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

1. 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.

2. Petroleum Sector –- One of the Mongolian Government’sTop Priority Sectors

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

4. In order to attract foreign investment and expertise to petroleum sectorMongolia has establishedFAVORABLE AND STABLELEGAL ENVIRONMENT

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

7. 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.

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

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

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

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

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

13. More advantages;High number of exploration block acreage24 exploration blocks(average acreage – 24,000 sq. kms)

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

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

16. 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

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

18. 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

20. 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

22. PIPELINE PROJECTS IN MONGOLIA

23. Mongolian sedimentary basin

29. Seismic exploration

30. Exploration Drilling

32. Geochemical data of crude oil

33. Horse head-production unit

34. Crude oil storage

35. Oil transportation

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

37. Very much appreciated for your kind attention