JPMorgan - KASE

Royalties
Royalties increased from $0.71 per barrel of oil sold in 1999 to $1.10 per barrel of oil sold in 2000.
The increase was due to the increase in production volumes and the increase in world oil prices.
The total royalty expense for 2000 was $33.7 million and the overall percentage was 9.95%,
compared to a total royalty expense of $16.7 million and an overall percentage of 9.18%.
The table below indicates the royalty paid in kind and cash by quarter in 2000 and 1999.
2000 1999
Royalty
in Kind
Cash
Royalty
Total
Royalty
Royalty
in Kind
Cash
Royalty
Total
Royalty
Quarter ending
($000’s)
March31 .............................. — 5,694 5,694 — 1,428 1,428
June30 ............................... 785 4,912 5,697 — 3,010 3,010
September 30 .......................... 5,563 1,401 6,964 — 4,190 4,190
December31 .......................... 9,548 5,806 15,354 — 8,024 8,024
Total Royalty .......................... 15,896 17,813 33,709 — 16,652 16,652
In addition, we incurred production bonuses, which are based on cumulative production levels, of
$0.3 million for South Kumkol (compared to $0.2 million in 1999) and $3.6 million for Kumkol
South (compared to $2.3 million in 1999).
Transportation
Transportation costs were comprised entirely of pipeline tariffs, which rose in 2000 to $0.82 per
barrel of oil sold from $0.71 per barrel of oil sold in 1999. This 16% increase reflected an increase
in domestic pipeline tariffs during 2000. As a result, our transportation costs increased $8.2
million from $17.0 million for the year ended December 31, 1999 to $25.2 million for the year
ended December 31, 2000.
Refining
Refining expenses were $12.6 million in 2000 compared to $2.2 million in 1999. In 2000, these
expenses represented the costs to refine oil whether the oil was processed for third parties,
under toll processing arrangements or for our account. In 1999, they represented processing fees
paid by us to refine our crude oil.
Crude Oil and Refined Products Purchases
Crude oil and refined products purchases costs were $48.1 million for the year ended
December 31, 2000 and related to the acquisition of crude oil for processing and subsequent
resale as refined products and the acquisition of refined products for resale. No comparable data
are available for 1999, as we had not yet acquired the HOP refinery and were not engaged in the
Downstream sale of refined products.
Selling
Selling expenses in 2000 were $7.7 million and represent the costs incurred to operate our seven
distribution centers in Kazakhstan. Prior to our acquisition of the HOP refinery, we were not
engaged in the Downstream sale of refined products; therefore, no comparable data for 1999 are
available.
General and Administrative
General and administrative expenses were $44.6 million in 2000 compared to $35.0 million in
1999. The $9.6 million increase related to the additional general and administrative expenses
following our acquisition of HOP, offset in part by cost control measures undertaken by us in
2000. Upstream general and administrative expenses were $30.4 million for 2000 as compared to
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