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ROGTEC Magazine - Russian Oil & Gas Technologies - News, Reviews & Articles

KMG EP: Holds Board Meeting and Implements a Unified System of Wages for Employees

Wednesday, March 19th, 2014

Yesterday the Board of Directors of JSC KazMunaiGas Exploration Production, KMG EP, met to approve the meeting agenda and set a date for the Shareholders Annual General Meeting for 13 May 2014.

The AGM agenda: approve annual consolidated financial statements and the Company’s 2013 Annual Report, agree dividend regarding 2013 earnings per ordinary and preferred shares of KMG EP, evaluate the Board of Director’s performance in 2013 and other questions.

The Board of Directors has recommended a dividend for the 2013 earnings per ordinary and preferred share of KMG EP of 1,976 Tenge which is equivalent to about 135 billion Tenge1 (approximately US$730 million2). This will be voted upon at the AGM. If approved, the payment of the 2013 annual dividend will be made starting 24 June 2014 to shareholders of record as of 23 May 2014.

Independent directors suggested payment of a substantial special dividend. This proposal was deferred by the Board of Directors for later consideration.

The Board of Directors adopted budget adjustment taking into account the increase in export and domestic tariffs of JSC “KazTransOil” from January 1, 2014.

The Board of Directors also agreed to implement a Unified System of Wages (USoW) of employees working in the upstream oil and gas division from 1 April 2014 onwards. This ruling leads to employee benefits increase by 21 billion Tenge (US$113 million2) in 2014 budget including an increase of 10% of wages in connection with the devaluation of the Tenge in February 2014.

USoW will be implemented throughout the NC KazMunaiGas Group. The USoW will provide unified tariff rates for workers within their monthly payroll. This is a new payroll system which considers the difference in complexity of work within the same occupation for all employees.



KazMunaiGas E&P: Administrative Fine of 327.9 billion Tenge Dismissed by Court

Wednesday, March 19th, 2014

JSC KazMunaiGas Exploration Production is pleased to announce that the Specialized Administrative Court in Aktau of Mangistau region has ruled that the Act on inspection results of the Department of Ecology of Mangistau Region and the claim for environmental damage in the amount of 327.9 billion Tenge (US$ 1.8bn), which has been brought against JSC “Ozenmunaigas” (“OMG”) and referred to in the Company’s press release dated 27 February 2014 have been declared as illegitimate and have been dismissed.

There remains the possibility that the Court’s ruling may be appealed by the parties and the prosecutor’s office. However, given the positive outcome of previous appeals, the Company believes that OMG will successfully appeal this claim in following court proceedings.



Ozenmunaigas: Administrative fine of 212.6 billion Tenge dismissed by court

Thursday, March 6th, 2014

Further to the press release dated 27 February 2014, reconfirming the successful appeal of an administrative fine of 212.6 billion Tenge against JSC Ozenmunaigas (“OMG”), JSC KazMunaiGas Exploration Production (“the Company”) is today pleased to announce that the Specialized Administrative Court in Aktau of Mangistau region (“the Court”) has ruled that the case has been dismissed and there is no avenue for appeal, but there remains the remote possibility that the Court’s ruling can be revisited by the prosecutor’s office.

As previously reported, OMG continues with its legal action to appeal the claim for environmental damage of 327.9 billion Tenge in relation to the disposal of contaminated soil. The disposal of contaminated soil resulted from past activities on the site and did not occur due to activity by either OMG or KMG EP. Currently the Company believes that OMG will successfully appeal this allegation.



KMG E&P’s Ozenmunaigas Hit with Envirnomental Damage Charge

Thursday, February 27th, 2014

JSC KazMunaiGas Exploration Production announces that the Department of Ecology of Mangystau Region (“Department of Ecology”) has presented JSC “Ozenmunaigas” (OMG) with a claim for environmental damage for the amount of 327.9 billion Tenge in relation to the disposal of contaminated soil.

This claim is made on the same basis as an administrative fine of 212.6 billion Tenge, and an environmental damage fine for the amount of 59.3 billion Tenge (each referred in the press release dated 20 February 2014). Both claims have been successfully appealed during 2013 and February 2014.

OMG disputes the allegation and is taking legal action to appeal the claim. The disposal of contaminated soil resulted from past activities on the site and did not result from activity by either OMG or KMG EP.

Given the positive outcome of previous appeals, the Company believes that OMG will successfully appeal this allegation.



KazMunaiGas Exploration Production: 2013 Financial Results, Profit Down 12%

Thursday, February 20th, 2014

JSC KazMunaiGas Exploration Production announces its consolidated financial results for the year ended 31 December 2013.

  • The Company’s revenues in 2013 were 816.7bn Tenge (US$5,368m), 2% higher than in 2012. In 2013 average Brent price declined by 3% compared with 2012. Export sales volumes dropped by 1%, whereas domestic sales volumes grew by 20%, which is in line with the Company’s obligations for domestic supply.
  • Net profit in 2013 was 141.8bn Tenge (US$932m), 12% less than in 2012. This is largely due to increases in taxes, other than on income, of 14% and in production expenses of 15% and due to a decline in income from joint ventures and associates by 25% and finance income by 40%.
  • Production expenses in 2013 were 162bn Tenge (US$1,065m), which is 15% higher compared with 2012, mainly due to an increase in employee benefits, repairs and maintenance and energy expenses.

Operational Highlights

KMG EP produced 12,388 thousand tonnes of crude oil (251kbopd), including the Company’s stakes in Kazgermunai (KGM), CCEL (CCEL) and PetroKazakhstan Inc. (PKI), which is 197 thousand tonnes or 2% more than in 2012.

Ozenmunaigas JSC (OMG) produced 5,208 thousand tonnes (105kbopd), an increase of 5% compared with 2012. Embamunaigas JSC (EMG) produced 2,841 thousand tonnes (57kbopd), a 1% increase compared with 2012. The total volume of oil produced at OMG and EMG in 2013 was 8,049 thousand tonnes (162kbopd), which is a 4% increase compared with 2012.

The Company’s share in production from KGM, CCEL and PKI in 2013 amounted to 4,339 thousand tonnes of crude oil (89kbopd), 2% lower than in 2012, mainly due to 5% lower production at PKI due to the natural decline of production.

In 2013, the Company’s combined export sales from OMG and EMG were 6,017 thousand tonnes (119kbopd), or 75% of the total sales volume from core assets. Domestic sales amounted to 1,967 thousand tonnes (39kbopd), or 25% of total sales volume.

The Company’s share in the sales from KGM, CCEL and PKI was 4,319 thousand tonnes of crude oil (88kbopd), including 3,829 thousand tonnes (78kbopd), or 89% supplied to export markets.

The Company appointed Miller and Lents Ltd as an independent reserves auditor to conduct the reserves assessment as at 31 December 2013. The Company will provide further update in due course once the reserves report as at 31 December 2013 is released.

Net Profit for the Period

Net profit in 2013 was 141.8bn Tenge (US$932m), 12% less than in 2012, largely due to increase in taxes, other than on income, and in production costs and to a decline in income from joint ventures and associates and finance income.

Revenues

The Company’s revenues in 2013 were 816.7bn Tenge (US$5,368m), 2% higher than in 2012. The decline in Brent price by 3% and 61 thousand tonnes lower export sales were offset by an increase of 330 thousand tonnes from domestic sales and an increase in domestic sales price from 38 to 40 thousand Tenge per tonne.

Taxes other than on Income

Taxes, other than on income, in 2013 amounted to 312bn Tenge (US$2,049m), which is 14% higher compared with 2012, largely due to an increase in the mineral extraction tax (MET) and export customs duty. Export customs duty was raised on 12 April 2013 from US$40 per tonne to US$60 per tonne.

Production Expenses

Production expenses in 2013 were 162bn Tenge (US$1,065m), which is 15% higher compared with 2012 mainly due to an increase in employee benefits, repairs and maintenance and energy expenses.

Employee benefits expenses in 2013 increased by 11% compared with 2012 due to salary indexation for production personnel by 7% in January 2013, and the reclassification of employee expenses as a result of the start of operations activity at the two new service units (the transportation and drilling units). During 2012, most employee benefits of these two new service units were classified as general and administrative expenses.

Repairs and maintenance expenses grew in 2013 by 25% compared with 2012, due to the increase in the number of well workover, well servicing and other types of well operations to increase oil recovery.

In 2013 energy expenses grew by 23% largely due to an increase in the average tariff from January 2013 at OMG by 25% and at EMG by 17%.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in 2013 amounted to 92bn Tenge (US$607m), which is 1% lower than in 2012. Transportation costs increased by 16% compared with 2012 due to an increase in tariffs for the Uzen-Atyrau-Samara route and domestic sales routes of the KazTransOil transportation system, which was offset by a decline in accruals for fines and penalties and other general and administrative expenses.

Exploration Expenses

In 2013, exploration expenses amounted to 13.1bn Tenge (US$86m), compared with 6.1bn Tenge (US$41m) in 2012. In 2013 the Company recognized dry well expenses amounting to 6.2bn Tenge (US$40m) relating to the exploration well drilled on the White Bear block, expenses amounting to 2.9bn Tenge (US$19m) relating to the two exploration wells drilled on the Zharkamys East block and 1.3bn Tenge (US$9m) relating to the two exploration wells drilled at Karaton-Sarkamys block.

Impairment of Assets

As previously reported, in the first quarter of 2013 the management of the Company made a 56bn Tenge (circa US$370m) impairment charge of the recoverable value of JSC “Ozenmunaigas”. The impairment charge relates to the increase in export customs duty that occurred on 12 April 2013.

Cash Flows from Operating Activities

Operating cash flow in 2013 was 98bn Tenge (US$647m), which is 36% lower than in 2012, mainly due to higher production expenses, taxes other than on income and increase in accounts receivable. From 1 January 2014, the payment period for oil supplied to Rompetrol (through “KazMunaiGas Trading”) increased from 60 to 90 calendar days, which might affect the Company’s working capital.

Capex

Capital expenditures in 2013 amounted to 144bn Tenge (US$946m), which is 18% higher compared with 2012 mainly due to the increase in the number of wells drilled from 256 to 311 wells, construction of production facilities, purchase of equipment, and implementation of the modernization programme. In 2013 investment into modernisation programme was 14bn Tenge (US$93m) compared with 9.5bn Tenge (US$63m) in 2012.

Cash and Debt

Cash and cash equivalents as at 31 December 2013 amounted to 119bn Tenge (US$0.8bn) compared with 155bn Tenge (US$1.0bn) as at 31 December 2012.

Other financial assets (current and non-current) at 31 December 2013 were 504bn Tenge (US$3.3bn) compared with 552bn Tenge (US$3.7bn) as at 31 December 2012.

In June 2013, KMG NC fully repaid the Bond with an outstanding principal and accrued interest of 137bn Tenge (US$909m). KMG EP purchased the 222bn Tenge (US$ 1.5bn) NC KMG Bonds in June 2010 with a maturity date of June 24, 2013. As at 31 December 2013, 82% of cash and financial assets were denominated in foreign currencies and 18% were denominated in Tenge. Finance income accrued on cash and financial assets in 2013 was 20.6bn Tenge (US$135m), compared with 34.5bn Tenge (US$232m) (including the Bond income) in 2012.

Borrowings as at 31 December 2013 were 6.8bn Tenge (US$44m) compared with 7.3bn Tenge (USD$48m) as at 31 December 2012.

The net cash position as at 31 December 2013 was 616bn Tenge (US$4.0bn) compared with 699bn Tenge (US$4.6bn) as at 31 December 2012.

Income from associates and joint ventures

In 2013 KMG EP’s share of results of associates and joint ventures was 51bn Tenge (US$334m) compared with 67bn Tenge (US$452m) in 2012.

Kazgermunai

In 2013 KMG EP recognised 28bn Tenge (US$187m) of income from its share in KGM. This amount represents 46bn Tenge (US$303m) corresponding to 50% of KGM’s net profit net of the 18bn Tenge (US$116m) effect of amortization of the fair value of the licenses and the related deferred tax.

KGM’s net profit declined by 1% compared with 2012 mainly due to an increase in export customs duty rate and one-off accruals related to tax audits for 2007-2012 and an ecological audit, which was partially offset by an increase in export sales.

In 2013 KMG EP received US$200m in dividends from KGM.

PetroKazakhstan Inc.

In 2013, KMG EP recognised 22bn Tenge (US$145m) of income from its share in PKI. This amount represents 27bn Tenge (US$177m) corresponding to 33% of PKI’s net profit net of the 5bn Tenge (US$31m) effect of amortization of the fair value of the licenses.

PKI’s net profit declined by 40% compared with 2012 mainly due to a natural decline of production at PKI, lower sales of refined products and an increase in export customs duty and one-off accruals of fines and penalties related to tax and ecological audits.

In 2013 KMG EP received US$219m in dividends from PKI.

CCEL

As of 31 December 2013, the Company had 17.2bn Tenge (US$112m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 2.8bn Tenge (US$18.1m) of interest income in 2013 related to the US$26.87m annual priority return from CCEL.

Tax and environmental audits

As at 31 December 2013 the Company has several claims related to tax and environmental matters. More detailed information is provided in the consolidated financial statements for the year ended 31 December 2013.

Tax audit for 2006-2008. As a result of 2006-2008 tax audit the tax authorities estimated 16.9bn Tenge (US$112m) of additional taxes payable. The Company is currently in the process of appealing the audit results in the Tax Committee of the Ministry of Finance. During 2013 the tax authorities’ assessments was reduced by 1,8bn Tenge (US$12m). As a result, existing tax provisions as at 31 December 2013 were reduced to 14,6bn Tenge (US$96m).

Mineral Extraction Tax. Tax authorities issued a notification to the Company regarding the 8.8bn Tenge (US$58m) payable for discrepancies identified in the data reported in the Company’s Mineral Extraction Tax returns and the data supplied by the Ministry of Oil and Gas of the Republic of Kazakhstan for the period from 2009 to 2012. The Company disagrees with the above notification and has provided the written explanations of its position. The tax authorities have not yet audited the Company on this matter and hence no tax assessment was done yet. Should the tax authorities audit the Company and assess additional MET liabilties, the Company will definitely appeal such assessment. The Company management believes that the Company will be successful in its appeal and no provisions in relation to this matter have been made in the consolidated financial statements as at 31 December 2013.

PetroKazakhstanKumkolResources JSC (PKKR) tax audit. As a result of the tax audit for 2009-2012 of PKKR (100% subsidiary of PKI Inc.) tax authorities issued notification for environmental emissions for 10.7bn Tenge (US$69m) and related fines and penalties for 8.8bn Tenge (US$57m). PKKR disagrees with the tax audit results and is planning to file an appeal. PKI management assessed the risk of unfavourable outcome of this claim as probable and recognized a provision for 19.4bn Tenge (US$126m) in its financial statements (KMG EP’s 33% share 6.4bn Tenge (US$41.7m). PKI management believes that PKKR has a strong position on any other potential claims as a result of tax audit for 2009-2012.

Ozenmunaigas Environmental Audit 2011-2012. Following an inspection that covered the period from August 2011 to November 2012 JSC “Ozenmunaigas” received a notification to pay 59.3bn Tenge (US$392m) in fines for environmental damages. JSC “Ozenmunaigas” believes that the act was illegal and the calculations were not reliable, and therefore filed an appeal. The Company believes that JSC “Ozenmunaigas” will successfully appeal the results of the inspection and the related fines, and therefore no provision has been accrued for this claim as at 31 December 2013.

Ozenmunaigas environmental audit 2012-2013. As a result of an inspection during the second half of 2013 JSC “Ozenmunaigas” received a notification from the Department of Ecology of Mangystau Region to pay 212.6bn Tenge in fines for environmental damage caused by the disposal of excessive waste to the environment. JSC “Ozenmunaigas” disagrees with this notification and is currently taking appropriate action to appeal the claim. The Company management believes that JSC “Ozenmunaigas” has a strong position in this regard, as the inspection grossly violated the laws of the Republic of Kazakhstan in relation to the procedure for the inspection process. The Company believes that it can successfully appeal the results of the inspection, and therefore no provision has been made for this claim as at 31 December 2013.

Embamunaigas environmental audit. As a result of an ecological inspection in June-July 2013 JSC “Embamunaigas” received a report stating that gas utilization on three oilfields was not being handled in accordance with the approved technological development plans. To prevent the suspension of the development of the fields JSC “Embamunaigas” received a positive conclusion on adjusted development plans from Committee for Environmental Regulation. All fields are currently operating in accordance with the development plans, and there is no longer any outstanding litigation related to this matter.

Embamunaigas gas flaring. On 23 January 2014, JSC “Embamunaigas” received a notification in the amount of 37.2bn Tenge in fines for environmental damage caused by violations of ecology law, including emissions from associated gas flaring. The Company is currently taking appropriate action to appeal the claim. The Company believes that it can successfully appeal the results of the inspection and the related fines. Therefore no provision has been made for this claim as at 31 December 2013.



KMG EP: Board Meeting Results – Keen to Spend $300m USD on Exploration Activities

Thursday, December 5th, 2013

JSC KazMunaiGas Exploration Production held its regular Board of Directors meeting. Among the major decisions the Board approved the 2014 budget and business plan for the period of 2014-2018.

Production

In the first eleven months of 2013 production at Ozenmunaigas (OMG) increased by 5% compared with the corresponding period of 2012. However, having considered all factors, the Board approved a new production plan at OMG for 2014 at 5.35 million tonnes (108kbopd). Embamunaigas (EMG) production plan for 2014 was kept at 2.8 million tonnes (57kbopd). The revision of production profile at OMG reflects the lower production levels during the preceding three years, including 2011 when production was hit by labour strikes at Ozenmunaigas.

By 2018 KMG EP anticipates increasing production at OMG and EMG by 3%, including an increase by 5% to 5.57 million tonnes at OMG.

The Company’s share in the planned production of Kazgermunai (KGM), CCEL (CCEL), PetroKazakhstan Inc. (PKI) and Ural Oil and Gas (UOG)1 in 2014 is estimated at 4.1 million tonnes (84kbopd) and is expected to decline gradually to 3.4 million tonnes (68kbopd) by 2018 due to natural decline of production at KGM and PKI.

Domestic oil supplies

The Company expects annual volume of oil supply to the domestic market in 2014 to be 1.9 million tonnes (38kbopd) that will be supplied to Atyrau refinery. Additional 100 thousand tonnes of oil will be processed at Atyrau refinery for the Company’s own use. The budgeted price for the domestic supply is 48,000 Tenge per tonne (US$43.4 per barrel) which is 20% higher than in 2013. It is anticipated that over the period of 2015-2018 domestic oil supplies may increase up to 50% of the total sales from OMG and EMG.

Capital expenditure

The Board of Directors approved capital expenditure for 2014 at 133bn tenge (US$870m)2. It is expected that total investments in 2014-2018 will amount approximately to US$4.1bn, of which US$290m will be allocated to the modernisation programme. As a result, the total investments into the modernisation programme in 2012-2018 will amount to US$570m.
Following the results of exploration activities in 2011-2013 the Company has reassessed prospectivity of its existing exploration acreage. The approved business plan anticipates reduced exploration activity at the existing exploration portfolio. However, the Company reconfirms its appetite to spend up to US$300m annually in exploration activities in appearance of the perspective exploration projects.

Treasury policy

The Board has also made a decision to introduce temporary changes to the Company’s Treasury Policy. The limit of cash deposited with domestic Kazakh banks will be temporarily increased to US$2.1bn (See notes to editors).
Dividends from joint ventures and associates

The Board also approved the distribution of KGM’s 9M2013 net income in the form of dividends in the amount of US$150 million, of which KMG EP’s share in accordance with the ownership interests will be US$75 million. Considering dividends already received, KMG EP’s share in dividends from KGM in 2013 will be US$200 million.
As announced, during 9M2013 PKI has paid KMG EP US$125.4 million in dividends.



KazMunaiGas Exploration and Production: Financial Results – Profit down 46% Due to Impairment Charge

Thursday, November 7th, 2013

JSC KazMunaiGas Exploration Production announces its condensed consolidated interim financial results for the nine months ended September 30, 2013.

·    In the first nine months of 2013 average Brent price declined by 3% from US$112.24 to US$108.46 per barrel compared to the same period of 2012. Export sales volumes dropped by 3%. The Company’s revenues  in  the  first  nine  months  of   2013  stayed  at  almost  the  same  level   606bn  Tenge

(US$4,000m)1 compared to the same period of 2012.

·    Net profit was 93.2bn Tenge (US$615m), 46% less than in the corresponding period of last year, largely due to an impairment charge posted in 1Q2013, as well as a decline in income of joint ventures and associates and higher production costs.

·    Production expenses amounted to 126bn Tenge (US$832m), which is 20% higher compared to the same period of 2012 mainly due to an increase in payroll expenses and growth in repairs and maintenance expenses.

Production Highlights

In the first nine months of 2013 KMG EP produced 9,227 thousand tonnes of crude oil (250kbopd), including the Company’s stakes in Kazgermunai (KGM), CCEL (CCEL) and PetroKazakhstan Inc. (PKI), which is 119 thousand tonnes, or 1% more than in the same period of 2012.

Ozenmunaigas JSC (OMG) produced 3,873 thousand tonnes (104kbopd), an increase of 5% over the same period of 2012. Embamunaigas JSC (EMG) produced 2,124 thousand tonnes (57kbopd), which is 1% more than in the same period of 2012. The total volume of oil produced at OMG and EMG in the first nine months of 2013 is 5,997 thousand tonnes (162kbopd), which is a 4% increase over the same period of 2012.

The Company’s share in production from KGM, CCEL and PKI for the first nine months of 2013 amounted to 3,230 thousand tonnes of crude oil (88kbopd), which is 3% less than in the same period of 2012, mainly due to a natural decline of  production at PKI by 6% and a delayed receipt of the production contracts for some PKI fields. Therefore, the Company expects that its share in PKI production will amount to 1.7 million tonnes in 2013. It is expected that both CCEL and KGM will achieve initial production plans of 1.0 million tonnes (19kbopd) and 1.5 million tonnes (32kbopd), respectively in 2013.

[1] Amounts shown in US dollars (“US$” or “$”) have been translated solely for the convenience of the reader at the average rate over the applicable period for information derived from the consolidated statements of income and consolidated statements of cash flows and the end of the period rate for information derived from the consolidated balance sheets (average rates for 9M13 and 9M12 was 151.58 and 148.66 Tenge/US$, respectively; period-end rates at September 30, 2013 and December 31, 2012 was 153.62 and 150.74 Tenge/US$, respectively).

Crude Oil Sales

In the first nine months of 2013 the Company’s combined export sales from OMG and EMG were 4,482 thousand tonnes (119kbopd), or 74% of the total sales volume from core assets. Domestic sales amounted to 1,535 thousand tonnes (41kbopd), or 26% of total sales volume.

The Company’s share in the sales from KGM, CCEL and PKI was 3,217 thousand tonnes of crude oil (89kbopd), including 2,841 thousand tonnes (79kbopd), or 88% supplied to export markets.

Net Profit for the Period

Net profit in the first nine months of 2013 was 93.2bn Tenge (US$615m), 46% less than in the corresponding period of last year, largely due to an impairment charge posted in 1Q2013, as well as a decline in income of joint ventures and associates and higher production costs.

Revenues

The Company’s revenues in the first nine months of 2013 stayed at almost the same level 606bn Tenge (US$4,000m) compared to the same period of 2012. The decline of Brent price by 3% and 142 thousand tonnes lower export sales were partially offset by 281 thousand tonnes higher domestic sales. The Company expects that domestic sales from core assets in 2013 will remain at the planned level.

Taxes other than on Income

Taxes, other than onincome, in the first nine months of 2013 amounted to 229bn Tenge (US$1,508m), which is 4% higher compared to the same period of 2012, largely due to an increase in export customs duty on April 12, 2013 (from US$40 per tonne to US$60 per tonne) and a 4.0bn Tenge (US$26.5m) increase in environmental tax as a result of an inspection carried out by tax authorities

Production Expenses

Production expenses in the first nine months of 2013 were 126bn Tenge (US$832m), which is 20% higher compared to the same period of 2012 mainly due to an increase in employee benefits and repairs and maintenance.

Employee benefits expenses in the first nine months of 2013 increased by 18% compared to the same period of 2012 mainly due to an indexation of salary for production personnel by 7% in January 2013, and the start of production activity at two new service units. During the first nine months of 2012 most of the employee benefits expenses of these new service units were classified as administrative expenses.

Repairs and maintenance expenses grew compared to the first nine months of 2012, mainly due to the increase in number of well workover operations from 290 to 397 at OMG and EMG.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in the first nine months of 2013 amounted to 70bn Tenge (US$461m), which is 5% lower than in the same period of 2012, primarily due to a decrease of employee benefits and sponsorship expenses. At the same time transportation costs grew by 16% compared to the same period of 2012 as a result of an increase in tariffs for the Uzen-Atyrau-Samara route.

Exploration Expenses

In the first nine months of 2013 exploration expenses amounted to 10.5bn Tenge (US$69m), compared to 5.1bn Tenge (US$34m) in the same period of 2012. In 3Q 2013 the Company recognized dry well expenses in the amount of 2.9bn Tenge (US$19m) relating to the exploration well drilled on the Zharkamys East block.

Impairment of Assets

As reported earlier, in the first quarter of 2013 the management of the Company accepted a 56bn Tenge (about US$370m) impairment charge of the recoverable value of JSC “Ozenmunaigas”. The impairment charge relates primarily to the increase in export customs duty that occurred on 12 April 2013.

Tax Audit for 2006-2008

On July 12, 2012, the Tax Committee of the Ministry of Finance of the Republic of Kazakhstan completed the 2006-2008 comprehensive tax audit of the Company. As a result of this tax audit the tax authorities estimated additional taxes for the Company of 16.9bn Tenge (US$112m). As at September 30, 2013, existing provision for tax is at 15,8bn Tenge (US$104m) in respect of this matter. The Company expects to receive a clarification from the Ministry of Finance of the Republic of Kazakhstan by the end of 2013. (For more details see 6M13 financial results press-release.)

 

Mineral Extraction Tax

On July 2, 2013, the Tax Committee of Yessil district of Astana issued a notification to the Company regarding the 8.8bn Tenge (US$58m) payable for discrepancies identified in the data reported in the Company’s Mineral Extraction Tax returns and the data supplied by the Ministry of Oil and Gas of Republic of Kazakhstan for the period from 2009 to 2012. As the management believes that it is more likely than not that the Company will be successful in its appeal, no provisions in relation to this matter have been made in the consolidated financial statements as at September 30, 2013. (For more details see 6M13 financial results press-release.)

Ozenmunaigas Environmental Audit

As reported, on January 25, 2013, JSC “Ozenmunaigas” received a notification from the Department of Ecology of Mangystau Region to pay the state budget 59.3bn Tenge (US$392m) in fines for environmental damages following an inspection that covered the period from August 27, 2011 to November 12, 2012. JSC “Ozenmunaigas” disagreed with this notification and on February 26, 2013, filed an appeal to the Specialized Interregional Economic Court of Mangystau Region stating that the act was illegal and that calculations were not reliable. On March 7, 2013 the Department of Ecology of Mangystau Region filed a claim with the same Court for the enforced payment of the fines.

On May 22, 2013, the Court satisfied the appeal of JSC “Ozenmunaigas” in full. The Court ruled the inspection carried out by the Department of Ecology of Mangystau Region to be invalid, and the act, instructions on corrective actions and calculations illegal.

No provision has been accrued for this matter in the consolidated financial statements as at September 30, 2013. (For more details see 6M13 financial results press-release.)

Embamunaigas environmental audit

The Department of Ecology of Atyrau Region of the Committee of Ecological Regulation and Control of the Ministry of Environment and Water Resources of the Republic of Kazakhstan (“Department of Ecology”) conducted an off-schedule inspection from June 1 to July 4, 2013 to determine whether production activities of JSC “Embamunaigas” comply with ecological requirements, including associated gas utilization requirements.

The inspection report stated that gas utilization on some oilfields is not being handled in accordance with the approved technological development plans. As a result the Committee of Ecological Regulation and Control of the Ministry of Environment and Water Resources of the Republic of Kazakhstan recalled its previous positive reports on the environmental protection sections of these approved development plans. In addition, the Department of Ecology of Atyrau Region recalled its positive reports on projected maximum of permitted emissions at East Makat, South-East Novobagatinsk and East Zhanatalap oilfields of JSC “Embamunaigas” and filed a legal claim requesting the suspension of commercial development of these oilfields.

In its September 24, 2013 decision the Specialized Interregional Economic Court of the Atyrau Region ruled to suspend commercial development of the three oilfields until the violations of ecological requirements are eliminated and a positive ecological report is obtained. On October 21, 2013, JSC “Embamunaigas” filed an appeal to the Atyrau Regional Court requesting the cancellation of this decision.

The Company has made amendments to the development project documentations of the three oil fields and has received preliminary conclusion of ecological expertise of the Department of Ecology of Atyrau region. On October 28, 2013, the development project documentation was provided to Committee of Ecological Control of the Ministry of Environment and Water Resources for final environmental expertise.

The Company expects to receive the court of appeal decision in 4Q2013.

Cash Flows from Operating Activities

Operating cash flow in the first nine months of 2013 was 88bn Tenge (US$581m), which is 7% lower than in the same period of 2012, mainly due to higher production expenses.

Capex

Purchases of property, plant and equipment and intangible assets (as per Cash Flow Statement) in the first nine months of 2013 were 89bn Tenge (US$588m) as planned, which is 17% higher compared to the same period of 2012 mainly due to the increase in the number of wells drilled and implementation of the modernization programme.

Cash and Debt

Cash and cash equivalents as at 30 September 2013 amounted to 207bn Tenge (US$1.3bn) compared to 155bn Tenge (US$1.0bn) as at 31 December 2012.

Other financial assets (current and non-current) at 30 September 2013 were 440bn Tenge (US$2.9bn) compared to 552bn Tenge (US$3.7bn) as at 31 December 2012.

In June 2013 KMG NC fully repaid the Bond with an outstanding principal and accrued interest of 137bn Tenge (US$909m) as at March 31, 2013. KMG EP purchased the 222bn Tenge  (US$ 1.5bn) NC KMG Bonds in June 2010 with a maturity date of June 24, 2013.

As at 30 September 2013, 82% of cash and financial assets were denominated in foreign currencies and 18% were denominated in Tenge. Finance income accrued on cash and financial assets in the first nine months of 2013 was 15.9bn Tenge (US$105m).

Borrowings as at 30 September 2013 were 7.0bn Tenge (US$45m) compared to 7.3bn Tenge (USD$48m) as at 31 December 2012.

The net cash position2 as at 30 September 2013 was 640bn Tenge (US$4.2bn) compared to 699bn Tenge (US$4.6bn) as at 31 December 2012.

Income from associates and joint ventures

In the first nine months of 2013 KMG EP’s share of results of associates and joint ventures was 39bn Tenge (US$259m) compared to 63bn Tenge (US$424m) in the same period of 2012.

Kazgermunai

In the first nine months of 2013 KMG EP recognised 22bn Tenge (US$144m) of income from its share in KGM. This amount represents 50% of KGM’s net profit of 32bn Tenge (US$212m) net of the effect of amortization of the fair valuation of the licenses, partially offset by a related deferred tax benefit of 10bn Tenge (US$68m).

KGM’s net profit decreased by 15% compared to the same period of 2012 mainly due to an increase in export customs duty rate and one-off accruals of environmental payments, additional rent tax for 2009-2012 and additional accruals for corporate income tax and excess profit tax for 2009-2012.

PetroKazakhstan Inc.

In the first nine months of 2013 KMG EP recognised 17bn Tenge (US$115m) of income from its share in PKI. This amount represents 33% of PKI’s net profit of 21bn Tenge (US$138m) net of the effect of amortization of the fair valuation of the licenses in the amount of 3bn Tenge (US$23m).

PKI’s net profit declined by 51% compared to the same period of 2012 mainly due to lower sales of refined products. Starting from April 2012 PKI was not engaged in processing and sale of oil products. The decline in net income is also a result of an increase in export customs duty and one-off accruals of environmental payments and additional accruals for corporate income tax and excess profit tax for 2009-2012.

CCEL

As of 30 September 2013 the Company has 18.1bn Tenge (US$117m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 2.1bn Tenge (US$13.8m) of interest income in the first nine months of 2013 related to the US$26.87m annual priority return from CCEL.



KazMunaiGas E&P: Shows Marginal Production Increase

Wednesday, October 23rd, 2013

JSC KazMunaiGas Exploration Production announces its operating results for the first nine months of 2013.

KMG EP produced 9,228 thousand tonnes of crude oil (250kbopd), including the Company’s stakes in Kazgermunai (KGM), CCEL (CCEL) and PetroKazakhstan Inc. (PKI), which is 120 thousand tonnes or 1% more than in the same period of 2012.
Ozenmunaigas JSC (OMG) produced 3,873 thousand tonnes (104kbopd), an increase of 5% over the same period of 2012. Embamunaigas JSC (EMG) produced 2,124 thousand tonnes (57kbopd), which is 1% more than in the same period of 2012. The total volume of oil produced at OMG and EMG in the first nine months of 2013 is 5,997 thousand tonnes (162kbopd), which is a 4% increase over the same period of 2012.

The Company successfully increased the average production rate at OMG by more than 1,000 tonnes per day from 13,467 tonnes per day in October 2012 to 14,615 tonnes per day in October 2013. The Company is effectively accomplishing its objective of stabilizing average production levels at OMG.

The 2013 production plan at the Company’s core assets (OMG and EMG) is maintained at the planned level of 8.1 million tonnes (164kbopd) but the Company realises that it will continue to face challenges in production at Uzen.

The Company’s share in production from KGM, CCEL and PKI for the nine months of 2013 amounted to 3,230 thousand tonnes of crude oil (88kbopd), which is 3% less than in the same period of 2012, mainly due to a decline of production at PKI by 6% due to a natural decline of production. It is expected that both CCEL and KGM will achieve initial plans of 1.0 million tonnes (19kbopd) and 1.5 million tonnes (32kbopd), respectively in 2013.

In the first nine months of 2013 the Company’s combined export sales from OMG and EMG were 4,482 thousand tonnes (119kbopd), or 74% of the total sales volume from core assets. Domestic sales amounted to 1,535 thousand tonnes (41kbopd), or 26% of total sales volume. The Company expects that domestic sales from core assets in 2013 will amount to 2.0 million tonnes.
The Company’s share in the sales from KGM, CCEL and PKI was 3,217 thousand tonnes of crude oil (89kbopd), including 2,841 thousand tonnes (79kbopd), or 88% supplied to export markets.

The Company’s share in the Proved plus Probable (2P) reserves of KGM, CCEL and PKI as at the end of 2012 amounted to 56 million tonnes (402 million barrels) of oil or 27% of the Company’s consolidated reserves. This compares with 59 million tonnes (422 million barrels) or 21% of the Company’s total reserves as at the end of 2011. The reserves assessment of OMG and EMG as at 31 December 2012 was prepared by Miller and Lents Ltd and as at 31 December 2011 – by Gaffney, Cline & Associates.



KazMunaiGas Exploration and Production: Elects Two New Members to the Board

Wednesday, October 23rd, 2013

JSC KazMunaiGas Exploration Production held an Extraordinary General Meeting of shareholders on October 22, 2013, where Yerzhan Znangaulov was elected as a new member of Board of Directors and Alastair Ferguson was elected an Independent Non-Executive Director.

The new Board of Directors:

Daniyar Berlibayev – Chairman of the Board of Directors of KMG EP, First deputy chairman of the Managing Board for corporate development;

Timur Bimagambetov – Deputy Chairman of the Management Board for production and technical development at JSC NC KazMunaiGas;

Asiya Syrgabekova – Financial Director of JSC NC KazMunaiGas;

Yerzhan Zhangaulov – Head of legal service of JSC NC KazMunaiGas

Abat Nurseitov – CEO, Chairman of the KMG EP Management Board;

Philip Dayer – Independent Non-Executive Director;

Edward Walshe – Independent Non-Executive Director.

Alastair Ferguson – Independent Non-Executive Director.



KMG EP: Kairbek Yeleusinov Elected to Management Board

Thursday, October 10th, 2013

JSC KazMunaiGas Exploration Production  announces that on 4 October 2013 at the meeting of the Board of Directors of KMG
EP Deputy General Director for Production Kairbek Yeleusinov was elected as member of the Management Board of the Company.

As reported earlier, Bakhyt Imanbayev, Deputy General Director for Production, Member of the Management Board, has resigned from his position on 28 September 2013




2014

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