JPMorgan - KASE

In addition, we have opened new routes such as Turkmenbashi, Turkmenistan to Batumi, Georgia
(via Baku), Atyrau to Samara, and Atyrau to Odessa, Ukraine. We have also optimized the use of
existing routes, such as Aktau via Baku to Batumi.
Crude oil produced by Turgai Petroleum is transported in the same manner as the crude oil
produced by us from the Kumkol and South Kumkol fields. Crude oil produced by Kazgermunai is
transported by truck to rail loading stations in Dzhusaly and Kyzylorda.
Crude Oil Revenue Optimization
Depending on the market environment and international crude oil prices, the best crude oil
netback for us can be obtained either by exporting crude oil or by processing the crude oil at the
Shymkent refinery for sale in the domestic market.
The planning and scheduling of the refinery is now integrated as a key component of our
corporate value chain, to maximize the value of our crude oil production and all of the
Downstream activities. During 2001 the refinery and the product market provided netbacks
higher than the export or crude oil. This demonstrated the “cushion” role provided to us by the
refinery, as detailed below:
Nine Months Ended
September 30, 2002 2001
Crude Oil
Exports
Own Crude
Oil Refined
and Sold
Crude Oil
Exports
Own Crude
Oil Refined
and Sold
($/Bbl) ($/Bbl) ($/Bbl) ($/Bbl)
Net sales price achieved ........................ 16.03 12.92 12.34 16.53
Transportation expense ........................ (4.55) (1.02) (1.87) (0.84)
Production and Refining costs ................... (1.19) (2.07) (1.17) (1.95)
Royalty ...................................... (1.24) (1.25) (0.96) (0.96)
Selling Costs .................................. (0.21) (0.78) (0.15) (0.86)
General and Administrative costs ................ (0.71) (1.30) (0.86) (1.54)
Tax expense .................................. (1.52) (2.30) (1.34) (1.96)
NetBack ..................................... 6.61 4.20 5.99 8.42
Competition
The Shymkent refinery is the only refinery in the southern Kazakhstani market. The nearest
competing refineries in Kazakhstan are Pavlodar and Atyrau, which are both located more than
1,600 km away from Shymkent. Two additional refineries are located in Uzbekistan, one in
Fergana, which is 450 km away from Shymkent, and the other in Bukhara, which is located 1,000
km from Shymkent. Because of its location, the Shymkent refinery has a cost advantage when
supplying product to the local market. In addition, the two Uzbekistan refineries currently do not
compete with the Shymkent refinery because the Uzbekistan market is closed and the density of
population in the Syr Darya and Amu Darya valleys causes the rail network to be significantly
more congested than in Kazakhstan. This creates greater logistical difficulties in moving bulk oil
through Uzbekistan. We also believe that the crude oil feedstock from our oil fields by pipeline
creates an additional advantage in supplying refined products to the southern Kazakhstani
market.
Russia has supplied significant quantities of refined products to the Kazakhstani market from
time to time. Russian refineries have supplied, on a regular basis, products which are not
available or are in short supply from Kazakhstani refineries. These products include lubricants,
bitumen and Ai95 gasoline and Ai98 gasoline. A Russian refinery located in Omsk supplies refined
products to towns in northern Kazakhstan by pipeline. In addition, a Russian refinery located in
Orsk has established exchanges of crude for refined products in the Aktyubinsk Oblast. Russian
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