Board of Directors

Board of Directors

The Board of Directors is responsible for the Company’s strategic management, determining priority development areas, defining key principles and approaches of risk management and internal controls, exercising control over the Company’s executive bodies, and performing other functions.

The scope of authority of the Board of Directors is set out in Gazprom Neft’s Charter and is clearly differentiated from the remit of the Company’s executive bodies responsible for managing its ongoing operations.

The election of executive bodies, termination of their powers and control over the incentive system are all reserved to the Board of Directors. One of the key responsibilities of the Board of Directors is to set up strong executive bodies and exercise oversight over their performance. On top of that, the Board regularly reviews reports on the implementation of the Company’s strategy and business plans.

The Board of Directors approves the Internal Control and Risk Management Policy and ensures implementation of the risk management and internal control initiatives. Also, the Board manages key risks related to the Company’s strategic objectives.

The Board of Directors is also responsible for improving the Company’s corporate governance system and practices, assessing the corporate governance framework, and reviewing reports on progress against the corporate governance improvement programme on a regular basis.

Given the strategic importance of its objectives, it is crucial for the Board of Directors to have trust of the Company’s shareholders and make sure that all of its tasks are fulfilled in the most efficient way possible.

The key responsibilities of the Chairman of the Board of Directors are set forth in the Charter, the Regulation on the Board of Directors and the Corporate Governance Code. Those include:

  • providing organisational support to the Board of Directors;
  • promoting an open discussion of the agenda items and ensuring thoughtful consideration of all opinions expressed by the directors;
  • identifying key matters to be reviewed by the Board of Directors and choosing the right meeting format for the discussion;
  • representing the Board of Directors in relations with shareholders, management and other stakeholders;
  • preparing proposals for the distribution of responsibilities in the Board of Directors and its committees.

The scope of authority of the Board of Directors, its operating arrangements and the existing corporate procedures make it possible to adopt a substantial part of resolutions by a simple majority vote. That said, the Chairman must take into account the opinion of each director and seek to ensure a consensus on key items.

In 2018, the Board of Directors was chaired by Alexey Miller who did not sit on any of the Board’s committees. Even though at that time Alexey Miller served as a director in some other companies and fulfilled the responsibilities of the Management Committee Chairman at Gazprom, the Company believes that these roles did not prevent him from effectively chairing the Board of Directors of Gazprom Neft.

Key competencies of the Board of Directors
Director Years on the Board Key competencies Public and government relations
Strategy Finance and audit Oil and gas Law and corporate governance Risk management
Alexey Miller 13 years (since October 2005)
Andrey Kruglov 13 years (since October 2005)
Kirill Seleznev 13 years (since October 2005)
Valery Golubev 11 years (since June 2007)
Alexander Dyukov 11 years (since November 2007)
Vladimir Alisov 9 years (since June 2009)
Vsevolod Cherepanov 7 years (since June 2011)
Elena Mikhailova 6 years (since June 2012)
Valery Serdyukov 6 years (since December 2012)
Mikhail Sereda 5 years (since December 2013)
Sergey Fursenko 5 years (since February 2013)
Igor Fedorov 6 months (since 9 June 2018)
Andrey Dmitriev 6 months (since 9 June 2018)
Marat Garaev 4 years (from 2014 to 8 June 2018)
Nikolai Dubik 10 years (from 2008 to 8 June 2018)

COMPOSITION OF THE BOARD OF DIRECTORS

The Board of Directors must be made up in such a way so as to enable directors to discharge their duties in the most efficient manner possible. The Board of Directors is comprised of 13 elected directors. With 95.68% of the Company’s ordinary shares held by PJSC “GAZPROM”, the overwhelming majority of Gazprom Neft’s directors are elected upon the recommendation of PJSC “GAZPROM”, the Company’s controlling shareholder. Out of 13 Board members, ten are non-executive directors (representing the majority shareholder), two are independent directors and one is the Company’s executive director. The independence criteria used by Gazprom Neft are based on recommendations of the Corporate Governance Code of the Central Bank of the Russian Federation (Bank of Russia).

All directors have a balanced set of skills and experience required for their roles. The directors possess skills in strategic management, corporate governance, corporate finance, risk management, accounting, and other areas specific to the Company’s operations.

The current composition of the Board of Directors ensures sufficient independence from the Company’s management and enables effective control over the performance of the Management Board.

Gazprom Neft has put in place a transparent procedure for electing directors that includes:

  • giving shareholders a two-month period to propose nominees to the Board of Directors (applicable law only provides for a one-month nomination period);
  • disclosing information about the current composition of the Board and its nominees in due time;
  • using cumulative voting for electing the Board of Directors and providing comprehensive explanations about the associated voting procedures to the shareholders;
  • providing quorum details and the number of votes cast for each option when announcing the voting results;
  • publishing resolutions adopted by the General Meeting of Shareholders on Gazprom Neft’s corporate website.
Balance of the Board of Directors by age
Name Age
Alexey Miller 56
Valery Golubev 66
Andrey Kruglov 50
Kirill Seleznev 44
Vsevolod Cherepanov 52
Igor Fedorov 53
Elena Mikhailova 41
Alexander Dyukov 51
Andrey Dmitriev 44
Vladimir Alisov 58
Mikhail Sereda 48
Valery Serdyukov 73
Sergey Fursenko 64

Board of Directors composition
Name Director
non-executive independent
Alexey Miller
Valery Golubev
Andrey Kruglov
Igor Fedorov
Kirill Seleznev
Alexander Dyukov
Vladimir Alisov
Vsevolod Cherepanov
Mikhail Sereda
Sergey Fursenko
Elena Mikhailova
Valery Serdyukov
Andrey Dmitriev

All directors are highly skilled professionals with an extensive board experience. They perform their duties in close collaboration with the Company’s management team, business units, registrar and auditors.

The number of directors is aligned with the Company’s current goals, objectives, and industry practices, and ensures the required balance of competencies in the Board of Directors.

Simultaneous participation of directors in other companies’ boards of directors did not affect their performance in respect of Gazprom Neft’s Board of Directors.

Directors are elected in a manner providing shareholders with sufficient information on candidates to get a clear idea of their personal and professional skills. Immediately after drafting the minutes of the relevant meeting, information on nominees to the Board of Directors is communicated to stakeholders by issuing a corporate action notice. Afterwards, full information is published on the corporate website in Russian and English 30 days prior to the General Meeting of Shareholders which will vote on the nominees.

Changes in the Board composition in 2018
Composition in 1 January – 8 June 2018 Composition in 9 June – 31 December 2018
Independent directors
Valery Serdyukov Valery Serdyukov
Sergey Fursenko Sergey Fursenko
Non-executive directors
Alexey Miller Alexey Miller
Valery Golubev Valery Golubev
Andrey Kruglov Andrey Kruglov
Nikolai Dubik Igor Fedorov
Kirill Seleznev Kirill Seleznev
Vladimir Alisov Vladimir Alisov
Vsevolod Cherepanov Vsevolod Cherepanov
Mikhail Sereda Mikhail Sereda
Elena Mikhailova Elena Mikhailova
Marat Garaev Andrey Dmitriev
Executive director
Alexander Dyukov Alexander Dyukov


Composition as at 31 December 2018

The Chairman and members of the Board of Directors, except for Alexander Dyukov, did not hold shares in the Company during the reporting year. Members of the Board of Directors did not execute any transactions involving acquisition or disposal of the Company’s shares during the reporting year.

In 2018, no claims were filed against the members of the Board of Directors

Secretary of the Board of Directors

The Secretary of the Board of Directors ensures effective ongoing communication with shareholders, coordinates the Company’s efforts to protect their rights and interests, and provides support to boost the efficiency of the Board of Directors.

The Secretary of the Board of Directors’ main tasks are to make sure that the Company and its officers comply with the rules and procedures of corporate governance established by Russian laws, the Company’s Charter and internal documents; to prepare and hold the General Meeting of Shareholders and meetings of the Board of Directors and its committees; to disclose information about the Company, and improve its corporate governance practices.

The Secretary of the Board of Directors is responsible for:

  • providing organisational and information support to the Board of Directors and its committees;
  • preparing and running of the General Meeting of Shareholders;
  • assisting the Chairman of the Board of Directors in organising and planning the activities of the Board of Directors;
  • arranging storage of the Board of Directors’ documents;
  • exercising control over the Board of Directors’ resolutions;
  • interacting with members of the Board of Directors, advising them on corporate governance matters, providing them with necessary documents and information;
  • disclosing information about the Company;
  • arranging interaction between the Company and its shareholders;
  • other functions in line with the Regulation on the Board of Directors, the Company’s internal documents and requests from the Chairman of the Board of Directors.

The Secretary of the Board of Directors has sufficient skills, experience and qualifications to perform his/her duties and enjoys impeccable professional reputation, while also continuing to upgrade his/her professional skills on an ongoing basis and being a notable figure in the professional community.

In order to ensure the Secretary’s independence, the Secretary is appointed by the Board of Directors based on recommendations from the Chairman. The Secretary of the Board of Directors and the Secretary of the Management Board are two different persons.

The role of the Secretary of the Board of Directors is formalised by the Regulation on the Secretary of the Board of Directors.

Regulation on the Secretary of the Board of Directors

Viktoriya Nenadyshina

Viktoriya Nenadyshina

Secretary of the Board of Directors since 25 September 2018

Biographical details
Born in 1984
Graduated from Toulouse University of Social Sciences (France) with a degree in European and International Business Law, and Russian Law Academy of the Russian Ministry of Justice with a degree in Law
2009–2011 – head of Legal Department at Magma Oil Company
2011–2012 – head of Legal Division at Moscow Oil and Gas Company
2012–2014 – head of Legal and Corporate Affairs at Gazpromneft Marine Bunker
Since 2014 to September 2018 – Deputy CEO for Legal, Corporate and Property Affairs at Gazpromneft Marine Bunker
Since 24 September 2018 – head of Corporate Governance Department at Gazprom Neft
Since 2018 – member of Board of Directors in the following companies: Tomskneft, Northgas, AS Baltic Marine Bunker, ITSK, Gazpromneft-Moscow Refinery, Gazpromneft-Lubricants, Gazpromneft-Omsk Refinery, Gazpromneft Lubricants Italia S.p.A, Gazpromneft-Noyabrskneftegaz, Gazpromneft-Khantos, Gazprom-Nefteservis, Gazpromneft-Prirazlomnoye, TsentrCaspneftegaz, Gazpromneft Bitumen Materials, Gazpromneft-Aero, Gazpromneft Marine Bunker, Gazpromneft Marine Bunker Balkan S.A, Gazpromneft Catalytic Systems, and Gazpromneft Energoservis
Worked as Secretary of the Supervisory Board at Gazprom Neft International S.A.

Holds no shares in Gazprom Neft and its subsidiaries. Has no family relations with other members of the Company’s governance bodies and/or bodies exercising control over financial and business operations.


Alexey Dvortsov

Secretary of the Board of Directors from 1 January 2018 to 24 September 2018

Biographical details
Born in 1972
Graduated from State University of Management (Moscow). Holds an EMBA from Stockholm School of Economics (2012)
Since 2007 to 21 September 2018 – head of Corporate Governance Department at Gazprom Neft

Report on progress made by Gazprom Neft’s board of directors in the Company’s priority areas in 2018

As part of its work during the year, the Board of Directors remained committed to addressing the key tasks in Gazprom Neft’s priority areas, including strategic operations, investment story, oversight over asset management, investing and financing activities, improved performance and transparency of governance tools, enhancement of internal controls, and accountability of the Company’s governance bodies.

Agenda items reviewed by the Board of Directors in 2014–2018, by area

Gazprom Neft’s Board of Directors operated as per semi-annual plans approved by the Company. The Board held 66 meetings in 2018.

Number of meetings held by the Board of Directors in 2014–2018
Attendance at meetings of the Board of Directors in 2018
Executive director
Non-executive director
Independent director

2018 saw
66
Meetings of the Board of Directors

Source: Company data
Director Total number of meetings the director attended Including through written opinion. Total number of meetings the director was eligible to attend
Alexey Miller Chairman
66 66
Valery Golubev
66 66
Andrey Kruglov
66 66
Kirill Seleznev
66 66
Alexander Dyukov
66 66
Igor Fedorov
34 38
Vladimir Alisov
56 66
Vsevolod Cherepanov
65 66
Mikhail Sereda
65 66
Sergey Fursenko
66 66
Elena Mikhailova
66 66
Valery Serdyukov
66 66
Andrey Dmitriev
38 38
Nikolai Dubik
28 28
Marat Garaev
28 28

Strategic development

Key matters reviewed by the Board of Directors:

  • Gazprom Neft’s Development Strategy to 2030;
  • Gazprom Neft’s resource base development strategy;
  • Gazprom Neft’s plans for international growth, including in the Middle East;
  • Gazprom Neft’s programme for the Russian offshore projects.

In line with recommendations of the Corporate Governance Code and the Regulation on the Board of Directors of Gazprom Neft, strategy and priority business areas must be reviewed by the Board of Directors meetings held in person.

In 2018, the Board of Directors reviewed and approved the Company’s Development Strategy to 2030, which succeeds the 2025 Strategy. Under the new Strategy, 2030 will see Gazprom Neft as an established oil and gas industry leader in terms of efficiency, use of technology, and safety. The Company’s focus is to enhance its standing as the world’s Top 10 public oil and gas player in terms of liquid hydrocarbon production volumes, and to maximise value creation per barrel. We view our existing and soon-to-be launched assets as the key contributors to the Company’s production growth in 2020 to 2030. The remaining upstream portfolio is expected to come from new exploration areas we tap into and putting on stream unconventional and hard-to-recover reserves, including in the Bazhenov, Domanic and Paleozoic formations. Offshore projects will also be a major driver.

The Board of Directors also reviewed and took note of progress made against the strategy to develop the Company’s resource base, which complements Gazprom Neft’s 2025 Development Strategy making sure that the Company delivers on its resource objectives while also staying tuned to the latest trends in the industry and global economy.

The Board of Directors examined Gazprom Neft’s international expansion plans, including ambitions to grow its business in the Middle East.

Currently, Gazprom Neft’s portfolio boasts more than 20 upstream and downstream projects outside of Russia. As a business heavily impacted by external and internal factors, the Company needs to align and adjust its international targets accordingly. To this end, the Board of Directors holds regular meetings to review any matters pertaining to international operations.

On 14 December 2018, the Board examined the Company’s programme for the Russian offshore projects. Based on the Company’s capabilities and its strategic objectives, the offshore exploration programme was updated for the period until 2021. Going forward, it will be the driver behind Gazprom Neft’s sustainability in offshore operations and will help secure a leading position on the Russian continental shelf.

The Board of Directors also reviewed a number of matters pertaining to the key focus areas pursued by some of the Company’s lines of business that are linked to Gazprom Neft’s Development Strategy:

  • performance and outlook for Gazprom Neft’s lubricants business;
  • measures taken by Gazprom Neft to minimise the share of international procurement;
  • developing channels to export Gazprom Neft’s oil and petroleum products: performance and outlook;
  • long-term outlook for Gazprom Neft’s Orenburg oil production cluster. Aligning Gazprom Neft’s upstream expansion with the growth of Gazprom’s downstream capacities for oil and associated petroleum gas;
  • portfolio analysis of Gazprom Neft’s upstream facilities, prioritisation and efficiency review of exploration and production activities

Gazprom Neft’s Board of Directors reviewed the performance and outlook of its engine oils business, which is operated by Gazpromneft-Lubricants, founded in 2007 and now accounting for as much as 21% of the Russian market for engine oils in retail packaging.

With its strategic focus on high-tech product portfolio, Gazpromneft-Lubricants needs to ramp up its capacities, among other things, by setting up lubricants production in target international markets.

Gazprom Neft’s Board of Directors reviewed the Company’s efforts aimed at increasing the share of Russian products and solutions in corporate procurement and introducing channels to export the Company’s oil and petroleum products. The Board also took note of information about the performance of the Downstream Efficiency Control Centre.

A larger procurement share of Russia-made products is on the list of Gazprom Neft’s priorities. To deliver on this goal, the Company is making use of existing Russian solutions while also supporting the drive to innovate and market new products.

Combined, the Company’s strategies for import substitution will help create in Russia more than 100 new high-tech products, which will benefit all of Gazprom Neft’s businesses. These will include high-tech drilling units, equipment and reagents for hydraulic fracturing, power generation, compression and downhole equipment, marine engineering solutions, equipment for offshore projects, and personal protective equipment.

Also, in 2018, the Board of Directors reviewed potential new channels to export oil and petroleum products, and assessed their efficiency and outlook going forward.

One of Gazprom Neft’s key export priorities is oil from the Arctic. To fulfil its ambitions, the Company has built an unprecedented logistic framework underpinned by the Prirazlomnaya offshore platform, Arctic Gates terminal, super ice-class vessels, and the transshipment hub at the Murmansk port.

Going forward, Gazprom Neft aims to increase its share in the European market by capitalising on the competitive advantages of its Arctic oil. New sales opportunities are currently under consideration.

The Board of Directors considered the long-term outlook for the Orenburg production cluster and progress on aligning Gazprom Neft’s upstream expansion with the growth of Gazprom’s downstream capacities for oil and associated petroleum gas. In the long run, the Orenburg production cluster will require the Company to successfully address the challenges of resource base and geography expansion in the region, efficiency improvement and greater use of technology in the upstream segment, and acquiring expertise in developing unconventional and hard-to-recover reserves.

The Board of Directors examined matters related to portfolio analysis of the Company’s upstream facilities and considered prioritisation and efficiency review of exploration and production activities.

Since 2006, Gazprom Neft has doubled its annual output and considerably expanded its geography by launching a large number of new projects. Today, the Company has an upstream portfolio of assets scattered all across its footprint, including southern and central parts of Western Siberia, Gydan peninsula and Yamal in the Arctic zone of the Yamal-Nenets Autonomous Area, the Volga-Urals region, Eastern Siberia, the Balkans, and the Middle East. By efficiently operating its existing assets and identifying the key strategic areas, Gazprom Neft will be able to build a balanced long-term action plan for its Upstream Division.

Innovations

Key matters reviewed by the Board of Directors:

  • improvement of Gazprom Neft’s performance management for operating processes in the oil business using innovative digital technologies;
  • Gazprom Neft’s R&D activities: planning, financing and management. Practical implementation and efficiency analysis of R&D findings;
  • Gazprom Neft’s track record of implementing global best practices in repairs management and efficiency outcomes;
  • progress on Gazprom Neft’s Innovative Development Programme to 2025: implementation of an innovation project on the development and production of catalysts for catalytic cracking and hydrogenation processes;
  • performance report of the Downstream Efficiency Control Centre;
  • approval of the report on the 2017 progress against Gazprom Neft’s Innovative Development Programme;
  • efficiency gains following transition of Gazprom Neft’s facilities to an extended run life. Stages of a new programme to switch to an extended run life and approval by the Federal Environmental, Industrial and Nuclear Supervision Service (Rostechnadzor). Building a platform for sharing knowledge between Gazprom Neft and Gazprom based on expertise in transitioning to an extended run life;
  • outcomes of an efficiency improvement programme at Gazprom Neft’s retail business based on new models to manage filling stations and development of target formats. Efficiency of Gazprom Neft’s retail and small wholesale operations in Central Asia.

In 2018, the Board of Directors paid special attention to the Company’s technology and innovations.

The Board of Directors took note of how the Company’s performance management framework for operating processes in the oil business is improving based on cutting-edge digital technologies.

Digital transformation is one of Gazprom Neft’s key priority areas with ample opportunities for efficiency gains in the context of increasing business complexity and reduced space to optimise processes through traditional approaches. With new methods that rely on the latest digital solutions, the Company can introduce end-to-end management across the value chain while also boosting the performance of some of its business lines by benefiting from predictive and recommendation analytics, and creating cross-functional centres for hands-on management and digital platforms.

In line with the approved work plan, the Board of Directors reviewed the results of the Company’s R&D activities, including their planning, financing, and management, and also practical implementation and efficiency analysis of R&D findings.

The Company uses R&D as a way to bolster its efficiency. By developing new software, including digital models and platforms, Gazprom Neft aims to integrate its operating processes, enhance flexibility, and make smart decisions faster. The catalysts and oil refining processes currently in progress will add value to the business, while the Company foray into unconventional reserves and development improvements at mature fields will help address the technology challenges faced by the industry at large. Gazprom Neft’s R&D is instrumental in promoting import substitution for oil refining catalysts, software, and drilling fluid components. The Board of Directors took note of the R&D priority areas based on the tasks and approaches outlined above.

The Board of Directors also approved the report on the 2017 progress against Gazprom Neft’s Innovative Development Programme, which received approximately ₽ 3.7 bn in financing for 2017 in line with the programme’s target. The largest expense items included upstream technology strategy, energy savings initiatives, designing a new catalyst production facility, and an R&D programme in oil refining.

Financial activities and risk management

Key matters reviewed by the Board of Directors:

  • the Group’s 2017 progress on implementation of Gazprom Neft’s Investment Programme, Budget (financial plan) and financial borrowings programme for 2017;
  • progress on, and efficiency of, implementing Gazprom Neft’s Budget and Investment Programme for 2018 based on the Group’s performance in 1H 2018. Amendments to the Group’s Investment Programme and Budget (financial plan) for 2018;
  • preliminary results of the Group’s Investment Programme and Budget in 2018;
  • projects of the Investment Programme and the Budget (financial plan), including Gazprom Neft’s financial borrowings programme, and Cost Optimisation (Reduction) Programme for 2019 and outlook for the period until 2021;
  • key performance indicators and their impact on Gazprom Neft’s efficiency;
  • assessment and update of Gazprom Neft’s key risks based on performance in 2017;
  • Gazprom Neft’s procurement activities;
  • Gazprom Neft’s debt structure and debt portfolio management in 2017 and optimisation proposals for 2018;
  • the Internal Audit Department’s performance report for 2017;
  • approval of Gazprom Neft’s Exchange-Traded Bonds Programme;
  • procedure to identify and sell non-core assets;
  • assessment of performance of Gazprom Neft’s external auditor for 2017;
  • external auditor’s fee for 2018.

Gazprom Neft’s Board of Directors pays close attention to ensuring oversight over the Group’s financing and investing activities.

First-level strategic targets and actual performance are subject to review and approval by the Company’s Board of Directors on an annual basis as part of deliberations on the approval of the budget / financial plan and the investment programme and implementation of the same. During the year, the Company may adjust its targets for the year in response to the evolving macro environment (changes in global prices for oil and petroleum products and FX fluctuations) and/or additional strategic investment projects of crucial importance. Based on the Board-approved strategic targets, the Company identifies lower level management KPIs for the upstream, downstream and other divisions and their structural units based on a KPI treeKPI tree is a hierarchy-based structure of key performance indicators with a clearly positioned main objective and goals of subsequent levels.. After the KPIs are set, they are cascaded and/or broken down for all the hierarchy levels across Gazprom Neft and its subsidiaries, along with joint ventures.

KPIs are a major driver that helps the Company deliver on its strategic targets. Gazprom Neft enjoys sustainable growth in its operating and financial performance while also making sure that the shareholder returns improve every year.

In 2018, the Board of Directors reviewed the performance assessment of Gazprom Neft’s external auditor, PwC Audit. This was done based on the Russian Audit Council’s recommended approaches to determining non-cost criteria to assess audit services. PwC Audit was described as using a risk-oriented approach with a focus on auditing reporting areas that may contain misstatements as a result of risk exposure. The team engaged by PwC have a broad professional expertise required to audit and review as necessary. The plan of audits for 2017 was aligned with the Company’s reporting schedule. As part of the audit, PwC used a number of big data technologies as a way to test data completeness, along with special tests to assess accounting entries while also minimising requests to provide initial documents.

The Board of Directors identified Gazprom Neft’s strategic targets for 2018–2020, approved the Budget (financial plan) for 2018, including the financial borrowings programme, Investment Programme for 2018, and Cost Optimisation (Reduction) Programme for 2018.

In 2018, the Board of Directors assessed the effectiveness of the Company’s risk management and internal controls.

During its 2018 meetings held in person, the Board of Directors reviewed the Company’s risk management framework and outcomes of risk profile assessment and update based on performance in 2017.

Assessing and updating the key risks is a complex process covering all work streams of the integrated risk management framework, including the development and introduction of risk analysis and management tools and methods, and providing personnel training in risk management.

The Company’s risks are updated in line with internal requirements for the integrated risk management frameworkRisk Management Policy (SK-11.03.01, approved on 7 February 2013), Master Standard for the Integrated Risk Management Framework (OSK-11.07, approved on 1 March 2016) and Methodology Guidelines for the Risk Management Process (M-11.07-01, approved on 1 March 2016). based on a bottom-up approach, starting from the Company’s subsidiaries and involving all the key managers and experts at subsidiaries, divisions, and Gazprom Neft’s Management Board.

The Company’s subsidiaries reassess their risks, develop measures to manage them, approve risk registers with respective functions and supervising units at the Company’s Corporate Centre. The most material risks of Gazprom Neft’s subsidiaries are consolidated into division level risk registers used as a basis for the draft Company-wide key risk register subject to approval by the Management Board.

The unit for monitoring the risk management framework supports the process of collecting risk information (including risk sessions, assessment analysis and reporting), starting from the level of subsidiaries all the way through to divisions and the Management Board.

As part of preparations for the next annual cycle of key risk assessment and update, the unit held 29 risk sessions and took part in 11 independent reviews of large projects.

In order to improve the quality of information on the Company’s risks, Gazprom Neft runs initiatives aimed at developing tools and methods for risk identification and assessment, along with personnel training in risk management.

In 2018, the key focus area in improving the tools and methods for risk identification and assessment was further integration of risk management with planning (strategic, business, and investment planning).

Social responsibility, safety and environmental protection

Key matters reviewed by the Board of Directors:

  • key environmental protection activities of 2017 and plans for 2018;
  • programme for APG utilisation and its improved use in 2018 and plans for 2019–2021;
  • changes in APG utilisation levels in the Orenburg Region in 2015–2018.

In accordance with the approved work plan, the Board of Directors reviewed implementation of the key environmental protection initiatives in 2017 and plans for 2018.

In line with Russian President’s Decree On the Year of the Environment in Russia and request from Gazprom’s Chairman of the Management Committee, 2017 was declared to be the Year of the Environment for Gazprom Neft.

During the year, the Company completed over 1,000 environmental initiatives worth a total of ₽ 17.5 bn. The key operating work streams during the Year of the Environment included lower air emissions, reduced APG flaring, improved waste water treatment and waste management, landscaping at production sites and shift camps, and improving the environmental awareness of employees.

For this programme, Gazprom Neft received an award from the Russian Ministry of Natural Resources and Environment, which recognised the Company’s pro-active environmental policy during the Year of the Environment.

Ensuring environmental safety in offshore projects is the Company’s absolute priority. Gazprom Neft has an integrated environmental monitoring system in place to confirm zero negative impact of its offshore projects, and a corporate programme for biodiversity preservation as a way to ensure sustainability of Arctic marine ecosystems in Russia. The programme was developed based on recommendations from the UN, Global Environment Fund, Ministry of Natural Resources and Environment, and WWF Russia.

The key task for 2019 is to implement projects that will help to deliver on the Company’s environmental targets. Some of the core environmental projects are building the infrastructure to utilise APG on the Company’s fields, including deployment of the reinjection technology; introduction of equipment reducing the environmental footprint as part of projects to upgrade and modernise refineries, and construction of local treatment facilities at Gazprom Neft’s retail companies.

On 26 October 2018, the Board of Directors reviewed progress on the programme for APG utilisation and its improved use in 2018 and plans for 2019–2021.

With its current gas project portfolio, Gazprom Neft is perfectly positioned to continue improving its APG utilisation, driven mainly by the effective management of materials and equipment and the launch of new infrastructure facilities.

In the short term, the Company plans to complete on-site construction at the Urmano-Archniskaya group of fields, continue with implementation of the gas programme at the Novoportovskoye field, and initiate APG utilisation at its new fields, including the Severo-Samburgskoye and Tazovskoye fields.

With its current gas project portfolio, Gazprom Neft is perfectly positioned to continue improving its APG utilisation, driven mainly by the effective management of materials and equipment and the launch of new infrastructure facilities.

Corporate governance

Key matters reviewed by the Board of Directors:

  • positions held by the Management Board members in the governance bodies of other companies;
  • composition of the Board of Directors’ Audit Committee;
  • composition of the Board of Directors’ Human Resources and Compensation Committee;
  • Secretary of the Board of Directors;
  • performance report of the Internal Audit and Risk Management Directorate for 1H 2018;
  • amendments to Gazprom Neft’s Transaction Handling Procedure and Procedure for Interaction with Investee Entities;
  • approval of the Regulation on the Secretary of the Board of Directors.

In line with recommendations of the Corporate Governance Code, the Board of Directors holds a regular assessment of the Company’s corporate governance framework, along with self-assessment.

The Board of Directors reviewed the performance of the Internal Audit and Risk Management Directorate for 1H 2018.

Taking note of a new centralised function of internal control recently established as part of the Internal Audit and Risk Management Directorate. This function will help ensure a single approach to how internal controls are set up and maintained, build the right corporate environment and culture, and better manage the flows of information related to internal controls.

In 2018, the Board of Directors approved the following by-laws:

  • Regulation on the Secretary of the Board of Directors of Gazprom Neft;
  • amendments to Gazprom Neft’s Procedure for Interaction with Investee Entities;
  • amendments to Gazprom Neft’s Transaction Handling Procedure.

The existing Transaction Handling Procedure and Procedure for Interaction with Investee Entities (the Procedures) were approved by the Company’s Board of Directors in 2010. The amendments introduce increased thresholds for transactions as a way to improve the efficiency of the Board by transferring the authority to oversee ongoing operations to the CEO.

The Regulation on the Secretary of the Board of Directors was approved in line with recommendations of the Corporate Governance Code to reflect best Russian practices in corporate governance. Previously, the scope of authority of the Secretary of the Board of Directors was defined by the Regulation on the Board of Directors.

Also, as part of the corporate governance activities, the Board reviewed matters related to preparations for the Annual and Extraordinary General Meetings of Shareholders.

Committees of the Board of Directors

The Board of Directors has two committees – the Audit Committee and the Human Resources and Compensation Committee.

Audit Committee

The Audit Committee exercises oversight over the Company’s financial and business operations. Elected by the Board of Directors, it performs its duties under the Company’s Charter and by-laws.

Audit Committee meetings
Metric 2015 2016 2017 2018
Number of meetings 8 11 12 13
Number of matters considered 22 30 34 35

Members of the Audit Committee

From 20 June 2017 to 21 June 2018:

  • Mikhail Sereda (Chairman)
  • Valery Golubev
  • Nikolai Dubik

From 22 June 2018 to 31 December 2018:

  • Mikhail Sereda (Chairman)
  • Valery Golubev
  • Elena Mikhailova

Responsibilities The Audit Committee assists the Board of Directors in supervising the Company’s financial and business operations by reviewing the efficiency of internal controls, including those related to financial and other reporting, assessing their completeness and accuracy, and monitoring the risk management system. The Audit Committee helps maintain a constructive dialogue with the external auditor, bodies charged with financial and business oversight, and the Company’s internal audit functions. Its activities are defined by the Board of Directors’ work plan, with particular focus placed on financial matters and investment planning.

The Committee’s composition, status, competencies, functions and responsibilities are set out in the Regulation on the Audit Committee, which also provides an overview of relevant operating procedures and procedures used to convene and hold the Committee meetings.

The Committee members have core financial competencies and expertise to fulfil their duties, including the review of financial statements, assessment of business performance, and financial management. There are no senior managers of the Company sitting on the Audit Committee.

In accordance with its work plan for 2018, the Audit Committee held 13 meetings and reviewed the following key items:

  • the Gazprom Neft Group’s IFRS consolidated financial statements for 2017 and 3M, 6M and 9M 2018;
  • findings of Gazprom Neft’s external audit in 2017;
  • the Internal Audit Department’s performance report for 2017;
  • assessment and update of Gazprom Neft’s key risks based on performance in 2017;
  • selection of Gazprom Neft’s auditor for 2018;
  • outcomes of tax risk management initiatives in 2017 and 1H 2018;
  • outcomes of credit risk management initiatives in 2017 and 1H 2018;
  • concept for the Group’s shared credit control centre;
  • outcomes of information system control initiatives in 2017 and 1H 2018;
  • outcomes of the programme to warrant the performance and boost the quality of internal audit in 2017;
  • disclosures to third parties, including analytical and rating agencies, and non-IFRS disclosures;
  • external auditor’s fee for 2018;
  • performance report of the Downstream Efficiency Control Centre for 1H 2018;
  • report on eliminating the gaps identified by the external auditor in 2017.

The Committee members attended all meetings, with representatives of the external auditor and the Management Board, Head of Internal Audit and other department heads also invited to take part in the Committee meetings as required by the agenda.

Human resources and compensation committee

The Human Resources and Compensation Committee is an advisory body of the Board of Directors.

The Committee’s composition, status, competencies, functions and responsibilities are set out in the Regulation on the Human Resources and Compensation Committee, which also provides an overview of relevant operating procedures and procedures used to convene and hold the Committee meetings.

In accordance with the Regulation, the Committee’s key responsibilities include a comprehensive preview of matters reserved to the remit of the Board of Directors and submission of recommendations to the Board of Directors on the Company’s HR policy and remuneration payable to the Company’s governance bodies and Audit Commission.

Members of the human resources and compensation committee

From 20 June 2017 to 21 June 2018:

  • Nikolai Dubik (Chairman)
  • Andrey Kruglov
  • Vsevolod Cherepanov
  • Sergey Fursenko (independent director)

From 22 June 2018 to 31 December 2018:

  • Igor Fedorov (Chairman)
  • Andrey Kruglov
  • Vsevolod Cherepanov
  • Sergey Fursenko (independent director)

Human Resources and Compensation Committee meetings
Metric 2015 2016 2017 2018
Number of meetings 6 7 6 4
Number of matters considered 10 10 10 5

In 2018, the Committee held four meetings and reviewed the following key items:

  • shareholder proposals as regards nominees to Gazprom Neft’s Board of Directors and Audit Commission; assessment of nominees to the Board of Directors;
  • remuneration of directors;
  • remuneration of members of the Audit Commission;
  • positions held by the Management Board members in the governance bodies of other companies;
  • assessment of the Board of Directors’ performance.

In 2018, the Human Resources and Compensation Committee approved new criteria to assess performance of the Board of Directors. Aligned with the Company’s current goals and objectives, these new criteria will enable in-depth analysis of the Board’s key processes.

In the reporting year, the Committee also reviewed each nominee to the Board of Directors for compliance with the independence criteria and submitted the following conclusions:

  1. The nominees have the required knowledge, experience and education and are sufficiently qualified to perform the directors’ duties and contribute to the Board’s efficient performance for the benefit of the Company and its shareholders.
  2. Each nominee boasts an impeccable personal and professional track record, which, among other things, implies no criminal records, whether in the past or at present.
  3. The Board of Directors is set to have one executive director as recommended by the Corporate Governance Code.
  4. The Board of Directors is set to have two independent directors who will make up 15% of all Board members, falling short of the threshold prescribed by the Corporate Governance Code.
  5. The Board of Directors will be sufficiently balanced in terms of gender and age representation.

In the reporting year, the Human Resources and Compensation Committee provided the Board of Directors with all the necessary recommendations, and discharged its mandate in full.

Assessment of the Board of Directors’ performance

In line with best corporate governance practices, the Board of Directors runs an annual self-assessment in all areas of its activities.

In 2018, the Human Resources and Compensation Committee approved new assessment criteria and deemed it advisable to engage an independent service provider for the Board’s review at least once in three years.

The Board’s performance assessment is held in the form of survey (polling). The questionnaire contains around 30 questions covering such key areas as the Board’s composition, type of activities, operating procedures, assessment of performance by the Chairman, committees and Secretary of the Board, and interactions among directors.

Polling results help quickly analyse the status quo of the Board’s key processes, including strategy, business practices, the Company’s efficiency management, support of the Board and its committees, and personal contributions of directors, including the Chairman and the Secretary.

The reporting year’s assessment revealed improvements in setting strategic priorities and interactions with top executives. At the same time, more efforts are needed to enhance the quality and timeliness of information provided to the Board and develop channels for improving communication with the management team and other stakeholders.

In 2018, Gazprom Neft’s Board of Directors engaged the Independent Directors Association (IDA), a recognised expert in corporate governance and board efficiency, to conduct external assessment of the Board performance as recommended by the Russian Corporate Governance Code. The external assessor noted that the Company’s management and Board of Directors had worked hard to further improve Gazprom Neft’s corporate governance practices since the previous assessment made in 2017, including as regards monitoring of progress made under the Strategy, risk management, budget planning and implementation controls, staging and holding of meetings of the Board of Directors and its committees, and performance management. The external assessment helped identify key improvement areas for the Board of Directors. Those included sustained focus on the implementation of long-term strategic projects and the need to pay closer attention to labour productivity, import substitution, health, safety and environment.

Induction for newly elected directors

To boost efficiency of the Board of Directors, the Human Resources and Compensation Committee runs an induction programme for newly elected directors.

The programme aims to bring new directors up to speed with the Company’s financial and economic operations, production processes and corporate governance practices in the quickest and most efficient way possible.

The programme comprises the following stages:

  1. meeting with the Chairman of the Board of Directors to discuss the Board’s work plan and the Company’s priorities; determination of the new director’s role on the Board based on their professional knowledge and expertise;
  2. meeting with the senior management team for a short briefing on the Company’s operations, rundown on the Company’s operational and financial structure, and introduction to the Management Board;
  3. consultations with the Secretary of the Board of Directors who provides information on procedural and legal aspects of the work done by the Board and its committees, the rights and responsibilities of directors, their remuneration, liabilities and liability insurance;
  4. a quick walk through the Company’s key documents and guidelines for directors describing main business aspects, internal procedures and the setup of the Board of Directors and its committees.
  5. The programme may also offer visits to the Company’s core assets, participation in its public events and meetings with key managers.

The induction programme is reserved to the remit of the Human Resources and Compensation Committee.

In 2018, the Board of Directors welcomed two new directors – Igor Fedorov and Andrey Dmitriev, Gazprom’s employees. As both of them are well aware of the Company’s operations, they had an accelerated onboarding, covering the Boards’ operating procedures, the rights and responsibilities of directors, their remuneration and liability insurance.