Industrial Safety and Environment

Introduction of an integrated management system

Achieving these tasks became possible based on the results of previous periods, detailed in JSC Gazprom Neft's 2010 report on sustainable growth. These included improving discipline and transparency of reporting incidents, and creating a normative base that allowed systematisation of work and a unified approach to safety problems at all company enterprises.

Compliance with legislative and corporate requirements at the company's facilities is regulated based on a unified approach. This was established in 2010, under the corporate standard’ Integrated Production Monitoring over Compliance with Requirements of Normative Legal Acts and Corporate Standards in sphere of Industrial Safety'. The standard reflects the innovative approach to monitoring production and defining safety assurance as a business process aimed ultimately at reducing cost and maximising business economic efficiency. The standard was subjected to a range of expert reviews and approved by supervisory authorities. In 2011,the company plans to develop software that supports the standard's processes and organise its pilot introduction at several large enterprises of the company.

Auditing is an integral part of introducing the HSE management system. Regular audits allow the company to evaluate its current status and situation with new developments and establish justified recommendations to improve the system. For the first time in 2010, the company conducted the HSE management system audit in four subsidiary companies. The audit was performed by groups of auditors comprising representatives of subsidiary companies of various company operation profiles with respective certification. The audit results allowed the company to reflect clearly on the condition of current systems.

Based on recommendations from audit results, measures to improve management systems were developed in affiliated companies. The audit also became a platform to exchange experience between affiliated companies. The company plans to continue this work in 2011.

Ensuring the environmental management system functions stably requires respective staffing. Gazprom Neft devotes special attention to improving professional and qualification knowledge of employees working in this area. The company organises regular training of managers and specialists responsible for environmental safety and production waste disposal. In 2010, 749 managers and specialists took environmental safety training.

The HSE management system applies to third-party organisations providing services to the company. Therefore, Gazprom Neft promotes developing environmental accountability, following high industrial safety requirements for the company's suppliers. In 2010, Gazprom Neft adopted the Standard’ Procedure of Contractors’ Management and Organisation of Interaction on Health, Safety and Environment Issues'.

Industrial and occupational safety

The company strives to continuously improve safety levels and consistently lower risks of injuries, occupational diseases and accidents at work.

Since 2008, the company developed and introduced the 'Health, safety and Environment Risks Identification, Assessment and Minimisation Procedure' corporate standard. This supplements the corporate integrated risk management system and allows risk minimisation measures in such situations where the human factor, which cannot always be quantified, comes to the fore. The process proposed in this document is based on qualitative risk assessment. The company’s specialists compiled risk assessment analysis cards for all types of works and operations performed. Results of this assessment allowed the company to develop specific measures to minimise and exclude risks. Managers use card information when briefing those performing work, while drawing up written permits for extremely hazardous work and developing instructions. The process of risk-assessment analysis and compiling respective cards became a tool to improve the safety culture. The company’s employees are involved in this process. Participating in the process allows them to clearly see their role and accountability in improving industrial safety.

Protecting employees’ work and health requires mutual responsibility and structural interaction between the company management and trade unions. Mutual obligations on these matters are reflected in collective agreements.

Decreasing number of injuries among employees

Thanks to introducing safety standards and programmes to implement the HSE Policy, in 2010 indicators of occupational injuries decreased.

Developing safety culture is a prerequisite for the company to achieve its HSE goals. Managers should play the leading the role in this area. Safety depends on their compliant decisions and behavior at production facilities. So in 2010, Gazprom Neft organised 'HSE Leadership for Managers' workshops.

More than 200 top and medium-level managers in the corporate centre and subsidiary companies took part. Workshop participants reviewed key components of efficient management behaviors HSE leader and developed plans to improve safety culture in their divisions.

Lost Time Injury Frequence Rate (LTIFR)

Accidents prevention.

Since 2008, the company developed and introduced the 'Health, Safety and Environment Risks Identification, Assessment and Minimisation Procedure' corporate standard. This supplements the corporate integrated risk management system and allows risk minimisation measures in such situations where the human factor, which cannot always be quantified, comes to the fore. The process proposed in this document is based on qualitative risk assessment. The company's specialists compiled risk assessment analysis cards for all types of works and operations performed. Results of this assessment allowed the company to develop specific measures to minimise and exclude risks. Managers use card information when briefing those performing work, while drawing up written permits for extremely hazardous work and developing instructions. The process of risk-assessment analysis and compiling respective cards became a tool to improve the safety culture. The company's employees are involved in this process. Participating in the process allows them to clearly see their role and accountability in improving industrial safety.

Gazprom Neft's HSE policy and standards focus on minimising risks and preventing accidents. Maintaining a high level of readiness for emergencies is also a critical consideration. For this purpose, the company took emergency prevention and response measures, based on action plans. The subsidiary companies developed and introduced these plans. To be ready to act in emergencies, subsidiary companies created financial and material resource reserves. The readiness of subsidiary companies for emergency responses is checked during regular training and drills.

Providing employees with modern personal protective equipment

The company has a corporate standard that defines the procedure of providing employees with personal protective equipment (PPE). PPE purchased by the company complies with Russian and European safety requirements. Costs for PPE in 2010 were 13,000 RUB per person.

Transport safety.

Since 2009, the company has been implementing a number of measures to ensure transport safety. These include developing normative documents, conducting safety months and organising personnel training under various programmes. This approach has proved successful. In 2009, the number of injured in traffic incidents halved, and in 2010, the company saw a decrease in traffic incidents. The relative incident rate also indicates improvements in transport safety.

Traffic Incident Rate (AAR)

Managing environmental safety

Oil companies have an inevitable anthropogenic impact on the environment, including atmospheric emissions, discharges into water, industrial waste generation and disposal. As a socially responsible organisation, JSC Gazprom Neft understands the impact of its operations on the environment and strives to ensure the best possible preservation and restoration of natural resources. The company also endeavors to comply with every requirement of environmental law, fulfill its license obligations and minimise its environmental impact in all areas of oil production, oil refining and in the sales system.

The company devotes much attention to indirect environmental impact, by producing goods with improved environmental characteristics.

Gazprom Neft actively develops and introduces innovative technologies to achieve productive, economic and environmental efficiency at the same time. The company is closely monitoring the quality of land, atmospheric air and water to identify problems and follow up in an expedient manner.

Environmental expenditure

Gazprom Neft spends significant resources on implementing environmental programmes and measures. In 2010, environmental expenditure remained at the 2009 level. It included financing environmental measures to protect water from contamination, modernising effluent treatment facilities, conservation (recultivation) of waste tank, and other environmental measures. Current costs also include expenses for developing regulatory documents, environmental monitoring, industrial environmental control, improving environmental competence, and environmental training of specialists.

Total atmospheric emission

The company's expenditure on environmental measures, including using technologies that minimise adverse environmental impact, significantly exceeds the company payments for environmental contamination.

Atmospheric emissions

When acquiring new assets and developing the company's existing enterprises, the scope of environmental activities also increases. Minimizing atmospheric emissions is especially critical for producing facilities, which contribute to the major part of such emissions. In 2010, the company's total atmospheric emissions increased, compared to 2009. This relates to purchasing new assets (CJSC Gazprom Neft Orenburg, OJSC Moscow Refinery, OJSC NK-Magma) and increasing the number of filling stations.

The company minimizes greenhouse gas emissions by implementing an associated gas disposal programme. This provides for constructing gas-collecting systems and gas treatment plants, including power generating capacities.

Additionally, minimising greenhouse gas emissions became an item of income for the company, while implementing a joint project with Mitsubishi Corporation on Ety-Pur field of Muravlenkovskneft in the framework of the Kyoto Protocol.

Lower emissions in refining can be attributed to environmental measures. These include renovating refining capacities, replacing burner units, equipping reservoirs with modern emission lowering devices, and introducing an installation ensuring precise and leak-proof oil loading. Implementing a large project of OJSC Gazprom Neft-Omsk Refinery's medium-term investment programme and constructing a new fuel hydrotreatment facility, will minimise the environmental impact of the company's products. Commissioning this facility will ensure the company produces high-quality fuel and significantly minimises atmospheric emissions.

The company arranged comprehensive analysis of environmental and economic efficiency of using light oil vapour recovery systems at filling stations of affiliated companies. This included integrated assessment of capabilities of existing and future recovery systems to minimise power costs and ensure a high level of capturing and process safety, self-sustainment of work, objective recording and recovery of captured hydrocarbons. This will help the company plan introducing such systems into fuelling station construction and renovation projects. These measures allow the company to practically prevent atmospheric emissions of fuel gases at filling stations by 95%-98%.

The company's enterprises seek to utilise water resources with maximum efficiency. In 2010, water consumption for the company's own needs reduced by 16 % compared to 2009. The company's enterprises carefully monitor the impact of production on the condition of water bodies. Modernising facilities and reconstructing treatment plants enables consistent quality improvement of industrial effluents.

Waste treatment

90 % of waste generated in the company's activities account for low hazard and essentially non-hazardous waste (IV and V class). Drilling waste represents the largest share of accumulated waste.

When Gazprom Neft-Khantos LLC introduced pitless technology in drill production wells, this decreased waste generation in 2010. It also transferred drilling waste into the ownership of drilling contractors.

Minimising waste that would inevitably have a negative environmental impact is a key environmental task and critical component of production efficiency improvement. Waste minimisation tasks in Gazprom Neft Group are settled by reducing generation and disposal volumes. Therefore, a unique drilling waste processing plant at Gazprom Neft-Khantos processes the waste into non-hazardous liquid. This is then injected under pressure into the bed at around 2,000 m depth.

Land utilisation and remediation

Remediation of land disturbed during production activities aims to minimise the company's environmental impact. Gazprom Neft must solve tasks relating to current activities and accumulated waste. Programmes for remediating disturbed land, slurry ponds, and sites where industrial waste is collected, include providing an inventory of disturbed land, assessing land contamination level, and selecting of the most effective technology for disturbed land remediation. Independent experts assess the efficiency of the company's remediation operations. In 2010,696 ha of contaminated land were remediated.

The company works to restore soil fertility at oil-contaminated land disturbed through pipeline breakages at the company's fields and return such for designated utilisation. Preventing accidents is also a priority task.

Land remediation per year, 2006-2010

In 2010, the amount of spilled oil decreased compared to 2009. This is a result of overhaul, anticorrosion coating and inhibiting pipeline systems in the framework of the Pipeline Integrity Improvement programme.

Preserving biodiversity

The company's development strategy provides for a significant increase in exploration and production activities, including developing oil fields in the Russian Arctic shelf. To effectively minimise negative impact from offshore operations and to include additional environmental requirements in field development projects, the company assesses the potential impact of operations related to exploration, production and transporting hydrocarbons on marine ecosystems.

With participating specialists from the Russian representation of the World Wildlife Fund (WWF), in 2010, the company assessed the condition and impact on the marine mammal population in the Pechora Sea. The assessment:

• identified the most sensitive rare marine mammal species
• assessed the condition of ecosystem components (including baseline studies) which are key for identifying rare marine mammals species
• defined main anthropogenic impact factors on sensitive marine mammal species, resulting from planned hydrocarbons production and transportation operations on marine ecosystems
• prepared proposals to minimise anthropogenic impact on sensitive marine mammal species and inhabitation prepared analytical materials regarding species composition and the status of marine mammals in the south-eastern part of the Barents Sea and adjacent areas of the Kara and White Seas
• Developed proposals to minimise impact on sensitive marine mammal species and inhabitation, and to include in plans environmental activities in the period of license validity during the company's offshore operations.

Utilization of associated gas

In February 2008, the company's Investment Committee adopted a medium-term investment programme for 2008-2010 on AG utilisation and more efficient use. During this period in the framework of the programme, the company financed measures aimed at implementing AG collection and transport projects at Ety-Pur field, Shinginskoye field and Yuzhno-Priobskoye license area; and constructing power generation facilities at Chatylkinskoye, Zimneye, Kholmistoye fields and Yuzhno-Priobskoye license area.

In 2010, the company's AG resources were around 4.2 bn m3 and the level of AG utilisation was 54.6 %, compared to the planned 49.3 %.The increase of actual level versus the plan was mainly achieved by optimising CJSC SIBUR Holding's gas-processing capacity loading and connecting the Ety-Pur field to the AG transport and processing system.

To maximise AG utilisation and minimise reputation risks, the company developed a medium-term investment programme to increase the efficiency of AG utilisation in 2011-2013. This comprised three regional projects:

• Project for Yuzhno-Priobskoye license area.
• Noyabrsk integrated project.
• Tomsk integrated project.

In the framework of MIP implementation in 2011-2013, JSC Gazprom Neft is strengthening cooperation with CJSC SIBUR Holding. In particular, at Noyabrsk region fields, the company plans to expand AG collection and the external transport system. In turn, CJSC SIBUR Holding will modernise and expand its gas-processing capacities.

Level of AG disposal in JSC Gazprom Neft

Energy

Gazprom Neft is working on ensuring efficient use of energy. The company introduces energy consumption control and reduction measures, and develops and implements efficient energy use programmes.

The main directions in enhancing energy efficiency at JSC Gazprom Neft's group of companies include implementing a programme for minimising energy consumption and costs of electricity purchase by optimizing the energy-preservation scheme.

Implementing the programme for energy saving in oil production in 2006-2010 saved 3,538 mn RUB, including 1,401 mn RUB in 2010.

Since 2006, energy consumption by oil production companies increased from 4.8 bn kWto 5.4 bn kW in 2010. At the same time, the electricity rate increased 1.8 times, from 0.9 RUB/kWin 2006 to 1.71 RUB/kWin2010.

To reduce oil production energy supply costs in 2010, the company began implementing a programme of oil production energy efficiency enhancement aimed at minimising power costs for oil production processes. This resulted in minimisation of specific energy consumption equal to 3.3 % (from 32.8 to 31.7 kW) in 2010 versus 2009.

Overall energy consumption by oil producing companies in 2010 was 5,377 mn kW/h which is 107 mn kW (2 %) more than in 2009, while liquid production volumes increased by 1.6 %.

The monitoring system and energy efficiency promotion minimised oil losses from 96,000 to 22,000 t per year, while respective revenue increased by 365 mn RUB in four years.

Gazprom Neft is actively developing its own generation. As of the end of 2010, 11 % of the company's power demand was satisfied by power generation from internal generators (IG).

The project aims to reduce power costs and thus reduce production costs. As of today, Gazprom Neft operates six power plants. The largest plant is located on Yuzhno-Priobskoye field - Gazprom Neft's key asset - providing over 20 % to the company's production structure. IG's total capacity to the end of 2010 was 140 mW. In December 2010, the company commissioned the second unit of Yuzhno-Priobskoye gas turbine electrical plant with a capacity of 96 mW at Priobskoye field of Gazprom Neft-Khantos LLC.

From 2009, energy consumption by refining enterprises rose from 2,774 mn kWto 2,982 mn kW. Consumption increased by 7.5 %, including by 2.5 % due to an oil refining volume increase, and by 5 % due to commissioning new process plants (Isomalk at Omsk refinery in November 2010, ELOU-AT-4 at YANOS in March 2010, and gasoline isomerisation and gasoline hydrocracking catalytic cracking units). At the same time, the energy rate in 2010 increased in Omsk region by 13 %, in Moscow by 29 % and in Yaroslavl region by 13 %.

OJSC Gazprom Neft-Omsk Refinery (December 2010) and OJSC Moscow Refinery (January 2011) received statuses of subjects of the wholesale electricity market, which completes the preparatory technical stage for further re-issue of supply contracts. This would enable minimisation of expenses for electricity purchase on the electricity and power wholesale market.

To limit increasing energy costs, oil refineries are implementing energy-efficiency enhancement programmes. Gazprom Neft Omsk refinery power consumption will drop by 4.8 % to 2013. This will provide an additional economy to the amount of146 mn RUB. The programme implemented by JSC Moscow Oil Refinery aims to ensure a reliable and continuous power supply, due to replacing worn out equipment and introducing respective measures with an economic effect equal to 47 mn RUB.

In 2010, power consumption by oil product suppliers was 0.089 bn kW. Energy tariffs are defined in accordance with the regional location of the oil product supplier. Planned power consumption in 2011 will increase by 14.6%, due to expanding the number facilities and scope of services, and will be 0.102bnkW.

The company will save up to 50 mn RUB in 2011 after taking measures to minimise power consumption at filling stations. Typical fuelling stations will undergo a power audit in 2011. Based on results, the company will develop a number of unified measures to be implemented by oil product supplies. This will optimise power consumption.

Thermal energy consumption increased from 334,000 Gcal in 2009 to 359,000 Gcal in 2010 due to commissioning boiler plants at three fields: Priobskoye, Kholmistoye and Chatylkinskoye. Thermal energy costs in 2010 were 535 mn RUB.

Innovative activities

JSC Gazprom Neft's strategic goal is to produce 100 mn TOE by 2020. Achieving the planned target increment of reserves from the current 1.5 bnt to 2-2.2 bn t should be ensured in the foreseeable future. Taking into account the scope of the target, the sphere of Gazprom Neft's specialists' efforts in innovative activities is quite wide. This includes improving oil production efficiency at the depleted resource base of traditional fields; developing new regions on Yamal, East Siberia; starting offshore operations, including the Arctic shelf-offshore of the Pechora, Kara and Barents Seas; implementing overseas projects; acquiring competence in developing non-conventional hydrocarbons sources: bitumen, bituminous sand, bituminous shale and high-viscosity oil.

The company's innovative development strategy until 2020 includes adopting a number of programmes that provide for more efficient exploration. Featuring the latest advances in geology and geophysics, the programmes will help minimize the company's environmental impact. Taking into account that only 14 % of Gazprom Neft's extracted reserves refer today to the uncomplicated category, the company would have to create and adopttechnologiesto increase oil production at prematurely flooded fields and fields with hard-to-recover reserves and low oil saturation.

The company will continue introducing the latest horizontal drilling, multilateral well -construction and sidetracking technologies. At the same time, due to introducing the latest innovative technologies, overall expenditure should be reduced and well work over efficiency should improve significantly. At the company's active fields, Gazprom Neft will begin introducing an energy-saving technologies package. The total amount of Gazprom Neft's investment for developing innovative exploration and production projects will be around 300 mn RUB. The anticipated effect of implementation will be a threefold increase on investment. According to the company's medium-term strategy in 2010-2013, Gazprom Neft will spend 760 mn RUB more on research and development (R&D).

Exploration and production innovations

The main objective in the area of science and technology is to accelerate implementing and introducing new technologies and equipment. This will ensure dynamic development of production.

The priority science and technology areas for Gazprom Neft are:

• using geographic methods to discover potential gas and oil deposits
• conducting production log tests in pioneer, exploration and development wells to dissect the geological cross-section, find productive horizons, assess the technical conditions of the well, and monitor field development
• conducting research, experimental and methodological, pilot-plan work, to increase the geological and economic efficiency of geophysical research, improving its methods and techniques
• developing, testing and implementing new technical equipment and technologies for studying the subsurface and natural completion, lowering expenses per tonne of produced oil
• creating science and technology products: design and technological documents, plans for developing fields and producing oil, technical-economic proposals and justifications (ТЕР, TEJ), including geological and hydrodynamic models, other documents needed for developing new fields of hydrocarbons
• further improving design methods and control over field development at later stages, creating permanent geological and mathematical models.

By the end of 2007, the company's analytical department became Gazprom Neft-NTC LLC: an independent corporate science production centre focused on geological exploration, design, control and oil and gas production. Establishing Gazprom Neft's science and technical centre has a vital objective: to transfer science and its generating innovations into practical enhancements.

In September 2009, Gazprom Neft-NTC LLC adopted a concept for protecting the company's intellectual property and innovations. This concept defines the main goals, objectives and principles of the company's policy on managing protection of intellectual property created by the company's own means or with attracted resources.

In 2010, Gazprom Neft-NTC LLC spent the following on science and technology:

• geology and exploration — 947.6 mn RUB (136 % increase compared to 2009)
• design and control over development - 628.1 mn RUB (120% increase)
• planning and surveying — 291.7 mn RUB (266 % increase)
• engineering - 492.8 mn RUB (170 % increase).

Including 271.1 mn RUB (118 % increase compared to 2009) spent on JSC Gazprom Neft's R&D expenditure.

The main aims of innovating in exploration are to develop efficient survey complexes, improve reserves-estimation methods, lower geological risks, and achieve precision in identifying exploration targets. In 2010, JSC Gazprom Neft conducted geotechnical operations (GTO) at 1,236 wells. This resulted in extra production of 4,789,500 t oil.

Among the most important results of the company's technology improvements are extensive use of oil production intensification and enhanced oil recovery (EOR) methods. In 2010, total production from the EOR operations conducted in the reporting year (without the carryover effect) was 1.355 mn t or 4.5 % of the company's total output. These methods allow Gazprom Neft to substantially increase recoverable reserves and bring into production low-quality reserves (high viscosity, in impermeable reservoirs).

The company uses physical, chemical, hydrodynamic and thermal recovery stimulation methods. The bulk of additional production was attributable to physical methods - first and foremost to hydraulic fracturing (HF)-476 4701 Hydrodynamic and chemical field-development methods used in difficult geological conditions to achieve fuller reserve recovery yielded additional oil production of 483 500 t and 248 100 t respectively.

In 2009, Gazprom Neft launched 715 new wells; 232 HF were created (without HF at the new wells); 31 wells were sidetracked; and 49 deepened into lower beds. The key factor for innovative development in any industry is an ability to create and use new technical solutions, technologies and methods. Applying the latest technologies becomes the most important criteria for a company's competitive abilities.

At Gazprom Neft's request, specialists from Gazprom Neft-NTC LLC developed the Iskender Programme and Industrial Complex. This is an instrument for analysing 'strata-well-pump' three-component system application efficiency. In 2010, Iskender PIC successfully passed pilot development on Priobskoye and Sugmutskoye fields.

Utilizing Iskender PIC with the adapted multi-phase flow model will help reduce early equipment failures, due to optimally selecting pump equipment for well stock with complicated geological conditions. Iskender can be also applied for feasibility studies and field development projects, analysing new production technologies' risks, and a number of other scientific and application tasks. Iskender PIC's large-scale introduction in the company may be evaluated by reducing labour costs five-fold, totaling an annual 12.8 mn RUB.

In 2010, the company developed a permanent database of idle wells. The company can use this for creating ranked lists of wells to be returned to production, including those based on economic performance, the reason the well is idle, defining GTO required to return the well into operation, creating additional reports, selecting submersible equipment, and online working with maps and data. Further software development will be based on connecting to corporate databases for faster information access and analysis. On introducing the permanent idle stock database at OJSC Gazprom Neft-NNG and the branch of Muravlenkovskneft, idle wells analysis will be speeded up 4.5 times, saving 14.9 mn RUB per year.

The company studied and indentified the reasons for accelerated corrosion on downhole equipment in production wells at Urmanskoye field of Gazprom Neft-Vostok LLC. Pilot testing of corrosion protection technologies and methods was planned, as well as development of the procedural base to ensure TBR from 176 to 246 (38 % increase), and if possible, to achieve TBR increase up to 365 days (135 % increase) in 2011.

In 2010, specialists of Gazprom Neft-NTC LLC developed and approved the integrated squeeze-cementing programme at JSC Gazprom Neft's fields.

The company tested squeeze cementing -using technologies which had not previously been applied - at fields of OJSC Gazprom Neft-Noyabrskneftegas and a branch of Muravlenkovskneft. Four technologies for various squeeze-cementing purposes were tested. Efficiency of technology application ranged from 60 % to 100 %. Squeeze cementing was performed in 90 wells and additional production was 72,600 toil.

In 2010, production companies of JSC Gazprom Neft worked jointly with specialists of Gazprom Neft-NTC LLC on conformance control. 433 tasks were performed and additional production was 259 000 t. of oil. Energy savings due to jobs done was 18 mn kW, while the total economic gain from introducing this technology was, 846 mn RUB.

In 2010, in the frame work of the Surfactant Water Flooding on the Pilot Area of Vyngapurovskoye field project, the company performed laboratory tests to select optimum chemicals and concentrations; economic and geological-production justification of surfactant water flooding on a pilot area of Vyngapurovskoye field; the pilot area for surfactant water flooding was selected where the first injection with a volume of 20,000 m3 of 0.75 % surfactants solution was conducted. Additional oil production resulting from the project was 1,700 t, revenue from oil sales- 10.5 mn RUB.

From December 2009 to December 2010, at fields of OJSC Gazprom Neft-Noyabrskneftegas and the branch of Muravlenkovskneft, jointly with Gazprom Neft-NTC LLC, non-productive injection reduction operations were performed.

At OJSC Gazprom Neft-NNG:

• technological injection reduced by 6.4 %
• productive injection increased by 4.7% or 249,000 m3
• non-productive injection reduced by 27.1 % or 771,000 m3

At the branch of Muravlenkovskneft:

• technological injection reduced by 5 % or 367,000 m3
• productive injection reduced by 1 % or 61,000 m3
• non-productive injection reduced by 31.8% or 306,000 m3.

Non-productive injection reduction was achieved due to injection front shift, squeeze cementing, shutting down injection wells with injection beyond external boundaries, and reducing fresh-water injection.

The company is continuing to develop well field tests. Trialing stationary remote control downhole metering system technologies is a real step in creating 'intelligent wells' at Priobskoye and some other fields. The expected effects are reliable online information about downhole parameters, well mode optimisation and an oil recovery increase of 2 %-3 %. Tuning up the model based on well test results helped overcome the tendency in production decline (Priobskoye field). Actual growth of production on sector 8 of Priobskoye field was about 24 %, and the design increase of final oil recovery was 4.7 %.

In 2010, the company introduced 2D-modelling software for regional projects. Training and workshops involving leading Russian and foreign specialists were arranged. Key performance indicators of introduction were defined. Based on results of regional operations, the company discovered future reserves totaling 250 mntof oil. The increase of C,+C2 oil reserves was 4,200,0001 (six exploration wells).

The Geology and Exploration department of Gazprom Neft-NTC LLC implemented a number of projects: among which the most important can be identified. The Caspian project - a seismic model of the Central and South Caspian was created -basin planning was performed, and prospects were identified.

In the framework of the project, the prospects for the Turkmen shelf were evaluated (as requested by JSC Gazprom Zarubezhneftegaz) and gained high appraisal from the customer. The Noyabrsk project included a forecast of areal development of exploration targets within Jurassic oil/gas play (based on own procedure) and quantitative assessment, and license areas for oil production were recommended.

The Frolovsk project included recommending license areas for oil production. The East-Siberian project included assessing the resources base of Vakunaiskoye, Ignyalinskoye and Tympuchikanskoye license areas. This was based on results of completed re-processing and re-interpretation of geological and geophysical materials, promoting significant growth in the attractiveness of investment.

Oil refining and chemistry innovations

A number of factors contribute to the need to improve oil refining and petroleum chemistry technologies. These include technical regulations regarding fuel quality improvement, aligning duties on dark and light oil products, new oil refining and petroleum chemistry products (premium brand fuels, oil, new bitumen grades, charred coal), the need to optimise and reduce operating expenditure, the growth of dependence on foreign catalytic agents and technologies, etc.

The main tasks of innovative research and development activities in JSC Gazprom Neft's oil refining include ensuring a competitive capability in engineering, improving product quality, reducing operating costs, developing and producing new technologies, solving current engineering problems and developing the company's positive innovative image.

The main directions of R&D in 2010 relate to safety and the environment, production technologies and product quality conformance, rational use of resources including inspecting plants, and providing recommendations to optimise operation modes.

The company pays special attention to modernisation and new construction for meeting the technical regulations 'On Requirements for Motor and Aviation Gasoline, Diesel and Marine Fuel, Jet Fuel and Residual Fuel Oil', which came into force in 2009. To meet legislative requirements, a motor fuel quality upgrade programme was developed for the OJSC Gazprom Neft-Omsk Refinery and the OJSC Moscow Refinery.

The Omsk refinery is currently undergoing a large-scale modernisation programme. This aims to improve the environmental properties of fuel produced by the plant, extend the refining level significantly, and expand the volume and range of products produced: high-octane gasoline, diesel fuel, aromatic hydrocarbons, charred coal, modern bituminous materials, and petroleum chemistry products. According to the plan, the overall investment into modernising Omsk refinery over 10 years will exceed 100 bn RUB.

In October 2010, an isomerisation unit for light naphtha - 'Isomalk 2' - was commissioned at Omsk refinery. This unit will produce the most valuable component for high octane fuel, free from olefin and aromatic hydrocarbons. The project includes engineering solutions allowing production of gasoline with a high octane level conforming to Euro 4 and Euro 5 standards. Introducing the 'Isomalk 2' isomerisation unit will enable processing of oil at deeper levels and increase production of high-octane petrol.

In July 2010, a time capsule was placed at the construction site of the light naphtha isomerisation unit at Moscow refinery. This marked the start of a large-scale modernisation programme, lasting up to 2020.

The programme envisages reconstructing existing assets and constructing new refining capacities, improving process safety, and implementing environmental projects at the enterprise.

In total, the company will invest over 56 bn RUB into the refinery modernisation programme. Installing the light naphtha isomerisation unit will enable the company to produce motor gasoline component with up to 90.5 grade octane number. Commissioning of this unit is planned in 2012. The unit capacity will be 650,0001 per year.

From January 2010, Moscow refinery began producing diesel fuel corresponding to Euro 4 standard for supplying the domestic market.

Haldor Topsoe catalytic agent was loaded at the hydrocracking unit to ensure production of diesel fuel with sulphur content less than 50 mg/kg.

Using Euro 4 diesel fuel in vehicles will significantly extend the engine's service life, improve the vehicles' technical characteristics, and help minimise combustion products emissions into the environment.

In the framework of upgrading NIS refining capacities at the oil refinery in Pancevo (Serbia), construction of the light hydrocracking and hydrotreatment plant began in 2010. This construction will permit an increase in refining volumes up to maximum plant load: 4.8 mn t per year. This would not only cover the Serbian market demands, but would create conditions to satisfy fuel export supply to the Balkan countries. Gazprom Neft's total investment into Pancevo refinery modernisation projects equals 500 mn EUR up to 2012. In particular, this involves constructing the hydrogen unit at Pancevo refinery and modernising and constructing the plant's industrial infrastructure and various environmental projects. The company will allocate 396 mn EUR for the hydrocracking unit construction alone in the framework of overall financing. In accordance with the modernisation programme, unit commissioning will be in the third quarter of 2012.