HIGH ACHIEVEMENTS HIGH RESPONSIBILITY

HIGH ACHIEVEMENTS HIGH RESPONSIBILITY ANNUAL REPORT 2014

4 ANNUAL REPORT 2014 KEY RESULTS OF THE YEAR 179% RESERVE REPLACEMENT RATIO +10.8% INCREASE IN OIL PRODUCTION 85.6% SHARE OF EURO 5 GASOLINE IN THE TOTAL OUTPUT 106.1 billion roubles OPERATING CASH FLOW KEY EVENTS OF THE YEAR Photobank Lori. P. 46 P. 58 P. 65 P. 73 P. 84 Creation of a new production cluster in Western Siberia: acquisition of LLC Burneftegaz Completion of large-scale refinery upgrade projects Expansion of the Group s own network of filling stations Completion of reorganization Change of controlling shareholder POSITION IN THE INDUSTRY 3.4% 96.6% 7.5% 92.5% 12% 88% 6% 94% SHARE IN OIL PRODUCTION IN RUSSIA SHARE IN OIL REFINING IN RUSSIA SHARE IN GASOLINE SALES IN RUSSIA SHARE IN SALES OF DIESEL FUEL IN RUSSIA We rank sixth in terms of oil production among Russian oil companies as Bashneft s production totalled 17.8 million tonnes of oil as of the end of 2014. We rank fourth among Russian companies in terms of crude oil refining; in 2014 Bashneft processed 21.7 million tonnes of crude oil. In 2014 we accounted for about 12% of domestic sales of gasoline. In 2014 we accounted for about 6% of domestic sales of diesel fuel.

HIGH ACHIEVEMENTS HIGH RESPONSIBILITY 5 BUSINESS MODEL AND GEOGRAPHICAL FOOTPRINT LICENSING Strategic regions of exploration and production GEOLOGICAL EXPLORATION Regional sales offices THE STRUCTURE OF THE GROUP S BUSINESS ENABLES IT TO CONTROL PROCESSES ALONG THE ENTIRE VALUE CHAIN, FROM GAINING ACCESS TO MINERAL RESOURCES TO SELLING PETROLEUM PRODUCTS IN RUSSIA AND ABROAD. UPSTREAM Purchased crude oil, gas condensate and NGLs Total liquid hydrocarbons Crude oil production REFINING Purchased petroleum products Oil refining Total petroleum products and petrochemicals MARKETING Export of petroleum products and petrochemicals Customs Union Countries outside the Customs Union Domestic sales of petroleum products and petrochemicals Retail sales Wholesale Crude oil exports Crude oil sales Domestic sales of crude oil Customs Union Countries outside the Customs Union REFINING DEPTH AT RUSSIAN OIL COMPANIES IN 2014 100% Bashneft 6% 94% 80% 85.9% 84.8% 77.5% 77.1% 72.3% 68.4% Other oil companies 60% 56.9% SHARE IN EXPORTS OF PETROLEUM PRODUCTS AND PETROCHEMICALS In 2014 we exported 9.5 million tonnes of petroleum products. Thus, our share in the total exports of petroleum products and petrochemicals stood at about 6%. 40% 20% 0% Gasprom Neft Bashneft TANECO LUKOIL Russia (average) Rosneft Surgutneftegaz Bashneft s refining depth is one of the highest in the industry at 84.8%.

6 ANNUAL REPORT 2014 ACHIEVEMENTS AND A RESPONSIBLE APPROACH TO BUSINESS IN THE UPSTREAM SEGMENT Sustainably high growth rate of oil production and high-quality resource base / Sustainable annual production growth / Successful application of cutting-edge technologies, including at brownfields / Good track record in implementation of complex projects on schedule and within budget / Systematic approach to building the resource base; a high reserve replacement ratio due to implementation of a large-scale geological exploration programme / Development of expertise in overseas project management IN REFINING AND MARKETING OF PETROLEUM PRODUCTS Technologically advanced refining business and efficient marketing channels / A high-technology refining complex and an ongoing upgrade programme / It is now feasible to ensure that 100% of engine fuel produced by the Group meets the Euro 5 standard in accordance with the technical regulations / Well-balanced sales structure, development of a retail network and greater efficiency of small-scale wholesale fuel supply to consumers IN TERMS OF FINANCIAL RESULTS AND SHAREHOLDER RETURN Best-in-class shareholder returns due to strong financial performance / Consistently strong financial results / Highest returns in the oil and gas industry / Dividend policy attractive to shareholders HOW WE ARE ASSESSED The Group ranks in the top ten global TSR performers and tops the industry ranking of global oil companies with the highest total shareholder return compiled by The Boston Consulting Group. 20 15 10 15.4 16.1 360.5 17.8 400 350 20 15 10 8.55 18.9 8.83 19.6 8.93 19.9 15 10 800 600 400 532.5 563.3 637.3 5 0 307.9 2012 321.5 2013 2014 300 5 0 2012 2013 2014 5 0 200 0 30.8 71.1 2012* 82.7 30.4 2013* 106.1 48.3 2014 200 100 0 Oil production, million tonnes Average daily oil production, thousand barrels per day 123 2012 134 2013 Reserve replacement ratio, % 179 2014 Refinery throughput, million tonnes Nelson Index, points HOW WE ARE ASSESSED Bashneft has been included in the list of the 50 most successful private-sector companies in the BRICS countries and other emerging markets. Bashneft has reinvigorated exploration and production in legacy regions and launched new projects, boosting output over the past five years. It has also modernized and improved the efficiency of its refineries. 2014 BCG Local Dynamos, a report prepared by the Boston Consulting Group (BCG). 200 150 100 50 0 Revenue, billion roubles Net cash from operating activities, billion roubles Capital expenditures, billion roubles 40.7% 10.2% 179.2% 2012* 2013* 2014 Dividend payout ratio under IFRS (for the years when payment of accrued dividends was completed) * Certain comparative information has been reclassified to ensure its consistency with the method of presentation used in financial statements in 2014.

HIGH ACHIEVEMENTS HIGH RESPONSIBILITY 7 THE GROUP S STRATEGIC PRIORITIES IN CORPORATE GOVERNANCE Consistency and a strong track record in implementing best corporate governance practices / Professional and experienced management team able to deliver strong operating and financial results / High level of corporate governance in accordance with international best practices / Transparent corporate and ownership structures / Highly manageable and efficient business due to a streamlined business model IN TERMS OF ENVIRONMENTAL AND SOCIAL RESPONSIBILITY Commitment to high standards in health, safety and environment (HSE) / Active involvement of the Group s top management in ensuring a leading HSE performance among Russian oil companies / The only Russian company to have joined IPIECA; a member of OGP / An integrated HSE Management System has been established and has undergone certification / Implementation of environmental projects involves introducing state-of-the-art technologies developed by global leaders IN THE UPSTREAM SEGMENT: / to boost oil production at brownfields in the Republic of Bashkortostan; / to implement the geological exploration programme in all of our core operating regions; / to develop new oil-producing regions in Timan-Pechora and Western Siberia; / to assess the feasibility of development of gas projects and unconventional hydrocarbon resources. IN REFINING: / to further upgrade the refining complex; / to increase refining depth and the share of light products and to cease to produce VGO and fuel oil; / to improve the energy efficiency of refineries. IN MARKETING OF PETROLEUM PRODUCTS: / to boost sales of high-margin products; / to expand direct access to consumers; / to develop sales of niche products: jet fuel, bunker fuel, bitumen and lubricants. IN CORPORATE GOVERNANCE: / to further improve the corporate governance system and adopt best practices in corporate governance; / to safeguard the rights and legitimate interests of shareholders and investors unconditionally; / to make the Group still more attractive to investors and further improve the transparency of its business. HOW WE ARE ASSESSED International experts from the BRITISH STAN- DARDS INSTITUTION (BSI) have confirmed the effectiveness of Bashneft s health, safety and environment management system. BSI has concluded that the Group s HSE system conforms with the international ISO 14001 and OHSAS 18001 standards. IN THE SPHERE OF HEALTH, SAFETY AND ENVIRONMENT: / to become the top HSE performer among Russian oil companies; / to meet international standards.

8 ANNUAL REPORT 2014 CONTENTS REPORT OF THE BOARD OF DIRECTORS: HIGH ACHIEVEMENTS. HIGH RESPONSIBILITY 3 SOME DEFINITIONS AND FORWARD-LOOKING STATEMENTS 9 ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE PRESIDENT OF JSOC BASHNEFT 10 ABOUT THE GROUP 13 Our history 13 Highlights of the year 16 Business model and geographical footprint 18 Position in the industry and macroeconomic factors 23 STRATEGY AND OPERATING RESULTS 29 Strategy and KPIs 29 Operating results 37 Financial results 68 Improvement of the Group s structure 73 Environmental and social responsibility 77 INVESTOR & SHAREHOLDER INFORMATION 83 Share capital 83 Equity market and capitalization 85 Dividend policy and profit distribution 88 COPROPATE GOVERNANCE 93 Fundamental principles of the Group s corporate governance practice 93 Structure of Bashneft s governing and supervisory bodies 95 Corporate governance quality audit and self-assessment 97 Exercise of shareholders rights 98 General Meeting of Shareholders of JSOC Bashneft 98 Board of Directors of JSOC Bashneft 100 Committees of the Board of Directors of JSOC Bashneft 116 Corporate Secretary of JSOC Bashneft 121 President and Management Board of JSOC Bashneft 131 Settlement of potential conflicts of interest of members of JSOC Bashneft s governing bodies 131 Risk management and internal control 133 Internal Audit 136 External audit 138 Significant corporate events 139 New Corporate Governance Code of JSOC Bashneft 140 Efforts to improve corporate governance 141 Information disclosure and investor relations 90

9 APPENDICES 143 Appendix 1. Consolidated IFRS financial statements of Bashneft Group for 2014 143 Appendix 2. Information on compliance of the joint-stock company with the principles and recommendations set out in the Code of Corporate Governance approved by the Bank of Russia 206 Appendix 3. Information on meetings of the Board of Directors of JSOC Bashneft 217 Appendix 4. Fuel and energy consumption 221 Appendix 5. Key risk factors 222 Appendix 6. List of companies and organizations in which JSOC Bashneft holds shares and stakes 228 Appendix 7. Information on JSOC Bashneft s participation in non-profit organizations (NPO) 230 Appendix 8. List of major and related-party transactions 231 Appendix 9. List of the most significant transactions made by the Company and legal entities under its control for 2014 239 Appendix 10. Information on major court cases 241 Appendix 11. Additional information to be included in the Annual Report 244 Appendix 12. Glossary of terms and abbreviations 248 OTHER 249 SOME DEFINITIONS AND FORWARD-LOOKING STATEMENTS In this Annual Report the terms Bashneft, we, Bashneft Group and the Group in various forms refer to JSOC Bashneft, its branches, subsidiaries and structured entities. The terms JSOC Bashneft and the Company refer to JSOC Bashneft. When referring to the period before the reorganization conducted in 2012, Ufimsky Refinery Plant (UNPZ), Novoil, Ufaneftekhim, Bashkirnefteprodukt and Orenburgnefteprodukt mean JSOC Bashneft s subsidiaries consolidated with the Company, namely OJSC Ufimsky Refinery Plant, OJSC Novoil (OJSC Novo-Ufimsky Refinery), OJSC Ufaneftekhim, OJSC Bashkirnefteprodukt and OJSC Orenburgnefteprodukt respectively; after the reorganization, these are respective branches of JSOC Bashneft. Unless otherwise stated, financial results covered in the Annual Report are presented and calculated on the basis of consolidated financial statements under IFRS and correspond to the results disclosed in the Management s Analysis of the Financial Position and Operating Results of Bashneft Group. Information on operating results presented in this document is consolidated data on Bashneft Group. Certain statements in this Annual Report may contain assumptions or forecasts concerning future events within Bashneft Group. These statements may contain the words is expected, is estimated, intends, will, could, negations thereof or other similar expressions. These statements are only assumptions. Actual events and results can differ substantially from those stated. The actual performance of Bashneft Group may differ materially from what is declared in our assumptions and forecasts as a result of a large number of factors. Such factors may include general economic conditions, Bashneft s competitive environment, risks related to operating in Russia, rapid technological and market changes in the Group s areas of business, as well as many other risks directly related to Bashneft Group. The Group uses a barrel-tonne conversion factor of 7.3. Data on reserves are based on the audit of reserves conducted by Miller and Lents in accordance with the international PRMS classification and are presented using the average barrel-tonne conversion factor of 7.11. When assessing contingent and prospective oil resources at the R. Trebs and A. Titov fields, Miller and Lents used a barrel-tonne conversion factor of 7.45. Certain amounts presented in tables, graphs and diagrams in the Report may differ from the sum of component parts due to rounding. CONTACT DETAILS 250

10 ANNUAL REPORT 2014 ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE PRESIDENT OF JSOC BASHNEFT ALEXEY TEKSLER Chairman of the Board of Directors of JSOC Bashneft ALEXANDER KORSIK President of JSOC Bashneft DEAR SHAREHOLDERS, The period covered by the 2014 Annual Report was one of the most challenging years in Bashneft s recent history. Nevertheless, despite the impact of major negative factors, such as a sharp deterioration in market conditions and external restrictions imposed on Russian businesses, Bashneft s team proved once again that it is able to deliver strong results and committed to consistent implementation of our development strategy for the benefit of all of the Group s stakeholders. In 2014 Bashneft once again achieved the strongest production growth rates in the Russian oil sector as it boosted oil production by 10.8% year on year to 17.8 million tonnes. We are proud that this growth was driven primarily by our brownfields in the Republic of Bashkortostan, where the Group once again achieved production growth that might seem incredible to many people: in 2014 production growth rate totalled 3.9%. Other important growth drivers include our new assets: the R. Trebs and A. Titov fields in the Nenets Autonomous District and Burneftegaz, an upstream company based in the Tyumen Region and acquired in March 2014, which has a considerable growth potential. Last year, these assets accounted for over 8% of the Group s total oil production. Growing production is supported by efficient reserve replacement: an independent audit conducted by Miller and Lents in accordance with the international PRMS classification has revealed that by December 31, 2014 Bashneft s proved reserves had increased by 4.9% to 2,146 million barrels. In 2014 the reserve replacement ratio totalled 179%, while Bashneft s reserves-to-production ratio amounts to 17 years. Brownfields in Bashkortostan accounted for more than half of the increase in proved reserves once again, which proves that geological and engineering operations and the geological exploration programme implemented by Bashneft in its key production region are effective. Last year saw a successful start of our new project with OJSC LUKOIL: as part of a newly created JV, Vostok NAO Oil Company, we continued geological exploration at seven new promising licence areas in the Nenets Autonomous District. In accordance with our strategy, we successfully continued to implement an ambitious refinery upgrade programme; moreover, we expanded our own network of filling stations and achieved a qualitative improvement in its performance. In 2014 Bashneft s refining complex in Ufa processed 21.7 million tonnes of crude oil, which is 1.2% more than in 2013. Last year, average refining depth and the average output of light products increased to 84.9% and 61.1% respectively. The Group retains its leading position in Russia as it has the most technologically advanced refineries: in 2014 the Nelson Index of Bashneft s refineries in Ufa increased from 8.83 to 8.93. Refinery upgrades enabled the Group to increase the output of high-quality light products. Thus, in 2014 the output of Euro 5 gasoline added 30.7%, while the output of Euro 5 diesel fuel increased by 26.6%. Last year, we put two new process units (a catalytic cracking gasoline hydrotreater and a hydrogen production unit) into operation; as a result, our refineries were ready to switch over completely to production of Euro 5 fuel ahead of schedule.

ADDRESS BY THE CHAIRMAN OF THE BOARD OF DIRECTORS AND THE PRESIDENT OF JSOC BASHNEFT 11 Last year, Bashneft considerably expanded its network of filling stations by acquiring attractive assets specializing in retail sales of petroleum products. In 2014 the number of the Group s filling stations, which operate in as many as 16 regions of Russia, increased to 582 compared to 485 in 2013. We successfully continued to implement the programme to rebrand our filling stations. As a result, last year saw an 8.6% increase in fuel sales via our own filling stations to 1.5 million tonnes. Strong operating performance largely offset the impact of external negative factors on our financial performance. In 2014 Bashneft Group s revenue under IFRS increased by 13.1% year on year to 637.3 billion roubles. Adjusted EBITDA totalled 102.5 billion roubles, while net income attributable to shareholders of the parent company amounted to 43.1 billion roubles. Operating cash flow added 28.3% and increased from 82.7 billion roubles to 106.1 billion roubles. In 2014 the Group s financial results enabled it to pay high dividends to its shareholders: dividends for 2013 totalled 211 roubles per share in addition to interim dividends for the nine months of 2013 totalling 199 roubles per share that Bashneft had paid earlier. Last year, Bashneft s management focused closely on one of our top priorities: improvement of corporate governance. In 2014 we successfully completed the final stage of the Group s reorganization programme by consolidating CJSC Bashneft-Invest with the Group. This reorganization was the last step in the implementation of a comprehensive strategy aimed at streamlining the corporate structure through a stock swap and eliminating cross-holdings in Bashneft, as well as divesting the Group s non-core businesses. As part of the reorganization, Bashneft bought back securities owned by minority shareholders worth a total of 17.9 billion roubles. Other notable achievements in 2014 included the Group s strong performance in the sphere of health, safety and environment. Last year, Bashneft reduced the number of occupational injuries by more than a third. There were no work-related fatalities in the Group. Creation of safe working conditions, reduction in the number of industrial accidents and environmental protection will remain our top priorities. As a socially responsible company, in 2014 Bashneft continued to implement charitable programmes in all of its operating regions; these programmes are aimed at improving social infrastructure and developing culture, education and sports. In 2014 Bashneft s social investments totalled about 1.4 billion roubles. In its turn, the state will pay close attention to Bashneft s development, and, as the Group s majority shareholder, it will facilitate the implementation of the Group s policy on sustainable development, which will help to make a substantial contribution to making the Russian economy more competitive and to supporting social and economic development of regions. High achievements and high responsibility are not mere words for Bashneft s employees. We all adhere to these principles in the course of our day-to-day work. Each of us is proud to be a part of a team of professionals which is on course for numerous further achievements in the interests of our shareholders and our country. 179% RESERVE REPLACEMENT RATIO IN 2014 17.8 OIL PRODUCTION +10.8% OIL PRODUCTION GROWTH 85.6% SHARE OF EURO 5 GASOLINE 102.5 ADJUSTED EBITDA million tonnes billion roubles

12 ANNUAL REPORT 2014 HIGH POTENTIAL FOR DEVELOPMENT +1 +407.8 MILLION BARRELS +97 NEW OIL-PRODUCING CLUSTER (THE KHANTY-MANSI AUTONOMOUS DISTRICT) 3Р RESERVES OWN FILLING STATIONS

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & COPROPATE APPENDICES SHAREHOLDER GOVERNANCE 13 INFORMATION ABOUT THE GROUP THROUGHOUT THE RECENT YEARS, BASHNEFT HAS BEEN DEVELOPING VERY SUCCESSFULLY: ITS OIL PRODUCTION IS GROWING; REFINERIES ARE UPGRADED; THE RETAIL NETWORK IS EXPANDING; NEW ASSETS ARE ACQUIRED. AT THE SAME TIME, THE GROUP IS ABLE TO PAY HIGH DIVIDENDS. Alexander Korsik, President, Chairman of the Management Board OUR HISTORY 1932 1935 1937 1951 1932 saw the discovery of the Ishimbayskoye oilfield. This marked the start of oil production in Bashkortostan. In 1935, in order to facilitate commercial oil production at the Ishimbayskoye field, Bashneft Trust was established. In 1936 the first ever trunk pipeline in the Volga and Urals region was commissioned. Then the Ufimsky Refinery Plant (UNPZ) was brought into operation in 1938. Key milestones in the history of the development of the Group s resource base include: the discovery of the Tuimazinskoye field (1937), where Russia s first high-yield Devonian oil deposits were discovered in 1944; subsequent discoveries of the Shkapovskoye, Chekmagushevskoye and Mancharovskoye fields (1950 to 1954) and the Arlanskoye oilfield, the largest oilfield in the region (1955). As oil production volumes increased, Bashneft s oil refining complex expanded: in 1951 the Novo-Ufimsky Refinery (Novoil) was put into operation; in 1957 construction of the third refinery forming part of the Ufa group, Ufaneftekhim, was completed; it specializes in manufacturing fuel and petrochemicals.

14 ANNUAL REPORT 2014 1967 1995 2009 2011 2012 2013 In 1967 Bashneft Production Association achieved the highest level of annual oil production at the fields in Bashkortostan: it totalled 67 million tonnes. On January 13, 1995, Joint-Stock Oil Company (JSOC) Bashneft was established. In March 2009 OJSC JSFC Sistema became the principal owner of six fuel and energy enterprises in the Republic of Bashkortostan, including JSOC Bashneft. In 2010 JSOC Bashneft bought controlling interests in OJSC Ufaneftekhim, OJSC Novoil, OJSC Ufimsky Refinery Plant, OJSC Ufaorgsintez and OJSC Bashkirnefte produkt from OJSC JSFC Sistema and became the parent company for the new oil holding. In February 2011 Bashneft entered the Timan-Pechora oil province after obtaining a licence for the development of a federal subsoil area including the Trebs and Titov fields in the Nenets Autonomous District. In December 2011 the Group signed an agreement with OJSC Lukoil on joint implementation of the project. In 2012 and 2013 Bashneft joined international upstream projects in Iraq and Myanmar as an operator. 2013 saw the completion of formation of a federal-scale vertically integrated oil company (VIC). JSOC Bashneft completed its reorganization through the consolidation of its five subsidiaries (OJSC Ufimsky Refinery Plant, OJSC Novoil, OJSC Ufaneftekhim, OJSC Bashkirnefteprodukt and OJSC Orenburgnefteprodukt) with the Company. This marked the first step in implementing a comprehensive strategy aimed at simplifying the corporate structure. In 2013 LLC Bashneft-Polyus, a joint venture of JSOC Bashneft and OJSC Lukoil, started oil production at the R. Trebs and A. Titov fields in the Nenets Autonomous District. In the autumn of 2013, as part of integration of Bashneft s refining complex in Ufa, management of three production facilities was centralized on the basis of the Bashneft-Ufaneftekhim Branch.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 15 2014 In the spring of 2014 consolidation of CJSC Bashneft-Invest with Bashneft marked a successful completion of the final stage of the Group s reorganization aimed at streamlining the corporate structure and eliminating cross-holdings in JSOC Bashneft. In March 2014 Bashneft achieved a major expansion into the West-Siberian oil and gas province through the acquisition of LLC Burneftegaz, an upstream company developing the Sorovskoye field. In May 2014 JSOC Bashneft and OJSC Lukoil established a new joint venture, LLC Vostok NAO Oil Company, to conduct geological exploration at licence areas in a promising region in the north-east of the Nenets Autonomous District. In 2014 the Group consolidated its subsidiaries specializing in retail sales into LLC Bashneft-Retail Sales and centralized the management of a network comprising 582 filling stations in 16 regions of Russia. In December 2014 in accordance with the ruling of the Commercial Court, OJSC JSFC Sistema transferred a controlling stake in JSOC Bashneft to the Russian Federation represented by the Federal Agency for State Property Management.

16 ANNUAL REPORT 2014 HIGHLIGHTS OF THE YEAR FEBRUARY MARCH MAY JUNE AUGUST An Extraordinary General Meeting of Shareholders of Bashneft approved the decision on reorganization through consolidation of CJSC Bashneft-Invest with JSOC Bashneft. The Meeting also approved a reduction in JSOC Bashneft s authorized share capital and a new version of the Company s Charter. In accordance with the decision of the Federal Subsoil Resources Management Agency (Rosnedra), the Company transferred the licence for the R. Trebs and A. Titov fields to its subsidiary, LLC Bashneft-Polyus. JSOC Bashneft and LLC Lukoil-Komi established a new joint venture, LLC Vostok NAO Oil Company, to conduct geological exploration and prospecting and produce hydrocarbons at licence areas in the Nenets Autonomous District. Bashneft completed the acquisition of a network of filling stations operating under the OPTAN brand name and comprising 91 filling stations and 11 land plots in 12 regions of the Russian Federation. JSOC Bashneft launched a reorganization of its system for retail sales of petroleum products. The reorganization involves consolidation of the Group s subsidiaries and branches specializing in retail sales into a single legal entity, LLC Bashneft-Retail Sales. Bashneft acquired LLC Promenergoresurs, a leading operator on the retail market for engine fuel in Magnitogorsk in the Chelyabinsk Region. Bashneft acquired LLC Burneftegaz, an exploration and production company based in the Khanty-Mansi Autonomous District. The Group gained the right to develop the Sorovskoye and Tortasinskoye fields and licences for geological exploration of the Severo-Ityakhskiy 3 and Vostochno-Unlorskiy subsoil blocks. The Annual General Meeting of Shareholders of Bashneft made a decision to pay dividends for 2013 amounting to 211 roubles per share in addition to dividends of 199 roubles per share for the said period that had been paid earlier. Bashneft started pilot operation of a catalytic cracking gasoline hydrotreater at the Bashneft-UNPZ Branch. The project is aimed at ensuring compliance with the requirements of the Technical Regulations for fuel quality. The launch of the hydrotreater will enable the Group to completely switch over to producing Euro 5 gasoline. The Group conducted its first-ever Investor Day in London attended by Bashneft s senior managers.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 17 EVENTS AFTER THE REPORTING DATE SEPTEMBER OCTOBER NOVEMBER DECEMBER MARCH 2015 At an auction for the right to conduct geological exploration, prospecting and production of hydrocarbons, Bashneft won the rights to the Leonovskiy subsoil area in the Republic of Bashkortostan. Bashneft gained control over 98% of shares of JSC United Petrochemical Company (UPC) through termination of the agreement on the sale of these shares to OJSC JSFC Sistema concluded in September 2013. The Board of Directors approved a new Code of Corporate Governance of JSOC Bashneft. The Code incorporates the requirements of Russian legislation, international best practices and principles of business ethics and established approaches to corporate governance developed by the Group. The document incorporates the provisions of the Code of Corporate Governance approved by the Bank of Russia. Bashneft completed the acquisition of a 100% stake in LLC AZS AKTAN, which owns a network comprising 17 filling stations in the Samara Region. An Extraordinary General Meeting of Shareholders of JSOC Bashneft decided to reduce the Company s authorized share capital by cancelling 2,724,173 ordinary shares with a par value of one rouble each, which were recorded as treasury shares bought back from shareholders as of December 31, 2014. An Extraordinary General Meeting of Shareholders of JSOC Bashneft convened on March 11, 2015 elected a new Board of Directors of the Company. The Company s Board of Directors comprised seven members representing the interests of the Russian Federation and three independent directors. Bashneft started pilot operation of a new hydrogen production unit at the Bashneft-Novoil Branch, which will enable Bashneft to ensure that all gasoline and diesel fuel that it produces meets the Euro 5 standard. In accordance with the judgement by the Moscow Commercial Court dated October 30, 2014, 122,971,934 ordinary shares and 6,192,245 preferred shares of JSOC Bashneft comprising a 71.62% stake in the Company s authorized share capital and previously owned by OJSC JSFC Sistema and CJSC Sistema-Invest were transferred to the Federal Agency for State Property Management. As a result, effective control over Bashneft s operations was transferred from OJSC JSFC Sistema to the Government of the Russian Federation. On December 29, 2014, subject to the judgement by the Moscow Commercial Court dated November 7, 2014 (case No. A40-155494/2014) and on the basis of the request by the Federal Agency for State Property Management, CJSC Sistema-Invest transferred ownership of 4,107,996 ordinary and 87,831 preferred shares of JSOC Bashneft (together comprising 2.3% of the authorized share capital) to the Russian Federation. As a result, the Russian Federation became the owner of 84.40% of the total number of ordinary shares and 21.08% of the total number of preferred shares of the Company, together comprising 73.94% of the authorized share capital of JSOC Bashneft.

18 ANNUAL REPORT 2014 BUSINESS MODEL AND GEOGRAPHICAL FOOTPRINT HOW WE CREATE VALUE GEOLOGICAL EXPLORATION REFINING The Group s business structure enables us to control the processes along the entire value chain, from gaining access to mineral resources to domestic and export sales of petroleum products. As the Group aims to expand its resource base and to ensure longterm production growth, it participates in auctions for promising licence areas in regions which are of strategic importance for our operations. As of the end of 2014, the Group owned 237 licences for development of 194 oil and gas fields in the Republic of Bashkortostan, the Khanty-Mansi Autonomous District, the Nenets Autonomous District, the Orenburg Region and the Republic of Tatarstan. For more information, see Operating results Licensing, geological exploration and reserves. At the licence areas, we conduct geological exploration using cutting-edge technological solutions. 3D seismic surveys conducted in 2014 covered 2.8 thousand sq. km. As a result of our active work to expand the resource base, the reserve replacement ratio increased to 179% by the end of 2014. For more information, see Operating results Licensing, geological exploration and reserves. We extract oil at the existing fields using enhanced oil recovery methods and applying innovative technologies. 175 of the Group s fields are in commercial operation. The Group s main oilfields are located in the Republic of Bashkortostan. This region accounts for 88% of our oil production. In 2014 highly effective geological and engineering operations and the use of modern technologies enabled us to increase oil production at brownfields by 3.4%. In addition, we are committed to geographical diversification of oil-producing areas and develop promising fields in new regions: Timan-Pechora and Western Siberia. LICENSING For more information, see Operating results Production. Crude oil is processed by the Group s Integrated Refining Complex comprising three oil refineries, which rank among the most technologically advanced facilities in Russia and are leaders in terms of refining depth and the quality of petroleum products that they manufacture. Bashneft s production facilities include petrochemical assets, whose main products include phenol, acetone, high-density polyethylene and polypropylene. A large part of oil produced by the Group is used as feedstock for Bashneft s refining complex. To maintain refinery throughput at an optimal level, we purchase oil, gas condensate and NGLs from third-party suppliers. In 2014 the Group s refineries processed 21.7 million tonnes of hydrocarbons. Refining depth averaged 84.8%, which is one of the best PRODUCTION indicators among domestic vertically integrated oil companies. For more information, see Operating results Refining. The Group sells crude oil, petroleum products and petrochemicals on the domestic market and exports them. In 2014 Bashneft Group sold 7.1 tonnes of crude oil, including 5.8 million tonnes of exported crude oil. In addition, the Group sold 10.4 million tonnes of petroleum products and petrochemicals on the domestic market and exported 9.5 million tonnes of petroleum products and petrochemicals. Petroleum products are also sold retail via a network of our own and partner filling stations. In 2014 we established LLC Bashneft-Retail Sales, based on which the Group consolidated its subsidiaries specializing in retail sales of fuel and centralized management of its own network of 582 filling stations in 16 regions of the country. In 2014, 220 partner filling stations were operated under the Bashneft brand name. MARKETING For more information, see Operating results Marketing.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 19 BUSINESS MODEL IN ACTION Crude oil production 17.8 million tonnes (130 million barrels) Crude oil sales 7.1 million tonnes (52.1 million barrels) Crude oil exports 5.8 million tonnes (42.6 million barrels) Countries outside the Customs Union 5.2 million tonnes (38 million barrels) Domestic sales of crude oil 1.3 million tonnes (9.5 million barrels) Customs Union 0.7 million tonnes (4.9 million barrels) Liquid hydrocarbons 29.2 million tonnes (213.2 million barrels) Refining and petrochemicals 21.7 million tonnes (158 million barrels) Wholesale 8.9 million tonnes Domestic sales of petroleum products and petrochemicals Retail sales 1.5 million tonnes Petroleum products and petrochemicals 10.4 million tonnes 21.7 million tonnes (158 million barrels) Countries outside the Customs Union 8.9 million tonnes Purchased crude oil, gas condensate and NGLs 11.4 million tonnes (83.2 million barrels) Purchased petroleum products 0.1 million tonnes (158 million barrels) Export of petroleum products and petrochemicals 9.5 million tonnes Customs Union 0.6 million tonnes

20 ANNUAL REPORT 2014 GEOGRAPHICAL FOOTPRINT PRODUCTION GROWTH IN 2014 WAS SUPPORTED BY A 3.4% INCREASE IN PRODUCTION AT BROWNFIELDS. ASSETS IN TIMAN-PECHORA AND WESTERN SIBERIA ARE ANOTHER MAJOR DRIVER OF THE GROUP S PRODUCTION GROWTH. THEY ACCOUNTED FOR 8.4% OF ANNUAL PRODUCTION. 26 Krasnodar Territory 30 Kaliningrad Region 11 Rostov Region Belgorod Region 8 24 4 Voronezh Region Smolensk Region 19 Tula Region Lipetsk Region Volgograd Region 1 1 Tambov Region 1 Tver Region Moscow Region 5 1 14 Penza Region Saratov Region Vladimir Region Leningrad Region 2 Nizhny Novgorod Region Republic of Mordovia Vologda Region 9 5 1 7 Chuvash Republic Ulyanovsk Region 20 41 Kostroma Region 3 25 Samara Region Mari El Republic Republic of Tatarstan Kirov Region Arkhangelsk Region 46 Republic of Udmurtia Republic of Bashkortostan Perm Territory 34 Sverdlovsk Region Stavropol Territory 98 Orenburg Region 292 26 26 Chelyabinsk Region 20 Kurgan Region Republic of Dagestan 2 LEGEND: Exploration Production Refineries Own filling stations Partner filling stations Regional sales offices Distant sales offices 802 Total number of filling stations 17.8OF OIL PRODUCED IN 2014 mln tonnes 21.7OF OIL PROCESSED IN 2014 mln tonnes

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 21 ASSETS WITH POTENTIAL FOR FURTHER DEVELOPMENT Nenets Autonomous District NENETS AUTONOMOUS DISTRICT 828 THOUSAND TONNES OF OIL PRODUCED IN 2014 8LICENCE AREAS Khanty-Mansi Autonomous District Yamal-Nenets Autonomous District Nyarioyakhskiy area Severo- Yareyaginskiy area The subsoil area including the R. Trebs and A. Titov oilfields Savatinskiy area Vostochno- Padimeyskiy area Verkhneyangareyskiy area Yangareyskiy area Sibriyaginskiy area Tyumen Region KHANTY-MANSI AUTONOMOUS DISTRICT 665 THOUSAND TONNES OF OIL PRODUCED IN 2014 Novosibirsk Region 4 LICENCE AREAS Vostochno-Unlorskiy area Tortasinskiy area Severo-Ityakhskiy 3 area Vostochno-Vuemskiy area

22 ANNUAL REPORT 2014 STRUCTURE OF BASHNEFT GROUP EXPLORATION AND PRODUCTION (RUSSIAN PROJECTS): UPSTREAM UNIT LLC Bashneft-Dobycha Republic of Bashkortostan, Republic of Tatarstan, Orenburg Region, Khanty-Mansi Autonomous District LLC Bashneft-Polyus Nenets Autonomous District (Trebs and Titov fields) LLC Vostok NAO Oil Company Nenets Autonomous District LLC Burneftegaz Khanty-Mansi Autonomous District LLC BashNIPIneft EXPLORATION AND PRODUCTION (OVERSEAS PROJECTS): Bashneft International B.V. Iraq, Myanmar DOWNSTREAM UNIT OIL REFINING Bashneft-Ufaneftekhim Branch Bashneft-UNPZ Branch Bashneft-Novoil Branch LLC Bashneft-Refinery Service PETROCHEMICALS JSC UPC OJSC Ufaorgsintez LLC Shkapovskoye GPP LLC Tuimazinskoye GPP MARKETING AUXILIARY OPERATIONS* LLC Bashneft-Retail Sales Bashneft-Regional Sales Branch LLC Promenergoresurs LLC Helios LLC OPTAN-AZS LLC AZS AKTAN A complete list of companies and organizations in which JSOC Bashneft holds shares and stakes is provided in the Appendix List of companies and organizations in which JSOC Bashneft holds shares and stakes * Telecommunication services, motor transportation services, health resorts, securities management, heat generation, electricity transmission, wholesale of heat and electricity, etc.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 23 POSITION IN THE INDUSTRY AND MACROECONOMIC FACTORS To ensure that Bashneft s development strategy is up-to-date, we constantly monitor key factors and trends in the oil and gas sector at both the country level and the global level. The formation of the development strategy and operating results of Bashneft Group are strongly influenced by external factors, such as: / global and domestic market prices for oil and petroleum products; / the rouble-dollar exchange rate and inflation rate; / taxation and government regulation of tariffs of natural monopolies. GLOBAL TRENDS AND FORECASTS FOR THE OIL MARKET In 2014 the global oil market was characterized by an imbalance of supply and demand. Production of liquid hydrocarbons exceeded their consumption, which caused oil prices to decline almost twofold in the second half of 2014. Growth of production of liquid hydrocarbons in the United States in 2014 led to a substantial reduction in the import of oil and petroleum products by this country. In the first half of 2014 the OPEC countries reduced production, but in the second half of the year oil production in these countries recovered. Despite a fall in prices, OPEC as an oil cartel followed the policy of maintaining the market share and did not reduce their production. In 2014 oil consumption was also affected by a slowdown in economic growth of some countries, including China. According to the International Energy Agency, in 2014 consumption of liquid hydrocarbons by developing countries exceeded the volume of consumption by developed countries. This trend is expected to continue in the future. Annual average oil prices in global markets 115 110 105 100 95 90 111.7 110.5 108.7 108.0 2012 2013 2014 Brent crude oil, US$ per barrel Urals crude oil, US$ per barrel 98.9 98.0 Source: Platts

24 ANNUAL REPORT 2014 3.4 % BASHNEFT'S SHARE IN TOTAL OIL PRODUCTION IN RUSSIA For more information about the factors that influenced the increase in the Group s oil production, see Strategy and operating results Operating results Production. Oil production by the largest Russian oil companies, million tonnes 2012 2013 2014 Change, 2014/2013 Rosneft* 117.5 192.6 190.1-1.3% LUKOIL 84.6 86.7 86.6-0.1% Surgutneftegas 61.4 61.5 61.4-0.1% Gazprom Neft 31.6 32.2 33.6 4.5% Tatneft 26.3 26.4 26.5 0.5% Bashneft 15.4 16.1 17.8 10.8% Slavneft 17.9 16.8 16.2-3.7% RussNeft 13.9 8.8 8.6-2.8% Other 77.0 82.2 85.8 4.4% Total 518.0 523.3 526.7 0.7% * Starting from 2013 the figure includes oil production by TNK-BP Source: CDU TEK, company data Bashneft s share in total oil production in Russia 4.0 3.0 2.0 1.0 0.0 3.0% 3.1% 3.4% 2012 2013 2014 OIL PRODUCTION IN RUSSIA In 2014 oil production in Russia increased by 0.7% and totalled 526.7 million tonnes. Average daily oil production declined from the first quarter through the third quarter of 2014. It was only in the fourth quarter that production resumed growth; at the end of the quarter, average daily oil production amounted to 10.6 million barrels per day. The decline in oil production is characteristic mainly for brownfields of large oil companies, which is to some extent offset by production at greenfields and production of smaller producers. Bashneft reports the strongest growth among Russian oil companies and ranks sixth in terms of annual oil production.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 25 7.5 % BASHNEFT'S SHARE IN TOTAL OIL REFINING IN RUSSIA Oil refining by the largest Russian oil companies, million tonnes 2012 2013 2014 Change, 2014/2013 Rosneft 50.6 75.8 77.0 1.6% LUKOIL 44.3 45.1 45.1 0.0% Gazprom Neft 31.6 31.3 32.1 2.4% Bashneft 20.8 21.4 21.7 1.2% Surgutneftegas 20.6 19.8 19.3-2.7% Slavneft 15.3 15.3 15.3 0.0% Tatneft (TANECO) 7.0 7.6 8.5 12.1% Other 52.4 56.3 70.1 24.4% Total 265.9 272.5 288.9 6.0% Source: CDU TEK, company data OIL REFINING IN RUSSIA In 2014 oil refining in Russia grew by 6% and totalled 288.9 million tonnes due to commissioning of new oil refining facilities and refinery upgrades. As of the end of the reporting year, Bashneft ranked fourth in terms of crude oil refining among Russian companies. The Group refined 21.7 million tonnes of hydrocarbons. Bashneft s refining depth remains one of the highest in the industry and totals 84.8%. Bashneft is also one of the industry leaders in terms of the share of light products in the total output. Share of light products and refining depth of Russian oil companies in 2014 Bashneft s share in total oil refining in Russia 100 50 Refining depth 48% 56.9% 54% 68% 72% 57% 53% 77% 61% 85% 86% 63% 8.0 6.0 4.0 7.8% 7.9% 7.5% Share of light products 2.0 0 Surgutneftegas Rosneft Russia (average) LUKOIL Bashneft Gazprom Neft Source: CDU TEK, the Group s data 0 2012 2013 2014

26 ANNUAL REPORT 2014 Bashneft s share in total sales of petroleum products in Russia, % Domestic sales of petroleum products manufactured by Russian refineries, million tonnes 14.0 7.0 0.0 11.6 11.6 7.0 10.1 2012 2013 2014 Gasoline Diesel fuel 7.7 7.1 12.2 6.0 4.7 2012 2013 2014 Change 2014/2013 Gasoline 34.5 34.4 34.3 0.4% including sales by Bashneft 4.0 4.0 4.2 4.1% Diesel fuel 35.5 35.3 36.5 3.4% including sales by Bashneft 2.5 2.5 2.2 10.5% Fuel oil 18.9 19.4 25.8 32.9% including sales by Bashneft 1.9 1.5 1.2 17.7% Source: Russian Ministry of Economic Development, the Group s data. Fuel oil Rouble-dollar exchange rate 50 25 0 30.4 31.1 32.7 31.8 2012 2013 2014 Rouble/dollar exchange rate at the end of the period, roubles Rouble/dollar exchange rate, period averange, roubles 56.3 38.4 Source: Central Bank of Russia DOMESTIC SALES OF PETROLEUM PRODUCTS In 2014 Russian oil companies sold 34.3 million tonnes of gasoline on the domestic market, which is almost comparable to the level of the previous year. Sales of fuel oil by Russian companies increased significantly (+32.9% year on year). In 2014 Bashneft accounted for approximately 12% and 6% of domestic sales of gasoline and diesel fuel respectively. The Group is gradually reducing its sales of fuel oil. EXPORT SALES OF PETROLEUM PRODUCTS According to the Russian Ministry of Energy, in 2014 oil exports are estimated at 220.7 million tonnes (-6.7% compared to 2013). In 2014 exports to countries outside the CIS amounted to 196.8 million tonnes (-5.4% compared to 2013), while sales to the CIS countries totalled 24 million tonnes (-16.4% year on year). Crude oil exports decreased in 2014 as a result of continuing growth of crude oil distillation at Russian refineries (as export-oriented production of oil products is more economically attractive than oil exports), global market trends and the cessation of exports to the Republic of Kazakhstan under an intergovernmental agreement. In 2014 Bashneft exported 5.8 million tonnes of oil. According to the Federal Tariff Service (FTS), in 2014 Russia s export sales of petroleum products reached 164.8 million tonnes, up by 8.8% compared to 2013. In 2014 exports to countries outside the CIS amounted to 155.2 million tonnes (+10% compared to the previous year), while exports to the CIS countries totalled about 9.6 million tonnes (-6.8% year on year). In 2014 Bashneft exported 9.5 million tonnes of petroleum products. Therefore, Bashneft s share in the total exports of oil products totalled about 6%. ROUBLE-DOLLAR EXCHANGE RATE AND INFLATION RATE About 60% of the Group s revenue comes from exports of oil and petroleum products. Therefore, fluctuations in rouble exchange rates have a direct impact on the Group s financial and business performance. In 2014 the average rouble-dollar exchange rate amounted to 38.4 roubles per US dollar. In 2014 the rouble inflation in Russia increased from 6.5% to 11.4%, which

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 27 Rates of excise duties on petroleum products, roubles per tonne Gasoline non-compliant with class 3, 4, 5 11,110 2014 2015* 2016* As from January 1, 2017* compliant with class 3 10,725 7,300 7,530 5,830 compliant with class 4 9,916 compliant with class 5 6,450 5,530 7,530 5,830 Naphtha 11,252 11,300 10,500 9,700 Diesel fuel from 4,767 to 6,446 3,450 4,150 3,950 Lubricants 8,260 6,500 6,000 5,400 * According to Federal Law No. 366-FZ Changes in the rates of mandatory payments 16,000 12,000 8,000 4,000 0 12,566 12,489 5,066 5,330 5,827 2012 2013 2014 Source: Central Bank of Russia Mineral extraction tax on oil, roubles pet tonne 14,083 affected both capital and operating expenditure of the Group. TAXATION The main mandatory payments to be made by oil and gas companies include the following: the mineral extraction tax, the excise on petroleum products, the export duty on crude oil and the export duty on petroleum products. In 2014 the export duty on crude oil was reduced by 6.5% in dollar terms, while the mineral extraction tax rate was increased by 9.3%. The change in the rate of the export duty on crude oil and the mineral extraction tax rate was affected by the fluctuation of prices on the international market. The mineral extraction tax rate is calculated on the basis of world prices for Urals oil and is set monthly in Russian roubles at the exchange rate for the corresponding month. According to the Tax Code of the Russian Federation, a reduced or zero rate of mineral extraction tax may be applied for certain oilfields. For Bashneft, such fields include the following: / the R. Trebs and A. Titov oilfields, which are located in the Nenets Autonomous District and exempt from the mineral extraction tax. As a result, the Group s actual expenditure on the mineral extraction tax for 2014 was 32% lower than that calculated using the general procedure for the mineral extraction tax calculation. In 2014 the State Duma passed Federal Law No. 366-FZ dated November 24, 2014 on the so-called tax manoeuvre. This manoeuvre involves a phased reduction in export duties on crude oil and petroleum products combined with an increase in the rate of the mineral extraction tax on oil and gas condensate during the period from 2015 to 2017. At the same time, the rates of excise on petroleum products will be reduced in stages (by a factor of 2.2 over a three-year period). In addition, tax deductions from the excise may be obtained if certain petroleum products are provided to/purchased by consumers on the domestic market who hold certificates for operations with the relevant petroleum products. Rouble inflation 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Export duty on oil, roubles per tonne 6.6% 6.5% 11.4% 2012 2013 2014 Source: Federal State Statistics Service (Rosstat) / a number of fields with a level of depletion exceeding 80%;

28 ANNUAL REPORT 2014 HIGH GROWTH RATES +28.3% +10.8% +18.4 P. P. GROWTH OF THE SHARE OF EURO 5 GASOLINE IN THE TOTAL OUTPUT 1.5MILLION TONNES SALES OF PETROLEUM PRODUCTS VIA BASHNEFT S OWN RETAIL NETWORK INCREASE IN NET CASH FROM OPERATING ACTIVITIES IN 2014 OIL PRODUCTION GROWTH

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 29 STRATEGY AND OPERATING RESULTS STRATEGY AND KPIs STRATEGY Our development is aimed at establishing a highly efficient and fast-growing vertically integrated oil company; this goal was set as early as 2010. We adjust our plans taking into account objective external factors affecting the industry as a whole, such as changes in macroeconomic conditions, the tax burden, the current situation on the market, and the specific features of Bashneft s development, and we focus on improving the Group s performance and making it more competitive. Thus, in December 2011 the Board of Directors decided to approve a fiveyear strategy for 2012-2016 (minutes No. 23-2011 dated December 26, 2011), which was subsequently updated in December 2012, and new solutions aimed at further increasing Bashneft s value between 2012 and 2022 were worked out. In November 2013 the Board of Directors approved the Group s strategy for the period from 2014 through 2018 (minutes No. 19-2013 dated November 29, 2013). Successful implementation of the strategy from 2010 through 2014 helped to make Bashneft one of the industry leaders and to form a vertically integrated oil company characterized by growing production, use of advanced refining technologies, reliable marketing channels and strong financial performance. Amid changes in macroeconomic factors in 2014 and 2015, including a fall in prices for oil and petroleum products, the tax manoeuvre, depreciation of the rouble, tighter logistic and financial restrictions, the Group began making adjustments to the current strategy, which involve development of strategic initiatives aimed at improving operational and financial performance, cost optimization, fostering import substitution, as well as integrating the goals and objectives of the new majority shareholder into the Group s operations. In addition to the general strategy, the Group follows a practice of preparing action plans or functional strategies listing and identifying key strategic measures in individual areas of operations: / upstream; / downstream; / personnel management; / occupational and process safety; / finance; / investor relations; / corporate governance; / legal support. BRIEF OVERVIEW OF THE MEDIUM-TERM STRATEGY We expect to obtain exploration results in Bashkortostan by 2017, which would enable us to start developing new reserves, like we did in previous years. For example, the Afanasyev field was discovered and promptly put into operation. The prospects for the R. Trebs and A. Titov fields are clear: we continue development and start the second stage of infrastructure construction. We also have ambitious plans with respect to development of Burneftegaz. In refining, we give priority to the construction of a delayed coker, and we are constructing a number of units that are smaller but equally important in order to upgrade our refineries. Some of these projects will be completed by 2017, while others will still be under construction. In the sphere of marketing of petroleum products, we keep searching for new assets to be acquired. With respect to the Group s structure, we have already made considerable progress. Bashneft s current structure is clear, transparent and comfortable for all existing shareholders and potential investors. As for our performance, at present we generate more money per tonne of oil produced than any other Russian company, and we have the highest Total Shareholder Return in Russia. From an interview of Alexander Korsik with the Kommersant in Ufa newspaper Everyone s got used to Bashneft being all right (September 2014)

30 ANNUAL REPORT 2014 THE GROUP S STRATEGIC PRIORITIES Upstream: to boost oil production at brownfields in the Republic of Bashkortostan by introducing new technologies and increasing the efficiency of the technologies currently in use; to develop new production regions in Timan-Pechora and Western Siberia, to continue implementation of the geological exploration programme in all core operating regions of the Group; to study and develop gas projects and unconventional hydrocarbon reserves. Oil refining: having ensured compliance of 100% of engine fuel produced by Bashneft with the Euro 5 emission standard in accordance with the Technical Regulations, the Group will further implement the refinery upgrade programme aimed at increasing the share of light products, including high-margin and niche petroleum products, ceasing to produce fuel oil and VGO and improving energy efficiency of refineries. Marketing of petroleum products: to achieve a further increase in sales of high-margin products through integrated development of guaranteed marketing channels and broadening direct access to consumers, as well as to develop sales of niche products: jet fuel, bunker fuel, bitumen and lubricants. Corporate governance: to further improve the corporate governance system and adopt the best corporate governance practices; to safeguard rights and legitimate interests of shareholders and investors unconditionally; to make the Group still more attractive to investors and to increase the transparency of its operations. Health, safety and environment: to attain a leading position among Russian oil companies and to comply with internationally recognized standards.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 31 Segment Goals set in the 2010-2012 Strategy Implementation status. Progress made in 2010-2014 Strategic priorities until 2018 Production To boost oil production To acquire new assets To strike a balance between oil production and refining To enter international markets Oil production has risen to 17.8 million tonnes During the five-year period, oil production exceeded 45% The first stage of development of the R. Trebs and A. Titov fields has been completed; the geological exploration programme has been implemented; oil is being produced Bashneft has acquired Burneftegaz, an upstream company based in the Tyumen Region Six new fields have been explored and put into operation in Bashkortostan. New oil and gas deposits at the existing fields have been explored The licence portfolio has been extended: new licence areas in Bashkortostan and Timan-Pechora have been acquired Bashneft and Lukoil have established a JV, Vostok NAO Oil Company, to conduct geological studies, exploration and production of hydrocarbons at the companies licence areas in Timan-Pechora Preparation of a project to develop gas condensate fields forming part of the Saratovsko-Berkutovskoye group in Bashkortostan The geological exploration programme at Block 12 in Iraq has been started Exploration and development rights for Block EP-4 in Myanmar have been acquired To maintain production at brownfields through application of highly efficient geological and engineering operations and innovative technologies To develop the R. Trebs and A. Titov fields in Timan-Pechora To develop the fields of LLC Burneftegaz in Western Siberia To implement the large-scale geological exploration programme in Bashkortostan To implement a geological exploration programme at new areas in Timan-Pechora within the JV, Vostok NAO Oil Company To develop the Saratovsko-Berkutovskoye group of gas condensate fields in Bashkortostan To participate in international projects Refining and petrochemicals To ensure that the refining complex in Ufa remains the most technologically advanced To increase refining depth and the share of light products To ensure compliance of products with the requirements of the Technical Regulations on time Refinery upgrades. It has become technically feasible to produce all engine fuel in compliance with the Euro 5 standard The Nelson Complexity Index has reached 8.93 In 2014 refining depth reached 84.8% In 2014 the share of light products reached 61.1% In 2014 the share of Euro 5 gasoline in the total gasoline output amounted to 85.6%. The share of Euro 5 diesel fuel in the total output of diesel fuel amounted to 36% To continue the upgrade programme; to retain technological leadership in terms of refining depth and the Nelson Index To increase refining depth and the share of light products, including niche products; to cease production of fuel oil and VGO To improve the performance of the petrochemical complex Marketing To develop the small wholesale business and retail sales To gain greater access to consumers To create and promote the Bashneft brand To strengthen the Group s position in the export market Between 2010 and 2014 the retail network expanded by more than 54%. The number of filling stations increased to 582 own filling stations and 220 partner filling stations The Bashneft brand has been established; a rebranding programme is underway across the network of filling stations Retail sales have more than doubled The share of retail sales in the total domestic sales of engine fuel increased to 24% To further develop own controllable marketing channels and to improve efficiency of domestic sales (small wholesale and retail) To implement the programme to rebrand filling stations To enter high-margin domestic and foreign markets To develop sales of niche products: jet fuel, bunker fuel, bitumen and lubricants

32 ANNUAL REPORT 2014 Segment Goals set in the 2010-2012 Strategy Implementation status. Progress made in 2010-2014 Strategic priorities until 2018 Corporate governance and sustainable development To improve the corporate governance system and the organizational structure To improve the performance of the governing bodies of JSOC Bashneft and its subsidiaries and affiliates To improve the market opinion on the Group s operations through information disclosure To ensure the security of assets In the sphere of health, safety and environment (HSE): achieving leadership among Russian oil companies in the sphere of HSE; compliance with internationally recognized standards A large-scale reorganization of the Group has been completed: the shareholder and organizational structure have been significantly simplified Divestment of non-core assets (transportation, services) has been completed Uniform governance standards have been introduced across the Group The share of Independent Directors on the Board totalled 30% The Company s Board of Directors has started to play a more active role in making key decisions; Board committees have been established to carry out preliminary review and make recommendations and decisions on key issues of the Company s operations The legal and corporate risk management system has been improved A system of information disclosure for the investment community and shareholders has been created: a system of preparation and disclosure of quarterly IFRS financial statements, including MD&A, has been created; complete informational transparency has been ensured at all stages of the Group s reorganization; annual reports and sustainability reports are published on a regular basis; a new corporate website and the Bashneft IR mobile application have been launched; an ongoing dialogue between the top management of the Group and the investment community has been established. Regular communication is ensured in the course of conferences, road shows, business meetings, conference calls. In 2014 the Group held its first-ever Investor Day An HSE management system has been created and certified To further improve the corporate governance system and implement best corporate governance practices To safeguard the rights and legitimate interests of shareholders and investors unconditionally To make the Group still more attractive to investors and to increase the transparency of its operations To further improve the information disclosure system and raise the level of disclosure for all target audiences To implement the Functional Strategy on Health, Safety and Environment (HSE): to improve the efficiency of the HSE management system; to protect the lives and health of employees; to ensure process safety at hazardous production facilities; to establish an environmentally friendly company; to protect employees in case of emergencies. To improve the Integrated Personnel Management and Incentive System KEY PERFORMANCE INDICATORS To ensure that the Group efficiently achieves its strategic goals, a system of key performance indicators was introduced in 2009 (Presidential Order No. 474 dated December 10, 2009) and is functioning. The cycle of updating of the system of key performance indicators (KPIs) is aligned with the strategic planning and business planning cycle; KPIs of senior executives are approved annually by the Board of Directors. KPIs for 2014 were approved by the Board of Directors in December 2013 (minutes of the Board of Directors No. 21-2013 dated December 18, 2013). The KPI system has helped to develop an approach to the management of the Company which involves: / expressing the goals and objectives in the form of a set of specific performance indicators of the Company and its individual business areas; / regularly monitoring the achievement of the Company s goals and objectives and managerial decision-making; / remuneration of employees depending on achievement of the Company s goals and objectives. JSOC Bashneft s KPI system is comprised of indicators that are linked to strategic goals, development plans, business plans and the objectives of the business support function. KPIs AS A METRIC SYSTEM Each indicator forming part of the KPI system meets best practice requirements: the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound). The 2014 KPI system includes several groups of indicators reflecting the achievement of strategic

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 33 Key performance indicators of the Group No. KPI name Persons responsible for KPIs Financial and economic performance indicators 1 EBITDA, million roubles All employees of the Company 2 Net income, million roubles President, Vice President for Economics and Finance 3 CAPEX, million roubles President, Vice President for Economics and Finance 4 Upstream CAPEX, million roubles Senior executives of the Upstream unit 5 Downstream CAPEX, million roubles Senior executives of the Downstream unit 6 Refining CAPEX, million roubles Senior executives of the Refining unit 7 Marketing CAPEX, million roubles Senior executives of the Marketing unit 8 Oil production cost excluding mineral extraction tax and depletion and depreciation (for brownfields), roubles/tonne 9 Refining cost, (excluding depletion and depreciation, fuel, property tax), roubles/tonne 10 Sales costs per tonne of petroleum products (small wholesale and retail sales), roubles/tonne Senior executives of the Upstream unit Senior executives of the Refining unit Senior executives of the Marketing unit Operational performance indicators 11 Oil production, thousand tonnes Senior executives of the Upstream unit 12 Growth in АВС 1 reserves at brownfields in the Republic of Bashkortostan, million toe 13 Domestic sales of petroleum products (small wholesale, retail sales), thousand tonnes Senior executives of the Upstream unit Senior executives of the Downstream unit 14 Share of Euro 5 gasoline, % Senior executives of the Downstream unit 15 Sales volume per filling station for the period, tonnes/period Senior executives of the Marketing unit goals and objectives along several dimensions: / finance: though financial performance indicators of the Company/ individual business area/project; / operations: though operational performance indicators of the Company (production, refining, sales volume) and its individual business areas; / projects: though project-related goals: ensuring that a result is delivered by a prescribed deadline within the planned budget. The 2014 KPI system of JSOC Bashneft s Corporate Centre contains 135 indicators, including 92 operational indicators and 43 project-related indicators. In 2014 special attention was paid to the development of the HSE system; to assess it, the Group has developed separate KPI metrics that are aimed at increasing the transparency of information on industrial injuries and introducing reporting standards with respect to industrial accidents, environmental protection and social issues in accordance with international standards.

34 ANNUAL REPORT 2014 Allocation of weighting among KPIs in the incentive and remuneration system for senior management in 2014 Indicator category Indicator weighting for a senior manager in 2014 Corporate KPI (EBITDA) 35-65% Operational KPIs 55-20% Project-related KPIs 10-15% For more information on the current incentive and remuneration programme, see Corporate governance President and Management Board of JSOC Bashneft System of remuneration for the Group s top management. KPIs AS AN INCENTIVE INSTRUMENT The KPI system helps to incentivize the top management and other employees to achieve strategic goals and objectives set out in the business plan. Achievement of any indicator forming part of the KPI system corresponds to an employee s area of competence, which makes the process of KPI achievement manageable. The incentive structure combines the key components of success: / work aimed at achieving an overall result: remuneration based on achievement of a corporate indicator, which is established for all employees according to the principle of consolidated responsibility with a varying weighting; corporate KPIs are selected annually by the Board of Directors from among the main financial parameters of the Company s operations; in 2014 EBITDA was used as a corporate KPI; / quality of performance of operational and functional tasks: remuneration based on achievement of operational KPIs of a unit or individual KPIs; / business development efforts: achievement of project-related KPIs; in 2014 this group of indicators was a priority. The weighting of a corporate KPI for different management levels is approved by the Board of Directors and set forth in the Regulations on Bonus Payments. KPIs AS A GOAL SETTING INSTRUMENT To incentivize its employees and managers to attain the Company s strategic goals and objectives in an efficient manner, the Group applies a principle of cascading of strategic indicators depending on management levels in accordance with the Company s organizational structure and functions of various executives: / the basis is formed by the Company s financial and economic KPIs (TDI), which are a set of quantifiable indicators whose target levels are communicated to the Company by the Board of Directors and which are taken as a basis when updating the overall strategy and KPIs of the Company s President; / KPIs of business areas (KPIs of senior executives of business areas and units) are established in the strategies of the business areas in accordance with the procedure for breaking down the Company s goals and objectives; / KPIs of auxiliary units (KPIs of executives of auxiliary units) are determined in accordance with business needs for successful attainment of strategic goals and objectives; / indicators are cascaded down to the level of the executives of various divisions of the Corporate Centre whose performance has a direct impact on the Company s performance (directors of departments) and senior management of branches and subsidiaries (executives and senior officials); / KPIs of other employees (heads of divisions, managers, leading specialists and other personnel) are focused on attainment of objectives of business units, but primarily on achievement of individual goals and objectives. Thus, KPIs of those executives who have a direct impact on performance of the Company or any of its business areas form a complex of indicators encouraging the achievement of strategic goals.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 35 KPI PYRAMID TDI (Top-down indicators) ΔNAV Long-Term Senior Management Incentive Programme (LTI) 3 YEARS KPIs of the President Company s Strategy Strategies of buisness lines (Upstream and Downstream) Functional Stratgies and plans of key measures adopted by support units KPIs of Buisness Units and buisness line Executive KPIs of Funtional Units Executives Short-Term Incentives for Senior Management 1 YEAR KPIs of the Corporate Center Structural Unit Executives KPIs of the Branches, Subsidiaries and Affiliates QUARTER/YEAR KPI MONITORING PROCESS KPI Delivery Report Performance analysis Managerial decisions: corrections to action/project plans I quarter Delivery Monitoring II quarter Delivery Monitoring KPI Delivery Report Performance analysis Managerial decisions: corrections to action/project plans Annual KPI Delivery Report Performance analysis Remuneration to Senior Management 1year Delivery Monitoring III quarter Delivery Monitoring KPI Delivery Report Performance analysis Managerial decisions: corrections to action/project plans KPIs AS A PERFORMANCE MANAGEMENT INSTRUMENT The Company monitors the achievement of KPIs on a regular basis. This analysis is performed for the following purposes: / evaluation of progress in achievement of the Group s strategic goals; / measurement and analysis of an executive s actions aimed at attaining strategic goals; / bonus payments to top managers; / improvement of business efficiency and functioning of the KPI system. The monitoring is conducted quarterly and annually. The purpose of quarterly monitoring is to ensure interim control over the achievement of established target KPIs. Annual monitoring is carried out in order to analyse the achievement of established annual targets and strategic goals of the Company, as well as for the purposes of bonus payments to the senior managers. Based on the results of the monitoring, executives analyse the current operational and project-related performance, and the analysis forms the basis for management decisions.

36 ANNUAL REPORT 2014 FUNCTIONING OF THE KPI SYSTEM The functioning of the KPI system is regulated by internal policies and procedures: the Regulations on the KPI System and the Procedure for Creating and Updating the KPI System and the Procedure for Monitoring the Achievement of KPIs. The Board of Directors annually approves the main parameters of the Company s operations, which are used as a basis for development of strategic documents and selection of corporate KPIs. The KPI system for senior executives, including the President of the Company and heads of business areas and auxiliary units, is reviewed by the Nominating and Compensation Committee and approved by the Boards of Directors. The KPI system for senior management, including senior executives and directors of departments, is brought into force by an order of the President of the Company. KPI systems of subsidiaries are approved by their governing bodies pursuant to their respective charters. Based on KPI delivery reports for the year containing audited data and comments on deviations of actual values from target indicators, the President of the Company carries out a performance evaluation of senior management (including senior executives) for the year. Performance evaluation of senior executives should be confirmed by the Nominating and Compensation Committee and approved by the Boards of Directors. Bonus payments are calculated and paid based on the approved evaluations. KPIs of employees other than senior managers are determined in accordance with the functions and competence of the relevant employee and are supervised by his/her immediate superior. In 2014 we made some changes to approaches to formation of the KPI system for 2015 by applying the standards applicable to state-owned companies to the system; in accordance with these standards: / stronger focus is given on the project-related component of the KPI system; / a system of collective responsibility of senior management for implementation of key strategic projects of the Group has been developed. In 2015 the approach will be finalized to ensure full compliance with regulatory requirements for state-owned companies. Weightings of the indicator in the set of KPIs for senior managers in 2015 Indicator category in the KPI system of JSOC Bashneft s Corporate Centre Corporate KPI (EBITDA) 50-35% Operational KPIs 30-45% Allocation of weightings for a senior manager* Project-related KPIs 20-25% * As of December 31, 2014

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 37 OPERATING RESULTS LICENSING, GEOLOGICAL EXPLORATION AND RESERVES ONE OF THE KEY ACHIEVEMENTS IN 2014 CONSISTS IN CONSIDERABLE EXPANSION OF OUR RESOURCE BASE DUE TO AN INCREASE IN THE SCOPE OF GEOLOGICAL EXPLORATION AND THE USE OF ADVANCED DEVELOPMENT TECHNOLOGIES. Yuri Krasnevsky, Vice President for Geology and Development Our key strategic priorities in licensing, geological exploration and replenishment of reserves are: / to implement a large-scale geological exploration programme in Bashkortostan using modern research methods; / to implement geological exploration projects at new licence areas in the Nenets Autonomous District and the Khanty-Mansi Autonomous District; / to obtain new licences in core and promising regions; / to participate in international projects. Our progress in achievement of strategic objectives in 2014: / production is to a large extent balanced out by growth in reserves; / Bashneft acquired LLC Burneftegaz, whose main resources are located in the Khanty-Mansi Autonomous District; / the reserve replacement ratio totalled 179%; / Bashneft won the competition for the Leonovskiy subsoil area in the western part of the Republic of Bashkortostan; / Bashneft and OJSC Lukoil established a new joint venture, LLC Vostok NAO Oil Company, to conduct geological exploration and prospecting and produce hydrocarbons at seven licence areas in the Nenets Autonomous District. 179% RESERVE REPLACEMENT RATIO

38 ANNUAL REPORT 2014 OUR ACHIEVEMENTS In 2014 at an auction for the right to conduct geological exploration, prospecting and production of hydrocarbons, Bashneft won the rights to the Leonovskiy subsoil area. The Leonovskiy subsoil area has an area of 153.7 sq. km and is situated in the west of the Republic of Bashkortostan in the Buzdyaksky and Blagovarsky districts. 2D seismic surveys and exploration drilling conducted from the 1950s until 1999 at the Leonovskiy subsoil area uncovered seven promising formations with С 3 recoverable oil resources totalling 1.9 million tonnes. LICENSING Expansion of the resource base and long-term production growth are among the Group s key objectives. In accordance with the adopted strategy we increase the number of development licences in the Group s key regions. As of the end of 2014, the number of licences of all categories related to exploration and production of hydrocarbons totalled 237. In the reporting year JSOC Bashneft obtained three new licences for exploration and production of hydrocarbons: / at an auction for mineral rights, a licence for geological exploration, prospecting and production of hydrocarbons at the Leonovskiy subsoil area was obtained. The area is located in the west of the Republic of Bashkortostan next to the Saninskoye and Amirovskoye fields that are being developed; seven formations have been prepared with resources totalling about 2 million tonnes; / a licence for geological exploration of underlying formations at the Tabynskoye field in the south-east of the Republic of Bashkortostan was obtained on a sole source basis. The aim is to study unconventional (Domanic) reservoirs; / following the reorganization of LLC Bashneftegazrazvedka, a licence for prospecting and evaluating oil and gas deposits at the Vostochno-Ikskiy Movement in licences* Category As of December 31, 2013 Obtained at auctions Obtained without competition Revoked As of December 31, 2014 Oil and gas production 203 2 201 Prospecting and evaluation of oil and gas deposits Geological exploration and production of hydrocarbons 14 2 16 25 1 6 20 * The data do not include licences of subsidiaries. Licences by operating region** Oil and gas production Oil and gas prospecting and evaluation Geological exploration and production of hydrocarbons At year-end 2013 2014 2013 2014 2013 2014 Republic of Bashkortostan 198 196 14 16 18 19 Nenets Autonomous District 6 Republic of Tatarstan 1 1 Khanty-Mansi Autonomous District 3 3 Orenburg Region 1 1 1 1 Total 203 201 14 16 25 20 ** The data do not include licences of subsidiaries.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 39 licence area was transferred to JSOC Bashneft. The area is situated in the west of the Republic of Bashkortostan next to the recently discovered V. Afanasyev field, which is characterized by high output. Two formations have been prepared at the area; their resources total about 700 thousand tonnes. Licences for six areas in the Nenets Autonomous Districts were transferred to the new joint venture, LLC Vostok NAO Oil Company (five licences for geological studies, exploration and production of hydrocarbons), and LLC Bashneft-Polyus (one licence for geological studies, exploration and production of hydrocarbons). Besides, we gave up two licences for oil and gas production as further development of the Karakulskoye and Tsvetaevskoye fields in the Republic of Bashkortostan proved unprofitable. The duration of our licences is convenient for us and enables us to plan long-term projects with confidence. We do not expect any difficulties in renewing licences for hydrocarbon production. In 2014 licences for 54 areas were renewed. Besides, licence agreements on 150 areas were amended. The Group s long-term strategy involves further expansion of the portfolio of upstream projects through acquisition of new licences. We plan to continue participating in competitions for development licences. OUR RESPONSIBILITY As a responsible subsoil user, we strictly comply with all obligations under licences. In 2014 there were no complaints against the Group concerning compliance with licensing laws. Changes in licence agreements made in 2014 Number of licence areas Amendments to licence agreements on oil and gas production 139 including amendments related to changes in the scope of licences in terms of depth 114 including amendments related to excluding the requirement for the associated gas utilization rate of at least 95% 25 Amendments to licence agreements on geological studies, exploration and production of hydrocarbons 11 including amendments related to changes in the time frame and scope of geological exploration 8 including amendments related to relinquishing mineral rights under a development licence 3 GEOLOGICAL EXPLORATION The Group s priority in geological exploration is to develop the resource potential and use mineral resources efficiently while strictly complying with environmental safety standards and widely using modern technology. In 2014 the Group continued to implement a programme aimed at replenishing the mineral resource base by conducting geological exploration in the areas of the Republic of Bashkortostan which have not been thoroughly explored yet, and at unconventional reservoirs. In 2014 total expenditure on the programme (exploration drilling and deepening of wells, seismic surveys) approximated 1.73 billion roubles. 3D seismic surveys covered 1.8 thousand sq. km and uncovered about 40 formations, which is expected to result in an increase in oil resources by more than 17 million tonnes. Eight prospective formations were classified; their С 3 oil resources total 1.42 million tonnes. In 2014 deep exploration drilling in Bashkortostan, excluding deepening for additional exploration, totalled 19 thousand metres. 10 wells were drilled, and 11 wells were constructed, seven of which produced commercial oil flows. OUR RESPONSIBILITY We implement a large-scale geological exploration programme in our core operating region, the Republic of Bashkortostan, using the latest exploration techniques. Oilfields in the Republic have been exploited since the 1930s 1950s. However, the region has not been thoroughly studied in terms of geological exploration and deep drilling. The area covered by 3D seismic surveys in Bashkortostan is several times smaller than in the neighbouring regions. The Group makes efforts to further develop the resource potential of the region: it actively conducts additional exploration of reserves and assesses the feasibility of development of difficult-to-recover reserves and unconventional reservoirs.

40 ANNUAL REPORT 2014 For more details regarding the geological exploration in the Nenets and Khanty-Mansi Autonomous Districts see: Operating results Development of the R. Trebs and A. Titov fields ; Operating results Geological exploration areas in the Nenets Autonomous District ; Operating results Fields in the Khanty-Mansi Autonomous District. Deep exploration drilling and deepening uncovered 18 oil deposits at the fields under development; their С 1 +С 2 oil reserves (under Russian classification) total 1.6 million tonnes. Bashneft started to develop the uncovered deposits, and initial well production rates range from 4 tonnes per day to 71 tonnes per day. Apart from the Republic of Bashkortostan, we conduct geological exploration in the Nenets and Khanty-Mansi Autonomous Districts, which are our new and promising operating regions. In the coming years we plan to maintain the amount of seismic surveys at a high level. In 2015 we plan to explore parts of the Pre-Ural foredeep which have not been explored thoroughly. Key geological exploration metrics of Bashneft Group 2012 2013 2014 Deep exploration drilling, thousand metres 27.4 33.8 43.9 in the Republic of Bashkortostan* 18.9 25.0 18.8 in the Nenets Autonomous District 8.5 8.8 12.5 In the Khanty-Mansi Autonomous District (Burneftegaz) 12.6 Number of wells drilled, including 10 14 16 in the Republic of Bashkortostan and the Orenburg Region** 8 12 10 in the Nenets Autonomous District 2 2 3 In the Khanty-Mansi Autonomous District (Burneftegaz) 3 Number of wells completed, including 11 15 16 in the Republic of Bashkortostan 10 13 11 including productive wells 8 8 7 in the Nenets Autonomous District 1 2 2 including productive wells 1 2 2 In the Khanty-Mansi Autonomous District (Burneftegaz) 3 including productive wells 3 Seismic surveys, including: 2D, linear km 347 2,742 3D, sq. km 922 2,759 2,779 in the Republic of Bashkortostan 304 1,468 1,776 in the Nenets Autonomous District (Т&Т) 618 891 26 in the Nenets Autonomous District (five new areas) 400 977 in the Khanty-Mansi Autonomous District (Burneftegaz) Number of fields discovered 1 1 1 Number of oil and gas pools discovered 11 8 5 *** Number of prospective formations classified 4 8 15 Total oil reserves of classified formations, thousand tonnes 3,925 17,335 3,996 * Excluding deepening for additional exploration. Exploration drilling including deepening totalled 22.4 thousand metres in 2014 ** Excluding deepening. The number of wells drilled, including deepening, totalled 20 in 2014 *** Excluding deepening. The number of oil and gas pools discovered, including deepening, amounted to 18 in 2014

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 41 RESERVES Licensing, successful geological exploration and acquisition of new assets allow us to expand our resource base every year. According to an independent audit of reserves conducted by the leading international company Miller and Lents in accordance with the PRMS classification, by December 31, 2014, the Group s proved reserves had added 4.9% and totalled 2,145.6 million barrels. In 2014 the reserve replacement ratio amounted to 179%. The audit findings suggest that Bashneft s reserves-to-production ratio amounts to 17 years. Starting from 2013 international audit covers 100% of the Group s ABC 1 reserves; audited fields also account for 100% of the total annual production. Growth in proved reserves was once again driven mainly by brownfields in Bashkortostan (accounting for about 55% of the growth), which confirms that geological and engineering operations are efficient and the geological exploration programme in the key operating region is effective. Development of new assets in the Timan-Pechora oil province and asset acquisition in Western Siberia also enabled the Group to increase its reserves considerably in 2014. OUR ACHIEVEMENTS The audit conducted by Miller and Lents in 2014 revealed a considerable increase in 3P oil reserves by 12.6% compared to 2013. The reserve replacement ratio amounted to 179%. Oil reserves of Bashneft Group, million barrels* Proved reserves (1P), million barrels As of December 31, 2012 As of December 31, 2013 As of December 31, 2014** Change, 2014/2013 2,006.8 2,045.3 2,145.6 +4.9% Total reserves (3P), million barrels 4,000 3,000 3,192.5 3,236.8 3,644.6 Probable reserves, million barrels 528.3 528.7 653.1 +23.5% 2,000 Proved and probable reserves (2P), million barrels 2,535.1 2,574.0 2,798.7 +8.7% 1,000 Possible reserves, million barrels 657.4 662.8 845.9 +27.6% 0 2012 2013 2014 Probable and possible reserves, million barrels 1,185.7 1,191.5 1,499.0 +25.8% Total reserves (3P) 3,192.5 3,236.8 3,644.6 +12.6% * The barrel-tonne conversion factor is 7.11. ** Including a 74.9% share in the reserves of the Trebs and Titov fields. Proved reserves by region 2012 2013 2014 Republic of Bashkortostan 94.4% 93.6% 89.6% Proved reserves of the Group 10.4% Orenburg Region 0.7% 0.9% 0.8% Khanty-Mansi Autonomous District 1.6% 1.2% 3.1% Nenets Autonomous District 0.0% 1.0% 3.4% Republic of Tatarstan 3.3% 3.3% 3.1% Total 100.0% 100.0% 100.0% Republic of Bashkortostan Other regions 2014 89.6%

42 ANNUAL REPORT 2014 Characteristics of Bashneft s hydrocarbon reserves, % 100 50 0 78.0 90.4 2012 2013 2014 Recovery factor Degree of depletion Average water cut OUR RESPONSIBILITY 90.3 89.6 78.0 77.1 35.4 35.7 35.2 We regularly take necessary measures for controlling the water cut at our main wells. In 2014 water cut across the Group amounted to 89.6%. As of December 31, 2014, the Group had 194 fields, including 175 fields in commercial operation. 182 out of our 194 fields are located in the Republic of Bashkortostan, including the four largest ones: the Arlanskoye, Tuimazinskoye, Yugomashevskoye and Chetyrmanskoye fields. These fields account for about 40% of Bashneft s total proved reserves according to the PRMS classification and about 31% of the Group s annual oil production. In 2014 Bashneft gave up development licences for the Karakulskoye and Tsvetaevskoye fields in the Republic of Bashkortostan as their further development proved unprofitable. At the same time, the acquisition of LLC Burneftegaz resulted in an increase in the number of fields in the Khanty-Mansi Autonomous District. NATURAL GAS RESERVES According to Miller and Lents, as of December 31, 2014, possible reserves at the gas condensate fields forming part of the Saratovsko-Berkutovskoye group located in the south of Bashkortostan amounted to 874.8 billion cubic feet (24.8 billion cubic metres) of gas and 7.9 million barrels of condensate (the barrel-tonne conversion factor is 8.27). Currently, the Group is preparing the decision to develop these fields and is designing field facilities and gas transportation infrastructure. Under a bestcase scenario, gas production may exceed 2 billion cubic metres per year. In 2013 and 2014 the Group conducted 3D seismic surveys covering 245 sq. km at the Berkutovskoye and Isimovskoye fields in order to define the boundaries of the deposits more precisely. In 2014 two appraisal and production wells were drilled, and data obtained through field seismic surveys were processed; data interpretation is expected to be completed in 2015. Bashneft replenishes its reserves in the Republic of Bashkortostan by both prospecting at traditional sites and exploring the areas which have not been thoroughly explored, as well as unconventional hydrocarbon reserves. For more information, see the section Geological exploration The Group s fields by region Republic of Bashkortostan* Orenburg Region Khanty-Mansi Autonomous District Nenets Autonomous District 2012 2013 2014 183 184 182 3 3 3 4 4 7 2 2 2 * In the table, the Demskoye and Tuimazinskoye fields, which extend into Tatarstan, are shown as located in the Republic of Bashkortostan. Types of fields developed by the Group 2012 2013 2014 Oilfields 149 152 153 Oil and gas fields 2 2 2 Gas and oil fields 16 16 16 Gas fields 4 4 4 Total 171 174 175 Characteristics of the largest fields in the Republic of Bashkortostan Commissioned in Area, thousand hectares Annual oil production, thousand tonnes Arlanskoye field 1958 131.6 4,091 Tuimazinskoye field 1939 47.2 529 Yugomashevskoye field 1966 22.7 769 Igrovskoye field 1964 12.6 379

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 43 DEVELOPMENT OF THE R. TREBS AND A. TITOV FIELDS NENETS AUTONOMOUS DISTRICT RUSSIA Chornaya Varandey The R. Trebs oilfield Karatayka Nosovaya NENETS AUTONOMOUS DISTRICT The A. Titov oilfield In December 2010 Bashneft won a competition for mineral rights for a federal subsoil area including the R. Trebs and A. Titov oilfields located in the Nenets Autonomous District. In February 2011 the Chairman of the Government of the Russian Federation signed an order to grant Bashneft a licence for exploration and oil production in this area. The licence was registered on February 22, 2011. At present, the licence for geological studies, exploration and production of hydrocarbons at the subsoil area including the R. Trebs and A. Titov oilfields in the Nenets Autonomous District is held by LLC Bashneft-Polyus, a joint venture of JSOC Bashneft (74.9%) and OJSC Lukoil (25.1%). The licence is valid until February 2036. OJSC Lukoil has a 25.1% stake in the project. Partnership with OJSC Lukoil allows us to minimize costs and risks related to the project, as the partner has infrastructure and experience in operating in the region. In accordance with legislation, until January 1, 2015, Bashneft had applied a zero mineral extraction tax rate to geological studies, exploration and production at the R. Trebs and A. Titov fields. The zero tax rate had been applied until cumulative production reached 15 million tonnes, provided that the duration of development of reserves did not exceed 12 years. Starting from January 1, 2015 the zero mineral extraction tax rate was replaced with a reduced rate of 766 roubles (for the period from January 1 through December 31, 2015 inclusive), 857 roubles (for the period from January 1 through December 31, 2016 inclusive) and 919 roubles (for the period starting from January 1, 2017) per tonne of oil produced. This tax rate is multiplied by a coefficient reflecting changes in global oil prices, Кц. The product is reduced by the value of Дм, an indicator reflecting specific conditions of oil production. Thus, instead of a zero tax rate, Bashneft uses a reduced rate to calculate mineral extraction tax on oil produced at the R. Trebs and A. Titov fields starting from January 1, 2015. RESERVES OF THE FIELDS Successful development of the R. Trebs and A. Titov fields as part of the pilot production project enabled the Group to achieve a considerable increase in audited reserves of these fields. According to Miller and Lents, by December 31, 2014, proved reserves of the R. Trebs and A. Titov fields had increased almost fivefold to 104.9 million barrels (the barrel-tonne conversion factor is 7.58). At the same time, Bashneft s share of the proved reserves (a 74.9% stake in LLC Bashneft-Polyus) amounted to 78.5 million barrels. As of December 31, 2014, total (3P) reserves of the R. Trebs and A. Titov fields were estimated at 271.7 million barrels, which is 3.3 times more than the corresponding figure as of December 31, 2013. The audit findings show that Bashneft s share in the total reserves of these fields totalled 203.4 million barrels

44 ANNUAL REPORT 2014 OUR ACHIEVEMENTS In 2013 Bashneft started pilot production at the R. Trebs and A. Titov fields. In November 2014 LLC Bashneft-Polyus produced the millionth tonne of oil at the R. Trebs and A. Titov fields. OUR RESPONSIBILITY LLC Bashneft-Polyus fully meets its obligations under the licence for the development of the R. Trebs and A. Titov fields. STATUS OF THE FIELD DEVELOPMENT PROJECT In 2014 a research programme forming part of the pilot production project was implemented. Reserves of the fields were evaluated, and the results of the evaluation were submitted for expert assessment. 12 production wells were completed, 6 exploration wells were re-entered, and 17 existing wells underwent workovers. Facilities were constructed at three multi-well pads at the R. Trebs field and at two multi-well pads at the A. Titov field. 13 water wells forming part of the formation pressure maintenance system were drilled. In 2015 three prospecting wells are to be completed. In the sphere of geological exploration, as of the end of 2014, 3D seismic surveys covered 1,535 sq. km (while the licence requires 700 sq. km), and 2D seismic surveys amounted to 2,742 linear kilometres (while the licence requires 1,000 linear kilometres); besides, five exploration wells were constructed. The work done in 2014 includes 3D seismic surveys covering 26 sq. km, 2D seismic surveys totalling 2,742 linear kilometres, and drilling of three prospecting wells, as well as completion of two exploration wells. We are expanding the range of professional contractors. At this stage of project development, integrated services are provided by Schlumberger and Halliburton. Geological support of drilling is provided by Bashneft s Drilling Support Centre. In 2014 production wells were constructed by Gazprom Burenie. In accordance with the licence agreement, in 2014 the Group supplied 45.08% of produced oil to refineries (while the requirement is 42%) and sold 15.76% of oil via a commodity exchange (the required amount totals 15%). KEY STAGES OF IMPLEMENTATION OF THE PROJECT TO DEVELOP THE R. TREBS AND A. TITOV FIELDS: THE FIRST STAGE OF DEVELOPMENT (2011 through 2014). From 2011 through 2014 geophysical data were gathered at the licence area. 26 production wells were completed and put into operation; 3D seismic surveys covering 1,535 sq. km were completed; the following facilities were constructed: over 40 kilometres of oil-gathering pipelines, 57 kilometres of power lines, the first stage of the CGS with the capacity of up to 1.5 million tonnes per year, a metering station and a high-pressure pipeline connecting the CGS at the R. Trebs oilfield and the metering station in Varandey with the length exceeding 31 kilometres. Data were prepared for evaluation of reserves at the R. Trebs and A. Titov fields and preparation of a reservoir management plan. In 2014 Bashneft started construction of an oil-and-gas-gathering pipeline connecting the R. Trebs and A. Titov fields, a booster pump station and power supply facilities; it also continued construction of facilities at multiwell pads and associated gas treatment and compression facilities. THE SECOND STAGE OF DEVELOPMENT (from 2014 through 2017) involves adjusting the field development plan on the basis of the findings of research, interpretation of 3D seismic data and outcomes of the first stage of drilling. Bashneft plans to commission about 90 newly drilled production wells, expand the Central Gathering Station (CGS), start the gas programme, as well as to construct and commission the formation pressure maintenance system at the R. Trebs field and infrastructure facilities at the A. Titov field, and a pipeline connecting the BPS and the FWKO unit at the A. Titov field to the CGS at the R. Trebs field. THE THIRD STAGE OF DEVELOPMENT (starting from 2018) is aimed at developing all cost-effective reserves of main deposits at the fields. The production drilling programme includes commissioning of about 170 wells at both fields. Bashneft will construct and expand infrastructure for drilling of new wells; it will also construct and commission the formation pressure maintenance system at the A. Titov field.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 45 SKIN EFFECT TECHNOLOGY The pipeline connecting the BPS and the FWKO unit at the A. Titov field to the CGS at the R. Trebs field, which is currently under construction, will be operated in a polar climate at a low temperature. To ensure the reliable operation of the pipeline, an outer thermal insulation coating with a skin effect industrial heating system was used. The heating system ensures highly sustainable heating; heating control is automated and does not require constant monitoring by maintenance personnel. The system includes heating sections with self-adjusting heat tapes. Compared to traditional sections with a fixed capacity, this approach has the following advantages: / sections automatically adjust heat production depending on changes in the temperature of the heated facility (heat production is reduced when the temperature rises), enabling a reduction in electricity consumption; / self-adjusting features increase the safety and reliability of the system. GEOLOGICAL EXPLORATION AREAS IN THE NENETS AUTONOMOUS DISTRICT: VOSTOK NAO OIL COMPANY In 2014 JSOC Bashneft and OJSC Lukoil established a new joint venture, LLC Vostok NAO Oil Company, to conduct geological exploration and prospecting and produce hydrocarbons at the companies licence areas in the Nenets Autonomous District. Under the Agreement of Members of LLC Vostok NAO Oil Company, Bashneft transferred the subsoil licences for the Vostochno-Padimeyskiy, Nyarioyakhskiy, Savatinskiy, Sibriyaginskiy and Yangareyskiy licence areas to the JV, while LLC Lukoil-Komi transferred the rights for the Verkhneyangareyskiy and Severo-Yareyaginskiy licence areas. The companies acquired these licences at auctions in October 2011 and in February 2012. Taking into account the cost of licences for oil prospecting, exploration and production at the areas acquired by the members of the JV, LLC Lukoil-Komi made a contribution to the additional paid-in capital of LLC Vostok NAO Oil Company. We consider these licence areas to be promising. In 2014, 3D seismic surveys at the Yangareyskiy, Sibriyaginskiy, Savatinskiy, Vostochno-Padimeyskiy and Nyarioyakhskiy areas covered 977 sq. km. Besides, historical data on 2D seismic surveys totalling 4.7 thousand linear kilometres were revised. Structure maps of the areas were revised, and new maps were prepared. 3D seismic surveys were also conducted at the Verkhneyangareyskiy licence area; they covered 71 sq. km. Exploration at the Severo-Yareyaginskiy area included 2D seismic surveys amounting to 340 linear kilometres and 3D seismic surveys totalling 103 sq. km. Plans for 2015 include 3D field seismic surveys covering 885 sq. km at the Yangareyskiy, Sibriyaginskiy and Verkhneyangareyskiy areas.

46 ANNUAL REPORT 2014 NEW OIL PRODUCTION CLUSTER IN THE KHANTY-MANSI AUTONOMOUS DISTRICT KHANTY-MANSI AUTONOMOUS DISTRICT RUSSIA KHANTY-MANSI AUTONOMOUS DISTRICT Vostochno-Unlorskiy area Severo-Ityakhskiy 3 area Tortasinskiy area Vostochno-Vuemskiy area In the reporting year we started to create a new oil production cluster in the Khanty-Mansi Autonomous District. In 2014 Bashneft acquired Burneftegaz, a company whose resources are concentrated at fields in the Khanty-Mansi Autonomous District. The transaction value totalled about 36 billion roubles, and sources of financing included borrowed funds. LLC Burneftegaz owns the rights to exploration and development of the Sorovskoye field (the Vostochno-Vuemskiy licence area) and the Tortasinskoye field (the Tortasinskiy licence area) via its wholly owned subsidiaries. The licence is valid until 2032. Miller and Lents evaluated oil reserves at the licence areas in the Khanty-Mansi Autonomous District owned by LLC Burneftegaz. Proved oil reserves of the key asset, the Sorovskoye field, are currently estimated at 38.3 million barrels as of December 31, 2014 (the barrel-tonne conversion factor is 7.51), while probable and possible reserves amounted to 60.7 million barrels and 131.1 million barrels respectively. Total (3P) reserves of the Sorovskoye field are estimated at 230.1 million barrels. LLC Tortasinskneft, a wholly owned subsidiary of Burneftegaz, also holds licences for geological exploration at the Severo-Ityakhskiy 3 and Vostochno-Unlorskiy subsoil areas. Commercial production at the Sorovskoye field started in 2013. In 2014 oil production at the Sorovskoye field totalled 798 thousand tonnes, including 665.1 thousand tonnes produced after the acquisition of the field by Bashneft. 23 production wells have been drilled at the field, and infrastructure required for preparing and transporting oil to the system of OJSC Transneft is functioning. The Severo-Ityakhskiy 3 and Vostochno-Unlorskiy subsoil areas are located 152 kilometres to the north of Khanty-Mansiysk, close to the Tortasinskoye field. Under the terms of the licence, at the Severo-Ityakhskiy 3 subsoil area, 2D seismic surveys covering 577 linear kilometres have been conducted, and in 2014 a prospecting well, 6-P, was drilled. Following the completion of the 5-P prospecting well, the A. Iskrin gas condensate field was uncovered. At the Vostochno-Unlorskiy subsoil area, 2D seismic surveys covering 600 linear kilometres have been conducted. At the Vostochno-Vuemskiy licence area, 2D field seismic surveys have totalled 250 linear kilometres.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 47 4 new licence areas 38.3 million barrels 23 wells PROVED OIL RESERVES OF THE SOROVSKOYE FIELD DRILLED AT THE SOROVSKOYE FIELD THE ACQUISITION OF BURNEFTEGAZ IS FULLY CONSISTENT WITH OUR STRATEGY FOR THE UPSTREAM SEGMENT, WHICH INVOLVES EXPANDING THE RESOURCE BASE AND ACQUIRING PROMISING ASSETS WHICH HAVE CONSIDERABLE PRODUCTION POTENTIAL. THIS TRANSACTION WILL ENABLE CONSIDERABLE EXPANSION OF THE GROUP S FOOTPRINT IN THE TYUMEN REGION, WHERE WE ARE ALREADY IMPLEMENTING A NUMBER OF SUCCESSFUL UPSTREAM PROJECTS. Alexander Korsik, President, Chairman of the Management Board FURTHER DEVELOPMENT PLANS In 2015 LLC Burneftegaz will focus mainly on further development of the Sorovskoye field and improvement of performance by increasing operating results and at the same time optimizing operating costs and capital investments. In 2015 the Group plans to commission new wells at the Sorovskoye field and conduct further drilling at the field using three drilling rigs. We expect that various geological and engineering operations will help to increase oil production by at least 40%. The strategic goal is to create a new oil production cluster in Western Siberia on the basis of LLC Burneftegaz; one of the aims of these efforts is to provide a substitute for oil which we purchase for our refineries. OUR ACHIEVEMENTS In 2014, after joining Bashneft Group, Burneftegaz produced 665.47 thousand tonnes of oil, which was a significant contribution to the Group s production growth. In November 2014 cumulative production at the Sorovskoye field exceeded 1 million tonnes of oil.

48 ANNUAL REPORT 2014 OVERSEAS PROJECTS The Group participates in joint geological exploration projects in Iraq and Myanmar as an operator. Block 12 is located in the Najaf and Muthanna provinces, approximately 80 km south-west of the city of Samawah and 130 km to the west from the city of Nasriya. It is a part of the Western Desert, an unexplored region having the greatest potential in Iraq in terms of oil production. The block s approximate area is 8,000 sq. km. TURKEY SYRIA Mosul Kirkuk IRAN IRAQ Baghdad Oil pipeline Gas pipeline OUR RESPONSIBILITY IRAQ The project is strictly on schedule and within budget. Block 12 Samawah SAUDI ARABIA KUWAIT IRAQ: EXPLORATION PROJECT AT BLOCK 12 / Project participants: Bashneft (a 70% stake), Premier Oil (a 30% stake). / Form of participation: Consortium of companies. / The Group s role in the project: Operator. / Project description: The project involves geological exploration at Block 12 in Iraq. The obligatory five-year geological exploration programme at Block 12 (which can be extended twice for a two-year period) includes 3D seismic surveys covering 400 sq. km and drilling one exploration well about 4,500 metres deep. About US$ 120 million will be invested in geological exploration within a five-year period. If commercial oil reserves are proved, the contract will be concluded for 20 years. The date of the start of production will be set and the rated capacity will be assessed after the geological exploration programme is implemented. The basic fee for produced oil will amount to US$ 5 per barrel. The applicable fee will be reduced after the cost of the project is fully covered as a certain level of profitability is achieved. The payments will start after achieving the 25% level of the expected oil production plateau, which will be determined after the end of geological exploration and evaluation of reserves and recorded in the development project approved by the Iraqi Ministry of Oil. / Project implementation: In 2012 the Consortium comprised of Bashneft and Premier Oil signed the exploration, development and production service contract for Block 12. At the end of 2012 Bashneft International B.V. (JSOC Bashneft s wholly owned subsidiary) was established to implement the project. In 2013 a joint venture agreement with Premier Oil was signed, and a Joint Management Committee (JMC) was established; Bashneft International B.V. (Iraq) opened a branch in Baghdad, and the exploration programme was approved. In 2013 and 2014 tenders were held to select contractors to conduct independent audit, provide insurance, accounting and tax accounting, transport and security services, to process and interpret seismic data and to supervise. In 2014 environmental impact assessment (EIA) was made; the report was approved by Iraq s South Oil Company. A training programme for potential Iraqi employees is awaiting approval. In the reporting year, under the terms of the licences, seismic surveys totalled 192 kilometres (2D) and 702 sq. km (3D).

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 49 BANGLADESH CHINA MYANMAR Block ЕР-4 is located in the Central Burma Basin. The area has well-developed infrastructure for transporting and processing oil and gas. The Block s area totals 841 sq. km. MYANMAR LAOS Block ЕР-4 THAILAND MYANMAR: EXPLORATION PROJECT AT BLOCK ЕР-4 / Project participants: Bashneft (a 90% stake), Sun Apex Holdings Ltd (Myanmar) (a 10% stake). / Form of participation: Production Sharing Contract (PSC). / The Group s role in the project: Operator. / Project description: The project involves conducting geological studies at Block ЕР-4 in Myanmar. Under the PSC for Block ЕР-4, the partners will implement a three-year geological exploration programme (which may be extended for another three years) that includes seismic surveys and drilling of two prospecting wells. The minimum geological exploration programme involves investments of US$ 38.3 million. / Project implementation: In 2013, following a bidding round, Bashneft gained the right to conclude a Production Sharing Contract (PSC) for Block EP-4. In 2014 Bashneft International B.V. signed the PSC for Block EP-4 with Myanmar Oil and Gas Enterprise (MOGE) in Naypyidaw. The signature bonus will total US$ 4 million. In 2015 the Environmental Impact Assessment (EIA) is to be prepared, the Programme for the first year of the Initial Period of Geological Exploration is to be approved by MOGE, and seismic exploration at Block EP-4 is to be put out to tender.

50 ANNUAL REPORT 2014 PRODUCTION THE GROUP S AVERAGE DAILY PRODUCTION HAS HIT A 20-YEAR HIGH: IN THE FOURTH QUARTER OF 2014, IT REACHED 51.3 THOUSAND TONNES. GIVEN THAT BASHNEFT OPERATES MAINLY AT BROWNFIELDS IN BASHKORTOSTAN THAT HAVE ALREADY BEEN DEVELOPED FOR SEVERAL DECADES, THIS IS A MAJOR ACHIEVEMENT. Mikhail Stavskiy, First Vice President for Upstream and Geology +3.4% OIL PRODUCTION GROWTH AT BROWNFIELDS OUR ACHIEVEMENTS In 2014 Bashneft once again achieved a high rate of growth of oil production and became a leader of the Russian oil industry in this respect due to oil production growth at brownfields, as well as the Group s assets in its new oil-producing clusters (the Nenets Autonomous District and the Khanty-Mansi Autonomous District). Our key strategic priorities in production are: / to maintain production at brownfields through highly efficient geological and engineering operations and the use of innovative technologies; / to develop the R. Trebs and A. Titov fields in order to achieve the strategic objective of increasing production of high-quality oil and meeting the needs of Bashneft s own refineries; / to implement projects in the Khanty-Mansi Autonomous District, a new production cluster of the Group with a strong potential for development. Our progress in achievement of strategic objectives in 2014: / high rates of production growth were maintained. In 2014 annual production increased by 10.8% to 17.8 million tonnes; / for a fifth year in a row, we continue to increase production at brownfields. Geological and engineering operations enabled a significant increase in production at brownfields (+3.4%); / the millionth tonne of oil was produced at the R. Trebs and A. Titov fields; / Bashneft gained access to a new region of production: 665 thousand tonnes of oil were produced at the newly developed Sorovskoye field in the Khanty-Mansi Autonomous District.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 51 OIL PRODUCTION We maintain a steady rate of growth of annual production through comprehensive measures to support production at brownfields, successful development of new promising fields, as well as asset acquisition. In 2014 the Group increased its oil production by 10.8% to 17.8 million tonnes. Average daily production amounted to 48.8 thousand tonnes per day, or 360.5 thousand barrels per day 1. In 2014 the Group boosted oil production at brownfields by 3.4% compared to 2013 through highly efficient geological and engineering operations and the use of modern technologies. Assets in Timan-Pechora and Western Siberia were another major driver of the Group s production growth. They accounted for 8.4% of annual production. In 2014 the Group started production at the Kalinovskoye and Metevtamakskoye fields in the Republic of Bashkortostan. In the medium term, we plan to develop minor fields in this region: the Avadeyskoye and Opalovoye fields. In 2014 primary geological and engineering operations conducted at brownfields included hydraulic fracturing (33% of additional oil production) and commissioning of new wells (60 new wells, 16% of additional oil production). The number of operations undertaken in the second half of the year increased several times over, while specific efficiency per well was maintained; this was the key factor behind an increase in the rate of production growth from hydraulic fracturing in 2014 compared to previous periods. Other types of geological and engineering operations, primarily sidetracking (7% of additional oil production), also contributed significantly to an increase in additional oil production at brownfields. At the A. Trebs and R. Titov fields and the Sorovskoye field of LLC Burneftegaz production growth was driven by an increase in drilling and commissioning of new wells. In 2014 the share of oil production in the Republic of Bashkortostan in total production decreased from 94% to 88% due to a substantial increase in the share of production in other regions. Geographical diversification of production is one of the Group s areas of development. To achieve this goal, the Group implements projects in its new production regions: Timan-Pechora and Western Siberia. For more information on the production in Timan-Pechora and Western Siberia, see: Operating results Development of the R. Trebs and A. Titov Fields ; Operating results Geological exploration areas in the Nenets Autonomous District ; Operating results Fields in the Khanty-Mansi Autonomous District. Production growth in the Group due to geological and engineering operations, thousand tonnes Oil production by region, million tonnes 2012 2013* 2014 ** Optimization of pumping equipment 357.9 382.9 306.9 Hydraulic fracturing 235.2 489.8 679.7 Matrix stimulation 206.8 116.3 120.7 Reperforation 209.9 206.2 290.2 Commissioning of new wells 288.7 525.7 866.3 Development of overlying or underlying formations 130.0 87.5 120.1 Other 83.7 101.4 235.9 Total 1,512.2 1,909.9 2,619.8 Republic of Bashkortostan Khanty-Mansi Autonomous District Orenburg Region Republic of Tatarstan 2012 2013 2014 14.7 15.1 15.7 0.4 0.3 0.9 0.2 0.2 0.13 0.2 0.2 0.2 * Including geological and engineering operations at the R. Trebs and A. Titov fields. Growth in 2013 excluding geological and engineering operations totalled 1,619 thousand tonnes. ** Including geological and engineering operations at the R. Trebs and A. Titov fields and the fields of LLC Burneftegaz. Growth in 2014 excluding geological and engineering operations totalled 1,977 thousand tonnes. Nenets Autonomous District 0 0.3 0.8 Total 15.4 16.1 17.8 1. The barrel-tonne conversion factor is 7.3.

52 ANNUAL REPORT 2014 Production drilling, thousand metres Average production rate of existing wells, tonnes per day Average initial production rate of new wells, tonnes per day 300.0 225.0 272.1 4.0 3.0 2.9 3.1 3.4 100.0 75.0 95.3 75.4 150.0 109.0 2.0 50.0 35.6 75.0 54.8 1.0 25.0 0.0 2012 2013 2014 0.0 2012 2013 2014 0.0 2012 2013 2014 Drilling and commissioning of new wells* 100 75 50 25 0 7 35 42 288.7 20 50 525.7 2012 2013 2014 * The data include the results of LLC Bashneft-Polyus. OUR RESPONSIBILITY We continuously optimize oil production at brownfields. In 2014 we drilled and commissioned eight high-rate horizontal wells with an average initial production rate of 140 tonnes per day. New wells have a greater potential due to the use of modern exploration technologies and improved drilling efficiency. 1. Including: 50 wells drilled by LLC Bashneft-Dobycha, 11 wells drilled by LLC Bashneft-Polyus and 21 wells drilled by LLC Burneftegaz. 2. The data include the results of LLC Bashneft- Polyus and LLC Burneftegaz 11 866.3 30 82 93 Number of new wells commissioned Including the number of newly drilled wells 3. The data include the results of LLC Bashneft- Polyus 1,000 Oil production from new wells, thousand tonnes 750 500 250 0 DRILLING OF NEW WELLS The efforts we have made over the last few years resulted in a greater share of highly efficient drilling. In 2014 the Group more than doubled the amount of production drilling, both by drilling new wells at brownfields, and due to the performance of LLC Bashneft-Polyus and LLC Burneftegaz. In the reporting year production drilling, including the results of LLC Bashneft-Polyus and LLC Burneftegaz, amounted to 272 thousand metres. The Group commissioned 93 new wells, including 82 newly drilled wells 1, which is 51 wells more than in the previous year. Following the strategy for improving drilling efficiency adopted in 2009, which involves avoiding drilling inefficient and uneconomic wells, in 2014 the Group achieved further improvement of drilling quality. While in 2008, 222 wells were drilled and production increased by 155 thousand tonnes, in 2014, 50 newly drilled wells enabled an increase in production by 287.4 thousand tonnes, with average annual growth per well amounting to 39.8 tonnes per day. The positive trend is supported by detailing areas containing residual reserves through 3D digital geological and hydrodynamic models, selecting the type of well completion taking into account the results of geological and engineering modelling, implementing modern technologies in well construction, monitoring of well drilling in real time by experts of the newly created Drilling Support Centre. The average initial production rate of new wells commissioned in 2014 amounted to 75.4 tonnes per day 2. A decrease in the average production rate of new wells compared to 2013 was mostly due to drilling at carbonate deposits with a lower productivity and low porosity and permeability. The average production rate of existing wells across Bashneft increased to 3.4 tonnes per day 3 due to new high-rate wells and acquisition of Burneftegaz. We plan to achieve further production growth through: / Maintaining the average production rate of new wells at the level of 2014; / Increasing production drilling and subsequent commissioning of new wells; / Improving the quality of planning of geological and engineering operations and introducing new drilling and production technologies.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 53 PRODUCTION OF NATURAL AND ASSOCIATED GAS We produce natural gas if it is obvious that a project is efficient or if there is a synergy with our oil production business. As of the end of 2014: / The Group had 4 gas and 16 gas and oil fields in commercial production; / Natural gas production totalled 38 million cubic metres; / Associated gas production excluding LLC Burneftegaz totalled 662 million cubic metres (which is 9% more than in the previous year). Associated gas production including LLC Burneftegaz totalled 697 million cubic metres (up by 15% compared to the previous year). The Group s average associated gas utilization rate increased to 74.8%. At the same time, the associated gas utilization rate at LLC Bashneft-Dobycha reached 82%. In the short term, we expect to increase associated gas utilization at the R. Trebs and A. Titov fields by starting to use associated gas to maintain formation pressure. Production assets of LLC Burneftegaz have achieved a high associated gas utilization level complying with regulatory requirements. We are currently preparing a decision regarding development of four gas condensate fields forming part of the Saratovsko-Berkutovskoye group located in the south of Bashkortostan. As of the end of 2014, designs of field facilities for each field were completed; the Main State Expert Review Board gave a positive assessment of two of these projects. OUR RESPONSIBILITY We seek to increase associated gas utilization. The Group plans to achieve the target utilization rate of 95% by the end of 2017. For further details regarding the resource base of the gas condensate fields, see Licensing, geological exploration and reserves Natural gas reserves. Natural and associated gas production 2012 2013 2014 Natural gas production, million cubic metres 40.205 37.281 38.043 Total associated gas production, million cubic metres 500.620 604.971 662.115 LLC Bashneft-Dobycha 500.620 556.228 526.903 LLC Bashneft-Polyus 48.744 135.212 LLC Burneftegaz 35.498 Total associated gas utilization, million cubic metres 376.401 439.927 487.468 LLC Bashneft-Dobycha 376.401 419.590 432.460 LLC Bashneft-Polyus 20.337 55.008 LLC Burneftegaz 34.128 Associated gas utilization rate 75.2% 72.7% 74.8% LLC Bashneft-Dobycha 75.2% 75.4% 82.1% LLC Bashneft-Polyus 41.7% 40.7% LLC Burneftegaz 96.1%

54 ANNUAL REPORT 2014 REFINING OUR ACHIEVEMENTS INCLUDE SUCCESSFUL MODERNIZATION OF OUR REFINERIES. WE ARE ALREADY PREPARED TO PRODUCE ONLY EURO 5 GASOLINE AND DIESEL FUEL. WE CONTINUE REFINERY UPGRADES IN ORDER TO PRODUCE MORE HIGH- MARGIN PRODUCT AND TO MINIMIZE THE OUTPUT OF CHEAP HEAVY PETROLEUM PRODUCTS. Maxim Andriasov, First Vice President for Refining and Commerce 85.6% OUTPUT OF EURO 5 GASOLINE OUR ACHIEVEMENTS Bashneft has been one of the first companies in the Russian oil industry to achieve technological excellence enabling full transition to production of engine fuels of Euro 5 or higher grades as its new refining units were put into operation in 2014. The average Nelson Index of Bashneft s refining complex reached 8.93. Our key strategic priorities in refining are: / to continue the upgrade programme while maintaining technological leadership in terms of refining depth and the Nelson Index; / to increase refining depth and the share of light products and to cease producing vacuum gas oil and fuel oil by 2019; / to boost output of high-margin niche products. Our progress in achieving strategic objectives in 2014: / we launched new refinery units, which enables us to switch over completely to production of Euro 5 engine fuels; / refining depth and the share of light products increased; / the Nelson Index of our refining complex increased to 8.93; / in 2014 the share of Euro 5 gasoline in the total output increased to 85.6%. Crude oil refining by the Group s refining complex, million tonnes per year (thousand barrels per day) Key refining indicators 2012 2013 2014 25,00 18,75 12,50 6,25 0,00 24.1 20.8 21.4 21.7 (482) (416) (428) (433) Crude oil distillation capacity, million tonnes per year 24.1 24.1 24.1 Oil refining per year, million tonnes 20.8 21.4 21.7 Utilization rate 86.3% 88.9% 90.0% Total refinery output, million tonnes 18.9 19.6 19.9 Refining depth 84.9% 84.7% 84.8% Share of light products 59.7% 60.4% 61.1% Nelson Index 8.55 8.83 8.93 Installed capacity 2012 2013 2014

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 55 The best refining complex in the industry, which is fully integrated and complies with all applicable technical standards in fuel production, is technologically advanced and produces high-quality products. The Group is a leader in the Russian oil refining industry. Bashneft s refineries are characterized by the highest share of light products and refining depth in the industry. The Group accounts for over 12% of domestic sales of gasoline and about 6% of domestic sales of diesel fuel. BASHNEFT S REFINING COMPLEX Bashneft s integrated refining complex consists of three refineries: Ufaneftekhim, Ufinsky Refinery Plant (UNPZ) and Novoil, whose crude oil distillation capacity totals 24.1 million tonnes. The refineries are adjacent to each other and closely cooperate as a single processing complex. This enables the Group to select the best refining configuration and maximize the economic impact. Due to its flexible configuration, Bashneft s refining complex can process various types of hydrocarbons: lowand high-sulphur oil, various types of gas condensate, medium and heavy Management of the refining complex distillates produced in the course of cooperation between the refineries. Bashneft s refining complex includes a wide range of modern high-technology process units; as a result, the Group has the highest Nelson Index in the industry (8.93). A delayed coker, sulphuric acid alkylation and sulphuric acid regeneration units, a catalytic cracking gasoline hydrotreater and a hydrogen production unit commissioned over the last few years have enabled the Group to become an industry leader in terms of refining depth (84.8%) and the share of light products (61.1%) and to ensure the feasibility of producing 100% of fuel to the Euro 5 standard in accordance with the Technical Regulations. One of the largest aromatic hydrocarbon production complexes in Russia processes straight-run gasoline into benzene, paraxylene, orthoxylene and toluene, which play an important role in petrochemical production. In order to improve the organizational structure, in 2013 we centralized management of the three refineries and introduced uniform principles and standards. This helped to improve the organization and production efficiency and enhance business process transparency. OIL REFINING In 2014 Bashneft s refining complex in Ufa processed 21.7 million tonnes of oil (158.13 million barrels), up by 1.2% compared to 2013. The average daily throughput rose to 433.2 thousand barrels, while refining depth increased to 84.8% and the capacity utilization rate reached 90%. SUPPLY OF HYDROCARBONS To produce an optimal and cost-effective product mix, in 2014 hydrocarbons were supplied to our refineries from two sources: / our own production from fields in Bashkortostan (10.6 million tonnes); / West Siberian oil and gas condensate (10.9 million tonnes) purchased from various suppliers, including Lukoil and Shell Trading Russia B.V. Our refineries are located in close proximity to oilfields, which helps to increase economic efficiency of operations. Head officer Production Safe operation and meeting production targets Technology Technological support and development of production facilities (output modes) Reliability and maintenance Reducing the number of unscheduled shutdowns and outages Improving the quality of maintenance and repairs Economics Production planning and budgeting Designing and monitoring the investment programme Production accounting and financial control Auxiliary units Function-based implementation (HSE, capital construction, procurement, etc.) Integrated refining complex Ufaneftekhim UNPZ Novoil

56 ANNUAL REPORT 2014 PROCESS диного FLOW CHART НПЗ OF AN INTEGRATED REFINERY CRUDE OIL SECONDARY DISTILLATION REFINING 1 2 3 COMMERCIAL PRODUCTS Oil storage facility Atmospheric distillation unit GAS Fractionator LPG Aromatic hydrocarbon production complex Oven NAPHTHA Isomerization units Reforming units Gasoline hydroteaters EURO 5 85.6% Aromatic hydrocarbons (benzene, orthoxylene, paraxylene) DIESEL FUEL AND JET FUEL Alkylation and sulphuric acid regeneration units Catalytic cracking gasoline hydrotreater EURO 5 36.0% Gasoline Diesel fuel Vacuum distillation unit Diesel fuel and jet fuel hydrotreaters Jet fuel Oven VGO Hydrocracker Catalytic crackers Lubricant production Lubricants Hydrogen production units Bitumen TAR Visbreakers Bitumen production units Deasphalting units Delayed cokers Fuel oil LEGEND Coke New units put into operation from 2009 through 2014 Sulphur production units Sulphur

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 57 PRODUCTS In 2014 the refining complex produced 19.94 million tonnes of petroleum products, a 1.5% increase over 2013. The share of light products increased to 61.1%. Our product mix is made up primarily of diesel fuel (38%) and gasoline (25%). In 2014 gasoline production grew by 2.6% to 5,005 thousand tonnes, while diesel output remained flat year on year. The share of Euro 5 gasoline in the total output increased from 67.2% to 85.6%, while the share of Euro 5 diesel fuel rose from 28.5% to 36.0%. In addition, Bashneft is developing production of niche products, such as jet and marine fuels and lubricants, which have a high potential for growth of domestic demand. In 2014 the output of niche products gained 7%, while their share in the total output of petroleum products amounted to 13.8%. The growth was driven primarily by an increase in the output of marine fuel. For more details on sales of niche products, see Strategy and Operating Results Operating results Marketing Domestic sales of petroleum products and petrochemicals. OUR ACHIEVEMENTS 2014 saw the start of pilot operation of a new hydrogen production unit. As a result, conversion capacity utilization at the Ufa refineries soared, which helped to boost the share of light products and reduce the output of VGO. As part of our ongoing refinery upgrades, in 2014 a new catalytic cracking gasoline hydrotreater was put into operation, which enabled the Group to greatly increase its output of light products of higher quality. In 2014 Euro 5 gasoline production grew by 30.7% to 4,282 thousand tonnes, and the output of Euro 5 diesel fuel went up by 26.6% to 2,696 thousand tonnes. See Major upgrade projects completed in 2014 Product mix of Bashneft Group s refining complex, million tonnes 2012 2013 2014 Share in 2014 Diesel fuel 7.23 7.48 7.49 37.6% OUR RESPONSIBILITY In 2014 we increased the share of Euro 5 gasoline to 85.6%. Gasoline (including stable natural gasoline) 4.78 4.88 5.00 25.1% Fuel oil 2.86 2.97 3.05 15.3% VGO 1.62 1.76 1.65 8.3% Other 2.41 2.57 2.74 13.8% Total (commercial petroleum products) 18.91 19.65 19.94 100.0% Output of niche products Gasoline production by grade Diesel fuel production by grade 0.2% 4.6% 18.2% 30.2% 2014 0.3% 8.4% 5.7% 85.6% 2014 36.0% 64.0% 7.0% 7.3% 8.3% 10.8% 13.3% 2013 20.5% 8.3% 4% 67.2% 2013 3.1% 28.5% 68.4% 13.1% Petroleum coke Bitumen Bunker fuel Aromatic hydrocarbons Jet fuel Industrial sulphur Lubricants Liquefied gas Other 2012 2.9% 4.3% 20.1% 19.9% 52.8% 0 40 80 Euro 5 Euro 4 Euro 3 Lower than Euro 3 Other gasoline for petrochemical production 2012 10.5% 0 40 80 Euro 5 Euro 4 Euro 3 Lower than Euro 3 76.4%

58 ANNUAL REPORT 2014 REFINERY UPGRADES We upgrade our refining complex on a regular and systematic basis to increase refining efficiency and improve product quality. OUR RESPONSIBILITY In 2011 the Federal Antimonopoly Service (FAS) of Russia, the Federal Service for Environmental, Technological and Nuclear Supervision (Rostekhnadzor), the Federal Agency for Technical Regulation and Metrology (Rosstandart) and twelve Russian oil companies (including Bashneft) signed four-party agreements aimed at preventing violations of antitrust laws, upgrading production capacities and improving the quality of products supplied to the domestic market. Under these agreements, we have assumed an obligation to: upgrade our refineries to switch over to production of petroleum products of higher quality (before 2020); ensure that a sufficient amount of engine fuel is produced and supplied to the domestic market in accordance with the Technical Regulations. Bashneft honours its commitments under the four-party agreement, including the obligation to upgrade its refineries in accordance with the schedule. Main areas of refinery upgrades in 2014 Upgrade area Upgrade efforts implemented in 2014 Switchover to manufacturing Euro 4 and Euro 5 products in accordance with the Technical Regulations Pursuant to the plan to switch over to production of Euro 5 fuel, in 2014 we commissioned a new hydrogen production unit (one of the largest in Europe) and a catalytic cracking gasoline hydrotreater. These new capacities enable the Group to switch over completely to production of Euro 5 engine fuel, increase the refining depth and the share of light products. Increasing refining depth and the share of high-margin light petroleum products Ceasing to produce fuel oil and vacuum gas oil by 2018 2019 All sites were equipped with hydrogen sulphide scavenger injection facilities in 2014 to improve the quality of fuel oil in terms of hydrogen sulphide content. As part of a programme aimed at further improvement of production, construction of line 5 of the sulphur recovery unit continued at Ufaneftekhim; at UNPZ, the basic design for delayed coker construction was completed. Major upgrade projects completed in 2014 Project Main areas of refinery upgrades in 2014 Commissioning of a new catalytic cracking gasoline hydrotreater In January 2014 Bashneft started pilot operation of a catalytic cracking gasoline hydrotreater. This project is the latest large-scale project forming part of the refinery upgrade programme aimed at ensuring compliance with the requirements of the Technical Regulations for engine fuel quality. The launch of the hydrotreater enabled Bashneft to switch over completely to production of Euro 5 gasoline with ultra-low sulphur content of less than 15 ppm (0.001%). Start of pilot operation of a new hydrogen production unit In July 2014 Bashneft started pilot operation of a new hydrogen production unit. This largescale project will enable Bashneft to ensure 100% of its gasoline and diesel fuel meets the Euro 5 standard and to contribute greatly to environmental protection. Construction of the new hydrogen production unit is a crucial stage of Bashneft s refinery upgrade programme. The new plant will fully meet our demand for hydrogen for hydrotreating at all refineries. With a rated capacity of 153 thousand tonnes per year, the new unit ranks among the largest in terms of output among both Russian and European refineries. An additional short-cycle adsorption unit is an essential component of the project. The unit improves the purity of hydrogen produced during gasoline reforming to further enhance the efficiency of hydrotreating processes.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 59 Key refinery upgrade projects up to 2019 Branch Project description / goal Expected completion date Ufaneftekhim Construction of an additional process line for the elemental sulphur production unit Construction of the new elemental sulphur production unit will make it possible to: process all gas containing hydrogen sulphide; reduce the adverse environmental impact of operations; ensure compliance with emission standards. 2013 2015 UNPZ Construction of an additional process line for the elemental sulphur production unit Construction of the new elemental sulphur production unit will make it possible to: process all gas containing hydrogen sulphide; reduce the adverse environmental impact of operations; ensure compliance with emission standards. 2014 2017 UNPZ Construction of a new delayed coker The project has been classified as a long-term project. Commissioning of the coker will help to increase refining depth at the refinery to 95%. 2014 2018 Bashneft s refinery upgrade programme 2010 2011 2012 2013 2014 2015E 2016E 2017E 2018E 2019E Construction of a hydrogen production unit, Novoil Upgrading gas catalysis production, Novoil Improve product quality through launch of Euro 4 and Euro 5 fuels Construction of USKA-ROSK unit, Novoil Construction of catalytic cracking gasoline hydrotreater, Ufa Refinery Construction of an additional process line for the elemental sulphur production unit, Ufaneftekhim Vacuum gas oil Construction of an additional eprocess line for the elemental sulphur production unit, Ufa Refinery Improve refining depth and light product yield Reconstruction of the hydrocracking unit, Ufaneftekhim Increasing the capacity of the delayed coking unit, Ufaneftekhim Heating oil Construction of a delayed coking unit, Ufa Refinery

60 ANNUAL REPORT 2014 Future plans Once it has become technically feasible to produce 100% of engine fuels to the Euro 5 standard in accordance with the Technical Regulations, the Group will continue its refinery upgrade programme. Between 2015 and 2017 we plan to complete projects to construct additional process lines for elemental sulphur production units involved in processing gas containing hydrogen sulphide, which is produced during hydrotreatment of fuel. Between 2014 and 2018 we plan to implement projects which will allow us to cease production of fuel oil and vacuum gas oil. This programme will enable the Group to completely cease production of heavy petroleum products. Besides, another key stage of updating the Refinery Master Plan is awaiting approval: the Debottlenecking Programme developed by our specialists in cooperation with representatives of the Italian company Technip. The programme involves building new refining units at the Group s refineries, refitting and upgrading the existing capacities and improving manufacturing processes. The programme will be incorporated in the updated strategy and submitted to the Board of Directors for consideration. PETROCHEMICALS In 2013, under a resolution of the Board of Directors, JSOC Bashneft s key petrochemical assets (including OJSC Ufaorgsintez) were consolidated within JSC United Petrochemical Company (UPC). Later, as part of non-core asset divestment process, Bashneft s Board of Directors resolved to sell all shares in JSC UPC held by Bashneft to OJSC JSFC Sistema. However, the deal was not completed, and JSC UPC passed into the ownership of JSOC Bashneft once again in October 2014. Petrochemical assets traditionally form part of Bashneft s production complex. Bashneft s petrochemical complex includes: / OJSC Ufaorgsintez, / LLC Tuimazinskoye Gas Processing Plant, / LLC Shkapovskoye Gas Processing Plant, and / Bisphenol A production complex. The petrochemical assets also include the aromatic hydrocarbon production facility of the Bashneft-Ufaneftekhim Branch. UFANEFTEKHIM BRANCH Ufaneftekhim is one of Russia s largest aromatic hydrocarbon production facilities. The plant processes straight-run gasoline supplied by the three Ufa refineries to produce benzene, paraxylene, orthoxylene and toluene. OJSC UFAORGSINTEZ The plant uses hydrocarbon gases and light gasoline (gaseous waste) from the three Ufa refineries and gas processing plants and benzene produced by the Bashneft-Ufaneftekhim Branch as feedstock. The enterprise manufactures over 30 types of petrochemicals, including polypropylene and propylene copolymers, ethylene, high-density polyethylene, acetone, phenol, alpha-methylstyrene and synthetic rubber. Part of phenol and acetone produced by Ufaorgsintez is utilized as components for producing diphenylolpropane (bisphenol A), which is used as feedstock for production of epoxy resins and polycarbonates. Bisphenol A production facilities, which are located on the premises of the Bashneft-UN- PZ Branch, were acquired by JSC UPC as part of the programme to consolidate petrochemical assets in the first half of 2013. The unit has been operating as part of OJSC Ufaorgsintez since July 2013. GAS PROCESSING PLANTS In the summer of 2012, Bashneft restructured its gas processing plants specializing in associated gas processing through a spin-off of LLC Tuimazinskoye Gas Processing Plant and LLC Shkapovskoye Gas Processing Plant within the refining unit. Subsequently, their gas fractionation units were reactivated, tested and adjusted. The plants process associated gas and natural gas liquids. By putting the previously mothballed units into operation, Bashneft expanded the product range of the GPPs and ensured their profitability. Their main products include liquefied gases and stable natural gasoline, which are sold in the market and used as feedstock by petrochemical facilities of OJSC Ufaorgsintez.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 61 After petrochemical assets have been returned to Bashneft, petrochemical management functions have been assigned to OJSC Ufaorgsintez. Currently, the Group is implementing a range of measures to improve the performance of the petrochemical complex, streamline the management structure and update the project portfolio. Petrochemical production, thousand tonnes 2012 2013 * 2014* Liquefied petroleum gases 45.9 129.3 205.9 Polypropylene 125.2 119.4 120.9 Paraxylene 119.7 128.5 112.0 High-density polyethylene 90 95.1 85.5 Benzene 84.1 77.8 83.9 Phenol 73.6 73.4 69.7 Orthoxylene 48.3 48.5 51.2 For details on the spin-off of the petrochemicals business, see Operating results Results of corporate structure improvement Changes in the Group s structure Spin-off of petrochemical assets. Acetone 45.8 45.9 43.6 Bisphenol A (diphenylolpropane) 57.9 27.2** 39.5 Ethylene 16.9 27.1 Other 95.7 110.52 137.3 * The figures presented in the table show the output of petrochemicals for the full year, not only for the period when JSC UPC was owned by Bashneft ** Diphenylolpropane production is part of operations of OJSC Ufaorgsintez starting from July 1, 2013 Production cooperation between petrochemical enterprises JSOC Bashneft s refining complex LLC Bashneft-Dobycha Straight-run gasoline Hydrocarbon gases and light gasoline Associated gas Third-party NGL Bashneft-Ufaneftekhim Branch Benzene OJSC Ufaorgsintez Butane Gas production plants: LLC Tuimazinskoye GPP LLC Shkapovskoye GPP Phenol, acetone Products: Products: Bisphenol А production Products: paraxylene, orthoxylene, toluene, benzene ethylene, polypropylene and propylene copolymers, high-density polyethylene, acetone, phenol, alpha-methylstyrene, ethylene propylene diene monomer rubber (EPDM rubber), butene and butadiene; Е-0, Е-5 liquid pyrolysis products Products: Bisphenol А industrial blends of propane and butane, normal butane, isobutane; hexane, isopentane and pentane; stable natural gasoline, industrial butane

62 ANNUAL REPORT 2014 MARKETING AN INCREASE IN CRUDE OIL PRODUCTION IN 2014 ENABLED US TO BOOST CRUDE OIL EXPORTS. Ruslan Gensh, Vice President for Crude Oil Procurement, Marketing and Logistics 1.5 million tonnes SALES OF PETROLEUM PRODUCTS Our key strategic priorities in marketing are: / further development of own and controllable marketing channels and improvement of efficiency of domestic sales (retail sales and small wholesale); / implementation of the programme aimed at rebranding the network of filling stations; / geographical diversification of sales in the domestic and foreign markets; / improvement of performance of the export business. Our progress in achievement of strategic objectives in 2014: / Bashneft s own retail network was expanded to 582 filling stations; / a programme to consolidate regional networks of filling stations on the basis of LLC Bashneft-Retail Sales is implemented; / a large-scale rebranding programme is underway; / sales of petroleum products via our own retail network increased to 1.5 million tonnes. Domestic sales Sales Export 1.3 million tonnes Crude oil sales Crude oil Crude oil sales 5.8 million tonnes 8.9 million tonnes 1.5 million tonnes Wholesale Retail sales Petroleum products and petrochemicals Customs Union Countries outside the Customs Union 0.6 million tonnes 8.9 million tonnes

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 63 Sales of crude oil and petroleum products are the final stage of the production chain of a vertically integrated company; at this stage we seek to expand marketing channels, increase their profitability and gain access to consumers. OIL SALES We use about 60% of the oil we produce as feedstock for the Group s refining complex. The remaining volumes are sold in the domestic market and exported. In 2014 an increase in crude oil production allowed us to boost its exports. Like in the previous year, main destinations of oil exports included the port in Novorossiysk (35%) and exports to Hungary (23%) through Transneft s pipeline system. In 2014 we exported 5.8 million tonnes of oil. Bashneft increased domestic sales of oil to 1.3 million tonnes, as additional volumes of oil became available for sale due to consolidation of production of LLC Burneftegaz. We supplied 10.6 million tonnes of oil to our own refineries. To ensure the optimal throughput of its refineries, the Group purchased 10.9 million tonnes of West-Siberian oil and gas condensate from third-party suppliers for subsequent refining (see Refining Supply of hydrocarbons ). OUR ACHIEVEMENTS In 2014 we increased oil exports by 26% year on year to 5.8 million tonnes. Breakdown of oil exports, % 2012 2013 2014 Distribution of oil produced by Bashneft, million tonnes Port in Novorossiysk* 16 33 35 Hungary** 6 27 23 12 15.4 16.1 17.8 10.5 10.9 10.6 Slovakia 0 24 17 Belarus 0 11 11 6 4.5 4.7 5.8 Port in Ust-Luga* 10 2 5 Varandey 0 0 5 Port in Kozmino* 0 2 3 0 0.4 0.5 1.3 2012 2013 2014 Czech Republic** 9 0 0 Poland** 30 0 0 Domestic oil sales Export sales Oil supply to own refineries Port in Gdansk** 4 0 0 Port in Primorsk* 25 0 1 * Export through Transneft s system via a sea port ** Export through Transneft s system to the border crossing on the border with countries outside the CIS

64 ANNUAL REPORT 2014 Sales of niche products 19.89% 32.94% 5.00% 7.64% 7.92% 14.54% 11.80% Petroleum coke Industrial sulphur Bitumen Lubricants Bunker fuel Other Jet fuel Distribution of sales of petroleum products and petrochemicals in Russia, million tonnes 10.0 7.5 5.0 2.5 0.0 1.4 9.3 10.7 10.4 10.4 2012 1.4 1.5 9.0 2013 8.9 Wholesale (including small wholesale) 2014 Through the network of filling stations SALES OF PETROLEUM PRODUCTS AND PETROCHEMICALS We sell our petroleum products via several marketing channels. Distribution of supplies is designed to maximize the economic benefit. The Group sells petroleum products in the domestic market through a network of filling stations and through wholesale marketing channels. In addition, the Group exports petroleum products. DOMESTIC SALES OF PETROLEUM PRODUCTS AND PETROCHEMICALS In 2014 the Group sold almost half of the total amount of petroleum products and petrochemicals (10.4 million tonnes) in the domestic market. These included primarily high-octane gasoline (40%) and diesel fuel (21%). Supply of petroleum products to the domestic market in 2014 100 50 0 1% 99% Fuel oil Diesel fuel Via pipelines By rail 10% 90% 86% 14% Diesel fuel Fuel oil, gasoline and diesel fuel were supplied to the domestic market mainly by rail. We pay special attention to the development of sales of high-quality niche products, including both light products such as jet fuel, bunker fuel, liquefied petroleum gases, and heavy products including a wide range of lubricants, bitumen, petroleum coke, as well as sulphur. JSOC Bashneft is a major player in the Russian market for bulk delivery of lubricants; its market share totals 8%. Key products sold by Bashneft include petroleum coke (33%), bitumen (15%) and bunker fuel (12%). We seek to boost sales of niche products via our own marketing channels and to increase the share of consumers in this segment. Bashneft gives priority to developing channels such as supply of products for the needs of civil aviation and sales on commodity exchanges. Breakdown of domestic sales, million tonnes 2012 2013 2014 Share in 2014 High-octane gasoline 4.0 4.0 4.2 40% Diesel fuel 2.5 2.5 2.2 21% Fuel oil 1.9 1.5 1.2 12% Sales of petrochemicals 0.3 0.3 0.2 2% Low-octane gasoline 0.2 0.1 0.1 1% Other 1.8 2.1 2.5 24% Total 10.7 10.4 10.4 100%

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 65 Retail sales Expansion of our own marketing channels providing maximum access to consumers is one of the Group s strategic tasks in the marketing segment. We take measures aimed at effective, economically feasible expansion of our retail network; in addition, we are implementing a large-scale programme to rebrand our filling stations. The Group continues to increase the sales of high-quality gasoline and diesel fuel meeting European quality standards. Moreover, Bashneft sells only Euro 5 gasoline and diesel fuel via its own retail network of filling stations. In 2014 sales of petroleum products through Bashneft s own retail network totalled 1.5 million tonnes. Since 2010 this figure has increased by more than 140%. The share of such sales in the total volume of domestic sales of petroleum products and petrochemicals increased to 14%. In May 2014 Bashneft began to consolidate regional networks of filling stations. This reorganization involves consolidation of the Group s subsidiaries and branches specializing in retail sales into a single legal entity, LLC Bashneft-Retail Sales. Creation of a consolidated sales company in the retail market will help to optimize administrative costs, standardize business processes and centralize business areas such as secondary logistics, maintenance and cashless sales. In 2014 Bashneft expanded its own network of filling stations by acquiring new assets that specialize in retail sales of petroleum products. The Group acquired: / А 100% stake in LLC Promenergoresurs, which owns a network of five filling stations operating under the Red Oil brand name and seven land plots in Magnitogorsk, a large industrial city in the Chelyabinsk Region. LLC Promenergoresurs is a leading operator in the engine fuel retail market in Magnitogorsk, operating approximately 7% of all filling stations in the city. / А 100% stake in CJSC OPTAN-AZS, CJSC Ural and CJSC Helios, as well as a 100% stake in LLC AZS-Saransk and LLC AZS-Ufa; as a result, it acquired a network of filling stations operating under the OPTAN brand name and comprising 92 filling stations and 11 land plots in 12 regions of Russia. Most filling stations operated by OPTAN are located in administrative centres of the regions and along the M5 Ural, M7 Volga and M51 Baikal federal highways. Overall, the OPTAN network is characterized by a good technical condition of most filling stations and a convenient location of land plots earmarked for construction of new filling stations. / А 100% stake in LLC AZS AKTAN, which owns a network comprising 17 filling stations in the Samara Region. The network acquired by Bashneft includes some of the filling stations operated by the Roza Mira Group, the largest independent operator in the retail market for engine fuel in the Samara Region. Most of the acquired filling stations are located in Samara and its suburbs and along the M5 Ural federal highway. OUR ACHIEVEMENTS Since 2010 we have increased retail sales of petroleum products by more than 140%. In 2014 the Group expanded its retail network to 802 filling stations, 582 of which are the Group s own filling stations. OUR RESPONSIBILITY 800 600 400 We sell a new generation fuel under the ATUM brand name at full-service filling stations in the Republic of Bashkortostan, the Republic of Udmurtia and the Orenburg Region; this fuel is more environmentally friendly, and its performance has been improved. AI-92 ATUM gasoline meeting the Euro 5 standard helps to improve engine performance and, consequently, reduce fuel consumption and harmful atmospheric emissions. The fuel is environmentally friendly and resistant to cold and ensures a high level of protection of the key engine components against corrosion. We are launching sales of AI-95 ATUM gasoline in mid-2015. Number of filling stations, pcs. 473 732 764 802 485 582 200 259 279 220 0 2012 2013 2014 Partner filling stations Own filling stations* * Number of filling stations on the Group s balance sheet as of the end of the year.

66 ANNUAL REPORT 2014 582 220 LEGEND: RUSSIA OWN FILLING STATIONS PARTNER FILLING STATIONS Own filling stations Partner filling stations Regional sales offices 26 Krasnodar Territory 30 Republic of Dagestan 2 11 Rostov Region Belgorod Region 8 4 Smolensk Region Voronezh Region 24 19 Tula Region 1 Volgograd Region Tambov Region 1 Moscow Region 1 5 1 14 Vladimir Region Saratov Region Republic of Mordovia 2 Nizhny Novgorod Region Ulyanovsk Region 9 5 1 7 Chuvash Republic 20 41 Kostroma Region Samara Region 98 3 25 Orenburg Region Mari El Republic Republic of Tatarstan 292 46 Republic of Udmurtia Republic of Bashkortostan 26 26 34 Chelyabinsk Region Sverdlovsk Region 20 Kurgan Region Development of a partner network As of the end of 2014, we had nine long-term contracts with other companies for fuel sales via 220 filling stations in 14 regions of Russia. We sold 478.4 thousand tonnes of fuel via partner filling stations. We concluded licence contracts with the participants of the partnership programme granting them the right to use the Bashneft trademark. Full-service filling stations of Bashneft s partners are being rebranded. PROGRAMME TO REBRAND OUR OWN NETWORK We carry out a large-scale three-year programme (for 2013-2015) aimed at rebranding our own network of filling stations. We have developed uniform corporate standards for exterior design of filling stations of various formats; as part of the Programme, 243 filling stations will be redesigned in accordance with these standards. Total investments in the project are estimated at 6.5 billion roubles. In 2014 we invested about 1.6 billion roubles in rebranding of filling stations. 113 full-service filling stations were refitted. In 2013 and 2014, 163 of Bashneft own filling stations were rebranded; 135 of them were redesigned, and 28 underwent complete renovation. BASHNEFT S FLAGSHIP FILLING STATION In 2014 Bashneft put Russia s largest full-service filling station (full-service filling station No. 104) into operation in Bashkortostan; the filling station is equipped with eight double-sided fuel dispensers with 64 nozzles (16 spaces for fuelling). Each fuel dispenser at the full-service filling station dispenses four types of engine fuel meeting the Euro 5 standard: diesel fuel, Regular 92 and Premium 95 gasoline, and premium ATUM-92 gasoline with improved performance. The full-service filling station has undergone complete renovation as part of the programme to rebrand Bashneft s filling stations.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 67 Wholesale and small-scale wholesale distribution of petroleum products and petrochemicals The Group sells of petroleum products wholesale, including on the commodity exchange. The small wholesale business is conducted via Bashneft-Regional Sales branch, whose marketing network covers more than 30 regions of Russia. In 2014 the volume of petroleum products and petrochemicals sold wholesale totalled 8.9 million tonnes. We actively expand the network of marketing enterprises to increase small-scale wholesale distribution of engine fuel in high-priority regions. These include primarily regions neighbouring with Bashkortostan, as well as Moscow and Saint Petersburg, as these markets are characterized by the largest consumption volumes. OUR RESPONSIBILITY EXPORT SALES OF PETROLEUM PRODUCTS AND PETROCHEMICALS In 2014 we exported 9.5 million tonnes of petroleum products and petrochemicals. More than 90% of exports are destined for countries outside the Customs Union, mainly Northern Europe. Diesel fuel (54.1% of exports), VGO (17.3%), fuel oil (19.4%) and gasoline (5.5%) account for the largest share of exports. In 2014 fuel oil was transported by rail only. Diesel fuel was transported mainly via pipelines (92% of deliveries), while gasoline was mainly transported by rail (86% of deliveries). In 2014 VGO was transported by water. We consider opportunities to increase the premium export of high-margin products, such as lubricants and jet fuel. OUR ACHIEVEMENTS Export sales of petroleum products and petrochemicals, million tonnes 10,0 7,5 5,0 2,5 0,0 2.1 6.4 8.6 9.4 9.5 2012 8.7 2013 2014 Countries outside the Customs Union Customs Union 0.7 0.6 8.9 In accordance with the requirements of the Ministry of Energy and the FAS of Russia and in order to improve the transparency of information on sales, we have considerably increased sales of petroleum products via the St. Petersburg International Mercantile Exchange. In 2014 the Group sold 1,296 thousand tonnes of petroleum products on the exchange. In 2014 Bashneft became a full-fledged member of the St. Petersburg International Mercantile Exchange (SPIMEX). This gave Bashneft the right to operate in all existing sections of the exchange, the right to nominate candidates to the boards of the exchange sections and take part in preparation of recommendations on the most important and vital issues of organization and development of exchange trade. Breakdown of exports of petroleum products and petrochemicals, million tonnes Exports of petroleum products, 2014 2012 2013 2014 Share in 2014 Diesel fuel 5.0 4.9 5.2 54.1% VGO 1.6 1.8 1.7 17.3% Fuel oil 1.0 1.5 1.8 19.4% High-octane gasoline 0.5 0.7 0.5 5.5% Naphtha 0.1 0.1 0.1 1.3% Sales of petrochemicals 0.1 0.1 0.1 0.9% Other 0.2 0.3 0.1 1.6% Total 8.6 9.4 9.5 100.0% 100 80 60 40 20 0 100% 92% 86% 59% 41% 14% 8% 0% 0% 0% 0% 0% Fuel oil Diesel fuel Gasoline VGO Via pipelines By rail By water

68 ANNUAL REPORT 2014 FINANCIAL RESULTS HIGH OPERATIONAL EFFICIENCY, COST CONTROL, THE GROUP S MARGINS AND SHAREHOLDER RETURN: THESE ACHIEVEMENTS WERE MADE POSSIBLE BY HIGH-QUALITY AND PROFITABLE ASSETS AND EFFECTIVE ACTIONS TAKEN BY THE MANAGEMENT TEAM EVEN DESPITE A CHALLENGING MACROECONOMIC SITUATION. Denis Stankevich, Vice President for Economics and Finance, Chief Financial Officer 24 % RETURN ON AVERAGE CAPITAL EMPLOYED (ROACE) OUR ACHIEVEMENTS In 2014 we increased our net cash flow from operating activities by 28% to 106.1 billion roubles. In 2014 Bashneft s return on average capital employed (ROACE) amounted to 24%, remaining one of the highest indicators in the Russian oil industry. Our key strategic priorities in financial policies are: / to remain a leader in terms of operating efficiency and profitability by controlling operating costs; / to maintain a high level of dividend payments; / to maintain the net debt-to- EBITDA ratio below 2.0x; / to maintain and improve credit ratings; / to smooth out the maturity profile, to maintain a balance between various currencies and funding sources within the loan portfolio. Our achievements in 2014: / cash flow from operating activities increased to 106.1 billion roubles; / Bashneft s return on average capital employed (ROACE) is one of the highest in the industry at 24%; / in 2014 the dividend payout ratio rose to 179%; / we improved the debt maturity profile. ROIC* 25.0 20.0 ROACE 23.0% 25.0% 24.0% 25.0 25.0 22.9% ROE (Net Income to Equity) 21.1% 19.2% 19.0% 17.0% 19.6% 20.0 20.0 15.0 15.0 15.0 10.0 10.0 10.0 2012 2013 2014 2012 2013 2014 2012 2013 2014 * ROIC (Return on Invested Capital) is a ratio of operating income adjusted for the effective income tax rate to equity and long-term borrowings.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 69 Revenue and income, billion roubles Capital expenditure, billion roubles Net cash from operating activities, billion roubles 700 532.5 563.3 637.3 50.0 30.8 30.4 48.3 110 106.1 37.5 36.2 82.5 71.1 82.7 350 25.0 15.5 15.1 55 0 103.8 102.4 100.8 52.3 46.2 43.1 2012 1 2013 1 2014 12.5 0 14.3 13.6 11.6 1.0 1.7 0.5 2012 2013 2014 27.5 0 2012 2013 2014 Revenue Upstream EBITDA Refining and marketing Net income attributable to shareholders of the parent company Other In 2014 our financial performance was influenced primarily by various macroeconomic factors, including a volatile situation in the Russian economy and volatility in oil prices. High-quality and profitable assets and effective actions taken by the management team enabled us to achieve high financial results. In 2014 the Group s revenue increased by 13.1% compared to 2013 and totalled 637.3 billion roubles. In 2014 revenue from export sales of crude oil amounted to 143.8 billion roubles, up by 33.1% compared to 2013. The main drivers of growth include an increase in oil sales and a rise in prices denominated in roubles. Revenue from sales of petroleum products and petrochemicals increased by 7.4% to 471.3 billion roubles. This growth was driven by both export and domestic sales. In 2014 total revenue from domestic sales of petroleum products and petrochemicals amounted to 239.3 billion roubles. A price increase on the domestic market led to higher revenues from wholesale distribution of petroleum products and petrochemicals. Growth in the revenue from retail sales was driven by an increase in sales as a result of expansion of the network of filling stations and implementation of our rebranding programme. In 2014 EBITDA (earnings before interest, taxes, depreciation and amortization) under IFRS remained at the level reached in the previous year and totalled 100.8 billion roubles, despite unfavourable macroeconomic conditions, including a reduction in global oil prices. The indicator was influenced by an increase in the portion of non-controllable costs related to tax burden (mainly the mineral extraction tax and export duties) due to an increase in exports of oil and petroleum products to countries outside the Customs Union. In 2014 Bashneft s net income attributable to shareholders of the parent company amounted to 43.1 billion roubles. Our financial strategy is based on an effective investment programme aimed at creating value and a balanced approach to investments. Capital expenditure in the Upstream unit totalled 36.2 billion roubles, which is 140% more than in 2013. A considerable increase in investment in this segment was related to expenditure on development of the Trebs and Titov oilfields and acquisition of Burneftegaz Group. Capital expenditure on brownfields totalled about 16 billion roubles (44% of the total amount), while expenditure on the development of the Trebs and Titov fields amounted to 17.4 billion roubles (48%). In the Downstream segment, capital expenditure was comprised primarily of investments aimed at maintaining refining, which exceeded 70% of the total amount (8.4 billion roubles), with measures aimed at ensuring compliance with the Technical Regulations accounting for half of the expenditure (4.0 billion roubles). Capital expenditure in Commerce (excluding М&A transactions) exceeded 1.8 billion roubles. For more information about macroeconomic factors affecting our operations, see About the Group Position in the industry and macroeconomic factors. 1. Certain comparative information has been reclassified to ensure its consistency with the method of presentation in financial statements adopted in the current year.

70 ANNUAL REPORT 2014 THE CURRENT PORTFOLIO STRUCTURE IS BALANCED IN TERMS OF CURRENCIES AND MATURITIES. THE GROUP HAS A MARGIN OF SAFETY NECESSARY TO REFINANCE THE CURRENT PORTFOLIO GRADUALLY ON MORE FAVOURABLE TERMS AS MARKET CONDITIONS IMPROVE. Denis Stankevich, Vice President for Economics and Finance, Chief Financial Officer Debt structure and leverage ratios, billion roubles 200 160 120 80 40 0 8 32 1.1 0.8 110 Total debt 23 12 2012 2013 2014 Adjusted net debt Total debt/ebitda Adjusted net debt/ EBITDA Short-term debt Secured debt 0.9 0.7 91 78 74 29 21 168 1.6 1.1 114 DEBT PORTFOLIO We strive to secure optimal funding for the Group s operations while maintaining a balanced debt portfolio. In the sphere of debt management, our targets include the following: / achieving a balance between a longer maturity and a lower average interest rate while maintaining a flat repayment profile; / flexibility in the choice of a currency for debt instruments depending on market conditions; / building long-term relationships with major banks; / maintaining available lines of credit for short-term liquidity management; debt. In addition, the Group formed a significant liquidity cushion, which totalled 52.8 billion roubles in cash and cash equivalents at the end of 2014. As a result, as of the end of 2014, the Group s total debt amounted to 167.8 billion roubles, while the Group s adjusted net debt 1 increased during the year from 74.4 billion roubles to 113.6 billion roubles. Despite the increase in the debt portfolio in 2014, as of the end of 2014 we managed to keep the adjusted net debt-to- EBITDA ratio at a level of 1.1x, which is acceptable to the Group. / diversifying instruments to reduce dependence on individual funding sources and reduce the refinancing risk. Measures to attain our strategic objectives related to the Group s reorganization and the related share buyback, consolidation of LLC Bashneft-Polus and its debt on Bashneft s balance sheet, as well as financing of a number of key projects in 2014 (acquisition of LLC Burneftegaz and networks of filling stations) resulted in an increase in the Group s total 1. It corresponds to the similar indicator disclosed by the Group in the document titled Management s analysis of the financial position and operating results of Bashneft Group. It is calculated as total debt less cash and cash equivalents and short-term financial investments (including promissory notes and deposits).

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 71 BOND PORTFOLIO We believe that bonds are an important market tool, but because of high rates and volatility in debt capital markets in 2014 the Group decided to limit the amount of funds raised on the bond market and to use other debt instruments because they are more attractive. As of the end of the reporting year, the share of non-public debt instruments in the portfolio increased to 67%. At the same time, we continued our work on the public debt market: / In May 2014 JSOC Bashneft placed series BO-05 exchange-traded bonds with a par value of 10 billion roubles, a coupon rate of 10.7% and a put option after 4.5 years, / In December 2014 series BO-01 exchange-traded bonds with a par value of 10 billion roubles were redeemed. At the time of redemption, the total par value of outstanding securities amounted to 3 billion roubles, while the remaining 7 billion roubles had been purchased earlier as part of fulfilment of obligations under the offer in December 2013. In addition, in February 2015 we performed our obligations under the offer of series 04 bonds. A new coupon rate on the issue was set at 16% until the next offer in a year, in February 2016. The par value of securities presented for redemption totalled only 23 million roubles out of the total value of the issue of 10 billion roubles. As price conditions improve, the Group will be ready to promptly enter the bond market. For these purposes, the Group previously registered issues of exchange-traded bonds worth a total of 50 billion roubles (series BO-01-04 and BO-06-10). Information on JSOC Bashneft s outstanding bonds is available on the Group s website: http://www.bashneft. com/shareholders_and_investors/ capital/debt_portfolio/. For more information about consolidated debt of Bashneft Group, see Note 22 to the Consolidated Financial Statements of Bashneft Group for 2014. AMID A DIFFICULT SITUATION ON THE CAPITAL MARKET IN 2014, BASHNEFT MANAGED TO CURB THE RISE IN THE COST OF DEBT SERVICING AND MAINTAIN THE STABILITY OF THE PORTFOLIO, DESPITE THE RISKS ASSOCIATED WITH CORPORATE REORGANIZATION AND A CHANGE OF THE CONTROLLING SHAREHOLDER. A SMALLER SHARE OF FOREIGN CURRENCIES COMBINED WITH A SHARP WEAKENING OF THE ROUBLE MADE IT POSSIBLE TO EFFECTIVELY REDUCE THE COST OF SERVICING THE ROUBLE DEBT THROUGH THE SALE OF PROCEEDS FROM EXPORTS AT HIGH RATES AND HAS A POSITIVE IMPACT ON THE OVERALL LEVEL OF DEBT. Denis Stankevich, Vice President for Economics and Finance, Chief Financial Officer

72 ANNUAL REPORT 2014 CREDIT RATINGS In March 2014 Fitch Ratings affirmed corporate ratings and rouble bond ratings previously assigned to JSOC Bashneft and maintained a positive outlook on a number of ratings. In July 2014 Moody s raised the outlook on the corporate rating to positive and confirmed the rating at Ba2. Revision of the outlook reflected the agency s opinion that since the assignment of the rating in 2012, Bashneft s business profile improved due to the following: / greater geographical diversification of upstream assets and more active geological exploration and development at traditional fields, leading to a 10% increase in the Group s probable and possible oil reserves and a 13.6% increase in oil production; / refinery production growth; / improvement of the product mix. Other positive factors highlighted by Moody s also included a streamlined organizational structure and an optimized debt maturity profile. In September 2014 both agencies placed the ratings on review for downgrade due to the arrest of the controlling beneficial shareholder and general uncertainty over further development of the situation. Following a decision made by the Commercial Court to transfer Bashneft s shares previously owned by OJSC JSFC Sistema and CJSC Sistema-Invest to the Russian Federation in November 2014, Moody s confirmed Bashneft s ratings at Ba2 with a positive outlook. In December Moody s placed the ratings on review for downgrade again as the agency took a more pessimistic view on the prospects for the Russian economy as a whole. In March 2015 Fitch Ratings removed the ratings from Rating Watch Negative and affirmed Bashneft s ratings at BB with a stable outlook. Confirmation of the rating reflects the agency s opinion that there are no more significant risks stemming from the legal action and the subsequent change of the shareholder. In April 2015 Moody s assigned Bashneft the status of a government-related issuer and upgraded its corporate rating from Ba2 to Ba1 with a negative outlook. Credit ratings and issuer default ratings Agency Rating Outlook Corporate ratings Moody's Investors Service Corporate family rating Ba1 Negative Probability of default rating Ва1-PD Moody's Interfax National scale rating Аа1.ru Long-term foreign currency issuer default rating BB Stable Long-term local currency issuer default rating BB Stable Fitch Ratings National long-term rating AA-(rus) Stable Short-term foreign currency issuer default rating B Stable Short-term local currency issuer default rating B Stable Rouble bond ratings Fitch Ratings Foreign currency senior unsecured rating BB Stable National senior unsecured rating AA-(rus) Stable

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 73 IMPROVEMENT OF THE GROUP S STRUCTURE TODAY, BASHNEFT S CORPORATE STRUCTURE IS ABSOLUTELY CLEAR AND TRANSPARENT TO INVESTORS. WE HAVE COMPLETED ALL MAJOR CORPORATE REORGANIZATIONS. Kirill Andreychenko, Vice President for Corporate Governance and Legal Issues Our key strategic priorities in this sphere are: / to improve the transparency of business processes and the Group s performance, to streamline the corporate structure. Our progress in achieving strategic goals in 2014: / Bashneft Group completed the final stage of its large-scale reorganization: cross-holdings in the Company were eliminated through consolidation of CJSC Bashneft-Invest with Bashneft. In 2014 we completed an enormous task of reorganizing the Group as part of a comprehensive strategy aimed at streamlining Bashneft s corporate structure and focusing on its core businesses. The main achievement BACKGROUND consisted in a transition to a transparent structure of a vertically integrated company. Measures to improve the structure by switching over to standardized shares, eliminating cross-holdings in Bashneft and divesting non-core businesses were implemented within an unprecedentedly short time frame of three years. As a result, we achieved a considerable improvement in the transparency of business processes and the Group s performance and reduced administrative costs. The historical complexity of the corporate structure that had been formed by 2012 had prevented the Group from fully achieving its strategic targets. The reorganization launched in March 2012 was aimed at accomplishing the following tasks: / to establish a fully-fledged vertically integrated company; / to improve the transparency of business processes and the corporate governance system; / to create a transparent ownership and cash flow structure; / to focus on core businesses and divest non-core assets; / to improve the corporate culture and make the Group more attractive to investors. OUR ACHIEVEMENTS From 2012 through 2014 we implemented a large-scale programme aimed at reorganization of the Group s corporate structure and including three key stages: switchover to standardized shares; spin-off of non-core assets; elimination of cross-holdings.

74 ANNUAL REPORT 2014 THE GROUP S STRUCTURE BEFORE THE START OF REORGANIZATION* 27.0% (13.7%) Minority shareholders JSOC Bashneft OJSC JSFC Sistema 52.1% (61.3%) 54.9% (65.7%) Novoil 61.8% (67.4%) 56.3% (62.7%) Ufimsky Refinery Plant 56.5% (65.3%) Ufaorgsintez 56.9% (61.4%) 94.0% (100%) 74.9% Ufaneftekhim Bashkirnefteprodukt Orenburgnefteprodukt Bashneft- Polyus 50.6% (50.6%) OJSC Sistema-Invest 20.9% (25.0%) 26.7% (26.7%) 8.1% (8.1%) 18.2% (22.4%) 7.3% (7.3%) 25.6% (28.2%) 7.3% (7.3%) 22.5% (25.5%) 21.5% (24.9%) 17.2% (18.6%) KEY STAGES OF REORGANIZATION Divestment of non-core assets Switchover to standardized shares Railway transport Petrochemicals Oilfield service companies Reorganization of CJSC Sistema-Invest March-October 2012 December 2012 September 2013 October 2013 December 2013-June 2014 Creating a vertically integrated oil company Optimizing the corporate structure to improve performance Forming a single centre for operational decision-making along all lines of business: upstream, refining and marketing Consolidating all cash flows Improving performance Divesting the Group s non-core assets and focusing on core businesses Promoting competition on the market in services provided to the Group Achieving a transparent ownership structure and a simple corporate structure Increasing dividends per share Increasing stakes of all shareholder groups in the authorized share capital Divesting all non-core assets Eliminating intra-group lending Reducing transaction costs Increasing the share of ordinary shares in the free float THE GROUP S STRUCTURE AFTER COMPLETION OF THE REORGANIZATION** Minority shareholders LLC Bashneft-Polyus LLC Burneftegaz JSC UPC Russian Federation represented by the Federal Agency for State Property Management*** 19.95% (11.51%) 73.94% (84.40%) 74.9% 100% 100% JSOC Bashneft Production Refining Marketing 6.11% (4.09%) Shares on the balance sheets of the Group and its subsidiaries * As of December 31, 2011. ** As of December 31, 2014. Figures represent interest in the authorized share capital; figures in brackets represent interest in ordinary shares (%). *** In December 2014 ordinary and preferred shares of JSOC Bashneft (totalling 73.94% of the authorized share capital) were transferred from the accounts of OJSC JSFC Sistema and CJSC Sistema-Invest to the account of the Federal Agency for State Property Management. For details, see Investor & Shareholder Information Shareholder structure. THE GROUP S BUSINESS STRUCTURE BEFORE THE REORGANIZATION THE GROUP S BUSINESS STRUCTURE AFTER COMPLETION OF THE REORGANIZATION Production Refining and marketing Petrochemicals Transportation assets (rolling stock) Oilfield service assets Production Refining, petrochemicals and marketing

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 75 REORGANIZATION PRINCIPLES In the course of the reorganization we adhered to the following fundamental principles: / full compliance with Russian legislation; / compliance with Russian and international best practice in corporate governance. Those shareholders of JSOC Bashneft and the subsidiaries to be consolidated with it who had abstained or voted against the reorganization were granted the right to submit share buyback requests. At each stage of implementation of the comprehensive strategy for simplifying the corporate structure, calculation of buyback prices was based on an independent appraisal. The applicability of methods used by independent appraisers was confirmed by internationally recognized Big Four companies. KEY STAGES OF REORGANIZATION STAGE 1. SWITCHOVER TO STANDARDIZED SHARES In 2012 the Group switched over to standardized shares through consolidation of its five major subsidiaries (OJSC Ufimsky Refinery Plant, OJSC Novoil, OJSC Ufaneftekhim, OJSC Bashkirnefteprodukt and OJSC Orenburgnefteprodukt) with the JSOC Bashneft. At this stage, the mechanism of the Group s reorganization included the following: / conversion of ordinary and preferred shares of subsidiaries to be consolidated with JSOC Bashneft into JSOC Bashneft s ordinary and preferred shares respectively using conversion ratios approved by the Boards of Directors; / buyout of shares held by shareholders who did not vote or voted against the reorganization by JSOC Bashneft and its subsidiaries for cash. The total amount of funds allocated for share buyback approximated 19 billion roubles. In October 2012 the Group completed the consolidation of its subsidiaries. Optimization of the corporate structure allowed those shareholders who had supported the consolidation to benefit from the financial performance of the entire Group, not only of an individual subsidiary. STAGE 2. SPIN-OFF OF NON-CORE ASSETS We proceeded with improving the corporate structure, and in 2012 and 2013 we consolidated and divested the Group s non-core assets. At the second stage of the reorganization we took measures in three areas: 1. Consolidation and spin-off of oilfield service assets on the basis of LLC Bashneft-Service Assets; 2. Spin-off of transportation assets on the basis of LLC Financial Alliance; 3. Consolidation of petrochemical assets on the basis of JSC UPC. Oilfield service assets In July 2012 the Board of Directors approved the structure of the oilfield service holding company established on the basis of LLC Bashneft-Service Assets. The holding company comprised 11 oilfield service organizations having a market development potential. The oilfield service holding company was created by March 2013, and in October of the same year we sold a 100% stake in LLC Bashneft-Service Assets to OJSC JSFC Sistema for 4.1 billion roubles. Bashneft and LLC Targin (former LLC Bashneft-Service Assets) continue to cooperate on market terms. The switchover to standardized shares has enabled us: / to considerably simplify the Group s corporate structure; / to increase the liquidity of JSOC Bashneft s shares; / to form a single centre for operational decision-making; / to consolidate all cash flows into a single centre; / to improve the transparency of business processes and the corporate governance quality in the Group; / to enable minority shareholders to benefit from the financial performance of the entire Group rather than individual subsidiaries. The spin-off of non-core assets has enabled us: / to focus on core businesses: crude oil production and refining, sales of crude oil and petroleum products; / to improve the performance of the spin-offs by enabling them to enter a competitive market in accordance with international practice; / to optimize the portfolio of service contracts on the basis of market pricing.

76 ANNUAL REPORT 2014 Transportation assets In August 2012 Bashneft started consolidation of transportation assets: the Company concluded a deal to acquire a 50% stake in LLC Financial Alliance, which, in turn, obtained the railcar fleet comprising almost 4,500 railcars owned by Bashneft. In December 2012 the Board of Directors of OJSC Bashneft approved the sale of Bashneft s 50% stake in the authorized share capital of LLC Financial Alliance to JSFC Sistema for 3.41 billion roubles. After the transaction had been completed, LLC Financial Alliance continued to provide transportation services to the Group on market terms. Petrochemical assets In February 2013 the Board of Directors of JSOC Bashneft made a number of decisions which marked the start of consolidation of petrochemical assets within JSC UPC aimed at developing them as a separate business. In the first half of 2013 all of Bashneft s major petrochemical assets, including OJSC Ufaorgsintez, were consolidated within JSC UPC. In August 2013 an Extraordinary General Meeting of Shareholders of JSOC Bashneft made a decision to sell all shares in JSC UPC owned by the Group to OJSC JSFC Sistema for 6.2 billion roubles. However, this transaction was not completed, and in October 2014 JSC UPC passed into the ownership of JSOC Bashneft again. STAGE 3. ELIMINATION OF CROSS- HOLDINGS IN JSOC BASHNEFT At the final stage of the reorganization we optimized the ownership structure by eliminating cross-holdings in JSOC Bashneft. In late 2013 we announced the start of a reorganization programme involving consolidation of CJSC Bashneft-Invest (Bashneft s wholly owned subsidiary created through a spinoff from CJSC Sistema-Invest) with Bashneft. In February 2014 an Extraordinary General Meeting of Shareholders of JSOC Bashneft approved consolidation of CJSC Bashneft-Invest with the Company and made a decision to reduce JSOC Bashneft s authorized share capital by cancelling the Company s ordinary shares (16.8% of its authorized share capital) owned by CJSC Bashneft-Invest to be consolidated with the Company. Under the legislation of the Russian Federation, shareholders of JSOC Bashneft who abstained or voted against the reorganization had the right to request a buyback of all or some of the Company s shares that they owned. The Group allocated a total of 17.9 billion roubles for the buyback. In May 2014 tax authorities registered the winding-up of CJSC Bashneft-Invest. The Company s ordinary shares (a 16.8% stake in its authorized share capital) owned by the company were cancelled. In addition, preferred shares bought back from Bashneft s shareholders as part of the reorganization were also cancelled. This was one of the largest cancellations of own securities by a Russian company. As a result of this stage of the reorganization, JSOC Bashneft completed the divestment of indirect stakes in OJSC Bashkir Power Grid Company and other non-core assets. The consolidation of CJSC Bashneft-Invest with the Group has enabled us: / to create transparent corporate and ownership structures; / to increase dividend payments and earnings per share; / to increase stakes of all shareholder groups in the authorized share capital; / to divest all non-core assets; / to eliminate intra-group lending; / to optimize cash flows and reduce transaction costs; / to create the conditions for increasing the proportion of ordinary shares in the free float. For more details on the reduction in the authorized share capital through cancellation of the shares bought back by Bashneft, see Investor & Shareholder Information Authorized share capital.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 77 ENVIRONMENTAL AND SOCIAL RESPONSIBILITY WE ADHERE TO THE PRINCIPLES OF RESPONSIBLE BUSINESS CONDUCT. OVER THE LAST TWO YEARS, WE MADE IMPRESSIVE PROGRESS IN THE SPHERE OF HEALTH AND SAFETY. AS FOR CHARITY WORK, FROM 2009 THROUGH 2014 THE GROUP ALLOCATED ABOUT 7 BILLION ROUBLES FOR FUNDING SOCIAL PROGRAMMES IN OUR OPERATING REGIONS. Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board Our key strategic priorities in the field of HSE and personnel management are: / to preserve the life and health of employees; / to improve the performance of the HSE management system; / to ensure industrial safety at production facilities; / to create an image of an environmentally friendly company; / to protect employees in emergency situations; / to improve the integrated system of personnel management and incentives. Our progress in achievement of strategic objectives in 2014 / the injury frequency rate declined by 22%; / the number of occupational accidents fell by 34%; / 405 kilometres of flowlines were upgraded and underwent major repairs; / direct emissions into the atmosphere were reduced by 2.4 thousand tonnes; / the average salary in the Group reached 67 thousand roubles. -34 % REDUCTION IN THE NUMBER OF WORKPLACE INJURIES

78 ANNUAL REPORT 2014 SOCIAL RESPONSIBILITY We strive to create all conditions necessary for safe work and to provide our employees with every opportunity for professional fulfilment. Employees consider the Group to be one of the most attractive employers in the region, and the social policy pursued by us is consistent with the high degree of Bashneft s responsibility towards its employees. We believe that our investment in human capital is an investment in the successful development of the Group in the future. We consider active participation in charity work in our operating regions to be an important part of our activities. The development of regional and local infrastructure, assistance to regions in case of emergencies, the implementation of long-term programmes aimed at supporting education and sports, participation in the life of communities: all of these activities reflect a high level of the Group s social responsibility towards society. EMPLOYEES People are our key asset and our most important competitive advantage. We build partnerships with our employees and are aware of our responsibility for decent wages, opportunities for professional growth and the creation of safe working conditions. Interaction with employees is based on mutual respect, proper regard for the views of the parties, respect for human rights and compliance with legislation. The Group has adopted a set of documents to prevent unethical behaviour, discrimination, corruption, infringement of rights and opportunities. Relations with the employees are based on the Collective Agreement, which has been drafted with regard for the best Russian and international practices and which ensures equitable treatment of employees and transparency of the relevant policies. As of the end of 2014, the headcount of Bashneft Group exceeded 33 thousand people. The majority of employees are employed in production units, while the management accounts for about 4% of employees. In 2014 staff turnover amounted to about 4.3%, reflecting our efforts to create a favourable environment for work and self-fulfilment. Employees aged under 30 account for 21% of the total number of employees. In 2014 the average age of Bashneft s employees amounted to 39.2 years. Bashneft s remuneration system is based on the principles of competitive salaries and fair treatment of employees when determining the amount of remuneration to a specific employee. OUR ACHIEVEMENTS In 2014 the average salary in the Group reached nearly 67 thousand roubles. For more information on personnel, see JSOC Bashneft s Sustainability Report for 2014.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 79 IN OUR WORK IN THE FIELD OF HSE, WE WANT TO ACHIEVE MORE. WE PLAN TO CONTINUOUSLY IMPROVE THE WORKING CONDITIONS, INDUSTRIAL SAFETY STANDARDS AND MECHANISMS FOR MANAGING ENVIRONMENTAL ASPECTS OF OUR OPERATIONS. Alexander Korsik, President of JSOC Bashneft, Chairman of the Management Board We actively invest in training and development of our employees. In 2014 the average number of training hours per employee in Bashneft Group reached 38 hours. In addition to training aimed at developing the skills and competencies of employees, we conduct mandatory training in HSE. SOCIAL GUARANTEES Bashneft s collective agreement provides for an extended package of social benefits aimed at improving the living conditions of the employees and members of their families. Additional obligations of the employer include, among other things, voluntary medical insurance and insurance against accidents at work. Voluntary health insurance contracts were signed with large Russian insurance companies. In addition, we provide employees with an opportunity of health resort treatment and recreation. We cover part of the cost of holidays at children s holiday camps, and health resort treatment and recreation for the Group s employees. The Group regularly takes preventive and treatment measures and conducts health care activities. In 2014 Bashneft continued a large-scale programme to combat the main cause of the deterioration of the employees health: cardiovascular diseases. For more information about social guarantees, see JSOC Bashneft s Sustainability Report for 2014. CORPORATE CULTURE Bashneft creates and introduces a corporate culture which prioritized the overall performance, team spirit and mutual respect of employees regardless of their position, gender or any other grounds. We define corporate culture as a system of values and beliefs, norms and patterns of behaviour shared by most of the Group s employees. Our efforts to develop the corporate culture are aimed at creating a common system of moral and spiritual values shared by our employees, an atmosphere of friendliness and openness, a favourable psychological climate conducive to efficient work and the achievement of the Group s objectives. In order to develop the corporate culture in the Group we use a wide range of tools: / the corporate website; / the corporate newspaper; / regular meetings with employees; / we have established a Corporate Award for outstanding achievements in the workplace and contribution to the Group s development; / we organize sports competitions among the Group s employees; / we actively support the volunteer movement in which our employees are involved. For more information about the development of corporate culture, see JSOC Bashneft s Sustainability Report for 2014. PARTICIPATION IN COMMUNITY LIFE Support of local communities, in particular in the regions where the Group operates, forms an important part of our activities. Charity work and social responsibility are as important to the Group as our economic performance. We aim to operate smoothly and sustainably and to create the prospect for future generations. When implementing our charitable programmes, we pay special attention to the following: / identifying the needs and respecting the interests of all stakeholders, holding an open dialogue with them; / targeted investments in the social sphere and infrastructure development as agreed with the authorities; / charitable support of population and local communities; / developing educational potential of the regions, supporting sports and a healthy lifestyle. The Group plays an important role in the development of the operating regions as a major employer and taxpayer. The Group s main operating region is the Republic of Bashkortostan. Bashneft s operations have a strong impact on the region s economy, accounting for more than half of the gross regional product. JSOC Bashneft is the largest taxpayer in the Republic of Bashkortostan: tax payments from the oil complex account for over a half of the budget of Ufa and

80 ANNUAL REPORT 2014 OUR RESPONSIBILITY In 2014 the Group s social investments in its operating regions totalled about 1.4 billion roubles. OUR ACHIEVEMENTS Measures implemented in 2014 enabled us to reduce the number of occupational injuries by 34%, while the lost time injury frequency rate (LTIFR), one of the Group s KPIs in occupational safety, fell by 22% and totalled 0.35. For more information about participation in community life and charity work, see JSOC Bashneft s Sustainability Report for 2014. For more information about HSE, see JSOC Bashneft s Sustainability Report for 2014. constitute a considerable part of the Republic s budget. As a responsible subsoil user and employer, Bashneft responds to the needs of local communities, actively participating in economic and cultural development of operating regions, protecting the environment and caring about future generations. HEALTH, SAFETY AND ENVIRONMENT Safety is our key priority. Health, safety and environment are given attention at the highest level: there is a special-purpose committee under the Board of Directors, which consists of three independent directors. HSE activities are carried out in accordance with the Functional Strategy approved in 2012 and aimed at achieving our strategic objective, which is to make Bashneft a leader in the HSE field among Russian energy companies and to ensure compliance with internationally accepted norms and standards in these areas. Indicators reflecting whether the Group achieves the objectives set out in the Functional Strategy form part of the corporate system of KPIs: their achievement has an impact on remuneration of both the Group s management and other employees. Priority areas of our work include improving efficiency of the HSE management system, preserving the life and health of employees and reducing adverse environmental impacts. Bashneft has in place an integrated corporate health, safety and environment management system, which complies with internationally accepted standards. The British Standards Institution has issued Bashneft with certificates of conformity of its Health and Safety Management System with the OHSAS 18001 standard and conformity of its Environmental Management System with the ISO 14001 standard. OCCUPATIONAL SAFETY AND HEALTH We are aware of our responsibility for ensuring occupational safety and implement a set of measures aimed at protecting the health of employees, reducing the number of occupational injuries and reducing the number of workplaces characterized by hazardous working conditions. Bashneft has adopted and implements a long-term programme aimed at reducing the number of occupational injuries; the plan covers all units of the Group. PROCESS SAFETY As part of our activities in the field of process safety, we give priority to the implementation of programmes to ensure compliance of hazardous production facilities with process safety rules. Bashneft has developed and uses a multi-level system of industrial control at hazardous production facilities as one of the key mechanisms to ensure process safety. In 2014 the Group spent a total of 1.4 billion roubles on the full range of measures to ensure process safety (excluding expenditure on measures for improving the reliability of pipelines). ENVIRONMENT We use an integrated approach to reducing direct and indirect negative impacts on the environment. Key areas of the Group s activities in the field of environmental protection include protection of the atmosphere, water resources and land, improvement of energy efficiency and protection of biodiversity.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 81 In the field of environmental protection, we are guided by the following principles: / recognition of the inalienable human right to a healthy environment; / reduction of the negative environmental impact and environmental control over all business segments; / compliance with government regulations and international standards in the field of environmental protection; / continuous improvement of the environmental management system; / openness and accessibility of information. Overall, in 2014 the Group spent 9.3 billion roubles on measures related to environmental protection. From 2014 through 2018, Bashneft plans to allocate over 46.7 billion roubles for these purposes. Measures that we take to protect the atmosphere are governed by the Agreement with the Government of Bashkortostan, which stipulates the necessary measures to control and monitor emissions, as well as further modernization of production facilities in order to reduce the negative environmental impact. Completion of major refinery upgrade projects at Bashneft also has a positive impact on the atmosphere, either directly or indirectly, as the Group has switched over to producing environmentally friendly Euro 5 fuels. We increase the efficiency of water consumption: we actively use water recirculation technologies in refining; industrial wastewater generated during exploration and production is utilized by pumping it into producing formations or thief zones. The Group makes systematic efforts to reduce the degree of contamination of Bashneft s industrial effluents. We continue to renovate biological treatment facilities at the refining complex in Ufa. In the area of land conservation, priority is given to a target programme to improve the reliability of pipelines in 2013-2017; the programme is aimed at reducing the number of equipment failures and the pipeline leak rate. In 2014 over 405 kilometres of flowlines were upgraded or underwent major repairs. OUR ACHIEVEMENTS As a result of measures taken in 2014, direct emissions of pollutants into the atmosphere decreased by 2.4 thousand tonnes.

82 ANNUAL REPORT 2014 HIGH RETURNS >TENFOLD 216 BILLION ROUBLES OF DISTRIBUTIONS TO SHAREHOLDERS ТОP 50 MOST SUCCESSFUL AND DYNAMIC PRIVATE- SECTOR COMPANIES IN THE BRICS COUNTRIES 1ST TOP TIER LISTING ON THE MOSCOW EXCHANGE INCREASE SINCE 2009* IN SHAREHOLDER VALUE FROM 2009 THROUGH 2014 * In the form of dividends and share buyback.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & COPROPATE APPENDICES SHAREHOLDER GOVERNANCE 83 INFORMATION INVESTOR & SHAREHOLDER INFORMATION WE HAVE ASSUMED AN OBLIGATION TO TREAT ALL SHAREHOLDERS FAIRLY, TO EFFICIENTLY SAFEGUARD THEIR RIGHTS AND INTERESTS AND TO ENSURE THAT DECISIONS MADE BY THE GROUP ARE TRANSPARENT. Alexander Korsik, President, Chairman of the Management Board SHARE CAPITAL In recent years, we have made substantial progress in simplifying Bashneft s shareholder structure and making it more transparent in order to implement our strategy to increase the Group s shareholder value. In carrying out all corporate procedures, we adhered to the principles of fair treatment and protection of the rights of shareholders. All measures were carried out in strict compliance with legal requirements, and taking into account the best practices. Our efforts have been well received by the investment community. In late 2012 Bashneft completed its reorganization; as a result, shares of five of the Group s subsidiaries (OJSC Ufimsky Refinery Plant, OJSC Novoil, OJSC Ufaneftekhim, OJSC Bashkirnefteprodukt and OJSC Orenburgnefteprodukt) were converted into shares of JSOC Bashneft forming part of additional issues. In early 2013 nine additional issues of the Company s shares placed in 2012 were combined. Additional and main issues of JSOC Bashneft s ordinary and preferred shares were combined. In the middle of 2014 some of JSOC Bashneft s shares were cancelled as part of the reorganization through consolidation of CJSC Bashneft-Invest with the Company; this resulted in a reduction in Bashneft s authorized share capital and elimination of cross-holdings in CJSC Sistema-Invest. AUTHORIZED SHARE CAPITAL 1 As of December 31, 2014, the Company s authorized share capital totalled 180,358,674 roubles. The authorized share capital was divided into 180,358,674 shares with a par value of one rouble each, including: / 150,570,662 ordinary shares worth a total of 150,570,662 roubles, which was equal to 83.48% of the Company s authorized share capital. State registration number of the issue: 1-01-00013-А. Date of state registration: February 27, 1995; / 29,788,012 class A preferred shares worth a total of 29,788,012 roubles, which was equal to 16.52% of the Company s authorized share capital. State registration number of the issue: 2-01-00013-А. Date of state registration: February 27, 1995. Structure of the authorized share capital as of December 16.52% 29,788,012 Ordinary shares with a par value of one rouble per share Class A preferred shares with a par value of one rouble per share 83.48% 150,570,662 For more information about the market of the Company s shares, see Investor & Shareholder Information Equity market and capitalization. For more information about possibilities for shareholders to exercise their rights, see Corporate Governance Exercise of shareholders rights. 1. The amount of the authorized share capital is stated in accordance with the Charter of the Company.

84 ANNUAL REPORT 2014 Share capital structure 4.60% 6.11% 15.35% 73.94% Under a resolution of an Extraordinary General Meeting of Shareholders of JSOC Bashneft dated March 18, 2015, in June 2015 Bashneft intends to cancel 2,724,173 ordinary treasury shares of the Company (1.51% of its authorized share capital). These shares had been bought back from shareholders as part of consolidation of CJSC Bashneft-Invest with the Group. As of December 31, 2014, the number of private shareholders registered in Bashneft s shareholder register totalled 35,080. As of December 31, 2014, blocks of shares amounting to more than 2% of the Company s authorized share capital were owned by the following shareholders: Russian Federation represented by the Federal Agency for State Property Management Other legal entities (including nominees) Shares on the balance sheets of JSOC Bashneft and its subsidiaries Individuals In September 2014 an additional share issue comprising 37,000,000 ordinary shares was registered. The additional shares were assigned the state registration number 1-01-00013-А. By the end of the reporting period, the shares in the additional issue had not been placed. In February 2014 the Extraordinary General Meeting of Shareholders approved the Company s reorganization through consolidation of CJSC Bashneft-Invest with the Company and the consequent reduction of JSOC Bashneft s authorized share capital by 38.1 million roubles. In addition, the Company s shareholders who had abstained or had voted against the reorganization were given the right to submit buyback requests with regard to their shares within the prescribed time frame. In accordance with Russian laws, JSOC Bashneft is obliged to purchase these shares. The preferred shares that had been bought back were cancelled, and as a result, the Company s authorized share capital was further reduced by 8.9 million roubles. SHAREHOLDER STRUCTURE In 2014 the Company s controlling shareholder was replaced. In early December 2014, 122,971,934 ordinary shares and 6,192,245 preferred shares of JSOC Bashneft (71.62% of its authorized share capital) have been transferred from the accounts of OJSC JSFC Sistema and CJSC Sistema-Invest to the account of the Federal Agency for State Property Management. These actions followed the ruling of the Moscow Commercial Court, which came into effect on December 8, 2014. On October 30, 2014, the court upheld the claim of the Prosecutor General s Office of the Russian Federation for the recovery of JSOC Bashneft s shares owned by JSFC Sistema and CJSC Sistema-Invest in favour of the Russian Federation. On December 29, 2014, subject to the judgement by the Moscow Commercial Court dated November 7, 2014 (case No. A40-155494/2014) and on the basis of the request by the Federal Agency for State Property Management, CJSC Sistema-Invest transferred ownership of 4,107,996 ordinary and 87,831 preferred shares of JSOC Bashneft (together comprising 2.3% of the authorized share capital) to the Russian Federation. As a result, the Russian Federation became the owner of 127,079,930 ordinary and 6,280,076 preferred shares of JSOC Bashneft (84.40% of the total number of ordinary shares and 21.08% of the total number of preferred shares of the Company respectively, together comprising 73.94% of the authorized share capital of JSOC Bashneft). / the Russian Federation represented by the Federal Agency for State Property Management 73.94% of the authorized share capital; / Okokons Limited 3.32% of the authorized share capital; / Bashneft Middle East Limited 2.70% of the authorized share capital. As of December 31, 2014, 2,724,173 ordinary shares of JSOC Bashneft (1.51% of its authorized share capital) were recorded on the Company s balance sheet. As of December 31, 2014, 3,428,887 ordinary shares of the Company and 4,864,168 preferred shares of the Company (4.6% of its authorized share capital) were recorded on the balance sheet of JSOC Bashneft s subsidiaries. Apart from the replacement of the controlling shareholder, there were no other changes in the list of shareholders owning more than 5% of the Company s shares. For more information on authorized ordinary and preferred shares, the rights of shareholders and the state registration numbers of share issues, see the Group s website: http://www.bashneft. com/shareholders_and_investors/ capital/securities/ For more information about the Company s reorganization through consolidation of CJSC Bashneft-Invest with Bashneft, see Changes in the Group s structure.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 85 EQUITY MARKET AND CAPITALIZATION Changes in the price of JSOC Bashneft s ordinary shares and key market indicators Growth multiples 24 20 16 12 8 4 0 2009 2010 2011 2012 2013 2014 2015 Ordinary shares of JSOC Bashneft MICEX Index URALS oil prices MICEX Oil and Gas Index Source: Bloomberg, the Group s data JSOC Bashneft s shares are traded on the organized securities market in Russia. Ordinary shares (BANE) and preferred shares (BANEP) are traded on the Moscow Exchange and have been included in the MICEX Index. Shares of JSOC Bashneft have been traded on the trading platform of OJSC RTS since 2002. In 2011 the Company s shares were included in the list of non-listed securities of the Moscow Exchange. In July 2014 a decision was made to include the Company s ordinary shares in the First (Top) Tier quotation list of the Moscow Exchange. In 2014 the Russian stock market was highly volatile and followed different trends due to a number of geopolitical and macroeconomic issues affecting the domestic economy. A decline in stock indexes was caused primarily by a considerable weakening of the rouble exchange rate and a fall in global oil prices. Measures implemented by the Group in order to increase transparency of its shareholder structure and improve corporate governance combined with an improvement of the Group s performance supported JSOC Bashneft s share prices in 2014. The Group s first-ever Investor Day and disclosure of the medium-term strategy became an additional catalyst for the record growth of the Group s shareholder value at the end of the second quarter of 2014. OUR ACHIEVEMENTS Bashneft has been included in the list of the 50 most successful and dynamic private-sector companies in the BRICS countries and other emerging markets, according to a report prepared by the Boston Consulting Group (BCG), a leading global management consulting firm. OUR RESPONSIBILITY The inclusion of Bashneft s securities in the top quotation list of the Moscow Exchange reflects our commitment to best practice in corporate governance, financial transparency and compliance with liquidity requirements.

86 ANNUAL REPORT 2014 The second half of 2014 saw a significant decline in the value of the Group s shares that was connected with litigation over the transfer of JSOC Bashneft s shares owned by OJSC JSFC Sistema and CJSC Sistema-Invest to the Russian Federation, a collapse of global oil prices, depreciation of the national currency and further deterioration of the macroeconomic situation in Russia. By the end of 2014, the price of JSOC Bashneft s ordinary shares declined by 37.5% to 1,250 roubles, with a year-on-year reduction of the overall MICEX Index amounting to 7.1%. In 2014 prices of the Group s preferred shares declined by 35.1%. In 2014 the average daily trading volume of JSOC Bashneft s ordinary shares on the Moscow Exchange amounted to 51,922 shares (85,382,961 roubles), while the average daily trading volume of JSOC Bashneft s preferred shares amounted to 41,230 shares (48,159,354 roubles), which was significantly higher than in the previous year. During the period from 2009 through 2014, the value of the Group s ordinary shares rose more than tenfold. During this period, major market indicators such as the MICEX Index, the MICEX Oil & Gas Index and the oil price increased fourfold at the most. As of December 31, 2014, the market capitalization of JSOC Bashneft amounted to 216 billion roubles (about US$ 3.55 billion). Changes in JSOC Bashneft s market capitalization and the MICEX Index JSOC Bashneft s market capitalization, billion roubles MICEX Index, points 600 2,000 500 400 1 2 3 4 6 7 8 5 1,500 300 9 16 15 1,000 10 12 13 14 200 11 500 100 0 JSOC Bashneft s market capitalization MICEX Index 0 1/2014 2/2014 3/2014 4/2014 5/2014 6/2014 7/2014 8/2014 9/2014 10/2014 11/2014 12/2014 1/2015 2/12015 3/2015 4/2015 Source: Bloomberg, the Group s data 1. February 3, 2014 Bashneft s Meeting of Shareholders approved reorganization of the Group through consolidation of CJSC Bashneft-Invest with Bashneft 2. March 27, 2014 Bashneft acquired Burneftegaz, an exploration and production company based in the Tyumen Region 3. April 23, 2014 Bashneft s Board of Directors recommended dividends for 2013 totalling 37.48 billion roubles 4. May 5, 2014 Bashneft completed the reorganization through consolidation of CJSC Bashneft-Invest; the Company s authorized share capital was reduced 5. June 2, 2014 IFRS financial statements. In the first quarter of 2014 Bashneft s net income increased by 16.4% 6. June 5, 2014 Bashneft held the Investor Day in London attended by the Group s top managers 7. July 3, 2014 Moody s revised the outlook on Bashneft s corporate family rating to positive and affirmed the rating 8. July 15, 2014 JSFC Sistema received a notice about a ban on transactions in Bashneft s shares 9. August 27, 2014 IFRS financial statements. In the first half of 2014 Bashneft s net income increased by 18.5% 10. Septermber 18-19, 2014 Fitch and Moody s placed Bashneft s ratings on review in connection with charges filed against the head of JSFC Sistema 11. October 30, 2014 The Moscow Commercial Court upheld the claim for the transfer of JSOC Bashneft s shares to the Russian Federation. 12. November 20, 2014 Moody s affirmed Bashneft s corporate family rating at Ba2, outlook positive 13. November 24, 2014 IFRS financial statements. During the nine months of 2014 Bashneft s net income increased by 39.6% 14. January 21, 2015 Bashneft released its preliminary operating results for 2014 15. March 24, 2015 Fitch affimred Bashneft s ratings at BB, outlook Stable 16. March 26, 2015 Publication of IFRS financial statements for 2014

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 87 Changes in the price and trading volume of JSOC Bashneft s ordinary shares Share price 2,700 Trading volume 1,400 1,200 2,200 1,000 800 1,700 600 1,200 400 200 700 0 January 2014 April 2014 July 2014 October 2014 January 2015 April 2015 Price of JSOC Bashneft s ordinary shares on the Moscow Exchange, roubles Trading volume, million roubles Source: Bloomberg Changes in the price and trading volume of JSOC Bashneft s preferred shares Share price 2,000 Trading volume 600 1,800 500 1,600 1,400 400 1,200 300 1,000 200 800 600 100 400 0 January 2014 April 201 July 2014 October 2014 January 2015 April 2015 Price of JSOC Bashneft s preferred shares on the Moscow Exchange, roubles. Trading volume, million roubles Source: Bloomberg

88 ANNUAL REPORT 2014 DIVIDEND POLICY AND PROFIT DISTRIBUTION OUR ACHIEVEMENTS Over the last few years, we have combined a high dividend yield for our shareholders and the ability to maintain a rapid pace of the Group s development. OUR RESPONSIBILITY JSOC Bashneft ranks among the leaders of Russia s oil and gas sector in terms of the amount of dividend payments. For more information about JSOC Bashneft s dividend history and the Regulations on Dividend Policy, see our website: http://www.bashneft.com/ shareholders_and_investors/dividends/. 1. A part of the declared dividend is attributable to the Group s enterprises 2. A part of the declared dividend is attributable to the Group s enterprises Principles of dividend payment have been approved by the Board of Directors and are set out in the Regulations on Dividend Policy. A decision to pay dividends is made by the General Meeting of Shareholders based on recommendations put forward by JSOC Bashneft s Board of Directors. The recommended amount of dividend payments is determined by the Board of Directors based on the Company s financial results for the first quarter, half year, nine months or the financial year; it should total no less than 10% of the Company s net income attributable to shareholders of the parent company for the last financial period under IFRS. Dividends are paid out of net income after tax. The Company publishes information on the decision of the General Meeting of Shareholders in respect of the payment of dividends on its website, and communicates this information to the shareholders in accordance with the requirements of the legislation of the Russian Federation. The dividends declared by the Company for 2013 totalled approximately 82.73 billion roubles 1, or: / 410 roubles per ordinary share of the Company; / 410 roubles per preferred share of the Company. Dividend payments for 2013 were completed in July 2014. The total amount of dividends for 2013 included interim dividends for the nine months of 2013 totalling 45.25 billion roubles 2, or: / 199 roubles per ordinary share of the Company; / 199 roubles per preferred share of the Company. The decision to pay interim dividends was made in December 2013 at the extraordinary general meeting of shareholders. Payment of interim dividends was completed in December 2013. Accrued dividends Period 2011 2012 2013 2014 Share category, roubles per share Ordinary 99.00 24 410 Class A preferred 99.00 24 410 Total number of shares 204,792,440 227,384,465 180,358,674* 180,358,674 Total amount including dividends on shares owned by the Group's companies, roubles 20,274,451,560 5,323,724 500 82,730,388,246 Total expenditure on share buyback by the Group and its subsidiaries and affiliates as part of 19,034,000,000 17,868,943,100 reorganization, roubles Dividend payout ratio under IFRS 40.7% 10.2% 179.2% AGM, June 29, Decision to pay dividends 2012 AGM, June 27, 2013 AGM, June 10, 2014 Deadline for payment of accrued dividends August 28, 2012 August 26, 2013 July 28, 2014 * The stated number of shares represents the number of shares after the consolidation of CJSC Bashneft-Invest with the Company and the consequent reduction of the Company s authorized share capital.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 89 179.1 billion roubles TOTAL AMOUNT OF DIVIDEND PAYMENTS FROM 2009 THROUGH 2014 Profit distribution Area of distribution Amount, million roubles The Company's income for 2014 attributable to the shareholders of the parent company 43,146 The Company's income for 2013 attributable to the shareholders of the parent company 46,170 Payment of dividends accrued for 2013, including: 82,730 amount of dividends paid to the federal budget during the reporting period* arrears on dividend payments to the federal budget Amount allocated to the Company's reserve fund Amount allocated to other funds of the Company (including the names of funds) Other areas of profit distribution * As of the record date for dividends for 2013, the Russian Federation was not a shareholder of JSOC Bashneft. In 2014 the dividend payout ratio based on net income under IFRS increased from 10.2% to 179.2%. The increase in the dividend payout ratio was due to the Group s high financial results in previous years. At the same time, we have kept the practice of profit distribution, which involves maintaining a balance between the shareholders interests and the Group s needs. In 2014 the Company funded its investment programmes out of its operating cash flow rather than retained earnings for the past years. In turn, in 2014 capital expenditures on production totalled 36.2 billion roubles, while capital expenditures on refining, petrochemical production and marketing amounted to 11.6 billion roubles. Other capital expenditures totalled 0.5 billion roubles. In 2014 total capital expenditures increased by 59% yearon-year to 48.3 billion roubles.

90 ANNUAL REPORT 2014 INFORMATION DISCLOSURE AND INVESTOR RELATIONS OUR ACHIEVEMENTS The expert community highly appreciates our work in the sphere of information disclosure. The annual report of JSOC Bashneft for 2013 became a winner in two categories of the competition of annual reports held by the Moscow Exchange: Best Annual Report in the Oil and Gas Sector; Best Annual Report of a Company with Capitalization of over 100 Billion Roubles. In an open competition of annual reports of joint-stock companies held by the Department for the Financial and Stock Market of the Krasnodar Territory, the annual report of JSOC Bashneft ranked among prize-winners in the following categories: Best Annual Report in the Energy Industry; Best Debut. Code of Corporate Governance. Principle 6.1. The company and its operations should be transparent to shareholders, investors and other stakeholders. Code of Corporate Governance. Principle 6.2. The company should disclose comprehensive, up-to-date and accurate information on the company in a timely manner to ensure that its shareholders and investors can make informed decisions The Regulations on Information Policy of JSOC Bashneft approved by the Board of Directors of JSOC Bashneft on October 3, 2011 can be found on our website: http://www.bashneft.com/shareholders_ and_investors/charter/ Mobile app is available for: ios https://itunes.apple.com/us/ app/ bashneft-investor-relations/ id935663629?mt=8 Android https://play.google.com/store/apps/ details?id=com.winify.bashneft The company complies with all requirements of applicable laws on disclosure of information by public companies. We adhere to the principle of maximum transparency of business and ensure regular, timely, accessible, reliable and meaningful disclosure of information. The main channel for information disclosure is the Group s official website (http://www.bashneft.ru, http://www. bashneft.com). The website contains information on all major areas of the Group s business, sustainable development, information for shareholders and investors, the latest press releases and news, annual reports and sustainability reports. In addition to obligatory information disclosures, Bashneft also publishes quarterly financial statements under IFRS and RAS on its website on the Internet. To increase the level of information disclosure, we regularly update the information, modify the site structure and content, and develop new interactive services. In 2014 we developed an interactive share price chart showing share prices of Bashneft and its competitors in real time, as well as an investment calculator that makes it possible to calculate the yield on the Group s shares. These tools form part of the section Investors & Shareholders. We have launched a mobile application, Bashneft IR, in the English and Russian languages for tablet PCs running on IOS and Android, which presents the key financial and operating results of the Group. An important source of information is the Annual Report, which the Group annually releases in the course of preparation for the annual general meeting of shareholders. In addition to the information disclosure in the form of the Annual Report, which is required by law, we also release the Sustainability Report, following the best international practices. To improve the level of information disclosure, the website, the Annual Report and the Sustainability Report have been integrated using a system of cross references, which creates a single information space and makes it easier to find the necessary information. Communication with shareholders and investors is one of the Group s highest priorities. We are in constant contact with the investment community, hold regular meetings with investors and road shows; we provide operational information and analysis; we participate in investment conferences, organize visits to our production facilities for investors and other corporate events. We pay great attention to ensuring a direct dialogue of the Group s management with investors. The most significant events in the area of investor relations in 2014 include the following: / JSOC Bashneft held its first Investor Day in London attended by the Group s President and senior management; as part of the event, the medium-term development strategy of the Company was disclosed. The event was highly appreciated by the investment community. / For the first time the Group s management held meetings with investors from the Asia-Pacific region in Beijing, Singapore and Abu Dhabi, as well as meetings with major investors as part of six road shows in the United States, the UK and Continental Europe.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 91 / We organized an on-site visit for investors and analysts to enable them to find out more about the infrastructure of the Trebs and Titov oilfields. / The management of Bashneft took part in major investment conferences in Russia held by VTB Capital, Prosperity, Renaissance Capital, Aton, and abroad (Bank of America ML, Goldman Sachs), and in group meetings with investors as part of events such as Russia Citi and BAML Oil & Gas Field Trip. / We held more than 160 individual meetings of the Group s management with representatives of international investment funds. / We organized quarterly conference calls for analysts and investors following the publication of IFRS financial statements. The Group s interaction with the investment community is arranged by the Investor Relations Department; its main objectives are as follows: / to maintain and expand the base of investors in the Group s securities; / to regularly disclose complete information about the Group that is necessary for the investment community to make investment decisions; / to hold events or participate in third-party events that promote information transparency of the Group. We intend to maintain the high standards of disclosure and to continue our efforts to make the Group more attractive to investors. Number of the issuer s news items published in the news feed 300 200 100 0 277 214 2012 2013 2014 OUR ACHIEVEMENTS 237 Based on an independent study conducted by NASDAQ in March and April 2014, the work of Bashneft s management and the investor relations team, as well Bashneft s communications with investors as a whole won high praise from the investment community. For more information on the Investor Day, visit our website at http://www.bashneft.com/shareholders_ and_investors/investor_day/

92 ANNUAL REPORT 2014 HIGH LEVEL OF COMPETENCE A PROFESSIONAL AND EXPERIENCED MANAGEMENT TEAM ABLE TO DELIVER STRONG RESULTS 7 COMMITTEES UNDER THE BOARD OF DIRECTORS 44% THE SHARE OF INDEPENDENT DIRECTORS ON THE BOARD COMMITTEES A NEW CODE OF CORPORATE GOVERNANCE OF JSOC BASHNEFT HAS BEEN DEVELOPED AND APPROVED

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 93 COPROPATE GOVERNANCE COMMITMENT TO HIGH STANDARDS IN CORPORATE GOVERNANCE IS THE FOUNDATION FOR THE GROUP S BUSINESS EFFICIENCY AND ITS ATTRACTIVENESS TO INVESTORS. Kirill Andreychenko, Vice President for Corporate Governance and Legal Issues FUNDAMENTAL PRINCIPLES OF THE GROUP S CORPORATE GOVERNANCE PRACTICЕ The Group s corporate governance system is based on the requirements of the Russian legislation, listing rules of the Moscow Exchange, recommendations from the Russian Code of Corporate Governance, international corporate conduct and business ethics standards, and the principles of openness and transparency. OUR GOALS Strategic priorities in corporate governance / To increase the Group s value by improving the corporate governance system, legal, ownership and organizational structures of a vertically integrated company / To improve market perception of the Group s business via information disclosure / To improve the integrated personnel management and incentive system / To ensure asset protection OUR PRINCIPLES Main corporate governance principles / Respecting and safeguarding the rights and legitimate interests of participants of corporate relations / Ensuring information and financial transparency / An active and professional Board of Directors / Consistent and collective decision-making / Combating corruption / Conformity with ethical norms / Corporate social responsibility OUR ACTIVITIES Main areas of corporate governance policy / Strict compliance with shareholders interests and commitment to the protection of their rights / Introduction of uniform management standards across the Group s business units and subsidiaries / Improvement of the Group s information policy and internal control systems / Implementation of the principles of openness and transparency / Constructive cooperation with the Group s investors, employees and business partners / Active implementation of the best practices of corporate governance

94 ANNUAL REPORT 2014 Observance of the principles of the Code of Corporate Governance 1 Section Principles recommended in the Code Principles fully observed by the Group Principles partially observed by the Group Principles not observed by the Group Shareholders rights and equal conditions for the shareholders when exercising their rights 4 3 1 Board of Directors of the Company 12 4 4 4 Corporate secretary of the Company 3 3 System of remuneration of members of the Board of Directors, executive bodies and other key executives of the Company 4 2 2 - Risk management and internal control system 6 2 3 1 Disclosure of information on the Company; information policy of the Company 11 9 1 1 Significant corporate actions 2 2 Total 42 23 13 6 OUR RESPONSIBILITY We adhere to most of the principles formulated in the Code of Corporate Governance. For more information on the observance of the Code of Corporate Governance, see Appendix 2 Information on compliance of the joint-stock company with the principles and recommendations set out in the Code of Corporate Governance approved by the Bank of Russia. 1. The statistical data are taken from a report on compliance with the principles and recommendations of the Code of Corporate Governance prepared in accordance with recommendations of the Moscow Exchange (Appendix 2 of the Annual Report). 2. The English versions of the Charter and internal documents are also available on Bashneft s website. Internal documents regulating individual procedures, principles and practice of corporate conduct are available on Bashneft s website: http://www.bashneft.com/ shareholders_and_investors/charter/ 2 Regulations on the General Meeting of Shareholders Regulations on the Board of Directors Regulations on the Committees of the Board of Directors Regulations on the Management Board Regulations on the President Regulations on the Audit Commission Regulations on the Corporate Secretary Regulations on Information Policy Regulations on Insider Information Regulations on Dividend Policy Regulations on Rewards and Compensation to Members of the Board of Directors Code of Corporate Governance Code of Ethics Anti-Corruption Policy Observance of the principles of the Code of Corporate Governance 1 31% 14% 55% Principles fully observed by the Group Principles partially observed by the Group Principles not observed by the Group

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 95 STRUCTURE OF BASHNEFT S GOVERNING AND SUPERVISORY BODIES Committees of the Board of Directors General Meeting of Shareholders Finance, Budget and Risk Committee Project Assurance Committee HSE&SR Committee Corporate Secretary Office of the Board of Directors Chairman of the Board of Directors Board of Directors Strategy Committee Audit Committee Nominating and Compensation Committee Corporate Conduct Committee Chief Auditor Committees of the President / Management Board President Management Board Disciplinary Committee Investment Committee Risk Committee Committee on IT, Telecommunications and Metrology Upstream Oil refining Marketing Other units Dotted lines represent functional connections, while solid lines represent administrative subordination GOVERNING BODIES General Meeting of Shareholders Board of Directors Management Board President JSOC Bashneft s supreme governing body. The procedure for holding the general meeting of shareholders fully ensures the rights of all shareholders. The procedure for preparing, convening, holding and announcing the outcome of the general meeting of shareholders of JSOC Bashneft is established by the Regulations on the General Meeting of Shareholders (a new version was approved under the resolution of the General Meeting of Shareholders on June 10, 2014). The Board of Directors is responsible for the general management of JSOC Bashneft s operations. The Board of Directors safeguards and facilitates exercising of the rights of shareholders, develops and analyses the corporate strategy and monitors its implementation, participates in establishing effective internal control over the Group s financial and business operations and creating the risk management system, determines the main budget parameters and supervises its implementation, determines the governance system in subsidiaries and affiliates, ensures timely and complete disclosure of comprehensive and reliable information on the Group s operations and makes decisions on the core projects and major transactions. The procedure for forming the Board of Directors, its status, membership, functions, aims and objectives, its powers, the procedure for its work and cooperation with other governing bodies of JSOC Bashneft are stipulated in the Company s Charter and the Regulations on the Board of Directors.* Certain procedural issues related to the work of the Board of Directors are governed by the Rules on the Meetings of the Board of Directors of JSOC Bashneft (a new version was approved under the resolution of the Board of Directors on July 3, 2014). A collective executive body responsible for the day-to-day management of JSOC Bashneft and supervision of core businesses of its subsidiaries and affiliates. It ensures the implementation of business plans and investment programmes, resolution of financial and legal issues; it is also responsible for economic and information security and preliminary consideration of large innovation and investment projects, and coordinates cooperation with the subsidiaries and affiliates. Meetings of the Management Board are normally held once a week exclusively on a face-to-face basis. The Management Board is chaired by the President of JSOC Bashneft. The work of the Management Board is governed by applicable legislation, the Charter of JSOC Bashneft and the Regulations on the Management Board. A sole executive body responsible for managing day-to-day operations in order to ensure JSOC Bashneft s profitability and competitiveness, its financial and economic sustainability, as well as to ensure the shareholders rights and social guarantees for the employees. Since 2011, Alexander Korsik has been the President of JSOC Bashneft. Under the resolution of the Company s Board of Directors dated March 25, 2014, Alexander Korsik was reappointed as the Company s President for a new term (for three years). The President acts within his competence and is accountable to the Board of Directors and the General Meeting of Shareholders. * Approved by the General Meeting of Shareholders of JSOC Bashneft. Minutes No. 33 dated June 27, 2013

96 ANNUAL REPORT 2014 Internal control system Audit Commission Audit Committee of the Board of Directors Chief Auditor Internal Audit Unit The Audit Commission is a standing elected body which periodically monitors JSOC Bashneft s financial and business operations, as well as the work of its governing bodies and executives. The work of the Commission is regulated by the Charter and the Regulations on the Audit Commission of JSOC Bashneft. The Audit Committee is responsible for preliminary consideration of issues to be considered at the meetings of the Board of Directors and related to internal control and audit, consideration of candidates and the results of the audit conducted by external auditors and participation in the risk management process, and prepares recommendations for the Board to decide on such matters. The work of the Committee is governed by the Regulations on the Audit Committee of the Board of Directors of JSOC Bashneft. The Chief Auditor is the head of the Internal Audit Unit. The Chief Auditor is administratively subordinate to the President of JSOC Bashneft and functionally accountable to the Board of Directors and the Audit Committee. The Internal Audit Unit comprises four internal audit departments: the Internal Audit Department for Upstream Operations, the Internal Audit Department for Refining and Commerce, the Internal Audit Department for Corporate Functions and the Internal Control Department. The work of the Internal Audit Unit is governed by the Regulations on the Internal Audit. Number of issues considered at the meetings of the governing bodies 655 976 1,169 1,135 1,392 900 857 600 637 607 404 300 306 188 161 314 258 288 244 303 225 284 251 0 2010 2011 2012 2013 2014 Management Board Committees Board of Directors

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 97 CORPORATE GOVERNANCE QUALITY AUDIT AND SELF-ASSESSMENT Starting from 2010, the Group conducts an annual independent corporate governance quality audit (self-assessment) based on in-house guidelines; it helps to reveal the main drawbacks of existing corporate governance practice and promptly identify the key areas of improvement. The corporate governance quality audit covers the following three components of the corporate governance practice: / shareholders rights and relations with other stakeholders; / the membership and performance of governing and supervisory bodies; / information disclosure. The results of the audit are considered by the Corporate Conduct Committee of the Board of Directors and are communicated to the Board members. In 2014 (like in 2013) the Group engaged an external auditor (the Russian Institute of Directors) to conduct external assessment of corporate governance quality. Following the external audit of corporate governance practice, the external auditor highlighted a number of improvements in the organization of the work of the governing bodies, information disclosure and safeguarding of shareholder rights. However, the auditor pointed out that the dispute over the controlling stake in JSOC Bashneft in 2014 had made a negative impact on the Group s assessment and increased potential risks to other shareholders due to a decrease in the value of the shares that they own. OUR ACHIEVEMENTS As in December 2014 ownership of 84.4% of voting shares of JSOC Bashneft passed to the Russian Federation, the standards of corporate practice applied to state-owned companies also apply to JSOC Bashneft. The Company has conducted an independent analysis of its corporate governance practice on the basis of the recommended Guidelines for Self-Assessment of Corporate Governance Quality in State-Owned Companies 1. Preliminary findings of the self-assessment indicate that the level of corporate governance is quite high. The Company s own calculations suggest that it complies with over 84% of requirements set out in these Guidelines. Code of Corporate Governance. Principle 5.2. The company shall organize internal audit in order to make an independent and systematic assessment of the reliability and performance of the risk management and internal control system and corporate governance practice 1. The Guidelines are available at: http://rosim.ru/documents/231515

98 ANNUAL REPORT 2014 EXERCISE OF SHAREHOLDERS RIGHTS As of the end of 2014, the number of Bashneft s shareholders totalled 35,080 persons. The Group enables the shareholders to exercise their right to participate in governance by providing them with an opportunity to participate in meetings and vote on agenda items, including profit distribution, and with timely information on the Group s operations. / Our corporate governance system safeguards the rights of shareholders and investors, and ensures that all shareholders, including minority (small) shareholders, are treated fairly when they exercise their right to participate in the management of the Group. / We create conditions necessary for ensuring that the Group s governing bodies and controlling persons treat each shareholder fairly, including preventing abuse on the part of large shareholders with respect to minority shareholders. Code of Corporate Governance. Principle 1.1. The company should treat all shareholders equally and fairly when they exercise their right to participate in the management of the company. Code of Corporate Governance. Principle 1.3. The corporate governance system and practice should provide for equal conditions for shareholders owning shares of the same category (type), including minority (small) shareholders and foreign shareholders, and equal treatment of them on the part of the company. Code of Corporate Governance. Principle 1.4. Shareholders should be provided with reliable and effective methods to register ownership of shares and an opportunity to freely and quickly dispose of their shares. / Shareholders are provided with reliable and effective methods to register ownership of shares and an opportunity to freely and quickly dispose of their securities. GENERAL MEETING OF SHAREHOLDERS OF JSOC BASHNEFT The Group has created good opportunities for the shareholders to participate in the general meeting of shareholders and conditions required for forming an informed opinion on all items of the agenda of a meeting, aligning the shareholders actions, and opportunities for them to express their opinion on matters under consideration. CONVENING AND NOTIFYING OF A MEETING, MATERIALS FOR THE MEETING In the course of preparation for and holding of a general meeting, the shareholders freely obtain information on the meeting and materials for it in a timely manner. Materials for a general meeting are also posted and stored on the Group s website and are publicly available, which means that any interested person can obtain all necessary information on the matters considered by the general meeting. The materials are published both in Russian and in English. The list of materials contains the necessary rationale and comments on agenda items to enable the shareholders to form an objective opinion on the nature of proposed decisions. We seek to ensure that materials for the general meeting of shareholders are presented in a comprehensible form and contain all necessary data (presentations, comparison of documents, detailed information on candidates). The procedure for notifying of a general meeting of shareholders and providing materials for the meeting enables the shareholders to prepare for it properly. In the course of preparation for a general meeting, corporate procedures and their schedule are established taking into account the interests of shareholders and investors. HOLDING THE GENERAL MEETING OF SHAREHOLDERS The shareholders can freely exercise their right to vote in the way that is the easiest and most convenient for them. Voting at general meetings is held either by directly participating in the meeting or by filling out ballots concerning agenda items and sending them to the Company (and to its registrar).

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 99 Quorum at general meetings of shareholders* 100 87.8% 94.5% 86.4% 87.9% 89.5% 95.0% 90.0% 88.0% 88.1% 75 50 50% +1 share 59.1% 25 9.6% 0 27.04.2012 29.06.2012 15.11.2012 17.01.2013 27.06.2013 26.08.2013 17.12.2013 03.02.2014 10.06.2014 14.08.2014 15.10.2014 * At the GMS held on October 15, 2014, the quorum was lower due to the fact that the central item of the agenda concerned making decisions on related-party transactions involving the Group s controlling shareholders; consequently, only persons that are not interested parties with regard to the transactions had the right to vote and were counted when determining the quorum. Annual General Meeting of Shareholders of JSOC Bashneft June 10, 2014 In the form of joint presence (Minutes No. 37 dated June 10, 2014) Extraordinary General Meeting of Shareholders of JSOC Bashneft February 3, 2014 By absentee voting (Minutes No. 36 dated February 3, 2014) Extraordinary General Meeting of Shareholders of JSOC Bashneft August 14, 2014 By absentee voting (Minutes No. 38 dated August 14, 2014) Extraordinary General Meeting of Shareholders of JSOC Bashneft October 15, 2014 By absentee voting (Minutes No. 39 dated October 15, 2014) The Annual General Meeting of Shareholders approved the 2013 Annual Report, the annual financial statements for 2013, profit distribution, and dividends for the 2013 financial year were declared; a new Board of Directors and a new Audit Commission of the Company were elected. The Meeting also approved a new version of the Charter of JSOC Bashneft and Regulations on the General Meeting of Shareholders of JSOC Bashneft. The new versions of the documents take into account changes in legislation, as well as the requirements of regulators and recommendations provided in the Code of Corporate Governance. Decisions were made on the reorganization of JSOC Bashneft through consolidation of CJSC Bashneft-Invest (created through a spinoff from CJSC Sistema-Invest) with the Company, on a reduction in the authorized share capital due to its reorganization, on approval of a new version of the Charter and on a reduction in the authorized share capital through cancellation of class A preferred shares to be bought back. The general meeting of shareholders was declared void due to the absence of quorum, as recorded in Minutes No. 38 of the General Meeting of Shareholders dated August 14, 2014. The agenda of the general meeting included approval of related-party transactions (an underwriting agreement for the Group s SPO scheduled for 2014). Decisions were made to approve related-party transactions (commercial transactions: supply contracts, transportation contracts, loan agreements, contractor and service agreements worth more than 2% of the carrying value of JSOC Bashneft s assets as of the last reporting date). Due to changes in legislation allowing electronic voting at general meetings, the Company is carefully considering the possibilities for organizing this form of participation in meetings. General meetings of shareholders are organized and held in such a way as to provide easy access to them to all shareholders. General meetings in the form of joint presence are held exclusively at the Group s location (in Ufa) at addresses making it convenient for the shareholders and their representatives to come and participate in a meeting in person. A high quorum at meetings that are held (more than 87% of the owners of voting shares), as well as the number of minority shareholders participating in meetings show an increased attention of shareholders to governance issues of JSOC Bashneft. In 2014 the Company held three general meetings of shareholders: one annual general meeting and two extraordinary general meetings. At these meetings, financial statements for 2013 and new versions of the Charter and internal documents were approved and decisions were made on the reorganization of the Company and on approval of transactions. In addition, on August 14, 2014 a general meeting was held over the approval of related-party transactions; it was declared void due to the absence of quorum (9.6% of the number of the Company s voting shares owned by persons that are not interested parties with regard

100 ANNUAL REPORT 2014 to the transaction to be made by the Company participated in the meeting). EVENTS AFTER THE REPORTING DATE On March 11, 2015 an extraordinary general meeting of shareholders of JSOC Bashneft was held in the form of joint presence; the meeting accepted the early resignation of members of the Board of Directors and the Audit Commission of the Company and elected a new Board of Directors and a new Audit Commission comprising candidates put forward by the Company s new shareholder, the Russian Federation. On March 18, 2015 an extraordinary general meeting of shareholders of JSOC Bashneft was held by absentee voting; the meeting decided to reduce JSOC Bashneft s authorized share capital by cancelling JSOC Bashneft s ordinary shares that had been bought back and to approve a new version of the Charter. Following the general meeting of shareholders of the Company, the authorized share capital of JSOC Bashneft was reduced by 2,724,173 shares to 177,634,501 shares. The new version of the Charter was approved due to the reduction in JSOC Bashneft s authorized share capital and the necessity of changing the Company s name to Public Joint- Stock Oil Company Bashneft (PJSOC Bashneft). BOARD OF DIRECTORS OF JSOC BASHNEFT Breakdown of competence of the Board of Directorsof JSOC Bashneft related to consideration of issues 56% 57% 2013 2014 Obligatory issues (Federal Law on Joint- Stock Companies) Additional issues 3% Extended competence 41% 40% 3% The Company s Board of Directors plays the key role in organizing an efficient corporate governance system. COMPETENCE OF THE BOARD OF DIRECTORS OF JSOC BASHNEFT The area of competence of the Board of Directors includes three main types of issues: Obligatory issues Issues within the exclusive competence of the Board of Directors in accordance with the Federal Law on Joint-Stock Companies. Additional issues Issues within the competence of the General Meeting of Shareholders delegated to the Board of Directors in accordance with the Charter of JSOC Bashneft (establishment and dissolution of executive bodies, specific matters related to issue of securities). Extended competence Issues within the competence of executive governing bodies delegated to the Board of Directors in accordance with the Charter and internal documents of JSOC Bashneft and resolutions of the Board of Directors: / finance and investments; / management of key business processes; / management of core operations of subsidiaries and affiliates; / supervision of major projects and transactions; / personnel management; / supervision of the work of top managers; / internal control and risk management; / market analysis; / status reports on HSE measures; / other matters. Code of Corporate Governance. Principle 2.1. The board of directors is responsible for the strategic management of the company s business, establishing the key principles of and approaches to creating a risk management and internal control system in the company, for supervising the work of the company s executive bodies, and for performing other key functions.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 101 REPORT ON THE WORK OF THE BOARD OF DIRECTORS Board meetings are scheduled and are normally held monthly. The schedule includes six to eight face-to-face meetings (i.e. once every one and a half or two months on average, with participants attending the meeting in person or participating in a joint meeting via videoconferencing). A work schedule of the Board of Directors is approved in December of the year preceding the year for which the schedule is prepared. As a rule, the work schedule covers the Company s core issues (strategy, finance, budget and risks, HR, etc.), consideration of which is aligned with the strategic planning and business planning cycle. In preparing the work schedule, suggestions made by the Board of Directors and the management are taken into account. The date, place and time of meetings are usually determined based on the schedule of the Board members, in order to enable all directors and speakers to participate in a meeting. The agenda of each scheduled meeting of the Board of Directors includes three to five main strategic issues. To make decisions on urgent issues, extraordinary meetings may be convened. During the quarterly joint (face-toface) meetings, the Board of Directors reviews the consolidated results of budget implementation and key strategic initiatives (including benchmarking against competitors), the analysis of the situation in the stock market and a status report on HSE measures. During the joint meetings, the Board of Directors annually considers the questions of updating the Group s strategy and the development plan, as well as a status report on the implementation of the core strategy, strategies of business areas and action plans in key areas. As a rule, all items on the agenda of the Board of Directors are first considered by specialized committees in order to have a more detailed discussion and prepare voting recommendations for the Board of Directors. In the absence of the relevant Committee s recommendations (if there is a need for such recommendations given the nature of the issue discussed by the Board), the item may be removed from the agenda (in order to be revised) at the suggestion of the Chairman of the Board of Directors. Joint meetings of the Board of Directors are mainly held in Moscow and are attended by all members of the Board of Directors. The first meeting of the newly elected Board of Directors is held in the form of joint presence on the day of the general meeting of shareholders at which a decision is made on the election of the Board of Directors. Meetings held by absentee vote consider issues with regard to which members of the Board of Directors and representatives of committees have made no significant comments, as well as technical issues. This approach enables a more efficient use of resources related to the competence of the Board of Directors in order to develop and make key decisions. In 2014 the Board of Directors held 25 meetings, including 8 face-to-face meetings and 17 meetings held by absentee vote. In the 2014 corporate year, the Board of Directors considered 251 issues, with 54 issues included in the approved work plan of the Board of Directors for 2014. Additional issues considered by the Board of Directors during the year were related mainly to approval of transactions, corporate governance and HR. Number of Board meetings held in the form of joint presence and by absentee voting 25 20 15 10 5 0 38:10 Number of issues considered at the meetings of the Board of Directors 300 250 200 150 100 50 0 9 14 38:10 2012 64 Planned 1 244 11 By absentee voting (actual) By absentee voting (plan) Total duration of meetings (h:min) 66 225 2012 2013 30:40 15:40 2013 54 251 2014 Actually considered Code of Corporate Governance. Principle 2.6. Members of the board of directors should act reasonably and in good faith in the interests of the company and its shareholders on the basis of sufficient information, exercising due diligence and care. Code of Corporate Governance. Principle 2.7. Meetings of the board of directors, preparation for them and participation of members of the board of directors in the meetings should enable efficient work of the board of directors. 2 17 11 10 9 8 9 2014 2 Face-to-face (actual) Face-to-face (plan)

102 ANNUAL REPORT 2014 Breakdown of issues considered at the meetings of the Board of Directors 120 124 80 2012 2013 2014 85 54 83 95 40 0 17 25 15 15 16 21 41 29 25 24 7 9 3 7 16 10 Strategy, main areas Finance Corporate governance Approval of transactions HR Projects Other Participation of members of the Board of Directors in the work of the Board of Directors and the committees in 2014 Members of the Board of Directors in the 2014 corporate year Independent director Board of Directors (25 meetings) Strategy Committee (11 meetings) Nominating and Compensation Committee (10 meetings) Finance, Budget and Risk Committee (8 meetings) Audit Committee (5 meetings) Project Assurance Committee (4 meetings) Corporate Conduct Committee (2 meetings) HSE&SO Committee (5 meetings) F.V. Evtushenkov 25/25 V.G. Artyukhov* + 10/10 2/2 2/2 D. Baudrand ** + 15/15 6/6 3/3 3/2 2/2 A.N. Buyanov* 10/8 5/2 2/0(1) Ch. Watson + 25/24(1) 11/11 4/3 5/4(1) 4/4 5/5 Th. Winkler** + 15/13(2) 4/1 3/3 3/1 2/2 R. Gossen* + 10/10 2/2 3/3 A.Yu. Goncharuk 25/13(2) 10/7 S.A. Drozdov 25/10(2) 2/2 A.L. Korsik 25/25 11/11 10/10 4/4 Yu.L. Pustovgarov* 10/10 3/1(1) V.V. Rozanov 25/24 11/10 8/8 4/2(1) M.D. Cherniy 25/24(1) 11/11 10/9(1) 8/7 M. Hecker** 15/14(1) 6/6 4/3 * Members of the Board of Directors who served on the Board of Directors only until the AGMS held on June 10, 2014 ** Members of the Board of Directors who served on the Board of Directors only starting from the date of the AGMS held on June 10, 2014. Note: data in the table are presented in the 5/3(1) format, which means that a director could participate in five meetings of a given Committee (the Board of Directors), actually attended three meetings in person and participated in one more meeting by submitting a written opinion. If the number of meetings that a director could attend and the number of meetings that he actually attended are the same, this usually indicates that the director was actively involved in the work of the Board of Directors and/or a specific Committee.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 103 Number of instructions/recommendations given by governing bodies 2012 141 91 86 39 6 11 833 1,247 2013 80 32 43 25 3 43 15 16 490 747 BoD NCC HSE AC 2014 33 13 21 36 13 20 434 571 SC BAC CCC FBRC MB 0 300 600 900 1,200 In particular, the Board of Directors considered the following important issues: / strategy on finance, HSE, personnel management, security; / consideration of the outcome of the Company s budget implementation; / acquisition of oil-producing and retailing assets; / changes to the organizational structure of JSOC Bashneft; / approval of KPIs for top management and consideration of the results of their performance in the previous period; / incentive programmes for employees of the Company and its subsidiaries and affiliates; / implementation of investment projects; / participation in other organizations and approval of candidates nominated to the governing bodies of the subsidiaries and affiliates; / approval of JSOC Bashneft s internal documents. In 2014 the Board of Directors gave 33 instructions to the Company s management (compared with 80 instructions in 2013 and 141 instructions in 2012). At each face-to-face meeting, members of the Board of Directors are provided with a status update on the implementation of the Board s instructions (a similar practice is used with regard to instructions/recommendations given by committees of the Board of Directors). Proper implementation of instructions of the Board of Directors is one of the conditions for bonuses to be awarded to the Group s employees. In 2014 each member of the Board of Directors took an active part in the meetings of the Board of Directors and Board committees. Most members of the Board of Directors participated in all scheduled meetings of the Board of Directors and in the majority of unscheduled meetings. When it was necessary to provide professional opinion on specific issues for the Board of Directors, in 2014 the Group engaged independent consultants (IPA 1 and others), whose opinion was brought to the attention of members of the Board of Directors. In addition, in 2014 at the face-to-face meetings the Board of Directors twice considered a report of the Project Assurance Committee of the Board of Directors, which evaluated the efficiency of the Company s investment in some of the most important projects in the Upstream and Downstream segments with assistance from independent experts. Expenditure on supporting the work of the Board of Directors and its committees (including expenditure on engaging independent consultants) is included in the Group s budget. 1. Independent Project Analysis, Inc.

104 ANNUAL REPORT 2014 Code of Corporate Governance. Principle 2.2. The board of directors should be accountable to the company s shareholders. Code of Corporate Governance. Principle 2.9. The board of directors should arrange an assessment of performance of the board of directors, its committees and members of the board of directors. ASSESSMENT AND IMPROVEMENT OF THE PERFORMANCE OF THE BOARD OF DIRECTORS In accordance with the Company s Charter, the Board of Directors is accountable to the General Meeting of Shareholders; among other things, this entails the following: which enables the shareholders attending the meeting to address them directly; / when developing the Group s strategy, the Board of Directors takes into account the opinion of shareholders (major shareholders) with regard to their vision of the Company s development; / members of the Board of Directors are elected under a resolution of the General Meeting of Shareholders; furthermore, the directors can be dismissed at any point in time under a resolution of the Meeting; / the Board of Directors annually reports to the General Meeting of Shareholders on the Company s performance (when the Annual Report is considered at the annual general meeting); / members of the Board of Directors normally attend annual general meetings of Shareholders in person, / the Board of Directors regularly considers messages from shareholders and investors submitted via the Group s website, via the Corporate Secretary and the Compliance Officer and, if necessary, gives the relevant instructions to the Group s management. The Chairman of the Board of Directors typically chairs general meetings of shareholders, where any shareholder can address him or put questions to him. In addition, any of the Company s shareholders can speak on issues on the agenda or address the Chairman of the Board of Directors, which

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 105 ensures that issues are considered with an appropriate level of objectivity. Procedures for improving the performance of the Board of Directors include: / assessing the performance of the Board of Directors and the committees; / a system of teaching, training and professional development of the members of the Board of Directors. Starting from 2010, JSOC Bashneft annually assesses the performance of its Board of Directors; the assessment covers the following key areas: / membership and structure of the Board of Directors and the committees; / procedure, planning and organization of the work of the Board of Directors and the committees; / functional areas of the work of the Board of Directors and the committees; / quality of organization of the Board s performance evaluation; / individual assessment by a Board member of qualities and skills of other members using the 180 degrees method (including performance evaluation of the Board Chairman and chairmen of the committees). Internal performance evaluation of the Board of Directors is conducted in the form of a survey using a questionnaire. Board members are invited to comment anonymously on more than 50 issues by assessing them on a four-point scale and to express their subjective opinion on the contribution of each of the other Board members and the Corporate Secretary to the performance of the Board and the committees. The internal evaluation process is coordinated by the Corporate Secretary of JSOC Bashneft. The results of evaluation are summarized in order to identify issues which require an improvement in the practice of organizing the work of the Board and Board Committees, as well as development of an action plan in this area. The results of the evaluation are communicated to the members of the Board of Directors in the annual report on the organization of work of the Board of Directors and committees of the Board of Directors (annually in June or July). The results of individual assessment of the members of the Board of Directors and performance evaluation of the Chairman of the Board of Directors by independent directors taking into account the recommendations received are summarized and brought to the attention of the Chairman of the Board of Directors. Recommendations made following the performance evaluation of the Board of Directors in 2014 included the following: / to strengthen the role of independent directors (to introduce a practice of meetings of independent directors with each other, meetings of independent directors with the Board Chairman in the absence of the management, to consider the advisability of introducing the position of Senior Independent Director ); / to optimize the work of the committees (to avoid overlapping of issues under consideration, take into account the resolutions adopted by the committees when planning the work of the Board of Directors); / to encourage the Board of Directors to pay greater attention to key challenging issues at meetings of the Board of Directors (for example, issues related to budget implementation, programmes, etc.); OUR RESPONSIBILITY The results of individual assessment of the members of the Board of Directors and performance evaluation of the Chairman of the Board of Directors by independent directors taking into account the recommendations received are summarized and brought to the attention of the Chairman of the Board of Directors. / to introduce a practice of informing independent directors about the key shareholders decisions that may affect the business of the Group itself (for example, on the acquisition of assets in related industries, etc.); / to make sure that committees of the Board of Directors include only the Board members; furthermore, the Nominating and Compensation Committee should include only independent directors; / to encourage the Board members to participate more actively in the development of the Group s strategy (not only in the discussion of the management s proposals on strategy-related issues); / to actively use the practice of offsite meetings by the Board of Directors at the Group s production facilities, meetings with invited experts on selected topics (auditors, strategy consultants, etc.); / to ensure that the Board of Directors has a well-balanced membership (in terms of competences, experience, willingness to work actively, etc.) when the Board is being formed; / to recommend the Board members to participate in the Group s IR events on behalf of the Group.

106 ANNUAL REPORT 2014 Membership of the Board of Directors of JSOC Bashneft as of December 31, 2014 OUR RESPONSIBILITY 10% 30% 60% Non-executive directors Independent directors Executive directors Liability insurance helps to reduce potential risks resulting from wrongdoings committed by executives, and to reduce certain related expenses if an insured event occurs. Code of Corporate Governance. Principle 2.3. The board of directors should be an effective and professional governing body of the company, able to make objective independent judgements and make decisions in the interests of the company and its shareholders. The results of performance evaluation of the Board of Directors as a whole and of its members are taken into account: / when allocating the powers and areas of business to be supervised by members of the Board of Directors; / when forming committees of the Board of Directors (see the section Corporate Governance Committees of the Board of Directors Approach to forming the Board committees ); / when nominating candidates to a new Board of Directors in the course of preparation for the general meeting of shareholders whose agenda includes this question. In order to improve the managerial and professional skills of the members of the Board of Directors, the Group implements the following measures: / an induction programme for newly elected members of the Board of Directors. As part of this programme, a director receives necessary and sufficient information about JSOC Bashneft, its strategy and development issues, its governance system, approaches to key business processes; he/she also gets acquainted with the Group s key senior executives; / meetings with the management and external consultants on special issues; / preparing and circulating special reports on specific issues related to JSOC Bashneft s business (including in cooperation with external consultants); / visits to the Company s departments, subsidiaries and affiliates. In 2013 and 2014 proposals were prepared concerning special training modules for members of the Board of Directors to be conducted in cooperation with business consultants. Given the necessity of cost reduction, in 2014 the Board of Directors supported the initiative for a temporary suspension of training programmes for directors. At the same time, the Company supports the directors professional development in specific areas by arranging onsite visits to production facilities and meetings with representatives of consultants engaged in projects implemented by Bashneft. DIRECTORS AND OFFICERS LIABILITY INSURANCE In 2010 JSOC Bashneft implemented a D&O insurance system for its directors and executives (including independent directors) as members of the Group s governing bodies. This system is aimed at recovering potential damages from unintended wrongdoings/omissions committed by insured persons while carrying out management activities. The insurance premium under the contract concluded in 2014 amounts to US$ 0.5 million, and the insurance coverage amounts to US$ 250 million (with an additional insurance coverage of US$ 1 million for each independent director). Parameters of the insurance contract, including the amount of the insurance coverage, correspond to the best international practices of insurance against such risks. MEMBERSHIP OF THE BOARD OF DIRECTORS As of December 31, 2014, the Board of Directors of JSOC Bashneft comprised the Chairman (a non-executive director), one executive director, five non-executive directors and three independent directors (including citizens of the UK, Austria and France). When selecting candidates for the positions of non-executive directors, the Board of Directors and representatives of the major shareholders usually take into account the necessity

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 107 Member of the Board of Directors Duration of service on the Board of Directors Work experience in the oil and gas industry Key competences Finance and audit Strategy Industry-specific issues (oil and gas) Legal issues and corporate governance Human resources HSE Risk management GR/ IR F.V. Evtushenkov (Chairman) 3 years (since June 2011) 3 years D. Baudrand Since June 2014 35 years Ch. Watson 2 years (since June 2012) 32 years Th. Winkler Since June 2014 5 years A.Yu. Goncharuk S.A. Drozdov 6 years (since May 2008) 6 years (since May 2008) 9 years 9 years V.V. Rozanov 1 year (since June 2013) 1 year M.D. Cherniy A.L. Korsik 2 years (since January 2013) 5 years (since December 2009) 8 years 19 years M. Hecker Since June 2014 1 year of nominating to the Board of Directors individuals with profound professional knowledge and experience in the areas that are most important for the Group (industry-specific skills, leadership experience, experience in the areas of finance and management). The number of non-executive directors usually exceeds the number of independent directors. At the same time, a certain percentage of independent directors is maintained, which makes it possible to ensure that the balance of interests of shareholders representatives on the Board of Directors is maintained. Non-executive directors may hold the director s position for an unlimited period of time. However, during the annual nomination of directors the following factors are taken into account: whether they actively participated in the work of the previous Board and whether they have a real opportunity to devote sufficient time to matters related to the Company s business. Members of the Board of Directors are elected under a transparent procedure enabling shareholders to obtain information about the candidates which is sufficient to form an opinion about their personal and professional qualities. Information about candidates nominated to the Board of Directors is posted in the Russian and English languages on the Group s website and made publicly available at least 20 days prior to the general meeting of shareholders whose agenda includes the election of the Board of Directors. Shareholders are also provided with information as to whether the candidate owns the Company s shares, on the initiator of nomination, and information as to whether the candidate serves on the governing bodies of other companies; this enables shareholders to form an opinion about the nominee and make an informed decision when voting. OUR RESPONSIBILITY The number of members of the Board of Directors is optimal for achieving the Group s current targets and objectives and complying with industry practice, making it possible to maintain the necessary balance of competences of the Board members and at the same time to avoid difficulties inherent in the functioning of boards of directors comprising a large number of members.

108 ANNUAL REPORT 2014 INFORMATION ON THE MEMBERS OF THE BOARD OF DIRECTORS AS OF DECEMBER 31, 2014 FELIX EVTUSHENKOV Chairman of the Board of Directors of JSOC Bashneft Born in 1978 in Moscow. Graduated from Griboedov Institute of International Law and Economics with a degree in Law in 2000. Completed a further education programme at Gubkin Russian State University of Oil and Gas and got a degree in Management of Oil and Gas Companies in 2013. WORK EXPERIENCE: 2006 2008 head of OJSC Sistema-Hals. 2008 2011 Vice President of OJSC JSFC Sistema, Head of Consumer Assets Business Unit. 2011 2012 First Vice President of OJSC JSFC Sistema, Head of the Core Assets Business Unit. 2012 present First Vice President of OJSC JSFC Sistema. Member of the Board of Directors of CJSC Landshaft, CJSC Leader-Invest, OJSC BPGC, OJSC RZ Agro, LLC Targin, LLC Russkaya Zemlya, Forpost Investments and Development Ltd; member of the Management Board of OJSC JSFC Sistema. Citizenship: Russian. Was first elected to the Board of Directors of JSOC Bashneft by the Annual General Meeting of Shareholders on June 29, 2011. DIDIER BAUDRAND Independent director Member of the Strategy Committee Member of the Audit Committee Member of the Health, Safety, Environment and Social Responsibility Committee Member of the Project Assurance Committee Born in 1954 in Asnières-sur-Seine (France). Graduated from University of Paris VII with a Master s degree in Physical Chemistry in 1976. Graduated from École nationale supérieure de chimie (the National Chemical Engineering Institute) in Paris with a degree in Chemical Engineering in 1978. WORK EXPERIENCE: 2008 2009 Senior Vice President for Refining and Marketing Special Projects of BP Plc. 2009 2012 Executive Vice President for Downstream and Executive Director at TNK-ВР. 2012 Senior Vice President for Refining and Marketing of BP Plc. Director of Baudrand Consult (France). Citizenship: French. Was first elected to the Board of Directors of JSOC Bashneft by the Extraordinary General Meeting of Shareholders on June 10, 2014. CHARLES WATSON Independent director Chairman of the Project Assurance Committee Member of the Strategy Committee Member of the Finance, Budget and Risk Committee Member of the Health, Safety, Environment and Social Responsibility Committee Member of the Audit Committee Born in 1954 in Malawi. Graduated from Kings College (UK) with an engineering degree in 1976, and obtained an MBA degree at INSEAD business school in France. WORK EXPERIENCE: 2007 2009 General Director of Shell Energy Europe. 2009 2011 Executive Vice President for Shell in Russia and the Caspian Region, Chairman of the Board of Directors of Sakhalin Energy Investment Company and a Board Director of Salym Petroleum Development. Non-executive member of the Board of Directors of Taipan Resources inc., Kaz Mineral Plc (FTSE 250). Citizenship: UK. Was first elected to the Board of Directors of JSOC Bashneft by the Annual General Meeting of Shareholders on June 29, 2012.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 109 THOMAS WINKLER Independent director Chairman of the Audit Committee Member of the Finance, Budget and Risk Committee Member of the Health, Safety, Environment and Social Responsibility Committee Member of the Project Assurance Committee Born in 1963 in Salzburg (Austria). Graduated from the University of Salzburg in 1985. Graduated from the University of Cape Town in 1987; LL.M. Finished IESE Business School of the University of Navarra in 2014 (the AIM programme). WORK EXPERIENCE: 2001 2007 Chief Financial Officer and Member of the Board of T-Mobile International AG & Co. 2007 2009 independent consultant. 2009 2010 Executive Vice President of JSFC Sistema. 2010 2013 Member of the Management Board, Chief Financial Officer of Lenzing AG (Austria). Member of the Board of Directors of OeI AG, Austrian Investment Authority. Citizenship: Austrian. Was first elected to the Board of Directors of JSOC Bashneft by the Extraordinary General Meeting of Shareholders on June 10, 2014. ALEXANDER GONCHARUK Non-executive director Chairman of the Nominating and Compensation Committee Born in 1956 in Sevastopol. Graduated from Sevastopol Higher Naval Engineering Institute in 1978 and from A.A. Grechko Naval Academy in 1987. WORK EXPERIENCE: 2006 2008 Head of OJSC JSFC Sistema 2009 2012 Chairman of the Board of Directors of JSOC Bashneft. Member of the Board of Trustees of the Charity Fund Sistema; Member of the Board of Directors of OJSC JSFC Sistema, ECU GEST HOLDING S.A., OJSC SITRONICS, OJSC SITRONICS-N. Citizenship: Russian. Was first elected to the Board of Directors of JSOC Bashneft by the Annual General Meeting of Shareholders on April 30, 2008. SERGEY DROZDOV Non-executive director Chairman of the Corporate Conduct Committee Born in 1970 in Arkhangelsk. Graduated from Ordzhonikidze State Academy of Management as an engineer-economist in 1993. PhD in Economics. WORK EXPERIENCE: 2002 2011 First Vice President, Senior Vice President Head of the Property Functional Division of OJSC JSFC Sistema. 2011 present Senior Vice President, Head of the Corporate Governance Complex of OJSC JSFC Sistema. Member of the Board of Directors of CJSC Landshaft, CJSC Leader-Invest, CJSC Region, CJSC NVision Group, OJSC Jet Air Group, OJSC MTS, OJSC Moskapstroy, OJSC Premier Avia, OJSC Reestr, OJSC MOSDACHTREST, LLC DIK, LLC Notris, Forpost Investments and Development Ltd, ECU GEST HOLDING S.A.; member of the Management Board of OJSC JSFC Sistema. Citizenship: Russian. Was first elected to the Board of Directors of JSOC Bashneft by the Annual General Meeting of Shareholders on April 30, 2008.

110 ANNUAL REPORT 2014 ALEXANDER KORSIK Executive director Member of the Strategy Committee Member of the Nominating and Compensation Committee Member of the Finance, Budget and Risk Committee Born in 1956 in Minsk. Graduated from the Bauman Moscow State Technical University with a degree in Automatic Control Systems in 1979. WORK EXPERIENCE: 2007 2009 Chairman of the Board of Directors of OJSC RussNeft. 2009 2011 Senior Vice President of OJSC JSFC Sistema, Head of the Fuel and Energy Business Unit of OJSC JSFC Sistema. 2011 present President and Chairman of the Management Board of JSOC Bashneft. Member of the Board of Directors of LLC Targin and JSC UPC. Member of the RABC Supreme Council. Member of the Board of Trustees of the Charity Fund Sistema. Chairman of the Russian-Iraqi Business Council. Citizenship: Russian. Was first elected to the Board of Directors of JSOC Bashneft by the Extraordinary General Meeting of Shareholders on November 25, 2009. VSEVOLOD ROZANOV Non-executive director Chairman of the Finance, Budget and Risk Committee Member of the Strategy Committee Member of the Project Assurance Committee Born in 1971 in Moscow. Graduated from Lomonosov Moscow State University in 1994. WORK EXPERIENCE: 2006 2008 Vice President, Chief Financial Officer of OJSC MTS. 2008 2013 President, General Director of Sistema Shyam TeleServices Limited. June 2013 present Senior Vice President, Chief Financial Officer of OJSC JSFC Sistema. Member of the Board of Directors of Sistema Shyam TeleServices Limited, OJSC MTS, CJSC Leader-Invest; member of the Management Board of OJSC JSFC Sistema. Citizenship: Russian. Was first elected to the Board of Directors of JSOC Bashneft by the Annual General Meeting of Shareholders on June 27, 2013. MICHAEL HECKER Non-executive director Member of the Finance, Budget and Risk Committee Member of the Strategy Committee Born in 1970 in Kiel (Germany). Graduated from Pierre-Mendez-France-University (Grenoble, France) with a degree in International Politics and Administration in 1994. Graduated from the University of Göttingen (Germany) with a degree in Law in 2001. PhD in Law. WORK EXPERIENCE: 2000 2006 worked for A.T. Kearney Europe, where he was responsible for projects in the area of strategy, marketing and finance in telecommunication companies. 2006 2014 Member of the Management Board, Vice President for Strategy, M&A and Corporate Development of OJSC Mobile Telesystems. 2014 present Member of the Management Board, Vice President and Head of the Strategy Function of JSFC Sistema. Member of the Board of Directors of LLC LesInvest. Citizenship: German. Was first elected to the Board of Directors of JSOC Bashneft by the Extraordinary General Meeting of Shareholders on June 10, 2014.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 111 MIKHAIL CHERNIY Non-executive director Chairman of the Strategy Committee Member of the Nominating and Compensation Committee Member of the Finance, Budget and Risk Committee Member of the Corporate Conduct Committee Born in 1971 in Saratov. Graduated from MGIMO under the Ministry of Foreign Affairs of the Russian Federation in 1994. Received a Master of Business Administration in Olin School of Business Washington University in St. Louis in 2004. Completed a further education programme at Gubkin Russian State University of Oil and Gas and got a degree in Management of Oil and Gas Companies in 2013. WORK EXPERIENCE: 2006 2009 Vice President, Head of the Unit for the Work with Fuel and Energy Complex Enterprises of LLC Morgan Stanley Bank. 2009 2011 Deputy General Director for Strategy and Energy Markets of OJSC Bashkirenergo. 2011 2012 Executive Vice President of the Core Assets Business Unit of JSFC Sistema. 2012 present Executive Vice President of OJSC JSFC Sistema. Member of the Board of Directors of LLC Targin and OJSC BPGC. Citizenship: Russian. Was first elected to the Board of Directors of JSOC Bashneft by the Extraordinary General Meeting of Shareholders on January 17, 2013. As of December 31, 3014, none of the members of the Board of Directors owned shares of JSOC Bashneft or shares or stakes in JSOC Bashneft s subsidiaries and affiliates. In 2014 members of the Board of Directors made no transactions in JSOC Bashneft s shares. None of the members of the Board of Directors were related to other persons who are members of JSOC Bashneft s governing bodies and/ or bodies supervising financial and business operations of JSOC Bashneft. F.V. Evtushenkov is the son of V.P. Evtushenkov, the principal shareholder of OJSC JSFC Sistema, who owned a controlling stake in the Group until December 9, 2014. In 2014 the Group did not grant loans (credits) to any members of the Board of Directors. CHANGES IN THE MEMBERSHIP OF THE BOARD OF DIRECTORS IN 2014 Until June 10, 2014, the Board of Directors comprised 11 members: V.G. Artyukhov, A.N. Buyanov, Ch. Watson, R. Gossen, A.Yu. Goncharuk, S.A. Drozdov, F.V. Evtushenkov, A.L. Korsik, Yu.L. Pustovgarov, V.V. Rozanov, M.D. Cherniy. Under the resolution of the Annual General Meeting of Shareholders dated June 10, 2014, the number of members of the Board of Directors was reduced to ten members; new Board members were elected: D. Baudrand, Th. Winkler and M. Hecker; and the following Board members were re-elected: Ch. Watson, A.Yu. Goncharuk, S.A. Drozdov, F.V. Evtushenkov, A.L. Korsik, V.V. Rozanov, M.D. Cherniy. OUR RESPONSIBILITY Standards applied by the Group require strict control over transactions in JSOC Bashneft s securities conducted by members of its governing bodies and by its executives, including members of the Board of Directors. It is prohibited to conduct transactions in JSOC Bashneft s securities based on material information that is not publicly available and that has become known to a member of the Board of Directors by virtue of his or her status.

112 ANNUAL REPORT 2014 Code of Corporate Governance. Principle 2.4. An adequate number of independent directors should sit on the board of directors. Code of Corporate Governance. Principle 2.5. The Chairman of the Board of Directors should ensure that functions assigned to the Board of Directors are performed as efficiently as possible. Proportion of independent directors 2009-2010 2010-2011 (1) 2010-2011 (2) 2011-2012 2012-2013 (1) 2012-2013 (2) 2013-2014 2014-2015 9 10 10 8 6 7 7 7 0 3 6 9 12 15 Representatives of major shareholders and senior management Independent directors 4 2 4 3 5 1 3 ROLE OF THE CHAIRMAN OF THE BOARD OF DIRECTORS AND INDEPENDENT DIRECTORS IN THE WORK OF THE BOARD OF DIRECTORS CHAIRMAN OF THE BOARD OF DIRECTORS The main functions of the Chairman of the Board of Directors are determined by the Regulations on the Board of Directors and include the following: / coordinating the Board s work; / ensuring that agenda items are discussed openly and the opinion of all members of the Board is taken into account; / identifying key issues to be addressed by the Board of Directors and selecting the meeting format that is most suitable for their discussion; / representing the Board of Directors before shareholders, the Company s management and other stakeholders; / making recommendations for the allocation of tasks among the members and committees of the Board of Directors. In 2014 the Board of Directors was chaired by Felix Evtushenkov, a non-executive director, who did not sit on any of the Board committees. The fact that F.V. Evtushenkov, Chairman of the Board of Directors, concurrently served on boards of directors of several other companies, had no impact on his performance of functions and tasks related to management of JSOC Bashneft s Board of Directors. The competence and procedures of the Board of Directors, as well as existing corporate policies and procedures ensure that decisions on many issues can be passed by a simple majority vote of members of the Board of Directors. At the same time, the Chairman of the Board consults with all Board members on issues on the agenda and makes sure that the Board reaches a consensus on key issues. INDEPENDENT DIRECTORS Since independent directors were first elected to the Board of Directors in June 2010, their roles and opinions have been increasingly important. In 2014, three out of ten members of the Board of Directors were independent directors. All independent directors comply with substantial independence criteria, meaning that: / they are not in any way connected with competitors, major counterparties or with any major shareholders, management representatives or members of the Board of Directors; / they do not receive any significant material remuneration from the Group or its affiliated persons (except for remuneration for serving on the Board of Directors); / the duration of their directorship does not exceed an established time limit. The Board of Directors annually reviews its members in terms of their compliance with independence criteria and determines their status; this is typically done at the first meeting of the newly elected Board of Directors. In 2014 the Chairman of the Board of Directors held a number of meetings with independent directors (in the absence of other directors or management representatives). They discussed issues which independent directors saw as areas of special concern, namely: investment activities, the need to engage consultants on oil refining, some aspects of the work of committees and other issues. In certain cases, following such meetings, the issues were then addressed at the Board meetings.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 113 The Group has implemented and has been extensively practising meetings in the form of business dinners, which are usually held on the day before the Board meetings. Business dinner guests include independent directors, non-executive directors, the Group s key top managers and the Corporate Secretary. Such dinners provide independent directors with an opportunity to receive comments on the agenda of a forthcoming Board meeting, present their vision of issues on the agenda and provide informed comments thereon to be incorporated into updated materials for the Board meeting. Independent directors can also discuss shareholders vision of the Group s operations with non-executive directors (representing a major shareholder). In 2014 a total of seven such dinners were held, which contributed to more efficient discussions at the Board meetings. Independent directors participate in strategic sessions, which usually take place after the annual general meeting of shareholders. Such sessions centre on a discussion of updates to the Group s strategy and are attended by the Board members, representatives of major shareholders and the Group s management. Following the strategic session, the updates to the Group s strategy and development plan are submitted to the Board of Directors for review. In 2014 the strategic session was held in July in Moscow. This session included a discussion of the Group s updated strategy, as well as key strategic initiatives and short-term and medium-term projects. ROLE OF THE BOARD OF DIRECTORS IN IMPROVING THE MANAGEMENT OF SUBSIDIARIES JSOC Bashneft is the Group s corporate centre that ensures efficient control of all the processes. However, a number of the Group s subsidiaries possess quite substantial assets and require special attention from the Corporate Centre. As of December 31, 2014, more than 50 Russian and foreign legal entities had interests in Bashneft Group (compared to about 40 in 2013), including important entities such as LLC Bashneft-Polyus, LLC Burneftegaz, LLC Bashneft-Dobycha and LLC Bashneft-Retail Sales. In 2014 we also continued our efforts to optimize the Group s structure in order to streamline and to improve the manageability of the Company s subsidiaries through the use of efficient corporate control mechanisms (decisions were made to divest LLC Bashneftegazrazvedka and LLC Mobel- Neft, LLC Garsar was liquidated, and the Company s group of retail assets was streamlined). The Group developed and approved procedures enabling successful coordination and control of subsidiaries and affiliates by the corporate centre as part of the development strategy implemented by the Group. Following the two-tier management system approach adopted by the Company, the Group minimized the number of organizations in which the Group s subsidiaries have interests. The Regulations on Corporate Governance of Companies and Organizations in Which JSOC Bashneft Has Interests identify the following key areas of control over the operations of its subsidiaries: / review of the main business areas and development strategies of the subsidiaries; / participation in formation of governing and supervisory bodies of the subsidiaries; / making decisions on acquisition, change in interest and divestment of other entities by the subsidiaries; / supervision of major transactions and reorganizations carried out by the subsidiaries. Management matrix for subsidiaries By level of importance and impact of the subsidiaries and affiliates on current operations of JSOC Bashneft CORE AUXILIARY By JSOC Bashneft s stake in the subsidiaries and affiliates 100% stake <100% stake 100% stake <100% stake Level of key decision-making Board of Directors of Bashneft Board of Directors of Bashneft Management Board of Bashneft Management Board of Bashneft Level of non-key decision-making President of Bashneft / Governing bodies of subsidiaries and affiliates Instruments Making decisions on issues considered by the General Meeting of Members/Shareholders Defining the position on issues considered by the General Meeting of Members/ Shareholders Making decisions on issues considered by the General Meeting of Members/Shareholders Defining the position on issues considered by the General Meeting of Members/ Shareholders

114 ANNUAL REPORT 2014 OUR ACHIEVEMENTS 2014 saw the acquisition of a number of Upstream and Downstream assets, which led to an increase in the number of the Group s subsidiaries (Burneftegaz and OPTAN Groups, LLC AZS Aktan). All companies acquired by Bashneft were integrated into the Group s structure, and a common approach and standardized business procedures were introduced in these companies. As a result, they may now be viewed as elements of a single Group of companies. OUR RESPONSIBILITY A flexible approach to remuneration for the Board of Directors allows the Company to engage highly professional directors who have a considerable experience of working for leading global oil companies. Code of Corporate Governance. Principle 4.1. The amount of remuneration paid by the company should be sufficient for attracting, motivating and retaining persons who have the competence and qualification required by the company. Remuneration should be paid to members of the board of directors, executive bodies and other key executives of the company in accordance with the remuneration policy adopted by the company. Code of Corporate Governance. Principle 4.2. The system of remuneration of members of the board of directors should ensure that the directors financial interests are aligned with long-term financial interests of shareholders. The Regulations1 on Remuneration and Compensation Payable to the Members of the Board of Directors of JSOC Bashneft are available on our website: http://www.bashneft.com/ shareholders_and_investors/charter/. 1. Approved by the General Meeting of Shareholders of JSOC Bashneft. Minutes No. 35 dated December 17, 2013 Depending on their role, importance and impact on consolidated results of the Group s operations, all of the Group s subsidiaries are classified into core and auxiliary ones. Specific corporate governance instruments have been developed depending on the Group s direct interest in each of the subsidiaries (100% or less). Decisions on the classification of a subsidiary as core or auxiliary are made by the Board of Directors of JSOC Bashneft. Recommendations on the structure of governing bodies of subsidiaries also depend on their category and focus on ensuring that the Corporate Centre and the subsidiaries function as a single mechanism. The charters and internal documents of the subsidiaries (including provisions concerning the competences of governing bodies) are aligned with the Charter of JSOC Bashneft in order to ensure that management decisions can be promptly cascaded down in compliance with the requirements of legislation and to improve the management of subsidiaries. Key business processes of the subsidiaries are synchronized with the strategy and budget planning and implementation cycles of the Corporate Centre. The Group adheres to uniform principles and approaches to implementing key business processes (strategy, budget, KPIs, personnel management, etc.). Internal documents are updated on a regular basis to reflect changes in the Group s goals and objectives and best practice recommendations. REMUNERATION OF MEMBERS OF THE BOARD OF DIRECTORS OF JSOC BASHNEFT The procedure for determining and paying remuneration and compensation to members of the Board of Directors is established in the Regulations on Remuneration and Compensation Payable to the Members of the Board of Directors of JSOC Bashneft. In accordance with the Regulations, remuneration and compensation is paid to members of the Board of Directors who are not employees of and/or do not serve on governing bodies of: / companies which form part of the Company s group (as defined in the Federal Law on the Protection of Competition), and/or / affiliates of companies which form part of the Company s group (as defined in the Federal Law on the Protection of Competition). Implementation and application of the Regulations are supervised by the Board of Directors with assistance from the Nominating and Compensation Committee. Since June 2013, Bashneft applies a differentiated coefficient which takes into account the amount of time spent by independent directors on serving on the Board of Directors and the committees: remuneration paid to non-resident members of the Board of Directors amounts to 130% of the amount calculated in accordance with the general conditions set out in the Regulations. In accordance with the Regulations, members of the Board of Directors may be reimbursed for their expenses within approved limits: / up to US$ 250,000 during the corporate year for expenses related to serving on the Board of Directors (travel, accommodation and meals in connection with meetings of the Board of Directors and Board Committees); / up to US$ 5,000 during the corporate year for other expenses.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 115 Components of remuneration for serving on the Board of Directors of JSOC Bashneft Remuneration Amount of remuneration Procedure for paying the remuneration Base pay Remuneration for participating in meetings of the Board committees Performance-based remuneration for the corporate year Fixed remuneration of US$ 48,000 per corporate year. Remuneration for participating in meetings of the Board of Directors: US$ 2,200 to US$ 4,300 per meeting, depending on the form of the meeting and the form of participation of a member of the Board of Directors. The total amount of the base pay may not exceed US$ 100,000 per corporate year. US$ 250 to US$ 500 per Committee meeting, depending on the form of the meeting and the form of participation of a member of the Board of Directors, but no more than US$ 4,000 per quarter. For the Chairman of any Board Committee (other than the Project Assurance Committee): US$ 2,000 per meeting, but no more than US$ 10,000 per corporate year. For the Chairman of the Project Assurance Committee: 19% of fixed remuneration (US$ 9 120) per month. A variable portion of remuneration which depends on the difference between the valuation of ordinary shares in JSOC Bashneft as of the beginning and the end of the corporate year. If the value of ordinary shares increases, the remuneration will exceed US$ 100,000; if the share value decreases, the remuneration will total less than US$ 100,000. Payable in cash on a monthly basis (fixed remuneration is payable in equal instalments throughout the corporate year; remuneration for participation in Board meetings depends on the actual participation of a director in the meetings of the Board of Directors). Payable in cash on a monthly basis. Payable if the Company has generated income under IFRS. The estimated value of an ordinary share in JSOC Bashneft shall be calculated on the basis of an annual independent valuation. Payable in cash within 90 days from the date of the annual general meeting of shareholders. Information on remuneration paid to members of the Board of Directors in 2014 Member of the Board of Directors Base pay and remuneration for serving on the Board of Directors, US$ Remuneration for serving on the Board committees, US$ Additional performance-based remuneration for the year, US$ Total, US$ D. Baudrand 102,943 11,050 113,993 Th. Winkler 88,357 10,075 98,432 Ch. Watson 167,167 109,798* 136,548 413,513 R. Gossen 72,330 4,650 136,548 213,528 V.G. Artyukhov 47,300 2,500 105,037 154,837 Yu.L. Pustovgarov 47,300 1,750 105,037 154,087 Total 525,397 139,823 483,171 1,148,391 * Ch. Watson received additional remuneration for performing the functions of the chairman of the Project Assurance Committee of the Board of Directors (in the amount stipulated by the Regulations on Remuneration). Remuneration payable to directors who are residents of the Russian Federation is paid in Russian roubles at the exchange rate set by the Bank of Russia as of the payment date. Remuneration payable to directors who are not residents of the Russian Federation is paid in U.S. dollars. The total amount of remuneration 1 accrued and paid to members of the Board of Directors for 2014 was 43,996 thousand roubles. Reimbursement for expenses incurred by members of the Board of Directors totalled 6,815 thousand roubles. Remuneration paid to members of the Board of Directors of JSOC Bashneft from 2012 through 2014 / 2012 US$ 540,736 / 2013 US$ 973,007 / 2014 US$ 1,148,391 1. Information on the amount of remuneration paid in 2014 is taken from JSOC Bashneft s financial statements under RAS.

116 ANNUAL REPORT 2014 EVENTS AFTER THE REPORTING DATE On March 11, 2015 an extraordinary general meeting of shareholders of JSOC Bashneft was held in the form of joint presence; the meeting re-elected the Company s Board of Directors. The new Board of Directors includes the following members: Alexey Teksler, First Deputy Minister of Energy of the Russian Federation (Chairman of the Board of Directors); Charles Watson, independent director; Evgeny Guryev, Minister of Land and Property Relations of the Republic of Bashkortostan; Maurice Dijols, independent director; Anthony Considine, independent director; Alexander Korsik, President of JSOC Bashneft; Rustem Mardanov, First Deputy Prime Minister of the Government of the Republic of Bashkortostan; Viktor Orlov, President of Non-Governmental Organization Russian Geological Society; Vitaly Sergeychuk, Head of the Department of Property Relations and Privatization of Major Enterprises of the Federal Agency for State Property Management; Yury Shafranik, Chairman of the Board of Directors of CJSC Inter-State Oil Company Soyuzneftegaz. COMMITTEES OF THE BOARD OF DIRECTORS OF JSOC BASHNEFT Code of Corporate Governance. Principle 2.8. The board of directors should establish committees for preliminary consideration of the most important issues related to the company s business. Membership of the Committees 100 80 60 40 20 0 27% 31% 23% 19% 2012 37% 44% 11% 7% Independent director 2013 Non-independent Board member 44% 34% 13% 9% 2014 Representatives of shareholders (experts) Representatives of the management In order to increase the efficiency of decisions made by the Board of Directors and to enable a more detailed preliminary consideration of key issues and preparation of relevant recommendations, there were seven Committees of the Board of Directors as of the end of 2014: / the Strategy Committee; / the Nominating and Compensation Committee; / the Audit Committee; / the Finance, Budget and Risk Committee; / the Health, Safety, Environment and Social Responsibility Committee; / the Corporate Conduct Committee; / the Project Assurance Committee. Powers and requirements for the composition of the committees are determined by regulations on the committees approved by the Board of Directors. In order to accomplish the tasks assigned to them, the Committees may engage external experts and advisors at the Company s expense (subject to approval by the Board of Directors or the Chairman of the Board of Directors). The results of consideration of agenda items by the Committees are communicated to the Board members before each Board meeting. APPROACH TO FORMING THE BOARD COMMITTEES Each of the Board members (except for the Chairman of the Board of Directors) is a member of one to three committees. Representation of the Group s management at committees makes it possible to hold a constructive dialogue during meetings of the Committees, but in order to mitigate possible conflicts of interest the share

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 117 Number of meetings of the Board committees in 2014 OUR ACHIEVEMENTS 20 15 10 5 17 10 16 6 2 13 4 12 3 7 4 5 11 10 2 5 5 8 4 In 2014 the share of independent directors on the committees rose to 44%; moreover, a number of committees (the Audit Committee, the HSE Committee) are entirely composed of independent directors, which ensures that decisions made by the committees are objective in accordance with the recommended best practices. 0 16/1 7/3 12/4 2/4 2/0 9/4 4/0 11/1 1/2 6/1 4/0 5/0 7/4 8/2 0/2 5/0 5/0 6/2 4/0 35:10 15:30 18:10 3:30 3:30 22:10 8:20 14:10 1:00 15:50 8:10 9:30 15:40 7:50 0:00 9:10 7:50 12:40 4:40 2012 2013 2014 SC BAC NCC CCC HSE AC FBRC PAC 16/1 Number of meetings held in the form of joint presence/by absentee voting 35:10 Duration of meetings in the form of joint presence (h:min) Types of issues considered by each committee in 2014 120 8 9 60 0 Preliminary consideration before the Board meeting Consideration by the committee only 92 КС 20 25 5 22 21 56 8 5 6 7 SC NCC CCC HSE AC FBRC PAC of such representatives does not exceed 9% of the total membership of a Committee. REPORT ON PERFORMANCE OF THE NOMINATING AND COMPENSATION COMMITTEE In 2014 we witnessed increased attention of shareholders and investors to the HR Committee. Firstly, the adoption of a new Code of Corporate Governance led to a change in the approach to the practice of appointments and motivation of employees. Secondly, the updated listing rules of the Moscow Exchange set out a number of additional criteria and requirements for the work of the committees. Thirdly, particular importance was attached to meeting new challenges that require improving the performance of the management under the supervision of the Board of Directors in a challenging economic environment. Being aware of a special status of the Nominating and Compensation Committee, in 2014 we gave greater focus to issues such as incentives for the management, accountability for decision-making, integration of new assets. During the year no independent directors served on the Committee, despite recommendations of the best corporate practices, because of their active involvement in the work of other committees. However, we believe that this did not have a negative impact on the performance of the Committee. Members of the Committee Non-executive members of the Board of Directors: A.Yu. Goncharuk (Chairman), M.D. Cherniy; A.L. Korsik (executive member of the Board of Directors); and a representative of a shareholder/expert: E.L. Vitchak (Executive Vice President of OJSC JSFC Sistema), A.I. Guryev (head of the Internal Control and Audit Department of OJSC JSFC Sistema).

118 ANNUAL REPORT 2014 Tasks of the Committee Issues considered in 2014 Preliminary approval of candidates for the posts of President, Board members and other top executives of the Group; consideration of conditions of employment contracts with members of executive bodies; approval of candidates for the post of senior executives of subsidiaries and affiliates; approval of the principles of evaluation, and performance evaluation of members of executive bodies and senior executives; preliminary approval of internal documents regulating the system of incentives and remuneration of employees. Measures in the field of personnel management; wage policy, bonuses and incentive programmes; performance evaluation of a newly appointed senior executive at the end of the probationary period; changes in the membership of the Management Board; approval of candidates to be nominated to the governing bodies of JSOC Bashneft s subsidiaries and affiliates; re-election of JSOC Bashneft s President; compliance with the Code of Corporate Conduct (Governance), the Code of Ethics, the Anti-Corruption Policy of JSOC Bashneft; performance evaluation of JSOC Bashneft s senior executives; improvement of the Group s organizational structure. List of minutes of meetings of the Nominating and Compensation Committee: Minutes No. 01-2014 dated January 27, 2014; Minutes No. 02-2014 dated March 21, 2014; Minutes No. 03-2014 dated March 25, 2014; Minutes No. 04-2014 dated April 16, 2014; Minutes No. 05-2014 dated May 19, 2014; Minutes No. 06-2014 dated May 26, 2014; Minutes No. 07-2014 dated July 1, 2014; Minutes No. 08-2014 dated July 23, 2014; Minutes No. 09-2014 dated September 23, 2014; Minutes No. 10-2014 dated November 25, 2014. REPORT ON PERFORMANCE OF THE AUDIT COMMITTEE Since the establishment of the Committee in 2013 we have paid special attention to the proper organization of internal control and audit processes in Bashneft Group, which allowed the Group to rank among the industry leaders. Being aware of the tasks facing the Committee, we sought to attach particular importance and give priority to measures aimed at increasing the efficiency of the internal audit function. We considered the Group s interim results on a quarterly basis in cooperation with representatives of external auditors (CJSC Deloitte & Touche CIS and CJSC BDO), paying attention to problem areas and accuracy of reflection of the Group s financial position in its statements. In 2014 we held five face-to-face meetings of the Committee, which were attended by all of the Committee members, with the management and experts being involved in discussions, where necessary. We believe that the joint efforts of the Committee members made it possible to form the necessary basis for creating and coordinating the Group s internal audit function in accordance with the best practices used by companies with a worldwide reputation. The main purpose of the Committee is: / to ensure that shareholders, investors and business partners trust the Company, its governing bodies and executives; / to protect the investments of shareholders/investors and the Company s assets. Members of the Committee Independent members of the Board of Directors: Th. Winkler (Chairman), Ch. Watson, D. Baudrand. Where necessary, the Audit Committee may engage external auditors. Tasks of the Committee Issues considered in 2014 Monitoring the functioning of the internal control and risk management system; assessing the efficiency of the internal control system; resolving conflicts of interest; assessing the performance of the Internal Audit Unit; preparing recommendations for the Board of Directors on the candidates nominated for the position of external auditors; assessing the external auditor s report. Development of the internal audit function, internal audit principles; work of the Internal Audit Unit; reorganization of the Internal Audit Unit; consideration of the findings of audit/review of interim financial statements, opinions of external auditors; consideration of candidates nominated for the position of auditors of JSOC Bashneft and its subsidiaries and affiliates; determining the auditors fees; preliminary review of internal documents in the area of audit; adjusting the audit plan. List of minutes of meetings of the Audit Committee: Minutes No. 01-2014 dated February 21, 2014; Minutes No. 02-2014 dated April 17, 2014; Minutes No. 03-2014 dated July 31, 2014; Minutes No. 04-2014 dated September 23, 2014; Minutes No. 05-2014 dated November 24, 2014.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 119 REPORTS ON PERFORMANCE OF OTHER BOARD COMMITTEES Finance, Budget and Risk Committee Members of the Committee Non-executive members of the Board of Directors: V.V. Rozanov (Chairman), M.D. Cherniy, M. Hecker; A.L. Korsik (executive member of the Board of Directors); independent members of the Board of Directors: Ch. Watson, Th. Winkler; and A.Yu. Kaurov (Executive Vice President of OJSC JSFC Sistema) Tasks of the Committee Issues considered in 2014 Monitoring the accuracy of financial statements of JSOC Bashneft, efficiency of the risk management system and compliance with legal requirements; considering issues associated with the approval of budgets and investment plans; preliminary consideration of other issues in the area of budget, financial statements and risk management. Financial results of operations and budget implementation, financial management strategy; risk management; preparation for the annual general meeting of shareholders of JSOC Bashneft; accounts receivable; changes in issuance documents (the resolution on issue of bonds and the prospectus); consideration of internal documents; information on JSOC Bashneft s projects; directors and officers liability insurance; normalization of budget figures; Insurance Programme for JSOC Bashneft, its branches, subsidiaries and affiliates; monitoring of investment projects; approval of transactions. List of minutes of meetings of the Finance, Budget and Risk Committee: Minutes No. 01-2014 dated March 15, 2014; Minutes No. 02-2014 dated March 18, 2014; Minutes No. 03-2014 dated April 15, 2014; Minutes No. 04-2014 dated May 19, 2014; Minutes No. 05-2014 dated July 22, 2014; Minutes No. 06-2014 dated September 15, 2014; Minutes No. 07-2014 dated October 28, 2014; Minutes No. 08-2014 dated November 19, 2014. Strategy Committee Members of the Committee Non-executive members of the Board of Directors: M.D. Cherniy (Chairman), V.V. Rozanov, M. Hecker; independent members of the Board of Directors: Ch. Watson, D. Baudrand; A.L. Korsik (executive member of the Board of Directors). Tasks of the Committee Issues considered in 2014 Considering issues related to the Group s overall long-term strategy and functional strategies of its departments; assessment of M&A projects and largescale investment projects; considering major transactions. Implementation of investment projects and long-term investment programmes; interests of JSOC Bashneft in other organizations; procurement and supply of oil on the domestic market; decisions regarding the subsidiaries of JSOC Bashneft; improving the Group s organizational structure; use of certain categories of assets; change in the level of listing of JSOC Bashneft s securities; results of the strategic session; action plan of JSOC Bashneft in the field of security; optimization of operations of the refining complex and prevention of unscheduled repairs; updating the system of incentives for senior executives; approval of transactions. List of minutes of meetings of the Strategy Committee: Minutes No. 01-2014 dated January 31, 2014; Minutes No. 02-2014 dated February 24, 2014; Minutes No. 03-2014 dated March 19, 2014; Minutes No. 04-2014 dated April 14, 2014; Minutes No. 05-2014 dated May 19, 2014; Minutes No. 06-2014 dated June 30, 2014; Minutes No. 07-2014 dated July 15, 2014; Minutes No. 08-2014 dated July 25, 2014; Minutes No. 09-2014 dated September 17, 2014; Minutes No. 10-2014 dated October 28, 2014; Minutes No. 11-2014 dated November 19, 2014.

120 ANNUAL REPORT 2014 Health, Safety, Environment and Social Responsibility Committee Members of the Committee Independent members of the Board of Directors: D. Baudrand (Chairman), Ch. Watson, Th. Winkler. Tasks of the Committee Issues considered in 2014 Developing recommendations, monitoring the implementation of HSE measures in order to implement the strategy and reach the Group s goals in this sphere. Implementing and updating the functional HSE strategy of JSOC Bashneft KPIs for the HSE Unit; status of HSE measures; findings of investigation of workplace accidents; projects, measures and results in the HSE field, including measures to reduce the number of occupational injuries; independent HSE audit. List of minutes of meetings of the Health, Safety, Environment and Social Responsibility Committee: Minutes No. 01-2014 dated March 24, 2014; Minutes No. 02-2014 dated April 21, 2014; Minutes No. 03-2014 dated May 26, 2014; Minutes No. 04-2014 dated September 22, 2014; Minutes No. 05-2014 dated November 24, 2014. Corporate Conduct Committee Members of the Committee Non-executive member of the Board of Directors: S.A. Drozdov (Chairman); independent member of the Board of Directors: Th. Winkler; non-executive member of the Board of Directors: M.D. Cherniy. Tasks of the Committee Issues considered in 2014 Developing recommendations for creating an efficient corporate governance system safeguarding the rights and interests of shareholders; developing measures for increasing the efficiency of cooperation between the Board of Directors and the Group s management. Convening the General Meeting of Shareholders of JSOC Bashneft; proposals for amending the Company s internal documents; results of the work of the Board of Directors and the Board committees (including self-assessment of the Board of Directors). List of minutes of meetings of the Corporate Conduct Committee: Minutes No. 01-2014 dated April 21, 2014; Minutes No. 02-2014 dated May 26, 2014. Project Assurance Committee Members of the Committee Independent member of the Board of Directors: Ch. Watson (Chairman); independent members of the Board of Directors: D. Baudrand, Th. Winkler; non-executive member of the Board of Directors: V.V. Rozanov; and A.M. Kamensky (Executive Vice President of OJSC JSFC Sistema). Tasks of the Committee Issues considered in 2014 Obtaining objective independent information on the implementation of large-scale projects of the Group; developing recommendations for the Board of Directors concerning improvement of the management of large-scale projects within the Group. Assessment of large-scale projects of JSOC Bashneft in the downstream segment; assessment of large-scale projects of JSOC Bashneft in the upstream segment. List of minutes of meetings of the Project Assurance Committee: Minutes No. 01-2014 dated March 25, 2014; Minutes No. 02-2014 dated June 17, 2014; Minutes No. 03-2014 dated July 30, 2014; Minutes No. 04-2014 dated November 24, 2014.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 121 CORPORATE SECRETARY OF JSOC BASHNEFT The Corporate Secretary is functionally subordinate to the Chairman of the Board of Directors. This ensures the necessary level of independence when organizing the work of governing bodies. The Corporate Secretary supervises the work of the Office of the Board of Directors. The main duties of the Corporate Secretary include: / organizing efficient work of the Board of Directors and the Committees of the Board of Directors; / facilitating cooperation between members of the Board of Directors and the management; / coordinating the work of JSOC Bashneft s governing bodies; / monitoring the implementation of resolutions of the Board of Directors; / managing processes related to participation of members of the Board of Directors in Board meetings; / monitoring information disclosure. OUR RESPONSIBILITY The Corporate Secretary plays an important role in ensuring that the Group s bodies and executives comply with the procedural requirements that safeguard the rights and legitimate interests of the shareholders and that Bashneft Group adopts and uses approaches to corporate governance which comply with best practices. The Corporate Secretary of the Company is responsible for annual monitoring of Bashneft Group s corporate governance practice and internal performance evaluation of the Board of Directors. The Corporate Secretary also acts as the secretary of all committees of the Board of Directors. In order to prevent conflicts of interest, the Corporate Secretary does not perform the functions of the secretary of the Management Board. Since March 2011, the post of the Corporate Secretary of JSOC Bashneft has been held by Elvira Zhuravleva. In 2014 the Board of Directors approved a new version of the Regulations on the Corporate Secretary of JSOC Bashneft. Changes were made mainly to sections setting out the requirements for a candidate for the position of Corporate Secretary, the procedure for his/her appointment and approaches to remuneration. In addition, the Regulations take into account the listing rules of the Moscow Exchange that apply to this document. Code of Corporate Governance. Principle 3.1. The corporate secretary is responsible for facilitating efficient ongoing communication with shareholders, coordinating the company s efforts to protect the shareholders rights and interests and supporting efficient work of the board of directors. The Regulations on the Corporate Secretary are available on our website: http://www.bashneft.com/ shareholders_and_investors/charter/. ELVIRA ZHURAVLEVA Corporate Secretary of JSOC Bashneft Born in 1970 in Kaliningrad. Graduated in 2001 from the I. Kant Baltic Federal University (Kaliningrad State University) in 2001. 2006 2008 Master s degree at Lomonosov Moscow State University; Master in Innovation Management, MIM. 2009 2011 the Corporate Lawyer Master s programme at the Higher School of Economics. 2012 2014 Executive MBA, Kingston University / Moscow School of Social and Economic Sciences. Winner of the Director of the Year award presented by the Association of Independent Directors and the Russian Union of Industrialists and Entrepreneurs in the Corporate Secretary category, 2013. WORK EXPERIENCE: 2005 2011 Head of the Office of the Board of Directors, Corporate Secretary of OJSC VAO Intourist. 2011 2012 Corporate Secretary of JSOC Bashneft. 2012 present Head of the Office of the Board of Directors, Corporate Secretary of JSOC Bashneft. Does not own shares of JSOC Bashneft or shares or stakes in its subsidiaries and affiliates; is not related to other persons who are members of JSOC Bashneft s governing bodies and/or bodies supervising financial and business operations of JSOC Bashneft.

122 ANNUAL REPORT 2014 PRESIDENT AND MANAGEMENT BOARD OF JSOC BASHNEFT THE KEY ROLE IN ORGANIZATION OF EFFICIENT WORK TO ACHIEVE THE GROUP S STRATEGIC GOALS IS PLAYED BY JSOC BASHNEFT S MANAGEMENT BOARD AND THE COMPANY S PRESIDENT. Statistics on the work of the Company s Management Board Number of meetings Duration of meetings, h:min 2014 44 70:30 2013 49 82:40 2012 48 85:20 COMPETENCE OF THE PRESIDENT AND THE MANAGEMENT BOARD The area of competence of the executive bodies includes resolution of all issues related to day-to-day operations of JSOC Bashneft, except for issues falling within the competence of the General Meeting of Shareholders and the Board of Directors. Meetings of the Collective Executive Body (i.e. the Management Board) are normally held once a week exclusively on a face-to-face basis. The functions of the Secretary of the Management Board are performed by an employee of the Company who does not participate in preparation for meetings of the Board of Directors; this helps to minimize the likelihood of potential conflicts in the course of organization of supervision of the adoption and implementation of resolutions of the Board of Directors. In 2014 the total duration of meetings of the Company s Management Board amounted to 70 hours and 30 minutes. Issues within the competence of the President of JSOC Bashneft Issues within the competence of the Management Board of JSOC Bashneft The President has the right to present to the Management Board any issues related to the Group s day-to-day operations that do not fall within the competence of the General Meeting of Shareholders or the Board of Directors. In addition, the area of competence of the President includes the following matters: management of the Company s assets and funds for and on behalf of JSOC Bashneft; making any transactions on behalf of JSOC Bashneft both in the Russian Federation and abroad, except for the cases stipulated by legislation and the Charter of JSOC Bashneft; authorization of JSOC Bashneft s staffing plan, hiring and dismissal of employees under the legislation of the Russian Federation, approval of internal work rules and the wage system, bonuses for best workers and imposition of disciplinary sanctions; organization of financial and tax accounting and reporting, safekeeping of accounts and records, accounting registers and financial statements; protection of commercial and confidential information on the Company; granting of powers of attorney for performance of any actions on behalf of JSOC Bashneft, including transferable powers of attorney; issue of orders, approval of internal documents regulating financial and business operations of JSOC Bashneft and its departments. A number of issues falling within the competence of the President in accordance with the Company s Charter have been delegated to the Board of Directors. The Management Board addresses the following issues that are within its competence: cooperation of JSOC Bashneft with its subsidiaries and affiliates, making decisions regarding JSOC Bashneft s subsidiaries and affiliates; reviewing performance of the subsidiaries and affiliates and performance of JSOC Bashneft s departments; preliminary consideration of major innovative and investment projects and programmes; preparation of proposals to the Board of Directors on approval of the budget and the financial and business plan and making changes to the previously approved budget of JSOC Bashneft; preliminary consideration of property transactions and submitting them for approval by the Board of Directors; approval and implementation of programmes to attract investment; approval of internal documents submitted for review to the Management Board under the resolution of the President of JSOC Bashneft; settlement of labour disputes, appointment of a representative of the management for out-of-court settlement of arising disputes; consideration of other issues related to day-to-day operations of JSOC Bashneft. For more information, see the section Corporate Governance Competence of the Board of Directors.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 123 COOPERATION BETWEEN EXECUTIVE BODIES AND THE BOARD OF DIRECTORS In accordance with the Charter of JSOC Bashneft and the Regulations on the President of JSOC Bashneft, the Company s President and members of the Management Board report to the Board of Directors on their performance. The Company s Charter and internal documents specify the issues on which the Management Board should report to the Board of Directors. They include: On the one hand, the work of the Management Board is aimed at accomplishing the goals of Bashneft s shareholders and its Board of Directors: achieving an increase in the shareholder value and supporting the Group s sustainable development. On the other hand, the Management Board is faced with a wide range of operational tasks that are set in order to achieve the Group s strategic goals. Performance of the Management Board has a direct impact on the Group s financial and operating results and, consequently, implementation of the Company s dividend policy. Breakdown of remuneration paid to senior managers in 2014 25% 25% 50% Remuneration forming part of the Long-Term Incentive Programme Salary Annual KPI-based bonuses / information on the Group s business priorities, / reports on strategy implementation, / annual budgets (financial plans), / information on the Group s major transactions, / forward-looking plans concerning JSOC Bashneft s primary areas of business, / financial and business operations of the subsidiaries and affiliates in which JSOC Bashneft has stakes (shares), as well as information on other enterprises in which JSOC Bashneft has interests, The key considerations taken into account when calculating and paying the remuneration from 2010 through 2014 were as follows: / whether corporate and functional key performance indicators are achieved (for performance-based short-term incentives for a reporting period); / whether the Group s shareholder value and market capitalization increases (a long-term goal in terms of incentives for top management for three years). In 2014 remuneration of members of the Management Board comprised three components: Code of Corporate Governance. Principle 4.1. The amount of remuneration paid by the company should be sufficient for attracting, motivating and retaining persons who have the competence and qualification required by the company. Remuneration should be paid to members of the board of directors, executive bodies and other key executives of the company in accordance with the remuneration policy adopted by the company. Code of Corporate Governance. Principle 4.3. Remuneration of executive bodies and other key executives of the company should be linked to the company s performance and reflect their personal contribution to the performance. / information on the risk management system and internal control procedures. SYSTEM OF REMUNERATION FOR THE GROUP S TOP MANAGEMENT The key principle underlying the Group s system of remuneration for members of the Management Board consists in a balance between the interests of the management and those of the shareholders. / salary; / bonuses forming part of the shortterm incentive programme (annual bonuses); / bonuses forming part of long-term incentive programmes (a long-term incentive programme for key senior executives). For more information on the Group s strategy, see Strategy and Operating Results Strategy.

124 ANNUAL REPORT 2014 Total remuneration of senior managers Share 25% 25% 50% Base pay Short-term incentives Long-term incentives Salary Annual KPI-based bonuses Long-term incentive programme based on phantom shares Payment procedurе Monthly payments in cash Annual payments in cash Annual bonuses in the form of phantom shares that may be subsequently cancelled DETAILS OF KEY COMPONENTS OF THE SYSTEM OF REMUNERATION FOR THE GROUP S TOP MANAGEMENT Salary The Company structures the salary of its senior managers in such a way as to set a fair and competitive level of remuneration. The salary level meets the market conditions, which ensures that the membership of the Management Board is stable. Bonuses forming part of the shortterm incentive programme (annual bonuses) Annual bonuses are designed to incentivize senior managers to achieve annual targets. Given that Bashneft is a dynamic and fast-growing company, short-term goals are of the utmost importance. The amount of annual bonuses is determined on the basis of an analysis and assessment of the extent to which an established set of KPIs has been attained. The set includes corporate, functional and project-related KPIs and compliance with health and safety rules and standards. The system of remuneration for members of the Management Board is designed to ensure achievement of financial targets (corporate indicators), operational performance (functional indicators), implementation of key projects (project-related indicators), and ensuring occupational and process safety. Targets and results for the reporting period and the amount of remuneration payable to members of the Management Board are considered by the Nominating and Compensation Committee of the Board of Directors and are approved by the Board of Directors. In 2014 annual bonuses were paid: / for 2013 under a resolution of the Board of Directors (minutes No. 07-2014 dated April 24, 2014); / for 2014 under a resolution of the Board of Directors (minutes No. 17-2014 dated September 24, 2014) and based on recommendations of the Nominating and Compensation Committee of the Board of Directors (minutes No. 10-2014 dated November 25, 2014). Bonuses forming part of the longterm incentive programme To incentivize members of the Management Board to achieve an increase the shareholder value and market capitalization in the long term, in 2010 the Group introduced a long-term incentive programme. Following a strategy update, in 2013 the Group developed a new Long-Term Incentive (LTI) Programme for the period from 2014 through 2016. The LTI Programme implemented in 2014 involved paying bonuses if the following conditions were met: / if the target rate of growth of net asset value was achieved; / if a manager stayed in employment with the Group until a specific date; / if no disciplinary sanctions had been imposed by a specific date. The mechanism for paying bonuses as part of the Long-Term Incentive Programme for Members of the Management Board involved using phantom shares.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 125 At the end of 2014, the Programme was discontinued ahead of schedule in accordance with the Regulations on the Long-Term Incentive Programme for Key Senior Executives of JSOC Bashneft for 2014-2016 due to a change of the controlling shareholder. Accordingly, participants of the Programme received appropriate payments for 2014. A new long-term incentive programme will be developed and considered by the Board of Directors in 2015. In 2014 remuneration was paid as part of the Long-Term Incentive Programme: / for 2013 under a resolution of the Board of Directors (minutes No. 07-2014 dated April 24, 2014); / for 2014 as the Programme was discontinued ahead of schedule in accordance with the Regulations on the Long-Term Incentive Programme for Key Senior Executives of JSOC Bashneft for 2014-2016. AMOUNT OF REMUNERATION FOR MEMBERS OF THE MANAGEMENT BOARD OF JSOC BASHNEFT FOR 2014 The total amount of remuneration 1 accrued and paid to members of the Management Board of JSOC Bashneft for 2014 was 1,724,559 thousand roubles. Bonuses forming part of the long-term incentive programme for members of the Management Board totalled 983,164 thousand roubles. Reimbursement for expenses incurred by members of the Management Board amounted to 4,725 thousand roubles. Other types of remuneration totalled 85,278 thousand roubles. Remuneration for 2014 accrued and paid to five members of the Management Board receiving the highest salary totalled 973,285 thousand roubles. Payments forming part of the long-term incentive programme totalled 524,317 thousand roubles. Reimbursement of expenses incurred by members of the Management Board totalled 4,153 thousand roubles. Contracts with members of the Management Board do not provide for any guaranteed payments in case of early retirement ( golden parachutes ), except for guarantees stipulated by employment legislation. In exceptional cases, the Board of Directors may make a decision to consider the circumstances of termination of contracts with members of the Management Board on a case-by-case basis (if they have done valuable work for JSOC Bashneft and there are no complaints with regard to their work). In addition, there are no pension contributions other than payments forming part of the Russian statutory pension insurance system. No additional remuneration is paid to the Group s management for serving on the governing bodies of JSOC Bashneft or its subsidiaries and affiliates. For more information on the KPI system, see Strategy and Operating Results KPIs. 1. Information on the amount of remuneration paid in 2014 is taken from JSOC Bashneft s financial statements under RAS. Breakdown of remuneration for serving on the Management Board in 2014, thousand roubles 19% 320,413 19% 335,705 5% 85,278 Remuneration as part of LTI Annual bonuses Salary Other types of remuneration 57% 983,164 Breakdown of remuneration for 2014 for five members of the Management Board receiving the highest salary, thousand roubles 19% 181,492 19% 185,924 8% 81,551 Remuneration as part of LTI Annual bonuses Salary Other types of remuneration 54% 524,317

126 ANNUAL REPORT 2014 MEMBERSHIP OF THE MANAGEMENT BOARD Information on the President and the Management Board as of December 31, 2014 In accordance with established practice, we conclude three-year contracts with members of the Management Board. As of December 31, 3014, the President and members of the Management Board did not own shares of JSOC Bashneft or shares or stakes in JSOC Bashneft s subsidiaries and affiliates. In 2014 members of the Management Board and the Company s President made no transactions in JSOC Bashneft s shares. None of the members of the Company s Management Board are related to other persons who are members of JSOC Bashneft s governing bodies and/or bodies supervising financial and business operations of JSOC Bashneft. In 2014 the Group did not grant loans (credits) to any members of the Management Board. ALEXANDER KORSIK President Chairman of the Management Board of JSOC Bashneft Born in 1956 in Minsk. Graduated from the Bauman Moscow State Technical University with a degree in Automatic Control Systems in 1979. WORK EXPERIENCE: 2007 2009 Chairman of the Board of Directors of OJSC RussNeft. 2009 2011 Senior Vice President of OJSC JSFC Sistema, Head of the Fuel and Energy Business Unit of OJSC JSFC Sistema. 2011 present President and Chairman of the Management Board of JSOC Bashneft. Under the resolution of the Company s Board of Directors dated March 25, 2014, Alexander Korsik was reappointed as President of the Company for three years. Member of the Board of Directors of LLC Targin and JSC UPC. Member of the RABC Supreme Council. Member of the Board of Trustees of the Charity Fund Sistema. Chairman of the Russian-Iraqi Business Council. Member of the Management Board of JSOC Bashneft since April 6, 2011 KIRILL ANDREYCHENKO Vice President, Corporate Governance and Legal Issues Deputy Chairman of the Management Board Born in 1975 in Moscow. Graduated from Moscow State Industrial University as a lawyer in 1997. WORK EXPERIENCE: 2005 2009 General Director of CJSC United TeleSystems (part-time). 2007 2008 Director for Corporate Governance and Legal Issues of OJSC COM- STAR-UTS. 2008 2009 Vice President for Corporate Governance and Legal Issues of OJSC COMSTAR-UTS. 2009 present Vice President for Corporate Governance and Legal Issues of JSOC Bashneft. Member of the Board of Directors of Bashneft Trading AG. Member of the Management Board of JSOC Bashneft since February 1, 2010

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 127 MAXIM ANDRIASOV First Vice President, Refining and Commerce Member of the Management Board Born in 1974 in Moscow. Graduated from Gubkin Russian State University of Oil and Gas as mining engineer in 1997. Graduated from INSEAD Business School ( Building world-class companies educational programme) in 2012. WORK EXPERIENCE: 2005 2008 General Director of OJSC TNK-Stolitsa. 2009 2010 Director of TNK-BP Zapad. 2010 2012 Head of a business unit of OJSC TNK-BP Management. 2012 2012 Vice President for Regional Sales of JSOC Bashneft. 2012 present First Vice President for Refining and Commerce of JSOC Bashneft. Member of the Management Board of JSOC Bashneft since September 10, 2012 RUSLAN GENSH Vice President, Crude Oil Procurement, Marketing and Logistics Member of the Management Board Born in 1965 in Dushanbe (Tajikistan). Graduated from Moscow Mining University with a degree in Mining Machinery and Equipment in 1987. PhD in Economics; holds an Executive MBA degree. WORK EXPERIENCE: 2005 2008 First Deputy General Director, Director for Procurement of Petrotel-Lukoil S.A. (Romania). 2008 2009 First Deputy General Director for Commerce of LLC Lukoil-Resurs. 2009 2009 First Deputy General Director of LLC Lukoil- Reservnefteproduct. 2009 2009 Executive Vice President, Head of the Export Project Office of OJSC Sistema-Invest. 2009 2011 Vice President for Export of JSOC Bashneft. 2011 Vice President for Export of JSOC Bashneft, Moscow Branch Office. 2011 2012 Executive Vice President for Export of JSOC Bashneft, Moscow Branch Office. 2012 present Vice President for Crude Oil Procurement, Marketing and Logistics of JSOC Bashneft. Member of the Management Board of JSOC Bashneft since October 23, 2012 YURI KRASNEVSKY Vice President, Geology and Development Member of the Management Board Born in 1955 in the town of Svobodny in the Amur Region. Graduated from Gomel State University as a geological engineer and hydrogeologist in 1977. WORK EXPERIENCE: 2007 2008 Head of a group in the Samotlor Business Unit, Upstream Division at OJSC TNK-BP Management. 2008 2010 Field Development and Modelling Manager at the Technical Department, Upstream Division of OJSC TNK-BP Management. 2010 2011 Director for New Technologies and Innovations in Development of the Upstream Division (Department of Technical Operation) of OJSC TNK-BP Management. 2011 present Vice President for Geology and Development of JSOC Bashneft. Member of the Board of Directors of LLC Bashneft-Polyus. Member of the Management Board of JSOC Bashneft since October 23, 2012

128 ANNUAL REPORT 2014 DMITRY PANYUKOV Vice President, Regional Sales Member of the Management Board ANDREY PILIPENKO Vice President, Security Member of the Management Board VLADISLAV POZDYSHEV Vice President, Human Resources Member of the Management Board Born in 1975 in the town of Yefremov in the Tula Region. Graduated from Lomonosov Moscow State University with a degree in Applied Mathematics in 1999. WORK EXPERIENCE: 2004 2008 Deputy General Director of OJSC TNK-Stolitsa. 2008 2010 Deputy General Director, Retail Sales Director, General Director of CJSC Petrol Complex Equipment Company. 2010 2010 Director of the Legal Department of CJSC TNK-South Management. 2010 2011 General Director of CJSC TNK-South. 2011 Head of the Retail Sales Department of LLC TNK-BP Marketing (the South Business Unit in Rostov-on-Don). 2011 present Director of the Retail Sales Department, Director of the Department of Retail Sales of Petroleum Products, Vice President for Regional Sales of JSOC Bashneft. Member of the Management Board of JSOC Bashneft since February 26, 2013 Born in 1973 in Gubkin in the Belgorod Region. Graduated from the Faculty of History of Voronezh State University in 1995. WORK EXPERIENCE: 1997 2013 military service; a reserve colonel. 2014 Director of the Economic and Information Security Department, acting Vice President for Security of JSOC Bashneft. 2014 present Vice President for Security of JSOC Bashneft. Member of the Management Board of JSOC Bashneft since May 30, 2014 Born in 1970 in Leningrad. Graduated from the Faculty of Economics of St. Petersburg State University with a degree in Political Economy in 1992. Completed an Executive MBA programme at Stockholm School of Economics in St. Petersburg in 2001. WORK EXPERIENCE: 2008 2009 Director for Organizational Development of OJSC KIT Finance Investment Bank. 2009 2013 Chief Human Resources and Administrative Officer, Chief Organizational Excellence and Customer Experience Officer of Sistema Shyam Limited Gurgaon (India) 2013 present Vice President for Human Resources of JSOC Bashneft. Member of the Management Board of JSOC Bashneft since October 28, 2013

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 129 DMITRY RYABCHENKO Vice President, Capital Construction and Logistic Support Member of the Management Board MIKHAIL STAVSKIY First Vice President, Upstream and Geology Member of the Management Board DENIS STANKEVICH Vice President, Economics and Finance, Chief Financial Officer Member of the Management Board Born in 1971 in Irkutsk. Graduated from National Research Irkutsk State Technical University with a degree in Industrial Power Supply in 1993. WORK EXPERIENCE: 2007 2008 General Director of LLC Baykitskaya Oil and Gas Exploratory Expedition. 2008 2008 General Director of OJSC Messoyakhaneftegaz (part-time). 2008 2010 Vice President for Capital Construction of OJSC RussNeft. 2010 Deputy General Director, Director of Industrial Minerals Division of LLC BaselCement. 2010 Department Director of CJSC RUSAL Global Management B.V. 2010 Adviser to the management of OJSC Yamal LNG. 2011 2012 Deputy General Director of the Capital Construction Department of OJSC Yamal LNG. 2012 Deputy General Director for Capital Construction and Logistic Support of LLC Bashneft-Dobycha. 2012 present acting Vice President for Capital Construction and Logistic Support, Vice President for Capital Construction and Logistic Support of JSOC Bashneft. Member of the Management Board of JSOC Bashneft since February 26, 2013 Born in 1961 in Ufa. Graduated from Ufa State Petroleum Technological University with a degree in Oil and Gas Fields Machinery and Equipment in 1985. Graduated from Moscow State Institute of International Relations (university) of the Ministry of Foreign Affairs of Russia with a Master s degree in Business Administration in 2009. Received an MBA in International Business in Oil and Gas at MGIMO in 2010. WORK EXPERIENCE: 2005 2010 Vice President for Production of OJSC Rosneft. 2011 present First Vice President for Upstream and Geology of JSOC Bashneft. Chairman of the Board of Directors of LLC Bashneft-Polyus. Member of the Management Board of JSOC Bashneft since June 26, 2011 Born in 1974 in Izhevsk Graduated from Udmurt State University with a degree in Applied Mathematics in 1997. Graduated from Udmurt State University with a degree in Finance and Credit in 1998. WORK EXPERIENCE: 2008 2010 General Director of OJSC ASPEC. 2010 2013 Deputy Financial Director for Refining and Commerce, Financial Director for Refining and Commerce of JSOC Bashneft. 2013 present Vice President for Economics and Finance, Chief Financial Officer of JSOC Bashneft. Member of the Board of Directors of JSC SGtrans and CJSC Solomenskiy Lesozavod. Member of the Management Board of JSOC Bashneft since April 12, 2013

130 ANNUAL REPORT 2014 CHANGES IN THE MEMBERSHIP OF THE MANAGEMENT BOARD IN 2014 In the 2014 corporate year, changes in the membership of the Management Board under resolutions of the Board of Directors were made five times; the total number of members of the Management Board was reduced from 15 to 12 members (Minutes of meetings of the Board of Directors No. 01-2015 dated February 5, 2014, No. 10-2014 dated May 29, 2014, No. 12-2014 dated July 3, 2014, No. 17-2014 dated September 24, 2014, No. 23-2014 dated December 8, 2014). Name Position January 1, 2014 February 5, 2014 February 6, 2014 May 29, 2014 May 30, 2014 July 7, 2014 July 8, 2014 September 26, 2014 September 27, 2014 December 8, 2014 December 9, 2014 December 31, 2014 Alexander Korsik Kirill Andreychenko Maxim Andriasov Elena Brusilova Viktor Gantsev Ruslan Gensh Igor Kalyuzhny Yuri Krasnevsky Igor Marchenko Mikhail Stavskiy Dmitry Panyukov President (Chairman of the Management Board) Vice President, Corporate Governance and Legal Issues First Vice President, Refining and Commerce Vice President, Corporate Communications and Government Relations Senior Vice President, Refining and Petrochemicals Vice President, Crude Oil Procurement, Marketing and Logistics Vice President, Information Technologies Vice President, Geology and Development Vice President, Strategy and Development First Vice President, Upstream and Geology Vice President, Regional Sales Andrey Pilipenko Vice President, Security Dmitry Ryabchenko Oleg Mikhaylov Denis Stankevich Vladislav Pozdyshev Vice President, Capital Construction and Logistic Support Vice President, Oil and Gas Production Vice President, Economics and Finance, Chief Financial Officer Vice President, Human Resources

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 131 SETTLEMENT OF POTENTIAL CONFLICTS OF INTEREST OF MEMBERS OF JSOC BASHNEFT S GOVERNING BODIES THE GROUP PAYS SPECIAL ATTENTION TO THE PREVENTION AND MINIMIZATION OF THE IMPACT OF POSSIBLE CONFLICTS OF INTEREST AMONG MEMBERS OF ITS GOVERNING AND EXECUTIVE BODIES Internal regulations of the Group establish procedures for supervising and monitoring actions which could indicate a conflict of interest (including notifying all directors and executives of the Group on a quarterly basis about the necessity of compliance with applicable requirements). The Board of Directors receives bi-annual reports on compliance with the Code of Corporate Conduct (Governance), the Code of Ethics, and the Anti-Corruption Policy. The Nominating and Compensation Committee addresses the same issues on a quarterly basis. The Group s efforts in the sphere of compliance are systematic, integrated into strategic and operations management at all levels and cover all business processes. Strategic goals of the compliance function are as follows: / to minimize the risk and size of reputational, financial, and other losses caused by breach of requirements of government agencies, regulations, rules, recommendations and standards; / to ensure compliance with the Code of Corporate Conduct (Governance), the Code of Ethics and the Anti-Corruption Policy of JSOC Bashneft; / to ensure that senior management monitors and is informed of how rules and standards are observed in the Group. SETTLEMENT OF POTENTIAL CONFLICTS OF INTEREST WITH SHAREHOLDERS AND INVESTORS The Company seeks to maintain a balance of interests of its shareholders and the management and ensure that their cooperation is based on mutual trust and high standards in business culture and ethics. In 2014 there was a dispute over the controlling stake in the Company between the Russian Federation and OJSC JSFC Sistema. Given the nature of the causes of the dispute, it was not considered separately by specialized committees or the Board of Directors of the Company. Nevertheless, members of the Company s Board of Directors were provided with regular status updates on the proceedings. The Group s principal shareholder holds a sufficient number of votes to make decisions on a wide range of issues coming falling within the competence of the General Meeting of Shareholders and to influence the composition of the Board of Directors. However, the Group has in place a number of efficient instruments to mitigate risks associated with its special management structure characterized by a high concentration of share capital (a special procedure for voting on certain issues, information transparency, a well-balanced structure of the Board of Directors, etc.). OUR RESPONSIBILITY In accordance with international best practices, Bashneft has established a compliance function in order to maintain high standards in corporate conduct and ensure transparency of operations.

132 ANNUAL REPORT 2014 OUR RESPONSIBILITY The Group respects the rights and legitimate interests of minority shareholders and provides them with equal opportunities to participate in the management, access to information, and profit distribution in proportion to their voting power. Voting statistics of the Board members in 2014* For Against Abstained Total 2,428 10 6 2,444 99.34% 0.40% 0.24% 100% * The table shows the data on the total number of votes of all Board members of the Company for 2014, based on the analysis of voting results recorded in the minutes of Board meetings. The main instruments used to prevent conflicts among shareholders include the following: / compliance with the scope of authority, rules and procedures for making decisions on the most important issues (involvement of shareholders in the decision-making process through their participation in the general meeting of shareholders); / compliance with restrictions imposed by special procedures for voting on related-party transactions (with interested shareholders abstaining from voting); / engagement of recognized independent appraisers for valuation of assets in related-party transactions; / ensuring maximum transparency and disclosure of information in the course of preparation and participation in shareholder meetings (publication of materials for the general meeting of shareholders on the corporate website, preparation of recommendations and comprehensive rationale, press conferences attended by representatives of the media); / holding the general meeting of shareholders in Ufa, the city where the overwhelming majority of minority shareholders live (are located); / cancellation of shares at proper market prices confirmed by independent valuation reports in cases specified by applicable laws; / engagement of one of the Big Four auditing firm as independent auditors. Minority shareholders have an opportunity to communicate with senior managers, members of the Board of Directors and the Audit Committee. Shareholders can also use the Group s hotline to inform the President or members of the Board of Directors about any existing conditions that may give rise to conflicts or about other issues, the settlement of which could improve the efficiency of governance. When the Board of Directors addresses key issues such as the approval of business strategy, the long-term budget or major projects, directors can initiate their discussion with the Group s shareholders in order to arrive at the best possible decision based on the balance of interests of all stakeholders. SETTLEMENT OF POTENTIAL CONFLICTS OF INTEREST OF MEMBERS OF THE BOARD OF DIRECTORS Cases which may be considered as a conflict of interest of members of the Board of Directors are specified in the Code of Corporate Conduct (Governance) and the Code of Ethics of JSOC Bashneft. These documents stipulate that the Board members must refrain from making decisions on issues in relation to which they have a conflict of interest. The Regulations on the Board of Directors of JSOC Bashneft contain a list of information on the Board members and their affiliated persons to be provided by the Board members. The Corporate Secretary is tasked with monitoring the deadlines and schedule for providing the above-mentioned information. In accordance with the Regulations on Insider Information approved by the Company, the Board members may not disclose or use insider information. As part of the work of the Board of Directors, the Board Chairman and the Company s Corporate Secretary take measures necessary for developing relationships among the Board

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 133 members that are as friendly and constructive as possible in order to make informed and rational decisions. Internal procedures ensure that no issues which have not been elaborated and prepared for decision-making can be submitted for consideration to the Board of Directors, and the time frame during which the directors familiarize themselves with the agenda and materials in advance ensures to a certain extent that a director will examine an issue exhaustively. At the same time, in certain cases, live discussion during face-to-face meetings may create situations when initial draft resolutions are changed considerably or when certain directors vote against or abstain from voting on agenda items. This proves again that the Company s Board of Directors is really a functioning governing body whose decisions are based on thorough collaborative work and take into account the balance of interests of directors representing different groups of shareholders. In 2014 no conflicts of interest of members of the Board of Directors or members of the Management Board of JSOC Bashneft were revealed. Code of Corporate Governance. Principle 2.6. Members of the board of directors should act reasonably and in good faith in the interests of the company and its shareholders on the basis of sufficient information, exercising due diligence and care. RISK MANAGEMENT AND INTERNAL CONTROL PRINCIPLES AND APPROACHES TO ORGANIZING THE RISK MANAGEMENT SYSTEM When working to achieve its goals, the Group faces internal and external operational risks. One of JSOC Bashneft s main tasks is to monitor and forecast risks inherent in its business operations. We regularly monitor potential risk events and take measures to prevent them. When these events are inevitable, we take all necessary measures to reduce their negative impact. The Risk Management System (RMS) was developed and implemented in 2010 in cooperation with one of the Big Four consulting firms, based on common conceptual risk management models developed by the Committee of Sponsoring Organizations of the Treadway Commission (COSO ERM Enterprise Risk Management Integrated Framework). On September 24, 2014, the Board of Directors of JSOC Bashneft approved a new version of the Regulations on Risk Management. The Regulations outline the key approaches to risk Finance, Budget and Risk Committee Board of Directors Audit Committee Code of Corporate Governance. Principle 5.1. The company should create an effective risk management and internal control system aimed at ensuring reasonable confidence that the company will achieve its goals. Management Board/ Risk Committee of the Management Board Internal Audit Unit Risk Management and Insurance Department (accountable to the Vice President for Economics and Finance) Risk owners Large project managers Reports Persons responsible for specific risk management measures/ Branches/Subsidiaries Information for preparing reports

134 ANNUAL REPORT 2014 OUR RESPONSIBILITY Risk management is aimed at providing a reasonable guarantee that strategic goals will be achieved and that the level of risks faced by the Group remains acceptable for the management and shareholders. management, the overall organization of the risk management process, the allocation of roles and responsibility for risk management. Risk management is an integral part of operations management, strategic planning and business planning; it is a package of measures implemented at all levels of management and planning. AIMS AND OBJECTIVES OF THE RISK MANAGEMENT SYSTEM The integrated risk management system is aimed at developing and implementing a package of the following measures: / identification and systematic analysis of the Group s risks; / allocation of responsibility for risk management; / taking risks into account when making managerial decisions in all cases; / development of action plans for responding to considerable risks and monitoring of their implementation; / risk monitoring and performance evaluation of the RMS; / gaining knowledge in the sphere of integrated risk management; / preparation of risk management reports for the Group s managers and the Board of Directors. Integrated risk management exists at all levels of the Group s management, forming an integral part of corporate management. Key principles of operation of the RMS in the Group: / a systematic approach to managing all types of risks faced by the Group across the entire organizational structure and operating regions; / risk management based on the Group s strategic goals and the aims of specific processes; / cost efficiency and feasibility of risk management measures. Bashneft Group uses various methods for managing identified risks: / risk avoidance, i.e. withdrawing from a risky project; / risk reduction, i.e. taking preventative measures to either completely prevent the risk or reduce potential losses and their likelihood; / risk transfer, when the risk is mitigated by transferring it to a third party (insurance programmes etc.); / risk retention, when losses are covered using the Group s own funds. RISK MANAGEMENT ORGANIZATIONAL STRUCTURE To maintain and develop the Risk Management System, the Group has created the Risk Committee of the Management Board. The Committee comprises members of the Management Board (Vice Presidents responsible for various business areas) and performs the following key functions: / it considers and approves the corporate risk register, the risk map and the risk management report; / it develops recommendations concerning risk management methods and approves action plans for managing risks. The Risk Management and Insurance Department coordinates the risk management process and performs the following functions related to organization of the RMS: / it facilitates cross-functional cooperation between the Group s departments; / it provides those involved in integrated risk management with methodological guidelines; / it consolidates the information on Bashneft s risks, analyses the impact of the key risks on cash flow and prepares a risk management report to be considered by the Group s governing bodies. MEASURES FOR IMPROVING THE RMS Every year the Group develops and implements a package of measures to improve the performance of the RMS. Key areas of RMS development include: improving risk assessment and management methods, optimizing risk reports and integrating the RMS with other business processes in the Group (including strategic planning processes and incentives). The Company s Board of Directors considers a semi-annual risk management report prepared by the Company s internal department responsible for analysing and systematizing information on the Group s risks and measures for risk mitigation. In 2014 the Board of Directors considered such reports in March and September. In addition, the Board of Directors annually considers an action plan aimed at developing the risk management function.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 135 INTERNAL CONTROL Internal control in Bashneft is aimed at ensuring: / efficiency and effectiveness of the Group s business on the level of individual operations; / reliability and accuracy of financial statements and other reports; / compliance and conformity with laws and established rules, including in the course of business and accounting. We seek to introduce internal control elements in accordance with the COSO Internal Control Integrated Framework into each stage of the Group s management and at the same time to ensure that procedures and methods applied in all areas of the Group s business remain neutral and transparent. Under the COSO framework, the Group creates the Control Environment, uses a risk management system and established control procedures. Wrongdoings are prevented through sanctioning (authorization) of transactions and operations, delineation of powers and rotation of duties, monitoring of presence and condition of facilities. The Group has in place a Hotline for Prevention of Corruption and Fraud and a Hotline for the Group s customers. Internal control is regularly monitored (the Group s performance is analysed, results of individual business operations are inspected, internal regulatory and administrative documents are regularly reviewed and updated). For a detailed description of our risks, see the Appendix Key risk factors.

136 ANNUAL REPORT 2014 INTERNAL AUDIT The Internal Audit Unit forms an integral part of Bashneft s organizational structure; it comprises internal audit departments responsible for various areas of business and an internal control department. The main aim of internal audit in the Group is to provide the Board of Directors, the Audit Committee of the Board of Directors and executive bodies with independent and objective guarantees that JSOC Bashneft and its subsidiaries and affiliates have appropriate internal control, risk management and corporate governance systems. The internal audit function assists the Board of Directors and executive bodies in improving the efficiency of the Group s management, improving its financial and business operations using a systematic and consistent approach to the analysis and assessment of the risk management, internal control and corporate governance system as tools for ensuring reasonable confidence that the Group s goals will be achieved. To achieve its goals, the Internal Audit Unit performs its tasks in the following areas: / organizing and developing audit programmes, as well as organizing and conducting audits at JSOC Bashneft and its subsidiaries and affiliates, which involves: / assessing the efficiency of internal control in the main business processes of the Group; / assessing the efficiency of the Group s corporate governance; / assessing compliance with the requirements of applicable legislation and internal regulatory documents; / assessing the quality of preparation and reliability of financial statements; / assessing the efficiency of the risk management system and developing recommendations for improvement of risk management processes; / preparing reports outlining the main conclusions based on audit findings, as well as recommendations for eliminating shortcomings that have been identified; / monitoring the implementation of internal auditors recommendations and preparing the relevant progress reports; / advising the Group s management on risk management, internal control and corporate governance issues; / conducting special checks at the request of the Group s senior management; / developing recommendations for organizing internal control aimed ALEXANDER PAVLOV Chief Auditor Born in 1973 in Moscow. Graduated from Moscow State University with a degree in Applied Mathematics in 1995; obtained an MBA degree from Washington University in Saint Louis in 2001. WORK EXPERIENCE: 2008 2011 Planning Director of the Upstream Division of OJSC TNK-BP 2011 2013 Vice President for Planning, Performance Management and Control of the Upstream Division of OJSC TNK-BP 2014 Director for Audit of OJSC JSFC Sistema 2014 present Chief Auditor of JSOC Bashneft OUR RESPONSIBILITY The Internal Audit Unit is headed by the Chief Auditor, who is administratively subordinate to the President of JSOC Bashneft and functionally accountable to the Audit Committee of the Board of Directors of JSOC Bashneft. This ensures an appropriate level of independence from the management in judgements and conclusions based on audit findings. Code of Corporate Governance. Principle 5.2. The company shall organize internal audit in order to make an independent and systematic assessment of the reliability and performance of the risk management and internal control system and corporate governance practice.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 137 Board of Directors Remuneration paid to members of the Audit Commission in 2014, thousand roubles President Audit Committee of the Board of Directors Remuneration components Amount Direct reporting Chief Auditor Functional reporting Remuneration for serving on the body supervising the issuer s financial and business operations 0 Salary 3,946.078 Bonuses 12,723.372 Internal Audit Department (Upstream) Internal Audit Department (Refining and Commerce) Internal Audit Department (Corporate Functions) Internal Control Department Other types of remuneration and compensation Total 16,669.45 0 at ensuring the achievement of the Group s business objectives, efficiency of financial and business operations and safeguarding the Group s assets; / identifying risks of fraud. Specific internal audit tasks and functions for the year are approved by the Board of Directors and may include carrying out certain instructions of the Board of Directors, the Audit Committee of the Board of Directors and the President of JSOC Bashneft. The work of the Internal Audit Unit is governed by the Regulations on Internal Audit. Employees of the Internal Audit Unit comply with international standards in internal audit, the legislation of the Russian Federation, the Company s Charter, resolutions of the Board of Directors, the Management Board and the President of JSOC Bashneft, as well as local regulations. To provide methodological guidelines for ensuring compliance of the Group s internal audit function with international best practices and International Professional Standards in Internal Audit, the Company has approved the Quality Standard in Internal Control and Audit. The Standard sets out the rules of conduct of the Company s internal auditors and key principles to which they must adhere when performing their professional duties. The Company s Board of Directors annually (usually once or twice a year) considers a report of the Chief Auditor on the work of the Internal Audit Unit and an audit plan for the next reporting period. Materials on the subject include sections describing the performance and plans of the Internal Control Department. In 2014 the Board of Directors considered such reports in August. In addition, at a meeting in November 2014 the Audit Committee considered the basic principles of organization of internal audit in the Group and provided recommendations on improvement of the internal audit function. Based on the opinion of the Audit Committee, overall, the Group s internal audit process may be described as complying with essential requirements. AUDIT COMMISSION The Audit Commission is a standing elected body which regularly monitors financial and business operations of JSOC Bashneft and the work of its governing bodies and executives. As of December 31, 2014, JSOC Bashneft s Audit Commission comprised five members: / Irina Borisenkova, Chief Accountant, Managing Director of OJSC JSFC Sistema; / Alexey Lipskiy, Managing Director of Operational Audits and Analytics of OJSC JSFC Sistema; / Anatoly Pavlyuchenok, Planning Director of OJSC JSFC Sistema; / Ural Suleymanov, member of the Audit Commission of JSOC Bashneft; / Viktor Cherkassky, Project Director of OJSC JSFC Sistema. In 2014 no remuneration was paid to the members of JSOC Bashneft s Audit Commission, and no expenses incurred by them while performing their duties were reimbursed. The table above presents salary and bonuses paid in 2014 to those members of the Company s Audit Commission who were the Company s employees 1. 1. This applies only to U. Suleymanov, who was JSOC Bashneft s Chief Auditor until June 2014

138 ANNUAL REPORT 2014 EXTERNAL AUDIT OUR RESPONSIBILITY The Company annually engages an external auditor to carry out an audit of statements prepared under IFRS and RAS. Code of Corporate Governance. Principle 6.2. The company should disclose comprehensive, up-to-date and accurate information on the company in a timely manner to ensure that its shareholders and investors can make informed decisions. In order to make an independent assessment of the accuracy and reliability of financial statements, the Company annually engages an external auditor to carry out an audit of the statements prepared under IFRS and RAS. External auditors are engaged based on annual tenders ensuring objective selection in accordance with criteria such as the scope and schedule of work, as well as the nature of the Group s operations. Candidates for the position of the auditor of the Company and its subsidiaries (including the main terms and conditions of the contracts under which auditors are engaged) are provisionally considered by the relevant Committee of the Company s Board of Directors in order to develop recommendations for further approval of the external auditors in accordance with the procedure established by law. The General Meeting of Shareholders approved CJSC Deloitte & Touche CIS as the auditor for conducting the audit of the Company s IFRS financial statements for 2014 (the General Meeting of Shareholders had also approved the company as the auditor of financial statements from 2010 through 2013). The cost of services under the contract determined under the resolution of the Company s Board of Directors totalled 59,354 thousand roubles (including VAT). financial statements for 2014 under RAS (the General Meeting of Shareholders had also approved the company as the auditor of financial statements in 2013). The cost of services under the contract determined under the resolution of the Company s Board of Directors totalled 9,228 thousand roubles (including VAT). In 2014 the auditors provided the Company with advisory (audit-related) services related to certain issues of taxation and support in the course of placement of securities. The cost of advisory services provided by CJSC Deloitte & Touche CIS totalled 9,550 thousand roubles (including VAT). At a meeting in April 2014, the Audit Committee of the Board of Directors considered the findings of audit of the Company s financial statements for the previous reporting period and recommended that they be considered by the Board of Directors. In addition, during the reporting year the Committee considered issues related to audit of financial statements for the six months and for the nine months. Having reviewed the financial statements, the Committee did not find any significant shortcomings in audit procedures. The General Meeting of Shareholders approved CJSC BDO as the auditor for conducting the audit of the Company s BASED ON THE OPINION OF THE AUDIT COMMITTEE, OVERALL, THE GROUP S EXTERNAL AUDIT PROCESS MAY BE DESCRIBED AS COMPLYING WITH ESSENTIAL REQUIREMENTS.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 139 SIGNIFICANT CORPORATE EVENTS In 2014 a number of significant events took place that had a considerable impact on both the Group s corporate governance practices and individual performance indicators: / One of the most significant events consisted in the fact that in December 2014 the Company s controlling shareholder, OJSC JSFC Sistema, was replaced by the Russian Federation and in the preceding events, including a legal dispute over the rights to JSOC Bashneft s shares. The legal proceedings concerning a controlling block of shares of JSOC Bashneft made a considerable impact on the Group s capitalization and its share value. Nevertheless, the dispute did not have an impact on the Group s operations or management of the Group by the executive bodies. We maintained the necessary business process control in order to achieve the targets set for 2014. / Due to transfer of title to the controlling block of shares to the Russian Federation, JSOC Bashneft changed its status and became a state-owned company, which involves application of a number of special governance and control procedures to the Company that are implemented by the relevant federal executive agencies of the Russian Federation. Besides, since the end of 2014, Bashneft has been on the list of companies listed in Decree No. 91-R of the Government dated January 23, 2003 1. However, the Russian Federation has no special right to participate in the Company s governance (the so-called golden share ). / Between March and July 2014 the Group initiated the process of preparation for a secondary public offering of its shares on the Moscow Exchange and possible placement of depositary receipts on the London Stock Exchange. As part of this process, the Group s shares were transferred to the first-tier quotation list of the Moscow Exchange. Due to the transfer of the securities to the premium listing segment, the Group assumed additional obligations concerning the Company s corporate governance practice (requirements for the composition of the Company s committees and individual business processes). / In November 2014 the Board of Directors approved a new Code of Corporate Governance of JSOC Bashneft. The Code incorporates the requirements of Russian legislation, international best practices and principles of business ethics and established approaches to corporate governance developed by the Group. The document incorporates the provisions of the Code of Corporate Governance approved by the Bank of Russia. / During the year, JSOC Bashneft or its subsidiaries were involved in legal disputes which could affect Bashneft s performance. A claim of a minority shareholder against the Company concerning the lawfulness of transfer of the licence for oil production at the Trebs and Titov oilfields to LLC Bashneft-Polus, the Group s joint venture with OJSC Lukoil, was the most substantial one. As the final court ruling on the dispute over the licence was made in favour of the joint venture, the Company does not expect these legal proceedings to have any further impact on its operations. / In 2014 the Group continued to successfully implement its strategy aimed at further increase in the number of oil-producing assets and development of the sales network, which involved the acquisition of LLC Burneftegaz (oil and gas production) and a network of filling stations operating under the Aktan and Optan brand names (retail sales of petroleum products). / During the year, two new independent directors (D. Baudrand and Th. Winkler) joined the Group s Board of Directors; they have extensive experience in the field of strategy and development of world-class oil companies. OUR ACHIEVEMENTS The Board of Directors has been giving its close attention to most of significant corporate events, making key decisions where provided for by legislation or the Company s Charter. Detailed information on decisions made by the Board of Directors is provided in Appendix Information on meetings of the Board of Directors. 1. Decree No. 91-R of the Government dated January 23, 2003 on Approval of the Lists of Open Joint-Stock Companies Stipulated by the Draft Resolution of the Government of the Russian Federation on the Procedure of Management of Federally Owned Shares of Open Joint-Stock Companies Created in the Process of Privatization and Use of the Special Right of the Russian Federation to Participation in the Governance of Open Joint-Stock Companies (the Golden Share ) (as amended).

140 ANNUAL REPORT 2014 NEW CORPORATE GOVERNANCE CODE OF JSOC BASHNEFT In 2014 the Bank of Russia approved the Corporate Governance Code setting new targets and standards for development of corporate governance taking into account international best practices and changes in Russian legislation. Bashneft demonstrated its commitment to high standards in corporate governance and was one of the first Russian companies to have developed and approved a new version of the internal Code of Corporate Governance (hereinafter referred to as the Code) under a resolution of the Board of Directors in November 2014; the Code complies with the provisions of the document recommended by the Bank of Russia. The Code is a set of corporate governance principles applied by the Group in the course of its business. It stipulates additional guarantees and obligations to investors, shareholders and other stakeholders compared to those required by applicable legislation. Bashneft developed its Code taking into account the following: / requirements of Russian legislation; / applicable international legislation; / corporate governance principles of the Organization for Economic Cooperation and Development; / listing rules of the Moscow Exchange; / the Company s Charter; / international best practices and principles of business ethics. The new Code also incorporates established approaches and practices developed by the Group in recent years, including those related to developing the governance system, resolving corporate conflicts and making significant corporate actions. In accordance with the new Code, Bashneft has assumed a number of obligations related to further improvement of the Group s corporate governance. We believe that adoption of the new Code will enable us: / to make the Group more attractive to investors, to increase confidence of investors, counterparties and lenders in Bashneft; / to make our business more transparent through timely and proper disclosure of the necessary information; / to improve the performance of the Group s governing bodies; / to maintain a balance of interests of shareholders and top management; / to prevent and minimize the number of corporate conflicts. OUR RESPONSIBILITY Bashneft has become one of the first Russian companies to incorporate the provisions of the Code of Corporate Governance approved by the Bank of Russia into its internal documents SPECIAL FEATURES OF THE NEW CODE INCLUDE THE FOLLOWING: / greater attention is given to safeguarding shareholders rights and creating equal conditions for exercising their rights; the procedure for convening, preparing for and holding the general meeting of shareholders is described more clearly; / independence criteria and requirements for the performance of the Board of Directors have been updated; functions of committees of the Board of Directors and the Corporate Secretary have been outlined; / given previously adopted and best practices in corporate governance, competences of the Board of Directors, criteria for electing candidates to the Board of Directors, functions of the Board Chairman, the role of Board members in preventing and identifying conflicts of interest have been defined more clearly; / internal control, internal audit and risk management functions have been defined more clearly; / the list of significant corporate events has been updated; / the Code stipulates that issues related to compliance with the Code must be considered on a regular basis.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES 141 EFFORTS TO IMPROVE CORPORATE GOVERNANCE Key short-term measures for improving the corporate governance practice include the following: / improving the work of the Board of Directors and its committees; / improving the principles of and approaches to internal control/audit regulation in the Company, updating the relevant documents; / improving the information disclosure practice; / updating the Charter and a number of internal documents and regulations to ensure that they comply with recommendations for state-owned companies. Besides, due to the transfer of title to 84% of the Company s voting shares to the Russian Federation, starting from December 2014 a number of additional corporate governance development measures are applicable to the Group, namely: / analysis of the Code of Corporate Governance of the Central Bank of Russia and development of a road map for its implementation taking into account Bashneft s own Code of Corporate Governance adopted by the Group in November 2014; / taking into account the requirements of federal executive agencies for the Group s strategic planning and business planning cycle and the relevant changes in the corporate governance cycle; / application of methodological guidelines on the work of the Board of Directors, the committees and the Corporate Secretary developed by federal executive agencies; / updating the Group s dividend policy; / change in the approach to information disclosure, given the special features typical of state-owned companies; / use of IT resources (first and foremost, the Interdepartmental Portal) developed to optimize governance processes in state-owned companies. INITIATIVES TO DEVELOP THE CORPORATE GOVERNANCE PRACTICE Improvement of corporate governance quality and adoption of best practices: / Improving the organization and holding of general meetings of shareholders; / Improving the Group s share capital structure; / Improving the Group s information transparency; / Updating internal policies and procedures regulating corporate governance in the Group; / Arranging an independent assessment of corporate governance quality and assigning an external corporate governance rating. Improvement of performance of governing bodies: / Arranging an independent external performance evaluation of the Board of Directors; / Implementing a training programme for members of the Board of Directors; / Optimizing the composition, functions and powers of collective governing bodies (including Board committees) and improving cooperation between governing bodies; / Improving certain procedures related to organization of the work of the Board of Directors and its committees. Management of subsidiaries: / Improving the Group s structure (including divestment of non-core assets and reorganization of certain subsidiaries); / Improving the governance system in subsidiaries (including the structure of governing bodies, the instruments of communication with the Corporate Centre and the allocation and detailed description of areas of responsibility); / Integrating new subsidiaries into the Group; / Rolling out corporate procedures and standards to newly acquired subsidiaries.

142 ANNUAL REPORT 2014 HIGH EFFICIENCY

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 143 APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 STATEMENT OF MANAGEMENT S RESPONSIBILITIES FOR THE PREPARATION AND APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 The following statement, which should be read in conjunction with the independent auditor s report set out on pages 2 3, is made with a view to distinguish the respective responsibilities of management and those of the independent auditors in relation to the consolidated financial statements of Joint Stock Oil Company Bashneft (the Company ) and its subsidiaries (the Group ). Management is responsible for the preparation of the consolidated financial statements that present fairly in all material respects the consolidated financial position of the Group as of 31 December 2014, and the results of its operations, cash flows and changes in shareholders equity for the year then ended, in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ( IFRS ). In preparing the consolidated financial statements, management is responsible for: / Properly selecting and applying accounting policies; / Presenting information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; / Providing additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's consolidated financial position and financial performance; / Making judgements and estimates that are reasonable and prudent; / Stating whether IFRS have been followed, subject to any material departures disclosed and explained in the consolidated financial statements; and / Making an assessment of the Group's ability to continue as a going concern. Management is also responsible for: / Designing, implementing and maintaining an effective and sound system of internal controls, throughout the Group; / Maintaining adequate accounting records that are sufficient to show and explain the Group's transactions and disclose with reasonable accuracy at any time the consolidated financial position of the Group, and which enable them to ensure that the consolidated financial statements of the Group comply with IFRS; / Maintaining statutory accounting records in compliance with Russian Federation legislation and accounting standards; / Taking such steps as are reasonably available to them to safeguard the assets of the Group; and / Preventing and detecting fraud and other irregularities. The consolidated financial statements of the Group for the year ended 31 December 2014 were approved by: A.L. Korsik, President A.Y. Lisovenko, Chief Accountant Ufa, Russian Federation 24 March 2015

144 ANNUAL REPORT 2014 INDEPENDENT AUDITOR S REPORT To: Shareholders and Board of Directors of Joint Stock Oil Company Bashneft We have audited the accompanying consolidated financial statements of Joint Stock Oil Company Bashneft and its subsidiaries (collectively the Group ), which comprise the consolidated statement of financial position as at 31 December 2014, and the consolidated statements of profit or loss and other comprehensive income, changes in equity and cash flows for 2014, and notes comprising a summary of significant accounting policies and other explanatory information. MANAGEMENT S RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on the fair presentation of these consolidated financial statements based on our audit. We conducted our audit in accordance with Russian Federal Auditing Standards and International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to express an opinion on the fair presentation of these consolidated financial statements. OPINION In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as at 31 December 2014, and its financial performance and its cash flows for 2014 in accordance with International Financial Reporting Standards. 24 March 2015 Moscow, Russian Federation Golovkina N. V., Partner (certificate no. 01 001193 dated 14 January 2013) ZAO Deloitte & Touche CIS The Entity:Joint Stock Oil Company Bashneft Order No 60, issued by the Administration of the Kirov District of the city of Ufa, the Republic of Bashkortostan, on 13 January 1995. Certificate of registration in the Unified State Register of Legal Entities No 1020202555240 of 15 October 2002, issued by Inspectorate of the Russian Ministry of Taxation of the Kirov District of the city of Ufa, the Republic of Bashkortostan. Address: 30 Bldg.1, Karl Marx Street, the city of Ufa, the Republic of Bashkortostan 450077, the Russian Federation Independent Auditor: ZAO Deloitte & Touche CIS Certificate of state registration 018.482, issued by the Moscow Registration Chamber on 30.10.1992. Certificate of registration in the Unified State Register 1027700425444 of 13.11.2002, issued by Moscow Interdistrict Inspectorate of the Russian Ministry of Taxation 39. Certificate of membership in NP Audit Chamber of Russia (auditors SRO) of 20.05.2009 3026, ORNZ 10201017407.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 145 CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2014 Millions of Russian roubles, except for earnings per share data Notes Year ended 31 December 2014 Year ended 31 December 2013* Year ended 31 December 2012* Revenue 7 637,271 563,296 532,502 Export tariffs and excise (199,024) (160,255) (144,307) Cost of purchased crude oil, gas and petroleum products (139,838) (126,438) (124,857) Taxes other than income tax 9 (77,771) (69,405) (66,709) Production and operating expenses (70,833) (59,883) (53,365) Transportation expenses (31,257) (28,280) (26,784) Depletion and depreciation (23,781) (20,028) (18,377) Selling, general and administrative expenses (16,019) (15,063) (16,085) Other operating (expenses)/income, net (1,751) (1,586) 3,386 Operating profit 76,997 82,358 85,404 Impairment of assets 10 (13,030) (16,689) (4,816) Finance income 11 4,747 5,163 4,808 Finance costs 11 (13,058) (9,460) (11,883) Foreign exchange gain, net 1,299 1,094 107 Share of (loss)/profit of associate and joint ventures, net of income tax 14 (117) 492 (361) Profit before income tax 56,838 62,958 73,259 Income tax 12 (13,817) (16,559) (16,469) Profit for the year 43,021 46,399 56,790 OTHER COMPREHENSIVE (LOSS)/INCOME, NET OF INCOME TAX ITEM THAT WILL NOT BE RECLASSIFIED SUBSEQUENTLY TO PROFIT OR LOSS: Remeasurement of post-employment benefit obligation (25) 37 (220) Other comprehensive (loss)/income, net of income tax (25) 37 (220) Total comprehensive income for the year 42,996 46,436 56,570 Profit/ (loss) for the year attributable to: Owners of the Company 43,146 46,170 52,291 Non-controlling interests (125) 229 4,499 43,021 46,399 56,790 Total comprehensive income/ (loss) for the year attributable to: Owners of the Company 43,121 46,205 52,088 Non-controlling interests (125) 231 4,482 42,996 46,436 56,570 EARNINGS PER SHARE Weighted average number of ordinary shares in issue during the year 21 148,586,876 157,085,505 151,224,401 Basic and diluted earnings per share attributable to shareholders of the parent company (Russian roubles per share) 21 245.10 242.06 285.10 * As discussed in note 10, certain comparative figures have been reclassified to conform with the financial statements presentation adopted for the current year

146 ANNUAL REPORT 2014 CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 31 DECEMBER 2014 Millions of Russian roubles ASSETS NON-CURRENT ASSETS Notes 31 December 2014 31 December 2013 31 December 2012 Property, plant and equipment 13 369,925 277,369 277,149 Advances paid for acquisition of property, plant and equipment 1,617 805 632 Intangible assets 2,982 1,981 1,830 Financial assets 15 3,567 4,019 29,318 Investments in associate and joint ventures 14 3,791 18,848 28,619 Long-term inventories 16 2,846 3,022 2,351 Deferred tax assets 12 1,959 Other non-current assets 1,619 380 1,998 CURRENT ASSETS 388,306 306,424 341,897 Inventories 16 26,359 21,450 23,839 Financial assets 15 1,330 5,066 18,635 Trade and other receivables 17 14,696 27,317 28,366 Advances to suppliers and prepaid expenses 8,881 5,906 5,649 Income tax prepaid 469 289 2,485 Other taxes receivable 27 30,822 25,990 22,534 Cash and cash equivalents 18 52,818 16,395 20,104 135,375 102,413 121,612 Assets classified as held for sale 19 38,962 TOTAL ASSETS 523,681 447,799 463,509 EQUITY AND LIABILITIES CAPITAL AND RESERVES Share capital 21 1,984 2,501 2,501 Treasury shares (18,122) (38,147) (38,147) Additional paid-in capital 81,462 72,682 83,651 Retained earnings 130,494 199,131 194,975 Equity attributable to owners of the Company 195,818 236,167 242,980 Non-controlling interests 7,834 155 4,928 NON-CURRENT LIABILITIES 203,652 236,322 247,908 Borrowings 22 139,232 78,902 78,201 Decommissioning provision 24 7,473 6,145 7,083 Deferred tax liabilities 12 43,038 33,489 37,561 Prepayment on oil products supply agreement 23 17,347

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 147 Notes 31 December 2014 31 December 2013 31 December 2012 Other non-current liabilities 25 1,722 6,164 5,931 208,812 124,700 128,776 CURRENT LIABILITIES Borrowings 22 28,553 11,914 32,007 Trade and other payables 26 37,340 50,372 28,942 Dividends payable 21 398 275 224 Advances received 25,614 12,066 14,156 Provisions 824 895 718 Income tax payable 1,722 32 393 Other taxes payable 27 16,766 10,340 10,385 111,217 85,894 86,825 Liabilities directly associated with assets classified as held for sale 19 883 TOTAL LIABILITIES 320,029 211,477 215,601 TOTAL EQUITY AND LIABILITIES 523,681 447,799 463,509 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2014 Millions of Russian roubles Notes Year ended 31 December 2014 Year ended 31 December 2013* Year ended 31 December 2012* OPERATING ACTIVITIES Profit before income tax 56,838 62,958 73,259 Adjustments for: Depletion and depreciation 23,781 20,028 18,377 Loss on disposal of property, plant and equipment 1,981 926 770 Finance income (4,747) (5,163) (4,808) Finance costs 13,058 9,460 11,883 Impairment of assets 10 13,030 16,689 4,816 Share of loss/ (profit) of associate and joint ventures 14 117 (492) 361 Group s share of loss/ (gain) eliminated on transactions with joint ventures 14 1,172 (1,174) Loss on disposal of financial assets 109 Foreign exchange gain, net (1,299) (1,094) (107) Change in provisions, net 47 761 (2,934) Other, net 330 967 (702) Operating cash flows before working capital changes 104,308 103,975 100,915 Movements in working capital: Inventories (1,448) (1,322) (456) Trade and other receivables 7,401 (4,632) (4,309)

148 ANNUAL REPORT 2014 Notes Year ended 31 December 2014 Year ended 31 December 2013* Year ended 31 December 2012* Advances to suppliers and prepaid expenses (1,915) (556) (1,765) Other taxes receivable (1,376) (4,185) 5,923 Trade and other payables (7,902) 10,887 4,875 Advances received 12,908 (1,718) (2,927) Prepayment on oil products supply agreement 23 17,347 Other taxes payable 3,635 3,586 (4,489) Cash generated from operations 132,958 106,035 97,767 Interest paid (12,065) (7,568) (10,500) Income tax paid (14,834) (15,774) (16,126) NET CASH GENERATED FROM OPERATING ACTIVITIES 106,059 82,693 71,141 INVESTING ACTIVITIES Payments for acquisition of property, plant and equipment (48,344) (30,441) (30,789) Proceeds from disposal of property, plant and equipment 46 964 1,441 Net cash (outflow)/inflow from disposal of subsidiaries and structured entities (17) (1,710) 39 Additional contribution to joint venture 14 (2,761) (10,035) (3,122) Acquisition of subsidiaries, net of cash acquired 4 (41,283) (152) (846) Payments for acquisition of intangible assets (968) (713) (802) Repayment of contributions from joint venture 14 3,133 Acquisition of share in joint venture 14 (200) Proceeds from disposal of investment in associate 9,879 Payments for acquisition of financial assets (400) (19,671) (70,365) Proceeds from disposal of financial assets 2,476 21,257 61,622 Dividends received 448 Interest received 3,126 4,314 3,662 NET CASH USED IN INVESTING ACTIVITIES (85,192) (25,860) (39,160) FINANCING ACTIVITIES Proceeds from sale of treasury shares 2,617 Payments for acquisition of non-controlling interests (513) (7,964) Proceeds from borrowings 101,507 50,947 25,388 Repayments of borrowings (44,051) (70,762) (23,766) Purchase of treasury shares (17,869) (15,697) Dividends paid by the Company (35,619) (42,491) (18,263) Dividends paid by subsidiaries (6) (81) NET CASH GENERATED FROM/ (USED IN) FINANCING ACTIVITIES 3,968 (60,208) (40,383) Net increase/ (decrease) in cash and cash equivalents 24,835 (3,375) (8,402) Cash and cash equivalents at beginning of the year 18 16,395 20,104 28,354 Cash and cash equivalents held on disposal group 19 (504) Effect of exchange rate changes on the balance of cash and cash equivalents held in foreign currencies 11,588 170 152 Cash and cash equivalents at end of the year 18 52,818 16,395 20,104 * As discussed in note 10, certain comparative figures have been reclassified to conform with the financial statements presentation adopted for the current year

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 149 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2014 Millions of Russian roubles Notes Share capital Treasury shares Additional paid-in capital Retained earnings Equity attributable to owners of the Company Noncontrolling interests Total Balance at 1 January 2012 2,252 (13,241) 34,736 156,870 180,617 46,312 226,929 Profit for the year 52,291 52,291 4,499 56,790 Other comprehensive loss (203) (203) (17) (220) Total comprehensive income for the year 52,088 52,088 4,482 56,570 Result of mandatory shares buy back preceding Group reorganization Transactions with the Controlling shareholder (11,070) 4,252 (6,818) (12,216) (19,034) 2,977 67 3,044 3,472 6,516 Effect on reorganisation of the Group 249 (12,186) 48,594 36,657 (36,657) Purchase of treasury shares (4,627) (4,627) (4,627) Dividends 21 (18,235) (18,235) (54) (18,289) Other equity transactions 254 254 (411) (157) Balance at 31 December 2012 2,501 (38,147) 83,651 194,975 242,980 4,928 247,908 Profit for the year 46,170 46,170 229 46,399 Other comprehensive income 35 35 2 37 Total comprehensive income for the year 46,205 46,205 231 46,436 Transactions with the Controlling shareholder Acquisition of additional interests in subsidiaries 20 (10,455) (10,455) (5,004) (15,459) 483 483 (1,017) (534) Dividends 21 (42,533) (42,533) (15) (42,548) Other equity transactions (514) 1 (513) 1,032 519 Balance at 31 December 2013 2,501 (38,147) 72,682 199,131 236,167 155 236,322 Profit for the year 43,146 43,146 (125) 43,021 Other comprehensive loss (25) (25) (25) Total comprehensive income for the year 43,121 43,121 (125) 42,996 Transactions with the Controlling shareholder Effect of reorganisation of CJSC Sistema invest and the Group Transfer of license on Trebs and Titov deposit to LLC Bashneft Polyus 4 7,575 7,575 4,205 11,780 5 (517) 20,025 (76,028) (56,520) (56,520) 25 1,152 1,152 3,616 4,768 Dividends 21 (35,730) (35,730) (35,730) Other equity transactions 53 53 (17) 36 Balance at 31 December 2014 1,984 (18,122) 81,462 130,494 195,818 7,834 203,652

150 ANNUAL REPORT 2014 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 1. GENERAL INFORMATION ORGANISATION AND OPERATIONS Joint Stock Oil Company Bashneft (the Company or Bashneft ) and its subsidiaries (together referred to as the Group or the Bashneft Group ) are primarily involved in oil production, refining, marketing and distribution of petroleum products in the Russian Federation. The Group s oil production, refining, marketing and distribution base includes oil and gas fields, refineries and petrol stations. Bashneft is the parent company of a vertically integrated group of oil and gas companies. The Company was incorporated in the Russian Federation as an open joint stock company on 13 January 1995, following the privatisation of Bashneft production association. The Company s registered office is located at 30, bldg. 1, Karl Marx Street, the City of Ufa, the Republic of Bashkortostan 450077, Russian Federation. The following principal subsidiaries incorporated in the Russian Federation were included in the scope of consolidation at 31 December 2014, 2013 and 2012: Company Principal activities Group s effective interest 31 December 2014 31 December 2013 31 December 2012 LLC Bashneft-Dobycha Production of crude oil and gas 100% 100% 100% LLC Bashneft-Retail Sales (former LLC Bashneft-Udmurtia) Petroleum products trading 100% 100% 100% LLC Burneftegaz* Exploration and production of crude oil 100% not applicable not applicable LLC Bashneft-Polyus** Exploration and production of crude oil 74.9% not applicable not applicable * In March 2014 the Group acquired a 100% interest in LLC Burneftegaz ( Burneftegaz ), which is engaged in exploration and production of crude oil in the Tyumen District (refer to note 4). ** In May 2014 the Company and OAO LUKOIL signed an amendment to participation agreement that transferred effective control over the operational and financial activities of LLC Bashneft-Polyus ( Bashneft-Polyus ) to the Company (refer to note 4). CONTROLLING SHAREHOLDER On 9 December 2014 in accordance with the decision of the Moscow Commercial Court dated 30 October 2014 the 122,971,934 ordinary and 6,192,245 preferred shares of the Company representing 71.62% of the Company s charter capital previously owned by JSFC Sistema ( Sistema ) and CJSC Sistema-invest ( Sistema-invest ) were transferred to Russian Federal Property Management Agency ( Rosimushchestvo ). As a result of the transfer effective control over the Company passed from Sistema to the Government of Russian Federation, that became the ultimate controlling party of Bashneft Group from 9 December 2014. GOING CONCERN In assessing its going concern status, the Group has taken into account its financial position, anticipated future trading performance, its borrowings and other facilities and its capital expenditure commitments and plans, together with other risks facing the Group. After making appropriate enquires, the Group considers that it has adequate resources to continue in operational existence for at least the next 12 months from the date of issuance of these consolidated financial statements. Consequently, the Group has determined that it is appropriate to adopt the going concern basis in the preparation of these consolidated financial statements.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 151 2. SIGNIFICANT ACCOUNTING POLICIES STATEMENT OF COMPLIANCE The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ( IFRS ). STANDARDS AND INTERPRETATIONS ADOPTED IN THE CURRENT YEAR Several amendments including amended IAS 32 Financial Instruments: Presentation, IFRS 10 Consolidated Financial Statements ( IFRS 10 ), IFRS 12 Disclosure of Interests in Other Entities ( IFRS 12 ), IAS 27 Separate Financial Statement ( IAS 27 ), IAS 36 Impairment of assets ( IAS 36 ), IAS 39 Financial instruments: Recognition and Measurement ( IAS 39 ) and IFRIC 21 Levies were applied for the first time in these consolidated financial statements. The application of these amendments did not result in significant changes to the Group s financial position or results of operations. STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE At the date of authorisation of these consolidated financial statements, the following Standards and Interpretations were issued but not yet effective: Standards and Interpretations Effective for annual periods beginning on or after IFRS 9 (2014) Financial Instruments 1 January 2018 IFRS 14 Regulatory Deferral Accounts IFRS 14 Regulatory Deferral Accounts 1 January 2016 IFRS 15 Revenue from Contracts with Customers 1 January 2017 Amendments to IAS 19 Employee Benefits the amendments clarify the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service 1July 2014 Annual Improvements 2010 2012 and 2011 2013 1July 2014 Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations The amendments provide guidance on how to account for the acquisition of a joint operation that constitutes a business as defined in IFRS 3 Business Combinations Amendments to IAS 16 Property, Plant and Equipment ( IAS 16 ) and IAS 38 Intangible assets ( IAS 38 ) The amendments to IAS 16 prohibit entities from using a revenue-based depreciation method for items of property, plant and equipment. The amendments to IAS 38 introduce a rebuttable presumption that revenue is not an appropriate basis for amortisation of an intangible asset Amendments to IAS 16 and IAS 41 Agriculture ( IAS 41 ) The amendments define a bearer plant and require biological assets that meet the definition of a bearer plant to be accounted for as property, plant and equipment in accordance with IAS 16, instead of IAS 41 Amendments to IAS 27 The amendments permit investments in subsidiaries, joint ventures and associates to be optionally accounted for using the equity method in separate financial statements Amendments to IFRS 10 and IAS 28 Investments in Associates and Joint Venture Amendments clarify the treatment of the sale or contribution of assets from an investor to its associate or joint venture 1 January 2016 1 January 2016 1 January 2016 1 January 2016 1 January 2016 Annual Improvements 2012 2014 1 July 2016 Amendments to IAS 1 Presentation of Financial Statements Amendments address perceived impediments to preparers exercising their judgement in presenting their financial reports Amendments to IFRS 10, IFRS 12 and IAS 28 Investments in Associates ( IAS 28 ) Amendments address issues that have arisen in the context of applying the consolidation exception for investment entities 1 January 2016 1 January 2016 The impact of adoption of the aforementioned standards and interpretations on the consolidated financial statements of future periods is currently being assessed by management.

152 ANNUAL REPORT 2014 BASIS OF PREPARATION The consolidated financial statements have been prepared on the historical cost basis except for those items measured at fair value. The Group s principal accounting policies are set out below. FUNCTIONAL CURRENCY The national currency of the Russian Federation is the Russian Rouble ( RUB ), which is the functional currency of the majority of the Company s subsidiaries as it reflects the principal economic environment of each company s operations. BASIS OF CONSOLIDATION The consolidated financial statements incorporate financial statements of the Company and entities (including structured entities) controlled by the Company and its subsidiaries. Control is achieved when the Company has the power over the investee; is exposed, or has rights, to variable returns from its involvement with the investee; and has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. Consolidation of subsidiaries begins when the Company obtains control over the subsidiary and ceases when the Company loses control of the subsidiary. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Profit or loss and each component of other comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Group. All intra-group transactions, balances, income and expenses and any unrealised profits or losses are eliminated in full on consolidation. BUSINESS COMBINATIONS Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition-related costs are recognised in profit or loss as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their respective fair values at the date of acquisition except that deferred tax assets or liabilities are recognised and measured in accordance with IAS 12 Income Taxes. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer's previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer's previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 153 Non-controlling interests that present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests' proportionate share of the recognised amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in another IFRS. When a business combination is achieved in stages, the Group s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date (i. e. the date when the Group obtains control) and the resulting gain or loss, if any, is recognised in profit or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognised in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were disposed of. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (which cannot exceed one year from the acquisition date), or additional assets or liabilities are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognised at that date. CHANGES IN THE GROUP S OWNERSHIP INTERESTS IN EXISTING SUBSIDIARIES Changes in the Group s ownership interest in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amount of the Group s interest and the non-controlling interests are adjusted to reflect the changes in their relative interest in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, a gain or loss on disposal is recognised in profit and loss and calculated as the difference between: / The aggregate of the fair value of the consideration received and the fair value of any retained interest; and / The previous carrying amount of the assets and liabilities of the subsidiary and any non-controlling interests. All amounts previously recognised in other comprehensive income and accumulated in equity in relation to that subsidiary are accounted for as if the Group had directly disposed of the relevant assets or liabilities. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 or, when applicable, the cost on initial recognition of investments in an associate. STRUCTURED ENTITIES The Group s structured entities are the entities that are controlled by the Group and that have been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity. Such a conclusion might exist when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. COMMON CONTROL TRANSACTIONS The assets and liabilities of subsidiaries acquired from entities under common control are recorded at the carrying values of the transferor. Any difference between the carrying value of the net assets of subsidiaries acquired, and the consideration paid by the Group is accounted for as an adjustment to shareholders equity. The net assets of the subsidiaries acquired and their results are recognised from the date on which control of the subsidiaries was obtained. The cost of assets acquired from entities under common control is measured at cost.

154 ANNUAL REPORT 2014 When the Group disposes of subsidiaries and transfers its ownership to an entity under common control, the Group recognises such transactions at carrying value and on a prospective basis. Any difference between the consideration received and carrying value of net assets disposed of is recognised as an adjustment to shareholders equity. FOREIGN CURRENCIES In preparing financial information of each individual group entity, transactions in currencies other than Russian roubles ( foreign currency ) are recorded at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. PROPERTY, PLANT AND EQUIPMENT RECOGNITION AND MEASUREMENT Oil and gas exploration, evaluation and development expenditure Oil and gas exploration and evaluation expenditures are accounted for using the successful efforts method of accounting. Costs are accumulated on a field-by-field basis. Geological and geophysical costs are expensed as incurred. Costs directly associated with an exploration drilling and with acquisition of rights to conduct geological exploration, prospecting, surveying and production of hydrocarbons are capitalised until the determination of reserves is evaluated. If it is determined that commercial disc overy has not been achieved, these costs are recognised in profit or loss at the point at which this determination is made. Capitalisation of exploration and evaluation expenditures is made within property, plant and equipment. No depreciation or amortisation is recognised during the exploration and evaluation phase as the assets are not yet in use. All exploration and evaluation expenditures are subject to technical, commercial, and management review, and are reviewed for indicators of impairment. Once commercial reserves are found, and development is sanctioned by management, exploration and evaluation assets are tested for impairment and transferred to development assets. Expenditure on the construction, installation or completion of infrastructure facilities such as pipelines and the drilling of commercially proven development wells, is capitalised within property, plant and equipment and intangible assets according to nature. When development is completed on a specific field, it is transferred to production assets. Extraction assets are aggregated with exploration and evaluation tangible assets, and development expenditures associated with the production of proved reserves. Oil and gas properties and other property, plant and equipment Property, plant and equipment are stated at cost, less accumulated depreciation and accumulated impairment losses. The initial cost of an asset comprises its purchase price or construction cost, any costs directly attributable to bringing the asset into operation, the original estimate of the cost of decommissioning of wells, pipelines, other oil and gas facilities and site restoration. Construction cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Borrowing costs that are directly attributable to the acquisition or construction of assets, that necessarily takes a substantial period of time to get ready for its intended use, are capitalised as part of the cost of that asset. The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 155 When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised in profit or loss. DEPLETION AND DEPRECIATION Property, plant and equipment related to oil and gas production activities are depreciated using the unit-of-production method. Unit-of-production rates are based on proved developed producing and proved developed non-producing reserves, which are oil, gas and other mineral reserves estimated to be recovered from existing facilities using current operating methods, and do not take into account future development costs for accessing hydrocarbons from existing wellbores, where production can be initiated or restored with relatively low expenditure compared to the cost of drilling a new well. Where individually insignificant, unproved oil and gas properties may be grouped and amortised based on factors such as the average concession term and past experience of recognising proved reserves. Acquisition costs of proved properties are depleted using the unit-of-production method based upon total proved reserves. For this purpose, the oil and gas reserves of the Group have been determined based on estimates of hydro-carbon reserves to the extent that the reserves will be extracted by the end of the expected useful life of the field reserves. Assets which are not directly associated with oil production activities are depreciated on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. Land is not depreciated. The estimated useful lives of major classes of property, plant and equipment other than oil and gas properties, are as follows: Buildings and constructions Machinery and equipment Transport 2 100 years 2 39 years 1 57 years Depreciation methods, useful lives and residual values are reviewed at each reporting date, with the effect of any changes in estimates being accounted for on a prospective basis. INTANGIBLE ASSETS Intangible assets are measured at cost less accumulated amortisation and impairment losses. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets within Depletion and depreciation. The estimated useful life for the software is 1 5 years. Amortisation methods and useful lives are reviewed annually, with the effect of any changes in estimate being accounted for on a prospective basis. ASSOCIATES An associate is an entity over which the Group has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations ( IFRS 5 ). Under the equity method, an investment in an associate is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the Group s share of the profit or loss and other comprehensive income of the associate. When the Group s share of losses of an associate exceeds the Group s interest in that associate

156 ANNUAL REPORT 2014 (which includes any long-term interests that, in substance, form part of the Group s net investment in the associate), the Group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. An investment in an associate is accounted for using the equity method from the date on which the investee becomes an associate. Any excess of the cost of acquisition over the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognised at the date of acquisition is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the Group s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss. When the Group has previously held an investment accounted for under IAS 39 and the Group obtains significant influence over that investment, the deemed cost of the investment in the associate, accounted for under IAS 28, is the fair value of the original investment at the date that significant influence is achieved over the entity, plus any consideration paid for the additional stake. Any gains or losses arising on the reassessment to fair value of the original investment are recognized in profit or loss at the date significant influence is achieved. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of equity method from the date when investment ceases to be an associate or when an investment is classified as held for sale. When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognised in the Group' consolidated financial statements only to the extent of interests in the associate that are not related to the Group. JOINT VENTURES A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Those parties are called joint venturers. Joint ventures are accounted for using the equity method whereby an interest in jointly controlled entities is initially recorded at cost and adjusted thereafter for post-acquisition changes in the Group s share of net assets of the joint venture. When a venturer makes a non-monetary contribution to a joint venture in exchange for an equity interest in that joint venture, profit or loss is recognised only on the portion of the gain or loss that relates to the equity interests of the other venturers. When a group entity transacts with its jointly controlled entity, profits and losses resulting from the transactions with the jointly controlled entity are recognised in the Group s consolidated financial statements only to the extent of interests in the jointly controlled entity that are not related to the Group. The interest income on loans provided to joint ventures is recognised in full within the consolidated statement of profit or loss and other comprehensive income as a Finance income. NON-CURRENT ASSETS HELD FOR SALE Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the asset (or disposal group) is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such asset (or disposal group) and its sale is highly probable. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 157 When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Group will retain a non-controlling interest in its former subsidiary after the sale. When the Group is committed to a sale plan involving disposal of an investment, or a portion of an investment, in an associate or joint venture, the investment or the portion of the investment that will be disposed of is classified as held for sale when the criteria described above are met, and the Group discontinues the use of the equity method in relation to the portion that is classified a held for sale. Any retained portion of an investment in an associate or a joint venture that has not been classified as held for sale continues to be accounted for using the equity method. The Group discontinues the use of the equity method at the time of disposal when the disposal results in the Group losing significant influence over the associate or joint venture. After the disposal takes place, the Group accounts for any retained interest in the associate or joint venture in accordance with IAS 39 unless the retained interest continues to be an associate or a joint venture, in which case the Group uses the equity method. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell. IMPAIRMENT OF TANGIBLE AND FINITE-LIVED INTANGIBLE ASSETS At the end of each reporting period, the Group reviews the carrying amounts of its tangible assets and finite-lived intangible to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. The recoverable amount is the higher of fair value less cost to sell and value in use. 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 for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. When an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. FINANCIAL INSTRUMENTS Financial assets and financial liabilities are recognised when a Group entity becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in profit or loss.

158 ANNUAL REPORT 2014 FINANCIAL ASSETS Financial assets are recognised and derecognised on a trade date where the purchase or sale of a financial asset is under a contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value plus transaction costs. Financial assets of the Group are classified into the following specified categories: financial assets at fair value through profit or loss ( FVTPL ), available-for-sale ( AFS ) investments, held-to-maturity investments and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. EFFECTIVE INTEREST METHOD ASSETS The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the debt instrument, or, where appropriate, a shorter period, to the carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at FVTPL. FINANCIAL ASSETS AT FVTPL Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at FVT- PL. A financial asset is classified as held for trading if: / It has been acquired principally for the purpose of selling in the near term; or / On initial recognition it is part of a portfolio of identified financial instrument that the Group manages together and has a recent actual pattern of short-term profit-taking; or / It is a derivative that is not designated and effective as a hedging instrument. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 159 AFS FINANCIAL ASSETS AFS financial assets are non-derivatives that are either designated as AFS or are not classified as loans and receivables, held-to-maturity investments or financial assets at FVTPL. Listed and unlisted shares held by the Group that are traded in an active market are classified as AFS and are stated at fair value, except for investments in shares for which there are no available market quotations and whose fair value cannot be reliably measured, which are accounted at cost less any identified impairment losses at the end of each reporting period. Fair value of AFS financial assets with standard terms and conditions and traded in active markets is determined with reference to quoted market prices. Dividends on AFS equity instruments are recognised in profit or loss when the Group s right to receive the dividends is established. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in equity. Where the investment is derecognised, the cumulative gain or loss previously accumulated in equity is reclassified to profit or loss, except for derecognition due to transactions under common control, where the respective cumulative gain or loss is reclassified within the consolidated statement of changes in equity. HELD-TO-MATURITY INVESTMENTS Promissory notes and debentures with fixed or determinable payments and fixed maturity dates which the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortised cost less impairment, if any. Interest income is recognised using the effective interest method. LOANS AND RECEIVABLES Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. IMPAIRMENT OF FINANCIAL ASSETS Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. Equity securities classified as AFS, a significant and prolonged decline in the fair value of the securities below its costs is considered to be objective evidence of impairment. For other financial assets objective evidence of impairment could include: / Significant financial difficulty of the counterparty; or / Breach of contract, such as a default or delinquency in interest or principal payments; or / It is becoming probable that the counterparty will enter bankruptcy or financial re-organisation. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate.

160 ANNUAL REPORT 2014 The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognised in other comprehensive income are reclassified to profit or loss in the period. With the exception of AFS equity securities, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of AFS equity securities, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognised in other comprehensive income. DERECOGNITION OF FINANCIAL ASSETS The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial assets and substantially all the risk and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risk and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset in its entirety, the difference between the asset's carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss. INVENTORIES Inventories are stated at the lower of cost and net realisable value. The cost of inventories is based on the weighted average principle, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, 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 estimated costs of completion and costs necessary to make the sale. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash in hand, current accounts and cash deposits with banks and highly liquid investments with maturities of three months or less, that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. EQUITY INSTRUMENTS Repurchase of the Company s own equity instruments is recognised and deducted directly in equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the Company s own equity instruments. FINANCIAL LIABILITIES Financial liabilities of the Group are classified into the following specified categories: financial liabilities at FVTPL and other financial liabilities.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 161 FINANCIAL LIABILITIES AT FVTPL Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is designated as at FVTPL. A financial liability is classified as held for trading if: / It has been incurred principally for the purpose of repurchasing in the near term; or / On initial recognition it is part of a portfolio of identified financial instrument that the Group manages together and had a recent actual pattern of short-term profit-taking; or / It is a derivative that is not designated and effective as a hedging instrument. Financial liability at FVTPL is stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. OTHER FINANCIAL LIABILITIES Other financial liabilities, including trade and other payables, loans and borrowings, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. EFFECTIVE INTEREST METHOD LIABILITIES The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. DERECOGNITION OF FINANCIAL LIABILITIES The Group derecognises financial liabilities when, and only when, the Group s obligations are discharged, cancelled or they expire. The difference between carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit and loss. PROVISIONS AND CONTINGENCIES PROVISIONS Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. CONTINGENCIES Contingent liabilities are not recognised in the consolidated financial statements unless they arise as a result of a business combination.

162 ANNUAL REPORT 2014 Contingencies attributable to specific events are disclosed unless the probability of an outflow of resources embodying economic benefits is remote. Contingent assets are not recognised in the consolidated financial statements but are disclosed when an inflow of economic benefits is probable. DECOMMISSIONING PROVISION Decommissioning provision relates primarily to the suspension and liquidation of wells, pipelines, other oil and gas facilities and site restoration. Management estimates the obligation related to these costs based on internally generated engineering estimates, current statutory requirements and industry practices. Future decommissioning costs, discounted to net present value, are capitalised and a corresponding obligation is recognised as soon as a constructive obligation arises and the amount can be reliably estimated. The unwinding of the discount is recognised within finance costs. Oil and gas properties related to decommissioning are depreciated using the unit-of-production method based on proved developed reserves. The Group records the long-term portion of the decommissioning provision as a separate line item in the consolidated statements of financial position. The current portion is recorded within current provisions. The adequacy of the decommissioning provision is periodically reviewed in the light of current laws and regulations, and adjustments are made as necessary. Changes in the estimated expenditure are reflected as an adjustment to the provision and the corresponding asset. EMPLOYEE BENEFIT OBLIGATIONS Remuneration to employees in respect of services rendered during the reporting period, including accrual for unused vacation and bonuses and related social contribution, is recognised as an expense in the period when it is earned. DEFINED CONTRIBUTION PLAN The Company and its subsidiaries registered in the Russian Federation are legally obliged to make defined contributions to the State Pension Fund. This defined contribution plan is financed on a pay-as-you-earn basis. DEFINED BENEFIT RETIREMENT PLANS For defined benefit retirement plans, the cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each annual reporting period and with immediate recognition of all actuarial gains and losses in other comprehensive income. Remeasurement recognised in other comprehensive income is reflected immediately in retained earnings and is not reclassified to profit or loss. Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying the discount rate at the beginning of the period to the net defined benefit liability. The retirement benefit obligation recognised in the statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognised past service cost. OTHER LONG-TERM EMPLOYEE BENEFITS The Group provides its employees with other long-term benefits. The entitlement to these benefits is usually conditional on the employee remaining in service up to the certain period. The expected costs of these benefits are accrued over the period of employment using the same accounting methodology as used for defined benefit retirement plans. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions recognised in profit or loss in the period in which they arise. SHARE-BASED PAYMENT ARRANGEMENTS For cash-settled share-based payments, a liability is recognised for the goods or services acquired, measured initially at the fair value. At the end of each reporting period until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair value recognised in profit or loss for the year.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 163 REVENUE RECOGNITION Revenue is measured at the fair value of the consideration received or receivable for the sale of goods and rendering of services in the ordinary course of the Group s activities. Revenue is shown net of value-added tax, returns, rebates and discounts and after eliminating sales within the Group. The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Group s activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. Cash received in advance from customers is not included in current year revenue, and is recognised within advances received. SALES OF CRUDE OIL AND PETROLEUM PRODUCTS Revenue from the sales of crude oil and petroleum products ( goods ) is recognised when all the following conditions are satisfied: / The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; / The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; / The amount of revenue can be measured reliably; / It is probable that the economic benefits associated with the transaction will flow to the entity; and / The costs incurred or to be incurred in respect of the transaction can be measured reliably. RENDERING OF SERVICES Revenue from a contract to provide services is recognised by reference to the stage of completion of the contract. Revenue from time and material contracts is recognised at the contractual rates as labour hours are delivered and direct expenses are incurred. CONSTRUCTION CONTRACTS Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognised in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognised as incurred unless they create an asset related to future contract activity. The stage of completion is assessed by reference to surveys of work performed. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognised only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognised immediately in profit or loss. INTEREST INCOME Interest income is recognised using the effective interest method. Interest income from a financial asset is recognised when it is probable that the economic benefits will flow to the Group and the amount of income can be measured reliably. When a loan and receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at the original effective interest rate of the instrument, and continues unwinding the discount as interest income. Interest income on impaired loan and receivables are recognised using the original effective interest rate. DIVIDEND INCOME Dividend income is recognised when the right to receive payment is established.

164 ANNUAL REPORT 2014 BORROWING COSTS Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time when the assets are substantially ready for their intended use or sale. Investment income earned on temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the finance costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. LEASING THE GROUP AS LESSEE Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognised as an expense in the period in which they are incurred. INCOME TAX Income tax expense comprises current and deferred tax. CURRENT TAX Current tax is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated statement of profit or loss and other comprehensive income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. DEFERRED TAX Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from the initial recognition of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognised for taxable temporary differences associated with investments in subsidiaries, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognised to the extent that it is probable that there will be sufficient taxable profits against which to utilise the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is expected to be settled or assets realised, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 165 would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. Current and deferred tax are recognised in profit or loss, except when they relate to items that are recognised in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognised in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. EARNINGS PER SHARE The Company has two classes of shares, ordinary and preferred. The Company s preferred shares have the same characteristics as ordinary shares and have no preference attributed to them. Accordingly, for purposes of computing earnings per share ( EPS ), preferred shares have been treated as ordinary shares. The Group presents basic and diluted EPS data for its ordinary and preferred shares, on a combined basis. Basic EPS is calculated by dividing profit or loss attributable to owners of the Company by the weighted average number of ordinary and preferred shares outstanding during the period adjusted for shares purchased by the Group and held as treasury shares. 3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY In the application of the Group s accounting policies, described in note 2, management is required to make judgements, estimates and assumptions about the carrying amounts of assets and liabilities and recognised amounts of income and expenses that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The most significant areas requiring the use of management estimates and assumptions relate to: / Useful economic lives of property, plant and equipment; / Investment in Bashneft Polyus; / Exploration and evaluation expenditures; / Impairment of property, plant and equipment; / Decommissioning provision; / Legal contingencies; and / Taxation. USEFUL ECONOMIC LIVES OF PROPERTY, PLANT AND EQUIPMENT The estimation of the useful life of an item of property, plant and equipment is a matter of management judgement based upon experience with similar assets. In determining the useful life of an asset, management considers the expected usage based on production and reserve estimates, estimated technical obsolescence, physical wear and tear and the physical environment in which the asset is operated. Changes in any of these conditions or estimates may result in adjustments to future depreciation rates. Based on the terms included in the licences and past experience, management believes oil production licences will be extended past their current expiration dates at insignificant additional costs. Because of the anticipated licence extensions, the assets are depreciated over their useful lives beyond the end of the current licence term.

166 ANNUAL REPORT 2014 Oil and gas producing assets are depreciated on a units of production basis at a rate calculated by reference to total proved developed reserves. The Group estimates its commercial reserves on information compiled by appropriately qualified persons competent to assess the geological and technical data on the size, depth, shape and grade of the hydrocarbon body and suitable production techniques and recovery rates. Commercial reserves are determined using estimates of oil and gas in place, recover factors and future commodity prices. As economic assumptions may change, and as additional geological information is obtained during the operation of a field, estimates of recoverable reserves may change. Such changes may impact the Group s reported financial position and results, including: / Carrying value of exploration and evaluation assets, property, plant and equipment, may be affected due to changes in estimated future cash flows; / Depreciation and amortisation charges in profit or loss may change where such changes are determined using the unit of production method, or where the useful life of the related assets change; / Provisions for decommissioning may change where changes to the reserve estimates affect expectations about when such activities will occur and the associated cost of these activities; / Recognition and carrying value of deferred tax assets may change due to changes in the judgments regarding the existence of such assets and in the estimates of the likely recovery of such assets. Other property, plant and equipment are depreciated on a straight-line basis over their useful economic lives. Management periodically, at the end of each reporting period, reviews the appropriateness of the assets useful economic lives and residual values. The review is based on the current condition of the assets, the estimated period during which they will continue to bring economic benefit to the Group and the estimated residual value. INVESTMENT IN BASHNEFT POLYUS The Group has a 74.9% interest in Bashneft-Polyus, and is the operator at the Trebs and Titov oilfield deposit. Prior to May 2014, the Group considered that its power, and those of the holder of 25.1% interest resulted in joint control over the entity, and accordingly applied equity account as a joint venture. On 23 May 2014, an agreement to change the participation agreement governing certain financial and operational matters of Bashneft-Polyus was reached. Management considered their powers after the revisions, and concluded that they have control over Bashneft-Polyus from the date of change of the participation agreement and throughout the year as it is exposed to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. EXPLORATION AND EVALUATION EXPENDITURES The application of the Group s accounting policy for exploration and evaluation expenditure requires judgment to determine whether it is likely that future economic benefits are probable, from either future exploitation or sale, or whether activities have not reached a stage which permits a reasonable assessment of the existence of commercial reserves. The determination of reserves is itself an estimation process that requires varying degrees of uncertainty depending on the classification of the reserve. The capitalisation policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular, whether an economically viable extraction operation can be established. Any such estimates and assumptions may change as new information becomes available. If, after expenditures are capitalised, information becomes available suggesting that the recovery of the expenditure is unlikely, the relevant amount is written off in profit or loss in the period the information becomes available. IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT At the end of each reporting period, the Group reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that those assets are impaired. In making the assessment for impairment, assets that do not generate independent cash flows are allocated to an appropriate cash-generating unit. Management necessarily applies its judgement in allocating assets that do not generate independent cash flows to appropriate cash-generating units, and also in estimating the timing and value of underlying cash flows within the value in use calculation. In determining the value in use calculation, future cash flows are estimated at each cash-generating unit based on a cash flows projection utilising the latest budgeted information available.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 167 DECOMMISSIONING PROVISION The Group s oil and gas activities are subject to various laws and regulations governing the protection of the environment. The Group estimates environmental obligations based on management s understanding of the current legal requirements in the various jurisdictions, terms of the licence agreements and internally generated engineering estimates. Provision is made, based on net present values, for decommissioning costs as soon as the obligation arises. Actual costs incurred in future periods could differ materially from the amounts provided. Additionally, future changes to environmental laws and regulations, life of oil and gas reserves estimates and discount rates could affect the carrying amount of this provision. LEGAL CONTINGENCIES Legal proceedings covering a wide range of matters are pending or threatened against the Group. Periodically, the status of each significant loss contingency is reviewed to assess the potential financial exposure of the Group. The Group records provisions for pending litigation when it determines that an unfavourable outcome is probable and the amount of loss can be reasonably estimated. Due to the inherent uncertain nature of litigation, the ultimate outcome or actual cost of settlement may materially vary from estimates. Provisions are based on the best information available at the time. As additional information becomes available, the potential liability related to pending claims and litigation is reassessed and, if required, estimates are revised. Such revisions in estimates could have a material impact on the future of the Group s results. TAXATION Significant judgement is required in determining the provision for taxation in the Russian Federation. There are many transactions and calculations for which the ultimate tax determination is uncertain. The Group recognises liabilities for anticipated additional tax assessments as a result of tax audits based on estimates of whether it is probable that additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax provisions in the period in which such determinations are made. Deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilised. The estimation of that probability includes judgements based on the expected performance of the Group. Various factors are considered to assess the probability of the future utilisation of deferred tax assets, including past operating results, operational plans, expiration of tax losses carried forward, and tax planning strategies. If actual results differ from these estimates or if these estimates must be adjusted in future periods, the financial position, results of operations and cash flows may be negatively affected. 4. BUSINESS COMBINATIONS LLC BURNEFTEGAZ On 26 March 2014 the Group acquired a 100% interest in the outstanding charter capital of Burneftegaz, which is engaged in exploration and production of crude oil in the Tyumen District of the Russian Federation for total cash consideration of RUB 35,953 million. The acquisition of Burneftegaz followed the Group s strategy for the upstream segment growth, which involved the expansion of the resource base of the Group by acquiring assets with considerable production potential. At the date of acquisition, the fair values of identifiable assets and liabilities of Burneftegaz were as follows: Millions of Russian roubles Fair value at the acquisition date ASSETS Property, plant and equipment 41,784

168 ANNUAL REPORT 2014 Fair value at the acquisition date Advances paid for acquisition of property, plant and equipment 526 Inventories 293 Trade and other receivables 142 Advances to suppliers and prepaid expenses 110 Other taxes receivable 107 Cash and cash equivalents 208 Other assets 42 43,212 LIABILITIES Deferred tax liabilities (5,516) Trade and other payables (691) Advances received (185) Other taxes payable (478) Borrowings (363) Other liabilities (26) (7,259) Fair value of net assets acquired 35,953 Cash consideration 35,953 Excess of the cost of acquisition over the Group s share in the fair value of net assets acquired Net cash outflow arising on acquisition Consideration paid 35,953 Cash and cash equivalents acquired (208) Net cash outflow on acquisition 35,745 Burneftegaz contributed RUB 8,352 million of revenue, RUB 198 million of profit before tax and RUB 137 million of profit from the date of acquisition to 31 December 2014. The Group s financial results if the combination had taken place at the beginning of the year ended 31 December 2014 are not disclosed as Burneftegaz did not prepare financial statements in accordance with IFRS before the acquisition. LLC BASHNEFT-POLYUS Until 23 May 2014 Bashneft-Polyus was a joint venture between the Company and ОАО LUKOIL established for the development of Trebs and Titov oil deposits. The Company holds 74.9% interest in the charter capital of Bashneft-Polyus. On 23 May 2014 the Company and ОАО LUKOIL agreed to change their participation agreement which substantially altered effective control over the operational and financial activities of Bashneft-Polyus in favour of the Company. At the date of acquisition of control, the fair values of identifiable assets and liabilities of Bashneft-Polyus were as follows: Millions of Russian roubles Fair value at the acquisition date ASSETS Property, plant and equipment 11,644

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 169 Fair value at the acquisition date Advances paid for acquisition of property, plant and equipment 46 Inventories 846 Trade and other receivables 15,436 Advances to suppliers and prepaid expenses 412 Other taxes receivable 2,351 Cash and cash equivalents 11 Other assets 2 30,748 LIABILITIES Trade and other payables (4,606) Advances received (17) Other taxes payable (2,232) Borrowings from ОАО LUKOIL and JSOC Bashneft (23,334) Deferred tax liabilities (386) Other liabilities (67) (30,642) Fair value of net assets obtained 106 Fair value of previously held share of investment in joint venture, net of loans from the Group treated as additional contribution to the joint venture 451 Non-controlling interests share in fair value of net assets 27 Excess of the cost of acquisition over the Group s share in the fair value of net assets acquired, recognised in Other operating expenses, net 372 Net cash inflow arising on acquisition Cash and cash equivalents acquired 11 Net cash inflow on acquisition 11 Following the consolidation of Bashneft-Polyus, loans issued by the Group to Bashneft-Polyus in the amount of RUB 17,380 million at the date of acquisition, which were previously presented as an additional contribution to the joint venture, were eliminated in full as intra-group balances. Bashneft-Polyus contributed RUB 9,350 million of revenue, RUB 2,631 million of loss before tax and RUB 2,091 million of loss from the date of acquisition to 31 December 2014. If the acquisition of control had taken place at the beginning of the year ended 31 December 2014, the Group s revenue would have been RUB 638,884 million, profit for the year would have been RUB 43,056 million. OPTAN GROUP In July and August 2014 Bashneft through a series of transactions acquired 100% stakes in five legal entities which own a network of 91 petrol stations operated under the Optan brand ( Optan group ) and 11 land plots located in 12 regions of the Russian Federation for a total cash consideration of RUB 7,715 million. The acquisition of the Optan group is part of Bashneft s strategy to expand its own retail network. Optan group s petrol stations are in high-priority regions in geographical proximity to the Group s refining complex in Ufa.

170 ANNUAL REPORT 2014 At the date of acquisition, the fair values of identifiable assets and liabilities of Optan group were as follows: Millions of Russian roubles Fair value at the acquisition date ASSETS Property, plant and equipment 10,210 Intangible assets 277 Other assets 105 10,592 LIABILITIES Deferred tax liabilities (1,848) Borrowings (949) Other liabilities (80) (2,877) Fair value of net assets acquired 7,715 Cash consideration 7,715 Excess of the cost of acquisition over the Group s share in the fair value of net assets acquired Net cash outflow arising on acquisition Consideration paid 7,715 Cash and cash equivalents acquired (8) Net cash outflow on acquisition 7,707 The acquired petrol station network is utilized by the Company for its retail activities and, therefore, revenue and profit contribution of Optan Group is insignificant to the Group. The Group s financial results if the combination had taken place at the beginning of the year ended 31 December 2014 are not disclosed as Optan group did not prepare financial statements in accordance with IFRS before the acquisition. OJSC UNITED PETROCHEMICAL COMPANY On 17 September 2013 the Group entered into agreement to sell its 98% interest in OJSC United Petrochemical Company ( UPC ) to Sistema for cash consideration of RUB 6,200 million payable in one year (refer to note 20). UPC was the holding company of the petrochemical assets of the Group, including OJSC Ufaorgsintez ( Ufaorgsintez ). On 24 September 2014 this agreement was terminated and the Group re-obtained the control over UPC. Both transactions were under common control so the assets and liabilities are recorded at their historical carrying values. As a result of the termination of the sale agreement the Group recognised a gain on acquisition of RUB 7,575 million, net of related income taxes in the amount of RUB 831 million, within additional paid-in capital in the consolidated statement of changes in equity being the result of the transaction with the Group s controlling shareholder.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 171 The result of transaction is set out below: Millions of Russian roubles Carrying value at the acquisition date ASSETS Property, plant and equipment* 13,441 Intangible assets 207 Investments in joint venture 506 Inventories 1,973 Trade and other receivables 666 Advances to suppliers and prepaid expenses 542 Taxes receivable 1,079 Financial assets 1,240 Cash and cash equivalents 3,572 Other assets 88 23,314 LIABILITIES Deferred tax liabilities (1,468) Trade and other payables (2,361) Advances received (438) Other liabilities (236) (4,503) Net assets acquired 18,811 Non-controlling interests (4,205) 14,606 Income tax expense recognised on acquisition of UPC (831) Consideration receivable on disposal of UPC (6,200) Gain on acquisition of UPC 7,575 Net cash inflow arising on acquisition Cash and cash equivalents acquired 3,572 Net cash inflow on acquisition 3,572 * Property, plant and equipment are presented net of accumulated depreciation in the amount of RUB 11,696 million. UPC contributed RUB 9,448 million of revenue, RUB 1,581 million of profit before tax and RUB 748 million of profit from the date of acquisition to 31 December 2014. If the acquisition of control had taken place at the beginning of the year ended 31 December 2014, the Group s revenue would have been RUB 657,501 million and profit for the year would have been RUB 43,953 million. LLC AKTAN On 2 December 2014, the Group acquired 100% interest in LLC AKTAN ( AKTAN ), for a total cash consideration of RUB 1,191 million. AKTAN is a company engaged in petroleum products trading in the Samara region through a chain of 17

172 ANNUAL REPORT 2014 petrol stations. As a result of acquisition, the Group consolidated property, plant and equipment in the amount of RUB 1,320 million and attributable deferred tax liability in the amount of RUB 190 million. The acquired petrol station network is utilized by the Company for its retail activities and, therefore, revenue and profit contribution of AKTAN is insignificant to the Group. The Group s financial results if the combination had taken place at the beginning of the year ended 31 December 2014 are not disclosed as AKTAN did not prepare standalone financial statements in accordance with IFRS before the acquisition. OTHER ACQUISITIONS During the year ended 31 December 2014 the Group also acquired a subsidiary in the Downstream segment for a total cash consideration of RUB 350 million. The fair value of the net assets acquired approximated the consideration paid. In 2013 and 2012, the Group acquired subsidiaries in Upstream and Downstream segments for a total consideration of RUB 522 million (of which RUB 152 million was paid in cash) and RUB 846 million paid in cash, respectively. The fair value of the net assets acquired approximates the consideration transferred. 5. REORGANISATION OF THE GROUP REORGANISATION OF CJSC SISTEMA-INVEST AND THE GROUP On 3 February 2014 at an Extraordinary General Shareholders Meeting of the Company, a reorganisation programme was approved involving establishment of CJSC Bashneft-Invest ( Bashneft-invest ) through a spinoff from Sistema-invest and its consolidation with Bashneft. In April 2014 as part of the reorganisation of the Group, the Company acquired 2,724,173 of its own ordinary shares and 8,885,866 of its own preferred shares for total cash consideration of RUB 17,869 million. Bashneft-invest was created on 5 May 2014 as a wholly owned subsidiary of the Company through a spinoff from Sistema-invest. Sistema-invest is a legal entity controlled by Sistema that owned equity interests in the Company, Ufaorgsintez and OJSC Bashkirian Power Grid Company. Bashneft s effective interest of 49.41% in the assets and liabilities of Sistema-invest were accounted for as held for sale from 31 December 2013 (refer to note 19). On the date of the spinoff Bashneft-invest effectively obtained 9,943,730 ordinary shares of the Company and acquired direct ownership of 28,196,195 ordinary shares previously recognised as assets effectively owned, but held by Sistema-invest. Those shares were accounted for as treasury shares in the financial statements of the Group at the date of the transaction. Additionally, Bashneft-invest assumed the liabilities that existed under the loan payable by Sistema-invest to the Company. As a result of the reorganisation the Company no longer owns any shares in Sistema-invest. The result from the reorganisation of Sistema-invest is presented below: Millions of Russian roubles 5 May 2014 Decrease in assets classified as held for sale (39,483) Decrease in liabilities directly associated with assets classified as held for sale 832 Increase in treasury shares 38,651 On 6 May 2014 Bashneft-invest was legally merged with the Company. The reorganisation of the Group was completed on the date of the merger when the Company cancelled 38,139,925 ordinary shares and 8,885,866 preferred shares which were obtained through reorganisation of Sistema-invest and buy back transactions, respectively.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 173 The result from the cancellation of treasury shares is presented below: Millions of Russian roubles 6 May 2014 Decrease in treasury shares (76,545) Decrease in share capital 517 Decrease in retained earnings (76,028) 6. SEGMENT INFORMATION The Board is the Group s chief operating decision maker. Operating segments have been determined based on the information reviewed by the Board for the purposes of assessing performance. The Board considers financial and operational results based on the stages of the production process and the marketing of associated products. The Group s reportable segments under IFRS 8 Operating Segments are therefore as follows: / Upstream: this segment comprises subsidiaries and business units of the Company engaged in the exploration and production of crude oil; and / Downstream: this segment comprises subsidiaries and business units of the Company engaged in processing and sale of crude oil, oil products and petrochemicals on export and domestic markets. The information about other subsidiaries and business units of the Company engaged in providing oilfield maintenance, warehouse services and other non-core activities, none of which meet the criteria for separate reporting, is presented as All other segments. During 2012 operational and financial management of Ufaorgsintez was transferred to management of UPC, a subsidiary of the Company. Starting from 2012 the information about operations of UPC was not included in the reports provided to the Board and as a result the operations of UPC and its subsidiaries were included in the Reconciling item column below until the date of its disposal on 17 September 2013 (refer to note 20). Starting from 24 September 2014, following re-obtaining of control over the UPC by the Group (refer to note 4), the operations of UPC and its subsidiaries are included in the Downstream segment as the information about their operations is included in the reports provided to the Board. There are varying levels of integration between the Group s operating segments. Inter-segment revenues of the Upstream segment represent oil transfer to the Downstream segment for the purpose of refining and crude oil sales and measured with a reference to market prices for crude oil. Inter-segment revenues of the Downstream segment and All other segments represent oil products deliveries and services provided. Inter-segment pricing is estimated to represent an arm s length basis. Information regarding the results of each reportable segment is reviewed by the Board. Segment EBITDA is used to measure segment performance, as management believes that such information is the most relevant in evaluating the results of segments relative to other entities that operate within these industries. Segment EBITDA is determined as summation of Operating profit and Depletion and depreciation. Since Segment EBITDA is not a standard IFRS measure, the Group s definition of Segment EBITDA may differ from that of other companies. The significant accounting policies of the reportable and other segments are the same as the Group s accounting policies. Information about the Group s reportable segments for the year ended 31 December 2014 is presented below: Millions of Russian roubles Upstream Downstream All other segments Eliminations Consolidated External revenues 3,790 632,430 1,051 637,271 Inter segment revenues 187,811 350 5,371 (193,532)

174 ANNUAL REPORT 2014 Upstream Downstream All other segments Eliminations Consolidated External expenses (136,404) (417,749) (6,121) (560,274) Inter segment expenses (3,121) (190,086) (239) 193,446 Segment EBITDA 62,421 37,617 826 (86) 100,778 Depletion and depreciation Impairment of assets (23,781) (13,030) Finance income 4,747 Finance costs (13,058) Foreign exchange gain, net 1,299 Share of loss of joint ventures, net of income tax (117) Profit before income tax 56,838 Income tax expense (13,817) Profit for the year 43,021 Information about the Group s reportable segments for the year ended 31 December 2013 is presented below: Millions of Russian roubles Upstream Downstream All other segments Reconciling item Eliminations Consolidated External revenues 2,297 541,938 5,355 13,706 563,296 Inter-segment revenues 168,281 6,833 18,149 2,317 (195,580) External expenses* (106,263) (351,794) (14,777) (8,104) (480,938) Inter-segment expenses (10,417) (170,609) (7,679) (6,894) 195,599 Segment EBITDA* 61,419 36,101 2,564 2,283 19 102,386 Depletion and depreciation Impairment of assets* (20,028) (16,689) Finance income 5,163 Finance costs (9,460) Foreign exchange gain, net 1,094 Share of income of associate and joint venture, net of income tax 492 Profit before income tax 62,958 Income tax expense (16,559) Profit for the year 46,399 * As discussed in note 10, certain comparative figures have been reclassified to conform with the financial statements presentation adopted for the current year

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 175 Information about the Group s reportable segments for the year ended 31 December 2012 is presented below: Millions of Russian roubles Upstream Downstream All other segments Reconciling item Eliminations Consolidated External revenues 1,714 510,899 7,529 12,360 532,502 Inter-segment revenues 169,648 6,957 18,646 5,545 (200,796) External expenses* (100,831) (319,979) (19,026) (7,262) (447,098) Inter-segment expenses (12,085) (172,989) (8,308) (7,566) 200,948 Segment EBITDA* 63,877 33,939 1,286 4,527 152 103,781 Depletion and depreciation Impairment of assets* (18,377) (4,816) Finance income 4,808 Finance costs (11,883) Foreign exchange gain, net 107 Share of loss of associate and joint ventures, net of income tax (361) Profit before income tax 73,259 Income tax expense (16,469) Profit for the year 56,790 *As discussed in note 10, certain comparative figures have been reclassified to conform with the financial statements presentation adopted for the current year Substantially all of the Group s operations are conducted in the Russian Federation. Therefore, the Group has not presented any geographical disclosure about its non-current assets by geographical area, as amounts not pertaining to the Russian Federation are immaterial. The Group s revenue from external customers by geographical location is presented below: Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Export outside the Customs Union 353,161 309,205 263,557 Russian Federation 261,523 235,798 229,434 Export to other countries of the Customs Union 22,587 18,293 39,511 Total 637,271 563,296 532,502 The following counterparties relating to the Downstream segment each comprise 10% or more of the total revenue of the Group: Millions of Russian roubles Year ended 31 December 2014 Revenue % of the total Revenue Major Customer 1 107,749 17% Major Customer 2 83,623 13% Major Customer 3 61,598 10%

176 ANNUAL REPORT 2014 Millions of Russian roubles Year ended 31 December 2013 Revenue % of the total Revenue Major Customer 1 102,457 18% Major Customer 2 81,189 14% Major Customer 3 58,917 10% Millions of Russian roubles Year ended 31 December 2012 Revenue % of the total Revenue Major Customer 1 66,576 13% Major Customer 2 54,986 10% 7. REVENUE Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Petroleum products 471,296 438,783 406,428 Crude oil 159,488 113,655 113,043 Other revenue 6,487 10,858 13,031 Total 637,271 563,296 532,502 8. EMPLOYEE BENEFIT EXPENSES Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Wages and salaries 22,766 25,532 27,130 Contributions to Pension Fund of the Russian Federation (refer to note 9) 4,515 5,237 5,162 Other social contributions (refer to note 9) 1,405 1,657 1,776 Phantom shares granted 1,161 1,166 1,091 Other employee benefits 39 493 405 Total 29,886 34,085 35,564 9. TAXES OTHER THAN INCOME TAX Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Mineral extraction tax 69,077 60,049 57,183 Contributions to Pension Fund of the Russian Federation 4,515 5,237 5,162 Other social contributions 1,405 1,657 1,776

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 177 Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Property tax 1,713 1,590 1,700 Other taxes 1,061 872 888 Total 77,771 69,405 66,709 10. IMPAIRMENT OF ASSETS Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Impairment of financial assets 6,599 500 Impairment of property, plant and equipment (refer to note 13) 5,320 246 4,417 Impairment of accounts receivable (refer to note 17) 717 236 202 Impairment of investments in associate and joint venture (refer to note 14) 297 15,752 Other impairment/ (reversal of other impairment) 97 (45) 197 Total 13,030 16,689 4,816 During the year ended 31 December 2014, management decided to present impairment of assets as a separate line item on the face of consolidated statement of profit or loss and other comprehensive income. Comparative information for the years ended 31 December 2013 and 2012 which was previously included in Other operating expenses and Impairment of investment in associate was reclassified. Reclassifications were based upon management s decision to enhance disclosure of the Group s results of operations through separate presentation of the amounts on the face of consolidated statement of profit or loss and other comprehensive income. 11. FINANCE INCOME AND FINANCE COSTS Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 FINANCE INCOME Interest income on cash and deposits 2,822 1,590 2,735 Interest income on loans, promissory notes and bonds 1,925 3,125 2,073 Dividend income 448 Total 4,747 5,163 4,808 FINANCE COSTS Interest expense on borrowings 12,356 8,652 10,943 Unwinding of discount (refer to note 24) 613 726 902 Other accretion expenses 89 82 38 Total 13,058 9,460 11,883

178 ANNUAL REPORT 2014 12. INCOME TAX INCOME TAX RECOGNISED IN PROFIT OR LOSS Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Current year income tax expense 15,556 18,807 14,668 Adjustments relating to current income tax of prior years 72 35 (1,551) Current income tax expense 15,628 18,842 13,117 Deferred tax (benefit)/expense (1,811) (2,283) 3,352 Income tax expense 13,817 16,559 16,469 Income tax expense calculated by applying the Russian Federation statutory income tax rate to profit before income tax differs from income tax expense recognised in profit or loss as a consequence of the following factors: Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Profit before tax 56,838 62,958 73,259 Income tax at statutory rate 20% 11,368 12,592 14,652 Effect of tax on foreign exchange difference on intragroup loans 1,692 105 (28) Effect of tax on intragroup dividends received 162 739 170 Other non-deductible and non-taxable items 523 3,088 1,680 Temporary difference recognized as a result of prior years income tax correction 1,546 Adjustments relating to current income tax of prior years 72 35 (1,551) Income tax expense 13,817 16,559 16,469 INCOME TAX RECOGNISED IN OTHER COMPREHENSIVE INCOME OR DIRECTLY IN EQUITY During the year ended 31 December 2014 the Group recognised RUB 831 million of income tax expense relating to the acquisition of UPC directly in the additional paid-in capital (refer to note 4). During the year ended 31 December 2013 the Group recognised RUB 1,208 million of current income tax benefit relating to disposal of UPC and SA and RUB 213 million of deferred tax liabilities relating to disposal of UPC directly in the additional paid-in capital (refer to note 20). DEFERRED TAX ASSETS AND LIABILITIES Movements in deferred tax liabilities/ (assets) for the years ended 31 December 2014, 2013 and 2012 were as follows: Millions of Russian roubles 1 January 2014 Recognised in profit or loss Balances acquired on acquisition of subsidiaries and other movements 31 December 2014 Property, plant and equipment 32,747 (1,215) 10,412 41,944 Investments in joint ventures (342) 1,009 667 Inventories 1,614 (156) 67 1,525

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 179 1 January 2014 Recognised in profit or loss Balances acquired on acquisition of subsidiaries and other movements 31 December 2014 Trade and other receivables 1,876 (1,604) 155 427 Decommissioning provision (1,257) (387) (5) (1,649) Trade and other payables (1,074) 1,506 (4) 428 Tax losses carried forward 4 (1,134) (1,130) Other (75) (968) (90) (1,133) Total 33,489 (1,811) 9,401 41,079 Millions of Russian roubles 1 January 2013 Recognised in profit or loss Balances disposed of on disposal of subsidiaries Other movements, including balances acquired on acquisition of subsidiaries 31 December 2013 Property, plant and equipment 34,564 512 (2,239) (90) 32,747 Investments in associate and joint venture 3,662 (4,004) (342) Inventories (461) 2,043 32 1,614 Trade and other receivables 846 931 99 1,876 Decommissioning provision (1,115) (142) (1,257) Trade and other payables 418 (1,664) 172 (1,074) Tax losses carried forward (306) 81 225 Other (47) (40) 3 9 (75) Total 37,561 (2,283) (1,708) (81) 33,489 Millions of Russian roubles 1 January 2012 Recognised in profit or loss Transfer of Trebs and Titov oilfield license Other movements, including balances acquired on acquisition of subsidiaries 31 December 2012 Property, plant and equipment 29,796 983 3,698 87 34,564 Investments in associate and joint ventures 3,294 368 3,662 Inventories (442) (19) (461) Trade and other receivables 1,361 (507) (8) 846 Decommissioning provision (1,945) 830 (1,115) Trade and other payables (673) 1,091 418 Tax losses carried forward (196) (110) (306) Other (708) 716 (55) (47) Total 30,487 3,352 3,698 24 37,561 At 31 December 2014 deferred tax assets in the amount of RUB nil (31 December 2013: RUB nil, 31 December 2012: RUB 225 million) have not been recognised in respect of deductible temporary differences because it is not probable that future taxable profit will be available against which the Group can utilise the benefits therefrom. At 31 December 2014, the Group has unutilised tax losses carried forward of RUB 5,654 million, expiring in 2018 2024. A deferred tax asset in the amount of RUB 1,131 million has been recognised in respect of such losses, as management believes that sufficient taxable profits will be available to utilize those losses.

180 ANNUAL REPORT 2014 13. PROPERTY, PLANT AND EQUIPMENT Millions of Russian roubles Oil and gas properties Refining Marketing Total COST Balance at 1 January 2012 130,050 156,998 19,626 306,674 Acquisition of subsidiaries 352 636 988 Transfer of Trebs and Titov oilfield license to Bashneft (refer to note 14) 18,490 18,490 Disposal of subsidiaries and structured entities (109) (10) (119) Constructions and additions 15,546 14,419 710 30,675 Disposals (782) (1,870) (193) (2,845) Contribution to Finansoviy Alliance (1,877) (207) (2,084) Balance at 31 December 2012 163,547 167,660 20,572 351,779 Acquisition of subsidiaries 207 336 543 Disposal of subsidiaries (refer to note 20) (9,136) (25,462) (34,598) Constructions and additions 29,307 12,508 1,045 42,860 Disposals (2,702) (164) (982) (3,848) Balance at 31 December 2013 181,223 154,542 20,971 356,736 Acquisitions of subsidiaries 53,428 25,137 11,934 90,499 Constructions and additions 38,114 9,252 2,069 49,435 Disposals (3,545) (516) (424) (4,485) Contribution to LLC Vostok NAO Oil Company (refer to note 14) (4,775) (4,775) Balance at 31 December 2014 264,445 188,415 34,550 487,410 ACCUMULATED DEPLETION, DEPRECIATION AND IMPAIRMENT Balance at 1 January 2012 (17,932) (32,787) (2,198) (52,917) Disposal of subsidiaries and structured entities 37 4 41 Charge for the year (7,811) (9,401) (1,205) (18,417) Disposals 102 501 31 634 Contribution to Finansoviy Alliance 415 31 446 Impairment (refer to note 10) (1,144) (2,352) (921) (4,417) Balance at 31 December 2012 (26,748) (43,620) (4,262) (74,630) Disposal of subsidiaries (refer to note 20) 2,761 10,684 13,445 Charge for the year (8,943) (9,699) (1,252) (19,894) Disposals 1,578 257 123 1,958 (Impairment)/impairment reversals (refer to note 10) (576) 267 63 (246) Balance at 31 December 2013 (31,928) (42,111) (5,328) (79,367) Acquisition of subsidiaries (11,696) (11,696) Charge for the period (10,954) (11,366) (1,240) (23,560) Disposals 2,123 210 125 2,458 (Impairment)/impairment reversals (refer to note 10) (5,245) (180) 105 (5,320)

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 181 Oil and gas properties Refining Marketing Total Balance at 31 December 2014 (46,004) (65,143) (6,338) (117,485) NET BOOK VALUE At 1 January 2012 112,118 124,211 17,428 253,757 At 31 December 2012 136,799 124,040 16,310 277,149 At 31 December 2013 149,295 112,431 15,643 277,369 At 31 December 2014 218,441 123,272 28,212 369,925 IMPAIRMENT OF PROPERTY, PLANT AND EQUIPMENT During 2014 as a result of various reasons, including the impact of a lower price environment in the near term, technical reserves revisions, and increases in expected decommissioning cost estimates, the Group carried out a review of the recoverable amount of all property, plant and equipment. For the purpose of the review, recoverable amount of assets was determined for the cash generating units based on geographical location, that generate cash inflows that are largely independent of the cash inflows from other assets or groups of assets. This review led to the recognition of an impairment loss of RUB 5,320 million, which was recognised in the consolidated statement of profit or loss and other comprehensive income within Impairment of assets. This impairment mainly relates to exploration and evaluation assets, including exploration, evaluation and development rights, on Tortasinskoye oil field. The pre-tax discount rate used in measuring value in use was 13.26% per annum. The key assumptions to which the calculation of value in use is most sensitive includes discount rate, oil price, estimates of oil and gas reserves and the production profile. No impairment assessment was performed in 2013 for property, plant and equipment as there was no indication of impairment. During 2012, as a result of the unfavourable market conditions giving rise to a decrease in prices of certain petrochemical products, the Group carried out a review of the recoverable amount of certain assets which are used in the production of certain petrochemical products. This review led to the recognition of an impairment loss of RUB 2,094 million, which was recognised in the consolidated statement of profit or loss and other comprehensive income. The recoverable amount of the assets was determined on the basis of their value in use. The discount rate used in measuring value in use was 15.0% per annum. During 2012 the Group performed an analysis of the recoverable amount of certain assets. As a result of this analysis an impairment loss of RUB 2,323 million was recognised in the consolidated statement of profit or loss and other comprehensive income within Impairment of assets. EXPLORATION AND EVALUATION ASSETS Movements in the amount of capitalised exploration and evaluation assets, included in Oil and gas properties, are presented below: Millions of Russian roubles Balance at 1 January 2012 6 Acquisition of exploration, evaluation and development rights 4,514 Capitalised expenditures 789 Reclassified to development assets (4)

182 ANNUAL REPORT 2014 Transfer of Trebs and Titov oilfield license to Bashneft (refer to note 14) 18,490 Balance at 31 December 2012 23,795 Acquisition of exploration, evaluation and development rights 1 Capitalised expenditures 11,879 Reclassified to development assets (23,705) Acquisition of subsidiaries 207 Balance at 31 December 2013 12,177 Capitalised expenditures 5,546 Reclassified to development assets (13,346) Establishment of LLC Vostok NAO Oil Company (refer to note 14) (4,775) Acquisition of subsidiaries 5,663 Impairment of exploration and evaluation assets (5,265) Balance at 31 December 2014 In 2012, the Group won the auction for licences on Yangareyskiy and Sabriyaginskiy subsoil blocks in the Nenets Autonomous District. Total cost of the licences acquired amounted RUB 4,514 million. In August 2013 the Group started production at the Trebs field in the Nenets Autonomous District, and as a result part of exploration and evaluation assets in the amount of RUB 23,705 million was reclassified to development assets. During the year ended 31 December 2014 the Group recognised exploration and evaluation expenses in the amount of RUB 3,588 million (year ended 31 December 2013: RUB 3,401 million, year ended 31 December 2012: RUB 332 million) within Production and operating expenses. For the year ended 31 December 2014 payments for the acquisition of exploration and evaluation assets included in payments for acquisition of property, plant and equipment in the consolidated statement of cash flows amounted to RUB 12,713 million (year ended 31 December 2013: RUB 4,712 million, year ended 31 December 2012: RUB 5,303 million). 14. INVESTMENTS IN ASSOCIATE AND JOINT VENTURES Millions of Russian roubles Year ended 31 December 2014 Joint ventures Associate Year ended 31 December 2013 Joint ventures Associate Year ended 31 December 2012 Joint ventures Balance at the beginning of the year 18,848 21,210 7,409 19,222 16,310 Establishment of LLC Vostok NAO Oil Company 4,975 Repayment of contributions from Bashneft-Polyus (3,133) Additional contributions to Bashneft-Polyus 2,012 10,784 3,122 Obtaining of control over Bashneft-Polyus (refer to note 4) Group's share of (loss)/gain eliminated on transactions with joint ventures (17,831) (1,172) 1,174 Acquired on acquisition of UPC (refer to note 4) 506 Impairment of investments in associate and joint venture (refer to note 10) (297) (15,752) Disposal of OJSC Belkamneft to assets held for sale (6,469)

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 183 Year ended 31 December 2014 Joint ventures Associate Year ended 31 December 2013 Joint ventures Associate Year ended 31 December 2012 Joint ventures Decrease in the carrying amount of investment in joint venture due to the return of licence on Trebs and Titov deposit to Bashneft (9,522) Acquisition of LLC Finansoviy Alliance 1,620 Unrealised gain on sale of property, plant and equipment to a LLC Finansoviy Alliance (343) Disposal of LLC Finansoviy Alliance (1,429) Share of (loss)/profit for the year (117) 1,011 (519) 1,988 (2,349) Balance at the end of the year 3,791 18,848 21,210 7,409 JOINT VENTURES LLC VOSTOK NAO OIL COMPANY In May 2014 the Company and LLC Lukoil-Komi established a joint venture, LLC Vostok NAO Oil Company ( Vostok NAO ), to conduct geological exploration, prospecting and production of hydrocarbons in the Nenets Autonomous District. The Company and LLC Lukoil-Komi have an equal interest of 50.0% in this joint venture. In July 2014 the Group transferred licenses for geological exploration, prospecting and production of hydrocarbons in the Nenets Autonomous District in the amount of RUB 4,775 million to Vostok NAO. The summarised financial information below represents amounts disclosed in Vostok NAO s financial statements prepared in accordance with IFRSs (adjusted by the Group for equity accounting purposes): Millions of Russian roubles 31 December 2014 Non-current assets 6,652 Current assets 661 Non-current liabilities (109) Current liabilities (139) The above amounts of assets and liabilities include the following: Cash and cash equivalents 3 Non-current financial liabilities (excluding trade and other payables and provisions) (109) For the period from 15 May 2014, revenue of Vostok NAO was RUB nil, loss for the period and total comprehensive loss amounted to RUB 2,884 million. The joint venture recognised interest income in the amount of RUB 84 million and income tax benefit in the amount of RUB 34 million. Deferred tax assets in the amount of RUB 549 million have not been recognised in respect of deductible temporary differences because it is not probable that future taxable profit will be available against which Vostok NAO can utilise the benefits therefrom. Reconciliation of the above summarised financial information to the carrying amount of the interest in the joint venture recognised in the consolidated financial statements: Millions of Russian roubles 31 December 2014 Net assets of the joint venture 7,065

184 ANNUAL REPORT 2014 31 December 2014 Proportion of the Group s ownership interest in the joint venture 50.0% Carrying amount of the Group s interest in the joint venture 3,533 BASHNEFT-POLYUS Bashneft-Polyus was a joint-venture of Bashneft and OAO LUKOIL until the date of consolidation on 23 May 2014 and is engaged in the development of the Trebs and Titov deposit. The Company held 74.9% interest in Bashneft-Polyus. On 23 May 2014 the Company and ОАО LUKOIL agreed to change their participation agreement which substantially altered effective control over the operational and financial activities of Bashneft-Polyus in favour of the Company (refer to note 4). In 2012 the Group issued a loan to Bashneft-Polyus in the amount of RUB 3,122 million. This loan was treated as an additional contribution to the joint venture as, in substance, formed part of the Group s net investment in Bashneft-Polyus. Also in the 4th quarter 2012 the interest rate for the loan was changed to 8.0% per annum. On 18 May 2012 as a result of the Federal Agency for Subsoil Use order Trebs and Titov oilfield license was transferred to the Company. As a result of that the license with carrying value of RUB 18,490 million was recognised at Bashneft with the corresponding decrease in investment in Bashneft-Polyus. Cash consideration in the amount of RUB 4,768 million paid to the Group by ОАО LUKOIL for 25.1% shares of Bashneft-Polyus was recognised in other non-current liabilities as a contingent liability with an uncertain date of set off until the Group and ОАО LUKOIL can negotiate a settlement for the joint venture operation and exploitation of the license. During the year ended 31 December 2013 the Group issued loans to Bashneft-Polyus in the amount of RUB 10,035 million at 8.0% per annum. These loans were presented as an additional contribution to the joint venture as, in substance, they formed part of the Group s investment in Bashneft-Polyus. During the year ended 31 December 2013 the Group and ОАО LUKOIL also made a decision to make an additional investment in Bashneft-Polyus in the amount of RUB 1,000 million in the proportion of their interests, the payment for which remained outstanding at 31 December 2013. During 2014, before the date of consolidation on 23 May 2014, the Group issued loans to the joint venture in the amount of RUB 2,012 million at 8.0% per annum. This loan was presented as an additional contribution to the joint venture as, in substance, it formed part of the Group s investment in Bashneft-Polyus. Also during the period before the date of consolidation on 23 May 2014, Bashneft-Polyus repaid the loan in the amount of RUB 3,133 million to Bashneft. At 31 December 2013 the Group s share in capital commitments of the joint venture was RUB 1,338 million (31 December 2012: RUB 950 million). The summarised financial information below represents amounts shown in Bashneft-Polyus' financial statements prepared in accordance with IFRSs (adjusted by the Group for equity accounting purposes): Millions of Russian roubles 31 December 2013 31 December 2012 Non-current assets 2,868 2,467 Current assets 24,887 8,181 Non-current liabilities (24,702) (11,345) Current liabilities (4,675) (2,800) The above amounts of assets and liabilities include the following: Cash and cash equivalents 9 Current financial liabilities (excluding trade and other payables and provisions) (154) Non-current financial liabilities (excluding trade and other payables and provisions) (24,702) (11,345)

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 185 Millions of Russian roubles Period ended 23 May 2014 Year ended 31 December 2013 Year ended 31 December 2012 Total revenue 6,289 15,677 2,711 Profit/ (loss) and total comprehensive income/ (loss) 140 877 (3,340) The above profit/ (loss) for the year include the following: Depletion and depreciation (80) (208) (7) Interest expense (755) (690) Income tax expense (30) Reconciliation of the above summarised financial information to the carrying amount of the interest in the joint venture recognised in the consolidated financial statements: Millions of Russian roubles 31 December 2013 31 December 2012 Net liabilities of the joint venture (1,622) (3,497) Proportion of the Group s ownership interest in the joint venture 74.9% 74.9% (1,215) (2,619) ADJUSTMENTS: Loans issued to Bashneft-Polyus 18,497 8,462 Effect of return of licence on Trebs and Titov deposit to Bashneft 1,566 1,566 Carrying amount of the Group s interest in the joint venture 18,848 7,409 ASSOCIATE OJSC BELKAMNEFT The Group held 38.5% interest in OJSC Belkamneft ( Belkamneft ), a company engaged in the production of crude oil. On 10 July 2013, the Company s Board of Directors approved a plan to dispose of its investment in Belkamneft. Accordingly, the Group s investment in Belkamneft was classified as an asset held for sale in accordance with IFRS 5. As a result, the carrying amount of the Group s investment in Belkamneft of RUB 22,221 million has been adjusted to fair value less estimated cost to sell of RUB 6,469 million, with the difference between the carrying amount and fair value less cost to sell recognised as Impairment of investment in associate. The impairment is mainly the result of changes in the ownership structure of controlling shareholder of Belkamneft that decreased the Company s ability to exercise significant influence over Belkamneft. The sale of the Group s investment in Belkamneft was completed on 30 September 2013 for a consideration of RUB 6,469 million. The following is a summary of the financial information of Belkamneft: Millions of Russian roubles 31 December 2012 Non-current assets 52,390 Current assets 33,822 Non-current liabilities (9,453) Current liabilities (3,709)

186 ANNUAL REPORT 2014 Millions of Russian roubles Period ended 10 July 2013 Year ended 31 December 2012 Total revenue 11,543 23,023 Profit and total comprehensive income 2,639 5,191 Group s share of profit of Belkamneft 1,011 1,988 Reconciliation of the above summarised financial information to the carrying amount of the interest in Belkamneft recognised in the consolidated financial statements: Millions of Russian roubles 31 December 2012 Net assets of the associate 73,050 Proportion of the Group s ownership interest in Belkamneft 38.5% 28,124 Fair value adjustment on the date of obtaining significant influence (6,914) Carrying amount of the Group s interest in Belkamneft 21,210 15. FINANCIAL ASSETS Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 NON-CURRENT INVESTMENTS Loans given, at amortised cost 3,559 3,506 20,912 Available-for-sale investment in Ufaorgsintez held at fair value 423 Derivative financial instruments 90 Available-for-sale investments in BESK held at cost 7,406 Deposits 8 1,000 Total 3,567 4,019 29,318 CURRENT INVESTMENTS Loans given, at amortised cost 1,330 5,020 14,491 Deposits 46 4,136 Other financial assets 8 Total 1,330 5,066 18,635 LOANS GIVEN, AT AMORTISED COST At 31 December 2014, non-current loans given at amortised cost included loans given with interest rates varying from 8.10% to 8.25% per annum. At 31 December 2013 and 2012, non-current loans given at amortised cost included loans given and promissory notes with interest rates varying from 5.0% to 5.40% per annum and from 5.0% to 7.75% per annum, respectively. At 31 December 2014, current loans given at amortised cost included corporate bonds, which are not quoted in an active market, loans given and promissory notes amounted RUB 8,808 million were presented net of impairment provision in the amount of RUB 7,478 million. The provision in the amount of RUB 6,599 million (refer to note 10) was created individually against these financial assets during the year ended 31 December 2014 following a recoverability analysis performed

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 187 by management. The balance net of impairment represents promissory notes with interest rates varying from 3.50% to 5.00% per annum receivable upon demand. At 31 December 2013, current loans given at amortised cost represent corporate bonds which are not quoted in an active market with interest rate of 6.0% per annum, and loans given and promissory notes with interest rates varying from 2.5% to 8.5% per annum. At 31 December 2012, current loans given at amortised cost included promissory notes and loans given with interest rates varying from 2.5% to 8.5% per annum and interest free promissory notes of OJSC INTER RAO UES ( INTER RAO ) held by Sistema-invest. AVAILABLE-FOR-SALE INVESTMENTS In 2012, Bashkirenergo was reorganised and split into two entities: OJSC Bashenergoactiv ( Bashenergoactiv ), representing the power generation part of the business, and OJSC Bashkirian Power Grid Company ( BESK ), representing the power grid part of the business. Sistema-invest sold the investment in Bashenergoactiv to a third party, INTER RAO, and increased its stake in BESK. The Group therefore also retained an investment in BESK through its interest in Sistema-invest. The Group recognised this investment as an available-for-sale investment, despite its 45.7% effective ownership interest, on the basis that it had no influence over the entity, with all control and influence pertaining wholly to Sistema. This available-for-sale investment was carried at cost, as a reliable fair value cannot be determined for the investment. As described in note 20, the Group sold its 98% interest in UPC to Sistema on 17 September 2013. The Group s residual share in Ufaorgsintez (10.64% effectively held through Sistema-invest and 5.33% held through a wholly owned subsidiary of the Group) was classified as an available-for-sale investment. On 31 December 2013 the Group reclassified all assets and liabilities held through Sistema-Invest to assets held for sale (refer to note 19). As a result of this available-for-sale investments at 31 December 2013 represented only a 5.33% interest in Ufaorgsintez held through a wholly owned subsidiary of the Group. 16. INVENTORIES Millions of Russian roubles INVENTORIES EXPECTED TO BE RECOVERED AFTER 12 MONTHS 31 December 2014 31 December 2013 31 December 2012 Catalytic agents 2,846 3,022 2,351 Total 2,846 3,022 2,351 INVENTORIES EXPECTED TO BE RECOVERED IN THE NEXT 12 MONTHS Petroleum products 16,935 13,228 12,938 Crude oil 1,390 988 512 Raw materials and other inventories 8,381 7,898 11,487 Less: allowance for obsolete and slow-moving items (347) (664) (1,098) Total 26,359 21,450 23,839 The cost of inventories (excluding crude oil) recognised as an expense during the year ended 31 December 2014 amounted to RUB 8,068 million (year ended 31 December 2013: RUB 7,496 million, year ended 31 December 2012: RUB 8,127 million).

188 ANNUAL REPORT 2014 17. TRADE AND OTHER RECEIVABLES Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Trade receivables 14,539 21,393 19,772 Other receivables 1,855 7,834 10,603 Total 16,394 29,227 30,375 Less: allowance for doubtful receivables (1,698) (1,910) (2,009) Total 14,696 27,317 28,366 The average credit period allowed by the Group to its customers on sales of crude oil and petrochemicals is 5 10 days. No interest was charged on the outstanding trade receivables during the years ended 31 December 2014, 2013 and 2012, nevertheless, penalties for late payment are prescribed by certain sales agreements. Before accepting any new customer, the Group uses an internal credit system to assess the potential customer s credit quality and defines credit limits separately for each individual customer. At 31 December 2014, the Group s five largest customers represent 49.7% (31 December 2013: 70.1%, 31 December 2012: 61.7%) of the outstanding trade receivables balance. Creditworthiness of the existing customers is also periodically evaluated based on internal and external information regarding the history of settlements with these customers. The Group regularly analyses accounts receivable turnover ratios, maturity dates and takes appropriate measures on collection of debts due. Allowances for doubtful receivables are recognised against past due trade and other receivables, based on estimated irrecoverable amounts, determined by reference to past experience. Such allowances are regularly reassessed based on the facts and circumstances existing at each reporting date. Ageing of trade and other receivables was as follows: Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Gross Impairment provision Gross Impairment provision Gross Impairment provision Not past due 14,392 (239) 26,375 27,317 Past due up to 30 days 73 (27) 24 (20) 69 (2) Past due from 31 to 90 days 183 (3) 215 (13) 465 (10) Past due from 91 to 180 days 184 (27) 461 (59) 202 (20) Past due from 181 to 365 days 493 (403) 523 (189) 262 (48) Past due over 365 days 1,069 (999) 1,629 (1,629) 2,060 (1,929) Total 16,394 (1,698) 29,227 (1,910) 30,375 (2,009) Movement in the allowance for doubtful receivables in respect of trade and other receivables was as follows: Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Balance at the beginning of the year 1,910 2,009 2,104 Provided during the year (refer to note 10) 717 236 202 Disposed on disposal of subsidiaries and structured entities (160) (1) Amounts written-off as uncollectable (929) (175) (296)

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 189 Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Balance at the end of the year 1,698 1,910 2,009 At 31 December 2014, there is a specific allowance against trade and other receivables of RUB 956 million (31 December 2013: RUB 1,296 million, 31 December 2012: RUB 1,290 million) in respect of entities undergoing a liquidation process or that have been placed into bankruptcy. This allowance is included in the allowance for doubtful receivables and represents the difference between the carrying amount of these receivables and the present value of expected proceeds on liquidation/bankruptcy. The Group did not hold collateral in respect of these balances. 18. CASH AND CASH EQUIVALENTS Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Call deposits and highly liquid investments 50,962 10,425 11,320 Bank balances 1,856 5,970 8,784 Total 52,818 16,395 20,104 At 31 December 2014, call deposits mostly represent bank deposits which are denominated in RUB with annual interest rates varying from 7.48% to 29.75% (31 December 2013: 4.0% to 6.85%, 31 December 2012: 2.0% to 7.1%) per annum and in USD with annual interest rates varying from 0.10% to 4.14% (31 December 2013: 0.05% to 0.06%, 31 December 2012: 0.07% to 1.0%) per annum. Maturity dates for these deposits are within 3 months from the date they originated. At 31 December 2012, highly liquid investments represent interest free promissory notes of INTER RAO of RUB 1,717 million which are denominated in RUB, held by Sistema-invest. Maturity dates for these promissory notes are within 3 months from the date they originated. As part of its cash and credit risk management function, the Group regularly evaluates the creditworthiness of financial and banking institutions where it deposits cash and cash equivalents. Banking relationships are with large Russian banks with external credit ratings of at least B+. 19. ASSETS CLASSIFIED AS HELD FOR SALE There were no assets or associated liabilities classified as held for sale as at 31 December 2014. The disposal of the assets and associated liabilities classified as held for sale at 31 December 2013 completed during 2014 (refer to note 5). During the year ended 31 December 2014, the Group has not recognised any impairment losses in respect of its assets classified as held for sale at 31 December 2013. ASSETS CLASSIFIED AS HELD FOR SALE AT 31 DECEMBER 2013 On 17 December 2013, the Board of the Company approved a reorganisation programme involving the consolidation of Bashneft-invest with Bashneft and made a decision to call an Extraordinary General Shareholders Meeting of the Company on 3 February 2014, which was required to approve the reorganisation (refer to note 5 for details of the reorganisation). Following this decision, all assets and liabilities previously recognised by Bashneft using the look through treatment were classified as held for sale. The Group has not recognised any impairment losses at the date the assets and liabilities were classified as held for sale or at 31 December 2013.

190 ANNUAL REPORT 2014 The major classes of assets and liabilities reclassified as held for sale at 31 December 2013 are as follows: 31 December 2013 ASSETS Financial assets 37,312 Trade and other receivables 1,146 Cash and cash equivalents 504 Total assets classified as held for sale 38,962 LIABILITIES Borrowings 612 Trade and other payables 45 Deferred tax liabilities 213 Other taxes payable 13 Total liabilities directly associated with assets classified as held for sale 883 20. DISPOSAL OF SUBSIDIARIES DISPOSAL OF OJSC UNITED PETROCHEMICAL COMPANY On 17 September 2013 the Group sold its 98% interest in UPC to Sistema for cash consideration of RUB 6,200 million. UPC is the holding company of the petrochemical assets of the Group, including Ufaorgsintez. The Group recognised a loss on sale of RUB 5,749 million, net of related income taxes in the amount of RUB 564 million, within additional paid-in capital in the consolidated statement of changes in equity being the result of a transaction with the Group s controlling shareholder. The Group s residual share in Ufaorgsintez (10.64% effectively held through Sistema-invest and 5.33% held through wholly owned subsidiary of the Group) was classified as available-for-sale investment (refer to note 15). RUB 882 million of the loss recognised is attributable to the recognition of the residual investment at its fair value. The result of transaction is set out below: Millions of Russian roubles 17 September 2013 CURRENT ASSETS Cash and cash equivalents 4,509 Trade and other receivables 703 Advances to suppliers and prepaid expenses 207 Taxes receivable 542 Inventories 1,771 Financial assets 2,296 NON-CURRENT ASSETS Property, plant and equipment 13,651 Advances paid for acquisition of property, plant and equipment 58 Other non-current assets 145 CURRENT LIABILITIES Trade and other payables (2,099) Advances received (360)

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 191 17 September 2013 Taxes payable (235) Other current liabilities (17) NON-CURRENT LIABILITIES Deferred tax liabilities (1,568) Other non-current liabilities (91) Net assets disposed of 19,512 Non-controlling interests (5,004) 14,508 Fair value of the Group s 15.97% residual interest in Ufaorgsintez 1,995 Deferred tax liability recognised in respect of adjustment to fair value of residual interest in Ufaorgsintez (213) Income tax benefit recognised on disposal of UPC 777 Consideration receivable on disposal of UPC 6,200 Loss on disposal of UPC 5,749 DISPOSAL OF LLC BASHNEFT-SERVICE ASSETS On 30 September 2013 the Group sold its 100% interest in BNSA to Sistema for cash consideration of RUB 4,100 million. BNSA is the oilfield service holding company which comprised 11 oilfield service companies. These companies provide services related to drilling, current and major workover of wells, the manufacture of oilfield and mechanical equipment, transport and construction. The Group recognised a loss on sale of RUB 4,706 million, net of related income taxes in the amount of RUB 431 million, within additional paid-in capital in the consolidated statement of changes in equity, being the result of a transaction with the Group s controlling shareholder. The result of transaction is set out below: Millions of Russian roubles 30 September 2013 CURRENT ASSETS Cash and cash equivalents 1,125 Trade and other receivables 6,115 Advances to suppliers and prepaid expenses 70 Taxes receivable 106 Inventories 1,265 NON-CURRENT ASSETS Property, plant and equipment 7,502 Other non-current assets 2 CURRENT LIABILITIES Trade and other payables (5,451) Advances received (12) Taxes payable (735) Other current liabilities (49) NON-CURRENT LIABILITIES Deferred tax liabilities (338) Other non-current liabilities (363)

192 ANNUAL REPORT 2014 30 September 2013 Net assets disposed of 9,237 Income tax benefit recognised on disposal of BNSA 431 Consideration received on disposal of BNSA 4,100 Loss on disposal of BNSA 4,706 21. SHARE CAPITAL AUTHORISED, ISSUED AND FULLY PAID SHARE CAPITAL Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 150,570,662 (31 December 2013 and 2012: 188,710,587) ordinary shares with a par value of RUB 1.00 29,788,012 (31 December 2013 and 2012: 38,673,878) preferred shares with a par value of RUB 1.00 1,656 2,076 2,076 328 425 425 Total 1,984 2,501 2,501 As a result of the Group reorganisation on 1 October 2012 the outstanding shares of merged subsidiaries were converted into newly-issued shares: 18,540,833 ordinary shares and 4,051,192 preferred shares. As a result of the Group reorganisation on 6 May 2014 (refer to note 5) the Company cancelled 38,139,925 ordinary and 8,885,866 preferred shares which were obtained through reorganisation of Sistema-invest and buy back transactions in 2014, respectively. TREASURY SHARES Millions of Russian roubles Preferred shares Ordinary shares (number of shares) Balance as of 1 January 2012 158,409 21,020,908 Mandatory shares buy-back preceding Group reorganization 6,861,754 832,082 Purchase of treasury shares 133,640 2,596,805 Sale of treasury shares to the controlling shareholder (2,131,226) Reorganisation of the Group 7,175,287 Balance as of 31 December 2012 5,022,577 31,625,082 Balance as of 31 December 2013 5,022,577 31,625,082 Mandatory shares buy-back preceding Group reorganization (refer to note 5) 8,885,866 2,724,173 Reorganisation of Sistema-invest (158,409) 9,943,730 Reorganisation of the Group (refer to note 5) (8,885,866) (38,139,925) Balance as of 31 December 2014 4,864,168 6,153,060 At 31 December 2014, 4,864,168 shares out of treasury shares were restricted for further sales.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 193 DIVIDENDS AND RETAINED EARNINGS The holders of the Company s ordinary shares are entitled to one vote per share at shareholders meetings and a right to dividends, as declared periodically. The holders of the Company s preferred shares receive a non-cumulative dividend at the Company s discretion or whenever dividends to ordinary shareholders are declared. They do not have the right to vote at shareholders meetings if dividends are declared but, similar to ordinary shareholders rights, have the right to one vote per share if dividends are not declared. Ordinary and preferred shares rank equally with regard to the Company s residual assets in the event of liquidation. On 29 June 2012, the Company declared a dividend of RUB 99 per ordinary and preferred share amounting to RUB 20,274 million out of which RUB 224 million remained unpaid at 31 December 2012. On 27 June 2013, the Company declared a dividend of RUB 24 per ordinary and preferred share amounting to RUB 5,324 million. A part of the dividend declared was attributable to the companies of the Group. On 17 December 2013, the Company declared a dividend of RUB 199 per ordinary and preferred share amounting to RUB 45,250 million. At 31 December 2013 dividends payable equalled RUB 275 million. A part of the dividend declared was attributable to the companies of the Group. On 10 June 2014, the Company declared a dividend of RUB 211 per ordinary and preferred share amounting to RUB 37,481 million. A part of the dividend declared was attributable to the companies of the Group. At 31 December 2014 dividends payable equalled RUB 398 million. The IFRS consolidated financial statements of the Group are the basis for determining profit distribution and other appropriations. EARNINGS PER SHARE Earnings per share ( EPS ) is calculated by dividing profit for the year attributable to ordinary shares of the Company by the weighted average number of ordinary shares outstanding during the year adjusted for shares purchased by the Group and held as treasury shares. Profit for the year attributable to owners of the Company is allocated between the Company s ordinary and preferred shares at a ratio of 1:1 in accordance with their participation rights as described in the Company s charter. Reciprocal interests relating to Sistema-invest s ownership in the Group are deducted from the total outstanding shares in computing the weighted average number of outstanding ordinary shares. Basic and diluted earnings per share are calculated as follows: Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 (millions of roubles, except per share data) Weighted average number of ordinary shares outstanding 148,586,876 157,085,505 151,224,401 Weighted average number of preferred shares outstanding 27,450,581 33,651,301 32,188,317 Weighted average number of shares outstanding 176,037,457 190,736,806 183,412,718 Profit for the year attributable to holders of ordinary shares of the Company 36,418 38,024 43,114 Profit for the year attributable to holders of preferred shares of the Company 6,728 8,146 9,177 Profit for the year attributable to owners of the Company 43,146 46,170 52,291 Basic and diluted earnings per share (Russian roubles per share) 245.10 242.06 285.10

194 ANNUAL REPORT 2014 22. BORROWINGS Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Rate, % Outstanding balance Rate, % Outstanding balance Rate, % Outstanding balance NON-CURRENT LIABILITIES Unsecured fixed interest rate loans and borrowings Unsecured non-convertible bonds issued in February 2013 Unsecured non-convertible bonds issued in May 2014 Unsecured non-convertible bonds issued in December 2009 8.00% 10.55% 91,944 8.35% 8.85% 19,984 8.9% 9.53% 59,928 8.65% 8.85% 29,969 8.65% 8.85% 29,960 10.70% 10,000 8.35% 5,274 8.35% 5,269 8.35% 5,266 Secured floating rate borrowings Libor 1M+ 1.70% 2,045 Libor 1M+ 1.70% 13,697 Libor 1M + 1.55% 3,022 Unsecured non-convertible bonds issued in February 2012 9.0% 9,992 9.0% 9,985 Total 139,232 78,902 78,201 CURRENT LIABILITIES Current portion of secured floating rate borrowings Libor 1M+ 1.70% 18,555 Libor 1M+ 1.55% 1.70% 8,904 Libor 1M + 1.55% 4,534 Unsecured non-convertible bonds issued in February 2012 Unsecured non-convertible bonds issued in December 2011 Current portion of unsecured fixed interest rate borrowings 9.0% 9,998 0.10% 3,010 9.35% 9,990 7.75% 17,483 Total 28,553 11,914 32,007 As a result of the decision of the Moscow Commercial Court on the recovery of JSOC Bashneft s shares owned by Sistema and Sistema-invest in favour of the Russian Federation, some debt become payable on demand due to covenants in respect of changes in control. All such debt was repaid in due time or waivers were received. UNSECURED NON-CONVERTIBLE BONDS On 22 December 2009, the Group issued 50,000,000 non-convertible RUB-denominated bonds at a par value of RUB 1,000. The bonds had a coupon rate of 12.5% from issuance date to 21 December 2012 per annum, payable semi-annually. In October 2011, the Group filed a voluntary buy-back offer, as a result of which 38,496,306 bonds were bought back at par value of RUB 1,050. The excess of the purchase price over the par value of bonds in the amount of RUB 1,925 million was recognised in the consolidated statement of profit or loss and other comprehensive income within Finance costs. In December 2012, the Group exercised a mandatory buy-back from bondholders willing to redeem the bonds at par value, as a result of which 6,220,765 bonds were bought back at par value and a new maturity date of December 2016 was established for the remaining bonds. The coupon rate was set at 8.35%. In February 2012, the Group issued 10,000,000 non-convertible RUB-denominated bonds at a par value of RUB 1,000 and a maturity date in February 2022. The bonds have a coupon rate of 9.00% from issuance date to February 2015 per annum payable semi-annually. Subsequent coupon rates are to be determined in February 2015 at which point bondholders have the right to redeem the bonds at par value. In February 2013, the Group issued 10,000,000 non-convertible RUB-denominated bonds (Series 06), 10,000,000 non-convertible RUB-denominated bonds (Series 07), 5,000,000 non-convertible RUB-denominated bonds (Series 08) and

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 195 5,000,000 non-convertible RUB-denominated bonds (Series 09) at par value of RUB 1,000 maturing in 2023. The Series 06 and 08 bonds have a coupon rate of 8.65% per annum and subsequent coupon rates are to be determined in February 2018. The Series 07 and 09 bonds have a coupon rate of 8.85% per annum and subsequent coupon rates are to be determined in February 2020. When new coupon rates are determined bondholders have the right to redeem the bonds at par value. In May 2014 the Group issued 10,000,000 non-convertible RUB-denominated bonds at a par value of RUB 1,000 and maturity in May 2024. These bonds have a coupon rate 10.7% per annum from the date of issuance to November 2018 payable semi-annually. Subsequent coupon rates are to be determined in November 2018 at which point the bondholders have the right to redeem the bonds at par value. SECURED BORROWINGS In May 2013, the Group entered into a pre-export finance term loan facility agreement with a group of international banks allowing borrowings of USD 600 million. The facility has a three-year maturity and originally was to be repaid in equal monthly instalments after a one-year grace period. The facility is secured with future revenue from the export of petroleum products for the duration of the facility. The interest rate is USD Libor 1M +1.70%. In December 2014, the Group made an accelerated repayment of principal in the amount of USD 56 million (RUB 3,339 million) and committed to repay in advance another USD 133 million (RUB 7,501 million), which were repaid in January 2015. Repayment schedule for the amount outstanding starting from February 2015 was adjusted to reflect these early extinguishments. UNSECURED LOANS AND BORROWINGS At 31 December 2014, unsecured fixed interest rate loans and borrowings are denominated in RUB and were obtained from a variety of lenders. The loans and borrowings mature from 2016 through 2020 (31 December 2013: denominated in RUB with maturity from 2016 to 2019, 31 December 2012: denominated in RUB with maturity from 2013 to 2018). 23. PREPAYMENT ON OIL PRODUCTS SUPPLY AGREEMENT In April 2014 the Company entered into a long-term oil products supply agreement and subsequently received an advance of US Dollar 500 million (RUB 17,347 million). The total minimum delivery volume approximates 3,150 thousand tons of oil products in the period from the date of the contract to July 2019. The agreements stipulate pricing calculated with reference to market quotes, and prepayments are settled through physical deliveries of oil products. The prepayments will be reimbursed starting from 2016. The Group considers this agreement to be a regular way sale contract which was entered into for the purpose of the delivery of a non-financial item in accordance with the Company s expected sale requirements. The outstanding balance is subject to interest at Libor + 1.5% per annum. 24. DECOMMISSIONING PROVISION Millions of Russian roubles Balance at 1 January 2012 9,507 Unwinding of discount (refer to note 11) 902 New obligations 14 Changes in estimates of existing obligations (2,643) Property dispositions (93)

196 ANNUAL REPORT 2014 Balance at 1 January 2012 9,507 Balance at 31 December 2012 7,687 Unwinding of discount (refer to note 11) 726 New obligations 250 Changes in estimates of existing obligations (1,255) Property dispositions (666) Balance at 31 December 2013 6,742 Acquired on acquisition of subsidiaries 25 Unwinding of discount (refer to note 11) 613 New obligations 219 Changes in estimates of existing obligations 996 Property dispositions (533) Balance at 31 December 2014 8,062 Decommissioning provision represents an estimate of costs of wells liquidation, disturbed land restoring and dismantling of other oilfield assets. The amount of payments under decommissioning provision is determined on an annual basis. Depending on the economic environment the actual expenditures may vary from the budgeted amounts. Current and non-current portions of decommissioning provision are as follows: Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Current portion (included in Provisions) 589 597 604 Non-current portion 7,473 6,145 7,083 Total decommissioning provision 8,062 6,742 7,687 Key assumptions used in the computation of the decommissioning provision were as follows: 31 December 2014 31 December 2013 31 December 2012 Discount rate 12.00% 9.93% 10.29% Inflation rate 4.00% 12.50% 1.62% 5.35% 2.02% 7.42% The Group has estimated the costs to be incurred using the cost of technology and materials that are available at each reporting date. 25. OTHER NON-CURRENT LIABILITIES Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Defined benefit obligation 1,434 1,216 899 Constructive obligation to ОАО LUKOIL (refer to note 14) 4,768 4,768 Other non-current liabilities 288 180 264 Total 1,722 6,164 5,931

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 197 CONSTRUCTIVE OBLIGATION TO ОАО LUKOIL In 2012 as a result of the Federal Agency for Subsoil Use ( Rosnedra ) order Trebs and Titov oilfield license was transferred to the Company from Bashneft-Polyus, which was a joint venture of the Company and ОАО LUKOIL. As a result of that the license with a carrying value of RUB 18,490 million was recognised within Bashneft s property, plant and equipment with the corresponding decrease in the investment in Bashneft-Polyus. Cash consideration in the amount of RUB 4,768 million paid to the Company by ОАО LUKOIL for 25.1% shares of Bashneft-Polyus was recognised in other non-current liabilities as a constructive obligation. On 23 May 2014, as a result of an order issued by Rosnedra the Trebs and Titov oilfield license was transferred from Bashneft to its subsidiary Bashneft-Polyus. This transaction resulted in an increase in non-controlling interests in the amount of RUB 3,616 million with the corresponding decrease in constructive obligation to ОАО LUKOIL in the amount of RUB 4,768 million. As a result of this transaction the Group recognised a gain in the amount of RUB 1,152 million within Additional paid-in Capital in the consolidated statement of changes in equity. DEFINED BENEFIT PLANS The Group operates a number of unfunded defined benefit plans for its employees. In accordance with these plans, the employees are entitled to certain benefits in accordance with the terms of collective agreements (such as retirement bonus, anniversary bonus, reimbursement of funeral costs). 26. TRADE AND OTHER PAYABLES Millions of Russian roubles FINANCIAL LIABILITIES 31 December 2014 31 December 2013 31 December 2012 Trade payables and other payables 32,900 45,129 22,441 Interest payable 1,629 1,392 516 Total 34,529 46,521 22,957 NON-FINANCIAL LIABILITIES Salary payable and accrued vacation liabilities 2,811 3,130 4,857 Phantom share plan liability 721 1,128 Total 2,811 3,851 5,985 Total trade and other payables 37,340 50,372 28,942 The average credit period on purchase of the majority of inventories and services consumed is 41 days (31 December 2013: 43 days, 31 December 2012: 38 days). No interest is charged on the outstanding balance of trade and other payables during this period. 27. TAXES Millions of Russian roubles OTHER TAXES RECEIVABLE 31 December 2014 31 December 2013 31 December 2012 VAT recoverable 17,667 11,867 9,851 Custom duties prepaid 12,219 12,511 11,866 Other taxes receivable 936 1,612 817 Total 30,822 25,990 22,534

198 ANNUAL REPORT 2014 31 December 2014 31 December 2013 31 December 2012 OTHER TAXES PAYABLE VAT payable 6,875 1,561 1,955 Mineral extraction tax 5,048 5,455 4,770 Excise tax 3,669 2,105 1,995 Other taxes payable 1,174 1,219 1,665 Total 16,766 10,340 10,385 28. RELATED PARTIES GOVERNMENT-RELATED ENTITIES From 9 December 2014 the Government of Russian Federation became the ultimate controlling party of Bashneft Group (refer to note 1). Starting from that date the Group has applied the exemption allowed by IAS 24 Related Party Disclosures not to disclose all government related transactions. In the normal course of business the Group enters into transactions with the entities controlled by the government. The Group had transactions during the period starting from 9 December 2014 to 31 December 2014 and balances outstanding as at 31 December 2014 with government-related banks. All transactions are carried out on market rates. At 31 December 2014, balances of cash and cash equivalents which were held in government related banks were RUB 47,865 million and borrowings owed to government related banks were RUB 80,314 million. For the period starting from 9 December 2014 to 31 December 2014 interest income and expenses were RUB 536 million and RUB 652 million, respectively. For the period starting from 9 December 2014 to 31 December 2014 the only significant transactions with government-related entities were related to transportation of oil and oil products and comprised approximately 7 percent of total transportation expenses for the year ended 31 December 2014. At 31 December 2014 balances of advances given to government-related parties were approximately 42 percent of total advances to suppliers and prepaid expenses at 31 December 2014 and mainly comprised of advances for transportation services. ASSOCIATE AND JOINT VENTURES At 31 December 2014, 2013 and 2012, the Group had the following outstanding balances with associate and joint ventures: Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Amount owed by associate and joint ventures 154 402 1,617 Total assets 154 402 1,617 Amount owed to associate and joint ventures 3 16,922 1,701 Total liabilities 3 16,922 1,701 The amounts outstanding were unsecured and are expected to be settled in cash. The Group does not create an allowance for doubtful receivables in respect of outstanding balances of related parties. No balances owed by related parties were past due but not impaired. No expense has been recognised in the current year for bad debts in respect of amounts owed by related parties. The Group entered into the following transactions with associate and joint ventures of the Group:

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 199 Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Sale of goods and services 1,624 2,140 2,421 Purchase of property and construction services 2,903 11,893 260 Purchase of goods and services 1,172 2,038 2,885 Proceeds from borrowing 1,683 Repayment of borrowing 1,683 Interest expense 42 Interest income 565 1,130 542 SISTEMA GROUP COMPANIES As described in note 1, on 9 December 2014 effective control over the Company passed from Sistema to the Government of the Russian Federation and, from that date, the Russian Federation became the ultimate controlling party of the Group. As of the same date, Sistema and businesses controlled by Sistema (collectively Sistema group companies ) ceased to be related parties of the Bashneft Group. The Group entered into the following transactions with Sistema group companies: Millions of Russian roubles Period ended 8 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Sale of subsidiaries 10,392 Obtaining control over UPC (refer to note 4) 6,200 Sale of goods and services 10,968 4,143 2,648 Purchase of goods and services 20,455 16,612 12,578 Purchase of property and construction services 8,712 3,348 4,277 Dividends declared 28,098 31,768 12,721 Other income, net 1,394 2,517 2,254 COMPENSATION OF KEY MANAGEMENT PERSONNEL The remuneration of directors and other key management personnel was as follows: Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Wages and salaries 669 844 749 Phantom shares granted 631 576 356 Termination benefits 4 4 130 Total 1,304 1,424 1,235 At 31 December 2014, outstanding balances in respect of wages and salaries of key management personnel were RUB 47 million (31 December 2013: RUB 574 million, 31 December 2012: RUB 471 million).

200 ANNUAL REPORT 2014 29. FINANCIAL RISK MANAGEMENT CAPITAL RISK MANAGEMENT The Group s objectives when managing capital are to safeguard the Group s ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The Board s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. The Group may adjust the amount of dividends paid to shareholders and return on capital to shareholders, issue new shares or sell assets to reduce debt, maintain or adjust the capital structure. The Board monitors the return on capital, which the Group defines as a total net borrowings divided by Segment EBITDA (refer to note 6). The Group defines total net borrowings as total borrowings less cash and cash equivalents and since it is not a standard IFRS measure, the Group s definition of total net borrowings may differ from that of other companies. The Group s gearing ratio was as follows: Millions of Russian roubles 31 December 2014 31 December 2013* 31 December 2012* Total net borrowings 114,967 74,421 90,104 Segment EBITDA 100,778 102,386 103,781 Net borrowings to Segment EBITDA ratio 1.14 0.73 0.87 MAJOR CATEGORIES OF FINANCIAL INSTRUMENTS Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 FINANCIAL ASSETS Cash and cash equivalents 52,818 16,395 20,104 Trade and other receivables 14,696 27,317 28,366 Loans given, at amortised cost 4,889 8,526 35,403 Available-for-sale investments in BESK held at cost 7,406 Available-for-sale investments in Ufaorgsintez held at fair value 423 Derivative financial instruments 90 Other financial assets 8 Deposits 8 46 5,136 Other non-current assets 1,619 380 798 Total financial assets 74,030 53,177 97,221 FINANCIAL LIABILITIES Borrowings 167,785 90,816 110,208 Trade and other payables 34,529 46,521 22,957 Dividends payable 398 275 224 Total financial liabilities 202,712 137,612 133,389

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 201 FOREIGN CURRENCY RISK Currency risk is the risk that the financial results of the Group will be adversely impacted by changes in exchange rates to which the Group is exposed. The Group undertakes certain transactions denominated in foreign currencies and is primarily exposed to the US Dollar and EUR. The Group manages its net exposure to foreign exchange risk by balancing both financial assets and financial liabilities denominated in Russian Rouble, US Dollar and EUR. *As discussed in note 10, certain comparative figures have been reclassified to conform with the financial statements presentation adopted for the current year The carrying amount of the Group s US Dollar and EUR denominated monetary assets and liabilities at 31 December 2014, 2013 and 2012 were as follows: Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 ASSETS Trade and other receivables, excluding prepayments 10,535 15,846 15,078 Loans given, at amortised cost 4,969 2,953 Cash and cash equivalents 10,552 813 4,128 Other non-current assets 1,616 Total assets 22,703 21,628 22,159 LIABILITIES Borrowings 20,600 22,601 7,556 Trade and other payables 1,435 445 974 Total liabilities 22,035 23,046 8,530 The table below details the Group s sensitivity to the strengthening of the US Dollar and EUR against the Russian Rouble by 30%. This analysis assumes that all other variables, in particular interest rates, remain constant. This analysis is based on foreign currency exchange rate variances that the Group considered to be reasonably possible at the end of the reporting period. The analysis was applied to monetary items at the end of the period denominated in the respective currencies. Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Increase/ (decrease) in profit before tax 200 (426) 4,089 The effect of a corresponding strengthening of the Russian Rouble against the US Dollar and EUR is approximately equal and opposite. LIQUIDITY RISK Liquidity risk is the risk that the Group will not be able to settle all its liabilities as they fall due. The Group s liquidity position is carefully monitored and managed. The Group has a detailed budgeting and cash forecasting process to help ensure that it has adequate cash available to meet its payment obligations. The following tables detail the Group s remaining contractual maturity for its financial liabilities and net-settled financial liabilities at 31 December 2014, 2013 and 2012. The tables include both interest and principal cash flows. The contractual maturity is based on the earliest date on which the Group may be required to pay or net-settle its financial liabilities.

202 ANNUAL REPORT 2014 Millions of Russian roubles 31 December 2014 Carrying amount Contractual cash flows 0 6 months 6 12 months 1 5 years Over 5 years Unsecured borrowings 91,944 123,495 4,305 4,305 102,333 12,552 Secured borrowings 20,600 20,914 16,091 2,641 2,182 Unsecured non-convertible bonds 55,241 72,833 12,527 2,068 42,598 15,640 Dividends payable 398 398 398 Trade and other payables 34,529 34,529 34,529 Total 202,712 252,169 67,850 9,014 147,113 28,192 Millions of Russian roubles 31 December 2013 Carrying amount Contractual cash flows 0 6 months 6 12 months 1 5 years Over 5 years Unsecured borrowings 19,984 27,313 860 860 15,026 10,567 Secured borrowings 22,601 23,499 3,484 5,891 14,124 Unsecured non-convertible bonds 48,231 65,367 1,985 5,001 41,417 16,964 Dividends payable 275 275 275 Trade and other payables 46,521 46,521 46,521 Total 137,612 162,975 53,125 11,752 70,567 27,531 Millions of Russian roubles 31 December 2012 Carrying amount Contractual cash flows 0 6 months 6 12 months 1 5 years Over 5 years Unsecured borrowings 77,411 102,443 3,443 20,636 63,156 15,208 Secured borrowings 7,556 7,723 2,341 2,320 3,062 Unsecured non-convertible bonds 25,241 30,199 1,154 11,138 17,907 Dividends payable 224 224 224 Trade and other payables 22,957 22,957 22,957 Total 133,389 163,546 30,119 34,094 84,125 15,208 For the management of its day to day liquidity requirements the management had following unused credit facilities. Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Committed credit facilities 54,188 43,209 70,485 Less: amounts withdrawn (11,629) (37,500) Total unused credit facilities 42,559 43,209 32,985 INTEREST RATE RISK Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments. The table below detail's the Group's annualised sensitivity to a change of floating Libor rate by 1% which would impact its operations. The analysis was applied to borrowings based on the assumption that amount of liability outstanding at the date of statements of financial position was outstanding for the whole period.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 203 Millions of Russian roubles Year ended 31 December 2014 Year ended 31 December 2013 Year ended 31 December 2012 Change in profit or loss 208 229 76 30. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial assets and liabilities is determined as follows: / The fair value of financial assets and financial liabilities with standard terms and conditions and traded on active liquid markets are determined with reference to quoted market prices; / The fair value of other financial assets and financial liabilities are determined in accordance with generally accepted pricing models based on discounted cash flow analysis using prices from observable current market transactions; and / The fair value of derivative financial instruments is based on market quotes. At 31 December 2014, 2013 and 2012 management believes that the carrying values of financial liabilities recorded at amortised cost in the consolidated financial statements approximated their fair values, except for the unsecured non-convertible bonds and unsecured fixed interest rate loans and borrowings obtained in first half of 2014 and earlier: Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Carrying value Fair value Carrying value Fair value Carrying value Fair value Unsecured non-convertible bonds 55,241 48,717 48,231 48,740 25,241 25,477 unsecured fixed interest rate loans and borrowings 91,944 85,283 19,984 19,984 77,411 77,411 At 31 December 2014 non-current loans given with carrying value of RUB 3,500 million had fair value of RUB 2,278 million. At 31 December 2013 and 2012 the carrying value of long-term financial assets approximated their fair values. Management believes that the carrying value of current financial assets and liabilities approximated their fair values due to their short-term nature. At 31 December 2014 there were no assets and liabilities of the Group that are measured at fair value in accordance with the fair value hierarchy. At 31 December 2013 assets and liabilities of the Group that are measured at fair value in accordance with the fair value hierarchy were as follows: Millions of Russian roubles Level 1 Level 2 Level 3 Total NON-CURRENT ASSETS Available-for-sale investment 423 423 Derivative financial instruments 90 90 Total 90 423 513

204 ANNUAL REPORT 2014 31. COMMITMENTS AND CONTINGENCIES CAPITAL COMMITMENTS At 31 December 2014, contractual capital commitments of the Group amounted to RUB 67,430 million (31 December 2013: RUB 8,601 million, 31 December 2012: RUB 9,799 million). These commitments are expected to be settled during 2015 2019. Included in total capital commitments is RUB 35,858 million of capital commitments arisen in 2014 mainly in respect of drilling services based on the Group s capital construction programme, which is re-evaluated on an annual basis. OPERATING LEASES: GROUP AS A LESSEE The Group leases certain production equipment, transport and office premises. The leases typically run for periods varying from 1 to 10 years with no renewal option at the end of the lease term. The Group s extraction, refining, marketing and distribution and other facilities are located on land under operating leases, which expire in various years through 2062. The amount of rental expenses for the year ended 31 December 2014 were RUB 1,308 million (year ended 31 December 2013: RUB 1,488 million, year ended 31 December 2012: RUB 2,700 million). Future minimum rental expenses under non-cancellable operating leases are as follows: Millions of Russian roubles 31 December 2014 31 December 2013 31 December 2012 Due in one year 1,066 936 1,371 Due from one to five years 2,977 2,972 4,461 Thereafter 11,951 11,972 19,536 Total 15,994 15,880 25,368 TAXATION CONTINGENCIES IN THE RUSSIAN FEDERATION The taxation system in the Russian Federation is at a relatively early stage of development, and is characterised by numerous taxes, frequent changes and inconsistent enforcement at federal, regional and local levels. The government of the Russian Federation has commenced a revision of the Russian tax system and passed certain laws implementing tax reform. The new laws reduce the number of taxes and overall tax burden on businesses and simplify tax litigation. However, these new tax laws continue to rely heavily on the interpretation of local tax officials and fail to address many existing problems. Many issues associated with practical implication of new legislation are unclear and complicate the Group s tax planning and related business decisions. In terms of Russian tax legislation, authorities have a period of up to three years to re-open tax declarations for further inspection. Changes in the tax system that may be applied retrospectively by authorities could affect the Group s previously submitted and assessed tax declarations. While management believes that it has adequately provided for tax liabilities based on its interpretation of current and previous legislation, the risk remains that tax authorities in the Russian Federation could take differing positions with regard to interpretive issues. This uncertainty may expose the Group to additional taxation, fines and penalties that could be significant. With regard to matters where practice concerning payment of taxes is unclear, management estimated nil possible tax exposure at 31 December 2014 (31 December 2013: RUB nil, 31 December 2012: RUB nil). Russian transfer pricing legislation was amended starting from 1 January 2012 to introduce additional reporting and documentation requirements. The new legislation allows the tax authorities to impose additional tax liabilities in respect of

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 1. CONSOLIDATED IFRS FINANCIAL STATEMENTS OF BASHNEFT GROUP FOR 2014 205 certain transactions, including but not limited to transactions with related parties, if they consider transaction to be priced not at arm's length. As the practice of implementation of the new transfer pricing rules has not yet developed and wording of some clauses of the rules is unclear, the impact of challenge of the Group's transfer pricing positions by the tax authorities cannot be reliably estimated. The Group s management believes that taxes payable are calculated in compliance with the applicable tax regulations relating to transfer pricing. However there is a risk that the tax authorities may take a different view and impose additional tax liabilities. At 31 December 2014, no provision was recorded in the consolidated financial statements in respect of such additional claims. LEGAL CONTINGENCIES At 31 December 2014, unresolved legal claims against the Group amounted to RUB 289 million (31 December 2013: RUB 151 million, 31 December 2012: RUB 49 million). Management estimates the unfavourable outcome of the legal claims to be possible, and consequently no provision has been raised. The Group is rigorously defending itself in relation to such legal claims. INSURANCE The Group does not have full coverage for property damage or loss, for business interruption and third party liabilities in respect of damage on the Group s property or relating to the Group s operations. Until the Group obtains adequate insurance coverage, there is a risk that losses relating to such matters could have a material adverse effect on the Group s operations and financial position. RUSSIAN FEDERATION ECONOMIC ENVIRONMENT Emerging markets such as the Russian Federation are subject to different risks than more developed markets, including economic, political and social, and legal and legislative risks. Laws and regulations affecting businesses in the Russian Federation continue to change rapidly, tax and regulatory frameworks are subject to varying interpretations. The future economic direction of the Russian Federation is heavily influenced by the fiscal and monetary policies adopted by the government, together with developments in the legal, regulatory, and political environment. Because the Russian Federation produces and exports large volumes of oil and gas, its economy is particularly sensitive to the price of oil and gas on the world market. Starting from March 2014, sanctions have been imposed in several packages by the U. S. and the E. U. on certain Russian officials, businessmen and companies. In April 2014, an international credit agency Standard & Poor s downgraded Russia s long-term foreign currency sovereign rating from BBB to BBB- with a negative outlook. Fitch credit agency has also revised Russia s creditworthiness outlook from stable to negative. These developments, particularly if sanctions are further extended, may result in reduced access of the Russian businesses to international capital and export markets, capital flight, weakening of the Rouble and other negative economic consequences. The impact of these developments on future operations and financial position of the Group is at this stage difficult to determine. 32. EVENTS SUBSEQUENT TO THE REPORTING DATE On 18 March 2015 an Extraordinary General Meeting of Shareholders of the Company approved a redemption of the Company s authorized share capital by cancelling 2,724,173 ordinary shares with a par value of one rouble each which were accounted as treasury shares at 31 December 2014.

206 ANNUAL REPORT 2014 APPENDIX 2. INFORMATION ON COMPLIANCE OF THE JOINT-STOCK COMPANY WITH THE PRINCIPLES AND RECOMMENDATIONS SET OUT IN THE CODE OF CORPORATE GOVERNANCE APPROVED BY THE BANK OF RUSSIA 2014 BECAME THE FIRST YEAR WHEN THE UPDATED CODE OF CORPORATE GOVERNANCE BECAME EFFECTIVE. EVEN WHEN THE DRAFT CODE WAS STILL UNDER REVIEW, THE COMPANY TOOK ACTIVE PART IN DISCUSSION OF ITS PROVISIONS WITH MEMBERS OF THE EXPERT COMMUNITY, TAKING ITS RECOMMENDATIONS VERY SERIOUSLY. THE ANNUAL REPORT FOR 2014 IS THE FIRST REPORT THAT WE PREPARED FOLLOWING THE RECOMMENDATIONS CONTAINED IN THE NEW CODE, AND AS A PUBLIC COMPANY WE MADE EVERY EFFORT TO PAY PROPER REGARD TO THESE RECOMMENDATIONS IN THE COURSE OF OUR OPERATIONS. THE COMPANY DOES NOT YET FULLY COMPLY WITH SOME RECOMMENDATIONS IN THE CODE GIVEN BELOW BUT WILL PAY PROPER REGARD TO THEM WHEN MAKING FURTHER EFFORTS TO IMPROVE THE CORPORATE GOVERNANCE PLANNED FOR THE NEAR FUTURE. Alexey Teksler, Chairman of the Board of Directors The Group s corporate governance system is based on the requirements of Russian legislation, listing rules of the Moscow Exchange, recommendations from the Russian Code of Corporate Governance, international corporate conduct and business ethics standards, and the principles of openness and transparency. A more detailed description of material aspects of the corporate governance model and practice is provided in the Corporate Governance section of the Annual Report. Information on compliance with the recommendations set out in the Code is provided below; it is presented in a format that the Moscow Exchange recommends issuers to use. The Group has assessed compliance with provisions of the Code independently (the assessment has been made by the Corporate and Legal Unit and the Corporate Secretary), using the recommended format and taking a critical approach based on the analysis of recommendations on the corporate governance principles given in the Code (Part B). The assessment methodology involved benchmarking the Company s practices against itemized recommendations. Where at least one of the itemized recommendations concerning the principles was not followed properly, the relevant paragraph was recognized in the assessment below as being observed only partially. If none of itemized recommendations in a subparagraph were observed, the latter was recognized as not observed by the Company. The notes contain the Company s comments specifying which specific subparagraphs of the itemized recommendations are not followed (or are followed only partially), according to the Company and its Board of Directors. The main comments and explanations of the causes of non-compliance with some recommendations of the Code and alternative governance options used by the Company or plans to improve corporate governance are presented in the table below and in the Corporate Governance section of the Annual Report.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 2. INFORMATION ON COMPLI- ANCE OF THE JOINT-STOCK COMPANY WITH THE PRINCIPLES AND RECOMMENDATIONS SET OUT IN THE CODE OF CORPORATE GOVERNANCE APPROVED BY THE BANK OF RUSSIA 207 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 1 2 3 4 I. SHAREHOLDERS RIGHTS AND EQUITABLE TREATMENT OF SHAREHOLDERS EXERCISING THEIR RIGHTS 1.1. The company should treat all shareholders equally and fairly when they exercise their rights to participate in the management of the company. The corporate governance system and practices should provide for equal conditions for all shareholders owning shares the same category (type), including minority shareholders and foreign shareholders, and equal treatment of them on the part of the company. 1.1.1. The company has approved an internal document establishing basic procedures for preparing, convening and holding the general meeting of shareholders, which complies with the recommendations set out in the Code of Corporate Governance, including the following obligations of the company: to notify the shareholders of the upcoming general meeting of shareholders and provide access to the meeting materials, including posting the notification and materials on the company s website at least thirty days before the date of the meeting (unless the laws of the Russian Federation provide for a longer period of time); to disclose information on the date of compiling a list of persons entitled to participate in the general meeting of shareholders at least seven days before this date; to provide additional information and materials concerning items of the agenda of the general meeting of shareholders in accordance with the recommendations of the Code of Corporate Governance. 1.1.2. During preparations for the general meeting of shareholders and during the meeting itself, the company shall provide shareholders with opportunities to put questions on the company s operations to the governing and supervisory bodies, members of the audit committee, the chief accountant, the company s auditors and candidates nominated to the governing and supervisory bodies. The said obligations are formalized in the company s charter or internal documents. 1.1.3. The company shall adhere to a principle of zero tolerance for actions leading to artificial redistribution of corporate control (for example, voting with quasi-treasury shares, making a decision to pay dividends on preferred shares when financial resources are limited, making decision to pay no dividends on preferred shares as defined in the company s charter despite the fact that adequate sources for their payment are available). The said obligations are formalized in the company s charter or internal documents. The principle is not observed in terms of the company s obligation to provide access to materials of the general meeting of shareholders at least thirty days before the date of such meeting. The principle is observed The principle is observed Access to materials of the General Meeting of Shareholders is provided twenty days before the meeting. In doing so, the Company gives the shareholders an opportunity to acquaint themselves with the meeting materials at the Company s location and at the registrar s location, and sends the materials to a nominee shareholder electronically and posts them on the Company s official website in Russian and English. In order to observe the recommendations set out in the Code concerning preparation for general meetings of shareholders, JSOC Bashneft: discloses information on the date of making a list of persons entitled to participate in a general meeting of shareholders ten days before the meeting; notifies of an upcoming general meeting of shareholders by publishing the relevant notification in newspapers specified in the Company s Charter, posting it on its website (including in English) and sending the notification to a nominee shareholder thirty days before the meeting; includes all the information required by the shareholders for making decision on participation in the general meeting and the form of such participation in the notification, in addition to information to be included in the notification of the upcoming general meeting under applicable laws; publishes information on how to get to the venue of the General Meeting of Shareholders, a model power of attorney and the procedure for notarizing such power of attorney on the Company s website in advance.

208 ANNUAL REPORT 2014 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 1.1.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). - 1.2 The shareholders should be given equal and equitable opportunities to receive a share of the company s profits by receiving dividends. 1.2.1. The company has approved an internal document outlining the company s dividend policy meeting the recommendations set out in the Code of Corporate Governance and establishing, among other things: the procedure for determining the portion of net income (the minimal portion (share) of consolidated net income for companies preparing consolidated financial statements) to be allocated for dividend payments; conditions for declaration of dividends; the minimal size of dividends on the company s shares of various categories (classes); obligation to disclose a document outlining the company s dividend policy by posting it on the company s website on the Internet. 1.2.2. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is observed - II. THE COMPANY S BOARD OF DIRECTORS 2.1 The board of directors is responsible for setting basic long-term strategic targets for the company s operations, its key performance indicators, strategic management of the company s business, establishing the key principles of and approaches to creating a risk management and internal control system in the company, supervising the work of the company s executive bodies, determining the company s policy of remuneration of members of the board of directors and executive bodies and performing other key functions. 2.1.1. The company has formed the board of directors, which: sets basic long-term strategic targets for the company s operations and its key performance indicators; supervises the work of the company s executive bodies; establishes the key principles of and approaches to creating a risk management and internal control system in the company; formulates the company s policy of remuneration of members of the board of directors, executive bodies and other key executives of the company. 2.1.2. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed in terms of the obligation of the board of directors to determine the principles of and approach to creating an internal control system in the company. - In 2014 the Internal Audit Unit of the Company provided recommendations concerning the approach to and principles of organization of internal audit/control. The Board of Directors plans to review the internal audit principles and the regulations on internal audit in 2015. 2.2. The board of directors should be an effective and professional governing body of the company, able to make objective independent judgements and make decisions in the interests of the company and its shareholders. The chairman of the board of directors should ensure that functions assigned to the board of directors are performed as efficiently as possible. Meetings of the board of directors, preparation for them and participation of members of the board of directors in the meetings should enable efficient work of the board of directors. 2.2.1. The board of directors is chaired by an independent director, or a senior independent director is selected among the elected independent directors to coordinate the work of the independent directors and communicate with the chairman of the board of directors. The principle is not observed The Company s Board of Directors is chaired by a non-executive member of the Board of Directors who is not an independent director of the Company. There is no position of Senior Independent Director on the Board of Directors of the Company.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 2. INFORMATION ON COMPLI- ANCE OF THE JOINT-STOCK COMPANY WITH THE PRINCIPLES AND RECOMMENDATIONS SET OUT IN THE CODE OF CORPORATE GOVERNANCE APPROVED BY THE BANK OF RUSSIA 209 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 2.2.2. The company s internal documents formalize a procedure for preparing and holding meetings of the board of directors making sure that the members of the board of directors can prepare for them properly, such procedure regulating the following: the deadline for notifying members of the board of directors of the upcoming meeting; the deadline for sending voting documents (ballots) and receiving filled-in documents (voting ballots) when holding meetings by absentee voting; an opportunity for members of the board of directors absent from the face-to-face meeting to send their written opinion on the agenda to ensure that it is taken into account; an opportunity for discussion and voting via a conference call and videoconferencing. 2.2.3. The most important issues are addressed at face-to-face meetings of the board of directors. The list of such issues complies with the recommendations of the Code of Corporate Governance 1. 2.2.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). Observed The principle is not observed in terms of holding face-to-face meetings of the board of directors over certain important issues specified in paragraph 168 of part B of the Code of Corporate Governance. - The Chairman of the Board of Directors makes a decision to hold a meeting of the Company s Board of Directors by absentee voting. During the reporting year, a number of decisions were made at meetings of the Board of Directors held by absentee voting, including decisions to convene the general meetings of shareholders, submitting issues of reorganization for review by the meeting, issues related to listing and some other matters. The Company tries to make sure that the most important issues that require exhaustive discussion and a balanced position of the Company s Board of Directors are reviewed at face-to-face meetings. 2.3. An adequate number of independent directors should sit on the board of directors. 2.3.1. Independent directors comprise at least one third of elected members of the board of directors. 2.3.2. Independent directors fully satisfy the independence criteria as recommended by the Code of Corporate Governance. 2.3.3. The board of directors (the nominating (HR, appointment) committee) assesses whether candidates nominated to the board of directors meet the independence criteria. 2.3.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed The principle is observed The principle is observed - Three members of the Board of Directors out of the total of ten elected members are independent members, which is less than one third of the total number of members of the Board of Directors. 2.4. The board of directors should establish committees for preliminary consideration of the most important issues related to the company s business. 2.4.1. The company s board of directors has created the audit committee consisting of independent directors, whose functions are formalized in internal documents and comply with the recommendations set out in the Code of Corporate Governance 2. The principle is observed 1. Specified in paragraph 168 of part B of the Code of Corporate Governance 2. Specified in paragraph 172 of part B of the Code of Corporate Governance

210 ANNUAL REPORT 2014 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 2.4.2. The company s board of directors has created the compensation committee (may be combined with the nominating (HR, appointment) committee) consisting of independent directors, whose functions comply with the recommendations set out in the Code of Corporate Governance 3. 2.4.3. The company s board of directors has created the nominating committee (may be combined with the compensation (HR, appointment) committee), most members of which are independent directors and whose functions comply with the recommendations set out in the Code of Corporate Governance 4. 2.4.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed The principle is not observed - The Nominating and Compensation Committee has been set up under the Board of Directors for preliminary consideration of matters related to the creation of a remuneration system in the Company. During the reporting year, there were no independent directors on the Committee. The Nominating and Compensation Committee has been set up under the Board of Directors for preliminary consideration of matters related to HR issues in the Company. During the reporting year, there were no independent directors on the Committee. 2.5. The board of directors should arrange an assessment of performance of the board of directors, its committees and members of the board of directors. 2.5.1. Performance of the board of directors is regularly assessed at least once every year, with an external organization (consultant) being engaged to make such assessment at least once every three years. 2.5.2. Performance evaluation of the board of directors should be aimed at assessing the performance of the board of directors, committees and members of the board of directors, determining whether their work meets the company s development requirements, intensifying the work of the board of directors and identifying opportunities for improvement of their performance. Results of self-assessment or an external assessment should be reviewed at a face-to-face meeting of the board of directors. III. THE CORPORATE SECRETARY OF THE COMPANY The principle is observed in part The principle is not observed in terms of review of the results of self-assessment of performance of the board of directors at a face-to-face meeting of the board of directors. During the reporting year, the Company conducted only self-assessment of performance of the Board of Directors and its committees. An outside consultant was not engaged for the assessment. The Corporate Secretary of the Company arranges self-assessment of performance of the Board of Directors and Committees of the Board of Directors in accordance with a procedure established by the Board of Directors. In 2014 results of the self-assessment were reviewed at a meeting of the Board of Directors held by absentee voting. 3.1 The corporate secretary (a special division headed by the corporate secretary) is responsible for facilitating efficient ongoing communication with shareholders, coordinating the company s efforts to protect the shareholders rights and interests and supporting efficient work of the board of directors. 3.1.1. The corporate secretary reports to the board of directors, is appointed and dismissed under a resolution or subject to approval of the board of directors. 3.1.2. The corporate secretary s rights and obligations are formalized in an internal document approved by the company (Regulations on the corporate secretary) that complies with the recommendations of the Code of Corporate Governance 5. 3.1.3. The corporate secretary occupies a position that does not involve concurrent performance of other functions in the company. The corporate secretary s functions are assigned to him/her in accordance with the recommendations of the Code of Corporate Governance 6.The corporate secretary possesses sufficient resources for performance of his/her functions. 3.1.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is observed The principle is observed The principle is observed - 3. Specified in paragraph 180 of part B of the Code of Corporate Governance 4. Specified in paragraph 186 of part B of the Code of Corporate Governance 5. Specified in paragraph 217 of part B of the Code of Corporate Governance 6 Specified in paragraph 218 of part B of the Code of Corporate Governance

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 2. INFORMATION ON COMPLI- ANCE OF THE JOINT-STOCK COMPANY WITH THE PRINCIPLES AND RECOMMENDATIONS SET OUT IN THE CODE OF CORPORATE GOVERNANCE APPROVED BY THE BANK OF RUSSIA 211 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company IV. SYSTEM OF REMUNERATION FOR MEMBERS OF THE BOARD OF DIRECTORS AND EXECUTIVE BODIES AND OTHER KEY EXECUTIVES OF THE COMPANY 4.1. The amount of remuneration paid by the company should be sufficient for attracting, motivating and retaining employees who have the competence and qualification required by the company. Remuneration should be paid to members of the board of directors, executive bodies and other key employees of the company in accordance with the remuneration policy adopted by the company. 4.1.1. All payments, incentives and benefits provided to members of the board of directors, executive bodies and other key executives of the company are regulated in the company. 4.1.2. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is observed - 4.2. The system of remuneration of members of the board of directors should ensure that the directors financial interests are aligned with long-term financial interests of shareholders. 4.2.1. The company does not use other forms of financial remuneration for members of the board of directors, except for fixed annual remuneration. 4.2.2. Members of the board of directors of the company are not given an opportunity to participate in share option plans, and the right to sell the company s shares owned by them does not depend on achievement of certain performance indicators. 4.2.3. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed The principle is not observed - During the corporate year, the following types of remuneration are paid to members of the Board of Directors for serving on the Board and/or the Board Committees: 1) base pay; 2) remuneration for participation in meetings of the Board Committees; 3) performance-based remuneration for the corporate year. The Company does not use a practice or a policy involving ownership of the Company s shares by members of the Board of Directors, including a practice of using the Company s shares as remuneration. 4.3. The system of remuneration of members of executive bodies and other key executives of the company should ensure that the remuneration is linked to the company s performance and reflects their personal contribution to this performance. 4.3.1. The company has implemented a programme of long-term incentives for members of executive bodies and other key executives of the company. The principle is observed 4.3.2. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). - V. RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM 5.1. The company should create an effective risk management and internal control system aimed at ensuring reasonable confidence that the company will achieve its goals. 5.1.1. The board of directors has determined principles of and approach to creating a risk management and internal control system in the company. The principle is not observed in so far as it relates to determination by the company s board of directors of the principles of and approach to the organization of internal control in the company. In 2014 the Internal Audit Unit of the Company put forward proposals concerning the approach to and the principles of organization of internal audit. The Board of Directors plans to review the internal audit principles and the regulations on internal audit in 2015.

212 ANNUAL REPORT 2014 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 5.1.2. The company has set up a separate risk management and internal control division. 5.1.3. The company has developed and implemented an anti-corruption policy that establishes measures for developing elements of corporate culture, organizational structure, rules and procedures preventing corruption. 5.1.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed in terms of existence of a separate internal control division in the company The principle is observed - The internal control powers are distributed among several units of the Company and are determined by internal documents approved under resolutions of the Company s President. 5.2. The company shall organize internal audit in order to make an independent and systematic assessment of the reliability and performance of the risk management and internal control system and corporate governance practice. 5.2.1. The company has set up a separate division performing internal audit functions and functionally subordinate to the board of directors of the company. Functions of the said subdivision comply with the recommendations in the Code of Corporate Governance and include the following: performance evaluation of the internal control system; performance evaluation of the risk management system; assessment of corporate governance (if there is no Corporate Governance Committee) The principle is observed in part The Company has set up a separate division: the Internal Audit Unit, whose functions include internal audit in departments responsible for various business areas. As its securities have been transferred to the premium listing segment of the Moscow Exchange, the Group has assumed additional obligations concerning the Company s corporate governance practice, including changes in the organizational structure, as a result of which the Company will have a division responsible only for internal audit. At present, the Internal Audit Unit includes the Internal Control Department. 5.2.2. The head of the Internal Audit division reports to the board of directors of the company and is appointed and dismissed under a resolution of the board of directors of the company. The principle is observed 5.2.3. The company has approved an internal audit policy (Regulations on Internal Audit) that determines the goals, objectives and functions of internal audit. 5.2.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed - The Board of Directors has not approved the Regulations on Internal Audit of the Company. As its securities have been transferred to the premium listing segment of the Moscow Exchange, the Group has assumed additional obligations concerning the Company s corporate governance practice, including approval of the Regulations on Internal Audit by the Board of Directors (consideration of the issue is scheduled for 2015). VI. DISCLOSURE OF INFORMATION ON THE COMPANY, INFORMATION POLICY OF THE COMPANY 6.1. The company and its operations should be transparent to shareholders, investors and other stakeholders.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 2. INFORMATION ON COMPLI- ANCE OF THE JOINT-STOCK COMPANY WITH THE PRINCIPLES AND RECOMMENDATIONS SET OUT IN THE CODE OF CORPORATE GOVERNANCE APPROVED BY THE BANK OF RUSSIA 213 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 6.1.1. The company has approved an internal document that determines the company s information policy complying with the recommendations set out in the Code of Corporate Governance. The company s information policy includes the following methods of communication with investors and other stakeholders: creating a special web page on the company s website containing answers to frequently asked questions from shareholders and investors, the company s calendar of corporate events that is regularly updated and other useful information for shareholders and investors; regular meetings of members of executive bodies and other key executives of the company with analysts; regular presentations (including in the form of videoconferences, webcasting) and meetings attended by members of the governing bodies and other key executives of the company, including presentations related to publication of the company s financial statements or those related to major investment projects and strategic development plans of the company. The principle is observed 6.1.2. The information policy is implemented by the company s executive bodies. The board of directors of the company supervises proper disclosure of information and observance of the information policy. 6.1.3. The company has established procedures ensuring coordination of all of the company s functions and divisions that are connected with disclosure of information or whose work may require disclosure of information. 6.1.4. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is observed The principle is observed - 6.2. The company should disclose comprehensive, up-to-date and reliable information on the company to ensure that its investors and shareholders can make informed decisions. 6.2.1. If foreign investors own a substantial stake in the capital, the company makes sure that the most important information on the company (including notifications of a general meeting of shareholders and the company s annual report) are disclosed not only in Russian but also in a foreign language that is generally accepted in the financial market. 6.2.2. The company makes efforts to disclose not only information on the company itself but also on legal entities under its control that are essential to the company. 6.2.3. The company discloses annual and interim (semi-annual) consolidated or individual financial statements prepared in accordance with International Financial Reporting Standards (IFRS). Annual consolidated or individual financial statements are disclosed together with an auditor s opinion, while interim (semi-annual) consolidated or individual financial statements are disclosed together with a financial audit report or an auditor s opinion. 6.2.4. The company has disclosed a special memorandum containing plans of an entity controlling the company with regard to the company. The said memorandum has been prepared in accordance with the recommendations set out in the Code of Corporate Governance 7. The principle is observed The principle is observed The principle is observed The principle is not observed The Company is not aware of the existence of a memorandum approved by the Company s principal shareholder and outlining the shareholder s plans and intentions with regard to the Company. 7. Specified in paragraph 279 of part B of the Code of Corporate Governance

214 ANNUAL REPORT 2014 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 6.2.5. The company makes sure that detailed biographical information on members of the board of directors is disclosed, including information on whether they are independent directors, and that information on loss of the status of an independent director by a member of the board of directors is promptly disclosed. 6.2.6. The company discloses information on the capital structure in accordance with the recommendations set out in the Code of Corporate Governance. 6.2.7. The annual report of the company contains additional information as recommended by the Code of Corporate Governance, specifically: a brief overview of major transactions, including related transactions completed by the company and legal entities under its control during the last year; the report on the work of the board of directors (including the board committees) for the year containing information on the number of face-to-face meetings (meetings held by absentee voting), on participation of each member of the board of directors in the meetings, description of most essential issues and the most complicated problems reviewed at the meetings of the board of directors and its committees, main recommendations given by the committees to the board of directors; information on whether the members of the board of directors and executive bodies of the company own (directly or indirectly) the company s shares; information on involvement of members of the board of directors and executive bodies in a conflict of interest (including conflict of interest due to participation of the said persons in the work of governing bodies of the company s competitors); description of a system of remuneration for members of the board of directors, including the amount of individual remuneration for the year per member of the board of directors (broken down into base pay, additional remuneration for chairing the board of directors, for chairing (serving on) committees of the board of directors, share in a long-term incentive programme, scope of participation of each board member in a share option plan, if any), reimbursement of expenses related to serving on the board of directors and expenses borne by the company in connection with liability insurance for the Directors as members of the governing bodies; information on total remuneration for the year: a) for a group of at least five members of executive bodies and other key executives of the company receiving the highest salary, broken down by type of remuneration; b) for all members of executive bodies and other key executives of the company to whom the company s remuneration policy is applied, broken down by type of remuneration; information on remuneration of the sole executive body for the year that it received or is supposed to receive from the company (a legal entity forming part of a group of organizations which includes the company) broken down by type of remuneration, both for performing the duties of the sole executive body and on other grounds. 6.2.8. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is observed The principle is observed The principle is not observed in terms of the requirements for disclosure of information on remuneration for the executive bodies. - In the annual report, the Сompany discloses general information on remuneration for the executive bodies. Since 2010, JSOC Bashneft has been arranging directors and officers liability insurance (including insurance for independent directors) for members of the Company s governing bodies. The insurance is aimed at recovering potential damage resulting from unintended wrongdoings/ omissions of insured persons in the course of their management activities. Under the insurance contract signed in 2014, the insurance premium amounts to US$ 500,000, and the insurance coverage totals US$ 250,000,000 (with an additional insurance coverage of US$ 1,000,000 for each independent director). 6.3. The company should provide equal and easy access to information and documents at shareholders requests.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 2. INFORMATION ON COMPLI- ANCE OF THE JOINT-STOCK COMPANY WITH THE PRINCIPLES AND RECOMMENDATIONS SET OUT IN THE CODE OF CORPORATE GOVERNANCE APPROVED BY THE BANK OF RUSSIA 215 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 6.3.1. In accordance with the information policy of the company, the company s shareholders owning an equal number of the company s voting shares are provided with equal access to information and documents of the company. 6.3.2. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is observed - VII. SIGNIFICANT CORPORATE ACTIONS 7.1. Actions that may that have or may have a substantial impact on the company s share capital structure and financial position and, accordingly, on the shareholders position (significant corporate actions) should be taken on equal conditions safeguarding the rights and interests of the shareholders and other stakeholders. 7.1.1. The company s Charter defines a list (criteria) of transactions or other actions constituting significant corporate actions consideration of which falls within the competence of the company s board of directors, including: reorganization of the company, purchase of 30 or more percent of the company s voting shares (acquisition), an increase or reduction of the authorized share capital, listing and delisting of the company s shares; transactions involving sale of shares (interests) in legal entities controlled by the company that are essential to it as a result of which the company loses control over such legal entities; transactions, including related transactions, in the property of the company or legal entities under its control whose value exceeds the amount specified in the company s Charter or that is essential to the company s operations; creation of a legal entity under the company s control that is essential to the company s operations; sale of treasury and quasi-treasury shares by the company 7.1.2. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed in terms of existence of a procedure for taking significant corporate actions in the company as recommended by the Code of Corporate Governance. - In accordance with the Company s Charter, the Board of Directors has additional competence with regard to some aspects of significant corporate actions. The Company takes some significant corporate actions in a manner different from that recommended by the Code. 7.2. The company should make sure that significant corporate actions are taken in a manner that enables the shareholders to receive full information on such actions, provides them with an opportunity to influence such actions and guarantees that their rights are observed and properly protected when such actions are taken.

216 ANNUAL REPORT 2014 No. Corporate governance principle(s) or the key criterion (recommendation) Brief description of aspects of a principle or key criterion that are not observed Explanation of key causes, factors and circumstances leading to non-compliance or partial compliance with the principle or the key criterion, description of alternative corporate governance mechanisms and instruments used by the company 7.2.1. The internal documents of the company stipulate that all of the company s shareholders must be treated equally when significant corporate actions are taken that affect the rights and legitimate interests of the shareholders; these documents also specify additional measures for protecting the rights and legitimate interests of the company s shareholders as provided by the Code of Corporate Governance, including: engagement of an independent appraiser possessing an impeccable reputation recognized in the market and experience in valuation in the relevant field or giving reasons for not engaging an independent appraiser when evaluating property to be sold or acquired as part of a major transaction or a related-party transaction; calculation of the company s share prices by an independent appraiser possessing an impeccable reputation recognized in the market and experience in valuation in the relevant field when the shares are purchased or bought back, taking into account the weighted average share price for a reasonable period of time without regard to an effect caused by the relevant transaction made by the company (including a change in the share price due to circulation of information on completion of the relevant transaction by the company), and without taking into account a discount for the sale of the shares forming part of a minority stake; expansion of the list of grounds on which members of the company s board of directors and other persons stipulated by applicable laws can be recognized as related parties for the purpose of transactions of the company in order to assess whether the relevant persons are actually related. 7.2.2. Other criteria (recommendations) of the Code of Corporate Governance concerning the said principle(s) of the Code of Corporate Governance that the company views as key criteria (recommendations). The principle is not observed in terms of stipulating additional measures for protecting the shareholders rights and legitimate interests, namely, engagement of an independent appraiser possessing an impeccable reputation recognized in the market and experience in valuation in the relevant field or giving reasons for not engaging an independent appraiser when evaluating property to be sold or acquired as part of a major transaction or a related-party transaction; expansion of the list of grounds on which members of company s board of directors and other persons stipulated by applicable laws can be recognized as related parties for the purpose of transactions of the company in order to assess whether the relevant persons are actually related. - Typically, an independent appraiser is engaged to assess property to be sold (acquired) only in cases stipulated by applicable laws or in cases where there is an obvious conflict of interests.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 3. INFORMATION ON MEETINGS OF THE BOARD OF DIRECTORS OF JSOC BASHNEFT 217 APPENDIX 3. INFORMATION ON MEETINGS OF THE BOARD OF DIRECTORS OF JSOC BASHNEFT Date and form of the meeting February 5, 2014 By absentee voting February 26, 2014 By absentee voting March 15, 2014 By absentee voting March 21, 2014 By absentee voting March 25, 2014 Face-to-face April 21, 2014 By absentee voting April 22, 2014 Face-to-face Agenda 1. Approval of transactions. 2. Approval of related-party transactions. 3. HR issues in JSOC Bashneft. 1. Approval of transactions. 2. Approval of related-party transactions. 3. Changes in JSOC Bashneft s interests in other organizations and approval of related transactions. 1. Approval of transactions. 2. Approval of a major transaction. 1. Approval of candidates to be nominated to governing bodies of Core Subsidiaries and Affiliates of JSOC Bashneft. 2. Approval of transactions. 3. Approval of related-party transactions of JSOC Bashneft. 4. Making decisions with regard to JSOC Bashneft s subsidiaries. 5. JSOC Bashneft s projects and approval of related-party transactions. 1. Implementation of resolutions of the Board of Directors of JSOC Bashneft; consideration of a report of the Chairman of the Project Assurance Committee of the Company s Board of Directors. 2. Consideration of a quarterly status report on HSE measures for the fourth quarter of 2013. 3. Preliminary results of JSOC Bashneft s budget implementation for the fourth quarter of 2013 and the full year 2013, including information on JSOC Bashneft s position in the stock market. 4. Appointment (reappointment) of JSOC Bashneft s President and approval of the terms and conditions of the employment contract with JSOC Bashneft s President. 5. Consideration of the Risk Management Report of JSOC Bashneft for 2013 and a plan for the development of this function for 2014. 6. JSOC Bashneft s Functional Strategy on Financial Management. 7. Approval of a report on the results of submission of buyback requests with regard to JSOC Bashneft s shares. 8. JSOC Bashneft s interests in other organizations and approval of related transactions. 1. HR issues. 2. JSOC Bashneft s interests (sale of interests) in other organizations. 3. Making decisions with regard to JSOC Bashneft s subsidiaries. 4. Approval of a report on the results of share buyback in JSOC Bashneft. 5. Approval of related-party transactions. 6. Approval of major transactions. 1. Information: implementation of resolutions of the Board of Directors of JSOC Bashneft; situation in the sphere of HSE for the past period. 2. JSOC Bashneft s performance in 2013, current budget implementation for the first quarter of 2014 (including a forecast for the six months of 2014). 3. Convening the Annual General Meeting of Shareholders of JSOC Bashneft. 4. Consideration of JSOC Bashneft s performance in the sphere of corporate social responsibility for 2013 and measures to be taken by JSOC Bashneft in this sphere in 2014, and consideration of JSOC Bashneft s Sustainability Report for 2013. 5. Performance evaluation of JSOC Bashneft s senior executives and bonuses for 2013. 6. JSOC Bashneft s interests in other organizations and approval of related transactions. 7. Reorganization of JSOC Bashneft s subsidiaries. 8. Results of an independent assessment of fair market value of one registered ordinary share of JSOC Bashneft as of December 31, 2013. Minutes of the meeting of the Board of Directors, voting results Minutes No. 01-2014 dated February 5, 2014. All resolutions were adopted. Minutes No. 02-2014 dated February 28, 2014. All resolutions were adopted. Minutes No. 03-2014 dated March 17, 2014 All resolutions were adopted Minutes No. 04-2014 dated March 24, 2014. All resolutions were adopted, except for the resolution on a subparagraph of item No. 4 of the agenda. Minutes No. 05-2014 dated March 26, 2014. All resolutions were adopted. Minutes No. 06-2014 dated April 22, 2014. All resolutions were adopted. Minutes No. 07-2014 dated April 24, 2014. All resolutions were adopted.

218 ANNUAL REPORT 2014 Date and form of the meeting May 14, 2014 By absentee voting May 27, 2014 Face-to-face May 28, 2014 By absentee voting June 10, 2014 Face-to-face July 3, 2014 By absentee voting July 31, 2014 Face-to-face Agenda 1. Preparation for the Annual General Meeting of Shareholders of JSOC Bashneft 1.1. Recommendations on the amount of dividends on JSOC Bashneft s shares for the 2013 fiscal year. 1.2. Approval of the form and wording of voting ballots. 2. Approval of transactions. 3. Approval of related-party transactions. 1. Information: implementation of resolutions of the Board of Directors of JSOC Bashneft. 2. Consideration of a quarterly status report on HSE measures for the first quarter of 2014. 3. Consolidated financial results and budget implementation of JSOC Bashneft for the first quarter of 2014 (including a forecast for the six months of 2014), including information on JSOC Bashneft s position in the stock market. 4. Approval of financial criteria for payment of remuneration as part of the Long-Term Incentive Programme for Key Senior Executives of JSOC Bashneft for 2014. 5. Approval of a new version of the Regulations on Dividend Policy of JSOC Bashneft. 6. JSOC Bashneft s projects. 7. Principles of bonus payment to employees of JSOC Bashneft, its Branches and subsidiaries in 2014. 8. Approval of JSOC Bashneft s targets and action plans in the sphere of personnel management for 2014. 1. Performance of the Board of Directors and Committees of the Board of Directors of JSOC Bashneft. 2. Amendments to JSOC Bashneft s issuance documents (the resolution on issue of bonds and the prospectus). 3. Directors and officers liability insurance in JSOC Bashneft. 4. Approval of a transaction. 5. Approval of JSOC Bashneft s internal documents. 6. HR issues. 7. Making decisions with regard to JSOC Bashneft s subsidiaries and affiliates. 1. Election of the Chairman of the Board of Directors of JSOC Bashneft. 2. Determination of the status of members of the Board of Directors of JSOC Bashneft. 3. Appointment of the Secretary of the Board of Directors of JSOC Bashneft, approval of membership of Committees of the Board of Directors of JSOC Bashneft, appointment of Committee Chairmen. 1. Approval of a change in the level of listing of JSOC Bashneft s securities. 2. Increase in the authorized share capital through public flotation of additional shares of JSOC Bashneft. 3. Approval of a decision on issue and JSOC Bashneft s prospectus. 4. Approval of related-party transactions of JSOC Bashneft. 5. Convening an Extraordinary General Meeting of Shareholders of JSOC Bashneft. 6. Approval of a transaction of JSOC Bashneft. 7. Approval of transactions of JSOC Bashneft. 8. Amendments to JSOC Bashneft s internal documents. 9. HR issues in JSOC Bashneft. 10. Updating key performance indicators of JSOC Bashneft s senior executives for 2014. 11. Making decisions with regard to JSOC Bashneft s subsidiary. 12. Loan transactions. 13. Adjustment of the Work Schedule of JSOC Bashneft s Board of Directors for the second half of 2014. 1. Information: implementation of resolutions of the Board of Directors of JSOC Bashneft; accidents and incidents in the sphere of HSE for the past period; consideration of a report of the Chairman of the Project Assurance Committee of the Company s Board of Directors. 2. Making a decision on a deal to be concluded by the Company to arrange fiduciary management of a 100% stake in a subsidiary. 3. Convening an Extraordinary General Meeting of Shareholders of JSOC Bashneft. 4. Consideration of the Report on the Work of the Internal Audit Unit of JSOC Bashneft. 5. Information statement: On the Report on Compliance with the Norms of the Code of Corporate Conduct of JSOC Bashneft, the Code of Ethics of JSOC Bashneft, the Anti-Corruption Policy of JSOC Bashneft. Minutes of the meeting of the Board of Directors, voting results Minutes No. 08-2014 dated May 15, 2014. All resolutions were adopted. Minutes No. 09-2014 dated May 28, 2014. All resolutions were adopted. Minutes No. 10-2014 dated May 29, 2014. All resolutions were adopted. Minutes No. 11-2014 dated June 10, 2014. All resolutions were adopted. Minutes No. 12-2014 dated July 3, 2014. All resolutions were adopted. Minutes No. 13-2014 dated August 1, 2014. All resolutions were adopted.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 3. INFORMATION ON MEETINGS OF THE BOARD OF DIRECTORS OF JSOC BASHNEFT 219 Date and form of the meeting August 1, 2014 By absentee voting Agenda 1. Determination of the amount of fees of JSOC Bashneft s auditors. 2. Approval of new versions of regulations on Committees of the Company s Board of Directors. 3. Approval of transactions. 4. Approval of related-party transactions. 5. Making decisions with regard to JSOC Bashneft s subsidiary. 6. Updating KPIs of JSOC Bashneft s senior executives for 2014. Minutes of the meeting of the Board of Directors, voting results Minutes No. 14-2014 dated August 4, 2014. All resolutions were adopted. September 17, 2014 By absentee voting 1. Approval of a transaction. Minutes No. 15-2014 dated September 17, 2014. All resolutions were adopted. September 23, 2014 Face-to-face September 24, 2014 By absentee voting 1. Information: implementation of resolutions of the Board of Directors of JSOC Bashneft. 2. Consideration of a quarterly status report on HSE measures for the first half of 2014. 3. Consolidated financial results and budget implementation of JSOC Bashneft for the second quarter of 2014 and the six months of 2014 (including a forecast until the end of 2014), including information on JSOC Bashneft s position in the stock market. 4. JSOC Bashneft s Action Plan in the sphere of security. 5. Results of implementation of investment projects and long-term capital expenditure (capex) programmes of JSOC Bashneft starting from 2010. 6. Updating JSOC Bashneft s investment process. 7. Updating JSOC Bashneft s system if incentives for senior executives. 8. Consideration of the Risk Management Report of JSOC Bashneft for the first half of 2014. 9. JSOC Bashneft s interests in other organizations. 10. Preparation for an Extraordinary General Meeting of Shareholders of JSOC Bashneft. 1. Changes in the membership of JSOC Bashneft s Management Board. 2. Making decisions with regard to JSOC Bashneft s subsidiaries and affiliates. 3. Amendments to JSOC Bashneft s issuance documents. 4. Approval of related-party transactions. Minutes No. 16-2014 dated September 23, 2014. All resolutions were adopted. Minutes No. 17-2014 dated September 24, 2014. All resolutions were adopted. October 29, 2014 By absentee voting 1. Approval of transactions. Minutes No. 18-2014 dated October 29, 2014. All resolutions were adopted. October 29, 2014 By absentee voting November 25, 2014 Face-to-face November 26, 2014 By absentee voting 1. Sale of JSOC Bashneft s interests in other organizations. 2. Making decisions with regard to JSOC Bashneft s subsidiary. 3. Approval of related-party transactions. 4. Approval of transactions. 5. Making decisions on participation of JSOC Bashneft and its subsidiaries and affiliates in non-profit organizations. 1. Information: implementation of resolutions of the Board of Directors of JSOC Bashneft, consideration of a report of the Chairman of the Project Assurance Committee of the Company s Board of Directors. 2. Consideration of a quarterly status report on HSE measures for the nine months of 2014. 3. Consolidated financial results and budget implementation of JSOC Bashneft for the third quarter and the nine months of 2014 (including a forecast until the end of 2014), including information on JSOC Bashneft s position in the stock market. 4. Updating JSOC Bashneft s Functional Strategy on Health, Safety, Environment and Social Responsibility. 5. Status of the project to develop the R. Trebs and A. Titov oilfields. 6. Making decisions with regard to JSOC Bashneft s subsidiary. 7. Liquidation of JSOC Bashneft s branches and amendments to the Company s Charter. 8. HR issues. 1. Approval of JSOC Bashneft s internal documents. 2. Sale of JSOC Bashneft s interests in other organizations. 3. Approval of transactions. 4. Proposals concerning Directors and Officers Liability (D&O) insurance for 2015. 5. Approval of related-party transactions. Minutes No. 19-2014 dated October 31, 2014. All resolutions were adopted. Minutes No. 20-2014 dated November 25, 2014. All resolutions were adopted. Minutes No. 21-2014 dated November 26, 2014. All resolutions were adopted. November 28, 2014 By absentee voting 1. JSOC Bashneft s interests in other organizations. Minutes No. 22-2014 dated November 28, 2014. All resolutions were adopted.

220 ANNUAL REPORT 2014 Date and form of the meeting December 4, 2014 Face-to-face December 5, 2014 By absentee voting Agenda 1. Results of audit of financial statements and financial and business operations of JSOC Bashneft as of December 1, 2014. 2. Key performance indicators of JSOC Bashneft s senior executives for 2015, including proposals concerning a list of JSOC Bashneft s key strategic projects for 2015. 3. HR issues. 4. JSOC Bashneft s interests in other organizations and approval of related transactions. 5. Approval of related-party transactions. 6. Making decisions with regard to JSOC Bashneft s subsidiary. 1. Making decisions with regard to JSOC Bashneft s subsidiaries. 2. Approval of related-party transactions. 3. Changes in the Work Schedule of the Internal Audit Unit of JSOC Bashneft for 2014. Minutes of the meeting of the Board of Directors, voting results Minutes No. 23-2014 dated December 8, 2014. All resolutions were adopted. Minutes No. 24-2014 dated December 8, 2014. All resolutions were adopted. December 10, 2014 By absentee voting 1. Convening an Extraordinary General Meeting of Shareholders of JSOC Bashneft. Minutes No. 25-2014 dated December 10, 2014. All resolutions were adopted.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 4. FUEL AND ENERGY CONSUMPTION 221 APPENDIX 4. FUEL AND ENERGY CONSUMPTION Fuel and energy consumption by the Group 2012 2013 2014 Change, 2014/2013 Heat, Gcal 7,677,737 5,938,540 6,070,018 +2% Electricity, thousand kwh 5,780,168 5,331,579 5,452,887 +2% Natural gas, thousand cubic metres 284,685 227,236 202,616-11% Associated gas, thousand cubic metres 65,283 41,818 54,100 +29% Bashneft Group s total expenditure on electricity for 2014 amounted to 15.3 billion roubles, while total expenditure on heat amounted to 4.8 billion roubles. Bashneft Group s heat and electricity consumption increased slightly compared to 2013. Fuel and energy consumption by JSOC Bashneft* 2012 2013 2014 Amount Cost (incl. VAT), million roubles Amount Cost (incl. VAT), million roubles Amount Cost (incl. VAT), million roubles Heat, Gcal 2,331,780.26 849.8 5 621,979.56 3 625.2 5,713,943.32 4,191.6 Electricity, thousand kwh 860,921.38 2,021.8 2,300,602.13 5 829.8 2,186,284.28 5,855.2 Natural gas, thousand cubic metres 136,627.41 519.7 159,359.76 704.2 137,827.25 647.0 Total Х 3,391.3 Х 10,159.3 Х 10,693.8 * Excluding the volume of associated gas used as raw material for industrial needs. The data are unaudited and are based on the Company s internal accounting records. In the course of its operations, the Group consumes electricity, heat, natural gas and associated gas. Boiler and furnace fuel, which is less environmentally friendly, may be used as a backup; however, it was not used in 2014.

222 ANNUAL REPORT 2014 APPENDIX 5. KEY RISK FACTORS Continuous monitoring and prevention of risks is a prerequisite and the method for achieving the Group s goals In the course of its business, the Group faces a number of risks and uncertainties. We pay the closest attention to monitoring the impact of individual factors on our performance. This section describes the risks that we consider important and most characteristic for energy companies, and our approaches to managing these risks. Information on the Company s investments expected return on which exceeds 10% per annum is provided in Consolidated IFRS Financial Statements of Bashneft Group for 2014 (Appendix 1). The Group has developed and uses a risk management system, which is described in the section Corporate Governance. INDUSTRY-SPECIFIC RISKS Industry risks faced by the Group are related to the nature of its core business, including oil and gas production, oil refining and sales of oil and petroleum products. Risk of a fall in prices for oil and petroleum products Risk description Prices for crude oil and petroleum products determine the Group s financial and operating performance. Prices for oil and petroleum products are influenced by a wide range of factors beyond the Group s control. Risk management The Group has sufficient capability to redistribute commodity flows in the event of a significant price difference between domestic and international markets. Bashneft is able to rapidly reduce capital and operating expenditure to meet its obligations in case of a significant decrease in the price of oil and petroleum products. The Group conducts analysis to make informed decisions when selecting the best marketing channels for finished products (including domestic sales / export). Offtake agreements concluded by Bashneft specify supply volumes using formula pricing. Risks related to potential changes in prices for raw materials and services used by the Group in the course of its business Risk description Risk management In the course of its business, the Group interacts with monopolistic providers of services in the sphere of transportation of oil and petroleum products and with electricity suppliers. Bashneft has no control over the operations of such companies. Disruptions in transportation or electricity supply may adversely affect Bashneft Group s financial results. In addition, a sharp increase in transportation fees and electricity prices could lead to unplanned growth of costs. To reduce its exposure to this risk, the Group analyses alternative ways of supplying raw materials and finished products, including transportation by water, and cooperates with transport providers to negotiate the best possible conditions.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 5. KEY RISK FACTORS 223 Risks related to competition in the industry Risk description Risk management RISKS RELATED TO ACCESSING NEW SOURCES OF RAW MATERIAL Tough competition with leading Russian and international oil and gas companies for access to new sources of hydrocarbons may restrict the Group s access to the most promising hydrocarbon deposits in the future. In order to maintain its level of production in the future, replenish its resource base and expand the scope of its business, the Group takes the following measures: it participates in competitions for mineral rights to acquire new fields that meet performance criteria; it implements a comprehensive geological exploration programme in new areas in the Republic of Bashkortostan, the Nenets Autonomous District and the Khanty-Mansi Autonomous District. In 2014 Bashneft Group gained control over a 100% stake in LLC Burneftegaz, an exploration and production company based in the Tyumen Region. To expand its capabilities in the sphere of exploration and production of hydrocarbons, the Group takes part in international projects in Iraq and Myanmar. RISKS ON THE MARKET FOR REFINING AND SALES OF PETROLEUM PRODUCTS On the market for refining and sales of petroleum products, the Group faces competition from a number of companies, including major vertically integrated oil companies, which surpass Bashneft Group in terms of their scope of operations. The Group monitors these risks and takes the following actions to reduce them: Development of guaranteed marketing channels for petroleum products, including development of small wholesale business, expansion of the retail network and rebranding of the network of filling stations; Construction and modernization of oil refineries to increase the refining depth and produce high-quality, competitive products. Risks related to geological exploration Risk description Geological risks are associated mainly with uncertainty and probabilistic assessment of the quantitative and qualitative characteristics of oil reserves, the structure and properties of deposits and the prospects for production of hydrocarbons. Risks related to geological exploration may result in the Group s failure to meet its production targets or to confirm target volumes of hydrocarbon reserves, which, in its turn, may have a negative impact on operating and financial results. Another important factor consists in the fact that geological exploration is conducted in various geographic regions, including areas with adverse climatic conditions, which often leads to higher costs. Risk management The Group has extensive experience in geological exploration and the use of advanced technologies for drilling and field development, which results in a reduction of the probability of such risks.

224 ANNUAL REPORT 2014 COUNTRY AND REGIONAL RISKS Country risks Risk description A ban on supplies of equipment, technologies, goods and services required for exploration, production and development of deepwater and Arctic oilfields imposed by the European Union and the US does not have a significant impact on implementation of the Group s projects. However, if the sanctions are expanded, a negative impact of the Group s business may result in delays in the implementation of certain projects. As a result of US and EU sanctions, access to foreign capital markets (bonds, bilateral and syndicated loans) for Russian corporate borrowers has been restricted considerably. Available loans are granted by Russian banks at a high interest rate, which results in a significant increase in the cost of the Group s investment projects. Risk management To reduce the impact of risks related to US and EU sanctions, the Group is forming a database on analogues of imported products in order to implement an import substitution programme (if necessary). The Group is searching for alternative sources of funding, including participation in government programmes to support businesses (preferential lending terms for investment projects in high-priority industries, refinancing secured with credit claims used as collateral). Regional risks Risk description Bashneft s core industrial and commercial operations are concentrated in the Republic of Bashkortostan Bashneft s subsidiaries and affiliates are located in the Ural, Volga and Central Federal Districts, the Nenets and Khanty-Mansi Autonomous Districts. Risk management The Group constantly monitors and manages risks taking into account the political and economic situation in the regions where it implements its projects. To reduce regional risk, the Group diversifies into other regions. The Group cooperates with government agencies at different levels in order to participate in creating a favourable environment for economic and social development of regions. Risks related to overseas projects Risk description Bashneft implements overseas projects in Iraq and Myanmar. The Group is aware that overseas operations entail additional risks; it plans to carry out risk assessment when making decisions as part of the projects. Bashneft has identified the following potential risks involved in the projects: uncertainty and instability of legislation (including tax legislation) of the country where the project is implemented; changes in the investment policy; a change of political regime; limited possibilities for ensuring the security of the Group s employees and property outside Russia; limited possibilities for ensuring the economic security of the Group s operations outside Russia; natural disasters; wars. Risk management The Group constantly monitors and manages risks taking into account the political and economic situation in the countries where it implements its projects.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 5. KEY RISK FACTORS 225 FINANCIAL RISKS Inflation risk Risk description Changes in inflation rates affect the Group s financial position. The inflation risk has the greatest impact on capital expenditures, which, in turn, may have an adverse impact on the effectiveness of investment projects. In addition, inflationary processes lead to a decrease in the value of the Group s rouble-denominated assets, including rouble deposits, domestic debt instruments and receivables. Risk management Current and projected levels of inflation are far from being critical for the Group and the industry as a whole. Bashneft pays close attention to cost control and the assessment of inflation risks when making investment decisions and developing investment projects. When devising its development strategy, the Group makes every effort to offset the potential risk of inflation. Currency risk Risk description The Group s financial and operational performance depends on changes in currency exchange rates, as a significant part of the Group s gross revenue comes from export sales of oil and petroleum products, while a large portion of the Group s operating expenses is directly or indirectly pegged to foreign exchange rates. Risk management The Group manages currency risks by: maintaining a balance between incoming and outgoing currency flows (the currency structure of revenue and liabilities acts as a natural hedging mechanism, where opposing factors offset each other); reducing the share of expenses that are directly or indirectly pegged to foreign exchange rates; aligning the structure of foreign exchange transactions with the foreign currency pricing structure for quasi-foreign currency expenses. Interest rate risk Risk description Changes in interest rates can have a significant impact on Bashneft s operations. The Group is exposed to risk from changes in interest rates, as it finances its operations both using its own funds and by raising debt capital. At present, interest rates are increasing as the Bank of Russia has raised the key interest rate, and the situation in the financial market is deteriorating. Risk management To mitigate the impact of this risk on tits solvency and liquidity indicators, the Group takes the following measures: when the situation in the financial market is deteriorating, the Group participates in government programmes to support businesses involving preferential lending terms and refinancing of past expenditure on amortization of foreign currency loans; as the situation in the financial market improves, the Group will optimize its debt portfolio through refinancing of existing loans on better terms. Liquidity risk Risk description Risk management The Group s operating cash flow is prone to fluctuations due to the high volatility of prices for oil and petroleum products, currency fluctuations and changes in taxes and duties. These factors may affect the Group s cash flow and, consequently, its liquidity. To reduce the negative impact of the situation in capital markets on the sustainability of its debt portfolio, the Group takes measures to ensure the availability of revolving credit facilities provided to it, to broaden the range of instruments it uses (participation in government programmes to support businesses) and diversify the portfolio of lending banks (attracting Asian investors). The Group also minimizes this risk by optimizing its working capital and having a portfolio of debt instruments of varying maturity to cover cash shortages.

226 ANNUAL REPORT 2014 RISKS RELATED TO CHANGES IN LEGISLATION We conduct our business in strict compliance with tax, customs and currency law. We monitor and react promptly to regulatory changes, and we are committed to constructive dialogue with regulators on matters of law enforcement. However, uncertainty inherent in certain aspects of functioning of the Russian legal system and legislation may affect the business and the level of financial well-being of the Group. Risks related to changes in foreign exchange regulation Risk description Risk management Part of the Group s revenue and liabilities is denominated in foreign currencies; therefore, the state mechanism of currency regulation affects its financial and business operations. Currently, requirements for obligatory sale of part of foreign currency proceeds in Russia do not apply to the Group. If such legislative requirements come into force in the future, there is a risk of additional expenditures due to the necessity of buying currency in order to service foreign currency debt and make payments under contracts with foreign counterparties. The Group continuously monitors changes in the regulatory framework in the sphere of currency regulation and control, closely follows established rules and fulfils legitimate recommendations of regulators. Risks related to tax legislation Risk description Changes in tax legislation in Russia aimed at increasing the tax burden may have a negative impact on the Group s performance and its financial stability. A stricter attitude of tax authorities towards controversial passages in laws and regulations could lead to an increase in the number of tax claims against taxpayers. Risk management Bashneft closely monitors changes in tax legislation and the enforcement of applicable legislation. The Group evaluates and forecasts the extent of the possible negative impact of changes in tax legislation and makes efforts to minimize the risks associated with these changes. Risks related to changes in customs rules and export duties Risk description The Group is exposed to risks associated with changes in legislation on state regulation of foreign trade, as well as customs legislation on procedures for moving goods across a customs border, establishing and applying customs regimes, and introducing and levying customs payments. Risk management Bashneft complies with customs control requirements and provides all the necessary documentation for export and import operations in a timely manner. Bashneft closely monitors changes in customs regulations and duties, evaluates and forecasts the extent of the possible negative impact of such changes. Risks related to changes in antitrust legislation Risk description The Group s operations on the Russian market for gasoline, diesel fuel and fuel oil meets the requirements of antitrust legislation aimed at protecting competition in these markets. There is a risk of tightening of antitrust legislation and law-enforcement practice in this area with regard to Russian oil companies. Risk management Bashneft monitors updates of Russian antitrust laws and forecasts the impact of such changes on the Group s operations. Risks related to legislation on mineral extraction and licensing Risk description The Group believes that it complies with the terms and conditions of existing licence agreements in all material respects and that, if necessary, it will be able to renew the licences for the fields it is developing. Suspension, restriction or termination of licences that are significant for the Group could adversely affect the Group s performance and financial position. There are no precedents for revocation of the Group s licences. Risk management The Group continually monitors legislative initiatives of relevant ministries and agencies in the sphere of mineral extraction and licensing of certain operations.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 5. KEY RISK FACTORS 227 OPERATIONAL RISKS Environmental risks Risk description The Group faces environmental risks in the course of construction and operation of production facilities if there is a possibility of a negative environmental impact. The tightening of regulations on environmental pollution and the need to respond to potential industrial accidents could have a material adverse impact on the Group s financial performance and reputation. Risk management To mitigate environmental risks, Bashneft continuously monitors and analyses the negative impact on the atmosphere, water bodies and land; it also monitors the quality of groundwater. Bashneft invests heavily in environmental measures, including modernization of its production facilities and introduction of cutting-edge technologies in order to reduce the negative environmental impact. The Group s enterprises arrange public liability insurance for owners of hazardous production facilities for damage resulting from an accident at the hazardous facility; they also arrange civil liability insurance, including insurance against liability for environmental damage. Occupational health and safety risks Risk description Bashneft s operations involve the use of technologically complex industrial equipment. Risks associated with the failure of industrial equipment may result in a shutdown of production facilities and lead to failure to meet operating and financial targets, cause damage to assets and human health and result in liability to third parties. Risk management The Group has in place a health and safety system which involves constant monitoring of the condition of process units, an equipment upgrade programme, measures for preventing industrial accidents and incidents, and development of a health and safety culture. Following the first compliance audit, Bashneft Group s HSE management system has been assessed as efficient, and it has been recommended that certificates of compliance with the international ISO 14001 and OHSAS 18001 standards be renewed. Bashneft has implemented a comprehensive insurance programme, including property insurance, civil liability insurance and voluntary insurance of operating personnel against accidents. Investment risks Risk description When implementing investment projects aimed at oilfield development, upgrading its refining capacities, constructing filling stations, etc., the Group faces the risk that facilities may not be brought into operation on time. Key factors behind this risk include planning errors, contractor performance and risks caused by the condition of infrastructure. Risk management Bashneft gives the highest priority to managing this risk. To do so, the Group thoroughly prepares projects, selects reliable suppliers and contractors, makes sure that they provide performance guarantees, and creates partnerships with infrastructure operators.

228 ANNUAL REPORT 2014 APPENDIX 6. LIST OF COMPANIES AND ORGANIZATIONS IN WHICH JSOC BASHNEFT HOLDS SHARES AND STAKES No. Company JSOC Bashneft s interest in the company s authorized share capital, % Core operations Region Revenue for 2014 (thousand roubles)* Income for 2014 (thousand roubles)* Portion of income allocated to JSOC Bashneft in the form of dividends for 2013 (thousand roubles) 1 OJSC Reestr 10.98 Stock market participant offering specialized registrar services and maintaining a register of holders of registered securities 2 LLC Bashneft-Dobycha 100.00 Production of oil and associated gas 3 LLC BashNIPIneft 100.00 Research and development, engineering services, preparation of design and engineering documentation and cost estimates for customers, structural engineering and design Moscow 447,088 59,971 - Ufa 43,599,223 1,681,711 670,000 Ufa 3,052,273 183,173 75,000 4 LLC Hotel Complex Bashkortostan 100.00 Accommodation services, organization and management of hotel business Ufa 41,211-100,061-5 Bashneft Trading AG 100.00 Trading in crude oil and petroleum products 6 OJSC Sputnik Telecom 3.62 Wireless and telecommunications Zurich - -4,536 - Ufa 170,095 37,166 0.2 7 LLC Yumaguzinskoye Reservoir 15.143 Construction of hydraulic structures Ufa - -42,709-8 LLC Bashneft-Polyus 74.90 Production of oil and natural gas Naryan-Mar 19,895,518-484,124-9 Siviera Invest Ltd. 100.00 Transportation services Tortola - - 332,753-10 LLC Retail Electricity Company 100.00 Wholesale trade in heat and power (excluding transmission and distribution services) Ufa 14,703,289 116,940 125,000 11 LLC Bashneft-Refinery Service 100.00 Electrical installation services Ufa 4,478,943 178-12 LLC Bashneft-Inform 100.00 Telecommunication services Ufa 1,956,959 121,907 52,733 13 LLC BashneftAvtoTrans 100.00 Motor transportation services Ufa 134,697 6,993 9,441 14 LLC Neftekamskaya Depot 100.00 Storage services Ufa 395,907 7,730-15 LLC Bashenergoneft 100.00 Steam and hot water (heat) generation by boiler houses; power transmission Ufa 2,014,542 93,774-16 Bashneft Middle East Limited 100.00 Securities management Nicosia - 821,032-17 Bashneft International B.V. 100.00 Production of oil and natural gas Amsterdam - - 4,809-18 Bashneft Investments S.A. 100.00 Securities management Luxembourg - - 4,497,623-19 LLC Bashneft-PETROTEST 100.00 Other services associated with oil and gas production Ufa 635,171 52,393 100,000 * The data are presented in accordance with RAS or other local accounting standards.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 6. LIST OF COMPANIES AND ORGANIZATIONS IN WHICH JSOC BASHNEFT HOLDS SHARES AND STAKES 229 No. Company JSOC Bashneft s interest in the company s authorized share capital, % Core operations Region Revenue for 2014 (thousand roubles)* Income for 2014 (thousand roubles)* Portion of income allocated to JSOC Bashneft in the form of dividends for 2013 (thousand roubles) 20 LLC Mobel-Neft 100.00 Exploitation of natural resources, including subsoil, forest, flora and fauna Ufa - -6,819-21 LLC Bashneft-Retail Sales 100.00 Retail sales of engine fuel Ufa 32,394,265 1,788,379 175,000 22 LLC Bashneft-Service 100.00 Health resort and spa services Ufa 612,770 50,633 33,121 23 LLC Bashneftegazrazvedka 100.00 Geological exploration, geophysical and geochemical surveys of subsoil Ufa - -64-24 LLC Promenergoresurs 100.00 Retail sales of engine fuel Magnitogorsk 11,225-4,798-25 LLC Burneftegaz 90.00 Geological exploration, geophysical and geochemical surveys of subsoil Tyumen 1,976,436-2,335,521-26 LLC Vostok NAO 50.00 Production of oil and associated gas; associated gas separation Village of Iskateley, Nenets Autonomous District - -2,334,901-27 LLC AZS-Saransk 100.00 Lease of proprietary real estate 28 LLC Ural 95.00 Lease of proprietary real estate Saransk 51,795-12,351 - Ufa - -4,223-29 LLC Helios 100.00 Retail sales of engine fuel Miass 3,565-142 - 30 LLC AZS-Ufa 100.00 Preparation of proprietary real estate for sale 31 LLC OPTAN-AZS 95.00 Wholesale trade in engine fuel, including aviation gasoline 32 LLC ASZ-AKTIV 100.00 Lease of proprietary non-residential real estate 33 JSC UPC 100.00 Management of financial and industrial groups and holding companies Ufa 12,887-7,533 - Ufa - -2,177 - Samara 4,302-40,306 - Moscow 1,013,555-2,502,139 -

230 ANNUAL REPORT 2014 APPENDIX 7. INFORMATION ON JSOC BASHNEFT'S PARTICIPATION IN NON-PROFIT ORGANIZATIONS (NPO) No. Name of NPO Purpose Types of payments/amount 1 Chamber of Commerce and Industry (CCI) of the Republic of Bashkortostan (membership since 2000) 2 Non-Profit Partnership Russian National Committee of the World Petroleum Council on Organizing and Holding International Oil Congresses (Non-Profit Partnership RNC WPC) (participation since 2006) 3 Non-Profit Partnership Self-Regulatory Organization Association of Builders of the Fuel and Energy Complex Neftegazstroy- Alliance (membership since June 17, 2014) 4 Autonomous Non-Profit Organization Bashneft Professional Checkers Club (the club was established on October 16, 2001) 5 International Association of Oil and Gas Producers (OGP) (participation since November 2013) 6 International Petroleum Industry Environmental Conservation Association (IPIECA) (participation since November 2013) Financial benefits (discounts on services of the CCI for the NPO members; representative benefits). Positioning of JSOC Bashneft in the global oil industry. Establishment of external economic relations with foreign oil companies. Use of the business potential of events held by the Russian National Committee of the World Petroleum Council for development of the company s business. Permission for a certain type or types of work that affect the safety of capital construction projects. Development and promotion of international draughts and other sports in the Republic of Bashkortostan and the Russian Federation; training of high-level sportsmen, achievement of high sporting results by the checkers club; provision of sports services consistent with the objectives stated in its Charter in the interests of the club members; development and strengthening of international sporting ties. Gaining access to best practices and expertise in improving the management system and performance in the sphere of health, safety, environment and social responsibility. Opportunity to integrate the best practices of leading global oil and gas companies into the Group s dayto-day operations Membership fee for 2014: 150,000 roubles Membership fee for 2014: 1,694,000 roubles Entrance fee: 100,000 roubles Membership fee for 2014: 60,000 roubles Contribution to the compensation fund: 3,000,000 roubles Annual funding for 2014 out of charitable funding: 9,000,000 roubles Annual membership fee: 12,100 Annual membership fee: 32,000 7 Autonomous Non- Commercial Organization Russian-Arab Business Council (RABC) (participation since 2012) Enhancing the image and positioning the Group in the Arab business environment; targeted promotion at events held by RABC. Participation in RABC will help the Group to promote its interests and expand its geographical footprint in Arab countries by attending and holding meetings, sessions and roundtable discussions, presenting Bashneft s services, business interests and areas of operation in these countries. Selective participation in B2B meetings with representatives of the business community from Arab countries (ministers and owners of businesses in the industry). Fees for 2014 totalled 816,217.50 roubles

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 8. LIST OF MAJOR AND RELATED-PARTY TRANSACTIONS 231 APPENDIX 8. LIST OF MAJOR AND RELATED-PARTY TRANSACTIONS LIST OF THE COMPANY S TRANSACTIONS IN THE REPORTING YEAR THAT QUALIFY AS MAJOR TRANSACTIONS UNDER THE FEDERAL LAW ON JOINT-STOCK COMPANIES Governing body which made the decision to approve the transaction Subject of transaction Parties to the transaction Transaction value 1 2 3 4 Board of Directors Export sales of crude oil and/or petroleum products JSOC Bashneft (Seller); BASH-VIT B.V., the Netherlands (Buyer) Up to US$ 3,386,081,000 (three billion three hundred and eighty-six million eighty-one thousand US dollars) Board of Directors Export sales of crude oil JSOC Bashneft (Seller); Normeston Trading Limited (Buyer) Up to US$ 4,130,000,000 (four billion one hundred and thirty million US dollars) LIST OF OTHER TRANSACTIONS IN THE REPORTING YEAR SUBJECT TO APPROVAL IN ACCORDANCE WITH THE PROCEDURE FOR APPROVING MAJOR TRANSACTIONS, AS SPECIFIED IN THE COMPANY S CHARTER The Charter of JSOC Bashneft does not specify any such transactions. LIST OF THE COMPANY S TRANSACTIONS IN THE REPORTING YEAR WHICH QUALIFY AS RELATED- PARTY TRANSACTIONS UNDER THE FEDERAL LAW ON JOINT STOCK COMPANIES AND REQUIRE APPROVAL BY A COMPETENT GOVERNING BODY OF THE COMPANY IN ACCORDANCE WITH CHAPTER XI OF THE FEDERAL LAW ON JOINT-STOCK COMPANIES Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction 1 2 3 4 5 Board of Directors Granting of a loan JSOC Bashneft (Lender); BASHNEFT MIDDLE EAST LIMITED (Borrower); there are no beneficiaries of the transaction. Up to US$ 150,000,000 (оne hundred and fifty million US dollars) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Capital construction contract The Contractor shall provide timely and high-quality construction, installation and startup services at JSOC Bashneft s facilities as requested by the Customer, in accordance with provided design specifications, cost estimates and timetables, and deliver completed work to the Customer, and the Customer shall accept the deliverables and pay the Contractor s fees. JSOC Bashneft (Customer); LLC Yanaulsk Division of Neftestroymontazh (Contractor); there are no beneficiaries of the transaction. RUB 5,053,669,999 (five billion fifty-three million six hundred and sixty-nine thousand nine hundred and ninety-nine roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.A.

232 ANNUAL REPORT 2014 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction Board of Directors Storage contract. Fee-based acceptance (subject to availability of storage capacity) and non-declared (irregular) storage of diphenylolpropane delivered by the Customer to the Storage Service Provider, and return of the same quantity of diphenylolpropane of the same type and quality to the Customer, or a third party designated by the Customer, in accordance with the contract terms. JSOC Bashneft (Customer); OJSC Ufaorgsintez (Storage Service Provider); there are no beneficiaries of the transaction. RUB 1,200,000 (оne million two hundred thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Agreement on acceptance and processing of hydrocarbons (provision of processing services) and delivery of resulting products. Processing of hydrocarbons (including associated gas). Types and quality of hydrocarbons, metering points and delivery dates, the cost of processing, the quantity and list of resulting products, fuel consumption levels, the terms and schedule of delivery shall be agreed by the Parties in Supplementary Agreements to the Agreement. JSOC Bashneft (Customer); LLC Tuimazinskoye Gas Processing Plant (Contractor); there are no beneficiaries of the transaction. Up to RUB 1,200,000,000 (оne billion two hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Agreement on the acceptance and processing of hydrocarbons (provision of processing services) and delivery of resulting products. Processing of hydrocarbons (including associated gas). Types and quality of hydrocarbons, metering points and delivery dates, the cost of processing, the quantity and list of resulting products, fuel consumption levels, the terms and schedule of delivery shall be agreed by the Parties in Supplementary Agreements to the Agreement. JSOC Bashneft (Customer); LLC Shkapovskoye Gas Processing Plant (Contractor); there are no beneficiaries of the transaction. Up to RUB 1,200,000,000 (оne billion two hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Crude oil supply contract LLC Bashneft-Polyus (Supplier); JSOC Bashneft (Buyer); there are no beneficiaries of the transaction. Up to RUB 7,300,000,000 (seven billion three hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Agreement on acceptance and processing of hydrocarbons (provision of processing services) and delivery of resulting products JSOC Bashneft (Contractor); LLC Bashneft-Polyus (Customer); there are no beneficiaries of the transaction. Up to RUB 7,300,000,000 (seven billion three hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Lease of movable and immovable property JSOC Bashneft (Lessor); LLC Bashneft-Polyus (Lessee); there are no beneficiaries of the transaction. Up to RUB 500,000,000 (five hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 8. LIST OF MAJOR AND RELATED-PARTY TRANSACTIONS 233 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction Board of Directors Assignment agreements The Assignor shall transfer and the Assignee shall gain the claims against LLC Priyutovo Division of Neftestroymontazh. JSOC Bashneft (Assignor); LLC Yanaulsk Division of Neftestroymontazh (Assignee); there are no beneficiaries of the transaction. The total amount of the outstanding principal debt (including VAT) of the Debtor is RUB 426,599,665 (four hundred and twenty-six million five hundred and ninety-nine thousand six hundred and sixty-five roubles) The amount of claims transferred to the Assignee (including VAT) is RUB 298,619,766 (two hundred and ninety-eight million six hundred and nineteen thousand seven hundred and sixty-six roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Share purchase agreement for 490 (four hundred and ninety) shares in Bashneft Trading AG with a par value of CHF 1,000 (one thousand Swiss francs) each, which represent a 49% interest in the authorized share capital of Bashneft Trading AG. ECU GEST HOLDING S.A. (Seller); JSOC Bashneft (Buyer); there are no beneficiaries of the transaction. Up to CHF 490,000 (four hundred and ninety thousand Swiss francs) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A., Directors: A. Buyanov, S. Drozdov, A. Goncharuk Board of Directors Supply contract for petroleum products and petrochemicals JSOC Bashneft (Supplier); OJSC SG-Trading (Buyer); there are no beneficiaries of the transaction. Up to RUB 3,000,000,000 (three billion roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Employment contract Performance of functions of President and Chairman of the Management Board of JSOC Bashneft by A. Korsik in accordance with the Employment Contract, the Charter of JSOC Bashneft, other internal regulations of JSOC Bashneft and applicable legislation. JSOC Bashneft (Employer) A. Korsik (Employee). there are no beneficiaries. Amount not exceeding the equivalent of the total amount of all salaries, bonuses, increments and any other payments to the Employee for the entire duration of the Employment Contract, as specified in the draft Employment Contract and/ or as may be stipulated by applicable Russian laws President: A. Korsik Board of Directors Loan agreement JSOC Bashneft (Lender); BASHNEFT MIDDLE EAST LIMITED (Borrower); there are no beneficiaries of the transaction. Up to US$ 200,000,000 (two hundred million US dollars) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Overdraft loan (conclusion of a supplementary agreement to the Bank Account Agreement) JSOC Bashneft (Borrower); OJSC MTS Bank (Lender); there are no beneficiaries of the transaction. RUB 1,015,000,000 (one billion fifteen million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A., Directors: A. Buyanov, F. Evtushenkov Board of Directors Loan agreement JSOC Bashneft (Lender); LLC Tortasinskneft (Borrower); there are no beneficiaries of the transaction. US$ 47,500,000 (forty-seven million five hundred thousand US dollars) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A.

234 ANNUAL REPORT 2014 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction Board of Directors Loan agreement JSOC Bashneft (Lender); LLC Berezovskneftegaz (Borrower); there are no beneficiaries of the transaction. Up to US$ 18,500,000 (eighteen million five hundred thousand US dollars) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); LLC Sorovskneft (Borrower); there are no beneficiaries of the transaction. Up to US$ 235,000,000 (two hundred and thirty-five million US dollars) JSOC Bashneft, CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Supply of petroleum products and petrochemicals LLC Bashneft-Polyus (Supplier); JSOC Bashneft (Buyer); there are no beneficiaries of the transaction. Up to RUB 7,300,000,000 (seven billion three hundred million roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.A., Management Board members: E. Brusilova, M. Stavskiy Board of Directors The Insurer shall reimburse legal defence costs and losses resulting from legal actions or damage/loss claims brought against JSOC Bashneft, and/or its subsidiaries and affiliates, and/or members of governing bodies and executives of JSOC Bashneft and/or its subsidiaries and affiliates for their actions or inaction in the course of fulfilment of their duties and responsibilities in their official capacity. JSOC Bashneft (Policyholder) OJSC IC Allianz (Insurer); Beneficiaries: JSOC Bashneft, and/or its subsidiaries and affiliates, as well as any persons that may suffer damage or losses caused by actions or inaction of members of governing bodies and executives of JSOC Bashneft and/or its subsidiaries and affiliates in the course of fulfilment of their duties and responsibilities in their official capacity US$ 90,000 (ninety thousand US dollars) in roubles at the exchange rate set by the Central Bank of Russia on the date of payment CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Conclusion of the Agreement in relation to the Supply Agreement Subject of the Agreement: the Company shall assume an obligation to Other Parties to fulfil its obligations under the paraxylene supply agreement to be concluded between the Company and LLC RusPETF (hereinafter referred to as the Paraxylene Supply Agreement ); LLC RusPETF shall assume an obligation to the Company to fulfil its obligations under the Paraxylene Supply Agreement; RusPETF Holding B.V., a private limited liability company, shall fulfil the obligations of LLC RusPETF should the latter fail to make any payment due to the Company under the Paraxylene Supply Agreement and remedy its failure within the period specified in the Paraxylene Supply Agreement. JSOC Bashneft; RusPETF Holding B.V., a private limited liability company and LLC RusPETF; there are no beneficiaries of the transaction. Less than 2% (two percent) of the carrying value of JSOC Bashneft s assets as recorded in its financial statements as of the last reporting date OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.A.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 8. LIST OF MAJOR AND RELATED-PARTY TRANSACTIONS 235 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction Board of Directors Property sale agreement for construction-in-progress at the R. Trebs and A. Titov fields in the Nenets Autonomous District JSOC Bashneft (Seller); LLC Bashneft-Polyus (Buyer); there are no beneficiaries of the transaction. Up to RUB 8,000,000,000 (eight billion roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.А, Management Board members: E. Brusilova, M. Stavskiy Board of Directors Agreement on the sale of immovable property (wells) LLC Bashneft-Polyus (Buyer); JSOC Bashneft (Seller); there are no beneficiaries of the transaction. RUB 5,400,000,000 (five billion four hundred million roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.A., Management Board members: E. Brusilova, M. Stavskiy Board of Directors Master contract for the construction of production wells at the R. Trebs and A. Titov fields JSOC Bashneft (General Contractor); LLC Bashneft-Polyus (Customer); there are no beneficiaries of the transaction. Up to RUB 6,700,000,000 (six billion seven hundred million roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.A., Members of the Management Board of JSOC Bashneft: E. Brusilova, M. Stavskiy Board of Directors Loan agreement JSOC Bashneft (Lender); CJSC Helios (Borrower); there are no beneficiaries of the transaction. Up to RUB 11,650,000 (eleven million six hundred and fifty thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); CJSC Ural (Borrower); there are no beneficiaries of the transaction. Up to RUB 87,375,000 (eighty-seven million three hundred and seventy-five thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); LLC AZS-Kurgan (Borrower); there are no beneficiaries of the transaction. Up to RUB 104,850,000 (оne hundred and four million eight hundred and fifty thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); LLC AZS-Saransk (Borrower); there are no beneficiaries of the transaction. Up to RUB 58,250,000 (fifty-eight million two hundred and fifty thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); CJSC OPTAN-AZS (Borrower); there are no beneficiaries of the transaction. Up to RUB 58,250,000 (fifty-eight million two hundred and fifty thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); CJSC AZS-Aktiv (Borrower); there are no beneficiaries of the transaction. Up to RUB 640,750,000 (six hundred and forty million seven hundred and fifty thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); LLC AZS-Region (Borrower); there are no beneficiaries of the transaction. Up to RUB 34,950,000 (thirty-four million nine hundred and fifty thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement JSOC Bashneft (Lender); LLC AZS-Ufa (Borrower); there are no beneficiaries of the transaction. Up to RUB 267,950,000 (two hundred and sixty-seven million nine hundred and fifty thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A.

236 ANNUAL REPORT 2014 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction General Meeting of Shareholders Changes in material terms of a previously concluded transaction: a supply contract for petrochemical products dated September 9, 2013 and approved by the Extraordinary General Meeting of JSOC Bashneft on August 26, 2013 JSOC Bashneft (Supplier); OJSC Ufaorgsintez (Buyer); there are no beneficiaries of the transaction. Up to RUB 14,150,000,000 (fourteen billion one hundred and fifty million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A., East-West United Bank S.A. General Meeting of Shareholders Provision of services by the Contractor as a rolling stock operator: transportation of the Customer s goods in the Russian Federation and abroad, as well as goods exported from the Russian Federation and subject to export customs procedures, goods imported into the Russian Federation and those subject to international transit procedures, in railway cars owned or leased by or otherwise belonging to the Contractor JSOC Bashneft (Customer); OJSC SG-trans (Contractor); there are no beneficiaries of the transaction. Up to RUB 65,000,000,000 (sixty-five billion roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A., East-West United Bank S.A. Director: V. Rozanov Management Board member: D. Stankevich General Meeting of Shareholders Changes in material terms of a previously concluded transaction: a loan agreement between JSOC Bashneft and LLC Bashneft-Polyus dated August 29, 2012 and approved by the Annual General Meeting of JSOC Bashneft on June 29, 2012 as a related-party transaction LLC Bashneft-Polyus (Borrower); JSOC Bashneft (Lender); there are no beneficiaries of the transaction. RUB 52,430,000,000 (fifty-two billion four hundred and thirty million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A., East-West United Bank S.A. Management Board members: M. Stavskiy, E. Brusilova Board of Directors Conclusion of a loan (pooling) agreement JSOC Bashneft (Borrower); LLC UPC (Lender); there are no beneficiaries of the transaction. RUB 2,495,000,000 (two billion four hundred and ninety-five million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A., Directors: F. Evtushenkov, M. Hecker, M. Cherniy Board of Directors Conclusion of a loan (pooling) agreement JSOC Bashneft (Borrower); LLC Ufaorgsintez (Lender); there are no beneficiaries of the transaction. Up to RUB 2,495,000,000 (two billion four hundred and ninety-five million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Conclusion of a supplementary agreement to a loan agreement between JSOC Bashneft and LLC Hotel Complex Bashkortostan JSOC Bashneft (Lender); LLC Hotel Complex Bashkortostan (Borrower); there are no beneficiaries of the transaction. Up to RUB 1,120,000,000 (one billion one hundred and twenty million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Loan agreement LLC Burneftegaz (Borrower); JSOC Bashneft (Lender); there are no beneficiaries of the transaction. RUB 4,800,000,000 (four billion eight hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Commission agreement on the sale of crude oil between JSOC Bashneft and LLC Sorovskneft JSOC Bashneft (Agent); LLC Sorovskneft (Principal); there are no beneficiaries of the transaction. Up to RUB 184,800,000 (one hundred and eightyfour million eight hundred thousand roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 8. LIST OF MAJOR AND RELATED-PARTY TRANSACTIONS 237 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction Board of Directors The Insurer shall reimburse legal defence costs and losses resulting from legal actions or damage/loss claims brought against JSOC Bashneft, and/or its subsidiaries and affiliates, and/or members of governing bodies and executives of JSOC Bashneft and/or its subsidiaries and affiliates for their actions or inaction in the course of fulfilment of their duties and responsibilities in their official capacity. Policyholder: JSOC Bashneft; Insurer: one of the recommended insurance companies (OJSC SOGAZ, OJSC Ingosstrakh, Insurance Open Joint-Stock Company VSK, LLC VTB Insurance, OJSC IC Allianz); Beneficiaries: all companies of JSOC Bashneft, Directors (including independent directors, Executives and any other individuals or employees) Insurance premium: equivalent of up to US$ 1,550,000 (оne million five hundred and fifty thousand US dollars) Members of governing bodies of JSOC Bashneft Board of Directors The Insurer shall reimburse legal defence costs and losses resulting from legal actions or damage/loss claims brought against JSOC Bashneft, and/or its subsidiaries and affiliates, and/or members of governing bodies and executives of JSOC Bashneft and/or its subsidiaries and affiliates for their actions or inaction in the course of fulfilment of their duties and responsibilities in their official capacity. Policyholder: JSOC Bashneft; Insurer: one of the recommended insurance companies (OJSC SOGAZ, OJSC Ingosstrakh, Insurance Open Joint-Stock Company VSK, LLC VTB Insurance, OJSC IC Allianz); Beneficiaries: all companies of JSOC Bashneft, Directors (including independent directors, Executives and any other individuals or employees) Annual insurance premium: equivalent of up to US$ 620,000 (six hundred and twenty thousand US dollars) Members of governing bodies of JSOC Bashneft Board of Directors 99.9999% interest in the authorized share capital of LLC Yanaulsk Division of Neftestroymontazh JSOC Bashneft (Buyer); LLC Targin (Seller); there are no beneficiaries of the transaction. Up to RUB 179,999,820 (one hundred and seventy-nine million nine hundred and ninety-nine thousand eight hundred and twenty roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.А. Directors: F. Evtushenkov, M. Cherniy Board of Directors 0.0001% interest in the authorized share capital of LLC Yanaulsk Division of Neftestroymontazh JSOC Bashneft (Buyer); LLC Targin Bureniye (Seller); there are no beneficiaries of the transaction. Up to RUB 180 (one hundred and eighty roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.А. Directors: F. Evtushenkov, M. Cherniy Board of Directors Conclusion of a supply contract for petroleum products and petrochemicals LLC Bashneft-Polyus (Supplier); JSOC Bashneft (Buyer); there are no beneficiaries of the transaction. RUB 7,950,000,000 (seven billion nine hundred and fifty million roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.А. Management Board members: E. Brusilova, M. Stavskiy Board of Directors Agreement on acceptance and processing of associated gas (provision of processing services) and delivery of resulting products. JSOC Bashneft (Customer); LLC Tuimazinskoye Gas Processing Plant (Contractor); there are no beneficiaries of the transaction. Up to RUB 500,000,000 (five hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Contract for supply of associated gas processing products JSOC Bashneft (Supplier); LLC Tuimazinskoye Gas Processing Plant (Buyer); there are no beneficiaries of the transaction. Up to RUB 500,000,000 (five hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A.

238 ANNUAL REPORT 2014 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value Persons recognized as related parties for the purposes of the transaction Board of Directors Contract for sale and purchase of associated gas JSOC Bashneft (Supplier); LLC Shkapovskoye Gas Processing Plant (Buyer); there are no beneficiaries of the transaction. RUB 500,000,000 (five hundred million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors Agreement on processing of hydrocarbons (provision of processing services) LLC Bashneft-Polyus (Customer); JSOC Bashneft (Contractor); there are no beneficiaries of the transaction. Up to RUB 1,627,000,000 (one billion six hundred and twenty-seven million roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, OJSC Sistema-Finance, Bashneft Investments S.А, Management Board members: E. Brusilova, M. Stavskiy Board of Directors Conclusion of a share purchase agreement for 211,320 (Two hundred and eleven thousand three hundred and twenty) book-entry registered ordinary shares in JSC UPC representing a 2% (two percent) interest in the authorized share capital of JSC UPC OJSC Ufaorgsintez (Seller); JSOC Bashneft (Buyer); there are no beneficiaries of the transaction. Up to RUB 127,000,000 (one hundred and twenty-seven million roubles) CJSC Sistema-Invest, OJSC JSFC Sistema, OJSC Sistema-Finance, Bashneft Investments S.A. Board of Directors The Lessor shall transfer immovable property to the Lessee for a payment, and the Lessee shall accept immovable property for use and pay the rent specified in the lease agreements. JSOC Bashneft (Lessor); LLC Bashneft-Trans (Lessee); there are no beneficiaries of the transaction. Up to RUB 243,380,553 (two hundred and forty-three million three hundred and eighty thousand five hundred and fifty-three roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, Bashneft Middle East Limited, OJSC Sistema-Finance Board of Directors The Lessor shall transfer immovable property to the Lessee for a payment, and the Lessee shall accept immovable property for use and pay the rent specified in the lease agreement. JSOC Bashneft (Lessor); LLC Bashneft-Trans (Lessee); there are no beneficiaries of the transaction. RUB 13,707,691 (thirteen million seven hundred and seven thousand six hundred and ninety-one rouble) OJSC JSFC Sistema, CJSC Sistema-Invest, Bashneft Middle East Limited, OJSC Sistema-Finance Board of Directors The Lessor shall transfer immovable property to the Lessee for a payment, and the Lessee shall accept immovable property for use and pay the rent specified in the lease agreement. JSOC Bashneft (Lessor); LLC Bashneft-Trans (Lessee); there are no beneficiaries of the transaction. Up to RUB 150,379,200 (one hundred and fifty million three hundred and seventy-nine thousand two hundred roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, Bashneft Middle East Limited, OJSC Sistema-Finance Board of Directors The Seller shall transfer property to the Buyer, and the Buyer shall accept the property and pay the price specified in the sale and purchase agreement. JSOC Bashneft (Seller); LLC Bashneft-Trans (Buyer); there are no beneficiaries of the transaction. Up to RUB 4,624,870 (four million six hundred and twenty-four thousand eight hundred and seventy roubles) OJSC JSFC Sistema, CJSC Sistema-Invest, Bashneft Middle East Limited, OJSC Sistema-Finance

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 9. LIST OF THE MOST SIGNIFICANT TRANSACTIONS MADE BY THE COMPANY AND LEGAL ENTITIES UNDER ITS CONTROL FOR 2014 239 APPENDIX 9. LIST OF THE MOST SIGNIFICANT TRANSACTIONS MADE BY THE COMPANY AND LEGAL ENTITIES UNDER ITS CONTROL FOR 2014 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value 1 2 3 4 MAJOR TRANSACTIONS BY JSOC BASHNEFT EGMS Agreement on consolidation of Closed Joint-Stock Company Bashneft-Invest with Joint-Stock Oil Company Bashneft JSOC Bashneft ( Surviving Company ), Closed Joint- Stock Company Bashneft-Invest ( Absorbed Company ), Closed Joint-Stock Company Sistema-Invest ( Separating Company ) RUB 72,359,065,710 (seventy-two billion three hundred and fifty-nine million sixty-five thousand seven hundred and ten roubles) Board of Directors Sale and purchase agreement, export of petroleum products JSOC Bashneft (Seller); SEPTO TRADING INC. (BVI) (Buyer) Up to US$ 2,405,433,600 (two billion four hundred and five million four hundred and thirty-three thousand six hundred US dollars) Board of Directors Supply contract, crude oil Bashneft (Buyer); Shell Trading Russia B.V. (Seller) RUB 49,650,000,000 (forty-nine billion six hundred and fifty million roubles) Board of Directors Sale and purchase agreement, export of petroleum products JSOC Bashneft (Seller); MINCO ENTERPRISES Ltd. (Buyer) Up to US$ 2,585,203,200 (two billion five hundred and eighty-five million two hundred and three thousand two hundred US dollars) Board of Directors Export of petroleum products JSOC Bashneft (Seller); Demex Trading Limited (Buyer) Board of Directors Export of petroleum products JSOC Bashneft (Seller); Vitol S.A., Switzerland (Buyer) Board of Directors Export of crude oil JSOC Bashneft (Seller); Vitol S.A., Switzerland (Buyer) Up to US$ 2,208,750,000.00 (two billion two hundred and eight million seven hundred and fifty thousand US dollars) US$ 3,097,189,200.00 (three billion ninety-seven million one hundred and eightynine thousand two hundred US dollars) US$ 2,910,000,000 (two billion nine hundred and ten million US dollars) Board of Directors Conclusion of a bank guarantee contract between JSOC Bashneft and OJSC Sberbank of Russia JSOC Bashneft (Principal); OJSC Sberbank of Russia (Guarantor); Counterparties to contracts for oil supply, the Federal Tax Service of the Russian Federation (Beneficiaries) Up to RUB 54,000,000,000 (fifty-four billion roubles) Board of Directors Refined petroleum products for export JSOC Bashneft (Seller); SOMITEKNO LTD (Buyer) Board of Directors Crude oil supply JSOC Bashneft (Buyer); LLC LUKOIL-Rezervnefteprodukt (Supplier) Board of Directors Crude oil for export JSOC Bashneft (Seller); Vitol S.A. (Buyer) Up to RUB 98,500,000,000 (ninety-eight billion five hundred million roubles) Up to RUB 98,500,000,000 (ninety-eight billion five hundred million roubles) Up to RUB 98,500,000,000.00 (ninety-eight billion five hundred million roubles)

240 ANNUAL REPORT 2014 Governing body which made the decision to approve the transaction Subject of the transaction Parties to the transaction Transaction value 1 2 3 4 Board of Directors Crude oil for export JSOC Bashneft (Seller); NORMESTON TRADING LIMITED (Buyer) Up to RUB 98,500,000,000.00 (ninety-eight billion five hundred million roubles) Board of Directors Petroleum products and petrochemicals for export JSOC Bashneft (Seller); Trubond Limited (Buyer) Up to RUB 98,500,000,000 (ninety-eight billion five hundred million roubles) Board of Directors Petroleum products and petrochemicals JSOC Bashneft (Supplier); LLC Exim Group (Buyer) Board of Directors Petroleum products and petrochemicals JSOC Bashneft (Supplier); LLC Arctic Bunker (Buyer) Up to RUB 85,000,000,000 (eighty-five billion roubles) Up to RUB 85,000,000,000 (eighty-five billion roubles) MAJOR TRANSACTIONS OF CONTROLLED COMPANIES LLC BASHNEFT-POLYUS Extraordinary general meeting of members Oil supply LITASCO SA (Buyer); LLC Bashneft-Polyus (Supplier) Up to US$ 898,000,000 (eight hundred and ninety-eight million US dollars) Extraordinary general meeting of members Export of oil LLC Bashneft-Polyus (Supplier); LITASCO SA (Buyer) Up to US$ 236,084,800 (two hundred and thirty-six million eighty-four thousand eight hundred US dollars) Extraordinary general meeting of members Oil supply through a system of trunk pipelines of OJSC Transneft in order to comply with the requirement of the licence agreement on the use of subsoil resources for refining of 42% of produced oil LLC Bashneft-Polyus (Buyer); LLC Lukoil-Rezervnefteprodukt (Supplier) Up to RUB 7,300,000,000 (seven billion three hundred million roubles) Extraordinary general meeting of members Supply of oil from the Trebs and Titov oilfields in order to comply with the requirement of the licence agreement on the use of subsoil resources (at the Trebs and Titov oilfields) for refining of 42% of produced oil LLC Bashneft-Polyus (Supplier); LLC Lukoil-Rezervnefteprodukt (Buyer) Up to RUB 7,300,000,000 (seven billion three hundred million roubles) LLC BURNEFTEGAZ Extraordinary general meeting of members Loan agreement LLC Burneftegaz (Borrower); JSOC Bashneft (Lender) Up to RUB 4,800,000,000 (four billion eight hundred million roubles) LLC BASHNEFT-DOBYCHA Sole member Service contract for integrated servicing of tubing pipes, sucker rods and ESP units LLC Bashneft-Dobycha (Customer); LLC Neftekamsky Oilfield Equipment Plant (Contractor) RUB 3,317,941,000 (three billion three hundred and seventeen million nine hundred and forty-one thousand roubles) Sole member Service contract for maintenance of mechanical equipment and for maintenance of downhole sucker rod pumps LLC Bashneft-Dobycha (Customer); LLC Oktyabrsky Oilfield Equipment Plant (Contractor) RUB 3,370,926,000 (three billion three hundred and seventy million nine hundred and twenty-six thousand roubles) Sole member Contract for servicing and workover of wells of various applications LLC Bashneft-Dobycha (Customer); LLC Ufimsky Administration of Underground Well Workover (Contractor) RUB 6,609,270,000 (six billion six hundred and nine million two hundred and seventy thousand roubles) Sole member Contract for servicing and workover of wells of various applications LLC Bashneft-Dobycha (Customer); LLC Bashkirsky Branch of Well Workover (Contractor) RUB 5,158,518,000 (five billion one hundred and fifty-eight million five hundred and eighteen thousand roubles)

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 10. INFORMATION ON MAJOR COURT CASES 241 APPENDIX 10. INFORMATION ON MAJOR COURT CASES List of JSOC Bashneft s major court cases as of December 31, 2014 No. Name of the company Role of the company: plaintiff (P)/respondent (R) Category of case, No. Subject of the dispute, summary Amount of claim/value of the matter in dispute (roubles) Judicial authority/ case No. Current status/outcome 1 JSOC Bashneft R 4 Claim of OJSC Arsagera Management Company for recovery of 6,215,860 roubles in connection with the repurchase of JSOC Bashneft's preferred shares 6,215,860 Commercial Court of the Republic of Bashkortostan (CCRB), A07-12929/ 2014 The CCRB dismissed the claim of OJSC Arsagera Management Company in accordance with the judgement dated November 7, 2014. The appeal is to be heard on January 22, 2015. 2 JSOC Bashneft R 3 Statement of claim by the Inter-district Environmental Prosecutor's Office of Bashkortostan to JSOC Bashneft obliging it to ensure compliance with targets for associated gas utilization at 52 oilfields within six months from the date of entry of the judgement into force Supreme Court of the Republic of Bashkortostan, Case No. 2-5140/2014 On October 9, 2014, the Leninsky district court of Ufa passed the Judgement obliging JSOC Bashneft to ensure that the actual level of associated gas utilization meets the targets within the time frame determined for implementing the measures for 52 oilfields. The Inter-district Environmental Prosecutor's Office of Bashkortostan filed an appeal against the judgement of the Leninsky district court dated October 9, 2014. The case is to be considered by the Supreme Court of the Republic of Bashkortostan on January 15, 2015. 3 JSOC Bashneft R 2 On November 5, 2014 the Federal Antimonopoly Service of Russia instituted proceedings against JSOC Bashneft, OJSC Rosneft, OJSC LUKOIL and LLC LUKOIL-Rezervnefteprodukt for violation of the antitrust law on the evidence of manipulation on the exchange FAS of Russia On December 18, 2014 the Russian Federal Antimonopoly Service rendered a decision to postpone the hearing of case No. 1-11-177/00-02-14 until January 22, 2015.

242 ANNUAL REPORT 2014 No. Name of the company Role of the company: plaintiff (P)/respondent (R) Category of case, No. Subject of the dispute, summary Amount of claim/value of the matter in dispute (roubles) Judicial authority/ case No. Current status/outcome 4 JSOC Bashneft R 6 Invalidation of resolutions made by JSOC Bashneft s governing bodies and recorded in Minutes of the meeting of the Board of Directors No. 04-2014 dated March 21, 2014, on approving the transfer of licence NRM 15107 NR from JSOC Bashneft to LLC Bashneft-Polyus; invalidation of amendments to licence NRM 15107 NR and of licence NRM 15729 NR issued to LLC Bashneft-Polyus Moscow Commercial Court No. A40-103629/ 2014/ 65-667 On December 3, 2014 the operative part of the judgement by the Moscow Commercial Court was announced. The claims were upheld in part: actions by the Federal Subsoil Resources Management Agency (Rosnedra) related to amending the Licence and transferring it to LLC Bashneft-Polyus were ruled to be illegal. The court dismissed the claim for invalidation of the resolutions of JSOC Bashneft s governing bodies to amend subparagraph 4.1.13 of the licence for T&T, as well as of the resolution of JSOC Bashneft s Board of Directors to transfer the licence for T&T to LLC Bashneft-Polyus recorded in Minutes No. 04-2014 dated March 21, 2014. JSOC Bashneft lodged an appeal against the judgement by the Moscow Commercial Court dated December 15, 2014. In accordance with the decision of the 9th Arbitration Appeal Court dated December 19, 2014, the court hearing is scheduled for January 22, 2015. 5 JSOC Bashneft R 6 Recovery of property in the form of JSOC Bashneft s shares from unlawful possession of other persons in favour of the Russian Federation Moscow Commercial Court No. A40-155494/ 2014/ 132-2 The claims were upheld in accordance with the judgement dated October 30, 2014. 6 LLC Bashneft- Dobycha R 3 Claim by the office of the Federal Supervisory Natural Resources Management Service of the Republic Bashkortostan for damages for environmental negative impacts 67,738,677.13 Commercial Court of the Republic of Bashkortostan / 18th Arbitration Appeal Court / No. A07-12236/ 2013 The claims were completely rejected in accordance with the judgement of the Court dated September 16, 2014. In accordance with an additional judgement by the court dated September 25, 2014, legal costs (costs of examination totalling 420 thousand roubles) were recovered in favour of LLC Bashneft-Dobycha. In accordance with the Ruling of the 18th Arbitration Appeal Court dated December 11, 2014, the court judgement was left unchanged. 7 JSOC Bashneft P 3 Statement on challenging the actions/ omission of the Ministry of Finance of Bashkortostan involving an unreasonable return of executive documents in relation to the Ministry of Natural Resources of the Republic of Bashkortostan without executing Commercial Court of the Republic of Bashkortostan, A07-20409/ 2014 The claim of JSOC Bashneft was upheld.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 10. INFORMATION ON MAJOR COURT CASES 243 No. Name of the company Role of the company: plaintiff (P)/respondent (R) Category of case, No. Subject of the dispute, summary Amount of claim/value of the matter in dispute (roubles) Judicial authority/ case No. Current status/outcome 8 JSOC Bashneft P 1 Claim of JSOC Bashneft against Interregional Inspectorate No. 1 of the Federal Tax Service for Major Taxpayers for annulment of judgement No. 52-20- 18/1483r dated August 17, 2012 on liability for committing a tax offence 21,584,666 Federal Commercial Court of the Moscow District A40-23302/ 2013-99-71 June 20, 2013: Judgement by the Moscow Commercial Court to uphold the claims in part. In accordance with the Ruling of the 9th Arbitration Appeal Court dated September 19, 2013, the Judgement by the Commercial Court Moscow on this case was left unchanged; appeals of the tax authority and JSOC Bashneft were dismissed. In accordance with the Ruling of the Federal Commercial Court of the Moscow District dated February 17, 2014, the judgement by the Moscow Commercial Court dated June 20, 2013 and the Ruling of the 9th Arbitration Appeal Court dated September 19, 2013 concerning the dismissal of the Company s claim for invalidating the decision of the tax authority to charge additional income tax and property tax, to charge fines and penalty under clauses 1.2 and 2.2 of the decision was overturned; this part of the case was remitted for reconsideration to the Moscow Commercial Court. The rest of the court rulings were left unchanged. On July 9, 2014 the Moscow Commercial Court upheld the Company s claim in full. In accordance with the Ruling of the 9th Arbitration Appeal Court dated October 14, 2014, the Judgement by the Commercial Court was left unchanged; the appeal of the tax authority was dismissed. At the moment, the total amount of the upheld claims is equal to 21,584,666 roubles (the claim has been upheld in full).

244 ANNUAL REPORT 2014 APPENDIX 11. ADDITIONAL INFORMATION TO BE INCLUDED IN THE ANNUAL REPORT Additional information to be included in the Annual Report Disclosure of information (section of the Annual Report in which the information is disclosed) Information about whether JSOC Bashneft has in place a development strategy Information about whether JSOC Bashneft has in place a long-term development programme ( LTDP ) Information about changes in the development strategy and the LTDP compared with the previous year Information about JSOC Bashneft s other programmes (including investment programmes, innovation programmes, etc.) as part of the implementation of the strategy and the LTDP Date of approval by the Board of Directors and number of minutes Strategic goals Key areas Implementation time frame Date of approval by the Board of Directors and number of minutes Main objectives and tasks Main measures aimed at implementing the LTDP in the reporting year Planned time frame for implementation Description of changes/adjustments to the main objectives and tasks, reasons for the changes/adjustments Comparison of the main objectives, tasks and areas of the development for the current period with data for the previous period, by specific measures Date of approval by the Board of Directors and number of minutes Objectives and main projects Key areas of the programmes Planned time frame for implementation Information is disclosed in the section Strategy and Operating Results Strategy Due to the transfer of ownership of 84% of JSOC Bashneft s voting shares to the Russian Federation in December 2014, a Long-Term Development Programme will be developed, agreed and approved under the resolution of the Company s Board of Directors. As of the end of the reporting period, the Long-Term Development Programme had not been developed or approved by the Company for objective reasons (the date of the transfer of ownership to the new shareholder). However, the Group has planned a number of initiatives for 2015, including a strategic session, following which the Group expects to develop the Long-Term Development Programme which will be subsequently submitted to the Company s Board of Directors for consideration. The LTDP is an internal document that contains lists of means and specific measures to achieve the Company s strategic development objectives set in its development strategy, specifying the amount and sources of their funding. From May through July 2014 the Group conducted strategic sessions for the following units: Upstream, Refining and Commerce, as well as a general strategic session attended by members of the Board of Directors, management, and representatives of major shareholders. Following the strategic session, an updated version of the Company s strategy was prepared. However, due to a legal dispute concerning the ownership of JSOC Bashneft s shares, consideration of approval of the Group s updated strategy was postponed. Due to the transfer of ownership of 84% of JSOC Bashneft s voting shares to the Russian Federation in December 2014, it has become necessary for the Group to include certain orders of the Government and executive authorities establishing the procedure and deadlines for fulfilling a number of tasks in the list of the main measures aimed at implementing the strategy. The Group has planned a number of initiatives for 2015, including a strategic session, following which the Group expects to develop an updated development strategy which will be subsequently submitted to the Company s Board of Directors for consideration. As of the end of the reporting period, the Long-Term Development Programme had not been developed or approved by the Company for objective reasons (the date of the transfer of ownership to the new shareholder). In addition to the Company s main strategy, the Company follows a practice of preparing action plans or functional strategies that list and outline key strategic initiatives in certain areas of operations (exploration and production of oil, refining and commerce, personnel management, HSE, finance, corporate governance and legal support). According to an approach approved by the Board of Directors, a number of these action plans (functional strategies) were approved by the Board of Directors (in the field of HSE, security, personnel management, audit), while others were approved by the Company s Management Board. In 2014 the Board of Directors approved updated action plans in the field of HSE, personnel management, finance, security.

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 11. ADDITIONAL INFORMATION TO BE INCLUDED IN THE ANNUAL REPORT 245 Additional information to be included in the Annual Report Disclosure of information (section of the Annual Report in which the information is disclosed) Information about whether JSOC Bashneft has in place an approved programme of divestment of non-core assets (NCA) and a register of NCA Information about whether JSOC Bashneft has received an auditor s report on implementation of the LTDP Information about whether JSOC Bashneft has in place an approved system of key performance indicators (KPIs) Brief description of JSOC Bashneft s risks and risk management measures Date of approval by the Board of Directors and number of minutes Description of the programme for divestment of NCA Key points of the programme for divestment of NCA Actual data on the divestment of NCA Causes of deviation of the actual value of the divested NCA from their carrying value (if any) Aggregate values of indicators (carrying value, sale value and the number of NCA divested during the reporting period) Date and number of the auditor s report Main conclusions of the auditor Date of approval by the Board of Directors and number of minutes KPIs, including financial and economic indicators (including mandatory TSR/ amount of dividends), industry-specific KPIs, indicators of bonus cancellation (if any) and other KPIs that are required to be included in the KPI system in accordance with certain orders of the President of the Russian Federation and the Government of the Russian Federation Target values of the mandatory KPIs for the current and next year Degree of KPI achievement in the reporting year compared to the previous year (in %) Causes of deviation of the actual KPIs from the targets (if any) Changes in the KPI system, including description of changes/adjustments to the target values, rationale for the changes, the date of approval by the Board of Directors and number of minutes Whether JSOC Bashneft links KPI achievement with the remuneration of the Company s management Description of the most significant risks inherent in the Company s operations, and measures taken by the Company to respond to these risks Description of risk management techniques used by the Company, as well as key risk management measures implemented by the Company The Group is working systematically to analyse, detect and identify further measures with regard to non-core assets, the ownership of which is not reasonable in accordance with the approved development strategy. Currently the Group is developing a general programme of measures in respect of non-core assets, which it plans to submit to the Company s Board of Directors for consideration and approval in 2015. As of the end of the reporting period, the Long-Term Development Programme had not been developed or approved by the Company for objective reasons (the date of the transfer of ownership to the new shareholder). The LTDP was not audited. Due to the transfer of ownership of 84% of JSOC Bashneft s voting shares to the Russian Federation in December 2014, in 2015 the KPI system adopted in the Group will undergo major changes, taking into account the position of representatives of the Company s Principal Shareholder. State-owned companies, whose controlling shareholder is the Russian Federation, and which include JSOC Bashneft, should develop and approve a KPI system based on an approved list 1. Performance evaluation of state-owned companies for the reporting period is based on the analysis of the results of KPI achievement. As of the end of the reporting period, the Group had in place a list of KPIs approved by the Board of Directors and values of KPIs which differed from those recommended for state-owned companies. See Strategy and Operating Results KPI system However, the Company is going to develop, agree and approve the list of KPIs that is in line with the recommendations of executive authorities in 2015. Information is disclosed in the Appendix Key risk factors Information is disclosed in the section Corporate Governance Risk management and internal control 1. For public state-owned companies, the list of KPIs includes the following indicators: TSR, ROE or ROIC, EBITDA, EBITDA margin, changes in revenue, cost reduction, other indicators chosen at the discretion of the Board of Directors (in total no more than seven indicators)

246 ANNUAL REPORT 2014 Additional information to be included in the Annual Report Disclosure of information (section of the Annual Report in which the information is disclosed) Description of principles and approaches to organizing the risk management and internal control system ( RMICS ), information about the internal audit function Compliance with the principle that the Annual Report should be prepared based on the audited financial statements for the reporting year and the previous year Information on the basic internal regulations that serve as the basis for preparation of the current Annual Report, including key internal documents regulating the internal audit function and the functioning of the RMICS Divisions responsible for the RMICS development, and special-purpose bodies of the RMICS: accountability, basic functions and tasks Brief description of the internal audit function (general description of the Company s policy in the area of internal audit, resources employed, etc.), implementation of programmes to develop the internal audit function (quality improvement programme, external evaluation, etc.) List of key measures aimed at improving the RMICS that were implemented by the Group in the reporting year, including under resolutions of the Board of Directors, as part of implementation of the policies and strategies approved by the Board of Directors of the Company Information is disclosed in the sections: Corporate Governance Fundamental principles of the Group s corporate governance practice Internal control system, Corporate Governance Risk management and internal control, Corporate Governance Internal audit and Corporate Governance Audit Commission Information is disclosed in the section Corporate Governance Internal audit Information is disclosed in the section Corporate Governance Risk management and internal control Measures for improving the RMS The Annual Report of JSOC Bashneft for 2014 was prepared based on its audited financial statements for 2014, 2013 and 2012 The following internal documents serve as the basis for preparing the Annual Report: Charter (approved by the General Meeting of Shareholders of the Company, minutes No. 37 dated June 10, 2014); Regulations on the General Meeting of Shareholders (approved by the General Meeting of Shareholders of the Company, minutes No. 37 dated June 10, 2014); Regulations on the Board of Directors (approved by the General Meeting of Shareholders of the Company, minutes No. 33 dated June 27, 2013); Regulations on the Nominating and Compensation Committee of the Board of Directors (approved by the Board of Directors of the Company, minutes No. 11-2014 dated June 10, 2014); Regulations on the Strategy Committee of the Board of Directors (approved by the Board of Directors of the Company, minutes No. 29 dated July 29, 2010); Regulations on the Health, Safety, Environment and Social Responsibility Committee of the Board of Directors (approved by the Board of Directors of the Company, minutes No. 18-2012 dated November 28, 2012); Regulations on the Audit Committee of the Board of Directors (approved by the Board of Directors of the Company, minutes No. 14-2014 dated August 4, 2014;) Regulations on the Finance, Budget and Risk Committee of the Board of Directors (approved by the Board of Directors of the Company, minutes No. 14-2014 dated August 4, 2014); Regulations on the Project Assurance Committee of the Board of Directors (approved by the Board of Directors of the Company, minutes No. 13-2013 dated September 24, 2013); Regulations on the Management Board (approved by the General Meeting of Shareholders of the Company, minutes No. 19 dated November 25, 2009); Regulations on the President (approved by the General Meeting of Shareholders of the Company, minutes No. 19 dated November 25, 2009); Regulations on the Audit Commission (approved by the General Meeting of Shareholders of the Company, minutes No. 19 dated November 25, 2009) ;

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES APPENDIX 11. ADDITIONAL INFORMATION TO BE INCLUDED IN THE ANNUAL REPORT 247 Additional information to be included in the Annual Report Disclosure of information (section of the Annual Report in which the information is disclosed) Regulations on the Corporate Secretary (approved by the Board of Directors of the Company, minutes No. 10-2014 dated May 29, 2014); Regulations on Information Policy (approved by the Board of Directors of the Company, minutes No. 18-2011 dated October 5, 2011); Regulations on Insider Information (approved by the Board of Directors of the Company, minutes No. 12-2011 dated June 24, 2011); Regulations on Dividend Policy (approved by the Board of Directors of the Company, minutes No. 15-2011 dated July 22, 2011); Regulations on Rewards and Compensation to Members of the Board of Directors (approved by the General Meeting of Shareholders of the Company, minutes No. 35 dated December 17, 2013; Code of Corporate Governance (approved by the Board of Directors of the Company, minutes No. 21-2014 dated November 26, 2014); Code of Ethics (approved by the Board of Directors of the Company, minutes No. 18-2011 dated November 5, 2011); Anti-Corruption Policy (approved by the Board of Directors of the Company, minutes No. 18-2011 dated October 5, 2011). Information about state support received by the Company in 2014, including information about subsidies received (in roubles), intended use, information on the use of funds as of the end of the reporting period Information on inclusion in the list of strategic enterprises and strategic joint-stock companies Information about the actual results of execution of orders and directives of the President of the Russian Federation and orders of the Government of the Russian Federation Summary of the most significant transactions made by the Company and by legal entities under its control (including related transactions made by the Company, one or several legal entities under its control) for the last year Information on concluded sale and purchase agreements for interests, shares, stakes in business partnerships and companies, including information about the parties, the subject matter, the price and other terms of these agreements In 2014 JSOC Bashneft did not receive state support. JSOC Bashneft is not included in the list of strategic enterprises and strategic joint-stock companies After the transfer of ownership of the controlling block of JSOC Bashneft s voting shares to the Russian Federation and subsequent inclusion (on December 20, 2014) of the Company in the list of joint-stock companies contained in Decree No. 91-R of the Government dated January 23, 2003, the Group has not received any orders or directives from the President or the Government of the Russian Federation to be carried out during the reporting period. Starting from 2015, the Group organized proper control over the execution of orders of the President and the Government of the Russian Federation. Information is disclosed in Appendices Consolidated IFRS financial statements of Bashneft Group for 2014 (Note No. 4) and List of the most significant transactions made by the Company and legal entities under its control for 2014 Information is disclosed in the Appendix Consolidated financial statements of Bashneft Group for 2014 (Note 4)

248 ANNUAL REPORT 2014 APPENDIX 12. GLOSSARY OF TERMS AND ABBREVIATIONS BPS CDU TEK CGS Credit rating D&O Downstream EBITDA (abbreviation for Earnings before Interest, Taxes, Depreciation and Amortization) Field facilities construction GPP Hedging HSE International PRMS standards IR IT KPI Nelson Index Net debt NGLs Oil sludge Refining depth ROSK SNG TGP Total debt Upstream US$ USKA VGO VIC Booster pump station Central Dispatching Department of the Fuel and Energy Complex Central Gathering Station An assessment of the credit worthiness of an individual, company, region, or country Directors and officers liability insurance Refining and Marketing Unit Earnings before interest and income tax adjusted for non-operating income and expenses, depreciation and amortization Construction, installation, organizational and engineering measures for ensuring efficient and safe field development Gas processing plant Insurance, reduction of risk of losses caused by changes in market prices for goods that are unfavourable for buyers or sellers, as compared to the prices considered when signing a contract Health, Safety and Environment International classification and evaluation of hydrocarbon reserves using PRMS criteria (the Petroleum Resources Management System) Investor Relations Information technologies Key performance indicator A measure of the complexity of technological processes at an oil refinery Total debt less cash and cash equivalents and short-term investments Natural gas liquids Complex physical and chemical mixtures that consist of petroleum products, mechanical admixtures (such as clay, metal oxides and sand) and water Output (percentage by weight) of commercial petroleum products at a refinery excluding the output of heating oil and irrecoverable losses Sulphuric acid regeneration unit Stable natural gasoline Target Gas Programme Total amount of long-term and short-term borrowings Exploration and Production Unit US dollar Sulphuric acid alkylation unit Vacuum gas oil Vertically integrated oil company

ABOUT THE GROUP STRATEGY AND OPERATING RESULTS INVESTOR & SHAREHOLDER INFORMATION COPROPATE GOVERNANCE APPENDICES OTHER 249 OTHER GENERAL INFORMATION: THE GROUP S PROFILE / Date and place of state registration of the company as a legal entity: January 13, 1995; Ufa, Republic of Bashkortostan / Number of the decision on state registration: 60 / Date of entry into the Uniform State Register of Legal Entities as a legal entity registered prior to July 1, 2002: October 15, 2002 / Series and number of the certificate confirming the legal entity is recorded in the Uniform State Register of Legal Entities as a legal entity registered prior to July 1, 2002: Series 02 No. 004176539 / Primary State Registration Number under which the record on the establishment of the company was made in the Uniform State Register of Legal Entities: 1020202555240 Main types of the Company s operations: / extraction of crude oil and natural gas, provision of related services; / production of associated gas and gas condensate; / manganese ore production and processing; / peat extraction and production of other minerals; / industrial production of petroleum products, petrochemicals and chemicals; / oil refining and natural gas processing, manufacture and sale of petrochemical products; / procurement and sales (involving creation of the Company s own sales outlets) of industrial and technical products (including crude oil, petroleum products and petrochemicals), cars and other vehicles, as well as spare parts and components for them; / organization, maintenance and operation of gas and petrol stations.

250 ANNUAL REPORT 2014 CONTACT DETAILS FULL COMPANY NAME: Joint-Stock Oil Company Bashneft SHORT NAME: JSOC Bashneft LOCATION: 30 bld. 1, Karl Marx Street, Ufa, Republic of Bashkortostan, 450077, Russian Federation INFORMATION SERVICE OF THE GROUP: T: (347) 261-61-61 T: (495) 228-22-00 CONTACTS IN MOSCOW: T: (495) 228-22-00 F: (495) 228-15-97 Address: 5, 1st Tverskaya-Yamskaya Street, Moscow, 125047, Russian Federation FOR SHAREHOLDERS: Shareholder Relations: Corporate Relations Department of JSOC Bashneft T: (495) 228-15-96, (347) 361-61-33 F: (347) 279-74-19 Email: pharkhutdinovarv@bashneft.ru FOR INSTITUTIONAL INVESTORS: Investor Relations Department of JSOC Bashneft T: (495) 228-15-96 F: (495) 228-15-97 Email: ir@bashneft.ru THE COMPANY S AUDITOR UNDER RAS: CJSC BDO Location: 125 bld.1 section 11, Varshavskoye Highway, Moscow, 117587, Russian Federation T: (495) 797-56-65 F: (495) 797-56-60 Email: reception@bdo.ru THE COMPANY S AUDITOR UNDER IFRS: CJSC Deloitte & Touche CIS Location: 5 Lesnaya Street, Moscow, 125047, Russian Federation T: (495) 787-06-00 F: (495) 787-06-01 Email: mbolan@deloitte.ru THE COMPANY S REGISTRAR: OJSC Reestr Location: 3 bld. 2, Zubovskaya Square, Moscow, 119021, Russian Federation T: (495) 617-01-01 F: (495) 680-80-01 Email: reestr@aoreestr.ru THE COMPANY S WEBSITE: www.bashneft.com MONTH AND YEAR OF PUBLICATION: June 2015