KMG Increases Operating Profit by 81% in 1H 2010



KazMunaiGas Exploration Production ("KMG EP" or "the Company") released its condensed consolidated interim financial statements for the six months ended June 30, 2010.

  • Operating profit increased by 81% to 103.5bn Tenge (US $703m) compared to the first six months of 2009, mainly due to higher oil prices.
  • In the first six months of 2010 KMG EP made a profit of 100.0bn Tenge (US $679MM) and earnings per share were 1,370 Tenge (US $1.6 per GDR) compared to 128.8bn Tenge (US $890MM) and earnings per share 1,752 Tenge (US $2.0 per GDR) of the corresponding period in 2009. The decrease is mainly attributable to a significant foreign exchange gain followed the devaluation of Tenge in February 2009.
  • Average Brent price in the first six months of 2010 increased 50% compared to the same period of 2009, from US $51.68 per barrel to US $77.29 per barrel.

Commenting on the financial results for the first half of 2010, Kenzhebek Ibrashev, CEO of KMG EP, said, "With improved crude prices the company has increased the level of investments in its core fields and aims to deliver a sustainable production level from existing assets while using its strong balance sheet to pursue longer-term growth strategy."

Production Highlights

JSC KazMunaiGas Exploration Production (KMG EP or the Company), announces that in the first six months of 2010 it produced 6,283 thousand tonnes of crude oil (257 kbopd) including the Company's stakes in Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI)[2], which is 610 thousand tonnes or 11% more than during the same period of 2009. The increase in production results from the acquisition of 33% stake in PKI, which accounts for 733 thousand tonnes. The operating plan for 2010 including KGM, CCEL and PKI[3] remains at the same level of 13.5 million tonnes (274kbopd).

In the first six months of 2010 the Company produced 4,316 thousand tonnes (175 kbopd) of oil at production facilities of Uzenmunaigas and Embamunaigas, which is 107 thousand tonnes or 2% less than for the same period of previous year. The decline in production was mainly caused by the failure to perform well service operations and oilfield equipment repair on time amid a strike by Uzenmunaigas workers over the period from March 4 through March 18. 

In the first six months of 2010 KMG EP's share in production of KGM, CCEL and PKI amounted to 1,967 thousand tonnes (81 kbopd). 

According to preliminary data, during the first six months of 2010 the Company supplied 4,310 thousand tonnes of crude oil (175 kbopd), excluding the share in supply from KGM, CCEL and PKI. Of this amount 3,459 thousand tonnes (141 kbopd) were exported. 

The Company's share in the sales volumes from KGM, CCEL and PKI was 2,306 thousand tonnes of crude oil and oil products (96 kbopd), including 1,686 thousand tonnes (70 kbopd) supplied to export markets. Share in PKI's sales includes resale of crude oil due to contractual obligations for domestic supply. 

Financial Highlights 

Profit After Tax 

Profit after tax (net income) for the first six months of 2010 was 100.0bn Tenge (US $679MM). This represents a 22% decrease from the corresponding period in 2009 which included a large foreign exchange gain made in 2009 as a result of Tenge devaluation, not recurring in 2010. 

Revenue 

Revenue for the first six months of 2010 increased by 44% to 296.6bn Tenge (US $2,014MM) compared to the same period in 2009. This was due to a 51% increase in the average realised price per tonne, from 44,631 Tenge (US $42.66 per bbl) to 67,587 Tenge (US $63.48 per bbl) and a 3% reduction in sales volume. In US dollar terms, revenue increased by 41%. 

Operating Expenses 

Operating expenses were 193.1bn Tenge (US $1,311MM) for the first six months of 2010, 29% 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, MET expenses, fines and penalties, operating expenses in the first six months of 2010 increased by 17% in Tenge compared to the same period of 2009. This was driven mainly by an increase in payroll, repairs, maintenance and transportation expenses. 

Payroll expenses increase reflects salary indexation from 1 January 2010 and a salary increase at the production units on June 1, 2010. Growth in repairs and maintenance expenses was due to increased number of repaired wells and higher repair cost per well. Growth in transportation expenses was mainly due to 10% increase of KTO transportation tariffs by Transneft from 1 January 2010. 

In US dollar terms operating expenses per barrel excluding taxes and penalties increased by 18% compared to the same period of 2009. 

Cash Flow 

Operating cash flow for the first six months of 2010 was 41.0bn Tenge (US $278MM), which is 55% higher than in the same period of 2009. 

Capex 

Purchases of property, plant and equipment (capital expenditure, not including purchases of intangible assets, as per Cash Flow Statement) in the first six months of 2010 were 26.4bn Tenge (US $180MM) compared to 12.9bn Tenge (US $72 MM) in the same period of 2009, representing 105% increase. According to the KMG EP's budget 2010, annual capital expenditure is envisaged at 83.2bn Tenge (US $555 MM). 

Exploration activity 

In the first six months of 2010, the Company completed testing of one exploration well in R-9 block and started construction of two evaluation wells in S. Nurzhanov field, with projected depth 3,500 meters each. In the first six months exploration expenditures were 0.5bn Tenge (US$3.5m). According to the budget, in 2010 it is planned to drill eight exploration and evaluation wells (including the above mentioned wells in S. Nurzhanov) and it is expected that exploration activity expenditures will be $4B Tenge (US $27MM). 

 


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