MANAGEMENT REPORT

BUSINESS ENVIRONMENT REVIEW

The main macroeconomic factors affecting the financial position of the Company include the dynamics of oil prices, inflation rates, fluctuations in exchange rates, in particular, the KZT-to-USD exchange rate.

2016 2017 2018 Variance
Average dated Brent price (DTD) 43,73 54,19 71,31 32%
Inflation rate – Kazakhstan (%) 8,50% 7,10% 5,3% –2.1 bp
Average exchange rate (KZT to USD) 342,16 326,00 344,85 6%

OPERATING RESULTS

Oil Production within Embamunaigas JSC, tonnes
Company 2016
(Actual)		 2017
(Actual)		 2018
(Plan)		 2018
(Actual)		 2018
(Var.)		 2018
(Plan)
Embamunaigas JSC
Including at OGPO of:		 2 832,008 2 840,015 2 895,000 2 895,332 0,332 2 895,000
Zhaiykmunaigas 954,171 953,679 944,063 944,153 0,090 935,142
Zhylyoimunaigas 989,14 1034,925 1109,707 1109,859 0,152 1123,595
Dossormunaigas 404,283 371,531 366,430 366,473 0,043 362,224
Kainarmunaigas 484,414 479,880 474,800 474,847 0,047 474,039
Associated Petroleum Gas Production, mln m3
Indicators 2016
(Actual)		 2017
(Actual)		 2018
(Plan)		 2018
(Actual)		 2018
(Var.)
Production 191,649 199,756 219,845 221,228 1,4

CAPITAL EXPENDITURES

Capital Expenditures, mln KZT
Investment items 2014 2015 2016 2017 2018
Construction operations 12 333 10 685 30 989 12 618 13 920
FA and IA purchase 4 556 5 564 3 536 8 375 12 175
Production drilling 13 279 9 213 8 253 8 632 9 306
Prospecting and exploration drilling 3 225 2 163 4 620 8 118 8 158
Other 15 606 549 1 271 304 641
Total САРЕХ 48 999 28 174 48 669 38 047 44 201

INNOVATIONS

In order to implement the tasks set in the strategy, a wide range of technological innovations has been introduced. The Company develops and supports advanced solutions that ensure higher efficiency and transparency of the business due to improved employee performance and reduced costs.

Smart Field

In 2016, Embamunaigas JSC implemented a pilot project Smart Field at the Uaz Field. The technical solution was developed by the Company’s employees together with domestic IT and new technologies experts. As a result, the field operates in a digital development mode. Having achieved positive results at the Uaz Field, it was decided to replicate the system to other fields, which was in progress in 2017–2018 and will continue until 2023.

The Smart Field is an automated system designed to control the oil and gas field, which allows achieving its maximum performance by integrating disparate systems into a single information system. The main goal of introducing the concept of a smart field is to improve the process of management decision-making support in relation to mature assets, determining the feasibility of extra costs to extend the depletion period and reduce risks.

Combining various sensors, mobile devices, etc. into a single system makes it possible to analyze the data acquired and control the system from a single operational center and respond almost instantly to changing system parameters. The benefits of implementation include reduced operating costs for equipment operation, increased operating rate of the existing well stock, saving energy, reduced downtime of wells, optimizing the development mode of a field, minimizing risks to health, environment and safety, etc.

The technologies for the development of smart fields do not stand still and constant work is required to update the project. In this connection, in 2018, Embamunaigas JSC established a working group that studies new technologies and solutions implemented by international oil and gas companies in order to expand the existing project Smart Field.

PROCUREMENT ACTIVITIES

Procurement Volume, mln KZT (net of VAT)
Description Amount Performance %
Total procurement plan for 2018 89 898,58 100
including
Goods 11 984,46 13,3
Works 51 890,56 57,7
Services 26 023,56 28,9
Total procurement with suppliers assigned 89 895,82 100 LC share
including
Goods 11 981,70 99,98 42,0
Works 51 890,56 100,0 94,0
Services 26 023,56 100,0 94,0
Savings under the contracts 7 116,00 8
including
Goods 1 461,00 12,2
Works 2 444,00 4,7
Services 3 211,00 12,3

FINANCIAL REVIEW

Key Financial Indicators, mln KZT
2014
(Actual)		 2015
(Actual)		 2016
(Plan)		 2017
(Actual)		 2018
(Plan)		 2018
(Actual)		 2018
(Var.)		 2018
%
Oil production, thous. tonnes 2 823 2 823 2 832 2 840 2 895 2 895 0 0
Receipts (income) 344 675 198 113 243 517 309 747 332 627 433 436 100 809 30
Cost of sales –119 229 –94 991 –95 772 –121 290 –134 703 –137 184 –2 481 2
Gross income 225 446 103 121 147 745 188 457 197 924 296 252 98 328 50
General and administrative
expenses		 –15 738 –24 542 58 –9 896 –12 934 –47 840 –34 906 270
Transport and selling costs –135 071 –75 869 –70 366 –102 991 –119 674 –155 497 –35 823 30
Operating income (loss) 74 638 2 711 77 437 75 570 65 315 92 915 27 600 42
Financial income /(expenses),
net		 –2 714 303 312 461 –2 650 –1 176 1 474 -56
Other profit /(loss) net 20 538 62 905 –586 –482 0 21 216 21 216 0
Profit/(loss) before tax 92 462 65 919 77 164 75 548 62 665 112 955 50 290 80
Corporate income tax payable –20 225 –20 457 –15 803 –19 425 –15 847 –29 566 –13 720 87
Annual profit 72 237 45 462 61 360 56 123 56 123 83 389 36 570 78
Volume of Sales and Oil Selling Prices
2014 2015 2016 2017 2018
Oil export sales
КТО
Sales, mln KZT 236 809 118 432 126 832 187 983 262 216
Volume, thous. tonnes 1 920 1 571 1 226 1 526 1 546
Average selling price, thous. KZT/tonne 123 75 103 123 170
CPC
Sales, mln KZT 106 152 60 767 92 944 101 250 143 444
Volume, thous. tonnes 816 766 860 792 811
Average selling price, thous. KZT/tonne 130 79 108 128 177
Total oil exports, mln KZT 342 961 179 199 219 777 289 233 405 660
Total oil exports, thous. tonnes 2 737 2 338 2 085 2 318 2 357
Domestic oil sales
POCR
Sales, mln KZT - 7 783 18 549 13 583 24 234
Volume, thous. tonnes - 210 609 358 459
Average selling price, thous. KZT/tonne - 37 30 38 53
AR
Sales, mln KZT - 9805 3732 4602 1864
Volume, thous. tonnes - 265 117 121 33
Average selling price, thous. KZT/tonne - 37 32 38 56
Crude oil
Sales, mln KZT 12 6 9 6 3
Volume, thous. tonnes 0,26 0,10 0,16 0,10 0,05
Average selling price, thous. KZT/tonne 47 58 58 62 53
Total domestic sales, mln KZT 12 17 594 22 290 18 191 26 101
Total domestic sales, thous. tonnes 0 475 726 479 492
Total sales, mln KZT 342 973 196 793 242 067 307 424 431 761
Total sales, thous. tonnes 2 737 2 813 2 811 2 797 2 849
Cost Analysis, mln KZT
2018 2017 Var., %
Staff remuneration 48 321 45 474 6
Mineral tax 38 383 27544 39
Depreciation, depletion and amortization 19584 16987 15
Maintenance and repair 14308 10622 35
Taxes, other than income tax 4519 2073 118
Materials and stock 3727 3393 10
Power consumption 2992 2705 11
Transportation costs 2723 1810 50
Changes in provision for environmental liability -109 6270 -102
Reduced liabilities for asset retirement exceeding
total capitalized asset		 -821 -778 6
Other 5899 5858 1
139 525 121 959 14
Changes in oil residue (2341) (670) 250
Total cost 137 184 121 290 13
Lifting Costs, mln KZT

Specific lifting (the ratio of operating costs to production) in 2018 amounted to 23,800 KZT per tonne and increased by 10 % vs. 2017.

The major volume of operating expenses (52 %) is staff remuneration and expenses. About 30 % of expenses in 2018 fell on production services, 5 % on materials, 4 % on power.

The unit cost of a tonne of oil in 2018 was 47,400 KZT, which is 11 % higher than in 2017.

grafic analisys
Selling Costs and General and Administrative Expenses
Selling costs, mln KZT 2018 2017
Rent tax 63 900,1 32 583,6
Export customs duty 53 889,7 36 585,8
Transportation costs 37 489,2 33 607,7
Selling fees 218,0 214,4
155 497,0 102 991,4
General and administrative expenses, mln KZT
Fines and penalties 35 456,9 47,2
Staff remuneration 4 900,3 4 017,9
Depreciation, depletion and amortization 2 150,4 3 047,6
Maintenance and repair 485,3 432,0
Transportation costs 445,1 299,4
Taxes, other than income tax 292,1 207,6
Sponsorship 207,0 323,9
Consulting and auditing fees 130,6 105,7
Reversal/accrual of provision for accounts receivable 33,3 –144,3
Other 997,1 2 803,3
45 098,2 11 140,2
Tax Expenses other than Income Tax, mln KZT
2018 2017 Var.,%
Rent tax 63 900 32 584 96
Export customs duty 53 890 36 586 47
Mineral tax 38 383 27 544 39
Social tax 3 091 3 246 -5
Pollution tax 1 969 708 178
Property tax 1 785 1 510 18
Other taxes 1 057 201 425
Total taxes other than CIT 164 074 102 379 60
Profit before tax 112 955 75 548 50
Income tax expenses 29 566 19 425 52
Effective tax rate 26 % 26 % 0
Қаржылық жағдай туралы есеп, млн теen
As of December 31,
2018		 As of December 31
2017
Assets
Long-term assets
Fixed assets 187.656.191 173.028.945
Intangible assets 20.686.194 15.045.692
Other financial assets 38.005.431 32.258.446
Deferred tax assets 10.380.026 10.415.904
Advances paid for long-term assets 2.154.102 1.670.720
Total long-term assets 258.881.944 232.419.707
Current assets
Inventory 10.944.113 7.272.093
Prepaid income tax 3.968.337 772.876
Prepaid taxes and VAT receivable 15.899.345 12.244.843
Advances paid and deferred expenses 3.507.440 2.819.251
Trade and other accounts receivable 30.838.853 35.948.751
Other financial assets - 31.884.021
Cash and cash equivalents 111.445.891 73.423.065
Total current assets 176.603.979 164.364.900
Total assets 435.485.923 396.784.607
Capital
Authorized capital stock 162.399.820 162.399.820
Retained earnings 153.032.636 157.246.242
Total capital 315.432.456 319.646.062
Liabilities
Long-term liabilities
Historical liabilities 5.806.806 1.807.468
Provisions 24.151.252 23.530.091
Total long-term liabilities 29.958.058 25.337.559
Current liabilities
Historical liabilities 1.573.568 2.623.489
Provisions 36.329.095 8.413.484
Mineral tax and rent tax payable 23.287.080 17.947.342
Trade and other accounts payable 28.905.666 22.816.671
Total current liabilities 90.095.409 51.800.986
Total liabilities 120.053.467 77.138.545
Total liabilities and capital 435.485.923 396.784.607

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