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 or to repay debts as they come due;
• 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 recently 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 of 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 $ 37,630,000*

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  $257,420,000

* Investment as of December 31, 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 24 wells; - five wells in the Aksaz field, six wells in the Dolinnoe field, three wells in the Emir field and ten wells in the Kariman field.

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 evaluate its commercial viability and 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. In the event a well proves to be commercially viable, 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 original 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. 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 were required to renegotiate the taxes and royalties we pay. Consistent with the terms of our agreement with the government at the time the extension of our contract was granted, on January 16, 2009 we entered into Addendum No. 7 to our contract which provides that we agree to be subject to the provisions of the new tax effective from January 1, 2009.

The description of Addendum No. 7 in this report is only a summary of that document and is qualified in its entirety by reference to the terms of Addendum No. 7, a copy of which is attached as an exhibit to this report.

As noted above, in June 2008 we became subject to a crude oil export duty on all oil sold outside the Kazakhstan domestic market. In December 2008 the government of the Republic of Kazakhstan issued a resolution that cancelled the export duty effective January 26, 2009.

With the amendment to our contract, we became subject to two new taxes enacted under the of the new tax code, effective January 1, 2009:

• Mineral Extraction Tax. This tax replaced the royalty we had previously been paying. The rate of this tax depends on annual production output. Currently we are subject to a 5% mineral extraction tax rate on production sold to export market, and a 2.5% tax rate on production sold to domestic market.

• Rent Export Tax. This tax is calculated based on the export sales price and ranges from as low as 0% if the price is less than $40 per barrel to as high as 32% if the price per barrel exceeds $190.

We are currently evaluating the implications of the new tax code and how the changes may impact our results of operations. Under the new code, the amount we pay will be directly impacted by the price per barrel of oil. Based on our initial assessment, we believe at current world oil prices our tax obligations will be lower under the new tax code than under the export duty.

Drilling Operations

During the quarter ended December 31, 2008 we 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; drilling of Aksaz-2 on September 25, 2008 to a depth of 4,292 meters; completed drilling of Kariman-11 on November 2, 2008 to a depth of 3,580 meters and Aksaz-6 on December 28, 2008, to a total depth of 4,330 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 December 31, 2008.



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

Oil                24        24         -      -      24    24
Natural Gas         -         -         -      -       -     -
Total              24        24         -      -      24    24

As of the fiscal quarter ended December 31, 2008, each of the 24 wells identified above was in test production, testing or under/awaiting workover.

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 24 wells.

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

Aksaz -1                                    44-57 bpd                   4 mm
Aksaz -2                                   25-126 bpd                   5 mm
Aksaz-3                                   302-346 bpd                   4 mm
Aksaz -4                                  50 - 57 bpd                   4 mm
Aksaz -6                                   31- 63 bpd                   5 mm
Dolinnoe -1                               50- 151 bpd                   6 mm
Dolinnoe -2                              13 - 245 bpd                   2 mm
Dolinnoe -3                                 6-138 bpd                   6 mm
Dolinnoe -5                             0- 110 bpd(1)                   5 mm
Dolinnoe -6                                 13-57 bpd                  12 mm
Dolinnoe -7                              113- 396 bpd                   4 mm
Emir -1                                     0- 31 bpd                      -
Emir - 2                                 0- 63 bpd(2)                   6 mm
Emir -6                                      0-94 bpd                      -
Kariman -1                              44-111 bpd(3)                      -
Kariman -2                               302- 704 bpd                   5 mm
Kariman -3                              0 -82 bpd (4)                      -
Kariman -4                             0- 352 bpd (5)                   6 mm
Kariman -5                               9- 38 bpd(6)                  12 mm
Kariman -6                               371- 629 bpd                   7 mm
Kariman -7                               0-554 bpd(5)                   6 mm
Kariman -8                              390 - 616 bpd                   7 mm
Kariman -10                             25-377 bpd(7)                  10 mm
Kariman-11                              113 - 252 bpd                   7 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) This well was completed during the quarter ended March 31, 2008. At the present moment, the well produces sporadically. We have lowered a down-hole pump but such activities yielded no significant results. We plan to continue sporadic production from this well without spending any significant additional funds for workover activities in the near future.

(3) We have installed a downhole pump at the Kariman-1 well which resulted in sporadic production flow during the quarter ending December 31, 2008. No further activities are planned for this well.

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

(5) Both, Kariman-4 and Kariman-7 wells, have produced sporadically due to the pressure drop and paraffin buildup resulting in an inability to produce crude oil using primary depletion methods at a sustainable rate. Well testing conducted during the quarter ending December 31, 2008, indicated high breaking-off level of crude in the wellbore, which led to our decision to install centrifugal submersible pumps at both of the wells during the quarter ending March 31, 2009, in order to keep up sustainable production from these wells.

(6) We expect to install a downhole pump at the Kariman-5 well when a workover rig becomes available.

(7) During the quarter ending December 31, 2008, we conducted extensive studying of the lower interval that was perforated. We have perforated the next upper interval, however production from this interval has not yielded any significant increase in production.

During the quarter ending December 31, 2008, we revised our planned capital expenditure program for the remainder of the current and the upcoming fiscal year to significantly reduce our planned capital expenditures. This decision is based on several factors.

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. 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%.

Upon careful evaluation of available options, we have decided to suspend our drilling programs until the global financial situation and crude oil prices stabilize at levels that we deem will make further drilling efforts economically efficient. We have managed to negotiate the suspension of drilling contracts with drilling contractors, Great Wall and Oil and Gas Exploration Crakow, without incurring penalties and fines. By the end of our third fiscal quarter, we had terminated all drilling activities.

During the quarter ending December 31, 2008, we experienced a significant drop in our average production due to several factors. We have experienced pressure drops that are significantly higher than previously expected which adversely affected production rates from several wells. We believe this dramatic decline is partially attributable to the length of time certain Kariman wells have been producing without significant workover activities, Kariman-2 for instance has been producing for over 2 years now, and to paraffin build-up on most wells due to the surprisingly harsh weather in Aktau this winter.

Another reason for the decrease in production is a lack of oil storage capacity. Given world market prices during the quarter, many oil producers in Kazakhstan were unwilling to export crude oil to international markets due to the negative netbacks to be realized after application of the excessively high export duty imposed by the government of Kazakhstan while world market prices plummeted starting in August 2008. Such circumstances forced us, similar to most other independent producers in Kazakhstan to supply 100% of our crude oil to domestic markets starting in late October 2008. This significant increase in the supply of crude oil to the domestic market in Kazakhstan led to severe logistical hiccups as there is only one refinery, the Atyrau refinery, that services western Kazakhstan. The refining capabilities of the Atyrau refinery are limited, this was exacerbated by the railroad spurs/network that is not suited for such increase in crude oil supply. As a result several times during the quarter ending December 31, 2008, we were unable to ship crude oil to the domestic markets for several days in a row. This led to the crude oil inventories at the oil storage facility we lease to exceed storage capacity. As a result, we had to partially or completely (through choke scale down) shutdown several wells. Due to the pressure drop and paraffin build-up during such suspension of production, we were unable to return to the previous production rates at several wells. In certain cases, such as Kariman-4 and Kariman-7, production has ceased altogether and has not been restored to date.

We have developed and plan to carry out a production restoration program based on installation and running of submersible centrifugal and bottom-hole pumps at non-producing or low-producing wells. We expect to complete such activities at the Kariman-4 and -7 wells during the quarter ending March 31, 2009.

We have halted drilling activities and plan to significantly scale down other capital expenditures, including workover activities and infrastructure development, until crude oil prices rebound and/or the global markets revive, which will allow us to generate sufficient cash flows and/or raise additional capital. However, we plan to engage in careful evaluation and carrying out activities with the purpose of oil production stimulation from existing wells. In essence, we plan to work with each and every well in our wellstock with the purpose of restoring and increasing production from such wells.

If we continue to experience greater than expected declines in production, or as prices fall to levels that could reduce the amount of crude oil we can produce economically, we may have to make downward adjustments to our estimated proved reserves. If this occurs, we could incur a "ceiling limitation write-down" under applicable accounting rules. Under these rules, if the net capitalized cost of natural gas and crude oil properties exceed a ceiling limit, we must charge the amount of the excess to earnings. This charge does not impact cash flow from operating activities, but it would reduce our stockholder's equity and earnings. The risk that we will be required to write-down the carrying value of natural gas and crude oil properties increases when natural gas and crude oil prices are low or when our production rates are lower than anticipated. In addition, write-downs would occur if we were to experience substantial downward adjustments to our estimated proved reserves. A write-down recorded in one . . .