Russia

The 100 sq km area comprising the Sotchemyu-Talyu fields is located 100 km southwest of Pechora and is held through PechoraNefteGas (PNG), in which Arawak acquired a 50% interest in 2005 through the RF Energy joint venture.

The fields are mature producers, the primary producing horizon being a shoestring Devonian carbonate reservoir draped over the shelf edge reef complex. Four accumulations, Sotchemyu, East Sotchemyu, Talyu and North East Talyu, are all bound by structural closure which defines the hydrocarbon oil-water contact. Reservoir support is provided by an almost infinite acting water drive mechanism with aquifier influx believed to be principally from the south side of the field.

The fields essentially straddle the infrastructure corridor and are located 4 km from rail and pipeline facilities. PNG has its own custody point for the transfer of oil to the Transneft trunk crude oil pipeline, through which the PNG oil is pumped for sale on the domestic or export markets.

Sotchemyu-Talyu production net to Arawak totaled 1,110,656 barrels, or an average 3,043 bopd, in 2009.

Plans have been approved for a $5.3 million gas-to-power project to utilise associated gas produced at North Irael and Sotchemyu-Talyu to reduce flaring at the fields by 95% in line with the anticipated introduction of new legislation imposing restrictions on gas flaring. Construction of the facilities commenced in the second half of 2009 with completion scheduled in the second quarter of 2010. The gas-to-power facilities will secure a continuous and reliable power supply to field facilities and reduce costs.

North Irael is a 78 sq km block close to the Sotchemyu licence area and produces from the same Devonian reef trend. Arawak’s shareholding is through the RF Energy joint venture, which acquired in 2006 LLC NK Recher-Komi (‘Recher’), the holder of the North Irael licence. The original licence was signed in 1999 and expires in 2021.

North Irael produced 479,949 barrels, or 1,315 bopd, net to Arawak in 2009, up 32% from volumes in 2008 when net production was 992 bopd.

Arawak acquired a 100% interest in the 71 sq km South Sotchemyu exploration block in November 2007. The block is contiguous to the Sotchemyu-Talyu and North Irael producing fields and enjoys the same proximity to existing infrastructure. Under the contract terms, success in the initial five-year exploration period will be followed by the rights to an additional 20-year production phase, with the primary licence term expiring in November 2032. The auction documentation indicated resources of five million barrels attributable to the block.

Since acquisition, Arawak has completed a 144 km 2D seismic acquisition programme and a 40 sq km 3D survey. The data has been processed and interpreted and an exploration well spudded in December 2009 is expected to be completed in the first quarter of 2010.

The 177 sq km Kymbozhyuskaya exploration block is located 275 km from the Company’s existing operations in the Komi Republic and lies 45 km east of the Transneft oil trunkline.

The block is prospective for oil and gas reservoirs associated with the Permian terrigenous and Middle Vizean Lower Permian carbonate sediments based on offset commercial hydrocarbon accumulations throughout the Kosyu-Rogovsk depression.