Petro Andina Picks Up Exploration, Production Rights for 4 Colombian Blocks

Llanos Basin, Colombia
(Click to Enlarge)

Petro Andina Resources Inc. has announced that the Agencia Nacional de Hidrocarburos de Colombia or Colombian National Hydrocarbons Agency (ANH) has posted confirmation that Petro Andina was the successful bidder for the right to negotiate for Exploration and Production Contracts on four exploration blocks in the Republic of Colombia at the Colombia Mini Round 2008.

Petro Andina acted under a Joint Bidding Agreement with its partner, Columbus Energy (Columbus), a wholly owned subsidiary of Remora Energy International, L.P., a company already established and active in Colombia, to take Blocks LLA-16, LLA-20, LLA-29 and LLA-30 in the prolific Llanos Basin. Under the terms of the Mini Round 2008, bidders committed to a minimum work program proscribed for each block and then bid a supplemental work program plus an "X-Factor" or additional royalty.

Petro Andina will be operator of record of the blocks with a 50 percent working interest. The four blocks cover an area of approximately 495,000 gross acres, and each have exploration periods of six years comprised of two, three-year phases. The first exploration phase will involve the acquisition of three dimensional (3D) seismic data and the drilling of exploration wells by Petro Andina and Columbus. The total net cost to Petro Andina to complete this exploratory work is approximately US $46 million. In addition to the work commitments, Petro Andina and Columbus bid an X-factor of one percent (equivalent to a one percent royalty) to the ANH.

Petro Andina's long-term business development strategy has been to identify countries with favourable fiscal regimes and good potential for significant oil discoveries. The acquisition of these exploration blocks in a highly prospective basin provides Petro Andina with an excellent opportunity to further expand its exploration portfolio in the Company's core Latin America/Caribbean region. The newly acquired blocks have world-class exploration potential in an established oil producing region.

Blocks 16 and 20 surround an existing 50 million barrel oil field, discovered in 1974. The blocks currently have approximately 1,300 kilometers of existing two-dimensional (2D) seismic data which show several promising leads.

Blocks 29 and 30 are on trend with the Oropendola block which is owned 100% and operated by Columbus. Collectively, these blocks have approximately 650 kilometers of existing 2D seismic data and evaluation of the blocks was conducted with the benefit of 3D seismic and well information from the adjacent Columbus lands.

"Our new acreage in Colombia provides an excellent complement to our established Argentina core area and our longer term exploration position in Trinidad", said Wayne Foo, president of Petro Andina. "The area offers relatively low risk structural leads typical of the Llanos Basin as well as higher risk potential for larger accumulations. Project cycle times are relatively short and the fiscal regime under the Mini Round terms are excellent."

Colombia has a well established oil and gas industry with 1.6 billion barrels of remaining proved recoverable oil reserves at year-end 2007 and current production of approximately 528,000 barrels of oil per day. The fiscal terms are governed through concession agreements with the ANH that were established in 2004 and involve the payment of royalties and taxes. The Contractor holds 100 percent of the rights to production once the royalty and X-factor are paid. The Colombia fiscal regime is considered to be one of the most favourable in the region.

The Blocks will be subject to standard ANH contracts and Petro Andina anticipates signing the contracts in the first quarter of 2009, pending final approval of the Directive Counsel of the ANH.

Under the Company's 2009 budget projections, Petro Andina anticipates that its operations in Argentina will generate positive cash flow in excess of the reinvestment required in Argentina. This free cash flow stream, together with cash on hand, is available to be deployed to fund the Company's commitments in Colombia as well as other new business development activities in Argentina and Trinidad. The Company has flexibility with respect to the amount and timing of its capital investment in Trinidad and Colombia.



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