Canacol Energy Ltd. Announces Closing of the Shona Energy

Canacol Energy Ltd. Announces Closing of the Shona Energy Company,
Inc. Transaction 
CALGARY, ALBERTA -- (Marketwire) -- 12/21/12 -- Canacol Energy Ltd.
("Canacol" or the "Corporation") (TSX:CNE) (BVC:CNEC) is pleased to
announce the formal closing of the Shona Energy Company, Inc.
("Shona") (TSXV: SHO) transaction, effective December 21, 2012. 
Charle Gamba, CEO and President of Canacol, stated "The Shona assets
bring Canacol 17 million standard cubic feet per day ("mmscfpd") of
net gas production (2,700 barrels per day of oil equivalent) ("boepd)
under long term contracts, 95 billion cubic feet ("bcf") of net
proved plus probable ("2P") reserves (15.8 million barrels of oil
equivalent) ("mmboe"), and significant gas and conventional heavy oil
upside on 4 exploration contracts in Colombia, making Canacol the 5th
largest public exploration and production company in Colombia on a
reserves basis, with net 2P reserves totaling 32 mmboe at a net
present value discounted at 10% of US$736 million. The Corporation
anticipates exiting calendar 2012 with net production of
approximately 8,000 boepd net after royalty. The focus for 2013 is
straight forward: firstly to grow production from both our light oil
and gas producing properties to increase cash flow, which includes
our two recently announced light oil discoveries in Colombia, and
secondly to continue the successful exploration of our significant
conventional and non-conventional oil and gas assets in Colombia to
add reserves. The diversity of our production and exploration
portfolio make Canacol unique as a junior oil and gas company in
Colombia, balancing high decline, short reserve life Llanos Basin oil
production with lower decline, long reserve life light oil production
from Ecuador and now gas production from the Lower Magdalena Basin." 
The Corporation has net 2P reserves of approximately 32 million
barrels of oil equivalent reserves with a pre-tax NPV10 of US$736
million, and interests in 29 E&P contracts totalling 3.3 million net
acres. Core areas include light oil production and exploration in the
Llanos Basin (which includes the recently announced Labrador light
oil discovery on the LLA 23 E&P contract), conventional and
non-conventional light oil exploration in the Middle Magdalena Basin
(which includes the recently announced Mona Arana oil discovery on
the VMM 2 contract) gas production and exploration in the Lower
Magdalena Basin, heavy oil production and exploration in the Caguan
Basin, and light oil production in the Oriente Basin of Ecuador. 
Pursuant to an arrangement agreement (the "Arrangement Agreement")
between the Corporation and Shona dated October 15, 2012, Canacol
acquired, by way of a statutory plan of arrangement (the
"Arrangement"), 100% of the issued and outstanding class "A" common
shares of Shona ("Shona Common Shares") in exchange for 0.10573 of a
post-Consolidation (as defined below) common share of Canacol
("Canacol Share") and C$0.0896 cash for each Shona Common Share (the
"Consideration") and 100% of the issued and outstanding series "A"
preferred shares of Shona ("Shona Preferred Shares") in exchange for
US$100.00 cash for each Shona Preferred Share. The Consideration
represents a value of approximately C$0.56 per Shona Common Share,
based on the volume weighted average price of the Canacol Shares on
the Toronto Stock Exchange (the "TSX") for the 15 trading days ended
October 12, 2012. 
As previously announced, shareholders of Canacol approved the 10 to 1
consolidation (the "Consolidation") of the Canacol Shares associated
with the closing of the Arrangement. The Corporation completed the
Consolidation effective December 14, 2012 and the Canacol Shares
began trading on a post-Consolidation basis on the TSX and the
Colombia Stock Exchange on December 20, 2012. 
Under the terms of the Arrangement Agreement, all of Shona's
outstanding options were surrendered and terminated prior to the
closing of the Arrangement. In addition, all holders of Shona
warrants are entitled to receive, in lieu of the number of Shona
Common Shares otherwise issuable upon the exercise thereof, the
number of Canacol Shares adjusted for an exchange ratio of 0.12587 of
a post-Consolidation Canacol Share per Shona Share and the exercise
price of the warrants has been reduced with respect to the exchange
ratio of 0.12587 such that the warrants maintain their economic
Canacol issued an aggregate of 24,600,758 post-Consolidation Canacol
Shares to Shona Common Shareholders in connection with the
Arrangement, at a deemed purchase price in respect of the Arrangement
of approximately C$4.449 per post-Consolidation Canacol Share. After
giving effect to the Arrangement and the Consolidation, Canacol has
86,499,001 post-Consolidation Canacol Shares outstanding. 
In connection with the closing of the Arrangement, the Corporation
entered into a senior secured credit agreement with an affiliate of
Credit Suisse for US$45 million, the proceeds of which were used to
fund the cash payments to the Shona Common Shareholders and Shona
Preferred Shareholders, as well as to fund transaction costs of the
Arrangement and the financing. This credit facility carries a term of
one year, is repayable in full upon maturity, bears interest at 15%
per annum, payable quarterly, and is secured by the assets of Shona.
In consideration for entering into the credit agreement, the
Corporation agreed to a "phantom warrant payment" arrangement such
that the Corporation will pay an amount (in cash or Canacol Shares
(subject to the approval of the TSX), at the election of the
Corporation) equal to the in-the-money amount of 2,697,292
post-Consolidation common share purchase warrants of the Corporation
at an exercise price of C$4.50 per Canacol Share. The phantom warrant
payment may be demanded partially or in full at any time for a period
of three years. The Corporation's existing reserve-based revolving
credit facility is currently subject to redetermination by its
lenders and the Corporation expects to receive notice of a reduction
in the borrowing base under the facility in the near term. However,
as a result of the closing of the Credit Suisse facility described
above, the Corporation does not expect any material change in the
overall borrowing amounts under its combined credit facilities after
such redetermination. 
Canacol is an exploration and production company with operations
focused in Colombia, Ecuador, Brazil, and Guyana. The Canacol Shares
trade on the TSX and the Colombia Stock Exchange under ticker symbol
CNE and CNE.C, respectively. 
Shona, as a wholly-owned subsidiary of Canacol, will now be delisted
from the TSX Venture Exchange. 
Forward-Looking Information 
This press release contains forward-looking forward-looking
information and statements within the meaning of applicable
securities laws and are based on the expectations, estimates and
projections of management of Canacol as of the date of this news
release unless otherwise stated. The use of any of the words
"expect", "anticipate", "continue", "estimate", "objective",
"ongoing", "may", "will", "project", "should", "believe", "plans",
"intends" and similar expressions are intended to identify
forward-looking information or statements. More particularly and
without limitation, this press release contains forward-looking
information and statements concerning the anticipated benefits of the
Arrangement to Canacol and its shareholders. 
In respect of the forward-looking information and statements
concerning the anticipated benefits of the Arrangement, Canacol has
provided such in reliance on certain assumptions that it believes are
reasonable at this time, including expectations and assumptions
concerning, among other things: commodity prices and interest and
foreign exchange rates; planned synergies, capital efficiencies and
cost-savings; applicable tax laws; future production rates; the
sufficiency of budgeted capital expenditures in carrying out planned
activities; and the availability and cost of labour and services.
Accordingly, readers should not place undue reliance on the
forward-looking information and statements contained in this press
release. In respect of the forward-looking information and
statements, Canacol has provided such in reliance on certain
assumptions that it believes are reasonable at this time, including
assumptions in respect of: prevailing commodity prices, margins and
exchange rates; that Canacol's future results of operations will be
consistent with past performance and management expectations in
relation thereto; the continued availability of capital at attractive
prices to fund future capital requirements relating to existing
assets and projects, including but not limited to future capital
expenditures relating to expansion, upgrades and maintenance
shutdowns; the success of growth projects; future operating costs;
that counterparties to material agreements will continue to perform
in a timely manner; that there are no unforeseen events preventing
the performance of contracts; and that there are no unforeseen
material construction or other costs related to current growth
projects or current operations. 
Since forward-looking information and statements address future
events and conditions, by their very nature they involve inherent
risks and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks.
These include, but are not limited to the risks associated with the
industries in which Canacol operates in general such as: operational
risks; delays or changes in plans with respect to growth projects or
capital expenditures; costs and expenses; health, safety and
environmental risks; commodity price, interest rate and exchange rate
fluctuations; environmental risks; competition; failure to realize
the anticipated benefits of the Arrangement and to successfully
integrate Shona and Canacol; ability to access sufficient capital
from internal and external sources; and changes in legislation,
including but not limited to tax laws and environmental regulations.  
Readers are cautioned that the foregoing list of factors is not
exhaustive. Additional information on other factors that could affect
the operations or financial results of Canacol are included in
reports on file with applicable securities regulatory authorities,
including but not limited to Canacol' Annual Information Form for the
year ended June 30, 2012 which may be accessed on Canacol' SEDAR
profile at  
Canacol's reserve amounts are based on reports in accordance with
National Instrument 51-101 prepared by DeGolyer and MacNaughton
Canada Limited and Petrotech Engineering Ltd., as of June 30, 2012 as
disclosed in Canacol's Annual Information Form.  
Shona's reserve amounts are based on reports in accordance with
National Instrument 51-101 prepared by Collarini Associates, as of
December 31, 2011 as disclosed in Shona's SEDAR profile at 
The estimated values of future net revenue set out in the 51-101
Reports do not represent fair market value. 
The forward-looking information and statements contained in this
press release are made as of the date hereof and Canacol undertakes
no obligation to update publicly or revise any forward-looking
information or statements, whether as a result of new information,
future events or otherwise, unless so required by applicable
securities laws.  
"Boe" means barrel of oil equivalent on the basis of 6 Mcf of natural
gas to 1 bbl of oil. Boe's may be misleading, particularly if used in
isolation. A boe conversion ratio of 6 Mcf: 1 bbl 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 addition, given that the value ratio based on the
current price of crude oil as compared to natural gas is
significantly different from the energy equivalency of 6:1, utilizing
a conversion on a 6:1 basis may be misleading as an indication of
Canacol Energy Ltd.
Investor Relations
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