Full Production Ramp-up Scheduled for Q1/2012

Zhaikmunai expects to reach peach production levels of 48,000 boepd by the end of Q1/2012.

Current Ramp-Up Status:
Stable Operations at 42,000 boepd for Gas Treatment Facility (GTF) and Oil Treatment Facility (OTF)

In its press release of January 16,2012, Zhaikmunai announced it had reached stable operations at 42,000 boepd following the gradual production ramp-up of its Gas Treatment Facility (GTF). The company expects to reach peak production levels of 48,000 boepd by the end of Q1/2012.

The GTF is currently producing 35,200 boepd. This level will increase to a maximum capacity of 40,000 boepd following the planned mid-February 2012 connection of another gas condensate well, Well #401. This well has already been drilled and successfully tested. The necessary connection infrastructure will be completed in the course of the ensuing four weeks.

Oil Treatment Facility (OTF) production will equally be maximised to reach its peak level of 8,000 bbl per day in the course of Q1/2012 resulting in a total production of 48,000 boepd. This will follow the planned March 2012 connection of two more oil wells, Well # 24 and Well # 116. Both wells are currently being drilled, tested and completed.

Purpose of the GTF

The GTF is key to the unfolding of Zhaikmunai's liquids strategy (crude oil and stabilised condensate) and further allows it to monetise its gas reserves.

The Gas Treatment Facility (GTF) allows Zhaikmunai to treat gas condensate from its wells as well as associated gas from its Oil Treatment Unit (OTU) into a mix of new products, i.e. stabilised condensate, LPG and dry gas. These products complete the current crude oil offering.

Processes and Products

GTF Capacity

The GTF is composed of two gas treatment trains ("Train 1" and "Train 2"), each with a capacity of 850 mmcm per year. Production capacity of crude oil, stabilised condensate, LPG and dry gas is designed to stabilise at a peak of approximately 48,000 boe per day with a maximum annual volume of 1.3 bcm (8.2 mboe) of dry gas.

GTF Product Mix and Sales

Zhaikmunai's overall daily production currently stands at 42,000 boepd (15 January 2012). Crude oil and stabilised condensate currently account for 18,900 boepd of production, LPG accounts for 2,520 boepd of production, and the remainder 20,580 boepd is dry gas. Production is realised from eight gas condensate wells and twelve oil wells respectively.

GTF Historical Milestones Review (Reverse Chronology)

• GTF Sales Revenue Flowing Through in Q4/2011

  In accordance with applicable accounting standards, test production from the GTF has since May 2011 been offset against infrastructure investments. This treatment has changed after take-over of the GTF as revenue from the sale of all GTF products (stabilised condensate, LPG and dry gas) are now recognised as production revenue and accounted accordingly.

• Handover of the Gas Treatment Facility to Zhaikmunai

  Zhaikmunai assumes full operational responsibility for its GTF following the handover from its EPC contractor on December 1, 2011. A full complement of 210 people is since in place to ensure smooth operations. Zhaikmunai's team includes various specialised contractors as well as many of the on-site personnel who took part in the construction and erection of the equipment of the GTF.

• Test Production Sold to Offtakers

  All GTF products (stabilised condensate, LPG and dry gas) are on-spec and are being sold commercially to offtakers since the start of the ramping-up process.

• Commencement of Test Production and Dry Gas Offtake Agreement

  Commencement of test production, initially through Train 1 of the GTF, started in May 2011. This coincided with Zhaikmunai's announcement that it had agreed on terms for the offtake of all of its 2011 dry gas production from the GTF. While the details of such terms are confidential, Zhaikmunai confirms that they reflect terms and conditions generally applicable in the market and are in line with management's expectations.

• Mechanical Completion and Act of Acceptance 
  

  The commencement of test production from the GTF followed a planning and construction cycle, mechanical completion of the plant (September 30, 2010), commissioning work and the issuance of the Act of Acceptance of a Completed Facility in relation to the GTF by the State Acceptance Commission, composed of the governmental authorities of the Republic of Kazakhstan and the West Kazakhstan Region.

  The Act of Acceptance, required prior to the commencement of commercial operation of the GTF, constitutes formal confirmation by the competent authorities that the GTF complies with the relevant standards and requirements of the Republic of Kazakhstan for operation.