PGR.L Regulatory News (PGR)

19 February 2015

Andes Energia plc

("Andes" or "the Company")

Operational Update

The Board of Andes (AIM: AEN; BCBA: AEN) is pleased to provide an update on the Company´s operating performance. Several activities have been carried out over recent months in order to develop the acreage, increase current production to a consolidated production level of 3,300 boepd, grow proven and probable reserves to 26 million boe and continue to be cash flow positive.

Highlights

· Andes acquired 51% of Interoil in January 2015, which has resulted in consolidated production of 3,300 boepd

· Expanded, diverse production base of over 120 wells and 8 fields in Argentina and Colombia (1,800 boepd from Argentina and 1,500 boepd from Colombia)

· Average prices received year to date in Argentina of US$77 per barrel and US$47 per barrel in Colombia

· Discovery in December 2014 in Vaca Muerta in the Vega Grande license has led to continuous production from the shale play, transforming Andes into one of the few shale oil producers in Argentina where we continue to develop and monetise our shale oil resource base of more than 500 million boe

· Andes, in partnership with YPF, has drilled one to two development wells per month in the Chachahuen field in Argentina during the last 12 months at a cost of US$1.1 million per well (US$0.22 million net to Andes). To date, 60 wells have been drilled and currently produce a total of 3,800 bbls/d of oil (760 bbls/d net to Andes)

· The development plan in Chachahuen has delivered outstanding results, encouraging the partnership to commit to an additional 100 wells, for which Andes is fully funded

· Other producing fields in Argentina (Chañares, Vega Grande, El Manzano and La Brea) account for net 800 bbls/d and a workover campaign is currently underway to maintain production levels

· In Colombia, a reorganisation process is being carried out to capture synergies with the recent acquisition and to cut costs. A restructuring of the Interoil debt and a normalisation of regulatory requirements have been made. Additionally, the main Colombian producing field (Puli C) is currently undergoing technical studies with a view to enhancing production through a secondary recovery project and a workover program. The acquisition of Interoil has allowed Andes to establish a strong operational base in Colombia

· In the last 3 months the Company has secured US$10 million of new debt from Macquarie Capital and Mercuria, allowing Andes to finance its organic and inorganic growth strategy

· Higher regulated oil price environment in Argentina of US$77 per barrel likely to remain for the foreseeable future

· In Argentina the regulated oil price environment is structured to maintain a stable price in the domestic market allowing local companies to maintain their cash flows and encourage and maintain the profitable development of all onshore plays, including shale

Alejandro Jotayan, CEO of Andes commented: "The Company is growing quickly and sustainably. Consolidated production has reached 3,300 boepd, with over half of the production being sold in Argentina at an average price of US$77 per barrel. In addition, we have 4 discoveries to date in the Vaca Muerta and are producing oil from one of those discoveries under natural flow. We see the current low international oil price environment as an opportunity to grow responsibly and sustainably."

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Note to Editors:

Andes Energia is an oil and gas company focussed on onshore South America with a market capitalisation of circa £150m. The Company has its main operations in Argentina and Colombia.

The Company has 26MMbbls of conventional 2P reserves, and it also has certified prospective resources of 659MMboe, primarily in the Vaca Muerta unconventional formation in Argentina and 7.5 million acres across South America.

The Company has approximately 2 million net acres in unconventional plays including 250,000 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 300 wells have already been drilled and fracked in the Vaca Muerta formation.

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

The Company currently produces 3,300 bbls per day in Argentina and Colombia from 6 conventional fields in Argentina and 2 in Colombia, 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.

Considerations on Argentinean oil domestic market and regulation

Domestic oil prices in the country are not directly linked with international price movements, and have not been affected by recent drops in WTI and Brent levels. National and Provincial States, together with oil producers, refiners and retail vendors formally agreed to establish a price of US$77 per barrel for crude oil. Argentina used to be a net oil exporter until 2008 with extensive infrastructure available to transport oil from inland fields to the Atlantic Ocean coast. In 2014 the country imported minimal quantities of crude oil for the first time in 20 years, but in 2015 the supply/demand situation is expected to be balanced. All big refiners, except one, are crude producers also, and all of them sell the refined products domestically. Part of the refining capacity is located inland near oil fields, at more than 1,000 km from the Atlantic coastline, which implies a substantial transport cost to process imported crude oil. Additionally, the country is running with a shortage of foreign currency in the Central Bank reserves, and companies who want to import must ask for authorisation from the Central Bank to receive foreign currency to pay for imports. There is, therefore, an incentive for the State to promote the consumption of local crude oil instead of authorising oil imports, even at a higher price than import parity, to avoid a loss of foreign currency reserves and to incentivise domestic production, investments, jobs and other activities.