/NOT FOR DISTRIBUTION TO US NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE
CALGARY, Aug. 13 /CNW/ - Petro Andina Resources Inc. (the Company) is
pleased to announce its operating and financial results for the six months
ended June 30, 2007. Copies of the 2007 second quarter financial statements
and related Management's Discussion and Analysis (MD&A) for the six months
ended June 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.
- Construction of the 15,000 barrels per day gross oil processing
facility at El Corcobo Norte (ECN) was completed, commissioning began
in early August, and
- Petro Andina assumed operatorship of the Gobernador Ayala CNQ-7
Concession, in which the Company has a 47.48 percent working
Highlights of the Second Quarter
- Commenced trading on the Toronto Stock Exchange on May 23, 2007 after
the successful completion of the Company's initial public offering of
6.7 million common shares at $9.00 per share for total proceeds of
- Increased average net production to 5,625 barrels of oil equivalent
per day, a 49 percent increase over the first quarter of 2007 and a
474 percent increase over the same period in 2006,
- Drilled 35 (17.5 net) wells with a 91 percent success rate,
- Awarded Gobernador Ayala III (GA III) Exploration Concession by La
Pampa province on April 30, 2007, and signed governing agreement with
the province on May 29, 2007,
- Identified and permitted seven exploration drilling locations on the
GA III Concession, and
- Increased continuous drilling operations to four rigs supported by
four workover rigs.
Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
------- ------- ------- -------
Oil (bbls/d) 5,604 980 4,683 859
Natural gas (mcf/d) 128 - 137 -
Total (boe/d) 5,625 980 4,706 859
(thousands of Canadian dollars
except per share amounts)
Oil and natural gas revenue 20,867 3,799 35,023 6,463
Net loss (3,448) (1,641) (4,819) (2,789)
Per share - basic(1) $ (0.08) $ (0.07) $ (0.14) $ (0.11)
Per share - diluted(1) $ (0.08) $ (0.07) $ (0.14) $ (0.11)
Funds flow from operations 9,725 288 16,034 143
Per share - basic(1) $ 0.27 $ 0.01 $ 0.47 $ 0.01
Per share - diluted(1) $ 0.26 $ 0.01 $ 0.46 $ 0.01
Total assets (end of period) 145,251 43,762 145,251 43,762
Working capital (end of period) 58,742 8,531 58,742 8,531
Long-term debt (end of period) - - - -
Weighted average shares out-
Basic 35,464 25,185 33,799 24,816
Diluted 38,401 26,675 36,519 26,038
Outstanding shares (end of
Basic 39,328 25,185 39,328 25,185
Diluted 42,019 27,855 42,019 27,855
(1) Restated to reflect two-for-one stock split in September 2006.
Selected Operational Highlights
During the second quarter of 2007 the Company continued drilling and
completion operations on its four current field development areas of El
Corcobo Norte (ECN), Jaguel Casa de Piedra (JCP), Cerro Huanul Sur (CoHS) and
Puesto Pinto (PP), all of which are located within the Company-operated
CNQ-7/A Concession, in which the Company holds a 50 percent working interest.
Optimization of the drilling fleet across the CNQ-7/A Concession resulted
in achieving overall drilling times of less than seven days per well. As a
result of improved drilling performance, by the end of the second quarter
production growth had become constrained due to a backlog of wells awaiting
completion, despite the expansion of the service rig fleet to four units. This
improvement in drilling productivity also allowed the Company to allocate
drilling resources to incremental exploration activity while still meeting its
development drilling objectives. Higher-than-expected well productivity has
allowed the Company to exceed its budgeted production targets.
- Field Development
- El Corcobo Norte
The Company's drilling focus continued to be its ECN development area
within the CNQ-7/A Concession. Twenty five wells (12.5 net) were drilled and
completed during the three months ended June 30, 2007 and a total of 65 wells
were on production in the field at the end of the quarter. The program to
define the updip, north-east limit of the field continued, and thick pay was
encountered in the ECN-84 well, which is located one and one half kilometres
north of previously drilled locations.
- Cerro Huanul Sur
During the second quarter the Company drilled an additional three
(1.5 net) wells at CoHS and at the end of the quarter eight wells in the field
were on production. CoHS will be developed on a staged basis following
evaluation of the two-well cyclic steam pilot. If successful, the pilot will
be expanded into an eight-well steamflood project, and with further success,
will be scaled up to incorporate the whole field.
- Puesto Pinto
To the end of the second quarter the Company had drilled a total of
12 wells into the PP accumulation since commencing drilling in the third
quarter of 2006. Nine of these wells were on production at the end of the
second quarter. The field's south lobe has been delineated to a water line,
and plans are being developed to evaluate the northern extent of the resource.
- Jaguel Casa de Piedra
The Company is considering drilling pilot horizontal wells at JCP to
evaluate a deep producing horizon in the JCP area. One 900 horsepower drilling
rig currently under contract is capable of conducting this program. With the
assumption of operatorship of the adjacent CNQ-7 acreage which surrounds JCP,
Petro Andina is positioned to resume step-out appraisal drilling around this
field. No new wells were drilled during the second quarter of 2007. Seventeen
wells at JCP were on production at the end of the second quarter.
- Reservoir Management
Infill drilling continues throughout the four fields. This is aimed at
achieving well spacing that supports increased reserves booking of the
existing resource. The dense infill drilling, on a planned 20 acres average
spacing, will also facilitate water injection for pressure maintenance.
Injection is planned to commence at two additional waterflood patterns at ECN
in the third quarter.
- Facilities and Pipeline
Construction was completed in July on the 15,000 barrels per day gross oil
processing facility at ECN, and electrical power was turned on August 1st.
Commissioning commenced in early August. The commissioning process and the
ramp up to full treatment capacity will continue during the third quarter. The
ECN facility is designed to expand water handling capacity to 43,000 barrels
of water per day. When the facility is optimized, the Company should be able
to reactivate higher watercut wells that are currently shut in. Production
increases during the second quarter were constrained by limited water handling
capacity at the existing JCP facility.
A 12-inch diameter, 20 kilometre pipeline has been laid between ECN and
JCP to reduce field trucking. The in-field pipeline will be activated in
conjunction with the commissioning of the ECN facility. This pipeline has the
same specifications as the 80 kilometre export pipeline to the Puesto
Hernandez pipeline terminal, which is scheduled to be commissioned in the
first quarter of 2008.
Petro Andina is also constructing a 5,000 barrels per day (2,500 net)
offloading facility at Repsol-YPF S.A.'s (Repsol) complex at Puesto Hernandez.
The objective is to send crude oil from the CNQ-7/A Concession north to
Repsol's Lujan de Cuyo refinery near Mendoza. This trucking facility will help
insure that Petro Andina's production can continue to grow while the export
pipeline is being constructed.
- Gobernador Ayala III
On April 30, 2007, the decree was signed by the Province of La Pampa to
award Petro Andina the Gobernador Ayala III (GA III) Exploration Concession.
On May 29, the Company entered into an agreement with the province governing
the operation of the Concession. Petro Andina has finalized a joint venture
arrangement with ENARSA S.A., the Argentine state oil company founded in 2004
which will result in the Company operating GA III with a 70 percent working
The two-year work commitment in the Concession agreement includes a total
of 25 wells and a three-dimensional (3D) seismic acquisition program.
Exploration drilling and seismic acquisition began in early July. It is
expected that the 3D data will be processed and interpretation will commence
prior to year-end. The Company anticipates drilling up to ten exploration
wells on the GA III acreage during the balance of 2007.
Petro Andina is now the most active operator in La Pampa.
On July 8, 2007, Petro Andina assumed operatorship of the Gobernador Ayala
CNQ-7 Concession, in which the Company has a 47.48 percent working interest.
Previously the Concession had been operated by Petrobras Energia S.A. with a
minority 22.51 percent interest. Repsol holds the remaining 30.01 percent.
Petro Andina believes that having one operator north of the Colorado River
will permit operating efficiencies across the neighbouring CNQ-7/A, CNQ-7 and
GA III Concessions. The CNQ-7 Concession holds a number of stratigraphic and
structural targets of interest to the Company. As a result of this transfer of
operatorship, Petro Andina operates 98 percent of its 457,000 gross acres.
- Enhanced Recovery
Pilot programs are underway in the JCP and ECN fields where most of the
Upper and Lower Centenario reservoir sands found to date in these fields
appear to be amenable to waterflood. Water injection at ECN into the Lower
Centenario Formation through the ECN-32 well began on April 21, 2007 with
cumulative injection to date exceeding 50,000 barrels of water. Pressure
appears to have stabilized in the offsetting wells. Development drilling will
continue throughout the ECN field with a well spacing and pattern adequate to
support waterflood throughout the field. The Company has been injecting water
at JCP since November 2005. Over 300,000 barrels of water have been injected
to date and all wells in the pilot have shown confirmed pressure and
production response. The Company anticipates that once the facilities for
water handling are optimized re-injection of produced water will begin.
The Company believes the Cerro Huanul Sur reservoir may be amenable to
thermal recovery and is preparing to conduct a staged pilot project commencing
with cyclic steam injection and, thereafter, evolving to steamflood.
Critical components for the project have been purchased and are in various
stages of delivery. Injection is expected to commence in the third quarter of
2007. This field has been identified as an excellent candidate for thermal
recovery because the thick reservoir is relatively continuous across the
four-square-kilometre extent and has few vertical disruptions. It is located
in proximity to both the central production facilities at ECN and the battery
at JCP. The pilot is being set up to evolve into any of a five, 10 or 20 acre
By the end of the second quarter the Company had drilled four of the
16 exploration wells contemplated within the 2007 capital budget. Testing of
these wells will take place during the third quarter. Based on Petro Andina's
experience, exploration wells require approximately 10 days to drill, compared
to less than seven days for development and appraisal wells.
To date, almost all of the Company's drilling activity has been conducted
within the outline of the 200 square kilometres of 3D seismic that was shot in
2004. The interpretation of the 700 square kilometres of 3D seismic shot in
2006 has been completed and Petro Andina's exploration staff are generating
prospects based on that interpretation. Within the limited area worked to
date, the Company has explored approximately one-third of the reservoir
horizons that it currently sees as prospective.
Selected Financial Highlights
Three months Six months
ended June 30, ended June 30,
2007 2006 2007 2006
------- ------- ------- -------
Average daily production - boe/d
Argentina 5,601 980 4,680 859
Canada 24 - 26 -
5,625 980 4,706 859
Netback (thousands of Canadian
Oil and natural gas revenue $ 20,867 $ 3,799 $ 35,023 $ 6,463
Royalties and turnover taxes (3,740) (570) (5,748) (1,031)
Net revenue 17,127 3,229 29,275 5,432
Production expenses 4,294 1,129 7,863 2,047
Netback $ 12,833 $ 2,100 $ 21,412 $ 3,385
Average sales price ($/boe) $40.76 $42.59 $41.12 $41.55
Average netback ($/boe) $25.06 $23.55 $25.14 $21.76
All of the Company's Argentine production is from CNQ-7/A. In June 2007,
there were 99 wells producing in CNQ-7/A compared to 23 in June 2006. This is
a result of the successful development activity undertaken by Petro Andina
over the past year.
Oil and natural gas revenue increased by 442 percent from $6.5 million in
the first half of 2006 to $35.0 million in the first half of 2007. The
increase was due to a 448 percent increase in sales volumes in the first six
months of 2007 over 2006, while realized pricing remained virtually unchanged.
For the six months ended June 30, royalties and turnover taxes increased
from $1.0 million in 2006 to $5.7 million in 2007, while the average royalty
rate remained consistent at 16 percent in both periods. 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. 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 $758,000 has been reflected in royalty expense in
the second quarter of 2007. This accrual is planned to continue until such
time as the bureaucratic process related to the granting of the exploitation
concession is complete and the matter is definitively resolved.
Total production expenses for the first six months of the year were
$9.23 per barrel in 2007 compared to $13.16 per barrel in 2006. The Company's
average costs per unit in Argentina are decreasing as volumes increase and
operating efficiencies are realized. In the first six months of 2007, the
Company's field staff were successful in reducing trucking costs by increasing
trucking efficiency and making road improvements. Trucking costs are expected
to decrease further when a treatment facility is completed at ECN, which has
been constructed and is currently being commissioned.
The net loss for the six months ended June 30, 2007 was $4.8 million,
compared to $1.5 million in the same period of 2007. Comparing the two
periods, operating netbacks increased by $18.0 million as outlined above,
offset by increases in general and administrative expenses of $2.8 million and
increases in depletion, depreciation and amortization (DD&A) of $15.0 million.
The increase in DD&A costs is directly related to higher production levels.
Interest expense also increased by $1.3 million related to the $11.0 million
debenture that was taken out in August 2006. Petro Andina also recorded an
income tax expense in 2007 compared to a recovery in 2006 since the Company's
operations in Argentina are becoming taxable.
Cash flow from operations in the first six months of 2007 increased to
$16.0 million from $0.1 million in the same period last year. At June 30,
2007, Petro Andina had $57.4 million of cash on hand, compared to
$37.2 million at December 31, 2006. Including cash, Petro Andina had working
capital of $58.7 million at June 30, 2007, compared to $29.0 million at
year-end 2006. The increase in cash is a result of the Company's initial
public offering of 6.7 million common shares at $9.00 per share, for total
gross proceeds of $60.3 million ($55.7 million net after agents' fees and
other expenses). The offering closed on May 23, 2007.
Petro Andina 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. As
previously disclosed, the Company is in the process of establishing a
reserves-based borrowing facility. The selection process to identify the
lender is complete and discussion of the credit agreement is well advanced.
Petro Andina anticipates the maximum amount of the facility will be
US$100 million, with an initial capacity of approximately US$30 million. The
agreement will contain normal commercial terms, based on a floating interest
rate equal to LIBOR plus an increment. Petro Andina believes the financing
will be completed before the end of the third quarter of 2007.
Conference Call & Webcast
Petro Andina will host a conference call and webcast at 10.00 a.m. MT
(8.00 a.m. ET), Wednesday August 15, 2007 to discuss the Company's 2007 second
quarter operating and financial results. The call will be open to analysts,
investors and all interested parties.
To participate in the conference call, please dial 1-866-898-9626 or
(403) 410-9170. Pass codes are not required. A live audio webcast of the
conference call through Windows Media Player may be accessed at the following
link http://events.startcast.com/events/45/B0001 This link will also be
available under Investor Relations on the Company's website at
About Petro Andina Resources Inc.
Petro Andina is engaged in the exploration for and development and
production of oil and natural gas in Argentina and, to a lesser extent, in
Canada. 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
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.
Certain information set forth in this press release, including a
discussion of future plans and operations, contains forward-looking statements
that involve substantial known and unknown risks and uncertainties. These
forward-looking statements are subject to numerous risks and uncertainties,
some of which are beyond Management's control, including but not limited to,
the impact of general economic conditions, industry conditions, fluctuation of
commodity prices, fluctuation of exchange rates, environmental risks, industry
competition, availability of qualified personnel and management, stock market
volatility, timely and cost effective access to sufficient capital from
internal and external sources. Actual results, performance or achievement
could differ materially from those expressed in or implied by these
forward-looking statements. For more information please contact Petro Andina
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: