Oil Industry In Kazakhstan Accounting Essay

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Executive Summary

Oil and Gas industry has been a key factor of Kazakhstan's economical success providing real GDP growth above 9 percent for the last 6 years. In order to maintain that growth and efficiency energy companies operating on the oil abundant kazakh soil needed to introduce an innovative technology that would meet customer requirements consistently, reduce manufacturing costs, and ensure fulfillment with quality and safety standards. The answer was the enterprise software -SAP ERP. Prior to the SAP ERP introduction for the chemical manufacturers there existed a huge gap between the enterprise and the plants. That disconnection prevented visibility into operations and created inefficiencies that made it difficult to adjust plans quickly in response to changes in customer orders and production mix.

Additionally, information latency caused poorly coordinated manufacturing activities, supplier and delivery delays, unnecessary setups, and inferior quality of products and services, all of which contributed to a decrease in corporate performance.

The integrated software from SAP helped streamline company-wide manufacturing processes - from planning and scheduling through execution to monitoring, analysis, and costing, also bridge that gap by connecting enterprises and plants.


Oil Industry in Kazakhstan

"Kazakhstan situated near the northeast portion of the Caspian Sea and has got Sea's well known oil fields. Kazakhstan's joint onshore and offshore proven hydrocarbon reserves have been estimated between 9 and 29 billion barrels. The country recently completed a reassessment of its oil reserves and estimates proven and probable oil reserve approximately 29 billion barrels. The assessment of Kazakhstan's oil reserves which took place in the 1990s was estimate of about 16 million barrels. Kazakhstan used to be one of the minor exporters during the 1990s, but it's not any more. Kazakhstan is on the edge of becoming one of the significant player in oil world markets over the next few years" According to the sources from aboutKazahstan.com (Source from official web site Of Republic of Kazakhstan, available at: http://aboutkazakhstan.com/Kazakhstan_Economy_Oil.shtml)

"Kazakhstan produced approximately 1.22 million barrels per day (bbl / d) of oil in 2004 and consumed only 224,000 bbl / d, resulting in net exports of almost 1 million bbl / d. Government of Kazakhstan expects to increase production levels to around 3.5 million bbl / d in 2015. This would include approximately 1 million bbl / d from Kashagan, 700,000 bbl / d from Tengiz, 600,000 bbl / d of Kurmangazy and 500,000 bbl / d from Karachaganak."

Between the years of 1999 and 2004, the oil production of Republic of Kazakhstan rose by 15 percent each year, resulting in almost doubling (approximately) of oil production. The latest information shows that first six months of 2005 showed a slower rate, 10 percent of output growth year-over-year. The slower pace of growth was due to government restrictions on associated gas flaring or to new restrictions on production sharing agreements . Oil production in Kazakhstan increased in recent years, which has been the result of an influx of foreign investment in the oil sector of Kazakhstan. Kazakhstan hopes that most of the growth coming from four massive fields as: Tengiz, Karachaganak, Kashagan and Kurmangazy. According to the sources from aboutKazahstan.com (Source from official web site Of Republic of Kazakhstan, available at: http://aboutkazakhstan.com/Kazakhstan_Economy_Oil.shtml)

The great number of Kazakh's oil is exported via pipeline through Russia and other neighboring countries. Good connection to the ports on the Black Sea and the Persian Gulf have allowed some Kazakhstan oil to be sold on the world market. There are a lots of efforts to be made in order to expand the oil exports from the country to the Eastern countries in the foreseeable future as oil production increases in Kazakhstan. (Glenn E. Curtis, ed. Kazakstan: A Country Study, available at: http://countrystudies.us/kazakstan/28.htm).

During independence in 1991, Kazakhstan has widened its oil sector to foreign companies in order to get more opportunities in investment and development experience. There are different types of international projects have formulate to the joint ventures with national oil company KazMunaiGas, as well as production sharing agreements and field exploration and concessions.

Karachaganak petroleum operation (KPO).

In the north -west part of Kazakhstan the place called Karachaganak which is one of the world's largest gas and condensate fields, Karachaganak Petroleum Operating (KPO) has been formed by BG Group, Eni, Chevron and Lukoil in order to expand the exploration of oil.

The Karachaganak field production began in 1984. Since the signing of the final Production Sharing Agreement (FPSA) in 1997, the partners of Karachaganak have made significant investments in wells, facilities and pipelines. Besides its size, Karachaganak presents operators with huge challenges due to extreme climate changes (+ / - 40 degrees Celsius) and the obligation to re-inject high-pressure sour gas.
(Source available at BG Group's web site: http://www.bg-group.com/OurBusiness/WhereWeOperate/Pages/Kazakhstan.aspx)

SAP ERP overview

The application which called the SAP ® ERP is the software foundation that large industries and medium sized companies have confidence to provide the best business acumen and allow operational excellence and innovation towards new technologies. By introducing this foundation, they can build the flexible business processes which is vital at the present - and in the future. SAP ERP is based on more than 35 years of experience with more than 43,000 customers worldwide. It provides powerful functionality, global orientation and flexible options for improvement package which companies need to obtain a sustainable competitive advantage and profitable growth position. Simultaneously, it supports automated, end-to-end processes which are needed to transcend organizational barriers and extend business processes to partners, suppliers and customers. (Envision, Empowering Enterprise: http://www.envisionesl.com/products/sap_erp.html)

For the great number of organizations, driving profitable growth in the business climate today is not easy. They face the global competition, consolidation in the market, talent shortage, compliance requirements, increased customer and shareholder expectations, and demands for greater profitability. Constant changes in the industries only compound these challenges. To meet these challenges, should be able to respond and transform your business quickly, profitably, without sacrificing profitability, transparency, or internal control. Companies need IT to be flexible, robust and secure. Solutions for enterprise resource planning (ERP) play a vital role in ensuring business success. With the right ERP software, an Enterprise business can boost performance while it is:

  • Easier to manage complex corporate structure, marketing channels and business scenarios

  • Streamline business processes and operations

  • Optimize valuable resources of businesses and assets

  • Accelerate time to market and time to value

  • Provide individualized products and services to existing and emerging markets

  • Improve employee and customer service and satisfaction in all aspects of business

The main reasons invoking the need for a new technology.

Despite a total financial growth KPO partners experienced shortfalls in companies' performance and output rates. The unsynchronized business processes and inadequate use of resources led them to operational inefficiencies, including increasing risk of missing delivery targets and running operations at excessive costs. The disconnected systems between operational units caused extremely high volume of the duplicated data, invisibility in manufacturing activities and confusion among management, plant and procurement staff over supply and delivery. Additionally, the disconnection between the top-floor and shop-floor in real time were the main factors in the infeasible production schedules, wasteful activities, and excessive inventories - all of which contributed to higher operating and inventory costs. In the light of the heightened carbon dioxide pollution in the Karachaganak area chemical companies were bound to comply with quality and safety standards, it required companies to use a new technology that could reduce greenhouse emissions. The executives of the KPO companies faced the following issues:

  • Detached manufactured processes and systems

  • Insufficiency of visible manufacture operations

  • Operational ineffectiveness from the management

  • Not enough controls to fulfill with quality and safety standards

Thanks to the integrated software and world-class services from SAP, they have found a solution to meet these challenges.

Change Readiness Assessment

The KPO management decided to conduct a change readiness assessment in order to diagnose employee willingness to accept the new SAP ERP software. The questionnaire comprised the 13 different questions. The majority of the employees expressed an enthusiasm and positive attitude to the questions and the SAP ERP software in general.

According to the survey the staff under supervision remained innovative, independent, sometimes conservative and resistant, but excluding the possibility of being apathetic. More than half of the employees agreed to consider SAP implementation as a benefit to the organization, which would lead to the consistent, efficient and robust manufacturing processes; however there was an employee's fear over using the SAP software due to a lack of their knowledge and expertise. In overall, the Change readiness assessment indicated the positive understanding from the workers towards the introduction and importance of the integrated system for the better corporate performance and productivity. Some technical issues concerning the employee operations were on the agenda, nevertheless, could be eliminated through the adequate training and efforts. The company team demonstrated the right perception and readiness for the crucial change within the organization.

Corporate benefits from using the SAP ERP

After the successful implementation of the SAP ERP software it took a certain amount of time and staff training in order to adjust and effectively use the new integrated system. The KPO management benefited from utilizing the SAP products throughout the company.

In the finance department the SAP ERP system automatized labor-intensive transaction. Having freed the skilled finance professionals from routine activities enabled them to concentrate on the organizational issues. They identified the following tangible and intangible advantages from using the SAP ERP:

  • Time and efficiency savings

  • More effective business controls

  • More accurate/timely management information

  • Better recovery of costs from JV partners

  • Less reliance on out of date technology

  • Powerful analytical/reporting capability

  • Less duplication/reconciliation

The SAP ERP also helped the HR managers align staff development to the organizational requirements, get easier access to the data, reduce the cost of recruitment and duplicate data .It allowed the HR department to be more proactive in the hiring process of bright and talented employees prior to their shortages in the organization.

By having streamlined the entire manufacturing process the SAP ERP provided the Product Development and Manufacturing department the following benefits:

  • Improved cost control through the integrated management of key business processes across the organization

  • Improved operational efficiency by extending the reach of business processes throughout and beyond the enterprise

  • Accelerated response to market changes and competitive challenges


Global competition, more demanding customers, and the need to overcome shortfalls in performance and output rates- these forces were driving the KPO partners to deliver higher-quality services and maintain an impressive growth. Unfortunately, the unsynchronized business processes and inadequate use of resources were a hindrance on their way to further success and prosperity. The KPO partners faced issues to meet customer satisfaction, reduce manufacturing costs and ensure quality and safety standards. Based on the scrupulous analysis the KPO executives chose to use the world-known products and services from the SAP company.

The SAP ERP fully integrated software fulfilled the KPO core business needs across all the enterprise departments.

It helped the company perform effectively and transparently its financial, human capital management, procurement and logistics, product development and manufacturing, and sales and services. Despite the initial difficulties in the implementation and learning of the SAP ERP software by the team, in overall, the investment in the introduction of the new system has proven worthwhile.


  1. AboutKazakhstan.com (2006), [WWW], Kazakhstan oil industry facts. Available from: http://aboutkazakhstan.com/Kazakhstan_Economy_Oil.shtml.

  2. BG Group plc. (2010), [WWW]. The article about: "Karachaganak Petroleum Operation". Available from: http://www.bg-group.com/OurBusiness/WhereWeOperate/Pages/Kazakhstan.aspx

  3. David Nowak, Quentin Hurst (2000), Configuring SAP R/3 FI/CO: The Essential Resource for Configuring the Financial and Controlling Modules, Sybex Inc.

  4. Envision Empowering Enterprise, [WWW]. Software- "SAP ERP Application." Available from: http://www.envisionesl.com/products/sap_erp.html.

  5. Glenn E. Curtis, ed. Kazakstan: A Country Study. Washington: GPO for the Library of Congress, 1996. [WWW], Available from: http://countrystudies.us/kazakstan/.

  6. Glynn C. Williams (2008), "Implementing SAP ERP Sales & Distribution" Published by The Mc Graw-Hill Companies.

  7. Nasdaq, Business Software Finder, [WWW]: "SAP ERP Financials", Available from: http://software.nasdaq.com/accounting-software/spotlight/360/SAP%20ERP%20Financials/SAP?id=29635649

  8. KPO, Karachaganak Petroleum Operation B.V. (2001), [WWW]. "History of the corporate". Available from: http://www.kpo.kz/cgi-bin/index.cgi

  9. SAP - USA: "Business Management Software Solutions Applications and Services" [WWW]. Available from: http://www.sap.com/index.epx