KMG Investors Presentation
July 2011
1. KMG Group Overview and Recent Developments
KMG (Baa3/BB+/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 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 A+B+C1 reserves of 948.1 mn tonnes of oil and 102.2 bcm of gas

Currently participates directly in equity of 33(1) oil & gas related companies in Kazakhstan and abroad

Control over KMG EP (60.70%), 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%), and TCO (Tengiz field) (20%)

Other participations in exploration and production JVs: MMG (50%)(2), KazakhOil Aktobe (50%)(2), KazGerMunai (50%)(3), PKI (33%)(3), MMG
and KazakhOil Aktobe stakes to be transferred to KMG EP by the end of 2010 subject to regulatory approvals

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

2009 revenue of US$10.8 bn, 2009 EBITDA of US$4.2 bn

2010 revenue of US$14.24 bn, 2010 EBITDA of US$5.6 bn
Leading vertically integrated company operating in every major segment of the oil & gas industry,
including upstream, midstream and downstream
Source: Company data
(1) Company data
(2) The Company and KMG EP reached an agreement pursuant to which the Company will transfer its 50% in MIBV (the joint venture entity through which the Company holds a 50 per cent. interest in MMG), its 50%
interest in Kazakhoil Aktobe LLP and its 51% in Kazakturkmunai Ltd. to KMG EP. KMG EP will pay the Company total cash consideration of U.S.$750 million and assume total net debt of U.S.$1,499 million
(3) Through KMG EP
KMG Group Overview and Recent Developments
KMG – Recent Developments
Funding & Liquidity & Credit Ratings





During 2010, KMG raised US$1.5bn. Eurobonds (10-yr.t.7.25%), US$1.5bn inter-company
loan from KMG EP (3-yr.t., 7% coupon), US$1.25bn. Eurobonds (10.5-yr.t.6.375%)
At the end of 2010, KMG had a consolidated cash position of US$8.65bn and short-term
financial assets (predominantly consisting of term deposits in Kazakhstan banks) of
US$6.1bn
In Dec. 2010, KMG raised KZT100bn. zero-coupon bonds (7-yr.t., 7% effective coupon
rate) at the local market
During the same month S&P increased KMG’s credit rating up to BBB-/RR4
On January 17th 2011 S-K extended KMG a 23.3bn loan (13-yr.t., 2% p.a.) for project
financing.
Reorganisation


Enhancing operational efficiency
–
Divesting 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

Strategic Developments
Upstream
 In July 2010, KMG proceeded with transfer of major upstream assets to KMG EP in its
role of the main upstream assets consolidator in Kazakhstan
– Transfer of Kazakhstan Aktobe (50%), Kazakturkmunai (51%) and Mangistau
Investments (50%, the owner of 100% Mangistaumunaigas)
– The ensuing total net debt corresponding to the stakes acquired is US$1,499mn
 In November 2009, jointly with CNPC, acquired 50% of Mangistaumunaigas (MMG)
for c. US$2.6bn
 In October 2008, KMG raised its interest in NCPC from 8.33% to 16.81%
Downstream
 Acquisition of Pavlodar refinery completed in 3Q09
 KMG is currently in negotiations to purchase Helios, the largest gas retail network in
Kazakhstan, which was part of the MMG Group
Transportation
 Significant increase in KMG’s throughput capacity in CPC pipeline through acquisition
of 49.9% stake in KPV (CPC’s shareholder) for a total consideration of US$250mn
 Completion and commissioning of Asian Gas Pipeline – Turkmen gas transit to China
 Beineu – Bozoi – Shymkent mainline pipeline’s construction initiated with a planned
completion in 2012.
Deleveraging and optimising financial structure of Rompetrol
Tax regime changes



(1)
(2) 6
In July 2010, Kazakhstan re-introduced the export customs duty on crude oil at the
rate of US$20/tonne
In 2009 Kazakhstan enacted a new Tax Code (corporate income tax reduced to 20%
for 2009-2012, to 17.5% in 2013, to 15% from 2014 onwards)
Changes in oil & gas fiscal regime: a new mineral extraction tax replacing royalties and
a rent tax replacing the oil export duty, different excess profit tax structure
Based on KZT denominated amounts at the end of period exchange rate 1 USD = 147.46 KZT and average exchange rate of KZT147.26
Includes short-term financial assets of US$6.1bn
2. Kazakhstan Oil Industry Overview
Kazakhstan Oil & Gas Industry Overview – Upstream
 #18 global and #2 CIS producer
 #10 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
2010 Global Liquids Production
Kazakhstan
3.0%
Kazakhstan
2.0%
Mexico
3.9%
Canada
4.1%
OPEC
41.2%
US
8.5%
Source: BP Statistical Review
8
PetroChina
6.4%
RoW
12.1%
Russia
5.6%
Kazakhstan Oil Industry Overview
KMG
28.1%
LUKoil
6.8%
OPEC
77.2%
CNPC
6.9%
BG
7.1%
Chevron
20.7%
Eni
7.1%
Russia
12.9%
Kazakhstan: 1.7 mmboe/d
2010 Production in Kazakhstan
Other
8.7%
US
2.1%
RoW
22.5%
China
4.9%
2010 Global 1P reserves
Kazakhstan: 3.9 bn boe
Source: BP Statistical Review
Exxon
8.2%
Total: 1.9 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 50.8 mln tonnes of crude oil in
2009, 65 mln tonnes in 2010
– Gas pipelines transported 73.2 bln. m cubed of gas in 2009, 94 bln. m
cubed of gas in 2010
– A number of major new pipelines are completed, jointly with CNPC:
Kazakhstan-China Pipeline (3rd segment – Kenkiyak-Kumkol completed in October 2009) and Asian Gas Pipeline (Kazakh section
completed in December 2009)
– 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
Russia
Oil pipelines
1
Caspian Pipeline Consortium (CPC)
2
Uzen-Atyrau-Samara
3
Atasu-Alashankou
Refining / Downstream industry is now primarily in KMG’s control
– Three principal refineries with total refining capacity of up to 18 mln
tonnes per year:
 Atyrau: Western region (5.0 mln tonnes per year);
 Shymkent: Southern region (5.5 mln tonnes per year);
 Pavlodar: Northern region (7.5 mln tonnes per year)
– In 2009, the three refineries produced 11.2 mln tonnes of refined
products, while in 2010 this amount reached 12 mln tonnes
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
9
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
Refining and Sales

KMG EP - 60.70%(1)

KazTransOil - 100%

TCO - 20%

KazTransGas - 100%
–
Rompetrol - 100%

Kashagan – 16.8%

KazRosGas - 50%
–
Atyrau - 99.17%

MMG - 50%3

KazMorTransFlot - 100%
–
Shymkent - 49.72%


CPC –
–
Pavlodar - 58%(4)
KMG RM - 100%
Others

TenizService - 49%

KING (R&D) - 83.9%

KazakhOil Aktobe -

KazTurkMunai - 51%3

Kaz Pipeline Ventures - 100%

KazMunaiTeniz - 100%

KMG-TransCaspian - 100%
(1)
(2)
(3)
As at March 30th 2011, as a percentage of ordinary voting shares of KMG EP
19% through the government and 1.75% through KPV
The Company and KMG EP reached an agreement pursuant to which the Company will transfer its 50% in MIBV (the joint venture entity through which the Company
holds a 50 per cent. interest in MMG), its 50% interest in Kazakhoil Aktobe LLP and its 51% in Kazakturkmunai Ltd. to KMG EP. KMG EP will pay the Company total
cash consideration of U.S.$750 million and assume total net debt of U.S.$1,499 million.
The Company owns a 100% interest in Refinery Company RT, which owns all of the assets of the Pavlodar Refinery, together with a 58% in Pavlodar Refinery JSC,
the entity owning the licences to operate the Pavlodar Refinery (with the remaining 42% in Pavlodar Refinery JSC being held by the State). Refinery Company RT
leases 100% of the assets comprising Pavlodar Refinery to Pavlodar Refinery JSC, which then operates the Pavlodar Refinery
(4)
Source: Company Data
11
Transportation
Business Overview
50%3
20.75%(2)

KPI - 50%
Key Operational Data
FY 2010:







Average price of $80/bbl which is 29% higher than 2009
Oil production increases mainly due to 50% share in MMG EP
Oil transport at KCP increased
Asia Gas Pipeline started operation
Reduced volumes at KTG due to decreased volumes to Gazprom
Oil processed increased due to full consolidation of Pavlodar Refinery
Oil traded at Rompetrol increased given high demand and high oil price
Forecast:
 Oil production increases at KMG EP after increased Capex and Kashagan
starts production in Q4 2012
 Oil transport of CPC and gas transport of AsiaGasPipeline increase in 2012
with start of Kashagan. But, ICA volume decreases as of 2011 due to lower
volumes to Gazprom
 Oil processed increases in Rompetrol in 2012 after the modernization
 Oil traded increases gradually
13
Source: Company data
Business Overview
KMG Upstream Snapshot
2010 Oil Production Volumes(1)
2010 Gas Production Volumes
Other
13.1%
Other
17.6%
Kazakhoil Aktobe
2.2%
Kazakhoil Aktobe
3.0%
KMG EP
42.1%
MMG
13.8%
TCO
24.3%
(1)
(2)
Proportionate consolidation of JVs
The Company’s A+B+C1 reserves that are attributable to the Company
Source: Company data
14
Business Overview
MMG
4.9%
KMG EP
19.6%
TCO
59.4%
Major Role in Upstream: KMG EP

KMG owns approximately 60.7% of KMG EP shares(1)

KMG EP is the largest public oil and gas company in Kazakhstan

KMG EP accounted for around 49% of KMG’s oil production in 2009

Production to stay stable due to enhanced recovery techniques

The Uzen field is the largest oil field of KMG EP and has been in production since 1965

Transfer of Kazakhstan Aktobe (50%), Kazakturkmunai (51%) and Mangistau Investments (50%, the owner of 100% Mangistaumunaigas)
from KMG is being carried out
KMG EP’s share price evolution (US$)
(1)
As at March 30 2010, as a percentage of ordinary voting shares of KMG EP.
Source: Company data, Datastream, Bloomberg
15
Business Overview
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 127.9 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 30 production
wells and ten injection wells
–
Production expected to start in 4Q2012
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)
Current participation overview (NCPC)
Inpex 7,6%
ExxonMobil
16.8%
ConocoPhillips
8.4%
Eni 16,8%
KMG
16.8%
Source: Company data
16
Business Overview
Total
16,8%
Shell
16,8%
Major Role in Upstream: TCO






Established in 1993 to develop the Tengiz field, which is operated by Chevron
Crude oil reserves of 233.8 mln tonnes (1,777 mmboe)
KMG’s stake is 20%
– Veto right over major decisions, chairmanship of the management committee
– Regulating role on behalf of the Government (this role may move to recently created Ministry of Oil & Gas)
– 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 2008 with 2nd generation plant completed
TCO is undertaking future generation expansion project in the Tengiz Field after receiving all the necessary approvals by the appropriate regulatory
authorities and partners in July 2010. 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 2016
Ownership Structure
5%
20%
50%
Source: Company data
(1) 20% attributable to KMG
Source: Company data
17
Business Overview
25%
Control Over Midstream: KazTransOil & KazTransGas
KTO





Oil & Gas Transportation
Natural monopoly oil pipeline operator in Kazakhstan
7,277 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 16.4 mln. tonnes in 2010 via primary pipelines
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:
– In December 2009, the first phase of the Asia Gas Pipeline, comprising
a pipeline with a throughput capacity of 40 bcm per year, was
completed
– Future Beyneu-Shymkent pipeline (up to 10 bcm p.a.)
– Pre-Caspian pipeline to Russia (40 bcm p.a., including 10 bcm of
Kazakhstani gas)
18
Business Overview
Terminals / Infrastructures
Shuttle vessels
Existing oil pipelines
New oil pipeline projects
Gas pipelines
Refinery
Source: EIA
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)
(3)
99.17%
4.5
Shymkent (Kazakhstan)
49.72%
5.25
Pavlodar (Kazakhstan)
100.00%
5.0
Petromidia (Romania)
54.00% (2)
5.0
(3)
0.3
98.00%
Dedicated investments in gas stations resulted in leading retail
position in Kazakhstan (e.g. 259 stations and c.21% market share)
In June 2009, KMG RM 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%
In connection with the purchase of the Pavlodar Refinery, KMG is
also considering the purchase of the Helios filling station retail
network, the largest downstream company in terms of volume of
refined products sold in Kazakhstan
Previously KMG Trade House
Via Rompetrol, as of September 2010
Via Rompetrol
Source: Company data
19
Capacity
(mln tonnes/year)
Atyrau (Kazakhstan)
Vega (Romania)

KMG RM
Ownership
Business Overview
Volumes Produced (ktonne) in 2010
ktonne

5,000
4,500
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
4,807
4,300
3,367
4,661
580
Atyrau
Shymkent
Petromidia
Vega
Pavlodar
Product mixture of KMG RM Refineries in 2010
Other 19.5%
Diesel Fuel 31.9%
Jet Fuel 3.5%
Fuel Oil 21.0%
Gasoline 24.1%
Note: Utilization rate by refinery is calculated as total volume produced divided by the
designed refining capacity
Source: Company data
4. Financial Summary
Financial Summary of Core Assets(1)
100%
100%
National Company
KazMunayGas
KTG (100%)
30 June 2010 (US$ mn)
Assets
2,884
Cash
400
Debt(3)
921
LTM EBITDA
742
KTO (100%)
30 June 2010 (US$ mn)
Assets
2,152
Cash
339
Debt
4
LTM EBITDA
427
KMG EP (61.4%)
30 June 2010 (US$ mn)
Assets
9,277
Cash
4,731
Debt
947
LTM EBITDA
1,962
100% ownership:
Investors’ Change of Control Put
if Government ownership drops
below 100%
KMG RM (100%)
TCO (20%)(5)
30 June 2010 (US$ mn)
Assets
7,972
Cash
451
Debt(4)
4,480
LTM EBITDA
149
30 June 2010 (US$ mn)
Assets
8,948
Cash
785
Debt
2,852
LTM EBITDA
9,413
(1) All financials based on separate IFRS statements of each subsidiary at 2009 year-end and 1H2010; Last twelve months (LTM) EBITDA = EBITDA 1H2010 +EBITDA
2009 – EBITDA 1H2009: cash figures include short-term bank deposits; EOP exchange rate: 1H2010 1US$ =147.46KZT; Average exchange rate: 1H2010 1US$ =
147.26KZT; 1H2009 1US$ = 145.0KZT, 2009 1US$ = 147.66KZT
(2) Includes short term financial assets of US$6.1bn
(3) Includes interest payable on debt securities
(4) Including lease obligations
(5) TCO figures are based on financials prepared based on standards as defined in the partnership agreement and adjusted for IFRS compliance
(6) To be transferred to KMG EP by the end of 2010
22
Financial Summary
MMG - (50%)(6)
2009 (US$ mn)
Assets
Cash
Debt
EBITDA
1,863
109
136
783
The core group of Material Subsidiaries
of which KMG must maintain control
Financial Performance
Revenue
EBITDA
(US$ mn)
(US$mn)
25,000
10,000
20,000
8,000
15,000
6,000
10,000
4,000
80%
60%
40%
15,674
10,777
5,000
6,572
14 220
5 600
2,000
20%
4,200
0
0
2008
2009
2010
Total Debt and Leverage
(US$mn and Multiple)
4,726
2 501
3 222
0
2009
2010
Source: KMG’s audited financials, based on equity accounting for 2008 and 2009, Company data
23
Financial Summary
18,000
16,000
14,000
12,000
10,000
8,000
6,000
4,000
2,000
0
5.0
14,547
15,451
2.98x
2.77x
9,559
4.0
3.0
2.0
1.45x
1.0
0.0
2008
2009
2010
Debt / EBITDA (x)
3,000
2008
2010
(US$ mn)
4,000
1,000
2009
Capex
5,000
2,000
0%
2008
Historical and Planned Capex
Historical Capex (US$ bn)
2010 total capex breakdown
 2008 project CAPEX/Maintenance CAPEX – 0%/67%
 2009 project CAPEX/Maintenance CAPEX – 60%/40%
 2010 project CAPEX/Maintenance CAPEX – 65%/35%
Note: Exchange used 1US$=147.50 KZT (2009)
Source: Company data
24
Financial Summary
KMG Group Debt Breakdown and Financing Policy
Debt Breakdown
KMG’s future financial policy
US$ mn
18
16
14
15 415
12
8
 Finance projects without using balance sheet:
– Non-recourse project financing
14 547
10
11 551
– JV partner taking majority of financing burden
– Acquisition financing with limited recourse to acquired
asset and its dividend flow
6
 Borrow at the KMG level and use this liquidity as needed
by different parts of the group
4
2
 KMG’s financial policy targets
– Total Debt / EBITDA < 3.5x
0
FY2008
25
 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
Financial Summary
FY2009
FY2010
– 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
28
Investment Highlights
Vertically Integrated
Group