PetroMagdalena Energy has executed a conditional assignment agreement whereby it will acquire an additional 32.5% working interest in the Arrendajo Block in the Llanos Basin. In addition, the Company announces the conclusive and final settlement with Beta Energy Corp, whereby it regains control of two rigs located in Colombia, one of which will be used to drill the upcoming Yopo exploration well on the Cubiro Block.

Luciano Biondi, the Company's Chief Executive Officer stated, 'When new management took over the Company earlier this year, our priorities were to focus on re-establishing investor confidence in the portfolio, develop our core oil assets, clean up our financial position, improve our cash flow, and increase production. The acquisition of an additional interest in Arrendajo, which is close to our core property Cubiro, and the settlement with Beta Energy are consistent with these objectives and we are pleased that through our recent exploration and development success, production continues to grow.'

Acquisition of Additional Interest in Arrendajo

The Company has entered into an assignment agreement, conditional only upon the approval of the Agencia Nacional de Hidrocarburos, with Pacific Stratus Energy Colombia Corp, Sucursal Colombia, a subsidiary of Pacific Rubiales Energy Corp. When this process is duly completed, PetroMagdalena will have a 67.5% participating interest in the Arrendajo Block.

The block covers an area of 31,606 hectares, and it is located only 5 km to the north-east from the Cubiro Block. Its exploration plays are of the same type as in the Cubiro Block, where PetroMagdalena has recently discovered three light oil fields and added 5 million barrels of 2P reserves. Operations at Arrendajo will be supported by the pre-existing main operations base of the Company on the nearby Cubiro block.

197 km2 of 3D seismic have been acquired on the Arrendajo Block, covering an area of 19,700 hectares, or 62% of the block acreage, and most of the prospective areas. The interpretation of the 3D seismic data has identified six drillable prospects. The block is under an E&P ANH contract. Currently in its sixth and final phase of the exploration program, one well needs to be drilled to fulfill all ANH work commitments on the block. Two exploration wells are planned to be drilled with the program commencing in December 2011.

PetroMagdalena has agreed, at its sole risk, to assume a full carry obligation of the obligations of Pacific Stratus under the ANH contract, until the assignment is approved. The purchase price for the acquisition is US$10 million which shall be paid to Pacific Stratus out of sales from production from the Arrendajo Block.

Beta Settlement

The Company has entered into a settlement agreement with Beta Energy Corp. in respect of two arbitration disputes involving

(i) the ownership of one 750 HP drilling rig and one service rig, and

(ii) a master services contract for drilling rigs. In accordance with the settlement agreement, the parties have terminated all ongoing arbitration and all present and future claims have been settled in full; as well, all contracts with Beta have also been terminated. The Company plans to mobilize the 750 HP drilling rig, currently stacked on the Cubiro block, to drill the Yopo exploration well in December of this year, under an operation contract with a Colombian drilling services provider.

PetroMagdalena paid certain amounts owing to Beta in exchange for the undisputed ownership of both rigs. The Company also obtained full indemnity from Beta for any and all claims by third parties.

Tags: PetroMagdalena Energy Inc.