Financial Results for the first nine months of 2016

JSC KazMunaiGas Exploration Production (“KMG EP” or “the Company”) announces its consolidated interim financial results for the nine months ended 30 September 2016.

·  Revenue for the first nine months of 2016was up 47% year on year and amounted to 515bn Tenge (US$1,496m[1]). This was largely a result of the switch to a processing scheme and a 76% increase in the average Tenge – US dollar exchange rate, which was partly offset by a 24% Brent pricedecrease.

·  Net profit for the first nine months of 2016 was 76bn Tenge (US$220m) and net cash generated from operating activities was 108bn Tenge (US$314m).

· Net cash position[2] at 30 September 2016 was 1,145bn Tenge (US$3.4bn), representing an 81bn Tenge (US$240m) increase over the net cash position as of 30 June 2016.

Production

KMG EP’s total crude oil production in the first nine months of 2016, including its stakes in Kazgermunai (“KGM”), CCEL (“CCEL”) and PetroKazakhstan Inc. (“PKI”), amounted to 9,134,000 tonnes of crude oil (246 kbopd), down 1.2% over the same period of 2015.

Production at Ozenmunaigas JSC (“OMG”) for the first nine months of 2016 increased by 2% year on year to 4,181,000 tonnes (112 kbopd). Production at Embamunaigas JSC (“EMG”) increased by 1% year on year to 2,122,000 tonnes (57 kbopd). In total, OMG and EMG produced 6,303,000 tonnes (169 kbopd) of oil in the first nine months of 2016, up 1% year on year.

The Company’s share in production from KGM, CCEL, and PKI for the first nine months of 2016 amounted to 2,831,000 tonnes of crude oil (77 kbopd), down 6% against the same period last year, predominantly due to reduced production at PKI.

Crude oil salesand sales of refined oil products

During the first nine months of 2016, the Company’s combined sales of crude oil from OMG and EMG totaled 6,283,000 tonnes (166 kbopd), of which 60% or 3,743,000 tonnes (99 kbopd) were for export and 2,540,000 tonnes (67 kbopd) were sold to the domestic market. Additional 4,000 tonnes of oil products were sold to the domestic market but were not included in the volumes pertaining to the new independent crude oil processing scheme because they were processed before the scheme was implemented in April 2016.

Of the 2,540,000 tonnes (67 kbopd) of oil supplied by OMG and EMG to the domestic market, 1,981,000 tonnes (52 kbopd) were directed to the Atyrau Refinery (ANPZ) and 559,000 tonnes (15 kbopd) were directed to the Pavlodar Refinery (PNHZ).

In the first quarter of 2016, before the Company switched to an independent oil refining scheme, domestic supplies of crude oil amounted to 830,000 tonnes. In the second and third quarters of 2016, 1,710,000 tonnes of crude oil were supplied to the domestic market for further refining.

As previously announced, in April 2016 the Company switched to an independent oil processing scheme as part of its domestic supply obligations. Under this framework, KMG EP supplies oil directly to the Atyrau and Pavlodar refineries for processing into oil products to be sold through KazMunaiGas Refining & Marketing (“KMG RM”) under an agency agreement.  

Under the new processing scheme, the Company sold 1,519,000 tonnes of refined oil products in the second and third quarters of 2016.

The Company’s share of KGM, CCEL, and PKI sales amounted to 2,769,000 tonnes of crude oil (75 kbopd), of which 51% or 1,416,000 tonnes (37 kbopd) were exported and 1,353,000 tonnes (38 kbopd) were sold domestically.

Net Profit for the Period

Net profit for the first nine months of 2016 was 76bn Tenge (US$220m) compared with 138bn Tenge (US$703m) in the same period of 2015. However, net profit for the first nine months of 2015 included a foreign exchange gain of 262bn Tenge (US$1,336m).

Net profit in the third quarter of 2016 was 58bn Tenge (US$170m) compared with a net profit of 0.9bn Tenge (US$3m) and 16bn Tenge (US$47m) in the first and second quarters of 2016 respectively. The increase in net profit is largely a result of the Company’s switch to the new processing scheme in April 2016, as well as lower taxes related to court rulings and positive changes in tax legislation.

Revenue

The Company’s revenue in the first nine months of 2016 was 515bn Tenge (US$1,496m), up 47% compared tothe same period in 2015. Thisincrease is the result of theCompany’s switch to the new processing scheme, as well as a 76% increase in the average Tenge – US dollar exchange rate, which was partly offset by a 24% decrease in the Brent price.

Net revenue achieved from the sale of refined oil products (net of all processing and marketing costs[3]) in 2Q-3Q 2016 was 39,859 Tenge per tonne at ANPZ and 48,433 Tenge per tonne at PNHZ.

In October 2016 the Company agreed the domestic prices for 1Q2016 at 14,421 Tenge per tonne at ANPZ and 28,384 Tenge per tonne at PNHZ. These prices are subject to final approval by the Company’s Independent Non-Executive Directors.

Production Expenses

Production expenses in the first nine months of 2016 were 195bn Tenge (US$568m), up 22% compared to the same period of 2015. This was mainly due to additional expenses related to the new processing scheme, partially offset by a 5% reduction in employee benefit expenses. The Company pays a processing fee of 20,501 Tenge per tonne at ANPZ and 14,895 Tenge per tonne at PNHZ.

Employee benefit expenses were down 5% due to the absence of annual bonus provision in the first nine months of 2016 and additional actuary obligations in the 1Q 2015 of 4.8bn Tenge as a result of subsoil contracts’ extensions at OMG and EMG. This was partially offset by a 7% salary indexation of production units’ personnel since January 2016.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the first nine months of 2016 totaled 95bn Tenge (US$275m), up 4% year on year. This was largely a result of increased transportation expenses, partially offset by a reduction of accruals for fines and penalties.

The increase in transportation expenses resulted mainly from the 76% increase in average Tenge – US dollar exchange rate (given the Caspian Pipeline Consortium (CPC) transportation tariff is mostly US dollar denominated). In addition, domestic expenses increased because of a 21% domestic transportation tariff increase.

In the 2Q-3Q 2016, the Company accrued an agency fee of 3.6bn Tenge related to the agency agreement between the Company and KMG RM for sales of oil products. The Company expects that the annual agency fee to KMG RM will be at the level of 5.4bn Tenge in 2016.

Taxes other than on Income

Taxes, other than on income, for the first nine months of 2016 were 116bn Tenge (US$337m), down 12% year on year. This was largely due to a decline in rent tax and Mineral Extraction Tax (MET), partially offset by higher Export Customs Duty (ECD).

The increase in ECD expenses was due to increase in export volumes of crude oil by 13% and export of oil products after the Company switched to an oil processing scheme in April 2016, as well as an increase in average Tenge – US dollar exchange rate. This was partially offset by a decline of the average ECD rate to US$37 per tonne in the first nine months of 2016 compared to US$66 per tonne in the same period of the previous year.

The decrease in the average Brent price resulted in a decrease in the floating rate of rent tax and a decline in the tax base for both rent tax and MET, which was partly offset by higher average Tenge – US dollar exchange rate. In the third quarter of 2016, MET and rent tax decreased by 11.5bn Tenge and 6.3bn Tenge respectively (see below).

MET rate reduction for OMG

In September 2016, the MET rate for the OMG fields was set at 9.0% (compared to 13.0% in 2015) for 2016 on the condition that the OMG fields record losses under tax accounting for the year. The Company is currently forecasting that OMG will claim a taxable loss in its 2016 tax filing and have therefore recorded reduced MET rate for OMG at 9.0%.

This reduction in MET rate resulted in an 11.5bn Tenge decrease in taxes for the nine months of 2016, which was recorded in the third quarter of 2016. The Company expects the maximum benefit available at approximately 17bn Tenge in 2016, which may ultimately be reduced in accordance with current legislation should OMG have taxable profit for 2016.

Rent tax review for 2012-2013

The tax legislation in relation to methodology of calculating the rent tax changed in 2016. Based on these changes, and following collaboration with the tax authorities, the Company has reviewed its rent tax declarations for the period of 2012-2013. As a result, in August 2016 the Company filed a rent tax return that reduced its current rent tax payable by 6.3bn Tenge.

2006-2008 tax audit

As announced earlier, it was expected that the tax charge related to the 2006-2008 tax audit will be decreased by 5.4bn Tenge, including 4.1bn Tenge according to the decision of the Supreme Court and 1.3bn Tenge according to the decision of the Administrative Court of Astana.

In August 2016, the Supreme Court ruled to decrease the tax charge related to the 2006-2008 tax audit by 4.1bn Tenge, including 2.4bn Tenge principal (income taxes) and 1.7bn Tenge penalty. Based on the decision of the Supreme Court, in October 2016 the Administrative Court of Astana decided to decrease the administrative fine by 3.6bn Tenge. Thus, the overall decrease of the tax charge during 2016 amounted to 7.7bn Tenge.

The Company has included the reduction by 4.1bn Tenge in its financial statements for nine months of 2016. The reduction in administrative fine by 3.6bn Tenge will be recognised at the time when the decision of the Administrative Court of Astana comes into legal force.

More information related to the 2006-2008 tax audit can be found in Note 17 of the Company’s financial statements.

VAT recoverable

The Company recovered 24.6bn Tenge (US$71m) in October 2016 after a positive decision was made regarding the Company’s claim on VAT recoverability in an amount of 57.4bn Tenge (US$174m). This VAT claim was related to the period of 2012-2015, including the formation of OMG and EMG in 2012. KMG EP intends to further engage with the relevant parties to work on the recoverability of the remaining amount.

In the fourth quarter of 2015, the Company created the valuation allowance for 46.6bn Tenge in its profit and loss statement related to VAT recoverability. The Company has reversed 24.6bn Tenge of previously accrued VAT allowance in its financial statements for the nine months of 2016.

Capital expenditure

Capital expenditure[4] in the first nine months of 2016 totaled 72bn Tenge (US$209m), down 4% year on year. This was primarily due to a reduction in volumes and costs of production drilling at OMG, including a 15% discount obtained from the drilling service contractor. This was partially offset by an increase in capital expenditure directed towards construction and modernization of production facilities and exploration drilling at EMG.

The Company expects to spend 103bn Tenge (US$286m[5]) on capital expenditure for the full year.

Cash Flows from Operating Activities

Net cash generated from operating activities in the first nine months of 2016 was 108bn Tenge (US$314m), against net cash outflow of 15bn Tenge (US$76m) in the same period in 2015. The increase was mainly due to higher profit adjusted for non-cash items and a decrease in trade and other receivables during 3Q 2016.

Trade and other receivables

In July 2016, KMG RM paid the full amount of its overdue trade receivable amounting 44bn Tenge. As a result, the Company’s trade receivables decreased during the third quarter of 2016 to 59bn Tenge (US$176m), from 117bn Tenge (US$346m) as at the end of 2Q 2016.

Cash and Debt

Cash and cash equivalents at 30 September 2016 amounted to 213bn Tenge (US$0.6bn), compared with 237bn Tenge (US$0.7bn) at 31 December 2015. Other financial assets at 30 September 2016 totaled 942bn Tenge (US$2.8bn) compared with 868bn Tenge (US$2.6bn) on 31 December 2015.

At 30 September 2016, 97% of cash and financial assets were denominated in foreign currencies (predominantly US dollars) and 3% were denominated in Tenge. Finance income accrued on cash, financial, and other assets in the first nine months of 2016 totaled 22bn Tenge (US$64m), compared with 18bn Tenge (US$93m) in the first nine months of 2015.

Borrowings at 30 September 2016 stood at 10bn Tenge (US$30m), compared with 12bn Tenge (US$34m) at 31 December 2015.

The net cash position[6] at 30 September 2016 was 1,145bn Tenge (US$3.4bn), compared with 1,093bn Tenge (US$3.2bn) on 31 December 2015. The net cash position at 30 September 2016 was 81bn Tenge higher than the net cash position at 30 June 2016.

Share of results of associate and joint ventures

During the first nine months of 2016, KMG EP reported a loss of 7.6bn Tenge (US$22m) in its share of the results of associate and joint ventures, compared to a loss of 3.5bn Tenge (US$18m) in the first nine months of 2015.

Kazgermunai

KMG EP recognized 4.0bn Tenge (US$12m) of income from its share in KGM in the first nine months of 2016. This represents the Company’s 50% share in KGM’s net profit of 7.1bn Tenge (US$21m) adjusted for the 3.1bn Tenge (US$9m) amortization of the fair value of licenses and the related deferred tax benefit.

KGM’s net profit in US dollar terms for the first nine months of 2016 declined by 50% compared to the same period in 2015. This was largely driven by a 24% decline in Brent price, lower domestic prices and a decrease in sales volumes.

In the first nine months of 2016, KGM made a dividend payment of US$37.5m for the year of 2015 to KMG EP.

PetroKazakhstan Inc.

KMG EP recognized a loss of 10.6bn Tenge (US$31m) from its share in PKI in the first nine months of 2016. This represents the Company’s 33% share in PKI’s net loss of 2.2bn Tenge (US$6m) adjusted for the 8.4bn Tenge (US$24m) amortization of the fair value of licenses.

PKI’s net loss in US dollar terms for the first nine months of 2016 amounted to US$19m, compared to a net loss of US$102m in the same period in 2015. This is largely due to lower transportation and operating expenses, lower income taxes and penalties, partially offset by a decline in revenue due to a 24% drop in Brent price and a decrease in sales volumes resulting from lower production levels.

In the third quarter of 2016 PKI reported a positive net profit of US$6m, for the first time in seven consecutive quarters.

CCEL

As of 30 September 2016, the Company had 33.4bn Tenge (US$99m) as a receivable from CCEL, a jointly controlled entity with CITIC Resources Holdings Limited. The Company has accrued 3.6bn Tenge (US$10.4m) of interest income in the first nine months of 2016, which is a part of the annual priority return in an amount of US$26.87m from CCEL.

***

The condensed consolidated interim financial statements for the nine months ended September 30, 2016, the notes thereto, and the operating and financial review for the period is available on the Company’s website (www.kmgep.kz).

APPENDIX

Consolidated Interim Statement of Comprehensive Income (unaudited)

Tenge million

 

 

Three months ended
September 30,

Nine months ended
September 30,

 

 

2016

2015

2016

2015

Revenue

 

201,340

108,232

514,706

349,337

Share of results of associate and joint ventures

 

(893)

(5,393)

(7,603)

(3,486)

Finance income

 

7,750

6,560

22,025

18,295

Total revenue and other income

 

208,197

109,399

529,128

364,146

Production expenses

 

(72,155)

(50,865)

(195,364)

(160,037)

Selling, general and administrative expenses

 

(31,917)

(37,068)

(94,514)

(91,118)

Exploration expenses

 

(51)

(1,186)

(51)

(1,663)

Depreciation, depletion and amortization

 

(9,175)

(4,538)

(22,524)

(15,158)

Taxes other than on income

 

(36,493)

(49,011)

(115,803)

(131,584)

Net reversal of allowance for VAT recoverable

 

20,298

13,362

(Loss)/gain on disposal of property, plant and equipment

 

(250)

4

(532)

(71)

Finance costs

 

(836)

(14,809)

(2,702)

(16,740)

Foreign exchange (loss)/gain, net

 

(8,733)

243,029

(7,284)

261,663

Profit before tax

 

68,885

194,955

103,716

209,438

Income tax expense

 

(10,411)

(60,071)

(27,993)

(71,665)

Profit for the period

 

58,474

134,884

75,723

137,773

Foreign currency translation difference

 

(7,139)

153,433

(6,256)

155,018

Other comprehensive (loss)/income for the period to be reclassified to profit and loss in subsequent periods

 

(7,139)

153,433

(6,256)

155,018

Total comprehensive incomefor the period, net of tax

 

51,335

288,317

69,467

292,791

Earnings per share – Tenge thousands

 

 

 

 

 

Basic and diluted

 

0.86

1.98

1.11

 2.02

 

 

 

 

 

 


Consolidated Interim Statement of Financial Position

Tenge million

 

 

September 30, 2016

December 31, 2015

 

 

Unaudited

Audited

ASSETS

 

 

 

Non-current assets

 

 

 

Property, plant and equipment

 

280,420

234,367

Intangible assets

 

10,014

9,619

Investments in joint ventures

 

157,126

154,453

Investments in associate

 

143,319

154,241

Receivable from a jointly controlled entity

 

24,641

21,602

Loans receivable from joint ventures

 

31,517

27,941

Other financial assets

 

35,973

33,760

Deferred tax asset

 

62,279

71,904

Other assets

 

2,940

5,717

Total non-current assets

 

748,229

713,604

Current assets

 

 

 

Inventories

 

26,330

23,102

Income taxes prepaid

 

48,967

36,225

Taxes prepaid and VAT recoverable

 

41,123

16,132

Mineral extraction and rent tax prepaid

 

6,064

6,064

Prepaid expenses

 

25,848

30,135

Trade and other receivables

 

59,071

105,443

Receivable from a jointly controlled entity

 

8,717

8,822

Other financial assets

 

905,952

833,912

Cash and cash equivalents

 

213,357

237,310

Total current assets

 

1,335,429

1,297,145

Total assets

 

2,083,658

2,010,749

EQUITY

 

 

 

Share capital

 

165,324

163,004

Other capital reserves

 

2,471

3,945

Retained earnings

 

1,387,932

1,311,759

Other components of equity

 

326,885

333,141

Total equity

 

1,882,612

1,811,849

LIABILITIES

 

 

 

Non-current liabilities

 

 

 

Borrowings

 

4,596

5,990

Deferred tax liability

 

138

240

Provisions

 

46,377

45,264

Total non-current liabilities

 

51,111

51,494

Current liabilities

 

 

 

Borrowings

 

5,519

5,585

Provisions

 

71,467

70,010

Income taxes payable

 

13

13

Mineral extraction tax and rent tax payable

 

17,139

22,249

Trade payables and other liabilities

 

55,797

49,549

Total current liabilities

 

149,935

147,406

Total liabilities

 

201,046

198,900

Total liabilities and equity

 

2,083,658

2,010,749


Consolidated Interim Statement of Cash Flows (unaudited)

Tenge million

 

 

Nine months ended September 30,

 

 

2016

2015

Cash flows from operating activities

 

 

 

Profit before tax

 

103,716

209,438

Adjustments to add/(deduct) non-cash items

 

 

 

Depreciation, depletion and amortisation

 

22,524

15,158

Share of result of associate and joint ventures

 

7,603

3,486

Loss on disposal of property, plant and equipment (PPE)

 

532

71

Dry well expense on exploration and evaluation assets

 

695

Recognition of share-based payments

 

1,350

Unrealised foreign exchange loss/(gain) on non-operating activities

 

7,406

(253,008)

Change in provisions

 

1,108

28,093

Net reversal of allowance for VAT recoverable

 

(13,362)

Other non-cash income and expense

 

2,442

954

Add finance costs

 

2,702

16,740

Deduct finance income

 

(22,025)

(18,295)

Working capital adjustments

 

 

 

Change in other assets

 

(872)

429

Change in inventories

 

(3,308)

506

Change in taxes prepaid and VAT recoverable

 

(12,689)

6,032

Change in prepaid expenses

 

4,287

202

Change in trade and other receivables

 

34,874

11,106

Change in trade and other payables

 

4,746

(3,468)

Change in mineral extraction and rent tax payable and prepaid

 

5,890

(5,169)

Income tax paid

 

(38,988)

(27,868)

Net cash generated from/(used in) operating activities

 

107,936

(14,898)

Cash flows from investing activities

 

 

 

Purchases of PPE

 

(67,107)

(72,645)

Proceeds from sale of PPE

 

384

270

Purchases of intangible assets

 

(1,442)

(1,241)

Loans provided to joint ventures

 

(2,538)

(2,605)

Dividends received from joint ventures and associate, net of withholding tax

 

13,083

13,822

(Placement)/withdrawals of term deposits, net

 

(88,841)

23,639

Repayments of loan receivable from related parties

 

2,495

Interest received

 

11,903

7,111

Net cash used in investing activities

 

(134,558)

(29,154)

Cash flows from financing activities

 

 

 

Repayment of borrowings

 

(1,526)

(918)

Dividends paid to Company’s shareholders

 

(123)

(28,781)

Net cash used in financing activities

 

(1,649)

(29,699)

Net change in cash and cash equivalents

 

(28,271)

(73,751)

Cash and cash equivalents at the beginning of the period

 

237,310

180,245

Exchange gain on cash and cash equivalents

 

4,318

34,365

Cash and cash equivalents at the end of the period

 

213,357

140,859


The following tables show the Company’s realized sales prices adjusted for oil transportation and other expenses for the nine months ended 30 September 2016[7].

 

                          9М2016

(US$/bbl.)

UAS

CPC

ANPZ

2-3Q

PNHZ

2-3Q

ANPZ

1Q

PNHZ

1Q

Benchmark end-market quote

41.9

41.9

 -  

 -  

 -  

 -  

Quality bank

-

-3.2

 -  

 -  

 -  

 -  

Price differential

-2.5

-0.7

 -  

 -  

 -  

 -  

Realized price

39.4

38.0

16.3

19.8

5.7

10.7

Rent tax

-2.2

-0.5

 -  

 -  

 -  

 -  

Export customs duty

-5.2

-5.2

 -  

 -  

 -  

 -  

MET

-3.7

-3.7

-0.8

-0.8

-0.9

-0.9

Transportation

-5.5

-7.3

-1.0

-3.9

-1.4

-4.0

Netback

22.8

21.3

14.5

15.1

3.4

5.8

Premium of bbl. difference

-

3.9

-

-

-

-

Effective netback incl. premium of bbl. difference

22.8

25.2

14.5

15.1

3.4

5.8

 

 

 

 

 

 

                          9М2015

(US$/bbl.)

UAS

CPC

ANPZ

PNHZ

 

Russia

Benchmark end-market quote

55.3

55.3

-

-

 

 -  

Quality bank

-

-5.1

-

-

 

 -  

Price differential

-3.2

-2.0

-

-

 

 -  

Realized price

52.1

48.2

26.1

26.1

 

35.5

Rent tax

-6.5

-6.9

-

-

 

 -  

Export customs duty

-9.2

-9.1

-

-

 

 -  

MET

-5.9

-5.9

-1.9

-1.9

 

-3.8

Transportation

-6.9

-7.9

-1.1

-6.9

 

-5.1

Netback

23.6

18.4

23.1

17.3

 

26.6

Premium of bbl. difference

-

4.5

-

-

 

-

Effective netback incl. premium of bbl. difference

23.6

22.9

23.1

17.3

 

26.6


Reference information

9М2015

9М2016

Average exchange US$/KZT rate

195.90

344.00

End of period US$/KZT rate

270.40

335.46

Coefficient barrels to tonnes for KMG EP crude (production)

7.36

Coefficient barrels to tonnes for KMG EP crude (sales)

7.23

Coefficient barrels to tonnes for KGM crude

7.70

Coefficient barrels to tonnes for CCEL crude

6.68

Coefficient barrels to tonnes for PKI crude

7.75


Notes to Editors

KMG EP is among the top three Kazakh oil producers. The overall production in 2015 was 12.4 million tonnes (251 kbopd) of crude oil, including the Company’s share in Kazgermunai, CCEL and PKI. The Company’s volume of proved and probable reserves excluding shares in the associates, at the end of 2015 was 193 million tonnes (1,409 mmbbl). 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 at its IPO in September 2006.

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 forward-looking statements will be achieved.


[1]Amounts shown in US dollars (“US$” or “$”) have been translated solely for the convenience of the reader at the average rate over the applicable period for information derived from the consolidated statements of income and consolidated statements of cash flows and the end of the period rate for information derived from the consolidated balance sheets (average rates for 9M2016 and 9M2015 were 344.00 and 195.90 Tenge/US$, respectively; period-end rates at September 30, 2016 and December 31, 2015 were 335.46and 339.47 Tenge/US$, respectively).

[2] Cash, cash equivalents and other financial assets less borrowings.

[3] Except cost of production of crude oil and oil transportation expenses to the refineries.

[4] The Company revised its approach to calculation of capital expenditure. Starting from 4Q 2013 the Capex represents the amount of additions to property, plant and equipment and intangible assets. Formerly it represented purchases of property, plant and equipment and intangible assets according to the Cash Flow Statement.

[5]Amounts shown in US dollars (“US$” or “$”) have been translated solely for the convenience of the reader at the budgeted rate of 360 Tenge per US dollar.

[6] Cash, cash equivalents and other financial assets less borrowings.

[7]As of first quarter 2015 the netback calculation methodology has been amendment and now includes a subtraction pertaining tothe netback MET.

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