies that might hold licenses or existing assets related to hydrocarbon production; engage leading independent services companies with limited services capacity; purchase equipment for capital construction facilities in case of shortage; mobilize more skilled and experienced staff; acquire existing retail sites and land plots to established new retail sites; purchase or receive access to refining capacities. The Company is one of the industry leaders in Russia and globally which significantly improves its competitive positions. It has an extensive new project portfolio to maintain and improve its competitive standing in the future. By selling its products in the domestic and international markets, Rosneft bears risks of stiffer competition	The following measures are taken to minimize risks during the sale of petroleum products in the highly competitive domestic market. The Company plans to utilize its refining capacities based on market forecasts to prevent excess stock of individual petroleum products. It promptly re-distributes regional commodity flows in the domestic market and between the domestic market and export taking into account the current oil refining and petroleum product mix and own refining facilities and contractors covering almost all Russian regions. The Company rebuilds its refineries to satisfy the growing demand for high-octane gasoline and low-sulfur petroleum products which will in particular increase refinery volumes and yield. The Company maintains a focus on the development of own filling stations and facilities that meet the newest European requirements as the most stable sector for petroleum product sales in the domestic market, which is less exposed to spontaneous price changes and declines in demand. Additionally, to capture new corporate clients, the system for petroleum product delivery via filling stations is implemented on a wide scale using electronic cards, together with a filling station services system accepting the cards issued by other market players. The most effective response measure to stiffer competition risks in the crude oil and petroleum product market includes geographical diversification which is instrumental with re-distributing products between regions.
COUNTRY AND REGIONAL RISKS
Related to the country and region of operation	Rosneft operates in all federal districts of the Russian Federation. Our prospects and potential social and economic risks are outlined in the Program of Mid-Term Social and Economic Development of the Russian Federation. The Company believes that the risk of war conflicts, civil commotion, strikes, and announcement of a state of emergency in the regions where it operates is insignificant. The Company comments on the impact of the risks related to changes in foreign policy. It also encounters operational risks outside the Russian Federation. It is exposed to higher political, economic, social, and legal risks in developing economies as compared to more developed countries. The risks related to operation in such countries are in many respects similar to or may be higher than in Russia, also due to possible changes in foreign policy.	In case of any risks related to the political, economical, or social situation in Russia on the whole, or in some regions, or any risks related to global economic instability, the Company will take every effort to limit its negative effect. Its actions will depend on a specific situation and will be determined on a case-by-case basis. In case of an adverse impact of country-related and regional changes on its operations, the Company plans to take the following measures aimed at maintaining its operations: take every effort to maintain the projects that are currently developed with its support; closely work with the executive authorities of the Russian Federation and its constituent entities and municipal governments; optimize and curtail costs.
FINANCIAL RISKS
Currency risks	A significant portion of Rosneft’s gross revenue is oil and petroleum product export. Therefore, any FX fluctuations on RUB impact the Company's financial performance which is a currency risk factor.	The Company identifies and manages FX risks by using complex approach allowing for natural (economic) hedging application. To perform short-term FX risk management the Company selects a foreign currency for free cash funds balancing among Russian ruble, US dollar and other foreign currencies. Long-term FX risk management strategy of the Company provides for using derivative and non-derivative instruments to mitigate potential openness to the risk of FX fluctuations.
Changes in interest rates	Being a major borrower, Rosneft is exposed to the risks related to changes in interest rates. The main source of borrowings is an international credit market. The majority of the Company's loan portfolio consists of USD loans. An interest rate on most of these loans is based on LIBOR and EURIBOR interbank lending rates. An increase in these interest rates may result in higher debt service fees for Rosneft. The growth of loan fees for the Company may have a negative effect on its solvency and liquidity. As at end of 2015, the Company had the following credit ratings assigned by leading rating agencies: Moody’s (Ва1), S&P (BВ+).	The Company analyses exposure to interest rates changes, including development of various scenarios to assess the influence of interest rate changes to financial indicators.
Inflation	Inflation rates in the Russian Federation significantly impact the Company's performance.	Planning business operations we take into account the impact of inflation growth rate to financial performance of the Company, including the impact of the cost of procured materials and equipment as well as the rate of the contractors’ services cost changes. We develop activities to mitigate risk impact, including the search of alternative contractors and suppliers of materials and equipment.
LEGAL RISKS
Related to inspections by the regulator	Based on Order No. 824 / 14 dated December 31, 2014 of the Federal Antimonopoly Service, Rosneft was included in the 2015 legal entity and sole proprietor field inspection plan. FAS of Russia issued Order No. 882 / 15 dated September 25, 2015 and No. 1004 / 15 dated October 26, 2015 to conduct a scheduled field inspection from September 29, 2015 through December 29, 2015. The inspection was aimed at checking compliance by the Company with Russian anti-trust laws during its operations in 2013 and 2014. FAS of Russia drew up Inspection Report No. 368 dated December 25, 2015 based on the inspection results. The Company submitted its objections to the Inspection Report subject to compliance with the established administrative procedures.	Rosneft continuously monitors amendments to the current legislation, resolutions of the supreme courts and follows the trends of legal precedents. In the case of any legal precedents Rosneft submits the proposal for updating the legislation and applies to the state bodies for explanations and recommendations for implementing the specific regulations.
Related to the amendment to currency laws	Rosneft is actively involved in foreign trade and has FX assets and liabilities. Therefore, government currency regulation impacts the Company's business. Generally, there were no significant amendments to Russian currency laws that could impact Rosneft operations in the reporting period.	Rosneft performs ongoing monitoring of the resolutions on currency regulation and control procedures, made by the supreme court and assesses legal precedents. In the case of any legal precedents Rosneft submits the proposal for updating the legislation and applies to the state bodies for explanations and recommendations for implementing the specific regulations.
Related to the amendment to tax laws	Rosneft is a major tax payer with its operations built on the principles of good faith and transparency of information for tax authorities. The Company pays VAT, excise, income tax, severance tax, property tax, land tax, as well as other taxes and duties. Tax laws are subject to rapid changes,	Rosneft implements ongoing monitoring of amendments to tax laws, evaluates, and forecasts the degree of the potential impact of such amendments on its operations, follows the appearing legal precedents with account of amendment to the legislation related to the Company business field, the Company specialists regularly take part in various task forces developing tax laws.
Related to amendments to customs regulation	Rosneft is actively involved in foreign trade. Therefore, the Company faces some risks related to amendments to government regulation of foreign trade and customs laws governing the procedure for goods movement across the border, determination, and use of customs procedures, determination, enactment, and collection of customs charges. Review of the most significant changes in the customs regulations of the Russian Federation is given in Par. 1.7. of the Annual Report. Probability of any risks due to the effected amendments to the customs regulations in the reporting period in low.	Rosneft implements ongoing monitoring of amendments to customs laws, evaluates, and forecasts the degree of the potential impact of such amendments on its operations, the Company specialists regularly take part in various task forces developing customs laws. Throughout 2015 the Rosneft specialists were actively involved in development of the EEU Customs code within the task forces and expert groups at various platforms of the European Economic Committee and the federal state bodies of the Russian Federation to promote the Company’s initiatives for mitigating customs risks.
Related to the amendment to anti-trust laws	Rosneft has a significant share in the wholesale gasoline, diesel fuel, jet kerosene, and fuel oil market. Therefore, the Company shall meet additional requirements aimed at protecting competition and might face risks related to any amendments to anti-trust laws. Anti-trust regulation is in line with the federal laws of the Russian Federation and related regulations that were amended during the reporting period, and these amendments could affect the Company's operations. Federal Law No. 275-FZ dated October 05, 2015 significantly amended Federal Law on Protection of Competition (the so called "the fourth anti-trust package") effective from January 05, 2016. In particular, the following key amendments can be pointed out as capable of impacting the Company's operations. The law contains a rule that allows the Government of the Russian Federation to set undiscriminating access to commodities in a specific commodity market if FAS of Russia establishes that an entity holding a share above 70 % in this commodity market misused its dominant position; The Law was amended to the extent of the provisions establishing a collegial body in the central office of FAS of Russia authorized to revise any regulations of FAS regional divisions so that these regulations could be appealed both in court and in the superior anti-trust authority. The Law was amended to abolish the register of entities with a market share in a specific commodity market of over 35 %. Furthermore, the list of offenses subject to warning from FAS of Russia to discontinue any actions (omission) that violate antitrust laws was significantly expanded. Apart from misuse of dominant position in the form of imposing unfavorable conditions or conditions that do not pertain to the subject of an agreement and unjustified refusal to sign an agreement, avoidance of signing of an agreement, this list includes misuse of dominant position in the form of different pricing of the same commodity and discriminating conditions. The consent is to be obtained from FAS of Russia to sign agreements on joint activity between competitors in the Russian Federation if the total value of assets exceeds the maximum values stipulated by law. FAS of Russia shall make an opinion before the end of anti-trust law case review on any circumstances of the case that grants any persons involved more opportunity to impact the outcome after receiving information on the merits of charges before the case is settled. A new joint order of FAS of Russia and the Ministry of Energy of the Russian Federation was enacted on April 25, 2015 on Approval of the minimum amount of petroleum products and individual categories of oil and gas refining products sold in the stock-exchange and requirements for stock trading involving transactions with petroleum products and individual categories of oil and gas refining products by an entity taking a dominant position in the relevant commodity markets and invalidation of Order No. 313 / 13 / 225 dated April 30, 2013 of FAS of Russia and the Ministry of Energy of Russia (hereinafter, the Order).	Rosneft preforms ongoing monitoring of the resolutions on anti-trust regulation and control procedures, made by the supreme court and assesses legal precedents. In the case of any legal precedents Rosneft submits the proposal for updating the legislation and applies to the state bodies for explanations and recommendations for implementing the specific regulations. In 2015 the Company enacted the Regulation for General pricing principles and the procedure for selling motor fuel in the domestic market of the Russian Federation, approved by the FAS of Russia.
Related to the amendment to anti-trust laws	The Order expanded the list of commodities to be sold at the stock-exchange by the entities with a dominant positions in the relevant commodity market: it also included LHGs (CPBM — commercial propane / butane mix, CP — commercial propane; CB — commercial butane, AGP&B — autogas (propane and butane), AGP — autogas (propane)). Once the Order is enacted and to generate objective stock indicators to be recognized by the market regulator, the Company shall ensure monthly sales of minimum petroleum product and gas refinery volumes at the exchange established by the Order subject to compliance with other stock trading established by the Order. The Company fully observes the specified requirements.
Legal statutory regulation of subsoil	Compliance with the requirements for subsoil regulation is one of the key components of the Company's core operation regulation which involves ongoing monitoring of amendments to industry laws for Rosneft to take them into account in its operations. A series of amendments were made to the subsoil laws in the reporting year: Key amendments were primarily related to geological information. Additionally to statutory information breakup into source and interpreted, imperative deadlines were determined for subsoil users to set conditions for information use, also for business purposes as follows: three years for source information and five years for interpreted information. Afterwards the rights to geological information will pass to the state; There is a possibility and maximum deferral periods for payment of subsoil charges in instalments in case of the occurrence of events specified in the license;. A procedure was developed to obtain rights to subsoil use for re-injection of associated water and process water of subsoil users generated during hydrocarbon exploration and production. Apart from the aforementioned general amendments, the regulation of federal subsoil areas was also amended as follows: Some provisions of the regulations governing exploration and mining in federal areas during and after prospecting were aligned with the Subsoil Law; The scope of authority of the Ministry of Economic Development of Russia was adjusted to the extent of procedures for rights to federal subsoil use and issuance of permits for the creation, operation, and use of artificial islands, structures, and installations, as well as the scope of authority of the bodies endorsing drilling conditions. These adjustments pertain to the regulations governing federal subsoil areas and are intended to optimize the existing procedures. It is worth noting that although significant, subsoil law amendments did not have a substantial impact on the Company's operations.	At present the Company is actively involved in law-making to develop the optimal and minimum required lists of geological information to be submitted to the funds. This shall allow the Company to keep the right of possessing the key geological information and, as a result, commercial value of the Rosneft capital assets — sites of subsurface resources.
Legal statutory regulation of land use	The enforcement of land laws is one of Rosneft priorities since land is the Company's key property. The Land Code of the Russian Federation was significantly amended during the reporting period as part of land use regulation. Despite substantial amendments that mainly affected the purchase and provision of government-owned or municipal land plots and provision of rights to land plots during an auction, the so called "preemptive" procedure for the acquisition of rights to land plots for some entities was provided. Such entities also include license holders which will benefit the Company. However, administrative liability for non-compliance with land laws stiffened: administrative fines grew, in particular fines for non-compliance with the established requirements and mandatory land improvement and protection measures and measures aimed at soil protection and mitigation of another environmental impact resulting in land deterioration. The above changes shall economically stimulate the land users to keep the land plot in satisfactory condition.	Rosneft performs ongoing monitoring of the amendments to the applicable legislation, resolutions and control procedures, made by the supreme court and assesses legal precedents. In the case of any legal precedents Rosneft submits the proposal for updating the legislation and applies to the state bodies for explanations and recommendations for implementing the specific regulations. The Company continuously sticks to land protection principles as an integral part of the environment.
Industrial and environmental safety	Environmental safety: The Federal Law No. 89-FZ, On Industrial and Consumer Waste, as of June 24, 1998, was amended with the prohibition to operations with the Hazard Class 1 to 4 waste (except for detoxification and placement) without the relevant license for such waste collection, transportation, handling, and recycling. The transition period was extended until July 01, 2016. Industrial safety: Many of Rosneft’s facilities are categorized as hazardous facilities. In order to prevent production risks, Rosneft is guided by statutory provisions pertaining to the regulation of hazardous industrial facilities. The following actions were taken during the reporting period as part of safety regulations at hazardous industrial facilities: rules for the development of emergency containment and response were changed, requirements for operators were expanded, and safety requirements for some work types and operation of some facilities were revised; federal executive authorities responsible for registration of the hazardous industrial facilities they control in the State Register were specified; it was determined that amendments could be made to the annual scheduled inspection plan of legal entities and sole proprietors in case of changes in the hazard class of an industrial facility to be inspected; requirements for the information to be submitted to the licensing authority to obtain or reissue a license for the operation of explosive, fire and chemically hazardous industrial facilities of Hazard Classes 1, 2, and 3 were revised. The aforementioned amendments will not significantly impact the operations of Group companies related to the operation of hazardous industrial facilities.	Due to the amendments to the Federal Law No. 89-FZ, On Industrial and Consumer Waste, as of June 24, 1998, and transition period prolongation, the Company and the Group companies made efforts to align their operations with statutory requirements throughout the reporting period. This will provide availability of Hazard Class 1 to 4 waste collection, transportation, handling, and recycling licenses.
Related to the court proceedings in progress the Company is involved in	Rosneft has been or is currently involved in the following court processes which may have a significant impact on its financial performance: 1. Since 2006, the Company has had court proceedings re demands YUKOS Capital S. a. r. l. against OJSC Yuganskneftegaz (Rosneft predecessor) to recover an alleged debt under the awards based on four loan agreements in the amount of about RUB 12.9 billion, demands of Glendale Group Ltd. regarding the recovery of about RUB 3.53 billion as principal, interest, penalty fee, and expenses due under eight promissory notes of OJSC Yuganskneftegaz, and the demands of Yukos International UK BV regarding a loss of up to USD 333 million plus interest allegedly inflicted by the order of the Amsterdam Court on freezing of a number of assets. These disputes were detailed earlier in the Company's quarterly reports. Rosneft and some of its subsidiaries signed a Dispute Settlement Agreement in March 2015 with some companies, including YUKOS Capital S. a. r. l., Yukos International UK BV, and Financial Performance Holdings B. V. (successor of Glendale Group Ltd.) which resolved the aforementioned disputes. Under the Agreement, Rosneft and the said companies abandoned their mutual claims and terminated the court proceedings. The Agreement does not provide for any cash or other payments by Rosneft or its subsidiaries. 2. Rosneft is involved in the bankruptcy procedure of JSC NNGC Sakhneftegaz to recover its funds under individual loan agreements and suretyship agreements totally worth RUB 1.3 billion. A provision was created to cover the entire debt. The register of the creditors’ claims includes Rosneft’s demands worth RUB 1,625,526,926.64 (with interest accrued). 3. Former JSC RN-Holding shareholders filed claims against Rosneft in October and November 2014 to recover losses inflicted by incorrect (according to the claimants) determination of a share price during mandatory buyout. In the first instance the court rejected the claims. The appellation court currently reviews of the claimants’ appeals. Rosneft is involved in a number of other court proceedings which have arisen during its operations. According to Rosneft management, the outcome of such court proceedings will not have a significant effect on the Company’s performance or financial standing.	Rosneft performed regular monitoring of the judgments passed by supreme courts and evaluates the law enforcement trend in district arbitration courts, actively uses and applies it both during protection of its rights and legal interests in court and when settling any legal issues during its operations. Therefore, the risks related to changes in court practice are considered minor.
EU and US sanctions	The United States and EU introduced a number of sectoral changes in 2014. These sanctions stipulate restrictions for US and EU persons to provide new financing to the persons specified in US and EU regulations, as well as work, goods, and services which may be used by certain persons in the Russian Federation for deep water exploration, oil production, oil exploration and production in the Arctic, and slate oil projects.	The Company takes these sanctions into account in its operations and is consistently monitoring the sanctions to minimize their adverse effects.

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