Pan Andean to Begin Drilling in Gulf of Mexico Shortly

Pan Andean Resources says that drilling of an exploration well on block High Island 52 in the Gulf of Mexico will commence within the next seven days. The well will be drilled by the company's farm in partner, Phoenix Exploration. In 2006 a farm in deal was agreed with Phoenix Exploration, whereby they have an option to drill the deep plays on most of block HI 52. Pan Andean holds a 2.15% royalty. Under the terms of the deal, Pan Andean will also benefit from the release of abandonment liabilities.

The well will take about a month to complete and will be drilled to a depth of around 8000 feet. The well is a side track well and will target a zone expected to have gas reserves. If successful, the well will be tied back to existing facilities and will be put into production. Additional exploration wells, targeting deeper zones, may be considered by our farm in partner.

Pan Andean holds a 50% working interest in HI 52 and a 1.32% royalty on lease number 508, located in the north east quarter of the block. Lease number 508, was farmed out in 2000 to Gryphon Exploration. Gryphon drilled three successful wells currently producing gas. The royalty to Pan Andean from this production is in excess of $150,000 a month.

Managing Director, David Horgan said:

Our US assets continue to provide important cash flow to Pan Andean while also having upside potential. We are delighted that Phoenix has seen the opportunity of HI 52 and have been able to obtain a drilling rig.

We are also continuing to work with our partner Hunt Oil to bring HI 30 back online. A jackup rig is repairing leaks in the pipeline to shore. These leaks were discovered while testing the pipeline prior to production. This work is expected to be completed within weeks and following successful testing production is expected to commence.