JPMorgan - KASE

efinery. The Shymkent refinery had a rated crude oil throughput capacity of
approximately 140,000 BOPD as of September 30, 2002, and operated at an average of
approximately 51% of its capacity during the nine months ended September 30, 2002. In
2001, approximately 43% of our crude oil production was sold by our Upstream operations
to our Downstream operations for refining at the Shymkent refinery and refined product
trading.
Š Trading. In 2001, approximately 50% of our crude oil production was exported from our
refinery at Shymkent, which currently serves as our crude oil distribution hub. The principal
buyers of our crude oil include Naftex, Eurasia, TotalFinaElf, BP, Vitol, Sintez and Shell.
Competitive Strengths
We believe that we enjoy the following principal competitive strengths:
Integrated operations. We are an integrated oil company in Kazakhstan with exploration,
development, production, refining and marketing capabilities. We believe that these capabilities
result in:
Š a greater ability to maximize profit from our crude oil production in response to market
demand by adjusting the balance between exports and domestic sales in Kazakhstan;
Š a greater ability to enhance the quality of our products and the efficiency of our
operations; and
Š an enhanced perception of us by domestic and foreign customers as a large and
dependable supplier.
Optimal field characteristics. The favourable characteristics of our producing properties enable us
to develop our fields and produce and refine our crude oil at relatively low costs. Our fields
generally have productive zones at relatively shallow depths ranging from 2,500 to 6,000 feet.
Our reservoirs have high porosity and high levels of permeability. Our reserves produce light,
sweet crude at 37° to 44° API gravity with a sulphur content of less than 0.4%.
Pipeline and transportation connection between our oil fields and our refinery with sufficient
capacity. Our Central Processing Facility, or CPF, gathers production from our principal producing
fields and delivers export specification oil to the Shymkent refinery via 28-inch and 20-inch lateral
pipelines that connect to the West Siberia-Central Asia Pipeline, or the Central Pipeline, all of
which pipelines are operated by KazTransOil CJSC, which is controlled by the Kazakhstani
government. We believe there is substantial unutilized capacity in the pipelines. We are
refurbishing the Central Processing Facility and other production facilities to increase total fluid
handling capacity from 190,000 BFPD to over 280,000 BFPD. This combination of facilities and
pipelines allows for production growth and the development of additional reserves without the
need for new transportation infrastructure. In addition, the QAM pipeline, due to be
commissioned in the third quarter of 2003, will provide an alternative transportation route
directly to one of the rail networks we use for exporting oil. See “Business and Properties —
Downstream Operations — Transportation” for further details.
Excess refining capacity. The Shymkent refinery, which began operating in 1987, had a rated
crude oil throughput capacity of approximately 140,000 BOPD as of September 30, 2002, and
operated at an average of approximately 51% of its capacity during the nine months ended
September 30, 2002. This gives us significant flexibility in our choice between trading crude oil or
refined products as we increase our production activities and develop new reserves. We expect
that the refinery’s significant excess capacity will enable us to meet all of our medium- and longterm
refining needs.
Market leadership in a major market. The Shymkent refinery is the only refinery located in the
southern region of Kazakhstan, which is the most densely populated area of Kazakhstan. We
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