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Canacol Energy Ltd. and ExxonMobil Sign Agreement for Shale Oil Exploration Project in Colombia

Key terms and conditions

Pursuant to the terms of the FOA, ExxonMobil will carry the cost of the drilling and testing of up to three wells to test conventional and unconventional targets in the La Luna and Rosablanca formations, both proven oil source rocks in the area. The first two wells will be vertical wells, while the third well will possibly be a horizontal multi-stage fractured well. It is anticipated that prospective intervals of the La Luna and Rosablanca will be cored and logged within the first well, and stimulated and flow tested within the second well. Should ExxonMobil choose to proceed with a third well, it will possibly be a horizontal multi-stage fractured well. Under the terms of the agreement, ExxonMobil will pay 100% of the cost of the three wells, up to a cap of gross US$15 million for each of the first 2 wells, and a cap of gross US$ 17.5 million for the third well should it be a horizontal lateral well exceeding 4,000 feet in lateral length, and US$ 15 million should it be another vertical well. ExxonMobil will also pay Canacol US$ 2.2 million upon execution of the FOA for back-costs related to the acquisition of 3D seismic on the block in 2011. The total potential investment on the block is approximately US$ 50 million. In return, ExxonMobil shall earn 50% of Canacol's 40% interest in the contract. Vetra will remain as operator of VMM 2 during the exploration period and expects to spud the first exploration well in late 2012. The formal assignment of working interests as contemplated by the transaction, including Canacol's 20% interest, remain subject to the approval of the Agencia Nacional de Hidrocarburos (ANH) of Colombia.