Message from the President of PJSC LUKOIL

Vagit Alekperov

Dear Readers,

We are pleased to present you with the LUKOIL Group Sustainability Report for 2020. The year 2020 proved to be uniquely challenging for the entire world, on account of the COVID-19 pandemic and all the economic consequences that entailed. Epidemiological restrictions for the energy market as a whole, and for LUKOIL in particular, translated into an unprecedented drop in the consumption of our products, significant difficulties in organizing the production process, and uncertainty surrounding planning our work.

Looking back on the year-end results, we see that LUKOIL was able to successfully navigate these challenges. Our Company’s corporate governance system once again proved its effectiveness: we provided a flexible – one might say online – response to the volatile dynamics of global markets by optimizing our production structure and reorganizing our product supply chains.

The year 2020 witnessed disinvestment in the oil and gas industry as a result of the consumption slowdown and the need to comply with the OPEC+ agreement, with many companies within the industry leaving the market. At the same time LUKOIL, thanks to its robust financial position and low debt load, confidently fulfilled all its obligations to the states and regions where we operate, employees, shareholders, partners, and customers.

We also optimized our investment program and cut down on our production volumes; however, this did not affect the implementation of our principal growth projects across all business segments or our environmental initiatives. LUKOIL’s capital investments in 2020 surpassed the figure for 2019. We believe that retaining investment in growth projects was the right decision, since the situation vis-à-vis the global economy is gradually returning to normal and energy demand is recovering – and we are ready to satisfy this demand as restrictions on production are eased.

That said, we understand that many other challenges the world is facing will continue to be relevant in 2021 and beyond, which is why we stick to our traditional conservative assessment of macroeconomic parameters and remain cautious in our investment decisions.

Last year we increased the amount of financial support for the regions where we operate. We spent over RUB 2 billion alone on preventing the spread of the pandemic and on supporting medical institutions, both in Russia and abroad. In addition, all our sales and distribution entities worked as usual and ensured a consistent fuel supply to customers in all regions where our gas stations and oil depots are located. We also provided fuel to ambulances and other medical service vehicles free of charge.

LUKOIL also did its utmost to protect its personnel. We promptly arranged for remote working options to be available, and around a quarter of our employees switched to telecommuting, which enabled sick colleagues to be diagnosed early, and this thereby protected other staff members. Enhanced safety measures and special working conditions were introduced at our non-stop production facilities. We were able to prevent mass infection, and our personnel continued to work throughout the pandemic.

Despite all the external challenges faced, LUKOIL fully met its wage indexation plans, and we preserved all previously approved employee guarantees and compensations. In addition, a new agreement between the employer and the trade union association for 2021–2023 stipulates an increase in the scope of a number of guarantees.

In 2020 LUKOIL continued to roll out its environmental and industrial safety programs to the fullest extent and stepped up efforts to adapt the Company’s strategy to tackling climate change.

We thoroughly revised the factors affecting greenhouse gas emissions from our operations and analyzed the risks associated with climate change. These steps allowed us to make a fair assessment of our potential and to proceed with developing our climate strategy.

Our climate change adaptation and decarbonization plans will form an essential part of LUKOIL Group’s Strategic Development Program, which we will be updated in 2021. As part of this work we have analyzed various scenarios regarding the long-term development of the global energy industry, including the possibility of the most stringent climate-related regulations being enforced.

LUKOIL is approaching its 30th anniversary as a leader in the global energy market. We continue to evolve in line with UN Sustainable Development Goals and the highest environmental standards.

We place great value on the assessment of our efforts by our stakeholders. It is gratifying to observe that LUKOIL is ranked higher in leading international and Russian ratings and is receiving awards for the quality of our non-financial reporting. We see this as proof of our commitment to the principle of responsible business conduct.

President of PJSC LUKOIL Vagit Alekperov