Arawak announces second quarter results



    LSE & TSX TRADING SYMBOL: AAK

    JERSEY, Channel Islands, Aug. 14 /CNW/ - Arawak Energy Limited ("Arawak"
or "the Company"), formerly Arawak Energy Corporation, the independent oil and
gas company with exploration, development and production in Kazakhstan, Russia
and Azerbaijan, today announces its results for the quarter ended 30 June,
2008.

    
    HIGHLIGHTS:

    (In US dollars unless otherwise stated)

    Financial:
        -  Revenue of $95.6 million in the second quarter of 2008, compared
           with $66.6 million in the first quarter (Q2 2007 $30.7 million)
        -  Net income in the second quarter of 2008 increased to $9.3 million
           (Q2 2007, $0.3 million) after deducting re-domiciliation and
           listing expenses of $8.7 million
        -  Earnings per share (basic and diluted) increased to 5.3 cents
           (Q2 2007, 0.2 cents)
        -  Funds from operations up 180% to $20.3 million in the second
           quarter of 2008 (Q2 2007 $7.2 million), with capital expenditure
           of $20.6 million excluding acquisitions
        -  Signed an $80 million financing facility with Calyon to facilitate
           further growth

    Corporate:
        -  Acquired the Tamdykol exploration block and a 40% interest in the
           producing Saigak field, both in Kazakhstan
        -  Completed additional listing on the Official List of the London
           Stock Exchange on 1 July, 2008
        -  Acquired a 4.5% stake in PetroNeft Resources plc through an equity
           placing

    Operational:
        -  Average production up 30% to 12,199 boepd year-on-year (Q2 2007,
           9,404 boepd)
        -  Eight major geological projects under way already in 2008 in
           Kazakhstan, Russia and Azerbaijan
        -  New Karsak facility in Kazakhstan commissioned in May 2008,
           enabling the Company to produce and transport oil from Besbolek,
           Karataikyz and Alimbai to the pipeline system independently of
           third parties with reduced losses and savings in processing costs
           amounting to an overall saving of approximately $5 per barrel
        -  Further drilling success in the North Irael block in Russia which
           extends the boundaries of the oil producing areas
    

    Commenting on the results, Alastair McBain, Chief Executive Officer,
said:
    "Arawak had an excellent first half of 2008 making good operational and
financial progress and successfully expanding our asset base. With strong
earnings and cash flows, we are looking to develop our exposure to the rich
hydrocarbon reserves within our three core areas, Kazakhstan, Russia and
Azerbaijan. The completion of our London listing complements our established
listing in Toronto and will allow us to develop twin bases of institutional
investor support in these two important markets."

    
    FINANCIAL HIGHLIGHTS
    (In thousands, except per share amounts)
    For the three months ended 30 June          2008        2007        2006
    -------------------------------------------------------------------------
    Crude oil sales                          $95,556     $30,650     $33,975
    Net income                                $9,297        $308      $5,026
      Per share - basic                       $0.053      $0.002      $0.029
      Per share - diluted                     $0.053      $0.002      $0.029
    Funds from operations(1)                 $20,259      $7,245     $11,171
      Per share - basic                       $0.115      $0.042      $0.064
      Per share - diluted                     $0.115      $0.041      $0.064

    Capital expenditure
     (excluding acquisitions)                $20,577      $9,850     $21,553
    Capital expenditure (acquisitions)        $4,122           -           -
    Shareholders' equity                    $205,665    $132,039    $122,211
    Shares outstanding - basic               182,244     173,592     173,283
    Shares outstanding - diluted             183,097     174,988     174,758
    Weighted average shares - basic          175,819     173,568     173,280
    Weighted average shares - diluted        176,672     174,964     174,755
    -------------------------------------------------------------------------
    (1) Funds from operations is a non-GAAP measure that represents cash
        generated from operating activities before changes in non-cash
        working capital.
    (2) Certain comparative figures have been restated to conform to the
        current financial statement presentation.



    OPERATIONAL HIGHLIGHTS

    For the three months ended 30 June          2008        2007
    -------------------------------------------------------------
    Production - boe                       1,110,092     855,743
    Average daily production - boe            12,199       9,404
    Sales - boe                            1,041,663     712,296

    Revenue and expenses per boe sold
    ---------------------------------
    Crude oil and gas sales                   $91.73      $43.03
    Interest and other income                  $0.72       $0.69
    Royalties and taxes                      ($22.56)    ($11.86)
    Production costs                          ($4.49)     ($4.84)
    Transportation and selling expenses       ($6.02)     ($5.02)
    Net operating income                      $59.38      $22.00
    -------------------------------------------------------------
    

    REVIEW OF Q2 AND H1 2008

    Overview

    Arawak enjoyed another excellent performance for the second successive
quarter in 2008, demonstrating a strong half-yearly performance. We
experienced significant growth in a year-on-year production and net income, as
well as completing two sizeable acquisitions in Kazakhstan and raising a new
financing facility. We also achieved the important corporate objective of
listing on the Official List of the London Stock Exchange on 1 July, 2008. The
London listing complements our established listing in Toronto and allows the
Company to develop twin bases of support among international investors in
these two important markets.
    Production growth was strong during the second quarter, with an increase
of 30% year-on-year, compared with similar increases achieved year-on-year in
the first quarter and for the first half year. This led to a pleasing increase
in net income, up to $9.3 million even after one-off costs of $8.7 million (Q2
2007, $0.3 million), with funds from operations increasing by 180%
year-on-year, demonstrating the Company's strong cash generation and tight
operational controls. The net income for six months increased to $17.8 million
compared with $1.6 million in the same period last year and the funds from
operations increased by 129% to $36.3 million in the six months of the second
quarter of 2008 in comparison with $15.9 million in 2007.
    In order to facilitate further growth, Arawak has signed a new
$80 million financing facility providing additional funding, which represents
a considerable improvement on the previous financing terms. Arawak entered
into this facility in spite of current difficulty in the global credit markets
and believes it underlines the Company's robust balance sheet and strong cash
flows.

    Corporate

    Following the continuance of the Company to Jersey in April, the Company
successfully listed in London in July and has completed two acquisitions in
the first half of 2008.
    The first of our acquisitions in Kazakhstan was the Tamdykol exploration
block, a 275 sq km area in the Aktyubinsk administrative region situated in
the prolific Pre-Caspian Basin. The Company has a 100% interest in this block,
having acquired the contract which was originally signed in January 2000 on
the older, tax stabilised terms. The Tamdykol contract area is prospective for
both shallow, suprasalt Jurassic and Triassic oil reservoirs, similar to those
encountered at Arawak's Akzhar and Besbolek fields, but also for deeper
Permo-Triassic reservoirs trapped by salt overhangs. Based on numerous oil
shows at surface and analysis of existing well logs, the Company is currently
engaged in a comprehensive evaluation of well sites and existing well bore
integrity with the objective of mobilising a rig for Tamdykol in the third
quarter in order to re-enter selected existing wells. Subsequently, based on a
gravity survey analysis, the Company's tentative plan is to acquire
approximately 300 km of 2D and 50 sq km of 3D seismic later in 2008, to be
followed by drilling in 2009. Total acquisition costs and exploration phase
expenditure are expected to be in the region of $10 million.
    On 9 June, 2008 the Company completed the acquisition of a 40% interest
in the Saigak field, also in the Aktyubinsk administrative region in
Kazakhstan. This block is located approximately 120 km from the Company's
Akzhar field and is operated by the 60% interest holder, Maersk Oil Kazakhstan
GmbH. The field is in production and operates under a Production Sharing
Contract which was originally signed in 1992 and is valid until 2022. Gross
production at the date of acquisition was approximately 2,000 bopd and all
Saigak production is currently exported. Saigak was acquired from Vitol in an
all share transaction, with Vitol being issued an additional 8,352,587 common
shares taking its total shareholding in Arawak to 41.5%. The Company also
obtained the cashflow generated by the asset from the effective date,
1 January 2007, totalling $12.4 million.
    The Company's wholly-owned subsidiary Altius Petroleum International BV
("Altius") entered into a 5-year $80 million reserve-based finance facility
with Calyon as mandated lead arranger. The main use of the facility,
$60 million of which has already been drawn down, was to repay a Vitol
prepayment facility and to fund future development in Kazakhstan. The terms of
the loan, which include an interest rate of LIBOR plus 1.75%, represent a
considerable improvement on the previous financing terms available to Altius.
Arawak is delighted to have raised this facility in spite of difficulties in
the current global credit markets, and believes it underlines the Company's
robust cash flows.
    Subsequent to the end of the second quarter, Arawak has participated in
an equity placing by PetroNeft Resources plc ("PetroNeft"), the AIM-listed
exploration and production company with assets based in the Tomsk region of
Russia. Upon completion of the placing Arawak's shareholding in PetroNeft will
be approximately 4.5%. At the same time, Arawak and PetroNeft have also
entered into an AMI (Area of Mutual Interest) agreement, under which the two
companies have agreed to work together on potential opportunities in the
Western Siberia region. Through the transaction, Arawak has gained direct
access to deal flow in this highly productive region of Russia.

    Development

    Because of the expansion of the total asset portfolio and our focus on
identifying opportunities for further production and reserve growth, the
Company has undertaken eight major geological projects in 2008, which are all
now in process.
    In Kazakhstan, at the Besbolek field, recently acquired 3D seismic has
been integrated with earlier data to form the basis of the newly approved
State Balance Reserves. C1 + C2 reserves now stand at 12.9 million bbls,
compared to the earlier figure of 5.7 million bbls. State Balance Reserves are
not compliant with Canadian standard NI 51-101, which stood at 7.9 million
bbls of proved plus probable reserves as of 31 December, 2007 (with total
proved plus probable plus possible reserves in Kazakhstan net to Arawak of
46.8 mm bbls). The approval of the State Balance Reserves is an important step
in the process of transition to the production phase, which is currently under
way. 200 km of 2D and 27 sq km of 3D have been acquired on the Alimbai block,
and the data is in the processing phase with completion of interpretation
scheduled before year end. After this, 529 line km of 2D will be acquired on
the East Zharkamys III block, which commencing this month and will be followed
by the survey on the newly acquired Tamdykol block later this year. This
geological work followed the conclusion of the aggressive drilling programme
started in 2007, as disclosed in Arawak's first quarter report, with the
drilling of eight wells at Akzhar and five wells at Alimbai.
    In Russia, having drilled into a new pool in the first quarter and
following the acquisition of 81 sq km of 3D data on the Company's 50% owned
North Irael block, interpretation has been completed and maps generated.
40 sq km of 3D data has also been acquired on the adjoining 100% owned South
Sotchemyu block with 144 line km of 2D to follow later in the year. Also
planned in the winter 2008/2009 is a 100 line km 2D seismic survey on the 100%
Company owned Kymbozhyuskaya block.
    In Azerbaijan, interpretation of the 245 sq km 3D survey on the Coastal
block and the 407 line km 2D survey on the Central and Northern blocks of the
SW Gobustan EDPSA area, in which the Company holds a 29.7% interest, is
nearing completion.

    Current operations

    Group production averaged 12,199 boepd, an increase of 30% compared to
the corresponding period in 2007 and up 2% from 11,948 boepd in the first
quarter of 2008. Increases in production in Russia over the first quarter of
2008 were offset by the reduction in Kazakhstan caused by appraisal drilling
in Kazakhstan, coupled with the regulatory constraints on our two main
producing blocks where we are in the process of transitioning to the
production stage of the contract. This transition, which once completed should
allow both the resumption of development drilling and the immediate resumption
of production at full capacity, is expected to occur in the third quarter for
Besbolek and in the fourth quarter for Akzhar.
    An initial exploration well has been drilled at the Company's East
Zharkamys III exploration block and a second well is underway. The first well
encountered salt at a much higher elevation than anticipated, highlighting
issues with connecting existing subsurface mapping to surface locations and
pointing to the need for further subsurface study work as contemplated in the
second half of 2008, together with further shallow exploration drilling.
    The new Karsak facility was opened in May 2008, giving the Company total
throughput independence for the export of its Atyrau area production
(currently primarily Besbolek) and will result in reduced losses and savings
in processing costs amounting to an overall saving of approximately $5 per
barrel. The Company also expects to break ground on the installation of the
65 km Akzhar - Kenkiyak pipeline and custody facility, which is expected to be
commissioned in the first half of 2009, with an initial capacity of
approximately 13,500 bopd.
    In Russia, at North Irael, the Company successfully transitioned to the
development phase following approval of the technical scheme of development.
Also at North Irael, the exploration well no. 64 has encountered oil in a
previously undrilled pool in the centre of the block. Oil was also encountered
at a deeper horizon than previously found, adding to reserves as well as
proving up oil in the expected productive horizon. The well is currently
producing approximately 500 bopd of natural flow from the primary target
horizon. An offset well, No. 641, is currently being drilled.
    At the Company's more mature 50% owned PechoraNefteGas ("PNG"), 4 wells
and 4 sidetracks have been drilled so far in 2008 with a 100% success rate.
The Sotchemyu-Talyu side-track wells were drilled for the first time using our
own drilling rig. The side tracks have been drilled using PNG's own drilling
rig and crew, with attendant reduction in costs and technical risk, and
enabling PNG to increase total recovery by targeting undrained attic oil and
other unswept pockets.
    In Azerbaijan, pilot production is continuing while both Arawak and the
operators CNPC process re-mapping of the blocks with the aid of the 2007
seismic data.

    Financial overview and current outlook

    Overall, while net income remains at near record levels, our results are
not fully reflective of the current high-price environment, largely because of
the imposition of an export customs duty in Kazakhstan. In the Company's view,
this duty should not be applicable to tax-stabilised contracts and, while
paying this duty, we are disputing its applicability. At the same time,
domestic sales in Kazakhstan have been running at 40%, well above the 15%
level required by contract. The government of Kazakhstan is making known to
producers its preference for higher levels of domestic sales and it is
therefore to be expected that the Company's domestic sales will average more
than 15% over 2008. Further changes in the Kazakhstan hydrocarbon tax
environment are expected, with likely implementation in early 2009. Whether
the changed tax environment will be applicable to Arawak's older, stabilised
contracts remains to be determined. Overall, the new legislation is likely to
be less favourable to the producer than the older, stabilised terms, but may
represent at least a clarification if not an improvement on the current,
rather unclear environment.
    In Russia, following falls in total national oil production and extensive
discussion of the tax applicable to oil producers, an adjustment was made to
the united tax on production such that Arawak's total tax burden has dropped
by just over $1 per barrel. Although a relatively small decrease, it
represents a welcome step in the right direction and it is possible that
further adjustments may be made to stimulate production and incentivise
exploration.
    While Arawak's production in Russia is expected to continue to build, the
level of the Company's production in Kazakhstan is less predictable, being
heavily dependent on the timing of the approval of the transition to
production phase for both the Besbolek and Akzhar fields. Total group
production in the second half of 2008 may therefore not increase much beyond
an average of 13,000 bopd.
    Exploration drilling activities will continue in Kazakhstan in the East
Zharkamys III block, where no current production or reserves have been
established, and in the new Tamdykol exploration block, where it is planned to
re-enter old wells. Subject to Russian regulatory approval being obtained in
time, an exploration well may also be drilled on the new South Sotchemyu block
later this year.
    Management is pleased with operational performance and is using the
Company's strong cash flows to expand both the scope and the intensity of our
businesses.

    Notes to editors

    Arawak's Common Shares are listed for trading on both the TSX and LSE
under the symbol "AAK". The Company is engaged in the exploration, development
and production of oil and natural gas in Kazakhstan, Russia and Azerbaijan. In
Kazakhstan, the Company holds five producing fields and two exploration
blocks. The Company has a 40% participating interest in the Saigak producing
block acquired in June 2008. The remaining assets are held through its 100%
wholly-owned subsidiary Altius Energy Corporation ("Altius"). Altius' main
producing fields are Akzhar and Besbolek with smaller fields at Karataikyz and
Alimbai. The two exploration blocks East Zharkamys III and Tamdykol are also
situated in western Kazakhstan. Arawak's producing assets in Russia are held
through ZAO PechoraNefteGas ("PNG") and LLC NK Recher-Komi ("Recher-Komi") in
which Arawak has a 50% interest with the remaining interest being held by
Lundin Petroleum AB. Also in Russia, Arawak holds a 100% interest in the
Kymbozhyuskaya exploration block and in the South Sotchemyu appraisal block.
In Azerbaijan, the Company's asset is its interest in the EDPSA for the South
West Gobustan oil and gas fields. CGL, a company registered in Anguilla,
British West Indies, in which the Company has a 37.17% interest, holds an 80%
interest in the EDPSA with the remaining 20% held by an affiliate of SOCAR.
The remaining 62.83% share in CGL is held by two affiliates of the project
operator, CNPC.
    This announcement includes "forward-looking statements", which are based
on the opinions and estimates of management at the date the statements are
made, and are subject to a variety of risks and uncertainties and other
factors that could cause actual events or results to differ materially from
those projected in the forward-looking statements. These risks and
uncertainties include, but are not limited to, risks associated with the oil
and gas industry (including operational risks in development, exploration and
production; delays or changes in plans with respect to exploration or
development projects or capital expenditures; the uncertainty of reserve
estimates; the uncertainty of estimates and projections in relation to
production, costs and expenses and health, safety and environmental risks),
the risk of commodity price and foreign exchange rate fluctuations, the
uncertainty associated with commercial negotiations and negotiating with
foreign governments and risks associated with international activity. Although
Arawak believes that its expectations represented by these forward-looking
statements are reasonable, there can be no assurance that such expectations
will prove to be correct. Additionally, the estimates of reserves and future
net revenue for individual properties may not reflect the same confidence
level as estimates of reserves and future net revenue for all properties, due
to the effects of aggregation. A barrel of oil equivalent ("boe"), derived by
converting gas to oil in the ratio of six thousand cubic feet of gas to one
barrel of oil, may be misleading, particularly if used in isolation. A boe
conversion is based on an energy equivalency conversion method primarily
applicable at the burner tip and does not represent a value equivalency at the
wellhead. Due to the risks, uncertainties and assumptions inherent in
forward-looking statements, prospective investors in the Company's securities
should not place undue reliance on these forward-looking statements. For a
detailed description of the risks and uncertainties facing Arawak, readers
should refer to Arawak's Annual Information Form as filed at www.sedar.com.




For further information:

For further information: Arawak Energy Limited, Tel: +44 (0) 20 7973
4285, Alastair D. McBain, President & Chief Executive Officer, Charles R. A.
Carter, Chief Financial Officer, E-mail: info@arawakenergy.com, Web:
www.arawakenergy.com; Brunswick Group LLP, Tel: +44 (0)20 7404 5959, Patrick
Handley

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