Canacol CEO Says Output Rising as Colombia Wells Near Start

Jun 14, 2013 2:33 pm EJune 14 (Bloomberg) -- Canacol Energy Ltd. Chief Executive Officer Charle Gamba said output has grown at least 11 percent from the first-quarter average, putting the Colombia-focused oil producer on track to revise its full-year target upward.Production is averaging 8,500 to 9,000 barrels of oil equivalent per day in June, up from 7,659 barrels a day in the first quarter, Gamba said yesterday in an interview in his office in Bogota. The company’s shares tumbled 59 percent last year in Canada trading as production plunged.“I don’t like to see a decrease in volumes, but we’ve managed to arrest that and turn it around,” Gamba said. “It takes a little while for investors to warm back up to a name like that.”The shares gained 2 percent to C$3.07 at 2:07 p.m. in Toronto trading, capping a 6.6 percent advance this week.The company plans to add production from its Labrador 3 well in Colombia and two wells in Ecuador within the next two weeks, Gamba said. The company had said in January that net output would average 7,500 to 8,500 barrels a day this year.Recent output “has been better than anticipated, so we will be looking to revise guidance probably after our next development well is brought onstream in July,” Gamba said. Canacol’s production had dropped to 5,354 barrels a day in the fourth calendar quarter, down 61 percent from a year earlier.Shale ExplorationCanacol is seeking to increase output to 15,000 barrels per day by 2015 from conventional fields, while pushing ahead with exploration programs including unconventional shale oil testing.This month the company started drilling an exploration well it shares with ConocoPhillips at the Santa Isabel site in northern Colombia to test the potential for a deeper shale supply. The Oso Pardo well at the site will probe the La Luna shale formation as Canacol drills core samples over the next few months, Gamba said.Gamba is optimistic about the shale potential and says the company’s estimated oil-in-place from the blocks may be revised upward to 3.5 billion to 4 billion barrels in the fourth quarter from the current estimate of 2.9 billion barrels, he said.Shale oil recovery rates range from 3 percent to 7 percent of the oil-in-place, according to a report by the U.S. Energy Information Administration.Fracking TestsThe company plans to start hydraulic fracturing tests in the first half of 2014 following the expected publication of regulations in November by Colombia’s environmental agency, Gamba said.“The issue that has really impacted our thinking about the shale is that it’s significantly more over-pressured than we anticipated, which is good,” he said. The high pressure in the shale formation has the potential to ease oil flow and cut costs, potentially avoiding the need for horizontal drilling, Gamba said.Canacol expects the government to support the development of unconventional oil as the country seeks to boost reserves and add production, Gamba said.Colombia’s oil reserves rose 5.2 percent in 2012 to 2.4 billion barrels, meaning the country can mantain production for 6.9 years at the current level, the government said in April.That is “a very short timeframe,” Gamba said. “They are well aware of the significance of shale oil and are trying to very urgently expedite the necessary regulations.”Canacol’s shares offer a “massive upside” to investors as the company gets ready to add production from new wells, according to Rupert Stebbings, equity markets vice president at Bancolombia SA’s brokerage.“If they’re coming out and making a confident looking statement that’s a really good sign for investors,” Stebbings said in a telephone interview from Medellin. “With shale they’re at the front of the queue.”

--Editors: Bradley Keoun, Richard Richtmyer

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