JSC KazMunaiGas Exploration Production released its condensed consolidated interim financial statements for the three months ended March 31, 2010.
- Operating profit increased by 174% to 54.6bn Tenge (US$370m)1 compared to the first three months of 2009, mainly due to higher oil prices.
- In the first three months of 2010 KMG EP made a profit of 51.7bn Tenge (US$350m) and earnings per share were 708 Tenge (US$0.8 per GDR).
- Average Brent price in the first three months of 2010 increased by 72% compared to same period of 2009, from US$44 per barrel to US$76 per barrel.
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.”
Production Highlights
In the first three months of 2010 the Company produced 2,085 thousand tonnes (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 tonnes (252kbopd) of crude oil, which is 319 thousand tonnes or 12% higher than in the same period of 2009. The increase is mainly due to the addition of 366 thousand tonnes (32kbopd) as a result of the acquisition of a 33% stake in PKI2 in December 2009.
The Company supplied 2,078 thousand tonnes (170kbopd) of crude oil, excluding the share in supply from Kazgermunai, CCEL and PKI. Of this amount, 1,717 thousand tonnes (140kbopd) of crude oil were exported; 337 thousand tonnes (28kbopd) of crude oil and 24 thousand tonnes (2kbopd) of refined products in oil equivalent were supplied to the domestic market.
The Company’s share in sales volumes from Kazgermunai, CCEL and PKI1, including re-sale of crude oil purchased by PKI from third parties was 1,117 thousand tonnes (93kbopd) of crude oil, including 768 thousand tonnes (64kbopd) supplied for export (69% of sales).
Financial Highlights
Profit After Tax
Profit after tax (net income) for the first three months of 2010 was 51.7bn Tenge (US$350m). This represents a 52% 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 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 realised price per tonne, 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
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 1 January 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.
Cash Flow
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.
Capex
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 position3 at 31 March 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 31 March 2010 were 656bn Tenge (US$4.4bn).
As at 31 March 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 31 March 2010 compared to 138bn Tenge (US$928m) as at 31 December 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.
Fines and Penalties
As a result of the tax audit covering the period of 2004 – 2005, the tax authorities assessed additional amounts of 32.0bn Tenge (US$213m) including a principal of 16.2bn Tenge (US$107m) with the balance consisting of fines and penalties. The Company’s management maintains that its interpretation of the tax legislation was correct. However, as the outcome of the dispute remains uncertain, the Company made appropriate provisions in 2009. As at 31 March 2010 the accrued balance of provision was 11.9 bn Tenge (US$81m).
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 28 April 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 24 February 2010, KMG EP received dividends from PKI in the amount of US$16.5m. On 6 May 2010, the Company also received US$66m in dividends from PKI.
The Company has recognised 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.
