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Kazmunaigas Exploration Production JSC Integrated Annual Report 2017 KazMunaiGas Exploration Production JSC 2017 Annual Report Draft Table of contents About this report ........................................................................................................................ 4 Key performance indicators ....................................................................................................... 4 Key events ................................................................................................................................. 5 About our business .................................................................................................................... 6 Origins ...................................................................................................................................... 6 Mission, strategy, values and goals .......................................................................................... 6 Strategy ..................................................................................................................................... 6 Values ....................................................................................................................................... 7 Key objectives .......................................................................................................................... 7 Assets structure, relationship with holding company, subsidiaries and associates .................. 8 Asset ownership structure ......................................................................................................... 9 Key exploration and production interests ................................................................................. 9 Social programmes ................................................................................................................. 10 Share price performance .......................................................................................................... 11 About Kazakhstan .................................................................................................................... 12 Key facts ................................................................................................................................. 12 Kazakhstan’s oil and gas sector ........................................................................................... 14 Oil and condensate production ............................................................................................... 14 Factors contributing to higher production .............................................................................. 14 Refining and transportation .................................................................................................... 15 Gas production and export ...................................................................................................... 16 Business model ........................................................................................................................ 17 Our key attributes ................................................................................................................... 17 Three business areas ............................................................................................................... 17 Four objectives ....................................................................................................................... 18 Chairman’s statement .............................................................................................................. 19 A brief history of KMG EP as a public company (reversal) ................................................... 21 Repurchase of minority stakes and delisting .......................................................................... 23 Chief Executive Officer’s statement ........................................................................................ 27 2017 milestones ....................................................................................................................... 29 Q1 ........................................................................................................................................... 29 Q2 ........................................................................................................................................... 29 Q3 ........................................................................................................................................... 30 Q4 ........................................................................................................................................... 30 Key operating and financial indicators .................................................................................... 31 Market overview ...................................................................................................................... 32 2 Operational activities overview ............................................................................................... 35 Oil production ......................................................................................................................... 35 Crude oil exports and domestic sales ..................................................................................... 37 Crude oil processing ............................................................................................................... 38 Reserves .................................................................................................................................. 40 Exploration and appraisal ....................................................................................................... 40 Capital expendeture overview ................................................................................................. 44 Financial overview .................................................................................................................. 46 Taxation ................................................................................................................................... 53 Overview of JVs and associate operations .............................................................................. 54 Liquidity and capital resources ………………………………………………………………60 Risk factors .............................................................................................................................. 61 Corporate social responsibility ................................................................................................ 68 Health, safety and environmental protection ...................................................................... 68 Environmental protection ................................................................................................... 71 Social reponsibility ........................................................................................................... 713 Business conduct ................................................................................................................ 77 Corporate governance .............................................................................................................. 78 Board of Directors .............................................................................................................. 79 Members of the Board of Directors and their biographies ................................................. 79 The corporate governance codes of Samruk-Kazyna JSC and KMG EP ........................... 83 Directors' responsibility statement ..................................................................................... 85 Management Board structure .............................................................................................. 85 Responsibility of the Board of Directors and Management Board .................................... 86 Committees of the Board of Directors ................................................................................ 88 Information about taxation in the UK ................................................................................. 92 Consolidated financial statements for 2017 ............................................................................. 95 Information for shareholders ................................................................................................. 136 Contact information ............................................................................................................... 137 Reference information ........................................................................................................... 138 3 About this report The purpose of this Annual Report is to inform readers about the material aspects of JSC KazMunaiGas Exploration Production’s (KMG EP, or the Company) business. With this Report, the Company aims to help investors and stakeholders understand how it forms its strategy, manages its operations, achieves its financial performance, ensures the long-term sustainability of its business and develops value for stakeholders and interested parties. It addresses the following questions: What do the Company, its subsidiaries, associates and joint ventures do? What are the circumstances under which it operates? How does the Company’s corporate governance structure maintain its ability to create value for stakeholders in the short, medium and long term? What is the Company’s business model? What are the main risks and opportunities influencing
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