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Kazakhstan: Main Driver of Oil Production Growth in Eurasia

Explore the key projects, prospects, and challenges in Kazakhstan's oil industry, and its role as the main driver of oil production growth in Eurasia. This report covers the country's oil reserves, production statistics, pipeline infrastructure, and the development strategy of KazMunayGas, the national oil and gas operator.

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Kazakhstan: Main Driver of Oil Production Growth in Eurasia

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  1. “National Company “KazMunayGas”: “Kazakhstan as the Main Driver of Oil Production Growth in Eurasia: Key Projects, Prospects And Challenges” Astana, October 2, 2012

  2. Energy Market Situation The relationship between world economic condition and oil prices* Approximation of energy intensity and a share of dominant types of fuel up to 2030 (forecast) Growth in oil demand Indicators of different years Positive dynamics Energy intensity Tons per thousand USD dollars Shares of dominant types of fuel After the economic shocks Oil China USA Coal Rest of the world Growth in world GDP in % Gas India Water sources IEA forecast for 2012 Renewables Nuclear power Source: BP Energy Outlook 2030 Source: International Monetary Fund, International Energy Agency, Citi Research * If oil prices remain relatively stable and the world economic growth makes up 2%, then the hydrocarbon demand will have linear correlation with world GDP. 1

  3. The Republic of Kazakhstan: Key-takeaways, New Challenges and Development Goals Development Strategy until 2020 • GDP growth – no less than 30% • National Fund’s assets – no less than 30% of GDP • Share of the small and medium enterprises in the GDP - 40% • Growth of investments in non-resource sector of the economy - 30% • Population - 18 mln. people • Life expectancy – over 72 year growth against the proceeding year; GDP in billion US dollars Foreign Direct Investments (mln.US dollars) 2

  4. Oil and Gas Industry of the Republic of Kazakhstan World proved crude oil reserves, bln.barrels • Kazakhstan holds 9th place in the world with regard to the proved oil reserves, with the 39,8 bln. barrels of oil • Kazakhstan is the 2nd largest oil producer among the CIS countries • Natural gasreserves make up 3trln.cub.m, which is 1% of world’s gas reserves. • Oil production in Kazakhstan is 1.76 mln.bbl/day or about 80bln.tons • Gas production in Kazakhstan makes up 25bln.cub.m. • Oil production is expected to Increase by 60% by2020 • Caspian Sea Shelf Projects should become the main driverof oil production growth in Kazakhstan • By 2035 the Caspian Sea region will provide about 9% of the world crude oil demand Annual crude oil production in Kazakhstan,mln. tons (with forecast to 2020) 21% of oil sector in Kazakhstan’s GDP 72bln. US dollars Investments in oil and gas sector 3

  5. Layout of gas pipelines Central Asia - Centre Bukhara - Ural Orenburg - Novopskov BGR - Almaty Kazakhstan-China JSC NC "KazMunayGas" in Kazakhstan's Oil-and-Gas Sector KazMunayGas is Kazakhstan's national operator for exploration, production, refining and transportation of hydrocarbons, representing the state in Kazakhstan's oil-and-gas sector. 100 percent of the company's shares are owned by the SWF “Samruk-Kazyna” JSC. Key figures 2011 Share on the RoK's market, % • Production of crude oil and gas condensate 21,1 mln. tons 26,4 % • Gas production 4,9 bln. m313,1 % • Oil refining 15,3 mln. tons 83,2 % • Pipeline oil transportation 66,9 mln. tons 77,1 % • Pipeline natural gas transportation 110,6 bln. m3 95,7 % Layout of oil pipelines 4

  6. The Development Strategy of KazMunayGas 5

  7. Strategic Targets of JSC NC “KazMunayGas” for 2022 6

  8. Geological Exploration Performance Short-term plan of geological exploration (2012-2015) Geological exploration costs Total costs for geological exploration during 2012 – 2016 will make up 556 bln. KZT 2D Seismic survey 2D seismic survey to the extent of 4 650 lin. km is scheduled to be held for identifying new structures 3D Seismic survey 3D seismic survey to the extent of 11 970 sq.km is scheduled to be held for specifying the composition of the identified structures Prospecting and exploratory drilling 435 exploration and appraisal wells are planned to be drilled 556 bln. KZT 4 650 lin. km 435 wells 11 970 km2 From 2015 the consolidated increment in raw hydrocarbons reserves of KMG will be ensured through geological exploration. 7

  9. Exploration and Production Innovation Policy • Improving the efficiency of geological exploration • (muiltifocusing, digital geological modeling) Increment in the consolidated residual recoverable oil reserves by more than twice through geological exploration based on innovative technologies by 2022 Laboratory test • Improvement of development efficiency of the fields with depleted deposit and challenged reservesin order to increase the oil recovery factor. Development and transfer of innovative technologies 15 low-margin deposits of JSC KMG E&P, remaining recoverable reserves 6570 thousand tons • ADVANCED TECHNOLOGIES • Nonsteady (cyclic) waterflooding with reverse filtration flow • Polymer-gel system injection • Alternating injection of oil and water • Sidetracking • Horizontal wells and horizontally branched wells Ground tests in natural field conditions Large-scale introduction of innovation on a turnkey basis in existing fields • Innovative effect • Production tests of research and technology and development activities by Kazakh scientists and teams in the field, testing of new domestic equipment and technologies • Introduction and experience of application of the new technologies by world service companies • Introduction of new technologies in the existing fields 8

  10. 7 5 1 6 4 3 2 Geological Prospecting Projectsof JSC NC “KazMunayGas” Kazakhstan Sector of Caspian Sea Onshore Zhambay (50%) North-Caspian Project (16,81%) - Zhambyl (73%) Satpayev (75%) Kurmangazy (50%) Zhemchujiny (25%) Жамбыл Khvalynskoye (25%) Project N (51%) (50%) Tsentralnaya (50%) 1 - Liman 2 - Uzen-Karamandybys 3 - Karaton-Sarkamys 4 - R-9 5 - Taysogan 6 - Teresken 7 -Temir Центральная 9

  11. Diversification of Oil Transportation Routes • Over 20 years of independence of the Republic of Kazakhstan: • volume of oil export increased from 13 to 71 mln.tons annually • approximately 4 000 km of oil pipelines constructed • pipeline export capacities increased from 10 to 58 mln.tons annually • | “Caspian Oil Pipeline” Pipeline Consortium • In April 1996 Agreement between Kazakhstan, Russia, Oman and International Oil Consortium on construction of CPC Pipeline was concluded. • Oil pipeline length:1510 km • Commissioned: 2001 • July 1 2011 – commencement of construction works on the CPC Expansion Project (up to 67 mln.tons of which 52,5mln.tons of oil from the Republic of Kazakhstan) Existing routes Planned routes Kazakhstan-China Oil Pipeline Implementation of the Kazakhstan-China Oil Pipeline Expansion Project (Stage II) will allow increasing the output capacity up to 20 mln.tn of oil a year. Kazakhstan Caspian Transportation System Project The need in the KCTS export capacities will arise by the moment Phase II of the Kashagan field development is implemented Oil transportation, mln.tn 2011 • CPC Oil Pipeline 28,2 • “Atyrau-Samara” Oil Pipeline 15,4 • Kazakhstan-China Oil Pipeline 10,9 10

  12. Gas-main Pipelines of Kazakhstan Russian Federation Uzbekistan Kyrgyzstan Turkmenistan China 11

  13. Reconstruction and Modernization of Refineries in Kazakhstan • Implementation of the State Program on Industrial and Innovative Development Enforcement and the Program on Development of the Petroleum Industry in the Republic of Kazakhstan for 2010-2014 will allow: • increasing an average integrity index of the Kazakhstan refineries up to 10,2 global rate • increasing the depth of oil refining up to 89% • enhancing the quality of motor fuels to Euro-4,5 standards Investment projects: • “Construction of Aromatic Hydrocarbon Production Complex at Atyrau Refinery” • “Construction of Deep Oil Processing Complex at Atyrau Refinery” • “Reconstruction and Modernization of Pavlodar Refinery” • “Reconstruction and Modernization of PKOP Refinery (Shymkent Refinery) • «Road Bitumen Production at Aktau Plastic Mass Plant” Expected Results: thou,.tons 12

  14. Kazakh Content (КС) KC in procurement activities of KMG Groupfor the year 2011 KC in major petroleum projects for the year 2011 • Total volume of procurement • Kazakh content 80% Total procurement level Kazakhstani content (USD mln.) 37% 62% 20% 63% 38% • Import • Kazakh • Content • Total, GWS Goods Works Services 13

  15. Service Sector- Investment Projects Construction of the North-Caspian Environmental Response Base (NCERB) Purpose: to ensureoil spill response in case of Level 1 and 2, delivery of assistance in case of emergency situation, evacuation and rescue of people, deployment of equipment in case of Level 3 oil spill Deadline: 2012 Cost: 12,6 bln.tenge Location: Damba settlement, Atyrau oblast Status: NCERB is under construction. Gas turbine station construction Purpose: liquidation of energy emergencyin the West –Kazakhstan oblast, security of RK energy supply Deadline : 2013-2015 (Phase 1); 2020-2021 (Phase 2) Cost: 34 113 mln.tenge Location: West-Kazakhstan oblast Status: feasibility study package produced, state expert review is carried out Shipyard/dry dock construction Purpose: development of the shipbuilding industry in the Republic of Kazakhstan Deadline: 2013 – 2016 Cost: 48 580 mln.tenge Location: Kuryk settlement,Mangistau oblast Status: feasibility study package produced, state expert review is carried out р.Урал СКЭБР Месторождение Кашаган 14

  16. Service Sector – Innovative Cluster Promotion of finished commodity to the market Industrial Engineering Research study and development Experimental-industrial Studies • Incorporation in full-scale production at domestic enterprises • Major petroleum projects: • TCO, KPO, NCPetc. • Export • Polygon based on low-profit oil fields of JSC “Exploration and Production “KazMunayGas” • Special Laboratory JSC “Kazakh Institute of Oil and Gas” in the “Information Technology Park” SEZ • JSC “KBTU": • Institute of Chemical Sciences named after Bekturov A.B. • Institute of Organic Catalysis and Electrochemistry named after Sokolsky D.V. • JSC “Kazakh Institute of Oil and Gas”: • Research-and-Development Center in the “Information Technology Park” SEZ Полигон СЗМС Innovative projects on the territory of the “Information Technology Park” SEZ • Creation of a showpiece complex using the latest results in the sphere of innovative technologies. • Development of domestic research-and-development as well as design and experimental in the petroleum industry • Researches and developments in the sphere of high-performance computing, automation, production processes, IT software application for petroleum and other fields Завод по ремонту малых судов Завод буровых растворов Implemented by:2011-2014 Students: 2000 • ITP SEZ KIOG Research and Development Center • KBTU Institute of Information Technologies • KBTU Petroleum Engineering Institute 15

  17. JSC “National Company “KazMunayGas” The Republic of Kazakhstan, 010000, Astana, Kabanbai-batyr str., 22 tel.: +7 (7172) 97-61-01 fax: +7 (7172) 97-60-00, 97-60-01 e-mail:Astana@kmg.kz http://www.kmg.kz 16

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