Major Oil Group Joint Ventures Pan Andean Block 141 in Peru

Pan Andean, the AIM listed oil and gas producer, has signed an agreement with Reliance Industries, India's largest private sector enterprise with businesses in the energy and materials value chain, to farm into Block 141 in the high plateau of Peru. This move is in line with the stated Pan Andean strategy of reducing financial exposure, while accelerating drilling plans in potentially high value blocks.

The agreement is subject to the regulatory approval of the Peruvian authorities. Once such approval is obtained, Reliance Industries will assume operatorship.

Pan Andean will dilute its interest in Block 141 to 10%, in return for which Reliance Industries will incur all exploration costs through commercial discovery.

The new ownership of Block 141 will be 10% Pan Andean, and 90% Reliance Industries.

Following a commercial discovery of an agreed size, Pan Andean will reimburse Reliance for its share of the exploration costs. In addition, based on a formula established in the Farm-Out Agreement, Pan Andean has the right, though not the obligation, to increase its stake to a maximum of 30%. In such a situation Pan Andean will reimburse Reliance Industries for that proportion of its exploration expense on Block 141 which Pan Andean will then own.

Block 141 is situated in 1.2 million acres (0.5 million hectares) of Andean mountain plateau.

David Horgan, Managing Director of Pan Andean Resources, commented, "We believe that Block 141 contains highly prospective and potentially valuable structures. This is based on the belief that the kitchen that charges the world-class Camisea gas and condensate field to the north may also charge structures in our Block 141 to the south.

"We plan to conduct geological & geophysical work. If the seismic shows adequate structures we anticipate drilling and a total work programme that may exceed $40 million.

"Reliance's joint venture is a convincing statement of the exploration potential of Block 141, as well as an expression of confidence in Peru as an excellent investment location. Reliance's decision to farm in should also be seen in context with CEPSA's decision to farm into our Blocks 114 and 131. Peru is being positively reassessed by international majors as they search for valuable new reserves.

"Reliance Industries is highly regarded in the industry as a serious player with a strong technical orientation. They have grown to operate circa 500,000 barrels daily of production, following several successes worldwide. Reliance's achievements reflect the wider resurgence of Indian science and business.

"We look forward to a successful joint venture and an active and positive exploration campaign."