JPMorgan - KASE

Cash is managed centrally through the treasury department in Kazakhstan. Surplus funds are
placed on deposit in Canada. Funds held within Kazakhstan are used to meet operational and
immediate capital expenditure needs.
We proportionately consolidate Turgai Petroleum and Kazgermunai, and $39.8 million of the
$59.3 million of cash that we reported at the end of 2000, $13.0 million of the $64.8 million of
cash that we reported at the end of 2001, and $21.3 million of the $162.2 million of cash that we
reported as of September 30, 2002, was held by our joint ventures. In 2001, Turgai Petroleum
declared and paid a dividend of $50 million to us. Turgai Petroleum is not expected to pay a
dividend in 2002, as its cash flow will be fully utilized in developing the North Kumkol field and
related infrastructure. The Kazgermunai joint venture has used substantially all of its cash to
partially repay outstanding shareholder loans.
During the first half of 2001, HOP issued $13.2 million of bonds registered with the National
Securities Commission of the Republic of Kazakhstan. See note 12 of our consolidated financial
statements appearing elsewhere in this offering memorandum.
During 2001, working capital facilities were established by us with three banks in Kazakhstan
totaling $52.6 million in commitments. At December 31, 2001 we had drawn $42.6 million under
these facilities. These facilities are revolving, have terms ranging from one to eight years, are
secured and bear interest at rates ranging from 14% per annum to LIBOR plus 3.5%.
We repaid our U.S. and Canadian Notes during 2000-2001, with the last installment made in June
2001.
We declared a special dividend of Cdn.$4.00/share to shareholders of record as of August 2, 2001
in 2001 for a total of $208,610,000. This special dividend was made through the issuance of our
Senior Notes. These notes did not raise additional funds for us. We paid a cash dividend for
fractional interests (entitlements of less than $10,000) and for withholding taxes due. We
retained a corresponding amount of the notes ($31.8 million). As of December 31, 2001, we had
sold $15 million of the notes originally retained, and as of September 30, 2002, we had sold the
remaining notes. We redeemed all $208.2 million principal amount of the outstanding Senior
Notes on February 3, 2003.
Our Kazgermunai non-recourse debt was repaid in part (our 50% share repaid was $26.7 million
of debt and accrued interest) during 2001. During 2002, a further $34.9 million was repaid (of
which our 50% share was $17.5 million). At December 31, 2001, our share of Kazgermunai debt
was $61.1 million. At December 31, 2002, our share of Kazgermunai debt was $45.2 million.
Kazgermunai is restricted from paying dividends until all outstanding loans have been paid in
full. At year-end 2000 and 2001, Kazgermunai’s funding consisted of:
2000 2001
($000’s)
Shareholders Loans ................................................... 142,726 99,000
Loans from Kazakhstani Government .................................... 21,370 23,136
Total................................................................ 164,096 122,136
On December 18, 2001 we and one of our operating subsidiaries entered into a secured Term
Facility for $60 million. The Term Facility had a two year term. As at December 31, 2001, we had
drawn $20 million under this facility and at September 30, 2002 we had fully drawn this facility.
We replaced this facility with a new $225.0 million Term Facility on January 3, 2003. See
“Description of Certain Financing Arrangements.”
Our cash flow was $158.2 million in the nine months ended September 30, 2002, as compared to
$167.3 million in the comparable period in 2001, $194.7 million in fiscal 2001, $179.4 million in
fiscal 2000 and $17.0 million in fiscal 1999. Cash flow (before changes in non-cash operating
working capital) decreased $9.1 million to $158.2 million for the nine months ended in
September 30, 2002 from $167.3 million for the comparable period in 2001. This decrease was
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