Canacol Energy Ltd. and ExxonMobil Sign Agreement for Shale Oil Exploration Project in Colombia

Wed Apr 4, 2012 5:15pm EDT

* Reuters is not responsible for the content in this press release.

  CALGARY, ALBERTA, Apr 04 (MARKET WIRE) --
Canacol Energy Ltd. ("Canacol" or the "Corporation") (TSX:CNE) (BVC:CNEC)
is pleased to announce that its wholly owned subsidiary, Carrao Energy
Sucursal Colombia ("Carrao Colombia"), has entered into a farm-out
agreement (the "FOA") with ExxonMobil Exploration Colombia Limited, a
wholly-owned subsidiary of ExxonMobil Corporation ("ExxonMobil")
(NYSE:XOM) for the exploration of the Corporation's non-operated VMM 2
exploration and production ("E&P") contract located in the Middle
Magdalena basin of Colombia. The VMM 2 E&P contract is one of three
adjacent contracts that Canacol has interests in, representing 126,000
net acres that expose Canacol to a potentially large, unconventional
shale oil play. With $ 91 million in cash, cash equivalents, and
restricted cash on hand as of December 31, 2011, and strong cash flow
from its operated oil producing assets in Colombia, the Corporation
remains fully funded to execute its exploration and development programs
for 2012.

    Charle Gamba, President and CEO of the Corporation, commented, "As the
world's largest publicly-owned integrated oil and gas company, ExxonMobil
brings significant experience, technology, research and financial
resources to this shale oil joint venture with Canacol. We look forward
to working with their team to explore the substantial shale oil potential
on the VMM 2 contract. At the same time, Canacol has chosen to retain its
100% interest in the adjacent Santa Isabel E&P contract in order to
capture all of the upside on the block should the play prove commercial
on the adjacent VMM 2 and VMM 3 blocks."

    Key terms and conditions

    Pursuant to the terms of the FOA, ExxonMobil will carry the cost of the
drilling and testing of up to three wells to test conventional and
unconventional targets in the La Luna and Rosablanca formations, both
proven oil source rocks in the area. The first two wells will be vertical
wells, while the third well will possibly be a horizontal multi-stage
fractured well. It is anticipated that prospective intervals of the La
Luna and Rosablanca will be cored and logged within the first well, and
stimulated and flow tested within the second well. Should ExxonMobil
choose to proceed with a third well, it will possibly be a horizontal
multi-stage fractured well. Under the terms of the agreement, ExxonMobil
will pay 100% of the cost of the three wells, up to a cap of gross US$15
million for each of the first 2 wells, and a cap of gross US$ 17.5
million for the third well should it be a horizontal lateral well
exceeding 4,000 feet in lateral length, and US$ 15 million should it be
another vertical well. ExxonMobil will also pay Canacol US$ 2.2 million
upon execution of the FOA for back-costs related to the acquisition of 3D
seismic on the block in 2011. The total potential investment on the block
is approximately US$ 50 million. In return, ExxonMobil shall earn 50% of
Canacol's 40% interest in the contract. Vetra will remain as operator of
VMM 2 during the exploration period and expects to spud the first
exploration well in late 2012. The formal assignment of working interests
as contemplated by the transaction, including Canacol's 20% interest,
remain subject to the approval of the Agencia Nacional de Hidrocarburos
(ANH) of Colombia.

    Canacol's unconventional shale oil play

    VMM 2 (20% interest, 7,561 net acres)

    VMM 3 (20% interest, 16,622 net acres) (1)

    Santa Isabel (100% interest, 101,542 net acres)

    Located in the Middle Magdalena basin, the VMM 2 E&P contract is one of
three adjacent contracts that expose Canacol to a potentially large,
unconventional shale oil fairway in the thick Cretaceous La Luna and
Rosablanca formations analogous to the Eagle Ford formation. Ranked as
one of the most productive source rocks in the world, the La Luna is also
the primary source rock in Venezuela's Maracaibo basin, which contains
over 250 billion barrels of recoverable oil.

    Historical vertical wells drilled into the La Luna source rock in the
nearby Totumal and Butarama fields in the Middle Magdalena Basin have
tested rates of up to 900 barrels of light oil per day natural flow from
fractured shales within the La Luna, such as the Buturama 2 well tested
in 1953 by Intercol.

    In the last year, this unconventional play type has received considerable
attention from world-class, international resource play operators and is
an area of emphasis in the upcoming 2012 Colombia Bid Round. According to
the ANH, approximately 30% of the 109 new E&P contracts planned for the
2012 Colombia Bid Round have exposure to some form of unconventional
resource potential. Additionally, Ecopetrol is targeting over 25,000
barrels of production per day from the Middle Magdalena unconventional
shale fairway by 2015.

    Charle Gamba, President and CEO of the Corporation, commented, "Land
values in the Middle Magdalena basin that feature prospective
unconventional resources have increased 7-fold from approximately
$125/acre to over $700/acre in less than a year."

    VMM 3 E&P contract

    Effective January 2012, Shell-Colombia acquired 100% participating
interest in the VMM 3 E&P contract. Shell-Colombia has assumed
approximately US $50 million in work commitments, which consist of all
costs for seismic acquisition and the drilling of three exploratory
wells. Effective 2014, Canacol has the option to exercise a 20%
participating interest in the VMM 3 E&P contract for no additional cost.

    Canacol's zero cost option to exercise a 20% participating interest in
the VMM 3 E&P contract allows the Corporation to not only retain a
significant interest in VMM 3's deep cretaceous potential, but also
benefit from having a world-class operator such as Shell-Colombia
exploring the area. In addition, Canacol aims to capture valuable
information from Shell-Colombia's activities to de-risk the exploration
and development of the Corporation's 100%-operated interest in the
adjacent Santa Isabel E&P contract.

    Santa Isabel E&P contract

    Canacol retains 100% interest in the Santa Isabel E&P contract, and plans
to drill one exploration well in the second half of 2012. Should the
Cretaceous shale exploration wells in the adjacent VMM 2 and VMM 3 prove
successful, Canacol will have retained significant exposure and upside to
the play on its 100% owned contract.

    Independent Evaluation by GLJ Petroleum Consultants Ltd. ("GLJ")

    The Corporation engaged GLJ Petroleum Consultants Ltd. "GLJ" to conduct
an independent evaluation of the undiscovered petroleum
initially-in-place ("UPIIP") for Canacol's interests in the Middle
Magdalena VMM 2 and Santa Isabel E&P contracts effective December 31,
2011. The Corporation owns 20% interest in VMM 2 and 100% interest in
Santa Isabel.

    GLJ prepared the evaluation in accordance with resource and reserves
definitions, standards, and procedures in the Canadian Oil and Gas
Evaluation ("COGE") Handbook. COGE Handbook defines UPIIP as:

    "Undiscovered Petroleum Initially-In-Place (equivalent to undiscovered
resources) is that quantity of petroleum that is estimated, on a given
date, to be contained in accumulations yet to be discovered. The
recoverable portion of Undiscovered Petroleum Initially-In-Place is
referred to as Prospective Resources; the remainder as Unrecoverable."

    GLJ has provided low, best, high, and mean estimates(i) of UPIIP for the
La Luna and Rosa Blanca shale formations:



                                  Santa Isabel E&P contract                 
                                    100% Canacol interest                   
                                        UPIIP (MMbbl)                       
                 -----------------------------------------------------------
                       Low           Best           High           Mean     
                 -----------------------------------------------------------
Upper La Luna             337.5          739.2        1,292.6          879.1
La Luna                   332.5          743.7        1,456.9          915.3
Rosa Blanca               318.9          665.9        1,208.6          792.0
                 -----------------------------------------------------------


                                      VMM 2 E&P contract                    
                                    20% Canacol interest                    
                                        UPIIP (MMbbl)                       
                 -----------------------------------------------------------
                       Low           Best           High           Mean     
                 -----------------------------------------------------------
Upper La Luna             105.7          230.5          401.6          273.8
La Luna                    83.7          186.7          366.1          230.0
Rosa Blanca                24.9           51.2           93.9           61.4
                 -----------------------------------------------------------

                               Santa Isabel and VMM 2 contracts             
                                    Total Canacol interest                  
                                        UPIIP (MMbbl)                       
                 -----------------------------------------------------------
                       Low           Best           High           Mean     
                 -----------------------------------------------------------
Upper La Luna             443.2          969.7        1,694.2        1,152.9
La Luna                   416.2          930.4        1,823.0        1,145.3
Rosa Blanca               343.8          717.1        1,302.5          853.4
                 -----------------------------------------------------------


    Estimates of UPIIP were generally prepared using land and technical
information including well information, engineering, geological, and
geophysical data available from Canacol to December 31, 2011. There is no
certainty that any portion of the resources will be discovered. If
discovered, there is no certainty that it will be commercially viable to
produce any portion of the resources.

    (i)Low estimate is considered to be a conservative estimate of the
quantity that will actually be recovered. It is likely that the actual
remaining quantities recovered will exceed the low estimate. If
probabilistic methods are used, there should be at least a 90 percent
probability (P90) that the quantities actually recovered will equal or
exceed the low estimate.

    (i)Best estimate is considered to be the best estimate of the quantity
that will actually be recovered. It is equally likely that the actual
remaining quantities recovered will be greater or less than the best
estimate. If probabilistic methods are used, there should be at least a
50 percent probability (P50) that the quantities actually recovered will
equal or exceed the best estimate.

    (i)High estimate is considered to be an optimistic estimate of the
quantity that will actually be recovered. It is unlikely that the actual
remaining quantities recovered will exceed the high estimate. If
probabilistic methods are used, there should be at least a 10 percent
probability (P10) that the quantities actually recovered will equal or
exceed the high estimate.

    (i)Mean estimate is the arithmetic average from the probabilistic
assessment.

    Canacol is a Canadian-based international oil and gas corporation with
operations focused onshore in Colombia and Ecuador. Canacol is publicly
traded on Toronto Stock Exchange (TSX:CNE) and the Bolsa de Valores
Colombia (BVC:CNEC). The Corporation's public filings are available at
www.sedar.com.

    This press release contains certain forward-looking statements within the
meaning of applicable securities law. Forward-looking statements are
frequently characterized by words such as "plan", "expect", "project",
"intend", "believe", "anticipate", "estimate" and other similar words, or
statements that certain events or conditions "may" or "will" occur,
including without limitation statements relating to estimated production
rates from the Corporation's properties and intended work programs and
associated timelines. Forward-looking statements are based on the
opinions and estimates of management at the date the statements are made
and are subject to a variety of risks and uncertainties and other factors
that could cause actual events or results to differ materially from those
projected in the forward-looking statements. The Corporation cannot
assure that actual results will be consistent with these forward-looking
statements. They are made as of the date hereof and are subject to change
and the Corporation assumes no obligation to revise or update them to
reflect new circumstances, except as required by law. Prospective
investors should not place undue reliance on forward-looking statements.
These factors include the inherent risks involved in the exploration for
and development of crude oil and natural gas properties, the
uncertainties involved in interpreting drilling results and other
geological and geophysical data, fluctuating energy prices, the
possibility of cost overruns or unanticipated costs or delays and other
uncertainties associated with the oil and gas industry. Other risk
factors could include risks associated with negotiating with foreign
governments as well as country risk associated with conducting
international activities, and other factors, many of which are beyond the
control of the Corporation.

    (1) Canacol has the right to acquire a 20% undivided interest, at no
additional cost, upon fulfillment of certain conditions described in the
agreement between the parties

Contacts:
Canacol Energy Ltd.
Investor Relations
800-554-3590, extension 101
IR@canacolenergy.com
www.canacolenergy.com

Copyright 2012, Market Wire, All rights reserved.

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