KazMunaiGaz Q1 Financial Results
KazMunaiGas Exploration Production
Q1 2013 Financial Results
JSC KazMunaiGas Exploration Production announces its condensed consolidated interim financial statements for the three months ended March 31, 2013.
Revenues decreased by 2% to 202bn Tenge (US$1,342m)1 compared to the same period of 2012 mainly on lower oil prices partially offset by higher domestic prices. The average price of Brent in the first three months of 2013 was 5% lower than in the same period of 2012, down from US$119 per barrel to US$113 per barrel.
Net loss amounted to 0.7bn Tenge (US$4m) and loss per share – 10 Tenge (US$0.01 per GDR) mainly due to additional impairment charge.
Production expenses amounted to 43bn Tenge (US$284m), which is 36% higher compared to the same period of 2012. A significant part of the production cost increase is due to increased expenses for employee benefits, energy and repairs and maintenance.
Production Highlights
In the first three months of 2013 KMG EP produced 3,002 thousand tonnes of crude oil (247 kbopd), including the Company’s stakes in Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI) which is 1% less than in the same period of 2012.
Uzenmunaigas JSC (UMG) produced 1,237 thousand tonnes (101 kbopd), about the same as in the first quarter of 2012. Embamunaigas JSC (EMG) produced 691 thousand tonnes (56 kbopd), which is 16 thousand tonnes or 2% more than in the same period of 2012. The total volume of oil produced at UMG and EMG in the first three months of 2013 is 1,927 thousand tonnes (158 kbopd), which is 1% more than in the same period of 2012 and in accordance with production plan.
The Company’s share in the production from KGM, CCEL and PKI for the three months of 2013 amounted to 1,074 thousand tonnes of crude oil (89 kbopd) which is 44 thousand tonnes or 4% less than in the same period of 2012 and in accordance with production plans for these companies.
Crude Oil Sales
In the first three months of 2013 the Company’s export and domestic sales from the UMG and EMG were 1,490 thousand tonnes (122 kbopd) and 505 thousand tonnes (41 kbopd) respectively.
The Company’s share in the sales from KGM, CCEL and PKI was 1,088 thousand tonnes of crude oil (90 kbopd), including 966 thousand tonnes (80 kbopd) or 89% supplied to export markets.
1 Amounts shown in US dollars (“US$” or “$”) have been translated solely for the convenience of the reader at the average rate over the applicable period for information derived from the consolidated statements of income and consolidated statements of cash flows and the end of the period rate for information derived from the consolidated balance sheets (average rates for 1Q13 and 1Q12 was 150.67 and 148.13 Tenge/US$, respectively; period-end rates at March 31, 2013 and December 31, 2012 was 150.84 and 150.74 Tenge/US$, respectively).
Net Profit (Loss) for the Period
Net loss in the first three months of 2013 was 0.7bn Tenge (US$4m), mainly due to additional impairment charge as well as lower revenues, lower income from associates and joint ventures and higher production expenses.
Revenues
The Company’s revenues in the first three months of 2013 decreased by 2% compared to the same period of 2012, and amounted to 202bn Tenge (US$1,342m). This was mainly due to a 5% lower oil price, which was partially offset by higher domestic price and supply volume. The volume of export sales was about the same as in the first quarter of 2012.
Taxes other than on Income
Taxes, other than on income, in the first three months of 2013 were 76bn Tenge (US$506m), which is 1% higher compared to the same period of 2012. The growth is primarily due to 4.4bn Tenge (US$29m) increase in environmental tax as a result of the tax audit for 2010-2011 (the main issue being an excess placement of waste), which was partially offset by decrease in mineral extraction tax and rent tax due to lower oil prices.
Production Expenses
Production expenses in the first three months of 2013 were 43bn Tenge (US$284m), which is 36% higher compared to the same period of 2012 mainly due to increased expenses for employee benefits, energy and repairs and maintenance.
Employee benefits expenses in the first three months of 2013 increased by 22% compared to the same period of 2012 mainly due to an indexation of salary for production personnel by 7% in January 2013, and reclassification of expenses of two companies (UBR and UTTiOS) from administrative to production expenses.
Energy expenses increased by 46% compared to the first quarter of 2012 mainly due to the increase in tariffs for electricity consumption and transportation. Repairs and maintenance expenses increased by 61% mainly due to the increased number of well repair operations from 154 to 268 compared to the first quarter of 2012 in accordance with the production programme.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the first three months of 2013 were 22bn Tenge (US$146m), which is 12% higher compared to the same period of 2012, mainly due to increase in transportation expenses, fines and penalties, partially offset by decreased expenses on employee benefits due above mentioned reclassification of the expenses from SG&A to production expenses.
The increase in transportation expenses is due to increase of Kaztransoil transportation tariffs in December 2012 by approximately 40%. The increase in fines and penalties is due to the fine accrued for environmental tax in the amount of 1.3 billion Tenge (US$9m) as a result of the tax audit for 2010-2011.
Exploration Expenses
Exploration expenses amounted to 6.6bn Tenge (US$44m) in the first three months of 2013
compared to 1.3bn Tenge (US$9m) in the same period of 2012. The Company recognized dry well expenses in the amount of 6.1bn Tenge (US$41m) related to the exploratory well drilled on the White Bear prospect in North Sea.
Additional Impairment Charge
Management of the Company has updated the formal assessment of the recoverable amount of JSC “Ozenmunaigas”, and made an additional impairment charge of 56bn Tenge (about US$370) in the first three months of 2013. The additional impairment charge relates primarily to the increase in export customs duty that occurred on 12 April 2013.
Taxation
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 19 of consolidated financial statements).
Ozenmunaigas Environmental Audit
On January 25, 2013 JSC “Ozenmunaigas” received a notification from the Department of Ecology of Mangistau Region to pay the state budget 59.6bn Tenge in fines for environmental damage. The total amount was determined as a result of an inspection that covered the period from 27 August 2011 to 12 November 2012.
JSC “Ozenmunaigas” disagreed with this notification and filed an appeal to the Specialized Interregional Economic Court of Mangistau Region stating that the act was illegal and that calculations were not reliable. The Company believes that it can successfully appeal the results of the inspection and the request for payment for damages to the environment, and therefore no provision has been accrued for this matter as at March 31, 2013.
Cash Flows from Operating Activities
Operating cash flow in the first three months of 2013 was 30bn Tenge (US$200m), which is 55% lower compared to the same period of 2012, mainly due to lower revenue, higher production expenses, higher income tax paid and change in working capital.
Capex
Purchases of property, plant and equipment and intangible assets (as per Cash Flow Statement) in the first three months of 2013 were 37bn Tenge (US$245m), which is 202% higher compared to the same period of 2012.
Cash Distribution to Stockholders
On 18 April, 2013 The Board of Directors of KMG EP has recommended a dividend with regards to 2012 earnings per ordinary and preferred share of KMG EP of 1,619 Tenge (including taxes withheld in accordance with the legislation of Kazakhstan) which is equivalent to about 110 billion
4
tenge2 (approx. US$740 million). This will be voted upon at the AGM.
Cash and Debt
Cash and cash equivalents as at 31 March 2013 amounted to 174bn Tenge (US$1.2bn) compared to 155bn Tenge (US$1.0bn) as at 31 December 2012.
Other financial assets (current and non-current) at 31 March 2013 were 528bn Tenge (US$3.5bn) compared to 552bn Tenge (US$3.7bn) as at 31 December 2012. Other financial assets include the NC KMG Bond and deposits. As at 31 March 2013 the outstanding amount of the Bond was 137bn Tenge (US$0.9bn).
81% of cash and financial assets (including the Bond) as at 31 March 2013 were denominated in foreign currencies and 19% were denominated in Tenge. Finance income accrued on cash and financial assets (including the Bond) in the first three months of 2013 was 5.8bn Tenge (US$39m).
Borrowings as at 31 March 2013 were 7.2bn Tenge (US$47m), compared to 7.3bn Tenge (USD$48m) as at 31 December 2012.
The net cash position3 at 31 March 2013 amounted to 694bn Tenge (US$4.6bn) compared to 699bn Tenge (US$4.6bn) as at 31 December 2012.
Income from associates and joint ventures
In the first three months of 2013 KMG EP’s share of results of associates and joint ventures was 21bn Tenge (US$137m) compared to 26bn Tenge (US$174m) in the same period of 2012. The financial results of associates and joint ventures in the first three months of 2013 were primarily driven by the lower oil price compared to the same period of 2012, lower sales volumes and increased operating expenses.
The condensed consolidated interim financial statements for the three months ended March 31, 2013, the notes thereto, and the operating and financial review for the period is available on the Company’s website (www.kmgep.kz).