JSC NC "KAZMUNAYGAS" ANNUAL REPORT 2016 1 CONTENTS COMPANY OVERVIEW ........................................................................................................................................................... 7 STRATEGIC PRIORITIES AND GOALS ...................................................................................................................... 7 TARGET VALUES OF PERFORMANCE INDICATORS ...................................................................................................... 8 GOVERNMENT SUBSIDIES AND GUARANTEES ........................................................................................................... 8 QUICK INFO ON KAZAKHSTAN'S OIL AND GAS INDUSTRY AND KMG'S CURRENT POSITION ................................................ 8 RESULTS ............................................................................................................................................................................... 13 Key financial indicators........................................................................................................................................ 13 Key production indicators .................................................................................................................................. 14 EXPLORATION ......................................................................................................................................................... 15 RESERVES ...................................................................................................................................................... 15 GEOLOGIC EXPLORATION PROJECTS IN THE CASPIAN SHELF ....................................................................................... 16 ONSHORE GEOLOGIC EXPLORATION PROJECTS ....................................................................................................... 18 OIL AND GAS PRODUCTION................................................................................................................................. 22 PRODUCTION OF CRUDE OIL AND CONDENSATE ..................................................................................................... 22 GAS PRODUCTION ........................................................................................................................................... 22 PARTICIPATION IN MAJOR OIL AND GAS PROJECTS ................................................................................................ 23 Tengiz Project ...................................................................................................................................................... 23 North-Caspian Project ......................................................................................................................................... 24 Karachaganak Project .......................................................................................................................................... 25 OIL AND GAS TRANSPORTATION ................................................................................................................................. 26 OIL TRANSPORTATION BY MAIN OIL PIPELINES ....................................................................................................... 26 DEVELOPMENT OF OIL SUPPLY EXPORT DIRECTIONS ................................................................................................ 26 Atyrau-Samara oil pipeline .................................................................................................................................. 26 Caspian Pipeline Consortium ............................................................................................................................... 26 Kazakhstan-China Oil Pipeline ............................................................................................................................. 26 MARINE OIL TRANSPORTATION........................................................................................................................... 27 TRANSPORTATION AND DELIVERY OF NATURAL GAS ................................................................................................ 27 GAS PIPELINES DEVELOPMENT PROJECTS .............................................................................................................. 28 Increasing the capacity of the Kazakhstan-China TGP (section 1) ....................................................................... 28 Construction of the Beineu-Bozoi-Shymkent Trunk Gas Pipeline........................................................................ 28 REFINING ............................................................................................................................................................ 30 OIL REFINING .................................................................................................................................................. 30 Atyrau Refinery ................................................................................................................................................... 30 Shymkent Refinery .............................................................................................................................................. 31 Pavlodar PCP ....................................................................................................................................................... 31 CaspiBitum (Road bitumens production plant in the APP ) ................................................................................. 32 INTERNATIONAL OPERATIONS IN THE OIL REFINING SECTOR ...................................................................................... 32 INVESTMENT PROJECTS TO DEVELOP THE REFINERIES ............................................................................................. 35 Reconstruction and modernization of the Atyrau Refinery ......................................................................... 36 Reconstruction and modernization of the Shymkent oil refinery plant (LLP "PKOP") ......................................... 36 Modernization and Reconstruction of the Pavlodar PC Plant ............................................................................. 37 OPERATIONS IN GAS REFINING........................................................................................................................... 37 MARKETING AND SALES ...................................................................................................................................... 38 OIL AND OIL PRODUCTS .................................................................................................................................... 38 GAS .............................................................................................................................................................. 40 DEVELOPMENT OF SUPPORT-SECTOR PROJECTS ................................................................................................ 41 "Jack-Up Floating Drilling Rig Construction" Project ........................................................................................... 41 KMG Drilling & Services LLP's project for implementation of the Tengizchevroil LLP's drilling programme, performed jointly with Nabors Drilling International Ltd. ................................................................................... 41 Ship-building/ship-repairing yard construction project jointly with Eni S.p.A. Company (Italy) ......................... 41 “The Route of Cargo Transportation” Project ..................................................................................................... 42 AktauOilMash LLP JV establishment project ....................................................................................................... 42 KMG's Innovation-and-Technological Development ........................................................................................... 42 SUSTAINABLE DEVELOPMENT ............................................................................................................................ 44 2 LOCAL CONTENT DEVELOPMENT ........................................................................................................................ 52 CORPORATE SECURITY............................................................................................................................................... 54 KEY EVENTS OF THE YEAR .................................................................................................................................................... 55 INTERESTED-PARTY TRANSACTIONS .................................................................................................................................... 57 ASSET STRUCTURE ............................................................................................................................................................... 58 KEY AREAS OF DEVELOPMENT............................................................................................................................................. 62 COMPANY'S PLANS FOR 2017 ............................................................................................................................. 62 INVESTMENT PORTFOLIO ........................................................................................................................................... 63 RISK MANAGEMENT ...........................................................................................................................................................