Elvira Dzhantureyeva, the Head of Mineral Production Results Analysis Service of RCGI Kazgeoinform under the Committee for Geology and Mineral Production, Ministry of Industry and New Technologies, Ph.D in Technical Sciences.
Rich hydrocarbon raw material reserves in Kazakhstan have ensured effective development of the energy sector and attraction of investments from the world's largest investment oil producing companies, while the adoption of new laws on mineral production has strengthened the investment and energy policy aimed at boosting the economy of the country. Also, considerable prognostic resources of the Kazakhstan’s sector of the Caspian Sea, given the current imbalance of generation and consumption of energy in the world, will ensure Kazakhstan’s leading position in the world market for many years.
With its 2.7% of the world's proven hydrocarbon reserves, Kazakhstan ranks ninth in the global rankings of oil producing countries. We are just behind Saudi Arabia (25.5%), Iraq (11.1%), Kuwait (9.5%), Iran (9.2%), UAE (7.8%), Venezuela (6.5%), Russia (5%), and Libya (2.9%).
As of January 1, 2012 the state balance sheets had a record of recoverable reserves on 241 oilfields (4.9 billion tons), 220 gas deposits (or 369 facilities) (1.6 trillion m3), and 61 oil and gas condensate fields (364.8 million tons).
The main oil and gas fields are located in Western Kazakhstan, confined to the near edge zones of the Caspian Depression, to the South Emba and North Buzachi uplifts, North Ustyurt system of troughs, South Mangyshlak trough, and continental shelf of the Kazakhstan’s sector of the Caspian Sea. In 2011, following the results of geological exploration operations, the reserves of the six hydrocarbon oilfields – Shalva, Shoba, Akkar East, West Tuzkol, Maykyz and Zharkuon, were for the first time included into the state balance sheets.
The probable reserves reach 17 billion tons of crude oil and over 146 trillion m3 of gas. The aggregate increase in the reserves in 2000–2011 amounted to 1,860.2 million tons of crude, 118.7 billion m3 of gas, and 25.6 million tons of gas condensate. During the same period of time, 673.8 million tons of oil, 285.9 billion m3 of gas, and 52.4 million tons of gas condensate were produced (Charts 1 and 2). So, we can state that the increase in crude oil reserves exceeds their consumption by almost three times that secures the provision of the sector with the reserves for more than 70 years. Along with that, recent years showed positive dynamics of production of gas and gas condensate.
As of January 1, 2012, 141 companies engaged in mineral production of hydrocarbons at 243 sites. Exploration carried out at 62 sites, production at 80 sites, and combined exploration and production at 101 sites.
It is worth noting that the greater part of the oil reserves (including the С2 category) is concentrated at the sites that are under development by large mineral producers. North Caspian Operating Company’s (NCOC’s) share in the reserves is 44%, Tengizchevroil’s 25%, Mangistaumunaigas’s 3%, CNPC-Aktobe’s 3%, Ozenmunaigas’s 3%, Karachaganak Petroleum Operating BV’s 3%, the Operating Company Buzachi Operating Ltd’s and Embamunaigas’s 2% each, Tethys Aral Gas’s, Kazakhmys Petroleum’s, Kazakhoil Aktobe’s, Karazhanbasmunai’s, PetroKazakhstan Kumkol Resources’s, and KazGermunai’s 1% each. The remaining medium and small mineral producing companies together develop 9%, and 2 more per cent of the reserves are free of mineral production and are in the general fund of reserves.
At the moment, the largest corporations from 45 countries are investing in the mineral raw material sector of Kazakhstan. From 2000 to 2011, $125.6 billion was invested in hydrocarbons production. Of them, $16 billion was invested in geological exploration. During this period, their volume increased six fold (Chart 3) to $18.4 billion, as of the end of last year, including $1.6 billion for geological exploration. It is expected that by the end of this year, the figures will be $18.9 billion and $1.6 billion, respectively.
Following the 2011 results, about 86% of all the investments in hydrocarbons production were made by large companies. Among them are NCOC (38.6%), Mangistaumunaygas (9.3%), KazMunayGas Exploration and Production (7.1%), KPO (6.3%), CNPC-Aktobemunaygas (6.3%), Tengizchevroil (4.8%), PetroKazakhstan Kumkol Resources (2.9%), Kazakhoil Aktobe (2.7%), Karazhanbasmunai (2.3%), JV Zhaikmunai (2.3%), Buzachi Operating Ltd (1.6%), Sauts Oil (1.1%), and Kazgermunai (0.9%).
Investment activity of the mineral producers at the hydrocarbons-bearing deposits contributes to social and economic development of the country. For the past 12 years, almost $2 billion was directed by them to social welfare of the regions and local infrastructure, and $836 million to training of the Kazakhstani personnel. Over this period, the number of the employees working on the contract sites increased from 32 thousand to 47 thousand people (Chart 4). Overall, in 2000–2011, the total amount of taxes and payments paid to the state budget by the mineral producers was 14,405.2 trillion tenge, including 4.273 trillion tenge as taxes for the actual volume of produced hydrocarbons.
In comparison with the year 2000, oil production in Kazakhstan increased by 2.5 times. To date, the country has produced about 73.9 million tons of oil. The greatest contribution to the production of oil, as of the end of 2011, was made by the companies from the Atyrau Oblast (41%), Mangistau Oblast (24%), and Aktobe Oblast (11.2%) (Table 1). Providing 35% of total oil production, Tengizchevroil remains the leader in this indicator. Then it follows KPO (9.2%), KazMunayGas Exploration and Production (9%), CNPC-Aktobemunaigas (8.4%), Mangistaumunaygas (7.8%), Kazgermunai (4.1%), PetroKazakhstan Kumkol Resources (3.8%), Karazhanbasmunai (2.7%), Buzachi Operating Ltd (2.7%), and Karakuduk-Munai (1.9%). The share of the remaining mineral producers is only 15%.
As for the gas production, the main volume of it (including gas, dissolved in oil) is provided by the Atyrau Oblast (43%), Western Kazakhstan Oblast (30.8%), Aktobe Oblast (10.4%) and Mangistau Oblast (9.8%). In 2011 Kazakhstan 32.1 billion m3 of gas (including 3.1 billion m3 of free gas and 29.4 billion m3 of gas dissolved in oil) was produced.
The largest figures in production of free gas were demonstrated by the Offshore Petroleum Company KazMunaiTeniz (26%), KPO (19%), Kazakh Gas Refinery (16%), Mangistaumunaigas (10%), Zhaikmunaigaz (10%), Amangeldy Munai Gas (10%), and Tethys Aral Gas (6.5%).
In its turn, the leaders in production of oil-dissolved gas are Tengizchevroil (46%), KPO (32%), and CNPC-Aktobemunaigas (11%).
Fulfillment of contractual obligations
The actual fulfillment by the mineral producers of their financial obligations under the mineral production contracts reached 7,234.2 trillion tenge in 2011. 41% of the total financial obligations, or 2,982.6 billion tenge were investments, 50%, or 3,653.6 billion tenge were taxes (Tengizchevroil’s share of the total amount of taxes on the oil and gas sector amounted for almost 38%), and 8%, or 557.4 billion tenge were indirect costs, less than 1%, or 17.2 billion tenge were insurance costs, and less than 1%, or 23.5 billion tenge were deductions to the liquidation fund.
If directly considering the structure of investment, of 2,982.6 billion tenge total invested, 1,191.9 billion were the capital expenditures, 1,472.1 billion tenge were the production costs, 227.2 billion tenge were the costs for geological exploration, and 46.5 billion tenge were the expenditure on social welfare and local infrastructure. In addition, 23.6 billion tenge were allocated for training of Kazakhstani specialists, 4.3 billion tenge for operation of underground facilities, and 9.8 billion tenge for monitoring of pollution of subsoil. Expenses for R&D were 3.9 billion tenge, and for acquisition of technologies 3 billion tenge.
However, as in previous years, not all the mineral producers meet the terms and conditions of their contracts in full. Of 243 sites that are currently under mineral production, the meeting of financial obligations by more than 100% was recorded at only 140 sites (57.6% of all the number of the sites and 76.3% of the total amount of the financial obligations). As for the remaining sites, the figures looks as follows: on 23 sites the meeting of the financial obligations makes 70% to 100% (9.5% and 20.6%, respectively), on six sites 50% to 70% (2.5% and 0.4 %, respectively), on five sites 30% to 50% (2.1% and <1%, respectively), and on 69 sites less than 30% (28.4% and 2.6%, respectively).
One of the major challenges for further development of the oil and gas sector of Kazakhstan is the ensuring of a balance between the interests of foreign investors and the state. On the one hand, when the country started developing its mineral resources, the country could not do without the money and technologies of multinational companies, but on the other hand, in recent years an upward trend of export of capital was marked, which has a negative impact on the balance of payments in the country.
Over the period of 2000–2011, investments in mineral production exceeded $125 billion, of which 75% to 80% were the foreign investments. Over the same period, gross income from oil exports reached $430 billion, a 3.5 time rise. The most of the proceeds remains with TNCs.
In this situation, the tendency of increasing the equity of foreign partners in the mineral producing companies is likely to further threaten the national interests of Kazakhstan.
To avoid this, in recent years, the Government of Kazakhstan was pursuing a consistent policy to increase the participation of the state in the oil and gas area. In particular, when negotiating the re-scheduling of commercial production, Kazakhstan was able to increase its stake in the project from 8% to 16.8% and achieved the payment of royalties, which was absent in the original agreement.
In addition, the Government achieved the inclusion of Kazakhstan in the project of development of the Karachaganak oilfield. The negotiations, conducted in 2009–2011, resulted in KPO consortium’s decision to assign a 5% interest in favor of Kazakhstan to settle the disputes for the period till December 31, 2009 and to sell the other 5% at the market price ($1 billion without tax). Along with that, it was decided to apply the agreed mechanism to allow the Kazakh side to increase control over the amount of costs, incurred in the course of implementation of major investment projects at this field. In its turn, Kazakhstan confirmed the stability of the contract with KPO and agreed to allocate an additional quota in the Caspian Pipeline Consortium in the amount of 0.5 million tons a year, with a further increase to 2 million tons.
Protecting the interests of the state, as the owner of the subsoil, became an important aspect in the making of latest amendments to the laws. The key mechanisms here are: state control over the circulation of the right to mineral production and development of related sites, the establishing of clear procedures for exercising the priority right of the state, the increase of revenues to the budget, cancellation of PSA as a model of mineral production contracts, and the inclusion of standards to respond to violations by the contractors.
As part of the procedure for entering into contracts, the conceptual innovations here are: the right of mineral production for combined exploration and extraction under resolution of the Government with respect to the mineral deposits that are of strategic importance, and (or) a complex geological structure, the separation of periods of the mineral deposit development for clear determining and scheduling of the planned activities, the definition of the size of payments for social development of the region, and the settlement of an issue of transition from the exploration phase to the production phase.
As part of the procedure for conducting of bids for the right of mineral production and of direct negotiations one can mark the reduction as to the criteria for selection of the successful bidder to two persons (the amount of the subscription bonus, and the amount of expenditure on social and economic development of the region and on development of its infrastructure), the determining of the procedure and grounds for conducting the repeated bids and recognition of it as null and void, the application of the procedure for direct talks in the event of exercising of the pre-emptive right of mineral production for the person who made a commercial discovery, and also the exploration or production carried out by a national company.
To combat corruption and to ensure transparency of solutions taken by the government agencies, a number of consulting and advisory committees were set up with regulation of their powers.
In addition, in accordance with Government Resolution No. 117 dated February 10, 2011, the mineral producers are obliged to transfer to the electronic form of reporting on implementation of their contractual obligations (LKU) in Integrated Information System "A Single State System of Mineral Production Management in Kazakhstan." To date, about 85% of the companies have transferred to the electronic form, the remaining 15% of medium and small companies are still at the transition phase.
