Petrokazakhstan 6-K Hurricane Hydrocarbons Ltd. Fourth Quarter and Year 2002 Financial Results

     Attention Business/Financial Editors:

     Hurricane Hydrocarbons Ltd. Fourth Quarter and Year 2002 Financial Results

     CALGARY, March 4 /CNW/ — Hurricane Hydrocarbons Ltd. (“Hurricane”, the “Corporation” or the “Company”) announces its financial results for the three months ending December 31, 2002 and for the year ended December 31, 2002. All amounts are expressed in U.S. dollars unless otherwise indicated.

HIGHLIGHTS:

• Record production, a 35% increase in average daily production to 135,842 bopd from 100,877 bopd in 2001

• Fourth quarter 2002 earnings and cash flow increased by 90% and 71% respectively over the same period in 2001

• Replaced 2002 production of 49.6 million barrels by 120%

• KAM pipeline project on schedule to be commissioned at the end of the second quarter of 2003

• Exploration success at North Nurali

• Significant reduction in Mazut yield at the Shymkent refinery

• Commenced trading on the New York Stock Exchange

• Successful debt refinancing announced early in 2003

FINANCIAL HIGHLIGHTS:

		Three Months ended				Year ended
		December 31				December 31
		2002		2001		2002		2001
		(in millions of US$ except per share amounts)
Gross Revenue			249.9		128.2		814.7		603.0
Net income			45.1		23.0		162.6		169.3
	Per share (basic)		0.56		0.29		2.01		2.12
	Per share (diluted)		0.54		0.27		1.93		2.02
Cash flow			56.4		33.0		216.8		200.3
	Per share (basic)		0.70		0.41		2.68		2.51
	Per share (diluted)		0.67		0.39		2.57		2.39
Weight Average Shares Outstanding
	Basic		80,291,859		80,060,448		80,853,597		79,807,038
	Diluted		83,572,269		83,940,921		84,200,536		83,649,160
Shares Outstanding at End of Period			78,956,875		80,103,784		78,956,875		80,103,784

     The Company announces fourth-quarter 2002 net income of $45.1 million ($0.56 per share) compared with $23.0 million ($0.29 per share) for the same period in 2001. Cash flow for the fourth quarter of 2002 was $56.4 million ($0.70 per share) versus $33.0 million ($0.41 per share) for the same period in 2001.

     For the year ended December 31, 2002, net income was $162.6 million ($2.01 per share) compared with net income of $169.3 million ($2.12 per share) in 2001.

     The Company had near record net income, the second best in Company history. With the Company’s significant increase in non-FCA sales as compared to 2001, there was an increase of approximately 1.6 million barrels of inventory as non-FCA sales were incomplete at year end. This led to the deferral of an estimated $13 million of net income (or $0.16 pre share) into 2003.

     Cash flow for 2002 was $216.8 million ($2.68 per share) compared with $200.3 million for 2001. Capital expenditures in 2002 were $140 million, up 36% from the $103 million spent in 2001.

     In January 2003, Hurricane announced its capital expenditure program of $167 million for 2003, an increase of 19% from 2002 and that 2003 average

production is targeted to be 165,000 bopd, an increase of 22% from the 2002 average production.

     In addition, the Company also announced a successful refinancing of its debt with the signing of a new four year credit facility and a seven year Eurobond.

UPSTREAM OPERATIONS REVIEW

     Production

     Hurricane increased production by 35% to 49.6 million barrels or an average of 135,842 barrels per day (“bopd”) in 2002 compared to 36.8 million barrels or 100,877 bopd in 2001. In the fourth quarter of 2002, Hurricane’s production was 14.7 million barrels or 158,504 bopd an increase of 11% from third quarter production of 13.2 million barrels or 143,175 bopd. The year-end exit rate was 163,688 bopd.

     Production increases were recorded in all fields. Key contribution fields were: South Kumkol (up 9,760 bopd), Kumkol South (7,141 bopd), Kumkol North (up 6,934 bopd) and the KAM fields (up 8,314 bopd). The optimization of artificial lift enhanced the performance of South Kumkol, and continued development drilling in Kumkol North led to these increases. Other production increases resulted from additional development drilling and production facility enhancements.

     Production from the KAM (Kyzylkiya, Aryskum and Maibulak) field complex increased 3-fold from 3,781 bopd in 2001 to 12,095 bopd. In particular the Aryskum field performance was dramatically improved by wellwork and surface facilities improvements. These results confirm the quality of the KAM fields, reflected by increased reserves in the independent assessment by McDaniels and Associates. Production will increase to 22,000 bopd in 2003 as the development program continues.

     It is anticipated that production for year 2003 will, on average, increase by 22% to 165,000 bopd. This includes Hurricane’s 50% share of production from its joint ventures Kazgermunai and Turgai Petroleum.

     Hurricane currently has eight service rigs in operation throughout the producing fields that are contributing to the enhancement of daily production. These rigs are conducting artificial lift pump replacements and installments, as well as zonal isolations, recompletions and workovers.

     Kumkol Fields Facilities

     Expanding existing production infrastructure and facilities optimization were the key events which occurred in 2002 that led to increased production in these fields. The Kumkol Central Processing Facility (“CPF”) alone is capable of handling 260,000 barrels of fluid per day and with new Kumkol field production facilities the total fluid handling capacity is currently upwards of 290,000 barrels of fluid per day. Two new Kumkol South free water knockout facilities, commissioned in early October, relieve water handling issues at the CPF, thereby increasing total field processing capacity. A new water injection plant which went into operation in early 2002 has enhanced the pressure support to the Kumkol reservoirs allowing higher offtake production. The construction of new additional group processing stations, to be commissioned in June 2003, will again increase Kumkol production.

     KAM Pipeline

     In September 2002, construction of the 177 kilometer, 16-inch oil KAM pipeline commenced. This pipeline connects the Kumkol CPF and the new KAM fields to a new rail loading facility at Dzhusaly, South West of the fields negating some 1,300 kilometers of pipeline and rail transportation currently in use. This facility is scheduled for commissioning at the end of the second quarter of 2003. Once completed, the pipeline will be capable of initially transporting and loading into rail cars 140,000 bopd. As of March 1, 2003, the KAM pipeline and loading station project was 82% complete.

     Utilization of Associated Gas

     The 55 megawatt gas power plant at Kumkol is well underway and is on schedule for commissioning during the third quarter of 2003. This $35 million project will enable Hurricane to utilize associated produced gas and to establish a more reliable source of electricity. As of March 1, 2003, the project was 80% complete.

     Exploration

     In 2002, Hurricane drilled four exploration wells. Of the four drilled, two were successful and resulted in a new field discovery at North Nurali. These two wells confirmed and validated deeper stratigraphic productive horizons in the Company’s 260 D1 license area and potentially throughout the basin. Evaluation continues with 3D seismic underway in February 2003 with further well testing of existing wells and 3 new appraisal wells planned in 2003. In addition to the North Nurali wells, Hurricane intends to drill 3 exploration and appraisal wells. The first Nurali well will be spudded in the second quarter.

     Appraisal and Developments

     East Kumkol

     Two wells were drilled this year in addition to the three in 2001. Development plans with joint venture partner LUKoil are being compiled for submission to the authorities for approvals. Construction of simple single well facilities are planned in 2003.

     South Kumkol

     Water injection facilities were installed in 2002 to take advantage of the new infill wells, which had been drilled in 2001.

     KAM Fields

     The phased development program of the KAM complex consisting of the Kyzylkiya, Aryskum and Maibulak fields continued in 2002 with the drilling of 5 wells and the installation of additional surface facilities. Testing of Aryskum wells and the installation of additional heating equipment has enhanced the individual well rates significantly from an average of 450 bopd to 1,100 bopd. A successful re-entry of an idle Kyzylkiya well encountered commercial production from the Jurassic interval for the first time. A new appraisal well drilled and completed confirmed the lateral extension of the field evidenced by the 3D seismic and is currently producing over 1,400 bopd. Consequently, this infield drilling in Kyzylkiya has resulted in an increase in reserves. Road access to all fields is now complete. A 6-inch, 25 kilometer pipeline from Kyzylkiya to Aryskum, and an 8-inch, 21 kilometer pipeline from Aryskum to the KAM pipeline will be constructed and commissioned concurrently with the Kumkol to Dzhusaly KAM pipeline. These interfield pipelines will significantly reduce the transportation costs associated with trucking the KAM fields’ production to the Kumkol CPF.

     Production is anticipated to increase in 2003 in all KAM fields to approximately 22,000 bopd.

     Kumkol North

     In 2002, the development of the Turgai Petroleum operated Kumkol North field, progressed with the drilling of 54 wells. A free water knockout facility is under construction, which will alleviate the load on the Kumkol CPF.

     Kazgermunai

     The program of further development and production enhancement of the Akshabulak field, operated by Kazgermunai, required the installation of a new process facility in 2002. This development program has been delayed by our

joint venture partners, pending assurances from the government of Kazakhstan on marketing and transportation issues. We are also engaged in trying to resolve certain disputes with our joint venture partners regarding the ongoing management and operation of the joint venture.

     Summarizing the drilling achievements for the year 2002, Hurricane participated in a total of 72 wells; 3 in South Kumkol, 2 in East Kumkol, 5 in KAM, 4 in Kazgermunai, 54 in Kumkol North and 4 exploration wells. This was down from the 127 wells projected mainly due to the curtailment of the Akshabulak full field development and the re-evaluation of the KAM field development drilling plan.

     Reserve Report

     Similar to previous years, Hurricane’s reserves have increased for a sixth year in a row. The independent assessment by McDaniel & Associates Consultants Ltd. gives increases in all categories.

     Total proved reserves have increased by 8.2 million barrels from 348.1 to 356.3 million barrels. Proved plus probable reserves have increased to 518.3 million barrels from 512.3 million barrels as of January 1, 2002. This represents a 116% and 112% replacement of 2002 production (49.6 million barrels) for the proved and proved plus probable categories respectively. Corresponding reserve life indices are 7.2 and 10.5 years.

     In addition, gas reserves of 4.1 million barrels oil equivalent (boe) are now recognized as the development plans for these reserves are underway by means of the new 55 megawatt power plant. Consequently, on a boe basis, the Company’s reserves have been replaced by 120% in the proved and probable category.

     McDaniels and Associates estimate that Hurricane’s proved plus probable plus possible reserves is now 745 million barrels. The possible category is a target that the Company will focus on as it continues to move more reserves into the proved category.

     Five year finding and development costs were $1.07/bbl for proved reserves.

DOWNSTREAM MARKETING, TRADING AND REFINING

     Crude Trading and Transportation

     Transportation of crude oil to the export market continues to remain the company’s largest single operating cost. As in 2002, Hurricane’s most important priority in 2003 is to improve its transportation logistics in order to maximize the company’s return from crude oil exports.

     Hurricane’s objective of selling a larger percentage of crude using non-FCA sales reaching end users has been realized. Non-FCA sales represented 39% of crude export sales in 2002. For the quarter ended December 31, 2002, 62% of the crude oil export sales were non-FCA sales. Through the use of non-FCA sales the Company can increase its understanding and control of transportation costs, ultimately leading to improved returns.

     The main objectives for 2003 are the following:

• Transport crude via the KAM pipeline

• Continue to pursue opportunities to transport crude via the CPC export pipeline

• Further development of non-FCA sales and reduce transportation costs

• Improve infrastructure (railcars, loading facilities)

• Complete the Druzhba rail terminal to facilitate increased oil movements to China

• Continue to develop joint marketing systems with the other producers of the Turgai basin

     Refinery Operations

     During 2002, the Shymkent refinery processed a total of 27.1 million

barrels or 74,150 bopd compared to 26.3 million barrels or 72,107 bopd in 2001. Included in this production is 1.3 million barrels refined for third parties in 2002 and 5.4 million barrels in 2001.

     For the fourth quarter of 2002, the Shymkent Refinery processed a total of 7.1 million barrels or 77,068 bopd compared to 6.0 million barrels or 65,008 bopd in the same quarter of 2001. Included in this production is 0.3 million barrels refined for third parties in the fourth quarter of 2002 and 1.2 million barrels in the fourth quarter of 2001.

     The refinery continues to focus on the improvement of yields while minimizing the production of lower end and lower value products. For example, the production of mazut (heavy fuel oil) and a lower-end product has been reduced year over year. Mazut yield in 2002 averaged about 36% versus 40% in 2001. At the end of 2002 mazut yield was 36% versus 43% at the end of 2001. The improvement is attributed to capital improvement projects and process changes including the overhaul of the main tower internals that resulted in less fractionation overlap. The refinery also increased the mazut throughput of the visbreaker unit in 2002, reducing its pour point to produce additional amounts of light, higher value products.

     The Profit Improvement Program has nearly eliminated flaring and improved heater performance and fuel utilization. Further energy improvements will be implemented and it is anticipated this will lead to further profitability improvements.

     A successful annual maintenance refinery turnaround was completed in June 2002. All mandatory equipment was re-inspected and certified for continued operation by regulatory bodies.

     During 2002 work commenced on the Vacuum Distillation Unit. The project is expected to be completed by the third quarter of 2003. The Vacuum Distillation Unit will permit Shymkent refinery to produce Vacuum Gasoil (VGO) form Mazut. VGO is a much higher value product than mazut and is highly sought after by sophisticated refineries with catalytic cracking units where the VGO can be converted primarily to gasoline and diesel. This will substantially improve the economic yield of the Shymkent refinery by further reducing the volume of mazut produced.

MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)

     A full MD&A is available on the Company’s website and can also be obtained on application from the Company.

     Hurricane’s shares trade in the United States on the New York Stock Exchange under the symbol HHL. They also trade on the Toronto Sock Exchange under the symbol HHL and on the Frankfurt exchange under the symbol HHCA.. The company’s website can be accessed at www.hurricane-hhl.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.

HURRICANE HYDROCARBONS LTD.

CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS, (DEFICIT)
FOR PERIODS ENDED DECEMBER 31,
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT PER SHARE AMOUNTS)
UNAUDITED

	Year			3 months			Year			3 months
	ended			ended			ended			ended
	Dec.31,			Dec.31,			Dec. 31,			Dec. 31,
	2002			2002			2001			2001
REVENUE
Crude oil		481,114			161,508			252,981			59,638
Refined products		322,037			85,425			328,958			64,183
Processing fees		2,661			549			11,338			2,715
Interest and other income		8,936			2,439			9,779			1,685
		814,748			249,921			603,056			128,221
EXPENSES
Production		60,596			18,927			41,231			11,550
Royalties and taxes		58,112			18,267			41,023			10,275
Transportation		163,801			63,670			50,237			16,019
Refining		21,721			4,114			20,562			5,956
Crude oil and refined product purchases		73,327			22,913			78,788			17,926
Selling		23,253			4,529			19,277			4,220
General and administrative		58,879			16,609			51,494			16,139
Interest and financing costs		35,473			9,395			19,530			7,404
Depletion and depreciation		45,088			16,024			34,254			9,636
Foreign exchange loss (gain)		2,233			462			1,453			1,017
		542,483			174,910			357,849			100,142
INCOME BEFORE UNUSUAL ITEMS		272,265			75,011			245,207			28,079
UNUSUAL ITEMS
Arbitration settlement (Note 16)		7,134			—			—			—
Defense costs related to potential takeover		—			—			5,546			(454	)
INCOME BEFORE INCOME TAXES		265,131			75,011			239,661			28,533
INCOME TAXES (Note 12)
Current provision		100,808			36,102			79,679			12,302
Future income tax recovery		(313	)		(6,625	)		(11,285	)		(7,586	)
		100,495			29,477			68,394			4,716
NET INCOME BEFORE MINORITY INTEREST		164,636			45,534			171,267			23,817
MINORITY INTEREST		2,068			396			1,927			774
NET INCOME		162,568			45,138			169,340			23,043
(DEFICIT) RETAINED EARNINGS, BEGINNING OF YEAR		(66,366	)		48,877			(18,887	)		(82,318	)
Normal Course Issuer Bid		(17,350	)		(15,186	)		—			—
Common share dividends		—			—			(209,168	)		542
Premium on redemption of series 5 warrants		—			—			(7,626	)		(7,626	)
Preferred share dividends		(31	)		(8	)		(25	)		(7	)
RETAINED EARNINGS (DEFICIT), END OF YEAR		78,821			78,821			(66,366	)		(66,366	)
BASIC NET INCOME PER SHARE (Note 13)		2.01			0.56			2.12			0.29
DILUTED NET INCOME PER SHARE (Note 13)		1.93			0.54			2.02			0.27

HURRICANE HYDROCARBONS LTD.

CONSOLIDATED BALANCE SHEETS
AS AT DECEMBER 31,
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
UNAUDITED

		2002		2001
ASSETS
CURRENT
	Cash and cash equivalents (Note 4)		74,796		64,812
	Accounts receivable (Note 5)		92,431		52,287
	Inventory (Note 6)		40,529		29,946
	Prepaid expenses (Note 7)		44,594		17,319
	Current portion of future income tax asset		9,049		5,766
			261,399		170,130
Deferred charges			5,321		3,408
Future income tax asset			24,529		29,444
Long term investments			—		40,000
Property plant and equipment			405,479		332,896
TOTAL ASSETS			696,728		575,878
LIABILITIES
CURRENT
	Accounts payable and accrued liabilities (Note 8)		96,076		48,758
	Short term debt (Note 9)		25,947		52,557
	Prepayments for crude oil and refined products		3,540		7,422
			125,563		108,737
Long-term debt (Note 10)			266,603		281,175
Provision for future site restoration costs			4,167		3,148
Future income tax liability			17,015		24,988
			413,348		418,048
Minority interest			10,753		25,599
Preferred shares of subsidiary			83		91
COMMITMENTS AND CONTINGENCIES (Note 16)
SHAREHOLDERS’ EQUITY
	Share capital		193,723		198,506
	Retained earnings (deficit)		78,821		(66,366	)
			272,544		132,140
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			696,728		575,878

HURRICANE HYDROCARBONS LTD.

CONSOLIDATED STATEMENTS OF CASH FLOW
FOR PERIODS ENDED DECEMBER 31,
(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)
UNAUDITED

			Year			3 months			Year			3 months
			ended			ended			ended			ended
			Dec. 31,			Dec.31,			Dec.31,			Dec. 31,
			2002			2002			2001			2001
OPERATING ACTIVITIES
	Net income			162,568			45,138			169,340			23,043
	Items not affecting cash:
		Depletion and depreciation		45,088			16,024			34,254			9,636
		Loss on disposition of assets		3,360			607			—			—
		Accrued interest on Kazgermunai debt		3,016			819			5,679			998
		Minority interest		2,068			396			1,927			774
		Other non-cash charges		1,007			21			434			6,158
		Future income tax		(313	)		(6,625	)		(11,285	)		(7,586	)
Cash flow				216,794			56,380			200,349			33,023
Changes in non-cash operating working capital items (Note 15)				(34,566	)		(3,018	)		(48,396	)		(838	)
Cash flow from operating activities				182,228			53,362			151,953			32,185
FINANCING ACTIVITIES
	Short term debt			(26,610	)		(45,331	)		51,557			2,079
	Common share dividends			—			—			(31,830	)		—
	Redemption of series 5 warrants			—			—			(9,425	)		—
	Redemption of series 5 corresponding convertible securities			—			—			(3,878	)		(3,878	)
	Purchase of common shares (Note 11)			(23,549	)		(20,483	)		—			—
	Long term debt (Note 15)			(17,658	)		(34,272	)		(8,258	)		30,097
	Deferred charges paid			(2,850	)		(2,850	)		(2,520	)		(2,520	)
	Proceeds from issue of share capital, net of share issuance costs			1,417			677			685			194
	Preferred share dividends			(31	)		(8	)		(25	)		(7	)
	Cash flow used in (from) financing activities			(69,281	)		(102,267	)		(3,694	)		25,965
INVESTING ACTIVITIES
	Capital expenditures			(140,102	)		(38,543	)		(102,732	)		(52,636	)
	Long term investment			40,000			—			(40,000	)		(40,000	)
	Acquisition of HOP, net of cash acquired			(2,853	)		—			—			52
	Purchase of preferred shares of subsidiary			(8	)		(2	)		(13	)		(2	)
	Cash flow used in investing activities			(102,963	)		(38,545	)		(142,745	)		(92,586	)
INCREASE (DECREASE) IN CASH				9,984			(87,450	)		5,514			(34,436	)
CASH AND CASH EQUIVALENTS BEGINNING OF YEAR				64,812			162,246			59,298			99,248
CASH AND CASH EQUIVALENTS END OF YEAR				74,796			74,796			64,812			64,812

HURRICANE HYDROCARBONS LTD.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
PERIODS ENDED DECEMBER 31,
(EXPRESSED IN UNITED STATES DOLLARS, TABULAR AMOUNTS IN THOUSANDS OF DOLLARS EXCEPT WHERE INDICATED OTHERWISE)
UNAUDITED

1 SIGNIFICANT ACCOUNTING POLICIES

     The Consolidated Financial Statements of Hurricane Hydrocarbons Ltd. (“Hurricane” or the “Corporation”) have been prepared by management in accordance with generally accepted accounting principles in Canada. Certain information and disclosures normally required to be included in the notes to the annual financial statements has been omitted or condensed. The Consolidated Financial Statements should be read in conjunction with the Consolidated Financial Statements and the notes thereto in Hurricane’s Annual Report for the years ended December 31, 2001 and 2000. The accounting principles applied are consistent with those as set out in the Corporation’s annual financial statements for the year ended December 31, 2001, except as described below.

     Effective January 1, 2001, the Corporation adopted the new recommendation of the Canadian Institute of Chartered Accountants with respect to net income per share. Under this new standard, the treasury stock method is used to determine the dilutive effect of all potential common share issues. Only “in the money” dilutive instruments impact the calculation of diluted net income per share. The comparative diluted net income per share amounts for the year ended December 31, 2000 have been restated, as follows, to give effect to the new recommendation.

	Reported		As Restated
Diluted net income per share		1.92		2.12

     Effective January 1, 2002 the Corporation adopted the new recommendation of the Canadian Institute of Chartered Accountants with respect to stock-based compensation. This new standard requires the disclosure of the impact on net income and net income per share of using the fair value method of accounting for stock options issued to employees on or after January 1, 2002. (please refer to Note 11).

     Effective January 1, 2002 the Corporation adopted the amended recommendation of the Canadian Institute of Chartered Accountants with respect to accounting for foreign currency translation. All exchange gains and losses on long-term monetary items that do not qualify for hedge accounting are recognized in income. As at December 31, 2002 the adoption of this amended standard has no impact on the consolidated financial statements.

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

2 SEGMENTED INFORMATION

     Following the acquisition of HOP in 2000, the Corporation became an integrated oil and gas company. All of the commercial activity of the Corporation is concentrated in the Republic of Kazakhstan in Central Asia. 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.

     The accounting policies of the operating segments are the same as those described in Note 1. Identifiable assets are those used in the operation of the segment.

     The consolidated tax impact of non-deductible interest expense of $7.5 million for the year ended December 31, 2002 ($3.2 million — 2001 and $5.4 million — 2000) has been allocated to Corporate.

     The consolidated tax impact of corporate non-deductible interest expense of $1.2 million for the quarter ended December 31, 2002 ($1.7 million — for the quarter ended December 31, 2001) was allocated to Corporate.

		Year ended December 31, 2002
		Upstream		Downstream		Corporate		Consolidated
REVENUE
	Crude oil		481,114		—		—		481,114
	Refined products		93,896		228,141		—		322,037
	Processing fees		—		2,661		—		2,661
	Interest and other income		5,892		979		2,065		8,936
			580,902		231,781		2,065		814,748
EXPENSES
	Production		60,596		—		—		60,596
	Royalties and taxes		57,535		577		—		58,112
	Transportation		163,791		10		—		163,801
	Refining		4,197		17,524		—		21,721
	Crude oil and refined product purchases		36,588		36,739		—		73,327
	Selling		11,493		11,760		—		23,253
	General and administrative		37,093		17,216		4,570		58,879

		Year ended December 31, 2002
		Upstream			Downstream		Corporate			Consolidated
	Interest and financing costs		9,023			1,514		24,936			35,473
	Depletion and depreciation		31,647			13,347		94			45,088
	Foreign exchange loss		1,024			995		214			2,233
			412,987			99,682		29,814			542,483
INCOME (LOSS) BEFORE UNUSUAL ITEMS			167,915			132,099		(27,749	)		272,265
UNUSUAL ITEM
	Arbitration settlement		7,134			—		—			7,134
INCOME BEFORE INCOME TAXES			160,781			132,099		(27,749	)		265,131
INCOME TAXES
	Current provision		64,500			26,463		9,845			100,808
	Future income tax		(11,039	)		10,726		—			(313	)
			53,461			37,189		9,845			100,495
MINORITY INTEREST			—			2,068		—			2,068
NET INCOME			107,320			92,842		(37,594	)		162,568
INTERSEGMENT REVENUE			112,754			37,744		—			—

     Included in the upstream crude oil revenue is sales to one customer in the amount of $103.0 million, representing more than 10% of revenue.

		3 months ended December 31, 2002
		Upstream		Downstream		Corporate		Consolidated
REVENUE
	Crude oil		161,508		—		—		161,508
	Refined products		5,910		79,515		—		85,425
	Processing fees		—		549		—		549
	Interest and other income		1,449		224		766		2,439
			168,867		80,288		766		249,921
EXPENSES
	Production		18,927		—		—		18,927
	Royalties and taxes		17,842		425		—		18,267
	Transportation		63,660		10		—		63,670
	Refining		90		4,024		—		4,114
	Crude oil and refined product purchases		15,782		7,131		—		22,913

		3 months ended December 31, 2002
		Upstream			Downstream		Corporate			Consolidated
	Selling		795			3,734		—			4,529
	General and administrative e		12,108			5,401		(900	)		16,609
	Interest and financing costs		2,728			349		6,318			9,395
	Depletion and depreciation		11,484			4,516		24			16,024
	Foreign exchange loss		140			235		87			462
			143,556			25,825		5,529			174,910
INCOME BEFORE INCOME TAXES			25,311			54,463		(4,763	)		75,011
INCOME TAXES
	Current provision		22,085			11,928		2,089			36,102
	Future income tax		(13,642	)		7,017		—			(6,625	)
			8,443			18,945		2,089			29,477
MINORITY INTEREST			—			396		—			396
NET INCOME			16,868			35,122		(6,852	)		45,138
INTERSEGMENT REVENUE			41,294			2,600		—			—

     Included in the upstream crude oil revenue is sales to one customer in the amount of $25.4 million, representing more than 10% of revenue.

		Year ended December 31, 2001
		Upstream		Downstream		Corporate		Consolidated
REVENUE
	Crude oil		250,947		2,034		—		252,981
	Refined products		15,656		313,302		—		328,958
	Processing fees		—		11,338		—		11,338
	Interest and other income		9,126		91		562		9,779
			275,729		326,765		562		603,056
EXPENSES
	Production		41,231		—		—		41,231
	Royalties and taxes		41,023		—		—		41,023
	Transportation		50,237		—		—		50,237
	Refining		—		20,562		—		20,562
	Crude oil and refined product purchases		—		78,788		—		78,788
	Selling		5,621		13,656		—		19,277
	General and administrative		28,024		17,906		5,564		51,494
	Interest and financing costs		7,815		1,029		10,686		19,530

		Year ended December 31, 2001
		Upstream			Downstream		Corporate			Consolidated
	Depletion and depreciation		24,116			9,764		374			34,254
	Foreign exchange loss (gain)		342			1,478		(367	)		1,453
			198,409			143,183		16,257			357,849
INCOME (LOSS) BEFORE UNUSUAL ITEMS			77,320			183,582		(15,695	)		245,207
UNUSUAL ITEM
	Defense costs related to potential takeover		—			—		5,546			5,546
INCOME BEFORE INCOME TAXES			77,320			183,582		(21,241	)		239,661
INCOME TAXES
	Current provision		57,589			16,299		5,791			79,679
	Future income tax		(38,730	)		27,445		—			(11,285	)
			18,859			43,744		5,791			68,394
MINORITY INTEREST			—			1,927		—			1,927
NET INCOME			58,461			137,911		(27,032	)		169,340
INTERSEGMENT REVENUE			170,911			22,942		—			—

     Included in the upstream crude oil revenue is sales to one customer in the amount of $99.5 million representing more than 10% of revenue.

		3 months ended December 31, 2001
		Upstream		Downstream			Corporate		Consolidated
REVENUE
	Crude oil		59,628		10			—		59,638
	Refined products		7,739		56,444			—		64,183
	Processing fees		—		2,715			—		2,715
	Interest and other income		2,233		(571	)		23		1,685
			69,600		58,598			23		128,221
EXPENSES
	Production		11,550		—			—		11,550
	Royalties and taxes		10,275		—			—		10,275
	Transportation		16,019		—			—		16,019
	Refining		—		5,956			—		5,956
	Crude oil and refined product purchases		—		17,926			—		17,926
	Selling		1,288		2,932			—		4,220
	General and administrative		10,523		3,114			2,502		16,139

		3 months ended December 31, 2001
		Upstream			Downstream			Corporate			Consolidated
	Interest and financing costs		1,678			215			5,511			7,404
	Depletion and depreciation		6,949			2,593			94			9,636
	Foreign exchange loss (gain)		(97	)		1,159			(45	)		1,017
			58,185			33,895			8,062			100,142
INCOME (LOSS) BEFORE UNUSUAL ITEMS			11,415			24,703			(8,039	)		28,079
UNUSUAL ITEM
	Defense costs related to potential takeover		—			—			(454	)		(454	)
INCOME BEFORE INCOME TAXES			11,415			24,703			(7,585	)		28,533
INCOME TAXES
	Current provision		4,141			5,097			3,064			12,302
	Future income tax		(4,762	)		(2,824	)		—			(7,586	)
			(621	)		2,273			3,064			4,716
MINORITY INTEREST			—			774			—			774
NET INCOME			12,036			21,656			(10,649	)		23,043
INTERSEGMENT REVENUE			27,620			9,916			—			—

     Included in the upstream crude oil revenue is sales to one customer in the amount of $21 million representing more than 10% of revenue.

	As at December 31, 2002
	Upstream		Downstream		Corporate		Consolidated
Total assets		493,920		169,071		33,737		696,728
Total liabilities		148,247		36,859		228,242		413,348
Capital expenditures		131,875		8,227		—		140,102

	As at December 31, 2001
	Upstream		Downstream		Corporate		Consolidated
Total assets		321,685		215,166		39,027		575,878
Total liabilities		163,263		50,288		204,497		418,048
Capital expenditures		100,259		9,332		616		110,207

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”), formerly Kumkol Lukoil CJSC, 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, Nuraly and Aksai. From November 28, 2000 Hurricane assumed a more active role in the management of Kazgermunai. As a result, the Corporation commenced to account for their interest by way of proportionate consolidation from that date.

     As at November 28, 2000 the Corporation’s share of the net assets of Kazgermunai was as follows:

Working capital, including cash of $16.6 million	18,171
Fixed assets	63,172
Long term debt	(81,343	)
Total net assets	—

     Kazgermunai is restricted from paying dividends until all outstanding loans have been repaid in full. The long-term debt is non-recourse to the Corporation (as more fully disclosed in Note 10).

     The Corporation’s interests in these joint ventures have been accounted for using the proportionate consolidation method. Under this method, the Corporation’s balance sheets, statements of income, retained earnings and deficit and cash flows incorporate the Corporation’s share of income, expenses, assets, liabilities and cash flows of these joint ventures.

     The following amounts are included in the Corporation’s consolidated financial statements as a result of the proportionate consolidation of its joint ventures and before consolidation eliminations:

	12 months ended December 31, 2002
	Turgai			Kazgermunai			Total
Cash		307			2,854			3,161
Current assets, excluding cash		14,248			14,743			28,991
Capital assets, net		41,602			58,853			100,455
Current liabilities		24,909			4,798			29,707
Long term debt		—			45,231			45,231
Revenue		72,938			48,284			121,222
Expenses		47,241			37,431			84,672
Net income		25,697			10,853			36,550
Cash flow from operating activities		25,420			19,264			44,684
Cash flow used in financing activities		—			(15,83	)		(15,837	)
Cash flow used in investing activities		(26,613	)		(12,089	)		(38,702	)

	3 months ended December 31, 2002
	Turgai			Kazgermunai			Total
Revenue		20,143			15,262			35,405
Expenses		15,938			10,958			26,896
Net income		4,205			4,304			8,509
Cash flow from operating activities		15,654			7,648			23,302
Cash flow used in financing activities		—			(17,454	)		(17,454	)
Cash flow used in investing activities		(19,211	)		(4,805	)		(24,016	)

     The revenue for the year ended December 31, 2002 includes $55 million of crude oil sales made by Turgai and $6.3 million of crude oil sales made by

Kazgermunai to Downstream. These amounts were eliminated on consolidation.

     The revenue for the 3 months ended December 31, 2002 includes $20.6 million of crude oil sales made by Turgai and $0.5 million of crude oil sales made by Kazgermunai to Downstream. These amounts were eliminated on consolidation.

	12 months ended December 31, 2001
	Turgai			Kazgermunai			Total
Cash		1,500			11,516			13,016
Current assets, excluding cash		7,426			12,728			20,154
Capital assets, net		19,394			55,031			74,425
Current liabilities		16,899			5,598			22,497
Long term debt		—			61,068			61,068
Revenue		67,819			49,803			117,622
Expenses		31,758			39,092			70,850
Net income		36,061			10,711			46,772
Cash flow from operating activities		43,748			18,227			61,975
Cash flow used in financing activities		(50,000	)		(20,980	)		(70,980	)
Cash flow used in investing activities		(13,330	)		(4,386	)		(17,716	)

	3 months ended December 31, 2001
	Turgai			Kazgermunai			Total
Revenue		15,201			12,051			27,252
Expenses		11,795			8,778			20,573
Net income		3,406			3,273			6,679
Cash flow from operating activities		36,364			2,409			38,773
Cash flow used in financing activities		(32,000	)		(662	)		(32,662	)
Cash flow used in investing activities		(8,185	)		(1,748	)		(9,933	)

     The revenue for the year ended December 31, 2001 includes $52.9 million of crude oil sales made by Turgai and $2.6 million of crude oil sales made by Kazgermunai to Downstream. These amounts were eliminated on consolidation.

     The revenue for the 3 months ended December 31, 2001 includes $11.7 million of crude oil sales made by Turgai and $1.4 million of crude oil sales made by Kazgermunai to Downstream. These amounts were eliminated on consolidation.

4 CASH AND CASH EQUIVALENTS

     As at December 31, 2002 cash and cash equivalents included $5.7 million of cash dedicated to a margin account for the hedging program (Note 14), which was subsequently released when the Corporation entered into a new facility agreement (Note 17). There were no restrictions on cash as at December 31, 2001.

5 ACCOUNTS RECEIVABLE

     Accounts receivable consist of the following:

	2002		2001
Trade		61,085		22,724
Value added tax recoverable		1,718		10,153
Due from Turgai		17,357		9,206
Other		12,271		10,204
		92,431		52,287

6 INVENTORY

     Inventory consists of the following:

	2002		2001
Refined products		6,458		11,348
Crude oil purchased		7,413		—
Crude oil produced		7,837		2,584
Materials and supplies		18,821		16,014
		40,529		29,946

7 PREPAID EXPENSES

	2002		2001
Advances for services and equipment		23,722		14,788
Prepayment of transportation for crude oil sales		17,210		1,104
Prepayment for pipeline tariff		3,662		1,427
		44,594		17,319

8 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

	2002		2001
Trade		67,167		38,258
Royalties		15,929		7,312
Income taxes		4,729		1,823
Other		8,251		1,365
		96,076		48,758

9 SHORT TERM DEBT

	2002		2001
Working capital facilities		14,947		42,557
Current portion of term facilities		—		4,000
Joint venture loan payable		11,000		6,000
		25,947		52,557

     The working capital facilities are revolving, for terms of 1 to 8 years, are secured and have interest rates ranging from Libor plus 3.5% per annum to 14% per annum.

10 LONG TERM DEBT

     Long-term debt is represented by:

	2002		2001
12% Notes		208,210		190,880
Kazgermunai debt		45,231		61,068
Term facility		—		16,000
HOP bonds		13,162		13,227
		266,603		281,175

     12% Notes

     The Corporation declared a special dividend of C$4.00 per share to the shareholders of record as of August 2, 2001 in the form of $208,610,000, 12% Notes (“Notes”) issued on August 3, due in 2006. These Notes are unsecured, bear interest at the rate of 12% per annum payable semi-annually on August 3 and February 3 and mature on August 4, 2006. The Notes are redeemable at the Corporation’s option in whole or in part on the interest payment dates at 102% up to and including February 3, 2003, at 101% up to and including February 3, 2004 and at 100% thereafter. Each holder of the Notes has the right, upon the occurrence of a change in control, to require the Company to repurchase all or any part (equal to $10,000 or an integral multiple thereof) of the Notes at a price of 101% of the aggregate principal plus accrued and unpaid interest.

     Upon issuance, the Corporation paid fractional interests and withholding taxes of $31.8 million in cash and retained a corresponding amount of the Notes. The Corporation repurchased $0.9 million of these Notes on the market in 2001 and subsequently sold all of the Notes except for $0.4 million of the Notes, which were cancelled. On February 3, 2003 these Notes were redeemed (Note 17).

     The issue costs related to the Notes of $1.4 million as at December 31, 2002 ($1.8 million as at December 31, 2001), and discount on sale of Notes of $1.1 million as at December 31, 2002 ($0.9 million as at December 31, 2001) are recorded as deferred expense and are amortized over the term of the Notes.

     Long term debt of Kazgermunai

     The Kazgermunai debt is non-recourse to the Corporation. The amounts included below represent 50% of the total debt, which has been included in the consolidated financial statements on a proportionate consolidation basis (see Note 3).

	2002		2001
Kazgermunai senior debt		9,072		27,319
Kazgermunai subordinated debt		24,000		22,181
Loan from Government of Kazakhstan		12,159		11,568
		45,231		61,068

     Kazgermunai senior debt

     The senior debt bears interest at LIBOR plus 3% and is unsecured. Accrued interest is added to the principal on a semi-annual basis.

	2002		2001
Principal repaid		17,506		25,000
Interest repaid		1,347		1,659
		18,853		26,659

     Kazgermunai subordinated debt

     The subordinated debt bears interest at LIBOR plus 3% and is unsecured. Accrued interest is added to the principal on a semi-annual basis. Repayment of the debt will begin after full repayment of the senior debt.

     Loan from Government of Kazakhstan

     The loan from the Government of Kazakhstan relates to exploration and development work performed by Yuzneftegas, a state owned enterprise that was purchased by Hurricane Kumkol Limited in 1996 and which subsequently had its name changed to OJSC Hurricane Kumkol Munai, on the Akshabulak, Nuraly and Aksai fields prior to the formation of Kazgermunai. The loan bears interest at LIBOR plus 3% and is unsecured. Accrued interest is added to the principal on a semi-annual basis. Repayment of the debt will begin after full repayment of the senior debt.

     Kazgermunai is restricted from paying dividends until all outstanding loans have been repaid in full.

     Term facility

     During the year ended December 31, 2001 the Corporation entered into a secured, Term Facility for $60 million. The facility was to be repaid in fifteen equal monthly installments commencing October 2002 and bore interest at LIBOR plus 3.5%. As at December 31, 2002 the Corporation had repaid this facility in full.

     Subsequent to December 31, 2002, the Corporation entered into a new export financing facility (Note 17).

     HOP bonds

     On March 20, 2001 HOP 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 “HOP bonds”). The HOP bonds have a three-year maturity, are due on March 31, 2004 and bear a coupon rate of 10% per annum. The HOP 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.

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

     Subsequent to December 31, 2002, the Corporation issued the remaining HOP bonds (Note 17).

     Repayment

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

	2002		2003		2004		2005		2006		Thereafter		Total
12% Notes		—		—		—		—		208,210		—		208,210
HOP bonds		—		—		13,162		—		—		—		13,162
Kazgermunai		—		—		—		—		—		45,231		45,231
		—		—		13,162		—		208,210		45,231		266,603

     The Kazgermunai debt does not have fixed repayment terms. On February 3, 2003, the 12% Notes were redeemed in full.

11 SHARE CAPITAL

     The Corporation maintains an incentive stock option plan (“plan”) under which directors, officers and key personnel may be granted options to purchase class A common shares of the Corporation. The Corporation has reserved 8,076,050 class A common shares for issuance upon the exercise of options granted under the terms of the plan (2001 — 8,776,500). The Board of Directors determines the exercise price of each option, provided that no option shall be granted with an exercise price at a discount to market. No compensation expense is recognized in accordance with the Corporation’s accounting policies. The vesting periods established under the Corporation’s stock option plan and the term of the options are set by the board of directors, subject to a maximum term for any option of 10 years. Granted options have a vesting period of 4-5 years, except for options granted to non-executive directors, which vest immediately.

     The Corporation has adopted the recommendations of the Canadian Institute of Chartered Accountants regarding stock based compensation. The Corporation has elected to use the intrinsic value method of accounting for stock options and to disclose the pro forma results of using the fair value method. The new recommendations apply to options granted after January 1, 2002.

		Year		3 months		Year		3 months
		ended		ended		ended		ended
		Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,
		2002		2002		2001		2001
Net income
	As reported		162,568		45,138		169,340		23,043
	Pro forma		160,038		43,216		165,693		20,605
Basic net income per share
	As reported		2.01		0.56		2.12		0.29
	Pro forma		1.98		0.54		2.08		0.26
Diluted net income per share
	As reported		1.93		0.54		2.02		0.27
	Pro forma		1.90		0.52		1.98		0.25

     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. 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 excess of cost over the book value for the shares purchased was applied to retained earnings.

12 INCOME TAXES

     The Corporation and its subsidiaries are required to file tax returns in each of the jurisdictions in which they operate. The prime operating jurisdiction is Kazakhstan with substantially all income earned in Kazakhstan.

     The provision for income taxes differs from the results, which would have been obtained by applying the statutory tax rate of 30% to Hurricane’s income before income taxes. This difference results from the following items:

	Year			3 months			Year			3 months
	ended			ended			ended			ended
	Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
	2002			2002			2001			2001
Statutory Kazakhstan income tax rate		30	%		30	%		30	%		30	%
Expected tax expense		79,539			22,503			71,898			8,560
Non-deductible amounts, net		16,230			2,248			7,619			1,130
Lower tax rate for South Kumkol field		—			—			(2,338	)		(585	)
Reversal of lower tax rate for South Kumkol field		4,726			4,726			—			—
Income tax withheld on joint venture dividend		—			—			2,500			2,500
Future tax recognized		—			—			(11,285	)		(6,889	)
Income tax expense		100,495			29,477			68,394			4,716

13 NET INCOME PER SHARE

     The income per share calculations are based on the weighted average and diluted numbers of Class A common shares outstanding during the period as follows:

	Year		3 months		Year		3 months
	ended		ended		ended		ended
	Dec. 31,		Dec. 31,		Dec. 31,		Dec. 31,
	2002		2002		2001		2001
Weighted average number of common shares outstanding		80,853,597		80,291,859		79,807,038		80,060,448
Dilution from exercisable options(including convertible securities)		3,346,939		3,280,410		3,842,122		3,880,473
Dilution from Series 5 warrants						—
Diluted number of shares outstanding		84,200,536		83,572,269		83,649,160		83,940,921

     No options were excluded from the calculation of diluted number of shares outstanding for the years ended December 31, 2002 and 2001.

14 FINANCIAL INSTRUMENTS

     The nature of the Corporation’s operation and issuance of long-term debt exposes the Corporation to fluctuations in commodity prices, foreign currency exchange rates, interest rates and credit risk. The Corporation recognizes these risks and manages its operation in a manner such that exposure to these risks is minimized to the extent practical.

     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 Kazgermunai debt and HOP bonds approximate their carrying value as they bear interest at market rates. The fair value of 12% Notes is $212.4 million versus the carrying value of $208.2 million.

     Commodity price risk

     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			Price
Amount			Ceiling or
(bbls per		Contract	Contracted		Price
month)	Contract Period	Type	Price		Floor
187,500 75,000 112,500 75,000	January 2003 to December 2003 January 2003 to December 2003 January 2003 to December 2003 January 2003 to December 2003	Zero cost collar Zero cost collar Zero cost collar Zero cost collar		29.00 30.00 29.00 29.50		17.00 17.00 18.00 19.00

     For the year ended December 31, 2002, the Corporation had Brent IPE futures contracts in place for 600,000 bbls at a Brent price of $25.27 and 500,000 bbls at a Brent price of $25.22. Through these contracts the Corporation forego revenue of $1.5 million.

15 CASH FLOW INFORMATION

     Changes in non-cash operating working capital items include:

	Year			3 months			Year			3 months
	ended			ended			ended			ended
	Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
	2002			2002			2001			2001
(Increase)/decrease in accounts receivable		(40,144	)		(10,524	)		(16,573	)		2,972
Increase in inventory		(10,583	)		(10,176	)		(9,138	)		(7,911	)
(Increase)/decrease in prepaid expenses		(27,275	)		7,580			(7,089	)		13,050
Increase/(decrease) in accounts payable and accrued liabilities		47,318			17,871			(11,044	)		(6,181	)
Decrease in prepayments for crude oil and refined products		(3,882	)		(7,769	)		(4,552	)		(2,768	)
		(34,566	)		(3,018	)		(48,396	)		(838	)

     Change in long-term debt includes:

	Year			3 months			Year			3 months
	ended			ended			ended			ended
	Dec. 31,			Dec. 31,			Dec. 31,			Dec. 31,
	2002			2002			2001			2001
Proceeds from HOP bonds		—			—			13,227			(78	)
(Repayment of)/proceeds from term facility		(16,000	)		(16,000	)		16,000			16,000
12% Notes repurchased		—			—			(900	)		(51	)
12% Notes sold, net of discount		17,195			—			14,080			14,080
Repayment of Kazgermunai debt		(18,853	)		(18,272	)		(26,659	)		(1,659	)
Repayment of Canadian and US notes		—			—			(24,006	)		1,805
		(17,658	)		(34,272	)		(8,258	)		30,097

16 COMMITMENTS AND CONTINGENCIES

     Kazakhstani Environment

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

     The development of instability in the ongoing market transformation process could lead to changes in the fundamental business infrastructure in which the Corporation currently operates. Changes in the political, legal, tax or regulatory environment could adversely impact the Corporation’s operations.

     Government Taxes and Legislation

     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 can lead to the imposition of penalties and interest.

     The Corporation through its operating subsidiaries in Kazakhstan, has disputed tax assessments received for the years 1998 through 2001.

     The Corporation has been engaged in two court cases in Kazakhstan pertaining to the disputed assessments for 1998 and 1999. The first involved HOP and was for approximately $8.8 million. HOP has successfully argued its case at the first level of the court system in Kazakhstan and at the Supreme Court level. There is a possibility that the Ministry of State Revenue may appeal to the ultimate appellate level, the Supervisory Commission of the Supreme Court. No provision has been made in the consolidated financial statements for this assessment.

     The second case involved HKM and was for a total of approximately $10.5 million including taxes, fines, interest and penalties. HKM was successful at the first level of the court system and was unsuccessful on the majority of the issues at the Supreme Court level. HKM has until April 18, 2003 to appeal to the ultimate appellate level, the Supervisory Commission of the Supreme Court. To date HKM has been unsuccessful in obtaining the Supervisory Commission’s agreement to hear its appeal on the assessed taxes. However, HKM is currently disputing $7.6 million of the $10.5 million related to penalties assessed, as HKM believes there was an incorrect application of the provisions of the tax act. No provision has been made for the disputed penalties. The Corporation has provided for $2.9 million of the $10.5 million in the December 31, 2002 consolidated financial statements. The assessments received for 1998 and 1999 challenged South Kumkol receiving the free economic zone taxation rate of 20% versus the statutory rate of 30% without specifying an amount. As HKM has been unsuccessful in obtaining leave to appeal, it has provided for $4.5 million, which represents the additional taxes due when the 30% statutory rate is applied for South Kumkol from the beginning of 1999 through to the end of 2001. HKM continues to dispute the entire assessment, as it believes the tax stability provisions of its Hydrocarbons Contract establish that HKM is not subject to the assessed taxes.

     The Corporation has provided for an additional $2.2 million of taxes relating to the 1998 and 1999 assessments for the years 2000 and 2001.

     The Corporation, through its operating subsidiaries in Kazakhstan received tax assessments for 2000 and 2001 amounting to $56 million, which have been reduced through negotiations to $45 million (including our 50% share of Turgai Petroleum’s assessments). The Corporation has not provided for these assessments and has filed court cases disputing these assessments. HOP has been successful at the first level of the court system with respect to the entire $12.5 million of its assessment. Turgai has been successful at the first two levels of the court system on the majority of its assessment of $12 million, of which $6 million is our 50% share. The HKM court cases relating to its assessment of $26.5 million commenced in February 2003.

     Capital Expenditures Commitment

     Pursuant to the Share Sale-Purchase Agreement with the Republic of Kazakhstan, a commitment was made to invest, in Kazakhstan, an aggregate of $280 million in capital expenditures, investments or other items that may be treated as capital assets of HKM on or before December 31, 2002. These expenditures will be used to further exploit and develop existing fields and to explore for new additional reserves to enhance future production and revenues. If the required investment is not made within the agreed time period, Hurricane may be required under the terms of the Agreement to pay a penalty of 15% of the amount not invested. As at December 31, 2002, the Corporation believes it has met this commitment. The expenditures and commitments remain subject to audit and certification by the Government of Kazakhstan, under the terms of the Share Sale-Purchase Agreement.

     In addition the Corporation has assumed the rights and obligations under the HOP privatization agreement, whereby the Government of Kazakhstan privatized HOP. Under this agreement, the Corporation is required to invest, or cause HOP to invest, the tenge equivalent of $150 million in capital expenditures or investments by December 31, 2001.

     As of December 31, 2002, the Corporation believes it has met this commitment. The Government of Kazakhstan is disputing the Corporation’s assertion that it has met its commitment with respect to HOP. The Corporation is currently engaged in discussions with representatives of the Government of Kazakhstan concerning the level of capital expenditures or commitments made as at December 31, 2001. If it is established that the Corporation has not met its commitment within the agreed time frame, the Corporation may be required, under the terms of the agreement, to pay a penalty of 15% of the amount not invested.

     Legal Proceedings

     The Corporation and its subsidiary HKM are Claimants in Arbitration Proceedings being conducted under the auspices of the International Court of Arbitration of the International Chamber of Commerce, in Paris, France. The Corporation and HKM are claiming damages in the amount of $31.5 million. The Corporation contends that the Defendants, EEG-Erdgas Erdol Gmbh and RWE-DEA AG (the joint venture partners of HKM in the joint venture Kazgermunai LLP) have acted in breach of the Foundation Agreement of the Kazgermunai LLP and certain other related agreements. No amount has been recorded in the consolidated financial statements as at December 31, 2002.

     The Corporation had been named as defendant in a claim filed by a company alleging it was retained under a consulting contract since January 17, 1997 until services were suspended in May 1999. The liquidated principal amount claimed was, in aggregate, $6.6 million and an additional unspecified amount was claimed as an alleged penalty provision, with the total claim not to exceed $35 million. The arbitration decision has been received and the Corporation has paid $7.1 million for full settlement of the claim.

     The Corporation has been named as defendant in a claim filed by a company alleging breach of a consulting contract, in aggregate of $4.7 million. The Corporation believes this claim is without merit and, accordingly, no amount has been recorded in the consolidated financial statements at December 31, 2002.

     The Corporation has been named as a defendant in a claim filed by a company alleging a breach of an agreement in the amount of $2.4 million. The Corporation believes this lawsuit is without merit and, accordingly, no amount has been recorded in the consolidated financial statements at December 31, 2002.

     Excess Profit Tax

     The Corporation through its subsidiary HKM and joint venture Turgai is subject to excess profit tax under the terms of the Hydrocarbon Exploration and Production contracts they have for oil and gas production. The contracts

are specific to each field.

     Excess profit tax is in addition to statutory income taxes, which are at a rate of 30%, and excess profit tax takes effect after the field has achieved a cumulative internal rate of return higher than 20% for the specific field. The excess profit tax ranges from 0% to 30% of taxable income for the year for HKM and from 0% to 50% for Turgai. The Corporation did not incur excess profits tax in 2002; it may be subject to excess profit tax for the year ended December 31, 2003 and subsequent years in certain of its fields.

     Environmental matters

     Extensive national, regional and local environmental laws and regulations in Kazakhstan affect nearly all of our operations. These laws and regulations set various standards regulating certain aspects of health and environmental quality provide for user fees, penalties and other liabilities for the violation of these standards and establish, in some circumstances, obligations to remediate current and former facilities and off-site locations.

     The Corporation believes it is currently in compliance with all existing Republic of Kazakhstan environmental laws and regulations. However, as new environmental laws and legislation are enacted and the old laws are repealed, interpretation, application and enforcement of the laws may become inconsistent. Compliance in the future could require significant expenditures, which may adversely effect the Corporation’s operations.

17 SUBSEQUENT EVENTS

     Redemption of 12% Notes

     On February 3, 2003 the Corporation redeemed all $208,210,000 of its outstanding 12% Notes due in 2006. The Notes were redeemed for an aggregate redemption price of $212,374,200, representing 102% of the principal amount of the Notes, plus accrued and unpaid interest of $12,492,600, for a total of $224,866,800. The deferred charges of $1.4 million recorded as at December 31, 2002 will be written off upon redemption.

     New Financing Arrangements

     On January 2, 2003, HKM entered into a secured $225 million facility agreement. HKM has drawn down $190 million under this facility. This facility will be repaid in 42 equal installments commencing in July 2003. The facility bears interest at a rate of LIBOR plus 3.25% per annum.

     On February 12, 2003, Hurricane Finance B.V., a wholly owned subsidiary of HKM and a special purpose entity, issued a US$125 million 9.625% Notes due February 12, 2010. The Notes are unconditionally guaranteed by the Corporation, HKM and HOP.

     HOP Bonds

     On February 13, 2003, HOP issued the remaining 115,200 Bonds (par value $100) for consideration of $11.4 million.

     -0-                                                 03/04/2003

     /For further information: Nicholas H. Gay, Senior Vice President Finance and CFO, 44 (1753) 410-020, Ihor P. Wasylkiw, Vice President Investor Relations, (403) 221-8658/

     (HHL. HHL HHL.DB.U.)

CO: Hurricane Hydrocarbons Ltd.
ST: Alberta
IN: OIL
SU: ERN

       -30-