Azerbaijan

The South West Gobustan oil and gas fields are surrounded by large producing fields in this traditional and historical oil producing area. The Coastal block area, which includes the Duvanny field, is considered the largest onshore gas accumulation in Azerbaijan.

Arawak’s effective working interest in the fields is 29.7% but the share of production from these properties varies periodically according to the terms of the EDPSA.

The EDPSA, located onshore about 50 km from the city of Baku, is divided into three blocks. The Coastal Block is 350 sq km and nearest to Baku. The Central Block, northwest of the Coastal Block, is 145 sq km and the Northern Block is 110 sq km in the southern foothills of the Great Caucasus.

The blocks contain the following thirteen known structures:

Northern: Byurgyut, Sheitanud, Donguzdyg and Shikhzagirli
Central: Ilkhichi, Adzhivili, Nardaran-Aktarma and Sundi
Coastal: Dashgil, Duvanny, Touragay, Kyanizadag and Solakhay

The hydrocarbon reservoirs are of several different geological ages. The main zones of interest are the Pliocene, Oligocene and Miocene sandstones with potential also in Cretaceous and Jurassic limestones. The predominant structural grain is east-west.

Reservoirs range from depths of 250 metres in the Northern Block to 4,500 metres in the Coastal Block, the composition of which is volcanic, marine influenced sandstones; geologically complex and a mix of shallow and deep, oil and gas.

Structures in the northern area are more compressed and faulted with older rocks exposed in the cores. Further south, in the Coastal Block, large thicknesses of Pliocene strata occur over the crests of the structures. At Dashgil, Duvanny, Kyanizadag, 2,000 metres of uneroded Pliocene sediments are present over the crests of the structures.

Modern 2D seismic exists only in the Coastal block. 3D seismic is being acquired on 219 sq km of the Coastal block, which will be followed by 480 sq km of 2D seismic in the Northern and Central blocks.

The construction of a gas processing facility, begun in the first quarter of 2005, was completed in 2006, and produced its first gas to sales in February 2006 at 3.5 mm scfd.

Gas sales are made to the State Oil Company of the Azerbaijan Republic (“SOCAR”) pipeline based on a contract concluded in June 2004 at a price of US $1.33 per mm Btu. Provision was made in the contract for revision of this price and in light of changes in the regional market, such negotiations have been entered.

The EDPSA was signed and ratified in 1998 for a period of 25 years with a discretionary extension for a further five years. Completion of the Minimum Obligatory Work Program in 2004 secured Arawak’s interest for the remaining 20-year term.