Canacol Energy Ltd. announces increased interest in LLA 23 and Santa Isabel E&P contracts in Colombia

Following the closing of the transaction, Carrao Colombia holds an 80% interest in the LLA 23 contract and a 100% interest in the Santa Isabel contract.

Charle Gamba, President and CEO of Canacol, stated "LLA 23 provides a light oil prospect inventory with the potential to add significant reserves and early cash flow that we have identified on the basis of the existing seismic and proprietary knowledge related to our activities at Rancho Hermoso field. Santa Isabel offers a new core area for Canacol with exposure to a potential large, high quality unconventional oil shale play. Increasing our interest in both contracts prior to drilling has the potential to yield significant value to the Corporation."

LLA 23 (80% interest, 92,011 net acres)

Located in the Llanos basin, operated LLA 23 contract is situated immediately north of and adjacent to the Rancho Hermoso field. The Corporation has mapped an extension of the Rancho Hermoso fault trend north onto this contract, and has mapped three prospects using the available 2D seismic. The Corporation anticipates stacked pay potential on LLA 23, as is the case at the Rancho Hermoso field. LLA 23 offers significantly better ANH fiscal terms with 2-3 times better netbacks and reserve valuations than those available under the Rancho Hermoso tariff and non-tariff contracts. In early March 2012, the Corporation plans to re-enter the Agueda-1 well on the LLA 23 contract to test 47 feet of bypassed potential pay oil pay identified in the C7 reservoir interval.

Santa Isabel (100% interest, 101,542 net acres)

Located in the Middle Magdalena basin, the Santa Isabel contract is one of three contracts that expose Canacol to a potentially large, unconventional oil shale fairway in the thick Cretaceous La Luna formation analogous to the Eagle Ford formation, which underlies much of south and east Texas. This unconventional play type has received considerable attention from international resource play operators in recent months and is an area of emphasis in the upcoming 2012 Colombia Bid Round. Additionally, Ecopetrol is targeting over 25,000 barrels of production per day from the Middle Magdalena unconventional shale fairway by 2015.
Key Transaction Terms

Carrao Colombia acquired additional interests in LLA 23 and Santa Isabel contracts from Green Power Sucursal Colombia ("Green Power"), a subsidiary of Trayectoria Oil and Gas S.A. ("Trayectoria") and an affiliate of Petrolera Monterrico S.A., for the purchase price of US $2.5 million and US $2.0 million respectively ("Purchase Price"). Carrao Colombia also agreed to the provision of certain secured loans to Trayectoria and its affiliates (the "Loans").

The Purchase Price was paid in common shares of the Corporation ("Common Shares") at a deemed price of $0.8852 per Common Share, equal to the volume weighted average trading price of Common Shares for the twenty day period ending on the day prior to the date the parties signed the assignment agreements respecting the Transaction (the "Consideration Shares"). The Corporation issued 5,057,162 Consideration Shares in satisfaction of the Purchase Price. The Consideration Shares were pledged as security for the Loans (the "Security"). The Loans are due within 90 calendar days following the closing date. If Trayectoria fails to repay the Loans when due, the Security shall be deemed to have been transferred to Canacol by way of set off as repayment of the Purchase Price.

Prior to completion of the Transaction, Canacol had 618,302,428 Common Shares issued and outstanding.

The Transaction remains subject to ordinary TSX filings post closing. Application has been made to the National Agency of Hydrocarbons of Colombia for formal recognition of the Corporation's total 80% interest in the LLA 23 contract and 100% interest in the Santa Isabel contract.