Arrow Energy Ltd.

Established in August 2001, Arrow Energy Ltd. operated as a private company for almost three years prior to its merger with 1095862 Alberta Ltd. and Red Chip Inc. in May 2004. Red Chip was a Canadian junior capital pool company listed on the TSX Venture Exchange and the takeover by Arrow constituted its qualifying transaction. The amalgamated company continued operating as Arrow Energy Ltd. and its common shares commenced trading in June 2004 on the TSX Venture Exchange under the symbol AOF. Arrow is engaged in the exploration, development, acquisition and production of natural gas and light gravity crude oil reserves in western Canada.

The company’s primary areas of exploration are located in central and southern Alberta. Arrow targets shallow natural gas zones ranging in depths from 500 to 1,500 metres with capital costs in the range of $250,000 to $400,000 per well. These prospects are typically expected to produce between 500 and 1,500 mcf/d and lower risk with easy access to pipelines. Approximately 90% of the company’s capital expenture budget is allocated for these lower risk plays. The remaining 10% is directed towards the drilling of high impact wells that could flow between 5,000 to 10,000 mcf/d.

Arrow’s producing natural gas properties are located in the Ghostpine area of central Alberta, approximately 100 km northeast of Calgary, the Redwater area, which is about 40 km north of Edmonton and the Westlock area of north central Alberta, approximately 60 km northwest of Edmonton.

At Ghostpine, Arrow has an average 50% working interest in three producing gas wells and one shut-in well. The company holds an average 53.8% working interest in a total of 2,080 (1,120 net) acres. Arrow does not own any interests in facilities in this area other than well production equipment and gathering system pipelines. The company also owns a 5% gross overriding royalty in a producing coal bed methane well. At Ghostpine during 2005, management intends to drill one (0.25 net) well and re-activate one (0.5 net) shut-in well.

In the Westlock area, Arrow has an average 48% working interest in 12,800 (6,176 net) acres and an average 57.5% working interest in four producing gas wells. Management has stated that the company has reasonable access to gathering systems and compression in the area. Arrow and its partners plan to drill up to 10 (4.6 net) additional wells in this area during 2005 and purchase up to 10 sections of mineral rights.

At Redwater, the company owns an average 39.6% working interest in 7,680 (3,040 net) acres and an average 29% working interest in seven producing wells. During 2005, Arrow and partners plan to drill up to two (0.62 net) wells.

During the first quarter ended March 31, 2005, Arrow drilled two (0.775 net) wells at Westlock resulting in one (0.275 net) gas well and one (0.5 net) dry hole. In addition, Arrow re-entered another well (0.875 net) at Sakwatama in which gas was encountered in two zones. The completion operations on this well were suspended due to an unexpected stretch of warm weather. However, once surface conditions permit, the company intends to return to this location late in the second quarter or early in the thirdquarter to finish production testing and tie-in operations.

The tie-in of the company's Neerlandia discovery was also suspended due to weather conditions during the first quarter, however, pipeline construction operations resumed in May 2005 with tie-in expected to occur in late May 2005 or early June 2005.

The company expects to achieve an output rate in excess of 400 boepd early in the third quarter through the completion, tie-in and reactivation of existing wellbores. Management has indicated that this level of production will supply sufficient cash flow to facilitate Arrow’s additional exploratory and development drilling operations. The company currently has an inventory of 12 prospects with working interests ranging from 27.5% to 100% in the central Alberta area.

As at December 31, 2004, the company had total net proved plus probable reserves of 654 mboe consisting of 3,913 mmcf of natural gas and 2.2 mboe of natural gas liquids. At the same time last year, the company’s proved plus probable reserves were 312 mboe.