AT THE FIRST STAGE "KURIK" TERMINAL'S CAPACITY WILL BE 10 MLN. TONS

There is growing the interest of the international business to oil and gas branch of Kazakhstan. Today, we can talk about significant transformation of Kazakhstan oil and gas branch, in comparison with last year, the oil production in the country increased more than to 2 times, proved reserves of oil and gas also increased almost to 2 times, the volumes of oil transportation and processing multiply too. The usual atmosphere of partnership, the confirmation of reserves in the Caspian shelf, infrastructure development are provided by the large opportunities for the further growth of oil and gas branch and business expansion.

I would like to say about some results of company's operation for the last year, to inform about our vision of the further prospects of branch's development. Having finished an estimation of assets within the frame of the uniform national oil and gas company "KazMunayGaz" have begun their re-structuring from the beginning of last year.

The program of re-structuring is designed by us for three years and pursues the purpose to create transparent effective structure of actives appropriate strategy of the company. The first step to re-structuring was the amalgamation of production companies such as "Uzenmunaygaz" and "Embamunaygaz" to the Joint-Stock Company Prospecting and Production "KazMunayGaz". In result, there was established the second company in Kazakhstan with the volume of oil production, which will be integrated with Atyrau ORP and marketing company Trade House "KazMunayGaz".

The program of assets' re-structuring will be realized in two stages. The first stage provides an output from the structure of the most part of nonspecialized assets and the part of assets with insufficiently commercial potential. During 2004 - 05, the activation of quantity of organizations up to 26 units is planned. The basic task of this stage is the increasing of management efficiency by the company due to the concentration of efforts on strategic assets. During the second stage the output from the structure of all nonspecialized assets and assets nonspecialized service activity during 2006-07 is planned. The business change processes and transition to mechanisms of auctions will be implemented.

From the beginning of current year, due to transformation, we have reduced the quantity of organizations with direct participation of "KazMunayGaz" from 53 to 46. Today, we plan the selling of nonspecialized assets and some oil production enterprises. These sales are open in tenders, where any company is able to participate. The program of re-structuring assumes not only sale, but also other operations with assets raising efficiency of their activity. The special emphasis in the program is done on concentration on the basic assets, increase of a transparency of business dealing.

In result, we plan to reduce the quantity of organizations with direct participation of "KazMunayGaz" to 3 times by a conclusion of specialized-service assets and nonspecialized assets mission.

The carrying out the re-structuring is directed to concentration of company's efforts to realization of the main strategic issues of the company which are development of fields of the shelf of the Caspian Sea, the improvement of an oil and gas infrastructure, modernization of processing capacities and participation in realization of the program of industrial development. The development of offshore projects are carried out according to state program of development of the Kazakhstan sector of the Caspian Sea.

At present, the activity of our company is concentrated on several basic directions. There are functioning contracts, on which we work under the projects - Tub-Karagan, Atash, Southern Dzhambay, Southern Zaburunye. Kurmangazi, Khvalinskoye and Central projects' realizing in accordance to the intergovernmental agreements between the Republic of Kazakhstan and the Russian Federation. The preparation for reception of right of bowels using on the base of new projects, into which joins Barkhan, Kazakhstan, Abay and many others. At the beginning of last year, we have signed all necessary documents with the Russian "LUKOIL" on the base of Tub-Karagan and Atash, which allowed us to begin the prospecting at these sites. For realization of oil operations at Tub-Karagan the operational company "Tub-Karagan Operating Company" with individual share of the parties 50/50 was established. The project operator Atashskoye is Atash, which has also established on the parity. There are carried out in regions the hearings according to influence on an environment supposing work on sites Tub-Karagan and Atashskoye, all-round ecological researches, now by company are completed the seismic-prospecting of work at Tub-Karagan by extent of 668 km. At Atash the subcontract company Western Geco executes the researches of seismic structures, on a deep-water zone 1057 km of seismic structures are fulfilled.

The realization of the basic projects will be implemented according to new tax conditions, which all of us know, have caused the large discussions in petroleum circles. The basic conceptual rules of accepted package of amendments in the tax laws - introduction renting of tax on exporting oil, and number of other innovations. In particular, these legislative amendments limited norms of the taxation of oil operations. Basically, all these changes as a whole have increased loading by the new projects. During a year, with the companies, which have issued the contracts on oil production, the large work was carried out according to efficiency of the projects regarding new tax conditions, the various variants of further development of these projects were studied. The offers on change of the Tax Code are brought in to working group of government. The administration bill "About amendments and additions in some acts for questions of bowels using and realization of oil operations" have received government's approval. In view of these changes, the economy of these projects was considerably improved, and the feedback on some of them already reaches 15%.

In this connection, we continue the negotiation with the Russian Rosneft regarding Kurmangazi, and we hope to get the signing of agreement about production sharing in 2005. The certain arrangements we have achieved in negotiation with the company "Total Kazakhstan". There are the biggest interests of German, Korean, Chinese partners to this project. In joint project "Rosneft" belongs 25% of participation stocks, Joint-Stock NC "KazMunayGaz" - 50%, the rest 25% has had an opportunity to redeem to options of the Russian "Zarubezhneft".

In this connection, it would be desirable to note that the conditions of investment in Kazakhstan strongly have changed for last years. At us steady economy, all segments of development of oil and gas branch only positive, as it was already marked, and risks, on which there were foreign investors, the steel on the order has less. Those projects, which we plan to develop in the Caspian Sea show the viability and new taxation.

Speaking about the routes of Kazakhstan oil transportation is necessary to note that there began in Kazakhstan the operation the first enterprise with participation of foreign capital in 1993. Kazakhstan had only one variant of oil export through Atirau-Samara oil pipeline. Since then, the situation fundamentally changed. The long-term agreement with Russian Federation about transit of the Kazakhstan oil to export, supposing the increasing of transit volumes both in existing and new export systems was signed. The carrying capacity Atirau-Samara oil pipeline is increased to 50%, up to 15 mln. tons of oil per one year, and there is carrying out the negotiation for increasing of carrying capacity of this oil pipeline up to 25 mln. tons of oil per one year.

There has been built the CPC oil pipeline with carrying capacity 28 mln. tons of oil per year, and its further expansion up to 67 mln. tons of oil per year is planned. The construction of connecting oil pipeline from Karachaganak field to CPC export system pipeline is completed. In March 2003, there was constructed and the first queue of Kenkiyak-Atyrau oil pipeline had been commissioned. Transport variants from Aktau port were received, including both through the territory of the Russian Federation and Transcaucasian route. There is begun and enlarged the operations through Iran. Within last year, due to the efforts of our associated companies the works on reconstruction of bulk-oil tubs in the territory of Aktau port are completed, that allowed to increase the carrying capacity of port up to 10 mln. tons of oil per year.

The major projects in long-term prospect become construction of export systems Kazakhstan-China and Baku-Tbilisi-Ceyhan. In October of last year in Karaganda area was held the ceremony by beginning of constructions of the Kazakhstan-Chinese oil pipeline through Atasu-Alashankou route. The carrying capacity at the first stage of realization of the project - 10 mln ton per one year, at second - up to 20 mln ton per one year with the further study of an opportunity of increase of volume up to 50 mln tons per year. At the second stage the continuation of construction of an oil pipeline on a site "Kenkiyak-Kumkol-Arasu" is stipulated. There was defined the date of construction work completion and commissioning of the oil pipeline - December 16, 2005. The commissioning of oil pipeline is planned in 2006, second queue - in 2011. After Atasu-Alashankou construction completion, China will be receiving the oil from the Caspian region of Kazakhstan. For construction of this oil pipeline, there was established "Kazakhstan-Chinese pipeline", which founders are the Chinese national oil and gas corporation on investigation both development of petroleum and gas and joint-stock company "KazTransOil" with equal shares by 50 percents. The general designer of an oil pipeline Atasu-Alashankou is Joint-Stock Company "Kazakhstan Institute of Oil and Gas". The general contractor is "KazStroyServis".

New oil pipeline should connect oil-transferring station Atasu in Karaganda region by railway station Alashankou in the territory of China. The extension of oil pipeline in diameter is 813 mm will make 988 km.

It is necessary to note that some of shareholders of the pipeline company BTC Co., formed for construction of an oil pipeline the Baku-Tbilisi-Ceyhan (BTC), will have in the long term large enough volumes of oil production in Kazakhstan. We support the intentions of stated companies on creation of new export capacities BTC for transportation of oil from Kazakhstan to the Mediterranean ports. With the purpose of Kazakhstan joins to the agreement of the transit countries are negotiated for preparation for signing of appropriate documents. For maintenance of oil transportation from Aktau port, including the further transportation via BTC pipeline on behalf of associated companies, KazMunayGaz is fulfilled the construction of three tankers with deadweight 12 thousand tons. The first of them was built in November 2004. Generally, there is planned the construction of 6 tankers capable for oil transportation not less than 5,5 mln. ton per year. We assume the increasing of tankers' deadweight, which will work in this region.

Alongside with development of oil transport infrastructure, also are actively modernized and developed main gas lines, first of all the Central Asia - Centre. There is planned the reaching of gas pipeline carrying capacity up to 100 bcm per year by 2010.

Kazakhstan has developed the project regarding the investments into realization of main gas pipeline - the positive conclusion of state and departmental examination, committee is received on construction. By results of substantiation is planned to carry out open competition at the choice of general contractor on development of the feasibility TES project. Besides the development of this traditional direction of gas export, "KazMunayGaz" develops an opportunity of gas supplies to Chinese market, including the using of Russian and Turkmenistan gas, which can be supplied to China by transit through Kazakhstan, and also to the Russian - Kazakhstan border by SWAP-operations. In June 2004, the second conference of project management group consisting from the representatives of KazMunayGaz and Chinese National Oil and Gas Corporation on preliminary study of opportunities of project realization of the specified gas pipeline was held, where the basic directions of works will be coordinated. The parties have agreed that the gas researches will be completed in 2005. The effective realization of large-scale oil and gas operations, first of all, in the Kazakhstan sector of the Caspian Sea should be provided with outstripping formation and development of the appropriate modern industrial and social infrastructure. The purpose of general plan's development of an infrastructure in sea oil extracting is the development of a complex of measures directed on development of an infrastructure and support of petroleum operations on the Caspian shelf. They cover the period 2003-2005, simultaneously estimating and predicting development till 2015 and further till 2040.

Besides questions regarding the development of offshore oil and gas complex in the shelf, there is considered an opportunity of improvement of accompanying objects of manufacture of capital and economic destination.

Besides necessity of coordination of efforts of the company on development of an infrastructure, "KazMunayGaz" accepts active participation in planning and construction of objects of an infrastructure, support of sea petroleum operations. For purposeful activity on creation of an infrastructure, support of sea petroleum operations the specialized affiliated company "TenizServis" is formed, which is urged to operate works on designing construction of concrete objects of an infrastructure on all extent of the Kazakhstan sector of the Caspian sea. The basic base of support of sea operations under the North-Caspian project as at us considers Bautino, where the assembly, accommodation, transit of the equipment and materials for sea operations is carried out. In non-freezing Tub-Karagan gulf of the Caspian Sea, we have already begun the construction of offshore operations construction, which include storehouses of fuel, warehouses, moorings, terminals, shipbuilding and dock plants, and also other objects. From this base the support of realization of the North-Caspian project is carried out, but in the long term use of base will extend for all other projects. Total amount of necessary capital investments in objects of an infrastructure Tub-Karagan gulf is estimated at $107 mln.

At the end of 2003, there was commissioned the first object - mooring for shipment of stone breed being as a matter of fact by the first object of a new infrastructure constructed by efforts of the Kazakhstan builders. The cost of mooring construction made $10 mln. At the same coast mutually with associated "TengizServis" the preparation for feeling station of the vessels construction and development of structures of other objects are conducted. At the current support of offshore oil operations, as structures on management by wastes, platform and berthing wall of base. There is considered the matter of Base of the fast response creation for a service of spill ail liquidation and ecological meteorological service of the North-Caspian Base for support of offshore operations in Atirau region. Regarding the stated matters were signed the memorandum of mutual understanding with Agip KCO (pls. pay attention to the reference).

The coast in Kurik region is a convenient place for creation of complex of infrastructure objects, enterprises of port structures, manufacture and structures connected to services of development of an oil and gas industry. In particular, there is planned to begin designing construction of base of support of offshore oil operations for the southern part of shelf, new export terminal for development of new directions to hydrocarbon export. We assume that terminal capacity at the first stage 2008-10 will make 10 mln. tons of oil per year, in subsequent there is planned the expansion up to 20 mln. tons of oil per year. The construction of dock yards and ship-building plants are planned.

Perspectives are represented by operations on reconstruction of existing and creation of new infrastructure objects for Atyrau and Aktau. In particular, the reconstruction and modernization of bulk-oil moorings No.4 and No.5 in Atirau is completed. Now the port is capable to accept of court up to 12 thousand tons and draught up to 7 meter. The plans of development of port assume construction of three bulk-oil moorings for increase of capacities on transshipment up to 20 mln. tons of oil per year. The construction and operation of objects of an infrastructure of sea oil extracting will be carried out in the basic forces of the domestic petroleum company, the local population will work on them mainly. We plan to use experience, technologies, assistance foreign petroleum, engineering, building and service companies and separate highly skilled experts.

Not less important project of offshore infrastructure development is "Kazmortransflot" fleet of support. The purpose of the given project is the creation of domestic basic fleet and fleet of support of sea operations. The formation of fleet of support of sea operations is supposed to be implemented in two stages.

At the first stage the current issues regarding the transportation of the large volumes of a stone for construction of islands will be solved. In this period the construction and purchase at the basic barges and tows will be carried out. In 2004 "Kazmortransflot" has received a sea tow, and completed the construction of barge - platform for transportation of dry / fluid cargoes in a shallow zone.

One of the national company activity priorities is the maintenance of Kazakhstan participation in the large oil and gas projects. Kazakhstan participation in Karachaganak, North-Caspian, Tengiz projects makes in average from 27 to 42%. By bringing of Kazakhstan companies to leading Karachaganak and Tengiz projects, in which share of the Kazakhstan structure makes 42%. Within the frame of strategy of development till 2015, the company mutually with TSO is engaged in development of the individual intermediate term program on development of Kazakhstan contents. At present, company mutually with the operator will carry out work on ordering formats of the reporting spent measures on increase of the Kazakhstan contents of the project.

Gives concrete fruits and systematic work on attraction of a domestic industry, level of wide participation in deliveries to oil and gas sector. NC "KazMunayGaz" with the purpose of maintenance of own requirement in various kinds of oil and gas equipment participates in realization of the joint projects with domestic goods producers on organization of manufacture of new kinds of goods and production for oil and gas branch. We sign the contract about intentions on organization of manufacture of electric welded pipes. In 2005, the new plant will be commissioned.

Furthermore, the company promotes organization of manufacture of new kinds of the oil and gas equipment at the working enterprises. The Kazakhstan metal works plans to adjust for us manufacture of electric motors by capacity up to 100 kw, the realization of skilled tests of the first samples is planned to 2005. This year, Kazakhstan machine-building factory plans to adjust manufacture of furnaces for oil heating.

We would like to address to representatives of companies - suppliers of ready materials with appealing more actively to raise quality of the goods based on new technologies and to pass on the international standards of quality. In this connection, would like to note, that within the frame of realization of strategy industrial-innovation development is transition of domestic oil and gas complex to international standards ISO. And now we pay more attention to this issue.

In summary, I would like to mention that the oil and gas branch of Kazakhstan develops and for 13 years of its independence the successes are shown. The large opportunities regarding the further development open, there are large prospects as for obtaining, and service companies. Reliability of the investments are guaranteed by stable political and economic conditions.

On behalf of NC "KazMunayGaz" would like to emphasize its readiness to mutually advantageous cooperation, in particular on the base of projects concerning the oil and gas complex of Kazakhstan. We hope that our company will be reliable and interesting partner for you.