Robert M. Cohen & Company Incorporated
287 Northern Boulevard
Great Neck, NY 11021
516 829-7910

Update: American International Petroleum May 1, 1998

(NASDAQ - AIPN $2 3/32)
52 week range $0.40 - $7.13
Shares Outstanding 50 million
Daily Volume 484,000
Float 44 million
Institutional Ownership 3.83%
Book Value $0.65
LT Debt $0
Market Capitilization $100 million
FY00 Price/Earnings (trailing) 5.6
FY00 Price/Sales (trailing) 1.1
FY1998 Revenues (e) $19.6 million
FY1998 EPS (e) ���..$(0.04)
FY1999 Revenues (e) $73.1 million
FY1999 EPS (e) $0.20
FY2000 Revenues (e) $127.4 million
FY2000 EPS (e) $0.36

Approximately ten months ago we initiated coverage of a company that had no refinery operations and a possible "world class" oil find of 1.1 billion barrels in Kazakhstan. Today, while we see much has changed, much has unfortunately remained the same. The stock price sits just below our initial recommendation price of $2.25 (although the ride has been "stomach churning"). The company's financing methods continue to be highly unsatisfactory. No joint venture has been signed.

But much like those psychedelic pictures you put on the wall when you were a teenager, if you look deeply, a new image appears. Operations at the Lake Charles refinery have commenced and it seems that the company has the makings of a profitable niche business that should see further growth through acquisition this year. The Kazakhstan concession looks more promising as the vast Chikuduk structure continues to be explored. Preliminary estimates show potential reserves exceeding 1.5 billion barrels in this area. AIPN may soon make a foray into production when it closes on properties in Western Russia that have 6000 bpd potential and proven reserves of 35 million barrels.

Investment Thesis

1. Refining Operations. The company is currently producing asphalt at its 30,000 barrel/day capacity refinery in Lake Charles, Louisiana. This has occurred approximately six months later than we had anticipated. The retail asphalt business is an interesting one as it entails taking the lowest grade, sour (an in turn least expensive) crude oil, slightly modifying it and then selling it at gross margins ranging from 50-60%. It is also unique because it is a localized business. Asphalt, due to its high density cannot be shipped through a pipeline. Interstate, rail, and river barge access make the Lake Charles facility ideal for such localized business. The company is currently licensed to do business in LA, TX, FL, GA, AL, MS, AK, TN and OK. Through a combination of public and private orders, the company estimates that the markets they serve can and do approach $1 billion in demand. In March of this year, AIPN signed an agreement to purchase the St. Marks refinery and its storage facilities located near Tallahassee, FL for $4.5 million worth of stock and/or cash. During a 90 day due diligence period, the company will determine whether to take this action, purchase some of the assets, or sign a perpetual lease. In any event, AIPN will begin work from the site the first week of May. This move doubles the company's storage capabilities and opens the retail makets of FL and GA. We are looking for further smaller acquisitions ($1.5 million) to expand the company's retail presence in the Southeast and Gulf areas. St. Marks is the only refinery of its kind in Florida (this fact becomes extremely important if/when the Florida side of the Gulf waters is opened to drilling).

Heading up the refinery operations is Gene Chew, who was named President of American International Refinery Inc. in December of last year. Mr. Chew brings a wealth of industry experience (38 years, 28 at British Petroleum) to the company as well as significant industry contacts that result from his Chairmanship of the Asphalt Institute and Directorship of the National Petroleum Refiner's Association.

We anticipate that revenues will ramp up this year slowly,
Q1 = $400K
Q2 = $2 million
Q3 = $10 million
Q4 = $3 million
with the third quarter being the "high season" for asphalt sales.

The refinery business continues to be the base off of which we speculate. The property has recently been appraised at $86 million and the replacement cost could be much higher (environmental concerns and "not in my back yard" sentiment have reduced the likelihood of a boom in new refinery construction.) There is currently no debt pledged against the refinery assets. After discussions with management we anticipate revenues of approximately $54 million in FY99 and $108 million in FY00.

2. Russia. On March 18, 1998 the company announced that they had purchased an option to acquire an approximate 75% working interest in licenses covering 877,000 acres of European Russia for $300,000. According to Russian government data, the fields hold 35 million barrels of proven reserves and upwards of 200 million barrels in probable and potential reserves. The area also contains 17 shut in wells that the company will rework at a cost of approximately $2 million. These wells tested at better than an aggregate 6000-bpd production. Consideration for this purchase totals $11 million and is in the form of a one time payment of $4.7 million in cash and stock and $6 million from 25% of AIPC's future net production. Pending further technical and regulatory assessment, the deal is expected to close in the second half of May.

The sites are ideally situated on the Volga River and are adjacent to both pipeline and rail distribution. The company is speaking to drilling companies and feels that production could come on line as early as July. We are taking a more conservative approach in projection production of 2000 barrels aggregate per day starting in the 4th quarter. Revenues are projected to exceed $18 million in 1999 and 2000.

3. Kazakstan. "The brass ring", "all the marbles", "the franchise", "the rub"� call it what you like, Kazakstan offers AIPN shareholders their major upside. When we initiated coverage in July of last year, the company had just released preliminary seismic results on 7 of 16 structures located in the western part of the concession. These results pointed to potential reserves to the tune of 1.1 billion barrels. More recently, seismic studies of the now infamous "Chikuduk" structure in the eastern part of the concession yielded figures exceeding 1.5 billion barrels. These figures do not include the shallower sandstone zone that is believed to contain gas or the deeper carboniferous zone which in similar in structure to the find at the enormous Tengiz field being developed by Chevron and Mobil among others.

The company intends on taking two parallel paths in their development of the Kazakstan concession. Firstly, over the next 90 days the company will have two seismic teams finishing the preliminary work on the Chikuduk structure with the result being the location of a potential well site. The plan is to drill down to about 4000 feet in order to reach the deeper zone discussed above. Talks with drilling partners are in motion with work starting in the 4th quarter.

Secondly is the achievement of a joint venture partner. Final seismic reports should be available by late May. Management states that currently 7-8 confidentiality agreements have been signed with a wide range of possible industry partners. With the recent clamp down on further privatization by the Kazakstan government, AIPN's concession would appear to be more valuable now. It is the announcement of a "JV" that excites us most.

RISKS

1. Lack of traditional financing/dilution. One of our (and many other's) main concerns continues to be the inability of management to obtain conventional financing. Throughout its history, AIPN has used highly dilutive equity financing to fund its operations and the latest round was no exception. The company presently has approximately $59 million of potential dilutive financing outstanding in the form of $7 million - convertible half in May, half in June - @ 15% below market$12 million - convertible in an approximate 6 months (after a registration statement is filed), payable in two years - @ 15% below market $40 million - in the form of an equity line - convertible at time of issue - @15% below market

Also included were 1 million warrants exercisable @ $2.76 over a period of 5 years. We conclude that an approximate 20 million additional shares should become outstanding over the next two years from these financings although the company has the right to repay these notes on 5 days notice. Traditional financing is being sought with the refinery to be used as collateral. While the company's financing woes is at best a drag on the stock and at worst a major "red flag", the accomplishment of conventional financing should provide positive momentum for the company's shares and future prospects.

2. Lack of earnings visibility/operating history. In reading AIPN's most recent 10-K filing we find a disturbing statement; "�all of which raise substantial doubt about its ability to continue as a going concern." The same document also tells us that the above discussed financing should be sufficient to meet the company's capital needs for the next two years, in management's opinion. After discussions with management, we feel comfortable with our forward projections. Any disruption in cash flow though could necessitate further forays into unfavorable financings.

3. Political Instability. The company has substantial operations and prospects in areas of the world where the political and social framework is no fully established. Kazakstan has recently announced a crack down on foreign oil companies in the form of scrutinizing exploration and operating contracts. Russia's President Yeltsin is currently operating without a cabinet. We continue to believe that these newly democratic governments offer substantial risk to any investment in AIPN stock.

Recommendation

AIPN is a small exploration player with a tarnished operating and financial history. Over the last year the company has continuously disappointed us by not meeting certain milestones in a timely fashion. Management at many times is overly optimistic and that may have caused aggressive expectations. These shortfalls are, in our opinion, built into the stock price. By the beginning of June, it is possible for the company to have on its books 35 million barrels of proven reserves, 200 million of probable reserves and 2.6 billion in potential reserves. At $0.50 per barrel we come up with an astronomical number. If all goes well, 1999 should see revenues of $73 million and EPS of $0.20. While we have been disappointed before, based on projected operations and the potential for an industry partner, we feel our $10 price target could be reached in less than 12 months. We therefore continue to rate AIPN a BUY for risk tolerant investors.

Keith R. Bossey
516 829 7910
�Disclaimer, not included�

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