Audit report on the financial statements of Rosneft Oil Company for the year ended 31 December 2015

Independent auditor’s report

To the Shareholders and the Board of Directors of Rosneft Oil Company

We have audited the accompanying financial statements of OJSC Rosneft Oil Company which consist of the balance sheet as at 31 December 2015, income statement for 2015 and appendices thereto.

Audited entity’s responsibility for the financial statements

The management of OJSC Rosneft Oil Company is responsible for the preparation and fair presentation of these financial statements in accordance with rules on the preparation of financial statements established in the Russian Federation and for the internal control system relevant to the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditor’s responsibility

Our responsibility is to express an opinion on the fairness of these statements based on our audit.

We conducted our audit in accordance with the federal standards on auditing effective in the Russian Federation and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the financial statements are free from material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. Audit procedures selection depends on the auditor’s judgment based on the assessment of the risks of material misstatements of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control system relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control system. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the financial statements present fairly, in all material respects, the financial position of OJSC Rosneft Oil Company as at 31 December 2015, its financial performance and its cash flows for 2015 in accordance with rules on the preparation of financial statements established in the Russian Federation.

Other matters

The accompanying financial statements are not intended to present the financial position and results of operations in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than the Russian Federation. Accordingly, the accompanying financial statements are not designed for those who are not informed about accounting principles, procedures and practices in the Russian Federation.

D.E. Lobachev
Partner
Ernst & Young LLC

29 March 2016

Details of the audited entity
Name: OJSC Rosneft Oil Company
Record made in the State Register of Legal Entities on 19 July 2002; State Registration Number 1027700043502.
Address: Russia 115035, Moscow, Sofiyskaya naberezhnaya, 26/1.

Details of the auditor
Name: Ernst & Young LLC
Record made in the State Register of Legal Entities on 5 December 2002, State Registration Number 1027739707203.
Address: Russia 115035, Moscow, Sadovnicheskaya naberezhnaya, 77, building 1.
Ernst & Young LLC is a member of self-regulatory organization of auditors «Russian Audit Chamber» (Association) («SRO APR»). Ernst & Young LLC is included in the control copy of the register of auditors and audit organizations, main registration number 10201017420.

Balance sheet
at 31 December 2015

Explanatory note	Item	Line code	At 31 December	At 31 December	At 31 December
	ASSETS
	I. Non-current assets
6	Intangible assets	1110	20,933,757	20,276,532	9,646,678
8	Research and development results	1120	2,514,742	2,595,082	1,952,071
7	Intangible exploration assets	1130	74,650,436	64,928,439	36,457,262
7	Tangible exploration assets	1140	11,338,131	10,015,844	5,582,686
5	Fixed assets	1150	1,003,328,496	956,824,133	838,018,865
	Income-bearing investments in tangible assets	1160	-	-	-
11	Financial investments	1170	3,945,699,651	3,816,440,204	2,401,568,509
21	Deferred tax assets	1180	120,214,709	73,523,479	16,008,063
9	Other non-current assets	1190	34,679,041	38,320,987	44,977,476
	Total for Section I	1100	5,213,358,963	4,982,924,700	3,354,211,610
	II. Current assets
10	Inventories	1210	107,207,260	114,414,155	95,983,700
10	Value-added tax on purchased assets	1220	51,445,066	56,191,201	59,707,919
15,18	Accounts receivable	1230	2,025,601,916	1,847,735,638	848,191,801
	including:
	Accounts receivable expected to be settled within 12 months after the reporting date	1231	891,163,442	858,676,950	755,221,100
	Accounts receivable expected to be settled in over 12 months after the reporting date	1232	1,134,438,474	989,058,688	92,970,701
11	Financial investments (other than cash equivalents)	1240	1,637,719,899	645,291,444	425,964,971
12	Short-term derivative financial instruments at fair value through profit or loss	1241	-	-	88,015
12	Long-term derivative financial instruments at fair value through profit or loss	1242	-	-	773,849
14	Cash and cash equivalents	1250	402,389,690	127,975,011	199,904,499
	Other current assets	1260	12,151,470	13,614,675	7,646
	including:
	Unbilled accrued revenue under construction contracts	1261	-	-	-
	Total for Section II	1200	4,236,515,301	2,805,222,124	1,630,622,400
	Balance	1600	9,449,874,264	7,788,146,824	4,984,834,010
	LIABILITIES
	III. Equity and reserves
1.19	Share capital (pooled capital, charter capital, partners’ contributions)	1310	105,982	105,982	105,982
19	Treasury shares	1320	-	-	-
19	Revaluation of non-current assets	1340	15	15	15
19	Additional capital (without revaluation)	1350	113,244,694	113,261,430	113,276,744
19	Reserve capital	1360	5,299	5,299	5,299
13	Other funds and reserves	1365	(471,888,054)	(398,110,282)	-
20	Retained earnings (uncovered loss)	1370	1,792,963,117	1,640,545,004	1,275,039,243
	Total for Section III	1300	1,434,431,053	1,355,807,448	1,388,427,283
	IV. Non-current liabilities
16	Loans and borrowings	1410	4,081,526,948	3,230,812,633	1,729,241,793
21	Deferred tax liabilities	1420	69,693,400	58,997,819	43,735,992
24	Provisions	1430	40,469,001	37,705,894	38,242,591
	Long-term derivative financial instruments at fair value through profit or loss	1440	-	-
16	Other liabilities	1450	1,784,929,682	886,778,534	470,151,376
	Total for Section IV	1400	5,976,619,031	4,214,294,880	2,281,371,752
	V. Current liabilities
16	Loans and borrowings	1510	494,337,961	864,389,446	622,881,018
15,18	Accounts payable	1520	1,416,028,642	1,197,024,178	671,333,226
	Deferred income	1530	1,571,330	144,815	63,798
24	Provisions	1540	22,443,697	19,212,252	14,820,150
12	Short-term derivative financial instruments at fair value through profit or loss	1545	104,081,673	136,952,201	5,688,020
	Other liabilities	1550	360,877	321,604	248,763
	Total for Section V	1500	2,038,824,180	2,218,044,496	1,315,034,975
	BALANCE	1700	9,449,874,264	7,788,146,824	4,984,834,010

Income statement for the 2015 reporting year

Rosneft Oil Company Monetary unit: kRUB

Explanatory note	Item	Line code	For January-December
Explanatory note	Item	Line code	2015	2014
20.26	Revenue	2110	3,831,094,945	4,299,680,200
20	Cost of sales	2120	(2,612,932,721)	(2,451,243,380)
20	Oil and gas reserves exploration and estimation expenses	2130	(17,007,609)	(15,103,523)
	Gross income (loss)	2100	1,201,154,615	1,833,333,297
20	Selling expenses	2210	(1,018,103,482)	(1,610,827,753)
20	General and administrative expenses	2220	(66,251,075)	(66,620,484)
	Operating income (loss)	2200	116,800,058	155,885,060
20	Income from equity participation in other entities	2310	440,667,780	507,777,727
20	Interest receivable	2320	140,152,094	64,866,869
16.20	Interest payable	2330	(327,398,599)	(129,651,537)
20	Gains from changes in the fair value of derivative financial instruments	2333	111,422,887	1,727
20	Losses from changes in the fair value of derivative financial instruments	2334	(74,488,087)	(127,866,895)
17.20	Other income	2340	143,439,564	162,688,723
13,17,20	Other expenses	2350	(377,310,911)	(127,328,483)
20	Income (loss) before tax	2300	173,284,786	506,373,191
	Current income tax	2410	47,768,608	36,578,563
21	Including permanent tax assets (liabilities)	2421	119,534,206	186,244,916
21	Change in deferred tax liabilities	2430	(10,695,581)	(15,261,827)
21	Change in deferred tax assets	2450	46,691,230	57,515,416
	Other	2460	(17,635,788)	(83,529,045)
	Tax on prior year income	2461	836,088	17,290,555
	Imputed income tax	2464	-	-
	Income tax re-distribution within consolidated taxpayer group	2465	(27,434)	(1,292,030)
13	Tax effect of the results of other operations not included in net income (loss) for the period	2466	(18,444,442)	(99,527,570)
22	Net income (loss)	2400	239,413,255	501,676,298
	FOR REFERENCE
	Result of the revaluation of non-current assets not included in net income (loss) for the period	2510	-	-
13.19	Result from other operations not included in net income (loss) for the period	2520	(73,794,508)	(398,125,596)
	Comprehensive income for the period	2500	165,618,747	103,550,702
22	Basic earnings (loss) per share, RUB per share	2900	22.59	47.34

Statement of changes in equity for the 2015 reporting year

Rosneft Oil Company
Monetary unit: kRUB

Item	Line code	Share capital	Treasury shares	Additional capital	Reserve capital	Other funds and reserves	Retained earnings (uncovered loss)	Total
Equity at 31 December 2013	3100	105,982	-	113,276,759	5,299	-	1,275,039,243	1,388,427,283
FOR THE 2014 REPORTING YEAR
Total increase in equity:	3210	-	-	9,194	-	-	501,692,346	501,701,540
Including:
Net income	3211	х	х	х	х	х	501,676,298	501,676,298
Revaluation of property	3212	х	x	-	х	-	х	-
Earnings directly increasing equity	3213	х	x	9,194	х	-	16,048	25,242
Additional issue of shares	3214	-	-	-	х	-	х	-
Increase in the par value of shares	3215	-	x	-	х	-	-	x
Legal entity reorganization	3216	-	-	-	-	-	-	-
Total decrease in equity:	3220	-	-	(24,508)	-	(398,110,282)	(136,186,585)	(534,321,375)
Including:
Loss	3221	х	х	х	х	х	-	-
Revaluation of property	3222	х	x	-	х	-	х	-
Expenses directly decreasing equity	3223	х	x	(24,508)	х	(398,110,282)	х	(398,134,790)
Decrease in the par value of shares	3224	-	-	-	х	-	-	-
Decrease in the number of shares	3225	-	-	x	х	-	х	-
Legal entity reorganization	3226	-	-	-	-	-	-	-
Dividends	3227	х	х	х	х	х	(136,186,585)	(136,186,585)
Change in additional capital	3230	х	х	-	х	-	-	х
Change in reserve capital	3240	х	х	х	-	х	-	х
Equity at 31 December 2014	3200	105,982	-	113,261,445	5,299	(398,110,282)	1,640,545,004	1,355,807,448
FOR THE 2015 REPORTING YEAR
Total increase in equity:	3310	-	-	15,722	-	-	239,429,153	239,444,875
Including:
Net income	3311	х	х	х	х	х	239,413,255	239,413,255
Revaluation of property	3312	х	х	-	х	-	х	-
Earnings directly increasing equity	3313	х	х	15,722	х	-	15,898	31,620
Additional issue of shares	3314	-	-	-	х	-	х	-
Increase in the par value of shares	3315	-	x	-	х	-	-	x
Legal entity reorganization	3316	-	-	-	-	-	-	-
Total decrease in equity:	3320	-	-	(32,458)	-	(73,777,772)	(87,011,040)	(160,821,270)
Including:
Loss	3321	х	х	х	х	х	-	-
Revaluation of property	3322	х	х	-	х	-	х	-
Expenses directly decreasing equity	3323	х	х	(32,458)	х	(73,777,772)	х	(73,810,230)
Decrease in the par value of shares	3324	-	-	-	х	-	-	-
Decrease in the number of shares	3325	-	-	х	х	-	х	-
Legal entity reorganization	3326	-	-	-	-	-	-	-
Dividends	3327	х	х	х	х	х	(87,011,040)	(87,011,040)
Change in additional capital	3330	х	х	-	х	-	-	х
Change in reserve capital	3340	х	х	х	-	х	-	х
Equity at 31 December 2015	3300	105,982	-	113,244,709	5,299	(471,888,054)	1,792,963,117	1,434,431,053

Statement of changes in equity
for the 2015 reporting year

Rosneft Oil Company
Monetary unit: kRUB

2. Adjustments due to a change in accounting policy and correction of errors

Item	Line code	At 31 December 2013	Change in equity for 2014		At 31 December 2014
Item	Line code	At 31 December 2013	Through net income (loss)	Through other factors	At 31 December 2014
Total equity
Before adjustments	3400	1,388,359,416	501,324,290	(534,296,133)	1,355,387,573
Adjustment due to:
Changes in the accounting policy	3410	67,867	352,008	-	419,875
Correction of errors	3420	-	-	-	-
After adjustments	3500	1,388,427,283	501,676,298	(534,296,133)	1,355,807,448
Including:
Retained earnings (uncovered loss):
Before adjustments	3401	1,274,971,376	501,324,290	(136,170,537)	1,640,125,129
Adjustment due to:
Changes in the accounting policy	3411	67,867	352,008	-	419,875
Correction of errors	3421	-	-	-	-
After adjustments	3501	1,275,039,243	501,676,298	(136,170,537)	1,640,545,004
Other equity items that have been adjusted (By items)
Before adjustments	3402	113,388,040	-	(398,125,596)	(284,737,556)
Adjustment due to:
Changes in the accounting policy	3412	-	-	-	-
Correction of errors	3422	-	-	-	-
After adjustments	3502	113,388,040	-	(398,125,596)	(284,737,556)

3. Net assets

Item	Line code	At 31 December 2015	At 31 December 2014	At 31 December 2013
Net assets	3600	1,434,431,053	1,355,814,561	1,388,491,081

Statement of cash flows
for the 2015 reporting year

Rosneft Oil Company
Monetary unit: kRUB

Item	Line code	For the 2015 reporting year	For the 2014 reporting year
CASH FLOWS FROM OPERATING ACTIVITIES
Total proceeds	4110	5,725,793,303	5,760,646,373
Including:
From the sale of products, goods, work and services	4111	4,709,414,133	4,857,613,816
Lease payments, license payments, royalties, commissions and other similar payments	4112	125,157,453	113,059,260
From resale of financial investments	4113	-	12,373,182
Other proceeds	4119	891,221,717	777,600,115
Total cash disbursements	4120	(4,451,267,732)	(4,722,726,687)
Including:
Payments to suppliers (contractors) for raw materials, work and services	4121	(3,258,900,354)	(4,022,603,294)
Payroll-related payments	4122	(27,737,080)	(23,976,322)
Interest on debt obligations	4123	(219,080,002)	(81,107,628)
Income tax	4124	(2,137,733)	(15,221,473)
Exploration costs	4128	(10,499,340)	(13,421,255)
Other payments	4129	(932,913,223)	(566,396,715)
Net cash flows from operating activities	4100	1,274,525,571	1,037,919,686
CASH FLOWS FROM INVESTING ACTIVITIES
Total proceeds	4210	1,795,255,507	852,901,252
Including:
From sale of non-current assets (other than financial investments)	4211	397,631	6,416
From sale of shares (interests) in other entities	4212	6,973,058	-
From repayment of loans issued and sale of debt securities (receivables from other parties)	4213	1,378,019,323	331,399,383
Dividends, interest on debt financial instruments and similar proceeds from equity participation in other entities	4214	397,968,793	506,001,126
Other proceeds	4219	11,896,702	15,494,327
Total payments	4220	(2,463,384,926)	(2,455,099,603)
Including:
Purchase, creation, upgrading, reconstruction and preparation for use of non-current assets	4221	(125,986,501)	(173,273,415)
Purchase of shares (interests) in other entities	4222	(169,119,011)	(256,721,722)
Purchase of debt securities (receivables from other parties), provision of loans to other parties	4223	(2,103,528,398)	(1,942,511,610)
Interest on debt obligations included in the value of the investment asset	4224	-	-
Exploration assets	4228	(20,856,545)	(41,296,236)
Other payments	4229	(43,894,471)	(41,296,620)
Net cash flows used in investing activities	4200	(668,129,419)	(1,602,198,351)
CASH FLOWS FROM FINANCING ACTIVITIES
Total proceeds	4310	2,037,853,494	1,910,810,190
Including:
Loans and borrowings received	4311	1,637,853,504	1,250,825,747
Cash contributions of shareholders (participants)	4312	-	-
Issue of shares, increase in interests	4313	-	-
Issue of bonds, promissory notes and other debt securities, etc.	4314	399,999,990	659,984,443
Other proceeds	4319		-
Total payments	4320	(2,420,311,078)	(1,457,429,764)
Including:
Payments to shareholders (participants) due to the buyback of shares (interests) in the entity or due to their withdrawal	4321	-	-
Dividends and other distributions of income among shareholders (participants)	4322	(86,989,905)	(136,088,774)
Repayment (redemption) of promissory notes and other debt securities, repayment of loans and borrowings	4323	(2,333,321,173)	(1,321,340,990)
Other payments	4329	-	-
Net cash flows from financing activities	4300	(382,457,584)	453,380,426
Net cash flows for the reporting period	4400	223,938,568	(110,898,239)
Balance of cash and cash equivalents at the beginning of the reporting period	4450	127,975,011	199,904,499
Balance of cash and cash equivalents at the end of the reporting period	4500	402,389,690	127,975,011
Effect of changes in the exchange rate of foreign currency to the ruble	4490	50,476,111	38,968,751

EXPLANATORY NOTES TO THE BALANCE SHEET AND THE INCOME STATEMENT OF ROSNEFT OIL COMPANY FOR THE 2015 REPORTING YEAR

These Explanatory Notes to the balance sheet and the income statement constitute an integral part of the financial statements of Rosneft Oil Company for the 2015 reporting year prepared in accordance with the applicable legislation of the Russian Federation.

The reporting date of these financial statements, as of which they are prepared, is 31 December 2015.

1. Entity and types of activity

Company description

Open joint-stock company Rosneft Oil Company (hereinafter, the «Company») was established in accordance with Decree No. 327 of the President of the Russian Federation, On Priority Measures for Improving the Activities of Oil Companies, dated 1 April 1995 and pursuant to Resolution No. 971 of the Government of the Russian Federation, On the Transformation of State Enterprise Rosneft into Open Joint-Stock Company Rosneft Oil Company, dated 29 September 1995.

The Company is a legal entity that operates on the basis of its Charter and the laws of the Russian Federation.

Legal address (location) of the Company:

Legal address of the Company: 26 / 1 Sofiyskaya Embankment, Moscow, Russian Federation, 115035.

Governing bodies of the Company

General Shareholders’ Meeting of the Company

The General Shareholders’ Meeting is the supreme governing body of the Company. The scope of authority of the General Shareholders’ Meeting of the Company, the procedure for convening and holding it and its proceedings are determined in accordance with federal laws, the Charter of the Company and the Regulation on the General Shareholders’ Meeting of the Company.

The address of the place for holding the General Shareholders’ Meeting is determined by the Company’s Board of Directors.

The annual General Shareholders’ Meeting is held not earlier than two months and not later than six months after the end of the financial year.

The General Shareholders’ Meeting is chaired by the Chairman of the Company’s Board of Directors or, in his absence, a member of the Board of Directors selected by the decision of the Board of Directors.

Board of Directors of the Company

The Company’s Board of Directors is responsible for the general management of the Company’s activities, except for the matters that fall within the authority of the General Shareholders’ Meeting according to federal laws and the Charter of the Company.

The members of the Company’s Board of Directors are elected by the General Shareholders’ Meeting to serve until the next annual General Shareholders’ Meeting.

The Board of Directors of Rosneft Oil Company that served as of 31 December 2015 was formed by the decision of the General Shareholders’ Meeting of the Company held on 17 June 2015.

As of 31 December 2015, the Board of Directors of Rosneft Oil Company comprises:

Andrey Igorevich Akimov	Member of the Board of Directors of Rosneft Oil Company, Chairman of the Management Board of Joint-stock Company Gazprombank
Andrey Removich Belousov	Chairman of the Board of Directors of Rosneft Oil Company, Assistant to the President of the Russian Federation
Matthias Arthur Warnig	Deputy Chairman of the Board of Directors of Rosneft Oil Company, Managing Director of Nord Stream AG (Switzerland)
Oleg Vyacheslavovich Viyugin	Member of the Board of Directors of Rosneft Oil Company, non-executive director, Chairman of the Board of Directors of PAO MDM Bank
Robert Warren Dudley	Member of the Board of Directors of Rosneft Oil Company, Director and a member of the Board of Directors, Chairman of the Executive Committee of the Board of Directors, CEO of BP Group
Guillermo Ordonez Quintero	Member of the Board of Directors of Rosneft Oil Company, Director of BP Petroleo y Gas, S. A., President of BP Exploracion de Venezuela S. A.;
Alexander Valentinovich Novak	Member of the Board of Directors of Rosneft Oil Company, Minister of Energy of the Russian Federation
Igor Ivanovich Sechin	Deputy Chairman of the Board of Directors of Rosneft Oil Company, Chairman of the Management Board of Rosneft Oil Company
Donald Humphreys	Member of the Board of Directors of Rosneft Oil Company, non-executive director

In accordance with clause 2 of Article 64 of the Federal Law, On Joint-stock Companies, and the Regulation on the Calculation and Payment of Remuneration and Compensations for Expenses to the Members of the Board of Directors of the Company, remuneration to the members of the Board of Directors during the period when they perform their duties is paid on the basis of a decision of the General Shareholders’ Meeting.

On 17 June 2015, the annual General Shareholders’ Meeting (unnumbered minutes) approved remuneration to the following members of the Board of Directors of the Company for the period during which they performed their duties:

Andrey Igorevich Akimov: USD 530,000

Andrey Removich Bokarev: USD 530,000

Matthias Warnig: USD 580,000

Nikolay Pavlovich Laverov: USD 580,000

Aleksandr Dmitrievich Nekipelov: USD 660,000

Donald Humphreys: USD 580,000

Artur Nikolaevich Chilingarov: USD 530,000

These amounts are net of reimbursement for business trip expenses. In 2015, no remuneration shall be paid to the members of the Board of Directors of Rosneft Oil Company who are government officials (Andrey Removich Belousov, Aleksandr Valentinovich Novak) and the Chairman of the Board of Rosneft Oil Company (Igor Ivanovich Sechin) for performing their duties as the members of the Board of Directors of Rosneft Oil Company.

As of 31 December 2015, the Company fulfilled its obligation and paid remuneration to the above members of the Board of Directors of Rosneft Oil Company for the period during which they performed their duties.

Sole executive body of the Company

The President of Rosneft Oil Company is its sole executive body.

Igor Ivanovich Sechin was appointed President of the Company by the decision of the Board of Directors of Rosneft Oil Company (Minutes No. 22 of the Board of Directors’ meeting dated 23 May 2012) and took office on 24 May 2012. Igor Ivanovich Sechin was appointed as the sole executive body of the Company for a new 5-year period by decision of the Board of Directors of Rosneft Oil Company dated 30 April 2015 (Minutes No. 32 of the Board of Directors’ meeting dated 30 April 2015).

Collegial executive body of the Company

Pursuant to the Charter, the Management Board is the collegial executive body of the Company.

As of 31 December 2015, members of the Management Board of the Company include:

1.	Igor Ivanovich Sechin	President, Chairman of the Management Board of Rosneft Oil Company
2.	Yuri Ivanovich Kalinin	Deputy Chairman of the Management Board, Vice President for HR and Social Policy at Rosneft Oil Company
3.	Eric Maurice Liron	First Vice President of Rosneft Oil Company in charge of production
4.	Larisa Vyacheslavovna Kalanda	State Secretary, Vice President of Rosneft Oil Company in charge of communication with the authorities
5.	Didier Casimiro	Vice President for Refining, Petrochemical, Commerce and Logistics at Rosneft Oil Company
6.	Vasiliy Nikolaevich Yurchenko	Acting Vice President - Vice President, Head of Security at Rosneft Oil Company
7.	Yury Anatolyevich Narushevich	Vice President for Internal Services at Rosneft Oil Company
8.	Runje Zeljko	Vice President for Offshore Projects at Rosneft Oil Company
9.	Svyatoslav Igorevich Slavinskiy	Vice President for Economics and Finance at Rosneft Oil Company
10.	Andrey Shishkin	Vice President for Energy and Localization at Rosneft Oil Company
11.	Petr Ivanovich Lazarev	Financial Director of Rosneft Oil Company

The Board of Directors of Rosneft Oil Company made the following decisions with respect to the Management Board of the Company:

Early termination of powers of A. V. Votinov and I. V. Pavlov and appointment of Yu. A. Narushevich and A. N. Shishkin as the members of the Management Board (Minutes No. 29 dated 24 April 2015);

Early termination of powers of I. V. Maydannik as the member of the Management Board (Minutes No. 36 dated 16 June 2015);

Early termination of powers of R. R. Sharipov and N. M. Mukhitov as the members of the Management Board, appointment of V. N. Yurchenko as the member of the Management Board, and reduction in the number of members of the Management Board of Rosneft Oil Company from 13 to 11 people (Minutes No. 6 dated 5 October 2015).

No remuneration, bonuses or other compensations shall be paid to the members of the Management Board of the Company for their involvement in the management bodies of Rosneft subsidiaries.

Control of the Company’s financial and business operations

Control of the Company’s financial and business operations is exercised by the Audit Commission. The Audit Commission’s operating procedure is specified in the Regulation on the Audit Commission of the Company, as approved by the General Shareholders’ Meeting of the Company.

The Audit Commission of the Company comprises five (5) members who are elected by the General Shareholders’ Meeting to serve until the next annual General Shareholders’ Meeting.

As of 31 December 2015, the Audit Commission of the Company comprises:

1.	Alexey Anatolievich Afonyashin	Deputy Director, Department of State Regulation of Tariffs, Infrastructure Reform and Energy Efficiency, Russian Ministry of Economic Development
2.	Oleg Sergeevich Zenkov	Advisor to Deputy Minister who is the Head of the Federal Property Management Agency (Rosimushchestvo)
3.	Sergey Ivanovich Poma	Deputy Chairman of the Management Board of the National Association of Securities Market Participants (NAUFOR, a self-regulatory non-profit organization)
4.	Zakhar Borisovich Sabantsev	Head of the Banking Sector Monitoring, Consolidation and Analytics Unit of the Financial Policy Department of the Ministry of Finance of the Russian Federation (Russian Ministry of Finance)
5.	Tatyana Vladimirovna Fisenko	Director of the Budget Planning and Accounting Department of the Ministry of Energy of the Russian Federation (Russian Ministry of Energy)

The members of the Company’s Audit Commission received no remuneration for their service on the Audit Commission in 2015.

Structure of the Company’s share capital*

Information about the shareholders of Rosneft Oil Company as of 31 December 2015 is presented below:

OJSC ROSNEFTEGAZ held 7,365,816,383 common shares in Rosneft Oil Company, representing 69.5 % of the total number of common shares and the share capital of the Company.

Non-banking Credit Organization Closed Joint-Stock Company National Settlement Depository (NSD) was the nominee for 3,189,547,616 common shares in Rosneft Oil Company, representing 30.1 % of the total number of common shares and the share capital of the Company (the nominee is the central depository).

Other legal entities with a share of less than 1 % were the holders of or the nominees for 1,582,062 common shares in Rosneft Oil Company, representing 0.01 % of the total number of common shares and the share capital of the Company.

Individuals held 41,199,398 common shares in Rosneft Oil Company, representing 0.39 % of the total number of common shares and the share capital of the Company.

The Russian Federation, acting through the Federal Property Management Agency, held 1 common share in Rosneft Oil Company, representing 0.000000009 % of the total number of common shares and the share capital of the Company.

32,357 common shares in Rosneft Oil Company, representing 0.0003 % of the total number of common shares and the share capital of the Company were recorded in the account for unidentified persons.

* Information is based on the data of Rosneft shareholders’ register.

Description of the Company’s activities

In accordance with clause 3.4 of Article 3 of Rosneft Oil Company’s Charter (revised version) approved by the annual General Shareholders’ Meeting of the Company on 27 June 2014 (unnumbered minutes), the Company prospects, explores, extracts and processes oil, gas and gas condensate, sells oil, gas, gas condensate, and oil and gas products to consumers in and outside the Russian Federation, conducts any related activities, and works with precious metals and precious stones. The Company is engaged, in particular, in the following principal activities:

Geological prospecting and exploration to find the deposits of oil, gas, coal and other minerals; extraction, transportation and processing of oil, gas, coal and other minerals, and timber; production of oil products, petrochemicals and other products, including liquefied natural gas, gas products and gas chemicals, electric power, wood products, consumer goods, and provision of services to the public; storage and sale (including domestic and export sales) of oil, liquefied and gaseous gas, oil products, gas products and gas chemicals, coal, electric power, wood products, and other products from hydrocarbons and other raw materials.
Investing, including transactions with securities.
Managing the fulfillment of orders placed by the federal government and regional consumers of the products made by the Company and its subsidiaries and associates, including deliveries of oil, gas and oil products.
Investment management, construction, engineering, technological and other services for upstream and downstream projects, and research and development, procurement and distribution, economic, foreign economic and legal support for the Company, its subsidiaries and associates, and third-party customers. Surveying commodity and service markets, and the securities market, conducting sociological and other research. Regulating and coordinating the activities of subsidiaries and associates.
Leasing out immovable and other property, using leased property.
Assisting in securing the interests of the Russian Federation when it prepares and implements production sharing agreements for subsurface areas and hydrocarbon deposits.
Managing advertising and publishing activities, conducting exhibitions, fairs, auctions, etc.
Intermediary, consulting, marketing and other activities, including foreign economic activities (including export / import operations), performing work and providing services on a contractual basis.
Ensuring the protection of the Company’s employees and property.
Using precious metals and precious stones in technological processes as elements of equipment and materials.
Arranging and holding mobilization training and civil defense events, working with state secrets and protecting them.

The Company has the following branches and representative offices:

A branch in the Chechen Republic located at: 7 / 84 Revolution Av., Grozny, 364051
A representative office in the North Caucasus located at: 54 Krasnaya St., Krasnodar, 350610
A representative office in the Yamalo-Nenets Autonomous District located at: 3 microdistrict 10, Gubkinsky, 629830
A representative office in the Far East located at: 17 Khabarovskaya St., Sakhalin Region, Yuzhno-Sakhalinsk, 693010
A representative office in the Stavropol Territory located at: 5, 50 let Pionerii St., Neftekumsk, 356880
A representative office in the Khanty-Mansi Autonomous District (Yugra) located at: 26 Lenina St., Nefteyugansk, 628309
A representative office in the Komi Republic located at: 1 Pripolyarnaya St., Usinsk, 169710
A representative office in the Khabarovsk Territory located at: 22 Shevchenko St., Khabarovsk, 680000
A representative office in the Asia Pacific region located at: Central International Trade Center, Tower D, 6A, Jianguomenwai Av., Chaoyang District, Beijing, PRC, 100022
A representative office in the Middle East located at: Office A 1101, Tower C6, Sector W35, Bainunah St., Bateen area, Abu Dhabi, UAE-.

At the end of 2015, the average headcount of the Company was 4,083 persons, up 50 persons year on year. The increase in the headcount was due to organizational and staff changes aimed at increase in the efficiency of business processes: the Company implemented the unified supply system, segregated the functions of the customer and provider of oilfield services, and reorganized its occupational health and safety system and capital construction management system.

2. Basis of preparation

The accounting records are maintained in accordance with Federal Law No. 402-FZ, On Accounting, dated 6 December 2011, the Statute on Accounting and Reporting in the Russian Federation approved by Order No. 34n of the Russian Ministry of Finance dated 29 July 1998 (as amended on 30 December 1999, 24 March 2000, 18 September 2006, 26 March 2007, 25 October 2010 and 24 December 2010), and applicable Accounting Statements. The Company’s financial statements for the 2015 reporting year were prepared in accordance with the Law and Accounting Statements.

3. Changes in opening balances in the financial statements for the 2015 reporting year

To ensure the comparability of financial statements, the adjustment of opening balances was reflected in line with the changes in the accounting policy:

Expenditures for conducting 3D and 4D seismic surveys in support of the production drilling at commercially recoverable oil and gas fields, are capitalized (previously included in oil and gas reserves exploration and estimation expenses).
Costs related to exploration and appraisal off-shore drilling, and work-in-progress are capitalized (previously included in oil and gas reserves exploration and estimation expenses).
Oil and gas reserves exploration and estimation expenses are considered in calculating gross income (costs were transferred from line 2230 to line 2130 in the income statement). This adjustment is a change in the presentation of information and has no impact on the financial result.
Translation differences arising on the translation of foreign currency denominated assets and liabilities are recognized in the income statement on a net basis in line 2340, Other income, or line 2350, Other expenses, (previously included on a gross basis: positive translation differences were included in other income, negative translation differences - in other expenses). This adjustment is a change in the presentation of information about the amount of income and expenses and has no impact on the financial result.
Interest payments related to swap transactions were recognized on a net basis for 2014 based on the applied method on netting of interest payments related to swap transactions in 2015. This adjustment is a change in the presentation of information about the amount of income and expenses and has no impact on the financial result.

The Company also adopted the following changes in the accounting policy and the key changes in estimates which did not result in a retrospective restatement of comparable indicators:

Line 2220, Administrative expenses, was changed to General and administrative expenses, in the income statement.
The procedure for accounting and reporting the property tax was changed: starting 1 January 2015, the property tax is allocated to expense accounts (Cost of sales, General and administrative expenses, Commercial costs, Other expenses) in accordance with appropriate property designation.

Table 1 Changes in the opening balances of the balance sheet (kRUB)

Item Date	LLine	As previously reported	As currently reported	Changes	Reason
ASSETS
Intangible assets
At 31 December 2013	1110	9,586,295	9,646,678	60,383	According to changes in the accounting policies, (1) expenditures for conducting 3D and 4D seismic surveys in support of the development at commercially recoverable oil and gas fields, in progress as of 31 December of prior reporting periods are capitalized.
At 31 December 2014	1110	19,823,242	20,276,532	453,290
Tangible exploration assets
At 31 December 2013	1140	5,558,235	5,582,686	24,451	According to changes in the accounting policies, (2) costs related to exploration and appraisal off-shore drilling, and works in progress as of 31 December of prior reporting periods are capitalized.
At 31 December 2014	1140	9,944,290	10,015,844	71,554
Deferred tax assets
At 31 December 2013	1180	16,025,030	16,008,063	(16,967)	Deferred tax assets are adjusted in accordance with changes in the accounting policies, related to (1) capitalization of expenditures for conducting 3D and 4D seismic surveys and (2) costs related to exploration and appraisal off-shore drilling.
At 31 December 2014	1180	73,628,448	73,523,479	(104,969)
BALANCE
At 31 December 2013	1600	4,984,766,143	4,984,834,010	67,867
At 31 December 2014	1600	7,787,726,949	7,788,146,824	419,875
LIABILITIES
Retained earnings (uncovered loss)
At 31 December 2013	1370	1,274,971,376	1,275,039,243	67,867	Effect of changes in the accounting policies (1) and (2) subject to deferred taxes recalculation.
At 31 December 2014	1370	1,640,125,129	1,640,545,004	419,875
BALANCE
At 31 December 2013	1700	4,984,766,143	4,984,834,010	67,867
At 31 December 2014	1700	7,787,726,949	7,788,146,824	419,875

Table 2 Changes in the income statement (kRUB)

Description	Line	As previously reported for 2014	Changes	As currently reported for 2014	Reason
Oil and gas reserves exploration and estimation expenses	2130	-	(15,103,523)	(15,103,523)	According to changes in the accounting policies, (3) oil and gas reserves exploration and estimation expenses are considered in calculating gross income (costs were transferred from line 2230 to line 2130 in the income statement). According to changes in the accounting policies related to (1) capitalization of expenditures for conducting 3D and 4D seismic surveys and (2) costs related to exploration and appraisal off-shore drilling.
Gross income (loss)	2100	1,848,436,820	(15,103,523)	1,833,333,297
Oil and gas reserves exploration and estimation expenses	2230	(15,543,533)	15,543,533	-
Operating income (loss)	2200	155,445,050	440,010	155,885,060
Interest receivable	2320	66,169,534	(1,302,665)	64,866,869	(5) Adjustment of interest payments related to swap transactions for 2014 recorded on a net basis, based on the applied method of netting interest payments on swap transactions in 2015.
Interest payable	2330	(130,954,202)	1,302,665	(129,651,537)
Other income	2340	1,258,575,874	(1,095,887,151)	162,688,723	(4) Translation differences arising on the translation of foreign currency denominated assets and liabilities are recognized in the income statement on a net basis in line 2340, Other income, or line 2350, Other expenses.
Other expenses	2350	(1,223,215,634)	1,095,887,151	(127,328,483)
Income (loss) before tax	2300	505,933,181	440,010	506,373,191
Change in deferred tax assets	2450	57,603,418	(88,002)	57,515,416	Deferred tax assets are adjusted in accordance with changes in the accounting policies, related to (1) capitalization of expenditures for conducting 3D and 4D seismic surveys and (2) costs related to exploration and appraisal off-shore drilling.
Net income (loss)	2400	501,324,290	352,008	501,676,298
Comprehensive financial result for the period	2500	103,198,694	352,008	103,550,702
Basic earnings (loss) per share, RUB per share	2900	47.30	0.04	47.34

Corrections were made to the Explanatory Notes to the balance sheet and the income statement for the 2015 reporting year in line with the above information to ensure data comparability.

4. Information about the accounting policy

The Company developed its accounting policy in accordance with the principles established by Accounting Statement 1 / 2008, Accounting Policies of an Organization, approved by Oder No. 106n of the Russian Ministry of Finance dated 6 October 2008:
- Economic entity assumption according to which the Company’s assets and liabilities are accounted for separately from the assets and liabilities of other legal entities and individuals
- Going concern assumption according to which the Company will continue its business in the foreseeable future and it neither intends nor has to liquidate or significantly curtail its activities, and, therefore, its liabilities will be duly discharged
- Consistency assumption according to which the Company will consistently apply the adopted accounting policy in its activities
- Time period assumption
Material accounting methods provided for by the Company’s accounting policy in 2015 are reflected below in the respective Explanatory Notes to the balance sheet and the income statement for the 2015 reporting year.

The Company does not intend to make any significant changes to its 2016 accounting policies as of the date of signing these Explanatory notes.

5. Fixed assets and capital construction in progress

Assets intended for use in the manufacturing of products, performance of work and provision of services, or for administrative needs over their useful lives of more than 12 months are accounted for as fixed assets.

Fixed assets include buildings, structures, machinery, equipment, measuring and control instruments and devices, computers, vehicles, tools, fixtures and fittings, etc. Fixed assets also include land plots and natural resources. The Russian Classifier of Fixed Assets approved by Resolution No. 359 of the State Committee of the Russian Federation for Standardization, Methodology and Certification dated 26 December 1994 is used to determine the structure and grouping of fixed assets.

Items intended solely to be leased out are recorded in line 1150, Fixed assets. The net book value of such items at the beginning and at the end of the period was RUB 507,946 million and RUB 512,950 million, respectively.

An asset is recognized as a fixed asset on the date it is ready for operation. Fixed assets the rights to which are subject to state registration are included in the fixed assets at the date of delivery to their final destination, if the asset it ready for operation. Using the substance-over-form principle, the completed capital construction projects and purchased real estate items that are actually in operation are also included in fixed assets, regardless of whether the documents for their state registration have actually been submitted. Such items are depreciated in accordance with the established procedure.

For accounting purposes, fixed assets are depreciated using the straight-line method:

Assets put into operation before 1 January 2002: At the depreciation rates set by Resolution No. 1072 of the Council of Ministers of the USSR dated 22 October 1990
Assets put into operation after 1 January 2002: At the depreciation rates calculated based on the useful lives set by Resolution No. 1 of the Government of the Russian Federation, dated 1 January 2002

The main groups of fixed assets have the following useful lives:

Buildings	30 to 100 years
Structures	10 to 15 years
Machinery and equipment	5 to 7 years

Assets with a value of not more than RUB 40,000 per unit have been recorded and reported as inventories since 1 January 2014. To ensure the safety of the assets during production or operation, the Company makes arrangements to control their movements.

Fixed assets include the following assets (irrespective of their value):

Land plots
Buildings
Structures
Transfer devices
Downhole equipment
Vehicles

Items to be leased out are recorded and reported within fixed assets, irrespective of their value.

Fixed assets are reported in the balance sheet at their net book value.

Fixed assets are not revalued following the completion of the mandatory revaluation of fixed assets in accordance with the Resolutions of the Russian Government.

Table 3 Information on fixed assets (kRUB)

Group of fixed assets	Period	At the beginning of the period		Changes for the period				At the end of the period
		Historical cost	Accumulated depreciation	Additions	Disposals		Depreciation charge	Historical cost	Accumulated depreciation
		Historical cost	Accumulated depreciation	Additions	Historical cost	Accumulated depreciation	Depreciation charge	Historical cost	Accumulated depreciation
Total fixed assets	2015	1,017,237,664	445,305,511	113,553,441	2,098,216	1,452,781	117,783,879	1,128,692,889	561,636,609
Total fixed assets	2014	874,486,715	343,558,938	143,707,458	956,509	577,492	102,324,065	1,017,237,664	445,305,511
Buildings and structures	2015	861,514,798	372,912,951	104,447,753	1,791,042	1,199,273	99,797,224	964,171,509	471,510,902
Buildings and structures	2014	734,512,530	289,563,944	127,717,729	715,461	400,182	83,749,189	861,514,798	372,912,951
Machinery, equipment, vehicles	2015	151,679,986	71,108,447	8,918,497	232,965	182,795	17,753,395	160,365,518	88,679,047
Machinery, equipment, vehicles	2014	135,954,971	53,001,709	15,951,835	226,820	164,069	18,270,807	151,679,986	71,108,447
Total other fixed assets	2015	4,042,880	1,284,113	187,191	74,209	70,713	233,260	4,155,862	1,446,660
Total other fixed assets	2014	4,019,214	993,285	37,894	14,228	13,241	304,069	4,042,880	1,284,113
Including fixed assets that are not depreciated	2015	2,328,789	-	-	720	-	-	2,328,069	-
Including fixed assets that are not depreciated	2014	2,323,857	-	5,062	130	-	-	2,328,789	-

The historical cost of fixed assets as of 31 December 2015 amounted to RUB 1,128,693 million. It increased in comparison with 2014, as new assets were put into operation. Fixed assets that were put into operation amount to RUB 113,553 million.

Table 4 Information on fixed assets requiring state registration (kRUB)

	At 31 December 2015	At 31 December 2014	At 31 December 2013
Fixed assets whose title has not yet been registered	252,799,313	260,170,117	248,126,006
Including fixed assets whose registration documents have not yet been accepted by the state authorities	251,518,608	253,970,461	245,392,407

Table 5 Information on the use of fixed assets (kRUB)

Groups of fixed assets	At 31 December 2015	At 31 December 2014	At 31 December 2013
Total assets leased out (historical cost), including	1,033,294,250	917,937,906	757,457,095
Buildings	45,422,791	42,441,273	34,561,052
Structures	838,692,221	737,371,853	610,020,301
Mothballed fixed assets (historical cost)	29,629,845	21,745,044	21,035,314
Total fixed assets leased (contract or cadastral value), including	62,186,922	53,019,747	55,171,387
Land plots	55,319,378	48,571,323	49,619,737
Other fixed assets	6,867,544	4,448,424	5,551,650
Change in the value of fixed assets as a result of supplementary construction, retrofitting, refurbishment, or partial liquidation	18,466,682	16,305,272	15,451,296

Table 6 Information on capital investments in progress (kRUB)

Capital investments in progress by type of asset	At 31 December 2015	At 31 December 2014	At 31 December 2013
Equipment for installation	19,318,500	23,631,453	16,523,231
Construction in progress, including	405,039,886	347,192,735	279,910,164
Advances issued for construction, acquisition, manufacturing of fixed assets (net of VAT)	48,125,961	60,878,375	53,526,109
Other assets	11,913,830	14,067,792	10,657,693
Total	436,272,216	384,891,980	307,091,088

In 2015, the value of work performed under capital construction projects amounted to RUB 178,976 million (net of VAT). Investments in the purchase of equipment, both requiring and not requiring installation, fixed assets and land plots, and in appraisal and exploration drilling amounted to RUB 4,287 million (net of VAT).

Advances issued for construction, acquisition and manufacturing of fixed assets include the share of advances paid to purchase fixed assets with a value of up to RUB 40,000 per unit included in inventories. It is impossible to determine the final value of assets before the completion of the work performed to render them fit for use. Therefore, as of the reporting date, advances for acquisition are recognized within capital expenditures.

6. Intangible assets

Intangible assets include:

Exclusive right of a patent holder to an invention, industrial design or utility model
Exclusive right to computer software and databases
Exclusive right to integrated circuit topologies
Exclusive right to a trademark, service mark, or appellation of origin
Exclusive right to selection achievements
Exclusive right to trade secrets (know-how)
Oil and gas production licenses
Exclusive subsoil use rights when entering into international agreements that give the right to implement oil and gas exploration and production projects in a foreign jurisdiction or in the Russian Federation (licenses, concession agreements, subsoil use contracts, agreements on the provision of a participating interest, etc.)
Geological exploration and production licenses (mixed licenses), provided that the production of mineral resources in the license area is commercially viable; such licenses are accounted for in the same way as costs arising in connection with the exploration and appraisal of fields until it is confirmed that production is commercially viable
Other mineral licenses (for the construction of underground gas storage facilities, the production of conventional mineral resources and the abstraction of underground water)
Deliverables of 3D and 4D seismic surveys (including designing, field works, supervising, processing, interpretation, lease of forest plot) in support of the development at commercially recoverable oil and gas fields
Information received as the result of drilling the offshore appraisal and exploration wells abandoned as successful due to technological reasons at commercially recoverable fields
Digital and electronic maps, as well as other spatial data
Complex items comprising several protected intellectual properties (including those combining exclusive and non-exclusive rights):
- Multimedia product
- Audiovisual works (cinematic works or works involving media similar to those used in cinema (TV movies, videos, etc.))
- Website, etc.
Other intangible assets

Geological exploration and production licenses (mixed licenses) are accounted for in the same way as costs arising in connection with the exploration and appraisal of fields until it is confirmed that production is commercially viable.

Intangible assets are recognized at their actual (historical) cost determined in accordance with Accounting Statement 14 / 2007, Intangible Assets, approved by Order No. 153n of the Russian Ministry of Finance dated 27 December 2007.

When an intangible asset is created in-house, the related costs are to be capitalized beginning from the development stage, i. e. when the Company can demonstrate:

The technical feasibility of creating the intangible asset
Its intention and ability to create the intangible asset and use it
How the intangible asset will generate probable economic benefits
The availability of sufficient technical, financial and other resources to complete development and use the intangible asset
Ability to reliably estimate costs related to the intangible asset during its development

Costs incurred at the research stage are not capitalized and are treated as either expenses relating to ordinary activities or other expenses, depending on the purpose of research.

Intangible assets created in-house mean:

Intangible assets created by the Company’s employees when performing their job duties
Intangible assets resulting from the work performed by contractors under contracts that carry the risks of negative results for the Company

The Company created the following intangible assets in the reporting period:

Exclusive right to computer software and databases with a historical cost of kRUB 264,759
Patents with a historical cost of kRUB 535,646
Multimedia products with a historical cost of kRUB 12,914
Digital forest management maps with a historical cost of kRUB 92,644

The actual (historical) cost of an intangible asset acquired under a contract providing for non-monetary compensation (settlement) is determined on the basis of the cost of assets transferred or transferable by the Company. The cost of assets transferred or transferable by the Company is determined on the basis of the price it would normally use to determine the cost of similar assets under comparable circumstances.

Where it is impossible to determine the cost of assets transferred or transferable by the Company under such contracts, the cost of an intangible asset received by the Company is determined on the basis of the price at which similar intangible assets are purchased under comparable circumstances.

Intangible assets are amortized using the straight-line method or the unit-of-production method:

Exclusive right of a patent holder to an invention, industrial design or utility model: straight-line method
Exclusive right to computer software and databases: straight-line method
Exclusive right to integrated circuit topologies: straight-line method
Exclusive right to a trademark, service mark, or appellation of origin: straight-line method
Oil and gas production licenses, provided that the production of mineral resources in the license area is commercially viable: unit-of-production method
Exclusive subsoil use rights when entering into international agreements that give the right to implement oil and gas exploration and production projects in a foreign jurisdiction or in the Russian Federation (licenses, concession agreements, subsoil use contracts, agreements on the provision of a participating interest, etc.): - unit-of-production method
Geological exploration and production licenses (mixed licenses), provided that the production of mineral resources in the license area is commercially viable: unit-of-production method
Other mineral licenses (for the construction of underground gas storage facilities, the production of conventional mineral resources and the abstraction of underground water): straight-line method
Deliverables of 3D and 4D seismic surveys in support of the development at commercially recoverable oil and gas fields: unit-of-production method
Information received as the result of drilling the offshore appraisal and exploration wells abandoned as successful due to technological reasons at commercially recoverable oil and gas fields: unit-of-production method
Digital and electronic maps, as well as other spatial data: straight-line method
Other intangible assets: straight-line method

The Company determines the useful life of an intangible asset upon its recognition.

The useful life of an intangible asset is determined on the basis of:

The term of the Company’s rights to intellectual property or means of individualization, and the period of control over the asset
The period during which the Company is expected to use the asset and receive economic benefits

The Company annually reviews the useful life of an intangible asset in order to determine whether or not it should be revised. In the event of a significant change in the period, during which the company expects to use the asset, the asset’s useful life shall be revised. The resulting adjustments are recorded and reported as changes in estimates.

The main groups of intangible assets have the following useful lives:

Trademarks	5 to 10 years
Patents	5 to 25 years
Exclusive rights to computer software and databases	2 to 5 years
Oil and gas production licenses *	9 to 106 years
Geological exploration and production licenses (mixed license) *	15 to 176 years
Other mineral licenses (for the construction of underground gas storage facilities, the production of conventional mineral resources and the abstraction of underground water)	5 to 25 years

* Provided that the production of mineral resources in the license area is commercially viable

Intangible assets are not amortized if their useful lives cannot be determined.

The Company annually reviews the amortization method for an intangible asset during inventory counts in order to determine if it should be revised. If the calculation of the expected flow of future economic benefits from an intangible asset has changed significantly, the amortization method for that asset is also changed. The resulting adjustments are recorded and reported as changes in estimates.

If the timing for receiving future economic benefits is not reliably estimated during inventory counts, no changes are made to the amortization method.

Intangible assets are not revalued and are not tested for impairment by the Company.

The Company determined that there was no need to revise the amortization method and the useful lives of intangible assets in the reporting period.

The Company has determined useful lives for all intangible assets.

Intangible assets are reported in the balance sheet at their net book value.

Table 7 Information on intangible assets (kRUB)

Groups of intangible asset	Period	At the beginning of the period		Changes for the period				At the end of the period
		Historical cost	Accumulated amortization	Additions	Disposals		Amortization charge	Historical cost	Accumulated amortization
		Historical cost	Accumulated amortization	Additions	Historical cost	Accumulated amortization	Amortization charge	Historical cost	Accumulated amortization
Total intangible assets:	2015	20,512,505	1,116,129	1,201,432	44,388	44,348	1,258,972	21,669,549	2,330,753
Total intangible assets:	2014	9,960,078	825,988	10,611,033	58,606	58,605	348,746	20,512,505	1,116,129
Trademarks	2015	7,917	4,283	2,907	-	-	1,171	10,824	5,454
Trademarks	2014	7,823	3,363	94	-	-	920	7,917	4,283
Patents	2015	37,404	6,298	535,646	-	-	13,065	573,050	19,363
Patents	2014	27,919	4,041	9,485	-	-	2,257	37,404	6,298
Exclusive rights to computer software and databases	2015	922,023	814,063	264,759	42,099	42,099	185,029	1,144,683	956,993
Exclusive rights to computer software and databases	2014	834,491	605,968	87,532	-	-	208,095	922,023	814,063
Oil and gas production licenses (including mixed exploration and production licenses issued after commercial viability is confirmed)	2015	19,469,444	237,644	238,716	74	34	986,390	19,708,086	1,224,000
	2014	8,982,015	123,625	10,487,431	2	1	114,020	19,469,444	237,644
Other licenses	2015	810	475	-	3	3	33	807	505
Other licenses	2014	792	435	18	-	-	40	810	475
Information received as the result of drilling the offshore appraisal and exploration wells abandoned as successful due to technological reasons	2015	-	-	38,482	-	-	122	38,482	122
	2014	-	-	-	-	-	-	-	-
Other intangible assets	2015	74,907	53,366	120,922	2,212	2,212	73,162	193,617	124,316
Other intangible assets	2014	107,038	88,556	26,473	58,604	58,604	23,414	74,907	53,366

Table 8 Information on intangible assets created by the Company (kRUB)

Historical cost by group of intangible assets	At 31 December 2015	At 31 December 2014	At 31 December 2013
Total, including	1,904,958	1,027,942	963,056
Patents	566,658	31,012	21,527
Exclusive rights to computer software and databases	1,144,683	922,023	834,491
Other	193,617	74,907	107,038

Table 9 Information on investments in progress made to create intangible assets (kRUB)

Investments in progress	At 31 December 2015	At 31 December 2014	At 31 December 2013
Total investments in the creation of individual intangible assets, including by types:	1,594,961	880,156	512,588
Trademarks	19,751	1,043	2,079
Patents	1,010	321	51
Exclusive rights to computer software and databases	734,256	387,902	428,795
3D and 4D seismic surveys	829,705	453,290	60,383
Other intangible assets	10,239	37,600	21,280

Intangible assets received for use are recorded off the balance sheet and are estimated on the basis of the amount of remuneration specified in the contract.

Table 10 Information on intangible assets received by the Company for use (kRUB)

Cost by group of intangible assets	At 31 December 2015	At 31 December 2014	At 31 December 2013
Total, including	5,789,962	9,144,588	7,487,854
Non-exclusive rights to software programs, rights of access to information resources, trademarks with Olympic symbols	5,789,962	9,144,588	7,487,854

Table 11 Information on fully amortized intangible assets (kRUB)

Intangible assets	At 31 December 2015	At 31 December 2014	At 31 December 2013
Total, including	971,283	637,822	131,334
Trademarks	26	26	26
Patents	243	243	5
Exclusive rights to computer software and databases	918,537	598,680	93,608
Oil and gas production licenses	854	164	29
Other licenses	64	64	21
Other	51,559	38,645	37,645

7. Oil and gas reserves exploration and evaluation costs

Oil and gas reserves exploration and evaluation expenses are recognized using the successful efforts method of accounting, according to which only those costs are capitalized that are directly incurred in the discovery of new fields that will result in future economic benefits, while exploration costs (both direct and indirect), including geological and geophysical costs, are charged to expenses as incurred.

The following oil and gas reserves exploration and evaluation costs should be capitalized:

Costs related to acquiring of mineral rights for oil and gas reserves (geological exploration licenses, geological exploration and production licenses)
Costs related to appraisal / exploration drilling

Capitalized exploration and evaluation costs lead to the creation of exploration assets:

Exploration / appraisal wells – tangible exploration assets
Licenses – intangible exploration assets

Expenses related to the construction of offshore appraisal / exploration wells abandoned as successful in the license areas that did not prove to be commercially viable to recover oil and gas are capitalized as follows:

Expenses related to the construction of offshore appraisal / exploration wells abandoned as successful are initially recognized as tangible exploration assets and then transferred to intangible exploration assets in the event that the discovery of hydrocarbon reserves is confirmed and there is a possibility that these reserves will be approved by the State Committee on Reserves both with regard to the well (current reserves estimation) and the subsurface area (reserves estimation based on geological results of the well).
Until the decision on commercial viability has been reached, expenses related to the construction of offshore appraisal / exploration wells abandoned as successful are recognized as intangible exploration assets in the form of information received as the result of drilling the offshore appraisal / exploration wells.

As at the reporting date, the Company annually tests exploration assets for any indication of impairment when making the decision on the commercial viability of oil and gas production in a licensed area. Impairment testing is performed by field (licensed area). Where there is evidence of impairment, the Company writes down the exploration assets to the carrying value of the licenses and wells at a field (licensed area) or, in the event of the recoverability of exploration assets, to the realizable value.

Once the commercial viability of the subsurface area has been established, exploration assets in this area are subject to reclassification:
Exploration and production licenses become intangible assets
Appraisal / exploration wells become fixed assets (development wells construction in progress).

If production proves to be impractical, exploration assets are subject to impairment and are subsequently written off to other expenses of the Company.

Exploration assets are not depreciated.

The following costs are not capitalized in the value of assets and are taken to current-period expenses as oil and gas exploration and evaluation expenses:

Costs incurred at the regional stage
Exploration costs not related to appraisal / exploration drilling, including costs for the follow-up exploration of fields which have been put on stream and considered commercially developed
Costs related to the maintenance of subsurface areas where exploration is being carried out and of fields which are not commercially operated
Costs related to the preparation of project technical documentation for developing fields which are not commercially operated

The Company derecognizes exploration assets at the respective subsurface area if it proves to be commercially viable or if production is considered impractical.

Table 12. Information on exploration assets (kRUB)

Groups of licenses	Period	At the beginning of the period		Changes in cost over the period		At the end of the period
Groups of licenses	Period	Cost	Accumulated impairment losses	Additions	Disposals	Cost	Accumulated impairment losses
Tangible exploration assets	2015	10,087,080	71,236	14,665,097	13,414,046	11,338,131	-
Tangible exploration assets	2014	5,582,686	-	29,655,070	25,150,676	10,087,080	71,236
Intangible exploration assets, including	2015	64,928,636	197	12,564,944	14,799	77,478,781	2,828,345
Intangible exploration assets, including	2014	40,210,659	3,753,397	33,224,409	8,506,432	64,928,636	197
License to use subsurface resources with the right of extraction	2015	42,337,678	44	770,053	44	43,107,687	2,828,153
	2014	40,208,491	3,753,151	10,625,012	8,495,825	42,337,678	44
License to use subsurface resources without the right of extraction	2015	320	153	38	9	349	192
	2014	431	246	12	123	320	153
Information on the results of drilling of successfully liquidates appraisal / exploration wells	2015	22,582,574	-	10,601,808	-	33,184,382	-
	2014	-	-	22,582,574	-	22,582,574	-
Costs related to acquiring of mineral rights for oil and gas reserves	2015	8,064	-	1,193,045	14,746	1,186,363	-
	2014	1,737	-	16,811	10,484	8,064	-

Increase in intangible exploration assets in 2015 was mainly due to the information received as a result of offshore appraisal / exploration drilling in the amount of RUB 10,602 million.

As of the reporting date in 2015, impairment of intangible exploration assets amounted to RUB 2,828 million.

The disposal of tangible exploration assets in 2015 was mainly due to the transfer of the value of Universitetskaya 1, an appraisal well in the Kara Sea abandoned as successful, totaling RUB 10,602 million to intangible exploration assets and expensed costs related to the construction of appraisal / exploration wells which did not produce oil flow (dry wells) totaling RUB 1,396 million, and due to putting into operation of fixed assets totaling RUB 1,340 million.

8. Research and development results

Research and development results include costs incurred during the stage of development of R&D work in progress (recorded as investments in non-current assets) and completed (recognized as intangible assets / R&D).

The Company’s costs are recognized in the accounts as R&D in progress if all of the following conditions are met:

R&D contracts indicate that in the course of work new scientific knowledge is expected to be produced and / or used (information which is unknown, given the current level of technology)
It is assumed that the positive result of R&D activities will create an opportunity for future economic benefits
It is assumed that the positive completion of R&D activities will make it possible to demonstrate the use of its results in production for management requirements
The amount of expenses can be defined and confirmed

When R&D projects are developed in-house, the related costs are capitalized from the beginning of the project stage if the Company is able to demonstrate:

The technical feasibility of developing such R&D projects
Its intention and ability to develop and use an R&D project
How the R&D project is likely to generate economic benefits
The availability of sufficient technical, financial and other resources to complete the development of and use the R&D projects
The ability to reliably measure costs related to the development of the R&D project
R&D projects developed in-house include:
R&D projects developed by Company employees in the course of performing their job duties
R&D projects resulting from contractor work under contracts in respect of which the Company bears the risk of negative results

R&D costs incurred at the research stage are not capitalized and are recognized as expenses relating to ordinary activities or other expenses depending on the purpose of the research.

R&D costs are written off to expenses relating to ordinary activities on the first day of the month following the month in which the actual use of the obtained results began.

Upon the completion of R&D activities, in the event of a positive result, the costs related to R&D in progress form the value of R&D project. In the event of a negative result, R&D costs are written off to other expenses.

The R&D project value is written off on a monthly basis using the straight-line method in the amount of 1 / 12 of the annual amount.

In the event that the use of an R&D project is suspended, the related costs in the form of a monthly write-off amount are to be recognized as other expenses during the period for which the use of the R&D project has been suspended.

Where the Company early terminates using the results of R&D activities in accordance with Order «On writing off R&D expenses», R&D expenses are taken to other expenses.

The write-off period for R&D costs is determined by the Company based on the expected period of use of the results from these activities. This period may not exceed 5 years.

This period for most significant R&D deliverables is as follows:

Technology for development of tight Turonian gas deposits — 5 years
Technology for development of extra-heavy crude oil fields — 5 years

Table 13. R&D results profile (kRUB)

R&D description	Period	At the beginning of the period		Change over the reporting period			At the end of the period
R&D description	Period	Historical cost	Part of the value written off to expenses	Additions	Disposals	Part of the value written off to expenses	Historical cost	Part of the value written off to expenses
R&D	2015	201,031	631	221,453	158,959	19,416	263,525	19,206
R&D	2014	18,250	2,802	196,353	13,572	1,934	201,031	631

Changes in R&D project value written-off in the amount of kRUB 841 in 2015 and kRUB 4,105 in 2014 were made in the course of reclassifying R&D projects to intangible assets at net book value upon receipt of protection documents.

Table 14 R&D in progress and pending registration (kRUB)

R&D description	Period	At the beginning of the period	Change over the reporting period			At the end of the period
R&D description	Period	At the beginning of the period	Costs for the period	Costs expensed as unsuccessful	Recognized as intangible assets, R&D or fixed assets	At the end of the period
Costs of R&D in progress	2015	2,394,682	807,390	-	931,649	2,270,423
Costs of R&D in progress	2014	1,936,623	1,242,119	-	784,060	2,394,682

9. Other non-current assets

Other non-current assets include assets which are assumed to produce economic benefits over a period exceeding 12 months. This line includes deferred expenses, fixed assets and tangible exploration assets retirement obligations (discounted) (hereinafter – the ARO asset), and other assets.

Other non-current assets are valued based on actual costs, except for ARO assets that are subject to accounting estimates.

Deferred expenses are included in other non-current assets when their write-off period exceeds 12 months after the reporting date.

Deferred expenses relating to several periods are written off using the straight-line method.

Non-current assets include fixed assets and tangible exploration assets retirement obligations (discounted).

The amount of the ARO assets (with regard to sites or facilities which, when abandoned, require disposal of materials and / or remediation of a land plot) is determined based on the estimated costs at the reporting date, which the Company is expected to incur when dismantling fixed assets and remediating natural resources on occupied land plots.

The ARO asset is depreciated using the unit of production method. The rate is applied to the book value at the beginning of the reporting month and reserves in denominator are adjusted to the production volume from the beginning of the year to the beginning of the reporting month.

The ARO asset related to tangible exploration retirement at the fields where it is not confirmed that the production is commercially viable is not depreciated.

Table 15. Information on other non-current assets (kRUB)

Other non-current assets by type	At 31 December 2015	At 31 December 2014	At 31 December 2013
Deferred expenses with the write-off period exceeding 12 months - total	4,234,168	3,016,936	2,921,159
including:
Software	3,627,501	2,594,189	1,599,324
Rights to use Olympic symbols	211,374	422,747	1,321,835
Catalyzes	395,293	-	-
ARO asset	30,329,710	35,163,938	42,056,317
Additional borrowing costs (long-term)	115,163	140,113	-
Total	34,679,041	38,320,987	44,977,476

10. Reserves, value added tax, excises on self-produced petroleum products

Inventories are accounted for at their actual cost calculated based on the amount of actual acquisition / production costs, net of value added tax and other recoverable taxes (except in instances stipulated by Russian law).

Upon disposal, inventories are depreciated using the following methods:

Oil, construction materials, equipment, spare parts, fuel, packaging, fixtures and fittings, instruments and tools, other inventories – by the cost of every inventory unit (inventory unit is a consignment)
Oil products – by the average cost of production broken down by refinery
Self-produced semi-finished products – by the average cost of production broken down by refinery
Self-produced oil and gas – by the average cost of production broken down by operator

Special protective clothes handed over for use are accounted for as materials. The value of special protective clothes with the service life of more than 12 months is depreciated using the straight-line method over the specified period of its use. The value of special protective clothes with the service life of less than 12 months is written off when the clothes are handed over for use.

Materials, fuel, spare parts and other material resources are recorded at their actual acquisition cost.

Work in progress and finished products are recorded at their actual cost; goods are recorded at their acquisition cost.

Dispatched finished products and dispatched goods, the title to which is not yet transferred to the buyer, are recorded within inventories.

Inventories also comprise transportation and procurement costs attributable to the balance of goods at the warehouse and dispatched but unsold goods.

Costs to sell (transportation costs, storage costs, intermediary service costs, customs duties etc.) are recorded within inventories where it is possible to compare certain consignments of finished products and goods recognized in accounting records before the sale of consignments to which they relate.

The amounts of input VAT to be deducted and not included in the cost of the assets acquired, or in expenses, are recorded in line 1220 of the balance sheet.

This line also includes the excise duty assessed upon accounting for the acquired / produced straight-run gasoline, benzene, orthoxylene, paraxylene during their refining subject to appropriate certificate under which the VAT refund has not been claimed.

If there is any indication of impairment, the Company recognizes the decrease in value of inventories in the financial statements.

In accordance with the requirement of prudence, the Company accounts for the impairment of inventories using the method of provisioning.

Table 16 Information on the VAT and excise duties (kRUB)

Tax	At 31 December 2015	At 31 December 2014
Input value added tax claimed	44,205,770	56,191,201
Excise duty assessed upon accounting for straight-run gasoline, benzene, orthoxylene, paraxylene	7,239,296	-

Table 17. Information on inventories (kRUB)

Inventories by type	At 31 December 2015		At 31 December 2014		At 31 December 2013
Inventories by type	Cost	Allowance for impairment	Cost	Allowance for impairment	Cost	Allowance for impairment
Total	107,241,362	(34,102)	114,473,644	(59,489)	96,045,041	(61,341)
Raw materials	12,005,826	(10,195)	12,906,302	(14,964)	11,670,020	(26,938)
Costs related to work in progress	9,536,322	х	7,555,253	х	7,104,345	х
Finished products and goods	85,699,214	(23,907)	94,012,089	(44,525)	76,902,044	(34,403)
Deferred expenses	-	-	-	-	368,632	-

A decrease in the value of inventories is due to higher volumes of inventories forwarded to production and shipped to buyers. In 2013-2015, inventories were not pledged.

Table 18. Information on the movements of inventories and allowances for their impairment in the reporting period (kRUB)

Inventories by type	Book value of inventories *		Movements in allowance			Uncovered loss on impairment of inventories
Inventories by type	Additions	Disposals	Allowance accrued in the reporting period	Allowance reversed due to disposal of inventories	Allowance write-off	Uncovered loss on impairment of inventories
Total	7,478,939,337	7,486,171,619	7,756	10,565	22,578	-
Raw materials	1,074,329,046	1,075,229,522	2,433	7,201	1	-
Costs related to work in progress	2,445,989,889	2,444,008,820	х	х	х	х
Finished products and goods	3,958,620,402	3,966,933,277	5,323	3,364	22,577	-

* Cost values are presented subject to transfer of inventories by types upon change of their allocation and repeated involvement in production

11. Financial investments

Financial investments are initially recognized at their actual costs. Subsequently, financial investments whose market value can be determined are remeasured at market value; and financial investments whose market value cannot be determined are not remeasured, but tested for impairment. When a sustained material decline in the value of financial investments is supported by impairment tests, the Company creates (adjusts) an allowance for impairment of such financial investments as at the last day of the quarter (last day of the reporting year). As of 31 December 2015, the allowance for impairment of financial investments amounts to RUB 25,296 million.

The valuation of financial investments whose market value can be determined is adjusted to the current market value on a quarterly basis. The valuation adjustment is recorded within other income (expenses).

In general, the current market value may be determined if the relevant quotations are available in the securities market. In this case, the current market value of financial investments is their market value determined as appropriate by an organizer of the trade in the securities market.

The historical cost of debt securities whose current market value cannot be determined is not adjusted for the difference between the historical cost and nominal value.

Debt securities and loans issued are not measured at present value.

At disposal of assets recognized as financial investments, for which the current market value is determined, the value of such assets is based on their most recent valuation.

Financial investments whose current market value cannot be determined are measured at historical cost of each unit disposed.

Deposits with the maturity period not exceeding 91 days are not considered to be financial investments and are recorded within cash in the financial statements.

Short-term debts related to financial investments are reclassified to long-term debts in cases when the payment terms envisaged by the agreement are revised and increased to exceed 365 days after the reporting date.

Long-term debts related to financial investments are reclassified to short-term debts when the term to maturity under the agreement remains 365 days or less after the reporting date.

The value of all financial investments previously remeasured at market value is recorded at the current market value as of the reporting date. The Company did not record financial investments carried at market value with undetermined market value at the reporting date.

The Company did not record financial investments pledged or transferred to third parties (except for sale).

Table 19 Information on financial investments (kRUB)

Financial investments by type	At 31 December 2015	At 31 December 2014	At 31 December 2013
Total	5,583,419,550	4,461,731,648	2,827,533,480
Long-term investments - total	3,945,699,651	3,816,440,204	2,401,568,509
Units and shares	2,491,390,235	2,395,855,245	2,058,883,618
Long-term loans issued	1,184,279,012	1,248,105,908	262,082,376
Other long-term financial investments	270,030,404	172,479,051	80,602,515
Short-term investments - total	1,637,719,899	645,291,444	425,964,971
Short-term loans issued	702,770,801	65,310,081	251,626,492
Deposits	686,478,240	501,028,860	129,304,982
Promissory notes and bonds received	81,084,602	17,829,983	24,183,850
Accounts receivable acquired under the assignment agreements	72,043	87,782	89,481
Other short-term financial investments	167,314,213	61,034,738	20,760,166

The change in the 2015 long-term financial investments from RUB 3,816,440 million to RUB 3,945,700 million was mainly due to the increase in investments in share capitals of subsidiaries in the amount of RUB 153,340 million and reclassification of the investment units in the amount of RUB 58,340 million to short-term investments; decrease in loans issued in the amount of RUB 63,827 million, including due to issue and debt reclassification; change in other financial investment in the amount of RUB 97,551 million mainly due to placement of long-term deposits.

Long-term shares include investments whose market value can be determined. The difference between the current market value at the reporting date and the assessment (as of 31 December 2015) of long-term financial investments whose market value can be determined is RUB 388 million (income). The amount of income was taken to the financial result and recorded as other income.

The change in the 2015 short-term financial investments from RUB 645,291 million to RUB 1,637,720 million was mainly due to the reclassification of loans in the amount of RUB 631,872 million from long-term debt; increase in placement of short-term deposits in the amount of RUB 185,449 million; and increase in investments in promissory notes and other short-term investments.

Table 20. The list of subsidiaries and associates

No.	Name of the entity	Actual value of a financial investment at 31 December 2015 (kRUB)	Company's interest
No.	Name of the entity		Interest in share capital (%)	Percentage of voting shares (%)
	OIL PRODUCING ENTITIES
1	LLC RN-Severnaya Neft	6,249,936	100.00
2	LLC RN-Yuganskneftegaz	14,166,170	100.00
3	LLC RN-Krasnodarneftegaz	2,976,488	100.00
4	LLC RN-Purneftegaz	8,527,192	100.00
5	LLC RN-Stavropolneftegaz	3,355,057	100.00
6	LLC RN-Sakhalinmorneftegaz	2,879,435	100.00
7	JSC Vankorneft	18,082,633	100.00	100.00
8	PJSC Rosneft-Dagneft	368,085	68.70	91.60
9	PJSC Grozneftegaz	43	51.00	51.00
10	JSC RN Ingushneft	51	51.00	51.00
11	LLC NGK ITERA	251,337,010	99.999982
12	JSC Dagneftegaz	131,832	40.00	40.00
13	PJSC VCNG	7,480,493	25.94	25.94
14	PETROVICTORIA S. A.	15,903,920	40.00
	REFINERIES
15	LLC RN-Tuapse Refinery	279,447	100.00
16	LLC RN-Komsomolsk Refinery	573,357	100.00
17	JSC VNHK	576,384	100.00	100.00
18	PJSC NK Rosneft - MZ Nefteprodukt	108,102	65.42	65.42
	OIL PRODUCT SUPPLY ENTITIES
19	LLC RN-Nakhodkanefteprodukt	1,050,611	100.00
20	LLC RN-Arkhangelsknefteprodukt	546,456	100.00
21	LLC RN-Tuapsenefteprodukt	2,028,708	100.00
22	LLC RN-VNP	97,910	100.00
23	JSC NK Rosneft-Stavropolye	238,201	100.00	100.00
24	LLC RN-Bunker	10	100.00
25	LLC RN-Krasnoyarsknefteprodukt	10	100.00
26	LLC RN-Novosibirsknefteprodukt	20	100.00
27	LLC RN-Chechennefteprodukt	10	100.00
28	LLC RN-Ekaterinburgnefteprodukt	10	100.00
29	LLC RN-Chelyabinsknefteprodukt	10	100.00
30	LLC RN-Ingushnefteprodukt	100	100.00
31	LLC RN-Aero	240,010	100.00
32	LLC RN-Trade	480,010	99.9999
33	PJSC NK Rosneft-Kubannefteprodukt	612,569	89.50	96.61
34	PJSC NK Rosneft - Kabardino-Balkarskaya Fuel Company	1,044,977	99.81	99.81
35	PJSC NK Rosneft-Kurgannefteprodukt	113,043	83.32	90.33
36	PJSC NK Rosneft - Karachaevo-Cherkessknefteprodukt	57,161	85.99	85.99
37	PJSC NK Rosneft-Smolensknefteprodukt	190,953	66.67	86.97
38	PJSC NK Rosneft-Altaynefteprodukt	51,260	64.18	64.18
39	PJSC NK Rosneft-Yamalnefteprodukt	48,622	49.52	49.52
40	PJSC NK Rosneft-Murmansknefteprodukt	6,676	45.38	60.51
41	JSC NK Rosneft-ARTAG	30	38.00	50.67
42	LLC RN-Abkhazia	47	51.00
43	LLC Yu-Kuban	9,215	49.00
	OTHER ENTITIES
	Holdings
44	Rosneft Limited	1,707,564,188	100.00	100.00
45	Rosneft Industrial Holdings Limited	464	22.90
46	LLC RN-Pererabotka	10	100.00
47	LLC RN-Aktiv	24,153,386	99.9996
48	LLC RN-Kommerciya	4,520	100.00
49	LLC RN-Resource	1,500	99.99
50	LLC RN-Razvedka i dobycha	122,691,408	99.99992
51	LLC RN-Gaz	804,054	99.9934
	Sakhalin projects group
52	JSC RN-Shelf-Dalniy Vostok	32,124	100.00	100.00
53	LLC West Kamchatka Holding B. V.	3,040	60.00	60.00
54	JSC RN-Astra	10	100.00	100.00
55	LLC RN-Shelf-Arktika	4,950	99.00
56	JSC Rosneft-Sakhalin	110	55.00	55.00
	Foreign Projects Division
57	LLC RN-Foreign Projects	32,361,878	100.00
58	LLC RN-Foreign Investments	685,000	100.00
59	LLC RN-Exploration	28,099	99.996
60	LLC Rosneft Shell Caspian Ventures Ltd	316	51.00	51.00
61	LLC NPC	18,037,889	60.00
	Servicing entities
62	LLC RN-Burenie	25,152,767	100.00
63	LLC RN-Service	5,693,422	50.60
64	CJSC RN-Energoneft	20	100	100
65	LLC RN-Pozharnaya bezopasnost	203,461	100.00
66	LLC Dubininskoye	26,015,000	100.00
67	JSC RN-Mamontovo	9,952,145	100.00	100.00
68	LLC RN-Inform	10	100.00
69	LLC RN-Uchet	10	100.00
70	OJSC Purnefteotdacha	309	61.54	61.54
71	LLC PSC RN-Okhrana	32,021	99.98
72	LLC KNPZ-Service	30	100.00
73	LLC RN-Vedomstvennaya Okhrana	60,000	100.00
	Financial institutions
74	JSC RRDB	2,758,375	84.67	84.67
	Scientific entities
75	LLC Arctic Scientific Center	300,000	66.67
76	LLC RN-SakhalinNIPImorneft	33,799	100.00
77	LLC RN-UfaNIPIneft	77,010	100.00
78	LLC NK Rosneft-NTC	4,825,480	100.00
79	LLC RN-KrasnoyarskNIPIneft	10	100.00
	Logistics and transportation
80	LLC Rosneft-Mongolia	76,134	100.00
81	JSC RN-Trans	8,902,080	100.00	100.00
82	LLC Vostok Asia Transit	2,294	66
83	JSC Rosnefteflot	352,612	100.00	100.00
84	LLC TK-BA	374,337	33.33
	Other entities
85	JSC Sakhalinmorneftegaz-Shelf	3,750	100.00	100.00
86	LLC YUKOS CIS Investment	28,787	100.00
87	LLC RN-Shelf of Abkhazia	96	100.00
88	JSC Okhinskaya TETS	1,288,499	81.99	81.99
89	LLC Vostok-Energy	56,100	51.00
90	LLC Pursatkom	1,742	49.00
91	CJSC Rosshelf	248,326	26.42	26.42
92	CJSC Neftyanoe Khozyaistvo Publishing House	4	25.00	25.00
93	CJSC Ros&Neft	12	25.00	25.00
94	LLC Neftyanik Kubani Health Resort	3,670,467	96.20
	Liquidation and bankruptcy
95	LLC RN-Stroy	192,310	100.00
	Total:	2,336,486,629

Table 21 Key operations related to the acquisition and disposal of long-term financial investments (kRUB)

List of financial investments	Actual value of a financial investment at the date of acquisition or disposal	Interest, %
Created (formed) financial investments	61,500
LLC RN-Vedomstvennaya Okhrana	60,000	100.00
LLC RN-Resource	1,500	99.99
Financial investments disposed of due to sale or repayment	312,420
LLC Okhabank	23,489	33.40
LLC Polyarnoye Siyanie Company	288,931	50.00
Financial investments disposed of due to their write-off	40
LLC Komsomolskneftezavodremstroi	30	100.00
CJSC Sakhalinmorneftegaz-AMK	10	100.00

In 2015, changes mainly occurred in the following interests and investments:

LLC RN-Razvedka i dobycha - increase in actual investments by RUB 109,524 million, increase in ownership interest from 99.9999248117 % to 99.9999248123 %
LLC RN-Burenie - increase in actual investments by RUB 20,541 million, the interest remained unchanged at 100 %
LLC RN-Aktiv - increase in actual investments by RUB 11,728 million, the interest remained unchanged at 99.9996 %
LLC RN-Foreign Projects - increase in actual investments by RUB 10,010 million, the interest remained unchanged at 100 %
LLC NPC - increase in actual investments by RUB 936 million, the interest remained unchanged at 60 %
LLC RN-Gaz – increase in actual investments by RUB 539 million due to increase in the share capital and increase in interest to 99.9934 % resulted from acquisition of 14.1219 % interest
JSC Rosnefteflot - as a result of acquisition of 49 shares, actual investments increased by RUB 346.4 million and direct ownership interest of Rosneft Oil Company increased from 51 % to 100 %
LLC RN-Novosibirsknefteprodukt - increase in actual investments by RUB 0.01 million due to reorganization of LLC RN-Kemerovonefteprodukt through merger with LLC RN-Novosibirsknefteprodukt, the interest remained unchanged at 100 %
etc.

Table 22. Information on long-term and short-term loans issued (kRUB)

Loans issued	Balance at 31 December 2014	Loans issued	Loans collected	Reclassified due to changes in the maturity period	Balance at 31 December 2015
Total, including	1,313,415,989	752,834,742	179,200,918	-	1,887,049,813
Long-term loans issued	1,248,105,908	699,959,861	131,914,405	(631,872,352)	1,184,279,012
Short-term loans issued	65,310,081	52,874,881	47,286,513	631,872,352	702,770,801

12. Derivative financial instruments at fair value through profit or loss

Derivatives are financial instruments that simultaneously meet the following criteria:

The value of a financial instrument is changed in line with the changes in the applied interest rate, security rate, price of goods, foreign currency exchange rate, price or interest rate index, credit rating or credit index or other «basic» variables
The acquisition of a financial instrument does not require any investments or requires initial net investments but in amounts lower than for other instruments, the price of which has a similar response to market factor changes; and other types of contracts that are expected to have a similar response to market factor changes
Financial instrument calculations are performed subsequently

In managing foreign currency and interest rate risks, the Company entered into cross currency and interest rate swaps and forward exchange transactions to sell US dollars that help match the currency of revenue and the currency of liabilities, and reduce absolute interest rates for the debt financing raised.

Derivative financial instruments are measured at fair value.

The method for determining the fair value of transactions is based on the assessment of the present discounted value of future cash flows using the consensus projections of foreign exchange rates. The consensus projections comprise forecasts of key international banks and agencies. The Bloomberg system is the key source of information for making projections.

Profit or losses arising during the period as adjustments upon change in the fair value are recognized in the income statement.

The change in the fair value of the derivative financial instrument means the difference between the fair value at the beginning of the reporting period (or at the date of acquisitions, whichever is more recent) and at the end of the reporting period.

Derivative financial instruments at fair value through profit or loss are recorded as assets (liabilities) in the balance sheet in similar lines depending on their maturity.

As at the reporting date, short-term liabilities on derivative financial instruments include liabilities related to cross currency and interest rate swaps.

The deals with derivative financial instruments are presented below:

	Issued, year	Repaid, year	Nominal amount at 31 December 2015		Interest rate type	Fair value of a liability at 31 December (kRUB)
	Issued, year	Repaid, year	USD, million	RUB, million*	Interest rate type	2015	2014
Swaps	2012	2015	-	-	Fixed	-	53,710,289
Swaps	2012	2017	641	46,739	Floating	21,109,026	9,267,057
Swaps	2013	2018	2,138	155,789	Floating	59,346,442	14,072,579
Swaps	2014	2015	-	-	Fixed	-	28,861,462
Swaps	2014	2019	1,010	73,576	Floating	23,626,205	6,253,949
Forwards	2012	2015	-	-	-	-	24,786,865
Total			3,789	276,104		104,081,673	136,952,201

* equivalent of the nominal amount at the CBR official exchange rate as of 31 December 2015.

In 2015, the Company completed transactions with derivative financial instruments entered into in 2012-2014 in the nominal amount of USD 4,494 million (RUB 327,493 million at the CBR official exchange rate as of 31 December 2015).

13. Information on hedging transactions

Cash flow hedging of the Company’s future exports

Hedging transactions are operations (set of operations) with term transaction financial instruments (including those of different types), performed to minimize (compensate) adverse effects, fully or partially, caused by the loss incurred, income deficiency, decrease in revenue, decrease in market value of the property, including property rights (rights of claim), increase in the Company’s liabilities due to change in price, interest rate, currency exchange rate, including the rate of the foreign currency to the rate of the currency of the Russian Federation, or another indicator (set of indicators) of a hedged item (items).

In the reporting year, the Company performed transactions to hedge the cash flows of the Company’s future exports due to foreign currency risks attributed to expert revenue denominated in foreign currency mainly in US dollars. The Company raises borrowings in the same currency as the forecasted revenue to economically hedge the foreign currency risk exposure.

On October 1, 2014, the Company designated certain U. S. dollar nominated borrowings as a hedge of the expected highly probable U. S. dollar nominated export revenue stream. A portion of the future monthly export revenue expected to be received in US dollars over the period from January 2015 through December 2019 was designated as hedged item. The nominal amounts of the hedged item and the hedging instrument were deemed equal. To the extent that a change in the foreign currency rate impacts the hedging instrument, the effects were recorded in Other funds and reserves in accordance with the Company’s accounting policies; subsequently these effects shall be transferred into profit or loss of the period, in which the hedged transactions are recognized.

The Company’s foreign currency risk management strategy is to hedge future export revenue in the amount of the net monetary position in U. S. dollars. The Company aligns the hedged nominal amount to the net monetary position in U. S. dollars on a periodical basis. As of 31 December 2015, the nominal amount totaled USD 3,918 million (RUB 285 billion at the CBR exchange rate as of 31 December 2015).

The amounts recognized in Other funds and reserves on hedging transactions are presented below: (kRUB)

Indicator	2015	2014	2013
Recognized in Other funds and reserves at the beginning of the year	(398,110,282)	-	-
Foreign exchange effects recognized during the year before tax	(215,285,868)	(497,637,852)	-
Foreign exchange effects reclassified to profit or loss	123,063,653	-	-
Other tax effect*	18,444,443	99,527,570	-
Total recognized in Other funds and reserves as of the end of the year	(471,888,054)	(398,110,282)	-

* The difference between the accounting profit (loss) and the taxable profit (loss) resulted from recognitions of hedging transactions. Other tax effect is recognized in line 2466 of the income statement.

The schedule of the expected reclassification of the accumulated foreign exchange loss from other comprehensive income to profit or loss, as of December 31, 2015, is presented below: (RUB, million)

Year	2016	2017	2018	2019	Total
Reclassifications	(147,465)	(147,465)	(147,465)	(147,465)	(589,860)
Income tax	29,493	29,493	29,493	29,493	117,972
Total net of income tax	(117,972)	(117,972)	(117,972)	(117,972)	(471,888)

The expected reclassification is calculated using the Central Bank of Russia («CBR») exchange rate as of December 31, 2015 and may be different using actual exchange rates in the future.

14. Cash

Cash includes the Company’s amounts with banks and credit institutions, in operational and other cash offices, as well as deposits with the maturity period not exceeding 91 days.

For the purposes of the statement of cash flows, cash flows are classified based on the criteria specified in clauses 9 - 11 of Accounting Statement 23 / 2011.

Cash flows that cannot be reliably classified are recognized as cash flows from operating activities.

Foreign currency cash flows are translated into Russian rubles at the official rate of the foreign currency to Russian ruble set by the Central Bank of the Russian Federation at the date of payment or receipt. The average exchange rate is not applied to translate cash flows. There is no cash unavailable for use by the Company.

Table 23. Information on the Company’s cash flows (kRUB)

Cash	At 31 December 2015	At 31 December 2014	At 31 December 2013
Cash	331,889,690	127,975,011	169,904,499
including restricted cash	-	-	-
Deposits with the maturity period not exceeding 91 days	70,500,000	-	30,000,000

15. Accounts receivable and payable

Accounts receivable and payable are accounted for and recorded in financial statements in accordance with the respective existing agreements.

Accounts receivable from suppliers and contractors include advances issued that are recorded in the balance sheet less VAT deductible or deducted at the reporting date in accordance with the Tax Code of the Russian Federation. VAT on advances (deductible but not claimed for deduction at the reporting date) is recorded in the balance sheet within other current assets.

Accounts payable to suppliers and contractors include advances received that are recorded in the balance sheet less VAT on advances received. Accounts receivable include non-income-bearing financial investments within Rosneft Oil Company Group.

The Company receives no government financing.

The provision for doubtful debts is made on the basis of settlements with other organizations and individuals for products, goods, work and services, advances issued and other accounts receivable, and is recorded in the income statement as other expenses.

Short-term accounts receivable and payable are converted into long-term in cases where payment periods under existing contracts are revised and increased to exceed 365 days.

Long-term accounts receivable and payable are converted into short-term where the term to maturity under existing contracts is 365 days or less.

Similarly, part of long-term accounts receivable and payable are converted into short-term if the debt under existing contracts is repaid by installments in different periods.

Table 24. Information on accounts receivable (kRUB)

Accounts receivable by type	At 31 December 2015	At 31 December 2014	At 31 December 2013
Accounts receivable - total	2,025,601,916	1,847,735,638	848,191,801
Long-term accounts receivable	1,134,438,474	989,058,688	92,970,701
Advances paid	347,614	411,972	2,312,165
Other debtors, including	1,134,090,860	988,646,716	90,658,536
Loans issued to the companies within Rosneft Oil Company Group	1,030,781,711	849,508,635	57,319,554
Interest on long-term loans, promissory notes	85,938,787	127,565,240	26,090,172
Short-term accounts receivable	891,163,442	858,676,950	755,221,100
Including: Suppliers and contractors	201,528,043	257,556,527	294,634,809
Advances paid	41,263,661	60,548,729	29,317,555
Other debtors, including	648,371,738	540,571,694	431,268,736
Due from the budget and state non-budgetary funds	59,835,376	96,626,391	41,977,131
Loans and promissory notes issued to the companies within Rosneft Oil Company Group	117,536,411	30,973,719	7,937,676
Interest (discount) on deposits, loans, promissory notes	140,571,358	23,471,675	76,029,444
Settlements under commission agreements, other accounts receivable	88,272,216	208,894,597	76,024,037

As of 31 December 2014, the Company’s accounts receivable amounted to RUB 1,847,736 million, including the provision for doubtful debts in the amount of RUB 15,568 million. In 2015, accounts receivable increased by RUB 177,866 million and amounted to RUB 2,025,602 million as of 31 December 2015, including the provision for doubtful debts in the amount of RUB 13,210 million. The accounts receivable increased primarily due to the increase in loans issued to the companies within Rosneft Oil Company Group and interest (discount) accrued on loans, promissory notes and deposits.

Table 25 Information on accounts payable (kRUB)

Accounts payable by type	At 31 December 2015	At 31 December 2014	At 31 December 2013
Accounts payable	1,416,028,642	1,197,024,178	671,333,226
Suppliers and contractors	719,514,866	613,735,328	487,901,829
Payables to the Company's employees	5,631	46,597	32,421
Payables to the budget and non-budgetary funds	34,931,985	63,957,612	39,881,520
Advances received	217,812,613	147,035,386	53,736,812
Settlements under commission agreements, other accounts payable	443,763,547	372,249,255	89,780,644

As of 31 December 2014, the Company’s accounts payable amounted to RUB 1,197,024 million. In 2015, accounts payable increased by RUB 219,005 million and amounted to RUB 1,416,029 million as of 31 December 2015. The increase in accounts payable was primary attributable to settlements with the companies within Rosneft Oil Company Group under commission and agency agreements, as well as payments for purchased products and operator services relating to production and processing.

16. Long-term and short-term loans and borrowings, other liabilities and collateral pledged

Loans and borrowings payable are accounted for and recorded in financial statements in accordance with the respective existing agreements.

The Company reclassifies short-term payables into long-term payables if the repayment period under the existing agreement is revised and increased to exceed 365 days. The Company reclassifies long-term payables into short-term payables where the outstanding repayment period becomes 365 days or less.

The interest amounts payable under loans and borrowings received are accrued on a straight-line basis regardless of the conditions of loans (borrowings). Additional expenses for loans (borrowings), other than commissions on loans (borrowings) raised, such as bank commissions for using loan funds, originating a loan, obtaining and maintaining a line of credit, and other bank commissions (fees) related to raising loans (borrowings) are recorded as a lump sum in other expenses.

Where commissions on loans (borrowings) are material, they are included in other expenses on a straight-line basis over the loan (borrowing) maturity period.

The commissions on loans (borrowings) that are not written off as of the reporting date are shown on the balance sheet as other non-current assets or other current assets depending on their remaining period of recognition as expenses (more than 12 months or less than 12 months, respectively).

For the purposes of capitalizing interest on loans and borrowings into the cost of acquired assets, such investment assets shall comprise those assets that necessarily take a substantial period of time (over 12 months) to get ready for their intended use through acquisition, construction or production.

Investment assets consist of work-in-progress and construction-in-progress which will subsequently be accounted for by the borrower and / or customer (investor, buyer) as fixed assets (including land), intangible assets, exploration and evaluation costs or other non-current assets.

In January-February 2015, the Company raised short-term loans with a floating rate in the total amount of RUB 100 billion from a Russian bank.

In February 2015, the Company repaid, early and in full, a long-term unsecured loan raised from foreign banks for the purchase of TNK-BP in the total amount of USD 7.2 billion (RUB 473 billion at the CBR exchange rate as of the date of payment).

Funds raised in 2015 were allocated to financing of the Company’s operating activities.

Loans payable recorded in the financial statements as of the reporting date include the accrued interest.

Borrowing costs included in other expenses amounted to RUB 5,564 million.

Total interest of RUB 68,917 million was accrued on the Company’s loans for the reporting period. Interest payable increased by RUB 9,816 million year on year.

Interest capitalized in the cost of investment assets created (acquired) was RUB 14,542 million. The amount of interest included in the cost of investment asset and payable to lender (creditor) on loans received for purposes other than acquisition, construction and / or production of an investment asset totaled RUB 14,223 million.

Table 26 Information on long-term and short-term loans and borrowings (kRUB)

Loans and borrowings, by type	Balance at 31 December 2014	Received (accrued)	Repaid (paid)	Reclassified	Balance at 31 December 2015
Long-term loans and borrowings	3,230,812,633	2,454,111,153	1,490,837,479	(112,559,359)	4,081,526,948
including
Long-term loans	1,333,575,940	445,135,206	328,932,646	(107,427,902)	1,342,350,598
Long-term borrowings	1,072,746,234	1,548,146,996	1,155,697,842	(5,023,928)	1,460,171,460
Long-term interest accrued under loan and borrowing agreements	26,794,879	60,392,188	2,745,375	(107,529)	84,334,163
Long-term promissory notes issued	6,311,245	-	2,744,019	-	3,567,226
Long-term interest accrued on promissory notes	1,384,335	436,763	717,597	-	1,103,501
Bonds issued	790,000,000	400,000,000	-	-	1,190,000,000
Short-term loans and borrowings	864,389,446	590,734,812	1,073,345,656	112,559,359	494,337,961
including
Short-term loans	51,964,129	304,233,176	256,197,305	-	100,000,000
Short-term borrowings	28,767,391	21,008	29,135,750	5,023,928	4,676,577
Current portion of long-term loans and borrowings	762,674,709	65,495,628	566,505,504	107,427,902	369,092,735
Current portion of long-term interest accrued under loan and borrowing agreements	1,749,831	55,131,852	55,440,535	-	1,441,148
Short-term interest accrued under loan and borrowing agreements	12,519,561	23,203,875	32,757,962	107,529	3,073,003
Interest accrued on bonds issued (coupon income)	6,713,825	142,649,273	133,308,600	-	16,054,498

In January 2015, the Company issued exchange-traded documentary interest-bearing non-convertible bonds with a total nominal value of RUB 400,000 million maturing in six years.

Information on RUB-denominated interest-bearing non-convertible bearer bonds issued as of 31 December is provided below (RUB, million):

Type of bonds	Series number	Issue date	Total nominal value RUB, million	Coupon rate	At 31 December
Type of bonds	Series number	Issue date	Total nominal value RUB, million	Coupon rate	2015	2014
Bonds	04,05	October 2012	20,000	8.6%	20,000	20,000
Bonds	07,08	March 2013	30,000	8.0%	30,000	30,000
Bonds	06,09,10	June 2013	40,000	7.95%	40,000	40,000
Exchange-traded bonds	BO-05, BO-06	December 2013	40,000	7.95%	40,000	40,000
Exchange-traded bonds	BO-01, BO-07	February 2014	35,000	8.90%	35,000	35,000
Exchange-traded bonds	BO-02, BO-03, BO-04, BO-08, BO-09, BO-10, BO-11, BO-12, BO-13, BO-14	December 2014	225,000	11.90%*	225,000	225,000
Exchange-traded bonds	BO-15, BO-16, BO-17, BO-24	December 2014	400,000	13.40%*	400,000	400,000
Exchange-traded bonds	BO-18, BO-19, BO-20, BO-21, BO-22, BO-23, BO-25, BO-26	January 2015	400,000	11.90%*	400,000	-
Total long-term RUB-denominated bonds					1,190,000	790,000

* For the coupon period valid as of 31 December 2015

All these bond series have maturity of six or ten years; coupon payments are made every six months for bonds maturing in ten years and every three months for bonds maturing in six years. The bonds offer an early purchase / buyback option exercisable upon demand of their holders at the time determined in the bond issue documents. In addition, the issuer may, at any time and at its own discretion, early purchase / buy back the bonds before maturity upon a specific decision of the company, and may further put these bonds in circulation.

Early purchase / buyback of the bonds does not mean their repayment.

On 24 July 2012, the Company issued and sold 40 promissory notes with a nominal value RUB 274 million each and a total amount of RUB 10,976 million, which have consecutive (quarterly) maturity dates over a ten-year period, and bear an interest rate of 9 % p. a. These promissory notes were partly paid in 2012 to 2015.

The repayment schedule of long-term promissory notes issued as of 31 December 2015 is as follows: (RUB, million)

2016	-
2017	-
2018	-
2019	549
2020 and after	3,018
Total long-term amount payable:	3,567

The repayment schedule of long-term loans and borrowings, and bonds issued as of 31 December 2015 is as follows: (RUB, million)

2016	369,093
2017	388,061
2018	386,142
2019	315,826
2020 and after	2,902,493
Total long-term amount payable:	4,361,615

Loans are partially secured by crude oil export contracts.

As of 31 December 2015, guarantees and sureties issued by the Company totaled RUB 69,074 million and included collateral provided in foreign currency in the amount of USD 1,165 million and EUR 86 million at the CBR exchange rate ruling at the transaction date. Items pledged as collateral were as follows:

Items pledged as collateral	Share in the total collateral amount, %
Revenue from sales of oil and oil products	23.38
Sureties	76.62

In 2013, Rosneft Oil Company’s 2012 agreements with Eni S. p. A, Statoil ASA and the ExxonMobil Oil Corporation took effect, which are part of the Company’s cooperation in the development of the Russian continental shelf. These agreements stipulate that the parties shall provide mutual guarantees that are unlimited, unconditional and indefinite, and that the partners shall pay commercial discovery bonuses to Rosneft Oil Company.

In the second quarter of 2013, Rosneft Oil Company provided an unconditional, unlimited and indefinite guarantee (surety) to the government of Norway and Norwegian government authorities which fully covers the contingent obligations of RN Nordic Oil AS that this company may incur as a result of its operations on the Norwegian continental shelf. Provision by the parent company of a guarantee to cover RN Nordic Oil’s obligations arising from environmental risks is an imperative requirement of Norwegian legislation and is a prerequisite for RN Nordic Oil AS to be granted a license for operating on the Norwegian continental shelf jointly with Statoil.

In the second quarter of 2014, Rosneft Oil Company’s 2013 agreements with the ExxonMobil Oil Corporation took effect as part of cooperation in the implementation of seven new projects on the Russian continental shelf. These agreements also stipulate that the parties shall provide mutual guarantees that are unlimited, unconditional and indefinite, and that the partner shall pay a commercial discovery bonus to Rosneft Oil Company.

The cooperation between Rosneft Oil Company and the ExxonMobil Oil Corporation to develop tight oil and gas reserves in Western Siberia is governed by an agreement stipulating that the parties shall provide mutual guarantees that are unlimited, unconditional and indefinite and the partner shall pay to Rosneft Oil Company a bonus for each barrel of oil extracted after the start of commercial production.

In the fourth quarter of 2015, the Agreement of parent guarantees between Rosneft Oil Company and Statoil ASA entered into force in order to ensure execution of liabilities by its associates within the guarantees provided by each of the project partners to its counterparty under the project contractual documentation.

Table 27 Information on other long-term liabilities (kRUB)

Other long-term liabilities, by type	Balance at the beginning of the year	Received (accrued)	Repaid (reclassified to short-term debt)	Balance at the end of the year
Other long-term liabilities, including:	886,778,534	1,026,902,043	128,750,895	1,784,929,682
Long-term prepayment under crude oil and oil product supply contracts	886,778,534	1,026,902,043	128,750,895	1,784,929,682

In 2013 and 2014, the Company signed a number of long-term oil supply contracts that provide for receipt of a prepayment. The total minimum amount of future supplies under these contracts is around 400 million tons.

The contracts include the following main terms:

Prepayment shall not exceed 30 % of the cost of the total contracted amount of crude oil

The oil price shall be based on current market quotes

Prepayment is settled through physical depveries of crude oil

From 1 January 2015, scheduled oil supplies started under the long-term contracts that provide for prepayments. In 2015, offset of prepayments under these contracts amounted to RUB 89 billion (USD 2.86 billion at the rate as of the date of prepayments).

17. Assets and liabilities denominated in foreign currency

Changes in foreign exchange rates, particularly in US dollar rates, have a significant effect on the Company’s financial and business performance.

Table 28 Information on changes in RUB / USD exchange rates

As of 31 December	Exchange rate
2015	72.88
2014	56.26
2013	32.73
2012	30.37

For financial reporting purposes, foreign exchange differences are all operations of translation of the value of assets and liabilities denominated in foreign currency to be recorded as other income or other expenses. In the reporting period, total (balanced) amount of all operations of translation of the value of assets and liabilities denominated in foreign currency amounted to RUB 38,487 million and recorded as other income of the Company.

Foreign exchange differences from the Company’s operations outside the Russian Federation taken to additional capital in the reporting period included: foreign exchange gains of RUB 15.7 million and foreign exchange losses of RUB 32.5 million.

Foreign exchange differences arising in the reporting period from operations involving assets and liabilities denominated in foreign currency, and from translation of such assets and liabilities as of the reporting date, were taken to the other income and expense account, except for liabilities designated as hedging instruments (refer to Note 13).

Currency conversion transactions are recorded in the income statement in other income and other expenses on a net basis; only foreign exchange gains or losses are recognized as income (expense).

Table 29 Income and expenses from dealing in foreign currency (kRUB)

Income and expenses	For the 2015 reporting year	For the 2014 reporting year
Income	19,762,892	17,695,842
Expenses	(150,138,051)	(20,933,253)
Total income and expense balance recorded in the income statement as other income / expense	(130,375,159)	(3,237,411)

18. Tax payables

The Company’s tax liabilities are recorded in accounting using the periodicity convention.

The rates of the main taxes in 2015 were as follows:

Income tax – 20 %
Value added tax – 18 %

In 2015, the number of participants in the consolidated taxpayer group with Rosneft Oil Company as the responsible participant, which was established for the purposes of income tax calculation and payment, decreased year on year from 58 to 51 entities.

The mineral extraction tax to be included in the cost of products, goods, work and services sold amounted to RUB 450,435 million in 2015; RUB 423,746 million in 2014.

In 2015, the accrued export duty amounted to RUB 660,077 million; in 2014: RUB 1,321,783 million.

Settlements with the budget and non-budgetary funds are presented in the table below:

Table 30 Settlements with the budget and state non-budgetary funds (kRUB)

	At 31 December 2015	At 31 December 2014	At 31 December 2013
Receivables from the budget and state non-budgetary funds – total	59,835,376	96,626,391	41,977,131
Value added tax (VAT)	45,647,489	54,462,735	33,120,119
Income tax	13,307,620	42,033,002	8,727,381
Other taxes and levies receivable	839,002	112,449	42,979
Receivables from state non-budgetary funds	41,265	18,205	86,652
Payables to the budget and state non-budgetary funds – total	34,931,985	63,957,612	39,881,520
Mineral extraction tax	25,947,941	29,100,332	35,993,842
Income tax	-	31,896,657	1,586,914
Excise tax	6,233,998	-	-
Property tax	2,552,887	2,166,381	2,021,339
Other taxes and levies payable	195,645	792,963	278,354
Payables to state non-budgetary funds	1,514	1,279	1,071

Current taxes and levies receivable decreased by RUB 36,791 million from 31 December 2014 year on year mainly due to refunding from the budget of VAT overpayments on the consolidated group of taxpayers made in 2014, and due to decrease in the amount of VAT recoverable from the budget as of the end of the fourth quarter of 2015.

Taxes and levies payable decreased by RUB 29,026 million from 31 December 2014 primarily due to payment in 2015 of income tax accrued in December 2014 on dividends received from a foreign entity.

As of 31 December 2015, 2014 and 2013, the Company did not have overdue tax and levy liabilities.

According to provisions of Chapter 14, Tax Control, of the Russian Tax Code, desk-top and field audits of tax and levy payers and tax agents may cover three calendar years preceding the year in which a decision to hold the tax audit is taken. The Company’s management believes that the results of tax audits will not have a material impact on the Company’s financial position because tax liabilities are estimated in accordance with requirements of the tax legislation.

19. Equity

Share capital

As of 31 December 2015, the Company’s share capital amounts to RUB 105,981,778.17 and is divided into 10,598,177,817 ordinary shares with a par value of RUB 0.01 each.

Reserve and additional capital

The Company’s equity also includes reserve and additional capital. The Company’s reserve capital represents reserve capital formed in accordance with constitutional documents and is equal to 5 % of the share capital. As of 31 December 2015, the reserve capital is fully formed and amounts to RUB 5.299 million.

As of 31 December 2015, the Company’s additional capital amounts to RUB 113,245 million (as of 31 December 2014, additional capital amounted to RUB 113,261 million).

Treasury shares

In 2015, the Company did not repurchase its shares.

Net assets

As of 31 December 2015, the Company’s net assets amount to RUB 1,434,431 million. The net assets increased by RUB 78,616 million or 6 % as compared to the prior balance sheet date (RUB 1,355,815 million). As of 31 December 2015, the Company’s net assets exceed its share capital by RUB 1,434,325 million.

20. Income and expenses, retained earnings

Revenue from sales of goods, work and services is recognized as and when the goods are shipped, work is performed and services are rendered, and settlement documents are presented to customers (clients).

To ensure timely provision of primary documents to the accounting department, if necessary, the Company uses the accrual methodology in accordance with Accounting Statement 9 / 99, Revenues of an Organization, provided that the criteria for revenue recognition are met. In this case, revenue is recognized based on updates provided by Company’s business units.

The Company applies a method that involves calculating the incomplete cost of goods (direct costing), and therefore general and administrative expenses are fully debited to the «Sales» account, i. e. are fully recognized in the reporting period without allocating them to balances of work in progress and finished goods (except for general expenses directly related to acquisition, construction and production of assets, which are included in the cost of assets).

Selling expenses are allocated between sold goods and goods that were shipped but not sold, including finished goods at the warehouse.

The Company’s total advertising expenses (not broken down by type of good) are recognized in selling expenses.

The use of profit is recognized in accounting records and financial statements in the year following the reporting years pursuant to the decision of the shareholders’ meeting. A portion of the profit, which was not paid as dividends pursuant to the decision of the shareholders, is recognized in the financial statements in retained earnings. If this profit is used for capital investments, the total balance of the retained earnings is not decreased.

As of 31 December 2015, retained earnings of prior years amount to RUB 1,553,550 million. As of 31 December 2014, this amount was RUB 1,640,545 million. Changes in the profit of prior years resulted mainly from accrued dividends in the amount of RUB 87,011 million.

The following income and expenses affected the retained earnings for the reporting year:

Table 31 Company’s income and expenses (kRUB)

Indicator	For the 2015 reporting year	For the 2014 reporting year
Revenue (net) from the sale of goods, work, services (net of value-added tax)	3,831,094,945	4,299,680,200
Including: Sales of principal goods / products	3,185,557,660	3,441,078,265
Trading and procurement	639,508,667	852,186,984
Intermediation	6,028,618	6,414,951
Cost of the goods, products, work and services sold	(2,612,932,721)	(2,451,243,380)
Including: Principal activities	(2,166,834,263)	(1,947,017,090)
Trading and procurement	(446,098,458)	(504,226,290)
Oil and gas reserves exploration and estimation expenses	(17,007,609)	(15,103,523)
Gross income	1,201,154,615	1,833,333,297
Selling expenses	(1,018,103,482)	(1,610,827,753)
General and administrative expenses	(66,251,075)	(66,620,484)
Profit (loss) from the sale of goods, work, and services	116,800,058	155,885,060
Profit (loss) from other income and expenses	56,484,728	350,488,131
Including: Interest receivable	140,152,094	64,866,869
Interest payable	(327,398,599)	(129,651,537)
Including: Expenses on unwinding of the ARO asset discount	(3,409,695)	(2,838,142)
Income from interests in other entities*	440,667,780	507,777,727
Gains from changes in the fair value of derivative financial instruments	111,422,887	1,727
Losses from changes in the fair value of derivative financial instruments	(74,488,087)	(127,866,895)
Gains from the sale and other disposal of other property	21,434,684	56,551,513
Including: Gains from the sale of short-term securities	13,868,107	56,063,110
Losses from the sale and other disposal of other property	(19,686,069)	(60,442,852)
Including: Cost of disposed short-term securities	(13,931,424)	(55,386,838)
Other income	122,004,880	106,137,210
Including: Translation differences	38,487,421	32,919,984
Return of excise tax	7,312,732	41,386,079
Other expenses	(357,624,842)	(66,885,631)
Including: Recognition of the deferred effect of hedging as other expenses	(123,063,653)	-

* Dividends received from a non-resident of the Russian Federation are recognized in the line Income from interests in other entities in the 2014 income statement on a net basis net of the relevant income tax payable to the budget of the Russian Federation. The income tax amounted to kRUB 32,185,566.

Table 32 Allocation of the Company’s expenses recognized in the income statement by type (kRUB)

Indicator	For the 2015 reporting year	For the 2014 reporting year
Material costs	3,048,645,113	3,520,824,697
Payroll	15,666,233	15,113,857
Social charges *	3,190,032	3,503,771
Depreciation and amortization	114,883,206	100,025,990
Oil and gas reserves exploration and estimation expenses	17,007,609	15,103,523
Other expenses**, including: MET	514,902,694	489,223,302
Total by type of expenses	3,714,294,887	4,143,795,140
Balances of work in progress, finished goods, etc.	83,147,591	92,850,069
Total expenses related to ordinary activities ***	3,714,294,887	4,143,795,140

* Insurance contributions to state non-budgetary funds are recorded in the statement of cash flows in Cash flows from operating activities as other payments

** translation of effect from revision of accounting estimates on the ARO assets is included in other costs

*** including general, administrative and selling expenses

21. Deferred tax assets and liabilities, permanent tax assets and liabilities

Permanent and temporary differences between the accounting profit and the taxable profit for the reporting period are recognized in the accounting records. Temporary and permanent differences, which are calculated by comparing financial and tax accounting data on income and expenses, result in permanent tax liabilities and assets and deferred tax liabilities and assets.

Current income tax is determined in the accounting record through recognizing the following indicators:

Contingent income (expense)
Permanent tax asset
Permanent tax liability
Deferred tax asset
Deferred tax liability

The Company prepares indicators representing the accounting for income tax settlements on a monthly basis.

The Company recognizes deferred income tax assets and deferred income tax liabilities on a gross basis as non-current assets and non-current liabilities, respectively.

Provision for doubtful debt recognized in the accounting records is a source of temporary difference.

The net amount of permanent tax assets (liabilities) is provided in the income statement for reference only.

A 20 % income tax rate is used to calculate deferred and permanent tax assets and liabilities.

Table 33 Deferred and permanent tax assets and liabilities (kRUB)

Description	Balance at the beginning of the year	Accrued for the reporting year	Paid for the reporting year	Balance at the end of the year
Deferred tax asset	73,523,479	126,922,184	80,230,954	120,214,709
Deferred tax liability	58,997,819	15,983,619	5,288,038	69,693,400
Permanent tax asset	х	171,812,044	х	х
Permanent tax liability	х	52,277,838	х	х

In 2015, contingent income tax expense amounted to RUB 34,657 million, and in 2014 - to RUB 101,275 million.

Movement in deferred taxes for the reporting period recorded in line 2430, Change in deferred tax liabilities, and line 2450, Change in deferred tax assets, includes deferred taxes written off and / or accrued due to filing updated tax returns, deferred tax liabilities and assets written-off, which will never be reversed.

The deferred tax asset includes losses of the consolidated group of taxpayers, which are not used to reduce income tax in the reporting (tax) period but which will be recognized for taxation purposes in subsequent reporting (tax) periods. All deferred tax assets are expected to be utilized within 10 years from the date of origination.

In 2014, a number of amendments were made to the taxation of the income of controlled foreign companies and the income of foreign organizations, which became effective starting 1 January 2015. In accordance with the above amendments, the retained earnings of foreign subsidiaries recognized as controlled foreign companies, may form an additional tax base for Rosneft Oil Company (and certain Russian subsidiaries through which it participates in foreign companies). Therefore, in 2015, the retained earnings (subject to the applicable exceptions) of the controlled foreign companies, recognized as such as of 31 December 2016, shall be included in certain tax base of the Russian controlling entities for 2016. Potential future tax costs with regard to the profits of the controlled foreign companies are considered in determining deferred tax liabilities.

The permanent and temporary differences that led to the adjustment of the contingent income tax expense are presented in the table below.

Table 34 Permanent and temporary differences that led to the adjustment of the contingent income tax expense (kRUB)

Description	Balance at the beginning of the year	Accrued for the reporting year	Paid for the reporting year	Balance at the end of the year
Deductible temporary differences	367,617,395	634,610,920	401,154,770	601,073,545
Taxable temporary differences	294,989,095	79,918,095	26,440,190	348,467,000
Positive permanent differences	х	859,060,220	х	х
Negative permanent differences	х	261,389,190	х	x

22. Dividends

Number of shares and their par value

According to constitutional documents, share capital represents the Company’s capital. The holders of ordinary shares are entitled to one vote per share at shareholders’ meetings.

The Company placed 10,598,177,817 ordinary shares with a par value of RUB 0.01 each for the total amount of RUB 105,981,778.17.

Amount of dividends

In 2015, the Company’s net income amounted to RUB 239,413 million, and net earnings per share amounted to RUB 22.59.

In the first half of 2016, the Board of Directors will provide recommendations on the amount of dividends on the Company’s shares for 2015.

Based on the Company’s result for 2014, the annual shareholders’ meeting that took place on 17 June 2015 (meeting minutes w / o number of 22 June 2015) decided that dividends should be paid on Rosneft Oil Company’s ordinary shares in the amount of RUB 87,011 million or RUB 8.21 per share. As of 31 December 2015, the Company paid dividends in the amount of RUB 86,931 million. Dividends were paid to all of Rosneft Oil Company’s registered shareholders except for (1) shareholders who did not promptly notify the issuer’s registrar of changes in relevant data, and (2) returns to the Company from nominal holders made in accordance with Article 42 of the Federal Law, On Joint-Stock Companies.

23. Contingencies. Provisions

Contingent assets and contingent liabilities

In 2006, Yukos Capital S. a. r. l. (hereinafter, «Yukos Capital») initiated proceedings in international arbitration courts against OJSC Yuganskneftegaz, OJSC Samaraneftegaz and OJSC Tomskneft VNK justifying its claims regarding non-fulfilled obligations under several RUB-denominated loans with the principal of RUB 11.2 billion (OJSC Yuganskneftegaz), RUB 4.34 billion (OJSC Tomskneft VNK), RUB 2.4 billion (OJSC Samaraneftegaz) and interest at the rate of 9 % p. a. for each loan. In 2006-2007, the international arbitration courts made decisions in favor of Yukos Capital. Thereafter, Yukos Capital filed several claims with different Russian and foreign courts in order to recognize and implement these international arbitration awards.
In 2007-2013, different Russian arbitration courts declared the above mentioned loan agreements void. Besides, the arbitration awards against OJSC Yuganskneftegaz were reversed by the competent court of the Russian Federation, and claims on recognition and enforcement of the arbitration awards in Russia made against OJSC Tomskneft VNK and OJSC Samaraneftegaz were dismissed.

The awards with regard to OJSC Yuganskneftegaz were enforced in the Netherlands (the court of first instance declined the enforcement) regardless of the fact that they were set aside by a competent court. Although Rosneft Oil Company does not agree with the decisions of the aforementioned courts of the Netherlands, on 11 August 2010 it complied with those decisions and arranged for the relevant payments to be made with respect to the claim against the Company. The consideration of these disputes continued in foreign jurisdictions as follows: Interest under the arbitration award against Rosneft Oil Company were challenged in England, enforcement of the international arbitration awards against OJSC Samaraneftegaz was challenged in the USA, and against OJSC Tomskneft VNK - in France, Ireland and Singapore.

Besides, Yukos International (UK) B. V. has initiated proceedings in the Netherlands against Rosneft Oil Company and other co-defendants unrelated to Rosneft Oil Company, claiming losses of up to USD 333 million (RUB 24 billion at the CBR exchange rate as of 30 November 2015), plus statutory interest from 7 February 2011 and costs. Under these proceedings, Yukos International (UK) B. V. claimed losses that were said to be incurred as a result of the 2008 order of the Amsterdam court to freeze its bank account. On 11 February 2015, the Amsterdam District Court stated that the order to freeze the bank account of Yukos International (UK) B. V. had not been properly issued, however, it dismissed the procedure for losses calculation used by the plaintiff and stated that these losses should be considered under separate proceedings, including the issue whether Yukos International (UK) B. V. was liable for the losses that were said to be incurred.

In March 2015, Rosneft Oil Company and a number of its subsidiaries, including OJSC Samaraneftegaz, OJSC Tomskneft VNK and OJSC ANKhK entered into Agreement on disputes settlement with Yukos Finance B. V., Yukos Capital, Stichting Administratiekantoor Yukos International, Stichting Administratiekantoor Financial Performance Holdings, Consolidated Nile, LP, General Nile, LLC, Yukos International (UK) B. V., Luxtona Limited, Financial Performance Holdings B. V., Yukos Hydrocarbons Investments Limited, CN & GN (PTC) Ltd. and individuals which control these companies. In accordance with the Agreement, the parties rejected all their claims to each other and closed all existing proceedings and other disputes, including the abovementioned disputes, and obliged not to pursue claims against each other in future in view of bankruptcy and liquidation of Yukos Oil Company. The Agreement does not provide for any cash or other payments on behalf of Rosneft Oil Company or its subsidiaries. On 31 March 2015, the parties finalized the transaction and signed all required documents to withdraw all current proceedings in the Netherlands, England, Russia, USA and other jurisdictions.
In October-November 2014, former shareholders of OJSC RN Holding filed claims against Rosneft Oil Company for losses incurred as a result of an incorrect (in the plaintiffs’ view) valuation of shares under a compulsory buyout. According to the decision of the court of first instance, the claims were dismissed. The plaintiffs filed an appeal against the court’s decision.
According to Order No. 694 / 14 dated 5 November 2014, the Federal Anti-Monopoly Service in Russia commenced proceedings against Rosneft Oil Company, OJSC Bashneft, and OJSC Lukoil based on Article 11.4 of Federal Law «On the Protection of Competition» due to identifying the signs of agreement at exchange auctions on the basis of Ufa refineries during the period from June to October 2014. The proceedings are currently suspended.
Customs duties, which are recognized in selling expenses, are calculated in the course of preparing the financial statements based on the volume of goods sold, customs duty rate and USD exchange rate as of the date the final customs declaration is drafted. A portion of selling expenses is recognized based on temporary customs declarations.
The deviation in customs duties on the goods sold in the reporting year and accrued on temporary customs declarations from the customs duties accrued on the final customs declaration, if the latter is issued after the reporting date, is recognized in other income and expenses of the year following the reporting year. Thus, in 2015, adjustment of the customs duties related to export in 2014 in the amount of RUB 30 billion was recorded as other expenses.
Effective 1 January 2012, the market price defining rules for tax control purposes were changed, and the lists of entities that could be recognized as interdependent entities and lists of controlled transactions were expanded. Due to the absence of law enforcement precedents based on the new rules, as well as the existence of contradictions in certain provisions of the new law, these rules cannot be considered clear and precise. To minimize the significant impact of risks related to transactions between interdependent entities on the Company’s financial statements, the Company developed pricing methods for all types of key controlled transactions between interdependent entities. Also, databases are analyzed annually to determine the arm’s length nature of prices (profit) in the controlled transactions.

Since the Company provided sufficient comments on the transactions performed in 2012-2013 between interdependent entities to the Federal Tax Service of the Russian Federation and territorial tax agencies, the Federal Tax Service of the Russian Federation did not exercise its right to check the accuracy of tax calculations and payments for transactions between the interdependent entities in 2012-2013, and the period allotted expired on 30 June 2014 and 31 December 2015, respectively. The Company believes that the risks relating to pricing under intragroup transactions in 2012-2013 will have no significant impact on its financial position and performance.

Provisions

A provision is an obligation of the Company with an indefinite amount and / or time of settlement. A provision may arise:

From laws and other regulations, court rulings or agreements
As a result of the Company’s activities which indicate, based on the existing practices or statements of the Company, that the Company undertakes certain obligations and, consequently, is reasonably expected to settle these obligations
A provision is recognized when the following criteria are met:
The Company has an obligation resulting from its past business operations that cannot be avoided. In case of doubt concerning such liability, the Company shall recognize an estimated liability if, based on the results of analysis of all circumstances and conditions, including expert opinions, it is more likely than not that a liability exists.
It is likely that settling the provision will result in an outflow of the Company’s economic benefits (the likelihood is > 50 %).
The amount of the provision can be reliably estimated.

Pursuant to Accounting Statement 8 / 2010, Provisions, Contingent Liabilities and Contingent Assets (effective from the date of issue of the financial statements in 2011), the Company has environmental provisions.

An environmental provision arises from the environmental impact resulting from the Company’s operations.

The amount of the environmental provision is determined based on the estimated expenditures (planned expenditures) of the Company that are expected to be incurred for settling the provision during restoration of the impacted lands and water bodies as of the reporting date. The estimation is performed based on the Company’s internal (management) reports that form the system of environmental information.

The information about the Company’s provisions is presented in the table below.

Table 35 Provisions (kRUB)

Description	Provision	Period	Balance at the beginning of the period	Arisen (accrued) for the reporting period	Provision debited to expenses or accounts payable	Provision written off as excessive or not meeting the recognition criteria	Increase (+) /decrease (-) of a provision, when expenses/income (reversal of expenses) is recognized upon the recognition of provisions	Balance at the end of the period
PROVISIONS GENERATED FROM EXPENSES ON REGULAR ACTIVITIES - TOTAL, INCLUDING TYPES OF PROVISIONS:
Total:		2015	22,299,088	15,328,317	12,619,680	374,819	(356,770)	24,276,136
Total:		2014	18,043,203	16,698,136	10,079,168	274	(2,362,809)	22,299,088
Provision for annual year-end bonuses	Planned amount of annual year-end bonuses to employees, with insurance contributions at the effective interest rate	2015	12,990,646	10,290,915	10,056,590	-	-	13,224,971
Provision for annual year-end bonuses		2014	9,038,246	11,617,589	7,665,189	-	-	12,990,646
Provision for future vacation payments	The Company's obligation for vacation payments based on the number of unused vacation days, with insurance contributions at the effective interest rate	2015	1,696,655	2,596,954	2,060,501	-	-	2,233,108
Provision for future vacation payments		2014	1,208,250	2,306,964	1,818,559	-	-	1,696,655
Environmental provisions	Formed on all environmental obligations. The estimation is made by place of occurrence. Recognized at present value	2015	7,578,588	1,402,346	478,040	-	(356,770)	8,146,124
Environmental provisions		2014	7,796,707	2,739,640	594,950	-	(2,362,809)	7,578,588
Provisions for legal claims	Provisions are recognized separately for each legal claim	2015	33,199	1,038,102	24,549	374,819	-	671,933
Provisions for legal claims	Provisions are recognized separately for each legal claim	2014	-	33,943	470	274	-	33,199
PROVISIONS FORMED FROM THE INCREASED COST OF ASSETS:
Total:		2015	34,619,058	4,740,182	1,695,254	-	972,576	38,636,562
Total:		2014	35,019,538	2,654,103	2,271,534	-	(783,049)	34,619,058
Provision for fixed asset liquidation	Formed on all immovable oil and gas assets. The estimation is made by field. Recognized at present value.	2015	32,338,573	3,798,263	1,016,633	-	1,185,059	36,305,262
Provision for fixed asset liquidation		2014	34,822,844	1,337,929	615,653	-	(3,206,547)	32,338,573
Environmental provisions	Obligations to be included in the value of assets (08*)	2015	2,280,485	941,919	678,621	-	(212,483)	2,331,300
Environmental provisions	Obligations to be included in the value of assets (08*)	2014	196,694	1,316,174	1,655,881	-	2,423,498	2,280,485

The provision for fixed asset liquidation presented in the column Arisen (accrued) for the reporting period in Table 35 includes the provision and expenses on discount amortization (interest) recognized as a result of nearing the settlement date of the provision. The increase in the provision for the reporting period (interest) as a result of nearing the provision’s settlement date should be recognized as expenses for the reporting period in the accounting records and financial statements. The effects from changes in the provision for liquidation in the rate and the discount period are presented in the column Increase (+) / decrease (-) of a provision, when expenses / income (reversal of expenses) is recognized upon recognition of provisions in Table 35.

The environmental provision presented in the column Increase (+) / decrease (-) of a provision, when expenses / income (reversal of expenses) is recognized upon recognition of provisions in Table 35 includes effects from the revised estimations of value and the extent to which an obligation is settled, effects of discount rate change, reclassification between obligations formed from expenses on regular activities and increased asset value.

24. Related party transactions

In the normal course of its business, Rosneft Oil Company enters into transactions with entities which are related parties in accordance with Russian law.

The list of related parties was developed based on the relationships between the entities, taking into account substance over form.

Rosneft Oil Company’s related parties also include entities that are not affiliates according to Russian law, but meet the definition of an affiliate in accordance with IFRS 24, Related Parties Disclosures.

The total amounts of transactions and balances with related parties are disclosed separately for the following groups of related parties that have different relationships with Rosneft Oil Company:

Subsidiaries (entities consolidated by Rosneft Oil Company as subsidiaries)
Associates (legal entities consolidated by Rosneft Oil Company using the equity method and proportionate consolidation method)
Main owners (shareholders holding more than 20 % of the voting shares, or having significant impact based on other reasons) and state-controlled entities
Joint venture participants (that are not a legal entity and proportionately consolidated)
Other related parties

The Cash flows section of the Table is broken down in the event of significant cash flows (more than 15 % of any item of the cash flow statement).

Subsidiaries

This section discloses information concerning transactions with those subsidiaries in which Rosneft Oil Company holds, directly or through other entities, more than 50 % of the ordinary voting shares, or which are controlled by other means.

Table 36. Transactions with subsidiaries (kRUB)

Transactions	For the 2015 reporting year	For the 2014 reporting year
SALES REVENUE AND OTHER INCOME
Oil and gas sales	200,882,324	209,771,255
Petroleum products and petrochemicals sales	635,888,602	657,683,133
Income from leasing out property	126,476,780	110,638,224
Other income	17,818,958	56,747,609
	981,066,664	1,034,840,221
COSTS AND EXPENSES
Oil and gas purchases	1,021,590,647	1,079,308,033
Petroleum products and petrochemicals purchases	10,384,984	17,287,869
Logistics and transportation	158,912,627	147,463,906
Oil and gas production services	272,020,808	245,746,598
Cost of processing	190,969,372	179,315,321
Leases of assets	604,690	526,189
Insurance expenses	354	-
Other expenses	50,282,101	57,088,244
	1,704,765,583	1,726,736,160
OTHER TRANSACTIONS
Purchase of fixed assets	185,161	82,489
Loans and borrowings issued	1,380,687,997	1,314,361,820
Repayment of loans and borrowings issued	838,285,229	45,317,776
Proceeds from short-term loans and borrowings	131,418	136,096
Repayment of short-term loans and borrowings	29,266,653	35,430,238
Proceeds from long-term loans and borrowings	1,261,006,008	877,334,836
Repayment of long-term loans and borrowings	1,147,848,680	276,347,700
Deposits placed	3,252,595,000	99,000,000
Deposits repaid	3,252,595,000	99,000,000
Interest receivable	99,235,065	34,756,678
Interest payable	55,928,850	26,080,894
Dividends received	438,578,900	506,838,686
CASH FLOWS
Cash flows from operating activities
Proceeds from
Sale of products, goods, work and services	864,291,002	885,382,293
Lease payments, license payments, royalties, commissions and other similar payments	124,643,577	112,475,024
Other proceeds	205,255,587	362,636,233
Payments to / for
Suppliers (contractors) for feedstock, materials, work and services	(1,664,008,063)	(1,643,801,110)
Exploration costs	(5,171,003)	(8,537,014)
Cash flows from investing activities
Proceeds from
Sale of non-current assets (other than financial investments)	389,084	6,416
Repayment of loans, receivables from other parties, etc.	838,637,313	45,445,580
Dividends, interest on debt financial instruments and similar proceeds from equity participation in other entities	378,187,919	491,073,062
Payments
For the purchase, creation, upgrading, reconstruction and preparation for use of non-current assets	(105,637,560)	(163,075,688)
For the purchase of shares (interests) in other entities	(160,342,748)	(29,178,991)
Provision of loans to other parties	(1,380,687,997)	(1,314,361,820)
Exploration assets	(3,854,893)	(6,678,790)
Other payments	-	(40,243,108)
Cash flows from financing activities
Proceeds from
Loans and borrowings received	1,261,137,426	877,470,932
Payments
For the repayment of loans and borrowings, repayment (redemption) of promissory notes, etc.	(1,179,859,353)	(311,879,301)

Table 37 Assets and liabilities under transactions with subsidiaries (kRUB)

Assets and liabilities	Balance at 31 December 2015	Balance at 31 December 2014
ASSETS
Cash and cash equivalents	21,641,373	79,298,306
Accounts receivable, including	1,681,332,549	1,370,897,950
Long-term accounts receivable	1,103,249,438	971,004,107
Advances issued for capital construction and equipment for installation	35,581,819	49,612,690
Short-term advances paid	5,400,948	4,889,421
Provision for doubtful debts as of the end of the reporting period	5,142,692	12,231,758
Short-term and long-term financial investments,	4,013,713,480	3,366,290,550
Including long-term	3,315,521,926	3,302,281,730
	5,716,687,402	4,816,486,806
LIABILITIES
Short-term accounts payable	1,137,037,561	910,301,800
Short-term and long-term loans and borrowings (including interest),	1,185,747,407	877,490,778
Including long-term	1,180,913,186	842,704,178
	2,322,784,968	1,787,792,578

Associates

This section discloses information concerning transactions with those associates in which Rosneft Oil Company holds, directly or through other entities, more than 20 % but less than 50 % of the ordinary voting shares (or no control is provided for other reasons), and which Rosneft Oil Company holds significant influence over.

Table 38 Transactions with associates (kRUB)

Transactions	For the 2015 reporting year	For the 2014 reporting year
SALES REVENUE AND OTHER INCOME
Oil and gas sales	2,487,005	3,117,967
Petroleum products and petrochemicals sales	7,876,580	8,665,037
Income from leasing out property	26,550	83,625
Other income	358,627	3,700,836
	10,748,762	15,567,465
COSTS AND EXPENSES
Oil and gas purchases	202,254,505	83,405,119
Logistics and transportation	18,603,100	9,583,886
Leases of assets	214,095	208,926
Cost of processing	13,135,606	11,929,979
Other expenses	404,213	96,082
	234,611,519	105,223,992
OTHER TRANSACTIONS
Purchase of fixed assets	-	5,355
Loans and borrowings issued	3,414,432	167,771,170
Repayment of loans and borrowings issued	7,219	33,000
Proceeds from short-term loans and borrowings	-	1,050
Repayment of short-term loans and borrowings	-	970
Proceeds from long-term loans and borrowings	23,263,732	32,141,934
Repayment of long-term loans and borrowings	7,033,640	139,942
Interest receivable	13,039,916	3,574,793
Interest payable	4,404,392	1,503,097
Dividends received	292,029	937,758
CASH FLOWS
Cash flows from operating activities
Payments
Exploration costs	(3,892,204)	-
Cash flows from investing activities
Payments
Exploration assets	(15,926,188)	-

Table 39 Assets and liabilities under transactions with associates (kRUB)

Assets and liabilities	Balance at 31 December 2015	Balance at 31 December 2014
ASSETS
Accounts receivable, including	20,158,824	16,590,722
Long-term accounts receivable	12,979,917	5,858,067
Advances paid for capital construction and equipment for installation	-	4,954
Short-term advances paid	1,524,593	915,954
Provision for doubtful debts as of the end of the reporting period	774,368	774,368
Short-term and long-term financial investments,	351,981,945	280,656,489
Including long-term	350,737,262	279,267,446
	372,140,769	297,247,211
LIABILITIES
Short-term accounts payable	26,248,307	27,015,754
Short-term and long-term loans and borrowings (including interest),	112,818,022	71,650,159
Including long-term	112,818,022	71,650,159
	139,066,329	98,665,913

Information on compensation paid to key management personnel

For the purpose of these consolidated financial statements key management personnel include members of the Management Board of Rosneft Oil Company OJSC and members of the Board of Directors.

Short-term gross benefits of the Management Board members, taking into account personnel rotation, including payroll and bonuses, totaled RUB 2,884 million and RUB 2,779 million in 2015 and 2014, respectively (social security fund contributions, which are not Management Board members’ income, totaled RUB 376 million and RUB 260 million, respectively, with the increase due to a change in the social security contributions calculation rules). Short-term benefits do not include a onetime bonus paid in 2015 for the achievements in implementing major projects in 2014 (the discovery of Kara oil and gas province, the commencement of commercial production at Berkut, the world’s largest drilling platform, in the Sea of Okhotsk, the development of major projects in the Asia-Pacific region), following state awards by the President of the Russian Federation, and a part of 2014 compensation paid in 2015. Short-term gross benefits for 2015 were previously disclosed in accordance with the Russian securities law on information disclosure. There were no post-employment, severance or share-based benefits paid, There was no wages indexation in 2015.

Principal owners and state-controlled entities

This section discloses the information about transactions with legal entities that hold more than 10 % of the total number of votes, which relate to voting shares, and state-controlled entities.

Table 40 Information on transactions with state-controlled entities (kRUB)

Transactions	For the 2015 reporting year	For the 2014 reporting year
SALES REVENUE AND OTHER INCOME
Oil and gas sales	144,151,555	111,755,883
Oil products and petrochemicals sales	89,766,571	48,837,520
Gains on transactions involving term transaction financial instruments	7,761,178	6,207,945
Other income	11,644,937	5,201,592
	253,324,241	172,002,940
COSTS AND EXPENSES
Oil and gas purchases	21,555,093	9,466,228
Oil products purchases	2,681,139	1,411,912
Logistics and transportation	284,810,749	253,039,234
Customs duties	685,624,590	1,323,957,248
Leases of assets	796,523	665,593
Losses from transactions involving term transaction financial instruments	4,029,740	2,310,998
Electricity costs	27,626	27,250
Other expenses	12,926,570	2,133,140
	1,012,452,030	1,593,011,603
OTHER TRANSACTIONS
Loans and borrowings issued	6,710,000	-
Proceeds from short-term loans and borrowings	291,904,714	181,674,136
Repayment of short-term loans and borrowings	286,305,373	207,288,024
Proceeds from long-term loans and borrowings	24,957,640	12,500,000
Repayment of long-term loans and borrowings	29,824,680	-
Deposits placed	4,343,852,418	2,136,219,495
Deposits repaid	4,174,771,948	2,030,863,474
Interest payable	15,223,365	8,275,307
Interest receivable	6,344,055	2,206,789
Dividends received	967	-
CASH FLOWS
Cash flows from operating activities
Payments to
Suppliers (contractors) for feedstock, materials, work and services	(1,222,422,419)	(2,047,852,503)
Cash flows from investing activities
Proceeds
from sale of debt securities (receivables from other parties)	338,198,380	97,356,994
Other proceeds	7,761,178	6,207,945
Payments
Purchase of debt securities (receivables from other parties), provision of loans to other parties	(437,282,600)	(213,314,170)
Cash flows from financing activities
Proceeds from
loans and borrowings received	316,862,354	194,174,136
Payments related to
dividends and other distributions of income among shareholders (participants)	(60,473,353)	(94,650,741)
Repayment of loans and borrowings	(316,130,053)	(207,288,024)

Table 41 Assets and liabilities under transactions with principal owners and state-controlled entities (kRUB)

Assets and liabilities	Balance at 31 December 2015	Balance at 31 December 2014
ASSETS
Cash and cash equivalents	315,700,322	23,728,826
Accounts receivable, including	51,596,175	57,383,943
Long-term accounts receivable	89,680	-
Advances issued for capital construction and equipment for installation	1,847,659	96,048
Short-term advances issued	23,879,051	41,207,680
Provision for doubtful debts as of the end of the reporting period	305,504	305,994
Short-term and long-term financial investments,	470,531,170	281,920,215
Including long-term	88,831,130	628,215
	837,827,667	363,032,984
LIABILITIES
Short-term accounts payable	10,682,917	4,821,622
Short-term and long-term loans and borrowings (including interest)	112,725,000	112,633,767
Including long-term	12,500,000	12,500,000
	123,407,917	117,455,389

Joint venture participants

There are no transactions with companies involved in joint activities with Rosneft Oil Company for the period of 2014-2015.

Other related parties

Other related parties include a non-state pension fund operating in the interests of the Company’s employees.

Table 42 Information on transactions with other related parties (kRUB)

Transactions	For the 2015 reporting year	For the 2014 reporting year
SALES REVENUE AND OTHER INCOME
Other income	324	324
	324	324
COSTS AND EXPENSES
Expenses under non-state pension agreements	364,905	363,146
	364,905	363,146

Table 43 Assets and liabilities under transactions with other related parties (kRUB)

Assets and liabilities	Balance at 31 December 2015	Balance at 31 December 2014
LIABILITIES
Short-term accounts payable	-	9,615
	-	9,615

In the reporting period, Rosneft Oil Company mainly used the monetary form of settlements with related parties.

25. Segment information

The Company, its subsidiaries and associates (hereinafter, the «Rosneft Oil Company Group») operate as a vertically integrated business. The Rosneft Oil Company Group is principally engaged in the exploration, development, production and sales of oil and gas, as well as the production, transportation and sales of petroleum products in the Russian Federation and abroad. Management information, which is regularly analyzed by those persons with the power to make decisions on resource allocation in the Company and further performance evaluation, is prepared for the business purposes of Rosneft Oil Company Group as a whole. Given the fact that the business of the Company as a legal entity is an integral part of the Group management, management decision-making and resource allocation is performed by the duly authorized persons at the level of Rosneft Oil Company Group; certain management reports reflecting financial performance, the amount of assets and liabilities by segment, which refer only to the Company’s operations and are not related to the Group in general, are not prepared for business lines. Therefore, segment information is fully disclosed in the consolidated financial statements of the Rosneft Oil Company Group.

Information on revenue broken down by segment is presented in the explanatory notes below, as this data is provided to the Company’s authorized representatives on a regular basis. Segment information was prepared taking into account the economic, foreign currency, credit and price risks the Company may be exposed to.

Table 42 Information on sales revenue by segment (kRUB)

Name of the segment	Net revenue for the reporting year
	Total	External market	Domestic market
Oil	1,640,982,382	1,397,898,253	243,084,129
Gas	125,057,877	-	125,057,877
Oil products and petrochemicals	1,930,207,084	1,109,885,022	820,322,062
Other sales	134,847,602	-	134,847,602
Total:	3,831,094,945	2,507,783,275	1,323,311,670

Other sales include the sales of materials, fixed assets, proceeds from the lease of fixed assets, etc.

26. Other aspects of the Company’s business

Environmental matters

The activities of oil and gas companies are always subject to environmental risks. The Company’s management believes that its activities comply with legislative requirements regarding environmental protection, and, therefore, the Company has no risk of significant liabilities in this area, except for those already disclosed and recorded in these financial statements.

Insurance

The Company continues to insure its property, motor vehicles, cargoes, shipments, construction works and the liability of its officials.

Energy resources

Information on the total costs related to energy resources used in 2015 is given below ¹.

Table 45 Information on resources used (kRUB)

No.	Energy resource	Amount
1	Electric energy	28,182
2	Heat energy	3,726

Operating environment in the Russian Federation

In 2015, a significant drop in crude oil prices and a significant devaluation of the Russian ruble, as well as sanctions imposed on Russia by several countries in 2014 continued to have an adverse effect on the Russian economy. The ruble interest rates remained high as a result of raising the key interest rate by the Central Bank of Russia in December 2014 with an incremental decrease in 2015. The combination of the above factors led to a higher cost of capital, increased inflation and uncertainty regarding further economic growth, which could negatively affect the Company’s future financial position, results of operations and business prospects. Management believes it is taking appropriate measures to support the sustainability of the Company’s business in the current circumstances.

1. The requirement of Article 22 of Federal Law No. 261-FZ «On Saving Energy and Increasing Energy Efficiency, and on Amendments to Certain Legislative Acts of the Russian Federation» dated 23 November 2009. In accordance with Article 2 of Federal Law No. 261-FZ, an energy resource is an energy carrier that is used or can be used for both economic and other activities, as well as a type of energy (atomic, heat, electrical, electromagnetic or other type).

Appendix 5.

Вверх

Audit report on the financial statements of Rosneft Oil Company for the year ended 31 December 2015

Independent auditor’s report

Audited entity’s responsibility for the financial statements

Auditor’s responsibility

Opinion

Other matters

Balance sheet at 31 December 2015

Income statement for the 2015 reporting year

Statement of changes in equity for the 2015 reporting year

Statement of changes in equity for the 2015 reporting year

Statement of cash flows for the 2015 reporting year

EXPLANATORY NOTES TO THE BALANCE SHEET AND THE INCOME STATEMENT OF ROSNEFT OIL COMPANY FOR THE 2015 REPORTING YEAR

1. Entity and types of activity

Company description

Legal address (location) of the Company:

Governing bodies of the Company

Board of Directors of the Company

Control of the Company’s financial and business operations

2. Basis of preparation

3. Changes in opening balances in the financial statements for the 2015 reporting year

4. Information about the accounting policy

5. Fixed assets and capital construction in progress

6. Intangible assets

7. Oil and gas reserves exploration and evaluation costs

8. Research and development results

9. Other non-current assets

10. Reserves, value added tax, excises on self-produced petroleum products

11. Financial investments

12. Derivative financial instruments at fair value through profit or loss

13. Information on hedging transactions

14. Cash

15. Accounts receivable and payable

16. Long-term and short-term loans and borrowings, other liabilities and collateral pledged

17. Assets and liabilities denominated in foreign currency

18. Tax payables

19. Equity

Share capital

Reserve and additional capital

Treasury shares

Net assets

20. Income and expenses, retained earnings

21. Deferred tax assets and liabilities, permanent tax assets and liabilities

22. Dividends

Number of shares and their par value

Amount of dividends

23. Contingencies. Provisions

Contingent assets and contingent liabilities

Provisions

24. Related party transactions

Subsidiaries

Associates

Information on compensation paid to key management personnel

Principal owners and state-controlled entities

Joint venture participants

Other related parties

25. Segment information

26. Other aspects of the Company’s business

Environmental matters

Insurance

Energy resources

Operating environment in the Russian Federation

Balance sheet
at 31 December 2015

Statement of changes in equity
for the 2015 reporting year

Statement of cash flows
for the 2015 reporting year