Marketing

In 2009 Gazprom Neft, having one of the most extensive distribution networks in Russia, consolidated its position in the retail petroleum product market.

The Company mainly sells petroleum products in Russia and CIS countries through 25 subsidiaries. Fourteen of them are retail distribution companies engaged in both wholesale distribution and in retail sales of petroleum products through filling stations. In 2009 petroleum product sales in the domestic market went up by 13.0%, compared to 2008 and reached 18.3 mln tons.

Over 2009 small wholesales, compared to 2008, were up by 28% and reached 3 808 thou. tons. Wholesale (transit) distribution dropped by 6% to 2 935 thou. tons due to moving of the rest to the more premium segment of ‘small wholesales’

The Regions of Location of Oil Refining and Licensed Offices of Company
(Including Subsidiaries and Subordinate Companies)

The total number of filling stations operated by the Company's distribution enter¬prises increased from 865 to 950. Additionally the acquisition of Sibir Energy and NIS added a further 612 retail stations.

During 2009 11 filling stations were built, 58 renovated and 61 were bought.

As part of the retail network optimization, the Company decommissioned 25 filling stations and reduced the number of leased filling stations by one.

Active implementation of the project of creating a single brand name “Gazprom Neft” to all filling stations. In 2009 387 filling stations were rebranded, including partial rebranding of 179 filling stations where stelae were installed and temporary banners erected.

In 2009 sales through the filling stations (excluding Sibir Energy) located on the territory of Russia grew by 3% to reach 2 860 thou. tons of petroleum products. Gasoline sales increased by 9% up to 2 186 thou. Tons while diesel sales dropped by 12% to 619 thou. tons.

In 2009 the Company continued working under the program for unification of its distribution enterprises until 2010, the principal objective of which is to enhance the efficiency of Gazprom Neft’s distribution network.

In 2009 the Company implemented unification projects of accounting policies for distribution companies concerning accounting procedures and budget planning.

The Company has four foreign distribution enterprises in the customs’ union countries: Gazpromneft-Kazakhstan LLP, Gazpromneft-Tajikistan LLC, Gazprom Neft Asia LLC in Kyrgyzia and Gazpromneft-Belnefteprodukt FLLC in Belorussia. During 2009 they sold 1 071 thou. tons of petroleum products.

Gazprom Neft continued with the active development of projects to enter the markets of the Yaroslavl, Ivanovo and Chelyabinsk Regions through OJSC Gazpromneft-Yaroslavl and Gazpromneft-Chelyabinsk LLC. A project to enter the market of Belarus started through a new subsidiary Gazpromneft-Belnefteprodukt FLLC

Gazpromneft-Belnefteprodukt FLLC was founded as a result of the property distribution procedure of CJSC Slavneft-Start JV with TNK-BP. Operating in Belarus after handover of the property is completed in 2010, the Company will have 38 filling stations and 5 tank farms in the region with the total amount of sales of about 150 thou. tons a year. According to the 2009 long-term development strategy of petroleum product supply enterprises, the amount of sales by 2020 should grow to 17.7 mln tons.

Rebranding of the Filling Stations Network

At present Gazprom Neft manages filling station network under different brands. In autumn 2009 a large-scale rebranding project of the Company’s network of filling stations started. The first filling station under the new brand was opened in Omsk on September 4, 2009. This grand project of establishing a single network of filling stations with one brand name “Gazpromneft” envisages the renovation of more than 1000 filling stations in 17 regions of Russia within 2009-2011. The investments in implementation of the program are expected to total some 7 bn rubles over the period of three years. To date experience has shown that, after the rebranding activities, the sales at the filling stations grew by 15-20%.

Comprehensive preparation activities were carried out before the launch of the project, including unification of management principals and organization of all regional Gazprom Neft’s distribution companies. Gazpromneft filling stations are of several format standards depending on their size and functions. The distinctive feature of the stations will be the extended set of additional services rendered and the national customer loyalty programs.

Through the use of Gazpromneft fuel cards a corporate system of non-cash transactions operates at the filling stations for rendering services to businesses. This system also helps the customer calculate the money spent and the amount of petroleum products bought, set fuel consumption limits and register the time and place the vehicle is refilled. Thus services rendered to corporate clients via this system are a convenient and effective way of buying fuel.

Individuals can use discount cards with fixed discount rates at Gazpromneft’s filling stations. In the near future under the rebranding project the Company plans to introduce a loyalty program for individuals. The new system will allow customers to accrue discounts for fuel and related goods bought: they accumulate at the clients’ cards as a bonus. The bonus can be used for paying for a service or a product that are available at Gazpromneft’s filling stations or at the trading units of the program’s partners. Wherever it is practically possible a wide range of additional services will be on offer: change of oil and lubricants, technical servicing, tyre fitting, watering, car wash, additional services: from shops and cafes to ATM’s, Internet access and so on.

In November 2009 Gazprom Neft started a federal advertising campaign for the “Gazpromneft” retail brand of its filling station network. The creative concept of the campaign was called “A Reliable Landmark/Reference Point”. The renovation of the filling stations envisages turning them into a kind of a landmark/reference point for drivers on the road, a place where they can find not only gasoline of high quality, but impeccable service, reliable support, that will make their journey easier. That is why the structural concept includes a special ‘lighthouse’ stela. The visual graphics of the new brand unites the main Gazprom’s brand identity elements (the logo, ‘lighter’ symbol, typical colours) and the dynamic graphics. Active diagonal graphical shape symbolizes movement, leadership, and power, and is associated with positive energy, dynamics, and development.

Together with the integration of new standards for the stations’ interior and exterior Gazprom Neft conducts the following activities within the rebranding program:

• renovation of filling stations;
• improvement of the quality of servicing (training and educational programs for the staff; control over the quality of servicing);
• development of unique product offer;
• extended offer of related goods and services;
• integration of the updated payment system;
• federal advertising campaign;
• launch of national loyalty program;

The development of the petroleum product retail distribution segment is one of the operational priorities of the Company. The launch on the market of a national brand with a high brand awareness related to ‘trust in quality’ (product and service) will serve the strategic goal of the Company: to become one of the leaders in petroleum products’ sales in Russia.

Electronic trading floor and exchange trade

Gazprom Neft is interested in development of exchange trading and support of other projects for compiling objective market indicators. Since 2008 the Company has been actively developing the mechanism of sales through electronic trading floor (ETF), allowing buyers themselves to form market prices for Company products with open competition.

Since its launch more than 240 companies have registered at the floor. Large and small traders as well as end consumers taking part in trading. Products are traded on the ETF from four bases – the Omsk Refinery, Moscow Refinery, YANOS (plants of the company) and Sokur station. The sales algorithm has been updated taking into account the experience accumulated and the requirements of the state bodies.

286 thou. tons of petroleum products costing more than 4.7 bn rubles have been sold via ETF since it started operations.

Since April 2009 JSC Gazprom Neft has been selling petroleum products at Saint Petersburg International Mercantile Exchange. JSC Gazprom Neft is a cofounder of CJSC Saint Petersburg International Mercantile Exchange and since November 2009 it has been submitting products for tender on a regular basis. The Company sells about 20 thou. tons of petroleum products per month at the exchange.

Exports of crude and petroleum products

Over 2009 the Company exported oil and petroleum products through its exclusive trading subsidiary - Gazprom Neft Trading GmbH, which was registered in Vienna (Austria) in 2005. The main routes of oil export shipments were the Black Sea ports of Novorossiysk and Tuapse, the Baltic Sea port of Primorsk, as well as Czech Republic and Germany - via the Druzhba Pipeline.

In 2009 Gazprom Neft Group supplied to the world market, in absolute terms, 15.6 mln tons of oil, a 3.7% decrease compared to 2008. Of this amount 11.3 mln. tons were exported by sea, 3.6 mln tons – via the Druzhba Oil Pipeline and 0.7 mln tons via the Atasu-Alashankou Pipeline to China (transited through Kazakhstan).

3.3 mln tons of oil were exported to the CIS markets, which is the same amount as in 2008.

Currently Gazprom Neft does not make any significant oil sales in Russia.

In 2009 petroleum product exports by Gazprom Neft to non-CIS countries went up by 21% as compared to 2008, and totaled 13.2 mln tons. Exports to the CIS and Baltic countries also went up by 21% and totaled 2.3 mln tons.

Development of Oil and Petroleum Products Exports

Premium business segments

Ship bunkering

Gazprom Neft Marine Bunker LLC is a subsidiary of JSC Gazprom Neft that supplies bunker fuel for sea- and river-going vessels. The company was established in October 2007. Since February 2008 Gazprom Neft Marine Bunker has been a member of Russian Association of Marine and River Bunker Suppliers and by the results of 2009 the company is one of the leaders among Russian bunker companies.

Bunkering is a premium sales market for fuel oils and diesel fuel. The ambitious objectives of Gazprom Neft is by 2020 to take up one third of the bunker market with its own port infrastructure, enter international markets and sell 77% fuel oil and 5% of diesel fuel produced by the Company at a premium compared to traditional exports. In order to achieve its strategic objectives the Company intends to ensure the production of not less than 2.7 mln tons of marine fuel that will comply with international standards; to create its own port infrastructure of five terminals and to have a bunker fleet of 28 bunker tankers.

Gazprom Neft Marine Bunker ensures guaranteed all-year-round supplies of petroleum products (fuel oil, oils, and marine fuel) to ship owners and charterers. The enterprise operates in Saint Petersburg, Novorossiysk, Murmansk, and Russia’s Far Eastern ports.

Marine fuel is mostly supplied by the Omsk Refinery while deliveries also come from the Moscow and Yaroslavl Refineries.

In 2009 Gazprom Neft Marine Bunker was operating in more than 22 ports, including all major sea ports. The Company established two subsidiaries: Gazpromneft-Shipping LLC for managing its own fleet (9 ships were bought in 2008) and Gazpromneft Terminal SPb LLC for using the Company’s own and leased terminals (currently the operator of the Kirovsky plant’s terminal in Saint Petersburg).

Aircraft fueling

Sale of jet fuel produced at JSC Gazprom Neft’s refineries and operation of fuel service complexes at the airports within the Russian Federation are the key operational priorities of CJSC Gazpromneft-Aero.

As per the results of 2009, Gazpromneft-Aero became one of the leaders in retail sales of aircraft fuel (aircraft fueling) at airports in the Russian Federation.

The business development objective of CJSC Gazpromneft-Aero is further growth of retail sales and expansion of a distribution network of fuel service complexes both affiliated (own) and on a partnership basis, growth of presence in airports on the basis of storage agreements, and expansion of geography of aircraft fueling abroad.

The Development Strategy of CJSC Gazpromneft-Aero until 2020 provides for establishing a corporate network of 15 modern fuel service complexes at Russian airports and for phased regional development currently from Russian airports to CIS airports in the near term and to airports in other regions of the world by 2020.

In 2009 the amount of jet fuel sold by Gazpromneft-Aero reached 1 mln tons and from this figure it can be confidently stated that Gazprom Neft’s subsidiary is a leader in the aircraft fuel market in Russia. By 2010 the Company intends to occupy a significant share of the market with the volume of retail sales estimated to amount to about 1.5 mln tons of aircraft fuel a year.

Availability of own capacities at the airports will allow the company to ensure good competitive positions in the distribution markets and get a retail margin on jet fuel sales.

Currently CJSC Gazpromneft-Aero operates under direct contracts with airlines selling jet fuel without intermediaries. Among the principal counterparties of the company are JSC Aeroflot – Russian Airlines, FGUP State Customs Committee of Russia, JSC Transaero, JSC Sibir Airlines, CJSC Sky Express, CJSC Nordavia -Regional Airlines, OJSC Donavia and others.

The enterprise provides aircraft fueling services at the following airports: Sheremetyevo (Moscow), Domodedovo (Moscow), Pulkovo (Saint-Petersburg), and at the airports of Novosibirsk, Krasnoyarsk, Murmansk, Tomsk, Kemerovo, Bryansk and Chita.

Production and sale of motor fuels

Gazpromneft-Lubricants LLC (Gazpromneft-SM) is a subsidiary of Gazprom Neft established in 2007. Currently, the enterprise holds production assets in Western Siberia (Omsk), the European part of Russia (Yaroslavl), and in Western Europe (Bari, Italy). In 2009 Gazpromneft-SM increased, as compared to 2008, the volume of standard goods’ segment sales 2.7-fold, and of premium goods – 3.4-fold.

In 2009 Gazpromneft-SM actively developed sales of lubricants of the Company’s existing brands. The range of products contains some 90 titles of oils sold under Gazpromneft and SibiMotor brand names. During the past two years the Company has built an effective distribution structure which enabled it to take 3% of the Russian consumer oils market (SibiMotor brand), 12% of the market of oils for commercial transport, and 18% of industrial oils market (Gazpromneft brand). In 2009 the Company also started active development of export sales: in Europe and CIS.

In April 2009 Gazpromneft-SM closed the deal with Chevron Global Energy to purchase an oil and lubricants production plant in Italy. The Italian company that joined Gazprom Neft has an office in Rome and an oil producing plant in the town of Bari with a capacity of 30 thousand tons of oils and 6 thousand tons of lubricants a year. The range of goods produced at the plant - oils for cars and commercial transport and industrial oils – are sold under 150 brand names. Additionally thanks to its specific capacities the plant produces 25 kinds of high-tech lubricants that are used for many purposes, including drilling. Therefore by this acquisition the Company obtained ownership not only of a modern European production facility but also access to new distribution markets.

In 2009 Gazpromneft-SM launched the manufacture of more than 37 new products primarily within the premium industrial range: lines of oils of Gazpromneft Hydraulics, Gazpromneft Reductor, Gazpromneft Compressor, Gazpromneft Slide Way, and Gazpromneft Paper Machine, approved by the world’s leading equipment producers. In July 2009 the first products under the Gazpromneft brand were made at the Gazpromneft Lubricants Italia S.p.A. plant. Currently, 20 titles of products are under production including synthetic, polysynthetic, and mineral oils for cars (Gazpromneft Motor Oil product line), polysynthetic and mineral oils for commercial transport (Gazpromneft Super Oil product line), industrial oils (Gazpromneft Hydraulic, Reductor, and Circulating Oils) and lubricants (Grease L, Grease L Moly, Metal Grease product lines).

Despite the overall 20% decrease in demand for lubricants as compared to 2008, the sales of Gazpromneft-SM’s commercial and industrial oils grew by 2%.

Two large-scale advertising campaigns were conducted in 2009, and as a result, the brand exposure in Russia has now increased from 250 to 1000 retail outlets with regional distributors having the main responsibility for the promotion of new products. . In 2009 the regional distribution network grew from 27 to 51 companies.

According to the development strategy of JSC Gazpromneft-Lubricants, by 2015 the enterprise plans to take up a significant share of Russia’s market of packaged oils and become one of the leading players on the market with focus on the high tech packaged oils for cars and commercial transport market segment.