The following discussion is intended to assist you in understanding our results of operations and our present financial condition. Our Consolidated Financial Statements and the accompanying notes included in this Form 10-Q contain additional information that should be referred to when reviewing this material and this document should be read in conjunction with the Form 10-K of the Company for the year ended March 31, 2008.

Statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, including those discussed below, which could cause actual results to differ from those expressed.

Cautionary Note Regarding Forward-Looking Statements

This report includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Rule 175 promulgated thereunder, that involve inherent risks and uncertainties. Words such as "expect," "anticipate," "intend," "plan," "believe," "estimate," "seek," "could," "should," "predict," "continue," "future," "may" and variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates and other factors that could cause actual results, performance or events to differ materially from any results, performance or events expressed or implied by such forward-looking statements. All forward-looking statements are qualified in their entirety by reference to the factors discussed in this report and identified from time to time in our filings with the SEC including, among others, the following risk factors:

• substantial or extended decline in oil prices;
• inaccurate reserve estimates;
• inability to enter a production contract with the Republic of Kazakhstan;
• drilled prospects may not yield oil or natural gas in commercial quantities;
• substantial losses or liability claims as a result of operations;
• insufficient funds to meet our liquidity needs
• complex laws that could affect the cost of doing business;
• substantial liabilities to comply with environmental laws and regulations;
• the need to replenish older depleting oil and natural reserves with new oil and natural gas reserves;
• inadequate infrastructure in the region where our properties are located;
• unavailability or high cost of drilling rigs, equipment, supplies, personnel and oil field services;
• unavailability or high price of transportation systems;
• competition in the oil and gas industry; and
• adverse government actions, imposition of new, or increases in existing, taxes and duties, political risks, expropriation of assets and risks of civil war, primarily in the Republic of Kazakhstan.

The above factors may affect future results, performance, events and the accuracy of any forward-looking statement. This list is illustrative but not exhaustive. In addition, new risks and uncertainties may arise from time to time. Accordingly, readers should not place undue reliance on any forward-looking statement.

Any forward-looking statement speaks only as of the date on which it is made and is expressly qualified by these cautionary statements. Except as may be required by law, we undertake no obligation to publicly update or revise any forward-looking statement for any reason or to update the reasons actual results could differ materially from those anticipated in such forward-looking statements, even if new information becomes available in the future.

Overview

BMB Munai is an independent oil and natural gas company engaged in the exploration, development, acquisition and production of crude oil and natural gas properties in the Republic of Kazakhstan (sometimes also referred to herein as the "ROK" or "Kazakhstan"). We hold a contract that allows us to explore and develop approximately 850 square kilometers in western Kazakhstan. Our contract grants us the right to explore and develop the ADE Block, which includes the Aksaz, Dolinnoe and Emir oil and gas fields, the Southeast Block, which includes the Kariman oil and gas field and the Borly and Yessen structures, and the newly granted territory referred to herein as the Northwest Block. The ADE Block, the Southeast Block and the Northwest Block are collectively referred to herein as "our properties."

Exploration Stage Activities

Under the statutory scheme in Kazakhstan prospective, oil fields are developed in two stages. The first stage is exploration stage. During this stage the primary focus is on the search for commercial discoveries, i.e., discoveries of sufficient quantities of oil and gas to make it commercially feasible to pursue execution of, or transition to, a commercial production contract with the government.

As discussed above, we are currently engaged in exploration of our properties and are working to satisfy the requirements to move to commercial production. Based on discussions with the MEMR, the MEMR expects a contract holder to engage in three primary activities during exploration stage before it will be granted commercial production rights. These activities fall within three primary areas:

• fulfillment of minimum work program commitments;
• establishment of the existence of commercially producible reserves; and
• preparation, submission and receipt of approval of a development plan prepared by a third-party petroleum institute in Kazakhstan for the exploitation of the established commercial reserves.

Minimum Work Program Requirements

In order to be assured that adequate exploration activities are undertaken during exploration stage, the MEMR establishes an annual mandatory minimum work program to be accomplished in each year of the exploration contract. Under the minimum work program the contractor is required to invest a minimum dollar amount in exploration activities within the contract territory, which may include geophysical studies, construction of field infrastructure or drilling activities. During the exploration stage, the contractor is also required to drill sufficient wells in each field to establish the existence of commercially producible reserves in any field for which it seeks a commercial production license. Failure to complete the minimum work program requirements for any particular field during the term of the exploration contract could preclude the contractor from receiving a longer-term production contract for such field, regardless the success of the contractor in proving commercial reserves during the partial fulfillment of the minimum work program.

The contract we hold follows the above format. The contract sets the minimum dollar amount we must expend during each year of our work program. Under our exploration license our work program year ends on July 9 each year until July 9, 2009. Thereafter our work program year end changes to January 9 of each year. Therefore our work program year does not coincide with our fiscal year. As a result these timing differences, the amounts reflected in the table below as "Actually Made" may differ from amounts disclosed elsewhere in our Management's Discussion and Analysis or Consolidated Financial Statements, which present figures based on our fiscal year rather than our work program year.

Amount of Expenditure        Mandated by Contract Actually Made

Prior to July 2007                    $40,200,000  $104,750,000

July 2007 to July 2008                 $8,480,000  $115,040,000

July 2008 to July 2009                 $1,845,000 $ 25,480,000*

July 2009 to January 2010              $8,565,000 $           -

January 2010 to January 2011          $21,520,000 $           -

January 2011 to January 2012          $27,300,000 $           -

January 2012 to January 2013          $14,880,000 $           -

Total                                $122,790,000  $245,270,000

* Investment as of September 30, 2008.

As reflected in the above table, in connection with the extension of the term and territory of our exploration contract, we agreed to expend not less than $74.1 million dollars in additional work program activities through January 9, 2013.

Under the rules of the MEMR there is an option for expenditures above the minimum requirements in one period to be carried over to meet minimum obligations in future periods. As the above chart shows we have significantly exceeded the minimum expenditure requirement in each period of the contract and have more than doubled the total minimum capital expenditure requirement during the exploration stage.

In addition to mandatory minimum capital expenditures in each year, exploration contracts typically require the contract holder to drill a certain number of wells in each structure for which it plans to seek commercial production rights.

In Kazakhstan, typically, one exploratory well and two appraisal wells are sufficient to support a claim of commercially producible reserves in a particular field, although in some cases, commercial reserves have been demonstrated with fewer wells. The total number of wells the MEMR requires during exploration stage is generally determined by the number of fields or structures identified by the seismic studies done on a territory. 3D seismic studies completed on the ADE Block and the Southeast Block, have identified six potential fields or structures. We plan to perform 3D seismic studies on the Northwest Block to identify potential structures in that Block.

To date, we have drilled a total of 22 wells; - four wells in the Aksaz field, six wells in the Dolinnoe field, three wells in the Emir field and nine wells in the Kariman field. We also have one well in progress in each of the Aksaz and Kariman fields.

Pursuant to the terms of the extensions of our exploration contract, we will be required to drill not less than ten new wells, in addition to those that are currently in progress, by January 9, 2013, to determine the existence of commercially producible reserves within the various structures in our license territory. In addition to these wells, we anticipate we will be required to drill at least three wells in each structure that we intend to move to commercial production.

Establishing the Existence of Commercially Producible Reserves

Establishing the existence of commercially producible reserves is accomplished through drilling wells and engaging in test production of those wells during the exploration stage. We have established the presence of oil and/or natural gas in each of the Aksaz, Dolinnoe, Emir and Kariman fields and are engaged in testing to gather the necessary data and to determine whether commercially producible reserves exist in any of those fields. We have not drilled wells in the other structures in the Southeast Block or in the Northwest Block. The failure to establish commercially producible reserves within any particular field would not preclude us from applying for commercial production rights to other fields within our contract territory where we establish commercially producible reserves.

Preparation, Submission and Approval of a Development Plan

Our goal during exploration stage is to study the geology and geophysical characteristics of each field and individual well, with a view to qualifying for a longer-term commercial production contract. Once we complete drilling of a well, our emphasis focuses on an extended period of testing the well's production characteristics and capacities to determine the best method for producing oil from the well and to gain insight into the further development of the entire field. During this stage of exploration, oil production is subject to wide fluctuations caused by varying pressures commonly experienced by new wells and by significant periods of well closure to accommodate various mandatory testing. The data gathered during these testing procedures will be submitted by us to a third-party independent petroleum institute in Kazakhstan and will be the basis for preparing a development plan. The development plan, which is submitted to the MEMR for review and approval, sets forth the parameters and guidelines for future commercial production and ongoing development of each field.

Taxes, Royalties and Duties

During exploration stage, we have the right to sell the oil and natural gas we recover during test production. As noted above, under our old exploration contract, we had been granted tax stability and were not required to pay export taxes. We were, however, required to pay a royalty at rates tied to annual crude oil production. Currently we are paying royalty at a rate of 2%. In connection with the extension of the term of our exploration contract and the adoption of a new tax code in the Republic of Kazakhstan, we will be required to renegotiate the taxes and royalties we pay. The Government of the Republic of Kazakhstan has stated that contract stability will be abolished from all agreements except Production Sharing Agreements. Therefore, we assume we will lose our tax stability and will be required to pay all applicable taxes on sales outside of the Kazakhstan domestic market. Until the new tax code is adopted, it is difficult to predict the rate at which we will be taxed and what royalty we will be required to pay.

As noted above, in June 2008 we became subject to a crude oil export duty on all oil sold outside the Kazakhstan domestic market. The formula for determining the amount of the crude oil export duty is based on a sliding scale that is tied to the world market price for oil.

We anticipate the imposition of the crude oil duty and the rent export tax will have a significant impact on our results of operations at least until the end of the calendar year when a new tax code may be adopted by the Republic of Kazkahstan. For instance, the export duty we paid during the period from the beginning of June 2008 to September 30, 2008 was approximately $5,379,900, or 17% of revenue during that period.

The export duty fluctuates with world oil prices. However, it is adjusted only quarterly. As a result, the duty lags behind world market price. In the current market where world oil price has dropped significantly in the past 60 days, we expect the export duty, as a percentage of revenue, to be much higher than it was in the period from June 2008 to September 2008.

Drilling Operations

During the quarter ended September 30, 2008 we have been engaged in drilling operations on 4 wells: Aksaz-2 and 6, Kariman-11 and Dolinnoe-7.

We completed drilling of Dolinnoe-7 on September 11, 2008 to a depth of 3,756 meters. We completed drilling of Aksaz-2 on September 25, 2008 to a depth of 4,292 meters. We have completed drilling of Kariman-11 on November 2, 2008 to a depth of 3,580 meters. Upon completion of drilling, we have commenced extensive testing activities on each well, including necessary geological studies and tests. These activities are ongoing.

Well Performance and Production



The following table sets forth the number of oil and natural gas wells in which
we owned an interest as of September 30, 2008.



             Company-operated      Non-operated       Total
              Gross       Net      Gross     Net   Gross   Net

Oil                22        22         -      -      22    22
Natural Gas         -         -         -      -       -     -
Total              22        22         -      -      22    22

As of the fiscal quarter ended September 30, 2008, each of the 22 wells identified above was in test production, testing or workover. The Dolinnoe-7 well was perforated and commenced test production on September 26, 2008. This well produced for 5 days prior to the end of the reporting period. Aksaz-2 well was perforated on October 22, 2008, hence production from this well is not included in the production for reporting period.

According to the laws of the republic of Kazakhstan, we are required to test every prospective target on our properties separately, this includes the completion of well surveys on different modes with various choke sizes on each horizon.

In the course of well testing, when the transfer from target to target occurs, the well must be shut in; oil production ceases for the period of mobilization/demobilization of the workover rig, pull out of the hole, run in the hole, perforation, packer installation time, etc. This has the effect of artificially diminishing production rates averaged over a set period of time.

Following is a brief description of the current production status of each of our 22 wells.

                          Single Interval Production
                           Rate for the Four Months
        Well                ended October 31, 2008       Diameter Choke Size

Aksaz -1                                  44-57 bpd                     4 mm
Aksaz -2                                 25-126 bpd                     4 mm
Aksaz-3                                 302-346 bpd                     4 mm
Aksaz -4                                50 - 57 bpd                     4 mm
Dolinnoe -1                             50- 151 bpd                     8 mm
Dolinnoe -2                            13 - 245 bpd                     2 mm
Dolinnoe -3                               6-138 bpd                     9 mm
Dolinnoe -5                             0- 245 bpd(1)                   5 mm
Dolinnoe -6                               13-57 bpd                    14 mm
Dolinnoe -7                            113- 396 bpd                     4 mm
Emir -1                                   0- 31 bpd                        -
Emir - 2                                 0- 63 bpd(3)                      -
Emir -6                                   0-94 bpd(4)                      -
Kariman -1                              44-111 bpd(5)                      -
Kariman -2                             302- 704 bpd                     4 mm
Kariman -3                                0 -82 bpd                        -
Kariman -4                              19- 352 bpd                     6 mm
Kariman -5                               9- 38 bpd(6)                   5 mm
Kariman -6                             371- 629 bpd                     5 mm
Kariman -7                              409-554 bpd                     7 mm
Kariman -8                            390 - 616 bpd                     6 mm
Kariman -10                             25-377 bpd(7)                   4 mm

(1) A first target was tested on March 27, 2008. The first week's production was 110 bpd. In April it dropped to 63 bpd. For a couple of days the well was shut-in for a pressure build-up. After that the production dropped to 26 bpd. We carried out an acid injection and hydro-impulsive cleaning and aeration, however, it hasn't yielded significant results. We conducted bottom-hole zone cleaning to stimulate oil flow in August 2008. At the present moment, the well is producing sporadically. We intend to complete a comprehensive study of oil flow stimulation activities, including installation of various pumps.

(2) We are in the process of researching various available options for bringing back production from this well.

(3) This well was completed during the quarter ended March 31, 2008. At the present moment, the well produces sporadically. We plan to install a downhole pump in this well when a workover rig becomes available. We expect the well to commence steady production upon completion of above-mentioned activities.

(4) We carried out a hydraulic fracturing (breakdown) on this well during the quarter ended June 30, 2008. Production from this well requires installation of downhole pump which we plan to complete during the quarter ending December 31, 2008.

(5) We have installed a downhole pump at the Kariman-1 well which resulted in steady production flow over the quarter ending September 30, 2008. We expect to alter pump characteristics to increase production once we complete activities to increase the oil-preparation capabilities of the group unit at the Kariman field during the quarter ending December 31, 2008.

(6) We expect to install a downhole pump at the Kariman-5 well when a workover rig becomes available during the quarter ending December 31, 2008.

(7) During the quarter ending September 30, 2008, we conducted extensive studying of the lower interval that was perforated. We expect to perforate the next upper interval during the quarter ending December 31, 2008, pending workover rig availability.

During the past several years we have pursued an aggressive capital expenditure and drilling program. We pursued this aggressive strategy, in part, because if we did not complete our exploration activities and move our contract territory to commercial production by July 2009, our rights to the contract territory could have been terminated and reverted back to the Government of the Republic of Kazakhstan. With the grant of the extension of time to complete exploration activities, to January 2013, we now have more flexibility in the pace of our exploration drilling efforts and application for transition to commercial production.

As a result of reduced world oil prices and, correspondingly, revenues, we do not have sufficient capital available to continue to support the aggressive drilling strategy we pursued during the past several years. The reduction in anticipated revenues is due to several factors. The material drop in world oil prices has resulted in lower than expected revenue from production. The wells we have recently completed have not generated the production we anticipated. The decline curve on existing production has, in many cases, been more steep than expected, which has also contributed to lower production and revenue compared to expectations. And, finally, the imposition by the Republic of Kazakhstan of the export duty on all oil sold outside the domestic market in Kazakhstan, has had the effect of reducing our income by about 20%.

Given the foregoing, should current conditions persist we believe it may be more economically sound to significantly reduce our capital expenditures program in favor of spending more time and effort in stabilization and trying to increase production from our existing wellstock.

Results of Operations

Three months ended September 30, 2008, compared to the three months ended September 30, 2007.

Revenue and Production

The following table summarizes production volumes, average sales prices and operating revenue for our oil and natural gas operations for the three months ended September 30, 2008 and the three months ended September 30, 2007.

--------------------------------------------------------------------------------
                                                                      Three months ended
                                                                      September 30, 2008
                                                                   to the three months ended
                                                                      September 30, 2007
                                 For the         For the three          $              %
                                  three
                                  months             months         Increase        Increase
                                  ended              ended
                                September      September 30, 2007  (Decrease)      (Decrease)
                                 30, 2008

Production volumes:
Natural gas (Mcf)                         -                     -             -             -
Natural gas liquids (Bbls)                -                     -             -             -
Oil and condensate (Bbls)           310,999               215,953        95,046           44%
Barrels of Oil equivalent
(BOE)                               310,999               215,953        95,046           44%

Sales volumes:
Natural gas (Mcf)                         -                     -             -             -
Natural gas liquids (Bbls)                -                     -             -             -
Oil and condensate (Bbls)           309,521               215,123        94,398           44%
Barrels of Oil equivalent
(BOE)                               309,521               215,123        94,398           44%

Average Sales Price (1)
Natural gas ($ per Mcf)                   -                     -             -             -
Natural gas liquids
($ per Bbl)                               -                     -             -             -
Oil and condensate
($ per Bbl)                         $ 73.53               $ 59.34       $ 14.19           24%
Barrels of Oil equivalent
($ per BOE)                         $ 73.53               $ 59.34       $ 14.19           24%


Operating Revenue:
Natural gas                               -                     -             -             -
Natural gas liquids                       -                     -             -             -
Oil and condensate             $ 22,758,160           $12,764,397   $ 9,993,763           78%
Gain on hedging and
derivatives (2)                           -                     -             -             -

(1) At times, we may produce more barrels than we sell in a given period. The average sales price is calculated based on the average sales price per barrel sold, not per barrel produced.

(2) We did not engage in hedging transactions, including derivatives during the three months ended September 30, 2008, or the three months ended September 30, 2007.

Revenues. We generate revenue under our exploration contract from the sale of oil recovered during test production. During the three months ended September 30, 2008 our oil production increased 44% compared to the three months ended September 30, 2007. This significant increase in production is primarily attributable to the fact that we had twenty wells in testing or test production during all or some portion of the three months ended September 30, 2008 compared to thirteen wells during all or some portion of the three months ended September 30, 2007.

During the three months ended September 30, 2008 we realized revenue from oil sales of $22,758,160 compared to $12,764,397 during the three months ended September 30, 2007. One contributing factor to the 78% increase in revenue was a 44% increase in sales volume. Another factor contributing to the increase in revenues was a 24% increase in the price per barrel we received for oil sales during the three months ended September 30, 2008 compared to the three months ended September 30, 2007. During the three months ended September 30, 2008 and 2007 we exported 98% and 92% of our oil, respectively to the world markets and realized the world market price for those sales. Revenue from oil sold to the world markets made up 99% and 97% of total revenue, respectively, during the three months ended September 30, 2008 and 2007. We currently anticipate revenues will be flat or lower in upcoming quarters for several reasons.

. . .