KMG EP Financial Results
- The Company’s revenue in the first six months of 2016 was up 30% year on year to 313bn Tenge (US$907m) largely as a result of an 86% increase in the Tenge – US dollar exchange rate, switch to a processing scheme, which offset a 31% Brent price decrease.
- Net revenue in Q2 2016 achieved from the sale of all refined oil products (net of all processing and marketing costs) was 37,148 Tenge per tonne of oil processed at the Atyrau refinery ("ANPZ”) and 47,210 Tenge per tonne of oil processed at the Pavlodar refinery (“PNHZ”).
- Net profit for the first six months of 2016 was 17.2bn Tenge (US$50m) compared with 2.9bn Tenge (US$16m) in the same period of 2015. The year on year increase in net profit is largely due to an increase in revenue from export sales because of an 86% increase in the Tenge – US dollar exchange rate and the switch to a processing scheme from April 2016, lower rent tax driven by a decrease in the average Brent price below US$40 per barrel during the 1Q 2016, resulting in a rent tax rate of 0%, which offset a 31% decline in Brent price. Margin improvement due to switch to a processing scheme is also a result of a reduction of export taxes on mazut ensured by NC KMG.
- Net profit in 2Q 2016 was 16.3bn Tenge (US$47m) compared with a net profit of 0.9bn Tenge (US$3m) in 1Q 2016.
- The net cash position on 30 June 2016 was 1,065bn Tenge (US$3.1bn), US$85m higher than the net cash position as at the end of the first quarter of 2016.
Production
Total crude oil production for KMG EP, including its stakes in Kazgermunai (“KGM”), CCEL (“Karazhanbasmunai”) and PetroKazakhstan Inc. (“PKI”), was 6,078 thousand tonnes of crude oil (246kbopd) for the first six months of 2016, which is a 0.7% decrease over the same period of 2015.
Ozenmunaigas JSC (“OMG”) produced 2,779 thousand tonnes (112kbopd), 2% higher than the same period in 2015. Embamunaigas JSC (“EMG”) produced 1,407 thousand tonnes (57kbopd), also 2% higher than the same period in 2015. Therefore, the total volume of oil produced by OMG and EMG was 4,186 thousand tonnes (169kbopd), which is a 2% increase on the same period last year.
The Company’s share in production from KGM, CCEL, and PKI for the first six months of 2016 amounted to 1,892 thousand tonnes of crude oil (77kbopd), which is 6% less than in the same period of 2015, mostly as a result of the reduction of production at PKI.
Crude oil sales
In the first six months of 2016, the Company’s combined sales from OMG and EMG were 4,168 thousand tonnes (166kbopd). This includes 2,464 thousand tonnes (98kbopd) of crude oil for export or 59% of the total sales volume, and 1,704 thousand tonnes (68 kbopd) of crude oil to the domestic market. In addition, 3 thousand tonnes of oil products were sold to the domestic market; this material has not been included in the new independent crude oil processing scheme as it was treated before the scheme was established in April 2016.
Of the 1,704 thousand tonnes (68 kbopd) of oil supplied by OMG and EMG to the domestic market, 1,280 thousand tonnes (51 kbopd) went to the ANPZ and 424 thousand tonnes (17kbopd) went to the PNHZ.
The Company’s share in the sales from KGM, CCEL, and PKI was 1,875 thousand tonnes of crude oil (77kbopd), including 922 thousand tonnes (36kbopd) supplied to export markets, which is 49% of the total sales volume. The domestic sales volume was 953 thousand tonnes (40 kbopd).
Net Profit for the Period
Net profit for the first six months of 2016 was 17.2bn Tenge (US$50m) compared with 2.9bn Tenge (US$16m) in the same period of 2015. The year on year increase in net profit is largely due to an increase in revenue from export sales because of an 86% increase in the Tenge – US dollar exchange rate and switch to a processing scheme starting April 2016, which offset a 31% decrease in Brent price. Net profit in 2Q 2016 was 16.3bn Tenge (US$47m) compared with a net profit of 0.9bn Tenge (US$3m) in 1Q 2016.
Revenue
The Company’s revenue in the first six months of 2016 was 313bn Tenge (US$907m), up 30% compared to the same period in 2015. This is the result of an 86% increase in the Tenge – US dollar exchange rate, switch to a processing scheme, which offset a 31% Brent price decrease.
Domestic realized price in 1H2015 was 22.4 th. tenge per tonne at ANPZ and 30.0 th. Tenge per tonne at PNHZ. These prices were not approved by the Independent Directors of KMG EP. In 4Q 2015 an agreement was reached to set the price for domestic supplies in 2015 at 37 thousand Tenge per Tonne to ANPZ and PNHZ. The Company’s revenue in the fourth quarter of 2015 was adjusted to reflect the agreed price. The corresponding payments from KMG RM were made in July 2016.
Net revenue from sales of refined products
As previously reported, the Company switched to an independent oil processing scheme in April 2016. As per the scheme, KMG EP supplies oil to ANPZ and PNHZ for refining, with further sales of oil products through KazMunaiGas Refining & Marketing (“KMG RM”) under agency contract. In the second quarter of 2016, the Company supplied 761 thousand tonnes of oil products as per the scheme.
Net revenue achieved from the sale of all refined oil products (net of all processing and marketing costs[4]) during the second quarter of 2016 was 37,148 Tenge per tonne of oil processed at the ANPZ and 47,210 Tenge per tonne of oil processed at the PNHZ. This compares with 14,603 Tenge per tonne at ANPZ and 27,563 Tenge per tonne at PNHZ in the first quarter of 2016.
To date, the Company’s management and independent directors have not yet agreed to the domestic pricing for first quarter of 2016.
Production Expenses
Production expenses in the first six months of 2016 were 123bn Tenge (US$357m), up 13% compared to the same period of 2015. This was mainly due to higher processing expenses related to a switch to a processing scheme in April 2016, partially offset by a 7% reduction in employee benefit expenses in the first six months of 2016 compared with the same period of 2015. The Company pays a processing fee of 20,501 Tenge per tonne at ANPZ and 14,895 Tenge per tonne at PNHZ.
A 7% reduction in employee benefit expenses was largely due to the absence of annual bonus provision in the first six months of 2016 and higher actuary obligations in the first quarter of 2015 for 4.9bn Tenge as a result of subsoil contracts extension at OMG and EMG, partially offset by a 7% salary indexation of production units’ personnel since January 2016.
Selling, General and Administrative Expenses
Selling, general and administrative expenses during the first six months of 2016 amounted to 62.6bn Tenge (US$181m), up 16% compared to the same period in 2015. 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 86% increase in 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 second quarter of 2016, the Company also accrued an agency fee of 1.8bn Tenge related to the agency agreement between the Company and KMG RM for sales of oil products. The Company expects that an annual agency fee to KMG RM would be at the level of 5.4bn Tenge in 2016.
In the first six months of 2016, the Company accrued 1.3bn Tenge of penalties related to corporate income tax and excess profits tax provisions on possible future tax audit assessments for 2012 – 2016.
Taxes other than on Income
Taxes, other than on income, for the first six months of 2016 were 79bn Tenge (US$230m), down 4% compared with the same period in 2015. This was largely due to a decline in rent tax, partially offset by higher Export Customs Duty (ECD) and Mineral Extraction Tax (MET).
The rent tax decline was driven by a decrease in the average Brent price, which was below US$40 per barrel during the first quarter of 2016, and resulted in a rent tax rate of 0%.
An increase in MET expenses was largely due to higher average Tenge – US dollar exchange rate, partially offset by a decline in Brent price.
The increase in ECD expenses was due to the export of oil products as the Company switched to an oil processing scheme from April 2016 and an increase in average Tenge – US dollar exchange rate partially offset by a decline in average ECD rate. During the first six months of 2016 the average ECD rate amounted to US$35 per tonne compared to US$72 per tonne in the same period of the previous year. The ECD rate for mazut, which is exported, is US$30 per tonne.
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