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Kyzyloi and Akkulka Gas Development

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The Kyzloi and Akkulka development is one of the first dry gas developments carried out in Kazakhstan with one of the first tie-ins by a non-State company to a major gas trunkline in Central Asia. Production commenced in December 2007.

Kyzyloi and Akkulka fields contain sweet (no sulphur), dry natural gas at shallow depths of up to 610 metres making for relatively low development and operating costs. The Kyzyloi and Akkulka fields are tied into the major Bukhara-Urals gas pipeline by a 56 km pipeline owned and built by the Company and with a design capacity of up to 2.0 million cubic metres per day (Mcm/d). Gas is pumped into the Bukhara-Urals trunkline at the Company's Booster Compressor Station (BCS) at 910 km on the trunkline. The BCS has been upgraded to take Phase 2 gas production and now consists of five separate compressor units plus continuous gas composition and flow measurement fully integrated into the Bukhara-Urals gas export system. Since Phase 1 commenced production, the Company has been very successful in exploring for new gas in the Akkulka area and has tested commercial gas from 15 of 20 wells.

Kazakhstan Shallow Gas Programme

Gas Sales Contract

TethysAralGas LLP, its 100% owned Kazakhstan subsidiary, has signed a gas sales contract for 2015 gas production.

A one-year gas supply contract has been signed at a price of US$75/mcm (US$2.12 per 1,000 cubic feet) net of marketing and distribution costs effective January 1, 2015 representing a 42% increase over the current realised gas price. This price has been realised despite falling oil and gas prices in Central Asia due to the impact of the fall in worldwide prices (Henry Hub spot price has fallen 30% to $108/mcm since December 1st, 2014). The achievement of the higher gas prices reflects the Company's view that despite these recent influences, the general direction of gas prices is on an upward trend due to the increasing demand from China as it moves from a coal based economy to utilising more gas. The Company believes that once gas shipments commence to China through the already built gas pipeline, it may achieve further increases in pricing some time in 2015.

The gas supply contract has been signed between TethysAralGas LLP and KazTransGas JSC ("KTG"), for the Kyzyloi and Akkulka natural gas fields. KTG is the national State appointed gas operator under Kazakhstan gas law and any domestic sales of gas are effectively made through this state body. TAG will have the ability to export gas to China and other export markets once this option becomes available.

The gas supply contract is for annual volumes up to 100 million cubic meters at the increased net price of US$75 per 1,000 cubic metres (US$2.12 per 1,000 cubic feet) net of marketing and distribution costs, and runs through to December 31, 2015. KTG has agreed that it will take any additional gas produced up to a total annual volume of 210 million cubic metres, but the structure of the contract also allows TAG to sell this additional gas outside of the contract should higher prices be achieved at a later date. This additional flexibility provides a significant advantage over the previous contract under which all gas was committed for the whole year.

It should be noted that the prices have been agreed in Kazakh Tenge as all sales contracts in Kazakhstan are signed with the prices set in National Currency. Due to concerns of a possible devaluation in the Tenge in 2015 it was agreed that in the case of a devaluation by more than 10%, the Parties shall agree to meet within 10 working days and try to renegotiate the price of gas. This is the first time the Company has managed to include this type of clause which is a significant improvement on the current gas contract whereby there was no potential resolution when the Tenge devalued in 2014 resulting in a lower realized USD price for the Company at that time.

Gas Production

Phase 3 of shallow gas production is now on stream and production from 12 wells has more than doubled to 520 Mm3/d since December 2014, a rate more than double the previous rate of 260 Mm3/d (9.1 Mscft/d) from a combination of existing wells along with some of those drilled and tested in 2014 (AKK17, 18 & 19) and previously drilled and tested wells (AKK15 &16) all tied-in on schedule. The recently installed dehydration system is performing well and expected to be commissioned by the State imminently.

Additionally it is planned to increase production later in 2015 with two more previously tested wells being brought online and with further optimisation of existing compression.

Kyzyloi Gas Production Extension Contract to 2029

In January, 2015 the Company announced that its wholly-owned Kazakh subsidiary, TethysAralGaz LLP ("TAG"), received permission from the Ministry of Energy of the Republic of Kazakhstan to extend the Kyzyloi Gas Production Contract (the "Contract") for another 15 years, from June 14, 2014 to December 31, 2029.

The Ministry of Energy granted the contract extension following the Kazakh State Reserves Committee's (GKZ) approval of the new State Reserves for Kyzyloi previously announced in May 2014. The Kyzyloi contract area was also increased by 56 percent to 449 km2 (110, 950 acres) and now encompasses a larger gas bearing area including the AKK05 well (to be worked over later in Q1 2015) and also the AKK08 & AKK10 successful gas wells.