JSC KazMunaiGas Exploration Production 2012 Financial Results
JSC KazMunaiGas Exploration Production announces its consolidated financial statements for the year ended December 31, 2012.
- Revenues of 797bn tenge (US$5,346m)1, which is 11% higher than 2011 mainly due to higher export volumes and higher domestic prices.
- Net profit of 161bn tenge (US$1,079m) and earnings per share of 2,320 tenge (US$2.59 per GDR), a decrease of 23% and 21%, respectively, compared to 2011.
- The average price of Brent in 2012 was US$112 per barrel, almost same as in 2011.
Production Highlights
In 2012 KMG EP produced 12,191 thousand tonnes of crude oil (247 kbopd), including the Company’s stakes in Kazgermunai (KGM), CCEL (Karazhanbasmunai, CCEL) and PetroKazakhstan Inc. (PKI) which is 1% less than in 2011.
JSC Uzenmunaigas (UMG) produced 4,950 thousand tonnes (100 kbopd), which is 132 thousand tonnes less than in 2011. JSC Embamunaigas (EMG) produced 2,816 thousand tonnes (57 kbopd), which is similar to the volume produced in 2011. The total volume of oil produced at UMG and EMG is 7,766 thousand tonnes (156 kbopd).
The Company’s share in the production from KGM, CCEL and PKI for 2012 amounted to 4,425 thousand tonnes of crude oil (91 kbopd), approximately equivalent to 2011.
Crude oil sales
In 2012 the Company’s export and domestic sales from UMG and EMG were 6,078 thousand tonnes (122 kbopd) and 1,637 thousand tonnes (33 kbopd) respectively.
The Company’s share of sales from KGM, CCEL and PKI was 4,412 thousand tonnes of crude oil (90 kbopd), including 3,430 thousand tonnes (70 kbopd) or 78% of total sales supplied to export markets.
Net Profit for the Period
Profit after tax (net income) in 2012 was 161bn tenge (US$1,079m), representing a 23% decrease compared to 2011, mainly due to impairment of assets, higher income taxes, higher employee costs and lower share of income from associates and joint ventures, partially offset by the benefits of higher export volumes and higher prices for domestic supply.
Revenues
The Company’s revenues in 2012 amounted to 797bn tenge (US$5,346m), which is 11% higher than in 2011. This resulted from a 6% increase in export volumes and a 39% increase in domestic selling prices, compared to 2011.
Taxes other than on Income
Taxes, other than on income, in 2012 were 274bn tenge (US$1,839m), which is 3% lower compared to 2011, mainly due to non-repeated expense of 15bn tenge (US$105m) for export duty charge in 2011 and lower expenses from mineral extraction tax. This was almost fully offset by increased rent tax costs, which resulted from higher export volumes.
Production Expenses
Production expenses in 2012 were 140bn tenge (US$941m), which is 19% higher than in 2011. A significant part of the production cost increase is due to higher expenses for employee costs, energy charges and a change in crude oil balance. These were partially offset by a reduction in repair and maintenance expenses due to a decrease in the number of repaired wells and of hydrofracturing in line with the production programme, as well as adverse weather conditions at the beginning of the year.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 2012 were 93bn tenge (US$624m), which is 6% lower than in 2011. The decrease is mainly due to lower expenses for penalties and fines and lower management fees to National Company Kazmunaigas from 8.3bn tenge (US$57m) to 4.0bn tenge (US$27m), partially offset by higher transportation expenses as a result of higher export volumes.
Expenses of two new service company established in beginning of 2012
Operating expenses of two new transportation and drilling companies were 10.9bn tenge (US$73m) in 2012. Part of payments for employees not involved in the core business of these two companies amounting to 2.6bn tenge (US$17m) were classified as selling, general and administrative expenses. The remaining expenses were classified as production expenses.
Capital expenditures of these two companies amounted to 14.2bn tenge (US$95m) in 2012.
Fines and penalties
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, which commenced in October 2011, the tax authorities estimated additional taxes for the Company of 16.9bn tenge, including 5.8bn tenge of tax, 7.2bn tenge of administrative fines and 4.0bn tenge of late payment interest. The Company is currently appealing to the Tax Committee of the Ministry of Finance. (For more details, please see note 26 in consolidated financial statements).
Cash Flows from Operating Activities
Operating cash flow in 2012 was 155bn tenge (US$1,039m), which is 4% higher than in 2011. Higher revenues were almost fully offset by increased income tax expenses and changes in working capital.
Capex
Purchases of property, plant and equipment and intangible assets (as per Cash Flow Statement) in 2012 were 108bn tenge (US$725m), which is 3% higher than in 2011. Of this amount, 8.3bn tenge (US$56m) was spent on exploration drilling.
Cash distribution to stockholders
On 30 May, 2012 KMG EP declared 91bn tenge (US$615m) as dividends for the year 2011. The approved dividend was the highest since IPO in 2006.
In 2012, the Company spent around 36bn tenge (US$242m) on the buy back of 15,630 common shares and 13,106,856 global depositary receipts.
Cash and Debt
Cash and cash equivalents as at December 31, 2012 amounted to 155bn tenge (US$1.0bn) compared to 207bn tenge (US$1.4bn) as at December 31, 2011.
Other financial assets (current and non-current) at December 31, 2012 were 552bn tenge (US$3.7bn) compared to 511bn tenge (US$3.4bn) as at December 31, 2011. Other financial assets include the NC KMG Bond, deposits and additional financial instruments.
As at December 31, 2012 the outstanding amount of the Bond was 134bn tenge (US$891m).
78% of cash and financial assets (including the Bond) as at December 31, 2012 was denominated in foreign currencies and 22% was denominated in tenge. Financial income accrued on cash and financial assets (including the Bond) in 2012 was 34.5bn tenge (US$232m).
Borrowings as at December 31, 2012 were 7.3bn tenge (US$48m), compared to 88bn tenge (US$593m) as at December 31, 2011. In the third quarter of 2012, the Company fully repaid its non-recourse debt to KMG PKI Finance B.V. related to the acquisition of the 33% interest in PKI in December of 2009.
The net cash position2 as at 31 December 2012 was 699bn tenge (US$4.6bn) compared to 629bn tenge (US$4.2bn) as at 31 December 2011.
Income from associates and joint ventures
In 2012, KMG EP’s share in income from associates and joint ventures was 67bn tenge (US$452m), 20% lower compared to 2011. This was mainly driven by redistribution of selling volumes from export to domestic and higher income tax expenses.
Kazgermunai
In 2012 KMG EP recognised 33bn tenge (US$224m) of income from its share in Kazgermunai (KGM). KGM’s net income decreased by 3% in 2012 compared to 2011, mainly due to redistribution of selling volumes from export to domestic and higher income tax expenses.
PetroKazakhstan Inc.
In 2012 KMG EP recognised 34bn tenge (US$226m) of income from its share in PetroKazakhstan Inc. (PKI). PKI’s net income decreased by 25% in 2012 compared to 2011. This was mainly due tothe decrease in the volume of oil purchased from third parties in order to fulfill obligations to supply to domestic market (replacement agreement) from 1,301 thousand tonnes in 2011 to 211 thousand tonnes in 2012 which led to a decline in export volumes and higher income tax expenses.
CCEL
As of December 31, 2012 the Company has recognised 18,2bn tenge (US$121m) as a receivable from CCEL, a jointly controlled entity with CITIC Group. The Company has accrued 2.7bn tenge (US$18m) of interest income in 2012 related to the US$26.87m annual priority return from CCEL. The remaining US$8.6m were considered as a reduction of accounts receivable from CCEL.
Impairment of assets
As a result of level of production being materially lower than planned in the last two years and the increasing levels of operational and capital expenditure management of the Company has carried out an assessment of the recoverable amount of JSC “OzenMunaiGas”. The result of this assessment indicated that the carrying value of JSC “OzenMunaigas” assets exceeded the estimated recoverable amount by 75 billion Tenge (around US$500m) resulting in an impairment charge during 2012 (please see notes 6 and 20 of consolidated financial statements).
Management believes that this impairment charge on JSC “OzenMunaiGas” assets could be reversed in future periods if actual production over the next years exceeds expectations used in this impairment assessment.
New appointment
In February 2013, Bakhyt Imanbayev was appointed as a Deputy General Director for Production and elected as a member of the Management Board for the term of Board competence.