Arawak has temporarily curtailed oil production at its four operated fields in Kazakhstan as a result of the continuing high taxation and export duty provisions levied by the authorities in Kazakhstan and the significant drop in international and domestic oil prices.
The imposition of customs export duty ("CED") on export sales, currently equivalent to $28.31 per barrel, combined with the recent fall in world oil prices and the collapse of the domestic market in Kazakhstan, have
Despite a court ruling in late September upholding an initial decision by the authorities to exempt the Akzhar field from CED, and a subsequent exemption from the duty in October, CED was once again demanded in November.
In common with several other smaller producers whose export economics have become non-viable, Arawak had been attempting to sell its production on the local market, which has now become saturated and prices have fallen to below the cost of production.
Crude oil production at the Akzhar, Besbolek, Karataikyz and Alimbai fields, which are each 100% held and operated by Arawak, has been reduced to the minimum levels necessary to maintain the operating capability of the processing facilities. Production and exports from the Company's non-operated Saigak field, which is governed by a production sharing agreement and exempted from CED, has not been affected.
Arawak's average net production in Kazakhstan in the third quarter was 7,198 barrels of oil per day ("bopd") from a group average of 11,887 bopd. In October, the Company embarked on a five-rig development drilling campaign at Akzhar and Besbolek following regulatory approvals for the development plans for the fields. The drilling programme resulted in a rise in the Company's total net production to approximately 13,700 bopd by the middle of November.
Following the temporary curtailment, the Company's total production in Kazakhstan, including Saigak, is expected to drop to below 2,000 bopd. The Company continues to produce 4,400 bopd from its assets in Russia.
Alastair McBain, Arawak's President and Chief Executive Officer, commented, "Unfortunately the current fiscal regime coupled with significantly lower oil prices has temporarily left us with little or no return on investment on our assets in Kazakhstan. It is therefore prudent to shut in as much production as possible until either market conditions improve or there is a change in the fiscal terms. Historically, the government has recognized the value of export oil production to the domestic economy. We continue to work with the relevant authorities on the need for a fiscal regime that encourages investment in the country's oil industry."
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