2010 Zhaikmunai Management Report

ISLE OF MAN, UNITED KINGDOM--(Marketwire - Apr 28, 2011) -

                          MANAGEMENT REPORT 2010



                            OVERVIEW

Zhaikmunai L.P. is the indirect holding entity of Zhaikmunai, an
independent oil and gas enterprise currently engaging in the
exploration, production and sale of crude oil and gas condensate in
northwestern Kazakhstan. Zhaikmunai's field and Licence area is the
Chinarevskoye Field located in the northern part of the oil-rich
Pre-Caspian Basin, one of the largest oil-producing regions in central
Asia.

The Chinarevskoye Field, approximately 274 square kilometres in size,
is located in the West-Kazakhstan oblast, near the border between
Kazakhstan and Russia, and close to the main international railway
lines as well as to several major oil and gas pipelines. The
Chinarevskoye Field is Zhaikmunai's sole source of production and
production growth. According to management estimates based on data
included in the 2009 Ryder Scott Report, as at 1 July 2009, the
estimated gross proved plus probable hydrocarbon reserves at the
Chinarevskoye Field were 527 million boe, of which 212 million bbl was
crude oil and condensate, 79million bbl was LPG and 235 million boe
was sales gas. Management has also estimated, based on the 2009 Ryder
Scott Report, that the Chinarevskoye Field contains approximately
556.3 million boe of possible hydrocarbon reserves.

Zhaikmunai's operational facilities are located in the Chinarevskoye
Field and, as at 31 December 2010, consisted of an oil processing
facility capable of processing 400,000 tonnes per year of crude oil,
multiple oil gathering and transportation lines including an oil
pipeline from the field to its oil loading rail terminal in Rostoshi
near Uralsk, a 17 kilometre gas pipeline from the field to the
Orenburg-Novopskov pipeline, a gas powered electricity generation
system, warehouse facilities and an employee field camp.

In May 1997, Zhaikmunai was granted exploration and production licences
with respect to the Chinarevskoye Field, which initially covered the
entire Chinarevskoye Field. In December 2008, Zhaikmunai received an
extension of its production licence. The new production licence is
valid until 2033 for all horizons (other than the Northeastern
Tournaisian reservoir for which the production licence is valid until
2031) and oil or gas-condensate bearing reservoirs and covers 185
square kilometres of the Licence area. The production licence covers
almost all proved, probable and possible reserves reported by Ryder
Scott as at 1 July 2009. In addition, its exploration licence was
extended for an additional three years until 26May 2011 and an further
extension until 31 December 2012 has been applied for.

During October 1997, Zhaikmunai entered into a production sharing
agreement ("PSA") with the Government which has been subsequently
amended eight times, see "Business Review-Subsoil Licences and
Contracts-The Licence and The PSA". The PSA sets forth parameters for
the exploration and development of the Chinarevskoye Field and the
fees, oil profit sharing and tax liabilities payable to the Government.
To date, Zhaikmunai has met all of its capital investment obligations
under the PSA.

Zhaikmunai began its first test crude oil production in October 2000
and began commercial production on 1 January 2007. See "Business
Review-Operations-Capital Investments-Gas Treatment Facility".
Zhaikmunai currently sells 85% of its crude oil in the export market
and 15% of its crude oil in the domestic market. Zhaikmunai's crude oil
has typically been sold to one or more oil traders on the basis of FCA
(free carrier) Uralsk. However, Zhaikmunai recently started to sell its
crude oil on the basis of DAF (delivery at frontier) and FOB (free on
board) terms in order to reduce its overall transportation costs. In
each case, Zhaikmunai directly transports all its crude oil through its
newly completed oil pipeline to its rail loading terminal in Rostoshi
near Uralsk, located approximately 120 km from the Chinarevskoye Field.
The crude oil is subsequently transported by rail to oil refineries
located in Finland and the Ukraine.

To date, all of Zhaikmunai's revenues have been generated by its crude
oil sales. In 2010, Zhaikmunai had revenues of USUSD178.2 million and
EBITDA of USUSD98.8 million, compared to revenues of USUSD116.0 million and
EBITDA of USUSD58.9 million in 2009.

In addition, the Group has built an associated gas treatment unit and a
condensate gas treatment unit (the Gas Treatment Facility) with two gas
treatment units for full utilisation of the associated gas produced by
the Group, which is essential for its continued crude oil production,
and the treatment of gas condensate to produce dry gas for sale. The
Gas Treatment Facility has been built by JSC OGCC KazStroyService
("KSS"). Mechanical completion of the first phase of the Gas Treatment
Facility occurred on 29 September 2010 when a working commission
composed of representatives from Zhaikmunai, KSS, general project
designer NipiNeftiGaz and seven governmental authorities of the
Republic of Kazakhstan (the "Working Commission") issued its formal
decision declaring that the construction of Zhaikmunai's Gas Treatment
Facility has been completed generally in accordance with Kazakh
standards. State Acceptance Commission approval was received at the end
of December 2010 and test production has started.. As of 31 December
2010, the outstanding amounts due to KSS for construction of the Gas
Treatment Facility were USUSD24.1 million, which includes USUSD22.4 million
(rising to a payment of USUSD22.7 million by completion) to be paid to
KSS after takeover. Other ongoing projects include the construction of
a reservoir pressure maintenance system (which was completed at the end
of 2010). Zhaikmunai plans to finance all of its capital expenditures
in relation to monetising its existing proved reserves from internal
cash flow and the proceeds of the Notes. Once the first phase of the
Gas Treatment Facility has been successfully implemented along with
further successful results in converting probable reserves into proved
reserves, Zhaikmunai may consider building a third gas treatment unit
which is the second phase of the project.


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