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United States - Gulf of Mexico and Onshore Texas

Pan Andean, through its wholly owned subsidiary Endeavour Oil and Gas Inc, produces oil and gas in the Gulf of Mexico (offshore) and Texas (onshore). Since its acquisition in 2000, Endeavour has increased profits each year.

United States - Gulf of Mexico

High Island 52 (HI 52)

HI 52 was discovered in 1959 by the Standard Oil Company of Texas and is composed of 6 offshore continental shelf leases covering all of Block 52 and a portion of Block 53. Production commenced in October 1959. Most of the producing wells were drilled in the 1960’s and 1970’s by Standard Oil which later became Chevron. El Paso became field operator in 1996.

In 2000, a portion of the block, lease number 508, located in the northeast quarter of 52 was farmed out to Gryphon Exploration, which was subsequently purchased by Woodside Petroleum in 2005. Gryphon drilled three deep wells to test an older section below the previous producing intervals. All 3 wells were discoveries and are currently producing over 35 million cubic feet of gas daily. Pan Andean holds a royalty interest of 1.32%, which produces significant cash flow each month. To date, we have received over $10million in royalty income.

In November 2006, Pan Andean farmed out the balance of the block to a US company, Phoenix Exploration Inc, whereby they have an option to drill the deep plays on most of HI 52, excluding lease 508, in return for a royalty and release of all future liabilities. In Q2 2007, Phoenix drilled a successful well to a target depth of 8,700 feet and encountered over 160 feet net pay of hydrocarbon column in three separate sections. The well has been producing at between 5 and 6 million cubic feet of gas per day.  Pan Andean has been receiving a 2.15% royalty on all revenues from this well. Phoneix has now earned into the block and has taken over the platform and related abandonment liabilities, estimated at $6 million. Phoenix has plans to drill a deep well late 2008 or early 2009. Pan Andean will receive a 2.15% royalty from all future wells to be drilled by Phoenix.

High Island 30L (HI 30L)

Pan Andean has a 62.9% working interest in HI 30L which is a single platform field in Texas State waters. The field was discovered in 1977 by Kilroy Company of Texas and to date has produced 8.5 million barrels of oil and 7 billion cubic feet of gas..

HI 30L platform was shut in October 2005 due to damaged caused by hurricanes in the Gulf of Mexico.

In December 2006, Hunt Oil, a 12.5 % partner in HI 30L drilled two successful wells in adjoining block HI 31L. Hunt then entered into a Production Handling Agreement with Pan Andean, whereby Hunt will pay a fee to pipe their oil and gas to HI 30L. In addition, Hunt became operator of HI 30L. With Hunt as operator, the HI 30L platform has been upgraded and modified so it can accomodate production from HI 31L, as well as our own production. New Dehydration and Separation and Compression equipment has been installed. New pumping arrangements for transporting the oil and gas shore were entered into with Tammany Oil, the owners of HI 24.

The oil, gas and water production from both HI 30L and HI 31L is separated and measured at HI 30L. Resevoir water is dumped overboard. The gas is piped directly to shore where it is sold to Kinder Morgan. The oil is pumped into the 8 inch pipeline from HI 30L to HI 24. The diagram below demonstrates the complexity of the logistics. At HI 24, we have a dedicated separator to measure the oil flow stream before it is commingled with HI 24 production and pumped to shore, where it is sold to Plains Resources.

In March 2008, the problems with the pipeline owned by Tammany were finally solved and production on HI 30L restarted. Since then the well has been producing aproximately 75 barrels of oil per day. Because the current resevoir pressure is so low, producing at higher flow rates drags formation sand into the well base and then uphole into the surface equipment. When that happens, it shuts down the entire operation until the sand can be cleared out. The answer in the short term is to hold the production rate at 75 barrels per day. Hunt and Pan Andean are continuing to look at ways of increasing production, which may involve a work-over on the well.

We are also evaluating a drilling prospect which has been identified on the block, which may contain over 1 million barrels of oil and 2bcf of gas. The prospect is at 9,000 feet. The estimated cost of drilling is $6 million with a further $4 million for completion.

United States - Onshore Texas

Danbury Dome, Brazoria County, Texas

Situated onshore Texas, 40 miles south of Houston, this is a salt dome lease covering over 800 acres. The Danbury Dome area is a prolific producer of oil and gas, having produced 67 billion cubic feet (bcf) of gas and 91 million barrels of oil to date. Pan Andean and its technical team have identified the Anomalina Danbury Prospect which is on trend with other Frio-Age Anomalina production at Chocolate Bayou, southwest Danbury, and other prolific fields.  The prospect reserves are estimated at approximately 28bcf of low-risk attic reserves up-dip from a well that tested 85 million cubic feet of gas daily and watered out in 1965.

In August 2008, a consortium of North American companies was formed to drill Danbury Dome. Under the terms of the agreement, Pan Andean will have a 20 per cent free carry after pay-out following commercial discovery. In addition, Pan Andean will participate for an additional 15 per cent. This will give Pan Andean a net 31.25% interest if this well is a discovery. The well, which will take approximately 45 days to drill to a target depth of 13,500 feet is being drilled and operated by Turnkey E&P Corporation. Drilling commenced on September 16, 2008.

Vrazel, Brazoria County, Texas

Pan Andean holds a 20.9% working interest and a 14.80% net revenue interest in this 245.48 acre lease. The Vrazel well was drilled in 2004 and has been producing continuously since then. Since 2004, the well has produced over 700 million cubic feet of gas and 17,000 barrels of condensate. The existing zone is almost depleted but there is one remaining commercial behind pipe zone to be tested. The operator has identified two new drilling locations, which he is considering selling to third parties.

North Bob West Field, Zapata County, Texas

Pan Andean holds a 20.9% working interest and a 14.80% net revenue interest in this 245.48 acre lease. The Vrazel well was drilled in 2004 and has been producing continuously since then. Since 2004, the well has produced over 700 million cubic feet of gas and 17,000 barrels of condensate. The existing zone is almost depleted but there is one remaining commercial behind pipe zone to be tested. The operator has identified two new drilling locations, which he is considering selling to third parties.

Pan Andean has an override royalty interest of up to 1% in the field area. There are currently sixteen wells producing approximately 1.982 million cubic ft per day as of July 1st, 2008.

Earlier this year, EL PASO sold thirteen wells of the sixteen wells to Crimson Exploration Inc (Crimson). Crimson has plans to drill and develop all remaining undeveloped reserves that are economically viable; however, Crimson will conduct a new geological study before committing to any new development plans. Crimson plans to complete this study in the next six to twelve months.