UPSTREAM REVIEW Exploration and assessment In 2007, PetroKazakhstan drilled 21 exploratory wells. Three wells were drilled on License 260D-1, eight wells on License 1504, three wells on License 1505, four wells on License 1057, one well drilled on License 1928 and two wells in KazGerMunai JV. Within a year 2D seismic exploration work was done on License 1928 territory in the amount of 1050 linear km as well as a detail processing and interpretation of the field 2D seismic data. 2D and 3D seismic exploration was done on License 1057 territory in the amount of 600 linear km and 300 square km accordingly. Calculation of oil and gas reserves was done on License 260 D-1 for North Nuraly field. The report on this field reserves calculation is submitted to the State Reserves Committee (SRC). Fields and Licenses In 2007,JSC PetroKazakhstan Kumkol Resources (“PKKR”) together with NIPIneftegas, Turgai Petroleum and LUKOIL Overseas Service Ltd. fulfilled the main volume of work on recalculation of the oil and gas reserves for the entire Kumkol field as well as prepared a 3D geological model. Currently, NIPIneftegas finalizes the work on building 3-D hydrodynamic model. Materials on reserves’ recalculation are prepared for defense in SRC. Direct negotiations are conducted with the RK MEMR for East Kumkol field to obtain the right for subsoil use, a set of documents is prepared to conclude a contract for oil production (feasibility study on development, work program, draft contract). Company is holding negotiations with MEMR to start the North Nuraly field pilot project. Maibulak field development Analysis, Author Supervision on Kyzylkiya field development, Author Supervision on Kumkol field development, Project of Test Production Gas injection in Kumkol field reservoir are prepared and defended in the RK CDC (Central Development Committee) for the reporting period. In 2007, the total of 35 production wells were drilled in the fields under development. Implementation of the program on reservoir hydraulic fracture was continued, that allows to improve the oil recovery of producing wells. According to the hydraulic fracture work schedule, the hydraulic fracturing was performed on 31 producing wells. As a result of geological study in Aryskum field under development, new oil bearing horizons were revealed. It is expected that the oil and gas reserves of this field will be increased. Also increase of reserves in Kyzylkiya field is anticipated as a result of exploration in the northern and southern expansion of this field, as well as perspective Paleozoic deposits. In 2007, a re-calculation of the fields’ hydrocarbon reserves was started and is currently underway. Production The total 2007 crude production volume of PetroKazakhstan (that is, including PKKR, 50% interests in Kazgermunai JV and Turgai Petroleum JV) made up 52.542 mln barrels of oil (6.783 mln tons of oil) or an average of 143 950 barrels of oil per day (or 18 583 tons), as compared to 2006 total annual production of 53.124 mln barrels (6.858 mln tons) or 145 026 bopd (18 788 tons per day) , as a result of an exceptionally cold winter. Gas Utilization Projects On June 15, 2006 MEMR RK approved the Program of PKKR operated associated gas utilization. In December, 2007 gas utilization projects in Kumkol (1st phase), Kyzylkiya, Aryskum fields were completed and accepted by State Commission for operation. Facilities allowing injecting associated gas in the gas cap of this field in the volume of up to 51 mln m3 per year are constructed in the 1st phase of Kumkol field gas utilization. Re-injection of gas into Kumkol South gas cap in the volume of up to 51 mln m3/year or 140 000 m3/day accordingly is the objective of Kumkol field gas utilization project. According to the original option approved by the MEMR, part of gas volume will be supplied from PKKR territory, part from Turgai Petroleum territory. Due to the recent revision of Kumkol GUP strategy, PKKR now supplies the whole volume of injected gas in total volume of 51 mln m3/year. The project stipulates construction of compressor station. Gas for injection will be supplied from the existing axis gas collector to which 6 Group units from the existing will be connected. Gas injection will be done to KS 271 and 272 wells. Facilities constructed in Kyzylkiya field are providing gas utilization by way of pumping out associated gas from Kyzylkiya field to Aryskum field for its further injection into reservoir. Installation of additional booster compressor unit was done as part of this project as well as 10” Kyzylkiya-Aryskum gas pipeline laid in of 27 km length. Gas utilization project fulfilled in Aryskum field increased significantly the capacity of the current system of gas injection in reservoir. Installation of 2 booster and 2 injection compressors was done in this field, gas distribution station installed, 6 new gas injection wells drilled, injection gas pipeline and gas injection lines to the wells of up to 22 km length laid. Due to this project it will be possible to inject up to 250 mln m3 of gas per year in Aryskum field reservoir. Currently, in accordance with the decisions of the RK MEMR, implementation of gas utilization projects is ongoing in Kumkol (phase 2) and Maibulak fields. Maibulak field gas utilization project stipulates installation of 2-gas piston units (GPU) in the field on power generation of 1 Mwt each, construction of compressor site where booster compressors will be installed as well as compressor of excess gas re-injection in reservoir. In particular, a gas gathering point (PSN) will be constructed. Gas to GPU will be supplied from PSN Maibulak being currently designed. DOWNSTREAM Refining In 2007 the Shymkent refinery (PetroKazakhstan Oil Products LLP) produced 31.23 mln barrels of oil (4.06 million tons), comparing to 31.27 mln barrels of oil (4.04 mln tons) in 2006. Maximum of petroleum release with high octane rating of more than 50% was achieved from the total petroleum percentage, and the light oil products’ ratio to the value of the refined oil made about 62%. Re-equipment of oil tanks was continued, that including removing oil sludge and rendering overhaul and reconstruction of an oil tank 304/4 with a capacity of 20 000 tons. Obsolete equipment of two transforming stations was replaced, which is essential for continuous operation of these stations. Modernization During Y2007 the company invested the amount of 19 million USD into the modernization. In 2008 the planned modernization will allow to achieve the production increase in light oil products from 61% up to 89% and improve the quality of refined products to EURO-3 standards, increase range of petrochemicals polypropylene products, benzyl and elementary sulfur, and reduce harmful discharges by the refinery. Within the framework of modernization, the reconstruction of all catalytic cracker units is scheduled. Petrochemicals block of the modernization project includes the Government’s Program of Petrochemical Industry’s Development in the Republic of Kazakhstan for Y2008-2013. The project implementation term is 3.5 years after the official approval of all the interested parties, including KazMunaiGaz and MEMR of RoK. At present, committees, which include representatives of ultimate parent companies of the refinery and the refinery management, are created and working to resolve technical and financial issues of the project. A favorable conclusion on preliminary assessment of the impact on environment was obtained. Public hearings were held and a favorable conclusion of South-Kazakhstan oblast administration of environmental protection and Ministry of environmental protection of the Republic of Kazakhstan were obtained. Beijing Research Institute on Petroleum Refining and Petrochemicals developed various variants of Shymkent refinery modernization. PetroKazakhstan is a vertically integrated energy group owned by CNPC and KMG. It is engaged in the acquisition, exploration, development and production of oil and gas, refining of oil and the sale of oil and refined products.