Russia

Sotchemyu-Talyu

PNG, purchased by RFE in January 2005, signed its licence to the Sotchemyu-Talyu fields in March 1994; it was subsequently divided into two, Sotchemyu and East Sotchemyu-Talyu, in 1998 and is renewable on expiry in May 2014.

The Sotchemyu-Talyu fields cover 100 sq km and are located 100 km southwest of Pechora in the Komi Republic of northern Russia. The fields produce primarily from a Devonian shelf edge reef complex where oil and gas is focused in the Devonian and Permian rocks, trapped by a series of irregular domal structural closures which are mapped by 2D seismic interpretation and well control. Wells are drilled to a depth of around 2000m, showing 6-7 metres of net pay with 14% porosity. Pressure is supported by aquifier influx primarily from the south side of the fields.

PNG has its own central processing facility with an oil production capacity of approximately 15,000 bopd. An intrafield gathering system has tied in most producers to the CPF.

The fields are favourably located 4km from rail and pipeline facilities and have their own custody point for the transfer of oil to the Transneft system for sale on the domestic and export markets. This direct tie-in to Transneft lowers PNG’s cost profile.

Within the Transneft system, PNG crude is blended and emerges as Urals export blend, 35% of which is exported with the remaining 65% sold on the domestic market. Export sales are marketed through Vitol , with payments made typically 20 days from loading at Primorsk, the major Russian Baltic oil terminal. Local sales are handled by PNG itself, with payment made before crude delivery.

In 2006, Sotchemyu-Talyu produced 2,437,061 barrels of oil, an average of 6,677 bopd. After re-processing and re-interpreting existing 3D seismic data, Arawak has embarked on a program of low risk development drilling together with the exploitation of largely untapped back reef potential.

North Irael

The 76 sq km North Irael field is 10 km from Sotchemyu-Talyu and on the same Devonian shelf edge reef complex.

In June 2006 RFE completed the acquisition of 100% of LLC Recher-Komi (“Recher”), holder of the North Irael field, at a cost of US $9.5 million net to Arawak. The original license was signed in 1999 and expires in 2021.

PNG provided the staff, the operational expertise and the equipment which facilitated the rapid and successful integration of the Recher business, the North Irael field, into the existing operation at Sotchemyu-Talyu at minimal incremental cost.

The oil produced at North Irael is trucked 35 km to PNG’s processing facilities and sold through PNG operations into the Transneft pipeline system on the same basis as PNG export and domestic sales.

Since acquisition, six existing wells were successfully worked over. Subsequently, a new well was drilled, Recher-Komi 61, which proved up a new area in the block and tested at 1,250 bopd gross on a 7 millimetre choke. A follow up well was drilled in that pool, Recher-Komi 67, which tested at in excess of 1,000 bopd gross and has been established at a stable flow rate of 340 bopd gross on a five millimetre choke.

Production at the North Irael field rose reached 1,900 bopd gross by late 2006, a 530% increase from the rate at acquisition.

Kymbozhyuskaya

Arawak was awarded the 177 sq km Kymbozhyuskaya exploration block in December 2006 and the license was signed in February 2007.

The block is 275 km from Sotchemyu-Talyu, 45 km east of the Transneft trunk oil pipeline and 20 km from the Northern railway.

Kymbozhyuskaya is part of the Kosyu-Rogovsk syncline and prospective for reservoirs associated with the Permian terrigenous and Middle Vizean Lower Permian carbonate sediments.

The initial five year exploration phase is followed by the rights to a 20-year production phase.