OREANDA-NEWS. JSC KazMunaiGas Exploration Production announces its consolidated interim financial results for the nine months ended 30 September 2016.

· Revenue for the first nine months of 2016 was up 47% year on year and amounted to 515bn Tenge (US$1,496m). This was largely a result of the switch to a processing scheme and a 76% increase in the average Tenge – US dollar exchange rate, which was partly offset by a 24% Brent price decrease.

· Net profit for the first nine months of 2016 was 76bn Tenge (US$220m) and net cash generated from operating activities was 108bn Tenge (US$314m).

· Net cash position at 30 September 2016 was 1,145bn Tenge (US$3.4bn), representing an 81bn Tenge (US$240m) increase over the net cash position as of 30 June 2016.

Production

KMG EP’s total crude oil production in the first nine months of 2016, including its stakes in Kazgermunai (“KGM”), CCEL (“CCEL”) and PetroKazakhstan Inc. (“PKI”), amounted to 9,134,000 tonnes of crude oil (246 kbopd), down 1.2% over the same period of 2015.

Production at Ozenmunaigas JSC (“OMG”) for the first nine months of 2016 increased by 2% year on year to 4,181,000 tonnes (112 kbopd). Production at Embamunaigas JSC (“EMG”) increased by 1% year on year to 2,122,000 tonnes (57 kbopd). In total, OMG and EMG produced 6,303,000 tonnes (169 kbopd) of oil in the first nine months of 2016, up 1% year on year.

The Company’s share in production from KGM, CCEL, and PKI for the first nine months of 2016 amounted to 2,831,000 tonnes of crude oil (77 kbopd), down 6% against the same period last year, predominantly due to reduced production at PKI.

Crude oil sales and sales of refined oil products

During the first nine months of 2016, the Company’s combined sales of crude oil from OMG and EMG totaled 6,283,000 tonnes (166 kbopd), of which 60% or 3,743,000 tonnes (99 kbopd) were for export and 2,540,000 tonnes (67 kbopd) were sold to the domestic market. Additional 4,000 tonnes of oil products were sold to the domestic market but were not included in the volumes pertaining to the new independent crude oil processing scheme because they were processed before the scheme was implemented in April 2016.

Of the 2,540,000 tonnes (67 kbopd) of oil supplied by OMG and EMG to the domestic market, 1,981,000 tonnes (52 kbopd) were directed to the Atyrau Refinery (ANPZ) and 559,000 tonnes (15 kbopd) were directed to the Pavlodar Refinery (PNHZ).

In the first quarter of 2016, before the Company switched to an independent oil refining scheme, domestic supplies of crude oil amounted to 830,000 tonnes. In the second and third quarters of 2016, 1,710,000 tonnes of crude oil were supplied to the domestic market for further refining.

As previously announced, in April 2016 the Company switched to an independent oil processing scheme as part of its domestic supply obligations. Under this framework, KMG EP supplies oil directly to the Atyrau and Pavlodar refineries for processing into oil products to be sold through KazMunaiGas Refining & Marketing (“KMG RM”) under an agency agreement.

Under the new processing scheme, the Company sold 1,519,000 tonnes of refined oil products in the second and third quarters of 2016.

The Company’s share of KGM, CCEL, and PKI sales amounted to 2,769,000 tonnes of crude oil (75 kbopd), of which 51% or 1,416,000 tonnes (37 kbopd) were exported and 1,353,000 tonnes (38 kbopd) were sold domestically.

Net Profit for the Period

Net profit for the first nine months of 2016 was 76bn Tenge (US$220m) compared with 138bn Tenge (US$703m) in the same period of 2015. However, net profit for the first nine months of 2015 included a foreign exchange gain of 262bn Tenge (US$1,336m).

Net profit in the third quarter of 2016 was 58bn Tenge (US$170m) compared with a net profit of 0.9bn Tenge (US$3m) and 16bn Tenge (US$47m) in the first and second quarters of 2016 respectively. The increase in net profit is largely a result of the Company’s switch to the new processing scheme in April 2016, as well as lower taxes related to court rulings and positive changes in tax legislation.

Revenue

The Company’s revenue in the first nine months of 2016 was 515bn Tenge (US$1,496m), up 47% compared to the same period in 2015. This increase is the result of the Company’s switch to the new processing scheme, as well as a 76% increase in the average Tenge – US dollar exchange rate, which was partly offset by a 24% decrease in the Brent price.

Net revenue achieved from the sale of refined oil products (net of all processing and marketing costs) in 2Q-3Q 2016 was 39,859 Tenge per tonne at ANPZ and 48,433 Tenge per tonne at PNHZ.

In October 2016 the Company agreed the domestic prices for 1Q2016 at 14,421 Tenge per tonne at ANPZ and 28,384 Tenge per tonne at PNHZ. These prices are subject to final approval by the Company’s Independent Non-Executive Directors.

Production Expenses

Production expenses in the first nine months of 2016 were 195bn Tenge (US$568m), up 22% compared to the same period of 2015. This was mainly due to additional expenses related to the new processing scheme, partially offset by a 5% reduction in employee benefit expenses. The Company pays a processing fee of 20,501 Tenge per tonne at ANPZ and 14,895 Tenge per tonne at PNHZ.

Employee benefit expenses were down 5% due to the absence of annual bonus provision in the first nine months of 2016 and additional actuary obligations in the 1Q 2015 of 4.8bn Tenge as a result of subsoil contracts’ extensions at OMG and EMG. This was partially offset by a 7% salary indexation of production units’ personnel since January 2016.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first nine months of 2016 totaled 95bn Tenge (US$275m), up 4% year on year. This was largely a result of increased transportation expenses, partially offset by a reduction of accruals for fines and penalties.

The increase in transportation expenses resulted mainly from the 76% increase in average Tenge – US dollar exchange rate (given the Caspian Pipeline Consortium (CPC) transportation tariff is mostly US dollar denominated). In addition, domestic expenses increased because of a 21% domestic transportation tariff increase.

In the 2Q-3Q 2016, the Company accrued an agency fee of 3.6bn Tenge related to the agency agreement between the Company and KMG RM for sales of oil products. The Company expects that the annual agency fee to KMG RM will be at the level of 5.4bn Tenge in 2016.