Petro Andina Resources Inc.
TSX : PAR

Petro Andina Resources Inc.

August 12, 2008 18:36 ET

Petro Andina Continues Production and Cash Flow Per Share Growth

CALGARY, ALBERTA--(Marketwire - Aug. 12, 2008) -

NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Petro Andina Resources Inc. (TSX:PAR) ("Petro Andina" or "the Company") is pleased to report that it continued to deliver strong operational and financial results in the second quarter of 2008 by increasing production to an average of 11,215 barrels of oil equivalent per day (boe/d) net, an increase of 99 percent from 5,625 boe/d net in the same period of 2007, and an increase of 15 percent from 9,719 boe/d net in the first quarter of 2008. Production growth continues with production averaging over 12,000 boe/d net during the month of July.

Revenues from production totaled $50.2 million for the second quarter of 2008, an increase of 141 percent from the equivalent period in 2007 and 47 percent from the first quarter of 2008. Funds flow from operations per share (diluted) rose to $0.53 for the second quarter of 2008, up 89 percent from $0.28 in the equivalent period of 2007 and 43 percent from $0.37 in the first quarter of 2008.

Excluding the retroactive price and royalty adjustments related to prior periods, the Company generated an operating netback of $26.30/boe compared to $23.87/boe in the first quarter of 2008 and $25.06/boe for the equivalent period in 2007. Petro Andina maintained a strong balance sheet with net working capital of $51.9 million against long-term debt of only $39.9 million at the end of the second quarter.

Petro Andina began commissioning of the 82-kilometre, 12-inch diameter sales pipeline to move the Company's oil production from the central production facility at El Corcobo Norte (ECN) to market at the end of June with full operations beginning in July. The Company has been shipping up to 13,000 barrels per day gross of oil through the pipeline to YPF's Puesto Hernandez terminal, and more than 20 percent of the trucking fleet has been released.

The Company is pleased to announce the appointment of John Bechtold to the Board of Directors in July. Mr. Bechtold brings over 35 years of broad oil and natural gas and energy related experience to the Petro Andina Board. He began his career in 1968 with the Gulf Oil Corporation and Gulf Canada where he acted in various capacities including international crude supply for their downstream operations. He joined Petro-Canada in 1977 and served in a variety of leadership roles including responsibility for Petro-Canada's Natural Gas Marketing, NGL (including ICG propane), and Western Canada Oil and Gas business units. Following retirement, Mr. Bechtold has served on the Board of the British Columbia Oil and Gas Commission which regulates oil and natural gas activity in that province. He currently serves as a Director of Parkland Industries, a regional refiner and marketer of fuels in Western Canada.

The Company announces its operating and financial results for the quarter ended June 30, 2008. Copies of the Company's unaudited consolidated financial statements for the six months ended June 30, 2008 and the related Management's Discussion and Analysis (MD&A) for the second quarter of 2008 have been filed with Canadian Securities Regulatory Authorities and will be made available under the Company's profile at www.sedar.com and on the Company's website at www.petroandina.com.

Conference Call & Webcast

Petro Andina will host a conference call and live webcast to discuss these results on Wednesday, August 13, 2008 beginning at 10:30 a.m. Mountain Daylight Time (MDT) (12:30 p.m. Eastern Daylight Time). Media, analysts or any other interested parties wishing to participate in the call can access it by calling 403-537-9608 or 1-800-952-4972 (toll free in North America). No access codes are required.

The live audio webcast of the conference call will be available through Windows Media Player by following the link posted under the Investor Relations; Events section of the Company's website at www.petroandina.com. Following the conclusion of the call, a link to a replay of the webcast will also be posted on the Company's



Financial Highlights (Unaudited)

For the three months For the six months
ended June 30 ended June 30
2008 2007 2008 2007
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Average daily production
Oil (bbls/d) 11,201 5,604 10,452 4,683
Natural gas (mcf/d) 87 128 91 137
Total (boe/d) 11,215 5,625 10,467 4,706

Realized sales price ($/boe) (1) $ 49.20 $ 40.76 $ 44.35 $ 41.12

Financial ($000s except per
share amounts)
Oil and natural gas revenue 50,214 20,867 84,481 35,023
Net income (loss) 2,967 (3,448) 4,923 (4,819)
Per share - basic $ 0.07 $ (0.08) $ 0.12 $ (0.14)
Per share - diluted $ 0.07 $ (0.08) $ 0.12 $ (0.14)
Funds flow from operations 23,042 10,221 38,306 16,579
Per share - basic $ 0.54 $ 0.29 $ 0.92 $ 0.49
Per share - diluted $ 0.53 $ 0.28 $ 0.90 $ 0.48
Total assets (end of period) 250,683 145,251 250,683 145,251
Working capital (end of period) 51,882 58,742 51,882 58,742
Long-term debt (end of period) 39,897 - 39,897 -

Weighted average shares
outstanding (000s)
Basic 42,728 35,464 41,658 33,799
Diluted 43,680 36,939 42,654 34,810
Outstanding shares (end of
period) (000s)
Basic 42,775 39,328 42,775 39,328
Diluted 45,890 42,019 45,890 42,019
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Note:
(1) Realized sale price for the three months ended June 30, 2008 includes
retroactive Argentine oil price adjustments totaling $5.06 per barrel
relating to the period from November 16, 2007 to March 31, 2008.


Operational Highlights

- Drilled 32.4 net (63 gross) total wells with an overall success rate of 96 percent;

- Drilled 27.1 net (54 gross) development wells with an overall success rate of 98 percent;

- Drilled 5.3 net (9 gross) exploration and appraisal wells with an 84 percent success rate;

- Drilled two earning wells on the Gobernador Ayala I Exploration Concession, pursuant to the farm-in agreement, which helped to further delineate the updip edge of the reservoir;

- Commenced expansion of the steamflood pilot project at Cerro Huanul Sur (CoHS); and

- Negotiated a farm-in agreement with YPF S.A (YPF) for the 99,000-acre gross (49,500-acre net) La Banda Exploration Concession in the Province of Neuquen, which was finalized on July 3, 2008.

Operational Update

Secondary Recovery

Performance of the ECN waterflood continues to meet and exceed expectations. During the second quarter a waterflood pilot commenced at Puesto Pinto (PP) to evaluate performance and gather information about water injection behaviour in order to plan the best development strategy for that field. During the first six months of 2008, the Company brought on 28 waterflood patterns at ECN, Jaguel Casa de Piedra (JCP) and PP. As at June 30, 2008, there were 39 waterflood patterns in operation in the CNQ-7/A Concession (CNQ-7/A) injecting a total of 17,500 barrels of water per day (gross). By the end of July 2008, the Company had increased water injection to 23,000 barrels of water per day (gross) into 41 waterflood patterns.

Preliminary results regarding the technical feasibility of the Company's thermal recovery pilot project at CoHS and stage one of pilot testing have proven that steam injection into the Centenario Formation is technically feasible. Petro Andina will proceed with expansion of the CoHS thermal pilot to gather additional information and assess economic feasibility of moving to full field steamflood. The Company estimates that capital expenditures for this pilot expansion through the balance of 2008 will be $4.5 million gross ($2.25 million net). Drilling of the thermal wells is anticipated to commence in the third quarter with continuous injection commencing prior to year-end 2008.

Drilling

The Los Reyes exploration well was drilled to a total depth of 1,300 metres and rig-released on July 12. The main targets, the Upper and Lower Centenario formations, were both wet. The deeper zone was tested in August but flowed low rate gas after formation stimulation. The Company is finalizing a drilling location on the next structure updip, at Los Reyes Norte, to evaluate the Upper and Lower Centenario and the pre-Cuyo objectives.

The Company successfully drilled and completed its first horizontal well at JCP-35, at the updip margin of the JCP lower sand accumulation. The horizontal leg is approximately 350 metres in length and was drilled without any operational problems. The well is currently on production at a stabilized rate of approximately 115 gross barrels of oil per day, which is three times the average production rate of nearby vertical wells.

Delineation drilling at ECN continued to extend the updip and downdip margins of the pool. ECN-246, a 1.5kilometre step-out well near the northwest end of the pool, encountered a six-metre pay section that may be analogous to the ECN-84 updip extension drilled in 2007. Several wells drilled along the downdip margin demonstrated that the upper sands in the ECN pool are oil-productive to the south of the limit previously defined for the lowermost sand. This trend appears to extend to the southeast into the El Renegado area of the Gobernador Ayala III Exploration Concession (GA III).

Exploitation Concessions

The Province of La Pampa has advised that the Company's applications for Exploitation Concession for the La Pampa portion of CNQ-7/A and for GA III have now passed the final stages of administrative review by the province's authorities. CNQ-7/A was awarded by the Federal Government and the Company's application was submitted to Federal Authorities in 2005 and received technical approval in mid-2006. Subsequently, under the Ley Corta ("Short Law") of January, 2007 administration of hydrocarbon resources became a provincial matter, and administrative review and award of CNQ-7/A was passed to the provinces of La Pampa and Mendoza. In May 2007 the GA III Exploration Concession was awarded by La Pampa and Mendoza: one of the first, and an application for the GA III Exploitation Concession was submitted in late 2007. Receiving the exploitation concessions for CNQ-7/A and GA III would represent significant milestones, since they would represent, respectively, the first award on a federally issued exploration licence, and the first award covering a provincially issued concession in La Pampa.

Business Development

In July, Petro Andina completed a farm-in agreement with YPF to earn a 50 percent interest in the 99,000-acre La Banda Exploration Concession, located approximately 25 kilometres southwest of the Company's existing acreage. Under the terms of the agreement Petro Andina will earn a 50 percent working interest in the concession by paying US$2.0 million to reimburse YPF for the acquisition and processing of 100 square kilometres of 3D seismic and by paying 100 percent of the costs to drill seven exploration wells to a minimum depth of 1,000 metres each. Including the costs of the seismic reimbursement, Petro Andina's commitment is estimated to be approximately US$6.2 million.

About Petro Andina Resources Inc.

Petro Andina is engaged in the exploration for and development and production of oil and natural gas in South America and the Caribbean. The Corporation is continuing to develop its existing reserves and to conduct appraisal and exploration drilling on its 628,000 acre (346,000 acre net) land position in the Neuquen basin of Argentina. Petro Andina is headquartered in Calgary, Canada.

This news release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction. All sales will be made through registered securities dealers in jurisdictions where the offering has been qualified for distribution. The securities offered are not, and will not be, registered under the securities laws of the United States of America, nor any state thereof and may not be sold in the United States of America absent registration in the United States or the availability of an exemption from such registration.

Forward-Looking Statements

Certain statements regarding Petro Andina Resources Inc. including management's assessment of future plans and operations, may constitute forward-looking statements under applicable securities laws and necessarily involve known and unknown risks and uncertainties, most of which are beyond Petro Andina's control. These risks may cause actual financial and operating results, performance, levels of activity and achievements to differ materially from those expressed in, or implied by, such forward-looking statements.

Such risks and uncertainties include, but are not limited to: the impact of general economic conditions in Canada and Argentina, industry conditions including changes in laws and regulations including adoption of new environmental laws and regulations, and changes in how they are interpreted and enforced, both in Canada and Argentina, competition, the lack of availability of qualified personnel, fluctuations in commodity prices, the results of exploration and development drilling and related activities, imprecision in reserve estimates, the production and growth potential of Petro Andina's assets, fluctuations in foreign exchange or interest rates, the ability to access sufficient capital from internal and external sources, and obtaining required approvals of regulatory authorities, both in Canada and Argentina. Many of these risk factors are discussed in further detail in the Corporation's Annual Information Form dated March 28, 2008 on file with Canadian securities commissions. Readers are also referred to the risk factors described in other documents that Petro Andina files from time to time with securities regulatory authorities.

Accordingly, Petro Andina gives no assurance nor makes any representations or warranty that the expectations conveyed by the forward-looking statements will prove to be correct and actual results may differ materially from those anticipated in the forward looking statements. Petro Andina undertakes no obligation to publicly update or revise any forward-looking statements.

Non-GAAP Terms

Funds flow from operations and operating netback per barrel are used in this document, but do not have any standardized meaning under GAAP and may not be comparable to similarly defined measures presented by other companies. Funds flow from operations includes all cash from operating activities and is calculated before changes in non-cash working capital. Funds flow from operations is reconciled with net earnings in the Consolidated Statements of Cash Flows. Funds flow per share is calculated by dividing funds flow from operations by the weighted average number of shares outstanding. Operating netback per barrel equals sales revenue, less royalties and production expenses, divided by total equivalent sales volumes. Management uses these non-GAAP measures for its own performance measurement and to provide its shareholders and investors with additional measurement of the Company's efficiency and its ability to fund a portion of its future growth expenditures.

The Toronto Stock Exchange has not received and does not accept responsibility for the adequacy or accuracy of this news release.

Contact Information

  • Petro Andina Resources Inc.
    Melesia Kasha
    Investor Relations
    (403) 237-1700
    (403) 265-8216 (FAX)
    or
    Petro Andina Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer
    (403) 517-1729
    (403) 265-8216 (FAX)
    Website: www.petroandina.com