Pan Andean Inks Exploration Deal for Lot 114 in Peru

Pan Andean Resources has signed an exploration and exploitation contract with Perupetro SA (the Peruvian state oil company) on behalf of the Republic of Peru. Under this contract, Pan Andean will explore for oil/gas and if successful, produce on Lot 114 in the hydrocarbon rich Ucayali and Huanuca area of Central Peru. The concession (90% Pan Andean), which covers 770,000 hectares, is on trend with the giant Camisea gas field but is expected to be oil prone.

During the 1970's and 1980's, 4 wells were drilled on the block, all encountering oil shows, but were not developed at the time due to low oil prices. CCP consultants, technical advisors to Pan Andean, estimate that Lot 114 has a prospective resource of over 400 million barrels of oil.

The License Contract for Lot 114 includes a 7 year exploration phase, extendable for 3 additional years, and a total contract term of 30 years for oil production and 40 years for natural gas and condensate. In the initial 18 months, Pan Andean is committed to a geological study of the contract area and to the reinterpretation of 1,000 kms of existing seismic data which was mainly shot in the 1970s and 1980s.

The Pan Andean work plan for Lot 114 includes early drilling of the Rio Caco structure, which is already covered by approximately 350 kilometers of seismic lines. A discovery well in 1976 encountered good quality oil, 33¢ª API, but due to the limitations of technology then available, the well apparently hit the reservoir's flank at the oil-water contact. CCP consultants to Pan Andean, have estimated a P3 potential resource of 90 million barrels of oil recoverable in the Rio Caco structure.

Pan Andean believes that reprocessing and reinterpreting available seismic data, utilizing state-of-the-art techniques, will enable Pan Andean to optimally locate a first well, with drilling scheduled for August 2007.

The Board of Pan Andean believes that Peru has an attractive oil exploration and development environment. Impressive annual economic growth of 6% for the past 4 years is forecast to improve to 7% for 2007. Country risk, as measured by bond yields, is lower than Brazil and similar to Chile. Foreign investment is strong, particularly in natural resources, Oil and gas legislation is modern and transparent, with royalties ranging from 5% to 20% depending on production volumes. There is a corporate income tax rate of 30%.

Pan Andean has 20 years oil and gas exploration and production experience in neighboring Bolivia and has an experienced South American team headed by Mauricio Gonzales, which is well capable of fast tracking this project.

Managing Director, David Horgan, said:

"We are very pleased with this contract which represents the culmination of 2 years intensive work by our South American team. We have had good support from local technical partners and from the Peruvian authorities.

New exploration, development and transport technologies, offer significant opportunities in areas where oil and gas is known to exist but were previously uneconomic to develop. The high oil price, good commercial terms and the development of the eastern region make Peru an attractive place to do business.

We feel confident that acquiring the coveted Lot 114 concession will be the foundation for building a significant presence in Peru."