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Canacol operates two producing fields, Rancho Hermoso and Entrerrios, which lie in the northern portion of the Llanos Basin, Colombia's most prolific hydrocarbon basin.

The Rancho Hermoso Field is an elongated north south trending structure with three way structural closure on the north, west and south sides of the structure and is truncated on the east by a major normal fault. There are several old 2D seismic surveys run over the field plus a new 2008 2D seismic program. In 2009, Canacol acquired new 3D seismic trade data. To date 6 wells have been drilled in the field over the period from 1984 to 2010 (RH #1, #2, #3, #4, #5, and #6).

Recent Developments & Outlook
In December 2009, Canacol announced that the Rancho Hermoso 5 well ("RH-5") tested at a rate of 3,994 barrels of oil per day (“bopd”), or approximately 1,000 bopd net to Canacol, of 33 degree API light oil from the Guadalupe reservoir. In mid December 2009, Canacol further announced that it tested a combined gross flow rate of 8,428 gross bopd, or approximately 2,100 bopd net to Canacol, from the Guadalupe and Los Cuervos reservoirs. The Los Cuervos reservoir was placed on production in late February 2010. The underlying Guadalupe reservoir was tested at a final stable rate of 1,037 gross bopd, approximately 234 bopd net to Canacol, and was isolated to test the overlying Los Cuervos reservoir.

The Rancho Hermoso 4 well (RH-4"), recently re-completed in first the Guadalupe reservoir and then the Los Cuervos reservoir in January 2010, is currently producing from the Los Cuervos reservoir.

Upon the completion of the Los Cuervos tests in both the RH-4 and RH-5 wells, the Corporation plans to commingle the Los Cuervos production with the Guadalupe production in each well and place them on permanent production.

In May 2010, Canacol updated its drilling plans to include up to five infill development wells targeting production from the Mirador, Los Cuervos, Guadalupe, and Ubaque reservoirs, all of which are productive in the Rancho Hermoso field. Canacol plans to expand the fluid handling capacity of existing facilities in order to handle greater production.

In late June 2010, Canacol spud its first well, Rancho Hermoso 6, of a 5-well drilling campaign. Upon completion of drilling operations, the Corporation plans to test multiple zones to determine the productive capacity of the reservoirs.

In late July 2010, the Corporation announced that Rancho Hermoso 6 encountered total of 115 ft true vertical depth ("TVD") of net oil pay in five different reservoirs, which is significantly greater than the 40 ft of net oil pay encountered at the Rancho Hermoso 5 well located down dip on the structure. The 115 ft of encountered net oil pay makes Rancho Hermoso 6 the best well drilled in the 26 year history of the field.

Canacol projects to exit calendar year 2010 with approximately 7,000 barrels of oil production per day. Rancho Hermoso represents all of Canacol's production growth for calendar year 2010. Rancho Hermoso's oil is sold to Hocol, which is 100%-owned by Ecopetrol. Presently, Rancho Hermoso's oil is trucked to Monterrey. In the near future, Canacol will begin transporting production to Banadias, a new truck station being built by Ecopetrol in the Cano Limon-Covenas pipeline.

Economics
Rancho Hermoso and Entrerrios oil fields are each subject to different contracts governing production. At Rancho Hermoso, production from the Mirador formation is subject to a Risk Service Contract with Ecopetrol. Under the contract, Canacol receives a fixed price tariff for each barrel produced, which is insensitive to oil price fluctuations. The tariff price for August 2008 through August 2009 was approximately US$8.89 per gross barrel plus transportation reimbursement. Under an existing agreement with Ecopetrol, the tariff escalates each year to approximately US$17.56 per gross barrel in 2012 plus transportation reimbursement and will remain at that level for the duration of the field's life. The tariff price for August 2009 to August 2010 is approximately US$11.11 per barrel plus transportation reimbursement.

For both Rancho Hermoso and Entrerrios fields, Canacol's share of production from all other horizons, such as the Ubaque and most recently the Guadalupe and Los Cuervos, is governed by production sharing agreements with Ecopetrol. Canacol's pre-royalty share of such non-tariff production is on a sliding scale, ranging from 30% at WTI $50 per barrel to 24% at WTI $100 per barrel.

Regional Geological Setting
The Llanos Basin is situated on the east side of the Andes Mountains and covers an area of approximately 200,000 km2 (77,000 square miles). The basin is Colombia’s most prolific hydrocarbon basin and contains the majority of Colombia’s oil fields and proved oil reserves. The formation of the basin was initiated by Jurassic rifting and subsidence and ended with the late Miocene Andean Orogeny. The Andean Orogeny created the major north-south Andes Mountain Range extending from Colombia to the southern tip of South America. The rifting followed by the thrusting and uplift resulted in a structural style that is characterized by deep rooted high angle thrust and normal faults associated with low amplitude closures oriented NNE-SSW.

The basin is a northwest dipping monocline that includes a thick Paleozoic-Cretaceous marine depositional sequence that can reach a maximum thickness of 3,000 meters (9,850 ft). The marine sequence is overlain by the late Tertiary continental sediments of the Guayabo Formation, which is associated with the Cordillera Oriental uplift in late Miocene through Pleistocene.