Pan Andean expects to accept Petrominerales bid for Colombian and Peruvian interests

Thursday, December 17, 2009

Pan Andean Resources (AIM: PRE), which is preparing to sell its Colombian and Peruvian assets to Petrominerales, reported on its interim results today, posting its first loss in a decade as US gas prices declined dramatically to take a heavy toll on the performance on its cash generating US assets.

The company’s revenues for the six months to 30 September fell 60% year on year to £468,000, predominantly due to the fall in US gas prices, which, however, resulted in a loss of just £37,000 as the group was able to trim costs, reducing administrative charges by £40,000. Pan Andean made a pre-tax profit of £618,000. Basic losses per share amounted to 0.03 pence compared to earnings of 0.36 pence for the first half of 2008.

The board is expecting to sell off its prime exploration properties in Peru and Colombia to Petrominerales with “great reluctance and considerable discussion” among top management to return £18 million in cash to shareholders, while reaffirming its belief in the potential of its cash generating US and Bolivian assets, intending to focus on extracting value from these assets after the deal with Petrominerales closes early next year.

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The oil block in Antorcha inspired “high hopes,” yet the group failed to find a farm-out partner and decided against undertaking a discounted fundraising to raise the US$10 million necessary to drill the hole by itself, which, combined with the declines in income due to the falling gas prices, propelled the decision to agree to sell-off part of its South American business.

Under the terms of the offer from Petrominerales, Pan Andean’s existing shareholders will get 15 pence for each share in Pan Andean plus one share in newly formed entity Hydrocarbon Exploration, which will assume ownership of the company’s US and Bolivian assets.

“By selling our Peruvian and Colombian portfolio, we are able to hand back £18 million to investors, while there is significant potential value in the remaining assets. As David Horgan, the long time Managing Director commented using football parlance, ‘We got a draw.’ In the high risk world of oil exploration, and in the current economic climate, that is a result,” said Chairman of Pan Andean John Teeling.

The bulk of the group’s revenues is generated in the United States, where Pan Andean is entitled to royalties of 1.32% and 2.15% from the Gryphon and Phoenix rigs respectively, both of which operate on the High Island 52 block, producing 20 million cubic feet of gas per day (mmcfd) and 6 million mmcfd respectively.

Pan Andean has two joints ventures (JVs) to develop blocks 114 and 131 in the Ucayali basin and block 141 in the Altiplano around Lake Titicaca and was awarded block 161 in Peru. The Antorcha block in Colombia has estimated oil reserves of 600 million to 1.6 billion barrels with a 10% to 15% recovery.

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