CNE – Colombian-Focused Canacol Catches Oil in the Gacheta and Flows 778bopd from Labrador 5 Well

POSTED ON October 23, 2013 BY Travis McPherson
CATEGORY Colombia, Energy, Finance, Oil and Gas, South America,

CNEs LLA23 Block

Colombian-focused oil and gas producer Canacol Energy (CNE:TSX) released the results from their Labrador 5 well located on the LLA23 block. The well was spud on September 10 and reached a total depth of 10,972ft and hit 55 feet of net oil pay; 13ft in the C7 and 42ft in the Middle and Lower Gacheta formations. The well was perforated from 10,514 to 10,522ft in the Middle Gacheta and flowed at a stable gross rate of 778bopd of 33 degrees API oil with 10% water cut using a jet pump. The company believes the water will continue to fall and is in the reservoir as a result of drilling and completing the well as the other wells in the Gacheta formation have water cuts less than 1%.

The LLA23 block is owned 80% by CNE and 20% by Petrolera Monterrico S.A Sucursal Colombia. The Labrador 5 well is the fourth well drilled into this discovery by the partners and a fifth well, Labrador 4, is planned to be drilled in Q1/2014. The company also plans to spud the Leono 1 exploration well by mid-November which is located at the northern end of the LLA23 block.

The company is guiding an exit rate of 7,500 to 8,500bopd and over the months of July, August and September average production was at 9,271boepd which was comprised of 6,259bopd of oil and 3,012boepd of gas. So far, average production in October has been 9,483boepd which does not include this most recent Labrador 5 well.

CNE partner Ecopetrol's drill rig (Ecopetrol)

Like the rest of the Colombian oil producers, CNE shares have plummeted off of their peak in 2011 while production has continued to grow, costs have continued to improve and meaningful discoveries have been added to 2P reserves. Another one that comes to mind in Colombia is Petroamerica Oil (PTA:TSXV). PTA is currently producing over 6,000bopd of light oil and is achieving some of the strongest operating netbacks in the junior E&P space in Colombia. They are guiding an exit rate of 5,000bopd and recently announced they have spud the highly prospective La Guira-1 well which has the potential to significantly growth their production and reserves, as does the Malavar 1 Exploration well, scheduled for Q4.

CNE is trading at over $44,500 per flowing oil equivalent barrel whereas PTA is trading at less than $31,000 per flowing barrel of light oil production. With the recently announced takeover of Petrominerales (PMG:TSX) by Pacific Rubiales (PRE:TSX), Colombian light-oil assets should be viewed as strategic given that heavy oil producers in the region need light oil to dilute their heavy oil for transportation. PTA's main partner, Parex Resources has been getting re-valued in the market with their share price up nearly 50% since July 2013 and CNE is up roughly 70% over the same period. PTA is only up roughly 30% since July.

We are long PTA. This is NOT advice. Due your own due diligence.

Travis McPherson

trav@ceo.ca

Travis McPherson

trav@ceo.ca

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