Macquarie Research

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. From time to time, the company will enter into transactions, including transactions in derivative instruments, to
manage certain of these exposures.
Analyst certification:
The views expressed in this research accurately reflect the personal views of the analyst(s) about the subject securities or issuers and no part of the
compensation of the analyst(s) was, is, or will be directly or indirectly related to the inclusion of specific recommendations or views in this research. The
analyst principally responsible for the preparation of this research receives compensation based on overall revenues of Macquarie Group Ltd ABN 94
122 169 279 (AFSL No. 318062) (MGL) and its related entities (the Macquarie Group) and has taken reasonable care to achieve and maintain
independence and objectivity in making any recommendations.
General disclaimers:
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1 April 2015
18
Macquarie Research
Andes Energia
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