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Canacol Energy Ltd (2)
Symbol CNE
Shares Issued 181,115,770
Close 2020-04-08 C$ 3.82
Market Cap C$ 691,862,241
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Canacol has 2019 resources of 4.66 tcf gas in Colombia

2020-04-08 17:08 ET - News Release

Mr. Mark Teare reports

CANACOL ENERGY LTD. ANNOUNCES 4.7 TCF OF GROSS MEAN UN-RISKED PROSPECTIVE CONVENTIONAL NATURAL GAS RESOURCES IN COLOMBIA

Canacol Energy Ltd. has released its conventional natural gas prospective resources (resources other than reserves, ROTR) for its Esperanza, VIM-21, VIM-5, VIM-19, SSJN-7 and VIM-33 exploration blocks, located in the Lower Magdalena Valley basin, and its VMM-45 and VMM-49 exploration blocks, located in the Middle Magdalena Valley basin of Colombia. Prospective resources are based on a new independent resources audit, prepared by Gaffney, Cline & Associates (GCA), effective Dec. 31, 2019. Canacol is a natural-gas-focused exploration and production company and the largest independent gas producer in Colombia.

           GROSS PROSPECTIVE RESOURCES SUMMARY
 
                              Gross prospective resources (1)
                                               Mean              
Conventional natural gas (bcf)      Unrisked          Risked    

As of Dec. 31, 2019                    4,669           1,378     
As of Dec. 31, 2017                    2,604             948      

(1) Gross prospective resources are represented at 
Canacol's gross working interest share before
royalties.
The representation of prospective resources in the 
GCA report reflects the resource potential of the 
corporation's net working interest land position 
(1,435,976 acres) in the Lower Magdalena Valley 
basin and in the Middle Magdalena Valley basin.
The GCA report includes estimates of unrisked 
prospective resources and risked prospective 
resources. The aggregation of these estimates 
presented in this press release was carried out by 
Canacol.

Mark Teare, senior vice-president of exploration for Canacol, stated: "Canacol is the largest independent producer of gas in Colombia, with an impressive track record of gas exploration success. GCA's independent prospective resource audit evaluated and estimated conventional natural gas prospective resources for 162 individual prospects and leads, which Canacol has aggregated to an unrisked mean of 4.7 trillion standard cubic feet and a risked mean of 1.4 trillion standard cubic feet. The estimated prospective resources underline the significant potential of Canacol's six exploration blocks located in the Lower Magdalena Valley basin and two exploration blocks in the Middle Magdalena Valley basin of northern Colombia.

"Using 3-D seismic, the corporation continues to achieve a high success rate with its gas exploration program. In the Lower Magdalena Valley basin, the application of the amplitude versus offset (AVO) methodology to investigate the presence of gas-charged reservoir sandstones has significantly reduced the risk on the outcome of our gas exploration wells in both the corporation's key play types in the Cienaga de Oro formation (CDO) and in the Porquero formation.

"In the Middle Magdalena Valley basin, the corporation continues to build out its gas exploration portfolio by means of the successful acquisition of two exploration blocks at the 2019 bid round (Proceso Permanente de Asignacion de Areas Ciclo 2), administered by Colombia's hydrocarbon regulatory authority, the Agencia Nacional de Hidrocarburos.

"At present, the corporation has embarked on an expansive gas exploratory program comprising the acquisition of 3-D seismic and continued drilling activity to further assess the significant prospective resource for conventional natural gas across its large acreage position."

Third party independent audit for conventional natural gas prospective resources (resources other than reserves)

The following discussion is subject to a number of cautionary statements, assumptions and risks as set forth therein. The discussion includes reference to prospective resources as per the GCA report, which was prepared in accordance with the Canadian oil and gas evaluation handbook.

GCA was commissioned to conduct an independent prospective resources audit of Canacol's internal estimates of prospective resources for the corporation's 100-per-cent-working-interest position in exploration blocks Esperanza, VIM-21, VIM-5, VIM-19 and VIM-33, its 50-per-cent-working-interest position in SSJN-7 in the Lower Magdalena Valley basin, and the corporation's 100-per-cent-working-interest position in exploration blocks VMM-45 and VMM-49 in the Middle Magdalena Valley basin, effective Dec. 31, 2019. All references in the discussion herein to prospective resources are in reference to conventional natural gas in the audited areas included in the GCA report.

On an unrisked and risked basis, the attached gross prospective resources detail table represents an aggregation of gross prospective resources for identified plays, leads and prospects (1, 2, 3) on the eight exploration blocks.

(1) Play: a family of geologically similar fields, discoveries, prospects and leads.

(2) Lead: A potential accumulation within a play that requires more data acquisition and/or evaluation to be classified as a prospect.

(3) Prospect: A potential accumulation within a play that is sufficiently well defined to represent a viable drilling target.

      GROSS PROSPECTIVE RESOURCES DETAIL
             AS OF DEC. 31, 2019

             Gross prospective resources (bcf)

                  Unrisked                 Risked 

          Low    Best     Mean    High       Mean  
          P90     P50              P10    
     
Total   3,577   4,489    4,669   5,949      1,378 

Cautionary statement

There is no certainty that any portion of the resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the resources.

Table notes

1. The GCA report includes estimates of unrisked prospective resources and risked prospective resources for individual prospects and leads. The aggregations of these estimates were prepared by Canacol.

2. The corporation aggregates probabilistically to the country level for internal portfolio management and long-term planning. As required by the Canadian oil and gas evaluation handbook Section 5.7, an explanation of this aggregation methodology is provided. A single distribution of prospective resources volumes on an unrisked and risked basis was generated by means of a multiple trial Monte Carlo simulation, incorporating chance of discovery (geological chance of success (GCoS)) and chance of development (CoD), of all 162 prospects and leads from GCA's audit. From the distribution, the mean is the average value of the distribution and, as such, represents the most accurate single-point estimation of the expected recoverable volume. The mean of the distribution is represented on a risked basis relative to the unrisked case to provide the reader a more balanced perspective on the likely outcome of an exploration drilling program of all 162 prospects and leads.

3. CoD was quantified by GCA for each prospect and lead by combining the chance of achieving a minimum economic field size (MEFS) with the chance that a discovery would be developed -- that is, the chance of achieving commerciality. The overall risked volume for a given prospect or lead is the combination of GCoS and CoD applied to the unrisked volume with the exception that, if the risked mean volume for the prospect is less than MEFS, the CoD was set to zero resulting in a zero-risked resource.

4. The volumes reported in the attached gross prospective resources detail table (low (P90), best (P50), mean and high (P10)) are gross prospective resources volumes at Canacol's gross working interest of 100 per cent in blocks Esperanza, VIM5, VIM19, VIM21 and VIM 33, Canacol's gross working interest of 50 per cent in block SSJN7, and Canacol's gross working interest of 100 per cent in blocks VMM45 and VMM49.

5. All prospects and leads included in this release are conventional natural gas. Conventional natural gas volumes are reported in billions of cubic feet (bcf) at standard conditions of one bar and 20 C.

6. Opportunities reported herein are potential hydrocarbon accumulations identified on the basis of available data and depending on the level of information available for their assessment and are subclassified as plays, leads and prospects. The assessed GCoS varies, from opportunity to opportunity, and GCA has stated that the leads may require additional seismic data prior to becoming viable drillable prospects.

7. The representation of prospective resources in the GCA report reflects the resource potential of the corporation's net working interest land position (1,435,976 acres) in the Lower Magdalena Valley basin and in the Middle Magdalena Valley basin.

Of primary importance in the Lower Magdalena Valley basin is the resource potential of the CDO composed of up to 5,000 feet of deltaic and marginal marine sandstones and shales. The CDO play is characterized by structural features, such as faulted horst blocks and faulted three-way-dip anticlinal closures. Specific prospects are identified and mapped using 3-D seismic, and technical risk is further mitigated by the application of seismic attribute analysis to investigate the presence of gas-charged sandstones. Since 2014, the corporation has enjoyed significant success in both its exploration and development drilling program with the CDO play, with 15 out of 19 exploration and appraisal wells encountering gas (79 per cent GCoS), and eight out of eight development wells encountering gas.

In addition, the corporation has further investigated the emerging play type in the turbiditic sandstone reservoirs of the shallow Porquero formation. As for the CDO play, Porquero exploration prospects are identified and mapped using 3-D seismic, and technical risk is further mitigated by the application of seismic attribute analysis to investigate the presence of gas-charged sandstones. Since 2016, the corporation has achieved noted success in its exploration drilling program with the Porquero play, with five out of five exploration and appraisal wells encountering gas (100-per-cent GCoS).

For the exploratory opportunity on the recently acquired exploration blocks in the Middle Magdalena Valley basin, the corporation has identified conventional natural gas plays it anticipates to mature by means of investigative geological studies, the reprocessing of existing 2-D and 3-D seismic, seismic acquisition, and drilling over the next three years.

For all plays in the Lower and Middle Magdalena Valley basins and based upon the representation of prospective resources in the GCA report, management expects that significant additional resources will be developed in the future with continued drilling success on currently undeveloped blocks. In the future, significant factors that may change the prospective resource estimates include the outcome of further exploration and appraisal drilling that may change the estimates either positively or negatively. Furthermore, prospective resource estimates may be impacted by future improvements in technologies, such as optimized seismic acquisition assumptions, drilling fluid properties and downhole petrophysical data acquisition methodologies. In addition, recoverable volumes may be enhanced by improved downhole completion and production technologies, additional processing capacity, and compression.

In accordance with COGE handbook 1.4.7.2, GCA represents risked prospective resources as a function of the chance of development of any future discovery. Estimating CoD requires that the related development project be commercial such that the commerciality conditions of regulatory approval for facilities, flowlines and access to markets are met.

For the Lower Magdalena Valley basin, the prospects and leads fall within 50 kilometres of the corporation's central processing facility at Jobo that may be expanded as required. For the Middle Magdalena Valley basin, the corporation has recently acquired two exploration blocks situated near existing infrastructure with access to local markets in the interior of the country, assuming a successful outcome of its proposed exploration program over the next three years.

Historically, the corporation has secured sales contracts for its existing production. It is confident of its ability to secure future contracts in an expanding market along the Caribbean coast and the Colombian interior. Since 2012, the corporation has demonstrated its ability to manage other contingencies, such as legal, regulatory, political, social licence, internal and external approvals, and access to project finance to ensure the timely execution of its exploration and field development plans with respect to achieving existing production levels for natural gas in northern Colombia.

Appropriate levels of capital investment are anticipated to ensure future full field development, including drilling, tie-in, infrastructure buildout for facilities and flowlines, and abandonment and reclamation. The corporation has prepared a realistic time and capital schedule for the execution of its proposed exploration campaign over the next three years to ensure compliance with its contractual obligations during the exploratory phase of each block while accounting for additional time for follow-up appraisal and development drilling, installation of flowlines, and plant expansion, as required.

Future field development will be for conventional natural gas. The corporation does not expect undue challenges related to HPHT (high-pressure and high-temperature) reservoirs in its go-forward exploration and development programs. Any discovery will be developed using existing industry technology with standard gas completions in the wellbores, and standard surface treatment and compression facilities in the same manner as the 17 operated fields currently tied in and under production (Nelson, Palmer, Clarinete, Oboe, Chirimia, Acordeon, Ocarina, Pandereta, Nispero, Trombon, Toronja, Breva, Arandala, Canahuate, Ariana, Canaflecha and Katana).

Canacol is an exploration and production company with operations focused on Colombia.

We seek Safe Harbor.

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