The Company is providing its independent reserves evaluation based on an evaluation completed by Ryder Scott Company and prepared in accordance with NI 51-101, using the deterministic method of reserves estimation and effective December 31st, 2003.
According to this evaluation, the South West Gobustan EDPSA area has gross proved reserves of 51.6 million barrels of oil equivalent ("boe") and total gross proved and probable reserves of 135.4 million boe. These numbers can be further broken down as gross proved oil reserves of 15.8 million barrels of oil ("bbls") and 214,650 million cubic feet of gas ("mmcf'"), and on proved plus probable basis as 66.6 million bbls and 412,933 mmcf. The net interest to Arawak is 31.4 million boe proved and probable reserves.
The Company's future net income attributable to proved and probable reserves assuming constant prices and costs and discounted at 10% is estimated at US $134 million. This value has been calculated as a before tax figure for the purposes of comparability, although under the EDPSA terms the state levies taxes in oil and gas rather than cash.
The results of the reserves evaluation completed by Ryder Scott Company differ significantly from the estimates of reserves which were given in the "Review of the South West Gobustan Concession" prepared by PGS Reservoir Consultants (U.K.) Ltd. ("PGS") in 2001. There are three major factors which should be borne in mind in considering the two reports:
Management believes that the seismic program which has just been completed over the Coastal block will provide useful new information on the complex geology of the block and are hopeful that the wells to be drilled later this year on this block and which are expected to have a high exploration component will be successful in adding to the proved reserve inventory.
Gobustan Operating Company Ltd. is the operating subsidiary for the development of the South West Gobustan fields covered under the EDPSA with the State Oil Company of the Azerbaijan Republic, in which Commonwealth Gobustan Limited ("CGL") has an 80% interest, with the remaining 20% held by SOCAR Oil Affiliate. Arawak Energy Corporation owns 37.17% of CGL and the balance is held by China National Petroleum Company ("CNPC") group companies.
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