Arawak announces Q2 2007 results and operations review



    TSX TRADING SYMBOL: ABG

    ANGUILLA, British West Indies, Aug. 14 /CNW/ -

    
    HIGHLIGHTS:
    -----------
    (In US dollars unless otherwise stated)

      - Arawak's production continued to grow averaging 9,404 boepd in the
        second quarter of 2007, an increase of 25% from average production of
        7,544 bopd in the same period of 2006 and up 4% from the average of
        9,088 bopd produced in the first quarter of 2007, despite
        unseasonably harsh weather conditions in both Russia and Kazakhstan.

      - Arawak initiated an aggressive drilling campaign in the second
        quarter of 2007 with a record eight drilling rigs active in
        Kazakhstan and Russia. A total of 37 wells are planned to be drilled
        in 2007 in Kazakhstan alone which compares with the total producing
        well stock of 47 wells at the start of the drilling campaign. An
        additional 12 wells are planned to be drilled by Arawak's 50% owned
        subsidiaries in Russia.

      - Arawak's current drilling campaign has resulted in the drilling of
        the successful exploratory test well no. 50 in Kazakhstan which has
        discovered oil in a previously untested structure in the down-faulted
        southern Besbolek block. Based on the Company's preliminary
        assessment, this play could add between 3 and 6 million barrels of
        proved and probable reserves to the Besbolek block.

      - Funds from operations fell slightly to $7.2 million in the second
        quarter of 2007, due primarily to a large Kazakhstan export sale
        being booked the third quarter, resulting in both a larger proportion
        of domestic sales, which are at significantly lower prices, and a
        significant increase in inventory.

      - Arawak announced the acquisition of a 40% stake in the Saigak field
        in Kazakhstan, currently producing around 3,500 bopd gross in an all
        share transaction expected to close in the fourth quarter.


    FINANCIAL HIGHLIGHTS
    --------------------

    (In thousands, except per share amounts)
    For the three months ended June 30                      2007        2006
    -------------------------------------------------------------------------
    Crude oil sales                                      $30,650     $33,975
    Net income                                              $308      $5,026
      Per share - basic                                   $0.002      $0.029
      Per share - diluted                                 $0.002      $0.029
    Funds from operations(*)                              $7,245     $11,171
      Per share - basic                                   $0.042      $0.064
      Per share - diluted                                 $0.041      $0.064
    Capital expenditure                                   $9,850     $21,553
    Shareholders' equity                                $132,039    $122,211
    Shares outstanding - basic                           173,592     173,283
    Shares outstanding - diluted                         174,988     174,758
    Weighted average shares - basic                      173,568     173,280
    Weighted average shares - diluted                    174,964     174,755
    -------------------------------------------------------------------------
    (*) Funds from operations is a non-GAAP measure that represents cash
    generated from operating activities before changes in non-cash working
    capital.


    OPERATIONAL HIGHLIGHTS
    ----------------------

    For the three months ended June 30                      2007        2006
    -------------------------------------------------------------------------
    Production - boe                                     855,743     686,525
    Average daily production - boe                         9,404       7,544
    Sales - boe                                          712,296     660,651

    Revenue and expenses per boe sold
    ---------------------------------
    Crude oil and gas sales                               $43.03      $51.43
    Interest and other income                              $0.69       $0.31
    Royalties and taxes                                  ($11.86)    ($11.41)
    Production costs                                      ($4.84)     ($3.70)
    Transportation and selling expenses                   ($5.02)     ($4.99)
    Net operating income                                  $22.00      $31.64
    -------------------------------------------------------------------------
    

    FINANCIAL AND OPERATIONAL REVIEW
    --------------------------------

    Arawak Energy Corporation ("Arawak" or the "Company") enjoyed an increase
in production of 25% to 9,404 barrels of oil equivalent per day ("boepd") on
average in the second quarter of 2007 compared with the corresponding quarter
of 2006, and up 4% over the first quarter of 2007. This figure includes, for
the first time, production of 293 boepd from Azerbaijan, where commercial
operations have now commenced.
    Sales volumes however fell 14% from 826,973 barrels of oil ("bbls") in
the first quarter of 2007 to 712,296 barrels of oil equivalent ("boe") in the
second quarter. This was mostly due to a large export sale from Kazakhstan of
approximately 159,000 barrels being in transit at the quarter end, with the
sale being booked in early July.
    The extraordinary weather conditions in Kazakhstan that were reported in
the first quarter of 2007 persisted until mid May, and continued to impede
production until that time. By the end of June however, production had
recovered to 9,848 boepd and at the date of this report, was in excess of
11,000 boepd. The weather conditions also necessitated additional ex-field
domestic sales in Kazakhstan during the period because road conditions were
too poor to truck oil to the export pipeline entry point, some 75 kilometres
from Arawak's biggest producing field in Kazakhstan. Domestic sales are at
significantly lower prices than export sales and are consequently less
profitable.
    Together these factors had a negative effect on profitability and
cashflow in the second quarter of 2007. Sales were $30.7 million in the second
quarter of 2007 (compared with $34.0 million in the corresponding quarter of
2006 and $35.8 million in the first quarter of 2007), while net income was
$0.3 million (compared with $5.0 million in the second quarter of 2006 and
$1.3 million in the first quarter of 2007). Funds from operations were
$7.2 million in the second quarter of 2007 and capital expenditure was
$9.9 million.
    Now that commercial operations in Azerbaijan have commenced, Arawak has
begun to recognise its share of the income and expenditure of the Azerbaijani
operations in Arawak's own consolidated income and expenditure statement. In
the second quarter of 2007, the Azerbaijani operations contributed a loss of
$0.3 million to the consolidated result of Arawak for the period. Up until
now, Arawak has reflected the result of its Azerbaijani operations through
their carrying value in Arawak's consolidated balance sheet.
    Production would have risen further had it not been for extraordinary
weather conditions in both Kazakhstan and Russia. In Kazakhstan, throughout
the first six weeks of the quarter, operations in both the Akzhar and Besbolek
fields suffered from weather-related downtime, with the melting of a record
winter snowfall. By mid-May, trucking and oil transportation services were
normalised. However, Russia recorded the "wettest" May on record, with both
rain and snow storms, which significantly disrupted operations there. While
production in the Sotchemyu-Talyu fields was quite stable due to the existing
closed intra-field pipeline network, production at the North Irael field,
acquired in 2006 suffered curtailment due to reliance on trucking to the
Central Processing Facility ("CPF) located at the neighbouring Sotcheymu -
Talyu fields.
    In the second quarter, Arawak has significantly ramped up its drilling
campaign both in Kazakhstan and Russia. Presently, there are eight active
rigs, a record, with four in each country.
    In Kazakhstan, two rigs are now active at Akzhar and to date seven wells
have been drilled in the northern structure. The program has been successful
in expanding the lateral extent of the field and also establishing commercial
production in the Upper Barem interval. With interpreted 3D seismic mapping
completed over the full expanded 71.5 km(2) block area now available, Arawak
plans to drill an additional nine wells at Akzhar this year, some of which are
largely exploratory in nature.
    At Besbolek, where 3D seismic mapping over half the block was completed
at the end of 2006, a two-rig drilling program is underway with permits
received to drill eighteen wells. Arawak is targeting four entirely new leads,
two possible extensions to existing structures, as well as numerous new
drilling locations in this block. To date, six wells have been drilled and
completed at Besbolek of which five were successful. One of the exploratory
successes was well no. 50 which has discovered oil in a previously untested
structure in the down-faulted southern Besbolek block. Open hole logs have
established three hydrocarbon-bearing intervals. The primary oil accumulation
was encountered in the upper Triassic sediments within the lower interval of
347 - 379 metres with gross sand thickness of 33 metres and effective net pay
of approximately 30 metres. On July 19, the well was perforated in the Upper
Triassic interval and initially tested 90 bopd on a 3 millimetre choke.
Extended flow testing indicates that the optimal producing regime is a natural
flow of 225 bopd on a 5 millimetre choke and no water cut. The well produces
light crude oil 30O API and is the only naturally flowing well in our stock.
This discovery, which in the Company's preliminary assessment adds between 3
and 6 million barrels to the proved and probable reserves in the Besbolek
block, was confirmed by a successful follow up well no. 51.
    The four-rig program will continue in Kazakhstan through the third and
fourth quarter where the Company remains on target to drill approximately 37
wells in 2007.
    Prospects for increased production in Kazakhstan were also boosted by the
completion of a new CPF at Arawak's second biggest producing field in
Kazakhstan, Besbolek. At a cost of around $700,000 and with a planned capacity
to handle up to 5,000 bopd, the CPF came online to produce sales quality crude
oil in the first quarter of 2007 and is currently able to process 3,000 bopd.
Meanwhile, to alleviate a potential bottleneck in access to the main
KazTransOil export pipeline system for Besbolek and Karakaityz, the
construction of a Company-owned custody point at the KazTransOil station is
underway and scheduled for completion in the fourth quarter of 2007.
    In Russia, Arawak continued drilling at the Sotchemyu-Talyu fields in the
second quarter following the re-interpretation in 2006 of existing seismic
data. Three new wells were successfully drilled there in the second quarter of
this year and have been put on production.
    In the second quarter of 2007, Arawak announced that it has entered into
an agreement with Vitol BV, subject to certain conditions, under which the
Company is expected to acquire a 40% interest in the Saigak field in Western
Kazakhstan. The Saigak field is located approximately 120 km from Arawak's
existing Akzhar field in the Aktyubinsk region of Western Kazakhstan and is
operated by Maersk Oil Kazakhstan GmbH, which owns the remaining 60% interest.
    Arawak expects to issue to Vitol BV 8,352,587 common shares in
consideration for this transaction at a price of C$2.9517 per share determined
by the 10-day volume weighted average price of Arawak shares prior to the date
of the agreement. The effective date of the transaction will be January 1,
2007 and the final number of common shares to be issued will be subject to an
adjustment based on net working capital.
    The Saigak field is currently producing around 3,500 bopd gross and has
original recoverable reserves of 14.6 million barrels according to the
operator's current development plan. On the same basis, net to Arawak, the
remaining recoverable reserves are estimated at 2.4 million barrels as at
December 31, 2006. The cashflow resulting from the 40% interest is estimated
at approximately $9 million net to Arawak in 2007, based on a US$65 Brent
price. Upon completion, this will represent the Company's fifth significant
acquisition in Russian and Kazakhstan since entry to those countries in
January 2005.
    A copy of Arawak's consolidated financial statements and management's
discussion and analysis for the three months ended June 30, 2007 as well as
additional information on Arawak is available on the Company's web-site at
www.arawakenergy.com and on Sedar at www.sedar.com
    The TSX does not accept responsibility for the adequacy or accuracy of
    this release.

    Arawak's common shares are listed for trading on the TSX under the symbol
"ABG". The Company is engaged in the exploration, development and production
of oil and natural gas in Kazakhstan, Russia and Azerbaijan. The Company's
three producing fields and two exploration blocks in Kazakhstan are held
through its 100% wholly-owned subsidiary Altius Energy Corporation ("Altius").
Altius' main producing field is Akzhar, extended in 2006 from 3.8 to 71.5 sq
km, with smaller fields at Besbolek and Karataikyz. The two exploration
blocks, Alimbai and East Zharkamys III, are also situated in western
Kazakhstan. Arawak's 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. In the Azerbaijan Republic, the Company's asset is its interest in the
South West Gobustan Exploration Development and Production Sharing Agreement
(the "EDPSA"). Commonwealth Gobustan Limited ("CGL"), in which Arawak has a
37.17% interest, holds an 80% interest in the EDPSA with the remaining 20%
owned by SOCAR Oil Affiliate.
    This press release 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. 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: Alastair D. McBain, President & Chief Executive
Officer, Phone: +(44) 20 7973 4285, Fax: +(44) 20 7824 8466; Charles R. A.
Carter, Chief Financial Officer, Phone: +(44) 20 7973 4285, Fax: +(44) 20 7824
8466, E-mail: info@arawakenergy.com, www.arawakenergy.com

Organization Profile

Arawak Energy Limited

More on this organization


Custom Packages

Browse our custom packages or build your own to meet your unique communications needs.

Start today.

CNW Membership

Fill out a CNW membership form or contact us at 1 (877) 269-7890

Learn about CNW services

Request more information about CNW products and services or call us at 1 (877) 269-7890