Canacol Energy Ltd. Reports Fiscal Q3 2013 Financial and Operating Results

Marketwired

CALGARY, ALBERTA--(Marketwired - May 15, 2013) - Canacol Energy Ltd. ("Canacol" or the "Corporation") (CNE.TO) (BVC:CNEC) announced today its financial and operating results for the three and nine months ended March 31, 2013.

Highlights for the Three and Nine Months Ended March 31, 2013

(in United States dollars, except as otherwise noted; "net" production represents working-interest production before royalties)

Production

For the three months ended March, 31, 2013, the Corporation's production and sales volumes were 7,659 boepd and 7,141 boepd, respectively, which compares to 5,354 boepd and 5,134 boepd, respectively for the three months ended December 31, 2012. For the nine months ended March, 31, 2013, the Corporation's production and sales volumes were 6,335 boepd and 6,528 boepd, respectively. Over recent months, the Corporation has significantly diversified its production base through the acquisition of the Esperanza gas field in December 2012, the LLA-23 light oil discovery in November 2012, and the continued development of the Libertador and Atacapi fields in Ecuador. Production for the three months ended March 31, 2013 was split as follows: Rancho Hermoso - 36%; LLA-23 - 15%; Esperanza - 38%; Ecuador - 8%; and Other - 3%. Low netback Rancho Hermoso tariff production represented only 1% of total production for the quarter and all such tariff wells have now been converted to higher netback non-tariff producers.

The Corporation recently announced drilling results from the Labrador 2 well on the LLA-23 block, which reached a total depth of 10,601 feet measured depth on April 29, 2013. The Labrador 2 well encountered 59 feet of net oil pay in the Gacheta reservoirs with an average porosity of 20%, and the Ubaque reservoir with an average porosity of 21%. The Gacheta is expected to be perforated and brought on to permanent production in mid-May 2013. The Corporation plans to commence drilling of the Labrador 3 well in mid-May 2013. Additional new near-term production is expected from continued development activities at both Labrador and the Mono Arana discovery in Colombia, and at the Libertador and Atacapi fields in Ecuador.

Results from Operations

The Corporation recorded a net loss of $0.6 million and a net loss of $3.7 million for the three and nine months ended March 31, 2013, respectively, while funds from operations were $13.1 million and $30.1 million for the three and nine months ended March 31, 2013, respectively. Operating netbacks have significantly improved from the previous quarter primarily due to cost reductions; the Corporation's overall operating netback was $35.40/boe for the three months ended March 31, 2013, an increase of 86% from the three months ended December 31, 2012.

Exploration and Development Activities

The Corporation spent $15.8 million and $57.4 million on exploration and development projects for the three and nine months ended March 31, 2013, respectively, excluding divestitures and business acquisitions. During the three months ended March 31, 2013, the Corporation entered into a farm-out agreement on its Santa Isabel exploration and production contract which included a cash bonus of $13.5 million in two separate tranches upon the fulfillment of certain conditions outlined in the farm-out agreement. The first tranche of the bonus of $6.8 million was received during the quarter. The Corporation anticipates the commencement of drilling activity at the Oso Pardo 1 exploration well on the Santa Isabel block in late May, and drilling of the Leono 1 exploration well on the LLA-23 block in Q3 of calendar 2013. The Corporation now plans to drill a second exploration well after Leono 1 on the LLA-23 contract based on its success to date at the Labrador discovery. The Corporation also anticipates flow test results from the La Luna shale in the Mono Arana 1 well in late Q3 of calendar 2013. Finally, the Corporation is participating in the drilling of the Coati 1 exploration well in late Q2 of calendar 2013 on the Coati E&P contract located in the southern Putumayo Basin and operated by Platino Energy Corporation ("Platino"). The Corporation is pleased to announce that it has entered into an amendment of the Coati farm-out agreement with Platino whereby under the terms of the original agreement Canacol was required to pay 80% of the cost of drilling an exploration well and acquiring seismic in order to earn a 40% working interest. Under the terms of the amended agreement, Canacol will pay 40% of the cost of drilling an exploration well and acquiring seismic in order to earn a 20% working interest in the contract. The reduced commitment associated with the amended agreement allows Canacol to increase capital spending this year on its lower risk exploration and development programs on the LLA 23 contract, where Canacol has an 80% operated interest and is developing its new Labrador oil discovery. This increased spend includes the drilling of a second exploration well in addition to the one remaining exploration well that had been originally planned for 2013. The Corporation has also transferred its remaining 36% working interest in the Andaquies E&P contract, also located in the southern Putumayo Basin, to Platino, the operator. The Corporation participated with the operator in the drilling of two dry holes on the Andaquies E&P contract in early 2012 and sees little remaining exploration potential.

Cash, Working Capital and Debt

On April 3, 2013, the Corporation entered into a credit agreement for a $140 million senior secured term loan with a syndicate of banks. The Senior Secured Term Loan is for a five-year term, with interest payable quarterly and principal repayable in 15 equal quarterly instalments starting in October 2014, following an initial 18 month grace period. The Senior Secured Term Loan carries interest at LIBOR plus 4.50% and is secured by all of the material assets of the Corporation. Partial proceeds from the Senior Secured Term Loan were used for the repayment of all principal and accrued interest outstanding under the Corporation's existing Syndicated Credit Facility and the Shona Tem Loan and for costs of the transaction. Remaining proceeds from the Senior Secured Term Loan are available for future capital expenditures related to development activities in Colombia and Ecuador, and for other general corporate purposes.

At March 31, 2013, the Corporation had cash, cash equivalents and restricted cash of $28.6 million, a working capital surplus (excluding short-term bank debt and derivatives) of $48.1 million, and total bank debt (short and long-term) of $90.0 million. All such amounts are stated before the closing of the new $140 million Senior Secured Term Loan described above, which resulted in a net increase in working capital on closing of approximately $52.5 million, after repayment of the two existing loans described above and net of transaction costs.

Outlook

The Corporation plans to spend capital expenditures of $67 million ($53 million, net of dispositions) in calendar 2013 on drilling, workovers, seismic, production facilities, and pipelines in Colombia and Ecuador, and anticipates net average production before royalties of between 7,500 and 8,500 boepd over the period.

In calendar 2013, the Corporation will focus on: 1) building out production and reserves from recent oil discoveries on LLA-23 and VMM2 and increasing production levels from the newly acquired Esperanza gas field in Colombia via new sales contracts; 2) continuing to increase production and reserves from the Libertador and Atacapi oil fields in Ecuador; and 3) execute a significant oil-focused exploration program in Colombia targeting 48 million barrels of net risked prospective conventional light and heavy oil, and unconventional light oil resources. Exploration projects of significance for calendar 2013 include two additional exploration wells on LLA-23 targeting light oil, exploration wells on each of the Corporation's three Middle Magdalena blocks (Santa Isabel, VMM2 and VMM3) targeting both shallow conventional light oil and deeper unconventional shale oil, and the continuation of the heavy oil exploration program on assets in the Putumayo-Caguan Basin. Funding for the calendar 2013 capital program is expected to come from working capital, operating cash flows and debt facilities.

Financial and Operating Highlights for the Three and Nine Months Ended March 31, 2013

(in thousands of United States dollars, except as otherwise noted; "net" production represents working-interest production before royalties)

Financial     Three months ended

 March 31,

    Nine months ended

 March 31,

 
    2013   2012 Change   2013   2012 Change  
                       
Petroleum and natural gas revenues, net of royalties   36,725   48,632 (24 %) 105,870   139,203 (24 %)
                       
Funds from operations (1) (2)   13,078   20,042 (35 %) 30,114   59,320 (49 %)
  Per share - basic ($)   0.15   0.32 (53 %) 0.42   1.06 (60 %)
  Per share - diluted ($)   0.15   0.32 (53 %) 0.42   1.04 (59 %)
                       
Net income (loss) (2)   (628 ) 3,663 n/a   (3,711 ) 14,726 n/a  
  Per share - basic ($)   (0.01 ) 0.06 n/a   (0.05 ) 0.26 n/a  
  Per share - diluted ($)   (0.01 ) 0.06 n/a   (0.05 ) 0.26 n/a  
                       
Capital expenditures, net, excluding business acquisition   10,434   52,424 (80 %) 52,053   146,205 (64 %)
                       
              March 31,   June 30,    
              2013   2012 Change  
                       
Cash and cash equivalents             11,124   30,789 (64 %)
Restricted cash             17,432   6,555 166 %
Working capital surplus, excluding the current portion of bank debt and derivatives (1)             48,130   29,697 62 %
Short-term and long-term bank debt             90,005   27,986 222 %
Total assets             585,324   406,828 44 %
                       
Common shares, end of period (000s)             86,499   61,898 40 %
Operating     Three months ended

 March 31,

    Nine months ended

 March 31,

 
    2013   2012 Change   2013   2012 Change  
                       
Petroleum and natural gas production, before royalties (boepd)                      
  Petroleum   4,785   13,598 (65 %) 5,284   12,485 (58 %)
  Natural gas   2,874   - n/a   1,051   - n/a  
  Total   7,659   13,598 (44 %) 6,335   12,485 (49 %)
                       
Petroleum and natural gas sales, before royalties (boepd)                      
  Petroleum   4,267   13,129 (67 %) 5,477   12,495 (56 %)
  Natural gas   2,874   - n/a   1,051   - n/a  
  Total   7,141   13,129 (46 %) 6,528   12,495 (48 %)
                       
Realized sales prices ($/boe)                      
  Rancho Hermoso - non-tariff   90.70   101.38 (11 %) 91.10   96.60 (6 %)
  Rancho Hermoso - tariff   17.36   17.36 -   17.36   16.72 4 %
  LLA-23   99.62   - n/a   97.88   - n/a  
  Esperanza   30.20   - n/a   30.58   - n/a  
  Ecuador - tariff   39.53   - n/a   39.53   - n/a  
  Total   62.11   43.57 43 % 64.13   44.23 45 %
                       
Operating netbacks ($/boe) (1)                      
  Rancho Hermoso - non-tariff   38.42   56.21 (32 %) 32.43   53.42 (39 %)
  Rancho Hermoso - tariff   7.24   11.84 (39 %) 5.16   10.35 (50 %)
  LLA-23   66.22   - n/a   65.19   - n/a  
  Esperanza   25.61   - n/a   25.89   - n/a  
  Ecuador - tariff   37.94   - n/a   38.54   - n/a  
  Total   35.40   24.60 44 % 26.73   24.19 10 %
                         

(1) Non-IFRS measure. See "Non-IFRS Measures" section within MD&A.
(2) Effective December 20, 2012, the Corporation completed a 10:1 consolidation of its common shares. Consequently, comparative per share information presented above was restated to a post-consolidation basis for comparability.

The Corporation's has filed its unaudited interim condensed consolidated financial statements, and related Management's Discussion and Analysis as of and for the three and nine months ended March 31, 2013 with Canadian securities regulatory authorities. These filings are available for review at www.sedar.com.

Canacol is an exploration and production corporation with operations in Colombia, Ecuador, Brazil, Guyana and Peru. The Corporation's common stock trades on the Toronto Stock Exchange and the Colombia Stock Exchange under ticker symbol CNE and CNEC, respectively.

This press release contains certain forward-looking statements within the meaning of applicable securities law. Forward-looking statements are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur, including without limitation statements relating to estimated production rates from the Corporation's properties and intended work programs and associated timelines. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. The Corporation cannot assure that actual results will be consistent with these forward looking statements. They are made as of the date hereof and are subject to change and the Corporation assumes no obligation to revise or update them to reflect new circumstances, except as required by law. Information and guidance provided herein supersedes and replaces any forward looking information provided in prior disclosures. Prospective investors should not place undue reliance on forward looking statements. These factors include the inherent risks involved in the exploration for and development of crude oil and natural gas properties, the uncertainties involved in interpreting drilling results and other geological and geophysical data, fluctuating energy prices, the possibility of cost overruns or unanticipated costs or delays and other uncertainties associated with the oil and gas industry. Other risk factors could include risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities, and other factors, many of which are beyond the control of the Corporation. Other risks are more fully described in the Corporation's most recent Management Discussion and Analysis, which is incorporated herein by reference and is filed on www.sedar.com. Average production figures for a given period are derived using arithmetic averaging of fluctuating historical production data for the entire period indicated and, accordingly, do not represent a constant rate of production for such period and are not an indicator of future production performance. Detailed information in respect of monthly production in the fields operated by the Corporation in Colombia is provided by the Corporation to the Ministry of Mines and Energy of Colombia and is published by the Ministry on its website; a direct link to this information is provided on the Corporation's website. References to "net" production refer to the Corporation's working-interest production before royalties.

Boe conversion - The term "boe" is used in this news release. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of cubic feet of natural gas to barrels oil equivalent is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In this news release, we have expressed boe using the Colombian conversion standard of 5.7 Mcf: 1 bbl required by the Ministry of Mines and Energy of Colombia.

Contact:
Canacol Energy Ltd.
Investor Relations
214-235-4798
IR@canacolenergy.com
http://www.canacolenergy.com

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