Financial Director of JSC NC KazMunayGas
Chairman of the KMG EP Board of Directors
As you know, 2017 was KMG EP’s last full year as a public company, with securities traded on the London Stock Exchange (LSE) and the Kazakhstan Stock Exchange (KASE). After completing the repurchase of shares and global depositary receipts (GDRs) through the tender offer, the Company will terminate its listings and take a step towards closer integration with the NC KMG group.
The placement of the Company’s securities on the domestic and international markets in 2006 was the largest-ever IPO in Central Asia and one of the most successful of the post-Soviet era, attracting more than US$ 2 billion in capital. Since then, the Company has successfully operated with financial transparency, under the constant scrutiny of investors and analysts, meeting the requirements of capital-markets best practices. These efforts have been appreciated by investors, who have repeatedly demonstrated their confidence in KMG EP’s top management, corporate governance and transparent reporting. I would like to emphasise that has primarily been the result of the hard work of Kazakhstan specialists.
The Company has, like every other, had its ups and downs. It saw robust growth after several significant acquisitions, most notably the purchase of stakes in Kazgermunai, Karazhanbasmunai and PetroKazakhstan. It has made geological discoveries and expanded the scale of its geological prospecting. However, there have also been difficulties. A very challenging time was the period of social tension. And things were not easy during the sharp fall in the oil price in 2015, which necessitated significant austerity measures. In the face of these challenges, the Company successfully adopted measures to stabilise its oil production, operating costs and capital expenditures and embark on the independent crude oil processing scheme.
Consequently, the 2017 reporting year was one of the most successful in recent history. Due to a gradual improvement in global market conditions and the Company’s continued participation in the oil processing scheme for the domestic market, KMG EP kept production levels stable and posted strong financial results. It reported a net profit of 195 billion tenge (US$ 599 million) for 2017, free cashflow of 186 billion tenge (US$ 570 million) and a net cash gain of 167 billion (US$ 512 million).
The decision to delist was not easy, but very necessary, as it revolved primarily around the strategic objectives of KMG EP’s majority shareholder, NC KMG.
Since its listing on the London Stock Exchange, KMG EP created a corporate governance system in line with international requirements, which was designed to achieve the complex task of maintaining the balance of interests of its various stakeholders: NC KMG, as the main shareholder and key player in Kazakhstan’s oil and gas market, minority shareholders, Company employees, the state, the regions in which the Company operates, and its foreign partners.
Significant changes in market conditions, however, and changes in the strategy of the National Company were causing the interests of the various groups of shareholders to diverge. This was hindering KMG EP’s development to the point of being counterproductive, so the priority was to find a mutually beneficial solution to the situation.
The 98% acceptance of the tender offer by minority shareholders indicates that the proposed solution — to buy out the minority stakes and delist KMG EP — was welcomed by almost everyone. Minority shareholders have been able to sell their shares at a fair price, while NC KMG has been able to bring KMG EP deeper into the fold. It expects to reap the benefits of this integration at group level.
From a financial perspective, participants in the Company’s IPO who retained their positions and accepted the last tender offer have had a positive yield on their investment.
Let me conclude by saying that the Company’s 11 years as a public entity have been an extremely valuable experience on which we plan to draw for the benefit of the NC KMG group at large. I would like to thank our workers, management and my colleagues on the Board of Directors for their professionalism and willingness to work together in the best interests of the Company.