Colombia

Exploration

The company has one of the most successful and knowledgeable exploration teams in the Andean region. They have the combination of youth, creativity, world–class experience and cutting–edge technology to grow the company’s reserve base and ensure continued production for years to come.

OVERVIEW

In 2009, the company drilled 22 exploration wells, with 19 being successful, for an exploration success rate of 86%.

The exploration campaign for 2009 focused heavily on the Quifa and Rubiales Blocks. At the Rubiales and Quifa Blocks, the company drilled 19 wells, with five wells being exploratory and 14 being appraisal. Of the 19 wells drilled, 16 were successful, incorporating total 2P gross reserves of 154.8 million bbl or 78.0 million bbl net reserves before royalties. The total net reserves after royalties reached 69.0 million bbl.

At the Quifa Block the discoveries were made at the prospects D, E, Hand Iwith three exploratory and five appraisal wells. At the Rubiales field, the eight successful appraisal wells extended the field to the west (Rub–147 at prospect D) and southwest (Rub–52). Three dry–hole wells resulted from this exploration campaign: Quifa–15 and Rub–310 at prospect Band Quifa–16 at prospect C.

During 2009, exploration activity was mostly carried out through drilling campaigns and data acquisition as well as technology application to reduce the uncertainties of the exploratory prospects. The company acquired 386 km2 of 3D seismic, 2,200 km2 of hyperspectral images, 4,369 km and 3,189 km, respectively, of airborne magnetic and gravimetric data, and 1,771 km of stress field detector.

Total gross exploration expenditure in 2009 was $64.7 million with $36.1 million spent on drilling, and $28.6 million spent on data acquisition. The total net exploration expenditure was $48.3 million: $25.3 million in drilling and $23 million in data acquisition. Through its drilling campaign, the company had discovery costs of approximately $0.70/boe.

LLANOS BASIN

In the Llanos Basin, the company has nine Exploration and Production ("E&P") Contracts and two Technical Evaluation Agreements ("TEAs") for a total of 2,767,497 hectares (net 2,075,965 hectares) on eleven blocks. During 2009, the exploration activity was focused on drilling campaigns (exploratory and appraisal wells) in the Quifa and Rubiales–Piriri Blocks, as well as acquiring a 3D seismic program in the Alicante Block, hyperspectral image acquisition in over 2,000 km2 in the Arauca Block, and the seismic reprocessing of available data on the CPE–6, CPO–12, CPO–14, CPO–1 and CPE–1 Blocks.

RUBIALES – PIRIRI BLOCKS

The company undertook an aggressive appraisal campaign in the Rubiales-Piriri Blocks in 2009, drilling a total of nine appraisal wells (Rub–150, Rub–220, Rub–221, Rub–222, Rub–224, Rub–251, Rub–366, Rub– 357, and Rub–310) to support the extension of the commerciality of the Rubiales–Piriri reservoir into the west and southwest of the reservoir. The Rub–150, Rub– 220, Rub–221, Rub–222 and Rub–224 wells confirmed the extension of the reservoir to the south–west, while the Rub–251, Rub–366 and Rub–357 wells supported the continuity of prospect D from the discovery well Rub–147 to the northeast and southwest. The Rub–310 well, drilled in the eastern part of the Rubiales–Piriri field, was dry. Total investment for these wells was $11.7 million (net $7.8 million). These wells incorporated a total of 74.72 mmbbl of gross 2P reserves for these two areas into the Rubiales–Piriri field, or 24 mmbbl net (after royalties) to the company.

ARRENDAJO BLOCK

During the first quarter of 2009, the exploratory Mirla Negra–1 well was drilled to explore the Carbonera formation to a total depth of 6,301 feet measured depth ("MD") and total cost of $5.03 million (net $1.6 million). The well tested 34° APIoil in the C–5 sands, but the discovery is thus far considered non–commercial. Exploration work in the Arrendajo Block during 2009 also included an exploration update and design of the 3D seismic scheduled for 2010.

ALICANTE BLOCK

During the first quarter of 2009, the company acquired a total of 180 km2 of 3D seismic. The seismic was reprocessed and interpreted in order to evaluate the block’s exploration potential. As a result of this valuation, no exploratory prospects were defined and the block was relinquished to the national hydrocarbon regulator, the Agencia Nacional de Hidrocarburos ("ANH"). Total investment for the 3D seismic program was $4.5 million.

JAGÜEYES BLOCK

The company acquired a total of 112 km2 of 3D seismic on the southwest part of the block at a cost of $5.2 million. After an interpretation analysis, no exploration prospects could be defined with the new data and the block was relinquished to the ANH.

ARAUCA TEA

During 2009, the company finished a high–resolution remote sensing program (hyperspectral image survey) over a total area of 2,170 km2 for a total investment of $0.8 million. This survey is the first of its kind acquired in Colombia, and the results were used to refine the seismic interpretation, and to reduce geological uncertainty over the exploration prospects already defined. In June 2009, the company applied for and obtained an E&P agreement to be called the Arauca Block, with a total area of 173,584 hectares. The minimum exploratory program for the contract includes the drilling of two exploratory wells in its first exploratory phase within a 24 month period (2010– 2011).

CPE–6, CPO–12, CPO–14, CPO–1 AND CPE–1 BLOCKS

These blocks were awarded during the 2008 ANHColombian bidding rounds. During 2009, a total of 7,770 km of existing 2D seismic data was reprocessed, for a total investment of $1.1 million (net $0.78 million).

FARMOUT

CPO–1 BLOCK

In late 2009, the company completed a private competitive bid process for the farming out of several blocks. As a result of this bid process, the company awarded 50% of its working interest in the CPO–1 Block to Petroamerica Oil Corp., a Calgary–based oil & gas company, in exchange for Petroamerica providing 100% of the total investment required to complete the first phase of the minimum exploratory program for the block, equal to $6.9 million. This minimum investment must be spent on the acquisition of 200 km of 2D seismic, the drilling of one exploratory well, and geological and geophysical studies. The company will retain a 50% working interest in the block.

MORICHE BLOCK

In November 2009, the company signed a Participation Agreement with Petrodorado Ltd., and assigned certain private interests in the Moriche Block. The company has awarded 49.5% of its working interest in the Mauritia East Prospect to Petrodorado in exchange for Petrodorado providing 100% of the total investment for the current exploratory phase for the block, equal to $5.53 million, which will be spent on the drilling of one exploratory well. The company will retain a 37.5% working interest in the Mauritia East Prospect and an 87% working interest in the rest of the block.

Focus on Quifa

The Quifa Block is located in the Llanos Basin and surrounds the Rubiales field, the chief producing asset for the company. The APIof Quifa’s heavy oil is 13.5°. The company has a 60% working interest in the Quifa Block with Ecopetrol (40%).

Total investment for the 2009 Quifa drilling program was $19.1 million (net $13.4 million). The Quifa wells incorporated 78.14 mmbbl of certified gross 2P reserves for the southwest Quifa area, or 43.88 mmbbl net to the company, after royalties.

During 2009, the company drilled a total of ten wells (five exploratory and five appraisals) on the Quifa Block. Exploratory wells Quifa–7, Quifa–9, I–9ST2, Quifa–15 and Quifa–16 were drilled on prospects H, D, I, B, and C, respectively. The Quifa–7, Quifa–9 and I–9ST2 wells resulted in new discoveries, while the Quifa–15 and Quifa–16 were dry wells, making the company’s success rate at Quifa 80% for 2009.

The five appraisal wells drilled were the Quifa–8, Quifa–12 and Quifa–17 wells on prospect E, and Quifa–10 and Quifa–11 wells on prospect H. All of these wells were successful and completed as vertical producers. The eight wells drilled on prospects D, E, H, and Iconfirmed the potential for hydrocarbons for the southwestern part of the Quifa Block, as well as an extension of the Rubiales field into this area. Eight of the successful wells are currently under extended production tests with an average individual production of 245 bbl/d. Based on these results, the company has

prepared a development plan for the Quifa southwest area and has documented all the technical and economic support to request from Ecopetrol the commerciality for this area.

Ambitious Drilling Program for 2010

As a result of previous drilling success at Quifa, the company is planning to drill 20 additional exploratory wells during the first half of 2010 for the rest of the block. The company will invest $43.4 million for the 2010 exploration program.

LOWER MAGDALENA VALLEY AND CESAR RANCHERIA BASINS

Exploration assets in the Lower Magdalena Valley Basin are the La Creciente, Guama, Cicuco, SSJN–3, SSJN–7 and CR–1 Blocks, which total 1,915,158 acres (net 1,452,303 acres). Exploration activity in the Lower Magdalena Basin during 2009 focused on 2D and 3D seismic reprocessing, and seismic inversion studies.

LA CRECIENTE BLOCK

During 2009 exploration activity in the La Creciente Block was focused on developing an extended test for the LCD–1 well and to improve the reservoir model for the La Creciente D discovery to request commerciality from the ANH. The company also carried out 3D seismic volume reprocessing and conducted elastic seismic inversion studies on the block to identify potential new gas prospects. The company’s total exploration on the block in 2009 was $0.1 million.

GUAMA BLOCK

There were two independent seismic inversion studies conducted over 2D seismic transects in the Ligia–Guamito play near the la Pinta discovery (Petrominerales). This exercise helped support the merger of two contract phases, which were eventually approved by the ANHduring the third quarter of 2009.

SSJN–3 AND SSJN–7 BLOCKS

A multi–client geochemical characterization of oil seeps along the Sinú-San Jacinto Belt was commissioned to Colombian contractors as part of the ongoing geological update of the blocks. Fieldwork was initiated during November and was in full progress by year-end 2009. Additionally, a total of 3,192 km of 2D seismic lines were reprocessed. Total investment on these blocks in 2009 was $0.3 million.

SCR–1 BLOCK

A geological update of the block was initiated during 2009. As part of this study, a surface geology mapping project was commissioned and began in December. Petrographic studies were also carried out on cretaceous wells. As well, as part of the exploration activity in the block, a total of 703 km of 2D seismic lines were reprocessed for a total investment of $0.1 million (net $0.06 million).

UPPER AND MIDDLE MAGDALENA VALLEY BASINS

The company’s assets in the Middle and Upper Magdalena Valley Basins include the Las Quinchas and Alhucema Blocks (since relinquished) in the Middle Magdalena Valley Basin, and the Abanico, Guasimo, Buganviles and Chipalo Blocks in the Upper Magdalena Valley Basin.

ALHUCEMA BLOCK

Atotal of 56.2 km of 2D seismic data was acquired on the western part of the block. With the new information, a review of the block was conducted and, after defining two leads with poor exploration appeal, the Alhucema Block was relinquished to the ANH.

ABANICO BLOCK

During 2009, exploration activity on the Abanico Block included the drilling of the Abanico–20 and Abanico–34 appraisal wells, and the acquisition of 31 km2 of 3D seismic. The Abanico–20 and Abanico–34 wells were drilled on the northeastern part of the Abanico producing field. The two wells showed an average of 113 feet net pay and porosity of 22.6%, incorporating 1.1 mmbbl of 22.5° APIoil reserves (net 0.7 mmbbl). Total investment in 2009 for the wells was $7.5 million and $5.74 million for the 3D seismic program.

FARMOUT

BUGANVILES BLOCK

In November 2009, the company signed a Participation Agreement with Petrodorado. As a result of this agreement, the company awarded 29.5% of its working interest to Petrodorado in exchange for Petrodorado providing 100% of the total investment for future exploratory work in the block, equal to $2.27 million. This exploration activity involves a minimum investment of $4.6 million, which will be spent on the drilling of one exploratory well. The company will retain a 19.875% working interest in future exploratory activities and a 49.375% working interest in the rest of the block.

PUTUMAYO BASIN

The company owns three exploration blocks in the Putumayo Basin, the Tacacho TEA, the Terecay Block and the Topoyaco Block (operated by Alange Energy Corp.), with a total of 625,004 hectares (net 611,981 hectares).

TOPOYACO BLOCK

The 50 km2 of 2D seismic data, acquired by the company as part of the exploration commitments of merged contract phases, helped delineate four exploration prospects (A, B, Cand D); three (A, Band C) in east-vergent thrust sheets and one (prospect D) in the frontal footwall. This was done in advance of the drilling of two commitment exploration wells scheduled for 2010.

TACACHO TEA

The company acquired, in the first half of 2009, a total of 4,369 km and 3,189 km of airbone magnetic and gravimetric data for a total cost of $0.3 million Additionally, an airborne survey of 1,690 km of stress field detection was acquired for a total cost of $2.6 million. This marked another occasion in which the company was the first to apply a new exploration technology in Colombia. As a result of these studies, two E&P contracts were awarded by the ANH, the Tacacho and the Terecay Blocks. The Tacacho Block has an area of 238,363 hectares, and a work commitment of 480 km of 2D seismic for the first phase. The Terecay Block is 237,399 hectares and has a minimum exploratory program of 476 km of 2D seismic for a total investment of $8.09 million.

FARMOUT

TACACHO BLOCK

In November 2009, the company signed a Participation Agreement with Petrodorado. As a result of this agreement, the company awarded 49.5% of its working interest to Petrodorado in exchange for Petrodorado providing 100% of the total investment required to complete the first phase of the minimum exploratory program for the block, equal to $8.09 million, which will be spent on the acquisition of 476 km of 2D seismic. The company will retain a 50.5% working interest in the Tacacho Block.