Relationship of “NC KAZMUNAYGAS” to the government

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CONTENT

 

INTRODUCTION	3
CHAPTER  I THEORETICAL ASPECTS OF ESTABLISHMENT AND DEVELOPMENT OF  NC KAZMUNAYGAS	4
Main activities of “NC KAZMUNAYGAS”	4
History of development of “NC KAZMUNAYGAS”	6
“NC KAZMUNAYGAS’S” origins, assets, and reserves	8
CHAPTER II THE ORGANIZATIONAL STRUCTURE AND FUNCTIONS OF THE “NC KAZMUNAYGAS”	17
2.1 Organizational structure of “NC KAZMUNAYGAS”	17
2.2 Relationship of “NC KAZMUNAYGAS” to the government	18
CHAPTER III FINANCIAL ANALYSIS OF “NC KAZMUNAYGAS”	25
3.1 Performance and behavior	25
3.2 Financial analysis of “NC KAZMUNAYGAS”	30
CONCLUSION	33
REFERENCES	34
APPLICATIONS	35

 

 

 

 

 

 

 

 

 

 

 

 

 

Introduction

KazMunayGas (KMG) National Company is Kazakhstan’s national operator for exploration, production, processing and transportation of hydrocarbons, which represents the government’s interests in the oil and gas industry of Kazakhstan. 100 % of KMG stocks belong to Samruk-Kazyna National Wealth Fund JSC. The goal of KazMunayGas National Company is ensure maximum profit for the republic of Kazakhstan by participating in the development of the national oil and gas industry: maximum increase of the company’s value, rise in profitability, safe production, becoming a competitive and integrated oil and gas company in the international market, and supporting local suppliers of goods, works and services, increasing the Kazakhstani content in oil and gas projects, development of local cadre.

NC KMG is also worth attention by those interested in the changing structure of the international oil industry. The company is very much a work in progress; one of the world’s youngest national oil companies, it could turn into something of a model for other evolving national oil and gas countries, especially those in the former U.S.S.R., where a significant portion of the world’s untapped oil and gas reserves are found.

Place of work experience is JSC NC “KazMunayGas” at the department of human resources in Astana city.

Period of practiceis from 28 January to 6 April 2013.

The purpose of practice is deepening the theoretical knowledge acquired in the course of university studies, the acquisition of skills needed in the future professional activities, acquaintance with the history of the company, its organizational structure, introducing future development, economic potential of company, as well as an analysis of the activities of JSC NC “KazMunayGas”.

The objectives of industrial practice are:

- Examine the main activities, organizational structure of JSC NC “KazMunayGas”;

- Characterize the structural units and their functions;

During the practice I studied the organizational issues related to the activities of the organization and I was able to compare the received me in the educational process theoretical knowledge with practical activities.

Considerable attention was paid to the history of the company, policies, institutional and legal framework for the activities, structure and management practices.

 

 

Chapter  I. Theoretical aspects of establishment and development of  NC KAZMUNAYGAS

1.1 Main activities of “NC KAZMUNAYGAS”

The size of Kazakhstan’s oil and gas reserves alone make Kazakhstan’s national oil company, KazMunayGas (KMG), a worthy inclusion in any study of national oil companies. Kazakhstan's proven oil reserves are estimated between 9 billion and 17.6 billion barrels, including both onshore and offshore fields,1 making it a potential producer of considerable influence. When Kazakhstan’s major new projects reach full production (probably in 2015), it hopes to produce at least 3 million barrels of oil a day, which would make it a larger producer than Norway, and just behind Mexico and Iran.  Even today Kazakhstan is an oil producer of consequence, producing 1.29 million barrels a day.   And virtually anyone interested in investing in Kazakhstan is forced to work, in one form or another, with NC KMG.

NC KMG is also worth attention by those interested in the changing structure of the international oil industry. The company is very much a work in progress; one of the world’s youngest national oil companies, it could turn into something of a model for other evolving national oil and gas countries, especially those in the former U.S.S.R., where a significant portion of the world’s untapped oil and gas reserves are found.

KMG has some features in common with other NOC’s formed in post-Soviet states, such as Russia, Azerbaijan, and Turkmenistan. But the Kazakh government has defined a much more aggressive developmental mission for NC KMG than has the Azerbaijani government for SOCAR, and certainly than the Niyazov government did for the various iterations of its national oil and gas companies.  Unlike in Russia, where there are two NOCs Rosneft and Gazprom, with sometimes competing interests, Kazakhstan has opted to consolidate its holdings in a single company. Nonetheless, NC KMG has features in common with both Gazprom and Rosneft.  Its degree of vertical integration resembles that of Gazprom.  Rosneft, meanwhile, while lacking the same transportation and refining capacity of KMG or Gazprom, shares another equally important similarity with the Kazakh Company: both are seeking to introduce western management styles in order to create international investor confidence.  Yet one very large difference remains between these two companies. Unlike Rosneft, whose chief oil producing asset is Yuganskneftegaz, which was bought at auction after seizure from Yukos, virtually all of NC KMG’s assets were obtained in a pretty straight forward fashion.  They were either acquired by purchase or by the transfer of a state held license to the company (directly or by the consolidation of smaller state-owned companies).

NC KMG is more likely to become a model for other post-Soviet NOC’s than any other company, in large part because of its development strategy is both more forward looking and better articulated than that of its counterparts. The stated intent of both the Kazakh government and of KMG is that the company will devolve into a largely publicly held corporation, with the government insuring the protection of its interests through the voting of its shares by a larger holding company, Samruk—whish’s name is the Kazakh translation of the golden phoenix—created in 2006. 

For now the relationship between KMG and the government of Kazakhstan is a very close one, as is the relationship between the family of the president of Kazakhstan, Nursultan Nazarbayev, and the country’s oil industry.  Those in key positions throughout the oil industry and a government, including the various ministries and executive level positions associated directly with the oil industry, understand the challenge that reform of the industry presents. They all realize that KMG needs to be transformed into an independent and transparent company within the remaining years of President Nazarbayev’s term in office, which ends in 2013—a company which no longer serves as an indirect instrument of foreign policy or as a source of domestic graft.

As this paper explains, it is as yet unclear as to whether they will meet this challenge.  Kazakhstan still faces the task of creating sustained investor confidence.  The Kazakh government’s treatment of international oil companies (IOCs) will partly influence the level of this confidence. Virtually every company of any importance has some activity in the country.  Success will also depend upon the evolution of NC KMG itself—that is, on whether it introduces full transparency in all of its upstream, downstream and associated activities and on whether it helps foster an atmosphere of competition in the service sectors that are associated with its primary operations.  

The company will need to decide whether it intends to remain a production company, or to simply be a stakeholder in all of the country’s major exploitation projects, as well as the major transit partner and a dominant player in Kazakhstan’s downstream market. Whatever decision the company makes it is likely to still need to divest at least some of its assets, and become more focused in its acquisition of assets. Without this winnowing NC KMG will not maximize the value of their assets. They also must turn the company into a reliable partner for other investors in the country.  This requires the completion of the political reform process within Kazakhstan, to provide a better articulation of the rights of investors, and better legal protection to respond to those situations in which investors believe their rights have been violated.  Achieving these goals will strengthen NC KMG’s own position in the international oil industry, and open new foreign upstream and downstream options to it—one of the stated goals of the company.  

1.2 History of development of “NC KAZMUNAYGAS”

It was obvious at the beginning of 90s of last century that great discoveries capable of the dramatic increasing of the amount of prepared oil and gas reserves in the republic are possible only with the development of Caspian Sea water area. During the Soviet period this territory had been covered twice with marine geophysical investigations. At the time of sea surface reduction due to the fall of stage, at the areas opened from sea water the search and detailed geophysical works were conducted. Land geophysical investigations at the significant part of the sea territory, occupied with shallow water, were conducted. By complex result interpretation of these investigations the large-scale structures were determined, what corresponds with the contour of present Karashagan, Central, Kurmangazin, South-Ghambai structure groups. For the first time they were reflected on the summary structure map of Caspian depression on the reflecting surface P2, drawn in «Kazgeofizika» association at the end of 80s of XX century. In 1993 these maps were improved and issued in the form of an Atlas together with French company CGG. In the explanatory note to the Atlas the high prospects of marked structures were made. The Atlas of maps was approved by the Ministry of Geology of RK, further copied and sold to the foreign petroleum companies, including JSC «Kazakhstankaspiyshelf» intended to work in Kazakhstan.

In 1988-1989 these materials were considered in the USSR Gosplan and the whole region was referred to the area of the USSR strategic reserves. On December 1992 Kazakhstan announced to the world about the intention to conduct search works on Caspian Sea. At the second half of this year the group of Kazakhstanian specialists developed «The State program of the development of Kazakhstan sector of Caspian sea». By the Resolution of the Government of RK No. 97 of 13 February 1993 the state company «Kazakhstankaspiyshelf» was established for the realization of the work program of the geological and geophysical investigation and oil-gas fields’ development in Caspian water area.

On 3 December 1993 the Government of RK signed the international agreement with foreign companies SHELL (Holland), STATOIL (Norway), MOBIL (the USA), BP (England), TOTAL (France), AGIP (Italy) on the creation of the international consortium, where SC «Kazakhstankaspiyshelf» was the operator, and Marabaev G.N. was appointed as the consortium director. In 1994-1996 on the water area of more than 100 thousand sq. km seismic, ecological, infrastructure and other researches were conducted. Seismic works investigated the regional structure of Kazakhstan Caspian sector, determined high quantity of local traps, including Kashagan, Kurmangazy, Kalamkas-sea and others, some of them were detailed for the installation of prospect drilling.

In 1997 Kazakhstan Government signed with the Consortium OKIOC the Agreement on the production division (APD), and in 1999 the prospect drilling began.

On July 2000 the Consortium announced about the oil discovery at East Kashagan in the well No. 1. It was the exact moment, when holding the capsule with oil from this well, the President of Kazakhstan NursultanNazarbaev said: «Today is the happy day for Kazakhstan people. The oil discovery at Kashagan is a great help for our independence, for the further prosperity, the improvement of our people’s live. Great hopes of Kazakhstan people have realized».

Great hopes of Kazakhstan people have realized». After East Kashagan the deposits West Kashagan, Kalamkas-sea, Kairan, Aktoty and South-West Kashagan were discovered, and in Russian sector – Shirotnoe and Khvalynskoe. The discovery of Kashagan deposit allowed increasing of oil reserves on 35%. First oil of Kashagan shall be received in 2008. At the present time at Kashagan and a number of other deposits of Caspian Sea preliminary and prospecting works are performed.

The start of the millennium saw KMG consolidate its recent acquisitions. To meet the need of continual growth a new headquarters, R&D centre and advanced manufacturing facility was constructed in Killarney

As part of KMG’s diversification strategy, the group expanded into the Environmental Sector. A new division Tricel was formed in 2002. Tricel was established to focus on the sewage treatment market, initially in Ireland and the UK and thereafter in Europe and the USA.

In 2005 KMG acquired AC Plastic Industries, a leading UK manufacturer of water and fire sprinkler tanks. AC Plastics formed in 1958 has a long tradition of supplying water tanks to the Middle East and North Africa

This decade saw KMG become the leading GRP water tank manufacturer in Europe with product sales in Europe, Africa and Asia.

2010 – 2013 The growth continues:

KMG continues to expand its customer base, markets and product range

In early 2011 KMG achieved a French Government Licence for it’sTricel Sewage Treatment products.

In 2011 KMG opens its first mainland European factory in Poitiers, France to manufacture the Tricel range of sewage treatment products for the French market.

In 2012 KMG further diversified its product offering with the launch of KMG ProWorx premium bodyfillers. ProWorxbodyfillers are supplied to the automotive industry.

Also in 2012, Tricel received certification for its range of wastewater treatment systems in Germany. This was yet another important milestone for the Tricel brand. Tricel being only one of the few Irish and UK brands to successfully hold both French and German government licenses.

Throughout its history, KMG has consistently responded to market challenges and opportunities with tireless innovation, creativity and entrepreneurial spirit. Our proven ability to absorb, improve and generate new technologies, materials and processes has long fuelled our competitiveness and growth.

 

1.3 “NC KAZMUNAYGAS’S” origins, assets, and reserves

One thing is certain, harnessing the country’s fossil fuel assets is key to any developmental strategy.  President Nazarbayev has chosen two use oil and gas to spur economic development in two separate ways, both through the development of a National Fund, which is investing the state’s income from oil and gas, as well as other key resources, into a fund that is loosely modeled after Norway’s national oil fund.  

This fund, created in 2001, is currently estimated to be worth $14.1 billion, and is designed to provide long-term support for Kazakh republic’s budget and compensate for uneven earnings caused by fluctuations in the global oil and gas market.  It is a blue chip fund, of all foreign held securities, administered by Kazakh Ministry of Finance.

The other half of the equation is the creation of a strong national oil and gas company, which is to have a dominating position in the country’s hydrocarbon sector. To this end, the Joint-Stock Company KazMunayGas National Company was founded pursuant to Decree of the President of the Republic of Kazakhstan No. 811 as of 20 February 2002 through the merger of CJSC National Oil Company Kazakhoil and Closed Joint-Stock Company NC Oil and Gas Transportation. 

The opening up of Kazakhstan’s industry after independence in 1991 brought in many foreign investors that helped buoy the industry.    These investors signed PSAs with NC KMG’s predecessor KazakhOil, But the production companies EMG (EmbaMunaygas) and UMG (UzenMunaygaz), the major assets of KazMunayGas Exploration and Production (KMG E and P), were not transferred to KazakhOil until 1997.  By this point in time some 2.1 percent of the voting shares of EMG and UMG were held by their employees and managers, who purchased them during the privatization auctions of 1993. 

On March 16, 2004 the Company was renamed Joint Stock Company KazMunayGas National Company. The Company was created with the aim of comprehensive development of the Republic’s petroleum industry to ensure rational and efficient operation of hydrocarbons, which in turn, will contribute to social and economic development of Kazakhstan and its successful integration into the world economy.The formal organization of NC KMG into a joint stock company also created possibilities for broadening ownership.

NC KMG was created with the aim of achieving a variety of strategic objectives, including the improvement of the financial and economic parameters of the company, adding to tits hydrocarbon reserves, and increasing its production.  

It was intended to do this through the reduction of expenses and increasing the net money flow, by increasing the efficiency of capital investments, to increase reserves through the exploration of new blocks and expanded exploration of existing ones, the maximizing their shares in existing enterprises.  They were also to increase the economic benefit to the state from large oil and gas projects in which they were partners, through the development of transport opportunities available to Kazakhstan, and by assisting the development of petrochemical enterprises within Kazakhstan.  They were further charged with increasing the share of domestically produced goods, works and services supporting the country’s large oil and gas projects, and by helping increase the number of Kazakhstani staff directly engaged in these projects.  

JSC “NC KazMunayGas” is the third largest oil producer in Kazakhstan, and has a minority stake in virtually all major oil and gas projects in the country and a controlling stake in most of the projects initiated since 2000.  The company and its subsidiaries employ over thirty four thousand employees, and reported an income of $4.8 billion dollars in 2005, from its commercial activities.  KMG controls some twenty-five companies. KMG’s Oil and Gas Reserves

 

JSC KMG Exploration and Production (KMG E and P) is the most valuable asset of KMG, as it is the source of the majority of its income.  Over the past eighteen months it has been being prepared for an international public offering, which was made in the beginning of October, in which some 23 million shares of common stock were being offered, just over 5 million of which would be offered in the form of GDR’s each representing one sixth of a share. The shares are being traded on the Kazakh stock exchange, and the GDR’s through the London Stock Exchange, with the offering presented by ABN AMRO Rothschild, Credit Suisse Securities (Europe) Ltd., and Merrill Lynch International.  It is the first foreign offering of KMG stock. Following the completion of the offering NC KMG will hold 60.1 percent of the shares of the company.

Slightly under one third of KMG’s assets are held by KMG Exploration and Production, which controls the Uzen and Emba oil and gas fields, for which it is the operating company.  KMG Exploration and Production is the most valuable income producer of the KMG companies, controlling most of the country’s valuable on-shore oil reserves, excluding TengizChevroil (TCO).

KMG E and P shares the same goals as NC KMG. It seeks to increase the company’s overall production and replace the company’s reserves through the acquisition of assets that are already under production, through increasing production of its existing assets and through exploration and development of “green field” projects.

Given that the Emba (EMG) and Uzen (UMG) fields are “mature,” and so KMG E and P is focusing on trying to develop new wells, extend well-life through the application of electric rotary and screw pumps as well as improving the quality of oil well tubing, to do well work-overs and introduce or improve various secondary recovery methods. The Uzen field18 and several of the large EMG fields have highly paraffinic oil within shallow, low permeability formations, and oil from the EMG fields also tend to have a high water content (water cut), making extraction difficult. The management of KMG E and P are also committed to divert all non-core and ancillary businesses, and to bring their operation up to international environmental and labor safety standards. 

The total reserves of KMG EP are 1.52 billion barrels of oil, and 16.3 billion cubic meters of gas and 12.7 m barrels of gas condensate reserves. KMG EP’s unaudited assets as of May, 2006 were valued at $3,515,908,000.  In 2005 production at the UMG and EMG fields was 132,7000 bopd and 55.3000 bopd respectively and UMG fields produced 812.1 million cubic meters of gas and gas condensate production was approximately 502 bcpd. 

The company believes that it has enough reserves to last until the end of the contract period of its major deposits (which will expire 2015-2024).  The estimated reserve life of the KMG E and P’s reserves is 22 years at the 2005 daily production rate of 188 thousand bcpd.

The proceeds of the global public offering will be used to pay for the acquisitionof NC KMG’s fifty percent share of KazGerMunay and 33 percent share of PetroKazakhstan, assets which are described below.

The company’s other reserves are all held in cooperation with foreign partners, with full details of the consortia making up these projects found in Appendix II of this paper. These are all projects being developed under production sharing agreements signed by the Kazakh government.   KMG has a twenty percent interest in Tengizchevroil project, which has 9 billion barrels of oil. Chevron was first brought in to explore and exploit the Tengiz field in the 1980s, and renegotiating the project was one of the first challenges facing the young Kazakh government after independence. KMG has 8.3 percent of the recoverable reserves at Kashagan, which are estimated at between 9 and 13 billion barrels.  Initially the Kazakh government held 15 percent of this vast off-shore Caspian field, considered by many to be the country’s prize deposit.  The government sold off its share (approximately 1/7 of the project) in the aftermath of the 1998 financial crises, when the Russian economic melt-down in particular left the Kazakhs with a serious financial deficit.  The $500 million received allowed the Kazakhs to meet a good part of their wage and pension arrears, and so avoid a major social crisis.