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PentaNova farms out Colombia's SN-9 Block to Panacol

22/06/2018

PentaNova Energy Corp. announces the signing of the SN-9 Farm Out Agreement with Panacol Oil & Gas, a wholly owned subsidiary of LATAM Oil & Gas. Under the terms of the Agreement, Panacol will fully fund the Company's commitments during the first phase of the SN-9 Exploration and Production Contract for the amount of US$22.29 million, which will give Panacol the right to earn up to a 40% economic beneficial interest in the SN-9 Block from the Company's 80% economic beneficial interest. Assignment of working interests for both parties is subject to approval from the National Hydrocarbon Agency of Colombia. The Agreement is expected to close within the next 30 days during which time Panacol will be required to place US$3.0 million in escrow to fund near-term activities. In addition, Panacol is required to provide a standby letter of credit for US$3.0 million to guarantee further payments into the escrow account and pay approximately US$650,000 in past costs. Under the terms of the Agreement, Panacol will recover 50% of the funds invested from 70% of the proceeds of the Company's net production.

Ralph Gillcrist, President and CEO, commented:
"The SN-9 block has all the hallmarks of being an exceptional core asset for PentaNova being adjacent to the prolific Canacol Energy Ltd. ("Canacol") gas producing assets. By entering into this Agreement with Panacol, PentaNova is in a position to execute the exploration program required to confirm the gas potential of the block. We look forward to leveraging the abundant experience of the Panacol team to complement the PentaNova team and accelerating our operational activities."

SN-9 Block

The 313,638 acre SN-9 block is located in the northern province of Cordoba, in the Lower Magdalena Basin of Colombia directly adjacent to, and west of, the major gas producing area operated by Canacol. Canacol produces 88% of its 106 million cubic feet per day ("MMscfd") gas production from this area and reported aggressive expansion plans in their Q1 2018 investor update on May 16, 2018. PentaNova believes that the gas play being developed by Canacol extends into the south eastern portion of the SN-9 block. The SN-9 block has over 736 km of 2D seismic lines and one discovery well, Hechizo-1, drilled in 1992 that tested a combined rate of 10.3 MMscfd, confirming the likely extension of the gas play from Canacol's area into SN-9. Given the proximity to the gas infrastructure that supplies the north of Colombia, the south eastern structures of the SN-9 block will be the focus of immediate activities for the Company.

SN-9 Future Planned Activities

The Company anticipates completing the prior consultation process required to acquire seismic in the block by the end of June 2018 and plans to issue tenders for the acquisition of 140km² of 3D seismic, and related services, over the next two weeks. The Company expects to acquire the 3D seismic in October and November of 2018.

The prior consultation and permitting process required for drilling on the block is expected to start in July 2018, as soon as the prior consultation for seismic is complete. On completion of this process, anticipated for mid 2019, civil works will be initiated with a view to spudding the first exploration well midyear 2019.

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