Petro Andina Resources Inc.

Petro Andina Resources Inc.

June 10, 2008 19:30 ET

Petro Andina Announces Crude Oil Sales Price Increase

CALGARY, ALBERTA--(Marketwire - June 10, 2008) -


Petro Andina Resources Inc. (TSX:PAR) ("Petro Andina" or the "Company") is pleased to announce that it has finalized an amended crude oil sales contract for May and June 2008. Under this arrangement, all of the Company's crude oil production in Argentina will be sold under terms that will provide Petro Andina with a realized sales price of approximately US$42 per barrel. The new contract floor price represents an increase of approximately nine percent over the US$38.57 per barrel sales price that the Company realized in the first quarter of 2008 for its Argentine crude oil production. The new sales contract will also be applied on a retroactive basis from November 16, 2007, when the Government of Argentina published a resolution setting out changes to the fiscal regime. The retroactive payment for the period November 16, 2007 to March 31, 2008 is estimated to be approximately US$5.2 million before royalties and US$4.4 million net of royalties but before incremental income tax. Petro Andina anticipates that the parties will extend the new contract price on a 30-day basis until negotiations for a long-term crude oil sales contract have been concluded.

The Company's past crude oil sales arrangements were indexed to the Medanito marker light crude blend. These contracts provided Petro Andina with a field realization for its crude oil that was determined by a WTI reference price, less the export parity factor, transportation, quality adjustments from the Medanito marker price, and other market conditions that prevailed at the time of negotiation of the contract. The Company anticipates that the current negotiation for a long-term oil sales contract will continue to reflect these factors.

The new crude oil sales contract was a result of a commercial negotiation between the Company and the purchaser. It does not reflect a change in the legislation imposed by the federal government of Argentina on November 16, 2007. As previously reported, pursuant to this change to the fiscal regime, the Company estimated that the field realization under its existing sales contract at that time would be capped at approximately US$38 per barrel, on a go-forward basis, at times when the reference price exceeded US$60.90 per barrel. The field realization under the new crude oil sales contract corresponds to a Medanito marker price of approximately US$47 per barrel less total adjustments of approximately US$5 per barrel.

Petro Andina's new sales contract allows for the Company to fully realize any future crude oil sales price increase as a result of changes to the Argentine government legislation or a change in the interpretation of the current legislation, such as basing the export parity factor on the Escalante marker heavy crude blend instead of the current practice of basing the export parity factor on the Medanito marker light crude blend.

Analyzing the application of the Company's amended crude oil sales contract, Petro Andina has estimated the impact of the pricing change had the new sales contract been in effect for the first quarter of 2008 (Q1 2008 Proforma), not including any retroactive adjustment for 2007, as follows:

Q1 2008 Reported Q1 2008 Proforma
(unaudited) (unaudited)
Argentine crude oil realized sales
price ($/bbl) 38.72 42.61
Operating Netback (US$/boe) 23.87 27.29
Revenues before royalties ($millions) 34.27 37.85
Funds from operations ($/share, diluted) 0.37 0.41
Net income ($/share, diluted) 0.05 0.09

Petro Andina has estimated the change to its Argentine crude oil reserves net present value applying the new contract realized sales price to the December 31, 2007 crude oil reserves as follows:

Reported 2P Proforma 2P
Reserves (1)(2) Reserves (3)
Before tax net present value ($millions) 284.6 339.9

(1) Argentine crude oil proved plus probable reserves (2P) as evaluated by
the Company's independent engineers, GLJ Petroleum Consultants Ltd.
(GLJ) discounted at 10% effective December 31, 2007.
(2) GLJ calculated the December 31, 2007 reserves utilizing a fixed
unescalating crude oil realized sales price for Argentina of US$38.39
per barrel.
(3) Crude oil 2P reserves as estimated by Petro Andina, unaudited,
discounted at 10% effective December 31, 2007, adjusted for new
contract realized sales price only.

At this time, Petro Andina does not anticipate that is will make any changes to its proposed 2008 capital budget of approximately $148 million as a result of the amended crude oil sales contract. The Company will continue to review and evaluate its capital investment program in the context of the market situation in Argentina.

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 recently announced the execution of a Joint Venture Agreement allowing Petro Andina to explore blocks in Trinidad and Tobago. The Corporation is continuing to develop its existing reserves and to conduct appraisal and exploration drilling on its 529,000 acre (297,000 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.

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)
    Petro Andina Resources Inc.
    Kenneth G. Pinsky
    Vice President, Finance and Chief Financial Officer
    (403) 517-1729
    (403) 265-8216 (FAX)