Results for year ended 31 March 2008
Highlights
• 40% increase in pre-tax profits to £1.2 million
• Three Peruvian exploration blocks farmed out on good terms. A fourth block won September 2008
• Drillable targets identified on the Antorcha block in Colombia. Drilling possible early 2009
• Exploration block awarded in Colombia. Work to date suggests good prospects for drilling success
• Successful well drilled on block High Island 52, Gulf of Mexico by Phoenix. producing at up to 6mmcfd
• Danbury Dome, Texas, deep drilling commenced September 2008
Pan Andean remains one of the few cash positive and profitable AIM listed oil and gas companies. In the period under review our pre-tax profit increased by 40%. The very large tax provision which drove down post tax profits is due to the release of a deferred tax asset in Bolivia. It is most unlikely to affect cash.
United States
The highlights of Pan Andean's US activities were the restart of production on High Island 30 and the bringing on stream of the Phoenix well on High Island 52.
High Island 52 is the source of most Pan Andean income. Woodside is producing over 30 million cubic feet of gas a day (mmcfd) from three wells. Pan Andean holds a 1.32% royalty. Phoenix has been producing up to 6mmcfd from a single well on the block. Pan Andean holds a 2.15% royalty on this production. By selling the existing platform on High Island 52 to Phoenix, Pan Andean was relieved of abandonment liabilities of US$6 million.
High Island 30 (62.9% Pan Andean) operated by Hunt Oil was restarted in April 2008 at a rate of production of 70 barrels a day. This is lower than expected but it is still cash positive. Pan Andean also receives a significant monthly income from Hunt Oil for the platform on High Island 30 through which Hunt Oil pumps oil from an adjacent block.
Exploration - After many months of trying, a consortium was put together to drill Pan Andean's onshore Danbury Dome acreage. A deep well commenced in September 2008 targeted at a 3D seismic identified structure around a depth of 13,000 feet. Pan Andean has a 20 per cent carry and a 15 per cent working interest in the well. This is a frontier prospect. Both Hunt Oil on High Island 30 and Phoenix on High Island 52 have identified drillable targets.
Colombia
Pan Andean activities are increasingly focused on South America where political risk has decreased and fiscal terms improved. Colombia is an established oil and gas province yet large parts of the country remain unexplored. Pan Andean won 100 per cent of the 35,000 hectare Antorcha block in a 2007 bidding round. This is a heavy oil play in the Middle Magdalena basin. The company have completed surface mapping, re-processing 70km of seismic, data acquisition, reintrepretation of well data and a 60km 2D seismic survey at a cost of $1.4 million. Potential unrisked reserves are estimated at 100 to 300 million barrels of oil. A well should be drilled in 2009.
Peru
Once the award of the fourth block, 161, to Pan Andean is finalised, Pan Andean will be the fifth largest onshore ground holder in Peru. In successive bidding rounds, the company have been awarded Block 114, then Blocks 131 and 141 and recently Block 161.
Pan Andean has farmed out the first three blocks, two to CEPSA of Spain and one to Reliance of India.
Block 114 is located in the Ucayali basin in central Peru. Four wells drilled in the 1970s and 1980s encountered oil and 2,000km of seismic were run. Pan Andean completed seismic processing and an environmental impact assessment prior to farming out to CEPSA. Under the terms of the farm-out, Pan Andean holds a 30 per cent interest with a full carry through the first well and a 50 per cent carry through the second. In addition, subsequent to year end, CEPSA paid $3 million of back costs. A 300km 2D seismic survey is planned for early 2009. An initial well is possible in late 2009.
CEPSA also farmed into Block 131 adjacent to Block 114 in the Ucayali on similar terms. There are known oil seeps on this block and 750km of existing seismic of which 500km have been reprocessed by Pan Andean. A 1,000km seismic survey is planned prior to drilling in 2011.
Reliance Industries of India has farmed into Block 141 in the Lake Titicaca area. Pan Andean retains a 10 per cent to 30 per cent interest through to commercial discovery. The percentage interest will depend on the size of any commercial discovery. Block 141 is a frontier prospect covering 22,000 sqkm. There is limited seismic on the block. Having undertaken geological studies, Pan Andean and Reliance are targeting gas at deeper levels where an unrisked P50 recoverable resource of 80 million barrels of oil equivalent is estimated. An aeromagnetic survey is planned for late 2008 to be followed with seismic in 2009 and a well in 2010. It is estimated that Reliance will spend $40 million on this phase of exploration.
In the Peruvian oil tender of September 2008, Pan Andean was awarded Block 161 in the Ucayali basin. This is a 492,000 hectare block with oil seeps, 925km of seismic and 5 wells. Three prospects have already been identified. This former Hess Corporation block is a prized asset for Pan Andean. The planned work schedule involves reprocessing the seismic, reinterpreting the well logs, running new seismic and drilling at least one well.
Bolivia
Pan Andean has operated in Bolivia since 1988. Political uncertainty and sub-economic commercial terms have made new investment unfeasible.
Together with Repsol (50%) and Petrobras (20%), Pan Andean have a 30 per cent interest in the eleven well Monteagudo gas field in central Bolivia. It is not economic at present.
Pan Andean hold a 10% interest (BP 90%) in the El Dorado gas discovery near Santa Cruz in the lowlands. This discovery is very well positioned close to the Brazil-Bolivia pipeline and to the power hungry city of Santa Cruz. Recent improvements in gas prices paid by the State may offer some commercial justification to develop El Dorado. A seven to nine well development programme is under consideration.
Other Countries
Pan Andean continue to examine prospects in other parts of Central and South America but the rise of economic nationalism fuelled by high oil prices makes investment in many countries unattractive. The company are holding a watching brief on projects in the Middle East and Africa.
