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21.01.09

Operations Update re Colon-1 Exploration Well


21 January 2009

PetroLatina Energy Plc
(“PetroLatina” or the “Company”)

Operations Update re Colon-1 Exploration Well
and
Subscription for a US$4.875 million tranche of up to a proposed US$9.875 million Convertible Secured Loan Note

PetroLatina (AIM: PELE), an independent oil and gas exploration, development and production company focused on Latin America, is pleased to provide a further operational update to that announced on 7 January 2009 in respect of the Colón-1 exploration well.

The Company’s first exploratory well on the La Paloma block is now close to reaching its target depth of approximately 9,200ft in order to test the La Paz, Lisama and Umir formations. As previously announced, oil and gas shows were encountered in this well but the initial wellbore was lost due to unexpected high pressures encountered in the Cretaceous Umir formation. No wireline logging or testing was possible, and a sidetrack well has been drilled in order to fully evaluate the section. The Directors are pleased with the progress of this sidetrack and the well has again penetrated the Umir formation which remains the primary reservoir objective. The well is expected to reach the target depth in the next few days, following which wireline logs will be obtained and, if warranted, production flow testing will be undertaken. The Directors expect to be able to release preliminary results from the well on or around 10 February 2009.

As announced on 7 January 2009, the side track operation has resulted in an increase of approximately US$1.6 million to the original projected costs of US$6 million, and in order to ensure that the Company has adequate funds available for completion of the well and to progress its ongoing work programme, the Company is pleased to announce that it has today executed an instrument constituting secured convertible loan notes 12 per cent. due 2011 in the aggregate amount of US$9.875 million (the “Notes”). Tribeca Oil and Gas Financing, Inc. (“TOGF”), a subsidiary of existing shareholder Tribeca Oil & Gas, Inc. (“TOGI”), has today agreed to subscribe for US$4.875 million in aggregate of the Notes. TOGF has an option (but is not obliged) to subscribe for up to a further US$5 million in aggregate of the Notes.

The first tranche of the Notes subscribed for by TOGF, if not repaid or converted earlier, will mature on 21 January 2011. The Notes will accrue interest at a rate of 12 per cent. per annum, payable at intervals of six months from the date of issue, and at the Company’s option can be redeemed in whole or in part prior to maturity, without penalty, on any of the interest payment dates. Unless converted, the Notes are redeemable immediately prior to any sale or de-listing of the Company and repayable in the event of any default. At TOGF’s option, the Notes are convertible in whole into new ordinary shares in the Company (“Ordinary Shares”) on any of the interest payment dates, in the event of early redemption (in respect of the amount specified to be redeemed), on maturity or on any instance of default, sale or de-listing of the Company.

In the event of conversion, the number of new Ordinary Shares to be issued to the noteholder will be determined by dividing the principal amount of the relevant Notes by the initial conversion price per Ordinary Share of 20.9375 pence (the “Initial Conversion Price”).

The Company has the option to request that TOGF subscribes in cash at par for the whole or part of the second tranche of US$5 million Notes (the “Option”). The Option may be exercised by the Company on one occasion only during the option period, being a period of 6 months from the date of the loan note instrument. If not repaid earlier, the second tranche Notes will mature in 2011 on their second anniversary. Following exercise of the Option, TOGF is not obligated to subscribe for the second tranche. If subscribed, the second tranche of Notes will accrue interest at a rate of 12 per cent. per annum, payable at intervals of six months from the date of issue, and at the Company’s option can be redeemed in whole or in part prior to maturity, without penalty, on any of the interest payment dates. Unless converted, the Notes are redeemable immediately prior to any sale or de-listing of the Company and repayable in the event of any default. At TOGF’s option, the second tranche Notes are convertible in whole into Ordinary Shares on any of the interest payment dates, in the event of early redemption (in respect of the amount specified to be redeemed), on maturity or on any instance of default, sale or de-listing of the Company. In the event of conversion, the number of new Ordinary Shares to be issued to the noteholder will be determined by dividing the principal amount of the relevant Notes by the second tranche conversion price to be calculated as the higher of (i) the average middle-market closing price of an Ordinary Share over the ten business days of trading immediately prior to the date of conversion plus a premium of 25 per cent. thereon, as converted from pounds sterling to US dollars at the exchange rate prevailing on the business day prior to conversion and (ii) the then prevailing nominal value of an Ordinary Share.

At its discretion, the Company is entitled to pay interest accruing on both tranches of the Notes in the form of either cash or by the issue of new Ordinary Shares. If interest is paid in the form of shares, the number of new Ordinary Shares to be issued and allotted (credited as fully paid) to the noteholder will be determined by dividing the amount of interest payable by the closing middle-market price of an Ordinary Share on the business day immediately prior to the relevant interest payment date converted from pounds sterling to US dollars at the then prevailing exchange rate.

If at any time a takeover offer is made to all ordinary shareholders, the Company will use its reasonable endeavours to procure a comparable offer to be extended to the noteholder. If no such offer is extended the noteholder shall be entitled to exercise their conversion rights or seek repayment of their Notes in whole or in part at a 5 per cent. premium to their principal amount.

The Initial Conversion Price referred to above is less than the current nominal value of an Ordinary Share of US$0.50 (approximately 35 pence at the prevailing pounds sterling to US dollars exchange rate). Accordingly, since English company law prevents the Company from issuing new shares at a price below the prevailing nominal value of its Ordinary Shares, the Company has undertaken to implement a capital reorganisation prior to the first interest payment date in order to ensure that the nominal value of each Ordinary Share is reduced to an amount sufficiently below the Initial Conversion Price, which may include (but shall not be limited to) the sub-division of the existing issued Ordinary Shares into new ordinary shares of a lower nominal amount and a new class of non-voting deferred shares of a lower nominal amount. A further announcement in respect of the Company’s proposed capital reorganisation will be made in due course and an appropriate circular will also be issued to shareholders to provide more details and convene a general meeting to obtain the requisite shareholder approvals. By way of security in respect of the Company’s obligations under the loan note instrument, PetroLatina (CA) Limited, a wholly owned subsidiary of the Company, has granted to TOGF a pledge over its entire shareholding in RL Petroleum Corporation (a Panamanian Company). This security will be automatically released by TOGF on the earlier of (i) conversion or redemption of all outstanding Notes and (ii) the aforementioned proposed capital reorganisation becoming effective.

The Company has agreed to pay TOGF an arrangement fee of US$300,000 in consideration for the subscription of the Notes. In addition, the Company has today granted TOGF a warrant over Ordinary Shares exercisable in whole or in part at an aggregate exercise price of US$300,000 on any number of occasions throughout the term of the loan note instrument (the “Warrant”). The exercise price payable by TOGF to the Company in respect of the Warrant will be set off against the arrangement fee owing by the Company to TOGF pursuant to the Notes. In the event of exercise, the number of new Ordinary Shares to be issued to the warrantholder will be determined by dividing the exercise price by the higher of (i) the middle market closing price of an Ordinary Share on the date of the Warrant, as converted from pounds sterling to US dollars at the then prevailing exchange rate, and (ii) the prevailing nominal value of one Ordinary Share at the time of exercise of the Warrant. The Warrant will lapse on such date as all of the Notes have either been converted or redeemed or are no longer capable of issue in accordance with the provisions of the loan note instrument.

As stated in the interim results announcement of 30 September 2008, the Company requires additional financing to be able to complete its entire planned work programme and the Directors have been evaluating how best to fund the necessary capital and operating expenditure. Whilst preliminary discussions with a number of potential third party finance providers have been positive, negotiating suitable debt facilities has proved difficult in light of the recent turmoil in global financial markets and the reticence of banks to commit to new lending in the current uncertain macro-economic environment. Accordingly, the Directors believe that the issue of the Notes is the most efficient and cost effective means of securing the Company’s near term funding requirements in order to avoid any delay or reduction in the ongoing drilling programme whilst continuing to seek appropriate longer term debt facilities and evaluate alternative funding options. The net proceeds from the issue of the Notes will be used to fund certain capital expenditure commitments in respect of the Company’s ongoing work programme in Colombia and for general working capital purposes. The Company expects to have remaining cash resources of approximately US$2 million following completion of Colon-1, as outlined above, and prior to exercise of the Option, and although the Directors are satisfied that the working capital available to the Company will be sufficient for its present requirements, it is currently expected that the Company will require additional funding in order to complete its entire work programme. Further announcements regarding such financing will be made as and when appropriate.

TOGI is a significant shareholder in the Company and currently holds 15,360,999 Ordinary Shares, representing approximately 35 per cent. of the Company’s issued share capital and existing warrants over a further 1,875,260 Ordinary Shares which are automatically exercisable if, and to the extent that, any exercise of the Company’s other existing outstanding 3,482,625 warrants occurs. Accordingly, the issue of the Notes as set out above is considered to be a related party transaction under the AIM Rules for Companies. The independent directors of the Company (being John May and Menno Wiebe) consider, having consulted with Strand Partners Limited, that the terms of the issue of the Notes are fair and reasonable insofar as the Company’s shareholders are concerned.

Juan Carlos Rodriguez, CEO of PetroLatina, commented:

“PetroLatina is delighted that Tribeca has continued to support the business, particularly in light of the current global economic uncertainty. These funds will enable us to complete the Colón-1 exploration well and continue to invest in our work programme to grow the Company.

“We look forward to announcing initial test results from Colón-1 in the coming weeks; we believe the prospect has possible recoverable reserves of up to 19.8 million barrels of oil.”


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