JSC KazMunaiGas Exploration Production: KMG EP Trading Update

Astana, 23July 2013. JSC KazMunaiGas Exploration Production (“KMG EP” or “the Company”) announces its operating results for the first half of 2013, results of the ongoing Modernisation Programme, operating results of two new servicing companies, drilling results at Fedorovskiy block and start of Trial Production at Liman block.

Highlights:

- In the first half of 2013 KMG EP produced 6,092 thousand tonnes (249kbopd), including the Company’s stakes in Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI), which is 1% higher than in the same period of 2012;

- The daily production at OMG in June 2013 averaged at 14.5 thousand tonnes (107kbopd) or 9% higher than in June 2012;

- The Company adheres to its 2013 production plan of 8,152 thousand tonnes (164kbopd) at Ozenmunaigas JSC (OMG) and Embamunaigas JSC (EMG);

- The Station for diagnosis and repair of underground equipment has been put into operation; the construction of Site for preparing liquids for well dumping at OMG and Gas utilization unit at EMG was completed;

- At Fedorovskiy Block during production testing of a pre-salt well a flow rate of 239,450 cubic meters per day of gas and 247 cubic meters per day of condensate was obtained. Based on the drilling results the Company is preparing an updated reserves report;

-It is planned to initiate Trial Production at the Novobogat SE field of the Liman Block by the end of 2013.

 Abat Nurseitov, KMG EP CEO: «The results of the first six months of 2013 show that KMG EP is meeting its plans. We are strengthening our position as one of the leading oil and gas companies in Kazakhstan. Our key objectives for the second half of the year include increasing consolidated production, replenishment and growth of hydrocarbon reserves through acquisition of new assets and geological exploration, and optimisation of production at our core assets.”

Operating activity in the first half of 2013

KMG EP produced 6,092 thousand tonnes of crude oil (249kbopd), including the Company’s stakes in Kazgermunai (KGM), CCEL and PetroKazakhstan Inc. (PKI), which is 1% higher than in the same period of 2012.

Ozenmunaigas JSC and Embamunaigas JSC

Ozenmunaigas JSC (OMG) produced 2,539 thousand tonnes (103kbopd), 3% higher than in the same period of 2012. Embamunaigas JSC (EMG) produced 1,401 thousand tonnes (57kbopd), which is 2% more than in the same period of 2012. The total volume of oil produced at OMG and EMG in the first six months of 2013 is 3,940 thousand tonnes (160kbopd), which is 3% more than in the same period of 2012, in accordance with the production plan.

As of July 2013 the level of daily oil production is in line with the Company’s plan. The Company adheres to the approved production plan of 8,152 thousand tonnes for 2013, including 5,322 thousand tonnes at OMG and 2,830 thousand tonnes at EMG.

The daily production at OMG in June 2013 averaged at 14.5 thousand tonnes or 9% higher than in June 2012. The production growth was mainly due to the increase of number of producing wells from 3,006 to 3,194 and efficient measures including drilling of new wells and increase of well workovers.

In the first six months of 2013 the Company’s export and domestic sales from OMG and EMG were 2,864 thousand tonnes (114kbopd) and 1,059 thousand tonnes (42kbopd), respectively.

Joint Ventures

The Company’s share in the production from KGM, CCEL and PKI for the six months of 2013 amounted to 2,152 thousand tonnes of crude oil (89kbopd) which is 3% less than in the same period of 2012, mainly due to a decline of PKI production by 6% as a result of natural decline of production.

The Company’s share in the sales from KGM, CCEL and PKI was 2,074 thousand tonnes of crude oil (87kbopd), including 1,844 thousand tonnes (78kbopd) or 89% supplied to export markets.

Drilling of horizontal wells

The Company completed drilling of two horizontal wells, which were spud in 2012. An oil flow at a rate of 22 tonnes per day was obtained from the first well, which was completed at the end of 2012. During the production testing of the second well completed in early 2013 a water flow was obtained. Water isolation works are now under way and the well is being monitored.

Currently OMG is drilling the first out of five horizontal wells planned for 2013. The Company is currently preparing project documentation for the remaining four wells expected to be spud in 2nd half of 2013.

Operating results of two servicing companies

“Drilling Well Servicing Division LLP” (UBR) was created in 2012 as a structural division of OMG providing well and pipeline maintenance services. “Support Service Vehicles and Well Servicing Division LLP” (UTTiOS) was also set up in 2012 as KMG EP’s subsidiary providing well servicing and well workover operations, road construction services and vehicles lease (with crews) for oil production companies.

Both companies have sufficient workload which is being completed according to the production plans. In the first half of 2013 UBR serviced 1,489 wells and worked over 25 wells. It is expected to provide well servicing and workover for 2,928 and 50 wells by the end of the year, respectively. In the first half of 2013 UTTiOS serviced 319 wells and worked over 23 wells. It is planned to service 473 and workover 167 wells this year.

Ongoing results of Modernisation Programme

In the first half of 2013 the Station for diagnosis and repair of underground equipment has been put into operation, construction of a Site for preparing liquids for well dumping at OMG and a Gas utilization unit at EMG was completed.

Station for diagnostics and repair of underground equipment

The station for diagnostics and repair of underground equipment (“Station”) has been put into operation in June 2013. Its capacity is sufficient to repair 400 thousand oil well tubings, 300 thousand pump rods and 10 thousand bottom-hole pumps per year.

The Company expects that the Station will allow to improve the quality of repairs of underground equipment, and, as a result, increase its useful life. Better quality of repairs and longer useful life of underground equipment will allow to reduce the purchase of new underground equipment, increase turnaround time of wells, and reduce wells’ idle time due to their frequent workovers. In addition, the Station will help raise the level of industrial and environmental safety level.

The Company invested 4.8bn Tenge (US$32m) to construct the Station. It is planned to invest additional 2.5bn Tenge (US$17m) in 2013-2014 on the Station’s further modernisation. Based on the operating results of the first Station the Company will evaluate the feasibility of construction a second Station at OMG.

Site for preparing liquids for well dumping

Construction of a Site for preparing liquids for well dumping at OMG worth 1bn Tenge (US$6m) was completed in July 2013. It is expected that the Site for preparing liquids will prevent fluid flowing over during well workover and production maintenance through the automation of liquid density selection process for each well individually. The Company expects that the commissioning of the Site will reduce production horizon plugging and prevent barium salting-up as well as reduce number of bottom-hole pumps failures after workovers.

Gas utilization unit at East Makat field.

Construction of Gas utilization unit at East Makat field at EMG was completed in July 2013. The facility with a designed capacity of 40 million cubic meters per year will allow stopping flaring of associated gas in accordance with the environmental legislation requirements. The sum of 1.2bn Tenge (US$8m) was invested into construction of gas utilization unit.

Part of the processed gas will be used for the Company’s own needs. The other part will be sold to the domestic market at a subsidized price.

Abat Nurseitov, CEO of KMG EP: “Currently we are in the active phase of the consistent implementation of the Modernisation Programme which includes replacement of outdated equipment, construction of new production facilities as well as processes optimisation. We plan to invest in this medium-term programme about 75-90bn Tenge (US$500-600m). Implementation of this programme will not only help to restore oil production, but will also increase it, as well as improve the working conditions”.

Results of exploration activities at Fedorovskiy block

The drilling of a pre-salt appraisal well at Fedorovkiy block was completed in March 2013. The production testing of the well on an 11mm choke resulted in a flow rate of 239,450 cubic meters per day of gas and 247 cubic meters per day of condensate.

Currently “NIPINeftegas” JSC is preparing a report on reserves at Fedorovskiy block based on the results of evaluation and exploration activities carried out on the block since 2010. It is expected that the report on reserves will be prepared in Q4 2013.

According to the earlier report of an independent consultant “DeGolyer and MacNaughton”, KMG EP’s share (50%) of condensate and gas reserves at Rozhkovskoe field at Fedorovskiy block in category 2P amounts to 66.7 million barrels of oil equivalent, of which 27.5 million barrels of oil equivalent (3.5 million tonnes) of condensate and 39.2 million barrels of oil equivalent (6.7 billion cubic meters) of gas as of June 1, 2011.

Since 2003, exploration works were carried out on ten exploration wells at Fedorovskiy block, six of which were successful, one dry, one is under testing, and two are being drilled. Until the end of 2013 it is planned to complete drilling and testing of three above-mentioned wells.

Start of Trial Production at Liman block

The Company plans to start Trial Production at Novobogat SE field at Liman block by the end of 2013. Trial Production is planned for a period of two years. Based on the results of Trial Production a decision on commercial production will be made. The Company expects that during the first and second years of production testing about 13 thousand tonnes of crude oil and about 19 thousand tonnes of crude oil will be extracted, respectively.

Reserves in C1+C2 category are estimated at 1.9 million tonnes of crude oil (13.9 million barrels of oil equivalent) and 290 million cubic meters of dissolved gas as of April 1, 2012.

Altogether at all exploration blocks the Company plans to drill 22 wells in 2013 (11 exploration and 11 appraisal wells), of which 18 post-salt and four pre-salt wells. Out of 22 wells planned for 2013, currently three wells have reached target depth, and five wells are being drilled. Drilling of 14 wells is planned for the second half of 2013.

 

NOTES TO EDITORS

KMG EP is among the top three Kazakh oil and gas producers. The overall production in 2012 was 12.2mt (an average of 247kbopd) of crude oil, including the Company’s share in Kazgermunai, CCEL and PKI. The total volume of proved and probable reserves, as at the end of 2011 was 226mt (1.7bn bbl), including shares in the associates of about 2.1bn barrels. The Company’s shares are listed on the Kazakhstan Stock Exchange and the GDRs are listed on The London Stock Exchange. The Company raised over US$2bn in its IPO in September 2006. The International rating agency Standard & Poor's (S&P) confirmed KMG EP’s “BBB-” corporate credit rating in December 2011.

 

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 Company’s intentions, beliefs and statements of current expectations concerning, amongst other things, the Company’s results of operations, financial condition, liquidity, prospects, growth, potential acquisitions, 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 forwa

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