JSC KazMunaiGas Exploration Production 1Q 2015 Financial Results
Astana, 30 April 2015. JSC KazMunaiGas Exploration Production (“KMG EP” or “the Company”) announces its condensed consolidated interim financial statements for the three months ended 31 March 2015.
Revenue in the first three months of 2015 was 117bn Tenge (US$632m)[1], which is 47% lower compared with the same period of 2014. The lower revenue was the result of a 50% decline in Brent price from US$108.2 per bbl in 1Q2014 to US$53.9 per bbl in 1Q2015 and a 53% decline in average domestic realized price from 48 th. Tenge per tonne in 1Q2014 to 23 th. Tenge per tonne in 1Q2015.
Production expenses in the first three months of 2015 were 58bn Tenge (US$314m), a 32% increase compared with the same period of 2014 mainly due to increased employee benefit expenses.
Net profit for the first three months of 2015 was 1.6bn Tenge (US$9m) compared with 123bn Tenge (US$727m) in the same period of 2014. A decline in net profit in 1Q2015 was largely due to lower revenue and lower foreign exchange gain.
The net cash position[2] as at 31 March 2015 amounted to 696bn Tenge (US$3.8bn) compared with 727bn Tenge (US$4.0bn) as at 31 December 2014.
Production Highlights
KMG EP, including its stakes in Kazgermunai (KGM), CCEL (CCEL) and PetroKazakhstan Inc. (PKI), produced 3,037 thousand tonnes of crude oil (250 kbopd) for the first three months of 2015, slightly less than in the same period of 2014.
Ozenmunaigas JSC (OMG) production increased by 3% to 1,339 thousand tonnes (110 kbopd) in comparison to the same period of 2014, largely due to a higher level of production in the beginning of the year, drilling new wells ahead of plan and conducting geological and technical works to restore production at existing wells. OMG production in 1Q2015 is 2% higher than planned largely due to ahead of plan production drilling. Embamunaigas JSC (EMG) produced 682 thousand tonnes (56 kbopd), similar to the same period in 2014. At OMG and EMG, total volume of oil production was 2,021 thousand tonnes (166 kbopd), a 2% increase in comparison with the same period in 2014.
The Company’s share in production from CCEL, KGM and PKI for the first quarter of 2015 amounted to 1,016 thousand tonnes (84 kbopd) which is 4% less than the same period in 2014, due to the natural decline of production by 11% in PKI and by 3% in KGM, in line with production plan for 2015.
Crude oil and oil products sales
In the first quarter of 2015, the Company’s combined export sales from OMG and EMG were 1,441 thousand tonnes (116 kbopd) or 71% of the total oil sales volumes. Domestic sales amounted to 562 thousand tonnes (45 kbopd) of which 505 thousand tonnes (41 kbopd) were supplied to the Atyrau Refinery from OMG and EMG; 40 thousand tonnes (3 kbopd) were supplied to the Pavlodar Refinery from EMG and 17 thousand tonnes (1 kbopd) of oil products were sold after processing. Additionally, 20 thousand tonnes (2 kbopd) were shipped to Russia to fulfill obligations under the counter-oil supply agreement between the Government of Kazakhstan and the Russian Government.
The Company’s share in the sales from CCEL, KGM and PKI was 991 thousand tonnes of crude oil (82 kbopd), including 493 thousand tonnes (40 kbopd) shipped to export, which is 50% of the total sales volumes. The domestic sales volume was 498 thousand tonnes (42 kbopd) of which 321 thousand tonnes (28 kbopd) were supplied to Pavlodar Petrochemical Plant, 117 thousand tonnes (10 kbopd) were supplied to Shymkent Refinery, 37 thousand tonnes (2.7 kbopd) were supplied to Atyrau Refinery and 22 thousand tonnes (1.7 kbopd) to Aktau Bitumen Plant.
Net Profit for the Period
Net profit in the first three months of 2015 was 1.6bn Tenge (US$9m) compared with 123bn Tenge (US$727m) in the same period of 2014. A decline in net profit in 1Q2015 is largely due to lower revenue and lower foreign exchange gain.
Revenue
The Company’s revenue in the first three months of 2015 was 117bn Tenge (US$632m), which is 47% lower compared with the same period of 2014. This is due to a 50% decline in Brent price from US$108.2 per bbl in 1Q2014 to US$53.9 per bbl in 1Q2015 and a 53% decline in average domestic realized price from 48 th. Tenge per tonne in 1Q2014 to 23 th. Tenge per tonne in 1Q2015. Domestic realized price in 1Q2015 was 22.4 th. tenge per tonne at the Atyrau refinery and 30.0 th. Tenge per tonne at the Pavlodar refinery but these prices have yet to be approved by the KMG EP Board.
Taxes other than on Income
Taxes, other than on income, in the first three months of 2015 were 48bn Tenge (US$262m), which is 40% lower than in the same period of 2014. This was largely due to a decline in rent tax and MET, which was partially offset by an increase in export customs duty (ECD). Decline in rent tax and MET expenses is due to a 50% lower Brent price in 1Q2015 compared with the same period of 2014. ECD rate increased from US$60 to US$80 per tonne from April 2014. From 19 March 2015 ECD rate was reduced from US$80 to US$60 per tonne.
Production Expenses
Production expenses in the first three months of 2015 were 58bn Tenge (US$314m), 32% higher than in the same period of 2014, mainly due to higher expenses for production personnel employee benefits.
Expenses for employee benefits in the first three months of 2015 increased by 58% compared with the same period of 2014. This was largely due to an indexation of salary for production personnel by 7% in January 2015, the introduction of a Unified System of Wages for production employees from April 2014 and a 10% increase in wages related to the devaluation of the Tenge from April 2014 and an increase in production bonuses from 25% to 33% for supporting production personnel from September 2014.
Expenses for employee benefits in 1Q2015 increased by 12% compared with 4Q2015 largely due to an indexation of salary for production personnel by 7% starting from January 2015.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 1Q2015 were 26bn Tenge (US$143m), which is 19% higher than in 1Q2014. This was largely due to an increase in accruals for fines and penalties, higher expenses for employee benefits and an increase in transportation expenses. In 1Q2015 additional accruals for fines and penalties were made based on the preliminary results of tax audit for 2009-2012.
Cash Flows from Operating Activities
Net cash used in operating activities in the first three months of 2015 was 27bn Tenge (US$148m) compared with net cash generated from operating activities at 98bn Tenge (US$579m) in the same period of 2014 mainly as a result of lower revenue in 1Q2015.
Capital expenditure
Capital expenditure[3] in the first three months of 2015 was 31bn Tenge (US$166m), which is 35% higher compared with the same period of 2014 as a result of ahead of plan production drilling at OMG aiming higher production level and an increase in construction expenses and investments in modernization of production facilities compared with 1Q2014 at OMG and EMG. In the first three months of 2015, 87 wells were drilled at OMG and EMG compared with the plan of 25 wells in the reported period.
Cash and Debt
Cash and cash equivalents as at 31 March 2015 amounted to 115bn Tenge (US$0.6bn) compared with 180bn Tenge (US$1.0bn) as at 31 December 2014. Other financial assets as at 31 March 2015 were 588bn Tenge (US$3.2bn) compared with 554bn Tenge (US$3.0bn) as at 31 December 2014.
As at 31 March 2015, 95% of cash and financial assets were denominated in foreign currencies and 5% were denominated in Tenge. Finance income accrued on cash, financial, and other assets in the first three months of 2015 was 6bn Tenge (US$34m) compared with 5bn Tenge (US$31m) in 1Q2014.
Borrowings as at 31 March 2015 were 7.1bn Tenge (US$38m), compared with 7.2bn Tenge (USD$40m) as at 31 December 2014.
The net cash position[4] as at 31 March 2015 amounted to 696bn Tenge (US$3.8bn) compared with 727bn Tenge (US$4.0bn) as at 31 December 2014.
Share of results of associate and joint ventures
In the first three months of 2015, KMG EP’s share of results of associate and joint ventures was 19bn Tenge (US$100m) compared with 16bn Tenge (US$95m) in 1Q2014.
Kazgermunai
In the first three months of 2015, KMG EP recognised 8bn Tenge (US$41m) of income from its share in KGM. This amount represents 6bn Tenge (US$31m) corresponding to 50% of KGM’s net profit, with the effect of the 1.8bn Tenge (US$10m) impact from amortization of the fair value of licenses, the related deferred tax and revised effective income tax rate used to calculate deferred tax.
KGM’s net profit in US dollars in the first three months of 2015 declined by 54% compared with the same period of 2014. This was largely due to lower revenue because of a 50% decline in Brent price and 11% lower export volumes.
In the first three months of 2015 KMG EP received US$25m as dividends from KGM.
PetroKazakhstan Inc.
In the first three months of 2015, KMG EP recognised 2.7bn Tenge (US$15m) of loss from its share in PKI. This amount represents 1.2bn Tenge (US$6m) corresponding to 33% of PKI’s net loss, net of the 1.5bn Tenge (US$8m) effect of amortization of the fair value of the licenses.
In the first three months of 2015, PKI’s net loss in US dollars was US$20m compared with net profit of US$165m in the same period of 2014, which was largely due to a 12% decline in sales volumes, reallocation of export volumes to the domestic markets and lower average Brent price and domestic prices.
CCEL
As of 31 March 2015, the Company had 19.5bn Tenge (US$105m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 0.7bn Tenge (US$3.6m) of interest income in the first three months of 2015 related to the US$26.87m annual priority return from CCEL.
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The condensed consolidated interim financial statements for the three months ended March 31, 2015, the notes thereto, and the operating and financial review for the period is available on the Company’s website (www.kmgep.kz).