PetroKazakhstan announces Q3 Financial Results


CALGARY, Alberta, Canada, Nov. 3, 2003 (PRIMEZONE) -- PetroKazakhstan Inc. ("PetroKazakhstan") announces its financial results for the three months ending September 30, 2003. All amounts are expressed in U.S. dollars unless otherwise indicated.

HIGHLIGHTS:

Third consecutive quarter of record earnings and cash flow KAM pipeline operational and realising material cost savings Record export shipments of crude oil Excellent results of exploration program in North Nurali

FINANCIAL HIGHLIGHTS:


  (in millions      Nine Months ended Sept.   Three Months ended
  of US$ except               30                  Sept. 30
  per share
  amounts)
                        2003         2002         2003         2002

  Gross Revenue        $806.7       $568.7       $303.2       $248.0

  Net income            227.2        117.4         90.7         60.5

  Per                    2.90         1.45         1.17         0.74
  share (basic)

  Per                    2.79         1.39         1.12         0.71
  share
  (diluted)

  Cash flow             288.4        160.4        108.5         79.1

  Per                    3.69         1.98         1.40         0.97
  share (basic)

  Per                    3.55         1.90         1.34         0.93
  share
  (diluted)

  Weight
  Average
  Shares
  Outstanding

       Basic       78,258,611   81,042,900   77,707,623   81,301,955

       Diluted     81,288,890   84,483,117   81,266,718   84,742,172

  Shares           77,771,788   81,041,485   77,771,788   81,041,485
  Outstanding
  at End of
  Period

For the third quarter of 2003, PetroKazakhstan reports $90.7 million of net income, a 49.9% increase over the quarter ended September, 2002 and $108.5 million of cash flow, a 37.2% increase over the quarter ended September 30, 2002. This represents basic net income per share of $1.17 and basic cash flow per share of $1.40 for the quarter. The comparable figures for the quarter ended September 30, 2002 were $0.74 basic net income per share and $0.97 basic cash flow per share.

For the nine months ended September 30, 2003 net income was $227.2 million, a 93.5% increase over the same period of 2002, and cash flow of $288.4 million, a 79.8% increase over the same period of 2002. This represents basic net income per share of $2.90 and basic cash flow per share of $3.69. The comparable figures for the six months ended September 30, 2002, were net income per share of $1.45 and basic cash flow per share of $1.98.

On August 5, 2003 PetroKazakhstan received approval from the Toronto Stock Exchange to proceed with the renewal of its normal course issuer bid in connection with its share repurchase program. The share repurchase program enables PetroKazakhstan to repurchase in accordance with the rules and policies of the Toronto Stock Exchange up to 5,775,028 common shares through the facilities of the Toronto Stock Exchange, representing 10% of its public float from time to time during the next 12 months. All shares purchased under the share repurchase program by PetroKazakhstan will be cancelled.

The renewed share repurchase program commenced on August 7, 2003 and will terminate when PetroKazakhstan has purchased the maximum allowable number of shares unless it provides earlier notice of termination. If not previously terminated, the renewed share repurchase program will terminate on August 6, 2004. No shares have yet been acquired under the new program.

UPSTREAM OPERATIONS REVIEW

Production

During the third quarter of 2003, PetroKazakhstan's production volumes totaled 14.2 million barrels or an average of 154,712 barrels of oil per day ("bopd"). This represents an 8.1% increase over the third quarter 2002 production of 143,175 bopd and a 6.6% increase over the second quarter of 2003 production rates of 145,066 bopd. The Company anticipates that the average production over the full year will be in the region of 155,000 bopd representing a 14.1% increase over 2002 average production of 135,842 bopd. For the week ending October 30th, 2003, production had increased to approximately 167,000 bopd.

PetroKazakhstan currently has 8 service rigs operating that are conducting repair and maintenance work on wells to optimize daily production.

Exploration and Appraisal

Appraisal of the North Nurali field continued in the third quarter with the drilling of 3 wells. Well NN-3 requires hydro-fracing stimulation. Wells NN-4 and NN-7 are being tested. Initial flow rates are very encouraging. One zone in NN-7 flowed at 170 bopd; two more zones are still to be examined. NN-4 has been production tested at 1,313 bopd and 2,361 bopd from two zones with one more zone still to be examined. An additional upper zone is still to be investigated. The Company plans to drill 2 further wells on the field before year-end, one in the southern area and a deeper well on the flank for which a new rig has been mobilized and is currently drilling. In addition, hydro-fracing stimulation will be conducted in two of the original discovery wells to establish full delivery potential. This appraisal work will enable estimation of commercial reserves by year-end and progression into the field development.

The Company has concluded the purchase of a 160,668 acre license #952, which is to the north of the Kyzylkiya field, in October. At least one well will be drilled before year-end, with the intention to proceed with a second well and 3D seismic early in 2004.

Kumkol Facilities and Fields

Construction of two new Free Water Knockout (FWKO) facilities was completed and commissioning is in progress. These facilities will further enhance the fluid handling capabilities within the field as water production gradually increases.

Additional down-hole pumps were installed in Kumkol South and South Kumkol wells, which resulted in production increases. Debottlenecking of the Central Processing Facility (CPF) inlet began in September with the extension of a 12-inch oil gathering truck line directly to the Thermal Design Engineering (TDE) separation facility at the CPF. This extension will carry production from existing Kumkol South FWKO facilities and all of the production from South Kumkol to the TDE, reducing the process load on the CPF and creating additional process capacity.

Gas Utilization

The construction of the 55-megawatt gas power plant at Kumkol is complete and was being commissioned during October. This project will enable PetroKazakhstan to utilize associated produced gas and to establish a more reliable source of electricity within its fields. Excess electricity will be provided for sale into the Kazakhstan domestic market. The gas utilization project is jointly owned, with PetroKazakhstan and Turgai Petroleum CJSC ("Turgai"), each having an equal share.

KAM Fields

The 6-inch pipeline connecting Kyzylkiya to Aryskum is complete and the upgrade of the processing facility to handle water production was completed on schedule. Final commissioning is in progress. Construction of the Aryskum 8-inch pipeline to the main KAM pipeline, as well as the Aryskum truck offloading facility and oil processing facility was completed on schedule. Final commissioning is in progress for start up in early November. Crude oil trucking costs will be reduced with the start up of the Aryskum truck offloading facility and direct pipeline connection to the Dzhusaly terminal.

One more Aryskum appraisal well was drilled in October; it is expected to allow conversion of possible reserves into proven plus probable, and also to confirm the reservoir quality of 3D seismic amplitude anomalies interpreted along the flank of the field. One or two more additional appraisal wells are planned to be drilled before year-end.

Only one of the newly drilled Maibulak wells will be converted to an injector, while the other two will be designated as producers due to the discovery of new multiple productive horizons, in these wells initially intended for water injection. Equipment has been procured for the Maibulak water injection system; construction should be completed by the end of the fourth quarter. Pumps have now been installed in 5 producing wells and a pilot water injection operation was initiated in an existing well in August. KAM Pipeline

The 177 kilometer, 16-inch pipeline from Kumkol to Dzhusaly via the KAM fields has now been in use for a full quarter with no operational problems. The pipeline is capable of transporting and loading into rail cars 140,000 bopd and negates some 1,300 kilometers of pipeline and rail transportation currently in use. The KAM pipeline is the first high-pressure oil pipeline built in Kazakhstan and the Dzhusaly rail loading terminal is the fastest loading facility in Kazakhstan.

This material development has shown transportation cost savings in the region of $2.00 per barrel. These savings will vary depending on the ultimate destination of future shipments and will become apparent as the sales are completed. In addition to cost savings, this facility provides additional transportation and marketing capacity and flexibility.

East Kumkol

Joint Venture agreements with Turgai for the development and operation of the East Kumkol field, which extends unto the Kumkol North license, continue to progress. Government contracts, regulatory approvals and development projects are reaching final negotiating positions.

Kumkol North

A 27 well 2003 drilling program is progressing with 22 wells having been drilled to the end of September. Work has started on a new water injection plant due for commissioning in the fourth quarter and a new FWKO facility will be on line at the same time.

Kazgermunai

Two water injection wells were drilled in the Akshabulak field. The program, designed to increase field production by de-bottlenecking the system, has been completed with the installation of larger export pumps. In addition, construction of a water injection facility is continuing.

One production well has been drilled in the Aksai field. Four additional wells should be drilled in the Kazgermunai area in the fourth quarter; one in the Nurali field and three in the Akshabulak field.

CRUDE OIL MARKETING & TRANSPORTATION

Total shipments of crude oil destined for export during the third quarter were slightly higher than in the second quarter, registering a 1.5% increase. However, the month of September broke all previous records for shipments. The daily average shipments during September were just over 108,400 bopd (14,000 tonnes per day), with a 'high' recorded in excess of 193,600 barrels (25,000 tonnes) on one day.

The development of new destinations, new customers and the use of new loading terminals provided expansion in capacity, reductions in transportation costs and increased the flexibility of operations.

Liftings through the KAM pipeline and Dzhusaly terminal continued to grow and accounted for 45.9% of the volumes shipped in the third quarter.

Deliveries to China from the terminal at Atasu, which improves transportation costs to China, grew rapidly and accounted for 19.4% of all shipments in the third quarter, compared to 4.8% in the second quarter.

Shipments to the Fergana refinery in Uzbekistan grew by 29.1%, against the previous quarter.

Following the Memorandum of Understanding between the Company and Lukoil, proposing the shipment of Turgai Petroleum crude oil through the Caspian Pipeline Consortium (CPC), all the necessary contracts between Turgai Petroleum, Lukoil and CPC have been concluded. As a result shipments of Kumkol crude produced by Turgai Petroleum via CPC to Novorossiisk commenced during October and are planned to increase in the following months.

As a consequence of these developments, the dependence on Tekesu for exports declined. Tekesu accounted for 31.3% of shipments in the third quarter compared to 94.6% in the second quarter, and, historically, 100%.

The modifications being carried out by the National Iranian Oil Company (NIOC) and the Iranian Railways at the Rey terminal in Tehran are nearing completion. Whilst the NIOC has experienced procurement problems with some equipment, shipments through the Iranian swap are nevertheless still expected to commence during the fourth quarter.

The average Brent quotation during the third quarter was $28.41 per barrel, which was higher than the $26.03 per barrel seen during the second quarter. Prices remained volatile with a spread of a little over $4.50 per barrel between the high and low recorded in the third quarter.

Crude oil sales recorded during the third quarter 2003 were 22.2% higher than in the previous quarter and 14.0% up on the same period of 2002. The higher volumes and the more robust market prices generated higher gross revenue on crude exports. As a result of the improvements mentioned above, the net sales revenue after transportation costs improved by $3.14 per barrel versus the second quarter of 2003.

REFINING AND REFINED PRODUCT SALES

The refinery throughput in the third quarter of 2003 was increased by 10% to 8.29 million barrels compared to 7.52 million barrels in the previous quarter as domestic and export refined product market conditions continued to improve.

Refined product prices grew by $3.61 per barrel ($28 per tonne) on average against the previous quarter, a 25% increase.

The upgrade work at the refinery continues and nears completion with both the Vacuum Distillation Unit and the new energy saving boiler facility due for start up late in the fourth quarter.

MANAGEMENT DISCUSSION AND ANALYSIS ("MD&A")

A full MD&A of the Third Quarter of 2003 is available on the Company's website and can also be obtained on application from the Company.

PetroKazakhstan Inc. is an independent, 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
 (DEFICIT)
 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE
 AMOUNTS)
 UNAUDITED


                        Three months ended       Nine months ended
                          September 30,          September 30,
                            2003       2002        2003        2002
  REVENUE
  Crude oil             163,955    143,820      440,372     319,606
  Refined products      137,355    101,031      359,769     240,476
  Processing fees                      678          449       2,112
  Interest and            1,842      2,433        6,086       6,497
  other income
                        303,152    247,962      806,676     568,691
  EXPENSES
  Production             15,812     15,256       49,961      41,669
  Royalties and          24,729     21,538       54,149      43,709
  taxes
  Transportation         56,319     50,194      171,591     100,131
  Refining                3,519      5,280       10,921      17,607
  Crude oil and          16,978     11,765       42,394      50,414
  refined product
  purchases
  Selling                 6,960      8,102       19,150      18,724
  General and            14,780     14,440       40,354      42,270
  administrative
  Interest and            7,635      8,828       28,761      26,078
  financing costs
  Depletion and          22,377     11,686       60,878      29,064
  depreciation
  Foreign exchange        1,950      1,362      (3,576)       1,771
  (gain) loss
                        171,059    148,451      474,583     371,437

  INCOME BEFORE         132,093     99,511      332,093     197,254
  UNUSUAL ITEM

  UNUSUAL ITEM
  Arbitration                 -         43            -       7,134
  settlement
  INCOME BEFORE         132,093     99,468      332,093     190,120
  INCOME TAXES
  INCOME TAXES
  (Note 10)
  Current                45,891     36,358      109,143      64,706
  provision
  Future income         (5,082)      2,206      (6,040)       6,312
  tax
                         40,809     38,564      103,103      71,018
  NET INCOME
  BEFORE MINORITY        91,284     60,904      228,990     119,102
  INTEREST
  MINORITY                  551        391        1,822       1,672
  INTEREST
  NET INCOME             90,733     60,513      227,168     117,430
  RETAINED
  EARNINGS              204,008    (9,465)       78,821    (66,366)
  (DEFICIT),
  BEGINNING OF
  PERIOD
  Normal course               -    (2,164)     (11,232)     (2,164)
  issuer bid (Note
  9)
  Preferred share           (8)        (7)         (24)        (23)
  dividends
  RETAINED              294,733     48,877      294,733      48,877
  EARNINGS, END OF
  PERIOD

  BASIC NET INCOME         1.17       0.74         2.90        1.45
  PER SHARE (Note
  11)

  DILUTED NET              1.12       0.71         2.79        1.39
  INCOME PER SHARE
  (Note 11)

See accompanying notes to the interim consolidated financial statements.



 INTERIM CONSOLIDATED BALANCE SHEETS
 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
 UNAUDITED



                             September 30,              December 31,
                                      2003                      2002
  ASSETS
  CURRENT
  Cash and cash                   255,140                    74,796
  equivalents (Note 4)
  Accounts receivable             146,551                    92,431
  (Note 5)
  Inventory                        33,462                    40,529
  Prepaid expenses                 45,297                    44,594
  Current portion of               10,911                     9,049
  future income tax
  asset
                                  491,361                   261,399

  Deferred charges                  7,109                     5,321
  Restricted Cash                  15,600                         -
  (Note 6)
  Future income tax                25,596                    24,529
  asset
  Property, plant and             471,731                   405,479
  equipment
  TOTAL ASSETS                  1,011,397                   696,728
  LIABILITIES
  CURRENT
  Accounts payable and             96,766                    96,076
  accrued liabilities
  Short-term debt                  92,474                    25,947
  (Note 7)
  Prepayments for                   2,388                     3,540
  crude oil and
  refined products
                                  191,628                   125,563
  Long-term debt (Note            299,639                   266,603
  8)
  Provision for future              7,940                     4,167
  site restoration
  costs
  Future income tax                13,903                    17,015
  liability
                                  513,110                   413,348
  Minority interest                12,575                    10,753
  Preferred shares of                  80                        83
  subsidiary
  COMMITMENTS AND
  CONTINGENCIES (Note
  15)
  SHAREHOLDERS' EQUITY
  Share capital (Note             190,899                   193,723
  9)
  Retained earnings               294,733                    78,821
                                  485,632                   272,544
  TOTAL LIABILITIES             1,011,397                   696,728
  AND SHAREHOLDERS'
  EQUITY

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         Nine months ended
                             September 30,             September 30,
                         2003        2002         2003         2002
  OPERATING
  ACTIVITIES

  Net income           90,733      60,513      227,168      117,430

  Items not
  affecting
  cash:

  Depletion and        22,377      11,686       60,878       29,064
  depreciation

  Amortization            510         388        3,562        1,013
  of deferred
  charges

  Minority                551         391        1,822        1,672
  interest

  Other non-cash        (591)       3,917        1,001        4,923
  charges

  Future income       (5,082)       2,206      (6,040)        6,312
  tax

  Cash flow           108,498      79,101      288,391      160,414

  Changes in          (3,094)     (6,400)     (45,462)     (31,548)
  non-cash
  operating
  working
  capital items

  Cash flow from      105,404      72,701      242,929      128,866
  operating
  activities

  FINANCING
  ACTIVITIES

  Short-term          (8,294)      20,659        8,381       18,721
  debt

  Purchase of               -     (3,066)     (14,847)      (3,066)
  common shares
  (Note 9)

  Long-term debt     (16,268)     (8,581)       82,540       16,614

  Deferred                  -           -      (3,601)            -
  charges paid

  Proceeds from           322         127          792          740
  issue of share
  capital, net
  of share
  issuance costs

  Preferred               (8)         (7)         (24)         (23)
  share
  dividends

  Cash flow used     (24,248)       9,132       73,241       32,986
  in financing
  activities

  INVESTING
  ACTIVITIES

  Restricted         (15,600)           -     (15,600)            -
  cash (note 6)

  Long-term                 -           -            -       40,000
  investment

  Capital            (36,016)    (48,055)    (121,480)    (101,559)
  expenditures

  Proceeds from         1,258           -        1,258            -
  sale of fixed
  assets

  Purchase of               -     (2,854)          (4)      (2,859)
  preferred
  shares of
  subsidiary

  Cash flow used     (50,358)    (50,909)    (135,826)     (64,418)
  in investing
  activities
  INCREASE IN
  CASH                 30,798      30,924      180,344       97,434


  CASH AND CASH       224,342     131,322       74,796       64,812
  EQUIVALENTS,
  BEGINNING OF
  PERIOD

  CASH AND CASH       255,140     162,246      255,140      162,246
  EQUIVALENTS,
  END OF PERIOD

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. PetroKazakhstan Inc. was formerly known as Hurricane Hydrocarbons Ltd. Its main operating subsidiaries Hurricane Kumkol Munai ("HKM") and Hurricane Oil Products ("HOP") were renamed PetroKazakhstan Kumkol Resources ("PKKR") and PetroKazakhstan Oil Products ("PKOP"), respectively. 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, 2002. The accounting principles applied are consistent with those as set out in the Corporation's annual financial statements for the year ended December 31, 2002.

The presentation of certain amounts for previous periods has been changed to conform with the presentation adopted for the current period.

2. 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 of refined products and the management of the marketing 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.

3 months ended September 30, 2003



                  Upstream   Downstream Corporate Elimin-
                                                  ations Consolidated

  REVENUE

  Crude oil         185,389         -         -   (21,434)   163,955
  Refined            26,399   123,911         -   (12,955)   137,355
  products
  Processing fees         -         -         -          -         -
  Interest and        1,218       (6)       630          -     1,842
  other income
                    213,006   123,905       630   (34,389)   303,152

  EXPENSES

  Production         15,812         -         -          -    15,812
  Royalties and      24,553       176         -          -    24,729
  taxes
  Transportation     54,307     2,012         -          -    56,319
  Refining                -     3,519         -          -     3,519
  Crude oil and      15,415    35,952         -   (34,389)    16,978
  refined
  product
  purchases
  Selling             3,371     3,589         -          -     6,960
  General and         8,415     4,980     1,385          -    14,780
  administrative
  Interest and        6,936       699         -          -     7,635
  financing costs
  Depletion and      17,569     4,784        24          -    22,377
  depreciation
  Foreign             1,390       427       133          -     1,950
  exchange loss

                    147,768    56,138     1,542   (34,389)   171,059

  INCOME (LOSS)      65,238    67,767     (912)          -   132,093
  BEFORE INCOME
  TAXES

  INCOME TAXES

  Current            28,908    15,317     1,666          -    45,891
  provision

  Future income     (7,856)     2,774         -          -   (5,082)
  tax
                     21,052    18,091     1,666          -    40,809

  MINORITY                -       551         -          -       551

  INTEREST
  NET INCOME         44,186    49,125   (2,578)          -    90,733
  (LOSS)

  Intersegment       21,434    12,955         -          -         -
  revenue


  As at September 30,   Upstream Downstream  Corporate  Consolidated
  2003
            Total        693,862    170,266    147,269     1,011,397
            assets

            Total        455,686     56,318      1,106       513,110
            liabilities

            Capital       34,346      2,313        420        37,079
            expenditures
            in the
            quarter

 3 months ended September 30, 2002

              Upstream Downstream Corporate Eliminations Consolidated

  REVENUE
  Crude oil    161,128         -         -     (17,308)      143,820
  Refined       62,617    42,340         -      (3,926)      101,031
  products
  Processing         -       678         -            -          678
  fees
  Interest       1,706       425       302            -        2,433
  and other
  income
               225,451    43,443       302     (21,234)      247,962
  EXPENSES
  Production    15,256         -         -            -       15,256
  Royalties     20,899       639         -            -       21,538
  and taxes
  Transportati  50,194         -         -            -       50,194
  on
  Refining           -     5,280         -            -        5,280
  Crude oil                                    (21,234)
  and refined   13,947    19,052         -                    11,765
  product
  purchases
  Selling        4,883     3,219         -            -        8,102
  General and    8,821     4,391     1,228            -       14,440
  administrati
  ve
  Interest       2,024       489     6,315            -        8,828
  and
  financing
  costs
  Depletion      8,351     3,311        24            -       11,686
  and
  depreciation
  Foreign          294     1,004        64            -        1,362
  exchange
  loss
               124,669    37,385     7,631     (21,234)      148,451
  INCOME       100,782     6,058   (7,329)            -       99,511
  (LOSS)
  BEFORE
  UNUSUAL
  ITEMS
  UNUSUAL ITEM
  Arbitration       43         -         -            -           43
  settlement
  INCOME       100,739     6,058   (7,329)            -       99,468
  (LOSS)
  BEFORE
  INCOME TAXES
  INCOME TAXES
  Current       28,959     5,593     1,806            -       36,358
  provision
  Future         5,705   (3,499)         -            -        2,206
  income tax
                34,664     2,094     1,806            -       38,564
  MINORITY           -       391         -            -          391
  INTEREST
  NET INCOME    66,075     3,573   (9,135)            -       60,513
  (LOSS)
  Intersegment  17,308     3,926         -            -            -
  revenue


  As at September 30,   Upstream Downstream  Corporate  Consolidated
  2002
            Total        494,809    132,353    110,222       737,384
            assets
            Total        225,675     39,443    214,601       479,719
            liabilities
            Capital       45,428      2,567         60        48,055
            expenditures
            in the
            quarter


 9 months ended September 30, 2003

              Upstream Downstream Corporate Eliminations Consolidated

  REVENUE
  Crude oil    524,088         -         -     (83,716)      440,372

  Refined       42,942   339,048         -     (22,221)      359,769
  products
  Processing         -       449         -            -          449
  fees
  Interest       3,937       790     1,359            -        6,086
  and other
  income
               570,967   340,287     1,359    (105,937)      806,676
  EXPENSES
  Production    49,961         -         -            -       49,961
  Royalties     50,886     3,263         -            -       54,149
  and taxes
  Transportati 169,579     2,012         -            -      171,591
  on
  Refining           -    10,921         -            -       10,921
  Crude oil     32,335   115,996         -    (105,937)       42,394
  and refined
  product
  purchases
  Selling        7,878    11,272         -            -       19,150
  General and   23,536    13,910     2,908            -       40,354
  administrati
  ve
  Interest      18,117     1,881     8,763            -       28,761
  and
  financing
  costs
  Depletion     46,691    14,105        82            -       60,878
  and
  depreciation
  Foreign      (2,278)   (2,023)       725            -      (3,576)
  exchange
  (gain) loss
               396,705   171,337    12,478    (105,937)      474,583
  INCOME       174,262   168,950  (11,119)            -      332,093
  (LOSS)
  BEFORE
  INCOME TAXES
  INCOME TAXES
  Current       67,956    39,393     1,794            -      109,143
  provision
  Future      (13,578)     7,538         -            -      (6,040)
  income tax

                54,378    46,931     1,794            -      103,103

  MINORITY           -     1,822         -            -        1,822
  INTEREST
  NET INCOME   119,884   120,197  (12,913)            -      227,168
  (LOSS)
  Intersegment  83,716    22,221         -            -            -
  revenue


  As at September 30,   Upstream Downstream  Corporate  Consolidated
  2003
            Total        693,862    170,266    147,269     1,011,397
            assets
            Total        455,686     56,318      1,106       513,110
            liabilities
            Capital
            expenditure  111,772     11,561        761       124,094
            s for
            nine months


 9 months ended September 30, 2002

             Upstream Downstream Corporate Eliminations Consolidated

  REVENUE

  Crude oil    384,797         -         -     (65,191)      319,606
  Refined       91,416   178,535         -     (29,475)      240,476
  products
  Processing         -     2,112         -            -        2,112
  fees
  Interest       4,443       755     1,299            -        6,497
  and other
  income
               480,656   181,402     1,299     (94,666)      568,691

  EXPENSES
  Production    41,669         -         -            -       41,669
  Royalties     42,343     1,366         -            -       43,709
  and taxes
  Transportati 100,131         -         -            -      100,131
  on
  Refining           -    17,607         -            -       17,607
  Crude oil                                    (94,666)
  and refined   51,149    93,931         -                    50,414
  product
  purchases
  Selling        6,020    12,704         -            -       18,724
  General and   24,985    11,815     5,470            -       42,270
  administrative
  Interest       6,295     1,165    18,618            -       26,078
  and
  financing
  costs
  Depletion     20,163     8,831        70            -       29,064
  and
  depreciation
  Foreign          884       760       127            -        1,771
  exchange
  loss
               293,639   148,179    24,285     (94,666)      371,437

  INCOME       187,017    33,223  (22,986)            -      197,254
  (LOSS)
  BEFORE
  UNUSUAL
  ITEMS
  UNUSUAL ITEM
  Arbitration    7,134         -         -            -        7,134
  settlement
  INCOME       179,883    33,223  (22,986)            -      190,120
  (LOSS)
  BEFORE
  INCOME TAXES
  INCOME TAXES
  Current       48,000    14,535     2,171            -       64,706
  provision
  Future         9,922   (3,610)         -            -        6,312
  income tax
                57,922    10,925     2,171            -       71,018
  MINORITY           -     1,672         -            -        1,672
  INTEREST
  NET INCOME   121,961    20,626  (25,157)            -      117,430
  (LOSS)
  Intersegment  65,191    29,475         -            -            -
  revenue

  As at September 30,   Upstream Downstream  Corporate  Consolidated
  2002
            Total        494,809    132,353    110,222       737,384
            assets
            Total        225,675     39,443    214,601       479,719
            liabilities
            Capital       94,885      6,462        212       101,559
            expenditures
            for nine
            months

3. 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:



  3 months ended September 30,
  2003                               Turgai   Kazgermunai      Total

  Cash                               18,106        11,105     29,211
  Current assets, excluding cash      5,647        28,966     34,613
  Property, plant and equipment,     65,365        59,940    125,305
  net
  Current liabilities                27,395         6,712     34,107
  Long-term debt                          -        40,626     40,626
  Revenue                            30,132        32,673     62,805
  Expenses                           20,092        20,763     40,855
  Net income                         10,040        11,910     21,950
  Cash flow from operating           13,551         7,977     21,528
  activities
  Cash flow used in financing             -             -          -
  activities
  Cash flow used in investing       (8,651)       (5,153)   (13,804)
  activities

Revenue for the three months ended September 30, 2003 includes $11.8 million of crude oil sales made by Turgai to Downstream. This amount was eliminated on consolidation.



  3 months ended September 30,
  2002                                Turgai   Kazgermunai     Total

  Cash                                 3,863        17,465    21,328
  Current assets, excluding cash      11,620        14,942    26,562
  Property, plant and equipment       24,583        57,021    81,604
  Current liabilities                 13,069         5,167    18,236
  Long-term debt                           -        62,684    62,684
  Revenue                             22,209        17,767    39,976
  Expenses                            13,160        12,687    25,847
  Net income                           9,049         5,080    14,129
  Cash flow from operating             5,383        12,713    18,096
  activities
  Cash flow used in financing              -           243       243
  activities
  Cash flow used in investing        (3,132)       (4,395)   (7,527)
  activities

  9 months ended September 30,
  2003                               Turgai   Kazgermunai      Total

  Cash                               18,106        11,105     29,211
  Current assets, excluding cash      5,647        28,966     34,613
  Property, plant and                65,365        59,940    125,305
  equipment, net
  Current liabilities                27,395         6,712     34,107
  Long-term debt                          -        40,626     40,626
  Revenue                            89,842        75,460    165,302
  Expenses                           58,902        49,336    108,238
  Net income                         30,940        26,124     57,064
  Cash flow from operating           47,865        25,670     73,535
  activities
  Cash flow used in financing             -       (6,016)    (6,016)
  activities
  Cash flow used in investing      (30,067)      (11,404)   (41,471)
  activities

Revenue for the nine months ended September 30, 2003 includes $30.5 million of crude oil sales made by Turgai to Downstream. This amount was eliminated on consolidation.



  9 months ended September 30,
  2002                               Turgai   Kazgermunai      Total

  Cash                                3,863        17,465     21,328
  Current assets, excluding cash     11,620        14,942     26,562
  Property, plant and equipment      24,583        57,021     81,604
  Current liabilities                13,069         5,167     18,236
  Long-term debt                          -        62,684     62,684
  Revenue                            52,795        33,022     85,817
  Expenses                           31,303        26,473     57,776
  Net income                         21,492         6,549     28,041
  Cash flow from operating            9,766        11,616     21,382
  activities
  Cash flow used in financing             -         1,617      1,617
  activities
  Cash flow used in investing       (7,402)       (7,284)   (14,686)
  activities

Revenue for the nine months ended September 30, 2002 includes $15.5 million of crude oil sales made by Turgai and $5.8 million of crude oil sales made by Kazgermunai to Downstream. These amounts were eliminated on consolidation.

4. CASH AND CASH EQUIVALENTS

As at September 30, 2003 cash and cash equivalents included $3.1 million of cash dedicated to a margin account for the hedging program. As at December 31, 2002 the balance on this margin account was $5.7 million.

There were no cash equivalents as at September 30, 2003 and December 31, 2002.

5. ACCOUNTS RECEIVABLE



 Accounts receivable consist of the following:

                                     September 30,   December 31,
                                              2003           2002

      Trade                                 90,667         61,085
      Value added tax recoverable            9,908          1,718
      Due from Turgai                       30,040         17,357
      Other                                 15,936         12,271
                                           146,551         92,431

6. RESTRICTED CASH

Restricted cash is $15.6 million of cash dedicated to a debt service reserve account for the Corporation's Term Facility (nil as at December 31, 2002). This cash is not available for general corporate purposes until the Term Facility is repaid in full (please refer to Note 8).



 7.  SHORT-TERM DEBT

                                       September 30,   December 31,
                                                2003           2002

   Working capital facilities                  1,468         14,947
   Current portion of term facility           53,471              -
   Current portion of term loans               2,041              -
   Joint venture loan payable                 11,000         11,000
   PKOP Bonds (Note 8)                        24,494              -
                                              92,474         25,947

The working capital facilities are revolving, for terms of one to eight years, are secured and have interest rates ranging from Libor plus 3.5% per annum to 14% per annum.

8. LONG-TERM DEBT

Long-term debt is represented by:



                               September 30,   December 31,
                                        2003           2002

           Term facility             120,309              -
           9.625% Notes              125,000              -
           Kazgermunai debt           40,626         45,231
           Term loans                 13,704              -
           12% Notes                       -        208,210
           PKOP bonds                      -         13,162
                                     299,639        266,603

Term facility

On January 2, 2003, PetroKazakhstan Kumkol Resources ("PKKR") entered into a secured $225.0 million term facility secured by crude oil export contracts. This facility is repayable in 42 equal monthly installments 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. Please refer to Note 16 - Subsequent Events.

As a guarantor of the facility, the Corporation must comply with certain covenants including a limitation as to total debt and certain other financial covenants. The Corporation must also maintain a minimum cash balance of $40.0 million, of which an amount equal to 3 months principal and interest payments must be maintained in a security deposit account (see Note 6).

PKKR is also 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 hedged volumes have been reduced to 372,500 barrels of crude oil per month for 2004.

Included in deferred charges as at September 30, 2003 are $3 million of issue costs related to the Term facility, which will be amortized over the term of the facility.

9.625% Notes

On February 12, 2003, PetroKazakhstan Finance B.V., a wholly owned subsidiary of PKKR issued U.S. $125.0 million 9.625% Notes due February 12, 2010. The Notes are unsecured, unconditionally guaranteed by the Corporation, PKKR and PKOP, and were issued at a price of 98.389% of par value. Each of the guarantors has agreed to certain covenants, including limitations on indebtedness, restrictions on payments of dividends and on pledging of assets as security.

Issue costs of $1.8 million and the discount on the sale of the Notes of $2.0 million are recorded as deferred charges and will be amortized over the term of the Notes.

Kazgermunai debt

The Kazgermunai debt is non-recourse to the Corporation. During the nine months ended September 30, 2003, Kazgermunai repaid $11.6 million (50% - $5.8 million) of principal and interest.

Term loans

PKKR has obtained loans guaranteed by Export Credit Agencies for certain equipment related to the Kyzylkiya, Aryskum and Maibulak ("KAM") pipeline and the Gas Utilization Facility. The loans are secured by the equipment purchased, bear interest at LIBOR plus 4% per annum, are repayable in equal semi-annual installments and have final maturity dates ranging from five to seven years.

12% Notes

On February 3, 2003 the Corporation redeemed all $208.2 million of its outstanding 12% Notes due in 2006. The Notes were redeemed for an aggregate redemption price of $212.4 million, representing 102% of the principal amount of the Notes, plus accrued and unpaid interest of $12.5 million, for a total of $224.9 million. Deferred charges of $1.4 million recorded as at December 31, 2002 were expensed upon redemption.

PKOP bonds

On February 16, 2001 PetroKazakhstan Oil Products ("PKOP") registered 250,000 unsecured bonds (par value $100) in the amount of $25 million with the National Securities Commission of the Republic of Kazakhstan (the "PKOP bonds"). The PKOP bonds have a three-year maturity, are due on February 26, 2004 and bear a coupon rate of 10% per annum. The PKOP bonds are listed on the Kazakh Stock Exchange.

As at December 31, 2002 134,800 bonds had been issued for consideration of $13.2 million. On February 13, 2003, PKOP issued the remaining 115,200 Bonds for consideration of $11.4 million.

The PKOP bonds contain certain covenants including a limitation on indebtedness.

Repayment

Principal repayments due for each of the next five years and in total are as follows:



                        2003   2004    2005    2006   2007  2008
  Working
  capital              1,468      -       -       -      -     -
  facilities

  Joint
  venture             11,000      -       -       -      -     -
  loan
  payable

  PKOP                     - 24,494       -       -      -     -
  bonds

  9.625%                   -      -       -       -      -     -
  Notes

  Term                13,367 53,471  53,471  53,471      -     -
  Facility

  Kazgermunai              -      -       -       -      -     -

  Term                 1,022  2,196   2,665   2,665  2,271 1,878
  loans

                      26,857 80,161  56,136  56,136  2,271 1,878


                           Thereafter         Less        Total
                                           amounts    long-term
                                          included         debt
                                                in
                                        short-term
                                              debt
  Working
  capital                           -      (1,468)            -
  facilities

  Joint
  venture                           -     (11,000)            -
  loan
  payable

  PKOP                              -     (24,494)            -
  bonds

  9.625%                      125,000            -      125,000
  Notes

  Term                              -     (53,471)      120,309
  Facility

  Kazgermunai                  40,626            -       40,626

  Term                          3,048      (2,041)       13,704
  loans
                              168,674     (92,474)      299,639

The Kazgermunai debt does not have fixed repayment terms.

9. SHARE CAPITAL

Authorized share capital consists of an unlimited number of Class A common shares, and an unlimited number of Class A redeemable preferred shares, issuable in series.

Issued Class A common shares:



                        Three Months Ended       Three Months Ended
                         September 30, 2003       September 30, 2002
                           Number    Amount         Number    Amount

  Balance,             77,653,139   190,577     81,371,497   199,121
  beginning of
  period

  Shares                        -         -      (366,461)     (902)
  repurchased and
  cancelled
  pursuant to
  Normal Course
  Issuer Bid (a)

  Stock options           103,350       325         26,250        91
  exercised for
  cash

  Corresponding
  convertible              15,299       (3)         10,199        36
  securities,
  converted

  Balance, end of      77,771,788   190,899      81,041,485   198,346
  period


                           Nine Months Ended       Nine Months Ended
                          September 30, 2003      September 30, 2002
                            Number    Amount        Number    Amount

  Balance,              78,956,875   193,723    80,103,784   198,506
  beginning of
  period

  Shares
  repurchased and      (1,477,400)   (3,616)     (366,461)     (902)
  cancelled
  pursuant to
  Normal Course
  Issuer Bid (a)
  Stock options            273,750       792     1,194,375       620
  exercised for
  cash
  Corresponding
  convertible               18,563         -       118,107       133
  securities,
  converted

  Cancelled shares               -         -       (8,320)      (11)

  Balance, end of       77,771,788   190,899    81,041,485   198,346
  period

(a) During the third quarter of 2002, the Corporation adopted a normal course issuer bid to repurchase, for cancellation, up to 5,253,238 common shares during the period from August 7, 2002 to August 6, 2003. This repurchase program was renewed on August 5, 2003, which allows the Corporation to repurchase for cancellation, up to 5,775,028 common shares during the period from August 7, 2003 to August 6, 2004. As at December 31, 2002, the Corporation had purchased and cancelled 2,531,870 shares at an average price of C$14.57 per share. The Corporation purchased and cancelled an additional 1,477,400 at an average price of C$14.69 per share during the nine months ended September 30, 2003. The excess of cost over the book value for the shares purchased was applied to retained earnings. There were no purchases under the new NCIB program.

(b) The Corporation has elected to use intrinsic values when accounting for stock options and to disclose the pro forma results of using the fair value method.

The pro forma net income per share had we applied the fair-value based method of accounting for stock options follows:



                        Three Months Ended         Nine Months Ended
                             September 30,             September 30,
                             2003     2002            2003      2002
  Net income

  As reported              90,733   60,513         227,168   117,430

  Pro forma                90,584   60,131         225,492   115,286

  Basic net
  income per
  share

  As reported                1.17     0.74            2.90      1.45

  Pro forma                  1.17     0.74            2.88      1.42

  Diluted net
  income per
  share

  As reported                1.12     0.71            2.79      1.39

  Pro forma                  1.11     0.71            2.77      1.36

A summary of the status of the Corporation's stock option plan as of September 30, 2003 and the changes during the nine months ended September 30, 2003 and year ended December 31, 2002 is presented below (expressed in Canadian dollars):



                                    Options         Weighted Average
                                                      Exercise Price
  Outstanding at December         5,736,880                     3.07
  31, 2001

  Granted                           605,000                    14.65

  Exercised                     (1,393,281)                     1.09

  Forfeited                        (98,463)                     6.73

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

  Granted                            17,000                    16.20

  Exercised                       (292,313)                     3.98

  Forfeited                        (62,275)                     8.55

  Outstanding at September        4,512,548                     5.07
  30, 2003

  Options exercisable as at:

  December 31, 2002 (as           1,908,798                     3.87
  amended)

  September 30, 2003              2,422,842                     2.93

10. 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       Nine Months Ended
                               September 30,           September 30,
                               2003     2002           2003     2002

  Statutory                     30%      30%            30%      30%
  Kazakhstan income
  tax rate

  Expected tax               39,628   29,840         99,628   57,036
  expense

  Non-deductible              1,181    8,724          3,475   13,982
  amounts, net

  Income tax expense         40,809   38,564        103,103   71,018

11. 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         Nine Months Ended
                             September 30,             September 30,
                         2003         2002         2003         2002

  Weighted
  average          77,707,623   81,301,955   78,258,611   81,042,900
  number of
  common
  shares
  outstanding

  Dilution          3,559,095    3,440,217    3,030,279    3,440,217
  from
  exercisable
  options
  (including
  convertible
  securities)


  Diluted          81,266,718   84,742,172   81,288,890   84,483,117
  number of
  shares
  outstanding

No options were excluded from the calculation of diluted number of shares outstanding for the three months and nine months ended September 30, 2003 and 2002, as the market price was in excess of exercise price.

12. FINANCIAL INSTRUMENTS

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 a major financial institution.



  Contract            Contract       Contract        Price     Price
  Amount                Period           Type      Ceiling     Floor
  (bbls per                                        ($/bbl)   ($/bbl)
  month)

  187,500         January 2003      Zero cost        29.00     17.00
                   to December         collar
                          2003

  75,000          January 2003      Zero cost        30.00     17.00
                   to December         collar
                          2003

  112,500         January 2003      Zero cost        29.00     18.00
                   to December         collar
                          2003

  75,000          January 2003      Zero cost        29.50     19.00
                   to December         collar
                          2003

  450,000

  75,000          January 2004      Zero cost        28.00     17.00
                   to December         collar
                          2004

  75,000          January 2004      Zero cost        29.00     17.00
                   to December         collar
                          2004

  75,000          January 2004      Zero cost        29.25     17.00
                   to December         collar
                          2004

  37,500          January 2004      Zero cost        29.60     17.00
                   to December         collar
                          2004

  75,000          January 2004      Zero cost        30.20     18.00
                   to December         collar
                          2004

  35,000          January 2004      Zero cost        30.20     18.00
                   to December         collar
                          2004

  372,500

During the nine months ended September 30, 2003, the Corporation has foregone revenue of $3.3 million through these contracts.

13. CASH FLOW INFORMATION

Interest and income taxes paid:



                        Three Months Ended         Nine Months Ended
                             September 30,             September 30,
                             2003     2002             2003     2002

  Interest paid             8,478   13,375           30,983   30,207
  Income taxes             43,185   22,278          104,654   48,570
  paid

14. FAIR VALUE OF FINANCIAL INSTRUMENTS

As at September 30, 2003 the fair value, the related method of determining fair value and the carrying value of the Corporation's financial instruments were as follows.

The fair value of current assets and current liabilities approximates their carrying amounts due to the short-term maturity of these instruments.

The fair value of long term debt is based on publicly quoted market values and current market conditions for instruments of a similar nature.



                              Carrying Value   Fair Value

            Long-term debt           299,639      309,639

15. COMMITMENTS AND CONTINGENCIES

Kazakhstani environment

Kazakhstan, as an emerging market, has a legal and regulatory infrastructure that is not as mature and stable as those usually existing in more developed free market economies. As a result, operations carried out in Kazakhstan can involve risks and uncertainties that are not typically associated with those in developed markets.

The instability associated with the ongoing transformation process to a market economy can lead to changes in the business conditions in which the Corporation currently operates. Changes in the political, legal, tax or regulatory environment could adversely impact the Corporation's operations.

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. 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 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 Supervisory Commission's agreement to hear its appeal on the assessed taxes. The Corporation provided for $2.9 million of the $10.5 million in the December 31, 2002 consolidated financial statements. PKKR is currently disputing the remaining $7.6 million of the $10.5 million, which relates to fines and penalties assessed, as 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. No provision has been made for the disputed penalties. 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 $44.8 million (including our 50% share of Turgai Petroleums assessments). The Corporation does not agree with these assessments and has filed court cases disputing these amounts.

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 the Caspian Pipeline Consortium ("CPC") despite the fact that this transaction was not completed. 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 our 50% share. The Ministry of Finance may appeal these cases.

The PKKR 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 $4.9 million). The Corporation believes the claim for royalties on flared associated gas, which has no commercial value, contravenes the provisions of its Hydrocarbons Contracts. PKKR appealed to the Supreme Court and was unsuccessful. PKKR intends to appeal this adverse decision to the Supervisory Panel of the Supreme Court. No provision has been made in the consolidated financial statements for this assessment.

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 totaled $783,000 including the transfer pricing issue. The Ministry of Finance has the option to appeal approximately $4.2 million of the remaining assessment to the Supreme Court. No provision has been made in the consolidated financial statements for this case.

PKKR received an assessment for royalties on oil production during testing of the East Kumkol discovery for $300,000 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. PKKR is disputing this assessment.

In response to PetroKazakhstan's submission, the Minister of Finance initiated the creation of a high level working group between its Officials and PetroKazakhstan representatives to address and seek resolution of all outstanding tax issues through dialogue and negotiations.

16. SUBSEQUENT EVENTS

Agency for Regulation of Natural Monopolies and Protection of Competition ("ARNM")

On October 2, the ARNM claimed that PKOP had received $6.3 million of unjustified revenue from charging prices for oil products that are allegedly in excess of ARNM authorized maximum prices. The Corporation has long taken the position that the ARNM has no right to regulate PKOP under the terms of the Privatization Agreement relating to the Shymkent refinery, which operates in a highly competitive environment. In addition, PKOP believes that the ARNM claim contains a number of factual errors. On October 9, PKOP filed a lawsuit against the ARNM challenging the ARNM claim.

The Corporation through a group company in Kazakhstan received news on October 8, that the ARNM has alleged violations of Kazakhstan's competition laws. The ARNM is claiming that approximately $31.0 million in unjustified revenue was obtained by the group company. The Corporation believes this claim has no legal merit and has taken legal action to defend itself.

Term facility

On October 24, the Corporation notified the facility agent under its term facility, that a $50 million prepayment will be made on October 31, 2003. Future repayments of the term facility will be reduced on a pro-rata basis. (Note 8)



            

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