Astana, May, 2011

National Company “KazMunayGas”:

Priorities of Investment Policy in the Context of Program for Development of the OIl and Gas Sector

in the Republic of Kazakhstan for 2010-2014

2

JSC NC "KazMunayGas" is the national operator for exploration, production, refining and transportation of hydrocarbons

Oil and gas upstream Oil transportation Refining and sales

Gas transportation and marketing Petroleum Industry Service

KEY BUSINESS AREAS:

CAPITAL ASSETS:

3

Kazakhstan's Proven Oil & Gas Reserves

Kazakhstan's proven oil & gas reserves are:

oil - 5.3 bn tons gas - 3.3 tcm Kazakhstan is in the world's top ten countries in terms of hydrocarbon reserves Ranks next to the Russian Federation among the CIS counties.

OPECSaudi ArabiaIranCISIraqKuwaitUAEVenezuelaRFKazakhstan

3.3 tcm of gas

APR

North America

Africa

Kazakhstan

Kazakhstan – 3.2 %

5.3 bn tons of oil

Kazakhstan – 3.2 %

Eurasia (including RF)

Central and South America

Middle East (including Iran)

World Oil & Gas Reserves

Source: BP Statistical Review of World Energy 2010

460

325

202 189156 148

125 122 121 121 108 100 99 87 78 78 77 68 51 49 39 35 35 34 34 33 25 24 24 19 17 15 14 14 14 13 11 10

494

58

Rus

sian

Fede

ratio

nSa

udi A

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hina

Can

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Mex

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Kuw

ait

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Arab

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ayBr

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Nig

eria

Ango

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Alge

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Uni

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King

dom

Qat

arAz

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ijan

Indo

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Om

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Egyp

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olom

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Arge

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alay

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dan

Aust

ralia

Syria

Viet

nam

Equa

toria

l Gui

nea

Rep

ublic

of C

ongo

Yem

enTh

aila

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enm

ark

Gab

onTu

rkm

enist

an

1 10 20 30 40

4

Oil production in 2009, mn tons

Production of Oil and Gas Condensate Globally and in Republic of Kazakhstan

Oil production in the Republic of Kazakhstan, mn tons

2630

35

48

61 6366 68

78 80

52

40

72

0

25

50

75

100

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

2020 - 140 mn tons

5

Strategic Development Objectives of JSC NC “KazMunayGas” JSC NC "KazMunayGas" set the goal of joining the world's 30 top oil and gas companies in terms of reserves and oil production, strengthening its positions in the oil refining and oil products marketing sectors and the gas business.

Oil reserves (mn tons) Oil production and refining (mn tons)

Transportation of oil (mn tons) and gas (bcm) Petrochemicals production (thousand tons)

6

Exploration Projects of JSC NC "KazMunayGas"

Курмангазы (50%)

Жамбай(50%)

Аташский(50%)

Тюб -Караган

(50%)Жемчужины

(25%)

Северо-Каспийский

проект (16,81%)

Жамбыл (73%)

Хвалынское(25%)

Центральная (50%)

Проект Н (51%)

Сатпаев(75%)

Геологоразведочные проекты на суше реализуются собственными силами АО НК «КазМунайГаз» и ДЗО

без участия стратегических партнеров.

Caspian Sea Land

7

The project "Integrated study of Sedimentary Basins in the Republic of Kazakhstan"

Project objective: analysis of petroleum potential of 15 sedimentary basins in Kazakhstan, as well as highlighting new areas for raising exploration. According to the results of work an exploration program will be adjusted and a long-term dynamics of hydrocarbon production will be established.

0

20

40

60

80

100

120

140

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Atyrau-Samara CPC Kazakhstan-China port of Aktau KCTS (Yeskene-Kuryk)

8

Export Resources of Kazakhstan's Oil and Transport Capacity up to 2020

MM

tpa

CPC expansion up to 52.5 MMtpa

KCP expansion up to 20 MMtpa

KCP - Kazakhstan-China oil pipeline CPC - Caspian Pipeline Consortium NCP - North-Caspian Project KCTS - Kazakhstan Caspian Transportation System

Yeskene-Kuryk based on the NCP requirements

* * * * *

9

CPC Pipeline Expansion Project

Expansion Project Implementation Phases

Chevron - 15% Lukarco – 12.5% Exxon – 7.5% RosneftShell – 7.5%

KMG – 20.75% RoK's government – 19%

KPV – 1.75 %

CPC shareholders: RF's government– 24% CPC Company (RF) – 7 %

CPC oil pipeline parameters after expansion Number of pump stations (PSs) - 15 Tank farm of the Sea Terminal - 10 tanks with the volume of 100000 cubic

metres each Number of SPMs - 3 Projected tariff proceeds - 2.3 bn USD annually.

Financing of the CPC Expansion Project Expansion Project costs - 5.4 bn USD To the CPC system expansion in the RoK - 1 bn USD Main source of finance - CPC's own funds.

15 December 2010 CPC shareholders made the Final Investment Decision on the CPC Expansion Project.

The beginning of construction under the CPC Expansion Project is planned for 2011

Phase Commissioning

(year) CPC's total capacity

(MMtpa) Capacity from RoK

(MMtpa)

EPC 2001 36 29.9

Phase 1 2012 40.6 33.5

Phase 2 2013 61.2 49.3

Phase 3 2015 67 52.5

Oil pipeline length: 1,510 km Commissioning: 2001 Actual throughput capacity (2010): 36 mn tons/year, incl. RoK volumes - 29.9 mn tons/year

BritishGas – 2% Agip - 2% Oryx - 1,75%

10

Marine oil transportation Formation and development of a national commercial fleet The existing fleet on the Caspian Sea:: 6 oil tankers DWT 12-13 thousand tons, the volume of freight traffic - 6.5 million tons per year 5 tugs and 8 barges, the volume of freight traffic - 1.1 million tons per year By 2020 the fleet on the Caspian Sea is going to be increased to: 10 oil tankers DWT 12-13 thousand tons, the volume of freight traffic - more than 10 million tons per year 10 tugs and 16 barges, the volume of freight traffic - more than 2 million tons per year Perspective directions of marine transportation development in the Black Sea: In 2011, it is planned to purchase 2 oil tankers of Aframax class DWT 80.000 tons, the volume of freight traffic - 5.2 million tons per year In perspective it is planned to increase the fleet size up to 4 Aframax tankers and / or Suezmax, the volume of freight traffic - more than 10 million tons per year

11

Layout of Main Gas Pipelines of Republic of Kazakhstan

Оренбургский ГПЗ

3-я нитка

МГ «Казахстан

– Китай»

Оренбургский ГПЗ

3-я нитка

МГ «Казахстан

– Китай»

Targets of Modernizing Domestic Refineries

12

Average complexity indicators of RoK refineries

USA Euro - 5

Europe Euro – 5

Russia Euro – 2

Kazakhstan Euro - 2

Motor fuels quality

Composition Euro-2 Euro-5

Benzene, % 5 1

Aromatics, % 50 35

Sulfur, ppm 500 10 The average complexity index of the RoK refineries is 4.67, which is lower than the world average (6.59).

Implementation of the State Program for Boosted Industrial-and-Innovation-Based Development and the Program for Development of the Oil and Gas Industry of the Republic of Kazakhstan for 2010-2014 will make it possible to: •increase the average complexity index of Kazakhstan's refineries to the global indicator of 10.2 •increase the processing depth to 90%, and bring the quality of motor fuels to Euro-5.

� - индекс "Нельсона"

10.16

7.42

4.31 4.67

10.2

0

2

4

6

8

10

12

USA Europe Russia Kazakhstan

Balance of Production and Consumption of Oil Products until 2020

13

Table 1 Forecast of oil refining and oil products production, thousand tons

Name 2010 (fact) 2016 2020 Oil Refining 13,680 17,500 19,000

Petrol 2,849 6,147 6,685 Diesel 4,047 5,541 5,995 Jet fuel 479 883 943

Forecast of oil products consumption, approved by the RoK Ministry of Oil and Gas, thousand tons Name 2010 (fact) 2016 2020 Petrol 3,580 5,200 6,200 Diesel 3,950 5,100 5,900 Jet fuel 550 600 700

Potential ("-" - imports,"+" - exports), thousand tons

In 2016, after the upgraded facilities of the RoK refineries are commissioned, the output oil products will fully satisfy the domestic requirement for POLs

Name 2010 (fact) 2016 2020 Petrol -730 +947 +485 Diesel +98 +441 +95 Jet fuel -76 +283 +243

Table 2

Table 3

14

Kazakhstan Content in the Purchases of JSC NC "KazMunayGas" Group of Companies in 2010

Kazakhstan partners of the KazMunayGas group of companies under the Program

Goods Works Services Total amount,

KZT bn KC, % Amount, KZT bn

KC, % Amount, KZT bn

KC, % Amount, KZT bn KC, %

425 57 393 63 425 75 1 244 65 Number of oil and gas equipment, machinery and materials items, commercial production of which has been set up in

Kazakhstan as part of the Program implementation

20

100120

140170

230250

286301

321 325

360

155

314

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011план

«Program for Assistance to Development of RoK Oil and Gas Mechanic Engineering and Setting-Up Production of New Types

of Oil and Gas Equipment for 2011-2013»

15

Program of JSC NC "KazMunayGas" for Development of Kazakhstan Content for 2011-2015

Increase in the purchased volumes of products, set-up for commercial production in prior years and output serially now

Assistance to the domestic goods producers in organizing output of new types of commercial products currently imported

Increase in the Kazakhstan content in the implementation of major oil and gas projects

Establishment of the business development center

Organizing service and machine-manufacturing assets

Principal Goals and Objectives of the Program

Expected outcomes of implementing the Program

1 23% gain in production of oil and gas equipment in the

RoK plants by 2015 as compared to 2010, or from 28.5 bn tenges to 35 bn tenges

2 Bringing the KC share in KMG group's purchases of

goods to 50% or a 1.6 increase from 242 bn tenges to 387 bn tenges

3 Bringing the KC share in KMG group's purchases of

works and services to 90% or a 1.3 increase from 565 bn tenges to 740 bn tenges

4 Increasing the KC share in the purchases of the operators

of major oil and gas projects

5 Establishment of new joint ventures, KMG's service and machine-building assets

16

Development of Coastal Infrastructure of the Kazakhstan Sector of the Caspian Sea

9 2 3

4 5

6

8

1

14

16 17

19 18

21

15 13

20 ЛЭП

7

СЗМС

Причал отгрузки каменной породы

Завод по ремонту малых судов

Завод буровых растворов

БПМНО

Полигон

12

11

Facilities in accordance with the Integrated Plan for Development of the KSCS Coastline:

Aktau Keppel Kazakhstan Shipyard* KCOI Shipyard*

Kuryk Yersai Shipyard* Oil Terminal Shipyard/Dry Dock Fleet base Offshore Oil Operations Support Base Disposal site Industrial supply base Fabrication yard Concrete weight coating plant

1

13

14

15

16

17

18

19

20

21

Bautino Rock loading jetty Disposal site Offshore Oil Operations Support Base Sea Vessels Fuelling Station Production base of Agip KCO* KazMi drilling muds plant "Atash" Offshore Oil Operations Support Base* Small vessel repair and overhaul plant* TenizService Production site

2

3

4

5

6

7

8

9

10

11

12

Atyrau North-Caspian Environmental Response Base

*- projects of foreign companies

- planned facilities - being implemented - implemented facilities

17

The Northern Caspian Ecological Response Base (NCERB)

The main facilities: berth and mooring basin / spill prevention equipment storage building / service facilities for air-cushion vehicles (ACV) / Rehabilitation Center for Animals / Centre for Environmental and Meteorological Monitoring / helipad

Location: Atyrau oblast, canal Primorskiy, southward to the village Damba Implementation period: 2010-2012 Project cost: ~ 13.8 billion tenges Source of financing : JSC NC “KazMunayGas”

Purpose: the Center for oil spills response in the development of offshore fields

Given the urgency and public importance of establishing a National system for detecting and responding to oil spills, in order to develop its concept, initiated by JSC NC “KazMunayGas", a working group was created among the experts of JSC NC “KazMunayGas”, JSC “KazGeoKosmos”, “Nymphea Environment”, as well as representatives of concerned government agencies and oil companies.

o г.Атырау

18

Innovative cluster

Market promotion of finished goods

JSC “KBTU": JSC "A.B. Bekturov Institute of

Chemical Science" JSC "D.V. Sokolsky Institute of

Organic Catalysis and Electrochemistry"

JSC “Kazakh Institute of Oil and Gas” :

Research center within special economic zone (SEZ) “Information Technology Park”

Polygon based on low productive oil fields of KazMunaiGas EP, JSC

Specialized laboratory of JSC “Kazakh Institute of Oil and Gas” within SEZ “Information Technology Park”

Production management Pilot testing

Research and development

Under Development Plan of JSC NC “KazMunayGas” provisions were provided for the development of innovative projects by JSC “Kazakh Institute of Oil and Gas” totaling $ 45 billion tenges for the period of 2011-2015.

Setting up serial production at domestic enterprises

Large oil and gas companies of Kazakhstan:

TCO KPO NCP and others Export

19

Innovation and Technology Policy

215 5

286 29

372 149

2010

2015

2020

2010

2015

2020

122

8 906

11 491

Research and development expenses of KMG, mln KZT

Labor productivity gains of KMG through innovation (consolidated, thousand dollars per

person) Additional revenue of KMG through innovation,

million dollars

220

315

521

20

Investment Program of JSC NC "KazMunayGas"

1 841

267

1 046

2 066

422133

1 553

288734

1 740

192159

93914591

1 322

252149

810163591

1 047

249129

812145389

1 053

566139

-

1 000

2 000

3 000

4 000

5 000

6 000млн. USD

2011 2012 2013 2014 2015

Capex per business segmentProduction Oil transportation Gas Transportation

Downstream KMG NC Misc.

The capital expenditures over the period from 2011 to 2015 will total around 19.4 billion US dollars.

21

Contribution of JSC NC “KazMunayGas” to the development of the National Qualifications Framework

In 2009 KMG initiated a pilot project within the framework of “KAZENERGY” Association’s activity on development of the Occupational standards in the oil and gas industry. The working group was composed of representatives of the Ministry of Education and Science, the Ministry of Labor and Social Affairs of the RK, “Atameken” Union and KMG’s specialists.

Key objective of the pilot project: development of unified up-to-date requirements to qualification and competencies of employees in various occupations.

“... KMG’s method of occupational standard development is essentially notable for its innovative approach, since it is based on the studies of the complex structure of professional activities”

Office and management personnel/Engineering technicians- 29

Workers - 26

55 Occupational Standards have been developed (about160 positions):

Occupational standards allow not only for qualitative HR management, but also for settlement of the issues of foreign labor import, personnel nationalization and fair remuneration taking into account business interests and labor market realia.

EU Experts’ Opinion on Occupational standards of KMG

Occupational standard is a code of requirements to qualification and competences of a certain occupation.

Specializations

Distinct requirements

Expert appraisal of the Company

Employees’ tasks

Business processes

Individual development sheet of an employee

Employment of personnel

Personnel development

Personnel training plan

Motivation system

Remuneration system

Formation of the Company’s

Candidates pool

Occupational Standards Skills, experience

Org

aniz

atio

n o

f HR

wor

k in

term

s of

OS

22

Thank you for your attention!

JSC “ National Company “ KazMunayGas” Republic of Kazakhstan

010000, Astana, 19 Kabanbai batyr Ave. Tel.: +7 (7172) 97-61-01

Fax: +7 (7172) 97-60-00, 97-60-01 e-mail: Astana@kmg.kz

http://www.kmg.kz