14th Aug 2013 07:00
PRESS - RELEASE
JSC KazMunaiGas Exploration Production
1H 2013 financial results
Astana, 14 August 2013. JSC KazMunaiGas Exploration Production ("KMG EP" or "the Company") announces its condensed consolidated interim financial statements for the six months ended June 30, 2013.
· Revenues decreased by 4% to 384bn Tenge (US$2,544m)[1] compared to the same period of 2012, largely due to a drop of oil price and lower export volumes, which was partially offset by higher domestic price and volumes. The average price of Brent in the first six months of 2013 was 5% lower than in the same period of 2012, down from US$114 per barrel to US$108 per barrel.
· Net profit amounted to 38.8bn Tenge (US$257m), which is 68% lower than in the same period of last year, largely due to an impairment charge posted in 1Q2013. Earnings per share stood at 570 Tenge (US$0.63 per GDR). Net profit in 2Q2013 was 39.5bn Tenge (US$262m) compared to a net loss of 0.7bn Tenge (US$4m) in 1Q2013.
· Production expenses amounted to 82bn Tenge (US$546m), which is 17% 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 six months of 2013 KMG EP produced 6,093 thousand tonnes of crude oil (249kbopd), including the Company's stakes in Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI) which is 1% more than in the same period of 2012.
Ozenmunaigas JSC (OMG) produced 2,539 thousand tonnes (103kbopd), 3% more than in the same period of 2012. Embamunaigas JSC (EMG) produced 1,401 thousand tonnes (57kbopd), which is 2% more than in the same period of 2012. The total volume of oil produced at OMG and EMG in the first six months of 2013 is 3,940 thousand tonnes (160kbopd), which is 3% more than in the same period of 2012, in accordance with the production plan.
The Company's share in the production from KGM, CCEL and PKI for the six months of 2013 amounted to 2,153 thousand tonnes of crude oil (89kbopd), which is 3% less than in the same period of 2012, mainly due to a decline of PKI production by 6% as a result of natural decline of production.
Crude oil sales
In the first six months of 2013 the Company's export and domestic sales from OMG and EMG were 2,858 thousand tonnes (114kbopd) and 1,096 thousand tonnes (44kbopd), respectively.
The Company's share in the sales from KGM, CCEL and PKI was 2,197 thousand tonnes of crude oil (91kbopd), including 1,900 thousand tonnes (79kbopd) or 86% supplied to export markets.
Net Profit for the Period
Net profit in the first six months of 2013 amounted to 38.8bn Tenge (US$257m), 68% less than in the corresponding period of last year, largely due to an impairment charge posted in 1Q2013, as well as a decline of oil price on global markets, lower sales volumes to export markets, a decline in income of JVs and associates and higher production costs.
Revenues
The Company's revenues in the first six months of 2013 decreased by 4% compared to the same period of 2012, and amounted to 384bn Tenge (US$2,544m). The decline in revenues is largely due to a 5% drop of oil price on international markets and lower oil sales volumes to export markets (72% in 6M13 vs. 76% in 6M12), which was partially offset by higher domestic price and volumes.
Taxes other than on Income
Taxes, other than onincome, in the first six months of 2013 amounted to 143bn Tenge (US$949m), which is 1% lower compared to the same period of 2012, largely due to lower oil price and sales volumes to export markets, but partially offset by an increase in export customs duty on April 12, 2013 (from US$40 per tonne to US$60 per tonne) and a 4.0bn Tenge (US$26.5m) increase in environmental tax as a result of an inspection carried out by tax authorities.
Production Expenses
Production expenses in the first six months of 2013 amounted to 82bn Tenge (US$546m), which is 17% higher compared to the same period of 2012 mainly due to an increase in employee benefits, energy and repairs and maintenance.
Employee benefits expenses in the first six months of 2013 increased by 18% 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 new servicing companies from production to administrative expenses in the first half of 2012.
Energy expenses increased by 34% compared to the first half of 2012 mainly due to the increase in electricity tariffs and increase of electricity consumption. Repairs and maintenance expenses increased by 59% mainly due to the increased number of well repair operations performed by third-party service companies.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the first six months of 2013 amounted to 46bn Tenge (US$306m), which is 2% higher compared to the same period of 2012, mainly due to higher transportation expenses and partially offset by a decline in employee benefits expenses due to the abovementioned reclassification of expenses from production to SG&A expenses in the first half of 2012.
Exploration Expenses
Exploration expenses amounted to 6.9bn Tenge (US$46m) in the first six months of 2013 compared to 4.3bn Tenge (US$29m) in the same period of 2012. The Company recognized dry well expenses in the amount of 6.1bn Tenge (US$40m) in 1Q2013 related to the exploratory well drilled on the White Bear prospect in the North Sea.
Impairment of assets
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$370m) 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.
Tax Audit for 2006-2008
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 see note 19 of consolidated financial statements).
Mineral Extraction Tax
On July 2, 2013 the Tax Committee of Yessil district of Astana provided a notification to the Company of 8.8bn Tenge for discrepancies identified between data reported in the Company's Mineral Extraction Tax (MET) returns and data supplied by the Ministry of Oil and Gas of Republic of Kazakhstan for the period from 2009 to 2012. These discrepancies were caused by the fact that 2012 MET tax returns included amounts for the period when subsoil use contracts belonged to the Company (when the Company carried out its activities on the license area through its production branches), whereas the information provided by the Ministry of Oil and Gas of the Republic of Kazakhstan included production volumes of the Company and its subsidiaries JSC "Ozenmunaigas" and JSC "Embamunaigas" combined.
According to the tax authorities, the Company should have included in calculations of the MET rate for 2012 production volumes of JSC "Ozenmunaigas" and JSC "Embamunaigas" as well, even though a transfer of subsoil use contracts took place during 2012. However, based on norms stipulated in the Kazakh tax legislation the Company believes that the Company's obligation to pay MET should be calculated based upon only the period when it owned subsoil use contracts itself.
The Company disagrees with the above notification and plans to appeal it with respective government authorities. As management believes that it is more likely than not that the Company will be successful in its appeal, no provisions in relation to this matter have been made in the consolidated financial statements as at June 30, 2013.
Ozenmunaigas Environmental Audit
On January 25, 2013 JSC "Ozenmunaigas", the Company's subsidiary, received a notification from the Department of Ecology of Mangystau Region to pay the state budget 59.3bn Tenge in fines for environmental damage. The total amount was determined as a result of an inspection that covered the period from August 27, 2011 to November 12, 2012. JSC "Ozenmunaigas" disagreed with this notification and on February 26, 2013 filed an appeal to the Specialized Interregional Economic Court of Mangystau Region stating that the act was illegal and that calculations were not reliable. On March 7, 2013 the Department of Ecology of Mangystau Region filed a claim with the same Court for the forced payment of the fines.
On May 22, 2013 the Court satisfied the appeal of JSC "Ozenmunaigas" in full. The Court ruled the inspection carried out by the Department of Ecology of Mangystau Region to be invalid, and the act, instructions on corrective actions and calculations illegal. The Court rejected the claim of the Department of Ecology of Mangystau Region for the forced payment of the fines. On June 6, 2013 the Department of Ecology of Mangystau Region filed an appeal to the Judicial Panel of Appeals on Civil and Administrative Cases of Mangystau Regional Court. This appeal was rejected by the Judicial Panel of Appeals on July 9, 2013. The Company expects that the Department of Ecology of Mangystau Region will file further appeals to courts of higher authority.
The Company believes that it will continue to 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 June 30, 2013. (For more details see note 19 of consolidated financial statements).
Cash Flows from Operating Activities
Operating cash flow in the first six months of 2013 was 33bn Tenge (US$216m), which is 64% 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 six months of 2013 were 59bn Tenge (US$392m), which is 29% higher compared to the same period of 2012 mainly due to increase in number of wells drilled and construction of objects of the modernization programme.
Cash and Debt
Cash and cash equivalents as at 30 June 2013 amounted to 278bn Tenge (US$1.8bn) compared to 155bn Tenge (US$1.0bn) as at 31 December 2012.
Other financial assets (current and non-current) at 30 June 2013 were 427bn Tenge (US$2.8bn) compared to 552bn Tenge (US$3.7bn) as at 31 December 2012.
In June 2013 KMG NC fully repaid the Bond with an outstanding principal and accrued interest of 137bn Tenge (US$909m) as at March 31, 2013. KMG EP purchased the 222bn Tenge (US$ 1.5bn) NC KMG Bonds in June 2010 with a maturity date of June 24, 2013.
72% of cash and financial assets as at 30 June 2013 were denominated in foreign currencies and 28% were denominated in Tenge. Finance income accrued on cash and financial assets in the first six months of 2013 were 11.5bn Tenge (US$77m).
Borrowings as at 30 June 2013 were 7.0bn Tenge (US$46m) compared to 7.3bn Tenge (USD$48m) as at 31 December 2012.
The net cash position[2] as at 30 June 2013 amounted to 697bn 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 six months of 2013 KMG EP's share of results of associates and joint ventures was 29bn Tenge (US$193m) compared to 41bn Tenge (US$276m) in the same period of 2012. The financial results of associates and joint ventures in the first six months of 2013 were primarily affected by the lower oil price on international markets compared to the same period of 2012, lower sales volumes and increased operating expenses.
Kazgermunai
In the first six months of 2013 KMG EP recognised 14bn Tenge (US$96m) of income from its share in KGM. This amount represents 50% of KGM's net profit of 21bn Tenge (US$142m) less 7bn Tenge (US$46m) adjustments from the effect of purchase price premium amortization.
KGM's net profit decreased by 12% compared to the same period of 2012 mainly due to lower oil price, higher taxes related to higher export sales and an increase in export customs duty rate. Also, there was an increase in MET rate from 10% to 11% based on expected production.
PetroKazakhstan Inc.
In the first six months of 2013 KMG EP recognised 14bn Tenge (US$93m) of income from its share in PKI. This amount represents 33% of PKI's net profit of 16bn Tenge (US$109m) net of 2bn Tenge (US$16m) from the effect of purchase price premium amortization.
PKI's net profit decreased by 39% compared to the same period of 2012 mainly due to lower sales of refined products. Starting from April 2012 PKI is not engaged in processing and sale of oil products. The decline in net income is also a result of lower oil price, higher taxes related to higher export sales and an increase in export customs duty.
CCEL
As of 30 June 2013 the Company has 19.6bn Tenge (US$128m) as a receivable from CCEL, a jointly controlled entity with CITIC Group. The Company has accrued 1.3bn Tenge (US$8.7m) of interest income in the first six months of 2013 related to the US$26.87m annual priority return from CCEL.
***
The condensed consolidated interim financial statements for the six months ended June 30, 2013, the notes thereto, and the operating and financial review for the period is available on the Company's website (www.kmgep.kz).
APPENDIX
Consolidated Interim Statement of Comprehensive Income (unaudited)
Tenge million
Three months ended June 30, | Six months ended June 30, | ||||||||
2013 | 2012 | 2013 | 2012 | ||||||
Revenue | 181,652 | 191,690 | 383,837 | 398,543 | |||||
Share of results of associate and joint ventures | 8,448 | 15,158 | 29,148 | 40,905 | |||||
Finance income | 5,734 | 11,344 | 11,547 | 16,906 | |||||
Total revenue and other income | 195,834 | 218,192 | 424,532 | 456,354 | |||||
Production expenses | (39,527) | (38,930) | (82,328) | (70,297) | |||||
Selling, general and administrative expenses | (24,069) | (25,714) | (46,127) | (45,382) | |||||
Exploration expenses | (292) | (3,028) | (6,912) | (4,326) | |||||
Depreciation, depletion and amortization | (9,597) | (13,022) | (21,997) | (25,592) | |||||
Taxes other than on income | (66,905) | (69,091) | (143,144) | (144,272) | |||||
Impairment of property, plant and equipment | (1,328) | (476) | (58,492) | (532) | |||||
Loss on disposal of fixed assets | (1,260) | (248) | (1,916) | (400) | |||||
Finance costs | (2,158) | (1,470) | (4,112) | (2,973) | |||||
Foreign exchange gain, net | 3,264 | 6,774 | 4,140 | 4,256 | |||||
Profit before tax | 53,962 | 72,987 | 63,644 | 166,836 | |||||
Income tax expense | (14,499) | (26,740) | (24,841) | (45,371) | |||||
Profit for the period | 39,463 | 46,247 | 38,803 | 121,465 | |||||
Exchange difference on translating foreign operations | 1,495 | 2,089 | 1,655 | 1,504 | |||||
Other comprehensive income for the period to be reclassified to profit and loss in subsequent periods | 1,495 | 2,089 | 1,655 | 1,504 | |||||
Total comprehensive income for the period, net of tax | 40,958 | 48,336 | 40,458 | 122,969 | |||||
|
| ||||||||
Basic and diluted | 0.58 | 0.67 | 0.57 | 1.74 | |||||
Consolidated Interim Statement of Financial Position
Tenge million
June 30, 2013 | December 31, 2012 | |
Unaudited | Audited | |
ASSETS | ||
Non-current assets | ||
Property, plant and equipment | 290,401 | 325,520 |
Intangible assets | 12,899 | 19,584 |
Investments in joint ventures | 97,479 | 89,252 |
Investments in associate | 121,424 | 118,959 |
Receivable from a jointly controlled entity | 15,714 | 14,326 |
Loans receivable from joint ventures | 17,091 | 13,150 |
Other financial assets | 13,950 | 1,085 |
Deferred tax asset | 37,053 | 31,968 |
Other assets | 15,503 | 17,200 |
Total non-current assets | 621,514 | 631,044 |
Current assets | ||
Inventories | 20,878 | 25,058 |
Income taxes prepaid | 45,716 | 17,806 |
Taxes prepaid and VAT recoverable | 61,081 | 56,257 |
Mineral extraction tax prepaid | − | 8,073 |
Prepaid expenses | 20,074 | 15,539 |
Trade and other receivables | 104,679 | 101,168 |
Receivable from a jointly controlled entity | 3,919 | 3,895 |
Other financial assets | 412,668 | 550,556 |
Cash and cash equivalents | 277,855 | 154,705 |
Total current assets | 946,870 | 933,057 |
Total assets | 1,568,384 | 1,564,101 |
EQUITY | ||
Share capital | 162,962 | 162,952 |
Other capital reserves | 2,478 | 2,474 |
Retained earnings | 1,082,789 | 1,154,335 |
Other components of equity | 19,664 | 18,009 |
Total equity | 1,267,893 | 1,337,770 |
LIABILITIES | ||
Non-current liabilities | ||
Borrowings | 4,557 | 4,848 |
Deferred tax liability | 490 | − |
Provisions | 39,210 | 36,927 |
Total non-current liabilities | 44,257 | 41,775 |
Current liabilities | ||
Borrowings | 2,479 | 2,462 |
Income taxes payable | 14,179 | 32,103 |
Mineral extraction tax and rent tax payable | 51,497 | 50,417 |
Trade and other payables | 168,368 | 82,255 |
Provisions | 19,711 | 17,319 |
Total current liabilities | 256,234 | 184,556 |
Total liabilities | 300,491 | 226,331 |
Total liabilities and equity | 1,568,384 | 1,564,101 |
Consolidated Interim Statement of Cash Flows (unaudited)
Tenge million
Six months ended June 30, | ||
2013 | 2012 | |
Cash flows from operating activities | ||
Profit before tax | 63,644 | 166,836 |
Adjustments to add / (deduct) non-cash items | ||
Depreciation, depletion and amortisation | 21,997 | 25,592 |
Share of result of associate and joint ventures | (29,148) | (40,905) |
Loss on disposal of property, plant and equipment (PPE) | 1,916 | 400 |
Impairment of PPE and intangible assets | 58,502 | 569 |
Dry well expense on exploration and evaluation assets | 6,471 | 3,281 |
Recognition of share-based payments | 140 | 177 |
Forfeiture of share-based payments | (136) | − |
Unrealised foreign exchange gain on non-operating activities | (2,615) | (4,129) |
Other non-cash income and expense | 892 | 1,471 |
Add finance costs | 4,112 | 2,973 |
Deduct finance income relating to investing activity | (11,547) | (16,906) |
Working capital adjustments | ||
Change in other assets | 245 | 346 |
Change in inventories | 5,796 | 6,180 |
Change in taxes prepaid and VAT recoverable | (5,004) | (269) |
Change in prepaid expenses | (4,536) | 645 |
Change in trade and other receivables | (3,500) | (27,600) |
Change in trade and other payables | (13,860) | 4,492 |
Change in mineral extraction and rent tax payable | 2,379 | 5,278 |
Change in provisions | 1,810 | 6,092 |
Income tax paid | (65,032) | (43,799) |
Net cash generated from operating activities | 32,526 | 90,724 |
Cash flows from investing activities | ||
Purchases of PPE | (55,671) | (42,169) |
Proceeds from sale of PPE | 34 | 797 |
Purchases of intangible assets | (3,458) | (3,813) |
Loans provided to the joint ventures | (5,190) | (637) |
Dividends received from joint ventures and associate, net of withholding tax | 19,450 | 43,635 |
Interest received from investment in Debt Instruments of NC KMG | 4,734 | 6,586 |
Proceeds from repayment of investment in Debt Instruments of NC KMG | 135,243 | − |
Purchase of financial assets held-to-maturity | (8,733) | (174,875) |
Proceeds from sale of other financial assets | − | 4,860 |
Interest received | 4,622 | 1,522 |
Net cash generated from / (used in) investing activities | 91,031 | (164,094) |
Cash flows from financing activities | ||
Share buy back | − | (17,945) |
Repayment of borrowings | (537) | (831) |
Dividends paid to Company's shareholders | (7) | (659) |
Net cash used in financing activities | (544) | (19,435) |
Net change in cash and cash equivalents | 123,013 | (92,805) |
Cash and cash equivalents at the beginning of the period | 154,705 | 206,512 |
Exchange gain on cash and cash equivalents | 137 | 110 |
Cash and cash equivalents at the end of the period | 277,855 | 113,817 |
The following tables show the Company's realised sales prices adjusted for oil and oil products transportation and other expenses for the six months ended June 30, 2013.
1H13 | |||
(US$/bbl) | UAS | CPC | Domestic |
Benchmark end-market quote[3] | 107.5 | 107.5 | - |
Adjustments on bbl difference, quality bank | 2.6 | 1.1 | - |
Realised price[4] | 104.9 | 106.4 | 37.1 |
Rent tax | (23.5) | (26.1) | - |
Export customs duty | (6.4) | (6.4) | - |
Transportation | (8.9) | (8.3) | (1.9) |
Sales commissions | - | - | - |
Adjusted realised price | 66.1 | 65.6 | 35.2 |
| |||
1H12 | |||
(US$/bbl) | UAS | CPC | Domestic |
Benchmark end-market quote3 | 113.6 | 113.6 | - |
Adjustments on bbl difference, quality bank | 4.4 | 1.1 | - |
Realised price4 | 109.2 | 112.5 | 34.8 |
Rental tax | (24.4) | (26.6) | - |
Export customs duty | (5.5) | (5.5) | - |
Transportation | (7.7) | (7.7) | (1.1) |
Sales commissions | - | - | - |
Adjusted realised price | 71.6 | 72.7 | 33.7 |
| Reference information | 1H2013 | 1H2012 |
| |
| Average exchange US$/KZT rate | 150.90 | 148.16 |
| |
| End of period US$/KZT rate | 151.65 | 149.42 |
| |
Coefficient barrels to tonnes for KMG EP crude | 7.36 | ||||
Coefficient barrels to tonnes for Kazgermunai crude | 7.70 | ||||
Coefficient barrels to tonnes for CCEL crude | 6.68 | ||||
Coefficient barrels to tonnes for PKI crude | 7.75 | ||||
NOTES TO EDITORS
KMG EP is among the top three Kazakh oil and gas producers. Overall production in 2012 was 12.2mt (an average of 247 kbopd) of crude oil, including the Company's share in Kazgermunai, CCEL and PKI. The total volume of proved and probable reserves, as at the end of 2011 was 226mt (1.7bn bbl), including shares in the associates of about 2.1 bn barrels. The Company's shares are listed on the Kazakhstan Stock Exchange and its GDRs are listed on The London Stock Exchange. The Company raised over US$2bn in its IPO in September 2006. International rating agency Standard & Poor's (S&P) confirmed KMG EP's "BBB-" corporate credit rating in December 2011.
For further details please contact us at:
«KMG EP». Investor Relations (+7 7172 97 5433)
Asel Kaliyeva
e-mail: [email protected]
«KMG EP». Public Relations (+7 7172 97 7915)
Zhanna Oyshybaeva
e-mail: [email protected]
Pelham Bell Pottinger (+44 207 861 3147)
Elena Dobson
e-mail: [email protected]
Forward-looking statements
This document includes statements that are, or may be deemed to be, ''forward-looking statements''. These forward-looking statements can be identified by the use of forward-looking terminology including, but not limited to, the terms ''believes'', ''estimates'', ''anticipates'', ''expects'', ''intends'', ''may'', ''target'', ''will'', or ''should'' or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They include, but are not limited to, statements regarding the Company's intentions, beliefs and statements of current expectations concerning, amongst other things, the Company's results of operations, financial condition, liquidity, prospects, growth, potential acquisitions, strategies and as to the industries in which the Company operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that may or may not occur. Forward-looking statements are not guarantees of future performance and the actual results of the Company's operations, financial condition and liquidity and the development of the country and the industries in which the Company operates may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. The Company does not intend, and does not assume any obligation, to update or revise any forward-looking statements or industry information set out in this document, whether as a result of new information, future events or otherwise. The Company does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved.
[1] Amounts shown in US dollars ("US$" or "$") have been translated solely for the convenience of the reader at the average rate over the applicable period for information derived from the consolidated statements of income and consolidated statements of cash flows and the end of the period rate for information derived from the consolidated balance sheets (average rates for 1H13 and 1H12 was 150.90 and 148.16 Tenge/US$, respectively; period-end rates at June 30, 2013 and December 31, 2012 was 151.65 and 150.74 Tenge/US$, respectively).
[2] Cash, cash equivalents and other financial assets (including the Bond) less borrowings as at the end of the reporting period.
[3] The Brent (DTD) quoted price is used as benchmark
[4] Average realized price converted at 7.23 barrels per tonne of crude oil
Related Shares:
Kazmunaigaz Exploration