PGR.L Regulatory News (PGR)

7 February 2014

Andes Energia plc

("Andes" or "the Company")

Las Varillas x-1 well. Discovery in Vaca Muerta

The Board of Andes (AIM: AEN; BCBA: AEN) is pleased to announce an update on the "Las Varillas x-1". The well, a multi-target unconventional and conventional exploration well, is located in the El Manzano West block in the Neuquén basin, South Mendoza Province, Argentina.

Highlights:

· 410 feet (125 metres) of gross pay in the Vaca Muerta formation discovered

· Persistent presence of oil shows in the Vaca Muerta formation during drilling

· Las Varillas well to be fracked and tested

· Las Varillas well is the most northern well to be drilled into the Vaca Muerta, where Andes has 170,000 net acres

· Third successful well targeting the unconventional Vaca Muerta formation in Andes's portfolio

· Oil discovered in the conventional Agrio formation and in the Neuquen Group

The Las Varillas x-1 well, the most northerly well to be drilled into the Vaca Muerta, was vertically drilled reaching a total depth of 7,851 feet (2,393 metres) and encountered 410 feet (125 metres) of gross pay in the unconventional Vaca Muerta formation, the primary target. The top of the Vaca Muerta formation was penetrated at a depth of approximately 7,290 feet (2,222 metres). The drilling was characterised by the persistent presence of oil and gas shows through most of the Vaca Muerta interval. Geochemical data were sampled at two metre intervals through the entire Vaca Muerta column. Oil was also found in the mud pits. Two 18 metres core samples from the Vaca Muerta formation have been recovered and a comprehensive suite of logs has been run. The analysis of this data during the next few months will provide information on porosity, permeability, total organic carbon content, thermal maturity and hydrocarbon composition, which will be used to design the completion, fracking and production testing of this well. 

With regards to secondary conventional targets, core samples totalling 60 feet (18 metres) were taken from the Agrio formation. The top of the Agrio formation was encountered at a depth of 6,355 feet (1,937 metres) with a gross pay of 859 feet (262 metres). Hydrocarbons were encountered in both the Agrio formation and in the Neuquen Group (the same formation target of the Mirador del Valle x-1 discovery well in El Manzano West block, announced on 13 November 2013), and further analysis of this discovery will be done in the months ahead. 

The Las Varillas x-1 well was drilled by YPF with the assistance of the service company Schlumberger. Andes was fully carried during the drilling of this well, as part of the farm-in agreement with YPF under which Andes has a 100% working interest in all production from the Agrio formation and a 40% carried interest in the Vaca Muerta and other formations.

Alejandro Jotayan, CEO of the Company, commented: "The Las Varillas x-1 is the third successful unconventional well targeting the Vaca Muerta formation drilled by the JV between Andes and YPF. This well, which proved the existence of the Vaca Muerta formation in the El Manzano West block with excellent petrophysical conditions is located in an area where Andes has 170,000 net acres nearby, out of an overall total of 213,000 net acres covering the Vaca Muerta formation. This, together with the conventional discovery of the Mirador del Valle x-1 in the same area and the current productive Chachahuen concession, places Andes in an exciting position to develop these large unconventional and conventional potential resources, together with the other high potential exploration blocks in the Andes's portfolio."

For further information please contact:

Qualified Person Review

In accordance with AIM guidance for mining, oil and gas companies, Mr. Juan Carlos Esteban has reviewed the information contained in this announcement. Mr. Juan Carlos Esteban, an Officer of the Group, is a petroleum engineer with over 20 years of experience and is a member of the SPE (Society of Petroleum Engineers).

Note to Editors:

Andes Energia is an oil and gas company focussed on onshore South America with a market capitalisation of circa £280m. 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, with positive cash flows generated. Andes Energia, with its partner YPF, has 30 wells planned over the next 12 months, which are fully funded by the field production cash flow.