JPMorgan - KASE

Business Strategy
By capitalizing on our competitive strengths, we aim to be the leading integrated oil and gas
company in Central Asia. The primary elements of our strategy are to:
Explore undeveloped properties. We continue our exploration of undeveloped property
covering approximately 414,000 acres, for which we hold exploration licenses. Beginning in
January 2002, our exploration program has been primarily focused on accessing deeper
stratigraphic prospects.
Capitalize on our development opportunities. As of January 1, 2002, our estimated proved
undeveloped reserves were 104.8 MMbbls. We intend to bring these proved undeveloped
reserves into production in a timely, efficient and profitable manner.
Increase our oil transportation alternatives in order to reduce transportation costs and increase
our export opportunities. In the nine months ended September 30, 2002, we sold approximately
52% of our crude production into export markets. Transportation to export markets remains our
single largest cost of operations. Our transportation costs include costs associated with:
Š trucking crude oil from the QAM fields to the Central Processing Facility;
Š shipping crude oil from our Central Processing Facility to the Shymkent refinery;
Š railway transportation from the refinery to export destinations; and
Š transportation of crude oil by our Kazgermunai joint venture to its export customers.
As many of the modes of transportation for our crude oil and refined products are controlled by
government entities and other third parties and few alternative modes currently exist, we are
seeking ways in which to diversify our transportation options in order to increase competition
and thereby lower our costs. Additional transportation options to export markets would provide
transportation capacity for increased exports. In this regard, we have undertaken various
initiatives, including:
Š constructing the QAM pipeline linking the QAM fields and our other fields to the railroad
terminal at Dzhusaly;
Š opening a number of new export routes, such as Turkmenbashi — Batumi; Atyrau —
Samara; and Odessa;
Š optimizing the use of existing export routes, such as Aktau — Batumi;
Š continuing to transition crude oil exports to non-FCA sales (as to which title to crude oil
passes outside Kazakhstan), which represented 46% of our crude oil sales during the three
months ended September 30, 2002 and which allow us to monitor the associated
transportation costs and will lead to increased operating margins;
Š pursuing opportunities to improve our logistical infrastructure by upgrading our loading
and storage facilities and securing access to a railcar fleet to lower the cost of and ensure
the availability of rail transportation; and
Š creating a specialized transportation and trading team, for both our Upstream and
Downstream operations.
We also expect to actively pursue access to other pipelines, including the pipeline constructed by
the Caspian Pipeline Consortium, or CPC.
Improve performance of the Shymkent refinery. We have undertaken, together with a
consultant, a review of the refinery’s operations to identify areas of improvement. We have been
implementing relatively low-cost projects designed to increase product quality and production
yields at the Shymkent refinery and to improve the refinery’s product mix, such as:
Š upgrading the refinery’s secondary process capacity in order to reduce the output of lower
margin products, such as fuel oil, and increasing the output of higher margin products,
such as gasoline and jet fuel;
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