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Notes to the Consolidated Financial Statements KZT millions, unless otherwise stated 1. CORPORATE INFORMATION AND PRINCIPAL ACTIVITIES KazMunaiGas Exploration Production Joint Stock Company (the “Company”) is incorporated in the Republic of Kazakhstan and is engaged in the acquisition, exploration, development, production, processing and export of hydrocarbons with its core operations of oil and gas properties located in the Pre- Caspian and Mangistau basins of western Kazakhstan. The Company’s direct majority shareholder is Joint Stock Company National Company KazMunaiGas (“NC KMG” or the “Parent Company”), which represents the state’s interests in the Kazakh oil and gas industry and which holds 63.22% of the Company’s outstanding shares as at December 31, 2012 (2011: 61.3%). The Parent Company is 100% owned by Joint Stock Company Samruk-Kazyna Sovereign Welfare Fund (“Samruk-Kazyna SWF”), which is in turn 100% owned by the government of the Republic of Kazakhstan (the “Government”). The Company conducts its principal operations through the wholly owned subsidiaries JSC “Ozenmunaigas” and JSC “Embamunaigas”. In addition the Company has oil and gas interests in the form of other wholly owned subsidiaries, jointly controlled entities, associate and certain other controlling and non-controlling interests in non-core entities. These consolidated financial statements reflect the financial position and results of operations of all of the above interests. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). The consolidated financial statements have been prepared under the historical cost convention except for financial instruments. These consolidated financial statements are presented in Tenge and all values are rounded to the nearest million unless otherwise stated. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. Adopted accounting standards and interpretations The Company has adopted the following new and amended IFRS during the year, which did not have any material effect on the financial performance or position of the Company: IFRS 7 IAS 12 IFRS 1 IAS 1 Disclosures: enhanced derecognition disclosure requirements – Amendment; Deferred Tax: Recovery of underlying Assets – Amendment; Severe hyperinflation and removal of fixed dates for first-time adopters – Amendment; Presentation of items of other comprehensive income – Amendment (early adopted); –– Improvements to IFRSs (May 2012) (early adopted). Standards issued but not yet effective The standards and interpretations that are issued but not yet effective up to the date of issuance of the Company’s financial statements listed below, are those that the Company reasonably expects will have an impact on the disclosures, financial position or performance when applied at future date. The Company intends to adopt these standards and interpretations, if applicable when they become effective. IFRS 11 IFRS 12 IAS 28 IFRS 10 IAS 27 IFRS 13 IFRS 9 IAS 19 Joint arrangements. The Company is currently assessing the impact that this standard will have on the financial position and performance; Disclosure of interest in other entities. A number of new disclosures will be required under this standard, however no impact on Company’s financial position or results is expected; Joint arrangements. The Company is currently assessing the impact that this standard will have on the financial position and performance; Disclosure of interest in other entities. A number of new disclosures will be required under this standard, however no impact on Company's financial position or results is expected; Separate financial statements (2011). The Company does not present separate financial statements; Fair value measurement. The Company does not expect to have any material impact from adopting this standard in the future; Financial instruments: classification and measurement. The Company will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued; Employee benefits (Revised). The Company does not expect to have any material impact from adopting this standard in the future. 80 Annual report 2012 KazMunaiGas Exploration Production JSC
2.2 Change in presentation of the consolidated statement of comprehensive income The Company changed the presentation of certain expenses in the consolidated statement of comprehensive income by separating impairment of property, plant and equipment into a separate line. The presentation of comparative information was also changed in line with the current year. 2.3 Consolidation Subsidiaries Subsidiaries are all entities over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are no longer consolidated from the date that control ceases. Inter-company transactions, balances and unrealised gains on transactions between companies are eliminated. Unrealised losses are also eliminated but considered an impairment indicator of the asset transferred. Accounting policies of subsidiaries are consistent with those of the Company. Investment in associates and interests in joint ventures The Company’s investment in its associates and joint ventures are accounted for using the equity method. An associate is an entity in which the Company has significant influence. The Company also has interests in joint ventures, which are jointly controlled entities, whereby the venturers have a contractual arrangement that establishes joint control over the economic activities of the entities. Under the equity method, the investment in the associate and joint ventures are carried in the statement of financial position at cost plus post acquisition changes in the Company’s share of net assets of the associates and joint ventures. The Company’s investment in associates includes purchase price premium identified on acquisition, which is primarily attributable to the value of the licenses based on their proved reserves. The licenses are amortized over the proved developed reserves of the associate and joint ventures using the unit-of-production method. The consolidated statement of comprehensive income reflects the share of the results of operations of each associate and joint venture. Where there has been a change recognised directly in the equity of an associate or joint venture, the Company recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Company and its associates are eliminated to the extent of the interest in the associate. The share of profit of associates and joint ventures are shown on the face of the consolidated statement of comprehensive income. This is the profit attributable to equity holders of the associates and joint ventures and therefore is profit after tax and non-controlling interests in the subsidiaries of the associates. The financial statements of the associates are prepared for the same reporting period as the parent company. Where necessary, adjustments are made to bring the accounting policies in line with those of the Company. After application of the equity method, the Company determines whether it is necessary to recognise an additional impairment loss on the Company’s investment in its associates or joint ventures. The Company determines at each reporting date whether there is any objective evidence that the investment in the associate or joint venture is impaired. If this is the case the Company calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value and recognises the amount in the statement of comprehensive income. Upon loss of significant influence over the associate, the Company measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognised in profit or loss. Upon loss of joint control and provided the former jointly controlled entity does not become a subsidiary or associate, the Company measures and recognises its remaining investment at its fair value. Any difference between the carrying amount of the former jointly controlled entity upon loss of joint control and the fair value of the remaining investment and proceeds from disposal is recognised in profit or loss. When the remaining investment constitutes significant influence, it is accounted for as investment in an associate. 2.4 Foreign currency translation The consolidated financial statements are presented in Kazakhstan Tenge (“Tenge”), which is the Company’s functional and presentation currency. Each subsidiary, associate and joint venture of the Company determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded at the functional currency rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange ruling at the reporting date. All differences are taken to profit or loss. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The assets and liabilities of foreign operations are translated into Tenge at the rate of exchange ruling at the reporting date and their statements of comprehensive income are translated at the exchange rates at the date of transaction. The exchange differences arising on the translation are recognised in other comprehensive income or loss. On disposal of a foreign entity, the accumulated foreign currency translation reserve relating to that particular foreign operation is recognised in profit or loss. 2.5 Oil and natural gas exploration and development expenditure Exploration license costs Exploration license costs are capitalized within intangible assets and amortized on a straight-line basis over the estimated period of exploration. Each property is reviewed on an annual basis to confirm that drilling activity is planned. If no future activity is planned, the remaining balance of the license cost is written off. Upon determination of economically recoverable reserves (“proved reserves” or “commercial reserves”), amortization ceases and the remaining costs are aggregated with exploration expenditure and held on a field-by-field basis as proved properties awaiting approval within other intangible assets. When development is approved internally, and all licenses and approvals are obtained from the appropriate regulatory bodies, then the relevant expenditure is transferred to property, plant and equipment (oil and natural gas properties). 81
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Annual report 2012
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CONTENTS Company overview Financial
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Financial and operational highlight
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THE OIL AND GAS INDUSTRY OF KAZAKHS
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The Kashaghan field was one of the
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Tyumen Tyumen Anzhero Anzhero Sudzh
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L. Kiinov Chairman of board of dire
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A. Nurseitov Chief Executive “Our
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ABOUT THE COMPANY Chief Executive
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ABOUT THE COMPANY BOARD OF DIRECTOR
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Section 2 number section 2012 title
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obligations. KMG EP owns a 35 % sta
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in the field back in the 1980s and
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OPERATIONAL ACTIVITY Production and
Page 32: 4 COMPANY DEVELOPMENT In 2012 the f
Page 35 and 36: New projects and prospective deals
Page 38 and 39: SOCIAL RESPONSIBILITY Social policy
Page 40: 6 HEALTH, SAFETY AND ENVIRONMENT US
Page 43 and 44: sound and effective equipment for p
Page 45 and 46: CORPORATE GOVERNANCE INFORMATION CO
Page 47 and 48: of independence stated in the respe
Page 49 and 50: The Management Board, in turn, is r
Page 51 and 52: The Audit Committee periodically re
Page 53 and 54: -- The structure of the interaction
Page 55 and 56: A corporate UK Holder will generall
Page 57 and 58: The following document is intended
Page 59 and 60: projected depth of 1500 m each, in
Page 61 and 62: Transport Routes The Company delive
Page 63 and 64: The difference between the benchmar
Page 65 and 66: For further details please refer to
Page 67 and 68: CCEL CCEL’s key financial and ope
Page 69 and 70: Borrowings The table below shows th
Page 71 and 72: RISK FACTORS The Company is subject
Page 73 and 74: Financial risks, their probability
Page 76 and 77: 10 Consolidated financial statement
Page 78 and 79: Consolidated Financial Statements C
Page 80 and 81: Consolidated Financial Statements C
Page 84 and 85: Notes to the Consolidated Financial
Page 106 and 107: INFORMATION FOR SHAREHOLDERS SHAREH
Page 108: NOTES 106 Annual report 2012 KazMun
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