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NCOCSustainability Report 2018
Page Content

MESSAGE FROM THE MANAGING DIRECTOR

Our first Sustainability Report issued to the public in 2016 was an important step in reflecting our fundamental commitment to balance short– and long-term interests and integrate environmental and social considerations into our decision-making. As the new Managing Director of NCOC, I will continue this drive to report with complete transparency the annual performance in a broad range of areas including production, social-economic performance, and environmental stewardship.

This report illustrates some of the ways we have proven our commitment to sustainability in 2018. The year 2018 was one of steady, reliable production, and low flaring. It was a year of milestones, such as 25th Anniversary of the North Caspian Project, which was celebrated with local communities in Atyrau and Mangystau Oblasts in August. It was a year of steady, continuous improvement in environment protection, in efficiency of energy and water use, in increasing Kazakhstani content, and in reaching out to the local community.

This year did see a dramatic surge forward in the most important area, safety. You may have noticed the logo “2018 – A record year for safety” on many pages of this year’s Report. It is in recognition of the fact that for over 200 consecutive days in 2018 there were no lost-time incidents anywhere in our project. Our overall lost-time injury rate also set a new record low for the North Caspian project. This is an important achievement of all men and women of NCOC, who are looking out for one another and never lose focus on their objective. Zero is our Goal, and for over 200 days in 2018, NCOC proved as a team it can be done.

As the year closed, we were pleased that NCOC was awarded the Golden Prize at the national Paryz competition for the most socially responsible company of 2018 in Kazakhstan. This was a great honour and recognition of our contribution into social development of the regions. We are proud to invest almost 640 million US dollars into social projects over the last 20 years that improved the wellbeing of local communities.

Richard Howe Managing Director NCOC
Richard Howe
NCOC Managing Director

Moreover, NCOC ranked fourth among 19 large oil and gas companies in the Environmental Responsibility Rating organized by Russia’s World Wildlife Fund in partnership with United Nations Environment Program-Central Asia and with support of the RoK Ministry of Energy. This is the first year NCOC was included in this rating of Kazakhstani companies in three areas: environmental management, environmental impact, and transparency.

Our commitment to sustainability, both in environment and society, will remain at the core of all our business activities. We will continue to deliver on our commitment to provide transparent and comprehensive information to our stakeholders.

Sincerely,
Richard Howe
Managing Director, NCOC

Richard Howe signature

1. ABOUT THE NORTH CASPIAN PROJECT

1.1. PROJECT DESCRIPTION

The North Caspian Project is the first major offshore oil and gas development in Kazakhstan. It covers five fields: Kashagan, Kalamkas-Sea, Kairan, Aktote, and Kashagan South West.

The giant Kashagan field ranks as one of the largest oil discoveries of the past five decades, with approximately 9-13 billion barrels (1-2 billion tonnes) of recoverable oil. The Kashagan reservoir lays 80 km offshore the city of Atyrau in 3-4 meters of water, and more than 4 km deep (4200 meters).

THE COMBINED SAFETY, ENGINEERING AND LOGISTICS CHALLENGES IN A HARSH OFFSHORE ENVIRONMENT MAKE KASHAGAN PHASE 1 ONE OF THE LARGEST AND MOST COMPLEX INDUSTRIAL PROJECTS EVER DEVELOPED.

Sour Gas Reinjection

The fluid being produced from Kashagan is a mix of hydrocarbons: light, gaseous components such as methane, ethane, carbon dioxide, and hydrogen sulfide, and heavier petroleum components. Kashagan as a


NCSPSA CONTRACT AREA
NCSPSA CONTRACT AREA

reservoir is characterized by high pressure (more than 700 bar), and a high concentration of hydrogen sulfide (H2S), making the gas “sour.” Sour gas is treated to remove the H2S, and this process produces elemental sulfur. The amount of oil we can produce is limited by the amount of sour gas we can process.

A positive feature at Kashagan is that sour gas at these high pressures, when re-injected, can actually enhance oil recovery. Thus sour gas re-injection is an optimal solution from both an environmental and production standpoint, allowing us to increase Kashagan’s oil recovery ratio while minimizing sulfur production. The light, gaseous components are separated from the heavier oil offshore on D-Island and about half of it may be re-injected under high pressure back into the reservoir, into the same rock formation from which it is produced. The remainder of

More Information

the gas is sent to the Bolashak Onshore Processing Facility where hydrogen sulfide is removed from the “sour” gas. Some of the processed, or “sweetened,” gas is used for onshore and offshore power generation, and some is marketed as Sales Gas.

Future Projects

Kashagan Phase 1 is the first development in the North Caspian Sea PSA license area, costing about US$55 billion. Commercial production began in 2016.

NCOC is working to progress the development of the Kalamkas-Sea field and has completed a major concept selection study. The preferred concept is a cooperative development of Kalamkas-Sea field and Caspi Meruerty Operating Company nearby Khazar field. Together these

KASHAGAN DEVELOPMENT CONCEPT
KASHAGAN DEVELOPMENT CONCEPT

two fields have recoverable reserves of 70 million tonnes (500 million barrels) of oil. This cooperative development maximizes synergies and contributes to the economic viability of both the Kalamkas and Kazhar Projects. Early engineering is underway, and NCOC intends to submit a proposed plan of development in mid-2019.

NCOC has studied multiple development scenarios for Aktote and Kairan. As with other sour resources, standalone development will be challenging in the current cost and oil price environment. Synergistic development of Aktote and Kairan could enhance the development of Kashagan future phases. However, more time is needed to better understand Kashagan base performance and use that knowledge to improve development plans. In 2018 the RoK Government granted NCOC a fiveyear extension until end of 2022 to further study the options

1.2. 2018 ACTIVITIES

In 2018, oil production safely reached actual levels of 343,000 barrels per day. Driven by the successful ramp-up of raw gas reinjection, a total of 13.22 million tonnes of oil were produced, 60%

higher than the previous year. Overall production reliability remains high and has continued to exceed expectations, allowing NCOC to keep flaring to a minimum. From the start of production at Kashagan in 2016 to year-end 2018, NCOC has safely produced a total of 22.5 million tonnes of stabilized oil from the Kashagan field.

NCOC reached a milestone on November 8, 2018: 1 million tonnes of sulfur exported, roughly a year from the day the first train cars left the newly commissioned sulfur export facility on October 28, 2017. Most of the sulfur is delivered to the European Sulphur Terminal at Ust Luga near St. Petersburg, with about one in six of the trains going to Port Kavkaz on the Black Sea. Most Kashagan sulfur is headed for the Nor th African fertilizer market, with significant quantities also being sold to Turkey, Brazil and the USA, and some cargoes even reported going to South Africa and China. With the growth in volumes, Kashagan sulfur has now become an important player in the global sulfur market.

Near-Term Outlook

In accordance with regulations, NCOC plans a turnaround of its Bolashak plant and D-Island for about 45 days in April-May 2019. A turnaround is a complete shutdown of operations for a short period of time every two to three years to conduct technical inspection and scheduled maintenance of equipment.

The Operator is on track to reach full design capacity of 370,000 barrels per day in 2019. NCOC is now assessing options and carr ying out early engineering on projects to increase production capacity at the Kashagan field step by step beyond this.

CRUDE OIL EXPORT ROUTES
CRUDE OIL EXPORT ROUTES
1.3. EXPORT OPTIONS

Since mid-November 2017 all oil has been exported via the Caspian Pipeline Consortium’s newly-expanded Atyrau-Novorossiysk pipeline.

Before that time, some volumes have been also exported northbound through Atyrau-Samara (connection to Russian Transneft system).

There is also other eastbound route via Atyrau- Alashankou pipeline, not currently used for transporting Kashagan volumes.

Sales gas is shipped through a dedicated pipeline to Makat and then onward via KazTransGas infrastructure. Sulfur is being shipped by rail.

Each shareholder is independently responsible for transporting and marketing its own share of production.

1.4. NCOC GOVERNANCE AND MANAGEMENT SYSTEMS

The North Caspian Project is developed under the North Caspian Sea Production Sharing Agreement, signed by the Republic of Kazakhstan and an international consortium of major oil and gas companies in 1997.

Today, more than twenty years later, that consortium includes seven of the world’s largest and most experienced energy companies: KMG, Eni, ExxonMobil, Shell, Total, CNPC and Inpex. Each shareholder is independently responsible for transporting and marketing its own share of production, and for reporting and sharing that production with the government according to the NCSPSA.

The Project is managed by an Operator, acting on behalf of the shareholders. Prior to 2015, the North

SHAREHOLDERS

Caspian Project was operated under a model in which the Operator delegated certain development and production activities to four “agent” companies. In late 2014 the shareholders agreed to further integrate and consolidate management with the creation of unified Operator North Caspian Operating Company N.V. (NCOC)1. The top executive officer of NCOC is the Managing Director.

To ensure company systems and processes meet the highest international standards, NCOC holds the following certifications:

  • OHSAS 18001:2015 (Occupational Health and Safety Assessment Series)
  • ISO 14001:2015 (Environmental Management Systems)
  • ISO 9001:2015 (Quality Management Systems)

The external verification for these awards requires NCOC to regularly demonstrate not only compliance, but also continuous improvement in its management systems.


1 Here and elsewhere in this document the abbreviation NCOC refers only to North Caspian Operating Company N.V. The term Operator may refer to NCOC, or to any of the previous Operators under the NCSPSA, as appropriate in context.

2 . NCOC PERFORMANCE DATA

NCOC PERFORMANCE DATA
NCOC PERFORMANCE DATA

2 API RP 754 is American Petroleum Institute Recommended Practice 754, which classifies process safety indicators for the petrochemical and refining industry into four tiers. Tiers 1 and 2 are considered suitable for public reporting. See www.api.org.

3 The Global Warming Potential multipliers used to calculate CO2 equivalence are 21 for CH4 and 310 for N2O, using 100-year time horizons, based on RoK Ministry of Environmental Protection Order № 280-e(p) of 5 Nov 2010 “Об утверждении отдельных методик по расчету выбросов парниковых газов.” Emissions are calculated at the facility level based on approved methodologies and requirements established by the RoK Environmental Code and applicable regulation, and consistent with the 2006 IPCC Guidelines for National Greenhouse Gas Inventories.

4 At the time this report goes to press, NCOC has not yet received third-party verification of the underlying data presented here for Direct Greenhouse Gas Emissions, as is required by law prior to their submission to the RoK Ministry of Energy by 1 April each year. Therefore these numbers must be considered preliminary and subject to change.

5 Calculated from indirect electricity consumption using a demand-side emission factor of 0.998 tCO2/MWh for Kazakhstan grid (combined margin) in 2017, per “Методика расчёта коэффициента выбросов для электроэнергетических систем,” Kazakh Scientific Research Institute of Ecology and Climate of RoK Ministry of Environment (2012), based on the EBRD methodology in the Appendix (Lahmeyer International, 2012), available from the Kazenergy GHG standards website.

6 The normalization factor for intensity figures in 2018 is 18.55 million tonnes oil equivalent (TOE). This is calculated from the total wellhead production of crude oil, dry gas and natural gas liquids (including flared gas and gas used for fuel but excluding gas reinjected into the reservoir) in TOE, according to “Recommended normalization factors for environmental performance data” in 3rd edition (2015) of IPIECA “Oil and Gas Industry Guidance on Voluntary Sustainability Reporting,” p.37. Physical tonnes of crude oil are converted to TOE by multiplying 1.018 TOE/tonne oil. Physical volumes of associated gas are converted to TOE by multiplying 0.932 TOE/000 Sm3. The conversion factors are specified in Appendix 2 of the Order of the Chairman of the Statistics Committee of the RoK Ministry of National Economy № 160 of 11 August 2016 “Методики по формированию топливно-энергетического баланса и расчету отдельных статистических показателей, характеризующих отрасль энергетики.”

7 1 megawatt-hour (MWh) = 3.6 gigajoules (GJ).

8 Standard cubic meter at 20°С and pressure 1 atm. The format for reporting amounts flared is established in RoK Government Decree № 1104 of 16 October 2014.

9 Updated from 2017 report of 608 tonnes to include emissions from evaporation ponds.

10 Employees of NCOC N.V. only. “Management” corresponds to NCSPSA categories 1 and 2, “technical and engineering” to NCSPSA categories 3 and 4, and “worker and support” to NCSPSA category 5.

11 Local goods, works and services are defined per the Unified Methodology on local content calculations, defined in the 2010 RoK Law “On Subsurface and Subsurface Use.” See Link to Subsoil Act definitions of local content used by NCOC.

3. REPORT STRUCTURE

Narrative reports on NCOC performance are divided into six key aspects of sustainability, as shown graphically below. This manifests our concept of sustainability as the integration of economic, social and environmental concerns. Each of the aspects has narrative descriptions, putting results in context with explanation, and

occasionally providing a case study to illustrate progress toward goals. The topics covered are determined by “common” reporting requirements of the IPIECA guidelines (3rd ed., 2015) and our analysis of issue materiality. See the section “Reporting Process” for more detail.

SUSTAINABLE DEVELOPMENT GOALS
3.1. SUSTAINABLE DEVELOPMENT GOALS

On September 25, 2015, the United Nations General Assembly adopted the 2030 Agenda for Sustainable Development, including 17 Sustainable Development Goals (SDGs) aimed at addressing some of the world’s pressing economic, social and environmental challenges.

UN member states are expected to use the SDGs to frame their development plans, and there is recognition that businesses like NCOC will also play a role in achieving them. In this report, we highlight some of the ways we hope to contribute to achieving SDGs in Kazakhstan by denoting certain sections with an appropriate logo, according to the legend below.

SUSTAINABLE DEVELOPMENT GOALS

4. SOCIO-ENVIRONMENT

4.1. HEALTH AND SAFETY

HEALTH AND SAFETY IS A CORE VALUE AT NCOC.

Policies, plans and programmes

It is an NCOC core value that every worker must return home to family and friends uninjured, fit and healthy. NCOC speaks of this as “Goal Zero,” meaning it is the most fundamental objective underpinning all business and environmental results, and that our goal is zero incidents. NCOC’s performance is already equal or better than industry average, and in addition, NCOC sets an annual improvement objective that each year should be the best ever safety performance for our Project.

For 241 consecutive days in 2018, there were no lost-time incidents anywhere in our Project.

In recognition, this Report bears a logo “2018 – A record year for safety” on its pages.

Safety performance is measured by the Total Recordable Injury Rate (TRIR), the total number of injuries sustained per million man-hours worked, and by the Lost Time Injury Frequency (LTIF), the number of cases of injury or illness that cause the worker to stay off the job for a time, per million man-hours. In 2018, the number of man-hours worked was 22.5 million. Although the man-hours were almost the same as the previous year, we achieved more than 50% decrease in our LTI rate from 0.32 in 2017 to 0.09 in 2018, and more

2018 results
2018 results
2018 results

In 2018 we reaffirmed our commitment towards Goal Zero so that all those working for NCOC can go home safe, every day. It is with this Goal Zero mindset that we are proud to report that NCOC completed the year with its best annual result in safety performance to date.


than 25% reduction in our Recordable Injury Rate from 0.60 in 2017 to 0.44 in 2018.

Incident Learnings in 2018

In 2018 we continued to thoroughly investigate incidents, improving the visibility of High Potentials

WORLD SAFETY DAY IN NCOC

On 28 April 2018 NCOC marked World Safety Day, an annual international campaign to promote healthy and safe working practices. Two hundred people took part in the “HSSE Talk” event conducted by the HSSE Culture and Communication Team, at which senior management shared their own personal stories related to safety. The event brought all NCOC personnel together by video links from Aktau, Bautino, Astana and offshore islands

A moment of silence was observed for all those around the world who have lost their lives on the job, as a reminder of the importance of occupational health safety.

WORLD SAFETY DAY IN NCOC
TRIR & LTIF GRAPH
TRIR & LTIF GRAPH

in our internal reporting and reviews. By highlighting the learnings, we focus attention on reducing the occurrence of incidents that have the potential to cause a fatality, and we embed the improvements in the way we operate.

One of the accomplishments of the year was introducing strategic focus areas which we call “Goal Zero Must Wins”. These focus areas include Behavior Based Safety, Process Safety, Contractor HSSE Management and Embedding Learning from Incidents, all underpinned by Safety Leadership. These areas were presented in the beginning of 2018 and already have contributed to a significant improvement of our Personnel Safety and Process Safety performance alike.

4.2. PROCESS SAFETY AND ASSET INTEGRITY

Management of Process Safety involves keeping our oil, gas and process chemicals inside the production facility plant and equipment so they do not cause harm to people, asset damage or environment impact.

To achieve our Company vision of being “recognized in Kazakhstan and internationally for its safety performance”, all our production facilities are designed and constructed in accordance with bestpractice industry standards.

We implement Company processes and procedures to prevent the release of hazardous materials, and reduce the consequences of releases should they happen. Staff undergoes training and competency development so they are able to manage and operate our facilities safely.

We have personnel and equipment in place to deal with leaks, and any resulting consequences, including fires and explosions, toxic gas release and spills to the environment. All our emergency response plans are routinely tested with drills and exercises.

Process Safety audits, inspections and reviews are used to improve the implementation and effectiveness of our management systems. We investigate if a release of hazardous material occurs, and use the learnings to improve our processes and procedures.

API RP 754 TIER 1 AND TIER 2 INCIDENTS 2017-2018
API RP 754 TIER 1 AND TIER 2 INCIDENTS 2017-2018

A Process Safety incident is an unplanned or uncontrolled release of material from process containment. We measure and report Process Safety incidents according to industry standard API RP 754. This includes a measure of the consequence of the incidents, with Tier 1 being the most significant. In addition we monitor Process Safety Key Performance Indicators relating to Demands on Safety Systems (Tier 3), and Management System Performance (Tier 4) and implement corrective actions as needed.

During 2018, we recorded zero (0) Tier 1 events and two (2) Tier 2 events. This is a sharp decline from the three (3) Tier 1 and 11 Tier 2 incidents which occurred in 2017, our first full year of production operations.

Both incidents in 2018 were associated with releases of sour gas near valves in excess of API RP 754 thresholds. While there were no associated releases outside of the fencelines or harm to personnel, the releases represent an opportunity to improve existing barriers to prevent recurrence via our incident investigation and learning process. Such incidents allow us to drill our plant staff, as even a relatively minor and local Tier 2 release may result in a shutdown of the plant and muster of personnel as a conservative safety measure.

Таза су
4.3. FRESH WATER

NCOC IS COMMITTED TO MAXIMIZE CONSERVATION OF FRESH WATER.

Water Risk

NCOC onshore operations are located in an area identified by the WRI Aqueduct Water Risk Atlas (2014) as medium to high risk exposure for oil and gas operations.

Performance

The total volume of fresh water consumed in NCOC operations in 2018 was 1000 millions m3. The total volume of fresh water withdrawn in 2018 was 964,000 m3, down from last year as a result of increasing water recycling. Since production grew at the same time by 60%, the amount of fresh water consumed per unit of production in 2018 was 52 tonnes of water per thousand oil-equivalent tonnes, nearly twice less than in 2017.

NCOC obtains most of its water on a contractual basis from the Astrakhan-Mangyshlak pipeline, which is sourced from the Volga river basin; other sources are municipal and bottled water. Water is used at the Bolashak Onshore Processing Plant for producing steam for processes and in the camps for household use.

Offshore facilities also need fresh water: in 2018 about 36,000 m³ was produced from desalination units offshore. This replaced fresh water that would otherwise be sourced from onshore.

Policies, plans and programmes

We consider it our responsibility to other water users in this area to use our portion of the fresh water supply efficiently and sustainably. The used water is treated and discharged to lined evaporation ponds within the Sanitary Protection Zone. It does not come in contact with groundwater or soil. It evaporates and is not returned to the local watershed. Since there is no return flow, the only way to share more water with other users in this watershed is to reduce the amount of fresh water we withdraw. Multiple re-use (recycling) of the water is the best way to accomplish this.

In 2018 NCOC treated and recycled about 66,000 m² of water from household use onshore for greenbelt irrigation and for dust suppression purposes. We also recycle water for domestic use offshore. By far the greatest impact may be had through recycling of the water used in technical processes. As reported last year, NCOC halved the total amount of water withdrawn by Bolashak OPF from the Astakhan-Mangyshlak pipeline by recycling water from the Tail Gas Treatment Unit. In 2018, NCOC continued to pursue plans for additional wastewater treatment. Upon completion, expected in 2021, the new facilities will further reduce water intake up to 70% and enhance the quality of water discharged into evaporation ponds.


4.4 GREENHOUSE GAS EMISSIONS

NCOC IS COMMITTED TO REDUCE ITS GHG EMISSIONS TO THE LOWEST LEVEL COMPATIBLE WITH OPERATIONAL CONSTRAINTS AND SAFETY. WE BELIEVE THE MOST EFFECTIVE WAY TO ACHIEVE THAT IS A COMBINATION OF HIGH OPERATIONAL RELIABILITY, AND CONTINUAL IMPROVEMENT IN THE EFFICIENCY OF OUR ENERGY USAGE.

In 2018, the RoK Government re-started a GHG emissions trading system. NCOC received a quota of 13.6 million tonnes of CO2 to be emitted according to approved a National Plan for 2018-2020, in 2018 NCOC used about 23% of allowed quota.

Total direct Greenhouse Gas (GHG) emissions from NCOC operations in 2018 totaled 3,333 thousand metric tonnes CO2-equivalent, including 3,158 thousand tonnes of carbon dioxide (CO2), 167 thousand CO2-equivalent tonnes of methane (CH4), and 8 thousand CO2-equivalent tonnes of nitrous oxide (N2O). This total includes mobile and stationary sources.

There are almost no changes in the absolute values of emissions since 2017; however there is 2.5 times decrease in flaring emissions intensity in the context of 1.5-fold increase in production.

NCOC production facilities are self-sufficient in electricity, heat and steam. Indirect emissions arise from purchased power for support facilities such as Bautino Base and Atyrau Training Center. Total indirect GHG emissions from NCOC operations in 2018 totaled 10,000 metric tonnes CO2-equivalent, all carbon dioxide.

Normalized greenhouse gas intensity (the proportion of greenhouse gases emitted per unit of production) in 2018 was 180 CO2- equivalent tonnes per 1000 equivalent tonnes of oil produced. Comparison to other projects is difficult, due to methodological and baseline differences. But it is a general rule that an offshore “sour” oil project still in the commissioning phase, such as the North Caspian Project, may be expected to have higher specific GHG emission than less energy-intensive onshore or “sweet” oil projects in steady-state. This intensity number is best used by stakeholders to compare NCOC’s own performance from year to year.

There are various approaches to estimating Other Indirect (“Scope 3”) emissions. NCOC will report volumes of produced oil and gas to enable stakeholders to estimate these emissions from the NCOC value chain using their preferred methodology.

5. ENVIRONMENTAL STEWARDSHIP

5.1. POLICIES AND PROGRAMMES
Policies

NCOC is committed to developing a world-class project that is designed and operated in a manner protective of the unique, sensitive environment of the North Caspian Sea. We conduct our operations responsibly and in full compliance with the laws of the Republic of Kazakhstan, and in line with accepted international regulations, standards, and best practices. Contractors and suppliers are obligated by their contracts with NCOC to adhere to our Health, Safety and Environmental policies in all aspects of their work with us.

Our approach is one of risk management. Conceptually, that means identifying and understanding the risks of any action and its potential impacts; taking steps to minimize that risk or mitigate its impacts down to acceptable levels; and continually re-checking the risks and improving the measures to address them.

Programmes

Important environmental compliance and protection programmes include Environmental Impact Assessments, baseline studies and monitoring, and environmental sensitivity mapping.

Availability

NCOC shares the conclusions of its environmental monitoring in many forms: peer-reviewed academic publications, reports, public hearings, EIAs, presentations at public and industry forums, the NCOC website, media articles and company brochures.

NCOC provides the environmental monitoring data it collects directly to the government agencies responsible for environmental protection, per terms of the North Caspian PSA. These agencies ensure that the public is appropriately informed. For example, the Department of Ecological Monitoring of RGP Kazhydromet (RoK Ministry of Energy) publishes monthly, quarterly and annual reports on the state of the environment that include an appendix of analyzed data from NCOC air quality monitoring stations (AQMS) in Atyrau region.

Environmental Protection Plans

NCOC’s environmental protection activities are guided by an Environmental Protection Plan that is approved annually by state environmental regulatory agencies. The type of projects included in the annual EPP: environmental surveys and monitoring of air, water, soil, and biodiversity;

UPDATE ON GREEN SHELTER BELTS

“Green Shelter Belt” is a project approved by the Atyrau Oblast Department for Natural Resources and Nature Use Regulation to plant trees and shrubs around the Bolashak plant as emission-absorbing buffers.

Experience shows that few trees survive conventional “open” planting in the highly s aline soil and scarce groundwater around the plant. So in the fir st phase of the project between Samal Camp and the plant, 4,000 trees were planted in 2018 in 19 modules, each c onsisting of six 180-meter PVC-insulated trenches filled with imported soil. Each module has its o wn drip irrigation system, which delivers recycled wastewater directly to the roots. Seedlings with closed root system were supplied by local tree nurseries: common ash, Siberian pea-tree, large-leaved elm, and Caspian willow. Tree survival performance has now reached about 70%.

solid and liquid waste management; oil spill response; green spaces; and environmental education. Reports on implementation of the EPP are submitted to the government quarterly.

Environmental Support Team

Environmental specialists are embedded with the Operations departments onshore, offshore, and at Bautino Marine Suppor t Base to verify and consult on compliance with environmental laws and regulations. The Teams conduct daily inspections (announced, as well as unannounced), do “toolbox talks,” and help with the environmental aspects of managing process changes, incident response, emission permits, monitoring, and reporting.

5.2. BIODIVERSITY OF THE CASPIAN ECOSYSTEM

The Caspian Sea as an ecosystem has a high percentage of rare and endemic species found nowhere else. Protection and preservation of this area’s unique biodiversity is a top sustainability objective.

Policy, plans and programmes

Four marine environmental surveys (one at each season of the year) and two onshore surveys are carried out each year. These covered wildlife and plant life, bottom organisms, soil and air quality, in order to better understand species distribution and population dynamics

of Caspian biota. Over 200 such environmental and wildlife surveys have been conducted since the star t of the Project.

In view of the environmental sensitivity of the North Caspian Sea and Ural River delta, the North Caspian Project was allowed to proceed in 1993 as a result of a government decision, based on special ecological requirements developed by a group of Kazakhstan scientists and experts. The decision established new protected areas along the coast, and recommended seasonal restrictions on operations that NCOC follows in order to allow for migration, feeding and breeding patterns of commercial fish species, birds, and seals. The protected areas have been expanded over the years: in 2012, as a result of a publicprivate initiative with NCOC shareholder Eni, the Ak Zhaiyk State Nature Reserve was designated a UNESCO Man & Biosphere Reserve.

Hunting and fishing is prohibited at all NCOC facilities, with exception of scientific fish catches during Company environmental survey activities.

NCOC has developed special Biodiversity Action Plans for all stages of engineering and construction in both onshore and offshore environments. Some programmes are described below for key indicator species. (More detailed information may be found this year in the new NCOC brochure “Environmental Surveys and Initiatives.”)


NCOC UPDATES THE PUBLIC ON RESULTS OF CASPIAN SEA
                ENVIRONMENTAL SURVEYS
Caspian Seal

As we have done every year since 2005, NCOC conducted a seal sur vey in 2018, using Kazakhstani experts with oversight by scientific institutes. The 2018 seal sur vey began on January 26 and lasted till March 8. At various times eleven seal monitoring volunteers from NCOC were on board of ice-breaking vessels, helping the seal experts to cover the route between Bautino Base and the Kashagan field area on the icebreakers Mangystau-3 and Tulpar.

In addition to gathering scientific data, onboard observers help the ship captains avoid seals, in compliance with the mitigation recommendations

Caspian Seal

developed at the star t of the project by marine mammal exper ts. This is complemented with helicopter reconnaissance flights over seal accumulation areas. The reconnaissance results are reported directly to the icebreaker, where captains and seal observers select the safest navigation route to protect the animals. Thermal imaging cameras have been mounted in recent years on all icebreakers used by NCOC. These cameras enable observers to “see” seals day or night, in blizzar d or fog, at a distance hundreds of meters from the vessel, which allows detouring around the seal nursery areas in advance.

The observer teams were accompanied by inspectors from the Atyrau Oblast Department of Ecology and the Oblast Territorial Forestry and Wildlife Inspectorate.

Fish

Catch assessment surveys are regularly performed in offshore project areas in spring, summer and autumn. Tissue samples from sedentary indicator fish species (goby) are randomly tested for hydrocarbons and heavy metals.

Sturgeon is the most valuable fish in the Caspian Sea. It is now endangered, with Caspian states agreeing in 2014 to prohibit commercial fishing in order to restore the populations. The Operator supported the commissioning of a sturgeon hatchery on the Ural River delta in 1998, at the very beginning of our project, and has continued to fund studies and contribute to hatchery upgrade projects over the years. In 2018, NCOC financed capital improvements for water supply to the Ural-Atyrau Sturgeon Hatchery, and sponsored their specialists to attend IV Scientific Conference on sturgeon population protection and reproduction held in Kazan, Russia.

Also in 2018, NCOC completed a three-year offset programme of the fish damage compensation measures to release more than 700,000 “fry” ( juvenile fish), with the aim of contributing to the sturgeon population.

Fish
ADDITIONAL MEASURES TO PROTECT BIRDS

NCOC has been experimenting with “bio-acoustic” bird repellant devices at one of its evaporation ponds near Bolashak plant. The devices broadcast the cries of raptor species and distress calls from migrating waterfowl, and were judged effective at scaring away birds that might settle on the natural-looking pond surface. In 2019, the devices will be tested at the offshore islands, to avoid instances of bird collisions with the steel structures.

2018 Bird Surveys

Every year, over 280 species of birds migrate along flyways from Eurasia and Siberia to Africa and India, with long stopovers for shelter and rest in the reedy wetlands of the North Caspian.

The Operator has conducted annual and regular seasonal bird studies since 2000: two annual surveys during the regular seasonal migrations (in spring and autumn), a survey of nesting colonies in near-shore areas during mating season in summer, over-winter monitoring of aquatic and semi-aquatic birds, and observations around onshore and offshore facilities, and during summer nesting period.

The surveys cover a vast area from the Volga River delta in the west to the Emba River delta in the east, from Atyrau in the north to Aktau in the south.

The surveyor groups include NCOC ecologists and lead ornithology experts of Kazakhstan, and inspectors from the Atyrau Oblast Department of Ecology and the Oblast Territorial Forestry and Wildlife Inspectorate

In 2018, the population density of birds during autumn migrations remained high. In fact, 544,000 birds were counted during the survey in October, more than ever before. At 91,000, the population of one key indicator species, the mute swan, was the highest recorded since 2000. The spatial distribution of birds is changing, with Komsomolets Bay in the east practically dry due to declining sea levels, and attracting fewer flamingo and mute swans. The same may be said of the Emba delta and the area between the Volga and Ural River deltas. This led to higher concentrations of birds observed in the warm, shallow waters around the Seal Islands, where protective cover abounds.

құстар
CASPIAN SEA LEVELS

The shallow northeast portion of the Caspian Sea is well-known for its variability. The average depth here is only about 3 m, so even relatively minor changes can make a big difference to safety of navigation. And since NCOC relies on vessels to supply the offshore islands and to evacuate personnel in the event of emergency, the water depth has a direct impact on our ability to continue to safely produce oil.

NCOC has a specialized ice and hydrometeorology department that constantly monitors the level of the Caspian using the equipment of our own hydrometeorological stations, and conducts research to model and predict the potential for sea level fluctuations.

This analysis shows that average sea level in the northeast Caspian has been declining steadily since 2005, and is now more than a meter less than it was a decade ago. Significant inflows of fresh water from the Volga are being offset to some extent by increased evaporation and less-than-average precipitation.

The average sea level around Kashagan was slightly shallower than the average value for the Caspian due to the wind effect on shallow seas in this area, which can periodically “pile up” the water in the downwind direction. One of the largest ever such wind effects was observed in November 2018, when the sea level around Kashagan dropped 75 cm below its average value (see satellite image from 13 November).

CASPIAN SEA LEVELS
5.3. DISCHARGES TO WATER

NCOC uses lined evaporation ponds as the safest available method for managing treated industrial water. (See the Case Study on Evaporation Ponds.) Treated wastewater from industrial processes and domestic sewage is discharged through filtration screens into these ponds, and the water is removed by evaporation.

The total quantity of hydrocarbons discharged with treated domestic wastewater and industrial water into evaporation ponds in 2018 was equal to 15.95 tonnes.

NCOC obtained all permits in 2018 for discharge of treated water to evaporation

ponds in accordance with RoK environmental requirements, with one exception discussed in the Case Study.

As noted in the section on Fresh Water, NCOC intends to build an additional wastewater processing facility at Bolashak in 2019 that will maximize our capacity for recycling water from technical and industrial processes.

5.4. NON-GHG AIR EMISSIONS

The primary air emission sources at NCOC’s facilities are the flare unit, gas turbines, boilers and diesel generators.

The flare unit is a part of any oil and gas production facility and functions as a so-called “relief valve” of the plant. A small ignition flame burns at all times, to ensure ready combustion. The flare unit height is designed t o maximize dispersion of combustion products in the air. Power is supplied to onshore and offshore facilities by gas turbines running on associat ed gas produced from the field. The turbines are equipped with special burners designed to reduce nitrogen oxide emissions. Boilers produce steam, heat water and provide space heating for buildings. Boilers run on fuel gas but diesel fuel can also be used.

Diesel generators are used only for stand-by pow er generation.

In 2018, NCOC non-GHG air emissions from all operations were 21% of permitted volumes, and totaled:

  • 943 tonnes of volatile organic compounds (VOCs),
  • 27,949 tonnes of dioxides of sulfur (SO2)
  • 2550 tonnes of oxides of nitrogen


(NOx excluding N2O, which is reported under GHG Air Emissions).

Compared to 2017, VOCs and NOx emissions were about the same, in the context of a 60% increase in oil production. SO2 emissions were down sharply due to a forty percent decrease in flaring volumes over the reporting period.

Air monitoring is an important part of NCOC’s overall industrial environmental monitoring programme. There are several components, including:

Under-Plume Monitoring

Periodically, under-plume monitoring is conducted, using a specialized vehicle with air sampling and meteorological instruments to drive under the flare flame and collect samples identifying the emissions.

Monitoring at Emission Sources

Maximum permissible emission (MPE) rates that NCOC is required to comply with are calculated for each emission source. Measurements of actual emissions from a source are made instrumentally. For example, the exhaust stacks at lar ge emission sources are equipped with special sampling ports that allow inser ting a gas sampling probe and pitot tube on a periodic basis to take measurements of nitrogen oxides, sulfur dioxide, carbon monoxide, gas flow velocity, pressure and temperature.

Air Quality Monitoring Stations

20 air quality monitoring stations in Atyrau oblast operate 24/7 to measure the ambient atmospheric levels of various compounds and collect weather data.

H2S OVERLIMIT CASES IN 2018 20-MIN AVERAGED DATA
H2S OVERLIMIT CASES IN 2018 20-MIN AVERAGED DATA

Note 1: This diagram shows only H2S. In addition, NCOC air quality monitoring stations register CO, SO2, NO and NO2 levels. Note that SOx and NOx are possible combustion products from the flaring of sour gas. If H2S were to arise, it is almost always from a leak.

Note 2: “Maximum Permissible Concentration” set by the Kazakhstan government is a conservative standard, at which about half the population may detect the smell (i.e., about 6 parts per billion). These levels, tens of thousands of times less than immediately harmful levels, are so small that electronic instruments sometimes have trouble accurately detecting them. False “peaks” are common, as are short-term peaks from, for example, a passing train, carrying crude oil.

4 stations are located on the perimeter of the 7-km setback area (“sanitary protection zone”) for the Bolashak plant; 7 more are located in surrounding areas, including Dossor and Makat; and 9 are in Atyrau city proper. The government meteorological agency Kazhydromet monitors this air quality data and publishes monthly and annual summary bulletins on its website. On-line access to the data is also provided to the Atyrau Oblast Department of Natural Resources and Nature Use Regulation.

Hydrogen Sulfide

Hydrogen sulfide (H2S) is another non-GHG air emission. It is flammable and highly toxic, and has a strong, unpleasant odor. It may be generated anywhere that sulfur-containing organic materials decompose in the absence of oxygen, so is emitted naturally in marsh gases and volcanoes (sometimes in large quantities). It is produced during sour crude oil processing and transportation.

NCOC specialists who work in immediate proximity to wellheads, flash gas compressors and other equipment receive special training and personal detectors. They wear masks and breathing apparatus as a precaution in areas where high H2S concentrations are possible as an

occupational hazard. The risk drops off quickly the further from these locations; so do the potential concentrations.

NCOC can state with confidence that the Bolashak plant is safe for the public. The primary guarantor of safety is the 7 km buffer (Sanitary Protection Zone or SPZ) around Bolashak, sufficient to protect nearby residents from any long-term health effects from air emissions and providing a conservatively high margin of safety even for unplanned events. Confidence in this conclusion rests upon careful design, multiyear studies and computer models, government review and approvals, and finally, recent operating experience that confirms the models (see figure). As in years past, on-going monitoring in 2018 shows consistently that short-term H2S peaks (from 1 to 20 minutes in duration) remain far more likely in Atyrau than near Bolashak. The competent government agency for air monitoring RSE Kazhydromet confirmed there were no cases of high– (VZ) or extremely-high pollution (EVZ) registered around Bolashak in 2018. See the report “Informational Bulletin on the Condition of the Environment of the Republic of Kazakhstan, 2018” (www.kazhydromet. kz), in which the data from all twenty NCOC air monitoring stations is published in summary form.

Case study

WASTEWATER AND LINED EVAPORATION PONDS

Wastewater

There are three types of wastewater streams generated at North Caspian Project facilities: domestic (including sewage), stormwater, and industrial wastewater from technical processes and production activities.

Domestic wastewater from D-Island and Living Quarter Barges offshore is treated in a special compact system that combines biological treatment with membrane filtration, resulting in water clean enough to re-use for many purposes. Despite higher costs, this wastewater is collected in dedicated tanks and transported by barge to onshore facilities in Mangystau Oblast for disposal, in line with NCOC’s “Zero Discharge Policy” into the Caspian Sea.

Industrial wastewater from D-Island is also transported to shore, where it is treated to remove oils and suspended solids. An additional onshore treatment step, installed in 2017, dissolves air into the wastewater and skims off the contaminants as they attach to finely dispersed air bubbles rising to the top, thus removing up to 99.9% of oil products and 97% of suspended solids. The treated wastewater is then discharged into lined, isolated evaporation ponds at the Koshanai Waste Management Facility near Bautino Base.

Wastewater is handled in largely the same way onshore at the Bolashak plant. Domestic wastewater generated at the camps and onshore facilities is biologically treated and used for dust suppression and irrigation in summer, and any excess is disposed in evaporation ponds within the Sanitary Protection Zone.

Some wastewater has been brought up from the subsurface with the crude oil (produced water), or has come in contact with the oil during processing, and contains residual hydrocarbons. It is treated with demulsifiers, hydrocyclone separation, flotation skimmers, filters and a sour water stripper operating in batch mode, reducing oil content by a factor of 35-36 prior to the wastewater being sent to the evaporation ponds.

A large volume of wastewater is generated from technical processes. Treatments used here include the Sour Water Stripper, which uses low pressure steam to remove hydrogen sulfide and other residual components from the water used in processes to “sweeten” produced liquids. Additional technical wastewater processing capacity came online in 2017 that allows the water to be recycled (returned for re-use in the processes) rather than being discharged as waste. Recycling has allowed us to reduce by up to 50% the amount of water needed to be withdrawn from the Astrakhan-Mangyshlak pipeline for plant needs.

Evaporation Ponds

The treated wastewater streams are then sent to the artificial evaporation ponds at Bolashak. There are nine such ponds in a 3x3 grid, each section roughly 250 by 500 m in size and 3 m deep. The ponds are completely isolated from surface waters, with sloping concrete banks and lined on the bottom with multiple layers of an impermeable geo-textile membrane to prevent groundwater contact through seepage.

Once discharged, the wastewater is evaporated by solar energy, leaving behind solids/salts in sludge form and returning clean water to the water cycle as vapor. Compared to underground injection, which removes the water from the water cycle, the evaporation pond is an economic, low-carbon solution suitable for hot and dry regions where solar irradiation is high. (Underground injection is also a best practice disposal method, however, no underground aquifers have been found in the vicinity of Bolashak suitable for wastewater discharge.)

The wastewater may contain some volatile fractions – i.e., contaminants including trace methanol that will evaporate from the pond surface as vapor – but according to studies called atmospheric dispersion modelling, it is known that these are well within allowable limits at the boundary of the Sanitary Protection Zone.

Methanol

Methyl alcohol (methanol or “wood alcohol”) is one of these volatile fractions. It is added to the oil offshore to prevent hydrate plugs in the pipeline, and is removed again during subsequent treatment, thus appearing in process wastewater.

Like ethyl alcohol, methanol is highly soluble in water so that little is lost to evaporation. Sunlight and natural biodegradation breaks down methanol vapor into carbon dioxide and water over a few days. Methanol is a naturally-occurring organic compound; trace amounts are found in the breath of normal, healthy human individuals. Studies show low toxicity to mammals from inhalation, therefore air emissions from ponds are thought to pose negligible risk to humans or the local environment. There are no airborne methanol standards in most OECD12 countries.

Regulation of Evaporation Ponds

Evaporation ponds are recognized as a best practice in wastewater disposal, especially in hot and dry climates. In Russia and OECD countries they are subject to technical and engineering standards for their construction and operation but there are no effluent standards for discharges13.

In Kazakhstan, discharge into isolated man-made industrial ponds requires the same permit, monitoring and effluent standards that might be required for discharge into a natural water body used for recreation, fisheries and drinking water. Methanol limits in particular are set very high (3 milligrams per liter), exceeding the capacity of most equipment currently in use for removing it from industrial wastewater. NCOC is working toward compliance with this standard, but it will be costly and the environmental benefits of the additional investment are not clear.

Ministry of Energy’s Reform of Environmental Regulation in Kazakhstan

Kazakhstan also differs in the breadth and complexity of its system of environmental tax payments for emissions, discharges and waste. These are applied to dozens of pollutants here, compared to a few “priority” pollutants (e.g., greenhouse gases) in some OECD countries.

In Kazakhstan, exceeding an emission standard, or emitting one of these dozens of regulated pollutants other than as described in a per mit, triggers automatic civil penalties assessed as a multiple o f the tax rate. In the OECD civil penalties addr ess the polluter’s behavior, rather than a recoup of lost taxes. Fines and penalties are infrequent in OECD-member countries, assessed only in cases wher e the polluter has failed to cooperate with authorities, or has clearly av oided using best available techniques for preventing pollution.

Exceeding a permit limit can also trigger a claim for monetary compensation to the State for damage to the environment. The liability for this environmental damage is established simply due to the permit violation, without need to provide evidence of actual physical harm to the environment. The amount of monetary damages that the violator must pay is assessed from a formula calculation, unconnected to a field-based assessment of restoration costs (typically because there is no actual damage to remediate).

Again, this differs sharply from OECD practices, where the “Polluter Pays” principle means the polluter, not the State, is responsible for cleaning up the damage and restoring the environment in the event of a major, localized pollutant release. The clean-up must happen. If the polluter does not or cannot, the State may perform the clean-up and charge it back to the polluter. This applies to water and soil, but rarely to air emissions in which clean-up is not possible, or the damage is not localized because the atmosphere itself disperses and neutralizes the pollutant. In any event, in Kazakhstan these monetary damages are simply collected and deposited into the State budget; there are no requirements that it be spent on restoration of the harm that non-permitted or above-limit emissions have allegedly caused.

The sharp difference in approach has led the OECD to remark that Kazakhstan appears to be “focused on calculating and collecting monetary compensation for the state (essentially serving as a revenue-raising penalty) rather than on preventing and correcting the damage, reducing emissions over time and incentivising the use of BATs [Best Available Technology]14.”

In 2018, the Ministry of Energy announced that it would undertake a reform of the Environmental Code to address these and other issues. NCOC has been an active participant in the public discussion, believing reforms are needed to better align with international practice and to facilitate foreign investment while remaining protective of the environment.


NCOC FINED FOR EVAPORATION PONDS IN 2018

NCOC voluntarily notified the regulator in March 2018 that along with discharges of treated wastewater into PLWDA pond via outlet point st ated in the Maximum Permissible Discharge (MPD) Project, separate treated wastewater discharges into the same pond were performed through the outlet points which had not been envisaged in the MPD project. The decision was made t o segregate off-spec streams in one of PLWDA pond section in order to minimize risks of environmental impacts to ornithofauna. The design of the PLWDA pond prevents migration of the treated wastewater into soil and aquifer.

As a result there was no net environmental impact. However, NCOC has been allegedly accused that such actions resulted indirect (momentary) damage to the environment.


5.5. OIL SPILLS TO THE ENVIRONMENT

Performance

In 2018, there were 0 hydrocarbon spills greater than 1 barrel reaching the environment from NCOC operations (total volume: 0 barrels of oil-equivalent hydrocarbons).

Approach

NCOC places first priority on prevention of oil spills. Secondly, no matter how confident we are of their prevention, NCOC remains always prepared to respond quickly and fully to incidents were they to occur.

2018 Actions

  • Prevention. By far the best defense against oil spills is to prevent them from occurring in the first place, identifying spill risks and ensuring that the highest safety standards are continuously applied to mitigate those risks.
  • Technology. We employ a wide range of innovative technologies to assist in responding to oil spills, and are actively engaged in research on new and more effective methods.
  • Response Training. NCOC has a dedicated Oil Spill Response group, with about a hundred fully-trained staff, and equipment suitable for the harsh environment of the

North Caspian Sea stored at marine support bases in Bautino and Damba. NCOC has a comprehensive Oil Spill Response Plan that is regularly drilled. In 2018, in addition to on-going minor exercises at all locations, NCOC also conducted two “Tier 3” exercises, simulating a major oil spill.

TENIZ-2018, an international integrated exercise of Caspian states conducted under the Astrakhan Emergency Cooperation Agreement, took place on 2-3 August 2018. Task forces, made up of representatives from responsible government agencies and oil companies from the various countries, worked together to fight the (simulated) oil spill. The exercise was followed by a demonstration of NCOC’s oil spill response equipment at Bautino Base.

This was followed on 14 and 18-20 September by a Regional Tier 3 spill exercise code-named “Altyn Qyran.” The exercise involved over a hundred NCOC personnel and contractors, and six representatives from related national and local government agencies. In the event of a major spill, NCOC would call in additional support from OSRL (an oil spill

FIELD TRIAL ON OIL SPILL PREPAREDNESS

As a follow-up to the finalizing of the Arctic JIP research project last year (www.arcticresponsetechnology.org), NCOC in 2018 implemented a project to investigate the feasibility of using herders in combinations with controlled in-situ burning (ISB).

Herders contain surfactants and are applied to the water surface adjacent to an oil slick. Once applied, the surfactants spread to ultimately form a monomolecular layer that significantly reduces the surface tension of the water. The reduced water surface tension reverses the oil spreading tendency and a thin slick can rapidly re-thicken. The surfactants do not need a boundary to “push” against and can therefore function in both open water and broken ice.

The scientific data and technical report from the field trial will be shared with the international oil spill community, and used in Kazakhstan to further strengthen NCOC’s oil spill response capabilities, and inform development of a national regulatory framework.

Qaiyq

Qaiyq
NET ENVIRONMENTAL BENEFIT ANALYSIS (NEBA)

NEBA is a structured approach that may be used by oil spill experts, government regulators and the public to plan oil spill preparedness measures and response scenarios. Each type of oil spill response measure (in-situ burning, dispersants, mechanical recovery, etc.) has its own benefits, drawbacks and limitations, and depends further on factors such as water and weather conditions. There is no “best” technique for all situations. The NEBA process compares the environmental benefits of various response techniques with a “no intervention” strategy.

As part of a project to introduce NEBA in Kazakhstan, workshops were organized in April 2018 by NCOC, jointly with the Kazmunaigas National Institute of Drilling and Production Technology, Shell, and OSPRI (Oil Spill Preparedness Regional Initiative), under the umbrella of the Ministry of Energy. The workshops had the following objectives:

  • As part of a project to introduce NEBA in Kazakhstan, workshops were organized in April 2018 by NCOC, jointly with the Kazmunaigas National Institute of Drilling and Production Technology, Shell, and OSPRI (Oil Spill Preparedness Regional Initiative), under the umbrella of the Ministry of Energy. The workshops had the following objectives:
  • Sharing a new NEBA methodology, called Spill Impact Mitigation Assessment (SIMA); and
  • Decision-making on the basis of NEBA in practice within the RoK regulatory framework

One finding of the NEBA approach is that every effort possible must be used to treat oil while it is offshore to prevent it from reaching shallow, reedy and sensitive shorelines where protection and response efforts are unlikely to significantly mitigate the environmental impact. This aligns with lessons learned from previous oil spill recovery events around the world. In order to treat the oil while it’s on the water surface and as close to the source as possible, responders, governments and the public need t o be aligned, so that time is not lost on decision-making in an actual ev ent.

response cooperative located in Southampton, UK) and its shareholder parent companies. Two persons from OSRL and (for the first time) over 40 staff from Shell and ExxonMobil took part in the simulation this year. During this exercise NCOC Incident Management Team and Crisis Management Team members drilled the Incident Command System and crisis management techniques at a simulated Incident Command Post at the NCOC Atyrau Training Centre, including online software tools to order and track resources and a “Common Operating Picture” to provide everyone in the exercise a simulated real time image of the current situation. The exercise provided great experience and highly valuable feedback that will be used

continuously improve the Crisis and Emergency Preparedness and Response Process.

5.6. WASTE

Total quantity of waste generated by the Company in 2018 was 10,976 tonnes, including 5731 tonnes of waste with hazardous properties classified as hazardous and 5245 tonnes classified as nonhazardous according to the RoK Environmental Code.

The volume of waste generated in 2018 vs 2017 has dropped by 58% due to completion of construction works at the Company’s onshore and offshore facilities.


Policies and Programmes

The key objective of NCOC’s Waste Management System is to reduce or fully eliminate waste generation at the source or the process through proper planning of Company operations.

Waste management is performed throughout the life cycle of the waste starting from its generation to final disposal. Waste segregation is an important step in the process, so that hazardous and non-hazardous wastes are not mixed.

Since the RoK Environmental Code now permits it, food and medical wastes (considered hazardous) are incinerated offshore. The ash after incineration is transferred to onshore facilities.

To improve compliance with the newly-introduced Extended Producer Responsibility provisions in the RoK Environmental Code, the onshore industrial waste storage site is being upgraded with additional waste segregation, and waste tracking processes have been established. The waste subject to EPR provisions will be transferred to specialized organizations for further processing and recycling.

See Section 9.2 “Employee Engagement in the Community” for more information about recycling at NCOC offices and Samal camp as part of “Green Office” initiatives.

5.7. ONSHORE AND OFFSHORE SURVEYS

NCOC implements comprehensive environmental monitoring programmes to collect offshore data, analyze the chemical composition of seawater and bottom sediments, and to study fish, benthos and

NCOC Workers

plankton populations. Since 1994 the project has conducted more than forty offshore monitoring surveys in roughly 900 different locations. Data collected during the regular seasonal surveys covers weather conditions, water quality, bottom sediments quality and biological data (micro-organisms, phytoplankton, zooplankton, fish). Starting in 2013, we added air quality, birds, and additional Caspian seal studies.

NCOC published a 40-page brochure in 2018 entitled “Environmental Surveys and Initiatives,” providing more detail on the company’s environmental impact monitoring, biodiversity surveys, air quality, wastewater treatment, waste management, and public environmental initiatives. See www.ncoc.kz.

5.8. DECOMMISSIONING AND REMEDIATION

Decommissioning is governed by the North Caspian Sea







PSA, including detailed planning and funding at the appropriate time. Decommissioning and remediation is planned and executed in the same manner as any other engineering project, with each programme needing an environmental impact assessment to determine the preferred option to apply to a particular facility.

6. ECO-EFFICIENCY

6.1. ENERGY

NCOC production facilities are self-sufficient in electricity, heat and steam. Indirect emissions arise from purchased power for support facilities such as Bautino Base and Atyrau Training Center. Energy use in NCOC operations in 2018 totaled 42.25 million gigajoules (GJ). Of this amount, 0.11 million GJ was impor ted (purchased).

Normalized energy intensity (energy use per unit of production) in 2018 was 2.05 GJ per oil-equivalent tonne of production, which was improved for about 13% in comp arison with 2017.

In 2018 NCOC continued the energy efficiency audit of facilities begun last year, with plans to complete this work for its main onshore and offshore facilities in 2019 and identif y the most promising energy savings and efficiency measures to include in the Company Energy Efficiency Plan for implementation.

One of the proposed energy saving measures from 2017 is related to the use of renewable energy, the installation of solar thermal collectors to heat water for the Bautino Marine Suppor t Base canteen, is underway now with completion expected in 1Q, 2019.

NCOC is establishing a network with experts from its parent shareholding companies for purposes of exchanging information and best practices on energy efficiency, renewable energy, and minimizing our carbon footprint.

We also plan to introduce an energy management system with the objective of a more systematic approach to energy efficiency and the promotion of energy efficiency awareness within the company.


6.2. FLARING

NCOC HAS A “NO ROUTINE FLARING” POLICY.

The Kashagan Phase 1 Project was designed from the beginning to avoid routine flaring, i.e., the burning of excess natural gas “routinely” because an oil and gas project has no other economic way to dispose of it in the course of producing oil. On the contrar y, all of the gas

produced in Kashagan Phase 1 is r e-injected, used as fuel or sold. Flaring is how ever needed in the course of operations as the safest and most effective way to deal with gas that for t emporary technical reasons could not be processed, such as commissioning operations, small amounts of valve leakage into flare collectors, or one-time discharges to flare due to operational upsets. The volumes of gas flared in such cases is calculated and reported.

The quantity of hydrocarbon gas flared from NCOC operations in 2018 was 20.8% of permitted volumes, and totaled 63 million Sm3 (standard cubic meters). Flaring was down about 40% in 2018 compared to the previous year, even as oil production grew by 60%. Operational reliability has been better than expected, and this improved process stability during commissioning has allowed us to keep flaring below 1% of total produced gas volumes.

7. ECONOMIC BENEFITS TO KAZAKHSTAN


KASHAGAN PHASE 1 WILL HAVE A PRODUCTION LIFE OF DECADES AND ITS SHAREHOLDERS ARE EXPECTED TO CONTRIBUTE BILLIONS OF DOLLARS IN DIRECT REVENUE TO THE REPUBLIC OF KAZAKHSTAN IN TERMS OF TAXES AND SHARE OF PRODUCTION.

As Kazakhstan’s largest direct foreign investment project, the North Caspian Project has a powerful multiplier effect on the economy, creating employment opportunities for Kazakh people and opportunities for local companies.

US$424 million was spent for local content in goods

works, and services in 2018, equivalent to 43.4% of total expenditures.

Overall payments for local content in goods, works and services have totaled more than US$14.1 billion since 2004.

Mangystau and Atyrau Oblasts also benefit directly from social and infrastructure related projects funded by NCOC. These have totaled well over a half-billion US dollars since the start of the Kashagan Phase 1 Project.

These and other economic and social benefits will be described in more detail in the following section.

NCOC RECEIVES AMCHAM AWARD

On 9 June, 2018 the American Chamber of Commerce in Kazakhstan (AmCham) awarded Bruno Jardin, NCOC Managing Director, as one of its Executives of the Year. In announcing the award, AmCham President Kenneth Mack noted the tangible contribution NCOC has made to Kazakhstan’s growth in recent years, underscoring the value of foreign investment to the economy.

In the category of Health Protection, Syed Ahmed, NCOC Health Manager, accepted an award on behalf of NCOC for a joint project with the Atyrau Oblast Hospital to improve emergency medical care.


NCOC Workers

8. SOCIO-ECONOMIC

TO DATE, THE KASHAGAN PROJECT HAS DIRECTLY CONTRIBUTED WELL OVER 600 MILLION US DOLLARS FOR THE BENEFIT OF LOCAL COMMUNITIES.



8.1. SOCIAL INFRASTRUCTURE PROJECTS

Under the North Caspian Sea PSA, NCOC allocates a budget each year for the development of Social Infrastructure Projects. In 2018, this budget amounted to US$50 million. The funds, for construction of schools, kindergartens, hospitals, sport facilities, as well as utilities such as roads, electric power water supply lines, and other infrastructure designed to benefit the community, are split equally between Atyrau and Mangystau oblasts, where North Caspian Project activities are centered.

Between 1998 and 2018, 200 Social Infrastructure Projects have been completed. Cumulative spend on Social Infrastructure Projects has thus reached US$620.8 million.

Social Infrastructure Projects are generally proposed by the Oblast Akimats (governments). Proposals are analyzed by NCOC and the PSA Authority to ensure they

NCOC RECEIVES 2018 GOLD PRIZE AT PARYZ COMPETITION FOR SOCIAL RESPONSIBILITY

NCOC was awarded the Gold Prize in the annual nationwide “Paryz” contest for the most sociallyresponsible company of the year. The announcement ceremony on December 11, 2018 was attended by President Nursultan Nazarbayev. Prime Minister presented the award to NCOC Deputy Managing Director Zhakyp Marabayev.

The award recognized the Social and Infrastructure Projects (SIP) and Sponsorship & Donations (S&D) programmes implemented last year.


comply with PSA requirements and the Operator’s sustainable development strategy, and are developed into projects in close collaboration with the Oblast Akimats. Once approved, NCOC is responsible for all stages of design and engineering, contract tender, and execution up to handover.

SIP PROJECT HOSTS CASPIAN-5 SUMMIT IN 2018

The House of Friendship in Aktau is an NCOC Social Infrastructure Project completed in 2017 as the home of the Assembly of the People of Kazakhstan for Mangystau Oblast.

A historic Summit of the leaders of the Five Caspian Nations was held here in August 2018, at which a new Convention on the Legal Status of the Caspian Sea was signed. After the Summit, President Nursultan Nazarbayev demonstrated the Rocky Trail to heads of the Caspian Five. The Rocky Trail is a unique NCOC-sponsored project, which will become one of the biggest tourist attractions in Aktau. This landmark (located in Micro-district 4 of Aktau city) includes a pedestrian zone, images of petroglyphs, observation platforms and a natural cave in the rock.



8.2. SPONSORSHIP AND DONATIONS PROGRAMME

Through its Sponsorship and Donations grant programme , NCOC responds directly to the needs and requests of local communities. US$1.5 million is split equally each y ear between Atyrau and Mangystau oblasts for community sponsorships and donations. The Sponsorships and Donation grant programme focuses on five main areas of support for local communities: healthcare, education, sports, culture and charity.

To be aligned with NCOC’s sustainable development strategic goals, projects must contain elements of self-involvement and demonstrate sustainability for local communities. They should not support political or religious organizations, create conditions for unfair

A new dormitory for one hundred families was opened in Mangystau village, Munaily District, Mangystau Oblast in August 2018. The dormitory will host families of public workers, mostly medical and education specialists

A new Recreation Center with 200 seats was opened in Zhanatalap settlement, Atyrau Oblast in November 2018.

market competition, or undermine the ecological sustainability of local communities and/or natural ecosystems. The initiative for projects generally comes from the local communities, but may also be initiated by NCOC.

In 2018, 64 projects were undertaken (34 in Atyrau Oblast and 30 in Mangystau Oblast). A total US$19 million has been spent since 1998. In addition, up to US$300,000 has been budgeted each year since 2006 for summer camp for 200 underprivileged and orphan children of Atyrau and Mangystau Oblasts. In 2018, NCOC covered travel, camp and culturaleducational development expenses to send these children to the “Baldauren” centre in Burabai.

In 2018 NCOC conducted monitoring of the Sponsorship & Donations projects completed between 2013-2015. The priority objectives of the monitoring include impact assessment of the projects on local communities and evaluation of their efficiency levels. The monitoring covered 66 projects in Atyrau Oblast and 73 projects in Mangystau Oblast.

According to the monitoring results 97% of the beneficiaries from both regions indicated that the Company’s support contributed to significant improvement of their activities.

Moreover, the average value of positive impact reached 3.7 points on a scale o f one to four. In addition, the conducted monitoring enabled to detect certain shortfalls in the projects, identify a list of social issues that concern the beneficiaries, and develop recommendations for quality and efficiency improvement of Sponsorship projects in future.

The Company is currently considering possibility to improve the quality of selection and implementation of the Sponsorship projects based on the comments received.

8.3. LOCAL CONTENT PERFORMANCE

NCOC IS COMMITTED TO DEVELOPING A WORLD-CLASS PROJECT THAT MAXIMIZES THE USE OF LOCAL GOODS, WORKS AND SERVICES, WHILST DEVELOPING THE SKILLS OF LOCAL PEOPLE AND THE CAPACITY OF LOCAL COMPANIES.

In 2018 the Nor th Caspian Project spent US$424 million for local goods, works and services, equivalent to 43,4% of total expenditures. This adds up to a year-end total of more than US$14.1 billion spent on local goods, w orks and services since 200415. These and other facts speak to the depth of NCOC’s commitment to the use of local content.

LOCAL CONTENT
                PAYMENTS FOR 2004 – 2018
                BILLION $US
LOCAL CONTENT PAYMENTS FOR 2004 – 2018 BILLION $US
AGREEMENTS WITH OBLAST AKIMS ON LOCAL CONTENT

NCOC found common cause with Akimats regarding continued growth of Local Content in our project.

On October 12, 2018 NCOC Deputy Managing Director Zhakyp Marabayev (pictured) signed a Memorandum of Cooperation on Local Content Development with the Karaganda Oblast Akimat. The signing took place at the Böhmer Armaturen Kazakhstan LLP plant in Karaganda, in the presence of representatives from PSA LLP and NadLoc (National Agency for the Development of Local Content).

A similar Memorandum was signed with the Mangystau Oblast Akimat on November 17, 2018. The agreements outline mutual objectives in the area of local content development, qualification of local specialists, and building capacity of local companies.

A Memorandum with Atyrau Oblast will be signed in 2019.

8.4. LOCAL CONTENT: NCOC POLICY AND PROGRAMMES

NCOC Local Content Policy is based on the fundamentals of the North Caspian Sea Production Sharing Agreement (NCSPSA), applicable laws, and NCOC’s Mission, Vision, and Values, as well as its business goals and objectives.

According to the NCSPSA, NCOC gives preference to local suppliers of goods and services subject to their competitiveness with respect to quality, safety and price requirements for similar materials and services provided by international suppliers. Thus development of Local Content is one of the most important and critical aspects of the Company’s activity.

During 2018, the Local Content department focused on implementation of its Five Year Local Content Development Programme for 2017-2021, which prescribes identified target areas for the participation of Kazakhstan businesses with defined strategies and planned activities to develop and maximize Local Content.

An analysis of the future needs of the Project is also carried out with an eye to leveraging local content development opportunities, and consolidated in the Project’s long-term procurement outlook.

2018 PROGRESS UPDATE: AKTAU DECLARATION

As part of the Five-Year Local Content Development Programme, and working toward goals outlined in the 2012 Aktau Declaration, NCOC conducted market research in 2018 that identified local companies in certain categories that appear capable of providing goods, works and services to the North Caspian Project:

NCOC’S APPROACH TO LOCAL CONTENT DEVELOPMENT COMPRISES THREE MAIN AREAS: GROWING LOCAL INDUSTRY CAPABILITY; JOB SKILLS TRAINING AND KNOWLEDGE TRANSFER; AND ENHANCING LOCAL INFRASTRUCTURE.

A major activity in 2018 was advanced planning to maximize Local Content during the upcoming Turnaround in mid-2019.

8.5. GROWING LOCAL INDUSTRY CAPABILITY

Development of local vendors is a priority. The objective is to help local companies improve their technical and managerial capabilities so that they qualify as potential suppliers to the Project, and longer-term could bid on other opportunities in national and international markets.

In the past six years alone, thirty eight contracts worth US$ 4.176 billion, originally executed by international contractors, have been transitioned to competitive local companies – for instance, in helicopter services, marine operations, and freight forwarding.

Since 2006, about 1300 local companies have participated in workshops and forums organized by NCOC. These range from general awareness seminars to introduce the Project and its contracting requirements, to more specialized seminars on tender writing and pre-qualification processes.

From 2006 to 2018, the Operator assisted over 200 local companies to obtain international standards certifications for their management, goods and services, thus significantly increasing their competitiveness for contracts with NCOC. The Operator has also provided assistance and financial support to local companies to obtain international certifications for their goods and services from the American Society of Mechanical Engineers (ASME) and American Petroleum Institute (API).

From 2006 to 2018, NCOC conducted more than 350 technical qualification audits and site visits of local companies, assessing their ability to meet demanding specifications and international codes and standards for goods and services put out for bid by the North Caspian Project.

From 2006 to 2018 the Operator provided more than 3500 employees of local companies with specialized professional training in the most

in-demand craft skills, on topics such as Working in Confined Spaces, Industrial Welding Safety, Electronic Systems and Assembly, Working at Height, Mobile Crane Operations, etc.

This year alone NCOC conducted 104 courses and trained a total of more than a thousand Kazakhstani technical professionals. The training allows local companies identified by NCOC’s Local Content Department to improve their skill base and meet requirements imposed by international standards, codes and heavy industry norms in common use today.

OIL AND GAS STRATEGIC PARTNERSHIP DEVELOPMENT COUNCIL

On November 2, the National Chamber of Entrepreneurs «Atameken» and Kazenergy jointly convened a new «Oil and Gas Strategic Partnership Development Council» in Atyrau, joined by the three largest Operators in the country, NCOC, KPO and TCO. More than fifty local oil and gas service companies also attended.

The initiative is aimed at providing the latest updates on developments at the oil and gas projects, with the goal of identifying additional opportunities for supply of goods, works and services and increasing local content.


PARTNERSHIP WITH KAZAKHSTANI IT COMPANIES

On 18 July 2018, NCOC organized a special forum for Kazakhstani and international companies in information technologies on procurement of IT-related goods and services for Kashagan. A key objective of the forum was to facilitate the development of the domestic market for manufacturing and localization.

Specialists from NCOC’s IT Team spoke about the company’s requirements and work quality standards, explaining the specifics and rules of contract procedures and prequalification requirements for participating in the Company’s tenders.

Case study


HOW TO BECOME AN NCOC CONTRACTOR: A FIRST-PERSON SUCCESS STORY




Contributed by the Geoken Scientific Production Center, a regular contractor to NCOC since 2003.

We have participated in monitoring construction at Bolashak, as well as the Offshore facilities including the artificial islands. We conduct hydrographic engineering surveys on land and at sea. And today, Geoken carries out annual integrated bathymetric surveys for the North Caspian Project, scanning the seafloor, studying its geologic structure, bottom sediments, pipelines and cables, and so on. Something we are especially proud of is that SPC Geoken provided all navigation support when the Sunkar drilling rig was taken off its drilling (well) location, and then returned again.

In order to be a contractor in the North Caspian Project, a Kazakhstan company should be no less well-equipped than its foreign competitors in terms of equipment and technology, trained personnel, and experience. Qualification and competence is what they value in bidders first of all. My company [Geoken] did not miss a single seminar in our field of specialty that NCOC organized for its contractors. To show our professionalism, Geoken takes part in most of the oil and gas exhibitions that are held around the world. That includes, for example, the Oceanology International exhibit in London, and the Offshore Technology Conference in Houston.

NCOC demands the highest standards of its contractors in occupational and operations safety, environmental protection, and work quality. SPC Geoken was the first company in Kazakhstan to introduce an integrated management system that includes Quality Management (ISO 9001), Environmental Management (ISO 14001), and the Occupational and Health and Safety Assessment Series (OHSAS 18001).

We are continually raising our own standards, because the Operator of the North Caspian Project is always asking us to report on our Kazakhstan content. The fact that NCOC has a Local Content department means that any major Kazakhstan player in the oil services field, not only Geoken, will be in-demand and will have the capability to perform its services on the highest possible professional level, in particular, in the Caspian Sea.

8.6. JOB SKILLS TRAINING AND KNOWLEDGE TRANSFER

As a means to achieve its own medium– and long-term nationalization goals, the Operator has developed a special, targeted programme for identifying and recruiting Kazakhstan citizens, and providing them with training for advancement in a long-term career with NCOC. Since 1998 a total of more than 16,000 Kazakhstan citizens have received some form of training, either from NCOC or as employees of local companies being helped by NCOC.

Over two decades, the Operat or has spent in total about US$263 million on job skills and professional training to build local capacity for the North Caspian Project.

In 2018, 115 students completed summer internships at NCOC. The programme provides opportunity for local students to work in a real international oil and gas company, and to get hands-on experience with some of the most modern equipment in this industry.

In 2018, NCOC launched an International Development Assignment Programme, jointly with its shareholder companies. The programme provides opportunity for NCOC employees (and those “seconded” from the national oil company KMG) to work overseas for the shareholder companies for up to two year assignments in order to enhance their skills, upgrade existing knowledge and prepare for future roles in the Company.

NCOC Scholarship Programme

NCOC established a Scholarship programme in 1998, pursuant to the NCSPSA. The Operator has sponsored more than 3000 students from Kazakhstan to study in over 80 educational institutions inside and outside of the RoK, with a monetary value over US$7.5 million.

NCOC provides the funding and the Kazenergy Association manages the Scholarship fund on a competitive basis for the academic training of Kazakhstan citizens (not NCOC employees) in subjects related to the petroleum industry, including training courses at universities, colleges or other training institutions. NCOC sponsored 388 students at 42 educational institutions during the 2018-2019 academic year. Almost a hundred of them from Atyrau Oblast.

Kazakhstan Maritime Academy

2018 was the first year of a three-year programme of assistance to the Kazakhstan Maritime Academy, per a

memorandum signed last year with KMA’s parent institution, the Kazakhstan-British Technical University in Almaty. The financial assistance totals US$900,000 over three years, for upkeep of marine simulators at KBTU, and helping to sponsor 26 national cadets in sea survival training and International Maritime Organization certification programmes in Oman that are basic prerequisites to put Kazakhstan on the “whitelist” of the IMO.

8.7. NATIONALIZATION

Article XXVII of the NCSPSA specifies the overall targets in terms of manning levels of Kazakhstan citizens employed in carrying out Petroleum

Operations. In 2018, the Kashagan Phase 1 Project has already exceeded these targets, with:

  • 80% of managerial staff;
  • 95% of technical and engineering employees, administrative staff, and qualified specialists;
  • 100% of workers and supporting personnel.

Strong growth was once again noted in Kazakhstani managerial staff in 2018, increasing to 80% compared to 75% last year. This is in connection with a 2017 restructuring of office and supporting functions.

Technical and engineering employees, administrative staff and qualified specialists were down slightly in percentage terms in 2018, owing to additional project work related to future growth opportunities that required bringing in additional technical expertise over the short-term.

Overall at the end of 2018, 90% of the nearly three thousand employees of operating company NCOC are Kazakhstan citizens, and 92% of the more than 10 thousand people working on the North Caspian Project are Kazakhstan citizens.


8.8. BUSINESS ETHICS

HONESTY, INTEGRITY AND FAIRNESS IN ALL ASPECTS OF OUR BUSINESS IS A FUNDAMENTAL PRINCIPLE, AND WE REQUIRE THE SAME OF ALL THOSE WITH WHOM WE DO BUSINESS.

Awareness

NCOC’s General Business Principles apply to all our business affairs and describe the behavior expected of every staff member of NCOC, including directhire Kazakhstan citizens, secondees, and contract staff. Further, all NCOC staff are required to adhere to a Code of Conduct, which instructs them on how to apply the General Business Principles in line with our core values. It provides practical instructions on how to comply with laws and regulations and how to relate to customers, communities and colleagues. Staff communications and monitoring programmes are designed and implemented to assure compliance.

Suppliers

Contractors and suppliers are contractually obligated to comply with our General Business Principles and Code of Conduct in all aspects of their work with us. All those seeking to do business with NCOC undergo third-party “due diligence” background checks before contracts are signed. After further risk screening, some companies may be asked to institute mandatory training or special contractual conditions to ensure that their business practices align fully with our expectations.

Suspected Violations

No one at NCOC may instruct staff to take actions that violate the law or contradict our Principles. If an employee observes such an action or instruction, he or she may refer the situation in confidence to a supervisor, to the NCOC Ethics & Compliance Officer, or to the Compliance Hotline for further investigation and possible action. The Compliance Hotline is a 3rd party operated website (www.ncoc.deloitte-hotline.com), e-mail address (ncoc.hotline@deloitte.kz) and phone number (8 800 080 15 65) that allows anyone to report suspected violations of law and Code of Conduct including on an anonymous basis.

NCOC staff, vendors, suppliers, contractors or anyone else can raise concerns or report possible noncompliance with our values and principles to the NCOC Ethics & Compliance Officer or to the Hotline, even anonymously. Details are kept confidential. The Ethics & Compliance Officer looks into allegations, and if confirmed the company’s management takes actions appropriate to the circumstances. NCOC does not tolerate retaliation of any

kind against those who report an issue concerning our General Business Principles, the Code of Conduct or Anti-Bribery & Corruption Manual, or compliance with applicable law.

8.9. PREVENTING CORRUPTION

NCOC’S GENERAL BUSINESS PRINCIPLES ARE CLEAR: THE OFFER, PAYMENT, SOLICITING OR ACCEPTANCE OF BRIBES IN ANY FORM, DIRECT OR INDIRECT, IS UNACCEPTABLE.

Policies

NCOC’s internal Anti-Bribery & Corruption Manual contains policies and procedures to ensure that any interaction with government officials is directly related to a stated business purpose or regulatory requirement, and that it is in strict compliance with the laws of Kazakhstan and consistent with any international statutes that may apply16.

NCOC requires that its staff avoid conflicts of interest between their private activities or family relationships and their role in the conduct of NCOC business.

NCOC reflects all business transactions in its accounts in an accurate and timely manner, in accordance with established procedures and agreements.

Contractors and suppliers are obligated by their contracts with NCOC to adhere to our General Business Principles in all aspects of their work with us.


As started above, concerns or suspected noncompliance may be reported in confidence to the NCOC Ethics & Compliance officer or to the Hotline.

Any confirmed non-compliance can have serious consequences as may be appropriate including dismissal of the staff concerned and termination of the relevant contracts.

8.10. ENGAGEMENT IN PUBLIC POLICY

In our General Business Principles, NCOC has pledged to contribute in an ethical and constructive way to enhancing the laws and regulations of Kazakhstan on

Health, Safety, Security and Environmental protection. NCOC is an active member of Kazenergy, a not-for-profit association of companies in energy and oil and gas industries in Kazakhstan. NCOC is a member of the Oil and Gas Committee of the “Atameken” National Chamber of Entrepreneurs. We often engage in discussions of priority public policy issues affecting our industry in the framework of these organizations. NCOC is also a member of the American Chamber of Commerce in Kazakhstan, and has participated in its advocacy activities to improve the foreign investment climate.

NCOC does not make political contributions of any kind.


15 Local goods, works and services are defined per Unified Methodology (2010) on local cont ent calculations outlined in the RoK Law “On Subsoil and Subsoil Use.” See link to Subsoil Act definitions of local content used by NCOC. Prior to 2010 NCOC used local content calculation methods in the NCSPSA.

16 The US Foreign Corrupt Practices Act (FCPA) and the UK Anti-Briber y Act are two foreign laws that could apply t o companies or citizens of those countries, even if their activities take place in Kazakhstan.

9. SOCIAL PROGRESS

NCOC DONATES NEW MEDICAL EQUIPMENT IN ATYRAU OBLAST

In recognition of Medical Workers’ Day in June 2018, NCOC donated a specialized bed for treating burn patients to the Atyrau Oblast Hospital.

This bed, manufactured in Japan, is filled with special ceramic micro-balls covered in fabric. Vibration and ventilation allows maintaining the desired temperature for the patient, while alkaline and ionized media provide antibacterial protection. The bed also acts to stimulate blood vessels, the heart, human organs, assisting the patient’s recovery from shock and burns.

NCOC also donated two new Mobile Intensive Care Ambulances to Makat and Tupkaragan Central District Hospitals, equipped with a defibrillator, heart monitor, and other equipment needed for mobile resuscitation.

The following day Central Inder District Hospital in Atyrau Oblast received from NCOC two dental units equipped with dental chairs, tools and modules for doctor and assistant.

9.1. ENGAGEMENT WITH THE LOCAL COMMUNITY

NCOC IS PROUD TO CALL ATYRAU ITS HOME. NEARLY 3,000 NCOC EMPLOYEES, AND THOUSANDS MORE CONTRACTORS AND SUPPLIERS WHO WORK FOR THE KASHAGAN PHASE 1 PROJECT, ARE RESIDENTS OF COMMUNITIES IN ATYRAU AND MANGYSTAU OBLASTS.

NCOC is headquartered in Atyrau, Kazakhstan, close to the North Caspian Project’s resources and its facilities in Atyrau and Mangystau Oblasts. We aim to be an employer of choice and a respected member of these communities. We care about the communities where we operate because we are a part of them. We want to proactively address any concerns raised about our operations, recognizing that public respect and confidence are earned through performance, open communications and community involvement. Voluntary sustainability reporting plays an important part in this.

Through its Sponsorship and Donations programme, NCOC positions itself as a socially responsible company that supports local communities. Here are just a few of the programmes we carried out in 2018:

  • NCOC sponsored a week-long Environmental Summer School near Aktau, where highschool students engage in research and laboratories in environmental science to promote the sustainable development of the Caspian Region. The Summer School is traditionally held about the time of the annual “Caspian Day” commemoration in August.
  • NCOC, jointly with the Kazakhstan-British Technical University in Almaty, launched a new two-week summer school for 60 teens from underprivileged families of Makat and Tupkaragan Districts to help them expand their horizons, developing career and communication skills in a creative environment.

We engage on a regular basis throughout the year with the public to share information or discuss their concerns and questions about the North Caspian Project.

A Public Hearing on Preliminary Environmental Impact Assessment related to the design solutions of Amendment No. 2 to Kashagan Experimental Programme Development Scheme took place on September 25. The Amendment addresses project changes as a result of a more gradualthan- expected pressure decline in the Kashagan reservoir (see NCOC 2017 Sustainability Report, “Reservoir Modeling”).

In 2018, as part of a community grievance process, we continued to engage on a regular basis with the local authorities of the communities and local Akims around the Bolashak plant (Karabatan station, Eskene station and Taskesken) to understand concerns and social needs.

This Sustainability Report has become a new and effective venue for engaging the public. While developing the 2017 Report, in early 2018 we met with the External Advisory Board, representing the combined input of environmental and social NGOs from Atyrau and

Mangystau Oblasts, to receive their comments and recommendations. In April, we presented the 2017 Report to the public and answered questions at three special meetings in Atyrau and Aktau, moderated by Shynar Izteleuova, the Director of the Zhayik Aarhus Center

NCOC has a broad-ranging communications programme to reach out to stakeholders and work with local media outlets on topics of interest. Our external website, www.ncoc.kz, was updated and refreshed with a new look and additional content and videos in 2018. To help local businesses learn about economic opportunities associated with the North Caspian Project we reach out in a variety of ways, from general awareness seminars about the project and participation in industry conferences, to highly targeted vendor audits and specialized training sessions (see the section on Local Content for more information). Anyone in the community can raise concerns or report possible non-compliance with our values and principles – even anonymously – to the NCOC Ethics and Compliance officer, or to the Compliance Hotline that was instituted in 2017 (see the section on Business Ethics for more information).

NCOC LAUNCHES A MAJOR ENGLISH TEACHING PROJECT IN ATYRAU OBLAST SCHOOLS

On December 5, 2018, NCOC announced a new three-year joint partnership project with the well-known British Council in Kazakhstan to strengthen English language teaching in Atyrau Oblast.

The project will link internationally-qualified and native-speaking English teachers with 750 schoolchildren and thirty teachers using the latest in online platforms and video-conferencing for remote teaching. Eight schools in the Oblast and Dosmukhamedov State University in Atyrau will participate in the pilot programme.

Remote teaching using native speakers has obvious potential to be replicated throughout Kazakhstan – the ninthlargest country in the world by land area – and is a promising avenue for realizing Kazakhstan’s national strategies to improve education and join the top world thirty economies by 2050.

Case study


A DIFFERENT APPROACH TO EMERGENCY CARE

Health and safety is a priority area where NCOC believes it can contribute to the social and economic progress of the local community.

The largest and most visible contribution to public health arises from the Social and Infrastructure Programme. Recent construction projects completed include an infectious diseases hospital and an extension to the Children’s Hospital in Atyrau. Donations provide needed medical equipment and ambulances.

Less well-known, but no less important, is a long-term programme of in-kind and training support for Emergency Care Services at the Atyrau Oblast Hospital. This project was honored on 9 June 2018 with a “Health Protection Award” from the American Chamber of Commerce in Kazkakhstan. And here’s why.

A Different Approach. At the start of the construction years ago, rather than create its own separate facilities for critical-care patients associated with the project, the Operator decided to take a different and unconventional path – to base a team of three (a consultant anesthesiologist and surgeon, plus a clinical case manager) directly at the Atyrau Oblast Hospital. In addition to being on-call for the project Operator, these internationally-accredited specialists also utilized their time to introduce international standards of emergency/critical care, anesthesiology and surgery to the local staff. In addition to financial support from NCOC for equipment, maintenance, repair and consumables, this arrangement has made the implementation of international best practices more sustainable.


Working with its medical services contractor, NCOC’s Health team implemented a successful project at the Atyrau Oblast Hospital that has saved lives by improving the standards of medical care in critical lifesaving situations, not only for those working on the North Caspian Project but for the entire community.


Over the years, in part due to this initiative, the Oblast Hospital has registered measurable improvements in its performance statistics, benefitting tens of thousands in the local community and saving hundreds of lives. For example, in 2017 Atyrau Hospital treated the highest ever number of maternity patients in critical condition; and all these mothers went home.

There have been considerable challenges along the way. The team has had to be creative in introducing international algorithms for the treatment of certain medical conditions so as not to clash with RoK protocols. Considerable energy was also spent in instilling into the doctors and staff a new approach that prioritizes openness, continuous improvement, and learning from incidents when things go wrong.

The synergies in this initiative generated unexpected benefits. In 2017 the RoK Ministry of Health issued an Order for improving the structure of trauma care throughout Kazakhstan. This Order mirrored many of the same recommendations that were made in gap analyses of Atyrau Hospital performed by independent international experts as part of the NCOC programme. Atyrau Hospital was one of the first in the nation to implement the new system of care, with expert assistance from NCOC Health and its medical expert team on-site. The emergency ward has now been restructured from the ground up to better conform with proven international practices, such as the introduction and training of multi-modal trauma teams. The improvement was tangible in the first ever mass casualty exercise conducted in the Atyrau Oblast Hospital in April 2018.

The Ministry of Health has praised the initiative at Atyrau Hospital, and is discussing now the possibility to replicate some of its success to other hospitals in Kazakhstan, by sending their doctors and health officials to learn principles and see the system in action under actual conditions.

Most importantly, in a job where minutes matter, the improvements mean that more lives can be saved. This is the gratifying outcome of an approach that identified a sustainable solution benefitting both NCOC and the community.

“GREEN OFFICE” INITIATIVES

In January 2018, NCOC’s Facilities Management department installed plastic waste containers at all NCOC offices, Atyrau Training Center and Samal Camp at Bolashak. Almost five tonnes of plastic waste and cellophane have been collected in 2018, and recycled into polymer sand to make 500 square meters of roof tiles and 1000 square meters of paving slabs.

Single-use (plastic) disposable cups were phased-out and replaced by a “Bring Your Own Cup” initiative. Nineteenliter bottled water coolers were replaced with tap water filtration stations. These and other measures allowed NCOC to reduce its plastic waste by 50-60% in 2018, reducing costs at the same time.

9.2. EMPLOYEE ENGAGEMENT IN THE COMMUNITY

NCOC encourages employees to take active part in the betterment of their communities.

  • NCOC organized a clean-up campaign of the Ural River bank, “Clean city Atyrau,” jointly with local environmental NGOs, municipal public offices and state agencies.
  • NCOC employees at the Bautino Marine Support Base organised a clean-up at Dubski Garden on the western coast of the Tupkaragan peninsula, collecting 120 kg of garbage.
  • NCOC and its employees participated in important local holidays for the community, such as Nauryz (Kazakh New Year) and Victory Day.

  • In 2018, NCOC employee volunteers delivered engaging fire safety presentations to more than 5,000 kids in local Atyrau local schools, teaching escape and evacuation precautions and raising awareness on actions to take in case of fire.
  • The NCOC Oil Spill Preparedness team visited Fort-Shevchenko school lyceum where they shared with students new technologies in oil spill and preventive HSE measures.
  • In 2018, the Facilities Management department in NCOC launched several “Green Office” initiatives. It has been calculated that in 2018 NCOC shuttle-bus pools, which FM organizes and the majority of office workers in Atyrau use on a regular basis, saved 63,000 trips in personal cars, equivalent to a reduction of nearly 500 tonnes of CO2.

9.3. NCOC WORKFORCE; LABOR RIGHTS

NCOC AIMS TO BE AN EMPLOYER OF CHOICE IN KAZAKHSTAN.

NCOC goes well beyond legal requirements of the Labour Code to provide compensation and benefits that attract, motivate and retain employees, and to incentivize their contribution to achieving our business objectives. NCOC carefully calibrates the competitiveness of its salary and benefits package with market surveys.

The remuneration philosophy is based on a “pay for performance” approach that is aligned with our Mission, Vision, values and culture at NCOC. In addition to the annual general salary increase and Oilman’s Day bonus payment, an employee may receive an Individual Merit Salary increase and a variable annual Company Performance bonus, plus discretionary allowances and special monetary awards for outstanding performance or adherence to company values. Kazakhstan citizens who are directly hired by NCOC receive numerous other compensations and benefits, including generous paid and unpaid time off, paid pension, continuing education assistance, medical and life insurance, free commute on company shuttle bus, financial assistance programmes for health club membership, home mortgage, wellness and medical issues, bereavement, children’s education and books.

NCOC is an exciting, international collective where English is used in a business setting, and opportunities exist for International Development Assignments in NCOC shareholder companies (see Section 8.6 on Job Skills Training and Knowledge Transfer).

In 2018, 36 Kazakhstan university graduates were hired by NCOC, five of these from universities in Atyrau.

Diversity and Inclusion

NCOC does not tolerate unlawful discrimination in employment. Our Code of Conduct for employees specifies that employment decisions are based only on relevant qualifications, merit, performance and other job-related factors.

NCOC does not tolerate any form of harassment, nor any action, conduct or behavior which is humiliating, intimidating or hostile. Managers have a responsibility to protect their staff from harassment, and to create a climate where individuals who have concerns about harassment in their work area may discuss the issues in confidence.

NCOC is committed to providing an open working environment in which respect for each other is fundamental, continuous improvement is a shared goal, and the concerns of individuals are taken seriously and dealt with positively, without prejudice to them or their career.


In 2018, 32% of NCOC’s workforce are women.

Workforce Grievances

NCOC has clear policies and procedures for dealing with workforce grievances, which apply equally to its contractors and sub-contractors. Grievance procedures serve to bring employee problems to management’s attention and ensure open, proper and timely review and resolution before frustrations can evolve into conflict. Employees may express their grievances freely and openly without fear of dismissal and intimidation. NCOC must accept, register, and review any written grievance submitted by an employee. Employees have the right to appeal a decision, which he/she thinks may be violating his/her labor rights If not resolved within NCOC, the

grievance may be referred to appropriate RoK officials. By law, neither NCOC nor its contractors may compel employees to join or not join a legal labor action, and must reserve for the employee any prior job position and benefits.

NCOC has policies and procedures in place for monitoring timeliness of salary payment, living conditions and canteen facilities provided by our contractors and sub-contractors.

9.4. HUMAN RIGHTS DUE DILIGENCE

NCOC has been working for many years to promote respect for human rights within our organization. Our approach consists of several core elements, including:

  • Compliance with applicable laws and regulations;
  • Regular dialogue and engagement with our stakeholders;
  • Contributing, directly or indirectly, to the general well-being of the communities within which we work;
  • Adherence to our General Business Principles, the Code of Conduct, and the Anti-Bribery & Corruption Manual, which address related issues.

As it relates to our staff, this approach manifests as compliance with law, protection of employees’ personal data, respect for diversity, and continuous improvement of our Human Resources programmes and policies (see section on NCOC Workforce).

Suppliers are also contractually obligated to comply with our General Business Principles an d Code of Conduct in all aspects of their work with us.

Security

NCOC has programmes and measures in place to provide security and safeguards as appropriate to protect its people, operations, facilities, business information, and other assets. NCOC sites have implemented security programmes based on a proven, structured risk assessment methodology. NCOC complies with relevant laws and regulations affecting security in areas where we operate, and we support a coordinated and cooperative approach to infrastructure security with the competent local and national security agencies.

NCOC requires its security contractors to abide by the Voluntary Principles on Security and Human Rights.

10. REPORTING PROCESS

10.1. PRINCIPLES

NCOC reports sustainability performance in a full and transparent manner to its stakeholders in compliance with its General Business Principles, and subject to relevant terms of the North Caspian Sea PSA.

This report is guided by global best practice; foundational is the 3rd edition (2015) of “Oil and Gas Industry Guidance on Voluntary Sustainability Reporting” (“the 2015 Guidance”). Our intent is that, through strict adherence to its indicators and processes, this report will be relevant, transparent, consistent/systematic, complete, and accurate in the sense defined by the 2015 Guidance.

The data is fully consistent with reports on environmental and socio-economic performance of the North Caspian Project made to NCOC shareholders, and to the Republic of Kazakhstan in its oversight and regulatory capacities.


10.2. MATERIALITY

A MATERIALITY ANALYSIS WAS CONDUCTED, IN ACCORDANCE WITH THE IPIECA 2015 GUIDANCE.

Identification

The base set of reporting indicators are those in the pilot 2015 NCOC Sustainability Report, based on “common” reporting requirements of the IPIECA 2015 Guidance. Stakeholder engagements, issues monitoring and media inquiries were also used to identify potential material issues specific to this project.


Prioritization

The frequency with which stakeholders raise certain issues and the volume of response material in our databases, media coverage, and considerations of timeliness are criteria which have all influenced the prioritization of issues and inclusion herein. The structure of the report has been evolved from the 2015 Guidance’s illustration of the interconnecting social, economic and environmental dimensions of sustainable development, reproduced as a figure in the Report Structure section.

10.3. DATA PROTOCOLS

For more than a decade, the Operator has had robust management and other systems in place for collecting and analyzing environmental, safety, production and financial activity, and reporting it to the shareholders of the North Caspian Project, as well as to the PSA Authority and RoK government agencies at various levels for oversight and regulatory compliance submissions. This report uses the same data sources and reports provided to them. If there is a difference (e.g., in units or definitions) between reporting requirements of the 2015 Guidance and those of Republic of Kazakhstan, we are governed by the latter and attach a footnote to the Performance Table.

10.4. EXTERNAL ADVISORY BOARD

The NCOC Sustainable Development Report has been produced, just like last year, in close cooperation and engagement with the External Advisory Board. Making NGOs part of the report discussion represents another practical step of the company to facilitate development of the civil society and achievement of sustainable development goals in our country. An open dialogue with the “third sector” showcases the will of the NCP Operator to be transparent in its operations and ensure robust implementation of the trilateral partnership program between the State, business and NGOs.

This cooperation can be definitely referred to as a two-way road. Discussions of the report have been beneficial for NGOs since they expanded significantly their opportunities to have information about the company’s operations, enhanced their competencies, e.g. in the use of an analytical approach to sustainable development issues, and improved their understanding of such issues as the LC development under the North Caspian Project in the national context, given the scales of Kazakhstan. We have gained an invaluable experience of the joint integrated analytical exercise with actual data on multiple domains: economic, social, environmental.

NCOC took onboard, just like last year, many recommendations of the Council members that had been generated through participatory discussions. A wide range of comments on environmental and social

EXTERNAL
                ADVISORY
                BOARD
EXTERNAL ADVISORY BOARD

activities highlighted not only positive outcomes but also issues that require more focus and should be addressed in the future for improvement purposes. NCOC has re-affirmed its commitment to the open dialogue and improvements. We are confident that such mutually beneficial cooperation is key to the success of the North-Caspian Project in all lines of business.

10.5. ASSURANCE

For more than a decade, NCOC’s data gathering and reporting systems have been subjected to a variety of audits and “cold eyes” reviews by shareholders, and inspections or reviews by the relevant governmental regulatory agencies.

NCOC holds the following certifications:

  • OHSAS 18001 (Occupational Health and Safety Assessment Series)
  • ISO 14001 (Environmental Management Systems)
  • ISO 9001 (Quality Management Systems)

The external verification for these awards requires NCOC to regularly demonstrate not only compliance, but also continuous improvement in its management systems.

10.6. TABLE OF CORRESPONDENCE TO IPIECA 2015 AND GRI-G4 INDICATORS

This table shows indicators in this Sustainability Report from IPIECA’s 2015 Guidance, and an approximate mapping to the GRI G4 Guidelines based on the equivalence table in the 2015 Guidance appendix (only for items with High alignment).

MESSAGE FROM THE MANAGING DIRECTOR

1. ABOUT THE NORTH CASPIAN PROJECT

  • 1.1. Project Description
  • 1.2. 2018 Activities
  • 1.3. Export Options
  • 1.4. NCOC Governance and Management Systems
2. NCOC PERFORMANCE DATA

3. REPORT STRUCTURE

  • 3.1. SUSTAINABLE DEVELOPMENT GOALS

4. SOCIO-ENVIRONMENT

  • 4.1. Health and Safety
  • 4.2. Process Safety and Asset Integrity
  • 4.3. Fresh Water
  • 4.4. Greenhouse Gas Emissions

5. ENVIRONMENTAL STEWARDSHIP

  • 5.1. Policies and Programs
  • 5.2. Biodiversity of the Caspian Ecosystem
  • 5.3. Discharges to Water
  • 5.4. Non-GHG Air Emissions
  • 5.5. Oil Spills to the Environment
  • 5.6. Waste
  • 5.7. Onshore and Offshore Surveys
  • 5.8. Decommissioning and Remediation

6. ECO-EFFICIENCY

  • 6.1. Energy
  • 6.2. Flaring
7. ECONOMIC BENEFITS TO KAZAKHSTAN

8. SOCIO-ECONOMIC

  • 8.1. Social Infrastructure Projects
  • 8.2. Sponsorship and Donations Program
  • 8.3. Local Content Performance
  • 8.4. Local Content: NCOC Policy and Programs
  • 8.5. Growing Local Industry Capability
  • 8.6. Job Skills Training and Knowledge Transfer
  • 8.7. Nationalization
  • 8.8. Business Ethics
  • 8.9. Preventing Corruption
  • 8.10. Engagement in Public Policy

9. SOCIAL PROGRESS

  • 9.1. Engagement with the Local Community
  • 9.2. Employee Engagement in the Community
  • 9.3. NCOC Workforce; Labor Rights
  • 9.4. Human Rights Due Diligence

10. REPORTING PROCESS

  • 10.1. Principles
  • 10.2. Materiality
  • 10.3. Data Protocols
  • 10.4. Assurance
  • 10.5. Table of Correspondence to IPIECA Indicators
  • 10.6. Table of Correspondence to IPIECA 2015 and GRI-G4 Indicators


NCOC
  • About North Caspian Project
  • North Caspian Project Major Milestones
  • NCOC Governance and Management Systems
  • Production Operations Progress
  • Caring for the Environment
  • Unique Landscape
  • Unique Wildlife
  • Environmental Stewardship
  • Economic Benefits to Kazakhstan
  • Local Content
  • Social & Infrastructure Projects
  • Sponsorship programme for RoK students
  • Sponsorship & Donations
ETHICS AND COMPLIANCE
WORKING WITH NCOC
  • Individual
  • Supplier
  • Procurement process
  • HSSE Training courses
PUBLICATIONS
NEWS
SUSTAINABILITY
  • Sustainability Report 2021
  • Sustainability Report 2020
  • Sustainability Report 2019
  • Sustainability Report 2018
  • Sustainability Report 2017
  • Sustainability Report 2016
  • Sustainability Report 2015
  • Employees’ Area

© North Caspian Operating Company