KazMunayGas Exploration Production increases net profit 2.5 times in H1

Almaty, September 16 2008

JSC KazMunayGas Exploration Production (KMG EP, an upstream subsidiary of Kazakh National Company KazMunayGas) earned 147.5 billion tenge ($1.224 billion) of net profit in January-July 2008.

This is a 154% rise as compared to the same period in 2007, the company says in a Tuesday press release.

According to the press release, the net income increase is mainly attributable to higher crude oil prices, additional profit in the amount of 27.4 billion tenge ($227 million) from the company's 50% share in Kazgermunai (develops the Karazhanbas field) and increased financial income by 7.3 billion tenge, including the accrual of the return on investment in CCEL," according to the statement.

These factors were partly offset by income tax expenses increase (by 21.9 billion tenge), introduction of an export duty in May 2008 and growth in operating expenses. KMG EP's revenue in the first half of 2008 increased by 61% to 337 billion tenge (US$2,797 million) in comparison with the same period in 2007. This was primarily due to a 68% increase in the average realized price form 43,268 tenge per ton (US$48.6 per bbl) to 72,829 tenge per ton (US$83.6 per bbl). Revenue increase was constrained by an increase in inventory and a decline in the share of exports in total crude oil sales to 74.9% in first six months of 2008 versus 78.2% in first six months of 2007. In US dollar terms revenues increased by 64% in comparison with the first half of 2007.

Operating expenses were 121,8 billion tenge (US$1,011 million) in the first half of 2008, which is 21.9 billion tenge or 22% higher than in the first half of 2007. The main reasons for such increase were the introduction of a customs export duty in May 2008 and an increase in royalties driven by higher revenues.

Starting May 17, 2008 the company's export sales have been subject to an export duty in the amount of US$109.91 per ton (US$14.9 per bbl). As a result, in the first six months of 2008 the Company accrued 15.8 billion tenge as part of its operating expenses.

"The company expects further changes to the applicable fiscal regime from January 1, 2009 following the planned introduction of a new Tax Code of the Republic of Kazakhstan. The Government of Kazakhstan has prepared a draft Tax Code and submitted it to the lower chamber of Parliament in August, 2008. It is expected that the new Tax Code will be finalised before November 2008 and enacted from the beginning of 2009. The changes to tax legislation proposed by the Government are likely to increase the tax burden on the Company and its associates at the current oil prices compared to the fiscal regime of 2007," the press release runs.

Operating cash flow in the first half of 2008 was 75.4 billion tenge (US$626 million), approximately 39% higher than in the first half of 2007. The main reason was the increase in world oil prices.

Purchases of property, plant and equipment (capital expenditures, not including purchases of intangible assets, as per Cash Flow Statement) in the first six months of 2008 were 20.2 billion tenge (US$167 million) which is 3% lower than in the first six months of 2007.

The company's capital expenditure in 2008 is expected to be 45.2 billion tenge in comparison to 40.1 billion tenge in 2007, excluding the capital expenditure of associated companies.

Cash, cash equivalents and financial assets at the end of the first half of 2008 amounted to 490.4 billion tenge (US$4,061 million) compared to 402.2 billion tenge (US$3,343 million) at the end of 2007. Borrowings were 24.2 billion tenge at the end of the first half of 2008 compared to 32.8 billion tenge at the end of 2007.

KMG EP was created in March 2004 as result of a merger of two daughter companies of KazMunayGas - EmbaMunayGas and OzenMunayGas.

The company sells its GDRs at London Stock Exchange, shares at Kazakhstan Stock Exchange.

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