In accordance with the Petroleum Law of Mongolia, the PETROLEUM AUTHORITY OF MONGOLIA (PAM) is a Government agency, authorized by the Government of Mongolia to enter into contracts related to petroleum operations and exercise supervision over its implementation.

Petroleum Sector – - One of the Mongolian Government’s Top Priority Sectors

Ministry of Industry & Trade; The Government; Ministry of Industry & Trade; Petroleum Authority Contractor Mutually beneficial cooperation

In order to attract foreign investment and expertise to petroleum sector Mongolia has established FAVORABLE AND STABLE LEGAL ENVIRONMENT

Production Sharing Contract Contractor Government 100% Cost recovery Royalty (up to 40%) (up to 12%) Profit Oil Contractor Government share share

Terms EXPLORATION PERIOD The term of Exploration period might be up to five (5) years and may extend for two (2) times, by two (2) year extension terms, each.  PRODUCTION PERIOD The term of Development Operations might be up to twenty (20) years and may extend for two (2) times, by not more than five (5) year extension terms, each.

PETROLEUM OPERATION; CUSTOMS TAXES = 0 VALUE ADDED TAXES = 0 EXCISE TAXES = 0 INCOME TAXES = 0

No taxation changes for 10 – 15 years The Government Investor Stability Agreement STABILITY AGREEMENT; No taxation changes for 10 – 15 years

FAVORABLE LEGAL ENVIRONMENT; The Petroleum Law of Mongolia- -one of the top 10 petroleum laws (AAPG, Explorer, Aug. 1995, van Meurs rates)

STABLE LEGAL ENVIRONMENT; No changes in petroleum operation- related legislations since 1991 for 12 years

MONGOLIA; - RISK FREE POLITICALLY - ECONOMICALLY OPEN - NO ETHNIC CONFLICTS

More advantages; High number of exploration block acreage 24 exploration blocks (average acreage – 24,000 sq. kms)

Despite the initial stage of exploration, oil reserves confirmation - 1.5 billion bbr - Tamsag basin - 49.8 million bbr – Block XIX

Similar to Northern Chinese producing basins * Similar to Northern Chinese producing basins * Experienced sub-contractors available * Chinese exploration data are possible for correlation study * Near to potential market

Brief history of Mongolian Petroleum Industry 1922-Initial Petroleum Exploration in Mongolia 1940-The first discovery of oil in place-Zuunbayan oil field 1969-Inactivation of the petroleum operation 1990-Re-activation of petroleum exploration 1991-Commencement of “Petroleum” program and, Ratification of the Petroleum Law and its Implementing Regulation

PSC - SOCO international, USA – XIX, Xxi, XXII PSC - Dongsheng, China – XIII, XIV Seismic exploration – Electro Silica – II, III, IV, V, VI, VII, VIII, IX

SOCO Statistics Seismic exploration: 2D – 6282 str. km 3D – 233 km2 Drilling: 20 drillholes (since 1995) Oil Export: 180,000 bbr oil (since 1998) Investment: 70 million USD

ROC Oil Statistics Seismic exploration: 2D – 2745 str. km Drilling: 5 drillholes (since 1995) Oil Export: 151,000 bbr oil (since 1998) Investment: 55 million USD

PIPELINE PROJECTS IN MONGOLIA

Mongolian sedimentary basin

Seismic exploration

Exploration Drilling

Geochemical data of crude oil Characteristics Unit Block name & Well No. Toson Uul XIX-3 Tsagaan Els TE-14 Density g/cm3 0.842 0.885 Pour point OC 27 29 Boiling point 80 90 Viscosity mm2/sec (50OC) 5.6 4.1 API density API (15.6OC) 36.4 28 Sulphur content % 0.01 0.14 Water content 0.2 10

Horse head-production unit

Crude oil storage

Oil transportation

Detailed information is available at our website; http://www.pam.mn

Very much appreciated for your kind attention