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2014-07-28 17:45:00

KMG WANTS TO TAKE

KMG WANTS TO TAKE

Kazakhstan's state-owned oil and gas company KazMunaiGas, or KMG, said Friday it has made a preliminary approach to take its listed exploration subsidiary private.

Such a deal would be a critical step toward the Kazakh government floating the entire company, a goal that Kazakh government leaders and senior KMG officials have stated repeatedly in recent years. KMG has a stake in the giant Kashagan oil field, which remains out of commission because of pipeline leaks despite more than $50 billion in spending. Western major oil companies including Exxon Mobil Corp., Royal Dutch Shell PLC, Eni SpA and Total SA also have stakes in Kashagan.

KMG said it is proposing to buy the 37% of KMG EP it doesn't already own for $18.50 a share. The offer represents a 15.1% premium to KMG EP's share price on July 21.

KMG officials have been hoping to reintegrate the exploration subsidiary for several years in an effort to simplify the parent company's balance sheet and operations in advance of a potential initial public offering, likely in London, people familiar with the matter said.

KMG EP produced around 250,000 barrels of oil a day last year, but its production has stagnated for years while the company's reserves base has shrunk since 2008.

"There are some substantial technical and economic advantages for doing this, and this deal stands on its own merits," a person close to the company said. "But the government...has spoken clearly about a potential flotation [of KMG] at some stage," the person said.

The government of the oil-rich Central Asian state long has signaled it is considering a potential float of KMG but has yet to give a timeline.

While members of KMG's board would like to take the state-owned company public, there are several obstacles. KMG shares would be a tough sell without Kashagan producing. It is also unclear when the Kazakh sovereign-wealth fund, which controls the company, would approve an initial public offering—and how comfortable Kazakh President Nursultan Nazarbayev would be ceding control over strategically important oil assets to investors.

Internally, KMG still is trying to transform itself from a Soviet-style bureaucracy to a company more like a western oil firm, two KMG officials said. It recently hired former BG Group PLC executive Chris Hopkinson as chief operating officer and aims to bring in other western oil executives to the upstream division.

wsj.com

Tags: KMG, EXXON, SHELL, ENI, TOTAL, KAZMUNAIGAZ, KAZAKHSTAN