Volume 3, issue #2 - 22-01-1998

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MSUP signs favourable Operating Agreement with Kazakhstan

Nov. 25, 1997 Med Shipping Usturt Petroleum, (MSUP) (70 % American International Petroleum Corp.), has signed the "Contract on Exploration of Hydrocarbons" with the State Committee of the Republic of Kazakhstan on Investments.
The contract is the definitive Operating Agreement, under which MSUP, as operator of Exploration License No. 953, will manage the exploration and evaluation of hydrocarbon reserves within the 4.7 million acre License Area.
A major point of negotiation was successfully resolved with the government when the commercial bonus for newly discovered fields was set in the Contract at only 0.05 % of the reserve value and the subscription bonus was set at $ 975,000. The contract gives MSUP the exclusive right to receive a production license upon the occurrence of a commercial discovery. MSUP also retains the right to commercialise the data acquired during the exploration for a period of 10 years after the completion of exploration. In addition, the contract provides that the 5-year exploration period defined in the License may be extended by an additional 4 years to allow for expanded work programs.
Initial test production of up to 650,000 barrels will be exempt from royalty. However, the royalty rate for production above this level, which normally ranges between 6 % and 26 %, depending on the production levels, will be negotiated and defined later in the production agreement with the government. Income tax was fixed at 30 %. Investments in social programs in the License Area have been fixed at $ 100,000 per year during the exploration period.
MSUP said that the contract requires an aggregate minimum expenditure of $ 14.75 mm over the initial 5 year exploration period, of which $ 6.3 million is required during the first 3 years.
"This is a critical step on the road to the successful development of our project," MSUP CEO George Faris said. "We are particularly pleased that we were able to establish favourable subscription and commercial field bonuses with the government. While there is little doubt as to the potential of significant oil reserves in the license area, the new contract establishes clear guidelines for economic evaluation of such potential reserves and thus makes it easier for us to attract potential partners."
The company said earlier that development of the License database in both Denver and Almaty has begun and the initial seismic lines are being reprocessed for orientation of the seismic program and selection of possible drilling sites. MSUP has requested bids for survey crews to begin work to lay out the initial 1,250 km seismic program. Preliminary discussions have been held with potential drilling contractors and work on the first well is planned for the second quarter of 1998, depending on rig availability.