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KMG Presentation

KMG Presentation. October 2013. Kazakhstan Macro and Oil & Gas Sector Overview . Kazakhstan Macroeconomic Overview. GDP per Capita and GDP growth rate. Inflation and unemployment rates.

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KMG Presentation

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  1. KMG Presentation October 2013

  2. Kazakhstan Macro and Oil & Gas Sector Overview

  3. Kazakhstan Macroeconomic Overview GDP per Capita and GDP growth rate Inflation and unemployment rates • Kazakhstan has one of the most stable macroeconomic environments in the CIS with expected real GDP growth rate of 5.0% in 2012 with GDP growth slowing downin 2012 from its 7.5% level in 2011 – mainly due to flat oil production, price declines in prices of ferrous metals and lower grain production • Kazakhstan’s balanced macroeconomic policy is bolstered by its political stability, keeping inflation and unemployment rates at relatively low levels • Kazakhstan’s foreign debt grew by 8% to US$135 bn at the end of September 2012 from US$125 bn at the end of 2011 External debt (US$ billion) Sources: Statistics Agency of Kazakhstan and National Bank of Kazakhstan Kazakhstan Macroeconomic Overview

  4. Kazakhstan Macroeconomic Overview (cont’d) Trade balance (US$ billion) USD/KZT and USD/RUB exchange rates • USD/KZT rate remained relatively stable in 2012 due to regular National Bank’s interventions to smoothen USD/KZT rate fluctuations • USD/KZT rate stability over the last few years was also supported by Kazakhstan’s improving fundamentals in the country’s trade balance • The international reserves have increased by a robust 18% to US$86 bn in 2012 from US$73 bn in 2011 mainly due to a significant 32% growth in assets of the National Fund (which reached US$58 bn in 2012 ) on the back of growing oil revenues. International reserves base (US$ billion) Sources: Statistics Agency of Kazakhstan, National Bank of Kazakhstan Kazakhstan Macroeconomic Overview

  5. Kazakhstan Oil & Gas Industry Overview – Upstream • #15 global and #2 CIS oil producer • #9 globally in terms of 1P oil reserves • Tengiz, Karachaganak and Kashagan to provide 70% of oil and 85% of gas production in Kazakhstan • Predominant part of reserves located in Pre-Caspian and Mangyshlak basins – North Eastern side of the Caspian Sea 2012 Global Liquids Production 2012 Production in Kazakhstan 2012 Global 1P reserves Kazakhstan: 30 bn boe Total: 2.1 mmboe/d Kazakhstan: 1.8 mmboe/d Source: Annual BP Statistical Review Source: Annual BP Statistical Review Source: Wood Mackenzie Kazakhstan Oil and Gas Industry Overview

  6. 1. KMG Group Overview and Recent Developments

  7. KMG (BBB/BBB-/Baa3)(1) – Government’s “Arm” in Kazakhstan’s Oil & Gas Industry KMG is fully owned by the Government, through JSC SWF “Samruk-Kazyna” Represents interests of the Republic of Kazakhstan in the strategically important oil & gas sector Represents the State in exercising its pre-emptive rights with private industry players in E&P projects Right to acquire 100% of all new onshore and 50% of offshore fields/licenses M&A policy aims to strengthen the State’s role in the oil & gas sector and to consolidate control of the domestic oil products’ market Representing State interests Diversified asset base • Stakes in almost all significant oil & gas assets in Kazakhstan with A+B+C1 reserves of 653.7(2) mlntonnes • Participates directly in equity of 38 oil & gas related companies in Kazakhstan and abroad, while 251 companies make up the group(3) • Control over KMG EP (61.36%)(4), the largest public exploration and production company in Central Asia • Participation in JVs operating and exploring some of the world’s largest oil fields: NCPC (Kashagan) (c.17%), KPO (Karachaganak) (10%) and TCO (Tengiz field) (20%) • Other participations in exploration and production JVs: MMG (50%), KazakhOilAktobe (50%), KazGerMunai (50%)(4), PKI (33%)(5) • Joint or sole control over the largest oil & gas pipeline networks in Kazakhstan (combined length of c.20,500 km) • Joint or sole control over all three refineries in Kazakhstan and two in Romania (combined capacity of 23.8 mmt/year) • Marketing and sales of oil products in Kazakhstan and in Europe Leading vertically integrated company operating in every major segment of the oil & gas industry, including upstream, midstream and downstream (1) Fitch/S&P/Moody’s rating (2) Gaffney Cline report (3) Company data (4) As of [October 3rd, 2012], as a percentage of ordinary voting shares of KMG EP (5)Through KMG EP KMG Group Overview and Recent Developments

  8. NC KMG – Recent Developments Strategic Developments Corporate • 2012 – Corporate reorganization to enhance operational efficiency and streamline management processes • Consolidation into six core business units: (i) Production and Technical Development, (ii) Geology and Prospective Projects, (iii) Transport Infrastructure, (iv) Refinery and Petrochemistry, (v) Innovation Development and Service Projects and (vi) Economy and Finance • Disposal of non-core assets Upstream • 2011 - Acquisition of a 10% stake in Karachaganak for a consideration of US$ 1bn (closed in June 2012). The US$ 1bn was borrowed from Karachaganak’s partners and secured by a corporate guarantee of Samruk – Kazyna. • Commercial development at Kashagan to commence in 4 quarter of 2013 and reach optimum production levels in the 2nd half of 2014. (370 k boe/d) • Several large discoveries made in 2013, which will soon be added to KMG’s books and further increase company’s recoverable resource base. Midstream • 2012 - Second phase of the Asia Gas Pipeline completed, comprising a pipeline with a throughput capacity of 30 bcm p.a. extending from Turkmenistan to China • 2011 - CPC Pipeline expansion project, which will be completed in three phases and will increase total capacity to 67 mtpa by 2015 • 2011 - Kazakhstan – China Pipeline capacity increased to 12 mtpa, and expected to be increased to 20 mtpa by the end of 2013 Downstream • 2012 - Initiated modernization of the 3 refineries in Kazakhstan, aiming to complete by Jan 1, 2016 • 2013 – Memorandum of Understanding with Romanian government to buy back a portion of Government shares in RompetrolRafinare KMG Group Overview and Recent Developments

  9. 2. Business Overview

  10. Group Structure 100% Transport • Consolidated assets over US$95 billion(1) • Holdings of key state assets in over 400 subsidiaries(1) 100% Upstream Midstream Downstream Others • KMG EP – [61.36]%(2) • Kazgermunai - 50% • PKI - 33% • CCEL - 50% • TCO -20% • KPO - 10% • Kashagan - 16.8% • MMG - 50% • KazakhOilAktobe - 50% • KazMunaiTeniz- 100% • KazTransOil– 90% + 1 share • KCP - 50% • MunaiTas - 51% • KazTransGas -100% • AGP - 50% • KazRosGas - 50% • CPC - 20.75%(3) • KazMorTransFlot -100% • Kaz Pipeline Ventures - 100% • KMG RM - 100% • Pavlodar - 100%(4) • Atyrau - 99.17% • Shymkent - 49.72% • The Rompetrol Group - 100% • Vega – 54.60% • Petromidia – 54.60% • KPI - 50% • TenizService - 49% • KING (R&D) - 83.9% • KMG Service - 100% • KMG-TransCaspian - 100% • As of June 30th, 2012 • As of [October 3rd, 2012], as a percentage of ordinary voting shares of KMG EP • 19% through the government and 1.75% through Kazakhstan Pipeline Ventures (KPV) • The Company owns a 100% interest in Refinery Company RT (which owns all of the assets of the Pavlodar Refinery and a 58% in Pavlodar Refinery JSC, the entity owning the licences to operate the Pavlodar Refinery). The remaining 42% in Pavlodar Refinery JSC is held directly by KMG RM. Refinery Company RT leases 100% of the assets comprising Pavlodar Refinery to Pavlodar Refinery JSC, which then operates the Pavlodar Refinery Source: Company Data Business Overview

  11. KMG Upstream Snapshot 2012 Gas Production Volumes 2012 Oil Production Volumes(1) • Proportionate consolidation of following JVs: Kazgermunai, PKI, CCEL Source: Company data Business Overview

  12. KMG owns 61.36% of KMG EP shares(1) KMG EP is the largest public oil and gas company in Kazakhstan Listed on LSE and KASE The Uzen field is the largest oil field of KMG EP and has been in production since 1965 Production to stay stable due to enhanced recovery techniques Strong free cash flow generation Modernisation program launched Clear strategy to 2020, focussed on maximising shareholder value by increasing reserves, expanding production and improving profitability Major Role in Upstream: KMG EP KMG EP’s share price evolution Volume (Thousands) US$ *Reserves of UMG, EMG, KGM and CCEL as at [2011] year end, PKI as at [2010] year end • As at October 3rd, 2012, as a percentage of ordinary voting shares of KMG EP Source: Company data, Factset as at 4 February 2013 Business Overview

  13. Kashagan - Project Overview Overview • Launched in 2000 and is part of the North Caspian Project Consortium (NCPC) • One of the world’s largest oil fields • The parties to the NC PSA estimate that the Kashagan field has 9 bnboe of recoverable crude oil • A+B+C1 reserves of crude oil of 131.4 mn tonnes attributable toKMG on a consolidated basis • The project development involves building artificial islands in shallow water, with land rigs to drill wells as opposed to conventional platforms • Experimental phase of the project completed, with the construction of five artificial islands in the Caspian Sea and 40 wells, including 32 production wells and 8 injection wells • Production expected to start in March 2013 • Final agreement signed in October 2008 with Kazakh authorities implementing operational and governance framework • Replaced single operator with new joint operating entity comprising seven participants • In October 2008, parties agreed to sell approved 8.48% stake to NC KazMunaiGaz for a consideration of US$1.78 bn • Rotating leadership, operatorship to be passed to NC KazMunayGaz on start-up, once development stages are completed (Shell to act as a partner in managing production operations) Current Participation Overview (NCPC) Source: Company data Business Overview

  14. Karachaganak (KPO) - Project Overview Overview • Karachaganak is a giant oil and gas condensate field in north west Kazakhstan, discovered in 1979 • The Karachaganak Project (KPO) is a Production Sharing Agreement (PSA) originally signed in November 1997 for a term of 40 years between the Republic of Kazakhstan (RoK) and a group of foreign contracting companies: BG Group (32.5%), Agip (32.5% ), Chevron (20%) and Lukoil (15%). • Under the terms of the PSA, British Gas and Agip are the sole operators of the project • In 2011, the RoK and the contracting companies reached an agreement on the transfer of a 10% share of Karachaganak Project • The agreement became effective in June 2012, with KMG acquiring a 10% share of KPO • KMG, together with the other PSA participants, will support the 3rd phase of the development of the Karachaganak field • Since the beginning of the PSA, the field has produced around 146 bn cubic meters of gas and more than 108 mn tons of liquid hydrocarbons • The total geological reserves of the Karachaganak field are 1,381 bn cubic meters of gas and 1,241 mn tons of liquid hydrocarbons • The total recoverable reserves of the Karachaganak field are 929 bn cubic meters of gas and 483 mn tons of liquid hydrocarbons Current Participation Overview (KPO) Source: Company data Business Overview

  15. TCO - Project Overview Overview • Established in 1993 to develop the Tengiz field, which is operated by Chevron • Crude oil reserves of 245.8 mntonnes, which are attributable to KMG’s 20% share • KMG’s stake is 20% • Veto right over major decisions, chairmanship of the management committee • Dividends from TCO represented approx. [70%] of total dividends for KMG over the last three years • Export via CPC pipeline and railways • Major growth in production since the completion of 2nd generation plant in 2008 • TCO is undertaking a future generation expansion (“FGP”) project in the Tengiz Field after receiving all the necessary approvals by the appropriate regulatory authorities and partners. The project is expected to further increase TCO’s oil field production and plant processing capacity • In addition TCO is also considering implementing a wellhead pressure management project (“WPMP”) • FGP and WPMP projects are being executed as an integrated project, in order to realise synergies in design and execution and are expected to cost an aggregate of U.S.$19.3 bn • Work on the projects is expected to be completed by 2018 Ownership Structure • 20% attributable to KMG Source: Company data Business Overview

  16. Control Over Midstream: KazTransOil & KazTransGas Oil & Gas Transportation KTO • Natural monopoly oil pipeline operator in Kazakhstan • 7,498kmof pipelines • Operates three transportation companies: KTO, KCP and MunayTas • KTO’s major asset is the Uzen-Atyrau-Samara (connection to Transneft) pipeline • KCP is a joint venture between KTO and CNODC (50/50%) – pipeline to China • MunayTas is a joint venture between KTO and CNPC E&D (51/49%) • Following the completion of Kenkiyak-Kumkol Pipeline (1 of the 3 sections of the pipelines to China) in October 2009 KTO is now able to transport crude from western Kazakhstan to China • Transported 81.7 mn tonnes of oil in 2012 • 10% stake floated in the Kazakhstan Stock Exchange in December 2012 as part of the “People’s IPO” Program • First IPO in the program • US$ 186 mnraised and offers received totalling twice the amount on offer • KTG • Operates the largest gas pipeline network in Kazakhstan through ICA • The major asset is the Central Asia-Centre gas pipeline (CAC) from Turkmenistan to Russia • Second phase of the Asia Gas Pipeline completed at the end of 2012, increasing capacity to 30 bcm per year • Large projects: • Third phase of the Asia Gas Pipeline expected to increase capacity to 55 bcm per year by January 2016 • Improved gas transportation logistics with the completion of first stage of the South West Pipeline (up to 6 bcm p.a. in May 2015). Second stage expected to complete in 2016, increasing capacity up to 10bcm per year • KTG is included in the “People’s IPO” Program, and is expected to undergo a stake sale in the second half of 2013 Terminals / Infrastructures Shuttle vessels Existing oil pipelines New oil pipeline projects Gas pipelines Refinery Source: EIA Business Overview

  17. Downstream: KMG Refining and Marketing and Rompetrol Volumes Produced (ktonne) in 2012 • KMG Refiningand Marketing (2) (“KMG RM”) is the 100% owned principal refining and trading company of the KMG group focused on the domestic market • KMG RM’s strategy: • KMG has approved an investment program to modernise its refining platform with the objective to satisfy internal demand and improve product mix quality • KMG RM’s principal refinery assets: • Dedicated investments in gas stations resulted in 2nd largest retail network in Kazakhstan (e.g. 307 stations and c.11.8% market share) ktonne KMG RM Current Product Mix in 2013 The Rompetrol Group • In June 2009, KMG acquired the remaining 25% of Rompetrol, Romania’s 2nd largest oil group • In September 2010, KMG’s ownership (which is held through Rompetrol) in RompetrolRafinare (owning Petromidia refinery) was reduced to 54% • Key target markets for Rompetrol are Romania, Turkey and Ukraine • [In February 2013, a Memorandum of Understanding with Romanian government to buy back a portion of shares in RompetrolRafinare] • Nelson Complexity Index • Previously KMG Trade House • Source: Company data Source: Company data Business Overview

  18. 4. Key Company Highlights

  19. Key Credit Highlights • Most significant asset of the Government • Significant portfolio of large-scale exploration projects onshore and offshore to drive long-term production growth (e.g. Kashagan) • Strategic pre-emptive rights • Largest oil producer in Central Asia • Midstream: control over oil and gas pipeline infrastructure • Downstream control: downstream capabilities including three major refineries across Kazakhstan and Rompetrol assets in Europe High Strategic Importance to the Government Vertically Integrated Group Key Credit Highlights

  20. Key Company Highlights 1 2 3 4 Key Credit Highlights

  21. Key Credit Highlights 5 6 7 Key Credit Highlights

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