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KMG is Ready for Different Scenarios
The National Company’s operational results of 2013 were summarized and its priorities for the current year were defined at the expanded Board of JSC National Company KazMunayGaz.
Chairman of the Management Board of JSC National Company KazMunayGaz, Mr.Sauat Mynbayev believes that the Company's most important achievements in 2013 were:
- development of the basic principles of the international project of geological and geophysical studies and drilling ultra deep (15 km) well in the Caspian Depression (“Eurasia” project);
- studying the issue of oil refinery complex construction in Kazakhstan, designed for refining the Kashagan field oil (this work is ongoing and should be completed before the end of 2014) together with the China National Petroleum Corporation (CNPC);
- * signing the Memorandum of Understanding between the Government of the Republic of Kazakhstan and Tengizchevroil LLP, concerning the Future Growth Project at the Tengiz Field.
- signing an agreement by the Governments of Russia and Kazakhstan on trade and economic cooperation on Russian oil transportation through the territory of Kazakhstan to China;
- filling the first section of the Beyneu-Bozoi-Shymkent gas pipeline with the gas;
- commissioning the bitumen plant in Mangystau region;
- preparation of the design and estimate documentation for construction of the Kartaly-Tobol-Kokshetau-Astana gas pipeline.
By the end of 2013, KazMunayGaz improved almost all the indicators, except for the volumes of oil transportation by sea. Thus, in particular:
- Proved recoverable liquid hydrocarbon reserves at the end of 2013 amounted to 811.6 million tons. Reserves growth amounted to 11.5 million tons, helped to compensate for half of the annual oil production.
- The volume of oil and gas condensate production increased, as compared with 2012 by 6% - up to 22.63 million tons. Also, the volume of oil and gas condensate production at the fields, where KMG is the operator or co-operator, increased, as compared with 2012 by 1.4% - up to 16.151 million tons. The main increase in production was shown at Tengiz and Karachaganak fields, where KMG does not act as an operator.
- In 2013 the domestic oil refineries processed more than 16 million tons of oil, which is also higher than the level of the previous year.
- In 2013 the volume of oil transportation through the KazTransOil JSC system exceeded the level of 2012, reaching 67.2 million tones.
- Gas production increased by 12 % - up to 2.929 billion cubic meters.
- In 2013 the gas transportation volume increased up to 110.135 billion cubic meters (in 2012 - 109.189 bln).
- The decline in volumes of the oil transportation by sea is associated with a number of reasons, including the increase of the tariffs for railway transportation to the Aktau port on 15% from the part of JSC Kazakhstan Temir Zholy. Thus, the Company had to re-direct the supplies to other destinations.
Key financial indicators of the Company in 2013 are as follows.
- Operating income increased by 10% -up to KZT 3.257 trillion.
- Net income for the year was increased by 24%, amounting to KZT 456.8 billion.
- 3. The Company has paid more than KZT 622 billion of taxes and payments to the National Budget, which is 3.8% higher than the indicators of 2012. For the unbiased opinion it should be noted that this situation was occurred due to not only the execution of the production program, but also the stability of oil prices.
In 2013, the total purchase amount among the KMG’s group of companies equals to KZT 1.259 trillion. At the same time, the local content in the purchases was 66% or KZT 833 billion in monetary terms. Among them: the commodities-KZT 339 billion (67%), works and services- KZT 494 billion (66%).
Head of the Company recognizes that the current year will be difficult for KMG, due to the national currency devaluation as of February, which changed the global economic situation. KMG’s development plan and budget for 2014 also need to be adjusted. In connection with the termination of duty-free Russian oil supplies from January 1, 2014, the load on the national company concerning supply of oil to the domestic market dramatically increased, and this fact, of course, will affect its financial performance.
Uncertainty in the Kashagan project still remains in effect. As it is known, production at the Kashagan field was launched last autumn, but it was almost immediately suspended due to the pipeline leaks, connecting the D island with the processing complex. The North Caspian Consortium began to work to replace the pipeline segments, thus, the investment in the project continues, and, under the PSA terms, they are not reimbursed since October 1, 2013. It is not bad for the Republic of Kazakhstan, but it has negative impact on KazMunayGaz, as a member of the Consortium. And as of today, the start date of commercial production at the field has not been determined yet.
The foreign asset of KMG- Rompetrol (refining facility in Romania) is also in a difficult situation. Today, the European market is experiencing difficult times, according to Mr. Sauat Mynbayev, refining margin is "extremely low”, which increases the financial pressure on KazMunayGaz. The traditional so-called “social supplies” of cheapening fuel for the spring and autumn field works and so-called “social fuel oil” have a significant influence on KMG’s economy, as it always has been.
In 2014, the following objectives were formulated for the national oil and gas company by the President Nursultan Nazarbayev:
1. To undertake a thorough analysis of possible scenarios for oil and gas production with the definition of new approaches to management, production and processing of hydrocarbons.
2. To study the issue of the fourth oil refinery construction in the country.
3. To implement an geologic exploration program.
4. To intensify the process policy in the oil and gas industry, increasing the oil recovery factor by 10% until 2020.
5. To develop the concept of the gas sector development until 2030, having considered the gas reserves with the oil companies, including the processing and internal use.
6. To develop the concept of the fuel and energy sector development until 2030.
7. To study the issue and to make the suggestions to the Government on KMG's subsidiaries- KazTransGas and Kazmortransflot proceeding with IPO.
8. To undertake an analysis of all the state-owned companies and to determine the list of enterprises that shall go private.
9. To begin concrete work with the leading companies in the oil and gas equipment manufacturing, and together with the Government to find the investors, willing to open such production facilities in Kazakhstan.
Speaking about the systemic issues that must be resolved during 2014, the Head of the National Company noted, in particular, the following.
This year, it is necessary to complete the formation of a divisional management structure in KMG. The corporate KMG’s center should be established and double subordination of the heads of subdivisions, members of the corporate centres of KMG'S subsidiaries, should be introduced.
On the one hand, they will be subordinated to the head of the subsidiary in a part of their current activities, on the other hand - to the head of the respective subdivision in the national company in a part of implementing cross-cutting instructions and regulations, uniform reporting standards and IT programs. For example: the head of the Legal Department of Uzenmunaygaz in his current activities will report to the Chief Executive Officer of UMG. At the same time, he should be governed by the uniform reporting standards, adopted in the national company, to apply the uniform rules and instructions, approved by KMG, and from this point of view, he is accountable to the head of the Legal Department of KazMunayGas.
In 2014, it is necessary basically to complete the business process transformation program in the field of exploration and production. A minimum list of business processes, aimed at efficiently and cost-effectively production, should be developed. It includes:
a) preparation of well for drilling
b) drilling;
c) well repair, etc.
Finally, hundreds of described business processes may be in the exploration and production. The following must be strictly regulated on paper for each of these business processes: who makes the decisions, who carries out the purchase of equipment and materials, who is responsible for labour, delivery of materials and etc.