(MENAFN- ProactiveInvestors) Shares of (TSE:CNE)(OTCQX:CNNEF) were jumping after the Colombia-focused oil and gas company said it has acquired two new exploration and production contracts adding 638000 gross acres to its gas position in Colombia.
The two new contracts VIM 5 and VIM 19 were acquired from OGX Petroleo E Gas and are located next to Canacol's Esperanza and VIM 21 gas contracts in the lower Magdalena Basin.
The company said they contain 10 prospects and leads which have a "significant volume of prospective resource" according to a July 2014 NI-51-101 compliant report.
The VIM 5 contract also contains the Clarinete 1 exploration well which was drilled last month and revealed 149 feet of potential gas pay in the primary Cienaga de Oro sandstone reservoir the same reservoir from which Canacol produces at its Nelson and Palmer gas fields on Esperanza.
The gross unrisked "pre-drill" best estimate for the Clarinete prospect is 540 billon cubic feet of gas Canacol said. Production testing of the well is slated to start in mid-January.
"The acquisition of these two contracts adds significant gas resource to our core gas position in Colombia" said president and chief executive officer Charle Gamba.
"Clarinete also adds a very large gas discovery to our inventory of gas discoveries which we will be developing and putting onto production in 2015 where via executed sales contracts we plan to increase production from current levels of approximately 20 mmscfpd to 83 mmscfpd by the end of 2015 through 5 year contracts with pricing up to US$ 8.00/Mbtu not tied to global oil prices."
Under the terms of the deal Canacol will pay US$29.5 million in cash and a royalty interest of 3 percent on net revenue generated by the sale of hydrocarbons from the blocks.
Under a previous agreement with a joint venture partner Canacol is entitled to receive 25 percent of the consideration payable to OGX back as well as 50 percent of the costs of drilling two explorations wells on the blocks. Once it completes these earn-in requirements it will hold a 75 percent stake in the two blocks.
Canacol's shares surged 27.5 percent to C$2.50 in Toronto as of 11:00am ET. So far this year the stock has declined almost 65 percent.
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