Reserves production investment in Kazakhstan Completed Saparov Nursultan

Reserves, production, investment in Kazakhstan Completed: Saparov Nursultan 5 B 072100 – CTOS Checked: El-Sayed Negim

Introduction Containing the Caspain Sea's largest recoverable crude oil reserves and most of the region's notable oil fields, Kazakhstan holds between nine and 40 billion barrels of proven hydrocarbon reserves and proven natural gas reserves upwards of 100 trillion, as of 2007. In Kazakhstan regional production accounts for roughly more than 2. 8 million barrels per day, and major oil production growth is expected in the next decade with the Tengiz field's output doubling, as well as Eni's Kashagan megaproject, the largest oil field outside of the Middle East and the fifth largest in the word, adding an additional 1 million barrels per day after 2011.

Oil and Gas Industry of the Republic of Kazakhstan World proved crude oil reserves, bln. barrels reserves, bln. • Kazakhstan holds 9 th place in the world with regard to the proved oil reserves, with the 39, 8 bln. barrels of oil • Kazakhstan is the 2 nd largest oil producer among the CIS countries • Natural gas reserves make up 3 trln. cub. m , which is 1% of world’s gas reserves. • Oil production in Kazakhstan is 1. 76 mln. bbl/day or about 80 bln. tons • Gas production in Kazakhstan makes up 25 bln. cub. m. • Oil production is expected to Increase by 60% by 2020 • Caspian Sea Shelf Projects should become the main driver of oil Annual crude oil production in Kazakhstan, mln. Kazakhstan, tons (with forecast to 2020) (with production growth in Kazakhstan • By 2035 the Caspian Sea region will provide about 9% of the world crude oil demand 72 bln. US dollars Investments in oil and gas sector 21% of oil sector in Kazakhstan’s GDP

Over the ten-year period, 2005 -2014, total capital expenditures for the study companies have more than tripled, with spending increasing an average of more than 25% per year, even with the big cutback in spending in 2009 due to the global financial crisis. More important however, has been the growth in the socalled spending “gap” – defined as the difference between total spending and nominal upstream cash flows (upstream after-tax profits plus noncash and impairments). Over the ten-year period, growth in nominal cash flows has been less than halfthat oftotal spending. Indeed, over the most-recent five-year period, the “gap” or cash flow overspend has averaged about 80% of nominal cash flows. Companies’ options to bridge this “gap” have included turning to debt and equity markets, selling assets, and selling equity interests to other parties, notably to private equity firms and national oil companies.

The capital-intensive and technology-enabled “shale revolution” has however, produced strong gains in proved US oil and natural gas reserves. Over the tenyear period, US reserve growth in boe terms for the study companies averaged almost 7% per year, with natural gas reserve growth averaging almost 8% per year and oil reserve growth more than 6% per year.

End-of-year oil and gas reserves The shale revolution has further resulted in rather strong gains in US oil and gas production, with combined oil and gas production on a boe basis for the study companies growing by more than 5% per year over the ten-year period. For the first half of the ten-year period, the “revolution” was more gas-focused, while in the second half of the period, the much stronger global oil prices shifted the development focus towards oil and liquids development.

Against a backdrop of sharply rising and then flat oil prices and sharply falling and then flat natural gas prices, FDC broadly increased over the tenyear period, on average doubling over the period. However, annual FDC measures have been sharply impacted by downward reserve revisions, most notably in 2008 and 2012. Average production costs also broadly doubled over the 2010– 2014 period while average PRAC increased by about one -half.

JSC NC "Kaz. Munay. Gas" in Kazakhstan's Oil-and-Gas Sector Kaz. Munay. Gas is Kazakhstan's national operator for exploration, production, refining and transportation of hydrocarbons, representing the state in Kazakhstan's oil-and-gas sector. 100 percent of the company's shares are owned by the SWF “Samruk-Kazyna” JSC. Key figures 2011 v v v 21, 1 mln. tons 4, 9 bln. m 3 15, 3 mln. tons 66, 9 mln. tons 110, 6 bln. m 3 Production of crude oil and gas condensate Gas production Oil refining Pipeline oil transportation Pipeline natural gas transportation Layout of oil pipelines Share on the Ro. K's market, % 26, 4 % 13, 1 % 83, 2 % 77, 1 % 95, 7 % Layout of gas pipelines Central Asia - Centre Bukhara - Ural Orenburg - Novopskov BGR - Almaty Kazakhstan-China

The Development Strategy of Kaz. Munay. Gas 1 2 3 4 5 6 • Oil and gas exploration and production • Growth of hydrocarbon reserves and crude oil and gas production • Oil transportation • Diversification of oil export routes, integration of oil transportation systems and ensuring a stable transportation • Gas transportation and marketing • Development of Kazakhstan gas market, transit potential and satisfaction of the domestic market requirements • Oil refining Oil and oil products marketing • Oil refining technological development, ensuring domestic market and development of petro chemistry • Service and innovative technological sector • Creation of competitive services, achieving the level of world oil and gas companies • Managerial improvement • Financial sustainability and debt management, development and improvement of corporate governance, formation of target capital structure, implementation of personnel policy and enhancing social activity

Strategic Targets of JSC NC “Kaz. Munay. Gas” for 2022 Description Unit Plan for 2012 2015 2022 (Long-term strategy) Growth 2022/2012, ( %) Oil and gas condensate reserves mln. tons 779, 0 817, 0 1 413 1, 8 times Volume of oil and gas condensate mln. tons 21, 9 24, 0 35, 4 1, 6 times Volume of oil refining and gas condensate mln. tons 16, 4 19, 0 115, 9 % 9, 3 > 10 >15 ROACE EBITDA margin % 13, 3 > 16 > 18 by 5, 7 percentage point by 4, 7 percentage point

Exploration and Production Innovation Policy • Improving the efficiency of geological exploration • (muiltifocusing, digital geological modeling) Increment in the consolidated residual recoverable oil reserves by more than twice through geological exploration based on innovative technologies by 2022 • Laboratory test Development and transfer of innovative technologies ADVANCED TECHNOLOGIES 15 low-margin deposits of JSC KMG E&P, remaining recoverable reserves 6570 thousand tons Ground tests in natural field conditions Large-scale introduction of innovation on a turnkey basis in existing fields Improvement of development efficiency of the fields with depleted deposit and challenged reserves in order to increase the oil recovery factor. • Nonsteady (cyclic) waterflooding with reverse filtration flow • Polymer-gel system injection • Alternating injection of oil and water • Sidetracking • Horizontal wells and horizontally branched wells Innovative effect • Production tests of research and technology and development activities by Kazakh scientists and teams in the field, testing of new domestic equipment and technologies • Introduction and experience of application of the new technologies by world service companies • Introduction of new technologies in the existing fields

Diversification of Oil Transportation Routes Over 20 years of independence of the Republic of Kazakhstan: § volume of oil export increased from 13 to 71 mln. tons annually § approximately 4 000 km of oil pipelines constructed § pipeline export capacities increased from 10 to 58 mln. tons annually | “Caspian Oil Pipeline” Pipeline Consortium • In April 1996 Agreement between Kazakhstan, Russia, Oman and International Oil Consortium on construction of CPC Pipeline was concluded. • Oil pipeline length: 1510 km • Commissioned: 2001 • July 1 2011 – commencement of construction works on the CPC Expansion Project (up to 67 mln. tons of which 52, 5 mln. tons of oil from the Republic of Kazakhstan) Existing routes Planned routes Kazakhstan-China Oil Pipeline Implementation of the Kazakhstan. China Oil Pipeline Expansion Project (Stage II) will allow increasing the output capacity up to 20 mln. tn of oil a year. Oil transportation, mln. tn § CPC Oil Pipeline § “Atyrau-Samara” Oil Pipeline § Kazakhstan-China Oil Pipeline 2011 28, 2 15, 4 10, 9 Kazakhstan Caspian Transportation System Project The need in the KCTS export capacities will arise by the moment Phase II of the Kashagan field development is implemented

Gas-main Pipelines of Kazakhstan Russian Federation Uzbekistan Turkmen istan Kyrgyzstan China

Reconstruction and Modernization of Refineries in Kazakhstan Implementation of the State Program on Industrial and Innovative Development Enforcement and the Program on Development of the Petroleum Industry in the Republic of Kazakhstan for 2010 -2014 will allow: § increasing an average integrity index of the Kazakhstan refineries up to 10, 2 global rate § increasing the depth of oil refining up to 89% § enhancing the quality of motor fuels to Euro-4, 5 standards Investment projects: § “Construction of Aromatic Hydrocarbon Production Complex at Atyrau Refinery” § “Construction of Deep Oil Processing Complex at Atyrau Refinery” § “Reconstruction and Modernization of Pavlodar Refinery” § “Reconstruction and Modernization of PKOP Refinery (Shymkent Refinery) § «Road Bitumen Production at Aktau Plastic Mass Plant” Expected Results: Description Oil refining Gasoline Jet fuel Diesel fuel Mazut Refining depth Quality of oil products thou, . tons Fact 2011 13 724 2 764 388 4 093 3 403 67% Euro - 2 After reconstruction 2016 19 000 6 774 957 5 875 1 484 89% Euro – 4, 5 Deviation (+/-) % + 5 276 + 4 010 + 569 +1 782 - 1 919 + 38 2, 5 times + 44 - 57 + 22

Kazakh Content (КС) KC in procurement activities of KMG Group for the year 2011 KC in major petroleum projects for the year 2011 Total volume of procurement Kazakh content 7000 Total procurement level 80% 6000 Kazakhstani content 5000 4000 (USD mln. ) 3000 37% 2000 1000 Import Total, GWS Goods Works Services 62% 20% 63% 38% 0 Импорт Kazakh Content Казахстанское содержание 903 446. 7999999 5244 1569 268 1311

Service Sector – Innovative Cluster Research study and development Ø Ø JSC “KBTU": q of Chemical Полигон Institute Sciences named after Bekturov A. B. Ø q Institute of Organic Catalysis and Electrochemistry named after Sokolsky D. V. Ø JSC “Kazakh Institute of Oil and Gas”: q Research-and-Development Center in the “Information Technology Park” SEZ Experimental-industrial Studies Industrial Engineering Polygon based on low-profit oil fields of JSC “Exploration and Production “Kaz. Munay. Gas” Special Laboratory JSC “Kazakh Institute of Oil and Gas” in the “Information Technology Park” SEZ Ø Incorporation in fullscale production at domestic enterprises Promotion of finished commodity to the market Ø Major petroleum projects: § TCO, KPO, NCP etc. Ø Export СЗМС Innovative projects on the territory of the “Information Technology Park” SEZ Завод по ремонту малых судов Ø Creation of a showpiece complex using the latest results in the sphere of innovative technologies. Ø Development of domestic research-and-development as well as design and experimental in the petroleum industry Завод буровых растворов Implemented by: 2011 -2014 Students: 2000 Ø Researches and developments in the sphere of high-performance computing, automation, production processes, IT software application for petroleum and other fields ITP SEZ KIOG Research and Development Center KBTU Institute of Information Technologies KBTU Petroleum Engineering Institute