The remaining three contracts are production sharing type arrangements where Canacol Energy is allowed to an equity share of the volumes pumped net of a royalty payment to the government. Canacol Energy’s share of gross production is 1,650 bopd, comprised of 1300 bopd of tariff production, and 350 bopd of net after royalty production.

The evaluations, effective December 31, 2008, were carried out internally with the assistance of the company’s independent reserve evaluator Ryder Scott Company, and are compliant with National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities. The reserves are provided on a net after royalty basis in units of barrels of oil (bbl) using a forecast price deck in US dollars. The anticipated values may or may not symbolize the fair market value of the reserve estimates.

Net present valuations discounted at 10% include the values for both the risk service contract and the net after royalty reserves. Assessments are modeled on this basis because of the commercial advantages that come from distributing field operating expenses between the tariff and net after royalty production in the Rancho Hermoso field. Economic limits for a particular field were inclusive of all contracts related with that field.

The majority of the net after royalty oil production is at present hedged at a floor of $55 and a ceiling of $83 per barrel until late 2011 under a contact with Standard Bank Plc executed December 6, 2008.

For the tariff production valuation, Canacol Energy receives an operating tariff from Ecopetrol for each gross produced barrel of oil. The average tariff price for 2009 is $9.63 per barrel, and is insensitive to West Texas Intermediate oil price fluctuation. Under an accessible agreement with Ecopetrol, the tariff will raise through a series of steps each year to about $17.56 per gross barrel in 2012 for the duration of life of field. The average tariff price for 2010 will be $12.50 per barrel.

Management Comment

Canacol Energy intends to drill three development wells and work over three existing oil producers in the Entrerrios and Rancho Hermoso fields during the remainder of 2009. The new development wells comprises the drilling of the major extension of the Entrerrios field, and the drilling of two infill development wells in the Rancho Hermoso field. Canacol Energy has concluded the access road and surface location of the Entrerrios 5 well, and is in the process of contracting a drilling rig to spud the well in early June 2009, with the development wells in Rancho Hermoso to follow. Canacol Energy also inteds to workover three existing wells, two in the Entrerrios field, and one in the Rancho Hermoso field. Management expects that this activity will add an initial 3,150 gross bopd (1,050 net bopd) of net after royalty production and an initial 4,000 gross barrels a day of new tariff production. These volumes may raise the corporation’s share of production from the existing 1,650 bopd to 6,700 bopd in 2009, which would then consist of 1,400 bopd net after royalty production and 5,300 bopd of tariff production, taking into account the anticipated decline associated with existing production. Total net cost of the activity is expected to be $11.5 million. Canacol Energy is at present negotiating a series of agreements with a third party that will finance a portion of these activities, and will file a separate press release in the near future. Current outstanding common shares total about 130,000,000.

Charle Gamba, president and chief executive officer of Canacol, was quoted as saying “We are very pleased with the reserves update for our Rancho Hermoso and Entrerrios fields in Colombia, which under the modeled oil pricing yields a 2P NAV of CAN$ 0.37 per share. Coupled with our producing reserves base in Brazil, along with the reserves report currently in progress for our Capella discovery in Colombia, we are delivering very good value to Canacol share holders compared to current market capitalization”.