The procedure for granting rights to use subsoil in the Republic of Kazakhstan is subject to the following laws and regulations: the Decree of the President of the Republic of Kazakhstan having the force of a law «On Oil», dated June 28, 1995;

• the Decree of the President having the force of a law «On Subsoil and Subsoil Use», dated January 27, 1996;
• Regulations on granting the rights to use subsoil approved by the Resolution of the Government of the Republic of Kazakhstan of January 21, 2000.

Currently, granting the rights to use subsoil in the Republic of Kazakhstan is based on a contractual system.

Pursuant to the applicable legislation of the Republic of Kazakhstan, the right to use subsoil is granted by two methods:

• Direct negotiations.
• Investment programs bidding for the right to use subsoil.

When are negotiations held?

• Where a bidder has an exclusive right for production in connection with the exploration based on the executed contract for exploration.
• In the event of entering into a contract for construction and/or operation of underground facilities unrelated to exploration and/or production.
• If the bidder is a National company (a National company shall be deemed a 100% state-owned closed joint stock company established by a decree of the President of the Republic of Kazakhstan to manage oil operations in the Republic of Kazakhstan directly or through its share in contracts).
• In case when the license for the right to use any territory or unit was issued prior to the introduction of the contractual system of granting rights on September 1, 1999.
• And in cases stipulated by the legislation of the Republic of Kazakhstan.

When is the investment program bidding held?

The rights to use subsoil are granted by bidding in all cases, except for direct negotiations. The procedure for granting subsoil on the basis of the results of bidding may be conditionally divided into the following stages:

1. Putting up land allocations for bidding;
2. Delivery of the notification of the terms of bidding;
3. Acceptance of bids and review of bidding documents;
4. Preparation and submission of bids;
5. Holding a bidding and determining a winner;
6. Entering into a contract with the winner for subsoil operations and subsequent registration of the winner;
7. Signing and registration of the contract.

First stage. Annually, the Government of the Republic of Kazakhstan approves the list of land parcels (blocks) put out for open and closed investment program bidding, except for land parcels granted to the national companies on the basis of direct negotiations with a competent agency.

Second stage. An investment program bidding by method of its holding may be open or closed. The terms of an open bidding must be published, while the terms of a closed bidding will be communicated to all potential participants of bidding.

Third stage. A person wishing to participate in the investment program bidding for the right to use subsoil shall submit an application to the competent agency in accordance with the requirements established by the legislation. An application shall be accepted for consideration only after payment by the applicant of security deposit. The competent agency shall within a monthly period of the date of submission of the application notify the applicant of its acceptance. Upon acceptance of the application for participation in bidding, the competent agency shall provide the applicant, upon applicant's payment, with a package of geological information on the land parcel (block) located on the territory granted for subsoil use.

Fourth stage. The applicant shall, within the period of time set forth in the terms of bidding, complete a bid for the right to use subsoil for joint exploration and production or production. The commission shall determine the winner of the bidding. The Government of the Republic of Kazakhstan shall approve the membership of the commission. The results of bidding shall be advised in official publications.

Fifth stage. The winner of bidding shall be determined on the basis of the following basic criteria:

1. The date of commencement and intensity of exploration;
2. The date of commencement of production and reaching its economic and operational maximum level and maximum ratio of recovery of minerals;
3. The proposed amounts of initial and subsequent payments to the budget;
4. Volume of investment, terms and conditions of project financing and capital investment in the development of production and social infrastructure of the contract territory;
5. Compliance with the requirements to protection of Subsoil and environment, safety of work.

The Expert Commission established by the competent agency shall make the appraisal of compliance of feasibility criteria developed by applicant with the terms of the bidding and execute a respective protocol.

Sixth stage. Based on the protocol of the Bidding Commission, the winner of the bidding shall negotiate a contract for subsoil operations. The parties to the contract shall be the Competent Agency and the Subsoil User. Currently the Ministry of Energy and Mineral Resources is the Competent Agency for execution and performance of contracts for oil operations. A subsoil user shall mean a person or a legal entity. The right to use subsoil may be granted to several persons and/or legal entities that become joint holders of the right to use subsoil. The terms of negotiations of the contracted are regulated. The subsoil user shall prepare a draft contract subject to the provisions of the model contract and submit it within 90 days of the execution by the Bidding Commission of the protocol on the winner of the bidding or decision of the Competent Agency to hold direct negotiations.

The draft contract approved by the parties prior to its signing shall be subject to the following approvals and expert appraisals:

• economic expertise — by the experts of the Ministry of Economy and Trade of the Republic of Kazakhstan within 30 days of the receipt of the draft contract;
• tax expertise — by the experts of the Ministry of Finance of the Republic of Kazakhstan within 30 days of the receipt of the draft contract;
• legal expertise — by the experts of the Ministry of Justice within 30 days of the receipt of the draft contract;
• approval of compliance with environmental and subsoil use and protection issues — by the Ministry of Natural Resources and Environmental Protection of the Republic of Kazakhstan within 15 days of the receipt of the draft contract;
• approval of compliance with health issues — by the Agency of the Republic of Kazakhstan for Public Health within 15 days of the receipt of the draft contract;
• approval of compliance with safety and mining supervision issues — by the Agency of the Republic of Kazakhstan for Emergency Situations within 15 days of the receipt of the draft contract.

Seventh stage. Execution and registration of the contract. Upon execution, the contract shall be subject to obligatory state registration with the state agency concluding the contract. A certificate issued by the Competent Agency to the subsoil user in accordance with the established format shall be a document confirming the registration of the contract. Following the registration of the contract with the Сompetent Agency, a copy thereof shall be submitted to the Ministry of Natural Resources and Environmental Protection, Ministry of Finance and Ministry of State Revenues of the Republic of Kazakhstan.