Canacol Energy Ltd. Reports Record Adjusted Funds from Operations in Fiscal Q3 2014 and 42% Increase in Production Quarter Ov...

Canacol Energy Ltd. ("Canacol" or the "Corporation")
(TSX:CNE)(BVC:CNEC)(OTCQX:CNNEF) is pleased to report its financial results for
the three and nine months ended March 31, 2014. Fiscal Q3 2014 was a successful
quarter for the Corporation as it increased its production, revenues, adjusted
funds from operations, and netbacks over the comparative prior year period.
Significantly, fiscal Q3 2014 represents a record quarter for Canacol in terms
of cash generation with reported adjusted funds from operations of $32.3 million
for the quarter. 


Charle Gamba, President and CEO of the Corporation stated: "Canacol increased
production for the most recent quarter by 8% compared to last quarter and by 42%
over the comparative quarter as the Corporation continued to realize success
from its recent exploration and production activities. Our average corporate
netback has increased steadily over recent quarters and now stands at $43.57/boe
for the current quarter, a 23% increase over the comparative quarter and the
highest corporate average netback in the history of Canacol. This increased
netback reflects our focus on high netback production, which will remain our
focus in the future. Increased production and higher netbacks have also improved
our cash generation from operations with Canacol posting record adjusted funds
from operations this quarter of $32.3 million. With expected net proceeds from
our recently announced bought deal equity financing and due to our continued
exploration success on our LLA-23 block, where we just tested another 1,038 bopd
from the Mirador reservoir in the Pantro-1 light oil discovery, we plan to
accelerate capital activities on LLA-23 with three additional exploration well
(Tigro-1, Pointer-1, and Maltes-1), up to six additional development wells, and
additional facilities in 2014. We further plan to conduct additional drilling
activities on our Middle Magdelana blocks which have also seen positive
exploration successes, with one exploration well, Morsa-1, and one appraisal
well, Oso Pardo-2, going down by the end of July 2014. We also plan to drill
three additional conventional shallow wells on our VMM-2 block following up our
Mono Arana Lisama discovery. Finally, we're planning to spud the Palmer- 1 well,
the first of three gas exploration wells, on our Esperanza block prior to the
end of June 2014. We're off to a great start in 2014, and with 11 more
exploration wells and 28 development wells to come, Canacol's production and
cash flow will continue to grow throughout the remainder of calendar 2014 and
beyond. With that in mind, we are revising guidance for calendar 2014 up to
12,500-13,500 boepd and plan to exit the year at approximately 17,000 boepd via
our drilling programs."


Highlights for Fiscal Q3 2014

(in thousands of United States dollars, except as otherwise noted; production is
stated as working-interest before royalties)


Financial and operating highlights of the Corporation include:



--  Average sales volumes increased 60% to 11,418 barrels of oil equivalent
    per day ("boepd") for fiscal Q3 2014 compared to 7,141 boepd for the
    comparable period. Sales volumes in fiscal Q3 2014 were positively
    affected by the sale of a significant build-up of crude oil inventories
    from December 31, 2013. 
--  Average daily production volumes increased 42% to 10,893 boepd for
    fiscal Q3 2014 compared to 7,659 boepd for the comparable period. This
    increase in production volumes is primarily due to new production from
    the Labrador and Leono discoveries on the LLA-23 block and production
    increases from the Libertador and Atacapi fields in Ecuador. 
--  Petroleum and natural gas revenues for fiscal Q3 2014 increased 61% to
    $55.7 million compared to $34.6 million for the comparable period.
    Adjusted petroleum and natural gas revenues, inclusive of the Ecuador
    IPC (see the definition of Ecuador IPC below), for fiscal Q3 2014
    increased 68% to $61.6 million compared to $36.7 million for the
    comparable period. 
--  Average operating netback for fiscal Q3 2014 increased 23% to $43.57/boe
    compared to $35.41/boe for the comparable period. Operating netback is
    inclusive of results from the Ecuador IPC. 
--  Adjusted funds from operations for fiscal Q3 2014 increased 118% to
    $32.3 million compared to $14.8 million for the comparable period.
    Adjusted funds from operations is inclusive of results from the Ecuador
    IPC. The Corporation recorded net income of $19.4 million for fiscal Q3
    2014 compared to net loss of $3.4 million for the comparable period. 
--  Capital expenditures for fiscal Q3 2014 were $35.9 million while
    adjusted capital expenditures, inclusive of amounts related to the
    Ecuador IPC, were $44.1 million. 
--  At March 31, 2014, the Corporation had $35.7 million in cash and cash
    equivalents and $52.1 million in restricted cash. Subsequent to March
    31, 2014, the Corporation upsized its existing senior term loan for an
    additional $80 million, before transaction costs. 
    

----------------------------------------------------------------------------
                           Three months ended         Nine months ended     
                               March 31,                  March 31,         
Financial                                                                   
                           2014   2013    Change     2014    2013   Change  
----------------------------------------------------------------------------
Petroleum and natural                                                       
 gas revenues, net of                                                       
 royalties               55,653 34,602        61% 146,043 102,394       43% 
Adjusted petroleum and                                                      
 natural gas revenues,                                                      
 net of royalties,                                                          
 including revenues                                                         
 related to the                                                             
 Ecuador IPC (2)         61,550 36,726        68% 159,159 105,871       50% 
                                                                            
Cash provided by (used                                             greater  
 in) operating                                                        than  
 activities              13,099 (8,520)      n/a   69,229   4,316      999% 
 Per share - basic ($)                                             greater  
                                                                      than  
                           0.15  (0.10)      n/a     0.79    0.06      999% 
 Per share - diluted                                               greater  
  ($)                                                                 than  
                           0.14  (0.10)      n/a     0.78    0.06      999% 
                                                                            
Adjusted funds from                                                         
 operations (1)(2)       32,274 14,778       118%  72,151  32,052      125% 
 Per share - basic ($)     0.36   0.17       112%    0.83    0.45       84% 
 Per share - diluted                                                        
  ($)                      0.35   0.17       106%    0.81    0.45       80% 
                                                                            
Net income (loss)        19,438 (3,425)      n/a   12,007  (8,761)     n/a  
 Per share - basic ($)     0.22  (0.04)      n/a     0.14   (0.12)     n/a  
 Per share - diluted                                                        
  ($)                      0.21  (0.04)      n/a     0.14   (0.12)     n/a  
Capital expenditures,                    greater                            
 net (4)                 35,915  3,021  than 999%  76,072  37,444      103% 
Adjusted capital                                                            
 expenditures, net,                                                         
 including capital                                                          
 expenditures related                                                       
 to the Ecuador IPC                                                         
 (1)(2)(4)               44,103 10,434       323% 100,525  52,053       93% 
                                                                            
                                                    March    June           
                                                      31,     30,           
                                                     2014    2013   Change  
                                                  --------------------------
Cash and cash                                                               
 equivalents                                       35,699  52,290      (32%)
Restricted cash                                    52,125  26,394       97% 
                                                                            
Working capital                                                             
 surplus, excluding                                                         
 the current portion                                                        
 of bank debt and non-                                                      
 cash items (1)                                    33,328  69,148      (52%)
Short-term and long-                                                        
 term bank debt                                   135,675 134,316        1% 
Total assets                                      548,501 469,592       17% 
Common shares, end of                                                       
 period (000s)                                     90,220  86,506        4% 





----------------------------------------------------------------------------
                          Three months ended         Nine months ended      
                              March 31,                  March 31,          
Operating                                                                   
                          2014    2013  Change        2014    2013  Change  
----------------------------------------------------------------------------
Petroleum and natural                                                       
 gas production,                                                            
 before royalties                                                           
 (boepd)                                                                    
 Petroleum               8,260   4,785      73%      7,115   5,285      35% 
 Natural gas             2,633   2,874      (8%)     2,919   1,051     178% 
 Total                  10,893   7,659      42%     10,034   6,336      58% 
                                                                            
Petroleum and natural                                                       
 gas sales, before                                                          
 royalties (boepd)                                                          
 Petroleum               8,792   4,267     106%      6,976   5,477      27% 
 Natural gas             2,626   2,874      (9%)     2,879   1,051     174% 
 Total                  11,418   7,141      60%      9,855   6,528      51% 
                                                                            
Realized sales prices                                                       
 ($/boe)                                                                    
 LLA-23 (oil)            88.61   99.62     (11%)     89.26   97.95      (9%)
 Esperanza (natural                                                         
  gas)                   23.00   30.20     (24%)     27.60   30.58     (10%)
 Rancho Hermoso                                                             
  (tariff and non-                                                          
  tariff oil and                                                            
  liquids)               85.25   88.03      (3%)     89.99   70.22      28% 
 Ecuador (tariff oil)                                                       
  (2)                    38.54   38.54       -       38.54   38.54       -  
 Total (2)               65.49   61.97       6%      64.35   64.08       -  
                                                                            
Operating netbacks                                                          
 ($/boe) (1)                                                                
 LLA-23 (oil)            62.26   66.22      (6%)     64.29   65.23      (1%)
 Esperanza (natural                                                         
  gas)                   19.36   25.61     (24%)     23.19   25.85     (10%)
 Rancho Hermoso                                                             
  (tariff and non-                                                          
  tariff oil and                                                            
  liquids)               25.76   37.28     (31%)     20.84   24.48     (15%)
 Ecuador (tariff oil)                                                       
  (2)                    38.54   38.54       -       38.54   38.54       -  
 Total (2)               43.57   35.41      23%      40.68   26.73      52% 
----------------------------------------------------------------------------
 (1) Non-IFRS measure - see "Non-IFRS Measures" section within MD&A.        
 (2) Inclusive of amounts related to the Ecuador IPC - see "Non-IFRS        
     Measures" section within MD&A.                                         
 (3) Includes tariff oil production and sales related to the Ecuador IPC.   
 (4) Excludes business acquisition.                                         



Outlook

The Corporation is pleased to announce that it has completed the second
production test in the Pantro-1 well. The first production test was performed on
the Gacheta reservoir which tested at a gross rate of 2,930 barrels of oil per
day ("bopd") (2,344 bopd net). The second test was performed on the Mirador
reservoir which tested at a final gross rate of 1,038 bopd (830 bopd net) of 36
degrees API oil at 110 degrees F with 2% water cut using an electro submersible
pump set to a frequency of 42 Hz during a seven day flow period. This marks the
first oil production from the Mirador reservoir from any well on the LLA-23
block and confirms its viability as a viable productive reservoir on the block.


For the remainder of calendar 2014, the Corporation plans to expand its capital
program in Colombia and anticipates revised net average production before
royalties of between 12,500 and 13,500 boepd for calendar 2014.


In light of its recent exploration successes on its LLA-23 and Middle Magdelena
blocks, the Corporation plans to accelerate its exploration and development
drilling program on the LLA-23 block. Aside from the programed Tigro and Pointer
exploration wells, the Corporation plans to drill a third exploration well,
Maltes-1, prior to the end of calendar 2014. In addition to its planned
Labrador-4 and Leono-2 appraisal wells, the Corporation plans to also expand the
program to drill up to six additional development wells at Leono, Pantro, and
Tigro. The Corporation also plans to accelerate its water handling and power
generation facilities on the LLA-23 block to more effectively manage operating
costs. In other projects, the Corporation plans to accelerate it exploration and
development drilling program on the Santa Isabel block (the Morsa-1 exploration
well and the Oso Pardo-2 appraisal well), and expand its development drilling
program at its Mono Arana shallow discovery on the VMM-2 block (three wells).
The Corporation's revised 2014 capital exploration and development program
includes plans to drill 13 gross exploration wells (versus the 11 originally
planned), 43 gross development wells (versus the 36 originally planned), and
work over 13 existing producing wells in its oil fields located in Colombia and
Ecuador.


Exploration wells for the remainder of calendar 2014 will include the Tigro-1,
Pointer-1, and Maltes-1 wells on the LLA- 23 block, the Palmer-1, Corozo-1, and
Canadonga-1 exploration wells on the Esperanza block, the Morsa-1 well on the
Santa Isabel block, the Pico Plata-1 well on the VMM3 block, the Cejudo-1 well
on the VMM2 block, the Chipo-1 well on the Ombu block, and the Secoya Oeste-1
well in Ecuador.


Funding for the expanded 2014 capital program is expected to come from existing
working capital, operating cash flows, available debt facilities, and net
proceeds from the bought deal equity offering expected to close by the end of
May 2014.


Change in Accounting Policy for Ecuador Incremental Production Contract
("Ecuador IPC")


On July 1, 2013, the Corporation adopted International Financial Accounting
Standard ("IFRS") 11 "Joint Arrangements", which became effective for the
Corporation on July 1, 2013. The adoption of IFRS 11 resulted in a change in the
method of accounting for the Corporation's interest in the incremental
production contract for the Libertador and Atacapi fields in Ecuador from the
proportionate consolidation method to the equity method. Fiscal Q3 2014 is the
third quarter for which the Corporation has reported results under IFRS 11.
Significantly, under the equity method the Corporation no longer reports its
proportionate share of revenues and expenditures of the Ecuador IPC as would be
typical in oil and gas joint interest arrangements. Therefore, within this news
release, management has provided supplemental disclosures of adjusted revenues
and expenditures, which are inclusive of the Ecuador IPC, to supplement the IFRS
disclosures of the Corporation's operations. For a complete discussion of the
change in accounting policy and the supplemental disclosures provided, refer to
the unaudited interim condensed consolidated financial statements and related
Management's Discussion and Analysis ("MD&A") as of and for the three and nine
months ended March 31, 2014 as filed on SEDAR.


The Corporation's has filed its unaudited interim condensed consolidated
financial statements and related Management's Discussion and Analysis as of and
for the three and nine months ended March 31, 2014 with Canadian securities
regulatory authorities. These filings are available for review on SEDAR at
www.sedar.com.


Canacol is an exploration and production company with operations focused in
Colombia and Ecuador. The Corporation's common stock trades on the Toronto Stock
Exchange, the OTCQX in the United States of America, and the Colombia Stock
Exchange under ticker symbols CNE, CNNEF, and CNE.C, 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
disclosures. 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. Other risks are more fully described in the
Corporation's most recent Management Discussion and Analysis ("MD&A"), which is
incorporated herein by reference and is filed on SEDAR at www.sedar.com. 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 and Energy of
Colombia and is published by the Ministry on its website; a direct link to this
information is provided on the Corporation's website. References to "net"
production refer to the Corporation's working-interest production before
royalties.


Use of Non-IFRS Financial Measures - Due to the nature of the equity method of
accounting the Corporation applies under IFRS 11 to its interest in the Ecuador
IPC, the Corporation does not record its proportionate share of revenues and
expenditures as would be typical in oil and gas joint interest arrangements.
Management has provided supplemental measures of adjusted revenues and
expenditures, which are inclusive of the Ecuador IPC, to supplement the IFRS
disclosures of the Corporation's operations in this press release. Such
supplemental measures should not be considered as an alternative to, or more
meaningful than, the measures as determined in accordance with IFRS as an
indicator of the Corporation's performance, and such measures may not be
comparable to that reported by other companies. This press release also provides
information on adjusted funds from operations. Adjusted funds from operations is
a measure not defined in IFRS. It represents cash provided by operating
activities before changes in non-cash working capital and decommissioning
obligation expenditures, and includes the Corporation's proportionate interest
of those items that would otherwise have contributed to funds from operations
from the Ecuador IPC had it been accounted for under the proportionate
consolidation method of accounting. 

The Corporation considers adjusted funds from operations a key measure as it
demonstrates the ability of the business to generate the cash flow necessary to
fund future growth through capital investment and to repay debt. Adjusted funds
from operations should not be considered as an alternative to, or more
meaningful than, cash provided by operating activities as determined in
accordance with IFRS as an indicator of the Corporation's performance. The
Corporation's determination of adjusted funds from operations may not be
comparable to that reported by other companies. For more details on how the
Corporation reconciles its cash provided by operating activities to adjusted
funds from operations, please refer to the "Non-IFRS Measures" section of the
Corporation's MD&A. Additionally, this press release references working capital
and operating netback measures. Working capital is calculated as current assets
less current liabilities, excluding non-cash items such as the current portion
of commodity contracts, the current portion of warrants, and the current portion
of any embedded derivatives asset/liability, and is used to evaluate the
Corporation's financial leverage. Operating netback is a benchmark common in the
oil and gas industry and is calculated as total petroleum and natural gas sales,
less royalties, less production and transportation expenses, calculated on a per
barrel equivalent ("boe") basis of sales volumes using a conversion. Operating
netback is an important measure in evaluating operational performance as it
demonstrates field level profitability relative to current commodity prices.
Working capital and operating netback as presented do not have any standardized
meaning prescribed by IFRS and therefore may not be comparable with the
calculation of similar measures for other entities.


Boe Conversion - The term "boe" is used in this news release. Boe may be
misleading, particularly if used in isolation. A boe conversion ratio of cubic
feet of natural gas to barrels oil equivalent is based on an energy equivalency
conversion method primarily applicable at the burner tip and does not represent
a value equivalency at the wellhead. In this news release, we have expressed boe
using the Colombian conversion standard of 5.7 Mcf: 1 bbl required by the
Ministry of Mines and Energy of Colombia.


FOR FURTHER INFORMATION PLEASE CONTACT: 
Canacol Energy Ltd.
Investor Relations
888-352-0555
[e-mail]
www.canacolenergy.com