KMG Investors Presentation July 2011. 1. KMG Group Overview and Recent Developments.

KMG Investors PresentationJuly 2011

1. KMG Group Overview and Recent Developments

KMG (Baa3/BB+/BBB-) – Government “Arm” in Kazakhstan’s Oil & Gas Industry

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

Representing state interests

Diversified asset base

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

Key financials

(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

Leading vertically integrated company operating in every major segment of the oil & gas industry, including upstream, midstream and downstream

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

Source: Company data

KMG – Recent Developments

Funding & Liquidity & Credit Ratings

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.

(1) Based on KZT denominated amounts at the end of period exchange rate 1 USD = 147.46 KZT and average exchange rate of KZT147.26(2) Includes short-term financial assets of US$6.1bn

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

Strategic Developments

Tax regime changes

Reorganisation

6

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.

Refining, Marketing and Retail

Enhancing operational efficiency– Divesting non-core assets – Corporate centre to optimise costs

Consolidating core businesses into five segments across legal entities

Deleveraging and optimising financial structure of Rompetrol

Upstream: Consolidation of principal E&P assets under KMG EP

Oil transportation

Oil &Gas Services

Gas Transportation

2. Kazakhstan Oil Industry Overview

KMG28.1%

Chevron20.7%

Exxon8.2%

Eni7.1%

BG7.1%

CNPC6.9%

LUKoil6.8%

PetroChina6.4%

Other8.7%

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 2010 Global 1P reserves

OPEC77.2%

Russia5.6%

Kazakhstan3.0%

US2.1%

RoW12.1%

OPEC41.2%

Russia12.9%

US8.5%

China4.9%

Canada4.1%

Mexico3.9%

Kazakhstan2.0%

RoW22.5%

Source: Wood MackenzieSource: BP Statistical ReviewSource: BP Statistical Review

2010 Production in Kazakhstan

Kazakhstan: 3.9 bn boeKazakhstan: 1.7 mmboe/d Total: 1.9 mmboe/d

8 Kazakhstan Oil Industry Overview

Kazakhstan Oil & Gas Industry Overview – Midstream and Downstream

Transportation 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

Source: Company Data

Refining & Marketing 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

9 Kazakhstan Oil Industry Overview

Oil pipelines Gas pipelines

Refineries

Cities

2

1

3

2

1Caspian Pipeline Consortium (CPC)

Uzen-Atyrau-Samara

Atasu-Alashankou

Central Asia-Center (Kaz)

Okarem-Turkmenbashi-Beineu (Kaz)

Pavlodar

Shymkent

Atyrau

AktauAlmaty

Astana

AtyrauRefinery

ShymkentRefinery

Pavlodar Refinery

Russia

Kyrgyzstan

Turkmenistan

Uzbekistan

China

Russia

Caspian Sea

2

1 3

Atasu

AlashankouNovorossiisk(Black Sea)

Uzen

Samara

Beineu2

1

Pavlodar

Shymkent

Atyrau

AktauAlmaty

Astana

AtyrauRefinery

ShymkentRefinery

Pavlodar Refinery

Russia

Kyrgyzstan

Turkmenistan

Uzbekistan

China

Russia

Caspian Sea

2

1 3

Atasu


Uzen

Samara

Beineu2

1

Pavlodar

Shymkent

Atyrau

AktauAlmaty

Astana

AtyrauRefinery

ShymkentRefinery

Pavlodar Refinery

Russia

Kyrgyzstan

Turkmenistan

Uzbekistan

China

Russia

Caspian Sea

2

1 3

Atasu


Uzen

Samara

Beineu2

1

3. Business Overview

Group Structure

Exploration & Production Transportation Refining and Sales Others

KMG EP - 60.70%(1)

TCO - 20% Kashagan – 16.8% MMG - 50%3

KazakhOil Aktobe - 50%3

KazTurkMunai - 51%3

KazMunaiTeniz - 100%

KazTransOil - 100% KazTransGas - 100% KazRosGas - 50% KazMorTransFlot - 100% CPC – 20.75%(2) Kaz Pipeline Ventures - 100% KMG-TransCaspian - 100%

KMG RM - 100%– Rompetrol - 100%– Atyrau - 99.17%– Shymkent - 49.72%– Pavlodar - 58%(4)

KPI - 50%

TenizService - 49%

KING (R&D) - 83.9%

(1) As at March 30th 2011, as a percentage of ordinary voting shares of KMG EP(2) 19% through the government and 1.75% through KPV(3) 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.

(4) 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

Transport

Source: Company Data

100%

100%

11 Business Overview

Key Operational Data

Source: Company data13 Business Overview

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

KMG EP42.1%

TCO24.3%

MMG13.8%

Kazakhoil Aktobe2.2%

Other17.6%

TCO59.4%

KMG EP19.6%

Other13.1%

MMG4.9%

Kazakhoil Aktobe3.0%

KMG Upstream Snapshot

2010 Oil Production Volumes(1) 2010 Gas Production Volumes

(1) Proportionate consolidation of JVs(2) The Company’s A+B+C1 reserves that are attributable to the Company



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

Source: Company data, Datastream, Bloomberg


(1) As at March 30 2010, as a percentage of ordinary voting shares of KMG EP.

KMG EP’s share price evolution (US$)

http://www.londonstockexchange.com/exchange/prices-and-markets/stocks/summary/company-summary-chart.html?fourWayKey=US48666V2043USUSDIOBE

Eni 16,8%

Shell 16,8%

Total 16,8%

Inpex 7,6%

KMG 16.8%

ExxonMobil 16.8%ConocoPhillips

8.4%

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)

Kashagan - Project Overview

Overview


Current participation overview (NCPC)


Major Role in Upstream: TCO

50%

25%

20%

5%

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


(1) 20% attributable to KMG

Ownership Structure



Control Over Midstream: KazTransOil & KazTransGas

KTO 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)

Oil & Gas Transportation

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:

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

Atyrau Shymkent Petromidia Vega Pavlodar0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

4,300

4,807

3,367

580

4,661

kto

nn

e

Volumes Produced (ktonne) in 2010

RefineryKMG RM

Ownership

Designed Refining Capacity

(mln tonnes/year)

Atyrau (Kazakhstan) 99.17%4.5

Shymkent (Kazakhstan) 49.72%5.25

Pavlodar (Kazakhstan) 100.00% 5.0

Petromidia (Romania) 54.00% (2) 5.0

Vega (Romania) 98.00% (3) 0.3

Note: Utilization rate by refinery is calculated as total volume produced divided by the designed refining capacity

(1) Previously KMG Trade House(2) Via Rompetrol, as of September 2010(3) Via Rompetrol

Source: Company dataSource: Company data


Product mixture of KMG RM Refineries in 2010

Diesel Fuel 31.9%

Gasoline 24.1%

Fuel Oil 21.0%

Jet Fuel 3.5%

Other 19.5%

4. Financial Summary

Financial Summary of Core Assets(1)

100% ownership: Investors’ Change of Control Putif Government ownership drops

below 100%National Company

KazMunayGas

The core group of Material Subsidiaries of which KMG must maintain control

(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

KTG (100%) KTO (100%) KMG EP (61.4%) KMG RM (100%) TCO (20%)(5) MMG - (50%)(6)

30 June 2010 (US$ mn)Assets 2,884Cash 400Debt(3) 921

LTM EBITDA 742

30 June 2010 (US$ mn)Assets 2,152Cash 339

Debt 4LTM EBITDA 427

30 June 2010 (US$ mn)Assets 9,277Cash 4,731

Debt 947LTM EBITDA 1,962

30 June 2010 (US$ mn)Assets 7,972Cash 451Debt(4) 4,480LTM EBITDA 149

30 June 2010 (US$ mn)

Assets 8,948Cash 785Debt 2,852LTM EBITDA 9,413

2009 (US$ mn)Assets 1,863Cash 109Debt 136EBITDA 783

22 Financial Summary

100%

100%

Financial Performance

Revenue (US$ mn)

EBITDA (US$mn)

Capex(US$ mn)

Total Debt and Leverage (US$mn and Multiple)

2008 2009 2010

0

5,000

10,000

15,000

20,000

25,000

15,67410,777

14 220

2008 2009 2010

0500

1,0001,5002,0002,5003,0003,5004,0004,5005,000

4,726

2 5013 222

2008 2009 2010

0

2,000

4,000

6,000

8,000

10,000

0%

20%

40%

60%

80%

6,572

4,200

5 600

2008 2009 2010

02,0004,0006,0008,000

10,00012,00014,00016,00018,000

0.0

1.0

2.0

3.0

4.0

5.0

9,559

14,547 15,451

1.45x

2.98x 2.77x

De

bt / E

BIT

DA

(x)

Source: KMG’s audited financials, based on equity accounting for 2008 and 2009, Company data


Historical and Planned Capex

Historical Capex (US$ bn)

Financial Summary

2008 project CAPEX/Maintenance CAPEX – 0%/67% 2009 project CAPEX/Maintenance CAPEX – 60%/40% 2010 project CAPEX/Maintenance CAPEX – 65%/35%

24

2010 total capex breakdown

Note: Exchange used 1US$=147.50 KZT (2009)Source: Company data

KMG Group Debt Breakdown and Financing Policy

Debt Breakdown KMG’s future financial policy

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

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– Net Debt / Net Capitalisation < 0.5


FY2008 FY2009 FY20100

2

4

6

8

10

12

14

16

18

US$ mn

11 551

14 547

15 415

5. Investment Highlights

Investment Highlights

High Strategic Importance to the

Government

Vertically Integrated Group

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

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

KMG Investors Presentation July 2011. 1. KMG Group Overview and Recent Developments.

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Transcript of KMG Investors Presentation July 2011. 1. KMG Group Overview and Recent Developments.