Kazakhstan

Akzhar is the Company’s most prolific producer in Kazakhstan. It is located 70 km from the town of Kenkiyak in the Aktyubinsk province of western Kazakhstan and is held through the Company’s wholly owned subsidiary Altius.

The 16 sq km field is a suprasalt development of unconsolidated sands with excellent reservoir quality. The Company has focused on the development of the Middle Jurassic and Lower Cretaceous reservoirs in three wings of a salt dome structure at depths of between 270 and 515 metres.

The Company is permitted by law and its contract to export 85% of the oil produced from Akzhar, with the remainder sold in the domestic market. Presently, a fleet of over 45 third-party-owned oil tanker trucks travel the 70 km steppe road around the clock to deliver oil from Akzhar to the KazTransOil terminal at Kenkiyak. From Kenkiyak, the oil is transported by pipeline for sale in both the export and domestic market. In 2007, further capital outlays were made to expand the Company’s in-field storage capacity and upgrade the road to minimise transport delays due to adverse weather conditions.

Crude oil for export is currently piped from Kenkiyak to Atyrau on the Munaitas pipeline. From Atyrau it is sent through the KazTransOil pipeline to Samara in Russia where it is delivered into the Transneft pipeline system (Russia’s national pipeline company).

Production at Akzhar increased 48% in 2009 to 2,205,975 barrels, or an average rate of 6,044 bopd compared with 4,071 bopd in 2008. Following completion of an 18-well development drilling programme in 2009, production capacity at Akzhar at the beginning of 2010 was approximately 8,000 bopd.

The 8 sq km Besbolek field is located 150 km from the city of Atyrau and is geologically similar to the Akzhar field. Arawak has focused on the development of production from the shallow suprasalt areas where unconsolidated sands and excellent reservoir quality. Production is typically at shallower depths than at Akzhar with wells drilled to between 200 and 320 metres.

Total field production in 2009 was 695,889 barrels, or an average rate of 1,907 bopd, marking a 4% increase on the 2008 level of 1,826 bopd. Following the completion of drilling of eight development wells in 2009, production capacity at Besbolek stood at approximately 2,500 bopd in early 2010.

In June 2008, Arawak completed the acquisition of Saigak Investments B.V., which owns a 40% participating interest in the Saigak oil producing field. Saigak covers an area of 11 sq km in the Aktyubinsk region, approximately 120 km north of the Akzhar development. Maersk Oil Kazakhstan GmbH is the operator of the field and holds the remaining 60% interest.

The reservoir section of the suprasalt field resides at a depth of 1,570 to 2,800 metres and consists of stacked ephemeral, fluvial sand-sheets of Upper Permian to lower Triassic age.

Arawak’s working interest production for Saigak in 2009 was 330,926 barrels, or 907 bopd.

The Alimbai block is located 60 km west of the Besbolek field. The 133 sq km area is prospective for both suprasalt horizons, similar to Arawak’s other fields in Kazakhstan, and the deeper subsalt horizons. The contract for the exploration and production of hydrocarbons includes exploitation rights to both play types. The contract includes a spending commitment of $5.1 million over a six-year exploration phase, which, on declaration of a commercial discovery, will be followed by a 25-year production period.

The productive Jurassic and Lower Cretaceous reservoirs are located in the southeast wing of a salt dome structure at depths of between 200 and 480 metres. Regulatory constraints governing testing in the exploration phase of work resulted in the gradual curtailment of production at Alimbai and in July all exploration wells were shut in. For the full-year 2009, production totaled 4,334 barrels, or 12 bopd.

The suprasalt Karataikyz field is Arawak’s smallest producing asset in Kazakhstan, covering 1 sq km and located 15 km south of the Besbolek development. The productive Jurassic and Lower Cretaceous reservoirs are located in three fault blocks on the flanks of a salt dome structure at depths ranging from 250 to 360 metres.

The TSD for Karataikyz was approved in June 2006 and the field is now in the production phase for 25 years. In 2009, Karataikyz produced 60,387 barrels, or an average of 165 bopd, from from nine active wells.

The 1,845 sq km East Zharkamys III exploration block is located 80 km southwest of the Akzhar field and has potential for long-term reserve growth and synergy with the Company’s existing operations in the area. The block holds several play types including deep subsalt Lower Permian clastics, a suprasalt Upper Permian-Triassic complex similar to the Saigak field, and Jurassic and Cretaceous clastic horizons similar to Akzhar.

The initial four-year exploration contract has a minimum work programme of $63.1 million, to be followed, on a commercial discovery, by rights to conduct production upon entering into a production contract on the basis of direct negotiation. The exploration period can be extended for two terms of two years.

In May 2008 Arawak completed the acquisition of a 100% interest in the Tamdykol exploration block, which is located in the Emba oil and gas province approximately 260 km southwest of the city of Aktobe in the Aktyubinsk Oblast.

Tamdykol is prospective for both shallow, suprasalt Jurassic and Triassic oil reservoirs, similar to those at the Akzhar and Besbolek fields, and deeper Permo-Triassic oil reservoirs trapped by salt overhangs. Oil shows were first detected at the surface, near the salt flats of Lake Tamdykol in 1912.

The contract for subsurface use was registered with the RK Agency on 20 January 2000 and the contract is in the second extension of the exploration period, which, in accordance with Addendum 5 of the Tamdykol contract, runs until 20 January 2010. Under the legislation, if a hydrocarbon discovery is made, the exploration period may be extended with the approval of the Ministry of Energy and Mineral Resources for a period beyond 20 January 2010, as necessary for the evaluation of the discovery. In late 2007, the area of Tamdykol was expanded from 5 sq km to 275 sq km (67,700 acres) to encompass several adjacent salt domes within the same petroleum system. Under the contract terms, success in the remaining exploration period would be followed by the right to a 19-year production period. A post pay-out 10% royalty interest is held by local investors.