KazMunaiGas announces 1Q2018 financial results

JSC KazMunaiGas Exploration Production (“KMG EP” or “the Company”) announces its consolidated interim financial results for the first three months ended 31 March 2018.

• Revenue for the first quarter of 2018 was up 27% year-on-year at 270bn Tenge (US$837m[1]). This was largely a result of a 24% increase in the price of Brent and an increase in the price of oil products.
• Net profit for the first quarter of 2018 was 21bn Tenge (US$63m) compared to 2bn Tenge (US$7m) in the same period of 2017. Net cash generated from operating activities was 57bn Tenge (US$177m), up 3% compared to the same period of 2017.
• Net cash position[2] as at 31 March 2018 was 703bn Tenge (US$2.2bn) compared to 1,339bn Tenge (US$4.0bn) as at 31 December 2017.
• As a result of the Tender Offer and the Share Offer, KMG EP and JSC “National Company “KazMunayGas” together now hold 99.5% of common shares (including common shares represented by GDRs) in issue.

Production

KMG EP, including its stakes in Kazgermunai (“KGM”), Karazhanbasmunai (“CCEL”) and PetroKazakhstan Inc. (“PKI”), produced 2,898 thousand tonnes of crude oil (238 kbopd) for the first quarter of 2018, at the same level compared to the same period of 2017.

In the first quarter of 2018, Ozenmunaigas JSC (“OMG”) produced 1,350 thousand tonnes (110 kbopd), a 1% increase as compared to the first quarter of 2017. Embamunaigas JSC (“EMG”) produced 695 thousand tonnes (57 kbopd), a 1% increase on the same period of 2017. The total oil production volume of OMG and EMG amounted to 2,046 thousand tonnes (167 kbopd), a 1% increase compared to the same period of 2017.

The Company’s share in production from KGM, CCEL and PKI for the first quarter of 2018 amounted to 852 thousand tonnes (71 kbopd) of crude oil, which is 3% less than in the first quarter of 2017. This was mainly driven by the natural decline in oil production at PKI and KGM.

Crude oil supplies and sales of oil products

In the first quarter of 2018, the Company’s combined sales from OMG and EMG were 2,002 thousand tonnes (161 kbopd). Of these crude oil sales, 1,265 thousand tonnes (102 kbopd) were exported and 737 thousand tonnes (59 kbopd) were sold to the domestic market, equivalent to 37% of the total sales volume. In the same period of 2017, the Company sold 34% of crude oil in the domestic market.

Out of 737 thousand tonnes (59 kbopd) of crude oil supplied by OMG and EMG to the domestic market, 535 thousand tonnes (43 kbopd) were supplied to Atyrau Refinery (ANPZ) and 202 thousand tonnes (16 kbopd) were supplied to Pavlodar Refinery (PNHZ).

Under the independent oil-processing scheme, sales of oil products for the first quarter of 2018 were 669 thousand tonnes, a 5% increase on the same period of 2017.

The Company’s share in the sales from KGM, CCEL, and PKI amounted to 834 thousand tonnes (69 kbopd) of crude oil. Of this, 318 thousand tonnes (24 kbopd) were exported with the remaining 515 thousand tonnes (44 kbopd) supplied to the domestic market, equivalent to 62% of total sales volume. In the first quarter of 2017, sales volume of KGM, CCEL and PKI equaled to 57% of total supplied to the domestic market.

Net Profit for the Period

Net profit for the first quarter of 2018 was 21bn Tenge (US$63m), compared to 2bn Tenge (US$7m) in the same period of 2017. The increase in net profit was due to higher revenue resulting from a 24% rise in the Brent price, partially offset by an increase of taxes other than on income, production expenses and selling, general and administrative expenses.

In the first three months of 2018, the Company recorded a foreign exchange loss of 44bn Tenge (US$136m) due to a 4% reduction of the Tenge – US dollar exchange rate (as at 31 March 2018 compared with the exchange rate as at 31 December 2017).

Revenue

The Company’s revenue for the first quarter of 2018 was 270bn Tenge (US$837m), up 27% compared to the same period of 2017. This increase is the result of a 24% rise in the price of Brent and an increase in the price of oil products, which was partially offset by a lower share of export sales.

Net revenue achieved from the sale of refined oil products (net of all processing and marketing costs[3^]) in the first quarter of 2018 was 60,428 Tenge per tonne at ANPZ and 78,131 Tenge per tonne at PNHZ. In the same period of 2017, net revenue was 57,196 Tenge per tonne and 56,596 Tenge per tonne for ANPZ and PNHZ, respectively.

Production Expenses

Production expenses in the first quarter of 2018 were 83bn Tenge (US$257m), up 19% compared to the same period of 2017. This was mainly due to an increase in processing expenses, higher repair and maintenance expenses, as well as a 5% increase in employee benefit expenses.

Starting from 1 January 2018, the processing fee increased from 24,512 Tenge per tonne to 31,473 Tenge per tonne at ANPZ and from 16,417 Tenge per tonne to 17,250 Tenge per tonne at PNHZ, which is in line with the approved budget. In the first quarter of 2017, the processing fee was 20,501 Tenge per tonne at ANPZ and 14,895 Tenge per tonne at PNHZ.

Repair and maintenance expenses were up due to an increased number of well workovers performed by third parties.

Employee benefit expenses were up by 5% mainly due to a 7% salary indexation of production units’ personnel since January 2018.

Selling, General and Administrative Expenses

Selling, general and administrative expenses in the first three months of 2018 amounted to 32bn Tenge (US$99m), up 26% compared to the same period of 2017. This was largely a result of reversal of accruals for fines and penalties related to the 2009-2012 tax audit after reduction of the tax charge by the tax authorities in the first quarter of 2017.

Taxes other than on Income

Taxes, other than on income, in the first quarter of 2018 were 88bn Tenge (US$272m), up 34% compared to the same period of 2017. This was largely due to an increase in the rent tax, Export Customs Duty (ECD), Mineral Extraction Tax (MET) and other taxes. This was a result of a rise in the average price of Brent.

Rent tax in the first three months of 2018 averaged at 22,334 Tenge per tonne of export volume versus 13,801 Tenge per tonne of export volume in the same period of 2017. This was driven by a higher rent tax rate, which correlates with the price of Brent.

The average ECD rate in the first quarter of 2018 was at US$61 per tonne of crude oil compared to US$49 per tonne of crude oil in the first quarter of 2017.

 Capital expenditures

Capital expenditures[4] for the first three months of 2018 totaled 25bn Tenge (US$79m), up 43% from the first quarter of 2017. This was primarily due to an increase in costs relating to the acquisition of fixed assets at OMG and an increase in volumes of production and exploration drilling at EMG.

As previously announced, the Company plans capital expenditures for 2018 at the level of 142bn Tenge (US$418m[5]) compared to 111bn Tenge (US$341m) spent in 2017.

Cash Flows from Operating Activities

Net cash generated from operating activities in the first three months of 2018 was 57bn Tenge (US$177m), up 3% compared to the same period of 2017.

 Expiry of the Tender Offer and the Share Offer 

As announced, the Tender Offer by the Company to purchase its global depositary receipts (GDRs) and the Share Offer to purchase its common shares expired in March 2018, as a result of which KMG EP has repurchased a total of outstanding 135,454,910 GDRs and 336,584 common shares.  The Company has made a total payment[6] of US$1,925mn (624bn Tenge), of which US$1,904mn (617bn Tenge) was paid on the first settlement date (19 February 2018) and US$21mn (7bn Tenge) on the final settlement date (5 April 2018).

As a result, KMG EP and JSC “National Company “KazMunayGas” together now hold 99.5% of common shares (including common shares represented by GDRs) in issue. On 11 April 2018, the Company submitted applications for the delisting of GDRs and common shares from the London Stock Exchange and the Kazakhstan Stock Exchange.

 Net cash

The net cash position as at 31 March 2018 was 703bn Tenge (US$2.2bn), compared with 1,339bn Tenge (US$4.0bn) as at 31 December 2017. 96% of cash and financial assets were denominated in foreign currencies (predominantly US dollars) and 4% were denominated in Tenge.

Finance income accrued on cash, financial, and other assets for the first quarter of 2018 totaled 7bn Tenge (US$23m), which is almost at the same level as in the first quarter of 2017.

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