Re Contract

Pan Andean Resources PLC
19 July 2006


PAN ANDEAN RESOURCES PLC


PAN ANDEAN RESOURCES SIGNS CONTRACT TO EXPLORE & PRODUCE OIL & GAS ON LOT 114 IN
PERU

  • 400 million barrel prospective oil resource.
  • Attractive terms of 5% royalty rising to 20% on daily production of
    100,000 barrels, corporate tax at 30%.
  • Seven year exploration phase, thirty year production phase.

Pan Andean Resources PLC ('Pan Andean' or 'the Company') the AIM listed oil and
gas producer (AIM:PRE) is pleased to announce that it has signed an exploration
and exploitation contract with Perupetro SA (the Peruvian state oil company) on
behalf of the Republic of Peru.  Under this contract, Pan Andean will explore
for oil/gas and if successful, produce on Lot 114 in the hydrocarbon rich
Ucayali and Huanuca area of Central Peru.  The concession (90% Pan Andean),
which covers 770,000 hectares, is on trend with the giant Camisea gas field but
is expected to be oil prone.

During the 1970's and 1980's, 4 wells were drilled on the block, all
encountering oil shows, but were not developed at the time due to low oil
prices.  CCP consultants, technical advisors to Pan Andean, estimate that Lot
114 has a prospective resource of over 400 million barrels of oil.

The License Contract for Lot 114 includes a 7 year exploration phase, extendable
for 3 additional years, and a total contract term of 30 years for oil production
and 40 years for natural gas and condensate.  In the initial 18 months, Pan
Andean is committed to a geological study of the contract area and to the
reinterpretation of 1,000 kms of existing seismic data which was mainly shot in
the 1970s and 1980s.

The Pan Andean work plan for Lot 114 includes early drilling of the Rio Caco
structure, which is already covered by approximately 350 kilometers of seismic
lines.  A discovery well in 1976 encountered good quality oil, 33degrees API,
but due to the limitations of technology then available, the well apparently hit
the reservoir's flank at the oil-water contact.   CCP consultants to Pan Andean,
have estimated a P3 potential resource of 90 million barrels of oil recoverable
in the Rio Caco structure.

Pan Andean believes that reprocessing and reinterpreting available seismic data,
utilising state-of-the-art techniques, will enable Pan Andean to optimally
locate a first well, with drilling scheduled for August 2007.

The Board of Pan Andean believes that Peru has an attractive oil exploration and
development environment.  Impressive annual economic growth of 6% for the past 4
years is forecast to improve to 7% for 2007.  Country risk, as measured by bond
yields, is lower than Brazil and similar to Chile.  Foreign investment is
strong, particularly in natural resources, Oil and gas legislation is modern and
transparent, with royalties ranging from 5% to 20% depending on production
volumes.  There is a corporate income tax rate of 30%.

Pan Andean has 20 years oil and gas exploration and production experience in
neighboring Bolivia and has an experienced South American team headed by
Mauricio Gonzales, which is well capable of fast tracking this project.

Managing Director, David Horgan, said:

'We are very pleased with this contract which represents the culmination of 2
years intensive work by our South American team.  We have had good support from
local technical partners and from the Peruvian authorities.

New exploration, development and transport technologies, offer significant
opportunities in areas where oil and gas is known to exist but were previously
uneconomic to develop.  The high oil price, good commercial terms and the
development of the eastern region make Peru an attractive place to do business.

We feel confident that acquiring the coveted Lot 114 concession will be the
foundation for building a significant presence in Peru.'

This announcement has been approved by Dr. Jorge Flores, Technical Consultant to
Pan Andean.  Dr. Flores has 45 years oil experience with particular emphasis on
Andean oil producing basins.


Contacts:

David Horgan                                         + 353 87 292 3500
John Teeling                                         [phone]

College Hill
Paddy Blewer                                         [phone]

Rowan Dartington
Ian Rice                                             [phone]

www.panandeanresources.com


Background

Pan Andean, which is Irish based, produces oil and gas in Bolivia, onshore Texas
and in the Gulf of Mexico.  In Texas, the company has 3 producing projects on
shore and two off-shore.

Established in 1988 with over 6,000 shareholders, Pan Andean is an original
member of AIM, listing in 1995. It has 119 million shares in issue and is
capitalised at £12million.

The principal current source of income is the Gryphon royalty on Block High
Island 52 in the Gulf of Mexico yielding over $140,000 a month.

A significant source of income, the 300 barrel a day 63% owned High Island Block
30 in the Gulf, is shut in, awaiting availability of supply boats to complete
repairs to pipelines.

In Bolivia, oil and gas production at Monteagudo (30% Pan Andean) continues
while the Company awaits the outcome of recent nationalisation legislation.  The
large El Dorado gas discovery (10% Pan Andean) remains undeveloped.

The Company is actively working to develop new exploration projects on their US
acreage both onshore and offshore.



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