Bloomberg News

Zhaikmunai Gains From President’s Son-in-Law as Investor

November 28, 2012

Zhaikmunai LP (ZKM), the Kazakh oil producer planning to double output in four years, said having the son-in-law of Kazakhstan’s President Nursultan Nazarbayev as an investor will help the company expand.

Timur Kulibayev, who is married to Nazarbayev’s daughter Dinara, is an investor in KazStroyService Group, which acquired about 26 percent of Zhaikmunai in 2010, said Frank Monstrey, who chairs the oil company.

“They are not involved at all in the operational management but getting introductions left, right and general knowledge in the country,” Monstrey said in an interview in London. Kulibayev “is one of our shareholders through KazStroyService and for sure that helps navigating the local landscape.”

Zhaikmunai’s London-traded shares have risen 17 percent this year on prospects for drilling in Kazakhstan. The Isle of Man-based company is investing $1.2 billion to more than double oil and gas production to about 100,000 barrels a day in 2016. The company announced its first dividend with the aim of paying out about 20 percent of earnings in the future.

Leading Player

Kulibayev has emerged a leading player in Kazakhstan’s $186 billion economy. He’s chairman of oil industry association Kazenergy and the nation’s biggest business group Atameken and was chief executive officer of sovereign wealth fund Samruk- Kazyna.

Kazenergy didn’t respond to an e-mail requesting comment.

Steel billionaire Lakshmi Mittal is also an investor in construction company KazStroyService, Monstrey said.

“The backbone of our strategy is to double production and keep the plateau production as long as possible and then start looking into other acquisitions,” Monstrey said. “We are focused very much on delivering what we want to do, but of course as you grow as you get more visibility it’s quite useful to have local partners.”

Acquired Licences

This year, it acquired licenses to explore the Rostoshinskoye, Daryinskoye and Yuzho-Gremyachinskoye fields in northwestern Kazakhstan about 120 kilometers (75 miles) away from its main production base, the Chinarevskoye deposit. The fields hold as much as 187 million barrels of oil equivalent in resources and the company plans to drill the first wells after 2013, according to a company presentation.

Zhaikmunai is also looking at further acquisition opportunities to the south of its fields, Monstrey said. For now, it plans to focus on the Chinarevskoye expansion, which holds about 1.1 billion barrels of resources.

“Before we start looking at acquisitions one of the first areas of focus has always been our possible reserves,” he said. “That’s the lowest hanging fruit we have and the size speaks for itself.”

The company has already invested about $1.2 billion in the first phase of the Chinarevskoye development and expects output to rise to about 48,000 barrels of oil equivalent a day next year. It processes its gas condensate at a plant separating gas from petroleum liquids, which positions Zhaikmunai “in a unique way,” allowing it to link nearby fields to its facility, the chairman said.

It exports about 85 percent of crude by rail cars to clients in Finland, Ukraine and some other destinations. Gas is pumped through a 17-kilometer pipeline for injection into the Orenburg-Novopskov link.

“The strategy of the company has always been to try to extract as much liquids as possible and to consider gas as a nice by-product,” Monstrey said. “Gas represents a relatively small portion of the company revenue.”

To fund its expansion the producer sold $560 million in seven-year bonds this month.

“Our production sharing agreement is until 2032 and each year that you wait to produce is a lost year,” he said. “The terms compared to the current newly awarded terms are absolutely quite favourable.”

The company generated $79.4 million in operating cash flow in the third quarter, Stephane Foucaud, a London-based analyst at FirstEnergy Capital Corp., wrote in a Nov. 22 report. He raised his recommendation on the shares to top pick from outperform.

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net Nariman Gizitdinov in Almaty at ngizitdinov@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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