10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x Annual Report pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the fiscal year ended December 31, 2005

¨ Transition Report pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

Commission File Number: 000-50715

TRANSMERIDIAN EXPLORATION INCORPORATED

(Exact name of registrant as specified in its charter)

Delaware	76-0644935
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
397 N. Sam Houston Pkwy E., Suite 300 Houston, Texas	77060
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (281) 999-9091

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class	Name of each exchange on which registered
Common Stock, $0.0006 par value per share	American Stock Exchange

Securities registered pursuant to Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨ Accelerated filer þ Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  þ

The aggregate market value of the common stock of the registrant held by non-affiliates of the registrant was approximately $119.9 million on June 30, 2005 based upon the closing sale price of common stock on such date of $2.12 per share on the American Stock Exchange. As of March 10, 2006, the registrant had 88,183,142 shares of common stock issued and outstanding.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Proxy Statement for the 2006 Annual Meeting of Stockholders to be held in

May 2006 are incorporated by reference, with respect to Part III of this Form 10-K.

TABLE OF CONTENTS

		Page
PART I		1
Item 1.	Business	1
Item 1A.	Risk Factors	3
Item 1B.	Unresolved Staff Comments	8
Item 2.	Properties	9
Item 3.	Legal Proceedings	14
Item 4.	Submission of Matters to a Vote of Security Holders	15
PART II		17
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17
Item 6.	Selected Financial Data	18
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 8.	Financial Statements and Supplementary Data	27
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	55
Item 9A.	Controls and Procedures	55
Item 9B.	Other Information	59
PART III		59
Item 10.	Directors and Executive Officers of the Registrant.	59
Item 11.	Executive Compensation	59
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	59
Item 13.	Certain Relationships and Related Transactions	59
Item 14.	Principal Accounting Fees and Services	59
PART IV		59
Item 15.	Exhibits, Financial Statement Schedules	59
Exhibit Index		E-1

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PART I

Item 1. Business

Transmeridian Exploration Incorporated is an independent energy company engaged in the business of acquiring, developing and producing oil and natural gas. Our activities are primarily focused on the Caspian Sea region of the former Soviet Union, and our primary oil and gas property is the South Alibek Field in the Republic of Kazakhstan, covered by License 1557 and the related exploration contract with the government of Kazakhstan. We are currently pursuing additional projects in the Caspian Sea region and surrounding basins. We were founded in 2000 as a Delaware corporation.

We conduct our operations in Kazakhstan through our wholly owned subsidiary, JSC Caspi Neft TME, a joint stock company organized under the laws of Kazakhstan. In December 2005, we acquired all of the issued and outstanding shares of Bramex Management, Inc., which owns 50% of Caspi Neft. In December 2005, we acquired the 10% carried working interest in the Field held by Kornerstone Investment Group, Ltd. As a result of these transactions, our interest in both Caspi Neft and the South Alibek Field is 100%.

At December 31, 2005, our estimated total proved reserves were 72,936,622 barrels of oil. All of these reserves are attributable to the South Alibek Field. The present value of the estimated future net revenues from our proved reserves before income tax, discounted at 10% per annum, based on prices being received as of December 31, 2005 and with oil pricing assumptions held constant throughout the estimated producing life of the reserves, was $1,015,427,446. The estimates of our proved reserves and the present value of the estimated future net revenues have been prepared by Ryder Scott Company, independent petroleum engineers, in accordance with SEC guidelines.

We are in the early stages of developing the South Alibek Field. As of December 31, 2005, 3,331,580 barrels of oil, or 5% of the South Alibek Field’s estimated proved reserves, were classified as proved developed reserves. The balance of our estimated proved reserves are classified as proved undeveloped and will require the drilling of future wells to produce these reserves. We have an active development program in the South Alibek Field, including plans to drill wells that are not currently included within the boundaries of our proved reserves. See Item 2, “Properties—Proved Reserves” below and note 12 of the notes to our consolidated financial statements for further information about our estimated proved reserves.

Strategy

Our strategy is to increase our reserves, production and cash flows by (i) acquiring and developing oil and gas reserves, (ii) exploring for new reserves and (iii) optimizing production and value from our existing reserve base. We prefer to target medium-sized fields with proved or probable reserves, relatively low entry costs and significant upside reserve potential. Through the industry contacts, technical knowledge and experience of our management team, we believe we can successfully identify, obtain financing for and acquire additional properties in the Caspian Sea region and surrounding basins.

Customers

In 2005, approximately 45% of our sales were into the Kazakhstan market to two different purchasers, and 55% were export sales to two different purchasers. Until our pipeline transfer connections and handling facilities are complete, we are temporarily storing our oil at the field facilities and at rail loading terminals in the vicinity until it can be transferred to the buyers. Our oil sales revenues to date are derived solely from our operations in Kazakhstan. For each of fiscal years 2004 and 2003, we sold oil exclusively to customers located in Kazakhstan and neighboring countries. Beginning in August 2005, we began export sales in the international markets. See Item 2, “Properties—Transportation and Marketing” below for further discussion of our current transportation

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and marketing arrangements and future plans. See also Item 1A, “Risk Factors—Our business and results of operations depend on our ability to transport our production to viable markets and on the price at which we can sell our production.”

Competition

The oil and gas industry is highly competitive, and our future business plans could be jeopardized by competition from larger and better-financed companies. We compete for reserve acquisitions, exploration leases, licenses, concessions and marketing agreements against companies with financial and other resources substantially greater than ours. Many of our competitors have more established positions and stronger governmental relationships, which may make it more difficult for us to compete effectively with them. In Kazakhstan, more than 100 fields (approximately 44%) are under foreign ownership and we estimate there are 45 non-Kazakh companies operating these fields. We believe Lukoil and Chinese National Petroleum Corporation (CNPC) are the largest foreign-owned petroleum companies operating in Kazakhstan, both of which have made recent significant reserve acquisitions. A high level of interest by non-Kazakh companies also exists in the other most prospective oil and gas areas of the Caspian Sea region. See Item 1A, “Risk Factors—Competition in our industry is intense, and many of our competitors in the Kazakhstan region have greater financial and other resources than we do.”

Government Regulation

Our operations are subject to various levels of government controls and regulations in the United States and in Kazakhstan, including environmental controls and regulations. We attempt to comply with all legal requirements in the conduct of our operations and employ business practices which we consider to be prudent under the circumstances in which we operate. It is not possible for us to separately calculate the costs of compliance with these controls and regulations, as such costs are an integral part of our operations.

In Kazakhstan, legislation affecting the oil and gas industry is under constant review for amendment or expansion. Pursuant to such legislation, various governmental departments and agencies have issued extensive rules and regulations which affect the oil and gas industry, some of which carry substantial penalties for failure to comply. These laws and regulations can have a significant impact on the oil and gas industry by increasing the cost of doing business and, consequently can adversely affect our results of operations. Inasmuch as new legislation affecting the industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws and regulations.

Offices and Employees

Our corporate headquarters are in Houston, Texas, where we lease 6,725 square feet of office space. As of March 10, 2006, we had 9 full-time employees in Houston. We also maintain two offices in Kazakhstan, the first an administrative office in Aktobe, Kazakhstan, where we lease approximately 9,020 square feet of office space and have 71 full-time employees, and the second a small administrative office in Almaty, Kazakhstan, where we have five employees. Our field operations for the South Alibek Field have approximately 72 employees.

Availability of Reports

We make available free of charge on our internet website, www.tmei.com, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and any amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act, as soon as reasonably practicable after we electronically file such reports with, or furnish such reports to, the SEC. We also make available free of charge on our internet website other electronic filings that we make with the SEC as well as the Forms 3, 4 and 5 filed by our directors, executive officers and significant stockholders with respect to their beneficial ownership of our common stock. These filings and reports are also available on the SEC’s website at www.sec.gov.

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Item 1A. Risk Factors

We have a history of losses.

We have a history of losses. We incurred net losses of $3.3 million, $5.7 million, $3.8 million and $20.5 million for the years ended December 31, 2002, 2003, 2004 and 2005, respectively. Our results of operations in the future will depend on many factors, but largely on our ability to execute our exploration and development program and successfully market our current and future production. Our failure to achieve profitability in the future could adversely affect our ability to raise additional capital and, accordingly, our ability to grow our business.

Our exploration and development activities may not result in economic quantities of oil and gas.

Our success is dependent on finding, developing and producing economic quantities of oil and gas. Our drilling operations may not be successful in finding, developing and producing economic quantities of oil and gas. In addition, we may not be able to sustain production from wells that initially produce.

The seismic data and other technologies we use do not allow us to know conclusively prior to drilling a well that oil or gas is present or may be produced economically. The cost of drilling, completing and operating a well is often uncertain, and cost factors can adversely affect the economics of a project. In addition, technological difficulties encountered in well completion or following the establishment of production may result in reduced or ceased production from a well.

Our efforts will be unprofitable if we drill dry holes or wells that are productive but do not produce enough reserves to return a profit after drilling, operating and other costs. Further, our drilling operations may be curtailed, delayed or canceled, or subject to higher costs as a result of a variety of factors, including:

• unexpected drilling conditions;

• high pressure or irregularities in geological formations;

• equipment failures or accidents;

• adverse weather conditions, such as winter snowstorms; and

• increases in the cost of, or shortages or delays in the availability of, drilling rigs, equipment and qualified personnel.

Oil and gas operations can be hazardous and may expose us to environmental liabilities.

We are subject to the operating risks normally associated with the exploration, development and production of oil and gas, including well blowouts, cratering and explosions, pipe failure, fires, geological formations with abnormal pressures, uncontrollable flows of oil, natural gas, brine or well fluids, and other environmental hazards and risks. Moreover, our drilling operations involve risks from high pressures in geological formations and from mechanical difficulties such as stuck pipe, collapsed casing and separated cable. If any of these events actually occur, we could sustain substantial losses as a result of:

• injury or loss of life;

• severe damage to or destruction of property, natural resources or equipment;

• pollution or other environmental damage;

• environmental clean-up responsibilities;

• regulatory investigations and penalties;

• delays in our operations or curtailment of our production; and

• suspension of our operations.

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Because in many cases insurance coverage for these risks is either not available or is not available at premium levels that are economically feasible and justify its purchase, we maintain very limited insurance coverage. As a result, the insurance coverage we maintain may not fully compensate us, or compensate us at all, if we incur losses as a result of these risks. Moreover, in the future we may not be able to maintain all or even part of our current insurance coverage at premium levels that justify its purchase.

In addition, as an owner and operator of oil and gas properties, we are subject to various laws and regulations relating to the discharge of materials into, and the protection of, the environment. These laws and regulations may impose liability on us for the cost of environmental cleanup resulting from our operations and could further subject us to liability for environmental damages.

The actual quantities of, and future net revenues from, our proved reserves may prove to be lower than we have estimated.

The information included herein contains estimates of our proved reserves and the estimated future net revenues from our proved reserves. These estimates are based upon various assumptions, including assumptions required by the SEC relating to oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The process of estimating oil and gas reserves is complex. The process involves significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each reservoir. Therefore, these estimates are inherently imprecise.

We engage an independent petroleum engineering firm to review our estimates of our proved reserves. During 2005, 2004 and 2003, their review covered 100% of the reserve value. Estimates of our proved reserves are made using available geological and reservoir data, as well as production performance data. These estimates are reviewed annually and revised, either upward or downward, as warranted by additional performance data. Actual future production, oil and gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves most likely will vary from these estimates. Such variations may be significant and could materially affect the estimated quantities of, and future net revenues from, our proved reserves. In addition, we may adjust estimates of our proved reserves to reflect production history, results of exploration and development drilling, prevailing oil and gas prices and other factors, many of which are beyond our control. Our properties may also be susceptible to hydrocarbon drainage from production by operators on adjacent properties. In addition, our reserves are contained in carbonate reservoirs, and there is a larger uncertainty inherent in carbonate reservoirs as compared to sandstone reservoirs.

At December 31, 2005, approximately 95% of our estimated proved reserves (by volume) were undeveloped. Recovery of undeveloped reserves requires significant capital expenditures and successful drilling operations. These reserve estimates include the assumption that we will make significant capital expenditures to develop the reserves. You should be aware that our estimates of such costs may not be accurate, development may not occur as scheduled and our results may not be as estimated.

You should not assume that the present values referred to in the information included herein represent the current market value of our estimated reserves. In accordance with SEC requirements, the estimates of present values are based on prices and costs as of the date of the estimates. Actual future prices and costs may be materially higher or lower than the prices and costs as of the date of the estimates. There are currently no economic markets for our natural gas production and our gas reserves have been given no value in the future net cash flow data included herein.

The timing of both production from our properties and the expenses we incur from the development and production of our properties will affect both the timing of the actual future net cash flows from our proved reserves and their present value. In addition, the 10% discount factor, which is required by the SEC to be used in calculating discounted future net cash flows for reporting purposes, is not necessarily the most accurate discount factor. The effective interest rate at various times and the risks associated with our business or the oil and gas industry in general will affect the accuracy of the 10% discount factor.

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If oil and gas prices decrease or our exploration efforts are unsuccessful, we may be required to write down the capitalized cost of individual oil and gas properties.

A writedown of the capitalized cost of individual oil and gas properties could occur when oil and gas prices are low or if we have substantial downward adjustments to our estimated proved oil and gas reserves, increases in our estimates of development costs or nonproductive exploratory drilling results.

We use the successful efforts accounting method. All property acquisition costs and costs of exploratory and development wells are capitalized when incurred, pending the determination of whether proved reserves are discovered. If proved reserves are not discovered with an exploratory well, the costs of drilling the well are expensed. All geological and geophysical costs on exploratory prospects are expensed as incurred.

The capitalized costs of our oil and gas properties, on a field-by-field basis, may exceed the estimated undiscounted future net cash flows of that field. If so, we record impairment charges to reduce the capitalized costs of each such field to our estimate of the field’s fair market value. Unproved properties are evaluated at the lower of cost or fair market value. These types of charges will reduce our earnings and stockholders’ equity.

We assess our properties for impairment periodically, based on future estimates of proved reserves, oil and gas prices, production rates and operating, development and reclamation costs based on operating budget forecasts. Once incurred, an impairment charge cannot be reversed at a later date even if we experience increases in the price of oil or gas, or both, or increases in the amount of our estimated proved reserves.

All of our operations are conducted in areas with inherent international and governmental risks.

We are subject to risks inherent in international operations, including adverse governmental actions, political risks, expropriation of assets and the risk of civil unrest or war. Our oil and gas properties are located in Kazakhstan, which until 1990 was part of the Soviet Union. Kazakhstan retains many of the laws and customs from the former Soviet Union, but has developed and is continuing to develop its own legal, regulatory and financial systems. As the political and regulatory environment changes, we may face uncertainty about the interpretation of the agreements to which we are party and, in the event of dispute, we may have limited recourse within the legal and political system.

We have not finalized a long-term production contract with the government of Kazakhstan and our current exploration contract is scheduled to expire in 2007.

We currently produce and sell oil pursuant to an exploration contract with the government of Kazakhstan which expires in April 2007. Under our exploration contract and the Law of Petroleum, we hold the exclusive right to negotiate and execute a production contract with the Ministry of Energy and Mineral Resources (“MEMR”) in the event of a commercial discovery in the license area, and the government is required to conduct these negotiations. In December 2004, the State Committee on Reserves (“SCR”) approved commercial reserves for development and exploitation in the South Alibek Field. On this basis, the MEMR granted us the exclusive right to execute a long-term production contract in June 2005. We concluded negotiations of the final commercial and legal terms of the contract in September 2005, when the working group of the MEMR formally approved the draft production contract. The final draft was then circulated to the relevant governmental ministries and committees for their formal acceptance prior to contract execution. In the course of this process, several of these governmental bodies requested additional changes to the contract, most of which we successfully negotiated and included in the written contract.

As of March 10, 2006, approval of one remaining government ministry was still pending. Once this final approval is obtained, the production contract will be signed by the prime minister, at which time it will enter into effect. We believe that this approval will be obtained and the production contract signed during the first half of 2006. However, there can be no assurance that we will be successful in finalizing the production contract by such time or at all. If we are unable to finalize the production contract in a timely manner or at all, our business, financial condition and results of operations could be materially and adversely affected.

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Our business and results of operations depend on our ability to transport our production to viable markets and on the price at which we can sell our production.

Our future success depends on our ability to transport and market our production either within Kazakhstan or through export to other markets. Our ability to sell our production and, in turn, our revenues could be materially and adversely affected by issues which are outside our control relating to the crude oil transportation infrastructure both within and outside Kazakhstan. The exportation of oil from Kazakhstan depends on access to transportation routes, primarily pipeline systems, which can have limited available capacity and are subject to other restrictions.

We currently export our oil by rail. The rail terminal is accessed by truck from our field facilities. Our future plans include the shipment of oil by pipeline, which is the preferred and most cost effective method to sell crude oil production into the export market. We expect the implementation of our plans to result in higher realized prices for our crude oil than our current marketing arrangements, but we cannot be assured that we will be successful in implementing our plans. Unless we obtain access to pipelines to transfer our crude oil out of Kazakhstan, the prices at which we sell our crude oil may remain well below world market prices.

Oil prices are volatile. A decline in prices could adversely affect our financial position, results of operations, cash flows, access to capital and ability to grow.

Our revenues, results of operations and future growth depend primarily upon the prices we receive for the oil we sell. Historically, the markets for oil have been volatile and they are likely to continue to be volatile. Wide fluctuations in worldwide oil prices may result from relatively minor changes in the supply of and demand for oil, market uncertainty and other factors that are beyond our control, including:

• worldwide supplies of oil and gas;

• weather conditions;

• the level of consumer demand;

• the price and availability of alternative fuels;

• governmental regulations and taxes;

• the ability of the members of the Organization of Petroleum Exporting Countries to agree to, and maintain, oil price and production controls;

• political instability or armed conflict in oil-producing regions; and

• the overall economic environment.

These factors and the volatility of the energy markets make it extremely difficult to predict future oil price movements with any degree of certainty. Declines in oil prices would not only reduce our revenues, but could reduce the amount of oil that we can produce economically and, as a result, could have a material adverse effect on our business, financial condition and results of operations.

Our substantial indebtedness could adversely affect our financial condition.

We have substantial debt, namely our senior secured notes due 2010, and, in turn, substantial debt service requirements. Our ability to make payments on our senior secured notes due 2010 and any future indebtedness we may incur depends on our ability to generate sufficient cash flow. We cannot assure you that:

• our business will generate sufficient cash flow from operations to service our indebtedness;

• future borrowings or proceeds from equity issuances will be available in an amount sufficient to enable us to pay our indebtedness on or before the maturity date of such indebtedness; or

• we will be able to refinance any of our indebtedness on commercially reasonable terms, if at all.

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Factors beyond our control may affect our ability to service our indebtedness. These factors include those discussed in this “Risk Factors” section.

If, in the future, we cannot generate sufficient cash flow from our operations to meet our debt service obligations, we may need to refinance our debt, obtain additional financing, issue equity or sell assets, which we may not be able to do on commercially reasonable terms, if at all, and which we may be prohibited from doing under the terms of our indebtedness. We cannot assure you that our business will generate cash flow, or that we will be able to obtain funding, sufficient to satisfy our debt service obligations. Our inability to generate cash flow or obtain funding sufficient to satisfy our debt service obligations could materially and adversely affect our financial condition.

Covenants in the indenture governing our senior secured notes due 2010 impose significant restrictions on us.

The indenture governing our senior secured notes due 2010 contains a number of covenants imposing significant restrictions on us. The restrictions these covenants place on us include restrictions on our repurchase of, and payment of dividends on, our capital stock and limitations on our ability to incur additional indebtedness, make investments, engage in transactions with affiliates, sell assets and create liens on our assets. These restrictions may affect our ability to operate our business and may limit our ability to take advantage of potential business opportunities as they arise and, in turn, may materially and adversely affect our business, financial condition and results of operations.

Significant capital expenditures are required to execute our development program.

Our development and production activities, including our exploration contract with the government of Kazakhstan, require us to make substantial capital expenditures. Historically, we have funded our capital expenditure requirements through a combination of cash flows from operations, borrowings under bank credit facilities, private placements of our common stock, preferred stock and debt securities and borrowings from our affiliates. Our cash flows from operations are subject to a number of variables, such as the level of production from our existing wells, the prices of oil, and our success in developing and producing our reserves. If our revenues were to decrease as a result of lower oil prices or decreased production, and our access to capital were limited, we may not be able to meet our capital expenditure requirements, which could, in turn, materially and adversely affect our business, financial condition and results of operations.

Competition in our industry is intense, and many of our competitors in the Kazakhstan region have greater financial and other resources than we do.

We operate in the highly competitive areas of oil exploration, development and production. We face intense competition from both major and other independent oil and natural gas companies in seeking to acquire:

• desirable producing properties or new leases for future exploration; and

• the equipment and expertise necessary to develop and operate our properties.

Many of our competitors have financial and other resources substantially greater than ours and, moreover, some of them are fully integrated oil companies with operations in the exploration, development, production, pipeline transportation, refining and marketing sectors of the oil and gas industry. These companies may be able to pay more for development prospects and productive oil and natural gas properties and may be able to define, evaluate, bid for and purchase a greater number of properties and prospects than our financial or human resources permit.

In addition, our ability to develop and exploit our oil and natural gas properties and to acquire additional properties in the future will depend upon our ability to successfully conduct operations, evaluate and select suitable properties and successfully consummate transactions, and there can be no assurance that we will be able to do so.

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Compliance with governmental regulations could be costly.

Our operations are subject to various levels of government controls and regulations in the United States and in Kazakhstan, including environmental controls and regulations. It is not possible for us to separately calculate the costs of compliance with these controls and regulations, as such costs are an integral part of our operations.

In Kazakhstan, legislation affecting the oil and gas industry is under constant review for amendment or expansion. Pursuant to such legislation, various governmental departments and agencies have issued extensive rules and regulations which affect the oil and gas industry, some of which carry substantial penalties for failure to comply. These laws and regulations can have a significant impact on the oil and gas industry by increasing the cost of doing business and, consequentially, can adversely affect our results of operations. Inasmuch as new legislation affecting the industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws and regulations.

The loss of key personnel could have an adverse effect on our business.

Our success is dependent on the performance of our senior management and key technical personnel. The loss of our chief executive officer or other key employees could have a material and adverse effect on our business. We do not currently have employment or non-compete agreements in place with any of our senior management or key employees. In addition, we do not carry life insurance covering any of our senior management or key employees.

We have reported a material weakness in our internal control over financial reporting that, if not remedied, could adversely affect our ability to meet reporting obligations and provide timely and accurate financial statements.

In connection with our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005, we concluded that, as of December 31, 2005, we did not maintain effective internal control over our financial reporting due to a material weakness resulting from lack of a sufficient number of accounting staff with experience in public company SEC reporting and technical expertise to enable us to maintain adequate controls over our financial accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement in our annual or interim financial statements would not be prevented or detected. Our management’s assessment of the effectiveness of our internal control over financial reporting as of December 31, 2005 was audited by UHY Mann Frankfort Stein & Lipp CPAs, LLP, which expressed an unqualified opinion on management’s assessment and an adverse opinion on the effectiveness of our internal control over financial reporting as of December 31, 2005.

We have taken, and are currently taking, steps to remedy this material weakness. See Item 9A, “Controls and Procedures—Corporate Disclosure Controls—Changes in Internal Controls.” Although we believe we will address the material weakness with the remedial measures we have implemented and are currently implementing, these measures may not remedy the material weakness reported and, as a result, we may not be able to implement and maintain effective internal control over financial reporting in the future. In addition, additional deficiencies in our internal controls may be discovered in the future.

Any failure to remedy the reported material weakness or to implement new or improved controls, or difficulties encountered in their implementation, could harm our operating results, cause us to fail to meet our reporting obligations or result in material misstatements in our financial statements. Any such failure also could affect the ability of our management to certify that our internal controls are effective when it provides an assessment of our internal control over financial reporting, and could affect the results of our independent registered public accounting firm’s attestation report regarding our management’s assessment. Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock.

Item 1B. Unresolved Staff Comments

None.

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Item 2. Properties

Petroleum Industry in Kazakhstan

Kazakhstan was one of 15 independent republics that comprised the former Soviet Union. After gaining independence in 1991, it joined with Russia and several other former Soviet republics in the Confederation of Independent States, a union of economic and political cooperation. Kazakhstan is an area of significant investment activity for the international oil and gas industry. Based upon publicly available information, Kazakhstan’s proved reserves rank it among the top 15 countries in the world, with over 250 producing oil fields and 20 billion barrels of proved reserves. Its current production is approximately 1.3 million barrels of oil per day, of which approximately 85% is exported.

Regulation of the oil and gas industry in Kazakhstan has been codified in the Law of Petroleum, which sets out the conduct of the oil and gas industry and the roles of participants, both private and governmental. The industry is regulated in Kazakhstan by the Ministry of Energy and Mineral Resources (“MEMR”), which administers all contracts, licenses and investment programs.

The national oil company, Kazmunaigas, has been through several stages of consolidation. The Kazakhstan government has been in the process of merging the various regional governmental companies, which previously handled the extraction and transportation sectors of the industry, into one consolidated entity to eliminate redundant bureaucracy and provide for a more efficient management of the country’s natural resources. This consolidated entity maintains a direct ownership interest on behalf of the Kazakhstan government in most of the large oil field development projects in Kazakhstan as well as sole ownership and operation of many of the interconnecting oil and gas pipeline systems. However, governmental ownership or participation in exploration and development projects is not required, and the Kazakhstan government has no ownership interest in the South Alibek Field.

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Acquisition of the South Alibek Field

In May 1999, we engaged Kornerstone Investment Group, Ltd. (“Kornerstone”) to identify and assist in the acquisition of oil and gas properties in Kazakhstan and elsewhere in the Caspian Sea region. Since we had not received any significant funding at that time, the consulting agreement with Kornerstone provided that Kornerstone’s compensation would be in the form of a 10% carried working interest (which we reacquired from Kornerstone in January 2006) in all properties shown to us and in which we acquired an interest. The controlling shareholder of Kornerstone is a citizen of Kazakhstan who is involved in oil and gas production and other business endeavors. This individual is also currently employed on a part-time basis as a consultant and manager of Caspi Neft.

In early 2000, Kornerstone identified an opportunity in Kazakhstan known as the South Alibek License 1557, which covered what is now known as the South Alibek Field. The adjacent Alibekmola Field had been discovered in 1980 by a regional exploration unit of the Soviet Ministry of Geology. A total of 31 wells had been drilled in the Alibekmola Field to delineate the oil bearing reservoirs and structure of the field. This delineation work continued following the breakup of the Soviet Union.

The South Alibek Field was first identified by an Alibekmola Field delineation well, known as Alibekmola 29, drilled by a geological association of the Kazakhstan government. It was determined to be in a separate fault block adjacent to the Alibekmola Field, and in 1996 produced flowing oil from several intervals in the Middle-Lower Carboniferous (KT2) reservoirs during well testing. Due to lack of funds for further drilling, the area was offered for public tender and was awarded in the tender to a subsidiary of AIL Alpha Corporation, Ltd. License 1557 was granted to the subsidiary in April 1999. In March 2000, we acquired this subsidiary. Subsequent work by us has resulted in this license area being designated as the South Alibek Field.

License and Exploration Contract

We signed an exploration contract with the Kazakhstan government in March 2000. The contract, whose original term extended to April 2005 with two two-year extensions, required us to make total capital expenditures of approximately $18.0 million. In April 2004, we were granted the first of these two-year extensions, through April 2007. In connection with this extension, we agreed to an additional work program commitment of $30.5 million. As of December 31, 2005, we had satisfied these capital expenditure commitments. Pursuant to the exploration contract, we can produce wells under a test program, provided we make 2% royalty payments (based on production) to the Kazakhstan government. We intend to apply for the next two-year extension to continue the exploration of the license area and expand the South Alibek Field before the existing exploration contract term expires.

Production Contract

Under our exploration contract and the Law of Petroleum, we hold the exclusive right to negotiate and execute a production contract with the MEMR in the event of a commercial discovery in the license area, and the government is required to conduct these negotiations. In December 2004, the State Committee on Reserves (“SCR”) approved commercial reserves for development and exploitation in the South Alibek Field. On this basis, the MEMR granted us the exclusive right to execute a long-term production contract in June 2005. We concluded negotiations of the final commercial and legal terms of the contract in September 2005, when the working group of the MEMR formally approved the draft production contract. The final draft was then circulated to the relevant governmental ministries and committees for their formal acceptance prior to contract execution. In the course of this process, several of these governmental bodies requested additional changes to the contract, most of which we successfully negotiated and included in the written contract.

As of March 10, 2006, approval of one remaining government ministry was still pending. Once this final approval is obtained, the production contract will be signed by the prime minister, at which time it will enter into

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effect. We believe that this approval will be obtained and the production contract signed during the first half of 2006. The terms of the production contract establish the royalty and other payments due to the government in connection with our production of oil and gas. A bonus payment of $0.6 million will be required upon execution, based on the SCR reserves audit approving the commercial discovery, which defined the initial production area of 3,500 acres, or about 25% of the total area under license. If additional area is added on the basis of successful exploratory drilling, additional bonus payments would be assessed at a rate of 0.1% of the recoverable reserves added. The contract will also allow the government to recover approximately $4.7 million of historical exploration costs incurred before privatization out of future revenues beginning in January 2007 at a rate of approximately $50,000 per quarter.

The production contract is tax and royalty based. Under this financial arrangement, we will pay 100% of the development and operating costs and will be entitled to receive 100% of the revenues from the Field, subject to a royalty based on production from the Field and corporate income taxes. The royalty is a sliding scale based on annual production, ranging from 2% to 2.5% for production up to approximately 60,000 barrels per day. Corporate income taxes in Kazakhstan vary from 30% to 40%. Additionally, there is an excess profit tax on oil and gas production which can vary from 15% to 60% based on the ratio of net income to deductions. These taxes can significantly affect the economics of the project. The government may also require that we make available, if requested, up to 20% of our production to local refineries at domestic market prices. We would expect these prices to be lower than prices we would receive in the export market. However, our transportation costs would likely be lower as well. Most of the smaller producers in the region are not currently being required to sell into the domestic market and we do not expect this to change.

Overview of Regional Geology

The South Alibek Field is located in a fairway of large fields in northwestern Kazakhstan within the prolific Pre-Caspian Basin. Within 20 miles of the South Alibek Field are three giant producing fields with resources estimated between 500 million to 1 billion barrels each: the Kenkiyak and Zhanazhol Fields and the immediately adjacent Alibekmola Field. Production from the area’s carbonate reservoirs was first established in the 1950s, before the area was limited to military use and closed to oil and gas activity for 20 years. The Zhanazhol Field was the first to be discovered following the release of some of the area to exploration in the 1970s, and is now producing from the Upper-Middle Carboniferous (KT1) and Middle-Lower Carboniferous (KT2) reservoirs. The Alibekmola Field was discovered in the 1980s as additional areas were released, with production tests and reserves in both the KT1 and KT2 reservoirs. South Alibek was identified by the last well drilled during the delineation of Alibekmola following the breakup of the Soviet Union and independence of Kazakhstan. Development of these fields began after 2000.

The KT1 and KT2 reservoirs were deposited throughout the Middle and Late Carboniferous periods and into the Early Permian as a basin-wide and massive carbonate platform in the shallow waters of the ancient Uralian paleo-ocean on the southeastern boundary of the East European Plate. Regional closing of the ocean during the Permian period created a restricted sea that makes up the Pre-Caspian Basin. Prolific oil field trends are established in the southern half and northern margins of this Basin, with the South Alibek Field located on the southeastern margin of the Basin on the Zharamys Uplift. The carbonate fields lying within the Pre-Caspian Basin, including the Devonian carbonates which were deposited earlier, account for approximately 75% of Kazakhstan’s oil reserves and production. These fields are projected to ultimately contain over 40.0 billion barrels of recoverable reserves, and include two super-giant fields: Tengiz, which is estimated to have 9.0 billion barrels of recoverable reserves; and Kashagan, which is estimated to have 13.0 billion barrels of recoverable reserves.

The tectonic history specific to the Zhanazhol, Alibekmola and South Alibek Fields area was extensively studied by Soviet scientists during the last four decades of the Soviet era. The carbonates were deposited on a stable block removed from the influence of the Ural Mountain building processes to the northeast. Soviet geologists speculated the block was significantly closer to Tengiz at that time than it is today. The movement of

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the block to the northeast, of up to 450 miles, and the later folding and thrust faulting, began in the Middle Permian through the Late Triassic period. This faulting created the northeast-southwest trending enechalon structures that characterize these fields and provides the trap for oil and gas. The main defining thrust faults are generally oriented in a north-south direction, with a pattern of small stress transfer crossfaulting and fracturing that can enhance the fracture characteristics of the carbonate reservoirs. At present day, the platform trends southwest to northeast over an area approximately 125 miles long and 50 miles wide. It is bounded to the north by a major fault which separates this area from the Urals western fold and thrust belt.

Zhanazhol, Alibekmola and South Alibek Fields are ideally situated for favorable migration of hydrocarbons. The source for the oil and gas was provided by three source rocks, Devonian through Carboniferous in age, with the filling of the structures beginning at the end of the Permian with peaks of generation at the end of the Triassic and end of the Jurassic and with one source rock believed to be generating today.

Field Geology

The South Alibek Field is immediately adjacent to the producing Alibekmola Field. Structurally it has three-way dip closure and is bounded and separated from Alibekmola on the east by a major north-south thrust fault. The Field is up to 1,000 feet lower than the Alibekmola Field and has a lower oil-water contact established from testing of the Alibekmola 29 well. The Zhanazhol Field lies 10 miles along the regional structural trend to the south. The East Zhagabulak Field is on the northwest corner of the South Alibek license area.

The KT1 and KT2 are the primary oil bearing reservoirs in all four fields, all of which have established production in the KT2. The KT1 is produced in the Zhanazhol Field. It has been found productive by testing in the Alibekmola and East Zhagabulak Fields, but has not been developed in those fields or in South Alibek. Evaluation of field data indicates reservoir properties of the KT1 and KT2 are very similar in the Alibekmola and South Alibek Fields. Production from the Zhanazhol Field is estimated to be in excess of 100,000 barrels of oil per day, and from the Alibekmola Field, which is still in the early phases of development, over 30,000 barrels of oil per day.

Within the South Alibek Field, the KT1 and KT2 reservoirs are porous and fractured carbonates of shallow marine-terriginous origin. The porosity is both primary and secondary, by diagenesis to dolomite and by fracturing. Porosity averages between 9-10% for both the KT1 and KT2, and is estimated as high as 15% in the KT2 and 20% in the KT1 from core analysis of open porosity. Permeability estimates range between 5mD to 300mD. The identified net thickness of the oil bearing reservoir averages approximately 200 feet for both the KT1 and KT2. The KT2 reservoir is a series of massive stacked platform carbonates, subdivided into five stratigraphically defined zones, totalling more than 3,000 feet thick, with the top at approximately 10,500 feet in depth. The shallower KT1 is subdivided into three zones: the lowest zone is a series of massive stacked platform carbonates and the shallower zones are more characteristic of the back-stepping progradational nature of the carbonate platform The top of the KT1 reservoir is at a depth of approximately 7,000 feet, and is about 2,300 feet thick.

We have conducted an extensive evaluation of the information available for the South Alibek Field and adjacent fields, including vintage and recent logging, core, pressure and testing data, and 2D and 3D seismic data to which we have rights. Based on our evaluation, we believe that the oil-bearing reservoirs within the KT1 and KT2 may be present over a substantial part of the area covered by License 1557. We continue to update the technical appraisal of our field and collect and evaluate reservoir and fluid data from our wells. Based on available regional data, the possibility exists that the prospective Devonian carbonates may underlie the KT2 at significantly greater depths, but this possibility remains undefined due to insufficient data at the present time.

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Proved Reserves

Our estimated proved oil and gas reserve quantities were prepared by Ryder Scott Company, independent petroleum engineers. There are numerous uncertainties in estimating quantities of proved reserves and projecting future rates of production and the timing of development expenditures. These uncertainties are greater for properties which are undeveloped or have a limited production history, such as the South Alibek Field. Our actual reserves, future rates of production and timing of development expenditures may vary substantially from these estimates. All of our proved reserves are in the South Alibek Field. Our net quantities of proved developed and undeveloped reserves of crude oil and standardized measure of future net cash flows are reflected in the table below. See further information about the basis of presentation of these amounts in note 12 of the notes to our consolidated financial statements.

As of December 31, 2005, we own a 100% working interest in the South Alibek Field, subject to Kazakhstan government royalties and a 3.5% net revenue interest in favor of a third party. The effect of these interest deductions is reflected in the calculation of our net proved reserves. Our proved reserves have been prepared under the assumption that we obtain a commercial production contract which will allow production for the expected 25-year term of the contract, as more fully discussed above under “Production Contract.” Based on forecast production volumes, the average royalty over the term of the production contract is expected to be 2.2% or less.

Net Proved Crude Oil Reserves and Future Net Cash Flows

As of December 31, 2005

(Quantities in Barrels)

	Actual
Proved Developed		3,331,580
Proved Undeveloped		69,605,042
Total Proved Reserves		72,936,622
Future Net Income Before Income Taxes, Discounted @10%	$	1,015,427,446
Standardized Measure of Discounted Future Net Cash Flows	$	746,980,814

The following table shows the number of developed and undeveloped acres in the South Alibek Field as of the dates indicated:

	As of December 31,
	2005	2004	2003
Developed acres	640	232	160
Undeveloped acres	1360	1,448	765
Total acreage	2000	1,680	925

For information regarding our production from the South Alibek Field, see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” below.

Transportation and Marketing

Oil producers in the area of the South Alibek Field utilize both the KazTrans Oil and Russian Transneft pipeline systems to export crude oil to regional hub locations such as Samara, Ukraine, the Port of Odessa on the Black Sea and European locations such as Poland, Hungry, Lithuania, Germany and Finland. Pipeline capacity in the area has significantly increased with the opening of the Caspian Pipeline Consortium (“CPC”) pipeline, which ultimately will boost regional export capacity from 250,000 barrels of oil per day to an expected 800,000

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barrels of oil per day. Two Soviet-era oil pipelines in the local area of the Field, with combined capacity of 143,000 barrels of oil per day, continue to service nearby producing fields. These pipelines transport oil to the Bestamak rail terminal and the oil refinery in Orsk via Kenkiyak Field, and can be used as a transfer point for oil exchanges to Western markets. Several rail loading oil terminals are also in the area and can be used for export sales. The nearest is approximately 30 miles from the South Alibek Field at Zhem.

Two important connecting pipelines in the vicinity of the South Alibek Field became operational in 2003. The Kenkiyak-Atyrau pipeline, with an initial capacity of 120,000 barrels of oil per day, originates at the Kenkiyak Field and provides a link to the CPC pipeline for nearby producing fields, including the Zhanazhol Field. The Alibekmola-Kenkiyak pipeline provides direct pipeline access from the Alibekmola Field to the Kenkiyak-Atyrau pipeline for export to western markets via the CPC pipeline. The pump station at the Alibekmola Field is one mile from the site of our central production facilities.

We currently export the majority of our oil production to international markets by rail from the Zhem terminal. The terminal is accessed by truck from our field facilities. A portion of the oil continues to be sold in the local markets to alleviate storage constraints of the existing field facilities. Our future plans include the shipment of all our production by pipeline, which is the preferred and most cost effective method to sell oil into the export markets. Based upon our discussions with the operator of the Alibekmola-Kenkiyak pipeline, we believe we will be able to begin exporting our oil via this pipeline during 2006, subject to possible capacity limitations. To obtain access, we will be required to make certain processing and delivery investments or arrangements with nearby producers. In addition, CNPC is finalizing the extension of the rail line from Zhem to Zhanazhol Field, placing rail access within approximately four miles of the South Alibek Field. Construction of a rail spur from our field to the Zhanazhol Field is under consideration, which would eliminate the need to truck the oil to Zhem. See “Item 1. Business—Customers.”

Drilling Rig

In December 2001, we purchased a drilling rig for our operations in the South Alibek Field for total consideration of $5.3 million, including a note payable for $3.3 million and the issuance of $2.0 million in redeemable common stock. The rig is a National 1320UE, with a 2,000 horsepower rating, a depth rating of approximately 20,000 feet and a 320-ton rating on the drawworks. At the time of purchase, the rig was in storage in South America. During 2002, we moved the rig to Kazakhstan and refurbished and modified the rig to make it suitable for use in our operations. We contracted the operation and manning of the rig to a third party. The rig has been idle since December 2004. In the first quarter of 2006, we reached an agreement to dispose of the rig. See note 3 of the Notes to Our Consolidated Financial Statements. As more fully discussed in Item 3, “Legal Proceedings” below, we settled litigation relating to the drilling rig in December 2005.

Item 3. Legal Proceedings

Drilling Rig Dispute

In December 2001, we purchased a land drilling rig for total consideration of $5.3 million, including a note payable for $3.3 million and the issuance of $2.0 million in redeemable common stock. We were not informed that the rig was subject to a lien in favor a prior owner of the rig. Beginning in December 2003, the seller, us and the lienholder engaged in litigation to determine the parties’ rights and obligations with respect to the rig, the lien and payments due the seller and the lienholder. In August 2004, we and the seller of the rig entered into a settlement and release agreement, pursuant to which the remaining balance on the note of $1.6 million, plus accrued interest of $550,000 was cancelled, and we agreed to endeavor to negotiate a settlement with the lienholder pursuant to which we would assume the obligation of the seller of the rig to the lienholder. In December 2005, the parties engaged in a court-supervised mediation at which they agreed to settle all outstanding claims against one another. Pursuant to the settlement agreement, we paid approximately $1.8 million to the first lienholder to settle the remaining payment obligations to the lienholder, plus $120,000 for legal fees. See notes 5 and 8 of the notes to our consolidated financial statements.

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Former Chief Financial Officer

In May 2003, Jim W. Tucker, our former chief financial officer, filed suit in state district court in Texas against us in connection with his separation from service in January 2003. The suit alleged breach of an oral employment agreement. We took a default judgment in November 2003 in the amount of $0.9 million. In February 2005, the court granted our motion to vacate the default judgment. The plaintiff subsequently passed away in July 2005. The case may still be reinstated by the deceased’s estate prior to April 2007, and would begin as if we had just been served notice. We believe we have meritorious defenses to the allegations against us and intend to vigorously contest this matter and pursue all available legal remedies; however, we believe the chances that the estate will refile the suit to be remote.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during the quarter ended December 31, 2005.

Executive Officers of the Registrant

Certain information as of March 10, 2006 about our executive officers, including their position or office with the company, is set forth in the following table and accompanying text:

Name and Age	Age	Position(s)
Lorrie T. Olivier	55	Chairman of the Board, President and Chief Executive Officer
Earl W. McNiel	47	Vice President and Chief Financial Officer
Nicolas J. Evanoff	43	Vice President, General Counsel and Secretary
Bruce A. Falkenstein	47	Vice President—Exploration and Geology
Joseph S. Thornton	55	Vice President—Operations
Edward G. Brantley	51	Vice President and Chief Accounting Officer

Lorrie T. Olivier has served as President and Chief Executive Officer of the company since its inception in 2000. Mr. Olivier became Chairman of the Board in 2002. From 1991 to 2000, Mr. Olivier was employed by American International Petroleum Corporation (AIPC) as Vice President of Operations and President of AIPC Kazakhstan. He was the key executive in charge of developing AIPC’s interests in the Caspian Sea region. Mr. Olivier has devoted his entire career to international oil and gas exploration and production, also having served with Occidental Petroleum in South America and Shell Oil.

Earl W. McNiel joined the company in July 2004 as our Vice President and Chief Financial Officer. Mr. McNiel has 24 years of experience with public companies, primarily in the energy industry, and has broad experience with corporate finance, M&A and financial reporting. From 1994 until 2004, Mr. McNiel was a senior officer with Pride International, Inc., an oilfield services provider and drilling contractor, serving as Chief Financial Officer, Chief Accounting Officer and Vice President of Planning and Corporate Development. Before joining Pride, Mr. McNiel served as Chief Financial Officer of several publicly owned waste management companies and as Manager, Finance with ENSCO International, Inc., an international offshore drilling contractor. He began his career in public accounting with a major international accounting firm.

Nicolas J. Evanoff joined the company in January 2006 as our Vice President, General Counsel and Secretary. Previously, he was engaged in the private practice of law with Phillips & Reiter PLLC, during which time he served as outside general counsel to the company since May 2005. From 2002 to 2004, Mr. Evanoff was employed by Pride International Inc., an oilfield services provider and drilling contractor, as Vice President – Corporate & Governmental Affairs. Prior to joining Pride, he served as Associate General Counsel and then as

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General Counsel, Asia & Middle East, of Transocean Inc., an international offshore drilling contractor, from 1997 to 2002. Mr. Evanoff began his legal career with Baker Botts L.L.P. in Houston, Texas, where he practiced corporate and securities law from 1992 to 1997.

Bruce A. Falkenstein has served as Vice President—Exploration and Geology since the company’s inception in 2000 and has 27 years experience in international oil and gas exploration and production. Prior to joining the company, he served for 20 years with Amoco and its successor, BP Amoco (now BP), where he last held the position of Manager and Chief Geophysicist of the Kazakhstan exploration team. Including his tenure at BP Amoco, since 1992, he has worked extensively on the technical evaluation and acquisition of oil fields and operating licenses in Kazakhstan and the Caspian Sea region. From 1986 until 1992, he served in Amoco’s corporate field development and reserves estimation group for Egypt, Africa and the Middle East. Mr. Falkenstein is licensed in the State of Texas as a professional geologist and geophysicist and is a Trustee Associate of the American Association of Petroleum Geologists Foundation.

Joseph S. Thornton joined the company in January 2005 as our Vice President—Operations. Mr. Thornton has in excess of 30 years experience in oil and gas exploration, development and production operations. Most recently he served as Manager of Affiliates for Vanco Energy Company, an independent oil and gas producer, where he served as the principal liaison between the company’s local operating branches and the host governments and as compliance officer under the production sharing agreements. Prior to that, he was Project Manager in Moscow and Algeria for Schlumberger, Inc. an international oilfield services provider, where he was responsible for production optimization and complex horizontal drilling operations. He has also held senior positions with Ashland Exploration Benin and United Meridian International Corporation, including Vice President and General Manager for UMIC Côte d’Ivoire based in Abidjan. Mr. Thornton holds a petroleum engineering degree and is a registered professional engineer.

Edward G. Brantley joined the company in September 2005 as our Vice President and Chief Accounting Officer. Prior to joining the company, Mr. Brantley was employed by Pride International, Inc., an oilfield services provider and drilling contractor, from 2000 to 2005, where he served in several capacities, including Treasurer and Vice President and Chief Accounting Officer. Prior to joining Pride, Mr. Brantley was employed by Baker Hughes, Inc., an international oilfield services provider, for 11 years in various positions, including Controller of Baker Hughes Inteq.

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Common Stock

Our common stock, par value $0.0006 per share, began trading on the American Stock Exchange under the symbol “TMY” on March 21, 2005; prior to this time, our common stock traded on the OTC Bulletin Board under the symbol “TMXN.” There are 200,000,000 shares of common stock authorized by our amended and restated certificate of incorporation. As of March 10, 2006, we had 88,183,142 shares issued and outstanding, which were held by an estimated 2,517 beneficial owners. The following table presents the high and low sales prices and high and low bid prices (as the case may be) per share for our common stock, as reported by the American Stock Exchange and the OTC Bulletin Board.

2005:	High		Low
Fourth quarter	$	6.10	$	2.66
Third quarter	$	4.20	$	1.81
Second quarter	$	2.75	$	1.50
First quarter	$	3.00	$	1.53
2004:	High		Low
Fourth quarter	$	1.97	$	1.24
Third quarter	$	1.35	$	0.81
Second quarter	$	1.88	$	0.98
First quarter	$	2.15	$	0.78

Preferred Stock

We are authorized by our amended and restated certificate of incorporation to issue up to 5,000,000 shares of preferred stock. As of December 31, 2005, we had 1,547.714 shares of our Series A cumulative convertible preferred stock (“Series A Preferred”) issued and outstanding, which are held by an estimated nine beneficial owners. There is no established trading market for the shares of our Series A Preferred.

Dividend Policy on Common Stock

We have never paid cash dividends on our common stock. We intend to retain future earnings, if any, to meet our working capital requirements and to finance the future operations of our business. Therefore, we do not plan to declare or pay cash dividends to the holders of our common stock in the foreseeable future. Moreover, our ability to pay dividends on our common stock is restricted by the terms of our Series A Preferred and by the indenture governing our senior secured notes due 2010.

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Item 6. Selected Financial Data

The following selected financial information should be read in conjunction with the consolidated financial statements and the notes thereto included under “Item 8. Financial Statements and Supplementary Data.”

	Year ended December 31,
	2005			2004			2003			2002			2001
	(Amounts in thousands, except per share amounts)
OPERATING RESULTS:
Oil revenues	$	8,443		$	3,923		$	797		$	—		$	51
Loss from operations		(9,823	)		(3,305	)		(4,915	)		(2,936	)		(1,924	)
Net loss		(20,541	)		(3,848	)		(5,686	)		(3,270	)		(2,112	)
Net loss attributable to common stockholders		(21,622	)		(4,002	)		(5,706	)		(3,308	)		(2,236	)
Basic and diluted net loss per share		(0.26	)		(0.05	)		(0.09	)		(0.06	)		(0.04	)
Oil sales price per barrel		27.62			11.87			10.52			0.00			0.00
Operating cost per barrel produced		3.98			1.55			3.41			0.00			0.00
BALANCE SHEET DATA:
Total current assets	$	74,705		$	29,205		$	2,067		$	813		$	377
Total property and equipment, net of accumulated depreciation		226,815			70,389			54,560			24,396			13,105
Total assets		313,993			99,810			57,099			26,271			13,883
Total current liabilities		33,697			25,671			31,918			6,637			2,475
Long term debt, net of current maturities		223,407			23,683			24,674			13,752			3,368
Stockholders’ equity		56,704			42,345			506			3,881			6,038
CASH FLOW DATA:
Net cash used in operating activities	$	(11,351	)	$	(10,105	)	$	(3,654	)	$	(2,056	)	$	(1,880	)
Net cash used in investing activities		(144,703	)		(17,647	)		(23,640	)		(10,299	)		(1,813	)
Net cash provided by financing activities	$	173,752		$	43,177		$	27,991		$	12,873		$	3,289

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following discussion and analysis addresses changes in our financial position and results of operations during the three year period 2003 through 2005. There is limited or no comparability for revenue and operating expense in 2003, as sales and production did not commence until the third quarter of 2003.

Management’s primary goals for 2005 were to:

• Continue development drilling in the Field;

• Increase production from all wells in the Field;

• Improve efficiency of drilling and completion programs;

• Improve prices received for oil sales;

• Negotiate a long-term production contract; and

• Secure additional financing for Caspi Neft.

We believe that these goals were largely achieved in 2005. Our primary goals for 2006 include optimizing completions of the existing wells in the Field to maximize production from those wells, accelerating development

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of the Field by increasing the number of drilling rigs under operation from one to at least four, continuing to improve the price received for our oil sales, completing production and treatment facilities and connecting to the regional pipeline system.

Current Activities

Through December 31, 2005, we had drilled a total of eight wells in our South Alibek evaluation and development program. The SA-14 and the SA-3 were completed and placed into production in May and October 2005, respectively. Drilling of the eighth well in the program, the SA-15, began in late September 2005 and reached target depth in December 2005. The well was perforated in January 2006 and allowed to begin flowing naturally without stimulation. These three wells are infill development wells. With the exception of SA-4, all the wells in the Field have been producing oil on an extended production testing program. The ninth and tenth wells in the Field, the SA-11 and SA-12, were spudded on January 30 and February 1, 2006 respectively.

Our field operations and scheduled workovers were adversely affected by abnormally extreme subzero temperatures during late December and early 2006 that affected the region’s transportation, infrastructure and contractor services. The interruptions caused by these circumstances significantly affected timing of planned work and our ability to meet year-end production goals, with two of the seven producing wells temporarily shut-in. Once scheduled work is completed and these wells are placed back on production, we expect production from the existing wells producing simultaneously to be approximately 2,500-3,000 bopd.

Production from the wells is currently run through temporary production facilities, with oil storage capacity at the site of this facility as well as at the site of the central production facility. Production is currently being constrained by equipment and flowline limitations pending completion of the central facility, which has been delayed by the inability of the previous general contractor to complete the required installation. That contractor has been dismissed, and we engaged a leading international contractor in February 2006 to inspect and submit a plan to complete the facilities. We expect to have a revised plan and definitive construction schedule during the first quarter of 2006, resume construction work in the second quarter and commission the facility by the fourth quarter. We are implementing an interim solution to improve production capacity until the central facility is completed. The design and permitting work on our pipeline connection to the Alibekmola-Kenkiyak pipeline, and the associated support facilities began in 2005, and commissioning is also planned before the fourth quarter of 2006. See “Item 2. Properties—Transportation and Marketing” for an overview of pipeline connections and activity in the South Alibek area.

During 2005, workover programs initiated in 2004 were completed and new programs for selected wells were initiated to prepare the wells for long-term commercial production. These programs included reservoir stimulation, installation of more efficient production tubing and packers and the testing of down-hole electric submersible pumps with the aim to increase production. To address numerous delays and inefficiences encountered in our execution of the workover program, a dedicated workover rig has been sourced for the Field that will replace the locally provided workover units used previously. This new unit is expected to significantly reduce the time required to conduct our workovers and reduce the shut-in time experienced while work is in progress. We expect the unit to begin working in the second quarter of 2006, when Field activity levels increase as a result of the accelerated drilling program.

Our drilling program is currently using two drilling rigs contracted from Great Wall Drilling Company, the second of which arrived in the Field in December 2005. We plan to accelerate the program by adding at least two additional drilling rigs during the first half of 2006, bringing the total rigs in operation in the Field to four. In addition, the Company is evaluating opportunities to further speed development by adding a fifth and possibly a sixth drilling rig later in the year.

We have significantly reduced the time required to drill to our programmed final depths through improvement in drilling practices, bit selection and drilling fluids control. SA-15 reached its total depth of 12,600

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feet in 87 days and was the first of our wells that met the benchmark of 92 days established from competitor drilling data. We expect to continue to improve on the timing for drilling and completion of wells as increased equipment and new highly skilled personnel will allow for more continuity in operations.

Results of Operations

Oil Production and Revenue

For the year ended December 31, 2005, we produced 400,425 barrels (“Bbls”) of crude oil, or an average of 1,097 Bbls per day (Bopd), as compared to 313,305 Bbls, or an average of 858 Bopd, for the year ended December 31, 2004 and 117,376 Bbls, or an average of 641 Bopd for the year ended December 31, 2003. The increase in 2005 when compared to 2004, and the increase in 2004 from 2003, are primarily a result of the Field having five wells contributing to production in 2005 as compared to three wells in 2004 and only one well in 2003, and the Field being on production throughout 2004 versus only six months in 2003, as production from the Field commenced in July of 2003.

For the year ended December 31, 2005, we sold (by physical delivery to the purchaser) 324,355 Bbls of crude oil at an average price of $27.62 per Bbl, for net revenues of $8,442,787, as compared to 336,440 Bbls of crude oil at an average price of $11.87 per Bbl, for net revenues of $3,922,990, for the year ended December 31, 2004 and 77,293 Bbls at an average price of $10.52, for net revenue of $797,411 for the year ended December 31, 2003. The increase in net revenue in 2005 as compared to 2004 was primarily a result of substantially higher sales prices we received for our oil. Through a series of new sales arrangements, we realized increases over 2004 in the net price received for our crude oil to an average of approximately $20.00 per Bbl for the first half of 2005 and an average of approximately $37.00 per Bbl for the second half of 2005. The last price we received in December 2005 was $42.45 per Bbl. The increase in net revenue in 2004 as compared to 2003 is primarily due to the Field having three producing wells in 2004 as compared to only one producing well in 2003, and the Field producing for all of 2004 versus only six months of 2003. Sales from the Field commenced in the third quarter of 2003.

We recognize revenue from the sale of oil when the purchaser takes delivery of the oil. As of December 31, 2005, we had 87,296 Bbls of oil in inventory that had not yet been sold, pending commencement of oil sales arrangements with new purchasers. As of December 31, 2004, we had 16,576 Bbls in inventory for which we had received payment but had not recognized revenue because delivery had not yet been taken by the purchaser. The average sales price for this oil was $11.61 per Bbl, which was recognized as revenue in 2005 upon delivery to the purchaser.

Our crude oil sales since June 2005 have primarily take place at a nearby rail terminal. We incurred transportation and storage costs of approximately $1.54 per Bbl to transport our oil by truck to the rail terminal, where it is stored in rented tanks until delivery to the purchasers. Our crude oil sales in the last eight months of 2004 and the first six months of 2005 occurred at the Field and were not subject to transportation costs. See Item 7, “Results of Operation—Transportation Expense”.

Exploration Expense

Exploration expense, which includes geological and geophysical expense and the cost of unsuccessful exploratory wells, is recorded as an expense in the period incurred under the successful efforts method of accounting. During the year ended December 31, 2005, we incurred $9,470 in exploration expense, primarily associated with geological interpretations of the Field. During 2004, we recognized exploration expense of $130,926, which included costs associated with geological interpretations of the Field and a write off of the remaining book value of non-producing lease cost of a property in South Texas. During 2003, we incurred $592,553 in exploration expense, which was primarily related to the purchase and interpretation costs of geologic data and a charge for the unsuccessful completion attempt on one of our two U. S. properties.

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Depreciation, Depletion and Amortization

Depreciation, depletion and amortization (“DD&A”) of oil and gas properties is calculated under units of production method, following the successful efforts method of accounting. For the year ended December 31, 2005, DD&A of oil and gas properties was $2,442,263, or $6.10 per Bbl, as compared to $709,496, or $2.11 per Bbl for the year ended December 31, 2004 and $189,635, or $2.45 per Bbl, for the year ended December 31, 2003. The increase in 2005 from 2004 is primarily a result of the change in classification of reserves attributable to the KT1 reservoir to “proved undeveloped” from “proved developed behind pipe,” due to a change in the assumed Field development plan. The new plan assumes that separate wells will be drilled to produce reserves in the KT1 reservoir, rather than “dual-completing” wells to produce from both the KT2 and KT1 reservoirs simultaneously. As a result, beginning in the fourth quarter of 2005, reserves in the KT1 reservoir, which account for approximately 40% of our total “proved” reserves as of December 31, 2005, have been excluded from the total reserve base currently being depleted. Costs incurred are now spread over a substantially smaller quantity of oil until such time as wells are drilled to produce from the KT1 reservoir and those reserves are classified as “proved developed.” In addition, we had an average of four producing wells during 2005 versus only 1.5 producing wells in 2004. The increase in DD&A of oil and gas properties in 2004 from 2003 is primarily due to the increase in oil production between the periods.

Non-oil and gas property DD&A for 2005, 2004 and 2003 was $942,630, $79,262 and $56,077, respectively. The increase between the years is primarily due to additions of transportation and other equipment, and commencement of depreciation on our drilling rig, which we no longer plan to use for development of the Field.

Transportation Expense

During the third quarter of 2005, we began incurring transportation and storage costs relating to the transport of our oil to a nearby rail terminal for sale and export. During the second half of 2005, we incurred transportation and storage costs of $321,313, or $1.54 per Bbl. From the second quarter of 2004 through the second quarter of 2005, oil sales were made directly from the Field, with no transportation costs incurred. For the year ended December 31, 2004, transportation and storage costs were $173,847, or $2.12 per Bbl produced. For the year ended December 31, 2003, we incurred transportation and storage costs of $235,264 or $2.00 per Bbl produced. When the treating facilities and pipeline pump station discussed in Item 2, “Properties—Transportation and Marketing,” are operational, expected in late 2006, we plan to deliver crude oil production directly into the regional pipeline system, which should result in a significant improvement in sales pricing for our crude oil.

Impairment Loss

In the first quarter of 2006, we reached an agreement to dispose of our drilling rig. An impairment charge writing the value of the rig down to the estimated proceeds and reclassifying the net book value of the rig to current asset held for sale was recorded as of December 31, 2005.

Operating and Administrative Expense—Kazakhstan

For the year ended December 31, 2005, operating and administrative expense in Kazakhstan was $3.9 million, as compared to $3.6 million for the year ended December 31, 2004 and $2.5 million for the year ended December 31, 2003. The increases between years are primarily a result of increased personnel costs due to increased activity in our exploration, development and production program for the Field.

General and Administrative Expense—Houston

For the year ended December 31, 2005, general and administrative expense in Houston was $6.6 million, as compared to $2.6 million for the year ended December 31, 2004 and $2.1 million for the year ended

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December 31, 2003. The increase in 2005 from 2004 is primarily due to costs incurred for listing on the American Stock Exchange, Sarbanes-Oxley Act compliance and addition of new corporate staff, as well as the cost of stock-based compensation related to employee stock options and restricted stock grants recognized during the year. The increase in 2004 from 2003 is primarily due to increased legal costs associated with two lawsuits ongoing during the year.

Interest Expense

Interest expense, net of the capitalized portion, for the years ended December 31, 2005, 2004 and 2003 was $10.3 million, $1.4 million and $.7 million, respectively. The increase in interest expense between years is primarily due to increased debt levels between the periods, as well as the commencement of expensing interest, as opposed to capitalizing interest, on those assets which have been placed in service and are being used for their intended purpose. In addition, $4.4 million of debt discount amortization related to short-term borrowing was recognized in 2005.

Liquidity and Capital Resources

For the years ended December 31, 2005, 2004 and 2003, our on-going capital expenditures were $20.7 million, $26.1 million and $31.2 million, respectively. Our primary sources of funding have been private placements of common and preferred stock, borrowings under our credit facilities with a Kazakhstan bank and our private placement of senior secured notes due 2010 and warrants to purchase shares of common stock (as described in more detail below and in notes 5 and 6 to the notes to consolidated financial statements). The total capitalized cost attributable to the South Alibek Field as of December 31, 2005 was $230.1 million, which includes $12.5 million of capitalized interest.

In February 2002, Caspi Neft entered into a credit facility with a Kazakhstan bank that provided for borrowings totaling $20.0 million with an interest rate of 15% and a fee of 0.5% per annum on the unutilized portion of the commitment. The original maturity date was February 2005; however, the terms were renegotiated to allow for deferral of all principal and interest payments until the earlier of (i) the closing date of the acquisition of Bramex or (ii) December 23, 2005.

In June 2003, Caspi Neft entered into a new $30.0 million credit facility with the same Kazakhstan bank. This facility provided for borrowings up to $30.0 million with an interest rate of 15% and a commitment fee of 0.5% per annum on the unutilized portion. Upon execution of the credit facility, Caspi Neft paid the bank an arrangement fee of $300,000, which was capitalized as a deferred financing cost and was being amortized over the five-year life of the facility. Originally, the amount outstanding as of May 31, 2005 was scheduled to be repaid over 36 equal monthly installments beginning June 2005 through the final maturity date of May 31, 2008; however, those terms were renegotiated to allow for deferral of all principal and interest payments until the earlier of (i) the closing date of the acquisition of Bramex or (ii) December 23, 2005.

Both credit facilities were repaid in full in December 2005 in connection with our acquisition of Bramex and our December 2005 private placement of senior secured notes and warrants discussed below.

In November 2004, we sold 1,785.714 shares of our Series A Preferred in a private placement at a purchase price of $14,000 per share, and issued warrants to purchase up to 4,464,286 shares of our common stock at an exercise price equal to $1.55 per share. The aggregate purchase price for the Series A Preferred and the related warrants was cash consideration of $25.0 million. Proceeds from the private placement of Series A Preferred and warrants were used for general corporate purposes, including funding our development drilling program in the South Alibek Field in Kazakhstan, and to pursue growth opportunities.

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The Series A Preferred has a liquidation value of $14,000 per share and is convertible at the holders’ option into common stock at a conversion price of $1.40 per share, subject to adjustments in certain circumstances. The holders of the Series A Preferred are entitled to a quarterly dividend payable at the rate of 4.5% per annum, payable in cash. The holders of the Series A Preferred have full voting rights and powers (subject to a beneficial ownership cap as described below) equal to the voting rights and powers of the holders of our common stock, and vote together with the holders of common stock as one class. A holder of the Series A Preferred may not, unless it chooses in advance not to be governed by this limitation, convert the Series A Preferred or exercise the warrants into common stock such that the number of shares of common stock issued after the conversion would exceed, when aggregated with all other shares of our common stock owned by such holder at such time, 4.999% of our then issued and outstanding shares of common stock. So long as at least 20% of the Series A Preferred remains outstanding, we may not issue any new securities or financial instruments that rank pari passu or senior to the Series A Preferred without the approval of at least 75% of the Series A Preferred outstanding. Beginning in July 2006, the Series A Preferred will automatically convert into our common stock at the conversion price of $1.40 per share (subject to adjustments), if our common stock trades at a price greater than $4.15 per share for twenty consecutive trading days and the average daily trading volume of our common stock during such period exceeds 200,000 shares, subject to the applicable ownership limitations. In the event a holder is prohibited from converting into common stock due to the 4.999% ownership limitation, the excess portion of the Series A Preferred remains outstanding, but ceases to accrue a dividend. During 2005, 238 shares of Series A Preferred were converted into 2,380,000 shares of our common stock.

In May 2005, we borrowed an aggregate of $2,240,000 from a group of individuals pursuant to unsecured, short-term notes. The notes bore interest at 15% per annum and were repaid along with accrued interest in July and September 2005. In July 2005, we borrowed $1,000,000 from an individual pursuant to an unsecured short-term note, which bore interest at 15% per annum and was repaid with accrued interest in December 2005. In connection with these borrowings, we issued detachable warrants to purchase 420,000 shares of common stock at exercise prices ranging from $2.00 to $2.12 per share. The warrants have a three-year term.

In August 2005, we issued convertible promissory notes (the “Convertible Notes”) in the original aggregate principal amount of $22,500,000. The Convertible Notes, which bore interest at 10% per annum, were repaid in full, including accrued interest, in December 2005. We used a portion of the proceeds from our private placement of senior secured notes and warrants in December 2005 discussed below to repay the Convertible Notes.

In October 2005, one of our wholly-owned subsidiaries, Transmeridian Exploration Inc. (“TEI”), entered into a share sale and purchase agreement with Seeria Alliance Ltd. to purchase 100% of the authorized and issued shares of Bramex, the owner of 50% of Caspi Neft. In December 2005, the transaction was completed and TEI now owns, directly or indirectly, 100% of Caspi Neft. The total purchase price was $168 million, of which approximately $44 million was to repay the bank credit facilities of Caspi Neft discussed above.

In December 2005, TEI, issued in a private placement 250,000 units (the “Units”) consisting of (i) an aggregate $250 million principal amount of its senior secured notes due 2010 (the “Notes”) and (ii) warrants to purchase in the aggregate approximately 17.3 million shares of our common stock (the “Warrants”). The Units were issued and sold for a purchase price of $1,000 per Unit. Each Unit consists of $1,000 principal amount of Notes and 69.054 Warrants to purchase an equal number of shares of our common stock. The Notes, which will mature on December 15, 2010, bear interest at the rate of 12% per annum. Interest on the Notes is payable quarterly on March 15, June 15, September 15 and December 15, beginning on March 15, 2006, and at maturity. The first year of interest payments have been escrowed and are recorded as restricted cash on the consolidated balance sheet as of December 31, 2005.

The Notes are secured by first priority pledges of all the capital stock of TEI and of all of our other material subsidiaries. In addition, the Notes are fully and unconditionally guaranteed by us and all of our other material subsidiaries other than TEI. The Notes contain provisions that limit our ability to enter into transactions with affiliates; pay dividends or make other restricted payments; incur debt; create, incur or assume liens; sell assets;

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and consolidate, merge or transfer all or substantially all of our assets. We are required to offer to repurchase the Notes in connection with certain specified change of control events. The Notes are subject to redemption, in whole or in part, at our option at any time on or after December 15, 2008 at redemption prices starting at 106% of the principal amount redeemed and declining to 100% by June 15, 2010. Prior to December 15, 2008, we may redeem up to 35% of the Notes with proceeds of certain equity offerings at a specified redemption price.

We used the net proceeds from the private placement of the Units of $237.4 million, after expenses, to fund the acquisition of Bramex, to retire the existing bank credit facility indebtedness of Caspi Neft, to repay the Convertible Notes and related accrued interest and to pre-fund the first year of interest payments of $30 million on the Notes. In addition, in December 2005, we entered into a purchase agreement with Kornerstone Investment Group Ltd. (“Kornerstone”) pursuant to which we acquired the 10% carried working interest in the South Alibek Field held by Kornerstone for $15.25 million in cash and one million shares of our common stock. The cash portion of the purchase price obligation was funded from the net proceeds of the placement of Units.

Management expects cash flow from operations to increase throughout 2006 and, together with the excess proceeds from the private placement of Units discussed above, to provide a portion of the funds needed to further develop the field and repay debt. Such cash flow is dependent upon many factors, such as achieving and sustaining adequate production rates, oil prices and other factors which may be beyond the our control.

The following table presents our future contractual obligations, which consist of long-term debt and lease commitments:

	2005		2006		2007		2008		Thereafter
Long-term debt(1)	$	—	$	—	$	—	$	—	$	250,000,000
Lease commitments(2)		273,324		76,126		—		—		349,540
Total contractual obligations	$	273,324	$	76,126	$	—	$	—	$	250,349,540

⁽¹⁾ See note 5 to the Notes to the Consolidated Financial Statements.

⁽²⁾ See note 8 to the Notes to the Consolidated Financial Statements.

Critical Accounting Policies and Recent Accounting Pronouncements

We have identified the policies below as critical to our business operations and the understanding of our financial statements. The impact of these policies and associated risks are discussed throughout Management’s Discussion and Analysis where such policies affect our reported and expected financial results. A complete discussion of our accounting policies is included in note 1 of the Notes to Consolidated Financial Statements.

Principles of Consolidation

The consolidated financial statements include our accounts and our majority-owned or controlled subsidiaries and are prepared in accordance with generally accepted accounting principles in the United States. All significant intercompany transactions and balances have been eliminated in consolidation. The assets and results of operations of Caspi Neft represent substantially all of our consolidated assets and operations.

We continued to exercise significant control over Caspi Neft after Bramex exercised its option to acquire 50% of Caspi Neft in February 2004 and accordingly, believed the most meaningful accounting treatment was to fully consolidate Caspi Neft with the 50% share owned by Bramex reflected as a minority interest. To exercise its option, Bramex contributed $15.0 million in cash to Caspi Neft, the proceeds of which were used by Caspi Neft to retire debt. The difference between the $15.0 million of capital contributed to Caspi Neft and 50% of the book equity of Caspi Neft after such capital contribution represents an excess purchase price paid by Bramex of $6.0 million. This amount was included in additional paid-in capital on the accompanying 2004 consolidated balance sheet.

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Oil and Gas Reserve Information

The information regarding our oil and gas reserves, the changes thereto and the estimated future net cash flows are dependent upon engineering, price and other assumptions used in preparing our annual reserve study. A qualified independent petroleum engineer was engaged to prepare the estimates of our oil and gas reserves in accordance with applicable engineering standards and in accordance with Securities and Exchange Commission guidelines. Changes in prices and cost levels, as well as the timing of future development costs, may cause actual results to vary significantly from the data presented. Our oil and gas reserve data represent estimates only and are not intended to be a forecast or fair market value of our assets.

Our oil and gas reserve data and estimated future net cash flows have been prepared assuming we execute a commercial production contract with the Kazakhstan government, which will allow production for the expected 25-year term of the contract. The estimate of the royalty used in this report is a sliding scale based on annual production over the 25-year term, based on the provisions of the final production contract that is awaiting approval from the Kazakhstan government. Based on the forecast annual production, the government royalty rate is between 2.0% to 2.2%, with the royalty rate capped at 5%. If we are not successful in obtaining final government approval of the production contract, it will materially change our oil and gas reserve data and estimated future net cash flows.

Successful Efforts Method of Accounting

We follow the successful efforts method of accounting for our investments in oil and gas properties, as more fully described in Note 1 of the Notes to Consolidated Financial Statements. This accounting method has a pervasive effect on our reported financial position and results of operations.

Capitalized Interest Costs

We capitalize interest costs on oil and gas projects under development, including the costs of unproved leasehold and property acquisition costs, wells in progress and related facilities. We also capitalized interest on our drilling rig during the time it was being prepared for its intended use. During the year ended December 31, 2005, 2004 and 2003, we capitalized $2.5 million, $4.5 million and $4.2 million, respectively, of interest costs, which reduced our reported net interest expense to $10.3 million, $1.4 million and $772,409 respectively. Since a significant portion of our financial resources has been dedicated to the exploration and development of our Kazakhstan property, since 2001, the resulting interest capitalized has been significant. This capitalized interest becomes part of the capitalized costs of our properties which will be amortized as a part of depreciation, depletion and amortization or charged to expense if the results of our drilling should prove unsuccessful.

Recent Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued the revised SFAS No. 123, Share-Based Payment (“SFAS No. 123(R)”). SFAS 123(R) is a revision of SFAS No. 123 and supersedes APB No. 25. SFAS 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured at each reporting date through the settlement date. Compensation cost will be recognized over the period that an employee provides services in exchange for the award. We had previously adopted SFAS No. 123, and, the adoption of SFAS 123(R) on January 1, 2006 is not expected to have a material effect on our consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Internal Financial Statements, and changes the requirements for the accounting for and

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reporting of a change in accounting principle. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted SFAS No. 154 on January 1, 2006. Any impact on our consolidated results of operations and earnings per share will be dependent on the amount of any accounting changes or corrections of errors whenever recognized.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Oil Prices

Our future success is dependent on our being able to transport and market our production either within Kazakhstan or preferably through export to international markets. Crude oil prices are subject to significant volatility in response to changes in supply, market uncertainty and a variety of other factors beyond our control. The majority of our sales of crude oil prior to June 2005 were based on prevailing local market prices at the time of sale.

Interest Rate Risk

At December 31, 2005, we had long-term debt outstanding of $223.4 million, net of discount of $26.6 million. The debt bears interest at a fixed rate of 12% per annum and the first year’s interest payments have been escrowed.

Foreign Currency Risk

Our functional currency is the U.S. dollar. The financial statements of our foreign subsidiaries are measured in U.S. dollars. Accordingly, transaction costs for the conversion to various currencies for foreign operations are recognized in earnings at the time of each transaction.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

This report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact included or incorporated by reference in this report, including, without limitation, statements regarding our future financial position, business strategy, budgets, projected revenues, projected costs and plans and objectives of management for future operations, are forward-looking statements, In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “will,” “expect,” “intend,” “project,” “estimate,” “anticipate,” “believe,” or “continue” or the negative thereof or variations thereon or similar terminology. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Important factors that could cause actual results to differ materially from our expectations (“cautionary statements”) include, but are not limited to, our assumptions about energy markets, production levels, reserve levels, operating results, competitive conditions, technology, the availability of capital resources, capital expenditure obligations, the supply and demand for oil, natural gas and other products or services, the price of oil, natural gas and other products or services, currency exchange rates, the weather, inflation, the availability of goods and services, drilling risks, future processing volumes and pipeline throughput, general economic and political conditions, either internationally or nationally or in the jurisdictions in which we or our subsidiaries are doing business, legislative or regulatory changes, including changes in environmental regulation, environmental risks and liability under federal, state and foreign environmental laws and regulations, the securities or capital markets and other factors disclosed under “Item 2. Properties—Proved Reserves,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Item 7A. Quantitative and

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Qualitative Disclosures About Market Risk” and elsewhere in this report. All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements. We assume no duty to update or revise our forward-looking statements based on changes in internal estimates or expectations or otherwise.

Item 8. Financial Statements and Supplementary Data

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firms	27
Consolidated Balance Sheet as of December 31, 2005 and 2004	28
Consolidated Statement of Operations for the Years Ended December 31, 2005, 2004 and 2003	29
Consolidated Statement of Stockholders’ Equity for the Years Ended December 31, 2005, 2004 and 2003	30
Consolidated Statement of Cash Flows for the Years Ended December 31, 2005, 2004 and 2003	31
Notes to Consolidated Financial Statements	33

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REPORTS OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS

To the Board of Directors and Stockholders

Transmeridian Exploration Incorporated and Subsidiaries

Houston, Texas

We have audited the accompanying consolidated balance sheet of Transmeridian Exploration Incorporated and subsidiaries (“the Company”) as of December 31, 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Transmeridian Exploration Incorporated and subsidiaries as of December 31, 2005, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of December 31, 2005, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO criteria”) and our report dated March 16, 2006 expressed an unqualified opinion on management’s assessment that the Company did not maintain effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria, and because of the effects of the material weakness described therein, Transmeridian Exploration Incorporated has not maintained effective internal control over financial reporting as of December 31, 2005, based on the COSO criteria.

/s/ UHY MANN FRANKFORT STEIN & LIPP CPAs, LLP

Houston, Texas

March 16, 2006

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors

Transmeridian Exploration, Inc. and Subsidiaries

We have audited the accompanying consolidated balance sheets of Transmeridian Exploration, Inc. and Subsidiaries as of December 31, 2004, and the related consolidated statements of operations, stockholders’ equity and cash flows for each of the years in the two year period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of Public Company Accounting Oversight Board (United States of America). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Transmeridian Exploration Inc. and Subsidiaries at December 31, 2004 and 2003 and the consolidated results of their operations and cash flows for each of the years in the three year period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

By:	/S/    JOHN A. BRADEN & COMPANY, P.C.
	John A. Braden & Co., P.C.

Houston, Texas

March 14, 2005

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TRANSMERIDIAN EXPLORATION INCORPORATED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEET

	December 31,
	2005			2004
ASSETS
Current Assets:
Cash and cash equivalents	$	34,443,457		$	16,746,137
Restricted cash		31,960,491			—
Accounts receivable		3,623,399			3,644,891
Crude oil inventory		1,625,934			192,465
Other current assets		51,264			75,850
Asset held for sale		3,000,000			8,545,897
Total current assets		74,704,545			29,205,240
Property and Equipment:
Oil and gas properties, successful efforts method		230,139,394			71,048,574
Transportation equipment		239,821			239,821
Office and technology equipment		339,580			291,305
Total property and equipment		230,718,795			71,579,700
Less accumulated depreciation, depletion and amortization		3,903,446			1,190,791
Property and equipment, net		226,815,349			70,388,909
Other assets, net		12,473,536			216,111
	$	313,993,430		$	99,810,260
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	31,869,443		$	7,137,016
Current maturities of long-term debt		—			12,005,208
Accrued interest payable		1,583,333			6,132,477
Deferred revenue		—			192,465
Preferred dividends payable		244,003			154,110
Notes payable to related parties		—			50,000
Total current liabilities		33,696,779			25,671,276
Long-term debt, net of discount of $26,592,924 at December 31, 2005		223,407,076			23,682,999
Other long term liabilities		186,000			186,000
Minority interest		—			7,924,558
Stockholders’ Equity:
Preferred stock, $0.0006 par value per share, 5,000,000 shares authorized, 1,547.714 and 1,785.714 issued and outstanding		1			1
Common stock, $0.0006 par value per share, 200,000,000 shares authorized 87,128,021 and 79,829,062 issued and outstanding		52,277			47,897
Additional paid-in capital		94,336,744			58,361,256
Accumulated deficit		(37,685,447	)		(16,063,727	)
Total stockholders’ equity		56,703,575			42,345,427
	$	313,993,430		$	99,810,260

The accompanying notes are an integral part of these financial statements.

30

TRANSMERIDIAN EXPLORATION INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF OPERATIONS

	Year ended December 31,
	2005			2004			2003
Revenue from oil sales	$	8,442,787		$	3,922,990		$	797,411
Operating costs and expenses:
Exploration expense		9,470			130,926			592,553
Depreciation, depletion and amortization		3,384,893			788,758			245,712
Transportation expense		321,313			154,993			235,264
Impairment loss on drilling rig		4,022,015			—			—
Operating and administrative expense—Kazakhstan		3,896,332			3,591,529			2,503,674
General and administrative expense—Houston		6,631,490			2,562,033			2,135,237
Total operating costs and expenses		18,265,513			7,228,239			5,712,440
Operating loss		(9,822,726	)		(3,305,249	)		(4,915,029	)
Other income (expense):
Interest income		337,815			34,242			870
Interest expense, net of capitalized interest		(10,344,217	)		(1,400,227	)		(772,409	)
Total other income (expense)		(10,006,402	)		(1,365,985	)		(771,539	)
Loss before minority interest		(19,829,128	)		(4,671,234	)		(5,686,568	)
Minority interest income (expense)		(711,558	)		823,053			—
Net loss		(20,540,686	)		(3,848,181	)		(5,686,568	)
Preferred dividends		(1,081,034	)		(154,110	)		(19,736	)
Net loss attributable to common stockholders	$	(21,621,720	)	$	(4,002,291	)	$	(5,706,304	)
Basic and diluted loss per share	$	(0.26	)	$	(0.05	)	$	(0.09	)
Weighted average common shares outstanding, basic and diluted		82,004,175			78,615,433			64,573,627

The accompanying notes are an integral part of these financial statements.

31

TRANSMERIDIAN EXPLORATION INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

	Preferred Stock					Common Stock			Additional Paid-In Capital			Accumulated Deficit			Total
	Shares		Amount			Shares (000’s)	Amount
Balance December 31, 2002	3,000		$	2		59,147	$	35,488	$	10,201,625		$	(6,355,132	)	$	3,881,983
Conversion of preferred stock	(3,000	)		(2	)	1,546		928		56,329			—			57,255
Common stock issued for services	—			—		5,320		3,192		830,075			—			833,267
Proceeds from the sale of common stock, net of offering costs	—			—		3,333		2,000		998,000			—			1,000,000
Common stock used to retire debt	—			—		1,327		796		295,421			—			296,217
Stock-based compensation	—			—		—		—		122,800			—			122,800
Issuance of warrants in connection with services	—			—		—		—		21,000			—			21,000
Convertible preferred stock dividends	—			—		—		—		—			(19,736	)		(19,736	)
Net loss	—			—		—		—		—			(5,686,568	)		(5,686,568	)
Balance December 31, 2003	—			—		70,673		42,404		12,525,250			(12,061,436	)		506,218
Exercise of warrants	—			—		358		214		(214	)		—			—
Issuance of common stock to retire debt	—			—		800		480		703,520			—			704,000
Proceeds from the sale of common stock, net of offering costs	—			—		7,268		4,361		4,377,689			—			4,382,050
Proceeds from the sale of preferred stock, net of offering costs	1,786			1		—		—		20,762,056			—			20,762,057
Issuance of warrants in connection with sale of preferred stock sale	—			—		—		—		2,678,570			—			2,678,570
Stock-based compensation	—			—		730		438		395,851			—			396,289
Private placement termination fee	—			—		—		—		200,000			—			200,000
Elimination of minority interest	—			—		—		—		16,718,534			—			16,718,534
Convertible preferred stock dividends	—			—		—		—		—			(154,110	)		(154,110	)
Net loss	—			—		—		—		—			(3,848,181	)		(4,002,291	)
Balance December 31, 2004	1,786			1		79,829		47,897		58,361,256			(16,063,727	)		42,345,427
Exercise of warrants	—			—		1,757		1,054		2,762,112			—			2,763,166
Proceeds from the sale of common stock	—			—		882		529		1,790,252			—			1,790,781
Conversion of preferred stock	(238	)		—		2,380		1,428		(1,428	)		—			—
Issuance of warrants in connection with debt offerings	—			—		—		—		31,520,394			—			31,520,394
Stock-based compensation	—			—		1,609		966		2,089,363			—			2,090,329
Preferred stock registration costs	—			—		—		—		(2,312,500	)		—			(2,312,500	)
Exercise of stock options	—			—		671		403		127,295			—			127,698
Convertible preferred stock dividends	—			—		—		—		—			(1,081,034	)		(1,081,034	)
Net loss	—			—		—		—		—			(20,540,686	)		(20,540,686	)
Balance December 31, 2005	1,548		$	1		87,128	$	52,277	$	94,336,744		$	(37,685,447	)	$	56,703,575

The accompanying notes are an integral part of these financial statements.

32

TRANSMERIDIAN EXPLORATION INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS

	Year ended December 31,
	2005			2004			2003
Operating Activities:
Net loss	$	(20,540,686	)	$	(3,848,181	)	$	(5,686,568	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation, depletion and amortization		3,384,893			788,758			245,712
Amortization of debt financing costs		1,114,930			193,332			184,166
Debt discount amortization		4,633,470			—			—
Impairment charge		4,022,015			—			—
Amortization of prepaid contracts		—			61,250			411,355
Stock-based compensation expense		2,090,329			396,289			122,800
Exploration expense		—			130,926			277,012
Stock issued for services		—			—			285,299
Minority interest (income) expense		711,558			(823,053	)		—
Increase in receivables		(1,978,508	)		(3,501,756	)		(49,465	)
Decrease in prepaid expenses		24,586			18,149			89,392
Increase in crude oil inventory		(1,625,934	)		—			—
Increase in accounts payable and accrued liabilities		1,361,311			732,738			40,687
Increase (decrease) in interest payable		(4,549,144	)		(4,253,422	)		424,920
Net cash used in operating activities		(11,351,180	)		(10,104,970	)		(3,654,690	)
Investing Activities:
Capital expenditures		(20,703,352	)		(17,647,162	)		(23,574,311	)
Acquisitions		(123,999,769	)		—			—
Increase in other assets.		—			—			(65,997	)
Net cash used in investing activities		(144,703,121	)		(17,647,162	)		(23,640,308	)
Financing Activities:
Proceeds from long-term debt		250,000,000			16,891,972			28,807,214
Repayments of long-term debt		(35,350,037	)		(16,539,868	)		(1,515,509	)
Proceeds from short-term borrowings		25,740,000			—			—
Repayments of short-term borrowings		(25,740,000	)		—			—
Decrease in notes payable to related parties		(50,000	)		(198,025	)		—
Payment of deferred financing costs		(12,578,355	)		—			(300,000	)
Payment of dividends on preferred stock		(991,142	)		—			—
Proceeds from sale of stock by Caspi Neft		—			15,000,000			—
Proceeds from sale of common stock, net		1,790,781			4,582,050			1,000,000
Proceeds from sale of preferred stock		—			23,440,626			—
Proceeds from exercise of stock options		127,700			—			—
Proceeds from exercise of warrants		2,763,165			—			—
Increase in restricted cash		(31,960,491	)		—			—
Net cash provided by financing activities		173,751,621			43,176,755			27,991,705
Net increase in cash and cash equivalents		17,697,320			15,424,623			696,707
Cash and cash equivalents, beginning of year		16,746,137			1,321,514			624,807
Cash and cash equivalents, end of year	$	34,443,457		$	16,746,137		$	1,321,514

The accompanying notes are an integral part of these financial statements.

33

TRANSMERIDIAN EXPLORATION INCORPORATED AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CASH FLOWS—SUPPLEMENTAL INFORMATION

	Year ended December 31,
	2005			2004			2003
Cash paid for:
Interest	$	11,642,884		$	4,864,749		$	187,613
Interest capitalized (non-cash)		(2,497,923	)		(4,519,759	)		(4,164,694	)
Income taxes		—			—			—
Non-cash investing and financing transactions:
Issuance of warrants in connection with debt	$	31,250,394		$	—		$	—
Accrual for acquisition of carried working interest		20,250,000			—			—
Accrued and unpaid dividends on convertible preferred stock		244,003			154,110			19,736
Exchange of convertible preferred stock for common stock		1,428			—			2
Issuance of common stock for services		—			—			833,267
Issuance of common stock to retire debt		—			704,000			296,217
Settlement of drilling rig dispute		—			(2,345,188	)		—
Assumption of note payable on drilling rig		—			3,393,158			—
Issuance of warrants in connection with services		—			1,004,464			21,000
Other long term liabilities		—			—			186,000

The accompanying notes are an integral part of these financial statements

34

TRANSMERIDIAN EXPLORATION INCORPORATED AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1—Organization and Summary of Significant Accounting Policies

Transmeridian Exploration Incorporated (the “Company”) was incorporated in the State of Delaware in April 2000. The Company is engaged in the business of acquiring, developing and producing oil and gas with its activities primarily focused on the Caspian Sea region of the former Soviet Union. The Company’s primary oil and gas property is the South Alibek Field (“South Alibek” or the “Field”) in the Republic of Kazakhstan covered by License 1557 (the “License”) and the related exploration contract with the government of Kazakhstan.

The Company’s operations in Kazakhstan are conducted through the now wholly-owned subsidiary, JSC Caspi Neft TME (“Caspi Neft”), an open joint stock company organized under the laws of Kazakhstan. In February 2004, Bramex Management, Inc. (“Bramex”) exercised its option to acquire 50% of the issued and outstanding shares of Caspi Neft. In December 2005, the Company acquired all of the issued and outstanding shares of Bramex and, thus, the Company owns 100% of Caspi Neft.

Principles of Consolidation and Reporting

The consolidated financial statements include the accounts of the Company and its majority-owned and controlled subsidiaries and are prepared in accordance with generally accepted accounting principles in the United States. All significant intercompany transactions and balances have been eliminated in consolidation. The assets and results of operations of Caspi Neft represent substantially all of the consolidated assets and operations of the Company.

The Company continued to exercise significant control over Caspi Neft after Bramex exercised its option to acquire 50% of Caspi Neft in February 2004 and accordingly, believed the most meaningful accounting treatment was to fully consolidate Caspi Neft with the 50% share owned by Bramex reflected as a minority interest. To exercise its option, Bramex contributed $15.0 million in cash to Caspi Neft, the proceeds of which were used by Caspi Neft to retire debt. The difference between the $15.0 million of capital contributed to Caspi Neft and 50% of the book equity of Caspi Neft after such capital contribution represents an excess purchase price paid by Bramex of $6.0 million. This amount was included in additional paid-in capital on the accompanying 2004 consolidated balance sheet.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and judgments on historical experience and on other information and assumptions that are believed to be reasonable under the circumstances. Estimates and judgments about future events and their effects cannot be perceived with certainty; accordingly, these estimates may change as additional information is obtained, as more experience is acquired, as the Company’s operating environment changes and as new events occur. While it is believed that such estimates are reasonable, actual results could differ materially from those estimates. Estimates are used for, but not limited to, determining the following: inventory valuation, recoverability of long-lived assets, useful lives and oil and gas reserves used in depreciation, depletion, and amortization, income taxes and related valuation allowances and insurance, environmental and legal accruals.

Revenue Recognition

The Company sells its production both in the export and domestic market on a contract basis. Revenue is recorded when the purchaser takes delivery of the oil. At the end of the period, oil that has been produced but not

35

sold is recorded as inventory at the lower of cost or market. Cost is determined on a weighted average basis based on production costs.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with an original maturity of three months or less to be cash equivalents. Certain of the Company’s cash balances are maintained in foreign banks which are not covered by deposit insurance. The cash balances in the Company’s U.S. accounts may exceed federally insured limits. Cash that is escrowed for specific purposes such as interest payments is shown as restricted cash in the accompanying consolidated balance sheet.

Property and Equipment

The Company follows the “successful efforts” method of accounting for its costs of acquisition, exploration and development of oil and gas properties.

Oil and gas lease acquisition costs are capitalized when incurred. Unproved properties with significant acquisition costs are assessed quarterly on a property-by-property basis, and any impairment in value is recognized. Unproved properties with acquisition costs which are not individually significant are aggregated, and the portion of such costs estimated to be nonproductive, based on historical experience, is amortized over the average holding period. If the unproved properties are determined to be productive, the appropriate related costs are transferred to proved oil and gas properties. Lease rentals are expensed as incurred.

Oil and gas exploration costs, other than the costs of drilling exploratory wells, are charged to expense as incurred. Such costs include seismic expenditures and other geological and geophysical costs. The costs of drilling exploratory wells are capitalized pending determination of whether they have discovered proved commercial reserves. If proved commercial reserves are not discovered, exploratory drilling costs are expensed. Costs to develop proved reserves are capitalized, including the costs of all development wells and related equipment used in the production of crude oil and natural gas.

Depreciation, depletion and amortization of the costs of proved oil and gas properties is computed using the unit-of-production method based upon estimated proved reserves. Estimated future restoration and abandonment costs, if any, will be recognized as incurred as the Company does not have an ownership interest in the South Alibek Field and all property reverts to the government of Kazakhstan at the end of the License period. The Company does not have any legal obligations associated with the retirement of long-lived assets.

The Company reviews its oil and gas properties for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. The determination of recoverability is based on comparing the estimated undiscounted future net cash flows at a producing field level to the unamortized capitalized cost of the asset. If the future undiscounted cash flows, based on the Company’s estimates of anticipated production from proved reserves and future crude oil and natural gas prices and operating costs, are lower than the unamortized capitalized cost, the capitalized cost is reduced to fair value. Fair value is calculated by discounting the future cash flows at an appropriate risk-adjusted discount rate.

In December 2001, the Company purchased a drilling rig that, beginning in October 2002, was used in the development of the South Alibek Field. The rig was depreciated on the straight-line method over an estimated useful life of ten years and while being used for development drilling, the depreciation of the rig and related support equipment was capitalized under the successful efforts method as part of the cost of the wells. Subsequent depreciation was expensed when the rig was stacked. In the first quarter of 2006, the Company reached an agreement to dispose of the rig. In accordance with generally accepted accounting principles, an impairment charge writing the value of the rig down to the estimated net proceeds and reclassifying the net book value of the rig to current asset held for sale was recorded in the accompanying consolidated financial statements.

36

Transportation equipment and office and technology equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, which range from three to five years.

Maintenance and repairs are charged to expense as incurred. Replacements and expenditures which improve or extend the life of assets are capitalized. When assets are sold, retired or otherwise disposed of, the applicable costs and accumulated depreciation and amortization are removed from the accounts, and the resulting gain or loss is recognized.

Capitalized Interest Costs

Certain interest costs have been capitalized as part of the cost of oil and gas properties, including property acquisition costs, wells in progress and related facilities. Additionally, interest was capitalized on the drilling rig while it was being readied for its intended use. Total interest costs capitalized during the years ended December 31, 2005, 2004 and 2003 totaled $2.5 million, $4.5 million and $4.2 million, respectively.

Income Taxes

The Company accounts for income taxes using the asset and liability method. The asset and liability method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of (i) temporary differences between financial statement carrying amounts of assets and liabilities and the basis of these assets and liabilities for tax purposes and (ii) operating loss and tax credit carry-forwards for tax purposes. Deferred tax assets are reduced by a valuation allowance when management concludes that it is more likely than not that a portion of the deferred tax assets will not be realized in a future period.

Debt Financing Costs

Debt financing costs are amortized over the term of the related financing facility.

Loss per Common Share

Basic net loss per common share is calculated by dividing the net loss attributable to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net loss per common share is computed based upon the weighted average number of common shares outstanding plus the common shares which would be issuable upon the conversion or exercise of all potentially dilutive securities. Diluted net loss per share equals basic net loss per share for all periods presented because the effects of potentially dilutive securities are anti-dilutive.

Net loss attributable to common stockholders is calculated as the net loss after deductions for cumulative preferred stock dividends, whether paid or accrued.

Foreign Exchange Transactions

The Company’s functional currency is the U.S. dollar because it primarily contracts with customers, finances capital and purchases equipment and services using the U.S. dollar. Certain assets and liabilities are translated at historical exchange rates, revenues and expenses in foreign currency are translated at the average rate of exchange for the period and all translation gains or losses are reflected in the period’s results of operations.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. The Company deposits its cash and cash equivalents in high credit quality financial institutions, however amounts on deposit do exceed the maximum amount insured by the Federal Deposit Insurance Corporation.

37

Stock-Based Compensation

The Company accounts for employee stock-based compensation using the fair value method as prescribed in Statement of Financial Accounting Standards (“SFAS”) No. 123. Under this method, the Company records the fair value attributable to stock options or stock grants, based on the Black-Scholes model, and amortizes that amount to expense over the service period required to vest the options.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and long-term debt. The carrying values of cash and cash equivalents, receivables and accounts payable approximate fair value due to their short-term nature. The carrying value of long-term debt approximates its fair value based on the market interest rate of the debt instrument.

Reclassifications

Prior period amounts primarily related to the Company’s drilling rig have been reclassified to conform to the current period presentation.

New Accounting Pronouncements

In December 2004, the Financial Accounting Standards Board (“FASB”) issued the revised SFAS No. 123, Share-Based Payment (“SFAS No. 123(R)”). SFAS 123(R) is a revision of SFAS No. 123 and supersedes APB No. 25. SFAS 123(R) requires compensation costs related to share-based payment transactions to be recognized in the financial statements. With limited exceptions, the amount of compensation cost will be measured based on the grant-date fair value of the equity or liability instruments issued. In addition, liability awards will be remeasured at each reporting date through the settlement date. Compensation cost will be recognized over the period that an employee provides services in exchange for the award. The Company had previously adopted SFAS No. 123, and, the adoption of SFAS 123(R) on January 1, 2006 is not expected to have a material effect on the Company’s consolidated financial statements.

In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Internal Financial Statements, and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods’ financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company adopted SFAS No. 154 on January 1, 2006. Any impact on the Company’s consolidated results of operations and earnings per share will be dependent on the amount of any accounting changes or corrections of errors whenever recognized.

Note 2—Acquisitions

In October 2005, a wholly-owned subsidiary of the Company entered into a share sale and purchase agreement with Seeria Alliance Ltd. to purchase 100% of the authorized and issued shares of Bramex, the owner of 50% of Caspi Neft. In December 2005, the transaction was completed and the subsidiary now owns, directly or indirectly, 100% of Caspi Neft. The total consideration of $168 million, of which approximately $44 million was to pay the outstanding indebtedness of Caspi Neft, was funded from the net proceeds of the private placement of units as described in note 5.

In December 2005, the Company entered into a purchase agreement with Kornerstone Investment Group Ltd. (“Kornerstone”) pursuant to which the Company acquired the 10% carried working interest in the South Alibek Field held by Kornerstone. Pursuant to the purchase agreement, the Company paid Kornerstone a

38

purchase price consisting of $15.25 million in cash and one million shares of the Company’s common stock. The cash portion of the purchase price obligation was funded from the net proceeds of the private placement of units.

Note 3—Property and Equipment

Oil and Gas Properties

The License covering the South Alibek Field, was granted by the Republic of Kazakhstan on April 29, 1999 and originally covered 3,396 acres. In March 2000, the Company acquired the License from an unrelated third-party for $4.0 million. During 2001, based on its technical review and analysis of the probable productive area of the Field, the Company applied to the Kazakhstan Ministry of Energy and Mineral Resources to expand the area covered by the License. In November 2001, the Company’s application was approved and the License was expanded to cover an area of 14,111 acres.

The exploration contract associated with the License had a six-year term which expired in April 2005 and has been extended through April 2007, and may be extended by mutual agreement for an additional two years. The exploration contract required capital expenditures during the initial period of approximately $18.0 million, which has been satisfied. In connection with the recent two-year extension, the Company has committed to an additional work program of $30.5 million. During the primary and extended terms, the Company can produce from wells under a test program and pay a royalty of 2% to the government. The exploration contract also contains a provision which will allow the government to recover, from future revenues, approximately $4.9 million of exploration costs which were incurred prior to privatization. The final terms for the recovery of these costs will be contained in the production contract when executed, The Company has received approval from the government of Kazakhstan for a production contract covering a portion of the License area, and is currently awaiting final signature of the production contract from the Kazakhstan government.

Drilling Rig and Equipment

In December 2001, the Company purchased a drilling rig that was used in the development of the South Alibek Field beginning in October 2002. The rig was depreciated on the straight-line method over an estimated useful life of ten years and while being used for development drilling, the depreciation of the rig and related support equipment was capitalized under the successful efforts method as part of the cost of the wells. Subsequent depreciation was expensed when the rig was stacked. In the first quarter of 2006, the Company reached an agreement to dispose of the rig. An impairment charge writing the value of the rig down to the estimated net proceeds and reclassifying the net book value of the rig to current asset held for sale was recorded as of December 31, 2005. As more fully discussed in note 8, there was a legal dispute between the Company and the holder of an apparent first lien on the drilling rig that was settled in December 2005.

Note 4—Notes Payable to Related Parties

In a series of notes issued between June 2002 and November 2002, certain stockholders and related parties, including the Chief Executive Officer of the Company, loaned the Company $248,025. These notes had interest rates of 17% and were paid in full in September 2005.

Note 5—Debt

Short-Term Debt

In May 2005, the Company borrowed an aggregate of $2,240,000 from a group of individuals pursuant to unsecured, short-term notes. The notes bore interest at 15% per annum and were repaid along with accrued interest in July and September 2005. In July 2005, the Company borrowed $1,000,000 from an individual pursuant to an unsecured short-term note, which bore interest at 15% per annum and was repaid with accrued

39

interest in December 2005. In connection with these borrowings, the Company issued detachable warrants to purchase 420,000 shares of common stock at exercise prices ranging from $2.00 to $2.12 per share. The warrants have a three-year term.

In August 2005, the Company issued convertible promissory notes (the “Convertible Notes”) in the original aggregate principal amount of $22,500,000. The Convertible Notes bore interest at 10% per annum and matured on the earlier of December 15, 2005 or the closing of certain equity financings. The Convertible Notes were repaid in full, including accrued interest, in December 2005 utilizing a portion of the proceeds from the private placement of units.

Long-Term Debt

Long-term debt consists of the following:

	December 31,
	2005		2004
Senior Secured Notes due 2010, net of discount of $26,592,924	$	223,407,076	$	—
$20 million credit facility with a Kazakhstan bank		—		3,583,863
$30 million credit facility with a Kazakhstan bank		—		29,399,585
Note payable secured by drilling rig		—		2,704,759
Total long—term debt		223,407,076		35,688,207
Less current maturities		—		12,005,208
Long-term portion	$	223,407,076	$	23,682,999

Senior Secured Notes

In December 2005, a wholly-owned subsidiary of the Company issued in a private placement an aggregate of 250,000 units (the “Units”) consisting of (1) an aggregate $250 million principal amount of the subsidiary’s senior secured notes due 2010 (the “Notes”) and (2) warrants to purchase in the aggregate approximately 17.3 million shares of the Company’s common stock (the “Warrants”). The Units were issued and sold for a purchase price of $1,000 per Unit. Each Unit consists of $1,000 principal amount of Notes and 69.054 Warrants to purchase an equal number of shares of the Company’s common stock. The Notes, which will mature on December 15, 2010, bear interest at the rate of 12% per annum. Interest on the Notes is payable quarterly on March 15, June 15, September 15 and December 15 of each year, beginning on March 15, 2006, and at maturity. The first year of interest payments have been escrowed and are recorded as restricted cash on the Company’s consolidated balance sheet as of December 31, 2005. The fair value of the warrants of approximately $26,816,000 was recorded as a discount to the face amount of the Notes and will be amortized to interest expense over the life of the Notes.

The Notes are secured by first priority pledges of all the capital stock of Transmeridian Exploration Inc., the issuing wholly-owned subsidiary, and of all of the Company’s other material subsidiaries. In addition, the Notes are fully and unconditionally guaranteed by the Company and all of the Company’s other material subsidiaries. The Notes contain provisions that limit the ability of the Company and its subsidiaries to enter into transactions with affiliates; pay dividends or make other restricted payments; incur debt; create, incur or assume liens; sell assets; and consolidate, merge or transfer all or substantially all of the Company’s assets. The Company is required to offer to repurchase the Notes in connection with certain specified change of control events. The Notes are subject to redemption, in whole or in part, at the option of the Company at any time on or after December 15, 2008 at redemption prices starting at 106% of the principal amount redeemed and declining to 100% by June 15, 2010. Prior to December 15, 2008, the Company may redeem up to 35% of the Notes with proceeds of certain equity offerings at a specified redemption price.

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The Company used the proceeds from the offering of the Units of $237.4 million, after expenses, to fund the acquisition of Bramex and to retire the existing bank credit facility indebtedness of Caspi Neft, to repay $22.5 million of convertible promissory notes and to pre-fund the first year of interest payments on the Notes of $30 million.

$20 Million and $30 Million Credit Facilities

In February 2002, Caspi Neft entered into a credit facility with a Kazakhstan bank that provided for borrowings totaling $20.0 million with an interest rate of 15% and a fee of 0.5% per annum on the unutilized portion of the commitment. The original maturity date was February 2005; however, the terms were renegotiated to allow for deferral of all principal and interest payments until the earlier of (i) the closing date of the acquisition of Bramex or (ii) December 23, 2005.

In June 2003, Caspi Neft entered into a new $30.0 million credit facility with the same Kazakhstan bank. This facility provided for borrowings up to $30.0 million with an interest rate of 15% and a commitment fee of 0.5% per annum on the unutilized portion. Upon execution of the credit facility, Caspi Neft paid the bank an arrangement fee of $300,000, which was capitalized as a deferred financing cost and was being amortized over the five-year life of the facility. Originally, the amount outstanding as of May 31, 2005 was scheduled to be repaid over 36 equal monthly installments beginning June 2005 through the final maturity date of May 31, 2008; however, those terms were renegotiated to allow for deferral of all principal and interest payments until the earlier of (i) the closing date of the acquisition of Bramex or (ii) December 23, 2005.

Both credit facilities were repaid in full in December 2005 in connection with the acquisition of Bramex by a wholly-owned subsidiary of the Company and the Company’s December 2005 private placement of Units discussed above.

Note Payable Secured by Drilling Rig

In December 2001, the Company purchased a drilling rig for $5.3 million by the issuance, to the seller, of a note payable for $3.3 million and 1.0 million shares of redeemable common stock having a value at that time of $2.0 million. In July 2003, the Company was notified by the holder of an apparent first lien on the rig that the seller was in default under its note payable obligation to the lienholder. The Company was not informed of the existence of the prior lienholder by the seller of the rig. The note payable was in dispute as a result of the seller’s apparent default to the lienholder. The Company held discussions with the lienholder with the intent to resolve the seller’s default by making certain payments directly to the lienholder. The Company made installment payments to the lienholder totaling $688,400 during 2003. However, in December 2003, the Company ceased installment payments to the lienholder as it had not been able to reach a settlement agreement with both the seller and the lienholder. In August 2004, the Company settled its legal dispute with the seller. Pursuant to the terms of the settlement, the remaining balance due on the note of $1.6 million, plus accrued interest of $550,000, was cancelled, and the Company agreed to seek a settlement with the lienholder pursuant to which the Company would assume the obligation of the seller of the rig to the lienholder. Also under the terms of the settlement, the seller returned 200,000 shares to the Company, the remaining 800,000 shares were retained by the seller and such shares are no longer redeemable. In December 2005, the Company settled the remaining outstanding obligation to the lienholder for approximately $1.8 million, plus $120,000 for legal fees. This amount was held in escrow at December 31, 2005 and is recorded as restricted cash on the consolidated balance sheet as of December 31, 2005.

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Future maturities of long-term debt, exclusive of discount, at December 31, 2005, are as follows:

	Amount
2006	$	—
2007		—
2008		—
2009		—
2010		250,000,000
Total long-term debt	$	250,000,000

Management believes the fair value of debt at December 31, 2005 approximates its carrying value based on the market interest rate of the debt instrument.

Note 6—Stockholders’ Equity

Series A Convertible Preferred Stock

In November 2004, the Company sold 1,785.714 shares of its Series A Cumulative Convertible Preferred Stock (the “Series A Preferred”) in a private placement at a purchase price of $14,000 per share, and issued warrants to purchase up to 4,464,286 shares of the Company’s common stock at an exercise price equal to $1.55 per share. The aggregate purchase price, net of offering costs, for the Series A Preferred and the related warrants was $22.5 million, which includes the value of warrants attributable to offering cost. The proceeds from the private placement of Series A Preferred and warrants were used for general corporate purposes, including funding the Company’s development drilling program in the South Alibek Field, and to pursue growth opportunities.

The Series A Preferred has a liquidation value of $14,000 per share and is convertible at the holders’ option into common stock at a conversion price of $1.40 per share, subject to adjustments in certain circumstances. The holders of the Series A Preferred are entitled to a quarterly dividend payable at the rate of 4.5% per annum, payable in cash. The holders of the Series A Preferred have full voting rights and powers (subject to a beneficial ownership cap as described below) equal to the voting rights and powers of the holders of the Company’s common stock, and vote together with the holders of common stock as one class. A holder of the Series A Preferred may not, unless it chooses in advance not to be governed by this limitation, convert the Series A Preferred or exercise the warrants into common stock such that the number of shares of common stock issued after the conversion would exceed, when aggregated with all other shares of common stock owned by such holder at such time, 4.999% of the then issued and outstanding shares of the Company’s common stock. So long as at least 20% of the Series A Preferred remains outstanding, the Company is not permitted to issue any new securities or financial instruments that rank pari passu or senior to the Series A Preferred without the approval of at least 75% of the Series A Preferred outstanding. In July 2006, the Series A Preferred automatically converts into the common stock of the Company at the conversion price of $1.40 per share (subject to adjustments), if the common stock trades at a price equal to or greater than $4.15 per share for twenty consecutive trading days and the average daily trading volume of the Company’s common stock during such period exceeds 200,000 shares, subject to the applicable ownership limitations. In the event a holder is prohibited from converting into common stock due to the 4.999% ownership limitation, the excess portion of the Series A Preferred remains outstanding, but ceases to accrue a dividend. During 2005, 238 shares of Series A Preferred stock were converted into 2,380,000 shares of the Company’s common stock. The Company has accrued $2.3 million for costs associated with the delayed effectiveness of the required registration statement for the conversion shares.

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Common Stock Reserved for Issuance

There are 200,000,000 common shares authorized by the Company’s Amended and Restated Certificate of Incorporation and 87,128,021, 79,829,062, and 70,673,207 common shares were issued and outstanding as of December 31, 2005, 2004 and 2003, respectively. Shares of common stock reserved for issuance are summarized as follows:

	December 31,
	2005	2004
2001 Incentive Stock Option Plan	1,365,000	2,955,000
2003 Stock Compensation Plan	1,813,021	706,673
Convertible preferred stock	15,477,140	17,857,140
Warrants to purchase common stock	26,565,285	6,138,393
Total	45,220,446	27,657,206

Warrants

In connection with certain 2005 short-term borrowings from individuals, the Company issued detachable warrants to purchase 420,000 shares of common stock at exercise prices ranging from $2.00 to $2.12 per share. The warrants have a three-year term.

In connection with the Convertible Notes issued in August 2005, the Company issued detachable warrants to purchase 4,500,000 shares of the Company’s common stock at an exercise price equal to $2.40 per share. The warrants have a five-year term, and beginning six months after the closing of the issuance of the Convertible Notes, the exercise price of the warrants is subject to adjustment for issuances of common stock at a purchase price of less than the then-effective exercise price of the warrants.

The warrants issued in December 2005 as part of the Units entitle the holder to purchase one share of the Company’s common stock at an exercise price of $4.27 per share; pursuant to the warrant agreement, the exercise price of the warrants was adjusted from the initial exercise price of $4.31 per share to $4.27 per share as a result of the issuance of 1,000,000 shares of the Company’s common stock to Kornerstone in connection with the acquisition of Kornerstone’s carried working interest in the South Alibek Field discussed in Note 2. The warrant agreement contains anti-dilution provisions and the exercise price of the warrants will be adjusted upon the conversion of any shares of the Company’s outstanding Series A Preferred. The warrants will be exercisable at any time on or after the earlier of (i) December 12, 2006 or (ii) the date a registration statement covering the issuance of the warrant shares upon exercise of the warrants and resales of the warrants and the warrant shares becomes effective, subject to the accelerated exercisability exceptions with respect to dividend declarations and certain corporate events described in the warrant agreement. The warrants will expire on December 15, 2010.

2001 Incentive Stock Option Plan

The Company has a 2001 Incentive Stock Option Plan (the “Plan”) under which options to purchase 5.0 million shares of common stock may be granted to officers, board members, key employees and consultants through December 31, 2010. Under the Plan, the exercise price of each option is equal to the fair market value of the Company’s common stock on the date of grant and all options granted have a term of five years. The vesting period is determined by the Board of Directors at the date of grant.

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No stock options were granted under the Plan prior to 2003. The following table summarizes activity under the Plan for the last three years.

	Number of Shares (In thousands)		Weighted Average Exercise Price Per Share
Outstanding at December 31, 2002	—		$	—
Granted	1,740			0.25
Exercised	—			—
Forfeited	—			—
Outstanding at December 31, 2003	1,740			0.25
Granted	555			1.50
Exercised	(650	)		0.23
Forfeited	(250	)		0.22
Outstanding at December 31, 2004	1,395			0.78
Granted	1,740			1.61
Exercised	(705	)		0.31
Forfeited	(150	)		0.12
Outstanding at December 31, 2005	2,280		$	1.53
Shares exercisable at December 31
2005	833		$	1.41
2004	790		$	0.27
2003	75		$	0.24

The aggregate fair value of options granted during 2005, 2004 and 2003 was $969,900, $355,200 and $212,700, respectively, which is being amortized to expense over the vesting period in accordance with SFAS No. 123. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions: risk-free interest rates of 5%; expected lives between 1.5 and 2.5 years; and volatility of the price of the underlying common stock of 45-75%. Compensation expense of $400,920, $105,997 and $117,383 was recognized during the years ended December 31, 2005, 2004 and 2003, respectively.

The following table summarizes additional information about the Company’s stock options outstanding exercisable at December 31, 2005:

	Outstanding				Exercisable
Exercise Price	Number Outstanding (In thousands)	Weighted Average Remaining Life (In Years)	Weighted Average Exercise Price		Number Outstanding (In thousands)	Weighted Average Exercise Price
$0.24	100	2.36	$	0.24	100	$	0.24
$0.57	10	2.96		0.57	10		0.57
$1.50	430	3.88		1.50	143		1.50
$1.61	1,740	4.38		1.61	580		1.61
Total at December 31, 2005	2,280	4.19	$	1.53	833	$	1.41

2003 Stock Compensation Plan

In May 2003, the Company established its 2003 Stock Compensation Plan with the registration of 2.5 million shares under the plan. The plan was amended in May 2005 to increase the number of shares authorized for issuance to a total of 5,000,000 shares. Under the terms of the plan, such stock may be issued for

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restricted stock awards; payments of bonuses in stock; payments for services to consultants in the form of stock; employer contributions to a 401(k) plan; stock appreciation rights and warrants. Any shares issued in lieu of cash are recognized as expense based on the fair value of the shares on the date of grant. The fair value of restricted stock awards on the date of grant is amortized ratably over the vesting period. The following table summarizes the shares issued during the years ended December 31:

	2005		2004		2003
Number of shares issued		1,357,216		600,000		1,234,047
Fair value at date of grant	$	2,800,549	$	750,000	$	283,625

Note 7—Income Taxes

The Company provides for deferred taxes on temporary differences between the financial statements and tax basis of assets using the enacted tax rates that are expected to apply to taxable income when the temporary differences are expected to reverse. The Company has not recorded any deferred tax assets or income tax benefits from the net deferred tax assets for the years ended December 31, 2005, 2004 and 2003. The Company has placed a 100% valuation allowance against the net deferred tax asset because future realization of these assets is not assured.

Income before income taxes is composed of the following:

	Year ended December 31,
	2005			2004			2003
United States	$	(16,508,000	)	$	(3,185,000	)	$	(2,940,000	)
International		(4,033,000	)		(817,000	)		(2,767,000	)
	$	(20,541,000	)	$	(4,002,000	)	$	(5,707,000	)

A reconciliation of the federal statutory income tax (34%) amounts to the effective amounts is shown below:

	Year ended December 31,
	2005			2004			2003
Income tax benefit computed at statutory rates	$	(6,983,000	)	$	(1,361,000	)	$	(1,940,000	)
Effect of foreign tax rate differential		885,000			—			—
Return to provision adjustments		(5,510,000	)		—			—
Other		294,000			—			—
Adjustment to valuation allowance		11,314,000			1,361,000			1,940,000
	$	—		$	—		$	—

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At December 31, 2005, 2004 and 2003 the components of the Company’s deferred tax assets and liabilities were as follows:

	December 31,
	2005			2004			2003
Current deferred tax assets
Cost basis of assets held for sale	$	1,367,000		$	—		$	—
Accrual to cash adjustments in foreign subsidiary		1,239,000			—			—
Total current deferred tax assets		2,606,000			—			—
Noncurrent deferred tax assets
Domestic net operating loss carryforwards		7,999,000			5,614,000			2,100,000
Foreign net operating loss carryforwards		—			3,183,000			3,766,000
Foreign oil and gas exploration and development costs		6,542,000			—			—
Other		128,000			—			—
Total noncurrent deferred tax assets		14,669,000			8,797,000			5,866,000
Total deferred tax assets	$	17,275,000		$	8,797,000		$	5,866,000
Noncurrent deferred tax liabilities
Domestic property, plant, and equipment	$	(458,000	)	$	—		$	—
Foreign capitalized interest		—			(3,390,000	)		(1,853,000	)
Other		(95,000	)		—			—
Total noncurrent deferred tax liabilities		(553,000	)		(3,390,000	)		(1,853,000	)
Net deferred tax assets		16,722,000			5,407,000			4,013,000
Valuation allowance		(16,722,000	)		(5,407,000	)		(4,013,000	)
	$	—		$	—		$	—

As of December 31, 2005, the Company has estimated domestic net operating loss carryforwards of $24.6 million which will expire between 2020 and 2025. There are no foreign net operating loss carryforwards.

The change in valuation allowance is as follows:

	Year Ended December 31,
	2005		2004		2003
Balance at the beginning of the period	$	5,407,000	$	4,013,000	$	2,106,000
Current year addition		5,805,000		1,394,000		1,997,000
Return to provision adjustments		5,510,000		—		—
Balance at the end of the period	$	16,722,000	$	5,407,000	$	4,013,000

Note 8—Commitments and Contingencies

Drilling Rig Dispute

In December 2001, the Company purchased a land drilling rig for total consideration of $5.3 million, including a note payable for $3.3 million and the issuance of $2.0 million in redeemable common stock. The

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Company was not informed that the rig was subject to a lien in favor of a prior owner of the rig. Beginning in December 2003, the seller, the Company and the lienholder engaged in litigation to determine the parties’ rights and obligations with respect to the rig, the lien and payments due the seller and the lienholder. In August 2004, the Company and the seller of the rig entered into a settlement and release agreement, pursuant to which the remaining balance on the note of $1.6 million, plus accrued interest of $550,000 was cancelled, and the Company agreed to endeavor to negotiate a settlement with the lienholder pursuant to which the Company would assume the obligation of the seller of the rig to the lienholder. In December 2005, the parties engaged in a court-supervised mediation at which they agreed to settle all outstanding claims against one another. Pursuant to the settlement agreement, which was signed in February 2006, the Company paid approximately $1.8 million to the first lienholder to settle the remaining payment obligations to the lienholder, plus $120,000 for legal fees.

Former Chief Financial Officer

In May 2003, Jim W. Tucker, a former chief financial officer of the Company, filed suit in state district court in Texas against the Company in connection with his separation from service in January 2003. The suit alleged breach of an oral employment agreement. The Company took a default judgment in November 2003 in the amount of $0.9 million. In February 2005, the court granted our motion to vacate the default judgment. The plaintiff subsequently passed away in July 2005. The case may still be reinstated by the deceased’s estate prior to April 2007, and would begin as if the Company had just been served notice. The Company believes it has meritorious defenses to the allegations against it and intends to vigorously contest this matter and pursue all available legal remedies; however, the Company believes the chances that plaintiff’s estate will refile the suit to be remote.

International Commitments

The Company, through its subsidiary Caspi Neft, is subject to the terms of License 1557 and the related exploration contract covering 14,111 acres in the South Alibek Field in Kazakhstan. In connection with the exploration contract, the Company has committed to spend approximately $18.0 million on development of the Field through 2005. As of December 31, 2005, the cumulative capital expenditures which are creditable to our obligation under the Contract have exceeded the minimum contract commitment. In connection with the two-year extension granted on July 8, 2004, the Company committed to spend approximately $30.5 million from 2005 to 2007.

Purchase commitments are made in the ordinary course of business in connection with ongoing operations in the South Alibek Field.

Our operations are subject to various levels of government controls and regulations in the United States and in the Republic of Kazakhstan. It is not possible for us to separately calculate the costs of compliance with environmental and other governmental regulations as such costs are an integral part of our operations.

In the Republic of Kazakhstan, legislation affecting the oil and gas industry is under constant review for amendment or expansion. Pursuant to such legislation, various governmental departments and agencies have issued extensive rules and regulations which affect the oil and gas industry, some of which carry substantial penalties for failure to comply. These laws and regulations can have a significant impact on the industry by increasing the cost of doing business and, consequentially, can adversely affect our profitability. Inasmuch as new legislation affecting the industry is commonplace and existing laws and regulations are frequently amended or reinterpreted, we are unable to predict the future cost or impact of complying with such laws and regulations.

Environmental

The Company, as an owner and operator of oil and gas properties, is subject to various federal, state, local and foreign country laws and regulations relating to discharge of materials into, and protection of, the

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environment. These laws and regulations may impose liability on the lessee under an oil and gas lease or concession for the cost of pollution clean-up resulting from operations and also may subject the lessee to liability for pollution damages.

Lease Commitments

The Company has operating leases for office facilities and certain equipment. Net rental expense under all operating leases and rental agreements was $570,086, $546,639 and $930,698 in 2005, 2004 and 2003, respectively. The Company leases office facilities in Houston and Kazakhstan under leases greater than one year. Future minimum lease commitments under operating leases are as follows:

	Amount
2006	$	273,324
2007		76,216
2008		—
2009		—
Thereafter		—
	$	349,540

Note 9—Business Segment Information

The Company’s business activities relate solely to oil and gas exploration, development and production. The primary emphasis since its formation in 2000 has been the development of the South Alibek Field and substantially all of the Company’s assets are located in Kazakhstan. For each of the three years ended December 31, 2005 substantially all of the Company’s results of operations consisted of revenues, operating, general and administrative, and other costs associated with its operations in Kazakhstan.

For the year ended December 31, 2005, two customers accounted for approximately 38% and 37%, respectively, of consolidated revenues. For the year ended December 31, 2004, two customers accounted for approximately 57% and 28%, respectively, of consolidated revenues. One customer accounted for 100% of consolidated revenues for the year ended December 31, 2003.

Note 10—Supplemental Financial Information

Other Assets

Other assets at December 31, 2005 and 2004, consisted of debt financing costs, net of amortization, of $12,473,536 and $216,111, respectively.

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consisted of the following:

	December 31,
	2005		2004
Accounts payable	$	419,456	$	152,158
Salaries and bonus		1,032,357		12,458
Preferred stock registration costs		2,035,000		—
Acquisition costs		21,450,000		—
Rig lawsuit settlement		1,960,491		446,482
Rig rentals		2,737,722		1,446,587
Oil and gas properties costs		1,826,554		3,893,727
Other		407,863		1,185,604
Total accounts payable and accrued liabilities	$	31,869,443	$	7,137,016

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Note 11—Subsidiary Guarantors

In December 2005, Transmeridian Exploration Inc., a wholly-owned subsidiary of the Company (the “Issuer”), issued an aggregate of 250,000 Units, consisting of (i) an aggregate $250 million principal amount of senior its secured notes due 2010 and (ii) warrants to purchase approximately 17.3 million shares of the Company’s common stock. The Company and all material subsidiaries of the Company fully and unconditionally guaranteed the senior secured notes. Prior to the Units offering, the Company financed its operations primarily through borrowings from banks in Kazakhstan or other private sources. As previously disclosed in 2005 and prior years, substantially all of the Company’s assets are located in Kazakhstan. For each of the three years ended December 31, 2005, substantially all of the results of operations consisted of revenue, operating, general and administrative and other costs associated with the operations of its subsidiary, Caspi Neft, in Kazakhstan. Accordingly, there was no requirement for condensed consolidating financial information and the results for 2004 and 2003 are not presented herein due to lack of comparability and the information is not material for evaluation of the sufficiency of the guarantee and the omission of the information does not cause the financials to be inaccurate in reasonable detail.

The following is condensed consolidating financial information for the Company, the Issuer and the subsidiary guarantors of the senior secured notes:

Condensed Consolidating Balance Sheet

	December 31, 2005
	Parent		Issuer			Subsidiary Guarantors		Eliminations			Consolidated
Cash and cash equivalents	$	21,147,921	$	45,250,000		$	6,027	$	—		$	66,403,948
Other current assets		2,764,674		—			5,535,923		—			8,300,597
Total current assets		23,912,595		45,250,000			5,541,950		—			74,704,545
Property and equipment, net		305,657		—			226,509,692		—			226,815,349
Investment in and advances to subsidiaries		100		9,082,519			—		(9,082,619	)		—
Other assets		—		32,973,536			—		(20,500,000	)		12,473,536
Total Assets	$	24,218,352	$	87,306,055		$	232,051,642	$	(29,582,619	)	$	313,993,430
Total current liabilities	$	5,759,807	$	23,328,142		$	4,608,830	$	—		$	33,696,779
Debt		—		223,407,076			31,000,000		(31,000,000	)		223,407,076
Other long-term liabilities		—		—			186,000		—			186,000
Stockholder’s equity		18,458,545		(159,429,163	)		196,256,812		1,417,381			56,703,575
Total Liabilities	$	24,218,352	$	87,306,055		$	232,051,642	$	(29,582,619	)	$	313,993,430

Condensed Consolidating Statements of Operations

	Year Ended December 31, 2005
	Parent			Issuer			Subsidiary Guarantors			Consolidated
Revenue	$	—		$	—		$	8,442,787		$	8,442,787
Operating costs and expenses		11,099,038			—			7,166,475			18,265,513
Operating income (loss)		(11,099,038	)		—			1,276,312			(9,822,726	)
Other expense		(5,408,632	)		(2,411,623	)		(2,186,147	)		(10,006,402	)
Minority interest expense		—			—			(711,558	)		(711,558	)
Net loss		(16,507,670	)		(2,411,623	)		(1,621,393	)		(20,540,686	)
Preferred dividends		(1,081,034	)		—			—			(1,081,034	)
Net loss attributable to common stockholders	$	(17,588,704	)	$	(2,411,623	)	$	(1,621,393	)	$	(21,621,720	)

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Condensed Consolidating Statements of Cash Flow

	Year Ended December 31, 2005
	Parent			Issuer		Subsidiary Guarantors			Consolidated
Net cash used in operating activities	$	(4,371,558	)	$	1,456,366	$	(8,435,988	)	$	(11,351,180	)
Net cash used in investing activities		(17,322	)		—		(144,685,799	)		(144,703,121	)
Net cash provided by financing activities		12,916,826			13,793,634		147,041,161			173,751,621
Net increase (decrease) in cash		8,527,946			15,250,000		(6,080,626	)		17,697,320
Cash and cash equivalents, beginning of the year		10,659,484			—		6,086,653			16,746,137
Cash and cash equivalents, end of the year	$	19,187,430		$	15,250,000	$	6,027		$	34,443,457

Note 12—Supplemental Oil and Gas Disclosures

Costs Incurred

Costs incurred in oil and gas property acquisition, exploration and development activities, whether expensed or capitalized, are reflected in the table below. This schedule does not include the costs of acquiring the minority interest in Caspi Neft and the carried working interest of approximately $138,314,000 or the costs of the drilling rig which was purchased and modified for use in the Company’s development activities in Kazakhstan. Costs incurred for the drilling rig were $444,000 in 2003.

	Kazakhstan		United States		Total
Year ended December 31, 2005
Acquisition costs of properties:
Proved	$	—	$	—	$	—
Unproved		—		—		—
Exploration costs		9,470		—		9,470
Development costs		24,599,684		—		24,599,684
Capitalized interest		2,497,923		—		2,497,923
Total	$	27,107,077	$	—	$	27,107,077
Year ended December 31, 2004
Acquisition costs of properties:
Proved	$	—	$	—	$	—
Unproved		—		—		—
Exploration costs		3,477,336		—		3,477,336
Development costs		18,651,179		—		18,651,179
Capitalized interest		4,519,759		—		4,519,759
Total	$	26,648,274	$	—	$	26,648,274
Year ended December 31, 2003:
Acquisition costs of properties:
Proved	$	—	$	—	$	—
Unproved		—		—		—
Exploration costs		26,292,534		118,893		26,411,427
Development costs		56,255		—		56,256
Capitalized interest		4,164,694		—		4,164,693
Total	$	30,513,483	$	118,893	$	30,632,376

50

Capitalized Costs

The aggregate amount of capitalized costs related to oil and gas producing activities and the aggregate amount of the related accumulated depreciation, depletion and amortization (“DD&A”), including any accumulated valuation allowances, are reflected in the table below. These capitalized costs do not include the drilling rig which was purchased and modified for use in the Company’s development activities in Kazakhstan. Capitalized costs for the drilling rig were $3.0 million, $8.5 million and $6.5 million at December 31, 2005, 2004 and 2003, respectively.

	Kazakhstan		United States		Total
As of December 31, 2005
Proved properties	$	62,876,028	$	—	$	62,876,028
Unproved properties		167,263,366		—		167,263,366
Total oil and gas properties		230,139,394		—		230,139,394
Accumulated DD&A		3,471,351		—		3,471,351
Net oil and gas properties	$	226,668,043	$	—	$	226,668,043
As of December 31, 2004
Proved properties	$	39,487,758	$	—	$	39,487,758
Unproved properties		31,560,816		—		31,560,816
Total oil and gas properties		71,048,574		—		71,048,574
Accumulated DD&A		899,131		—		899,131
Net oil and gas properties	$	70,149,443	$	—	$	70,149,443
As of December 31, 2003
Proved properties	$	16,300,263	$	—	$	16,300,263
Unproved properties		32,483,389		16,604		32,499,993
Total oil and gas properties		48,783,652		16,604		48,800,256
Accumulated DD&A		189,635		—		189,635
Net oil and gas properties	$	48,594,017	$	16,604	$	48,610,621

Oil and Gas Reserve Information (Unaudited)

Basis of Presentation

Proved oil and gas reserve quantities are based on estimates prepared by Ryder Scott Company, independent petroleum engineers. There are numerous uncertainties in estimating quantities of proved reserves and projecting future rates of production and the timing of development expenditures. These uncertainties are greater for properties which are undeveloped or have a limited production history, such as the South Alibek Field. The following reserve data represents estimates only and actual reserves may vary substantially from these estimates. All of the Company’s proved reserves were in Kazakhstan as of December 31, 2005, 2004 and 2003. The Company’s net quantities of proved developed and undeveloped reserves of crude oil and changes therein are reflected in the table below.

As of December 31, 2005, the Company owned a 100% working interest in the South Alibek Field, subject to government royalties and an additional 3.5% net revenue interest retained by a third party in connection with the Company’s buyout of its former partners to be deducted from the remaining revenue interest. The effect of this overriding revenue interest is reflected in the calculation of the Company’s net proved reserves and future net cash flows.

As of December 31, 2005, the Company is operating under an exploration contract, which was extended by the government of Kazakhstan in July 2004 for two years ending on April 2007. Final terms for the South Alibek

51

production contract have been agreed to and the contract is waiting on final approval from the Kazakhstan government. The Company’s oil and gas reserve data and future net cash flows have been prepared assuming a commercial production contract is obtained, beginning on January 1, 2006, which will allow production for the expected 25 year term of the production contract and utilizes all the terms and costs associated with the production contract. Net revenue interest used in the report are calculated from a sliding-scale royalty payment to the Kazakhstan government during the production contract life. Based on the forecast annual production, the government royalty rate is between 2.0% to 2.2%. Royalty rate is capped at 5%.

The proved reserves as of December 31, 2005 represent the reserves that were estimated to be recovered from eight wells (South Alibek 1, 2, 3, 4, 5, 14, 15 and 17), and a total of seventeen development offsets not yet drilled. All reserves were estimated using either historical performance or volumetric methods. All direct offset well locations in this report are proved undeveloped and are based on 80 acre drainage patterns, unless current developed completions are estimated to drain an area larger than their volumetric assignment, and in these cases the reserves of certain offset locations have been reduced. All locations have a scheduled KT1 and a KT2 reservoir completion and each of these reservoir completions includes the cost of drilling a separate wellbore. Based on the separate development program for the KT1 and KT2 reservoirs, reserves assigned to the KT1 reservoir are undeveloped whereas in previous year-end estimates these reserves were developed. The associated additional costs required for a separate KT1 reservoir development program has also been included in the reserves estimate. The total primary and secondary recovery of 30% was based on analogy data from other fields. A 15% primary recovery factor was assigned to each developed and undeveloped well in the KT1 and KT2 reservoirs. A secondary recovery factor of 15% was assigned to the KT1 reservoir and to the KT2 reservoir. Based on separate primary and secondary recoveries, reserves assigned to the secondary recoveries are undeveloped whereas in previous year-end estimates these reserves were developed. The associated additional capital and operating costs required for a separate KT1 and KT2 reservoir water flood program has also been included in the reserves estimate, requiring the drilling of 25 injector wells in the KT1 reservoir and 25 injector wells in the KT2 reservoir and related surface facilities to support these programs. As of December 31, 2005, the Company had three new wells, the SA-3, SA-14, and SA-15, which have reserves assigned as behind-pipe and are forecast to start producing in the first quarter of 2006 from the KT2 reservoir. The Ryder Scott reserve estimate as of December 31, 2005 included these three wells and SA-1, SA-2, SA-5 and SA-17 as proved developed in the KT2 reservoir. SA-1 was shut-in during a workover program. The completion in SA-5 may have been damaged during a previous work-over and an undeveloped redrill has been included in the estimates to capture the volumetric reserves assigned to this location. SA-4, which has reservoir damage that prevented placing the well on production during 2005 and sixteen additional offset locations are also proved undeveloped in the KT2 reservoir.

Estimated Quantities of Net Proved Crude Oil Reserves

(Quantities in Barrels)

	December 31,
	2005		2004		2003
Net proved crude oil reserves:
Beginning of year	26,813,736		45,744,788		17,110,741
Revisions of previous estimates	(322,972	)	(521,118	)	(5,079,386	)
Extensions, discoveries and other additions	6,096,959		6,827,529		33,830,809
Revision of net interest	41,194,007		(25,085,729	)
Production	(845,108	)	(151,734	)	(117,376	)
End of year	72,936,622		26,813,736		45,744,788
Net proved developed reserves:
Beginning of year	4,476,364		7,815,861		5,695,613
End of year	3,331,580		4,476,364		7,815,861

52

Standardized Measure of Discounted Future Net Cash Flows (Unaudited)

Basis of Presentation

The standardized measure data includes estimates of oil and gas reserve volumes and forecasts of future production rates over the reserve lives. Estimates of future production expenditures, including taxes and future development costs, are based on management’s best estimate of such costs assuming a continuation of current economic and operating conditions. No provision is included for depletion, depreciation and amortization of property acquisition costs or indirect costs. Income tax expense has been computed using expected future tax rates and giving effect to tax deductions and credits available, under current laws, and which relate to oil and gas producing activities. The sales prices used in the calculation are the year-end prices of crude oil, including condensate and natural gas liquids, which as of December 31, 2005, 2004 and 2003 were $40.21, $20.09 and $12.44 per barrel, respectively. The sales prices were based on the last sales price received for December 2005, 2004 and 2003, respectively. No value was assigned to natural gas reserves, as there is not currently an established market or pipeline facilities for gas sales. Changes in prices and cost levels, as well as the timing of future development costs, may cause actual results to vary significantly from the data presented. This information is not intended to represent a forecast or fair market value of the Company’s oil and gas assets, but does present a standardized disclosure of discounted future net cash flows that would result under the assumptions used. The standardized measure of discounted future net cash flows relating to proved oil and gas reserves for 2005, 2004 and 2003 were as follows:

Standardized Measure of Discounted Future Net Cash Flows

(Amounts in Thousands)

December 31, 2005:
Future cash inflows	$	3,096,160
Future production costs		(406,539	)
Future development costs		(397,879	)
Undiscounted future net cash flows before income tax		2,291,742
10% discount for estimated timing of cash flows		(1,276,314	)
Present value of future net cash flows before income tax		1,015,428
Future income tax expense, discounted at 10%		(268,447	)
Standardized measure of discounted future net cash flows	$	746,981
December 31, 2004:
Future cash inflows	$	538,688
Future production costs		(74,001	)
Future development costs		(65,260	)
Undiscounted future net cash flows before income tax		399,427
10% discount for estimated timing of cash flows		(179,431	)
Present value of future net cash flows before income tax		219,996
Future income tax expense, discounted at 10%		(43,142	)
Standardized measure of discounted future net cash flows	$	176,854
December 31, 2003:
Future cash inflows	$	569,065
Future production costs		(74,723	)
Future development costs		(76,373	)
Undiscounted future net cash flows before income tax		417,969
10% discount for estimated timing of cash flows		(176,618	)
Present value of future net cash flows before income tax		241,351
Future income tax expense, discounted at 10%		(60,908	)
Standardized measure of discounted future net cash flows	$	180,443

53

The following table presents a reconciliation of changes in the standardized measure of discounted future net cash flows:

Changes in the Standardized Measure of Discounted Future Net Cash Flows

(Amounts in Thousands)

	Year ended December 31,
	2005			2004			2003
Standardized Measure, beginning of year	$	176,854		$	180,443		$	143,999
Sales and transfers of oil and gas produced, net of production costs		(324	)		(152	)		(397	)
Net changes in prices, development and production costs		320,930			151,644			(107,366	)
Extensions, discoveries and improved recovery, less related costs		596,505			65,492			171,513
Purchase of minerals in place		—			—			—
Development costs incurred and changes during the period		(213,411	)		17,754			(2,887	)
Revisions of previous quantity estimates		(6,948	)		(4,458	)		(30,436	)
Increase in present value due to passage of one year		21,999			24,135			20,431
Exercise of Option by Bramex		—			(203,699	)		—
Net changes in production rates and other		225,304			(36,563	)		(13,824	)
Net change in income taxes		(373,928	)		(17,742	)		(590	)
Standardized Measure, end of year	$	746,981		$	176,854		$	180,443

Note 13—Supplemental Quarterly Information (Unaudited)

The following table reflects a summary of the unaudited interim results of operations for the quarterly periods in the years ended December 31, 2005 and 2004.

	First Quarter			Second Quarter			Third Quarter			Fourth Quarter
2005
Revenue	$	1,153,739		$	2,032,310		$	3,852,122		$	1,404,616
Operating expenses		2,858,923			2,286,599			3,270,940			9,849,051
Minority interest		507,818			(355,896	)		(791,171	)		(72,309	)
Preferred dividends		277,397			280,479			279,155			244,003
Net loss attributable to common shareholders		(2,129,546	)		(1,930,106	)		(2,802,111	)		(14,759,957	)
Basic and diluted loss per share	$	(0.03	)	$	(0.02	)	$	(0.03	)	$	(0.17	)
Weighted average common shares outstanding		79,993,732			80,213,343			81,561,819			86,179,295
2004
Revenue	$	642,927		$	1,562,656		$	843,348		$	874,059
Operating expenses		1,463,781			2,235,200			1,735,301			1,793,957
Minority interest		207,379			(117,481	)		401,802			331,353
Preferred dividends		—			—			—			154,110
Net loss attributable to common shareholders		(1,028,233	)		(555,063	)		(1,293,755	)		(1,125,240	)
Basic and diluted loss per share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.01	)
Weighted average common shares outstanding		77,382,894			78,208,663			79,153,647			79,685,312

54

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A.    Controls and Procedures

Corporate Disclosure Controls

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our internal controls over financial reporting pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of the end of the period covered by this annual report. In the course of this evaluation, our management considered the material weakness in our internal control over financial reporting discussed below. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as a result of the material weakness discussed below, our disclosure controls and procedures as of December 31, 2005 were not effective in ensuring that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. To address the material weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as that term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our control environment is the foundation for our system of internal control over financial reporting and is an integral part of our Code of Business Conduct and Ethics and our Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer, which sets the tone of our company. Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

In order to evaluate the effectiveness of our internal control over financial reporting as of December 31, 2005, as required by Section 404 of the Sarbanes-Oxley Act of 2002, our management conducted an assessment, including testing, based on the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO Framework”). Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting and, based on that assessment, identified a material weakness. A material weakness is a

55

control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented or detected. The material weakness was our lack of a sufficient number of accounting staff with experience in public company SEC reporting and technical expertise to enable us to maintain adequate controls over our financial accounting and reporting processes regarding the accounting for non-routine and non-systematic transactions. This control deficiency resulted in us recording certain adjustments prior to the issuance of our consolidated financial statements.

Changes in Internal Controls

To address the issues associated with the material weakness, management has been implementing and will continue to implement changes that are both organizational and process-focused to improve the control environment. The changes made since late 2005 and through the date of this annual report include, among others:

• we appointed a new Vice President and Chief Accounting Officer, effective September 2005;

• we appointed a new Vice President, General Counsel and Secretary in January 2006;

• we retained an outside consulting firm to assist us in the evaluation and testing of our internal control system and to identify improvement opportunities related to our accounting and financial reporting processes in order to streamline and improve the efficiency of these processes; and

• we retained an outside accounting firm to assist us in the preparation of complex tax calculations and disclosures related to our public filings and to prepare tax records and returns.

These organizational and process changes have improved our internal controls environment and increased the likelihood of our identifying non-routine and non-systematic transactions. We will continue our efforts to improve our control environment and to focus on:

• improving our organizational structure to help achieve the proper number of, and quality of our, accounting and finance personnel;

• refining our period-end financial reporting processes to improve the quality and timeliness of our financial information; and

• improving our processes and systems to help ensure that our financial reporting, operational and business requirements are met in a timely manner;

UHY Mann Frankfort Stein & Lipp CPAs, LLP has issued an audit report on our management’s assessment of our internal control over financial reporting as of December 31, 2005 that follows.

56

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Transmeridian Exploration Incorporated and Subsidiaries

Houston, Texas

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting appearing in Item 9A, that Transmeridian Exploration Incorporated and subsidiaries ( “ the Company”) did not maintain effective internal control over financial reporting as of December 31, 2005, because of the effect of the material weakness identified in management’s assessment and described below, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be

57

prevented or detected. A material weakness was identified and included in management’s assessment, related to inadequate controls over the financial accounting and reporting process regarding the accounting for non-routine type transactions and activities. The Company’s lack of adequate accounting resources, in terms of size and technical expertise, was the underlying cause of this material weakness. As a result of this material weakness, the Company recorded certain adjustments prior to the issuance of its consolidated financial statements. Additionally, this material weakness could result in a material misstatement to the Company’s annual or interim consolidated financial statements that would not be prevented or detected. This material weakness was considered in determining the nature, timing, and extent of audit tests applied in our audit of the 2005 consolidated financial statements, and this report does not affect our report dated March 16, 2006 on those consolidated financial statements.

In our opinion, management’s assessment that Transmeridian Exploration Incorporated and subsidiaries did not maintain effective internal control over financial reporting as of December 31, 2005, is fairly stated, in all material respects, based on criteria established in Internal Control—Integrated Framework issued by COSO. Also, in our opinion, because of the effect of the material weakness described above on the achievement of the objectives of the control criteria, Transmeridian Exploration Incorporated and subsidiaries has not maintained effective internal control over financial reporting as of December 31, 2005, based on criteria established in Internal Control—Integrated Framework issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Transmeridian Exploration Incorporated and subsidiaries as of December 31, 2005, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the year then ended, and our report dated March 16, 2006 expressed an unqualified opinion on those consolidated financial statements.

/s/ UHY MANN FRANKFORT STEIN & LIPP CPAs, LLP

Houston, Texas

March 16, 2006

58

Item 9B. Other Information

None.

PART III

Item 10. Directors and Executive Officers of the Registrant.

The information required by Item 10 regarding our executive officers appears in a separately captioned heading after Item 4 in Part I of this report. The other information required by Item 10 is incorporated by reference to our definitive proxy statement relating to our 2006 annual meeting of stockholders, which proxy statement will be filed pursuant to Regulation 14A within 120 days after the end of the last fiscal year.

Item 11. Executive Compensation

The 2006 Proxy Statement is hereby incorporated by reference for the purpose of providing information about executive compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The 2006 Proxy Statement is hereby incorporated by reference for the purpose of providing information about security ownership of certain beneficial owners and management and related stockholder matters.

Item 13. Certain Relationships and Related Transactions

The 2006 Proxy Statement is hereby incorporated by reference for the purpose of providing information about certain relationships and related transactions.

Item 14. Principal Accounting Fees and Services

The 2006 Proxy Statement is hereby incorporated by reference for the purpose of providing information about principal accounting fees and services.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)(1) Financial Statements. Reference is made to the Index to Consolidated Financial Statements appearing under Item 8 hereof.

(a)(2), (c) Financial Statement Schedules. All financial statement schedules are omitted because they are not required under the related instructions, are inapplicable or the required information has been included in the consolidated financial statements or the accompanying notes to consolidated financial statements appearing under Item 8 hereof.

(a)(3), (b) Exhibits. Reference is made to the Exhibit Index beginning on page E-1 hereof.

59

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

TRANSMERIDIAN EXPLORATION INCORPORATED

/S/    LORRIE T. OLIVIER        

Lorrie T. Olivier

Chairman of the Board,

President and Chief Executive Officer

Date: March 16, 2006

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/S/    LORRIE T. OLIVIER         Lorrie T. Olivier	Chairman of the Board, President and Chief Executive Officer (Principal Executive Officer)	March 16, 2006
/S/    EARL W. MCNIEL         Earl W. McNiel	Vice President and Chief Financial Officer (Principal Financial Officer)	March 16, 2006
/S/    EDWARD G. BRANTLEY         Edward G. Brantley	Vice President and Chief Accounting Officer (Principal Accounting Officer)	March 16, 2006
/S/    MARVIN R. CARTER         Marvin R. Carter	Director	March 16, 2006
/S/    JAMES H. DORMAN         James H. Dorman	Director	March 16, 2006
/S/    PHILIP J. MCCAULEY         Philip J. McCauley	Director	March 16, 2006
/S/    GEORGE E. REESE         George E. Reese	Director	March 16, 2006
/S/    DR. FERNANDO J. ZÚÑIGA Y RIVERO         Dr. Fernando J. Zúñiga y Rivero	Director	March 16, 2006

S-1

EXHIBIT INDEX

Exhibit Number	Description
3.1	Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1(b) to the Company’s Registration Statement on Form SB-2 filed with the Commission as of March 15, 2001 and incorporated by reference herein)
3.2	Bylaws (filed as Exhibit 3.2 to the Company’s Registration Statement on Form SB-2 filed with the Commission as of March 15, 2001 and incorporated by reference herein)
3.3	Certificate of Designations, Rights and Preferences of Series A Cumulative Convertible Preferred Stock (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated November 12, 2004 and filed with the Commission on November 15, 2004 and incorporated by reference herein)
4.1	Indenture, dated as of December 12, 2005, by and among the Company, Transmeridian Exploration Inc., TMEI Operating, Inc., Transmeridian (Kazakhstan) Incorporated and The Bank of New York, as Trustee (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K dated December 16, 2005 and incorporated by reference herein)
4.2	First Supplemental Indenture, dated as of December 22, 2005, by and among the Company, Transmeridian Exploration Inc., TMEI Operating, Inc., Transmeridian (Kazakhstan) Incorporated, JSC Caspi Neft TME, Bramex Management, Inc. and The Bank of New York, as Trustee (filed as Exhibit 4.5 to the Company’s Registration Statement on Form S-3 filed with the Commission on March 13, 2006 and incorporated by reference herein)
4.3	Form of Senior Secured Note due 2010 (included as part of Exhibit 4.1)
4.4	Form of Registration Rights Agreement, dated as of December 12, 2005, by and among the Company, Transmeridian Exploration Inc., TMEI Operating, Inc., Transmeridian (Kazakhstan) Incorporated and each of the purchasers party thereto (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K dated December 16, 2005 and incorporated by reference herein)
4.5	Form of Purchase Agreement, dated as of December 12, 2005, by and among the Company, Transmeridian Exploration Inc., TMEI Operating, Inc., Transmeridian (Kazakhstan) Incorporated and each of the purchasers party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 16, 2005 and incorporated by reference herein)
10.1†	Share Sale and Purchase Agreement, dated as of October 14, 2005, by and between Transmeridian Exploration Inc. and Seeria Alliance Ltd.
10.2†	Deed of Amendment, by and between Transmeridian Exploration Inc. and Seeria Alliance Ltd., dated as of December 12, 2005, relating to the Share Sale and Purchase Agreement, dated as of October 14, 2005, by and between Transmeridian Exploration Inc. and Seeria Alliance Ltd.
10.3	Escrow Agreement, dated as of December 12, 2005, by and between Transmeridian Exploration Inc. and The Bank of New York, as Escrow Agent and Trustee (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated December 16, 2005 and incorporated by reference herein)
10.4	Pledge Agreement, dated as of December 12, 2005, by and between Transmeridian Exploration Incorporated and The Bank of New York, as Collateral Agent and Trustee (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 16, 2005 and incorporated by reference herein)
10.5†	Pledge Agreement, dated as of December 22, 2005, by and between Transmeridian Exploration Inc. and The Bank of New York, as Collateral Agent and Trustee

E-1

Exhibit Number	Description
10.6	Warrant Agreement, dated as of December 12, 2005, by and between the Company and The Bank of New York, as Warrant Agent (including form of Warrant Certificate) (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated December 16, 2005 and incorporated by reference herein)
10.7†	Purchase Agreement, dated as of December 12, 2005, by and between Transmeridian Exploration Inc. and Kornerstone Investment Group, Ltd.
10.8†	Registration Rights Agreement, dated as of December 12, 2005, by and between the Company and Kornerstone Investment Group, Ltd.
10.9†	Conditional Share Transfer Agreement, dated as of January 3, 2006, by and among Transmeridian Exploration Inc., Bramex Management, Inc. and JSC TuranAlem Securities
10.10†	Share Encumbrance and Pledge Agreement, dated as of January 3, 2006, by and among Transmeridian Exploration Inc., Bramex Management, Inc. and TuranAlem Securities JSC
10.11†	Securities Agency Agreement, dated as of January 3, 2006, by and among Transmeridian Exploration Inc., Bramex Management, Inc., JSC TuranAlem Securities and The Bank of New York
10.12†	Agreement for Brokerage Services, dated as of January 23, 2006, by and between Transmeridian Exploration Inc. and “VISOR Investment Solutions” Joint Stock Company
10.13†	Agreement for Brokerage Services, dated as of January 23, 2006, by and between Bramex Management, Inc. and “VISOR Investment Solutions” Joint Stock Company
10.14	Form of Convertible Promissory Note and Warrant Purchase Agreement, dated as of August 30, 2005, by and among the Company and each of the investors party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 6, 2005 and incorporated by reference herein)
10.15	Form of Investor Rights Agreement, dated as of August 30, 2005, by and among the Company and each of the investors party thereto (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated September 6, 2005 and incorporated by reference herein)
10.16	Form of Convertible Promissory Note, dated as of August 30, 2005 (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K dated September 6, 2005 and incorporated by reference herein)
10.17	Form of Warrant, dated as of August 30, 2005 (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 6, 2005 and incorporated by reference herein)
10.18	Form of Subscription Agreement and Investment Representation, by and between the Company and each of the investors party thereto (relating to the Company’s July 2005 private placement under Regulation S of common stock) (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 4, 2005 and incorporated by reference herein)
10.19	Investor Rights Agreement, dated as of November 12, 2004, by and among the Company and each of the purchasers party thereto (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K dated November 15, 2004 and incorporated by reference herein)
10.20	Preferred Stock and Warrant Purchase Agreement, dated as of November 12, 2004, by and among the Company and each of the purchasers party thereto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated November 15, 2004 and incorporated by reference herein)
10.21	Form of Common Stock Purchase Warrant (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K dated November 15, 2004 and incorporated by reference herein)

E-2

Exhibit Number	Description
10.22	Amended and Restated 2003 Stock Compensation Plan of the Company (filed as Exhibit 4.1 to Post-Effective Amendment No. 2 to the Company’s Registration Statement on Form S-8 filed with the Commission on July 20, 2005 and incorporated by reference herein)
10.23	2001 Incentive Stock Option Plan of the Company (filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-8 filed with the Commission on May 28, 2003 and incorporated by reference herein)
10.24	Exploration Contract, dated as of March 7, 2000, with respect to the South Alibek Field (filed as Exhibit 10.2 to the Company’s Registration Statement on Form SB-2 filed with the Commission on May 15, 2001 and incorporated by reference herein)
10.25	License 1557 from the Government of the Republic of Kazakhstan with respect to the South Alibek Field, dated as of April 29, 1999 (filed as Exhibit 10.1 to the Company’s Registration Statement on Form SB-2 filed with the Commission on May 15, 2001 and incorporated by reference herein)
14.1	Code of Ethics for the Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer (filed as Exhibit 14 to the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2004 and incorporated by reference herein)
16.1	Letter from John A. Braden & Co., P.C., dated October 25, 2005, to the Office of the Chief Accountant, Securities and Exchange Commission (filed as Exhibit 16.1 to Amendment No. 1 to the Company’s Current Report on Form 8-K dated October 25, 2005 and incorporated by reference herein)
21.1†	Subsidiaries of the Company
23.1†	Consent of UHY Mann Frankfort Stein & Lipp CPAs, LLP
23.2†	Consent of John A. Braden & Company, P.C.
23.3†	Consent of Ryder Scott Company (independent reserve engineers)
31.1†	Rule 13a-14(a) Certification of Chief Executive Officer
31.2†	Rule 13a-14(a) Certification of Chief Financial Officer
32.1†	Section 1350 Certification of Chief Executive Officer
32.2†	Section 1350 Certification of Chief Financial Officer

† Filed herewith.

E-3

EX-10.1

Exhibit 10.1

Execution Copy

DATED 14 OCTOBER 2005

(1) SEERIA ALLIANCE LTD., as the Seller

and

(2) TRANSMERIDIAN EXPLORATION, INC., as the Buyer

SHARE SALE AND PURCHASE AGREEMENT

THIS SHARE SALE AND PURCHASE AGREEMENT (the “Agreement”) is made as of October 14, 2005 among:

(1) SEERIA ALLIANCE LTD., a company incorporated under the International Business Companies Act of the British Virgin Islands (CAP.291) (IBC registration number 507352 ), whose registered office is at c/o Mossack Fonseca & Co. (BVI) Ltd., Akara Building, 24 DeCastro Street, Wickhams Cay I, P.O. Box 3136, Road Town, Tortola, British Virgin Islands (the “Seller”); and

(2) TRANSMERIDIAN EXPLORATION, INC., a company incorporated under the International Business Companies Act of the British Virgin Islands (CAP.291) (IBC registration number 205858), whose registered office is at c/o Nerine Trust Company (BVI) Limited, Quastisky Building, 3^rd Floor, P.O. 905, Road Town, Tortola, British Virgin Islands (the “Buyer”).

RECITALS:

(A) The Seller is the legal and beneficial owner of 50,000 shares of the Company, with a par value of US $1.00 each, constituting 100% of all authorized and issued shares in the Company (such shares being the “Shares”).

(B) The Company owns 50% of all authorized and issued shares in JSC CaspiNeft TME, a Kazakhstani joint stock company (“CaspiNeft”), which is a party to the Contract for the Right to Explore Hydrocarbons signed with the Agency of the Republic of Kazakhstan on Investments on 7 March 2000 (the “Contract”), which gives CaspiNeft the exclusive right to explore South Alibek Field located in the Aktobe Oblast of the Republic of Kazakhstan.

(C) The Parties wish to enter into this Agreement for the sale and purchase of the Shares, free of any Encumbrances, on the terms and conditions set forth below.

TERMS AGREED:

1. DEFINITIONS AND INTERPRETATION

1.1 In this Agreement where the context so admits the following words and expressions shall have the following meanings:

“Banking Day” a day (other than a Saturday or Sunday) on which banks in New York are open for normal business operations;

“BTA” JSC Bank TuranAlem;

“BTA Debt” the total amount owing (whether or not then due and

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payable) to BTA (or any affiliate of BTA) by CaspiNeft pursuant to the BTA Loan Agreements (and any other agreements or understandings relating to the granting of loans under the BTA Loan Agreements) as of close of business on the date of the Closing (including without limitation principal, interest, exchange rate adjustments, fees, charges, expenses and other sums of any nature whatsoever owing (whether or not then due and payable) under the BTA Loan Agreements and any related agreements and understandings as aforesaid);

“BTA Loan Agreements” two loan agreements pursuant to which BTA has extended certain loans to CaspiNeft, namely: (i) Main Loan Agreement No. 02-0402-2 dated 4 February 2002 among BTA, CaspiNeft, the Buyer and Kazstroyproekt LLP, for the total amount of US $20,000,000, as amended, and (ii) General Loan Agreement No. 2000/03/40 dated 2 June 2003 among BTA, CaspiNeft, the Buyer and the Company, for the total amount of US $30,000,000, as amended or supplemented;

“Buyer’s Group” means the group of companies comprising the Buyer, any holding company from time to time of the Buyer and any subsidiary of the Buyer (including, following Closing, the Company and CaspiNeft) or of any such holding company and “member of the Buyer’s Group” shall be construed accordingly;

“CaspiNeft” has the meaning set forth in Recital (B);

“Claim” any claim by the Buyer under Article 6.6 or under the Warranties referred to in Article 6.1, Article 6.2 and set out in Schedule 1;

“Closing” means completion of the sale and purchase of the Shares in exchange for the consideration payable by the Buyer pursuant to Article 3;

“Company” Bramex Management, Inc. a company incorporated under the International Business Companies Act of the British Virgin Islands (CAP.291) (IBC registration number 492384), whose registered office is at Sea Meadow House, Blackburn Highway, Road Town, Tortola, British Virgin Islands;

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“Consideration” has the meaning set forth in Article 3;

“Contract” has the meaning set forth in Recital (B);

“Debt” means, as at the close of business on the date of Closing the aggregate of all debts owed by the Company to members of the Seller’s Group;

“Disclosure Letter” a letter in the agreed form (together with any documents annexed to it) dated the date of this Agreement from the Seller to the Buyer;

“Due Diligence Review Questionnaire” means the written list of enquiries delivered to the Seller by the Buyer prior to the date hereof which is annexed to and incorporated in the Disclosure Letter;

“Encumbrance” means any mortgage, charge, pledge, hypothecation, lien, assignment by way of security, right of set-off, title retention arrangement, option or other rights of third parties (other than by virtue of this Agreement);

“Estimated Consideration” has the meaning set forth in Article 3.2;

“Estimated Debt” has the meaning set forth in Article 3.2;

“Joint Operating Agreement” means the joint operating agreement regarding the operation of CaspiNeft between the Buyer and the Company (as successor to Kazstroyproect LLP) dated 14 February 2002, as amended or supplemented;

“Independent Accountants” a firm of independent chartered accountants jointly agreed upon between the Buyer and the Seller or (failing such agreement) appointed, at the request of either the Buyer or the Seller at any time, by the President from time to time of the Institute of Chartered Accountants in England and Wales;

“Information” means any existing written information and data connected with the past, present and future activities of CaspiNeft under or in connection with the Contract, which is in the possession of any member of the Seller’s Group or the Company (as the case

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may be) at Closing, including, without limitation, any geological, geochemical, geophysical and geotechnical information, data, maps, reports, samples, core logs, analysis, results of tests and other materials in connection with any activities undertaken in connection with the Contract;

“Kazakhstan Counsel” means a law firm of international standing with offices in Almaty, Kazakhstan reasonably acceptable to the Buyer and the Seller;

“Losses” means, with respect to any Party, all and any obligations, proceedings, losses, damages, liabilities, claims, costs and expenses incurred by such Party;

“Outstanding Documents” means the Release Documents and the opinions of Harney Westwood & Riegels (British Virgin Islands office) to be delivered pursuant to Articles 4.1.7.1 and 5.2.4.1 and Kazakhstan Counsel to be delivered pursuant to Articles 4.1.7.2 and 5.2.4.2;

“Parties” the Seller and the Buyer and their respective successors and permitted assigns;

“Purchase Price” has the meaning set forth in Article 3;

“Release Documents” means (i) a release in form and substance reasonably satisfactory to the Buyer providing a full release and discharge of the Encumbrances securing the BTA Debt, and (ii) all documentation necessary to be provided by BTA and filed with or produced before the Kazakhstani registration authorities to de-register the Encumbrances securing the BTA Debt from their records (including, without limitation, a letter confirming that the BTA Debt has been repaid and that the Encumbrances securing the BTA Debt are to be released, a letter to the Ministry of Energy and Mineral Resources requesting it to release subsoil rights from the Encumbrances securing the BTA Debt, applications to various registration authorities to deregister the Encumbrances securing the BTA Debt over immovable and movable assets of CaspiNeft, and an order to CaspiNeft’s registrar requesting the release of the CaspiNeft shares from any Encumbrances securing the BTA Debt);

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“Seller’s Group” means the group of companies comprising the Seller, any holding company from time to time of the Seller (which for the avoidance of doubt shall be deemed to include BTA) and any subsidiary of the Seller (excluding the Company) or of any such holding company and “member of the Seller’s Group” shall be construed accordingly;

“Shares” has the meaning set forth in Recital A;

“Supplemental Disclosure Letter” a letter (together with any documents annexed thereto) dated on the date of Closing from the Seller to the Buyer;

“Tax” or “Taxation” all forms of taxation, withholdings, duties, imposts, levies, social security contributions and rates imposed by any local, municipal, governmental, state, federal, or other body in the British Virgin Islands, the Republic of Kazakhstan or elsewhere and any interest, penalty, surcharge or fine in connection therewith; and

“Warranties” the warranties referred to in Article 6.1, Article 6.2 and set out in Schedule 1.

1.2 Any references, express or implied, to statutes or statutory provisions shall be construed as references to those statutes or provisions as respectively amended or re-enacted or as their application is modified from time to time by other provisions (whether before or after the date hereof) and shall include any statutes or provisions of which they are re-enactments (whether with or without modification) and any orders, regulations, instruments or other subordinate legislation under the relevant statute or statutory provision.

1.3 References in this Agreement to Articles and Schedules are to articles in and schedules to this Agreement (unless the context otherwise requires). The recitals and schedules to this Agreement shall be deemed to form part of this Agreement.

1.4 Headings are inserted for convenience only and shall not affect the construction of this Agreement.

1.5 The expressions “Seller,” “Company” and “Buyer” include each party’s successors and permitted assigns.

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1.6 References to “persons” shall include bodies corporate, unincorporated associations and partnerships (whether or not having separate legal personality).

1.7 A company or other entity shall be a “holding company” for the purposes of this Agreement if it falls within either the meaning attributed to that term in ss736 and 736A Companies Act 1985 (“CA85”) or the meaning attributed to the term “parent undertaking” in s258 CA85, and a company or other entity shall be a “subsidiary” for the purposes of this Agreement if it falls within either the meaning attributed to that term in ss736 and 736A of the CA85 or the meaning attributed to the term “subsidiary undertaking” in s258 of the CA85, and the term “subsidiaries” is to be construed accordingly.

1.8 Any reference to a document in the “agreed form” is to the form of the relevant document in the terms agreed between the Seller and the Buyer prior to the execution of this Agreement and signed or initialled for identification purposes only by or on behalf of the Seller and the Buyer (in each case with such amendments as may be agreed in writing by or on behalf of the Seller and the Buyer).

2. SALE OF SHARES

2.1 Subject to the terms and conditions of this Agreement, at the Closing the Seller shall sell to the Buyer, with full title guarantee (as such term is defined in the Law of Property (Miscellaneous Provisions) Act 1994), and the Buyer shall purchase from the Seller, the Shares in registered form, free of any Encumbrances and together with all rights thereafter attached to them.

2.2 The Seller hereby irrevocably waives and agrees to procure the waiver of any restrictions on transfer (including rights of pre-emption) which may exist in relation to the Shares, whether under the articles of association of the Company or otherwise.

3. CONSIDERATION AND PAYMENT

3.1 Subject to the terms of this Agreement, the total consideration payable by the Buyer for the Shares shall consist of US$ 168,000,000 less the BTA Debt (the “Purchase Price”) less an amount equal to the Debt (the “Consideration”).

3.2 Not later than five (5) Banking Days prior to the date fixed for Closing, the Seller shall notify the Buyer in writing of its estimate (acting reasonably, and attaching such evidence as it may have in support of its calculation) of the Debt (the “Estimated Debt”), and the Purchase Price less an amount equal to the Estimated Debt shall be the “Estimated Consideration” for the purposes of this agreement.

3.3 At the Closing the Buyer shall pay the Estimated Consideration to the Seller in accordance with Article 5.3.2.

6

3.4 The Buyer and the Seller shall procure that the Independent Accountants shall, by no later than ten (10) Banking Days after the Closing, deliver to the Buyer and the Seller a certificate stating the amount of the Debt, which certificate, in the absence of manifest error, shall be conclusive and binding upon the parties.

3.5 In the event that the Consideration:

3.5.1 is less than the Estimated Consideration then the Seller shall pay to the Buyer an amount equal to such shortfall;

3.5.2 exceeds the Estimated Consideration then the Buyer shall pay to the Seller an amount equal to such excess.

3.6 Any and all sums payable pursuant to Article 3.5 shall be paid by the Buyer or the Seller (by wire transfer to the bank account notified by the Buyer or the Seller (as the case may be) to the other in writing) within five (5) Banking Days after delivery of the certificate of the Independent Accountants in accordance with Article 3.4 and shall be treated as:

3.6.1 reducing the consideration for the Shares in the case of payments by the Seller to the Buyer pursuant to Article 3.5.1; and

3.6.2 increasing the consideration for the Shares in the case of payments by the Buyer to the Seller pursuant to Article 3.5.2.

3.7 The Estimated Consideration and the Consideration shall be paid without any deductions or withholdings except as may be required by applicable law; and if the Estimated Consideration or the Consideration shall be subject to any deductions or withholdings such payment shall be increased by such an amount as shall ensure that after deduction or withholding of such Tax the Seller shall have received a net amount equal to the Estimated Consideration or the Consideration; provided, however, that for the avoidance of doubt, this provision shall not be construed to extend to any tax payable by the Seller on any gain, profit, income or otherwise as a result of its receipt of the Estimated Consideration or the Consideration.

3.8 At the Closing, the Buyer shall procure that the BTA Debt is repaid in full in accordance with the following provisions:

3.8.1 Within five (5) Banking Days prior to the date of the Closing, BTA shall provide CaspiNeft with a calculation showing the funds necessary to repay the BTA Debt on the date of the Closing;

3.8.2 On or prior to the date of the Closing, the Buyer and the Company shall cause CaspiNeft to issue a Cash Call for the amount set forth in the calculation provided by BTA pursuant to Article 3.8.1 above. The Buyer, on or prior to the date of the Closing, shall lend the entire amount of such Cash Call to

7

CaspiNeft in accordance with Sections 7.1 and 7.2 of the Joint Operating Agreement, including the Company’s one-half share.

3.8.3 At the Closing, subject to the provisions of this Agreement, the Buyer and the Company (to the extent that it is able to do so, but without any obligation of the Company to lend or otherwise provide any monies to CaspiNeft) shall procure that CaspiNeft fully repays the BTA Debt to BTA.

3.9 The Seller agrees to procure the performance by the Company or BTA, as the case may be, of their respective obligations under this Article 3.

3.10 In this Article 3, capitalised terms defined in the Joint Operating Agreement and not otherwise defined in this Agreement shall have the meanings set out in the Joint Operating Agreement.

3.11 On the date hereof, the Buyer and BTA have agreed that repayments, whether of principal or interest (or otherwise), of the BTA Debt shall be deferred until Closing (the “BTA Debt Deferral”).

4. CONDITIONS PRECEDENT

4.1 Closing is conditional upon:

4.1.1 each of the Warranties being true and accurate in all material respects on the date hereof and remaining true and accurate in all material respects at the Closing by reference to the facts and circumstances then existing (subject to the Disclosure Letter, the Supplemental Disclosure Letter and the provisions of Article 6);

4.1.2 there having been no disclosure set out in the Supplemental Disclosure Letter which indicates a material adverse change in the business or financial position of the Company after the date of this Agreement which is not a direct consequence of a matter previously disclosed in the Disclosure Letter except for any change which results from action taken with the prior written approval of the Buyer;

4.1.3 there having been no response to any further enquiries made by the Buyer to the Seller after the date of this Agreement in connection with the Due Diligence Review Questionnaire which would constitute a disclosure against any of the Warranties and which indicates a material adverse change in the business or financial position of the Company after the date of this Agreement;

4.1.4 the Seller having delivered to the Buyer no earlier than five (5) Banking Days prior to the date of Closing, a certified copy of the register of shares maintained by the Company’s registered agent in the British Virgin Islands evidencing that all of the Shares are duly registered in the name of the Seller,

8

as the sole legal and beneficial owners, together with a copy of the Company’s register of mortgages, charges and other encumbrances evidencing that the Shares are free of any Encumbrances (or confirmation from the Company’s agent that there is no such register for the Company);

4.1.5 prior to the date of Closing, the Company being the owner of twenty-five thousand (25,000) ordinary shares of CaspiNeft, such shareholding representing 50% of all authorized and issued shares of CaspiNeft, fully paid and free of Encumbrances (other than security relating to the BTA Debt), and the Buyer having received an extract from the share register of CaspiNeft confirming such shareholding;

4.1.6 the Seller having delivered to the Buyer

4.1.6.1 a draft opinion of Harney Westwood & Riegels by no later than ten (10) Banking Days after the date of this Agreement, in form and substance reasonably satisfactory to the Buyer, stating that (i) the Seller is the registered owner of, and has legal and beneficial title to, 50,000 ordinary shares of the Company, which shares comprise 100% of all authorized and issued shares of the Company, free of any Encumbrances, (ii) no legal proceedings are pending against the Company in the British Virgin Islands, (iii) no legal proceedings are pending against the Seller in the British Virgin Islands in relation to the subject matter of this Agreement or challenging the ownership of the Shares, (iv) the Company and the Seller are duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands, (v) that the Agreement will be treated by the courts of the British Virgin Islands as a legally binding, valid and enforceable obligations of the Seller;

4.1.6.2 a draft opinion of Kazakhstan Counsel, by no later than ten (10) Banking Days after the date of this Agreement, in form and substance reasonably satisfactory to the Buyer, covering certain matters agreed upon between the Buyer and the Seller;

4.1.7 since the date of this Agreement the Company having not revoked any approval it has given pursuant to the Joint Operating Agreement prior to the date of this Agreement in relation to the agreed budget of CaspiNeft (pursuant to the Joint Operating Agreement) which would have a material adverse effect on the business or operations of the Company or CaspiNeft (save if such revocation is approved in writing by the Buyer);

4.1.8 each of the Outstanding Documents having been negotiated and settled by the Parties in accordance with Article 8.6; and

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4.1.9 since the date of this Agreement BTA not having required or purported to require CaspiNeft to repay any or all of the BTA Debt prior to the date of Closing or otherwise been in breach of its obligations under the BTA Debt Deferral.

4.2 The Buyer may waive all or any of the above-listed conditions at any time by notice in writing given to the Seller.

4.3 The Parties shall use all reasonable endeavors to procure the fulfillment of the conditions listed in Article 4.1 above on or before 30 November 2005 and in any event by 23 December 2005.

4.4 The Buyer shall notify the Seller in writing within five (5) Banking Days after all the conditions listed in Articles 4.1.3, 4.1.4, 4.1.5, 4.1.6, 4.1.8 have been fulfilled to the satisfaction of the Buyer or waived.

4.5 In the event that any of the conditions set forth in Article 4.1 shall not have been fulfilled (unless such conditions were waived pursuant to Article 4.2) on or before 23 December 2005, then the neither the Buyer nor the Seller shall be bound to proceed with the sale and acquisition of the Shares and either of them may rescind this Agreement without liability on any party (other than in relation to prior breaches of Articles 4.3 and 8.4).

5. CLOSING

5.1 Subject to the satisfaction of the conditions precedent set out in Article 4.1, the Closing shall occur on 30 November 2005, or, if later, five (5) Banking Days following written notification by the Buyer to the Seller of the fulfillment to the satisfaction of the Buyer (or waiver) of the conditions listed in Articles 4.1.3, 4.1.4, 4.1.5, 4.1.6 and 4.1.8, provided that at the date of the Closing the remaining conditions shall have been fulfilled to the satisfaction of the Buyer (or waived by the Buyer) (but in any event no later than 30 December 2005), at the offices of Baker & McKenzie—CIS, Limited, Central Asia in Almaty, Kazakhstan, with, to the extent necessary, certain Closing actions occurring at the offices of the Buyer’s British Virgin Islands counsel in the British Virgin Islands when all (but not some only) of the events described in Article 5.2 and Article 5.3 shall occur.

5.2 Subject to satisfaction of the Buyer’s obligations under Article 5.3, at Closing, the Seller shall do the following:

5.2.1 deliver to the Buyer duly executed transfers of all of the Shares into the name of the Buyer together with the relevant share certificates representing the Shares registered in the name of the Buyer free of any Encumbrances;

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5.2.2 to the extent required, cause the board of directors of the Company to hold a meeting (or provide written resolutions) at which the board shall pass resolutions to approve (i) the registration of the Buyer as the sole shareholder of the Company, (ii) the entering of the Buyer’s name on the share register of the Company, (iii) the issue to the Buyer of a share certificate of the Company representing the Shares, (iv) the appointment of such persons as the Buyer may nominate as directors of the Company prior to Closing;

5.2.3 deliver to the Buyer the Information

5.2.4 deliver opinions of:

5.2.4.1 Harney Westwood & Riegels (British Virgin Islands office), dated the date of the Closing, in form and substance reasonably satisfactory to the Buyer stating that (i) immediately prior to Closing, the Seller, and upon Closing, the Buyer is the registered owner of, and has legal and beneficial title to, 50,000 ordinary shares of the Company, which shares comprise 100% of all authorized and issued shares of the Company, free of any Encumbrances, (ii) no legal proceedings are pending against the Company in the British Virgin Islands, (iii) no legal proceedings are pending against the Seller in the British Virgin Islands in relation to the subject matter of this Agreement or challenging the ownership of the Shares, (iv) the Company and the Seller are duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands, (v) that the Agreement will be treated by the courts of the British Virgin Islands as a legally binding, valid and enforceable obligations of the Seller;

5.2.4.2 Kazakhstan Counsel dated the date of the Closing, in form and substance reasonably satisfactory to the Buyer covering certain matters agreed upon between the Buyer and the Seller;

5.2.5 deliver to the Buyer the resignations (in a form reasonably satisfactory to the parties) of the officers, directors and secretary of the Company and CaspiNeft (to the extent such persons are controlled by the Seller), such resignations containing waivers of all claims against the Company and CaspiNeft for compensation or otherwise;

5.2.6 deliver to the Buyer all existing statutory and other books (if any) (duly written and up to date) of the Company and its Articles and Memorandum of Association, foundation documents and corporate seal (if any);

5.2.7 deliver to the Buyer a certificate or other instrument in form and substance reasonably satisfactory to the Buyer, executed by the Seller, relinquishing any and all authority over the business or affairs of the Company and discharging

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any agents or attorneys-in-fact who may have been granted power of attorney or signature authority with respect to the business or affairs of the Company; and

5.2.8 procure that BTA delivers to the Buyer the duly executed Release Documents.

5.3 Subject to satisfaction of the Seller’s obligations under Article 5.2, at the Closing the Buyer shall:

5.3.1 procure that CaspiNeft repays the BTA Debt; and

5.3.2 pay the Estimated Consideration to the Seller by wire transfer to such bank account as the Seller shall notify the Buyer in writing at least five (5) Banking Days prior to the date of Closing.

5.4 The Parties hereby agree that if the obligations under this Article 5 are not complied with in any respect on the Closing by either the Buyer or the Seller (“Defaulting Party”) the other Party (“Relevant Party”) shall not be obliged to complete the sale and purchase of the Shares and the Relevant Party may, at its own discretion, elect to do any of the following:

5.4.1 defer Closing by a period of not more than 30 days (and the provisions of Article 5 shall apply to the Closing as so deferred), which date shall be set forth in a notice from the Relevant Party to the Defaulting Party and shall be no earlier than five (5) Banking Days from the date such notice is given; or

5.4.2 proceed to Closing so far as practicable (without prejudice to its rights under this Agreement); or

5.4.3 rescind this Agreement without any further liability on any party (save for any prior breaches and other than as set out in Articles 8.4 and 8.5).

6. WARRANTIES

6.1 Except as otherwise provided in the Disclosure Letter or the Supplemental Disclosure Letter, the Seller hereby warrants to the Buyer that each of the statements set out in Schedule 1 (the “Warranties”) is now true and accurate.

6.2 Each of the Warranties shall be deemed to be repeated at Closing by reference to the facts and circumstances then existing and on the basis that all references (whether express or implied) in such Warranties to the “date of this Agreement” or in any of the definitions used in such Warranties (except in the definition of the “Disclosure Letter”) shall be deemed to be substituted with references to the “date on which these Warranties are given”.

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6.3 The Seller may deliver to the Buyer immediately prior to the Closing the Supplemental Disclosure Letter confirming that the Warranties (as given at Closing under Article 6.2) remain true and accurate immediately prior to the Closing, except as regards any matter or event which is fairly disclosed in the Supplemental Disclosure Letter and the Disclosure Letter.

6.4 The Seller acknowledges that the Buyer has entered into this Agreement in reliance upon the Warranties and has been induced by them to enter into this Agreement.

6.5 Without restricting the rights of the Buyer or otherwise affecting the ability of the Buyer to claim damages on any other basis available to it, in the event that any of the Warranties is breached or (as the case may be) proves to be untrue, the Seller shall pay to the Buyer or, at the Buyer’s direction, to the Company the amount necessary to put the Company into the position which would have existed if the Warranties had not been broken or (as the case may be) had been true (but only to the extent of any shortfall or diminution of the value of the assets of the Company). For the avoidance of doubt, any claim by the Buyer under this Article 6.6 shall be subject to the limitations set out in Schedule 2.

6.6 Each of the Warranties shall be separate and independent and, save as expressly provided to the contrary, shall not be limited by reference to or inference from any other Warranty or any other term of this Agreement.

6.7 Where any statement in the Warranties or any confirmation or certificate given by the Seller or the Company hereunder or pursuant hereto is qualified by the expression “so far as the Seller are aware” or “to the best of the Seller’s knowledge and belief” or any similar expression, that statement shall be deemed to include an additional statement that it has been made after due and careful enquiry.

6.8 The Seller hereby agrees with the Buyer (for itself and as trustee for the Company) to waive any rights which it may have in respect of any misrepresentation or inaccuracy in, or omission from, any information or advice supplied or given by the Company or its officers, employees or advisers in connection with the giving of the Warranties.

6.9 The Seller shall procure that (save only as may be necessary to give effect to this Agreement) neither they nor the Company shall do, and, so far as the Seller is reasonably able, allow or procure any act or omission before Closing which would constitute a breach of any of the Warranties or which would make any of the Warranties inaccurate.

6.10 The Seller agrees to notify the Buyer in writing immediately upon becoming aware of any matter, event or circumstance (including any omission to act) which may arise or become known to them after the date of this Agreement and before Closing which constitutes a breach of or is inconsistent with any of the Warranties;

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6.11 If any sum payable by the Seller under this Article 6 shall be subject to any tax (whether by way of deduction or withholding or direct assessment of the person entitled thereto) such payment shall be increased by such an amount as shall ensure that after deduction, withholding or payment of such Tax the recipient shall have received a net amount equal to the payment otherwise required hereby to be made.

6.12 The Warranties are subject to any matter described in the Disclosure Letter (and, where appropriate, the Supplemental Disclosure Letter subject to the provisions of Articles 6.3 and 6.4).

6.13 The liability of the Seller in respect of any claim under the Warranties or under Article 6.6 shall be limited as provided in Schedule 2, except in relation to any claim which arises out of any fraud, wilful default or dishonesty by or on behalf of the Seller.

6.14 The provisions of Schedule 2 which, among other things, regulate or otherwise affect the liability of the Seller shall remain in full force and be fully applicable in all circumstances and, in particular, notwithstanding any breach of the Warranties or any claim against the Seller in respect of the Warranties, whatever its nature or consequences.

7. RESTRICTION ON ANNOUNCEMENTS; CONFIDENTIALITY

7.1 Each of the Parties undertakes that prior to the Closing it will not (save as required by law or by any securities exchange or any supervisory or regulatory body to whose rules any Party is subject) make any disclosure or announcement in connection with the existence or subject matter of this Agreement (or any other documents referred to in this Agreement) unless the other Party shall have given its written consent to such disclosure or announcement (which consent may not be unreasonably withheld or delayed and may be given either generally or in a specific case or cases and may be subject to conditions).

8. PRE-CLOSING OBLIGATIONS

8.1 The Seller shall procure that the Company shall not prior to Closing incur any indebtedness, enter into any material contract or take on any actual liability outside of the ordinary course of business without the express written consent of the Buyer.

8.2 The Seller shall further procure that prior to Closing the Buyer and/or any persons authorized by it will be given such access to the personnel and premises and all books, title deeds, records and accounts of the Company as the Buyer may reasonably request.

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8.3 The Seller shall not and shall procure that the Company shall not dispose of any Information in the period between the signing of this Agreement and the Closing Date.

8.4 The Seller shall not, and shall procure that no member of the Seller’s Group shall, enter into any negotiations or discussions, formal or informal, concerning its possible sale of any of the Shares to any other party or parties and, if any such negotiations or discussions have occurred prior to the date of this Agreement, they shall be immediately terminated by the Seller or the Seller shall procure that the relevant member of the Seller’s Group terminates such negotiations or discussions. If the Closing does not occur due to a breach by the Seller of this Article 8.4, and the Seller or any member of the Seller’s Group enters into a proposed agreement with a third-party to sell the Company or its interest in CaspiNeft within six (6) calendar months of the date hereof, the Buyer may at its option:

8.4.1 require the Seller to pay the Buyer an amount of five million US dollars (US $5,000,000) within five (5) Banking Days following written demand by the Buyer which amount is acknowledged by the parties to include an element of indirect or consequential loss or loss of profit and in respect of which the parties agree, for the avoidance of doubt, that the limitations in Schedule 2 do not apply (and in such circumstances the Buyer acknowledges that it would have no further rights to claim under this Agreement); or

8.4.2 make a claim against the Buyer under the terms of this Agreement,

provided that the Buyer may exercise only one but not both of the options outlined above.

8.5 If the Closing does not occur due to a failure by the Buyer to comply with its obligations under Article 5.3, the Seller shall require the Buyer to pay the Seller an amount of five million US dollars (US $5,000,000) within five (5) Banking Days following written demand by the Seller which amount is acknowledged by the parties to include an element of indirect or consequential loss or loss of profit (and in such circumstances the Buyer acknowledges that it would have no further rights to claim under this Agreement).

8.6 The Parties shall use all reasonable endeavours to ensure that the Outstanding Documents shall be negotiated and settled between the Parties as soon as practicable.

8.7 In the event that the transactions contemplated by this Agreement are blocked, prohibited or disapproved by any governmental authority, including the Committee for Protection of Competition under the Ministry of Industry and Trade of Kazakhstan (“CPC), then neither the Buyer nor the Seller shall be bound to proceed with the sale and acquisition of the Shares and either of them may rescind this Agreement without liability on any party (other than in relation to prior breaches of Articles 4.3 and 8.4)

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by notice in writing to the other Party. The Seller shall use all reasonable endeavors to assist the Buyer in any applications or discussions that it has with the CPC including but not limited to promptly responding to the Buyer in relation to all requests for information or documentary material required by the CPC.

9. COSTS

9.1 Each Party shall bear its own costs and expenses incurred in the preparation, execution and implementation of this Agreement.

9.2 The Buyer shall pay any stamp and other transfer duties and registration fees applicable to any document to which it is a party and which arise as a result of or in consequence of this Agreement.

10. GENERAL

10.1 This Agreement shall be binding upon and inure for the benefit of the estates, personal representatives or successors of the Parties. Subject to Article 10.2, no Party shall be entitled to assign the benefit of this Agreement without express written consent of the other Party, which consent shall not be unreasonably withheld or delayed.

10.2 All or any of the Buyer’s rights under this agreement, may (notwithstanding any other provisions contained in this agreement) be assigned or transferred by the Buyer to, or made the subject of a trust created in favour of any other member of the Buyer’s Group (or by any such member to or in favour of any other member of the Buyer’s Group) provided that if such assignee company leaves the Buyer’s Group, such rights are assigned or transferred to or made the subject of a trust in favour of another member of the Buyer’s Group and further provided that the Seller shall be subject to no greater liability than already exists under this Agreement following such assignment or transfer.

10.3 This Agreement (together with any documents referred to herein or executed contemporaneously by the Parties in connection herewith) constitutes the whole agreement between the Parties hereto and supersedes any previous agreements, undertaking, representation, warranty or arrangements of any nature between them relating to the subject matter hereof; it is expressly declared that no variations hereof shall be effective unless made in writing signed by duly authorized representatives of the Parties.

10.4 Each of the parties acknowledges and agrees that it has not entered into this Agreement in reliance on any statement or representation of any person (whether a party to this agreement or not) other than as expressly incorporated in this Agreement.

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10.5 Without limiting the generality of the foregoing, each of the parties irrevocably and unconditionally waives any right or remedy it may have to claim damages and/or to rescind this Agreement by reason of any misrepresentation (other than a fraudulent misrepresentation) having been made to it by any person (whether party to this Agreement or not) and upon which it has relied in entering into this Agreement.

10.6 Subject to Article 10.7, each of the parties acknowledges and agrees that the only cause of action available to it under the terms of this Agreement shall be for breach of contract.

10.7 Nothing contained in this Agreement or in any other document referred to or incorporated in it shall be read or construed as excluding any liability or remedy as a result of fraud.

10.8 All of the provisions of this Agreement shall remain in full force and effect notwithstanding Closing (except insofar as they set out obligations which have been fully performed at Closing).

10.9 If any provision or part of a provision of this Agreement shall be, or be found by any authority or court of competent jurisdiction to be, invalid or unenforceable, such invalidity or unenforceability shall not affect the other provisions or parts of such provisions of this Agreement, all of which shall remain in full force and effect.

10.10 Save as specifically set out herein, no Party shall have the right to rescind or terminate this Agreement.

10.11 No failure of a Party to exercise, and no delay or forbearance in exercising, any right or remedy in respect of any provision of this Agreement shall operate as a waiver of such right or remedy.

10.12 Upon and after the Closing, the Seller shall do and execute or procure to be done and executed all such further acts, deeds, documents and things as may be reasonably necessary to give effect to the terms of this Agreement and to place control of the Company and CaspiNeft (to the extent that it is able) in the hands of the Buyer and, pending the doing of any such acts, deeds, documents and things, the Seller shall as from Closing hold the legal and beneficial estate in the Shares and the shares of CaspiNeft owned by the Company in trust for the Buyer. The Seller shall procure that BTA promptly provides all necessary assistance and executes all such further acts, deeds, documents and things as may be necessary to release the Encumbrances securing the BTA Debt.

10.13 Upon and after the Closing and at the request of the Buyer, the Seller shall execute under seal a power of attorney in favor of the Buyer or such person as may be nominated by the Buyer generally in respect of the Shares and in particular to enable the Buyer (or its nominees) to attend and vote at general meetings of shareholders of the Company.

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10.14 This Agreement may be executed in one or more counterparts, and by the Parties on separate counterparts, but shall not be effective until each Party has executed at least one counterpart and each such counterpart shall constitute an original of this Agreement but all the counterparts shall together constitute one and the same instrument.

10.15 The Parties agree to cooperate and to act in good faith to execute such further amendments, corrections and changes to this Agreement as they shall mutually agree, acting reasonably, in order to give full effect to the transactions contemplated hereby.

11. NOTICES

11.1 All notices or other communications under this Agreement shall be given in writing in the English language and shall be signed by an authorized officer of the Buyer or the Seller, as the case may be, and shall be deemed given (i) upon sending a fax to the recipient Party’s fax number below and receipt of an automatic acknowledgement of receipt thereof generated by the recipient’s fax machine (with a confirmatory copy of such fax delivered within 24 hours thereafter to an international courier as provided in Article (ii) (provided that if such fax is sent after 6 pm on a working day in the recipient’s country listed below or on a non-working day in such country, it shall be deemed given on the next working day in such country), or (ii) on the third calendar day following the sending Party’s delivery to an international courier service serving the recipient Party’s city listed below (DHL or similar), prepaid and addressed to the recipient Party at the address set forth below (provided that if such third day is a non-working day in the recipient’s country listed below, it shall be deemed given on the next working day in such country):

If to the Seller:

Seeria Alliance Limited

c/o Mossack Fonseca & Co. (BVI) Ltd.

Akara Building, 24 DeCastro Street

Wickhams Cay I

P.O. Box 3136, Road Town, Tortola

British Virgin Islands

Tel: +1 (284) 494-4840

Fax: +1 (284) 494-4841

If to the Buyer:

(1) Transmeridian Exploration, Inc

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c/o Nerine Trust Company (BVI) Limited

Quastisky Building, 3^rd Floor

P.O. Box 905, Road Town, Tortola

British Virgin Islands

Tel.: +1 (284) 494 8790

Fax: +1 (284) 494 8791

with a copy to:

(2) Transmeridian Exploration, Inc.

c/o Transmeridian Exploration Incorporated

397 N. Sam Houston Pkwy E., Suite 300

Houston, Texas USA 77060

Attention: President

Tel.: +1 (281) 999 9091

Fax: +1 (281) 999 9094

11.2 Either Party may change its address and/or fax number set forth in Article 11.1 above by giving written notice to the other Party in the manner set forth above, provided that in the case of the Seller any such new address or fax number shall be located in the British Virgin Islands.

12. GOVERNING LAW AND ARBITRATION

12.1 This Agreement shall be governed by and construed in accordance with the laws of England and Wales.

12.2 Any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in accordance with the Rules of the London Court of International Arbitration, which Rules are deemed to be incorporated by reference into this Article. The number of arbitrators shall be three. The seat, or legal place, of arbitration shall be London. The language to be used in the arbitral proceedings shall be English.

12.3 Except as otherwise expressly stated this Agreement does not confer any rights on any person or party (other than the parties to this Agreement) pursuant to the Contracts (Rights of Third Parties) Act 1999.

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IN WITNESS WHEREOF, this Agreement has been signed by the Parties as of the day and year first above written.

SEERIA ALLIANCE LTD.
By:	/s/ Raushan Kizdarbekova
Name: Title:	Raushan Kizdarbekova Authorized representative

TRANSMERIDIAN EXPLORATION INC.
By:	/s/ Lorrie Olivier
Name: Title:	Lorrie Olivier President

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SCHEDULE 1

WARRANTIES

1. Accounting records

[Intentionally left blank.]

2. Tax, Records and Returns

2.1 The Company has duly filed all returns, computations, notices and information required to be made or provided by the Company for any Tax purpose and the same have been made or given within the requisite periods and on a proper basis and when made were true and accurate in all material respects and are up to date and none of them is or is likely to be the subject of any dispute with any Tax authority.

2.2 The Company has paid, and has withheld, deducted and accounted to the relevant Tax authorities for, all Taxes which it has become liable to pay, withhold, deduct or account for on or before the date hereof and within the period of seven years prior to the date hereof neither the Company nor any director or officer of the Company has paid or become liable to pay any fine, penalty, surcharge or interest in relation to Tax.

2.3 There is no existing contingent or deferred liability for Tax of the Company including liability for Tax which would arise as a result of the execution of this Agreement or Closing or by reason of the Company otherwise ceasing to hold the Shares.

2.4 Full details of all unrelieved Tax losses, management expenses, charges on income, advance corporation tax or excess franked investment income available to the Company have been disclosed to the Buyer in the Disclosure Letter.

2.5 The Company has not entered into or been engaged in or been a party to any transaction or series of transactions or scheme or arrangement of which the main purpose or one of the main purposes was the avoidance or deferral of Tax or a reduction in the liability to Tax of the Company.

2.6 The Company is not and has not at any time in the period of six years ending with the date of this Agreement been liable to Tax in any jurisdiction other than the British Virgin Islands.

3. Corporate Matters

3.1 The Company has been duly incorporated and is validly existing and no order has been made or petition presented or resolution passed for the winding up of the Company or for an administration order in respect of the Company and no distress, execution or other process has been levied on any of its assets. The Company is not insolvent or unable to pay its debts and no administrative receiver or receiver or

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equivalent person has been appointed by any person of its business or assets or any part thereof and no power to make any such appointment has arisen.

3.2 The Seller is the legal and beneficial owner of the Shares, free and clear of any Encumbrances.

3.3 The Shares constitute all the authorized and issued shares in the capital of the Company and are fully paid up.

3.4 The Shares are issued in registered form and no certificates representing the Shares have ever been stolen, lost or destroyed.

3.5 The Company is the owner of 50% of the total issued shares of CaspiNeft, and other than the pledge in favor of BTA arising under the BTA Loans, such shares are free and clear of any Encumbrances.

3.6 The Company has no, and never has had any, subsidiary or subsidiary undertaking or any shares or participating interest in any company other than CaspiNeft.

3.7 The Company has never reduced, repaid, redeemed or purchased any of its share capital or agreed to do any of the same.

3.8 There are no options or other agreements outstanding which call for the issue of or accord to any person the right to call for the issue of any shares in the capital of the Company or other securities of the Company or the right to require the creation of any Encumbrance over the Shares or any of the assets of the Company.

3.9 The copies of the Memorandum and Articles of Association of the Company delivered to the Buyer are accurate and complete in all respects and have attached to them copies of all resolutions and agreements which are required to be so attached. The Company has complied with its Memorandum and Articles of Association in all respects and none of the activities, agreements, commitments or rights of the Company is ultra vires or unauthorized.

3.10 All statutory books of the Company are up to date and contain true full and accurate records of all matters required to be dealt with therein and the Company has not received any notice of any application or intended application under the applicable law for rectification of the Company’s register and all legal requirements relating to the issue of shares and other securities by the Company have been complied with.

4. Trading and General Commercial Matters

4.1 Other than the Joint Operating Agreement, the Company is not a party to:

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4.1.1 any contract not entered into in the ordinary course of business or not on arm’s length terms, nor any contract which cannot be terminated without penalty or other compensation on less than twelve months’ notice; or

4.1.2 any contract restricting the Company’s freedom of action in relation to its normal business activities; or

4.1.3 any agency, distribution, marketing, purchasing, franchising, licensing (whether by or to the Company), joint venture, shareholders’ or partnership arrangement or agreement or similar arrangement or agreement, other than the Joint Operating Agreement.

4.2 The Seller has delivered to the Buyer true and complete copies of all contracts to which the Company is a party under which the initial, current or potential obligations of the Company exceed US $25,000.

4.3 There are no contracts or obligations, agreements, arrangements or concerted practices involving the Company and no practices in which the Company is engaged which are void, illegal, unenforceable, registrable or notifiable under or which contravene any anti-trust legislation or regulations anywhere in the world, nor has the Company received any written threat or complaint or request for information or investigation in relation to or connection with any such legislation or regulations.

4.4 With respect to each contract, commitment, arrangement, understanding, tender and bid involving the Company:

4.4.1 the Company has duly performed and complied in all material respects with each of its obligations thereunder;

4.4.2 the Company is under no obligation which cannot readily be fulfilled, performed or discharged by it on time and without undue or unusual expenditure or effort or loss; and

4.4.3 so far as the Seller is aware, none of the other parties thereto is in default thereunder.

4.5 No person has given any guarantee of or security for any liability of the Company, nor has the Company given any guarantee of the liability of any other person.

4.6 The execution, delivery and performance of this Agreement by the Seller has been duly authorized by all necessary corporate action of the Seller and constitutes the valid, binding and enforceable obligation of the Seller, enforceable against the Seller in accordance with its terms.

4.7 The execution, delivery and performance of this Agreement will not result in the breach, cancellation or termination of any of the terms or conditions of or constitute a

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default under any agreement, commitment or other instrument affecting the Seller or the Company or by which its respective property or assets (other than CaspiNeft) may be bound or affected or result in the acceleration of any obligation under any loan agreement or the loss of the benefit of or liability to refund or repay any financial concession or violate any law or, so far as the Seller are aware, any rule or regulation of any administrative agency or governmental body or any order, writ, injunction or decree of any court, administrative agency or governmental body affecting the Seller or the Company.

4.8 So far as the Seller are aware, each consent and approval by state authorities or third parties which is necessary to effect the transactions contemplated in this Agreement has been duly granted or issued and remains in full force and effect and no steps have been taken to terminate, suspend or revoke any of the same.

4.9 The Company has no liabilities other than liabilities disclosed to the Buyer in writing in the Disclosure Letter.

4.10 The Company is not the subject of any official investigation or inquiry and the Seller are not aware of any facts which are likely to give rise to any such investigation or inquiry.

4.11 So far as the Seller are aware, the Company has complied with the requirements or conditions of all statutes, treaties, regulations, by-laws, codes, orders and other obligations of whatsoever nature relating to the Company and the carrying on of its business and has obtained and complied with all registrations, licenses and consents necessary or advisable for the carrying on of its business, and all such registrations, licenses and consents are valid and subsisting and the Seller know of no reason why any of them should be suspended, cancelled or revoked (whether as a result of the sale and purchase of the Shares pursuant to this Agreement or otherwise). So far as the Seller are aware, neither the Company, nor any of its directors, employees or agents in relation to the Company, has committed any criminal offence or any tort or any breach of any such statute, treaty, regulation, by-law or other obligation.

4.12 So far as the Seller are aware, there is no transaction to which the Company is or has been a party which may give rise to a claim for setting aside under the applicable legislation.

5. Litigation

5.1 Neither the Company nor any person for whose acts or defaults the Company may be vicariously liable are engaged whether as plaintiff or defendant or otherwise in any civil, criminal or arbitration proceedings or any proceedings before any tribunal (save for debt collection by the Company in the ordinary course of business) with respect to matters arising prior to the Closing and, so far as the Seller are aware, (i) there are no

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proceedings threatened or pending against the Company or any such person, and (ii) there are no facts which are likely to give rise to any such litigation or proceedings.

5.2 There is no litigation, pending or threatened, challenging the Seller’ ownership of any of the Shares or the Seller’ right and ability to enter into and perform this Agreement, and, so far as the Seller are aware, there are no facts which are likely to give rise to any such litigation or proceedings.

5.3 There are no administrative proceedings, pending or threatened, in the Republic of Kazakhstan relating, directly or indirectly, to the Seller’ sale of the Shares under this Agreement and, so far as the Seller are aware, there are no facts which are likely to give rise to any such proceedings.

6. Employment and Pension Matters

6.1 The Company has no employees other than those whose names, positions, salaries, and other relevant details are disclosed in the Disclosure Letter.

6.2 There is no scheme, arrangement or agreement to which the Company is a party or by which it is bound or under which it has an obligation or liability (whether actual, contingent or prospective) to contribute or to provide funding for the provision of life assurance, retirement, death, disability or other like benefits (in the form of a pension, lump sum, gratuity or otherwise) in respect of any employee of the Company, nor is any such scheme, arrangement or agreement proposed by the Company.

7. Arrangements with connected persons etc.

The Company has not been a party to any transaction or arrangement with the Seller or director or former director or any other person connected with the Seller other than arm’s length service contracts.

8. Matters since the incorporation of the Company

Since the incorporation of the Company:

8.1 there has been no interruption or alteration in the nature, scope or manner of the Company’s business which business has been carried on lawfully and in the ordinary and usual course of business;

8.2 the Company has continued to pay its creditors in the ordinary course of business and no unusual special terms have been incorporated into any contract entered into by the Company;

8.3 the Company has not become bound or liable to be called upon to repay prematurely any borrowed monies or repaid any borrowings other than indebtedness to its bankers;

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8.4 the Company has not cancelled, waived, released or discontinued any rights, debts or claims or suffered any damage destruction or loss (whether or not covered by insurance) affecting its business or assets;

8.5 the Company has not incurred any capital expenditure or made any material capital commitment or disposed of any material assets; and

8.6 no dividends, bonuses or other distributions have been declared, paid or made in respect of the Shares.

9. Accuracy of Information Provided

9.1 All written replies to enquiries given to the Buyer and its professional advisers by the Seller, the officers and employees of

the Company, the Seller’ professional advisers and the Company’s advisers during the negotiations prior to this Agreement was when given and is at the date hereof true and accurate in all material respects.

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SCHEDULE 2

LIMITATIONS OF LIABILITY

1. Scope

The Buyer shall not be entitled to claim for any indirect or consequential loss or loss of profit.

2. Cap on liability

The aggregate liability of the Seller in respect of all and any Claims shall not exceed an amount equal to the aggregate of the Purchase Price actually received by the Seller.

3. Time limits for making Claims

3.1 No Claim may be made against the Seller unless notice (complying with the provisions of paragraph 3.2 below) of such Claim is served on the Seller in writing, within 12 months of Closing, provided that the liability of the Seller shall cease absolutely unless within 12 months of service of such notice, legal proceedings in respect of such Claim have been properly issued and validly served on the Seller (or, in the case of a Claim for which, at the time at which the same is notified to the Seller, the Seller does not have a liability pursuant to paragraph 6.1, issue and validly serve legal proceedings within 12 months of the date on which the Seller does have a liability for that Claim for the purposes of paragraph 6.1).

3.2 A notice of Claim shall specify in reasonable detail the specific matter in respect of which the Claim is made and where practicable a calculation of the amount claimed.

3.3 The Buyer shall provide notice to the Seller of the relevant facts and circumstances relating to any Claim as soon as reasonably practicable after it became aware that the relevant facts and circumstances would give rise to a Claim.

4. Right to Remedy

The Seller shall not be liable for any Claim if the alleged breach which is the subject of the Claim is capable of remedy, and is remedied to the reasonable satisfaction of the Buyer by the Seller (at the Seller’ cost) within 30 days of the date on which the notice in paragraph 3.1 above is received by the Seller (and the Buyer agrees to use all reasonable endeavours to assist and to procure the assistance of the Company in remedying such breach at the reasonable cost of the Seller).

5. Contingent liabilities

No liability shall attach to the Seller in respect of any Claim to the extent that the Claim is based upon a liability which is contingent only or is otherwise not capable of

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being quantified unless and until such liability ceases to be contingent and becomes an actual liability or becomes capable of being quantified, as the case may be, provided that this paragraph shall not operate to avoid a Claim made in respect of a contingent or unquantifiable liability within the applicable time limits specified in paragraph 3 of this schedule if the notice of such Claim has been served before the expiry of the relevant period (although the Seller shall have no liability if the contingent liability has not become actual or quantifiable (as the case may be) (and legal proceedings commenced) within 18 months of Closing).

6. Threshold and de minimis

6.1 The Seller shall not be liable in respect of any Claim unless the aggregate liability for all Claims, which it would in the absence of this provision be liable, exceeds US$250,000, in which case the Seller shall be liable for the entire amount and not merely the excess.

6.2 In calculating liability for Claims for the purposes of paragraph 6.1 above, any Claim which is less than US$25,000 (excluding interest, costs and expenses) shall be disregarded (provided that Claims under the same Warranty in respect of similar facts and circumstances may be aggregated for these purposes).

7. Changes in legislation

7.1 The Seller shall not be liable in respect of a Claim to the extent that such Claim would not have arisen but for, or is increased directly or indirectly as a result of:

7.1.1 the passing of, or a change in, a law, rule, regulation, interpretation of the law or administrative practice of a government, governmental department, agency or regulatory body in any case occurring after the date of this Agreement; or

7.1.2 an increase in the Taxation rates or an imposition of Taxation in each case not actually or prospectively in force at the date of this Agreement; or

7.1.3 the change by statute or by any regulatory or other body of any accounting policy or a change in the application of any accounting policy or estimation technique in the preparation of financial statements by the Buyer or any member of the Buyer’s Group.

8. Acts of Buyer

The Seller shall not be liable in respect of a Claim to the extent that such Claim is attributable to, or is increased directly or indirectly as a result of any act, omission, transaction or arrangement carried out with the prior written approval of the Buyer whether before or at Closing.

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9. Mitigation

The Buyer shall and shall procure in respect of each member of the Buyer’s Group that, all reasonable steps are taken by it and each member of the Buyer’s Group and all reasonable assistance is given by it and each member of the Buyer’s Group to avoid or mitigate any loss or liability (without prejudice to any similar obligation existing at law generally or any other specific term of this Agreement) which might give rise to any Claim.

10. Recovery from another person

Prior recovery

10.1 If the Buyer, or any member of the Buyer’s Group, recovers (whether by payment, discount, credit, relief or otherwise) from a third party an amount which directly relates to a Claim and reduces the Loss under the Claim, any actual recovery (less any reasonable costs incurred in obtaining such recovery and less any Tax attributable to the recovery after taking account of any tax relief available in respect of any matter giving rise to the Claim) shall to that extent reduce or satisfy, as the case may be, such Claim.

Subsequent recovery

10.2 If the Seller pay an amount in respect of a Claim and the Buyer, or any member of the Buyer’s Group, subsequently recovers (whether by payment, discount, credit, relief or otherwise) from a third party an amount from any third party which directly relates to the Claim and reduces the Losses under the Claim, the Buyer shall procure that the relevant member of the Buyer’s Group shall pay to the Seller an amount equal to the amount recovered from the third party (less any reasonable costs and expenses incurred in obtaining such recovery but not reimbursed by the Seller and after deducting any amount of loss incurred by the Buyer in respect of the Claim not compensated by the Seller) or, if lower, the amount previously paid by the Seller to the Buyer in respect of the Claim.

11. Conduct of Claims

Access to and preservation of information

11.1 If a member of the Buyer’s Group becomes aware of any claim or any matter or circumstance which gives rise to a Claim or an entitlement to recover (whether by payment, discount, credit, relief or otherwise) from a third party an amount which relates to the subject matter of a Claim:

11.1.1 the Buyer shall as soon as reasonably practicable give written notice to and consult with the Seller in respect of the claim, matter, circumstance or entitlement;

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11.1.2 the Buyer shall, and shall procure that each member of the Buyer’s Group shall:

11.1.2.1 at the written request and the cost of the Seller take such reasonable action or (at the Seller’s option) permit the Seller to take such reasonable action to avoid, dispute, resist, appeal, defend, compromise or settle the Claim (including, without limitation, make any counterclaims or other claims against third parties) and any related adjudication or proceedings, and to conduct matters relating thereto including negotiations or appeals, subject to the Buyer and/or the relevant member of the Buyer’s Group being entitled to employ its own legal advisors and being indemnified by the Seller against all Losses that arise directly pursuant to the Seller taking conduct of such Claim;

11.1.2.2 provide to the Seller and its advisers during normal business hours, provided reasonable notice has been given, with reasonable access to premises and personnel and to relevant assets, documents and records within each member of the Buyer’s Group’s power or control for the purposes of investigating the matter or entitlement which allegedly gives rise to the Claim; and

11.1.2.3 preserve all documents, records, correspondence, accounts, electronically stored data and other information whatsoever relevant to a matter which may give rise to a Claim.

11.1.3 the Seller (at their cost) may on reasonable notice and during normal business hours examine and take copies of the documents or records and photograph the premises or assets referred to in paragraph 11.1(b) above.

12. Third party claims

12.1 If a Claim is as a result of, or in connection with, a claim by or a liability to a third party or if, in respect of any Claim, a member of the Buyer’s Group has any right of action, indemnity or contribution from or against any third party, then the Buyer shall and shall procure that each member of the Buyer’s Group shall (subject to the Buyer and/or the relevant member of the Buyer’s Group being entitled to employ its own legal advisors and being indemnified by the Seller against all Losses that arise directly pursuant to the Seller taking conduct of such Claim):

12.1.1 take all reasonable steps to enforce any right of recovery;

12.1.2 make no admission of liability in respect of, or compromise, dispose of or settle, any claim without the written consent of the Seller, such consent not to be unreasonably withheld; and

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12.1.3 allow the Seller at its own expense and in their absolute discretion to take such reasonable action, as described in paragraph 11.1(b)(i) above.

13. Insurance policies

In respect of any matter which would give rise to a Claim, if the Company and/or its Subsidiaries is entitled to claim under any policy of insurance, then no such matter shall be the subject of a Claim unless and until the Buyer or, as the case may be, the relevant member of the Buyer’s Group shall have made a claim against its insurers and used all reasonable endeavours to pursue such claim and such claim has been settled or rejected by such insurer; and any such insurance claim shall be dealt with in accordance with paragraph 10.1 (Prior recovery) and paragraph 10.2 (Subsequent recovery).

14. Buyer’s Knowledge

The Seller shall not be liable for any Claim under this Agreement if and to the extent that (i) any director of a member of the Buyer’s Group, or (ii) the General Counsel of the Buyer were actually aware at the date of this Agreement of the subject matter of the Claim and that such facts would give rise to a Claim.

15. Taxation

15.1 No Claim may be made against the Seller:

15.1.1 to the extent that the Claim is in respect of Taxation and such Taxation would not have arisen but for, or has been increased directly or indirectly as a result of a disclaimer, claim or election made or notice or consent given after Closing by a member of the Buyer’s Group otherwise than at the request of the Seller; or

15.1.2 to the extent that the Claim is in respect of Taxation and such Taxation arises from any change in the accounting or Taxation policy (except where such change is required by law or is reasonably necessary so as to ensure compliance with generally accepted accounting principles), introduced or having effect on or after Closing; or

15.1.3 to the extent that the Claim is in respect of Taxation and such Taxation arises from any increase of rates of Taxation or imposition of new Taxation legislation or any change in applicable law or practice made or coming into effect after Closing or the withdrawal of any extra statutory concession currently granted by any Taxing Authority after the date of Closing.

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15.2 In calculating the liability of the Seller for any Claim, there shall be taken into account the amount by which any Taxation for which the Buyer or any member of the Buyer’s Group is now or may in the future be accountable or liable to be assessed is reduced or extinguished as a result of the matter giving rise to such liability and any repayment of Taxation which would not have arisen but for the matter giving rise to such liability.

16. CaspiNeft operations

The Seller shall not be liable under any of the Warranties (or under Article 6.6) to the extent that any of the Warranties are deemed to relate to the business or operations of CaspiNeft.

17. No double recovery

The Buyer shall not be entitled to recover from the Seller more than once for the same damage suffered.

18. Net Benefit

The Seller shall not be liable for any Claim to the extent that the subject of the Claim has been or is made good without cost or loss to the Buyer’s Group or to the Company or any Subsidiaries.

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EX-10.2

Exhibit 10.2

Deed of Amendment

relating to a Share Sale and

Purchase Agreement dated

14 October 2005

Dated 12 December 2005

SEERIA ALLIANCE LTD. (1)

TRANSMERIDIAN EXPLORATION, INC. (2)

Ref: 1410/F20168.3/CP1:203936.4/taab

DATE 12 December 2005, with effect from 8 December 2005

PARTIES

(1) SEERIA ALLIANCE LTD., a company incorporated under the International Business Companies Act of the British Virgin Islands (CAP.291) (IBC registration number 507352 ), whose registered office is at c/o Mossack Fonseca & Co. (BVI) Ltd., Akara Building, 24 DeCastro Street, Wickhams Cay I, P.O. Box 3136, Road Town, Tortola, British Virgin Islands (the “Seller”); and

(2) TRANSMERIDIAN EXPLORATION, INC., a company incorporated under the International Business Companies Act of the British Virgin Islands (CAP.291) (IBC registration number 205858), whose registered office is at c/o Nerine Trust Company (BVI) Limited, Quastisky Building, 3^rd Floor, P.O. 905, Road Town, Tortola, British Virgin Islands (the “Buyer”).

INTRODUCTION

The parties hereto entered into a share sale and purchase agreement on 14 October 2005 (the “SPA”) and now wish to amend the SPA in accordance with and as contemplated by Article 10.15 of the SPA on the basis set out in this Deed.

OPERATIVE PROVISIONS

1 Unless otherwise defined in this Deed, all capitalised terms used herein shall have the same respective meanings ascribed to them in the SPA. References to Article numbers are to Article numbers in the SPA.

2 The parties acknowledge and confirm that it was their intention at the time that the SPA was signed, that the Warranties should not be given or made on signing the SPA and would not take effect as of 14 October 2005, but that the Warranties will only be given and deemed to be given on and with effect from the date of the Disclosure Letter. The Buyer hereby waives any rights or claims which it may have as a result of at the time the SPA was signed, reference was made in the SPA to the Warranties being given and made on signing the SPA.

3 The parties hereby agree that the SPA shall be amended as follows:

(a) the words “The Buyer hereby waives (and procures that CaspiNeft shall waive) any breach of the Joint Operating Agreement that may occur by virtue of the Seller and/ or the Company failing to respond to the Cash Call issued pursuant to this paragraph 3.8.2; provided however that in the event a third party successfully claims for and obtains title to all the Shares during the period of twelve (12) months following Closing, then one-half of the BTA Debt loaned by the Buyer to CaspiNeft shall be deemed to have been funding by the Buyer (as the Financing Shareholder) on behalf of the Company (as the Non-Financing Shareholder) for purposes of the Joint Operating Agreement. In such case, the Company (as the Non-Financing Shareholder) shall be obliged to pay to the Buyer (as the Financing Shareholder) an amount equal to one-half of the BTA Debt, together with Interest, within thirty (30) calendar days after receiving written notification from the Buyer in accordance with Section 7.2(C) of the Joint Operating Agreement (and if it does so, the Seller shall be deemed to have waived its rights to the loan of the amount from CaspiNeft which loan shall terminate and be cancelled), failing which the provisions of Section 7.2(D) and 7.2(E) of the Joint Operating Agreement shall apply.)” be inserted after the word “share.” in the last line of Article 3.8.2;

(b) the words “, but, for the avoidance of doubt, this does not relate to any principal or interest (or otherwise) which may become due and owing in the case of an event of

default or breach under the BTA Loan Agreements.” be inserted before the words “(“BTA Debt Deferral”).” in the last line of Article 3.11;

(c) the words “the Buyer delivering a certificate in the agreed form signed by Lorrie Olivier, President of the Buyer stating that the Buyer has cleared funds available and unconditionally committed for the purposes of full satisfaction of its payment obligations under this Agreement (the “Certificate”) to the Seller no later than two Banking Days before Closing. “ shall be inserted as a new clause 4.1.10;

(d) the existing Article 4.2 be deleted and replaced with the words “The Buyer may waive all or any of the conditions set out at 4.1.1 to 4.1.9 inclusive at any time by notice in writing given to the Seller, and the Seller may waive the condition set out at 4.1.10 at any time by notice in writing given to the Buyer.”;

(e) the words “by the Seller and the Company” shall be inserted after the words “Company and” in the third line of Article 5.2.7;

(f) the words “and Article 8.4” in the last line of Article 4.5 be deleted and replaced with the words “, Article 8.4 and Article 8.5”;

(g) the words “deliver an opinion of Walkers (British Virgin Islands office), dated the date of the Closing, in a form and substance reasonably satisfactory to the Seller stating that (i) immediately prior to Closing and upon Closing, the Buyer is duly incorporated, validly existing and in good standing under the laws of the British Virgin Islands, (ii) no legal proceedings are pending against the Buyer in the British Virgin Islands; (iii) the Agreement will be treated by the courts of the British Virgin Islands as legally binding, valid and enforceable obligations of the Buyer and (iv) the Buyer had authority to enter into this Agreement and related agreements and is able to perform its obligations under this Agreement and related agreements.” shall be inserted as a new Article 5.3.3;

(h) the word “now” in the last line of Article 6.1 shall be deleted and the words “as at the date of the Disclosure Letter” should be added after the words “true and accurate”;

(i) the words “at any time after Closing” shall be inserted after the word “event” in the second line of Article 6.5;

(j) the words “this Article 6.6” in the second last line of Article 6.5 shall be deleted and replaced with the words “this Article 6.5” and reference to Article 6.6 in the definition of “Claim” shall be replaced by reference to Article 6.5;

(k) the words “Articles 6.3 and 6.4” in the third line of Article 6.12 shall be deleted and replaced with the words “Article 6.3”;

(l) the words “The Seller shall not” in the first line of Article 8.4 shall be deleted and shall be replaced with the words “Until the earlier of the Closing and the termination of this Agreement under Article 4.5 or otherwise, the Seller shall not”;

(m) the words “satisfy condition 4.1.10 or, condition 4.1.10 having been satisfied, due to a breach by the Buyer of” be inserted after the words “Buyer to” in the first line of Article 8.5 and delete the words “comply with” in the same line;

(n) the word “shall” in the second line of Article 8.5 shall be deleted and the words “may at its option: (i)” shall be inserted in its place and the punctuation mark “.” at the end of Article 8.5 shall be deleted and the words “; or (ii) make a claim against the Buyer under the terms of the Agreement, provided that the Seller may exercise only one of the options outlined above.”;

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(o) the words “, which consent shall not be unreasonably withheld or delayed” shall be deleted after the word “Party” in the fourth line of Article 10.1;

(p) the words “use its reasonable endeavours to” shall be inserted after the word “shall” in the seventh line of Article 10.12;

(q) the words “in relation to the affairs of the Company” shall be inserted after the word “Tax” in the last line of paragraph 2.2 of Schedule 1;

(r) the word “written” shall be inserted before the word “contracts” in the first line of paragraph 4.2 of Schedule 1;

(s) the word “and” shall be inserted after the word “codes” in the second line of paragraph 4.11 of Schedule 1 and the words “and other obligations of whatsoever nature” shall be deleted after the word “orders” in the second line of paragraph 4.11 of Schedule 1;

(t) the words “Notwithstanding the provisions of General Loan Agreement No 2000/04/87 and the related loan agreements (all referred to in the Disclosure Letter under the headings “Warranties 4.9 and 7” the Company has not created any Encumbrances over its assets.” shall be inserted as a new paragraph 4.13 of Schedule 1;

(u) the brackets and the words in brackets starting with the word “or” in the fifth line of paragraph 3.1 of Schedule 2 and ending with the words “paragraph 6.1” in the last line of paragraph 3.1 of Schedule 2 shall be deleted;

(v) the words “but not reimbursed by the Seller and after deducting any” starting on the seventh line of paragraph 10.2 of Schedule 2 shall be deleted and replaced with the words “and after deducting half of the”;

(w) paragraph 16 of Schedule 2 shall be deleted and replaced with the words “[Intentionally deleted.]” and a new Article 6.15 shall be inserted containing the words “The Warranties are not given in relation to the business or operations of CaspiNeft and the Seller shall not be liable under any of the Warranties (or under Article 6.6) to the extent that any of the Warranties are deemed to relate to the business or operations of CaspiNeft.”; and

(x) the words “or is otherwise compensated for” shall be inserted after the words “made good” in the second line of paragraph 18 of Schedule 2.

4 Subject to the terms of this Deed:

(a) the SPA shall remain in full force and effect unamended and shall be read and construed as one document with this Deed; and

(b) nothing in this Deed shall constitute a waiver or release of either of the parties or otherwise prejudice any right or remedy of either of the parties under the SPA.

5 This Deed is governed by and is to be construed in accordance with the laws of England and the parties hereby agree to submit to the exclusive jurisdiction of the English courts.

6 This Deed may be executed in any number of counterparts, each of which shall be deemed to be an original, and which together shall constitute one and the same agreement.

7 A conformed copy of the SPA showing the amendments effected by this deed appears at the Schedule.

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SCHEDULE

Conformed copy of the SPA

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This DEED has been signed as a deed and delivered on the date first stated on the first page of this Deed.

EXECUTED AS A DEED		)
By:	/s/ Raushan Kizdarbekova	)
as attorney for		)
SEERIA ALLIANCE LTD.		)
in the presence of: /s/ Konstantin Saranchuk		)

EXECUTED AS A DEED		)
By:	/s/Lorrie Olivier	)
as attorney for		)
TRANSMERIDIAN EXPLORATION, INC.		)
in the presence of /s/ Nicolas J. Evanoff		)

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EX-10.5

Exhibit 10.5

Execution Version

PLEDGE AGREEMENT

THIS PLEDGE AGREEMENT (this “Pledge Agreement”), dated as of December 22, 2005, is by and between Transmeridian Exploration Inc., a British Virgin Islands company (“Pledgor”), The Bank of New York, in its capacity as Collateral Agent for the benefit of the Trustee referred to below and the holders of the Notes referred to below (in such capacity, the “Collateral Agent”), and The Bank of New York, in its capacity as Trustee under the Indenture referred to below (in such capacity, the “Trustee”).

RECITALS

WHEREAS, pursuant to that certain Indenture, dated as of the date hereof, by and among Pledgor, the Trustee and the guarantors party thereto (the “Indenture”), Pledgor has issued an aggregate $250 million principal amount of its Senior Secured Notes due 2010 (the “Notes”); and

WHEREAS, pursuant to the terms of the Indenture, the Notes, and Pledgor’s payment obligations under the Indenture, including obligations to the Trustee, will be secured by a pledge of all of the capital stock held by Pledgor in Transmeridian (Kazakhstan) Incorporated, a British Virgin Islands company, and in Bramex Management, Inc., a British Virgin Islands company, and by a pledge of all of the capital stock directly held by Pledgor in any future subsidiary.

NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows:

1. Definitions. Unless otherwise defined herein, capitalized terms used herein shall have the meanings ascribed to such terms in the Indenture, and the following terms that are defined in the Uniform Commercial Code from time to time in effect in the State of New York (the “UCC”) are used herein as so defined: Certificated Security, Control, Entitlement Order, Financial Asset, Investment Company Security, Securities Account, Security, Security Entitlement, Securities Intermediary and Uncertificated Security.

2. Pledge and Grant of Security Interest. Subject to the terms and conditions of this Agreement and to secure the performance of the Secured Obligations (as defined in Section 3 hereof), Pledgor hereby pledges and grants to the Collateral Agent, for the benefit of the Trustee and the holders of the Notes, a continuing security interest in any and all right, title and interest of Pledgor in and to the following, whether now owned or existing or owned, acquired, or arising hereafter (collectively, the “Pledged Collateral”):

(a) Pledged Capital Stock. All of the issued and outstanding Capital Stock directly owned by Pledgor of each Person set forth on Schedule 2(a) attached hereto (collectively, together with the Capital Stock and other interests described in clauses (A) and (B) and in Section 2(b) below, the “Pledged Capital Stock”), including, but not limited to, the following:

(A) all shares, securities, membership interests or other equity interests representing a dividend on any of the Pledged Capital Stock, or representing a distribution or return of capital upon or in respect of the Pledged Capital Stock, or

resulting from a stock split, revision, reclassification or other exchange therefor, and any subscriptions, warrants, rights or options issued to the holder of, or otherwise in respect of, the Pledged Capital Stock; and

(B) without affecting the obligations of Pledgor under any provision prohibiting such action hereunder or under the Indenture, in the event of any consolidation or merger involving the issuer of any Pledged Capital Stock and in which such issuer is not the surviving entity, all shares of each class of the Capital Stock of the successor entity formed by or resulting from such consolidation or merger.

(b) Additional Interests. Any and all other Capital Stock or other equity interests directly owned by Pledgor in any Person now or in the future, whether or not reflected on Schedule 2(a) and whether or not Schedule 2(a) is amended to refer to such additional interests.

(c) Proceeds. All proceeds and products of the foregoing, however and whenever acquired and in whatever form, subject to Section 10(e).

Without limiting the generality of the foregoing, it is hereby specifically understood and agreed that Pledgor may from time to time hereafter pledge and deliver additional shares of Capital Stock or other equity interests to the Collateral Agent as collateral security for the Secured Obligations. Upon such pledge and delivery to the Collateral Agent, such additional shares of Capital Stock or other equity interests shall be deemed to be part of the Pledged Collateral and shall be subject to the terms of this Pledge Agreement whether or not Schedule 2(a) is amended to refer to such additional shares or interests.

3. Security for Secured Obligations. The security interest created hereby in the Pledged Collateral of Pledgor constitutes continuing collateral security for all of the following, whether now existing or hereafter incurred (the “Secured Obligations”): (a) the Guarantee and (b) all expenses and charges, legal and otherwise, incurred by the Collateral Agent, the Trustee and/or the holders of the Notes in enforcing the Guarantee or in realizing on or protecting any security therefor, including without limitation the security granted hereunder.

4. Delivery of the Pledged Collateral; Perfection of Security Interest. Pledgor hereby agrees that:

(a) Delivery of Certificates and Instruments. Pledgor shall deliver as security to the Collateral Agent, (i) simultaneously with or prior to the execution and delivery of this Pledge Agreement, all certificates representing the Pledged Capital Stock owned by Pledgor, together with the delivery of signed, undated stock transfer forms for the Pledged Capital Stock to the Collateral Agent or its designee; and (ii) promptly upon the receipt thereof by or on behalf of Pledgor, all other certificates and instruments constituting Pledged Collateral owned by Pledgor. Prior to delivery to the Collateral Agent, all such certificates and instruments constituting Pledged Collateral of Pledgor shall be held in trust by Pledgor for the benefit of the Collateral Agent pursuant hereto. All such certificates shall be delivered in suitable form for transfer by delivery or shall be accompanied by duly executed instruments of transfer or assignment in blank, in forms reasonably acceptable to the Collateral Agent.

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(b) Additional Securities. If Pledgor shall receive by virtue of its being or having been the owner of any Pledged Collateral, any (i) certificate, including without limitation, any certificate representing a dividend or distribution in connection with any increase or reduction of capital, reclassification, merger, consolidation, sale of assets, combination of shares of Capital Stock, stock splits, spin-off or split-off, promissory notes or other instruments; (ii) option or right, whether as an addition to, substitution for, or an exchange for, any Pledged Collateral or otherwise; (iii) dividends payable in Capital Stock; or (iv) distributions of Capital Stock or other equity interests in connection with a partial or total liquidation, dissolution or reduction of capital, capital surplus or paid-in surplus, then Pledgor shall receive such certificate, instrument, option, right or distribution in trust for the benefit of the Collateral Agent, shall segregate it from Pledgor’s other property and shall deliver it forthwith to the Collateral Agent in the exact form received accompanied by duly executed instruments of transfer or assignment in blank, in forms reasonably acceptable to the Collateral Agent, to be held by the Collateral Agent as Pledged Collateral and as further collateral security for the Secured Obligations.

(c) Financing Statements; Other Perfection Actions. Pledgor hereby agrees to prepare and file such financing statements (including continuation statements) or amendments thereof or supplements thereto or other instruments as are necessary or appropriate in order to perfect and maintain the security interests granted hereunder in accordance with the UCC that specifically describes the Pledged Collateral in such manner as is necessary or advisable. Pledgor shall also execute and deliver to the Collateral Agent and/or file such agreements, assignments or instruments (including affidavits, notices, reaffirmations, amendments and restatements of existing documents and, subject to the terms of the Indenture, any documents as may be necessary if the law of any jurisdiction other than New York becomes or is applicable to the Pledged Collateral or any portion thereof, in each case, including as the Collateral Agent may reasonably request) and do all such other things as are necessary or appropriate (i) to assure to the Collateral Agent its security interests hereunder are perfected, including such financing statements (including continuation statements) or amendments thereof or supplements thereto or other instruments, including as the Collateral Agent may from time to time reasonably request in order to perfect and maintain the security interests granted hereunder in accordance with the UCC and any other personal property security legislation in the appropriate jurisdictions, (ii) to consummate the transactions contemplated hereby and (iii) to otherwise protect and assure the Collateral Agent of its rights and interests hereunder.

Pledgor shall create a register of mortgages, charges and other encumbrances (the “Register”) pursuant to section 70A of the International Business Companies Act (Cap 291) of the laws of the British Virgin Islands and within 21 days of entering into this Pledge Agreement shall (i) enter particulars of this Pledge Agreement in the Register in a form and substance satisfactory under applicable law; and (ii) file a copy of the Register with the Registry of Corporate Affairs in the British Virgin Islands.

(d) With respect to the pledged Capital Stock of the Issuer, Pledgor shall request and procure the entry on the share register of the Issuer of (i) a statement that the Capital Stock is charged; (ii) the name of the Collateral Agent; and (iii) the date on which the aforesaid particulars are entered into the share register. In addition, the Pledgor shall procure the filing of same with the Registrar of Corporate Affairs in the British Virgin Islands.

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5. Representations and Warranties. Pledgor hereby represents and warrants to the Collateral Agent for the benefit of the Trustee and the holders of the Notes that:

(a) Authorization of Pledged Capital Stock. The Pledged Capital Stock is duly authorized and validly issued, is fully paid and nonassessable and is not subject to the preemptive rights of any Person.

(b) Title. Pledgor has good and indefeasible title to the Pledged Collateral and will at all times be the legal and beneficial owner of such Pledged Collateral free and clear of any Lien, other than Permitted Liens. There exists no “adverse claim” within the meaning of Section 8-102 of the UCC with respect to the Pledged Capital Stock.

(c) Exercising of Rights. The exercise by the Collateral Agent of its rights and remedies hereunder will not violate any law or governmental regulation or any material contractual restriction binding on or affecting Pledgor or any of its property.

(d) Pledgor’s Authority. No authorization, approval or action by, and no notice or filing with any Governmental Authority, the issuer of any Pledged Capital Stock or third party is required either (i) for the pledge made by Pledgor or for the granting of the security interest by Pledgor pursuant to this Pledge Agreement or (ii) for the exercise by the Collateral Agent, the Trustee or the holders of the Notes of their rights and remedies hereunder (except as may be required by laws affecting the offering and sale of securities).

(e) Security Interest/Priority. This Pledge Agreement creates a valid security interest in favor of the Collateral Agent, for the benefit of the Trustee and the ratable benefit of the holders of the Notes, in the Pledged Collateral. The taking of possession by the Collateral Agent of the certificates (if any) representing the Pledged Capital Stock and the relevant stock transfer forms and all other certificates and instruments constituting Pledged Collateral will perfect and establish the first priority of the Collateral Agent’s security interest in all certificated Pledged Capital Stock and such certificates and instruments. The Collateral Agent shall have a first priority perfected security interest in all uncertificated Pledged Capital Stock consisting of partnership or limited liability company interests that do not constitute a Security pursuant to Section 8-103(c) of the UCC upon the filing by Pledgor of such financing statements or other documents and/or taking by Pledgor of such other actions as may be required in Pledgor’s jurisdiction of organization and/or in the jurisdiction of organization of such partnership or limited liability company in order to perfect such security interest. With respect to any Pledged Collateral consisting of an Uncertificated Security or a Security Entitlement or any Pledged Collateral held in a Securities Account, upon execution and delivery by Pledgor, the Collateral Agent and the applicable Securities Intermediary or the applicable issuer of the Uncertificated Security of an agreement granting Control to the Collateral Agent over such Pledged Collateral, the Collateral Agent shall have a first priority perfected security interest in such Pledged Collateral. Except as set forth in this Section 5(e), no action is necessary to perfect the Collateral Agent’s security interest.

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6. Covenants. Pledgor hereby covenants and agrees with the Collateral Agent that Pledgor shall:

(a) Defense of Title. Warrant and defend title to and ownership of the Pledged Collateral at its own expense against the claims and demands of all other parties claiming an interest therein; keep the Pledged Collateral free from all Liens, other than Permitted Liens; and not sell, exchange, transfer, assign, lease or otherwise dispose of the Pledged Collateral or any interest therein, except as permitted under the Indenture.

(b) Further Assurances. Subject to the terms of the Indenture, promptly execute and deliver at its expense all further instruments and documents and take all further action that may be necessary and desirable or that the Collateral Agent may request in order to (i) perfect and protect the security interest created hereby in the Pledged Collateral (including, without limitation, execution and delivery of one or more control agreements reasonably acceptable to the Collateral Agent, filing of UCC financing statements and any and all other actions reasonably necessary to satisfy the Collateral Agent that the Collateral Agent has obtained a first priority perfected security interest in all Pledged Collateral); and (ii) enable the Collateral Agent to exercise and enforce its rights and remedies hereunder in respect of the Pledged Collateral.

(c) Amendments. Not make or consent to any amendment or other modification or waiver with respect to any of the Pledged Collateral or enter into any agreement or allow to exist any restriction with respect to any of the Pledged Collateral other than pursuant hereto or as may be permitted under the Indenture.

(d) Compliance with Securities Laws. File all reports and other information now or hereafter required to be filed by Pledgor with the United States Securities and Exchange Commission and any other state, federal or foreign agency in connection with the ownership of the Pledged Collateral.

7. Performance of Obligations; Advances by Collateral Agent. On failure of Pledgor to perform any of the covenants and agreements contained herein, the Collateral Agent may, at its sole option and in its sole discretion, but shall not be required to, perform or cause to be performed the same and in so doing may expend such sums as the Collateral Agent may reasonably deem advisable in the performance thereof, including, without limitation, the payment of any insurance premiums, the payment of any taxes, a payment to obtain a release of a Lien or potential Lien (other than in either case a Permitted Lien), expenditures made in defending against any adverse claim and all other expenditures which the Collateral Agent may make for the protection of the security interest hereof or may be compelled to make by operation of law. All such sums and amounts so expended shall be repayable by Pledgor promptly upon timely notice thereof and demand therefor and shall constitute additional Secured Obligations. No such performance of any covenant or agreement by the Collateral Agent on behalf of Pledgor, and no such advance or expenditure therefor, shall relieve Pledgor of any default under the terms of this Pledge Agreement or the Indenture. The Collateral Agent may make any payment hereby authorized in accordance with any bill, statement or estimate procured from the appropriate public office or holder of the claim to be discharged without inquiry into the accuracy of such bill, statement or estimate or into the validity of any tax assessment, sale, forfeiture, tax lien, title or claim except to the extent it receives written notice from Pledgor that such payment is being contested in good faith by Pledgor in appropriate proceedings and against which adequate reserves are being maintained in accordance with GAAP.

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Pledgor covenants and agrees to indemnify the Collateral Agent to the same extent as the Trustee is indemnified under the terms of the Indenture by the Issuer of the Notes, for any claims, costs, liabilities or expense of any kind (including the fees and expenses of counsel) arising out of or in connection with performance of its duties hereunder or with respect to the Escrow Agreement, and such expenses shall, until paid in full, constitute additional Secured Obligations.

8. Events of Default. The occurrence of an event which under the Indenture would constitute an Event of Default shall be an event of default hereunder (an “Event of Default”).

9. Remedies.

(a) General Remedies. Upon the occurrence of an Event of Default and during the continuation thereof, the Collateral Agent shall have, in respect of the Pledged Collateral, in addition to the rights and remedies provided herein and in the Indenture, the rights and remedies of a secured party under the UCC or any other applicable law.

(b) Sale of Pledged Collateral. Upon the occurrence of an Event of Default and during the continuation thereof, without limiting the generality of this Section 9 and without notice, the Collateral Agent may, in its sole discretion, sell or otherwise dispose of or realize upon the Pledged Collateral, or any part thereof, in one or more parcels, at public or private sale, at any exchange or broker’s board or elsewhere, at such price or prices and on such other terms as the Collateral Agent may deem commercially reasonable, for cash, credit or for future delivery or otherwise in accordance with applicable law. To the extent permitted by law, any holder of the Notes may, in such event, bid for the purchase of such securities. Pledgor agrees that, to the extent notice of sale shall be required by law and has not been waived by Pledgor, any requirement of reasonable notice shall be met if notice, specifying the place of any public sale or the time after which any private sale is to be made, is personally served on or mailed, postage prepaid, to Pledgor, in accordance with Section 16 at least ten (10) days before the time of such sale. The Collateral Agent shall not be obligated to make any sale of Pledged Collateral regardless of notice of sale having been given. The Collateral Agent may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(c) Private Sale. Upon the occurrence of an Event of Default and during the continuation thereof, Pledgor recognizes that the Collateral Agent may deem it impracticable to effect a public sale of all or any part of the Pledged Collateral and that the Collateral Agent may, therefore, determine to make one or more private sales of any such Pledged Collateral to a restricted group of purchasers who will be obligated to agree, among other things, to acquire such Pledged Collateral for their own account, for investment and not with a view to the distribution or resale thereof. Pledgor acknowledges that any such private sale may be at prices and on terms less favorable to the seller than the prices and other terms which might have been obtained at a public sale and, notwithstanding the foregoing, agrees that such private sale shall be deemed to have been made in a commercially reasonable manner and that the Collateral Agent shall have no obligation to delay sale of any such Pledged Collateral for the period of time necessary to permit the issuer of such Pledged Collateral to register such Pledged Collateral for public sale under the Securities Act of 1933. Pledgor further acknowledges and agrees that any offer to sell such Pledged Collateral which has been (i) publicly advertised on a bona fide basis

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in a newspaper or other publication of general circulation in the financial community of New York, New York (to the extent that such offer may be advertised without prior registration under the Securities Act of 1933), or (ii) made privately in the manner described above, shall be deemed to involve a “public sale” under the UCC, notwithstanding that such sale may not constitute a “public offering” under the Securities Act of 1933, and the Collateral Agent or any holder of the Notes may, in such event, bid for the purchase of such Pledged Collateral, in each case except to the extent limited or prohibited by applicable law.

(d) Retention of Pledged Collateral. In addition to the rights and remedies hereunder, upon the occurrence of an Event of Default and during the continuation thereof, the Collateral Agent may, after providing the notices required by Sections 9-620 and 9-621 of the UCC (or any successor sections of the UCC) or otherwise complying with the notice requirements of applicable law of the relevant jurisdiction, accept or retain all or any portion of the Pledged Collateral in satisfaction of the Secured Obligations. Unless and until the Collateral Agent shall have provided such notices, however, the Collateral Agent shall not be deemed to have retained any Pledged Collateral in satisfaction of any Secured Obligations for any reason.

(e) Deficiency. In the event that the proceeds of any sale, collection or realization are insufficient to pay all amounts to which the Collateral Agent, the Trustee or the holders of the Notes are legally entitled, Pledgor shall be liable for the deficiency, together with the costs of collection and the reasonable fees of any attorneys employed by the Collateral Agent to collect such deficiency. Any surplus remaining after the full payment and satisfaction of the Secured Obligations shall be returned to Pledgor or to whomsoever a court of competent jurisdiction shall determine to be entitled thereto.

(f) Other Security. To the extent that any of the Secured Obligations are now or hereafter secured by property other than the Pledged Collateral (including, without limitation, real and other personal property owned by Pledgor), or by a guarantee, endorsement or property of any other Person, then the Collateral Agent shall have the right to proceed against such other property, guarantee or endorsement upon the occurrence and during the continuation of any Event of Default, and the Collateral Agent shall have the right, in its sole discretion, to determine which rights, security, Liens, security interests or remedies the Collateral Agent shall at any time pursue, relinquish, subordinate, modify or take with respect thereto, without in any way modifying or affecting any of them, any of the Collateral Agent’s rights or the Secured Obligations under this Pledge Agreement or under the Indenture.

10. Rights of the Collateral Agent.

(a) Power of Attorney. Pledgor hereby designates and appoints the Collateral Agent, on behalf of the Trustee and the holders of the Notes, and each of its designees or agents as attorney-in-fact of Pledgor, irrevocably and with power of substitution, with authority to take any or all of the following actions upon the occurrence and during the continuation of an Event of Default:

(i) to demand, collect, settle, compromise, adjust and give discharges and releases concerning the Pledged Collateral of Pledgor, all as the Collateral Agent may reasonably determine in respect of the Pledged Collateral;

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(ii) to commence and prosecute any actions at any court for the purposes of collecting any of the Pledged Collateral and enforcing any other right in respect thereof;

(iii) to defend, settle, adjust or compromise any action, suit or proceeding brought with respect to the Pledged Collateral and, in connection therewith, give such discharge or release as the Collateral Agent may deem reasonably appropriate;

(iv) to pay or discharge taxes, Liens, security interests, or other encumbrances levied or placed on or threatened against the Pledged Collateral;

(v) to direct any parties liable for any payment under any of the Pledged Collateral to make payment of any and all monies due and to become due thereunder directly to the Collateral Agent or as the Collateral Agent shall direct;

(vi) to receive payment of and receipt for any and all monies, claims, and other amounts due and to become due at any time in respect of or arising out of any of the Pledged Collateral;

(vii) to sign and endorse any drafts, assignments, proxies, stock powers, verifications, notices and other documents relating to the Pledged Collateral;

(viii) to execute and deliver and/or file all assignments, conveyances, statements, financing statements, continuation statements, pledge agreements, affidavits, notices and other agreements, instruments and documents that the Collateral Agent may determine necessary in order to perfect and maintain the security interests and Liens granted in this Pledge Agreement and in order to fully consummate all of the transactions contemplated herein;

(ix) to exchange any of the Pledged Collateral or other property upon any merger, consolidation, reorganization, recapitalization or other readjustment of the issuer thereof and, in connection therewith, deposit any of the Pledged Collateral with any committee, depository, transfer agent, registrar or other designated agency upon such terms as the Collateral Agent may determine;

(x) to vote for a shareholder, partner or member resolution, or to sign an instrument in writing, sanctioning the transfer of any or all of the Pledged Collateral into the name of the Collateral Agent or into the name of any transferee to whom the Pledged Collateral or any part thereof may be sold pursuant to Section 9 hereof; and

(xi) to do and perform all such other acts and things as the Collateral Agent may reasonably deem to be necessary, proper or convenient in connection with the Pledged Collateral.

This power of attorney is a power coupled with an interest and shall be irrevocable for so long as any of the Secured Obligations (other than contingent indemnity obligations that survive termination of the Indenture pursuant to the stated terms thereof) remain outstanding. The Collateral Agent shall be under no duty to exercise or withhold the exercise of any of the rights, powers, privileges and options expressly or implicitly granted to the Collateral Agent in this

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Pledge Agreement, and shall not be liable for any failure to do so or any delay in doing so. The Collateral Agent shall not be liable for any act or omission or for any error of judgment or any mistake of fact or law in its individual capacity or its capacity as attorney-in-fact except acts or omissions resulting from its gross negligence or willful misconduct. This power of attorney is conferred on the Collateral Agent solely to perfect, protect, preserve and realize upon its security interest in the Pledged Collateral.

(b) Assignment by the Collateral Agent. The Collateral Agent may from time to time assign the Secured Obligations or any portion thereof and/or the Pledged Collateral or any portion thereof to a successor Collateral Agent, and the assignee shall be entitled to all of the rights and remedies of the Collateral Agent under this Pledge Agreement in relation thereto.

(c) The Collateral Agent’s Duty of Care. Other than the exercise of reasonable care to assure the safe custody of the Pledged Collateral while being held by the Collateral Agent hereunder, the Collateral Agent shall have no duty or liability to preserve rights pertaining thereto, it being understood and agreed that Pledgor shall be responsible for preservation of all rights in the Pledged Collateral, and the Collateral Agent shall be relieved of all responsibility for the Pledged Collateral upon surrendering it or tendering the surrender of it to Pledgor. The Collateral Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Pledged Collateral in its possession if such Pledged Collateral is accorded treatment substantially equal to that which the Collateral Agent accords its own property, which shall be no less than the treatment employed by a reasonable agent in the industry, it being understood that the Collateral Agent shall not have responsibility for (i) ascertaining or taking action with respect to calls, conversions, exchanges, maturities, tenders or other matters relating to any Pledged Collateral, whether or not the Collateral Agent has or is deemed to have knowledge of such matters; or (ii) taking any necessary steps to preserve rights against any parties with respect to any Pledged Collateral.

(d) Voting Rights in Respect of the Pledged Collateral.

(i) So long as no Event of Default shall have occurred and be continuing, to the extent permitted by law, Pledgor may exercise any and all voting and other consensual rights pertaining to the Pledged Collateral or any part thereof for any purpose not inconsistent with the terms of this Pledge Agreement or the Indenture.

(ii) Subject to subsection (e) of this Section 10, upon the occurrence and during the continuance of an Event of Default, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to paragraph (i) of this subsection (d) shall cease and all such rights shall thereupon become vested in the Collateral Agent, which shall then have the sole right to exercise such voting and other consensual rights.

(e) Dividend and Distribution Rights in Respect of the Pledged Collateral.

(i) So long as no Event of Default shall have occurred and be continuing, Pledgor may receive and retain any and all dividends (other than dividends payable in the form of Capital Stock and other dividends constituting Pledged Collateral which are

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required to be delivered to the Collateral Agent pursuant to Section 4 above), distributions or interest paid in respect of the Pledged Collateral to the extent they are allowed under the Indenture.

(ii) Upon the occurrence and during the continuation of an Event of Default:

(A) all rights of Pledgor to receive the dividends, distributions and interest payments which it would otherwise be authorized to receive and retain pursuant to paragraph (i) of this subsection (e) shall cease and all such rights shall thereupon be vested in the Collateral Agent which shall then have the sole right to receive and hold as Pledged Collateral such dividends, distributions and interest payments; and

(B) all dividends, distributions and interest payments which are received by Pledgor contrary to the provisions of clause (A) of this subsection (ii) shall be received in trust for the benefit of the Collateral Agent, shall be segregated from other property or funds of Pledgor, and shall be forthwith paid over to the Collateral Agent as Pledged Collateral in the exact form received, to be held by the Collateral Agent as Pledged Collateral and as further collateral security for the Secured Obligations.

(f) Release of Pledged Collateral. The Collateral Agent may release any of the Pledged Collateral from this Pledge Agreement or may substitute any of the Pledged Collateral for other Pledged Collateral without altering, varying or diminishing in any way the force, effect, Lien, pledge or security interest of this Pledge Agreement as to any Pledged Collateral not expressly released or substituted, and this Pledge Agreement shall continue as a first priority Lien on all Pledged Collateral not expressly released or substituted.

11. Application of Proceeds. After the exercise of remedies by the Collateral Agent, the Trustee or the holders of the Notes under Section 6.5 of the Indenture, any proceeds of the Pledged Collateral, when received by the Collateral Agent or the holders of the Notes in cash or its equivalent, will be applied in reduction of the Secured Obligations, and Pledgor irrevocably waives the right to direct the application of such payments and proceeds and acknowledges and agrees that the Collateral Agent shall have the continuing and exclusive right to apply and reapply any and all such proceeds in the Collateral Agent’s sole discretion, notwithstanding any entry to the contrary upon any of its books and records.

12. Costs of Counsel. If at any time hereafter, whether upon the occurrence of an Event of Default or not, the Collateral Agent employs counsel to prepare or consider amendments, waivers or consents with respect to this Pledge Agreement, or to take action or make a response in or with respect to any legal or arbitral proceeding relating to this Pledge Agreement or relating to the Pledged Collateral, or to protect the Pledged Collateral or exercise any rights or remedies under this Pledge Agreement or with respect to the Pledged Collateral, then Pledgor agrees to promptly pay the costs and expenses of the Collateral Agent in accordance with the terms of the Indenture, all of which costs and expenses shall constitute Secured Obligations hereunder.

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13. Continuing Agreement.

(a) This Pledge Agreement shall be a continuing agreement in every respect and shall remain in full force and effect so long as any of the Secured Obligations (other than contingent indemnity obligations that survive termination of the Indenture pursuant to the stated terms thereof) remain outstanding. Upon such payment and termination, this Pledge Agreement shall be automatically terminated and the Collateral Agent shall, upon the request and at the expense of Pledgor, forthwith release all of the Liens and security interests granted hereunder and shall deliver all UCC termination statements and/or other documents prepared by and reasonably requested by Pledgor evidencing such termination. Notwithstanding the foregoing, all releases and indemnities provided hereunder shall survive termination of this Pledge Agreement.

(b) This Pledge Agreement shall continue to be effective or be automatically reinstated, as the case may be, if at any time payment, in whole or in part, of any of the Secured Obligations is rescinded or must otherwise be restored or returned by the Collateral Agent, the Trustee or any holder of the Notes as a preference, fraudulent conveyance or otherwise under any bankruptcy, insolvency or similar law, all as though such payment had not been made; provided that in the event payment of all or any part of the Secured Obligations is rescinded or must be restored or returned, all reasonable costs and expenses (including without limitation any reasonable legal fees and disbursements) incurred by the Collateral Agent, the Trustee or any holder of the Notes in defending and enforcing such reinstatement shall be deemed to be included as a part of the Secured Obligations.

14. Amendments; Waivers; Modifications. This Pledge Agreement and the provisions hereof may be amended, waived, modified, changed, discharged or terminated only by a written instrument signed by the parties hereto.

15. Successors in Interest. This Pledge Agreement shall create a continuing security interest in the Pledged Collateral and shall be binding upon Pledgor and its successors and assigns and shall inure, together with the rights and remedies of the Collateral Agent hereunder, to the benefit of the Collateral Agent and the holders of the Notes and their respective successors and permitted assigns; provided, however, that Pledgor may not assign its rights or delegate its duties hereunder without the prior written consent of the Collateral Agent.

16. Notices. Any notice, consent, or other communication required or permitted to be given under this Pledge Agreement to the Collateral Agent or Pledgor must be in writing in the English language and delivered in person, by facsimile or by registered or certified mail, return receipt requested, postage prepaid, as follows:

To Collateral Agent:	The Bank of New York
	101 Barclay Street – 21 West
	New York, NY 10286
	Fax No.: 212-815-5802 (or 5803)
	Attention: Global Finance
To Pledgor:	Transmeridian Exploration Inc.
	c/o Transmeridian Exploration Incorporated
	397 N. Sam Houston Parkway E., Suite 300
	Houston, Texas 77060
	Telephone: 281-999-9091
	Fax No.: 281-999-9094
	Attention: Chief Financial Officer
with a copy to:	Akin Gump Strauss Hauer & Feld LLP
	1111 Louisiana Street, 44th Floor
	Houston, Texas 77002-5200
	Telephone: 713-220-5800
	Fax No.: 713-236-0822
	Attention: James L. Rice III

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Any such notice, consent, or other communication shall be deemed given when delivered in person, sent by confirmed fax or, if given by mail, five (5) days after such communication is deposited in the mail, certified or registered with return receipt requested.

17. Counterparts. This Pledge Agreement may be executed in counterparts, each of which where so executed and delivered shall be an original, but all of which shall constitute one and the same instrument. It shall not be necessary in making proof of this Pledge Agreement to produce or account for more than one such counterpart. Delivery of executed counterparts of this Pledge Agreement by telecopy shall be effective as an original and shall constitute a representation that an original shall be delivered upon the request of the Collateral Agent.

18. Headings. The headings of the sections and subsections hereof are provided for convenience only and shall not in any way affect the meaning, construction or interpretation of any provision of this Pledge Agreement.

19. Governing Law. THIS PLEDGE AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF (OTHER THAN SECTIONS 5-1401 AND 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

20. Severability. If any provision of this Pledge Agreement is determined to be illegal, invalid or unenforceable, such provision shall be fully severable and the remaining provisions shall remain in full force and effect and shall be construed without giving effect to the illegal, invalid or unenforceable provisions.

21. Entirety. This Pledge Agreement and the Indenture represent the entire agreement of the parties hereto and thereto, and supersede all prior agreements and understandings, oral or written, if any, including any correspondence relating to this Pledge Agreement or the Indenture or the transactions contemplated herein and therein.

22. Rights of Note Holders. All rights of the Collateral Agent hereunder, if not exercised by the Collateral Agent, may be exercised by the Trustee or (subject to the terms of Section 6.5 of the Indenture) the holders of the Notes.

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Each of the parties hereto has caused a counterpart of this Pledge Agreement to be duly executed and delivered as of the date first above written.

PLEDGOR:
TRANSMERIDIAN EXPLORATION INC., a British Virgin Islands company
By:	/s/ Earl W. McNiel
Name:	Earl W. McNiel
Title:	Duly Authorized Attorney
Accepted and agreed to as of the date first above written.
THE BANK OF NEW YORK, as Collateral Agent
By:	/s/ Luis Perez
Name:	Luis Perez
Title:	Assistant Vice President
THE BANK OF NEW YORK, as Trustee
By:	/s/ Luis Perez
Name:	Luis Perez
Title:	Assistant Vice President

S-1

Schedule 2(a)

ISSUER	OWNER	ISSUER’S JURISDICTION OF FORMATION	% OF OWNERSHIP INTEREST
Transmeridian (Kazakhstan) Incorporated	Transmeridian Exploration Inc.	British Virgin Islands	100%
Bramex Management, Inc.	Transmeridian Exploration Inc.	British Virgin Islands	100%

EX-10.7

Exhibit 10.7

Execution Copy

PURCHASE AGREEMENT

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 12 day of December, 2005, by and between TRANSMERIDIAN EXPLORATION, INC., a company organized in the British Virgin Islands with registered offices at Quastisky Building, 3^rd Floor, P.O. Box 905, Road Town, Tortola (the “Company”), and KORNERSTONE INVESTMENT GROUP LTD., a company organized in the British Virgin Islands with registered offices at Trident Chambers, P.O. Box 146, Wickhams Cay, Road Town, Tortola (“Kornerstone”).

RECITALS

WHEREAS, the Company and Kornerstone entered into that certain Consultancy Agreement dated May 1, 1999 (the “Consultancy Agreement”), whereby the Company retained the services of Kornerstone to support the Company in legal and tax research, contract drafting and discussions with third parties including the Government of Kazakhstan on various matters as provided for therein;

WHEREAS, under the terms of such Consultancy Agreement, as compensation for such services, the Company assigned to Kornerstone a carried working interest equal to ten percent (10%) of the Company’s interest in the South Alibek License 1557 (as more particularly described in the Consultancy Agreement, the “Working Interest”).

WHEREAS, Kornerstone has entered into a consulting agreement with the Company’s affiliate JSC Caspi Neft TME in Kazakhstan, and the Company and Kornerstone desire to cancel and terminate the Consultancy Agreement effective upon the closing of the Company’s agreement to purchase Bramex Management, Inc. on or before December 23, 2005 (the “Effective Date”); and

WHEREAS, in consideration of such cancellation of the Consultancy Agreement by the Company, Kornerstone is conveying, assigning, and transferring to the Company all of Kornerstone’s right, title and interest in and to the Working Interest on the Effective Date, all under and subject to the terms and conditions of this Agreement;

NOW THEREFORE, in consideration of the mutual covenants and agreements contained herein, the parties hereby agree as follows:

1. Cancellation and Termination of the Consultancy Agreement; Conveyance of Working Interest. The Company and Kornerstone hereby terminate and cancel, effective upon the Effective Date, the Consultancy Agreement and any amendments thereto, and all of the obligations of the parties thereunder are effectively terminated (other than sections 4.1 and 6.1 of the Consultancy Agreement, which shall survive such termination) at such time. In consideration thereof (and for the further consideration set forth herein below), and in reliance on the representations and warranties, and upon the terms and subject to the conditions of this Agreement, on the Effective Date Kornerstone is hereby selling, assigning, conveying, transferring, and delivering to the Company, and the Company is hereby purchasing, all of Kornerstone’s right, title and interest in and to the Working Interest, free and clear of all liens, claims, charges, restrictions, equities, or encumbrances of any kind. As further consideration for such sale, assignment,

conveyance and transfer of the Working Interest, the Company and Kornerstone hereby agree as follows:

a. The Company shall pay to Kornerstone cash consideration in the amount of U.S. Fifteen Million Two Hundred Fifty Thoursand Dollars (US$15,250,000.00), payable on the Effective Date. Such amount shall be payable by wire transfer or other payment method as mutually agreeable to the parties hereto;

b. The Company shall cause Transmeridian Exploration Incorporated, a Delaware corporation and the parent corporation of the Company (“TMI”), to issue to Kornerstone an aggregate amount of One Million (1,000,000) shares of TMI’s Common Stock, $0.0006 par value, equivalent in value to U.S. Four Million Dollars (US$3,750,000) based upon a price of $3.75 per share (the “TMI Stock”); and

c. The TMI Stock is being issued pursuant to applicable exemptions from the registration requirements of the U.S. Securities Act of 1933 (the “Securities Act”), and thus are subject to the applicable resale restrictions and holding periods under such law.

2. Deliveries by Kornerstone. In exchange for the consideration set out above, Kornerstone is hereby delivering to the Company all of its right, title, and interests in and to the Working Interest, free and clear of all liens, claims, charges, restrictions, equities or encumbrances of any kind, effective upon the Effective Date. Kornerstone shall execute and deliver any and all documents, instruments, and other agreements (including without limitation, any and all documents and instruments that may need to be filed in Kazakhstan), and shall take any and all other action as may be necessary to effectively transfer and deliver the Working Interest to the Company and vest all right, title and interest in and to the Working Interest in the Company. Kornerstone shall cooperate at its expense with the Company, both before and after the date hereof, to the extent Company may reasonably request, in the defense of any proceeding seeking to restrain, prohibit or invalidate the transactions contemplated by this Agreement.

3. Representations and Warranties of Kornerstone.

a. Kornerstone has the power and authority to execute, deliver and perform this Agreement and all other instruments and documents required or contemplated to be executed, delivered and performed by it under this Agreement. Such execution, delivery and performance (i) have been duly authorized by all necessary corporate action by Kornerstone, (ii) do not and will not require the approval of any person whose approval has not been obtained, (iii) do not and will not contravene the organizational documents of Kornerstone, (iv) do not and will not contravene, conflict with, result in a violation (or any occurrence which by notice or passage of time or both would constitute a violation) of, or entitle any party to terminate, accelerate or declare a default with respect to, any contract, mortgage, franchise, deed of trust, lease, license or agreement of Kornerstone, or any rule, regulation, order, writ or decree applicable to Kornerstone, (v) do not and will not result in the creation or imposition of any lien, charge, encumbrance or claim of any nature whatsoever upon Working Interest, and (vi) will not result in the violation of any laws. This Agreement and each of the documents and instruments to be executed by Kornerstone and delivered

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to the Company pursuant to this Agreement when so delivered will constitute their respective legal, valid and binding obligations enforceable in accordance with each such Agreement’s, document’s, and instrument’s respective terms.

b. Kornerstone has good and marketable title to the Working Interest, has not assigned any right, title or interest in and to the Working Interest, and on the Closing the Working Interest will be free and clear of liens, claims, charges, mortgages, security interests, pledges, and encumbrances. Upon consummation of the transactions contemplated hereby, the Company shall receive good, valid and marketable title to the Working Interest.

c. There is no action, suit, proceeding, investigation or claim pending, or to Kornerstone’s best knowledge, threatened in law, equity or otherwise before any court, administrative agency or arbitrator which either (a) questions the validity of this Agreement, or (b) might adversely affect the right, title or interest of Kornerstone in the Working Interest.

d. Kornerstone acknowledges its understanding that the issuance of the TMI Stock is intended to be exempt from registration under the Securities Act and, in furtherance thereof, Kornerstone represents and warrants to and agrees with the Company that: (i) Kornerstone has the financial ability to bear the economic risk of its investment; (ii) Kornerstone certifies that it is not a U.S. person and is not acquiring the TMI Stock for the account or benefit of any U.S. person; (iii) Kornerstone agrees that it will hold the TMI Stock for investment purposes only and that any resale of such securities will be made strictly in accordance with the provisions of Regulation S promulgated under the Securities Act of 1933, pursuant to registration under the Securities Act, or pursuant to an available exemption from registration; and agrees not to engage in hedging transactions with regard to such securities unless in compliance with the Securities Act.

e. None of the representations and warranties made by Kornerstone, or made in any certificate or memorandum furnished or to be furnished by Kornerstone, on any of its behalf, contain or will contain any untrue statement of material fact, or omit any material fact, the omission of which would be misleading. All representations and warranties of the Kornerstone contained in this Agreement, or contained in any instrument, certificate, opinion or other document delivered by any of them, or on its behalf, pursuant to this Agreement, shall survive the execution of this Agreement, and Kornerstone shall indemnify, defend and hold harmless the Company and each of the Company’s parent, subsidiary, and affiliates from and against any and all claims, costs, and expenses arising out of any breach of any covenant or representation or warranty of Kornerstone under this Agreement.

4. Representations and Warranties of the Company.

a. The Company has the power and authority to execute, deliver and perform this Agreement and all other instruments and documents required or contemplated to be executed, delivered and performed by it under this Agreement. Such execution, delivery and performance (i) have been duly authorized by all necessary corporate action by the Company, (ii) do not and will not require the approval of any person whose approval has not been obtained, (iii) do not and will not contravene the organizational documents of the Company, (iv) do not and will not contravene,

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conflict with, result in a violation (or any occurrence which by notice or passage of time or both would constitute a violation) of, or entitle any party to terminate, accelerate or declare a default with respect to, any contract, mortgage, franchise, deed of trust, lease, license or agreement of the Company, or any rule, regulation, order, writ or decree applicable to Kornerstone, and (vi) will not result in the violation of any laws. This Agreement and each of the documents and instruments to be executed by the Company and delivered to Kornerstone pursuant to this Agreement when so delivered will constitute their respective legal, valid and binding obligations enforceable in accordance with each such Agreement’s, document’s, and instrument’s respective terms.

b. None of the representations and warranties made by Company, or made in any certificate or memorandum furnished or to be furnished by Company, on any of its behalf, contain or will contain any untrue statement of material fact, or omit any material fact, the omission of which would be misleading. All representations and warranties of the Company contained in this Agreement, or contained in any instrument, certificate, opinion or other document delivered by any of them, or on its behalf, pursuant to this Agreement, shall survive the execution of this Agreement, and the Company shall indemnify, defend and hold harmless Kornerstone from and against any and all claims, costs, and expenses arising out of any breach of any covenant or representation or warranty of the Company under this Agreement.

5. Restrictive Legends. Each certificate for the TMI Stock, and each certificate issued to any subsequent transferee of any such certificate, unless, in each case, such TMI Stock is eligible for resale without registration pursuant to Rule 144(k) under the Securities Act or such TMI Stock is being sold pursuant to an effective registration statement under the Securities Act, shall be stamped or otherwise imprinted with legends in substantially the following form:

“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AS AMENDED, AND MAY NOT BE OFFERED, SOLD, ASSIGNED OR TRANSFERRED, IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT REGISTRATION UNDER SAID ACT IS NOT REQUIRED.”

6. Registration Rights. The resale of the TMI Stock shall be registered in accordance with the terms and conditions contained in that certain Registration Rights Agreement executed by TMI and attached hereto as Exhibit A (the “Registration Rights Agreement”). Kornerstone acknowledges that pursuant to the Registration Rights Agreement, TMI has the right to request that Kornerstone furnish information regarding Kornerstone and the distribution of the TMI Stock as is required by law or the U.S. Securities Exchange Commission to be disclosed in the Registration Statement (as such term is defined in the Registration Rights Agreement), and TMI may exclude from such registration the shares of TMI Stock if Kornerstone fails to furnish such information within a reasonable time prior to the filing of each Registration Statement, supplemented prospectus included therein and/or amended Registration Statement.

7. Expenses. Each party hereto shall bear all of its own expenses in connection with the transactions contemplated herewith.

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8. Applicable Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH ENGLISH LAW.

9. Entire Agreement. This Agreement embodies the entire agreement and understanding of the parties hereto and supersedes any prior agreement or understanding between the parties.

10. Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same document.

11. Binding Effect; Benefits. This Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, administrators, executors, successors and assigns; provided, however, that nothing in this Agreement, expressed or implied, is intended to confer on any person other than the parties hereto or their respective heirs, successors and assigns, any rights and remedies, obligations or liabilities under or by reason of this Agreement.

12. Arbitration of Disputes. The parties agree that any future dispute, claim or controversy arising between them relating to or arising under this Agreement, whether based upon contract or tort, at law or in equity, shall be determined by arbitration in accordance with the arbitration rules established by the London Court of International Arbitration, with the arbitration taking place in London, England. The award of the arbitrator will be final and binding between the parties. The losing party will pay for the reasonable costs and legal fees of the other side incurred in reference to the arbitration. All proceedings will be conducted in the English language, and English law shall apply.

13. Confidentiality. Each of the parties agrees that he will maintain the confidentiality of this Agreement (except to the extent that disclosure is necessary to employees, agents, representatives, consultants or subcontractors of the Company in connection with the performance of the terms of this Agreement), and, in that connection, each agrees that he will not take any action intended to cause public disclosure of the terms of this Agreement, unless, in the good faith judgment of such party, such disclosure of this Agreement is required by law or is necessary in connection with endeavoring to enforce or require performance or observance of any of the terms or provisions of this Agreement or in connection with defending against any claim or any person against such party or in connection with endeavoring to protect or preserve the interests of such party or any right, title, property or interest herein provided to be granted or afforded to such party.

[Intentionally left blank]

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IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written.

“COMPANY”
TRANSMERIDIAN EXPLORATION, INC.
By:	/s/ Lorrie T. Olivier
Name:	Lorrie T. Olivier
Title:	President
“KORNERSTONE”
KORNERSTONE INVESTMENT GROUP LTD.
By:	/s/ Nurzhan S. Kurmanov
Name:	Nurzhan S. Kurmanov
Title:	President

-6-

Exhibit “A”

Registration Rights Agreement

This Registration Rights Agreement (“Agreement”) is entered into as of December __, 2005 by and between Transmeridian Exploration Incorporated, a Delaware corporation (the “Company”) and Kornerstone Investment Group Ltd. (the “Investor”). In order to induce the Investor to enter into that certain Purchase Agreement (herein so called) by and between Transmeridian Exploration, Inc., a wholly-owned subsidiary of the Company, and the Investor dated of even date herewith, the Company has agreed to provide the registration rights set forth in this Agreement. The effectiveness of this Agreement is conditioned upon the consummation of the closing of such Purchase Agreement.

NOW THEREFORE, for and in consideration of the mutual covenants and conditions as set forth in the Purchase Agreement and in this Agreement, the parties hereto hereby agree as follows:

1) Registration Rights

(a) Piggyback Registration Rights. In the event the Company intends to file a Registration Statement under the Securities Act (other than on Form S-4 or Form S-8 or any successor form for the registration of securities issued or to be issued in connection with a merger or acquisition or employee benefit plan) covering the offer and sale of Common Stock by the Company or by other selling shareholders, the Company shall give written notice thereof to the Investor, and the Company shall include in such registration such number of Registrable Securities for which it has received written requests from the Investor to include within such Registration Statement within fifteen (15) days after the Company has sent written notice to such Investor.

(b) Underwritten Offerings. If for any reason the Form S-3 Registration Statement under Subsection (a) above is to cover an Underwritten Offering, such Registrable Securities shall be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. If in the good faith judgment of the managing underwriter in any Underwritten Offering, the inclusion of all of the shares of Registrable Securities and any other Common Stock requested to be registered in such Underwritten Offering would interfere with the successful marketing of a smaller number of such shares, then the number of shares of Registrable Securities and other Common Stock to be included in the offering (except for shares to be issued by the Company in an offering initiated by the Company) shall be reduced to such smaller number as the managing underwriter shall in its sole discretion determine. In this event, the reduction in participation by holders of Registrable Securities shall occur on a pro rata basis with all other participating holders of securities to be registered under such Form S-3 Registration Statement or other Registration Statement (as applicable), except to the extent that certain holders of other securities may have a contractual preference to participate. In such case, the Company and the managing underwriter shall use their reasonable best efforts to accommodate the selling desires of the holders of Registrable Securities and the holders of other shares of Common Stock of the Company who possess such registration rights. Any shares for which the Company has received written request to register such shares and which are excluded from an underwritten public offering as discussed above, shall be withheld from the market by the holders thereof for a period of time, not to exceed 30 days prior to the effective date and 180 days thereafter, that the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering.

A-1

2) Termination

If the Investor participates in an offering but ultimately decides not to sell upon the effectiveness of the Registration Statement including such shares, the obligations of the Company under this Registration Rights Agreement shall cease. In any event, this Registration Rights Agreement shall immediately terminate without further action on the part of the Company at such time as the securities that have registration rights under this Agreement shall no longer be Transfer Restricted Securities.

3) Registration Procedures

If and whenever the Company is required to register Registrable Securities, the Company will use its reasonable best efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended plan of distribution thereof, and pursuant thereto the Company will as expeditiously as possible:

(a) prepare and file with the SEC as soon as practicable a Form S-3 Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective and remain effective until the Registrable Securities covered by such Registration Statement have been sold, provided, however, in no event shall the Company be required to maintain the effectiveness of the Form S-3 Registration Statement for longer than one hundred eighty (180) days;

(b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement, and such supplements to the Prospectus, as may be reasonably requested by the Investor or any underwriter of Registrable Securities or as may be required by the rules, regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and regulations thereunder to keep the Registration Statement effective until all Registrable Securities covered by such Registration Statement are sold in accordance with the intended plan of distribution set forth in such Registration Statement or supplement to the Prospectus;

(c) deliver to the Investor and the underwriters, if any, without charge, as many copies of each Prospectus (and each preliminary prospectus) as such Persons may reasonably request (the Company hereby consenting to the use of each such Prospectus (or preliminary prospectus) by the Investor and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus (or preliminary prospectus); and

(d) register or qualify or cooperate with the Investor, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as the Investor or underwriters may designate in writing and do anything else necessary or advisable to enable the

A-2

disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject.

Notwithstanding the undertakings in this Section 3, the Company may decline to file a Registration Statement after giving notice to any holder of Registrable Securities as discussed in Section 1, or withdraw a Registration Statement after filing and after such notice, but prior to the effectiveness thereof, provided, that the Company shall promptly notify each holder in writing of any such action and provided, further, that the Company shall bear all expenses which would otherwise have been charged to the holder in connection with such withdrawn Registration Statement. In taking such action, the Company shall have no liability to the holders of Registrable Securities to the extent it did not have a contractual requirement to file such Registration Statement or obtain its effectiveness.

4) Registration Expenses

The Registration Expenses of all Registrations shall be borne by the Company, except that (i) the fees and disbursements of any counsel to the selling security holders shall be paid by such holders if such security holders are unwilling to be represented by counsel to the Company, and (ii) the selling security holders shall pay all underwriting discounts or commissions, any selling commissions and stock transfer taxes attributable to sales of Registrable Securities.

5) Requirements for Participation in Underwritten Offerings

No person may participate in any Underwritten Offering pursuant to a Registration initiated by the Company hereunder unless such Person (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Company and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that the term of such underwriting arrangement in connection with the sale of Registrable Securities shall be no less favorable than the terms afforded to any other holder of securities participating in the Underwritten Offering.

6) Suspension of Sales

Upon receipt of written notice from the Company that a Registration Statement or Prospectus contains a Misstatement, each Holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities until such Holder has received copies of a supplemented or amended Prospectus, or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice.

A-3

7) Miscellaneous

Any notice, demand or other communication which any party hereto may be required, or may elect, to give to anyone interested hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a United States mail letter box, registered or certified mail, return receipt requested, addressed to such address as may be given herein, or (b) delivered personally at such address. This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns. If the Investor is more than one person, the obligation of the Investor shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and its heirs, executors, administrators and successors. This instrument contains the entire agreement of the parties, and there are no representations, covenants or other agreements except as stated or referred to herein. This Agreement is not transferable or assignable by the Investor. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas.

8) Definitions

Registration Expenses: Registration Expenses shall mean:

(1) all registration and filing fees (including fees with respect to filings required to be made with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc.);

(2) fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities);

(3) printing, messenger, telephone and delivery expenses;

(4) fees and disbursements of counsel for the Company; and

(5) fees and disbursements of all independent certified public accountants of the Company incurred specifically in connection with such Registration.

Registration Expenses shall not include: (i) the fees and disbursements of any counsel to the selling security holders, which shall be paid by such holders if such security holders are unwilling to be represented by counsel to the Company, and (ii) any underwriting discounts or commissions, any selling commissions and stock transfer taxes attributable to sales of Registrable Securities.

Registrable Securities: (a) One Million (1,000,000) shares of Common Stock, $0.0006 par

A-4

value, of the Company (the “TMI Stock”) issued to the Investor under the Purchase Agreement, and (b) any securities issued or issuable with respect to such TMI Stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization; provided, however, that any such shares or securities shall be deemed to be Registrable Securities only if and so long as it is a Transfer Restricted Security.

Registration Statement: Any other form of registration statement that the Company determines, in its sole discretion to file, and in each case including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to such registration statement, and all exhibits to and all material incorporated by reference in such registration statement.

Securities Act: The Securities Act of 1933, as from time to time amended.

SEC: The Securities and Exchange Commission.

Transfer Restricted Security: A security that has not been sold to or through a broker, dealer or underwriter in a public distribution or other public securities transaction or sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Rule 144(k) promulgated thereunder (or any successor rule other than proposed Rule 144A). The foregoing notwithstanding, a security shall remain a Transfer Restricted Security until (i) all stop transfer instructions or notations and restrictive legends with respect to such security are eligible to be removed and (ii) the Holder of such security has received an opinion of counsel to the Company, to the effect that such shares in such Holder’s hands are freely transferable in any public or private transaction without registration under the Securities Act (or such Holder has waived receipt of such opinion).

Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for distribution to the public.

A-5

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written.

TRANSMERIDIAN EXPLORATION INCORPORATED
By:
	Lorrie T. Olivier
	President and CEO
KORNERSTONE INVESTMENT GROUP LTD.
By:
	Nurzhan S. Kurmanov
	President

A-6

EX-10.8

Exhibit 10.8

Execution Copy

Registration Rights Agreement

This Registration Rights Agreement (“Agreement”) is entered into as of December 12, 2005 by and between Transmeridian Exploration Incorporated, a Delaware corporation (the “Company”) and Kornerstone Investment Group Ltd. (the “Investor”). In order to induce the Investor to enter into that certain Purchase Agreement (herein so called) by and between Transmeridian Exploration, Inc., a wholly-owned subsidiary of the Company, and the Investor dated of even date herewith, the Company has agreed to provide the registration rights set forth in this Agreement. The effectiveness of this Agreement is conditioned upon the consummation of the closing of such Purchase Agreement.

NOW THEREFORE, for and in consideration of the mutual covenants and conditions as set forth in the Purchase Agreement and in this Agreement, the parties hereto hereby agree as follows:

1) Registration Rights

(a) Piggyback Registration Rights. In the event the Company intends to file a Registration Statement under the Securities Act (other than on Form S-4 or Form S-8 or any successor form for the registration of securities issued or to be issued in connection with a merger or acquisition or employee benefit plan) covering the offer and sale of Common Stock by the Company or by other selling shareholders, the Company shall give written notice thereof to the Investor, and the Company shall include in such registration such number of Registrable Securities for which it has received written requests from the Investor to include within such Registration Statement within fifteen (15) days after the Company has sent written notice to such Investor.

(b) Underwritten Offerings. If for any reason the Form S-3 Registration Statement under Subsection (a) above is to cover an Underwritten Offering, such Registrable Securities shall be included in the underwriting on the same terms and conditions as the securities otherwise being sold through the underwriters. If in the good faith judgment of the managing underwriter in any Underwritten Offering, the inclusion of all of the shares of Registrable Securities and any other Common Stock requested to be registered in such Underwritten Offering would interfere with the successful marketing of a smaller number of such shares, then the number of shares of Registrable Securities and other Common Stock to be included in the offering (except for shares to be issued by the Company in an offering initiated by the Company) shall be reduced to such smaller number as the managing underwriter shall in its sole discretion determine. In this event, the reduction in participation by holders of Registrable Securities shall occur on a pro rata basis with all other participating holders of securities to be registered under such Form S-3 Registration Statement or other Registration Statement (as applicable), except to the extent that certain holders of other securities may have a contractual preference to participate. In such case, the Company and the managing underwriter shall use their reasonable best efforts to accommodate the selling desires of the holders of Registrable Securities and the holders of other shares of Common Stock of the Company who possess such registration rights. Any shares for which the Company has received written request to register such shares and which are excluded from an underwritten public offering as discussed above, shall be withheld from the market by

1

the holders thereof for a period of time, not to exceed 30 days prior to the effective date and 180 days thereafter, that the managing underwriter reasonably determines is necessary in order to effect the underwritten public offering.

2) Termination

If the Investor participates in an offering but ultimately decides not to sell upon the effectiveness of the Registration Statement including such shares, the obligations of the Company under this Registration Rights Agreement shall cease. In any event, this Registration Rights Agreement shall immediately terminate without further action on the part of the Company at such time as the securities that have registration rights under this Agreement shall no longer be Transfer Restricted Securities.

3) Registration Procedures

If and whenever the Company is required to register Registrable Securities, the Company will use its reasonable best efforts to effect such registration to permit the sale of such Registrable Securities in accordance with the intended plan of distribution thereof, and pursuant thereto the Company will as expeditiously as possible:

(a) prepare and file with the SEC as soon as practicable a Form S-3 Registration Statement with respect to such Registrable Securities and use its best efforts to cause such Registration Statement to become effective and remain effective until the Registrable Securities covered by such Registration Statement have been sold, provided, however, in no event shall the Company be required to maintain the effectiveness of the Form S-3 Registration Statement for longer than one hundred eighty (180) days;

(b) prepare and file with the SEC such amendments and post-effective amendments to the Registration Statement, and such supplements to the Prospectus, as may be reasonably requested by the Investor or any underwriter of Registrable Securities or as may be required by the rules, regulations or instructions applicable to the registration form used by the Company or by the Securities Act or rules and regulations thereunder to keep the Registration Statement effective until all Registrable Securities covered by such Registration Statement are sold in accordance with the intended plan of distribution set forth in such Registration Statement or supplement to the Prospectus;

(c) deliver to the Investor and the underwriters, if any, without charge, as many copies of each Prospectus (and each preliminary prospectus) as such Persons may reasonably request (the Company hereby consenting to the use of each such Prospectus (or preliminary prospectus) by the Investor and the underwriters, if any, in connection with the offering and sale of the Registrable Securities covered by such Prospectus (or preliminary prospectus); and

(d) register or qualify or cooperate with the Investor, the underwriters, if any, and their respective counsel in connection with the registration or qualification of such Registrable Securities for offer and sale under the securities or blue sky laws of such jurisdictions as the Investor or underwriters may designate in writing and do anything else necessary or advisable to

2

enable the disposition in such jurisdictions of the Registrable Securities covered by the Registration Statement; provided that the Company shall not be required to qualify generally to do business in any jurisdiction where it is not then so qualified or to take any action which would subject it to general service of process in any such jurisdiction where it is not then so subject.

Notwithstanding the undertakings in this Section 3, the Company may decline to file a Registration Statement after giving notice to any holder of Registrable Securities as discussed in Section 1, or withdraw a Registration Statement after filing and after such notice, but prior to the effectiveness thereof, provided, that the Company shall promptly notify each holder in writing of any such action and provided, further, that the Company shall bear all expenses which would otherwise have been charged to the holder in connection with such withdrawn Registration Statement. In taking such action, the Company shall have no liability to the holders of Registrable Securities to the extent it did not have a contractual requirement to file such Registration Statement or obtain its effectiveness.

4) Registration Expenses

The Registration Expenses of all Registrations shall be borne by the Company, except that (i) the fees and disbursements of any counsel to the selling security holders shall be paid by such holders if such security holders are unwilling to be represented by counsel to the Company, and (ii) the selling security holders shall pay all underwriting discounts or commissions, any selling commissions and stock transfer taxes attributable to sales of Registrable Securities.

5) Requirements for Participation in Underwritten Offerings

No person may participate in any Underwritten Offering pursuant to a Registration initiated by the Company hereunder unless such Person (a) agrees to sell such Person’s securities on the basis provided in any underwriting arrangements approved by the Company and (b) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents required under the terms of such underwriting arrangements; provided, that the term of such underwriting arrangement in connection with the sale of Registrable Securities shall be no less favorable than the terms afforded to any other holder of securities participating in the Underwritten Offering.

6) Suspension of Sales

Upon receipt of written notice from the Company that a Registration Statement or Prospectus contains a Misstatement, each Holder of Registrable Securities shall forthwith discontinue disposition of Registrable Securities until such Holder has received copies of a supplemented or amended Prospectus, or until such Holder is advised in writing by the Company that the use of the Prospectus may be resumed, and, if so directed by the Company, such Holder shall deliver to the Company (at the Company’s expense) all copies, other than permanent file copies then in such Holder’s possession, of the Prospectus covering such Registrable Securities current at the time of receipt of such notice.

3

7) Miscellaneous

Any notice, demand or other communication which any party hereto may be required, or may elect, to give to anyone interested hereunder shall be sufficiently given if (a) deposited, postage prepaid, in a United States mail letter box, registered or certified mail, return receipt requested, addressed to such address as may be given herein, or (b) delivered personally at such address. This Agreement may be executed through the use of separate signature pages or in any number of counterparts, and each of such counterparts shall, for all purposes, constitute one agreement binding on all the parties, notwithstanding that all parties are not signatories to the same counterpart. Except as otherwise provided herein, this Agreement shall be binding upon and inure to the benefit of the parties and their heirs, executors, administrators, successors, legal representatives and assigns. If the Investor is more than one person, the obligation of the Investor shall be joint and several and the agreements, representations, warranties and acknowledgments herein contained shall be deemed to be made by and be binding upon each such person and its heirs, executors, administrators and successors. This instrument contains the entire agreement of the parties, and there are no representations, covenants or other agreements except as stated or referred to herein. This Agreement is not transferable or assignable by the Investor. This Agreement shall be governed by and construed in accordance with the laws of the State of Texas.

8) Definitions

Registration Expenses: Registration Expenses shall mean:

(1) all registration and filing fees (including fees with respect to filings required to be made with the Securities and Exchange Commission and the National Association of Securities Dealers, Inc.);

(2) fees and expenses of compliance with securities or blue sky laws (including fees and disbursements of counsel for the underwriters in connection with blue sky qualifications of the Registrable Securities);

(3) printing, messenger, telephone and delivery expenses;

(4) fees and disbursements of counsel for the Company; and

(5) fees and disbursements of all independent certified public accountants of the Company incurred specifically in connection with such Registration.

Registration Expenses shall not include: (i) the fees and disbursements of any counsel to the selling security holders, which shall be paid by such holders if such security holders are unwilling to be represented by counsel to the Company, and (ii) any underwriting discounts or commissions, any selling commissions and stock transfer taxes attributable to sales of Registrable Securities.

Registrable Securities: (a) One Million (1,000,000) shares of Common Stock, $0.0006

4

par value, of the Company (the “TMI Stock”) issued to the Investor under the Purchase Agreement, and (b) any securities issued or issuable with respect to such TMI Stock by way of a stock dividend or stock split or in connection with a combination of shares, recapitalization, merger, consolidation or reorganization; provided, however, that any such shares or securities shall be deemed to be Registrable Securities only if and so long as it is a Transfer Restricted Security.

Registration Statement: Any other form of registration statement that the Company determines, in its sole discretion to file, and in each case including the Prospectus included in such registration statement, amendments (including post-effective amendments) and supplements to such registration statement, and all exhibits to and all material incorporated by reference in such registration statement.

Securities Act: The Securities Act of 1933, as from time to time amended.

SEC: The Securities and Exchange Commission.

Transfer Restricted Security: A security that has not been sold to or through a broker, dealer or underwriter in a public distribution or other public securities transaction or sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Rule 144(k) promulgated thereunder (or any successor rule other than proposed Rule 144A). The foregoing notwithstanding, a security shall remain a Transfer Restricted Security until (i) all stop transfer instructions or notations and restrictive legends with respect to such security are eligible to be removed and (ii) the Holder of such security has received an opinion of counsel to the Company, to the effect that such shares in such Holder’s hands are freely transferable in any public or private transaction without registration under the Securities Act (or such Holder has waived receipt of such opinion).

Underwritten Registration or Underwritten Offering: A registration in which securities of the Company are sold to an underwriter for distribution to the public.

5

IN WITNESS WHEREOF, each of the parties hereto has executed this Agreement as of the date first above written.

TRANSMERIDIAN EXPLORATION INCORPORATED
By:	/s/ Lorrie T. Olivier
	Lorrie T. Olivier
	President and CEO
KORNERSTONE INVESTMENT GROUP LTD.
By:	/s/ Nurzhan S. Kurmanov
	Nurzhan S. Kurmanov
	President

6

EX-10.9

Exhibit 10.9

Execution Copy

CONDITIONAL SHARE TRANSFER AGREEMENT

THIS CONDITIONAL SHARE TRANSFER AGREEMENT (this “Agreement”) dated as of January 3, 2006, is entered into among:

JSC TuranAlem Securities, a joint stock company registered under the laws of Kazakhstan and holding broker-dealer license No. 0401200159, as Securities Agent under the Securities Agency Agreement of even date, acting on behalf of The Bank of New York, as trustee under the Indenture described below (in such capacity, together with its successors and assigns in such capacity, the “Securities Agent”), and

Transmeridian Exploration, Inc., a British Virgin Islands company (“TME”), and Bramex Management, Inc., a British Virgin Islands company (Bramex, together with TME, the “Shareholders”).

RECITALS:

A. JSC Caspi Neft TME (“Caspi Neft”) is a Kazakhstan joint stock company registered under the laws of the Republic of Kazakhstan, with an authorized Charter Capital of 50,000,000 tenge consisting of 50,000 common shares with a nominal value of 1,000 tenge per share, all of which shares are now issued and outstanding (National Identification Number KZ1C41630019); of which 25,000 are legally and beneficially owned by TME and 25,000 are legally and beneficially owned by Bramex.

B. Visor Investment Solutions, a joint stock company registered under the laws of Kazakhstan and holding broker-dealer license No. 0401201058, shall act as nominee for the Shareholders and the Securities Agent pursuant to an Agreement for Brokerage Services (Including Custody Services) of even date (in such capacity, together with its successors and assigns in such capacity, the “Nominee”). Nominee shall be instructed by the Parties to act pursuant to this Agreement and the Nominee shall acknowledge in writing receipt hereof.

C. All of the shares of Caspi Neft owned by the Shareholders are recorded in the share register maintained by JSC “Securities Registrar System”, License No. 20050017 of the National Companies and Securities Commission of the Republic of Kazakhstan (located at Republic of Kazakhstan, Almaty, 75 Muratbayeva St.) in the name of the Nominee, and all such shares are fully paid and, subject to the encumbrance and pledge appearing in the records of the Nominee, are free of all other Encumbrances excepting only as may be created by the Transaction Documents;

D. TME has issued its Senior Secured Notes due 2010 (the “Notes”) under an Indenture dated as of December 12, 2005 (as heretofore and hereafter supplemented as amended, the “Indenture”) with The Bank of New York, as trustee thereunder (in such capacity, the “Trustee”) for the benefit of the holders of the Notes, and the Notes, and all of TME’s obligations with respect thereto and otherwise under the Indenture are guaranteed by Bramex;

1

E. As contemplated by the several purchase agreements with the initial purchasers of Notes, to secure the obligations of TME and the guarantee of Bramex as described above and all other obligations of the Shareholders under the Transaction Documents (collectively, the “Obligations”), the Shareholders are required to enter into this Agreement with the Securities Agent.

SECTION 1

INTERPRETATION

1.1 Definitions.

In this Agreement, unless something in the subject matter or context is inconsistent therewith, the following terms shall have the meanings set forth below:

“Business Day” means any day, other than a Saturday, Sunday or statutory holiday, on which the principal commercial banks located in Almaty, in the Republic of Kazakhstan and New York, New York, are open for business during normal banking hours;

“Encumbrances” means any encumbrance, lien, charge, hypothec, pledge, mortgage, title retention agreement, security interest of any nature, adverse claim, exception, reservation, easement, right of occupation, transfer “blockage” notice or any other matter capable of registration against title, option, right of pre-emption, privilege or any contract to create any of the foregoing;

“Losses” has the meaning given in Section 5.1 hereof;

“Parties” means the Securities Agent and the Shareholders, and “Party” means any of them;

“Person” includes any natural person, corporation, company, limited liability company, trust, joint venture, association, incorporated organization, partnership, governmental authority or other entity;

“Sales Proceeds” means the aggregate proceeds of any sale by or at the direction of the Securities Agent of Transferred Shares, net of any stamp or transfer taxes or statutory withholdings, customary brokerage commissions or similar fees and reasonable out-of-pocket expenses of the Securities Agent incurred in connection with such sale;

“Securities” means:

(i) equity securities of Caspi Neft, including common shares, together with all dividends accrued thereon;

(ii) rights, warrants, options and other instruments issued by Caspi Neft which entitle the holder, either under all circumstances or under some circumstances, to acquire from Caspi Neft equity securities of Caspi Neft; and

(iii) instruments which are convertible or exchangeable, either under all circumstances or under some circumstances, into any of the foregoing;

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“Securities Agency Agreement” means the Securities Agency Agreement of even date herewith among JSC TuranAlem Securities, the Trustee and TME.

“Share Transfer” has the meaning given in Section 2.1 hereof;

“Shares” means the common shares of Caspi Neft owned by the Shareholders as described in Recital A at the date hereof, and includes any additional Securities hereafter acquired by the Shareholders;

“Subsidiary” in relation to any Person or corporation, means any body corporate of which more than 50% of the outstanding shares carrying voting rights at all times are owned directly or indirectly by or for the Person or corporation and/or by or for any body corporate in like relation to the Person nor corporation, provided that the ownership of such shares confers at all times the right to elect at least a majority of the board of directors of such body corporate, and includes any body corporate in like relation to a Subsidiary;

“Termination Date” means the first to occur of (i) the date upon which all Transferred Shares have been disposed of, or the ownership thereof re-transferred to the Shareholders pursuant to Section 2.2(b) hereof and (ii) the date that all Obligations (other than indemnification obligations for which no claim has been made) have been paid or otherwise satisfied in full;

“Transaction Documents” means the Notes, the Indenture, the Security Documents (as defined in the Indenture, of which this Agreement is one), each purchase agreement with each initial purchaser of the Notes and each and every other agreement, contract or undertaking executed by Transmeridian Exploration Incorporated, either Shareholder or any other Subsidiary of Transmeridian Exploration Incorporated in connection therewith;

“Transfer Instructions” has the meaning given in Section 2.1 hereof; and

“Transferred Shares” means the Shares, after the occurrence of a share Transfer.

1.2 Extended Meanings.

In this Agreement, unless something in the subject matter or context is inconsistent therewith: words importing the singular number shall include the plural and vice versa; words importing a gender shall include the masculine, feminine and neuter genders; and words importing Persons shall include individuals, partnerships, corporations, associations, trusts, government agencies and any other form of organization or entity whatsoever.

1.3 Headings.

The division of this Agreement into Sections, sections and subsections and the insertion of headings are for convenience of reference only and shall not affect the construction nor interpretation of this Agreement. The terms “this Agreement”, “hereof”, “hereunder” and similar expressions refer to this Agreement in its entirety and not to any particular Section, section,

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subsection, or other portion thereof and include any agreement supplemental hereto. Unless something in the subject matter or context is inconsistent therewith, references herein to Sections, sections, subsections and Schedules are to Sections, sections and subsections and Schedules of this Agreement.

1.4 Business Days.

If any payment is required to be made or other action is required to be taken pursuant to this Agreement on a day which is not a Business Day, then such payment or action shall be made or taken on the next Business Day.

SECTION 2

TRANSFER AND DISPOSITION

2.1 Transfer of Shares.

Subject to the terms and conditions hereof, if (but only if) the Securities Agent shall be directed to do so in writing by the Trustee pursuant to the Securities Agency Agreement, the Securities Agent shall deliver a written notice to the Nominee (a “Transfer Instruction”) instructing the Nominee to transfer on the Nominee’s books and records ownership of the Shares to, or as otherwise directed by (in accordance with the Trustee’s instructions) the Securities Agent (a “Share Transfer”). Each Shareholder hereby authorizes, directs, requests and instructs the Nominee to accept and comply with any such Transfer Instruction without any duty of further inquiry of the Shareholders. The Securities Agent hereby agrees that it will not effect any transfer of the Shares prior to the Termination Date other than pursuant to a Transfer Instruction.

2.2 Disposition of Transferred Shares.

(a) Following completion of a Share Transfer, the Securities Agent shall at the direction of the Trustee given pursuant to the Securities Agency Agreement sell the Transferred Shares for cash or other consideration in one or more transactions pursuant to the written instructions of the Trustee and in a manner consistent with applicable law. Without the express written consent of the Trustee, the Securities Agent shall not sell or otherwise transfer, or place or permit any Encumbrance on, the Transferred Shares.

(b) All Sale Proceeds shall be remitted by the Securities Agent forthwith to the Trustee until the Trustee shall have received at its offices in New York, New York an aggregate amount equal to all amounts certified by the Trustee as owed with respect to the Obligations. Upon receipt by the Securities Agent of a written certification from the Trustee that the Trustee has received Sale Proceeds from the sales of Transferred Shares in accordance with this Agreement in an aggregate amount sufficient to have satisfied in full all of the Obligations, the Securities Agent shall (i) remit any remaining Sale Proceeds to the Shareholders, as they shall jointly direct and (ii) if applicable, instruct the Nominee to transfer ownership of any remaining Shares to the Shareholders, as they shall jointly direct.

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(c) If so directed in writing by the Trustee, the Securities Agent shall acquire Transferred Shares for the account of the Trustee, or its assigns, pursuant to the exercise of the set-off rights provided for in Section 7(g). The Securities Agent shall not otherwise exercise such rights under this Agreement or otherwise arising in favor of the Securities Agent.

SECTION 3

TERM; REIMBURSEMENT OF EXPENSES

3.1 Term. The term of this Agreement shall commence on the date hereof and shall terminate upon the Termination Date.

3.2 Reimbursement of Expenses. The Shareholders agree to reimburse the reasonable and necessary fees, expenses and other amounts incurred by the Securities Agent under this Agreement (including the reasonable fees and expenses of the Securities Agent’s counsel), in addition to any other fees, expenses and other amounts payable that may arise under the Securities Agency Agreement.

SECTION 4

SECURITIES AGENT

4.1 Duties of the Securities Agent.

(a) The Securities Agent does not owe fiduciary duties to the Shareholders or any other Person in connection with the performance of its duties hereunder. At the expense of the Shareholders, the Securities Agent may retain counsel and other experts, and may rely conclusively on the advice of such counsel and other experts.

(b) Beyond the exercise of reasonable care in the custody thereof, the Securities Agent shall have no duty as to any Transferred Shares in its possession or control or in the possession or control of the Nominee or any other nominee, agent or bailee or any income thereon or as to preservation of rights against prior parties or any other rights pertaining thereto. The Securities Agent shall be deemed to have exercised reasonable care in the custody of the Transferred Shares in its possession or control if the Transferred Shares are accorded treatment substantially equal to that which it accords its other property and shall not be liable or responsible for any loss or diminution in the value of any of the Transferred Shares.

(c) If so instructed by the Trustee under the Securities Agency Agreement, the Securities Agent will have the right to appoint a Person who will be in charge of exercising the rights derived from or related to the Transferred Shares under this Agreement or that may be applicable to their disposition, in which case, the Securities Agent may grant the necessary powers of attorney. In the event the Securities Agent desires to make such an appointment, the Securities Agent shall give prior written notice of such appointment to the Trustee and the Shareholders. The Trustee shall have no liability for the negligence or willful misconduct of either the Securities Agent or such other Person appointed hereunder.

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4.2 Responsibilities of Securities Agent. The obligations of the Securities Agent under this Agreement shall be to:

(a) duly execute and deliver and act as securities agent, custodian or beneficiary under this Agreement on behalf of the Trustee under the Indenture as requested by the Trustee in writing pursuant to the Securities Agency Agreement;

(b) take such action as requested by written instructions of the Trustee under the Securities Agency Agreement in a manner consistent with applicable law. In this regard, the Securities Agent shall be entitled to rely and act upon, and shall be fully protected in relying and acting upon, any note, writing, resolution, notice consent, certificate, request, demand, direction, instruction, waiver, receipt, agreement, affidavit, letter, statement, order or written document or written communication from the Trustee reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel and other experts retained or employed by the Securities Agent in its reasonable discretion;

(c) The Securities Agent shall have no obligation whatsoever either prior to or after receiving any such written notice or certificate to inquire whether an Event of Default (as defined in the Indenture) has in fact occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any notice or certificate so furnished to it by the Trustee;

(d) remit according to the written instructions of the Trustee any Sale Proceeds recovered from disposition of the Transferred Shares pursuant to Section 2.2(a) in a manner consistent with applicable law; and

(e) take such other actions reasonably requested pursuant to the Securities Agency Agreement by the Trustee in accordance with this Agreement.

Except as otherwise expressly set forth in this Agreement, (i) the Securities Agent shall not take any action with respect to the Shares, except pursuant to the written instructions of the Trustee, and (ii) the Nominee shall not take any action with respect to the Shares, except pursuant to a Transfer Instruction from the Securities Agent.

4.3 Securities Agent’s Individual Capacity.

The Securities Agent or any affiliate thereof may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with Caspi Neft or the Shareholders or any of their affiliates or respective Subsidiaries as if it were not performing the duties specified herein, and may accept fees and other consideration from the Shareholders for services in connection with this Agreement and otherwise without having to account for the same to the Trustee or to the holders of Notes from time to time.

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4.4 Limitation of Responsibility.

(a) The Securities Agent will not be liable for any facts, acts or omissions of the parties on the Transaction Documents or third parties that may prevent the Securities Agent to complying with its obligations and duties under this Agreement.

(b) The Securities Agent shall not have any implied liability or obligation under this Agreement or the Transaction Documents with respect to obligations that are not expressly provided herein or therein.

(c) The Parties agree that the Securities Agent shall not be liable for any act or omission, including without limitation, the failure to deliver any notice in accordance with this Agreement, to be performed by any other party hereto or any third party (including the Trustee) that may result in a failure to comply with the Securities Agent’s obligations.

(d) The Securities Agent shall not be liable for any act performed in good faith and in accordance with the written instructions delivered by the Trustee to the Securities Agent pursuant to the Securities Agency Agreement.

(e) Notwithstanding any other limitation to the Securities Agent’s liability under this Agreement, the Parties agree that the Securities Agent shall not be liable for, and shall not have any obligation to verify or investigate:

(i) any representation or warranty made by the Parties in this Agreement or any other document related to this Agreement, including but not limited to the Transaction Documents;

(ii) the content of any certificate, report or any other document delivered by any Party or any other third party, including the Trustee; and

(iii) the fulfillment by each of the Shareholders of its obligations under this Agreement or any agreement related to this Agreement, including but not limited to the Transaction Documents.

(f) Without limiting the above and notwithstanding any provision to the contrary in any other Transaction Document, the Securities Agent and its officers, representatives, employees and agents:

(i) shall not have any liability or obligation hereunder other than those expressly provided in this Agreement, and the Securities Agent shall not have any implied liability or obligation hereunder;

(ii) at any time, upon determination by the Securities Agent after consultation with legal counsel that it is prohibited by applicable law to perform or refrain from performing an act or requirement set forth herein, the Securities Agent may postpone or refrain from performing such act until

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the Securities Agent has received legal advice from counsel or other evidence reasonably satisfactory to the Securities Agent that such act (or omission to act) is not prohibited by applicable law;

(iii) may, at its own election, seek advice from any legal or any other kind of advisor (provided that Securities Agent shall not retain financial advisors unless directed to do so by the Trustee in writing);

(iv) shall not have any liability whatsoever to determine or investigate the fulfillment or compliance by any of the Parties of the terms, conditions and obligations under this Agreement or any other agreement they are part of;

(v) shall not incur in any liability whatsoever for any delay, cancellation or modification of any notice, consent, certificate, representation, communication, copy or any other communication not delivered to the Securities Agent; and

(vi) shall not be deemed to have knowledge of any fact or circumstance, unless the Securities Agent has received a written notice in the domicile and to the attention of the individual appointed (or that will be appointed) for such purposes in accordance with this Agreement.

SECTION 5

INDEMNIFICATION; DISCLAIMERS, ETC.

5.1 Shareholders’ Indemnification Obligations. The Shareholders shall be liable for and shall reimburse and indemnify the Securities Agent and hold the Securities Agent harmless from and against any and all claims, losses, liabilities, costs, damages or expenses (including reasonable attorney’s fees and expenses) (collectively, “Losses”) arising from or in connection with or related to this Agreement or being Securities Agent hereunder (including but not limited to Losses incurred by the Securities Agent in connection with its successful defense, in whole or in part, of any claim of willful misconduct or negligence on its part); provided, however, that the Securities Agent shall not be indemnified for Losses caused by its own willful misconduct or negligence.

(a) No provision of this Agreement, the Securities Agency Agreement or any other the Transaction Document shall require the Securities Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or under the other Transaction Documents or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(b) The Securities Agent shall have no liability (whether sounding in tort, contract or otherwise) for Losses in connection with, arising out of, or in any way related to, performance by the Securities Agent under this Agreement, or any act, omission or event occurring in connection therewith, unless it is determined by a final and

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nonappealable judgment of a court of the competent jurisdiction that is binding on the Securities Agent that such Losses were the result of acts or omissions on the part of the Securities Agent constituting willful misconduct or negligence.

(c) The Securities Agent shall be reimbursed and indemnified by the Shareholders (whether by way of payment in advance or otherwise) against all Losses and other costs, claims, expenses (including legal fees) and liabilities, including any transfer, stamp, documentary or similar taxes in connection with any Share Transfer, that the Securities Agent will or may expend or incur in carrying out any instructions from the Trustee to act hereunder given in accordance with the Securities Agency Agreement, or in taking any legal action or commencing any legal proceedings or other steps to enforce or realize upon any rights or remedies of the Trustee under the Securities Agency Agreement.

SECTION 6

ILLEGALITY; NO INCONSISTENCY

Nothing in this Agreement or the Transaction Documents shall require the Securities Agent to take any action which is in violation of or prohibited by (i) applicable laws or (ii) the Securities Agency Agreement.

SECTION 7

MISCELLANEOUS PROVISIONS

(a) Notices. All notices, approvals, comments or other communications required or desired to be given hereunder shall be in writing and delivered in person or mailed by certified mail or courier, postage prepaid, addressed as follows, or by facsimile transmission, and shall be deemed given when received:

If to the Securities Agent:

TuranAlems Securities JSC

281 Khusainov Street

Almaty 050060

Attention: Laura Likerova, Managing Director

Fax: +7-3272-991025

If to the Shareholders:

c/o Transmeridian Exploration Incorporated

397 N. Sam Houston Parkway East, Suite 300

Houston, Texas 77060

Attention: Earl W. McNeil

Fax: (281) 999-9094

(b) Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that

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jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction.

(c) Amendments. This Agreement may be changed, waived, discharged or terminated only by an instrument in writing signed by all of the Parties and consented to by the Trustee in writing.

(d) Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the Republic of Kazakhstan. The Parties agree that any suit for the enforcement of this Agreement may be brought in the courts of the Republic of Kazakhstan court sitting therein and consent to the nonexclusive jurisdiction of such court.

(e) Dispute Resolution

(i) The Parties shall make attempts to settle disputes hereunder amicably through good faith negotiations within thirty (30) days from the moment of submission of a written notice about such dispute by one Party to the other Party. If such negotiations are not successful a dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof, shall be settled by arbitration.

(ii) Each of the Parties hereby irrevocably agrees that, if any dispute, claim or disagreement arises from or in connection with this Agreement (or any supplement, modification or addition thereto, including as to the terms or conditions of the execution, breach, termination or invalidity hereof or thereof) (together, Disputes) and the negotiations referred to in Clause (i) are not successful, such Dispute shall be submitted to arbitration. Disputes submitted to arbitration shall be conducted in English and be resolved by arbitration in London by the Arbitration Court of the International Chamber of Commerce (the Arbitration Court) in accordance with the rules of the Arbitration Court, which rules are deemed to be incorporated by reference into this Clause. The tribunal shall consist of three arbitrators, one appointed by each of the Parties with the third being agreed between the first two arbitrators but, in the absence of agreement between them, shall be appointed by the Arbitration Court. All decisions of the Arbitration Court shall be binding on the Parties and the Dispute shall be considered finally settled under the rule of the Arbitration Court by the said arbitrators.

(f) Further Assurances. Each of the Parties hereto shall from time to time execute and deliver all such further documents and instruments and do all acts and things as the other Party may, either before or after any Share Transfer, as may be reasonably required to effectively carry out or better evidence or perfect the full intent and meaning of this Agreement.

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(g) Assignment. This Agreement may not be assigned by any Party without the prior written consent of the other Parties and the Trustee. If such consent is granted, such consent will not in any way release or relieve the assigning Party of any of its obligations hereunder. This Agreement shall enure to the benefit of and, except as otherwise provided herein, be binding upon the respective heirs, executors, administrators, successors and permitted assigns of the Parties.

(h) No Restrictions on Set-Off. Nothing in this Agreement shall restrict the right of the Securities Agent to exercise on behalf of the Trustee any right of set-off against any Shareholder that may exist in favor of the Trustee or the Securities Agent, under this Agreement or any other Transaction Document, by operation of law or otherwise; provided, however, that the right of set-off is exercised in respect of an Obligation arising under a Transaction Document and is exercised for the benefit of, and only at the express written direction of, the Trustee, or its assigns.

(i) Counterparts and Facsimiles. The Parties agree that this Agreement may be signed in counterparts at different times and in different places without the Parties being in each other’s presence, each of which so executed shall be deemed to be an original and such counterparts together shall be but one and the same instrument. A copy of this Agreement executed by any Party and transmitted by facsimile shall be binding upon the Parties in the same manner as an original executed and delivered in person.

[signature page follows]

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed and delivered as of the day and year first above written.

JSC TURANALEM SECURITIES, as the Securities Agent
By:	/s/ Kairat K. Bektanov
Name:	Kairat K. Bektanov
Title:	Director
TRANSMERIDIAN EXPLORATION, INC., as a Shareholder
By:	/s/ Earl W. McNiel
Name:	Earl W. McNiel
Title:	Vice President
BRAMEX MANAGEMENT, INC., as a Shareholder
By:	/s/ Earl W. McNiel
Name:	Earl W. McNiel
Title:	Vice President

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EX-10.10

Exhibit 10.10

Execution Copy

Share Encumbrance and Pledge Agreement

Dated 3 January 2006

TuranAlem Securities JSC

(“Securities Agent”)

Transmeridian Exploration, Inc. and Bramex Management, Inc.

(“Shareholders”)

Share Encumbrance and Pledge Agreement

Dated 3 January 2006

Between

(1) TuranAlem Securities JSC (“Securities Agent”), a joint stock company incorporated and existing under the laws of the Republic of Kazakhstan;

(2) Transmeridian Exploration, Inc. (“TME”), a company registered under laws of the British Virgin Islands, and Bramex Management, Inc. (“Bramex”), a company registered under laws of the British Virgin Islands (Bramex, jointly with TME, shall be referred to as the “Shareholders”).

Recitals

A The Shareholders own the Shares in Caspi Neft TME JSC (as defined below);

B TuranAlem Securities JSC, Transmeridian Exploration, Inc. and Bramex Management, Inc. executed the Conditional Share Transfer Agreement (as defined below) providing for the Share Transfer from the Shareholders to the Securities Agent;

C With a view to securing the performance of obligations of the Shareholders towards the Securities Agent under the Conditional Share Transfer Agreement, the Shareholders have agreed to encumber and pledge the Shares to the Securities Agent.

It is hereby agreed by the Parties as follows:

1 Definitions

In this Agreement, unless there is a specific provision to the contrary or where the context otherwise requires, words defined in the Conditional Share Transfer Agreement shall have the same meaning herein. In this Agreement the following terms shall have the meanings (such meanings to be equally applicable to both the singular and the plural forms thereof) given to them herein.

Shares means, as at the date of this Agreement fifty thousand (50 000) ordinary registered shares in Caspi Neft TME JSC (National Identification Number KZ1C41630019) with a nominal value of one thousand (1 000) tenge each, representing one hundred percent (100%) of the issued and paid-up shares in Caspi Neft TME JSC, and any other additional Securities acquired by the Shareholders after the date of this Agreement.

Conditional Share Transfer Agreement means the Conditional Share Transfer Agreement executed among TuranAlem Securities JSC, Transmeridian Exploration, Inc. and Bramex Management, Inc. dated on or about the date of this Agreement.

Secured Obligations means the (i) obligations of the Shareholders to perform the Share Transfer in favour of the Securities Agent or as otherwise directed by the Securities Agent in accordance with the Conditional Share Transfer Agreement, evaluated by an agreement of the Parties as 250 000 000 US dollars to be performed by 31 December 2010, and (ii) any other obligations of the Shareholders towards the Securities Agent to properly perform the Conditional Share Transfer Agreement.

Encumbered and Pledged Property means the Shares.

Parties means the Securities Agent and Shareholders, and a Party means any of them.

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Share Encumbrance Transaction means the Encumbrance and Pledge arising hereunder.

Caspi Neft TME JSC means Caspi Neft TME Joint Stock Company incorporated and existing under the laws of the Republic of Kazakhstan, registration number 10139-1904-AO (IU).

2 Encumbrance and Pledge of the Shares

2.1 As security for the Secured Obligations, the Shareholders hereby unconditionally and irrevocably encumber and pledge the Shares to the Securities Agent.

2.2 The Encumbrance and Pledge created hereby provide the claims of the Securities Agent with a priority over claims of any other person in respect of the Shares, except for any claims having priority over the claims of the Securities Agent by operation of the effective legislation of the Republic of Kazakhstan.

2.3 The Encumbrance and Pledge of the Shares shall arise from the time of registration of the Share Encumbrance Transaction in accordance with the effective legislation of the Republic of Kazakhstan. The Shareholders undertake to properly and promptly register the Share Encumbrance Transaction at their own expense in accordance with the effective legislation of the Republic of Kazakhstan.

2.4 Any release of the Encumbrance and Pledge of the Shares shall only be upon mutual written consent of the Parties.

2.5 The Parties agree that the Shares Encumbered and Pledged by the Shareholders to the Securities Agent hereunder shall be evaluated as 250 000 000 US dollars.

3 Ability to Use the Shares; Further Pledge and Encumbrance of the Shares

3.1 The Shares shall remain possessed and enjoyed by the Shareholders with the right to exercise the rights of the Shareholders as the shareholders of Caspi Neft TME JSC, including to attend, take part in and vote at any shareholders’ meetings of Caspi Neft TME JSC, right to receive dividends, and to otherwise exercise and enforce its shareholders’ rights subject only to the terms of this Agreement.

3.2 All risks of loss of the Shares or any related rights shall be borne by the Shareholders.

3.3 The Shareholders shall have no right to assign or otherwise dispose of or encumber the Shares or any part thereof, with the exception of the disposal of the Shares in favour of the Securities Agent under the Conditional Share Transfer Agreement.

4 Failure to Perform or Improper Performance of the Secured Obligations

In the event of failure to perform or improper performance of the Secured Obligations, the Securities Agent shall have the right, within the framework of the legislation of the Republic of Kazakhstan, to exercise all rights and remedies with regard to the Shares as a secured party in accordance with the legislation of the Republic of Kazakhstan, including, but not limited to, the extrajudicial enforced sale proceedings. For this purpose, the Securities Agent shall enjoy all rights of a secured party provided for by the legislation of the Republic of Kazakhstan.

5 Assignment

None of the Parties may assign their respective rights and obligations hereunder without the prior written consent of the other Party.

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6 Partial Invalidity

If any provision contained herein shall be invalid, illegal or unenforceable in any respect under any applicable law, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired.

7 Amendments

No amendment or waiver of any provision of this Agreement nor consent to any departure by the Shareholders from the terms of this Agreement shall be effective unless the same shall be in writing and signed by the Parties’ duly authorised representatives and registered if required, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which it is given and after registration (if applicable).

8 Termination of Encumbrance and Pledge

The Encumbrance and Pledge granted under this Agreement shall terminate:

(a) after full performance of the Secured Obligations;

(b) upon written agreement of the Parties; or

(c) in the event of sale of the Shares under Article 4 of this Agreement.

9 Applicable Law

This Agreement shall be governed by the law of the Republic of Kazakhstan. Any disputes arising from or in connection with this Agreement shall be settled in accordance with the procedure provided for by Article 7(e) of the Conditional Share Transfer Agreement.

10 Counterparts and Facsimiles; Languages

10.1 The Parties agree that this Agreement may be signed in counterparts at different times and in different places without the Parties being in each other’s presence, each of which so executed shall be deemed to be an original and such counterparts together shall be but one and the same instrument. A copy of this Agreement executed by any Party and transmitted by facsimile shall be binding upon the Parties in the same manner as an original executed and delivered in person.

10.2 This Agreement was executed in the English and Russian languages and was prepared in the Kazakh language and, if there is any discrepancy or inconsistency between the English, Kazakh or Russian versions, the English version shall prevail.

[signature page follows]

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The Agreement is signed by the parties or their duly authorised representatives.

TuranAlem Securities JSC	) ) ) )	/s/ Kairat K. Bektanov
Transmeridian Exploration, Inc.	) ) ) )	/s/ Earl W. McNiel
Bramex Management, Inc.	) ) ) )	/s/ Earl W. McNiel

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EX-10.11

Exhibit 10.11

Execution version

SECURITIES AGENCY AGREEMENT

THIS SECURITIES AGENCY AGREEMENT (this “Agreement”) dated as of January 3, 2006 is entered into by and among THE BANK OF NEW YORK, a New York banking corporation, not in its individual capacity but solely as trustee under the Indenture (as defined herein) (the “Trustee”), JSC TuranAlem Securities, a Kazakhstan joint stock company incorporated under the laws of Kazakhstan, No. 14024-1910-T00, broker-dealer license No. 0401200159, as Securities Agent in the Republic of Kazakhstan (the “Securities Agent”), and TRANSMERIDIAN EXPLORATION, INC. (“TME”), a company incorporated under the laws of the British Virgin Islands and BRAMEX MANAGEMENT, INC. (“Bramex”), a company incorporated under the laws of the British Virgin Islands (Bramex, together with TME, the “Issuer”).

RECITALS

The Trustee, the Issuer and certain guarantors have entered into an Indenture dated as of the date hereof (as amended, amended and restated, supplemented or otherwise modified from time to time, the “Indenture”) pursuant to which the Issuer is issuing its Senior Secured Notes due 2010 (the “Notes”);

To secure its and the Guarantors’ obligations under the Indenture and the Notes (the “Obligations”), the Issuer has agreed, among other things, to execute and deliver the Conditional Share Transfer Agreement (the “CSTA”) and the other documents listed on Exhibit A (the CSTA, such other documents listed on Exhibit A and any such other agreements as may be entered into from time to time with the prior written consent of the Trustee with respect to the Shares (as defined in CSTA) collectively referred to herein as the “Kazakhstan Documents”); and

The holders of the Notes have selected and desire the Issuer to appoint the Securities Agent, and the Securities Agent desires to act, as securities agent pursuant to the Kazakhstan Documents.

NOW, THEREFORE, in consideration of the premises, the parties hereto agree as follows:

Section 1. Definitions

Capitalized terms used herein and not otherwise defined herein shall have the meaning given to such terms in the Indenture.

Section 2. Appointment of Securities Agent; Successor Securities Agent

The Issuer hereby appoints the Securities Agent, and the Securities Agent hereby accepts such appointment, pursuant to the terms of this Agreement, as securities agent to act on behalf of the Trustee under the Indenture for the benefit of the Trustee and the holders of the Notes, but solely in respect of the Kazakhstan Documents and the Shares covered thereby. The Securities Agent shall be and is hereby authorized to exercise such rights and powers as instructed from time to time by the Trustee to perform its obligations as Securities Agent under this Agreement and as Securities Agent and/or beneficiary under the Kazakhstan Documents. Except as otherwise expressly set forth in this Agreement, the Securities Agent shall not take any action with respect to the Shares, whether pursuant to this Agreement or any of the Kazakhstan Documents, except pursuant to the written instructions of the Trustee.

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(a) The Securities Agent is an independent contractor and shall have no authority to act for or represent the Trustee except as expressly set forth herein. Notwithstanding any provision to the contrary elsewhere, the Securities Agent shall not have any authority, rights, duties or responsibilities, except those expressly set forth in the Kazakhstan Documents to which it is a party and those arising out of its acceptance and administration of this Agreement. The Securities Agent does not owe fiduciary duties to the Trustee or any other person in connection with the performance of its duties hereunder other than (i) the duty to safekeep the Shares in its custody and (ii) the duty to take no action which would impair the interests of the Trustee and the holders of the Notes in the Shares. At the expense of the Issuer, the Securities Agent may retain counsel and other experts, and may rely conclusively on the advice of such counsel and other experts. If the Securities Agent is required to take any action hereunder, including, but not limited to, beginning any legal action or proceeding or taking any steps to enforce or realize upon any security interest created by the Kazakhstan Documents, the Issuer shall reimburse and indemnify (whether by way of payment in advance or otherwise) the Securities Agent against all costs, claims, expenses (including legal fees) and liabilities it will or may expend or incur in taking such action.

(b) The Securities Agent may be removed any time with or without cause by written notice by the Trustee. Prior to the effectiveness of any such removal, the Issuer shall have the right to appoint a successor Securities Agent. Upon the acceptance of any appointment as Securities Agent hereunder by a successor Securities Agent, such successor Securities Agent shall thereupon succeed to and become vested with all the rights, powers, privileges and duties of the retiring Securities Agent, and the retiring Securities Agent shall be discharged from its duties and obligations under this Agreement. After any Securities Agent’s removal hereunder as Securities Agent, the provisions of this Agreement shall inure to its benefit as to any actions taken or omitted to be taken by it while it was Securities Agent under this Agreement and the Kazakhstan Documents.

(c) Beyond the exercise of reasonable care in the custody thereof, the Securities Agent shall have no duty as to any Shares in its possession or control or in the possession or control of any nominee, agent or bailee or any income thereon or as to preservation of rights against prior parties or any other rights pertaining thereto. The Securities Agent shall be deemed to have exercised reasonable care in the custody of the Shares in its possession if the Shares is accorded treatment substantially equal to that which it accords its own property and shall not be liable or responsible for any loss or diminution in the value of any of the Shares, by reason of the act or omission of any carrier, forwarding agency or other agent or bailee selected by the Securities Agent in good faith.

(d) The Issuer shall concurrently give to the Securities Agent copies of all notices given by Issuer to the Trustee pursuant to the Indenture, provided that the failure to provide to the Securities Agent a copy of a notice properly delivered to the Trustee shall not be a separate default or Event of Default under the Indenture, the Kazakhstan Documents or this Agreement. The Trustee will have the right to appoint a person who will be in charge of exercising the rights derived from or related to the Shares or that may be applicable to its defense, in which case, the Securities Agent will only be obligated to grant the necessary powers of attorney. In the event of and following such an appointment, the Trustee shall give prompt notice of such appointment to the Issuer.

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Section 3. Responsibilities of Securities Agent

The obligations of the Securities Agent under this Agreement shall be to:

(a) duly execute and deliver and act as Securities Agent or beneficiary under the Kazakhstan Documents for the benefit of the Trustee under the Indenture as requested by the Trustee in writing;

(b) duly perform all of its duties and obligations under the Kazakhstan Documents, specifically those obligations to enforce its rights against the Shares, but only as and to the extent instructed by the Trustee in writing;

(c) upon the occurrence of an Event of Default, take such action as requested by written instructions of the Trustee under the Indenture, specifically including the actions specified under Section 2.1 of the CSTA (but in no event otherwise) in a manner consistent with applicable law. In this regard, the Securities Agent shall be entitled to rely and act upon, and shall be fully protected in relying and acting upon, any note, writing, resolution, notice, consent, certificate, request, demand, direction, instruction, waiver, receipt, agreement, affidavit, letter, statement, order or written document or written communication reasonably believed by it to be genuine and correct and to have been signed, sent or made by the proper Person or Persons and upon advice and statements of legal counsel and other experts retained or employed by the Securities Agent in its reasonable discretion;

(d) be deemed to have actual, constructive, direct or indirect knowledge or notice of the occurrence of any Event of Default or any right or obligation to give a Transfer Instruction (as defined in the CSTA) except upon receipt by the Securities Agent of a written notice or a certificate from the Trustee, stating that an Event of Default has occurred and that a Transfer Instruction should be delivered. The Securities Agent shall have no obligation whatsoever either prior to or after receiving such written notice or certificate to inquire whether an Event of Default has in fact occurred and shall be entitled to rely conclusively, and shall be fully protected in so relying, on any notice or certificate so furnished to it;

(e) take such other actions reasonably requested by the Trustee in accordance with this Agreement;

(f) file the required statements and record the required documents or instruments in the appropriate public office at any time or times necessary to preserve the interests of the Trustee and the holders of the Notes in the Shares;

(g) except as set forth in Section 3(j) below, waive any right of set-off with respect to the Shares;

(h) following completion of a Share Transfer (as defined in the CSTA), at the direction of the Trustee, sell the Shares in a manner consistent with applicable law for cash or other consideration in one or more transactions in such manner and to such purchasers as shall be directed in writing by the Trustee;

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(i) remit all Sale Proceeds (as defined in the CSTA) forthwith to the Trustee until the Trustee shall have received at its offices in New York, New York an aggregate amount equal to all amounts owed by the Issuer with respect to the Obligations, and upon receipt by the Securities Agent of a written certification from the Trustee that the Trustee has received Sale Proceeds from the sales of Transferred Shares (as defined in the CSTA) conducted by or at the direction of the Securities Agent pursuant to the CSTA in an aggregate amount sufficient to have satisfied in full all of the Obligations, (i) remit any remaining Sale Proceeds to the Shareholders (as defined in the CSTA), as they shall jointly direct and (ii) if applicable, instruct the Nominee (as defined in the CSTA) to transfer ownership of any remaining Shares to the Shareholders, as they shall jointly direct; and

(j) if so directed in writing by the Trustee, acquire Transferred Shares for the account of the Trustee, or its assigns, pursuant to the exercise of the set-off rights provided for in Section 7(g) of the CSTA. The Securities Agent shall not otherwise exercise such rights under the CSTA or otherwise arising in favor of the Securities Agent by operation of law or any other agreement with the Shareholders, or the Issuer, or any of their Affiliates.

Section 4. Securities Agent’s Individual Capacity

The Securities Agent may accept deposits from, lend money to, and generally engage in any kind of banking, trust or other business with the Issuer or any of its affiliates or subsidiaries as if it were not performing the duties specified herein, and may accept fees and other consideration from the Issuer for services in connection with this Agreement and otherwise without having to account for the same to the Trustee or to the holders of Notes from time to time.

Section 5. Term, Fees, Etc.

The term of this Agreement shall commence on the date hereof and, unless earlier terminated pursuant to Section 2(c), shall terminate upon the Termination Date (as defined in the CSTA). For services rendered as Securities Agent under this Agreement, the Issuer shall pay the Securities Agent such compensation as may be agreed to from time to time in writing between the Securities Agent and the Issuer. The Issuer agrees to pay the reasonable fees, expenses and other amounts payable of the Securities Agent under this Agreement (including the reasonable fees and expenses of the Securities Agent’s counsel), in addition to any other fees, expenses and other amounts payable that may arise under the Kazakhstan Documents (as such term is defined in the Indenture). The Trustee shall have no liability for any of the foregoing fees or expenses.

Section 6. Limitation of Responsibility.

(a) The Securities Agent will not be liable for any facts, acts or omissions of the parties on the Kazakhstan Documents or third parties that may prevent the Securities Agent from complying with its obligations and duties under this Agreement.

(b) The Securities Agent shall not have any implied liability or obligation under this Agreement or the Kazakhstan Documents with respect to obligations that are not expressly provided herein or therein.

(c) The parties hereto agree that the Securities Agent shall not be liable for any act or omission, including without limitation, the failure to deliver any notice in accordance with this Agreement, to be performed by any other party hereto or any third party that may result in a failure to comply with the Securities Agent obligations.

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(d) The Securities Agent shall not be liable for any act performed in good faith and in accordance with the written instructions delivered by the Trustee to the Securities Agent pursuant to this Agreement. The Trustee shall have no liability for any negligence or willful misconduct of the Securities Agent.

(e) Notwithstanding any other limitation to the Securities Agent’s liability under this Agreement, the parties hereto agree that the Securities Agent shall not be liable for, and shall not have any obligation to verify or investigate:

(i) any representation or warranty made by the parties hereto in this Agreement or any other document related to this Agreement, including but not limited to the Kazakhstan Documents;

(ii) the content of any certificate, report or any other document delivered by any party hereto or any other third party; and

(iii) the fulfillment by the Issuer of its obligations under or any agreement related to this Agreement, including but not limited to the Kazakhstan Documents.

(f) Nothing herein shall require the Trustee to submit to the jurisdiction of a non-U.S. court.

(g) Without limiting the above and notwithstanding any provision to the contrary in any other document, the Securities Agent and its officers, representatives, employees and agents:

(i) shall not have any liability or obligation other than those expressly provided in this Agreement, and the Securities Agent shall not have any implied liability or obligation hereunder;

(ii) at any time, upon determination by the Securities Agent after consultation with legal counsel that it is prohibited by applicable law to perform or refrain from performing an act or requirement set forth herein, the Securities Agent may postpone or refrain from performing such act until the Securities Agent has received legal advice from counsel or other evidence reasonably satisfactory to the Securities Agent that such act (or omission to act) is not prohibited under applicable law.

(iii) may, at its own election, seek advice from any legal or any other kind of advisor (provided that Securities Agent shall not retain financial advisors for the benefit of Trustee without the prior written consent of the Trustee);

(iv) shall not have any liability whatsoever to determine or investigate the fulfillment or compliance by any of the parties hereto of the terms, conditions and obligations under this Agreement or any other agreement they are part of;

(v) shall not incur any liability whatsoever for any delay, cancellation or modification of any notice, consent, certificate, representation, communication, copy or any other communication not delivered to the Securities Agent, cancelled or modified timely; and

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(vi) shall not be deemed to have knowledge of any fact or circumstance, unless the Securities Agent has received a written notice at the address provided in Section 9(a) hereof in accordance with this Agreement.

Section 7. Indemnification; Disclaimers, Etc.

(a) The Issuer shall be liable for and shall reimburse and indemnify the Securities Agent and hold each of the Securities Agent and the Trustee (which shall include, for the purposes of this Section 7, their respective officers, employees, agents and directors) harmless from and against any and all claims, losses, liabilities, taxes, costs, damages or expenses (including reasonable attorney’s fees and expenses) (collectively, “Losses”) arising from or in connection with or related to this Agreement or being Securities Agent hereunder (including but not limited to Losses incurred by the Securities Agent in connection with its successful defense, in whole or in part, of any claim of willful misconduct on its part); provided, however, that the Securities Agent shall not be indemnified for Losses caused by its own negligence or willful misconduct, for which it shall indemnify the Trustee and the Issuer for any costs or expenses of any kind whatsoever incurred by them.

(b) No provision of this Agreement and the Kazakhstan Documents shall require the Securities Agent or the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or under the Kazakhstan Documents or in the exercise of any of its rights or powers, if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity against such risk or liability is not reasonably assured to it.

(c) The Securities Agent shall have no liability (whether sounding in tort, contract or otherwise) for losses in connection with, arising out of, or in any way related to, performance by the Securities Agent under any of the Kazakhstan Documents and/or the relationship established by this Agreement, or any act, omission or event occurring in connection therewith, unless it is determined by a final and nonappealable judgment of a court of the competent jurisdiction that is binding on the Securities Agent that such losses were the result of acts or omissions on the part of the Securities Agent constituting negligence or willful misconduct in connection with the performance by the Securities Agent hereunder or under the Kazakhstan Documents, or otherwise.

(d) Without prejudice to any other provision of this Section 7, the Securities Agent and the Issuer agree that the Trustee shall have no liability to the Securities Agent or the Issuer (whether sounding in tort, contract or otherwise) hereunder.

Section 8. Illegality; No Inconsistency

Nothing in this Agreement or the Kazakhstan Documents shall require the Securities Agent to take any action which is in violation of or prohibited by any applicable laws.

Section 9. Miscellaneous Provisions

(a) Notices. All notices, approvals, comments or other communications required or desired to be given hereunder shall be in writing in the English Language and

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delivered in person or mailed by certified mail or courier, postage prepaid, addressed as follows, or by facsimile transmission, and shall be deemed given when received:

If to the Trustee:

The Bank of New York

101 Barclay Street 21 West

New York, New York 10286

Attention: Global Finance Unit

Fax: (212) 815-5802/5803

If to the Securities Agent:

TuranAlems Securities JSC

281 Khusainov Street

Almaty 050060

Attention: Laura Likerova, Managing Director

Fax: +7-3272-991025

If to the Issuer:

c/o Transmeridian Exploration Incorporated

397 N. Sam Houston Parkway East, Suite 300

Houston, Texas 77060

Attention: Earl W. McNeil

Fax: (281) 999-9094

(b) Severability. The provisions of this Agreement are severable, and if any clause or provision shall be held invalid, illegal or unenforceable in whole or in part in any jurisdiction, then such invalidity or unenforceability shall affect in that jurisdiction only such clause or provision, or part thereof, and shall not in any manner affect such clause or provision in any other jurisdiction or any other clause or provision of this Agreement in any jurisdiction.

(c) Headings. The headings in this Agreement have been inserted for convenience of reference only, are not to be considered a part hereof and shall in no way modify or restrict any of the terms or provisions hereof.

(d) Counterpart Originals. This Agreement may be signed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same agreement.

(e) Amendments. This Agreement may be changed, waived, discharged or terminated only by an instrument in writing signed by all of the parties hereto.

(f) Governing Law. This Agreement shall be construed in accordance with and governed by the laws of the State of New York (without reference to conflict of laws). The parties agree that any suit for the enforcement of this Agreement may be brought in the courts of the State of New York or any federal court sitting in the Borough of Manhattan in New York, New York and consent to the nonexclusive jurisdiction of such court.

(g) Dispute Resolution.

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i) The Parties shall make attempts to settle disputes hereunder amicably through good faith negotiations within thirty (30) days from the moment of submission of a written notice about such dispute by one Party to the other Party. If such negotiations are not successful a dispute, controversy or claim arising out of or relating to this Agreement, or the breach, termination or invalidity hereof, shall be settled by arbitration.

ii) Each of the Parties hereby irrevocably agrees that, if any dispute, claim or disagreement arises from or in connection with this Agreement (or any supplement, modification or addition thereto, including as to the terms or conditions of the execution, breach, termination or invalidity hereof or thereof) (together, Disputes) and the negotiations referred to in Clause i) are not successful, such Dispute shall be submitted to arbitration. Disputes submitted to arbitration shall be conducted in English and be resolved by arbitration in London by the Arbitration Court of the International Chamber of Commerce (the Arbitration Court) in accordance with the rules of the Arbitration Court, which rules are deemed to be incorporated by reference into this Clause. The tribunal shall consist of three arbitrators, one appointed by each of the Parties with the third being agreed between the first two arbitrators but, in the absence of agreement between them, shall be appointed by the Arbitration Court. All decisions of the Arbitration Court shall be binding on the Parties and the Dispute shall be considered finally settled under the rule of the Arbitration Court by the said arbitrators.

(h) Incorporation by Reference. All of the rights, protections and privileges granted to the Trustee under the Indenture are incorporated by reference herein and shall inure to the benefit of the Securities Agent herein; provided, however, that in the event there is an inconsistency or conflict between this Agreement and the Indenture, this Agreement shall govern (it being understood that this proviso is intended solely to resolve conflicts between this Agreement and the Indenture with respect to the rights of the Securities Agent under this Agreement, and shall not in any way modify, diminish or otherwise affect the rights, protections and privileges granted to the Trustee under the Indenture).

(i) The indemnities set forth herein in Section 7 shall survive the final payment of the Obligations, the termination of this Agreement, and the resignation or removal of the Trustee or the Securities Agent.

[signature page follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.

THE BANK OF NEW YORK,
Not in its individual capacity but solely as Trustee under the Indenture
By:	/s/ Luis Perez
Name:	Luis Perez
Title:	Assistant Vice President
TuranAlem Securities JSC, as Securities Agent
By:	/s/ Kairat K. Bektanov
Name:	Kairat K. Bektanov
Title:	Director
TRANSMERIDIAN EXPLORATION, INC. as Issuer
By:	/s/ Earl W. McNiel
Name:	Earl W. McNiel
Title:	Vice President
BRAMEX MANAGEMENT, INC as Issuer
By:	/s/ Earl W. McNiel
Name:	Earl W. McNiel
Title:	Vice President

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EXHIBIT A

KAZAKHSTAN DOCUMENTS

1. Conditional Share Transfer Agreement dated January 3, 2006 among JSC TuranAlem Securities, Transmeridian Exploration, Inc. and Bramex Management, Inc.

2. Nominee agreement among Visor Investment Solutions JSC, on the one hand, and JSC TuranAlem Securities, Transmeridian Exploration, Inc. and Bramex Management, Inc., on the other hand, respectively.

3. Share Encumbrance and Pledge Agreement dated January 3, 2006 among JSC TuranAlem Securities, Transmeridian Exploration, Inc. and Bramex Management, Inc.

4. Application to open “face account” with JSC “Securities Registrar System”, License No. 20050017 of the National Companies and Securities Commission of the Republic of Kazakhstan.

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EX-10.12

Exhibit 10.12

AGREEMENT

FOR BROKERAGE SERVICES

(INCLUDING CUSTODY SERVICES)

Almaty city 23 January 2006

“VISOR Investment Solutions” Joint Stock Company, further “Company”, represented by Ms. A.T. Nurmakhanova, Director-Trustee of Broker and Dealer Activity, acting on the basis of the Charter and “License to perform broker and dealer activities including custody services for the clients as a custodian” No 0401201058 dated 19 May 2005r., issued by Agency of the Republic of Kazakhstan, on one hand and TRANSMERIDIAN EXPLORATION, INC., further referred to as “Client”, represented by Mr. Earl McNiel, Vice President, acting on the basis of foundation documents of the Client, on the other hand, collectively referred to as “Parties” and individually as “Party”, entered into this Agreement.

1. DEFINITIONS

“Commission of the Exchange” - a commission of the stock exchange for the transactions performed at the stock exchange.

“Broker-dealer” - an organization authorized to perform broker-dealer activities on the basis of respective license.

“Internal Documents of the Company” - regulatory acts of the Company, including Internal Rules and Procedures regulating the Company’s relationship with its clients as performance of broker and dealer activities to the extent required by laws and corporate decisions of the Company.

“Order of the Client” (“Order”) - a standard document issued by the Client to the Company that contains an instruction to execute a transaction with securities on account and in interest of the Client on the terms specified in the Order.

“Instruction of the Client” (“Instruction”) - a standard document issued by the Client to the Company that contains an instruction to execute a transaction within the Broker account of the Client.

“Regulating Authority” - National Bank of Republic of Kazakhstan.

“The conflict of interests” is situation, by which the interests of Company and its obligations (as Attorney and commissioner of its Client) are not agreed with each other.

“The best price” will mean-

• In case of a sale of securities – maximum bid price for securities of such type,

• In case of a purchase of securities – minimal offer price for securities of such type.

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“Non-organized market” – market of securities where securities’ transactions are not regulated by the requirements of the organized market towards the subject of the transaction and its participants in the manner defined by the legislation.

“Nominal Holding of Securities” – is registration and confirmation of rights on securities, registration of transactions with it.

“Arranger of trading” - arranger of trading with securities

“Registrar” - is professional member of equity market, making a formation, storage and operation of register holder securities system.

“SRO” - self-regulated organization of Brokers-dealers.

“Register Holders Securities System” - is the system of information about issuer, emissive securities and their holders, provided an identification of holders of rights on emissive securities for defined time, registration of transactions with it, as well as a character of registered limits for conversion or performance of rights on these securities, and other information in accordance with applicable legal act of authorized body.

“Notice of execution of the Order/Instruction” - a document issued by the Company to the Client containing information and details of executed transaction in the format set out herein.

“Notice of non-execution of the Order/Instruction” - a report issued by the Company to the Client in cases when an Order of the Client has not been executed.

“Authorized body” is state body, making a control and supervision over equity market.

“Deterioration of the financial standing” - inability of the Company to meet financial standing requirements (norms) set out in the legislation of Republic of Kazakhstan.

2. SUBJECT OF THE AGREEMENT

2.1 The subject of this Agreement is provision of brokerage services, custody services for securities, information services related to sale and purchase of securities and other information services to the Client.

2.2 The Client instructs, and the Company takes on an obligation to provide services of keeping records of securities and money of the Client including registration of any transactions with securities.

2.3 Execution of this Agreement does not constitute transfer of ownership rights on the securities of the Client to the Company.

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2.4 Upon signing of this Agreement, the Client is not required to remit any funds or securities immediately to the accounts opened with the Company.

2.5 The Parties will act in their relationship on the basis of this Agreement, resolutions and provisions of the Regulating authority, acting legislation of the Republic of Kazakhstan, Internal Documents of the Company and terms set out by this Agreement.

2.6 The Company will provide the following services to the Client:

a) sell and buy securities in compliance with the Order (in the format set out in the Appendix 2 to this Agreement) and provide other services following Instructions of the Client as per Procedures of the Company;

b) sign documents related to execution of transactions with securities on behalf and on account of the Client;

c) open broker accounts to keep records of securities and cash account to keep records of cash funds of the Client;

d) open accounts for custody (nominal holding) of securities and cash funds, as well as to re-register securities specified by the Client with the respective Registrars of securities;

e) register transaction with securities of the Clients and to record incurred encumbrances;

f) confirm property right of the Client on its securities;

g) ensure receipt by the Client of information related to securities transferred to the custody of the Company;

h) ensure registration of property rights of the Client on its securities;

2.7 The Client hereby acknowledges that it is informed of the risks involved in the activity at the securities market and that the Company will not bear any obligation for any damage incurred by the Client if such damage was not cased by the violation by the Company of this Agreement and any requirements of the legislation of Republic of Kazakhstan set forth for broker and dealer activity at the securities market.

3. RIGHTS AND OBLIGATIONS OF THE PARTIES

3.1 The Company has a right to:

a) to receive commissions and fees for the services provided by the Company in accordance with the commissions and fees list of the company on the monthly basis according to Appendix 1 unless otherwise specified herein;

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b) to execute transactions as per the Orders of the Client, to act as a broker or dealer in a transaction meanwhile executing proprietary transactions and transactions on account of the Client, on own behalf and on behalf of the Client and to document transactions with securities in accordance with the Internal Rules of the Company;

c) to open broker account for recording transactions with securities and cash funds of the Client, to perform acceptance of the securities of the Client, to organize and keep a separate record of Client’s assets and investment revenue on those assets;

d) to receive investment revenue on assets of the Client and to credit it to the broker account of the Client;

e) to register as a nominal holder with the Central Depositary of securities, with registrars, custodians and other nominal holders, to register pledges and encumbrances over assets of the Client, to provide account statements to the Client at the request of the Client, to perform cross-checking of portfolio and cash fund balance status on a regular basis or at the request of the Client;

f) to deny the Client acceptance of an Order for execution in the following cases:

• there is a disagreement with the Client with regards to the content of the Order;

• there is an evident contradiction of the transaction to be executed per this Order with the legislation of Republic of Kazakhstan;

• the Client’s ability to fund the transaction per the Order is questionable (in accordance with the legislation of Republic of Kazakhstan, rules of SRO and Arranger of the trading where the Company is a member or a participant of). In case the Broker-dealer accepts such Order, it is subject to liability set forth by the legislation of Republic of Kazakhstan, rules of SRO and Arranger of the trading where the Company is a member or a participant of for violation of obligations under the transaction executed as per the Order.

g) to hold execution or to deny execution of orders and instructions of the Client in case a respective notification is received from the Regulating authority, legal bodies or other authorized state bodies as well as respective registrar;

h) to discontinue any work related to the Client’s account in case of event of default of the Client set forth herein and other agreements, contracts entered by the Client;

i) to inform the Client about any transactions with securities executed in accordance with this Agreement, which have been restricted or imposed by special conditions by the legislation of Republic of Kazakhstan;

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j) to demand all additional information from the Client necessary for execution of the transactions with securities;

k) to use Client’s funds for payment of commissions and other fees related to the execution of a transaction on account of the Client. The Company will have no right to use the abovementioned funds for other client’s transactions or other transactions unless this has been agreed upon in this Agreement;

l) to withhold any type of taxes (existing in Republic of Kazakhstan or imposed by any other county) from any payment to the Client, if the Company must withhold taxes under the existing provisions and regulations;

m) to accrue penalty fees and default fees at the rate in case the Client does not fulfill its obligations. Such interest, penalty fee, default fees may be demanded from the Client by means of deduction of such due amounts from any funds payable by the Company to the Client or cash fund balance of the Client held with the Company;

n) to charge the Client for the custody and brokerage services;

o) to notify the Client in writing no less than 10 calendar days beforehand of any changes of fees and commissions for the services provided by the Company;

p) to provide other consulting and information services with regards to which the Company and the Client may agree from time to time within this Agreement and requirements set forth by the legislation of Republic of Kazakhstan;

q) any other rights envisaged in the current legislation.

3.2 The Company will:

a) act only within the terms of this Agreement entered by the Company and the Client and will not take any actions with regards to the securities of the Client, except for the actions instructed by the Client in the Order or Instructions;

b) execute transactions with the securities of the Client in the manner set forth by the Internal Rules, Procedures of the Company and legislation of Republic of Kazakhstan;

c) comply with the procedure of keeping records of the securities and cash funds of the Clients, as well as keeping records of any transactions made on those account which is set forth by the Procedures of the Company;

d) guarantee availability of securities held in custody and ability to execute transaction with these securities (or any other legal actions) which are allowed under property rights;

e) act only in the interests of the owners of the securities held in custody by the Company;

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f) enquire regarding the purposes of investment by the Client, unless such information constitutes a commercial secret of the Client, and to perform own activity in line with these purposes;

g) on the basis of best-efforts execute Orders of the Client at the best prices or the prices specified by the Client;

h) provide the Client with Notices of execution of the and Reports on execution of transaction no later than 1 day after the execution;

i) provide the Client with the periodic reports on a monthly basis, in case there are no transactions with balances on broker and cash fund account – on a quarterly basis, as well as other reports required by the current legislation;

j) register the Order in the Register book upon receipt of the Order, fill in special fields (date, time of acceptance, name and signature of the person accepting the Order, recommendations, etc) and check the details of the Client’s Order, send the copy to the Client within 1 business day in the manner set forth herein;

k) deny acceptance of the Order for execution of securities transaction from the Client that do not guarantee in the manner sufficient to the Company the payment of the securities within three business days commencing from the date of execution of the deal at the non-organized market or within the period specified by the Agreement set forth at the execution of the deal at the non-organized market;

l) keep records of securities of the Client separately from the cash funds in the manner set forth by the existing legislation;

m) notify the Client in writing of any revenue on securities received, credit it to the Client’s account and transfer this revenue to the Client to the account specified by the Client on the basis of the Client’s Order to credit funds. The terms and manner for receiving revenue on securities are described in the Procedures of the Company;

n) inform the Client of the possibility and events of the Conflict of interests with the interests of the Client;

o) give no recommendations to Client about performance of transactions with Client, if performance of such transaction have been resulted a conflict of interest. In case of breach of such prohibitions, Company shall pay a forfeit in amount 3 per cents from amount of transaction with securities, which performance has been resulted a conflict of interests. In case of branch of prohibition, Broker shall undertake pay to Client as losses, occurred by him at the result of such breach, as and forfeiture;

p) retain confidentiality of financial or other information about the Client, which has been received as part of the professional activity at the securities market, as defined by the Internal Documents of the Company and in compliance with the acting legislation of Republic of Kazakhstan;

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q) if Client’s money shall be taken in cash desk for three business days from such taking (inclusive such day) transfer these money in account of Company, especially opened in bank for purposes of stock-taking and storage of money, owned to clients.

r) in case of termination of this Agreement, there are funds available at the accounts of the Client, provided the article 5.4 is complied with, the money have to be returned to the Client within 3(three) business days from the termination date of this Agreement to the account specified herein or otherwise specified by the Client;

s) inform the Client of the following within 3 (three) business days as set the Internal Rules of the Client and legislation of Republic of Kazakhstan:

• any facts and reasons of financial deterioration of the Company (violation of the criteria of good financial standing set for brokers-dealers of respective category by the legislation of Republic of Kazakhstan);

• any sanctions imposed by the Regulating Authority, SRO and the Arranger of trading against the Company, its employees and affiliated companies;

• restrictions and special conditions, set by the legislation of Republic of Kazakhstan imposed on the transactions with securities which are to be executed (or have been executed) in accordance with this Agreement and implemented after the execution of the Agreement;

t) other obligations envisaged by the current legislation and Internal Rules of the Company.

3.3 Client has a right:

a) to demand fulfillment of all obligations by the Company;

b) to change details of the Order by means of the respective notice to the Company (in accordance with the procedure set forth in article 6 herein) which must be registered in the Register of accepted Client’s Orders provided such Order has not been executed;

c) to receive information in form of reports on activities of the Company in interests of the Client, including Notice of execution/non-execution of Client’s Orders and Instructions, certificates of the Exchange, including accounts statements;

d) to receive any information on floated securities and general information on status of the securities market available with the Company for a separate commission which may be specified in a separate agreement;

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e) to inform the Company within 3 business day from the moment of receipt of the Notices of execution of the Client’s Order or any other reports of the Company to the Client in case of a dispute or disagreement relative to such information. Otherwise, the notices and reports will be considered as accepted by the Client;

f) The Client has a right to enter in to account the cash assets of third persons and transfer his own cash assets into account of third persons in the presence of written direction.

g) other rights envisaged by the current legislation.

3.4 The obligations of the Client are:

a) to pay fees and commissions of the Company specified in the Appendix 1 herein within 3 (three) business days from the day of receipt of an invoice unless it is otherwise agreed herein;

b) to send two originals of the Order or Instruction in the format set forth by the Internal Rules and Procedures of the Company (of which the Company informs the Client);

c) to provide in prior with a transferring of money to a Company client banking account in a volume needed for a payment of future transactions with securities, or to transfer to a Company the amount specified in the client order without any deductions which may include payment for information services, taxes payable and other mandatory payments as well as any other payments required by the current legislation of the Republic of Kazakhstan within 1 business day from the date of submission of the Order to the Company. The transferring should be executed to the one of the following :

1. ATFbank, Almaty, Kazakhstan

ACCOUNT IN KZT

[Redacted]

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ACCOUNT IN USD

[Redacted]

2. Kazkommertsbank:

ACCOUNT IN KZT

[Redacted]

ACCOUNT IN USD

[Redacted]

d) Provide that any securities, provided to Client in accordance with this Agreement, being free from any payments, pledge, encumbrance or retaining;

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e) inform the Company of any change of its address or account details no later than 5 (five) days after such changes take place;

f) to provide all documentation necessary and required for execution of transactions on account of the Client in a timely manner;

g) to indemnify the Company, its employees, agents or representatives from any losses, obligations or expenses, which may be incurred by the Company or its employees, agents or representatives, including any taxes imposed indirectly or directly towards or as the result of any service provided to the client or any other permitted action allowed herein, except for the cases where such expenses or losses were incurred as the result of gross negligence or intended violation of the obligations by the Company;

h) other obligations envisaged by the current legislation.

4. TERMS AND MANNER OF RECEIVING REVENUE ON SECURITIES

4.1 During the term of the Agreement, the Company will keep track of all revenues received on securities of the Client held in custody by the Company;

4.2 Revenues on the securities of the Client must be first credited to the cash fund account with the Company upon the receipt, unless otherwise is not agreed herein. The Company will provide the Client with the Notice on payment of revenue on securities in accordance with the Procedures of the Company;

4.3 Having received the Notice and having confirmed such receipt in writing to the Company, the Client has a right to issue an Order to use the received revenue (to transfer the revenue to its bank account, to purchase securities, etc).

5. TERMINATION, BASIS FOR TERMINATION. FORCE MAJEUR EVENTS

5.1 This Agreement will come into effect from the date of signing and will remain in force until its termination in accordance with the article 5.2 herein;

5.2 This Agreement may be terminated:

• With the mutual consent of the Parties;

• By one of the Parties, with a prior notice sent to the other Party no less than 30 days before the termination date;

• Unilaterally in case of event of default under this Agreement in compliance with the existing regulation.

The actions of the Company and the Client, in case the broker-dealer license of the Company has been temporarily discontinued or revoked, are regulated by the separate legal provisions issued by the Regulating authority. In case the broker-dealer license of

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the Company has been temporarily discontinued or revoked, the company notifies the Client in the manner set forth by the respective legal provisions issued by the Regulating authority.

This Agreement is terminated, and all securities are returned to the Client in the following cases:

• been temporarily discontinued or revoked;

• liquidation of the Company;

• in case of Force majeur events.

5.3 If this Agreement is terminated, no transactions or any legal rights and obligations, which already haven been incurred already, will not be affected. Transactions which are in the process of execution on the date of termination will be concluded by the Company;

5.4 Upon termination of the Agreement by any of the Parties, the Company will have a right:

5.4.1 to receive from the Client all commissions, payments, reimbursement of expenses, accrued and incurred obligations hereunder, including all additional expenses or losses incurred at the termination, on the date of such termination, and any expenses incurred during the transfer of the Client’s securities from its broker account to its account with any other Broker-dealer or a bank;

5.4.2 to reimburse any amount payable by the Client pursuant to the article 5.4.1. hereunder.

5.5 Liquidation of the Client will not cause termination of this Agreement until the Company receives an appropriate notification of such.

5.6 The “Force majeur events” will mean acts of God, any events out of reasonable control of the Company including but not limited to war, military actions, Government’s actions, “coupe de estate”, turnover, fire, disaster; but excluding bankruptcy or financial deterioration.

6. PARTIES’ RESPONSIBILITIES

6.1 The Parties have material responsibilities if they breach the terms and conditions of this Agreement, and should a breach of thereof occur have to indemnify the other Party for all the losses incurred because of it;

6.2 The Parties are not held responsible if a breach happens out of incapacity (full or partial),or if circumstances beyond their control occur. These circumstances include, without limitation, any circumstances of force-majeur, any deficiencies or shut downs of communications, transmission and computers, shut-downs of electricity, discontinuities in the banking activities of banks involved, trading Administrators, Central Depository and other circumstances, making the execution of responsibility under the Agreement;

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6.3 The Parties are not responsible for circumstances, caused by changes in the laws of Kazakhstan, making the execution of responsibility under the Agreement;

6.4 Neither Party will not transfer its rights and responsibilities under the Agreement to third parties without a prior written notification and consent of the other Party (with due exception for the statutory requirements of approved by the Appropriate Authority;

6.5 In case of delay of payment, due for services of Company, Client shall pay to Company, a penny in amount: 0,1% from total amount of transaction for each day of delay;

6.6 Should the payment be in default for the services of the Company, the Client will pay a default fee of 3% of all the commissions and fees of the Company for each day of delay;

6.7 Upon submission of recommendation about performance of transaction with securities, which performance have been resulted a conflict of interests, Company shall pay losses and forfeit in accordance with sub clause 15, clause 3.2. with this Agreement;

6.8 The successor of any Party in the case of corporate reorganization and/or restructuring assumes all rights and responsibilities under this Agreement.

7. CHANGES OF AGREEMENT

7.1 All modifications, additions and any other changes to this Agreement are made in writing between the parties in accordance with procedures of Article 8 of this Agreement.

8. INFORMATION AND NOTIFICATIONS

8.1 If not specified to the contrary by the Agreement and exhibits to it all queries, orders, confirmations and other information, exchanged by the Parties, or notifications supplied in relation with this Agreement, are made in writing, and are delivered by hand, via post, telegraph or telefax at the address of the Party specified at the end of this Agreement;

8.2 Any notification, notice, order or confirmation are deeded to be received at the moment, when they should ordinarily by received, and the company will not be held responsible for any failure to fulfill any order for the time before the actual receipt of an order;

8.3 Upon conclusion, performance and termination of this Agreement, the use of facsimile signature, e-mail digital signature are permitted and documents, connected with this Agreement and sent by both Parties to each other by fax, telex and other communication, shall be original.

9. SETTLEMENT

9.1 The amount of the commission is calculated on the basis of the tariffs of the commission;

9.2 The Client transfers the amount of the Order to the Company’s account within one banking day;

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9.3 The Client pays the commission of the Company within one banking day from the day of the Notification of the Fulfillment of Client’s Order;

9.4 The Kazakhstan Securities Exchange Fee is payable by the Company and reimbursed by the Client in full. The amount of the Fee is itemized separately by the Company in the Notification of the execution of Client’s Order;

9.5 The exchange fee, registrar’s services and/or Central Depositary shall be paid by Client thought Company by this, amount, retained for these purposes shall be stated by Company in Notice about performance of Client Order;

9.6 Should the order be cancelled by the Client before its execution, the Client reimburses the Company for any expenses related to this order and incurred to the moment of cancellation. This reimbursement is payable within three banking day from the date of the claim of these expenses by the Company from the Client;

9.7 The settlements of Client’s orders with the Client are made on the basis of Notification of the execution of Client’s Order.

10. CLIENT’S ORDERS PLACEMENT PROCEDURES

10.1 The Client communicates to the Company it has completed the Order in two copies in the form as exhibited in Appendix 2 to this Agreement. A copy of the Order with confirmation of the Company is returned to the Client.

10.2 Client shall give to Company its instructions in standard written form in accordance with By-Laws of Company and legislation of Kazakhstan.

11. THE ORDER OF PERFORMANCE OF OPERATIONS WITH SECURITIES AND

ON PERSONAL ACCOUNT BY AUTHORIZED REPRESENTATIVE OF CLIENT

11.1 Client has right to prepare notarized or legalized copy (where need) of power of attorney for performance of operations with securities and on personal account in name of authorized person. This power of attorney must include name of authorized person, its details, competence, should be made in proper order and be effective in accordance with Civil Code of Kazakhstan.

12. THE ORDER OF PERFORMANCE OF OPERATIONS UPON PRESENCE OF MORE OWNERS

12.1 If more owners are existed, that for performance of operations have been appointed one authorized person, acting on basis of proxy and on behalf of all owners in proper order of applicable legislation of Kazakhstan. In case of issue of new proxy, previous shall be deemed as invalid.

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13. RESOLUTION OF DISPUTES

13.1 The Parties will endeavor to resolve all disputes arising from this Agreement in mutual amicable negotiations. Should any Party breach the terms and conditions of the Agreement, this defaulting Party within 30 days from the written notification of default by the other Party will try to correct the breach. Should the defaulting Party fail to resolve it within this term, the other Party has the right to appeal to court in accordance with this Agreement;

13.2 All disputes arising from this Agreement are subject to the applicable laws of the Republic of Kazakhstan;

All other rights and responsibilities not specifically mentioned in this Agreement are in accordance with the applicable laws of Kazakhstan;

13.3 This Agreement is made in two equal copies.

[signature page follows]

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COMPANY		CLIENT
“VISOR Investment Solutions” JSC 240/G Furmanov str., Almaty,		TRANSMERIDIAN EXPLORATION, INC. Address: c/o Nerine Trust Company (BVI) Limited, Quastisky Building, 3rd Floor, P.O. Box 905, Road Town, Tortola, British Virgin Islands
RNN 600 900 170 457 ACCOUNT IN KZT [Redacted]
ACCOUNT IN USD [Redacted]		[Redacted]
Signature:	/s/ A.T. Nurmakhanova	Signature:	/s/ Earl McNiel
	A.T. Nurmakhanova Director-Trustee of Broker and Dealer Activity		Earl McNiel Vice President

Appendix 1

to the Agreement on Brokerage Services (including custody services) date “                        ”

Fees and commissions of “VISOR Investment Solutions” JSC

Type of services	Service description	Fees and Commissions, Monthly
1. Broker services	1. Opening/closure of broker accounts	Free of charge
	2. Purchase/sale of securities on account of the Client	0.3% of transaction amount (upon market rate of the National Bank of Kazakhstan)*
	3. Reports and Notices for the Client	10 USD (for each report)
	4. Cash account transactions	As per bank fees and commissions
2. Custody services	1. Acceptance/Transfer of securities to/from the custody account of the Client	25 USD**
	2. Transfer of securities to broker of the Client outside of Kazakhstan	40 USD
	3. Maintenance of custody account of the Client	4 166.66 USD
3. Consultation services		Upon agreement of the Parties

* -this commission does not include Commission of JSC Kazakh Stock Exchange

** -this commission does not include fees of Registrars and Central Depositary

[signature page follows]

COMPANY		CLIENT
“VISOR Investment Solutions” JSC Address: 050059, Almaty, Furmanov Street, 240G		TRANSMERIDIAN EXPLORATION, INC. Address: c/o Nerine Trust Company (BVI) Limited, Quastisky Building, 3rd Floor, P.O. Box 905, Road Town, Tortola, British Virgin Islands
Bank account details: ACCOUNT IN KZT [Redacted]		Bank account details: [Redacted]
ACCOUNT IN USD [Redacted]		[Redacted]
Signature:	/s/ A.T. Nurmakhanova	Signature:	/s/ Earl McNiel
	A.T. Nurmakhanova Director-Trustee of Broker and Dealer Activity		Earl McNiel Vice President

EX-10.13

Exhibit 10.13

AGREEMENT

FOR BROKERAGE SERVICES

(INCLUDING CUSTODY SERVICES)

Almaty city 23 January 2006

“VISOR Investment Solutions” Joint Stock Company, further “Company”, represented by Ms. A.T. Nurmakhanova, Director-Trustee of Broker and Dealer Activity, acting on the basis of the Charter and “License to perform broker and dealer activities including custody services for the clients as a custodian” No 0401201058 dated 19 May 2005r., issued by Agency of the Republic of Kazakhstan, on one hand and BRAMEX MANAGEMENT, INC., further referred to as “Client”, represented by Mr. Earl McNiel, Vice President, acting on the basis of foundation documents of the Client, on the other hand, collectively referred to as “Parties” and individually as “Party”, entered into this Agreement.

1. DEFINITIONS

“Commission of the Exchange” - a commission of the stock exchange for the transactions performed at the stock exchange.

“Broker-dealer” - an organization authorized to perform broker-dealer activities on the basis of respective license.

“Internal Documents of the Company” - regulatory acts of the Company, including Internal Rules and Procedures regulating the Company’s relationship with its clients as performance of broker and dealer activities to the extent required by laws and corporate decisions of the Company.

“Order of the Client” (“Order”) - a standard document issued by the Client to the Company that contains an instruction to execute a transaction with securities on account and in interest of the Client on the terms specified in the Order.

“Instruction of the Client” (“Instruction”) - a standard document issued by the Client to the Company that contains an instruction to execute a transaction within the Broker account of the Client.

“Regulating Authority” - National Bank of Republic of Kazakhstan.

“The conflict of interests” is situation, by which the interests of Company and its obligations (as Attorney and commissioner of its Client) are not agreed with each other.

“The best price” will mean-

• In case of a sale of securities – maximum bid price for securities of such type,

• In case of a purchase of securities – minimal offer price for securities of such type.

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“Non-organized market” - market of securities where securities’ transactions are not regulated by the requirements of the organized market towards the subject of the transaction and its participants in the manner defined by the legislation.

“Nominal Holding of Securities” - is registration and confirmation of rights on securities, registration of transactions with it.

“Arranger of trading” - arranger of trading with securities

“Registrar” - is professional member of equity market, making a formation, storage and operation of register holder securities system.

“SRO” - self-regulated organization of Brokers-dealers.

“Register Holders Securities System” - is the system of information about issuer, emissive securities and their holders, provided an identification of holders of rights on emissive securities for defined time, registration of transactions with it, as well as a character of registered limits for conversion or performance of rights on these securities, and other information in accordance with applicable legal act of authorized body.

“Notice of execution of the Order/Instruction” - a document issued by the Company to the Client containing information and details of executed transaction in the format set out herein.

“Notice of non-execution of the Order/Instruction” - a report issued by the Company to the Client in cases when an Order of the Client has not been executed.

“Authorized body” is state body, making a control and supervision over equity market.

“Deterioration of the financial standing” - inability of the Company to meet financial standing requirements (norms) set out in the legislation of Republic of Kazakhstan.

2. SUBJECT OF THE AGREEMENT

2.1 The subject of this Agreement is provision of brokerage services, custody services for securities, information services related to sale and purchase of securities and other information services to the Client.

2.2 The Client instructs, and the Company takes on an obligation to provide services of keeping records of securities and money of the Client including registration of any transactions with securities.

2.3 Execution of this Agreement does not constitute transfer of ownership rights on the securities of the Client to the Company.

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2.4 Upon signing of this Agreement, the Client is not required to remit any funds or securities immediately to the accounts opened with the Company.

2.5 The Parties will act in their relationship on the basis of this Agreement, resolutions and provisions of the Regulating authority, acting legislation of the Republic of Kazakhstan, Internal Documents of the Company and terms set out by this Agreement.

2.6 The Company will provide the following services to the Client:

a) sell and buy securities in compliance with the Order (in the format set out in the Appendix 2 to this Agreement) and provide other services following Instructions of the Client as per Procedures of the Company;

b) sign documents related to execution of transactions with securities on behalf and on account of the Client;

c) open broker accounts to keep records of securities and cash account to keep records of cash funds of the Client;

d) open accounts for custody (nominal holding) of securities and cash funds, as well as to re-register securities specified by the Client with the respective Registrars of securities;

e) register transaction with securities of the Clients and to record incurred encumbrances;

f) confirm property right of the Client on its securities;

g) ensure receipt by the Client of information related to securities transferred to the custody of the Company;

h) ensure registration of property rights of the Client on its securities;

2.7 The Client hereby acknowledges that it is informed of the risks involved in the activity at the securities market and that the Company will not bear any obligation for any damage incurred by the Client if such damage was not cased by the violation by the Company of this Agreement and any requirements of the legislation of Republic of Kazakhstan set forth for broker and dealer activity at the securities market.

3. RIGHTS AND OBLIGATIONS OF THE PARTIES

3.1 The Company has a right to:

a) to receive commissions and fees for the services provided by the Company in accordance with the commissions and fees list of the company on the monthly basis according to Appendix 1 unless otherwise specified herein;

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b) to execute transactions as per the Orders of the Client, to act as a broker or dealer in a transaction meanwhile executing proprietary transactions and transactions on account of the Client, on own behalf and on behalf of the Client and to document transactions with securities in accordance with the Internal Rules of the Company;

c) to open broker account for recording transactions with securities and cash funds of the Client, to perform acceptance of the securities of the Client, to organize and keep a separate record of Client’s assets and investment revenue on those assets;

d) to receive investment revenue on assets of the Client and to credit it to the broker account of the Client;

e) to register as a nominal holder with the Central Depositary of securities, with registrars, custodians and other nominal holders, to register pledges and encumbrances over assets of the Client, to provide account statements to the Client at the request of the Client, to perform cross-checking of portfolio and cash fund balance status on a regular basis or at the request of the Client;

f) to deny the Client acceptance of an Order for execution in the following cases:

• there is a disagreement with the Client with regards to the content of the Order;

• there is an evident contradiction of the transaction to be executed per this Order with the legislation of Republic of Kazakhstan;

• the Client’s ability to fund the transaction per the Order is questionable (in accordance with the legislation of Republic of Kazakhstan, rules of SRO and Arranger of the trading where the Company is a member or a participant of). In case the Broker-dealer accepts such Order, it is subject to liability set forth by the legislation of Republic of Kazakhstan, rules of SRO and Arranger of the trading where the Company is a member or a participant of for violation of obligations under the transaction executed as per the Order.

g) to hold execution or to deny execution of orders and instructions of the Client in case a respective notification is received from the Regulating authority, legal bodies or other authorized state bodies as well as respective registrar;

h) to discontinue any work related to the Client’s account in case of event of default of the Client set forth herein and other agreements, contracts entered by the Client;

i) to inform the Client about any transactions with securities executed in accordance with this Agreement, which have been restricted or imposed by special conditions by the legislation of Republic of Kazakhstan;

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j) to demand all additional information from the Client necessary for execution of the transactions with securities;

k) to use Client’s funds for payment of commissions and other fees related to the execution of a transaction on account of the Client. The Company will have no right to use the abovementioned funds for other client’s transactions or other transactions unless this has been agreed upon in this Agreement;

l) to withhold any type of taxes (existing in Republic of Kazakhstan or imposed by any other county) from any payment to the Client, if the Company must withhold taxes under the existing provisions and regulations;

m) to accrue penalty fees and default fees at the rate in case the Client does not fulfill its obligations. Such interest, penalty fee, default fees may be demanded from the Client by means of deduction of such due amounts from any funds payable by the Company to the Client or cash fund balance of the Client held with the Company;

n) to charge the Client for the custody and brokerage services;

o) to notify the Client in writing no less than 10 calendar days beforehand of any changes of fees and commissions for the services provided by the Company;

p) to provide other consulting and information services with regards to which the Company and the Client may agree from time to time within this Agreement and requirements set forth by the legislation of Republic of Kazakhstan;

q) any other rights envisaged in the current legislation.

3.2 The Company will:

a) act only within the terms of this Agreement entered by the Company and the Client and will not take any actions with regards to the securities of the Client, except for the actions instructed by the Client in the Order or Instructions;

b) execute transactions with the securities of the Client in the manner set forth by the Internal Rules, Procedures of the Company and legislation of Republic of Kazakhstan;

c) comply with the procedure of keeping records of the securities and cash funds of the Clients, as well as keeping records of any transactions made on those account which is set forth by the Procedures of the Company;

d) guarantee availability of securities held in custody and ability to execute transaction with these securities (or any other legal actions) which are allowed under property rights;

e) act only in the interests of the owners of the securities held in custody by the Company;

5

f) enquire regarding the purposes of investment by the Client, unless such information constitutes a commercial secret of the Client, and to perform own activity in line with these purposes;

g) on the basis of best-efforts execute Orders of the Client at the best prices or the prices specified by the Client;

h) provide the Client with Notices of execution of the and Reports on execution of transaction no later than 1 day after the execution;

i) provide the Client with the periodic reports on a monthly basis, in case there are no transactions with balances on broker and cash fund account – on a quarterly basis, as well as other reports required by the current legislation;

j) register the Order in the Register book upon receipt of the Order, fill in special fields (date, time of acceptance, name and signature of the person accepting the Order, recommendations, etc) and check the details of the Client’s Order, send the copy to the Client within 1 business day in the manner set forth herein;

k) deny acceptance of the Order for execution of securities transaction from the Client that do not guarantee in the manner sufficient to the Company the payment of the securities within three business days commencing from the date of execution of the deal at the non-organized market or within the period specified by the Agreement set forth at the execution of the deal at the non-organized market;

l) keep records of securities of the Client separately from the cash funds in the manner set forth by the existing legislation;

m) notify the Client in writing of any revenue on securities received, credit it to the Client’s account and transfer this revenue to the Client to the account specified by the Client on the basis of the Client’s Order to credit funds. The terms and manner for receiving revenue on securities are described in the Procedures of the Company;

n) inform the Client of the possibility and events of the Conflict of interests with the interests of the Client;

o) give no recommendations to Client about performance of transactions with Client, if performance of such transaction have been resulted a conflict of interest. In case of breach of such prohibitions, Company shall pay a forfeit in amount 3 per cents from amount of transaction with securities, which performance has been resulted a conflict of interests. In case of branch of prohibition, Broker shall undertake pay to Client as losses, occurred by him at the result of such breach, as and forfeiture;

p) retain confidentiality of financial or other information about the Client, which has been received as part of the professional activity at the securities market, as defined by the Internal Documents of the Company and in compliance with the acting legislation of Republic of Kazakhstan;

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q) if Client’s money shall be taken in cash desk for three business days from such taking (inclusive such day) transfer these money in account of Company, especially opened in bank for purposes of stock-taking and storage of money, owned to clients.

r) in case of termination of this Agreement, there are funds available at the accounts of the Client, provided the article 5.4 is complied with, the money have to be returned to the Client within 3(three) business days from the termination date of this Agreement to the account specified herein or otherwise specified by the Client;

s) inform the Client of the following within 3 (three) business days as set the Internal Rules of the Client and legislation of Republic of Kazakhstan:

• any facts and reasons of financial deterioration of the Company (violation of the criteria of good financial standing set for brokers-dealers of respective category by the legislation of Republic of Kazakhstan);

• any sanctions imposed by the Regulating Authority, SRO and the Arranger of trading against the Company, its employees and affiliated companies;

• restrictions and special conditions, set by the legislation of Republic of Kazakhstan imposed on the transactions with securities which are to be executed (or have been executed) in accordance with this Agreement and implemented after the execution of the Agreement;

t) other obligations envisaged by the current legislation and Internal Rules of the Company.

3.3 Client has a right:

a) to demand fulfillment of all obligations by the Company;

b) to change details of the Order by means of the respective notice to the Company (in accordance with the procedure set forth in article 6 herein) which must be registered in the Register of accepted Client’s Orders provided such Order has not been executed;

c) to receive information in form of reports on activities of the Company in interests of the Client, including Notice of execution\non-execution of Client’s Orders and Instructions, certificates of the Exchange, including accounts statements;

d) to receive any information on floated securities and general information on status of the securities market available with the Company for a separate commission which may be specified in a separate agreement;

7

e) to inform the Company within 3 business day from the moment of receipt of the Notices of execution of the Client’s Order or any other reports of the Company to the Client in case of a dispute or disagreement relative to such information. Otherwise, the notices and reports will be considered as accepted by the Client;

f) The Client has a right to enter in to account the cash assets of third persons and transfer his own cash assets into account of third persons in the presence of written direction.

g) other rights envisaged by the current legislation.

3.4 The obligations of the Client are:

a) to pay fees and commissions of the Company specified in the Appendix 1 herein within 3 (three) business days from the day of receipt of an invoice unless it is otherwise agreed herein;

b) to send two originals of the Order or Instruction in the format set forth by the Internal Rules and Procedures of the Company (of which the Company informs the Client);

c) to provide in prior with a transferring of money to a Company client banking account in a volume needed for a payment of future transactions with securities, or to transfer to a Company the amount specified in the client order without any deductions which may include payment for information services, taxes payable and other mandatory payments as well as any other payments required by the current legislation of the Republic of Kazakhstan within 1 business day from the date of submission of the Order to the Company. The transferring should be executed to the one of the following :

1. ATFbank, Almaty, Kazakhstan

ACCOUNT IN KZT

[Redacted]

8

ACCOUNT IN USD

[Redacted]

2. Kazkommertsbank:

ACCOUNT IN KZT

[Redacted]

ACCOUNT IN USD

[Redacted]

d) Provide that any securities, provided to Client in accordance with this Agreement, being free from any payments, pledge, encumbrance or retaining;

9

e) inform the Company of any change of its address or account details no later than 5 (five) days after such changes take place;

f) to provide all documentation necessary and required for execution of transactions on account of the Client in a timely manner;

g) to indemnify the Company, its employees, agents or representatives from any losses, obligations or expenses, which may be incurred by the Company or its employees, agents or representatives, including any taxes imposed indirectly or directly towards or as the result of any service provided to the client or any other permitted action allowed herein, except for the cases where such expenses or losses were incurred as the result of gross negligence or intended violation of the obligations by the Company;

h) other obligations envisaged by the current legislation.

4. TERMS AND MANNER OF RECEIVING REVENUE ON SECURITIES

4.1 During the term of the Agreement, the Company will keep track of all revenues received on securities of the Client held in custody by the Company;

4.2 Revenues on the securities of the Client must be first credited to the cash fund account with the Company upon the receipt, unless otherwise is not agreed herein. The Company will provide the Client with the Notice on payment of revenue on securities in accordance with the Procedures of the Company;

4.3 Having received the Notice and having confirmed such receipt in writing to the Company, the Client has a right to issue an Order to use the received revenue (to transfer the revenue to its bank account, to purchase securities, etc).

5. TERMINATION, BASIS FOR TERMINATION. FORCE MAJEUR EVENTS

5.1 This Agreement will come into effect from the date of signing and will remain in force until its termination in accordance with the article 5.2 herein;

5.2 This Agreement may be terminated:

• With the mutual consent of the Parties;

• By one of the Parties, with a prior notice sent to the other Party no less than 30 days before the termination date;

• Unilaterally in case of event of default under this Agreement in compliance with the existing regulation.

The actions of the Company and the Client, in case the broker-dealer license of the Company has been temporarily discontinued or revoked, are regulated by the separate legal provisions issued by the Regulating authority. In case the broker-dealer license of

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the Company has been temporarily discontinued or revoked, the company notifies the Client in the manner set forth by the respective legal provisions issued by the Regulating authority.

This Agreement is terminated, and all securities are returned to the Client in the following cases:

• been temporarily discontinued or revoked;

• liquidation of the Company;

• in case of Force majeur events.

5.3 If this Agreement is terminated, no transactions or any legal rights and obligations, which already haven been incurred already, will not be affected. Transactions which are in the process of execution on the date of termination will be concluded by the Company;

5.4 Upon termination of the Agreement by any of the Parties, the Company will have a right:

5.4.1 to receive from the Client all commissions, payments, reimbursement of expenses, accrued and incurred obligations hereunder, including all additional expenses or losses incurred at the termination, on the date of such termination, and any expenses incurred during the transfer of the Client’s securities from its broker account to its account with any other Broker-dealer or a bank;

5.4.2 to reimburse any amount payable by the Client pursuant to the article 5.4.1. hereunder.

5.5 Liquidation of the Client will not cause termination of this Agreement until the Company receives an appropriate notification of such.

5.6 The “Force majeur events” will mean acts of God, any events out of reasonable control of the Company including but not limited to war, military actions, Government’s actions, “coupe de estate”, turnover, fire, disaster; but excluding bankruptcy or financial deterioration.

6. PARTIES’ RESPONSIBILITIES

6.1 The Parties have material responsibilities if they breach the terms and conditions of this Agreement, and should a breach of thereof occur have to indemnify the other Party for all the losses incurred because of it;

6.2 The Parties are not held responsible if a breach happens out of incapacity (full or partial),or if circumstances beyond their control occur. These circumstances include, without limitation, any circumstances of force-majeur, any deficiencies or shut downs of communications, transmission and computers, shut-downs of electricity, discontinuities in the banking activities of banks involved, trading Administrators, Central Depository and other circumstances, making the execution of responsibility under the Agreement;

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6.3 The Parties are not responsible for circumstances, caused by changes in the laws of Kazakhstan, making the execution of responsibility under the Agreement;

6.4 Neither Party will not transfer its rights and responsibilities under the Agreement to third parties without a prior written notification and consent of the other Party (with due exception for the statutory requirements of approved by the Appropriate Authority;

6.5 In case of delay of payment, due for services of Company, Client shall pay to Company, a penny in amount: 0,1% from total amount of transaction for each day of delay;

6.6 Should the payment be in default for the services of the Company, the Client will pay a default fee of 3% of all the commissions and fees of the Company for each day of delay;

6.7 Upon submission of recommendation about performance of transaction with securities, which performance have been resulted a conflict of interests, Company shall pay losses and forfeit in accordance with sub clause 15, clause 3.2. with this Agreement;

6.8 The successor of any Party in the case of corporate reorganization and/or restructuring assumes all rights and responsibilities under this Agreement.

7. CHANGES OF AGREEMENT

7.1 All modifications, additions and any other changes to this Agreement are made in writing between the parties in accordance with procedures of Article 8 of this Agreement.

8. INFORMATION AND NOTIFICATIONS

8.1 If not specified to the contrary by the Agreement and exhibits to it all queries, orders, confirmations and other information, exchanged by the Parties, or notifications supplied in relation with this Agreement, are made in writing, and are delivered by hand, via post, telegraph or telefax at the address of the Party specified at the end of this Agreement;

8.2 Any notification, notice, order or confirmation are deeded to be received at the moment, when they should ordinarily by received, and the company will not be held responsible for any failure to fulfill any order for the time before the actual receipt of an order;

8.3 Upon conclusion, performance and termination of this Agreement, the use of facsimile signature, e-mail digital signature are permitted and documents, connected with this Agreement and sent by both Parties to each other by fax, telex and other communication, shall be original.

9. SETTLEMENT

9.1 The amount of the commission is calculated on the basis of the tariffs of the commission;

9.2 The Client transfers the amount of the Order to the Company’s account within one banking day;

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9.3 The Client pays the commission of the Company within one banking day from the day of the Notification of the Fulfillment of Client’s Order;

9.4 The Kazakhstan Securities Exchange Fee is payable by the Company and reimbursed by the Client in full. The amount of the Fee is itemized separately by the Company in the Notification of the execution of Client’s Order;

9.5 The exchange fee, registrar’s services and/or Central Depositary shall be paid by Client thought Company by this, amount, retained for these purposes shall be stated by Company in Notice about performance of Client Order;

9.6 Should the order be cancelled by the Client before its execution, the Client reimburses the Company for any expenses related to this order and incurred to the moment of cancellation. This reimbursement is payable within three banking day from the date of the claim of these expenses by the Company from the Client;

9.7 The settlements of Client’s orders with the Client are made on the basis of Notification of the execution of Client’s Order.

10. CLIENT’S ORDERS PLACEMENT PROCEDURES

10.1 The Client communicates to the Company it has completed the Order in two copies in the form as exhibited in Appendix 2 to this Agreement. A copy of the Order with confirmation of the Company is returned to the Client.

10.2 Client shall give to Company its instructions in standard written form in accordance with By-Laws of Company and legislation of Kazakhstan.

11. THE ORDER OF PERFORMANCE OF OPERATIONS WITH SECURITIES AND

ON PERSONAL ACCOUNT BY AUTHORIZED REPRESENTATIVE OF CLIENT

11.1 Client has right to prepare notarized or legalized copy (where need) of power of attorney for performance of operations with securities and on personal account in name of authorized person. This power of attorney must include name of authorized person, its details, competence, should be made in proper order and be effective in accordance with Civil Code of Kazakhstan.

12. THE ORDER OF PERFORMANCE OF OPERATIONS UPON PRESENCE OF MORE OWNERS

12.1 If more owners are existed, that for performance of operations have been appointed one authorized person, acting on basis of proxy and on behalf of all owners in proper order of applicable legislation of Kazakhstan. In case of issue of new proxy, previous shall be deemed as invalid.

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13. RESOLUTION OF DISPUTES

13.1 The Parties will endeavor to resolve all disputes arising from this Agreement in mutual amicable negotiations. Should any Party breach the terms and conditions of the Agreement, this defaulting Party within 30 days from the written notification of default by the other Party will try to correct the breach. Should the defaulting Party fail to resolve it within this term, the other Party has the right to appeal to court in accordance with this Agreement;

13.2 All disputes arising from this Agreement are subject to the applicable laws of the Republic of Kazakhstan;

All other rights and responsibilities not specifically mentioned in this Agreement are in accordance with the applicable laws of Kazakhstan;

13.3 This Agreement is made in two equal copies.

[signature page follows]

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COMPANY		CLIENT
“VISOR Investment Solutions” JSC Address: 050059, Almaty, Furmanov Street, 240G		BRAMEX MANAGEMENT, INC. Address: P.O. Box 116, Sea Meadow House Blackburne Highway, Road Town, Tortola, British Virgin Islands
RNN 600 900 170 457 ACCOUNT IN KZT [Redacted]
ACCOUNT IN USD [Redacted]		[Redacted]
Signature:	/s/ A.T. Nurmakhanova	Signature:	/s/ Earl McNiel
[Stamp]	A.T. Nurmakhanova Director-Trustee of Broker and Dealer Activity	[Stamp]	Earl McNiel Vice President

Appendix 1

to the Agreement on Brokerage Services (including custody services) date “                        ”

Fees and commissions of “VISOR Investment Solutions” JSC

Type of services	Service description	Fees and Commissions, Monthly
1. Broker services	1. Opening/closure of broker accounts	Free of charge
	2. Purchase/sale of securities on account of the Client	0.3% of transaction amount (upon market rate of the National Bank of Kazakhstan)*
	3. Reports and Notices for the Client	10 USD (for each report)
	4. Cash account transactions	As per bank fees and commissions
2. Custody services	1. Acceptance/Transfer of securities to/from the custody account of the Client	25 USD**
	2. Transfer of securities to broker of the Client outside of Kazakhstan	40 USD
	3. Maintenance of custody account of the Client	4 166.66 USD
3. Consultation services		Upon agreement of the Parties

* -this commission does not include Commission of JSC Kazakh Stock Exchange

** -this commission does not include fees of Registrars and Central Depositary

[signature page follows]

COMPANY		CLIENT
“VISOR Investment Solutions” JSC Address: 050059, Almaty, Furmanov Street, 240G		BRAMEX MANAGEMENT, INC. Address: P.O. Box 116, Sea Meadow House Blackburne Highway, Road Town, Tortola, British Virgin Islands
Bank account details: ACCOUNT IN KZT [Redacted]		Bank account details: [Redacted]
ACCOUNT IN USD [Redacted]		Telephone: 1-281-999-9091 Fax: 1-281-999-9094
Signature:	/s/ A.T. Nurmakhanova	Signature:	/s/ Earl McNiel
[Stamp]	A.T. Nurmakhanova Director-Trustee of Broker and Dealer Activity	[Stamp]	Earl McNiel Vice President

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EX-21.1

Exhibit 21.1

Transmeridian Exploration Incorporated

List of Subsidiaries

As of March 1, 2006

Name	Jurisdiction of Organization
Bramex Management, Inc.	British Virgin Islands
JSC Caspi Neft TME	Republic of Kazakhstan
Transmeridian Caspian Petroleum LLP	Republic of Kazakhstan
Transmeridian (Kazakhstan) Incorporated	British Virgin Islands
Emba-Trans LLP	Republic of Kazakhstan
Transmeridian Exploration Inc.	British Virgin Islands
TMEI Operating, Inc.	Texas

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (File Nos. 333-132389, 333-129250, 333-127674 and 333-120930) and on Form S-8 (File Nos. 333-105610 and 333-105609) of Transmeridian Exploration Incorporated of our reports dated March 16, 2006 relating to the consolidated financial statements of Transmeridian Exploration Incorporated, Transmeridian Exploration Incorporated’s management assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Transmeridian Exploration Incorporated which appears in the Annual Report on Form 10-K for the year ended December 31, 2005.

/s/ UHY MANN FRANKFORT STEIN & LIPP CPAs, LLP

Houston, Texas

March 16, 2006

EX-23.2

Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference into Transmeridian Exploration Incorporated’s previously filed Registration Statements on Form S-3 (File Nos. 333-132389, 333-129250, 333-127674 and 333-120930) and on Form S-8 (File Nos. 333-105610 and 333-105609) and the related prospectuses of our reports dated March 14, 2005 and April 19, 2005 with respect to the consolidated financial statements of Transmeridian Exploration Incorporated as of December 31, 2004 and for each of the years ended December 31, 2004 and December 31, 2003, included in the Annual Report on Form 10-K of Transmeridian Exploration Incorporated for the fiscal year ended December 31, 2005 and/or the Annual Report on Form 10-K of Transmeridian Exploration Incorporated for the fiscal year ended December 31, 2004 and Amendment No. 1 thereto, filed with the Securities Exchange Commission.

/s/ John A. Braden & Company, P.C.

Houston, Texas

March 16, 2006

EX-23.3

Exhibit 23.3

CONSENT OF INDEPENDENT RESERVE ENGINEERS

We hereby consent to the use of our name in this Annual Report on Form 10-K of Transmeridian Exploration Incorporated for the fiscal year ended December 31, 2005 and to the incorporation by reference of our estimates of the proved reserves and future net revenues from proved reserves of Transmeridian Exploration Incorporated as of December 31, 2005 into Transmeridian Exploration Incorporated’s previously filed Registration Statements on Form S-3 (File Nos. 333-132389, 333-129250, 333-127674 and 333-120930) and on Form S-8 (File Nos. 333-105610 and 333-105609) and the related prospectuses.

/s/ Ryder Scott Company, L.P.

RYDER SCOTT COMPANY, L.P.

Houston, Texas

March 14, 2006

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Lorrie T. Olivier, certify that:

1. I have reviewed this report on Form 10-K of Transmeridian Exploration Incorporated;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006

/s/ Lorrie T. Olivier

Lorrie T. Olivier

President and Chief Executive Officer

1

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a) as adopted pursuant to

Section 302 of the Sarbanes-Oxley Act of 2002

I, Earl W. McNiel, certify that:

1. I have reviewed this report on Form 10-K of Transmeridian Exploration Incorporated;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006

/s/ Earl W. McNiel

Earl W. McNiel

Vice President and Chief Financial Officer

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EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

March 16, 2006

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re: Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the accompanying report on Form 10-K for the period ended December 31, 2005, and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lorrie T. Olivier, President and Chief Executive Officer of Transmeridian Exploration Incorporated (the “Company”), hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Lorrie T. Olivier

Lorrie T. Olivier

President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted

pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

March 16, 2006

Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Re: Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the accompanying report on Form 10-K for the period ended December 31, 2005, and filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Earl W. McNiel, Vice President and Chief Financial Officer of Transmeridian Exploration Incorporated (the “Company”), hereby certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Earl W. McNiel

Earl W. McNiel

Vice President and Chief Financial Officer