1.1. PROJECT DESCRIPTION

The North Caspian Project is the first major offshore oil and gas development in Kazakhstan. It covers three fields: Kashagan, Kairan, Aktote.

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 (4,200 meters).

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 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 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 has studied multiple development scenarios for Aktote and Kairan, located in shallow waters approximately 125 km southeast of Atyrau and 48 km east of NCOC’s D-Island hub. The two fields are similar to nearby Kashagan in terms of high sulfur content, high downhole pressures, and reservoir depths between 3 and 4.5 km. Water depths are shallower than Kashagan, varying between 0-2 meters.

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 required to better understand Kashagan field performance and use that knowledge to improve development plans. In 2018, the RoK Government granted NCOC a five-year extension of time until end of 2022 for additional study of development options.

NCOC is actively studying opportunities for further growth within the North Caspian Project. It may include expansion of onshore processing capacity, new offshore islands and new wells.

1.2. 2019 ACTIVITIES

From the start of production at Kashagan in 2016 to year-end 2019, NCOC has produced 36.6 million tonnes of stabilized oil. Overall production reliability remains high and has continued to exceed expectations, allowing NCOC to keep flaring to a minimum.

In 2019 NCOC safely completed its first major turnaround of Kashagan offshore and onshore facilities 10 days ahead of schedule.

During the 2019 Turnaround NCOC modified the offshore gas injection system. Higher gas reinjection rates resulted in oil production increase approximately by 30 thousand barrels per day and actual average oil production rate of 370 thousand barrels per day.

Driven by successful completion of the turnaround and modification of the gas injection set-up offshore, the total volume of oil production was 14.13 million tonnes, 7% higher than in the previous year.

In 2019 the amount of exported sulfur reached 1.5 million tonnes, 14% higher than in the previous year.

Near-Term Outlook

Further possible steps include upgrade of the existing raw gas injection compressors at Kashagan, ramp up of offshore and onshore capacities, additional drilling and construction of additional pipelines between the facilities. These improvements if agreed with the Government of Kazakhstan and our investors, would enhance production rate to 450 thousand barrels per day or higher.

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.

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 North 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.

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

Today the Consortium includes seven of the world’s largest and most experienced energy companies: KazMunaiGas, 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 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 nomination of a single Operator – North Caspian Operating Company N.V. (NCOC)¹. The top executive officer of NCOC is Managing Director.

To ensure compliance of Company’s systems and processes with the highest international standards, NCOC holds the following certifications:

• ISO 9001:2015 (Quality Management Systems)
• ISO 14001:2015 (Environmental Management Systems)
• OHSAS 45001:2018 (Occupational Health and Safety Management System)

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.

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 (3 ^rd ed., 2015) and our analysis of issue materiality. (See the section “Reporting Process” for more detail.)

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.

Injury prevention is a priority and therefore, we investigate all incidents and high potential near misses to learn from them. We strive also to learn from incidents not our own, sharing learnings to improve safety performance across industry.

In 2019 NCOC had 24 recordable incidents, three of which were Lost Time Injuries. The Lost Time Injury Frequency (LTIF) slightly increased from 0.09 in 2018 to 0.11 in 2019. This compares well to the industry LTIF average of 0.26 as reported in 2018 by the International Oil and Gas Producers (IOGP).

The Total Recordable Injury Rate (TRIR) increased from 0.44 in 2018 to 0.88 in 2019. Approximately one third of the incidents occurred during the 2019 Turnaround. Although the rate increased in 2019 following steady and significant improvements from previous years, it still compared favorably to the industry TRIR average of 0.99 as reported in 2018 by IOGP.

In 2019 the number of man-hours worked increased from 22.5 million in 2018 to 27.2 million in 2019. Again, the increase was due to the Turnaround.

In 2019 we focused on improving the visibility of High Potential Incidents (HiPos) in our internal reporting and reviews. The new pyramid emphasizes the internal diamond to highlight HiPo incidents. This new Diamond Pyramid is shared with stakeholders. By highlighting 'diamond' incidents, our senior management is focusing attention on higher risk areas to reduce the occurrence of incidents that have the potential to cause a fatality or life-altering incident.

Close attention placed to the areas where we have the highest risk. For NCOC in 2019 these high focus areas include Road Transport, Dropped Objects and Lifting & Rigging.

4.2. PROCESS SAFETY AND ASSET INTEGRITY

Process Safety is about ensuring we consistently strive for zero leaks. It is about keeping our hazardous substances such as oil and gas contained and within the pipes, tanks and vessels so that we do not harm the environment or cause a safety incident. Process Safety starts with proper design of our facilities. We then move our attention to maintaining, inspecting and operating those facilities with the upmost of discipline.

Process Safety discipline requires cross-functional collaboration to define required controls and identify and maintain barriers that are required to prevent incidents.

NCOC utilizes key performance indicators to drive attention to needed areas. One of those indicators that NCOC improved in 2019 is its attention to identification of small leaks, weeps, and seeps. The goal is to identify leaks early, when they are small and then ensure those leaks are corrected before they can cause a safety or environmental consequence.

In 2019 NCOC took steps to better communicate process safety challenges and necessary behaviors to the workforce. By introducing Process Safety Fundamentals we were able to ensure our employees and contractors had a better understanding of risks and barriers. We are working across our facilities to apply a reflective approach to learning and encourage employees and contractors to discuss safety and risk in everyday conversations to better understand how we can direct individual behaviors to better prevent unplanned releases from our operations.

We continue to take steps to understand all operating risks and how multiple risks in areas of the facility cumulate to increase the overall risk to NCOC. This new approach, called Cumulative Risk Management, will be the basis for managing overall risk across our facilities with the aim of having simpler and safer ways of working.

We measure and report process safety incidents according to industry standards using a tiered system with Tier 1 incidents being the most significant. The attention and focus placed on Process Safety has led to an outstanding year for NCOC in which we completed the year without a single Tier 1 or Tier 2 incident.

4.3. 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.

OPF facilities are located in a region with very limited surface fresh water reserves. Groundwater has high salinity and cannot be used as a water source.

Due to the lack of own resources of fresh water, water is supplied from the Volga River in the area of Astrakhan and transported along the north-eastern coast of the Caspian Sea through Astrakhan – Mangyshlak pipeline operated by Main Waterline LLP. Water is supplied under the contract from Astrakhan – Mangyshlak pipeline to NCOC facilities for operational needs of OPF and domestic needs of the camps throughout the year. Bottled water is used at offshore and onshore facilities for drinking needs of employees. Water for Atyrau Training Centre and offices located in the city is supplied from the city water main.

Performance

The total volume of water withdrawn during NCOC operations in 2019 was 1,064 thousand m³. This includes 39 thousand m³ of desalinated fresh water in 2019.

The return water from the desalination unit in the volume of 88 thousand m³ is discharged into the sea in accordance with the special water use permit. The volume of fresh water consumed by NCOC onshore facilities is 940 thousand m³ . There is a slight increase in fresh water consumption as compared to the previous year. This is due to a scheduled maintenance. Accordingly, the volume of fresh water consumed per unit of production in 2019 was 55 tonnes of water per thousand equivalent tonnes of oil.

Offshore facilities also need fresh water: about 39 m³ were produced by offshore desalination units in 2019. 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 achieve this goal.

In 2019 NCOC treated and recycled about 82 m³ of water for greenbelt irrigation, dust suppression at onshore facilities in Mangistau and Atyrau Oblasts and for domestic use at the offshore facilities. The highest effect can be achieved by water recycling, i.e. the volume of water recycling in 2019 was 315,370 m³. As reported last year, NCOC halved the total amount of water withdrawn for Bolashak OPF needs from the Astakhan-Mangyshlak pipeline by recycling water from the Tail Gas Treatment Unit. In 2019 NCOC continued to pursue plans for additional wastewater treatment. Completion of the new facilities, expected in 2022, will further reduce water intake up to 70% and enhance the quality of water discharged into evaporation ponds.

4.4 GREENHOUSE GAS EMISSIONS

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 the approved National Plan for 2018-2020, and in the 2018-2019 period NCOC used about 44% of allowed quota

Total direct Greenhouse Gas (GHG) emissions from NCOC operations in 2019 totaled 3,068 metric tonnes CO₂-equivalent, including 2,885 tonnes of carbon dioxide (CO₂), 175 CO₂-equivalent tonnes of methane (CH₄), and 7.9 thousand CO₂-equivalent tonnes of nitrous oxide (N₂O). This total volume includes emissions from mobile and stationary sources.

There are almost no changes in the absolute values of emissions since 2017. Thus, the total specific emissions had reduced by 1.5 times vs 2017.

In 2019, 25 shut-off and control valves were tested for a leak-proof under the pilot project at onshore operational sites with 10 valves repaired during the scheduled maintenance works.

As a result of such activity, the avoided volume of GHG emissions from flaring was 1.6 thousand tonnes of CO₂-equivalent.

NCOC production facilities are self-sufficient in electricity, heat and steam supplies, which significantly increases the share of direct emissions (Volume 1) of the Company. Emission sources under the category Energy Activities have the greatest contribution and make up 70% of the Company’s total emissions. Indirect emissions (Volume 2) arise from purchased power for support facilities such as Bautino base and Atyrau Training Center. The total indirect GHG emissions from NCOC operations in 2019 totaled 8,003 metric tonnes CO₂-equivalent, all carbon dioxide.

Normalized GHG emissions intensity (the proportion of greenhouse gases emitted per unit of production) in 2019 was 159 CO₂-equivalent tonnes per 1,000 equivalent tonnes of oil produced. Comparison with other projects is difficult, due to methodological and baseline differences. As a rule, an offshore sour oil production project, such as North Caspian Project, which also has a high content of carbon dioxide in associated gas, will presumably have higher specific greenhouse gas emissions than onshore oil production projects with lower power consumption or sweet oil production projects operating in a stable mode. The best way is to use by stakeholders the intensity rates to compare NCOC performance in different years.

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

CASE STUDY – TURNAROUND

A turnaround is a complete shutdown of operations for a short period every two to three years.

In 2019 NCOC successfully completed its first major turnaround of Kashagan facilities. The success of turnaround was based on safety, high quality, shortest possible time, and minimum cost.

During 35 days of full shutdown NCOC implemented maintenance and safety inspections, and a number of projects to improve operational safety and competitiveness in future. These projects include the reboiler project at the Onshore Processing Facility, well conversion project offshore, and a large number of small and very crucial projects. Also, the offshore gas injection system was modified during the turnaround. This allowed NCOC to increase gas injection and oil production up to 370 thousand barrels per day.

Given the size of the Company’s offshore and onshore facilities, it was a challenge to ensure safety of the operations and the people involved in such operations.

Around 6,000 people, mostly Kazakhstan citizens, were involved in the shutdown activities at peak.

Turnaround project involved 42 contractors, out of which 32 were local contractors. The share of local Goods, Works and Services (GWS) reached 57.7%. Main contributors in Local Content performance during Turnaround were PSN Kazstroy JSC, ERSAI Caspian Contractor LLP, KTR EthosEnergy LLP, NefteStroiService LTD, and many others.

For the first time ever in Kazakhstan NCOC used a new Unmanned Ariel Vehicle (UAV or Drone) during the Turnaround. UAV called Elios was used to inspect the refractory lining in the two thermal oxidizer stacks in Oil and Gas facilities in OPF. Rather than the traditional scaffolding or rope access, we used UAV and took HD video and photos all the way to the top of the stack. The use of drone reduced HSSE exposure and saved costs.

A high profile event designed to assure Medical Emergency Response preparedness for Turnaround 2019 was conducted on April 10. NCOC Health department coordinated a large-scale mass casualty exercise jointly with Atyrau Oblast Hospital, turnaround medical subcontractors and Atyrau City Ambulance Station. The aim of the exercise was to test the communication and coordination between NCOC Health department, Turnaround medical contractors, Atyrau Oblast Hospital and Atyrau Ambulance services. In addition, the exercise enabled a close assessment of Atyrau Oblast Hospital’s ability to triage and deal with multiple casualties arriving simultaneously.

More than 50 participants were involved in the event including doctors, nurses, paramedics, and management, as well as the media.

Besides the obvious technical improvements that come from such a drill, it was also an opportunity for Atyrau Oblast Hospital, Ambulance station and Turnaround medical contractors to experience firsthand the NCOC values of leading in Safety & Health. Coaching each other on how to work safely and working in partnership with the community was useful for all parties.

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. According to NCOC Contract Management Policy all contractors are obligated to adhere to our Health, Safety and Environmental policies in all aspects of their work with us based on impact of their contracts with NCOC on health, safety and environment.

One of the crucial business approaches of the Company is 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.
General Business Policy on Health, Safety, Security & Environment

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 directly to the government agencies responsible for environmental protection, per terms of the North Caspian Sea PSA. These agencies ensure that the public is appropriately informed. For example, the Department of Environmental 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 Oblast.

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 annual EPP envisages the following types of projects: environmental surveys and monitoring of air, water, soil, and biodiversity; solid and liquid waste management; oil spill response; planting; and environmental awareness campaigns. Reports on implementation of the EPP are submitted to the governmental bodies on a quarterly basis.

Environmental Support Team

Environmental specialists of the environmental support team are present at each Company’s facility (Onshore, Offshore, Bautino Offshore Supply Base). The key objective of this environmental team is to cooperate with operations departments to ensure environmental compliance. This team closely interacts with NCOC employees and contractors directly on sites during briefings and daily inspections (scheduled, instruction-based, or unscheduled) conducted to verify compliance of the technical condition of equipment and operations with the requirements to environment protection and sustainable use of nature resources.

The team is also responsible for a prompt response to environmental emergencies, technical support in obtaining emission permits, monitoring of industrial waste

and waste water management, support during monitoring activities, provision of data and primary environmental 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. The North Caspian Sea is one of the most important stopovers along the migration routes in Eurasia, important nesting and mewing grounds for birds large populations and protected birds species. Geographical position, climatic and hydrological conditions make the North Caspian Sea a significant biodiversity centre.

Protection and preservation of this area’s unique biodiversity is a top sustainability objective.

Policy, plans and programmes

In view of the specific environmental sensitivity of the North Caspian and Ural River delta, and Ural-Caspian unique biodiversity, the North Caspian Project was allowed to proceed in 1993 under the condition to comply with Special Environmental Requirements to Performance of Business and Other Activities in the State Nature Reserve Zone in the Northern Part of the Caspain Sea. This environmental regulation was developed by a group of leading Kazakhstan scientists and international experts and approved by the Government of the Republic of Kazakhstan. The document established seasonal restrictions on operations, requirements to take special actions on bioresources protection, performance of environmental monitoring, actions and quarantees in case of hydrocarbons spills, environmental expert review, etc. A number of other environmental legislations were developed and approved which NCOC adheres strictly in its offshore petroleum operation in order to preserve the biodiversity of the Ural-Caspian region and the environment of the North Caspian Sea.

In 2019 NCOC started the work on another update of the Biodiversity Action Plan (BAP) aimed at minimizing the potential impact of Company’s operations on the biodiversity. (More detailed information is given in NCOC environmental brochure “Environmental Surveys and Initiatives” on website www.ncoc.kz.)

Caspian Seal

Similar to the previous years, since 2005, NCOC conducted winter seal monitoring in 2019

with involvement of Kazakhstani experts and under control of scientific-research institutes. The monitoring was conducted from Mangystau-3, Mangystau-4 and Tulpar icebreakers carrying cargo between Bautino Offshore Supply Base and Kashagan field with the direct involvement of experts– seal observers. In 2019, the monitoring took place in the period from February 1 to February, 28. At various times five volunteers from different NCOC departments were also present on board the icebreakers acting as seal observers and helping the experts in the surveys.

In addition to scientific data collection, on-board observers help the ship captains to avoid seals, in compliance with the mitigation recommendations developed by marine mammal experts at the start of the project. This is complemented with helicopter reconnaissance flights over the seal concentration areas. The reconnaissance results are reported directly to the icebreakers, where captains and seal observers define the safest navigation route. Recently, the thermal infrared cameras have been installed on all NCOC ice-breakers. These cameras enable observers to watch the seals day and night, in blizzard or fog, at the distance of hundreds meters from the vessel, which allows bypassing the seal grounds in advance.

Fish

Fish studies are regularly performed in offshore project areas in spring, summer and autumn. Tissue samples of non-migratory fish indicator species (gobies) are tested at random for hydrocarbons and heavy metals content.

Sturgeons are the most valuable species in the Caspian Sea. These species are currently endangered. In 2014 the Caspian Littoral States agreed to ban the commercial fishing of sturgeons to restore their population.

In 2019 NCOC continued its environmental management programme to support local fish populations by releasing 50,000 juveniles (fish youngsters) of sturgeon species to maintain populations of this valuable relict fish. The Company plans to continue releasing sturgeon juveniles in the Ural-Caspian Basin in the following years.

Bird Surveys in 2019

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

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

The birds 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, leading scientists and ornithology experts of Kazakhstan, and inspectors from Atyrau Oblast Department of Ecology and the Oblast Territorial Forestry and Wildlife Inspectorate.

Distribution and number of birds in 2019 largely match seasonal and behavioral patterns of species: thus, 141,000 birds were counted in spring (with 10-year average values of 153,000), 378,000 in autumn (with 11-year average values of 357,000). However, further loss of habitats suitable for birds is noted along the northern coastline. This is caused by continuous falling of the sea level and regular fires, resulting in decrease of the bird numbers in the Volga and Ural River deltas and their noticeable increase in the area of the Seal Islands.

5.3. DISCHARGES TO WATER

NCOC follows the zero discharge policy: no disposal or discharges of waste and treated waste water into the natural surface waters including the Caspian Sea.

NCOC uses lined evaporation ponds as the safest available method for managing treated industrial water. Treated wastewater from industrial processes and treated domestic effluents are discharged via the strainer filters into evaporation ponds/ gathering ponds for further evaporation.

The total volume of hydrocarbons discharged with treated domestic effluents and industrial water into evaporation ponds was 1.6 tonnes in 2019 . A significant decrease in hydrocarbon discharge into evaporation ponds versus the previous year is due to the termination of industrial waste water discharge into a separate section PLWDA-9.

In 2019 NCOC obtained all permits for discharge of treated water to evaporation ponds in accordance with environmental requirements of the Republic of Kazakhstan.

As noted in the section about Fresh Water, NCOC is planning to start construction of an additional waste water treatment plant at Bolashak OPF in 2020. This will maximize our capacity for recycling the water generated by technical and operational processes.

5.4. NON-GHG AIR EMISSIONS

The primary air emission sources at NCOC facilities include flaring units, gas turbine units, heating and hotwater boilers and diesel generators.

The flaring 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 readiness to flaring. The height of the flaring unit ensures maximum dispersion of combustion products in the air. Power is supplied to onshore and offshore facilities by gas turbines units running on associated gas produced from Kashagan field. The turbines are equipped with special burners designed to reduce nitrogen oxide emissions. Boilers produce steam, heat water and provide heating for buildings. Boilers run on fuel gas, however, use of diesel fuel is also possible. Diesel generators are used only for stand-by power generation.

In 2019 the volume of non-GHG air emissions from all NCOC operations totaled:

• 1,113 tonnes of volatile organic compounds (VOCs)
• 22,760 tonnes of oxides of sulfur (SOₓ), and
• 3,711 tonnes of oxides of nitrogen (NOₓ excluding N₂O, which is reported under GHG Air Emissions).

As compared to 2018, VOC and NOₓ emissions increased due to higher hydrocarbon production. SOₓ emissions decreased due to reduced gas flaring during the turnaround.

Air monitoring is an important part of NCOC general programme for industrial environmental monitoring. It includes the following several components:

Under-Plume Monitoring

Periodically, under-plume monitoring is conducted, using a specialized vehicle with air sampling and meteorological instruments. Mobile (under plume monitoring) station is designed to take samples under the (gas) plume in order to identify the footprint of a given industrial emission source. The sampling point is selected based on the largest expected concentrations of impurities. Location of sampling points varies depending on the wind direction at 8 rhumbs. Under plume stations are the points located at fixed distances from the sources, so under plume monitoring stations are located within the SPZ at distances of 4 and 6 km from high-and low-pressure flares at Bolashak OPF and vary depending on wind direction. Observations are performed for specific pollutants characteristic of the emission source. Pollutant concentrations are measured weekly downwind at the above distances. The following meteorological parameters are determined simultaneously with air sampling: wind direction and speed, air temperature and atmospheric pressure, weather conditions and the underlying surface.

Monitoring at Emission Sources

The Maximum Permissible Emissions Project (MPE) describes the facility and fixed processing equipment as an air pollutant source and provides brief description of the natural and climatic conditions in the area of operations. Maximum permissible emission rates are calculated for each emission source and they are binding on NCOC. Measurements of actual emissions from sources are made instrumentally. Flue sampling ports with specially equipped platforms are installed on the stack at every air pollution source (APS) for a regular monitoring at emission sources. A gas probe and a Pitot tube immersed into the flue, record measurement parameters in the instrument’s memory, namely, nitrogen oxide, sulphur dioxide, carbon monoxide, aerodynamic properties, such as speed and temperature of the gas mixture, vacuum in the flue duct and separately atmospheric pressure.

Air Quality Monitoring Stations

Supported financially and technically by NCOC, 20 stations for continuous monitoring of the air quality are installed in Atyrau city and Atyrau oblast. They operate on a 24/7 basis to collect meteodata and measure the content of pollutants in the air.

4 stations are located along the perimeter of the 7-km sanitary protection zone of Bolashak OPF; 7 more stations are installed in close to and remote from Bolashak settlements including Dossor and Makat; and 9 stations are located in Atyrau city.

The remote data transfer project has been implemented for the purpose of centralized data collection from the stations. It allows transfer of measurements data on 24/7 basis from every AQMS to the central computer in NCOC office, where such data is analyzed and stored. Simultaneously, the specialists of Atyrau Branch “KazHydroMet” and Atyrau Oblast Department for Natural Resources and Nature Use Regulation are provided with remote access to the data received from the Company’s stations and an opportunity for online monitoring of the air quality.

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, multi-year studies and computer models, government review and approvals, and finally, recent operating experience that confirms the models. As in the previous years, on-going monitoring in 2019 shows consistently that short-term H₂S peaks (from 1 to 20 minutes in duration) remain far more likely in Atyrau than near Bolashak OPF. No cases of high- (VZ) or extremely-high H₂S pollution (EVZ) were registered around Bolashak in 2019. This is confirmed by continuous monitoring performed by RGP Kazhydromet. (See the Report “Informational Bulletin on the Condition of the Environment of the Republic of Kazakhstan, 2019” www.kazhydromet.kz, where the summarized data from all twenty NCOC air monitoring stations is publish.)

5.5. OIL SPILLS TO THE ENVIRONMENT

Performance

In 2019 there were 0 hydrocarbon spills in excess of 1 barrel reaching the environment from NCOC operations (total volume: 0 barrels of oil-equivalent).

Performance

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

Actions taken in 2019

• Prevention. The most efficient way to protect from 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 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 100 trained staff, and equipment suitable for use in the harsh environment of the North Caspian Sea. Such equipment is stored at marine support bases in Bautino and Damba. NCOC has a comprehensive Oil Spill Response Plan that is regularly drilled.

In 2019 Bautino Base and Atyrau hosted training courses for NCOC employees in accordance with IMO level 2 and IMO level 3 International Standards. The training was delivered by the company “Oil Spill Response Limited” (OSRL) company that provides additional support in case of Tier 3 oil spill.
As part of the Net Environmental Benefit Analysis (NEBA) project implementation in Kazakhstan, NCOC organized a workshop jointly with OSPRI and Shell under the aegis of the Ministry of Environment, Geology and Natural Resources, the Ministry of Energy of the Republic of Kazakhstan, titled "Practical application and decision-making on selection of oil spill response methods based on the NEBA”. The workshop objectives included the following:

• Informing about the herder test results
• Interpretation of herder and dispersant data
• Informing about the importance of NEBA/SIMA (Spill Impact Mitigation Assessment) for immediate response
• Practical application of NEBA/SIMA results.

The main conclusion made on the basis of NEBA application is that it is crucial to ensure the oil collection while it is still in the sea and has not reached shallow water areas, reed beds and sensitive shorelines, where any actions to protect environment and eliminate consequences of the spill would be low efficient. This conclusion is consistent with oil spill response practice around the world. In order to clean the oil while it is on the water surface and at a minimum distance from the spill source, it is expedient to combine efforts of response teams, governmental agencies and communities in order to lose no time on decision-making in the event of a spill.

In 2019 the Company updated and supplemented the Response Plan to Oil Contaminated Wildlife as part of continuous improvement of the process management quality. The updated Plan has been incorporated into the current oil spill response process used by the Company including international practice and legislation requirements applicable to oil contaminated wildlife operations.

The Plan describes actions to be taken if oil contaminated animals are found, namely, search and catch of animals, their stabilization prior to rehabilitation process; rehabilitation of animals at a special rehabilitation centre at Damba (the rehabilitation centre is fitted with additional equipment for rehabilitation of 500 birds and 100 seals), and release of animals into the environment free from oil pollution.

Currently the procurement process is ongoing to purchase the equipment for the camps to stabilize animals and for rehabilitation centre at NCOSRB (Damba). The Plan envisages possibilities to stabilize the animals offshore (sea barges with a shallow draft) and establishment of animals’ rehabilitation centre at Bautino Base.

Due to a large scope of works on animals saving it is expected to involve and train volunteers from the local communities. They will be provided with a special training on safety and animals saving.

5.6. WASTE

The total volume of waste generated by the Company in 2019 was 13,726 tonnes, including 9,092 tonnes of amber-level and green-level waste and 4,634 tonnes of non-hazardous waste.

The volume of waste generated in 2019 vs 2018 had increased due to the scheduled turnaround at NCOC offshore and onshore facilities.

Policies and Programmes

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

Waste management is performed throughout the life cycle of the waste starting from its generation to final disposal. Waste segregation (sorting) is an important process step. As hazardous and non-hazardous wastes shall not be handled together, they shall be collected in separate containers and leak-proof drums.

Food and medical wastes are classified as hazardous. TeamTec dual-chamber incinerators are installed at offshore facilities (floatels) to meet sanitary requirements and reduce their hazardous properties. A compactor is used for paper and cardboard waste pressing to reduce wastes.

According to the National Standards of the Republic of Kazakhstan, a system of separate collection of waste oil by types, batteries, mercury-containing waste and vehicle tires is introduced at all facilities of the Company.

All wastes generated at the Company’s facilities are transferred to a dedicated company for further processing and disposal.

To improve the staff awareness about the changes in waste management legislation, awareness-raising sessions were held during the Marine Contractor Forum, which greatly improved waste segregation at the place of their generation at offshore facilities. Video slides were presented on TV screens in all offices, as well as through the Company’s information system.

The Company has fulfilled environmental law requirements for establishing Landfill Decommissioning Funds. The funds are created to accumulate funds intended for reclamation and environmental impact monitoring after the closure of landfills.

Policies and Programmes

Existing Hazardous Waste Certificates have been updated due to the generation of new types of waste during the turnaround. Updated Hazardous Waste Certificates have been uploaded into the Single Environmental Information System of the Ministry of Ecology, Geology and Natural Resources of the Republic of Kazakhstan.

Specific and effective activity of natural radionuclides in liquid and solid wastes (sludge and industrial waste water) generated during the turnaround was measured. The results demonstrate that the content of radionuclides in the Company’s industrial waste does not exceed the permissible levels set by RoK Hygienic Standards and Sanitary Regulations.

In its waste management strategy, the Company is committed to comply with both international and national standards.

5.7. ONSHORE AND OFFSHORE SURVEYS

NCOC implements a comprehensive environmental monitoring programme to collect offshore data and analyze the chemical composition of seawater and bottom sediments, and to study fish, benthos and plankton populations.

Offshore impact monitoring covers the entire license area of Kashagan, Aktote, Kairan fields, the northern offshore section of the main pipeline and Tupkaragan Bay. The total number of monitoring stations in 2019 was 239, including 9 long-term observation stations used as baseline stations. All these stations monitor chemical and physical properties of seawater, bottom sediments, (zoo- and phyto plankton) and zoobenthos organisms, aquatic plants, ichthyofauna and air quality.

Currently, the industrial environmental control includes annual offshore studies in all climatic seasons (except for the ice-covered area in winter) and onshore studies around the Company’s facilities in Atyrau and Mangystau Oblasts. The scope of these studies covers flora and faun, soil, bottom sediment and air quality, in order to better understand the quality of flora and fauna in the Caspian region. More detailed information on environmental studies is available in NCOC brochure “Environmental Surveys and Initiatives”.

Upgrade of Monitoring Well Network and Optimization of Ground Water Monitoring System in Atyrau and Mangystau Oblasts

In 2019-2020, the Company plans to optimize the monitoring system in the area of the Company’s onshore facilities in Atyrau and Mangystau Oblasts and to complete a large scale upgrade of the monitoring well network including maintenance and abandonment of existing monitoring wells and drilling of new wells.

The purpose of work is to ensure effective monitoring of groundwater, immediate response in case of any contamination reveal at the Company’s facilities and compliance with the requirements of environmental authorities.

Development of a mathematical (computer) hydrodynamic model of groundwater distribution in the area of NCOC facilities in Atyrau Oblast.

Field work was completed in 2019, office processing is scheduled for 2020 to study the hydrodynamic state of groundwater in the area of NCOC facilities in Atyrau Oblast based on mathematical (computer) modelling of distribution of upper aquifer of groundwater.

The main purpose for development of the mathematical model is to provide reliable, and relevant information on hydrodynamic conditions and hydrochemical processes occurring in upper aquifers.

The resulting mathematical model of hydrodynamic conditions of groundwater can be used in the long term for further monitoring and study of groundwater in the area of the Company’s facilities, as well as for the optimization/expansion of the network of observation water wells.

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. Each programme will require an environmental impact assessment to determine the preferred option to apply to a particular facility.

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 2019 totaled 37.63 million gigajoules (GJ). Of this amount, 0.11million GJ was imported (purchased).

Normalized energy intensity (energy use per unit of production) in 2019 was 1.94 GJ per oil-equivalent tonne of production, which was improved for about 5% in comparison with 2018.

In 2019 NCOC completed the mandatory energy audit at all its facilities. The energy audit resulted in follow-up actions that are included in the Energy Saving and Energy Efficiency Improvement Plan for further implementation.

At the end of 2019, NCOC started preparations for introduction of Energy Management System to ensure a more systematic and comprehensive approach to energy efficiency and creation of an energy-saving culture at all levels of the Company. The actions taken for energy-saving resulted in decrease of power consumption at Bautino Base by 17% in 2019 versus 2018.

6.2. FLARING

Kashagan Phase 1 Project was originally designed to avoid routine flaring, i.e. the “routine” burning of excessive gas volumes because an oil and gas project has no other economic way to dispose it in the course of oil production. As a matter of fact, at Phase 1 of Kashagan development, all produced gas is re-injected, used as fuel or sold.

Flaring is, however, needed in the course of operations as the safest and most effective way to deal with gas that for temporary technical reasons could not be processed (for example, commissioning activities, operations, small leakages through the valve 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. NCOC is working continuously to reduce the volumes of technologically unavoidable gas flaring by improving methods of control at onshore and offshore facilities. Every year since the project inception, the volumes of gas for flaring have been reduced and optimized.

The quantity of hydrocarbon gas flared from NCOC operations in 2019 was 37% of permitted volumes, and totaled 57.7 million Sm3 (standard cubic meters). Flaring was down by about 9% in 2019 compared to the previous year, even with oil production increase by 7%. Operational reliability has been better than expected, and this improved process stability during commissioning allowed us to keep flaring below 1% of total produced gas volumes.

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$730 million was spent on local content in goods, works, and services in 2019, equivalent to 52.4% of total expenditures.

Mangystau and Atyrau oblasts also benefit directly from social and infrastructure related projects funded by NCOC. The total value of these projects exceeded US$700 million since the beginning of Kashagan Phase 1 Project.

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

8.1. LOCAL CONTENT PERFORMANCE

In 2019 the North Caspian Project spent USD730 million on local goods, works and services, equivalent to 52.4% of total expenditures, a new record for NCOC in percentage terms. This adds up to a year-end total of more than US$14.8 billion spent on local goods, works and services since 2004¹¹. These and other facts speak to the depth of NCOC’s commitment to the use of local content.

8.2. LOCAL CONTENT: NCOC POLICY AND PROGRAMMES

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

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

8.3. GROWING LOCAL INDUSTRY CAPABILITY

Development of local vendors is a priority for NCOC. 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.

Since 2006, about 1,400 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 2019, 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 2019, 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 tendered under the North Caspian Project.

From 2006 to 2019 the Operator provided more than 3,800 employees of local companies with specialized professional training in the most in-demand craft skills, including Working in Confined Spaces, Industrial Welding Safety, Electronic Systems and Assembly, Working at Height, Mobile Crane Operations, etc.

8.4. SOCIAL INFRASTRUCTURE PROJECTS

Under the North Caspian Sea PSA, NCOC allocates a budget each year for development of social infrastructure projects. In 2019 this budget amounted to USD 76.8 million. The funds for construction of schools, kindergartens, hospitals, sport facilities, as well as utilities such as roads, electric power and water supply lines, and other infrastructure for the local communities are split equally between Atyrau and Mangystau oblasts, the areas of the main operations under the North Caspian Project activities.

In the period from 1998 to 2019, 214 social infrastructure projects have been completed.

Thus, cumulative spend on social infrastructure projects has reached US$697,6 million.

Social infrastructure projects are generally proposed by the Oblast Akimats (governments). Proposals are reviewed by NCOC and the PSA Authority to ensure they 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.

8.5. SPONSORSHIP AND DONATIONS PROGRAMME

Through its Sponsorship and Donations programme, NCOC responds directly to the needs and requests of local communities. US$1.5 million is split equally each year between Atyrau and Mangystau oblasts for community sponsorships and donations. The Sponsorships and Donation 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 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.

53 projects were completed in 2019 (31 in Atyrau Oblast and 22 in Mangystau Oblast). In total, US$20.5 million has been spent since 1998.

In addition, up to US$300,000 has been allocated every year since 2006 for summer camp for 200 underprivileged children and orphans from Atyrau and Mangystau Oblasts. In 2019 NCOC covered the costs of travel, camp and cultural-educational activities for these children at “Baldauren” centre in Burabai.

NCOC continues to support summer school project launched in 2018 jointly with Kazakhstan-British Technical University (KBTU) in Almaty. In 2019, during 21 days 100 teens from underprivileged families of Makat and Tupkaragan Districts studied the English language and the basics of programming. The classes were held in the laboratories of KBTU faculties of oil and gas and IT, business school and the Marine Academy

In 2019 as part of a traditional “Road to School” campaign NCOC supported 200 children from underprivileged families from Atyrau city and Makat District of Atyrau Oblast, and 200 children from Aktau city and Tupkaragan District of Mangystau Oblast. Future first-graders received backpacks with all necessary school supplies and stationery. Since the beginning of this campaign NCOC has supported almost 3,000 school children.

8.6. 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 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 with its facilities located in Atyrau and Mangystau Oblasts. We strive to be an employer of choice and a respected member of the local community. 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 role in achievement of this goal.

Through its Sponsorship and Donations programme, NCOC positions itself as a socially responsible company that supports local communities.

In August, NCOC sponsored a one week Environmental Summer School close to Aktau, where highschool students were engaged in theoretical classes and practical environmental studies to promote the ideas of sustainable development of the Caspian Oblast. The Summer School is traditionally held in the period of annual celebration of the “Caspian Day” in August.

During the year, we shared the information with the local communities on a regular basis and discussed theirs concerns regarding the North Caspian Project.

On March 15 and April 26, NCOC met with representatives of Non-Governmental Organizations (NGO) and state bodies of Atyrau and Mangystau Oblasts to present social projects implemented in Atyrau and Mangystau Oblasts and share the experience in engagement with local community as part of Corporate Social Responsibility.

On May 24, NCOC organized an environmental “round table” with NGOs, representatives of governmental agencies and the local community to present the projects on

"Comprehensive study of the Caspian seal population in cooperation with scientists from Kazakhstan and Russia" and "Comprehensive study of atmospheric air quality in Atyrau and nearby settlements". NCOC ecologists reported on the progress under these projects and plans for further expansion.

On October 9, NCOC organized an awareness tour for 20 journalists from national and local media, including Khabar, 24 KZ, Caspian News and Atyrau TV channels and Esquire, Kursiv, Oil and Gas Kazakhstan, Prikaspiyskaya Kommuna newspapers.

The objective of this tour was to improve journalists’ awareness about the North Caspian Project, Kashagan field, local content development, NCOC role and other issues, thus establishing a pool of qualified journalists who could be involved in NCOC communication campaigns.

This Sustainability Report has become a new and effective forum for engagement with the local community. At the beginning of 2019 when we were preparing the 2018 Report we met with the External Advisory Board, representing the combined opinions of environmental and social NGOs from Atyrau and Mangystau Oblasts, to receive their comments and recommendations. In April 2019, we presented the 2018 Report to the public and answered questions at three special meetings in Atyrau and Aktau, moderated by Shynar Izteleuova, Director of the Zhayik-Caspian Aarhus Center.

NCOC has in place a comprehensive programme for communication with the stakeholders and engagement with local media on pressing issues. In order to support the local companies in finding new economic opportunities related to the North Caspian Project, we provide the information by using various ways from general awareness seminars about the Project and participation in industry conferences, to specialized vendor audits and dedicated training courses (For more information please see the Local Content section). Any citizen can raise concerns or report potential non-compliance with our values and principles (including anonymously) to NCOC Ethics and Compliance officer, or use the Compliance Hotline opened in 2017 (For more information please see the Business Ethics section).

8.7. EMPLOYEE ENGAGEMENT IN THE COMMUNITY

In 2019 NCOC employees actively participated in nationwide environmental campaigns “TazaQazaqstan” (“Clean Kazakhstan”) and “Birge Jasyl Qazaqstan” (“Going Green together, Kazakhstan”):

• On August 3, NCOC staff and their families cleaned up 3 km territory assigned by Atyrau Akimat near the Atyrau-Makhambet-Astrakhan ring road. Within 3 hours 2 trucks of waste were collected.
• On August 24, NCOC volunteers together with KMG Systems & Services Company with joint support of “Ak Zhaiyk” Nature Reserve representatives, Regional Inspection of Forestry and Wildlife and Damba Akimat cleaned the territory adjacent to the North Caspian Oil Spill Response Base. Volunteers collected 1,260 kg of waste.
• On October 12, NCOC employees from Nur-Sultan, Aktau and Bautino joined a large-scale campaign “Birge Jasyl Qazaqstan”. Overall, 220 trees were planted.
• On May 26, NCOC organized an annual clean-up campaign of the Ural River bank ("Atyrau – a clean city ") jointly with Atyrau Inspection of Forestry and Wildlife and Atyrau Akimat. The campaign resulted in 25 cubic meters of garbage collected at site.
• NCOC and its employees participated in important local holidays for the community, such as Nauryz (Kazakh New Year) and Victory Day.
• In 2019 NCOC volunteers delivered fire safety presentations to more than five thousand kids in Atyrau schools, raising awareness on actions in case of fire and teaching escape and evacuation.

8.8. 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 18,000 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 Operator has spent in total about US$289 million on job skills and professional training to build local capacity for the North Caspian project.

In 2019 116 students completed internships at NCOC. The programme provides an opportunity for local students to work in the international oil and gas company, and to get hands-on experience with the most modern equipment in the industry.

In 2019 13 NCOC employees were assigned for International Development Assignment Programme. The programme was launched in 2018 to provide an opportunity for NCOC employees to work overseas in our shareholders’ companies for up to two year assignments in order to enhance their skills, expand the existing knowledge and prepare for future roles in the Company.

NCOC Scholarship Programme

NCOC established a Scholarship programme for students in accordance with the NCSPSA. The Operator has sponsored 3,420 students from Kazakhstan to study in educational institutions inside and outside the Republic of Kazakhstan with a monetary value over US$8.3 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 the disciplines related to the petroleum industry, including training courses at universities, colleges or other educational institutions. In 2019-2020 academic year, NCOC has sponsored 420 students in 42 educational institutions.

8.9. 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 2019 Kashagan Phase 1 Project has significantly exceeded these targets, with:

• 82% of managerial staff taken by local personnel
• 95% of technical and engineering employees, administrative staff, and qualified specialists taken by local personnel
• 100% of workers and supporting personnel taken by local personnel.

Overall at the end of 2019, 91% out of over three thousand employees of NCOC are Kazakhstan citizens, and 95% out of ten thousand people engaged in the North Caspian project are Kazakhstan citizens.

8.10. NCOC WORKFORCE; LABOR RIGHTS

NCOC goes well beyond legal requirements of the Labor 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, Oilman’s Day bonus and Vacation Wellness Support 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 7.8 on Job Skills Training and Knowledge Transfer).

In 2019 NCOC hired 25 Kazakhstan university graduates of technical specialties background.

Employee Engagement

NCOC’s aspiration is to attract future leaders and retain high performers, particularly in business-critical areas within NCOC, and to lead to increased performance, stronger engagement within the workforce, driven by strong relationships between the employee and supervisor.

In 2019 NCOC launched an engagement survey in order to understand the current overall employee engagement and check the health of the organizational capability in NCOC. It serves as a baseline for developing the NCOC Engagement Action Plan to identify what the organization will do with any key findings to drive engagement over the next 24 months.

The survey will be conducted every two years and focused on the following 8 key organizational drivers:

• Direction and Performance
• Structure and Accountabilities
• Process and Systems
• Leadership
• Ways of Working and Behaviours
• People and Skills
• Compensation and Benefits
• Employee Engagement

Diversity and Inclusion

NCOC does not tolerate 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.

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.

8.11. 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 and 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 security risks management includes the support from Government Security Forces and private security providers. Local RoK State Security Forces support NCOC Security department to deal with all instances of site invasion including crowd control, large demonstrations or riot.

NCOC Security department ensures compliance with Voluntary Principles on Security and Human Rights (VPSHR) and requires its security contractors to abide by these Principles. VPSHR are included into the contract with security contractors.

In 2019 NCOC continued to further embed the VPSHR and implemented trainings to increase awareness at operation and corporate level.

NCOC Security department organized a number of trainings and workshops for security contractor. Moreover, we conduct regular internal self-assurance reviews to ensure Security contractor’s compliance with “Ethical conduct and human rights”.

8.12. BUSINESS ETHICS

Awareness

NCOC’s General Business Principles apply to all our business affairs and describe the behavior expected of every staff member of NCOC, including direct-hire Kazakhstan citizens, secondees, and contract staff. In addition, all NCOC staff are required to adhere to a Code of Conduct, which instructs them how to apply the General Business Principles in line with our core values. It provides practical guidance on how to comply with laws and regulations and how to relate to customers, communities and colleagues. Staff communications and monitoring programs 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 “due diligence” background checks before contracts are signed. NCOC’s contracts also include the requirement for contractors and suppliers to conduct their business activities with integrity and high ethical business standards. After risk screening, some companies may also 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 General Business Principles or Code of Conduct. If an employee observes such an action or instruction, he or she is required to refer the situation in confidence to a supervisor, to the NCOC Ethics & Compliance Officer, or to the Compliance Hotline for further investigation and possible disciplinary action. The Compliance Hotline is a 3rd party operated website ( http://www.ncoc.deloitte-hotline.com), with e-mail address (ncoc.hotline@deloitte.kz) and phone number (8 800 080 15 65 ) that allows anyone to report suspected violations of law, General Business Principles and Code of Conduct including on an anonymous basis.

NCOC staff, vendors, suppliers, contractors or anyone else can raise concerns or report possible non-compliance 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, NCOC’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.

8.13. PREVENTING CORRUPTION

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 apply.¹²

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 non-compliance 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.

8.14. 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.

¹¹ Local goods, works and services are defined per Unified Methodology (2010) on local content 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.

¹² The US Foreign Corrupt Practices Act (FCPA) and the UK Anti-Bribery Act are two foreign laws that could apply to companies or citizens of those countries, even if their activities take place in Kazakhstan.

In 2019 NCOC conducted 126 courses to train over one thousand Kazakhstani technical specialists. Such training allows local companies identified by NCOC Local Content Department to improve their skills and meet requirements of international standards, codes and strict industry norms applied widely today.

CASE STUDY - INVESTMENT IN EDUCATION

STEM laboratory

NCOC opened a STEM laboratory in the secondary school No.23 named after A.Baitursynov in Atyrau.

STEM (Science, Technology, Engineering, and Math) means key academic disciplines that help students to transform theoretical knowledge into practical skills. The project’s goal is to raise children’s interest in science and technology, help them apply scientific and technical knowledge in real life, and develop critical thinking skills. The educational programme is divided into four areas – engineering, programming, robotics and 3D modelling. The laboratory includes special machine stations, robots, computers, design kits and many other equipment. The Company is confident that such skills will help children develop new ideas and encourage to achieve higherlevel competences given the demands of the modern labour market.

For learning the “Engineering” discipline, children are provided with safe tools that are commonly used by engineers in construction of real-life facilities. Kids wear gloves and safety goggles and perform work under the teacher’s mandatory supervision. Under the “Programming” discipline, students learn the basics of three languages: Scratch, C++ and Python. Robotics is taught in two modules – Lego Robotics and Arduino. Once mastered this stage, students proceed to 3D modelling. Here they are introduced to the whole new world of Autodesk and SolidWorks. First, children learn the software, then practice their skills on a 3D simulator and only then print what they have modelled. Besides the laboratory provision, two school teachers have been trained for STEM laboratory during two weeks.

Inclusive Education Classroom

NCOC donated two inclusive education classrooms to Atyrau Secondary School No. 24 and Atyrau Gymnasium School No. 3.

The classrooms are designed for special children with learning difficulties (psychoverbal development delay or mental retardation), who can receive additional assistance according to their needs by studying in a secondary school for neurotypical children. Such classrooms help children to adapt to the social environment, provide equal access to education for all students based on their specific educational needs and individual capabilities.

An individual curriculum is developed for children by experts based on recommendations of the Psychological-Medical-Pedagogical Committee.

In addition, the needs and deficiencies of each child identified during individual testing are taken into account. Each class has 8 to 12 children. One inclusion support class teacher is assigned to every student.

The Company provided all necessary modern equipment for two classrooms covering four zones: a general training zone, an individual training zone, a sensory relief zone and a teacher’s zone.

Hippotherapy

Hippotherapy (therapeutic horse riding) is recognized by experts as a unique method of rehabilitation and development of children with a wide range of disorders. The positive effect of interaction with horses was observed among children with musculoskeletal, mental, psychoemotional disorders. Given the beneficial effect of hippotherapy on children and adults, NCOC supported the initiative of the Public Fund "Atyrau is a Small Country" and sponsored training of 8 specialists of the Fund by international experts from Georgia. The training was delivered by Khatuna Saganelidze, M.D., President of the International School for Hippotherapy, VicePresident of the Georgian Federation of Hippotherapy, a rehabilitation expert at the Georgian Ministry of Healthcare and Lana Bokuchava, M.D., Head of the School for Medicine at the New Vision University in Tbilisi.

The trainees included representatives of the Public Fund "Atyrau is a Small Country" from 5 districts of Atyrau Oblast – Makat, Zhylyoi, Kurmangazy, Makhambet Districts and the city of Atyrau. During three weeks they studied the unique methods of hippotherapy rehabilitation. The main objective of the project was to introduce and develop academic hippotherapy (therapeutic horse riding) in Atyrau Oblast. Expected deliverables include creation of a scientific centre for hippotherapy in Atyrau, a hippotherapist training centre or a rehabilitation centre for people in need of high-quality treatment.

Advanced training of speech pathologists

In 2019 NCOC supported 2 projects of professional advanced training.

NCOC supported professional advanced training of 6 specialists from Atyrau. Advanced training of speech pathologists was arranged by Corporate Fund “University Medical Centre” in Nur-Sultan city. The professional advanced training in Speech Pathology and Defectology was conducted by National Child Rehabilitation Centre with involvement of the Federal State Independent Institution for Higher Professional Education "Kazan (Volga) State University". Upon completion, they received a state diploma of further higher education.

Advanced Training "Montessori Education for Children from 8 Months to 6 Years Old"

This training is aimed at improving the proficiency of teachers and their practical skills, acquiring new theoretical knowledge and ways of working with Montessori materials at early stages of child development. The training involved teachers, speech pathologists from each district of Atyrau Oblast to ensure effective and high-quality work with special children across the whole region. One-month training was held by leading Montessori experts of the National Children’s Rehabilitation Centre, namely Head of the Social and Educational Rehabilitation Department Gulshat Sultanova, Lead Expert of the Methodological and Medical Statistics Department Toyzhan Dzhanieva, Montessori teacher Sandigul Sharipova. Upon completion, all attendees received a certificate of advanced training in Montessori education for children from 8 months to 6 years old.

It is crucial to develop specialists working with children with disabilities because such children’s development highly depends on the professionalism of teachers.

In total, the Company trained 28 specialists from 8 districts of Atyrau Oblast.

Pilot Project for Distance English Learning in Atyrau Oblast

Launched at the end of 2018, a three-year Distance English Learning Project in partnership with the British Council successfully completed its first year. 750 schoolchildren and students, 30 local teachers and internationally qualified teachers are involved in the project. Special equipment for online and videoconference learning was installed in seven schools in Atyrau, one school in Makat and in Atyrau State University named after Kh. Dosmukhamedov.

Based on results of the first year, three school teachers won a two-week training in Scotland, United Kingdom, where they could practice with native speakers.

9.1. 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.

9.2. MATERIALITY

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.

9.3. 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.

9.4. 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.

9.5. IPIECA REPORTING TABLE

The Report has been prepared in accordance with the IPIECA standards. This table shows indicators in this Sustainability Report from IPIECA’s 2015 Guidance.