2012 Strategic Milestones
Further Asset De-risking
Completing the first development phase of the Chinarevskoye field project and reaching full nameplate capacity of its impressive infrastructure including its Gas Treatment Facility (GTF) has considerably de-risked the asset.
- Zhaikmunai’s liquids strategy, which consists of the extraction of valuable oil products from the gas condensate stream, continues to hold its promise:
- Zhaikmunai has full control over the production, transport and marketing of crude oil, stabilised condensate, and LPG, which are now distributed globally at high quality levels and attractive prices;
- Liquids drive the largest part of Zhaikmunai’s revenues and profitability.
- Dry gas sales are commensurate with management expectations and are expected to remain attractive:
- Monetising gas sales is translating into sustainable benefits for the future, all the more due to the anticipated increase in volumes following the construction and commissioning of the third train of the GTF;
- Average total production per day has increased thirty-fold between 2004 (1,250 barrels of crude oil) and 2012 (36,940boepd);
- Average total production per day is expected to be 45,000boepd from 2013 onwards.
Proving up reserves has also considerably de-risked the Chinarevksoye field asset:
- Proved Reserves (1P) have increased by 25.7 mmboe (15.2%) to 194.8 mmboe (December 31, 2011: 169.1 mmboe);
- Proved Reserves (1P) replacement was 174.8%, i.e. the 2012 increase in Proved Reserves (1P) (25.7 mmboe) more than replaced the 2012 total actual Chinarevskoye field production which amounted to 14.7 mmboe compared to a projected production of 19.1 mmboe (2011 Ryder Scott Report);
- Proved plus Probable Reserves (2P) remained above 500 mmboe. The 2P Reserves have slightly decreased to 506.1 mmboe (December 2011: 521.6 mmboe) as a result of the 2012 production and some small adjustments on all reservoirs.
The second development phase of the Chinarevskoye field can be funded without returning to capital markets:
- The 2004–2011 six-year US$ 1.2 billion investment programme can be replicated from 2012 onwards through cash reserves and operating cash;
- The investment foresees the drilling of some 60 additional wells and the building of a third GTF train with the aim of doubling production from 2016 onwards.
Transition to a Multi-Field Model
In 2012, Zhaikmunai signed Asset Purchase Agreements to acquire 100% of the subsoil use rights related to three new oil and gas fields (Rostoshinskoye, Darjinskoye and Yuzhno-Gremyachenskoye) in the pre-Caspian basin to the north-west of Uralsk, located approximately 60 - 120 km away from the Chinarevskoye field, for a total purchase price of US$ 16 million. The signing of the supplementary agreements by the Ministry of Oil of Gas (MOG) effective as of 1st March 2013 officially transfers ownership of the three fields to Zhaikmunai.
- Zhaikmunai estimates that it will cost approximately US$ 85 million to conduct the necessary appraisal activities in the three fields over the next 2 - 3 years. These activities will include the acquisition of new 3D seismic data and/or the reprocessing of existing 2D and/or 3D seismic data, as well as appraisal drilling in order to validate and expand on the existing reserves reports.
Sustaining the Investment Story
Value has been delivered to shareholders via two routes in 2012:
- A substantial increase in earnings per share: + 46%;
- Payment of an inaugural dividend and adoption of an on-going dividend policy:
- In Q3 2012, Zhaikmunai announced the payment of its inaugural dividend, a cash distribution of 32 cents per partnership interest (equal to US$ 60.2 million), and the adoption of a dividend policy by the Board of Directors of its General Partner of not less than 20% of the Partnership’s consolidated net profit per annum.
Sustaining share price and liquidity:
- Following its Board of Directors’ suggestion and the vote by the limited partners in the SGM on 28 March 2013, Zhaikmunai was authorised to proceed with a GDR buy-back programme;
- The attractive combination of production growth and upside potential has motivated the Partnership to explore the option of migrating towards a main board share listing from its current London Stock Exchange GDR listing. This would allow Zhaikmunai to be included in indices and would likely increase share liquidity as well as contribute to increasing overall visibility in the financial markets.