KMG DEVELOPMENT STRATEGY FOR 2022–2031

Our main task is to expand the value chain, stability of cash flows from the core business within the framework of the sustainable development agenda.

TAKING INTO ACCOUNT EXTERNAL AND INTERNAL CHALLENGES, KMG IMPLEMENTS A BALANCED STRATEGY BETWEEN OIL, PETROCHEMICAL AND GREEN PROJECTS.

Strategic goal No. 1
Sufficient resource base to ensure the growth of the Company

To ensure a stable level of production in the next decade, KMG is implementing geological exploration projects both onshore and offshore of the Caspian Sea.

As part of this strategic goal, KMG plans to provide an increase in reserves sufficient for both traditional activities and promising areas through organic and inorganic growth.

Exploration and development of new reserves in the Republic of Kazakhstan is implemented by KMG, including through strategic partnership with international oil and gas companies.

In 2023, we are moving into the active phase of the offshore projects “Zhenis”, “Abai”, projects on land “Turgai Paleozoic”, “Karaton Podsolevoy”, “Taysogan”. We are starting to develop FEED for the development of the Kalamkas-Sea of Khazar field, one of the largest on the sea after Kashagan. It is important to decide in 2023 on the further expansion of the Kashagan field.

The search and acquisition of additional new assets, KMG will carry out in the presence of proposals for M&A transactions, their value and general market conditions.

Strategic Goal No. 2
Improving the efficiency of the Company’s value chain

KMG focuses on core business in order to maximize the benefits of oil production, refining, transportation and marketing activities and improve operational performance in all key segments.

In order to compensate for the natural production decline at the operating assets, the Company continues to work on increasing the oil recovery factor and time between overhauls, as well as on implementing other measures to improve production efficiency to achieve maximum well productivity. The company plans to launch new fields Karaton Podsolevoy and Turgay Poleozoy.

For the major projects of Tengiz, Karachaganak and Kashagan, the Company focuses on the successful realization of projects to expand, extend and maintain production shelves.

The company aims to make efficient use of the established oil transport infrastructure to increase the export and transit component. Taking into account external factors and geopolitical challenges, KMG is working to create additional export routes for Kazakh oil. We are negotiating with our partners about opening the Southern Corridor and increasing volumes to China. An agreement has been signed with Socar on the transit of 1.5 million tons of oil per year on the Baku-Tbilisi-Ceyhan (BTC) route.

An important task of KMG is to ensure the smooth operation of the refinery and the needs of the domestic market for petroleum products. To date, due to the modernization of the refinery in the country, the Company fulfills this strategic goal for the country and, moreover, supplies part of the petroleum products for export. In particular, exports of dark petroleum products amounted to 694 thousand tons, petrochemicals (benzene, paraxylene) – 35 thousand tons, light petroleum products (gasoline Ai-92) – 7 thousand tons, coke and sulfur – 85 thousand tons.

The company is constantly working to optimize operating costs and improve the efficiency of the supply chain.

Strategic Goal No. 3
Business diversification and product portfolio expansion

KMG will be actively involved in the development of the domestic oil and gas chemical industry, given the support of the Government of Kazakhstan to develop the oil and gas chemical industry, which should be another powerful stimulus for the growth of the national economy, as oil and gas chemistry has a multiplier effect for the entire country.

Petrochemistry is becoming the largest driver of global oil demand. The company will use existing and additional hydrocarbon resources to support petrochemical projects and new downstream products in the context of a reallocation of global oil demand in the long term and is pursuing the following two strategic initiatives.

For more information about oil and gas chemistry projects, see the section “Realization of investment projects”.

Strategic goal No. 4
Sustainable development and progressive reduction of carbon intensity of production

KMG recognises the importance of its economic, environmental and social impacts and will continue to integrate sustainability principles into the Company’s key business processes to ensure alignment of economic, environmental and social priorities and corporate governance objectives.

The company strives to improve its ESG indicators and integrate ESG goals into the system of strategic and medium-term KPI of managers. KMG strives for standards of high social responsibility based on the principles of partnership with employees and trade unions.

The company also strives to improve the level of effective management of staff health and the quality of life of employees, which will focus on three main areas:

Dealing with the pandemic and its aftermath;

Prevention of occupational diseases;

Increase awareness and motivation of employees to a healthy lifestyle.

The KMG Group Health Management Program has been developed to introduce a unified approach and improve employee health performance.

Taking into account the strategic importance of the climate agenda, the Company is implementing a Low-carbon Development Program for 2022–2031, which defines KMG’s climate ambitions, main approaches and measures to reduce the carbon footprint.

KMG chooses a balanced approach to reducing the Company’s carbon footprint, setting a goal to reduce greenhouse gas emissions by 15 % by 2031 compared to 2019. Also, along with this, the Company plans to implement renewable energy projects with a total capacity of at least 300 MW.

For more information about the Low-carbon Development Program, see the section “Low-carbon policy”.

As a result of the realization of these four strategic objectives, KMG will contribute to the diversification of the national economy and reduce the carbon footprint of the Republic of Kazakhstan, thereby contributing to the growth of the Company and the well-being of Kazakhstanis, as well as preserving the environment for future generations.

KMG’s development strategy, strategic goals and objectives are highlighted to all stakeholders by publishing on the corporate website (https://www.kmg.kz/en/company/strategy/), strategic sessions are held annually for the KMG Group to solve systemic and long-term tasks affecting the company’s activities.

Corporate key performance indicators of JSC NC “KazMunayGas” for 2022

• Oil and gas condensate production volume
• IPO Preparation: Execution of key IPO preparation activities provided for in the Roadmap
• Realization of investment projects
• Free Cash Flow (FCF)
• Labor-related accident Rate (LTIR)
• ESG risk rating

For 2022, functional and corporate KPIs related to the development of KMG’s Low Carbon Development Program Action Plans 2022–2031 have been developed and set for the company’s top management (4 members of the KMG Management Board), as well as for companies in the Low Carbon Development Program scope.

Based on projections of greenhouse gas emissions for the KMG Group of Companies, the following KPIs related to carbon intensity reduction and decarbonisation will be set annually, starting in 2022, for systematic realization of decarbonisation measures:

• corporate KPI of JSC NC “KazMunayGas”, established by the parent company of JSC Fund “Samruk-Kazyna” in terms of total greenhouse gas emissions (Scope 1 + Scope 2);
• functional KPIs of 4 Deputy Chairmen of KMG’s Management Board (members of the Management Board) in relation to the realization of the KMG Low Carbon Development Program Action Plan and Action Plans of supervised subsidiaries and affiliates;
• corporate efficiencies of 11 subsidiaries and dependent enterprises included in the scope of the LCDP, setting targets for total GHG emissions in Scope 1 + Scope 2 coverage.