KMG EP's Budget and Business Plan for 2017-2021

KMG EP approves 2017 Budget and 2017-2021 Business Plan

Astana, 21 December 2016. JSC KazMunaiGas Exploration Production ("KMG EP" or the "Company") announces that its Board of Directors ("the Board") has approved the Company's 2017 budget and 2017-2021 business plan. The budget for 2017 assumes a Brent price of US$45 per barrel and an exchange rate of 360 Tenge per US dollar.

The Company expects free cash flows to be positive in the 2017-2021 period, in contrast to the business plan for 2016-2020 years, as a result of the independent crude oil processing scheme and the reduced volume of domestic oil supplies, as well as changed assumptions on the price of Brent and the exchange rate of Tenge per US dollar, partially offset by increased capital expenditures.

Production

Planned production in 2017 is expected to be 5.8 million tonnes (117 kbopd) from JCS OzenMunaiGas (OMG) and 2.8 million tonnes (57 kbpod) from JSC EmbaMunaiGas (EMG). Thus, the total planned production volume in 2017 from OMG and EMG is 8.7 million tonnes (175 kbopd), a 2% increase on expected production in 2016 due to the comprehensive measures with existing well stock and additional geological and technical measures.

The Company's share in the planned production of Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI) in 2017 is 3.5 million tonnes (72 kbopd), which is 7% less than expected production in 2016 mainly due to an anticipated natural decline of production at the PKI and KGM.

The Company expects that by 2021 the annual volume of oil production at OMG and EMG will increase to 6.2 million tonnes and 3.1 million tonnes, respectively, 10% higher than expected production in 2016 due to the comprehensive measures with existing well stock and additional geological and technical measures. Meanwhile, production of KGM, CCEL and PKI is expected to be 3.0 million tonnes by 2021, which is 20% less compared to the expected production in 2016, mainly due to a natural decline of production at PKI by 56%.

Overall, the total combined production of the Company, including its stakes in KGM, CCEL and PKI, in 2021 is expected to be 1% higher than expected production in 2016.

Domestic supplies

The Company expects that in 2017 OMG and EMG will supply approximately 33% of total sales, or 2.9 million tonnes of oil (57 kbopd) directly to Atyrau Refinery (ANPZ) and Pavlodar Refinery (PNHZ) for processing into oil products to be sold in accordance with the independent crude oil processing scheme effective from April 2016.

Of the 2.9 million tonnes of oil supplied to the domestic market, 1.9 million tonnes (38 kbopd) will be directed to ANPZ and 1.0 million tonnes (19 kbopd) will be directed to PNHZ.

It is expected that the Company's share in the volume of oil supply to the domestic market in 2017 from KGM, CCEL and PKI will amount to 1.6 million tonnes (33 kbopd) or roughly 45% of total sales from these companies. In 2018-2021 the volume of oil supply to the domestic market from KGM, CCEL and PKI is expected to remain not more than 50% of these companies' total sales.

The average domestic supply price in 2017 is expected to be 31,188 Tenge per tonne (US$11.25 per barrel) for KGM, 49,837 Tenge per tonne (US$17.86 per barrel) for PKI and 26,786 Tenge per tonne (US$11.14 per barrel) for CCEL.

The Company continues to work alongside NC KMG and the Ministry of Energy to increase the transparency of the process of setting the volume of oil supply to the domestic market in order to balance the interests of relevant parties.

Continuation of the independent crude oil processing scheme

The approved budget and business plan assume the continuation of the independent crude oil processing scheme with further independent sales of oil products, similar to the scheme effective from April 2016.

Net revenue achieved from the sale of refined oil products (net of all processing and marketing costs[1]) in 2017 is expected to be 43,800 Tenge per tonne (US$16.8 per barrel) at ANPZ and 43,700 Tenge per tonne (US$16.8 per barrel) at PNHZ. Net revenue from these sales depend on market prices of oil products (except for government-regulated petrol AI-80) and the output of oil products from refineries.

It is expected that after planned completion during 2017 of the on-going modernization programme at ANPZ and PNHZ, output of light oil products will increase. At the same time, processing fees are assumed to increase by 25% at ANPZ and 10% at PNHZ following completion of the modernization (for reference, processing fees in 2016 are 20,501 Tenge per tonne at ANPZ and 14,895 Tenge per tonne at PNHZ).

Capital expenditure

Capital expenditure in 2017 is planned at 119 billion Tenge (US$330m[2]), 15% higher than the expected capital expenditure for 2016. The increase is mainly due to investment in fixed assets (primarily oilfield equipment and machinery) and higher expenditures on production and exploration drilling, partially offset by lower expenditures on construction and modernisation of production facilities.

The increase in expenditures on production drilling is due to the higher cost of drilling per well at OMG, partly offset by a decline in drilling activity. The company expects to drill 191 wells in 2017 compared to 249 wells in 2016.

Annual average capital expenditure in 2018-2021 is expected to be around 100 billion Tenge (US$279m2).

Notes to Editors

KMG EP is among the top three Kazakh oil producers. The overall production in 2015 was 12.4 million tonnes (251 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 2015 was 193 million tonnes (1,409 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 79 08)Bakdaulet Tolegene-mail: [email protected]

Brunswick Group (+44 207 404 5959)

Carole Cable

e-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.