KazMunaiGas Exploration Production
(KMGq.L) Monday said new exploration in its home market, along with
acquisitions, would position the company to move beyond a recent labor strike
that marred third-quarter results.
KazMunaiGas EP, which is majority owned by the Kazakh national oil company,
plans $1 billion in fresh exploration in the next three years in the same oil
region that contains world-class oilfields like Tengiz and Kashagan. The
company will also spend up to $2.5 billion on new acquisitions that would boost
output, an executive said.
The comments came as KazMunaiGas reported a drop in profits from 56.78 million
tenge to 50.31 million ($340 million) following a three-month strike this
summer that crimped petroleum output. KazMunaiGas shares were off 15 pence, or
.9% to 172 pence at 1402 GMT Monday.
Alexander Gladyshev, KMG EP's managing director of investor relations, said the
seven-year-old state's E&P company boasts a $4.5 billion pile of cash, no debts
and the right under Kazakh law, to buy any oil asset at whatever price the
seller has negotiated with another buyer.
KMG EP plans to spend $2 billion over the next three years to grow production
in its existing fields and another $2-$2.5 billion on acquisitions that would
lift output from 260,000 barrels a day to 320,000, according to Gladyshev.
KMG EP is also poised to spend $1 billion over the next three years in
exploration, including drilling its first deep, sub-salt exploration well this
year in Zharkamys East 1, in the pre-Caspian structure of Western Kazakhstan.
Three appraisal wells are being drilled in the same region.
The pre-Caspian structure holds such giant fields as onshore Tengiz and
Karachaganak and offshore Kashagan, one of the world's top five fields and the
costliest oilfield development project anywhere. The structure is one of the
most challenging in the world, with the oil exceptionally hot and deep, under
very high pressure, with a very content of toxic and corrosive hydrogen
sulfide.
While a production joint-venture with BG Group PLC (BG.LN, BRGYY) in the North
Sea has boosted the company's production capacities, KMG EP could bring in
other partners if needed, Gladyshev said.
"If some of these projects are attractive enough, we would bring in an
experienced partner and be a minority partner, and we are confident that we can
bring these projects to production," Gladyshev said.
Analysts welcomed KMG EP's growth push after the recent travails. A three-month
strike this summer at KMG EP's main unit, the Uzen field, related to a call for
higher wages and stronger union reduced output. The strike ended after nearly
2,000 workers were fired, Gladyshev said. While virtually all the workers have
been replaced, many of those fired were hired by contractors, Gladyshev added.
The company's huge pile of cash has depressed the price of KMG EP's shares,
said chief oil analyst Dominic Lewenz of Almaty-based investment bank Visor
Capital. He said investors want the company to drill, buy assets or increase
dividends.
Analyst Gemma Ferst of Eurasia group noted that in the short term, "They
will continue to expand largely via acquisitions." On the strike, she
added, "It's not clear that the underlying issues have been solved, which
raises the risk of more strikes in the future."
KMG EP is owned 63% by the Kazakh national oil company National Oil Company
KazMunaiGas (NOC KMG), 11% by China's China Investment Corporation (CIC), the
country's sovereign wealth fund, and 26% is traded in the London and Almaty
stock exchanges.