JSC KazMunaiGas released its condensed consolidated interim financial statements for the three months ended March 31, 2010.
Commenting on the financial results for the first three months of 2010, Kenzhebek Ibrashev, CEO of KMG EP, said, "Overall the Company has strong results this quarter, despite production setbacks related to the industrial action at Uzenmunaigas. There were significant advancements in operating profit, helped by increased oil prices, and increased contribution to the results from the Company's strategic investments in Kazgermunai (KGM), CCEL (Karazhanbasmunai) and PetroKazakhstan Inc. (PKI). Going forward, KMG EP will continue to strengthen the production line at current operations and grow through strategic acquisitions."
In the first three months of 2010 the Company produced 2,085 thousand tons (171kbopd) of crude oil from its Uzen and Emba fields, 2% less than in the same period of 2009. The decline in production was mainly caused by the failure to perform well service operations and oilfield equipment repair on time amid an industrial action at Uzenmunaigas over the period from March 4 through March 18.
Consolidated production was 3,062 thousand tons (252kbopd) of crude oil, which is 319 thousand tons or 12% higher than in the same period of 2009. The increase is mainly due to the addition of 366 thousand tons (32kbopd) as a result of the acquisition of a 33% stake in PKI in December 2009.
The Company supplied 2,078 thousand tons (170kbopd) of crude oil, excluding the share in supply from Kazgermunai, CCEL and PKI. Of this amount, 1,717 thousand tons (140kbopd) of crude oil were exported; 337 thousand tons (28kbopd) of crude oil and 24 thousand tons (2kbopd) of refined products in oil equivalent were supplied to the domestic market.
The Company's share in sales volumes from Kazgermunai, CCEL and PKI2, including re-sale of crude oil purchased by PKI from third parties was 1,117 thousand tons (93kbopd) of crude oil, including 768 thousand tons (64kbopd) supplied for export (69% of sales).
Revenue for the first three months of 2010 increased by 76% to 146bn Tenge (US $989m) compared to the same period in 2009. This was due to an 83% increase in the average realized price per ton, from 37,680 Tenge (US $37.53 per bbl) to 69,022 Tenge (US $64.64 per bbl) and a 2% reduction in sales volume. In US dollar terms, revenues increased by 65%.
Operating expenses were 91.4bn Tenge (US $619m) for the first three months of 2010, 45% higher compared to the same period in 2009. A significant part of this opex increase is due to higher rent and mineral extraction taxes (MET) resulting from the increased oil price. Excluding rent tax and MET expenses, operating expenses in the first three months of 2010 increased by 8% in Tenge compared to the same period of 2009. This was driven by an increase in repairs and maintenance expenses, social projects, payroll and energy expenses partly offset by decrease in transportation and materials expenses.
Growth in repairs and maintenance expenses was due to increased number of repaired wells and higher repair cost per well. Growth in social projects expenses reflects increased financing of projects in Mangistau region. Payroll expenses increase reflects salary indexation from January 1, 2010. Following the industrial action in March 2010 the Company is currently considering a further salary increase at the production units in the near future. Growth in energy expenses was mainly caused by increase in energy tariffs by 58% in February 2010 by AtyrauZharyk JSC, the main supplier of Embamunaigas.
In US dollar terms operating expenses per barrel excluding taxes increased by 4% compared to the same period of 2009 and increased by 6% versus the fourth quarter of 2009.
Operating cash flow for the first three months of 2010 was 9.2bn Tenge (US $62m), which is 82% less than in the same period of 2009. The key reason for the decline was large foreign exchange gain in the first three months of 2009, not recurring in 2010, as well as an increase in working capital in 1Q10.
Purchases of property, plant and equipment (capital expenditure, not including purchases of intangible assets, as per Cash Flow Statement) in the first three months of 2010 were 10.6bn Tenge (US $72m) compared to 4.7bn Tenge (US $34m) in the same period of 2009, representing 126% increase. In US dollar terms, capital expenditure increased by 113% according to the approved capital expenditures budgeted for 2010.
Cash and debt
Net cash position at March 31, 2010 amounted to 518.1bn Tenge (US $3.5bn) compared to 505.0bn Tenge (US $3.4bn) as at 31 December 2009.
Cash, cash equivalents and financial assets at March 31, 2010 were 656bn Tenge (US $4.4bn).
As at March 31, 2010, 71% of cash and deposits with banks were denominated in USD and 29% were denominated in Tenge. Cash and deposits with two of the largest Kazakh banks, Halyk and Kazkommertsbank, account for approximately 73% of the financial assets as at 31 March 2010. Interest accrued on deposits with banks for the first three months of 2010 was 9.8bn Tenge (US $67m).
Borrowings and obligations were 138bn Tenge (US $938m) as at March 31, 2010 compared to 138bn Tenge (US $928m) as at December 31, 2010. Borrowings include 129bn Tenge (US $880m) of non-recourse debt of KMG PKI Finance related to the acquisition of the 33% stake in PKI.
Contribution from strategic acquisitions
In the first three months of 2010 the Company recorded a 6.8bn Tenge (US $46m) gain from its share in Kazgermunai. This amount represents 50% of Kazgermunai's net profit of 9.0bn Tenge (US $61m) and 1.2bn Tenge (US $8m) deferred income tax benefit adjusted for 2.6bn Tenge (US $17m) from the effect of purchase price premium amortization and 0.8bn Tenge (US $6m) deferred income tax amortisation. The financial results of Kazgermunai in the first three months of 2010 were primarily affected by the higher oil price compared to the corresponding period of 2009.
On April 28, 2010 the Company received US $150m in dividends from Kazgermunai. From the date of the acquisition, dividends received have amounted to US $800m.
In the first three months of 2010 KMG EP recorded a 5.5bn Tenge (US $37m) gain from its share in PKI. This amount represents 33% of PKI's net profit of 9.1bn Tenge (US $62m) adjusted for 3.6bn Tenge (US $25m) from the effect of purchase price premium amortization.
On February 24, 2010, KMG EP received dividends from PKI in the amount of US $16.5m. On May 6, 2010, the Company also received US $66m in dividends from PKI.
The Company has recognized the amount of 21.9bn Tenge (US $149m) as a receivable from CCEL, a jointly controlled entity. The Company has accrued 0.8bn Tenge (US $5m) of interest income for the first three months of 2010 related to the US $26.87m annual priority return from CCEL.
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