Kazmunaigas EP: Oil Duty Could Cost $800M A Year

ALMATY, April 8, 2008 (Dow Jones Newswires)

London-listed Kazakh oil and gas producer KazMunaiGas Exploration Production Tuesday said the financial impact of a new export duty on crude oil could be about $800 million.

However, the market reacted positively to the news with the company's global depository receipts rising 7.2% to trade at $26.21 per GDR on the London Stock Exchange at 1139 GMT.

Analysts said that the export duty was less than they had expected.

"Should the new export duty of $109.91 per ton be applied to the entire export volumes of Uzenmunaigas and Embamunaigas, the estimated annualized financial impact, before income taxes, would be approximately $800 million," the company said in a statement. "In light of an increase in the tax burden, KMG EP will be undertaking a review of its production, financial and investment plans."

The Kazakh government Tuesday said the export duty, around $15 a barrel at the average world oil price of $714 a ton, would raise more than $1 billion in additional revenue for the state budget. The duty is to take effect 30 days after the government decision is published in official media.

Companies that are guaranteed stability of tax regime by their contracts won't be affected, the government said.

Pavel Kushnir and Olga Danilenko, oil and gas analysts at Deutsche Bank, said in a note Tuesday that they viewed the tax changes "as negative but expected" as they reiterated their Buy rating on KMG EP which they saw "as undervalued, implying around 35% potential upside to our target price." Their target price is $33.2 per global GDR.

"We note that the Kazakh government has chosen to introduce a lower rate of export duty than it had initially planned (and the market had assumed)," Kushnir and Danilenko said.

Artem Konchin, an oil and gas analyst at Unicredit Aton, said in a note Tuesday that "the actual effect on KazMunaiGas EP might prove less material" as some of KMG EP's assets enjoy stability of tax regime.

"We expect the positive effect from the 20%-30% upgrade in our oil price forecast to outweigh the negative impact of the export duty for oil-price-sensitive Kazakshtani producers," Konchin said, reiterating his hold recommendation for KazMunaiGas with the target price of $27.2 per GDR.

KMG EP said the export duty would apply to some or all of the exported crude oil produced by the company's production branches, Uzenmunaigas and Embamunaigas. Exports from these two entities totaled 7.3 million metric tons, or 147,000 barrels a day, in 2007.

KMG EP produced 10.6 million tons, or 216,900 barrels a day, of oil in 2007. Its majority shareholder is state oil and gas company Kazmunaigas.

ALMATY, April 8, 2008 (Dow Jones Newswires)