KMG Investor Presentation
October 2012
1. KMG Group Overview and Recent Developments
KMG (Baa3/BBB-/BBB-) – Government “Arm” in
Kazakhstan’s Oil & Gas Industry
Representing
state interests
Diversified
asset base
Key
financials

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

Stakes in almost all significant oil & gas assets in Kazakhstan with P1+P2+P3 reserves of 653.7 (1) mln tonnes of oil and 102.2 bcm of gas

Participates directly in equity of 38 oil&gas related companies in Kazakhstan and abroad, while 251 companies make up the group (2).

Control over KMG EP (61.36%)(3), 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%), KazakhOil Aktobe (50%), KazGerMunai (50%)(4), PKI (33%)(4)

Joint or sole control over the largest oil & gas pipeline networks in Kazakhstan (combined length of 19.9 thousand km)

Joint or sole control over all three refineries in Kazakhstan and two in Romania (combined capacity of 23.3 mmt/year)

Marketing and sales of oil products in Kazakhstan and in Europe

2010 revenue of US$14.24 bn, 2010 EBITDA of US$5.6 bn

2011 revenue of US$17.7 bn, 2011 EBITDA of US$6.8 bn

6M 2012 revenue of US$9.8 bn, 6M 2012 EBITDA of US$3.6 bn
Leading vertically integrated company operating in every major segment of the oil & gas industry,
including upstream, midstream and downstream
(1) Gaffney Cline report
(2) Company data
(3) As of October 3rd, 2012
(4) Through KMG EP
3 KMG Group Overview and Recent Developments
KMG – Recent Developments
Funding & Liquidity






January 2011 – Samruk-Kazyna (S-K) extends a KZT 23.3bn loan (13 yr, 2% p.a.) to
KMG for Beineu – Bozoi – Shymkent project financing
July 2011 – KMG successfully acquires a US$ 1bln syndicated loan (5 yr, 3 yr grace,
L+2.1%), drawn in 2011 for refinancing purposes
June 2012 – KMG finalizes acquisition of a 10% stake in Karachaganak project, 1/2 of
which was financed by a US$ 1bln carry loan from consortium members (3 yr, L+3%),
the other 1/2 as a capital injection from S-K
July 2012 – KMG secures a US$ 986m carry loan for Kashagan B.V. (4 yr, L+3%)
2012 – preparation for a transaction with the National Fund of the Republic of
Kazakhstan to bring in a US$ 4bln loan. First drawdown to take place in 2013 (for up to
US$ 2.5bln) Second drawdown to take place in 2015 (for up to US$ 1.5bln). Funds are
to be utilized for refinancing and investment activities.
KMG has arranged credit lines for Atyrau Refinery (US$ 2.94bln) and is in process of
arranging credit line for the modernisation of Pavlodar Refinery.
Reorganisation


Enhancing operational efficiency
–
Disposal of non-core assets
–
Corporate centre to optimise costs
Consolidating core businesses into five segments across legal entities
Upstream: Consolidation of principal E&P assets under KMG EP
Oil transportation
Refining, Marketing and Retail
Gas Transportation
Oil &Gas Services

Deleveraging and optimising financial structure of Rompetrol
4 KMG Group Overview and Recent Developments
Strategic Developments
Upstream
 The key acquisition was a 10% stake in Karachaganak that was concluded in 2011
and was paid in June 2012 (US$ 1bn). NC KMG also acquired MMG Service
companies (Aktauoilservice) with a consideration of US$ 334m
 Commercial development at Kashagan to commence in March 2012 and reach
optimum production levels before June 2014 (370 ths. barrels per day)
Transportation
 2011 - Completion and commissioning of AGP – Turkmen gas transit to China
 2011 - CPC Pipeline expansion project capacities to 67mtpa (twofold) by 2015
 2012 - Kazakhstan – China pipeline to be increased up to 20 mln. tonnes p.a. through
put capacity in near future
Downstream
 2012 - KMG initiated modernization of its 3 refineries in Kazakhstan, aiming to
execute these projects on or before Jan 1, 2016. So that the oil products will meet the
Euro 5 fuel standards.
2. Kazakhstan Oil Industry Overview
Kazakhstan Oil & Gas Industry Overview – Upstream
 #15 global and #2 CIS producer
 #9 globally in terms of 1P 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
2011 Global Liquids Production
2011 Global 1P reserves
2011 Production in Kazakhstan
Other
11.4%
RoW
20.9%
US
1.9%
Kazakhstan
2.1%
OPEC
42.4%
Mexico
3.6%
PetroChina
6.9%
RoW
18.6%
Kazakhstan
1.8%
OPEC
72.4%
Russia
5.3%
Canada
4.3%
China
5.1%
LUKoil
7.4%
CNPC
6.9%
BG
6.1%
US
8.8%
Source: Annual BP Statistical Review
6 Kazakhstan Oil Industry Overview
Chevron
20.9%
Eni
6.1%
Russia
12.8%
Kazakhstan: 1.8 mmboe/d
KMG
25.7%
Kazakhstan: 30 bn boe
Source: Annual BP Statistical Review
Exxon
8.6%
Total: 2.1 mmboe/d
Source: Wood Mackenzie
Kazakhstan Oil & Gas Industry Overview –
Midstream and Downstream
Transportation
Refining & Marketing



Kazakhstan is key focal point in the transportation of oil & gas from Central
Asia to Europe and China
Kazakhstan transportation networks are largely controlled by KMG
– Oil pipelines via KTO – transported 66 mln tonnes of crude oil in 2010,
67 mln tonnes in 2011
– Gas pipelines via KTG – transported 102 bln. m cubed of gas in 2010,
111 bln. m cubed of gas in 2011
– A number of major pipelines have recently been completed jointly with
CNPC, including Kazakhstan-China Pipeline and Asian Gas Pipeline
– Infrastructure investments are key for serving international markets in
Asia and Europe
– Several areas of growth, including upgrades and new pipelines to
Russia and China
Caspian Pipeline Consortium (CPC)
2
Uzen-Atyrau-Samara
3
Atasu-Alashankou
–
In 2010, the refineries produced 17.05 mln tonnes of refined products,
while in 2011 this amount reached 17.78 mln tonnes. Slightly higher
results are expected by the end of 2012.
Russia
Oil pipelines
1
Refining / Downstream industry is now primarily in KMG’s control
– Refineries with max refining capacity of up to 20 mln tonnes per year:
 Atyrau: Western region (4.9 mln tonnes per year);
 Shymkent: Southern region (5.25 mln tonnes per year);
 Pavlodar: Northern region (5.0 mln tonnes per year)
 Rompetrol: Romania (5.2 mln tonnes per year)
Gas pipelines
Russia
Samara
Pavlodar
Astana
Pavlodar
Refinery
2
1
Atyrau
Refinery
1
Central Asia-Center (Kaz)
2
Okarem-Turkmenbashi-Beineu (Kaz)
Atasu
Cities
1 Atyrau
Novorossiisk
(Black Sea)
Aktau
Caspian Sea
Source: Company Data
7 Kazakhstan Oil Industry Overview
3
Alashankou
2 Beineu
Uzen
Shymkent
Refinery
Uzbekistan
Turkmenistan
China
Almaty
Shymkent
Kyrgyzstan
Refineries
3. Business Overview
Group Structure
100%
Transport
100%
Exploration & Production







(1)
(2)
(3)
KMG EP – 61.36%(1)
– Kazgermunai - 50%
– PKI - 33%
– CCEL - 50%
TCO - 20%
KPO - 10%
Kashagan - 16.8%
MMG - 50%
KazakhOil Aktobe - 50%
KazMunaiTeniz - 100%
Transportation






KazTransOil - 100%
– KCP - 50%
– Munai Tas - 51%
KazTransGas - 100%
 AGP - 50%
KazRosGas - 50%
CPC - 20.75%(2)
KazMorTransFlot - 100%
Kaz Pipeline Ventures - 100%
Refining and Sales


KMG RM - 100%
– Pavlodar - 100%(3)
– Atyrau - 99.17%
– Shymkent - 49.72%

TenizService - 49%

KING (R&D) - 83.9%

KMG Service - 100%

–
–

KMG-TransCaspian - 100%
The Rompetrol Group - 100%
Vega – 54.60%
Petromidia – 54.60%
KPI - 50%
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
9 Business Overview
Others
Key Operational Data
FY 2011:
 Average price of $111/bbl which is 40% higher than 2010
 Oil production volume slightly decreased due to strikes at the level of KMG EP
 Oil transportation volume increased due to an increase at the level of
Kazakhstan China oil pipeline.
 Gas transportation volume increased due to commissioning of Kazakhstan –
China gas pipeline.
 Oil processing slightly increased because of implementation of cyclical
upgrades.
 Oil trading as agent lower because due to general market fluctuations
Oil production (mln ton)
Gas sold (bn m3)
25
3.0
20
15
2.5
9
11
9
2009
13
12
12
9
8
8
9
2010
2011
2012
2013
1.0
Cons.
JVs
60
50
20
10
14
13
16
20
15
10
5
9
14
12
13
2010
2011
15
7
51
7
18
18
2012
2013
5
10
5
6
12
16
16
2010
2011
0
0
2009
Cons.
JVs
Source: Company data
10 Business Overview
2012
2013
2009
Traded
As agent
2010
2011
2012
2013
Karachaganak
120
54
52
52
52
8
100
12
2
105
95
105
105
2009
2010
17
109
102
101
2012
2013
90
2009
6
1.6
110
2010
2011
Cons.
20
15
1.5
115
10
Oil traded (mln ton)
1.6
Gas transport (bn m3)
40
30
1.6
125
0
Oil processed (mln ton)
20
2009
Oil transport (mln ton)
10% stake in Karachaganak and Kashagan’s production start in Q4 2012
 Oil transport of CPC and gas transport of AsiaGasPipeline increase in 2012
with start of Kashagan
 Oil processed increases in Rompetrol in 2012 after the modernization
 Oil traded to increase gradually
25
1.2
TCO
70
 Oil production increases at KMG EP after increased Capex, acquisition of a
30
0.5
0.8
0.0
0
Forecast:
25
0.4
1.5
10
5
2.0
JVs
2012
2013
2011
Cons.
JVs
KMG Upstream Snapshot
2011 Oil Production Volumes(1)
2011 Gas Production Volumes
KazGerMunai
7.4%
Kazakhoil Aktobe
3.4%
MMG
15.9%
Other
13,13%
KMG EP
43.2%
Kazakhoil Aktobe
3,1%
MMG
4,7%
KMG EP
10,62%
TCO
30.2%
(1)
Proportionate consolidation of JVs
Source: Company data
11 Business Overview
TCO
55,75%
Major Role in Upstream: KMG EP








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 programme launched
Clear strategy to 2020, focussed on maximising shareholder value by
increasing reserves, expanding production and improving profitability
KMG EP’s share price evolution (US$)
26
24
Consolidated Reserves*
22
2P, mmbbl
20
18
16
14
12
Jan-11
(1)
Apr-11
Jul-11
Oct-11
Jan-12
Apr-12
Jul-12
As at October 3 2012, as a percentage of ordinary voting shares of KMG EP.
Source: Company data, Bloomberg
12 Business Overview
UMG and EMG, 100%
KGM (50%)
CCEL (50%)
PKI (33%)
Total
1,661
80
208
134
2,083
*Reserves of UMG, EMG, KGM and CCEL as at 2011 year end, PKI as at 2010 year end
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 7 to 9 billion bbl of recoverable crude oil
–
A+B+C1 reserves of crude oil of 131.4 mln tonnes attributable to KMG 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 KazMunaiGaz NC for a consideration of US$1.78 billion
–
Rotating leadership, operatorship to be passed to KazMunayGaz NC on start-up, once development stages are completed
(Shell to act as a partner in managing production operations)
–
According to Amendment №4 of the Project’s development Plan and Budget, which entailed a CAPEX increase of USD 6.9 bln, commercial development to start
in March, 2013.
Current participation overview (NCPC)
Source: Company data
13 Business Overview
Karachaganak Project (KPO)
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 singed 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 billion cubic meters of gas and more than 108 million tons of liquid hydrocarbons

The total geological reserves of the Karachaganak field are 1,381 billion cubic meters of gas and 1,241 million tons of liquid hydrocarbons

The total recoverable reserves of the Karachaganak field are 929 billion cubic meters of gas and 483 million tons of liquid hydrocarbons
Current participation overview (KPO)
Source: Company data
14 Business Overview
Major Role in Upstream: TCO
Overview
 Established in 1993 to develop the Tengiz field, which is operated by Chevron
 Crude oil reserves of 245.8 mln tonnes, 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 future generation expansion 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.
 The cost of the project is expected to be up to US$18bn and is expected to be completed in 2018
Ownership Structure
5%
20%
50%
(1) 20% attributable to KMG
Source: Company data
15 Business Overview
25%
Control Over Midstream: KazTransOil & KazTransGas
KTO





Oil & Gas Transportation
Natural monopoly oil pipeline operator in Kazakhstan
7,498 km of 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 66.9 mln. tonnes of oil in 2011
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
Large projects:
– Asia Gas Pipeline will increase capacity to 30 bcm per year by the end
of 2012
– Improved gas transportation logistics with the completion of first stage
of the South West Pipeline (up to 6 bcm p.a.). Second stage expected
to complete in 2016, increasing capacity up to 10bcm p.a.
Terminals / Infrastructures
Shuttle vessels
Existing oil pipelines
New oil pipeline projects
Gas pipelines
Refinery
Source: EIA
16 Business Overview
Consolidated Downstream: KMG Refining and Marketing



KMG Refining and Marketing(1) (“KMG RM”) is the 100% owned
principal refining and trading company of the KMG group
An integrated downstream arm of KMG
KMG RM’s strategy:
– Increase sales volume to utilise spare capacity of refineries
KMG RM’s principal refinery assets:
Designed Refining
Refinery


(1)
(2)
Capacity
(mln tonnes/year)
Atyrau (Kazakhstan)
99.17%
4.9
Shymkent (Kazakhstan)
49.72%
5.25
Pavlodar (Kazakhstan)
100.00%
5.0
Petromidia (Romania)
54.60% (2)
4.90
(2)
0.3
Vega (Romania)

KMG RM
Ownership
54.60%
Dedicated investments in gas stations resulted in 2nd largest retail
network in Kazakhstan (e.g. 299 stations and c.8% market share)
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 Rompetrol Rafinare (owning Petromidia refinery) was
reduced to 54%
Volumes Produced (ktonne) in 2011
ktonne

5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
4,471
3,730
4,649
330
Atyrau
17 Business Overview
Shymkent
Petromidia
Vega
Pavlodar
Product mix of KMG RM Refineries in 2011
Other
20.3%
Jet Fuel
0.2%
Fuel Oil
32.9%
Previously KMG Trade House
Via Rompetrol
Source: Company data
4,604
Source: Company data
Diesel
Fuel
32.9%
Gasoline
13.7%
4. Financial Summary
Financial Summary of Core Assets(1)
100%
100%
100% ownership:
Investors’ Change of Control Put
if Government ownership drops
below 100%
National Company
KazMunayGas
NC KMG
EY 2011 Actual, in USD mln
Consolidated:
Debt
Adj EBITDA
Cash
Leverage
Standalone:
15,086
6,788
7,381
2.22x
Debt
Adj EBITDA
Cash
Leverage
Upstream
KMG EP
Debt
Adj EBITDA
Cash
Leverage
Transport
Kashagan
593
2,174
3,561
0.27x
Debt
Adj EBITDA
Cash
Leverage
KMT
2,221
(10)
118
na
Debt
Adj EBITDA
Cash
Leverage
KTO
153
(11)
-14.06x
Debt
Adj EBITDA
Cash
Leverage
Downstream
KTG
2
462
424
0.00x
Note: i-) EBITDA is adjusted based on bond and loan documentation, ii-) Leverage is Gross Leverage, iii-) USD 265m debt resides at other non-mentioned entities
19 Financial Summary
9,774
4,045
1,311
2.42x
Debt
Adj EBITDA
Cash
Leverage
RM KMG
661
541
592
1.22x
Debt
Adj EBITDA
Cash
Leverage
Rompetrol
940
496
746
1.90x
Debt
Adj EBITDA
Cash
Leverage
477
(41)
199
-11.67x
Financial Performance
Revenue
Adj. EBITDA
(US$ mn)
(US$ mn)
25,000
10,000
20,000
8,000
15,000
6,000
10,000
5,000
17,703
10,777
4,000
14,220
2,000
5,633
6,788
0
0
2009
2010
2009
2011
2010
Capex
Total Debt and Leverage
(US$ mn)
(US$ mn and Multiple)
16,000
3,000
14,000
12,000
2,500
10,000
2,000
3,222
3,091
2,501
5.0
14,490
15,416
4,000
2,000
2.74x
2.22x
2009
2010
Source: KMG’s audited financials, Company data
20 Financial Summary
2011
2.0
1.0
0
0
4.0
3.0
6,000
500
15,086
3.39x
8,000
1,000
2011
0.0
2009
2010
2011
Debt / adj. EBITDA (x)
3,500
1,500
4,276
Historical and Planned Capex
Historical Capex (US$ mln)
Capex per segment, $mln
Upstream
Oil transport
Gas transport
Downstream
NC KMG
Other
Total
FY2009A
FY2010A
FY2011A
(1,647)
(198)
(179)
(371)
(14)
(92)
(2,501)
(1,804)
(175)
(306)
(465)
(179)
(293)
(3,222)
(1,900)
(230)
(285)
(434)
(64)
(179)
(3,091)
2011 Total Capex Breakdown
2% 6%
 2009 project CAPEX/Maintenance CAPEX – 60%/40%
 2010 project CAPEX/Maintenance CAPEX – 65%/35%
 2011 project CAPEX/Maintenance CAPEX – 68%/32%
14%
62%
9%
7%
Source: Company data
21 Financial Summary
Upstream
Oil transport
Gas transport
Downstream
NC KMG
Other
KMG Group Debt Breakdown and Financing Policy
KMG’s future financial policy
Scheduled Debt Maturities
(US$ mn)
 Objectives of financial management:
– Monitor leverage and take steps to reduce
or term out debt
– Maintain optimal working capital position at the
subsidiary level
– Maintain high level of financial flexibility of KMG group
 Finance projects without using balance sheet:
– Non-recourse project financing
– JV partner taking majority of financing burden
– Acquisition financing with limited recourse to acquired
asset and its dividend flow
Debt Breakdown
By Currency
KZT
18.5%
By Interest Rate
EUR
1.6%
Variable
34%
 Borrow at the KMG level and use this liquidity as needed
by different parts of the group
 KMG’s financial policy targets
– Total Debt / EBITDA < 3.5x
USD
79.8%
22 Financial Summary
Fixed
66%
– Net Debt / Net Capitalisation < 0.5
5. Investment Highlights
Investment Highlights
1. Most significant asset of the Government
2. Significant portfolio of large-scale exploration projects
onshore and offshore to drive long-term production
growth (e.g. Kashagan)
3. Strategic pre-emptive rights
High Strategic
Importance to the
Government
4. Largest oil producer in Central Asia
5. Midstream: control over oil and gas pipeline
infrastructure
6. Downstream control: downstream capabilities
including three major refineries across Kazakhstan
and Rompetrol assets in Europe
24 Investment Highlights
Vertically Integrated
Group