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

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.