Arawak Reports Strong Second Quarter

Arawak Energy Corporation

Arawak Energy Corporation (the "Company" or "Arawak") said that it had a very positive second quarter, which following the strong first quarter provides the Company with an excellent first half year result both in absolute terms, with retained earnings appearing on the balance sheet for the first time in the Company's history, and relative to the same periods of last year.

These results were driven by increases in both production volumes and revenue. Average daily production in Kazakhstan and Russia was 7,544 barrels of oil per day ("bopd") in Q2 2006, which was up 18% from 6,369 bopd in Q1 of 2006 and up 32% from 5,730 bopd in the second quarter 2005. Output in Kazakhstan and Russia recently exceeded 9,000 bopd, due to gains in production capacity in Kazakhstan. Arawak is currently engaged in construction projects to increase oil processing capacity at the Akzhar and Besbolek fields to ease the main bottleneck to production in Kazakhstan. Production of oil and gas in Azerbaijan remains at the pilot stage.

At $34.0 million, revenue from the sale of 660,651 barrels of crude oil from Kazakhstan and Russia in Q2 2006 was up 147% from the same period of 2005. Net income in the quarter saw a near nine-fold increase on the year to $5.0 million, (2.9 cents per share on a diluted basis), while cash flow from operations was up 261% from the previous year at $11.2 million, 6.4 cents per share on a diluted basis. Results for the first half year 2006 follow a similar pattern, with revenues of $61.7 million (an increase of 127% over the first half year 2005), net income of $10.3 million (a seven-fold increase) and cash flow from operations of $22.1 million (up 250%).

Capital investment for Q2 2006 was $21.6 million, reflecting the acquisition of the interest in the North Irael field in Russia which closed on June 27, 2006 with the addition of $8.5 million of property and equipment, and ongoing capital investment of $13.1 million in the Company's other fields in Kazakhstan, Russia and Azerbaijan, in line with the Company's annual budget.

Production from Kazakhstan, which is becoming the main focus for the Company's growth, outstripped Russia for the first time during 2006. Arawak expects the rate of production growth in Kazakhstan to continue to exceed Russia over the next two years. The Company's smallest field in Kazakhstan, Karataikyz, was put back on full production in Q2 2006, following the approval of the Technical Plan of Development, and is now producing over 350 bopd. Total production from Kazakhstan in this quarter was 4,053 bopd, up 35% from the preceding quarter.

Further increases in production in Kazakhstan are expected upon completion of a new central processing facility serving the Akzhar field and upgrading of the processing facilities for the Besbolek field, both scheduled for Q3 2006. The Company has drilled the first two high angle wells in the Besbolek field and is drilling a third. Each of the first two wells has over 100 meters of net pay, and together they are expected to significantly add to the production capacity of Besbolek (currently 1,600 bopd) upon their perforation and completion, expected later this month.

Interpretation of 22 sq km 3D seismic acquired on the Besbolek field in second quarter 2006 continues, with results expected before the end of the third quarter. The acquisition phase of the larger 75 sq km 3D seismic survey on the Akzhar field has been completed, and data processing is commencing. Interpreted results are expected in Q1 2007.

In Russia, where the Company operates through its joint venture ZAO PechoraNefteGas ("PNG"), mixed results of recently drilled development wells caused PNG to slow down development drilling pending results of additional technical studies on the Sotchemyu - Talyu fields.

Also in Russia, production has commenced from the newly-acquired North Irael field, and following the workovers of existing wells, output has reached over 750 bopd (375 bopd net to Arawak). More workovers are taking place, and production is expected to continue to grow. An additional prospect is being drilled, with the well spudded earlier this month.

In Azerbaijan, pilot production of oil and gas continues, with the installation of line heaters expected this month to facilitate the tie in of the first of the two high capacity gas wells, Duvanny 102, so that higher production rates can be achieved in the fourth quarter 2006.

A tender has also been awarded for a 180 sq km 3D seismic survey over the relatively well defined Coastal block of the South West Gobustan Exploration Development and Production Sharing Agreement area, as well as a 200 km 2D seismic survey over the remaining Central and Northern blocks.