General Information

We have entered into two joint ventures, with Petroleos del Norte S.A. (“Petronorte”), a Colombian subsidiary of Petrolatina Plc. (AIM: PELE), and with Emerald Energy Plc Sucursal Colombia (“Emerald”), a Colombian branch of Emerald Energy Plc. In both of these ventures the assignment to us of our participation interest is subject to approval by the Agencia Nacional de Hidrocarburos (“ANH”), Colombia’s hydrocarbon regulatory agency.

In addition, in March 2010, we acquired all of the outstanding capital stock of Avante Colombia S.à r.l. ("Avante Colombia") from Avante Petroleum S.A. ("Avante"); Avante Colombia currently has a 50% participation interest in, and is the operator of, the Rio de Oro and Puerto Barco production contracts with Ecopetrol S.A. in the Catatumbo region of northeastern Colombia, under a joint operating agreement with Vetra Exploración y Producción S.A. ("Vetra").

Putumayo 4

On December 22, 2008, through our operating subsidiary, La Cortez Energy Colombia,Inc., we signed an initial memorandum of understanding with Petronorte and on October 14, 2009 we signed a joint operating agreement with Petronorte that entitles us to a 50% net working interest in the Putumayo 4 block located in the south of Colombia.

The Putumayo Block covers an extension of 51,333 hectares (126,847 acres) located in the Putumayo basin and has over 1,000 Km of pre-existing 2D seismic through which La Cortez Energy and Petronorte have identified promising leads.

Maranta

On February 6, 2009, we entered into a farm-in agreement with Emerald for a 20% participating interest in the Maranta exploration and production (“E&P”) block (“Maranta”) in the Putumayo Basin in Southwest Colombia.

The Maranta block covers an area of 36,608 hectares (90,459 acres) in the foreland of the Putumayo Basin. Emerald completed the first phase exploratory program for the Maranta block by identifying several promising prospects and leads and completed the second phase of the Maranta exploratory program by drilling and completing the Mirto-1 exploratory well which is currently in production testing.

Rio de Oro & Puerto Barco

On March 2, 2010, we acquired all of the outstanding capital stock of Avante Colombia, which became our wholly owned subsidiary.  As consideration for the acquisition, we issued an aggregate of 10,285,819 shares of our common stock to Avante.

Avante Colombia currently has a 50% participation interest (acquired in late 2005) in, and is the operator of, the Rio de Oro and Puerto Barco production contracts with Ecopetrol S.A. in the Department of North Santander in the Catatumbo region of northeastern Colombia, under an operating joint venture with Vetra.  The Rio de Oro field covers 5,590 acres (2,262 hectares). Both production contracts are for a ten-year term expiring at the end of 2013.

Marantá

La Cortez Energy Colombia, Inc. farmed into the Maranta Block on February 6th, 2009.  The farm-in entitles us to a 20% net working interest in the Maranta Block located in the Putumayo Basin of southwest Colombia, subect to approval by the Agencia Nacional de Hidrocarburos ("ANH"), Colombia's hydrocarbon regulatory agency. La Cortez partially carried Emerald through first phase sunk costs and through the drilling of the Mirto 1 well, set to spud in May, 2009.  La Cortez will partially carry Emerald on the completion of Mirto 1 if deemed commercially viable.  After the completion of Mirto 1, all costs and revenues originating from Maranta will be distributed pro-rata amongst the parties.

Emerald signed an E&P contract for the Maranta Block with the ANH on September 12, 2006.  La Cortez expects to execute a joint operating agreement with Emerald with respect to the Maranta block once it has met its phase 1 and phase 2 payment obligations and the ANH has approved Emerald´s assignment of the participating interest to La Cortez.  Emerald will remain operator for the block under the JOA and the E&P contract.

The Maranta Block is located in the foreland of the Putumayo basin in southwest Colombia, adjacent to Gran Tierra´s Chaza block and close to both the Orito and Santana crude receiving stations, allowing transportation by truck directly to either station (depending on going rates and capacity), and consequently tying into the pipeline to Colombia´s Pacific Ocean port an Tumaco.

Emerald completed the first phase exploratory program for the Maranta Block by acquiring 71 square kilometers of new 2D seismic and reprocessing 40 square kilometers of existing 2D seismic, identifying several promising prospects and leads.  Emerald has identified the Mirto prospect, namely the Mirto 1 well as the first exploratory well.

The Mirto-1 well in the Maranta Block, where La Cortez will hold a 20% working interest, reached the intended total depth of 11,578 ft on the Mirto-1 exploration well, with oil and gas shows recorded across the four target reservoirs. All of the four potentially hydrocarbon bearing intervals have been flow tested with the Villeta U and N sand intervals flowing at an initial oil rate of 731 BOPD and 247 BOPD, respectively.

The Caballos formation interval was flow tested with only formation water recovered at an average rate of 112 barrels per day. The Villeta T sand interval was also flow tested with an average oil rate of 8 barrels per day with a very high water production (water cut of 97%).

The Villeta U sand interval (encountered at a depth of 11,030 feet) produced an average oil rate of 731 barrels per day of 32.5o API crude over a 48 hour period with a low average water production (water cut of 26 %). An interval of 20 feet at the top of the sand was flow tested through a 128/64 inch choke, under artificial lift using a jet pump.

Flow testing operations have been completed in the Cretaceous aged Villeta N sands, the shallowest of four sands flow tested in this well. The 7 feet interval at 10,410 feet produced 15 degrees API oil at an average rate of 247 barrels per day over a 48 hour period, under artificial lift using a jet pump and through a 128/64 inch choke, with an average water cut of 64%.

Currently, the Villeta U sand interval is being production tested at an average rate of 200 BOPD (gross) of good quality oil, 31.5 degrees API, with an average BS&W (Basic Sediment and Water) of 65%. Emerald, as operator of the Maranta Block, determined to enter the Phase 3 exploration commitment in the Maranta Block, which would entail the drilling of an additional exploratory/appraisal well and the acquisition of 25 kilometers of 3D seismic.
  
Well production is currently restricted due to limited water handling capacity at the site. We expect to shut down the Mirto-1 exploratory well for approximately three weeks during the first quarter of 2010, in order to do a workover to limit the water cut and increase oil production.

Putumayo 4

La Cortez Energy Colombia, Inc. entered into a joint operating agreement (the “JOA”) with Petroleos del Norte S.A. The JOA was signed pursuant to an initial memorandum of understanding between La Cortez Colombia and Petronorte dated December 22, 2008. The JOA entitles us to a 50% net working interest in the Putumayo 4 block located in the south of Colombia subject to approval by the Agencia Nacional de Hidrocarburos (“ANH”), Colombia’s hydrocarbon regulatory agency.

The Putumayo 4 Block was part of the 2008 ANH E&P contract Mini-Round concession.  Petronorte signed an E&P contract with the ANH for this block on February 23rd, 2009.  As criteria for awarding blocks in the 2008 Mini-Round, the ANH considered proposed additional work commitments, comprised of capital expenditures and an additional production revenue payment after royalties, called the “X Factor”.  La Cortez and Petronorte offered to invest US $1.6 million in additional seismic work in the Putumayo 4 Block and to pay the ANH a 1% X Factor out of future revenues.

The Putumayo 4 Block covers an area of 51,333 hectares (126,847 acres) in the Putumayo Basin in southern Colombia and has over 1000 Km of pre-existing 2D seismic through which La Cortez has identified promising leads, La Cortez and Petronorte plan to reprocess about 1300 km (65 lines) of seismic to better direct the positioning of the new seismic program within the block.  During this initial stage, La Cortez and Petronorte plan to begin environmental and community consultations.

Under the proposed terms of the E&P contract, Petronorte will shoot 103 Km of 2D seismic and will drill an exploratory well in the first three years of our work program in the Block.  The E&P contract will consist of two three-year exploration phases and a twenty-four year production phase.

La Cortez will partially carry Petronorte by paying two-thirds (2/3) of the costs originated from the first 103 Km of 2D seismic to be performed in the Putumayo 4 Block, in accordance with the expected phase 1 minimum exploration program under the E&P contract. If an exploration well drilled in a prospect in the Putumayo Block proves productive, Petronorte will reimburse us for its share of these seismic costs paid by us (one-sixth (1/6)) with their revenues from production.

Provided that La Cortez has satisfactorily complied with payment requirements towards the work program, upon La Cortez's request, Petronorte will submit a request to the ANH to assign a 50% interest in the E&P contract to La Cortez.

Rio de Oro

On March 2, 2010, we acquired all of the outstanding capital stock of Avante Colombia, which became our wholly owned subsidiary.  As consideration for the acquisition, we issued an aggregate of 10,285,819 shares of our common stock to Avante.

Avante Colombia currently has a 50% participation interest (acquired in late 2005) in, and is the operator of, the Rio de Oro and Puerto Barco production contracts with Ecopetrol S.A. in the Department of North Santander in the Catatumbo region of northeastern Colombia, under an operating joint venture with Vetra.  The Rio de Oro field covers 5,590 acres (2,262 hectares). Both production contracts are for a ten-year term expiring at the end of 2013.

The Catatumbo basin is the southern-most extension of the Maracaibo basin of Venezuela, the second most petroliferous basin in the world according to the US Department of Energy and Petroleos de Venezuela. This sub-basin has produced over 800 million barrels of oil to-date from numerous fields.

Under the Rio de Oro production contract, Ecopetrol has a 12% production participation, Vetra a 44% production participation and a 50% working interest and Avante Colombia a 44% production participation and a 50% working interest, in each case after royalties.  Royalties payable are 20% of audited production. The operator is Avante Colombia.  Production on the field began in 1950 and was stopped in June 1999, as a result of insurgent activity.  Total historical production was 11.3 million barrels of oil and 27,041 million cubic feet of gas.

In the Rio de Oro field, the remediation of certain historical environmental conditions generated prior to the Acquisition will be the responsibility of previous operators.  In addition to the contractual responsibility of previous operators for these liabilities, Avante has agreed in the SPA to indemnify us for 50% of any environmental losses we incur, up to a maximum of $2.5 million.

Our plans with respect to Avante Colombia’s business depend, among other things, on obtaining an extension of the term of existing contracts between Avante Colombia and Ecopetrol, which expire in December 2013.  We believe that, in order to negotiate a term extension, we will have to commit to additional investment in the area, such as additional seismic acquisition as well the drilling of exploration wells.

 

Pto Barco

On March 2, 2010, we acquired all of the outstanding capital stock of Avante Colombia, which became our wholly owned subsidiary.  As consideration for the acquisition, we issued an aggregate of 10,285,819 shares of our common stock to Avante.

Avante Colombia currently has a 50% participation interest (acquired in late 2005) in, and is the operator of, the Rio de Oro and Puerto Barco production contracts with Ecopetrol S.A. in the Department of North Santander in the Catatumbo region of northeastern Colombia, under an operating joint venture with Vetra.  The Puerto Barco field covers 5,945 acres (2,406 hectares).  Both production contracts are for a ten-year term expiring at the end of 2013.

The Catatumbo basin is the southern-most extension of the Maracaibo basin of Venezuela, the second most petroliferous basin in the world according to the US Department of Energy and Petroleos de Venezuela. This sub-basin has produced over 800 million barrels of oil to-date from numerous fields.

Under the Puerto Barco production contract, Ecopetrol has a 6% participation on production, Vetra a 47% participation on production and a 50% working interest and Avante Colombia a 47% participation on production and a 50% working interest, in each case after royalties.  Royalties payable are 20% of audited production. The operator is Avante Colombia.  Production on the field began in 1958 and was stopped in July 2008, as a result of insurgent activity.  Total historical production was 811,000 barrels of oil.

In Catatumbo, we plan to reinitiate production in Puerto Barco during this year.  Our plans with respect to Avante Colombia’s business depend, among other things, on obtaining an extension of the term of existing contracts between Avante Colombia and Ecopetrol, which expire in December 2013.  We believe that, in order to negotiate a term extension, we will have to commit to additional investment in the area, such as additional seismic acquisition as well the drilling of exploration wells.