KAZAKHSTAN 2014

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9781783020904

ISBN 978-1-78302-090-4

National transformationSauat MYNBAYEVChairmanKAZMUNAYGAS

Steep increase after modernisationKairat URAZBAYEV General DirectorATYRAU REFINERY

From public to privateMarat K. ORMANOVGeneral DirectorKAZMORTRANSFLOT

ARTICLES | INTERVIEWS | VIEWPOINTS | MARKET ANALYSIS | RESOURCES | PROJECTS | MAPS | INVESTOR SPOTLIGHTS

THE OIL & GAS YEAR The Who’s Who of the Global Energy Industry

6 THE YEAR IN REVIEW

7 INTERVIEW: Sauat Mynbayev, KazMunayGas8 THE YEAR’S AWARDS9 KAZAKHSTAN AT A GLANCE

10 THE INVESTORS INDEX11 RESOURCES: Structure of the Ministry of Energy12 THE YEAR IN ENERGY

14 DIPLOMACY & POLITICS

15 ARTICLE: A bridge between East and West. Kazakhstan’s participation in the EEU has benefits and disadvantages

17 MAP: Eurasian Economic Union Facts and Figures17 COMMENT: The East’s EU. The EEU’s development 18 INTERVIEW: Yedil Zhangbyrshin, Mayor of Aktau18 IN OUTPUT: Oil production by oblast, 201219 VIEWPOINT: Maximise opportunities. Daurzhan

Augambay, KazService20 INTERVIEW: Kairat Al Moukhamet, APNOK21 VIEWPOINT: Beijing benefits. Le Yucheng, Chinese

Ambassador to Kazakhstan22 INTERVIEW: Joohyeon Baik, South Korean Ambassador

to Kazakhstan23 MARKET ANALYSIS: A long-term partner goes local.

Rzabek Artygaliyev, Kazakhstan Petroleum Association

24 EXPLORATION & PRODUCTION

25 ARTICLE: Life after Kashagan. Investment in smaller fields27 COMPANY PROFILE: KPO27 IN EQUIPMENT: Use of local and imported equipment in

major Kazakh hydrocarbons projects28 INTERVIEW: Xingyun Sun and Bakyt Imanbayev,

Mangistaumunaigas29 GEOLOGY REPORT: Proven potential29 RESOURCE: Pre-Caspian Cross Section30 COMPANY PROFILE: KMG Kashagan31 MAP: Offshore oilfields32 INTERVIEW: Duncan McDougall, Lucent Petroleum33 MAP: Fields near the Yuzhnaya block34 COMMENT: Drill deep. Drilling a 14-kilometres-deep well35 COMPANY PROFILE: Max Petroleum

36 MARKET ANALYSIS: Chinese firms welcome. Mikheil Ninua, Tethys Petroleum

37 PROJECT HIGHLIGHT: Zharkamys West 1 Project38 INTERVIEW: Baltabek Kuandykov, Meridian Petroleum39 INVESTOR SPOTLIGHTS: Kazpetrol Group,

AtyrauMunaiGas, Eni, PetroKazakhstan40 INTERVIEW: Bekadyl Kuzhagaliyev, Atyraumunai

42 FINANCE & LEGAL

43 ARTICLE: Instrumental trends. Kazakhstan’s economy strives for diversification away from the oil and gas industry.

44 IN EXPORTS: Kazakhstan’s top exports by product45 VIEWPOINT: Look both ways. Mark Smith, European

Business Association of Kazakhstan46 INTERVIEW: Gregor Mowat, KPMG47 INTERVIEW: Elena Kaeva, PwC47 IN COMPETITION: Global Competitiveness Index ranks48 INTERVIEW: Arman Boranbay, Aon Kazakhstan49 INTERVIEW: Janet Heckman, EBRD49 IN GROWTH: Kazakhstan’s GDP growth50 MARKET ANALYSIS: Clarify your rights. Aigoul

Kenjebayeva, Dentons Kazakhstan

52 THE YEAR’S FOCUS: Enhancing Production in the Caspian Region

53 ARTICLE: Onshore takes centre stage. Positive spillover effects of onshore projects’ expansion in the Caspian region

54 IN PRODUCTION: Oil production in major producing countries

55 COMPANY PROFILE: Tengizchevroil56 PROJECT HIGHLIGHT: Karachaganak expansion project57 MAP: The Karachaganak field58 MARKET ANALYSIS: Deep discoveries. Dauletzhan

Khasanov, Karazhanbasmunai59 INTERVIEW: Kairat Urazbayev, Atyrau Refinery60 COMPANY PROFILE: Rauan Nalco61 COMMENT: Downstream expansion. Kazakhstan’s efforts

to develop its petrochemicals industry 62 COMPANY PROFILE: Karakudukmunay64 COMPANY PROFILE: Tulpar Munai Service65 MARKET ANALYSIS: Local players, global

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The Who’s Who of the Global Energy IndustryTHE OIL & GAS YEAR | KAZAKHSTAN 2014

14Diplomacy & PoliticsAs Kazakhstan, Russia, Belarus and Armeniamove to an operational Eurasian EconomicUnion (EEU) in January 2015, Kazakhstan seeksto keep lucrative trade with the EU and otherlarge importers. The new EEU zone should helpincrease trade participation between its mem-bers. However, it remains to be seen whetherthe new union will ultimately hurt the Kazakheconomy once the EEU begins in earnest.

24Exploration & ProductionKashagan, the largest oil discovery in the past30 years and most expensive to date, continuesto be a thorn in the side of project developers.Bad management, skyrocketing costs and majordelays have plagued development, and the fieldshows no signs of resuming production untilsometime in 2016. However, Chinese energydemand continues to surge upwards and willconsume Kazakhstan’s otherwise healthy hy-drocarbons output for the foreseeable future.

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Logistics partner:

52The Year’s Focus: Enhancing Pro-duction in the Caspian RegionDespite shortcomings at Kashagan, fields inthe greater Caspian region will supplementKazakhstan’s production levels. Upgrades torefineries are in process in tandem with ex-pansions utilising local content at the Tengizand Karazhanbas fields. Expansion at theKarachaganak field is on the horizon, pend-ing approval from the Kazakh government.

78Engineering & ConstructionThe construction sector is a major driver of eco-nomic growth in Kazakhstan, with the numberof companies entering the market increasingrapidly. As the government established ambi-tious goals for more industrialisation in thenon-extractive sector, competition amongcompanies entering Kazakhstan is on the rise.As such, engineering and construction firmsface a shortfall of technically skilled workers.

72Oilfield ServicesHeavy investment in mature oilfields is nowa primary focus for operators in Kazakhstanas oil production declines year on year. Sig-nificant portions of funding will be directedtowards the Tengiz and Karachaganak fieldsover the coming 13 years, but the languish-ing Kashagan field will absorb the lion’s shareof reserved funds. Innovative extraction tech-nologies are now being used in an attemptto maintain production at maturing fields.

competition. Mendesh Salikhov, Catkaz65 IN CORRUPTION: Corruption Perception Index66 INTERVIEW: Fuad Serikov, KazGiproNefteTrans67 ARTICLE: Local targets. Joint ventures increase68 INTERVIEW: Dastan Kozhabekov, KING68 IN PRIVATISATION: Samruk-Kazyna companies to be

privatised in 2014-201669 ARTICLE: The science of business. Technological progress

contributes to the economy and the oil and gas industry70 INTERVIEW: Gaziz Kussayin, TenizService71 COMMENT: Canal plans. Tengizchevroil builds new canal

72 OILFIELD SERVICES

73 ARTICLE: Hope lies in Kazakhstan’s mature fields. New oil recovery techniques are developed in Kazakhstan

73 IN ACTIVITY: Forecasted rigs and well activity in Kazakhstan, 2015

75 INTERVIEW: Yuri Denisov, Geostan76 MARKET ANALYSIS: Enhance and revive. Oryngali

Telekusov, Oil Services Company77 INVESTOR SPOTLIGHTS: Intra Services Company,

Schlumberger, Halliburton Kazakhstan, Sun Drilling

78 ENGINEERING & CONSTRUCTION

79 ARTICLE: A bright future in contracts. Kazakh constructionindustry is developing, mainly through oil and gas projects

80 COMPANY PROFILE: KazStroyService81 INTERVIEW: Pavel Beklemishev, Byelkamit82 COMPANY PROFILE: AtyrauNefteMash83 INTERVIEW: Ritesh Parakkal, Kazmunaiservices &

Contracting84 COMPANY PROFILE: Oil Construction Company85 ARTICLE: Construction permits simplified. Foreign

companies can obtain construction permits more easily86 COMPANY PROFILE: Katek87 INTERVIEW: Mike Teeling, PSN KazStroy88 COMMENT: Lessons learned. Local content is the priority89 COMPANY PROFILE: ILF Kazakhstan90 INTERVIEW: Nurzhan Sultanaliyev, UCCE90 IN PROCESSING: KazMunayGas' crude processing

volumes

91 COMPANY PROFILE: NIPI Transneft92 ARTICLE: Engineering prospects and challenges. Kazakh

engineering sector faced difficulties after the end of USSR93 INVESTOR SPOTLIGHTS: Egis International, Isker

Group, Kitek Construction, ZKMK94 INTERVIEW: Sergey Agamammadov and Zhumali

Yergaliyev, Kaskor-Mashzavod95 COMPANY PROFILE: Caspian Engineering & Research96 INVESTOR SPOTLIGHTS: ABE Corporation, ZSPT, Tien

Shan Engineering, Witteveen+Bos Caspian97 COMMENT: Kazakhstan fights the slump. Lower oil prices98 INTERVIEW: Daniel Gunaseelan, Gateway Ventures99 INVESTOR SPOTLIGHTS: Prikaspiyskiy Machinebuilding

Complex, Aktau Oil Electronic Company

100 MARINE & LOGISTICS

101 ARTICLE: Silk Threads. The New Silk Road initiative includes privatisations and expansions

102 IN TRANSPORT: Cargo transported via Port of Aktau 103 INTERVIEW: Mikhail Yalbachev, Port of Aktau103 IN HANDLING: Crude handling from the Port of Aktau105 INTERVIEW: Arran Watson, Caspian Services Group106 INTERVIEW: Marat K. Ormanov, KazMorTransFlot106 IN TRANSPORT: Oil transported by KazMorTransFlot 108 COMPANY PROFILE: Aktau Seaport SEZ109 MAP: Aktau Seaport Special Economic Zone110 ARTICLE: China’s growing influence. Closer ties with China111 INTERVIEW: Topzhar Dzhamalbekov, Dostyk Gas

Terminal111 IN PRODUCTION: Kazakhstan’s forecast oil and gas

condensate production112 INTERVIEW: Fabio Giurato, Wagenborg Kazakhstan113 INVESTOR SPOTLIGHTS: KCA Deutag, OMS Agency114 MARKET ANALYSIS: Logistics in a pipeline boom.

Radiy Kim, Tranco115 INTERVIEW: Islambek Salzhanov, Altyn Kyran117 INVESTOR SPOTLIGHTS: Caspian Dredging and

Marine Contractors, Eastcomtrans118 INTERVIEW: Dmitry Kovtunenko, Kazakhstan

Maritime Academy119 MAP: Railway routes121 MAP: Overland transport

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The Oil & Gas Year is audited by BPA Worldwide

122 PIPELINES & PIPE PLANTS

123 ARTICLE: Pipeline networks in expansion mode. As oil andgas production grows, pipeline capacity must increase

123 IN TRANSIT: KazTransOil transit routes by volume124 INTERVIEW: Aibek Baizakov, KazRosGas124 IN ROUTES: Kazakhstan’s main oil export routes and

volumes exported125 PULL-OUT MAP: Existing and prospective gas pipelines126 INTERVIEW: Beimbet Shayakhmetov, Asia Gas Pipeline126 IN TRADE: Gas production and imports into China 127 INTERVIEW: Sarsenbai Murinov, CPC-Kazakhstan128 COMPANY PROFILE: ArcelorMittal Tubular Products

Aktau129 COMMENT: Big on gas. Kazakhstan plans to develop its

gas pipeline network130 COMPANY PROFILE: KZTA132 INTERVIEW: Yerbol Zhumagaliyev, Kazakhstan Pipe

Plant133 MARKET ANALYSIS: Go local. Mendygali Sappayev,

Chevron Munaigas

134 SERVICES & SUPPLIES

135 ARTICLE: Work at home. Foreign petroleum products are favoured because of their low prices and reliability.

136 INTERVIEW: Alexey Kim, NDTS Inspection Services

137 INVESTOR SPOTLIGHTS: DNV GL Kazakhstan, KazNIGRI, Simax Solution

138 MARKET ANALYSIS: Untapped opportunity. Adil Biguzin, SyCo

138 IN INVESTMENT: Exploration spending in Kazakhstan139 COMMENT: Petrochemicals arrive at Pavlodar. Special

economic zone dedicated to manufacture of chemicals140 COMPANY PROFILE: KazGeoCosmos140 IN EMISSIONS: Fossil fuel emissions by country141 ARTICLE: Process of elimination. Fight against gas flaring142 INTERVIEW: Rajendra Gurjar, Komal International143 COMPANY PROFILE: Emerson Process Management144 INTERVIEW: Ivan Doudin, Honeywell Kazakhstan145 VIEWPOINT: Local breakthrough. Özgür Günaydin,

Borusan Makina Kazakhstan147 MARKET ANALYSIS: Lined up at the pump. Sergey

Sorokin, SP Group148 COMPANY PROFILE: Bureau Veritas Kazakhstan149 INVESTOR SPOTLIGHTS: Bolashak Group, Oil

Transport Corporation

150 EXECUTIVE GUIDE

151 ACCOMMODATION156 EVENTS CALENDAR158 ACKNOWLEDGMENTS | ADVERTISERS INDEX160 IN BRIEF

Publisher: Emmanuelle BerthemetEditor-in-Chief: Gilles Valentin COO: Aslı Konyalı Regional Director: Jack Miller Country Director: Cristina Capatina Country Editor: Uğur ÖzdemirManaging Editor: Simon Johns Production Manager: Alex Mazonowicz Chief Sub-Editor: Amanda Towle Deputy Chief Sub-Editor: Suzanne Carlson News Editor: Nick AugusteijnWeb Editor: Angus Foggie Co-ordinating Sub-Editor: Laura Moth Sub-Editors: Sibel Akbay, Jessenia Chapman, John Houghton-Brown, James Kiger, Daniel Salinas, Jordan Schultz,Christina St John Editorial Intern: Faustine Deffobis Contributors: Barış Altıntaş, Nick Ashdown, Dan Brookes, Jack Elliott, Max Harwood, Victor Kotsev, Svetlana Nekrasova, HelenaOh, Daniel Rosinsky-Larsson, Oliver Tree, Martin Vladimirov, Dominic Whiting, Patrick Wrigley Creative Director: Begüm Alpay Co-ordinating Art Director: Ahmet Sağır Art Directors:Javier González, Melis Tüzün, Didem Tereyağoğlu Director of Global Circulation: Ebru Ak Human Resources: Serra Pelit CFO: Hasan Meric Printing: APA Uniprint Production: WildcatInternational FZ-LLC ISBN 978-1-78302-090-4 E-mail info@theoilandgasyear.com visit www.theoilandgasyear.com Cover: photograph courtesy of Kazstroy

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122Pipelines & Pipe PlantsKazakhstan’s pipeline infrastructure must ex-pand if the country is to increase oil and gasoutput. In addition to developing its domesticdistribution network, the government will raisethe capacity of current export pipelines asChina looks to feed its ever-increasing demandfor energy. Although these prospects look goodfor Kazakh manufacturers, low domestic de-mand for pipeline products is a limiting factor.

134Services & SuppliesIncreasing the share of local content in Kaza-khstan’s oil and gas industry is a continual chal-lenge. Foreign competition from multinationalcompanies threatens to limit the viability of do-mestic firms. The Kazakh government is pushingthrough legislation to improve local productionstandards and boost competitiveness with for-eign companies. By offering high-quality prod-ucts at lower prices, external companies hurtdomestic firms and market diversity in general.

100Marine & LogisticsThe Kazakh government’s New Silk Road ini-tiative promises to boost trade, diversify theeconomy and create jobs. To this end, portionsof state-owned companies will be offered forsale to private investors. Despite these plans,the country’s marine and logistics sectors re-main heavily dependent on the oil and gas in-dustry and face hardship after project delaysat Kashagan. However, new offshore develop-ments offer hope for growth in the sector.

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7 National transformationSauat MYNBAYEVChairmanKAZMUNAYGAS

8 The Year’s Awards

12 The Year in Energy

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The expectations of the country’s oil and gasindustry centre on its three major fields: Tengiz,Karachaganak and Kashagan. What are theprospects for these operations?The development plans of these three projectshave a direct influence on the long-term macro-economic indicators of Kazakhstan.

Due to KMG’s recommended expansionprojects, annual oil production from these fieldsis expected to increase to around 283 millionbarrels by 2022, with KMG’s share of this totallingan estimated 56.5 million barrels.

An expansion project for the onshore Karacha-ganak operation is being considered. This wouldenvision an annual stable production of morethan 73 million barrels of liquid hydrocarbonswhen the Karachaganak field is further developedand expanded as planned.

Furthermore, total natural gas productionfrom these fields by 2022 is likely to increase to61.7 bcm (2.18 tcf ) per year. This uptick wouldmainly be due to more drilling activities inKarachaganak and the resumption of productionin the offshore Kashagan field.

Could you outline KMG’s development goals?KMG’s main objectives are to maximise our share-holders’ value by increasing our assets’ worth inthe long term and to contribute to the mod-ernisation and diversification of the economy ofKazakhstan. Our central tasks are to increase thescope and success of exploration activities withthe purpose of incrementally growing our reserves,expanding oil and gas production, improvingthe transportation of hydrocarbons, modernisingthe country’s refineries, upgrading the qualityof petroleum products and ensuring greater ac-cess to them in the domestic market.

Furthermore, KMG aims to develop theoilfield services sector and increase its levels ofinnovation and technology, in addition to es-tablishing an effective and transparent systemof assets management in the sector. KMG’s de-velopment strategy involves plans to increasethe production of oil and gas until 2022.

Will KMG expand its activities abroad?Kazakhstan produces around 601 million boe ofoil and gas condensate annually. More than 80percent of its hydrocarbons are exported. The

country’s oil exports could grow substantiallyonce production restarts in the super-giantKashagan oilfield, as is anticipated for early 2016.

Kazakhstan is developing two major exportroutes to China and Europe, a necessary movefor balanced growth. We are considering devel-opment possibilities for our international divisionin the areas of refining and marketing.

Recently, Samruk-Kazyna, the national welfarefund, announced a programme to moderniseand transform corporate governance. Has KMGcreated a plan for this transition?In 2012, President Nursultan Nazarbayev set agoal for Kazakhstan to become one of the 30most developed countries in the world by 2050.With this objective, Samruk-Kazyna began workingon transforming the KMG group of companies.

The aim of the modernisation and transfor-mation programme is to implement the bestpractices, technologies and standards in thecompany’s management. KMG is constantlyworking to improve its corporate leadership.

In particular, a divisional management struc-ture is going to be implemented, allowing thetransition to a centralised management basedon common standards, unified business proce-dures and shared tools to help the flow of infor-mation from the bottom up.

What levels of hydrocarbons production didKMG see in 2013 and 2014?Almost all of our indicators, including the explo-ration of oil and gas, illustrate positive tendenciesin 2013 and the first half of 2014.

In comparison to 2012, the consolidatedvolume of oil and gas condensate produced bythe KMG group of companies rose by 5.8 percentin 2013, or 166 million boe, while production ofnatural and associated gas increased by 25.3percent, or 6.9 bcm (244 bcf ).

KMG’s share of the country’s oil and gas pro-duction reached 27.7 percent in 2013. Kazakhstansaw an upward trend in hydrocarbons productionduring the first eight months of 2014.

The volume of oil and gas condensate outputreached 109 million boe in this time, an increaseof 1 percent when compared to the same periodin 2013. Comparing the same two periods, pro-duction of gas also rose by 5 percent in 2014.

IN FIGURES

KMG’s 2013 share of oil and gasproduction in Kazakhstan

27.7 percentThe country’s oil and gas condensate production in the first eight months of 2014

109 million boe

National oil and gas company KazMunayGas (KMG) is heavily involved in theexploration, production, refining and transportation of Kazakhstan’s hydrocarbons. Sauat Mynbayev, chairman of KMG, talks to TOGY about the company’s plans – both domestic and global – and its coming transformationunder Kazakhstan’s new programme for improving corporate governance.

National transformation

Kazakhstansaw an upward

trend inhydrocarbons

production during the first

eight monthsof 2014.

Sauat MYNBAYEVChairmanKAZMUNAYGAS

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Chevron-led consortium Tengizchevroil (TCO) is the largest oil and gas producer in Kazakhstan.It is working on a major expansion project that will increase output at the Tengiz field to 800,000barrels of oil per day by 2019. The Future Growth Project aims to expand production, while theassociated Wellhead Pressure Management Project will maintain production at existingfacilities. More than 800 kilometres of pipelines will be installed and 125 new wells will bedrilled in 2014-2017. TCO plans to spend $7.8 billion on local goods and services for the projects.

To develop Kazakhstan’s downstream industry, President Nursultan Nazarbayev’s administrationdecided to invest heavily in the modernisation of the country’s three refineries: Atyrau, Shymkentand Pavlodar. The reconstruction of the Atyrau Refinery, owned by KazMunayGas Refining andMarketing, is expected to raise output to 1.5 million tonnes of high-quality petrol yearly after it iscompleted in 2016. The cost of the Atyrau upgrade will be at least $2.9 billion. The initiative toupgrade the ageing refineries will provide Kazakhstan with Euro 4 and Euro 5 standard fuel.

The Kazakhstan Project Joint Venture comprises Fluor (30 percent) WorleyParsons (30 percent),KazMunayGas subsidiary Kazakh Institute of Oil and Gas (20 percent) and local engineeringdesign firm KazGiproNefteTrans (20 percent). The participation of the two local companies willaccelerate development of the engineering and construction skills of the Kazakh workforce. Thetransfer of knowledge from the multinational corporations to the local design engineering firms isessential for the long-term development of the country’s engineering and construction industries.

KazMorTransFlot (KMTF), the soon-to-be-semi-privatised national maritime company, is in theprocess of building two LNG-fuelled railway ferries, which will be used for the Aktau-Baku ferryline in 2016. These vessels will benefit KMTF financially while meeting international environmentalstandards. This project contributes to Kazakhstan’s Future Energy initiative and the additionalvessels will be conducive to the company’s goal of developing its presence in the open sea. KMTFexpects to increase its load-carrying capacity to at least 1 million tonnes in the near future.

The Kazakh government has prioritised the expansion of the Port of Aktau, especially regardingthe diversification of imports and exports of dry cargo. The construction of three dry cargoterminals in Aktau began in July 2014 and will expand the capacity of the port and attract foreigninvestment. In November 2013, the Emirati marine terminal operator DP World agreed toprovide management advisory services for the Port of Aktau. DP World’s assistance will harmonisethe logistics chain from China to Aktau, benefiting both oil and non-oil industries in Kazakhstan.

MAN OF THE YEAR

XINGYUN Sun

Since the appointment of Xingyun Sun as general director ofMangistaumunaigas in November 2012, the company has become thethird-largest producer of hydrocarbons in Kazakhstan. Jointly owned byKazMunayGas and China National Petroleum Corporation,Mangistaumunaigas is a key example of China-Kazakhstan co-operation,and highlights how modern technologies are being used in maturing fieldssuch as Kalamkas and Zhetybai to maintain and increase output. Xingyunadvocates increasing oil production alongside Kazakh content. He believesthat market liberalisation will develop the domestic oil and gas industrythrough knowledge transfer and the introduction of advanced equipment.

DOWNSTREAM PROJECT OF THE YEAR

UPSTREAM PROJECTS OF THE YEAR

JOINT VENTURE OF THE YEAR

MARITIME PROJECT OF THE YEAR

LOGISTICS PROJECT OF THE YEAR

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GEOGRAPHY

Area: 2,724,900 square kilometres

Capital: Astana

Climate: low of -54 degrees Celsius and high of 46 degrees Celsius

Official languages: Kazakh, Russian

Population: 17.4 million (January 2014)

POLITICS

Political system: Presidential republic

President: Nursultan Nazarbayev

ECONOMY

Currency: Tenge ($1: KZT181.080)

GDP: $224.4 billion (2013)

Inflation: 5.8 percent (2013)

COMMERCE

Petroleum net liquids exports: Around 1.4 million barrels per day (2012)

Proven crude oil reserves: 30 billion barrels (2013)

Total oil production: 1.79 million barrels of oil per day (2013)

Proven gas reserves: 1.5 tcm (53 tcf) (2013)

Natural gas production: 18.5 bcm (653 bcf) (2013)

Sources: Ministry of the National Economy of the Republic of Kazakhstan,

CIA World Factbook, World Bank, EIA, Observatory of Economic Complexity,

Tengizchevroil

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THE INVESTORS INDEX

The Who’s Who of the Global Energy IndustryTHE OIL & GAS YEAR | KAZAKHSTAN 2014

Source: The survey was conducted by The Oil & Gas Year in Kazakhstan between June and November 2014

The KAZAKHSTAN 2014 Investors Index

With a rating of 67.95, down from 88 in2013, oil and gas executives in Kazakhstanexpressed mixed feelings towards the economicenvironment of the industry. Business confi-dence was hampered due to further delays inthe Kashagan block, devaluation of the Kazakhtenge and falling oil prices.

The expansion of major fields such asTengiz and Karachaganak, and the govern-ment’s promise to reinvest a significant per-centage of the National Oil Fund back to theindustry has maintained some positivity inthe country’s hydrocarbons industry.

Major challenges, including retaining anadequately skilled local labour force and alack of transparency, are more openly discussed.Furthermore, proposals for a new subsoil use

law highlight the government’s intention tofurther liberalise the energy industry forforeign and local investors.

BUREAUCRACY: Nearly half of the index re-spondents said that while the government’spolicies were pro-business, restrictions hin-dered progress within the energy business.Around 34 percent of respondents claimedthat doing business in Kazakhstan was stilldifficult. Problems such as financing issues,renewal of subsoil contracts and lack of effi-ciency are major concerns for senior personnel.

In August 2014, President NursultanNazarbayev merged several government de-partments together and downsized the numberof ministers holding Cabinet posts to acceleratethe decision-making process. Vladimir Shkol-nik, having served twice as a minister, wasappointed minister of energy.

The decision to reshuffle the Cabinet anddecrease its size could help create a moretransparent oil and gas market. Only 58.62percent of oil and gas executives respondedthat the oil and gas market in Kazakhstanwas either very transparent or transparent.

STILL STABLE: Only small and localisedprotests erupted after the devaluation of thetenge by 19 percent in February 2014 andthe increase of petrol prices at filling stationsacross the country in August 2014.

Close to 80 percent of respondents believethe political and economic environment in

the market is highly stable or stable. AlthoughGDP growth declined in comparison to 2012and 2013, the Kazakh economy is still growingmore than 4 percent annually, and there areworries that the current crisis in Russia, oneof the country’s largest trading partners, couldnegatively impact the domestic economy.

ABOUT THE INDEX: The TOGY Investors Indexis designed to measure confidence among oiland gas investors as expressed in their level ofspending in a given market. The index is valuedbased on responses to a survey, conducted byTOGY, of the local market. A score above 50percent on the index shows a positive perceptionamong oil and gas industry investors, while areading below 50 indicates pessimistic outlooks.

Extremelydifficult

3.45

Difficult34.48

Easy44.83

Very easy17.24

How would you rate the ease ofdoing business in Kazakhstan?

Very easy 17.24 %

Easy 44.83 %

Difficult 34.48 %

Extremely difficult 3.45 %

How would you rate the level oftransparency in the Kazakh oiland gas market?

Very transparent 3.45 %

Transparent 55.17 %

Not transparent 41.38 %

Corrupt 0 %

0 20 40 60 80 100

Azerbaijan 82.6

Eagle Ford 98.5

Kazakhstan 67.95

Russia 88.6

Qatar 88.4

Congo-Brazzaville 93.75

BY MARKET

How would you describe thepolicies of Kazakhstan’sgovernment vis-à-vis the oil and gas industry?

Pro-business 31.03 %

Pro-business, but restrictive 48.28 %

Anti-business, but accommodating 20.69 %

Anti-business 0 %

How would you rate the ease ofstarting an oil and gas businessin the Kazakh market?

Very easy 34.48 %

Easy 48.28 %

Difficult 17.24 %

Extremely difficult 0 %

How would you rate the level ofpolitical and economic stability inthe Kazakh oil and gas market?

Highly stable 13.79 %

Stable 65.52 %

Unstable 20.69 %

Highly unstable 0 %

RESPONSEIN

67.95

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The Who’s Who of the Global Energy Industry THE OIL & GAS YEAR | KAZAKHSTAN 2014

MINISTRY OF ENERGY

MinisterVladimir Shkolnik

PSA LLP

Oil and Gas Informational

and Analytical Centre

Public Institution –

Kapitalneftegaz

Management Company of

the Special Economic Zone

of Kazakhstan

Nuclear Technologies Park

Dostyk Energo

State Enterprise –

Karagandalikvidshakht

State Enterprise – National

Nuclear Centre of

Kazakhstan

State Enterprise – Nuclear

Science Institute

State Enterprise –

Geophysical Study Institute

Research and Production

Association Eurasian Water

Centre

Kazairoservice

Zhasyl Damu

State Enterprise –

Kazgidromet

State Enterprise – Centre of

Information and Analysis on

Environmental Safety

Department of

Petrochemical Industry

Development and Technical

Regulation

Department of Gas

Development

Department of

International Co-operation

and Integration Processes

Department of Electric

Power Industry

Department of Coal Industry

Development

Department of Nuclear and

Energy Projects

Development

Committee on Nuclear and

Energy Supervision and

Control

Department of Waste

Management

Department of Climate

Change

Department of Renewable

Energy

Department of Green Energy

Department of Ecological

Monitoring and Information

Department of Strategic

Planning and Analysis

Department of

Administrative Work

Department of Financial and

Budget Procedures

Department of

Informational Technologies

Legal Department

Committee on the

Development of Employees

Structure of the Ministry of Energy

The Audit and Control Department

Safety of State Secrets Administration

Press Centre

Administration of Mobilisation Training

Departments & committees

Associations and state enterprises

First Deputy –

Uzakbay Karabalin

Vice-Minister –

MagzumMirzagaliyev

Vice-Minister –

BakytzhanDzhaksaliyev

Vice-Minister –

Talgat Ahsambiyev

Executive

Secretary –

Kanatbek Safinov

Department of Subsurface

Use

Department of Oil

Development

Committee on

Environmental Regulations,

Control, State Inspection in

the Oil Sector

28 KazTransGas borrows$700 million from theDevelopment Bank ofChina to complete theBeineu-Bozoi-Shymkentpipeline, which willtransport natural gasfrom Turkmenistan to China.

JAN MAR MAY JUN

02 Munaimash launchesa project to modernisemachine production foroil and gas equipment.

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The Who’s Who of the Global Energy IndustryTHE OIL & GAS YEAR | KAZAKHSTAN 2014

23 China NationalPetroleum Corporationand KazMunayGas sign amemorandum ofunderstanding to buildan oilfield equipmentplant at Aktau SeaportSpecial Economic Zone.

11 The Central Bank ofKazakhstan devalues thetenge by 19 percent,triggering small-scalesocial unrest.

06 Then-Minister ofIndustry and NewTechnologies AssetIsekeshev announcesthat 105 prospective oiland gasfields will beoffered for geologicalexploration in 2014.

20 Sauts Oil, MatenPetroleum andTengizchevroil decide toincrease employeesalaries by 10 percentdue to the devaluationof the tenge.

FEB

06 The AktyubinskHerald reports thatlabour disputes disruptoperations at Batys-Munai, Vostokneft andService, Great Wall andCNPC-ATK, with drillingactivities at a standstill.

16 Sinopec agrees topay $1.2 billion toacquire Lukoil’s 50-percent share of CaspianInvestment Resources.

25 KazMunayGasdecides to conclude awithdrawal from KMGKashagan BVshareholders structure.The deal is equivalent tomore than 25 percent ofall assets held by thenational oil company.

25 Deputy Minister ofOil and Gas MagzumMirzagaliyev announcesthat the offshore Abayoil block has beenoffered to ONGC Videsh.

01 The Agency forRegulation of NaturalMonopolies increasesdiesel fuel prices in thecountry, but decidesagainst a rise in petrol prices.

21 Former Minister ofOil and Gas UzakbayKarabalin says oil flow atKashagan may notrestart until early 2016due to the lengthyprocedure of replacingkilometres of pipes.

29 Russia andKazakhstan decide toprolong theirintergovernmentalagreement in the oil andgas industry until 2025,extending the initialdeadline of 2019.

20 Tulpar EnergyServices workers call forstrike action after wagespending from December2013 were not paid to employees.

25 The Kazakhgovernment approvesthe draft of the gasprovision programme,which will help improveaccess to gas for around56 percent of thecountry by 2030.

07 Baltabek Kuandykov,president of theAssociation of PetroleumGeologists, saysKazakhstan will drill awell to a depth of 14kilometres in 2015.

20 Max Petroleumcompletes the drilling ofthe SAGW-11 appraisalwell at Sagiz West andreports that the well isnot commercially viablefor production.

08 A case brought bythe then-Ministry ofEnvironmentalConservation concludeswith a penalty of morethan $700 millionagainst Kashaganconsortium members.

2014

APR

2015

AUG SEP OCT NOVJUL

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The Who’s Who of the Global Energy Industry THE OIL & GAS YEAR | KAZAKHSTAN 2014

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09 Local company RoxiPetroleum announcesthe discovery of oil at itsBNG asset 40 kilometressoutheast of Tengiz inthe Pre-Caspian Basin.Oil and gas shows weredetected at depths of 4,332 metres.

16 Four people areinjured when a refinerybelonging to Vernal OilKazakhstan explodes in Aktobe, forcing theplant to shut down.

25 KazMunayGas andEni sign a co-operationagreement to constructa ship-building plantnear Aktau.

06 President NursultanNazarbayev reshuffleshis Cabinet, reducing thenumber of ministriesand creating a largeMinistry of Energy withVladimir Shkolnik as the new minister.

19 Roxi Petroleumdiscovers a large oil-bearing interval at theA5 deep well BNGContract Area.

21 KazMunayGasincreases petrol prices by10-15 percent, leadingto small protests outsidefilling stations owned by KMG and the Heliosfilling station chain.

01 KazMunayGasdecides to privatiseRomanian subsidiariesPalplast, Zalau andGlobal Security Systemalong with 49 percent ofshares of nationalmarine companyKazMorTransFlot.

15 President Nazarbayevreveals during a summitin Dushanbe that around20 percent of Kazakh oilis extracted by Chinesecompanies.

26 KazMunayGas signsan agreement to begin exploring forhydrocarbons in theTurgay region.

15 A gas cylinderexplosion at theMangistau oilfieldinjures three workers.

27 Tengizchevroilawards Bechtel anengineering,procurement andconstruction servicescontract to modernisefire and gas detectionsystems.

30 Tethys PetroleumKazakhstan extends thedeadline for completingthe sale of its threeassets to HanHong, aChinese investmentfirm, until May 1, 2015.

27 Minister of EnergyVladimir Shkolnikannounces that by 2020,oil production inKazakhstan will exceed 2 million barrels per daywhile gas productionis expected to increase five-fold.

28 The Zharkum gasfieldexperimental-industrialoperation is launched.The field has 833 mcm(29.4 bcf) of dry gas and26,000 tonnes ofcondensate reserves.

03 The new railwayconnecting Uzen inKazakhstan withGyzlgaya-Bereket-Etrekin Turkmenistan andGolestan in Iran is opened.

09 First Deputy Ministerof Energy UzakbayKarabalin says AI-92petrol and diesel prices will drop due tothe decline in global oil prices.

11 A large-scale gasprovision programme for the MaktaaralDistrict of SouthKazakhstan is launchedby KazTransGas Aimak.

14 KazMunayGasconfirms that it willcorrect its forecasts from$80 per barrel to as lowas $50 per barrel due tothe fall in oil prices.

24 KazTransGas beganconstruction on a $127-million pipelineconnected to theBeineu-Bozoi-Shymkentpipeline to provide gasto the city of Baikonur.

DEC

15 A bridge between East and West18 New hires ride an energy wave

Yedil ZHANGBYRSHINMayor of Aktau

19 Maximise opportunitiesDaurzhan AUGAMBAYGeneral DirectorKAZSERVICE

DIPLOMACY & POLITICS