JPMorgan - KASE

are currently five producing wells. In 2002, two development wells were drilled. Production from
the East Kumkol field in the nine months ended September 30, 2002 averaged 845 BOPD.
Satellite facilities will be designed and constructed with tie back to the Kumkol field in 2003. As
of January 1, 2002, the East Kumkol field had estimated proved reserves of 5.3 MMbbls of crude
oil.
Undeveloped Acreage. We own a 100% interest in an exploration license (License 260 D1),
surrounding the Kumkol field covering 341,992 acres. This license was issued in June 1997,
effective as of November 1, 1996, with an initial expiry date of November 1, 2000, which has
since been extended to June 2003. We have applied to extend the license for an additional two
years to June 2005.
Under the terms of this license, in the case of a commercial discovery of crude oil reserves, we can
apply for licenses necessary for production. The lands contained in the East Kumkol field referred
to above are governed by this license. Pursuant to this license, we were required to invest
$5 million in the development of lands covered by the license by November 1, 1998, and an
additional $10 million by November 1, 2000. HKM’s exploration contract, which was issued on
August 24, 1998, also gives HKM the exclusive right to develop and explore the property. Prior to
2000, we drilled three unsuccessful wells on these lands. Our investments in connection with this
drilling and in connection with seismic data that were acquired in 1997 and 1998, exceeded our
$5 million initial obligation. In 2000, 3D seismic data were acquired and two exploration wells
were drilled on these lands. The third well resulted in the discovery of the East Kumkol field.
Exploration wells were drilled in this prospect in 2001. In October 1999, we applied to the
Kazakhstani government to extend the November 1, 2000 deadline for the additional $10 million
investment commitment and extend the expiration of this license for an additional two years.
Amendments have been made and agreed for the license to run until June 2003. Royalties and
excess profit taxes on production from these areas will be determined after commercial discovery
in accordance with the relevant legislation and any future hydrocarbon contract and production
license. The East Kumkol field will be jointly developed with Turgai Petroleum.
The leads in the North Nurali area are just two of the numerous leads that we have identified in
the 260D-1 license area. The wells identified there target deeper sands in stratigraphic traps,
previously unexplored in the basin. Well depths for all the leads range from 2,300 to 4000m. The
two North Nurali wells drilled have already validated the concept of producible hydrocarbons at
commercial rates from deep stratigraphic traps. Consequently, the original program to explore
four more similar leads will continue.
In 2002, two additional exploration leads were evaluated. The East Karavanchy and West Kumkol
wells were dry but have provided essential information on the issue of migration of oil in the
western areas of the license. Extensive exploration and appraisal work will continue in 2003.
Kumkol Fields Facilities
New free-water knock out facilities and a new water injection plant have enhanced the pressure
support to the Kumkol reservoirs and has allowed increased off take from production wells. The
construction of three new group processing stations, which relieve water handling at our Central
Processing Facility, have been phased in through the year and have further maximized
production of the Kumkol fields.
Oil and Gas Reserves
The following tables, which are derived from the McDaniel Reports on certain interests of ours,
set forth our estimated proved and proved plus probable oil and natural gas reserves in
Kazakhstan and the present worth value of estimated future net pre-tax cash flows of those
reserves effective as of January 1, 2002 on both an escalating and constant price assumption
basis. The McDaniel Report on a constant price basis was dated March 7, 2002 and the McDaniel
Report on an escalating price basis was dated March 7, 2002.
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