PGR.L Regulatory News (PGR)

2 September 2014

Andes Energia plc

("Andes" or "the Company")

Colombia financing update and asset acquisition option

The Board of Andes (AIM: AEN; BCBA: AEN), the Latin American E&P group, is pleased to announce that, subject to completion, an agreement has been reached with Trayectoria Oil & Gas ("TOG"), a well-known Colombian E&P company, to provide cash guarantees and working capital of US$6.2 million for three of its Colombian exploration blocks acquired in the 2012 licensing round and assume the obligation to repay US$7.0 million of Andes existing debt.

In addition, Andes has the option to acquire two Colombian producing assets from TOG for US$12.0 million with potential for shale oil production.

Details of the agreement:

· TOG to pay Andes US$6.2 million to finance the guarantees for three of Andes' Colombian exploration blocks LLA 2, LLA 12 and LLA 79 as required by the Agencia Nacional de Hidrocarburos ("ANH"), the Natural Hydrocarbon Agency of Colombia and working capital, in exchange for the issue of 7,891,139 Andes ordinary shares of 10 pence each ("Ordinary Shares") at 47p per Ordinary Share and a rate of exchange of US$/£ 1.6705.

· TOG to repay US$7.0 million of Andes's existing debt, to be satisfied by the issue of 8,915,661 Ordinary Shares at 47p per Ordinary Share and a rate of exchange of US$/£ 1.6705.

· On completion of the agreement Andes will have six guarantees in place for eight of its blocks acquired in the 2012 Colombian licensing round.

· At Andes's option, an agreement for US$3.9 million to finance the guarantees for the two remaining exploration blocks acquired in the 2012 Colombian licensing round, which are expected to be required within the next 12 months.

· Andes has the option to acquire interests in two additional blocks in Colombia for US$12.0 million.

o The two blocks have the potential to add initial net production of 150 boepd to the Company, 1.7 million boe of proved and probable reserves ("2P") and according to management's estimates, 60 million boe of prospective shale resources.

o Block details: 45% interest in the Carbonera field in the southwest flank of the Maracaibo basin and 10% interest the Yamù field in the Llanos basin.

o Assuming the option is exercised, the acquisition cost will be satisfied by the issue of 15,283,996 ordinary shares at 47p and a rate of exchange of US$/£ 1.6705.

· At Andes's option, a funding agreement to support the seismic acquisition for 3 Colombian blocks up to an amount of approximately US$10.0 million, through a financing facility or farm-in to the blocks.

Upon completion of the funding agreement of US$13.2 million, the Company will issue 16,806,800 OrdinaryShares at 47 pence per Ordinary Share and a rate of exchange of US$/£ 1.6705. As a consequence, TOG will hold 3.16% of the current outstanding shares of Andes as enlarged by the issue of these new Ordinary Shares. In the event Andes exercises the option to buy the assets for US$12.0 million, Andes will issue a further 15,283,996 Ordinary Shares at 47p per ordinary Share and a rate of exchange of US$/£ 1.6705 increasing TOG's interest to 5.87%. TOG is committed to being a long-term shareholder of Andes and has agreed to a lock-in agreement in respect of the shares received. Subject to completion of the agreement, TOG will also receive warrants to subscribe for 7 million shares at a price of 60 pence per share.

Alejandro Jotayan, CEO of the Company, commented: "With this transaction Andes re-inforces its position as a growing South American E&P player.  The funding of our guarantees in Colombia, reduction of our debt and the option to acquire reserves and production in Colombia in the future, further strengthens Andes' cash flow, capital structure and our exploration and development execution capabilities. We are delighted to welcome Trayectoria, a well-respected private oil player in Colombia, as a shareholder and look forward to working with them to bring future growth and value creation for the Company."

Fields descriptions:

Carbonera

The Carbonera field in the Carbonera block is located in the Catatumbo sub-basin, northeast Colombia, which is an extension of the Maracaibo basin, one of the most prolific basins in the world. The block is located 90 km to the northwest of Cucuta city and has a surface area of 255 km² (63,700 acres). Four wells have been drilled on the field to date, with production reaching 150 boepd of gas and condensate from one well, from the La Luna formation in a naturally fracked area. La Luna is a world class source rock comparable to Vaca Muerta and Eagle Ford, and is present across the block in both the oil and gas windows. Andes intends to further study the block's potential for unconventional shale production. Currently, work is in progress to put into production a second well which will allow the field to reach total production of 300 boepd. Existing facilities are in place to evacuate and process the gas, consisting of a five miles gas pipeline and a dehydration plant. The block is also in close proximity to the Caño Limon-Coveñas pipeline and Tibu field, operated by Ecopetrol. An existing contract to monetise the gas is in place and the plan is to increase production through the re-opening of non-producing wells and enter into new commercial contracts. The field operates under a contract with the ANH, with an 8% royalty and 22 years of production rights remaining.

Yamu

The Yamu field in the Yamu block is located in the Llanos basin, in the Casanare department, East Colombia, 70 km to the northeast of Yopal city. The block has a surface of 74 km² (18,500 acres), is topographically flat, without security issues and is in the proximity of several producing fields and in the same region of Andes's exploration blocks. The block has 70 km of 2D seismic and 74 km² of seismic 3D. The commerciality of the field was declared in 2007 and it is currently producing 800 bblpd (at 100%) of 41 API from two wells from the Carbonera and Mirador formations. The source rock Gacheta (shale), will be further investigated for unconventional shale production potential. The block operator is GeoPark and the concession is under a tax and royalty regime (royalty 8%), with 17 years to exploit the field remaining.

If, subject to due diligence, Andes exercises its option to acquire the interests in these fields, a joint operating agreement and a short to medium term plan will be negotiated for both fields.

Acquisition ratios:

The acquisition of the two fields, if the option is exercised, implies an acquisition ratio of US$ 7/boe for proved and probable reserves and US$393/acre.

Funding guarantee

TOG will fund the guarantees for blocks LLA 2, LLA 12 and LLA 79, acquired by Andes in the 2012 bidding round, for an amount of US$5.0 million, and will provide US$1.2 million of working capital to progress technical studies and development.

Additional financing for the 3D seismic program:

TOG will provide financing options or source funds to finance the 3D seismic program committed in the 2012 bidding round. The value of the 3D seismic program is approximately US$10.0 million.

For further information please contact:

Note to Editors:

Andes Energia is an oil and gas company focussed on onshore South America with a market capitalisation of circa £236 million. The Company has operations in Argentina, Colombia, Brazil and Paraguay, representing three of the largest economies and three of the four largest oil producing nations in South America.

The Company has 20MMbbls of conventional 2P reserves in Argentina and certified resources of 600MMBoe, primarily in the Vaca Muerta unconventional formation in Argentina and 7.5million acres across South America.

The Company has approximately 2 million net acres in unconventional plays including 213,000 net acres in the Vaca Muerta formation, which is the second largest shale oil deposit in the world and the only producing shale oil deposit outside of the USA. Over 250 wells have already been drilled and fracked in the Vaca Muerta formation.

Andes is the only AIM company on the London Stock Exchange with exposure to Vaca Muerta.

The Company currently produces 1,400 bbls per day in Argentina from 7 conventional fields, generating positive cash flows.

About Trayectoria

Trayectoria Oil & Gas ("TOG") is a Colombian private company with over 10 years of experience in the Colombian hydrocarbons exploration and production sector. TOG has a strong portfolio of E&P assets with a balanced exposure to production, development, de-risked exploration and greenfield blocks. The company is part of the Trayectoria Group, which in addition to the exploration and production business, also has a presence in the oil an gas transportation, refining, mining and integrated oil services businesses in Colombia (drilling, workovers, seismic, camp stations and pumping, amongst others). The group's partners include Ontario Teachers Pension Plan and Grupo Santo Domingo in the oil service business and Pacific Rubiales, Canacol, Shell, Petroamerica, Niko Resources, Gran Tierra and Vetra in the exploration and production business, as well as having contracts with Ecopetrol and the ANH.