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Canacol Energy Awarded Contract for Associated Gas and Gas Liquids from the Rancho Hermoso Field in Colombia

Canada-based international oil and gas corporation Canacol Energy Ltd. (CNE.TO), which had been trading close to a year low 85 cents, last night announced that its Colombian subsidiary has been awarded a contract by Ecopetrol S.A. for a 100% working interest in the associated gas and gas liquids stream from the Rancho Hermoso Field, located in the Llanos Basin of Colombia.

Under the terms of the contract, Canacol will purchase the produced gas from Ecopetrol S.A. at a price of US$6.50 per thousand British Thermal Units (US$15.48 per thousand standard cubic feet per day), which includes the associated liquids, those being naphtha, propane and butane. The contract will be effective on January 1, 2012, and Canacol anticipates adding approximately 2,300 net barrels per day of naphtha, propane and butane to its existing oil production stream from the approximately 5.7 mmscfpd of gas production forecast for January 2012.

Canacol said it anticipates awarding a contract for the construction of a gas and liquids separation facility in mid-September, 2011, which will be ready to receive the gas and associated liquids on January 1, 2012. The remaining dry gas will be utilized to generate electricity in the field, thereby lowering operating cost associated with the purchase of diesel, which is currently being used to generate electricity in the field.

Canacol also announced that the spud of the Rancho Hermoso 11 development well on August 29, 2011, approximately 1 month behind schedule due to a delay in obtaining the environmental license for the well. All of the relevant licenses for the remaining wells to be drilled in the field have been obtained.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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