22 September 2011

PetroLatina Energy Plc

("PetroLatina" or the "Company")

Interim Results for the six months ended 30 June 2011

PetroLatina (AIM: PELE), the independent oil and gas exploration, development and production company focused on Latin America, announces its unaudited interim results for the six months ended 30 June 2011.

Financial Highlights:

·      Revenues increased by 51% to US$14.5 million (2010: US$9.6 million)

·      Gross profit increased significantly to US$10.6 million* (2010: US$6.5 million*)

·      EBITDA generation of US$3.6 million* (2010: US$2.2 million*)

·      Basic and diluted EPS of US$(0.033) (2010: US$(0.043))

*Excluding DD&A of US$5.03m (2010: US$3.81m) and Impairment charges of US$Nil (2010: US$1.71m).

Operational Highlights:

·      Average gross production rate, for all fields in which the Group holds an interest, for the period increased by approximately 32% to 2,249 barrels of oil per day ("bopd") (2010: 1,699 bopd)

·      Average net production rate attributable to the Group increased by approximately 28% to 975 bopd (2010: 760 bopd)

·      Total gross production for all fields in which the Group holds an interest increased by approximately 32% to 407,093 barrels ("bbls") (2010: 307,556 bbls)

·      La Paloma block

o  Well results to date and recent 3D seismic reprocessing studies were used to re-map the structure which, together with the results of recent simulation projects, has helped define the locations for two new development wells: Colon-4 and Colon-5.

·      Querubin

o  Querubin-1 well remains under a long term test and is producing at an average rate of 139 bopd.

·      Tisquirama licence

o  In spite of increasing Santa Lucia's gross production rate by 12.8% to 404 bopd (2010: 358 bopd), the net production rate reduced slightly by approximately 2% to 50 bopd (2010: 51 bopd) reflecting a price premium adjustment.

·      Midas block

o  Stabilised production on the Chuira-1 well, which remains under a long-term test, at 32 bopd gross. Seismic reprocessing is currently being undertaken in Calgary by Arcis Corporation, and the results will help define future well locations. 78 square kilometres of 3D seismic has been acquired in relation to the Midas Centro 3D-2011 campaign and initial processing has begun to define a new exploratory prospect.

·      Serafin

o  Serafin-1 gas well is producing at an average rate of 4.3 million cubic feet of gas per day ("mmscf/d"), and remains under a 6 month long term test. 

·      Rio Zulia-Ayacucho ("RZA") pipeline's average throughput for the period increased by approximately 2.5% to 3,063 bopd (2010: 2,989 bopd).

Corporate Highlights:                                

·      Conversion in full during the period of Tranches 1 and 2 of the loan notes held by Tribeca Oil and Gas Financing Inc. ("TOGF").  

Post Period End Highlights:

Operational

·     Farm-out agreement entered into with Shell Exploration and Production Colombia GmbH ("Shell E&P Colombia"), an affiliate of the Royal Dutch Shell group of companies, in respect of the Company's VMM-28 exploration block. The agreement remains subject to the approval of the Agencia Nacional de Hidrocarburos ("ANH").

o  Under the agreement, Shell E&P Colombia will obtain an 85% participating interest in the block. PetroLatina's Colombian operating subsidiary will retain a 15% legal interest with an option to participate in the block on expiry of an agreed exclusivity period and reimbursement of its share of Shell E&P Colombia's total sunk costs to the date of exercise of the option. Upon the potential future exercise of the option, PetroLatina shall pay, its share of the ongoing costs, expenses and liabilities associated with the block.

o  PetroLatina will receive a total fee of US$15 million in cash, US$3 million was received on execution of the agreement and the balance of US$12 million is due on receipt of the requisite regulatory approval.

o  Shell E&P Colombia will become operator of the contract and be granted exclusive operating rights for a period of 6 years or, if earlier, until Declaration of Commerciality (the "Exclusivity Period").

o  Shell E&P Colombia will pay for 100% of the costs, expenses and liabilities associated with the work obligations for the VMM-28 block during the Exclusivity Period.

Ongoing Work Programme

·      At Midas

o  Exploration activities involving the initial processing of 78km² of 3D seismic data and the definition of a location for the drilling of one exploratory well.

o  Development activities involving high technology geophysical studies: the reprocessing of 3D seismic data and the seismic attributes relating to Midas Norte, and Midas Sur, to define drilling locations for the Chuira-2 and Zoe-2 development wells.

·      At La Paloma

o  Exploration activities comprising the drilling of one exploratory well.

o  Development activitiescomprising the drilling of the Colon-4 and Colon-5 development wells.

·      At Putumayo

o  Exploration activities involving completing the acquisition of an initial 104.8km of 2D seismic data followed by an additional 48km of 2D seismic data and the drilling of one exploratory well.

·      At Tisquirama Association Contract - Tisquirama B

o  Conducting simulation studies on the Los Angeles field and the drilling of one exploratory well (Tronos-1).

·      At Tisquirama Association Contract - Tisquirama A

o  Conducting simulation studies on the Santa Lucia field.

Luc Gerard, Executive Chairman of PetroLatina, commented:

"The Group has continued to improve its underlying financial performance during the first half of 2011.

The recent farm-out to Shell of the VMM-28 block, subject to ANH approval, together with various ongoing initiatives by the Group to efficiently allocate the cash flow generated from production to areas of the Group's portfolio that will provide the fastest anticipated returns, is expected to provide further positive progress on both production and reserves for the remainder of this year."

Enquiries:

A copy of PetroLatina's interim financial statements is available from the Company's registered office at 2nd Floor, Suite 2.3, Stanmore House, 29-30 St. James's Street, London SW1A 1HB, registered company number 05173588 and is also available for download from the Company's website at www.petrolatinaenergy.com.

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PetroLatina Energy Plc

Chairman's Statement

For the period ended 30 June 2011

The Group has continued to make progress during the first half of 2011, achieving a further improvement in its underlying financial performance. This was primarily a reflection of the results of our exploration programme which has again served to increase average production rates.

Post period end, in July 2011, we negotiated a farm-out agreement with Shell E&P Colombia for it to become our operating partner in respect of the VMM-28 contract, which we were awarded in ANH's 2010 Open Ronda. Shell E&P Colombia's deep and complex drilling capability and experience in conventional and non-conventional reservoirs will be invaluable, and the farm-out agreement provides us with exposure to exploration activity on the VMM-28 block, including the technology and expertise of Shell E&P Colombia, whilst enabling us to focus our resources on the development of the other promising assets in our Colombian portfolio, including the Putumayo-4 E&P block.

Following receipt of ANH approval in due course, the funds received pursuant to the agreement with Shell E&P Colombia will assist with the financing of our ongoing work programme. Expenditure continues to be carefully targeted on the faster payout development opportunities existing in our current portfolio. The Group has continued with its initiatives to efficiently allocate the cash flow generated from production to areas of the Group's portfolio that will provide the fastest anticipated returns and I look forward to reporting further progress on both production and reserves for the remainder of this year.

Luc Gerard

Executive Chairman

22 September 2011

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PetroLatina Energy Plc

Operational & Financial Review

For the period ended 30 June 2011

Overview

During the 6 month period under review, the Group has continued to perform relatively well. Revenues increased by 51% to US$14.5 million (2010: US$9.6 million), and we generated an underlying EBITDA of US$3.6 million (2010: US$2.2 million) excluding DD&A of US$5.03m (2010: US$3.81m) and Impairment charges of US$Nil (2010: US$1.71m).

Review of Operations

PetroLatina has continued to pursue its aggressive drilling campaign aimed at increasing production in its existing fields and making new discoveries in prospects on its exploration blocks, as summarised below:

La Paloma Exploration and Production Agreement

Total gross production from the La Paloma field in which the Group holds an interest for the six month period increased to 88,992 bbls (2010: 86,336 bbls).

Two new well locations were defined for Colon-4 and Colon-5 based on seismic attributes studies and new seismic interpretation, which are anticipated to be spudded at the end of 2011.

Tisquirama Licence

Total gross production from the Santa Lucia field in which the Group holds an interest for the six month period increased by approximately 12.8% to 73,207 bbls (2010: 64,872 bbls).

Los Angeles Field

Total gross production from the Los Angeles and Querubin wells for the six month period increased to 152,960 bbls (2010: 144,610 bbls).

Midas Exploration and Production Agreement

The Chuira-1 well is still producing on natural flow at a stable gross rate of 32 bopd. No additional workovers have been carried out on this well.  Additional seismic attribute studies are being conducted by Arcis Corporation in order to complement the detailed fracture study over the 3D seismic volume in order to define potential future development and deeper exploratory wells in this area. In addition, a surface geological study over the La Luna formation (Limestone) was completed providing important results on rock properties, organic matter content, fracture patterns and stratigraphical information in respect of the Chuira reservoir. These studies provide a clearer picture for incremental production through future drilling in the area.

Production from the Zoe-1 well has been unstable with increasing water cut. The Company therefore currently intends leaving this well on production until the water cut reaches 100%, at which point the well will then be plugged and abandoned. The Zoe-1 well was fully impaired in our previously reported financial results for 2009 and 2010.

Exploration activity on the block continues with the initial processing of the recently completed 78 square kilometres of new 3D seismic. Utilising this seismic a new exploratory prospect should be defined in the central part of the block for possible drilling in the first quarter of 2012.

Lebrija Licence

A review of the existing reservoir and information on the well is ongoing in order to re-evaluate the future potential of the Doña Maria field, with a well work proposal expected to be released in December 2011. The field currently has two producing wells.

Putumayo-4 Exploration and Production Agreement

PetroLatina holds a 50% interest in this block, alongside La Cortez Energy Inc., and is the operator. 1,300km of historic 2D seismic from different vintages has now been reprocessed, and a new 2D seismic survey, totalling approximately 150km, is planned to be put out for tender shortly, with a view to commencing seismic acquisition in November 2011.

RZA Pipeline

During the first half of 2011, average throughput of 3,063 bopd (2010: 2,989 bopd) was achieved from the Tibú and Río Zulia fields, which represents an increase of approximately 2.5%. Further development of the Tibú field by Ecopetrol S.A. could lead to a significant increase in the flow of oil and consequently the Group continues to anticipate that utilisation of the Group's RZA pipeline will increase in due course.

Serafin Gas Well

Initial commercial gas sales commenced at a stable rate of 5.5 mmscf/d in March 2011 and an average production rate of 4.3 mmscf/d was achieved in the period to 30 June 2011. The Serafin-1 well remains on production under a 6 month long term test, with the gas sales providing valuable additional revenues to the Group to support the development of its other producing fields. 

The Board believes that there is a high probability of further gas deposits on the licence area and the Company is currently conducting studies using its existing 3D seismic coverage to identify further drillable prospects.

Outlook

During the remainder of 2011 and 2012, we will continue to implement our strategy and its associated intensive capital investment programme, and expect to drill 2 exploratory wells and a further 3 development wells on the La Paloma field.

With the expected proceeds from the farm-out of our VMM-28 block and future anticipated revenues from the ongoing work programme, which should transform more of our oil reserves into producing assets, the Group is well placed to be able to fund part of its planned ongoing work programme. The Group does have certain development commitments and repayment obligations in respect of its credit facility with MBL which are due to commence in the fourth quarter of 2011. The repayment obligations will be satisfied from future cashflows, however the development commitments will require additional funds to be raised prior to the first quarter of 2012, or earlier if these works are accelerated and commenced prior to the fourth quarter of 2011 and funds from the recent farm-out of our VMM-28 block are delayed beyond the fourth quarter. The Directors remain confident that the Group's current and future exploration and near term production potential, which includes future anticipated revenues from the Colon, Querubin-1 and Serafin wells, together with the historic proven ability to raise additional funds when required, will enable the Group to fully finance its future working capital requirements beyond the period of 12 months of the date of this report.

Our objective remains to grow PetroLatina into one of the major, technologically advanced players in Colombia's oil and gas industry. We will endeavour to deliver further sustained increases in production and reserves and create long term value for all of the Group's stakeholders. 

Juan Carlos Rodriguez

Chief Executive Officer

22 September 2011

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PetroLatina Energy Plc

Independent review report to PetroLatina Energy Plc

For the period ended 30 June 2011

Introduction

We have been engaged by the company to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 which comprises the Consolidated Statement of Comprehensive Income, the Consolidated Statement of Financial Position, the Consolidated Statement of Cashflows, the Consolidated Statement of Changes in Equity and the related explanatory notes.

We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

Directors' responsibilities

The interim report, including the financial information contained therein, is the responsibility of and has been approved by the directors.  The directors are responsible for preparing the interim report in accordance with the rules of the London Stock Exchange for companies trading securities on AIM which require that the half-yearly report be presented and prepared in a form consistent with that which will be adopted in the company's annual accounts having regard to the accounting standards applicable to such annual accounts.

Our responsibility

Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

Our report has been prepared in accordance with the terms of our engagement to assist the company in meeting the requirements of the rules of the London Stock Exchange for companies trading securities on AIM and for no other purpose.  No person is entitled to rely on this report unless such a person is a person entitled to rely upon this report by virtue of and for the purpose of our terms of engagement or has been expressly authorised to do so by our prior written consent.  Save as above, we do not accept responsibility for this report to any other person or for any other purpose and we hereby expressly disclaim any and all such liability.

Scope of review

We conducted our review in accordance with the International Standard on Review Engagements (UK and Ireland) 2410, ''Review of Interim Financial Information Performed by the Independent Auditor of the Entity'', issued by the Auditing Practices Board for use in the United Kingdom.  A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures.  A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit.  Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2011 is not prepared, in all material respects, in accordance with the rules of the London Stock Exchange for companies trading securities on AIM.

Emphasis of matter - Going concern

In forming our conclusion, which is not modified, we have considered the adequacy of the disclosures made in note 1 of the interim financial statements for the six months ended 30 June 2011 concerning the Group's ability to continue as a going concern. Further funds will be required to finance the Group's entire planned work programme and development commitments.

The Group has development commitments and repayment obligations in respect of the credit facility with Macquarie Bank Limited which are due to commence in the fourth quarter of 2011. The Group expects the repayment obligations will be satisfied from future cash flows, however the development commitments will require additional funds to be raised prior to the first quarter of 2012, or earlier if these works are accelerated and commenced earlier. The Directors remain confident that the Group will be able to raise additional funds to enable it to fully finance its future working capital requirements beyond the period of 12 months of the date of this report. However, there can be no guarantee that the required funds will be raised within the necessary timeframe.

These conditions indicate the existence of a material uncertainty which may cast significant doubt about the Group's ability to continue as a going concern. The interim financial information does not include the adjustments that would result if the Group was unable to continue as a going concern.

BDO LLP

Chartered Accountants and Registered

Auditors

London

Untied Kingdom

22 September 2011

BDO LLP is a limited liability partnership

registered in England and Wales

(with registered number OC305127).

The interim financial statements on pages 9 to 23 were approved and authorised for issue by the Board of Directors on 21 September 2011 and were signed on its behalf by:

Juan Carlos Rodriguez

Chief Executive Officer

1      Accounting policies

        Basis of preparation

The interim financial statements have been prepared using policies based on International Financial Reporting Standards (IFRS and IFRIC interpretations) issued by the International Accounting Standards Board (IASB) as adopted for use in the EU. The interim financial statements has been prepared using the accounting policies applied for the year ended 31 December 2010 and which will be applied in the Group's statutory financial statements for the year ended 31 December 2011.

All amounts have been prepared in US dollars, this being the Group's presentational currency.

Going Concern

The Group plans to continue its extensive drilling programme in the next twelve months and beyond, which should transform more of its oil reserves into producing reserves. Following a review of the Group's financial position and its budgets and plans, the planned programme for the next 12 months is part funded from resources at the Group's disposal for a period of 12 months from the date of this report. The Group does have certain development commitments and repayment obligations in respect of the credit facility with MBL which are due to commence in the fourth quarter of 2011. The repayment obligations will be satisfied from future cashflows, however the development commitments will require additional funds to be raised prior to the first quarter of 2012, or earlier if these works are accelerated and commenced prior to the fourth quarter of 2011 and funds from the recent farm-out of the Group's VMM-28 block to Shell E&P Colombia are delayed beyond the fourth quarter. The Directors remain confident that the Group's current and future exploration and near term production potential, which includes future anticipated revenues from the Colon, Querubin-1 and Serafin wells, together with the historic proven ability to raise additional funds when required, will enable the Group to fully finance its future working capital requirements beyond the period of 12 months of the date of this report. However, there can be no guarantee that the required funds will be raised within the necessary timeframe. Consequently a material uncertainty exists that may cast significant doubt on the Group's ability to fund this cash shortfall and therefore be able to meet its commitments and discharge its liabilities in thenormal course of business for a period not less than 12 months from the date of this report.

These interim financial statements do not include adjustments that would result if the Group was unable to continue in operation.

2      Financial reporting period

The interim financial statements for the period from 1 January 2011 to 30 June 2011 are unaudited. In the opinion of the Directors, the interim financial statements for the period present fairly the financial position and results from operations and cash flows for the period and are in conformity with International Financial Reporting Standards consistently applied. The financial statements incorporate comparative figures for the interim period from 1 January 2010 to 30 June 2010 and the audited financial year ended 31 December 2010.

The financial information contained in this interim report does not constitute statutory accounts as defined by section 435 of the Companies Act 2006. The comparatives for the full year ended 31 December 2010 are not the Company's full statutory accounts for that year. A copy of the statutory accounts for that year has been delivered to the Registrar of Companies. The auditors' report on those accounts was unqualified however it did include references to matters to which the auditors drew attention by way of emphasis without qualifyingtheir report and did not contain a statement under section 498(2)-(3) of the Companies Act 2006.

3      Other Expenses

Other expenses reflect a one off equity tax levied in Colombia during the period. This tax is payable over a period of 4 years, however has been recognised in its entirety in the period.

4      Earnings per share

Basic earnings per share amounts are calculated by dividing (loss) for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year.

Diluted earnings per share amounts are calculated by dividing profit for the period attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year, plus the weighted average number of shares that would be issued on the conversion of dilutive potential ordinary shares into ordinary shares. The calculation of the dilutive potential ordinary shares relating to employee and director share option plans includes only those options with exercise prices below the average share trading price for each period.

Where the company is loss making, a diluted loss per share is not presented because the effect on the loss per share would be anti-dilutive. The calculation of the diluted EPS assumes all criteria giving rise to the dilution of the EPS are achieved and that all outstanding share options are exercised.

5      Loans and borrowings

The book value and fair value of loans and borrowings are as follows:

Principal terms and the debt repayment schedule of the Group's loans and borrowings are as follows as at 30 June 2011.

6      Senior Secured Debt Facility

In accordance with the terms of the agreement, MBL has committed to provide a loan facility of, in aggregate, up to US$75 million to the Company in order to assist with financing the accelerated development and enhancement of its highly promising oil and gas assets in Colombia.

On 8 March 2010, the Company entered into a four year Senior First Lien Secured Credit Facility (the "Senior Facility") of up to, in aggregate, US$75 million with MBL to finance part of the Company's planned ongoing drilling programme.

During negotiations of the credit facility, an initial US$5,000,000 promissory note short term facility was agreed and drawndown on 26 February 2010 carrying an interest rate of 18 per cent. per annum which was secured over the assets and undertakings of the Group on 26 February 2010.

The Company drew down the full US$25m under Tranche A and allotted the associated warrants to MBL. The funds were used to repay the aforementioned US$5m bridging loan extended to the Company from MBL and to repay trade payables, with the remainder used to part fund existing exploration and development operations. The Senior Facility consists of the following drawn and undrawn facilities and terms:

·    Tranche A: US$25 million. Under the terms of the agreement, MBL has been allotted 8 million warrants exercisable at a price of 75.7p per share at any time over the 5 year period from drawdown of Tranche A. These warrants were valued at US$2.7 million and will be amortised on a straight line basis over a 5 year period together with the loan facility fee. 

·    Tranche B/C: to consist in aggregate of US$50m, to fund pre agreed development work, potential future acquisitions and for general working capital purposes. The tranches can be drawn down, at MBL's sole discretion, at any time during the three year period ended 8 March 2013. Under Tranche B (to be used for development activities), MBL would be allotted up to 12 million new warrants exercisable at a 20% premium to the prevailing previous 20 day VWAP. If any funds are drawn down under Tranche C (to fund new projects or commitments) in addition to the 12 million warrants detailed above, MBL will be eligible for additional warrants.

·    An interest rate payable ranging between 3 month US LIBOR + 7.5% and 3 month US LIBOR + 9% dependent upon the NPV of the Company's proved oil and gas reserves.

·    The Senior Facility has a four year term expiring on 7 March 2014. Repayment is on a quarterly linear amortisation basis starting 30 months prior to the final maturity date.

·    The Group must accomplish certain covenants related to: production levels; cumulative net revenue; current ratio (not lower than 1:1); EBITDA covenant ratio (not lower than 2.5:1); Group Debt EBITDA ratio (not higher than 3.5:1); Adjusted Present Value ratio (not lower than 2:1) and an agreed G&A cap not higher than US$375,000.

The exercise price of the 8 million warrants previously issued was amended on 4 August 2010 and reduced to £0.50 (US$0.85) per share in consideration of Macquarie investing US$5 million and subscribing for new ordinary shares in the capital of the Company. The incremental charge of US$0.5 million has been charged to share premium as part of financing costs.

The warrants are exercisable in whole or in part at any time within 4 years of their date of issue. These warrants remain outstanding at the period end.

The amortisation of the costs of the loan issue taken to the P&L during the period was US$0.4m (2010: US$Nil).

7      Convertible loans and derivative liability

The fair value of the derivative financial transactions were calculated using a Black-Scholes model for the derivative part of the conversion option.

The fair value of the oil swap contracts has been based on an estimate provided by the Company's bankers as at 30 June 2011.

8     Share capital

Details of the significant movements in share capital are set out below:

The Ordinary Shares of US$0.10 each carry one vote per share. They entitle the holder to share equally in a distribution of the profits or assets of the Company by dividend with all other holders of Ordinary Shares, in proportion to the holders' aggregate holding of all Ordinary Shares.

9    Share based payments

Share options

At 31 December 2010, the Group had options over 2,270,000 ordinary shares of US$0.10 each outstanding. The options were awarded during the year to certain directors and employees under the terms of an existing unapproved share option plan. The options vest over a two year period from the date of grant and once vested are immediately exercisable, in whole or in part, up to the fifth anniversary of the date of grant, at an exercise price of 44.5 pence per share.  There were no changes to the number of share options outstanding during the period ended 30 June 2011.

10   Warrants

Each warrant entitles the holder to purchase one Ordinary Share at a price of between US$0.50 to US$5.05 (adjusted post sub-division) per share on or before the expiry date, after which time the warrants will be void and of no value. Each Warrant is governed by the provisions of warrant instruments representing the warrants, that have been adopted by the Company. The rights conferred by the warrants are transferable in whole or in part subject to and in accordance with the transfer provisions set out in the Articles. The holders of warrants have no voting right, pre-emptive right or other right attaching to Ordinary Shares.

During the period, 450,645 warrants were executed with 1,430,317 warrants expiring. At the end of the period, 8,092,308 warrants remained outstanding.

11     Related party transactions

Latinamerican Drilling Company ("Latco"), a company formerly controlled by Tribecapital Partners S.A. ("Tribeca"), the parent company of an existing substantial shareholder in the Company, Tribeca Oil and Gas Inc. ("TOGI"), and in which Juan Carlos Rodriguez had a material interest, entered into an agreement to provide rig services to the Company. During the period ended 30 June 2011 US$Nil (2010: US$4,702,964) was incurred for services provided by Latco. At the period end, US$Nil (2010: US$5,991,061) was due and outstanding to Latco. Latco was sold to an unrelated third party during the period.

Transportes del Norte S.A. ("TDN"), a company controlled by Juan Carlos Rodriguez, a director and substantial shareholder in PetroLatina, provides transportation services to the Company. During the period ended June 2011 US$776,533 (2010: US$865,402) was incurred for services provided by TDN. At the period end, a total of US$155,962 (2010: US$827,792) was due and outstanding to TDN.

12     Events after reporting period

On 15 July 2011, the Group announced that it has entered into a farm-out agreement with Shell E&P Colombia, effective 12 July 2011. Under the terms of the agreement, Shell E&P Colombia will acquire an 85% participating interest in the Company's VMM-28 Exploration and Production contract (the "E&P Contract"), subject to the approval of the ANH. The VMM-28 block is currently wholly owned and operated by Petroleos del Norte S.A. ("PDN"), PetroLatina's Colombian operating subsidiary.

PDN and the ANH signed the formal E&P Contract in March 2011, for the exploration, development and production of hydrocarbons in the area known as the VMM-28 block. The block covers an area of 54,552 hectares (approximately 136,390 acres) and lies to the west of, and immediately adjacent to, the Company's existing La Paloma block containing the Company's producing Colon field. Preliminary analysis of the available historic 2D seismic data suggests that the type of structure which has proven to be oil productive on the La Paloma block may also potentially hold commercial oil reserves on the VMM-28 block.

12     Events after reporting period (continued)

In accordance with the terms of the farm-out agreement, which remains subject to regulatory approval from the ANH, Shell E&P Colombia has agreed to pay a fee of US$15 million in cash to PetroLatina, of which US$3 million was payable on execution of the agreement and the balance of US$12 million is payable on receipt of the requisite ANH approval.  Shell E&P Colombia will be appointed as operator of the contract and will take responsibility for the work programme.  In the event that ANH approval is not forthcoming by 30 September 2011, Shell E&P Colombia has the right to terminate the agreement and require any payments made by it to PetroLatina to be repaid.

The VMM-28 E&P Contract comprises two 3 year exploration periods ("Phase 1" and "Phase 2") followed by a 24 year production phase. In accordance with the E&P Contract in place with the ANH, work obligations for the VMM-28 block include the acquisition of 2D seismic and one exploratory well during Phase 1 (the first 3 year exploration phase), and either two wells without relinquishment of any acreage or one well with 50% relinquishment during Phase 2 (the second 3 year exploration phase). Under the terms of the farm-out agreement, PetroLatina has granted Shell E&P Colombia a six year period of operational exclusivity. During this Exclusivity Period, Shell E&P Colombia will pay for 100% of the costs, expenses and liabilities associated with the work programme and shall be entitled to all rights in relation to the block.

Shell E&P Colombia will make available to PetroLatina all data acquired by it in relation to the contract area and ensure that the licence area remains in good standing and will comply with all applicable laws, regulations and orders of Colombia.

Under the agreement, Shell E&P Colombia will obtain an 85% participating interest in the block. PDN will retain a 15% legal interest with an option to participate in the block upon expiration of the Exclusivity Period. Under the terms of the farm-out agreement, PetroLatina shall pay its share of the costs, expenses and liabilities associated with the block and shall pay Shell E&P Colombia for its share of Shell E&P Colombia's total sunk costs incurred to such date, out of PetroLatina's share of production within the block. Operations on the VMM-28 block would thereafter be governed by a joint operating agreement.

In the event that Shell E&P Colombia decides to withdraw from the farm-out agreement, the Company has the option to request that Shell E&P Colombia transfers its prevailing interest in the block back to PetroLatina.

Following the receipt of ANH approval, the Company intends to use the proceeds from the farm-out agreement to assist with the part funding of its planned ongoing drilling programme and development commitments in respect of the remainder of its Colombian asset portfolio and for general working capital purposes.