West Africa Energy to Acquire Option on Russian Assets

The board of West Africa Energy Inc. (WAE) has entered into a letter agreement with Arax Energy Inc. setting forth the terms under which WAE may earn an option to acquire a material interest in two petroleum exploration licenses (the "Transaction") covering an area of 130 sq kilometers in the Azov-Kuban petroleum province in south-west Russia which is considered one of the oldest and most prolific petroleum-producing regions in Russia. The first well is currently being drilled on the South Temryuk property.

The Properties

The South Temryuk and Protoka properties (the "Properties") are located in the Azov-Kuban petroleum province in south-western Russia close to the city of Krasnodar, near the Sea of Azov and the Black Sea. The area is considered to be one of the most prolific petroleum-producing regions in Russia with the first well drilled in 1864 and exploration and production continuing today.

The South Temryuk property is surrounded by producing oil and gas fields, including: the Kurchanskoye field, owned by Rosneft, which is contiguous to the east and has produced over 80 million barrels of oil; Bely Hutor field, owned by Neftebitum, which is contiguous to the south and has produced over 30 million barrels of oil; and the Strelchanskoe field, owned by Rosneft, to the west which has produced over 20 million barrels.

There are multiple potential reserve horizons including a zone between the depths of 3,400 meters and 3,920 meters where, contiguous to the South Temryuk license to the north, Rosneft has drilled four wells over the last 12 months with published production rates from the first well of 450 tonnes (3510 barrels) a day of light sweet crude plus gas and condensate. Rosneft is a vertically-integrated Russian oil and gas company with upstream and downstream operations in each of Russia's oil-producing regions. Headquartered in Moscow, it is among the world's largest publicly traded oil companies in terms of proved oil reserves (14.9 billion barrels) and among the top ten globally in crude oil production.

The Protoka property is contiguous to the Morozkoe producing oil and gas field owned by Gazprom, that has a high concentration of condensates and has historically produced over 100 million barrels of oil equivalent ("BOE's") of liquids and gas. Additionally, it is close to two other smaller fields: the Sladkovskoye field owned by Gazprom which is 200 meters to the south; and the Sever-Celennoe field owned by Kuban Neft Resources which is 20 kilometers to the north-east. These two fields have together produced over 36 million barrels of condensate and 5.7 billion cubic meters (200 billion cubic feet) of natural gas. The Protoka license is for depths below 1,500 meters and newly-acquired 3D seismic data appear to show structures of interest below that depth. Protoka is within 20 kilometers of the coast, 120 kilometers from the oil port of Temryuk and one kilometer from gas infrastructure owned by Gazprom.

Technical Information on the Properties

The rich shale source rock that generated the prolific oil resources of the Caspian Sea, extends from the Caspian Sea under the properties and is the source of the oil and gas produced in the Azov-Kuban province. Overlying this source rock, multiple sandstone reservoirs of a lenticular nature provide potential structural and structural-stratigraphic traps. New technology now allows the stratigraphic traps to be identified and mapped.

Modern 3D seismic data were acquired by Posik Geoorazvedka, which is affiliated by Krasnodar Geophysics, over both Properties during 2006, together with induced-polarization surveys that locate surface indications of hydrocarbon micro-seeps. In the South Temryuk license permit, processing and interpretation of the 3D seismic data show seismic amplitude anomalies in multiple reservoir horizons, indicating the possible presence of stratigraphically-trapped hydrocarbons. The geographic locations of some of these anomalies coincide with anomalies in the induced-polarization surveys, providing further evidence of the potential for hydrocarbons. In total, five prospects have been identified in the South Temryuk area. Mapping of the Protoka permit is in progress and structural leads have already been identified.

The first well on the South Temryuk license has been spud, targeting 5 zones of interest between 600 meters and a planned total depth of 3,920 meters.

Proposed Transaction Terms

Under the terms of the Letter Agreement, WAE has the right to acquire from Arax a 50% share interest (the "Share Interest") in Vozrozhdeniye Limited a Russian private company that is the 90% shareholder of Tecnotron Limited a Russian private company that is the 100% owner of South Temryuk and Protoka hydrocarbon exploration licenses. As a result, the Share Interest represents a 45% indirect ownership in the oil and gas fields represented by these two licenses.

WAE can earn the right to acquire the Share Interest by paying the following work commitment costs:

1. US$4,000,000 to Arax, which represents an estimated 50% of the costs of an initial well currently being drilled on the South Temryuk property; and

2. Should WAE choose to continue its participation in the properties, paying 25% of the costs of a second well to be drilled on the South Temryuk property in 2008.

Upon completion of these commitments, WAE will earn a 10% share interest in Vozrozhdeniye Limited and a 22.5% interest in the first and second wells drilled (subject to dilution in the event that WAE does not contribute to any additional drilling costs). In addition, on completion of these commitments, WAE will earn the right to acquire the Share Interest, which will give WAE a 45% indirect ownership interest in the oil and gas fields represented by the South Temryuk and Protoka hydrocarbon exploration licenses, by issuing 30,000,000 common shares of WAE to Arax. If WAE chooses to exercise the option and acquire the Share Interest, WAE will, in addition to issuing to Arax the 30,000,000 common shares, agree to pay to Arax bonus payments of US$2,000,000 for each 10,000,000 BOE's of proven reserves discovered on each of the properties.

Should WAE decide not to exercise the option to acquire the Share Interest, Arax has the right, for a period of 180 days, to re-purchase WAE's 10% share interest and its 22.5% interest in the two wells by making a cash payment to WAE equal to two times the aggregate work commitment payments that WAE has made.

The completion of the Transaction is subject to the negotiation of definitive documentation and other conditions including:

Arax or its associates or affiliates irrevocably subscribing to purchase, as soon as reasonably possible following the signing of this Letter Agreement, an aggregate of at least 8,000,000 units (each a "Unit") of WAE at a price of C$0.45 per Unit with each Unit consisting of one common share of WAE and one share purchase warrant of WAE with each whole share purchase warrant of WAE being exercisable to acquire one additional common share of WAE at a price of C$0.60 for a period of two years.

1. WAE completing a private placement financing of a minimum of C$5,400,000 at a minimum price of C$0.45 on or before February 28, 2007; and

2. The completion to WAE's sole satisfaction with its due diligence review of the technical, financial and legal aspects of this Letter Agreement to be completed on or before February 28, 2007. At any time up to 4pm (PST) on February 28, 2007 WAE may terminate this Letter Agreement by notice in writing to Arax if the results of its due diligence are not satisfactory to it, in its sole discretion;

3. The receipt of all necessary regulatory approvals including the acceptance of the Transaction by the TSX Venture Exchange; and

4. Accuracy of the representations and warranties of Arax as set forth in the Letter Agreement.

Proposed Private Placement

Subject to TSX Venture Exchange acceptance, WAE proposes to complete an initial private placement of up to 8,000,000 Units at a price of C$0.45 per Unit for gross proceeds of up to C$3,600,000 on the terms set forth above.

West Africa Energy is focused on acquiring hydrocarbon assets in areas where the application of new technology and concepts can find new hydrocarbon reserves. Our strong acreage holdings in the Mesozoic-age Gao graben in Mali provide very exciting long-term potential. Management of WAE believes this new opportunity in southern Russia will have a high impact on WAE bringing the near-term possibility of a hydrocarbon discovery and production.