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Gold/Mining/Energy : American International Petroleum Corp

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To: DJRoss who wrote (1067)	8/2/1997 12:47:00 PM
From: faris bouhafa	of 11888

Here are some additional comments that I forgot to mention concerning last week's meeting in NYC: --The Kazak Ceo's of Interdynamics and Dank are in the process of negotiatiing a Production Agreement for MSUP with their government. George Faris said the royalty rate that the govenment would eventually receive would fall somewhere in the range of 6% to 28% perhaps on an escalating or de-escalating scale related to the # of barrels produced. He stressed that he was confidant that the CEO's would be able to strike the best possible deal. I agree, given the fact that there are strong ties between the principals of the two Kazak companies and key players in the government of Kazakstan. Faris further indicated that he would look for a Production Agreement in October or November. --The company emphasized that, in this deal, there would be no co-production agreement with the National Oil Company as is often the case when Western oil companies make production deals in other parts of the world. I suspect that that standard arrangement is not applicable in this case because of the fact that Kazaks already have a 25+% interest in the concession through their equity position in MSUP plus Interdynamic's equity stake in AIPN. --Faris also emphasized that the first drilling would take place in the area most likely to produce "early oil" with the added condition that the site be adjacent to an existing pipeline. That would make Bengash the most likely candidate. He also stressed that AIPN would have sufficient cash-flow to fund minimal operations in the area for 5 years including the drilling of two wells. My guess is that a production partner will ultimately assume those costs as well as the enormous production expenses needed for development of the entire license area. In my opinion, that production partner will receive a 50% equity position in MSUP which will come only from AIPN's current 70% stake. ---While this is only an informed guess on my part, the eventual deal might look like this: Breakdown of equity interests in MSUP, the Kazak-registered company with clear title to the concession: 5% Med Shipping (brokered deal between Kazaks and AIPN) 10% DANK (Kazak company) 15% Interdynamics (Kazak Company) 50% Production Partner (Occidental, Exxon, etc.) 20% American International Petroleum It is my assumption that AIPN will look for a partnership with an entity willing to assume most of the production costs in exchange for the 50% equity interest in MSUP. There might be additional sweetners thrown in such as the right of first refusal to acquire choice sites in the 90% of the concession that will be bid for by the majors after 5 years or an agreement by the Kazak government to provide the Partner with first rights to as yet undiscovered reserves. Anything is possible but one thing is certain. This deal is NOT going to be structured along the lines of similar oil production deals around the world. There seems to be a unique quality to this arrangement and, as I've said before, the key to the uniqueness of this scenario lies with the equity participation of prominent Kazak businessmen and scientists. Cheers...Faris

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