EXHIBIT 1
                                                                       ---------



                              PETROKAZAKHSTAN INC.


                             ANNUAL INFORMATION FORM



                      FOR THE YEAR ENDED DECEMBER 31, 2003




                               DATED MAY 19, 2004





<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE
                                                                            ----

ABBREVIATIONS AND DEFINITIONS..................................................1

OIL AND GAS RESERVES DISCLOSURE................................................3

CURRENCY.......................................................................4

    CANADIAN DOLLARS...........................................................4
    KAZAKHSTANI TENGE..........................................................4

SPECIAL NOTE REGARDING FORWARD-LOOKING FINANCIAL INFORMATION...................5

THE CORPORATION................................................................6

    NAME CHANGE................................................................7
    CORPORATE HISTORY..........................................................7
    PRINCIPAL SUBSIDIARIES.....................................................7

GENERAL DEVELOPMENT OF THE BUSINESS............................................9

    FORMATIVE TRANSACTIONS.....................................................9
    THREE YEAR HISTORY........................................................12
    RECENT DEVELOPMENTS.......................................................16
    BUSINESS TRENDS...........................................................16

BUSINESS OF THE CORPORATION...................................................18

    OIL AND GAS EXPLORATION AND DEVELOPMENT OPERATIONS........................18
    PROVED UNDEVELOPED RESERVES...............................................31
    PROBABLE UNDEVELOPED RESERVES.............................................31
    DOWNSTREAM OPERATIONS: REFINING, MARKETING AND TRANSPORTATION.............40
    NON-CORE OPERATIONS IN KAZAKHSTAN.........................................48

MANAGEMENT OF PETROKAZAKHSTAN.................................................48

PERSONNEL.....................................................................50

DESCRIPTION OF SHARE CAPITAL..................................................50

    COMMON SHARES.............................................................51
    PREFERRED SHARES..........................................................51
    SHAREHOLDERS' AGREEMENT...................................................51
    DIVIDEND POLICY AND RESTRICTIONS..........................................51

INFORMATION INCORPORATED BY REFERENCE.........................................52

SELECTED FINANCIAL INFORMATION................................................52

    SUMMARY OF OPERATING RESULTS..............................................52
    QUARTERLY INFORMATION.....................................................52

LEGAL PROCEEDINGS.............................................................53

    CCAA PROCEEDINGS..........................................................53
    ANTIMONOPOLY CLAIMS.......................................................55
    OTHER LEGAL PROCEEDINGS...................................................56
    GENERAL...................................................................56

<PAGE>

                                      -2-


ENVIRONMENTAL REGULATION AND MATTERS..........................................57

    OIL AND GAS OPERATIONS....................................................57
    DOWNSTREAM OPERATIONS.....................................................59

RISK FACTORS..................................................................60

    COMMODITY PRICES..........................................................60
    FCA DIFFERENTIAL / TRANSPORTATION.........................................60
    GOVERNMENT TAXES..........................................................60
    ASSESSMENTS FOR 1998 AND 1999.............................................61
    ASSESSMENTS FOR 2000 AND 2001.............................................61
    RECENT PKKR ASSESSMENTS...................................................62
    KAZGERMUNAI ASSESSMENTS...................................................62
    CAPITAL EXPENDITURES COMMITMENT...........................................62
    LEGAL PROCEEDINGS.........................................................63
    EXCESS PROFIT TAX.........................................................63
    ENVIRONMENTAL MATTERS.....................................................63
    FOREIGN EXCHANGE RISKS....................................................63
    CREDIT RISK...............................................................64

EXTERNAL AUDITOR SERVICE FEES.................................................64

    AUDIT FEES................................................................64
    TAX FEES..................................................................64
    ALL OTHER FEES............................................................64

ADDITIONAL INFORMATION........................................................64


<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

"M(3)"           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), S.A. 1981, c.
         B-15, as amended from time to time, 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;


                                       1
<PAGE>

         "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;

         "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 Kazgermunai LLP;

         " LPG" means Liquefied Petroleum Gas;

         "LUKOIL" means LUKoil Overseas B.V., a Netherlands company, a joint
         venture between PetroKazakhstan and Turgai Petroleum;

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

         "MCDANIEL REPORTS" means the reports of McDaniel, effective January 1,
         2004, on certain of the interests of the Corporation in certain fields
         in Kazakhstan on both (a) a constant price basis, and (b) an escalating
         price basis;

         "NICO" means the Naftitran Intertrade Company Limited;

         "NON-FCA" means Non-Free Carrier;


                                       2
<PAGE>

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

         "PKKR" means OJSC 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 OJSC 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.


                         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


                                       3
<PAGE>

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 April 30, 2004, the inverse Noon
Buying Rate was C$1.00 equalled U.S.$1.3722, and the Noon Buying Rate was
U.S.$1.00 equalled C$0.728757.

<TABLE>
<CAPTION>
                                                                                  PERIOD FROM JANUARY 1, 2004 TO
                                                YEAR ENDED DECEMBER 31                    APRIL 30, 2004
                                     ---------------------------------------    --------------------------------
                                         2001          2002          2003
                                     -----------   -----------    ----------    --------------------------------
<S>                                  <C>           <C>            <C>           <C>
Low................................     0.6227       0.661813      0.773335                  0.786411
High...............................     0.6714       0.619886      0.638162                  0.727008
Average(1).........................     0.6457       0.636780      0.714643                  0.755515
End of Period......................     0.6287       0.633072      0.771010                  0.728757
</TABLE>

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.

<TABLE>
<CAPTION>
                                                                                      Period from January 1, 2004 to
                                                YEAR ENDED DECEMBER 31                        April 30, 2004
                                     ---------------------------------------------    --------------------------------
                                         2001            2002            2003
                                     -------------   -------------    ------------    --------------------------------
<S>                                  <C>             <C>              <C>              <C>
Low................................     139.88          150.60          143.66                    137.62
High...............................     157.52          155.60          155.75                    143.33
Average(1).........................     147.55          153.28          149.57                    139.50
End of Period......................     147.29          155.60          144.22                    138.50
</TABLE>


                                       4
<PAGE>

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 affects 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;

         (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;


                                       5
<PAGE>

         (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 the acquisition, exploration, development and production of
oil and gas and the refining and sale of oil and refined products in the
Republic of Kazakhstan ("KAZAKHSTAN"). As of January 1, 2004, the Corporation
had estimated total proved reserves of 348.5 mmbbls of oil and estimated total
proved and risked probable reserves of 490.0 mmbbls of oil and 32.6 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:

<TABLE>
<CAPTION>
         CASE                  OIL RESERVES         PRICE ASSUMPTION             NET PRESENT VALUE AT 10%(1)
------------------------     ------------------    -------------------    ------------------------------------------
                                                                               PRE-TAX                POST-TAX
------------------------     ------------------    -------------------    -------------------    -------------------
                                 (mmbbls)                                      ($MM)                   ($MM)
<S>                          <C>                   <C>                    <C>                    <C>
        Proved                     348.5               Escalating              2,270.8                1,386.3
        Proved                     348.5                Constant               3,196.3                1,884.7
   Proved & Probable               490.0               Escalating              3,064.8                1,836.6
   Proved & Probable               490.0                Constant               4,276.9                2,491.6
</TABLE>

Note:

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


                                       6
<PAGE>


         The Corporation operates seven fields which account for approximately
49.8% of its proved reserves of oil as of January 1, 2004, and approximately
69.4% of production for 2003. Average daily production of oil for the
Corporation was 151,349 bopd in 2003 and 142,919 bopd in the three months ended
March 31, 2004.


NAME CHANGE

         Effective June 2, 2003, PetroKazakhstan amended its articles of
incorporation to change its name to PetroKazakhstan Inc. from Hurricane
Hydrocarbons Ltd. The name change was intended to explicitly describe and
advertise, both in Kazakhstan and in the international investment community, the
activities of the Corporation. The new name is also intended to emphasize the
Corporation's focus and continued commitment to be a major participant in the
growth of the petroleum industry in Kazakhstan. PetroKazakhstan's principal
subsidiaries that had previous names beginning with Hurricane have also been
renamed to reflect the new name of PetroKazakhstan.


CORPORATE HISTORY

         PetroKazakhstan was incorporated in 1986 under the BUSINESS
CORPORATIONS ACT (Alberta) (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 PetroKazakhstan Class A Common Shares.

         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 Class A Common Shares in the
capital of PetroKazakhstan (the "COMMON SHARES") are listed on the Toronto Stock
Exchange (the "TSX"), the New York Stock Exchange, the London Stock Exchange
(the "LSE") and traded on the Frankfurt Stock Exchange (the "FSE") under the
trading symbol "PKZ". The LSE listing was effected on October 16, 2003.


PRINCIPAL SUBSIDIARIES

         The following chart shows, as of December 31, 2003, the principal
subsidiaries of PetroKazakhstan, their respective jurisdictions of
incorporation, and the percentage ownership of voting securities held, directly
or indirectly, by PetroKazakhstan:


                                       7
<PAGE>


<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------------

                                          P E T R O K A Z A K H S T A N    I N C. (1)

----------------------------------------------------------------------------------------------------------------------------------
<S>                           <C>                               <C>                                      <C>
         |                               |                                         |                   |               |
         |                               |                                         |                   |               |
-------------------------     -------------------------             -------------------------------    |    ----------------------
|   PetroKazakhstan     |     | OJSC PetroKazakhstan  |             |   CJSC Turgai Petroleum (8) |    |    |    Ascot Petroleum  |
|  Overseas (Cyprus)    |     |  Kumkol Resources (5) |             |                             |    |    |      Consulting     |
|     Limited (2)       |  ___|                       |____         |                             |    |    |        Ltd. (1)     |
|                       |  |  |                       |   |         |                             |    |    |                     |
|     (Cyprus)          |  |  |      (Kazakhstan)     |   |         |          (Kazakhstan)       |    |    |        (England)    |
|       100%            |  |  |         93.9%         |   |         |              50%            |    |    |          100%       |
-------------------------  |  -------------------------   |         -------------------------------    |    ----------------------
         |                 |             |                |                        |                   |               |
         |                 |             |                |                        |                   |               |
         |                 |             |                |                        |                   |               |
         |                 |             |                |                        |                   |               |
         |                 |             |                |                        |                   |               |
-------------------------  |  -------------------------   |         -------------------------------    |    ----------------------
|   PetroKazakhstan     |  |  |  Kazgermunai LLP (6)  |   |         |   Valsera Holdings B.V. (9) |    |    |   PetroKazakhstan   |
|  Kumkol Limited (3)   |  |  |                       |   |         |                             |    |    |  Overseas Services  |
|                       |  |  |                       |   |         |                             |    |    |       Inc. (12)     |
|     (Cyprus)          |  |  |      (Kazakhstan)     |   |_________|          (Netherlands)      |    |____|                     |
|       100%            |  |  |          50%          |             |              100%           |         |        (Canada)     |
|                       |  |  |                       |             |                             |         |          100%       |
-------------------------  |  -------------------------             -------------------------------         ----------------------
         |                 |             |                                         |
         |                 |             |                                         |
         |                 |             |                                         |
         |                 |             |                                         |
         |                 |             |                                         |
-------------------------  |  -------------------------             -------------------------------
|    PetroKazakhstan    |  |  |PetroKazakhstan Finance|             |   OJSC PetroKazakhstan Oil  |
| Marketing Limited (4) |  |  |         B.V. (7)      |             |           Products          |
|                       |  |__|                       |             |                             |
|     (Cyprus)          |     |      (Netherlands)    |             |         (Kazakhstan)        |
|       100%            |     |          100%         |             |             96.7%           |
-------------------------     -------------------------             -------------------------------
</TABLE>

Notes:

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

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

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

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

         (5)      OJSC PetroKazakhstan Kumkol Resources ("PKKR") 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".

         (6)      Kazgermunai LLP 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. The Corporation is
                  currently in advanced stage negotiations to acquire the
                  remaining 50% participation interest that it does not own in
                  Kazakhstan LLP from its partners. See "General Development of
                  the Business-Formative Transactions-Kazgermunai LLP".

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


                                        8
<PAGE>

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

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

         (10)     OJSC PetroKazakhstan Oil Products ("PKOP") (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".

         (11)     Ascot Petroleum Consulting Ltd. provides management services
                  to companies in the PetroKazakhstan group.

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


                       GENERAL DEVELOPMENT OF THE BUSINESS


FORMATIVE TRANSACTIONS

         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 (the "KAM 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.

         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


                                       9
<PAGE>

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. 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 41.9% of the preferred shares that were outstanding at the
time of the PKKR Acquisition. As a result, as of December 31, 2003,
PetroKazakhstan held 93.9% of the voting shares of PKKR. The preferred stock is
currently entitled to an annual aggregate dividend preference of approximately
$33,000 and is non-participating except in a liquidation of PKKR, in which event
holders of preferred stock will participate to the extent of 6.0% of 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, 2003, the Corporation believes it met this commitment by the end of
2002. The amount of the 2002 expenditures and investments may be subject to
agreement with the government of Kazakhstan under the terms of the Corporation's
acquisition of PKKR. See "Risk Factors - Capital Expenditures Commitment".

         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.

         KAZGERMUNAI LLP. 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


                                       10
<PAGE>

phase of that formation. These shareholder loans, which totalled approximately
$50.1 million at December 31, 2003, are non-recourse to the Corporation except
to the extent of its interest in Kazgermunai. Kazgermunai is restricted from
paying dividends to its shareholders until all outstanding loans have been paid.

         The Corporation is currently in advanced stage negotiations to acquire
the remaining 50.0% participation interest that it does not currently own in
Kazgermunai from its partners. The Corporation's current 50.0% participation
interest accounts for 31.6% of its total proved and probable reserves.

         The table below sets out the outstanding long term debt of Kazgermunai
for the three years ended December 31, 2003.

                                              2003          2002         2001
                                           ----------    ----------   ----------
                                              ($M)          ($M)         ($M)

Shareholders Loans.......................    50,114        66,144       99,000
Loans from Kazakh Government.............    25,372        24,318       23,136
                                           ----------    ----------   ----------
     Total...............................    75,486        90,462       122,136
                                           ==========    ==========   ==========

         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 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:


                                       11
<PAGE>

         (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, 2003,
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, 2003 and 2002, which
reflects the financial impact of the PKOP Acquisition on the financial results
of the Corporation, are set out below:

                                                  2003        2002        2001
                                               ---------    --------    --------
DOWNSTREAM BUSINESS SEGMENT                      ($MM)        ($MM)       ($MM)

Revenues....................................     443.8        270.1       340.8
Segmented Net Income........................     158.2        50.0        16.1
Total Assets................................     157.5        169.1       215.2

         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, 2003, contained in PetroKazakhstan's 2003 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.

         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.


                                       12
<PAGE>

         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 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


                                       13
<PAGE>

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 7.4%.

         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 Paribas and ING Bank. This loan
facility has a maturity of four years and is repayable in 42 equal monthly
instalments commencing July 2003. The facility bears 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. PKKR has the right to repay the facility
prior to its maturity, under certain terms and conditions and is required to
make mandatory prepayments when the price of crude oil exceeds $24 Brent for the
preceding


                                       14
<PAGE>

month. As at December 31, 2003, PKKR has repaid principal in the amount of $82.9
million, representing a $50.0 million early repayment, $8.8 million of mandatory
prepayments and $24.1 million representing monthly instalment repayments. When
mandatory prepayments are made, monthly instalments are recalculated taking into
account the prepayment. The mandatory prepayments also form a cumulative
prepayment credit, which may, at the option of the Corporation, be used to
reduce the amount of a required monthly instalment by up to 65.0% in the event
that average Brent oil prices fall below $17.0 for the preceding month.

         The estimated prepayment amount for 2004, using forward Brent prices
and minimum assigned volumes, is $14.0 million. This amount has not been
classified as a current liability in the balance sheet forming part of the
consolidated financial statements of the Corporation for the year ended December
31, 2003, because actual Brent crude oil prices may differ significantly from
forward Brent.

         As a guarantor of the facility, PetroKazakhstan must comply with
certain covenants, including a limitation as to total debt and certain other
financial covenants. PetroKazakhstan must also maintain a minimum cash balance
of $40.0 million, of which an amount equal to three months principal and
interest payments must be maintained in a security deposit account.

         PKKR is required to hedge 450,000 barrels of crude oil production per
month for 2004 with a minimum price of $17.0 per bbl. As PKKR has not drawn the
full amount of the facility, the required hedged volumes have been reduced to
372,500 barrels of crude oil per month for 2004.

         As of December 31, 2003, the Corporation is in compliance with all
covenants under the facility agreement.

         Included in deferred charges in the balance sheet forming part of the
consolidated financial statements of the Corporation for the year ended December
31, 2003, are $2.8 million of issue costs related to the loan facility, which
will be amortized over the term of the facility.

         EUROBOND ISSUE

         On February 12, 2003, PetroKazakhstan's subsidiary, PetroKazakhstan
Finance B.V., issued a $125.0 million 95/8% Eurobond due February 12, 2010.
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.

         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 to $2.50 per barrel shipped. Transportation cost savings may
vary depending on the ultimate destination of future shipments and will become
apparent as sales are completed. In addition to cost savings, this facility
provides additional transportation and marketing capacity and flexibility and


                                       15
<PAGE>

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 will provide electricity for the field operations and
excess electricity for sale to the city of Kyzylorda and credit for Shymkent
refinery usage. Excess electricity will be provided 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.


RECENT DEVELOPMENTS

o    The gas utilization plant at Kumkol reached full design capacity in the
     first quarter of 2004.

o    The VDU at the Shymkent refinery became operational in early January 2004.
     Trial shipments of VGO were sent to the Black Sea for export in February
     2004.

o    The Corporation acquired two exploration areas to the north and south of
     the main Kyzylkiya field totalling 146 square kilometres.

o    In the first quarter of 2004, four production wells were drilled in
     Kyzylkiya field.

o    The Corporation intends to return to its shareholders up to C$160.0 million
     by way of a substantial issuer bid.

o    The Corporation's transportation differential has been significantly
     reduced due to the KAM pipeline, use of CPC and sales to Iran.

o    The Board recently 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.

BUSINESS TRENDS

         NEW EXPLORATION OPPORTUNITIES

         The Corporation has now received regulatory approval to become 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 4,290 square
kilometres. 450 kilometres of 2D seismic data have been acquired over the two
blocks. An exploration well was spudded in the northern Doshan block south of
the Aryskum field and is currently drilling. Two wells are planned in the
southern Zhamansu block later in 2004.


                                       16
<PAGE>

         EXPLORATION OF GAS RESOURCES

         Following the completion of the 55-megawatt 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.

         Evaluation has started on the feasibility of gas usage for miscible
hydrocarbons injection for enhanced oil recovery. A pilot project is being
designed for one of the Kumkol fields. In parallel, assessment is being made of
an LPG facility in Kumkol.

         As a 50.0% partner in the Kazgermunai joint venture, the Corporation is
also participating in Kazgermunai's LPG extraction plant for the Akshabulak
field. The 30 mmscfd plant will provide 2,900 bopd of LPG and 600.0 bopd of
condensate. The dry gas will be provided to the city of Kyzylorda through a
pipeline to be constructed by KazTransGas.


                                       17
<PAGE>

                           BUSINESS OF 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 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 340,119 acres in one
exploration license. One of the fields (North Nurali) 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>
                                         GROSS                                                  NET TO
                                      PROPERTY         NET TO                                  COMPANY
                                       PROVED         COMPANY                                  PROVED
                                        PLUS        PROVED PLUS                                 PLUS
                                      PROBABLE        PROBABLE                                PROBABLE        ESTIMATED PRESENT
                                         OIL            OIL            NET TO COMPANY            GAS             WORTH VALUE
                                      RESERVES        RESERVES           PROVED PLUS          RESERVES       (DISCOUNTED AT 10%)
                           FIELD     PRE-ROYALTY    PRE-ROYALTY     PROBABLE OIL RESERVES    POST-ROYALTY   OF FUTURE NET PRE-TAX
  FIELD(1)     INTEREST   OPERATOR      TAX            TAX           POST-ROYALTY TAX           TAX               CASHFLOW(5)
----------     --------   --------   ------------   -------------   ----------------------   ------------   -----------------------
                                      Constant        Constant      Constant    Escalating   Escalating     Constant    Escalating
                                         and            and          (1)(2)      (1) (3)       (1) (3)        (3)          (3)
                                     Escalating     Escalating
                                       (1) (2)      (2) (3) (4)
                                     ------------   -------------   ---------   ----------   ------------   ---------   -----------
                    %                  (mbbls)        (mbbls)        (mbbls)     (mbbls)        (bcf)        (US$)        (US$)
<S>              <C>       <C>       <C>            <C>             <C>         <C>          <C>          <C>          <C>
Kumkol South       100     PKKR         69.83          69.83         65.31        65.32         11.86       720,285        505,518
Kumkol North       50      Turgai      194.73          97.36         88.64        88.66         16.11       891,405        656,211
South Kumkol       100     PKKR         46.64          46.64         41.99        42.00         2.16        453,815        324,532
East Kumkol      n/a(4)    PKKR/        14.67          11.74         11.55        11.55         0.00         92,145         60,500
                           Turgai
North Nurali     100(4)    PKKR         12.75          12.75         12.56        12.56         0.00         91,088         61,072
Kyzylkia           100     PKKR         35.30          35.30         34.60        34.60         0.00        310,127        217,308
Aryskum            100     PKKR         47.65          47.65         46.79        46.79         0.00        443,741        298,276
Maibulak           100     PKKR         14.05          14.05         13.62        13.62         0.00        105,278         67,753
Akshabulak         50      KGM         287.01         143.50        130.32       130.32         0.00      1,100,607        836,665
Nurali             50      KGM          19.76           9.88          8.85         8.85         0.00         61,988         34,357
Aksai              50      KGM           2.65           1.33          1.19         1.19         0.00          6,443          2,639
                                     ----------     -----------    ----------   --------      --------    -----------   -----------
                      Total........    745.04          490.03        455.42      455.46         30.13      4,276,923     3,064,832
                                     ============   =============   =========   ==========   ============   =========   ===========
</TABLE>

Notes:

         (1)      Estimates of the Corporation's crude oil and natural gas
                  reserves in the Kumkol South, Kumkol North and South Kumkol
                  fields were prepared by McDaniel & Associates Consultants Ltd.
                  ("McDaniel"). In addition, McDaniel prepared data relating to
                  estimates of crude oil reserves in the other fields in order
                  to produce estimates of the Corporation's crude oil reserves.
                  See "Business


                                       18
<PAGE>

                  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.

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

         (4)      Assumed equity, final agreements and operatorship and 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 eight 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 2003, Kumkol South produced an average of
approximately 58,718 bopd from 158 producing wells. In the three months ended
March 31, 2004, Kumkol South produced an average of approximately 42,241 bopd.
As of January 1, 2004, estimated net proved reserves before royalty tax for
Kumkol South were 58.4 mmbbls of crude oil and 10.7 bcf of natural gas.

         KUMKOL NORTH. The Corporation has a 50.0% interest in Kumkol North
through Turgai Petroleum, which is the operator of the field. In 2003, Kumkol
North produced an average of approximately 29,746 bopd attributable to the
Corporation from 204 gross (102 net) wells. In the three months ended March 31,
2004, Kumkol North produced an average of approximately 33,428 bopd attributable
to the Corporation. As of January 1, 2004, estimated net proved reserves before
royalty tax for Kumkol North attributable to the Corporation were 74.1 mmbbls of
crude oil and 13.5 bcf of natural gas. It is proposed that Turgai Petroleum will
drill a further 22 gross development wells in this area in 2004.

         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 2003, average production from the South Kumkol Field was 29,846 bopd from 23
wells. In the three months ended March 31, 2004, the South Kumkol field produced
an average of approximately 25,816 bopd. As of January 1, 2004, estimated net
proved reserves before royalty tax for the South Kumkol field were 39.3 mmbbls
of crude oil and 2.1 bcf of natural gas.

         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 2003, the Akshabulak field produced an average of 15,351 bopd
attributable to the Corporation. In the three months ended March 31, 2004 the
Akshabulak field produced an average of approximately 20,024 bopd. As of January
1, 2004, the Akshabulak field had an estimated net to the Corporation proved
reserves before royalty tax of 96.1 mmbbls of crude oil. 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, which totalled approximately $50.1
million ($25.0 million net to the Corporation) at December 31, 2003, are
non-recourse to the Corporation except to the extent of its interest in
Kazgermunai. Kazgermunai is restricted from paying dividends to its shareholders
until all outstanding loans have been paid.


                                       19
<PAGE>

         The Corporation is currently in advanced stage negotiations to acquire
the remaining 50% participation interest that it does not own in Kazgermunai LLP
from its partners. See "General Development of the Business-Formative
Transactions-Kazgermunai LLP".

         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, 2003 there have been 23 wells drilled in this
field resulting in 10 current producing oil wells. Production commenced in this
field in August 2000. As of December 31, 2003 the Kyzylkiya field produced an
average of 7,925 bopd. In the three months ended March 31, 2004 the Kyzylkiya
field produced an average of approximately 9,425 bopd. As of January 1, 2004,
the Kyzylkiya field had an estimated net proved reserves before royalty tax of
23.1 mmbbls of crude oil.

         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 east.
Construction of the 117 kilometre, 16 wells 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 whole field and drilling and facilities installation
continues to enhance production for optimum reserves recovery.

         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,
2003, 16 wells have been drilled in this field. In 2003, production, which
averaged 7,000 bopd, was trucked to the CPF at the Kumkol field but now
production is fed directly into the KAM pipeline. In the three months ended
March 31, 2004, the Aryskum field produced an average of approximately 8,793
bopd. As of January 1, 2004, the Aryskum field had an estimated net proved
reserves before royalty tax of 32.8 mmbbls of crude oil.

         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, 2003, 9 wells from the Maibulak field are currently drilled in this
field. In 2003 production averaged 1,051 bopd. Production is trucked to the CPF
at the Kumkol field. The KAM pipeline, referred to above, passes some 40
kilometres to the south of this field. Maibulak is tied into this pipeline at
Aryskym. In 2001, 3D seismic was 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. In the three months ended March 31, 2004, the
Maibulak field produced an average of approximately 2,064 bopd. As of January 1,
2004, the Maibulak field had an estimated net proved reserves before royalty tax
of 8.1 mmbbls of crude oil.

         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 have enabled trucked production for field evaluation. The
Corporation is currently developing the production plan and hydrocarbons
contract, in conjunction with co-venturer Turgai Petroleum as the field incurs
into the Turgai Petroleum license area, for submission to and approval by the
government authorities. As of January 1, 2004, the East Kumkol field had an
estimated net to the Corporation, proved reserves before royalty tax of 7.9
mmbbls of crude oil. Working interest to the Corporation through both PKKR and
Turgai is assumed to be 80.0%, though 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 from six zones at depths of


                                       20
<PAGE>

1,700 metres of up to 500.0 bopd. However, as the reservoir is significantly
different from others in the locality and exhibits lower permeabilities, the
wells were retested in 2003 after fracture stimulation to achieve maximum
production rates. In addition, most wells will be put on long term test
production to enable satisfactory reserves evaluation and to self-fund ongoing
field development expenditures. In addition, three delineation appraisal wells
will be drilled to assess field reserves and 3D seismic has been acquired.
Negotiations are underway with the government of Kazakhstan for the award of the
production license and all necessary government approvals. As of January 1,
2004, the North Nurali field had an estimated net proved reserves before royalty
tax of 3.8 mmbbls of crude oil. For the three months ended March 31, 2004, the
North Nurali field produced approximately 121.0 bopd.

         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, 2004, the Nurali and Aksai fields had
net to the Corporation estimated proved reserves before royalty tax of 4.9
mmbbls of crude oil. Production from Nurali and Aksai for the three months ended
March 31, 2004, net to the Corporation, was 959.0 bopd. Two wells were drilled
and put on test production in 2003. The development will continue in 2004 with
the drilling of up to five more wells during the year based on the interim
production plan approved by the authorities.

         The Corporation acquired exploration license 952, which covers 497
square kilometres 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. Further appraisal work is planned in 2004 with 3D seismic acquisition and
two wells. The Corporation has successfully applied for and has been awarded the
open acreage adjacent to Kolzhan and north of Kyzylkiya. This new acreage
extension is 18 square kilometres. Apprasial of this acreage is planned in 2004
for a 3D seismic and at least one well.

         UNDEVELOPED ACREAGE. The Corporation owns a 100.0% interest in an
exploration license (License 260 D1) surrounding the Kumkol field covering
341,992 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. Amendments have been
made and agreed to for the license to run until June 2005. The Corporation is
applying for a two year extension to June 2007. A further two year extension is
available on request. Royalties and excess profit taxes on production from these
areas will be determined after commercial discovery in accordance with the
relevant legislation and any future hydrocarbon contract and production license.

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

         The following tables, which are derived from the reports of McDaniel
(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, 2003 on both an escalating
and constant price assumption


                                       21
<PAGE>

basis. The report of McDaniel on a constant price basis was effective January 1,
2004 and the report of McDaniel on an escalating price basis was effective
January 1, 2004. The McDaniel Reports provide estimates of the Corporation's oil
and natural gas reserves in all of its 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 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)       2,625,321       2,293,354       2,041,475       1,844,427       1,686,317

Proved Undeveloped(1)               1,944,376       1,464,307       1,154,874         943,162         791,181

Total Proved(1)                     4,569,697       3,757,660       3,196,349       2,787,589       2,477,498

Probable Reserves(2)                1,994,277       1,431,647       1,080,574         848,130         686,532

Proved Plus Probable Unrisked(2)    6,563,974       5,189,308       4,276,923       3,635,719       3,164,030


<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)        1,605,408       1,400,555       1,245,704       1,124,873       1,028,087

Proved Undeveloped(1)                1,123,396         826,832         638,969         512,375         422,702

Total Proved(1)                      2,728,804       2,222,387       1,884,673       1,637,248       1,450,789

Probable Reserves(2)                 1,143,668         812,829         606,971         471,099         376,974

Proved Plus Probable Unrisked(2)     3,872,472       3,040,216       2,491,644       2,108,347       1,827,763
</TABLE>

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

                                                       ESTIMATED RESERVES NET TO THE CORPORATION
                                              ----------------------------------------------------------
                                               LIGHT AND MEDIUM CRUDE OIL           NATURAL GAS
                                              ---------------------------   ----------------------------
                                              PRE ROYALTY    POST ROYALTY   PRE ROYALTY     POST ROYALTY
                                                  TAX            TAX            TAX             TAX
                                              -----------    ------------   -----------     ------------
                                                        (mbbls)                        (bcf)
<S>                                              <C>           <C>              <C>            <C>
Proved Developed Producing(1).............       203.14        189.28           0.00           0.00
Proved Undeveloped(1).....................       145.33        136.00          26.37          24.39
Total Proved(1)...........................       348.47        325.28          26.37          24.39
Probable Reserves(2)......................       141.56        130.14           6.20           5.73
Proved Plus Probable Unrisked(2)..........       490.03        455.42          32.58          30.12
</TABLE>


                                       22
<PAGE>

                     TOTAL FUTURE NET REVENUE (UNDISCOUNTED)
               AS OF DECEMBER 31, 2003, CONSTANT PRICES AND COSTS

<TABLE>
<CAPTION>
                                                                                            FUTURE                 FUTURE
                                                                                             NET                     NET
                                                                              WELL         REVENUE                 REVENUE
                                                                        ABANDONMENT AND     BEFORE                  AFTER
  RESERVES                                 OPERATING     DEVELOPMENT      RECLAMATION       INCOME     INCOME      INCOME
  CATEGORY       REVENUE      ROYALTIES      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)     6,369,862      424,138     1,157,489       206,766           11,772       4,569,697   1,840,893   2,728,804
Proved Plus
Probable
Reserves(2)     8,952,705      632,403     1,448,979       294,271           13,078       6,563,974   2,691,502   3,872,472
</TABLE>


                     FUTURE NET REVENUE BY PRODUCTION GROUP
               AS OF DECEMBER 31, 2003, CONSTANT PRICES AND COSTS

<TABLE>
<CAPTION>
                                                                                                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                3,196,349
                                   and 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                4,276,923
Reserves(2)                        and 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 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.


                                       23
<PAGE>

                  "Proved developed non-producing reserves" have not been
                  defined separately. 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. In multi-well
                  pools it may be appropriate to allocate total pool reserves
                  between the developed and undeveloped categories or to
                  subdivide the developed reserves for the pool between
                  developed producing and developed non-producing. McDaniel have
                  allocated reserves to categories of 'proved developed
                  producing' and 'proved undeveloped' and as such have not
                  subdivided the 'proved developed non-producing reserves' from
                  the 'proved undeveloped reserves'.

         (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)     "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 $307.42 million,
                  approximately $294.27 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 $92.31 million, $76.82 million and $48.45
                  million, respectively, for the 2004, 2005 and 2006 calendar
                  years on an escalated price basis and $92.31 million, $75.32
                  million and $46.57 million, respectively, for the 2004, 2005
                  and 2006 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 $18.20/bbl of crude
                  oil, the last transaction price the Corporation received for
                  oil in 2003 and used $1.05/mcf of natural gas 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
                  2004, the first year reflected in the proved plus probable
                  estimates of present worth value of future net revenue, are 59
                  mbbls of oil and 3.1 bcf of natural gas (Kumkol South accounts
                  for 17.6 mbbls and Kumkol North 13.0 mbbls).


<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)(7)
                                   --------------------------------------------------------------------------
                                                                     Discounted at
                                                    ---------------------------------------------------------
                                   Undiscounted         5%             10%             15%             20%
                                   -------------    ---------       ---------       ---------       ---------
                                       ($M)            $M)            ($M)            ($M)             ($M)
<S>                                <C>              <C>             <C>             <C>            <C>
Proved Developed
Producing(1)...............           1,816,701      1,611,516     1,454,169      1,329,811         1,229,037
                                      1,431,931      1,053,369      816,652        658,758           547,737
Proved Undeveloped(1)......
                                      3,248,632      2,664,885    2, 270,821      1,988,568         1,776,774
Total Proved(1)............
                                      1,545,370      1,076,751      794,011        612,211           488,928
Probable Reserves(2).......

Proved Plus Probable                  4,794,002      3,741,636     3,064,832      2,600,779         2,265,702
Unrisked(2)................


<CAPTION>
                                           ESTIMATED PRESENT WORTH VALUE AFTER INCOME TAX(3)(4)(6)(7)
                                   --------------------------------------------------------------------------
                                                                     Discounted at
                                                    ---------------------------------------------------------
                                   Undiscounted         5%             10%             15%             20%
                                   ------------     ---------       ---------       ---------       ---------
                                       ($M)            $M)            ($M)            ($M)             ($M)
<S>                                <C>              <C>             <C>             <C>            <C>
Proved Developed
Producing(1)...............           1,151,731      1,018,863        917,445        837,578        773,039
                                       858,371        617,335         468,841        371,097        303,172
Proved Undeveloped(1)......
                                      2,010,102      1,636,198       1,386,286      1,208,675      1,076,211
Total Proved(1)............
                                       895,085        617,245         450,361        343,540        271,444
Probable Reserves(2).......

Proved Plus Probable                  2,905,188      2,253,442       1,836,647      1,552,215      1,347,655
Unrisked(2)................
</TABLE>


                                       24
<PAGE>

                 ESTIMATED RESERVES ON AN ESCALATING PRICE BASIS

<TABLE>
<CAPTION>
                                                             ESTIMATED RESERVES NET TO THE CORPORATION
                                               -----------------------------------------------------------------------
                                                  LIGHT AND MEDIUM CRUDE OIL                   NATURAL GAS
                                               ---------------------------------    ----------------------------------
                                                PRE ROYALTY       POST ROYALTY       PRE ROYALTY        POST ROYALTY
                                                    TAX               TAX                TAX                TAX
                                               ---------------   ---------------    ---------------    ---------------
                                                            (mbbls)                                (bcf)
<S>                                            <C>               <C>                <C>                <C>
Proved Developed Producing(1).............         203.14            189.26              0.00               0.00
Proved Undeveloped(1).....................         145.33            136.05             26.37              24.40
Total Proved(1)...........................         384.47            325.31             26.37              24.40
Probable Reserves(2)......................         141.56            130.15              6.20               5.74
Proved Plus Probable Unrisked(2)..........         490.03            455.46             32.58              30.13


<CAPTION>
                                       TOTAL FUTURE NET REVENUE (UNDISCOUNTED)
                               AS OF DECEMBER 31, 2003, ESCALATING PRICES AND COSTS

                                                                                        FUTURE                     FUTURE
                                                                           WELL           NET                       NET
                                                                        ABANDONMENT     REVENUE                   REVENUE
                                                                            AND         BEFORE                     AFTER
  RESERVES                               OPERATING      DEVELOPMENT     RECLAMATION     INCOME       INCOME        INCOME
  CATEGORY       REVENUE    ROYALTIES      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)     5,120,030    338,250     1,303,429        215,151         14,569       3,248,632    1,238,530    2,010,102
Proved   Plus
Probable
Reserves(2)     7,279,373    509,140     1,652,174        307,419         16,639       4,794,002    1,888,814    2,905,188


<CAPTION>
                                        FUTURE NET REVENUE BY PRODUCTION GROUP
                                  AS OF DECEMBER 31, 2003, 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                2,270,821
                                   and 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                3,064,832
Reserves(2)                        and other by-products)
</TABLE>


                                       25
<PAGE>

<TABLE>
<CAPTION>
                                        FUTURE NET REVENUE BY PRODUCTION GROUP
                                  AS OF DECEMBER 31, 2003, ESCALATING PRICES AND COSTS

                                                                                                FUTURE NET REVENUE
      RESERVES CATEGORY                               PRODUCTION GROUP                          BEFORE INCOME TAXES
-------------------------------    -------------------------------------------------------    ------------------------
                                                                                                  (discounted at
                                                                                                     10%/year)
                                                                                                       ($M)
<S>                                <C>                                                        <C>
                                   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 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.

                  "Proved developed non-producing reserves" have not been
                  defined separately. 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. In multi-well
                  pools it may be appropriate to allocate total pool reserves
                  between the developed and undeveloped categories or to
                  subdivide the developed reserves for the pool between
                  developed producing and developed non-producing. McDaniel have
                  allocated reserves to categories of 'proved developed
                  producing' and 'proved undeveloped' and as such have not
                  subdivided the 'proved developed non-producing reserves' from
                  the 'proved undeveloped reserves'.

         (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)     "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 $307.42 million,
                  approximately $294.27 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 $92.31 million, $76.82 million and $48.45
                  million, respectively, for the 2004, 2005 and 2006 calendar
                  years on an escalated price basis and $92.31 million, $75.32
                  million and $46.57 million, respectively, for the 2004, 2005
                  and 2006 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


                                       26
<PAGE>

                  in this escalated price basis are set out below in the table
                  entitled "McDaniel and Associates Consultants Ltd. Summary of
                  Price Forecasts for Escalating Case, January 1, 2004".

         (6)      The volume of production (including royalties) estimated for
                  2004, the first year reflected in the proved plus probable
                  estimates of present worth value of future net revenue, are 59
                  mbbls of oil and 3.1 bcf of natural gas (Kumkol South accounts
                  for 17.6 mbbls and Kumkol North 13.0 mbbls).


<TABLE>
<CAPTION>
                                     MCDANIEL & ASSOCIATES CONSULTANTS LTD.
                          SUMMARY OF PRICE FORECASTS FOR ESCALATING CASE, JANUARY 1, 2004

                                               KUMKOL/BRENT
            WTI CRUDE OIL    BRENT CRUDE    DIFFERENTIAL WITH    KUMKOL PRICE WITH     INFLATION      NATURAL GAS
   YEAR         PRICE         OIL PRICE        KAM PIPELINE        KAM PIPELINE         FORECAST         PRICE
              ($US/Bbl)       ($US/Bbl)          ($US/Bbl)           ($US/Bbl)            (%)          ($US/Bbl)

<S>          <C>              <C>           <C>                  <C>                   <C>            <C>
   2004         29.00           27.50             11.41                16.09              2.0            1.05
   2005         26.50           24.97             11.18                13.79              2.0            1.05
   2006         25.50           23.94             10.96                12.98              2.0            1.07
   2007         25.00           23.41             10.74                12.67              2.0            1.09
   2008         25.00           23.38             10.52                12.85              2.0            1.11
   2009         25.50           23.84             10.31                13.53              2.0            1.14
   2010         26.00           24.31             10.11                14.20              2.0            1.16
   2011         26.50           24.78              9.91                14.87              2.0            1.18
   2012         27.00           25.24              9.71                15.54              2.0            1.21
   2013         27.50           25.71              9.51                16.19              2.0            1.23
   2014         28.10           26.27              9.32                16.95              2.0            1.25
   2015         28.70           26.83              9.14                17.70              2.0            1.28
   2016         29.30           27.40              9.00                18.40              2.0            1.31
   2017         29.90           27.96              9.00                18.96              2.0            1.33
   2018         30.50           28.52              9.00                19.52              2.0            1.36
   2019         31.10           29.08              9.00                20.08              2.0            1.39
   2020         31.70           29.64              9.00                20.64              2.0            1.41
   2021         32.30           30.20              9.00                21.20              2.0            1.44
   2022         32.90           30.76              9.00                21.76              2.0            1.47
   2023         33.60           31.41              9.00                22.41              2.0            1.50
</TABLE>

-----------------------

PRICING ASSUMPTIONS:

(1)      WTI and Brent price forecast based on the McDaniel January 1, 2004
         price forecast. Brent to Kumkol field differentials were forecast to
         reduce by 4 % per year to a minimum of $9.00/bbl. Kumkol field prices
         are forecast after deduction of VAT.

(2)      The average Platt's Brent for 2003 was $28.83/bbl and the average
         differential was $14.11/bbl.


                                       27
<PAGE>

                     MCDANIEL & ASSOCIATES CONSULTANTS LTD.
          SUMMARY OF PRICE FORECASTS FOR CONSTANT CASE, JANUARY 1, 2004

                              INFLATION
   YEAR      KUMKOL PRICE      FORECAST     NATURAL GAS PRICE
              ($US/Bbl)           %              ($US/mcf)

   2004         18.20            0.0               1.05
   2005         18.20            0.0               1.05
   2006         18.20            0.0               1.05
   2007         18.20            0.0               1.05
   2008         18.20            0.0               1.05
   2009         18.20            0.0               1.05
   2010         18.20            0.0               1.05
   2011         18.20            0.0               1.05
   2012         18.20            0.0               1.05
   2013         18.20            0.0               1.05
   2014         18.20            0.0               1.05
   2015         18.20            0.0               1.05
   2016         18.20            0.0               1.05
   2017         18.20            0.0               1.05
   2018         18.20            0.0               1.05
   2019         18.20            0.0               1.05
   2020         18.20            0.0               1.05
   2021         18.20            0.0               1.05
   2022         18.20            0.0               1.05
   2023         18.20            0.0               1.05

---------------------------

PRICING ASSUMPTIONS:

         (1)      The Kumkol price is the oil price received in December 2003.



                                       28
<PAGE>

                         RECONCILIATION OF NET RESERVES
                            BY PRINCIPAL PRODUCT TYPE

                            CONSTANT PRICES AND COSTS
                               (POST ROYALTY TAX)

<TABLE>
<CAPTION>
                                                                                ASSOCIATED AND
                                   LIGHT AND MEDIUM OIL                       NON-ASSOCIATED GAS
                        ---------------------------------------       ---------------------------------
                                                       NET                                       NET
                                                      PROVED                                    PROVED
                           NET             NET         PLUS                                      PLUS
     FACTORS             PROVED         PROBABLE     PROBABLE         PROVED      PROBABLE     PROBABLE
-----------------       --------        ---------    ----------       -------     --------    ---------
                          (mbbl)          (mbbl)       (mbbl)         (bscf)       (bscf)       (bscf)
<S>                     <C>             <C>          <C>              <C>         <C>         <C>

December 31, 2002        330.59          150.25       480.83           18.71        6.26        24.97
  Extensions              12.95           -0.14        12.80            0.00        0.00         0.00
  Improved
  Recovery                 0.00            0.00         0.00            0.00        0.00         0.00
  Technical
  Revisions               32.24          -19.96        12.28            5.67       -0.52         5.15
  Discoveries              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
  Dispositions             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
  Production             -50.50            0.00       -50.50            0.00        0.00         0.00
December 31, 2003        325.28          130.14       455.42           24.39        5.73        30.12
</TABLE>




                                       29
<PAGE>

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


<TABLE>
<CAPTION>
                       PROVED RESERVES -CONSTANT PRICES AND COSTS

                                   PERIOD AND FACTOR                                           2003 ($M)
         -------------------------------------------------------------------------------------------------
<S>                                                                                          <C>
         Estimated Future Net Revenue at Beginning of Year Before Tax(1)                       2,469,788
         Estimated Future Tax at Beginning of Year(2)                                          1,010,374
                                                                                             -------------
         ESTIMATED FUTURE NET REVENUE AT BEGINNING OF YEAR                                     1,459,414
         Oil and Gas Sales During the Period Net of Royalties and Production Costs (3)         (267,539)
         Changes due to Prices (4)                                                              663,091
         Original forecasted 2003 Development Cost(5)                                           147,049
         Changes in Estimated Future Development Costs (6)                                       17,996
         Extensions and Improved Recovery(7)                                                    127,216
         Discoveries                                                                               --
         Acquisitions of Reserves                                                                  --
         Dispositions of Reserves                                                                  --
         Net Change Resulting from Revisions in Quantity Estimates(8)                          (893,285)
         Accretion of Discount                                                                  246,979
         Net Change in Income Taxes(9)                                                          383,752
                                                                                             -------------
         ESTIMATED FUTURE NET REVENUE AT END OF YEAR                                           1,884,673
</TABLE>

Notes:

         (1)      McDaniel's January 1, 2003 Evaluation.

         (2)      Effective Tax Rate defined by McDaniel's January 1, 2004
                  Evaluation applied to the 'Estimated Future Net Revenue at
                  Beginning of Year Before Tax'.

         (3)      Based on the actual segmented Upstream revenue defined on FS11
                  of the 2003 Annual Report (Net Income adjusted for Interest,
                  DD&A and Foreign Exchange losses).

         (4)      Represents the effect of the difference in the estimated crude
                  oil price between the McDaniel Reports as at January 1, 2003
                  and January 1, 2004.

         (5)      Estimated 2003 Development Cost at the beginning of the year.

         (6)      Calculated by adding the 2003 estimated development costs to
                  the end of year future development costs and re-basing this to
                  the beginning of the year.

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

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

         (9)      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 2003 (as defined by the Upsteam segmented tax
                  on FS11 of the 2003 Annual Report).


                                       30
<PAGE>

         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 106 (77 net) new producers, 38 (26 net) injectors and 75 (58 net)
recompletions will be required to develop 145 mmbbls of (net) 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 85% 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 77 (53 net) new producers, 15 (9 net) injectors and 52 (34 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 is based on judgments regarding future
events, actual results will vary and the variations may be material.


                                       31
<PAGE>

<TABLE>
<CAPTION>
                                           DEVELOPMENT COSTS DEDUCTED IN THE ESTIMATE OF FUTURE NET REVENUE

                                      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>
2004......................         78,395          74,747           78,395         74,747         92,312          88,016
2005......................         50,802          44,034           51,818         44,915         76,823          66,589
2006......................         28,910          22,781           30,078         23,701         48,453          38,180
2007......................         13,955          9,997            14,809         10,609         26,584          19,044
2008......................          7,671          4,995             8,303          5,407         14,125          9,199
</TABLE>

         Future developments will be financed from existing cash resources and
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, 2003,
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>
            NAME OF FIELD                        PRODUCING WELLS                 SHUT-IN WELLS(1)
--------------------------------------    ------------------------------   ------------------------------
                                            GROSS(2)           NET(3)        GROSS(2)          NET(3)
--------------------------------------    -------------    -------------   -------------    -------------
<S>                                       <C>              <C>             <C>              <C>
Kumkol South.........................         158              158              25                25
South Kumkol.........................          23               23               0                 0
Kyzylkiya............................          19               19               4                 4
Aryskum..............................          16               16               4                 4
Maibulak.............................           9                9               1                 1
East Kumkol..........................           5                5               2                 2
Kumkol North.........................         204              102               7               3.5
Akshabulak...........................          16                8               1                .5
Nurali...............................           6                3               1                .5
Aksai................................           4                2               1                .5
                                          -------------    -------------   -------------    -------------
     Total..............................      460              345              50               44
                                          =============    =============   =============    =============
</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.


                                       32
<PAGE>

         DRILLING ACTIVITIES

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

<TABLE>
<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
                          ===========            ===========               ===========            ===========


<CAPTION>
                                                      YEAR ENDED DECEMBER 31, 2003
                          -----------------------------------------------------------------------------------
                                       GROSS(1)                                           NET(2)
                          ----------------------------------               ----------------------------------
                          Exploratory            Development               Exploratory            Development
                          -----------            -----------               -----------            -----------
<S>                       <C>                    <C>                       <C>                    <C>
Oil wells..........            2                     61                         2.0                   37.0
Natural Gas Wells..            -                      -                          -                      -
Service Wells......            -                      7                          -                     4.0
Dry and abandoned..            2                      -                         2.0                     -
                          -----------            -----------               -----------            -----------
Total..............            4                     68                         4.0                   41.0
                          ===========            ===========               ===========            ===========
</TABLE>

Notes:

         (1)      "Gross" wells are defined as the total number of wells
                  completed in 2003 in which the Corporation has 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.

         NON-PRODUCING PROPERTIES

         The East Kumkol field was on test production in 2003 but is now shut in
awaiting award of the hydrocarbon contract from the government, which is
anticipated in the third quarter of 2004.

         PROPERTIES WITH NO ATTRIBUTED RESERVES

         The Corporation has exploration acreages of 1,524,237 acres (gross) or
1,259,329 acres (net) in the three licenses, 260D-1 (100% equity), 952 (100%
equity) and 951-D (75% equity). Total financial commitments amount to $8 million
up to June 24, 2005.

         ABANDONMENT AND RECLAMATION COSTS

         The Corporation estimates abandonment and reclamation costs of $73.4
million (net) through internal assessment. No salvage value has been assumed in
this estimation. A total of 569 wells (net to the Corporation) will be
abandoned.

         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 for each of the last
four fiscal quarters and the year then ended:


                                       33
<PAGE>

<TABLE>
<CAPTION>
                                                    AVERAGE DAILY PRODUCTION

                                                        THREE MONTHS ENDED
                                   --------------------------------------------------------------      YEAR ENDED
                                    MAR. 31/03      JUNE 30/03      SEPT. 30/03      DEC. 31/03        DEC. 31/03
                                   ------------    ------------    --------------    ------------    ---------------
<S>                                <C>             <C>             <C>               <C>             <C>
Natural gas (mmcfd)(1)........          -               -                -                -                -
Light/medium crude oil               140,765         145,066          154,712          164,559          151,349
(bopd)(1).....................
NGL (bopd)(1).................          -               -                -                -                -
                                   ------------    ------------    --------------    ------------    ---------------
       Total liquids (bopd)(1)       140,765         145,066          154,712          164,559          151,349
                                   ============    ============    ==============    ============    ===============
</TABLE>

Note:

         (1)      Before deduction of royalties.


<TABLE>
<CAPTION>
                              PRODUCTION VOLUMES FOR YEAR ENDED DECEMBER 31, 2003


                                           LIGHT/MEDIUM CRUDE
                                                   OIL
                                                (MMBBLS)                 NATURAL GAS                   NGL
                                          ----------------------    ----------------------    ----------------------
<S>                                       <C>                       <C>                       <C>
Kumkol South........................             21.45                        0                         0
Kumkol North........................             10.86                        0                         0
South Kumkol........................             10.90                        0                         0
East Kumkol.........................              0.00                        0                         0
North Nurali........................              0.17                        0                         0
Kyzylkya............................              2.89                        0                         0
Aryskum.............................              2.56                        0                         0
Maibulak............................              0.38                        0                         0
Akshabulak..........................              5.70                        0                         0
Nurali..............................              0.24                        0                         0
Aksai...............................              0.08                        0                         0
                                          ----------------------    ----------------------    ----------------------
     Total................................       55.24                        0                         0
                                          ======================    ======================    ======================
</TABLE>

<TABLE>
<CAPTION>
                                                          CRUDE OIL EXPORT NETBACKS

                                                        THREE MONTHS ENDED
                                   --------------------------------------------------------------      YEAR ENDED
                                    MAR. 31/03      JUNE 30/03      SEPT. 30/03      DEC. 31/03        DEC. 31/03
                                   ------------    ------------    --------------    ------------    ---------------
                                   ($ per bbl)     ($ per bbl)      ($ per bbl)      ($ per bbl)      ($ per bbl)
<S>                                <C>             <C>             <C>               <C>             <C>

Net sales price achieved......        23.21           18.56            21.56            22.21            21.32
Transportation costs..........       (8.32)          (7.98)           (7.75)           (6.63)            (7.21)
Production and refining costs.       (1.36)          (1.32)           (1.11)           (1.03)            (1.19)
Purchase of crude oil.........          -               -                -                -                -
Royalty.......................       (0.75)          (0.94)           (1.73)           (1.68)            (1.27)
Selling costs.................       (0.16)          (0.17)           (0.24)           (0.17)            (0.19)
General and administrative....       (0.61)          (0.58)           (0.59)           (0.61)            (0.59)
                                   ------------    ------------    --------------    ------------    ---------------
Total....                             12.01           7.57             10.14            12.09            10.87
                                   ============    ============    ==============    ============    ===============
</TABLE>


                                       34
<PAGE>

<TABLE>
<CAPTION>

                                                        NET OIL AND GAS CAPITAL EXPENDITURES

                                                        THREE MONTHS ENDED
                                   --------------------------------------------------------------      YEAR ENDED
                                    MAR. 31/03      JUNE 30/03      SEPT. 30/03      DEC. 31/03        DEC. 31/03
                                   ------------    ------------    --------------    ------------    ---------------
                                      ($MM)           ($MM)            ($MM)           ($MM)             ($MM)
<S>                                <C>             <C>             <C>               <C>             <C>
Development wells.............        3,921           9,497           12,718           30,631            56,767
Facilities and equipment......       36,735          18,811           13,743           22,712            92,002
Exploration...................        3,916           4,545            7,885           18,019            34,365
Property acquisitions, net of
dispositions..................          -               -                -                -                -
                                   ------------    ------------    --------------    ------------    ---------------
         Total................       44,572          32,853           34,346           71,362           183,134
                                   ============    ============    ==============    ============    ===============
</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. Kazgermunai holds the exploration and
production licenses for the Akshabulak, Nurali and Aksai fields. In addition,
PKKR holds three exploration licenses for undeveloped property covering a total
of 1,259,329 (net) acres in the South Turgai Basin. 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


                                       35
<PAGE>

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 was 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.

         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. The Corporation expects that
the full investment commitment will be met by Kazgermunai by the end of 2004. In
part to satisfy this commitment, Kazgermunai was required, as of December 31,
2001, to construct infrastructure facilities on the Akshabulak field, including
a 24,300 bopd capacity pipeline, an oil collecting and processing facility with
a minimum capacity of 20,000 bopd, and drill 35 wells. Kazgermunai is expected
to complete the drilling requirement in 2004. Processing facilities with a
capacity of 25,000 bopd have been put in place in this field. A second phase of
development has been designed to significantly increase production capacity to
over 76,000 bopd. The approval for this second phase is under consideration. 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

                                       36
<PAGE>

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,
2004, 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.

         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
Kazakhstani 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. Capital
expenditures in the Aryskum field to date are approximately $10.2 million.


                                       37
<PAGE>

         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          -  3.0% on first 500,000 tonnes of cumulative annual production
and 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>

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.


                                       38
<PAGE>

         EXCESS PROFITS TAX

         The hydrocarbon contracts that the Corporation entered into under its
production licenses contain provisions for an excess profits tax. The tax rate
is determined by the economic 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. An allocation of the
corporate income tax is 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:

               INTERNAL RATE OF RETURN          EXCESS PROFITS TAX RATE
               -----------------------         ------------------------
                   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%

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

               INTERNAL RATE OF RETURN          EXCESS PROFITS TAX RATE
               -----------------------         ------------------------
                   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%

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

               INTERNAL RATE OF RETURN          EXCESS PROFITS TAX RATE
               -----------------------         ------------------------
                   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%


                                       39
<PAGE>

         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.

         The Corporation did not incur excess profit tax in 2003; however, it
may be subject to excess profit tax for the year ending December 31, 2004 and
subsequent years with respect to certain fields.

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 151,349 bopd in its
year ended December 31, 2003. 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 2001.

         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.

         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, OJSC 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


                                       40
<PAGE>

Kazakhstani Tenge equivalent of $150.0 million on or before December 31, 2001 in
capital expenditures or investments. The agreement provided that if not all of
the required investment was made by the required date, the Corporation would
have been required to pay a penalty of 15.0% of the shortfall to the Kazakhstan
government. As of December 31, 2003, the Corporation believes it has met this
commitment. See "Capital Expenditures Commitment".

         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, 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. This new
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 to $2.50 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


                                       41
<PAGE>

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 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. This facility was not used in 2003 as the rail
tariffs to Atyrau increased. In addition, the Corporation has the ability to
transport its crude oil and refined products to the Black Sea by rail and/or
through the 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 transhipment 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. Completion of the terminal will not occur
until long term contracts have been established with China.

         During 2003, the cost of rail and pipeline transportation in Kazakhstan
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 Bosphorus straits.

         The Corporation decided to create 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


                                       42
<PAGE>

neighbouring Kazakhstan to improve further the transportation economics and the
capacity of the routes. These include China, Iran, Uzbekistan, Turkmenistan and
Ukraine. Additionally, the Corporation has begun to acquire railcars for its own
dedicated use through purchase and lease arrangements. Part of the strategy is
to open new routes to new customers to create diversification and competition.
By the end of 2003 new routes and customers had been contracted in Iran, China
and Uzbekistan.

         The strategy of selling direct to end users continues to be developed.
By the end of 2003, 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 of 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 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.

         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 Petroleum commenced via the
CPC pipeline in October 2003. Shipments were 20,000 bopd by year-end 2003 and
are expected to gradually increase to 31,800 bopd, of which the Corporation's
share will be 50.0%. The Corporation is also examining other options to gain
direct access to the CPC pipeline.

         EXPORTS TO CHINA

         In June 2003, the Corporation initiated shipments to China from the
terminal at Atasu, which is 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.

         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.

         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 will supply Kumkol crude oil to the Tehran refinery
and in exchange receive Iranian Light on the Persian Gulf. The Kumkol crude oil
will be 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
Naftitran Intertrade Company Limited ("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


                                       43
<PAGE>

oil to the Tehran refinery were completed by NICO and the first shipment of
26,800 barrels of crude oil was delivered to the Tehran refinery. Sales via this
route have continued into 2004 and are expected to build over the first half of
2004 to the current contractual maximum of 21,000 bopd.

         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 6.2 million tonnes per year. In 1991, the
LK-6U unit's capacity was expanded to 7.0 million tonnes per year. In 1994, a
VDU was completed, but did not operate until recently, and in 1997 a coke unit
was almost completed before work on it was diverted to its conversion to a
visbreaker. In 1997, PKOP completed a condensate distillation unit, which has an
annual capacity of 500,000 tonnes.

         The VDU has been re-vamped and put into operation. The project was
completed in late 2003 and permits 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. Because VGO's characteristics
require special transportation facilities, a number of transportation routes are
currently being evaluated and tested.

         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 oil and natural gas fields in
Uzbekistan, all of which are connected to the refinery by railroad, and Russian
oilfields, which are connected to the refinery by pipeline.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.........................              144,000                    7,000,000
     Gas fractionation unit.................................                 -                        440,000
     Catalytic reformer.....................................               23,000                    1,000,000

CATALYTIC HYDRO TREATER:
     for Diesel Fuel........................................               40,000                    2,000,000
     for Jet Fuel...........................................               13,000                     600,000
     for Naphtha............................................               23,000                    1,000,000
     Sulphur plant..........................................                 -                         5,000
     Condensate distillation................................               11,000                     500,000
</TABLE>


                                       44
<PAGE>

<TABLE>
<CAPTION>
              SHYMKENT REFINERY CONFIGURATION                                          CAPACITY
-------------------------------------------------------------       ---------------------------------------------
                                                                          (bopd)                   (Tonne/Year)
<S>                                                                  <C>                          <C>
UPGRADING COMPLEX:
     Vacuum distillation unit...............................               67,000                    3,500,000
     Visbreaker (former coker)..............................               20,000                    1,200,000
</TABLE>

         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 as other 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 additional 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 programme 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.

         SAFETY AND ENVIRONMENTAL INITIATIVES

         Currently, pond water and atmospheric substance emissions from PKOP are
within established guidelines. PKOP complies with all the necessary ecological
and licensing documents. The industrial environment within the control zone of
the refinery is constantly under review so that discharges of industrial
effluent, soil conditions and underground water are continuously monitored.

         The Corporation is involved in several projects with a view to reducing
the impact the refinery has on the environment, thereby decreasing the risk of
pollution:

         o    Specialist ecological-hydro geological research on contamination
              of the underground water supply within the control zone of the
              refinery was conducted by RGP "South-Kazakhstan GGME". This
              project aims to prevent the contamination of underground water
              while re-using the same for the operation of the refinery.

         o    Implementation of treated effluent from the sewage system,
              recycling water supply and fire control system at the refinery.

         In addition, works on flood prevention of the Badam River have been
conducted. These include bank consolidation and the treatment of sewage during
transfer to/from the Badam River. 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.


                                       45
<PAGE>

         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.

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

         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. Continuous improvement through replacements of
equipment and reviews of procedures and practices will ensure good equipment
reliability and efficient operations.

         In addition, cost reduction continues, following the additional
divestiture of certain divisions in 2003 which were not part of the refinery's
core business.

         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 all of the Downstream activities.

         PRODUCTS MARKETING AND TRANSPORTATION

         The Corporation sells domestically and exports, mainly to other FSU
countries, a full range of petroleum fuel, including high quality diesel, LPG,
gasoline, jet fuel and four grades of gasoline. 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.


                                       46
<PAGE>

         COMPETITION

         The Shymkent refinery is the only refinery in the southern Kazakhstan
market. 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 would create
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. During 2003 imports from Russia were lower
than in 2002, returning to more normal volumes. 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 their 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 Kazakhstan 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.


                                       47
<PAGE>

         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. In addition, under the
policy, the government restricts export of crude oil to companies that do not
produce crude oil in Kazakhstan.

         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 western 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.


                          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)(5)(6)    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 February 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 Manger for
                                                                 Production and Operations, UK with Lasmo plc and
                                                                 prior thereto, he was Chief Petroleum Engineer
                                                                 for Occidental Petroleum Eastern.
</TABLE>


                                       48
<PAGE>

<TABLE>
<CAPTION>
     NAME AND MUNICIPALITY
         OF RESIDENCE                   POSITIONS HELD                          PRINCIPAL OCCUPATION
 ----------------------------    ---------------------------     --------------------------------------------------
<S>                              <C>                             <C>
 Nicholas Gay                    Senior Vice-President,          Senior Vice-President, Finance and Chief Financial
 London, England                 Finance and Chief Financial     Officer of PetroKazakhstan from October 2001 to
                                 Officer                         present.  Prior thereto, he was Chief Executive
                                                                 Officer and President of Bitech Petroleum
                                                                 Corporation from December 2000 to September 2001,
                                                                 and Chief Financial Officer of Bitech Petroleum
                                                                 from March 1997 to March 2000. From April 2000 to
                                                                 December 2001 he was Chief Financial Officer of
                                                                 Pan African Energy Corporation.


 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.

 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
                                                                 Munai 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 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.
</TABLE>


                                       49
<PAGE>

<TABLE>
<CAPTION>
     NAME AND MUNICIPALITY
         OF RESIDENCE                   POSITIONS HELD                          PRINCIPAL OCCUPATION
 ----------------------------    ---------------------------     --------------------------------------------------
<S>                              <C>                             <C>
 Nurlan J. Kapparov(2)(3)        Director                        Chairman of the Board of Directors of
 Almaty, Kazakhstan                                              KazInvestBank (a 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                                                 (an international investment company). Director of
                                                                 PetroKazakhstan from January 2004 to present.

 Jean-Paul Bisnaire              Director                        Partner, Davies Ward Phillips & Vineberg LLP
 Toronto, Ontario                                                (an international law firm). 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.

         (5)      On March 12, 1998, at a time when Mr. Isautier was a director
                  of Wi-Lan Inc., then a private corporation, Wi-Lan Inc. and
                  its directors agreed to a Settlement Agreement and Undertaking
                  relating to charges by the Alberta Securities Commission that
                  Wi-Lan Inc. violated the SECURITIES ACT (Alberta) by
                  distributing securities without a prospectus and without an
                  exemption from prospectus requirements being available. As
                  part of the Settlement and Undertaking, the directors of
                  Wi-Lan Inc. undertook with the Alberta Securities Commission
                  to make themselves aware of the requirements of the SECURITIES
                  ACT (Alberta), to pay C$4,000 towards the cost of the
                  investigation and not to trade in securities of Wi-Lan Inc.
                  for a period of 18 months from the date of the Settlement
                  Agreement and Undertaking.

         As at March 31, 2004, the directors and senior officers of
PetroKazakhstan, as a group, beneficially owned, directly or indirectly,
8,601,890 million Common Shares, constituting approximately 10.9% of the issued
and outstanding Common Shares.


                                    PERSONNEL

         As of December 31, 2003, the Corporation had a total of 2,610
employees, of which 923 employees were employed in the Corporation's Upstream
oil and gas operations and 1,145 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


                                       50
<PAGE>

value. There are no Preferred Shares outstanding. As at March 31, 2004, there
were 79,865,009 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. The
Corporation understands that, as at March 18, 2004, CAIH and its affiliates
beneficially held 9,995,901 Common Shares, representing less than 10.0% 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 Senior Notes and/or cash. See "The
Corporation-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 Notes were redeemed for an aggregate redemption price of $212.4
million, representing 102.0% of the principal amount of the Notes, plus accrued
and unpaid interest of $12.5 million, for a total of $224.9 million.

         The Board recently 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 Corporation's dividend policy will continue to be
reviewed and there can be no assurance that further dividends will be declared.
The declaration and


                                       51
<PAGE>

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 31 through 53 of PetroKazakhstan's
Annual Report for the year ended December 31, 2003, which information is
incorporated herein by reference.



                         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, 2003.

<TABLE>
<CAPTION>
                                                                             YEAR ENDED DECEMBER 31
                                                              ------------------------------------------------------
                                                                  2003              2002                 2001
                                                              --------------    --------------     -----------------
                                                                         ($M, except per share amounts)
<S>                                                          <C>                 <C>                    <C>
Total revenue........................................        1,117,324           825,350                603,056
Net income for year..................................          317,488           162,568                169,340

Basic income per share(1)............................             4.06              2.01                   2.12
Diluted income per share.............................             3.91              1.93                   2.02

Total assets..........................................       1,025,619           696,728                575,878
Net Debt..............................................         135,220           233,308                268,920
Cash dividends........................................              --                 -                 31,830
</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, 2003 and December 31, 2002.

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED(1)
                                         ---------------------------------------------------------------------------
                                           MAR. 31/03          JUNE 30/03         SEPT. 30/03         DEC. 31/03
                                         ---------------    ---------------    ----------------     ----------------
                                                               ($M, except per share amounts)

<S>                                      <C>                 <C>                <C>                 <C>
Total revenue......................        248,923            254,601            303,152              310,648
Net income.........................         68,224             68,211             90,733               90,320
  Per share
    - basic........................           0.86               0.87               1.17                 1.16
    - diluted......................           0.83               0.84               1.12                 1.11
                                         ---------------    ---------------    ----------------     ----------------
                       Total assets         889,606            919,500            1,011,397            1,025,619
                                         ===============    ===============    ================     ================
</TABLE>


                                       52
<PAGE>

<TABLE>
<CAPTION>
                                                                   THREE MONTHS ENDED(1)
                                         ---------------------------------------------------------------------------
                                           MAR. 31/03          JUNE 30/03         SEPT. 30/03         DEC. 31/03
                                         ---------------    ---------------    ----------------     ----------------
                                                               ($M, except per share amounts)

<S>                                      <C>                <C>                <C>                  <C>
Total revenue......................        143,331            177,398              247,962              256,659
Net income.........................         23,109             33,808               60,513               45,138
  Per share
    - basic........................           0.29               0.42                 0.74                 0.56
    - diluted......................           0.28               0.40                 0.71                 0.54
                                         ---------------    ---------------    ----------------     ----------------
                       Total assets        638,753            657,979              737,384              696,728
                                         ===============    ===============    ================     ================
</TABLE>

Note:

         (1)      The comparability of the financial data in the above tables is
                  affected by (i) the financial difficulties of the Corporation
                  commencing in 1998 and continuing into 1999, (ii) the
                  Corporation placing itself under the protection of the CCAA in
                  1999 and 2000 and the implementation of the CCAA Plan on March
                  31, 2000, and (iii) the completion of the PKOP Acquisition.
                  See "Legal Proceedings" and "General Development of the
                  Business".


                                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.

         The following are the material claims comprising those claims under the
CCAA Plan which PetroKazakhstan disputed:

1.       Marsa AG, a Liechtenstein registered corporation, 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. Marsa AG claimed that under the contract, it was to
         provide general consulting services for 10 years to PetroKazakhstan
         Kumkol Limited in exchange for a monthly fee based upon the amount of
         oil production. Marsa AG also claimed that PetroKazakhstan was bound by


                                       53
<PAGE>

         the contract and was obligated to pay the amounts alleged to be owed to
         Marsa AG under the contract. Marsa AG claimed $35.0 million of which
         Marsa AG claimed $8.39 million was with respect to liquidated damages
         for breach of contract and the balance was pursuant to an alleged
         penalty provision in the contract which charges a penalty on unpaid
         amounts at a rate of 25.0% per month. Marsa AG also claimed for further
         unspecified losses and damages arising from breaches of contract. Both
         PetroKazakhstan and PetroKazakhstan Kumkol Limited denied the
         existence, validity and enforceability of the contract and denied any
         services were provided. The CCAA Plan, as well as an agreement entered
         into by PetroKazakhstan, PetroKazakhstan Kumkol Limited and Marsa AG
         dated February 28, 2000 (the "MARSA AGREEMENT"), provide a cap of a
         maximum of $35.0 million on the amount that PetroKazakhstan or
         PetroKazakhstan Kumkol Limited would have been required to pay to Marsa
         AG in the event that all or any portion of such claim was determined to
         be a valid claim. In addition, it was agreed that such claim would be
         arbitrated in accordance with the terms of the alleged consulting
         contract. Arbitration proceedings before a sole arbitrator were heard
         in Stockholm, Sweden and the arbitrator made the following order 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.

2.       Teragol Investments Ltd. ("Teragol"), a Cyprus Corporation, filed a
         claim in the CCAA Proceedings against PetroKazakhstan claiming breach
         of an alleged consulting contract entered into between Teragol and
         PetroKazakhstan. Under this agreement Teragol was purportedly to assist
         PetroKazakhstan in obtaining various oil and gas licenses from the
         Kazakhstan government. The licenses were issued to the Corporation.
         Teragol's total claim is for $4,415,000 for consulting fees under this
         contract, which includes a penalty of $2.2 million and out of pocket
         expenses, plus interest and costs. PetroKazakhstan disputes that any
         amounts are owing by it to Teragol under the alleged contract on the
         basis that it was entered into without authority from PetroKazakhstan,
         no services were performed, PetroKazakhstan received no consideration
         for the fees and the contract purports to provide the services of an
         individual who was an employee of PKOSI charged to provide the same
         services. PetroKazakhstan disputes the penalty as not being required by
         the contract and not being legally enforceable under law. In addition
         to the above claim filed by Teragol, a statement of claim in respect of
         this matter was filed in April 1999 by Teragol.

3.       Teragol filed a claim in the CCAA Proceedings against PKOSI claiming
         breach of an alleged consulting contract between Teragol and PKOSI,
         effective September, 1996. Teragol claims that under this contract it
         was to provide general consulting services in return for a monthly
         retainer plus other benefits. Teragol's total claim is for $240,000 for
         the arrears in monthly fees which it claims are owing under the
         contract as well as a termination bonus purported to be provided for
         under the contract. This claim is disputed by PKOSI as to the amount of
         the claim and PKOSI's liability.

4.       Alberta Opportunity Corporation ("AOC"), an Alberta corporation,
         brought a claim against PetroKazakhstan in the CCAA Proceedings with
         respect to amounts AOC claims are owed to it under an agreement whereby
         Turan Petroleum Cyprus Limited (of which PetroKazakhstan was a
         shareholder) agreed to pay to a third party a fee based on the revenues
         of the Turan Petroleum Joint Enterprise from production from the South
         Kumkol field and the KAM Fields. The licenses for these fields were
         held by the Turan Petroleum Joint Enterprise at that time. See "General


                                       54
<PAGE>

         Development of the Corporation - Formative Transactions - Turan
         Petroleum Joint Enterprise; Acquisition of CanadianOxy's Interest in
         Turan Petroleum". It is alleged that PetroKazakhstan guaranteed a share
         of the payments under the agreement to the third party. Forty percent
         of such fee was subsequently assigned by the third party to AOC. AOC
         indicates that it is claiming for a maximum of $2.4 million.
         PetroKazakhstan denies that it has any obligation under this agreement
         to AOC.

5.       John Komarnicki, a Canadian citizen, and the Corporation's former
         director, president and chief executive officer, brought a claim
         against the Corporation in the CCAA Proceedings which the Corporation
         disputed. Mr. Komarnicki claimed he was owed damages of up to C$2.4
         million for wrongful dismissal as president and chief executive officer
         in October of 1998. The Corporation denies that Mr. Komarnicki was
         wrongfully dismissed. Mr. Komarnicki has not, to date, brought an
         action against the Corporation with respect to this matter.

ANTIMONOPOLY CLAIMS

         PKOP

         In October 2003, the ARNM alleged that PKOP charged prices for refined
oil products that in total were $6.3 million in excess of ARNM authorized
maximum prices. The Corporation has always taken the position that the ARNM does
not have the right to establish prices for PKOP under the terms of the
privatization agreement relating to the Shymkent refinery, which operates in a
highly competitive environment. PKOP initiated legal proceedings to annul the
ARNM claim and the court of first instance reduced the ARNM claim to
approximately $1.1 million. PKOP and the ARNM appealed this decision to the
Supreme Court. The Supreme Court recognized approximately $3.6 million of the
ARNM's original assessment. This amount has been provided for in the financial
statements.

         PKOP received an additional assessment from the ARNM in the amount of
$8.8 million for allegedly charging prices for refined products in excess of
ARNM authorized maximum prices. PKOP plans to appeal this assessment. No
provision has been made in the accompanying financial statements in respect of
this assessment.

         PKOP's position remains that the ARNM does not have the right to
establish prices for the refinery, and the Corporation, as the party in interest
under the privatization agreement for the Shymkent refinery, has notified the
government of Kazakhstan that it is in breach of provisions of the privatization
agreement. The Corporation has the right to proceed to international arbitration
under the terms of the privatization agreement.

         PETROKAZAKHSTAN GROUP COMPANIES

         The ARNM claimed $31 million from a PetroKazakhstan group company for
allegedly violating Kazakhstan's competition laws. The Corporation initiated
legal proceedings and the court of first instance dismissed the ARNM claim. The
ARNM has appealed this decision. The date to hear this appeal has not been set.

         The ARNM claimed approximately $91.4 million from PetroKazakhstan group
companies for allegedly violating Kazakhstan's competition laws. The
PetroKazakhstan group companies initiated legal action, and at the Astana City
Court they were unsuccessful in their challenge of allegations by the ARNM that
these companies had violated Kazakhstan's competition laws. The judgment upheld
the ARNM determination that these distributors had received unjustified revenues
totalling approximately $91.4 million. The Corporation has appealed this
judgment to the Supreme Court.


                                       55
<PAGE>

         It remains the Corporation's view that the allegations 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, which are close to their historical high. Also, the prices charged by
the PetroKazakhstan 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 privatization agreement, which clearly stipulates the
right to sell any and all of 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

1.       PetroKazakhstan and its subsidiary PKKR are claimants in arbitration
proceedings being conducted under the auspices of the International Court of
Arbitration of the International Chamber of Commerce, in Paris, France.
PetroKazakhstan and PKKR are claiming damages in the amount of $31.5 million.
The Corporation contends that the defendants, EEG-Erdgas Erdol Gmbh and RWE-DEA
AG (the joint venture partners of PKKR in Kazgermunai) have acted in breach of
the foundation agreement of Kazgermuani and certain other related agreements. No
amount has been recorded in respect of this claim in the consolidated financial
statements as at December 31, 2003.

2.       The Corporation has been named as defendant in a claim filed by a
company alleging it was retained under a consulting contract from January 17,
1997 until services were suspended in May 1999. The liquidated principal amount
claimed is, in aggregate, $6.6 million and an additional unspecified amount was
claimed as an alleged penalty provision, with the total claim not to exceed
$35.0 million. The arbitration decision has been received and the Corporation
has paid $7.1 million for full settlement of the claim.

3.       The Corporation has been named as defendant in a claim filed by a
company alleging breach of a consulting contract, in aggregate of $4.7 million.
The Corporation believes this claim is without merit and, accordingly, no amount
has been recorded in respect of this claim in the consolidated financial
statements as at December 31, 2003.

4.       The Corporation has been named as a defendant in a claim filed by a
company alleging a breach of an agreement in the amount of $2.4 million. The
Corporation believes this lawsuit is without merit and, accordingly, no amount
has been recorded in respect of this claim in the consolidated financial
statements as at December 31, 2003.


GENERAL

         The Corporation is vigorously defending the above claims. However, if
the above claims are determined in an adverse manner against the Corporation,
they could have a material adverse effect on the Corporation.

         In addition to the above, 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


                                       56
<PAGE>

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.


                      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 in 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
installation of the Kumkol 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.


                                       57
<PAGE>

         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 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 currently flaring
approximately 96.0% of the gas produced 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 the Kumkol Power Plant in the Kumkol field to use associated gas
from the Kumkol South, South Kumkol and Kumkol North fields. The Kumkol Power
Plant provides stable electrical power for field operations and will provide
excess electricity for sale to the city of Kyzylorda and a credit for Shymkent
refinery power usage. The plant was completed and fully commissioned in the
third quarter of 2003. In addition, as a joint venture partner in the Kumkol
North and Akshabulak fields, the Corporation is participating in a project to
provide natural gas from the Kumkol South field to the Kyzylorda region. The
Kumkol field's EOR project, which is currently under consideration, has the
potential to utilize excess production 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 privatization laws. In 2003, CaspianEcology LLP developed an
environmental project named after "Land Reclamation"


                                       58
<PAGE>

covering 4.2 hectares 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 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 does not exist 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


                                       59
<PAGE>

material adverse effect on the Corporation. To date, the Corporation has not
established any provisions for potential environmental liabilities for its
Downstream operations.


                                  RISK FACTORS

COMMODITY PRICES

         Commodity price risk related to conventional crude oil prices is our
most significant market risk exposure. Crude oil prices are influenced by such
worldwide factors as OPEC actions, political events, and supply and demand
fundamentals.

         The Corporation has entered into a commodity-hedging program where it
is utilising derivative instruments to manage the Corporation's exposure to
fluctuation in the price of crude oil. The Corporation has entered into the
following contracts with major financial institutions as at December 31, 2003.

<TABLE>
<CAPTION>
                                                                  CONTRACT          PRICE CEILING OR        PRICE
 CONTRACT AMOUNT                CONTRACT PERIOD                     TYPE            CONTRACTED PRICE        FLOOR
-------------------    ----------------------------------    -------------------    ------------------    ----------
 (bbls per month)
<S>                    <C>                                   <C>                    <C>                   <C>
      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 unrealized loss on these hedges as at December 31, 2003 is $2.8
million.

FCA DIFFERENTIAL / TRANSPORTATION

         The Corporation's most significant expenditure is the FCA differential
or, in the case of Non-FCA sales, the cost of selling and transportation. The
construction of the KAM pipeline and access to CPC significantly reduced
transportation expenditures of the Corporation and led to an approximately
1,300-kilometre reduction in transportation distance to western export markets.
The completion of the KAM pipeline reduced costs for exported crude oil by
approximately $2.00 to $2.50 per barrel shipped, depending on the final
destination. The Corporation is also striving to open new routes with lower
transportation costs.

GOVERNMENT TAXES

         The local and national tax environment in the Republic of Kazakhstan is
subject to change and inconsistent application, interpretation and enforcement.
Non-compliance with Kazakhstan laws and regulations, as interpreted by Kazakh
authorities, can lead to the imposition of fines, penalties and interest.

         In response to the Corporation's submission, the Minister of Finance
initiated the creation of a high-level Working Group between its officials and
the Corporation's representatives to address and seek


                                       60
<PAGE>

resolution of all outstanding tax issues through dialogue and negotiations. On
January 22, 2004, the Working Group signed a memorandum that sets out the agreed
resolution of all outstanding tax issues. Certain actions, such as amendments to
hydrocarbon contracts and issuance of instruction letters must be taken to fully
implement the terms of the memorandum. The terms of this memorandum are
reflected in the ensuing discussion of the Corporation's tax matters.

ASSESSMENTS FOR 1998 AND 1999

         The Corporation's subsidiaries have been engaged in two court cases in
Kazakhstan pertaining to disputed tax assessments received for 1998 and 1999.

         The first involved PKOP and was for approximately $8.8 million. PKOP
has successfully argued its case at the first level of the court system in
Kazakhstan and at the Supreme Court level. There is no possibility of further
appeal by the government of Kazakhstan and, accordingly, no provision has been
made in the consolidated financial statements for this assessment.

         The second case involved PKKR and was for a total of approximately
$10.5 million including taxes, fines, interest and penalties. PKKR was
successful at the first level of the court system and was unsuccessful on the
majority of the issues at the Supreme Court level. PKKR was unsuccessful in
obtaining the agreement of the Supervisory Panel of the Supreme Court to hear
its appeal on the assessed taxes. The Corporation provided for $2.9 million of
the $10.5 million total assessment in the December 31, 2002 consolidated
financial statements. PKKR has been disputing the remaining $7.6 million of the
$10.5 million, which relates to fines and penalties assessed, because PKKR
believes there was an incorrect application of the provisions of Kazakhstan's
tax legislation. PKKR has paid this amount to stop the further accumulation of
fines and penalties and has recorded this payment as an account receivable
pending resolution of this issue. The Working Group agreed with PKKR's position
and determined that there was an incorrect application of the provisions of the
tax legislation. The account receivable of $7.6 million will be recovered
through offsetting current taxes payable in 2004.


ASSESSMENTS FOR 2000 AND 2001

         The Corporation, through its operating subsidiaries in Kazakhstan,
received tax assessments for 2000 and 2001 amounting to $56.0 million, which
were reduced through negotiations to $45.0 million (including the Corporation's
50.0% share of Turgai Petroleum's assessments). The Corporation does not agree
with these assessments and has filed court cases disputing these amounts. The
following paragraphs discuss the 2000 and 2001 assessments.

         PKOP has been successful at the first level of the court system and at
the Supreme Court with respect to the entire $12.5 million of its assessment.
This assessment was for withholding taxes on the acquisition of an interest in
CPC and the assessment was made despite the fact that this transaction was not
completed. This case may be appealed by the Ministry of Finance.

         Turgai Petroleum has been successful at the first two levels of the
court system on almost its entire assessment of $12.0 million, of which $6.0
million is the Corporation's 50.0% share. There is no possibility of further
Government appeal.

         The PKKR assessment was split into two cases. The first case was for
amounts totalling approximately $13.0 million and at the first level of the
court system PKKR was successful on $6.8 million of the $13.0 million and was
unsuccessful on the remainder. The major issue on which PKKR was unsuccessful
was the assessment of royalties on flared associated gas (approximately $4.5
million). The Corporation believes the claim for royalties on flared associated
gas, which has no commercial value,


                                       61
<PAGE>

contravenes the provisions of its hydrocarbons contracts. PKKR appealed to the
Supreme Court, and was unsuccessful. The Working Group determined that PKKR
would pay royalties on produced gas volumes less gas volumes reinjected and gas
consumed in operations as fuel gas. A flat 5.0% royalty rate is to be applied
and the valuation will be based upon sales value for those volumes sold and
lifting costs for the remaining volumes. PKKR has provided $0.4 million for
royalties on associated gas for the years 1998-2001 and $0.2 million for 2002
and 2003. PKKR has also provided $1.8 million for the years 2000 and 2001 and
made a further provision of $1.7 million for 2002 and 2003 for the remaining
issues.

         The second case was for $13.5 million, with $6.9 million related to
transfer pricing sent back by the court for re-negotiation. The transfer pricing
amount has been reduced through re-negotiation to $700,000. The second case was
heard in September 2003, with PKKR being successful on almost all of the issues.
The final assessment resulting from the court decision totalled $783,000,
including the transfer pricing issue. The Ministry of Finance appealed to the
Supreme Court approximately $2.1 million of the assessment relating to the
methodology used to revalue tax pools for currency fluctuations ($1.7 million)
and the accelerated write-off of certain assets ($0.4 million). PKKR was
unsuccessful at the Supreme Court. The Working Group did not resolve this issue
as it was a matter of current litigation. The Corporation has provided for these
amounts and plans to appeal to the Supervisory Panel of the Supreme Court. There
is no impact on following years.


RECENT PKKR ASSESSMENTS

         PKKR received an assessment for royalties on oil production during
testing of the East Kumkol discovery on its exploration contract for $0.3
million and was assessed a fine of $1.3 million. The Corporation believes this
assessment is without merit because the assessment is contrary to the
hydrocarbon contract and relevant legislation. The Working Group determined that
royalties on oil production under the Corporation's exploration contract would
be payable in accordance with the production contract entered into upon
determination that the discovery is commercial. Royalties will be paid 30 days
subsequent to signing the production contract. The Working Group determined that
the assessment for royalties and the associated fine would be withdrawn. The
Corporation has estimated that the royalties payable on accumulated production
would amount to $0.4 million and has provided for this amount.

KAZGERMUNAI ASSESSMENTS

         The Corporation, through Kazgermunai, has received tax assessments for
2001 and 2002 amounting to $9.2 million (of which the Corporation's 50.0% share
is $4.6 million). The Corporation does not agree with these assessments and will
be disputing these amounts through the legal system.

CAPITAL EXPENDITURES COMMITMENT

         Pursuant to the PKKR Share Sale-Purchase Agreement with the Republic of
Kazakhstan, a commitment was made to invest, in Kazakhstan, an aggregate of
$280.0 million in capital expenditures, investments or other items that may be
treated as capital assets of PKKR on or before December 31, 2002. These
expenditures were to be used to further exploit and develop existing fields and
to explore for new additional reserves to enhance future production and
revenues. If the required investment was not made within the agreed time period,
PetroKazakhstan may be required under the terms of the Agreement to pay a
penalty of 15.0% of the amount not invested. As at December 31, 2003, the
Corporation believes it has met this commitment within the required time period.
The expenditures and commitments may be subject to audit and certification by
the government of Kazakhstan.


                                       62
<PAGE>

         The Corporation has 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.

         As of December 31, 2003, the Corporation believes it has met this
commitment. The Corporation is currently engaged in discussions with
representatives of the government of Kazakhstan concerning the level of capital
expenditures or commitments made as at December 31, 2001. 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% or $5.1 million.

LEGAL PROCEEDINGS

         The Corporation is involved in numerous legal proceedings. See "Legal
Proceedings".

EXCESS PROFIT TAX

         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 did not
incur excess profits tax in 2003; it may be subject to excess profit tax for the
year ending December 31, 2004 and subsequent years in certain of its fields.

ENVIRONMENTAL MATTERS

         Extensive national, regional and local environmental laws and
regulations in Kazakhstan 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 these standards and establish, in some
circumstances, obligations to remediate current and former facilities and
off-site locations. See "Environmental Matters and Regulations".

         The Corporation believes it is currently in compliance with all
existing Republic of Kazakhstan environmental laws and regulations. However, 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 in the future could require significant expenditures,
which may adversely effect the Corporation's operations.

FOREIGN EXCHANGE RISKS

         The Corporation reports in U.S. dollars. Export revenues are
denominated in U.S. dollars, and domestic sales of refined products and crude
oil are made in the Tenge equivalent to U.S. dollars as of the date of sale.
Substantial portions of the Corporation's operating costs are denominated in
Tenge. The Corporation manages this exposure by operating in a manner that
minimizes the need to convert between these currencies.


                                       63
<PAGE>

         The Corporation, through its Downstream operations, has foreign
currency exposure as the tax bases of its assets are denominated in Tenge. For
Upstream operations the Corporation has the option to revalue the tax basis of
its assets using the official annual rate of inflation through the tax stability
provisions of its hydrocarbons contracts. There is no significant forward market
for the Tenge, therefore, the Corporation does not hedge this exposure.

CREDIT RISK

         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 sales of crude oil 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 the Corporation's external auditor,
TOO Deloitte & Touche, were $407,000 in the fiscal year ended December 31, 2003
and $332,875 in the fiscal year ended December 31, 2002.

TAX FEES

         The aggregate fees billed by TOO Deloitte & Touche for professional
services rendered for tax compliance, tax advice, and tax planning were
$5,116.80 in the fiscal year ended December 31, 2003 and none in the fiscal year
ended December 31, 2002. Such services were comprised of consulting fees.

ALL OTHER FEES

         The aggregate fees billed by TOO Deloitte & Touche for products and
services other than the services reported under the captions "Audit Fees", and
"Tax Fees" above were $239,951 in the fiscal year ended December 31, 2003 and
$42,252 in the fiscal year ended December 31, 2002. Such services were comprised
of specialist services relating to the listing of the Corporation on the LSE,
and the issuance of comfort letters.


                             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 held
on May 4, 2004. Additional financial information is provided in the
Corporation's Financial Statements for the year ended December 31, 2003, which
are contained in the Annual Report of the Corporation for the year ended
December 31, 2003.

         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:


                                       64
<PAGE>

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, 2003, 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 4, 2004; 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 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).


                                       65
<PAGE>

             [Letterhead of McDaniel & Associates Consultants Ltd.]






May 7, 2004

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, 2003.
         The reserves data consists of the following:

         (a)      proved and proved plus probable oil and gas reserves estimated
                  as at December 31, 2003 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, 2003 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>

PetroKazakhstan Inc.
May 7, 2004
Page 2


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, included in the reserves data of the
         Company evaluated by us, for the year ended December 31, 2003, 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         LOCATION OF
             EVALUATION REPORT            RESERVES        AUDITED     EVALUATED     REVIEWED      TOTAL
         --------------------------- ------------------- ---------- -------------- ----------- ------------
<S>                                       <C>              <C>        <C>              <C>       <C>
            December 31, 2003             Canada            --        3,064,832        --        3,064,832
</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/ B.H. Emslie
-----------------------------
B. H. Emslie, P. Eng.
Senior Vice President

Calgary, Alberta
Date:    May 7, 2004



<PAGE>

                       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,
                                    2003 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 and reviewed
the Company's reserves data. The report of the independent qualified reserves
evaluator is presented above.

         The Audit Committee of the board of directors of the Company has

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

                  (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 Audit Committee of 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>

                             -2-


/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/ James B.C. Doak
------------------------------------------------
James B.C. Doak
Director


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


May 19, 2004