OREANDA-NEWS. Canacol Energy Ltd. ("Canacol" or the "Corporation") (TSX:CNE; OTCQX:CNNEF; BVC:CNEC) is pleased to announce that Clarinete 1, the first well drilled in its recently acquired VIM 5 Exploration and Production ("E&P") Contract, has tested at a final gross rate of 20.6 million standard cubic feet per day ("mmscfpd") (3,606 barrels of oil equivalent "boepd") of dry gas with no water in the first of two planned production tests over two separate reservoir intervals. Canacol, through its wholly owned subsidiary CNE Oil & Gas S.A.S., holds a 100% operated interest in the VIM 5 E&P contract. Pursuant to an existing agreement, and subject to approval from the Agencia Nacional de Hidrocarburos, an industry joint venture partner has the ability to earn up to 25 percent of the Corporations 100 percent interest in exchange for fulfilling certain financial commitments.

Both gas sales from Esperanza (currently sold based on the Guajira price index of USD 5.08/mmbtu or USD 28.96/boe) and tariff oil from Ecuador (USD 38.54/bbl), together comprising approximately 42% of production in FQ1 2015, are completely insensitive to world oil prices, offering the Corporation a significant degree of protection from the current effects of falling benchmark oil prices.

The Clarinete 1 exploration well was spud on October 8, 2014, and reached a total depth of 8,068 feet measured depth ("ft md") on November 7, 2014. The primary objective of the well were sandstones of the Tertiary aged Cienaga de Oro ("CDO") sandstone, the main producing reservoir at the Nelson and Palmer fields in the adjacent Esperanza contract where Canacol has a 100% operated working interest. The Clarinete 1 encountered 149 feet of gas pay with average porosity of 26% within the CDO sandstone reservoir based upon an evaluation of the open hole logs.

The lower part of the Cienaga de Oro sandstone reservoir was perforated in various intervals between 6,919 and 7,230 feet measured depth. This interval flowed naturally at a stable gross rate of 20.6 mmscfpd (3,606 boepd) using a 36 / 64 inch choke with a tubing head pressure of 2,528 pounds per square inch with no water during the course of a 72 hour flow period. Following the completion of the first flow test period, the Corporation plans to perforate selected intervals within the upper part of the Cienaga de Oro sandstone reservoir and conduct the second flow test, which the Corporation plans to commence within one week. Meanwhile the Corporation is preparing to lay a flowline to tie the Clarinete 1 well into its operated gas processing facility at the Jobo station. The Corporation will provide updates when relevant information from the second planned flow test becomes available.

As per the previously disclosed independent evaluation of the prospective resources associated with the Clarinete prospect by Gaffney Cline and Associates (see December 18, 2014 press release by Canacol), the pre drill best estimate of unrisked gross prospective gas resource associated with the Clarinete discovery is approximately 540 billion cubic feet. The Corporation has engaged its reserves auditors to prepare a reserve and contingent resource report for the Clarinete discovery following the completion of the testing program.

The Corporation is currently negotiating a new take or pay gas sales contract associated with the Clarinete discovery and shall provide details in the near future. As previously announced, the Corporation in 2014 executed three new gas sales contracts for a combined 65 mmscfpd (11,052 boepd) which is expected to take Canacol's current daily gas production of approximately 20 mmcfpd (3,509 boepd) to 83 mmcfpd (14,561 boepd) in late calendar 2015. The new contracts each have a five year term, with pricing of USD 5.40/mmbtu (USD 30.78/barrel of oil equivalent - "boe") escalated at 2% per year for two of the contracts totaling 35 mmcfpd, and USD 8.00/mmbtu (USD 45.60/boe) escalated at approximately 3% per year for the third contract of 30 mmcfpd. Canacol currently sells approximately 18 mmcfpd (3,158 barrels of oil equivalent per day) of gas from the Nelson Field to a local ferronickel producer under a 10 year contract that expires in 2021. That contract, unlike the new contracts, is linked to the Guajira price index, which changed effective October 29, 2014 from USD 3.97/mmbtu (USD 22.63/boe) to USD 5.08/mmbtu (USD 28.96/boe).