1.Message from
the Chief Executive Officer

Roman
Dashkov

This publication is the Sakhalin Energy’s 2016 Sustainable Development Report.

As with previous reports, this document was prepared in compliance with the Global Reporting Initiative (GRI) international standards. It is the second time that the Report is written in the GRI G4 format. While working on it, we took into account, to the fullest extent, the opinions of all our stakeholders.

This Report is devoted to environmental protection which Sakhalin Energy has always paid special attention to. Being the operator of a global-scale oil and gas project, the company realises how important it is to monitor any impact on the environment.

In order to assess the state of the environment, to identify the impact of the company's production assets, and to develop elimination and mitigation measures, Sakhalin Energy carries out regular industrial environmental control and implements a number of local environmental monitoring and biodiversity conservation programmes. The Gray Whale Monitoring Programme is one of the most successful among them.

The company strives to achieve high performance while taking care of the environment. We use innovative technology and advanced expertise of our shareholders, and apply best practices in environmental protection.

Since the Sakhalin-2 project reached its full capacity, there has not been a single occurrence of an oil spill that could be classified as an emergency. Sakhalin Energy showed excellent performance: the company exceeded the 2016 production targets, having produced 61 cargoes of oil and 168 cargoes of LNG (against the planned 57 and 166 cargoes, respectively).

By supplying gas to the Russian party in accordance with the terms and conditions of the Production Sharing Agreement, Sakhalin Energy promotes the transition of the Sakhalin Oblast heating systems from coal to gas, a more environmentally friendly fuel type. In 2011–2016, about 2.8 bln m3 of natural gas was delivered to the Yuzhno-Sakhalinsk Heat and Power Plant-1 and other facilities on Sakhalin.

Striving to promote environmental culture, Sakhalin Energy disseminates best practices in occupational safety, environment protection and environmental responsibility among its contractors working under the Sakhalin-2 project.

Even with the low oil prices which have persisted in the past two years, we have not reduced the environmental monitoring and biodiversity conservation programmes, and continue to closely monitor the environmental impact of the project. Continuous improvement in the field of safety and environmental responsibility is a priority for Sakhalin Energy. In the 2016 Report, this information is even more complete and detailed than in the previous ones.

In general, in 2016 Sakhalin Energy achieved excellent performance in all areas and fulfilled its obligations to shareholders, the Russian party, employees, contractors, and the community. The Sakhalin Oblast budget revenues from Sakhalin Energy remained high, accounting for more than 60%, just like in the previous few years.

Sakhalin Energy attaches great importance to the protection of the environment and biodiversity when implementing its social programmes. By investing in social projects, we encourage the development of social initiatives and responsibility, contributing to the solution of the region's social and environmental issues.

In 2016, the UN General Assembly adopted a new global agenda dedicated to the Sustainable Development Goals (SDGs) and the way their achievement will affect the transformation of the world. Many of Sakhalin Energy's operating principles correspond to these goals, and the Sustainable Development Report presents information about the company's contribution to their implementation over the past year.

The company's work on biodiversity conservation and environmental safety in 2016 yet again received recognition at the highest level. Sakhalin Energy won the national contest of the Russian Union of Industrialists and Entrepreneurs (RUIE) — Russian Business Leaders: Dynamics and Responsibility in the Environmental Responsibility category, and became the first in the environmental responsibility ranking among the country's oil and gas companies conducted by the World Wildlife Fund (WWF) of Russia.

This is especially significant for Sakhalin Energy, since the year of 2017 has been announced the Year of the Ecology in the Russian Federation. We are determined to continue operations and maintain the company's reputation as a reliable supplier of energy resources in the Asia-Pacific region, responsibly addressing environmental issues.

Roman Dashkov