Canacol Energy Ltd. ("Canacol" or the "Corporation") is pleased to provide an operations update concerning its Rancho Hermoso Field located in the Llanos Basin of Colombia. The Corporation has completed production testing of the C7 sandstone reservoir in the Rancho Hermoso 4 ("RH 4") well, which after 1 week of testing flowed at an average rate of 1,786 barrels of oil per day ("bopd") gross (447 bopd net) of 34 degrees API light oil. No reserves are currently attributed to the C7 reservoir, and based upon the positive test results, the Corporation is formulating a plan to develop this new productive reservoir on a field wide basis, which will involve incorporating selective recompletions of the zone into a schedule of multiple workovers going forward over the next two years. The Corporation plans to commence a 4 well development drilling program at Rancho Hermoso commencing in July 2011, which will run through to year end. Canacol's average daily net production for May of 2011 was 11,799 bopd, the majority from the Rancho Hermoso Field.
Charle Gamba, President and CEO of the Corporation, commented, "We are pleased with the discovery of a new light oil pool within the C7 reservoir at Rancho Hermoso. This reservoir will yield important production and reserve adds to our ongoing development program at the field."
Rancho Hermoso 4 C7 Production Test and New Pool Discovery
The C7 reservoir is present and oil bearing within all of the 10 wells drilled into the field to date. The C7 had previously been tested at a gross rate of 429 bopd of 34 degrees API oil in February 2011 in the Rancho Hermoso 10 well located approximately 2 kilometers to the south of the RH 4 well. Within the field, the sandstone varies in thickness between 8 and 14 feet, with an average porosity of 21%. The C7 reservoir in the RH 4 well was perforated between 8,602 and 8,614 feet measured depth ("ft md") and production tested over a period of one week. The average gross flow rate was 1,786 bopd (447 bopd net) with a 4% water cut using an electrical submersible pump ("ESP") set to a frequency of 70 Hz. Water cut dropped throughout the duration of the test, and based on the salinity of the water recovered the Corporation believes it to be filtrate related to the drilling and completion process, and not formation water. The C7 reservoir in the RH 4 well has been placed on permanent production, and the Corporation is planning to work with its auditors to book reserves in this formation, and formulate a schedule to complete this reservoir and bring it onto production in other existing wells.
Rancho Hermoso Drilling program
The Corporation plans to commence a four well development drilling program starting with the Rancho Hermoso 11 well, anticipated to spud in July 2011 and targeting production from the Ubaque reservoir. The Ubaque reservoir at the nearby Rancho Hermoso 10 well contains 45 feet of net oil pay, and was perforated between 10,192 and 10,221 ft md and production tested in February 2011. The well flowed at a final stable gross rate of 8,122 bopd (2,030 bopd net) of 18 degrees API oil with 6 % water cut using an ESP set to a frequency of 65 Hz during a 24 hour flow period. The RH 11 well will be followed by the drilling of the Rancho Hermoso 12 and 13 wells, which will target production from the same reservoir. The Rancho Hermoso 14 well will target production from the Barco reservoir, and the Corporation anticipates that the drilling of the fourth well will be completed by December 2011.
The Corporation, through its 100% owned Colombian subsidiary Rancho Hermoso S.A., operates the Rancho Hermoso field under two Contracts with Ecopetrol S.A., those being 1) a Participation Contract in the Casanare Area whereby the Corporation receives 25% (after royalty) of gross production from the Los Cuervos-Barco, Guadalupe, Ubaque, and C7 reservoirs, with Ecopetrol S.A. receiving the remainder, and 2) a Risked Service Production Contract for the Mirador reservoir, whereby the Corporation is paid a tariff for each barrel of oil produced and Ecopetrol S.A. receives the oil.