(Canacol, 19.Oct.2023) — Canacol Energy Ltd. (TSX:CNE; OTCQX:CNNEF; BVC:CNEC) announces that the long term take or pay gas sales contract with Empresas Publicas de Medellin E.S.P. (“EPM”), previously scheduled to commence deliveries on 1 December 2024 (the “Project”) has been terminated by the corporation. As of the time of termination the Project was still in the process of obtaining the environmental license required for the building of the pipeline to deliver contracted gas from the corporation’s Jobo gas processing plant to the city of Medellin.
This process was initially expected to have been completed by July of 2023. Although this delay was not by itself sufficient to jeopardize the timely execution of the Project or the gas sales contract, it has been part of a pattern of ever increasing legal, social, and security obstacles that have arisen in the past months that have led the corporation to reevaluate the likely future and priority placed on this Project. Senior Management will hold a conference call to discuss the cancellation of the EPM contract and strategic entrance into Bolivia on Friday, 20 October 2023, at 6:30 a.m. MST / 8:30 a.m. EST.
As a result of careful review of 1) the legal, social and security circumstances, 2) dynamics within the Colombian gas market, and 3) the corporation´s decision to invest in its natural gas exploration programs in the Middle Magdalena Basin and in Bolivia, the corporation considers it prudent to cancel the Jobo to Medellin pipeline Project. As such the corporation has advised EPM of its intention to terminate the contract with immediate effect. During 2023 the corporation spent approximately $6mn on the Jobo to Medellin project. Cancellation of the BOOM contract with SETCO will not incur any penalty to Canacol.
As a result of the termination of the Project, the corporation plans to 1) reduce capital spending in the Lower Magdalena Basin (“LMV”) starting in 2024 as volumes planned to be sent to Medellin starting in December 2024 for 12 years will no longer be necessary, 2) expend future capital in the LMV to target full use of existing transportation infrastructure, 3) drill the high impact Pola 1 gas exploration well in the Middle Magdalena Basin in the second quarter of 2024 on the corporation’s 100% working interest operated VMM45 Exploration and Production (“E&P”) Contract which, if successful, could be commercialized into the interior market (Bogota, Medellin and Cali) via the existing Transportadora de Gas Internacional (“TGI”) gas pipeline located 10 kilometers to the east of the Pola location, and 4) use excess capital originating from a reduced LMV capital program to reduce debt.
Strategic Entrance into Bolivia
Charle Gamba, President and CEO of the Canacol, stated “The corporation has made a strategic entrance into Bolivia with the execution of three Exploration and Production (“E&P”) contracts with Yacimientos Petroliferos Fiscales Bolivianos (YPFB), the Bolivian state oil and gas company. The corporation has placed initial guarantees for a total of US$1.4mn. We´re also in the process of seeking government approval for the award of a fourth E&P contract. Bolivia´s gas production has been declining over recent years, and these agreements, executed with the participation of YPFB, are part of the Bolivian government´s efforts to attract investment to increase gas reserves and production. The four E&P contracts expose Canacol to both low-risk mature gas field redevelopments as well as significant gas exploration potential in the largest gas producing basin of Bolivia with a modest capital commitment over 5 years of approximately US$27mn of investment. Gas from these contracts can be rapidly commercialized given success as they are strategically located along the main gas pipeline routes with export to Brazil. We anticipate commencing investment and operations in Bolivia in 2024.”
The conference call may be accessed by dial in or via webcast:
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