13th Aug 2015 07:00
JSC KazMunaiGas Exploration Production
1H 2015 Financial Results
Astana, 13 August 2015. JSC KazMunaiGas Exploration Production ("KMG EP" or "the Company") announces condensed consolidated interim financial statements for the six months ended 30 June 2015.
· Net profit for the first six months of 2015 was 2.9bn Tenge (US$16m[1]) compared with 210bn Tenge (US$1,193m) in the same period of 2014. A decline in net profit was largely due to lower revenue and devaluation effect in 2014.
· Revenue in the first six months of 2015 was 241bn Tenge (US$1,302m), which is 48% lower compared with the same period of 2014. The lower revenue was the result of a 47% decline in Brent price from US$108.9 per bbl in 1H2014 to US$57.8 per bbl in 1H2015 and a 52% decline in average domestic realized price from 48 th. Tenge per tonne in 1H2014 to 23 th. Tenge per tonne in 1H2015.
· Production expenses in the first six months of 2015 were 109bn Tenge (US$589m), a 23% increase compared with the same period of 2014 mainly due to increased employee benefit expenses of production personnel. Company agreed to implement a Unified System of Wages of employees from 1 April 2014 onwards and to increase wages by 10% in connection with the devaluation of the Tenge in February 2014.
Production Highlights
KMG EP, including its stakes in Kazgermunai (KGM), CCEL (CCEL) and PetroKazakhstan Inc. (PKI), produced 6,122 thousand tonnes of crude oil (250 kbopd) in the first six months of 2015, an 0.3% increase over the same period of 2014.
Ozenmunaigas JSC (OMG) production increased by 4% to 2,722 thousand tonnes (111 kbopd) in comparison with the same period of 2014, largely due to conducting geological and technical works to improve well efficiency. Embamunaigas JSC (EMG) produced 1,385 thousand tonnes (56 kbopd), slightly less than in the same period of 2014. The total volume of oil OMG and EMG produced was 4,107 thousand tonnes (167 kbopd), a 2% increase compared with the same period of 2014.
The Company's share in production from CCEL, KGM and PKI for the first six months of 2015 amounted to 2,015 thousand tonnes (83 kbopd) which is 3% less than in the same period in 2014, due to the natural decline of production by 10% in PKI, in line with the production plan for 2015.
Crude oil and oil products sales
In the first six months of 2015, the Company's combined export sales from OMG and EMG were 2,365 thousand tonnes (94 kbopd) or 57% of the total oil sales volumes. Domestic sales amounted to 1,231 thousand tonnes (49 kbopd) of which 1,101 thousand tonnes of oil (44 kbopd) were supplied to the Atyrau Refinery from OMG and EMG; 96 thousand tonnes of oil (4 kbopd) were supplied to the Pavlodar Refinery from EMG and 34 thousand tonnes (1.4 kbopd) of oil products were sold after processing. Additionally, 566 thousand tonnes of crude oil (23 kbopd) were shipped to Russia to fulfill obligations under the counter-oil supply agreement between the Government of Kazakhstan and the Russian Government.
The Company's share in the sales from CCEL, KGM and PKI was 1,977 thousand tonnes of crude oil (81 kbopd), including 889 thousand tonnes (36 kbopd) shipped to export, which is 45% of the total sales volumes. The domestic sales volume was 1,019 thousand tonnes (43 kbopd) of which 683 thousand tonnes (29 kbopd) were supplied to the Pavlodar Refinery, 225 thousand tonnes (10 kbopd) were supplied to Shymkent Refinery, 39 thousand tonnes (1 kbopd) were supplied to Atyrau Refinery and 72 thousand tonnes (3 kbopd) to Aktau Bitumen Plant. 70 thousand tonnes of crude oil (3 kbopd) were shipped to Russia in order to fulfill obligations under the counter-oil supply agreement between the Government of Kazakhstan and the Russian Government.
Net Profit for the Period
Net profit in the first six months of 2015 was 2.9bn Tenge (US$16m) compared with 210bn Tenge (US$1,193m) in the same period of 2014. A decline in net profit is largely due to lower revenue and lower foreign exchange gain.
Revenue
The Company's revenue in the first six months of 2015 was 241bn Tenge (US$1,302m), which is 48% lower compared with the same period of 2014. This is due to a 47% decline in Brent price and a 52% decline in average domestic realized price from 48 th. Tenge per tonne in 1H2014 to 23 th. Tenge per tonne in 1H2015. Domestic realized price in 1H2015 was 22.4 th. tenge per tonne at the Atyrau Refinery and 30.0 th. Tenge per tonne at the Pavlodar Refinery.
Starting from 1 July 2015 domestic prices increased to 24.0 th. Tenge per tonne at the Atyrau Refinery and to 32.0 th. Tenge per tonne at the Pavlodar Refinery. But these prices have yet to be approved by independent directors.
Taxes other than on Income
Taxes, other than on income, in the first six months of 2015 were 83bn Tenge (US$446m), which is 54% lower than in the same period of 2014. Decline in rent tax and MET expenses is due to a 47% lower Brent price in 1H2015 compared with the same period of 2014 and lower export volumes. ECD declined largely due to a decrease in export volumes. ECD rate was reduced from US$80 to US$60 per tonne from 19 March 2015. Earlier, in April 2014 the ECD rate was increased from US$60 to US$80 per tonne.
Production Expenses
Production expenses in the first six months of 2015 were 109bn Tenge (US$589m), 23% higher than in the same period of 2014, mainly due to higher employee benefits of production personnel.
Expenses for employee benefits in the first six months of 2015 increased by 34% compared with the same period of 2014. This was largely due to an indexation of salary for production personnel by 7% in January 2015, 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 and an increase in production bonuses from 25% to 33% for supporting production personnel from September 2014.
Selling, General and Administrative Expenses
Selling, general and administrative expenses in 1H2015 were 53bn Tenge (US$289m), which is 8% higher than in 1H2014. This was largely due to higher employee benefits and an increase in accruals of fines and penalties partly offset by lower transportation expenses due to lower export volumes. In 1H2015 additional accruals of fines and penalties were made based on the preliminary results of tax audit for 2009-2012.
Cash Flows from Operating Activities
Cash flow from operating activities in the first six months of 2015 was 0.1bn Tenge (US$1m) compared with 149bn Tenge (US$844m) in the same period of 2014 mainly as a result of lower revenue in 1H2015.
Capital expenditure
Capital expenditure[2] in the first six months of 2015 was 56bn Tenge (US$301m), which is 4% less compared with the same period of 2014 mainly due to lower investments in maintenance capex partly offset by increase in drilling activity. In the first six months of 2015, 162 wells were drilled at OMG and EMG compared with 154 wells in 1H2014.
Currently management of the Company is at the final stage of development of optimisation programme. It will cover both operational and financial targets to be achieved in the short-term period.
Cash and Debt
Cash and cash equivalents as at 30 June 2015 amounted to 183bn Tenge (US$1.0bn) compared with 180bn Tenge (US$1.0bn) as at 31 December 2014. Other financial assets as at 30 June 2015 were 526bn Tenge (US$2.8bn) compared with 554bn Tenge (US$3.0bn) as at 31 December 2014.
As at 30 June 2015, 91% of cash and financial assets were denominated in foreign currencies (mainly US$) and 9% were denominated in Tenge. Finance income accrued on cash, financial, and other assets in the first six months of 2015 was 12bn Tenge (US$63m) compared with 11bn Tenge (US$63m) in 1H2014.
Borrowings as at 30 June 2015 were 6.9bn Tenge (US$37m), compared with 7.2bn Tenge (USD$40m) as at 31 December 2014.
The net cash position[3] as at 30 June 2015 amounted to 702bn Tenge (US$3.8bn) compared with 727bn Tenge (US$4.0bn) as at 31 December 2014.
Provision
In the first six months of 2015 the Company accrued tax provision in the amount of 16.7bn Tenge (US$90m), which relates to the preliminary results of complex tax audit for 2009-2012 years. These amounts relate to Corporate Income Tax and Excess Profit Tax in addition to fines and penalties.
Share of results of associate and joint ventures
In the first six months of 2015, KMG EP's share of results of associate and joint ventures was 2bn Tenge (US$10m) compared with 38bn Tenge (US$218m) in 1H2014.
Kazgermunai
In the first six months of 2015, KMG EP recognised 8bn Tenge (US$43m) of income from its share in KGM. This amount represents 7.3bn Tenge (US$39m) corresponding to 50% of KGM's net profit, with the effect of the 0.7bn Tenge (US$4m) impact from amortization of the fair value of licenses, the related deferred tax and revised effective income tax rate used to calculate deferred tax.
KGM's net profit in US dollars in the first six months of 2015 declined by 73% compared with the same period of 2014. This was largely due to lower revenue because of a 47% decline in Brent price and 15% lower export volumes.
In the first six months of 2015 KMG EP received US$25m as dividends from KGM.
PetroKazakhstan Inc.
In the first six months of 2015, KMG EP recognised 5.2bn Tenge (US$28m) of loss from its share in PKI. This amount represents 2.2bn Tenge (US$12m) corresponding to 33% of PKI's net loss, net of the 3.0bn Tenge (US$16m) effect of amortization of the fair value of the licenses.
In the first six months of 2015, PKI's net loss in US dollars was US$36m compared with net profit of US$349m in the same period of 2014, which was largely due to a 26% decline in export sales volumes and lower Brent and domestic prices.
CCEL
As of 30 June 2015, the Company had 20.2bn Tenge (US$108m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 1.3bn Tenge (US$7.3m) of interest income in the first six months of 2015 related to the US$26.87m annual priority return from CCEL.
Tax and environmental audits
As at 30 June 2015 the Company had several claims related to tax and environmental matters outstanding. More detailed information is provided in the condensed consolidated interim financial statements for the six months ended 30 June 2015.
Value-added-tax (VAT) recoverability. As at June 30, 2015 total recoverable VAT related to the Company's sale of assets to OMG and EMG in 2012 is 46.6bn Tenge. The tax authorities have conducted various audits and have repeatedly denied the Company's requests to have these VAT amounts recognized as recoverable. The Company disagrees with the tax authorities' position and has initiated court proceedings.
Upon consideration of the complaint of the OMG by the court of first instance, court of appeal and cassation of Mangistau region a positive decision was received. The court rulings have not been complied with by the tax authorities. On 28 July 2015 the Tax authorities filed an appeal of the court of first instance's judgment to the Supreme Court.
As a result of the complaint by the EMG, on 29 January 2015 the Specialized Interdistrict Economic Court of Atyrau region ruled to dismiss the complaint in its entirety. On 31 July 2015 EMG filed an appeal to the Cassation Panel.
Management believes that they will ultimately be successful in each of the above cases and has not provided for any allowances for collectability. Due to the uncertainty with respect to the ultimate timing of the receipt of the VAT amounts the receivable has been classified as a long term asset and discounted at 7.93%.
***
The condensed consolidated interim financial statements for the six months ended June 30, 2015, 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, | ||||||||
2015 | 2014 | 2015 | 2014 | ||||||
Revenue | 124,373 | 243,621 | 241,105 | 464,445 | |||||
Share of results of associate and joint ventures | (2,647) | 22,192 | 1,907 | 38,352 | |||||
Finance income | 5,547 | 5,922 | 11,735 | 11,158 | |||||
Total revenue and other income | 127,273 | 271,735 | 254,747 | 513,955 | |||||
Production expenses | (51,208) | (44,691) | (109,172) | (88,484) | |||||
Selling, general and administrative expenses | (27,005) | (27,176) | (53,445) | (49,420) | |||||
Exploration expenses | (128) | (128) | (477) | (386) | |||||
Depreciation, depletion and amortization | (6,274) | (12,047) | (10,620) | (27,103) | |||||
Taxes other than on income | (34,194) | (97,897) | (82,573) | (178,177) | |||||
Impairment of property, plant and equipment | (605) | − | (605) | (27,448) | |||||
Loss on disposal of property, plant and equipment | (3) | (585) | (75) | (808) | |||||
Finance costs | (850) | (1,166) | (1,931) | (1,972) | |||||
Foreign exchange gain, net | 1,579 | 5,322 | 18,634 | 113,435 | |||||
Profit before tax | 8,585 | 93,367 | 14,483 | 253,592 | |||||
Income tax expense | (7,278) | (6,521) | (11,594) | (43,288) | |||||
Profit for the period | 1,307 | 86,846 | 2,889 | 210,304 | |||||
Foreign currency translation difference | 1,227 | 3,275 | 1,585 | 55,609 | |||||
Other comprehensive income for the period to be reclassified to profit and loss in subsequent periods | 1,227 | 3,275 | 1,585 | 55,609 | |||||
Total comprehensive income for the period, net of tax | 2,534 | 90,121 | 4,474 | 265,913 | |||||
|
| ||||||||
Basic and diluted | 0.02 | 1.28 | 0.04 | 3.09 | |||||
Consolidated Interim Statement of Financial Position
Tenge million
June 30, 2015 | December 31, 2014 | |
Unaudited | Audited | |
ASSETS | ||
Non-current assets | ||
Property, plant and equipment | 205,951 | 156,436 |
Intangible assets | 10,552 | 10,855 |
Investments in joint ventures | 114,336 | 95,177 |
Investments in associate | 113,035 | 116,054 |
Receivable from a jointly controlled entity | 15,439 | 13,808 |
Loans receivable from joint ventures | 13,944 | 25,738 |
Other financial assets | 19,604 | 18,567 |
Deferred tax asset | 82,825 | 84,067 |
VAT recoverable | 43,889 | 42,300 |
Other assets | 7,898 | 15,472 |
Total non-current assets | 627,473 | 578,474 |
Current assets | ||
Inventories | 20,150 | 26,357 |
Income taxes prepaid | 40,727 | 23,916 |
Taxes prepaid and VAT recoverable | 35,499 | 37,831 |
Mineral extraction tax and rent tax prepaid | 1,264 | 2,581 |
Prepaid expenses | 21,808 | 30,011 |
Trade and other receivables | 38,485 | 56,570 |
Receivable from a jointly controlled entity | 4,756 | 4,658 |
Loans receivable from joint ventures | 8,427 | 7,692 |
Other financial assets | 506,490 | 535,513 |
Cash and cash equivalents | 182,723 | 180,245 |
Total current assets | 860,329 | 905,374 |
Total assets | 1,487,802 | 1,483,848 |
EQUITY | ||
Share capital | 163,004 | 163,004 |
Other capital reserves | 2,355 | 2,355 |
Retained earnings | 1,070,979 | 1,098,170 |
Other components of equity | 77,172 | 75,587 |
Total equity | 1,313,510 | 1,339,116 |
LIABILITIES | ||
Non-current liabilities | ||
Borrowings | 3,805 | 4,218 |
Deferred tax liability | 568 | 569 |
Provisions | 43,169 | 34,929 |
Total non-current liabilities | 47,542 | 39,716 |
Current liabilities | ||
Borrowings | 3,120 | 3,000 |
Provisions | 23,978 | 8,287 |
Income taxes payable | 16 | 15 |
Mineral extraction tax and rent tax payable | 20,573 | 34,200 |
Trade and other payables | 79,063 | 59,514 |
Total current liabilities | 126,750 | 105,016 |
Total liabilities | 174,292 | 144,732 |
Total liabilities and equity | 1,487,802 | 1,483,848 |
Consolidated Interim Statement of Cash Flows (unaudited)
Tenge million
Six months ended June 30, | ||
2015 | 2014 | |
Cash flows from operating activities | ||
Profit before tax | 14,483 | 253,592 |
Adjustments to add / (deduct) non-cash items | ||
Depreciation, depletion and amortisation | 10,620 | 27,103 |
Share of result of associate and joint ventures | (1,907) | (38,352) |
Loss on disposal of property, plant and equipment (PPE) | 75 | 808 |
Impairment of PPE and intangible assets | 605 | 27,502 |
Dry well expense on exploration and evaluation assets | 51 | 46 |
Forfeiture of share-based payments | − | (46) |
Unrealised foreign exchange gain on non-operating activities | (14,412) | (31,318) |
Other non-cash income and expense | 252 | 48 |
Add finance costs | 1,931 | 1,972 |
Deduct finance income relating to investing activity | (11,735) | (11,158) |
Working capital adjustments | ||
Change in other assets | 99 | 9 |
Change in inventories | 6,138 | 1,140 |
Change in taxes prepaid and VAT recoverable | 1,536 | (2,872) |
Change in prepaid expenses | 8,204 | (4,109) |
Change in trade and other receivables | 18,510 | (23,594) |
Change in trade and other payables | (14,116) | (435) |
Change in mineral extraction and rent tax payable | (2,782) | 7,406 |
Change in provisions | 9,437 | (2,023) |
Income tax paid | (26,874) | (56,932) |
Net cash generated from operating activities | 115 | 148,787 |
Cash flows from investing activities | ||
Purchases of PPE | (44,086) | (63,704) |
Proceeds from sale of PPE | 34 | 247 |
Purchases of intangible assets | (640) | (552) |
Loans provided to the joint ventures | (1,676) | (1,807) |
Dividends received from joint ventures and associate, net of withholding tax | 4,626 | 18,201 |
Sale of financial assets held-to-maturity, net | 35,880 | 54,671 |
Repayments of loan receivable from related parties | − | 2,206 |
Proceeds from sale of other financial assets | − | 155 |
Interest received | 6,443 | 7,241 |
Net cash generated from investing activities | 581 | 16,658 |
Cash flows from financing activities | ||
Repayment of borrowings | (595) | (548) |
Dividends paid to Company's shareholders | (65) | (128,393) |
Net cash used in financing activities | (660) | (128,941) |
Net change in cash and cash equivalents | 36 | 36,504 |
Cash and cash equivalents at the beginning of the period | 180,245 | 119,036 |
Exchange gain on cash and cash equivalents | 2,442 | − |
Cash and cash equivalents at the end of the period | 182,723 | 155,540 |
The following tables show the Company's realised sales prices adjusted for oil transportation and other expenses for the six months ended June 30, 2015[4].
6M2015 | |||||
(US$/bbl) | UAS | CPC | Atyrau refinery | Pavlodar refinery | Shipments to Russia |
Benchmark end-market quote | 57.8 | 57.8 | - | - | - |
Quality bank | - | (5.4) | - | - | - |
Price differential | (3.8) | (2.2) | - | - | - |
Realised price | 54.0 | 50.2 | 16.7 | 22.4 | 41.3 |
Rent tax | (7.1) | (6.1) | - | - | - |
Export customs duty | (9.8) | (9.1) | - | - | - |
MET | (5.9) | (5.4) | (2.0) | (2.0) | (4.1) |
Transportation | (7.8) | (7.4) | (0.9) | (7.0) | (5.4) |
Netback | 23.4 | 22.2 | 13.8 | 13.4 | 31.8 |
Premium of bbl difference | - | 4.4 | - | - | - |
Effective netback incl. premium of bbl difference | 23.4 | 26.6 | 13.8 | 13.4 | 31.8 |
6M2014 | |||||
(US$/bbl) | UAS | CPC | Atyrau refinery | Pavlodar refinery | Shipments to Russia |
Benchmark end-market quote | 108.9 | 108.9 | - | - | - |
Quality bank | - | (7.2) | - | - | - |
Price differential | (2.9) | (1.0) | - | - | - |
Realised price | 106.0 | 100.7 | 37.7 | - | - |
Rent tax | (23.0) | (22.2) | - | - | - |
Export customs duty | (9.6) | (8.7) | - | - | - |
MET | (12.0) | (11.0) | (2.4) | - | - |
Transportation | (8.4) | (7.4) | (2.1) | - | - |
Netback | 53.0 | 51.4 | 33.2 | - | - |
Premium of bbl difference | - | 8.5 | - | - | - |
Effective netback incl. premium of bbl difference | 53.0 | 59.9 | 33.2 | - | - |
Reference information | 6M2014 | 6M2015 |
Average exchange US$/KZT rate | 176.23 | 185.22 |
End of period US$/KZT rate | 183.51 | 186.20 |
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. The overall production in 2014 was 12.3 million tonnes (250 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 2014 was 177 million tonnes (1,303 mmbbl), out of which 132 million tonnes (981 mmbbl) relates to Ozenmunaigas, Embamunaigas, and Ural Oil and Gas (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 "$") have been translated solely for the convenience of the reader at the average rate over the applicable period for information derived from the consolidated statements of income and consolidated statements of cashflows and the end of the period rate for information derived from the consolidated balance sheets (average rates for 1H2015 and 1H2014 were 185.22 and 176.23 Tenge/US$, respectively; period-end rates at 30 June 2015 and 31 December 2014 were 186.20 and 182.35 Tenge/US$, respectively).
[2] The Company revised its approach to calculation of capital expenditure. 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.
[4] The netback calculation methodology has been changed starting from 1Q2015 to include MET subtraction from the netback. As a result comparative information for 1H2014 has been restated as well.
Related Shares:
Kazmunaigaz Exploration