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Canacol increases final gas flow at Clarinete 1 onshore Colombia

10th February 2015

Canacol Energy has announced that Clarinete 1, the first exploration well drilled in its recently acquired VIM 5 Exploration and Production (E&P) Contract, has tested at a final gross rate of 24.7 million standard cubic feet per day (mmscfpd) of dry gas with no water from the Upper Cienaga de Oro (CDO) reservoir in the second of two production tests over two separate reservoir intervals

Canacol Energy has announced that Clarinete 1, the first exploration well drilled in its recently acquired VIM 5 Exploration and Production (E&P) Contract, has tested at a final gross rate of 24.7 million standard cubic feet per day (mmscfpd) of dry gas with no water from the Upper Cienaga de Oro (CDO) reservoir in the second of two production tests over two separate reservoir intervals
Canacol, through its wholly owned subsidiary CNE Oil & Gas S.A.S., holds a 100 per cent operated interest in the VIM 5 E&P contract

As previously reported, the Lower CDO tested at a final gross rate of 20.6 mmscfpd (3,606 boepd) of dry gas with no water. The combined gross deliverability of the Clarinete 1 well from both intervals is approximately 45.3 mmscfpd (7,947 boepd).

Canacol, through its wholly owned subsidiary CNE Oil & Gas S.A.S., holds a 100 per cent operated interest in the VIM 5 E&P contract.

Pursuant to an existing agreement, and subject to approval from the Agencia Nacional de Hidrocarburos, an industry joint venture partner has the ability to earn up to 25 per cent of the corporation’s 100 per cent interest in exchange for fulfilling certain financial commitments.

Both gas sales from Esperanza (currently sold based on the Guajira price index of USD 5.08/mmbtu or USD 28.96/boe) and tariff oil from Ecuador (USD 38.54/bbl), together comprising approximately 42 per cent of production in FQ1 2015, are completely insensitive to world oil prices, offering the corporation a significant degree of protection from the current effects of falling benchmark oil prices.

The Clarinete 1 exploration well was spud on October 8, 2014, and reached a total depth of 8,068 feet measured depth on November 7, 2014. The primary objective of the well were sandstones of the Tertiary aged CDO sandstone, the main producing reservoir at the Nelson and Palmer fields in the adjacent Esperanza contract where Canacol has a 100 per cent operated working interest.

The Clarinete 1 encountered 149 feet of gas pay with average porosity of 26 per cent within the CDO sandstone reservoir based upon an evaluation of the open hole logs. The upper part of the CDO sandstone reservoir was perforated in various intervals between 6,409 and 6,568 feet measured depth.

This interval achieved a final rate of 24.7 mmscfpd (4,333 boepd) using a 42 / 64 inch choke with a tubing head pressure of 2,274 pounds per square inch with no water, at the end of a 16 hour flow period.

The corporation is preparing to lay a flowline to tie the Clarinete 1 well into its operated gas processing facility at the Jobo station. The corporation is also negotiating a new take or pay sales contract with a domestic Colombian purchaser and will announce details concerning the contract in the near future.

As per the previously disclosed independent evaluation of the prospective resources associated with the Clarinete prospect by Gaffney Cline and Associates (see December 18, 2014 press release by Canacol), the pre drill best estimate of unrisked gross prospective gas resource associated with the Clarinete discovery is approximately 540 billion cubic feet. Canacol has engaged its reserves auditors to prepare a reserve and contingent resource report for the Clarinete discovery following the completion of the testing program. As previously announced, the corporation in 2014 executed three new gas sales contracts for a combined 65 mmscfpd (11,052 boepd) which is expected to take Canacol’s current daily gas production of approximately 20 mmcfpd (3,509 boepd) to 83 mmcfpd (14,561 boepd) in late calendar 2015.

The new contracts each have a five year term, with pricing of USD 5.40/mmbtu (USD 30.78/barrel of oil equivalent) escalated at 2 per cent per year for two of the contracts totaling 35 mmcfpd, and USD 8.00/mmbtu (USD 45.60/boe) escalated at approximately 3 per cent per year for the third contract of 30 mmcfpd.

Canacol currently sells approximately 18 mmcfpd (3,158 barrels of oil equivalent per day) of gas from the Nelson Field to a local ferronickel producer under a 10 year contract that expires in 2021.

That contract, unlike the new contracts, is linked to the Guajira price index, which changed effective October 29, 2014 from USD $3.97/mmbtu (USD 22.63/boe) to USD 5.08/mmbtu (USD 28.96/boe). As recently announced, the corporation has executed a new 15 year take or pay gas sales contract to provide 35 mmscfpd to a third party commencing in the last quarter of calendar 2016 at a price of USD 6.25/mmbtu (USD 35.63/boe) escalated at 2 per cent per year throughout the life of the contract. This pricing reflects the income from both the raw gas sales and the sale of the final LNG product. The total gross productive capacity of Canacol’s existing gas wells at its Nelson (Nelson 2, 3, 4 and 5), Palmer (Palmer 1) and Clarinete (Clarinete 1) gas fields is approximately 120 mmscfpd, more than sufficient to satisfy the 83 mmscfpd required to fulfill its contractual sales obligations in late calendar 2015.

The corporation is planning to double the capacity of its operated Jobo gas processing facility from the current level of 50 mmscfpd to 100 mmscfpd by midyear calendar 2015 at a cost of approximately USD 3.0m.

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