JPMorgan - KASE

Š a 50% interest in Kumkol-LUKoil CJSC, now Turgai Petroleum CJSC, which owns a 100%
interest in Kumkol North;
Š a 50% interest in Kazgermunai LLP, which holds licenses to the Akshabulak, Nurali and
Aksai fields; and
Š a 50% interest in Turan Petroleum.
In addition, the Kazakhstani government agreed that, if any of the exploration and production
licenses held by Turan Petroleum, Turgai Petroleum or Kazgermunai as of the date of the
acquisition were canceled, they would be reissued to HKM. Under that contractual right, the
licenses to the South Kumkol and the QAM fields, formerly held by Turan Petroleum, have been
reissued to HKM.
The common stock of HKM that we purchased represented, at that time, all of the common
equity interest in HKM and 89.5% of the voting stock. The balance of the voting stock consisted
of a single class of preferred stock owned by current and former employees of HKM. We have
recently acquired 39% of the preferred shares that were outstanding at the time of our
acquisition of HKM. As a result, as of September 30, 2002, we held 93.6% of the voting stock of
HKM. The preferred stock is currently entitled to an annual aggregate dividend preference of
approximately $44,000 and is nonparticipating except in a liquidation of HKM, in which event
holders of preferred stock will participate to the extent of 6.84% of the net assets of HKM.
Under the terms of our acquisition of HKM, we committed to invest for the benefit of HKM, on
or before December 31, 2002, the local currency equivalent of $280.0 million in capital
expenditures, investments or other items in Kazakhstan which may be treated as capital assets
for balance sheet purposes as determined by international accounting standards. The required
expenditures could be made either by means of capital contributions to HKM or from other
sources including cash flows of HKM. If less than all of the required investment were made by
that date, we would have had to pay the Kazakhstani government, in lieu of any amount not
invested, a penalty of 15% of the shortfall. Under the arrangements for the granting of
production licenses in Kazakhstan, we are subject to certain commitments for expenditures to
develop particular fields. Expenditures pursuant to these commitments are credited against our
$280.0 million aggregate obligation. As of September 30, 2002, we believe we had met these
commitments.
Turgai Petroleum
In 1995, HKM and LUKoil Oil Company of Russia formed a joint venture, Kumkol-LUKoil CJSC, in
Kazakhstan. Kumkol-LUKoil subsequently changed its name to Turgai Petroleum CJSC and LUKoil
Overseas Kumkol B.V., a Netherlands company, or LUKoil, acquired LUKoil Oil Company’s interest
therein. In 2001 HKM transferred its shareholding in Turgai Petroleum to us. We and LUKoil each
have a 50% ownership interest in Turgai Petroleum, and each partner has a right of first refusal
over the shares of the other partner. We and LUKoil each appoint three directors, one of whom
will be designated a co-chairman, to the six-member board of directors. Decisions with respect to
the operations and management of Turgai Petroleum require the unanimous agreement of Turgai
Petroleum’s board of directors. If the board fails to reach agreement on a decision, the dispute may
be referred first to senior executives of the joint venture partners and then, if the senior executives
are unable to resolve the matter, to the Arbitration Institute of Stockholm Chamber of Commerce
for resolution by a sole arbitrator. Major transactions must also be approved by both partners at
the shareholder level. Turgai Petroleum owns a 100% interest in, and is the operator of, Kumkol
North.
Kazgermunai LLP
In November 1993, HKM formed Kazgermunai LLP in Kazakhstan with two German companies as
partners. The two original German partners subsequently transferred their ownership interests to
our current partners, RWE—DEA AG (25%), Erdöl-Erdgas Gommern GmbH (17.5%) and
International Finance Corporation (7.5%). Transfers of shares require the consent of the other
shareholders.
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