PetroMagdalena provides exploration and production update including new discoveries at Cubiro and Arrendajo

Source: PetroMagdalena Energy Corp.

PetroMagdalena Energy Corp. (TSXV: PMD.V), today provided an update on its ongoing exploration program, cash and debt balances, and announced its production results for 2011 following the Company's fiscal year end.

Luciano Biondi, Chief Executive Officer of the Company stated: "We are entering 2012 with a full exploration and development drilling program on the back of a challenging but successful year repositioning PetroMagdalena into a focused junior oil and gas player, operating in the most prolific basins in Colombia. I am pleased with the discoveries at Cubiro and Arrendajo which reinforce our focus on finding economic, near-term production opportunities within our portfolio.

We project approximately $45 million in net cash flow from operations (after G&A, equity tax installments and debt service) for 2012, based on an $80 WTI for estimated average annual production of 4,500 boepd ("barrels of oil equivalent per day"). This represents the midpoint of our previously disclosed range of production guidance of 4,300 boepd to 4,700 boepd for 2012. Together with our December 31, 2011 cash balance of approximately $15 million and expected proceeds from asset dispositions, we are fully funded for our planned capital expenditure program of approximately $50 million to $60 million.

With this capital program, we fully expect to grow our resources and reserves, add incremental production in 2012 from our core assets and maximize value from our entire portfolio of assets. The Company has rigs available and environmental permits are in good standing at all our exploration targets in 2012."

EXPLORATION UPDATE

Discoveries at Cubiro and Arrendajo

Yopo Discovery at Cubiro

PetroMagdalena has discovered a new field with the Yopo 1X exploration well, which was drilled to explore the prospectivity of the Carbonera Formation in the Yopo Prospect, located on Polygon B of the Cubiro Block, where the Company holds a 70% working interest ("WI"). The Yopo 1 well was perforated in the Carbonera C7 sand and it is currently testing at 970 barrels per day of 39.9 degrees API oil with 4.7% BS&W ("Basic Sediments and Water"), on natural flow over the initial 6.5 hour stabilized period at an average of 385 psi well head pressure, testing will continue.

The Yopo 1 well was spud on December 11, 2011, drilled to a final depth of 6,790 feet measured depth ("MD") and logged on December 29, 2011. The top of the Carbonera C7 sand was found at a depth of 5,871 feet MD. Petrophysical data show 8 feet of net pay in C7 A, with porosity of 27% and hydrocarbon saturation of 60%; and 25 feet in C7 B, with porosity of 28% and oil saturation of 80%. Based on seismic interpretations, the accumulation discovered by Yopo 1 is a 2 km long structure, corresponding to the typical exploration play in the Llanos Basin. The structure is on trend with the Palmarito and Petirrojo fields to the north and south respectively.

Azor Discovery at Arrendajo

PetroMagdalena has discovered a new field with the Azor-1X exploration well, which was drilled to explore the prospectivity of the Carbonera Formation in the Arrendajo Block, where the Company holds a beneficial 67.5% WI, subject to ANH approval. The Azor-1 well was perforated in the Carbonera C5 sand and it is currently testing at 752 barrels per day of 35.5 degrees API oil with 1% BS&W, stabilized natural flow over an initial 8 hour period, at an average of 265 psi well head pressure, testing will continue.

The Azor-1 well was spud on December 24, 2011, drilled to a final depth of 7,225 feet MD and logged on January 6, 2012. The top of the producing Carbonera C5 sand was found at a depth of 6,724 feet MD. Petrophysical data show 41 feet of net pay in C5, with porosity of 28% and hydrocarbon saturation of 80%.

The Azor-1 well is located on a structural trend with prospects to the north and south. This discovery reveals significant potential for Carbonera C5 in the Arrendajo Block, where there are five additional prospects to be targeted with future exploration drilling.

2012 Exploration Program

The Company's fully funded exploration program includes 7 exploration wells in the Llanos basin; the targeted exploration drilling program is outlined below along with management's volumetric estimates based on 3D seismic information and analogies to off-setting wells. 

Well name

2012 Exploration Wells

Well Scheduled to Spud in Quarter

Cubiro Block  
Cernicalo-2 1
Tijereto Sur-1X 1
Copa C-1X 1
Turpial-1X 1
Petirrojo Sur-1X 2
Copa A Norte-1X 4
Arrendajo Block  
Arrendajo Norte-1X 1
Carbonera Block  
San Roque-1X (MBOE) 1

Santa Cruz Block, Catatumbo Basin: Santa Cruz-1X Exploration well

This well is currently drilling with oil based mud at approximately 8,450 feet MD and making good progress. The well is planned for a total depth of 13,000 feet MD and intermediate casing is planned for approximately 11,100 feet MD.

Topoyaco Block, Putamayo Basin: Yaraqui-1X Exploration well

As announced on January 9, 2012, the Yaraqui-1 exploration well in which the Company has a 50% WI has been suspended by Pacific Rubiales Energy Corp., which holds the remaining 50% WI and is the operator for the block. The well was suspended due to uneconomic heavy oil flows. The Company is now reviewing activity in this block together with the operator.

For a map of all exploration targets, please see the Company's investor presentation on its website at www.petromagdalena.com.

2012 Development Drilling Program

10 development wells including one injection well are scheduled for the Cubiro Block in 2012. These development wells are targeted for drilling with 1 well in the first quarter of 2012 and 3 wells in each subsequent quarter. The development drilling program will be reviewed and modified with the results of the exploration program and the Company will provide regular updates to the market.

LIQUIDITY UPDATE

The Company ended 2011 with a cash balance at December 31, 2011 of approximately $15 million. In addition, the Company has CA$4.3 million set aside in a trust account as of December 31, 2011 to be used toward the first annual principal repayment in May 2012 of the senior secured notes (TSXV: PMD-DB.V).

In December 2011, since Ecopetrol's approval for the transfer of the working interest and operatorship in the Cerrito block remained pending, the Company transferred its working interest in the Cerrito block back to Pacific Rubiales Energy Corp ("PRE") for cash consideration of $7.5 million. The Company had initially acquired the Cerrito block from PRE in 2008.

At December 31, 2011, the Company's debt position comprised the CA$31.1 million senior secured notes maturing May 2014 and a total of $11.7 million of long-term debt due under three local bank loan facilities maturing between October 2012 and August 2013.

PRODUCTION UPDATE

The Company's annual average gross share of production, before deduction of royalties, for 2011 was 2,758 boepd. The Company reached 98% of its target guidance of 2,800 average boepd. The Company's gross share of production for the fourth quarter of 2011 averaged 3,624 boepd, up 33% from the third quarter of 2011 and up 44% from the fourth quarter of 2010. The increase in daily production in the fourth quarter reflected a full quarter's contribution from Copa B-1, which started production in September 2011, and production from Copa A Sur-1, Petirrojo-2 and Petirrojo-3, all of which commenced production during the fourth quarter. The Company exited 2011 at a daily production rate of 4,182 boepd (average for the month of December). Cubiro represented 90% of total production in the month of December 2011.



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