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Petromagdalena Announces Farm Out Of Santa Cruz And US$10/bbl Improvement In Oil Marketing Agreement At Cubiro

TORONTO, Aug. 25, 2011 /PRNewswire/ - PetroMagdalena Energy Corp. (TSXV: PMD) announced today that it has signed a letter of intent to farm out 30% of the Santa Cruz Block, in which the Company holds a 100% working interest, for a carry of 60% of the first exploratory well to be drilled on the block and 45% of the second exploratory well. The Santa Cruz Block is located in the Catatumbo Basin in Colombia and neighbours the producing Rio Zulia field. The Company expects to have its environmental permit shortly and to commence drilling of the first exploratory well, estimated to cost approximately US$15 million, in the fourth quarter this year. PetroMagdalena will retain a 70% working interest in the block and remain as operator.

Commenting on the farm-out agreement, Luciano Biondi, the Company's Chief Executive Officer stated, "We are very pleased to announce this farm out agreement as it diversifies our exploration risk, maintains our upside opportunity from a new discovery and frees up approximately US$8-9 million of funding in this year's budget which had been allocated to Santa Cruz. Consistent with our strategic focus on our core oil assets, we will invest these funds in the expanded work program at Cubiro following the Petirojo discovery announced on Monday, including a development well and an exploration well in Cubiro Block B in addition to accelerating the workover candidates at Cubiro."

The Company also announced that it is continuing to take steps to improve the netbacks from its operations at Cubiro. Earlier this year, the Company announced that it had implemented an improved marketing contract with Pacific Rubiales Energy Corp. to deliver its oil from Cubiro through multiple delivery points to the existing Colombian pipeline infrastructure. Initially, oil deliveries were directed to the Rubiales field with the Company's selling price based on a formula that resulted in it receiving, on average, WTI minus $7/bbl. Commencing in July 2011, the Company is now delivering 100% of its oil under the marketing agreement with Pacific Rubiales to Guaduas due to the high quality of its oil from Cubiro, which is now sold as Vasconia, resulting in an improved selling price compared with WTI. Vasconia has increased against WTI over the past year and is actually selling today at US$19/bbl over WTI. The Company's oil sales for the month of July were equivalent to WTI plus US$10/bbl using Vasconia as the benchmark. This is a US$17/bbl improvement in oil selling price versus the previous arrangement. With transportation costs approximately US$7/bbl higher to deliver through Guaduas, the net improvement in the netback structure in the oil marketing agreement is approximately US$10/bbl. The Company continues to evaluate additional opportunities to improve its netbacks through price enhancement and cost reductions. 

PetroMagdalena is a Canadian-based oil and gas exploration and production company, with working interests in 19 properties in five basins in Colombia. Further information can be obtained by visiting our website at www.petromagdalena.com .

All monetary amounts in U.S. dollars unless otherwise stated. This news release contains certain "forward-looking statements" and "forward-looking information" under applicable Canadian securities laws concerning the business, operations and financial performance and condition of PetroMagdalena. Forward-looking statements and forward-looking information include, but are not limited to, statements with respect to estimated production and reserve life of the various oil and gas projects of PetroMagdalena; the estimation of oil and gas reserves; the realization of oil and gas reserve estimates; the timing and amount of estimated future production; costs of production; success of exploration activities; and currency exchange rate fluctuations. Except for statements of historical fact relating to the company, certain information contained herein constitutes forward-looking statements. Forward-looking statements are frequently characterized by words such as "plan," "expect," "project," "intend," "believe," "anticipate", "estimate" and other similar words, or statements that certain events or conditions "may" or "will" occur. Forward-looking statements are based on the opinions and estimates of management at the date the statements are made, and are based on a number of assumptions and subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking statements. Many of these assumptions are based on factors and events that are not within the control of PetroMagdalena and there is no assurance they will prove to be correct. Factors that could cause actual results to vary materially from results anticipated by such forward-looking statements include changes in market conditions, risks relating to international operations, fluctuating oil and gas prices and currency exchange rates, changes in project parameters, the possibility of project cost overruns or unanticipated costs and expenses, labour disputes and other risks of the oil and gas industry, failure of plant, equipment or processes to operate as anticipated. Although PetroMagdalena has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. PetroMagdalena undertakes no obligation to update forward-looking statements if circumstances or management's estimates or opinions should change except as required by applicable securities laws. The reader is cautioned not to place undue reliance on forward-looking statements.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this news release.

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