Caspian Plans Appeal for Kazakhstan Court Case over Zhengeldy Contract

Caspian Holdings has provided the following update:

Kazakhstan Court Case

The Kazakhstan Minister of Energy and Mineral Resources' action to revoke the Zhengeldy sub soil use contract held by Taraz LLP ("Taraz"), a 100% subsidiary of the Company, has been put into effect. Caspian will appeal the judgement.

As reported on Jan. 14, Caspian won the initial court case. The judgement was subsequently appealed by the Kazakhstan Ministry of Energy and Mineral Resources (the "Ministry"). The appeal judgement reinstated the Minister's (Mr Munbayev) Order to revoke the Zhengeldy contract.

With no benefit from expert testimony, the Appeal judgement's primary reason for reinstating the Ministers order was that Zhengeldy produced significantly less amount of oil than it should do, according to the Ministry.

The judgement concludes that "low debits of wells and water content are the reasons of the low volume of the production. They are result not of geology or of characteristics of the field but where the result of the activities of Taraz during the development of the field". In practice, the judgement states that had Taraz reported more fully to the Central Commission of the Ministry, the Commission would have been able to correctly advise how to increase oil production rates at the field.

Caspian believes there are very strong grounds to appeal the recent judgement. The appeal judgement ruled out a return to the lower courts to consider the matters of substance and to draw on expert witnesses. An appeal must therefore go to the Kazakhstan Supreme Court in a process that is estimated to take one year.

Under Kazakhstan law, Taraz can not arrest (put on hold) the Order of the Ministry and is required to shut down and remove its equipment from the Zhengeldy field. Therefore, under the law the Zhengeldy production field must be dismantled irrespective of a possible future positive outcome from an appeal to the Supreme Court. The Company will seek to find a more practical solution in discussions with the Ministry.

Commenting on the decision, Caspian Chairman, Michael Masterman said, "At a time of global financial crisis and low oil prices we can not understand why the Ministry would intervene to revoke the Zhengeldy license and shut down a productive oil field. The Zhengeldy work program obligations have been met. We believe it is unreasonable to shut down an operating oil field because the geology, which was confirmed by different studies, did not support pre-development production estimates and because the regulated Institute (Centre Consulting Company Ltd) that is responsible for the preparation and submission of the supervision of the development report did not submit it on schedule to the Central Commission."

"The action of the Ministry is in contrast to recent Kazakhstan government initiatives to encourage foreign investment in Kazakhstan. As recently as last month, the Ministry stated that probably licences in Kazakhstan would only be required to meet 50% of their workplan obligations. Why then is the Ministry putting higher hurdles on a the Company which the first court found met 208% of its work programme obligations and the appeal court found met 70% of its work program obligations."

USA Assets

The Company continues to monitor the progress of its US assets in light of the current energy markets and will provide further updates as required.

Trading Update

The Company is not currently generating revenue and can not continue to support its projects without generating cash from one or more of them, or by raising new capital. In addition as a result of the requirement to close down the Zhengeldy field, the board of Caspian has concluded that the recoverable value of loans and investments made to Taraz LLP are significantly reduced and it is probable they will be less than the outstanding loan notes on Caspian Holdings balance sheet which expire on April 13, 2009. The directors of Caspian have concluded that as a result of the Appeal judgement the Company must seek a reorganisation and agreement with noteholders. Negotiations with noteholders have commenced and the Company will update the market on progress.

Consequently, the Board anticipates that additional funding will be required by March 2009 to continue to support the Company's activities in the USA and working capital requirements. Therefore it is actively engaged in seeking the necessary additional funding to support its ongoing plans and expects to update shareholders further regarding its funding in the coming months.