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Canacol holds a dominant land position within the relatively unexplored northern part of the Caguan-Putumayo basin.

The Caguan-Putumayo basin covers approximately 110,300 km² and ultimately extends south to Colombia's border with both Ecuador and Peru.

Sharing a geological history with the Oriente and Maranon basins of Ecuador and Peru, respectively, the bulk of exploration to date has been focused on the southern part of the basin, where some 30 fields have been discovered.

By contrast, the Ombu block lies approximately 300 kilometers south of Bogota, within the relatively unexplored northern part of the basin.

The Capella heavy oil discovery within the Ombu block suggests that the Llanos heavy oil belt, already home to the Castilla and Rubiales heavy oil fields, may extend southwest into the northern part of the basin. In the June 2010 Bid Round, Pacific Rubiales, a $6 billion+ company secured the largest acreage position in the Putumayo Basin. "Pacific Rubiales visualizes the continuation of the heavy oil belt to the southeast of the Rubiales and Quifa fields." Pacific Rubiales and partner Talisman committed over US $118 million in work commitments to win three blocks (CAG 5, CAG 6, and PUT 9). In contrast, Canacol committed a total of $7.4 million in Phase I work commitments to win three blocks (Pacarana, Tamarin, and Cedrela). In summary, Canacol shares Rubiales vision and was a first mover in the area. Last year, Canacol secured approximately 1.6 million acres adjacent to Rubiales new blocks. Please see the following presentation slides for details.

Approach
While Sinochem Group was acquiring the operator of the Capella discovery (Emerald Energy plc) for approximately US $880 million in late 2009, Canacol moved swiftly to license analogous contracts surrounding Capella. These contracts include:

Pacarana Technical Evaluation Area
Effective July 2009, Colombia's National Agency of Hydrocarbons (ANH) awarded Canacol with the Pacarana Technical Evaluation Area. The Corporation has a 100% working interest in the contract, which is located adjacent and to the south of the Ombu contract. Interpretation of existing geotechnical data identified prospective structural trends similar to the Capella heavy oil discovery.

The Corporation has fulfilled its Phase I obligation by acquiring 2,500 km of aeromagnetic gravity survey. Canacol has applied to the ANH to convert a portion of the license to an E&P contract.

Tamarin Exploration and Production Contract
Effective August 2009, the ANH awarded Canacol with the Tamarin Exploration and Production contract. The Corporation has a 100% working interest in the contract, which is located approximately 25 km to the southwest of the Ombu contract. Based upon available geophysical and geological data, the Corporation has determined that the fault trend present at its Capella discovery to the northeast continues onto the Tamarin contract, setting up the potential for another Capella-type heavy oil prospect.

Canacol has acquired 60 kilometers of 2D exploration seismic to satisfy Phase 1 work program commitments.

Cedrela Exploration and Production Contract
Effective May 2010, the ANH awarded Canacol with the Cedrela Exploration and Production contract. The Corporation has a 100% working interest in the contract, which is located immediately south of the Tamarin E&P contract. Based upon the available geophysical and geological data, the Corporation has identified one large structure similar in character to the Capella discovery.

During the Phase 1 exploration period, Canacol will acquire, process, and interpret 250 kilometers of 2D seismic, and interpret all existing magnetic and gravity geophysical data. This is anticipated to occur during late 3Q or early 4Q of calendar year 2010.

In 2011, Canacol plans to drill up to 5 wells on Pacarana, Tamarin, and Cedrela to begin proving up 900 million net recoverable barrels.