An anonymous director reports

CANACOL ENERGY LTD. TESTS COMBINED RATE OF 31 MMSCFPD (5,439 BOEPD) FROM 2 GAS DEVELOPMENT WELLS AND SPUDS MONO CAPUCHINO 1 LIGHT OIL EXPLORATION WELL IN COLOMBIA

Canacol Energy Ltd. is providing the following update for the Clarinete 3, Nelson 5 and Nelson 8 development gas development wells, and the 2017 first quarter exploration drilling program.

Clarinete 3 development well

VIM 5 exploration and production (E&P) contract

Lower Magdalena basin

100-per-cent working interest

The Clarinete 3 development well was spudded on Nov. 3, 2016, and reached total depth of 9,280 feet measured depth on Nov. 18, 2016. The Clarinete 3 well is located one kilometre directly west of the Clarinete 2ST well drilled in 2015. The Clarinete 3 well encountered 31 feet measured depth (28 feet true vertical depth) of net gas pay with average porosity of 22 per cent within the primary Cienaga de Oro (CDO) sandstone target.

The CDO reservoir interval in Clarinete 3 was perforated between 7,404 and 8,585 feet measured depth, and flowed at a final stabilized rate of 18 million standard cubic feet per day (3,158 barrels of oil equivalent per day) of dry gas with no water at a flowing tubing head pressure of 1,560 pounds per square inch over a 25-hour test period. The well was tested via the Clarinete to Jobo flow line to avoid flaring of the test gas, and was tested against considerable backpressure related to the Clarinete 1, Clarinete 2ST and Oboe 1 wells, which are flowing through the same flow line. The Clarinete 3 well is on permanent production.

Nelson 8 development well

Esperanza production and exploitation contract

Lower Magdalena basin

100-per-cent working interest

The Nelson 8 development well was spudded on Nov. 13, 2016, and reached total depth of 10,985 feet measured depth on Dec. 2, 2016. The Nelson 8 well encountered 163 feet measured depth (132 feet true vertical depth) of net gas pay with average porosity of 19 per cent within the primary CDO sandstone target. The corporation is currently preparing to perforate the entire CDO section prior to tying the well into the Bretanna to Jobo flow line. Once the well has been tied into the flow line, the Nelson 8 well will be flow tested via the flow line to avoid flaring the gas. Following flow testing, the Nelson 8 well will be placed on permanent production, which is anticipated to occur prior to current year-end.

Nelson 5 Porquero recompletion

With the recent success of the Nelson 6 gas discovery, which tested 23 million standard cubic feet per day (4,035 barrels of oil equivalent per day), confirming a new shallow exploration play in the Porquero formation, the corporation commenced operations to work over the Nelson 5 well in late November, 2016. The Nelson 5 well, which has been producing from the CDO for the past two years, contains 103 feet measured depth (79 feet true vertical depth) of net gas pay with average porosity of 29 per cent within the Porquero sandstone reservoir. The Porquero reservoir was perforated between 6,083 and 6,174 feet measured depth, and flowed at a final stabilized rate of 13 million standard cubic feet per day (2,281 barrels of oil equivalent per day) of dry gas with no water at a flowing tubing head pressure of 1,850 psi over a 50-hour test period. The Porquero has been placed on permanent production.

In addition to the established play type involving the deeper CDO sandstones, which are productive at the corporation's Nelson, Palmer, Clarinete, Oboe, Trombon and Nispero gas fields, the success of both the Nelson 6 discovery and the production test result from the Porquero at Nelson 5 confirms the commerciality of a new exploration play type in the shallower Porquero sandstones across the company's acreage position held at 100-per-cent working interest on the Esperanza, VIM 21, VIM 5 and VIM 19 blocks, which combined are 785,000 net acres in size.

Mono Capuchino 1 light oil exploration well

VMM2 E&P contract

Middle Magdalena basin

66.7-per-cent working interest

The corporation spudded the Mono Capuchino 1 exploration well on Dec. 17, 2016. The well will be drilled to a planned total depth of 12,000 feet measured depth, and is anticipated to take approximately 75 days to drill and test. Mono Capuchino 1 is targeting light-oil-bearing reservoirs within the Cretaceous La Luna formation.

The offsetting Mono Arana 1 exploration discovery made in 2012 and located approximately 500 metres to the north of the Mono Capuchino well encountered 593 feet measured depth of the same Cretaceous La Luna formation, and tested approximately 600 barrels of oil per day with no water from a 335-foot-measured-depth perforated interval in 2014. The corporation anticipates encountering approximately 2,000 feet of La Luna formation within the Mono Capuchino 1 well. Should Mono Capuchino 1 prove successful, it will be produced directly into existing infrastructure and immediately commercialized. The corporation has identified 11 additional locations on the prospect for follow-up drilling given success.

Near-term drilling program

Pumara 1 light oil exploration well

LLA23 E&P contract

Llanos basin

91-per-cent working interest

The corporation plans to spud the Pumara 1 exploration well in early March, 2017. The well will be drilled to a planned total depth of approximately 10,000 feet measured depth, and is anticipated to take approximately 15 days to drill and test. Pumara 1 is targeting the reservoirs of the C7, Mirador, Barco, Gacheta and Ubaque sandstones that are productive in the five offsetting light oil discoveries the corporation has made on the LLA23 block over the past four years.

Of the six exploration wells Canacol has drilled on LLA23 in the past four years, five have resulted in commercial producing light oil discoveries, representing an 83-per-cent chance of commercial success for the corporation on this block. The five previous exploration wells (Labrador 1, Maltes 1, Tigro 1, Pantro 1 and Leono 1) tested at initial rates of 1,200 to 3,700 gross barrels of oil per day of 30-degree to 36-degree API (American Petroleum Institute) light oil with no water.

Canahuate 1 gas exploration well

Esperanza E&E (exploration and exploitation) contract

Lower Magdalena basin

100-per-cent working interest

The corporation plans to spud the Canahuate 1 exploration well in February, 2017. The well will be drilled to a planned total depth of approximately 10,000 feet measured depth, and is anticipated to take approximately 15 days to drill and test. Canahuate 1 is targeting the proven CDO sandstone reservoir productive at all of the corporation's nearby gas fields in the area. The Canahuate prospect is defined by 30D seismic and exhibits seismic attributes indicative of gas-filled CDO sandstone reservoir, as have all the other discoveries Canacol has drilled on the Esperanza and VIM 5 contracts.

Canacol has drilled seven exploration wells on the Esperanza and VIM 5 contracts in the past 2.5 years, resulting in six commercial producing discoveries, representing an 86-per-cent chance of commercial success. The previous six exploration discoveries (Palmer 1, Clarinete 1, Oboe 1, Nispero 1, Trombon 1 and Nelson 6) tested at initial rates of 16 to 66 million standard cubic feet per day (2,800 to 11,580 barrels of oil equivalent per day) of dry gas with no water.

The corporation will provide updates concerning its drilling program as results become available.

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

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