Petro Andina Resources Inc. announces continued production growth, release of third quarter results and 2008 capital budget



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

    CALGARY, Nov. 7 /CNW/ - Petro Andina Resources Inc. (the Company) is
pleased to report continued production growth and increased development
activity on its Argentine concessions for the third quarter of 2007.
Production for the last week of the quarter averaged 7,480 barrels of oil per
day net (14,960 gross).

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                                   DETAIL
    

    The Company announces its operating and financial results for the nine
months ended September 30, 2007. Copies of the 2007 third quarter financial
statements and related Management's Discussion and Analysis (MD&A) for the
nine months ended September 30, 2007 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, November 7, 2007 beginning at 10:00 am Mountain
Standard Time (12:00 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.

    
    Highlights of the Third Quarter

    -   Increased average production to 6,627 barrels of oil per day net, an
        18 percent increase over the second quarter of 2007 and a 385 percent
        increase over the same period in 2006;
    -   Drilled 19 net (38 gross) development, appraisal and delineation
        wells with an overall success rate of 90 percent and four net (six
        gross) exploration wells with a 50 percent success rate;
    -   Commissioned the El Corcobo Norte (ECN) oil treatment facility, with
        an initial design capacity of 15,000 barrels per day gross, (7,500
        net), 15 months after initial decision to construct;
    -   Assumed operatorship of the CNQ-7 Concession and accelerated activity
        by contracting a three dimensional (3D) seismic survey to commence in
        November 2007;
    -   Successfully tested two wells on the CNQ-7 acreage offsetting Jaguel
        Casa de Piedra (JCP);
    -   Completed acquisition of 300 square kilometres of 3D seismic on the
        newly acquired Gobernador Ayala III (GA III) Concession, bringing
        total seismic coverage to 81 percent of the Company's lands; and
    -   Commenced construction of the 80-kilometre sales pipeline on
        September 10, 2007. To date 25 percent of the right-of-way has been
        ditched and 30 percent of the pipe has been welded.

    2008 Capital Budget

    During its regularly scheduled meeting on November 6, 2007, the Board of
Directors of Petro Andina approved the 2008 capital budget for the Company
which includes:

    -   Development and appraisal drilling expenditures of $70 million,
    -   Exploration drilling and seismic expenditures of $10 million,
    -   Facilities and infrastructure expenditures of $35 million, and
    -   Business Development and other expenditures of $12 million.

    The proposed capital budget also includes a carry forward of capital of
$13 million for the sales pipeline bringing Petro Andina's total net capital
budget for 2008 to $140 million.
    The Company has contracted a fifth rig to assist in carrying out the 2008
drilling program which includes up to 200 development and injection wells. The
number of injectors will be dependent upon a review of performance of the five
waterflood pilot patterns at ECN. Petro Andina previously released initial
data from its waterflood program at JCP and is evaluating early stage response
at its first waterflood pilot at ECN. Injection began into an additional four
patterns at ECN in the third quarter and preliminary response is expected
during the second quarter of 2008. Following a review of the data, the
appropriate spacing and injector pattern for the development drilling program
will be selected. Twenty-three exploration wells are also proposed in the
budget for 2008, the final number of exploration wells being dependent upon
partner approval.
    Petro Andina will now recommend the 2008 capital budget to its partners.
Subject to partner approval, Petro Andina will proceed with implementation of
the approved program.
    The Company previously indicated that its target net exit rate for
year-end 2007 was 7,200 barrels of oil per day. Average production for the
final week of September was 7,480 barrels of oil per day. Petro Andina now
projects that the Company's 2007 exit rate will exceed 8,000 barrels of oil
per day net. Given its proposed capital budget, the Company estimates that it
will exit 2008 at a production rate of between 14,000 and 15,500 barrels of
oil per day. As well as normal uncertainties related to exploration and
production activities, performance within the range will be dependent upon the
following:

    -   Timing of waterflood response and performance, including the eventual
        producer to injector ratio;
    -   Timing and commissioning of the sales pipeline; and
    -   Steamflood response and performance anticipated in the second quarter
        of 2008.
    

    Management's Discussion and Analysis

    The following Management's Discussion and Analysis (MD&A) of Petro Andina
Resources Inc. (Petro Andina or the Company) is dated as of November 5, 2007
and should be read in conjunction with the unaudited consolidated financial
statements for the nine months ended September 30, 2007 and the MD&A and
audited financial statements for the year ended December 31, 2006. The
consolidated financial statements have been prepared in accordance with
Canadian generally accepted accounting principles (GAAP). All amounts are in
Canadian dollars unless otherwise specified. This discussion is intended to
facilitate the understanding of trends and significant changes in the
financial condition and operational results of Petro Andina for the nine
months ended September 30, 2007.
    Additional information relating to Petro Andina is contained in the
Company's long-form prospectus dated May 10, 2007. This document is available
on the Canadian Securities Administrators' website at www.sedar.com.

    Forward-Looking Statements

    This document contains forward-looking information that involves known
and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking information. For this purpose, any statements that are
contained herein that are not statements of historical fact may be deemed to
be forward-looking information, including Management's discussion of the
Company's plans and future operations. Without limiting the foregoing, the
words "believes," "anticipates," "plans," "intends," "will," "should,"
"expects," "projects," and similar expressions are intended to identify
forward-looking information. The associated risks include, but are not limited
to, those associated with competition, the ability to generate revenue and
exploit operating margins, capital resources, the use of certain technologies
and materials, annual impairment tests, labour relations, insurance, damage
from weather and other disasters, operating and maintenance risks and
environmental risks, new information regarding reserves, changes in demand for
and volatility of commodity prices of crude oil and natural gas, legislative,
regulatory and political changes along with other factors discussed in this
presentation. The risks outlined should not be construed as exhaustive.
Accordingly, no assurance can be given that any events anticipated by the
forward-looking statements will transpire or, if they do, what their impact on
the Company might be. Investors are cautioned not to place undue reliance on
any forward-looking information. The forward-looking statements are made as of
the date hereof, and the Company undertakes no obligation to update or revise
any forward-looking information to reflect new events or circumstances except
as required by law. The Company assumes no responsibility or liability of any
nature whatsoever for the forward-looking statements contained herein.

    Non-GAAP Terms

    Funds flow from operations and netback per barrel are used in this
document, but do not have any standardized meaning under GAAP and are unlikely
to 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 Statement of
Cash Flows. Funds flow per share is calculated by dividing funds flow from
operations by the weighted average shares outstanding. Netback per barrel
equals sales revenue, less royalties and production expenses, divided by total
equivalent sales volumes. Management uses these non-GAAP measurements for its
own performance measures and to provide its shareholders and investors with a
measurement of the Company's efficiency and its ability to fund a portion of
its future growth expenditures.

    Oil and Natural Gas Conversions

    In this MD&A, natural gas volumes have been converted to barrels of oil
equivalent (boe) on the basis of six thousand cubic feet (mcf) to one barrel
(bbl) of oil. This conversion factor is based on an energy equivalency
conversion method primarily applicable at the burner tip and is not intended
to represent a value equivalency at the wellhead. Boe may be misleading,
particularly if used in isolation.

    Comparative Figures

    Certain comparative figures have been reclassified to conform to the
current period's presentation.

    
    Highlights (Unaudited)

                                          Three months           Nine months
                                    ended September 30,   ended September 30,
                                       2007       2006       2007       2006
    ---------------------------- ----------- ---------- ---------- ----------
    Production
      Oil (bbls/d)                    6,627      1,365      5,338      1,030
      Natural gas (mcf/d)                98          -        124          -
      Total (boe/d)                   6,643      1,365      5,359      1,030

    Financial (thousands of
     Canadian dollars except
     per share amounts)
      Oil and natural gas
       revenue                       26,079      5,496     61,102     11,959
      Net loss                        2,142        386      6,961      3,175
        Per share - basic(1)     $     0.05  $    0.02  $    0.20  $    0.13
        Per share - diluted(1)   $     0.05  $    0.02  $    0.20  $    0.13
      Funds flow from operations     13,846      1,932     30,425      2,328
        Per share - basic(1)     $     0.35  $    0.08  $    0.85  $    0.09
        Per share - diluted(1)   $     0.34  $    0.07  $    0.82  $    0.09
      Total assets (end of
       period)                      152,150     55,149    152,150     55,149
      Working capital (end of
       period)                       32,203       (414)    32,203       (414)
      Long-term debt (end of
       period)                            -          -          -          -

    Weighted average shares
     outstanding (000s)(1)
      Basic                          39,513     25,185     35,741     24,940
      Diluted                        42,046     26,913     38,611     26,426
    Outstanding shares (end of
     period) (000s)(1)
      Basic                          39,573     25,185     39,573     25,185
      Diluted                        42,185     27,855     42,185     27,855

    Notes:
    (1) Restated to reflect two-for-one stock split in September 2006.


    During the nine months ended September 30, 2007, Petro Andina continued
development drilling and facilities construction in the El Corcobo Norte (ECN)
field, as well as proceeding with delineation drilling at the Cerro Huanul Sur
(CoHS) and Puesto Pinto (PP) fields which were discovered in late 2006. All of
these areas are located in the CNQ-7/A Concession operated by the Company, in
which Petro Andina has a 50 percent working interest.
    The Company was awarded the Gobernador Ayala III Concession (GA III) on
May 29, 2007. Petro Andina has a 70 percent working interest in GA III. Also,
in July 2007 the Company assumed operatorship of the CNQ-7 Concession in which
it holds a 47.48 percent working interest. Drilling on both the GA III and
CNQ-7 concessions commenced in the third quarter of 2007, although there was
no significant production as of quarter-end.

    Selected Quarterly Information (Unaudited)

                                               Three months ended
                                   Sept. 30    June 30,   Mar. 31,   Dec. 31,
                                       2007       2007       2007       2006
    ---------------------------- ----------- ---------- ---------- ----------
    Production
      Oil (bbls/d)                    6,627      5,604      3,752      2,853
      Natural gas (mcf/d)                98        128        146          -
      Total (boe/d)                   6,643      5,625      3,776      2,853

    Financial (thousands of
     Canadian dollars except per
     share amounts)
      Oil and natural gas revenue    26,079     20,867     14,156     11,519
      Net loss                        2,142      3,448      1,371        168
        Per share - basic(1)      $    0.05  $    0.08  $    0.04  $    0.00
        Per share - diluted(1)    $    0.05  $    0.08  $    0.04  $    0.00
      Funds flow from operations     13,846     10,221      6,358      5,677
        Per share - basic(1)      $    0.35  $    0.29  $    0.20  $    0.18
        Per share - diluted(1)    $    0.34  $    0.28  $    0.19  $    0.17
      Total assets (end of
       period)                      152,150    145,251    102,288    101,722
      Working capital (end of
       period)                       32,203     58,742     16,226     29,006
      Long-term debt (end of
       period)                            -          -          -          -


                                   Sept. 30    June 30,   Mar. 31,   Dec. 31,
                                       2006       2006       2006       2005
    ---------------------------- ----------- ---------- ---------- ----------
    Production(2)
      Oil (bbls/d)                    1,365        980        737        513
      Natural gas (mcf/d)                 -          -          -          -
      Total (boe/d)                   1,365        980        737        513

    Financial (thousands of
     Canadian dollars except per
     share amounts)
      Oil and natural gas revenue     5,496      3,799      2,664      2,004
      Net income (loss)                (386)    (1,641)    (1,148)     1,996
        Per share - basic(1)      $   (0.02) $   (0.07) $   (0.05) $    0.09
        Per share - diluted(1)    $   (0.02) $   (0.07) $   (0.05) $    0.08
      Funds flow from operations      1,932        566       (170)      (109)
        Per share - basic(1)      $    0.08  $    0.02  $   (0.01) $   (0.01)
        Per share - diluted(1)    $    0.07  $    0.02  $   (0.01) $   (0.01)
      Total assets (end of
       period)                       55,149     43,762     42,481     41,834
      Working capital (end of
       period)                         (414)     8,531     15,131     19,931
      Long-term debt (end of
       period)                            -          -          -          -

    Notes:
    (1) Restated to reflect two-for-one stock split in September 2006.
    (2) Until September 30, 2005, the Company's operations were considered by
        Management to be in the pre-production stage. Accordingly, net
        revenues after royalties and operating expenses were capitalized. The
        financial results for 2005 include only volumes and net revenues
        earned in the fourth quarter.


    Financial and Operating Review
    Production and Netback

                                        Three months ended September 30,
                                           2007                  2006
    -------------------------------------------------------------------------
    (thousands of Canadian
     dollars, unless otherwise
     stated)                          Total    Per boe      Total    Per boe
    -------------------------------------------------------------------------
    Average daily production
     (boe/d)
      Argentina                       6,624                 1,365
      Canada                             19                     -
    -------------------------------------------------------------------------
      Total                           6,643                 1,365
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Oil and natural gas revenue   $  26,079  $   42.67  $   5,496  $   43.77
    Royalties and turnover taxes     (4,083)     (6.68)      (726)     (5.78)
    -------------------------------------------------------------------------
    Net revenue                      21,996      35.99      4,770      37.99
    Production expenses               5,698       9.32      1,623      12.92
    -------------------------------------------------------------------------
    Netback                       $  16,298  $   26.67  $   3,147  $   25.07
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


                                         Nine months ended September 30,
                                           2007                  2006
    -------------------------------------------------------------------------
    (thousands of Canadian
     dollars, unless otherwise
     stated)                          Total    Per boe      Total    Per boe
    -------------------------------------------------------------------------
    Average daily production (boe/d)
      Argentina                       5,335                 1,030
      Canada                             24                     -
    -------------------------------------------------------------------------
      Total                           5,359                 1,030
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Oil and natural gas revenue   $  61,102  $   41.77  $  11,959  $   42.54
    Royalties and turnover taxes     (9,831)     (6.72)    (1,757)     (6.25)
    -------------------------------------------------------------------------
    Net revenue                      51,271      35.05     10,202      36.29
    Production expenses              13,561       9.27      3,670      13.05
    -------------------------------------------------------------------------
    Netback                       $  37,710  $   25.78  $   6,532  $   23.24
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Oil and Natural Gas Revenue

    In the three months ended September 30, 2007 (which will also be referred
to below as the third quarter), Petro Andina's oil and natural gas revenue
increased by 375 percent to $26,079,000 from $5,496,000 in the third quarter
of 2006. Third quarter sales volumes in 2007 increased by 387 percent over the
same period of 2006. Oil and natural gas revenue for the nine months ended
September 30, 2007 increased by 411 percent to $61,102,000 from $11,959,000 in
the first nine months of 2006. The increase was due to a 420 percent increase
in sales volumes in the first nine months of 2007 over 2006, while realized
pricing remained virtually unchanged.
    As of September 30, 2007, essentially all of the Company's Argentine
production is from the operated CNQ-7/A Concession in which it holds a 50
percent working interest. In September 2007, there were 129 wells producing in
CNQ-7/A compared to 34 in September 2006. This is a result of the successful
development activity undertaken by Petro Andina over the past year. The
average production by area was as follows:

                                          Three months           Nine months
                                    ended September 30,   ended September 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Average daily oil production
     (bbls/d)
      El Corcobo Norte (ECN)          4,774        726      3,828        430
      Cerro Huanul Sur (CoHS)           464          9        317          3
      Puesto Pinto (PP)                 520          -        392          -
      Jaguel Casa de Piedra (JCP)       807        630        779        569
      Other                              59          -         19         28
    -------------------------------------------------------------------------
                                      6,624      1,365      5,335      1,030
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    Petro Andina acquired its Canadian non-operated oil and natural gas
properties on December 29, 2006. Therefore, there are no comparatives for the
previous year.
    In the three months ended September 30, 2007, the Company's average oil
sales price was $42.67 per barrel, compared to $43.77 per barrel in the same
quarter of 2006. For the nine months ended September 30, the average oil sales
price was $41.77 per barrel in 2007 compared to $42.54 in 2006. The price
received is based on the local benchmark Medanito crude and reflects a quality
adjustment for the Company's 19 degree API production. Argentine oil sales are
subject to an export tax with statutory rates ranging from 25 percent to 45
percent depending on the West Texas Intermediate (WTI) benchmark price. The
export tax becomes effective when WTI prices exceed US$32.00 per barrel. An
amount equal to the export tax is also applied to domestic sales. This has the
effect of limiting the realized sales price for the Company's Argentine
production.

    Royalties and Turnover Taxes

    Total royalties and turnover taxes were $4,083,000 in the third quarter
of 2007, compared to $726,000 in the same period of 2006. The average royalty
rate for the third quarter of 2007 was 16 percent, compared to 13 percent in
the comparable period of 2006. For the nine months ended September 30,
royalties and turnover taxes increased from $1,757,000 (15 percent of revenue)
in 2006 to $9,831,000 (16 percent of revenue) in 2007. In the first months of
2006, the CNQ-7/A Concession was still considered an exploration concession
and production was subject to a 15 percent royalty rate. In March 2006, Petro
Andina applied to the Federal Secretary of Energy to convert 303.5 square
kilometres of the CNQ-7/A Concession around the ECN and JCP fields into an
exploitation concession. The Company has been advised that legal precedent in
Argentina provides the federal regulator with a period of 60 days to object to
the filing. If no objection is made, then the operator is permitted to reduce
the amount of royalties paid to the 12 percent applicable to an exploitation
concession. Since no objection was received, in mid-May 2006, 60 days after
this application was made, the rate used in computing the royalty was reduced
to 12 percent. However, the responsibility for the granting of exploitation
concessions has now been transferred to provincial control. In March 2007, the
Company received notice from the Province of Mendoza claiming royalty
adjustments to increase the royalty to 15 percent retroactive to May 2006. The
claim has been made by a provincial government department which is separate
from the government department responsible for the granting of exploitation
concessions. While Petro Andina has received assurance from expert advisors
and regulators that the same precedent will apply, the change in
administrative jurisdiction introduces an element of uncertainty concerning
the timing of the royalty rate reduction. To address this uncertainty, as of
June 30, 2007 the Company decided to accrue an additional royalty amount for
the period commencing May 2006 equal to one-half of the difference between the
exploration and exploitation royalty rates or 1.5 percent. This accrual is
planned to continue until the bureaucratic process related to the granting of
the exploitation concession is complete and the matter is resolved.
    The Company's Argentine sales are also subject to turnover taxes imposed
by the provinces. These taxes are accounted for as royalty expense.

    Production Expenses

    In the third quarter of 2007 production expenses increased by 251 percent
to $5,698,000 from $1,623,000 in the same period of 2006. On a unit of
production basis, production expenses averaged $9.32 per barrel in the third
quarter of 2007 compared to $12.92 in the same period of 2006. Total
production expenses for the first nine months of the year were $13,561,000
($9.27 per barrel) in 2007 compared to $3,670,000 ($13.05 per barrel) in 2006.
The Company's average costs per unit in Argentina are decreasing as volumes
increase and operating efficiencies are realized. Trucking costs accounted for
$2.86 per barrel or 31 percent of Argentine production expenses for the first
nine months of 2007, compared to $4.88 per barrel or 37 percent in the same
period of 2006. Trucking is required to transport emulsion from single well
batteries to infield processing facilities, as well as to deliver clean oil
from the field to market. In the first nine months of 2007, the Company's
field staff were successful in reducing trucking costs by increasing trucking
efficiency and making road improvements. The new oil processing facility at
ECN was commissioned in August 2007. Field satellite and flowline systems are
also currently under construction in ECN and PP. Petro Andina and its partner
in the CNQ-7/A Concession, Repsol-YPF S.A., have commenced construction of an
80-kilometre, 12-inch diameter sales pipeline from the CNQ-7/A area to the
Puesto Hernandez pipeline terminal. From that location, the Company will be
able to deliver oil volumes to the Atlantic coast via the Oldelval pipeline
system, or north to the Lujan de Cuyo refinery at Mendoza. Construction of the
pipeline commenced in the third quarter of 2007. The pipeline is scheduled to
be commissioned in the first quarter of 2008. All of these activities are
expected to reduce trucking costs on a unit of production basis over time.
    On October 17, 2007, the Secretary of Energy announced an increase in
mineral lease rates, also known as the canon in Argentina. The new rates will
apply to the Company's CNQ-7/A and CNQ-7 concessions. It is estimated that the
new rates will increase production expenses by less than $1,000,000 in 2008.

    Interest Income

    For the three months ended September 30, 2007, interest income was
$433,000 compared to $29,000 in the same period of 2006. Interest income for
the nine months ended September 30, 2007 was $1,068,000 compared to $229,000
in the first nine months of 2006. Average cash balances were significantly
higher in the first nine months of 2007 than in the same period of 2006 due to
the net $39 million raised in the Company's private equity placement in
October 2006, as well as the net $56 million raised in May 2007 from the
Company's initial public offering.

    General and Administrative Expenses (G&A)

    For the three months ended September 30, 2007, G&A was $3,317,000
compared to $1,167,000 in the same period of 2006. Total G&A for the first
nine months of 2007 was $8,109,000 compared to $4,415,000 in the same period
of 2006. The increase relates to the expansion of staff and to incremental
overhead burdens associated with becoming a publicly-traded company. Expenses
include bonuses and non-executive directors' fees of $845,000 in the first
nine months of 2007 compared to $12,000 in the first nine months of 2006.
Stock-based compensation for the nine months ended September 30, 2007
increased by $775,000 over the first nine months of 2006 largely due to
including volatility in the calculation as a result of becoming a public
company. Total year-to-date 2007 costs have also increased by $132,000 for
corporate governance-related activities, including the independent reserve
evaluation and travel for management and directors to Argentina. For the nine
months ended September 30, 2007, G&A costs in Argentina increased by a total
of $2,086,000 over the comparable period of 2006, which was partially offset
by an increase of $851,000 in overhead recoveries from operatorship of the
CNQ-7/A joint venture. These higher costs are directly related to increased
activity levels which have led to higher staffing costs, as well as higher
bank taxes.

    Interest Expense

    Interest expense was $1,252,000 in the first nine months of 2007, all of
which was incurred prior to the third quarter. In 2006, interest expense was
$236,000 for the first nine months, all of which was incurred in the third
quarter. Interest expense is attributable to the non-convertible $11 million
debenture that was issued in August 2006 at a 12 percent interest rate. The
debenture was repaid in full on May 23, 2007 from the proceeds of Petro
Andina's initial public offering.

    Depletion, Depreciation and Accretion Expense (DD&A)

    DD&A is calculated using the unit-of-production method based on total
estimated proved reserves. DD&A during the third quarter of 2007 was
$12,854,000 compared to $2,320,000 in the same period of 2006. For the nine
months ended September 30, 2007, DD&A expense was $30,992,000 compared to
$5,429,000 in the first nine months of 2006. Most of the increase was a result
of increased production levels. On a unit of production basis, DD&A expense in
the first nine months of 2007 was $21.18 per barrel compared to $19.31 per
barrel in the first nine months of 2006. The DD&A rate has increased because
the Company is spending significant amounts of capital on facilities to handle
anticipated future production volumes that have not yet been classified as
proved by the Company's external reserves evaluators. Petro Andina expects
that additional proved reserves will be recognized by the end of the year.

    Foreign Exchange Loss

    The Company's main exposure to foreign currency risk relates to the
pricing of Argentine oil sales, operating costs and capital costs which are
largely denominated in US dollars. The Company also holds Canadian dollars in
cash and short-term deposits with Canadian financial institutions and from
time to time converts those funds into US dollars prior to their transmittal
to Argentina. This exchange of currencies can give rise to gains and losses.
For the three months ended September 30, 2007, the total foreign exchange loss
was $2,033,000 compared to a gain of $22,000 in the third quarter of 2006. On
a year-to-date basis, the foreign exchange loss was $4,085,000 in the first
nine months of 2007 compared to a loss of $803,000 in the same period of 2006.
Currently, the Company does not hedge against fluctuations in the US dollar
exchange rate.

    Future Tax Expense (Recovery)

    The Company recorded a future tax expense of $669,000 for the three
months ended September 30, 2007. In the same period of 2006, there was a
future tax recovery of $139,000. For the nine months ended September 30, 2007,
future tax expense was $1,301,000 compared to a recovery of $947,000 in the
first nine months of 2006. The Company's operations in Argentina are now
producing taxable income due to successful development activity. The nominal
income tax rate in Argentina is 35 percent. The Company does not recognize any
benefit for its Canadian tax losses.

    
    Capital Expenditures

                                          Three months           Nine months
                                    ended September 30,   ended September 30,
    (thousands of Canadian dollars)    2007       2006       2007       2006
    -------------------------------------------------------------------------
    Geological and geophysical    $   3,447  $   1,596  $   3,541  $   3,261
    Property acquisition                  3         11         14         11
    Drilling and completion          14,140      3,883     33,245      9,630
    Well equipment and facilities    17,807      3,156     35,784      7,196
    Other                               279         67      1,022        381
    -------------------------------------------------------------------------
                                  $  35,676  $   8,713  $  73,606  $  20,479
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Argentina                     $  35,670  $   8,719  $  73,593  $  20,438
    Canada                                6         (6)        13         41
    -------------------------------------------------------------------------
                                  $  35,676  $   8,713  $  73,606  $  20,479
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The Company had three drilling rigs in continuous operation throughout the
first six months of 2007, which was increased to four rigs in July 2007. Two
drilling rigs were in operations in the first nine months of 2006. In the
first nine months of each year, the Company drilled wells as follows:

                                           2007                  2006
                                      Gross        Net      Gross        Net
    -------------------------------------------------------------------------
    CNQ-7/A
      El Corcobo Norte (ECN)             68       34.0         21       10.5
      Cerro Huanul Sur (CoHS)            13        6.5          7        3.5
      Puesto Pinto (PP)                  15        7.5          1        0.5
      Jaguel Casa de Piedra (JCP)         3        1.5          1        0.5
      Other                               6        3.0          1        0.5
    -------------------------------------------------------------------------
                                        105       52.5         31       15.5
    GA III                                5        3.5          -          -
    CNQ-7                                 3        1.4          1        0.5
    CN-VI A/B                             -          -          1        1.0
    -------------------------------------------------------------------------
                                        113       57.4         33       17.0
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    During the first nine months of 2007, the Company also spent $16,162,000
on construction of the ECN oil handling facilities and field pipeline system.
The ECN facility was commissioned in August 2007. Construction of the oil
sales pipeline from CNQ-7/A to the Puesto Hernandez pipeline terminal
commenced in July 2007. As of September 30, 2007 a total of $7,735,000 had
been spent on engineering, surveying, pre-acquisition of related materials and
initial ditching and setting.

    Liquidity and Capital Resources

    At September 30, 2007, Petro Andina had $34 million of cash on hand,
compared to $37 million at December 31, 2006. The cash balances are comprised
of current chequing accounts and bank term deposits. Including cash, Petro
Andina had working capital of $32 million at September 30, 2007, compared to
$29 million at year-end 2006.
    On May 23, 2007, Petro Andina closed an initial public offering of
6.7 million common shares at $9.00 per share for total gross proceeds of
$60 million ($56 million net after agents' fees and other expenses). The
Company is using the net proceeds of the initial public offering to fund
continued exploration activity, appraisal and development drilling and
facilities development in Argentina. A portion of the funds was also used to
repay the Company's outstanding debenture of $11 million on May 23, 2007.
    In September 2007 the Company, through its subsidiary Petro Andina
Resources Ltd., entered into a US$100 million senior first lien secured credit
facility, to be provided by Macquarie Bank Limited (Macquarie). The first
advances under the credit facility were made in October 2007. Initial
availability under the facility is US$28 million. The borrowing base will be
updated based on semi-annual re-determinations by Macquarie that the Company's
oil and gas reserves will support additional lending amounts. The first update
will be completed in the fourth quarter of 2007 and the Company expects that
the borrowing base will be increased before year-end 2007. The loan facility
bears interest at variable rates which, at the Company's option, will be based
on either LIBOR or US prime. The loan is secured by a pledge of Petro Andina
Resources Ltd. common shares and by an assignment of the Company's collection
rights under all agreements related to its Argentine properties, including
leases, exploration and development concessions, joint venture agreements,
operating agreements and sales agreements. The loan is not convertible into
equity.

    Outstanding Share Data

    Petro Andina is authorized to issue an unlimited number of class A common
shares. As at September 30, 2007, the Company had 39.6 million outstanding
common shares compared to 31.8 million outstanding shares at December 31,
2006. Directors, employees and consultants have been granted options to
purchase 2.6 million common shares under the Company's stock option plan, as
disclosed in note 9 to the consolidated financial statements. All outstanding
Liquidity Entitlement Certificates expired on May 23, 2007 when the Company's
shares commenced trading on the Toronto Stock Exchange.

    Business Environment and Risks

    The Company's operations are subject to the risks normally inherent in
the operation and development of oil and natural gas properties. There is no
assurance of finding and developing economic oil and natural gas reserves in
commercial quantities. Operational risks include reservoir and facility
performance uncertainties, competition, access to markets for the Company's
products, potential transportation interruptions, a complex regulatory regime
and environmental and safety concerns. Financial and liquidity risks include
commodity price fluctuations, currency exchange rates, interest rates, and the
costs of goods and services. Due to the nature of Petro Andina's international
operations and related assets, the Company is also exposed to economic and
political risk, including currency fluctuations, price controls and varying
forms of fiscal regimes or changes thereto. Petro Andina uses a variety of
means to help minimize its business risks.
    For a more detailed discussion of risk factors, please see the Company's
long-form prospectus dated May 10, 2007, which is available on the Canadian
Securities Administrators' website, www.sedar.com.

    Contractual Obligations

    Petro Andina has assumed various contractual obligations and commitments
in the normal course of its operations. These commitments are disclosed in the
Company's long-form prospectus and MD&A for the year ended December 31, 2006.
In 2007, the Company entered into work commitments related to a fourth
drilling rig which was mobilized in July, and a fifth rig which is expected to
be mobilized in the fourth quarter of 2007. Under the terms of the contract
for the fourth drilling rig, the Company must pay a demobilization fee of
US$80,000 at the end of the two-year term. The contract for the fifth drilling
rig requires the Company to pay a mobilization fee of US$250,000 when the rig
is mobilized in 2007, as well as a demobilization fee of US$175,000 if the
contract is terminated at the end of the second year. If the contract is
extended for a third year, the demobilization fee will be waived.
    On May 29, 2007, the Company signed a final agreement with the Province
of La Pampa with respect to the award of the Gobernador Ayala III Exploration
Concession (GA III Concession). The Company had been awarded the GA III
Concession on a provisional basis on April 30, 2007. This exploration
concession comprises 335 square kilometres (82,800 acres) and is located
adjacent to the southern boundary of the Company's operated CNQ-7/A acreage.
Petro Andina subsequently entered into a joint venture agreement with ENARSA,
Argentina's state oil company, and with another Argentine company with respect
to the GA III Concession. Under terms of the joint venture agreement, Petro
Andina will operate the GA III Concession with a 70 percent working interest,
while the other parties will share the remaining 30 percent. The two-year work
commitment with respect to the Concession includes drilling a total of 25
wells and acquiring 250 square kilometres of three dimensional (3D) seismic
data. As of September 30, 2007, five wells had been drilled and the seismic
acquisition had been completed, with data processing to commence in the fourth
quarter of 2007.
    Under the terms of the GA III joint venture agreement, Petro Andina will
initially pay 100 percent of the capital costs and associated value added tax
related to the two year work commitment on the Concession. If commercial
hydrocarbon reserves are discovered, 30 percent of the work commitment costs
and associated value added tax will then be recovered from the joint venture
partners out of their share of revenues less royalties and production expenses
("net revenues") earned from GA III production. The joint venture partners
will be entitled to 30 percent of net revenues from production. Half of these
net revenues will be paid to them as earned and half will be applied to repay
capital costs advanced by Petro Andina on their behalf. The amounts due to
Petro Andina will be secured by an assignment of the joint venture partners'
interests in GA III. Interest is payable by the joint venture partners on the
unpaid capital costs, but this interest is also only recoverable from their
share of net revenues.
    The Company will only recognize a receivable for recovery of work
commitment costs and interest when commercial reserves have been established.
The amount of the receivable to be recognized will be limited to the joint
venture partners' share of estimated reserves, up to a maximum of 30 percent
of the work commitment costs plus accrued interest. As of September 30, 2007,
the Company had not yet applied to convert any portion of the GA III
concession into an exploitation concession with commercial reserves.
Accordingly, 100 percent of GA III work commitment costs incurred have been
recorded as capital expenditures by the Company.
    On July 23, 2007, Petro Andina participated in a bid round for land in
the province of Mendoza. The Company's work program bids for the two
concessions of interest to Petro Andina were lower than the bids submitted by
other parties. However, the amount of the work program is not the sole
criterion for award of the acreage. The bids are currently under review by the
provincial government.

    Off-Balance Sheet Arrangements

    The Company has not entered into any off-balance sheet transactions in
the first nine months of 2007.

    Related-Party Transactions

    The Company has not entered into any related-party transactions in the
first nine months of 2007.

    Critical Accounting Estimates

    The preparation of consolidated financial statements in accordance with
Canadian GAAP requires Management to make judgments, assumptions and estimates
that affect the financial results of the Company. Management reviews its
estimates regularly but new information and changed circumstances may result
in actual results or changes to estimated amounts that differ materially from
current estimates. For a discussion of the Company's critical accounting
estimates and policies, please refer to the MD&A for the year ended December
31, 2006 that is included in the Company's long-form prospectus, which is
available on the Canadian Securities Administrators' website, www.sedar.com.

    Changes in Accounting Policy

    Effective January 1, 2007, Petro Andina adopted the new accounting
standards set out in the Canadian Institute of Chartered Accountants' (CICA)
Handbook section 3855 "Financial Instruments - Recognition and Measurement",
section 3865 "Hedges" and section 1530 "Comprehensive Income". These standards
have been adopted prospectively. See note 3 to the consolidated financial
statements.

    Impact of New Accounting Pronouncements

    The CICA has issued the following accounting standards which will be
effective for the Company on January 1, 2008: Handbook section 3862 "Financial
Instruments - Disclosures", section 3863 "Financial Instruments -
Presentation" and section 1535 "Capital Disclosures".
    These new accounting standards will require the Company to provide
additional disclosures relating to its financial instruments and capital. It
is not anticipated that the adoption of these new accounting standards will
impact the amounts reported in the Company's financial statements as they
relate primarily to disclosure.

    
    Petro Andina Resources Inc.
    Consolidated Balance Sheets (Unaudited)

    As at                                               September   December
    (thousands of Canadian dollars)                      30, 2007   31, 2006
    -------------------------------------------------------------------------

    ASSETS

    Current assets
      Cash and cash equivalents                         $  34,217  $  37,214
      Accounts receivable                                  19,663     15,764
      Prepaids and other current assets                     1,434        389
    -------------------------------------------------------------------------
                                                           55,314     53,367

    Long-term receivables (note 5)                         13,035      5,886

    Future income tax                                       1,565      2,866

    Property, plant and equipment (note 6)                 82,236     38,864

    Deferred financing costs                                    -        739

    -------------------------------------------------------------------------
                                                        $ 152,150  $ 101,722
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    LIABILITIES AND SHAREHOLDERS' EQUITY

    Current liabilities
      Accounts payable and accrued liabilities          $  23,111  $  13,361
      Debenture payable (note 7)                                -     11,000
    -------------------------------------------------------------------------
                                                           23,111     24,361

    Asset retirement obligation (note 8)                    1,302        544
    -------------------------------------------------------------------------
                                                           24,413     24,905
    Shareholders' equity
      Share capital (note 9)                              143,398     86,405
      Contributed surplus (note 10)                         1,486        598
      Deficit                                             (17,147)   (10,186)
    -------------------------------------------------------------------------
                                                          127,737     76,817
    -------------------------------------------------------------------------

                                                        $ 152,150  $ 101,722
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Commitments and Contingency (notes 14 and 15)
    See accompanying Notes to the Consolidated Financial Statements



    Petro Andina Resources Inc.
    Consolidated Statements of Loss, Comprehensive Loss and Deficit
    (Unaudited)

    (thousands of Canadian                Three months           Nine months
     dollars, except per share      ended September 30,   ended September 30,
     amounts)                          2007       2006       2007       2006
    -------------------------------------------------------------------------

    Revenue
      Oil and natural gas revenue $  26,079  $   5,496  $  61,102  $  11,959
      Royalties and turnover
       taxes                         (4,083)      (726)    (9,831)    (1,757)
    -------------------------------------------------------------------------
                                     21,996      4,770     51,271     10,202
      Interest income                   433         29      1,068        229
    -------------------------------------------------------------------------
                                     22,429      4,799     52,339     10,431

    Expenses
      Production                      5,698      1,623     13,561      3,670
      General and administrative      3,317      1,167      8,109      4,415
      Interest                            -        236      1,252        236
      Depletion, depreciation
       and accretion                 12,854      2,320     30,992      5,429
      Foreign exchange loss (gain)    2,033        (22)     4,085        803
    -------------------------------------------------------------------------
                                     23,902      5,324     57,999     14,553

    Loss before taxes                (1,473)      (525)    (5,660)    (4,122)

    Future tax expense (recovery)
     (note 11)                          669       (139)     1,301       (947)

    -------------------------------------------------------------------------
    Net loss and comprehensive
     loss for period                 (2,142)      (386)    (6,961)    (3,175)

    Deficit, beginning of period    (15,005)    (9,632)   (10,186)    (6,843)
    -------------------------------------------------------------------------

    Deficit, end of period        $ (17,147) $ (10,018) $ (17,147) $ (10,018)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Basic and diluted net loss
     per common share             $   (0.05) $   (0.02) $   (0.20) $   (0.13)

    See accompanying Notes to the Consolidated Financial Statements



    Petro Andina Resources Inc.
    Consolidated Statements of Cash Flows (Unaudited)

                                          Three months           Nine months
                                    ended September 30,   ended September 30,
    (thousands of Canadian dollars)    2007       2006       2007       2006
    -------------------------------------------------------------------------

    Operating activities
      Net loss                    $  (2,142) $    (386) $  (6,961) $  (3,175)
      Add (deduct) non-cash items
        Depletion, depreciation
         and accretion               12,854      2,320     30,992      5,429
        Non-cash component of
         interest expense                 -        102        739        102
        Future tax expense
         (recovery)                     669       (139)     1,301       (947)
        Stock-based compensation        482         70        985        210
        Expenses paid by issue of
         common shares                    -          -         61          -
        Unrealized foreign exchange
         loss (gain)                  1,983        (35)     3,308        709
    -------------------------------------------------------------------------
      Funds from operations          13,846      1,932     30,425      2,328
      Net change in non-cash
       working capital                  (56)    (1,398)     4,239     (1,017)
    -------------------------------------------------------------------------
                                     13,790        534     34,664      1,311
    -------------------------------------------------------------------------

    Investing activities
      Acquisition of capital
       assets                       (35,676)    (8,713)   (73,606)   (20,479)
      Loan receivable                    24          -         74          -
      Net change in non-cash
       working capital                 (379)    (2,594)    (8,584)    (2,669)
    -------------------------------------------------------------------------
                                    (36,031)   (11,307)   (82,116)   (23,148)
    -------------------------------------------------------------------------

    Financing activities
      Issue (repayment) of
       debenture                          -     11,000    (11,000)    11,000
      Issue of common shares            215          -     61,410      1,376
      Share issue costs                   -          -     (4,575)         -
      Financing costs                     -     (1,086)         -     (1,086)
      Net change in non-cash
       working capital                 (354)         -        (12)         -
    -------------------------------------------------------------------------
                                       (139)     9,914     45,823     11,290
    -------------------------------------------------------------------------

    Decrease in cash and cash
     equivalents for period         (22,380)      (859)    (1,629)   (10,547)

    Impact of foreign exchange
     on foreign currency
     denominated cash balances         (823)         4     (1,368)      (249)

    Cash and cash equivalents,
     beginning of period             57,420      9,692     37,214     19,633
    -------------------------------------------------------------------------

    Cash and cash equivalents,
     end of period                $  34,217  $   8,837  $  34,217  $   8,837
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplementary Disclosure of Cash Flow Information (note 12)

    See accompanying Notes to the Consolidated Financial Statements



    Petro Andina Resources Inc.
    Notes to the Consolidated Financial Statements (Unaudited)
    For the Nine Months ended September 30, 2007
    (thousands of Canadian dollars, unless otherwise stated)

    1.  Nature of Operations

    Petro Andina Resources Inc. (Petro Andina or the Company) is a Calgary-
    based oil and natural gas exploration and production company whose
    activities are conducted primarily in South America. The Company was
    incorporated on July 10, 2003 under the laws of the province of Alberta.

    2.  Basis of Presentation

    The unaudited interim consolidated financial statements include the
    accounts of the Company and its wholly owned subsidiary, Petro Andina
    Resources Ltd., and have been prepared in accordance with Canadian
    generally accepted accounting principles.

    The unaudited interim consolidated financial statements have been
    prepared following the same accounting policies as the audited
    consolidated financial statements for the year ended December 31, 2006,
    except as discussed in note 3. The disclosures provided below are
    incremental to those included in the annual audited financial statements.
    These unaudited interim consolidated financial statements and the notes
    thereto should be read in conjunction with the Company's audited
    financial statements for the year ended December 31, 2006.

    Certain comparative figures have been reclassified to conform to the
    current period's presentation.

    3.  Changes in Accounting Policy

    Effective January 1, 2007, the Company adopted new accounting standards
    set out by the Canadian Institute of Chartered Accountants (CICA) in
    Handbook section 3855 "Financial Instruments - Recognition and
    Measurement", section 3865 "Hedging" and section 1530 "Other
    Comprehensive Income".

    Under the new standards, financial instruments designated as held for
    trading and available for sale are carried at their fair values. Other
    financial instruments such as loans and receivables, financial
    liabilities and those designated as held to maturity are initially
    recorded at fair value, and subsequently carried at their amortized cost.
    All derivatives are carried in the consolidated balance sheet at their
    fair value, including derivatives designated as hedges. The effective
    portion of unrealized gains and losses on cash flow hedges is carried in
    Other Comprehensive Income, a component of Shareholders' Equity on the
    consolidated balance sheet, with any ineffective portions of gains and
    losses on hedges taken into income immediately. Changes in the fair value
    of hedges and the related changes in the carrying value of the hedged
    items are taken into income immediately.

    The Company has no derivative financial instruments or hedges. The
    Company has classified its non-derivative financial instruments as loans
    and receivables and financial liabilities. These are accounted for at
    amortized cost. Debt and related transaction costs are measured at fair
    value at inception and subsequently measured at amortized cost.
    Transaction costs are included as a component of the amortized cost of
    the Company's debt balance.

    These standards have been adopted on a prospective basis. As a result of
    the change in accounting policy, debenture issue costs of $739,000
    previously shown as Deferred Financing Costs at December 31, 2006 were
    reclassified as a component of the amortized cost of the debenture
    balance in 2007. As of September 30, 2007, there are no amounts reflected
    in the financial statements as the debenture has been repaid. These costs
    have been amortized using the effective interest rate method, compared to
    being amortized on a straight-line basis over the period to maturity.
    This change had no material impact on net loss of prior years or the
    current period.

    4.  Impact of New Accounting Pronouncements

    The CICA has issued the following accounting standards which will be
    effective for the Company on January 1, 2008: section 3862 "Financial
    Instruments - Disclosures", section 3863 "Financial Instruments -
    Presentation" and section 1535 "Capital Disclosures".

    These new accounting standards will require the Company to provide
    additional disclosures relating to its financial instruments and capital.
    It is not anticipated that the adoption of these new accounting standards
    will impact the amounts reported in the Company's financial statements as
    they relate primarily to disclosure.

    5.  Long-Term Receivables

                                                        September   December
                                                         30, 2007   31, 2006
    -------------------------------------------------------------------------
    Argentina value added taxes                         $  12,947  $   5,723
    Loan receivable                                            88        163
    -------------------------------------------------------------------------
                                                        $  13,035  $   5,886

    Long-term receivables are comprised primarily of net credits for value
    added tax (VAT). Under current Argentine legislation, VAT credits on
    purchases can only be applied to offset liabilities for VAT payable on
    sales. The balance of the receivable will be drawn down when the
    Company's taxable sales exceed its taxable purchases. Given the Company's
    current capital investment plans, this is not anticipated to occur in the
    next 12 months. VAT credits are not subject to expiry.

    A loan has been made to a company in Argentina which provides services to
    the Company. The loan is secured by equipment purchased with the proceeds
    of the loan, is repayable in 36 monthly installments commencing February
    2007 and bears interest at 6 percent.

    6.  Property, Plant and Equipment

                                                 Accumulated
                                                   depletion,
                                                depreciation        Net book
    September 30, 2007                  Cost  & amortization           value
    -------------------------------------------------------------------------
    Oil and natural gas properties $ 120,336       $  39,995       $  80,341
    Service rig                          726             588             138
    Office furniture and equipment     3,397           1,640           1,757
    -------------------------------------------------------------------------
                                   $ 124,459       $  42,223       $  82,236
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

                                                 Accumulated
                                                   depletion,
                                                depreciation        Net book
    December 31, 2006                   Cost  & amortization           value
    -------------------------------------------------------------------------
    Oil and natural gas properties $  46,875       $   9,763       $  37,112
    Service rig                          726             403             323
    Office furniture and equipment     2,559           1,130           1,429
    -------------------------------------------------------------------------
                                   $  50,160       $  11,296       $  38,864
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Included in oil and natural gas properties are $7,735,000 (2006 - nil) of
    major development costs that are not subject to depletion.

    7.  Debenture Payable

    The debenture was issued in August 2006 with an interest rate of 12
    percent and was not convertible into equity. The debenture was repaid on
    May 23, 2007 after the Company's initial public offering. The debt was
    secured by a promissory note, a general security agreement granting a
    first priority interest over all of the Company's present and after-
    acquired property, as well as a pledge of the Company's shares in its
    subsidiary.

    8.  Asset Retirement Obligation

                                     Nine months ended            Year ended
                                    September 30, 2007     December 31, 2006
    -------------------------------------------------------------------------
    Balance, beginning of period             $     544             $     301
    Liabilities incurred during period             693                   334
    Accretion expense                               65                    24
    Change in estimate of future cash flows          -                  (115)
    -------------------------------------------------------------------------
    Balance, end of period                   $   1,302             $     544
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    9.  Share Capital

    On September 29, 2006, the Company undertook a two-for-one split of its
    common shares. All common share numbers and per common share amounts have
    been restated to reflect the share split.

    a)  Issued and outstanding common shares

                                               Number of shares       Amount
    Balance, December 31, 2005                       23,350,000  $    44,856
    Issued for cash - private placements              6,383,846       41,495
    Issued for cash - exercise of warrants            1,835,000        1,376
    Issued for cash - exercise of options                38,000           96
    Allocation of contributed surplus - exercise
     of options                                               -            9
    Issued for purchase of oil and natural gas
     properties                                         157,692        1,025
    Issued to directors in lieu of compensation          16,800          110
    Share issue costs                                         -       (2,562)
    -------------------------------------------------------------------------
    Balance, December 31, 2006                       31,781,338       86,405
    Issued for cash - private placements                 29,385          191
    Issued for cash - initial public offering         6,700,000       60,300
    Issued for cash - exercise of options             1,053,666          919
    Allocation of contributed surplus - exercise
     of options                                               -           97
    Issued to directors in lieu of compensation           9,100           61
    Share issue costs                                         -       (4,575)
    -------------------------------------------------------------------------
    Balance, September 30, 2007                      39,573,489  $   143,398
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    On May 10, 2007, the Company filed a prospectus to qualify the
    distribution to the public of 6,700,000 common shares at a price of $9.00
    per share (the "Offering") for total gross proceeds of $60,300,000. The
    Company's shares commenced trading on the Toronto Stock Exchange on
    May 23, 2007.

    b)  Stock options

    The Company has a stock option plan that provides for the issuance of
    options to its directors, officers, employees and consultants to acquire
    common shares. The maximum number of options outstanding is equal to 10
    percent of the number of common shares outstanding. The options typically
    vest over a three-year period and expire five years from the date of
    grant.
                                                                    Weighted
                                                                     average
                                                      Number of     exercise
                                                        options        price
    -------------------------------------------------------------------------
    Balance,December 31, 2005                         2,645,000        $2.04
    Granted                                             239,000        $4.77
    Exercised                                           (38,000)       $2.53
    Forfeited                                          (140,000)       $1.00
    -------------------------------------------------------------------------
    Balance, December 31, 2006                        2,706,000        $2.32
    Granted                                             961,549        $8.58
    Exercised                                        (1,053,666)       $0.87
    Forfeited                                            (2,300)       $6.53
    -------------------------------------------------------------------------
    Balance, September 30, 2007                       2,611,583        $5.21
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock options outstanding at September 30, 2007 are as follows:

                                              Weighted
                                               average
                         Options  Options    remaining
    Exercise price   outstanding   vested  life (years)
    ---------------------------------------------------
    $0.50                 15,000   15,000          6.1
    $0.75                 55,667   55,667          1.6
    $1.50                198,667  182,001          2.1
    $3.00                694,000  537,666          2.5
    $4.00                615,000  205,000          3.2
    $6.50                 72,000        -          4.1
    $6.70                700,249        -          4.5
    $11.80                95,000        -          4.7
    $13.41                16,000        -          4.9
    $14.80               150,000        -          5.0
    ---------------------------------------------------
                       2,611,583  995,334          3.4
    ---------------------------------------------------
    ---------------------------------------------------

    The fair value of each option granted is estimated on the date of grant
    using the Black-Scholes option pricing model with the following
    assumptions:

                                                             2007       2006
    -------------------------------------------------------------------------
    Risk-free interest rate (%)                               4.2        3.8
    Expected life (years)                                     3.0        3.0
    Expected volatility (%)                                    65          -
    Expected dividends                                          -          -

    c)  Warrants

    In conjunction with a private placement of shares in November 2003, the
    Company issued 930,000 warrants to purchase additional common shares at a
    price of $1.50 per share, on a pre-split basis. These warrants vested in
    November 2005. All of the warrants were exercised by February 12, 2006.

    d)  Per share amounts

    The weighted average number of common shares outstanding for the nine
    months ended September 30, 2007 was 35,741,355 (for the year ended
    December 31, 2006 - 26,429,225). The effect of including outstanding
    stock options and warrants is anti-dilutive to the net loss per share
    calculation.

    10. Contributed Surplus

                                     Nine months ended            Year ended
                                    September 30, 2007     December 31, 2006
    -------------------------------------------------------------------------
    Balance, beginning of period             $     598             $     321
    Stock-based compensation expense               985                   286
    Options exercised                              (97)                   (9)
    -------------------------------------------------------------------------
    Balance, end of period                   $   1,486             $     598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    11. Income Tax

    The provision for future income tax expense (recovery) for the nine
    months ended September 30 is as follows:

                                                             2007       2006
    -------------------------------------------------------------------------
    Canada                                              $       -  $       -
    Argentina                                               1,301       (947)
    -------------------------------------------------------------------------
                                                        $   1,301  $    (947)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The provision for income tax recovery is different from the amount
    computed by applying the combined Canadian federal and provincial income
    tax rates to loss before taxes. The reasons for the differences are as
    follows:

                                                             2007       2006
    -------------------------------------------------------------------------
    Loss before taxes                                      (5,660)    (4,122)
    Canadian statutory income tax rate                      32.12%     34.12%

    -------------------------------------------------------------------------
    Income tax recovery at statutory rate               $  (1,818) $  (1,406)
    Effect on income taxes of:
      Non-deductible stock-based compensation                 317         72
      Non-deductible directors' fees paid with shares          20          -
      Non-deductible Argentine interest                     1,008          -
      Effect of Canadian tax rate changes                       -        (68)
      Increase in valuation allowance for Canadian
       losses not recognized                                4,610        746
      Argentine tax rate differential                         263        (17)
      Foreign exchange translation difference              (3,052)      (280)
      Other non-taxable items                                 (47)         6
    -------------------------------------------------------------------------
                                                        $   1,301  $    (947)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    At September 30, 2007, the Company had Canadian losses available to
    reduce future taxable income in Canada, as well as other cumulative tax
    deductions in excess of net book values. The income tax benefit of these
    Canadian losses and deductions has not been recognized in the financial
    statements since their recoverability is uncertain at this time.

    12. Supplemental Disclosure of Cash Flow Information

                                          Three months           Nine months
                                    ended September 30,   ended September 30,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------
    Cash interest paid            $       -  $       -  $     513  $     134
    Cash income taxes paid        $       -  $       -  $       -  $       -

    During the nine months ended September 30, 2007, approximately $689,000
    (2006 - nil) of Argentine receivables for oil sales were settled by a
    non- monetary exchange of services and supplies. The services and
    supplies have been valued at standard industry rates.

    13. Segmented Information

    The Company has corporate offices in Calgary, Canada and in Buenos Aires,
    Argentina. Prior to December 29, 2006 when the Company acquired interests
    in various Canadian non-operated properties, all of its oil and natural
    gas operations were conducted in Argentina.

                       Three months ended            Three months ended
                       September 30, 2007            September 30, 2006
                   Canada  Argentina     Total   Canada  Argentina     Total
    -------------------------------------------------------------------------

    Oil and
     natural gas
     revenue     $     67  $  26,012 $  26,079  $     -  $   5,496 $   5,496
    Royalties
     and turnover
     taxes             (7)    (4,076)   (4,083)       -       (726)     (726)

    -------------------------------------------------------------------------
                       60     21,936    21,996        -      4,770     4,770
    Interest
     income           402         31       433       29          -        29
    -------------------------------------------------------------------------
                      462     21,967    22,429       29      4,770     4,799
    Expenses
      Production       41      5,657     5,698        -      1,623     1,623
      General and
       admini-
       strative     1,931      1,386     3,317      679        488     1,167
      Interest          -          -         -      236          -       236
      Depletion,
       depreciation
       and accretion  108     12,746    12,854       60      2,260     2,320
      Foreign
       exchange
       loss (gain)  6,719     (4,686)    2,033      (53)        31       (22)

    -------------------------------------------------------------------------
                    8,799     15,103    23,902      922      4,402     5,324

    Income (loss)
     before taxes  (8,337)     6,864    (1,473)    (893)       368      (525)
    Future tax
     expense
     (recovery)         -        669       669        -       (139)     (139)
    -------------------------------------------------------------------------
    Net income
     (loss)      $ (8,337) $   6,195 $  (2,142) $  (893) $     507 $    (386)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Property,
     plant and
     equipment   $  1,191  $  81,045 $  82,236  $   685  $  27,397 $  28,082
    Capital
     expend-
     itures      $      6  $  35,670 $  35,676  $    (6) $   8,719 $   8,713
    Total assets $ 28,176  $ 123,974 $ 152,150  $  8,129 $  47,020 $  55,149


                       Nine months ended             Nine months ended
                       September 30, 2007            September 30, 2006
                   Canada  Argentina     Total   Canada  Argentina     Total
    -------------------------------------------------------------------------

    Oil and
     natural gas
     revenue     $    293  $  60,809 $  61,102  $     -  $  11,959 $  11,959
    Royalties
     and turnover
     taxes            (42)    (9,789)   (9,831)       -     (1,757)   (1,757)
    -------------------------------------------------------------------------
                      251     51,020    51,271        -     10,202    10,202
    Interest
     income         1,007         61     1,068      229          -       229
    -------------------------------------------------------------------------
                    1,258     51,081    52,339      229     10,202    10,431
    Expenses
      Production      116     13,445    13,561        -      3,670     3,670
      General and
       admini-
       strative     4,748      3,361     8,109    2,289      2,126     4,415
      Interest      1,252          -     1,252      236          -       236
      Depletion,
       depreciation
       and accretion  535     30,457    30,992      175      5,254     5,429
      Foreign
       exchange
       loss (gain) 13,308     (9,223)    4,085    1,202       (399)      803
    -------------------------------------------------------------------------
                   19,959     38,040    57,999    3,902     10,651    14,553

    Income (loss)
     before taxes (18,701)    13,041    (5,660)  (3,673)      (449)   (4,122)
    Future tax
     expense
     (recovery)         -      1,301     1,301        -       (947)     (947)
    -------------------------------------------------------------------------
    Net income
     (loss)      $(18,701) $  11,740 $  (6,961) $(3,673) $     498 $  (3,175)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Property,
     plant and
     equipment   $  1,191  $  81,045 $  82,236  $   685  $  27,397 $  28,082
    Capital
     expend-
     itures      $     13  $  73,593 $  73,606  $    41  $  20,438 $  20,479
    Total assets $ 28,176  $ 123,974 $ 152,150  $ 8,129  $  47,020 $  55,149


    14. Commitments

    a)  Exploration

    On May 29, 2007, the Company signed a final agreement with the Province
    of La Pampa with respect to the award of the Gobernador Ayala III
    Exploration Concession (GA III Concession). Petro Andina subsequently
    entered into a joint venture agreement under which Petro Andina will
    operate the GA III Concession with a 70 percent working interest, while
    the other parties will share the remaining 30 percent. The two-year work
    commitment with respect to the Concession includes drilling a total of 25
    wells and acquiring 250 square kilometres of three dimensional (3D)
    seismic data. As of September 30, 2007, five wells had been drilled and
    the seismic acquisition had been completed, with data processing to
    commence in the fourth quarter of 2007.

    Under the terms of the GA III joint venture agreement, Petro Andina will
    initially pay 100 percent of the capital costs and associated value added
    tax related to the two-year work commitment on the Concession. If
    commercial hydrocarbon reserves are discovered, 30 percent of the work
    commitment costs and associated value added tax will then be recovered
    from the joint venture partners out of their share of revenues less
    royalties and production expenses ("net revenues") earned from GA III
    production. The joint venture partners will be entitled to 30 percent of
    net revenues from production. Half of these net revenues will be paid to
    them as earned and half will be applied to repay capital costs advanced
    by Petro Andina on their behalf. The amounts due to Petro Andina will be
    secured by an assignment of the joint venture partners' interests in GA
    III. Interest is payable by the joint venture partners on the unpaid
    capital costs, but this interest is also only recoverable from their
    share of net revenues.

    The Company will only recognize a receivable for recovery of work
    commitment costs and interest when commercial reserves have been
    established. The amount of the receivable to be recognized will be
    limited to the joint venture partners' share of estimated reserves, up to
    a maximum of 30 percent of the work commitment costs plus accrued
    interest. As of September 30, 2007, the Company had not yet applied to
    convert any portion of the GA III concession into an exploitation
    concession with commercial reserves. Accordingly, 100 percent of GA III
    work commitment costs incurred have been recorded as capital expenditures
    by the Company.

    b)  Credit facility

    In September 2007 the Company, through its subsidiary Petro Andina
    Resources Ltd., entered into a US$100 million senior first lien secured
    credit facility, to be provided by Macquarie Bank Limited (Macquarie).
    Initial availability under the facility is US$28 million, comprising a
    US$18 million Tranche A component and a US$10 million Tranche B
    component. The first advances under Tranche A of the credit facility were
    made in October 2007.

    The Tranche A availability will be updated based on semi-annual re-
    determinations by Macquarie that the Company's oil and gas reserves will
    support additional lending amounts. The first update will be completed in
    the fourth quarter of 2007. The Tranche B borrowing base is available
    until September 14, 2008.

    The loan facility bears interest at variable rates which, at the
    Company's option, will be based on either LIBOR or US prime (the
    "contract rates"). The Company may select either contract rate to apply
    to each advance for periods of 90 days at a time. The Tranche A facility
    interest rates will be LIBOR plus 2.75 percent per annum or US prime plus
    0.75 percent per annum. The Tranche B facility interest rates will be
    LIBOR plus 5.25 percent per annum or US prime plus 3.25 percent per
    annum. Interest is payable quarterly.

    The loan is secured by a pledge of Petro Andina Resources Ltd. common
    shares and an assignment of the Company's collection rights under all
    agreements related to its Argentine properties, including leases,
    exploration and development concessions, joint venture agreements,
    operating agreements and sales agreements. The loan is not convertible
    into equity.

    The loan agreement provides for amortization of the initial Tranche A
    advances of US$18 million in ten quarterly instalments of US$1,800,000
    commencing on October 20, 2008. However, the amortization schedule may be
    amended and deferred based on the results of the Company's development
    plan and the Company anticipates that principal repayments will not be
    scheduled while funds continue to be advanced. The loan facility matures
    on September 14, 2011.

    15. Contingency

    In March 2006 Petro Andina applied to the Federal Secretary of Energy in
    Argentina to convert 303.5 square kilometres of the CNQ-7/A Concession
    around the Company's producing fields into an exploitation concession.
    The Company has been advised that legal precedent in Argentina provides
    the federal regulator with a period of 60 days to object to the filing.
    If no objection is made, then the operator is permitted to reduce the
    amount of royalties paid from 15 percent to the 12 percent applicable to
    an exploitation concession. Since no objection was received, in mid-May
    2006, 60 days after this application was made, the rate used in computing
    the royalty was reduced to 12 percent. However, the responsibility for
    the granting of exploitation concessions has now been transferred to
    provincial control. In March 2007, the Company received notice from the
    Province of Mendoza claiming royalty adjustments to increase the royalty
    to 15 percent retroactive to May 2006. The claim has been made by a
    provincial government department which is separate from the government
    department responsible for the granting of exploitation concessions.
    While Petro Andina has received assurance from expert advisors and
    regulators that the same precedent will apply, the change in
    administrative jurisdiction introduces an element of uncertainty
    concerning the timing of the royalty rate reduction. To address this
    uncertainty, the Company has decided to accrue an additional royalty
    amount for the period commencing May 2006 equal to one-half of the
    difference between the exploration and exploitation royalty rates or
    1.5 percent. This amount of $1,096,000 has been accrued in the nine
    months ended September 30, 2007. This accrual is planned to continue
    until the bureaucratic process related to the granting of the
    exploitation concession is complete and the matter is resolved.
    

    About Petro Andina Resources Inc.

    Petro Andina is engaged in the exploration for and development and
production of oil and natural gas in Argentina. The Corporation is continuing
to develop its existing reserves and to conduct appraisal and exploration
drilling on its 457,000 acre (260,000 acre net) land position in the Neuquén
basin. 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.

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

    Forward-Looking Statements

    This document contains forward-looking information that involves known
and unknown risks, uncertainties and other factors that may cause actual
results, performance or achievements to be materially different from any
future results, performance or achievements expressed or implied by the
forward-looking information. For this purpose, any statements that are
contained herein that are not statements of historical fact may be deemed to
be forward-looking information, including Management's assessment and
discussion of the Company's plans and future operations. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "intends," "will,"
"should," "expects," "projects," and similar expressions are intended to
identify forward-looking information. The associated risks and uncertainties
include, but are not limited to, the impact of general economic conditions in
Canada and in 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 ability to generate revenue and exploit operating
margins; capital resources; the use of certain technologies and materials;,
annual impairment test;, labour relations; insurance; damage from weather and
other disasters; operating and maintenance risks and environmental risks; new
information regarding reserves; changes in demand for and volatility of
commodity prices of crude oil and natural gas; legislative, regulatory and
political changes; 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 in Argentina,
along with other factors discussed in this presentation. The risks outlined
should not be construed as exhaustive. Many of these risk factors are
discussed in further detail in the Company's final Prospectus dated May 10,
2007 on file with Canadian securities commissions and Petro Andina's website.
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, no assurance can be given that any events anticipated by the
forward-looking statements will transpire or, if they do, what their impact on
the Company might be. Investors are cautioned not to place undue reliance on
any forward-looking information. The forward-looking statements are made as of
the date hereof, and the Company undertakes no obligation to publicly update
or revise any forward-looking information to reflect new events or
circumstances except as required by law. The Company assumes no responsibility
or liability of any nature whatsoever for the forward-looking statements
contained herein.





For further information:

For further information: Melesia Kasha, Investor Relations, Petro Andina
Resources Inc., Phone: (403) 237-1700, Fax: (403) 265-8216; Bill Hogg, Chief
Financial Officer, Petro Andina Resources Inc., Phone: (403) 237-1701, Fax:
(403) 265-8216

Organization Profile

PETRO ANDINA RESOURCES INC.

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