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NewsFlash / 1 / September 2016 International market headlines OPEC announced the plan to cut production to a level of 32.5-33 million barrels per day (bpd) from 33.47 billion, bpd in August, the International Energy Agency said. “We have had a very lengthy but historical meeting in Algiers,” said Qatari energy minister and OPEC meeting president, Mohammed bin Saleh al-Sada, who confirmed the planned cut. There are “very positive signs in the market... nevertheless we need to bring forward rebalancing of the market,” he told a press conference after the informal talks. The meeting agreed to establish a committee to determine how the cut will be shared between members and the quotas will be discussed at OPEC talks in Vienna on 30th of November. OPEC has raised its forecast for oil demand in 2016 to 30 thousand bpd – 94.26 mln bpd, said in its September report of the cartel. The growth forecast for world oil demand in 2017 maintained at the level of 1.15 mln bpd (up to 95.41 mln bpd). The demand for OPEC oil in 2016 will grow by 1.9 mln bpd and will reach 31.9 mln bpd in 2017 will increase to 33 mln bpd. In July, according to third party sources, members of the organization were produced by 33.11 mln bpd. While OPEC has improved expectations for oil production outside of the cartel this year. According to the new assessment it will be reduced to 790 thousand bpd and will be 56.13 mln b/d that by 90 thousand bpd above the previous forecast. Oil producers in the U.S. are proving more resistant to low prices, even as global supply is set to fall into a deficit next year. The Energy Information Administration increased its domestic output forecast for 2017 to 8.31 mln bpd from 8.2 mln projected in July, according to its monthly Short-Term Energy Outlook released Tuesday. Global oil consumption will exceed supply by an average 170,000 bpd next year, which compares with a 10,000 barrel surplus in July’s outlook. Global oil majors cut their capital expenditures by 21% in 2016, following a 19% cut in the past year, according to the monthly report by International Energy Agency (IEA). Source: Consensus Bloomberg, EIU http://gfs.eiu.com/Article.aspx?articleType=cf&articleId=1243614708&secId=0 Brent Crude Oil Forecasts, $/barrel Oil & Gas NewsFlash September 2016 Brent, WTI and Urals spot prices (1 August 2016 - 27 September 2016) Source: EIA; www.topoilnews.com

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NewsFlash / 1 / September 2016

International market headlines • OPECannouncedtheplantocutproductiontoalevelof

32.5-33millionbarrelsperday(bpd)from33.47billion,bpdinAugust,theInternationalEnergyAgencysaid.“WehavehadaverylengthybuthistoricalmeetinginAlgiers,”saidQatarienergyministerandOPECmeetingpresident,MohammedbinSalehal-Sada,whoconfirmedtheplannedcut.Thereare“verypositivesignsinthemarket...neverthelessweneedtobringforwardrebalancingofthemarket,”hetoldapressconferenceaftertheinformaltalks.ThemeetingagreedtoestablishacommitteetodeterminehowthecutwillbesharedbetweenmembersandthequotaswillbediscussedatOPECtalksinViennaon30thofNovember.

• OPEChasraiseditsforecastforoildemandin2016to30thousandbpd–94.26mlnbpd,saidinitsSeptemberreportofthecartel.Thegrowthforecastforworldoildemandin2017maintainedatthelevelof1.15mlnbpd(upto95.41mlnbpd).ThedemandforOPECoilin2016willgrowby1.9mlnbpdandwillreach31.9mlnbpdin2017willincreaseto33mlnbpd.InJuly,accordingtothirdpartysources,membersoftheorganizationwereproducedby33.11mlnbpd.WhileOPEChasimprovedexpectationsforoilproductionoutsideofthecartelthisyear.Accordingtothenewassessmentitwillbereducedto790thousandbpdandwillbe56.13mlnb/dthatby90thousandbpdabovethepreviousforecast.

• OilproducersintheU.S.areprovingmoreresistanttolowprices,evenasglobalsupplyissettofallintoadeficitnextyear.TheEnergyInformationAdministrationincreaseditsdomesticoutputforecastfor2017to8.31mlnbpdfrom8.2mlnprojectedinJuly,accordingtoitsmonthlyShort-TermEnergyOutlookreleasedTuesday.Globaloilconsumptionwillexceedsupplybyanaverage170,000bpdnextyear,whichcompareswitha10,000barrelsurplusinJuly’soutlook.

• Globaloilmajorscuttheircapitalexpendituresby21%in2016,followinga19%cutinthepastyear,accordingtothemonthlyreportbyInternationalEnergyAgency(IEA).

Source: Consensus Bloomberg, EIU

http://gfs.eiu.com/Article.aspx?articleType=cf&articleId=1243614708&secId=0

Brent Crude Oil Forecasts, $/barrel

Oil & GasNewsFlash

September2016

Brent, WTI and Urals spot prices

(1 August 2016 - 27 September 2016)

Source: EIA; www.topoilnews.com

NewsFlash / 2 / September 2016

International market headlines (continued)

• TheRussiangovernmenthasissuedthelicensefortheCentralOilandGasCompany–ajointventurebetweenLukoil(25%),Gazprom(25%)andKazakhstan’sKazMunaiGaz(50%)–todeveloptheCentralfield.ThefieldiswithintheRussiansectoroftheCaspianSea,butitsdevelopmentmustbeconductedwiththeparticipationofKazakhpartners.Thestructurehasbeenpassedforprospecting,explorationandproductionofhydrocarbonswithoutanauctionforaperiodof25years.Thegeologicalexplorationstagewilllastsevenyears.

• InternationalEnergyAgency(IEA)hasloweredtheforecastofthegrowthoftheglobaldemandforoilin2016by100,000barrelsperday(downto1.3mlnbarrelsperday),CaspianEnergyNews(www.caspianenergy.net)reportswithreferencetothemonthlyreportoftheInternationalEnergyAgency(IEA).Meanwhile,theIEAhaspreservedtheglobaldemandgrowthforecastfor2017attherateof1.2mlnbarrelsperday,themonthlyreportofIEAsaid.Theagencyloweredtheforecastonglobaloildemandfor2017by200,000barrels–downto97.3mlnbarrelsperday.IEAalsoloweredtheforecastonglobaloildemandfor2016by200,000barrelsperday,(downto96.3mlnbarrelsperday).Itis1.3mlnbarrelshigherthanin2015.

• RussiaandIranareconsideringthepossibilityoforganizingswapshipmentsofgastonorthernIranthroughAzerbaijanandtheconstructionofaliquefiednaturalgas(LNG)plantinsouthernIran,RussianEnergyMinisterAlexanderNovaktoldreporters.“Inthegassector,todaywealsoconsideredthepromisingareaofswapsuppliesofgastonorthernIranthroughAzerbaijan,withthepossibilityofbuildingaliquefiednaturalgasplantinsouthernIran.Accordingly,withthereceiptoftheequivalentamountofliquefiedgas,whichwillgotomarketsinSoutheastAsia,wherethereistheprospect,asyouknow,ofhigherratesofgasconsumptiongrowth,”Novaksaid.“Inregardtotheoilsector,wetalkedtodayaboutthepossibilitiesofusinginfrastructure,implementingjointprojects,includingintheCaspianSeainIran,inAzerbaijan.Youknowthatourcompaniesarealsoparticipatingintheseprojects.Iraniswillingtoprepareaso-calledIranPetroleumContractsoonunderwhichRussiancompaniesandAzerbaijanicompaniescanparticipate,”Novaksaid.

• Itresultedina$60blnreductioninupstreamspendingfortwoyears.Whilethedropislargelyafunctionofsignificantcostdeflation,aslowdowninactivityanddelayinprojectsarealsofactors.

• Globaloiloutputwillexceeddemandatleastthroughthefirsthalfof2017,InternationalEnergyAgency(IEA)said.“Withthepriceofoilatcurrentlevels,onewouldexpectsupplytocontractanddemandtogrowstrongly.However,theoppositenowseemstobehappening.Demandgrowthisslowingandsupplyisrising.Consequently,stocksofoilinOECDcountriesareswellingtolevelsneverseenbefore”,theIEAanalystssay.

• ApacheCorp.saidithasdiscoveredtheequivalentofatleasttwoblnbarrelsofoilinanewWestTexasfieldthathasthepromisetobecomeoneofthebiggestenergyfindsofthepastdecade.Thediscovery,whichApacheiscalling“AlpineHigh,”isinanareaneartheDavisMountainsthathadbeenoverlookedbygeologistsandengineers,whobelieveditwouldbeapoorfitforhydraulicfracturing.Itcouldbeworth$8blnbyconservativeestimates,oreven10timesmore,accordingtothecompany.Sharesrosebyasmuchas13%afterU.S.markets.Apachestartedacquiringmineralrightsintheareatwoyearsagoandsubsequentlydiscovereditspotential.Thecompanythenquietlywentaboutlockingupmorelandinthefield,believedtobeupto450,000acresoverall.Itspositionnowexceeds300,000acres,orroughlytwo-thirdsofthefield,andisabout20timesthesizeofManhattan.

• ThenumberofoperatingoilandgasdrillingrigsaroundtheworldhasincreasedinAugust,accordingtotheresultsofthethirdmonthinsuccession,theBakerHughesOilServiceCompanyreports.Lastmonth1,547rigswereoperatingasagainst1,481onesinJuly.However,theAugustfigureis679rigslessascomparedtoAugust2015.

NewsFlash / 3 / September 2016

International market headlines (continued)

• Fiveleadingoil-producingcountriesinAsiawillcutoilproductionin2017,theanalystsoftheBritishEnergyAspect(EA)predict.Accordingtotheanalysts,China,India,MalaysiaandVietnam,basedonresultsofthecurrentyear,willcutoilproductionby0.26mlnbpdupto6.5mlnbpd,andduringnextyeartheproductionwillbefurtherdecreasedby0.31mlnbpd.

• OPECraiseditsforecastofoilsuppliesfromnon-membercountriesin2017asnewfieldscomeonlineandU.S.shaledrillersprovemoreresilientthanexpectedtocheapcrude,pointingtoalargersurplusinthemarketnextyear.DemandforcrudefromtheOrganizationofthePetroleumExportingCountrieswillaverage32.48mlnbpdday(bpd)in2017,OPECsaidinamonthlyreport.Thatisdown530,000bpdfromthepreviousforecast.OPECexpectsnon-OPECsupplytoriseby200,000bpdin2017,versusapreviouslyforecast150,000bpddecline.TherevisionismostlyduetoKashagan,OPECsaid,asthelong-delayedgiantfieldfinallystartsup.Ontopofthat,theforecastforthisyearwasrevisedupby180,000bpd.

• AnumberoflargeshaleoilproducersintheUSaresetforincreasinginvestmentsintoproductionascrudeoilpricesarerisingtomarchbacktoward$50-a-barrellevel,TheWallStreetJournalreports.DevonEnergyCorp.,PioneerNaturalResourcesCo.andothercompanieshavealreadytoldtheinvestorsthatthisautumntheywillboostspendingtodrillnewwells.

• ThefirstshipmentofUSshalegastobedeliveredtotheUKremainsanchoredintheFirthofForth,unabletodockbecauseofstrongwinds.ItarrivedamidafiercedebateaboutthefutureoffrackinginScotlandandtherestoftheUK.Thetanker,carrying27,500cubicmetresofethanefromUSshalefields,isboundfortheGrangemouthpetrochemicalsplantownedbyIneos.Ineossaidthegaswouldsecurethefutureoftheplant’sworkforce.

• In2015,wasdiscoveredonlyatenthoftheoilfromthelevelreconnaissancecompanyfindannuallysince1960.Thisyearthevolumeofoilfoundislikelytobeevenless,againstwhich,willincreaseconcernsaboutabilitytomeetfuturedemand.Whenoilpricesfellbymorethanhalf,oilcompanieshavereducedexpendituresongeological-exploringworksworktoaminimum.Asaresult,in2015,itproduced2.7blnbarrels–thelowestamountsince1947,accordingtoconsultingfirmWoodMackenzieLtd.Thisyearasattheendoflastmonthitproduced736mlnbarrelsofoil.

• RussiaandSaudiArabiahaveagreedonmeasures-jointorincooperationwithotheroilproducers-withtheaimofmaintainingstabilityonthecrudemarketandprovidingasustainableleveloflong-terminvestment.That’saccordingtoajointstatementsignedonSept.5byRussia’sEnergyMinisterAlexanderNovakandSaudiArabia’sMinisterofEnergy,IndustryandMineralResourcesKhalidAl-Falih.Inthestatement,theministersrecognized“thecurrentchallengesinthesupplysideoftheglobaloilmarket,includingmajorcontractionofcapitalinvestmentsinoilextractiononaglobalscale,particularlyinexploration,aswellasmassdeferralsofinvestmentprojects,whichmadethemarket,asawhole,morevolatileandthereforeunsustainabletobothproducersandconsumersinthelongterm,”aswellas“animperativetomitigateexcessivevolatilityharmfultoglobaleconomicstabilityandgrowth.”“Inthisregard,theministersnotedthatconstructivedialogueandclosecooperationamongmajoroilproducingcountriesiscrucialtooilmarketstabilitytoensuresustainablelevelsofinvestmentforthelongterm.

NewsFlash / 4 / September 2016

Kazakhstan market headlines

• Tengizchevroil(TCO)places10-yearEurobondsmaturinginAugust2026,asourceinbankingcirclestoldInterfax.Eurobondsareofferedat225basispointsoverU.S.Treasuries.Investorshaveofferedtobuy$4.2bln.JointbookrunnersforthedealareCiti,HSBCandJPMorgan.

• S&PGlobalRatingshasits‘BBB’long-termcorporatecreditratingtoKazakhstan-basedoilproducerTengizchevroilLLP(TCO).Theoutlookisnegative.S&Palsoassignedits‘kzAA+’KazakhstannationalscaleratingtoTCO.“Atthesametime,weassignedour‘BBB’issuecreditratingtothecompany’sproposed$1blnseniorsecuredbondtobeissuedbysubsidiaryTengizchevroilFinanceInternationalLtd.andguaranteedbyTCO,”S&Psaid.

• ThisyearKazakhstanGDPisexpectedtogrowthat0.2%,EurasianDevelopmentBanksaysinitsmacroeconomicoverview.TheGDPannualaveragegrowthrateduring2017–2018isprojectedtoreach1.5–1.7%,thereportsays.

• WholesalepriceofliquefiedpetroleumgastobeKZT23thousandpertonneinKazakhstan.InaccordancewiththeLawoftheRK“Ongasandgassupply”marginalpriceofliquefiedpetroleumgasinthedomesticmarketissetbytheMinistryofEnergyandoperatesthroughoutthecountry.“Inordertoensureastablesupplyofliquefiedpetroleumgasforthedomesticmarketofthecountry,theMinistryofEnergyhasapprovedthemarginalpriceofgasindomesticmarkettill30September2016,soitwillbe23106.45tenge/tonne,”theagencystates.

• FitchRatingssaysinanewreportthat,overthemediumterm,theKazakhstanoilandgassectorwillbedrivenbyongoingandplannedmegaprojectsinupstream,oil&gaspipelinesundergoingexpansion,andplanneddisposalsindownstream.In2025theprojectedshareofproductionfromKazakhstan’stop-threemegaoilprojects-Tengizchevroil(TCO),KashaganandKarachaganak-islikelytoexceed75%ofthecountry’stotal,upfrom50%in2015.Kazakhstan’sover-relianceonafewmegaoilfieldsmakesitmoreexposedtosingle-projectgeologicalandtechnicalrisksandoilpricevolatility,asillustratedbytheongoingmulti-blndollareffortstorestartKashagan.

• TengizchevroilLLPwillundertakeasignificantpartofthefinancingoftheFutureGrowthProject,KazakhEnergyMinisterKanatBozumbayevhassaid.TheTCOexpansionprojectvalueis$37bln.HesaidthattheprojectimplementationwillallowTCOtoproduceanother250mlntonnesofoiluntiltheendofthecontractterm(bytheendof2033).Buttheoilfieldwillremainactivebeyond2033andthevolumeofpost-contractoilproductionwouldamountto420mlntonnes,-theministeradded.

• KazakhstanhasworseneditspositioninWEFCompetitivenessRankingpreparedbytheWorldEconomicForum(WEF).Kazakhstanfell11placesandhasbeenranked53rd.

• AsianDevelopmentBankdowngradedKazakhstanGDPgrowthforecastfrom0.7%to0.4%in2016.GDPgrowthforecastwillremainat1%in2017.Inflationforecastfor2016hasbeenincreasedfrom12.6%to13.5%.KazakhGovernmentprojectstheGDPgrowthof0.5%andinflationrateof8%thisyear.

• TheWorldBankforecastsslowrecoveryofKazakhstaneconomy,thebank’sreportcalled“Kazakhstan:ALongRoadtoRecovery,”publishedonJuly22said.Underthebaselinescenario,GDPgrowthisexpectedtoremainnearzeroin2016,beforerisingto1.9percentin2017and3.7percentin2018,asproductioncommencesattheKashaganoilfield,globaloilpricesrebound,renewedconsumerandinvestorconfidencesupportstherecoveryofthenon-oilsectors,andinflationeasestoanaverageof6-8percentperyear.Meanwhile,bothfiscalandexternalconditionsareexpectedtoimprove,trend.azreports.

• Kazakhstanproduced32.975mlntonnesofcrudeoiland5.815mlntonnesofgascondensateinJanuary-June2016,down2.4%and9.9%,respectively,fromthesameperiodlastyear,theStateStatisticsCommitteesaid.Kazakhstanproduced10.083blncubicmetersofnaturalgasinagaseousform,down6.3%.OutputofassociatedpetroleumgasinJanuary-June2016cameto12.658blncubicmeters,3.5%upfromH12015.

• TheBoardofDirectorsofKazMunayGasExplorationProductionJSC(KMGEP)hasadoptedthecompany’sInnovativeandTechnologicalDevelopmentProgramfor2016-2020,thecompany’sPressServicesaid.TheProgrammehasbeendevelopedamidtheglobaleconomiccrisisaspartofthesetofmeasuresaimedatmitigationofadverseeconomicimpactintheformofcutdowninspending.AsapartoftheadoptedProgramthecompanyisplanningtocarryoutatechnologyauditthatwillfocusmainlyonreviewandassessmentofspecificinnovationproposalsandorganisationalmeasuresthatwillenableKMGEPtousecrisistoimproveefficiencyandperformanceofitsassets.

NewsFlash / 5 / September 2016

Kazakhstan market headlines (continued)

• AnewonlinedatabaseofgoodsandservicesuppliesfortheoilandgasindustrywaslaunchedinKazakhstan,saidNiyazZhumat,theprojectmanagerattheUnionofOilServiceCompaniesofKazakhstan.“Alashisauniqueplatformforthemineralresourcecompaniesandsuppliers,includingKazakhsuppliers.TheservicecompaniesthatareregisteredinthedatabasewillhaveaccesstoprocurementprogramsofTengizchevroil(TCO),KarachaganakPetroleumOperatingB.V.(KPO)andNorthCaspianOperatingCompany(NCOC),”hetoldabriefinginAstana.ThedatabasewascreatedattheinitiativeoftheKazakhMinistryofEnergywiththedirectinvolvementofthelargeoilandgascompanies.Currently,thedatabasecontains237domesticandsevenforeignservicecompanies.

• S&PGlobalRatingsaffirmedits‘BBB-/A-3’long-andshort-termforeignandlocalcurrencysovereigncreditratingsontheRepublicofKazakhstan.S&PalsoaffirmedtheKazakhstannationalscaleratingsat‘kzAA’.Theoutlookonthelong-termratingsisnegative.

• InJanuary-June2016,KazMunayGasExplorationProductionJSC(KMGEP)produced6.78mlntonnesofoil(246thsdbpd),whichis0.7%lessascomparedtothesameperiodof2015,thecompanyreported.ThisamountincludestheinterestsinJVKazGerMunai(KGM),Karazhanbasmunai(CCEL)andPetroKazakhstanInc.OzenmunaigasJSC(OMG)produced2,779mlntonnes(112thsdbpd),whichis2%morethaninJanuary-June2015.EmbaMunaiGasJSC(EMG)produced1,407mlntonnes(57thsdbpd),whichis2%morethanduringthesameperiodlastyear.TotallyOMGandEMGproducedup4,186mlntonnes(169thsdbpd),whichis2%morethanduringJanuary-Junelastyear.

• TheoilcompanyTengizChevroil(TSO)produced14.4mlntonnessofcrudeoil(114.8mlnbpd)duringJanuary-June2016,theTCO’PressServicereported.Duringthesameperiodof2015,TCOproduced14.07mlntonnessofcrudeoil.Thus,oiloutputincreasedby2.3%inthereportingperiod.Inthefirsthalfofthecurrentyear,TCOrealised673thsdtonnessofliquefiedgasand3.67blncubicmetresofdrygas(duringJanuary-Junelastyear,677thsdtonnesand3.64blncubicmetres,respectively).

• KazakhstanGDPgrowthattheendof2016willstandat0.5%,theMinsterofNationalEconomyKuandykBishimbayevsaid.AsreportedbyKuandykBishimbayev,inAugustlastyear,Kazakhstaneconomygrewby0.1%.Accordingtotheresultsfor8monthsofcurrentyear,GDPhasgrownby0.3%.Kazakhstanexpects1.9%GDPgrowthin2017.Kazakhstan’sGDPgrowthhit0.1%in1Hof2016.

• InternationalratingagencyS&PGlobalRatingsaffirmedKazakhstan’slong-termforeign-andlocal-currencyratings,withnegativeoutlook,atBBB-,theagencystated.Theagencyaffirmedat“A-3”Kazakhstanshort-termratings.S&Palsoaffirmedat“kzAA”Kazakhstan’sratingaccordingtothenationalscale.

• JSCKazTransOilpumped21.923mlntonnesofoilthroughitspipelinesinJanuary-June2016oradecreaseof10%yearoveryear,thecompanysaysinapressrelease.Consolidatedoiltransportationinthereportingperiodtotaled28.278mlntonnesoradecreaseof10%yearoveryear.InJanuary-June2016thevolumeofoiltransportedbyJSCKazTransOilaloneamountedto17.836blntonne-kmordown3%yearoveryear,theconsolidatedvolumeoftransportationbyKazTransOilgroupcameto21.684blntonne-kmoradecreaseof5%,respectively.

• JSCOzenmunaigas(OMG),asubsidiaryofKMGEP,hasreceivedapprovalofitsapplicationforatemporaryreducedrateofMineralExtractionTax(MET)fortheUzenandKaramandybasfieldsinMangystauregion.“ThereducedMETrateissetat9.0%(comparedto13.0%in2015)forthewholeof2016ontheconditionthatin2016UzenandKaramandybasfieldsrecordlossesundertaxaccounting,”KMGEPsaid.“Themaximumbenefitavailableisexpectedtobeapproximately17blntengein2016,whichmayultimatelybereducedinaccordancewithcurrentlegislationshouldthefieldshavetaxableprofitfor2016,”thecompanysaid.

• Kazakhstanwillcalculateoilexportpricesusingauniformmethodology,KanatDospanov,DeputyChiefoftheSpecialisedDepartmentoftheStateRevenuesCommitteeundertheMinistryofFinance,said.Accordingtothemethodology,thepricewillbecalculatedbasedonglobalcrudeoilprices,termsofsupply,costsoftransportationtotheglobalmarkets,insurancecosts,andinspectioncosts.AccordingtoDospanov,thecompaniesincludedinthestructureoftheNationalCompany“KazMunayGas”,thecompanyVitolaswellastheReutersandArgusagenciestookpartindevelopmentofthemethodology.TheStateRevenuesCommitteebelievesthatthenoveltywillcontributetoincreasingoftaxrevenue,however,towhatextent,itishardtosaysofar.

• KazakhGovernmenthasdevelopeddraftamendmentstothelawonthestatebudgetfor2016-2018,whichwillintroducechangestocurrentbudget.“Averageannualoilpricewasraisedfrom$30to$35perbarrel.AverageannualUSdollarexchangerateremainedunchangedatKZT360perUSD1”,K.BishimbayevsaidattheGovernmentsession,presentingaproposedbudget.Oiloutputforecastwasrevisedupwardfrom74mlntonnesto75.5mlntonnesfor2016duetotheriseofaverageannualoilpriceandexpectedlaunchofKashagan”,theMinisterofNationalEconomyadded.

NewsFlash / 6 / September 2016

Distribution of proved natural gas reserves in 1995, 2005 and 2015

Other renewables consumption, 2015

Biofuels production, 2015

Source: BP Statistical Review of World Energy June 2016

Top 10 countries by hydroelectricity consumption, 2015

Top 10 natural gas reserves countries, 2015

Top 10 natural gas production countries* Top 10 natural gas consumption countries

*Excludes gas flared or recycled. Includes natural gas produced for Gas-to-Liquids transformation.

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