27th Apr 2017 07:00
PRESS - RELEASE
JSC KazMunaiGas Exploration Production
Financial Results for the first three months of 2017
Astana, 27 April 2017. JSC KazMunaiGas Exploration Production ("KMG EP" or "the Company") announces its consolidated interim financial results for the first three months ended 31 March 2017.
· Revenue for the first quarter of 2017 was up 76% year on year and amounted to 214bn Tenge (US$663m[1]). This was largely a result of a 58% Brent price increase and switch to the processing scheme in April 2016, which was partially offset by a 9% decrease in the average Tenge - US dollar exchange rate.
· Operating profit for the first quarter of 2017 was 44bn Tenge (US$137m) compared with 4.6bn Tenge (US$13m) loss in the same period of 2016.
· In the first quarter of 2017, the Company recorded a foreign exchange loss of 59bn Tenge (US$182m) due to a 6% reduction of the Tenge - US dollar exchange rate (as at 31 March 2017 compared with the exchange rate as at 31 December 2016).
· Net profit for the first quarter of 2017 was 2.3bn Tenge (US$7m) and net cash generated from operating activities was 55bn Tenge (US$172m). Net profit for the first quarter of 2016 was 0.9bn Tenge (US$3m) and net cash used in operating activities was 31bn Tenge (US$87m).
· Net cash position[2] as at 31 March 2017 was 1,143bn Tenge (US$3.6bn) compared with 1,172bn Tenge (US$3.5bn) as at 31 December 2016.
Production
Overall, KMG EP, including its stakes in Kazgermunai ("KGM"), CCEL ("Karazhanbasmunai") and PetroKazakhstan Inc. ("PKI"), produced 2,904 thousand tonnes of crude oil (238 kbopd) for the first quarter of 2017, a 5% decrease on the same period of 2016. The lower levels of production were largely due to natural decline in production of oil at PKI and fewer wells drilled at Ozenmunaigas JSC ("OMG"), which is in line with the current Company's plan. In order to achieve the consolidated production plan of 12.2 million tonnes, which is higher than the actual production in 2016, additional geological and technical measures at existing wells have been budgeted and planned for through to year end 2017.
In the first quarter of 2017, OMG produced 1,335 thousand tonnes (109 kbopd), a 4% decrease as compared to the same period of 2016, mainly due to fewer wells drilled and less geological and technical measures performed. Embamunaigas JSC ("EMG") produced 691 thousand tonnes (57 kbopd), which is 2% less than in the same period of 2016, cause the underlying of underperformance was the same as for OMG. The total volume of oil OMG and EMG produced was 2,026 thousand tonnes (166 kbopd), which is 3% lower compared to the same period of 2016.
The Company's share in production from KGM, CCEL, and PKI for the first quarter of 2017 amounted to 878 thousand tonnes of crude oil (72 kbopd), which is 8% less than in the same period of 2016, mainly due to a natural decline in production of oil at PKI.
Crude oil supplies and sales of oil products
In the first quarter of 2017, the Company's combined sales from OMG and EMG were 1,939 thousand tonnes (156 kbopd), representing a year on year decrease of 5%, of which 66% or 1,284 thousand tonnes (103 kbopd) of oil was exported and 655 thousand tonnes (53 kbopd) of oil was sold to the domestic market. The share of domestic supplies from the resources of OMG and EMG was 34% in the first quarter of 2017 as compared to 40% in the same period of 2016.
Out of 655 thousand tonnes (53 kbopd) of crude oil supplied by OMG and EMG to the domestic market in the first quarter of 2017, 520 thousand tonnes (42 kbopd) were processed through the Atyrau Refinery ("ANPZ") and 135 thousand tonnes (11 kbopd) were processed through the Pavlodar Refinery ("PNHZ). In the first quarter of 2016, the Company sold 830 thousand tonnes to JSC KazMunaiGas Refining & Marketing ("KMG RM"), a subsidiary of the Company's majority shareholder.
During the first quarter of 2017, sales of oil products were 641 thousand tonnes via the oil processing scheme, including 257 thousand tonnes supplied to the export market. In April - December of 2016 the combined sales value of oil products was 2,324 thousand tonnes with 916 thousand tonnes sold to the export market.
The Company's share in the sales from KGM, CCEL, and PKI was 871 thousand tonnes of crude oil (72 kbopd), including 375 thousand tonnes (30 kbopd) supplied to the export markets, or 43% of the total sales volume. The domestic sales volume was 496 thousand tonnes (42 kbopd).
Net Profit for the Period
Net profit for the first quarter of 2017 was 2.3bn Tenge (US$7m) compared with 0.9bn Tenge (US$3m) in the same period of 2016. The increase in net profit was due to an increase in revenue as a result of a 58% increase in the Brent price, switch to the processing scheme starting in April 2016 and increase in the share of results of associate and joint ventures, which was partially offset by an increase of production expenses, taxes other than on income and foreign exchange loss.
In the first quarter of 2017, the Company recorded a foreign exchange loss of 59bn Tenge (US$182m) due to a 6% reduction of the Tenge - US dollar exchange rate (as at 31 March 2017 compared with the exchange rate as at 31 December 2016).
Revenue
The Company's revenue in the first quarter of 2017 was 214bn Tenge (US$663m), up 76% compared to the same period in 2016. This increase is the result of a 58% increase in the Brent price, switch to the processing scheme starting in April 2016, which was partially offset by 9% 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[3]) for the first three months of 2017 was 57,196 Tenge per tonne at ANPZ and 56,596 Tenge per tonne at PNHZ, which is 18% and 4% higher, respectively, compared to the fourth quarter of 2016. This is due to an increase of prices for exported oil products from ANPZ and absence of fees relating to the agency agreement between the Company and KMG RM for the sales of oil products. In April - December of 2016 the Company was paid 42,366 Tenge per tonne and 51,743 Tenge per tonne for its sales to ANPZ and PNHZ, respectively.
Production Expenses
Production expenses in the first quarter of 2017 were 70bn Tenge (US$217m), up 28% compared to the first quarter of 2016. This was mainly due to additional expenses related to the new processing scheme starting in April 2016 in the amount of 13bn Tenge (US$40m), as well as an 11% increase in employee benefit expenses.
Employee benefit expenses were up by 11% mainly due to a 7% salary indexation of production units' personnel since January 2017, as well as an unused annual bonus provision reversal in the first quarter of 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses during the first quarter of 2017 amounted to 25bn Tenge (US$79m), down 16% compared to the same period in 2016. This was largely a result of the reversal of accruals for fines and penalties related tax charges after successful appeals of notification from authorities of reduced historic balances.
As announced, on January 1, 2017 the Company ceased using KMG RM as its sales agent and started marketing refined products directly[4].
Taxes other than on Income
Taxes, other than on income, for the first quarter of 2017 were 66bn Tenge (US$203m), up 92% compared to the same period in 2016. This was largely due to an increase in the rent tax, Mineral Extraction Tax (MET) and Export Customs Duty (ECD) expenses.
Rent tax expenses were up mainly due to an increase in the average Brent price, which was above US$50 per barrel in the first quarter of 2017, and resulted in a rent tax rate of 11% compared with 0% in the first quarter of 2016, when the average Brent price was below US$40 per barrel.
An increase in MET expenses was due to a higher average Brent price, partially offset by a decline in the average Tenge - US dollar exchange rate. The Company applies the MET rate of 13% for OMG fields in 2017, while in September 2016 MET rate was reduced to 9% for 2016, as OMG recorded losses under tax accounting in 2016 and was thereby granted a reduction from the relevant authorities based on existing tax legislation.
The increase in ECD expenses was due to an increase in the export volumes of crude oil and export of oil products after the Company switched to the oil processing scheme in April 2016, which was partially offset by decrease in average Tenge - US dollar exchange rate. The average ECD rate in the first quarter of 2016 was US$40 per tonne of crude oil compared to US$49 per tonne of crude oil in the first quarter of 2017.
2009-2012 tax audit
As a result of review of the Company's 2009-2012 tax audit appeal, the Court of Astana has ruled in March of 2017 to reduce the principle tax charge by an additional 3.7bn Tenge. This was recorded in the Company's financial statements for the first quarter of 2017 as a reduction to corporate income tax and excess profit tax. Additionally, based on this ruling, the Company is expecting the accruals for fines and penalties to be reduced by 3.7bn Tenge by the respective authorities, which has also been recorded in financial statements for the first quarter of 2017. Overall, taking into account these reductions, it is management's expectation that the ultimate tax charge related to the 2009-2012 tax audit will be reduced from the 38.5bn tenge initial claim and 13.5bn Tenge amount as at December 31, 2016 of previously reduced and provided to 6.1bn Tenge.
As announced, the initial tax charge was reduced by 25.0 Tenge to 13.5bn Tenge in February 2017.
Capital expenditure
Capital expenditure[5] in the first quarter of 2017 totaled 18bn Tenge (US$55m), down 37% compared to the same period in 2016. This was primarily due to a reduction in volumes of production drilling at OMG and EMG and decrease in capital expenditure directed towards the construction and modernization of production facilities at EMG.
As announced, the Company plans capital expenditures for 2017 at the level of 133bn Tenge (US$369m[6]) as compared to 115bn Tenge (US$337m) for 2016.
Cash Flows from Operating Activities
Net cash generated from operating activities in the first three months of 2017 was 55bn Tenge (US$172m), against net cash outflow of 31bn Tenge (US$87m) in the same period in 2016.
Net cash
The net cash position as at March 31, 2017 was 1,143bn Tenge (US$3,6bn), compared with 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 the first quarter of 2017 totaled 7bn Tenge (US$23m), compared with 8bn Tenge (US$23m) in the first quarter of 2016.
Share of results of associate and joint ventures
In the first quarter of 2017, KMG EP reported a profit of 8.4bn Tenge (US$26m) in its share of results of associate and joint ventures, compared to a loss of 3.7bn Tenge (US$10m) in the first quarter of 2016.
Kazgermunai
In the first quarter of 2017, KMG EP recognized 7.3bn Tenge (US$23m) income from its share in KGM. This amount represents the Company's 50% share in KGM's net profit, which amounts to 8.0bn Tenge (US$25m) adjusted for 0.7bn Tenge (US$2m) amortization of the fair value of licenses and the related deferred tax benefit.
KGM's revenue in US dollars for the first quarter of 2017 increased by 55% compared with the same period in 2016. This was largely driven by a 58% increase in Brent price and higher domestic prices.
PetroKazakhstan Inc.
In the first quarter of 2017, KMG EP recognized a profit in the amount of 1.5bn Tenge (US$5m) from its share in PKI. This amount represents the Company's 33% share in PKI's net profit, which amounted to 3.1bn Tenge (US$10m) adjusted for the 1.6bn Tenge (US$5m) amortization of the fair value of licenses.
In the first quarter of 2017, PKI's net profit in US dollars was US$29m, compared to a net loss of US$9m in the same period of 2016. This was largely due to an increase in revenue due to 58% higher Brent price, lower amortization expenses, transportation and ECD expenses, which partially offset a decrease in sales volumes resulting from lower production levels.
CCEL
As of 31 March 2017, the Company had 33.4bn Tenge (US$106m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 1.2bn Tenge (US$3.7m) of interest income in the first quarter of 2017, which is a part of the annual priority return in an amount of US$26.87m from CCEL.
***
The condensed consolidated interim financial statements for the three months ended March 31, 2017, 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 March 31, | ||||
|
| 2017 | 2016 | |||
|
|
|
| |||
Revenue |
| 213,726 | 121,190 | |||
Share of results of associate and joint ventures |
| 8,406 | (3,690) | |||
Finance income |
| 7,320 | 8,015 | |||
Total revenue and other income |
| 229,452 | 125,515 | |||
|
|
|
| |||
Production expenses |
| (70,079) | (54,618) | |||
Selling, general and administrative expenses |
| (25,480) | (30,316) | |||
Depreciation, depletion and amortization |
| (8,356) | (6,621) | |||
Taxes other than on income |
| (65,595) | (34,195) | |||
Gain / (loss) on disposal of property, plant and equipment |
| 397 | (131) | |||
Finance costs |
| (1,269) | (941) | |||
Foreign exchange (loss) / gain, net |
| (58,653) | 13,313 | |||
Profit before tax |
| 417 | 12,006 | |||
Income tax benefit / (expense) |
| 1,854 | (11,082) | |||
Profit for the period |
| 2,271 | 924 | |||
|
|
|
| |||
Foreign currency translation difference |
| (29,723) | 9,431 | |||
Other comprehensive (loss) / income for the period to be reclassified to profit and loss in subsequent periods |
| (29,723) | 9,431 | |||
Total comprehensive (loss) / income for the period, net of tax |
| (27,452) | 10,355 | |||
EARNINGS PER SHARE - Tenge thousands |
|
|
| |||
Basic and diluted |
| 0.03 | 0.01 | |||
|
|
|
| |||
Consolidated Interim Statement of Financial Position
Tenge million
| March 31, 2017 | December 31, 2016 |
Unaudited | Audited | |
ASSETS |
|
|
Non-current assets |
|
|
Property, plant and equipment | 319,991 | 311,597 |
Intangible assets | 11,629 | 11,607 |
Investments in joint ventures | 143,932 | 144,532 |
Investments in associate | 131,822 | 135,633 |
Receivable from a jointly controlled entity | 16,861 | 16,696 |
Loans receivable from joint ventures | 29,100 | 29,638 |
Other financial assets | 33,598 | 35,961 |
Deferred tax asset | 48,836 | 51,459 |
Other assets and advances | 8,311 | 970 |
Total non-current assets | 744,080 | 738,093 |
Current assets |
|
|
Inventories | 25,530 | 24,774 |
Income taxes prepaid | 64,482 | 51,567 |
VAT recoverable | 19,404 | 16,680 |
Mineral extraction and rent tax prepaid | 6,064 | 15,676 |
Export customs duty and other taxes prepaid | 15,406 | 15,071 |
Prepaid expenses | 13,136 | 11,529 |
Trade and other receivables | 70,997 | 74,121 |
Receivable from a jointly controlled entity | 16,583 | 17,617 |
Other financial assets | 947,566 | 983,257 |
Cash and cash equivalents | 170,346 | 162,091 |
Total current assets | 1,349,514 | 1,372,383 |
Total assets | 2,093,594 | 2,110,476 |
EQUITY |
|
|
Share capital | 165,397 | 165,343 |
Other capital reserves | 2,387 | 2,448 |
Retained earnings | 1,446,629 | 1,444,351 |
Foreign currency translation reserve | 291,647 | 321,370 |
Total equity | 1,906,060 | 1,933,512 |
LIABILITIES |
|
|
Non-current liabilities |
|
|
Borrowings | 3,156 | 3,844 |
Deferred tax liability | 138 | 138 |
Provisions | 46,455 | 45,300 |
Total non-current liabilities | 49,749 | 49,282 |
Current liabilities |
|
|
Borrowings | 5,209 | 5,483 |
Provisions | 38,527 | 45,926 |
Mineral extraction tax and rent tax payable | 28,830 | 8,571 |
Trade and other payables | 65,219 | 67,702 |
Total current liabilities | 137,785 | 127,682 |
Total liabilities | 187,534 | 176,964 |
Total liabilities and equity | 2,093,594 | 2,110,476 |
Consolidated Interim Statement of Cash Flows (unaudited)
Tenge million
| Three months ended March 31, | |
| 2017 | 2016 |
Cash flows from operating activities |
|
|
Profit before tax | 417 | 12,006 |
Adjustments to add / (deduct) non-cash items |
|
|
Depreciation, depletion and amortisation | 8,356 | 6,621 |
Share of result of associate and joint ventures | (8,406) | 3,690 |
(Gain) /loss on disposal of property, plant and equipment (PPE) | (397) | 131 |
Recognition of share-based payments | − | 43 |
Unrealised foreign exchange loss / (gain) on non-operating activities | 53,656 | (8,012) |
Change in provisions | (4,086) | 969 |
Other non-cash income and expense | 527 | 105 |
Add finance costs | 1,269 | 941 |
Deduct finance income | (7,320) | (8,015) |
Working capital adjustments |
|
|
Change in other assets | (158) | 131 |
Change in inventories | (678) | 2,190 |
Change in export customs duty, VAT recoverable and other taxes prepaid | (5,503) | 1,951 |
Change in prepaid expenses | (1,607) | (568) |
Change in trade and other receivables | 2,107 | (3,482) |
Change in trade and other payables | (3,301) | (3,324) |
Change in mineral extraction and rent tax payable and prepaid | 29,871 | (9,731) |
Income tax paid | (9,382) | (26,625) |
Net cash generated / (used) in operating activities | 55,365 | (30,979) |
Cash flows from investing activities |
|
|
Purchases of PPE and advances paid for PPE | (24,152) | (32,267) |
Proceeds from sale of PPE | 1,445 | 65 |
Purchases of intangible assets | (50) | (251) |
Loans provided to joint ventures | (619) | − |
Dividends received from joint ventures and associate, net of withholding tax | 675 | 6,386 |
(Purchase)/proceeds from withdrawal of financial assets held to maturity | (17,750) | 69,807 |
Interest received | 3,139 | 2,625 |
Net cash (used) / generated from investing activities | (37,312) | 46,365 |
Cash flows from financing activities |
|
|
Repayment of borrowings | (602) | (323) |
Dividends paid to Company's shareholders | (27) | (15) |
Net cash used in financing activities | (629) | (338) |
Net change in cash and cash equivalents | 17,424 | 15,048 |
Cash and cash equivalents at the beginning of the period | 162,091 | 237,310 |
Net foreign exchange difference on cash and cash equivalents | (9,169) | 3,659 |
Cash and cash equivalents at the end of the period | 170,346 | 256,017 |
The following tables show the Company's realized sales prices adjusted for oil transportation and other expenses for the three months ended March 31, 2017[7].
3М2017 |
|
|
|
| |
(US$/bbl.) | UAS | CPC | ANPZ | PNHZ | |
Benchmark end-market quote | 53,7 | 53,7 | - | - | |
Quality bank | - | (1,4) | - | - | |
Price differential | (3,1) | (2,5) | - | - | |
Realized price | 50,6 | 49,8 | 24,5 | 24,3 | |
Rent tax | (6,0) | (6,1) | - | - | |
Export customs duty | (6,8) | (6,8) | - | - | |
MET | (6,1) | (6,4) | (1,2) | (0,6) | |
Transportation | (6,3) | (7,9) | (1,2) | (2,0) | |
Netback | 25,4 | 22,6 | 22,1 | 21,7 | |
Premium of bbl. difference | - | 5,0 | - | - | |
Effective netback incl. premium of bbl. difference | 25,4 | 27,6 | 22,1 | 21,7 | |
|
|
|
| ||
3М2016 |
|
|
|
| |
(US$/bbl.) | UAS | CPC | ANPZ | PNHZ | |
Benchmark end-market quote | 33,9 | 33,9 | - | - | |
Quality bank | - | (2,5) | - | - | |
Price differential | (3,3) | (0,1) | - | - | |
Realized price | 30,6 | 31,3 | 5,7 | 10,7 | |
Rent tax | - | - | - | - | |
Export customs duty | (5,4) | (5,6) | - | - | |
MET | (4,1) | (4,1) | (0,9) | (0,9) | |
Transportation | (4,4) | (8,0) | (1,4) | (4,0) | |
Netback | 16,7 | 13,6 | 3,4 | 5,8 | |
Premium of bbl. difference | - | 3,2 | - | - | |
Effective netback incl. premium of bbl. difference | 16,7 | 16,8 | 3,4 | 5,8 | |
Reference information | 3М2016 | 3М2017 |
Average exchange US$/KZT rate | 355,11 | 322,52 |
End of period US$/KZT rate | 343,62 | 313,73 |
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 producers based on the 2016 results. The overall production in 2016 was 12.2 million tonnes (245 kbopd) of crude oil, including the Company's share in Kazgermunai, CCEL and PKI. The Company's volume of proved and probable reserves excluding shares in the associates, at the end of 2016 was 182 million tonnes (1,327 mmbbl). 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 at its IPO in September 2006.
For further details please contact us at:
KMG EP. Investor Relations (+7 7172 97 5433)Saken Shoshanove-mail: [email protected]
KMG EP. Public Relations (+7 7172 97 7887)Bakdaulet Tolegene-mail: [email protected]
Bell Pottinger (+44 203 772 2500)
Henry Lerwill
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 "$") have been translated solely for the convenience of the reader at the average rate over the applicable period for information derived from the consolidated statements of income and consolidated statements of cash flows and the end of the period rate for information derived from the consolidated balance sheets (average rates for 3M2017 and 3M2016 were 322.52 and 355.11 Tenge/US$, respectively; period-end rates at March 31, 2017 and December 31, 2016 were 313.73 and 333.29 Tenge/US$, respectively).
[2] Cash, cash equivalents and other financial assets less borrowings.
[3] Except cost of production of crude oil and oil transportation expenses to the refineries.
[4] Prior to April 2016, the Company had been supplying a portion of crude oil to KazMunaiGas Refining & Marketing ("KMG RM") as part of its domestic supply obligations. Starting April 2016, the Company has been refining crude oil at Atyrau Refinery and Pavlodar Plant, and selling oil products through KMG RM that has since been acting as a sales agent.
[5] The Company revised its approach to calculation of capital expenditure. Starting from 4Q 2013 the Capex represents the amount of additions to property, plant and equipment. Formerly it represented purchases of property, plant and equipment and intangible assets according to the Cash Flow Statement.
[6] Amounts shown in US dollars ("US$" or "$") have been translated solely for the convenience of the reader at the budgeted rate of 360 Tenge per US dollar.
[7] As of first quarter 2015 the netback calculation methodology has been amendment and now includes a subtraction pertaining to the netback MET.
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Kazmunaigaz Exploration