JPMorgan - KASE

amended in April 1999, required Kazgermunai to incur expenditures of at least $1.0 million in
2000 and $200,000 in 2001. Kazgermunai satisfied the capital commitments under this license in
2000. Kazgermunai has received an extension for the submission of the Development Plan for the
Nurali field beyond the deadline of November 15, 2002. The foundation agreement for
Kazgermunai effectively serves as the hydrocarbon contract for the Nurali field.
Aksai field. The exploration and production license for the Aksai field was issued to Kazgermunai
in November 1996, for a 30-year period beginning March 1, 1994. The license, as amended on
April 5, 1999, required Kazgermunai to incur expenditures of at least $1.5 million in 2000 and
$600,000 in 2001. Kazgermunai satisfied the capital commitments under this license in 2000.
Kazgermunai has received an extension for the submission of the Development Plan for the Aksai
field beyond the deadline of November 15, 2002. The foundation agreement for Kazgermunai
effectively serves as the hydrocarbon contract for the Aksai field.
Maybulak field. The exploration and production license held by Turan Petroleum for the
Maybulak field was canceled in July 1997, due to non-compliance with certain of the terms of
such license. In December 1997, the Kazakhstani government reissued the license to HKM in
accordance with HKM’s right to receive the license under the acquisition agreement by which we
acquired our interest in HKM. The license runs for 20 years from April 12, 1997. In December
1998, HKM executed a hydrocarbon contract with the Kazakhstan government for the purposes
of the Maybulak license. We had committed to drill three wells and invest $2.0 million by the end
of 2000 in the Maybulak field. We applied for and received an extension for these commitments
until the end of 2001. Subsequently, we drilled two wells capable of production and obtained 3D
seismic data over the entire field. Our total capital expenditures for these projects exceeded our
capital commitments referred to above. Field development work continues for increased
production in 2003.
Qyzylkiya field. The exploration and production license held by Turan Petroleum for the
Qyzylkiya field was cancelled in July 1997, due to non-compliance with certain of the terms of
such license. In September 1998, the Kazakhstani government reissued the license to HKM in
accordance with HKM’s right to receive the license under the HKM acquisition agreement. The
license runs for 23 years from September 8, 1998. On June 24, 1999, we executed a hydrocarbon
contract for the Qyzylkiya field with the Kazakhstan government. Pursuant to this license, we
were required to invest $1 million during the initial three-year assessment stage and an
additional $3.0 million in the pilot operation stage. In November 2000, production facilities, road
construction and other infrastructure projects were completed in this field, creating all-weather
access to the Kumkol field. In addition, in early 2001, we acquired 135 square km of 3D seismic
surveys in the northern part of the field. Early oil production facilities have been installed and
our total capital expenditures for these projects exceeded our capital commitments referred to
above. Field development work continues for increased production in 2003.
Undeveloped Acreage. We own a 100% interest in an exploration license (License 260 D1)
surrounding the Kumkol field covering 341,992 acres. For a description of this license and our
activities related to the undeveloped acreage therein, see “Business and Properties — Oil and Gas
Exploration and Development Operations — Principal Oil and Gas Properties – Undeveloped
Acreage’’.
Material Agreements
When commercial discoveries are made, a producer holding an exploration or production license
must negotiate a hydrocarbon contract with respect to the production zones granted in the
related production license, unless a hydrocarbon contract was previously negotiated in the
exploration and production license. Recoverable reserves may only be marketed from a
production area by a producer following the negotiation and execution of a hydrocarbon
contract. The negotiation of a hydrocarbon contract is a complex process requiring the
agreement of a number of governmental ministries and preparation of economic models with
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