JPMorgan - KASE
JPMorgan - KASE
JPMorgan - KASE
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have a network of sales, storage and distribution outlets in the principal centers of the region to<br />
market our refined products. We have achieved a leading market position in the Kazakhstani<br />
domestic market, which positions us well to capitalize on growth and any other improvements in<br />
the Kazakhstani economy.<br />
Western technology and management techniques. We have applied Western technology and<br />
management techniques to modernize our operational infrastructure in Kazakhstan and<br />
maximize its efficiency. We are using Western seismic and other exploration techniques to<br />
explore our properties in the South Turgai Basin. The Shymkent refinery is being upgraded and,<br />
with the refinery’s significant excess capacity, we expect it will be able to meet all of our refining<br />
needs so that we may implement our medium- and long-term marketing plan.<br />
Business Strategy<br />
By capitalizing on our competitive strengths, we aim to be the leading integrated oil and gas<br />
company in Central Asia. The primary elements of our strategy are to:<br />
Explore undeveloped properties. We continue our exploration of undeveloped property<br />
covering approximately 414,000 acres, for which we hold exploration licenses. Beginning in<br />
January 2002 our exploration program has been primarily focused on accessing deeper<br />
stratigraphic prospects.<br />
Capitalize on our development opportunities. As of January 1, 2002, our estimated proved<br />
undeveloped reserves were 104.8 MMbbls. We intend to bring these proved undeveloped<br />
reserves into production in a timely, efficient and profitable manner.<br />
Increase our oil transportation alternatives in order to reduce transportation costs and increase<br />
our export opportunities. In the nine months ended September 30, 2002, we sold approximately<br />
52% of our crude production into export markets. Transportation to export markets remains our<br />
single largest cost of operations. Our transportation costs include costs associated with:<br />
Š trucking crude oil from the QAM fields to the Central Processing Facility;<br />
Š shipping crude oil from our Central Processing Facility to the Shymkent refinery;<br />
Š railway transportation from the refinery to export destinations; and<br />
Š transportation of crude oil by our Kazgermunai joint venture to its export customers.<br />
As many of the modes of transportation for our crude oil and refined products are controlled by<br />
government entities and other third parties and few alternative modes currently exist, we are<br />
seeking ways in which to diversify our transportation options in order to increase competition<br />
and thereby lower our costs. Additional transportation options to export markets would provide<br />
transportation capacity for increased exports. In this regard, we have undertaken various<br />
initiatives, including:<br />
Š constructing the QAM pipeline linking the QAM fields and our other fields to the railroad<br />
terminal at Dzhusaly;<br />
Š opening a number of new export routes, such as Turkmenbashi — Batumi, Atyrau —<br />
Samara, and Odessa;<br />
Š optimizing the use of existing export routes, such as Aktau — Batumi;<br />
Š continuing to transition crude oil exports to non-FCA sales (as to which title to crude oil<br />
passes outside Kazakhstan), which represented 46% of our crude oil sales during the three<br />
months ended September 30, 2002 and which allow us to monitor the associated<br />
transportation costs and will lead to increased operating margins;<br />
Š pursuing opportunities to improve our logistical infrastructure by upgrading our loading<br />
and storage facilities and securing access to a railcar fleet to lower the cost of and ensure<br />
the availability of rail transportation; and<br />
Š creating a specialized transportation and trading team, for both our Upstream and<br />
Downstream operations.<br />
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