CALGARY, ALBERTA--(Marketwire - Sept. 28, 2012) - Canacol Energy Ltd. ("Canacol" or the "Corporation") (TSX:CNE) (BVC:CNEC) is pleased to report its financial results for the fiscal year ended June 30, 2012.

This reporting period is the Corporation's fourth under International Financial Reporting Standards ("IFRS"). As a result, the accounting policies of the Corporation have been adjusted to comply with IFRS beginning with the balance sheet as at July 1, 2010. A comprehensive summary of all of the significant changes, including reconciliations of Canadian GAAP financial statements to those prepared under IFRS, is presented in note 26 "Transition to IFRS" of the Corporation's audited consolidated financial statements, as at and for the year ended June 30, 2012.

Charle Gamba, Chief Executive Officer of the Corporation, commented: "Fiscal 2012 has been a good year for Canacol, with year over year net revenues increasing 64% to $184.9 million and 2P reserves and deemed volumes increasing 79% to 16.1 million barrels of oil. The associated value of our 2P reserves and deemed volumes increased 58% to
$492.1 million. 2012 had its challenges on the operational front, particularly with respect to production operations at the Rancho Hermoso field in the last half of the fiscal year. The Corporation continues to grow its reserves base through its successful development drilling programs, and the addition of new producing assets, like the Libertador and Atacapi mature field project in Ecuador. With our ongoing development plans for our producing assets, and our large and diverse exploration drilling portfolio, we look forward to being able to provide our investors with steady and continued growth in value going forward, as we have demonstrated in fiscal 2012."

Highlights for Fiscal 2012

(in United States dollars, except as otherwise noted)

Financial, operating and reserve highlights of the Corporation include:

• Total proved net after royalty reserves and deemed volumes increased 98% to 10.5 million barrels at June 30, 2012 compared to 5.3 million barrels at June 30, 2011, and total proved plus probable net after royalty reserves and deemed volumes increased 79% to 16.1 million barrels at June 30, 2012 compared to 9.0 million barrels at June 30, 2011.
  
  
• Total pre-tax NPV-10 proved net after royalty reserve and deemed volume value increased 55% to $308.4 million at June 30, 2012 compared to $199.2 million at June 30, 2011, and total pre-tax NPV-10 proved plus probable net after royalty reserve and deemed volume value increased 58% to $492.1 million at June 30, 2012 compared to $311.9 million at June 30, 2011.
  
• Total revenues for the year ended June 30, 2012 increased 64% to $184.9 million from $112.8 million for the comparable period. Total revenues for the three months ended June 30, 2012 decreased 3% to $45.7 million from $47.0 million for the comparable period.
  
  
• Funds from operations for the year ended June 30, 2012 increased 67% to $69.0 million from $41.4 million for the comparable period. Fiscal 2012 funds from operations were reduced by a one-time settlement of a legal claim during the year for $1.6 million as well as pre-license exploration costs of $3.5 million that did not qualify for capitalization under IFRS, although they previously would under Canadian GAAP. Funds from operations for the three months ended June 30, 2012 decreased 45% to $9.6 million from $17.5 million for the comparable period.
  
  
• Net income for the year ended June 30, 2012 was $18.6 million, compared to a net loss of $27.4 million for the comparable period. Net income for the three months ended June 30, 2012 decreased 79% to $3.8 million from $18.4 million for the comparable period.
  
  
• Capital expenditures for the three months and year ended June 30, 2012 were $39.9 million and $186.1 million, respectively.
  
  
• For the year ended June 30, 2012, average daily sales volumes increased 67% to 11,786 barrels of oil per day ("bopd") compared to 7,047 bopd for the comparable period. Average daily sales volumes decreased 7% to 10,814 bopd for the three months ended June 30, 2012 compared to 11,633 bopd for the comparable period. Average daily sales volumes for the previous quarter, the three months ended March 31, 2012, were 12,742 bopd. This decrease in the fourth quarter was due to a number of issues, including operational problems (electro-submersible and injection pump failures and increased water handling requirements) and higher than anticipated decline rates for tariff production in the Mirador formation. Production downtime related to operational issues averaged 22% for the period January 1, 2012 to June 30, 2012. These issues are being rectified with design changes and the electro-submersible pumps will be changed-out, when required.
  
  
• For the year ended June 30, 2012, the Corporation's operating netbacks were $58.55/bbl for Rancho Hermoso non‐tariff (NRI) production and $10.04/bbl for Rancho Hermoso tariff production. For the three months ended June 30, 2012, the Corporation's operating netback for Rancho Hermoso non‐tariff (NRI) production was $58.31/bbl and for Rancho Hermoso tariff production was $8.93/bbl.
  
  
• At June 30, 2012, the Corporation had $37.3 million in cash, cash equivalents and restricted cash, and $17.7 million of working capital surplus, including the current portion of long-term debt.

(in thousands of United States dollars, except as otherwise noted)

(1) Non-IFRS measure. See "Non-IFRS Measures" section within MD&A.

Production

The Corporation's Rancho Hermoso production was affected in the latter part of fiscal 2012 by a number of issues, including operational problems (pump failures and increased water handling requirements) and higher than anticipated decline rates for tariff production in the Mirador formation as discussed above. In order to optimize cash flows from its Rancho Hermoso field, the Corporation has recently performed recompletions in a number of new productive zones, which has resulted in a shift in the overall production mix from tariff production towards higher value NRI production. Since the Corporation reports 100% of tariff production and only its proportionate working interest share, after royalties, of NRI production in its consolidated production volumes, this shift from tariff to NRI production has reduced the Corporation's overall estimated average daily production volumes from that which was earlier anticipated. Additionally, the Rancho Hermoso field is limited in its water handling capacity and, as a result, current and future production from the field is being managed within those capacity constraints. In connection with the reserve update at June 30, 2012, the Corporation has identified additional recompletion zone candidates and opportunities to improve recovery and extend the life of the Rancho Hermoso field, all of which have resulted in increased proved plus probable reserve volumes at June 30, 2012 compared to the prior year. The reserve update confirms the shift in volumes from tariff to NRI production and the Corporation expects to continue to manage the field in a manner that optimizes the production mix from the various tariff and NRI zones to maximize overall cash flows to the Corporation. In light of the increase in reserve volumes, the Corporation is in the process of revising its development plan for the Rancho Hermoso field.

For the period from January 1, 2012 to August 31, 2012, the Corporation's average net daily production after royalty at Rancho Hermoso was 10,380 bopd, of which 6,574 bopd was tariff production and the remaining 3,806 bopd was NRI production. Tariff volumes were lower than anticipated due to both the aforementioned operational issues impacting production at the Rancho Hermoso field, and due to higher than anticipated production declines related to the reservoir. Higher value NRI production was less affected by the operational issues and reservoir performance was stable as anticipated.

Subsequent to June 30, 2012, the Corporation has begun to realize incremental production from its participation in the incremental production contract in Ecuador. Additionally, the Corporation's recent reserve update confirms a significant amount of deemed volumes and related value in Ecuador, production of which is expected to increase in future periods. To date, the Corporation has participated in the drilling of 2 new development wells and the workover of 6 existing wells to add new production. For the month of September 2012, average gross production from the fields was 15,026 bopd, approximately 139 bopd of which is the Corporation's share of incremental oil production. An additional 4 new development wells and workovers of 8 existing producing wells are planned throughout the remainder of calendar 2012.

Outlook

For the remainder of calendar 2012, the primary focus of the Corporation will be on the execution of its capital program, including:

• In early October 2012, the commencement of drilling of its first light oil exploration well on the LLA-23 block, immediately to the north of the Rancho Hermoso field, to test the Labrador prospect.
  
  
• The completion of the ongoing acquisition of an additional 31 square kms of 3D seismic on the northern part of the LLA-23 contract, where two well‐developed leads have been identified on the basis of the existing 2D seismic along the same Rancho Hermoso fault trend.
  
  
• In early October 2012, the commencement of drilling of the Guarango 1 stratigraphic well on the Cedrela block, targeting potential heavy oil‐bearing reservoirs in the Mirador sandstones.
  
  
• Following the Guarango 1 stratigraphic test well, the drilling of a second stratigraphic test well on the Cedrela block, the Cedrillo 1 well, commencing in late October 2012.
  
  
• The completion of the ongoing acquisition of 45 square kms of 3D seismic and 58 km of 2D seismic in the southern part of the Portofino block, with plans to use the data to drill 3 remaining stratigraphic wells prior to the end of calendar 2012.
  
  
• The drilling of the non-operated Mono Arana 1 well, spud on September 23, 2012, on the VMM 2 block to test both a conventional shallow light oil target in the Tertiary Lisama sandstone and a deeper non‐conventional light oil target in the fractured oil shale of the Cretaceous La Luna oil source rock.
  
  
• Following the Mono Arana 1 well, the drilling of a second non-operated exploration well on the VMM 2 block, El Cejudo 1, using the same drilling rig, commencing in late 2012 and specifically targeting non‐conventional fractured shale reservoirs in the Cretaceous La Luna and Tablazo oil source rocks.
  
  
• The drilling of an additional 4 new development wells and the workover of 8 existing producing wells before the end of calendar 2012 under its non-operated incremental production contract for the Libertador and Atacapi mature producing oil fields in Ecuador. Starting in September 2012, these Ecuador fields have begun providing incremental production to the Corporation and are expected to see significant increased production in future periods as the development program is executed. Based on the current development program, the Corporation expects incremental production to peak through 2013 and 2014.
  
  

The Corporation's has filed its audited consolidated financial statements, its related Management's Discussion and Analysis, and its Annual Information Form as of and for the year ended June 30, 2012 with Canadian securities regulatory authorities. These filings are available for review at [ www.sedar.com ].

Canacol is an exploration and production company with operations in Colombia, Brazil, Guyana, and Ecuador. The Corporation's common stock trades on the Toronto Stock Exchange and the Colombia Stock Exchange under ticker symbol (TSX:CNE) and (BVC:CNEC), respectively.

This press release contains certain forward-looking statements within the meaning of applicable securities law. Forward-looking statements are frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur, including without limitation statements relating to estimated production rates from the Corporation's properties and intended work programs and associated timelines. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made and are subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. The Corporation cannot assure that actual results will be consistent with these forward looking statements. They are made as of the date hereof and are subject to change and the Corporation assumes no obligation to revise or update them to reflect new circumstances, except as required by law. Information and guidance provided herein supersedes and replaces any forward looking information provided in prior disclosure. Prospective investors should not place undue reliance on forward looking statements. These factors include the inherent risks involved in the exploration for and development of crude oil and natural gas properties, the uncertainties involved in interpreting drilling results and other geological and geophysical data, fluctuating energy prices, the possibility of cost overruns or unanticipated costs or delays and other uncertainties associated with the oil and gas industry. Other risk factors could include risks associated with negotiating with foreign governments as well as country risk associated with conducting international activities, and other factors, many of which are beyond the control of the Corporation. Average production figures for a given period are derived using arithmetic averaging of fluctuating historical production data for the entire period indicated and, accordingly, do not represent a constant rate of production for such period and are not an indicator of future production performance. Detailed information in respect of monthly production in the fields operated by the Corporation in Colombia is provided by the Corporation to the Ministry of Mines of Colombia and is published by the Ministry on its website; a direct link to this information is provided on the Corporation's website.

Contributing Sources

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