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ConocoPhillips (COP - Analyst Report) recently entered into an exploration and development deal with Canada-based Canacol Energy Ltd. The deal entails the companies to drill shale oil in Colombia’s Middle Magdalena basin.

The U.S. energy company intends to shell out $13.5 million in cash for the drilling, completion and testing of about 13 wells to earn 70% of Canacol's working interest in the Cretaceous section of the Santa Isabel project. This agreement will enable the companies to carry out the exploration and development of the Santa Isabel contract.

Santa Isabel is one of the five exploration and production (E&P) pacts under which Canacol has interests in 334,000 net acres of shale oil potential. The five contracts are VMM 2, VMM 3, Santa Isabel, COR 39 and COR 11.

This is also the third following the addition of two major international oil companies − the local units of ExxonMobil Corp. (XOM - Analyst Report) and Royal Dutch Shell plc (RDS.A - Analyst Report) − on Canacol’s Colombian acreage. Canacol will retain its 30% stake as well as the full rights of shallower reservoirs.

The companies plan to spud the first exploratory well on Santa Isabel, Oso Pardo 1, in the second quarter of 2013. This will be to test the light oil and shale oil targets in the Tertiary Lisama and Creteaceous reservoirs.

Meanwhile, the deal is also in sync with ConocoPhillips’ strategy to focus its spending on North American shale development as well as other regions. It enables the company to get a foothold in a large unconventional shale oil play. With leading positions in both natural gas and heavy crude oil in North America, as well as a legacy position in the North Sea and growing exposure to lucrative international regions, ConocoPhillips expects to replace reserves and sustain production growth over the long term.

We have a Zacks Rank #3 (Hold) for ConocoPhillips – the third biggest U.S. integrated oil company after ExxonMobil and Chevron Corporation (CVX - Analyst Report).

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