Kazakhstan's KMG Axes Spending

Kazakhstan's state-owned KazMunayGas (KMG) has cut capital spending for 2020 by 15% yr/yr to about tenge 480bn ($1.18bn) in response to the oil price collapse and the Covid-19 pandemic, the national oil company said on June 1. It has also reduced operational expenditures by tenge 40bn.

KMG accounts for 26% of the annual production of oil and condensate in Kazakhstan, which totalled 90.5mn mt last year, as well as 15% of its gas output. The company suffered a 21% yr/yr decline in revenues in the first quarter to tenge 1.4 trillion, while its net profits slumped by two thirds to tenge 100bn. Given the oil price collapse began only in March, its second-quarter numbers are likely to be even weaker.

KMG is 90%-owned by Kazakhstan's sovereign wealth fund Samruk-Kazyna and 10% by its central bank.

Both Kazakhstan's budget and economy are heavily dependent on oil revenues. According to the IMF, the Central Asian state's GDP is expected to shrink 2.5% in 2020, driven by a 5.2% decline in oil-sector GDP. The bank estimates that for the government needs an average oil price of at least $88.5/b to balance its budget.

Kazakhstan's gross government debt is expected to increase from 20.2% of GDP in 2019 to 23.1% of GDP in the current year.

Besides its impact on oil prices, the Covid-19 pandemic has also disrupted oilfield operations in Kazakhstan. The government said last week that a quarantine had been imposed at the country's biggest source of gas, the Karachaganak field, after a case of Covid-19 was confirmed.  Health authorities have also warned that Kazakhstan's biggest oilfield Tengiz might suspend operations if efforts to combat the virus at the site fail.

Kazakhstan has confirmed 11,308 Covid-19 cases with 41 deaths.