6th Aug 2014 07:00
PRESS - RELEASE
JSC KazMunaiGas Exploration Production
1H 2014 financial results
Astana, 6 August 2014. Today JSC KazMunaiGas Exploration Production ("KMG EP" or "the Company") announces its condensed consolidated interim financial statements for the six months ended 30 June 2014.
· Net profit for the first six months of 2014 was 210.3bn Tenge (US$1,193m) compared to 38.8bn Tenge (US$257m) in the same period of 2013 largely due to a significant before tax foreign exchange gain as a result of the Tenge devaluation in February 2014.
· Revenue in the first six months of 2014 was 464.4bn Tenge (US$2,635m), a 21% increase compared with the same period of 2013 largely due to an increase in the average Tenge-US Dollar exchange rate as a result of Tenge devaluation in February 2014. The average price of Brent in the first six months of 2014 was 1% higher than in the same period of 2013, up from US$107.5 per barrel to US$108.9 per barrel.
· Production expenses in the first six months of 2014 were 88.5bn Tenge (US$502m), a 7% increase compared with the same period of 2013 mainly due to increased employee benefits expenses.
Production Highlights
In the first six months of 2014, KMG EP produced 6,106 thousand tonnes of crude oil (250kbopd), including the Company's stakes in Kazgermunai (KGM), CCEL (CCEL) and PetroKazakhstan Inc. (PKI), almost unchanged compared with the same period of 2013.
Ozenmunaigas JSC (OMG) produced 2,627 thousand tonnes (107kbopd) during the period, which is 88 thousand tonnes (3.6 kbopd) or 3% more than in the same period of 2013. Embamunaigas JSC (EMG) produced 1,391 thousand tonnes (57kbopd), which is 1% less than in the same period of 2013 and in line with the production plan. The volume of oil produced at OMG and EMG in the first six months of 2014 totaled 4,018 thousand tonnes (164kbopd), which is 2% more than the same period of 2013.
The Company's share in the production from KGM, CCEL and PKI for the first six months of 2014 amounted to 2,088 thousand tonnes of crude oil (86kbopd) which is 3% less compared with the same period in 2013 and in line with the production plan.
Crude oil sales
In the first six months of 2014 the Company's export and domestic sales from OMG and EMG were 2,938 thousand tonnes (117kbopd) and 1,042 thousand tonnes (42kbopd), respectively.
The Company's share in the sales from KGM, CCEL and PKI was 2,086 thousand tonnes of crude oil (86kbopd), including 1,084 thousand tonnes (44kbopd) or 52% supplied to export markets.
Net Profit for the Period
Net profit in the first six months of 2014 was 210.3bn Tenge (US$1,193m) compared to 38.8bn Tenge (US$257m) in the same period of 2013 largely due to a significant foreign exchange gain, higher realized export price in Tenge and lower impairment charges. In 1Q 2014 the Company recognized a foreign exchange gain of 108bn Tenge (US$637m) as a result of the Tenge devaluation in February 2014. In the first six months of 2014 KMG EP made an impairment charge of 27bn Tenge (US$156m) of JSC "Ozenmunaigas" compared to 58bn Tenge (US$388m) in 1H2013.
Revenues
The Company's revenues in the first six months of 2014 were 464.4bn Tenge (US$2,635m), a 21% increase compared to the same period of 2013. This was mainly due to an increase in the average Tenge-US Dollar exchange rate by 17% as a result of Tenge devaluation in February 2014, and an increase of the average domestic sales price from 40,000 Tenge per tonne in 1H2013 to 48,000 Tenge per tonne in 1H2014.
Taxes other than on Income
Taxes, other than onincome, in the first six months of 2014 were 178.2bn Tenge (US$1,011m), which is 24% higher than the same period in 2013. This was largely due to an increase in export customs duty from US$40 per tonne to US$60 per tonne from April 2013 and from US$60 per tonne to US$80 per tonne from April 2014 and because the average Tenge-US Dollar exchange rate was 17% higher as a result of Tenge devaluation in February 2014.
Production Expenses
Production expenses in the first six months of 2014 were 88.5bn Tenge (US$502m), which is 7% higher than in the same period of 2013 mainly due to higher expenses for employee benefits for production personnel.
Expenses for employee benefits in the first six months of 2014 increased by 20% compared to the same period of 2013, largely due to an indexation of salary for production personnel by 7% in January 2014, the introduction of a Unified System of Wages for production employees from April 2014 and a 10% increase of wages related to the devaluation of the Tenge from April 2014.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the first six months of 2014 were 49.4bn Tenge (US$280m), which is 7% higher than in the same period of 2013. This was largely due to an increase in transportation expenses and higher expenses for employee benefits which was partially offset by a decline in fines and penalties. Transportation costs increased by 16% due to the increase of Kaztransoil domestic and export tariffs, higher transportation expenses on the Caspian Pipeline Consortium route resulting from the transportation of larger volumes and the increase in the average Tenge and the US Dollar exchange rate, as the CPC tariff is denominated in US Dollars. KTO tariffs on domestic routes increased by 50% from January 2014 and on export routes by 20% on average from April 2014.
Impairment Charge
As previously announced, in the first quarter of 2014, the Company management team updated its formal assessment of the recoverable amount of JSC "Ozenmunaigas". As a result, a 27bn Tenge (US$156m) impairment charge was made. The impairment charge relates to an increase in employee benefits and an increase in export customs duty from US$60 to US$80 per tonne effective April 2014.
Foreign Exchange Gain
As previously announced, in the first quarter of 2014 a foreign exchange gain of 108bn Tenge (US$637m) resulted from the Tenge devaluation in February 2014.
On 11 February 2014, the National Bank of Kazakhstan (NBK) made a decision to abandon its support of the Tenge, reducing foreign exchange interventions and efforts to control the exchange rate of the Tenge. To prevent destabilisation of the financial markets and the economy as a whole, NBK established a Tenge-US Dollar fluctuation band at 185 Tenge per US dollar plus or minus 3 Tenge, thus continuing the bank's policy of smoothing over exchange rate spikes and short-term volatility.
Cash Flows from Operating Activities
Operating cash flow in the first six months of 2014 was 148.8bn Tenge (US$844m) compared with 32.5bn Tenge (US$216m) in the corresponding period of 2013, largely due to a significant realized foreign exchange gain in 1Q 2014 and higher realized export price in Tenge.
Capex
Capital expenditures in the first six months of 2014 were 58bn Tenge (US$329m), which is 12% higher than in the same period of 2013 mainly due to an increase in production drilling at OMG.
Cash and Debt
Cash and cash equivalents as at 30 June 2014 amounted to 156bn Tenge (US$0.8bn) compared to 119bn Tenge (US$0.8bn) as at 31 December 2013.
Other financial assets as at 30 June 2014 were 497bn Tenge (US$2.7bn) compared to 504bn Tenge (US$3.3bn) as at 31 December 2013.
As at 30 June 2014, 89% of cash and financial assets were denominated in US Dollars and 11% were denominated in Tenge and other foreign currencies. Finance income accrued on cash, financial, and other assets in the first six months of 2014 was 11.2bn Tenge (US$63m).
Borrowings as at 30 June 2014 were 7.7bn Tenge (US$42m), compared to 6.8bn Tenge (USD$44m) as at 31 December 2013.
The net cash position as at 30 June 2014 amounted to 645bn Tenge (US$3.5bn) compared to 616bn Tenge (US$4.0bn) as at 31 December 2013.
Income from associate and joint ventures
In the first six months of 2014, KMG EP's share of results of associate and joint ventures was 38bn Tenge (US$218m) compared with 29bn Tenge (US$193m) in the same period of 2013.
Kazgermunai
In the first six months of 2014, KMG EP recognised 23.5bn Tenge (US$133m) of income from its share in KGM. This amount represents 25.3bn Tenge (US$144m) corresponding to 50% of KGM's net profit net of the 1.8bn Tenge (US$10m) effect of amortization of the fair value of licenses and the related deferred tax.
KGM's net profit in US$ in the first six months of 2014 increased by 1% compared with the same period of 2013. The decline in fines and penalties and an increase in foreign exchange gain recognized as a result of Tenge devaluation in February 2014 offset the decline of net income due to reallocation of export volumes to domestic market and because of an increase in export customs duty rate from US$40 to US$60 per tonne from April 2013 and from US$60 to US$80 per tonne from April 2014.
In July 2014 the partners of Kazgermunai agreed to distribute US$100m as a dividend payment based on the results of 1Q2014. On July 14, 2014, the Company received US$50m as a dividend from KGM in accordance with its ownership interest.
PetroKazakhstan Inc.
In the first six months of 2014, KMG EP recognised 17.6bn Tenge (US$100m) of income from its share in PKI. This amount represents 20.3bn Tenge (US$115m) corresponding to 33% of PKI's net profit net of the 2.7bn Tenge (US$16m) effect of amortization of the fair value of the licenses.
In the first six months of 2014, PKI's net profit in US$ increased by 6% compared with the same period of 2013. The increase in net income is mainly because of lower fines and penalties and the decline in DD&A expenses which offset the decline in net income due to reallocation of export volumes to domestic market and because of an increase in export customs duty rate from US$40 to US$60 per tonne from April 2013 and from US$60 to US$80 per tonne from April 2014.
CCEL
As of 30 June 2014, the Company had 19.8bn Tenge (US$108m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 1.6bn Tenge (US$9m) of interest income in the first six months of 2014 related to the US$26.87m annual priority return from CCEL.
Tax and environmental audits
As at 30 June 2014 the Company had several claims related to tax and environmental matters. More detailed information is provided in the condensed consolidated interim financial statements for the six months ended 30 June 2014.
Tax audit for 2006-2008. During 2013-2014 the tax authorities' assessments of additional taxes payable were reduced from 16.9bn Tenge (US$92m) to 12.2bn Tenge (US$66m). As at 30 June 2014 existing tax provisions amounted to 12.0bn Tenge (US$65m).
Ozenmunaigas environmental audit 2012-2013. In June 2014 the Judicial Panel of Cassation of Mangystau Regional Court upheld the previous court decisions in favor of OMG on 327.9bn Tenge (US$1,787m) fine for environmental damage but there remains the remote possibility that the Department of Ecology will file an appeal to the Supreme Court. No provision has been accrued for this matter as at 30 June 2014.
Embamunaigas gas flaring. Following the appeal of a notification from the Environmental Department of Atyrau Province in the General Prosecutor's office of Republic of Kazakhstan and the Specialized Interregional Economic Court of Atyrau Region, the amount of fines was reduced from 37.2bn Tenge (US$202m) to 2.0bn Tenge (US$11.0m) which was paid in June 2014.
PetroKazakhstanKumkolResources JSC (PKKR) tax audit. As a result of the comprehensive tax audit for 2009-2012 of PKKR (100% owned subsidiary of PKI Inc.) the Tax Department concluded that there were additional taxes payable of 10.0bn Tenge (US$54m). PKKR disagreed with the tax audit results and filed an appeal to the Tax Committee of the Ministry of Finance. No provision has been accrued for this matter as at 30 June 2014.
PKKR has appealed a notification for environmental emissions for the total amount (including fines and penalties) of 19.4bn Tenge (US$106m). After PKKR's appeal application was rejected by the Specialized Interdistrict Economic Court of Kyzylorda Region, PKKR filed a claim to the Judicial Panel of Appeals. The Judicial Panel of Appeals rejected the appeal of PKKR and the Court's decision was left without changes. PKI's management team concluded that an unfavourable outcome is most probable and recognized a provision for 19.4bn Tenge (US$106m) (33% KMG EP share of 6.4bn Tenge (US$35m) in its 2013 consolidated financial statements.
***
The condensed consolidated interim financial statements for the six months ended 30 June 2014, 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, | |||
2014 | 2013 | 2014 | 2013 | |
Revenue | 243,621 | 181,652 | 464,445 | 383,837 |
Share of results of associate and joint ventures | 22,192 | 8,448 | 38,352 | 29,148 |
Finance income | 5,922 | 5,734 | 11,158 | 11,547 |
Total revenue and other income | 271,735 | 195,834 | 513,955 | 424,532 |
Production expenses | (44,691) | (39,527) | (88,484) | (82,328) |
Selling, general and administrative expenses | (27,176) | (24,069) | (49,420) | (46,127) |
Exploration expenses | (128) | (292) | (386) | (6,912) |
Depreciation, depletion and amortization | (12,047) | (9,597) | (27,103) | (21,997) |
Taxes other than on income | (97,897) | (66,905) | (178,177) | (143,144) |
Impairment of property, plant and equipment | − | (1,328) | (27,448) | (58,492) |
Loss on disposal of fixed assets | (585) | (1,260) | (808) | (1,916) |
Finance costs | (1,166) | (2,158) | (1,972) | (4,112) |
Foreign exchange gain, net | 5,322 | 3,264 | 113,435 | 4,140 |
Profit before tax | 93,367 | 53,962 | 253,592 | 63,644 |
Income tax expense | (6,521) | (14,499) | (43,288) | (24,841) |
Profit for the period | 86,846 | 39,463 | 210,304 | 38,803 |
Exchange difference on translating foreign operations | 3,275 | 1,495 | 55,609 | 1,655 |
Other comprehensive income for the period to be reclassified to profit and loss in subsequent periods | 3,275 | 1,495 | 55,609 | 1,655 |
Total comprehensive income for the period, net of tax | 90,121 | 40,958 | 265,913 | 40,458 |
Basic and diluted | 1.28 | 0.58 | 3.09 | 0.57 |
Consolidated Interim Statement of Financial Position
Tenge million
June 30, 2014 | December 31, 2013 | |
Unaudited | Audited | |
ASSETS | ||
Non-current assets | ||
Property, plant and equipment | 352,940 | 350,675 |
Intangible assets | 11,380 | 12,064 |
Investments in joint ventures | 105,428 | 88,967 |
Investments in associate | 142,646 | 107,095 |
Receivable from a jointly controlled entity | 17,381 | 13,222 |
Loans receivable from joint ventures | 24,033 | 18,402 |
Other financial assets | 19,051 | 21,711 |
Deferred tax asset | 45,881 | 34,356 |
Other assets | 14,038 | 19,542 |
Total non-current assets | 732,778 | 666,034 |
Current assets | ||
Inventories | 26,635 | 27,422 |
Income taxes prepaid | 32,126 | 43,684 |
Taxes prepaid and VAT recoverable | 76,642 | 72,169 |
Mineral extraction tax and rent tax prepaid | 2,581 | 1,967 |
Prepaid expenses | 26,173 | 22,067 |
Trade and other receivables | 176,817 | 153,219 |
Receivable from a jointly controlled entity | 2,445 | 3,969 |
Loans receivable from joint ventures | 5,985 | 3,933 |
Other financial assets | 477,716 | 482,006 |
Cash and cash equivalents | 155,540 | 119,036 |
Total current assets | 982,660 | 929,472 |
Total assets | 1,715,438 | 1,595,506 |
EQUITY | ||
Share capital | 162,973 | 162,969 |
Other capital reserves | 2,436 | 2,482 |
Retained earnings | 1,261,436 | 1,185,815 |
Other components of equity | 78,118 | 22,509 |
Total equity | 1,504,963 | 1,373,775 |
LIABILITIES | ||
Non-current liabilities | ||
Borrowings | 4,705 | 4,291 |
Deferred tax liability | 544 | 881 |
Provisions | 34,568 | 34,203 |
Total non-current liabilities | 39,817 | 39,375 |
Current liabilities | ||
Borrowings | 3,037 | 2,503 |
Provisions | 17,066 | 20,067 |
Income taxes payable | 19,944 | 29,341 |
Mineral extraction tax and rent tax payable | 68,176 | 61,956 |
Trade and other payables | 62,435 | 68,489 |
Total current liabilities | 170,658 | 182,356 |
Total liabilities | 210,475 | 221,731 |
Total liabilities and equity | 1,715,438 | 1,595,506 |
Consolidated Interim Statement of Cash Flows (unaudited)
Tenge million
Six months ended June 30, | ||
2014 | 2013 | |
Cash flows from operating activities | ||
Profit before tax | 253,592 | 63,644 |
Adjustments to add / (deduct) non-cash items | ||
Depreciation, depletion and amortisation | 27,103 | 21,997 |
Share of result of associate and joint ventures | (38,352) | (29,148) |
Loss on disposal of property, plant and equipment (PPE) | 808 | 1,916 |
Impairment of PPE and intangible assets | 27,502 | 58,502 |
Dry well expense on exploration and evaluation assets | 46 | 6,471 |
Recognition of share-based payments | − | 140 |
Forfeiture of share-based payments | (46) | (136) |
Unrealised foreign exchange gain on non-operating activities | (31,318) | (2,615) |
Other non-cash income and expense | 48 | 892 |
Add finance costs | 1,972 | 4,112 |
Deduct finance income relating to investing activity | (11,158) | (11,547) |
Working capital adjustments | ||
Change in other assets | 9 | 245 |
Change in inventories | 1,140 | 5,796 |
Change in taxes prepaid and VAT recoverable | (2,872) | (5,004) |
Change in prepaid expenses | (4,109) | (4,536) |
Change in trade and other receivables | (23,594) | (3,500) |
Change in trade and other payables | (435) | (13,860) |
Change in mineral extraction and rent tax payable | 7,406 | 2,379 |
Change in provisions | (2,023) | 1,810 |
Income tax paid | (56,932) | (65,032) |
Net cash generated from operating activities | 148,787 | 32,526 |
Cash flows from investing activities | ||
Purchases of PPE | (63,704) | (55,671) |
Proceeds from sale of PPE | 247 | 34 |
Purchases of intangible assets | (552) | (3,458) |
Loans provided to the joint ventures | (1,807) | (5,190) |
Dividends received from joint ventures and associate, net of withholding tax | 18,201 | 19,450 |
Interest received from investment in Debt Instruments of NC KMG | − | 4,734 |
Proceeds from repayment of investment in Debt Instruments of NC KMG | − | 135,243 |
Sale / (purchase) of financial assets held-to-maturity | 54,671 | (8,733) |
Repayments of loan receivable from related parties | 2,206 | − |
Proceeds from sale of other financial assets | 155 | − |
Interest received | 7,241 | 4,622 |
Net cash generated from investing activities | 16,658 | 91,031 |
Cash flows from financing activities | ||
Repayment of borrowings | (548) | (537) |
Dividends paid to Company's shareholders | (128,393) | (7) |
Net cash used in financing activities | (128,941) | (544) |
Net change in cash and cash equivalents | 36,504 | 123,013 |
Cash and cash equivalents at the beginning of the period | 119,036 | 154,705 |
Exchange gain on cash and cash equivalents | − | 137 |
Cash and cash equivalents at the end of the period | 155,540 | 277,855 |
The following tables show the Company's realised sales prices adjusted for oil transportation and other expenses for the three months ended June 30, 2014.
1H14 | |||
(US$/bbl) | UAS | CPC | Domestic |
Benchmark end-market quote | 108.9 | 108.9 | - |
Quality bank | - | (7.2) | - |
Price differential | (2.9) | (1.0) | - |
Realised price | 106.0 | 100.7 | 37.9 |
Rent tax | (23.0) | (22.2) | - |
Export customs duty | (9.6) | (8.7) | - |
Transportation | (8.4) | (7.4) | (2.1) |
Netback | 65.0 | 62.4 | 35.8 |
Premium of bbl difference | - | 8.5 | - |
Effective netback incl. premium of bbl. difference | 65.0 | 70.9 | 35.8 |
| |||
1H13 | |||
(US$/bbl) | UAS | CPC | Domestic |
Benchmark end-market quote | 107.5 | 107.5 | - |
Quality bank | - | (7.4) | - |
Price differential | (2.6) | (2.6) | - |
Realised price | 104.9 | 97.5 | 37.0 |
Rent tax | (23.5) | (23.9) | - |
Export customs duty | (6.4) | (5.9) | - |
Transportation | (8.9) | (7.6) | (1.9) |
Netback | 66.1 | 60.1 | 35.1 |
Premium of bbl difference | - | 8.2 | |
Effective netback incl. premium of bbl. difference | 66.1 | 68.3 | 35.1 |
Reference information | 1H2013 | 1H2014 |
Average exchange US$/KZT rate | 150.90 | 176.23 |
End of period US$/KZT rate | 151.65 | 183.51 |
Coefficient barrels to tonnes for KMG EP crude (production) | 7.36 | |
Coefficient barrels to tonnes for KMG EP crude (sales) | 7.23 | |
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. The overall production in 2013 was 12.4 million tonnes (an average of 251 kbopd) of crude oil, including the Company's share in Kazgermunai, CCEL and PKI. The Company's total consolidated volume of proved and probable reserves including shares in the associates, as at the end of 2013 was 200 million tonnes (1.5 bn bbl), out of which 148.8 million tonnes (1.1 bn bbl) relates to Ozenmunaigas, Embamunaigas, and UOG (Rozhkovskoye field, Fyodorovskiy block). The Company's shares are listed on the Kazakhstan Stock Exchange and the GDRs are listed on The London Stock Exchange. The Company raised over US$2bn in its IPO in September 2006.
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 79 08)
Elena Pak
e-mail: [email protected]
Brunswick Group (+44 207 404 5959)
Andrew Mitchell
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.
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