According to the reserves audit by the international independent consulting firm DeGolyer & MacNaughton, KMG’s proved plus probable hydrocarbon (2P) reserves were at 676 mln tons of oil equivalent (5,220 mmboe) as of 31 December 2019.

The oil and condensate (1P) reserves-to-production ratio is 16 years, far exceeding the average for the global oil majors (about 12 years). The oil and condensate (2P) reserves-to-production ratio with the 2019 production level factored in is 23 years.

STRATEGIC OBJECTIVES IN ENSURING GROWTH IN RESERVES

Organic growth

• Carry out exploration at the current contract areas using own funds and carry financing
• Carry out further exploration at the operating assets using the Company’s own funds
• Attract strategic partners for joint exploration and development of new fields under carry financing arrangements, specifically, with a focus on deep Paleozoic deposits and offshore fields

Inorganic growth

Consider acquiring oil and gas assets in Kazakhstan (the Caspian Sea coastal area (~90% of Kazakhstan’s total reserves) has a huge potential for notable discoveries)

KMG’s portfolio consists primarily of mature fields, which prioritises exploration as part of the long-term strategy to maintain stable production levels. This requires a focus on execution and operational excellence, the search for resource replenishment solutions and unlocking new reserves and bringing them online both at new and mature fields, based on the results of further exploration activities.

Additions to oil reserves are expected to be driven through both organic and inorganic growth. Growth in KMG’s reserves will rely on the implementation of exploration projects onshore and within the Kazakhstan sector of the Caspian Sea, and going forward, with further exploration in licenses operated by our subsidiaries. In 2019, KMG’s portfolio was comprised of 16 exploration projects, of which 8 were offshore and 8 onshore.

KMG is conducting comprehensive studies of Kazakhstan’s sedimentary basins to assess their oil and gas potential and build a portfolio of promising blocks for subsoil use. In 2019, we completed the models of the Ustyurt-Bozashin sedimentary basin’s petroleum system and the Pre-Caspian sedimentary basin flanks (North, East and South), along with the tectonic-sedimentary model of the South Turgay sedimentary basin.

A portfolio of five new promising subsoil use projects was built, including 15 projects for inclusion in the National Acreage Management Programme and five projects for state geological surveys in accordance with Kazakhstan’s Subsoil and Subsoil Use Code.

In addition, the Company carried out extensive seismic field surveys over promising areas within the Pre-Caspian, Mangyshlak and South Turgay sedimentary basins, and over offshore areas of the Caspian Sea. One of the year’s highlights was the completion of seismic field surveys over the Taisoigan area, acquiring a total of 5,600 sq. km of data, the largest high-resolution seismic survey project in the modern history of our nation.

Exploration drilling programmes were also completed in the Urikhtau and Bekturly East areas, which resulted in the identification of the Jurassic, Triassic and Permian-Carboniferous oil and gas prospects. Test programmes have been scheduled for 2020.

Exploration costs totalled KZT 53 bln (excluding shares) in 2019.

Oil transportation by trunk pipelines

Kazakhstan piping infrastructure is owned by JSC KazTransOil, two of its joint ventures (LLP Kazakhstan-China Pipeline and LLP NWPC MunaiTas) and Caspian Pipeline Consortium. Kazakhstan's current pipeline infrastructure demonstrates the potential to increase oil transportation from promising projects.

JSC KazTransOil owns an intricate, 5378 km long network of trunk oil pipelines, which connects to almost all of Kazakhstan’s oil fields. The Company transports oil to four of Kazakhstan’s major oil refineries, and exports oil via the Atyrau-Samara pipeline, transships oil to CPC and Atasu-Alashankou export pipelines, offloads oil to tankers in Aktau port and for railway transportation. Oil is transported via trunk pipelines by 36 oil pump stations, 67 oil pre-heaters, oil tank farm which totals up to 1.4 million m³. JSC KazTransOil also operates and maintains trunk oil pipelines of LLP Kazakhstan-China Pipeline, LLP NWPC MunaiTas, Karachaganak Petroleum Operating B.V., JSC Caspian Pipeline Consortium-K, JSC Turgai Petroleum and LLP Magistralny Vodovod.

In 2019, a total of 67,337 thousand tonnes was transported via trunk pipelines (including 44,463 thousand tonnes for JSC KazTransOil).

Oil Transportation by Sea

NMSC Kazmortransflot LLP is the National Sea Carrier. Its assets include:

• merchant fleet – own oil tankers: Almaty and Aktau, each with a deadweight of 12 thous. tons; Atyrau with a deadweight of 13 thous. tons; and Aframax oil tankers – Alatau and Altai, each with a deadweight of 115 thous. tons
• marine support fleet: 10 vessels – tugboats Ural, Irtysh, 8 barge platforms of KMG series with a capacity of 3,600 tons each
• a fleet to support Tengizchevroil’s Future Growth Project: 3 MCV ship – Barys, Berkut and Sunkar, and 3 tugboats – Talas, Emba and Irgiz.

The main current routes for oil transportation by sea:

• Routes in the Caspian Sea waters;
• Routes in the Black Sea and Mediterranean Sea waters.

In 2019, the total volume of oil transportation by sea amounted to 10,729 thous. Tontons, over the 7 months of 2020, 5,607 thous. tons.

KazTransGas JSC (KTG, KMG’s wholly owned subsidiary) is Kazakhstan’s national gas and gas supply operator.

KazTransGas operates the centralised infrastructure for commercial gas transportation via trunk pipelines and gas distribution networks, ensures international transit and sells gas on the domestic and foreign markets, as well as designs, finances, builds and operates gas pipelines and gas storage facilities.

KazTransGas operates the largest trunk gas pipeline network in Kazakhstan with a total length of 19,146 km and an annual capacity of 230 bln m3, as well as gas distribution networks with a length of over 49 thous. km.

KazTransGas operates three underground gas storage facilities (Bozoy, Akyrtobe, and Poltoratskoye) in Kazakhstan with a total working storage capacity of up to 4.6 bln m3. Gas transportation is effected by 40 compressor stations and 232 gas pumping units.

KazTransGas has subsidiaries in Kazakhstan in the following business segments:

• Trunk pipeline gas transportation

– Intergas Central Asia JSC (ICA), KTG’s 86%-owned subsidiary

– Asia Gas Pipeline LLP, KTG’s 50%-owned subsidiary

– Beineu-Shymkent Gas Pipeline LLP, KTG’s 50%- owned subsidiary

• Transportation via gas distribution systems

– KazTransGas Aimak JSC, KTG’s wholly-owned subsidiary

• Gas and condensate production

– Amangeldy Gas LLP, KTG’s wholly-owned subsidiary (see the Production section for production data).

The volume of gas transportation via KMG’s trunk gas pipelines in 2019 amounted to 103,3 bln m3.

Within KMG’s asset mix, four refineries in Kazakhstan and two in Romania are responsible for processing liquid hydrocarbons (primarily oil).

Following the completion of the modernisation programme, which has enabled the Company’s oil refineries in Kazakhstan and Romania to achieve higher refining depths, the key objectives for these assets in line with the 2018–2028 Strategy include:

• for Kazakhstan refineries: to ensure adequate liquidity generation through cost optimisation to be able to timely meet liabilities as they fall due
• for Petromidia Refinery: to improve performance by streamlining production processes, including through digitisation and oil product slate optimisation to increase sales margins, and ensure a steady dividend flow to the KMG Corporate Centre.

In 2019, sales of own oil and condensate produced by KMG amounted to 23,509 thous. tonnes, including 16,379 thous. tonnes of oil exports, and 7,130 thous. tonnes of domestic oil supplies.

In 2019, hydrocarbon refining volumes at Kazakhstan refineries (net to KMG) amounted to 13,822 thous. tonnes, or 288 thous. barrels per day.