JSC KazMunaiGas Exploration Productionkmgep.kz/data/nws/kaz/fil_327_164.pdf · The US SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves

1

JSC KazMunaiGas Exploration Production

15th Annual Investor Conference

Renaissance Capital

June 2011

2

Important Notice

Forward-looking statements

This document includes statements that are, or may be deemed to be, ‘‘forward-looking statements’’. These forward-looking statements can be identified by the use of forward-looking terminology, including, but not limited to, the terms ‘‘believes’’, ‘‘estimates’’, ‘‘anticipates’’, ‘‘expects’’, ‘‘intends’’, ‘‘may’’, ‘‘target’’, ‘‘will’’, or ‘‘should’’ or, in each case, their negative or other variations or comparable terminology, or by discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include all matters that are not historical facts. They include, but are not limited to, statements regarding the JSC KazMunaiGas Exploration Production (“Company”) intentions, beliefs and statements of current expectations concerning, amongst other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, strategies and as to the industries in which the Company operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances that may or may not occur. Forward-looking statements are not guarantees of future performance and the actual results of the Company’s operations, financial condition and liquidity and the development of the country and the industries in which the Company operates may differ materially from those described in, or suggested by, the forward-looking statements contained in this document. The Company does not intend, and does not assume any obligation, to update or revise any forward-looking statements or industry information set out in this document, whether as a result of new information, future events or otherwise. The Company does not make any representation, warranty or prediction that the results anticipated by such forward-looking statements will be achieved.

Cautionary Note to US Investors

The US SEC permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that the company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. The crude oil reserves of Company within this document have been estimated by Gaffney, Cline & Associates (‘‘GCA’’) according to standards established by the Society of Petroleum Engineers (‘‘SPE’’) and the World Petroleum Congresses (‘‘WPC’’) and thus proved reserves may differ from those estimated according to the definitions of the US SEC. Further, the Company uses certain terms in this document in referring to the Company’s reserves, such as ‘‘probable’’ or ‘‘possible’’ reserves, that the US SEC’s guidelines would prohibit it from including in filings with the US SEC if the Company were subject to reporting requirements under the US Exchange Act. Prospective investors should read ‘‘The Company—Company’s Reserves’’ section in IPO prospectus and the report of GCA, an international oil and gas consultant, on the Company’s reserves, included in this document (the ‘‘GCA Report’’), for more information on the Company’s reserves and the reserves definitions the Company uses.

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KMG EP: key subsidiary of National Company KazMunaiGas

Сore Assets• Uzenmunaigas 100%• Embamunaigas 100%Acquisitions in 2007-2009• Kazgermunai 50% (Apr 2007)• CCEL 50% (Dec 2007)• PKI 33% (Dec 2009)Acquisitions in 2011(2)

• Kazakhoil Aktobe 50%• Kazakturkmunai 51%• Mangistaumunaigas 50%

KMG EP

Upstream• TengizChevroil 20%• Kashagan 16.81%;• KazMunaiTeniz 100%Transportation• KazTransOil 100%• KazTransGas 100%• CPC 19%;• KCP 50%Refining, marketing, services• KMG - refinery and marketing 100%• Atyrau refinery 99.5%• Shymkent refinery 50%• Pavlodar petrochemical plant 58%• KazRosGas 50%• TenizService 49%• KING (research institute) 90%• Rompetrol 100%

National Company KazMunaiGas

Mining• Kazakhmys (11%)Finance sector• BTA (81.5% )• Halyk Bank (11.55%)• Kazkommertsbank (18.3%)• Alliance Bank (56.2%)Other largest National Companies• KazAtomProm (100%)• Kazakhtelecom (45.9%)• Kazpost (100%)• KEGOC (100%)

Holding Samruk-Kazyna

37%(1) 63%(1)

Republic of Kazakhstan

100%

100%

Trading on LSE (GDRs) and KASEForeign institutions (including CIC)Local pension fundsOther investors

Notes: (1) Ordinary shares, excluding treasury shares as at 05/05/2011; (2) In progress, subject to approval

4

Operating overview

RUSSIA

UZBEKISTANKYRGYZSTAN

KAZAKHSTAN

Oil Refinery, throughput 2010 (capacity)Oil pipeline

CCEL 50%

UAS

: 351

kbop

d(1)

CPC 564 kbopd(1)

(1) Total pipeline capacity(2) KOA, KTM and MMG acquisition deals are subject to approval by regulating bodies

KCP 155 kbopd(1)

UMGAktau

Pavlodar4.8 (7.5) mtpa

Almaty

Astana

Kyzylorda

PKI 33%

Stepnoi Leopard

Bobek, Makhambet

Karaton-SarkamysR9

Teresken

Temir

East Zharkamys 1

Fedorovskiy block

Liman Taisoigan

Uzen-Karamandybas

Kolzhan

MMG 50%

Exploration asset being acquiredExploration asset

Atyrau4.3 (4.9) mtpa

KGM 50%

Shymkent4.6 (7.0) mtpa

KOA 50%, KTM 51%

EMG

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KMG EP Investment Case

KMG EP offers a unique investment opportunity in Kazakhstan’s oil sector

§ The largest listed Kazakh oil producer

§ Delivery of strategic goals since IPO in 2006

§ Unique advantages due to state ownership

§ Wide growth opportunities

§ Strong FCF generation

§ Western standards of Corporate governance

§ Production share in Kazakhstan – 17%(1), in reserves – 5.5%(1)

Top Kazakh Oil Producers (kbopd, 2010)

50%

PKI 33%

50%

51%

50%

50%

339 (2)

Note: (1) Consolidated KMG EP share, including KGM 50%, CCEL 50% and PKI 33%(2) Including stakes in KOA, KTM, MMG, which are currently subject to approval

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KMG EP: Opportunity to co-invest with the Government

Win-win for investors and the State

Legacy Assets

§ Uzenmunaigas

§ Embamunaigas

New Capital

> US$2bn

Support from NC KMG

pre-emption right etc.

International standards

Governance, transparency

IPO

Growth Strategy

Near-term: selective acquisition of available onshore assets in Kazakhstan

Longer-term:§ exploration§ offshore Caspian§ international –selective acquisitions with international partnership

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2P Reserves, mmbbl

2,130

2,550

(1)(1)

Since December 2006 2P reserves up c.71% through exploration, revisions and acquisitions

Source: Gaffney, Cline & Associates for KMG EP, KGM, PKI and Miller Lents for CCEL(1) As a result of exploration activity and revisions; (2) Acquisition deals are subject to approval by regulating bodies(3) PKI reserves for 2010 are as at 31/03/2009

Existing assets:- UMG, EMG 100%- KGM 50%- CCEL 50%- PKI 33%

Acquisitions in progress2:- MMG 50%- KOA 50%- KTM 51%

(3)

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Production growth

Source: Ministry of Oil and Gas, KMG EP data(1)Acquisitions impact was calculated based on 2010 results, (2)Deals are subject to approval by regulating bodies

(1)

Acquisitions in progress2:- MMG 50%- KOA 50%- KTM 51%

+ 1%

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Completed acquisitions

(1) Increase in production based on production in 2010(2) Increase in 2P reserves as of the end of 2010 (except PKI – end of 2009 )(3) Currently renamed to LLP “KMG EP Exploration Assets”

Asset, %Acquisition date

KGM(50%), April 2007

CCEL(50%), December 2007

PKI(33%), December 2009

Total

Deal price US$971m US$150m + US$782m non-recourse debt

US$100.5m + US$831m non-recourse debt

US$1,221.5m +US$1,613m non-recourse debt

Production impact1

+19%33 kbopd

+10%18 kbopd

+24%42 kbopd

+53%93 kbopd

2P Reserves impact2

+5%90 mmbbl

+13%224 mmbbl

+7%120 mmbbl

+25%435 mmbbl

Investment payback

Dividends US$1,075m(US$325m in 2010, US$100m in 2011)

Dividends US$210m§ US$129m debt repayment§ US$81m priority return

Dividends US$317m§ US$254m debt repayment§ US$63m cash to KMG EP

Dividends US$1,602m§ US$383m debt repayment§ US$1,219m cash to KMG EP

PRODUCING ASSETS

EXPLORATION ASSETS

NBK (100%), September 2010

SBS3 (100%), September 2010

White Bear (35%), August 2010

Feodorovskiy block (50%)March 2011

4 blocks NC KMG (100%)April 2011

§ Deal price US$35m cash§ 13,0 mmbbl (KMG EP

estimate)§ 12,9 mmbbl

(recoverable reserves as per TRACS)

§ Deal price US$30m cash§ 138 mmbbl (P50)§ Exploration stage

§ The P1722 license covers - 213 km2

§ Drilling costs and other project liabilities at the HC pre-discovery stage are estimated at US$25-30m

§ Deal price US$164.4m,including US$87.8m of shareholder loans§ С1+С2 gas and condensate

reserves are 102 mmbl

§ Deal price US$40m cash§ As per preliminary

estimate, prospective resources are approx. 1.5 bnbbl

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Acquisitions in progress, 2011

(1) Increase in production based on production in 2010(2) Increase in 2P reserves as of the end of 2010 (except PKI – 2009 )

Asset КОА(50%)

КТМ(51%)

MMG(50%)

Total

Deal price US$466m:US$350m cash +

US$116m net debt

US$123m:US$70m cash+

US$53m net debt

US$1,660m:US$330m cash +

US$1,330m non-recourse debt

US$2,249m:US$750m cash +

US$1,499m net debt

Production impact +4%10 kbopd

+1%2 kbopd

+21%57 kbopd

+26%69 kbopd

2P Reserves impact +5%109 mmbbl

+1%21 mmbbl

+13%278 mmbbl

+19%407 mmbbl

Expected deal closure date

The deals are subject to approval by regulating

bodies

The deals are subject to approval by

regulating bodies

The deals are subject to approval by regulating

bodies

PRODUCING ASSETS

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Summary of JV’s financial results in 2010(1)

2010FY CCEL 50% KGM 50% PKI 33% Sum/Average

Production volume th.tons 970 1,551 1,998 4,519mbbl 6,482 11,944 15,476 33,901

Sales by destination th.tons 957 1,537 1,781 4,275Export th.tons 850 1,145 1,616 3,610Domestic th.tons 108 392 165 665

FinancialsRevenue US$m 462 763 1,129 2,355Operating expenses US$m 345 406 648 1,399Income taxes US$m 30 143 148 321Profit for the period US$m 87 213 334 634Dividends received US$m 100(2) 325 316(3) 741

Capex (from cash flow statement) US$m 55 37 135 227Lifting costs $/bbl 14.7 1.7 3.4 4.6Conversion factor bbl/ton 6.68 7.70 7.75

(1) IFRS unaudited figures(2) Including priority return of US$54m for 2009-2010 from CCEL, remaining is used to repay debt(3) 80% of the dividends received are used to repay KMG PKI Finance BV non-recourse debt

12

Exploration portfolio

E.Zharkamys

Uzen-Karamandybas

Karaton-Sarkamys

R-9 block

Taisoigan block

Temir

Teresken

Kolzhan

Liman block

Stepnoi Leopard

Bobek,Makhambet

Fedorovsky block

KMG EP

Historical portfolio:

§ Liman block

§ R9 block

§ Taisoigan

Acquisitions in 2009-2010:

§West Novobogatinskoe (NBK)

§ East Zharkamys-1 (SBS1)

§ Kolzhan (PKI, 33%)2

First steps offshore:§White Bear JV (North Sea, 35% KMG EP, 45% BG, 20% Maersk)§ Access to data of Caspian sea blocks based on Memorandum:Zhambyl, Zhenis, C1, C2, Godina, Ustyurt, Urikhtau4

§ Bobek, Makhambet (MMG, 50%, Caspian Sea)3

Acquisitions in 2011 :

§ Uzen-Karamandybas§ Karaton-Sarkamys§ Temir § Teresken§ Fedorovskiy block (UGL, 50%)§ Stepnoi leopard (MMG, 50%)3

(1) In 2011 the title was changed to LLP “KMG EP Exploration Ventures”(2) Agreement to increase KMG EP’s share to 50%(3) KOA, KTM and MMG acquisition deals are subject to approval by regulating bodies(4) Urikhtau is the only onshore asset among offshore assets under the signed Memorandum

13

Exploration: key figures

UOM 2009A 2010A 2011EOverall exploration expenditure, including-Total exploration capex-Exploration-Supplemental exploration-Opex

US$m

17

143

113

47

33726 (1)

14 (2)

>100(3)

----

Number of wells, including-Post-salt-Pre-salt-Supplemental exploration-Offshore

wells

42020

83050

2313451

Overall depth m 9,100 18,600 56,2502D Seismic km 400 240 2,5103D Seismic research km2 300 855 739

(1) Includes 3D seismic research for supplemental exploration drilling(2) Includes written off US$7m for 3 dry wells in 2010 (2 were drilled in 2010 and 1 in 2009)(3) Budgeting and procurement are in progress. Estimated expenditure in 2011 up to US200m.

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Key exploration projects in 2011 (1)

License duration

Acreage Reserves estimate Drilling in 2011 (depth) Seismic in 2011

Liman 19.02.20112 6,468 km2 27 mmbbl(P50)

2 post-salt wells(3,050 m)

3D (165 km2)

R9 26.08.20112 5,894 km2 63 mmbbl(P50)

5 post-salt wells(9,000 m)

3D (224 km2)

Taisoigan 09.01.2012 9,605 km2 13 mmbbl (P50)9 mmbbl (C1+C2)

4 post-salt wells(3,150 m)

3D (150 km2)

Karaton-Sarkamys 16.06.2016 3,718 km2

~1,500 mm bbl (oil in place)

- 2D (900 km)

Uzen-Karamandybas 16.06.2016 2,100 km2 1 post-salt wells(2,200 m)

-

Temir 16.06.2016 3,874 km2 - 2D (1,000 km)

Teresken 01.12.2012 4,928 km2 - 2D (1,000 km) (3)

Zharkamys East 1 15.11.2012 1,190 km2 232 mmbbl (C1 + C2 recoverable)

1 pre-salt / 1 post-salt(6,150 m)

3D (200 km2)2D (610 km)

Fedorovskiy block 50%(gas and condensate)

11.05.2014 3,198 km2 102 mmboe(C1 + C2 recoverable)

3 pre-salt(13,500 m)

-

White Bear 2015 213 km2 several hundred mmbbl 1 well(5,500 m)

-

TOTAL 41,118 km2 18 wells / 42,550 m 2D: 2,510 km3D: 739 km2

(1) Not including supplemental exploration: 5 post-salt wells (total depth 13,700 m)(2) In the process of extension(3) Only processing and interpretation

15

Capital expenditures

§ Budgeted Capex in 2011 US$709m:

ü Development drilling US$333m

ü Construction, equipment and other US$281m

ü Exploration drilling US$95m

§ Production drilling in 2011 - 239 wells (vs. 215 in

2010, UMG & EMG)

Share in associates & JV’s CAPEX, US$m

UMG & EMG CAPEX, US$m

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Financial summary

US$m unless otherwise indicated 2007 2008 2009 2010 1Q11Production at Core assets (kbopd) 192 190 181 177 171Crude sales 3,974 5,029 3,291 4,135 1,308Total operating costs (1,720) (2,470) (2,241) (2,867) (949)OPEX per bbl produced, including 24.5 35.4 34.0 44.4 61.6

- Production cost

-Transportation

- Operating taxes (MET and rent) and customs export duty

- DD&A

9.5

5.6

2.1

4.0

10.7

6.3

11.2

4.1

9.6

5.5

11.7

3.2

12.4

6.1

18.4

3.7

14.1

6.3

32.2

3.7

Operating profit 2,253 2,559 1,050 1,267 359Finance (expense) income 115 357 902 184 (8)

including foreign exchange gain (loss) (66) (6) 607 (23) (48)

Share of results of associates and JVs 142 479 (17) 530(5) 148Income tax (expense) (1,228) (1,389) (514) (390) (96)

effective income tax rate (1) 52% 48% 29%(3) 27%(4) 27%

effective tax burden rate (2) 52% 53% 56%(3) 60%(4) 70%

Profit for the period (net income) 1,282 2,006 1,422 1,591 403Cash flows from operations 1,411 1,362 1,011 785 317Capex (327) (348) (294) (588) (122)

Brent, US$/bbl 75.7 97.1 61.7 79.2 105.43

Average exchange rate 122.5 120.3 147.5 147.35 146.42

(1) Calculated as income tax expense divided by profit before tax net of share in income of associates and JVs(2) Calculated as all taxes and customs export duty (CED) divided by profit before all taxes, CED and share in income of associates and JVs(3) Calculated net of foreign exchange effect(4) Calculated net of one-offs (in 4Q10 - gain on CNPC contribution to PKI’s share capital) and foreign exchange effect(5) Includes 33% share in contribution made by CNPC E&D in amount of US$146mln

17

Production costs(1), $/bbl

(1) All costs for labour, materials, repairs, maintenance and electric power including those not directly related to oil production

10.7

9.5

KZT/USD 124.9 121.4 123.1 120.8 120.5 120.6 120.0 120.2 139.0 150.5 150.8 149.8 147.7 146.8 147.4 147.5 146.42

9.6

12.4

18

Export and domestic sales (Core assets)

US$/bbl UAS CPC Domestic AverageBrent 105.43 105.43 n/a n/a

Sales price 98.61 104.32 26.72 87.05Quality bank - (8.62) - (2.64)Premium of bbl diff .(1) (0.09) 8.76 - 2.49Realized price 98.53 104.46 26.72 86.90Rent tax (22.87) (22.88) - (22.87)Export duty (4.41) (4.41) - (4.41)Transportation (7.59) (7.83) 2.02 (6.69)Sales commission (0.07) (0.07) - (0.06)Netback price 63.59 69.27 24.71 52.87

1Q11 Netbacks

Notes: (1) Reconciliation adjustment due to API gravity difference between KMG EP oil and average pipeline mix

193 183 180 174

Sales volume, kbopd

170

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Net Cash & Financial Assets

Treasury policy update: changes in cash allocation by banks

30/06/10, US$bn

Notes: (1) Cash, cash equivalents and financial assets net of borrowings, end of period; (2) NC KMG Bond is treated as cash component

31/03/11, US$bn

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Business and financial highlights

§ Consolidated production in 1Q11 – 261 kbopd, 0.3% lower QoQ (270 kbopd in FY10, 16% higher YoY)

§ Consolidate export sales in 1Q11 – 219 kbopd, 3% higher QoQ (215 kbopd in FY10, 20% higher YoY)

§ Crude sales up 32% (31% in KZT) from US$989m in 1Q10 to US$1,308m in 1Q11

§ 1Q11 NI up 15% (14% in KZT) from US$350m in 1Q10 to US$403m in 1Q11 (FY10 NI up 12% from US$1,422m in FY09 to US$1,591m in FY10. Adjusting for the foreign exchange gain/loss, net income increased 72% in FY10)

§ Export duty rate of US$5.4/bbl from January’11 (up from US$2.7/bbl)

§ 33% of PKI’s FY10 net income consolidated(1). 3Q10: US$273m gain on repurchase of TP on PKI account; 4Q10: US$146m gain on KMG EP account related to CNPC contribution to PKI’s share capital

§ Dividends from JVs received in FY10 – US$642m

§ Dividends from KGM based on FY10 results received on April 6, 2011 – US$100m

(1) TP’s financial results were consolidated by PKI from September 2010 (for more details refer to KMG EP’s press-release dated August 20, 2010)

21

Tax regime since 2009

Rent tax and MET are linked to oil price

§ Export Rent tax: progressive scale from 7% to 32%

§ Mineral Extraction Tax (MET): depends on production by contract, ~12%. Domestic supplies half taxed

§ Corporate Income Tax (CIT): from 30% to 20%

§ Excess Profit Tax (EPT): applies to profits exceeding 25% of relevant expenses

§ Export duty: US$5.4/bbl from 01/01/2011

Rent tax

Mineral extraction tax

Brent price

Note: Estimated taxes for barrel of exported oil. Calculations based on varying oil prices and 2009 EMG & UMG cost structure excluding non-operating income/expenses and unusual/extraordinary items

22

Crude oil export taxation

0

20

40

60

80

100

120

140

160

02/0

1/08

09/0

2/08

18/0

3/08

25/0

4/08

02/0

6/08

10/0

7/08

17/0

8/08

24/0

9/08

01/1

1/08

09/1

2/08

16/0

1/09

23/0

2/09

02/0

4/09

10/0

5/09

17/0

6/09

25/0

7/09

01/0

9/09

09/1

0/09

16/1

1/09

24/1

2/09

31/0

1/10

10/0

3/10

17/0

4/10

25/0

5/10

02/0

7/10

09/0

8/10

16/0

9/10

24/1

0/10

01/1

2/10

08/0

1/11

15/0

2/11

25/0

3/11

$/bb

l

Royalty/MET Rent tax Export duty Brent

17th May 2008Export duty $15/bbl

11th October 2008Export duty $28/bbl

1st January 2009New Tax Code: Rent and MET replace export duty and royalty respectively

16 August 2010Export duty $2.7/bbl

1st January 2011Export duty $5.4/bbl

23

Tax sensitivity

Estimated tax take(1) at different oil prices based on 2010 cost structure

Notes: (1) Estimated tax take for barrel of exported oil. Calculations based on varying oil prices and 2010 EMG & UMG cost structure excluding non-operating income/expenses and unusual/extraordinary items. (2) Export duty rate of $5.4/bbl ($40/ton)

(2)

Export duty rate of $5.4/bbl ($40/ton) from January 1, 2011

24

Approximately US$1.8bn paid to the shareholders since IPO

Cash Distributions to Shareholders

2007 18 May 2007 (AGM): dividend of US$300m, including special dividend of US$150m

2008 28 May 2008 (AGM): dividend of US$344m, including special dividend of US$152m

8 October 2008 (BoD): 12 month buyback program, US$148m

2009 28 May 2009 (AGM): dividend of US$322m, including special dividend of US$80m

2010 26 February 2010 (BoD): listing of preferred shares with further buy-back program, up to 100% of issued preferred shares

25 May 2010 (AGM): dividend of US$346m,including special dividend US$132m

2011 Preferred shares buyback program: 43% bought back for US$223m as of 04/05/11

5 May 2011 (AGM): approved dividend of US$389m, including special dividend of US$148m

Declared Dividends, KZT per share (US$ per GDR)

Dividend Yield1, %

(1) Calculated based on share prices as at the end of corresponding periods

Payout ratio, %

25

LSE KMG

KASE RDGZ

Reference Information

Tickers

ContactsCorporate website: www.kmgep.kz

Investor relations e-mail: [email protected]

Tel: +7 (7172) 975433

Share information, 05/05/2011

Reuters KMGq.L

Bloomberg KMG LI

Total TreasuryNumber of ordinary shares 70,220,935 1,791,264

Number of preferred shares 4,136,107 1,778,815

GDRs per one ordinary share 6

26

Abbreviations list

bbl – barrelmmbbl – million barrelsbn bbl – billion barrelsbopd – barrels per daykbopd – thousand barrels per dayUS$ m – million US dollarsUS$ bn – billion US dollarsKZT bn – billion TengeNC KMG – National Company KazMunaiGas JSCKMG EP – KazMunaiGas Exploration Production JSCUMG – UzenMunaiGas Production BranchEMG – EmbaMunaiGas Production BranchKGM – JV Kazgermunai LLPCCEL – CITIC Canada Energy Limited (holds 94% in JSC Karazhanbasmunai)PKI – KMG PKI Finance BV (holds 33% in PetroKazakhstan Inc.)KOA – Kazakhoil Aktobe LLPKTM – KazakhTurkMunai Ltd.MMG – Mangistaumunaigaz JSCTP – Turgai Petroleum JSCSBS – SapaBarlau Service LLPNBK – NBK LLPBG – British GasCIT – Corporate Income TaxEPT – Excess Profit TaxMET – Mineral Extraction TaxED/CED – Export Duty/Customs Export DutyConversion factors: KMG EP -7.36 bbl/ton; KGM - 7.7; Karazhanbasmunai - 6.68; PKI – 7.75; others - 7.33