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COMPANYPROFILE

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NIS is one of the largest vertically integrated energy companies in Southeast Europe. Its core business activities are oil and gas exploration, production and refining; sales and distribution of a broad range of petroleum products and implementation of petrochemical and energy projects. The main business activities fall into five operational units: Exploration and Production, Services, Refining, Sales and Distribution and Energy. In addition, operational support to the core business activities is provided by units at the corporate centre.

The company’s head office is located in Novi Sad, while its main production capacities are spread across the Republic of Serbia - a trading and investment hub of the Balkans due to its geographical position.

Gazprom Neft has a 56.15 percent equity share in NIS, while the Republic of Serbia holds 29.87 percent. The remainder belongs to citizens, current and former employees and other minority shareholders. On 31 December 2016, the company had 2.14 million shareholders.

NIS launched its regional expansion plan in 2011 in two areas:

• Oil and gas exploration and production (in Bosnia and Herzegovina, Hungary and Romania).

• Retail network development (in Bosnia and Herzegovina, Romania and Bulgaria).

As part of the transformation from being an oil company into an energy holding, NIS began growing its business in 2012 in electricity generation, wind power and geothermal energy.

In support of Serbia’s EU integration efforts, NIS has opened an EU Liaison Office in Brussels. NIS also established subsidiary companies in Bosnia and Herzegovina, Bulgaria, Hungary and Romania. NIS has representative offices in Russia, Croatia and Angola.

ABOUT NISmillion

shareholdersin NIS

at the end of2016

2.14

billion dinarsof NIS net income

in 2016

15

increase in hydrocarbon

reservesin 2016

3.4%

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MISSION, VISIONAND VALUES

Mission

Vision

Values

By responsible use of natural resources and the state-of-the-art technology, supply the people of the Balkan region with the energy for making progress.

NIS j.s.c. Novi Sad will be a recognisable leader of the Balkan region in its field of business activity, owing to the dynamics of sustainable development and efficiency increase, by showing a high level of social and environmental responsibility as well as contemporary standards of providing services to the clients.

Acquiring up-to-date knowledge in order to permanently increase the level of professional expertise and the ability to implement it in specific business processes.

Readiness to participate in multifunctional groups and projects, eagerness to meet demands of colleagues from other units of the company, willingness to exchange information, ability to work in teams.

Joint efforts in achieving visible and meaningful results, a desire to succeed accompanied by inescapable mutual assistance and cooperation of employees.

Professionalism

Finding and proposing new solutions, both in the area of work responsibilities, as well as in the area of Company’s interests.

Initiativeand Responsibility

Positive Approachand Cooperation

Shared Result

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NIS exploits more than

oil and gas fields in Serbia 50

EXPLORATIONAND PRODUCTION

NIS is the only company in Serbia operating in oil and gas exploration and production. The activities of the Exploration and Production unit also cover infrastructure and operational support to production, management of oil and gas reserves, oil and gas reservoir engineering and management, and major exploration and production projects.

The majority of the company’s oilfields are situated in Serbia. However, there are exploration operations in Bosnia and Herzegovina, Hungary and Romania. Production involves production, collection, preparation and transportation of oil and natural gas, preventive and emergency maintenance of the systems and associated infrastructure. In Serbia, the output in 2016 was 1,463,000 tonnes of oil and gas equivalents.

NIS has more than 50 oil and gas fields in Serbia. The major oil fields are Velebit, Kikinda, Mokrin, Rusanda, Elemir, Kikinda-varoš and Turija Sever; major gas fields are Međa, Martonoš, Itebej, Torda plitko and Miloševo.

Liquefied petroleum gas (LPG) is produced at the Elemir plant, which is designed for a capacity of 65 000 tonnes of LPG and natural gasoline per year. The Amine plant’s technology - operating within the Elemir plant - enables them to obtain top-quality gas, while preventing carbon dioxide entering the atmosphere, thereby reducing the effect of greenhouse gases.

The Science and Technology Centre of NIS-Naftagas (NTC NIS-Naftagas) is a 100 percent owned subsidiary of NIS j.s.c. It provides research and development as well as innovation support to Exploration and Production and other units to increase production and resources/values and minimise risks and operating costs.

The core activities of NTC NIS-Naftagas include research and development operations, geological design, geophysical design and supervision, processing and interpretation of geological and geophysical data, geological modelling and evaluation of hydrocarbon reserves, reservoir development and monitoring, engineering services, laboratory services and consulting, development and implementation of programmes for production control and environmental monitoring.

Advanced Technologies

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SERVICES

The Services unit provides support to oil and gas exploration and production through geophysical surveying, well construction, completion and workover and performance of special and well-logging operations.

This unit also delivers equipment maintenance services as well as constructing and maintaining oil and gas systems and facilities. In addition to carriage of goods and machinery services, it also provides passenger transportation and vehicle rental services. NIS has its own servicing capacities, which can fully meet the Group’s demands and provide services to third parties.

Thanks to continuous investment in modernising equipment and experienced personnel, this unit has carried out work in many countries (Egypt, Turkmenistan, Azerbaijan, etc.). It has also been contracted in Bosnia and Herzegovina, Romania and Russia.

The Services unit aims to strengthen the regional and international presence, the priority being to ensure the utmost quality of service delivery, to boost technical and technological efficiency and to increase the scope of services provided to NIS and other companies.

Thanks to modern equipment, on-going investments in modernising equipment and experienced personnel, Services have undertaken work in many countries worldwide.

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REFINING

NIS continuously modernises its refining capacities, producing a wide range of high quality petroleum products that are supplied to Serbia and the region.

The modernised Oil Refinery in Pančevo produces European-quality fuels, which allow NIS to be the leader - a strategically vital position - in the regional fuel market, while ensuring energy stability for the Republic of Serbia. In addition to Euro 5 compliant engine fuel, NIS also produces aviation fuel, liquefied petroleum gas, feedstock for petrochemical industry, motor oils and lubricants, fuel oils, bitumen and other petroleum products. Last year, NIS saw a record volume of oil refining and reprocessing of semi-finished products of 3,311,000 tonnes. In addition, new oil types, Kirkuk and Forcados were processed.

The first phase of modernisation works at the Pančevo Oil Refinery included the construction of new plants and renovation of existing ones. The key element in the modernisation project was constructing a mild hydro-cracking and hydro-treating complex (MHС/DHT), which represents secondary refining of crude oil.

The complex helped to increase the depth of refining by 84 percent, white product output by 75 percent, while maximising the removal of sulphur and other chemical compounds which impair the quality of end products. The new complex was inaugurated in November 2012, which marked NIS’s full transition to producing green Euro-5 compliant fuels. The modernisation of the Pančevo Oil Refinery is an important environmental protection investment, given that noxious emissions into the atmosphere, water and soil have been reduced and made compliant with the European standards.

The next step is the second modernisation phase, namely, the implementation of the Bottom of the Barrel Project, which aims to continue improvements and increase the efficiency of refining. With its development plans, which primarily entail modernisation and application of new, cleaner technologies, NIS is affirming its status as a socially responsible company that constantly improves its business efficiency.

The lubricants business is one of the key non-fuel business areas of NIS and a vital factor in improving brand recognition and customer loyalty. The lubricants business covers the production, sale, development and marketing of lubricants and process liquids. Continuous development and innovation in the lubricants business have ensured that NIS becomes one of the regional leaders. The high quality of Nisotec products, cutting-edge technologies, engineering service and a modern approach to sales have ensured rapid growth, a leading position in the Serbian market and market penetration of nine regional countries. The Nisotec lubricants and process liquids portfolio includes 200 products and around 550 commodity items. The volume of sales of Nisotec products in 2016 was 14,435 tonnes, an 18 percent increase on the 2015 level. The portfolio of the lubricants business has been expanded with Gazprom Neft Lubricants premium products by the commercial name of G-Energy.

Lubricants

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SALESAND DISTRIBUTION

The Sales and Distribution unit covers foreign and domestic trading, retail sales of petroleum and non-fuel products and wholesale sales of petroleum products. As separate businesses, NIS developed aviation fuel supply, bunkering, lubricants and bitumen sale and distribution. All fuel types are subject to regular and rigorous laboratory testing and comply with national and international standards. The sales and distribution volume of petroleum products in 2016 was 3,340,000 tons, a 3 percent increase over 2015.

Network of Petroleum Stations

NIS has more than 400 petrol stations in Serbia and the region. The retail network of NIS petrol stations is the largest in Serbia with a total of 324 petrol stations in 2016. The company is also developing its retail network in the Balkan countries (Bosnia and Herzegovina, Bulgaria and Romania), which included 90 petrol stations at the end of 2016.

In line with comprehensive modernisation of the company’s retail network in Serbia and its regional expansion strategy, NIS’s market presence is marked by two brands: NIS Petrol and GAZPROM.

The mass brand NIS Petrol offers reliability, availability, latest service standards and guaranteed quality of petroleum products. Most of NIS Petrol branded stations are in Serbia. Apart from Serbia, the NIS Petrol network is also active in the Republic of Srpska.At the end of 2012, NIS launched a premium brand of petrol stations – GAZPROM. Apart from high quality fuels, oils and lubricants, GAZPROM branded facilities offer a wide selection of goods and services (many provide 24-hour services and have luxury convenience stores with a wide product offer, including café bars or restaurants with internet access, spacious parking lots, playgrounds, etc.). The GAZPROM network comprises: 16 stations in Serbia, 18 in Romania, 35 in Bulgaria and 27 petrol stations under this brand in Bosnia and Herzegovina.

In 2016, NIS Petrol was declared the best brand and received the Best of Serbia Award, awarded by the Serbian Chamber of Commerce in cooperation with the Ministry of Trade, Tourism and Telecommunications.

Aviation and Bunkering Fuel Supply

The business trend for selling jet and aviation fuel is divided into two sales channels: fuel supply at two international airports in Belgrade and Niš represents one sales channel. In addition, NIS exports aviation fuel to neighbouring markets, primarily Romania and Hungary. The quality of NIS’s jet fuel meets international and domestic standards for this type of aviation fuel.

The accredited laboratory within Aviation Services performs aviation fuel testing only. NIS owns a modern facility for storage and distribution of aviation fuel, located at the Nikola Tesla Airport in Belgrade. It is also the best-equipped facility of its kind in the region. NIS Aviation Services meet stringent standards of reliability and efficiency of supply, which is affirmed by the high rating awarded by IATA, the international association controlling all aviation segments.

In terms of bunkering on the Danube River, NIS operates five bunkering stations: in Novi Sad, Veliko Gradište, Prahovo, Smederevo and Belgrade. These facilities, with the latest, environmentally friendly equipment and top-quality fuel, provide a reliable supply to foreign and domestic vessels. The company’s goal is to maintain its leadership in the mid-Danube bunkering market and potentially expand the bunkering station network within Serbia and the region.

NIS also develops the sales and distribution of lubricants and bitumen, compressed gas, cylinder gas and fuel oil.

More than

petrol stations in Serbiaand the region

In 2016, NIS earned the Serbian Chamber of Commerce’s Best of Serbia Award for the best corporate brand and the best product brand in the category ‘Products and Business Services’

GAZPROM Petrol Stations as premium brand and NIS Petrol as mass brand are the two brands through which NIS develops its retail network

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ENERGY

The Energy unit produces electricity and thermal energy from conventional and renewable sources, markets gas and electricity, sets up and carries out strategic energy projects and develops and implements projects that aim to improve energy efficiency.

In the period 2013 to 2016, NIS initiated 14 small power plants or co-generation modules in Serbia. Investments in this business segment exceeded 15 million euro. In 2016, a small power plant for electricity and heat generation became operational at the Majdan oil and gas field near Novi Kneževac. In 2016, NIS produced 147,505 MWh of electricity, a 19 percent increase compared to 2015. In addition to electricity generation, the oil and gas fields also produce heat totalling 4MW, which is used by NIS plants.

The electricity generated in small power plants is delivered to the public distribution network. As well as from Serbia, NIS has been trading electricity on the markets in Romania, Hungary, Slovenia, Bosnia and Herzegovina and Montenegro since 2016.

The first volumes of electricity produced in its co-generation plants were sold by NIS in 2014, having become Serbia’s only producer - along with Elektroprivreda Srbije - to supply electricity to the free market. The environmental benefit of these small power plants lies in generating power and heat from gas, which has never been used because of its high carbon-dioxide and nitrogen content. This is no longer flared off, which has reduced the level of noxious emissions into the atmosphere. It also helps achieve Serbia’s targets for rationalising energy consumption and reducing pollution.

In collaboration with Gazprom Energoholding, NIS has been implementing a major project entitled “TE-TO Pančevo” within the Pančevo Oil Refinery. This project is significant for the Pančevo Oil Refinery’s supply of energy products.

of electricitywas traded

in 2016

2 TWh small-sizedpower plantsin oil and gas

fields in Serbia

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NIS Worldwide

The NIS head office and main production facilities are in the Republic of Serbia: oil and gas fields, Pančevo Oil Refinery, a network of oil, gas and fuel storage facilities and its retail network. Following its long-term development strategy, NIS began growing its business outside Serbia in 2010 and 2011. Subsidiaries were established in Bosnia and Herzegovina, Bulgaria, Hungary and Romania. In addition, a representative office was opened in Brussels to support Serbia’s EU integration efforts. NIS also has representative offices in Russia, Croatia and Angola.

European UnionNIS was the first Serbian company to open a representative office in Brussels. Opening the Brussels office in 2011 was part of the NIS Business Strategy of establishing its leadership in the regional oil and gas industry and of applying European standards and new leading-edge technologies to its operations. NIS representatives in Brussels follow relevant EU directives and regulations in the field of energy, reduction of noxious emissions and environmental protection, as part of efforts to provide full assistance to the Republic of Serbia on its EU accession track.

AngolaNIS launched its operations in Angola as early as in 1980, only commencing oil exploitation after five years. In Angola, NIS currently runs two production blocks in a consortium with several international companies including Sonangol, the national oil company of Angola.

Bosnia and HerzegovinaTowards the end of 2010, NIS co-founded Jadran-Naftagas, which conducts hydrocarbon exploration in the Republic of Srpska.

NIS runs its operating activities of sales and distribution and retail network development in Bosnia and Herzegovina through NIS Petrol d.o.o. Banja Luka and G Petrol Sarajevo. In 2012, the first petrol stations in the Republic of Srpska began to operate and a year later, NIS acquired OMV’s petrol stations in Bosnia and Herzegovina, one of the strongest networks in the market. The retail network numbers 37 petrol stations operating under two NIS brands: a premium GAZPROM brand and a mass NIS Petrol brand.

Bulgaria

NIS registered the subsidiary company in Bulgaria as NIS Petrol EOOD. In mid-2013, the first GAZPROM branded petrol station was opened. The retail network in this country numbers 35 petrol stations today. NIS Petrol also bought a storage facility in Kostinbrod near Sofia, thus opening the doors to potential development of fuel distribution from Serbia at its own retail facilities and for wholesale purposes.

HungaryOne of the leading countries for conducting geological surveying works in the Pannonian Basin. NIS’s partner in this country is RAG (Austria), cooperating within an exploration block near the Serbian-Hungarian border.

RomaniaNIS Petrol SRL, a daughter company of NIS in Romania, is engaged in exploration and production and retail network development throughout the country. NIS Petrol SRL is also registered for electricity trading, thus allowing NIS to participate in electricity trading in the EU market. In Romania, which in geological terms belongs to the Pannonian Basin, NIS and its partners have launched geological exploration activities in a highly productive region in the west of the country. The network of GAZPROM petrol stations in Romania numbers 18 stations.

Russian FederationThe NIS representative office in the Russian Federation provides protocol, administration and logistics support to NIS and cooperates with Gazprom Neft.

CroatiaThe NIS representative office in Croatia supports the company, establishes cooperation with prospective partners and follows regulations and projects in this country’s energy sector.

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Business that follows the principles of sustainable development is a strategic goal for NIS. Under the slogan “Future at Work”, NIS is building the future of energy efficiency with more renewable sources, observing the law and human rights and making the optimal use of available capacities and natural resources. Transparency in business operations, trust in partnerships, investing in safety, health and professional development of its employees, responsibility towards protecting environmental and social investments and the needs and values of the society provide the cornerstones of the NIS sustainability principles.

NIS pursues its corporate social responsibility policy through five programmes: Energy of Sports, Culture beyond Borders, Energy of Knowledge, Philanthropy and Volunteerism and Together for the Community.

Despite the crisis in the oil industry, NIS has remained a reliable partner of the community in which it operates. In 2016, around 380 million dinars was invested through socially responsible projects and sponsorships, thus allowing NIS to maintain its position as the leading social investor in Serbia. These efforts were recognised when the Ministry of Education, Science and Technological Development gave NIS the St. Sava Award for its contribution to education in 2016.

NIS also won the first prize in the Energy category of Corporate Superbrands Serbia 2015/2016 awards. Furthermore, NIS was recognised for its results in Corporate Social Responsibility and included in the list of the CSR Index - the first national platform for assessing corporate social responsibility in Serbia.

NIS received “St. Sava Award” from the Ministry of Education, Science and Technological Development for its contribution to education.

NIS invested almost 380 million dinars in socially responsible projects and sponsorships in 2016.

SUSTAINABLEDEVELOPMENT

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Transparent and timely reporting to all stakeholders of the most important activities is part of our business strategy. The relationship with shareholders and investors is based on mutual trust and two-way communication; NIS is committed to applying the highest standards of international business practices.

Mindful of the importance of efficient and responsible corporate governance, NIS is committed to applying the highest standards, based on internationally accepted principles and the best global practices along with continuous development and improvement of the corporate governance system. NIS strives to apply the highest standards in providing information. It has developed bilateral

communication with shareholders and investors, to whom all necessary information about the company’s business operations is fully available.

The business community recognised this commitment. The company is a multiple winner of the Belgrade Stock Exchange’s Best Investor Relations Award. To establish the most efficient communication with stakeholders and investors, NIS has offices for minority shareholders in Belgrade and Novi Sad, an Investors Relations Section, a separate call centre, an e-mail service and a website.

CORPORATE GOVERNANCE

NIS is a multiple winner of the Belgrade Stock Exchange’s Best Investor Relations Award.

The relationship with shareholdersand investors is based on mutual trustand two-way communication.

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INVESTMENTS

Even though 2016 was marked by low oil prices and unstable markets, NIS has not abandoned strategic investments for the sake of short-term profit. In 2016, solid foundations were laid for projects that will allow the company to further develop. NIS has continued to invest in all business segments from exploration and production, refining, retail network development to energy projects. The scope of the

investment programme in 2016 amounted to 26.1 billion dinars, allowing NIS to be among the top investors in Serbia. An ambitious investment cycle of around 100 billion dinars was also adopted for the next three years.

NIS invested more than

billion dinars in 2016

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How NIS achieves its results is equally important as the results themselves. Therefore, the health and safety of people and environmental protection are absolute priorities for the company. Responsibility to the environment is demonstrated through various projects and major investments concerning environmental protection. NIS has modernised its equipment and considerably reduced emissions of harmful substances by investing in modern technologies.

In 2016, NIS invested 150 million dinars in implementing environmental protection projects.

The Health, Safety, Environment system (HSE) is part of every business process in the company. Moreover, 2016 was the Year of HSE during which concrete results were achieved: the lost time injury frequency indicator (LTIF) was reduced by 46 percent compared to 2015. To increase safety at work, NIS adopted HSE Golden Rules: rules for all employees, business partners and visitors to the company’s sites. Strict compliance with these 12 golden rules will help the company to achieve its ambitious goal, namely, no work-related injuries and negative impacts on the environment during work processes.

HSE

million dinarsin environmental projects in 2016

NIS invested

150

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NIS works continuously to apply high standards in process safety and health, following global trends and regulations. It is one of the crucial requirements imposed by technical and technological development in exploiting resources and the increased awareness of health and environmental considerations. The system of industrial safety management encompasses key processes to identify hazards and to assess and manage risks relating to processes and process equipment. Along with production modernisation, applying advanced technological solutions and employee training, this system enables appropriate prevention, monitoring, as well as timely and efficient emergency response.

Fire SafetyIn 2016, the fire risk categorisation of NIS j.s.c. Novi Sad facilities was revised by the Ministry of Interior of the Republic of Serbia – Emergency Response Sector. Previously NIS completed the fire risk categorisation of company facilities in 2015.

The Fire Department of Kikinda was formed with 13 members and began operating on 17 October 2016.

The Fire Protection Sector is responsible for fire protection at the Business Centres in Novi Sad and Belgrade and the Jazak Water Plant.

Civil protection officers have been appointed (the number of officers has increased by 50 percent) and the preventive fire protection system has been improved.

Emergency Response

NIS actively manages its exposure to risks, maintaining it at the lowest level possible, aiming to mitigate the consequences of emergencies in its business areas. Thus, 2016 saw a comprehensive revision of existing solutions regarding emergency responses. New documents were adopted in the Republic of Serbia based on experience gained in emergency conditions and planning solutions of the emergency response units.

Better cooperation has been established with representatives of local self-government units and the representatives of authorities in the field of natural disasters. The practice of implementing emergency response crews and teams’ practical exercises has been also continued.

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RESPONSIBILITYTOWARDS EMPLOYEES

NIS conducts many activities with a view to recruiting and employing young staff members and the employees are recognised as the most valuable resource of the company.

NIS recognised its employees as the most important resource of the company. The highly skilled and qualified personnel are the basis of the company’s success, which continually invests in employees’ professional development. In 2016, 245 million dinars was invested in staff training. The concept of NIS Corporate University was launched to provide continuous learning, improvement of skills and career development of employees in accordance with the latest international trends. NIS received the first prize for Talent Management in Serbia in 2016 in a competition organised by Stanton Chase International. Furthermore, in accordance with a survey conducted by the specialised portal Infostud, NIS occupies the second place on the list of favourite employers in Serbia. NIS strives to be the top employer.

NIS also conducts many activities with a view to recruiting new, young staff members. One of these programmes is the NIS Chance whereby NIS employs young university or secondary school graduates with no experience. More than 800 young people have completed the programme since 2012.

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