JSC KazMunaiGas Exploration Production (“KMG EP”) announces its consolidated financial results for the year ended 31 December 2017.

Revenue in 2017 was up 32% year-on-year at 956bn Tenge (US$2,933m). This was largely a result of a 24% increase in the price of Brent, a higher share of export sales and an improved oil products price environment, partially offset by a 5% decrease in the average Tenge – US dollar exchange rate.
Net profit in 2017 was 195bn Tenge (US$599m) and net cash generated from operating activities was 218bn Tenge (US$667m).
Net cash position as at 31 December 2017 was 1,339bn Tenge (US$4.0bn) compared to 1,172bn Tenge (US$3.5bn) as at December 31, 2016.

Production

KMG EP, including its stakes in Kazgermunai (“KGM”), Karazhanbasmunai (“CCEL”) and PetroKazakhstan Inc. (“PKI”), produced 11,868 thousand tonnes of crude oil (241 kbopd) for 2017, a 2% decrease over 2016.

Ozenmunaigas JSC (“OMG”) produced 5,480 thousand tonnes (111kbopd), a 1% decrease as compared to 2016 mainly due to lower level of production from the existing well stock. Embamunaigas JSC (“EMG”) produced 2,840 thousand tonnes (57kbopd), a 0.3% increase as compared to 2016. The total volume of oil OMG and EMG produced was 8,320 thousand tonnes (168kbopd), a 1% decrease compared to production for 2016.

The Company’s share in production from KGM, CCEL, and PKI for 2017 amounted to 3,548 thousand tonnes of crude oil (73kbopd), 6% less than in 2016. This was mainly driven by the natural decline in oil production at PKI and KGM.

Crude oil supplies and sales of oil products

In 2017, the Company’s combined sales from OMG and EMG were 8,233 thousand tonnes (163kbopd). Of these crude oil sales, 5,700 thousand tonnes (113kbopd) were exported and 2,533 thousand tonnes (50kbopd) were sold to the domestic market, equivalent to 31% of the total sales volume. In 2016, the Company sold 41% of crude oil in the domestic market.

Out of 2,533 thousand tonnes (50 kbopd) of crude oil supplied by OMG and EMG to the domestic market, 1,909 thousand tonnes (38 kbopd) were supplied to Atyrau Refinery and 624 thousand tonnes (12 kbopd) were supplied to Pavlodar Refinery.

Under the independent oil processing scheme, sales of oil products in 2017 were 2,388 thousand tonnes, a 3% increase of 2,324 thousand tonnes from 2016.

The Company’s share in the sales from KGM, CCEL, and PKI amounted to 3,414 thousand tonnes of crude oil (70 kbopd). Of this, 1,443 thousand tonnes (28 kbopd) were exported with the remaining 1,971 thousand tonnes (42 kbopd) supplied to the domestic market, equivalent to 58% of total sales volume. In 2016, KGM, CCEL and PKI combined to sell 50% of total sales to the domestic market.

Net Profit for the Period

Net profit in 2017 was 195bn Tenge (US$599m), compared to 132bn Tenge (US$385m) in 2016. The increase in net profit was due to higher revenue resulting from a 24% rise in the Brent price, an increased share of export sales and an increase in the share of results of associate and joint ventures, partially offset by an increase of taxes other than on income, production expenses and selling, general and administrative expenses.

Revenue

The Company’s revenue in 2017 was 956bn Tenge (US$2,933m), up 32% compared to 2016. This increase is the result of a 24% rise in the Brent price, an increased share of export sales and an improved oil products price environment, which was partially offset by a 5% decrease in the average Tenge – US dollar exchange rate.

Net revenue achieved from the sale of refined oil products (net of all processing and marketing costs) in 2017 was 56,305 Tenge per tonne at ANPZ and 61,292 Tenge per tonne at PNHZ. Between April and December 2016, net revenue was 42,366 Tenge per tonne and 51,743 Tenge per tonne for ANPZ and PNHZ, respectively.

Net revenue in 4Q2017 was 60,612 Tenge per Tonne at ANPZ and 62,665 Tenge per Tonne at PNHZ compared with 48,308 Tenge per Tonne and 54,569 Tenge per tonne, respectively in 4Q2016.

Production Expenses

Production expenses in 2017 were 318bn Tenge (US$977m), up 16% compared to 2016. This was mainly due to an 8% increase in employee benefit expenses, a recognition of reserve for environmental remediation obligations, higher repair and maintenance expenses and increase in processing expenses, partially offset by a change in crude oil balance.  

Employee benefit expenses were up by 8% mainly due a 7% salary indexation of production units’ personnel since January 2017.

Estimate of environmental remediation obligations increased due to recognition of an additional reserve by the Company for the removal of historical contaminations at OMG and EMG in an amount of 8.9bn Tenge in 3Q2017.

Repair and maintenance expenses were up due to an increased number of well servicing performed by third parties and a higher volume and price of hydraulic fracturing works at OMG.

As announced, the processing fee at ANPZ increased from 20,501 Tenge per tonne to 24,512 Tenge from April 1, 2017 and at PNHZ from 14,895 Tenge per tonne to 16,417 Tenge from August 1, 2017.

Capital expenditures

Capital expenditures in 2017 totaled 111bn Tenge (US$341m), down 3% compared to 2016. This was primarily due to a decrease in capital expenditures directed towards the construction and modernization of production facilities, which was partially offset by an increase in purchases of fixed assets and higher expenses related to production and exploration drilling.

Cash Flows from Operating Activities

Net cash generated from operating activities in 2017 was 218bn Tenge (US$667m) compared to 159bn Tenge (US$466m) in 2016.

Increase in the net cash generated from operating activities was mainly due to the improved oil price environment, higher level of export sales, continued success in processing scheme, return of VAT in the amount of 30.1bn Tenge in 2017 and recovery of previously made CIT, EPT and MET tax prepayments in the amount of 27.1bn Tenge, which was partially offset by an increase of taxes other than on income, production expenses and selling, general and administrative expenses.

Net cash

The net cash position as at December 31, 2017 was 1,339bn Tenge (US$4.0bn), representing a 167bn Tenge (US$512m) increase over the net cash position of 1,172bn Tenge (US$3.5bn) as at December 31, 2016. 98% of cash and financial assets were denominated in foreign currencies (predominantly US dollars) and 2% were denominated in Tenge.

Finance income accrued on cash, financial, and other assets in 2017 totaled 29.8bn Tenge (US$91m), compared to 33.0bn Tenge (US$88m) in 2016.

Share of results of associate and joint ventures

In 2017, KMG EP reported a profit of 20.4bn Tenge (US$63m) in its share of results of associate and joint ventures, compared to a loss of 12.6bn Tenge (US$37m) in 2016.

Kazgermunai
In 2017, KMG EP recognized 19.2bn Tenge (US$59m) income from its share in KGM compared to a profit of 4.3bn Tenge (US$13m) in 2016. This amount represents the Company’s 50% share in KGM’s net profit, which amounts to 22.2bn Tenge (US$68m) adjusted for 3.0bn Tenge (US$9m) amortization of the fair value of licenses and the related deferred tax benefit.

KGM’s revenue in US dollars in 2017 increased by 26% compared to 2016. This was largely driven by a 24% increase in Brent price and higher domestic prices, which partially offset a decrease in sales volumes resulting from lower production levels.

KGM made a dividend payment of US$124m to KMG EP in 2017, constituting US$122m for the year of 2016 and US$2m for past periods.

PetroKazakhstan
In 2017, KMG EP recognized a profit of 3.1bn Tenge (US$10m) from its share in PKI, compared to a loss of 15.3bn Tenge (US$45m) in 2016. This amount represents the Company’s 33% share in PKI’s net profit, which amounted to 10.8bn Tenge (US$33m), adjusted for the 7.6bn Tenge (US$23m) amortization of the fair value of licenses.

PKI’s revenue in US dollars in 2017 increased by 15% compared to 2016. This was largely driven by a 24% increase in Brent price and higher domestic prices, which partially offset a decrease in sales volumes resulting from lower production levels.

PKI made a dividend payment of US$62.7m (after withholding tax) to KMG EP in 2017, constituting US$31.35m for the year of 2016 and US$31.35m for the year of 2017.

CCEL
As of 31 December 2017, the Company had 38.0bn Tenge (US$114m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 3.8bn Tenge (US$12m) of finance income in 2017, which is a part of the annual priority return in an amount of US$26.9m from CCEL.