Petrokazakhstan 6-K Current report (foreign)

Exhibit 99.1

NEWS RELEASE

FOR IMMEDIATE RELEASE - July 28, 2005
FOR:	PetroKazakhstan Inc.
SUBJECT:	Financial Results for the Second Quarter Ended June 30, 2005

CALGARY, Alberta - PetroKazakhstan Inc. (“PetroKazakhstan”) announces its financial results for the three months ended June 30, 2005. All amounts are expressed in U.S. dollars unless otherwise indicated.

HIGHLIGHTS:

• Net Income of $1.86 per share and Cash flow of $2.20 per share for the quarter

• Significant Exploration and Appraisal successes in the Kyzylkiya and Kolzhan Licenses

• Reduction of production due to regulatory restrictions on gas flaring

• Development programs fully maintained despite production restrictions

• Progress in the implementation of infrastructure to allow full utilization of associated gas

FINANCIAL HIGHLIGHTS:

(in millions of US$ except per share amounts)	Six Months ended June 30				Three Months ended June 30
	2005		2004		2005		2004
Gross Revenue		1,012.1	$	731.6		509.6	$	406.3
Net income		304.4		209.5		138.7		122.0
Per share (basic)		4.04		2.64		1.86		1.54
Per share (diluted)		4.02		2.60		1.85		1.51
Cash flow		350.8		253.9		164.4		143.1
Per share (basic)		4.66		3.20		2.20		1.80
Per share (diluted)		4.63		3.16		2.19		1.77
Weight Average Shares Outstanding
Basic		75,288,966		79,257,431		74,666,131		79,442,775
Diluted		75,741,407		80,484,892		75,016,376		80,721,531
Shares Outstanding at End of Period		73,996,350		80,597,166		73,996,350		80,597,166

PetroKazakhstan is pleased to announce its financial results for the second quarter of 2005 achieving $138.7 million of net income and $164.4 million of cash flow. This represents basic net income per share of $1.86 and basic cash flow per share of $2.20 for the quarter. The comparable figures for the quarter ended June 30, 2004 were $1.54 basic net income per share and $1.80 basic cash flow per share.

For the six months ended June 30, 2005 net income was $304.4 million and cash flow was $350.8 million. This represented basic net income per share of $4.04 and basic cash flow per share of $4.66. The comparable figures for the six months ended June 30, 2004, were net income per share of $2.64 and basic cash flow per share of $3.20.

Corporate

As the Company has previously announced, it has been approached by a number of parties concerning the possible merger or acquisition of the Company. The Board of Directors has set up an Independent Committee to consider these approaches.

1

The Company also announces the resignation of Mr. Jan Bonde Neilsen from PetroKazakhstan’s Board of Directors. Mr. Bonde Neilsen had been a Director since 2004.

Share Buy-back program

In the second quarter of 2005 the Company repurchased and cancelled 1,806,100 shares at an average price of C$41.30 per share, under its approved Normal Course Issuer Bid program.

UPSTREAM OPERATIONS REVIEW

Production

During the second quarter of 2005, PetroKazakhstan’s production volumes totalled 9.64 million barrels of oil or an average of 105,947 barrels of oil per day (“bopd”) representing a 30% decrease compared to the second quarter 2004 production of 151,104 bopd.

On 26th April production cut backs were initiated to comply with instructions from the Kazakh regulators to stop gas flaring immediately, in accordance with new legislation passed in December 2004. If the current production restrictions remain through to the end of the year but PetroKazakhstan’s share of Kazgermunai production increases to 21,000 bopd in the third quarter as the Akshabulak gas plant is commissioned, then the anticipated annual average production will be 110,000 bopd. This is a reduction of 60,000 bopd or 35.3% from the target potential average of 170,000 bopd. The Company continues its negotiations with the government for relaxation of the forced production cutbacks, in view of its current investment program to achieve full gas utilization by mid-2006.

Exploration and Appraisal

During the second quarter, there has been considerable exploration activity in the Kyzylkiya and Kolzhan areas with very successful results.

Two wells, KK40 and KK42, drilled in the Kolzhan license, which is adjacent to the Northern margin of the Kyzylkiya field tested oil at 250 bopd and 750 bopd respectively from the Cretaceous reservoir.

Well KK43 was drilled into a previously untested pre-mesozoic carbonate basement formation at a total depth of 1,576 metres. The well encountered 262 metres of carbonate formation with at least 10.2 metres of net pay. Initial testing has resulted in flow rates of 120 bopd. Further well stimulation operations, typically applied in fractured carbonate reservoirs such as acid fraccing, will be conducted along with additional production testing. These wells have established the presence of a significant new dual reservoir field, separate from the Northern part of the Kyzylkiya field but close to main Kyzylkiya production facilities.

Another exploration well was drilled in the centre of the Kyzylkiya field to test the large basement closure. Minor oil and gas shows were encountered but the well did not encounter any reservoir quality rock. However, a second well drilled in the same structure has encountered oil and gas shows with evidence of fractures being observed in the retrieved cores and from open hole logs. This second well is being prepared for testing.

A two well drilling programme in the South Kyzylkiya licence extension area has started. The first well has recently been completed and encountered excellent quality reservoir with some 3.5m net pay. This well was testing a purely stratigraphic trap and has demonstrated the value of good quality 3D seismic data. Consequently, the Company is planning to increase this year’s 3D seismic acquisition programme in this area from 200 sq kms to over 400 sq kms.

2

Acquisition of a 200sq km 3D seismic survey over the acreage to the north of the Kumkol field has started and aims to enhance the mapping of this highly prospective area where several structures have already been identified from 2D seismic. This survey will be completed during the third quarter leading to the drilling of additional exploration wells during fourth quarter 2005 and first quarter of 2006.

Interpretation of the 3D seismic data acquired during the second half of 2004 over the potential northern extension of the North Nurali field has been completed. The interpretation of this data has resulted in the identification of a well to be drilled before year end.

The successful results of the exploration work in this quarter are being used to update and enhance the Company's extensive prospect inventory and to develop targets for more exploration and appraisal wells over and above our current programme.

Field Developments

The company has fully maintained its capital programs for facilities and development drilling, despite its current production restrictions.

During the second quarter, six development wells were drilled in the Northern area of the Kyzylkiya field to further delineate the field boundaries and continue with development drilling. Construction activity continued on the expansion of the Kyzylkiya Central Processing Facility and detailed engineering designs for the expanded production gathering system were performed. Material and equipment orders were placed for the new water injection facility and injection pipelines.

Two Jurassic sub-gas cap wells were drilled in the Aryskum field targeting Jurassic channel sands below the main Cretaceous gas cap. These wells encountered elevated gas-oil contacts within the Cretaceous reservoir and will be converted to gas injection wells for gas conservation and pressure maintenance. Two development wells were drilled in the Northern portion of the Aryskum field, successfully extending the mapped oil-water contact further to the Northwest. Material and equipment orders were placed for completion of the field production gathering system.

In the Maibulak field, two appraisal wells were drilled targeting a stratigraphic play between the crest of the field and the major bounding fault to the East. Both of these wells encountered wet Jurassic sands, but were cased and completed in order to further evaluate potential reservoirs in the area. Construction activity continued in Maibulak with the installation of a 6 KVA overhead power distribution system to utilize the installed diesel fired electrical generator and eliminate the single well site generators which are expensive to run.

Enhanced water injection and produced water management was reviewed for the Kumkol South field during the second quarter and a comprehensive development plan was prepared to convert depleted zones to water injection, to improve water transportation throughout the field, and specifically target selected production intervals for improved pressure maintenance and hence increased oil recovery.

In the second quarter, Turgai Petroleum drilled three production wells in the Kumkol North field. Equipment has been ordered for Kumkol North's oil process facilities with completion expected in the second quarter 2006.

Kazgermunai drilled three production wells in Akshabulak Central. Well 316 discovered 17meters of net pay in the Jurassic formation against an expected 9 meters of net pay.

Construction of the enhanced Akshabulak production facilities has progressed and should be completed during the third quarter 2005 giving a processing capacity of at least 64,000 bopd (gross).

3

Enhanced Oil Recovery Project

During the quarter, all required project documents were prepared and approved by the various regulatory agencies and institutes for the initial test of injecting limited volumes of Liquefied Petroleum Gas (“LPG”) to a Kumkol South well. This is a precursor to the pilot EOR project being designed and planned to start early in 2006. The LPG injection test will be conducted in the third quarter, 2005.

Conservation and Exploitation of Gas and LPG Reserves

PetroKazakhstan currently utilizes associated gas from the Kumkol fields, including those of our joint venture asset, Kumkol North, in generating electricity in the 55 megawatt (“MW”) power plant.

Produced gas from certain Aryskum wells is now being injected into the field gas cap for conservation and reservoir pressure maintenance purposes. The volume of injected gas is gradually increasing as more wells are tied into the main production process system. Ultimately, all of the Kyzylkiya, Aryskum and Maibulak field produced gas will be re-injected.

As a 50% partner in the Kazgermunai Joint venture, PetroKazakhstan is participating in the Akshabulak gas processing and LPG extraction plant. Construction is due to be completed prior to the end of the third quarter 2005 when 2,900 bopd of LPG and 600 bopd of condensate will be extracted from produced gas. The residual dry gas will be provided to the city of Kyzylorda through a pipeline already constructed and commissioned.

In the first half of the year, the Company designed and commenced the implementation of a full gas gathering and utilization scheme for the currently remaining flared gas at Kumkol along with the re-injection and conservation of Kyzylkiya, Aryskum and Maibulak. The target for completion is July 1, 2006.

DOWNSTREAM MARKETING, TRANSPORTATION AND REFINING

Crude Oil Marketing and Transportation

The volume of crude oil shipped for export during the second quarter of 2005 declined 25% compared to the previous quarter. This was entirely due to the reduction in production levels imposed by the regulators discussed elsewhere in this report. The volume of crude oil shipped for export amounted to 5.2 million barrels (“mmbbls”) or 671 thousand tonnes. Despite this curtailment, shipments destined for China were increased by 63% in comparison to the preceding quarter as the state operated Karakoin to Atasu pipeline was re-opened. As a consequence volumes destined for China amounted to 24% of total shipments, their highest level to-date. The reduction in shipments was taken on other routes. CPC shipments were reduced by 27% and other destinations by 36%.

As a consequence of the above, the volumes shipped through the Company’s terminal at Dzhusaly accounted for 76% of total volumes, a reduction against the previous quarter’s figure of 83.5%.

Crude Oil Prices and Transportation Differentials

International crude oil prices continued to record new highs during the second quarter of 2005, with the highest daily Platt’s quotation for Brent registering $58.48 per barrel (“/bbl”) compared to the previous quarter’s high of $55.75/bbl. The level of volatility in prices whilst still significant was lower than seen in the previous quarter. The spread between the high and the low of the daily mean of Platt’s quotations for Brent was $12.20/bbl compared to $17.57/bbl during the first quarter of 2005. The average of the daily mean Platt’s quotation for Brent during the second quarter of 2005 was $51.63/bbl, up $4.01/bbl against the preceding quarter.

Sweet/light crude and heavy/sour crude differentials narrowed during the quarter. Iranian light on the Persian Gulf traded at an average discount to Brent during the quarter of $2.32/bbl an improvement of $3.32/bbl against the previous quarter. The CPC blend CIF Mediterranean quotation traded at an average discount to Brent of $1.38/bbl whereas the quotation for Kumkol traded CIF Mediterranean was on average at a discount to Brent $0.54/bbl.

4

The reduction of the impact of night time shipping constraints through the Bosporus together with the re-opening of the Karakoin to Atasu pipeline had a positive impact on transportation costs and consequently the differentials recorded during the quarter.

Refining and Refined Product Sales

The refinery operated without interruption during the second quarter. Average weighted refined product prices improved by approximately $24/tonne representing a 10% increase. The price improvements were as a result of stronger export prices driven by a combination of the international market and a higher proportion of non-FCA contracts where the Company sells closer to the final end user. Domestic refined product prices also firmed in response to strengthening international market prices.

In June 2005 the government of Kazakhstan, as is usual at this time of the year, issued an order banning the export of diesel during the harvest season. On this occasion however, the text of the order included Vacuum Gas Oil (“VGO”) although the detailed listing each of the custom product codes for the different types of diesel did not include the code for VGO. As a result, the customs authorities were unable to approve the export of the Company’s VGO and these exports ceased early June. The Company is in discussions with the Government to correct this anomaly. During the second quarter a new transportation route for VGO was successfully commissioned via the port of Batumi in Georgia

MANAGEMENT DISCUSSION AND ANALYSIS (“MD&A”)

A full MD&A of the Second Quarter of 2005 is available on the Company’s website and can also be obtained on application from the Company.

PetroKazakhstan Inc. is a vertically integrated, international energy company, celebrating its eighth 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.

For further information please contact:

Ihor P. Wasylkiw Vice President Investor Relations +1 (403) 221-8658 +1 (403) 383-2234 (cell) Jeffrey D. Auld Vice President, Treasurer + 44 (1753) 410-020 + 44 79-00-891-538 (cell)

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

5

INTERIM CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS

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

UNAUDITED

	Three Months Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
REVENUE
Crude oil		268,774			206,086			549,184			413,564
Refined products		236,799			196,949			455,141			312,896
Service fees		2,699			2,502			5,252			3,882
Interest income		1,313			797			2,492			1,240
		509,585			406,334			1,012,069			731,582
EXPENSES
Production		20,770			27,452			43,166			49,916
Royalties and taxes		22,839			29,599			47,678			51,973
Transportation		98,531			55,488			199,737			124,104
Refining		6,376			5,427			10,823			9,515
Crude oil and refined product purchases		57,296			31,637			85,508			64,442
Selling		4,985			6,341			10,117			11,789
General and administrative		27,142			15,702			43,581			28,745
Interest and financing costs		4,890			5,473			9,111			12,268
Depletion and depreciation		24,931			27,607			53,409			49,548
Foreign exchange loss (gain)		4,931			(1,111	)		6,613			(5,795	)
		272,691			203,615			509,743			396,505
INCOME BEFORE INCOME TAXES		236,894			202,719			502,326			335,077
INCOME TAXES (Note 10)
Current provision		101,242			89,643			210,673			135,002
Future income tax benefit		(3,083	)		(9,651	)		(12,979	)		(10,785	)
		98,159			79,992			197,694			124,217
NET INCOME BEFORE NON-CONTROLLING INTEREST		138,735			122,727			304,632			210,860
NON-CONTROLLING INTEREST		42			(699	)		(216	)		(1,347	)
NET INCOME		138,777			122,028			304,416			209,513
RETAINED EARNINGS, BEGINNING OF PERIOD		821,901			466,295			693,336			378,819
Normal course issuer bid		(56,251	)		-			(81,129	)		-
Common share dividends		(11,501	)		(17,706	)		(23,692	)		(17,706	)
Preferred share dividends		(4	)		(8	)		(9	)		(17	)
RETAINED EARNINGS, END OF PERIOD		892,922			570,609			892,922			570,609
BASIC NET INCOME PER SHARE (Note 11)		1.86			1.54			4.04			2.64
DILUTED NET INCOME PER SHARE (Note 11)		1.85			1.51			4.02			2.60

See accompanying notes to the interim consolidated financial statements.

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INTERIM CONSOLIDATED BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

UNAUDITED

		As at June 30, 2005		As at December 31, 2004
ASSETS
CURRENT
	Cash and cash equivalents		388,551		199,105
	Accounts receivable (Note 5)		162,927		198,504
	Inventory (Note 6)		66,712		61,242
	Prepaid expenses		49,333		62,179
	Current portion of future income tax asset		57,767		65,431
			725,290		586,461
Deferred charges			4,161		4,662
Restricted cash (Note 4)			64,035		47,741
Future income tax asset			46,823		28,470
Property, plant and equipment			631,972		601,747
TOTAL ASSETS			1,472,281		1,269,081
LIABILITIES
CURRENT
	Accounts payable and accrued liabilities (Note 7)		123,595		161,759
	Short-term debt (Note 8)		70,938		15,541
	Prepayments for crude oil and refined products		3,727		9,916
			198,260		187,216
Long-term debt			133,529		134,862
Asset retirement obligations			33,995		32,499
Future income tax liability			6,701		9,936
			372,485		364,513
Non-controlling interest			12,206		14,411
Preferred shares of subsidiary			80		80
COMMITMENTS AND CONTINGENCIES (Note 14)
SHAREHOLDERS’ EQUITY
	Share capital (Note 9)		187,100		191,529
	Contributed surplus		7,488		5,212
	Retained earnings		892,922		693,336
			1,087,510		890,077
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY			1,472,281		1,269,081

See accompanying notes to the interim consolidated financial statements.

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INTERIM CONSOLIDATED STATEMENTS OF CASH FLOW

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS)

UNAUDITED

	Three Months Ended June 30						Six Months Ended June 30
	2005			2004			2005			2004
OPERATING ACTIVITIES
Net income		138,777			122,028			304,416			209,513
Items not affecting cash:
Depletion and depreciation		24,931			27,607			53,409			49,548
Future income tax benefit		(3,083	)		(9,651	)		(12,979	)		(10,785	)
Non-controlling interest		(42	)		699			216			1,347
Stock-based compensation		1,242			1,330			2,276			2,094
Amortization of deferred charges		246			396			501			783
Other non-cash charges		2,344			706			2,960			1,444
Cash flow		164,415			143,115			350,799			253,944
Changes in non-cash operating working capital items		3,734			62,211			(9,290	)		46,502
Cash flow from operating activities		168,149			205,326			341,509			300,446
FINANCING ACTIVITIES
Short-term debt proceeds		30,407			-			55,000			-
Short-term debt repayment		-			-			-			(24,494	)
Long-term debt repayment		(1,019	)		(42,392	)		(1,019	)		(58,325	)
Deferred charges paid		-			(650	)		-			(650	)
Common share dividends		(12,010	)		(8,829	)		(24,392	)		(8,829	)
Preferred share dividends		(4	)		(8	)		(9	)		(17	)
Purchase of common shares under normal course issuer bid (Note 9)		(60,844	)		-			(87,580	)		-
Proceeds from issue of share capital, net of share issuance costs		780			596			2,022			4,173
Cash flow used in financing activities		(42,690	)		(51,283	)		(55,978	)		(88,142	)
INVESTING ACTIVITIES
Restricted cash		25,365			(10,160	)		(16,294	)		(11,560	)
Capital expenditures		(57,154	)		(28,018	)		(79,482	)		(63,054	)
Purchase of preferred shares of subsidiary		-			-			(309	)		-
Cash flow used in investing activities		(31,789	)		(38,178	)		(96,085	)		(74,614	)
INCREASE IN CASH AND CASH EQUIVALENTS		93,670			115,865			189,446			137,690
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		294,881			206,485			199,105			184,660
CASH AND CASH EQUIVALENTS, END OF PERIOD		388,551			322,350			388,551			322,350

See accompanying notes to the interim consolidated financial statements.

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NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

(EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, TABULAR AMOUNTS IN THOUSANDS OF UNITES STATES 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's main operating subsidiaries are PetroKazakhstan Kumkol Resources ("PKKR") and PetroKazakhstan Oil Products ("PKOP"). Certain information and disclosures normally required to be included in the notes to the annual financial statements have been omitted or condensed. The interim consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto in PetroKazakhstan’s Annual Report for the year ended December 31, 2004. The accounting principles applied are consistent with those as set out in the Corporation’s annual financial statements for the year ended December 31, 2004.
	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 and transportation of refined products and the management of the marketing and transportation of crude oil.
	Upstream results include revenue from crude oil sales to Downstream, reflected as crude oil purchases in Downstream, as this presentation properly reflects segment results. This revenue is eliminated on consolidation.
	The Upstream business segment processes a portion of its produced crude oil at the Corporation's refinery for a fee, retains title to the refined products and records the sales revenue.
	The Corporation does not disclose export revenue attributable to individual countries as it is impractical to obtain the information.

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Three months ended June 30, 2005
	Upstream		Downstream		Corporate		Eliminations		Consolidated
REVENUE
Crude oil	291,401		-		-		(22,627	)	268,774
Refined products	142,105		133,585		-		(38,891	)	236,799
Service fees	29		1,854		816		-		2,699
Interest income	1,068		77		168		-		1,313
	434,603		135,516		984		(61,518	)	509,585
EXPENSES
Production	20,770		-		-		-		20,770
Royalties and taxes	19,209		3,630		-		-		22,839
Transportation	93,959		4,572		-		-		98,531
Refining	-		6,376		-		-		6,376
Crude oil and refined product purchases	70,424		48,390		-		(61,518	)	57,296
Selling	1,556		3,429		-		-		4,985
General and administrative	15,493		5,197		6,452		-		27,142
Interest and financing costs	4,890		-		-		-		4,890
Depletion, depreciation and accretion	21,567		3,328		36		-		24,931
Foreign exchange (gain) loss	(2,832	)	7,459		304		-		4,931
	245,036		82,381		6,792		(61,518	)	272,691
INCOME (LOSS) BEFORE INCOME TAXES	189,567		53,135		(5,808	)	-		236,894
INCOME TAXES
Current provision	72,347		28,872		23		-		101,242
Future income tax expense (benefit)	6,286		(9,369	)	-		-		(3,083	)
	78,633		19,503		23		-		98,159
NON-CONTROLLING INTEREST	-		(42	)	-		-		(42	)
NET INCOME (LOSS)	110,934		33,674		(5,831	)	-		138,777

Included in Upstream crude revenue are sales to the three individual customers in excess of 10% of consolidated revenue in the total amount of $164.5 million.

Eliminations are intersegment revenue.

As at June 30, 2005	Upstream	Downstream	Corporate	Consolidated
Total assets	1,172,050	195,068	105,163	1,472,281
Total liabilities	330,759	38,535	15,477	384,771
Capital expenditures in the quarter	53,918	3,429	292	57,639

Three months ended June 30, 2005	Export	Domestic	Consolidated
Crude oil	249,636	19,138	268,774
Refined products	101,513	135,286	236,799

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Three months ended June 30, 2004
	Upstream		Downstream		Corporate		Eliminations		Consolidated
REVENUE
Crude oil	221,765		-		-		(15,679	)	206,086
Refined products	63,567		150,897		-		(17,515	)	196,949
Service fees	765		1,589		148		-		2,502
Interest income	211		190		396		-		797
	286,308		152,676		544		(33,194	)	406,334
EXPENSES
Production	27,452		-		-		-		27,452
Royalties and taxes	24,607		4,992		-		-		29,599
Transportation	57,394		(1,906	)	-		-		55,488
Refining	-		5,427		-		-		5,427
Crude oil and refined product purchases	30,141		34,690		-		(33,194	)	31,637
Selling	2,386		3,955		-		-		6,341
General and administrative	7,917		3,505		4,280		-		15,702
Interest and financing costs	5,473		-		-		-		5,473
Depletion, depreciation and accretion	22,247		5,046		314		-		27,607
Foreign exchange loss (gain)	(9,836	)	7,887		838		-		(1,111	)
	167,781		63,596		5,432		(33,194	)	203,615
INCOME (LOSS) BEFORE INCOME TAXES	118,527		89,080		(4,888	)	-		202,719
INCOME TAXES
Current provision	52,481		36,048		1,114		-		89,643
Future income tax benefit	(5,691	)	(3,960	)	-		-		(9,651	)
	46,790		32,088		1,114		-		79,992
NON-CONTROLLING INTEREST	-		699		-		-		699
NET INCOME (LOSS)	71,737		56,293		(6,002	)	-		122,028

There were no sales to an individual customer in excess of 10% of consolidated revenue.

Eliminations are intersegment revenue.

As at June 30, 2004	Upstream		Downstream		Corporate		Consolidated
Total assets		831,552		181,124		215,239		1,227,915
Total liabilities		394,345		49,336		14,489		458,170
Capital expenditures in the quarter		24,488		2,441		362		27,291

Three months ended June 30, 2004	Export		Domestic		Consolidated
Crude oil		194,437		11,649		206,086
Refined products		64,033		132,916		196,949

11

Six months ended June 30, 2005
	Upstream		Downstream		Corporate		Eliminations		Consolidated
REVENUE
Crude oil	604,561		-		-		(55,377	)	549,184
Refined products	264,350		276,011		-		(85,220	)	455,141
Service fees	1,461		2,851		940		-		5,252
Interest income	2,021		220		251		-		2,492
	872,393		279,082		1,191		(140,597	)	1,012,069
EXPENSES
Production	43,166		-		-		-		43,166
Royalties and taxes	41,405		6,273		-		-		47,678
Transportation	187,739		11,998		-		-		199,737
Refining	-		10,823		-		-		10,823
Crude oil and refined product purchases	111,715		114,390		-		(140,597	)	85,508
Selling	3,842		6,275		-		-		10,117
General and administrative	25,540		8,993		9,048		-		43,581
Interest and financing costs	9,109		2		-		-		9,111
Depletion, depreciation and accretion	46,811		6,485		113		-		53,409
Foreign exchange (gain) loss	(3,502	)	8,395		1,720		-		6,613
	465,825		173,634		10,881		(140,597	)	509,743
INCOME (LOSS) BEFORE INCOME TAXES	406,568		105,448		(9,690	)			502,326
INCOME TAXES
Current provision	161,961		48,502		210		-		210,673
Future income tax benefit	(1,954	)	(11,025	)	-		-		(12,979	)
	160,007		37,477		210		-		197,694
NON-CONTROLLING INTEREST	-		216		-		-		216
NET INCOME (LOSS)	246,561		67,755		(9,900	)	-		304,416

Included in Upstream crude revenue are sales to one customer in excess of 10% of consolidated revenue in the amount of $107.4 million.

Eliminations are intersegment revenue.

As at June 30, 2005	Upstream	Downstream	Corporate	Consolidated
Total assets	1,172,050	195,068	105,163	1,472,281
Total liabilities	330,759	38,535	15,477	384,771
Capital expenditures in the period	74,699	12,680	827	88,206

Six months ended June 30, 2005	Export		Domestic		Consolidated
Crude oil		508,512		40,672		549,184
Refined products		221,314		233,827		455,141

12

Six months ended June 30, 2004
	Upstream			Downstream			Corporate			Eliminations			Consolidated
REVENUE
Crude oil		445,901			-			-			(32,337	)		413,564
Refined products		95,952			246,405			-			(29,461	)		312,896
Service fees		1,894			1,769			219			-			3,882
Interest income		343			224			673			-			1,240
		544,090			248,398			892			(61,798	)		731,582
EXPENSES
Production		49,916			-			-			-			49,916
Royalties and taxes		40,599			11,374			-			-			51,973
Transportation		124,104			-			-			-			124,104
Refining		-			9,515			-			-			9,515
Crude oil and refined product purchases		63,832			62,408						(61,798	)		64,442
Selling		4,504			7,285			-			-			11,789
General and administrative		15,260			6,669			6,816			-			28,745
Interest and financing costs		11,799			469			-			-			12,268
Depletion, depreciation and accretion		39,008			9,915			625			-			49,548
Foreign exchange loss (gain)		(1,364	)		(5,723	)		1,292						(5,795	)
		347,658			101,912			8,733			(61,798	)		396,505
INCOME (LOSS) BEFORE INCOME TAXES		196,432			146,486			(7,841	)		-			335,077
INCOME TAXES
Current provision		84,389			47,931			2,682			-			135,002
Future income tax (benefit) expense		(11,569	)		784			-			-			(10,785	)
		72,820			48,715			2,682			-			124,217
NON-CONTROLLING INTEREST		-			1,347			-			-			1,347
NET INCOME (LOSS)		123,612			96,424			(10,523	)		-			209,513

There were no sales to an individual customer in excess of 10% of consolidated revenue.

Eliminations are intersegment revenue.

As at June 30, 2004	Upstream	Downstream	Corporate	Consolidated
Total assets	831,552	181,124	215,239	1,227,915
Total liabilities	394,345	49,336	14,489	458,170
Capital expenditures in the period	60,086	5,686	644	66,416

Six months ended June 30, 2004	Export	Domestic	Consolidated
Crude oil	384,771	28,793	413,564
Refined products	97,945	214,951	312,896

13

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.
	b)	a 50% equity shareholding with equivalent voting power in LLP Kazgermunai (“Kazgermunai”), which operates three oil fields: Akshabulak, Nurali and Aksai.
	The following amounts are included in the Corporation’s interim consolidated financial statements as a result of the proportionate consolidation of its joint ventures before consolidation eliminations:
	Three months ended June 30, 2005

	Turgai			Kazgermunai			Total
Cash and cash equivalents		74,390			87,127			161,517
Current assets, excluding cash and cash equivalents		86,400			43,634			130,034
Property, plant and equipment, net		87,302			86,795			174,097
Current liabilities		44,411			19,133			63,544
Long-term debt		-			-			-
Revenue		115,299			50,077			165,376
Expenses		85,475			35,053			120,528
Net income		29,824			15,024			44,848
Cash flow from operating activities		3,178			32,915			36,093
Cash flow used in financing activities		-			-			-
Cash flow used in investing activities		(4,873	)		(27,788	)		(32,661	)

Three months ended June 30, 2004

	Turgai		Kazgermunai		Total
Cash and cash equivalents	28,140		24,204		52,344
Current assets, excluding cash and cash equivalents	58,609		40,169		98,778
Property, plant and equipment	79,769		64,437		144,206
Current liabilities	76,536		19,899		96,435
Long-term debt	-		14,480		14,480
Revenue	64,873		49,019		113,892
Expenses	37,315		31,673		68,988
Net income	27,558		17,346		44,904
Cash flow from operating activities	11,046		22,824		33,870
Cash flow used in financing activities	-		(24,266	)	(24,266	)
Cash flow used in investing activities	(1,585	)	(2,363	)	(3,948	)

14

Six months ended June 30, 2005

	Turgai		Kazgermunai		Total
Revenue	208,759		125,312		334,071
Expenses	144,538		73,267		217,805
Net income	64,221		52,045		116,266
Cash flow from operating activities	48,402		68,270		116,672
Cash flow used in financing activities	-		-		-
Cash flow used in investing activities	(8,690	)	(31,943	)	(40,633	)

Six months ended June 30, 2004

	Turgai			Kazgermunai			Total
Revenue		124,508			87,554			212,062
Expenses		78,594			54,602			133,196
Net income		45,914			32,952			78,866
Cash flow from operating activities		22,306			42,604			64,910
Cash flow used in financing activities		-			(24,266	)		(24,266	)
Cash flow used in investing activities		(2,534	)		(4,566	)		(7,100	)

	Turgai's revenue for the three and six months ended June 30, 2005 includes $1.7 million and $26.2 million of sales to the Corporation, respectively ($12.5 million and $36.1 million for the three and six months ended June 30, 2004). These amounts were eliminated on consolidation.
	Kazgermunai's revenue for the three and six months ended June 30, 2005 includes $3.7 million and $6.3 million of sales to the Corporation, respectively ($2.9 million and $8.7 million for the three and six months ended June 3, 2004). These amounts were eliminated on consolidation.
4	RESTRICTED CASH
	Restricted cash as at June 30, 2005 includes $64.0 million of cash dedicated to a margin account for the Corporation’s hedging program. As at December 31, 2004 restricted cash comprised $39.0 million of cash dedicated to the margin account for the hedging program and $8.7 million of cash dedicated to a debt service reserve account for the Corporation’s term facility. The Corporation discharged all hedging liabilities related to this term facility as at December 31, 2004. The debt service reserve account was released in January 2005.
	Restricted cash is not available for current purposes.

15

5	ACCOUNTS RECEIVABLE
	Accounts receivable consist of the following:

	June 30, 2005	December 31, 2004
Trade	110,291	150,462
Value added tax recoverable	29,605	29,316
Fines and penalties cancelled per court decision (Note 15)	7,899	-
Due from joint ventures	4,158	6,942
Other	10,974	11,784
	162,927	198,504

6	INVENTORY
	Inventory consists of the following:

	June 30, 2005	December 31, 2004
Refined products	17,377	16,682
Crude oil produced	18,684	22,535
Crude oil purchased	10,057	2,740
Materials and supplies	20,594	19,285
	66,712	61,242

7	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
	Accounts payable and accrued liabilities consist of the following:

	June 30, 2005	December 31, 2004
Trade	84,657	70,160
Due to joint ventures	6,069	19,668
Royalties	7,379	18,259
Income taxes	2,585	30,175
Common share dividends	11,888	12,588
Other	11,017	10,909
	123,595	161,759

16

8 SHORT-TERM DEBT

	June 30, 2005	December 31, 2004
Current portion of term loans	2,039	2,039
Kazgermunai debt	13,899	13,502
Working capital facilities	55,000	-
	70,938	15,541

	Working capital facilities
	The Corporation has three revolving working capital facilities available totaling $190.0 million, with $175.0 million committed and $15.0 million uncommitted, secured by a corporate guarantee. The facilities have interest rates ranging from LIBOR plus 2.65% per annum to 10% per annum.
	$30.0 million of the committed facilities has been dedicated to cover margin calls under the Corporation’s hedging program. This amount is not available for general corporate purposes.
	As at June 30, 2005 the Corporation had drawn $55.0 million under these facilities, bearing an annual interest rate of 8%.
9	SHARE CAPITAL
	Authorized share capital consists of an unlimited number of Class A common shares, and an unlimited number of Class  redeemable preferred shares, issuable in series.
	Issued Class A common shares:

	Three Months Ended June 30, 2005				Three Months Ended June 30, 2004
	Number		Amount		Number	Amount
Balance, beginning of period	75,728,337		190,913		79,865,009	195,271
Shares repurchased and cancelled pursuant to normal course issuer bid	(1,806,100	)	(4,593	)	-	-
Stock options exercised for cash	74,113		780		732,157	596
Balance, end of period	73,996,350		187,100		80,597,166	195,867

	Six Months Ended June 30, 2005				Six Months Ended June 30, 2004
	Number		Amount		Number	Amount
Balance, beginning of period	76,223,130		191,529		77,920,226	191,695
Shares repurchased and cancelled pursuant to normal course issuer bid	(2,538,900	)	(6,451	)	-	-
Stock options exercised for cash	303,961		2,019		2,648,382	4,163
Corresponding convertible securities, converted	8,159		3		28,558	9
Balance, end of period	73,996,350		187,100		80,597,166	195,867

17

In August 2004, the Corporation renewed its Normal Course Issuer Bid program which enabled the Corporation to repurchase 7,091,429 Class A common shares during the period from August 13, 2004 to August 12, 2005. The Corporation repurchased and cancelled 1,806,100 shares at an average price of C$41.3 per share during the three months ended June 30, 2005 (2,538,900 shares at an average price of C$42.2 per share during the six months ended June 30, 2005). The excess of cost over the book value for the shares repurchased was applied to retained earnings.

A summary of the status of the Corporation's stock option plan as of June 30, 2005 and the changes during the six months ended June 30, 2005 and the year ended December 31, 2004 are presented below (weighted average exercise price expressed in Canadian dollars):

	Options			Weighted Average Exercise Price
Outstanding at December 31, 2003		5,115,460			8.17
Granted		724,100			42.50
Exercised		(3,560,379	)		4.77
Forfeited		(192,525	)		15.94
Outstanding at December 31, 2004		2,086,656			25.17
Granted		321,000			40.00
Exercised		(312,120	)		8.03
Forfeited		(28,084	)		18.83
Outstanding at June 30, 2005		2,067,452			30.16
Options exercisable as at:
December 31, 2004		866,903			16.29
June 30, 2005		593,935			20.06

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 June 30,					Six Months Ended June 30,
		2005		2004			2005		2004
Income before income taxes		236,894		202,719			502,326		335,077
Statutory Kazakhstan income tax rate		30	%	30	%		30	%	30	%
Expected tax expense		71,068		60,816			150,698		100,523
Effect of higher tax rate in Kazgermunai		4,253		2,138			5,732		1,465
Excess profit tax provision		19,450		6,833			34,843		9,833
Income tax assessment in Turgai for 2002 - 2003		2,629		-			2,629		-
Other permanent differences, net		759		10,205			3,792		12,396
Income tax expense		98,159		79,992			197,694		124,217

18

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 June 30			Six Months Ended June 30
		2005	2004		2005	2004
Weighted average number of common shares outstanding		74,666,131	79,442,775		75,288,966	79,257,431
Dilution from exercisable options (including convertible securities)		350,245	1,278,756		452,441	1,227,461
Diluted number of shares outstanding		75,016,376	80,721,531		75,741,407	80,484,892

	698,100 options were excluded from the calculation of diluted number of shares outstanding for the three months ended June 30, 2005 (683,100 for the six months ended June 30, 2005) as the exercise price was in excess of the average market price. No options were excluded from the calculation of diluted number of shares outstanding for the three and six months ended June 30, 2004 as the market price was in excess of the exercise price.
12	FINANCIAL INSTRUMENTS
	The Corporation’s financial instruments include cash and cash equivalents, accounts receivable, all current liabilities and long-term debt. The fair value of cash and cash equivalents, 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 the term loans approximates their carrying value as they bear interest at market rates. The fair value of the 9.625% Notes is $136.8 million versus the carrying value of $125.0 million as at June 30, 2005 as determined through reference to the market price.
	The Corporation has entered into a commodity-hedging program where it is utilizing derivative instruments to manage the Corporation’s exposure to fluctuations in the price of crude oil. The Corporation had entered into the following contracts with major financial institutions.

Contract Amount (bbls per month)	Contract Period	Contract Type	Price Ceiling or Contracted Price
120,000	January 2005 to March 2005	IPE Future	26.30-26.52
40,000	April 2005 to June 2005	IPE Future	25.92
458,333	January 2005 to December 2005	IPE Future	25.65-25.90

During the three months ended June 30, 2005 the Corporation has foregone revenue of $39.5 million through these contracts ($77.7 million during the six months ended June 30, 2005).

The unrealized loss under these hedges as at June 30, 2005 is $84.8 million. This amount is deferred and recognized in the consolidated statement of income when the related contract is settled. The fair value of these hedges was determined based on future Brent crude oil prices as at June 30, 2005.

19

13	CASH FLOW INFORMATION
	Interest and income taxes paid:

	Three Months Ended June 30,			Six Months Ended June 30,
		2005	2004		2005	2004
Interest paid		1,117	2,205		7,531	10,702
Income taxes paid		168,098	61,701		238,263	104,114

14	COMMITMENTS AND CONTINGENCIES
	Tax Assessments
	Turgai tax assessments
	During 2004, Turgai was subject to a tax audit for the years 2002-2003 and received a tax assessment for $150.0 million at current exchange rates including penalties and interest (the Corporation’s 50% share is $75.0 million).
	The major assessment in the tax audit was for excess profit taxes of approximately $101.5 million including fines and penalties (the Corporation’s 50% share is $50.75 million). The assessment was based on the position that expenditures relating to construction in progress are not allowed as a cash outflow when computing the internal rate of return until construction is completed and depreciation has commenced. The Corporation believes this position is contrary to the concept of an internal rate of return calculation and counter to the legislation of the Republic of Kazakhstan. The Corporation, the other 50% shareholder Lukoil and Turgai entered into discussions regarding this assessment with the Ministry of Finance. These discussions are being held to determine the correct method of calculating excess profit tax and to clarify the interpretation of current legislation. The assessment on excess profit tax has been removed pending conclusion of these discussions. Upon agreement with the Ministry of Finance, Turgai will present a proposed Hydrocarbon Contract amendment to the Ministry of Energy and Mineral Resources, clarifying the method of calculating excess profit tax. A final assessment pertaining to excess profit tax may be issued depending on the outcome of the discussions. The outcome of these discussions can not be determined, and, therefore, no amounts have been recorded in these interim consolidated financial statements.
	The remaining amount of $48.5 million was discussed with the Ministry of Finance and Turgai appealed through the courts. Turgai was successful with respect to $20.5 million, was unsuccessful on $11.9 million with the balance of $16.1 million still pending a decision on appeal. Of the assessments upheld by the courts, $10.7 million related to accelerated depreciation claims that were disallowed under Turgai's stabilized tax legislation. The Corporation has recorded its 50% share of the $11.9 million of assessments upheld by the courts as an expense in the current period and recorded a future income tax benefit amounting to $3.3 million on the accelerated depreciation.

20

PKKR and PKOP transfer pricing assessments

In April 2005, the Corporation, through its subsidiaries, received two assessments on transfer pricing for 2002 and 2003, including $61.9 million for PKKR and $11.7 million for PKOP (at current exchange rates). For crude oil sales, the majority of the assessment pertains to the differentials to market benchmarks negotiated with purchasers of PKKR's crude oil that reflect transportation costs to the corresponding markets. For refined products, the major portion of the assessment relates to applying retail prices to the Corporation's wholesale sales transactions.

The Corporation believes these assessments are incorrect, as they fail to apply the correct market prices for the type of sales transaction and to recognize the arms length nature of the transactions. The Corporation has appealed these assessments and is currently engaged in discussions with the tax authorities. No provision has been made in the interim consolidated financial statements for these assessments.

Kazgermunai tax assessments

In late 2003, the Corporation, through its joint venture Kazgermunai, received tax assessments for 2001 and 2002 amounting to $9.6 million at current exchange rates (the Corporation's 50% share - $4.8 million). Kazgermunai appealed these assessments and prevailed with respect to $4.2 million, was unsuccessful regarding $0.5 million with the outcome of the remaining $4.9 million still pending while under appeal. The Corporation has recorded $0.25 million, its 50% share of the assessment upheld by the court, in these interim consolidated financial statements.

In late 2004, Kazgermunai received a transfer pricing assessment for 2003 for approximately $6.1 million at current exchange rates (the Corporation's 50% share - $3.05 million). Neither the Corporation nor Kazgermunai agree with this assessment, and Kazgermunai is currently disputing this assessment through the legal system. No amounts were recorded related to this assessment in the interim consolidated financial statements

Tax inspections

The Corporation's operating subsidiaries in Kazakhstan are currently the subject of tax inspections for the years 2002 through 2004. These inspections are expected to be complete and assessments, if any, issued in the third or fourth quarter of 2005.

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

The ARNM claimed $32.7 million (at current exchange rates) from a group distribution company for allegedly violating Kazakhstan’s competition law. The group distribution company initiated legal proceedings and the court of first instance dismissed the ARNM claim. The ARNM appealed this decision; the appellate court upheld the decision of the lower court. The ARNM has filed a motion to re-open the court case on the basis of new information.

The ARNM also claimed approximately $97.3 million (at current exchange rates) from group distribution companies for allegedly violating Kazakhstan’s competition law. The group distribution companies initiated legal action, and at the Astana City Court were unsuccessful in their challenge of allegations by the ARNM that these companies had violated Kazakhstan competition laws. The initial trial court judgment upheld the ARNM determination that these group distribution companies had received unjustified revenues totaling approximately $97.3 million.

21

The group distribution companies appealed this judgment to the Supreme Court. The initial Supreme Court hearing on the matter was held in the second quarter of 2004 and the Court suspended the case and instructed the parties to seek an agreed settlement. During the period from April to May 13, 2004 the parties did engage in discussions aimed at a settlement, but were unable to resolve the matter through negotiations.

On May 13, 2004, after a hearing on the merits, the Supreme Court overturned the lower court decision which was in favour of the ARNM and sent the case back to the Astana City Court for a new trial. During the third quarter of 2004, the General Prosecutor’s office filed a protest regarding the May 13 decision of the Supreme Court with the Supreme Court Supervisory Panel. On August 25, 2004, the Supervisory Panel issued an opinion upholding the May 13 decision and returned the case to the Astana City Court. In September 2004, the Astana City Court issued a ruling suspending further consideration of the merits of the case pending the completion of parallel investigations being conducted by the “Agency of the Republic of Kazakhstan for Fight Against Economic and Corruption Criminality” ("Finance Police"). This suspension was removed in late 2004 and the case was reviewed by economic and financial experts under order of the Court. It was expected that the economic and financial expertise would be concluded during the spring of 2005 and that the case would, at that point, be subject to further review and decision by the Astana City Court.

In April 2005, the Finance Police placed a lien on the property of PKOP for $13.4 billion Tenge (approximately $98.9 million) to secure the ARNM's claim for approximately $97.3 million (at current exchange rates) against group distribution companies and the amounts claimed as damages under the criminal charges brought against certain executives of PKOP. The Corporation has appealed this lien to the General Prosecutor's Office and if unsuccessful will appeal in court.

It remains the Corporation's view that the allegations leveled against the group distribution companies are without justification. A highly competitive market exists for oil products within Kazakhstan and the current level of prices reflects current world crude oil prices. Also, the prices charged by the group distribution companies are competitive with Russian imports and with those charged by distributors of the other two refineries in Kazakhstan.

The Corporation is considering its recourse rights under the terms of the Shymkent refinery Privatization Agreement, which clearly stipulates the right to sell any and all its products in Kazakhstan and abroad at free market prices.

The Corporation will continue to seek a dialogue with the appropriate authorities to address the concerns related to the pricing of refined products and possible measures to be taken to further promote transparency and effective monitoring of the dynamics of competition, consistent with market economy principles. The Corporation has not provided for these amounts in the interim consolidated financial statements. See Note 15 Subsequent Events.

22

Curtailment of production

On April 26, 2005 the Corporation’s subsidiary PKKR commenced the process of reducing production in accordance with new legislation passed in December 2004 prohibiting gas flaring except under limited circumstances. Turgai and Kazgermunai also reduced production to comply with the new legislation.

The Corporation remains hopeful that, in view of its current investment program to achieve full gas utilization by mid - 2006, it will be allowed to resume production at higher rates prior to the completion of its gas re-injection program.

Kazgermunai social infrastructure obligations

In February 2005, the Corporation's joint venture Kazgermunai, received a claim filed by the Kyzylorda Regional Oblast Akimat (regional administration) for failure to fulfill infrastructure obligations amounting to $31.2 million alleged to arise from the terms of its Foundation Agreement, supplementary agreements, and subsequent amendments to these agreements. The claim was for approximately $102.0 million (the Corporation’s 50% share is $51.0 million), with $31.2 million relating to infrastructure obligations and the remainder being interest charges.

In May 2005, Kazgermunai and the Akimat reached a settlement agreement under which Kazgermunai agreed to pay $31.2 million (the Corporation's 50% share is $15.6 million) for fulfillment of all of its infrastructure obligations. The Corporation capitalized this payment as it settles one of the alleged obligations of Kazgermunai under its Foundation Agreement.

Litigation

Turgai claims against PKKR

Migration of crude oil

In May 2005, Turgai filed a claim that alleged that PKKR has produced crude oil that originated from Turgai’s license area. The claim is for approximately $188.2 million at current exchange rates. The first hearing was to be held on June 21, 2005 and was delayed until July 14, 2005.

The Corporation believes that this claim is groundless, has documented numerous technical and legal counter arguments in support of its position, and, therefore, has made no provision for this claim in these interim consolidated financial statements. See Note 15 Subsequent Events.

Return of crude oil

In May 2005, Turgai filed a claim seeking that PKKR return to Turgai approximately 395,000 tonnes of crude oil (3.1 million barrels) that Turgai alleged PKKR should not have shipped to the Shymkent refinery. The Corporation disagrees with this claim, on the basis that the crude oil was shipped in accordance with the MEMR monthly refinery supply plan, as well as applicable Turgai shareholder agreements and board resolutions. Additionally, PKOP had paid Turgai for the crude oil and Turgai had accepted the payment. The court of first instance, the Kyzylorda Specialized Interdistrict Economic Court, ruled in Turgai’s favor and PKKR has filed an appeal. The Appellate Court hearing was scheduled to take place on July 20, 2005. See Note 15 Subsequent Events.

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Central processing facility curtailment

In February 2005, the Corporation, through PKKR, received a claim filed by Turgai for $18.3 million in damages related to the temporary production curtailment of Turgai in late December 2004 and alleged lost revenue from export sales.

The claim was separated into two cases. The first case, for $13.1 million, related to the alleged lost revenue from export sales of 60,000 tonnes. In March 2005, the Kyzylorda Interregional Economic Court issued a decision in favor of Turgai. PKKR filed an appeal, the hearing of which was held in April 2005. The Appellate Court issued a decision requiring PKKR to pay Turgai $13.1 million for the alleged lost revenues from export sales of 60,000 tonnes (0.46 million barrels), and, in return, Turgai was required to transfer title to 60,000 tonnes of crude oil to PKKR. PKKR does not plan to appeal this ruling. The Corporation has recorded the transaction as a purchase of crude oil in the interim consolidated financial statements.

The second case, for $5.2 million, related to compensation for damages from the curtailment of production. The Court of first instance ruled in favor of Turgai; PKKR appealed and the Appellate Court ruled in Turgai’s favor but reduced the amount to $3.5 million. The Corporation has recorded the consolidated impact of $1.7 million as part of general and administrative expenses in the interim consolidated financial statements.

Price received for crude sold to PKOP

In April 2005, Turgai filed two claims with respect to the price paid by PKOP for purchased crude oil. In the first claim, which covers the period from August to October 2004, Turgai is claiming approximately $5.5 million at current exchange rates for the alleged difference between market price and the price paid by PKOP for crude oil purchased from Turgai and is seeking to invalidate offsets totaling $31.7 million that PKOP made for amounts owed by Turgai. The court of first instance, the Kyzylorda Specialized Interdistrict Economic Court, ruled in Turgai’s favor and PKOP has lodged an appeal. The Appellate Court hearing took place on July 20, 2005. See Note 15 Subsequent Events.

No provision has been made in the interim consolidated financial statements because the Corporation believes that Turgai’s claims are groundless. The purchase price for crude oil is based upon a formula that has been approved and agreed to by Turgai’s Board of Directors and its shareholders.

The second claim is for November and December 2004 crude oil purchases and is claiming approximately $7.3 million for the alleged difference between market price and the price paid by PKOP for crude oil purchased from Turgai. The court of first instance, the Kyzylorda Specialized Interdistrict Economic Court, ruled in Turgai’s favor and PKOP has appealed. The Appellate Court hearing was expected to take place in July 2005. The date of the hearing has not been set. No provision has been made in the interim consolidated financial statements as the Corporation believes that Turgai’s claims are groundless.

Invalidation of export contracts

In June 2005, Turgai filed a claim seeking damages of approximately $3.5 million for earlier actions taken by PetroKazakhstan Inc. and PKKR to invalidate certain Turgai export contracts. Turgai petitioned the Kyzylorda Specialized Interregional Economic Court to post as security the Corporation’s shares in Turgai pending the outcome of the court proceedings.

PetroKazakhstan Inc. and PKKR are continuing  to take measures to release the shares and will vigorously defend themselves. In the event that hearings proceed, PetroKazakhstan believes the claims are groundless as Turgai sustained no damage. In the unlikely event that PetroKazakhstan loses the case, payment of the damages awarded will immediately release the security on PetroKazakhstan Inc.’s shares in Turgai.

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Lukoil Litigation

PetroKazakhstan vs Lukoil Stockholm Arbitration

On July 6, 2004, PetroKazakhstan filed a Request for Arbitration with the Arbitration Institute of the Stockholm Chamber of Commerce against Lukoil Overseas Kumkol BV ("Lukoil") seeking compensation for lost profits which PetroKazakhstan would have received as a 50% shareholder of Turgai Petroleum but for Lukoil's failure to finance the joint venture as provided under the Foundation Agreements for the Joint Venture and for Lukoil's actions in violation of corporate governance obligations and tender approval requirements. The Statement of Claim also includes damages for costs incurred due to Lukoil-initiated litigation in Kazakhstan, to force a PetroKazakhstan subsidiary, PKOP, to accept crude oil for processing rather than sale, and will also claim any losses incurred in current Kazakh litigation, relating to crude oil sales pricing in August-December 2004 and crude oil delivery and pricing in January-March 2005.

PetroKazakhstan submitted its full Statement of Claim on April 22, 2005 and its statement of the damages it is seeking on June 30, 2005. PetroKazakhstan's Statement of Damages claims $293 million, and injunctive relief to halt all actions that violate corporate governance obligations.

Lukoil submitted its Preliminary Statement of Defense and Counterclaim on July 7, 2004 and claimed $252 million for Turgai and $4 million for Lukoil, together with a request for a $600 million letter of credit as a surety against PetroKazakhstan requests for injunctive relief.

Lukoil is expected to file its Statement of Damages on October 3, 2005.

A preliminary hearing is scheduled before the Tribunal on September 19, 2005.

The outcome of this litigation can not be determined, and, accordingly, no amounts have been recorded in the interim consolidated financial statements.

PetroKazakhstan vs Lukoil Amsterdam litigation

On July 21, 2004, PKKR filed a claim in the District Court of Amsterdam against Lukoil for damages suffered by PKKR as a result of unlawful actions by Lukoil related to the shut-in of certain wells located at the border of the Kumkol North and the Kumkol South fields. The preliminary amount of the claim, as at the date of the filing, was an initial $65 million. This amount increases daily as the production of Kumkol South continues to be partly constrained.

The outcome of this litigation can not be determined, and, accordingly, no amounts have been recorded in the interim consolidated financial statements.

PetroKazakhstan vs Lukoil/Turgai Paris Arbitration

On May 9, 2005, PetroKazakhstan filed a Request for Arbitration with the Arbitration Institute of the International Chamber of Commerce, Paris. PetroKazakhstan is seeking clarification of Turgai's and Lukoil's obligations and other terms of the KAM pipeline agreements. Lukoil and Turgai have agreed to consolidate all KAM pipeline related disputes under this arbitration and have withdrawn all KAM pipeline related claims from the Kazakh court system. As part of this agreement, Lukoil and Turgai have dropped an earlier claim brought in the Kazakh Courts seeking to invalidate the arbitration clauses of the KAM pipeline agreements.

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Lukoil/Turgai vs PetroKazakhstan Stockholm Arbitration

In April 2005, the Corporation received a copy of a Request for Arbitration filed with the Arbitration Institute of the Stockholm Chamber of Commerce by Lukoil and Turgai against PetroKazakhstan Inc. for $100 million. This amount represents the alleged difference between market prices and the prices paid by PKOP for crude oil purchased from Turgai during the period from October 2003 to November 2004.

The Corporation believes the claim is without merit, as the price paid was in accordance with prevailing agreements. No provision has been made in the interim consolidated financial statements for this claim.

Ministry of Energy and Mineral Resources Geology and Subsurface Use Committee ("Committee") of the Republic of Kazakhstan vs. PKKR

In May 2005, the Committee filed a claim against PKKR for approximately $4.4 million for violation of a no flaring injunction received earlier in the year. The first hearing was held on July 6, 2005 with the decision in favor of the Committee. The Corporation does not agree with the decision and plans to appeal. The Corporation has not provided for this claim in the interim consolidated financial statements.

PKOP vs. SFE Ltd.

In October 2004, PKOP filed a claim against SFE Ltd., a minority shareholder in PKOP, for enforcement of a share redemption agreement pursuant to SFE Ltd. requesting redemption after voting against a reorganization of PKOP from a joint stock company to an LLP. SFE Ltd. has filed a number of counter claims with the most significant disputing the valuation of its shares in PKOP and obtaining injunctions prohibiting PKOP from entering into certain transactions.

The case regarding the injunction prohibiting certain transactions has progressed through the Kazakhstan court system and in May of 2005, the Supreme Court ruled that pending the outcome of the dispute, PKOP is prohibited from entering into transactions, which would decrease the equity of PKOP and that PKOP can not enter into share transactions. The remaining cases are progressing through the court system.

The outcome of the litigation can not be determined, and, therefore, no amounts were recorded in the interim consolidated financial statements.

Other Litigation

The Corporation is involved in certain other litigation and claims associated with the normal course of operations. Management believes that settlements, if any, would not have a material impact on the Corporation's interim consolidated financial statements.

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15	SUBSEQUENT EVENTS
	ARNM
	On July 13, 2005 the City Court of Astana rendered a decision adverse to the group distribution companies for an aggregate amount of approximately $55.4 million. The judgement may be appealed to the Supreme Court of Kazakhstan. The outcome of the appeal can not be determined, therefore, no provision has been made in the interim consolidated financial statements for this judgement.
	The Corporation, through its subsidiaries in Kazakhstan, has been involved in extensive negotiations aimed towards a settlement. The Corporation does not view this judgement as an obstacle to the settlement of the civil and related criminal cases.
	Turgai claims against PKKR
	Migration of crude oil
	At a hearing on July 18, 2005, the court requested that MEMR experts review the technical arguments. This process is expected to require a number of months to complete.
	Return of crude oil
	On July 20, 2005 the Appellate Court, the Board of Civil Affairs of Kyzylorda Oblast Court, ruled in Turgai's favor and obligated PKKR to return approximately 395,000 tonnes to Turgai.
	Turgai argued that PKKR was obliged to transfer crude oil into the Kaztransoil pipeline system for export under a Services Contract. PKKR argued in its appeal that oil was forwarded to the Shymkent Refinery, by a different route in accordance with the MEMR monthly refinery supply plan, as well as existing contractual obligations of Turgai approved by Shareholder Resolutions and also other contractual arrangements approved by Lukoil.
	The Corporation also noted that Turgai received and accepted money from PKOP for the crude oil supplied to the refinery by Turgai.
	PKKR intends to appeal this decision to the Supervisory Panel of the Board on Civil Affairs of the Kyzylorda Oblast Court but in the meantime, as required by law, PKKR will execute the court decision and return the crude oil to Turgai.
	The Corporation will, in any event, pursue reimbursement of damages at international arbitration, owing to Lukoil’s failure to comply with shareholders agreements related to Turgai and breaches of corporate governance rules.
	These interim consolidated financial statements still record the deliveries of Turgai crude oil made to Shymkent in January-March 2005 as sales of Turgai, because the Corporation does not agree with this decision and will appeal.

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Price received for crude sold to PKOP

On July 20, 2005 the Appellate Court of the South Kazakhstan Oblast issued a decision that PKOP should reimburse the alleged difference of approximately $5.5 million between alleged market price and the price paid by PKOP for crude oil purchased from Turgai during the period from August to October 2004. PKOP disagrees with this decision as Turgai was contractually bound to supply PKOP, at the price paid by PKOP, because there was a crude purchase contract in force that had been approved by the shareholders, Lukoil and PetroKazakhstan.

PKOP will appeal again to the Supervisory Panel of the South Kazakhstan Oblast Court, but in the meantime, as required by law, will pay the amount in question. The Corporation will, in any event, pursue reimbursement in international arbitration owing to Lukoil's wrongful failure to comply with the requirements of the Kazakhstan Law on Joint Stock Companies and other breaches of the Corporation's shareholder agreement with Lukoil. The Corporation has not recorded any provision for this decision, as it does not agree and plans to further appeal.

Road Tax assessments for 1998 and 1999

PKKR has been disputing approximately $7.9 million (using current exchanges rates) in assessed fines and penalties relating to assessments received for the 1998 and 1999 taxation years.

This matter was previously appealed to the Supervisory Panel of the Supreme Court ("Supervisory Panel"), and they remanded the case back to the lower court in Kyzylorda for a retrial. The lower court rejected the Supervisory Panel's instruction, a retrial was not held, and the lower court let the original decision stand.

The Corporation recorded, as an expense, $8.0 million in the consolidated financial statements for the year ended December 31, 2004.

The lower court's refusal to comply with the Supervisory Panel's instruction was appealed to the Supervisory Panel. On July 19, 2005 a hearing was held, whereby the Supervisory Panel issued a decision in favor of PKKR. The Corporation reversed $7.9 million from royalties and expenses and recorded this amount as an account receivable in its interim consolidated financial statements.

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