Pan Andean Drilling in Peru Yields High Potential at a High Cost

Recent months have been a period of intense activity in both the US and South America. Our strategy of using our US assets to fund our exploration in South America is working. Our success in obtaining three quality exploration blocks in Peru, thereby becoming one of the largest land holders, has paid off. A number of international oil companies have approached us to joint venture our ground.

Whilst we continue to conduct activities, particularly on Block 114 in Peru, taking a partner will expedite exploration operations, driving towards drilling in 2009 and will reduce financial expenditure. Drilling in the Peruvian jungle has high potential but has high costs.

We are at a very advanced stage in agreeing a farm-in with a major international company on Blocks 114 and 131 in the Ucayali Jungle area of Peru. This will see our partner become operator in return for a significant carried interest for Pan Andean. An announcement is expected in the near future.

Our work in Colombia finally paid off when we were awarded the Antorcha Block in the oil prolific Middle Magdalena Basin. Preliminary studies suggest significant quantities of 10 to 20 API oil at depths of less than 2000 feet. Initial work is ongoing. Here again there is joint venture interest.

In August 2007 Phoenix Exploration Inc. successfully drilled an exploration well to a target depth of 8,700 feet and encountered over 160 feet net pay of hydrocarbon column in three separate sections. Production commenced in November at 5 million cubic feet of gas per day (mcfd), is currently producing at 6 mcfd and is expected to increase to 10 mcfd over the next few months. Phoenix has a team reviewing all available data, seismic etc. with a view to drilling a deep well in 2008. They have now earned into the block and have taken over the platform and related abandonment liabilities; estimated at U.S. $6 million. Pan Andean holds a 2.15% revenue royalty on all wells to be drilled by Phoenix.

The long-awaited restart of production on HI 30 L (62.7% Pan Andean) has again been delayed due to leaks in the Tammany-owned pipeline which transports oil from HI 24 to shore. Production started on Nov. 11, 2007 but had to stop almost immediately as leaks were discovered on the four and a half mile pipeline belonging to Tammany Oil.

Production is now expected to restart in the first quarter of 2008 when repair work on the pipeline is completed. We expect production to start at over 300 barrels of oil per day. Since March 2007 the platform has been completely refurbished and gas lift installed. We are in the process of abandoning a number of the old obsolete wells on the block.

Higher gas prices have driven a 7.8% increase in turnover in the period, from 818,000 to 882,000 in the same period last year. Pan Andean remains one of the very few profitable oil & gas producing companies listed on AIM, with a rise in PBT of 3% to 451,000 from 437,000.

Pan Andean has a portfolio of exploration opportunities, the quality of which is seen in the parade of potential partners. We will select partners with the technical and financial muscle to expedite state of the art exploration on our three Peruvian blocks and potentially on our Colombian block.


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