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Interim Results.

    PetroKazakhstan Inc. - Financial Results for the Second Quarter Ending

    June 30, 2004



    CALGARY, July 29 /CNW/ - PetroKazakhstan Inc. ("PetroKazakhstan")

announces its financial results for the three months ending June 30, 2004. All

amounts are expressed in U.S. dollars unless otherwise indicated.



    HIGHLIGHTS:

        -   Strong earnings and cash flow continue in the second quarter 2004

        -   Continued reduction of export differential

        -   Additional drilling in Kyzylkiya confirms further field extension

            to the north

        -   Aryskum gas injection facility commissioned and operational

        -   VGO exports commenced





    FINANCIAL HIGHLIGHTS:



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

    (in millions of US$           Six Months ended        Three Months ended

     except per share amounts)             June 30                   June 30

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

                                 2004         2003         2004         2003

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

    Gross Revenue             $ 721.4      $ 503.5      $ 399.9      $ 254.6

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

    Net income                  209.5        137.0        122.0         68.4

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

      Per share (basic)          2.64         1.74         1.54         0.88

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

      Per share (diluted)        2.60         1.68         1.51         0.84

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

    Cash flow                   256.2        180.0        141.6         91.0

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

      Per share (basic)          3.23         2.29         1.78         1.17

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

      Per share (diluted)        3.18         2.20         1.75         1.12

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

    Weight Average Shares

     Outstanding

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

      Basic                79,257,431   78,538,671   79,442,775   78,000,877

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

      Diluted              80,484,892   81,676,831   80,721,531   81,173,957

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

    Shares Outstanding at

     End of Period         80,597,166   77,653,139   80,597,166   77,653,139

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



    PetroKazakhstan is pleased to announce its financial results for the

second quarter of 2004 achieving $122.0 million of net income and

$141.6 million of cash flow. This represents basic net income per share of

$1.54 and basic cash flow per share of $1.78 for the quarter. The comparable

figures for the quarter ended June 30, 2003 were $0.88 basic net income per

share and $1.17 basic cash flow per share.

    For the six months ended June 30, 2004 net income was $209.5 million and

cash flow was $256.2 million. This represented basic net income per share of

$2.64 and basic cash flow per share of $3.23. The comparable figures for the

six months ended June 30, 2003, were net income per share of $1.74 and basic

cash flow per share of $2.29.



    Substantial Issuer Bid



    The Company's substantial issuer bid share tender, which ended on

July 19, 2004, has resulted in the repurchase of 3,999,975 shares at C$40.00

per share. After giving effect to the repurchase and cancellation of the

repurchased shares, the Company will have 76,597,191 shares outstanding.





    UPSTREAM OPERATIONS REVIEW

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



    Production



    During the second quarter of 2004, PetroKazakhstan's production volumes

totaled 13.75 million barrels or an average of 151,104 barrels of oil per day

("bopd") representing an increase of 4.2% over the second quarter 2003 average

production of 145,066 bopd and a 5.7% increase over the first quarter of 2004

average production rates of 142,919 bopd. Kumkol South production has

gradually increased in the quarter as all but one of the 19 wells shut in late

in 2004 were brought back on line. A resolution has been agreed with the

neighbouring license holder Turgai Petroleum and the Government authorities on

mutually acceptable operating conditions of wells located at the border

between Kumkol South and Kumkol North.

    New development wells in Kumkol North and the KAM fields have also

contributed to the increase in production.



    Field Developments



    Five production wells were drilled in the Kyzylkiya field and the

neighbouring Kolzhan license to the north this quarter bringing the total

number of wells drilled this year to nine. Of particular interest are wells

Kyzylkiya-26 (drilled in the first quarter of 2004) and 34, which have been

tested at rates of 1,600 bopd and 1,050 respectively and have confirmed an

extension of the main field to the north. Four more development wells should

be drilled by the end of the year.

    Maibulak wells continue to perform at higher rates following the

successful fracture stimulation. Maibulak-01 for example was produced at

910 bopd a 550% increase over previously recorded rates. Water injection

facilities for reservoir pressure maintenance with a total injection capacity

of 7,000 barrels of water a day ("bwpd") were commissioned and are in

operation.

    The Aryskum drilling campaign commenced with 3 wells completed in the

second quarter of 2004. Up to thirteen more wells will be drilled in the

second half of the year one of which will be a horizontal well for enhanced

production and reserves exploitation.

    A gas injection system for the Aryskum field development has been

commissioned and is operational. This is the first stage of the facilities

that will eventually enable complete re-injection of Aryskum produced gas to

minimize flaring and contribute to pressure maintenance of the reservoir.

    Work has commenced on the upgrade of the Akshabulak processing facilities

that will enable production rates to increase to over 60,000 bopd (30,000 bopd

net) by mid 2005. In addition, a water injection system has been commissioned

to stabilize reservoir pressure and allow increased production off-take.

    Development of and production from the East Kumkol field is expected to

recommence in the third quarter of 2004, subject to regulatory approvals.



    Exploration and Appraisal



    A total of 215 square kilometres ("km2") of 3D seismic was acquired over

the northern and southern areas of the Kyzylkiya field along with

300 kilometres ("kms") of 2D seismic over the eastern half of the Kolzhan

license to the northeast. This information will enable selection of

appraisal/exploration well locations to prove up further reservoir extensions

and possible satellite accumulations of the Kyzylkiya field within the

recently acquired Kolzhan license.

    Further enhanced seismic interpretation of the North Nurali field is

close to completion. This will enable the selection of two follow-on appraisal

wells which should be drilled before year-end. Temporary single well

production units have been installed at two wells enabling extended testing

for reservoir delineation purposes with combined rates of up to 1,800 bopd.

    A well drilled to 4,244 metres ("m") within the Aryskum license area

encountered hydrocarbon bearing sands. In the lower sections, the sands were

tight and not tested. In the upper well section several zones are still being

evaluated to determine possible hydrocarbon potential.

    PetroKazakhstan is now the operator and 75% equity partner of the License

951-D which covers two blocks (the Doshan block and the Zhamansu block) in the

South Turgai Basin over a total area of 4,290 km2. 600 kms of 2D seismic data

has been acquired over the two blocks. An exploration well was drilled to

2,350 m in the northern Doshan block south of the Aryskum field. Despite

encountering oil shows whilst drilling and the presence of unusually thick

reservoir intervals, the well failed to encounter hydrocarbons within the main

reservoir units. The existing D-3 well within the Doshan Block has been put

back on test at low rates - currently around 100 bopd. This well is being

considered for future fracture stimulation. At least two wells are planned in

the southern Zhamansu block later in 2004.



    Exploitation 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 commenced on the feasibility of gas usage for miscible

hydrocarbon injection for enhanced oil recovery. A pilot project is being

designed for one of the Kumkol fields. In parallel, assessment is being made

of a Liquefied Petroleum Gas ("LPG") facility in Kumkol.

    PetroKazakhstan, as a 50% partner in the Kazgermunai Joint Venture, is

also participating in Kazgermunai's LPG extraction plant for the Akshabulak

field. The 30 million standard cubic feet per day ("mmscfd") plant will

provide 2,900 bopd of LPG and 600 bopd of condensate. Facilities design has

commenced and long lead item orders placed. Civil works including road and

site grading have also commenced and piling and transportation contracts have

been awarded. The dry gas will be provided to the city of Kyzylorda through a

pipeline to be constructed by KazTransGaz.





    DOWNSTREAM MARKETING, TRANSPORTATION AND REFINING

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



    Crude Oil Logistics



    The volume of crude oil exported during the second quarter of 2004 was

6.99 mmbbls (902.3 thousand tonnes) representing a decrease of approximately

3% compared to the second quarter of 2003 and an 11% decline as compared to

the first quarter of 2004. This performance reflects the operational problems

with the Atasu pipeline and terminal, which occurred mid February 2004 and

were finally resolved mid May 2004 together with a limitation on export quotas

issued by the Ministry of Energy and Mineral Resources ("MEMR") in Kazakhstan.

The volume accounted for by our Dzhusaly terminal continued to grow reaching

78% of all shipments during the second quarter as compared to 70% during the

first quarter. Our Dzhusaly terminal came into operation at the end of the

second quarter in 2003 and therefore accounted for less than 1% of the

shipments during the same period in 2003.

    Deliveries to China during the second quarter of 2004 represented 83% of

the equivalent shipments during the first quarter and 74% of the volumes

shipped during the same quarter in 2003. Again, this performance reflects a

combination of the operational issues surrounding the Atasu pipeline and

terminal and the export quotas issued by MEMR.

    Deliveries via the CPC pipeline continued to grow and were up by 5%

compared to the first quarter of 2004. There are no comparative numbers for

2003 as deliveries via CPC did not commence until September of that year.

    Shipments to the Tehran refinery under our swap contract continued to

grow albeit at a slower rate than anticipated due to the export quota

restrictions imposed by MEMR during April and May. The facilities are now in

place to handle the maximum contractual volumes and, in the absence of any

further export quota restrictions, the maximum volumes will be achieved during

the third quarter of 2004.



    Crude Oil Prices and Transportation Differentials



    International crude oil prices remained high with an extremely high

volatility. The average of the daily mean of the Platts quotations for Brent

was $35.32 per barrel in the second quarter as compared to $26.03 per barrel

in the same period of 2003. The spread of the mean of the daily quotations in

the second quarter of 2004 was much higher than that seen during the first

quarter registering $8.44 per barrel and $5.85 respectively. The highest mean

of the daily quotations seen during the second quarter was $39.36 as compared

to $34.97 during the first quarter.

    Net returns measured fully costed at the Kumkol field gate continued to

improve on the back of an improved combination of transportation routes,

better pricing received from our customers, and better world market prices.



    Refining and Refined Product Sales



    The volumes of refined products processed at our refinery were 7.7 mmbbls

and were marginally higher in the second quarter of 2004 than in the first

quarter when volumes processed stood at 7.1 mmbbls. The equivalent figure in

2003 was 7.5 mmbbls. However, refined product sales volumes were significantly

higher in the second quarter of 2004 than had been in the first quarter of

2004. Though average prices of key product fell in the quarter the change in

mix of sales to the higher value products caused an increase in refined

product revenue.

    Following the resolution with the customs authorities of the

classification of Vacuum Gasoil (VGO) as distinct from diesel, the Vacuum

Distillation Unit was restarted during the second quarter. The first export

sales of VGO were successfully made via the port of Tallinn in Estonia and to

China. The production of VGO has had a positive effect on weighted average

refined product prices.

    Refined product exports to neighbouring countries were further developed

and in most cases we are now selling either direct to end users or at the

border station of the receiving country. As a consequence we are beginning to

see improved prices on exports of refined products.





    MANAGEMENT DISCUSSION AND ANALYSIS ("MD&A")

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



    A full MD&A of the Second Quarter of 2004 is available on the Company's

website and can also be obtained on application from the Company.

    PetroKazakhstan Inc. is a vertically integrated, international energy

company, celebrating its seventh year of operations in the Republic of

Kazakhstan. It is engaged in the acquisition, exploration, development and

production of oil and gas, refining of oil and the sale of oil and refined

products.

    PetroKazakhstan shares trade on the New York Stock Exchange, The Toronto

Stock Exchange, the London Stock Exchange, and the Frankfurt exchange under

the worldwide symbol PKZ. The Company's website can be accessed at

www.petrokazakhstan.com.



    The Toronto Stock Exchange has neither approved nor disapproved the

    information contained herein.



    This news release contains statements that constitute forward-looking

    statements within the meaning of the U.S. Private Securities Litigation

    Reform Act of 1995. Forward-looking statements are not guarantees of

    future performance and involve risks and uncertainties, and actual

    results may differ materially from those in the forward-looking

    statements as a result of various factors. You are referred to our Annual

    Report on Form 20-F and our other filings with the U.S. Securities and

    Exchange Commission and the Canadian securities commissions for a

    discussion of the various factors that may affect our future performance

    and other important risk factors concerning us and our operations.







    INTERIM CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

    (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE

     AMOUNTS)

    UNAUDITED

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



                                 Three Months Ended       Six Months Ended

                                      June 30,                June 30,

                                  2004        2003        2004        2003

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



    REVENUE

    Crude oil                    206,086     134,175     413,564     276,417

    Refined products             189,116     119,459     300,008     222,414

    Service fees                   3,904         460       6,572       3,327

    Interest income                  797         507       1,240       1,366

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

                                 399,903     254,601     721,384     503,524

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

    EXPENSES

    Production                    25,669      16,893      47,116      34,149

    Royalties and taxes           25,543      17,617      45,924      29,420

    Transportation                51,230      60,269     115,309     115,272

    Refining                       5,494       5,452       9,402       8,804

    Crude oil and refined

     product purchases            32,409      16,046      65,965      25,416

    Selling                        9,206       7,358      17,663      12,829

    General and administrative    15,664      10,556      28,907      23,533

    Interest and financing

     costs                         6,082       7,380      13,485      22,152

    Depletion and depreciation    26,998      18,857      48,331      36,485

    Foreign exchange gain         (1,111)     (3,428)     (5,795)     (5,526)

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

                                 197,184     157,000     386,307     302,534



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

    INCOME BEFORE INCOME TAXES   202,719      97,601     335,077     200,990

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



    INCOME TAXES (Note 9)

    Current provision             89,643      27,080     135,002      63,252

    Future income tax             (9,651)      1,470     (10,785)       (515)

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

                                  79,992      28,550     124,217      62,737

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



    NET INCOME BEFORE NON-

     CONTROLLING INTEREST        122,727      69,051     210,860     138,253



    NON-CONTROLLING INTEREST         699         621       1,347       1,271



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

    NET INCOME                   122,028      68,430     209,513     136,982



    RETAINED EARNINGS,

     BEGINNING OF PERIOD         466,295     140,903     378,819      73,151



    Normal course issuer bid           -     (10,440)          -     (11,232)

    Common share dividends       (17,706)          -     (17,706)          -

    Preferred share dividends         (8)         (8)        (17)        (16)



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

    RETAINED EARNINGS,

     END OF PERIOD               570,609     198,885     570,609     198,885

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

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



    BASIC NET INCOME PER SHARE

     (Note 10)                      1.54        0.88        2.64        1.74

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

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



    DILUTED NET INCOME PER

     SHARE (Note 10)                1.51        0.84        2.60        1.68

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

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





    See accompanying notes to the interim consolidated financial statements.







    INTERIM CONSOLIDATED BALANCE SHEETS

    (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

    UNAUDITED

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



                                                         As at         As at

                                                       June 30,  December 31,

                                                          2004          2003

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

    ASSETS

    CURRENT

      Cash                                             322,350       184,660

      Accounts receivable                              169,330       150,293

      Inventory                                         39,298        36,920

      Prepaid expenses                                  37,282        44,901

      Current portion of future income tax asset        23,252        14,697



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

                                                       591,512       431,471



    Deferred charges                                     6,619         6,729

    Restricted cash (Note 5)                            47,028        35,468

    Future income tax asset                             25,307        25,466

    Property, plant and equipment                      557,449       542,317



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

    TOTAL ASSETS                                     1,227,915     1,041,451

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



    LIABILITIES

    CURRENT

      Accounts payable and accrued liabilities         147,997        88,422

      Short-term debt (Note 6)                          42,654        73,225

      Prepayments for crude oil and refined

       products                                         17,439         6,652



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

                                                       208,090       168,299





    Long-term debt (Note 7)                            195,097       246,655

    Asset retirement obligations (Note 2)               29,842        28,625

    Future income tax liability                         10,623        13,012



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

                                                       443,652       456,591

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



    Non-controlling interest                            14,438        13,091

    Preferred shares of subsidiary                          80            80



    COMMITMENTS AND CONTINGENCIES (Note 13)



    SHAREHOLDERS' EQUITY

      Share capital (Note 8)                           195,867       191,695

      Contributed surplus                                3,269         1,175

      Retained earnings                                570,609       378,819



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

                                                       769,745       571,689

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



    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY       1,227,915     1,041,451

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

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





    See accompanying notes to the interim consolidated financial statements.







    INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW

    (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

    UNAUDITED

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



                                 Three Months Ended       Six Months Ended

                                      June 30,                June 30,

                                  2004        2003        2004        2003

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



    OPERATING ACTIVITIES

      Net income                 122,028      68,430     209,513     136,982

      Items not affecting cash:

        Depletion and

         depreciation             26,998      18,857      48,331      36,485

        Amortization of

         deferred charges            396         359         783       3,052

        Non-controlling

         interest                    699         621       1,347       1,271

        Other non-cash charges     1,082       1,283       7,044       2,618

        Future income tax         (9,651)      1,470     (10,785)       (515)

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

    Cash flow                    141,552      91,020     256,233     179,893



    Changes in non-cash

     operating working

     capital items                63,774     (58,272)     44,214     (42,368)



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

    Cash flow from

     operating activities        205,326      32,748     300,447     137,525

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



    FINANCING ACTIVITIES

      Short-term debt                  -     (33,827)    (24,494)     16,675

      Common share dividends      (8,829)          -      (8,829)          -

      Purchase of common shares        -     (13,816)          -     (14,847)

      Long-term debt             (42,392)     34,698     (58,325)     98,808

      Deferred charges paid         (650)     (1,150)       (650)     (3,601)

      Proceeds from issue of

       share capital, net of

       share issuance costs          596          20       4,172         470

      Preferred share dividends       (8)         (8)        (17)        (16)



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

      Cash flow (used in) from

       financing activities      (51,283)    (14,083)    (88,143)     97,489

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



    INVESTING ACTIVITIES

      Restricted cash            (10,160)          -     (11,560)          -

      Capital expenditures       (28,018)    (38,364)    (63,054)    (85,464)

      Purchase of preferred

       shares of subsidiary            -          (2)          -          (4)



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

      Cash flow used in

       investing activities      (38,178)    (38,366)    (74,614)    (85,468)

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



    INCREASE/(DECREASE)

     IN CASH                     115,865     (19,701)    137,690     149,546



    CASH, BEGINNING OF PERIOD    206,485     244,043     184,660      74,796



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

    CASH, END OF PERIOD          322,350     224,342     322,350     224,342

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

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



    See accompanying notes to the interim consolidated financial statements.









    NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, TABULAR AMOUNTS IN

    THOUSANDS OF DOLLARS, UNLESS OTHERWISE INDICATED)

    UNAUDITED

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



    1   SIGNIFICANT ACCOUNTING POLICIES



        The interim consolidated financial statements of PetroKazakhstan Inc.

        ("PetroKazakhstan" or the "Corporation") have been prepared by

        management in accordance with generally accepted accounting

        principles in Canada. Its main operating subsidiaries are

        PetroKazakhstan Kumkol Resources ("PKKR") and PetroKazakhstan Oil

        Products ("PKOP"). Certain information and disclosures normally

        required to be included in the notes to the annual financial

        statements have been omitted or condensed. The interim consolidated

        financial statements should be read in conjunction with the

        consolidated financial statements and the notes thereto in

        PetroKazakhstan's Annual Report for the year ended December 31, 2003.

        The accounting principles applied are consistent with those as set

        out in the Corporation's annual financial statements for the year

        ended December 31, 2003, except for the changes in accounting

        standards as described in Note 2.



        The presentation of certain amounts for previous periods has been

        changed to conform with the presentation adopted for the current

        period.





    2   ACCOUNTING CHANGES



        Asset Retirement Obligations



        Effective January 1, 2004, the Corporation adopted the new

        recommendation of the Canadian Institute of Chartered Accountants

        ("CICA") regarding asset retirement obligations. This new standard

        changes the method of estimating and accounting for future site

        restoration costs. Total estimated asset retirement obligations are

        discounted to estimate the fair value of the obligation and recorded

        as a liability when the related assets are constructed and

        commissioned. The fair value increases the value of property, plant

        and equipment and is depleted over the life of the asset. Accretion

        expense, resulting from the changes in the present value of the

        liability due to the passage of time is recorded as part of interest

        and financing costs.



        Estimated cash flows are discounted at 8.5%. The total undiscounted

        estimated cash flows required to settle the obligations is

        $73.0 million with the expenditures being incurred over ten years

        commencing in 2014.



        The new standard has been applied retroactively, and the financial

        statements of prior periods have been restated.



        Adoption of the new standard of accounting for asset retirement

        obligations resulted in the following changes in the consolidated

        balance sheet and statement of income and retained earnings.



        Changes in consolidated balance sheets:



        Increase/(decrease)

                                                          As at        As at

                                                        June 30, December 31,

                                                           2004         2003



        Future income tax asset                             510          651

        Property, plant and equipment                    14,819       15,181

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

        Total assets                                     15,329       15,832

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

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



        Asset retirement obligations                     21,780       22,058

        Retained earnings                                (6,451)      (6,226)

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

        Total liabilities and shareholders' equity       15,329       15,832

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

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



        Changes in consolidated statements of income and retained earnings

        for the three months ended June 30, 2004 and 2003:



        Increase/(decrease)

                                                  Three months ended June 30

                                                           2004         2003



        Interest and financing costs                        609          513

        Depletion and depreciation                         (571)        (930)

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

        Income before income taxes                          (38)         417

        Income taxes                                         72          198

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

        Net income                                         (110)         219

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

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



        Basic net income per share                            -            -

        Diluted net income per share                          -            -





        Changes in consolidated statements of income and retained earnings

        for the six months ended June 30, 2004 and 2003:



        Increase/(decrease)

                                                    Six months ended June 30

                                                           2004         2003



        Interest and financing costs                      1,217        1,026

        Depletion and depreciation                       (1,133)      (2,016)

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

        Income before income taxes                          (84)         990

        Income taxes                                        141          443

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

        Net income                                         (225)         547

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

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



        Basic net income per share                            -         0.01

        Diluted net income per share                          -         0.01





        The change in asset retirement obligations is as follows:



        Asset retirement obligations liability as at

         January 1, 2003                                              22,831

        Revisions                                                      3,670

        Accretion expense                                              2,124

        Settlements                                                        -

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

        Asset retirement obligations liability as at

         January 1, 2004                                              28,625

        Revisions                                                          -

        Accretion expense                                              1,217

        Settlements                                                        -

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

        Asset retirement obligations liability as at

         June 30, 2004                                                29,842

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

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



        Full Cost Accounting



        In September 2003 the CICA issued Accounting Guideline 16 "Oil and

        Gas Accounting - Full Cost" ("AcG 16"), which replaced Accounting

        Guideline 5 "Full Cost Accounting in the Oil and Gas Industry"

        ("AcG 5"). The most significant change between AcG 16 and AcG 5 is

        that under AcG 16 the carrying value of oil and gas properties should

        not exceed their fair value. The fair value is equal to estimated

        future cash flows from proved and probable reserves using future

        price forecasts and costs discounted at a risk-free rate. This

        differs from the cost recovery ceiling test under AcG 5 that used

        undiscounted cash flows, and constant prices, less general and

        administrative, financing costs and taxes. The Corporation adopted

        AcG 16 effective January 1, 2004 and as at June 30, 2004 there were

        no indications of impairment.



        Depletion of Property, Plant and Equipment



        Effective January 1, 2004 PetroKazakhstan commenced using proved

        reserves to calculate depletion. Previously, the Corporation used

        proved developed reserves. The impact on the three and six month

        periods ended June 30, 2004 was a decrease in depletion expense of

        $0.5 million and $0.7 million, respectively.



        Proved developed reserves were previously used to calculate depletion

        because this resulted in a more representative charge to earnings.



        Impairment of Long-Lived Assets



        Effective January 1, 2004, the Corporation adopted the new

        recommendation of the CICA issued in December 2002 on impairment of

        long-lived assets. This recommendation provides guidance on the

        recognition, measurement and disclosure of impairment of long-lived

        assets. There is a requirement to recognize an impairment loss for a

        long-lived asset when its carrying amount exceeds the sum of the

        undiscounted cash flows expected from its use and eventual

        disposition. The impairment loss is measured as the amount by which

        carrying amount of the asset exceeds its fair value. As at

        June 30, 2004 there were no indications of impairment of long-lived

        assets.



        Hedge Accounting



        Effective January 1, 2004, the Corporation adopted Accounting

        Guideline 13 "Hedging Relationships" (AcG 13"). AcG 13 provides

        guidance regarding the identification, designation, documentation and

        effectiveness of hedging relationships for the purposes of applying

        hedge accounting. This guideline establishes certain conditions for

        when hedge accounting may be applied. The Corporation has applied

        hedge accounting for the financial instruments disclosed in Note 11.





    3   SEGMENTED INFORMATION



        On a primary basis the business segments are:

        -  Upstream comprising the exploration, development and production of

           crude oil and natural gas.

        -  Downstream comprising refining and the marketing and

           transportation of refined products and the management of the

           marketing and transportation of crude oil.



        Upstream results include revenue from crude oil sales to Downstream,

        reflected as crude oil purchases in Downstream, as this presentation

        properly reflects segment results. This revenue is eliminated on

        consolidation.





        Three months ended June 30, 2004



                                                           Elimin-   Consol-

                        Upstream  Downstream  Corporate    ations    idated



        REVENUE

        Crude oil        221,765          -          -    (15,679)   206,086

        Refined

         products         61,937    144,694          -    (17,515)   189,116

        Service fees       2,167      1,589        148          -      3,904

        Interest income      211        190        396          -        797

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

                         286,080    146,473        544    (33,194)   399,903

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

        EXPENSES

        Production        25,669          -          -          -     25,669

        Royalties and

         taxes            25,206        337          -          -     25,543

        Transportation    51,230          -          -          -     51,230

        Refining               -      5,494          -          -      5,494

        Crude oil and

         refined product

         purchases        31,542     34,061          -    (33,194)    32,409

        Selling            4,109      5,097          -          -      9,206

        General and

         administrative    7,917      3,467      4,280          -     15,664

        Interest and

         financing

         costs             6,082          -          -          -      6,082

        Depletion and

         depreciation     21,638      5,046        314          -     26,998

        Foreign exchange

         loss (gain)         (55)    (1,894)       838          -     (1,111)

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

                         173,338     51,608      5,432    (33,194)   197,184

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

        INCOME (LOSS)

         BEFORE INCOME

         TAXES           112,742     94,865     (4,888)         -    202,719

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



        INCOME TAXES

        Current

         provision        58,562     29,967      1,114          -     89,643

        Future income

         tax             (13,574)     3,923          -          -     (9,651)

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

                          44,988     33,890      1,114          -     79,992

        NON-CONTROLLING

         INTEREST              -        699          -          -        699



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

        NET INCOME

         (LOSS)           67,754     60,276     (6,002)         -    122,028

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

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



        Eliminations are intersegment revenue.





        Three months ended                                            Consol-

         June 30, 2004               Export   Domestic                idated



          Crude oil                 194,437     11,649               206,086

          Refined products           62,403    126,713               189,116





        As at June 30,                                                Consol-

         2004           Upstream  Downstream  Corporate               idated



          Total assets   831,552    181,124    215,239             1,227,915

          Total

           liabilities   394,345     49,336     14,489               458,170

          Capital

           expenditures

           in the

           quarter        24,488      2,441        362                27,291







        Three months ended June 30, 2003



                                                           Elimin-   Consol-

                        Upstream  Downstream  Corporate    ations    idated



        REVENUE

        Crude oil        169,134          -          -    (34,959)   134,175

        Refined

         products         13,866    113,002          -     (7,409)   119,459

        Service fees         198        245         17          -        460

        Interest income        -        111        396          -        507

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

                         183,198    113,358        413    (42,368)   254,601

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

        EXPENSES

        Production        16,893          -          -          -     16,893

        Royalties and

         taxes            16,918        699          -          -     17,617

        Transportation    60,244         25          -          -     60,269

        Refining               -      5,452          -          -      5,452

        Crude oil and

         refined product

         purchases         8,808     49,606          -    (42,368)    16,046

        Selling            2,490      4,868          -          -      7,358

        General and

         administrative    7,333      2,723        500          -     10,556

        Interest and

         financing costs   6,640        695         45          -      7,380

        Depletion and

         depreciation     14,174      4,651         32          -     18,857

        Foreign exchange

         (gain) loss      (2,294)    (1,484)       350          -     (3,428)

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

                         131,206     67,235        927    (42,368)   157,000

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

        INCOME (LOSS)

         BEFORE INCOME

         TAXES            51,992     46,123       (514)         -     97,601

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



        INCOME TAXES

        Current

         provision        14,879     12,305       (104)         -     27,080

        Future income

         tax                 478        992          -          -      1,470

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

                          15,357     13,297       (104)               28,550



        NON-CONTROLLING

         INTEREST              -        621          -          -        621

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

        NET INCOME

         (LOSS)           36,635     32,205       (410)         -     68,430

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

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



        Eliminations are intersegment revenue.





        Three months ended                                            Consol-

         June 30, 2003               Export   Domestic                idated



          Crude oil                 134,175          -               134,175

          Refined products           27,034     92,425               119,459





        As at June 30,                                                Consol-

         2003           Upstream  Downstream  Corporate               idated



          Total assets   602,385    179,373    151,272               933,030

          Total

           liabilities   469,454     55,018      6,993               531,465

          Capital

           expenditures

           in the

           quarter        32,853      3,658        183                36,694







        Six months ended June 30, 2004



                                                           Elimin-   Consol-

                        Upstream  Downstream  Corporate    ations    idated



        REVENUE

        Crude oil        445,901          -          -    (32,337)   413,564

        Refined

         products         92,801    236,668          -    (29,461)   300,008

        Service fees       4,584      1,769        219          -      6,572

        Interest income      343        224        673          -      1,240

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

                         543,629    238,661        892    (61,798)   721,384

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

        EXPENSES

        Production        47,116          -          -          -     47,116

        Royalties and

         taxes            41,716      4,208          -          -     45,924

        Transportation   115,309          -          -          -    115,309

        Refining               -      9,402          -          -      9,402

        Crude oil and

         refined product

         purchases        66,522     61,241          -    (61,798)    65,965

        Selling            8,234      9,429          -          -     17,663

        General and

         administrative   15,260      6,831      6,816          -     28,907

        Interest and

         financing

         costs            13,016        469          -          -     13,485

        Depletion and

         depreciation     37,791      9,915        625          -     48,331

        Foreign exchange

         loss (gain)      (1,364)    (5,723)     1,292          -     (5,795)

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

                         343,600     95,772      8,733    (61,798)   386,307

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

        INCOME (LOSS)

         BEFORE INCOME

         TAXES           200,029    142,889     (7,841)         -    335,077

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



        INCOME TAXES

        Current

         provision        85,722     46,598      2,682          -    135,002

        Future income

         tax             (11,569)       784          -          -    (10,785)

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

                          74,153     47,382      2,682          -    124,217

        NON-CONTROLLING

         INTEREST              -      1,347          -          -      1,347



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

        NET INCOME

         (LOSS)          125,876     94,160    (10,523)         -    209,513

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

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



        Eliminations are intersegment revenue.





        Six months ended                                              Consol-

         June 30, 2004               Export   Domestic                idated




          Crude oil                 384,771     28,793               413,564

          Refined products           94,795    205,213               300,008





        As at June 30,                                                Consol-

         2004           Upstream  Downstream  Corporate               idated



          Total assets   831,552    181,124    215,239             1,227,915

          Total

           liabilities   394,345     49,336     14,489               458,170

          Capital

           expenditures

           in the half

           year           60,086      5,686        644                66,416







        Six months ended June 30, 2003



                                                           Elimin-   Consol-

                        Upstream  Downstream  Corporate    ations    idated



        REVENUE

        Crude oil        345,593          -          -    (69,176)   276,417

        Refined

         products         14,536    216,691          -     (8,813)   222,414

        Services fees      2,210      1,092         25          -      3,327

        Interest income      509        153        704          -      1,366

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

                         362,848    217,936        729    (77,989)   503,524

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

        EXPENSES

        Production        34,149          -          -          -     34,149

        Royalties and

         taxes            26,333      3,087          -          -     29,420

        Transportation   115,272          -          -          -    115,272

        Refining               -      8,804          -          -      8,804

        Crude oil and

         refined product

         purchases        10,912     92,493          -    (77,989)    25,416

        Selling            4,507      8,322          -          -     12,829

        General and

         administrative   15,121      6,889      1,523          -     23,533

        Interest and

         financing costs  12,207      1,182      8,763          -     22,152

        Depletion and

         depreciation     27,106      9,321         58          -     36,485

        Foreign exchange

         (gain) loss      (3,668)    (2,450)       592          -     (5,526)

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

                         241,939    127,648     10,936    (77,989)   302,534

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

        INCOME (LOSS)

         BEFORE INCOME

         TAXES           120,909     90,288    (10,207)         -    200,990

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



        INCOME TAXES

        Current

         provision        39,048     24,076        128          -     63,252

        Future income

         tax              (1,307)       792          -          -       (515)

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

                          37,741     24,868        128          -     62,737



        NON-CONTROLLING

         INTEREST              -      1,271          -          -      1,271



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

        NET INCOME

         (LOSS)           83,168     64,149    (10,335)         -    136,982

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

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



        Eliminations are intersegment revenue.





        Six months ended                                              Consol-

         June 30, 2003               Export   Domestic                idated



          Crude oil                 276,417          -               276,417

          Refined products           48,903    173,511               222,414





        As at June 30,                                                Consol-

         2003           Upstream  Downstream  Corporate               idated



          Total assets   602,385    179,373    151,272               933,030

          Total

           liabilities   469,454     55,018      6,993               531,465

          Capital

           expenditures

           in the half

           year           77,425      9,249        341                87,015





    4   JOINT VENTURES



        The Corporation has the following interests in two joint ventures:



        a) a 50% equity shareholding with equivalent voting power in Turgai

           Petroleum CJSC ("Turgai"), which operates the northern part of the

           Kumkol field in Kazakhstan.



        b) a 50% equity shareholding with equivalent voting power in LLP

           Kazgermunai ("Kazgermunai"), which operates three oil fields in

           Kazakhstan: Akshabulak, Nurali and Aksai.



        The following amounts are included in the Corporation's consolidated

        financial statements as a result of the proportionate consolidation

        of its joint ventures before consolidation eliminations:





        Three months ended June 30, 2004      Turgai   Kazgermunai     Total



        Cash                                  28,140      24,204      52,344

        Current assets, excluding cash        58,609      40,169      98,778

        Property, plant and equipment, net    79,769      64,437     144,206

        Current liabilities                   76,536      19,899      96,435

        Long-term debt                             -      14,480      14,480



        Revenue                               64,873      49,019     113,892

        Expenses                              37,315      31,673      68,988

        Net income                            27,558      17,346      44,904



        Cash flow from operating activities   11,046      22,824      33,870

        Cash flow used in financing

         activities                                -     (24,266)    (24,266)

        Cash flow used in investing

         activities                           (1,585)     (2,363)     (3,948)





        Revenue for the three months ended June 30, 2004 includes

        $12.0 million of crude oil sales made by Turgai and $2 million of

        crude oil sales made by Kazgermunai to Downstream. These amounts were

        eliminated on consolidation.





        Three months ended June 30, 2003      Turgai   Kazgermunai     Total



        Cash                                  13,206      14,123      27,329

        Current assets, excluding cash         6,511      20,758      27,269

        Property, plant and equipment, net    59,565      58,342     117,907

        Current liabilities                   26,643       6,467      33,110

        Long-term debt                             -      46,035      46,035



        Revenue                               29,494      20,653      50,147

        Expenses                              16,469      16,052      32,521

        Net income                            13,025       4,601      17,626



        Cash flow from operating activities   24,255       4,930      29,185

        Cash flow used in financing

         activities                                -      (6,016)     (6,016)

        Cash flow used in investing

         activities                          (11,200)     (2,342)    (13,542)





        Revenue for the three months ended June 30, 2003 includes

        $10.6 million of crude oil sales made by Turgai to Downstream. This

        amount was eliminated on consolidation.





        Six months ended June 30, 2004       Turgai    Kazgermunai     Total



        Revenue                             124,508       87,554     212,062

        Expenses                             78,594       54,602     133,196

        Net income                           45,914       32,952      78,866



        Cash flow from operating activities  22,306       42,604      64,910

        Cash flow used in financing

         activities                               -      (24,266)    (24,266)

        Cash flow used in investing

         activities                          (2,534)      (4,566)     (7,100)





        Revenue for the six months ended June 30, 2004 includes $22.3 million

        of crude oil sales made by Turgai and $2.0 million of crude oil sales

        made by Kazgermunai to Downstream. These amounts were eliminated on

        consolidation.





        Six months ended June 30, 2003        Turgai   Kazgermunai     Total



        Revenue                               59,710      42,787     102,497

        Expenses                              39,028      28,741      67,769

        Net income                            20,682      14,046      34,728



        Cash flow from operating activities   34,314      17,693      52,007

        Cash flow used in financing

         activities                                -      (6,016)     (6,016)

        Cash flow used in investing

         activities                          (21,416)     (6,251)    (27,667)





        Revenue for the six months ended June 30, 2003 includes $18.7 million

        of crude oil sales made by Turgai to Downstream. This amount was

        eliminated on consolidation.





    5   RESTRICTED CASH



        Restricted cash includes $10.5 million of cash dedicated to a debt

        service reserve account for the Corporation's Term Facility ($10.5 as

        at December 31, 2003). This cash is not available for general

        corporate purposes until the Term Facility is repaid in full.



        Restricted cash as at June 30, 2004 includes $36.5 million of cash

        dedicated to a margin account for the Corporation's hedging program

        ($25.0 million as at December 31, 2003).





    6   SHORT-TERM DEBT



                                                       June 30,  December 31,

                                                          2004          2003



        Current portion of term facility                29,615        35,692

        Current portion of term loans                    2,039         2,039

        Joint venture loan payable                      11,000        11,000

        PKOP bonds                                           -        24,494



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

                                                        42,654        73,225

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

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





        The PKOP bonds were fully redeemed on February 26, 2004.





    7   LONG-TERM DEBT

                                                       June 30,  December 31,

                                                          2004          2003



        9.625% bonds                                   125,000       125,000

        Long-term portion of term facility              44,422        71,384

        Long-term portion of term loans                 11,195        12,528

        Kazgermunai debt                                14,480        37,743



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

                                                       195,097       246,655

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

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





        On June 24, 2004 Kazgermunai repaid $24.3 million of its outstanding

        subordinated debt.



        On May 25, 2004 the Corporation entered into a five and one half year

        $100.0 million committed credit facility. This facility is unsecured,

        bears interest at Libor plus 2.65% and is subject to annual review.

        Certain conditions precedent and final syndication remain to be

        completed as at June 30, 2004.



        Included in deferred charges as at June 30, 2004 is $0.7 million of

        issue costs relating to the facility, which will be amortized over

        the term of the facility.





    8   SHARE CAPITAL



        Authorized share capital consists of an unlimited number of Class A

        common shares, and an unlimited number of Class B redeemable

        preferred shares, issuable in series.



        Issued Class A common shares:



                                 Three Months Ended     Three Months Ended

                                    June 30, 2004          June 30, 2003



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

                                  Number      Amount      Number      Amount

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

        Balance, beginning

         of period            79,865,009     195,271  79,028,539     193,933



        Shares repurchased

         and cancelled

         pursuant to normal

         course issuer bid             -           -  (1,379,300)     (3,376)

        Stock options

         exercised for cash      732,157         596       3,900          20

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

        Balance, end of

         period               80,597,166     195,867  77,653,139     190,577

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

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





                                  Six Months Ended        Six Months Ended

                                    June 30, 2004           June 30, 2003



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

                                  Number      Amount      Number      Amount

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

        Balance, beginning

         of period            77,920,226     191,695  78,956,875     193,723



        Shares repurchased

         and cancelled

         pursuant to normal

         course issuer bid             -           -  (1,477,400)     (3,616)

        Stock options

         exercised for cash    2,648,382       4,163     170,400         467

        Corresponding

         convertible

         securities,

         converted                28,558           9       3,264           3



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

        Balance, end

         of period            80,597,166     195,867  77,653,139     190,577

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

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





        A summary of the status of the Corporation's stock option plan as of

        June 30, 2004 and the changes during the six months ended June 30,

        2004 and the year ended December 31, 2003 are presented below

        (weighted average exercise price expressed in Canadian dollars):





                                                     Options      Weighted

                                                                   Average

                                                                  Exercise

                                                                    Price

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

        Outstanding at December 31, 2002             4,850,136          5.01



        Granted                                        791,000         25.82

        Exercised                                     (440,751)         3.76

        Forfeited                                      (84,925)         9.27

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

        Outstanding at December 31, 2003             5,115,460          8.17

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



        Granted                                         60,000         31.62

        Exercised                                   (2,676,940)         2.05

        Forfeited                                     (111,525)        14.85

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

        Outstanding at June 30, 2004                 2,386,995         15.31

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

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



        Options exercisable as at:

        December 31, 2003                            2,816,683          5.14

        June 30, 2004                                  981,342         12.05





        The pro forma net income per share for the three and six months ended

        June 30, 2003 and 2004, had we recognized compensation expense using

        the fair value of common stock options granted for all stock options

        outstanding prior to January 1, 2003 follows:





                                 Three Months Ended       Six Months Ended

                                       June 30                 June 30

                                  2004        2003        2004        2003



        Net income

          As reported            122,028      68,430     209,513     136,982

          Pro forma              121,915      68,221     209,389     136,743

        Basic net income per

         share

          As reported               1.54        0.88        2.64        1.74

          Pro forma                 1.54        0.88        2.64        1.74

        Diluted net income

         per share

          As reported               1.51        0.84        2.60        1.68

          Pro forma                 1.51        0.84        2.60        1.68





    9   INCOME TAXES



        The provision for income taxes differs from the results, which would

        have been obtained by applying the statutory tax rate of 30% to the

        Corporation's income before income taxes. This difference results

        from the following items:



                                 Three Months Ended       Six Months Ended

                                       June 30                 June 30

                                  2004        2003        2004        2003



        Statutory Kazakhstan

         income tax rate              30%         30%         30%         30%



        Expected tax expense      60,816      29,280     100,523      60,297

        Effect of higher tax

         rate in Kazgermunai       2,138           -       1,465           -

        Excess profit tax

         provision                 6,833           -       9,833           -

        Other permanent

         differences, net         10,205        (730)     12,396       2,440



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

        Income tax expense        79,992      28,550     124,217      62,737

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

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





    10  NET INCOME PER SHARE



        The net income per share calculations are based on the weighted

        average and diluted numbers of Class A common shares outstanding

        during the period as follows:



                                 Three Months Ended       Six Months Ended

                                       June 30                 June 30

                                  2004        2003        2004        2003



        Weighted average

         number of common

         shares outstanding   79,442,775  78,000,877  79,257,431  78,538,671

          Dilution from

           exercisable

           options (including

           convertible

           securities)         1,278,756   3,173,080   1,227,461   3,138,160



        Diluted number of

         shares outstanding   80,721,531  81,173,957  80,484,892  81,676,831





        No options were excluded from the calculation of diluted number of

        shares outstanding for the three months ended June 30, 2004 and 2003,

        as the market price was in excess of exercise price.





    11  FINANCIAL INSTRUMENTS



        The Corporation's financial instruments include cash, accounts

        receivable, all current liabilities and long-term debt. The fair

        value of cash, accounts receivable and current liabilities

        approximates their carrying amounts due to the short-term maturity of

        these instruments. The fair value of the Term facility, Kazgermunai

        debt and the term loans approximates their carrying value as they

        bear interest at market rates.  The fair value of the 9.625% Notes is

        $130.1 million versus the carrying value of $125.0 million as at

        June 30, 2004 as determined through reference to the market price.



        The Corporation has entered into a commodity-hedging program where it

        is utilizing derivative instruments to manage the Corporation's

        exposure to fluctuations in the price of crude oil. The Corporation

        has entered into the following contracts with major financial

        institutions.





         Contract   Contract Period      Contract          Price       Price

           Amount                          Type          Ceiling or    Floor

        (bbls per                                        Contracted

            month)                                         Price



         75,000    January 2004 to    Zero cost collar         28.00   17.00

                    December 2004

         75,000    January 2004 to    Zero cost collar         29.00   17.00

                    December 2004

         75,000    January 2004 to    Zero cost collar         29.25   17.00

                    December 2004

         37,500    January 2004 to    Zero cost collar         29.60   17.00

                    December 2004

        110,000    January 2004 to    Zero cost collar         30.20   18.00

                    December 2004

        120,000    January 2005 to    IPE Future         26.30-26.52

                    March 2005

         40,000    April 2005 to      IPE Future               25.92

                    June 2005

        458,333    January 2005 to    IPE Future         25.65-25.90

                    December 2005

        362,000    January 2004 to    Dated Brent        29.80-29.82

                    March 2004



        During the three months ended June 30, 2004, the Corporation has

        foregone revenue of $6.7 million through these contracts

        ($12.0 million during the six months ended June 30, 2004).



        The unrealized loss under these hedges as at June 30, 2004 is

        $31.1 million.





    12  CASH FLOW INFORMATION



        Interest and income taxes paid:



                                 Three Months Ended       Six Months Ended

                                       June 30                 June 30

                                  2004        2003        2004        2003



        Interest paid              2,205       7,363      10,702      16,832

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

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



        Income taxes paid         61,701      36,050     104,114      26,292

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

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





    13  COMMITMENTS AND CONTINGENCIES



        Substantial Issuer Bid



        The Corporation announced a substantial issuer bid for its class A

        common shares conducted in the form of a modified "Dutch Auction".



        The bid expired on July 19, 2004, and the Corporation purchased

        3,999,975 of common shares at the final purchase price of C$40.00 per

        share.



        If we had excluded these shares from the common and diluted weighted

        average number of shares in the periods ended June 30, 2004, the pro

        forma net income per share would be as follows:





                                                 Three months    Six months

                                                     ended          ended

                                                 June 30, 2004  June 30, 2004



        Net income

          As reported                                122,028       209,513

        Basic net income per share

          As reported                                   1.54          2.64

          Pro forma                                     1.62          2.78

        Diluted net income per share

          As reported                                   1.51          2.60

          Pro forma                                     1.59          2.74





        Agency for Regulation of Natural Monopolies and Protection of

        Competition ("ARNM")



        PKOP



        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 paid and provided for in the

        financial statements.



        PKOP received an additional assessment from ARNM in the amount of

        $8.8 million for allegedly charging prices for refined products in

        excess of ARNM authorized maximum prices. PKOP has appealed this

        assessment and a preliminary hearing has been held. The court hearing

        is expected to take place during the third quarter. No provision has

        been made in the accompanying financial statements for 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.



        Group companies



        The ARNM claimed $31.0 million from a group company for allegedly

        violating Kazakhstan's competition law. The Corporation initiated

        legal proceedings and the court of first instance dismissed the ARNM

        claim. The ARNM appealed this decision, the appellate court upheld

        the decision of the lower court.



        The ARNM claimed approximately $91.4 million from group companies for

        allegedly violating Kazakhstan's competition law. The 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 competition laws. The judgment

        upheld the ARNM determination that these distributors had received

        unjustified revenues totaling approximately $91.4 million. The

        Corporation appealed this judgment to the Supreme Court. The Supreme

        Court hearing for the ARNM claim of $91.4 million was held in April

        2004 and the Court suspended the case and instructed the parties to

        seek an agreed settlement. During the period from April to May 13,

        the parties did engage in discussions aimed at a settlement, but were

        unable to resolve the matter through negotiations. On May 13, 2004

        the Supreme Court overturned the lower court decision in favour of

        the ARNM and sent the case back to the Astana City Court for a new

        trial. The Prosecutor General (which participates in all civil cases

        in Kazakhstan and which supported the views of the ARNM at the

        Supreme Court hearing) has appealed this decision to Supervisory

        Panel of the Supreme Court. The date to hear this appeal has not been

        set.



        It remains the Corporation's view that the allegations leveled

        against the group companies are without justification; a highly

        competitive market exists for oil products within Kazakhstan and the

        current level of prices reflects current world crude oil prices,

        which are close to their historical high. Also, the prices charged by

        the group companies are competitive with Russian imports and with

        those charged by distributors of the other two refineries in

        Kazakhstan.



        The Corporation is considering its recourse rights under the terms of

        the Shymkent refinery Privatization Agreement, which clearly

        stipulates the right to sell any and all its products in Kazakhstan

        and abroad at free market prices.



        The Corporation will continue to seek a dialogue with the appropriate

        authorities to address the concerns related to the pricing of refined

        products and possible measures to be taken to further promote

        transparency and effective monitoring of the dynamics of competition,

        consistent with market economy principles.



        Tax matters



        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 the 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

        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.



        PKKR received tax assessments for 1998 and 1999. The assessment 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 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 the tax act. 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. This matter was simultaneously appealed to

        the Supervisory Panel of the Supreme Court due to time limitations

        and the Supreme Court remanded the case back to the lower court for a

        retrial. The lower court rejected the Supreme Court's instruction, a

        retrial was not held, and they let the original decision stand. The

        Corporation will appeal this decision to the Supreme Court. The

        account receivable of $7.6 million will either be recovered or

        expensed upon final resolution of this issue.



        PKKR also received assessments for 2000 and 2001. The assessment was

        split into two cases. The first case was for amounts totaling

        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,

        contravenes the provisions of its Hydrocarbon Contracts. PKKR

        appealed to the Supreme Court and was unsuccessful. The Corporation

        will appeal to the Supervisory Panel of the Supreme Court. The

        Corporation will also file an appeal regarding the method used to

        determine the value of gas for royalty purposes. The method used was

        not provided to the Corporation. 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% 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.



        There has been no change in the status of the second case from

        December 31, 2003.



        Certain subsidiaries of the Corporation received assessments totaling

        $2.9 million including fines and penalties claiming incorrect

        application of the Canadian-Kazakhstan double tax treaty. The

        allegation is that the proper documentation was not in place to

        support withholding tax relief on the payment of dividends. The

        Ministry of Finance has asserted that the Certificates of Residency

        as legalized by the Government of Canada are not valid. The

        Corporation disputes this assertion. The Corporation has confirmation

        from the Kazakhstan Ministry of Foreign Affairs that the legalization

        process followed in Canada is in fact valid. The subsidiaries have

        filed court cases disputing these assessments. The court of first

        instance ruled in favour of the Ministry of Finance. The Corporation

        has appealed this assessment. No provision has been made in the

        financial statements for these assessments, as the Corporation

        believes it will ultimately prevail in its position.





    14  SUBSEQUENT EVENTS



        The Corporation received an approval from government authorities to

        amend certain of its hydrocarbon contracts. These amendments clarify

        a number of provisions related to taxes, which were previously

        subject to interpretation, particularly the issue of royalties on

        gas, value added tax and cost allocations between licenses. These

        amendments are effective from July 21, 2004.







    For further information: please contact: Nicholas H. Gay, Senior Vice

President Finance and CFO, +44 (1753) 410-020, +44 77-48-633-226 (cell);

Ihor P. Wasylkiw, Vice President Investor Relations, +1 (403) 221-8658,

+1 (403) 383-2234 (cell); Jeffrey D. Auld, Manager Investor Relations-Europe,

+ 44 (1753) 410-020, + 44 79-00-891-538 (cell)

    (PKZ. PKZ)





END

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