An anonymous director reports

CANACOL ENERGY LTD. REPORTS A 26% INCREASE IN REALIZED CONTRACTUAL GAS SALES, A NET INCOME OF $17.7 MILLION AND A 9% INCREASE IN EBITDAX IN Q2 2020

Canacol Energy Ltd. has released its financial and operating results for the three and six months ended June 30, 2020. Dollar amounts are expressed in U.S. dollars, except as otherwise noted.

Highlights for the three and six months ended June 30, 2020 (Production is stated as working-interest before royalties)

Financial and operational highlights of the Corporation include:

Realized contractual natural gas and liquefied natural gas ("LNG") sales increased 26% and 46% to 152.2 MMscfpd and 176.9 MMscfpd for the three and six months ended June 30, 2020, respectively, compared to 120.5 MMscfpd and 121.3 MMscfpd for the same periods in 2019, respectively. Average natural gas and LNG production volumes increased 24% and 44% to 151.1 MMscfpd and 176.3 MMscfpd for the three and six months ended June 30, 2020, respectively, compared to 121.5 MMscfpd and 122.4 for the same periods in 2019, respectively. The increase is primarily due to the completion of the 100 MMscfpd pipeline expansion in late Q3 2019, offset by the decrease in sales as a result of the Covid-19 pandemic.

Total natural gas and LNG revenue, net of royalties and transportation expenses for the three and six months ended June 30, 2020 increased 17% and 28% to $53.3 million and $123.2 million, respectively, compared to $45.7 million and $93.1 million for same periods in 2019, respectively, mainly attributable to the increase of natural gas production and the 100 MMscfpd pipeline expansion.

Adjusted funds from operations increased 22% and 38% to $31.2 million and $76.5 million, respectively, for the three and six months ended June 30, 2020, respectively, compared to $25.6 million and $55.5 million for the same periods in 2019, respectively. Adjusted funds from operations per basic share increased 21% and 35% to $0.17 per basic share and $0.42 per basic share for the three and six months ended June 30, 2020, respectively, compared to $0.14 per basic share and $0.31 per basic share for the same periods in 2019, respectively.

EBITDAX increased 9% and 29% to $40.4 million and $99.3 million for the three and six months ended June 30, 2020, respectively, compared to $37 million and $76.8 million for the same periods in 2019, respectively.

The Corporation realized a net income of $17.7 million and a net loss of $8.3 million for the three and six months ended June 30, 2020, respectively, compared to a net income of $1.9 million and $8.2 million for the same periods in 2019, respectively. The net loss realized during the six months ended June 30, 2020 is solely due to the non-cash deferred tax expense of $29.5 million, which is primarily due to the effect of the reduction in the Colombian Peso exchange rate on the value of unused tax losses and cost pool.

The Corporation's natural gas and LNG operating netback decreased 6% and 9% to $3.63 per Mcf and $3.60 per Mcf in the three and six months ended June 30, 2020, respectively, compared to $3.88 per Mcf and $3.96 per Mcf for the same periods in 2019, respectively. The decrease is due to lower spot market gas sales prices, net transportation costs. The decrease is offset by a 19% and 20% reduction of operating expenses per Mcf to $0.25 per Mcf and $0.24 per Mcf for the three and six months ended June 30, 2020, respectively, compared to $0.31 per Mcf and $0.30 for the same periods in 2019, respectively.

Net capital expenditures for the three and six months ended June 30, 2020 were $8.3 million and $28.2 million, respectively. Net capital expenditures included non-cash adjustments related to decommissioning obligations of $3.7 million and $5 million three and six months ended June 30, 2020, respectively.

On April 21, 2020, the Corporation entered into a credit agreement with Banco de Occidente ("Operating loan") and withdrew $5 million in COP for additional COP liquidity purposes.

On June 30, 2020, the Corporation entered into an agreement to amend the terms of the bank debt held with Credit Suisse ("Credit Suisse Bank Debt"). The original fixed interest rate of 6.875% was revised to a floating interest rate of LIBOR + 4.25% (LIBOR rate was 0.3% at the amendment date) and the original eleven equal quarterly principal payments, which were to commence on June 11, 2020, were revised to seven equal quarterly principal payments to commence on December 11, 2021.

As at June 30, 2020, the Corporation had $58.6 million in cash and cash equivalents, $4 million in restricted cash and $72.1 million in working capital surplus.

Outlook

Despite the worldwide uncertainties and disruptions caused by the Covid-19 pandemic, Canacol's operations continued on relatively uninterrupted during Q2, including the drilling of Clarinete-5 and its 43 MMscfpd production test. Post June 30, 2020, the Corporation is currently completing the Pandereta-8 development well, which encountered 168 feet true vertical depth of net gas pay. Utilizing a second rig, the Corporation has also recently spud the Porro Norte-1 exploration well and anticipates well results to be released once the well has reached total depth and has been logged.

As at June 30, 2020, Canacol maintained its strong balance sheet and liquidity including approximately $58.6 million of cash, with our robust 2020 capital and dividend programs being funded through existing cash and operating cash flows. Adding to Canacol's existing financial flexibility, we have re-profiled the terms of the Credit Suisse Bank Debt and entered into two new credit facilities. Although these additional funds are not necessarily required at this time, the Corporation felt it prudent to secure additional financial flexibility at very favourable rates to potentially add additional wells in our drilling campaign and to advance the Medellin pipeline project.

Despite the slow recovery from the Covid-19 pandemic in Colombia, the Corporation expects its sales to be inside the previously released guidance range of 170 MMcfpd and 197 MMcfpd.

Financial                              Three months ended June 30,        Six months ended June 30,
                                             2020      2019 Change          2020        2019   Change
                        
Total natural gas, LNG and crude
oil revenues, net of royalties and
transportation expense                  $  54,405   $47,689   14 %   $125,399     $   97,093   29 %

Adjusted Funds from operations(1)       $  31,181   $25,584   22 %   $ 76,462     $   55,491   38 %
Per share  -- basic ($)(1)                    0.17      0.14   21 %       0.42           0.31   35 %
Per share  -- diluted ($)(1)                  0.17      0.14   21 %       0.42           0.31   35 %

Net income (loss) and comprehensive
income (loss)(2)                        $  17,715   $ 1,878  843 %   $  (8,273)   $    8,152   n/a
Per share -- basic ($)                        0.10      0.01  900 %       (0.05)         0.05   n/a
Per share -- diluted ($)                      0.10      0.01  900 %       (0.05)         0.05   n/a

Cash flow provided by operating
activities                              $  37,814   $ 9,027  319 %   $ 75,832     $   34,282  121 %
Per share -- basic ($)                        0.21      0.05  320 %       0.42           0.19  121 %
Per share -- diluted ($)                      0.21      0.05  320 %       0.42           0.19  121 %

EBITDAX(1)                              $  40,415   $37,008    9 %   $ 99,285     $   76,830   29 %

Capital expenditures, net dispositions  $   8,269   $13,442  (38 %)  $ 28,161     $   48,167  (42 %)

                                                                     Jun 30, 2020 Dec 31, 2019Change

Cash and cash equivalents                                            $ 58,552     $   41,239   42 %
Restricted cash                                                      $  4,027     $    4,524  (11 %)
Working capital surplus                                              $ 72,141     $   50,676   42 %
Total debt                                                           $393,856     $  392,946    -
Total assets                                                         $739,981     $  754,062   (2 %)

Operating                               Three months ended June 30,        Six months ended June 30,
                                               2020      2019Change          2020         2019Change

Production, before royalties(1)
Natural gas and LNG (Mcfpd)               151,127   121,496   24 %    176,259        122,385   44 %
Colombia oil (bopd)                           245       342  (28 %)       280            387  (28 %)
Total (boepd)                              26,758    21,657   24 %     31,203         21,858   43 %

Realized contractual sales,
before royalties(1)
Natural gas and LNG (Mcfpd)               152,248   120,515   26 %    176,884        121,265   46 %
Colombia oil (bopd)                           197       356  (45 %)       247            398  (38 %)
Total (boepd)                              26,907    21,499   25 %     31,279         21,673   44 %

Operating netbacks(1)
Natural gas and LNG ($/Mcf)                  3.63      3.88   (6 %)      3.60           3.96   (9 %)
Colombia oil ($/bopd)                       12.16     29.20  (58 %)     17.00          26.13  (35 %)
Corporate ($/boe)                           20.61     22.27   (7 %)     20.55          22.63   (9 %)

Non-IFRS measures -- see "Non-IFRS Measures" section within the MD&A.
   

The net loss realized during the six months ended June 30, 2020 is solely due to the non-cash deferred tax expense of $29.5 million, which is primarily due to the effect of the reduction in the Colombian Peso ("COP") exchange rate on the value of unused tax losses and cost pools. In the event that the COP strengthens in the future, as it did as at June 30, 2020, the Corporation would realize a deferred income tax recovery for the period.

This press release should be read in conjunction with the Corporation's interim condensed consolidated financial statements and related Management's Discussion and Analysis. The Corporation's has filed its interim condensed consolidated financial statements and related Management's Discussion and Analysis as at and for the three and six months ended June 30, 2020 with Canadian securities regulatory authorities. These filings are available for review on SEDAR.

Canacol is a natural gas exploration and production company with operations focused in Colombia. The Corporation's shares are traded on the Toronto Stock Exchange under the symbol CNE, the OTCQX in the United States of America under the symbol CNNEF and the Bolsa de Valores de Colombia under the symbol CNEC.

We seek Safe Harbor.