UNITED KINGDOM AEN LN Price (at 15:35, 30 Mar 2015 GMT) Outperform £0.19 Valuation £ 0.28 12-month target £ 12-month TSR % GICS sector Market cap £m Market cap US$m 30-day avg turnover £m Number shares on issue m 0.28 +47.4 Energy 105 155 0.0 552.0 Andes Energia Vaquita Muerta * Event - DCF Investment fundamentals Year end 31 Dec Revenue EBITDA EBITDA growth EBIT EBIT growth Reported profit Adjusted profit EPS adj EPS adj growth 2013A 2014E 2015E 2016E m m % m % m m US$ % 22.5 7.6 nmf 6.0 nmf -0.4 -0.4 0.00 96.8 47.4 11.8 56.3 7.8 30.1 -1.6 -1.6 0.00 27.2 101.5 41.4 249.1 31.4 301.3 14.3 14.3 0.03 nmf 111.0 47.9 15.9 37.5 19.6 17.9 17.9 0.03 23.9 AEN LN vs FTSE 100, & rec history We are initiating coverage on Andes Energia with an Outperform recommendation and a 28p/sh Target Price (44% upside to yesterday’s close share price). This initiation is part of a larger report on Argentina Vaca Muerta shale play. Impact Solid underlying production base. Andes’ ~24mmb 2P reserves are currently producing 3,300b/d (consolidated), which we estimate will generate ~$25m operating cash flow in 2015. We see Andes’ liquidity as sufficient to fund the company’s development programme, which will focus on developing the Chachahuen field where the company is planning to drill at least 90 wells over the next years adding ~1.5kb/d at peak (from existing reserves). Seeking clarity on Colombia drilling. The “rescue” acquisition of a 51% stake in the distressed Interoil Exploration and Production (IOX NO, Not Rated) allowed Andes to add ~1.5kboe/d production and 5.8mmb net 2P reserves for a $4.9m equity investment. At FY14 results in April we will be seeking clarity on Andes’ drilling plan in Colombia for which we assume the company will spend $10m development and exploration capex in 2015. Limited Vaca Muerta shale drilling in 2015. During 2015 Andes’ activity Note: Recommendation timeline - if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 2015 (all figures in USD unless noted, TP in GBP) * Note: in Spanish, “-ita” after a noun indicates smallness. plan will largely depend on YPF’s decision on whether to drill more wells at the Mata Mora and Corralera blocks. In Mata Mora the companies are considering drilling and testing a horizontal well. Elsewhere, where Andes is the operator, the company is planning to drill at least one vertical well at Vega Grande block, where Andes flowed a recompleted 1984-vintage well at 80b/d with no fraccing and artificial lift. Earnings and target price revision Our FY14 / FY15 EPS estimate is of -$c.0.3 / $c.2.8. TP 28p/sh. Price catalyst 12-month price target: £0.28 based on a Sum of Parts methodology. Catalyst: FY14 results (Apr), update on drilling programme, M&A / farm-out in Andes’ Colombia assets, industry M&A / farm-out in the Vaca Muerta region, Argentina political elections Action and recommendation Analyst(s) Giacomo Romeo, CFA +44 20 3037 4445 [email protected] Joe Stokeld +44 20 3037 4457 [email protected] Kate Sloan +44 20 303 74453 [email protected] David Farrell, CFA +44 20 3037 4465 [email protected] 1 April 2015 Macquarie Capital (Europe) Limited Andes is currently trading just above our Core NAV of 17p/sh which excludes the 51% stake in Interoil (net 2P reserves of 3.6mmb and 13.2bcf), valued at 7p/sh. Compared against other South American peers, the company does not screen as particularly cheap relative to DACF and production. However, we believe Andes’ acreage position in the Vaca Muerta shale play deserves a premium. Andes has 249,604 net Vaca Muerta acres across 6 licences, the largest acreage position owned by a publicly listed independent E&P. Looking at a recent transaction metric in the play, our analysis returns a read-across valuation for Andes’ acreage of at least 49p/sh. Please refer to page 18 for important disclosures and analyst certification, or on our website www.macquarie.com/research/disclosures. Macquarie Research Andes Energia Company profile Andes Energia (AEN LN) is a pure South American E&P with conventional and unconventional production and exploration assets in Argentina and Colombia. The company has 23.9mmb 2P reserves (Macquarie estimate as of Jan 15) and it is currently producing 3,300b/d on a consolidated basis (2,565b/d on a net entitlement basis). In Argentina the company has 32.5mmb 2P reserves across 8 fields. The most important assets, where the company is focusing its development efforts is the Chachahuen field (Mendoza province, 12.6mmb gross 2P reserves, Andes 20% WI), which will see the company drilling at least 90 wells over the next 3-4 years adding ~1.5kb/d of production net to Andes at peak. In Argentina, the company also owns an interest in 6 blocks within the areas considered prospective for Vaca Muerta shale. This is equivalent to 249,893 net acres, the largest acreage position owned by a publicly listed independent E&P. Of this acreage, ~90% falls within the oil window. To date Andes has drilled shale delineation vertical wells in 4 out of its 6 blocks. In Colombia, Andes has recently (Dec 14) gained a material position by acquiring a 51% equity interest in Interoil Exploration and Production (IOX NO). Interoil is currently producing ~1.5kboe/d (net) from net 2P reserves of 3.6mmb and 13.2bcf across four fields located in the Middle Magdalena Valley Basin and in the Llanos basin. Overall Interoil owns and operates 7 blocks in Colombia. Additionally, Andes has a 70% direct working interest in 11 exploration blocks all located in the Llanos basin but one (located in the Middle Magdalena Valley basin). Fig 1 Andes Energies – summary table Colombia 11 licences 51% holder of Interoil E&P ASA (Net production of 1,600bbl/d and 5.7MM 2P reserves) 16 well development program Macquarie Target Price breakdown by asset type Colombia (through Interoil), 8p, 22% Colombia (thorugh Andes), 0p, 0% Argentina unconventiona l, 2p, 5% Argentina - Conventional Net production of ~1,800bbl/day 70 – 100 well program to grow production to >2,000 – 3,000bbls/day - fully funded Argentina conventional, 27p, 73% Macquarie production growth forecasts Net prod. (boe/d) 4,500 Op. c.f. ($m) 20 4,000 18 3,500 16 14 3,000 12 2,500 10 2,000 8 1,500 6 2H20 1H20 2H19 1H19 2H18 1H18 2H17 1H17 2H16 1H16 2H15 1H15 2H14 1H14 2H13 1H13 0 2H12 2 0 1H12 4 500 2H11 1,000 1H11 Argentina – unconventional 6 blocks, 250k acres in the Vaca Muerta In strategic partnership with YPF 2 wells drilled and fracked Recently commenced first shale production Vega Grande La Brea El Manzano UTE-PETSA Chachahuen Colombia Vaca Muerta Op. cash flow Source: Company data, Macquarie Research, April 2015 1 April 2015 2 Macquarie Research Andes Energia Valuation, Capital Structure and risks We are initiating coverage of Andes Energia with a 28p/sh target price based on a 17p/sh Core NAV, a 7p/sh valuation of Andes’ stake in Interoil (IOX NO, Not Rated) and a risked E&A upside of 3p/sh. While at 19p/sh the share price is trading 10% above our 17p/sh Core NAV excluding Interoil, our 28p/sh TP implies a 44% upside. The regulated nature of oil prices ($77/bbl) in Argentina makes Andes relatively insensitive to oil price volatility. The only part of our valuation exposed to changes in the oil price is Andes’ stake in Interoil: at a $50/bbl flat oil price our valuation of Interoil would come down to 2p/sh, determining an implied valuation of 24p/sh (26% upside). Fig 2 Andes Energia’s Core and Total NAV; components of target price highlighted Andes Energia Risked resources (m m boe) Unit Value (US$/boe) EMV (US$m ) Value (p/sh) 18.9 10.4 197.2 25p -54.3 -7p Assets (NPV10) Producing Assets Net Cash/(Net Debt) Undeveloped Assets 0.7 10.7 Other assets less G&A Core NAV (Andes) 7.1 1p -10.7 -1p 17p 19.6 21.1 139.4 0.0 0p Risked E&A upside 33.2 3.1 103.9 13p Total NAV (Andes) 52.8 4.6 243.2 30p Interoil market value 3.2 1.6 5.1 0.6p Interoil (ups. to NAV) 3.2 17.0 53.8 6.7p Interoil stake 6.3 18.6 58.8 7p Option Proceeds Risked E&A upside included in TP 3p Unrisked value of above 18p Target price 28p Risked - unrisked delta of the above 15p Unrisked Total NAV 132p Source: Company data, Macquarie Research, April 2015 As highlighted in the charts below, Andes’ conventional fields in Argentina are the main component of our Target price. At this stage, we have decided to exclude the majority of Andes’ Vaca Muerta acreage from our Target Price as we believe the company’s 12-month activity plan is insufficient to provide a material derisking of the unconventional play in its licences. However, we include some Vaca Muerta upside for the Mata Mora block given is proximity to Chevron / YPF pilot development in Loma Campana. Fig 3 Target price breakdown by asset type Gross Potential mmboe Working Interest % C.O.S. % Disc. Value $/boe Net Risked Potential mmboe EMV $m Risked Value p/sh Unrisked Value p/sh Net Unrisked Potential mmboe % of total risked % Argentina conventional 63.0 39.7% 83.4% 10.4 20.8 216.1 27p 32p 25.0 71% Argentina unconventional 232.0 27.0% 15.0% 1.5 9.4 14.5 2p 12p 62.6 5% Colombia (through Interoil) 10.5 34.3% 88.2% 23.0 3.2 72.6 9p 10p 3.6 24% Colombia (thorugh Andes) 0.0 nmf nmf nmf 0.0 0.0 Target Price Net Cash, o'heads & Other 305.4 29.9% 36.6% 6.7 33.4 0.0 0p 0p -78.7 -10p -10p 224.4 28p 44p 0% -26% 91.2 Source: Company data, Macquarie Research, April 2015 In the following page we show how, even with our conservative risking of Andes’ Vaca Muerta licences, it represents 13% of our Total risked NAV valuation (and 51% of our Total unrisked NAV valuation). 1 April 2015 3 Macquarie Research Fig 4 Andes Energia Core NAV breakdown by asset type Colombia (through Interoil), 8p, 25% Fig 5 Colombia (through Interoil), 9p, 19% Colombia (thorugh Andes), 0p, 0% Argentina unconventiona l, 0p, 0% Colombia (thorugh Andes), 0p, 0% Argentina unconventiona l, 5p, 10% Argentina conventional, 26p, 75% Source: Company data, Macquarie Research, April 2015 Fig 6 Total NAV breakdown by asset type Argentina conventional, 34p, 71% Source: Company data, Macquarie Research, April 2015 Andes Energia’s asset breakdown EMV (E&A upside included in TP highlighted) Asset nam e Country / Play Gross Potential Working Interest C.O.S. Disc. Value Net Risked Potential EMV Risked Value Unrisked Value Net Unrisked Potential mmboe % % $/boe mmboe $m p/sh p/sh mmboe Producing assets Chachahuen field Argentina 12.6 20.0% 9.5 2.5 23.9 3 3 2.5 Chañares Herrados Argentina 4.7 49.9% 10.9 2.4 25.9 3 3 2.4 Puesto Pozo Cercado Argentina 2.3 49.9% 10.9 1.2 12.6 2 2 1.2 Vega Grande Argentina 5.3 100.0% 10.5 5.3 55.8 7 7 5.3 La Brea Argentina 5.4 100.0% 10.5 5.4 56.7 7 7 5.4 El Manzano Argentina 0.5 100.0% 10.5 0.5 5.5 1 1 0.5 La Paloma Argentina 0.7 100.0% 10.5 0.7 7.0 1 1 0.7 Cerro del Alquitran Argentina 0.9 100.0% 10.5 0.9 9.6 1 1 0.9 18.9 197.2 25 25 18.9 0.7 7.1 1 1 1.0 0.7 7.1 1 1 1.0 32.5 Undeveloped assets Chachahuen field - contingent upside Argentina 5.0 20.0% 66.7% 10.7 5.0 Interoil assets (51% ow ned by Andes) Altair-1 w ell (Altair licence) Colombia 0.1 51.0% 22.9 0.0 0.8 0 0 0.0 Ambrosia field (Puli-C block) Colombia 0.4 30.9% 25.5 0.1 3.5 0 0 0.1 Rio Opia field (Puli-C block) Colombia 0.8 34.3% 22.9 0.3 6.1 1 1 0.3 Mana field (Puli-C block) Colombia 7.1 34.3% 22.9 2.4 56.0 7 7 2.4 Prospect 1 (LLA 47 block) Colombia 2.1 34.3% 22.8 0.3 6.2 1 2 0.7 -13.8 -2 -2 3.2 58.8 7 9 3.6 1.8 40.0% Interoil net debt 10.5 Risked upside Argentina conventional - M endoza province Chachahuen (Rayoso upside) Argentina 9.0 20.0% 25.0% 9.6 0.5 4.1 1 2 Chachahuen (Centenario upside) Argentina 16.5 20.0% 25.0% 9.6 0.8 7.7 1 4 3.3 Chachahuen (Norhtern upside) Argentina 142.0 20.0% 10.0% 8.7 2.8 24.5 3 31 28.4 El Manzano West (upside) Argentina 20.0 100.0% 10.0% 7.9 2.0 14.5 2 18 20.0 La Brea (upside) Argentina 20.0 100.0% 10.0% 7.9 2.0 14.5 2 18 20.0 Mata Mora (Southern area) Argentina 232.0 27.0% 15.0% 1.5 9.4 14.5 2 12 62.6 Corralera (Central area) Argentina 100.0 27.0% 10.0% 1.5 2.7 4.2 1 5 27.0 El Manzano West (Northern area) Argentina 100.0 40.0% 5.0% 1.5 2.0 3.1 0 8 40.0 La Brea (Northern area) Argentina 100.0 100.0% 5.0% 1.5 5.0 7.7 1 19 100.0 Vega Grande (Northern area) Argentina 100.0 100.0% 5.0% 1.5 5.0 7.7 1 19 100.0 Malargue (Northern area) Argentina 100.0 20.0% 5.0% 1.5 1.0 1.5 0 4 20.0 939.5 33.2 103.9 13 140 423.1 987.4 55.9 367.0 46 175 446.6 Vaca M uerta shale potential (6 licences) Total Asset Value Source: Company data, Macquarie Research, April 2015 1 April 2015 4 Macquarie Research Andes Energia Trading and transaction metrics We have looked and Andes’ trading metrics compared to a set of South American peers (table below). On DACF and Production metrics the company does not screen as particularly cheap while on 2P reserves it is trading just below sector average. However we believe the company’s Vaca Muerta acreage deserves a premium when valued against those companies with no exposure to the play (Amerisur, GeoPark, Gran Tierra, Pacific Rubiales, Parex). We also highlight how, compared to another key Vaca Muerta acreage holder with conventional production (Madalena Energy), the company is trading at a 38% discount on a Vaca Muerta acreage metric (despite having more acreage located in the oil window). Fig 7 Andes’ Energia compared against a selection of South American peers Listing Ticker Price Mkt cap ($m ) Net Debt 2014 ($m ) EV ($m ) EV / 2P reserves ($/bbl) EV / VM acreage ($/acre) 2014A 2015E 2014A 2015E London AEN LN 19.0 158 40 197 8.4 683 115,289 50,476 32.0 8.0 Amerisur London AMER LN 30.0 471 -96 375 11.4 79,528 58,819 3.7 5.0 GeoPark New York GPK US 422.0 233 266 499 5.4 24,226 24,972 2.6 4.3 Gran Tierra Energy New York GTA US 264.0 781 -278 503 9.9 27,195 25,934 1.9 2.8 Pacific Rubiales Toronto PRE CN 318.0 813 4,643 5,456 10.7 37,015 35,590 2.6 4.7 Parex Resources Toronto PXT CN 826.0 878 22 900 13.2 39,978 33,816 2.3 5.3 Madalena Energy Toronto MVN CN 36.0 155 -10 145 12.6 1,099 48,451 33,803 Americas Petrogas Toronto BOE CN 17.0 32 -11 22 2.5 108 24,202 16,755 Andes Energia Sector avg. EV / Production EV / DACF 9.3 630.3 49,485 35,021 Sector avg. (mkt cap w h.) 10.8 816.4 44,304 35,824 3.9 4.6 Andes vs. sector avg. -10% 8% 133% 44% 326% 7.5 59% 5.0 Andes vs. sector avg. (mkt cap w h.) -22% -16% 160% 41% 722% 74% Source: Company data, FactSet, Macquarie Research, April 2015; prices as of 31 March Because of the premium that we think Andes’ Energia deserves for its Vaca Muerta shale prospective acreage we have looked at the implied value of the company based on the historic farm-in transactions happened in the region. We present in the table below three different valuation scenarios for Andes’ licences: 1) a median historic transaction metric to Andes’ total net acreage – values Andes at 184p/sh; 2) a higher transaction metric applied to Andes’ premium acreage (in the southern and central part of the basin) and a lower value for the rest of Andes’ licences – values Andes at 66p/sh; 3) a higher transaction metric applied to only 2 of Andes’ licences located in the southern and central part of the basin – values Andes at 49p/sh. Fig 8 Valuing Andes’ Energia using Vaca Muerta transaction metrics. 3 scenarios Andes Vaca Muerta assets Acreage Acreage Im plied Im plied Im plied Gross WI Net m ultiple value value value debt TP (acres) (%) (acres) ($/acres) ($m) (£m) (p/sh) (p/sh) Net Im plied (p/sh) -7 184 -7 66 -7 49 Scenario 1 - Average pricing Mata Mora (Southern area) 55,352 27% 14,945 5,280 79 51 10 El Manzano West (Northern area) 163,707 40% 65,483 5,280 346 223 43 La Brea (Northern area) 35,583 100% 35,583 5,280 188 121 24 Vega Grande (Northern area) 72,044 100% 72,044 5,280 380 245 48 Malargue (Northern area) 382,766 20% 76,553 5,280 404 261 51 Corralera (Central area) 89,946 27% 24,286 5,280 128 83 16 1,525 984 191 799,398 288,893 Scenario 2 - asset by asset pricing Mata Mora (Southern area) 55,352 27% 14,945 11,271 168 109 21 El Manzano West (Northern area) 163,707 40% 65,483 570 37 24 5 La Brea (Northern area) 35,583 100% 35,583 570 20 13 3 Vega Grande (Northern area) 72,044 100% 72,044 570 41 26 Malargue (Northern area) 382,766 20% 76,553 570 44 28 5 Corralera (Central area) 89,946 27% 24,286 11,271 274 177 34 584 377 73 11,271 168 109 21 11,271 274 177 34 442 285 55 799,398 288,893 5 Scenario 3 - only Mata Mora and Corralera Mata Mora (Southern area) 55,352 27% 14,945 El Manzano West (Northern area) 163,707 40% 65,483 La Brea (Northern area) 35,583 100% 35,583 Vega Grande (Northern area) 72,044 100% 72,044 Malargue (Northern area) 382,766 20% Corralera (Central area) 89,946 27% 799,398 76,553 24,286 288,893 Source: Company data, FactSet, Macquarie Research, April 2015 1 April 2015 5 Muerta region since 2011, the average value drops to $6,433/acres. The highest price to date was the one paid by Chevron for the acquisition of a 50% interest from YPF in the Loma Campana block ($12,917/acres), in exchange for a carry over 100-well pilot shale development programme. Other transactions above $10,000/acre include the Wintershall farm-in to GyP’s Agauda Federal block, Dow Chemical farm-in to YPF’s El Orejano block and Petronas farm-in to YPF’s La Amarga Chica block. Fig 9 Macquarie Research 1 April 2015 Overall the top five transactions announced to date have been at an average value of $10,250/acres. If we look at the totality of the transaction announced in the Vaca Vaca Muerta shale farm out activity Consideration paid $ / acres Net inplace res. (bn boe) $m / bn boe 73,575 570 25 1.7 Carry on the delineation phase plus contingent carry if Exxon decides to move into the development phase 40.6 9,245 4,392 na na Cash deal 0.0 620.0 48,000 12,917 na na Pilot programme comprising of 100 w ells over 1 year over a 5000-acre area 120.0 0.0 60.0 5,560 10,791 na na 16-w ell shale gas delineation programme expecting to produce 105mmcf/d at peak. YPF to invest additional $68m na na na 133.0 11,985 11,098 na na Carry over op to 6 delineation w ells in 2 years. Pre farm-in GyP drilled 1 w ell. Additionally, LoI signed to invest $3.35bn in a pilot development if phase 1 is successful 100% 217.0 0.0 0.0 217.0 51,000 4,255 na na Cash deal comprising 306,411 acres but YPF discussed only 51,000 acres are expected to be prospective La Escalonada / Rincon La Cenizas 43% na na na 300.0 48,634 6,169 na na Pilot project including 3D seismic, hz w ells and new facilities. Pre farm-in there w ere 4 hz + 1 vert w ells in Rincon La Cenizas and 1 hz + 1 vert in La Escalonada YPF Chihuido de la Sierra Negra Sudeste 50% 0.0 140.0 0.0 70.0 24,710 2,833 5 13.9 Carry consists of 7 vertical w ells and 1 horizontal w ell Exxon Petrobras Parva Negra 43% 0.0 54.0 0.0 31.1 30,046 1,033 na na Petronas YPF La Amarga Chica 50% 0.0 475.0 0.0 237.5 23,113 10,276 7 35.9 Average 6,433 17.2 Median 5,280 13.9 Announce m ent date Buyer Interest acquired Carry Contingent carry Net paid Net acres Seller Asset Cash 30-Aug-11 Exxon Americas Petrogas Los Toldos 45% 0.0 53.9 22.4 42.0 19-Mar-13 YPF Petrolera Argentina San Jorge La Amarga Chica 20% 40.6 0.0 0.0 16-Jul-13 Chevron YPF Loma Campana / Loma La Lata Norte 50% 0.0 1240.0 24-Sep-13 Dow Chemical YPF El Orejano 50% 0.0 27-Sep-13 Wintershall GyP Aguada Federal 50% 13-Dec-13 Pluspetrol YPF Western blocks 05-Apr-14 Shell Total 10-Apr-14 Chevron 16-Jul-14 28-Aug-14 Carry consists of 4 w ells Pilot programme comprising of 30 hz / vert w ells to start in 1Q15. If successful phase 2 w ill require $1bn (non carried) in 5 years. YPF to invest additional $75m 6 Andes Energia Source: Company data, FactSet, Macquarie Research, April 2015 Com m ents Macquarie Research Andes Energia Capital structure and liquidity At 9 Jan 15, Andes had 551,983,551 shares outstanding, following the issuance of 400,000 shares in lieu of a £172k transaction fee for the Interoil transaction. We also estimate that the company has a total of 48,228,078 options and warrants with an average strike price of 48.1p/sh. Of these only 2,526,689 are in the money at the current share price (or at our 28p/sh TP) and are therefore included in our diluted share count (554,510,240 shares) used to value the company. During the last 3 months the company has secured two separate $5m financing deals from Macquarie Bank and Mercuria respectively in two very similar-type transactions. The proceed of the first financing from Macquarie was used to acquire the 51% stake in Interoil, while the loan from Mercuria will be used to finance development drilling at the Chachahuen conventional field. Following these two deals and based on our cash flow estimates from 2H14 and 1H15, we estimate that by 30 Jun 15, the company will have a $52.3m net debt position. Fig 10 Andes Energia’s capital structure Nom inal am ount $m Interest rate Maturity Warrants m Strike p/sh Mercuria facility 5.0 Libor + 9.5% Feb-16 3 34 Interest can be capitalized. Additional options linked to IOX share price Macquarie bank facility 5.0 Libor + 9.5% Dec-15 7.5 43 Interest can be capitalized. Unsecured convertible loan 10.6 11.00% Jun-18 Unsecured convertible loan 27.3 11.00% Mar-23 Unsecured loan 6.5 9.75% Arg. Pesos loan (1) 1.1 18-22% Arg. Pesos loan (2) 2.6 18-22% Loan 7.6 10.00% Other financial liabilities 6.8 Gross debt (est. 30 Jun 15) 72.5 Cash at 30 Jun 14 -2.1 Restricted cash at 30 Jun 14 -5.9 Avb. for sale fin. assets at 30 Jun 14 -2.9 Est. cash burnt to 30 Jun 15 -9.3 Net debt (est. 30 Jun 15) 52.3 Com m ents No fixed repayment date No fixed repayment date Dec-16 No fixed repayment date Security for stand by letter of credit and overdraft facilities Used for valuation purposes Sharecount sum m ary Shares in issue at 30 Jun 14 ('000) 514,781 Additional shares issued 37,203 In the money options and w arrants 2,527 Diluted shares (est. 30 Jun 15) 554,510 Out of the money options and w arrants 45,701 Fully diluted shares outstanding 600,212 Transaction fee for IOX acquisition Used for valuation purposes Source: Company data, Macquarie Research, April 2015 In the following page we highlight our liquidity analysis to 31 Dec 2015. We have limited visibility on Andes’ drilling programme from 2015. The only firm indication we have had so far has been its intention to continue with the development of the Chachahuen conventional field, which we estimate will require ~$11m capex (net to Andes) during 2015 but could increase to ~$20m if the operator YPF decides in intensify the drilling programme. Additionally, the company will have to undertake investment in Colombia to comply with Interoil capex commitments (8 wells within the next 18 months at ~$2m per well). We believe that in order to finance the work programme Interoil will try to farm-out some of its exploration assets or seek bank financing for its producing assets. While we will seek clarity from the company on the work programme during FY14 results in April, at the moment we are assuming ~$10m capex in Colombia during 2015. 1 April 2015 7 Macquarie Research Andes Energia Fig 11 Liquidity position to 30 Jun 15 at Macquarie’s price deck ($m) 35 30 10.9 25 10.4 13.9 13.4 0.9 20 15 2.0 3.8 10 2.9 0.9 5.0 2.9 5.0 20.7 17.3 14.8 5 8.0 0 Liquidity 30 Jun 14 Macq facility OCF 2H14 Capex 2H14 Liquidity Mercuria 31 Dec 14 facility Changes OCF 1H15 Capex 1H15 Liquidity 30 Jun 15 Available cash at period end OCF 2H15 Capex 2H15 Liquidity 31 Dec 15 Financial investments Source: Company data, Macquarie Research, March 2015 As discussed earlier, the regulated nature of the oil price in Argentina (~$77/bbl) makes Andes relatively protected from the volatility in the oil price. However, we expect ~38% of Andes’ consolidated production in 2015 will come from Colombia. We have therefore run our liquidity analysis assuming a flat $50/bbl oil price in Colombia: even at this lower level we expect the company to be able to end the year with a $15m liquidity position. Fig 12 Liquidity position to 30 Jun 15 at $50/bbl flat oil price ($m) 35 30 25 9.0 13.4 10.3 20 15 10 2.0 3.8 2.9 5.0 2.9 0.9 15.4 15.2 5.0 14.8 5 10.4 0.9 8.0 0 Liquidity 30 Jun 14 Macq facility OCF 2H14 Capex 2H14 Changes Liquidity Mercuria 31 Dec 14 facility OCF 1H15 Capex 1H15 Available cash at period end Liquidity 30 Jun 15 OCF 2H15 Capex 2H15 Liquidity 31 Dec 15 Financial investments Source: Company data, Macquarie Research, March 2015 In the following page we provide a summary overview of our financial estimates for the company as well as our oil price and FX assumptions. 1 April 2015 8 Macquarie Research Fig 13 Andes Energia Andes Energia’s summary financials Andes Energia (AEN LN, Outperform, Target Price: 28.0p/sh) Price Assumption 2012A 2013A 2014E 2015E 2016E Production split analysis 2012A 2013A 2014E 2015E 2016E Oil - Brent $/bbl 111.6 108.7 99.5 74.3 84.5 Argentina conventional kboe/d 0.2 0.9 1.7 2.4 2.6 Oil - WTI $/bbl 94.0 98.0 96.0 68.5 78.8 Argentina unconventional kboe/d 0.0 0.0 0.0 0.0 0.0 £ / US$ 1.59 1.56 1.64 1.49 1.54 Colombia kboe/d 0.0 0.0 0.0 1.5 1.5 US$ / AR$ 4.55 5.48 8.48 8.48 8.48 Other kboe/d 0.0 0.0 0.0 0.0 0.0 Total kboe/d 0.2 0.9 1.7 3.9 4.1 % gas % 0% 0% 0% 0% 0% Balance Sheet (€) Cash & Cash Eq. Debt Net Debt/(Cash) $m m m 2012A 0.8 0.2 -0.6 2013A 11.9 48.0 36.2 2014E 17.7 57.4 39.7 2015E 21.6 62.4 40.8 2016E 25.2 62.4 37.2 Income Statement Total Revenue EBITDA % of revenue 2012A 5 -3 -54% 2013A 22 2 8% 2014E 47 12 26% 2015E 101 42 41% 2016E 111 48 44% $m m % EBIT m -3 6 8 31 38 Net Debt / (Cash) adj. 1 m -0.6 36.2 39.7 40.8 37.2 % of revenues % 16% 30 31% 32 34% 35 m 180.2 319.0 270.6 290.4 308.8 m 27% 24 Total Assets Pretax Profit -59% -4 Total Liabilities m 58.5 149.1 143.3 148.3 148.3 Total Tax Expense m (0) (0) (3) (10) (12) Toal S/H Equity m 121.8 169.9 127.3 142.1 160.5 Tax Rate % -6% 1% 11% 30% 35% Debt/Equity % 0.1% 28.3% 45.1% 43.9% 38.9% Net Profit m -27 0 -2 14 18 Net Debt/Equity % -0.5% 21.3% 31.2% 28.7% 23.2% % of revenues % -560% -2% -3% 14% 16% ND/ND+E % -0.5% 17.5% 23.8% 22.3% 18.8% Basic, Rep EPS $c. -10.9 -0.1 -0.3 2.8 3.4 Cashflow Analysis (€) 2012A 2013A 2014E 2015E 2016E Diluted, Adj EPS Div. per Share Revenue grow th (yoy) EBITDA grow th (yoy) Net profit grow th (yoy) EPS grow th (yoy) $c. $c. % % % -10.9 0.0 2456% 266% -265% -240% -0.1 0.0 365% -169% -98% -99% -0.3 0.0 111% 594% 276% 206% 2.8 0.0 114% 239% -990% -983% 3.4 0.0 9% 16% 25% 24% Cash Flow from Operations Chngs in Working Cap Net Cash Flow from Operations Net Cash Flow from Investing Net Cash Flow from Financing Net Increase / (Decrease) in Cash Free Cash Flow Capital Expenditure Capex / Free Cash Flow Half year forecast Total Revenue EBITDA % of revenue EBIT Pretax Profit Total Tax Expense Tax Rate Net Profit Basic, Rep EPS Diluted, Adj EPS Div. per Share Revenue grow th (qoq) EBITDA grow th (qoq) Net Profit grow th (qoq) EPS grow th (qoq) (3.8) 1.6 4.9 1.8 1.2 3.4 (0.6) (6.0) (0.6) 10.8 (0.1) 8.2 0.6 (2.6) (0.6) (6.0) 1.0x -2.3x 1H14A 2H14A 20.4 27.1 4.5 7.8 22% 29% 2.7 5.1 (0.2) 1.7 (2.6) (0.6) -1591% 35% (2.7) 1.1 (0.5) 0.2 (0.5) 0.2 0.0 0.0 12% 33% 140% 73% -203% -141% -203% -141% 6.2 1.2 7.4 (5.9) 5.0 6.4 1.4 (5.9) 4.2x 1H15E 46.6 18.5 40% 13.5 9.9 (4.0) 40% 5.9 1.2 1.1 0.0 72% 137% 434% 431% 24.8 0.0 24.8 (23.9) 5.0 5.9 0.9 (23.9) 26.4x 2H15E 54.9 23.3 43% 17.9 14.0 (5.6) 40% 8.4 1.6 1.6 0.0 18% 26% 41% 40% 28.8 0.0 28.8 (25.2) 0.0 3.6 3.6 (25.2) 7.0x 1H16E 54.5 23.3 43% 17.9 14.1 (5.6) 40% 8.4 1.6 1.6 0.0 -1% 0% 1% 0% Net backs analysis Revenue Royalties & Opex Transportation costs G&A EBIT D&A (and other non-cash) EBITDA Interest Tax Net Incom e $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe $/boe 2012A 66.0 (41.6) (3.5) (60.0) (39.2) 3.7 (35.4) (21.1) (7.2) (63.8) 2013A 70.0 (44.3) (5.3) (20.9) (0.6) 6.2 5.5 (19.0) 12.1 (1.3) 2014E 75.9 (47.3) (6.7) (9.4) 12.5 7.2 19.7 (10.0) (12.3) (2.6) 2015E 71.1 (37.2) (7.0) (4.9) 22.0 7.3 29.3 (5.3) (14.0) 10.0 2016E 74.7 (37.8) (7.0) (4.7) 25.3 7.3 32.6 (5.2) (15.4) 12.1 Operating cash flow (pre-WC) Operating cash flow (post-WC) F&D costs F&DA costs $/boe $/boe $/boe $/boe -51.4 16.2 -8.4 -8.4 5.0 10.5 -10.8 -10.8 9.9 11.8 -11.0 -11.0 17.4 17.4 -14.6 -18.1 19.4 19.4 -17.0 -17.0 Valuation P/E PEG P/CF Enterprise Value EV/EBITDA EV/DACF Dividend Yield P/BV x x x $m x x % x 2012A -1.7x 0.0 -12.2x 139 78.0x 41.1x 0.0% 0.6x 2013A 8.4x nmf 64.1x 234 19.0x 20.6x 0.0% 1.5x 2014E 5.4x 0.0 31.5x 161 3.9x 5.0x 0.0% 0.8x 2015E 5.1x nmf 4.9x 134 2.8x 3.7x 0.0% 0.6x 2016E 4.8x 0.2 3.4x 125 2.5x 3.3x 0.0% 0.5x % % % x 2012A nmf 0.8% -15.3% 0.2x 2013A nmf 2.1% -0.4% 20.3x 2014E 2.5% 6.1% -0.9% 3.2x 2015E 11.3% 18.5% 11.2% 1.0x 2016E 12.3% 19.2% 12.6% 0.8x $m m m m m m m m x €m m % m m m % m $ $ $ % % % % Historical share price performance 90 (€/sh) Daily volume (m shares) 3 80 2 70 60 2 50 40 1 30 20 1 Mar-15 Dec-14 Jun-14 Sep-14 Mar-14 Dec-13 Jun-13 Sep-13 Mar-13 Dec-12 Jun-12 Sep-12 Mar-12 Dec-11 Jun-11 Sep-11 Mar-11 Dec-10 Jun-10 0 Sep-10 10 Mar-10 Ratio Analysis ROIC ROACE ROE Net Debt (Cash) / EBITDA 0 All figures $ unless noted Source: Company Data, FactSet, Macquarie Research, April 2015 Source: Company data, Macquarie Research, April 2015 1 April 2015 9 Macquarie Research Andes Energia Overview and Andes’ key assets In the chart below we summarize our production assumptions to 2020 assuming Andes will develop only its 2P reserves (20mmb in Argentina as of 31 Dec 13 and 5.6mmb in Colombia through Interoil as of 31 Dec 2014). We estimate that company should be able to maintain a production level close to 4kb/d for all 2015 and 2016. Starting from 2017 production from Andes’ fields will start to decline, assuming no further development drilling on new fields or without the start of a pilot project in one of Andes’ Vaca Muerta licences. At 4kb/d we estimate the company should be able to generate ~$20-30m operating cash flow per year. Fig 14 Consolidated production growth profile to 2020 based on current 2P reserves Net production (boe/d) Op. cash flow ($m) 4,500 18 4,000 16 3,500 14 3,000 12 Vega Grande Chachahuen La Brea Colombia El Manzano Vaca Muerta 2H20 1H20 2H19 1H19 2H18 1H18 2H17 1H17 2H16 1H16 2H15 1H15 0 2H14 0 1H14 2 2H13 4 500 1H13 6 1,000 2H12 1,500 1H12 8 2H11 10 2,000 1H11 2,500 UTE-PETSA Op. cash flow Source: Company data, Macquarie Research, March 2015 The 4kb/d production level showed in the chart above is based on Andes’ consolidated position (ie. 100% of Interoil production). In the chart below we show Andes equity production (including only Andes’ 51% stake in Interoil): net production comes down to ~3.2kb/d generating a net operating cash flow of ~$15-20m. Fig 15 Equity production growth profile to 2020 based on current 2P reserves Net production (boe/d) Op. cash flow ($m) 4,000 14 3,500 12 3,000 10 2,500 8 2,000 6 1,500 4 1,000 Vega Grande Chachahuen La Brea Colombia El Manzano Vaca Muerta 2H20 1H20 2H19 1H19 2H18 1H18 2H17 1H17 2H16 1H16 2H15 1H15 2H14 1H14 2H13 1H13 2H12 0 1H12 0 2H11 2 1H11 500 UTE-PETSA Op. cash flow Source: Company data, Macquarie Research, March 2015 1 April 2015 10 Macquarie Research Andes Energia Argentina conventional – Chachahuen (20% WI) The Chachahuen field is located at the eastern margin of the Neuquén Basin. The first discovery well (Chachahuen Sur x-2) was drilled by YPF in Nov 2011 discovering oil in the (Cretaceous) Rayoso cycle 2 formation. In total, ten exploration and appraisal wells have been drilled to investigate and delineate the extension of the Rayoso formation, nine of which produced oil. The latest available CPR (dated 14 Feb 13) assigned to the field 12.6mmb gross 2P reserves. Additionally, the CPR assigned Chachahuen 5mmb gross P50 contingent resources and 168mmb gross unrisked prospective resources. The field development plan comprises the development of 124 wells of which 24 wells were drilled in 2014. To accelerate the development YPF is considering increasing the number of rigs to 2, each rig is able to drill 2 wells per month. The total gross well cost is $1.1m per well. All the wells require artificial lift, achieved through the installation of PCP (Progressing Cavity Pump). More recently, in Dec 13, the Chus.xp-44, located 1.4km south of the discovery well Chus x-1, encountered a significant net oil pay in the sands of the cycle 5 of the Rayoso formation presenting a new play to be appraised and developed. Andes has also identified additional prospectivity in the deeper Centenario formation as well as a shallow heavy oil play potential (Neuquen group) in the northern part of the licence. Fig 16 Regional stratigraphical map Fig 17 Chachahuen field development plan Development zone x-2 Development zone x-5 Source: Company presentation, Macquarie Research, March 2015 Source: Company presentation, Macquarie Research, March 2015 The company has identified two different production type curves (chart below): we model the Chus x-2 well type curve assuming a 100b/d IP rate and a 0.1mmb EUR while our Chus x-5 type curve assumes a 60b/d IP rate and a 0.7mmb EUR. The best area of the field is located in the North West area. During 2014 YPF and Andes Energia commenced a water-flood project, which will eventually see the conversion of nine producing wells into injector wells (2 converted in 2014). Each water-flood pattern will comprise four producing wells surrounding an injection well. The recompletion cost if $0.4m per well. The latest available CPR (dated 14 Feb 13) assigned to the field 12.6mmb gross 2P reserves. Additionally, the CPR assigned Chachahuen 5mmb gross P50 contingent resources and 168mmb gross unrisked prospective resources. 1 April 2015 11 Macquarie Research Fig 18 Andes Energia Chachahuen well production curves (boe/d) Fig 19 (kboe) 120 240 110 220 Production (boe/d) 4.5 Production profile – 2P case 123 well development Total EUR: 12mmboe (12mmboe oil; 0bcf gas) Wellcount (#) 100 Peak prod.: 3.8kboe/d reached in year 2016 90 80 100 200 4.0 90 180 3.5 80 160 3.0 70 140 60 120 50 100 2.0 40 80 1.5 30 60 1.0 20 40 20 10 20 0.5 10 0.0 0 50 Source: Company presentation, Macquarie Research, April 2015 Cash flow profile – 2P case US$m 150 30 quarterly period Cum. Production (Chus x-2) Cum. Production (Chus x-5) Daily production (Chus x-2) Daily production (Chus x-5) Fig 20 40 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 0 60 2.5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 0 70 Production Cum. Chus x-5 type wells Cum. Chus x-2 type wells Source: Company presentation, Macquarie Research, April 2015 Fig 21 Capex profile – 2P case Cum. (US$m) (US$m) Point fwd NPV: $79m ($8.6/boe; 84% IRR) 90 Full cycle NPV: $14m ($1.2/boe; 15% IRR) 500 80 100 400 70 60 50 Development drilling capex: $135m 50 0 -50 300 Waterfload workover capex: $29m 40 Facilities capex: $25m 30 Seismic & exploration capex: $53m 200 20 100 10 -100 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 -150 Revenue Opex Capex Royalties Profit tax NPI Field Cash Flow Source: Company presentation, Macquarie Research, April 2015 Fig 22 Cash flow profile – upside case US$m 150 Chus x-2 type well capex Waterfload capex Seismic & other capex Cum. capex Chus x-5 type well capex Facilities capex Opex Cum. capex + opex Source: Company presentation, Macquarie Research, April 2015 Fig 23 Capex profile – upside case Cum. (US$m) (US$m) Point fwd NPV: $79m ($8.6/boe; 84% IRR) 90 Full cycle NPV: $14m ($1.2/boe; 15% IRR) 500 80 100 400 70 60 50 Development drilling capex: $135m 50 0 -50 300 Waterfload workover capex: $29m 40 Facilities capex: $25m 30 Seismic & exploration capex: $53m 20 200 100 10 -100 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 -150 Revenue Opex Capex Royalties Profit tax NPI Field Cash Flow Source: Company presentation, Macquarie Research, April 2015 1 April 2015 Chus x-2 type well capex Waterfload capex Seismic & other capex Cum. capex Chus x-5 type well capex Facilities capex Opex Cum. capex + opex Source: Company presentation, Macquarie Research, April 2015 12 Macquarie Research Andes Energia Argentina conventional – Chañares Herrados and Puesto Pozo Cercado (49.92% WI) In June 2013 Andes acquired a 49.92% JV interest in the Chañares Herrados and Puesto Pozo Cercado oil fields from Mercuria Energy. Both fields are located in the Cuyana basin in the province of Mendoza. The latest reserves report assigned to the Chañares Herrados gross 2P reserves of 4.7mmb while the Puesto Pozo Cercado field has 2.3mmb gross 2P reserves. The Chañares Herrados field was discovered by YPF in 1961 (well CH.x-3). The area was developed by YPF between 1961 and 1968 with 28 wells targeting production from the Barrancas and Victor Oscuro formations. In 1978 YPF signed a contract for the operation with Chañares Herrados S.A. (CHASA) which eventually turned into a concession in 1985. In 1995 CHASA bought from YPF the concession Puesto Pozo Cercado, where YPF had drilled 7 wells on the eastern flank, of which only one was productive (from the Potrerillos formation). In 2001 Petrolera El Trebol (PETSA) signed a contract of association with CHASA. According to the terms of this agreement, PETSA was responsible for investments to develop the Chañares Herrados and Puesto Pozo Cercado areas including: i) Acquisition and interpretation of seismic; ii) Proposal, drilling and completion of wells; iii) Surface facilities. Since that year PETSA has drilled 49 wells in Chañares Herrados and Puesto Pozo Cercado, including 3 exploratory wells (PPC.x-1001, 1008-CH.xp and PPC.x-1002). The areas are covered with 213sqkm of 3D seismic (115sqkm acquired in 2001 and 98sqkm acquired in 2004). In 2004-2005, a new treatment plant was built (see picture below). In June 2013, following Andes’ acquisition from Mercuria, the JV undertook a well intervention programme with the main aim to stimulate the existing producing layers and perforate new horizons. As a result of this five well interventions were successfully completed and, after one month, the company reported a production increase by an average of 32b/d. The fields produce mainly from the Rio Blanco (main) and Barrancas (secondary) formations. These are geologically complex deposits: multiple layers, very heterogeneous petrophysical properties requiring costly, complex deep wells (~3,600m). At the Chañares Herrados field there are 28 active wells producing 33˚API oil with a 77% water cut. At the Puesto Pozo Cercado field there are 15 active wells producing 33˚API oil with a 32% water cut. Fig 24 Wells location and 3D seismic coverage Fig 25 Oil migration pathways CHAÑARES HERRADOS FIELD OIL-WATER TREATMENT PLANT BATTERY TANK PUESTO POZO CERCADO FIELD Source: Company presentation, Macquarie Research, April 2015 1 April 2015 Source: Company presentation, Macquarie Research, April 2015 13 Macquarie Research Andes Energia Argentina unconventional – Vaca Muerta acreage Andes Energia owns 6 blocks within the areas considered prospective for Vaca Muerta shale. This is equivalent to 249,604 net acres, the largest acreage position owned by a publicly listed independent E&P. Of this acreage, ~90% falls in the oil window, as showed in the chart below. By comparison, only ~50% of the positions owned by most of the other international players are located in the oil window. Fig 26 Andes’ Vaca Muerta prospective acreage: 290k acres (90% in the oil window) Fig 27 Andes has the largest Vaca Muerta acreage among independent public E&Ps (highlighted in red) Net acres (m acres) 3.5 3.0 3.0 2.5 2.0 1.5 0.8 Source: Company presentation, Macquarie Research, April 2015 Roch Other Medanito Shell Capex Energy Ops. Madalena Pan Am. En. Chevron Azabache ExxonMobil Americas Petr. Pluspetrol Total GyP N. Petrobras YPF 0.0 0.4 0.3 0.2 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.0 0.0 0.1 Andes Energia 0.5 0.5 Wintershall 0.9 1.0 Source: Company presentation, Macquarie Research, April 2015 To date, the company has drilled in 4 out of the 6 blocks. Results from the drilling activity are summarized in the table below. The most encouraging result, in our view, was achieved with the VG x-1 where Andes flowed a recompleted 1984-vintage well at 80b/d with no fraccing and artificial lift. During 2015 Andes’ activity plan will depend on YPF’s decision on whether to drill more wells on the Mata Mora and Corralera blocks. In Mata Mora the companies are considering drilling and testing a horizontal well. Elsewhere, where Andes is the operator, the company is planning to drill at least one vertical well at Vega Grande block. Fig 28 Andes’ Vaca Muerta exploration activity Test production Window location Type (V / H) VM Gross thickness (m ) TD (m ) Lateral Frac lenght (m ) stages (#) Liquids (b/d) Gas (m m cf/d) Duration (days) Date Well License Holders Sep-11 MMo.x-1 Mata Mora YPF - 63% (O); Andes - 27%; GyP - 10% Oil V 136 3,151 - 5 65 0.1 17 Com m ents High pressure encountered. Produced 97b/d during first 48hr (31˚API) Feb-12 Corr.x-1 Corralera YPF - 63% (O); Andes - 27%; GyP - 10% Oil V 346 2,405 - 4 14 0.9 34 After 34 days the w ell flow ed 140b/d w ith a 90% w ater cut. Jan-14 Lva.x-1 El Manzano West Andes - 60% (O); YPF - 40% Oil V 125 2,393 - 3 138 Initial flow (before artificial lift) w as 40b/d. Oil quality 23˚API Dec-14 VG x-1 Vega Grande Andes - 100% (O) Oil V 66 - Not stimulated 80 Re-entry of a w ell drilled in 1984 Source: Company presentation, Macquarie Research, April 2015 1 April 2015 14 Macquarie Research Andes Energia Colombia – a material position following the Interoil acquisition On 23 Dec 14 Andes announced it agreed to invest US$4.95m in Interoil Exploration and Production (IOX NO) through a private placement which gave Andes 51% ownership of the company. As part of the deal, Interoil’s bondholders agreed on a restructuring plan which saw the $48m debt being replaced by $32m of longer dated debt. Interoil is currently producing ~1.5kboe/d (net to Interoil) from net 2P reserves of 3.6mmb and 13.2bcf from four fields in Colombia. Three fields (Ambrosia, Mana and Rio Opia) are located in the Puli-C block in the Middle Magdalena Valley Basin. The remaining production comes from the Altair-1 discovery well in the Altair licence, located in the Llanos basin. Overall Interoil owns and operates 7 blocks in Colombia. Interoil believes that one of the most prospective exploration opportunities is in the LLA 47 licence where the company is planning to drill one exploration well (48% CoS and P10-90 prospective resources of 0.5-3.6mmb). The latest available Reserves Report (dated 26 Feb 15) highlights the plan to drill 12 development wells in the Puli-C block during 2015. To satisfy the well commitments (8 wells over the next 12-18 months) the company is currently looking at farm-out opportunities; alternatively it may decide to buy a drilling rig to save money. The expected cost is $2-2.5m per well. Additionally, Andes have a 70% working interest in 11 exploration blocks all located in the Llanos basin but one (located in the Middle Magdalena Valley basin). In these licences, most of Andes’ committed work programme for the next 2 years is capex-light: reprocessing of existing seismic and well data as well as workovers of existing wells. Some of Andes’ blocks sit in the area considered prospective for the La Luna shale play. While the delineation activity for this play is still in its early days, preliminary data suggest quality of this shale is comparable to that of the Vaca Muerta shale play in Argentina. Fig 29 Combined Andes – Interoil acreage position in Colombia Block Phase Partner names Interoil VMM 8 Production Ambrosia Production Mana Production Altair Production InterOil* 50% Pangea Energy 40% Erazo Valencia y Cia 10% Rio Opia Production InterOil* 70% Ecopetrol 30% COR 6 Exploration LLA 47 Exploration LLA51 LLA3 LLA12 LLA49 YD LLA 2, 5, 8 LLA79 Altair LLA 47 YD LLA5 Ambrosia LLA79 Puli B Rio Opia YD LLA8 Mana LLA 28 InterOil* 50% Pangea Energy 50% InterOil* 50% Pacific Rubiales 50% Andes LLA 3 Exploration LLA 12 Exploration VMM 8 Exploration LLA 49 Exploration LLA 51 Exploration LLA 79 Exploration LLA 2 Exploration LLA 28 Exploration YD LLA 5 Exploration YD LLA 2 Exploration YD LLA 8 Exploration YD LLA2 COR 6 InterOil* -% Ecopetrol 100% InterOil* 70% Ecopetrol 30% InterOil* 70% Ecopetrol 30% Puli B LLA2 Andes Blocks Andes* 70% Integra Oil & Gas 30% Andes * 70% Integra Oil & Gas 30% Andes * 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Andes* 70% Integra Oil & Gas 30% Interoil Blocks Source: Company presentation, Macquarie Research, April 2015 Note: * = operator 1 April 2015 15 Macquarie Research Andes Energia Appendix Ownership Source: FactSet, Macquarie Research, April 2015 90 (€/sh) Daily volume (m shares) 3 80 2 70 60 2 50 40 1 30 20 1 0 Mar-15 Dec-14 Jun-14 Sep-14 Mar-14 Dec-13 Jun-13 Sep-13 Mar-13 Dec-12 Jun-12 Sep-12 Mar-12 Dec-11 Jun-11 0 Sep-11 10 Mar-11 000 shares 92,150 73,617 48,392 39,125 31,403 29,344 27,800 23,681 16,474 14,658 12,165 11,834 7,889 7,108 5,089 111,255 551,984 Dec-10 % of total 16.7% 13.3% 8.8% 7.1% 5.7% 5.3% 5.0% 4.3% 3.0% 2.7% 2.2% 2.1% 1.4% 1.3% 0.9% 20.2% Andes share price Jun-10 Holder Jose Luis Manzano Portstart Business Corp. Prifen SA Commtel Holdings Corp. Albor Group Ltd. Mercuria Energy Asset Management International Capital Markets Group Chile Mirage Partners Corp. FPP Capital Adviser, Inc. Fildran SA Jarvis Investment Management Sommers International Holdings Mezzo Trading International Genipabu Investments PetroSaudi International Other Total Fig 31 Sep-10 Andes Energia’s key shareholders Mar-10 Fig 30 Source: FactSet, Macquarie Research, April 2015 Senior management and Board Members Nicolás Mallo Huergo – Chairman Mr. Huergo has almost 20 years of experience in the energy markets having closed a number of M&A transactions. He took on the role of Chairman of Andes’ Board in July 2012. He is also Chairman of InterOil Exploration & Production. He has a Law Degree from the Universidad Católica Argentina, and a Master in Law with honours at the Northwestern University School of Law (Chicago). Alejandro Oscar Jotayan – CEO Mr. Jotayan has 18 years of experience in the oil and gas industry in the Americas and Europe. Before leaving to join Andes, he was Head of Strategy and Business Development of YPF. Previously, Alejandro had held several managerial positions in the exploration and production departments of Repsol-YPF working on the commercial development of Vaca Muerta in the Neuquen basin. He had also held managerial positions in various companies of the Techint Group (Tenaris, Ternium, Tecpetrol). He holds a degree in Industrial Engineering and a Masters Degree in Business administration. Juan Carlos Esteban – VP for Oil & Gas Operations Mr. Esteban worked 23 years in YPF in various roles as operations and planning manager in charge of Argentina and Bolivia. Before joining Andes, he was Head of Technical Staff of YPF where he oversaw more than 300 professionals. Previously, he was General Manager of YPF in Mendoza in charge of Neuquina and Cuyana Basin. He holds a Civil and Petroleum Engineering Degree from the University of Buenos Aires. German Rantfl – CFO Mr. Rantfi has spent eleven years in the banking sector, including eight years at ING Barings as a Vice President in Corporate Finance and Investment Banking. He was previously the Chief Financial Officer of EDEMSA. He is a Public Accountant from the University of Buenos Aires and has a Masters in Business Administration from CEMA. 1 April 2015 16 Macquarie Research Andes Energia Mr Matthieu Milandri – Non Executive Director Aged 38, Mr. Milandri has been Investment Director at Mercuria Energy Trading SA since Dec 2011, with a particular focus on upstream oil & gas assets. Prior to joining Mercuria, he was CFO of Candax Energy, a TSX-listed upstream company and Business Development and Financing Manager at Geopetrol, a private upstream group. Previously, he spent nine years with BNP Paribas. He holds a Finance degree from the ESSEC Business School. David Jackson – Non Executive Director Mr. Jackson has more than 30 years experience in international banking and finance having held senior positions in Standard Chartered Bank (1990 – 2008), where he was a Managing Director in London and Hong Kong, Scandinavian Bank (1977 – 1990) in London, Bahrain, Singapore and Hong Kong where he was an Executive Director and a member of the Bank’s General Management Committee and Finance for Industry (now 3i), where he was a Senior Legal Advisor (1973 – 1977). He retired from Standard Chartered Bank in 2008 and was the Non-Executive Chairman of Old Park Lane Capital from 2010 to 2013. Carolina Landi – Non Executive Director Ms. Landi is the legal representative for the Patagonia Petroleo UTE. She graduated from the University of Buenos Aires in 2003 with a law degree, and obtained an LLM in Business Law from the University of Palermo in 2003. She practised as a lawyer at the firm Laporta-Lopez & Partners. Javier Alvarez – Non Executive Director Mr. Alvarez is a Director and Member of the Board of the British Argentine Chambers of Commerce. He has twelve years of experience in corporate social responsibility on natural resources projects. He holds a degree in Agricultural Engineering and a Masters degree in Environmental Politics and Globalisation from King’s College (London). Nigel Duxbury – Non Executive Director Mr. Duxbury is currently a director of a number of AIM quoted companies and has extensive experience both as a finance director and senior executive in small and large quoted and unquoted companies within Europe, Asia and the USA. He has a background in finance and accountancy, having qualified as a chartered accountant with Touche Ross (London). 1 April 2015 17 Macquarie Research Andes Energia Important disclosures: Recommendation definitions Volatility index definition* Financial definitions Macquarie - Australia/New Zealand Outperform – return >3% in excess of benchmark return Neutral – return within 3% of benchmark return Underperform – return >3% below benchmark return This is calculated from the volatility of historical price movements. All "Adjusted" data items have had the following adjustments made: Added back: goodwill amortisation, provision for catastrophe reserves, IFRS derivatives & hedging, IFRS impairments & IFRS interest expense Excluded: non recurring items, asset revals, property revals, appraisal value uplift, preference dividends & minority interests Very high–highest risk – Stock should be expected to move up or down 60–100% in a year – investors should be aware this stock is highly speculative. Benchmark return is determined by long term nominal GDP growth plus 12 month forward market dividend yield High – stock should be expected to move up or down at least 40–60% in a year – investors should be aware this stock could be speculative. Macquarie – Asia/Europe Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Medium – stock should be expected to move up or down at least 30–40% in a year. Macquarie First South - South Africa Outperform – expected return >+10% Neutral – expected return from -10% to +10% Underperform – expected return <-10% Low–medium – stock should be expected to move up or down at least 25–30% in a year. Macquarie - Canada Outperform – return >5% in excess of benchmark return Neutral – return within 5% of benchmark return Underperform – return >5% below benchmark return Low – stock should be expected to move up or down at least 15–25% in a year. * Applicable to Asia/Australian/NZ/Canada stocks only Macquarie - USA Outperform (Buy) – return >5% in excess of Russell 3000 index return Neutral (Hold) – return within 5% of Russell 3000 index return Underperform (Sell)– return >5% below Russell 3000 index return EPS = adjusted net profit / efpowa* ROA = adjusted ebit / average total assets ROA Banks/Insurance = adjusted net profit /average total assets ROE = adjusted net profit / average shareholders funds Gross cashflow = adjusted net profit + depreciation *equivalent fully paid ordinary weighted average number of shares All Reported numbers for Australian/NZ listed stocks are modelled under IFRS (International Financial Reporting Standards). Recommendations – 12 months Note: Quant recommendations may differ from Fundamental Analyst recommendations Recommendation proportions – For quarter ending 31 December 2014 Outperform Neutral Underperform AU/NZ 51.80% 31.80% 16.39% Asia 58.06% 27.37% 14.57% RSA 45.07% 30.99% 23.94% USA 44.42% 50.10% 5.48% CA 60.54% 35.37% 4.08% EUR 46.81% (for US coverage by MCUSA, 5.29% of stocks followed are investment banking clients) 33.51% (for US coverage by MCUSA, 3.08% of stocks followed are investment banking clients) 19.68% (for US coverage by MCUSA, 0.44% of stocks followed are investment banking clients) AEN LN vs FTSE 100, & rec history (all figures in GBP currency unless noted) Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, March 2015 12-month target price methodology AEN LN: £0.28 based on a Sum of Parts methodology Company-specific disclosures: AEN LN: Macquarie Capital (Europe) Limited is a market maker in the securities of Andes Energia PLC Important disclosure information regarding the subject companies covered in this report is available at www.macquarie.com/disclosures. Target price risk disclosures: AEN LN: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may include geographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by global economic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, foreign exchange rates and input prices. 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