Petro Andina Resources Inc.
TSX : PAR

Petro Andina Resources Inc.

November 11, 2008 21:00 ET

Petro Andina Announces Record Net Income, 11th Consecutive Quarter of Production Growth

CALGARY, ALBERTA--(Marketwire - Nov. 11, 2008) -

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

Petro Andina Resources Inc. (Petro Andina or the Company) (TSX:PAR) is pleased to report record net income of $8.4 million ($0.19 per share fully diluted), an increase of 182 percent from the previous quarter. The Company continued to deliver strong operational and financial results for the third quarter of 2008. Sales volumes increased for the 11th consecutive quarter, to an average of 12,381 barrels of oil equivalent per day (boe/d) net, an increase of 10 percent from 11,215 boe/d net in the second quarter of 2008. Production growth continues, averaging greater than 14,500 bbls/d net during October.

Revenues from production continued to increase over the previous quarter, reaching $51.7 million for the third quarter of 2008, an increase of 98 percent from the equivalent period in 2007. Funds flow from operations per fully diluted share rose to $0.54 for the third quarter of 2008, an increase of 59 percent from $0.34 in the equivalent period of 2007.

The Company generated an operating netback of $27.88/boe compared to $26.30/boe in the second quarter of 2008 despite falling world oil prices and a restrictive fiscal regime. Petro Andina maintained a positive net working capital position of $38.0 million against long-term debt of $36.9 million at the end of the third quarter. The Company's annualized long-term debt to funds flow from operations ratio was 0.40 to 1.

Petro Andina announces that effective November 11, 2008, David Holm has resigned from the Board of Directors of Petro Andina to focus on his other business interests. Mr. Holm has served on the Board since 2006.

"We are grateful for the many valuable contributions that David has made to the Company during his time with Petro Andina", stated Wayne Foo, President and CEO. "We have had a long working relationship with David and will certainly miss his counsel and perspective. On behalf of the Company and the Board of Directors, we wish David all the best."

The Company is pleased to announce the appointment of Robert J. Engbloom Q.C. to the Board of Directors effective November 11, 2008. Mr. Engbloom has more than 30 years experience in the areas of corporate, merger and acquisition and securities law. His broad experience spans a significant range of corporate finance matters of both a public and private nature, nationally and internationally. Mr. Engbloom is currently practicing with Macleod Dixon LLP in Calgary, Alberta.

The Company announces its operating and financial results for the quarter ended September 30, 2008. Copies of the Company's unaudited consolidated financial statements for the nine months ended September 30, 2008 and the related Management's Discussion and Analysis (MD&A) for the third 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 announce its 2008 third quarter financial and operating results on Tuesday, November 11, 2008. Petro Andina will host a conference call and live webcast to discuss these results on Wednesday, November 12, 2008 beginning at 10:30 am Mountain Standard Time (12:30 pm Eastern Standard 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 website.



Financial Highlights (Unaudited)
For the three months For the nine months
ended September 30 ended September 30
2008 2007 2008 2007
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Average daily sales
Oil (bbls/d) 12,369 6,627 11,095 5,338
Natural gas (mcf/d) 72 98 85 124
Total (boe/d) 12,381 6,643 11,109 5,359

Realized sales price ($/boe) $ 45.35 $ 42.67 $ 44.72 $ 41.77

Financial ($000s except per share
amounts)
Oil and natural gas revenue 51,652 26,079 136,133 61,102
Net income (loss) 8,370 (2,142) 13,293 (6,961)
Per share - basic $ 0.20 $ (0.05) $ 0.32 $ (0.20)
Per share - diluted $ 0.19 $ (0.05) $ 0.31 $ (0.20)
Funds flow from operations 23,133 13,846 61,439 30,425
Per share - basic $ 0.54 $ 0.35 $ 1.46 $ 0.85
Per share - diluted $ 0.54 $ 0.34 $ 1.44 $ 0.82
Total assets (end of period) 273,251 152,150 273,251 152,150
Working capital (end of period) 38,009 32,203 38,009 32,203
Long-term debt (end of period) 36,930 - 36,930 -

Weighted average shares
outstanding (000s)
Basic 42,772 39,513 42,032 35,741
Diluted 43,151 42,046 42,661 38,611
Outstanding shares (end of period)
(000s)
Basic 42,509 39,573 42,509 39,573
Diluted 45,663 42,185 45,663 42,185
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Operational Highlights of the Third Quarter

- Discovered a new pool at Cerro Huanul South (CoHS) in the CNQ-7/A Concession (CNQ-7/A) (50 percent working interest);

- Received award of exploitation concessions from La Pampa provincial government for the El Renegado (ER) and Gobernador Ayala Este (GAE) fields in the Gobernador Ayala III Concession (GA III) (70 percent working interest) and the Puesto Pinto (PP) field in the La Pampa portion of CNQ-7/A;

- Commenced production from GA III in September and initiated a 25-well development program;

- Drilled 29.2 net (57 gross) total wells with an overall success rate of 97 percent;

- Drilled 26.3 net (52 gross) development wells with 100 percent success;

- Drilled 2.9 net (5 gross) exploration and appraisal wells with a 42 percent success rate; and

- Received signature on award of Trinidad and Tobago Production Sharing Contracts (PSCs) to the joint venture. The Company expects assignment of its working interest and operatorship by year-end 2008.

Operational Update

Facilities

The oil sales pipeline has been shipping approximately 22,000 bbls/d gross (11,000 bbls/d net) of oil to the YPF S.A. Puesto Hernandez terminal. The limit on throughput is the amount of treated oil that can be delivered to the pipeline. Capacity to deliver treated oil will increase with the completion of the atmospheric treating facility anticipated for year-end 2008, and the ECN treatment facility expansion in 2009. This expansion will increase the facility capacity to 40,000 bbls/d gross (20,000 bbls/d net), equal to the design capacity of the pipeline. In-field trucking and other trucking continues to move oil from areas of the field not yet tied-in to central facilities. The Company is currently still operating approximately 45 trucks.

Drilling

Volume growth continued in the third quarter and the Company confirms its production guidance for a year-end exit production rate of 15,000 boe/d. The Company entered 2008 with approximately 400 oil drilling locations. After drilling 188 wells year-to-date, Petro Andina has replenished its drilling inventory even within the restrictive pricing regime.

Sustained high production levels combined with increased operational efficiencies have enabled the Company to reduce its drilling rig fleet by one rig to four active rigs without compromising the annual and exit rate production targets. Performance at levels exceeding expectations will allow Petro Andina to reach these targets with fewer wells. The Company had more than 288 wells on production at the end of the third quarter.

Secondary Recovery

The Company's waterflood recovery program continues to exceed expectations, with stable oil production rates in the main development area as water injection replaces produced fluid volumes. Fewer patterns than originally estimated have been required to meet production targets, affording the Company additional flexibility for efficient allocation of capital. The Company continues to expand the waterflood and is increasing water handling and oil treating capacity at the main facility at ECN to accommodate the increased volumes. As the success of waterflood recovery methods are demonstrated, the Company's total proved and probable reserves values increase. At December 31, 2007, the Company's external reserves evaluators estimated 24 percent recovery for areas under waterflood production, compared to 10 percent for areas under primary production only.

Power supply reliability was significantly improved in the third quarter, allowing the Company to restore water injection levels required for the secondary recovery pressure support necessary to achieve target production rates. Petro Andina generates its own electricity from Company-owned natural gas supply allowing the Company independence from the power grid, protection from any potential for regional disruptions, and control over costs of power.

Exploitation Concessions

In early September, the Province of La Pampa awarded exploitation concessions covering the ER and GAE fields in GA III and the PP field in the La Pampa portion of CNQ-7/A to Petro Andina. This event is significant as these are only the second and third exploitation concessions to be awarded by La Pampa. Following this award the Company immediately commenced production from GA III wells that had been drilled and tested in 2007. Production from GA III currently exceeds 1,000 bbls/d net. In conjunction with the grant of the exploitation concessions, the royalty rate in the La Pampa portion of CNQ-7/A was officially reduced to 12 percent from 15 percent. Following the award, Petro Andina also commenced an initial 25-well development program on GA III where the Company has a 70 percent working interest. Further development drilling will depend upon the results of the initial program.

Business Development

In Trinidad and Tobago, the Company has received a Certificate of Environmental Clearance (CEC) and is awaiting approval from the Ministry of Energy and Energy Industries to commence an airborne geophysical survey over the entire Central Range Block. It has also submitted its application for a CEC for the seismic acquisition program. Approval is expected in the first quarter of 2009 at which time the acquisition of 240 kilometres of high resolution seismic will commence.

2009 Outlook

Petro Andina's Board of Directors has approved a 2009 operating and capital budget that allows the Company to continue to grow while remaining focused on maintaining liquidity. The Company expects funds flow from operations for 2009 to be in the range of US$135 million to US$145 million. Capital expenditures are forecast to be approximately US$100 million in Argentina and US$15 million in Trinidad and Tobago. Annual Argentine production is forecast to be in the range of 17,000 boe/d to 18,000 boe/d, with 2009 exit rate production forecast in the range of 18,500 boe/d to 20,000 boe/d. Surplus funds flow from operations will be directed to amortization of existing borrowings, purchases of stock through the normal course issuer bid and funding new venture activities.

Key assumptions underlining this outlook are as follows:

- World oil prices exceed US$60.90 per barrel;

- The present export tax fiscal regime in Argentina remains constant; and

- The Company's partners in its Argentine concessions approve the 2009 capital expenditure plans.

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, Argentina and Trinidad and Tobago, 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, in Canada, Argentina and Trinidad and Tobago, 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, in Canada, Argentina and Trinidad and Tobago. 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 generally accepted accounting principles (GAAP) and may not be comparable to similarly defined measures presented by other companies. Funds flow from operations includes all cash generated 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)