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Interactive Annual Report 2009







KMG EP’s goal is to build on its position as a leading oil and gas company in Kazakhstan by increasing its production and replacing its reserves both through acquisitions in the short-to-medium term and through exploration in the longer term. As part of the process of achieving this goal, the Company has developed a five year strategy, with the following key priorities:

Grow and replace reserves

  • Exploit the rights granted by NC KMG in respect of existing producing and unlicensed blocks.
  • Selective acquisitions in Kazakhstan and abroad.
  • Continue exploration efforts on existing and new blocks.
Maintain production in existing fields

  • Sustain production from the existing reserve base over the medium term.
  • Continue the use of secondary and enhanced oil recovery techniques.
Cost and asset rationalization

  • Initiatives in place to reduce production costs and capex over the medium term.
  • Asset Optimisation Programme underway to divest non-core subsidiaries.
Environmental improvements

  • Policies under implementation to meet international environmental, labour, HR and safety standards.

One of the main objectives of KMG EP is to retain and consolidate its position as a leading oil and gas producer in Kazakhstan and to build a strong platform for future growth. This was achieved by utilising the Company’s strong relationships with its parent company, NC KMG, which gives KMG EP preferential access to onshore assets in Kazakhstan and helps build its portfolio of assets through its acquisition strategy.

Acquisitions in particular became the main focus of the Company after its IPO on the LSE and KASE in October 2006, following which in 2007 the company acquired a 50% interest in an Kazgermunai and additional 50% interest in Karazhanbasmunai and 33% in Petrokazakhstan Inc in December 2009. 

As a result of the acquisition reserves attributed to KMG EP from the total production level of Kazgermunai were 1061 thousand tonnes in 2009. Dividends received from Kazgermunai by KMG EP since acquiring the 50% interest were $800 millions.

The 50% interest in Karazhanbasmunai (KBM), was completed on 12 December 2007. KBM operates in Karazhanbas oil and gas field in Mangistau region in Western Kazakhstan. The deal utilised an innovative financial solution for the benefit of the Company and its shareholders. The Company paid $150 million in cash from its own funds, and received funding for the remaining $780 million on competitive terms. Furthermore, the Company also receives an annual priority income of $26.2 million from the dividend flow.

 

On 23 December 2009, KMG EP completed a transaction to acquire 33% of the shares of PetroKazakhstan Inc. (PKI) from its parent company JSC National Company KazMunayGas (NC KMG). This deal confirms that the Company is systematically following the  acquisition plan announced during its IPO in 2006.

 

Thanks to this acquisition, KMG EP will be able not only to increase 2010 production by around 17%, but also to expand the geographical spread of its business, which is currently concentrated mainly in Western Kazakhstan. Moreover, KMG EP will gain access to the development of PKI’s new licensed blocks, whose promising potential has been identified by preliminary exploration results.

 

The PetroKazakhstan Inc. group of companies is involved in hydrocarbon exploration and production as well as in the sale of oil and petroleum products. PKI has a share in 16 fields, 11 of which are in various stages of development. In 2009 PKI produced 6,294 thousand tonnes of oil (134kbopd).

 

The majority shareholder in PKI is the Chinese oil and gas company, CNPC Exploration and Development Company Ltd. (CNPC E&D), which holds 67% of the shares.

PKI’s production is stable and no substantial changes are expected in output. This asset is able to generate stable cash flows without large capital expenditures. In addition, PKI holds a number of licences for the exploration of promising areas that will allow the Company to increase its resource base and ensure stable production for years ahead.

 

As a result of aqusitions of shares in Kazgermunai, Karazhanbasmunai and PKI  consolidated oil production level of KMG EP increased significantly. In 2009, total production was 232 kbopd, that is 28% more than that excluding these acquisitions.


The Company is also considering the possible acquisition of a 50% interests in Kazakhoil-Aktobe and Kazakhturkmunai from its parent company. The Company also has a potential interest in an acquisition of a large share of Mangistaumunaigaz.

 

The close cooperation and partnership with the National Company KazMunayGas and the Government of Kazakhstan play a key role in the implementation of KMG EP’s acquisition strategy and give considerable advantages to the Company with respect to new business development opportunities.


A strong financial position, good knowledge of local markets and excellent managerial expertise enable the Company to expand its domestic portfolio on favourable terms. The company is also considering acquisitions and joint partnership opportunities on a number of assets both in and outside Kazakhstan.