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Oil & Gas

Rising costs hit bottom line for Kazakh national oil company

Kazakhstan’s state controlled oil and gas producer and pipeline operator KazMunayGaz was unable to increase its net profit at a similar pace with revenues last year, as its bottom line was hit by rising production costs, higher taxes and purchasing costs.

The company’s financial report for 2022 showed gross revenues jumping to 8.7 trillion tenge ($18.7 billion), up 34% from but net profit for the period grew just by 2% to 1.3 trillion tenge.

KazMunayGaz failed to keep step with international peers that have reported record-high earnings in 2022.

According to the company’s report, production costs shot up 58% last year to over 1.1 trillion tenge.

Payments of production taxes increased by 47% to 678 billion tenge last year, compared with 2021 and this was excluding corporate profit tax.

Procurement costs were also 37% higher than the previous year, at almost 5 trillion tenge.

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Last year, the company dished out $3.8 billion to its largest shareholder, Kazakh state fund Samruk-Kazyna, to take direct control over a stake in country’s largest offshore oil and gas development project, Kashagan.

In the result of the transaction, KazMunayGaz regained its right for the full 17% shareholding in the offshore project that it lost in 2015, with the deal upping Kashagan’s contribution to KazMunayGaz’ total hydrocarbon output.

However, the deal also prevented the Kazakh company from exploiting market tailwinds to deleverage and net debt increased by 3% to almost $9 billion as KazMunayGaz was forced to refinance.

Production forecast and Caspian setbacks

Speaking at a conference call earlier on Wednesday, company executives promised investors to focus on rebuilding oil production at its legacy onshore assets in the Mangistau region, reiterating a production target of 476,000 barrels per day of oil by 2023 — an incease of 5%.

KazMunayGaz acknowledged delays with two offshore exploration projects in its sector of the Caspian Sea, Isatay and Zhambyl, despite years of planning.

Another Caspian offshore project, the Khvalynskoye field development, stalled as its efforts to secure transportation commitments for future gas production with Russian state controlled gas giant Gazprom were unsuccessful.

The only offshore project where KazMunayGaz has moved forward recently, is the Zhenis block where a wildcat is currently being drilled with Russian partner Lukoil.

The well has so far progressed to 1800 meres and is pursuing a targeted total depth of 3200 metres, KazMunayGaz said.

KazMunayGaz also acknowledged a negative impact on its sales revenues from international sanctions against Kazakhstan’s neighbour Russia — imposed after the country’s invasion in Ukraine.

More than 95% of oil that Kazakhstan exports to international markets transits Russia before being loaded into marine tankers.

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