Canacol Energy Ltd. Announces Prospective Resources Report for Two Shale Oil Blocks in the Middle Magdalena Basin, Colombia

Source Press Release
Company Canacol Energy Ltd. 
Tags Reserve Update, Production/Development, Exploration, Discovery, Upstream Activities, Strategy - Upstream
Date April 21, 2021

Canacol Energy Ltd. ("Canacol" or the "Corporation") (TSX:CNE; OTCQX:CNNEF; BVC:CNEC) is pleased to announce the results of an independent prospective resources evaluation of the Corporation’s VMM 2 and VMM 3 blocks, prepared by Boury Global Energy Consultants Ltd. (“BGEC”), effective March 31, 2021 (the “BGEC Report”). For the deep Cretaceous interval, specifically the La Luna and the Tablazo Formations, the Corporation has 20% working interest in VMM 2 and 20% working interest in VMM 3. The two blocks in aggregate consist of 156,367 and 31,273 gross and net acres, respectively, in the Middle Magdalena Basin, Colombia.

The evaluation includes estimates of the Corporation’s risked and un-risked prospective resources. Mr. Charle Gamba, President & CEO for Canacol, stated “BGEC’s independent evaluation of unconventional prospective resources reaffirm the materiality and significant potential of Canacol’s unconventional shale oil blocks. In early April 2021, the Agencia Nacional de Hidrocarburos (ANH), announced the approval of the ExxonMobil Platero multi-stage stimulation pilot project. This is in addition to the ANH approval of  Ecopetrol’s Kalé pilot project in December 2020. The Corporation considers that these approvals are positive steps towards realizing the commercial potential of the unconventional shale oil play in Colombia, and specifically for the Corporation’s prospective resources across its acreage position in the Middle Magdalena Valley basin”.

Independent Evaluation of Unconventional Shale Oil Prospective Resources (Resources Other Than Reserves, ROTR)

The following discussion is subject to a number of cautionary statements, assumptions and risks as set forth therein. See “Information Regarding Disclosure on Oil and Gas Resources and Operations” at the end of this release for additional cautionary language, explanations and discussion, and see “Forward‐looking Statements” for a statement of principal assumptions and risks that may apply. See also “Definitions” in this press release. The discussion includes reference to prospective resources as per the BGEC Report, which was prepared in accordance with the COGE Handbook (October, 2020 Edition).

BGEC was commissioned to conduct an independent prospective resources evaluation of Canacol’s 20% working interest position in the VMM 2 and VMM 3 blocks in the Middle Magdalena Valley basin (the “Evaluated Areas”) effective March 31, 2021. All references in the following discussion to prospective resources are in reference to light and medium crude oil and unconventional natural gas in the Evaluated Areas included in the BGEC Report.

Summary of Company Working Interest Un-risked Prospective Resources (La Luna Prospect)

The following table summarizes BGEC’s estimate of the un-risked recoverable volumes associated with Canacol’s prospective light and medium crude oil resources and unconventional natural gas (La Luna prospect) for the Evaluated Areas.

Table 1

Unrisked Prospective Resources 
           
    Low  Best  High  Mean 
    Estimate (2)  Estimate (3)  Estimate (4)  Estimate (5) 
Product Type    Gross  Company
Gross (1) 
Gross  Company
Gross (1) 
Gross  Company
Gross (1) 
Gross  Company
Gross (1) 
Light and medium crude oil  MMbbl  1109  222  1883  377  3271  654  2083  417 
Unconventional natural gas  BCF  2024  405  4542  908  9335  1867  5252  1050 

(1)  Canacol’s working interest before royalties in the Evaluated Areas is 20%. 
(2)  Low Estimate means there is at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate. 
(3)  Best Estimate means there is at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate. 
(4)  High Estimate means there is at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate. 
(5)  Mean Estimate represents the arithmetic average of the expected recoverable volume. It is the most accurate single point representation of the volume distribution. 

Summary of Company Working Interest Before and After Royalties Risked Prospective Resources (La Luna Prospect)

The following table summarizes BGEC’s estimate of the risked recoverable volumes associated with Canacol’s prospective light and medium crude oil resources and unconventional natural gas (La Luna prospect) for the Evaluated Areas.

Table 2

Risked Prospective Resources Truncated and Adjusted for TEFS (6), Pe (7) and CoD (8) 
           
    Low  Best  High  Mean 
    Estimate (2)  Estimate (3)  Estimate (4)  Estimate (5) 
Product Type    Company
Gross (1) 
Company
Net (9) 
Company
Gross (1) 
Company
Net (9) 
Company
Gross (1) 
Company
Net (9) 
Company
Gross (1) 
Company
Net (9) 
Light and medium crude oil  MMbbl  61  52  104  88  180  153  114  97 
Unconventional natural gas  BCF  94  80  210  178  431  366  243  206 

(1)  Canacol’s working interest before royalties in the Evaluated Areas is 20%. 
(2)  Low Estimate means there is at least a 90 percent probability (P90) that the quantities actually recovered will equal or exceed the low estimate. 
(3)  Best Estimate means there is at least a 50 percent probability (P50) that the quantities actually recovered will equal or exceed the best estimate. 
(4)  High Estimate means there is at least a 10 percent probability (P10) that the quantities actually recovered will equal or exceed the high estimate. 
(5)  Mean Estimate represents the arithmetic average of the expected recoverable volume. It is the most accurate single point representation of the volume distribution. 
(6)  TEFS is defined as the threshold economic field size. 
(7)  Pe is defined as the probability of discovering economic prospective resources, Pe= 41.6% La Luna oil and Pe= 35% La Luna gas. 
(8)  CoD is defined as the chance of development, CoD = 66%. 
(9)  Canacol’s working interest after the deduction of royalties. 

Mr. Mark Teare, Senior Vice President Exploration for Canacol, stated “The Corporation has worked steadily with its partners over the last 10 years to identify, de-risk and evaluate the unconventional shale oil potential across its land position in the Middle Magdalena Valley Basin of Colombia. After the Corporation’s initial regional work identifying the unconventional shale oil potential of the Cretaceous La Luna Formation, a significant 3 block land position (Santa Isabel, VMM-2 and VMM-3) in the core of this fairway was captured via the acquisition of Carrao Energy in 2011. The Corporation quickly moved to secure partners ConocoPhillips Colombia,  Exxon Mobil and Shell to undertake the de-risking of the shale oil resource potential across the three blocks.   

The drilling of the Mono Arana-1 well on the VMM-2 block with partner Exxon Mobil in 2012-13 provided confirmation of the excellent reservoir and fluid properties of the La Luna shale. This vertical well, which was not stimulated, naturally flowed 590 barrels of oil per day of 22˚API oil and produced a cumulative 143,820 barrels as of December 31, 2017. The Mono Arana-1 well results demonstrated the commercial potential of the La Luna shale on Canacol’s acreage position in the Middle Magdalena Valley Basin. The information gathered from Mono Arana-1 allowed the Corporation to better define the La Luna shale resource potential on its acreage and plan an evaluation well on the previously undrilled VMM-3 block.

The Picoplata-1 vertical well was drilled with partner Shell on VMM-3 in 2014 to 2015 to a total depth of 16,406 feet measured depth (“ft MD”) and encountered over 1200 feet of potential oil bearing La Luna reservoirs. Analysis of the 659 feet of full diameter conventional core cut from the La Luna shales confirmed the excellent unconventional reservoir properties and suitability for stimulation.   Canacol and its partner, ConocoPhillips Colombia, continue to evaluate the technical data collected from this well to plan next steps towards the evaluation of the La Luna on both blocks.”   

Discussion

The range of prospective resources are a function of the uncertainty of various components used in the prospect evaluation including subsurface variables (productive area, gross interval thickness, net to gross ratio, porosity, oil saturation, and formation volume factor) as well as recovery efficiency. Estimates of prospective resources are the result of a probabilistic simulation of the distribution of measured values for each component. In turn, these estimates are expressed as distributions rather than a single value to capture the range of uncertainty about these estimates as represented in Tables 1 and 2. As exploration activities move forward the values of these components will be better quantified, and further adjustments to estimated volumes can be prepared in the future.

The probability of geologic success, Pg, is defined as the probability of discovering reservoirs that flow petroleum at a measurable rate. Pg is estimated by quantifying the probability of each of the following individual geologic factors: trap, source, reservoir, and petroleum migration. The product of these four probabilities or chance factors is computed as Pg. This methodology was applied to the prospective resource estimates related to light and medium crude oil and unconventional natural gas. For oil Pg was determined to be 42%, and for gas Pg was determined to be 35%.

In addition to the application of technical risk defined by Pg, the Chance of Development (CoD) was assessed and applied to the prospective resource estimates. CoD is defined as the likelihood of full field development. It considers risks associated with the contract, security issues, environmental permits, water use and disposal, and social and community issues. For both light and medium crude oil and unconventional natural gas, the CoD was determined to be 66% for developing these resources in the next 5 years.

In this report, estimates of prospective resources are presented both before and after adjustments for Pg and CoD to provide un-risked and risked prospective resource estimates as presented in Tables 1 and 2.

Canacol is in the early stages of exploration and appraisal in the evaluated areas. There are a number of positive and negative factors which BGEC considered in determining risk and overall uncertainty. The key positive factors include:

  • The drilling, stimulation and testing of Picoplata 1 on VMM 3 (drilled in 2015) providing the first abundant data in the deep basin:
    • 659 ft of full diameter core
    • Full suite of modern day logs including image logs confirming naturally fractured rock
    • 5 DFITS and 3 fracs in the La Luna
    • 31° API oil flow to surface in three zones
  • A database of Middle Magdalena wells in the La Luna (47 well penetrations) and Tablazo (27 well penetrations) and seismic on the Evaluated Areas (483 lines of 2D totaling 6,552 km and 129 square kilometres of 3D over 6 surveys)
  • Canacol’s partnership with a world-class Operator, ConocoPhillips, one of the world’s largest independent E&P company based on production and proved reserves
  • Proven North American unconventional analogues to the La Luna and Tablazo formations including the Muskwa, Duvernay, Bakken, Haynesville, Eagle Ford and Niobrara

The key negative factors include:

  • In the past, Colombia’s Autoridad Nacional de Licencias Ambientales (ANLA) had denied applications for multi-stage stimulation of unconventional resource plays due to uncertainty related to the implications of the technology on various factors including potable water sources, seismic activity, and water disposal. The Corporation considers that approvals recently announced by the ANH that Ecopetrol and  ExxonMobil proceed with pilot projects to conduct multi-stage stimulations are positive steps toward reducing the risk associated with Chance of Development of its unconventional prospective resources across its acreage in the Middle Magdalena Valley basin.
Source: EvaluateEnergy® ©2021 EvaluateEnergy Ltd