JPMorgan - KASE

any assurances that the license would be reissued or reissued in a timely manner to HKM or that
such reissued license would be on more favorable terms than the existing Kumkol North license.
Kumkol South field. The exploration and production license for Kumkol South was issued to
HKM in February 1996, for a 25-year period. The hydrocarbon contract for Kumkol South was
entered into in December 1996, and expires on February 1, 2021, but may be extended upon our
application. The hydrocarbon contract may be relinquished at our option or may be terminated
by the Kazakhstani government if we are in material default of our covenants under the
hydrocarbon contract. Under the terms of the license, HKM is obligated to provide a program for
utilization of gas. In September 2000, HKM entered into an agreement with the Qyzlorda Oblast,
Kazgermunai, a number of Kazakhstani government ministries and a number of other parties
whereunder the parties agreed to cooperate with respect to determining an appropriate gas
utilization program. In early 2001, we concluded discussions with Kazakhstani government
authorities as to a solution for the utilization of associated gas pursuant to this agreement. As a
result of these discussions, we have received full government approval to install a 55-megawatt
electrical power plant in the Kumkol field to use associated gas from the Kumkol South, South
Kumkol and North Kumkol fields. As of the date of this offering memorandum, the power plant
is more than 70% complete and is scheduled for commissioning in the second quarter of 2003. It
is anticipated that the cost of construction of the plant will be approximately $32 million (to be
shared with our Turgai Petroleum joint venture). To date, $28 million has been committed. We
expect the plant to provide stable electrical power for field operations and provide excess
electricity for sale to Qyzlorda city and a credit for Shymkent refinery power usage. In addition,
as a joint venture partner in the Akshabulak fields, we are participating in a project to provide
natural gas to the Qyzlorda region. The feasibility of this project is under consideration but funds
have been budgeted in 2003 for its construction.
South Kumkol field. The exploration and production license for the South Kumkol field was
issued to HKM in December 1996. The license is for a 25-year period, of which the first two years
were considered the final exploration phase, the following year was considered the field
construction phase and the remaining 22 years are considered the production phase. During the
final exploration phase, HKM was required to, and has satisfied its obligations to, spend at least
$3.3 million and drill at least three wells with a combined depth of 5,700 meters. Under this
license, HKM is obligated to provide a program for utilization of gas. The agreement referred to
above with respect to the Kumkol South field is applicable to this field. It is intended that
associated gas from this field will be utilized by the electrical power plant proposed to be built in
the Kumkol South field. The hydrocarbon contract for the South Kumkol field was entered into
on June 9, 1997, and expires on December 10, 2021 but may be extended upon our application.
The hydrocarbon contract may be relinquished at our option or may be terminated if we are in
material default of our covenants under the hydrocarbon contract.
Akshabulak field. The exploration and production license for the Akshabulak field was issued to
Kazgermunai for a 30-year period beginning on March 1, 1994. Although subject to adjustment,
the license required Kazgermunai to invest $200.5 million from 1996 to 2001. Kazgermunai has
advised that, to date, a total of $170.5 million has been invested. We expect that the full
investment commitment will be met by Kazgermunai by the end of 2001. In part to satisfy this
commitment, Kazgermunai was required, as of December 31, 2001, to construct infrastructure
facilities on the Akshabulak field, including a 24,300 BOPD capacity pipeline and an oil collecting
and processing facility with a minimum capacity of 20,000 BOPD, and to drill 35 wells.
Kazgermunai will have completed the drilling requirement in 2003. Processing facilities with a
capacity of 18,000 BPOD have been put in place in this field. A second phase of development has
been designed to significantly increase production capacity to over 80,000 BOPD. The approval
for this second phase is under consideration. The foundation agreement for Kazgermunai
effectively serves as the hydrocarbon contract for the Akshabulak field.
Nurali field. The exploration and production license for the Nurali field was issued to
Kazgermunai in November 1996, for a 30-year period beginning on March 1, 1994. The license, as
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