KazMunaiGas Exploration Production: To Increase Domestic Pricing Policy

JSC KazMunaiGas Exploration Production updates on domestic pricing for 2015 and 2016.

Until 2015, the Company supplied oil to the domestic market in line with the volumes outlined in  the IPO Prospectus (2006-2010: up to 1.9 million tonnes; 2011-2015: in line with volumes  outlined in the Company’s business plan, which was approved by the Company’s Board of  Directors). The IPO Prospectus states that the domestic price equals to cost plus 3%, whereby the  cost equals cost of producing one tonne of crude oil, plus the cost of transportation, plus general  and administrative costs. Between 2012 and 2014, KMG EP supplied oil to the domestic market  at a margin to cost of production above 3%.

During 2015, JSC “KazMunaiGas – Refining and Marketing” (KMG RM) made payments at an  average price per annum of 21,288 Tenge per tonne at the Atyrau refinery (ANPZ) and 31,923  Tenge per tonne at the Pavlodar refinery (PNHZ). These prices were not approved by KMG EP’s  Independent Directors. Following extensive negotiations between KMG EP’s management and  at 37,000 Tenge per Tonne at both ANPZ and PNHZ. This price is approximately equal to the  estimate of cost plus 3%, in accordance with the terms of the Relationship Agreement that KMG  EP and KMG NC entered into at the time of KMG EP’s IPO.

KMG EP’s management is now negotiating the terms of domestic supplies for 2016 with KMG  RM in order to achieve the most beneficial solution. The 2016 domestic market supply volume is  budgeted at 2.4 million tonnes. The budget assumes that the price for domestic supply in 2016 is  of 17,100 Tenge per tonne at ANPZ and 28,802 Tenge per tonne at PNHZ. The prices for 2016  have not yet been approved by the Company’s Independent Directors.

The Relationship Agreement

The Company’s Independent Directors and KMG NC continue to discuss NC’s proposal to amend the Relationship Agreement. A further announcement will be made once discussions have concluded.