KMG EP has decreased the volume of production but increased the share of exports.

Altynay IbraimovaJuly 28, 2017

Yesterday, KMG EP published operational results for 1H2017, showing the decline in oil production by 3% yoy. Though, quarterly comparison shows the growth of 3% in 2Q2017.

The volume of oil production including its stakes in joint ventures (JV) amounted to 5 885 ths ton, which is 3% lower than in 1H2016. The decline of production the Company has explained by less number of wells put into operation at OMG and by natural decrease of oil production at PKI.

In the reporting period the oil sales of OMG and EMG decreased by 2%, whereas the share of export sales increased from 59% to 68%.

Oil sales of JV showed decrease by 6% respectively and the share of exports fell from 49% to 44%.

Total supply of oil for export (OMG, EMG and SP) increased from 56% to 60%.

Figure 1. 1H2017 operational results

ths. ton

1H2017

1H2016

yoy

2Q2017

1Q2017

qoq

Total Crude Oil Production

5 885

6 078

-3%

2 981

2 904

3%

OMG

2 703

2 779

-3%

1 368

1 335

2%

EMG

1 399

1 407

-1%

708

691

2%

Joint Ventures

1 783

1 892

-6%

905

878

3%

 

 

 

 

 

 

 

Total Crude Oil Sales

5 847

6 043

-3%

3 037

2 810

8%

OMG & EMG

4 084

4 168

-2%

2 145

1 939

11%

Joint Ventures

1 763

1 875

-6%

892

871

2%

 

 

 

 

 

 

 

The Share of Sales

 

 

 

 

 

 

Export

60%

56%

 

62%

59%

 

Domestic market

40%

44%

 

38%

41%

 

Average crude oil price, $/bbl

52.75

41.14

 

 

 

 

Source: Company Data, Bloomberg

 

 

 

 

 

 

Our view

The decrease of oil production in 1H2017 corresponds to our expectations, due to decreasing volumes in mature fields is a natural process considering the physical exhaustion. According to the press-release, the Company is taking measures to prevent natural fall in oil production in mature fields.

We positively estimate the growth of the share of exports up to 60%, together with the strengthening of the average price of Brent oil in 1H2017 by 28%, that would offset the reduction of sales volume.

Generally, we assess the operational results for 1H2017 as neutral and we maintain the «HOLD» recommendation. The uncertainty risks related to the possible attempt of the shares buyback by the parent company are also included in our recommendation.