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PJSC LUKOIL
ANNUAL FINANCIAL REPORT
2020
Moscow
March 2020
TABLE OF CONTENTS
Responsibility statement....................................................................................................................................... 3
Consolidated financial statements with independent auditors’ report.................................................................. 4
Management’s discussion and analysis of financial condition and results of operations .................................. 56
Information about major business risks and uncertainties.................................................................................. 99
RESPONSIBILITY STATEMENT
I hereby confirm that to the best of my knowledge:
(a) the financial statements, prepared in accordance with the International Financial Reporting Standards, give
a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation taken as a whole,
(b) the management report includes a fair review of the development and performance of the business and the
position of the Company and the undertakings included in the consolidation taken as a whole, together with a
description of the principal risks and uncertainties that they face.
Alekperov V. Y.
President of PJSC LUKOIL
March 10, 2021
CONSOLIDATED FINANCIAL STATEMENTS
WITH INDEPENDENT AUDITORS’ REPORT
PJSC LUKOIL
Consolidated Statement of Financial Position
(Millions of Russian rubles)
Note
31 December 2020
31 December 2019
Assets
Current assets
Cash and cash equivalents
Accounts receivable, net
Other current financial assets
Inventories
6
7
343,832
370,271
8,350
516,032
437,052
49,706
8
9
426,536
78,822
413,910
95,075
Prepaid taxes
10
11
Other current assets
48,649
42,412
Total current assets
Property, plant and equipment
Investments in associates and joint ventures
Other non-current financial assets
Deferred income tax assets
Goodwill and other intangible assets
Other non-current assets
Total non-current assets
Total assets
1,276,460
4,264,474
281,637
68,692
1,554,187
4,026,007
220,004
38,231
13
12
14
29
16
16,298
28,673
50,159
43,108
33,859
36,840
4,715,119
5,991,579
4,392,863
5,947,050
Liabilities and equity
Current liabilities
Accounts payable
17
18
597,932
82,636
142,458
27,136
35,497
-
607,734
130,300
142,471
37,232
Short-term borrowings and current portion of long-term debt
Taxes payable
20
Provisions
22, 23
21
Other current liabilities
Obligation to repurchase common shares
Total current liabilities
Long-term debt
168,952
120,988
1,207,677
422,932
264,159
77,045
24
885,659
577,075
268,956
126,665
2,458
19
29
Deferred income tax liabilities
Provisions
22, 23
Other non-current liabilities
Total non-current liabilities
Total liabilities
1,788
975,154
1,860,813
765,924
1,973,601
24
Equity
Share capital
938
968
Treasury shares (including obligation to repurchase common
shares)
(71,920)
39,298
(308,160)
39,277
Additional paid-in capital
Other reserves
296,641
3,858,057
4,123,014
7,752
30,141
Retained earnings
4,203,138
3,965,364
8,085
Total equity attributable to PJSC LUKOIL shareholders
Non-controlling interests
Total equity
4,130,766
5,991,579
3,973,449
5,947,050
Total liabilities and equity
President of PJSC LUKOIL
Alekperov V.Y.
Chief accountant of PJSC LUKOIL
Verkhov V.A.
The accompanying notes are an integral part of these consolidated financial statements.
9
PJSC LUKOIL
Consolidated Statement of Profit or Loss and Other Comprehensive Income
(Millions of Russian rubles, unless otherwise noted)
Note
2020
2019
Revenues
Sales (including excise and export tariffs)
Costs and other deductions
Operating expenses
33
5,639,401
7,841,246
(439,973)
(3,000,916)
(292,899)
(199,027)
(405,440)
(569,078)
(444,300)
(6,114)
(457,710)
(4,308,073)
(278,798)
(197,172)
(415,094)
(928,190)
(425,763)
(9,348)
Cost of purchased crude oil, gas and products
Transportation expenses
Selling, general and administrative expenses
Depreciation, depletion and amortisation
Taxes other than income taxes
Excise and export tariffs
Exploration expenses
Profit from operating activities
Finance income
281,654
13,051
821,098
25,134
26
26
12
Finance costs
(44,122)
11,474
(44,356)
18,246
Equity share in income of associates and joint ventures
Foreign exchange (loss) gain
Other expenses
(26,110)
(137,160)
98,787
923
27
(27,691)
793,354
(144,615)
(6,518)
Profit before income taxes
Current income taxes
(61,362)
(20,792)
(82,154)
16,633
Deferred income taxes
29
Total income tax expense
Profit for the year
(151,133)
642,221
Profit for the year attributable to:
PJSC LUKOIL shareholders
Non-controlling interests
15,175
1,458
640,178
2,043
Other comprehensive income (loss), net of income taxes
Items that may be reclassified to profit or loss:
Foreign currency translation differences for foreign operations
Items that will never be reclassified to profit or loss:
268,707
(164,117)
Change in fair value of equity instruments at fair value through other comprehensive
income
(767)
(1,423)
(348)
(1,976)
Remeasurements of defined benefit liability / asset of pension plan
Other comprehensive income (loss)
23
266,517
283,150
(166,441)
475,780
Total comprehensive income for the year
Total comprehensive income for the year
attributable to:
PJSC LUKOIL shareholders
Non-controlling interests
281,675
1,475
473,765
2,015
Earnings per share
Profit for the year attributable to PJSC LUKOIL shareholders per share of common
stock (in Russian rubles):
24
Basic
23.31
22.46
963.28
934.73
Diluted
The accompanying notes are an integral part of these consolidated financial statements.
10
PJSC LUKOIL
Consolidated Statement of Changes in Equity
(Millions of Russian rubles)
Total equity
Additional
paid-in
attributable to
Retained PJSC LUKOIL controlling
Non-
Share
capital
Treasury
shares
Other
reserves
Total
equity
capital
earnings
shareholders
3,965,364
15,175
interests
31 December 2019
Profit for the year
Other comprehensive
income
968
-
(308,160)
-
39,277
-
30,141 4,203,138
8,085
3,973,449
16,633
-
266,500
266,500
15,175
1,458
-
-
-
-
17
266,500
281,675
266,517
283,150
Total comprehensive
income
15,175
1,475
Dividends on common
stock
-
-
-
-
-
-
-
(258,389)
-
-
-
(258,389)
(2,026)
(258,389)
(2,026)
Stock purchased
(2,026)
Equity-settled share-
based compensation plan
-
-
-
-
15,381
-
15,381
15,381
Obligation to repurchase
common shares
-
120,988
117,278
-
-
-
-
-
-
-
120,988
-
120,988
-
Share capital reduction
(30)
(117,248)
Changes in non-
controlling interests
-
-
21
-
-
(1,808)
21
(1,787)
31 December 2020
938
(71,920)
39,298
296,641 3,858,057
4,123,014
7,752 4,130,766
31 December 2018
Profit for the year
Other comprehensive
loss
1,015
-
(134,810)
-
39,173
-
196,554 3,963,628
7,966
2,043
4,065,560
640,178
4,073,526
642,221
-
(166,413)
(166,413)
640,178
-
-
-
-
(28)
(166,413)
473,765
(166,441)
475,780
Total comprehensive
(loss) income
640,178
2,015
Dividends on common
stock
-
-
-
-
-
-
-
(229,669)
-
-
-
(229,669)
(240,767)
(229,669)
(240,767)
Stock purchased
(240,767)
Equity-settled share-
based compensation plan
-
-
-
-
17,359
-
17,359
17,359
Obligation to repurchase
common shares
-
(120,988)
188,405
-
-
-
-
-
-
-
(120,988)
-
(120,988)
-
Share capital reduction
(47)
(188,358)
Changes in non-
controlling interests
-
-
104
-
-
(1,896)
104
(1,792)
31 December 2019
968
(308,160)
39,277
30,141 4,203,138
3,965,364
8,085 3,973,449
The accompanying notes are an integral part of these consolidated financial statements.
11
PJSC LUKOIL
Consolidated Statement of Cash Flows
(Millions of Russian rubles)
Note
2020
2019
Cash flows from operating activities
Profit for the year attributable to PJSC LUKOIL shareholders
Adjustments for non-cash items:
15,175
640,178
Depreciation, depletion and amortisation
Equity share in income of associates and joint ventures, net of dividends received
Dry hole write-offs
405,440
(2,903)
4,425
415,094
(11,387)
7,694
Loss on disposals and impairments of assets
Income tax expense
125,535
82,154
26,037
(13,051)
44,122
5,811
16,975
151,133
(1,120)
(25,134)
44,356
9,340
Non-cash foreign exchange loss (gain)
Finance income
Finance costs
Allowance for expected credit losses
Equity-settled share-based compensation plan
All other items, net
31,366
5,538
31,366
1,823
Changes in operating assets and liabilities:
Trade accounts receivable
128,139
37,868
(48,023)
(69,171)
88,977
Inventories
Accounts payable
(69,305)
10,200
Other taxes
24,053
Other current assets and liabilities
Income tax paid
(23,725)
(57,250)
9,448
(2,617)
(148,314)
6,636
Dividends received
Interests received
11,550
19,985
Net cash provided by operating activities
Cash flows from investing activities
Acquisition of licenses
776,574
1,151,844
(235)
(495,443)
657
(8,232)
12,323
17
(8,925)
(449,975)
1,759
(7,198)
17,774
9,261
Capital expenditures
Proceeds from sale of property, plant and equipment
Purchases of financial assets
Proceeds from sale of financial assets
Sale of subsidiaries, net of cash disposed
Sale of associates
312
259
Acquisitions of interests in the projects and subsidiaries, net of cash acquired
Acquisitions of associates
(1,040)
(1,128)
(492,769)
(71,693)
(1,388)
(510,126)
Net cash used in investing activities
Cash flows from financing activities
Proceeds from issuance of short-term borrowings
Principal repayments of short-term borrowings
Proceeds from issuance of long-term debt
Principal repayments of long-term debt
Interest paid
1,971
(815)
264
(6,186)
-
108,796
(171,980)
(39,100)
(407,309)
(3,589)
47
(106,625)
(41,589)
(180,747)
(4,040)
297
Dividends paid on Company common shares
Dividends paid to non-controlling interest shareholders
Financing received from non-controlling interest shareholders
Purchase of Company’s stock
(2,026)
-
(243,691)
(27)
Purchases of non-controlling interest
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(514,005)
58,000
(172,200)
516,032
343,832
(582,344)
(35,992)
23,382
492,650
516,032
6
The accompanying notes are an integral part of these consolidated financial statements.
12
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 1. Organisation and environment
The primary activities of PJSC LUKOIL (the “Company”) and its subsidiaries (together, the “Group”) are oil
exploration, production, refining, marketing and distribution. The Company is the ultimate parent entity of this
vertically integrated group of companies.
The Group was established in accordance with Presidential Decree No. 1403, issued on 17 November 1992.
Under this decree, on 5 April 1993, the Government of the Russian Federation transferred to the Company 51%
of the voting shares of fifteen enterprises. Under Government Resolution No. 861 issued on
1 September 1995, a further nine enterprises were transferred to the Group during 1995. Since 1995, the Group
has carried out a share exchange program to increase its shareholding in each of the twenty-four founding
subsidiaries to 100%.
From formation, the Group has expanded substantially through consolidation of its interests, acquisition of new
companies and establishment of new businesses.
Business and economic environment
The accompanying consolidated financial statements reflect management’s assessment of the impact of the
business environment in the countries in which the Group operates on the operations and the financial position
of the Group. The future business environments may differ from management’s assessment.
COVID-19
In December 2019, the emergence of a new strain of coronavirus (COVID-19) was reported in China and has
subsequently spread globally. On 11 March 2020, the World Health Organization declared the COVID-19
outbreak a pandemic. Mobility restrictions, quarantines and similar lockdown measures implemented in different
countries to cope with the pandemic had a significant negative impact on the global economy. Deceleration of
economic activity resulted in a substantial decrease in demand for hydrocarbons leading to oversupply on the
international oil market and a sharp decline in oil prices. On 12 April 2020, OPEC+ countries entered into a new
agreement to reduce their collective output starting from 1 May 2020. This coordinated production cut together
with the negative impact of low oil prices on crude oil production in different countries resulted in lower supply
of crude oil, reduction of surplus on the crude oil market and led to a gradual recovery of oil prices. This upward
oil price trend was further supported by the start of gradual lifting of lockdowns in different countries, recovery
in economic activity and respective growth in demand for hydrocarbons. Acceleration of COVID-19 spread in
October 2020 resulted in a renewal of lockdown measures in different countries and a decline in oil prices.
However, progress with testing of vaccines against COVID-19 pushed the oil prices up by the end of December
2020. This upward trend continued in the beginning of 2021.
From the beginning of COVID-19 pandemic the Group has taken necessary measures to avoid direct impact of
the pandemic on its operations with a special focus on protection of the health of employees and clients and
uninterrupted production processes.
The major impact of COVID-19 on the macroeconomic environment in the oil and gas industry resulted in a
number of consequences on operational and financial performance of the Group. For example, due to the OPEC+
agreement the Group cut its crude oil production in Russia and at some international projects.
Management has considered the impact of COVID-19 and oil price decline on these consolidated financial
statements. Current market conditions create additional estimation uncertainties and impact certain key
assumptions in the valuation of assets used for preparation of these consolidated financial statements.
Management believes that the Group is in a solid financial condition as of the end of 2020. This represents an
incremental support for continuous operations and meeting all of the Group’s obligations, as well as adequate
financing of the investment program in any macroeconomic situation. Management will continue monitoring
the situation closely to ensure prompt reaction to the rapidly changing environment.
13
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 2. Basis of preparation
Statement of compliance
The consolidated financial statements have been prepared in accordance with International Financial Reporting
Standards (“IFRS”).
These consolidated financial statements have been prepared on a historical cost basis, except certain assets and
liabilities measured at fair value.
The consolidated financial statements were authorised by the President of the Company on 10 March 2021.
Functional and presentation currency
The functional currency of each of the Group’s consolidated companies is the currency of the primary economic
environment in which the company operates. The management has analysed factors that influence the choice of
functional currency and has determined the functional currency for each Group company. For the majority of
them the functional currency is the local currency. The functional currency of the Company is the Russian ruble
(“RUB”).
The presentation currency of the Group is the RUB. All financial information presented in the RUB has been
rounded to the nearest million, except when otherwise indicated.
The results and financial position of Group companies whose functional currency is different from the
presentation currency of the Group are translated into presentation currency using the following procedures.
Assets and liabilities are translated at period-end exchange rates, income and expenses are translated at rates
which approximate actual rates at the date of the transaction. Resulting exchange differences are recognised in
other comprehensive income.
Note 3. Summary of significant accounting policies
Principles of consolidation
These consolidated financial statements include the financial position and results of operations of the Company
and controlled subsidiaries. A company controls an investee when it is exposed, or has rights, to variable returns
from its involvement with the investee and has the ability to affect those returns through its power over the
investee.
Investments in companies that the Group does not control, but where it has the ability to exercise significant
influence (Group’s interests are between 20% and 50%) over operating and financial policies, are accounted for
using the equity method. These investments include the Group’s interests in associates, joint ventures and
investments where the Company owns the majority of the voting interest but has no control. Associates are those
entities in which the Group has significant influence, but not control or joint control, over the financial and
operating policies. A joint venture is an arrangement in which the Group has joint control, whereby the Group
has rights to the net assets of the arrangement.
Interests in associates and joint ventures are accounted for using the equity method and are recognised initially
at cost. The cost of the investment includes transaction costs. The consolidated financial statements include the
Group’s share of the profit or loss and other comprehensive income of equity accounted investees, after
adjustments to align the accounting policies with those of the Group, from the date that significant influence or
joint control commences until the date that significant influence or joint control ceases. When the Group’s share
of losses exceeds its interest in an equity-accounted investee, the carrying amount of that interest including any
long-term investments, is reduced to zero, and the recognition of further losses is discontinued, except to the
extent that the Group has an obligation or has made payments on behalf of the investee.
14
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
Group’s share in jointly controlled operations is recognised in the consolidated financial statements based on its
share in assets, liabilities, income and expenses. Jointly controlled operations are arrangements in which parties
that have joint control over operating or financial policies have respective rights to use assets and responsibility
for liabilities in the arrangements.
Certain of Group’s unincorporated joint exploration and production activities are conducted through
arrangements that are not jointly controlled, either because unanimous consent is not required among all parties
involved, or no single group of parties has joint control over the activity. Such activities where control can be
achieved through agreement between more than one combination of involved parties are considered to be outside
the scope of IFRS 11 Joint Arrangements. In relation to its interests in these arrangements, the Group recognises
its share of any assets, liabilities, income and expenses.
Business combinations
For each business combination the Group measures goodwill at the acquisition date as:
the fair value of the consideration transferred; plus
the recognised amount of any non-controlling interests in the acquiree; plus
if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the
acquire; less
the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities
assumed.
When the excess is negative, a bargain purchase gain is recognised immediately in profit or loss. The
consideration transferred does not include amounts related to the settlement of previous transactions. Such
amounts are generally recognised in profit or loss.
Any contingent consideration payable is recognised at fair value at the acquisition date. If the contingent
consideration is classified as equity, it is not remeasured and settlement is accounted for within equity.
Otherwise, subsequent changes in the fair value of the contingent consideration are recognised in profit or loss.
Non-controlling interests
Non-controlling interests are measured at their proportionate share of the fair value of acquiree’s identifiable net
assets at the acquisition date.
Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity
transactions.
Transactions eliminated on consolidation
Intra-group balances and transactions, and any unrealised income and expenses arising from intra-group
transactions, are eliminated during the process of consolidation. Unrealised gains arising from transactions with
equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the
investee. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there
is no evidence of impairment.
15
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated to the respective functional currencies of Group entities at
exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies
are translated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on
monetary items is the difference between amortised cost in the functional currency at the beginning of the period,
adjusted for effective interest and payments during the period, and the amortised cost in foreign currency
translated at the exchange rate at the end of the reporting period. Non-monetary assets and liabilities
denominated in foreign currencies that are measured at fair value are translated to the functional currency at the
exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are
measured based on historical cost are translated using the exchange rate at the date of the transaction. Foreign
currency differences arising in translation are recognised in profit or loss, except for differences arising on the
translation of financial assets measured at fair value through other comprehensive income which are recognised
in other comprehensive income.
Foreign operations
The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on
acquisition, are translated to the presentation currency at the exchange rates at the reporting date. The income
and expenses of foreign operations are translated to the presentation currency at exchange rates at the dates of
the transactions. Foreign currency differences are recognised in other comprehensive income, and presented in
the foreign currency translation reserve in equity. However, if the foreign operation is a non-wholly owned
subsidiary, then the relevant proportionate share of the translation difference is allocated to non-controlling
interests. When a foreign operation is disposed of in a way that control, significant influence or joint control is
lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or
loss as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary
that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is
reattributed to non-controlling interests. When the Group disposes of only part of its investment in an associate
or joint venture that includes a foreign operation while retaining significant influence or joint control, the
relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary
item receivable from or payable to a foreign operation is neither planned nor likely to occur in the foreseeable
future, foreign exchange gains and losses arising from such item form part of a net investment in a foreign
operation and are recognised in other comprehensive income, and presented in the translation reserve in equity.
Revenues
Revenues are recognised when a customer obtains control of the goods or services which usually occurs when
the title is passed, provided that risks and rewards of ownership are assumed by the customer and the customer
obtains obligation to pay for the goods or services.
Revenues include excise on petroleum products’ sales and duties on export sales of crude oil and petroleum
products.
Revenue from the production of oil and natural gas in which the Group has an interest with other producers is
recognised based on the Group’s working interest and the terms of the relevant production sharing contracts.
Revenues from non-cash sales are recognised at the fair value of the crude oil and petroleum products sold.
If the fair value of the non-cash consideration cannot be reasonably estimated, the consideration shall be
measured indirectly by reference to the stand-alone selling price of the goods or services promised to the
customer in exchange for the consideration.
16
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments with an original maturity of three months or
less.
Financial assets
The Group classifies financial assets into the following categories, as appropriate: measured at amortised cost,
fair value through other comprehensive income and fair value through profit or loss.
A financial asset is measured at amortised cost if both of the following conditions are met:
the financial asset is held within a business model whose objective is to hold financial assets in order to
collect contractual cash flows, and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
A financial asset is measured at fair value through other comprehensive income if both of the following
conditions are met:
the financial asset is held within a business model whose objective is achieved by both collecting
contractual cash flows and selling financial assets, and
the contractual terms of the financial asset give rise on specified dates to cash flows that are solely
payments of principal and interest on the principal amount outstanding.
A financial asset is measured at fair value through profit or loss unless it is measured at amortised cost or at fair
value through other comprehensive income. However, the Company may make an irrevocable election at initial
recognition for particular instruments in equity instruments that would otherwise be measured at fair value
through profit or loss to present subsequent changes in fair value in other comprehensive income.
The Group initially recognises as financial assets loans and receivables on the date when they are originated and
debt securities on the date when they are acquired. All other financial assets are recognised initially on the trade
date at which the Group becomes a party to the contractual provisions of the instrument.
The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or
it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which
substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in
transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability.
Non-derivative financial liabilities
The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such
financial liabilities are recognised initially at fair value less any directly attributable transaction costs.
Subsequent to initial recognition, these financial liabilities are measured at amortised cost using the effective
interest method. Other financial liabilities comprise loans and borrowings, bank overdrafts, and trade and other
payables.
The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or
expire.
17
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
Derivative instruments
The Group uses various derivative financial instruments to hedge its commodity price risks. Such derivative
financial instruments are initially recognised at fair value on the date on which a derivative contract is entered
into and subsequently re-measured at fair value. Resulting realised and unrealised gains or losses are presented
in profit or loss on a net basis. The Group does not use hedge accounting.
Inventories
Inventories are measured at the lower of cost and net realisable value. The cost of inventories includes
expenditure incurred in acquiring the inventories, production or conversion costs and other delivery costs. In the
case of manufactured inventories, cost includes an appropriate share of production overheads based on normal
operating capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the
estimated costs of completion and selling expenses.
The disposal of finished goods is accounted for using the first-in first-out principle, the disposal of other
inventories by using the “average cost” method.
Property, plant and equipment
Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated
impairment losses. The cost of property, plant and equipment of major subsidiaries at 1 January 2014, the
Group’s date of transition to IFRSs, was determined by reference to its fair value at that date.
The Group recognises exploration and evaluation costs using the successful efforts method. Under this method,
all costs related to exploration and evaluation are capitalised and accounted for as construction in progress in
the amount incurred less impairment (if any) until the discovery (or absence) of economically feasible oil and
gas reserves has been established. When the technical feasibility and commercial viability of reserves extraction
is confirmed, exploration and evaluation assets should be reclassified into property, plant and equipment. Prior
to reclassification these assets should be reviewed for impairment and impairment loss (if any) expensed to the
financial results. If the exploration and evaluation activity is evaluated as unsuccessful, the costs incurred should
be expensed.
Depreciation, depletion and amortisation of capitalised costs of oil and gas properties is calculated using the
unit-of-production method based upon proved reserves for the cost of property acquisitions and proved
developed reserves for exploration and development costs.
Depreciation, depletion and amortisation of the capitalised costs of oil and gas properties related to risk service
contract is calculated using a depletion factor calculated as the ratio of value of the applicable crude oil
production for the period to the total capitalised costs to be recovered.
Depreciation of assets not directly associated with production is calculated on a straight-line basis over the
economic lives of such assets, estimated to be in the following ranges:
Buildings and constructions 5 – 40 years
Machinery and equipment
3 – 20 years
Depreciation methods and useful lives are reviewed at each reporting date and adjusted if appropriate.
Production and related overhead costs are expensed as incurred.
In addition to production assets, certain Group companies also maintain and construct social assets for the use
of local communities. Such assets are capitalised only to the extent that they are expected to result in future
economic benefits to the Group. If capitalised, they are depreciated over their estimated economic lives.
18
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
Impairment of non-current non-financial assets
The carrying amounts of the Group’s non-current non-financial assets, other than inventories and deferred tax
assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any
such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that
have indefinite lives or that are not yet available for use, the recoverable amount is estimated each year at the
same time. For the purpose of impairment testing, assets that cannot be tested individually are grouped together
into the smallest group of assets that generates cash inflows from continuing use that are largely independent of
the cash inflows of other assets or related cash-generating unit (“CGU”).
Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which
goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects
the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business
combination is allocated to group of CGUs that are expected to benefit from the synergies of the combination.
The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU.
Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part
of the testing of the CGU to which the corporate asset is allocated. The recoverable amount of an asset or CGU
is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future
cash flows are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or its related CGU exceeds its estimated
recoverable amount. Impairment losses are recognised in profit or loss. Impairment losses recognised in respect
of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of
CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata
basis.
Significant unproved properties are assessed for impairment individually on a regular basis and any estimated
impairment is charged to expense.
An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses
recognised in prior periods are assessed at each reporting date. An impairment loss is reversed if there has been
a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the
extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined,
net of depreciation or amortisation, if no impairment loss had been recognised.
Asset retirement obligations
The Group records the present value of the estimated future costs to settle its legal obligations to abandon,
dismantle or otherwise retire tangible non-current non-financial assets in the period in which the liability is
incurred. A corresponding increase in the carrying amount of the related non-current non-financial assets is also
recorded. Subsequently, the liability is accreted for the passage of time and the related asset is depreciated using
the same method as asset to be abandoned, dismantled or otherwise retired. Changes in the estimates of asset
retirement obligations (“ARO”) occur as a result of changes in cost and timing of liquidation or change of
discount rates and are accounted as part of cost of property, plant and equipment in the current period.
Lease
A single, on-balance sheet lease accounting model is used by lessees. A contract is, or contains, a lease if it
conveys a right to control the use of an identified asset for a period of time in exchange for consideration. A
lessee recognises a right-of-use asset representing its right to use the underlying asset and a lease liability
representing its obligation to make lease payments. The Group has elected not to apply provided exemptions for
short-term leases and leases for which the underlying asset is of low value. Lessors classify leases as finance or
operating leases.
19
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
The Group recognises a depreciation charge for right-of-use assets and interest expense on lease liabilities.
Assets classified as held for sale
Assets classified as held for sale are separately presented in the consolidated statement of financial position and
reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The
assets and liabilities classified as held for sale are presented in current assets and liabilities of the consolidated
statement of financial position.
Income taxes
Deferred income tax assets and liabilities are recognised in respect of the future tax consequences attributable
to temporary differences between the carrying amounts of existing assets and liabilities for the purposes of the
consolidated statement of financial position and their respective tax bases. But as opposed to deferred tax
liabilities, deferred tax assets are recognised only to the extent that it is probable that taxable profit will be
available against which the deductible temporary difference can be utilised. Similarly a deferred tax asset shall
be recognised for the carryforward of unused tax losses to the extent that it is probable that future taxable profit
will be available. At the end of each reporting period realizability of deferred tax assets (both recognised and
unrecornized) should be reassessed. In case of existence of previously unrecognised deferred tax assets, they
can be recognised to the extent that it has become probable that future taxable profit will allow the deferred tax
asset to be recovered.
Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to reverse and the assets be recovered
and liabilities settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognised
in profit or loss in the reporting period which includes the enactment date.
Employee benefits
A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s
net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the
amount of future benefit that employees have earned in return for their service in the current and prior periods.
That benefit is discounted to determine its present value and the fair value of any plan assets are deducted. The
discount rate is the yield at the reporting date on government bonds that have maturity dates approximating the
terms of the Group’s obligations and that are denominated in the same currency in which the benefits are
expected to be paid.
The calculation is performed annually by a qualified actuary. When the calculation results in a potential asset
for the Group, the recognised asset is limited to the present value of economic benefits available in the form of
any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present
value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan
in the Group. An economic benefit is available to the Group if it is realisable during the life of the plan, or on
settlement of the plan liabilities.
Remeasurements of the net defined benefit liability, which comprise actuarial gains and losses, the return on
plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognised
immediately in other comprehensive income. The Group determines the net interest expense (income) on the net
defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit
obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into
account any changes in the net defined benefit liability (asset) during the period as a result of contributions and
benefit payments. Net interest expense and other expenses related to defined benefit plans are recognised in
profit or loss.
20
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates
to past service or the gain or loss on curtailment is recognised immediately in profit or loss. The Group recognises
gains and losses on the settlement of a defined benefit plan when the settlement occurs.
Treasury shares
Purchases by Group companies of the Company’s outstanding shares are recorded at cost and classified as
treasury shares within equity. Shares shown as Authorised and Issued include treasury shares. Shares shown as
Outstanding do not include treasury shares.
Earnings per share
Basic earnings per share is computed by dividing profit available for distribution to common shareholders of the
Company by the weighted-average number of common shares outstanding during the reporting period. Diluted
earnings per share is determined by adjusting profit available for distribution to common shareholders of the
Company and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential
ordinary shares, which comprise convertible notes and share options granted to employees.
Provisions and contingencies
Certain conditions may exist as of the consolidated financial statements date, which may result in losses to the
Group but the impact of which will only be resolved when one or more future events occur or fail to occur.
Liabilities of the Group with high level of probability of loss are recognised in the consolidated financial
statements as provisions. Liabilities of the Group with the level of probability that do not meet the conditions in
order to be recognised as provisions are considered to be contingent liabilities. Contingent liabilities are not
recognised in the consolidated financial statements but are disclosed in the notes to the consolidated financial
statements if probability of disposal of certain resources aimed to settle this liability is not remote. If probability
of disposal of certain resources is remote the information about such contingencies is not disclosed.
Environmental expenditures
Estimated losses from environmental remediation obligations are generally recognised no later than completion
of remedial feasibility studies. Group companies accrue for losses associated with environmental remediation
obligations when such losses are probable and reasonably estimable. Such accruals are adjusted as further
information becomes available or circumstances change.
Share-based payments
The Group accounts for cash-settled share-based payment awards to employees at fair value on the grant date
and as of each reporting date. Expenses are recognised over the vesting period. Equity-settled share-based
payment awards to employees are valued at fair value on the grant date and expensed over the vesting period.
Changes in accounting policies and disclosures
The accounting policies adopted are consistent with those of the previous financial year except for the adoption
of the amendments to the existing standards effective as of 1 January 2020. These amendments did not have a
significant impact on the consolidated financial statements:
amendments to references to Conceptual Framework in IFRS Standards. In particular, the amendments
introduced new definitions of assets and liabilities, as well as amended definitions of income and
expenses;
definition of a business (amendments to IFRS 3 Business Combinations);
21
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 3. Summary of significant accounting policies (сontinued)
definition of a material (amendments to IAS 1 Presentation of Financial Statements and IAS 8
Accounting Policies, Changes in Accounting Estimates and Errors).
Note 4. Use of estimates and judgments
Preparation of the consolidated financial statements in accordance with IFRS requires management to make
judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may differ from those estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the period in which the estimates are revised and in any future periods affected.
Critical judgments in applying accounting policies that have the most significant effect on the amounts
recognised in the consolidated financial statements are the following:
estimation of oil and gas reserves;
estimation of useful lives of property, plant and equipment;
impairment of non-current assets;
assessment and recognition of provisions and contingent liabilities;
definition of leases.
Oil and gas reserves estimates that are used for the reporting purposes are made in accordance with the
requirements adopted by U.S. Securities and Exchange Commission. Estimates are reassessed on an annual
basis.
Note 5. New standards and interpretations not yet adopted
The following amendments to the standards are effective for annual periods beginning after 1 January 2021,
available for early adoption:
Onerous contracts – Cost of Fulfilling a Contract (Amendments to IAS 37 Provisions, Contingent
Liabilities and Contingent Assets);
COVID-19-Related Rent Concessions (Amendment to IFRS 16 Leases);
Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16 Property, Plant
and Equipment);
Reference to Conceptual Framework (Amendments to IFRS 3 Business Combinations);
Classification of Liabilities as Current or Non-current (Amendments to IAS 1 Presentation of Financial
Statements).
However, the Group did not make an early adoption of the amended standards in the preparation of these
consolidated financial statements, which are not expected to have a significant impact on the Group's
consolidated financial statements.
Note 6. Cash and cash equivalents
31 December 2020
16,537
31 December 2019
189,055
Cash held in RUB
Cash held in US dollars
Cash held in EUR
256,841
303,046
59,009
14,909
Cash held in other currencies
Total cash and cash equivalents
11,445
9,022
343,832
516,032
22
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 7. Accounts receivable, net
31 December 2020
31 December 2019
Trade accounts receivable (net of allowances of 32,762 million RUB and 26,593 million RUB
at 31 December 2020 and 2019, respectively)
357,159
428,415
Other current accounts receivable (net of allowances of 4,930 million RUB and
4,694 million RUB at 31 December 2020 and 2019, respectively)
13,112
8,637
Total accounts receivable, net
370,271
437,052
Note 8. Other current financial assets
31 December 2020
31 December 2019
Financial assets measured at amortised cost
Short-term loans
8,350
6,814
Financial assets measured at fair value through profit or loss
Short-term loans
-
42,892
Total other current financial assets
8,350
49,706
Note 9. Inventories
31 December 2020
373,290
31 December 2019
366,795
Crude oil and petroleum products
Materials for extraction and drilling
Materials and supplies for refining
Other goods, materials and supplies
Total inventories
25,582
22,811
4,681
4,449
22,983
19,855
426,536
413,910
Note 10. Prepaid taxes
31 December 2020
17,983
31 December 2019
17,120
Income tax prepaid
VAT and excise tax recoverable
Export duties prepaid
VAT prepaid
21,290
30,660
8,009
11,968
26,407
30,199
Other taxes prepaid
Total prepaid taxes
5,133
5,128
78,822
95,075
Note 11. Other current assets
31 December 2020
15,904
31 December 2019
10,246
Advance payments
Prepaid expenses
Other assets
21,622
23,673
11,123
8,493
Total other current assets
48,649
42,412
23
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 12. Investments in associates and joint ventures
Carrying value of investments in associates and joint ventures:
Ownership
Name of the company
Joint ventures:
Country 31 December 2020 31 December 2019 31 December 2020 31 December 2019
Tengizchevroil (TCO)
Caspian Pipeline Consortium
(CPC)
South Caucasus Pipeline
Company (SCPC)
Kazakhstan
Kazakhstan
Azerbaijan
5.0%
12.5%
10.0%
5.0%
12.5%
10.0%
146,611
56,027
119,924
40,670
34,663
-
30,241
655
Others
Associates:
Associates
Total
44,336
28,514
281,637
220,004
TCO is engaged in development of hydrocarbon resources in Kazakhstan. The Group has classified its interest
in TCO as a joint venture as it has rights to the net assets of the arrangement.
31 December 2020
Current assets
TCO
185,179
CPC
49,950
449,020
39,529
11,224
448,217
56,027
SCPC
17,923
363,283
17,584
16,995
346,627
34,663
Others
Associates
37,049
Total
290,186
85
-
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
Share in net assets
3,398,159
153,329
222,001
22,011
4,432,463
232,538
85
-
1,228,347
2,201,662
146,611
127,928
109,111
44,336
1,384,494
3,105,617
281,637
-
-
31 December 2019
Current assets
TCO
127,066
2,641,370
195,807
825,320
1,747,309
119,924
CPC
21,376
410,517
88,698
17,838
325,357
40,670
SCPC
10,196
315,987
9,311
Others
3,183
1,770
568
Associates
36,785
Total
198,606
3,563,184
430,827
892,438
2,438,525
220,004
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
Share in net assets
193,540
136,443
31,737
14,467
302,405
30,241
3,076
1,309
655
62,145
28,514
2020
TCO
657,608
113,342
3,407
CPC
151,648
57,684
7,210
SCPC
50,221
24,251
2,425
Others
4,627
1,402
701
Associates
74,160
Total
938,264
190,485
11,474
Revenues
Net income (loss), 100%
Share in net income (loss)
(6,194)
(2,269)
2019
TCO
1,055,783
296,060
12,474
CPC
146,646
46,918
5,865
SCPC
37,944
18,234
1,823
Others
6,988
167
Associates
122,041
(8,219)
Total
1,369,402
353,160
18,246
Revenues
Net income (loss), 100%
Share in net income (loss)
84
(2,000)
24
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 13. Property, plant and equipment
Exploration Refining, marketing
and production
and distribution
Other
Total
Cost
31 December 2019
Additions
4,795,674
424,751
1,209
1,510,515
144,941
-
76,246
4,864
-
6,382,435
574,556
1,209
Acquisitions
Disposals
(37,156)
272,259
(23,473)
5,433,264
(42,014)
143,409
(201)
(6,592)
2,704
(216)
77,006
(85,762)
418,372
(23,890)
7,266,920
Foreign currency translation differences
Other
31 December 2020
Depreciation and impairment
31 December 2019
Depreciation for the period
Impairment loss
1,756,650
(1,766,575)
(278,237)
(48,740)
18,358
(589,636)
(135,596)
(58,129)
38,776
(21,153)
(3,705)
-
(2,377,364)
(417,538)
(106,869)
60,611
Disposals
3,477
(1,032)
45
Foreign currency translation differences
Other
(144,090)
25,550
(60,206)
1,914
(205,328)
27,509
31 December 2020
(2,193,734)
(802,877)
(22,368)
(3,018,979)
Advance payments for property, plant
and equipment
31 December 2019
31 December 2020
Carrying amounts
31 December 2019
31 December 2020
Cost
6,791
13,314
831
20,936
16,533
10,218
5,757
558
3,035,890
934,193
55,924
4,026,007
4,264,474
3,249,748
959,530
55,196
31 December 2018
Adjustment on adoption of IFRS 16
1 January 2019
4,476,824
54,335
1,373,743
102,189
1,475,932
120,221
529
75,882
5,527
81,409
2,133
-
5,926,449
162,051
6,088,500
519,385
72,700
4,531,159
397,031
72,171
Additions
Acquisition of the interest in the project
Disposals
(55,461)
(165,027)
15,801
(19,197)
(71,067)
4,097
(2,833)
(1,804)
(2,659)
76,246
(77,491)
(237,898)
17,239
Foreign currency translation differences
Other
31 December 2019
Depreciation and impairment
31 December 2018
Depreciation for the period
Impairment loss
4,795,674
1,510,515
6,382,435
(1,586,508)
(288,349)
(21,559)
9,797
(513,668)
(121,721)
(1,324)
-
(19,380)
(4,064)
-
(2,119,556)
(414,134)
(22,883)
9,797
Impairment reversal
Disposals
-
36,114
15,289
27,564
4,224
789
52,192
Foreign currency translation differences
Other
83,848
723
112,135
5,085
82
779
31 December 2019
(1,766,575)
(589,636)
(21,153)
(2,377,364)
Advance payments for property, plant
and equipment
31 December 2018
31 December 2019
Carrying amounts
31 December 2018
31 December 2019
5,916
15,669
686
22,271
20,936
6,791
13,314
831
2,896,232
875,744
57,188
3,829,164
4,026,007
3,035,890
934,193
55,924
25
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 13. Property, plant and equipment (сontinued)
The cost of assets under construction included in property, plant and equipment was 458,265 million RUB and
369,926 million RUB at 31 December 2020 and 2019, respectively.
Exploration and evaluation assets
2020
129,951
36,881
362
2019
107,105
41,446
-
1 January
Capitalised expenditures
Acquisitions through business combinations
Reclassified to development assets
Charged to expenses
(5,238)
(3,542)
6,244
(8,742)
(7,159)
(3,537)
838
Foreign currency translation differences
Other movements
(1,407)
163,251
31 December
129,951
Due to a significant deterioration in the macroeconomic environment in the first quarter of 2020, the Company
revised the scenario conditions used in the impairment test at the end of 2019 and performed an impairment test
for assets at 31 March 2020.
As a result, in the first quarter of 2020, the Group recognised an impairment loss for its exploration and
production assets in Russia in the amount of 5,219 million RUB, for its international exploration and production
assets in the amount of 2,209 million RUB and for its international refining, marketing and distribution assets
in the amount of 28,859 million RUB.
The recoverable amounts of CGUs subject to impairment in the first quarter of 2020 in the amount of
139,180 million RUB were determined as value in use equal to the present value of the expected cash flows.
Value in use was estimated using 9% discount rate for exploration and production assets in Russia, 8.2% discount
rate for international exploration and production assets and 7.5% discount rate for international refining,
marketing and distribution assets.
For impairment test purposes at 31 March 2020 the following Brent Blend price assumptions have been used:
$40.0 per barrel in 2020–2021, $45.0 per barrel in 2022, $50.0 per barrel in 2023, $55.0 per barrel in 2024 and
$60.0 per barrel from 2025.
Also, in the second quarter of 2020, the Group recognised an impairment loss for its international exploration
and production assets in the amount of 38,148 million RUB. Of this amount, 35,986 million RUB relates to gas
projects in the Republic of Uzbekistan and are determined based on the revised business model, which takes into
account conservative approaches to assessing the structure of gas supplies and pricing.
The recoverable amounts of CGUs in the amount of 106,003 million RUB which relate to impaired assets were
determined as value in use equal to the present value of the expected cash flows. Value in use was estimated
using 11.2% discount rate.
The Company performs a regular annual impairment test of its assets. The test is based on geological models
and development programs, which are revised on a regular basis, at least annually.
In the fourth quarter of 2020, the Group recognised an impairment loss for its exploration and production assets
in Russia in the amount of 3,020 million RUB, for its international exploration and production assets in the
amount of 144 million RUB, for its refining, marketing and distribution assets in Russia in the amount of
7,656 million RUB and for its international refining, marketing and distribution assets in the amount of
21,614 million RUB.
26
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 13. Property, plant and equipment (сontinued)
The recoverable amounts of CGUs subject to impairment in the fourth quarter of 2020 in the amount of
51,843 million RUB were determined as value in use equal to the present value of the expected cash flows.
Value in use was estimated using the following discount rates: for exploration and production assets in Russia
– 8%, for refining, marketing and distribution assets in Russia – from 10% to 13% and for international refining,
marketing and distribution assets – 6.4%.
For impairment test purposes at 31 December 2020 the following Brent Blend price assumptions have been
used: $50.0 per barrel in 2021, $54.0 per barrel in 2022, $57.0 per barrel in 2023, $58.0 per barrel in 2024 and
$60.0 per barrel from 2025.
In the fourth quarter of 2019, the Group recognised an impairment loss for its exploration and production assets
in Russia in the amount of 20,142 million RUB, for its international exploration and production assets in the
amount of 1,270 million RUB, for its refining, marketing and distribution assets in Russia in the amount of
476 million RUB and for its international refining, marketing and distribution assets in the amount of 848 million
RUB. Also the Group recognised an impairment reversal of 9,651 million RUB, which was mainly a result of
improvement of economic parameters of our production projects in Western Siberia and European part of Russia.
The recoverable amounts of CGUs subject to impairment and impairment reversal in 2019 in the amount of
55,822 million RUB and 100,270 million RUB, respectively, were determined as value in use equal to the
present value of the expected cash flows. Value in use was estimated using the following discount rates: for
exploration and production assets in Russia – 8.5%, for refining, marketing and distribution assets in Russia –
from 10% to 13%.
Impairment reversal and impairment loss are included in “Other income (expenses)” in the consolidated
statement of profit or loss and other comprehensive income.
The measurement of recoverable amounts of property, plant and equipment is most sensitive to the volatility of
oil and gas prices. However, price reductions would also result in changes in other factors used when estimating
recoverable amounts. Quantitative assessment of suchlike impacts is very complicated, as it demands detailed
technical, geological and economical evaluations based on hypothetical scenarios rather than existing business
or development plans.
Note 14. Other non-current financial assets
31 December 2020
31 December 2019
Financial assets measured at fair value through other comprehensive income
Equity instruments
2,491
2,656
Financial assets measured at amortised cost
Long-term loans
31,075
1,916
15
26,008
1,371
34
Non-current accounts and notes receivable
Other financial assets
Financial assets measured at fair value through profit or loss
Long-term loans
33,195
8,162
Total other non-current financial assets
68,692
38,231
27
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 15. Acquisition of interests in the projects
In the second quarter of 2019, a Group company entered into a contract with New Age M12 Holdings Limited
to acquire a 25% interest in the Marine XII license in the Republic of Congo (Congo-Brazzaville) developed
under the production sharing agreement. In September 2019, the transaction in the amount of 51.4 billion RUB
($768 million) was closed after all the customary conditions, including approval by the Government of the
Republic of Congo, were fulfilled. The Company has completed allocation of the purchase price to the fair value
of assets acquired and liabilities assumed which includes property plant and equipment and assets under
construction in the amount of 51.3 billion RUB ($767 million), inventories in the amount of 0.9 billion RUB
($13 million), accounts receivable in the amount of 0.5 billion RUB ($7 million) and asset retirement obligations
in the amount of 1.3 billion RUB ($19 million).
After acquisition the Group accounts for this project similar to accounting for jointly controlled operations.
Note 16. Goodwill and other intangible assets
Other internally
Internally
generated
Acquired
generated software
intangible assets intangible assets
Goodwill
Total
Cost
31 December 2019
19,532
4,975
52,782
32,337
109,626
Additions as result of internal
developments
1,914
-
1,859
-
-
5,597
-
-
-
3,773
5,597
Additions - separately acquired
Disposals
(190)
(23)
(11,088)
(11,301)
Foreign currency translation
differences
281
284
4
(242)
6,573
3,617
87
6,239
-
10,141
129
Other
31 December 2020
Amortisation and impairment
31 December 2019
Amortisation for the year
Impairment loss
21,821
50,995
38,576
117,965
(14,797)
(917)
-
(1,306)
(299)
(1)
(40,491)
(4,881)
(18)
(9,924)
(66,518)
(6,097)
(19)
-
-
-
Disposals
164
-
10,950
11,114
Foreign currency translation
differences
(260)
55
(4)
(2)
(2,851)
(199)
(3,025)
-
(6,140)
(146)
Other
31 December 2020
Carrying amounts
31 December 2019
31 December 2020
(15,755)
(1,612)
(37,490)
(12,949)
(67,806)
4,735
3,669
12,291
22,413
43,108
50,159
6,066
4,961
13,505
25,627
28
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 16. Goodwill and other intangible assets (continued)
Other internally
generated
intangible assets intangible assets
Internally
generated software
Acquired
Goodwill
Total
Cost
31 December 2018
17,714
3,538
50,296
35,681
107,229
Additions as result of internal
developments
1,678
1,886
-
16
-
-
-
-
3,564
16
Acquisitions
-
-
-
-
Additions - separately acquired
Disposals
6,922
(1,030)
6,922
(1,044)
(7)
(7)
Foreign currency translation
differences
(289)
436
(2)
(440)
4,975
(3,287)
(135)
(3,344)
-
(6,922)
(139)
Other
31 December 2019
Amortisation and impairment
31 December 2018
Amortisation for the year
Disposals
19,532
52,782
32,337
109,626
(14,242)
(837)
7
(1,001)
(298)
5
(38,503)
(5,329)
706
(11,718)
(65,464)
(6,464)
718
-
-
Foreign currency translation
differences
274
1
2
(14)
2,398
237
1,794
-
4,468
224
Other
31 December 2019
Carrying amounts
31 December 2018
31 December 2019
(14,797)
(1,306)
(40,491)
(9,924)
(66,518)
3,472
2,537
11,793
23,963
41,765
43,108
4,735
3,669
12,291
22,413
Goodwill was tested for impairment and no impairment was identified.
Note 17. Accounts payable
31 December 2020
533,598
31 December 2019
555,823
Trade accounts payable
Other accounts payable
Total accounts payable
64,334
51,911
597,932
607,734
Note 18. Short-term borrowings and current portion of long-term debt
31 December 2020
18,736
31 December 2019
13,940
Short-term borrowings from third parties
Short-term borrowings from related parties
2,522
2,222
Current portion of long-term debt
61,378
114,138
Total short-term borrowings and current portion of long-term debt
82,636
130,300
Short-term borrowings from third parties include amounts repayable in US dollars of 17,510 million RUB and
12,694 million RUB and amounts repayable in other currencies of 1,226 million RUB and 1,246 million RUB
at 31 December 2020 and 2019, respectively. The weighted-average interest rate on short-term borrowings from
third parties was 2.63% and 4.00% per annum at 31 December 2020 and 2019, respectively. At
31 December 2020, short-term borrowings from third parties are unsecured.
29
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 19. Long-term debt
31 December 2020
112,660
-
31 December 2019
117,864
61,866
Long-term loans and borrowings from third parties
6.125% non-convertible US dollar bonds, maturing 2020
6.656% non-convertible US dollar bonds, maturing 2022
4.563% non-convertible US dollar bonds, maturing 2023
4.750% non-convertible US dollar bonds, maturing 2026
3.875% non-convertible US dollar bonds, maturing 2030
Lease obligations
36,901
30,905
110,737
73,751
92,769
61,786
110,532
193,872
638,453
(61,378)
577,075
-
171,880
537,070
(114,138)
422,932
Total long-term debt
Current portion of long-term debt
Total non-current portion of long-term debt
Long-term loans and borrowings
Long-term loans and borrowings from third parties include amounts repayable in US dollars of
101,376 million RUB and 104,819 million RUB and amounts repayable in euros of 11,284 million RUB and
13,045 million RUB at 31 December 2020 and 2019, respectively. This debt has maturity dates from 2021
through 2028. The weighted-average interest rate on long-term loans and borrowings from third parties was
2.54% and 4.08% per annum at 31 December 2020 and 2019, respectively. A number of long-term loan
agreements contain certain financial covenants which are being met by the Group. Approximately 51% of total
long-term loans and borrowings from third parties at 31 December 2020 are secured by shares in a PSA project,
export sales and property, plant and equipment.
Non-convertible bonds
On 6 May 2020, a Group company issued non-convertible bonds totaling $1.5 billion (110.8 billion RUB). The
bonds were placed with a maturity of 10 years and a coupon yield of 3.875% per annum. All bonds were placed
at face value and have a half year coupon period.
In November 2016, a Group company issued non-convertible bonds totaling $1 billion (73.9 billion RUB).
The bonds were placed with a maturity of 10 years and a coupon yield of 4.750% per annum. All bonds were
placed at face value and have a half year coupon period.
In April 2013, a Group company issued two tranches of non-convertible bonds totaling $3 billion
(221.6 billion RUB). The first tranche totaling $1.5 billion (110.8 billion RUB) was placed with a maturity of
5 years and a coupon yield of 3.416% per annum. The second tranche totaling $1.5 billion (110.8 billion RUB)
was placed with a maturity of 10 years and a coupon yield of 4.563% per annum. All bonds were placed at face
value and have a half year coupon period. In April 2018, a Group company redeemed all issued bonds of the
first tranche in accordance with the conditions of the bond issue.
In November 2010, a Group company issued two tranches of non-convertible bonds totaling $1 billion
(73.9 billion RUB) with a maturity of 10 years and a coupon yield of 6.125%. The first tranche totaling
$800 million (59.1 billion RUB) was placed at a price of 99.081% of the bond’s face value with a resulting yield
to maturity of 6.250%. The second tranche totaling $200 million (14.8 billion RUB) was placed at a price of
102.44% of the bond’s face value with a resulting yield to maturity of 5.80%. All bonds have a half year coupon
period. In November 2020, a Group company redeemed all issued bonds of the first and second tranches in
accordance with the conditions of the bond issue.
30
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 19. Long-term debt (continued)
In November 2009, a Group company issued two tranches of non-convertible bonds totaling $1.5 billion
(110.8 billion RUB). The first tranche totaling $900 million (66.5 billion RUB) with a coupon yield of 6.375%
per annum was placed with a maturity of 5 years at a price of 99.474% of the bond’s face value with a resulting
yield to maturity of 6.500%. The second tranche totaling $600 million (44.3 billion RUB) with a coupon yield
of 7.250% per annum was placed with a maturity of 10 years at a price of 99.127% of the bond’s face value with
a resulting yield to maturity of 7.375%. All bonds have a half year coupon period. In November 2014 and 2019,
a Group company redeemed all issued bonds of the first and second tranches in accordance with the conditions
of the bond issue.
In June 2007, a Group company issued two tranches of non-convertible bonds totaling $1 billion (73.9 billion
RUB). $500 million (36.95 billion RUB) were placed with a maturity of 10 years and a coupon yield of 6.356%
per annum. Another $500 million (36.95 billion RUB) were placed with a maturity of 15 years and a coupon
yield of 6.656% per annum. All bonds were placed at face value and have a half year coupon period. In June
2017, a Group company redeemed all issued bonds of the first tranche in accordance with the conditions of the
bond issue.
Reconciliation of liabilities arising from financing activities
Loans and
borrowings
Lease
obligations
Other
liabilities
Bonds
Total
31 December 2019
134,026
247,326
171,880
135,920
689,152
Changes from financing cash flows:
Proceeds from issuance of short-term
borrowings
1,971
-
-
-
1,971
(815)
Principal repayments of short-term borrowings
Proceeds from issuance of long-term debt
Principal repayments of long-term debt
Interest paid
(815)
-
108,796
(78,456)
-
-
-
-
-
-
108,796
(171,980)
(39,100)
(407,309)
(508,437)
(30,686)
(62,838)
(10,501)
-
-
-
-
(28,599)
(407,309)
(435,908)
Dividends paid on Company common stock
Total changes from financing cash flows
Other changes:
-
(29,530)
30,340
(73,339)
Interest accrued
1,853
-
128
10,501
-
26,810
258,389
1,082
-
39,292
258,389
111,905
50,009
Dividends declared on Company common stock
The effect of changes in foreign exchange rates
Non-cash additions to lease obligations
Other changes
-
54,125
-
27,010
-
29,688
50,009
5,133
95,331
193,872
559
2
16,972
303,253
3,265
22,666
Total other changes
29,422
133,918
54,255
331,921
482,261
662,976
31 December 2020
Note 20. Taxes payable
31 December 2020
16,614
31 December 2019
12,031
Income tax
Mineral extraction tax
49,332
61,464
Tax on additional income from hydrocarbon production
2,881
3,380
VAT
35,650
38,566
Excise tax
22,733
14,359
Property tax
Other taxes
Total taxes payable
5,675
5,120
9,573
7,551
142,458
142,471
31
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 21. Other current liabilities
31 December 2020
31,142
31 December 2019
30,868
Advances received
Dividends payable
Other
1,610
135,034
2,745
3,050
Total other current liabilities
35,497
168,952
Note 22. Provisions
Asset
retirement
Provision for
Provision for
Provision for
unused
employee environmental
Pension
Other
obligations compensations
liabilities
4,204
liabilities
vacations
provisions
Total
153,801
126,665
27,136
31 December 2020
Incl.: Non-current
Current
111,614
110,916
698
10,939
175
13,794
11,678
2,116
6,326
322
6,924
2,245
1,329
10,764
9,762
263
2,875
6,004
5,861
153
4,679
31 December 2019
Incl.: Non-current
Current
63,387
62,667
720
3,783
12,544
10,310
2,234
18,940
2,477
114,277
77,045
1,175
9,499
2,608
5,708
16,463
37,232
Asset retirement obligations changed as follows:
2020
63,387
39,826
(154)
2019
36,424
2,158
(387)
(119)
2,707
23,092
1,360
(1,882)
34
1 January
Provisions made during the period
Reversal of provisions
Provisions used during the period
Accretion expense
(325)
3,882
8,921
(9,395)
5,450
22
Change in discount rate
Changes in estimates
Foreign currency translation differences
Other
31 December
111,614
63,387
Note 23. Pension liabilities
The Group sponsors a postretirement defined benefit pension plan that covers the majority of the Group’s
employees. One type of pension plan is based on years of service, final remuneration levels as of the end of 2003
and employee gratitude, received during the period of work. The other type of pension plan is based on salary.
These plans are solely financed by Group companies. Simultaneously employees have the right to receive
pension benefits with a partial payment by the Group (up to 4% of the annual salary of the employee).
Plan assets and pensions payments are managed by a non-state pension fund, JSC “NPF Otkritie” (former “NPF
LUKOIL-GARANT”). The Group also provides several long-term social benefits, including lump-sum death-
in-service benefit, in case of disability and upon retirement payments. Also certain payments are received by
retired employees upon reaching a certain old age or invalidity.
The Company uses 31 December as the measurement date for its pension obligation. An independent actuary
has assessed the benefit obligations at 31 December 2020 and 2019.
32
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 23. Pension liabilities (сontinued)
The following table sets out movement in the pension liabilities before taxation during 2020 and 2019.
2020
2019
8,910
3,182
2,510
(1,385)
(680)
(5)
1 January
12,544
1,771
1,680
(1,566)
(693)
49
Components of defined benefit costs recorded in profit or loss
Components of defined benefit costs recorded in other comprehensive loss
Contributions from employer
Benefits paid
Opening balance adjustment
Liability assumed in business combination
31 December
9
12
13,794
12,544
Note 24. Equity
Common shares
31 December 2020
31 December 2019
(thousands of
shares)
(thousands of
shares)
Issued common shares, par value of 0.025 RUB each
Treasury shares
692,866
(40,367)
652,499
715,000
(62,119)
652,881
Outstanding common shares
The Company has the right to issue additional 85,000 thousands of common shares.
On 3 December 2019, at the extraordinary general shareholders’ meeting a decision was made to reduce the
share capital of the Company by purchase of a portion of issued shares in order to reduce the total number
thereof. At 31 December 2019, the Group recognised an obligation to repurchase common shares in the amount
of 120,988 million RUB. Share capital reduction to 693 million common shares by purchase and cancellation of
22 million common shares was executed on 10 February 2020. Most of the common shares were purchased from
a Group company.
On 20 June 2019, at the annual general shareholders’ meeting a decision was made to reduce the share capital
of the Company to 715 million common shares by purchase and cancellation of 35 million common shares.
Share cancellation and share capital reduction was executed on 28 August 2019. Out of 35 million common
shares 15.5 million common shares were purchased from a Group company.
In 2019, a Group company purchased 24.5 million common shares and depositary receipts of the Company as
part of the open market buyback programme announced on 30 August 2018.
Dividends
At the extraordinary general shareholders’ meeting on 3 December 2020, interim dividends for 2020 were
approved in the amount of 46.00 RUB per common share.
At the annual general shareholders’ meeting on 23 June 2020, dividends for 2019 were approved in the amount
of 350.00 RUB per common share. At the extraordinary shareholders’ meeting on 3 December 2019, interim
dividends for 2019 were approved in the amount of 192.00 RUB per common share. Total dividends for 2019
were approved in the amount of 542.00 RUB per common share.
Dividends on the Company’s shares payable of 699 million RUB and 133,514 million RUB are included in
“Other current liabilities” in the consolidated statement of financial position at 31 December 2020 and 2019,
respectively.
33
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 24. Equity (сontinued)
Earnings per share
The calculation of basic and diluted earnings per share was as follows:
2020
15,175
650,965
24,827
-
2019
640,178
664,578
20,122
180
Profit for the year attributable to PJSC LUKOIL shareholders
Weighted average number of common shares (thousands of shares)
Dilutive effect of equity-settled share-based compensation plan (thousands of shares)
Dilutive effect related to obligation to repurchase common shares (thousands of shares)
Weighted average number of common shares, assuming dilution (thousands of shares)
675,792
684,880
Profit per share of common stock attributable to PJSC LUKOIL shareholders
(in Russian rubles):
Basic
23.31
22.46
963.28
934.73
Diluted
Note 25. Personnel expenses
Personnel expenses were as follows:
2020
154,093
35,063
2019
143,602
33,417
Payroll costs
Statutory insurance contributions
Share-based compensation
Total personnel expenses
31,366
31,366
220,522
208,385
Note 26. Finance income and costs
Finance income was as follows:
2020
6,244
4,245
2,562
13,051
2019
15,452
4,878
Interest income from deposits
Interest income from loans
Other finance income
4,804
Total finance income
25,134
Finance costs were as follows:
2020
37,333
4,505
2019
39,145
2,752
Interest expenses
Accretion expenses
Other finance costs
Total finance costs
2,284
2,459
44,122
44,356
Note 27. Other income and expenses
Other income was as follows:
2020
2,618
7,267
8,085
17,970
2019
10,496
13,468
8,837
Gain on disposal of assets
Reversal on impairments of assets
Other income
Total other income
32,801
34
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 27. Other income and expenses (сontinued)
Other expenses were as follows:
2020
20,755
114,665
8,423
2019
18,056
22,883
9,228
Loss on disposal of assets
Impairments loss
Charity expenses
Other expenses
11,287
155,130
10,325
60,492
Total other expenses
Note 28. Lease
Primarily the Group leases such assets as transport (vessels, tank cars), land, drilling rigs and other equipment,
storage facilities. The lease typically runs for a period of 3–5 years. Some leases include an option to renew the
lease for additional period after the end of the non-cancellable period. The Group has applied judgement to
determine the lease term for some lease contracts in which it is a lessee that includes renewal option. Moreover,
in determining the lease term the Group also took into account economic factors, which influence asset usage
duration in its activity.
Exploration Refining, marketing
and production
and distribution
Other
Total
Carrying amounts
Property, plant and equipment owned
Right-of-use assets
3,214,181
35,567
820,657
138,873
959,530
802,364
131,829
934,193
49,574
5,622
4,084,412
180,062
31 December 2020
3,249,748
2,995,944
39,946
55,196
51,518
4,406
4,264,474
3,849,826
176,181
Property, plant and equipment owned
Right-of-use assets
31 December 2019
3,035,890
55,924
4,026,007
Right-of-use assets:
Exploration Refining, marketing
and production
and distribution
131,829
45,573
Other
4,406
1,868
(754)
102
Total
176,181
50,030
1 January 2020
39,946
Additions
2,589
Depreciation for the period
Other movements
31 December 2020
1 January 2019
(10,322)
3,354
(54,497)
15,968
(65,573)
19,424
35,567
138,873
125,657
35,011
5,622
5,527
94
180,062
185,519
42,618
54,335
Additions
7,513
Depreciation for the period
Other movements
31 December 2019
(13,326)
(8,576)
39,946
(31,850)
3,011
(818)
(397)
4,406
(45,994)
(5,962)
176,181
131,829
Lease liabilities:
31 December 2020
Incl.: Non-current
Current
193,872
159,340
34,532
31 December 2019
Incl.: Non-current
Current
171,880
143,902
27,978
35
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 28. Lease (сontinued)
Within the consolidated statement of profit or loss and other comprehensive income the following expenses were
recognized: interest on lease liabilities in the amount of 9,435 million RUB and 9,836 million RUB and variable
lease payments not included in the measurement of lease liabilities in the amount of 10,853 million RUB and
9,418 million RUB during 2020 and 2019, respectively. Income from sub-leasing right-of-use assets was not
material.
Within the consolidated statement of cash flows the total cash outflow under leases, including variable lease
payments attributable to capital expenditure, amounted to 170,990 million RUB and 120,755 million RUB
during 2020 and 2019, respectively.
Note 29. Income tax
Operations in the Russian Federation are subject to a 20% income tax rate. For the period from 2017 till 2024
(inclusive) the Federal income tax rate is set as 3.0% and the regional income tax rate is set as 17.0%. Regional
income tax rate may be reduced for certain categories of taxpayers by the laws of constituent entities of the
Russian Federation, however certain restrictions apply on the application of the reduced regional rates.
The Group’s foreign operations are subject to taxes at the tax rates applicable to the jurisdictions in which they
operate.
A number of Group companies in Russia are paying income tax as a consolidated taxpayers’ group (“CTG”).
This allows taxpayers to offset taxable losses generated by certain participants of a CTG against taxable profits
of other participants of the CTG.
Income tax was as follows:
2020
63,458
(2,096)
61,362
20,792
82,154
2019
149,032
(4,417)
144,615
6,518
Current income tax expense for the year
Adjustment for prior periods
Current income taxes
Deferred income tax
Total income tax expense
151,133
The following table is a reconciliation of the amount of income tax expense that would result from applying the
Russian combined statutory income tax rate of 20% applicable to the Company to profit before income taxes to
total income taxes.
2020
98,787
19,757
2019
793,354
158,671
Profit before income taxes
Notional income tax at the Russian statutory rate
Increase (reduction) in income tax due to:
Non-deductible items, net
9,483
7,907
18,056
(17,709)
(4,417)
(3,468)
151,133
Domestic and foreign rate differences
Adjustment for prior periods
(2,096)
47,103
82,154
Change in recognised deductible temporary differences
Total income tax expense
The following table sets out the tax effects of each type of temporary differences which give rise to deferred
income tax assets and liabilities.
36
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 29. Income tax (сontinued)
31 December 2020 31 December 2019
Property, plant and equipment
Investments
9,221
53
5,332
60
Inventories
6,658
4,768
Accounts receivable
Accounts payable and provisions
Tax loss carry forward
Other
1,586
1,583
9,691
11,052
35,344
514
22,614
522
Total deferred income tax assets
Set off of tax
50,345
(34,047)
16,298
(290,641)
(1,863)
(3,149)
(4,662)
(652)
58,653
(29,980)
28,673
(276,175)
(1,517)
(4,557)
(8,551)
(1,518)
(1,821)
(294,139)
29,980
(264,159)
(235,486)
Deferred income tax assets
Property, plant and equipment
Investments
Inventories
Accounts receivable
Accounts payable and provisions
Other
(2,036)
(303,003)
34,047
(268,956)
(252,658)
Total deferred income tax liabilities
Set off of tax
Deferred income tax liabilities
Net deferred income tax liabilities
Foreign currency
translation
Recognition in Acquisitions
31 December 2019 profit or loss and disposal
differences and
other 31 December 2020
Property, plant and equipment
Investments
(270,843)
(1,457)
211
(9,859)
(306)
244
-
(962)
(47)
(281,420)
(1,810)
3,509
Inventories
3,110
(9)
(13)
(17)
(75)
-
197
Accounts and notes receivable
Accounts payable and provisions
Tax loss carry forward
Other
(6,968)
9,534
4,385
(480)
928
(3,076)
9,039
(1,406)
(16,687)
(29)
35,344
(1,307)
(235,486)
4,032
(178)
3,490
22,614
(1,514)
(252,658)
Net deferred income tax liabilities
(20,792)
130
Foreign currency
translation
Recognition in Acquisitions
31 December 2018 profit or loss and disposal
differences and
other 31 December 2019
Property, plant and equipment
Investments
(259,171)
(2,326)
1,224
(12,358)
835
(1,477)
2,163
34
(270,843)
(1,457)
211
-
Inventories
(1,016)
1,742
(217)
4,264
232
-
3
Accounts and notes receivable
Accounts payable and provisions
Tax loss carry forward
Other
(9,145)
10,349
-
435
(6,968)
9,534
-
(4)
(598)
(1,905)
176
32,989
35,344
(1,307)
(235,486)
(1,715)
(227,795)
-
Net deferred income tax liabilities
(6,518)
(1,481)
308
37
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 29. Income tax (сontinued)
Deferred tax assets have not been recognised in respect of the temporary differences related to the following
items:
31 December 2020 31 December 2019
Property, plant and equipment
Tax loss carry forward
Other
15,136
39,126
5,670
1,412
10,374
1,043
Total unrecognised deferred tax assets
59,932
12,829
Management believes that it is not probable that taxable profit will be available against which these deductible
temporary differences can be utilised.
Amounts recognised in other comprehensive income during 2020:
Before tax
Tax
Net of tax
Foreign currency translation differences for foreign operations
268,707
-
268,707
Change in fair value of financial assets at fair value through other
comprehensive income
(767)
(1,680)
-
257
257
(767)
(1,423)
Remeasurements of defined benefit liability/asset of pension plan
Total
266,260
266,517
Amounts recognised in other comprehensive income during 2019:
Before tax
Tax
Net of tax
Foreign currency translation differences for foreign operations
(164,117)
-
(164,117)
Change in fair value of financial assets at fair value through other
comprehensive income
(348)
(2,510)
-
534
534
(348)
(1,976)
Remeasurements of defined benefit liability/asset of pension plan
Total
(166,975)
(166,441)
Retained earnings of foreign subsidiaries for which deferred taxation has not been provided included
1,361,368 million RUB and 1,109,000 million RUB at 31 December 2020 and 2019, respectively. This liability
was not recognised because the Group considers such amounts to be indefinitely invested, i.e. management
believes that they will not be returned in the foreseeable future. Moreover the Group controls the dividend policy
of its subsidiaries and is able to veto the payment of dividends.
The consequences of taxation in Russia of certain profits of controlled foreign corporations in accordance with
applicable tax legislation are accounted for within current and deferred tax liabilities.
Note 30. Commitments and contingencies
Capital commitments
Capital commitments of the Group relating to construction and acquisition of property, plant and equipment
amount to 501,550 million RUB and 517,977 million RUB at 31 December 2020 and 2019, respectively.
Insurance
To provide insurance protection, the Group uses the services of Russian and international insurance companies
with high ratings. The Group's most significant risks are reinsured at the first-class foreign markets. In respect
of liability to third parties for damages to property and the environment resulting from accidents related to the
Group's property or activities, the Group has insurance coverage that is generally higher than the limits set by
law. Management believes that the Group has sufficient insurance coverage of its core operating assets, as well
as risks, which could have a material effect on the Group’s operations and financial position.
38
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 30. Commitments and contingencies (сontinued)
Environmental liabilities
Group companies and their predecessor companies have operated in the Russian Federation and other countries
for many years, which resulted in certain environmental consequences. Environmental regulations are currently
in development stage in the Russian Federation and other countries where the Group has operations. Group
companies routinely assess and evaluate their environmental obligations in response to new and changing
legislation.
As liabilities in respect of the Group’s environmental obligations are able to be determined, they are recognised
in profit or loss. The likelihood and amount of liabilities relating to environmental obligations under proposed
or any future legislation cannot be reasonably estimated at present and could become material. Under existing
legislation, however, management believes that there are no significant unrecorded liabilities or contingencies,
which could have a material adverse effect on the operating results or financial position of the Group.
Social assets
Certain Group companies contribute to Government sponsored programs, the maintenance of local infrastructure
and the welfare of their employees within the Russian Federation and elsewhere. Such contributions include
assistance with the construction, development and maintenance of housing, hospitals and transport services,
recreation and other social needs. The funding of such assistance is periodically determined by management and
is appropriately capitalised or expensed as incurred.
Taxation environment
The taxation systems in the Russian Federation and other emerging markets where Group companies operate
are relatively new and are characterised by numerous taxes and frequently changing legislation, which is often
unclear, contradictory, and subject to interpretation. Often, differing interpretations exist among different tax
authorities within the same jurisdictions and among taxing authorities in different jurisdictions. Taxes are subject
to review and investigation by a number of authorities, who are enabled by law to impose substantial fines,
penalties and interest charges. In the Russian Federation a tax year remains open for review by the tax authorities
during three subsequent calendar years. However, under certain circumstances a tax year may remain open
longer. Recent events within the Russian Federation suggest that the tax authorities are taking a more assertive
position in their interpretation and enforcement of tax legislation. Such factors significantly increase taxation
risks in the Russian Federation and other emerging markets where Group companies operate, comparing to other
countries where taxation regimes have been subject to development and clarification over longer periods.
The tax authorities in each region of the Russian Federation may have a different interpretation of similar
taxation issues which may result in taxation issues successfully defended by the Group in one region being
unsuccessfully defended by the Group in another region. There is some direction provided from the central
authority based in Moscow on particular taxation issues.
The Group has implemented tax planning and management strategies based on existing legislation. The Group
is subject to tax authority audits on an ongoing basis, which is a normal practice in the Russian Federation and
other republics of the former Soviet Union, and, at times, the authorities have attempted to impose additional
significant taxes on the Group. Management believes that it has adequately met the requirements and provided
for tax liabilities based on its interpretation of existing tax legislation. However, the relevant tax authorities may
have differing interpretations and the effects on the consolidated financial statements, if the authorities were
successful in enforcing their interpretations, could be significant.
39
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 30. Commitments and contingencies (сontinued)
Litigation and claims
In July 2015, the prosecutors with the Ploesti Court of Appeals (hereinafter the “Prosecutor’s Office”) charged
the general director and several officers of PETROTEL-LUKOIL S.A., a Group company, with bad faith use of
the company’s credit and money laundering. Similar charges were brought against LUKOIL Europe Holdings
B.V., a Group company, for 2010–2014. On 10 May 2016, the Prahova Tribunal lifted all preventive measures
that were in effect against the accused individuals. Upon preliminary hearings the Prosecutor’s Office revised
the amount of damage claimed from $2.2 billion (162.5 billion RUB) to $1.5 billion (110.8 billion RUB). An
expertise of all relevant issues of the criminal case was carried out during 2017, the results of which were
accepted by the Tribunal on 12 February 2018. At the final hearing on the case which was held on
23 October 2018 the court issued a not guilty decision to all the accused, including general director of
PETROTEL-LUKOIL S.A., his deputies and PETROTEL-LUKOIL S.A. and LUKOIL Europe Holdings B.V.
themselves. As a result freezing injunction in the amount of approximately $1.5 billion (110.8 billion RUB) was
removed from all assets of the refinery, shares and accounts of PETROTEL-LUKOIL S.A. and LUKOIL Europe
Holdings B.V. On 1 November 2018, this decision was appealed by the Prosecutor’s Office to the Ploesti Court
of Appeals. On 27 November 2019, the Ploesti Court of Appeals issued a decision to return the case for a new
examination in the court of first instance. On 24 December 2019, the defendants appealed the decision in an
order of extraordinary appeal to the Ploesti Court of Appeals. On 17 June 2020, the Ploesti Court of Appeals
rejected the appeal of PETROTEL-LUKOIL S.A. and transferred the case to the Prahova Tribunal. On
9 December 2020, the Prahova Tribunal issued a repeated acquittal due to the absence of an event of a crime.
On 16 December 2020, the Prosecutor’s Office filed a protest against the court's verdict. Management does not
believe that the outcome of this matter will have a material adverse effect on the Group’s financial position.
LUKOIL Overseas Karachaganak B.V., a Group company, among other contractors, is involved in the disputes
with the Republic of Kazakhstan arising from the Final Production Sharing Agreement relating to the Contract
area of the Karachaganak Oil and Gas Condensate Field. Currently, within the framework of the dispute with
respect to cost recovery in 2010-2016 the parties are making efforts to resolve the existing controversies by way
of negotiations. Management believes that the ultimate outcome of this dispute will not have a material adverse
effect on the financial position of the Group. Within the framework of the arbitration proceedings regarding the
correctness of the calculation of the "Fairness index", the parties signed a settlement agreement. On
11 December 2020, after the fulfillment of conditions stipulated by the agreement, the arbitration dispute was
settled (the Group's share in the settlement was $196 million). The case is over.
On 21 May 2020, the Federal Antimonopoly Service of Russia (hereinafter – FAS of Russia) filed a claim to the
Arbitration court of the Arkhangelsk region for invalidating the transaction of PJSC LUKOIL for the sale of
100% of shares of JSC Arkhangelskgeoldobycha to LLC Otkritie Promyshlennye Investitsii in May 2017 and
applying the consequences of its invalidity. On 31 July 2020, the Arbitration court of Arkhangelsk region passed
the case to Arbitration court of Moscow. The hearing date was postponed to 19 March 2021. The transaction to
sell shares of JSC Arkhangelskgeoldobycha was concluded after a five-month due diligence and verification of
information provided by the seller and the buyer, without any objections from regulatory authorities, in strict
compliance with the Russian legislation, after an approval was obtained from the Governmental Commission
for Control over Foreign Investments in the Russian Federation. In addition, a written approval was obtained
from FAS of Russia to conduct this transaction. The price of the asset was agreed by the parties of the transaction
as a result of the lengthy negotiations where largest investment banks were involved as advisers, which confirms
the market nature of the deal. In this regard, the Company does not agree with the arguments set out in the claim
of FAS of Russia and regards itself as a bona fide seller in this transaction, and will take all necessary measures
to protect its rights and legitimate interests. Management does not believe that the outcome of this matter will
have a material adverse effect on the Group’s financial position.
The Group is involved in various other claims and legal proceedings arising in the normal course of business.
While these claims may seek substantial damages against the Group and are subject to uncertainty inherent in
any litigation, management does not believe that the ultimate resolution of such matters will have a material
adverse impact on the Group’s operating results or financial position.
40
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 30. Commitments and contingencies (сontinued)
Political situation
In July – September 2014, the United States (“US”), the European Union (“EU”) and several other countries
imposed a set of sanctions on Russia, including sectoral sanctions which affect several Russian oil and gas
companies. The US Department of the Treasury has placed the Company onto the Sectoral Sanctions
Identifications List subject to Directive 4 of the Office of foreign assets control (OFAC). Directive 4 prohibits
US companies and individuals from providing, exporting, or re-exporting directly or indirectly, goods, services
(except for financial services), or technology in support of exploration or production for deepwater, Arctic
offshore or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area
spreading from the Russian territory and claimed by the Russian Federation.
From January 2018 (based on acts adopted in August – October 2017), the US expanded abovementioned
sanctions to include certain categories of international oil projects initiated on or after 29 January 2018 in any
part of the world, in which companies placed on the Sectoral Sanctions Identifications List subject to Directive 4
(including the Company) have an ownership interest of 33% or more, or ownership of a majority of the voting
interests.
Management believes that current sanctions do not have a material adverse effect on the current or planned
Group’s oil projects. At the same time the Company continues to monitor and evaluate potential risks for its
operations in connection with sanctions.
The Group is exposed to political, economic and legal risks due to its operations in Iraq. Management monitors
these risks and believes that there is no adverse effect on the Group’s financial position that can be reasonably
estimated at present.
Other matters
The Company and other Group companies have been notified by various counterparties of claims in respect of
off-specification quantities of crude oil volumes delivered through the Druzhba pipeline (owned and operated
by the state-owned company, PJSC Transneft) in the second quarter of 2019. The claims assert that the oil had
an average organic chlorine content in excess of the contractual specification, which may allegedly cause the
purchasers to suffer certain financial losses. According to publicly available information, this situation was
caused by unlawful actions of certain third parties that were aimed at concealing thefts of oil from the pipeline.
Currently, agreements have been signed between the Company, PJSC Transneft and all counterparties, which
have settled all submitted claims related to this incident.
Note 31. Related party transactions
The senior management of the Company believes that the Group has appropriate procedures in place to identify
and properly disclose transactions with related parties and has disclosed all of the relationships identified which
it deemed to be significant. Related party sales and purchases of oil and oil products were primarily to and from
associates and joint ventures. Other financial assets mostly represent loans given to associates and joint ventures.
Short-term borrowings and long-term debt mostly represent lease obligations.
Outstanding balances with related parties were as follows:
31 December 2020
2,474
31 December 2019
1,645
Accounts receivable and other current assets
Other financial assets
32,403
51,053
Total assets
34,877
52,698
Accounts payable
6,902
5,002
Short-term borrowings and long-term debt
Total liabilities
17,649
13,759
24,551
18,761
41
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 31. Related party transactions (сontinued)
Related party transactions were as follows:
2020
15,351
2,707
2019
31,028
2,356
Sales of oil and oil products
Other sales
Purchases of oil and oil products
Other purchases
57,915
18,342
5,075
84,400
18,936
10,872
2,964
Proceeds from sale of other financial assets, net
Proceeds from issuance of short-term borrowings and long-term debt, net
2,080
Key management remuneration
Key management personnel includes members of the Board of Directors and members of the Management
Board. Remuneration of key management personnel, including basic salary, bonuses and other payments,
amounted to 1,728 million RUB and 1,866 million RUB during 2020 and 2019, respectively.
Also, a provision under the compensation plan (disclosed in Note 32 “Compensation plan”) was accrued in
relation to the Company’s key management personnel in the amount of 3,137 million RUB during 2020 and
2019.
Note 32. Compensation plan
In late December 2017, the Company announced a compensation plan based on approximately 40 million shares
available to certain members of management and key employees for the period from 2018 to 2022, which was
implemented in July 2018 and recognised as equity-settled share-based compensation plan.
The fair value of the plan was estimated at the grant date at 156.8 billion RUB based on forecasting principles
of Monte-Carlo model and is not going to be recalculated in the future. The fair value was estimated assuming
a spot-price of the Company’s share in the amount of 4,355 RUB at the grant date, discount for illiquidity in the
amount of 9.95% per annum, a risk-free interest rate of 7.50% per annum, an expected dividend yield of 4.99%
per annum, an expected time to maturity of five years and a volatility factor of 25.68%. The expected volatility
factor was estimated based on the historical volatility of the Company’s shares for the previous five years. The
vesting of shares is contingent on meeting the requisite service period, certain KPIs and share price appreciation.
The Group is planning to recognise expenses related to the plan evenly during the vesting period.
Related to this share plan the Group recognised compensation expenses of 31,366 million RUB during 2020 and
2019.
Note 33. Segment information
The Group has the following operating segments – exploration and production; refining, marketing and
distribution; corporate and other. These segments have been determined based on the nature of their operations.
Management on a regular basis assesses the performance of these operating segments.
The exploration and production segment explores for, develops and produces crude oil and gas. The refining,
marketing and distribution segment includes refining, petrochemical and transport operations, marketing and
trading of crude oil, natural gas and refined products, generation, transportation and sales of electricity, heat and
related services. The corporate and other business operating segment includes activities of the Company and
businesses beyond the Group’s traditional operations.
Geographical segments are based on the area of operations and include two segments: Russia and International.
42
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 33. Segment information (сontinued)
Operating segments
Refining,
Exploration and
marketing and Corporate and
2020
production
distribution
other
Elimination
Consolidated
Sales and other operating revenues
Third parties
164,993
1,377,246
5,455,680
70,300
18,728
40,892
-
5,639,401
-
Inter-segment
(1,488,438)
Total revenues
1,542,239
262,343
5,525,980
195,558
59,620
14,875
(1,488,438)
(32,803)
5,639,401
439,973
Operating expenses
Selling, general and administrative
expenses
48,670
120,607
62,838
(33,088)
199,027
Profit (loss) for the year attributable to
PJSC LUKOIL shareholders
125,192
500,081
(4,882)
(102,523)
(39,378)
(2,612)
15,175
EBITDA
243,322
(16,931)
687,094
(82,154)
13,051
(44,122)
(26,110)
Income tax expense
Finance income
Finance costs
Foreign exchange loss
Equity share in income of associates
and joint ventures
11,474
Other expenses
(137,160)
Depreciation, depletion and
amortisation
Profit for the year attributable to
non-controlling interests
Profit for the year attributable to PJSC
LUKOIL shareholders
(405,440)
(1,458)
15,175
Refining,
Exploration and
production
marketing and Corporate and
2019
distribution
other
Elimination
Consolidated
Sales and other operating revenues
Third parties
270,842
2,093,342
7,548,121
76,077
22,283
45,601
-
7,841,246
-
Inter-segment
(2,215,020)
Total revenues
2,364,184
274,934
7,624,198
228,576
67,884
19,709
(2,215,020)
(65,509)
7,841,246
457,710
Operating expenses
Selling, general and administrative
expenses
47,964
121,383
63,515
(35,690)
197,172
Profit (loss) for the year attributable to
PJSC LUKOIL shareholders
473,517
893,950
190,998
371,642
(35,569)
(39,962)
11,232
10,562
640,178
EBITDA
1,236,192
(151,133)
25,134
(44,356)
923
Income tax expense
Finance income
Finance costs
Foreign exchange gain
Equity share in income of associates
and joint ventures
18,246
Other expenses
(27,691)
Depreciation, depletion and
amortisation
Profit for the year attributable to
non-controlling interests
(415,094)
(2,043)
Profit for the year attributable to PJSC
LUKOIL shareholders
640,178
43
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 33. Segment information (continued)
Geographical segments
2020
23,522
2019
22,528
Sales of crude oil within Russia
Export of crude oil and sales of crude oil by foreign subsidiaries
Sales of petroleum products within Russia
Export of petroleum products and sales of petroleum products by foreign subsidiaries
Sales of chemicals within Russia
1,918,944
785,663
2,548,961
36,386
2,684,320
923,715
3,748,364
40,971
Export of chemicals and sales of chemicals by foreign subsidiaries
Sales of gas within Russia
57,036
91,687
32,649
32,490
Sales of gas by foreign subsidiaries
68,200
138,997
53,276
Sales of energy and related services within Russia
Sales of energy and related services by foreign subsidiaries
Other sales within Russia
53,607
10,451
14,604
40,169
42,270
Other export sales and other sales of foreign subsidiaries
Total sales
63,813
48,024
5,639,401
7,841,246
2020
Russia International Elimination Consolidated
Sales and other operating revenues
Third parties
1,041,967
994,845
2,036,812
314,341
91,727
4,597,434
1,670
-
(996,515)
(996,515)
34,133
5,639,401
-
Inter-segment
Total revenues
4,599,104
91,499
5,639,401
439,973
199,027
Operating expenses
Selling, general and administrative expenses
110,938
(3,638)
Profit (loss) for the year attributable to PJSC LUKOIL
shareholders
202,309
590,553
(184,450)
105,065
(2,684)
(8,524)
15,175
EBITDA
687,094
2019
Russia International Elimination Consolidated
Sales and other operating revenues
Third parties
1,221,549
1,606,632
2,828,181
329,688
6,619,697
2,726
-
(1,609,358)
(1,609,358)
9,766
7,841,246
-
Inter-segment
Total revenues
6,622,423
118,256
106,939
52,593
7,841,246
457,710
197,172
640,178
1,236,192
Operating expenses
Selling, general and administrative expenses
Profit for the year attributable to PJSC LUKOIL shareholders
EBITDA
93,963
(3,730)
577,939
9,646
1,032,126
199,811
4,255
In the International segment the Group receives the most substantial revenues in Switzerland, the USA and
Singapore.
2020
2019
Sales revenues
in Switzerland
in the USA
2,449,415
680,033
357,647
3,503,238
1,128,181
482,132
in Singapore
These amounts are attributed to individual countries based on the jurisdiction of subsidiaries making the sale.
44
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 34. Subsidiaries
The most significant subsidiaries of the Group are presented below:
31 December 2020
31 December 2019
Total
shares
Voting
shares
Total
shares
Voting
shares
Country of
incorporation
Subsidiary
LUKOIL-West Siberia LLC
LUKOIL-PERM LLC
Russia
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
Russia
LUKOIL-Komi LLC
Russia
RITEK LLC
Russia
LUKOIL-Permnefteorgsintez LLC
LUKOIL-Nizhegorodnefteorgsintez LLC
LUKOIL-Nizhnevolzhskneft LLC
LUKOIL-Volgogradneftepererabotka LLC
ISAB S.r.l.
Russia
Russia
Russia
Russia
Italy
LITASCO SA
Switzerland
Netherlands
Austria
LUKARCO B.V.
LUKOIL INTERNATIONAL GmbH
LUKOIL International Upstream Holding B.V.
LUKOIL Neftohim Burgas AD
LUKOIL Overseas Karachaganak B.V.
LUKOIL Overseas Shah Deniz Ltd.
LUKOIL Overseas Uzbekistan Ltd.
LUKOIL Securities B.V.
Netherlands
Bulgaria
Netherlands
Cyprus
99.85%
99.85%
99.85%
99.85%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
100.00% 100.00% 100.00% 100.00%
Cyprus
Netherlands
USA
LUKOIL Pan Americas LLC
Note 35. Fair value
There are the following methods of fair value measurement based on the valuation method:
Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 – inputs other than quoted prices included within Level 1 that are observable for the asset or liability,
either directly or indirectly;
Level 3 – unobservable inputs.
The following tables show the carrying amounts and fair values of financial assets and financial liabilities
included in the consolidated statement of financial position at 31 December 2020 and 2019.
Fair value
31 December 2020
Carrying amount
Level 1
Level 2
Level 3
Total
Financial assets:
Commodity derivative contracts
Financial assets at fair value through
profit or loss
316
33,195
2,491
-
-
316
-
33,195
-
316
33,195
2,491
-
-
Financial assets at fair value through
other comprehensive income
2,491
Financial liabilities:
Commodity derivative contracts
Loans and borrowings
418
-
418
-
-
418
638,453
362,818
307,832
670,650
45
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 35. Fair value (сontinued)
Fair value
Level 2
31 December 2019
Carrying amount
Level 1
Level 3
Total
Financial assets:
Commodity derivative contracts
Financial assets at fair value through
profit or loss
180
51,054
2,656
-
-
180
-
51,054
-
180
51,054
2,656
-
-
Financial assets at fair value through
other comprehensive income
2,656
Financial liabilities:
Commodity derivative contracts
Loans and borrowings
550
-
550
-
-
550
537,070
265,109
295,726
560,835
The fair values of cash and cash equivalents (Level 1), accounts receivable and long-term accounts receivable
(Level 3), short-term borrowings (Level 3) are approximately equal to their value as disclosed in the consolidated
statement of financial position. The fair value of long-term receivables was determined by discounting with
estimated market interest rates for similar financing arrangements. The fair value of long-term loans (Level 3)
was determined as a result of discounting using estimated market interest rates for similar financing instruments.
These amounts include all future cash outflows associated with the long-term debt repayments, including the
current portion and interest. Market interest rates mean the rates of raising long-term debt by companies with a
similar credit rating for similar tenors, repayment schedules and other similar main terms. The fair value of
bonds (Level 1) was determined based on market quotations at 31 December 2020 and 2019.
Note 36. Capital and risk management
The Group’s governing bodies pay great attention to risk management issues to provide a reasonable guarantee
for the achievement of the set objectives under the conditions characterized by uncertainties and negative impact
factors. The Group is constantly identifying, describing, estimating and monitoring the possible events that may
affect its activities, and is elaborating measures to prevent them or mitigate their negative impact to the greatest
extent possible if such events do take place.
The Group seeks to actively promote risk management and is presently focusing its efforts on the improvement
of a general enterprise risk management system (ERM) based on the best international practices. The Group is
constantly improving the applicable regulatory methodological risk management base that establishes
requirements aimed at organizing the risk management process at all stages, and defines management standards
for certain risk types of utmost importance, which are uniform for all of Group organizations. The Risk
Committee, a dedicated body under the President of the Company, was set up and began its work in 2011.
The information with regard to key financial risks of the Group is presented below.
Credit risk
The Group’s most significant credit risks include first of all the risk of failure by its counterparties to perform
their obligations in terms of payment for the products supplied by the Group. In order to mitigate these risks, the
Group focuses on partnerships with counterparties that have high credit ratings, accepts letters of credit and
guarantees issued by reputable banks and sometimes demands prepayment for the products supplied. In addition,
it utilizes tools to limit the credit risks of a given counterparty.
Another group of credit risks includes risks associated with contractor banks’ activities and potential impairment
of their financial stability. In order to mitigate these risks, the Group is involved in centralized treasury
operations, part of which are aimed at fund raising, investment and operations involving currency exchange and
financial derivatives. The credit ratings of contractor banks are monitored on a regular basis.
The carrying amount of financial assets represents the maximum exposure to credit risk.
46
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 36. Capital and risk management (сontinued)
Trade and other receivables
Analysis of the aging of receivables:
31 December 2020
342,930
10,895
31 December 2019
402,713
21,299
Not past due
Past due less than 45 days
Past due from 46 to 180 days
Past due from 181 to 270 days
Past due from 271 to 365 days
Past due more than 365 days
Total trade and other receivables
4,315
8,809
635
963
11,053
587
443
2,681
370,271
437,052
Not past due accounts receivable are not considered of high credit risk.
Allowance for expected credit losses changed as follows during 2020:
31 December 2019
31,287
5,771
Increase in allowance charged to profit or loss
Write-off
(2,379)
3,679
Foreign currency translation differences
Other
(666)
31 December 2020
37,692
Allowance for expected credit losses changed as follows during 2019:
31 December 2018
27,798
9,270
(3,381)
(2,492)
92
Increase in allowance charged to profit or loss
Write-off
Foreign currency translation differences
Other
31 December 2019
31,287
Financial instruments used by the Group and potentially exposed to concentrations of credit risk consist
primarily of cash equivalents, over-the-counter production contracts and trade receivables. The cash and cash
equivalents are held with banks, which are generally highly rated.
The credit risk from the Group’s over-the-counter derivative contracts, such as forwards and swaps, derives from
the counterparty to the transaction, typically a major bank or financial institution. Individual counterparty
exposure is managed within predetermined credit limits and includes the use of cash-call margins when
appropriate, thereby reducing the risk of significant non-performance. The Group also uses futures contracts,
but futures have a negligible credit risk because they are traded on the New York Mercantile Exchange or the
Intercontinental Exchange (ICE Futures).
Liquidity risk
The Group’s liquidity is managed on a centralized basis. There is an efficient global system in place to manage
the Group’s liquidity, which includes an automated system of concentrating and re-distributing the funds,
corporate dealing and also rolling cash-flow forecasts. The liquidity indicators are monitored on a continuous
basis.
47
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 36. Capital and risk management (сontinued)
Contractual maturities of the Group’s financial liabilities (the Group itself determines the grouping of the
maturity based on contractual maturities and, where relevant, on judgment):
Contractual
Carrying
cash flows Less than 12
amount (undiscounted)
months
1-2 years
2-5 years Over 5 years
Loans and borrowings,
including interest expense
134,150
173,227
50,966
23,218
47,289
51,754
Bonds, including interest
expense
334,255
193,872
597,406
418
407,958
257,533
597,406
418
15,295
44,232
595,465
418
50,764
27,429
1,437
-
135,780
67,514
141
206,119
118,358
363
Lease obligations
Trade and other payables
Derivative financial liabilities
31 December 2020
-
-
1,260,101
1,436,542
706,376
102,848
250,724
376,594
Contractual
Carrying
cash flows Less than 12
amount (undiscounted)
months
1-2 years
2-5 years Over 5 years
Loans and borrowings,
including interest expense
134,484
174,563
45,260
25,980
49,746
53,577
Bonds, including interest
expense
249,274
171,880
606,566
550
290,545
235,613
606,566
550
71,091
37,069
605,203
550
9,225
26,742
932
136,712
59,077
350
73,517
112,725
81
Lease obligations
Trade and other payables
Derivative financial liabilities
31 December 2019
-
-
-
1,162,754
1,307,837
759,173
62,879
245,885
239,900
Currency risk
The Group is subject to foreign exchange risks since it operates in a number of countries. The exchange rate of
the Russian ruble to the US dollar produces the greatest impact on transaction results, since the Group’s export
proceeds are denominated in dollars, while the major costs are incurred in Russia and are denominated in Russian
rubles.
As part of the centralized approach to management of the treasury operations and liquidity of the Group, the
risks associated with unfavorable changes in the exchange rates are generally consolidated at the corporate level.
The Company uses an integrated approach to manage its currency risks, including the application of natural
hedging mechanisms, which encompass management of the currency structure of its monetary assets and
liabilities.
The carrying amounts of the Group’s assets and liabilities which form currency risk at 31 December 2020 and
2019 are presented in the tables below and contain balances between Group companies whose functional
currency is different from the currency of the contract.
31 December 2020
Financial assets:
USD
EUR
Other currencies
Cash and cash equivalents
Trade and other receivables
Loans
2,014
79,401
260,894
1,698
56,041
181
778
4,516
-
3,452
2
Other financial assets
Financial liabilities:
Loans and borrowings
Trade and other payables
Net exposure
90
(354,100)
(29,350)
(39,443)
(41,051)
(8,622)
10,003
(8,470)
(19,875)
(22,961)
48
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 36. Capital and risk management (сontinued)
31 December 2019
Financial assets:
USD
EUR
Other currencies
Cash and cash equivalents
Trade and other receivables
Loans
64,708
144,336
199,764
2,651
12,309
6,699
4,794
54
761
4,765
-
Other financial assets
Financial liabilities:
Loans and borrowings
Trade and other payables
Net exposure
124
(399,921)
(51,560)
(40,022)
(37,104)
(14,655)
(27,903)
(3,651)
(11,696)
(9,697)
The following exchange rates applied:
31 December 2020
73.88
31 December 2019
61.91
USD
EUR
90.68
69.34
Sensitivity analysis
Analysis of the currency position shows that the Group mainly uses RUR, US dollar and EUR in its operating
activity. Thus sensitivity analysis shows how strengthening (weakening) of these currencies at 31 December
2020 and 2019 would have affected the measurement of financial assets and liabilities denominated in foreign
currencies and affected profit (loss) before taxes. The analysis assumes that all other variables remain constant.
Profit (loss)
2020
(5,262)
1,121
2019
(1,952)
222
US Dollar (increase by 10%)
Euro (increase by 10%)
Russian ruble (increase by 10%)
3,873
1,113
The weakening of these currencies by 10% will have equal effect on profit (loss) but with opposite sign.
Interest rate risk
The Group is exposed to a significant interest rate risk both in the short- and long-term. A change in interest
rates may affect the cost of funds borrowed by the Group as well as the size of cash flows.
To mitigate this risk, the Group is constantly monitoring market conditions, taking measures to improve the debt
structure by reaching an optimum balance between fixed and variable interest rates, controlling the need for
additional financing and outstanding debt refinancing, extending the term of debt obligations.
The interest rate profiles of the Group are presented below:
31 December 2020
31 December 2019
Fixed rate instruments:
Financial assets
35,603
(527,063)
(491,460)
44,970
(420,239)
(375,269)
Financial liabilities
Net exposure
Variable rate instruments:
Financial assets
39,523
(132,648)
(93,125)
41,596
(132,993)
(91,397)
Financial liabilities
Net exposure
49
PJSC LUKOIL
Notes to Consolidated Financial Statements
(Millions of Russian rubles, unless otherwise noted)
Note 36. Capital and risk management (сontinued)
Sensitivity analysis for variable rate instruments
A reasonably possible change of 100 basis points in interest rates at 31 December 2020 and 2019 would have
increased (decreased) profit (loss) before taxes by the amounts shown below. This analysis assumes that all other
variables remain constant.
Profit (loss) before taxes
100 bp increase
100 bp decrease
2020
Net financial liabilities
2019
(931)
931
914
Net financial liabilities
(914)
Capital management
The Group’s capital management objectives are to secure the ability to continue as a going concern and to
optimize the cost of capital in order to enhance value to shareholders. The Company’s management performs
regular assessment of the net debt to equity ratio to ensure it meets the Company’s current rating requirements.
Equity includes share capital, reserves and retained earnings, as well as non-controlling interests. Net debt is a
non-IFRS measure and is calculated as a sum of loans and borrowings, as presented in the consolidated statement
of financial position, less cash and cash equivalents. Net debt to equity ratio enables the users to see how
significant net debt is.
The Group’s net debt to equity ratio was as follows:
31 December 2020
659,711
31 December 2019
553,232
Total debt
Less cash and cash equivalents
Net debt
(343,832)
315,879
(516,032)
37,200
Equity
4,130,766
7.65%
3,973,449
0.94%
Net debt to equity ratio
50
PJSC LUKOIL
Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)
(Millions of Russian rubles, unless otherwise noted)
Supplementary Information on Oil and Gas Exploration and Production Activities
IFRS do not require the information on oil and gas reserves to be disclosed in consolidated financial statements.
However, management believes that this supplementary information will benefit the users of consolidated
financial statements of the Group.
The information on oil and gas exploration and production activities is presented in six separate tables:
I. Capitalised costs relating to oil and gas producing activities.
II. Costs incurred in oil and gas property acquisition, exploration, and development activities.
III. Results of operations for oil and gas producing activities.
IV. Reserve quantity information.
V. Standardised measure of discounted future net cash flows.
VI. Principal sources of changes in the standardised measure of discounted future net cash flows.
Amounts shown for equity method companies represent the Group’s share in its exploration and production
associates and joint ventures, which are accounted for using the equity method of accounting.
I. Capitalised costs relating to oil and gas producing activities
Total Group's share in
consolidated
companies
equity method
companies
31 December 2020
International
105,907
Russia
123,493
Unproved oil and gas properties
Proved oil and gas properties
Accumulated DD&A
229,400
5,203,864
(2,193,734)
3,239,530
37,901
370,006
(120,843)
287,064
1,645,275
(980,878)
770,304
3,558,589
(1,212,856)
2,469,226
Net capitalised costs
Total Group's share in
consolidated
companies
equity method
companies
31 December 2019
International
84,203
Russia
109,313
Unproved oil and gas properties
Proved oil and gas properties
Accumulated DD&A
193,516
28,692
300,337
(99,189)
229,840
1,305,806
(720,304)
669,705
3,296,352
(1,046,271)
2,359,394
4,602,158
(1,766,575)
3,029,099
Net capitalised costs
II. Costs incurred in oil and gas property acquisition, exploration, and development activities
Total Group's share in
consolidated
companies
equity method
companies
2020
International
Russia
1,443
Acquisition of properties - Unproved
Exploration costs
-
1,443
-
237
8,151
43,959
52,110
30,862
311,355
343,660
39,013
Development costs
Total costs incurred
355,314
395,770
10,824
11,061
Total Group's share in
consolidated
companies
equity method
companies
2019
International
31,393
Russia
2,317
Acquisition of properties - Proved
Acquisition of properties - Unproved
Exploration costs
33,710
-
-
32,419
14,937
17,014
309,797
344,065
47,356
13,439
30,453
4,336
11,254
15,590
Development costs
53,495
363,292
474,811
Total costs incurred
130,746
PJSC LUKOIL
Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)
(Millions of Russian rubles, unless otherwise noted)
III. Results of operations for oil and gas producing activities
The Group’s results of operations for oil and gas producing activities are presented below. Sales and transfers
to Group companies are based on market prices, income taxes are based on statutory rates. The results of
operations exclude corporate overhead and interest costs.
Total Group's share in
consolidated
companies
equity method
companies
2020
International
Russia
Revenue
Sales
123,966
-
645,991
572,660
769,957
572,660
33,879
1,039
34,918
(7,395)
-
Transfers
Total revenues
123,966
(40,583)
(3,163)
(77,736)
(755)
1,218,651
(158,328)
(2,951)
1,342,617
(198,911)
(6,114)
Production costs (excluding production taxes)
Exploration expenses
Depreciation, depletion and amortisation
Taxes other than income taxes
Related income taxes
(191,707)
(611,640)
(56,455)
197,570
(269,443)
(612,395)
(57,618)
198,136
(8,632)
(8,864)
(4,161)
5,866
(1,163)
566
Total results of operations for producing activities
Total Group's share in
consolidated
companies
equity method
companies
2019
International
Russia
Revenue
Sales
211,230
-
961,273
985,859
1,172,503
985,859
60,642
1,420
Transfers
Total revenues
211,230
(40,277)
(7,493)
(83,726)
(531)
1,947,132
(170,590)
(1,855)
2,158,362
(210,867)
(9,348)
62,062
(5,899)
(33)
Production costs (excluding production taxes)
Exploration expenses
Depreciation, depletion and amortisation
Taxes other than income taxes
Related income taxes
(193,696)
(1,035,635)
(104,585)
440,771
(277,422)
(1,036,166)
(116,321)
508,238
(11,144)
(15,446)
(11,384)
18,156
(11,736)
67,467
Total results of operations for producing activities
IV. Reserve quantity information
Proved reserves are the estimated quantities of oil and gas reserves which according to geological and
engineering data are going to be recoverable with reasonable certainty in future years from known reservoirs
under existing economic and operating conditions. Existing economic and operating conditions are based on
the 12-months average price and the year-end costs. Proved reserves do not include additional quantities of oil
and gas reserves that may result from applying secondary or tertiary recovery techniques not yet tested and
determined to be economic.
Proved developed reserves are the quantities of proved reserves expected to be recovered through existing
wells with existing equipment and operating methods.
Due to the inherent uncertainties and the necessarily limited nature of reservoir data, estimates of reserves are
inherently imprecise, require the application of judgment and are subject to change as additional information
becomes available.
52
PJSC LUKOIL
Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)
(Millions of Russian rubles, unless otherwise noted)
Management has included within proved reserves significant quantities which the Group expects to produce
after the expiry dates of certain of its current production licenses in the Russian Federation. The Subsoil Law
of the Russian Federation states that, upon expiration, a license is subject to renewal at the initiative of the
license holder provided that further exploration, appraisal, production or remediation activities are necessary
and provided that the license holder has not violated the terms of the license. Since the law applies to both
newly issued and old licenses and the Group has currently renewed 66% of its licenses, management believes
that licenses will be renewed upon their expiration for the remainder of the economic life of each respective
field.
Estimated net proved oil and gas reserves and changes thereto for 2020 and 2019 are shown in the tables set
out below.
Group's share in
equity method
companies
Millions of barrels
Consolidated subsidiaries
Crude oil
International
Russia
11,478
(55)
Total
11,794
(12)
31 December 2018
316
43
288
1
Revisions of previous estimates
Purchase of hydrocarbons in place
Extensions and discoveries
Production
29
18
47
-
26
531
557
2
(30)
384
140
28
(614)
11,358
(268)
373
(644)
11,742
(128)
401
(18)
273
6
31 December 2019
Revisions of previous estimates
Extensions and discoveries
Production
2
(39)
513
(549)
10,914
(588)
11,427
(16)
265
31 December 2020
Proved developed reserves
31 December 2019
219
7,464
7,683
116
31 December 2020
283
7,210
7,493
104
The non-controlling interest share included in the above total proved reserves was 61 million barrels and
71 million barrels at 31 December 2020 and 2019, respectively. The non-controlling interest share included in
the above proved developed reserves was 38 million barrels and 37 million barrels at 31 December 2020 and
2019, respectively. All non-controlling interests relate to reserves in the Russian Federation.
Group's share in
equity method
companies
Billions of cubic feet
Natural gas
Consolidated subsidiaries
International
Russia
16,500
124
Total
22,852
18
31 December 2018
6,352
(106)
138
241
18
-
Revisions of previous estimates
Purchases of hydrocarbons in place
Extensions and discoveries
Production
-
138
70
428
498
-
(586)
5,868
204
(626)
16,426
73
(1,212)
22,294
277
(26)
233
11
-
31 December 2019
Revisions of previous estimates
Extensions and discoveries
Production
15
350
365
(381)
5,706
(617)
16,232
(998)
21,938
(26)
218
31 December 2020
Proved developed reserves
31 December 2019
4,504
5,753
10,257
133
31 December 2020
4,118
5,746
9,864
113
The non-controlling interest share included in the above total proved reserves was 23 billion cubic feet and
26 billion cubic feet at 31 December 2020 and 2019, respectively. The non-controlling interest share included
in the above proved developed reserves was 15 billion cubic feet and 14 billion cubic feet at 31 December
2020 and 2019, respectively. All non-controlling interests relate to reserves in the Russian Federation.
53
PJSC LUKOIL
Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)
(Millions of Russian rubles, unless otherwise noted)
V. Standardised measure of discounted future net cash flows
Estimated future cash inflows from hydrocarbons production are computed by applying the 12-months average
price for oil and gas and the year-end exchange rates to year-end quantities of estimated net proved reserves.
Adjustments in this calculation for future price changes are limited to those required by contractual
arrangements in existence at the end of each reporting year. Future development and production costs are those
estimated future expenditures necessary to develop and produce year-end estimated proved reserves based on
year-end cost indices, assuming continuation of year-end economic conditions. Estimated future income taxes
are calculated by applying appropriate year-end statutory tax rates. These rates reflect allowable deductions
and tax credits and are applied to estimated future pre-tax net cash flows, less the tax bases of related assets.
Discounted future net cash flows have been calculated using a ten percent discount factor. Discounting requires
a year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.
The information provided in the tables set out below does not represent management’s estimate of the Group’s
expected future cash flows or of the value of the Group’s proved oil and gas reserves. Estimates of proved
reserve quantities are imprecise and change over time as new information becomes available. Moreover,
probable and possible reserves, which may become proved in the future, are excluded from the calculations.
The arbitrary valuation requires assumptions as to the timing and amount of future development and production
costs. The calculations should not be relied upon as an indication of the Group’s future cash flows or of the
value of its oil and gas reserves.
Total Group's share in
consolidated
companies
equity method
companies
31 December 2020
International
2,361,227
(1,462,485)
(108,293)
790,449
Russia
28,537,502
(23,445,365)
(679,792)
Future cash inflows
30,898,729
(24,907,850)
(788,085)
639,463
(392,022)
(76,904)
170,537
(84,307)
86,230
Future production and development costs
Future income tax expenses
Future net cash flows
4,412,345
5,202,794
Discount for estimated timing of cash flows (10% p.a.)
Discounted future net cash flows
(306,616)
483,833
(2,345,485)
2,066,860
(2,652,101)
2,550,693
Non-controlling share in discounted future net cash
flows
-
12,861
12,861
-
Total Group's share in
consolidated
equity method
companies
31 December 2019
International
2,567,902
(1,488,826)
(91,906)
Russia
39,282,386
(30,022,601)
(1,514,998)
7,744,787
companies
41,850,288
(31,511,427)
(1,606,904)
8,731,957
Future cash inflows
877,924
(537,056)
(105,121)
235,747
Future production and development costs
Future income tax expenses
Future net cash flows
987,170
Discount for estimated timing of cash flows (10% p.a.)
Discounted future net cash flows
(375,184)
611,986
(4,129,628)
3,615,159
(4,504,812)
4,227,145
(110,174)
125,573
Non-controlling share in discounted future net cash
flows
-
26,963
26,963
-
54
PJSC LUKOIL
Supplementary Information on Oil and Gas Exploration and Production Activities (Unaudited)
(Millions of Russian rubles, unless otherwise noted)
VI. Principal sources of changes in the standardised measure of discounted future net cash flows
Consolidated companies
2020
4,227,145
23
2019
5,636,665
31,212
Discounted present value at 1 January
Net changes due to purchases and sales of minerals in place
Sales and transfers of oil and gas produced, net of production costs
Net changes in prices and production costs estimates
Net changes in mineral extraction taxes
Extensions and discoveries, less related costs
Previously estimated development cost incurred during the year
Revisions of previous quantity estimates
Net change in income taxes
(525,197)
(4,640,038)
2,622,343
86,574
(901,981)
(4,542,732)
2,640,183
210,417
360,474
20,422
308,689
(6,476)
381,202
461,076
(443,331)
2,550,693
389,446
Accretion of discount
616,850
Other changes
(155,128)
4,227,145
Discounted present value at 31 December
Group's share in equity method companies
Discounted present value at 1 January
2020
125,573
(60)
2019
158,208
-
Net changes due to purchases and sales of minerals in place
Sales and transfers of oil and gas produced, net of production costs
Net changes in prices and production costs estimates
Net changes in mineral extraction taxes
Extensions and discoveries, less related costs
Previously estimated development cost incurred during the year
Revisions of previous quantity estimates
Net change in income taxes
(18,659)
(116,411)
74,626
1,047
(40,684)
(122,290)
69,049
452
26,199
2,013
38,478
1,254
14,268
17,621
(39,987)
86,230
18,370
22,222
(19,486)
125,573
Accretion of discount
Other changes
Discounted present value at 31 December
55
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following report contains a discussion and analysis of the financial position of PJSC LUKOIL at
31 December 2020 and results of its operations for the three-month periods ended 31 December and 30 September 2020
and for the years 2020 and 2019, as well as significant factors that may affect its future performance. It should be read in
conjunction with our International Financial Reporting Standards (“IFRS”) consolidated financial statements, including
notes and supplementary information on oil and gas exploration and production activities.
References to “LUKOIL,” “the Company,” “the Group,” “we” or “us” are references to PJSC LUKOIL and its
subsidiaries and associates. All ruble amounts are in millions of Russian rubles (“RUB”), unless otherwise indicated.
Income and expenses of our foreign subsidiaries were translated to rubles at rates, which approximate actual rates at the
date of the transaction. Tonnes of crude oil and natural gas liquids produced were translated into barrels using conversion
rates characterizing the density of crude oil from each of our oilfields and the actual density of liquids produced at our
gas processing plants. Hydrocarbon extraction expenses per barrel were calculated using these actual production volumes.
Other operational indicators expressed in barrels were translated into barrels using an average conversion rate of
7.33 barrels per tonne. Translations of cubic meters to cubic feet were made at the rate of 35.31 cubic feet per cubic meter.
Translations of barrels of crude oil into barrels of oil equivalent (“BOE”) were made at the rate of 1 barrel per BOE and
of cubic feet – at the rate of 6 thousand cubic feet per BOE.
This report includes forward-looking statements – words such as “believes,” “anticipates,” “expects,” “estimates,”
“intends,” “plans,” etc. – that reflect management’s current estimates and beliefs, but are not guarantees of future
results. Please see “Forward-looking statements” on page 44 for a discussion of some factors that could cause actual
results to differ materially.
56
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Table of Contents
Business overview................................................................................................................................... 58
Impact of COVID-19 on the Group’s operations.................................................................................... 58
Key financial and operational results ...................................................................................................... 60
Changes in the Group structure............................................................................................................... 61
Main macroeconomic factors affecting our results of operations ........................................................... 62
International crude oil and refined products prices ............................................................................. 62
Domestic crude oil and refined products prices .................................................................................. 62
Changes in ruble exchange rate and inflation ..................................................................................... 63
Taxation .............................................................................................................................................. 63
Transportation tariffs on crude oil, natural gas and refined products in Russia .................................. 68
Reserves base .......................................................................................................................................... 69
Segments highlights ................................................................................................................................ 70
Exploration and production................................................................................................................. 70
West Qurna-2 project.......................................................................................................................... 73
Refining, marketing and distribution .................................................................................................. 75
Financial results ...................................................................................................................................... 80
Sales revenues..................................................................................................................................... 81
Operating expenses ............................................................................................................................. 85
Cost of purchased crude oil, gas and products .................................................................................... 87
Transportation expenses...................................................................................................................... 88
Selling, general and administrative expenses...................................................................................... 89
Depreciation, depletion and amortization ........................................................................................... 89
Equity share in income of associates and joint ventures ..................................................................... 89
Taxes other than income taxes ............................................................................................................ 90
Excise and export tariffs...................................................................................................................... 91
Exploration expenses .......................................................................................................................... 92
Foreign exchange gain (loss) .............................................................................................................. 92
Other expenses .................................................................................................................................... 92
Income taxes ....................................................................................................................................... 92
Non-GAAP items reconciliation ............................................................................................................. 93
EBITDA reconciliation....................................................................................................................... 93
Free cash flow reconciliation .............................................................................................................. 93
Liquidity and capital resources ............................................................................................................... 94
Operating activities ............................................................................................................................. 94
Investing activities .............................................................................................................................. 94
Financing activities ............................................................................................................................. 95
Credit rating ........................................................................................................................................ 96
Debt maturity ...................................................................................................................................... 96
Litigation and claims............................................................................................................................... 96
Critical accounting policies..................................................................................................................... 96
Other information.................................................................................................................................... 97
Sectoral sanctions against the Russian companies .............................................................................. 97
Operations in Iraq................................................................................................................................ 97
Forward-looking statements.................................................................................................................... 98
57
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Business overview
The primary activities of LUKOIL and its subsidiaries are hydrocarbon exploration, production, refining, marketing and
distribution.
LUKOIL is one of the world’s largest publicly traded vertically integrated energy companies. Our proved reserves under
SEC standards amounted to 15.4 billion BOE at 1 January 2021 and comprised of 11.7 billion barrels of crude oil and
22.2 trillion cubic feet of gas. Most of our reserves are conventional. We undertake exploration for, and production of,
crude oil and gas in Russia and internationally. In Russia, our major oil producing regions are West Siberia, Timan-
Pechora, Ural and Volga region. Our international upstream segment includes stakes in PSAs and other projects in
Kazakhstan, Azerbaijan, Uzbekistan, Romania, Iraq, Egypt, Ghana, Norway, Cameroon, Nigeria, Mexico, the Republic
of Congo and the UAE. Our daily hydrocarbon production in 2020 amounted to 2.1 million BOE, with liquid
hydrocarbons representing approximately 78% of our overall production volumes.
LUKOIL has geographically diversified downstream assets portfolio primarily in Russia and Europe. Our downstream
operations include crude oil refining, petrochemical and transport operations, marketing and trading of crude oil, natural
gas and refined products, retail sales of refined products, power generation, transportation and sales of electricity, heat
and related services.
We own and operate four refineries located in European Russia and three refineries located outside Russia – in Bulgaria,
Romania, and Italy. Moreover, we have a 45% interest in the Zeeland refinery in the Netherlands. We also own two
petrochemical plants in Russia and have petrochemical facilities at our refineries in Bulgaria and Italy. Along with our
own production of refined products, we refine crude oil at third party refineries depending on market conditions and other
factors. Throughput at our refineries in 2020 amounted to 1.2 million barrels per day, and we produced 1.2 million tonnes
of petrochemicals, including olefins, polyolefins and products of organic synthesis.
We market our own and purchased crude oil and refined products through our sales channels in Russia, Europe, South-
East Asia, Central and North America and other regions. We own petrol stations in 19 countries. Most of our retail
networks are located close to our refineries. Our retail sales in 2020 amounted to 12.7 million tonnes of refined products.
We also supply jet fuel to airports and bunker fuel to sea and river ports in and outside Russia.
We are involved in production, distribution and marketing of electrical energy and heat both in Russia and internationally.
In 2020, our total output of commercial electrical energy was 17.1 billion kWh.
Our operations and finance activities are coordinated from headquarters in Moscow. We divide our operations into three
main business segments: “Exploration and production,” “Refining, marketing and distribution,” and “Corporate and
other”.
Impact of COVID-19 on the Group’s operations
In December 2019, the emergence of a new strain of coronavirus (COVID-2019) was reported in China and has
subsequently spread globally. On 11 March 2020, the World Health Organization declared the COVID-19 outbreak a
pandemic. Mobility restrictions, quarantines and similar lockdown measures implemented in different countries to cope
with the pandemic had a significant negative impact on the global economy. Deceleration of economic activity resulted
in a substantial decrease in demand for hydrocarbons leading to oversupply on the international oil market and a sharp
decline in oil prices. Failure of OPEC+ countries to reach a new agreement on crude oil production quotas in the beginning
of March put an incremental pressure on oil prices. As a result, the price for Brent collapsed to a 20-years minimum of
$13 per barrel in April. On 12 April 2020, OPEC+ countries entered into a new agreement to reduce their collective output
by 9.7 million barrels per day starting from 1 May 2020. This coordinated production cut together with the negative
impact of low oil prices on crude oil production in different countries resulted in lower supply of crude oil and reduction
of surplus on the crude oil market and led to a gradual recovery of oil prices. This upward oil price trend was further
supported by the gradual lifting of lockdowns in different countries, recovery in economic activity and respective growth
in demand for hydrocarbons. As a result, the price for Brent exceeded $46 per barrel in August 2020. Acceleration of
COVID-19 spread in October 2020 resulted in a renewal of lockdown measures in different countries and a decline in the
price for Brent to $36 per barrel. Progress with testing of vaccines against COVID-19 pushed the price for Brent up to
$52 per barrel by the end of December 2020.
From the beginning of COVID-19 pandemic the Group has taken necessary measures to avoid direct impact of the
pandemic on its operations with a special focus on protection of the health of employees and clients and uninterrupted
production processes.
The major impact of COVID-19 on the macroeconomic environment in the oil and gas industry resulted in a number of
consequences on operational and financial performance of the Group.
58
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
From February through August 2020, we reduced production of gas at our projects in Uzbekistan to approximately 20%
of the projects capacity due to lower demand for Uzbek gas from China. At the same time, since September we have been
recovering our gas production in Uzbekistan on the back of growing demand for gas from China, and as of December
2020 production was back to the project levels.
Due to the new OPEC+ agreement we cut our crude oil production in Russia in May 2020 by approximately 310 thousand
barrels per day, or by 19%, as compared to our daily crude oil production in Russia in the first quarter of 2020. To
minimize the negative impact of this production cut on our financial performance the cut was implemented at the least
profitable fields. By the end of 2020, production stepped up sequentially by approximately 100 thousand barrels per day
as compared to the May level. Due to the agreement crude oil production was also cut at some of our international projects.
For example, production at the West Qurna-2 project in Iraq was 90 thousand barrels per day below its capacity as at the
end of 2020.
Our refining and marketing segment was also affected as demand for jet fuel and motor fuels declined substantially, which
had a negative impact on the benchmark refining margins and sales volumes. We adjusted the product slate and optimized
utilization rates at our refineries starting from the second quarter of 2020 in order to efficiently react to the adverse macro
changes. As a result of optimization, as well as major scheduled maintenance works at several refineries, average daily
refinery throughput volumes in 2020 were approximately 25% lower at our European refineries and approximately 9%
lower at our Russian refineries as compared to 2019.
We also faced a steep decline in the retail sales volumes of motor fuels at our filling stations in Russia and other countries
in April 2020, when volumes were 40% lower compared to April 2019. However, from May 2020 retail sales volumes
started recovering on the back of the recovery in economic activity in different countries and, in the second half of 2020,
reached approximately 94% of the level of the second half of 2019.
The impact of the pandemic on the Group’s financial performance in 2020 is discussed in detail in the below discussion
and analysis. Management expects that as a result of the effects of the pandemic the macroeconomic environment in the
oil and gas industry will remain volatile. Management will continue monitoring the situation closely to ensure prompt
reaction to the rapidly changing environment.
Management believes that the Group is in a solid financial condition and has adequate liquidity with net financial debt
position (excluding lease obligations) of only 122 billion RUB at the end of 2020. This represents an incremental support
for continuous operations and meeting all of the Group’s obligations, as well as adequate financing of the investment
programme.
59
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Key financial and operational results
Q4
2020
Q3 Change,
12 months of
2020 2019
(millions of rubles)
5.1 5,639,401 7,841,246
Change,
%
2020
%
Sales ................................................................................ 1,530,339 1,456,650
(28.1)
(44.4)
(44.1)
(34.5)
(46.1)
EBITDA¹, including ........................................................
Exploration and production segment...........................
Refining, marketing and distribution segment ............
EBITDA¹ net of West Qurna-2 project............................
189,612
166,567
46,649
202,223
151,979
77,638
(6.2)
9.6
(39.9)
(6.9)
687,094 1,236,192
500,081
243,322
893,950
371,642
182,496
196,008
655,098 1,214,502
Profit for the period attributable to LUKOIL
shareholders.....................................................................
Capital expenditures ........................................................
Free cash flow² ................................................................
Free cash flow before changes in working capital ...........
29,435
135,161
85,482
61,252
50,420
112,826
114,623
88,318
(41.6)
19.8
(25.4)
(30.6)
15,175
495,443
281,131
197,954
640,178
449,975
701,869
708,650
(97.6)
10.1
(59.9)
(72.1)
(thousand BOE per day)
Production of hydrocarbons, including our share in
associates and joint ventures............................................
crude oil and natural gas liquids..................................
gas...............................................................................
Refinery throughput at the Group refineries ....................
2,099
1,573
526
1,927
1,545
382
8.9
1.8
37.7
(11.5)
2,117
1,651
466
2,380
1,815
565
(11.1)
(9.0)
(17.5)
(15.0)
1,047
1,183
1,174
1,381
¹ Profit from operating activities before depreciation, depletion and amortization.
² Cash flow from operating activities less capital expenditures.
In the fourth quarter of 2020, compared to the previous quarter, our results were positively impacted by an increase in
international gas production volumes, higher crude oil production volumes, the ruble depreciation, an increase in
international hydrocarbon prices, higher positive export duty lag effect, as well as positive inventory effect at our
refineries. At the same time, these were more than offset by the accounting specifics of our international trading
operations, lower refinery throughput volumes, weaker refining and trading margins.
The dynamics of our results compared to 2019 was largely defined by the impacts of the COVID-19 pandemic, such as a
decrease in international hydrocarbon prices and refining margins, lower hydrocarbon production and refinery throughput
volumes, a decrease in sales volumes at our filling stations, as well as negative export duty lag effect and negative
inventory effect at our refineries. At the same time, our results were supported by the ruble depreciation, higher trading
margin and accounting specifics of our international trading operations and an increase in share of high-margin volumes
in our domestic crude oil production.
As a result, our EBITDA decreased by 6.2% and by 44.4% compared to the third quarter of 2020 and the full year 2019,
respectively.
Stronger ruble as at the fourth quarter end as compared to the beginning of the quarter resulted in a currency exchange
gain of 12 billion RUB in the fourth quarter of 2020 compared to a loss of 27 billion RUB in the third quarter of 2020.
The ruble depreciation in 2020 resulted in a currency exchange loss of 26 billion RUB in 2020, as opposed to a gain of
1 billion RUB in 2019 as a result of the ruble appreciation.
Compared to the third quarter of 2020 and the full year 2019, our depreciation, depletion and amortization expenses
decreased by 12.5% and by 2.3%, respectively. The decrease in the fourth quarter of 2020 was mainly due to positive
effect of an increase in proved developed hydrocarbon reserves at Group’s certain fields at the end of 2020 and consequent
recalculation of depletion of respective fixed assets for the full year, despite an increase in depletion expenses in
Uzbekistan following the recovery of gas production volumes.
Due to a significant deterioration in the macroeconomic environment, the Group recognized impairment loss of property,
plant and equipment and other non-current assets in the total amount of 115 billion RUB during 2020.
In the fourth quarter of 2020, profit attributable to LUKOIL shareholders amounted to 29 billion RUB, compared to profit
in the amount of 50 billion RUB in the third quarter of 2020. In 2020, profit attributable to LUKOIL shareholders
amounted to 15 billion RUB compared to profit in the amount of 640 billion RUB in 2019.
Our capital expenditures increased by 22 billion RUB, or by 19.8%, compared to the third quarter of 2020, and by
45 billion RUB, or by 10.1%, compared to 2019.
Our free cash flow amounted to 85 billion RUB in the fourth quarter of 2020, a decrease of 25.4% compared to the third
quarter of 2020, that was mainly a result of an increase in capital expenditures, as well as the dynamics of the working
capital.
60
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Our free cash flow amounted to 281 billion RUB in 2020, a decrease of 59.9% compared to 2019. Such decline was a
result of a decrease in profitability of our core operations, as well as higher capital expenditures.
The Group’s average daily hydrocarbon production increased by 8.9% compared to the third quarter of 2020 mainly as a
result of gas production recovery in Uzbekistan, as well as due to partial lifting of external limitations on oil production
under the new OPEC+ agreement. In 2020, the Group’s average daily hydrocarbon production decreased by 11.1%
compared to 2019 mainly due to the new OPEC+ agreement and a temporary decrease in gas supplies from Uzbekistan
to China, that were driven by the negative impact of the COVID-19 pandemic on hydrocarbon demand.
Compared to the third quarter of 2020 and full year 2019, average daily throughput volumes at our refineries decreased
by 11.5% and by 15.0%, respectively, mainly due to throughput optimization at some of the Group’s refineries on the
back of lower demand for petroleum products and decline in refining margins due to the COVID-19 pandemic, as well as
scheduled maintenance works.
Changes in the Group structure
In October 2019, a Group company acquired a 5% interest in the Ghasha Concession in the United Arab Emirates from
the Abu Dhabi National Oil Company for approximately 13.8 billion RUB ($214 million).
In the second quarter of 2019, a Group company entered into a contract with New Age M12 Holdings Limited to acquire
a 25% interest in the Marine XII license in the Republic of Congo (Congo-Brazzaville). In September 2019, the
transaction in the amount of 51.4 billion RUB ($768 million) was closed after all the customary conditions, including
approval by the government of the Republic of Congo, were fulfilled.
61
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Main macroeconomic factors affecting our results of operations
International crude oil and refined products prices
The price at which we sell crude oil and refined products is the primary driver of the Group’s revenues.
The dynamics of our realized prices on international markets generally matches the dynamics of commonly used spot
benchmarks such as Brent crude oil price, however our average prices are usually different from such benchmarks due to
different delivery terms, quality mix, as well as specifics of regional markets in case of petroleum product sales.
During 2020, the price for Brent crude oil dropped sharply from $70.0 per barrel in January to $13.2 per barrel in the end
of April as a result of a substantial decrease in global demand for crude oil due to the COVID-19 pandemic. Gradual
recovery of global demand together with the new OPEC+ agreement led to a price increase to $52.0 per barrel by the end
of December. As a result, average price increased by 3.0% compared to the third quarter of 2020, and decreased by 35.0%
compared to 2019.
The following tables show the average crude oil and refined product prices.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(US dollars per barrel)
Brent FOB dated........................................................
Urals crude (average MED and Rotterdam) ..............
44.24
44.31
42.93
43.24
3.0
2.5
41.79
41.39
64.28
63.89
(35.0)
(35.2)
(US dollars per tonne)
Diesel fuel 10 ppm (FOB Rotterdam) .......................
High-octane gasoline (FOB Rotterdam)....................
Naphtha (FOB Rotterdam) ........................................
Jet fuel (FOB Rotterdam)..........................................
Vacuum gas oil (FOB Rotterdam).............................
Marine fuel 0.5% (FOB Rotterdam)..........................
Fuel oil 3.5% (FOB Rotterdam) ................................
Source: Platts, Argus.
364.68
397.03
389.10
376.52
311.54
326.37
255.45
353.88
394.45
372.17
340.70
297.22
296.40
240.35
3.1
0.7
4.5
10.5
4.8
10.1
6.3
367.07
382.61
351.35
361.50
297.95
311.50
221.37
591.28
614.96
501.31
630.10
450.36
451.30
329.97
(37.9)
(37.8)
(29.9)
(42.6)
(33.8)
(31.0)
(32.9)
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(rubles per barrel)
Brent FOB dated........................................................
Urals crude (average MED and Rotterdam) ..............
3,372
3,377
3,158
3,181
6.8
6.2
3,015
2,986
4,161
4,136
(27.5)
(27.8)
(rubles per tonne)
Diesel fuel 10 ppm (FOB Rotterdam) .......................
High-octane gasoline (FOB Rotterdam)....................
Naphtha (FOB Rotterdam) ........................................
Jet fuel (FOB Rotterdam)..........................................
Vacuum gas oil (FOB Rotterdam).............................
Marine fuel 0.5% (FOB Rotterdam)..........................
Fuel oil 3.5% (FOB Rotterdam) ................................
27,797
30,263
29,658
28,700
23,746
24,877
19,471
26,031
29,015
27,377
25,062
21,863
21,803
17,680
6.8
4.3
8.3
14.5
8.6
14.1
10.1
26,483
38,277
39,810
32,453
40,790
29,154
29,215
21,361
(30.8)
(30.7)
(21.9)
(36.1)
(26.3)
(23.1)
(25.2)
27,604
25,349
26,081
21,496
22,473
15,971
Translated to rubles using average exchange rate for the period.
Domestic crude oil and refined products prices
Most of the crude oil in Russia is produced and then refined or exported by vertically integrated oil companies. As a
result, there is no liquid spot market for crude oil in Russia and no publicly available spot price benchmark. Domestic
prices may deviate significantly from export netbacks and they also vary between different regions of Russia driven by
supply-demand balance on regional markets.
Domestic prices for refined products correlate to some extent with export netbacks, but are also materially affected by
supply-demand balance on regional markets.
62
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
The table below represents average domestic wholesale prices for refined products for the respective periods.
Q4
2020
Q3
2020
Change,
%
12 months of
2020 2019
Change,
%
(rubles per tonne)
Diesel fuel .................................................................
High-octane gasoline (Regular).................................
High-octane gasoline (Premium)...............................
Fuel oil ......................................................................
Source: InfoTEK (excluding VAT).
39,226
39,139
40,944
13,889
38,892
42,049
44,292
10,625
0.9
(6.9)
(7.6)
30.7
37,292
40,724
38,243
40,487
14,514
(8.4)
3.9
3.4
39,727
41,866
10,990
(24.3)
Changes in ruble exchange rate and inflation
A substantial part of our revenue is either denominated in US dollars and euro or correlated to some extent with US dollar
crude oil prices, while most of our costs are settled in Russian rubles. Therefore, a depreciation of the ruble against the
US dollar and euro generally causes our revenues to increase in ruble terms, and vice versa. Ruble inflation also affects
the results of our operations.
The following table provides data on inflation in Russia and change in the ruble-dollar and the ruble-euro exchange rates.
Q4
2020
2.0
Q3
2020
0.2
12 months of
2020 2019
4.9
3.0
Ruble inflation (CPI), %..............................................................................
Ruble to US dollar exchange rate
76.2
79.7
73.9
73.6
70.0
79.7
72.1
61.9
73.9
64.7
69.5
61.9
Average for the period............................................................................
At the beginning of the period ................................................................
At the end of the period ..........................................................................
Ruble to euro exchange rate
90.8
93.0
90.7
86.0
78.7
93.0
82.4
69.3
90.7
72.5
79.5
69.3
Average for the period............................................................................
At the beginning of the period ................................................................
At the end of the period ..........................................................................
Source: CBR, Federal State Statistics Service.
Taxation
Key upstream tax rates. The following tables represent average statutory enacted rates applicable to our upstream
operations in Russia with no taxation incentives:
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(US dollars per tonne)
Mineral extraction tax¹ ..............................................
Export duty on crude oil............................................
131.34
43.21
127.87
44.03
2.7
(1.9)
120.87
45.87
201.40
93.77
(40.0)
(51.1)
¹ Translated from rubles using average exchange rate for the period.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(rubles per tonne)
Mineral extraction tax ...............................................
Export duty on crude oil¹...........................................
10,011
3,294
9,406
3,239
6.4
1.7
8,720
3,309
13,038
6,070
(33.1)
(45.5)
¹ Translated to rubles using average exchange rate for the period.
These rates are linked to international crude oil prices and change in line with them.
Tax manoeuvre. The Russian Government has been implementing the so-called tax manoeuvre in the oil industry, which
involves reduction of export duty rate and increase in the crude oil extraction tax and excise tax rates, as well as an
introduction of a negative excise tax on refinery feedstock.
In 2018, new laws were adopted which came into effect on 1 January 2019. These laws provide for concluding the tax
manoeuvre by 2024 through the gradual reduction of crude oil export duty rate to zero and the equivalent increase in the
mineral extraction tax rate for crude oil. To eliminate the negative effect of export duty reduction on refining margins, a
negative excise on refinery feedstock was introduced. To reduce the sensitivity of domestic prices for motor fuel to
changes in international prices, a so-called damper coefficient was included into the negative excise formula, which also
led to increase in mineral extraction tax rate.
63
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Crude oil extraction tax rate is calculated on a monthly basis. Crude oil extraction tax is payable in rubles per metric
tonne extracted. The tax rate is calculated according to the formula below:
Exchange Rate
(
)
Rate = 919 × Price − 15 ×
– Incentive + 428
261
+ Tax Manoeuvre Factor + Damper Factors,
where Price is a Urals blend price in US dollars per barrel and Exchange Rate is an average ruble exchange rate to US
dollar during the period. The Incentive Factor represents incentives discussed further in this section. The Tax Manoeuvre
Factor is derived as Export duty reduction factor multiplied by the base export duty rate. The two fixed Damper Factors
are applicable when the corresponding components of a negative excise formula are positive. From 2020, a new variable
Damper Factor was added to the formula in addition to the fixed factors. The new factor is linked to the export netbacks
for gasoline and diesel fuel.
The table below sets out key fixed components of the extraction tax formula for crude oil.
1 January to
30 September
2019
1 October to
31 December
2019
2024 and
further
1
2020
0.333
(rubles)
105
2021
0.500
2022
0.667
2023
0.833
Export duty reduction factor..................
0.167
0.167
Damper Factor for gasoline...................
Damper Factor for diesel fuel................
125
110
200
185
105
92
105
92
105
92
105
92
92
Mineral extraction tax on crude oil has the following types of tax incentives applied to our fields and deposits:
.
A special reducing coefficient is applied to the standard tax rate depending on location, size and complexity of
a particular field. This type of incentive with different coefficients is applied to our Yu. Korchagin field located
in the Caspian offshore, a number of fields in the Nenets Autonomous region, as well as to our new small-sized
fields (recoverable reserves less than 5 million tonnes) and fields and deposits with low permeability like
V. Vinogradov, Sredne-Nazymskoye and Imilorskoye fields and Tyumen deposits. Before the end of 2020 the
incentive was applied to our highly depleted fields (more than 80% depletion), the Permian layers of our
Usinskoye field in Timano-Pechora producing high-viscous crude oil as well as our Yaregskoye field producing
extra-viscous crude oil. After the adoption of amendments to the Russian Tax Code in October 2020 these tax
incentives have been cancelled as of 1 January 2021. The cancellation of mineral extraction tax incentives for
our highly depleted fields was followed by allowance of inclusion of the respective license areas into Group 3
of tax on additional income (hereinafter TAI) regime (see below) as of beginning of 2021;
.
A fixed tax rate of 15% of the Urals price is applied to our V. Filanovsky offshore field and other greenfields,
located in the Caspian Sea;
.
.
A fixed tax rate of 30% of the Urals price is applied to our offshore greenfields, located in the Baltic Sea;
A special tax rate is applied to crude oil produced at license areas with TAI regime. For Groups 1 and 4 of TAI
a discount to special tax rate is applied depending on the duration of commercial production at the particular
license area. For highly depleted license areas in Group 3 of TAI a 20% discount is applied to special tax rate
starting from 1 January 2024.
Some of the mineral extraction tax incentives are limited in time or capped by cumulative oil production volumes.
Tax on additional income. Starting from 2019, a tax on additional income from the crude oil and gas condensate
production has been implemented for certain license areas. The TAI rate is set at 50% and is applied to the estimated sales
revenue less actual and estimated costs, where actual costs include both operating expenses and capital expenditures.
Moreover, TAI tax base may be reduced by the historical cumulative losses attributable to the license area. For crude oil
production subject to TAI, a special mineral extraction tax rate formula is applied. The special mineral extraction tax rate
(in US dollars per barrel) equals to 50% of the difference between Urals oil price and $15 less the enacted export duty
rate.
TAI is implemented for five groups of license areas. In Group 1, LUKOIL has nineteen license areas with greenfields in
the Yamal-Nenets Autonomous District, including Pyakyakhinskoye field, and a number of fields in Timan-Pechora. In
Group 3, LUKOIL has eight license areas with brownfields in West Siberia adopted TAI regime as of 1 January 2019, as
well as 105 license areas with depleted reserves in different regions transferred to TAI regime since 1 January 2021. In
Group 4, LUKOIL has two license areas with greenfields in traditional regions (West Siberia). LUKOIL has license areas
neither in Group 2 nor in Group 5 of the TAI regime.
64
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Crude oil export duty rate is denominated in US dollars per tonne of crude oil exported and is calculated by multiplying
the base export duty rate calculated on a monthly basis by the adjusting factor from tables below.
International Urals price
Base export duty rate
Less than, or equal to, $109.5 per tonne ($15 per barrel)
$0 per tonne
Above $109.5 but less than, or equal to, $146.0 per tonne
($20 per barrel)
35% of the difference between the actual price and
$109.5 per tonne (or $0.35 per barrel per each $1 increase in crude
oil price over $15 per barrel)
Above $146.0 but less than, or equal to, $182.5 per tonne
($25 per barrel)
$12.78 per tonne plus 45% of the difference between the actual price
and $146.0 per tonne (or $1.75 plus $0.45 per barrel per each $1
increase in crude oil price over $20 per barrel)
Above $182.5 per tonne ($25 per barrel)
$29.2 per tonne plus 30% of the difference between the actual price
and $182.5 per tonne (or $4 plus $0.3 per barrel per each $1 increase
in crude oil price over $25 per barrel)
2024 and
2019
2020
2021
2022
2023
further
Adjusting factor..............................................................
0.833
0.667
0.500
0.333
0.167
0
The rate for the next month is being based on average Urals price for the period from the 15th day of the previous month
to the 14th day of the current month. This calculation methodology results in the so-called “export duty lag effect,” when
export duty rate lags the oil price changes, which may result in sizeable impact on our financial results in the periods of
high oil price volatility. As a result of the tax manoeuvre, the lag effect will gradually migrate from the export duty to the
mineral extraction tax by 2024.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(US dollars per barrel)
Urals price (Argus)....................................................
Export duty on crude oil .......................................
Mineral extraction tax on crude oil.......................
Net Urals price¹.....................................................
Export duty lag effect.......................................
Mineral extraction tax lag effect.......................
Net Urals price¹ assuming no lag .....................
44.31
5.92
17.99
20.40
0.61
43.24
6.03
17.52
19.69
0.28
2.5
(1.8)
2.7
41.39
6.28
63.89
12.85
27.59
23.45
0.20
(35.2)
(51.1)
(40.0)
(20.9)
-
16.56
18.55
(0.39)
(0.20)
19.14
3.6
>100
>100
1.1
0.31
19.48
0.14
19.27
0.03
23.22
-
(17.6)
(rubles per barrel)²
Urals price (Argus)....................................................
Export duty on crude oil .......................................
Mineral extraction tax on crude oil.......................
Net Urals price¹.....................................................
Export duty lag effect.......................................
Mineral extraction tax lag effect.......................
Net Urals price¹ assuming no lag .....................
3,377
451
1,371
1,555
46
3,181
444
1,288
1,449
21
6.2
1.6
6.4
2,986
4,136
832
1,786
1,518
13
(27.8)
(45.6)
(33.1)
(11.9)
-
453
1,195
1,338
(28)
(14)
1,380
7.3
>100
>100
4.8
23
1,486
10
1,418
2
-
1,503
(8.2)
¹ Urals price net of export duty and mineral extraction tax on crude oil.
² Translated to rubles for Urals and export duty on crude oil using average exchange rate for the period.
Crude oil produced at some of our fields and license areas under special tax regimes is subject to zero export duty. In
particular, a zero rate applies to crude oil of our V. Filanovsky field and other offshore greenfields located in the Caspian
Sea, the offshore greenfields in the Baltic Sea as well as license areas belonging to the Group 1 of the TAI regime.
A reduced rate was applied to crude oil produced at our Yaregskoye field producing extra-viscous crude oil and our
Yu. Korchagin field in the Caspian offshore. In October 2020, amendments to the Russian customs legislation were
adopted, providing for the cancellation of reduced export duty rates applied to crude oil produced at these fields starting
from 1 January 2021.
Crude oil exported to member countries of the Customs Union in the Eurasian Economic Union of Russia, Belarus,
Kazakhstan, Armenia and the Kyrgyz Republic (Customs Union) is not subject to export duties.
65
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Crude oil and refined products exported from Russia are subject to two steps of customs declaration and duty payments:
temporary and complete. A temporary declaration is submitted based on preliminary exports volumes and the duty is paid
in rubles translated from US dollars at the date of the temporary declaration. A complete declaration is submitted after
receiving the actual data on the exported volumes, but no later than six months after the date of the temporary declaration.
The final amount of the export duty is adjusted depending on the actual volumes, the ruble-US dollar exchange rate at the
date of the complete declaration (except for pipeline deliveries for which the exchange rate at the temporary declaration
date is used) and the export duty rate. If temporary and complete declarations are submitted in different reporting periods,
the final amount of the export duty is adjusted in the period of submission of the complete declaration. The high volatility
of the ruble-dollar exchange rates may lead to significant adjustments. For the purposes of the IFRS consolidated financial
statements, data from temporary declarations at the reporting period end is translated to rubles from US dollars using the
period-end exchange rate.
Tax incentives
The table below illustrates the impact of tax incentives on taxation of crude oil production from different fields and
deposits in our portfolio calculated at $50 per barrel Urals price and zero damper factors.
Mineral
extraction
tax Export duty
(in US dollars per barrel)
As %
of oil price
Total
Under 2020 tax formulas
21.6
7.7
29.3
58.6
Standard ..........................................................................................
Yu. Korchagin field ..........................................................................
V. Filanovsky field ...........................................................................
D41 field...........................................................................................
V. Vinogradov and Imilorskoye fields..............................................
New fields with reserves below 5 million tonnes..............................
Tyumen deposits...............................................................................
7.5
7.5
15.0
0.0
0.0
0.0
7.7
7.7
7.7
7.5
7.5
15.0
15.0
15.0
30.0
13.4
21.1
42.1
15.2–21.6
19.5
22.9–29.3
27.2
45.7–58.6
54.5
Natural gas extraction tax rate is calculated using a special formula depending on average regulated wholesale natural
gas price in Russia, Urals price, the share of gas production in total hydrocarbon production at particular license area,
regional location and complexity of particular gas field. Reinjected natural gas and associated petroleum gas are subject
to zero extraction tax rate.
Gas produced from our two major fields in Russia, Nakhodkinskoye and Pyakyakhinskoye, is taxed at the rates subject
to application of reducing coefficients due to the fields’ geographical location and the depth of reservoir.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(US dollars per thousand cubic meters)¹
Nakhodkinskoye field ...............................................
Pyakyakhinskoye field ..............................................
5.42
7.05
5.56
7.06
(2.5)
(0.1)
5.63
6.97
5.48
8.26
2.7
(15.6)
¹ Translated from rubles using average exchange rate for the period.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(rubles per thousand cubic meters)
Nakhodkinskoye field ...............................................
Pyakyakhinskoye field ..............................................
413
537
409
519
1.0
3.5
406
503
355
535
14.4
(6.0)
Export duty rates on refined products are calculated by multiplying the enacted crude oil export duty rate by a
coefficient according to the table below.
2019 and further
Multiplier for:
Gasolines, diesel fuel and other light and middle distillates.........................................................................
Straight-run gasoline ....................................................................................................................................
Fuel oil .........................................................................................................................................................
0.30
0.55
1.00
Refined products exported to member countries of the Customs Union are not subject to export duties.
66
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Excise taxes on refined products. The responsibility to pay excises on refined products in Russia is imposed on refined
product producers (except for straight-run gasoline). Only domestic sales volumes are subject to excises.
Excise tax expense on straight-run gasoline used as a petrochemical feedstock is reimbursed with a coefficient of 1.7, and
excise tax expense on middle distillates used as refinery feedstock, bunker fuel or fuel at power plants is reimbursed in
double amount. Since 1 April 2020, the fixed excise tax rate for middle distillates was replaced with formula-based rate
linked to the level of damper for diesel fuel.
In other countries where the Group operates, excise taxes are paid by either producers or retailers depending on the local
legislation.
Excise rates on motor fuels in Russia are tied to the ecological class of fuel. Average excise tax rates for the periods
considered are listed below.
Q4
2020
Q3
2020
Change,
%
12 months of
2020 2019
Change,
%
(rubles per tonne)
Gasoline (below Euro-5) ...........................................
Gasoline (Euro-5)......................................................
Diesel fuel .................................................................
Motor oils..................................................................
Middle distillates*.....................................................
13,100
12,752
8,835
5,616
13,766
13,100
12,752
8,835
5,616
15,075
-
-
-
-
13,100
12,752
8,835
5,616
14,524
13,100
12,314
8,541
5,400
9,241
-
3.6
3.4
4.0
57.2
(8.7)
*Excise tax rates for middle distillates after 1 April 2020 are calculated by formula.
Established excise tax rates are listed below.
2023
14,736
14,345
9,938
2020
2021
2022
14,169
13,793
9,556
Gasoline (below Euro-5) ................................
Gasoline (Euro-5)...........................................
Diesel fuel ......................................................
Motor oils.......................................................
13,100
12,752
8,835
13,624
13,262
9,188
6,075
6,318
5,616
5,841
Negative excise tax on refinery feedstock
The reduction of export duties on crude oil in the course of the tax manoeuvre in Russia leads to an increase in feedstock
costs for the domestic refineries. This negative effect is partially compensated by a decrease in export duties on refined
products, with the remaining part of the negative effect being fully offset by the negative excise tax implemented from
1 January 2019. The negative excise tax is payable by the Government to the refineries. The negative excise tax rate is
calculated separately for each refinery based on the average Urals crude oil price and refinery slate during the month. Our
Ukhta refinery benefits from a special uplift regional coefficient of 1.3 applied to the negative excise tax.
The negative excise tax formula also includes the damper coefficient for gasoline and diesel fuel sold on the domestic
market and starting from 2021 also includes an investment factor. The damper coefficient is calculated by multiplying
the corresponding Compensation Coefficients and a difference between gasoline and diesel fuel export netbacks at North-
Western Russia delivery basis and corresponding Fixed benchmarks. When the damper coefficient is positive, it is payable
by the Government to the refinery, and vice versa.
The investment factor is a multiplier to the negative excise tax excluding the damper, which is applicable when a special
agreement is signed with the Government providing for at least 60 billion RUB of investments into development of а
refinery. The amount of the multiplier depends on the refinery’s geography.
The Fixed benchmarks and Compensation Coefficients are presented in the tables below:
1 January to
1 July to
30 June 31 December
2019
2019
2020
2021
2022
2023
2024
(rubles per tonne)
Fixed benchmark for gasoline................................
Fixed benchmark for diesel fuel ............................
56,000
50,000
51,000 53,600 56,300 59,000 62,000 65,000
46,000 48,300 50,700 53,250 56,000 58,700
1 January to
30 June
2019
1 July to
31 December
2019
2020 and
further
0.68
Compensation coefficient for gasoline ...........................................................
Compensation coefficient for diesel fuel ........................................................
0.60
0.75
0.60
0.70
0.65
67
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
The following tables present the average enacted damper coefficients for the respective periods:
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(US dollars per tonne)¹
Gasoline ....................................................................
Diesel fuel .................................................................
(45.90)
(54.85)
(61.19)
(74.63)
(25.0)
(26.5)
(89.65)
(78.06)
56.52
72.93
-
-
¹ Translated from rubles using average exchange rate for the period.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(rubles per tonne)
Gasoline ....................................................................
Diesel fuel .................................................................
(3,498)
(4,181)
(4,501)
(5,490)
(22.3)
(23.8)
(6,468)
(5,632)
3,659
4,721
-
-
Income tax. Operations in the Russian Federation are subject to a 20% income tax rate. For the period from 2017 till
2024 (inclusive) a Federal income tax rate is set as 3.0% and a regional income tax rate is set as 17.0%. Regional income
tax rate may be reduced for certain categories of taxpayers by the laws of constituent entities of the Russian Federation,
however certain restrictions apply on the application of the reduced regional rates.
The Company and its Russian subsidiaries file income tax returns in Russia. A number of Group companies in Russia are
paying income tax as a consolidated taxpayers’ group (“CTG”). This allows taxpayers to offset taxable losses generated
by certain participants of a CTG against taxable profits of other participants of the CTG.
The Group’s foreign operations are subject to taxes at the tax rates applicable to the jurisdictions in which they operate.
Transportation tariffs on crude oil, natural gas and refined products in Russia
Many of our production assets are located relatively far from our customers. As a result, transportation tariffs are an
important factor affecting our profitability.
Сrude oil produced at our fields in Russia is transported to refineries and exported primarily through the trunk oil pipeline
system of the state-owned company, Transneft. In some cases, crude oil is also shipped via railway infrastructure of the
state-owned company, Russian Railways.
Refined products produced at our Russian refineries are transported primarily by railway (Russian Railways) and the
pipeline system of Transnefteproduct, a subsidiary of Transneft.
Gas that is not sold at the wellhead is transported through the Unified Gas Supply System owned and operated by
Gazprom.
Transneft, Russian Railways and Gazprom are state-controlled natural transportation infrastructure monopolies and their
tariffs are regulated by the Federal Antimonopoly Service of Russia and set in rubles.
The following table sets forth the changes in the average tariffs charged by the state-controlled transportation service
providers in Russia.
Q4 2020 to
Q3 2020
0.0%
12 months of 2020 to
12 months of 2019
3.4%
Transneft (crude oil)........................................................................................
Russian Railways (crude oil and refined products)..........................................
0.0%
3.5%
68
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Reserves base
The tables below summarize the net proved reserves of our consolidated subsidiaries and our share in net proved reserves
of our associates and joint ventures under the standards of the US Securities and Exchange Commission (until the
economic limit of commercial production is reached) that have been derived from our reserve reports audited by Miller
and Lents Ltd, our independent reservoir engineers, at 31 December 2020 and 2019.
Changes in 2020
Extensions,
discoveries and
Revision of
31 December
2020 Production(1)
changes in
structure
previous 31 December
(hydrocarbons, millions of BOE)
estimates
(265)
60
2019
8,185
2,414
2,247
1,173
176
West Siberia .....................................................
Timan-Pechora .................................................
Ural region .......................................................
Volga region .....................................................
Other in Russia .................................................
Outside Russia ..................................................
Proved oil and gas reserves ............................
Probable oil and gas reserves ........................
Possible oil and gas reserves ..........................
¹ Gas production shown before own consumption.
7,884
2,403
2,156
1,116
163
1,663
15,385
5,581
2,802
(319)
(113)
(124)
(90)
(11)
(118)
(775)
284
42
93
40
3
(60)
(8)
(5)
2
464
205
(73)
1,574
15,769
6,217
3,000
Changes in 2020
Extensions,
discoveries and
Revision of
31 December
2020
changes in
structure
previous 31 December
(crude oil, millions of barrels)
Production
(245)
(102)
(115)
(80)
estimates
(271)
52
2019
6,070
2,289
2,112
810
West Siberia ....................................................
Timan-Pechora ................................................
Ural region .......................................................
Volga region ....................................................
Other in Russia ................................................
Outside Russia .................................................
Proved oil reserves .........................................
Probable oil reserves ....................................
Possible oil reserves .......................................
5,789
2,278
2,030
756
160
679
11,692
4,105
2,314
235
39
88
36
3
(55)
(10)
(11)
(51)
(604)
(6)
174
2
403
168
560
(122)
12,015
4,671
2,506
Changes in 2020
Extensions,
discoveries and
Revision of
31 December
changes in
structure
previous 31 December
2020 Production(1)
estimates
2019
12,688
748
(gas, billions of cubic feet)
West Siberia ....................................................
Timan-Pechora ................................................
Ural region .......................................................
Volga region ....................................................
Other in Russia ................................................
Outside Russia .................................................
Proved gas reserves .......................................
Probable gas reserves ....................................
Possible gas reserves ......................................
¹ Gas production shown before own consumption.
12,572
(444)
(65)
(51)
(58)
(2)
289
20
31
25
-
39
47
750
754
2,159
16
(38)
10
4
812
2,182
14
5,905
22,156
8,861
2,927
(404)
(1,024)
-
226
288
6,083
22,527
9,275
2,966
365
The Company’s proved hydrocarbon reserves at 31 December 2020 amounted to 15.4 billion BOE and comprised of
11.7 billion barrels of crude oil and 22.2 trillion cubic feet of gas.
As a result of geological exploration and production drilling conducted in 2020, LUKOIL added 464 million barrels of
oil equivalent to proved reserves. The largest contribution was made by the assets in West Siberia, Ural region and Russian
sector of the Caspian Sea.
Optimization of development systems and wellwork programmes at existing fields, as well as conversion of contingent
resources to reserves added 258 million barrels of oil equivalent to proved reserves, which was more than offset by a 34%
decrease in annual average oil price used for reserves estimate.
69
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Segments highlights
Our operations are divided into three main business segments:
.
Exploration and Production – which includes our exploration, development and production operations
related to crude oil and gas. These activities are primarily located within Russia, with additional activities in
Azerbaijan, Kazakhstan, Uzbekistan, the Middle East, Northern and Western Africa, Norway, Romania and
Mexico.
.
.
Refining, Marketing and Distribution – which includes refining, petrochemical and transport operations,
marketing and trading of crude oil, natural gas and refined products, generation, transportation and sales of
electricity, heat and related services.
Corporate and other – which includes operations related to our headquarters (which coordinates operations
of the Group companies), finance activities, and certain other activities, that are not primary to the Group.
Each of our segments is dependent on the others, with a portion of the revenues of one segment being a part of the costs
of the others. In particular, our Refining, Marketing and Distribution segment purchases crude oil from our Exploration
and Production segment. As a result of certain factors considered in the “Domestic crude oil and refined products prices”
section on p. 62, benchmark crude oil market prices in Russia cannot be determined with certainty. Therefore, the prices
set for inter-segment purchases of crude oil reflect a combination of market factors, primarily international crude oil
market prices, transportation costs, regional market conditions, the cost of crude oil refining and other factors. We present
the financial data for each segment in Note 33 “Segment information” to our consolidated financial statements.
Exploration and production
The following table summarizes key figures on our Exploration and production segment:
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
EBITDA....................................................................
in Russia...........................................................
outside Russia and Iraq ....................................
in Iraq...............................................................
166,567
147,964
11,487
7,116
151,979
136,108
9,656
9.6
8.7
19.0
14.5
500,081
893,950
729,077
143,183
21,690
(44.1)
(42.2)
(67.5)
47.5
421,573
46,512
31,996
6,215
Hydrocarbon extraction expenses..............................
in Russia...........................................................
outside Russia and Iraq ....................................
in Iraq...............................................................
51,037
39,532
6,567
46,670
37,552
5,297
9.4
5.3
24.0
29.2
198,911
158,328
23,371
17,212
210,867
170,590
23,267
17,010
(5.7)
(7.2)
0.4
4,938
3,821
1.2
(rubles per BOE)
Hydrocarbon unit extraction expenses (excluding
Iraq)...........................................................................
in Russia...........................................................
outside Russia and Iraq ....................................
249
251
240
254
241
404
(1.8)
4.0
(40.6)
247
243
282
232
237
200
6.4
2.2
41.3
(US dollars per BOE)
Hydrocarbon unit extraction expenses (excluding
Iraq)...........................................................................
in Russia...........................................................
outside Russia and Iraq ....................................
3.27
3.29
3.15
3.45
3.28
5.50
(5.2)
0.3
(42.7)
3.42
3.36
3.91
3.59
3.67
3.09
(4.5)
(8.3)
26.3
Our upstream EBITDA increased by 9.6% compared to the third quarter of 2020. In Russia, the increase was mainly a
result of the effect of the ruble depreciation, higher crude oil prices, higher positive export duty lag effect, as well as
higher crude oil production volumes, while an increase in operating expenses was a restraining factor. Outside Russia and
Iraq, our EBITDA increased mainly as a result of an increased gas production volumes in Uzbekistan on the back of a
recovery of demand for Uzbek gas from China. This was also supported by an increase in crude oil production volumes,
the effect of the ruble depreciation and an increase in international hydrocarbon prices.
Compared to 2019, our upstream EBITDA decreased by 44.1%. In Russia, the decrease was mainly due to lower crude
oil prices, negative export duty lag effect, and crude oil production cut due to the new OPEC+ agreement, that was
partially offset by the ruble depreciation, lower operating expenses and bigger share of high-margin volumes in crude oil
production. Outside Russia and Iraq, our upstream EBITDA decreased mainly owing to a decrease in international
hydrocarbon prices and gas production volumes in Uzbekistan. The weaker ruble and higher volumes of crude oil
production outside Russia and Iraq partially offset the impact of these negative factors.
70
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
The dynamics of EBITDA of the West Qurna-2 project was mainly a result of changes in cost compensation.
The following table summarizes our hydrocarbon production by major regions.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(thousand BOE per day)
Crude oil and natural gas liquids
Consolidated subsidiaries
West Siberia.....................................................
Timan-Pechora.................................................
Ural region .......................................................
Volga region.....................................................
Other in Russia.................................................
Total in Russia......................................................
Iraq¹..................................................................
Other outside Russia ........................................
Total outside Russia..............................................
Total consolidated subsidiaries..........................
Our share in associates
641
250
314
209
27
1,441
34
57
91
1,532
620
255
304
212
29
1,420
42
44
86
1,506
3.4
(2.0)
3.3
(1.4)
(6.9)
1.5
(19.0)
29.5
5.8
669
274
313
217
29
1,502
53
53
106
1,608
765
317
334
235
32
1,683
30
52
82
1,765
(12.5)
(13.6)
(6.3)
(7.7)
(9.4)
(10.8)
76.7
1.9
29.3
(8.9)
1.7
in Russia...........................................................
outside Russia ..................................................
Total share in production of associates .............
Total crude oil and natural gas liquids..................
11
30
41
10
29
39
10.0
3.4
5.1
1.8
11
32
43
13
37
50
(15.4)
(13.5)
(14.0)
(9.0)
1,573
1,545
1,651
1,815
Natural and petroleum gas²
Consolidated subsidiaries
West Siberia.................................................
Timan-Pechora ............................................
Ural region...................................................
Volga region................................................
Other in Russia ............................................
Total in Russia .................................................
Uzbekistan...................................................
Other outside Russia....................................
Total outside Russia .........................................
Total consolidated subsidiaries..........................
Share in associates
194
28
26
25
0
273
191
50
241
514
200
27
21
25
0
273
58
40
98
371
(3.0)
3.7
23.8
-
-
-
>100
25.0
>100
38.5
203
29
23
26
0
281
128
46
174
455
201
33
23
28
1
286
228
40
268
554
1.0
(12.1)
-
(7.1)
(100.0)
(1.7)
(43.9)
15.0
(35.1)
(17.9)
in Russia...........................................................
outside Russia ..................................................
Total share in production of associates .............
Total natural and petroleum gas............................
2
10
12
2
9
11
97.8
(2.0)
9.2
1
10
11
1
10
11
28.9
(4.3)
(0.3)
(17.5)
526
382
37.7
466
565
Total daily hydrocarbon production (excluding
the West Qurna-2 project)......................................
2,065
2,099
1,885
1,927
9.5
8.9
2,064
2,117
2,350
2,380
(12.2)
(11.1)
Total daily hydrocarbon production......................
Including natural gas liquids produced at the gas
processing plants .......................................................
39
34
15.3
39
44
(11.6)
¹ Compensation crude oil related to the Group.
² Natural and petroleum gas production excluding flaring, reinjected gas and gas used in production of natural gas liquids.
71
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Crude oil production by major regions is presented in the table below.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(thousands of tonnes)
West Siberia ..............................................................
Timan-Pechora..........................................................
Ural region ................................................................
Volga region..............................................................
Other in Russia..........................................................
Crude oil produced in Russia ....................................
7,802
3,335
3,664
2,509
353
7,558
3,275
3,554
2,531
374
3.2
1.8
3.1
(0.9)
(5.6)
2.1
32,448
14,102
14,565
10,339
1,486
36,999
16,099
15,527
11,207
1,626
(12.3)
(12.4)
(6.2)
(7.7)
(8.6)
17,663
17,292
72,940
81,458
(10.5)
Iraq¹...........................................................................
Other outside Russia..................................................
Crude oil produced outside Russia ............................
463
605
1,068
565
496
1,061
(18.1)
22.0
0.7
2,843
2,256
5,099
1,616
2,110
3,726
75.9
6.9
36.8
Total crude oil produced by consolidated
subsidiaries...............................................................
18,731
18,353
2.1
78,039
85,184
(8.4)
Our share in crude oil produced by associates:
in Russia....................................................................
outside Russia............................................................
138
349
124
338
11.3
3.3
519
1,491
610
1,694
(14.9)
(12.0)
Total crude oil produced.........................................
19,218
18,815
2.1
80,049
87,488
(8.5)
¹ Compensation crude oil related to the Group.
Our main oil producing region is West Siberia where we produced 41.7% and 41.6% of our crude oil in the fourth
quarter and the full year 2020 (41.2% in the third quarter of 2020 and 43.4% in 2019). Our crude oil production increased
by 2.1% compared to the third quarter of 2020, and decreased by 8.5% compared to 2019.
The dynamics of our crude oil production volumes in Russia since the beginning of 2017 has been driven by external
limitations due to an agreement of OPEC and some of the non-OPEC countries, including Russia, (the OPEC+ countries)
to cap production levels in order to stabilize the global crude oil market. In December 2018, the OPEC+ countries agreed
to decrease crude oil production relative to October 2018 levels until June 2019, which subsequently was prolonged until
March 2020. Following these agreements, the Group limited production in its traditional regions (West Siberia, Timan-
Pechora, and Ural) at the least-productive fields and fields with high water-cuts.
In April 2020, OPEC+ countries entered into a new agreement to reduce their collective output by 9.7 million barrels per
day starting from 1 May 2020 as a response to a dramatic contraction in demand for crude oil due to the COVID-19
pandemic. The agreement expires at the end of April 2022. Initially it provided for stepped increases in crude oil
production from August 2020 and January 2021, but this schedule has been adjusted depending on the market situation.
Russia committed to reduce its crude oil production to 8.5 million barrels per day from May 2020 with further increases
according to the agreement. Due to the agreement, from May 2020, the Group reduced its crude oil production in Russia
by approximately 310 thousand barrels per day, or by 19%, as compared to the average daily crude oil production level
in the first quarter of 2020. The Group then increased crude oil production in Russia by approximately 20 thousand barrels
per day in July and incrementally by approximately 60 thousand barrels per day in August. By the end of 2020 crude oil
production in Russia was gradually increased by approximately 100 thousand barrels per day as compared to the May
level.
The new OPEC+ agreement also led to limitations on oil production by the Group at certain international projects.
Despite a sharp decrease in oil prices and external limitations on production volumes, the active development of the
priority projects continued. In particular, in West Siberia aggregate crude oil and gas condensate production in 2020 at
the V. Vinogradov, Imilorskoye, Sredne-Nazymskoye and Pyakyakhinskoye fields increased by 20.4% year-on-year and
exceeded 4.2 million tonnes.
72
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
In 2020, high viscosity oil production at the Yaregskoye field and Permian reservoir of the Usinskoye field increased by
6.2% year-on-year, to 5.2 million tonnes.
Implementation of drilling programs at the V. Filanovsky and Yu. Korchagin fields in the Caspian Sea allowed to maintain
production at project levels. In 2020, total oil and gas condensate production totaled 7.4 million tonnes. The V.Grayfer
field development continues: jackets have been installed in the Caspian Sea for the fixed ice-resistant platform and
accommodation platform, topsides of both platforms are being built at the shipyards.
Gas production (excluding flaring, reinjected gas and gas used in production of natural gas liquids) by major regions is
presented in the table below.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of cubic meters)
West Siberia, including: ............................................
Nakhodkinskoye field ......................................
Pyakyakhinskoye field .....................................
Other fields.......................................................
Timan-Pechora..........................................................
Ural region ................................................................
Volga region..............................................................
Other in Russia..........................................................
Gas produced in Russia.............................................
3,038
1,296
880
862
434
407
388
2
3,118
1,355
902
861
415
336
394
4
(2.6)
(4.4)
(2.4)
0.1
12,592
5,376
3,599
3,617
1,810
1,451
1,593
17
12,492
4,848
3,433
4,211
2,050
1,432
1,711
24
0.8
10.9
4.8
(14.1)
(11.7)
1.3
(6.9)
(29.2)
(1.4)
4.6
21.1
(1.5)
(50.0)
-
4,269
4,267
17,463
17,709
Uzbekistan.................................................................
Other outside Russia..................................................
Gas produced outside Russia.....................................
2,994
765
3,759
910
622
1,532
>100
23.0
>100
7,947
2,861
10,808
14,130
2,478
16,608
(43.8)
15.5
(34.9)
Total gas produced by consolidated subsidiaries..
8,028
5,799
38.4
28,271
34,317
(17.6)
Our share in gas produced by associates:
in Russia....................................................................
outside Russia............................................................
40
157
32
138
25.0
13.8
115
619
88
641
30.7
(3.4)
Total gas produced..................................................
8,225
5,969
37.8
29,005
35,046
(17.2)
In the fourth quarter and the full year 2020, LUKOIL Group's gas production was 8.2 billion cubic meters and 29.0 billion
cubic meters, respectively, which was 37.8% higher quarter-on-quarter, and 17.2% lower year-on-year. In Russia, our
major gas production region is West Siberia (Bolshekhetskaya depression), where gas is produced from the
Nakhodkinskoe and Pyakyakhinskoe fields. Our gas production in Russia did not change significantly compared to the
third quarter of 2020, and decreased by 1.4% compared to 2019 due to lower associated petroleum gas production that
followed the crude oil production cut. Outside Russia, the main gas production region is Uzbekistan where we have shares
in two PSAs. Our international gas production (including our share in associates’ production) increased by 134.5%
quarter-on-quarter as a result of a recovery of gas production in Uzbekistan, and decreased by 33.8% year-on-year, mainly
due to temporarily lower demand from China for gas produced in Uzbekistan amid the COVID-19 pandemic.
West Qurna-2 project
The West Qurna-2 field in Iraq is developed under the service contract, signed in January 2010. In May 2018, a Group
company and Iraqi party signed a new field development plan, according to which, crude oil production is planned to
increase to 800 thousand barrels per day. Starting from 1 May 2020, crude oil production at the field was reduced
following the request from the Iraqi government due to the new OPEC+ agreement. As of the end of 2020, production at
the field was approximately 90 thousand barrels per day below its capacity.
Accounting for the cost compensation within the West Qurna-2 project in our consolidated statement of financial position
and consolidated statement of profit or loss and other comprehensive income is as follows.
Capital expenditures are recognized in Property, plant and equipment. Extraction expenses are recognized in Operating
expenses in respect of all the volume of crude oil production at the field regardless of the volume of compensation crude
oil the Group is eligible for. As the compensation revenue is recognized, capitalized costs are amortized.
73
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
There are two steps of revenue recognition:
.
The Iraqi party, on a quarterly basis, approves invoice for cost recovery and remuneration fee for which the
Group is eligible for in the reporting period. Amount of the invoice depends on crude oil production volumes
during the period and amount of costs claimed for reimbursement. Approved invoice amount for the reporting
quarter is recognized in crude oil sales revenue.
.
Based on the approved invoices, the Iraqi party arranges schedule of crude oil shipments against its liability for
cost compensation and remuneration. As this crude oil is actually shipped, its cost is recognized at current market
price in Cost of purchased crude oil, gas and products. Further, revenue from sales of this crude oil, or products
from its refining, is recognized in Sales. Unsold crude oil and refined products are recognized in Inventories.
The following table summarizes data on capital and operating costs incurred, compensation crude oil received, costs yet
unrecovered and remuneration fee.
Сosts
incurred¹
9,229
Remunera-
tion fee
548
Crude oil Crude oil to
(millions of US dollars)
received
9,242
626
be received
Cumulative at 31 December 2019 .....................................................
Change in 2020 .................................................................................
Cumulative at 31 December 2020...................................................
¹ Including prepayments.
535
50
549
9,778
127
675
9,868
585
The West Qurna-2 project summary is presented below:
Q4
2020
(thousand
barrels)
28,783
Q3
2020
Change, %
(thousand (thousand
(thousand
tonnes)
3,948
tonnes)
4,208
barrels)
27,002
Total production........................................................
6.6
6.6
Production related to cost compensation and
remuneration .............................................................
Shipment of compensation crude oil¹........................
3,168
3,726
463
545
3,864
5,572
565
814
(18.1)
(33.0)
(18.1)
(33.0)
(millions (millions of
(millions (millions of
of rubles) US dollars) of rubles) US dollars)
Cost compensation ....................................................
Remuneration fee ......................................................
10,788
1,894
12,682
142
25
167
8,441
1,409
9,850
114
19
133
27.8
34.4
28.8
24.6
31.6
25.6
Cost of compensation crude oil, received as liability
settlement (included in Cost of purchased crude oil,
gas and products)¹ .....................................................
Extraction expenses...................................................
Depreciation, depletion and amortization..................
EBITDA....................................................................
11,994
4,938
5,940
7,116
157
65
78
17,193
3,821
4,678
6,215
234
52
63
(30.2)
29.2
27.0
14.5
(32.9)
25.0
23.8
9.4
93
85
¹ This crude oil is sold to third party customers or delivered to our refineries. After realization of these products, respective sales
revenues are recognized.
74
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
12 months of
2020
(thousand
barrels)
2019
Change, %
(thousand (thousand
(thousand
tonnes)
20,860
tonnes)
18,172
barrels)
142,684
Total production........................................................
124,295
(12.9)
(12.9)
Production related to cost compensation and
remuneration .............................................................
Shipment of compensation crude oil¹........................
19,447
18,996
2,843
2,777
11,054
9,412
1,616
1,376
75.9
>100
75.9
>100
(millions (millions of
(millions (millions of
of rubles) US dollars) of rubles) US dollars)
Cost compensation ....................................................
Remuneration fee ......................................................
42,604
7,694
50,298
597
107
704
35,836
8,023
43,859
554
124
678
18.9
(4.1)
14.7
7.8
(13.7)
3.8
Cost of compensation crude oil, received as liability
settlement (included in Cost of purchased crude oil,
gas and products)¹ .....................................................
Extraction expenses...................................................
Depreciation, depletion and amortization..................
EBITDA....................................................................
45,428
17,212
25,630
31,996
626
239
361
450
36,225
17,010
18,950
21,690
560
263
293
334
25.4
1.2
35.3
47.5
11.8
(9.1)
23.2
34.7
¹ This crude oil is sold to third party customers or delivered to our refineries. After realization of these products, respective sales
revenues are recognized.
Refining, marketing and distribution
The following table summarizes key figures on our Refining, marketing and distribution segment:
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
EBITDA....................................................................
in Russia ...............................................................
outside Russia.......................................................
46,649
43,573
3,076
77,638
42,357
35,281
(39.9)
2.9
(91.3)
243,322
180,753
62,569
371,642
301,136
70,506
(34.5)
(40.0)
(11.3)
Refining expenses at the Group refineries.................
in Russia ...............................................................
outside Russia.......................................................
25,563
12,539
13,024
24,165
10,961
13,204
5.8
14.4
(1.4)
92,613
42,614
49,999
96,543
42,555
53,988
(4.1)
0.1
(7.4)
(rubles per tonne)
Unit refining expenses at the Group refineries ..........
in Russia ...............................................................
outside Russia.......................................................
1,945
1,295
3,760
1,628
1,074
2,845
19.5
20.6
32.2
1,580
1,062
2,703
1,404
964
2,195
12.5
10.2
23.1
(US dollars per tonne)
Unit refining expenses at the Group refineries ..........
in Russia ...............................................................
outside Russia.......................................................
25.51
16.99
49.33
22.13
14.60
38.68
15.3
16.4
27.5
21.90
14.73
37.46
21.70
14.90
33.91
0.9
(1.2)
10.5
Our refining, marketing and distribution EBITDA was 39.9% lower than in the third quarter of 2020. At the same time,
in Russia, refining, marketing and distribution EBITDA increased by 2.9% largely due to a seasonal increase in
profitability of our power generation business, positive inventory effect at our refineries, better results of our
petrochemical and retail businesses. This growth was restrained by a decrease in refining margins, higher operating
expenses at refineries and lower refinery throughput volumes. Outside Russia, our refining, marketing and distribution
EBITDA decreased by 91.3% primarily due to the accounting specifics of our international trading operations. Moreover,
our results outside Russia were negatively affected by lower refinery throughput volumes, refining and trading margins
and weaker results of our retail network due to COVID-19 related lockdowns in Europe. The positive inventory effect at
our foreign refineries partially offset the impact of these negative factors.
Compared to 2019, our refining, marketing and distribution EBITDA decreased by 34.5%. In Russia, our downstream
EBITDA decreased largely due to a decline in refining margin, negative inventory effect at our refineries, weaker results
of petrochemical and retail businesses, lower refinery throughput volumes, that was partially offset by optimization of
refinery product slate. Outside Russia, our downstream EBITDA decreased by 11.3%. A decline in benchmark refining
margin and negative inventory effect at our refineries were largely offset by an increase in trading margin, the accounting
specifics of our international trading operations, as well as the ruble depreciation.
75
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Refining and petrochemicals
The following table summarizes key figures for our refining and petrochemical volumes.
Q4
Q3 Change,
12 months of
Change,
2020
2020
%
2020
2019
%
(thousands of tonnes)
Refinery throughput at the Group refineries..............
in Russia ...............................................................
outside Russia, including......................................
crude oil ...........................................................
refined products................................................
Refinery throughput at third party refineries .............
Total refinery throughput.......................................
13,145
9,682
3,463
3,085
378
14,848
10,207
4,641
4,215
426
(11.5)
(5.1)
58,608
40,109
18,499
16,888
1,611
68,746
44,154
24,592
22,673
1,919
(14.7)
(9.2)
(25.4)
(26.8)
(11.3)
(31.7)
(11.5)
(24.8)
(25.5)
(16.1)
(96.7)
(19.7)
28
13,173
41
14,889
146
58,754
4,460
73,206
Production of the Group refineries in Russia¹ ......
diesel fuel..............................................................
motor gasoline ......................................................
fuel oil...................................................................
jet fuel...................................................................
lubricants and components....................................
straight-run gasoline .............................................
vacuum gas oil......................................................
bitumen.................................................................
coke ......................................................................
bunker fuel............................................................
gas products..........................................................
petrochemicals......................................................
other products .......................................................
9,234
3,760
1,479
965
487
255
636
438
145
257
576
68
9,722
4,010
2,104
839
692
202
430
131
275
265
385
90
(5.0)
(6.2)
(29.7)
15.0
(29.6)
26.2
47.9
>100
(47.3)
(3.0)
38,090
16,084
7,076
3,142
2,182
923
2,458
589
904
1,108
2,022
307
298
997
41,831
16,532
7,864
4,657
2,843
963
2,655
332
908
1,072
1,546
317
392
1,750
(8.9)
(2.7)
(10.0)
(32.5)
(23.3)
(4.2)
(7.4)
77.4
(0.4)
3.4
30.8
(3.2)
(24.0)
(43.0)
49.6
(24.4)
(35.4)
(47.0)
53
115
82
217
Production of the Group refineries outside
Russia .......................................................................
diesel fuel..............................................................
motor gasoline ......................................................
fuel oil...................................................................
jet fuel...................................................................
straight-run gasoline .............................................
coke ......................................................................
bunker fuel............................................................
gas products..........................................................
petrochemicals......................................................
other products .......................................................
Refined products produced by the Group.............
Refined products produced at third party refineries ..
Total refined products produced............................
3,163
1,599
608
77
127
449
24
116
88
11
4,246
2,146
1,064
193
86
284
16
103
122
11
(25.5)
(25.5)
(42.9)
(60.1)
47.7
58.1
50.0
12.6
(27.9)
-
16,874
8,334
3,778
754
539
1,616
76
23,250
10,570
5,065
2,121
1,149
2,285
107
(27.4)
(21.2)
(25.4)
(64.5)
(53.1)
(29.3)
(29.0)
-
(21.4)
4.7
(32.0)
(15.5)
(96.7)
(20.5)
438
462
45
832
99
588
43
64
12,397
26
221
(71.0)
(11.2)
(29.7)
(11.3)
1,223
65,081
4,215
69,296
13,968
37
14,005
54,964
139
55,103
12,423
Reference: Net of cross-supplies of refined products
between the Group refineries.....................................
158
455
(65.3)
1,397
1,561
(10.5)
Products produced at petrochemical plants and
facilities ....................................................................
in Russia ...............................................................
outside Russia.......................................................
332
253
79
283
198
85
17.3
27.8
(7.1)
1,228
898
330
1,137
790
347
8.0
13.7
(4.9)
¹ Net of cross-supplies of refined products among the Group.
In the fourth quarter and the full year 2020, refinery throughput at the Group refineries was 13.1 million tonnes and
58.6 million tonnes, respectively, which is 11.5% lower quarter-on-quarter and 14.7% lower year-on-year. The decline
was attributable to throughput optimization at some of the Group’s refineries on the back of lower demand for petroleum
products and decline in refining margins due to the COVID-19 pandemic, as well as to scheduled maintenance works.
In the fourth quarter of 2020, refinery throughput decreased by 5.1% in Russia mainly due to scheduled maintenance
works at Volgograd and Nizhny Novgorod refineries, and decreased by 25.4% outside Russia, mainly due to scheduled
maintenance works and throughput optimization at refineries in Italy and Bulgaria.
76
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
In 2020, refinery throughput in Russia was 9.2% lower year-on-year due to scheduled maintenance works and throughput
optimization at refineries. Our refinery throughput in Europe was 24.8% lower year-on-year due to scheduled maintenance
works at refineries in Bulgaria, Italy and the Netherlands, as well as throughput optimization.
In the periods considered, we processed our crude oil at third party refineries in Belarus and Kazakhstan.
In 2016, a Group company entered into a tolling agreement with a Canadian refinery originally valid through 2019.
Subsequently, it was prolonged until 31 August 2022 with modification of certain provisions that changed its substance
from a tolling agreement to a financial arrangement. Therefore, from September 2019, we ceased to recognize throughput
and production costs related to this arrangement. The Group recognizes interest it earns on the financing provided and
administrative fee.
Marketing and trading
In addition to our production, we purchase crude oil in Russia and on international markets. In Russia, we primarily
purchase crude oil from associated producing companies and other producers. Then we either refine or export purchased
crude oil. Crude oil purchased on international markets is used for trading activities, for supplying our international
refineries or for processing at third party refineries.
In Russia, we purchase refined products on occasion, primarily to manage supply chain bottlenecks. Refined products
purchases outside Russia are either traded or supplied to our international refineries and our retail chains.
We undertake trading operations on international markets through our 100% subsidiary LITASCO SA. We use traditional
physical volumes hedging techniques to hedge our trading operations to secure trading margin.
The following table shows the volumes of crude oil purchases by the Group during the periods considered.
Q4
2020
Q3 Change,
12 months of
Change,
%
2020
%
2020
2019
(thousands of tonnes)
Crude oil purchases
In Russia....................................................................
For trading internationally.........................................
For refining internationally .......................................
245
10,807
2,880
85
13,728
3,761
>100
(21.3)
(23.4)
704
51,678
13,241
756
52,299
21,686
(6.9)
(1.2)
(38.9)
Shipment of the West Qurna-2 compensation
crude oil.....................................................................
545
814
(33.0)
2,777
1,376
>100
Total crude oil purchased .......................................
14,477
18,388
(21.3)
68,400
76,117
(10.1)
The table below summarizes figures for our refined products and petrochemicals marketing and trading activities.
Q4
Q3 Change,
12 months of
Change,
2020
2020
%
2020
2019
%
(thousands of tonnes)
Refined products purchases
In Russia....................................................................
For trading internationally.........................................
For refining internationally .......................................
Total refined products purchased .........................
227
14,820
266
114
11,840
392
99.1
25.2
(32.3)
24.0
730
49,455
1,558
920
51,179
2,095
(20.7)
(3.4)
(25.6)
(4.5)
15,313
12,346
51,743
54,194
Petrochemical products purchases
In Russia....................................................................
For trading internationally.........................................
For refining internationally .......................................
Total petrochemical products purchased ..............
34
130
48
36
134
46
(5.6)
(3.1)
4.6
135
606
177
918
39
863
186
>100
(29.7)
(5.0)
212
216
(1.9)
1,088
(15.6)
77
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Exports of crude oil, refined and petrochemical products from Russia by our subsidiaries and export revenues (both
to the Group companies and third parties) are summarized as follows:
Q4
Q3 Change,
12 months of
Change,
2020
2020
%
2020
2019
%
(millions of rubles)
Exports of crude oil to Customs Union .....................
Exports of crude oil beyond Customs Union.............
Total crude oil exports ............................................
11,675
170,215
181,890
12,633
138,690
151,323
(7.6)
22.7
20.2
29,913
584,474
614,387 1,059,975
63,879
996,096
(53.2)
(41.3)
(42.0)
(thousands of tonnes)
Exports of crude oil to Customs Union .....................
Exports of crude oil beyond Customs Union.............
Total crude oil exports ............................................
664
7,371
8,035
664
6,121
6,785
-
1,779
30,330
32,109
2,716
34,378
37,094
(34.5)
(11.8)
(13.4)
20.4
18.4
Exports of crude oil through Transneft,
excluding ESPO pipeline...........................................
ESPO pipeline...........................................................
CPC pipeline .............................................................
4,675
600
1,402
3,268
599
1,341
43.1
0.2
4.5
18,440
1,739
5,317
21,255
1,738
5,281
(13.2)
0.1
0.7
Exports of crude oil through the Group’s
transportation infrastructure ......................................
1,358
1,577
(13.9)
6,613
8,820
(25.0)
Total crude oil exports ............................................
8,035
6,785
18.4
32,109
37,094
(13.4)
Supply of exported crude oil to refineries .............
239
395
(39.5)
%
3,131
3,354
(6.6)
Q4
2020
Q3 Change,
2020
12 months of
2020
Change,
2019
%
(millions of rubles)
Refined and petrochemical products exports........
119,827
89,799
33.4
419,665
623,632
(32.7)
(thousands of tonnes)
Refined products exports
diesel fuel..............................................................
gasoline.................................................................
fuel oil...................................................................
jet fuel ...................................................................
lubricants and components....................................
gas refinery products.............................................
other products .......................................................
Total refined products exports ...............................
2,050
2
744
10
167
146
1,377
4,496
2,227
-
631
2
128
145
629
3,762
(7.9)
-
17.9
>100
30.5
0.7
9,716
654
1,916
19
607
695
10,205
491
1,962
10
629
769
4,663
18,729
(4.8)
33.2
(2.3)
90.0
(3.5)
(9.6)
(7.5)
(4.3)
>100
19.5
4,314
17,921
Total petrochemicals exports..................................
102
110
(7.3)
388
302
28.5
The volume of our crude oil exports from Russia increased by 18.4% compared to the third quarter of 2020 as a result of
lower throughput at our domestic refineries and higher crude oil production volumes, and decreased by 13.4% compared
to 2019 due to crude oil production cut resulting from the new OPEC+ agreement. In the fourth quarter and the full year
2020, we exported 45.5% and 44.0% of our domestic crude oil production (39.2% in the third quarter of 2020 and 45.5%
in 2019), respectively.
The volume of our refined products exports increased by 19.5% compared to the third quarter of 2020 due to a seasonal
decrease in domestic demand, and decreased by 4.3% compared to 2019 due to lower production.
Substantially, we use the Transneft infrastructure to export our crude oil. Nevertheless, a sizeable amount of crude oil is
exported through our own infrastructure that allows us to reduce transportation costs and preserve the premium quality
of crude oil and thus enables to achieve higher netbacks. All the volume of crude oil exported that bypassed Transneft
was routed beyond the Customs Union.
Besides our own infrastructure, we also export the light crude oil through the Caspian Pipeline Consortium and Eastern
Siberia – Pacific Ocean pipelines that also allows us to preserve the premium quality of crude oil and to achieve higher
netbacks compared to traditional export routes.
Priority sales channels. We develop our priority sales channels aiming at increasing our margin on sale of refined
products produced by the Group. In 2020, our retail sales of motor fuels and jet fuel supplies both in and outside Russia
were negatively affected by a decrease in demand due to the consequences of the COVID-19 pandemic.
In the fourth quarter and the full year 2020, we sold 2.3 million tonnes and 9.0 million tonnes of motor fuels via our
domestic retail network, which was 10.3% less compared to the third quarter of 2020 and 9.1% less compared to 2019.
Outside Russia, retail sales decreased by 7.3% compared to the third quarter of 2020 and by 12.6% compared to 2019.
78
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
In the fourth quarter and the full year 2020, our jet fuel deliveries volume net of trading operations amounted to 0.6 million
tonnes and 2.5 million tonnes compared to 0.7 million tonnes in the third quarter of 2020 and 3.4 million tonnes in 2019.
In the fourth quarter and the full year 2020, our bunkering volume net of trading operations amounted to 0.5 million
tonnes and 2.7 million tonnes compared to 0.6 million tonnes in the third quarter of 2020 and 4.3 million tonnes in 2019.
Power generation. We own commercial electricity and heat generation facilities in the Southern regions of European
Russia, Romania and Italy. We also own renewable energy capacity in Russia and abroad. In the fourth quarter and the
full year 2020, our total output of commercial electrical energy was 4.4 billion kWh and 17.1 billion kWh
(3.7 billion kWh in the third quarter of 2020 and 18.3 billion kWh in 2019), and our total output of commercial heat
energy was approximately 3.6 million Gcal and 10.0 million Gcal (0.8 million Gcal in the third quarter of 2020 and
10.1 million Gcal in 2019), respectively.
79
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Financial results
The table below sets forth data from our consolidated statements of profit or loss and other comprehensive income for the
periods indicated.
Q4
2020
Q3 Change,
12 months of
2020 2019
(millions of rubles)
Change,
%
2020
%
Revenues
Sales (including excise and export tariffs).................... 1,530,339 1,456,650
5.1 5,639,401 7,841,246
(28.1)
Costs and other deductions
Operating expenses ......................................................
Cost of purchased crude oil, gas and products..............
Transportation expenses...............................................
Selling, general and administrative expenses ...............
Depreciation, depletion and amortization.....................
Taxes other than income taxes .....................................
Excise and export tariffs...............................................
Exploration expenses....................................................
Profit from operating activities .................................
(113,987) (108,953)
(843,611) (790,660)
4.6 (439,973) (457,710)
6.7 (3,000,916) (4,308,073)
(3.9)
(30.3)
5.1
(71,893)
(56,018)
(61,388)
(45,488)
17.1
23.1
(292,899) (278,798)
(199,027) (197,172)
0.9
(90,558) (103,439)
(148,479) (133,550)
(104,160) (113,950)
(12.5) (405,440) (415,094)
11.2 (569,078) (928,190)
(8.6) (444,300) (425,763)
(2.3)
(38.7)
4.4
(34.6)
(65.7)
(2,579)
(438)
>100
(6,114)
(9,348)
99,054
98,784
0.3
281,654
821,098
Finance income ............................................................
Finance costs................................................................
1,930
(10,853)
3,625
(11,697)
(46.8)
(7.2)
13,051
(44,122)
25,134
(44,356)
(48.1)
(0.5)
Equity share in income of associates and joint
ventures .......................................................................
Foreign exchange gain (loss)........................................
Other expenses .............................................................
Profit before income taxes .........................................
3,017
12,460
(44,790)
60,818
4,029
(27,280)
(1,293)
66,168
(25.1)
-
>100
(8.1)
11,474
(26,110)
(137,160)
98,787
18,246
923
(27,691)
793,354
(37.1)
-
>100
(87.5)
Current income taxes....................................................
Deferred income taxes..................................................
Total income tax expense ...........................................
(19,321)
(11,535)
(30,856)
(17,325)
2,069
(15,256)
11.5
-
>100
(61,362) (144,615)
(20,792) (6,518)
(82,154) (151,133)
(57.6)
>100
(45.6)
Profit for the period ...................................................
29,962
50,912
(41.1)
16,633
642,221
(97.4)
Profit for the period attributable to:
PJSC LUKOIL shareholders ...............................
Non-controlling interests.....................................
29,435
527
50,420
492
(41.6)
7.1
15,175
1,458
640,178
2,043
(97.6)
(28.6)
Earnings per share
Profit for the period attributable to PJSC LUKOIL
shareholders per share of common stock (in Russian
rubles):
Basic ........................................................................
Diluted.....................................................................
45.11
43.38
77.27
74.42
(41.6)
(41.7)
23.31
22.46
963.28
934.73
(97.6)
(97.6)
The analysis of the main financial indicators of the financial statements is provided below.
80
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Sales revenues
Sales breakdown
Q4
2020
Q3 Change,
12 months of
2020 2019
(millions of rubles)
Change,
%
2020
%
Crude oil
Export and sales on international markets other
than Customs Union ................................................
Export and sales to Customs Union ........................
Domestic sales .........................................................
455,450
11,610
4,031
476,913
12,648
8,457
(4.5) 1,838,509 2,575,571
(28.6)
(53.6)
4.4
(8.2)
30,137
23,522
64,890
22,528
(52.3)
471,091
498,018
(5.4) 1,892,168 2,662,989
(28.9)
Cost compensation and remuneration at the West
Qurna-2 project........................................................
12,682
9,850
28.8 50,298 43,859
14.7
483,773
507,868
(4.7) 1,942,466 2,706,848
(28.2)
Refined products
Export and sales on international markets
Wholesales ..........................................................
Retail...................................................................
Domestic sales
661,087
82,813
555,275
85,153
19.1 2,245,940 3,403,202
(34.0)
(12.2)
(2.7)
303,021
345,162
Wholesales ..........................................................
Retail...................................................................
81,085
115,573
940,558
94,013
129,610
864,051
(13.8)
(10.8)
340,320
445,343
443,667
480,048
(23.3)
(7.2)
(28.6)
8.9 3,334,624 4,672,079
Petrochemicals
Export and sales on international markets ...............
Domestic sales .........................................................
14,921
10,474
25,395
13,244
7,356
20,600
12.7
42.4
23.3
57,036
36,386
93,422
91,687
40,971
132,658
(37.8)
(11.2)
(29.6)
Gas
Sales on international markets .................................
Domestic sales .........................................................
30,280
8,190
7,973
8,119
>100
0.9
68,200
32,649
138,997
32,490
(50.9)
0.5
38,470
16,092
>100
100,849
171,487
(41.2)
Sales of energy and related services
Sales on international markets .................................
Domestic sales .........................................................
1,923
15,903
17,826
3,796
10,010
13,806
(49.3)
58.9
29.1
10,451
53,607
64,058
14,604
53,276
67,880
(28.4)
0.6
(5.6)
Other
Export and sales on international markets ...............
Domestic sales .........................................................
13,923
10,394
24,317
22,741
11,492
34,233
(38.8)
(9.6)
(29.0)
63,813
40,169
103,982
48,024
42,270
90,294
32.9
(5.0)
15.2
Total sales............................................................... 1,530,339 1,456,650
5.1 5,639,401 7,841,246
(28.1)
81
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Sales volumes
Q4
2020
Q3 Change,
2020
12 months of
Change,
%
%
2020
2019
(thousands of tonnes)
Crude oil
Export and sales on international markets other
than Customs Union ................................................
Export and sales to Customs Union.........................
Domestic sales.........................................................
18,687
669
190
19,546
20,670
669
449
21,788
(9.6)
-
(57.7)
(10.3)
81,391
1,799
1,415
84,281
2,753
947
(3.4)
(34.7)
49.4
84,605
87,981
(3.8)
Crude oil volumes related to cost compensation
and remuneration at the West Qurna-2 project ........
463
565
(18.1)
2,843
1,616
75.9
20,009
22,353
(10.5)
87,448
89,597
(2.4)
Refined products
Export and sales on international markets
Wholesales ..............................................................
Retail.......................................................................
Domestic sales
21,703
933
19,569
1,006
10.9
(7.3)
80,095
3,667
92,392
4,194
(13.3)
(12.6)
Wholesales ..............................................................
Retail.......................................................................
2,726
2,327
27,689
3,230
2,595
26,400
(15.6)
(10.3)
4.9
12,011
9,032
104,805
14,506
9,935
121,027
(17.2)
(9.1)
(13.4)
Petrochemicals
Export and sales on international markets ...............
Domestic sales.........................................................
284
190
474
295
163
458
(3.7)
16.6
3.5
1,269
771
2,040
1,547
699
2,246
(18.0)
10.3
(9.2)
(millions of cubic meters)
Gas
Sales on international markets.................................
Domestic sales.........................................................
4,223
3,107
7,330
1,616
3,171
4,787
161.3
(2.0)
53.1
11,288
12,777
24,065
15,785
12,942
28,727
(28.5)
(1.3)
(16.2)
Realized average sales prices
Q4
2020
Q3 Change,
12 months of
Change,
%
2020
%
2020
2019
Average realized price on international
markets
Crude oil (beyond Customs Union)¹..
Crude oil (Customs Union) ..............
Refined products
(RUB/barrel)
(RUB/barrel)
3,325
2,368
3,148
2,579
5.6
(8.2)
3,082
2,285
4,169
3,216
(26.1)
(28.9)
Wholesales....................................
Retail.............................................
Petrochemicals ..................................
(RUB/tonne)
(RUB/tonne)
(RUB/tonne)
30,461
88,760
52,539
7,170
28,375
84,645
44,895
4,934
7.3
4.9
17.0
45.3
28,041
82,635
44,946
6,042
36,834
82,299
59,268
8,806
(23.9)
0.4
(24.2)
(31.4)
Gas (excluding royalty) ..................... (RUB/1,000 m3)
Crude oil (beyond Customs Union)¹..
Crude oil (Customs Union) ..............
Refined products
($/barrel)
($/barrel)
43.62
31.06
42.79
35.06
1.9
(11.4)
42.71
31.68
64.40
49.67
(33.7)
(36.2)
Wholesales....................................
Retail.............................................
Petrochemicals ..................................
Gas (excluding royalty) .....................
($/tonne)
($/tonne)
($/tonne)
($/1,000 m3)
400
1,164
689
386
1,151
610
3.6
1.2
12.9
40.3
389
1,145
623
569
1,271
916
(31.7)
(9.9)
(32.0)
(38.4)
94
67
84
136
Average realized price within Russia
Crude oil............................................
Refined products
(RUB/barrel)
2,894
2,570
12.6
2,268
3,245
(30.1)
Wholesales....................................
Retail.............................................
Petrochemicals ..................................
(RUB/tonne)
(RUB/tonne)
(RUB/tonne)
29,745
49,666
55,126
2,636
29,106
49,946
45,129
2,560
2.2
(0.6)
22.2
3.0
28,334
49,307
47,193
2,555
30,585
48,319
58,614
2,510
(7.4)
2.0
(19.5)
1.8
Gas² ................................................... (RUB/1,000 m3)
¹ Excluding cost compensation and remuneration at the West Qurna-2 project.
² The price does not include cost of transportation by Unified Gas Supply System of Gazprom, as most of our gas production in
Russia is sold ex-field.
82
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
In the fourth quarter of 2020, our revenues were positively affected by higher volumes of refined products trading,
recovery of gas production in Uzbekistan, an increase in crude oil production as a result of partial lifting of the external
limitations on oil production under the new OPEC+ agreement, the ruble depreciation as well as an increase in
international hydrocarbon prices. Among main adverse factors were lower volumes of crude oil trading and a decrease in
retail sales volumes.
In 2020, our revenues were negatively affected by a sharp decrease in international hydrocarbon prices, crude oil
production cut in Russia due to the new OPEC+ agreement, a decrease in refinery throughput volumes, refined products
trading volumes and retail sales volumes, as well as a reduction in gas production in Uzbekistan due to temporary lower
demand for Uzbek gas from China.
Sales of crude oil
Compared to the third quarter of 2020, our crude oil sales revenue decreased by 52.3% in Russia due to lower domestic
sales volumes because of their redirection to export, and by 4.5% outside Russia largely as a result of lower international
trading volumes, that was partially offset by the ruble depreciation and an increase in crude oil prices.
Compared to 2019, our international crude oil sales revenue decreased by 28.6% mainly as a result of a decrease in crude
oil prices by 26.1%. Our domestic crude oil sales revenue increased by 4.4%, despite a decrease in crude oil prices by
30.1%, due to an increase in sales volumes by 49.4%.
Sales of refined products
Sales breakdown
Q4
2020
Q3 Change,
12 months of
2020 2019
(millions of rubles)
19.1 2,245,939 3,403,202
Change,
%
2020
%
Wholesales outside Russia..........................................
diesel fuel.................................................................
motor gasoline..........................................................
fuel oil......................................................................
jet fuel ......................................................................
lubricants and components.......................................
gas products .............................................................
others........................................................................
661,086
260,898
122,540
127,681
5,017
18,500
21,336
105,114
555,275
230,128
135,036
107,307
5,925
15,477
17,545
43,857
(34.0)
(42.7)
(30.9)
(20.6)
(78.5)
2.6
13.4
(9.3)
19.0
(15.3)
19.5
937,614 1,637,550
440,292
414,171
20,866
67,454
76,703
288,839
637,327
521,882
97,202
65,726
53,515
390,000
21.6
>100
43.3
(25.9)
Retail outside Russia ..................................................
82,813
85,153
(2.7)
303,021
345,162
(12.2)
Wholesales in Russia ..................................................
diesel fuel.................................................................
motor gasoline..........................................................
fuel oil......................................................................
jet fuel ......................................................................
lubricants and components.......................................
gas products .............................................................
others........................................................................
81,085
26,104
10,327
2,514
16,779
6,513
94,013
28,645
15,411
2,492
20,217
7,397
(13.8)
(8.9)
(33.0)
0.9
(17.0)
(12.0)
9.6
340,320
110,395
43,959
8,789
77,138
25,866
11,805
62,368
443,667
116,906
48,539
33,124
128,672
25,265
10,903
80,258
(23.3)
(5.6)
(9.4)
(73.5)
(40.1)
2.4
4,038
14,810
3,683
16,168
8.3
(22.3)
(8.4)
Retail in Russia ...........................................................
Total refined products sales ......................................
115,573
940,557
129,610
864,051
(10.8)
445,343
480,048
(7.2)
8.9 3,334,623 4,672,079
(28.6)
83
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Sales volumes
Q4
2020
Q3 Change,
2020
12 months of
Change,
%
%
2020
2019
(thousands of tonnes)
Wholesales outside Russia .........................................
diesel fuel ................................................................
motor gasoline .........................................................
fuel oil .....................................................................
jet fuel......................................................................
lubricants and components ......................................
gas products.............................................................
others.......................................................................
21,704
7,796
3,648
5,400
143
289
641
3,787
19,569
7,310
4,284
5,410
213
217
645
1,490
10.9
6.6
(14.8)
(0.2)
(32.9)
33.2
80,096
29,745
13,926
20,415
654
1,075
2,855
11,426
92,392
39,002
15,015
20,121
2,323
997
(13.3)
(23.7)
(7.3)
1.5
(71.8)
7.8
(0.6)
>100
1,902
13,032
50.1
(12.3)
Retail outside Russia..................................................
diesel fuel ................................................................
motor gasoline .........................................................
gas products.............................................................
933
645
251
37
1,006
676
287
43
(7.3)
(4.6)
(12.5)
(14.0)
3,667
2,508
1,012
147
4,194
2,814
1,195
185
(12.6)
(10.9)
(15.3)
(20.5)
Wholesales in Russia..................................................
diesel fuel ................................................................
motor gasoline .........................................................
fuel oil .....................................................................
jet fuel......................................................................
lubricants and components ......................................
gas products.............................................................
others.......................................................................
2,726
650
256
190
556
88
3,230
712
353
224
691
103
158
989
(15.6)
(8.7)
12,011
2,720
1,091
899
2,401
373
14,506
2,733
1,257
2,184
3,138
361
(17.2)
(0.5)
(13.2)
(58.8)
(23.5)
3.3
(27.5)
(15.2)
(19.5)
(14.6)
3.2
163
823
598
3,929
648
4,185
(7.7)
(6.1)
(16.8)
Retail in Russia...........................................................
diesel fuel ................................................................
motor gasoline .........................................................
gas products.............................................................
2,327
905
1,408
14
2,595
940
1,640
15
(10.3)
(3.7)
(14.1)
(6.7)
9,032
3,450
5,527
55
9,935
3,715
6,161
59
(9.1)
(7.1)
(10.3)
(6.8)
Total refined products volumes.................................
27,690
26,400
4.9
104,806
121,027
(13.4)
Compared to 2019, our refined products sales revenue was significantly affected by lower sales volumes and prices as a
result of a sharp decrease in demand due to the COVID-19 pandemic.
The fourth quarter of 2020 vs. the third quarter of 2020
.
Our revenue from the wholesales of refined products outside Russia increased by 19.1% due to an increase in
average realized prices by 7.3% and volumes by 10.9% as a result of an increase in volumes of trading operations.
.
International retail revenue decreased by 2.7% due to a decrease in sales volumes by 7.3% as a result of lower
demand for refined products due to a resumption of COVID-19 related restrictions in Europe, as well as a
seasonality factor.
.
Revenue from the wholesale and retail sales of refined products on the domestic market decreased by 13.8% and
by 10.8%, respectively, mainly as a result of a seasonal decrease in sales volumes.
Full year 2020 vs. full year 2019
.
Our revenue from the wholesales of refined products outside Russia decreased by 34.0% as a result of a decrease
in average realized prices by 23.9% and sales volumes by 13.3% due to a decrease in volumes of trading
operations and production.
.
.
.
Our international retail revenue decreased by 12.2% as a result of a decrease in sales volumes and prices that
was partially offset by the ruble depreciation.
Our revenue from the wholesales of refined products on the domestic market decreased by 23.3% as a result of
a decrease in sales volumes and our average realized prices.
Our revenue from refined products retail sales in Russia decreased by 7.2% as a result of a decrease in sales
volumes that was partially offset by an increase in our average realized prices.
Sales of petrochemical products
Compared to the third quarter of 2020, our revenue from sales of petrochemical products increased by 23.3%, as a result
of higher production volumes in Russia, as well as an increase in realized prices.
84
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Compared to 2019, our revenue from sales of petrochemical products decreased by 29.6%, mainly as a result of a decline
in trading volumes outside Russia and realized prices.
Sales of gas
Compared to the third quarter of 2020, our revenue from gas sales increased by 139.1% as a result of a recovery of gas
production in Uzbekistan that followed the resumption of gas exports from Uzbekistan to China.
During 2020, as a result of temporary decline in demand for Uzbek gas from China, we reduced gas production. As a
result, our revenue from gas sales decreased by 41.2% compared to 2019.
Sales of energy and related services
Our revenue from sales of energy and related services increased by 29.1% compared to the third quarter of 2020, mainly
due to a seasonality factor in Russia, and decreased by 5.6% compared to 2019, mainly due to changes in energy tariffs
and sales volumes in Italy.
Other sales
Other sales include non-petroleum sales through our retail network, transportation services, rental revenue, crude oil
extraction services, and other revenue of our production and marketing companies from sales of goods and services not
related to our primary activities.
Compared to the third quarter of 2020, revenue from other sales decreased by 29.0% largely as a result of a decrease in
non-petrol revenue of our retail network due to seasonality in Russia and Europe, as well as lower demand due to a
resumption of COVID-19 related restrictions in Europe.
Compared to 2019, revenue from other sales increased by 15.2% largely as a result of an increase in revenues from
transportation services outside Russia due to higher tariffs and volumes, as well as an increase in non-petrol revenue of
our retail network.
Moreover, other sales revenue for the third quarter and the full year 2020 included 5.9 billion RUB (approximately
€68 million) of loss compensation in relation to energy supplies in Sicily, Italy in 2015 (other sales revenue for 2019
included 2.2 billion RUB (approximately €30 million) of similar compensation related to 2016 supplies).
Operating expenses
Operating expenses include the following:
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
Hydrocarbon extraction expenses¹ ............................
Extraction expenses at the West Qurna-2 field..........
Own refining expenses ..............................................
Refining expenses at third-party refineries................
Expenses for feedstock transportation to refineries..
Power generation and distribution expenses..............
Petrochemical expenses.............................................
Other operating expenses ..........................................
Total operating expenses.........................................
46,099
4,938
25,563
103
10,715
8,250
3,700
42,849
3,821
24,165
148
11,919
7,406
3,057
7.6
29.2
5.8
(30.4)
(10.1)
11.4
21.0
(6.2)
4.6
181,699
193,857
17,010
96,543
7,175
52,884
30,432
12,463
47,346
457,710
(6.3)
1.2
17,212
92,613
524
51,693
29,991
12,731
53,510
439,973
(4.1)
(92.7)
(2.3)
(1.4)
2.2
14,619
113,987
15,588
108,953
13.0
(3.9)
¹ Excluding extraction expenses at the West Qurna-2 field.
The method of allocation of operating expenses above differs from the approach used in preparing data for Note 33
“Segment information” to our consolidated financial statements. Expenditures in the segment reporting are grouped
depending on the segment to which a particular company belongs, are not divided by the type of expenses within one
company and do not include adjustments related to elimination of intra-group service margin. Operating expenses for the
purposes of this analysis are grouped based on the nature of the costs incurred.
85
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Hydrocarbon extraction expenses
Our extraction expenses include expenditures related to repairs of extraction equipment, labour costs, expenses on
artificial stimulation of reservoirs, fuel and electricity costs, cost of extraction of natural gas liquids, property insurance
of extraction equipment and other similar costs.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
Hydrocarbon extraction expenses..............................
in Russia ...............................................................
outside Russia¹......................................................
46,099
39,532
6,567
42,849
37,552
5,297
7.6
5.3
24.0
181,699
158,328
23,371
193,857
170,590
23,267
(6.3)
(7.2)
0.4
(rubles per BOE)
Hydrocarbon unit extraction expenses.......................
in Russia ...............................................................
outside Russia¹......................................................
¹ Excluding extraction expenses at the West Qurna-2 field.
249
251
240
254
241
404
(1.8)
4.0
(40.6)
247
243
282
232
237
200
6.4
2.2
41.3
Compared to the third quarter, our extraction expenses in Russia increased by 5.3% mainly due to higher production
volumes and a seasonal increase in energy and transport costs. At the same time, hydrocarbon unit extraction expenses in
Russia increased by only 4.0%. Our extraction expenses outside Russia increased by 24.0% due to a recovery of gas
production in Uzbekistan, that also led to a decrease in our hydrocarbon unit extraction expenses outside Russia by 40.6%
as gas has lower unit extraction expenses compared to crude oil.
Compared to 2019, our extraction expenses in Russia decreased by 7.2% mainly due to lower production volumes and
cost reduction programme. However, our hydrocarbon unit extraction expenses increased by 2.2% due to certain share of
fixed costs. Outside Russia, our hydrocarbon extraction expenses were flat despite lower production volumes. A decrease
in extraction expenses in Uzbekistan as a result of production cut was offset by higher expenses due to the effect of
acquisition of a share in the Marine XII project in the Republic of Congo. Our hydrocarbon unit extraction expenses
outside Russia increased by 41.3% mainly as a result of a decrease in share of gas in our hydrocarbon production, which
has lower unit extraction expenses compared to crude oil. The ruble depreciation also contributed to the increase in
extraction expenses outside Russia.
Own refining expenses
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
Refining expenses at the Group refineries.................
in Russia ...............................................................
outside Russia.......................................................
25,563
12,539
13,024
24,165
10,961
13,204
5.8
14.4
(1.4)
92,613
42,614
49,999
96,543
42,555
53,988
(4.1)
0.1
(7.4)
(rubles per tonne)
Unit refining expenses at the Group refineries ..........
in Russia ...............................................................
outside Russia.......................................................
1,945
1,295
3,760
1,628
1,074
2,845
19.5
20.6
32.2
1,580
1,062
2,703
1,404
964
2,195
12.5
10.2
23.1
Compared to the third quarter of 2020, refining expenses at the Group refineries increased by 5.8%. In Russia, refining
expenses increased by 14.4% mainly as a result of an increase in maintenance costs. Outside Russia, refining expenses
decreased by 1.4% due to lower throughput volumes that was partly offset by an increase in energy and fuel costs and
effect of ruble depreciation against euro.
Compared to 2019, expenses at our refineries decreased by 4.1%. In Russia, refining expenses did not change, as the
effect of lower throughput volumes was offset by higher maintenance cost. Outside Russia, expenses at our refineries
decreased by 7.4% mainly due to lower throughput volumes, as well as a decline in fuel and energy costs, despite the
ruble depreciation against euro.
Refining expenses at third-party refineries
Along with our own production of refined products, we process crude oil at third-party refineries.
At the end of 2016, as part of our trading business development, a Group company entered into a 3-year tolling agreement
with a Canadian refinery. Related refining expenses represented variable toll that was mostly the difference between the
price of feedstock supplied, including various related costs, and the selling price of the refined products taken. When the
refined products were sold, this toll was naturally offset by the respective refined products sales revenue. The agreed
compensation was received by the Group company for execution of this agreement.
86
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
In August 2019, the agreement was extended till 2022 with modification of certain provisions. As a result, the agreement
is now treated as a financing arrangement with recognizing in the profit or loss statement only interest earned on the
financing provided and administrative fee. Thus, we do not recognize the tolling fee starting from September 2019.
Expenses for feedstock transportation to refineries
Expenses for feedstock transportation to refineries include pipeline, railway, freight and other costs related to delivery of
crude oil and refined products to refineries for further processing.
Our expenses for feedstock transportation to refineries decreased by 10.1% compared to the third quarter of 2020 mainly
due to lower refinery throughput and decreased by 2.3% compared to 2019.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
Own feedstock transportation to our domestic
refineries....................................................................
9,618
10,910
(11.8)
41,179
40,648
1.3
Own feedstock transportation from Russia to our
international refineries...............................................
Other feedstock transportation costs outside Russia..
Feedstock transportation to refineries...................
460
637
10,715
155
854
11,919
>100
(25.4)
(10.1)
5,175
5,339
51,693
6,182
6,054
52,884
(16.3)
(11.8)
(2.3)
Power generation and distribution expenses
Power generation and distribution expenses increased by 11.4% compared to the third quarter of 2020 mainly due to a
seasonal factor, and decreased by 1.4% compared to 2019.
Petrochemical expenses
Compared to the third quarter of 2020, our petrochemical expenses increased by 21.0% mainly due to an increase in
output in Russia. In 2020, petrochemical expenses increased by 2.2% compared to 2019, an effect of higher production
volumes was nearly offset by lower maintenance costs in Russia in 2020.
Other operating expenses
Other operating expenses include expenses of the Group’s upstream and downstream entities that do not relate to their
core activities, namely transportation and extraction services, costs of other services provided and goods sold by our
production and marketing companies, and of non-core businesses of the Group.
Compared to the third quarter of 2020, other operating expenses decreased by 6.2%, largely as a result of lower volumes
of non-petrol sales through our retail network. Compared to 2019, they increased by 13.0%, as a result of an increase in
volumes of non-petrol sales through our retail network and increase in volumes of transportation services rendered.
Cost of purchased crude oil, gas and products
Cost of purchased crude oil, gas and products includes cost of crude oil and refined products purchased for trading or
refining, gas and fuel oil to supply our power generation entities and the result of hedging of crude oil and refined products
sales.
87
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Q4
Q3
Change,
%
12 months of
Change,
%
2020
2020
2020
2019
(millions of rubles)
>100 13,788
Cost of purchased crude oil in Russia .......................
Cost of purchased crude oil outside Russia ...............
5,354
331,310
1,637
394,981
18,123
(23.9)
(34.4)
(16.1) 1,461,688 2,229,352
Compensation crude oil related to West Qurna-2
project........................................................................
Cost of purchased crude oil ....................................
11,994
348,658
17,193
413,811
(30.2)
45,428
36,225
25.4
(33.4)
(15.7) 1,520,904 2,283,700
Cost of purchased refined products in Russia............
Cost of purchased refined products outside Russia ...
Cost of purchased refined products .......................
9,846
457,157
467,003
5,573
351,106
356,679
76.7
31,043
37,146
(16.4)
(26.4)
(26.3)
30.2 1,420,226 1,930,711
30.9 1,451,269 1,967,857
Other purchases.........................................................
Net loss/(gain) from hedging of trading operations...
24,380
38,224
11,767
(3,690)
>100
-
64,139
(79,614)
82,157
61,333
(21.9)
-
Change in crude oil and petroleum products
inventory ...................................................................
(34,654)
12,093
-
44,218
(86,974)
-
Total cost of purchased crude oil, gas and
products....................................................................
843,611
790,660
6.7 3,000,916 4,308,073
(30.3)
In the fourth quarter and the full year 2020, cost of purchased crude oil, gas and products increased by 6.7% quarter-on-
quarter and decreased by 30.3% year-on-year.
An increase in domestic purchases of crude oil and refined products compared to the previous quarter was mostly related
to refinery and petrochemical feedstock. Outside Russia, a decrease in crude oil purchases and an increase in refined
products purchases compared to the third quarter of 2020 were both driven by the respective changes in volumes of
trading. A more than two-fold quarter-on-quarter increase in other purchases was largely a result of development of our
gas trading activities in Europe.
A year-on-year decrease was mostly driven by the dynamics of international crude oil and refined products prices.
Transportation expenses
Q4
Q3
Change,
%
12 months of
Change,
%
2020
2020
2020
2019
(millions of rubles)
Crude oil transportation expenses..............................
in Russia ...............................................................
outside Russia.......................................................
23,260
11,387
11,873
21,562
10,938
10,624
7.9
4.1
11.8
107,147
46,110
61,037
98,406
46,946
51,460
8.9
(1.8)
18.6
Refined products transportation expenses .................
in Russia ...............................................................
outside Russia.......................................................
41,205
19,385
21,820
36,832
19,402
17,430
11.9
(0.1)
25.2
169,526
84,723
84,803
162,648
89,842
72,806
4.2
(5.7)
16.5
Other transportation expenses ...................................
in Russia ...............................................................
outside Russia.......................................................
Total transportation expenses ................................
7,428
836
6,592
71,893
2,994
1,310
1,684
>100
(36.2)
>100
17.1
16,226
3,269
12,957
292,899
17,744
2,200
15,544
278,798
(8.6)
48.6
(16.6)
5.1
61,388
Compared to the third quarter of 2020, our expenses for transportation of crude oil and refined products increased by
7.9% and 11.9%, respectively. In Russia, our expenses for transportation of crude oil increased mainly as a result of higher
export volumes, while our expenses for transportation of refined products did not change significantly. Outside Russia,
our expenses increased as a result of higher volumes of refined products transportation, higher volumes of crude oil
transportation by pipeline transport and the ruble depreciation, which was partly offset by lower volumes of crude oil
transportation by sea.
Compared to 2019, our expenses for transportation of crude oil and refined products increased by 8.9% and 4.2%,
respectively. In Russia, our expenses for transportation of crude oil decreased as a result of lower export volumes, that
was partly offset by tariffs indexation, negative inventory effect and higher domestic sales volumes. Our expenses for
transportation of refined products in Russia decreased as a result of lower supplies, despite tariffs indexation. Outside
Russia, our expenses for transportation of crude oil and refined products increased mainly as a result of higher freight
rates, storage expenses increase and the ruble depreciation, despite lower volumes of supplies.
88
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
An increase in other transportation expenses compared to the third quarter of 2020 was due to commencement of gas
supplies from our project in Azerbaijan to Europe and resumption of gas supplies from our projects in Uzbekistan to
China. A decrease in other transportation expenses compared to 2019 resulted mainly from a decline of gas supplies from
our projects in Uzbekistan to China.
Selling, general and administrative expenses
Selling, general and administrative expenses include payroll costs (excluding production staff costs of extraction entities,
refineries and power generation entities), insurance costs (except for property insurance related to extraction, refinery and
power generation equipment), costs of maintenance of social infrastructure, movement in allowance for expected credit
losses and other expenses. Our selling, general and administrative expenses are roughly equally split between domestic
and international operations.
Q4
Q3
Change,
%
12 months of
Change,
%
2020
2020
2020
2019
(millions of rubles)
Payroll costs included in selling, general and
administrative expenses.............................................
Other selling, general and administrative expenses...
Share-based compensation ........................................
Expenses on allowance for expected credit losses.....
18,563
22,991
7,841
18,204
21,561
7,841
2.0
6.6
-
75,257
68,380
88,086
31,366
9,340
10.1
(1.7)
-
86,593
31,366
5,811
6,623
(2,118)
-
(37.8)
Total selling, general and administrative
expenses....................................................................
56,018
45,488
23.1
199,027
197,172
0.9
Our selling, general and administrative expenses increased by 23.1% compared to the third quarter of 2020 mainly as a
result of a change in an allowance for expected credit losses, as well as the ruble depreciation.
Compared to 2019, our selling, general and administrative expenses did not change significantly. A decrease in expenses
on allowance for expected credit losses was partially offset by an increase in payroll costs of our international subsidiaries
due to the ruble depreciation.
Depreciation, depletion and amortization
Compared to the third quarter of 2020, our depreciation, depletion and amortization expenses decreased by 12.5% mainly
due to positive effect of an increase in proved developed hydrocarbon reserves at Group’s certain fields as at the end of
2020 and consequent recalculation of depletion of respective fixed assets for the full year. This was partially offset by an
increase in depletion expenses in Uzbekistan following the recovery of gas production volumes. Compared to 2019, our
depreciation, depletion and amortization expenses decreased by 2.3%
Equity share in income of associates and joint ventures
The Group has investments in equity method associates and corporate joint ventures. These companies are primarily
engaged in crude oil exploration, production, marketing and distribution operations in the Russian Federation, crude oil
production and marketing in Kazakhstan. Currently, our largest associates are Tengizchevroil, an exploration and
production company, operating in Kazakhstan, Bashneft-Polus, an exploration and production company that develops the
Trebs and Titov oilfields in Timan-Pechora, Russia, South Caucasus Pipeline Company and Caspian Pipeline Consortium,
midstream companies in Azerbaijan and Kazakhstan, respectively.
In the fourth quarter of 2020, our share in income of associates and joint ventures decreased by 25.1%.
In 2020, our share in income of associates and joint ventures decreased by 37.1%, compared to 2019, mainly due to a
decrease in hydrocarbon prices.
89
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Taxes other than income taxes
Q4
2020
Q3 Change,
2020
12 months of
Change,
%
%
2020
2019
(millions of rubles)
In Russia
Mineral extraction taxes...........................................
129,118
2,985
6,471
6,189
491
115,938
1,026
7,072
6,110
671
11.4
>100
(8.5)
1.3
(26.8)
11.0
495,877
849,445
16,229
27,308
22,663
2,515
(41.6)
(59.1)
4.1
9.4
(16.0)
(39.2)
Tax on additional income ........................................
Social security taxes and contributions....................
Property tax .............................................................
Other taxes...............................................................
Total in Russia............................................................
6,645
28,437
24,800
2,112
145,254
130,817
557,871
918,160
International
Mineral extraction taxes...........................................
Social security taxes and contributions....................
Property tax .............................................................
Other taxes...............................................................
Total internationally ..................................................
4
1,849
331
1,041
3,225
7
1,674
235
817
2,733
(42.9)
10.5
40.9
27.4
18.0
23
6,626
1,005
3,553
11,207
22
6,109
906
2,993
10,030
4.5
8.5
10.9
18.7
11.7
Total taxes other than income taxes..........................
148,479
133,550
11.2
569,078
928,190
(38.7)
Our taxes other than income taxes increased by 11.2% compared to the third quarter of 2020 mainly as a result of an
increase in mineral extraction tax expense on the back of an increase in the tax rate by 6.4% due to higher crude oil prices
and the ruble depreciation, as well as due to higher crude oil extraction volumes, which was partially compensated by
inventory effect. TAI expenses increased due to higher crude oil prices. Also, TAI expenses for the third quarter of 2020
include a downward adjustment related to 2019 in the amount of 1.5 billion RUB.
Compared to 2019, our taxes other than income taxes decreased by 38.7% mainly as a result of a decrease in mineral
extraction tax expense on the back of a decrease in the tax rate by 33.1% due to lower crude oil prices and lower crude
oil extraction volumes. TAI expenses decreased due to a decline of crude oil prices.
The following table summarizes data on application of reduced and zero mineral extraction tax rates for crude oil produced
in Russia (excluding special tax regimes).
Q4
2020
Q3 Change,
2020
12 months of
Change,
%
%
2020
2019
127,018
2,157
(millions of rubles)
Decrease in extraction taxes from application of
reduced rates for crude oil production .....................
23,235
21,322
9.0
79,146
(37.7)
(thousands of tonnes)
Volume of crude oil production subject to:
reduced rates (ultra-high viscosity)..........................
599
624
(4.0)
2,427
12.5
reduced rates (tax holidays for specific regions and
high viscosity oil).....................................................
reduced rates (low permeability deposits)................
reduced rates (Tyumen deposits) .............................
reduced rates (depleted fields) .................................
reduced rates (other) ................................................
1,146
434
174
4,358
595
1,074
409
168
4,339
482
6.7
6.1
3.6
0.4
23.4
4,289
1,628
736
18,456
2,216
4,221
1,422
725
19,050
2,503
1.6
14.5
1.5
(3.1)
(11.5)
Total volume of production subject to reduced
rates .............................................................................
7,306
7,096
3.0
29,752
30,078
(1.1)
A special tax regime is applied for crude oil production at certain Group’s offshore fields and deposits. In the fourth
quarter and the full year 2020, volumes of production subject to such regimes amounted to 1,533 thousand tonnes and
6,389 thousand tonnes, respectively (compared to 1,659 thousand tonnes in the third quarter of 2020 and 6,436 thousand
tonnes in 2019).
90
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
The table below summarizes our production from license areas subject to TAI in the respective periods.
Q4
2020
Q3 Change,
2020
12 months of
Change,
%
%
2020
2019
(millions of rubles)
Mineral extraction tax for crude oil and gas
condensate on license areas under TAI.....................
5,483
5,084
7.8
18,521
25,429
(27.2)
(thousands of tonnes)
Group 1.........................................................................
Group 3.........................................................................
Group 4.........................................................................
496
748
23
525
747
25
(5.5)
0.1
(8.0)
2,071
3,030
95
2,011
2,896
41
3.0
4.6
>100
Total volume of crude oil and gas condensate
production at license areas subject to TAI ...............
1,267
1,297
(2.3)
5,196
4,948
5.0
Excise and export tariffs
Q4
2020
Q3 Change,
2020
12 months of
Change,
%
%
2020
2019
(millions of rubles)
In Russia
Excise tax on refined products.................................
Excise tax on oil feedstock (excluding damper) ......
Damper ....................................................................
Crude oil еxport tariffs.............................................
Refined products еxport tariffs ................................
Total in Russia............................................................
31,438
(9,781)
11,807
14,895
7,781
39,168
(10,515)
18,334
9,162
4,720
60,869
(19.7)
(7.0)
(35.6)
62.6
64.9
(7.8)
132,303
140,659
(31,212)
(57,237)
141,622
46,058
(5.9)
21.4
-
(49.9)
(42.6)
10.4
(37,881)
73,086
70,885
26,460
264,853
56,140
239,890
International
Excise tax and sales taxes on refined products ........
Crude oil еxport tariffs.............................................
Refined products еxport and import tariffs, net .......
Total internationally ..................................................
47,875
15
130
48,020
53,002
14
65
53,081
(9.7)
7.1
100.0
(9.5)
179,179
48
220
179,447
186,078
51
(256)
185,873
(3.7)
(5.9)
-
(3.5)
Total excise and export tariffs ...................................
104,160
113,950
(8.6)
444,300
425,763
4.4
Compared to the third quarter of 2020, crude oil export tariffs increased mainly due to an increase in crude oil export
volumes beyond Customs Union and a simultaneous decrease in the share of crude oil subject to export duty incentives
in overall export volume, and also due to inventory effect. An increase in refined products export tariffs was influenced
by an increase in total export volume of refined products beyond Customs Union and an increase in the share of exports
of heavy refined products with a higher export duty rate.
In the fourth quarter of 2020, excise tax on refined products in Russia and internationally decreased compared to the
previous quarter mainly due to lower sales volumes subject to excise taxes as a result of a seasonal decrease in demand.
Internationally, this effect was partially compensated by the ruble depreciation.
Compared to 2019, crude oil and refined products export tariffs declined mainly due to a decline in crude oil prices and a
decrease in export duty rates as a result of ongoing tax manoeuvre, which was partially offset by the export duty lag effect,
inventory effect and the ruble depreciation. Export tariffs also declined due to a decrease in volumes of crude oil and
refined products export beyond Customs Union.
Compared to 2019, excise tax in Russia and internationally decreased due to lower sales volumes. In Russia this effect
was partially offset by excise tax rates increase. Internationally, a decrease was partially compensated by the ruble
depreciation.
Proceeds from excise tax on feedstock, excluding damper, decreased by 7.0% compared to the third quarter of 2020 as a
result of decreased volumes of refined products output and changes in refined products slate, which was partially
compensated by excise tax rate increase due to higher crude oil prices and the ruble depreciation. Compared to 2019,
proceeds from excise tax on feedstock, excluding damper, increased by 21.4% due to ongoing tax manoeuvre and as a
result of improvements in refined products slate and the ruble depreciation, which was almost entirely offset by a decline
in crude oil prices.
In 2020, the damper became negative as a result of a decrease in export netbacks for gasoline and diesel fuel below
respective fixed benchmarks and was paid to the budget. In the fourth quarter of 2020, damper expenses decreased as a
result of higher gasoline and diesel fuel export netback and a decrease in sales volumes in Russia due to a decrease in
demand.
91
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Negative values of international refined products export and import tariffs in 2019 are a result of the compensation of
import tariffs in the USA.
Exploration expenses
In 2020, we charged to expense the costs of dry exploratory wells in Romania, Norway and Timan-Pechora region of
Russia.
In 2019, we charged to expense approximately 5.8 billion RUB related to dry exploratory well in Romania.
Foreign exchange gain (loss)
Foreign exchange gains or losses are mostly related to revaluation of US dollar and euro net monetary position of the
Group entities that largely consists of accounts receivables of our international subsidiaries and loans, mostly intra-group,
given or received in currencies other than the entities’ functional currencies (“other currencies”).
Foreign exchange gains in the fourth quarter and foreign exchange losses in 2020 resulted mostly from the ruble
appreciation in the fourth quarter and the ruble depreciation in 2020. That was amplified by an increase in negative net
monetary position in other currencies due to a decrease in accounts receivables after the crude oil price drop and an
increase in indebtedness in US dollars. A foreign exchange loss in the third quarter of 2020 was a result of the ruble
depreciation during that period. In 2019, the Group’s net monetary position in other currencies was more balanced and
the ruble exchange rate was less volatile that both resulted in a relatively insignificant foreign exchange gains.
Other expenses
Other income (expenses) include the financial effects of disposals of assets, impairment losses, revisions of estimates and
other non-operating gains and losses.
In the fourth quarter of 2020, the Group recognized an impairment loss for its exploration and production assets in Russia
in the amount of 3.0 billion RUB and abroad in the amount of 0.1 billion RUB. The Group also recognized an impairment
loss for its refining, marketing and distribution assets in Russia and abroad in the amount of 7.7 billion RUB and 21.6
billion RUB, respectively.
In the third quarter of 2020, the Group recognized a reversal of impairment of receivables related to our project in Egypt
in the amount of 5.3 billion RUB.
In the second quarter of 2020, the Group recognized an impairment loss for its international exploration and production
assets in the amount of 38 billion RUB, 36 billion RUB of which related to the projects in Uzbekistan, and a reversal of
impairment of receivables related to our project in Egypt in the amount of 2 billion RUB.
In the first quarter of 2020, the Group recognized an impairment loss for its exploration and production assets in Russia
and abroad in the amount of 8 billion RUB, as well as fixed assets and other non-current assets for its refining, marketing
and distribution assets outside Russia in the amount of 36 billion RUB.
In the fourth quarter of 2019, the Group recognized an impairment loss for its exploration and production assets in Russia
and abroad in the amount of 21.4 billion RUB, as well as for its refining, marketing and distribution assets in Russia and
abroad in the amount of 1.3 billion RUB. At the same time, the Group recognized an impairment reversal of 9.7 billion
RUB in 2019, which was mainly a result of improvement of economic parameters of our production projects in West
Siberia and European part of Russia.
Income taxes
The maximum statutory income tax rate in Russia is 20%. Nevertheless, the actual effective income tax rate may be higher
due to non-deductible expenses or lower due to certain non-taxable gains and application of reduced regional income tax
rates in Russia.
Our total income tax expense increased by 16 billion RUB, or by 102.3%, compared to the third quarter of 2020, and
decreased by 69 billion RUB, or by 45.6%, compared to 2019.
High effective income tax rate in 2020 resulted from write-offs of deferred tax assets related to tax loss carry forwards in
certain international downstream subsidiaries as it is not probable that taxable profit will be available against which these
temporary differences can be utilized, and changes in tax rates of certain regional income tax incentives.
92
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Non-GAAP items reconciliation
EBITDA reconciliation
EBITDA is not defined under IFRS. We define EBITDA as profit from operating activities before depreciation, depletion
and amortization. We believe that EBITDA provides useful information to investors because it is an indicator of the
strength and performance of our business operations, including our ability to finance capital expenditures, acquisitions
and other investments and to raise and service debt. EBITDA should not be considered in isolation as an alternative to
profit or any other measure of performance under IFRS.
Q4
Q3
12 months of
2020
2020
2020
2019
(millions of rubles)
Profit for the period attributable to PJSC LUKOIL shareholders .............
Add back
29,435
50,420
15,175
640,178
Profit for the period attributable to non-controlling interests.........................
Income tax expense........................................................................................
Financial income............................................................................................
Financial costs................................................................................................
Foreign exchange (gain) loss .........................................................................
Equity share in income of associates and joint ventures ................................
Other expenses...............................................................................................
Depreciation, depletion and amortization ......................................................
EBITDA.............................................................................................................
527
30,856
(1,930)
10,853
(12,460)
(3,017)
44,790
90,558
189,612
492
15,256
(3,625)
11,697
27,280
(4,029)
1,293
1,458
82,154
(13,051)
44,122
2,043
151,133
(25,134)
44,356
(923)
(18,246)
27,691
26,110
(11,474)
137,160
405,440
103,439
202,223
415,094
687,094 1,236,192
EBITDA by operating segments
Exploration and production segment
Sales (including excise and export tariffs) .....................................................
Operating expenses ........................................................................................
Cost of purchased crude oil, gas and products ...............................................
Transportation expenses.................................................................................
Selling, general and administrative expenses.................................................
Taxes other than income taxes .......................................................................
Excise and export tariffs ................................................................................
Exploration expenses .....................................................................................
EBITDA of Exploration and production segment .........................................
448,851
(65,934)
(12,546)
(19,893)
(16,297)
403,379 1,542,239 2,364,184
(62,166) (262,343) (274,934)
(19,819)
(13,375)
(9,009)
(52,784)
(63,364)
(48,670)
(40,350)
(69,589)
(47,964)
(149,506) (135,366) (540,587) (891,051)
(15,529)
(2,579)
(11,227)
(438)
(68,309) (136,998)
(6,101)
(9,348)
166,567
151,979
500,081
893,950
Refining, marketing and distribution segment
Sales (including excise and export tariffs) ..................................................... 1,491,819 1,434,361 5,525,980 7,624,198
Operating expenses ........................................................................................ (55,063) (51,013) (195,558) (228,576)
Cost of purchased crude oil, gas and products ............................................... (1,203,280) (1,110,035) (4,302,803) (6,362,401)
Transportation expenses.................................................................................
Selling, general and administrative expenses.................................................
Taxes other than income taxes .......................................................................
Excise and export tariffs ................................................................................
EBITDA of Refining, marketing and distribution segment ..........................
EBITDA of Corporate and other segment......................................................
Elimination........................................................................................................
EBITDA.............................................................................................................
(60,222)
(31,593)
(6,508)
(56,781) (269,656) (229,007)
(28,590) (120,607) (121,383)
(6,538)
(25,908)
(25,323)
(88,504) (103,766) (368,126) (285,866)
46,649
(10,629)
(12,975)
189,612
77,638
(12,619)
(14,775)
202,223
243,322
(39,378)
(16,931)
371,642
(39,962)
10,562
687,094 1,236,192
Free cash flow reconciliation
Q4
Q3
12 months of
2020
2020
2020
2019
(millions of rubles)
227,449 776,574 1,151,844
(135,161) (112,826) (495,443) (449,975)
Net cash provided by operating activities............................................................
Capital expenditures............................................................................................
Free cash flow ....................................................................................................
220,643
85,482
114,623
281,131
701,869
93
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Liquidity and capital resources
Q4
2020
Q3
2020
Change,
%
12 months of
2020 2019
Change,
%
(millions of rubles)
Net cash provided by operating activities..................
including decrease (increase) in working capital ..
Net cash used in investing activities..........................
Net cash used in financing activities .........................
220,643
24,230
(139,024) (109,703)
(156,988) (343,008)
227,449
26,305
(3.0)
(7.9)
26.7
776,574 1,151,844
83,177 (6,781)
(492,769) (510,126)
(32.6)
-
(3.4)
(11.7)
(54.2) (514,005) (582,344)
Changes in operating assets and liabilities:
Q4
2020
Q3
2020
Change,
12 months of
Change,
%
%
2020
2019
(millions of rubles)
Decrease (increase) in accounts receivable ...............
(Increase) decrease in inventory................................
Increase (decrease) in accounts payable....................
33,137
(48,398)
57,014
(56,609)
4,509
65,549
-
-
128,139
37,868
(69,305)
(48,023)
(69,171)
88,977
-
-
-
(13.0)
(Decrease) increase in net taxes other than on
income payable..........................................................
Change in other current assets and liabilities.............
Total decrease (increase) in working capital.........
(9,639)
(7,884)
24,230
26,789
(13,933)
26,305
-
10,200
(23,725)
83,177
24,053
(2,617)
(6,781)
(57.6)
>100
-
(43.4)
(7.9)
Operating activities
Our primary source of cash flow is funds generated from our operations. Our cash generated from operations decreased
by 3.0% and by 32.6% compared to the third quarter of 2020 and full year 2019, respectively, as a result of a decrease in
profitability of our core operations. Moreover, our operating cash flow was positively impacted by the dynamics in
working capital.
Investing activities
Compared to the previous quarter, our cash used in investing activities increased by 26.7% largely as a result of an increase
in capital expenditures. Compared to 2019, our cash used in investing activities decreased by 3.4%, an increase in capital
expenditures was more than offset by lower spending on acquisitions of subsidiaries.
Our capital expenditures increased by 19.8% compared to the third quarter of 2020, and by 10.1% compared to 2019.
94
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
Capital expenditures
Exploration and production
West Siberia..........................................................
Timan-Pechora......................................................
Ural region............................................................
Volga region .........................................................
Other in Russia .....................................................
Total in Russia...........................................................
31,921
19,103
9,280
25,974
2,803
31,614
19,844
9,374
16,649
2,962
1.0
(3.7)
(1.0)
56.0
(5.4)
10.7
150,167
141,266
66,808
37,243
43,798
10,778
299,893
6.3
22.7
6.7
41.0
(10.1)
14.5
81,967
39,733
61,739
9,686
89,081
80,443
343,292
Iraq........................................................................
Other outside Russia.............................................
Total outside Russia ..................................................
Total exploration and production ..........................
6,565
6,732
13,297
102,378
4,620
5,166
9,786
42.1
30.3
35.9
13.5
26,379
29,882
56,261
399,553
22,833
42,214
65,047
364,940
15.5
(29.2)
(13.5)
9.5
90,229
Refining, marketing and distribution
Russia ...................................................................
refining.............................................................
retail .................................................................
other .................................................................
International..........................................................
refining.............................................................
retail .................................................................
other .................................................................
Total refining, marketing and distribution ...........
Corporate and other...................................................
Total capital expenditures ......................................
25,277
16,152
1,883
7,242
6,298
4,753
1,216
329
17,090
12,563
562
3,965
4,882
4,121
695
66
21,972
625
47.9
28.6
>100
82.6
29.0
15.3
75.0
>100
43.7
93.3
19.8
72,486
51,566
4,528
16,392
20,558
16,506
3,479
573
93,044
2,846
62,740
39,912
4,189
18,639
18,400
12,327
4,318
1,755
81,140
3,895
15.5
29.2
8.1
(12.1)
11.7
33.9
(19.4)
(67.4)
14.7
(26.9)
10.1
31,575
1,208
135,161
112,826
495,443
449,975
Compared to the third quarter of 2020, an increase in our upstream capital expenditures in Russia was mainly due to
development of V. Grayfer field in the Caspian Sea.
Quarter-on-quarter dynamics of capital expenditures of our refining and marketing segment in Russia was mainly defined
by construction schedule of delayed coker unit at our refinery in Nizhny Novgorod.
Year-on-year increase in exploration and production capital expenditures in Russia was mainly due to active development
of fields in Timan-Pechora and of V. Grayfer field in the Caspian Sea. Year-on-year increase in capital expenditures of
our refining and marketing segment in Russia was mainly a result of construction of delayed coker unit at our refinery in
Nizhny Novgorod. Outside Russia, the increase in capital expenditures of our refining and marketing segment was due to
modernization works and overhauls at our refineries. Dynamics of our capital expenditures was also affected by the ruble
depreciation.
The table below presents exploration and production capital expenditures at our growth projects.
Q4
2020
Q3
2020
Change,
%
12 months of
Change,
%
2020
2019
(millions of rubles)
West Siberia (Yamal) ................................................
Caspian region (Projects in Russia)...........................
Timan-Pechora (Yaregskoye field) ...........................
Iraq (West Qurna-2 project) ......................................
Iraq (Block-10)..........................................................
Uzbekistan.................................................................
Total .........................................................................
3,547
24,265
390
6,028
537
2,112
15,450
3,660
4,163
457
67.9
57.1
(89.3)
44.8
17.5
>100
38.8
16,920
56,083
9,871
24,235
2,144
3,890
21,383
36,362
7,756
19,967
2,866
(20.9)
54.2
27.3
21.4
(25.2)
(66.5)
13.2
1,126
35,893
19
25,861
11,605
99,939
113,143
Financing activities
In the fourth quarter of 2020, net movements of short-term and long-term debt generated an outflow of 108 billion RUB,
compared to an outflow of 96 billion RUB in the third quarter of 2020. In 2020, net movements of short-term and long-
term debt generated an outflow of 62 billion RUB, compared to an outflow of 113 billion RUB in 2019.
95
PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
On 6 May 2020, a Group company raised new debt via issuance of non-convertible bonds totaling $1.5 billion. The bonds
were placed with a maturity of 10 years and a coupon yield of 3.875% per annum. All bonds were placed at face value
and have a half year coupon period. LUKOIL intends to use the net proceeds of the issuance for general corporate
purposes. The bonds have been assigned a rating of BBB+ by Fitch and BBB by Standard & Poor's.
In November 2020, a Group company repaid the bonds issued in 2010 in the amount of $1 billion.
In August 2018, we announced the start of an open market buyback programme, which was completed on 20 August
2019. In 2019, a Group company spent 243,691 million RUB in relation to this programme. From the start of the
programme and also taking into account tender offers that took place in July–August 2019 and December 2019–January
2020, 57.1 million ordinary shares and depositary receipts of the Company were purchased in aggregate. All of the
purchased shares were cancelled.
Credit rating
Standard & Poor’s Ratings Services set the Company’s issuer credit rating to BBB.
Moody’s set the Company’s long-term issuer rating to Baa2.
Fitch Ratings set the Company’s long-term issuer default rating to BBB+.
Debt maturity
The following table displays the breakdown of our total debt obligation by maturity dates.
Total
2021
2022
2023
2024
2025
After
(millions of rubles)
Short term debt .....................................
Long-term bank loans and borrowings .
21,258
112,660
21,258
26,846
-
-
-
-
-
21,082
15,499
15,452
12,708
21,073
6.656% Non-convertible US dollar
bonds, maturing 2022 ...........................
36,901
110,737
73,751
-
-
-
36,901
-
110,737
-
-
-
-
-
-
-
-
-
4.563% Non-convertible US dollar
bonds, maturing 2023 ...........................
4.750% Non-convertible US dollar
bonds, maturing 2026 ...........................
-
-
73,751
3.875% Non-convertible US dollar
bonds, maturing 2030 ...........................
Lease obligation¹ ..................................
Total.....................................................
110,532
193,872
659,711
-
34,532
82,636
-
19,609
77,592
-
17,744
143,980
-
17,029
32,481
-
15,699
28,407
110,532
89,259
294,615
¹ Discounted amounts. Undiscounted cash flows are presented in Note 36 «Capital and risk management» to our consolidated
financial statements.
Litigation and claims
The Group is involved in various claims and legal proceedings arising in the normal course of business. While these
claims may seek substantial damages against the Group and are subject to uncertainty inherent in any litigation,
management does not believe that the ultimate resolution of such matters will have a material adverse impact on the
Group’s operating results or financial condition. See Note 30 “Commitments and contingencies” to our consolidated
financial statements for detailed information on claims and legal proceedings involving the Group.
Critical accounting policies
The preparation of financial statements in conformity with IFRS requires management to select appropriate accounting
policies and to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and
expenses. See Note 3 “Summary of significant accounting policies” to our consolidated financial statements for
descriptions of the Company’s major accounting policies. Certain of these accounting policies involve judgments and
uncertainties to such an extent that there is a reasonable likelihood that materially different amounts would have been
reported under different conditions, or if different assumptions had been used.
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PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Other information
Sectoral sanctions against the Russian companies
In July–September 2014, the United States (“US”), the European Union (“EU”) and several other countries imposed a set
of sanctions on Russia, including sectoral sanctions, which affect several Russian oil and gas companies. The US
Department of the Treasury has placed the Company onto the Sectoral Sanctions Identifications List subject to Directive
4 of the Office of foreign assets control (OFAC). Directive 4 prohibits US companies and individuals from providing,
exporting, or re-exporting directly or indirectly, goods, services (except for financial services), or technology in support
of exploration or production for deepwater, Arctic offshore or shale projects that have the potential to produce oil in the
Russian Federation, or in maritime area spreading from the Russian territory and claimed by the Russian Federation.
From January 2018 (based on acts adopted in August–October 2017), the US expanded abovementioned sanctions to
include certain categories of international oil projects initiated on or after 29 January 2018 in any part of the world, in
which companies placed on the Sectoral Sanctions Identifications List subject to Directive 4 (including the Company)
have an ownership interest of 33% or more, or ownership of a majority of the voting interests.
Management believes that current sanctions do not have a material adverse effect on the current or planned Group’s oil
projects. At the same time, the Company continues to monitor and evaluate potential risks for its operations in connection
with sanctions.
Operations in Iraq
The Group is exposed to political, economic and legal risks due to its operations in Iraq. Management monitors these
risks and believes that there is no adverse effect on the Group’s financial position that can be reasonably estimated at
present.
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PJSC LUKOIL
Management’s discussion and analysis of financial condition and results of operations for the three-month periods ended
31 December and 30 September 2020 and for the years 2020 and 2019
Forward-looking statements
Certain statements in this document are not historical facts and are “forward-looking.” We may from time to time make
written or oral forward-looking statements in reports to shareholders and in other communications. Examples of such
forward-looking statements include, but are not limited to:
.
.
.
statements of our plans, objectives or goals, including those related to products or services
statements of future economic performance
statements of assumptions underlying such statements.
Forward looking statements that may be made by us from time to time (but that are not included in this document) may
also include projections or expectations of revenues, income (or loss), earnings (or loss) per share, dividends, capital
structure or other financial items or ratios. Words such as “believes,” “anticipates,” “expects,” “estimates,” “intends” and
“plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of
identifying such statements. By their very nature, forward-looking statements involve inherent risks and uncertainties,
both general and specific, and risks exist that the predictions, forecasts, projections and other forward-looking statements
will not be achieved. You should be aware that a number of important factors could cause actual results to differ materially
from the plans, objectives, expectations, estimates and intentions expressed in such forward-looking statements.
These factors include:
.
.
.
.
.
.
.
.
.
inflation, interest rate and exchange rate fluctuations
the price of oil
the effects of, and changes in, Russian government policy
the effects of competition in the geographic and business areas in which we conduct operations
the effects of changes in laws, regulations, taxation or accounting standards or practices
our ability to increase market share for our products and control expenses
acquisitions or divestitures
technological changes
our success at managing the risks of the aforementioned factors.
This list of important factors is not exhaustive. When relying on forward-looking statements, you should carefully consider
the foregoing factors and other uncertainties and events, especially in light of the political, economic, social and legal
environment in which we operate. Such forward-looking statements speak only as of the date on which they are made,
and, subject to any continuing obligations under the Listing Rules of the U.K. Listing Authority, we do not undertake any
obligation to update or revise any of them, whether as a result of new information, future events or otherwise. We do not
make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be
achieved, and such forward-looking statements represent, in each case, only one of many possible scenarios and should
not be viewed as the most likely or standard scenario.
98
INFORMATION ABOUT MAJOR BUSINESS RISKS AND UNCERTAINTIES
OF PJSC LUKOIL
The Company’s business is predominantly affected by the following risk groups:
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Macroeconomic Risks
Industry-Specific Risks
Country Risks
Financial Risks
Legal Risks
Loss of Goodwill Risk (Reputational Risk)
Strategic Risks
Other Risks related to Issuer’s Business
Realization of any of the below risks may have an adverse impact on the business, performance and value of the issuer’s
securities. PJSC LUKOIL continuously monitors and takes measures to mitigate risks. However, if such risks materialize,
LUKOIL will take measures to mitigate them immediately and minimize loss to the Company. Given the probabilistic
nature of risks, as well as the fact that most of them are external for the Company, LUKOIL is unable to provide a 100%
guarantee that its risk management measures will reduce their negative impact to zero.
Macroeconomic Risks
Risk Description
Macroeconomic changes resulting from the volatility of global prices for energy carriers, foreign exchange rate
fluctuations, inflation processes, the global trend of shifting to low carbon economy, the declining world demand for
energy resources, changes in fiscal and monetary policies, as well as in the balance and structure of energy demand and
supply may have an adverse effect on the Company’s financial performance.
Risk Management
The Company has been employing a scenario approach to forecast macroeconomic indicators. One of the scenarios is
defined as a base-case scenario and describes the most likely macroeconomic development trends according to the
Company’s management. In addition, the Company develops worst-case scenarios to respond to adverse changes in the
external environment. The application of the worst-case scenario makes it possible to identify assets and investment
projects that are most vulnerable to negative macroeconomic changes. Following this analysis, top management decisions
are made.
Production and business plans are adjusted on a regular basis to fit the changing market conditions. The Company is
planning to change production volumes, first of all seeking to achieve economic efficiency.
Industry-Specific Risks
Price Risks
Risk Description
The Company has limited influence over its output prices that depend for the most part on the market environment and
(or) measures taken by the regulatory authorities. The oil and petroleum product price drop may have an adverse impact
on the Company’s financial performance.
Risk Management
LUKOIL is a vertically integrated oil company that embraces production, refining and distribution assets. This structure
serves as a natural hedging mechanism, in which multidirectional risk factors compensate one other.
A high share of investments in the Russian Federation ensures the Company’s stability due to the compensation
mechanism of the tax system in place in the Russian Federation, an extensive share of the Company's ruble investments
enabling it to keep costs down compared to the proceeds denominated predominantly in US dollars.
In addition to this, the Company uses a number of measures to reduce the negative price risk impact:
.
applies a price scenario while developing long-term programmes,
99
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shapes the investment project portfolio in view of the tolerance analysis of the project performance figures to the
changing price parameters;
uses a commodity supply management system which makes it possible to quickly respond to market changes
and conduct arbitrary shipments;
hedges its operations while conducting international trading.
Risks Associated with Well Construction and Hard-to-Recover Hydrocarbon Field Development
Risk Description
A considerable share of the materials and equipment required for well construction is purchased by the Company and its
contractors from the EU and US manufacturers. Restrictions prohibiting the supply of such equipment and materials may
have an adverse impact on the Company’s performance.
Risk Management
The Company’s projects have stocked spare parts, equipment and supplies for one year ahead. A set of measures has been
developed to replace the chemical agents for drill mud preparation and processing supplied from Europe and the US with
those manufactured in Russia and other countries.
The Company also seeks to promote domestic technologies and consistently reduces the share of imported equipment. As
part of the Company’s projects, R&D operations are being conducted to test new samples of domestic equipment, while
domestic multi-zone hydrofracturing techniques are being introduced on a stage-by-stage basis.
Risks Associated with the Growth of Tariffs and Suppliers’ Prices
Risk Description
In its day-to-day business the Company uses goods and services provided by third parties, including energy and
transportation services. The expenses related to the acquisition of goods and services from third parties directly affect the
Company’s financial performance.
The Company uses the services of such transportation monopolies as OAO RZhD, PAO Transneft, PAO Gazprom and
other similar majors in the countries of the Group’s presence, while the prices for their services grow on a regular basis.
There is also a risk of price growth for the services and goods coming from other suppliers, including motor transportation,
customs broker services, warehouse storage expenses, etc.
Risk Management
In order to minimize the risks associated with tariff growth of monopolies in the countries of its presence, as well as the
risk of price growth for the services of other suppliers, the Company:
.
.
diversifies ways of product transportation, also by establishing alternative supply routes;
participates in the joint operations aimed at the prevention of advanced tariff growth of monopolies together with
other consumers;
.
.
holds bidding procedures when selecting long-term suppliers;
uses a tool to freeze the transportation terms given long-term cooperation.
To mitigate the risk of price growth on the part of the suppliers of goods and services, the Company improves its bidding
procedures and extends its competitive environment (list of suppliers of goods and services).
The Risk of Failure to Discover Geological Reserves or Discovery of the Reserves below the Initially Expected Level
Risk Description
The Company’s business is exposed to the following risk: while implementing new projects and conducting exploratory
drilling, it might not discover any productive (commercially efficient) oil and gas reserves, and/or the discovered reserves
may be considerably below the initially expected level. Given the above, the Company may be forced to write off the
respective expenses, which may affect its financial results.
Risk Management
The Company continuously improves its geologic exploration techniques and employs a staged approach to its operations
according to which the next stages are planned with due consideration of the results obtained at the previous stage.
Due to its cooperation with major international oil and gas companies the Company is able to explore and successfully
employ their expertise in geologic exploration across the Company's facilities.
100
The Risk of Partial Confirmation of the Anticipated Efficiency of Well Operations and Production Drilling
Risk Description
The Company’s operations are characterized by the presence of risk of failure to ensure the anticipated efficiency of its
well operations, as well as that of production drilling, which may result in reconsidering its target hydrocarbon production
level and affect the Company’s financial performance.
Risk Management
PJSC LUKOIL strives to manage this risk at the level sufficient for prompt risk response, by means of proactive
implementation of additional measures to ensure efficiency of its geological and engineering operations and drilling back-
up production wells. The main types of well operations are designed by developing targeted well operation plans that are
aimed at achieving hydrocarbon production and field development targets. Well operations are prepared using modern
reservoir analysis and flow simulation tools. In addition to that, for some fields the Company also applies integrated
simulation that considerably improves the quality of field management due to the balanced assessment of the interaction
between various production elements, such as the reservoir, the well and the surface infrastructure. Well operations and
production drilling are adjusted in view of the actual results on a monthly and quarterly basis.
Risks Associated with Subsurface Use and Licensing
Risk Description
The applicable Russian legislation on subsurface use and licensing of exploration and production activities, as well as
their practical application hold a number of risks. The major ones are listed below:
.
a risk of early termination of a subsoil license or a risk of penalties for failure to comply with the terms of license
agreements;
.
a risk of a legal entity that discovered a field of federal significance or a field located in the subsurface area of
federal significance, including foreign subsurface users in the authorized capital, of not obtaining the right to
subsurface use;
.
a risk of refusal to accept bidding documents for participation in competitive sales/biddings.
Risk Management
To mitigate the risks associated with subsurface use and licensing, the Company:
.
monitors legislation as well as subsurface use and licensing changes, forwards proposals to update the applicable
regulatory framework;
.
.
.
checks the list of sites associated with the open acreage, which are of interest to the Company, on a regular basis;
prepares bidding documents to participate in the bidding procedures and re-register licenses;
holds annual advanced training workshops for licensing and subsoil use experts, ensures their participation in
key workshops in the respective areas of operations;
.
.
monitors the current subsoil use situation via a special information system;
interacts with the regulatory authorities in order to mitigate the risk of early subsoil license termination.
Geological and process risks the Company is exposed to during the start-up of wells that have been shut down to limit
oil production in order to meet the obligations assumed by the Russian Federation under the agreement with OPEC
Risk Description
The start-up of wells that have been shut down to meet the obligations under the OPEC agreement is associated with
geological and process risks of delayed recovery of oil production that depends, among other things, on the shutdown
period, seasonality and production region.
Risk Management
The wells that had to be shut down were selected, among other things, also to mitigate the negative impact on the
development. The wells that had to be shut down (production and injection wells) are mainly located in the same reservoir
of the development target, one element or the entire field, which minimizes the risks of disproportion in the development
system.
If the well is shut down for a longer period, including winter, the Company takes organizational and technical measures
to prevent the well and the pipeline from freezing.
101
Country Risks
Risk Description
Among other things, PJSC LUKOIL has operations in a number of high risk countries (Iraq, Egypt, Uzbekistan, West
African countries). Should they be materialized, such risks may significantly complicate the Company’s business or even
force the Company to suspend its operations.
The main factors which are capable of affecting LUKOIL’s activities these countries include:
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.
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instability of the political situation;
escalation of military conflicts;
macroeconomic instability;
expropriation of the Company’s assets;
inefficiency of the legislation and judicial system.
Risk Management
The major part of the Group’s development and refining assets is located in the Russian Federation; for this reason the
impact of this risk is limited. At the same time the Company seeks to diversify its international operations.
When implementing high risk projects, the Company applies more stringent return level requirements. Besides, should
the political or social and economic situation deteriorate in a region of the Company’s presence, PJSC LUKOIL shall
implement a set of crisis response measures, including cost saving, optimization of the investment programme, equity
drawdown, and partner engagement.
Financial Risks
Liquidity Risks
Risk Description
Volatility of prices on hydrocarbons, hydrocarbon derivatives and foreign exchange rates, troubled recovery of demand
for energy resources and other external factors may create a disproportion in the figures included into plans, budgets and
investment programmes of LUKOIL Group, thus leading to the shortage of liquidity and sources of funding.
Risk Management
LUKOIL Group’s liquidity is managed on a centralized basis. Its principal tool is the global liquidity management system,
which includes an automated system of concentration and re-distribution of funds, as well as corporate dealing. LUKOIL
Group’s operational and strategic management of consolidated cash balance includes regular medium and long-term
forecasts of consolidated cash flows and cash balance, control of liquidity indicators, and assessment of the sensitivity of
the performance figures included into plans, budgets and investment programmes to macroeconomic changes. Should it
be necessary, the Company shall amend its plans, sequester the expenses associated with the transition to the worst-case
scenario, reschedule deadlines and project implementation dates or include optional projects into the plan in case of
improvements in the macroeconomic situation, and promptly finance its business activities.
Currently, PJSC LUKOIL has investment ratings from three largest international rating agencies, including: S&P (BBB
rating), Fitch (BBB+ rating) and Moody's (Baa2 rating).
On a regular basis, the Company monitors and ensures compliance of its financial indicators with the rating agencies’
requirements, while the Treasury maintains revolving credit lines to guarantee sufficient liquidity in the environment of
volatile markets.
Foreign Exchange Risks
Risk Description
The Company’s proceeds are mainly shaped by the US dollar proceeds from the oil and petroleum product sales, while
operating and capital expenses are denominated in rubles.
In this connection currency exchange fluctuations may have an adverse impact on the Company’s financial results.
Risk Management
The Company uses an integrated approach to manage its currency risks, including the application of natural hedging
mechanisms, which encompass management of the currency structure of its monetary assets and liabilities.
102
Risk of Contractor’s Default, Failure to Pay on the part of the Contractor
Risk Description
Default events of the Company’s contractors may result in failure to collect or delayed collection of proceeds from
supplied goods, or, as applied to financial contractors, failure to repay or partial non-repayment of funds placed on their
accounts, which may have an adverse impact on the Company’s financial performance and call for additional funds to
fulfill the Company’s obligations.
Risk Management
To mitigate the default risk and that of counterparties’ payment default, the Company makes settlements with third parties
outside of LUKOIL Group on a pre-paid basis or uses security instruments (letters of credit or bank guarantees) provided
by end buyers.
A list of counterparty banks recommended for cooperation is compiled, based on a regular comprehensive analysis by
applying tools to rank banks and financial institutions, including those recommended for trade finance transactions.
Legal Risks
Risk Description
Changes in regulations that cover subsurface use, power engineering, environmental protection, climate change, industrial
safety and corporate governance among other areas may have an adverse impact on the Company’s financial performance.
There are some uncertainties:
.
.
.
associated with the amendments to the Tax Code of the Russian Federation pertaining to the taxation of profits
generated by controlled foreign companies and to compliance practices;
associated with transfer pricing laws pertaining to the global efforts taken to prevent base erosion and profit
shifting by multinational companies;
associated with the introduction of tax measures in the jurisdictions of LUKOIL Group’s presence aimed at
stimulating and ensuring financial recovery of national economies, in particular, by imposing additional taxes
and dues and revising double taxation agreements, including the Multilateral Convention to Implement Tax
Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI).
Risk Management
The Company is constantly monitoring legislative changes, changes in compliance practices and case laws and takes
measures to collect information on possible changes at the stage of their preliminary discussion. The Company’s
representatives participate in such discussions in order to provide a detailed explanation of the Company’s standpoint on
these issues, risks and uncertainties which may arise as a result of the proposed legislative initiatives.
The Company’s representatives also participate in the expert reviews held to discuss and develop workable solutions in
terms of practical application of the effective legislative innovations.
Loss of Goodwill Risk (Reputational Risk)
Risk Description
PJSC LUKOIL faces various factors capable of causing realization of the reputational risk, which may have an adverse
impact on its financial performance and the value of its shares. Realization of the said risk may be brought about by both
internal and external factors, including failure to meet statutory requirements, those of constituent documents, in-house
policies and procedures, non-performance of contractual obligations, poor quality of finished products, or negative
perception of the financial stability and financial standing of the Company.
Risk Management
To manage such risks, the Company is taking efforts to ensure the following:
.
.
engage regularly with its stakeholders;
provide updated and unbiased data on its financial and operating performance, corporate governance and
sustainable development;
.
.
continuously monitor statutory and contractual compliance,
effect timely payments to its counterparties.
The Company maintains oversight over the quality of its products and provided services: in particular, a hotline is in place
to ensure prompt feedback to the matters related to filling stations.
103
Much attention has been paid to safety and environment issues. In its operations the Company follows the highest health,
safety, and environment standards.
The Company attaches great importance to issues relating to the working environment and social responsibility. The
Company implements the programmes aimed at support and improvement of the efficient labor and social protection
system.
Strategic risks
Risk Description
At the end of 2017 the Company’s Board of Directors approved the 2018–2027 Strategic Development Programme
encompassing the major risks which the Company may encounter during Programme implementation. The list of these
risks also includes the risk of failure to meet the deadline in terms of investment project implementation; the risk of failure
to reimburse for the expenses associated with implemented projects; the risk of increased tax burden; accident risks.
Risk Management
Strategic risks are always taken into consideration while drafting the Company’s strategy. Strategic planning involves
assessment of the risks and efficiency of various strategic initiatives, as well as development of a set of strategic decisions
that are most preferable in terms of risk to return ratio.
To mitigate its strategic risks, the Company’s management monitors the macroeconomic environment, major industry
drivers and analyzes performance of the Company’s subsidiaries and that of its competitors on a regular basis. While
developing its Strategy and Investment Programme, the Company relies heavily on the scenario-based and probabilistic
modelling tools making it possible to assess various risks.
Other Risks related to Issuer’s Business
Risks to Public Health and those Associated with the Spread of Epidemics
Risk Description
2020 proved the global economy exposed to a considerable negative impact in terms of public health and epidemics.
The declining demand for energy resources and reduced oil prices following exposure to such risks can make business
less efficient and impair the Company’s financial performance, and even lead to partial depreciation of the Company's
assets.
Risk Management
As the coronavirus infection was spreading, the Company took the following measures to ensure safety of its employees
and maintain operational efficiency:
.
.
The Company has set up headquarters for prompt response to the spread of the virus;
The Company introduced regular testing for coronavirus for employees returning to offices after remote work or
leaves;
.
The Company has made it obligatory to wear masks and gloves in its offices and has modified working areas
and common facilities so that employees could follow the social distancing requirement and stay 1.5 meters
away from each other;
.
.
The Company has introduced an attendance schedule for food service areas;
The Company has made arrangements for office employees of LUKOIL Group entities to work from home, with
the exception of critically important specialists who had to stay at their workplaces;
.
.
.
.
The Company implements all measures required to ensure industrial safety and fail-safe operation taking into
account the HSE requirements;
The Company has organized development and training activities for employees through a distance learning
system;
Working schedule has been changed for rotational employees (all social security obligations have been complied
with);
Additional measures are taken in the Company’s offices and entities to prevent the pandemic: body temperature
checks have been introduced for employees, offices have been equipped with additional disinfectants, and
employees are provided with disposable medical masks.
104
Risk of Terrorist Attacks, Wrongful Acts by Third Parties
Risk Description
PJSC LUKOIL has operations in a number of countries with a heightened risk of terrorist attacks and other crimes against
the Company’s assets.
The Company’s employees and assets may be jeopardized, especially against the backdrop of various destabilizing
factors, including deterioration in social conditions as a result of the pandemic.
There are also risks related to wrongdoings on the part of LUKOIL’s competitors (specifically, risks of unfair
competition), risks of financial and other abuses on the part of the employees, as well as those related to theft of financial
resources and commodity stocks.
Risk Management
Depending on a country where it operates, the Company takes various measures to manage the risk:
.
acting in compliance with the national laws, the Company seeks to ensure engineering, special and physical
protection of personnel and facilities on the required and reasonable level, and interacts with competent
authorities to prevent possible terror or criminal acts against the Company. In the Russian Federation, the
Company participates in the National Antiterrorism Committee campaigns to improve counter-terrorist
protection of its assets;
.
.
the Company takes actions to identify those employees who can – either through act or omission – inflict harm
on the Company’s interests;
schedules and arranges activities aimed at information security improvement;
Health, Safety and Environment (HSE) Risks
Risk Description
The Company’s facilities are characterized by risks related to the shutdown of engineering processes, discharges of
hazardous substances, environmental damage, emergency, accidents, fires, which in its turn may cause shutdown of the
Company’s production facilities.
Risk Management
To mitigate these risks, the Company has established and implemented an effective HSE Management System certified
to comply with the international standards ISO 14001 and ISO 45001. The following tasks are being fulfilled:
.
assignment of responsibility for ensuring compliance with occupational health, safety and environmental
requirements at all management levels;
.
.
target corporate HSE programmes developed based on best available technology;
production control over the operation of hazardous production facilities and facilities producing a negative
impact on the environment;
.
.
.
.
diagnostics (non-destructive inspection) and monitoring of equipment parameters;
repairs and timely replacement of equipment;
ensuring that all contractor entities fulfill HSE requirements at all interaction stages;
developing leadership tools and improving safety culture: conducting leadership safety visits and Safety Days,
adhering to key safety rules, and introducing best HSE practices;
.
.
.
ensuring high qualification of employees at all levels;
dedicated working environment assessment, improved labor conditions for employees;
elaboration of Emergency Response Plans at Hazardous Production Facilities, Oil Spill Response Plans, creation
of a pool of rescue teams and reserves for emergency response, service personnel training at hazardous
production facilities and rescue teams in terms of emergency prevention and response;
.
other measures to reduce the occupational accident and injury rate in LUKOIL Group entities.
Climate Change Risk
Risk Description
The Company’s business is associated with climate change risks that include:
.
Market risks – risks, associated with demand shifts and customer preferences;
105
.
Political, legal, regulatory risks – risks, associated with the transition of the global economy to low carbon
development and measures taken by countries, where the Company operates, to introduce more stringent
regulations on GHG emissions;
.
.
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Reputational risks – risks, associated with how stakeholders perceive the Company’s willingness or its
unwillingness to be involved in the transition to the low carbon economy;
Technology risks – risks, associated with the world’s more rapid transition to the low carbon economy as a result
of the development of low carbon technologies and their increased efficiency;
Physical risks – risks, associated with climate change and other environmental properties in the regions, where
the Company operates, and that might affect reliability of equipment or people’s health (these risks include
natural calamities and permafrost thawing).
These risks may have an adverse impact on LUKOIL’s business as a major producer of fossil fuels and greenhouse gas
emitter thus leading to increased costs, lower profitability and limited potential of the future growth.
Risk Management
To mitigate the risks, the Company takes relevant actions that include as follows:
.
Re: market risks – The Company applies a scenario approach to forecast macroeconomic indicators, various
climate scenarios and internal carbon price among them. These tools help identify the most sensitive assets and
investment projects in terms of negative changes of macroeconomic parameters and make management
decisions;
.
Re: political, legal, regulatory risks – The Company continuously monitors changes in the climate legislation,
strives to collect information on such changes at the stage of preliminary discussion, and to ensure participation
of the Company’s representatives in such discussions in order to provide a detailed explanation of the Company’s
standpoint on these issues, risks and uncertainties which may arise as a result of the proposed legislative
initiatives;
.
Re: reputational risks – The Company commits itself to regular disclosure of climate management data and
greenhouse gases emissions in line with the GHG Protocol, both direct and indirect emissions included;
.
.
Re: technological risks – The Company follows and develops new solutions to increase energy efficiency;
Re: physical risks – The company considers effects of climate changes when designing and constructing
facilities, including those in the most sensitive areas (the Arctic, scarce-water regions and offshore facilities),
and performs environmental monitoring against a relevant range of parameters that guarantees a timely response.
Risks of Failure to Implement the Investment Programme
Risk Description
While implementing investment projects, the Company has to face the risk of higher costs and untimely commissioning
of production assets.
Delays in project implementation, including those caused by failure to meet the deadlines for preparing design and
estimate documents, obtaining approvals, concluding contracts, work execution periods, as well as changes in field
development plans based on additional geological information may undermine future performance and impair investment
project efficiency.
If the macroeconomic situation should worsen and the pandemic persist, additional risks associated with failure to
implement the investment programme include a possible financial descent or bankruptcy of contractors, and failure to
engage contractors for the performance of particular types of work due to pandemic-related restrictions.
Besides, since the Company is part of a global supply chain, a prolonged epidemiological crisis may lead to delays in the
supply of equipment and materials required for project implementation.
Risk Management
The Company manages this risk by monitoring project implementation progress on a quarterly basis. While developing
its investment programme, it makes sure that the initial licenses, permits, and authorizations for the next year are valid
and in place.
The Company has introduced and is developing an Integrated Project Management System aimed to improve the quality
of decision-making and enhance the predictability of large-scale capital projects.
It employs flexible approaches to investment management. In view of the unstable macroeconomic situation, there is a
possibility to change the approved investment programme as the year progresses.
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Competitive Risk
Risk Description
The oil and gas industry exists in a highly competitive environment. The Company competes with other major Russian
and international oil and gas companies in the following major areas:
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obtaining licenses to upstream operations in the course of auctions or biddings;
acquisition of assets and equipment, participation in new projects;
engaging specialized third party service organizations;
hiring competent and experienced employees;
access to key transportation infrastructure;
development, search for, acquisition and integration of technologies;
sales of end products;
access to capital.
Besides, PJSC LUKOIL faces restless competition on the part of suppliers of alternative energy sources, including eco-
friendly renewable energy sources.
Risk Management
LUKOIL is one of the largest vertically integrated oil companies both in Russia and abroad. Over a long period, the
Company has been demonstrating its efficiency, which turns it into one of the industry’s leaders and strengthens its
competitive positions. The Company has gained a reputation of a reliable partner with strong financial standing. The
Company conducts strategic planning to reduce potential risks of increased competition. As part of long-term market
situation development the Company selects the most efficient assets and forms of respective participation interests. The
Company monitors the market situation on a regular basis and promptly responds to its changes.
Development of personnel professional and managerial competences and introduction of new technologies help the
Company to improve its competitive advantages.
Risk Associated with the Lack of Qualified Personnel
Risk Description
The competence and expertise of the employees may prove insufficient for them to adequately fulfill their duties, which,
in its turn, may have a negative impact on the Company’s financial performance indicators.
Risk Management
To mitigate the negative impact of this risk, the Company focuses on integrated development of the talent pool potential.
The staffing strategy is based on the Company’s Development Strategy and depends on the business segments’ needs
personnel, with plans and budgets being created for this purpose to help the Company organize efficient manpower
redistribution by insourcing, ensure recruitment of employees in due time, and provide for their professional training and
development.
Risks of Cyberattacks
Risk Description
Information and technological support and hence the automated processes affecting the Company’s financial standing
and performance, the reliability of its financial and accounting information, as well as the Company’s ability to fulfill its
obligations, function in an inter-related information environment and are inevitably exposed to the risks of external and
internal cyberattacks, which may affect information confidentiality, integrity and accessibility as part of the IT systems.
The Company considers not only its information and processing tools as assets that have to be protected from exposure
to cyberattacks but also the information that has been entrusted to it by the state authorities, shareholders, business partners
and personal data owners.
Risk Management
The Company adheres to the generally accepted global standards and best practices in terms of information security, seeks
to use the previously introduced protection tools more efficiently, and continuously improves its internal information
security services; however, evolving cyber threats require continuous preparedness to be able to respond to the previously
unknown cyberattacks. The success of these activities depends on early detection of new cyber threats before they can
affect the Company, and immediate counteraction to cyberattacks, which makes it possible to prevent or minimize
potential consequences.
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Special attention is given to being able to respond to the changing cyber threat landscape: the information security
architecture is restructured, additional security tools are purchased and deployed, and monitoring is intensified in a prompt
manner. The Company has successfully initiated and is expanding the computer farm capacity, thus providing users with
remote access to their automated workstations and corporate business applications.
Information Technology Support Risks
Risk Description
Besides the risks of cyberattacks which affect the confidentiality, integrity and availability of the information within the
IT systems used by the issuer, information and technological support of its managerial and financial activities is exposed
to the risks whose nature is not related to impaired information security. Such risks comprise the risks of failure to
implement the projects focused on the setup and upgrade of IT systems, their breakdowns and failures, failure to obtain
IT services from third party suppliers by the Company (also due to the escalation of international sanctions), as well as
the risk of market position loss due to delayed application of innovative digital technologies.
Risk Management
As for the risks related to implementation of the projects focused on creation and upgrade of IT systems, the Company
applies and improves modern development management practices, adheres to proven engineering solutions with reliable
engineering support.
Along with the preventive measures taken to minimize the risks that imply the setup of fail-resistant IT infrastructure,
testing of IT systems prior to their commissioning and control of proposed changes, the Company also seeks to plan
proactive measures to be taken in case the risk is materialized aimed at reactivation of critical business operations and
managerial process before the consequences of their interruption reach the unacceptable limit.
Minimization of risks related to participation of third party IT service providers is ensured both by careful selection of
suppliers, control over their activities and support of internal competences related to the provision of IT services that are
most critical for the Company.
The Company implements measures to control sanction risks; it has also developed a plan to respond to possible respective
risks. Digitalization initiatives are included into LUKOIL Group Information Strategy.
Risks Associated with Circulation of the Company’s Securities
Risk Description
The Company’s securities circulate in regulated markets in Russia and abroad. Changes in the requirements to the issuers
on the part of the regulatory authorities and stock exchanges may induce the Company to amend its corporate governance
procedures and assume extra obligations as to information disclosure and shareholder relations. Should the Company fail
to ensure compliance with these requirements and fulfill the required obligations, it may result in transfer of the
Company’s securities to lower listing segments and delisting, which may have an adverse impact on the liquidity and
price of the securities.
Risk Management
The Company monitors changes in the listing rules and other requirements of stock exchanges and regulatory authorities.
The Company’s representatives participate in the working meetings and other issuer events arranged by stock exchanges
and other organizations that provide consulting and educational services to the issuers. The Company also seeks to
introduce the best global practice in corporate governance.
Risks Associated with Disclosure Obligations
Risk Description
In order to maintain its securities listing the Company adheres to certain obligatory information disclosure procedures
within the timelines set by the requirements of the regulatory authorities and stock exchanges. The information is
disclosed in digital form by transferring it to the organizations authorized to disclose information in stock markets by
regulatory authorities (hereinafter also, information disclosure services), via websites of the said organizations and e-
mails. Should websites of the information disclosure organizations be unreachable (due to hacker attacks, technical
failures, etc.), as well as in case of malfunction of the Company’s own computer systems and other resources used for the
employees’ forced transition to remote work, the necessary information cannot to be disclosed within the set time limits,
which may be considered as a violation of the Company’s obligations and result in administrative fines for the Company
and/or its executive employees by the securities regulatory authorities.
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Risk Management
In order to mitigate these risks the Company shall conclude information disclosure agreements with several information
disclosure services, seek to submit the information prior to the agreed schedule thus ensuring enough time to tackle
possible technical failures. If the need be, the Company’s authorized employees can promptly contact the assigned
employees of the information disclosure services. During remote work, the Company’s IT departments provide essential
technical and consulting support to employees, and the Company monitors compliance with regulations and requirements
applicable during this remote work period.
Risk Management Procedures
PJSC LUKOIL Management pays great attention to risk management issues in order to ensure reasonable assurance of
the set goals in the conditions characterized by uncertainties and adverse factors. PJSC LUKOIL is constantly identifying,
describing, estimating and monitoring the potential events that may affect the Company’s activities, and is elaborating
measures to prevent them or mitigate their negative impact to the greatest extent possible if such events do take place.
The Company seeks to actively promote risk management and is presently focusing its efforts on the improvement of an
enterprise-wide risk management system (ERM) based on the best international practices. The Company is constantly
improving the applicable regulatory methodological risk management base which establishes uniform requirements for
all LUKOIL Group entities aimed at arranging the risk management process at all stages, and defines management
standards for certain risk types of utmost importance. The Risk Committee, a dedicated body under the President of PJSC
LUKOIL, was set up and began its work in 2011.
In order to enhance the efficiency of the corporate-wide governance system through the establishment of a unified
information environment, an information risk management system has been established and is being constantly improved
across LUKOIL Group entities.
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