6th Nov 2014 07:00
PRESS - RELEASE
JSC KazMunaiGas Exploration Production
9M 2014 financial results
Astana, 6 November 2014. Today JSC KazMunaiGas Exploration Production ("KMG EP" or "the Company") announces its condensed consolidated interim financial statements for the nine months ended 30 September 2014.
· Revenues in the first nine months of 2014 were 690.3bn Tenge (US$3,870m)[1], a 14% increase compared to the same period of 2013. Net profit for the first nine months of 2014 was 242.0bn Tenge (US$1,357m), a 160% increase to the same period of 2013. This was largely due to a significant foreign exchange gain due to the Tenge devaluation in February 2014.
· Excluding the 107.7bn Tenge net foreign exchange gain, profit before tax was 53% ahead of the same period of 2013.
· Production expenses in the first nine months of 2014 were 144.6bn Tenge (US$811m), a 15% increase compared with the same period of 2013 mainly due to increased employee benefits expenses.
Production Highlights
In the first nine months of 2014 KMG EP produced 9,217 thousand tonnes of crude oil (250 kbopd), including the Company's stakes in Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI), which is slightly below the same period of 2013.
Ozenmunaigas JSC (OMG) produced 3,992 thousand tonnes (108 kbopd), an increase of 3% over the same period of 2013. Embamunaigas JSC (EMG) produced 2,110 thousand tonnes (57 kbopd), which is 1% less than in the same period of 2013, in line with the production plan. The total volume of oil produced at OMG and EMG is 6,102 thousand tonnes (165 kbopd), which is a 2% increase over the same period of 2013.
The Company's share in production from CCEL, KGM and PKI for the first nine months of 2014 amounted to 3,115 thousand tonnes of crude oil (85 kbopd), which is 3.6% less than in the same period of 2013.
Crude oil sales
In the first nine months of 2014, the Company's combined export sales from OMG and EMG were 4,402 thousand tonnes (117 kbopd), or 74% of total sales volume. The Company's domestic sales of oil and oil products from OMG and EMG amounted to 1,546 thousand tonnes (41 kbopd). Additionally, 50 thousand tonnes were shipped in September to Russia to fulfil obligations under the counter-oil supply agreement between the Government of Kazakhstan and the Russian Government. The Company expects that domestic sales from OMG and EMG in 2014 will amount to 1.9 million tonnes.
The Company's share in the sales from CCEL, KGM and PKI was 3,089 thousand tonnes of crude oil (85 kbopd), including 1,519 thousand tonnes (43 kbopd) supplied to export markets, or 49% of total sales volume.
Net Profit for the Period
Net profit in the first nine months of 2014 was 242.0bn Tenge (US$1,357m) compared to 93.2bn Tenge (US$615m) in the same period of 2013. This was largely due to a significant foreign exchange gain, the higher realized export price in Tenge, as a result of an increase in the average Tenge-US Dollar exchange rate by 18%, 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 three months of 2014 KMG EP made an impairment charge of 27bn Tenge (US$154m) for JSC "Ozenmunaigas" compared to 57bn Tenge (US$377m) in 1Q 2013.
Revenues
The Company's revenues in the first nine months of 2014 were 690.3bn Tenge (US$3,870m), a 14% increase compared to the same period of 2013. This was mainly due to the higher realized export price in Tenge as a result of an increase in the average Tenge-US Dollar exchange rate by 18% as a result of Tenge devaluation in February 2014, greater crude oil export shipments to more advantageous Caspian Pipeline Consortium route and an increase of the average domestic sales price from 40,000 Tenge per tonne in 9M2013 to 48,000 Tenge per tonne in 9M2014.
Taxes other than on Income
Taxes, other than onincome, in the first nine months of 2014 were 269.8bn Tenge (US$1,513m), which is 18% 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 18% higher as a result of Tenge devaluation in February 2014.
Production Expenses
Production expenses in the first nine months of 2014 were 144.6bn Tenge (US$811m), which is 15% 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 nine months of 2014 increased by 31% compared to the same period of 2013. This was 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 in wages related to the devaluation of the Tenge from April 2014.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in the first nine months of 2014 were 75.4bn Tenge (US$423m), which is 8% 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 14% due to the increase of Kaztransoil (KTO) 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 from JSC "Ozenmunaigas". As a result, a 27bn Tenge (US$154m) 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 from April 2014.
Foreign Exchange Gain
As previously announced, in the first quarter of 2014 there was a foreign exchange gain of 108bn Tenge (US$637m) resulting 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 exchange rate spikes and short-term volatility. In September 2014, NBK expanded the Tenge-Dollar fluctuation band to 185 Tenge per US Dollar plus 3 Tenge and minus 15 Tenge.
Cash Flows from Operating Activities
Operating cash flow in the first nine months of 2014 was 250.5bn Tenge (US$1,404m) compared with 88.1bn Tenge (US$581m) 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 expenditure[2] in the first nine months of 2014 was 92bn Tenge (US$516m), which is 1% higher than in the same period of 2013.
Cash and Debt
Cash and cash equivalents as at 30 September 2014 amounted to 272bn Tenge (US$1.5bn) compared to 119bn Tenge (US$0.8bn) as at 31 December 2013.
Other financial assets as at 30 September 2014 were 448bn Tenge (US$2.5bn) compared to 504bn Tenge (US$3.3bn) as at 31 December 2013.
As at 30 September 2014, 88% of cash and financial assets were denominated in US Dollars and 12% were denominated in Tenge and other foreign currencies. Finance income accrued on cash, financial, and other assets in the first nine months of 2014 was 16.0bn Tenge (US$90m).
Borrowings as at 30 September 2014 were 7.5bn Tenge (US$41m), compared to 6.8bn Tenge (USD$44m) as at 31 December 2013.
The net cash position[3] as at 30 September 2014 amounted to 713bn Tenge (US$3.9bn) compared to 616bn Tenge (US$4.0bn) as at 31 December 2013.
Income from associate and joint ventures
In the first nine months of 2014, KMG EP's share of results of associate and joint ventures was 49bn Tenge (US$273m) compared with 39bn Tenge (US$259m) in the same period of 2013.
Kazgermunai
In the first nine months of 2014, KMG EP recognised 30.5bn Tenge (US$171m) of income from its share in KGM. This amount represents 33.2bn Tenge (US$186m) corresponding to 50% of KGM's net profit, net of the 2.7bn Tenge (US$15m) impact from amortization of the fair value of licenses and the related deferred tax.
KGM's net profit in US$ in the first nine months of 2014 declined by 12%, compared with the same period of 2013. This was largely due to lower net income because of reallocation of export volumes to domestic market and the increase in the 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 October 2014 the partners of Kazgermunai agreed to distribute US$200m as a dividend payment based on the results of 1H2014, of which KMG EP's share in accordance with the ownership interests will be US$100 million.
PetroKazakhstan Inc.
In the first nine months of 2014, KMG EP recognised 21.1bn Tenge (US$118m) of income from its share in PKI. This amount represents 25.3bn Tenge (US$142m) corresponding to 33% of PKI's net profit, net of the 4.2bn Tenge (US$23m) effect of amortization of the fair value of the licenses.
In the first nine months of 2014, PKI's net profit in US$ increased by 3% compared with the same period of 2013. The increase in net income is mainly due to lower fines and penalties and the decline in DD&A expenses in the first nine months of 2014. This offset the decline in net income due to the reallocation of export volumes to the domestic market and because of an increase in the 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 September 2014, the Company had 20.3bn Tenge (US$112m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 2.3bn Tenge (US$13m) of interest income in the first nine months of 2014 related to the US$26.87m annual priority return from CCEL.
Tax and environmental audits
As at 30 September 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 nine months ended 30 September 2014.
Tax audit for 2006-2008. During 2013-2014 the tax authorities' assessments of additional taxes payable was reduced from 16.9bn Tenge (US$92m) to 12.1bn Tenge (US$68m). Currently the Company is continuing the process of appealing the tax audit results. In August 2014 the Company filed an appeal to the Cassation Board of Astana. In October 2014 following consideration by the cassation appeal, the decision was made to dismiss the appeal. The Company is now planning to appeal the above mentioned decision in the Supreme Court of Republic of Kazakhstan. As at 30 September 2014 existing tax provisions amounted to 12.1bn Tenge (US$68m).
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$56m). 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 September 2014.
PKKR has appealed a notification to pay for environmental emissions for a total amount (including fines and penalties) of 19.4bn Tenge (US$106m). In July and August 2014 PKKR paid in full environmental emissions fees and related fines and penalties. In September 2014 PKKR filed a cassation to the Judicial Panel of Cassation of Kyzylorda Regional Court. As at reporting date cassation is still under review.
PKI's management team concluded that an unfavourable outcome is likely 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 nine months ended 30 September 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 September 30, | Nine months ended September 30, | |||
2014 | 2013 | 2014 | 2013 | |
Revenue | 225,829 | 222,469 | 690,274 | 606,306 |
Share of results of associate and joint ventures | 10,373 | 10,176 | 48,725 | 39,324 |
Finance income | 4,878 | 4,312 | 16,036 | 15,859 |
Total revenue and other income | 241,080 | 236,957 | 755,035 | 661,489 |
Production expenses | (56,136) | (43,838) | (144,620) | (126,166) |
Selling, general and administrative expenses | (26,012) | (23,749) | (75,432) | (69,876) |
Exploration expenses | (412) | (3,558) | (798) | (10,470) |
Depreciation, depletion and amortization | (17,163) | (14,969) | (44,266) | (36,966) |
Taxes other than on income | (91,632) | (85,370) | (269,809) | (228,514) |
Impairment of property, plant and equipment | (983) | (70) | (28,431) | (58,562) |
Loss on disposal of fixed assets | (1,260) | (924) | (2,068) | (2,840) |
Finance costs | (719) | (1,575) | (2,691) | (5,687) |
Foreign exchange gain, net | (5,711) | 7,282 | 107,724 | 11,422 |
Profit before tax | 41,052 | 70,186 | 294,644 | 133,830 |
Income tax expense | (9,360) | (15,828) | (52,648) | (40,669) |
Profit for the period | 31,692 | 54,358 | 241,996 | 93,161 |
Exchange difference on translating foreign operations | (3,296) | 3,223 | 52,313 | 4,878 |
Other comprehensive income for the period to be reclassified to profit and loss in subsequent periods | (3,296) | 3,223 | 52,313 | 4,878 |
Total comprehensive income for the period, net of tax | 28,396 | 57,581 | 294,309 | 98,039 |
Basic and diluted | 0.46 | 0.80 | 3.55 | 1.37 |
Consolidated Interim Statement of Financial Position
Tenge million
September 30, 2014 | December 31, 2013 | |
Unaudited | Audited | |
ASSETS | ||
Non-current assets | ||
Property, plant and equipment | 366,779 | 350,675 |
Intangible assets | 11,399 | 12,064 |
Investments in joint ventures | 102,263 | 88,967 |
Investments in associate | 145,162 | 107,095 |
Receivable from a jointly controlled entity | 17,918 | 13,222 |
Loans receivable from joint ventures | 24,676 | 18,402 |
Other financial assets | 19,180 | 21,711 |
Deferred tax asset | 44,396 | 34,356 |
Other assets | 6,535 | 19,542 |
Total non-current assets | 738,308 | 666,034 |
Current assets | ||
Inventories | 29,129 | 27,422 |
Income taxes prepaid | 32,202 | 43,684 |
Taxes prepaid and VAT recoverable | 80,922 | 72,169 |
Mineral extraction tax and rent tax prepaid | 2,581 | 1,967 |
Prepaid expenses | 25,089 | 22,067 |
Trade and other receivables | 111,340 | 153,219 |
Receivable from a jointly controlled entity | 2,424 | 3,969 |
Loans receivable from joint ventures | 6,149 | 3,933 |
Other financial assets | 428,896 | 482,006 |
Cash and cash equivalents | 272,349 | 119,036 |
Total current assets | 991,081 | 929,472 |
Total assets | 1,729,389 | 1,595,506 |
EQUITY | ||
Share capital | 163,004 | 162,969 |
Other capital reserves | 2,413 | 2,482 |
Retained earnings | 1,293,128 | 1,185,815 |
Other components of equity | 74,822 | 22,509 |
Total equity | 1,533,367 | 1,373,775 |
LIABILITIES | ||
Non-current liabilities | ||
Borrowings | 4,392 | 4,291 |
Deferred tax liability | 574 | 881 |
Provisions | 34,973 | 34,203 |
Total non-current liabilities | 39,939 | 39,375 |
Current liabilities | ||
Borrowings | 3,075 | 2,503 |
Provisions | 15,989 | 20,067 |
Income taxes payable | 15,478 | 29,341 |
Mineral extraction tax and rent tax payable | 64,721 | 61,956 |
Trade and other payables | 56,820 | 68,489 |
Total current liabilities | 156,083 | 182,356 |
Total liabilities | 196,022 | 221,731 |
Total liabilities and equity | 1,729,389 | 1,595,506 |
Consolidated Interim Statement of Cash Flows (unaudited)
Tenge million
Nine months ended September 30, | ||
2014 | 2013 | |
Cash flows from operating activities | ||
Profit before tax | 294,644 | 133,830 |
Adjustments to add / (deduct) non-cash items | ||
Depreciation, depletion and amortisation | 44,266 | 36,966 |
Share of result of associate and joint ventures | (48,725) | (39,324) |
Loss on disposal of property, plant and equipment (PPE) | 2,068 | 2,840 |
Impairment of PPE and intangible assets | 28,444 | 58,608 |
Dry well expense on exploration and evaluation assets | 202 | 9,316 |
Recognition of share-based payments | − | 142 |
Forfeiture of share-based payments | (69) | (136) |
Unrealised foreign exchange gain on non-operating activities | (9,654) | (6,702) |
Other non-cash income and expense | 356 | 1,266 |
Add finance costs | 2,691 | 5,687 |
Deduct finance income relating to investing activity | (16,036) | (15,859) |
Working capital adjustments | ||
Change in other assets | (20) | 373 |
Change in inventories | (1,406) | 4,364 |
Change in taxes prepaid and VAT recoverable | (7,269) | (10,083) |
Change in prepaid expenses | (3,024) | (2,043) |
Change in trade and other receivables | 41,914 | (22,557) |
Change in trade and other payables | (11,285) | (16,173) |
Change in mineral extraction and rent tax payable | 3,952 | 17,139 |
Change in provisions | (1,653) | 2,438 |
Income tax paid | (68,936) | (72,039) |
Net cash generated from operating activities | 250,460 | 88,053 |
Cash flows from investing activities | ||
Purchases of PPE | (85,182) | (83,103) |
Proceeds from sale of PPE | 219 | 34 |
Purchases of intangible assets | (1,058) | (6,112) |
Loans provided to the joint ventures | (1,829) | (7,195) |
Dividends received from joint ventures and associate, net of withholding tax | 27,377 | 38,142 |
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, net | 79,229 | (16,473) |
Repayments of loan receivable from related parties | 2,232 | 2,511 |
Proceeds from sale of other financial assets | 155 | − |
Interest received | 11,748 | 6,562 |
Net cash generated from investing activities | 32,891 | 74,343 |
Cash flows from financing activities | ||
Repayment of borrowings | (820) | (808) |
Dividends paid to Company's shareholders | (128,849) | (109,875) |
Net cash used in financing activities | (129,669) | (110,683) |
Net change in cash and cash equivalents | 153,682 | 51,713 |
Cash and cash equivalents at the beginning of the period | 119,036 | 154,705 |
Exchange gain on cash and cash equivalents | (369) | 174 |
Cash and cash equivalents at the end of the period | 272,349 | 206,592 |
The following tables show the Company's realised sales prices adjusted for oil transportation and other expenses for the three months ended September 30, 2014.
9M14 | |||||
(US$/bbl) | UAS | CPC | Domestic | Shipments to Russia | |
Benchmark end-market quote | 106.5 | 106.5 | - | - | |
Quality bank | - | (7.4) | - | - | |
Price differential | (2.8) | (2.1) | - | - | |
Realised price | 103.7 | 97.0 | 37.5 | 42.4 | |
Rent tax | (22.8) | (21.6) | - | - | |
Export customs duty | (10.1) | (9.3) | - | - | |
Transportation | (8.8) | (7.2) | (2.0) | (5.6) | |
Netback | 62.0 | 58.9 | 35.5 | 36.8 | |
Premium of bbl difference | - | 8.2 | - | - | |
Effective netback incl. premium of bbl. Difference | 62.0 | 67.1 | 35.5 | 36.8 | |
| |||||
9M13 | |||||
(US$/bbl) | UAS | CPC | Domestic | Shipments to Russia | |
Benchmark end-market quote | 108.5 | 108.5 | - | - | |
Quality bank | - | (7.4) | - | - | |
Price differential | (2.1) | (1.3) | - | - | |
Realised price | 106.4 | 99.8 | 36.9 | - | |
Rent tax | (24.0) | (23.6) | - | - | |
Export customs duty | (7.0) | (6.6) | - | - | |
Transportation | (8.9) | (7.6) | (1.9) | - | |
Netback | 66.5 | 62.0 | 35.0 | - | |
Premium of bbl difference | - | 8.3 | - | ||
Effective netback incl. premium of bbl. Difference | 66.5 | 70.3 | 35.0 | - | |
Reference information | 9M2013 | 9M2014 |
Average exchange US$/KZT rate | 151.58 | 178.35 |
End of period US$/KZT rate | 153.62 | 181.90 |
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.
[1] Amounts shown in US dollars ("US$" or "$") have been translated solely for the convenience of the reader at the average rate over the applicable period for information derived from the consolidated statements of income and consolidated statements of cash flows and the end of the period rate for information derived from the consolidated balance sheets (average rates for 9M2014 and 9M2013 were 178.35 and 151.58 Tenge/US$, respectively; period-end rates at September 30, 2014 and December 31, 2013 were 181.90 and 153.61 Tenge/US$, respectively).
[2] The Company revised its approach to calculation of Capex. Starting from 4Q 2013 the Capex represents 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.
[3] Cash, cash equivalents and other financial assets less borrowings
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