EXHIBIT 1
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                              PETROKAZAKHSTAN INC.


                             ANNUAL INFORMATION FORM



                      FOR THE YEAR ENDED DECEMBER 31, 2004





                              DATED MARCH 21, 2005




================================================================================


<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

ABBREVIATIONS AND DEFINITIONS..................................................1
OIL AND GAS RESERVES DISCLOSURE................................................4
CURRENCY.......................................................................4
    CANADIAN DOLLARS...........................................................4
    KAZAKHSTANI TENGE..........................................................4

SPECIAL NOTE REGARDING FORWARD-LOOKING FINANCIAL INFORMATION...................5
THE CORPORATION................................................................6
    CORPORATE HISTORY..........................................................7
    PRINCIPAL SUBSIDIARIES.....................................................8

GENERAL DEVELOPMENT OF THE BUSINESS...........................................10
    THREE YEAR HISTORY........................................................13
    RECENT DEVELOPMENTS.......................................................17
    BUSINESS TRENDS...........................................................18

BUSINESS OF THE CORPORATION...................................................20
    OIL AND GAS EXPLORATION AND DEVELOPMENT OPERATIONS........................20
    DOWNSTREAM OPERATIONS: REFINING, MARKETING AND TRANSPORTATION.............45
    NON-CORE OPERATIONS IN KAZAKHSTAN.........................................54

MANAGEMENT OF PETROKAZAKHSTAN.................................................55
    AUDIT COMMITTEE...........................................................57

PERSONNEL.....................................................................57

DESCRIPTION OF SHARE CAPITAL..................................................57
    COMMON SHARES.............................................................57
    PREFERRED SHARES..........................................................57
    SHAREHOLDERS' AGREEMENT...................................................57
    DIVIDEND POLICY AND RESTRICTIONS..........................................58

INFORMATION INCORPORATED BY REFERENCE.........................................58

SELECTED FINANCIAL INFORMATION................................................59
    SUMMARY OF OPERATING RESULTS..............................................59
    QUARTERLY INFORMATION.....................................................59

LEGAL PROCEEDINGS.............................................................60
    CCAA PROCEEDINGS..........................................................60
    OTHER LEGAL PROCEEDINGS...................................................61

ENVIRONMENTAL REGULATION AND MATTERS..........................................62
    OIL AND GAS OPERATIONS....................................................62
    DOWNSTREAM OPERATIONS.....................................................64

<PAGE>

                                      -2-


RISK FACTORS..................................................................65
    RISK FACTORS RELATING TO PETROKAZAKHSTAN'S BUSINESS.......................65
    RISK FACTORS RELATING TO PETROKAZAKHSTAN'S OPERATIONS IN KAZAKHSTAN.......68
    RISK FACTORS RELATING TO PETROKAZAKHSTAN'S INDUSTRY.......................72

EXTERNAL AUDITOR SERVICE FEES.................................................75

ADDITIONAL INFORMATION........................................................76

REPORT ON RESERVES DATA.......................................................78

REPORT OF MANAGEMENT AND DIRECTORS  ON RESERVES DATA AND OTHER INFORMATION....80

SCHEDULE A - PETROKAZAKHSTAN INC.  AUDIT COMMITTEE MANDATE....................82

<PAGE>


                          ABBREVIATIONS AND DEFINITIONS

         In this Annual Information Form, the abbreviations set forth below have
the following meanings:

<TABLE>
<S>              <C>                                       <C>                      <C>
"BBLS"           barrels                                   "MBBLS"                  thousands of barrels

"BCF"            billions of cubic feet                    "MBOE"                   thousands of barrels of oil
                                                                                    equivalent

"BOE"            barrels of oil equivalent                 "MCF"                    thousands of cubic feet

"BOED"           barrel of oil equivalent per day          "MCFD"                   thousands of standard cubic
                                                                                    feet per day

"BOPD"           barrels of oil per day                    "MMBBLS"                 millions of barrels

"$M"             thousands of dollars                      "MMBTU"                  millions of British Thermal
                                                                                    Units

"$MM"            millions of dollars                       "MMCF"                   millions of cubic feet

"(EURO)"         European Single Currency                  "MMCFD"                  one million standard cubic feet
                                                                                    per day

"M3"             cubic metre                               "MMCFE"                  millions of cubic feet
                                                                                    equivalent
</TABLE>

Note:    For the purposes of this document, 6 mcf of natural gas and 1 bbl of
         NGL each equal 1 bbl of oil, such conversion not being based on either
         price or energy content. Boes may be misleading, particularly if used
         in isolation. A boe conversion ratio of 6 mcf: 1 bbl is based on an
         energy equivalent conversion method primarily applicable at the burner
         tip and does not represent a value equivalency at the wellhead.

         In this Annual Information Form, the capitalized terms set forth below
         have the following meanings:

         "ABCA" means the BUSINESS CORPORATIONS ACT (Alberta), R.S.A. 2000, c.
         B-9, as amended from time to time or its predecessor legislation as
         applicable, and all regulations promulgated thereunder;

         "ARNM" means The Agency of the Republic of Kazakhstan for the
         Regulation of Natural Monopolies and Protection of Competition;

         "BOARD" means the board of directors of PetroKazakhstan;

         "BRENT" means Brent Oil Reference Price;

         "CAIH" means Central Asian Industrial Holdings N.V., formerly Central
         Asian Industrial Investments N.V.;

         "CAIH SHAREHOLDERS' AGREEMENT" means the shareholders' agreement
         entered into between CAIH and PetroKazakhstan at the time of the
         closing of the PKOP Acquisition;

<PAGE>
                                     - 2 -


         "CCAA" means the COMPANIES' CREDITORS ARRANGEMENT ACT (Canada), R.S.C.
         1985, c. C-36, as amended from time to time;

         "CCAA PLAN" means the Fourth Amended and Restated Plan of Compromise
         and Arrangement dated February 15, 2000 of PetroKazakhstan and PKOSI
         under the CCAA, as supplemented or amended from time to time;

         "CCAA PROCEEDINGS" means the proceedings of PetroKazakhstan and PKOSI
         under the CCAA in connection with the CCAA Plan, being the Court of
         Queen's Bench of Alberta, Judicial District of Calgary, Action Number
         9901-08144;

         "C$" means Canadian dollars;

         "CENTRAL PIPELINE" means the West Siberia-Central Asia Pipeline;

         "COMMON SHARES" means the Class A Common Shares in the share capital of
         the Corporation;

         "COMPANY" or "CORPORATION" means PetroKazakhstan Inc. and its
         consolidated subsidiaries, taken as a whole;

         "COURT" means the Court of Queen's Bench of Alberta;

         "CPC" means Caspian Pipeline Consortium;

         "DD&A" means Depletion Depreciation and Accretion Expense;

         "EOR" means Enhanced Oil Recovery;

         "FCA" means Free Carrier;

         "FSU" means the Former Soviet Union;

         "KAM FIELDS" means the Kyzylkiya, Aryskum and Maibulak fields;

         "KKB" means OJSC Kazkommertsbank;

         "KAZAKHSTAN" means the Republic of Kazakhstan;

         "KAZGERMUNAI" means TOO Kazgermunai;

         "LPG" means Liquefied Petroleum Gas;

         "LUKOIL" means LUKoil Overseas B.V., a Netherlands company;

         "MCDANIEL" means McDaniel & Associates Consultants Ltd., independent
         petroleum engineers and consultants;

         "MCDANIEL REPORTS" means the reports of McDaniel, effective January 1,
         2005, on certain of the interests of the Corporation in certain fields
         in Kazakhstan on both (a) a constant price basis, and (b) on an
         escalating price basis;

         "NGL" means natural gas liquids;

<PAGE>
                                     - 3 -


         "NICO" means the Naftitran Intertrade Company Limited;

         "NON-FCA" means Non-Free Carrier;

         "PETROKAZAKHSTAN" means PetroKazakhstan Inc. (formerly Hurricane
         Hydrocarbons Ltd.);

         "PKKR" means AO PetroKazakhstan Kumkol Resources;

         "PKKR ACQUISITION" means the purchase by PetroKazakhstan through a
         wholly owned subsidiary, PetroKazakhstan Kumkol Limited, of all the
         common stock of PKKR for a purchase price of $120.0 million pursuant to
         the PKKR Share Sale-Purchase Agreement;

         "PKKR SHARE SALE-PURCHASE AGREEMENT" means the agreement dated August
         26, 1996 between PetroKazakhstan Kumkol Limited and the Government of
         Kazakhstan, pursuant to which PetroKazakhstan Kumkol Limited, a
         wholly-owned subsidiary of PetroKazakhstan, agreed to purchase all the
         common stock of PKKR;

         "PKOP" means TOO PetroKazakhstan Oil Products;

         "PKOP ACQUISITION" means the acquisition on March 31, 2000 by
         PetroKazakhstan of CAIH's common shares of PKOP, pursuant to the terms
         of the PKOP Transaction Agreement;

         "PKOP TRANSACTION AGREEMENT" means the agreement dated October 9, 1999
         among CAIH, PKOP, KKB, PetroKazakhstan and PKKR, as amended;

         "PKOSI" means PetroKazakhstan Overseas Services Inc.;

         "$" means United States dollars;

         "SPECIAL DIVIDEND" means the special dividend of the U.S. dollar
         equivalent of C$4.00 per Common Share, declared on August 2, 2001 by
         the Board and payable to PetroKazakhstan's shareholders by the issuance
         of approximately $208,610,000 of senior unsecured notes and /or cash;

         "TSX" means The Toronto Stock Exchange;

         "TURGAI PETROLEUM" means the joint venture, CJSC Turgai Petroleum, the
         operator of Kumkol North;

         "U.S." or "UNITED STATES" means United States of America including the
         states thereof, the District of Columbia, its territories and
         possessions;

         "VDU" means the Vacuum Distillation Unit at the Shymkent refinery; and

         "VGO" means Vacuum Gasoil, a high value product sought after by
         refineries with catalytic cracking facilities for further conversion to
         gasoline and diesel.

         IN THIS ANNUAL INFORMATION FORM, FINANCIAL INFORMATION IS EXPRESSED IN
U.S. DOLLARS, UNLESS OTHERWISE STATED.

<PAGE>
                                     - 4 -



                         OIL AND GAS RESERVES DISCLOSURE

         Unless otherwise specifically provided for herein, the disclosure in
this Annual Information Form with respect to (a) the amount of oil and gas
reserves of the Corporation were derived from the McDaniel Reports on a constant
price basis, and (b) the discounted present worth values of future net pre-tax
cash flow of the Corporation's reserves were derived from the McDaniel Reports
prepared on a constant price basis and were calculated using a 10.0% discount
factor. IT SHOULD BE NOTED, HOWEVER, THAT THE 10.0% DISCOUNT FACTOR MAY NOT
NECESSARILY BE THE MOST APPROPRIATE DISCOUNT FACTOR. DISCOUNTED PRESENT VALUE,
NO MATTER WHAT DISCOUNT RATE IS USED, IS MATERIALLY AFFECTED BY ASSUMPTIONS AS
TO THE AMOUNT AND TIMING OF FUTURE PRODUCTION, WHICH MAY AND OFTEN DO PROVE TO
BE INACCURATE.


                                    CURRENCY

         Unless otherwise indicated, all references to "$", "US$" or dollars in
this Annual Information Form refer to U.S. dollars, "C$" refers to Canadian
dollars and "Tenge" refers to Kazakhstani Tenge.


CANADIAN DOLLARS

         The following table sets forth, for the periods indicated, certain
exchange rates based on the noon buying rate in the City of New York for cable
transfers in Canadian dollars as certified by the Federal Reserve Bank of New
York (the "NOON BUYING RATE"). Such rates are presented as United States dollars
per C$1.00 and are the inverse of rates quoted by the Federal Reserve Bank of
New York for Canadian dollars per U.S.$1.00. On March 21, 2005, the inverse Noon
Buying Rate was C$1.00 equalled U.S.$0.825764, and the Noon Buying Rate was
U.S.$1.00 equalled C$1.2110.

                                            YEAR ENDED DECEMBER 31
                                 ---------------------------------------------
                                    2002             2003            2004
                                 ------------    -------------    ------------
Low..........................     0.661813         0.773335        0.849257
High.........................     0.619886         0.638162        0.715820
Average(1)...................     0.636780         0.714643        0.769632
End of Period................     0.633072         0.771010        0.830979

Note:

         (1)   The average of the Noon Buying Rate on the last business day of
               each month in the period indicated.


KAZAKHSTANI TENGE

         The following table sets forth, for the periods indicated, certain
exchange rates quoted by Dow Jones and Company, Inc. (the "TENGE RATE"). Such
rates are presented as United States dollars per one (1) Kazakhstani Tenge and
are the inverse of the rates quoted by Dow Jones and Company, Inc. for
Kazakhstani Tenge per U.S.$1.00. The Federal Reserve Bank of New York does not
provide certified Noon Buying Rates for cable transfers in Kazakhstani Tenge.

<PAGE>
                                     - 5 -


                                             YEAR ENDED DECEMBER 31
                                  ---------------------------------------------
                                     2002             2003            2004
                                  ------------    -------------    ------------
Low...............................  150.60           143.66          130.00
High..............................  155.60           155.75          143.33
Average(1)........................  153.28           149.57          135.77
End of Period.....................  155.60           144.22          130.00

Note:

         (1)   The average of the Tenge Rate on the last business day of each
               month in the period indicated.



CURRENCY CONTROLS IN KAZAKHSTAN

         Kazakhstan does not have currency controls which restrict the movement
of funds. However, it is a requirement for all export proceeds to be received
into a Kazakhstan bank account within 180 days from the date of export. Longer
periods may be allowed by the National Bank of Kazakhstan. Similarly, National
Bank approval is required for a resident to hold foreign bank accounts.

TAX WITHHELD AT THE SOURCE OF PAYMENT IN KAZAKHSTAN

         Payment of interest, fees (for services) and dividends are subject to
withholding taxes when paid from Kazakhstan. The exact level of withholding tax
varies depending on the existence of a tax treaty between Kazakhstan and the
applicable nation or entity. The range of withholding tax is from 5.0% to 20.0%.


          SPECIAL NOTE REGARDING FORWARD-LOOKING FINANCIAL INFORMATION

         The Annual Information Form contains "forward-looking statements" about
our expectations, beliefs, plans, objectives, assumptions or future events or
performance. These statements include, among others, statements regarding our
future financial position, strategy, reserves, projected levels of capacity and
production, projected costs and estimated expenditures. These statements are
often, but not always, made through the use of words or phrases such as "will
likely result", "are expected to", "will continue", "anticipate", "believe",
"estimate", "intend", "plan", "project", "would" and "outlook". These
forward-looking statements are not historical facts, and are subject to a number
of risks and uncertainties. Certain of these risks and uncertainties are beyond
the Corporation's control. Accordingly, the Corporation's actual results could
differ materially from those suggested by these forward-looking statements for
various reasons discussed throughout this Annual Information Form, and
particularly in the section entitled "Risk Factors". Some of the key factors
that have a direct bearing on the Corporation's results of operations are:

         (a)      the concentration of our operations, assets and revenue in
                  Kazakhstan;

         (b)      the business of exploration, development, production and
                  refining of oil and natural gas reserves, the levels of those
                  reserves and the marketing of crude oil and refined products
                  and the ability to increase the quality of refined products;

         (c)      our ability to transport our crude oil and refined products to
                  export markets;

         (d)      fluctuations in oil and gas and refined product prices;

<PAGE>
                                     - 6 -


         (e)      changes in general political, social, economic and business
                  conditions in Kazakhstan and the region;

         (f)      our ability to manage our growth;

         (g)      changes in business strategy or development plans;

         (h)      our future capital needs;

         (i)      business abilities and judgment of the Corporation's
                  personnel;

         (j)      changes in, or failure to comply with, government regulations
                  or changes in interpretation, application or enforcement of
                  government regulations;

         (k)      costs arising from environmental liability;

         (l)      costs and other effects of legal and administrative
                  proceedings;

         (m)      our ability to manage currency fluctuations; and

         (n)      general economic and business conditions.

         The factors described above and the risk factors referred to in "Risk
Factors" could cause actual results or outcomes to differ materially from those
expressed in any forward-looking statements. Therefore, you should not place
undue reliance on any such forward-looking statements. Further, any
forward-looking statement speaks only as of the date on which it is made, and we
undertake no obligation to update any forward-looking statement or statements to
reflect events or circumstances after the date on which the forward-looking
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time, and it is not possible for the Corporation to
predict all of such factors. Further, we cannot assess the impact of each such
factor on its business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in
any forward-looking statements.

         For a discussion of important risks of an investment in our securities,
including factors that could cause actual results to differ materially from
results suggested in the forward-looking statements, you should carefully
consider the information set forth under the caption "Risk Factors". In light of
these risks, uncertainties and assumptions, the forward-looking events discussed
in this Annual Information Form might not occur.


                                 THE CORPORATION

         The Corporation is a vertically integrated, international energy
company engaged in acquisition, exploration, development and production of oil
and gas and the refining and sale of oil and refined products in Kazakhstan. As
of January 1, 2005, the Corporation had estimated total proved reserves of 357.3
mmbbls of oil and estimated total proved and probable reserves of 502.9 mmbbls
of oil, 32.1 mmbbls of NGLs and 88.4 bcf of gas. Present worth value for future
cash flows at a 10.0% discount rate for different tax and price assumptions are
as follows:

<PAGE>
                                     - 7 -

<TABLE>
<CAPTION>
                                                                                 NET PRESENT VALUE AT 10%(1)
                                                                          ------------------------------------------
         CASE                   OIL RESERVES         PRICE ASSUMPTION          PRE-TAX                POST-TAX
------------------------     ------------------    -------------------    -------------------    -------------------
                                 (mmbbls)                                       ($mm)                  ($mm)
<S>                           <C>                  <C>                    <C>                    <C>
Proved                             357.3               Escalating               4279.6                 2463.1

Proved                             357.3                Constant                5282.1                 3015.6

Proved & Probable                  502.9               Escalating               5655.8                 3249.0

Proved & Probable                  502.9                Constant                7042.6                 4023.1
</TABLE>

Note:

          (1) The estimated values disclosed do not represent fair market value.


         The Corporation operates seven fields which account for approximately
46.9% of its proved reserves of oil as of January 1, 2005, and approximately
61.3% of production for 2004. Average daily production of oil for the
Corporation was 151,102 bopd in 2004.


CORPORATE HISTORY

         PetroKazakhstan was incorporated in 1986 as Hurricane Hydrocarbons Ltd.
under the ABCA as a subsidiary of Brana Oil & Gas Ltd., formerly a public oil
and gas company listed on the Alberta Stock Exchange. In 1987, Brana Oil & Gas
Ltd. declared a dividend-in-kind to its shareholders of 1,530,259 Class A Common
Shares of Hurricane Hydrocarbons Ltd. Effective June 2, 2003, PetroKazakhstan
amended its articles of incorporation to change its name to PetroKazakhstan Inc.
from Hurricane Hydrocarbons Ltd.

         PetroKazakhstan's corporate headquarters are located at Suite 1460, Sun
Life Plaza, North Tower, 140 - 4th Avenue S.W., Calgary, Alberta, Canada T2P
3N3, and its phone number is (403) 221-8435. The Common Shares of the
Corporation are listed and posted for trading on the TSX, the New York Stock
Exchange (the "NYSE"), the London Stock Exchange (the "LSE"), the Frankfurt
Stock Exchange (the "FSE") under the common trading symbol "PKZ" and on the
Kazakhstan Stock Exchange (the "KASE") under the trading symbol "CA_PKZ". The
Common Shares of the Corporation were listed on the TSX on April 18, 1995, on
the NYSE on September 12, 2002, on the LSE on October 16, 2003 and on the KASE
on October 21, 2004. In 2004, 69,601,912 of Common Shares of the Corporation
were traded on the TSX, in the price range of C$29.00 and C$50.58.

<PAGE>
                                     - 8 -


                    RECENT PRICE OF COMMON SHARES ON THE TSX
------------------------------------------------------------------------------
      DATE          HIGH(1)         LOW            CLOSE             VOLUME
------------------------------------------------------------------------------
    Jan 2004         33.75         29.24           29.90            4,226,200
    Feb 2004         34.44         29.00           34.13            2,533,900
    Mar 2004         42.70         34.00           36.90           17,893,400
    Apr 2004         41.50         34.76           37.22            3,674,300
    May 2004         41.19         34.43           37.49            4,341,300
   June 2004         38.25         35.00           36.23            5,611,600
   July 2004         43.50         36.38           41.90            4,815,800
    Aug 2004         43.70         37.05           39.50            3,825,200
    Sep 2004         44.25         38.56           42.91            9,206,800
    Oct 2004         50.00         39.00           45.00            4,496,000
    Nov 2004         50.58         42.59           50.00            4,517,200
    Dec 2004         49.75         41.01           44.53            4,491,200
    Jan 2005         46.50         41.00           44.68            3,861,800
    Feb 2005         57.79         44.25           53.88            3,720,700
------------------------------------------------------------------------------

Note:

         (1)   Source: Starquote.


PRINCIPAL SUBSIDIARIES

         The following chart shows, as of December 31, 2004, the principal
subsidiaries of PetroKazakhstan, their respective jurisdictions of
incorporation, and the percentage ownership of voting securities held, directly
or indirectly, by PetroKazakhstan:


<PAGE>
                                     - 9 -




                         [ORGANIZATIONAL CHART OMITTED]




Notes:

         (1)      Ownership percentage reflects the percentage of entity owned
                  by its direct parent.

         (2)      PetroKazakhstan Inc. is the parent holding company that
                  directly or indirectly owns all of the other companies within
                  the PetroKazakhstan group.

         (3)      PetroKazakhstan Overseas (Cyprus) Limited is an intermediate
                  holding company.

         (4)      PetroKazakhstan Kumkol Limited is an intermediate holding
                  company.

         (5)      PetroKazakhstan Marketing Limited is a crude oil marketing
                  subsidiary of the PetroKazakhstan group.

<PAGE>
                                     - 10 -


         (6)      AO PetroKazakhstan Kumkol Resources is engaged in developing
                  the Kumkol South, South Kumkol, KAM, East Kumkol and North
                  Nurali fields, and the Corporation's exploration blocks. See
                  "General Development of the Business-Formative
                  Transactions-The PKKR Acquisition".

         (7)      TOO Kazgermunai is a 50.0% joint venture with RWE-DEA AG
                  (25.0%), Erdol-Erdgas Gommern GmbH (17.5%), and International
                  Finance Corporation (7.5%) engaged in developing the
                  Akshabulak, Nurali and Aksai fields. See "General Development
                  of the Business-Formative Transactions-TOO Kazgermunai".


         (8)      PetroKazakhstan Finance B.V., a special purpose entity, is a
                  wholly-owned subsidiary of PKKR. See "General Development of
                  the Business-Three Year History-9.625% Notes Issue".

         (9)      CJSC Turgai Petroleum is a 50.0% joint venture with LUKoil
                  Overseas Ltd., engaged in developing the North Kumkol field.

         (10)     Valsera Holdings B.V. is an intermediate holding company for
                  the Corporation's refining activities.

         (11)     TOO PetroKazakhstan Oil Products, formerly known as OJSC
                  Shymkentnefteorgsyntez), is the company in which the
                  Corporation's refining activities take place. See "General
                  Development of the Business-Formative Transactions-PKOP
                  Acquisition".

         (12)     Ascot Petroleum Consulting Limited. provides management
                  services to companies in the PetroKazakhstan group.

         (13)     PetroKazakhstan Overseas Services Inc. supplies international
                  goods and services for PetroKazakhstan's operations and
                  provides personnel services to the group.

         (14)     Alberta Oil Trading Limited. is an intermediate holding
                  company.

         (15)     Nefteproduct Limited. is a refined product marketing
                  subsidiary of the PetroKazakhstan group.


                       GENERAL DEVELOPMENT OF THE BUSINESS

                TURAN PETROLEUM JOINT ENTERPRISE; ACQUISITION OF
                   CANADIANOXY'S INTEREST IN TURAN PETROLEUM

         The Corporation's first involvement in Kazakhstan was its participation
in Turan Petroleum Joint Enterprise ("TURAN PETROLEUM") in 1991. Originally,
Turan Petroleum participated in the development of three partially delineated
oil fields in the South Turgai Basin in southern Kazakhstan: the Kyzylkiya,
Aryskum and Maibulak fields. In return for acquiring its interest, the
Corporation agreed to develop these fields. The other original participants in
Turan Petroleum were PKKR, which at the time was a state-owned entity, and
Yuzhkazgeologia, a Kazakhstan government agency. Subsequently, Turan Petroleum
acquired the right to develop the South Kumkol field. PKKR, as a state-owned
entity, was the sole Kazakhstan participant in Turan Petroleum for the South
Kumkol field.

         In 1994, the Corporation entered into an agreement with Canadian
Occidental Petroleum Ltd. ("CANADIANOXY") to obtain CanadianOxy's assistance in
the financing and development of the four fields owned by Turan Petroleum in
exchange for an interest in Turan Petroleum. In 1996, the Kazakhstan government
cancelled Turan Petroleum's exploration and production license for the South
Kumkol field due to non-compliance with certain terms of the license. In
December 1996, the Kazakhstan government reissued the exploration and production
license for the South Kumkol field to PKKR. In 1997, the Kazakhstan government
cancelled Turan Petroleum's exploration and production licenses for the KAM
Fields due to non-compliance with certain terms of the licenses. The Kazakhstan
government reissued the exploration and production license for the Maibulak
field to PKKR in December 1997 and the exploration and production licenses for
the Kyzylkiya and Aryskum fields to PKKR in September 1998. As a result, Turan
Petroleum no longer has any interest in the four oil fields and PKKR owns a
100.0% interest in the four oil fields.

<PAGE>
                                     - 11 -


         In 1997, the Corporation acquired from CanadianOxy all of CanadianOxy's
direct and indirect interests in Turan Petroleum for $4.0 million plus the
exchange of mutual releases.

         THE PKKR ACQUISITION

         In 1996, PetroKazakhstan Kumkol Limited, one of the Corporation's
wholly-owned subsidiaries, entered into an agreement (the "PKKR SHARE
SALE-PURCHASE AGREEMENT") with the Government of Kazakhstan pursuant to which
PetroKazakhstan Kumkol Limited purchased all the common stock of PKKR from the
Government of Kazakhstan (the "PKKR ACQUISITION"). On December 12, 1996, the
Corporation completed the PKKR Acquisition, effective November 30, 1996, for an
aggregate purchase price of $120.0 million. As part of this acquisition, the
Corporation acquired: (i) a 100.0% interest in Kumkol South; (ii) a 50.0%
interest in Kumkol-LUKoil CJSC, now Turgai Petroleum, which owns a 100.0%
interest in Kumkol North; (iii) a 50.0% interest in Kazgermunai Joint Venture
Company ("KAZGERMUNAI"), which holds licenses to the Akshabulak, Nurali and
Aksai fields; and (iv) a 50.0% interest in Turan Petroleum.

         In addition, the Kazakhstan government agreed that if any of the
exploration and production licenses held by Turan Petroleum, Turgai Petroleum or
Kazgermunai as of the date of the PKKR acquisition were cancelled, they would be
reissued to PKKR. Under that contractual right, the licenses to the South Kumkol
field and the KAM Fields, formerly held by Turan Petroleum, have been reissued
to PKKR. Accordingly, PKKR now has title to 100.0% of these licenses.

         The common stock of PKKR purchased by the Corporation represented, at
that time, all of the common equity interest in PKKR and 89.5% of the voting
stock. The balance of the voting stock consisted of a single class of voting
preferred stock owned by current and former employees of PKKR. PetroKazakhstan
has since acquired a number of the voting preferred stock that was outstanding
at the time of the PKKR Acquisition. In 2004 PKKR issued 85,406,808 common
shares and 10,020,168 preferred shares for proceeds of $14.9 million. As a
result, as of December 31, 2004, PetroKazakhstan held 99.7% of the voting shares
of PKKR. The preferred stock is currently entitled to an annual aggregate
dividend preference of approximately $35,000 and is non-participating except in
a liquidation of PKKR, in which event holders of preferred stock will
participate to the extent of 0.3% of the net assets of PKKR.

         Pursuant to the terms of the PKKR Acquisition, the Corporation, for the
benefit of PKKR, committed to invest in Kazakhstan, on or before December 31,
2002, the local currency equivalent of $280.0 million in capital expenditures,
investments or other items which may be treated as capital assets for balance
sheet purposes as determined by international accounting standards. The required
expenditures were to be made either by means of capital contributions to PKKR or
from other sources including cash flows of PKKR. If the required investment was
not made by such date, the Corporation would be required to pay to the
Kazakhstan government, in lieu of any amount not invested, a penalty of 15.0% of
the shortfall. Under the arrangements for the granting of production licenses in
Kazakhstan, the Corporation is subject to certain commitments for expenditures
to develop particular fields. Expenditures pursuant to these commitments are
credited against the Corporation's $280.0 million aggregate obligation. As at
December 31, 2004, the Government of Kazakhstan has audited compliance with the
investment commitment and has agreed that PKKR has met its obligations.

         CJSC TURGAI PETROLEUM. In 1995, PKKR and LUKoil Oil Company of Russia
formed a joint venture, CJSC Kumkol-LUKoil, in Kazakhstan. CJSC Kumkol-LUKoil
subsequently changed its name to CJSC Turgai Petroleum. LUKoil Overseas Kumkol
B.V., a Netherlands company ("LUKOIL"), acquired LUKoil Oil Company's interest
therein. In 2001 PKKR transferred its shareholding in Turgai Petroleum to
PetroKazakhstan. PetroKazakhstan and LUKoil each have a 50.0% ownership interest
in Turgai Petroleum. Turgai Petroleum owns a 100.0% interest in, and is the
operator of, the Kumkol North field.

<PAGE>
                                     - 12 -


         TOO KAZGERMUNAI. In November 1993, PKKR formed the Kazgermunai Joint
Venture Company ("KAZGERMUNAI") in Kazakhstan with two German companies as
partners. The two original German partners subsequently transferred their
ownership interests to the Corporation's current partners. The Kazakhstan
government has granted Kazgermunai 30-year exploration and production licenses
for the Akshabulak, Nurali and Aksai fields. Through PKKR's interest in
Kazgermunai, the Corporation has a 50.0% interest in the Akshabulak, Nurali and
Aksai fields. Funding for the development of the central part of the Jurassic
III formation of the Akshabulak field is obtained by Kazgermunai from loans from
its shareholders other than PKKR, which has no obligation to fund any of the
costs of the initial development phase of that formation. These shareholder
loans were non-recourse to the Corporation except to the extent of its interest
in Kazgermunai. Kazgermunai was restricted from paying dividends to its
shareholders until all outstanding loans had been paid. The shareholder loans
were fully repaid as at December 31, 2004.

         The table below sets out 100% of the outstanding long term debt of
Kazgermunai for the three years ended December 31, 2004.

<TABLE>
<CAPTION>
                                                       2004           2003             2002
                                                  -------------    ------------    -------------
                                                      ($m)            ($m)             ($m)
<S>                                               <C>              <C>             <C>
Shareholders Loans...........................          -             50,114           66,144
Loans from Kazakh Government.................          -             25,372           24,318
                                                  -------------    ------------    -------------
     Total...................................          -             75,486           90,462
                                                  =============    ============    =============
</TABLE>

Note:

         (1)      As of December 31, 2004 the Loans from Kazakh Government
                  are classified as current.


         THE PKOP ACQUISITION

         On March 31, 2000, PetroKazakhstan, pursuant to the terms of an
agreement dated October 9, 1999 among Central Asian Industrial Holdings N.V.
("CAIH"), PKOP, OJSC Kazkommertsbank ("KKB"), PetroKazakhstan and PKKR, as
amended (the "PKOP TRANSACTION AGREEMENT") closed the acquisition by the
Corporation of all of the common shares of PKOP held by CAIH, representing 88.4%
of the issued and outstanding shares of PKOP, for total consideration of $118.0
million (the "PKOP ACQUISITION"). PKOP owns the Shymkent refinery located near
Shymkent, Kazakhstan (see "Business of the Corporation-Downstream Operations:
Refining, Marketing and Transportation"). The consideration for such acquisition
was paid by (i) the payment by PetroKazakhstan to CAIH of $45.1 million cash,
(ii) the issuance from treasury by PetroKazakhstan to CAIH of 19,430,543 Common
Shares (of which 153,657 shares were cancelled in 2001), and (iii) the issuance
by PetroKazakhstan to CAIH of 4,067,381 special warrants, each of which was
exercisable into one Common Share without payment of further consideration by
CAIH to PetroKazakhstan. All of the special warrants were exercised by CAIH on
or about July 11, 2000. All of the Common Shares and special warrants referred
to in (ii) and (iii) above, as well as a total of $31,544,108 of the cash
consideration referred to in (i) above, was paid and issued to CAIH at the time
of the closing on March 31, 2000. The remaining cash consideration was paid to
CAIH by PetroKazakhstan in three equal instalments on each of May 1, June 1 and
July 1, 2000.

         In addition, PetroKazakhstan issued to CAIH, at the time of the closing
of the PKOP Acquisition, for each security issued by the Corporation that was
convertible into Common Shares and that was outstanding and unexercised at the
time of the closing, a corresponding convertible security convertible into
Common Shares. As a result, corresponding convertible securities were issued by
PetroKazakhstan entitling CAIH to acquire a total of 7,210,564 Common Shares at
exercise prices varying from nil to C$9.30 per

<PAGE>
                                     - 13 -


share and with termination dates varying from August 18, 2000 to February 5,
2005. As at the date hereof, CAIH has exercised corresponding convertible
securities thereby acquiring 4,745,026 Common Shares.

         Pursuant to the PKOP Transaction Agreement, PetroKazakhstan and CAIH
agreed that the only adjustments that may be made in the future to the
consideration paid by PetroKazakhstan for CAIH's common shares of PKOP pursuant
to the PKOP Acquisition are as follows:

         (a)      in the event that after the closing of the PKOP Acquisition,
                  PetroKazakhstan or PKOSI settles any amount pertaining to
                  disputed claims of PetroKazakhstan outstanding at the time of
                  the implementation of the CCAA Plan, the amount of the cash
                  consideration paid by PetroKazakhstan to CAIH pursuant to the
                  PKOP Acquisition shall be increased by an amount equal to
                  50.0% of the amount of such settlement (see "Legal
                  Proceedings-CCAA Proceedings"); and

         (b)      in the event that within 18 months of the closing of the PKOP
                  Acquisition, PKOP makes any settlement of certain threatened
                  or disputed claims, the amount of such cash consideration
                  shall be decreased by an amount equal to 88.4% of the amount
                  of the settlement. No such settlements were made by PKOP prior
                  to the 18-month deadline.

         Since the closing of the PKOP Acquisition, PetroKazakhstan has acquired
a further 8.3% of the outstanding shares of PKOP. As of December 31, 2004,
PetroKazakhstan held 96.7% of the common shares of PKOP. At the time of the
closing of the PKOP Acquisition, PetroKazakhstan and CAIH entered into an
agreement (the "CAIH SHAREHOLDERS' AGREEMENT"), which governed certain aspects
of the relationship between PetroKazakhstan and CAIH, formerly the largest
shareholder of PetroKazakhstan. See "Description of Share Capital-Shareholders'
Agreement".

         Selected segmented financial information for the Corporation's
Downstream operations for the years ended December 31, 2004, 2003 and 2002,
which reflects the financial impact of the PKOP Acquisition on the financial
results of the Corporation, are set out below:

<TABLE>
<CAPTION>
                                                      2004            2003             2002
                                                  -------------    ------------    -------------
<S>                                                  <C>              <C>             <C>
DOWNSTREAM BUSINESS SEGMENT                          ($mm)            ($mm)           ($mm)
Revenues......................................       484.0            443.8           270.1
Segmented Net Income..........................       155.4            165.5            49.7
Total Assets..................................       180.1            157.5           169.1
</TABLE>

         For further information on the segmented financial information relating
to the Corporation's Downstream business segment, reference should be made to
Note 3 of PetroKazakhstan's annual consolidated financial statements for the
year ended December 31, 2004, contained in PetroKazakhstan's 2004 Annual Report
to its shareholders.


THREE YEAR HISTORY

         REDEMPTION OF SERIES 5 WARRANTS

         On February 23, 2001, the Corporation redeemed a total of 4,943,020
outstanding Series 5 Warrants of the Corporation at a redemption price of C$2.90
per warrant. The Series 5 Warrants were each exercisable into one Common Share
at an exercise price of C$6.25 per share. No Series 5 Warrants remain
outstanding.

<PAGE>
                                     - 14 -


         A total of 2,034,547 of the corresponding convertible securities issued
by the Corporation to CAIH pursuant to the PKOP Acquisition correspond to the
Series 5 Warrants that were redeemed by the Corporation. See "General
Development of the Business-Formative Transactions-The PKOP Acquisition". The
Corporation redeemed those corresponding convertible securities from CAIH at the
same redemption price as the Series 5 Warrants.

         CAIH OFFER TO ACQUIRE PETROKAZAKHSTAN SHARES AND DISTRIBUTION

         On April 12, 2001, CAIH, then PetroKazakhstan's largest shareholder,
advised PetroKazakhstan by letter that it intended to make an unsolicited
partial take-over bid (the "PROPOSED PARTIAL OFFER") for 18.4 million Common
Shares for C$10.25 per share which, if successful, would have increased CAIH's
shareholdings at that time from approximately 30.0% to approximately 53.0% of
the outstanding Common Shares.

         The Board of Directors of PetroKazakhstan (the "BOARD") formed an
Independent Committee as required by Canadian securities laws comprised of
Messrs. Jim Doak (who was also Chairman of the Independent Committee), Robert
Kaplan and Louis MacEachern. On April 27, 2001, PetroKazakhstan announced that
the Independent Committee had selected Peters & Co. Limited of Calgary ("PETERS
& CO.") as the independent valuator to prepare a valuation of PetroKazakhstan
under the direction of the Independent Committee in accordance with Canadian
securities laws.

         On May 14, 2001, the Independent Committee, with the assistance of its
legal and financial advisors, met to consider a proposed distribution (the
"PROPOSED DISTRIBUTION") to PetroKazakhstan shareholders of a special dividend
of the U.S. dollar equivalent of C$4.00 per share, payable by the issuance of
approximately $200.0 million of senior unsecured notes (the "SENIOR NOTES"). The
Independent Committee approved the Proposed Distribution in principle and
resolved to recommend it to the Board. The Proposed Distribution was announced
by PetroKazakhstan on May 15, 2001.

         On May 28, 2001, CAIH applied to the securities commissions of the
provinces of Ontario, Alberta and Quebec (the "SECURITIES REGULATORS") for,
among other things, an order to cease trade the Proposed Distribution. On June
1, 2001, PetroKazakhstan delivered a response to such application to the
Securities Regulators. On June 5, 2001, staff of the Securities Regulators
advised counsel to the Corporation and CAIH that staff was not prepared to
support a cease trade order with respect to the Proposed Distribution provided
that (i) PetroKazakhstan obtained an opinion prepared by an independent valuator
as to the trading value of the Senior Notes, and (ii) the Change of Control
Provision (as defined below) to be included in the Senior Notes not take effect
until such provision was approved by the shareholders of PetroKazakhstan. In
accordance with the request of staff of the Securities Regulators,
PetroKazakhstan retained Peters & Co. to prepare such an opinion with respect to
the Senior Notes, and requested that the shareholders of PetroKazakhstan
consider the approval of the Change of Control Provision to be included in the
Senior Notes at a special meeting of shareholders of PetroKazakhstan which was
held July 20, 2001.

         On June 15, 2001, PetroKazakhstan announced that Peters & Co. had
advised the Independent Committee of the results of its independent valuation of
PetroKazakhstan's Common Shares. Peters & Co. valued PetroKazakhstan's Common
Shares in the range of C$21.50 to C$23.50 per share prior to PetroKazakhstan's
previously announced C$4.00 special dividend. According to the Peters & Co.
report, after giving effect to the Proposed Distribution, the value of the
Common Shares plus the special dividend would not be materially different from
the pre-dividend valuation range.

         The Independent Committee was advised by CIBC World Markets Inc. ("CIBC
WORLD MARKETS"), the financial advisors to PetroKazakhstan in connection with
the Proposed Partial Offer of CAIH, that CAIH's proposed offer was inadequate.
CIBC World Markets also advised the Independent Committee that

<PAGE>
                                     - 15 -


the special dividend of C$4.00 per share on PetroKazakhstan's Common Shares was
fair from a financial point of view to PetroKazakhstan shareholders.

         The Independent Committee, after receiving financial advice from CIBC
World Markets, recommended to the Board that PetroKazakhstan declare and pay the
special dividend of C$4.00 per Common Share payable by delivery of Senior Notes
or a combination of cash and Senior Notes, as described below. Accordingly, on
June 15, 2001, the Board declared the special dividend to be satisfied by the
distribution of Senior Notes and/or cash.

         As requested by the staff of the Securities Regulators, the Independent
Committee retained Peters & Co. to provide an independent opinion regarding the
expected trading value of the Senior Notes. Peters & Co. advised the Independent
Committee on June 15, 2001 that, based on its discussions with PetroKazakhstan's
financial advisors, together with its review of the proposed terms and
conditions for the Senior Notes, the expected liquidity of the Senior Notes, the
current market for comparable fixed income notes, the inclusion of a change of
control feature and an interest rate on the Senior Notes of not less than 12.0%,
the Senior Notes would reasonably be expected to trade at or near par in the
context of the current market. Peters & Co. further advised that a change of
control covenant is typical for securities such as the Senior Notes and the
absence of a change of control feature would negatively affect the trading value
of the Senior Notes.

         The Senior Notes had a term of five years plus one day and interest was
payable thereon semi-annually. On July 20, 2001, at the special meeting of
shareholders, shareholders approved the proposal that the Senior Notes be
subject to mandatory repurchase by PetroKazakhstan at the option of the holders
thereof upon a change of control. This was affected through a requirement (the
"CHANGE OF CONTROL PROVISION") that PetroKazakhstan make an offer to holders of
Senior Notes to repurchase Senior Notes upon a change of control. For this
purpose, the change of control threshold was defined to include, among other
things, the acquisition by a person or group of beneficial ownership of more
than 50.0% of the Corporation's outstanding Common Shares. Failure by
PetroKazakhstan to make a repurchase offer upon the occurrence of a change of
control would constitute an event of default under the terms of the indenture
pursuant to which the Senior Notes were issued.

         On July 23, 2001, the Board set the interest rate at 12.0% and
finalized the other terms of the Senior Notes so that they should initially
trade at par. ING Barings Limited and CIBC World Markets advised that the
Special Dividend be paid entirely in Senior Notes.

         The Special Dividend was paid on August 3, 2001 to common shareholders
of record on August 2, 2001. The principal amount of Senior Notes that a
shareholder received was determined by multiplying the U.S. dollar equivalent of
the C$4.00 dividend at the close of business on the August 2, 2001 record date
by the number of shares held, subject to adjustment, to take into account any
non-resident withholding tax and the payment of cash in lieu of fractional
interests. The Senior Notes were redeemed on February 3, 2003.

         In December 2002, as a result of a secondary offering, CAIH reduced its
interest in the Corporation from 29.4% to 19.0%. In March 2004, CAIH further
reduced its interest in the Corporation from 19.0% to 12.7% and continued to
further reduce this position in April 2004 to 7.6%. In August, September and
November 2004, CAIH continued to further reduce its interest in the Corporation
to 6.9%, 5.6% and 4.7%, respectively.

         LOAN FACILITY

         On January 2, 2003, PetroKazakhstan's subsidiary, PKKR, entered into a
$225.0 million export financing agreement with a consortium of European banks
comprised of Natexis Banques Populaires, BNP

<PAGE>
                                     - 16 -


Paribas and ING Bank. This loan facility had a maturity of four years and was
repayable in 42 equal monthly instalments which commenced on July 2003. The
facility bore interest at a rate of LIBOR plus 3.25% per annum. PKKR has drawn
$190.0 million under this facility and has chosen not to utilize the remainder.
On September 30, 2004 the Corporation had fully repaid the term facility.
Unamortized issue costs of $2.1 million related to the term facility have been
expensed.

         9.625% NOTES ISSUE

         On February 12, 2003, PetroKazakhstan's subsidiary, PetroKazakhstan
Finance B.V., issued $125.0 million of 9.625% notes due February 12, 2010 (the
"NOTES"). PetroKazakhstan Finance B.V. is PetroKazakhstan's financing subsidiary
and is incorporated under the laws of the Netherlands. The bonds are unsecured,
and are unconditionally guaranteed by the parent holding company,
PetroKazakhstan, and the two principal operating subsidiaries, PKKR and PKOP. On
March 15, 2004 the Notes were approved for listing on the KASE. The credit
rating received from Standard and Poor was B+ and Ba3 from Moody's.

         KAM PIPELINE

         In June 2003, construction of the KAM pipeline and the Dzhusaly
railcar-loading terminal was completed and the facilities were commissioned and
approved for operation. The 16-inch diameter, 177 kilometre pipeline has a
capacity of 140,000 bopd and is the first high-pressure oil pipeline built in
Kazakhstan. The Dzhusaly rail-loading terminal is the fastest loading facility
in Kazakhstan. The new pipeline and rail terminal facilities, which were
completed at a cost of $82.8 million, have reduced transportation distance by
1,300 kilometres on westbound exports of crude oil from the Corporation's oil
fields in the South Turgai basin. Turgai Petroleum (the Corporation's 50.0%
joint venture with LUKoil) has a 50.0% interest in the KAM pipeline and will use
it for westbound exports from Kumkol North field. The completion of the KAM
pipeline has reduced transportation costs for the export of crude oil by
approximately $2.00 per barrel on volumes shipped to Western destinations. In
addition to cost savings, this facility provides additional transportation and
marketing capacity and flexibility and reduces the reliance on the Tekesu
loading terminal at the refinery in Shymkent, which previously handled 100.0% of
all crude oil export volumes.

         GAS UTILIZATION PROJECT

         The Corporation completed construction of a 55-megawatt gas utilization
plant at the Kumkol field (co-owned by the Corporation and Turgai Petroleum) in
October 2003. The project provides electricity for the field operations and
excess electricity for sale into Kazakhstan's domestic market.

         PKOP'S VACUUM DISTILLATION UNIT

         The reconditioning of the Vacuum Distillation Unit ("VDU") at the
Shymkent refinery was completed in late 2003. This allows for the production and
sale of Vacuum Gasoil ("VGO") and the reduction of lower margin heavy fuel oil
(mazut) production. VGO is of high value and is a highly sought after product by
refineries with catalytic cracking units where the VGO can be converted into
gasoline and diesel. VGO is solely used as a feedstock for refineries or
lubricant plants. Trial shipments were exported via the Black Sea in January
2004 but subsequently this was changed to the Baltic Sea, where export
facilities were more suited to handling VGO. Shipments were halted in March and
April 2004 as VGO was classified as a diesel product and thus subject to the
seasonal export ban imposed by MEMR during the sowing and harvesting seasons.
After successful negotiations with various government agencies, VGO was
declassified as a diesel product and was no longer subject to the diesel export
bans. Export shipments resumed in May 2004 and reached their operational maximum
by August 2004.

<PAGE>
                                     - 17 -


RECENT DEVELOPMENTS

o    On February 16, 2001 PKOP registered 250,000 unsecured bonds (par value
     $100) in the amount of $25.0 million with the National Securities
     Commission of the Republic of Kazakhstan (the "PKOP BONDS"). The PKOP bonds
     had a three-year maturity and bore a coupon rate of 10% per annum. The PKOP
     bonds were listed on the KASE. The PKOP bonds were fully redeemed on
     February 26, 2004.

o    The gas utilization plant at Kumkol reached full design capacity in the
     first quarter of 2004. The gas fired power turbines generate up to 55MW of
     electricity of which a portion is utilized in the Kumkol oilfields with the
     excess provided for sale into Kazakhstan's domestic market.

o    The Corporation's gas utilization program continued in 2004 with
     commissioning of the gas re-injection facility in the Aryskum oil field.
     The Corporation's utilization of produced associated gas is approximately
     50.0%.

o    On May 25, 2004 the Corporation entered into a five and one half year
     $100.0 million committed credit facility. This facility is unsecured, bears
     interest at LIBOR plus 2.65% and is subject to annual review. $30.0 million
     of this facility has been dedicated to cover margin calls under the
     Corporation's hedging program. This amount is not available for general
     corporate purposes. Costs related to this facility amounting to $1.5
     million are recorded as deferred charges and amortized over the life of the
     facility.

o    The Corporation acquired two exploration areas to the north and south of
     the main Kyzylkiya field totalling 146 square kilometres. During 2004 3D
     seismic data was acquired and interpreted. The interpretation resulted in 2
     wells being drilled on the north acreage of which 1 well tested oil to
     surface and the second well being abandoned. Seismic interpretation is
     currently being conducted on the south acreage.

o    The Corporation's Normal Course Issuer Bid program was renewed on August 5,
     2003. Under the program up to 5,775,028 Common Shares may be repurchased
     for cancellation, during the period from August 7, 2003 to August 6, 2004.
     In August 2004 the Corporation again renewed this program which enabled the
     Corporation to repurchase 7,091,429 Common Shares during the period from
     August 13, 2004 to August 12, 2005. The Corporation purchased and cancelled
     1,477,400 shares at an average price of C$14.69 per share during the year
     ended December 31, 2003 and 1,257,500 shares at an average price of C$40.00
     per share during the year ended December 31, 2004. The excess of cost over
     the book value for the shares purchased was applied to retained earnings.

o    On June 24, 2004, Kazgermunai repaid $24.3 million of its outstanding
     subordinated debt and as at December 31, 2004 the subordinated debt was
     repaid in full.

o    In June 2004 the Corporation commenced a Substantial Issuer Bid to
     repurchase, for cancellation, up to C$160.00 million of its Common Shares.
     As at December 31, 2004, the Corporation had purchased and cancelled
     3,999,975 shares at an average price of C$40.00 per share. The excess of
     cost over the book value for the shares purchased was applied to retained
     earnings.

o    The Corporation's transportation differential has been significantly
     reduced due to increased utilisation of pipelines, having railcars under
     the Corporation's control and reduced discounts negotiated with buyers.

o    Deliveries to the Tehran refinery in Iran under a swap arrangement with
     NICO began in December 2003 and grew steadily until June 2004, at which
     point MEMR began to restrict quotas and finally blocked all quotas for PKKR
     in August 2004. Corporation's joint venture Turgai Petroleum was however
     provided with export quotas for this direction but at a reduced level such
     that PetroKazakhstan Marketing Limited could not fulfill its obligations to
     NICO. PetroKazakhstan has vigorously contested the actions of MEMR as
     unjustified and contrary to the laws of the Republic of Kazakhstan, the
     hydrocarbon licences

<PAGE>
                                     - 18 -


     of PetroKazakhstan and the privatization agreement. This matter is
     currently under review by the courts in Kazakhstan.

o    The Board approved an increase in the quarterly dividend on its Common
     Shares to C$0.20 per share per quarter for 2005 versus C$0.15 per share per
     quarter in 2004. The C$0.20 per share dividend was paid on February 3, 2005
     to shareholders of record on January 14, 2005.

o    1,876,508 acres Karaganda license has been awarded to the Corporation with
     final contract terms awaiting confirmation. The staged worked program will
     start with reprocessing 400km of 2D seismic and the acquisition of new 2D
     seismic in 2005.

o    In the first quarter of 2005, the Corporation will drill three exploration
     and 13 development wells on its operated acreage of which two wells are the
     first horizontal wells drilled in the South Turgai Basin.


BUSINESS TRENDS

         NEW EXPLORATION OPPORTUNITIES

         The Corporation became a 75.0% equity partner and operator in License
951-D, which covers two blocks (Doshan and Zhamansu) in the South Turgai Basin
over a total area of 795,057 acres (net). 450 kilometres of 2D seismic data have
been acquired over the two blocks. An exploration well was drilled in the
northern Doshan block south of the Aryskum field and although encountered oil
and gas shows the well was deemed as non-commercial and abandoned. Four wells
were drilled in the southern Zhamansu block in 2004 two wells had oil and gas
shows with one well swab testing oil to surface. The other two wells were
abandoned. An additional seismic and drilling program is planned for 2005.

         The Corporation recently acquired exploration license 952 (Kolzhan), in
area of 122,811 acres immediately to the northwest of the main Kyzlkiya field.
During 2004 3D and 2D data was obtained. The interpretation resulted in 6 wells
being drilled, of which 5 tested oil to surface and 1 well was abandoned.

         The Corporation was awarded 4,446 acres of open exploration land
adjacent to the Kolzhan license.

         The Corporation has received the rights to an exploration area referred
to as Karaganda with an area of 1,876,508 acres. During 2004 the company entered
into contract negotiations with the Republic of Kazakhstan on this block that
effectively doubles the size of the Corporations explorations acreage.

         The Corporation's total current net exploration acreage is 3,400 acres.

         During 2004 the Corporation's Geology and Geophysicist group identified
a potential channel sand play under the Aryskum gas cap. The Geologic model was
tested by drilling 5 wells all of which tested oil and gas to surface with oil
flow rates of up to 1300 bopd.

<PAGE>
                                     - 19 -


         GAS RESOURCES

         Following the completion of the 55MW power plant in Kumkol, which
exploits part of the gas previously flared from Kumkol South, South Kumkol and
Kumkol North reservoirs, PetroKazakhstan continues to assess additional methods
to increase gas utilization.

         The Corporation will start an EOR project in 2005 where LPG will be
injected along with recovered associated gas (previously flared) to increase the
oil recovery in the Kumkol South reservoir.

         In addition, gas re-injection into the Aryskum reservoir has already
commenced to conserve the resources and provide reservoir pressure maintenance.
Further re-injection of currently flared gas in other fields is being designed
along with an LPG extraction plant.

         As a 50.0% partner in the Kazgermunai joint venture, the Corporation is
participating in the construction of an LPG extraction plant for the Akshabulak
field, which should be commissioned in the third quarter of 2005. The 30 mmcfd
plant will provide 2,900 boed of LPG and 600.0 boed of condensate. A 12 inch gas
pipeline has been constructed from Akshabulak to the city of Kyzylorda.



<PAGE>
                                     - 20 -


                           BUSINESS OF THE CORPORATION

         The Corporation is a vertically integrated, international energy
company engaged in the acquisition, exploration, development and production of
oil and gas, and the refining and selling of crude oil and refined products in
Kazakhstan.

OIL AND GAS EXPLORATION AND DEVELOPMENT OPERATIONS

         PRINCIPAL OIL AND GAS PROPERTIES

         The Corporation's oil and gas exploration and production operations are
located in the 80,000 square kilometre South Turgai Basin in South Central
Kazakhstan, approximately 1,300 kilometres west of Almaty. The Corporation has
interests in 11 fields, of which seven are on continuous production (Kumkol
South, South Kumkol, Kumkol North, Kyzylkia, Akshbulak, Aryskum and Maibulak)
and four are on test and approval (East Kumkol, Nurali, Aksai and North Nurali).
The Corporation's exploration acreage consists of approximately 3,400 acres. One
of the fields (North Nurali), which is in the development stage is contained
within the area covered by the exploration license.

         The following table lists the Corporation's oil and gas fields,
reserves estimates and present worth values.

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
  Field(1)     Interest       Field             Gross            Net to            Net to company          Net to
                 %          Operator          property          company             proved plus            company
                                            proved plus       proved plus           probable oil           proved
                                            probable oil        probable             reserves              plus
                                              reserves            oil              post-royalty           probable
                                            pre-royalty         reserves                                    gas
                                                              pre-royalty                                reserves
                                                                                                        post-royalty
                                           --------------------------------------------------------------------------
                                                                Constant
                                            Constant and          and          Constant   Escalating    Escalating
                                             Escalating        Escalating       (1) (2)    (1) (3)        (1) (3)
                                           --------------------------------------------------------------------------
                                               Mmbbls            Mmbbls         mmbbls     mmbbls           bcf
                                               (1)(2)         (2) (3) (4)
--------------------------------------------------------------------------------------------------------------------
<S>             <C>       <C>               <C>               <C>             <C>        <C>            <C>
Kumkol South    100           PKKR             76.19             76.19           71.81      71.81          10.30
--------------------------------------------------------------------------------------------------------------------
Kumkol North    50           Turgai            191.23            95.62           87.01      87.01          12.57
--------------------------------------------------------------------------------------------------------------------
South Kumkol    100           PKKR             40.93             40.93           36.84      36.84          1.83
--------------------------------------------------------------------------------------------------------------------
East Kumkol    74(4)      PKKR/Turgai          14.14             10.46           10.20      10.20          0.08
--------------------------------------------------------------------------------------------------------------------
North Nurali  100(4)          PKKR              9.67              9.67           9.52       9.52           0.00
--------------------------------------------------------------------------------------------------------------------
Kyzylkia        100           PKKR             34.74             34.74           33.95      33.95          2.68
--------------------------------------------------------------------------------------------------------------------
Aryskum         100           PKKR             51.91             51.91           50.91      50.91          2.66
--------------------------------------------------------------------------------------------------------------------
Maibulak        100           PKKR             14.48             14.48           14.05      14.05          1.07
--------------------------------------------------------------------------------------------------------------------
Akshabulak      50            KGM              314.96            157.48         142.30     142.30          49.87
--------------------------------------------------------------------------------------------------------------------
Nurali          50            KGM              20.67             10.33           9.23       9.23           0.00
--------------------------------------------------------------------------------------------------------------------
Aksai           50            KGM               2.25              1.12           1.00       1.00           0.00
--------------------------------------------------------------------------------------------------------------------
Total                                          771.16            502.93         466.81     466.81          81.05
--------------------------------------------------------------------------------------------------------------------

<CAPTION>
---------------------------------------------------------------
  Field(1)             Net to             Estimated present
                      company               worth value
                      proved plus        (discounted at 10%)
                    probable NGL       of future net pre-tax
                      reserves              cashflow (5)
                    post-royalty
              -------------------------------------------------
                    Escalating         Constant     Escalating
                      (1) (3)             (3)           (3)
              -------------------------------------------------
                      mmbbls             US$           US$
                                      thousands     thousands
---------------------------------------------------------------
<S>                <C>              <C>            <C>
Kumkol South           3.53           1,169,952      940,162
---------------------------------------------------------------
Kumkol North           5.30           1,430,139     1,176,907
---------------------------------------------------------------
South Kumkol           0.64            648,010       538,819
---------------------------------------------------------------
East Kumkol            0.04            140,799       108,644
---------------------------------------------------------------
North Nurali           0.00            115,146        84,676
---------------------------------------------------------------
Kyzylkia               1.05            466,640       357,119
---------------------------------------------------------------
Aryskum                10.59           791,869       617,262
---------------------------------------------------------------
Maibulak               0.25            185,566       137,368
---------------------------------------------------------------
Akshabulak             8.76           1,967,902     1,602,424
---------------------------------------------------------------
Nurali                 0.00            117,451        86,945
---------------------------------------------------------------
Aksai                  0.00             9,082         5,482
---------------------------------------------------------------
Total                  30.16          7,042,556     5,655,807
---------------------------------------------------------------
</TABLE>

Notes:

         (1)      Estimates of the Corporation's crude oil and natural gas
                  reserves for all fields were prepared by McDaniel. See
                  "Business of the Corporation - Oil and Gas Exploration and
                  Development Operations - Estimates of Proved Plus Probable
                  Reserves and Present Worth Values."

         (2)      Gross property refers to the total reserves of the fields.

<PAGE>
                                     - 21 -


         (3)      Net to company refers to the Corporation's interest in the
                  field.

         (4)      Assumed equity, final agreements and operatorship are not
                  concluded.

         (5)      Estimated values disclosed do not represent fair market value.

         KUMKOL FIELD. The Kumkol field, discovered in 1984 and producing since
1990, is the Corporation's principal producing property. The Corporation is
producing from six horizons, in the Cretaceous and Jurassic formations, located
at depths shallower than 4,500 feet. The field is divided into two operating
areas, Kumkol South and Kumkol North, which for the purposes of this Annual
Information Form are referred to as separate fields.

         KUMKOL SOUTH. The Corporation owns and operates 100.0% of Kumkol South,
which has been fully developed. In 2004, Kumkol South produced an average of
approximately 45,072 bopd from 159 producing wells. As of January 1, 2005,
estimated net proved reserves before royalties for Kumkol South were 56.4 mmbbls
of crude oil and 8.3 bcf of natural gas and 2.6 mmboe of natural gas liquids.

         KUMKOL NORTH. The Corporation has a 50.0% interest in Kumkol North
through Turgai Petroleum, which is the operator of the field. In 2004, Kumkol
North produced an average of approximately 35,210 bopd attributable to the
Corporation from 220 gross (110 net) wells. As of January 1, 2005, estimated net
proved reserves before royalties for Kumkol North attributable to the
Corporation were 77.6 mmbbls of crude oil and 10.0 bcf of natural gas and 6.36
mmboe of natural gas liquids.

         SOUTH KUMKOL FIELD. The South Kumkol field was discovered in 1992 and
has been in production since December 1997. The Corporation owns and operates
100.0% of the South Kumkol field. Production is from three zones, in the
Cretaceous and Jurassic formations, located at depths shallower than 5,000 feet.
In 2004, average production from the South Kumkol Field was 23,927 bopd from 21
wells. As of January 1, 2005, estimated net proved reserves before royalties for
the South Kumkol field were 33.8 mmbbls of crude oil and 1.5 bcf of natural gas
and 0.5 mmboe of natural gas liquids.

         AKSHABULAK FIELD. The Akshabulak field was discovered in 1988, and
began production in July 1997 from the Jurassic-III formation. Through the
Corporation's interests in Kazgermunai, it has a 50.0% interest in the field.
The Corporation has no obligation to fund capital expenditures relating to the
costs of the initial development phase of the central Jurassic-III formation.
During 2004, the Akshabulak field produced an average of 21,826 bopd
attributable to the Corporation. As of January 1, 2005, the Akshabulak field had
an estimated net to the Corporation, proved reserves before royalties of 109.6
mmbbls of crude oil and 35.5 bcf of natural gas and 7.6 mmboe of natural gas
liquids. Production is currently being transported by pipeline to the Kumkol
field where it ties into the lateral pipeline. This, in turn, connects to the
West Siberia-Central Asia Pipeline (the "CENTRAL PIPELINE") which delivers to
the Shymkent refinery. Funding for the development of the central part of the
Jurassic-III formation of the Akshabulak field is obtained by Kazgermunai from
shareholder loans from its shareholders other than PKKR. These shareholder loans
were fully repaid at December 31, 2004.

         KYZYLKIYA FIELD. The Corporation owns and operates 100.0% of the
Kyzylkiya field, which was discovered in 1988. Two productive zones in the
Cretaceous and Jurassic formations have been identified at depths less than
5,000 feet. As of December 31, 2004 there are 22 producing oil wells. Production
commenced in this field in August 2000. As of December 31, 2004 the Kyzylkiya
field produced an average of 10,319 bopd. As of January 1, 2005, the Kyzylkiya
field had an estimated net proved reserves before royalties of 21.1 mmbbls of
crude oil and 1.3 bcf of natural gas and 0.6 mmboe of natural gas liquids.

         Early oil production facilities, road construction and other
infrastructure projects were completed in November 2000, creating all-weather
access to the Kumkol field located approximately 55 kilometres to the

<PAGE>
                                     - 22 -


east of the Kyzylikiya field. Construction of the 177 kilometre, 16 inch oil
pipeline and the loading/pumping stations commenced in September 2002, and the
project was commissioned at the end of the second quarter of 2003. This pipeline
connects the Kumkol Central Processing Facility ("CPF") and the new KAM fields
to a new rail loading facility at Dzhusaly, south west of the fields, negating
some 1,300 kilometres of pipeline and rail transportation currently in use. 3D
seismic has been acquired over the three fields and drilling and facilities
installation continues to enhance production for optimum reserves recovery from
the KAM fields.

         ARYSKUM FIELD. The Corporation owns and operates 100.0% of the Aryskum
field, which was discovered in 1988. One productive zone in the Cretaceous
formation was identified at a depth of less than 3,000 feet. As of December 31,
2004, there are 25 producing wells in this field. In 2004, production, which
averaged 10,157 bopd, was fed directly into the KAM pipeline. As of January 1,
2005, the Aryskum field had an estimated net proved reserves before royalties of
38.1 mmbbls of crude oil and 1.5 bcf of natural gas and 9 mmboe of natural gas
liquids.

         MAIBULAK FIELD. The Corporation owns and operates 100.0% of the
Maibulak field, which was discovered in 1988 with four productive zones in the
Jurassic formation identified at depths shallower than 6,000 feet. As of
December 31, 2004, there are 8 producing wells in this field. In 2004 production
averaged 2,258 bopd and was trucked to the processing facility at the Aryskum
field. The KAM pipeline, referred to above, passes some 40 kilometres to the
south of the Aryskum field. The Maibulak production is shipped to the KAM
pipeline via a pipeline from the Aryskym facility. In 2001, 3D seismic were
conducted over the entire area of the Maibulak Field. Well tests and core
studies have been completed and integrated into the development plans for this
field. As of January 1, 2005, the Maibulak field had estimated net proved
reserves before royalties of 7.0 mmbbls of crude oil and 0.4 bcf of natural gas
and 0.1 mmboe of natural gas liquids.

         EAST KUMKOL. The East Kumkol field was discovered in November 2000 and
five wells have so far been drilled. Its close proximity to the main Kumkol
production facilities has enabled production to be trucked to accommodate field
evaluation. The field was under test production in 2003 and for a short period
in 2004. The Corporation is currently developing the production plan and
hydrocarbons contract, in conjunction with Turgai Petroleum as the field extends
into the Turgai Petroleum license area, for submission to and approval by the
government authorities. As of January 1, 2005, the East Kumkol field had an
estimated net to the Corporation, proved reserves before royalties of 7.0 mmbbls
of crude oil and 0.1 bcf of natural gas. Working interest to the Corporation
when considering ownership through PKKR and Turgai is estimated to be 74.0%.
This is subject to variation on settlement with Turgai Petroleum.

         NORTH NURALI. The North Nurali field was discovered in 2002 through the
drilling of two exploration wells in the 260 D-1 license area. The second well
gave test rates of up to 500 bopd from six zones at depths of 1700 metres. This
reservoir is significantly different from others in the area as it has lower
permeabilities. The wells were fracture stimulated in 2003 to achieve maximum
production rates. Most wells will be put on long term test production to enable
satisfactory reserves evaluation and to self-fund ongoing field development
expenditures. Following interpretation of 3D seismic data two delineation
appraisal wells were drilled to assess field reserves in 2004. Following
fracture stimulation production rates of 700 bopd were obtained. Negotiations
are underway with the government of Kazakhstan for the award of the production
license and all necessary government approvals. As of January 1, 2005, the North
Nurali field had an estimated net proved reserves before royalties of 1.8 mmbbls
of crude oil.

         OTHER FIELDS. The Corporation has a 50.0% interest in the Nurali and
Aksai fields through its interest in Kazgermunai. Delineation of these fields
started in 2001 with test production of certain wells and the acquisition of 3D
seismic. Kazgermunai has satisfied the capital commitments under the licenses
for these fields in 2001. As of January 1, 2005, the Nurali and Aksai fields had
net to the Corporation estimated

<PAGE>
                                     - 23 -


proved reserves before royalties of 4.9 mmbbls of crude oil. Two wells were
drilled and put on test production in 2003. Development continued in 2004 with
the drilling of four more wells based on the interim production plan approved by
the Ministry of Energy.

         UNDEVELOPED ACREAGE. The Corporation owns a 100.0% interest in an
exploration license (License 260 D1) surrounding the Kumkol field covering
333,841 acres. This license was issued in June 1997, effective as of November 1,
1996, and has an expiry date of June 2005. Under the terms of this license, in
the case of a commercial discovery of crude oil reserves, the Corporation can
apply for licenses necessary for production. The lands contained in the East
Kumkol field referred to above are governed by this license. Pursuant to this
license, the Corporation was required to invest $5.0 million in the development
of lands covered by the license by November 1, 1998, and an additional $10.0
million by November 1, 2000. PKKR's exploration contract, which was issued on
August 24, 1998, also gives PKKR the exclusive right to develop and explore the
property. Prior to 2000, the Corporation drilled three unsuccessful wells on
these lands. The Corporation's investments in connection with this drilling and
in connection with seismic data that was shot in 1997 and 1998 exceeded its $5.0
million initial obligation. In 2000, 3D seismic was acquired and two exploration
wells were drilled on these lands. The third well was the discovery of the East
Kumkol field, and exploration wells were drilled in 2002. The Corporation has
applied for and received a contract/license extension to June 2007. A further 2
year extension is available on request. Royalties and excess profit taxes on
production from these areas will be determined in accordance with the relevant
legislation as of December 31, 1998.

         The Corporation acquired exploration license 952 in 2003, which covers
122,811 acres directly north of the Kyzylkiya field. Well KK34, drilled to 1,500
metres, produced light, sweet oil at a rate of 1,000 bopd. Well evaluation
results confirm that this accumulation is an extension of the main Kyzylkiya
field. Additional 3D seismic has been acquired and 6 wells drilled, of which 5
tested oil to surface. The Corporation is currently reviewing technical
information and planning appraisal activity.

         The Corporation has successfully applied for and has been awarded 4,446
open acres adjacent to Kolzhan and north of Kyzylkiya. Following interpretation
of 3D seismic data 2 wells were drilled with one well testing oil to surface and
the other abandoned. The Corporation was also successful in being awarded open
acreage adjacent to the south of the main Kyzylkiya field. A 3D seismic program
was conducted in 2004 with the data currently being interpreted. A well will be
drilled in 2005.

 ESTIMATES OF PROVED PLUS PROBABLE OIL AND GAS RESERVES AND PRESENT WORTH VALUES

         The following tables, which are derived from the McDaniel Reports on
certain interests of the Corporation, set forth the Corporation's estimated
proved plus probable oil and natural gas reserves in Kazakhstan and the present
worth value of estimated future net pre-tax cash flows of those reserves
effective as of December 31, 2004 on both an escalating and constant price
assumption basis. The report of McDaniel's on a constant price basis was
effective January 1, 2005 and the report of McDaniel's on an escalating price
basis was effective January 1, 2005. The McDaniel Reports prepared on March 10,
2005 provide estimates of the Corporation's oil and natural gas reserves in all
of its assets as of January 1, 2005. McDaniel and Associates is an independent
company providing petroleum engineering consultation services. McDaniel has no
interest in the Corporation's or its subsidiaries' securities nor in any of
their property or assets.

         THE PRESENT WORTH VALUES OF THE CORPORATION'S RESERVES CONTAINED IN THE
FOLLOWING TABLES MAY NOT BE REPRESENTATIVE OF THE FAIR MARKET VALUE OF THE
RESERVES. ALTHOUGH THE ESTIMATES OF RESERVES AND PRESENT WORTH VALUE THEREOF
CONTAINED IN THE MCDANIEL REPORTS ARE CONSIDERED REASONABLE, FUTURE PERFORMANCE
MAY VARY FROM THE FORECASTS PRESENTED THEREIN AND MAY JUSTIFY EITHER AN INCREASE
OR DECREASE OF RESERVES. Assumptions relating to costs, prices for future
production, and other matters are

<PAGE>
                                     - 24 -


summarized below and in the notes following the table. The McDaniel Reports are
based, in part, on data supplied by the Corporation and, in part, on McDaniel's
opinion of reasonable practice in the industry. Certain factual data was
supplied to McDaniel by the Corporation and was relied on by McDaniel in
preparing its reports. The data includes ownership, geological and production
data, costs, contracts and relevant documents. Capital costs and drilling and
workover costs were estimated by McDaniel based on information provided by the
Corporation. In the absence of such data or information, McDaniel relied upon
its opinion of reasonable practice in the industry.

<TABLE>
<CAPTION>
                                 ESTIMATED PRESENT WORTH VALUE BEFORE AND AFTER
                                      INCOME TAX ON A CONSTANT PRICE BASIS

                           ESTIMATED PRESENT WORTH VALUE BEFORE INCOME TAX(3)(4)(5)(6)
                      ---------------------------------------------------------------------
                                                          Discounted at
                                     ------------------------------------------------------
                     Undiscounted        5%            10%            15%            20%
                     ------------    ---------      ---------      ---------      ---------
                        ($m)            ($m)          ($m)           ($m)            ($m)

<S>                   <C>            <C>            <C>            <C>            <C>
Proved Developed
  Producing(1)        4,727,816      4,044,562      3,545,453      3,166,130      2,868,555

Proved Non-
  Producing(1)        1,091,466        836,676        667,538        548,911        461,992

Proved
  Undeveloped(1)      1,854,692      1,378,832      1,069,072        856,048        702,891

Total Proved(1)       7,673,974      6,260,070      5,282,063      4,571,089      4,033,439

Probable
  Reserves(2)         3,281,302      2,344,078      1,760,493      1,375,555      1,109,133

Proved Plus
  Probable
  Unrisked(2)        10,955,276      8,604,147      7,042,556      5,946,643      5,142,572

<CAPTION>
                            ESTIMATED PRESENT WORTH VALUE AFTER INCOME TAX(3)(4)(5)(6)
                       ---------------------------------------------------------------------
                                                           Discounted at
                                      ------------------------------------------------------
                      Undiscounted        5%            10%           15%             20%
                      -----------     ---------      ---------      ---------      ---------
                        ($m)             ($m)          ($m)           ($m)           ($m)

<S>                    <C>            <C>            <C>            <C>            <C>
Proved Developed
  Producing(1)         2,736,653      2,335,152      2,043,614      1,822,886      1,650,138

Proved Non-
  Producing(1)           642,839        485,984        382,432        310,207        257,578

Proved
  Undeveloped(1)       1,066,800        776,733        589,505        461,833        370,817

Total Proved(1)        4,446,292      3,597,869      3,015,551      2,594,925      2,278,533

Probable
  Reserves(2)          1,907,256      1,352,303      1,007,534        780,719        624,202

Proved Plus
  Probable
  Unrisked(2)          6,353,548      4,950,172      4,023,084      3,375,645      2,902,735
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering data,
                  including the reserves to be obtained by enhanced recovery
                  processes demonstrated to be economic and technically
                  successful in the subject reservoir.

                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.

          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic conditions, but where such analysis suggests
                  the likelihood of their existence and future recovery.
                  Probable additional reserves to be obtained by the application
                  of enhanced recovery processes will be the increased recovery
                  over and above that estimated in the proved category which can
                  be realistically estimated for the pool on the basis of
                  enhanced recovery processes which can be reasonably expected
                  to be instituted in the future.

<PAGE>
                                     - 25 -


          (3)     "Estimated present worth values before income tax" is the
                  estimated present worth values of the future cash flows
                  derived from the sale of the Corporation's estimated reserves
                  after giving effect to estimated capital expenditures,
                  royalties and operating and marketing expenses, but excluding
                  any withholding taxes or other taxes on earnings. These
                  estimates take account of Kazakhstan general and
                  administrative expenses. The values do not necessarily
                  represent fair market value.

         (4)      The Corporation's share of capital expenditures is estimated
                  on an escalated price basis at approximately $587.22 million,
                  approximately $567.65 million on a constant price basis, over
                  the entire life of the fields including development of 100.0%
                  of the probable reserves. This amount includes projected
                  expenditures of $248.29 million, $137.47 million and $64.90
                  million, respectively, for the 2005, 2006 and 2007 calendar
                  years on an escalated price basis and $248.29 million, $134.78
                  million and $62.38 million, respectively, for the 2005, 2006
                  and 2007 calendar years on a constant price basis.

         (5)      The constant price basis utilized by McDaniel assumes the
                  continuance of current laws and regulations. In preparing its
                  constant price basis report, McDaniel used $27.87/bbl of crude
                  oil, the last transaction price the Corporation received for
                  oil in 2004 and for natural gas used $0.5/mcf for Kumkol and
                  $0.28/mcf for Akshabulak and assumed the Corporation would
                  have received the same price had its other fields been
                  producing.

          (6)     The volume of production (including royalties) estimated for
                  2005, the first year reflected in the proved plus probable
                  estimates of present worth value of future net revenue, are 59
                  mbbls of oil and 7.6 bcf of natural gas (Kumkol South accounts
                  for 14.1 mbbls and Kumkol North 13.7 mbbls).


<TABLE>
<CAPTION>
                      ESTIMATED RESERVES BEFORE INCOME TAX
                            ON A CONSTANT PRICE BASIS

-----------------------------------------------------------------------------------------------------------------
                                             Estimated Reserves Net to the Corporation
-----------------------------------------------------------------------------------------------------------------
                                         Oil                                             Gas
-----------------------------------------------------------------------------------------------------------------
                         Pre Royalty             Post Royalty            Pre Royalty           Post Royalty
-----------------------------------------------------------------------------------------------------------------
                                      (mmbbls)                                    (bcf or mmbbls)
-----------------------------------------------------------------------------------------------------------------
                      Light and                Light and                            Natural                Natural
                        Medium                 Medium                  Natural       Gas       Natural      Gas
                      Crude Oil    Heavy Oil   Crude Oil   Heavy Oil     Gas       Liquids      Gas       Liquids
-----------------------------------------------------------------------------------------------------------------
<S>                    <C>           <C>        <C>          <C>        <C>         <C>        <C>         <C>
Proved  Developed      224.41        0.00       210.05       0.00       31.55       0.00       29.26       0.00
Producing(1)
-----------------------------------------------------------------------------------------------------------------
Proved                  48.72        0.00        44.69       0.00       0.00        0.00       0.00        0.00
Non-Producing(1)
-----------------------------------------------------------------------------------------------------------------
Proved                  84.20        0.00        78.07       0.00       27.01      24.91       25.05      23.56
Undeveloped(1)
-----------------------------------------------------------------------------------------------------------------
Total Proved(1)        357.34        0.00       332.81       0.00       58.56      24.91       54.31      23.56
-----------------------------------------------------------------------------------------------------------------
Probable               145.59        0.00       134.00       0.00       29.88       7.22       26.74       6.60
Reserves(2)
-----------------------------------------------------------------------------------------------------------------
Proved Plus            502.93        0.00       466.81       0.00       88.44      32.13       81.05      30.16
Probable
Unrisked(2)
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering

<PAGE>
                                     - 26 -


                  data, including the reserves to be obtained by enhanced
                  recovery processes demonstrated to be economic and technically
                  successful in the subject reservoir.

                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.

          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic conditions, but where such analysis suggests
                  the likelihood of their existence and future recovery.
                  Probable additional reserves to be obtained by the application
                  of enhanced recovery processes will be the increased recovery
                  over and above that estimated in the proved category which can
                  be realistically estimated for the pool on the basis of
                  enhanced recovery processes which can be reasonably expected
                  to be instituted in the future.

<TABLE>
<CAPTION>
                     TOTAL FUTURE NET REVENUE (UNDISCOUNTED)
               AS OF DECEMBER 31, 2004, CONSTANT PRICES AND COSTS

                                                                                            FUTURE                 FUTURE
                                                                                             NET                     NET
                                                                                           REVENUE                 REVENUE
                                                                              WELL          BEFORE                  AFTER
  RESERVES       REVENUE      ROYALTIES    OPERATING     DEVELOPMENT      ABANDONMENT       INCOME     INCOME      INCOME
  CATEGORY                                   COSTS          COSTS            COSTS          TAXES       TAXES       TAXES
  --------       -------      ---------    ---------     -----------      -----------       ------     ------      ------
                   ($m)         ($m)          ($m)           ($m)             ($m)           ($m)       ($m)        ($m)
<S>             <C>           <C>          <C>            <C>              <C>            <C>          <C>        <C>
Proved
Reserves(1)     10,390,463     707,403     1,598,305       395,985         14,796(3)      7,673,974   3,227,682   4,446,292
Proved   Plus
Probable
Reserves(2)     14,577,058    1,041,368    1,995,064       567,646         17,703(3)      10,955,276  4,601,728   6,353,548
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering data,
                  including the reserves to be obtained by enhanced recovery
                  processes demonstrated to be economic and technically
                  successful in the subject reservoir.

                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.


<PAGE>
                                     - 27 -


          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic conditions, but where such analysis suggests
                  the likelihood of their existence and future recovery.
                  Probable additional reserves to be obtained by the application
                  of enhanced recovery processes will be the increased recovery
                  over and above that estimated in the proved category which can
                  be realistically estimated for the pool on the basis of
                  enhanced recovery processes which can be reasonably expected
                  to be instituted in the future.

          (3)     Well abandonment costs only.

<TABLE>
<CAPTION>
                     FUTURE NET REVENUE BY PRODUCTION GROUP
               AS OF DECEMBER 31, 2004, CONSTANT PRICES AND COSTS

                                                                                                   FUTURE NET REVENUE
       RESERVES CATEGORY                               PRODUCTION GROUP                          BEFORE INCOME TAXES(3)
--------------------------------    --------------------------------------------------------    -------------------------
                                                                                                (discounted at 10%/year)
                                                                                                          ($m)
<S>                                 <C>                                                         <C>
Proved Reserves(1)                  Light and Medium Crude Oil (including solution gas and             5,282,063
                                    other by-products)
                                    Heavy Oil (including solution gas and other                            -
                                    by-products)
                                    Natural Gas (including by-products but excluding                       -
                                    solution gas and by-products from oil wells)

Proved Plus Probable                Light and Medium Crude Oil (including solution gas and             7,042,556
Reserves(2)                         other by-products)
                                    Heavy Oil (including solution gas and other                            -
                                    by-products)
                                    Natural Gas (including by-products but excluding                       -
                                    solution gas and by-products from oil wells)
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering data,
                  including the reserves to be obtained by enhanced recovery
                  processes demonstrated to be economic and technically
                  successful in the subject reservoir.

                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.

          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic conditions, but where such analysis suggests
                  the likelihood of their existence and future recovery.
                  Probable additional reserves to be obtained by the application
                  of enhanced recovery processes will be the increased recovery
                  over and above that estimated in the proved category which can
                  be

<PAGE>
                                     - 28 -


                  realistically estimated for the pool on the basis of
                  enhanced recovery processes which can be reasonably expected
                  to be instituted in the future.

          (3)     "Estimated present worth values before income tax" is the
                  estimated present worth values of the future cash flows
                  derived from the sale of the Corporation's estimated reserves
                  after giving effect to estimated capital expenditures,
                  royalties and operating and marketing expenses, but excluding
                  any withholding taxes or other taxes on earnings. These
                  estimates take account of Kazakhstan general and
                  administrative expenses. The values do not necessarily
                  represent fair market value.

<TABLE>
<CAPTION>

                 ESTIMATED PRESENT WORTH VALUE BEFORE AND AFTER
                     INCOME TAX ON AN ESCALATING PRICE BASIS


                                                ESTIMATED PRESENT WORTH VALUE BEFORE INCOME TAX(3)(4)(6)
                                        ------------------------------------------------------------------------
                                                                              Discounted at
                                                          -------------------------------------------------------
                                        Undiscounted          5%             10%           15%             20%
                                        ------------      ---------       ---------     ---------       ---------
                                            ($m)             ($m)            ($m)          ($m)           ($m)

<S>                                      <C>              <C>             <C>           <C>             <C>
Proved Developed Producing(1)            3,793,089        3,310,873       2,951,983     2,674,373       2,452,976

Proved Non-Producing(1)                    849,166          650,887         520,695       429,923         363,558

Proved Undeveloped(1)                    1,409,587        1,042,773         806,970       646,100         530,957

Total Proved(1)                          6,051,842        5,004,533       4,279,648     3,750,395       3,347,491

Probable Reserves(2)                     2,591,473        1,837,721       1,376,159     1,075,414         869,003

Proved Plus Probable Unrisked(2)         8,643,315        6,842,254       5,655,807     4,825,809       4,216,495

<CAPTION>

                                                ESTIMATED PRESENT WORTH VALUE AFTER INCOME TAX(3)(4)(6)
                                          ------------------------------------------------------------------------
                                                                               Discounted at
                                                           -------------------------------------------------------
                                         Undiscounted          5%            10%           15%             20%
                                         ------------      ---------       ---------     ---------       ---------
                                             ($m)             ($m)          ($m)           ($m)           ($m)
<S>                                       <C>              <C>            <C>           <C>             <C>
Proved Developed Producing(1)             2,233,569        1,942,518      1,727,434     1,561,870       1,430,279

Proved Non-Producing(1)                     499,926          376,472        296,005       240,305         199,868

Proved Undeveloped(1)                       812,801          584,802        439,692       341,708         272,306

Total Proved(1)                           3,546,296        2,903,791      2,463,131     2,143,883       1,902,452

Probable Reserves(2)                      1,511,158        1,060,795        785,843       607,326         485,297

Proved Plus Probable Unrisked(2)          5,057,454        3,964,586      3,248,974     2,751,209       2,387,749
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering data,
                  including the reserves to be obtained by enhanced recovery
                  processes demonstrated to be economic and technically
                  successful in the subject reservoir.

                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.

          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic conditions, but where such analysis suggests
                  the likelihood of their existence and future recovery.

                  Probable additional reserves to be obtained by the application
                  of enhanced recovery processes will be the increased recovery
                  over and above that estimated in the proved category which can
                  be

<PAGE>
                                     - 29 -


                  realistically estimated for the pool on the basis of
                  enhanced recovery processes which can be reasonably expected
                  to be instituted in the future.

          (3)     "Estimated present worth values before income tax" is the
                  estimated present worth values of the future cash flows
                  derived from the sale of the Corporation's estimated reserves
                  after giving effect to estimated capital expenditures,
                  royalties and operating and marketing expenses, but excluding
                  any withholding taxes or other taxes on earnings. These
                  estimates take account of Kazakhstan general and
                  administrative expenses. The values do not necessarily
                  represent fair market value.

         (4)      The Corporation's share of capital expenditures is estimated
                  on an escalated price basis at approximately $587.22 million,
                  approximately $567.65 million on a constant price basis, over
                  the entire life of the fields including development of 100.0%
                  of the probable reserves. This amount includes projected
                  expenditures of $248.29 million, $137.47 million and $64.90
                  million, respectively, for the 2005, 2006 and 2007 calendar
                  years on an escalated price basis and $248.29 million, $134.78
                  million and $62.38 million, respectively, for the 2005, 2006
                  and 2007 calendar years on a constant price basis.

          (5)     The escalated price basis assumes the continuance of current
                  laws and regulations. The escalated product prices forecast in
                  the McDaniel Reports represent McDaniel's best estimate of
                  future product prices. Political and economic uncertainties in
                  Kazakhstan and internationally may result in prices different
                  from those used in the McDaniel Reports. The prices and
                  escalation factors used in this escalated price basis are set
                  out below in the table entitled "McDaniel and Associates
                  Consultants Ltd. Summary of Price Forecasts, January 1, 2005".

         (6)      The volume of production (including royalties) estimated for
                  2005, the first year reflected in the proved plus probable
                  estimates of present worth value of future net revenue, are 59
                  mbbls of oil and 7.6 bcf of natural gas (Kumkol South accounts
                  for 14.1 mbbls and Kumkol North 13.7 mbbls).

                 ESTIMATED RESERVES ON AN ESCALATING PRICE BASIS

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------
                                             Estimated Reserves Net to the Corporation
-----------------------------------------------------------------------------------------------------------------
                                         Oil                                             Gas
-----------------------------------------------------------------------------------------------------------------
                        Pre Royalties           Post Royalties          Pre Royalties         Post Royalties
-----------------------------------------------------------------------------------------------------------------
                                      (mmbbls)                                     (bcf or mmbbls)
-----------------------------------------------------------------------------------------------------------------
                    Light and                Light and                          Natural                Natural
                      Medium                  Medium                  Natural    Gas       Natural      Gas
                    Crude Oil    Heavy Oil   Crude Oil   Heavy Oil     Gas      Liquids      Gas       Liquids
-----------------------------------------------------------------------------------------------------------------
<S>                <C>            <C>       <C>          <C>        <C>         <C>        <C>         <C>
Proved  Developed
Producing(1)          224.41        0.00       210.05      0.00       31.55        0.00      29.26        0.00
-----------------------------------------------------------------------------------------------------------------
Proved
Non-Producing(1)       48.72        0.00        44.69      0.00        0.00        0.00       0.00        0.00
-----------------------------------------------------------------------------------------------------------------
Proved
Undeveloped(1)         84.20        0.00        78.07      0.00       27.01       24.91      25.05       23.56
-----------------------------------------------------------------------------------------------------------------
Total Proved(1)       357.34        0.00       332.81      0.00       58.56       24.91      54.31       23.56
-----------------------------------------------------------------------------------------------------------------
Probable
Reserves(2)           145.59        0.00       134.00      0.00       29.88        7.22      26.74        6.60
-----------------------------------------------------------------------------------------------------------------
Proved Plus
Probable
Unrisked(2)           502.93        0.00       466.81      0.00       88.44       32.13      81.05       30.16
-----------------------------------------------------------------------------------------------------------------
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering data,
                  including the reserves to be obtained by enhanced recovery
                  processes demonstrated to be economic and technically
                  successful in the subject reservoir.

<PAGE>
                                     - 30 -


                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.

          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic conditions, but where such analysis suggests
                  the likelihood of their existence and future recovery.
                  Probable additional reserves to be obtained by the application
                  of enhanced recovery processes will be the increased recovery
                  over and above that estimated in the proved category which can
                  be realistically estimated for the pool on the basis of
                  enhanced recovery processes which can be reasonably expected
                  to be instituted in the future.


<TABLE>
<CAPTION>
                     TOTAL FUTURE NET REVENUE (UNDISCOUNTED)
              AS OF DECEMBER 31, 2004, ESCALATING PRICES AND COSTS

                                                                                        FUTURE                     FUTURE
                                                                                          NET                       NET
                                                                                        REVENUE                   REVENUE
                                                                            WELL        BEFORE                     AFTER
  RESERVES      REVENUE     ROYALTIES    OPERATING      DEVELOPMENT     ABANDONMENT    INCOME        INCOME       INCOME
  CATEGORY                                 COSTS           COSTS           COSTS        TAXES        TAXES        TAXES
  --------      -------     ---------    ---------      -----------     -----------    ------        ------       ------
                  ($m)         ($m)         ($m)           ($m)            ($m)          ($m)         ($m)          ($m)
<S>            <C>           <C>         <C>              <C>            <C>           <C>          <C>          <C>
Proved
Reserves(1)     8,876,618    604,207     1,795,602        406,465        18,501(3)     6,051,842    2,505,546    3,546,296

Proved   Plus
Probable
Reserves(2)    12,401,658    883,332     2,264,926        587,216        22,870(3)     8,643,315    3,585,861    5,057,454
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering data,
                  including the reserves to be obtained by enhanced recovery
                  processes demonstrated to be economic and technically
                  successful in the subject reservoir.

                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.

          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic

<PAGE>
                                      - 31 -


                  conditions, but where such analysis suggests the likelihood of
                  their existence and future recovery. Probable additional
                  reserves to be obtained by the application of enhanced
                  recovery processes will be the increased recovery over and
                  above that estimated in the proved category which can be
                  realistically estimated for the pool on the basis of enhanced
                  recovery processes which can be reasonably expected to be
                  instituted in the future.

          (3)     Well abandonment costs only.

<TABLE>
<CAPTION>
                     FUTURE NET REVENUE BY PRODUCTION GROUP
              AS OF DECEMBER 31, 2004, ESCALATING PRICES AND COSTS

                                                                                                   FUTURE NET REVENUE
       RESERVES CATEGORY                               PRODUCTION GROUP                           BEFORE INCOME TAXES
--------------------------------    --------------------------------------------------------    -------------------------
                                                                                                (discounted at 10%/year)
                                                                                                          ($m)
<S>                                 <C>                                                         <C>
Proved Reserves(1)                  Light and Medium Crude Oil (including solution gas and             4,279,648
                                    other by-products)
                                    Heavy Oil (including solution gas and other                            -
                                    by-products)
                                    Natural Gas (including by-products but excluding                       -
                                    solution gas from oil wells)
Proved Plus Probable                Light and Medium Crude Oil (including solution gas and             5,655,807
Reserves(2)                         other by-products)
                                    Heavy Oil (including solution gas and other                            -
                                    by-products)
                                    Natural Gas (including by-products but excluding                       -
                                    solution gas from oil wells)
</TABLE>

Notes:

         (1)      "Proved reserves" are those reserves estimated as recoverable
                  under current technology and existing economic conditions,
                  from that portion of a reservoir which can be reasonably
                  evaluated as economically productive on the basis of analysis
                  of drilling, geological, geophysical and engineering data,
                  including the reserves to be obtained by enhanced recovery
                  processes demonstrated to be economic and technically
                  successful in the subject reservoir.

                  "Proved developed producing reserves" are those proved
                  reserves that are actually on production. Reserves assigned to
                  non-producing zones in producing wells were classified as
                  producing if the reserve quantities were estimated to be minor
                  relative to the Corporation's reserves in the area.

                  "Proved developed non-producing reserves" are those reserves
                  that either have not been on production, or have previously
                  been on production, but are shut-in, and the date of
                  resumption of production is unknown.

                  "Proved undeveloped reserves" are those reserves expected to
                  be recovered from new wells on undrilled acreage or from
                  existing wells where a relatively major capital expenditure
                  will be required.

          (2)     "Probable reserves" are those reserves which analysis of
                  drilling, geological, geophysical and engineering data does
                  not demonstrate to be proved under current technology and
                  existing economic conditions, but where such analysis suggests
                  the likelihood of their existence and future recovery.
                  Probable additional reserves to be obtained by the application
                  of enhanced recovery processes will be the increased recovery
                  over and above that estimated in the proved category which can
                  be realistically estimated for the pool on the basis of
                  enhanced recovery processes which can be reasonably expected
                  to be instituted in the future.

<PAGE>
                                     - 32 -


<TABLE>
<CAPTION>
                     MCDANIEL & ASSOCIATES CONSULTANTS LTD.
         SUMMARY OF PRICE FORECASTS FOR ESCALATING CASE, JANUARY 1, 2005

                                                                 KUMKOL    AKSHABULAK
                 WTI        BRENT       KUMKOL/                NATURAL       NATURAL
                CRUDE       CRUDE        BRENT       KUMKOL       GAS          GAS       CONDENSATE      LPG      INFLATION
    YEAR      OIL PRICE   OIL PRICE   DIFFERENTIAL OIL PRICE     PRICE        PRICE        PRICE        PRICE      FORECAST
               $US/BBL     $US/BBL      $US/BBL     $US/BBL      $/MCF        $/MCF       $US/BBL      $US/BBL        %
------------- ----------- ----------- ------------ ----------- ----------- ------------ ------------- ----------- -----------
<S>            <C>         <C>          <C>         <C>          <C>         <C>          <C>          <C>          <C>
    2005        42.00       39.50        12.35       27.15        0.50        0.28         27.15        13.04        2.0
    2006        39.50       37.50        11.85       25.65        0.51        0.29         25.65        12.38        2.0
    2007        37.00       35.40        11.85       23.55        0.52        0.29         23.55        11.68        2.0
    2008        35.00       33.40        11.85       21.55        0.53        0.30         21.55        11.02        2.0
    2009        34.50       32.90        11.85       21.05        0.54        0.30         21.05        10.86        2.0
    2010        34.30       32.60        11.85       20.75        0.55        0.31         20.75        10.76        2.0
    2011        35.00       33.30        11.85       21.45        0.56        0.32         21.45        10.99        2.0
    2012        35.70       34.00        11.85       22.15        0.57        0.32         22.15        11.22        2.0
    2013        36.40       34.60        11.85       22.75        0.59        0.33         22.75        11.42        2.0
    2014        37.10       35.30        11.85       23.45        0.60        0.33         23.45        11.65        2.0
    2015        37.80       36.00        11.85       24.15        0.61        0.34         24.15        11.88        2.0
    2016        38.60       36.70        11.85       24.85        0.62        0.35         24.85        12.11        2.0
    2017        39.40       37.50        11.85       25.65        0.63        0.36         25.65        12.38        2.0
    2018        40.20       38.30        11.85       26.45        0.65        0.36         26.45        12.64        2.0
    2019        41.00       39.00        11.85       27.15        0.66        0.37         27.15        12.87        2.0
    2020        41.80       39.80        11.85       27.95        0.67        0.38         27.95        13.13        2.0
    2021        42.60       40.50        11.85       28.65        0.69        0.38         28.65        13.37        2.0
    2022        43.50       41.40        11.85       29.55        0.70        0.39         29.55        13.66        2.0
    2023        44.40       42.30        11.85       30.45        0.71        0.40         30.45        13.96        2.0
    2024        45.30       43.10        11.85       31.25        0.73        0.41         31.25        14.22        2.0
</TABLE>

Pricing Assumptions:

         (1)      WTI and Brent price forecast based on the McDaniel January 1,
                  2005 price forecast.

         (2)      Kumkol field prices are forecast after deduction of VAT.

         (3)      Condensate prices were forecast to be sold in the oil stream.

         (4)      LPG prices are based on export prices at the Shymkent refinery
                  as provided by PetroKazakhstan.


<PAGE>
                                     - 33 -


<TABLE>
<CAPTION>
                     MCDANIEL & ASSOCIATES CONSULTANTS LTD.
          SUMMARY OF PRICE FORECASTS FOR CONSTANT CASE, JANUARY 1, 2005

                                                                  KUMKOL     AKSHABULAK
                 WTI        BRENT       KUMKOL/                 NATURAL       NATURAL
                CRUDE       CRUDE        BRENT        KUMKOL       GAS          GAS        CONDENSATE      LPG      INFLATION
              OIL PRICE   OIL PRICE   DIFFERENTIAL  OIL PRICE     PRICE        PRICE         PRICE        PRICE      FORECAST
    YEAR
               $US/BBL     $US/BBL      $US/BBL      $US/BBL      $/MCF        $/MCF        $US/BBL      $US/BBL        %
------------- ----------- ----------- ------------- ----------- ----------- ------------- ------------- ----------- -----------
<S>            <C>         <C>          <C>          <C>          <C>          <C>          <C>          <C>          <C>
    2005        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2006        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2007        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2008        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2009        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2010        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2011        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2012        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2013        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2014        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2015        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2016        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2017        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2018        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2019        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2020        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2021        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2022        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2023        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
    2024        43.45       40.46        12.59        27.87        0.50         0.28         27.87        13.35        0.0
</TABLE>

Pricing Assumptions:

         (1)      Prices are based on December 31, 2004 prices as provided by
                  PetroKazakhstan.

         (2)      Kumkol field prices are forecast after deduction of VAT.

         (3)      Condensate prices were forecast to be sold in the oil stream.

         (4)      LPG prices are based on export prices at the Shymkent refinery
                  as provided by PetroKazakhstan.


<PAGE>
                                     - 34 -


                         RECONCILIATION OF NET RESERVES
                            BY PRINCIPAL PRODUCT TYPE


                            CONSTANT PRICES AND COSTS
                                 (POST ROYALTY)

<TABLE>
<CAPTION>
----------------------   ---------------------------------     --------------------------------   ----------------------------------
                                                                       ASSOCIATED AND
        FACTORS                 LIGHT AND MEDIUM OIL                 NON-ASSOCIATED GAS                 NATURAL GAS LIQUIDS
------------------------ ---------------------------------     --------------------------------   ----------------------------------
                                                    NET                                 NET                                 NET
                                                   PROVED                              PROVED                              PROVED
                             NET        NET         PLUS        NET         NET         PLUS       NET          NET         PLUS
         FACTORS           PROVED     PROBABLE    PROBABLE     PROVED     PROBABLE    PROBABLE    PROVED      PROBABLE    PROBABLE
----------------------   ---------------------------------     --------------------------------   ----------------------------------
                          (mmbbls)    (mmbbls)    (mmbbls)     (bcf)        (bcf)      (bcf)     (mmbbls)    (mmbbls)    (mmbbls)
                         ---------------------------------     --------------------------------   ----------------------------------
<S>                       <C>         <C>          <C>          <C>          <C>        <C>         <C>         <C>         <C>
   December 31, 2003      325.28      130.14       455.42       24.39        5.73       30.12        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
       Extensions          17.23       15.09        32.33        0.00        0.00        0.00        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
    Improved Recovery       0.00        5.42         5.42       18.16       15.94       34.10       23.56        6.60       30.16
----------------------   ---------------------------------     --------------------------------   ----------------------------------
   Technical Revisions     41.27      -16.65        24.61       11.76        5.07       16.82        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
       Discoveries          0.00        0.00         0.00        0.00        0.00        0.00        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
      Acquisitions          0.00        0.00         0.00        0.00        0.00        0.00        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
      Dispositions          0.00        0.00         0.00        0.00        0.00        0.00        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
    Economic Factors        0.00        0.00         0.00        0.00        0.00        0.00        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
       Production         -50.97        0.00       -50.97       -6.25        0.00       -6.25        0.00        0.00        0.00
----------------------   ---------------------------------     --------------------------------   ----------------------------------
   December 31, 2004      332.81      134.00       466.81       54.31       26.74       81.05       23.56        6.60       30.16
----------------------   ---------------------------------     --------------------------------   ----------------------------------
</TABLE>

<PAGE>
                                     - 35 -


      RECONCILIATION OF CHANGES IN NET PRESENT VALUES OF FUTURE NET REVENUE
                           DISCOUNTED AT 10% PER YEAR


                    PROVED RESERVES-CONSTANT PRICES AND COSTS

<TABLE>
<CAPTION>
                          PERIOD AND FACTOR                                            2004 ($M)
---------------------------------------------------------------------------------------------------
<S>                                                                                <C>
Estimated Future Net Revenue at Beginning of Year Before Tax(1)                        3,196,349

Estimated Future Tax at Beginning of Year(1)                                           1,311,676
                                                                                   ----------------
ESTIMATED FUTURE NET REVENUE AT BEGINNING OF YEAR                                      1,884,673

Oil and Gas Sales During the Period Net of Royalties and Production Costs (2)           (475,561)

Changes due to Prices (3)                                                              2,137,445

Original forecasted 2003 Development Cost(4)                                              78,395

Changes in Estimated Future Development Costs (5)                                       (215,517)

Extensions and Improved Recovery(6)                                                      273,498

Discoveries                                                                                 -

Acquisitions of Reserves                                                                    -

Dispositions of Reserves                                                                    -

Net Change Resulting from Revisions in Quantity Estimates(7)                             186,033

Accretion of Discount                                                                    319,635

Net Change in Income Taxes(8)                                                         (1,173,051)
                                                                                   ----------------
ESTIMATED FUTURE NET REVENUE AT END OF YEAR                                            3,015,551
</TABLE>

Notes:

         (1)      McDaniel January 1, 2004 Evaluation.

         (2)      Based on the actual segmented Upstream revenue from Year 2004
                  Financial Results (Net Income adjusted for Interest, DD&A and
                  Foreign Exchange losses).

         (3)      Represents the effect of the difference in the estimated crude
                  oil price between the McDaniel Reports as at January 1, 2004
                  and January 1, 2005.

         (4)      Estimated 2004 Development Cost at the beginning of the year.

         (5)      Calculated by adding the 2004 estimated development costs to
                  the end year future development costs and re-basing this to
                  the beginning of the year.

         (6)      Calculated by applying the ratio of the proved reserves
                  additions (associated with this category) to the total proved
                  reserves to the end year, before tax.

         (7)      Represents the monetary effect of changes in assumptions and
                  estimates not included in any other specific reconciling item.

         (8)      Calculated as the difference in the future tax liability
                  estimated at the beginning of the year to the future tax
                  liability estimated at the end of the year, but adjusting for
                  the tax paid in 2004 (as defined by the Upstream segmented tax
                  from Year 2004 Financial Results).

<PAGE>
                                     - 36 -


         PROVED UNDEVELOPED RESERVES

         Light and Medium Crude Oil

         "Proved undeveloped reserves" are those proved reserves expected to be
recovered from new wells on undrilled acreage or from existing wells where a
relatively major capital expenditure will be required. The Corporation's
undeveloped reserves range from infill opportunities (such as recompletions and
commingling) on the mature developed assets, like Kumkol South, to drilling new
producers and injectors to develop new areas on existing less mature assets like
the KAM fields. Recompletions refer to cases where a well is currently producing
on one zone, but, when appropriate, could be produced from another zone and
commingling is where production is combined from several zones in the same well
allowing a well to produce more oil. Expenditures required for recompletions and
commingling are typically much less than drilling a new well. It is estimated
that 122 (90 net) new producers, 48 (33 net) injectors and 405 (320 net)
recompletions/workovers will be required to develop 133 MMstb of (net) proved
developed non-producing and proved undeveloped reserves. The Corporation places
great emphasis on the timely transfer of these reserves into the proved
producing category; of the total development capital expenditure 90% is
associated with the next 5 years.

         Natural Gas

         The Corporation's undeveloped gas reserves will be developed in
association with the oil reserves and, as such, do not require separate
development expenditure.

         PROBABLE UNDEVELOPED RESERVES

         Light and Medium Crude Oil

         "Probable undeveloped reserves" are those probable reserves expected to
be recovered from new wells on undrilled acreage or from existing wells where a
relatively major capital expenditure will be required. It is estimated that an
additional 89 (65 net) new producers, 23 (13 net) injectors and 207 (162 net)
recompletions will be required to develop the Corporation's probable undeveloped
reserves. These reserves exist as either upside on the proved undeveloped
reserves, or as further extensions of existing fields, which require more
development activity. As with the proved undeveloped reserves, the majority of
the associated capital expenditure occurs within the next 5 years.

         Natural Gas

         The Corporation's undeveloped gas reserves will be developed in
association with the oil reserves and, as such, do not require separate
development expenditure.

         SIGNIFICANT FACTORS OR UNCERTAINTIES

         Because the reserves data are based on judgements regarding future
events, actual results will vary and the variations may be material. For a
further discussion of potential uncertainties affecting the reserves data see
the section titled "Risk Factors - Risk factors Relating to PetroKazakhstan's
Industry".

<PAGE>
                                     - 37 -


        DEVELOPMENT COSTS DEDUCTED IN THE ESTIMATE OF FUTURE NET REVENUE


<TABLE>
<CAPTION>
                                       CONSTANT PRICES
                                          AND COSTS                                 FORECAST PRICES AND COSTS
                               -------------------------------     ----------------------------------------------------------
                                             $M                                                 $M
                                                                                                   TOTAL PROVED PLUS PROBABLE
                                    TOTAL PROVED RESERVES             TOTAL PROVED RESERVES                 RESERVES
                               -------------------------------     -------------------------    -----------------------------
                                                  Discounted                       Discounted                     Discounted
                                 Undiscounted       at 10%         Undiscounted      at 10%      Undiscounted       at 10%
                                 ------------     ----------       ------------    ----------    ------------     -----------
<C>                              <C>              <C>              <C>             <C>           <C>              <C>
2005.......................        204,449         194,935           204,449        194,935        248,285         236,730
2006.......................         91,906          79,663            93,744         81,256        137,472         119,158
2007.......................         37,746          29,743            39,271         30,945         64,902          51,142
2008.......................         22,098          15,830            23,450         16,799         40,432          28,963
2009.......................         11,002           7,165            11,909          7,756         23,500          15,304
</TABLE>

         Future developments will be financed from existing cash resources,
current and future cashflows.

         OIL AND GAS WELLS

         The following table sets forth the number and status of oil wells in
Kazakhstan in which the Corporation had an interest as of December 31, 2004,
which are producing, or which it considers to be capable of production but which
are not producing due to lack of available transportation facilities, available
markets or other reasons:

<TABLE>
<CAPTION>
                                                  PRODUCING WELLS                   SHUT-IN WELLS(1)
                                           ------------------------------    -------------------------------
            NAME OF FIELD                    GROSS(2)           NET(3)          GROSS(2)         NET(3)
---------------------------------------    -------------    -------------    -------------    --------------
<S>                                        <C>              <C>               <C>               <C>
Kumkol South..........................         159              159               28                28
South Kumkol..........................          21               21                0                 0
Kyzylkiya.............................          22               22                1                 1
Aryskum...............................          25               25                3                 3
Maibulak..............................           8                8                0                 0
East Kumkol...........................           0                0                5                 4
Kumkol North..........................         220              110                7               3.5
Akshabulak............................          18                9                0                 0
Nurali................................           3              1.5                4                 2
Aksai.................................           0                0                3               1.5
                                           -------------    -------------    -------------    --------------
     Total............................         476            355.5               51                43
                                           =============    =============    =============    ==============
</TABLE>

Notes:

         (1)      "Shut-in wells" mean wells which have encountered and are
                  capable of producing crude oil or natural gas but which are
                  not producing due to lack of available transportation
                  facilities, available markets or other reasons.

         (2)      "Gross" wells are defined as the total number of wells in
                  which the Corporation has an interest.

         (3)      "Net" wells are defined as the aggregate of the numbers
                  obtained by multiplying each gross well by the Corporation's
                  percentage of working interest therein.
<PAGE>
                                     - 38 -


         DRILLING ACTIVITIES

         The following table summarizes the Corporation's drilling results for
the years ended December 31, 2004 and December 31, 2003:

<TABLE>
<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 2004
                           ------------------------------------------------------------------------------------
                                        GROSS(1)                                           NET(2)
                           ----------------------------------                ----------------------------------
                           Exploratory            Development                Exploratory            Development
                           -----------            -----------                -----------            -----------
<S>                        <C>                    <C>                         <C>                   <C>
Oil wells.............         20                      40                         18                     31
Natural Gas Wells.....          -                       -                          -                      -
Service Wells.........          -                       2                          -                      1
Dry and abandoned.....          8                       -                         7.5                     -
                           -----------            -----------                -----------            -----------
Total.................         28                      42                        25.5                    32
                           -----------            -----------                -----------            -----------

<CAPTION>
                                                       YEAR ENDED DECEMBER 31, 2003
                           ------------------------------------------------------------------------------------
                                        GROSS(1)                                           NET(2)
                           ----------------------------------                ----------------------------------
                           Exploratory            Development                Exploratory             Development
                           -----------            -----------                -----------            -----------
<S>                        <C>                    <C>                        <C>                    <C>
Oil wells.............          4                      42                        3.0                    27.0
Natural Gas Wells.....          -                       -                          -                       -
Service Wells.........          -                       3                          -                      1.5
Dry and abandoned.....          1                       -                         1.0                      -
                           -----------            -----------                -----------            -----------
Total.................          5                      45                         4.0                    28.5
                           -----------            -----------                -----------            -----------
</TABLE>

Notes:

         (1)      "Gross" wells are defined as the total number of wells
                  completed by the applicable year end in which the Corporation
                  had an interest.

         (2)      "Net" wells are defined as the aggregate of the numbers
                  obtained by multiplying each gross well by the Company's
                  percentage of interest therein.


         PROPERTIES WITH NO ATTRIBUTED RESERVES

         The Corporation has net exploration acreages in Kazakhstan of 3,400
acres (net) in the three licenses, 260D-1 (100% equity), 952 (100% equity) and
951-D (75% equity) and the Karaganda block (100% equity). The current 2005 total
financial commitments amount to one well to be drilled in the South Kyzylkiya
acreage. An additional commitment to acquire 2D seismic in the Karaganda block
may be required subject to finalisation of the contract. These commitments are
discussed in greater detail under the sections titled "General Development of
the Business-Formative Transactions and Three Year History" and "Business of the
Corporation-Oil and Gas Exploration and Development Operations (Licenses)".

         ASSET RETIREMENT OBLIGATIONS

         Asset retirement obligations are the estimated fair value of legal
obligations associated with dismantlement and site restoration due to the
retirement of tangible long-lived assets. Asset retirement obligations are not
recorded for assets which have an indeterminable life. Estimated future asset
retirement obligations are discounted to estimate the fair value of the
obligation and recorded as a liability when the related assets are constructed
and commissioned. The fair value of the obligation is also added to the value

<PAGE>
                                     - 39 -


of property, plant and equipment and depleted using the unit-of-production
method based upon estimated proved reserves before royalties. Accretion expense
resulting from the increase in the present value of the liability due to the
passage of time is recorded as depletion, depreciation and accretion expense.

         Estimated cash flows are discounted at 8.5%. The total undiscounted
estimated cash flows required to settle the obligations are $77.4 million with
the expenditures being incurred over ten years commencing in 2014. Note that
abandonment cost shown on the preceding tables, which are extracts from the
McDaniel Reports are for well abandonment only and do not include abandonment
and reclamation cost for facilities.

         PRODUCTION HISTORY

         The following table shows the Corporation's average working interest
sales volume before deduction of royalties payable to others, average netbacks
received and net oil and gas capital expenditures incurred before the deduction
of royalties for each of the last four fiscal quarters and the years then ended:

<TABLE>
<CAPTION>
                                                         AVERAGE DAILY PRODUCTION

                                                            THREE MONTHS ENDED
                                   --------------------------------------------------------------      YEAR ENDED
                                    MAR. 31/04      JUNE 30/04       SEPT. 30/04      DEC. 31/04       DEC. 31/04
                                   ------------    ------------    --------------    ------------    ---------------
<S>                                <C>             <C>             <C>               <C>             <C>
Natural gas (mmcfd)...........         10.77           11.38            11.89            11.49            11.42
Light/medium crude oil (bopd).       142,919         151,104          157,786          152,510          151,102
NGL (bopd)....................            0                0                0                0                0
                                   ------------    ------------    --------------    ------------    ---------------
          Total liquids (bopd)       144,713         153,001          159,767          154,425          153,005
                                   ============    ============    ==============    ============    ===============

<CAPTION>
               PRODUCTION VOLUMES FOR YEAR ENDED DECEMBER 31, 2004

                                             LIGHT/MEDIUM CRUDE
                                                   OIL
                                                (MMBBLS)                 NATURAL GAS                   NGL
                                          ----------------------    ----------------------    ----------------------
<S>                                       <C>                       <C>                       <C>
Kumkol South........................             16.42                       18                         0
Kumkol North........................             13.08                     0.52                         0
South Kumkol........................              8.66                        0                         0
East Kumkol.........................              0.22                        0                         0
North Nurali........................              0.15                        0                         0
Kyzylkia............................              3.62                        0                         0
Aryskum.............................              3.96                        0                         0
Maibulak............................              0.78                        0                         0
Kolzhan.............................              0.10                        0                         0
Akshabulak..........................              7.79                        0                         0
Nurali..............................              0.47                        0                         0
Aksai...............................              0.05                        0                         0
                                          ----------------------    ----------------------    ----------------------
     Total..........................             55.30                    18.52                         0
                                          ======================    ======================    ======================
</TABLE>

<PAGE>
                                     - 40 -


<TABLE>
<CAPTION>
                                                    CRUDE OIL EXPORT NETBACKS

                                                        THREE MONTHS ENDED
                                   --------------------------------------------------------------      YEAR ENDED
                                    MAR. 31/04      JUNE 30/04       SEPT. 30/04      DEC. 31/04       DEC. 31/04
                                   ------------    ------------    --------------    ------------    ---------------
                                   ($ per bbl)     ($ per bbl)      ($ per bbl)      ($ per bbl)      ($ per bbl)
<S>                                <C>             <C>              <C>              <C>               <C>
Net sales price achieved......        24.24           27.81            35.75            32.24             30.12
Transportation costs..........        (7.63)          (5.53)           (6.18)           (8.51)            (6.94)
Selling costs.................        (0.32)          (0.59)           (0.61)           (0.67)            (0.60)

Royalty.......................        (1.08)          (1.50)           (3.34)           (1.79)            (1.94)
Production cost...............        (1.65)          (1.87)           (1.61)           (1.34)            (1.62)
General and administrative....        (0.56)          (0.58)           (0.65)           (0.73)            (0.63)
                                   ------------    ------------    --------------    ------------    ---------------
Total....                             13.00           17.74            23.36            19.20             18.39
                                   ============    ============    ==============    ============    ===============

<CAPTION>
                                                 NET OIL AND GAS CAPITAL EXPENDITURES

                                                        THREE MONTHS ENDED
                                   --------------------------------------------------------------      YEAR ENDED
                                    MAR. 31/04      JUNE 30/04       SEPT. 30/04      DEC. 31/04       DEC. 31/04
                                   ------------    ------------    --------------    ------------    ---------------
                                      ($mm)           ($mm)            ($mm)            ($mm)             ($mm)
<S>                                <C>             <C>             <C>               <C>             <C>
Development wells.............        6,390           9,940            1,247            13,321            30,898
Facilities and equipment......       23,566           8.499           21,000            37,880            90,945
Exploration...................        5,642           6,049            7,474             7,895            27,150
Property acquisitions, net of
dispositions..................          -               -                -                 -                -
                                   ------------    ------------    --------------    ------------    ---------------
         Total................       35,598          24,488           29,721            59,186           148,993
                                   ============    ============    ==============    ============    ===============
</TABLE>

         LICENSING

         The Kazakhstan government owns the crude oil and natural gas in the
subsoil of Kazakhstan. It grants to producers exploration, production or
exploration and production licenses for fixed periods of time. 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 financial
expenditure commitments. In the event a hydrocarbon contract cannot be
negotiated, a producer risks losing all rights to its exploration and/or
production licenses. In addition, the producer and a governmental design
institute must formulate a development plan for each field specifying detailed
drilling and production targets. The development plan may be periodically
modified with the approval of the Kazakhstan government in order to reflect
changing circumstances. Default by a producer under the terms of a license and
related hydrocarbon contract or development plan can result in the loss of a
production license and related hydrocarbon contract and, accordingly, all
production rights.

         PKKR holds exploration and production licenses to the Kumkol South and
South Kumkol fields and the KAM Fields. Turgai Petroleum holds the exploration
and production license for Kumkol North.

<PAGE>
                                     - 41 -


Kazgermunai holds the exploration and production licenses for the Akshabulak,
Nurali and Aksai fields. In addition, PKKR holds four exploration licenses for
undeveloped property in the South Turgai Basin. These are licenses 260D-1,
951,952 and Karaganda for which final contract terms are pending. Hydrocarbon
contracts for Kumkol South, Kumkol North, South Kumkol and Kyzylkia, Aryskum and
Maibulak fields have been negotiated and executed. The foundation agreement for
Kazgermunai, as amended and supplemented, effectively serves as the hydrocarbon
contract for the Akshabulak, Nurali and Aksai fields.

         KUMKOL NORTH FIELD. The Kumkol North exploration and production license
was issued to Turgai Petroleum in December 1995, for a 25-year period. Under the
license, Turgai Petroleum is required to spend at least $1.4 million on a 3D
seismic with processing and interpretation covering a 100 square kilometre area.
The 3D seismic was completed. The hydrocarbon contract for Kumkol North was
entered into on April 26, 1996, for a term expiring December 20, 2020, subject
to an extension upon application by Turgai Petroleum. The hydrocarbon contract
may be terminated if Turgai Petroleum is in material default of the covenants
under that contract. The development plan for Kumkol North was revised in June
1999. Under the revised development plan for Kumkol North, Turgai Petroleum
committed to invest a specific amount in development of the Kumkol North field.
Under the PKKR Share-Sale Purchase Agreement, PKKR has the contractual right to
have the license for Kumkol North reissued to it if the existing Kumkol North
license is cancelled. The Corporation cannot provide any assurances that the
license would be reissued or reissued in a timely manner to PKKR or that such
reissued license would be on more favourable terms than the existing Kumkol
North license.

         KUMKOL SOUTH FIELD. The exploration and production license for Kumkol
South was issued to PKKR in November 1996, but the period of validity is from
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 the Corporation's application. The hydrocarbon contract may be
relinquished at the Corporation's option or may be terminated by the Kazakhstan
government if the Corporation is in material default of its covenants under the
hydrocarbon contract. Under the terms of the license, PKKR is obligated to
provide a program for utilization of gas. In September 2000, PKKR entered into
an agreement with the Kyzylorda Oblast, Kazgermunai, a number of Kazakhstan
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, the Corporation concluded discussions with Kazakhstan
government authorities to arrive at an agreement for the utilization of
associated gas pursuant to this agreement. As a result of these discussions, the
Corporation received full government approval to install a 55 megawatt
electrical power plant (the "Kumkol Power Plant") in the Kumkol field to use
associated gas from the Kumkol South, South Kumkol and Kumkol North fields. The
plant was completed in 2003 and reached its full capacity in early 2004. In
addition, as a joint venture partner in the Akshabulak field, the Corporation is
participating in a project to provide natural gas to the Kyzylorda region.

         SOUTH KUMKOL FIELD. The exploration and production license for the
South Kumkol field issued to PKKR in December 1996. The license is for a 25 year
period starting on February 1996, 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, PKKR 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 metres. Under this license, PKKR 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 Kumkol
Power Plant. 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
the Corporation's application. The hydrocarbon contract may be relinquished at
the Corporation's option or may be terminated if it is in material default of
its covenants under the hydrocarbon contract.

<PAGE>
                                     - 42 -


         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 requires 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. As of December 31, 2004 there
are 23 active production wells with development to continue over the next 3
years with the drilling of a further 30 wells. Production facilities can
currently handle 34,000 bopd, with expansion underway to enable processing of
65,000 bopd by end 2005. 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 amended in April 1999, required Kazgermunai to
incur expenditures of at least $1.0 million in 2000 and $200,000 in 2001.
Kazgermunai has satisfied the capital commitments under this license.
Kazgermunai must have an approved development plan for the Nurali field before
February 2005; failure to do so may result in the cancellation of the Nurali
license. 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
has satisfied the capital commitments under this license. Kazgermunai must have
an approved development plan for the Aksai field before February 2005; failure
to do so may result in the cancellation of the Aksai license. As of January 1,
2005, the Aksai Field has estimated net proved reserves before royalty of 1.0
mmbbls of crude oil. The foundation agreement for Kazgermunai effectively serves
as the hydrocarbon contract for the Aksai field.

         MAIBULAK FIELD. The exploration and production license held by Turan
Petroleum for the Maibulak field was cancelled in July 1997, due to
non-compliance with certain of the terms of such license. In December 1997, the
Kazakhstan government reissued the license to PKKR in accordance with PKKR's
right to receive the license under the PKKR Share Sale-Purchase Agreement. The
license runs for 20 years from April 12, 1997. In December 1998, the Kazakhstan
government and PKKR executed a hydrocarbon contract for the purposes of the
Maibulak license. The Corporation had committed to drill three wells and invest
$2.0 million by the end of 2000 in the Maibulak field. The Corporation applied
for and received an extension for these commitments. Subsequently, the
Corporation drilled two wells capable of production and acquired 3D seismic over
the entire field. The Corporation's total capital expenditures for these
projects exceeded its capital commitments referred to above.

         KYZYLKIYA FIELD. The exploration and production license held by Turan
Petroleum for the Kyzylkiya field was cancelled in July 1997, due to
non-compliance with certain of the terms of such license. In September 1998, the
Kazakhstan government reissued the license to PKKR in accordance with PKKR's
right to receive the license under the PKKR Share Sale-Purchase Agreement. The
license runs for 23 years from September 8, 1998. On June 24, 1999, the
Corporation executed a hydrocarbon contract for the Kyzylkiya field with the
Kazakhstan government. Pursuant to this license, the Corporation is required to
invest $1.0 million during the initial three-year assessment stage and an
additional $3.0 million in the pilot operation stage. In November of 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, the Corporation acquired 135 square kilometres of 3D
seismic in the northern part of the field. Early oil production facilities have
been installed and the Corporation's total capital expenditures for these
projects exceeded its capital commitments referred to above.

<PAGE>
                                     - 43 -


         ARYSKUM FIELD. The exploration and production license for the Aryskum
field held by Turan Petroleum was cancelled in July 1997, due to non-compliance
with certain of the terms of such license. The license was issued to PKKR in
September 1998 in accordance with PKKR's right to receive the license under the
PKKR Share Sale-Purchase Agreement. The license runs for 20 years from September
8, 1998. In June 1999, the Corporation executed a hydrocarbon contract for the
Aryskum field with the Kazakhstan government. Under this license, the
Corporation is required to invest $4.0 million over the term of the license for
the recompletion and testing of existing wells, as well as the reperformance of
seismic work and the drilling of new wells. The "technological scheme" for
development of the Aryskum field has been completed and approved by appropriate
Kazakhstan regulatory authorities. In 2001, 3D seismic data was acquired by the
Corporation over the entire field. In addition, the construction of a road from
the Aryskum field to the Kyzylkiya field has been completed.

         UNDEVELOPED ACREAGE. The Corporation owns a 100.0% interest in two
exploration licenses (Licenses 260 D1 and 952) covering 464,607 acres and a
75.0% interest in license 951-D covering 794,222 (net) acres. For a description
of this license and the activities of the Corporation related to the undeveloped
acreage therein. See "Business of the Corporation-Oil and Gas Exploration and
Development Operations-Principal Oil and Gas Properties".

         ROYALTY PAYMENTS

         Royalties are payable quarterly or monthly, depending upon the
particular hydrocarbon contract, to the Kazakhstan government in cash or in kind
at the option of the Kazakhstan government. The following table sets forth the
royalties for each of the Corporation's fields:

<TABLE>
<CAPTION>
             NAME OF FIELD                                                       ROYALTY
-----------------------------------------        -----------------------------------------------------------------------------
<S>                                              <C>
Kumkol South,(1) Akshabulak, Nurali and       -  3.0% on first 500,000 tonnes of cumulative annual production
Aksai fields                                  -  6.0% on next 500,000 tonnes of cumulative annual production
                                              -  10.0% on next 500,000 tonnes of cumulative annual production
                                              -  15.0% on cumulative annual production in excess of 1.5 million tonnes
-----------------------------------------        -----------------------------------------------------------------------------
Kumkol North(3)                               -  9.0% of production
-----------------------------------------        -----------------------------------------------------------------------------
South Kumkol field(2)                         -  10.0% of production, plus an excise tax of (euro)7.0 per tonne for domestic
                                                 crude oil sales
-----------------------------------------        -----------------------------------------------------------------------------
Maibulak field                                -  3.0% on first 350,000 tonnes of cumulative  annual  production  plus an
                                                 excise tax of (euro)2.0 per tonne for domestic crude oil sales
                                              -  4.0% on next 150,000 tonnes of cumulative annual production  plus an
                                                 excise tax of (euro)2.0 per tonne for domestic crude oil sales
                                              -  6.0% on cumulative annual production in excess of 500,000 tonnes plus an
                                                 excise tax of (euro)2.0 per tonne for domestic crude oil sales
-----------------------------------------        -----------------------------------------------------------------------------
Kyzylkiya field                               -  1.5% on first 1,600,000 tonnes of aggregate cumulative  production from
                                                 the date of the hydrocarbon contract
                                              -  2.0% on next 1,600,000 tonnes of aggregate cumulative production
                                              -  2.5% on aggregate cumulative production above 3,200,000 tonnes
-----------------------------------------        -----------------------------------------------------------------------------
Aryskum field                                 -  1.5% on first 3,400,000 tonnes of aggregate cumulative production from
                                                 the date of the hydrocarbon contract
                                              -  2.0% on next 3,400,000 tonnes of aggregate cumulative production
                                              -  2.5% on aggregate cumulative production above 6,800,000 tonnes
-----------------------------------------        -----------------------------------------------------------------------------
</TABLE>

<PAGE>
                                     - 44 -


Notes:

         (1)      The Corporation paid a production bonus of $5,000,000 in 2001
                  and $5,000,000 in 2003 to the Kazakhstan government because it
                  reached cumulative production of 10,000,000 and 15,000,000
                  tonnes of crude oil, respectively, from the Kumkol South
                  field.

         (2)      The Corporation paid a production bonus of $500,000 in 2002
                  and $1,000,000 in 2003 to the Kazakhstan government because it
                  reached cumulative production of 2,000,000 and 4,000,000
                  tonnes of crude oil, respectively, from the South Kumkol
                  field.

         (3)      Turgai Petroleum paid a production bonus of $1,000,000 in 2001
                  and $1,500,000 in 2003 to the Kazakhstan government because it
                  reached cumulative production of 5,000,000 and 10,000,000
                  tonnes of crude oil, respectively, from the Kumkol North
                  field. Further bonuses totalling $2,000,000 will be required
                  to be paid once cumulative production from the Kumkol North
                  field reaches 15,000,000 tonnes of crude oil, which is
                  anticipated to occur during 2005.

         (4)      The Corporation's production bonus expense was $0.7 million in
                  2004, $1.4 million in 2003 and $4.0 million in 2002. In 2004
                  production bonus expenses relate only to North Kumkol field.
                  In 2003 and 2002 the Corporation's production bonuses were
                  related to the Kumkol South, South Kumkol and North Kumkol
                  fields. The bonus decreased by $2.6 million in 2003, because
                  the Corporation paid the final amount for Kumkol South field
                  in February of 2003 and on South Kumkol filed in October of
                  2003. The Corporation has to pay a further $1.0 million (50%
                  share) for North Kumkol when the cumulative production reaches
                  15,000,000 tonnes (116.2 million barrels), which we expect to
                  occur in 2005.

         EXCESS PROFITS TAX

         The hydrocarbon contracts that the Corporation entered into under its
production licenses contain provisions for excess profits tax. The tax rate is
determined by the internal rate of return derived from the cash flows from
operations in the contract area. The cash flow calculation takes into account
the capital costs incurred in developing the field (in the case of PKKR a
portion of the purchase price the Corporation paid for the shares of PKKR is
allowed as a deduction) as well as ongoing revenues, capital costs, royalties
and operating costs and an allocation of overhead costs. Corporate income tax as
one deducted in arriving at cash flow and any "excess profits tax" paid in
respect of the previous year is deducted in the current year.

         The tax base is the taxable income for corporate tax minus the
corporate tax liabilities in the current year and excess profits tax liabilities
from the previous year.

         The excess profits tax for Kumkol South is payable in a given year at a
rate which varies with the internal rate of return achieved in that year in
accordance with the following table:

<TABLE>
<CAPTION>
                           INTERNAL RATE OF RETURN                       EXCESS PROFITS TAX RATE
                 --------------------------------------------      -------------------------------------
<S>                                                                <C>
                               less than 20.0%                                      -
                           between 20.0% and 25.0%                                 5.0%
                           between 25.0% and 30.0%                                10.0%
                           between 30.0% and 35.0%                                20.0%
                             in excess of 35.0%                                   30.0%
</TABLE>


         The hydrocarbon contract with respect to Kumkol North provides the
following excess profits tax rates:

<PAGE>
                                     - 45 -

<TABLE>
<CAPTION>
                           INTERNAL RATE OF RETURN                       EXCESS PROFITS TAX RATE
                 --------------------------------------------      -------------------------------------
<S>                                                                <C>
                               less than 20.0%                                      -
                           between 20.0% and 25.0%                                20.0%
                           between 25.0% and 30.0%                                30.0%
                             in excess of 30.0%                                   50.0%
</TABLE>


         The hydrocarbon contracts with respect to the South Kumkol field and
the KAM Fields provide for the following excess profits tax rates:

<TABLE>
<CAPTION>
                           INTERNAL RATE OF RETURN                       EXCESS PROFITS TAX RATE
                 --------------------------------------------      -------------------------------------
<S>                                                                <C>
                               less than 20.0%                                      -
                           between 20.0% and 22.0%                                 4.0%
                           between 22.0% and 24.0%                                 8.0%
                           between 24.0% and 26.0%                                12.0%
                           between 26.0% and 28.0%                                18.0%
                           between 28.0% and 30.0%                                24.0%
                             in excess of 30.0%                                   30.0%
</TABLE>

         The foundation agreement for Kazgermunai effectively provides for a tax
on the profits of Kazgermunai with respect to its operations in the Akshabulak,
Nurali and Aksai fields. The foundation agreement provides for taxes of: (i)
25.0% on annual profits of Kazgermunai up to $20.0 million, (ii) 30.0% on annual
profits of Kazgermunai between $20.0 million and $30.0 million, (iii) 35.0% on
annual profits of Kazgermunai between $30.0 million, and $40.0 million, and (iv)
40.0% on annual profits of Kazgermunai exceeding $40.0 million.

         In 2004 the Corporation provided for $70.0 million of excess profit tax
in Turgai Petroleum (the Corporation's 50% share). The impact on net income was
$35.0 million, as the provision is deductible in the following year.


DOWNSTREAM OPERATIONS: REFINING, MARKETING AND TRANSPORTATION

         The quality of the Corporation's oil properties in Kazakhstan have
allowed the Corporation to increase its production from an average of
approximately 44,000 bopd in its year ended June 30, 1997 to 151,102 bopd in its
year ended December 31, 2004. However, dependence on a single customer prior to
2001, the Shymkent refinery, for the sale of its oil production was a major
strategic weakness, restricting production, preventing the Corporation from
achieving an optimum price for its crude oil and compromising the achievement of
its growth potential. As a result, the management of the Corporation determined
that it was imperative that the Corporation acquire the Shymkent refinery, which
was completed in March 2000.

         The Shymkent refinery, which is the newest refinery in Kazakhstan, is
strategically located to serve the most densely populated areas of Kazakhstan.
Other assets acquired through the PKOP Acquisition include marketing and
transportation operations comprised of a network of distribution centres and
several retail gasoline outlets. Shymkentnefteorgsyntez was renamed Hurricane
Oil Products and, more recently in 2003, PetroKazakhstan Oil Products, in order
to better reflect the integrated nature of PetroKazakhstan's operations in
Kazakhstan.

<PAGE>
                                     - 46 -


         The Downstream organization is accountable for maximizing the value of
the Corporation's crude oil production through increasing the number of options
for exporting oil and refined products, reducing the cost of transporting oil
and refined products to export markets, executing market-driven strategies for
petroleum products marketing and trading and by optimizing the performance of
the Shymkent refinery.

         HISTORY OF PKOP

         The Shymkent refinery was registered by the Kazakhstan government in
November 1985, and its processing plants were commissioned between 1985 and
1987. In 1993, the Shymkent refinery was reorganized into the joint stock
company, OJSC Shymkentnefteorgsyntez. In July 1996, the Kazakhstan government
privatized PKOP by selling all of its common shares of PKOP to Kazvit Holdings
Limited ("KAZVIT"), a company affiliated with KKB. In January 1998, CAIH
purchased the PKOP common shares from Kazvit and all of Kazvit's obligations
under the PKOP privatization agreement, including the capital investment
commitments thereunder. Concurrent with the completion of the PKOP Acquisition,
the PKOP privatization agreement and the obligations thereunder, including the
capital investment commitments, were assigned to the Corporation. In 2002 OJSC
Shymkentnefteorgsyntez was renamed OJSC Hurricane Oil Products and, more
recently in 2003, TOO PetroKazakhstan Oil Products.

         THE PKOP PRIVATIZATION AGREEMENT

         As part of the PKOP Acquisition, the Corporation assumed all of the
rights and obligations under the PKOP privatization agreement, pursuant to which
the Government of Kazakhstan privatized PKOP. Under that agreement, the
Corporation was required to invest, or cause PKOP to invest, a minimum of the
Kazakhstani Tenge equivalent of $150.0 million on or before December 31, 2001 in
capital expenditures or investments. As of December 31, 2004, the Corporation
believes it has met this commitment. The Government of Kazakhstan agrees with
the Corporation's assertion regarding $116.0 million of this commitment and is
claiming the remaining obligation has not been met. If it is established that
the Corporation has not met the remaining obligation, the Corporation may be
required, under the terms of the agreement, to pay a penalty of 15.0% of the
unfulfilled obligation or $5.1 million. No provision has been made in the
financial statements for this matter.

         In addition, the Corporation is prohibited from selling or otherwise
disposing of its PKOP common shares without the consent of the Kazakhstan
government, if the disposition would reduce its percentage ownership in PKOP to
less than 25.0% of the voting shares of PKOP.

         CRUDE OIL MARKETING AND TRANSPORTATION

         Producers of oil in Kazakhstan are entitled to negotiate sales
contracts directly with oil purchasers, thereby allowing the market to determine
the price of oil. Prices depend in part on oil quality, prices of competing
oils, distance to market and the value of refined products.

         In the absence of any contrary agreement in a particular hydrocarbon
contract, under Kazakhstan law, the Kazakhstan government has a right to
purchase production from a producer at world market prices. The terms of the
Corporation's hydrocarbon contracts for the Kumkol South and South Kumkol fields
and each of the KAM Fields provide that the Kazakhstan government has the right
to nominate production amounts which it wishes to buy in each year, provided
that the Corporation and the Kazakhstan government agree prior to October 1st of
the previous year as to the volume and pricing mechanism for amounts sought to
be effectively nominated. To date, the government has not nominated or
redirected any of the Corporation's production. The hydrocarbon contract for
Kumkol North provides that the Kazakhstan government may prohibit the delivery
of oil to certain places of destination if such delivery would interfere with
the political interests of Kazakhstan. However, the government is required to
agree with the operator,

<PAGE>
                                     - 47 -


Turgai Petroleum, on the damages and lost commercial opportunity costs resulting
thereby. To date the government has not made any such prohibition.

         Oil produced from the Kumkol and South Kumkol fields is transported
east via a 28 inch lateral pipeline extending 200 kilometres from the Kumkol
field to Karakoin, Kazakhstan, where this pipeline connects with the Central
Pipeline. The Central Pipeline provides access for the Corporation's crude oil
to the Shymkent refinery or to the Atasu rail loading terminal for onward
shipment to China. There is also a 20 inch pipeline, which runs parallel to the
28 inch pipeline from the Kumkol and South Kumkol fields to Karakoin. The
combined rated capacity for these two lateral pipelines is 350,000 bopd. In
addition, the Corporation has constructed a pipeline from the KAM Fields to a
rail loading station at Dzhusaly south west of the Turgai Basin in 2003. This
pipeline eliminates the need to ship all crude oil for export east and south via
Shymkent. In addition to providing additional transportation capacity the KAM
pipeline has reduced the cost of transporting crude oil for export to the
western ports by approximately $2.00 per barrel depending upon the final
destination of the crude oil. The KAM and the Central pipelines are used for
transporting crude oil for export and refining. The Corporation and its joint
venture partners, Turgai Petroleum and Kazgermunai, currently are the only
significant shippers that are utilizing the Central Pipeline in eastern
Kazakhstan. The Corporation believes that there is substantial unutilized excess
capacity in the Central Pipeline. The Central Pipeline has a rated capacity of
160,000 bopd and was originally designed to carry crude oil from Russia south to
Kazakhstan, Uzbekistan and Turkmenistan.

         Currently all oil and gas pipelines in Kazakhstan are owned by the
Kazakhstan government through KazTransOil, a subsidiary of Kazmunaigas, the
state owned national oil company. The Corporation currently has access to the
lateral pipelines and the Central Pipeline under a short term contract with
KazTransOil, which is renewable by mutual agreement annually. The contract does
not designate specific volumes available to the Corporation and provides for
tariff rates established by the Kazakhstan government and controlled by the
ARNM. The contract can be cancelled by either KazTransOil or the Corporation on
45 days notice. In the PKKR Share Sale-Purchase Agreement, the Kazakhstan
government agreed to assist the Corporation in obtaining commitments for the
transportation of oil through the Central Pipeline. In addition, under the
Corporation's hydrocarbon contracts, it has a right of access to transportation,
refining and storage facilities owned by the Kazakhstan government at rates and
with rights of access no less favourable than those available to other
producers.

         The cost of rail and pipe transportation in Kazakhstan has increased as
a result of increases in tariffs in Kazakhstan linked to the U.S. Dollar/Swiss
Franc exchange rate and as a result of increases in demurrage claims partly
generated by the new Turkish policy on tanker movements through the Bosporus
straits.

         The Corporation has the ability through swap arrangements with other
oil and gas companies, to export crude oil from the Samara pipeline junction
along the Russian-Druzhba Export Pipeline System to Western Europe when the
Urals market is attractive. In addition, the Corporation has the ability to
transport its crude oil and refined products to the Black Sea by rail and/or
through CPC pipeline for export to Western Europe, by rail to China and
neighbouring FSU states or directly by rail and swap to the Persian Gulf via
Iran. The Shymkent refinery has rail access to Druzhba, Kazakhstan at the
Kazakhstan-China border, where the Kazakhstani rail line connects with an
existing Chinese rail line. In November 1997, the Corporation formed
PetroKazakhstan-Dostyk, a limited liability partnership with Eastern Gate
Corporation of Kazakhstan, to construct an oil transshipment terminal at
Druzhba, which would facilitate exports to western China. PetroKazakhstan has
acquired the interests of Eastern Gate Corporation in the Druzhba terminal and
is therefore the sole owner of the facility. The transhipment terminal is
designed to have a throughput capacity of approximately 20,800 bopd.
Construction of the terminal was suspended in late 1998. The cost of completion
of the terminal will be funded 100.0% by the Corporation. The Corporation will
control and operate the facility once it is completed. The terminal will be
completed during 2005 and will be capable of handling crude oil, fuel oil and
VGO.

<PAGE>
                                     - 48 -


         The Corporation created a specialized transportation and trading team
in early 2001, in order to enable PetroKazakhstan to respond better to the
challenges of logistics and the commercialization of Kumkol crude oil. Senior
industry professionals were recruited for this team and it has been further
strengthened through ongoing training and through the creation of a trading
floor, allowing representatives of all of the divisions involved in export of
crude and refined product trading to work closely together. The team is focused
on:

         (a)      maximizing the value of the Corporation's crude oil;

         (b)      creating new, less expensive and more reliable transportation
                  routes and creating competition amongst the logistical
                  providers;

         (c)      improving financial performance by eliminating the use of
                  trading companies and other intermediaries; and

         (d)      developing a consistent market position for Kumkol crude oil.

         Transportation of crude oil to the export market remains the
Corporation's largest single operating cost. One of PetroKazakhstan's most
important priorities continues to be the improvement of its transportation
logistics in order to maximize the Corporation's netback from crude oil exports
and to provide security of access to the export market. Negotiations are
continuing with various states neighbouring Kazakhstan to improve further the
transportation economics and the capacity of the routes. These include China,
Iran, Uzbekistan and Turkmenistan. Additionally, the Corporation has begun to
acquire railcars for its own dedicated use through purchase and lease
arrangements. As at the end of 2004 the Corporation had approximately 5000 rail
cars under its control. Part of the strategy is to open new routes to new
customers in order to create diversification and competition. By the end of 2003
new routes and customers had been contracted in Iran, China and Uzbekistan. The
China business grew to the maximum volumes available through existing logistic
infrastructure by mid 2004. Further more from mid 2003 the volumes of oil
shipped to China via the Atasu loading station had increased and achieved the
operational maximum by mid 2004. The Atasu loading station is connected to the
Central Asia Pipeline and eliminates the pipeline tariff from Karakoin to
Shymkent and a significant part of the rail tariff from Shyment to Alashankou on
the Chinese border. The governments of Kazakhstan and China are in the process
of constructing a new pipeline from Atasu directly to Dhuzanzi inside the
Chinese territory. The Corporation is actively negotiating for open access to
this new pipeline at reasonable and predictable tariffs. Deliveries to the
Tehran refinery in Iran under a swap arrangement with NICO began in December
2003 and grew steadily until June 2004, at which point MEMR began to restrict
quotas and finally blocked all quotas for PKKR in August 2004. The Corporation
did receive a quota for January 2005, but not for February or March. Our joint
venture Turgai Petroleum was however provided with export quotas for this
direction but at a reduced level such that PetroKazakhstan Marketing Ltd. could
not fulfill its obligations to NICO. PetroKazakhstan has vigorously contested
the actions of MEMR as unjustified and contrary to the laws of the Republic of
Kazakhstan, the hydrocarbon licences of PetroKazakhstan and the privatisation
agreement. This matter is currently under review by the courts in Kazakhstan.
Sales to the Fergana refinery in Uzbekistan commenced mid 2003 but since then
have been relatively small and erratic as Uzbekneftegaz the state owned oil
company of Uzbekistan has been unable to pay world market prices for its crude
oil supplies.

         The strategy of selling direct to end users continues to develop. By
the end of 2004, 100.0% of sales were sold under Non-FCA arrangements whereby
the Corporation has the responsibility to transport the crude oil either part
way or all the way to the final end user. Initially, the differentials for
Non-FCA arrangements reflected the nature of the routes and were less attractive
than FCA transactions. The most competitive route, Aktau accounted for the
majority of the FCA sales and benefited from reduced rail tariffs. This
situation has changed and, as at the end of 2003, Non-FCA deals represented the
most economically

<PAGE>
                                     - 49 -


attractive routes. The existence of these Non-FCA transactions has created the
expected competition and applied leverage to the last remaining FCA deals with
traders who have had to improve their offers. In 2004 with the exception of one
small deal in January, FCA deals had been completely eliminated.

         CPC PIPELINE

         In June 2003, the Corporation signed a memorandum of understanding with
LUKoil whereby LUKoil, a shareholder in CPC, would designate Turgai Petroleum as
an affiliated shipper in CPC. All the necessary contracts between Turgai
Petroleum, LUKoil and CPC were subsequently concluded and shipments to
Novorossisk of Kumkol crude oil produced by Turgai commenced via CPC pipeline in
October 2003. Shipments were 31,000 bopd in 2004 of which the Corporation's
share is 50.0%. The Corporation is also examining other options to gain direct
access to CPC pipeline.

         EXPORTS TO CHINA

          In June 2003, the Corporation initiated shipments to China from the
terminal at Atasu, owned and operated by KazTransOil. The use of the Atasu
terminal reduces rail distance to the Chinese border by approximately 435
kilometres as compared to the southern route via the Corporation's terminal at
Tekesu and, accordingly, decreases the Corporation's transportation costs.
Deliveries to China subsequently increased in the second half of 2003 and
represented 22.0% of exported crude oil volumes in 2004.

         NEW SALES CHANNELS

         During the second quarter of 2003, the Corporation initiated direct
crude oil sales to the Fergana refinery in Uzbekistan. The Fergana refinery is
one of the end-consumers closest to the Corporation's operations. Sales to the
Fergana refinery have, however, been relatively small and erratic as
Uzbekneftegaz the state owned oil company of Uzbekistan has been unable to pay
world market prices for its crude oil supplies.

         SWAP AGREEMENT WITH IRAN

          In the first quarter of 2003, the Corporation concluded a swap
agreement with Iran for up to one million tonnes of oil per year. Under the
agreement, the Corporation is to supply Kumkol crude oil to the Tehran refinery
and in exchange receive Iranian Light on the Persian Gulf. The Kumkol crude oil
is transported by rail from Shymkent through Uzbekistan and Turkmenistan and on
to Tehran via the Sarakhs border crossing station. The swap contract includes
compensation to recognise the higher quality of Kumkol crude oil compared to
Iranian Light. The swap agreement is between the Corporation and NICO, operating
on behalf of the Iranian government, and is intended to maximize the sales price
for the Corporation's crude oil while minimizing the distance and cost of
transportation. In December 2003 the necessary modifications to the Rey
terminal, which supplies oil to the Tehran refinery were completed by NICO and
the first shipments of crude oil were delivered to the Tehran refinery.
Deliveries to the Tehran grew steadily until June 2004 at which point MEMR began
to restrict quotas and finally blocked all quotas for PKKR in August 2004. Our
joint venture Turgai Petroleum was however provided export quotas for this
direction but at a reduced level such that PetroKazakhstan Marketing Ltd. could
not fulfill it s obligations to NICO. PetroKazakhstan has vigorously contested
the actions of MEMR as unjustified and contrary to the laws of the Republic of
Kazakhstan, the hydrocarbon licences of PetroKazakhstan and the privatization
agreement. This matter is currently under review by the courts in Kazakhstan.

<PAGE>
                                     - 50 -


         REFINING

         The Shymkent refinery was commissioned between 1985 and 1987, with the
completion of an atmospheric distillation unit for the initial separation of
crude oil, catalytic hydro treaters for the removal of impurities from naphtha,
jet and diesel fuel, and a catalytic reformer unit for the enhancement of octane
levels in gasoline. This combination unit is known as the "LK-6U unit" and is
the equivalent of a "topping/reforming" refinery, which is a common refining
configuration that permits all basic motor and industrial fuels to be produced.
The LK-6U unit's initial capacity was 6.0 million tonnes per year. In 1991, the
LK-6U unit's capacity was expanded to 6.6 million tonnes per year. In 1994, a
VDU was completed, but did not begin operations until recently, and in 1997 a
delayed coker unit was almost completed before work on it was diverted to its
conversion to a visbreaker. In 1997, the refinery completed a condensate
distillation unit, which has an annual capacity of 500,000 tonnes. In 1998, the
diesel hydro treater was converted to a diesel dewaxer and in 2001 the jet fuel
hydro treater was converted to a jet fuel dewaxer.

         The VDU was re-vamped and put into operation in late 2003 permitting
the production of VGO. VGO is a high value product sought after by refineries
with catalytic cracking facilities for further conversion to gasoline and
diesel. The production of VGO further reduces the production of mazut. Although
mazut produced at Shymkent is of an extremely high quality and is in demand in
Europe, it remains the lowest value product manufactured. Consequently, the
Corporation is continuing its efforts to reduce mazut production and increase
the production of higher value products such as VGO. The VGO produced at
Shymkent is of an extremely high quality and, consequently, is in demand by
European refiners. Exports of VGO in 2004 were shipped via the Baltic Sea. The
Corporation has plans in 2005 to add the Black Sea and China to its export
destinations for VGO.

         Crude oil production from the Corporation's producing fields continue
to be the primary source of crude oil for the Shymkent refinery. However, the
Shymkent refinery also has the potential to receive crude oil from oilfields
located in west and north Kazakhstan and oilfields in Uzbekistan, all of which
are connected to the refinery by railroad, and Russian oilfields, which are
connected to the refinery by pipeline. In 2004 a contract was concluded for
trial crude oil deliveries of Russian crude oil as a partial feedstock for the
refinery, thereby displacing more Kumkol to the export market. The table below
sets forth the Shymkent refinery's configuration and each unit's crude oil
distillation capacity in tonnes per year based on Kumkol crude oil.

<TABLE>
<CAPTION>
               SHYMKENT REFINERY CONFIGURATION                                       CAPACITY
--------------------------------------------------------------     -------------------------------------------
                                                                            (bopd)           (Tonne/Year)
<S>                                                                         <C>              <C>
DISTILLATION REFORMING COMPLEX:
     Atmospheric crude distillation..........................               136,000          6,600,000
     Gas fractionation unit..................................                  -               440,000
     Catalytic reformer......................................               23,000           1,000,000
     Naphtha Hydro Treater...................................               23,000           1,000,000

CATALYTIC DEWAXERS:
     for Diesel Fuel.........................................               40,000           2,000,000
     for Jet Fuel............................................               13,000             600,000
     Sulphur plant...........................................                  -                 5,000
     Condensate distillation.................................               11,000             500,000

UPGRADING COMPLEX:
     Vacuum distillation unit................................               30,000           1,600,000
     Visbreaker (former coker)...............................               20,000           1,200,000
</TABLE>

<PAGE>
                                     - 51 -


         THIRD PARTY PROCESSING

         In addition to revenue generated from the refining and sale of product
derived from acquired feedstock, the refinery also refines crude oil on behalf
of third parties for which it derives a fee. Processing for third parties has
been low recently, primarily because producers elected to take their crude oil
to the international export market where they could achieve better netbacks as a
result of high international crude oil prices.

         The Corporation owns two product storage depots in Taraz and one in
Almaty. The Corporation also leases other product storage facilities and
operates a number of sales, storage and distribution outlets throughout
Kazakhstan. Most product deliveries and crude oil deliveries are made by rail in
railcars provided by the state-owned railway or third parties.

         The profit improvement program started in 2001 continues to provide a
number of improvements generating better economic efficiency. These improvements
include yield improvements through the reduction of mazut production, energy
consumption improvements and the near elimination of flaring. The implementation
of a linear programming model has further improved the ability of the refinery
to optimize its operations and meet the needs of the marketplace. The refinery
measures its own internal performance improvement through a the Refinery Yield
Value Index mechanism. This index measures the value of the product yields over
time against fixed crude and product prices to eliminate the variations of the
market. This index has indicated a steady and continuous improvement of the
refinery's economic performance and shows an improvement of approximately $2/bbl
since 2001.

         HEALTH, SAFETY AND ENVIRONMENT

         Preservation of the environment and the health and safety of refinery
employees continue to be the top priorities for refinery management. The
corporation has implemented a number of projects to decrease the impact of the
refinery on the environment:

         o        Underground water monitoring wells are in service both inside
                  the refinery and around the perimeter. The wells are monitored
                  for hydrocarbons to ensure no contamination occurs.

         o        Recycling of the refinery treated waste water to the fire
                  water system has reduced off-site flow by 43% since 2002.

         o        Reinforcement of the banks of the Badam River has provided
                  protection from flooding for the refinery sanitary waste
                  effluent line and for the refinery waste water effluent line.

In addition, since 2002, the refinery emissions have been at least 10% under
license limits.

         Safety issues and labour protection are of paramount importance at
PKOP. The Corporation constantly strives for improvement in this area. Safety is
enhanced by the management operating system at the refinery. It provides:

         o        Labour protection and safety by participation of all
                  supervisory, technical and engineering employees of the
                  company.

         o        Planning and timely performance control on all automated,
                  mechanised and manual functions.

         o        Measures to reduce industrial injuries, accident and
                  fatalities.

         o        Strict observance of safety rules in all operations.

<PAGE>
                                     - 52 -


         o        Widespread use of examples, both moral and economic,
                  illustrating why the creation of a safe working environment is
                  important.

         CONTINUOUS IMPROVEMENT

         The refinery continues to identify and implement low-cost profit
improvement items. Further management skills development training is ongoing and
aimed at increasing staff understanding of the global environment and
industry-best practices. The replacement of equipment and reviews of procedures
and practices are on-going efforts designed to ensure good equipment reliability
and efficient operations.

         DIVESTITURE OF CERTAIN DIVISIONS

         PKOP like other entities in the FSU, had support divisions that were
not directly related to its core operations. PKOP has structured its operations
through divesting certain divisions and assisting them in becoming independent
operating entities.

         CRUDE Oil REVENUE OPTIMISATION

         Depending on the market environment and international crude oil prices,
the best crude oil netback for the Corporation can be obtained either by
exporting crude oil or by processing the crude oil at the Shymkent refinery for
sale in the domestic market. As the Corporation is a vertically integrated oil
company in Kazakhstan, this enables it to find the best commercial solution at
all times.

         The planning and scheduling of the refinery is now integrated as a key
component of the Corporation's corporate value chain, to maximize the value of
the Corporation's crude oil production and Downstream activities.

         PRODUCTS MARKETING AND TRANSPORTATION

         The Corporation sells refined products on the domestic and export
markets. The range of refined products sold are high quality diesel, LPG, VGO,
jet fuel and four grades of gasoline. Exports of VGO and fuel oil are primarily
to the international market via the Black Sea and the Baltic Sea. Exports of the
remaining products are primarily to neighbouring republics and China. One of the
gasoline grades is a relatively low octane fuel, Ai85, which is marketed as a
quality alternative to the cheap fuel of blenders and other competitors. The
grade is distinctively coloured, bright blue, so that Kazakhstan consumers will
be aware that they are buying a product of the Corporation.

         The marketing and trading of oil products is performed through PKOP by
direct sales from the refinery or through a network of distribution centres. Oil
products are transported by railway, the tariff dependent upon the distance
traveled.

         PKOP is a significant supplier to the oil products market in Kazakhstan
and continues to be one of the most reliable sources of product for the domestic
market. PKOP sells between 70.0% to 80.0% of its products in the domestic
market, with the remainder being sold in the export markets.

         The Corporation believes that it has satisfactory commercial relations
with clients for all of its product, sufficient flexibility in its manufacturing
operations, and sufficient choice of customers and destinations for product, to
be able to market its products effectively.

<PAGE>
                                     - 53 -


         COMPETITION

         The Shymkent refinery is the only refinery in the southern Kazakhstan
market, which is also the area of highest consumption. The nearest competing
refineries in Kazakhstan are Pavlodar and Atyrau, which are both located more
than 1,600 kilometres away from Shymkent. Two additional refineries are located
in Uzbekistan, one in Fergana, which is 450 kilometres away from Shymkent, and
the other in Bukhara, which is located 1,000 kilometres 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 cause the rail network to be significantly more congested than in
Kazakhstan. This creates greater logistical difficulties moving bulk oil through
Uzbekistan. In addition, it is believed that the crude oil feedstock provided by
the Corporation's oil fields by pipeline creates an additional advantage in
supplying refined products to the southern Kazakhstan market.

         Russia supplies significant quantities of refined products to the
Kazakhstan market from time to time. Russian refineries have supplied, on a
regular basis, products which are not available or are in short supply from
Kazakhstan refineries. These products include lubricants, bitumen, Ai95 gasoline
and Ai98 gasoline. A Russian refinery located in Omsk supplies product to towns
in northern Kazakhstan by pipeline. Russian refineries emerge as competitors in
the southern Kazakhstan market primarily when supply and demand, currency
imbalances or differing interpretations of applicable legal and tax requirements
create opportunities for them to export bulk products into the region.

         As discussed above, Uzbekistan is currently a closed economy and the
Shymkent refinery has had little competition from Uzbekistan in the past six
years. If the Uzbek market were to open up, the Corporation believes that the
benefits of being able to sell products in, or source feedstock from, the Uzbek
market would outweigh the risks from competition from the Uzbek refineries.

         REGULATORY MATTERS

         The Kazakhstan government has a range of powers to regulate and
possibly intervene in the activities of major Kazakhstan industries, such as the
Shymkent refinery. The Corporation cannot provide any assurances that in the
future the Kazakhstan government will not require the Corporation to act in a
manner which may be against its commercial interests or restrict the
Corporation's ability to make profits, freely convert currency or pay dividends
free of currency or other controls.

         The Kazakhstan government has from time to time organized a program of
support for deliveries to the agricultural sector. The purpose of this program
is to provide diesel and gasoline for the use of agricultural machinery during
the planting season, and arranging for payments to be made at the harvest six
months later. In this program the refinery can choose in which regions or
municipalities to make deliveries, it can refuse to make deliveries, and it can
supply product on freely negotiated terms, including pricing terms to compensate
for risk, and including the right to ask for and collect on guarantees.

         Under Kazakhstan law, the ARNM may review the business of any industry
having more than a 35.0% share of the Kazakhstan market. Since 1996, the ARNM
has reviewed the prices of gasoline, diesel, jet fuel and LPG. As a result, PKOP
is required to advise the ARNM three months in advance of any proposed price
increase. In 1999, through a number of orders of the ARNM, and as a result of
introducing amendments to the antimonopoly law in January 2002, PKOP was
included on the Kazakh state register of companies having a dominant position in
the market. As a result, PKOP is required to obtain the approval of the
Kazakhstan government with respect to any refined product price increases.

<PAGE>
                                     - 54 -


         It remains the Corporation's view that the allegations levelled against
the group companies are without justification. A highly competitive market
exists for oil products within Kazakhstan and the current level of prices
reflects current world crude oil prices. Also, the prices charged by the group
companies are competitive with Russian imports and with those charged by
distributors of the other two refineries in Kazakhstan.

         The Corporation is considering its recourse rights under the terms of
the Shymkent refinery Privatisation Agreement, which clearly stipulates the
right to sell any and all its products in Kazakhstan and abroad at free market
prices.

         In late December 1999, the Government of Kazakhstan adopted a policy
restricting the amounts of crude oil exported from Kazakhstan. Under this
policy, the government has set monthly limits on the amount of crude oil that
individual crude oil producers in Kazakhstan may export.

         As Kazakhstan is a member of the International Energy Agency, the
Kazakhstan government maintains an oil stock for military and strategic
purposes. The Corporation has no knowledge of any requirements for it to hold
stock or contribute to strategic stock calculations in any form. No assurances
can be given that the Kazakhstan government complies with the stocking
requirement of the International Energy Agency or that the Corporation will not
be required to assist or contribute to this stocking in the future.

         INSURANCE

         The Corporation maintains insurance coverage with respect to the
Shymkent refinery against various losses consistent with industry standards.


NON-CORE OPERATIONS IN KAZAKHSTAN

         PKKR was, prior to its acquisition by the Corporation, a state-owned
enterprise responsible for the development of oil reserves in the southern
region of Kazakhstan. In response to the requirement to operate in a region of
southern Kazakhstan, which is relatively sparsely populated and underdeveloped,
PKKR developed the infrastructure necessary to operate independently of other
organizations. In addition, as a state-owned entity, PKKR was required to carry
on a number of functions not related directly to its oil production operations.
As a result, PKKR has engaged in transportation, construction and road building,
agricultural and trading activities. The Corporation has streamlined its
operations and the management of most of these activities into a more controlled
and accountable structure. The PKKR Share Sale-Purchase Agreement permitted the
Corporation to sell these infrastructure assets.

<PAGE>
                                      - 55 -


                          MANAGEMENT OF PETROKAZAKHSTAN

         The name, municipality of residence and principal occupation of each of
the directors and senior officers of PetroKazakhstan are as follows:

<TABLE>
<CAPTION>
     NAME AND MUNICIPALITY
         OF RESIDENCE                   POSITIONS HELD                          PRINCIPAL OCCUPATION
 ------------------------------  ------------------------------  ----------------------------------------------------
<S>                              <C>                             <C>
 Bernard F. Isautier(4)          Chairman of the Board,          Chairman of the Board, President, Chief Executive
 London, England                 President, Chief Executive      Officer and Director of PetroKazakhstan from
                                 Officer and Director            October 1999 to present.  Prior thereto, he was
                                                                 President and Chief Executive Officer of Chauvco
                                                                 Resources International Ltd. (an oil and gas
                                                                 company) to 1999.

Mike Azancot                     Senior Vice-President,          Senior Vice-President, Exploration and Production
London, England                  Exploration and Production      of PetroKazakhstan from February 2000 to present.
                                                                 Prior thereto, he was a General Manager for
                                                                 Production and Operations, UK with Lasmo plc and
                                                                 prior thereto, he was Chief Petroleum Engineer
                                                                 for Occidental Petroleum Eastern.

Clayton J. Clift                 Senior Vice-President,          Senior Vice President Finance and Chief Financial
Almaty, Kazakhstan               Finance and Chief Financial     Officer of PetroKazakhstan from November 1, 2004
                                 Officer                         to present. He joined PetroKazakhstan in December
                                                                 2000 as Vice President Finance and Chief Financial
                                                                 Officer for PetroKazakhstan Kumkol Resources and
                                                                 PetroKazakhstan Oil Products, based in Almaty,
                                                                 Kazakhstan. Prior thereto, he was Deputy General
                                                                 Manager and Finance and Administration Manager for
                                                                 Wintershall AG's Libyan operations.

Anthony Peart                    Senior Vice-President,          Senior Vice-President, General Counsel and
London, England                  General Counsel and             Corporate Secretary of PetroKazakhstan from
                                 Corporate Secretary             December 2000 to present.  Prior thereto he was
                                                                 Managing Director of Bula Resources (Holdings) plc
                                                                 (an oil and gas company) from January 1999 to
                                                                 August 2000.  Prior thereto he was Managing
                                                                 Director of MMS Petroleum plc (an oil and gas
                                                                 company) to December 1998.
</TABLE>


<PAGE>
                                     - 56 -


<TABLE>
<CAPTION>
     NAME AND MUNICIPALITY
         OF RESIDENCE                   POSITIONS HELD                          PRINCIPAL OCCUPATION
 ------------------------------  ------------------------------  ----------------------------------------------------
<S>                              <C>                             <C>
Dermot Hassett                   Vice-President, Marketing       Dermot Hassett was appointed Vice President,
London, England                  and Transportation              Marketing and Transportation of PetroKazakhstan
                                                                 effective September 2002. For two years prior to
                                                                 his appointment Mr. Hassett was Vice President
                                                                 Marketing and Trading for PetroKazakhstan's
                                                                 operating subsidiaries, PetroKazakhstan Kumkol
                                                                 Resources and PetroKazakhstan Oil Products based
                                                                 in Almaty, Kazakhstan. Prior to joining
                                                                 PetroKazakhstan he was Business Unit Director of
                                                                 Elf Oil UK Limited, Managing Director of Elmgrade
                                                                 Ltd. from August 1990 to August 2000.

Ihor P. Wasylkiw                 Vice-President, Investor        Vice-President, Investor Relations of
Calgary, Alberta                 Relations                       PetroKazakhstan from March 2000 to present.  Prior
                                                                 thereto, he was Director, Investor Relations of
                                                                 PetroKazakhstan from August 1998 to March 2000.

 James B.C. Doak(1)(3)           Director                        President and Managing Partner, Megantic Asset
 Toronto, Ontario                                                Management Inc., Director of PetroKazakhstan from
                                                                 March 2000 to present.

 Jacques Lefevre(1) (2)          Director                        Vice-Chairman of Lafarge S.A. (a construction
 Paris, France                                                   materials company).  Director of PetroKazakhstan
                                                                 from May 2001 to present.

 Louis W. MacEachern(2)(3)       Director                        President, Fortune Industries Ltd. (a business
 Calgary, Alberta                                                management consulting corporation).  Director of
                                                                 PetroKazakhstan from October 1989 to present.

 Nurlan J. Kapparov(2)(3)        Director                        Chairman of the Board of Directors of
 Almaty, Kazakhstan                                              KazInvestBank (private bank in Kazakhstan).
                                                                 Director of PetroKazakhstan from October 2003 to
                                                                 present.

 Jan Bonde Nielsen(1)            Director                        Chairman and Equity Partner in Greenoak Holdings
 London, England                                                 (international investment company). Director of
                                                                 PetroKazakhstan from January 2004 to present.
</TABLE>

Notes:

         (1)      Member of the Audit Committee.

         (2)      Member of the Compensation Committee.

         (3)      Member of the Corporate Governance Committee.

         (4)      The current directors of PetroKazakhstan will hold office
                  until the next annual meeting of holders of Common Shares or
                  until their successor is duly elected or appointed, unless
                  their office is earlier vacated in accordance with
                  PetroKazakhstan's By-Laws.

         As at March 21, 2005, the directors and senior officers of
PetroKazakhstan, as a group, beneficially owned, directly or indirectly,
3,536,397 Common Shares, constituting approximately 4.7% of the issued and
outstanding Common Shares.

<PAGE>
                                     - 57 -

AUDIT COMMITTEE

         The Audit Committee of the Corporation consists of Mr. Doak, Mr.
Lefevre and Mr. Nielsen, each of whom is an independent director that is
financially literate. The text of the Audit Committee Mandate is provided in
Schedule A to this Annual Information Form.


                                    PERSONNEL

         As of December 31, 2004, the Corporation had a total of 3,001
employees, of which 1,283 employees were employed in the Corporation's Upstream
oil and gas operations and 1,097 of which were employed in the Corporation's
Downstream operations.


                          DESCRIPTION OF SHARE CAPITAL

         The authorized share capital of the Corporation consists of an
unlimited number of Common Shares and Class B redeemable preferred shares (the
"PREFERRED SHARES"), all without nominal or par value. There are no Preferred
Shares outstanding. As at March 21, 2005, there were 75,846,355 Common Shares
outstanding.


COMMON SHARES

         The holders of Common Shares are entitled to receive notice of and
attend and vote at all meetings of shareholders except meetings at which only
holders of a specified class of shares, other than the Common Shares, are
entitled to vote. Subject to the rights attaching to the Preferred Shares, the
Common Shares are entitled to such dividends as the Board may determine, from
time to time. Subject to the rights of the holders of the Preferred Shares and
any other class of shares ranking senior to the Common Shares, the holders of
Common Shares are entitled to receive and to participate rateably with respect
to the payment of dividends and the distribution of assets in the event of the
liquidation, dissolution or winding up of PetroKazakhstan (whether voluntary or
involuntary) or any other distribution of the assets of PetroKazakhstan among
its shareholders for the purpose of winding up its affairs.


PREFERRED SHARES

         The Preferred Shares may be issued from time to time in one or more
series and the Board is authorized to fix the number of shares and the
designation, rights, privileges, restrictions and conditions attaching to the
shares of each series of Preferred Shares.

         The Preferred Shares of each series rank, with respect to the payment
of dividends and the distribution of assets in the event of the liquidation,
dissolution or winding up of PetroKazakhstan (whether voluntary or involuntary)
or any other distribution of the assets of PetroKazakhstan among the
shareholders for the purpose of winding up its affairs, on a parity with the
Preferred Shares of every other series and are entitled to preference over the
Common Shares and the shares of any other class ranking junior to the Preferred
Shares.


SHAREHOLDERS' AGREEMENT

         On March 31, 2000, in conjunction with the closing of the PKOP
Acquisition, PetroKazakhstan and CAIH entered into the CAIH Shareholders'
Agreement. The CAIH Shareholders' Agreement governed certain aspects of the
relationship between PetroKazakhstan and CAIH, which was, as a result of the
completion of the PKOP Acquisition, PetroKazakhstan's largest shareholder at the
time. The Corporation understands that, as of November 25, 2004, CAIH and its
affiliates reduced their position to and beneficially

<PAGE>
                                     - 58 -


held 3,546,730 Common Shares, representing 4.7% of the total Common Shares
issued and outstanding at such time. Consequently, the CAIH Shareholders'
Agreement terminated in accordance with the terms thereof.


DIVIDEND POLICY AND RESTRICTIONS

         On June 15, 2001, the Board declared a special dividend of C$4.00 per
share to be paid by the distribution of 12.0% Senior Notes and/or cash. See
"Three Year History-CAIH Offer to Acquire PetroKazakhstan Shares and
Distribution". On February 3, 2003 the Corporation redeemed all $208.2 million
of its outstanding 12.0% Notes. The 12.0% Notes were redeemed for an aggregate
redemption price of $212.4 million, representing 102.0% of the principal amount
of the 12.0% Notes, plus accrued and unpaid interest of $12.5 million, for a
total of $224.9 million.

         In 2003 the Board introduced a regular dividend policy, following
recent trends in its peer group. The first regular quarterly dividend was
declared of C$0.15 per share to shareholders of record on April 16, 2004, which
was paid on May 3, 2004. The Board approved an increase in its quarterly
dividend on its common shares to C$0.20 per share per quarter for 2005 versus
C$0.15 per share per quarter in 2004. The C$0.20 per share dividend was paid on
February 3, 2005 to shareholders of record on January 14, 2005. The
Corporation's dividend policy will continue to be reviewed and there can be no
assurance that further dividends will be declared. The declaration and payment
of dividends will be at the discretion of the Board, which will consider
earnings, capital requirements and the financial condition of the Corporation,
satisfaction of the applicable solvency test under the ABCA, and any other
relevant factors.


                      INFORMATION INCORPORATED BY REFERENCE

         Reference is made to the information under the heading "Management's
Discussion and Analysis" contained on pages 33 through 66 of PetroKazakhstan's
Annual Report for the year ended December 31, 2004, which information is
incorporated herein by reference.

<PAGE>
                                     - 59 -


                         SELECTED FINANCIAL INFORMATION


SUMMARY OF OPERATING RESULTS

         The following table sets forth selected consolidated financial
information of the Corporation for the three years ended December 31, 2004.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
                                                              ------------------------------------------------------
                                                                  2004              2003                 2002
                                                              --------------    --------------     -----------------
                                                                         ($m, except per share amounts)
<S>                                                             <C>               <C>                  <C>
Total revenue........................................           1,642,427         1,117,324             825,350
Net income for year..................................             500,668           316,940             161,397
Basic income per share(1)............................               6.40              4.06                2.00
Diluted income per share.............................               6.28              3.90                1.92

Total assets.........................................           1,269,081         1,041,451             709,723
Net Debt.............................................             (48,702)          135,220             233,308
Cash dividends.......................................              26,665               -                  -
</TABLE>

Note:

         (1)      Calculated using weighted average number of Common Shares
                  outstanding.

QUARTERLY INFORMATION

         The following table sets forth selected consolidated financial
information of the Corporation for each financial quarter of the Corporation
during the years ended December 31, 2004 and December 31, 2003.

<TABLE>
<CAPTION>
                                                                        THREE MONTHS ENDED
                                         ---------------------------------------------------------------------------
                                           MAR. 31/04        JUNE 30/04          SEPT. 30/04         DEC. 31/04
                                         ---------------    ---------------    ----------------     ----------------
                                                             ($ thousands, except per share amounts)
<S>                                      <C>                <C>                 <C>                 <C>
Total revenue......................         320,193            398,501             518,602              405,131
Net income.........................          87,485            122,028             176,218              114,937
  Per share
    - basic........................           1.11               1.54               2.30                 1.51
    - diluted......................           1.08               1.51               2.27                 1.49
Total assets                               1,112,287          1,227,915           1,242,628            1,269,081

<CAPTION>
                                                                        THREE MONTHS ENDED
                                         ---------------------------------------------------------------------------
                                           MAR. 31/03         JUNE 30/03         SEPT. 30/03          DEC. 31/03
                                         ---------------    ---------------    ----------------     ----------------
                                                             ($ thousands, except per share amounts)
<S>                                      <C>                <C>                 <C>                  <C>
Total revenue......................         248,923            254,601             303,152              310,648
Net income.........................          68,552             68,430              91,150               88,808
  Per share
    - basic........................           0.87               0.88                1.17                 1.14
    - diluted......................           0.83               0.84                1.12                 1.09
Total assets                                903,516            933,030            1,024,462            1,041,451
</TABLE>

<PAGE>
                                     - 60 -


                                LEGAL PROCEEDINGS


CCAA PROCEEDINGS

         As a result of the Corporation's financial difficulties in 1998 and the
second half of 1999, PetroKazakhstan and PKOSI obtained an order from the Court
on May 14, 1999 pursuant to the provisions of the CCAA. Under this order,
PetroKazakhstan and PKOSI obtained protection from their creditors. On February
28, 2000, the Court issued an order approving the CCAA Plan and, on March 31,
2000, the CCAA Plan was implemented. Under the terms of the initial order issued
on May 14, 1999, and during its term thereof, all legal proceedings against
PetroKazakhstan and/or PKOSI and their respective subsidiaries were stayed and
suspended by the Court. After the issuance of such initial order, all creditors
of PetroKazakhstan and/or PKOSI were required to file notices pertaining to any
claims that they had against PetroKazakhstan and/or PKOSI. PetroKazakhstan and
PKOSI accepted a number of these claims. However, PetroKazakhstan and PKOSI are
also currently disputing a number of these claims. These disputed claims are at
various stages of the litigation process under PetroKazakhstan's and PKOSI's
CCAA Proceedings. These disputed claims will continue to be litigated under the
procedure provided for in the CCAA Plan. Under the CCAA Plan, if any such claim
is settled or determined by judgment of a court on or before March 31, 2005, the
Corporation will pay the principal amount of the settled or judgment amount of
that claim, in accordance with the CCAA Plan. Any claim that has not been
settled and has not been the subject of a judgment by a court of competent
jurisdiction on or before March 31, 2005, will be deemed, pursuant to the CCAA
Plan, to be forever discharged and released.

         One claim has been settled, the remaining claims are not material when
considered individually or in total.

         The claim that has been settled was made by Marsa AG, a Liechtenstein
registered corporation, which filed a claim against PetroKazakhstan in the CCAA
Proceedings claiming breach of an alleged consulting contract entered into
between Marsa AG and PetroKazakhstan Kumkol Limited, one of PetroKazakhstan's
indirect wholly-owned subsidiaries. Pursuant to an arbitration award on April
15, 2002, PetroKazakhstan and PetroKazakhstan Kumkol Limited were ordered
jointly and severally to pay Marsa the amount of $5,070,000 as fees due under
the consulting contract together with interest calculated (but not compounded)
from May 14, 1999 at the rates of 4.0% per annum until December 31, 1999; 6.3%
per annum from January 1, 2000 until March 31, 2000; and thereafter 16.0% per
annum attaching to all unpaid portions of the principal amount until full
payment thereof, pursuant to the Fourth Amended and Restated Plan of Compromise
and Arrangement of February 28, 2000.

         ARNM CLAIMS

         The ARNM claimed $34.1 million ($31.0 million at December 31, 2003)
from a group company for allegedly violating Kazakhstan's competition law. The
group company initiated legal proceedings and the court of first instance
dismissed the ARNM claim. The ARNM appealed this decision; the appellate court
upheld the decision of the lower court. The ARNM has filed a motion to re-open
the court case on the basis of new information.

         The ARNM claimed approximately $96.4 million ($91.4 million at December
31, 2003) from group companies for allegedly violating Kazakhstan's competition
law. The group companies initiated legal action, and at the Astana City Court
were unsuccessful in their challenge of allegations by the ARNM that these
companies had violated Kazakhstan competition laws. The initial trial court
judgment upheld the ARNM determination that these group companies had received
unjustified revenues totalling approximately $96.4 million.

<PAGE>
                                     - 61 -


         The group companies appealed this judgment to the Supreme Court. The
initial Supreme Court hearing on the matter was held in the second quarter of
2004 and the Court suspended the case and instructed the parties to seek an
agreed settlement. During the period from April to May 13, 2004 the parties did
engage in discussions aimed at a settlement, but were unable to resolve the
matter through negotiations.

         On May 13, 2004, after a hearing on the merits, the Supreme Court
overturned the lower court decision which was in favour of the ARNM and sent the
case back to the Astana City Court for a new trial. During the third quarter of
2004, the General Prosecutor's office filed a protest regarding the May 13
decision of the Supreme Court with the Supreme Court Supervisory Panel. On
August 25, 2004, the Supervisory Panel issued an opinion upholding the May 13
decision and returned the case to the Astana City Court. In September 2004, the
Astana City Court issued a ruling suspending further consideration of the merits
of the case pending the completion of parallel investigations being conducted by
the "Agency of the Republic of Kazakhstan for Fight Against Economic and
Corruption Criminality". This suspension was removed in late 2004 and the case
is currently being reviewed by economic and financial experts under order of the
Court. It is currently expected that the economic and financial expertise will
be concluded during the spring of 2005 and that the case will, at that point, be
subject to further review and decision by the Astana City Court. No provision
has been made in the consolidated financial statements for these assessments.

         It remains the Corporation's view that the allegations levelled against
the group companies are without justification. A highly competitive market
exists for oil products within Kazakhstan and the current level of prices
reflects current world crude oil prices. Also, the prices charged by the group
companies are competitive with Russian imports and with those charged by
distributors of the other two refineries in Kazakhstan.

         The Corporation is considering its recourse rights under the terms of
the Shymkent refinery Privatisation Agreement, which clearly stipulates the
right to sell any and all its products in Kazakhstan and abroad at free market
prices.

         The Corporation will continue to seek a dialogue with the appropriate
authorities to address the concerns related to the pricing of refined products
and possible measures to be taken to further promote transparency and effective
monitoring of the dynamics of competition, consistent with market economy
principles.


OTHER LEGAL PROCEEDINGS

         PetroKazakhstan and/or its various subsidiaries have been named in a
number of legal actions and claims in Canada, Kazakhstan and elsewhere which the
Corporation believes are in the ordinary course of business. While it is not
possible to estimate with certainty the ultimate legal and financial liability
with respect to these proceedings, the Corporation believes that the ultimate
liability, if any, arising from such actions or complaints will not have a
material adverse effect on the Corporation's financial condition or its results
of operations.

         For a further discussion on other legal proceedings see note 18 to the
Corporation's Consolidated Financial Statements for the year ended December 31,
2004.

<PAGE>
                                     - 62 -


                      ENVIRONMENTAL REGULATION AND MATTERS

         Extensive national, provincial, regional and local environmental laws
and regulations in the jurisdictions in which the Corporation operates affect
nearly all of its operations. These laws and regulations set various standards
regulating certain aspects of health and environmental quality, provide for
penalties and other liabilities for the violation of these standards and
establish, in certain circumstances, obligations to remediate current and former
facilities and off-site locations. At the end of 1998, the Kazakhstan government
changed its internal environmental regulatory structure by eliminating and
combining certain ministries. The Corporation believes that, as a result of
these changes, the environmental laws and regulations in Kazakhstan will become
increasingly protective of the environment. As well, as new environmental laws
and legislation are enacted and the old laws are repealed, interpretation,
application and enforcement of the laws may become inconsistent. Compliance with
existing or more stringent laws or regulations or more vigorous enforcement
policies of any regulatory agency could in the future require material
expenditures by the Corporation for the installation and operations of systems
and equipment for remedial measures, any or all of which could have a material
adverse effect on the Corporation. The Corporation can provide no assurances
that it will not, or will not be required to, incur substantial or material
financial obligations in connection with environmental compliance.


OIL AND GAS OPERATIONS

         The Corporation's oil and gas operations in Kazakhstan are subject to
periodic inspection by government environmental protection agencies. These
inspections have resulted, from time to time, in the receipt of formal
communications from these authorities detailing the Corporation's non-compliance
with specified environmental regulations and requiring corrective actions on its
part. In many cases, these communications advise that, in the event the
Corporation does not take appropriate remedial action within a required period
of time, the Corporation will be subject to a number of penalties including
fines and the closing of various of the Corporation's facilities. The
Corporation takes all reasonable steps that it can to work with these regulatory
authorities and to correct any non-compliance matters raised by these
communications. However, the Corporation, from time to time, has not been able
to take appropriate action within the time periods required by the regulatory
authorities. To date, the applicable regulatory authorities have not taken any
material action against the Corporation with respect to such matters. The
Corporation cannot provide any assurances that material action will not be taken
against the Corporation with respect to these issues or that the Corporation
will not be required to incur substantially more expenses than it currently
expects in connection with its environmental action plans.

         The Corporation incurs recurring costs associated with managing
pollution in its ongoing operations. It pays environmental user fees based on
the volume of pollutants it generates, including the pollutants cited as
violations by the Kyzylorda Environmental Department. In general, environmental
user fees are not material for emissions for which the Corporation possesses
emissions permits. The Corporation believes that, in the long term, with the
continued operation of the Kumkol electrical power plant utilizing the majority
of its associated gas, and as improvements are made in waste management and
pollution prevention practices, the volume of pollutants the Corporation
generates will decrease. However, the amount of environmental user fees may not
significantly decrease because reductions in volumes of pollutants that are
generated may be offset by yearly increases in legislated environmental user
fees. All material environmental permits required for the Corporation's oil and
gas production operations in Kazakhstan are currently in place.

         The Corporation also pays fines for non-permitted discharge of wastes
for which the Corporation does not have permits. Fines are levied at up to 40
times the normal environmental user fee. Failure to

<PAGE>
                                     - 63 -


show progress in any of the items in the Corporation's environmental action
plans could result in the cancellation or non-renewal of any environmental user
permits that the Corporation currently holds or the increase in fines the
Corporation incurs for pollution of the environment of up to 20 to 40 times the
amounts of the normal environmental user fees. The usual practice of Kazakhstan
environmental authorities in response to violations of applicable environmental
protection laws and regulations appears to be the imposition of increasing fines
and penalties. The Corporation's licenses and hydrocarbon contracts, however,
provide that significant and continuing breaches of the terms of the same, which
include the requirement for compliance with applicable environmental protection
laws, could result in the suspension or termination of its licenses and
hydrocarbon contracts.

         In accordance with Kazakhstan legislation, produced gas must either be
used to produce energy or be re-injected. The Corporation is flaring
approximately 50.0% of its gas from its fields. In September of 2000, PKKR
entered into an agreement with the Kyzylorda Oblast, Kazgermunai, a number of
Kazakhstan 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, the Corporation concluded discussions with
Kazakhstan government authorities to arrive at a solution for the utilization of
associated gas pursuant to this agreement. As a result of these discussions,
PKKR installed a 55-megawatt electrical power plant in the Kumkol field to use
associated gas from the Kumkol South, South Kumkol and Kumkol North fields. The
plant provides stable electrical power for field operations and sells excess
electricity into the domestic area. The plant was completed and fully
commissioned in the third quarter of 2003. In addition, as a joint venture
partner in the Akshabulak field, the Corporation is participating in a project
to provide natural gas to the Kyzylorda region. The Kumkol field's EOR project,
which is currently in progress, has the potential to utilize excess produced
gas.

         When the Corporation begins exploration activities in a new field, at
certain stages in the development of the field and every five years during the
operation of the field, the Corporation must perform environmental impact
assessments. The Corporation must also develop, every five years, the
documentation for maximum allowable emissions to the atmosphere. The annual cost
incurred in connection with these assessments varies from year to year,
depending upon its exploration and development activities in that year.

         The Corporation is not currently subject to significant expenditures in
connection with the remediation of contaminated sites. The PKKR Share-Sale
Purchase Agreement, as well as Kazakhstan's privatisation law, allocates
financial responsibility for environmental damage, which occurred prior to the
date the Corporation acquired PKKR, to the Kazakhstan government. The
Corporation, therefore, is responsible only for environmental damage, which has
occurred in connection with its operations since December 1996. In 1997, the
Corporation hired Golder Associates, Ltd. to perform a baseline study of
environmental damages of the properties acquired in the PKKR Acquisition. The
Kazakhstan government has reviewed the results of the phase one environmental
site assessment and has requested additional clarification. The Corporation is
currently working with local environmental consultants Ecotera LLP to finalize
the results of the baseline study and perform the ecological monitoring
stipulated by Order 340-P of the Ministry of Natural Resources and Environmental
Protection of the Republic of Kazakhstan. The Corporation has currently
identified some environmental damage that occurred before the PKKR Acquisition.
The Corporation believes that the Kazakhstan government will be responsible for
those damages as provided for in the PKKR Share Sale-Purchase Agreement and the
Kazakhstan privatisation laws. In 2003 CaspianEcology LLP developed an
environmental project named after "Land Reclamation" covering 4.2 hectare of
territory around well head #2079. This project has been supported by PKKR, which
has given $1,532,000 to the project.

         To date, there have been no significant releases of contaminants under
the Corporation's operation of the Kazakhstan oil fields. The Corporation could
incur significant liability for damages, clean-up costs

<PAGE>
                                     - 64 -


and/or penalties in the event of certain discharges into the environment or
environmental damage caused by non-compliance with environmental laws or
regulations which occurred after the Corporation acquired PKKR. Any
environmental liability with respect to the Corporation's production activities
could materially adversely affect the Corporation's financial condition and
results of operations.


DOWNSTREAM OPERATIONS

         Similar to the Corporation's Upstream oil and gas operations, the
Corporation pays environmental user fees for its Downstream operations based on
the volumes of pollutants it generates. The fees are generally not material for
emissions for which the Corporation possesses emissions permits. However, fines
can be multiplied by as high as 40 times the normal environmental user fee for
those emissions for which it does not have permits. The Corporation believes
that all material permits required for the operations of the Shymkent refinery
are in place.

         Kazakhstan regulations specify that a refinery should be built with a
minimum protection zone of one kilometre from human habitation. The Shymkent
refinery is located in the city of Shymkent's industrial zone five kilometres
southeast of the residential district.

         The crude and light oil product tanks at the Shymkent refinery are
equipped with pontoons and floating roofs that reduce hydrocarbon emissions more
effectively than fixed roof reservoirs. The system of oil traps and separation
ponds with skimmers are designed to prevent the leakage of harmful substances
and permit re-refining of recovered oil. The system returns treated water to the
environment with concentrations of pollutants within the requirements of
applicable laws. Other facilities utilized in the refinery include tank farms,
cooling towers, rail discharge and load facilities and flare stacks, which
generally comply with modern environmental requirements.

         The treated water discharged from the Shymkent refinery is sufficiently
clean to discharge, but it is not potable, nor is it recommended for
agricultural use. The Shymkent refinery has a permit to pump the treated water
by pipeline into a settlement pond located 96 kilometres northwest of the
refinery at a site called Akdala. The refinery complies with the discharge
requirements for this settlement pond.

         The Corporation believes that there are not any significant
environmental liabilities in connection with the operations of the Shymkent
refinery prior to the PKOP privatisation. Although the Corporation can provide
no assurances that a hidden environmental problem may not be found in the
future, Kazakhstan's privatisation law allocates financial responsibility for
environmental damage, that occurred prior to the PKOP privatisation to the
Kazakhstan government. However, no baseline with respect to environmental
damages that occurred prior to the privatisation of PKOP has been established. A
significant portion of the Corporation's investment budget for the Shymkent
refinery is dedicated to environmental and safety operations.

         The Corporation believes that, to date, there has been no significant
amount of contaminants released from the operation of any of PKOP's assets since
its privatisation, including at the Shymkent refinery. However, in the event
that discharges into the environment or environmental damage caused by
non-compliance with environmental laws or regulations occurred after the
completion of the PKOP privatisation or after the completion of the PKOP
Acquisition, the Corporation could incur significant liability for damages,
clean-up costs and/or penalties as a result. Any environmental liability could
have a material adverse effect on the Corporation. To date, the Corporation has
not established any provisions for potential environmental liabilities for its
Downstream operations.

<PAGE>
                                     - 65 -


                                  RISK FACTORS

PetroKazakhstan is exposed to a number of risks that are inherent in the nature
of its business activities. This section describes these risks and other matters
that would be most likely to materially influence a reasonable investor's
decision to purchase securities of the Corporation.

RISK FACTORS RELATING TO PETROKAZAKHSTAN'S BUSINESS

       PETROKAZAKHSTAN'S FAILURE TO SATISFY ITS COMMITMENTS MADE UNDER ITS
           LICENSES, HYDROCARBON CONTRACTS AND DEVELOPMENT PLANS MAY
                         ADVERSELY AFFECT ITS BUSINESS.

         PetroKazakhstan has committed to the government of Kazakhstan to make
various capital investments and to develop the Corporation's oil fields in
accordance with specific requirements under exploration and production licenses,
hydrocarbon contracts and field development plans. In some cases, the
requirements under these licenses, hydrocarbon contracts and field development
plans are inconsistent. In addition, the Corporation has not satisfied some of
these commitments in the past and may not satisfy some of these commitments in
the future. If the Corporation fails to satisfy its commitments with respect to
a specific field, its license or hydrocarbon contract, as applicable, for that
field may be cancelled. The cancellation of any of its licenses or hydrocarbon
contracts could have a material adverse effect on the business, results of
operations and financial condition of PetroKazakhstan. Although PetroKazakhstan
intends to seek waivers of any breaches or to renegotiate the terms of these
commitments, it cannot give assurance that it will be successful in doing so.

         The Corporation has also assumed the rights and obligations under the
PKOP privatization agreement, whereby the Government of Kazakhstan privatized
PKOP. Under this agreement, the Corporation was required to invest, or cause
PKOP to invest, the Tenge equivalent of $150.0 million in capital expenditures
or investments by December 31, 2001. The Corporation believes it has met this
commitment. However, the Government of Kazakhstan asserts that the Corporation
has satisfied only $116.0 million of this commitment and is claiming the
remaining $34 million dollar capital expenditure obligation has not been
satisfied. If it is established that the Corporation has not satisfied the
remaining obligation, the Corporation may be required, under the terms of the
agreement, to pay a penalty of 15.0% or $5.1 million.


           PETROKAZAKHSTAN COULD INCUR SIGNIFICANT LIABILITY OR SUFFER
               MATERIAL ADVERSE EFFECTS UNDER ENVIRONMENTAL LAWS.

         Extensive national, regional and local environmental laws and
regulations affect nearly all of the Corporation's operations. These laws and
regulations set various standards regulating certain aspects of health and
environmental quality, provide for user fees, penalties and other liabilities
for the violation of those standards and establish in some circumstances
obligations to remediate current and former facilities and off-site locations.
See "Environmental Regulation and Matters".

         The Corporation could incur significant liability for discharges into
the environment or environmental damage caused by non-compliance with
environmental laws or regulations. That liability could have a material adverse
effect on the results of the Corporation's operations. Moreover, PetroKazakhstan
cannot predict what environmental legislation or regulations will be enacted in
the future or how existing or future laws or regulations will be administered or
enforced. In the future, compliance with more stringent laws or regulations, or
more vigorous enforcement policies of any regulatory agency, could require
material expenditures by the Corporation for the installation and operations of
systems and equipment for remedial measures, any or all of which could have a
material adverse effect on the results of the Corporation's operations.

<PAGE>
                                     - 66 -


              LOSSES, DAMAGES AND LIABILITY RELATING TO PROPERTIES
                        NOT FULLY COVERED BY INSURANCE.

         PetroKazakhstan currently maintains insurance against losses from
business interruption for PKKR and damages or liability for accidents with
respect to PKKR's and PKOP's properties. However, the insurance coverage amount
may be insufficient to fully cover all losses, damages or liabilities relating
to PKKR's and PKOP's properties. In addition, as policies come up for renewal,
PetroKazakhstan will need to evaluate, based on pricing and other terms, which
coverages it is willing to renew. Desired coverage for business interruption,
for example, may not be available on satisfactory terms. The occurrence of
significant events against which PetroKazakhstan is not fully insured, or of a
number of lesser events against which PetroKazakhstan is fully insured but
subject to substantial deductibles, could materially and adversely affect the
Corporation's business, financial condition and results of operations.


     PETROKAZAKHSTAN CONDUCTS SOME OF ITS OPERATIONS THROUGH JOINT VENTURES.

         PetroKazakhstan currently has a 50% interest in two joint ventures,
Kazgermunai, the operator of the Akshabulak, Nurali and Aksai Fields, and Turgai
Petroleum, the operator of Kumkol North, and may in the future enter into
further joint ventures in connection with its business. PetroKazakhstan cannot
fully control the operations and the assets of its current joint ventures, nor
can it make major decisions with respect to the joint ventures unless its joint
venture partners agree. Accordingly, although PetroKazakhstan has the ability to
veto decisions with respect to PetroKazakhstan's joint ventures, PetroKazakhstan
has no ability to make unilateral decisions. This structure may constrain the
ability of PetroKazakhstan's joint ventures to take action.


             A SUBSTANTIAL PORTION OF THE CORPORATION'S CRUDE OIL IS
                  PROCESSED THROUGH A SINGLE PROCESSING UNIT.

         Approximately 60% of the crude oil from the Corporation's producing
properties is processed through a central processing facility. Accordingly, any
significant operational problems with the central processing facility may
prevent PetroKazakhstan from processing its production in an efficient manner
which may have a material adverse effect on the Corporation's financial
condition and results of operations.


                PETROKAZAKHSTAN DEPENDS ON THE SHYMKENT REFINERY
                      FOR ALL OF ITS REFINING ACTIVITIES.

         All of the Corporation's refining activities are conducted at the
Shymkent refinery. Refining operations are subject to inherent risks including
fires, floods, accidents and explosions. As a result, the refining operations
could experience significant interruption if the refinery or the distribution
systems that it utilizes experienced a fire, flood, major accident, shutdown or
equipment failure, or if it were damaged by severe weather or other natural
disaster. Any of these events that limit or prevent operation at the Shymkent
refinery may have a material adverse effect on the Corporation's financial
conditions and results of operations.


        PETROKAZAKHSTAN'S SALES OF REFINED PRODUCTS ARE HIGHLY DEPENDENT
               ON CONDITIONS IN THE KAZAKHSTANI DOMESTIC MARKET.

         PKOP sells between 70.0% and 80.0% of its products in the Kazakhstani
domestic market, a substantial portion of which is sold in the southern and
eastern regions of Kazakhstan. Accordingly, any adverse change in the economic
or social conditions in the southern and eastern regions of Kazakhstan could
affect demand for PKOP's products in these regions which may have a material
adverse effect on PetroKazakhstan's financial condition and results of
operations.


    PETROKAZAKHSTAN RELIES UPON CRUDE OIL AND REFINED PRODUCT TRANSPORTATION
                       SYSTEMS OPERATED BY THIRD PARTIES.

         Crude oil production and refined products must be transported through
pipelines or by rail. These pipelines and railways are operated by third
parties, and PetroKazakhstan cannot give assurance that these

<PAGE>
                                     - 67 -


transportation systems will always be functioning or available, or that the
transportation costs will remain at acceptable levels. Any increase in the cost
of pipeline transportation or reduction in its availability to the Corporation
could have a material adverse effect on the results of operations. Further, the
Shymkent refinery depends on railways to distribute refined products for sale
within Kazakhstan, and PetroKazakhstan relies on railways to export crude oil.
PetroKazakhstan has in the past experienced difficulties in receiving the
necessary allocation of rail cars from the national rail transportation company,
Kazakhstan Temir Zholy, and as a result has had to purchase or lease rail cars
or rely on rail cars provided by traders. PetroKazakhstan currently has almost
5,000 rail cars under its control through a combination of ownership and long
and short-term leases, however PetroKazakhstan cannot give assurances that the
Corporation will be able to procure sufficient rail capacity on economical
terms, if at all.


           PETROKAZAKHSTAN OPERATES IN A HIGHLY COMPETITIVE INDUSTRY.

         The oil and gas industry is highly competitive. PetroKazakhstan
competes with numerous other participants in the acquisition of oil and gas
exploration licenses and properties and in the marketing of oil in Kazakhstan
and other markets. Competitors include oil companies which have greater
financial resources in Kazakhstan, staff and facilities than PetroKazakhstan.
PetroKazakhstan's ability to increase reserves in the future will depend not
only on its ability to develop existing properties, but also on its ability to
select and acquire suitable producing properties or prospects for exploratory
drilling. Competitive factors in the distribution and marketing of oil include
price, methods and reliability of delivery and availability of imported
products.

         PetroKazakhstan's Shymkent refinery primarily competes with the two
other refineries in Kazakhstan, the Pavlodar refinery and the Atyrau refinery.
The principal competitive factors that affect the refining operations are the
quality, quantity and delivered costs of crude oil and other refinery
feedstocks, refinery processing efficiency, mix of refined products, refined
product prices and the cost of delivering refined products to markets.
Competition also exists between the petroleum refining industry and other
industries supplying energy and fuel to industrial, commercial and individual
consumers.

         Historically, Kazakhstan has been a net importer of refined products.
Fluctuations in the demand within the Kazakhstani domestic market and the
surrounding regional markets and changes in world oil prices and transportation
costs may significantly increase imported products into Kazakhstan from
countries of the FSU and the Baltic region. This increased competition could
adversely affect PetroKazakhstan's financial condition and results of
operations.


              PETROKAZAKHSTAN MAY NOT BE ABLE TO EFFECTIVELY MANAGE
                           ITS GROWTH AND EXPANSION.

         PetroKazakhstan has experienced rapid growth and development in a
relatively short period of time and expects to continue to grow as production
increases from its oil and gas reserves. PetroKazakhstan's management of that
growth will require, among other things, stringent control of financial systems
and operations, the continued development of management controls and the
training of new personnel. Failure to continue to manage the Corporation's rapid
growth and development successfully could have a material adverse effect on the
Corporation's financial condition and results of operations.


   PETROKAZAKHSTAN MAY BE UNABLE TO RAISE ADDITIONAL FINANCING WHEN NECESSARY,
   WHICH WOULD ADVERSELY AFFECT ITS ABILITY TO PURSUE ITS BUSINESS STRATEGY.

         In order to satisfy future capital investment commitments and liquidity
needs with respect to PKKR and PKOP and their ongoing operations,
PetroKazakhstan may require additional equity or debt financing.

         The Corporation's ability to arrange financing and the cost of
financing depends upon many factors, including:
<PAGE>
                                     - 68 -


         (a)      economic and capital markets conditions generally, and in
                  particular the non-investment grade debt market;

         (b)      investor confidence in the oil and gas industry, in Kazakhstan
                  and in PetroKazakhstan;

         (c)      regulatory developments;

         (d)      credit availability from banks and other lenders; and

         (e)      provisions of tax and securities laws that are conducive to
                  raising capital.

         The terms and conditions on which future funding or financing may be
made available may not be acceptable or funding or financing may not be
available at all. If PetroKazakhstan decided to raise additional funds by
incurring debt, PetroKazakhstan may become more leveraged and subject to
additional or more restrictive financial covenants and ratios. PetroKazakhstan's
inability to procure sufficient financing for these purposes could adversely
affect PetroKazakhstan's ability to implement its business strategy.


       THE LOSS OF PETROKAZAKHSTAN'S CHIEF EXECUTIVE OFFICER OR OTHER KEY
                 PERSONNEL COULD ADVERSELY AFFECT ITS BUSINESS.

         The Corporation depends to a large extent on the efforts and continued
employment of Bernard F. Isautier, the Corporation's chief executive officer,
president and chairman, and other key personnel. The loss of the services of Mr.
Isautier or other key personnel could adversely affect the Corporation's
business, and the Corporation does not maintain key man insurance on the lives
of any of these persons.


                THE LIQUIDITY OF THE COMMON SHARES IS UNCERTAIN.

         The share price of publicly traded companies operating in emerging
markets can be highly volatile. The price at which the Common Shares will be
traded and the price at which investors may realize their investments will be
influenced by a large number of factors, some specific to PetroKazakhstan and
its operations and some which affect oil and gas companies or listed companies
generally. The market perception of oil and gas companies may change, which
could have an impact on the value of investors' holdings and have an impact on
the ability of PetroKazakhstan to raise funds by the issue of further Common
Shares or other securities. Prospective investors should be aware that the price
of the Common Shares can go down as well as up.


           PETROKAZAKHSTAN IS CURRENTLY SUBJECT TO LEGAL PROCEEDINGS.

         The Corporation is involved in numerous legal proceedings some of which
could individually or in aggregate have a material adverse effect on the
business or affairs of the Corporation. See "Legal Proceedings".


RISK FACTORS RELATING TO PETROKAZAKHSTAN'S OPERATIONS IN KAZAKHSTAN


           ADVERSE ECONOMIC DEVELOPMENTS IN KAZAKHSTAN MAY MATERIALLY
                       AFFECT PETROKAZAKHSTAN'S BUSINESS.

         Since its independence from the Soviet Union in December 1991,
Kazakhstan has been undergoing a rapid and uneven transition to a
market-oriented economy and in prior years experienced high inflation and rapid
currency devaluation. In addition, instability in other countries, such as
Russia, has affected in the past, and may materially affect in the future,
economic conditions in Kazakhstan. PetroKazakhstan cannot give assurance that
the economic policies of the Government of Kazakhstan will be successful in
improving economic conditions or that the transition to a market-oriented
economy will be accomplished. Adverse

<PAGE>
                                     - 69 -


economic conditions in Kazakhstan could have a material adverse effect on the
Corporation's financial condition and results of operations.


             CHANGES IN THE POLITICAL ENVIRONMENT IN KAZAKHSTAN MAY
                  ADVERSELY AFFECT PETROKAZAKHSTAN'S BUSINESS.

         Kazakhstan is a former constituent republic of the Soviet Union. In
1991, it declared its independence from the Soviet Union. At the time of its
independence, it became a member of the Commonwealth of Independent States.
Because Kazakhstan has little history of political stability as an independent
nation, there is significant potential for social, political, economic, legal
and fiscal instability. These risks include, among other things:

         (a)      local currency devaluation;

         (b)      civil disturbances or terrorism;

         (c)      exchange controls or availability of hard currency;

         (d)      changes in crude oil, export and transportation regulations;

         (e)      changes with respect to taxes, royalty rates, import and
                  export tariffs, and withholding taxes on distributions to
                  foreign investors;

         (f)      changes in antimonopoly legislation;

         (g)      nationalization or expropriation of property; and

         (h)      interruption or blockage of oil exports.

Any of these factors could have an impact on the Corporation's operations, which
could have a material adverse effect on the Corporation's financial conditions
and the results of operations.


       CHANGES IN KAZAKHSTANI LAWS AND REGULATIONS AND THE INTERPRETATION OF
THOSE LAWS AND REGULATIONS MAY ADVERSELY AFFECT PETROKAZAKHSTAN'S BUSINESS.

         PKKR and PKOP were privatized under Kazakhstan's privatization, foreign
investment and oil and gas laws, which are intended, among other things, to
provide legislative protection against the following:

         (a)      expropriation without proper compensation for losses incurred;

         (b)      retroactive application of new laws; and

         (c)      imposition of environmental liabilities resulting from
                  pre-existing conditions and activities prior to acquisition.

         Although these protections are consistent with Kazakhstan's expressed
intention of attracting foreign investment, given Kazakhstan's short
legislative, judicial and administrative history, PetroKazakhstan cannot predict
how the legislative protections will be applied, if applicable, to PKKR and
PKOP, the possibility of any future changes in the political environment in
Kazakhstan having an impact on Kazakhstani laws and regulations or their
interpretation or the effect of such changes on PetroKazakhstan's business,
results of operations and financial condition.

<PAGE>
                                     - 70 -


         Kazakhstan's foreign investment, petroleum, subsoil use, licensing,
corporate, tax, customs, currency, banking and antimonopoly laws and legislation
are still developing and uncertain. From time to time, including the present,
draft laws on these subjects are prepared by government ministries and some have
been submitted to Parliament for approval. Legislation in respect of some or all
of these areas could be passed. Currently, the regulatory system contains many
inconsistencies and contradictions. Many of the laws are structured to provide
substantial administrative discretion in their application and enforcement. In
addition, the laws are subject to changing and different interpretations. These
factors mean that even PetroKazakhstan's best efforts to comply with applicable
law may not always result in compliance. Non-compliance may have consequences
disproportionate to the violation.

         The Corporation's exploration and production licenses and hydrocarbon
contracts and other agreements may be susceptible to revision or cancellation,
and legal redress may be uncertain, delayed or unavailable. In addition, it is
often difficult to determine from governmental records whether statutory and
corporate actions have been properly completed by the parties or applicable
regulatory agencies. In some cases, failure to follow the actions may call into
question the validity of the entity or the action taken. Examples include
corporate registration or amendments, capital contributions, transfers of assets
or issuances or transfers of capital stock. Ensuring the Corporation's ongoing
rights to licenses and hydrocarbon contracts will require a careful monitoring
of performance of the terms of the licenses and hydrocarbon contracts, and
monitoring the evolution under Kazakhstani laws and licensing practices.

         The uncertainties, inconsistencies and contradictions in Kazakhstani
laws and regulations and their interpretation and application could have a
material adverse effect on PetroKazakhstan's business and results of operations.


                  CHANGES IN THE POLICIES OF THE GOVERNMENT OF
          KAZAKHSTAN MAY ADVERSELY AFFECT PETROKAZAKHSTAN'S BUSINESS.

         Governmental policies may affect PetroKazakhstan's ability to market
crude oil and refined products. For instance, the ARNM can impose pricing
restrictions on the Corporation's sales as a result of the Corporation's leading
market position in the Kazakhstani domestic refined product market and the
governmental recognition of PKOP as an entity with a dominant position.
Accordingly, PKOP is required to obtain the approval of the Government of
Kazakhstan with respect to any refined product price increases. In addition, in
the past, the Government of Kazakhstan has required the Corporation to write-off
certain receivables, particularly for customers in the agricultural sector.
PetroKazakhstan cannot give assurance that the Government of Kazakhstan will not
recommend or require the Corporation to make similar write-offs for the benefit
of third parties in the future. Any further strengthening of antimonopoly
requirements and actions taken by the Government of Kazakhstan as a result of
the Corporation's dominant position may adversely affect the Corporation's
financial condition and results of operations.


                 CHANGES IN PETROKAZAKHSTAN'S EXPORT QUOTAS MAY
                  ADVERSELY AFFECT PETROKAZAKHSTAN'S BUSINESS.

         Since late 1999, the Government of Kazakhstan has regulated the export
of crude oil and the supply of the domestic market by setting policies on a
monthly basis limiting the amount of exports of oil by producer and by export
route. Until recently, the regulatory process, although cumbersome, was
administered in the framework of an annual plan mutually agreed to and did not
result in actual restrictions. However, following personnel changes at the
Kazakhstani Ministry of Energy, this process had lost its consensual character,
resulting in export quotas being set for the Corporation's operations that did
not allow it to fully exploit the Corporation's production capacity. This, in
turn, forced PetroKazakhstan to reduce the Corporation's production of crude oil
and resulted in lost sales. Although production did return to expected levels
following these periods, there is no assurance that future limitations, which
may impact PetroKazakhstan's ability to capitalize on export opportunities, will
not be imposed. Any future changes in the

<PAGE>
                                     - 71 -


oil and gas policies by the government of Kazakhstan could adversely affect the
Corporation's financial condition and results of operations.


           FLUCTUATIONS IN THE KAZAKHSTANI TENGE MAY ADVERSELY AFFECT
        PETROKAZAKHSTAN'S FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

         To the extent that PetroKazakhstan holds Tenge positions, there is a
risk from foreign exchange fluctuations. Between its introduction in 1993 and
2000, the Tenge depreciated significantly against the U.S. dollar.
PetroKazakhstan cannot give assurance that the Tenge will not experience further
depreciation against the U.S. dollar. PetroKazakhstan also cannot give assurance
that the Tenge will continue to be freely exchangeable into U.S. dollars.

         PetroKazakhstan's exposure to the Tenge is through the net bank
balances PetroKazakhstan maintains and the tax basis of PetroKazakhstan's
capital assets. For tax purposes, PetroKazakhstan's accounts are maintained in
Tenge. Although PetroKazakhstan has the ability to revalue the tax basis of
PetroKazakhstan's assets using the official annual rate of inflation, any
currency movements in excess of the annual inflation rate will generate exchange
gains and losses upon conversion to U.S. dollars. As of January 1, 2002, the tax
legislation was changed such that PetroKazakhstan no longer has the ability to
revalue the tax basis of its Downstream operational assets. Tax stability
provisions in PetroKazakhstan's hydrocarbon contracts continue to permit
PetroKazakhstan to revalue the tax basis of the Upstream operation assets.


                    CHANGES IN TAX LEGISLATION MAY ADVERSELY
                AFFECT PETROKAZAKHSTAN'S RESULTS OF OPERATIONS.

         The taxation system in Kazakhstan is at an early stage of development
and the tax risks and problems with respect to the Corporation's operations and
investment in Kazakhstan are significant. Tax legislation is evolving and is
subject to different and changing interpretations as well as inconsistent
enforcement at both the local and provincial levels.

         All legal entities carrying on activities in Kazakhstan must be
registered with the tax inspectorate. Taxes in Kazakhstan include an income tax,
a value added tax, an excise tax, a social tax, a land tax, a property tax, a
transport tax, as well as required contributions to various funds, duties and
fees for licenses. In addition, the Corporation has been making, and expects to
continue to make voluntary contributions to various social and governmental
funds.

         Additional payments, such as signing bonuses, commercial discovery
bonuses, production bonuses, royalties and excess profits taxes, may be required
from oil and gas producers and other subsoil users. A signing bonus is a
one-time payment for the rights to explore, develop and produce resources. A
commercial discovery bonus is a one-time payment and is payable once a discovery
of commercial value is made in a contract territory. A production bonus is
payable upon reaching certain agreed upon amounts of production.

         The Corporation, through its subsidiary PKKR and joint venture Turgai
Petroleum, is subject to excess profit tax under the terms of the hydrocarbon
exploration and production contracts they have for oil and gas production. The
contracts are specific to each field. Excess profit tax is in addition to
statutory income taxes, which are at a rate of 30.0%, and excess profit tax
takes effect after the field has achieved a cumulative internal rate of return
higher than 20.0% for the specific field. The excess profit tax ranges from 0%
to 30.0% of taxable income for the year for PKKR and from 0% to 50.0% for Turgai
Petroleum. The Corporation has provided for $70.0 million (its 50% share) of
excess profit tax for Turgai for the year ended December 31, 2004. The
Corporation may be subject to excess profit tax for the year ending December 31,
2005 and subsequent years with respect to certain of its fields.

<PAGE>
                                     - 72 -


         Kazakhstan's tax laws are not clearly determinable and have not always
been applied in a consistent manner. In addition, the tax laws are continually
changing and evolving. The uncertainty of application and the evolution of tax
laws create a risk of excessive payment of tax by PetroKazakhstan, which could
have a material adverse effect on the Corporation's financial condition and
results of operations.


               CERTAIN OF PETROKAZAKHSTAN'S OPERATIONS ARE SUBJECT
                         TO THE RISK OF FRAUD OR THEFT.

By the nature of the business environment and businesses in which
PetroKazakhstan operates, the Corporation is subject to the risk of fraud and
theft. With respect to crude oil, the Corporation's production operations are
spread over a large, remote geographic area that is difficult to monitor
effectively. Single well facilities which produce into onsite tanks are highly
vulnerable to theft due to their remote location and the expense for the
Corporation to monitor each such facility. The Corporation has discovered and
removed an illegal tap on its KAM pipeline.

The distribution of refined products is also subject to risks related to fraud
and theft. The Corporation has discovered instances of fraudulent activity with
respect to the sales of refined product whereby sales were made at less than
authorized prices to customers.

The Corporation has taken action with respect to these issues and has
implemented systems, and procedures to address fraud and theft and is currently
implementing a new process for sales of refined products to help address these
issues. While the Corporation is addressing all identified risks and
implementing controls and procedures to address the identified risks, there
remains a risk that fraud or theft may go undetected.


RISK FACTORS RELATING TO PETROKAZAKHSTAN'S INDUSTRY


        PETROKAZAKHSTAN'S DRILLING AND PRODUCTION ACTIVITIES ARE SUBJECT
                       TO OPERATIONAL RISKS AND HAZARDS.

         The Corporation's drilling and production operations are subject to all
the risks and hazards typically associated with the drilling and production of
oil. The risks and hazards include fire, explosion, blowouts, cratering and oil
spills, each of which could result in substantial damage to oil and natural gas
wells, producing facilities, other property and the environment or in personal
injury. The Corporation is not fully insured against all of those risks, nor are
all of those risks insurable. Although liability insurance is maintained in
amounts which are considered adequate, the nature of those risks is such that
liabilities could exceed policy limits, in which event significant costs could
be incurred which could have a material adverse effect upon the Corporation's
financial condition. The Corporation's production operations are also subject to
all the risks typically associated with those operations, including premature
decline of reservoirs and the invasion of water into producing formations.


                    VOLATILITY OF OIL PRICES COULD ADVERSELY
                AFFECT PETROKAZAKHSTAN'S RESULTS OF OPERATIONS.

         PetroKazakhstan's financial condition, operating results and future
growth are dependent on the prevailing prices for the Corporation's oil
production. Historically, the markets for oil have been volatile and those
markets are likely to continue to be volatile in the future. Prices for oil are
subject to large fluctuations in response to a variety of factors beyond
PetroKazakhstan's control, including:

         (a)      relatively minor changes in the supply of and demand for oil;

         (b)      market uncertainty;

         (c)      weather and general economic conditions;

         (d)      the actions of the Organization of Petroleum Exporting
                  Countries;

<PAGE>
                                     - 73 -


         (e)      governmental regulation in Kazakhstan and elsewhere;

         (f)      political stability in Kazakhstan, neighbouring countries and
                  other oil producing regions; and

         (g)      the availability of alternate fuel sources.

         Any substantial decline in the prices of oil could have a material
adverse effect on PetroKazakhstan's results of operations and the value of
PetroKazakhstan's oil reserves. PetroKazakhstan cannot give assurance that oil
prices will be at levels which will enable it to operate profitably. For
example, the significant decline in oil prices in 1998 and the first half of
1999 was one of the principal causes of PetroKazakhstan's financial difficulties
during that period, resulting in PetroKazakhstan seeking protection under the
CCAA. PetroKazakhstan did not hedge commodity price risks in 2001, but in 2002
and in 2003 PetroKazakhstan implemented a minimal forward selling program.
PetroKazakhstan has put hedges in place for 2005 for approximately 10% of its
exports, or percentage of its production. By entering into hedging arrangements
PetroKazakhstan is exposed to credit related losses in the event of
non-performance by counter-parties to the hedging contracts. Additionally, if
product prices increase above those levels specified in the hedging contracts, a
fixed price could limit PetroKazakhstan's ability to receive the full benefit of
commodity price increases.

<TABLE>
<CAPTION>
                                                                  CONTRACT          PRICE CEILING OR        PRICE
 CONTRACT AMOUNT                CONTRACT PERIOD                     TYPE            CONTRACTED PRICE        FLOOR
-------------------    ----------------------------------    -------------------    ------------------    ----------
 (bbls per month)
<S>                    <C>                                   <C>                    <C>                   <C>
     362,000              January 2004 to March 2004            Dated Brent            29.80-29.82            -
      75,000             January 2004 to December 2004        Zero cost dollar            28.00             17.00
      75,000             January 2004 to December 2004        Zero cost dollar            29.00             17.00
      75,000             January 2004 to December 2004        Zero cost dollar            29.25             17.00
      37,500             January 2004 to December 2004        Zero cost dollar            29.60             17.00
     110,000             January 2004 to December 2004        Zero cost dollar            30.20             18.00
     120,000              January 2005 to March 2005             IPE Future            26.30-26.52           n/a
      40,000                April 2005 to June 2005              IPE Future               25.92              n/a
     458,333             January 2005 to December 2005           IPE Future            25.65-25.90           n/a
</TABLE>


        THE VOLATILITY IN REFINING AND MARKETING MARGINS COULD ADVERSELY
                AFFECT PETROKAZAKHSTAN'S RESULTS OF OPERATIONS.

         Earnings and cash flow from the Corporation's refining operations
depend upon processing crude oil and selling quantities of refined products at
refining and marketing margins sufficient to cover fixed and variable expenses
relating to the refinery. Oil refining is a complex process that is subject to
scheduled and unscheduled downtime. PetroKazakhstan recently completed a
scheduled 30 day shutdown of the refinery during the fall of 2004 and does not
expect to conduct another scheduled shutdown until the fall of 2006.

         The prices for refined products may be affected by regional factors
such as product transportation capacity, local market conditions and the level
of operations of competing refineries. A large, rapid increase in crude oil
prices or other feedstocks could adversely affect the operating margins for
PetroKazakhstan's refinery if the increased cost could not be passed on to
PetroKazakhstan's customers.

<PAGE>
                                     - 74 -


            PETROKAZAKHSTAN'S GROWTH DEPENDS ON FINDING NEW RESERVES.

         PetroKazakhstan's ability to achieve growth depends upon the
Corporation's success in finding, acquiring or gaining access to additional
reserves. In general, production from oil and natural gas properties declines as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. If the Corporation's exploration activities are not successful
or that it does not acquire properties containing proved reserves,
PetroKazakhstan's total proved reserves will decline. The Corporation's
exploration activities expose it to inherent drilling risks, including the risk
that PetroKazakhstan will not find any economically productive natural gas or
oil reservoirs. The costs of drilling, completing and operating wells are often
uncertain, and numerous factors beyond PetroKazakhstan's control may cause
drilling operations to be curtailed, delayed or cancelled. If these activities
are unsuccessful, the Corporation's future results of operations and financial
condition could be adversely affected.


         PETROKAZAKHSTAN'S OIL AND GAS RESERVES DATA ARE ONLY ESTIMATES,
                        AND MAY PROVE TO BE INACCURATE.

         The oil and gas reserves data included in this document represent
estimates only. Actual production, revenues, expenditures and future cash flow
with respect to PetroKazakhstan's reserves will vary from these estimates, and
those variances may be material. Many of the factors, assumptions and variables
involved in estimating reserves are beyond PetroKazakhstan's control, and, over
time, may prove to be incorrect.

         In general, estimates of economically recoverable oil and natural gas
reserves and the future net cash flows from these reserves are based upon a
number of variable factors and assumptions, including the following, all of
which may vary considerably from actual results:

         (a)      historical production from PetroKazakhstan's properties;

         (b)      comparisons with production from other producing areas;

         (c)      the assumed effects of regulation by governmental agencies;

         (d)      royalty rates; and

         (e)      assumptions regarding future oil and natural gas prices and
                  future operating costs.

         All estimates are to some degree speculative and are based on extensive
engineering judgement, and classifications of reserves are only attempts to
define the degree of speculation involved. For these reasons, estimates of the
economically recoverable oil and natural gas reserves attributable to any
particular properties, classification of those reserves based on risk of
recovery and estimates of future net cash flows expected from the properties
prepared by different engineers or by the same engineers at different times may
vary substantially. Results of drilling, testing and production after the date
of the estimates may require substantial upward or downward revisions. Adverse
changes in economic conditions, including a decrease in crude oil or natural gas
prices, may render it uneconomical to produce from reserves with higher
associated production costs. Actual production, cash flows, royalties and
development and operating expenditures with respect to reserves will vary from
the estimates, and those variances could be material.

         The present values of estimated future cash flows from reserves
referred to in this document should not be interpreted as being the same as the
current market value of the estimated proved reserves. PetroKazakhstan is
providing the estimated discounted future cash flows from proved reserves based
on prices and costs as of the date of the estimate. Actual future prices and
costs, however, may be materially higher or lower. Actual future cash flows also
will be affected by a number of factors, including the following:

<PAGE>
                                     - 75 -


         (a)      the amount and timing of actual production;

         (b)      the supply and demand for oil and natural gas;

         (c)      curtailments or increases in consumption by purchasers; and

         (d)      changes in governmental regulations or royalties.

         Some calculations of estimated proved reserves presented in this
document are net of value added tax, but give no effect to income taxes, excess
profit taxes or other applicable taxes attributable to estimated future net cash
flows from the sale of oil. Pre-tax calculations are inconsistent with U.S.
generally accepted accounting principles, which require calculations on an after
tax basis. These additional taxes may cause actual future cash flows to differ
materially from the estimates presented in this document. Finally, discount
factors used in this document to calculate discounted future net pre-tax cash
flows from reserves may not be the most appropriate discount factors based on
interest rates in effect from time to time and risks associated with
PetroKazakhstan's business or the oil and gas industry in general.


    CANADIAN AND U.S. PRACTICES DIFFER IN REPORTING RESERVES AND PRODUCTION.

         The Corporation reports production and reserve quantities in accordance
with Canadian practices. These practices are different from the practices used
to report production and estimate reserves in reports and other materials filed
with the SEC by U.S. companies. The primary differences are summarized below:

         (a)      generally, the Corporation follows the Canadian practice of
                  reporting gross production and reserve volumes, which are
                  prior to the deduction of royalties and similar payments. In
                  the United States, production and reserve volumes are reported
                  after deducting these amounts; and

         (b)      the Corporation includes in filings made with Canadian
                  securities authorities estimates of probable reserves. The SEC
                  prohibits the inclusion of estimates of probable reserves in
                  filings made with the SEC.

         As a consequence, the Corporation's production volumes and reserve
estimates may not be comparable to those made by U.S. companies subject to SEC
reporting and disclosure requirements.


               PETROKAZAKHSTAN IS SUBJECT TO CERTAIN CREDIT RISKS.

         A substantial portion of the Corporation's accounts receivable are with
customers in the energy industry and are subject to normal industry risk. The
Corporation's crude oil sales are sold in credit to purchasers with an "A"
rating and all other sales are supported by letters of credit issued by major
financial institutions. The Corporation's sales of refined products are either
made on a prepayment basis or supported by letters of credit issued by major
institutions.


                          EXTERNAL AUDITOR SERVICE FEES

AUDIT FEES

          The aggregate audit fees billed by TOO Deloitte & Touche were $394,011
in the year ended December 31, 2004 and $646,951 in the year ended December 31,
2003. These fees include the amounts for services relating to the listing of the
Company on the London Stock Exchange and issuance of comfort letters.


<PAGE>
                                     - 76 -


AUDIT-RELATED FEES

           The aggregate audit related fees billed by TOO Deloitte & Touche were
nil in the year ended December 31, 2004 and $6,041 in the year ended December
31, 2003.

TAX FEES
           The aggregate fees billed by TOO Deloitte & Touche for professional
services rendered for tax advice were $10,175 in the fiscal year ended December
31, 2004 and $40,671 in the fiscal year ended December 31, 2003.

 ALL OTHER FEES

           The Company did not incur any fees billed by TOO Deloitte & Touche
for services other than the services reported under the captions "Audit Fees",
"Audit-Related Fees" and "Tax Fees" above for the years ended December 31, 2004
and 2003.


                             ADDITIONAL INFORMATION

         Additional information, including information as to directors' and
officers' remuneration and indebtedness, principal holders of the Corporation's
securities, options to purchase securities and interests of insiders in material
transactions, is contained in the Management Proxy Circular of the Corporation
provided for the Annual General Meeting of Shareholders of the Corporation to be
held on May 3, 2004. Additional financial information is provided in the
Corporation's Financial Statements for the year ended December 31, 2004, which
are contained in the Annual Report of the Corporation and the Management
Discussion and Analysis for the year ended December 31, 2004. Certain publicly
filed documents and additional information regarding the Corporation can be
found at WWW.SEDAR.COM.

         When the securities of the Corporation are in the course of a
distribution under a preliminary short form prospectus or a short form
prospectus, upon request the Corporation will provide to any person:

         1)       One copy of this Annual Information Form, together with one
                  copy of any document, or the pertinent pages of any document,
                  incorporated by reference in this Annual Information Form;

         2)       One copy of the Corporation's audited financial statements
                  contained in the Annual Report for the year ended December 31,
                  2004, together with the report of the auditors thereon, and
                  one copy of the Corporation's most recent interim financial
                  statements that have been filed, if any, for any period
                  subsequent to the period covered by such audited financial
                  statements;

         3)       One copy of the Corporation's Management Proxy Circular
                  provided for the Annual General Meeting of the shareholders of
                  the Corporation held on May 3, 2005; and

         4)       One copy of any other documents that are incorporated by
                  reference into the preliminary short form prospectus or the
                  short form prospectus and are not required to be provided
                  under paragraphs 1, 2 or 3 above.

         At any other time, one copy of any of the documents referred to in
paragraphs 1, 2 and 3 above shall be provided, upon request to the individuals
noted below, with the understanding that the Corporation may

<PAGE>
                                     - 77 -


require the payment of a reasonable charge if the request is made by a person
who is not a security holder of the Corporation.

         Copies of these documents may be obtained by submitting a written or
oral request to Mr. Ihor Wasylkiw, Vice-President, Investor Relations of
PetroKazakhstan at Suite 1460, Sun Life Plaza, North Tower, 140 - 4th Avenue
S.W., Calgary, Alberta, T2P 3N3 (telephone: 403-221-8435) or to Mr. Anthony
Peart, Senior Vice-President, General Counsel and Corporate Secretary of
PetroKazakhstan Inc. c/o Ascot Petroleum Consulting Ltd, Hogarth House, 31 Sheet
Street, Windsor, Berkshire, SL4 1BE United Kingdom (telephone: 44 1753 410020).



<PAGE>
                                     - 78 -

                             REPORT ON RESERVES DATA


                                [GRAPHIC OMITTED]
                [LOGO - McDANIEL & ASSOCIATES CONSULTANTS LTD.]

March 30, 2005

PETROKAZAKHSTAN INC.
Hogarth House
29-31 Sheet Street
Windsor
Berkshire SL4 1BY
United Kingdom

Attention:        The Board of Directors of PetroKazakhstan Inc.

Re:      FORM 51-101F2
         REPORT ON RESERVES DATA BY AN INDEPENDENT QUALIFIED RESERVES EVALUATOR
         OF PETROKAZAKHSTAN INC. (THE "COMPANY")

Dear Sir:

TO THE BOARD OF DIRECTORS OF PETROKAZAKHSTAN INC. (THE "COMPANY"):

    1.   We have evaluated the Company's reserves data as at December 31, 2004.
         The reserves data consists of the following::

         (a)      proved and proved plus probable oil and gas reserves estimated
                  as at December 31, 2004 using forecast prices and costs and
                  the related estimated future net revenue; and

         (b)      proved and proved plus probable oil and gas reserves estimated
                  as at December 31, 2004 using constant prices and costs and
                  the related estimated future net revenue.

    2.   The reserves data are the responsibility of the Company's management.
         Our responsibility is to express an opinion on the reserves data based
         on our evaluation.

         We carried out our evaluation in accordance with standards set out in
         the Canadian Oil and Gas Evaluation Handbook (the "COGE Handbook")
         prepared jointly by the Society of Petroleum Evaluation Engineers
         (Calgary Chapter) and the Canadian Institute of Mining, Metallurgy &
         Petroleum (Petroleum Society).

    3.   Those standards require that we plan and perform an evaluation to
         obtain reasonable assurance as to whether the reserves data are free of
         material misstatement. An evaluation also includes assessing whether
         the reserves data are in accordance with principles and definitions
         presented in the COGE Handbook.
<PAGE>
                                     - 79 -


    4.   The following table sets forth the estimated future net revenue (before
         deduction of income taxes) attributed to proved plus probable reserves,
         estimated using forecast prices and costs and calculated using a
         discount rate of 10 percent, including in the reserves data of the
         Company evaluated by us, for the year ended December 31, 2004, and
         identifies the respective portions thereof that we have evaluated,
         audited and reviewed and reported on to the Company's management:

<TABLE>
<CAPTION>
                                                     NET PRESENT VALUE OF FUTURE NET REVENUE $M
                                                    (BEFORE INCOME TAXES, 10% DISCOUNT RATE)__
                                                    ------------------------------------------
PREPARATION DATE OF
EVALUATION REPORT                  LOCATION OF RESERVES     AUDITED      EVALUATED      REVIEWED     TOTAL
---------------------------------------------------------------------------------------------------------------
<S>                                <C>                      <C>          <C>            <C>         <C>
March 30, 2005                     Kazakhstan                  -         5,655,807          -       5,655,807
</TABLE>


    5.   In our opinion, the reserves data evaluated by us have, in all material
         respects, been determined and are in accordance with the COGE Handbook.

    6.   We have no responsibility to update our report for events and
         circumstances occurring after the preparation date.

    7.   Because the reserves data are based on judgments regarding future
         events, actual results will vary and the variations may be material.



Executed as to our report referred to above:


MCDANIEL & ASSOCIATES CONSULTANTS LTD.


/s/ by B.H. EMSLIE
---------------------------
B.H. Emslie, P. Eng.
Senior Vice President

Calgary, Alberta

Date: March 30, 2005


<PAGE>
                                     - 80 -


                       REPORT OF MANAGEMENT AND DIRECTORS
                     ON RESERVES DATA AND OTHER INFORMATION

         Management of PetroKazakhstan Inc. (the "Company") are responsible for
the preparation and disclosure of information with respect to the Company's oil
and gas activities in accordance with securities regulatory requirements. This
information includes reserves data, which consist of the following:

         (a)      (i)     proved and proved plus probable oil and gas reserves
                          estimated as at December 31, 2004 using forecast
                          prices and costs; and

                  (ii)    the related estimated future net revenue; and

         (b)      (i)     proved oil and gas reserves estimated as at December
                          31, 2003 using constant prices and costs; and

                  (ii)    the related estimated future net revenue.

         An independent qualified reserves evaluator has evaluated the Company's
reserves data. The report of the independent qualified reserves evaluator is
presented above.

         The board of directors of the Company has

         (a)      reviewed the Company's procedures for providing information to
                  the independent qualified reserves evaluator;

         (b)      met with the independent qualified reserves evaluator to
                  determine whether any restrictions affected the ability of the
                  independent qualified reserves evaluator to report without
                  reservation; and

         (c)      reviewed the reserves data with management and the independent
                  qualified reserves evaluator.

         The board of directors has reviewed the Company's procedures for
assembling and reporting other information associated with oil and gas
activities and has reviewed that information with management. The board of
directors has approved

         (a)      the content and filing with securities regulatory authorities
                  of the reserves data and other oil and gas information;

         (b)      the filing of the report of the independent qualified reserves
                  evaluator on the reserves data; and

         (c)      the content and filing of this report.

         Because the reserves data are based on judgements regarding future
events, actual results will vary and the variations may be material.

<PAGE>
                                     - 81 -


/s/ Bernard F. Isautier
----------------------------------------------------------------
Bernard F. Isautier
President, Chief Executive Officer and Chairman of the Board


/s/ Mike Azancot
----------------------------------------------------------------
Mike Azancot
Senior Vice President, Exploration and Production


/s/ Jacques Lefevre
----------------------------------------------------------------
Jacques Lefevre
Director


/s/ Jan Bonde Nielsen
----------------------------------------------------------------
Jan Bonde Nielsen
Director


May 21, 2005


<PAGE>
                                     - 82 -


                        SCHEDULE A - PETROKAZAKHSTAN INC.
                             AUDIT COMMITTEE MANDATE

1.       ESTABLISHMENT OF COMMITTEE

1.1      ESTABLISHMENT OF THE AUDIT COMMITTEE CONFIRMED - The establishment of
         the audit committee of the board of directors of PetroKazakhstan Inc.,
         is hereby confirmed with the purpose, constitutions and
         responsibilities herein set forth.

1.2      CERTAIN DEFINITIONS -  In this mandate:

         (a)      "Board" means the board of directors of PetroKazakhstan;

         (b)      "Chair" means the chair of the Committee;

         (c)      "Committee" means the audit committee of the Board;

         (d)      "Corporation" means PetroKazakhstan Inc., together with its
                  subsidiaries;

         (e)      "Director" means a member of the Board;

         (f)      "External Auditor" means the person occupying the office of
                  auditor of PetroKazakhstan in accordance with the BUSINESS
                  CORPORATIONS ACT (Alberta);

         (g)      "PetroKazakhstan" means PetroKazakhstan Inc.;

         (h)      "Internal Auditor" means the person responsible for the
                  internal audit function with respect to the Corporation; and

         (i)      "Mandate" means this written mandate of the Committee and any
                  such mandate for the Committee which the Board resolves from
                  time to time shall be the mandate of the Committee.

2.       PURPOSE OF COMMITTEE

2.1      PURPOSE - The Committee's purpose is to:

         (a)      assist the Board in the discharge of its obligations in
                  connection with:

                  (i)      the integrity of the company's financial statements;

                  (ii)     the company's compliance with legal and regulatory
                           requirements;

                  (iii)    the independent auditor's qualifications and
                           independence; and

                  (iv)     the performance of the Corporation's internal audit
                           function and internal auditors; and

         (b)      prepare any report that applicable laws, rules or regulations
                  require to be included in the Corporation's annual proxy
                  statement relating to the audit committee.


<PAGE>
                                     - 83 -


2.2      DISCHARGE OF RESPONSIBILITIES - The Audit Committee will primarily
fulfill its responsibilities by carrying out the activities enumerated in
Sections 8 and 9 of this Mandate.

3.       COMMITTEE MEMBERSHIP

3.1      NUMBER OF MEMBERS - The Committee shall consist of not fewer than three
Directors.

3.2      INDEPENDENCE OF MEMBERS - Each member of the Committee shall be:

         (a)      a Director who is not an officer or employee of
                  PetroKazakhstan or any of its affiliates;

         (b)      an unrelated Director for the purposes of the Toronto Stock
                  Exchange Corporate Governance Policy;

         (c)      independent for the purposes of the SARBANES-OXLEY ACT OF 2002
                  if such act is in force and applicable to the Corporation; and

         (d)      an independent Director for the purposes of the corporate
                  governance standards required by the New York Stock Exchange.

3.3      FINANCIAL LITERACY -

         (a)      Requirement - Each member of the Committee shall be
                  financially literate or must become financially literate
                  within a reasonable period of time after his or her
                  appointment to the Committee.

         (b)      Definition - "Financially literate" shall mean that the
                  Director is able to read and understand a balance sheet, an
                  income statement, a cash flow statement and the notes attached
                  thereto or shall have such other meaning as the Board may
                  resolve to interpret that term in its business judgment from
                  time to time.

3.4      ACCOUNTING OR RELATED FINANCIAL EXPERIENCE - One member of the
Committee shall at all times have accounting or related financial experience,
meaning that such Director has, through (i) education and experience as a
principal financial accounting officer, controller, public accountant or auditor
or experience in one or more positions that involve the performance of similar
functions (or that results, in the judgment of the company's board of directors,
in the person's having similar expertise and experience); (ii) experience
actively supervising a principal financial officer, principal accounting
officer, controller, public accountant, auditor or person performing similar
functions; (iii) experience overseeing or assessing the performance of companies
or public accountants with respect to the preparation, auditing or evaluation of
financial statements; or (iv) other relevant experience, the following
attributes:

         (a)      an understanding of generally accepted accounting principles
                  and financial statements;

         (b)      ability to assess the general application of such principles
                  in connection with the accounting for estimates, accruals and
                  reserves;

         (c)      experience preparing, auditing, analyzing or evaluating
                  financial statements that present a breadth and level of
                  complexity of accounting issues that are generally comparable
                  to the breadth and complexity of issues that can reasonably be
                  expected to be raised by the Corporation's financial
                  statements, or experience actively supervising one or more
                  persons engaged in such activities;

<PAGE>
                                     - 84 -


         (d)      an understanding of internal controls and procedures for
                  financial reporting; and

         (e)      an understanding of audit committee functions.

3.5      ANNUAL APPOINTMENT OF MEMBERS - The members of the Committee shall be
appointed by the Board. The appointment of members of the Committee shall take
place annually at the first meeting of the Board after a meeting of the members
at which Directors are elected, provided that if the appointment of members of
the Committee is not so made, the Directors who are then serving as members of
the Committee shall continue as members of the Committee until their successors
are appointed.

3.6      VACANCY - The Board may appoint a member to fill a vacancy which occurs
in the Committee between annual elections of Directors.

4.       COMMITTEE CHAIR

4.1      BOARD TO APPOINT CHAIR - The Board shall appoint the chair of the
Committee (the "Chair") from the members of the Committee who are members of the
Board (or if it fails to do so, the members of the Committee shall appoint the
Chair of the Committee from among its members).

4.2      CHAIR TO BE APPOINTED ANNUALLY - The designation of its Chair shall
take place annually at the first meeting of the Board after a meeting of the
members at which Directors are elected, provided that if the designation of
Chair is not so made, the Director who is then serving as Chair shall continue
as Chair until his or her successor is appointed.

5.       COMMITTEE MEETINGS

5.1      QUORUM - A quorum of the Committee shall be a majority of its members
and no business shall be transacted by the Committee except at a meeting at
which a quorum of the Committee is present.

5.2      SECRETARY - The Chair shall designate from time to time a person who
may, but need not, be a member of the Committee, to be Secretary of the
Committee.

5.3      TIME AND PLACE OF MEETINGS - The time and place of the meetings of the
Committee and the calling of meetings and the procedure in all things at such
meetings shall be determined by the Committee; provided, however, the Committee
shall meet at least quarterly.

5.4      RIGHT TO VOTE - Each member of the Committee shall have the right to
vote on matters that come before the Committee.

5.5      INVITEES - The Committee may invite Directors, officers and employees
of PetroKazakhstan or any other person to attend meetings of the Committee to
assist in the discussion and examination of the matters under consideration by
the Committee.

5.6      IN CAMERA MEETINGS - As part of each meeting of the Committee at which
the Committee recommends that the Board approve the annual audited financial
statements or at which the Committee reviews the quarterly financial statements,
the Committee shall meet separately with each of:

         (a)      management;

         (b)      the External Auditor; and

         (c)      the Internal Auditor.


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6.       OUTSIDE ADVISORS

6.1      RETAINING AND COMPENSATING ADVISORS - The Committee may retain such
outside legal, accounting or other advisors as it may consider appropriate and
shall not be required to obtain the approval of the Board in order to retain or
compensate such advisors.

7.       REMUNERATION OF COMMITTEE MEMBERS

7.1      DIRECTOR FEES ONLY - No member of the Committee may earn fees from
PetroKazakhstan or any of its subsidiaries other than directors fees (which fees
may include cash and/or shares or options or other in-kind consideration
ordinarily available to directors, as well as all of the regular benefits that
other directors receive).

7.2      OTHER PAYMENTS - For greater certainty, no member of the Committee
shall accept any consulting, advisory or other compensatory fee from the
Corporation.

8.       DUTIES AND RESPONSIBILITIES OF THE COMMITTEE

8.1      FINANCIAL AND RELATED INFORMATION -

         (a)      Annual Financial Statements - The Committee shall review and
                  discuss with management and the External Auditor,
                  PetroKazakhstan's annual financial statements and related MD&A
                  and report thereon to the Board before the Board approves
                  those statements.

         (b)      Interim Financial Statements - The Committee shall review and
                  discuss with management and the External Auditor,
                  PetroKazakhstan's interim financial statements and related
                  MD&A before they are released.

         (c)      General - The Committee shall review and discuss with
                  management and the External Auditor on a timely basis:

                  (i)      major issues regarding accounting policies,
                           principles and financial statement presentations,
                           including any significant changes in the
                           Corporation's selection or application of accounting
                           principles;

                  (ii)     the adequacy and effectiveness of the corporation's
                           internal controls over financial reporting and any
                           special audit steps adopted in light of material
                           control deficiencies;

                  (iii)    analyses prepared by management and the External
                           Auditor setting forth significant financial reporting
                           issues and judgments made in connection with the
                           preparation of the financial statements, including
                           analysis of the effects of alternative GAAP methods
                           on the financial statements; and

                  (iv)     the effect on the financial statements of the
                           Corporation of regulatory and accounting initiatives,
                           as well as off-balance sheet transactions,
                           structures, obligations (including contingent
                           obligations) and other relationships of the
                           Corporation with unconsolidated entities or other
                           persons that have a material current or future effect
                           on the financial condition, changes in financial
                           condition, results of operations, liquidity, capital
                           resources, capital reserves or significant components
                           of revenues or expenses of the Corporation;

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                                     - 86 -


                  (v)      the extent to which changes or improvements in
                           financial or accounting practices, as approved by the
                           Committee, have been implemented;

                  (vi)     any financial information or financial statements in
                           prospectuses and other offering documents;

                  (vii)    the management certifications of the financial
                           statements as required by the SARBANES-OXLEY ACT OF
                           2002, under applicable securities laws in Canada or
                           otherwise, and all certifications and reports of the
                           disclosure committee established by management;

                  (viii)   any other relevant reports or financial information
                           submitted by the Corporation to any governmental
                           body, or the public; and

                  (ix)     pension plan financial statements, if any.

         (d)      Discussion of Accounting Treatments - The audit committee
                  shall have direct communication channels with the External
                  Auditor to discuss and review specific issues as appropriate.

         (e)      Disclosure of Other Financial Information - The Committee
                  shall discuss with management and the External Auditor:

                  (i)      the types of information to be disclosed and the type
                           of presentation to be made in connection with
                           earnings press releases;

                  (ii)     financial information and earnings guidance (if any)
                           provided to analysts and rating agencies;

                  (iii)    press releases (paying particular attention to any
                           use of "pro forma" or "adjusted" non-GAAP,
                           information as described under Regulation G of the
                           UNITED STATES SECURITIES ACT OF 1933, as amended);
                           and

         (f)      Review of Communications - The Committee shall review with the
                  External Auditor all material written communication between
                  the External Auditor and management including, but not limited
                  to, the management letter and schedule of unadjusted
                  differences.

8.2      EXTERNAL AUDITOR -

         (a)      Authority with Respect to External Auditor - As representative
                  of PetroKazakhstan's shareholders, the Committee shall be
                  directly responsible for the Corporation's relationship with
                  the External Auditor for the purpose of preparing or issuing
                  an audit report or related work. In this capacity, the
                  Committee shall have sole responsibility for recommending to
                  the Board the person to be proposed to PetroKazakhstan's
                  shareholders for appointment as external auditor and whether
                  at any time the incumbent external auditor should be removed
                  from office. The Committee shall require the External Auditor
                  to acknowledge in its engagement letter each year that the
                  External Auditor is accountable to the Board and the Committee
                  as representatives of shareholders.

         (b)      Competency of External Auditor - Once each year (and otherwise
                  as the Chair may consider appropriate) the Committee shall
                  review with the External Auditor its performance

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                                     - 87 -


                  and that of the lead audit partner and obtain and review a
                  report by the External Auditor describing:

                  (i)      the External Auditor's internal quality-control
                           procedures;

                  (ii)     any material issues raised by the most recent
                           internal quality-control review, or peer review, of
                           the External Auditor's firm or by any inquiry or
                           investigation by governmental or professional
                           authorities, within the preceding five years,
                           respecting one or more independent audits carried out
                           by the External Auditor's firm, and any steps taken
                           to deal with any such issues;

                  (iii)    all material relationships between the External
                           Auditor and the Corporation (for the purposes of
                           assessing the auditor's independence); and

                  (iv)     to review annually with the External Auditor its
                           performance and that of its lead audit partner.

         (c)      Review of Audit Problems - The Committee shall review with the
                  External Auditor any audit problems or difficulties and
                  management's response.

         (d)      Independence - The Committee shall satisfy itself as to the
                  independence of the External Auditor. As part of this process:

                  (i)      The Committee shall require the External Auditor to
                           submit on a periodic basis to the Committee, a formal
                           written statement delineating all relationships
                           between the External Auditor and the Corporation and
                           that the Committee is responsible for actively
                           engaging in a dialogue with the External Auditor with
                           respect to any disclosed relationships or services
                           that may impact the objectivity and independence of
                           the External Auditor and for recommending that the
                           Board take appropriate action in response to the
                           External Auditors' report to satisfy itself of the
                           External Auditors' independence;

                  (ii)     The Committee shall approve any non-audit services
                           provided by the External Auditor and may delegate
                           such approval authority to one or more of its
                           independent members; and

                  (iii)    The Committee shall establish a policy setting out
                           the restrictions on the Corporation hiring employees
                           and former employees of the Corporation's auditor or
                           former auditor.

8.3      INTERNAL CONTROL AND AUDIT -

         (a)      Regular Reporting - The Internal Auditor shall report
                  regularly to the Committee and the Committee shall have direct
                  communication channels with the Internal Auditor to discuss
                  and review specific issues as appropriate.

         (b)      Functioning of Internal Auditor - The Committee shall:

                  (i)      the adequacy and effectiveness of the corporation's
                           internal controls over financial reporting and any
                           special audit steps adopted in light of material
                           control deficiencies;

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                                     - 88 -


                  (ii)     review (a) the internal control report prepared by
                           management, including management's assessment of the
                           effectiveness of the Corporation's internal control
                           structure and procedures for financial reporting and
                           (b) the External Auditor's attestation, and report,
                           on the assessment made by management;

                  (iii)    in consultation with the External Auditor and the
                           internal audit group, discuss the adequacy of the
                           Corporation's internal control structure and
                           procedures designed to ensure compliance with laws
                           and regulations and any special audit steps adopted
                           in light of material deficiencies and controls;

                  (iv)     instruct the External Auditor to prepare an annual
                           evaluation of the Corporation's internal audit group
                           and reviewing the results of that evaluation; and

                  (v)      periodically review with the Internal Auditor, any
                           significant difficulties, disagreements with
                           management or scope restrictions encountered in the
                           course of the work of the Internal Auditor.

8.4      MANAGEMENT RESPONSE - The Committee shall obtain management's response
to significant remarks or findings of the External Auditor and the Internal
Auditor and shall follow-up as required on the status of the implementation of
corrective measures.

8.5      REPORT ON RESERVES DATA AND OTHER INFORMATION -

         (a)      The Committee shall review with management and with the
                  independent qualified reserves evaluator or qualified reserves
                  auditor, the content of reserves data and other oil and gas
                  information filed with securities regulatory authorities;

         (b)      The Committee shall review with management and with the
                  independent qualified reserves evaluator or qualified reserves
                  auditor and recommend to the Board for approval, as
                  appropriate, any report which the Board is required to file
                  pursuant to applicable securities laws or stock exchange
                  requirements.

8.6      RELATED PARTY TRANSACTIONS - The Committee shall review and approve all
related party transactions in which the Corporation is involved or which the
Corporation proposes to enter into.

8.7      EXPENSE ACCOUNTS - The Committee shall review and make recommendations
with respect to:

         (a)      expense accounts, on an annual basis, submitted by the Chair
                  and President; and

         (b)      expense account policy, and rules relating to the
                  standardization of the reporting on expense accounts.

8.8      RISK ASSESSMENT AND RISK MANAGEMENT - The Committee shall discuss the
Corporation's major financial risk exposures and the steps management has taken
to monitor and control such exposures.

8.9      OTHER MATTERS - The Committee shall perform any other activities
consistent with this mandate, the Corporation's by-laws and governing law, as
the Committee or the Board deems necessary or appropriate.


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                                     - 89 -


9.       WHISTLE BLOWING

9.1      PROCEDURE - As soon as practicable following the release of SEC rules
implementing the requirements in the SARBANES-OXLEY ACT OF 2002 with respect the
procedures described in this Section 9.1, the Committee shall put in place
procedures for:

         (a)      the receipt, retention and treatment of complaints received by
                  the issuer regarding accounting, internal accounting controls
                  or auditing matters; and

         (b)      the confidential, anonymous submission by employees of the
                  issuer of concerns regarding questionable accounting or
                  auditing matters.

10.      REPORTING TO THE BOARD

10.1     REGULAR REPORTING - The Audit Committee shall report to the Board
following each meeting of the Committee and at such other times as the Chair may
determine to be appropriate, provided that the Audit Committee shall report to
the Board at least four times per year.

11.      EVALUATION OF COMMITTEE PERFORMANCE

11.1     ESTABLISH PROCESS - The Committee shall follow the process established
by the Board's corporate governance committee for assessing the performance of
the Committee.

11.2     AMENDMENTS TO MANDATE -

         (a)      Review by Audit Committee - The Committee shall recommend to
                  the Board on an annual basis, any amendments it considers
                  desirable to this mandate.

         (b)      Review by Board - The Board will review and reassess the
                  adequacy of the Mandate on an annual basis and at such other
                  times as it considers appropriate.

12.      LEGISLATIVE AND REGULATORY CHANGES

12.1     COMPLIANCE - It is the Board's intention that this mandate shall
reflect at all times all legislative and regulatory requirements applicable to
the Committee as well as any best practice guidelines recommended by regulators
or stock exchanges with whom PetroKazakhstan has a reporting relationship.
Accordingly, this mandate shall be deemed to have been updated to reflect any
amendments to such legislative and regulatory requirements and such best
practice guidelines and shall be formally amended at least annually to reflect
such amendments.