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Colombia

In June 2007, Pan Andean announced a strategic entry into Colombia.

Colombia is a proven world class hydrocarbons province, with excellent infrastructure and a modern operating environment. Over 9 billion barrels of oil and 21 TCF of gas have been discovered in world class basins. However, it is estimated that over 35 billion barrels of oil equivalent remain to be found. The country produces more than half a million barrels of oil per day, has an excellent oil and gas infrastructure and has been a net oil exporter since the mid 1980’s.

Impressive annual economic growth for the past few years, combined with significant reforms, and improvements in the security situation, now make the country one of the most attractive exploration and development plays in the region. Foreign investment is strong, particularly in natural resources, oil and gas legislation is modern and transparent, with royalties ranging from 5% to 25% depending on production volumes, and effective corporate income tax rate of around 35%.

Colombia is a highly competitive place in which good opportunities are hard to find. Therefore, a significant amount of resources have been dedicated to screening, technical work, and project evaluation since early 2007, in order to select as fast as possible the best fit for Pan Andean. Our focus has been in looking for high potential exploration opportunities in bypassed areas at shallow depth that can be accessed in non competitive bidding rounds by direct negotiation with the government. We have also been evaluating a number of exploration farm in and production redevelopment opportunities that could be material to Pan Andean.

To aid the Company’s progress towards identifying value enhancing projects Pan Andean partnered with AGN Exploration Petroleum Consultants, a highly respected Colombian firm that provides integrated E&P consulting services with over 30 years of local E&P experience. Our highly experienced local team is currently evaluating a number of potential projects, that could add considerable value to our portfolio.

Antorcha Block

In November 2007 Pan Andean signed an exploration and production contract on a 100% basis with the Agencia Nacional de Hydrocarburos (ANH), Colombia’s resource management agency, to explore the 35,000 hectare Antorcha block located in the prolific Middle Magdalena Basin. Pan Andean holds a 100% interest in the block.

The Antorcha block is located up dip of existing heavy oil producing fields, the Velasquez-Palagua field with more than 300 million barrels of oil reserves, and the Teca-Cocorna-Nare-Jazmin heavy oil field with more than 1,000 million barrels of oil in place. The Antorcha block is thought to have the same petroleum geology as adjacent producers.

Preliminary studies suggest significant undiscovered heavy oil potential at shallow depths of less than 2,000 feet. Between 1 and 2 billion barrels of heavy oil in place could exist on the block with 100 to 300 million barrels of recoverable reserves, using parameters of nearby fields i.e. porosity 20 – 25%, oil saturation 60%, average net oil thickness of 100 – 200 feet, recovery factor of 10 - 15%. Expected crude quality could be in the range of 10° to 20° API.

The block has little seismic coverage, with only the tails of 5 seismic lines. Nine stratigraphic wells were drilled by Texaco in the 1950’s and another three wells were drilled during the 1980’s. Several of these found heavy oil shows, and some were considered as potential producers. However, low oil prices then prevailing, early technology, the oil gravity, and exploration targets elsewhere meant that the area remained off the radar screen of mainstream explorers.

Pan Andean’s exploration programme in the Antorcha block will consist of regional studies, focused seismic acquisition in part of the block, and drilling one shallow well. The programme is expected to be undertaken in 18 months, but given the scope of work, excellent above ground conditions, and equipment availability for this type of drilling, the programme is likely to be expedited.

Oil infrastructure is available in the near by Teca-Cocorna field, and in general in this portion of the basin. Near by transportation facilities are also extensive. Three main pipelines with large spare capacity run across the area. Ecopetrol pipeline to the Barranca refinery, and the Ocensa and Colombia pipelines to the exportation port.