With joining the Transformation Program of the National Welfare Fund “Samruk-Kazyna” JSC in 2015, JSC NC “KazMunayGas” launched a systemic, interrelated process of continuous improvement in all aspects of activities aimed at optimizing business processes, increasing production efficiency and, ultimately, increasing the company’s value. The transformation is a long and multifaceted process and the projects are of a long-term nature.
The Program introduces a new operating model of the company which implies that KMG shifts from a holding system to the active production assets management. According to a new operating model, a uniform corporate center remains at the first level; subsidiaries and dependent entities (SDEs) directly engaged in production are at the second level. As part of the model, liquidation of JSC “KazMunayGas - Refining and Marketing” (KMG-PM), which became part of the corporate center as the Oil Transportation, Refining and Marketing Division (TPM), has been completed.
In view of the scheduled stage-by-stage reorganization of the KMG Group’s sub-holdings, it was decided to adjust the timing of some draft system-related and methodological changes – “Transformation of Core Business Functions and Introduction of ERP” and “Creation of a Shared Services Center (SCS) for Financial Functions”. The first one provides for automated production and business-processes, human resources management, financial management and asset management based on SAP 4 HANA ERP- systems - a single software package which provides a common data and process model for all sectors of activity.
The project will detail the business processes in accounting and tax accounting, management accounting, project management, treasury and corporate finance, production management, maintenance and repair management (MRM), as well as GWS (goods, works and services) management. In addition, the necessary automation requirements will be prepared for the above mentioned areas. Creation of SCS for financial functions provides for withdrawal of the KMG Group’s personnel engaged in routine operations in accounting, tax accounting and treasury into a separate legal entity.
For SDEs, the existence of SCS has a number of benefits in terms of reduced expenses for maintaining such non-core support functions, improved services, business processes performed in accordance with uniform standards and methodologies, and improved accessibility of information necessary for prompt decision-making.
KazMunayGas adopted a step-by-step scheme to implement the system-related and methodological changes and automation taking into account that these integration projects are also part of the transformation and will require full involvement of labor force of these companies. Other initiatives on system-related and methodological changes will be implemented in accordance with the previously approved calendar-resource schedule.
The projects which introduce the optimized production planning at the KMG’s refinery, introduce and automate a new investment portfolio management model, introduce a new personnel management model (+Job Matching), a target model for occupational safety management, a new risk management model, KMG Group’s information security management system, create a Competence Center for Category Management, centralize the management of KMG’s warehouse complex and optimize the logistics are at the launching, design or implementation stages.
The transformation made it possible to create IT SCS which has already begun to service the KMG’s corporate center, the former KazMunayGas-Refining and Marketing JSC (became a part of KMG), as well as Research Institute of Production and Drilling Technologies LLP in a “single window” mode. The operating model of IT SCS is planned to be replicated in other TRM’s companies.
The production lines of the transformation have already implemented or still implementing the so-called “quick wins”. The main difference between such projects is a quick payback and future replicability in all subsidiaries of KMG.
Among the achieved “quick wins” the following needs to be emphasized:
- The Uaz field at JSC Embamunaigas showed the first results of the project to introduce the Concept of an Intellectual Deposit. The preliminary data demonstrated that the additional volume of oil amounted to 773 tons due to improved operating factor and the energy savings reached 33%. Today, the concept is being replicated at other deposits;
- Kazakhturkmunai LLP (KTM) has seen its production increase by 30 percent at last year end from 244.9 thousand tons to 292 thousand tons due to effective geological and technical measures (GTM) and international standards and equipment available in Kazakhstan. Among these activities, one should mention the optimized field development system and descent of electric centrifugal pumps, which were installed at 14 wells. The next type of activities is hydraulic fracturing of a reservoir which also activates oil and gas wells and increases the intake capacity of injection wells. This experience is being contemplated for application in other enterprises of KMG Group.
- The CODO program (company owned - dealer operated) also functions successfully in the Recycling and Marketing business line. Almost half of the filling stations under the KazMunayGas brand were turned over to private management. The program is designed to support small and medium-sized businesses in the regions, contributes to the development of public-private partnerships and creation of an effective private sector of the economy. This is a common world practice followed by such companies as Exxon Mobil, Shell, Chevron, Lukoil, Rompetrol and others.
Since the start of the transformation program (2015-2017), the company has received net benefits of KZT 61.86 billion. It should be noted that transformation is a complex process. Some dates and plans of the company may be adjusted. The main challenge is to consistently continue the improvement process in the KMG Group. The methodology used to calculate the benefits of the transformation projects is also updated. It will be tied to phases of initiatives and will consider the increasing accuracy of estimates depending on project maturity stages. In addition, the methodology will include not only monetary but also qualitative and indirect benefits.