16 Sep 2008 08:31
PRESS - RELEASE
JSC KazMunaiGas Exploration Production announces
its financial results for the first half of 2008
Astana, 16 September 2008, JSC KazMunaiGas Exploration Production ("KMG EP" or "the Company"), has released its unaudited consolidated interim financial information for the first half of 2008.
An increase of crude oil production by 19.4% to 5,899 thousand tonnes in the first 6 months of 2008
154% growth in net income to 147.5bn Tenge (US$1,224m) (1) and an increase in earnings per share from 780 Tenge (US$1.06 per GDR) to 1,990 Tenge (US$2.75 per GDR)
Askar Balzhanov, the CEO of the Company, said: "The results for the first half of 2008 are in line with our plans and demonstrate the progressive development of the Company. We intend to maintain the Company's financial and operational growth with the continued focus on expansion of our resource base".
Production Highlights
The Company produced 5,899 thousand tonnes of crude oil (238 kbopd) in the first six months of 2008. The increase by 960 thousand tonnes or 19.4% compared to the same period in 2007 is primarily due to the acquisition of 50% stakes in Kazgermunai and CCEL, completed in April and December 2007 respectively. Excluding Kazgermunai and CCEL, in the first six months of 2008 the Company's production was 4,693 thousand tonnes of crude oil (190 kbopd), which is 32 thousand tonnes more than in the same period of 2007.
In the first half of 2008 the Company supplied 5,731 thousand tonnes of crude oil (231 kbopd) to its customers which is 13.8% more than in the same period of 2007 (2). Exports of crude oil, including the Company's interest in Kazgermunai and CCEL was 4,390 thousand tonnes (177 kbopd). Excluding oil produced by Kazgermunai and CCEL, in the first half of 2008 the Company supplied 4,535 thousand tonnes of crude oil (183 kbopd), of which 3,398 thousand tonnes (137 kbopd) were exported, a decline of 9% over the first half of 2007. The decline was driven by the distribution of domestic and export volumes by the Ministry of Energy and Mineral Resources. The Company is making efforts to improve the share of exports in the second half of 2008.
(2) The sales volume includes the royalty paid by Kazgermunai in kind in the amount of 54 thousand tonnes of crude oil (2.27 kbopd, corresponding to a 50% stake owned by KMG EP
Financial Highlights
Profit after tax (net income) for the first half of 2008 was 147.5bn Tenge (US$1,224m). This is 154% higher than for the first half of 2007. The net income increase is mainly attributable to higher crude oil prices, additional profit from the Company's 50% share in Kazgermunai and increased financial income, including the accrual of the return on investment in CCEL. These factors were partly offset by income tax expenses increase, introduction of an export duty in May 2008 and growth in operating expenses.
KMG EP's revenue in the first half of 2008 increased by 61% to 337bn Tenge (US$2,797m) in comparison with the same period in 2007. This was primarily due to a 68% increase in the average realized price form 43,268 Tenge per tonne (US$48.6 per bbl) to 72,829 Tenge per tonne (US$83.6 per bbl). Revenue increase was constrained by an increase in inventory and a decline in the share of exports in total crude oil sales to 74.9% in first six months of 2008 versus 78.2% in first six months of 2007. In US dollar terms revenues increased by 64% in comparison with the first half of 2007.
Operating expenses were 121,8bn Tenge (US$1,011m) in the first half of 2008, which is 21.9bn Tenge or 22% higher than in the first half of 2007. The main reasons for such increase were the introduction of a customs export duty in May 2008 and an increase in royalties driven by higher revenues. Excluding these two factors, operating expenses in the first six months of 2008 declined slightly compared to the same period of 2007 as growth in repairs and maintenance, energy, materials and other expenses were offset mainly by the effect of inventory movements, lower fines and penalties as well as reduced depreciation, depletion and amortization charge.
As previously announced, the Company raised salaries and other benefits for certain categories of employees of production units from July 1, 2008. As a result, the Company expects to incur an additional expense of 4.8bn Tenge in the second half of 2008 including personal income tax and pension fund deductions. The implemented average monthly wage increase by over 20% is aimed to compensate the Company's field employees for inflation in the past few years, and will help the Company to retain experienced staff. A further salary indexation is expected in 2009, in line with the requirements of the Kazakh labour legislation.
Starting May 17, 2008, the Company's export sales from its core production units Embamunaigas and Uzenmunaigas have been subject to an export duty in the amount of US$109.91 per tonne (US$14.9 per bbl). As a result, in the first six months of 2008 the Company accrued 15.8bn Tenge as part of its operating expenses. Crude oil export duty was increased to $203.8 per tonne ($27.9 per bbl), effective from 11th October 2008 and is expected to apply through the rest of the year 2008. The Company expects further changes to the applicable fiscal regime from January 1, 2009 following the planned introduction of a new Tax Code of the Republic of Kazakhstan. The Government of Kazakhstan has prepared a draft Tax Code and submitted it to the lower chamber of Parliament in August, 2008. It is expected that the new Tax Code will be finalised before November 2008 and enacted from the beginning of 2009. The changes to tax legislation proposed by the Government are likely to increase the tax burden on the Company and its associates at the current oil prices compared to the fiscal regime of 2007.
Operating cash flow in the first half of 2008 was 75.4bn Tenge (US$626m), approximately 39% higher than in the first half of 2007. The main reason was an increase in world oil prices.
Purchases of property, plant and equipment (capital expenditures, not including purchases of intangible assets, as per Cash Flow Statement) in the first six months of 2008 were 20.2bn Tenge (US$167m) which is 3% lower than in the first six months of 2007. The Company's capital expenditure in 2008 is expected to be 45.2bn Tenge in comparison to 40.1bn Tenge in 2007, excluding the capital expenditure of associated companies.
Cash, cash equivalents and financial assets at the end of the first half of 2008 amounted to 490.4bn Tenge (US$4,061m) compared to 402.2bn Tenge (US$3,343m) at the end of 2007. Borrowings were 24.2bn Tenge (US$200m) at the end of the first half of 2008 compared to 32.8bn Tenge (US$266m) at the end of 2007.
Impact of acquisition of a 50% stake in Kazgermunai
On April 24, 2007 KMG EP finalised the acquisition of a 50% stake in Kazgermunai for 118.7bn Tenge (around US$975m) including costs directly attributable to the acquisition. The 83.1bn Tenge difference between the consideration and the carrying value of Kazgermunai's net assets acquired was primarily attributed to the value of the license of Kazgermunai based on its proved reserves.
KMG EP recognised 27.4bn Tenge (US$227m) as its 50% share of financial results of Kazgermunai as an equity investment in the Company's condensed consolidated interim financial information for the six months of 2008. The amount of 27.4bn Tenge is the 50% stake in Kazgermunai's net income for first half of 2008, adjusted for the 5.5bn Tenge of the effect of the fair valuation of the license amortisation over the proved reserves of Kazgermunai using the unit-of-production method.
During the first six months of 2008, Kazgermunai's 100% production was equal to 1,551 thousand tonnes of oil (64.9 kbopd). Crude oil exports by Kazgermunai were 81.6% of its sales volumes in this period (3).
Impact of acquisition of a 50% stake in CCEL
On December 12, 2007 the Company completed the acquisition and received from State Alliance Holdings Limited a 50% participation interest in a holding company CCEL, whose investments are involved in oil and natural gas production in western Kazakhstan, in particular from Karazhanbas field.
The Company has recognized the amount of 19,682m Tenge (US$163m) as a receivable from jointly controlled entity as of June 30, 2008.
KMG EP has accrued 1,242m Tenge (US$10.3m) in the first six months of 2008. This represents a half of the interest portion of the US$26.2m annual priority return as interest income.
During the first six months of 2008 CCEL's 100% production was equal to 860 thousand tonnes of oil (31.6 kbopd). Crude oil exports by CCEL were 85.2% of its sales volumes in this period.
***
The full condensed consolidated interim financial information for the 6 months ended 30 June 2008 (unaudited) and the notes thereto are available at the Company's website (www.kmgep.kz).
(3) At calculation of export in volume of sales, the royalty tax in kind has been included in volume of domestic market sales
Appendix.
Key operating and financial indicators of KMG EP for the first half of 2008 (4)
| | | Three months ended June 30 | Six months ended June 30 | ||
| Tenge thousands | | 2008 | 2007 | 2008 | 2007 |
| | | | | | |
| Revenue | | 193,548,353 | 111,755,303 | 337,031,637 | 209,938,935 |
| Operating expenses | | (72,464,771) | (50,730,631) | (121,777,194) | (99,899,138) |
| Profit from operations | | 121,083,582 | 61,024,672 | 215,254,443 | 110,039,797 |
| Finance income | | 10,451,668 | 5,500,496 | 20,452,017 | 13,156,788 |
| Finance expenses | | (628,548) | (935,544) | (1,732,044) | (2,811,804) |
| Foreign currency translation | | 128,362 | (1,482,052) | 962,372 | (5,624,699) |
| Gain on disposal of subsidiaries | | − | 215,882 | − | 215,882 |
| Share of result of associates | | 18,204,437 | 2,754,664 | 27,254,763 | 2,659,736 |
| Profit before tax | | 149,239,501 | 67,078,118 | 262,191,551 | 117,635,700 |
| Income tax expense | | (65,183,668) | (32,830,259) | (114,676,674) | (59,540,672) |
| Profit for the period | | 84,055,833 | 34,247,859 | 147,514,877 | 58,095,028 |
| Attributable to: | | | | | |
| Equity holders of the Company | | 84,055,833 | 34,247,906 | 147,514,877 | 58,095,028 |
| Minority interest | | − | (47) | − | − |
| | | 84,055,833 | 34,247,859 | 147,514,877 | 58,095,028 |
| EARNINGS PER SHARE | | | | | |
| Attributable to equity holders of the Company – basic | | 1.13 | 0.46 | 1.99 | 0.78 |
| Six months ended June 30 | ||
| Tenge thousands | 2008 (unaudited) | 2007 (unaudited) |
| Net cash generated from operating activities | 75,391,568 | 54,240,001 |
| Cash flows from investing activities | ||
| Purchases of property, plant and equipment (PPE) | (20,169,237) | (20,744,757) |
| Proceeds from sale of PPE | 511,610 | 17,410 |
| Purchases of intangible assets | (5,814) | (24,273) |
| Dividends received from joint ventures and associates | 9,063,750 | − |
| Purchases of joint venture interest | − | (118,250,000) |
| Purchases of financial assets held to maturity, net | (84,146,098) | (1,418,600) |
| Sales (purchases) of available-for-sale financial | 6,449,113 | (6,767,606) |
| Loan repayments received from related parties | − | 97,440,000 |
| Proceeds related to disposal of subsidiaries | − | 10,612,500 |
| Interest received | 19,001,810 | 14,035,089 |
| Net cash used in investing activities | (69,294,866) | (25,100,237) |
| Net cash used in financing activities | (647,623) | (4,638,178) |
(4) Rounding adjustments have been made in calculating some of the financial information included inthe Appendix. As a result, figures shown as totals in some tables may not be exact arithmetic aggregationsof the figures that precede them. Summary of Condensed Consolidated Balance Sheets
| Tenge thousands | June 31, 2009 (unaudited) | December 31, 2007 (audited) |
| ASSETS | ||
| Non-current assets | 401,767,524 | 379,698,819 |
| Current assets | 598,886,627 | 472,152,922 |
| Total assets | 1,000,654,151 | 851,851,741 |
| EQUITY | ||
| Share capital | 260,229,846 | 259,365,914 |
| Other equity | 919,436 | 580,988 |
| Retained earnings | 492,291,458 | 386,494,710 |
| Total equity | 753,440,740 | 646,441,612 |
| LIABILITIES | ||
| Non-current liabilities | 57,823,819 | 70,077,379 |
| Current liabilities | 189,389,592 | 135,332,750 |
| Total liabilities | 247,213,411 | 205,410,129 |
| TOTAL EQUITY AND LIABILITIES | 1,000,654,151 | 851,851,741 |
The following tables show the Company's realised sales prices adjusted for oil and oil products transportation and other expenses for six months ended June 30, 2008 and 2007:
| | 1H 2008 | ||||||
| | UAS | CPC | DOMESTIC | TTL | |||
| | (US$/bbl) | ||||||
| Benchmark end-market quote | 105,09 | 110,31 | - | - | |||
| Realised price | 102,00 | 110,77 | 20,44 | 83,59 | |||
| Export customs duty | 5,33 | 5,33 | - | 4,00 | |||
| Transportation | 7,51 | 8,26 | 0,88 | 6,02 | |||
| Sales commissions | 0,07 | 0,07 | - | 0,05 | |||
| Adjusted realised price | 89,09 | 97,11 | 19,56 | 73,52 | |||
| | 1H 2007 | ||||||
| | UAS | CPC | DOMESTIC | TTL | |||
| | (US$/bbl) | ||||||
| Benchmark end-market quote | 59,80 | 63,69 | - | - | |||
| Realised price | 55,73 | 59,85 | 18,85 | 48,60 | |||
| Export customs duty | - | - | - | - | |||
| Transportation | 6,10 | 6,32 | 0,80 | 5,00 | |||
| Sales commissions | 0,07 | 0,07 | - | 0,05 | |||
| Adjusted realised price | 49,56 | 53,46 | 18,05 | 43,55 | |||
Reference information
|
| 1H 2008 | 2007 | 1H 2007 | ||
| Average exchange rate US$/ KZT | 120,51 | 122,55 | 123,15 | ||
| US$/KZT at balance sheet date | 120,75 | 120,30 | 122,31 | ||
| Barrels to tones conversion ratio for KMG EP crude oil | 7,36 | ||||
| Barrels to tones conversion ratio for Kazgermunai crude oil | 7,70 | ||||
| Barrels to tones conversion ratio for CCEL crude oil | 6,68 | ||||
***
Notes to Editors
KMG EP is the 2nd largest Kazakh oil producer with over 10.6 mmt (215kbopd) of crude oil production in 2007 including shares in production of Kazgermunai and CCEL, and 240 mmt (1.8bn bbl) of proved and probable reserves at the end of 2007 (over 2 bn bbl including interests in Kazgermunai and CCEL). The Company's shares are listed on Kazakhstan Stock Exchange and the GDRs are listed on London Stock Exchange. The Company raised approximately US$2bn in its IPO in September of 2006.
For additional information please contact:
KMG EP, Public Relations (+7 717 297 7600, +7 717 297 7924)
Zukhra Sultanova
E-mail: pr@kmgep.kz
KMG EP, Investor Relations (+7 717 297 5433)
Alexander Gladyshev
E-mail: ir@kmgep.kz
WMC Communications Ltd / Pelham PR (+44 20 3178 4418)
Elena Dobson
E-mail: Elena.dobson@pelhampr.com
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.