C&C Energia Ltd.
TSX : CZE

November 10, 2010 08:30 ET

C&C Energia Ltd.: Third Quarter 2010 Operating and Financial Results

CALGARY, ALBERTA--(Marketwire - Nov. 10, 2010) - C&C Energia Ltd. ("C&C Energia" or the "Corporation") (TSX:CZE) is pleased to report its unaudited interim operating and financial results for the three and nine months ended September 30, 2010.

C&C Energia reported strong results for the third quarter 2010 highlighted by a 76% increase in average daily production from the third quarter 2009 to 6,820 barrels of oil per day ("bopd"), funds flow from operations of US$25 million and net income of US$9.7 million. Production continues to increase with current production rates, of approximately 7,000 bopd, an increase of 55% since the beginning of 2010. The Corporation estimates that full-year production should average approximately 5,700 bopd based on the year-to-date average production rates combined with the current production rate, assuming no significant additional production comes on-stream and taking into account natural production declines. C&C Energia has a strong balance sheet with a US$69.4 million adjusted working capital surplus (including $80.2 million in cash) and no debt.



Financial & Operational Highlights

(All references to $ are to United States dollars unless otherwise noted.)

Three months ended Nine months ended
September 30 September 30
(unaudited) 2010 2009 2010 2009
----------------------------------------------------------------------------
Financial (thousands of US$,
except share and per
share amounts)

Oil revenues (net) 44,000 19,878 95,362 42,732
Funds flow from operations(1) 24,961 11,075 54,812 26,122
Net income 9,708 5,325 23,860 (4,433)
Capital expenditures 17,837 5,158 58,394 14,478
Adjusted working capital
surplus (2) 69,425 6,668 69,425 7,087
Common shares outstanding
Basic 54,297,503 43,150,029 54,297,503 43,150,029
Diluted 55,096,437 - 55,096,437 -
Weighted average common
shares outstanding
Basic 54,297,503 43,150,029 48,376,683 43,150,029
Diluted 54,450,142 43,150,029 48,466,652 43,150,029
Operational
Average production (3)
Crude oil (bbls/d) 6,820 3,877 5,659 3,470
Average reference price
WTI ($ per bbl) 76.12 68.12 77.38 57.22
Operating netback ($ per bbl)(4)
Average realized price (5) 70.96 62.77 72.16 53.58
Royalties 9.62 10.52 10.10 8.11
Production expenses 13.77 14.75 13.72 14.04
Transportation expenses 10.20 3.37 9.44 3.36
----------------------------------------------------------------------------
Operating netback 37.37 34.13 38.90 28.07
----------------------------------------------------------------------------

Note:

(1) Funds flow from operations before changes in other non-cash items. See
Management Discussion and Analysis - "GAAP and Non-GAAP Measures".

(2) Current assets less current liabilities excluding risk management and
future taxes. See Management Discussion and Analysis - "GAAP and
Non-GAAP Measures".

(3) Actual production sold for the three and nine months ended September 30,
2010 was 7,797 bopd and 5,629 bopd, respectively (2009 - 4,135 bopd and
3,442 bopd).

(4) Excludes impact of risk management contracts. See Management Discussion
and Analysis - "GAAP and Non-GAAP Measures".

(5) Effective January 1, 2010, the Corporation began selling its Cravoviejo
block oil production to HOCOL S.A. ("HOCOL"), a subsidiary of Ecopetrol.
The sales agreement with HOCOL differs from previous sales agreements in
that title transfer occurs when the oil is exported through the Covenas
terminal, compared to previous agreements where title transfer occurred
when the oil was delivered to the pipeline loading station. As a result,
the Corporation will report higher revenue and higher transportation
expenses compared to such amounts in periods prior to January 1, 2010.


Highlights

- Increased average third quarter production rates to approximately 6,820 bopd, an increase 76% from the prior year.

- Drilling results and operating efficiencies have increased current production rates to approximately 7,000 bopd.

- Increased funds flow from operations for the third quarter by 225% from 2009 to $25 million.

- Drilled and cased 2 wells at its main producing property at Cravoviejo where is owns a 100% interest.

- Drilled, logged and set production casing at the Baco-1 well at its Morpho block in the Middle Magdalena Valley. This well was drilled to 12,664 feet and the Corporation will commence testing operations in the fourth quarter of 2010. The Corporation also plans to re-enter and test three to four reservoirs in the interval between 4,600 feet to 6,600 feet in the Morpho-1.

- Completed two major 3D seismic programs on the Pajaro Pinto and Llanos 19 blocks that have delineated several drilling targets for 2011.

- Commenced construction of the Carrizales centralized production facilities on the Cravoviejo block.

- Received formal approval from the ANH on the assignment of the Pajaro Pinto and Andaquies E&P contracts.

Operational Review

C&C has 9 blocks (7 operated) in Colombia with a total of 766,514 acres (586,909 net acres). Two of these blocks were awarded to the Corporation at the June 22, 2010 bid round and are subject to finalization and execution of definitive agreements with the Agencia Nacional de Hidrocarburos ("ANH"). The Corporation's lands are located in the Llanos Basin (4 blocks), Middle Magdalena Valley (2 blocks), and Putumayo Basin (3 blocks).

During the third quarter of 2010, the Corporation invested approximately $17.8 million. Drilling and completion accounted for approximately $8.8 million, with $3.9 million, $3.8 million and $1.1 million on the Cravoviejo, Morpho and Cachicamo blocks, respectively. Approximately $2.3 million was invested to enhance production rates with the installation of higher volume oil pumps. The Corporation also invested approximately $4 million in facilities on the Cravoviejo block, $1.5 million on seismic program on the Llanos 19 block and $1.2 million in capitalized general and administration expenses and general property.

Llanos Basin

All of the Corporation's current production is on the Cravoviejo block (100% working interest) and Cachicamo block (30% working interest) with 95% of current production at the Corporation's operated Cravoviejo block. The Corporation drilled and completed 8 oil wells at Cravoviejo during the first 9 months of the year and 5 (1.5 net) wells at Cachicamo. C&C currently is constructing centralized production facilities at its Carrizales field with start-up by mid-year 2011.

The Corporation plans at least 11 wells at Cravoviejo and 7 wells (2.1 net) at Cachicamo in 2011. These are comprised of 1 water injection well, 8 development locations and 9 exploration tests. Primary oil targets are the C-5, C-7, Gacheta, Ubaque, Mirador and Guadalupe formations. Also, in the central Llanos, the Corporation has identified 7 or 8 structural prospects on 3D seismic, mostly acquired in 2010, on the Pajaro Pinto and Llanos 19 blocks. These prospects will begin to be evaluated in 2011 where three exploration tests are planned.

Middle Magdalena Valley

The Corporation has two exploration blocks in the Middle Magdalena Valley, Morpho and VMM 21. At Morpho, the Baco-1 well was drilled and cased to 12,664 feet during the third quarter and testing will commence on several zones between 10,000 feet and 12,600 feet in early 2011. The Corporation will also re-enter the Morpho-1 well (originally drilled and tested in 2009) to complete three or four shallow oil bearing reservoirs. Both of these wells are located on a large (4,000 acre) thrusted anticlinal structure with potential oil pay in the Mugrosa and Colorado formations.

The VMM 21 block was awarded at the June 22 bid round and the Corporation plans a 3-D seismic program to define a large structure initially identified on 2D seismic data. This program is planned for 2012.

Putumayo Basin

The Corporation plans at least 3 (2.5 net) wells and both 2D and 3D seismic programs in 2011 to initially evaluate several prospects identified on three blocks in the Putumayo Basin, Coati, Andaquies, and Putumayo 8. These blocks comprise 279,715 acres (216,728 net acres).

CAPITAL AND OUTLOOK

For the remainder of the year, the Corporation plans to continue its aggressive drilling and development program, with the spudding of an appraisal well, Carrazales-14, the testing of the Morpho-1 and Baco-1 wells and procurement and construction of the Cravoviejo centralized facilities. The Corporation will invest approximately $12 million in the fourth quarter in preparation for the 2011 drilling program. This includes approximately $7 million for the purchase of tubulars and $5 million in civil works.

Pipeline takeaway capacity in Colombia, and particularly in the Llanos Basin, has become constrained as the country's production continues to grow. Subsequent to the end of the third quarter, the Corporation made an offer to subscribe for a small participation of up to 0.5% in the new pipeline construction project, the Oleoducto Bicentenario de Colombia (the "OBC") operated by Ecopetrol, which will link the Llanos basin oil production to the Cano Limon oil pipeline system. Construction on this project at the Banadia oil terminal is underway and construction on the OBC pipeline is expected to commence in 2011. The Corporation's capital commitment is approximately $5.2 million. In addition, the Corporation will fund its equity interest in the pipeline's ongoing operating costs and be eligible to receive any dividends declared by the Board of the project.

The Corporation has approved a capital investment budget for 2011 of between $130 to $145 million. The Corporation will invest funds on the following operations: seismic, $5 million; development drilling and completions, approximately $25 million; facilities, workovers and equipping, approximately $40 million; exploratory drilling, approximately $50 to $65 million; $10 million for various other projects. Production for 2011 is expected to range between 6,800 and 7,300 bopd from the Cravoviejo and Cachicamo blocks. With a strong balance sheet and robust cash flow, the Corporation has sufficient resources to fund its ongoing programs.

The Corporation, through its subsidiary Grupo C&C Energia (Barbados) Ltd., is engaged in the exploration for, the development and production of, oil resources in Colombia. Its strategy is to develop producing oil assets by appraising and developing existing discoveries and exploring in areas assessed by management to be of low to moderate risk. Now with a total of nine 9 blocks (7 operated) and over 586,000 net acres in Colombia, the Corporation has considerable upside for future production and reserve growth.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

This press release contains forward-looking information within the meaning of applicable Canadian securities laws that involves known and unknown risks and uncertainties. Forward-looking information typically contains statements with words such as "anticipate", "estimate", "expect", "potential", "could", "will", "plans" or similar words suggesting future outcomes. The Corporation cautions readers and prospective investors in the Corporation's securities to not place undue reliance on forward-looking information as by its nature, it is based on current expectations regarding future events that involve a number of assumptions, inherent risks and uncertainties, which could cause actual results to differ materially from those anticipated by C&C Energia.

Forward-looking information in this press release includes, but is not limited to, information concerning the expectations of the Corporation with respect to the completion of definitive contracts with the ANH regarding the VMM 21 block and the Putumayo Block 8, expectations of the Corporation's future production growth, the Corporation's expectations for average annual production to the end of 2010, the Corporation's capital program for the remainder of 2010, plans for the construction of production facilities, the Corporation's drilling plans, plans for obtaining seismic data, and expected reductions in operating costs resulting from the Corporation's new central production facility and the 2011 operational plans and capital investment estimates. These forward-looking statements are subject to assumptions regarding the Corporation's operations and the operating environment in Colombia. In particular, the expected timing of the finalization of definitive E&P Contracts for the VMM 21 block and the Putumayo Block 8 is based on assumptions regarding the conduct of negotiating such agreements being similar to those for prior similar agreements. Increases in production and the expected changes in the Corporation's operating costs are based on the assumptions that the Corporation's plans will be completed without any undue difficulty and that other costs will not rise. The Corporation's capital program and drilling and seismic plans are subject to change if circumstances change or if management of the Corporation determines that other business plans are more appropriate.

Forward-looking information involves significant known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those anticipated by C&C Energia including, but not limited to, general risks associated with the oil and gas industry (e.g. operational risks in exploration; inherent uncertainties in interpreting geological data; changes in plans with respect to exploration or capital expenditures; the uncertainty of estimates and projections in relation to costs and expenses and health, safety and environmental risks), the risk of commodity price and foreign exchange rate fluctuations, the uncertainty associated with the negotiating with the ANH or with other third parties in countries other than Canada and the risk associated with international activity. The forward-looking information included in this news release is expressly qualified in its entirety by this cautionary statement. The forward-looking information included herein is made as of the date hereof and C&C Energia assumes no obligation to update or revise any forward-looking information to reflect new events or circumstances, except as required by law.

GAAP and Non-GAAP Measures

The Corporation's financial statements have been prepared in accordance with Canadian generally accepted accounting principles, or Canadian GAAP, as applied to its financial statements.

This report makes reference to the terms "funds flow from operations", "operating netbacks", "netbacks" and "adjusted working capital", which are not recognized measures under Canadian GAAP and do not have a standardized meaning prescribed by Canadian GAAP. Accordingly, the Corporation's use of these terms may not be comparable to similarly defined measures presented by other companies. Funds flow from operations includes all cash flows from operating activities before changes in non-cash working capital. Operating netback is determined by dividing oil sales less royalties, production expenses and transportation expenses by sales volumes. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the quality of production. Netbacks are calculated by subtracting royalties, production expenses, transportation expenses, administrative expense, interest and taxes paid by the Corporation from crude oil revenue and dividing by sales volume. Adjusted working capital surplus includes current assets less current liabilities excluding risk management and future taxes and is used to evaluate the Corporation's financial leverage. Management uses these non-GAAP measurements for its own performance measures and to provide its shareholders and potential investors with a measurement of the Corporation's efficiency and its ability to fund a portion of its future growth expenditures.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following Management's Discussion and Analysis ("MD&A") is dated November 10, 2010 and should be read in conjunction with the unaudited consolidated financial statements and accompanying notes of C&C Energia Ltd. ("C&C Energia" or the "Corporation") as at and for the three and nine months ended September 30, 2010, the Corporation's and C&C Energy (Barbados) Ltd.'s ("C&C Barbados") audited consolidated financial statements and related notes as at December 31, 2009 and the pro forma financial statements of the Corporation appearing in the Corporation's Prospectus dated May 14, 2010 (the "Prospectus") and the selected financial information of C&C Barbados and the summary pro forma financial information appearing under the heading "Selected Financial Information" in the Prospectus, all of which has been prepared in accordance with Canadian generally accepted accounting principles, or Canadian GAAP. Additional information for the Corporation can be found on SEDAR at www.sedar.com. All amounts are in United States dollars, unless otherwise stated and all tabular amounts are in thousands of United States dollars, except share amounts or as otherwise noted.

Certain information contained in management's discussion and analysis of the Corporation's financial condition and results of the Corporation's operations constitute forward-looking statements. These statements relate to future events or to the Corporation's future financial performance and involve known and unknown risks, uncertainties and other factors that may cause the Corporation's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Forward-looking statements are generally identifiable as any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as "will likely result," "expected," "is anticipated," "believes," "estimated," "intends," "plans," "projection" and "outlook"). These statements are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements.

Forward-looking information in this press release includes, but is not limited to, information concerning the expectations of the Corporation with respect to the completion of definitive contracts with the ANH regarding the VMM-21 block and the Putumayo Block-8, expectations of the Corporation's future production growth, the Corporation's expectations for average annual production to the end of 2010, the Corporation's capital program for the remainder of 2010, plans for the construction of production facilities, the Corporation's drilling plans, plans for obtaining seismic data, expected reductions in operating costs resulting from the Corporation's new central production facility and the 2011 operational plans and capital investment estimates. These forward-looking statements are subject to assumptions regarding the Corporation's operations and the operating environment in Colombia. In particular, the expected timing of the finalization of definitive E&P Contracts for the VMM-21 block and the Putumayo Block-8 is based on assumptions regarding the conduct of negotiating such agreements being similar to those for prior similar agreements. Increases in production and the expected changes in the Corporation's operating costs are based on the assumptions that the Corporation's plans will be completed without any undue difficulty and that other costs will not rise. The Corporation's capital program and drilling and seismic plans are subject to change if circumstances change or if management of the Corporation determines that other business plans are more appropriate. Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: general economic, market and business conditions; fluctuations in oil and gas prices; the results of exploration and development drilling and related activities; fluctuation in foreign currency exchange rates; the uncertainty of reserve estimates; changes in environmental and other regulations; risks associated with oil and gas operations and other factors, many of which are beyond the control of the Corporation. Accordingly, there is no representation by C&C Energia that actual results achieved during the forecast period will be the same in whole or in part as those forecasted. Except to the extent required by law, C&C Energia assumes no obligation to publicly update or revise any forward-looking statements made in this MD&A or otherwise, whether as a result of new information, future events or otherwise. All subsequent forward-looking statements, whether written or oral, attributable to C&C Energia or persons acting on the Corporation's behalf, are qualified in their entirety by these cautionary statements.

GAAP and Non-GAAP Measures

The Corporation's financial statements have been prepared in accordance with Canadian generally accepted accounting principles, or Canadian GAAP, as applied to its financial statements.

This report makes reference to the terms "funds flow from operations", "operating netbacks", "netbacks" and "adjusted working capital", which are not recognized measures under Canadian GAAP and do not have a standardized meaning prescribed by Canadian GAAP. Accordingly, the Corporation's use of these terms may not be comparable to similarly defined measures presented by other companies. Funds flow from operations includes all cash flows from operating activities before changes in non-cash working capital. Operating netback is determined by dividing oil sales less royalties, production expenses and transportation expenses by sales volumes. Management considers operating netback important as it is a measure of profitability per barrel sold and reflects the quality of production. Netbacks are calculated by subtracting royalties, production expenses, transportation expenses, administrative expense, interest and taxes paid by the Corporation from crude oil revenue and dividing by sales volume. Adjusted working capital surplus includes current assets less current liabilities excluding risk management and future taxes and is used to evaluate the Corporation's financial leverage. Management uses these non-GAAP measurements for its own performance measures and to provide its shareholders and potential investors with a measurement of the Corporation's efficiency and its ability to fund a portion of its future growth expenditures.

C&C Energia is a public company listed on the Toronto Stock Exchange and trades under the symbol CZE.



FINANCIAL REVIEW

Unless otherwise noted, all dollar amounts are reported in thousands of U.S.
dollars.

All comparisons are third quarter 2010 compared to third quarter 2009 unless
otherwise noted.

Average Daily Crude Oil Production (1)

Three months ended Nine months ended
September 30 September 30
(bbl/day) 2010 2009 2010 2009
----------------------------------------------------------------------------
Cravoviejo 6,622 3,854 5,383 3,431
Cachicamo 198 23 276 39
----------------------------------------------------------------------------
Total 6,820 3,877 5,659 3,470
----------------------------------------------------------------------------

(1) Represents crude oil produced in the period. Actual sales may be
different due to crude oil in transit at the period end date.
Sales volumes in the third quarter of 2010 were 7,797 bopd
(2009 - 4,135 bopd) and in the nine months ended September
30, 2010 were 5,629 bopd (2009 - 3,442 bopd)


Average oil production increased in 2010, compared to 2009, as a result of the Corporation's continued drilling success on the Cravoviejo and Cachicamo blocks.



Oil Revenues Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 50,903 23,882 110,879 50,356
($/bbl) 70.96 62.77 72.16 53.58
Sales volumes (bbl/day) 7,797 4,135 5,629 3,442
Total sales volumes (bbl) 717,322 380,445 1,536,600 939,751
----------------------------------------------------------------------------


Oil revenues increased in 2010 versus 2009 due to the higher production levels and higher pricing environment. In addition, effective January 1, 2010, the Corporation began selling its Cravoviejo block oil production to HOCOL, S.A. ("HOCOL"), a subsidiary of Ecopetrol. The sales agreement with HOCOL differs from previous sales agreements in that title transfer occurs when the oil is exported through the Covenas terminal, compared to previous agreements where title transfer occurred when the oil was delivered to the pipeline loading station. As a result, the Corporation will report higher revenue and higher transportation expenses compared to such amounts for periods prior to January 1, 2010, which have not been restated. Revenues during the three and nine month periods ended September 30, 2010 increased by $1.5 million and $5.1 million respectively due to the separate presentation of pipeline transportation costs which were netted in the Corporation's 2009 crude oil sales prices. This pipeline transportation component represents an impact of approximately a $2.93 and $3.77 per barrel for the three and nine months ended September 30, 2010, respectively.

The sales agreement with HOCOL also results in more of the Corporation's oil production being sold in the month following the production of the oil compared to previous agreements and, from time-to-time, larger fluctuations in oil inventories compared to previous agreements.

The Corporation continues to sell its Cachicamo production to third parties net of transportation costs, however the impact on total per barrel metrics is nominal.

During the third quarter of 2010, the Corporation sold approximately 100,000 barrels of oil that had been in inventory at the end of the second quarter. The Corporation had no inventory at the end of the third quarter. The Corporation had an over-lift position of approximately 50,600 barrels. A liability of approximately $3.7 million has been recorded on the balance sheet related to these volumes, which have not been included in the sales for the third quarter.



Risk Management Gains/(Losses) Three months ended Nine months ended
September 30 September 30
($ thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Realized gain (loss) (264) 31 (1,297) 2,447
Unrealized gain (loss) 328 564 4,830 (9,421)
----------------------------------------------------------------------------
Gain/(loss) on risk
management contracts 64 595 3,533 (6,974)
----------------------------------------------------------------------------


In October 2008, the Corporation purchased puts which established a minimum WTI sales price of $75 per barrel for calendar year 2009 on 600 barrels per day. In April 2009, the Corporation added collars which established a minimum and maximum WTI sales price of $45 to $63 per barrel for the balance of 2009 on 700 barrels per day and $50 to $74 per barrel for calendar year 2010 on 1,300 barrels per day. The Corporation follows mark-to-market accounting for these risk management contracts and records on the balance sheet the market value of the then outstanding puts and collars. In January 2010, the Corporation added collars for 1,000 barrels per day from January to June 2011 with a minimum and maximum WTI sales price of $60 and $115.50 per barrel, respectively. The gain or loss realized by the Corporation during the period is recorded as a realized gain or loss from risk management contracts and the change in market values of the outstanding contracts at the end of the period is recorded as an unrealized gain or loss from risk management contracts.

The Corporation realized losses on its collars during the three and nine month periods ended September 30, 2010 due to higher oil prices during the period. Gains on the puts and losses on the collars were realized during the three and nine month periods ended September 30, 2009, due to lower oil prices in those months.



Royalties Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 6,903 4,004 15,517 7,624
($/bbl) 9.62 10.52 10.10 8.11
----------------------------------------------------------------------------
Royalties as a % of revenue 13.6% 16.8% 14.0% 15.1%
----------------------------------------------------------------------------


The Corporation pays an 8% royalty on oil production to the Government of Colombia. In addition, the Corporation pays overriding royalties on oil sales from the Cravoviejo block net of certain costs. The gross overriding royalty rate amounts to approximately 8.2%, however, the impact of deducting certain costs reduces the effective royalty rate to approximately 7.0%.

Average oil production and sales increased during the three and nine months periods ended September 30, 2010 compared with same periods ended September 30, 2009 and resulting in higher royalty expense from government and overriding royalties. During the third quarter of 2010, the Corporation changed its interpretation on the calculation of the 6% royalty to the Government of Colombia on oil production below 15 degrees API from a well-by-well basis to a field-level basis. The impact was an increase in royalties expense of $0.2 million recorded during the three months ended September 30, 2010. In addition, the Corporation adjusted the presentation of royalty expense to reflect royalties on a sales basis, resulting in a decrease in the current quarter of approximately $0.8 million.



Production expenses Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 9,881 5,718 21,077 13,300
($/bbl) 13.77 14.75 13.72 14.04
----------------------------------------------------------------------------


Production expenses increased during the three and nine month periods ended September 30, 2010 compared to the same periods of 2009 primarily as the result of higher costs for equipment rentals, temporary personal and diesel due to higher production volumes, plus well work-over costs. Production expenses decreased 2% on a per barrel basis during the nine months ended September 30, 2010 compared to the same period of 2009.



Transportation expenses Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 7,314 1,283 14,507 3,155
($/bbl) 10.20 3.37 9.44 3.36
----------------------------------------------------------------------------


Total transportation expenses increased during the three and nine month periods ended September 30, 2010 as an additional 230,000 and 520,000 barrels were transported, respectively, compared to the same periods in 2009. In addition, during the three and nine month periods ended September 30, 2010 approximately 191,000 and 496,000 additional barrels, respectively, were transported an incremental 430 km, compared to the same periods in 2009 due to capacity on a regional pipeline being temporarily restricted. This increased trucking costs by approximately $8.00 per barrel on these volumes but this amount was offset by a reduction in the pipeline tariff of approximately $2.00 to $3.00 per barrel.

Transportation expenses during the three and nine month periods ended September 30, 2010 increased by $1.7 million and $5.3 million respectively due to the separate presentation of pipeline transportation costs which were netted in the Corporation's 2009 crude oil sales prices. This pipeline transportation component represents an impact of approximately a $2.93 and $3.77 per barrel for the three and nine month periods ended September 30, 2010, respectively.



Administrative expenses Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 1,158 504 2,454 1,343
($/bbl) 1.61 1.22 1.60 1.56
----------------------------------------------------------------------------


For the three and nine month periods ended September 30, 2010, administrative expenses increased due to higher personnel costs as a result of the Corporation's expanding operations, the Corporation's initial public offering and other costs related to one time and ongoing compliance with public reporting requirements.



Depletion, depreciation and Three months ended Nine months ended
accretion expense September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 13,847 8,393 29,776 20,923
($/bbl) 19.30 22.33 19.38 22.41
----------------------------------------------------------------------------


Depletion expense is computed on a unit-of-production basis. The depletion rate was $21.97/barrel for the first three quarters of 2009. As a result of higher proved reserves recorded at December 31, 2009, the current depletion rate was reduced to $19.09/barrel. Depreciation expense is computed on a straight-line basis for administrative assets. Accretion expense is the increase in the present value of the asset retirement obligation for the current period. The total depletion, depreciation and accretion expense decreased on a per barrel basis as result of the lower depletion rate for 2010 and depreciation expense and accretion expense being spread over more barrels of proven reserves.

During the third quarter of 2010, the Corporation revised its accretion expense calculation for amended cost estimates and the impact of the appreciation of the Colombian Peso. The impact on the accretion provision amounted to approximately $1.4 million.



Foreign exchange (gain) loss Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) (1,484) 21 (1,701) (452)
----------------------------------------------------------------------------


The appreciation of the Colombian peso relative to the U.S. dollar in three and nine month periods ended September 30, 2010 resulted in a $0.4 million foreign exchange loss for the third quarter and a $0.5 million foreign exchange loss for the nine month period ended September 30, 2010. The Colombian peso to U.S. dollar exchange rate decreased 12% from 2,044 at January 1, 2010 to 1,800 at September 30, 2010 and 6% from 1,916 at June 30, 2010.

Commencing May 25, 2010, the Corporation held cash deposits related to the net proceeds from the Corporation's Initial Public Offering in Canadian dollars. The appreciation of the Canadian dollar relative to the U.S. dollar during the period ended September 30, 2010 resulted in a $1.9 million foreign exchange gain for the third quarter and a $2.2 million foreign exchange gain for the nine month period ended September 30, 2010. The Canadian dollar to U.S. dollar exchange rate decreased 3% from 1.06 at June 30, 2010 to 1.03 at September 30, 2010.



Interest expense Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 72 173 214 397
----------------------------------------------------------------------------


The interest expense for the three and nine month periods ended September 30, 2010 relates to commitment fees on the unused portion of the Corporation's credit facility and interest on the outstanding letter of credit. The interest expense for the three and nine month periods ended September 30, 2009, relates to $10 million which had been borrowed on the credit facility in late January 2009 and repaid in October 2009 and December 2009.



Stock compensation expense Three months ended Nine months ended
September 30 September 30
2010 2009 2010 2009
----------------------------------------------------------------------------
($ thousands) 1,859 427 5,024 1,310
----------------------------------------------------------------------------


The Corporation's 2010 Stock Option Plan was approved on May 25, 2010 and provides the option to purchase common shares of the Corporation to officers, directors, employees and eligible service providers. Stock options vest evenly over three years from the date of the grant and expire after five years from the date of grant.

The higher stock based compensation during the three and nine month periods ended September 30, 2010, relates to the early vesting of the former stock option plans of C&C Barbados and C&C Energy Canada Ltd. totalling $1.9 million in the second quarter of 2010, and stock based compensation expense for the third and second quarters of 2010 related to options granted under the 2010 Stock Option Plan of $3.1 million.



Income tax expense Three months ended Nine months ended
September 30 September 30
($ thousands) 2010 2009 2010 2009
----------------------------------------------------------------------------
Current income tax (recovery) 162 368 757 754
Equity tax 78 90 226 222
Future income tax (recovery) 1,596 (1,794) 2,891 (684)
----------------------------------------------------------------------------
Tax expense (recovery) 1,836 (1,336) 3,874 292
----------------------------------------------------------------------------


The Corporation's pre-tax income is subject to Colombian income tax at a statutory rate of 33% and Barbados income tax at a statutory rate of 1%. The Corporation is also subject to Colombian presumptive and equity taxes, both of which are based on capitalization levels in Colombia.

The effective tax rates which are lower than the statutory rates are largely the result of enhanced deductions for the acquisition of certain capital assets.

With the increased production levels and earnings, the Corporation has commenced using its tax pools in Colombia and will be cash taxable in 2010.



SUMMARY OF QUARTERLY RESULTS

2010 2009 2008
Net income ----------------------------------------------------------
(loss) - 3rd 2nd 1st 4th 3rd 2nd 1st 4th
($ thousands) Qtr Qtr Qtr Qtr Qtr Qtr Qtr Qtr
----------------------------------------------------------
Revenue
Oil 50,903 38,247 21,729 27,193 23,882 14,525 11,949 17,353
Royalties (6,903)(5,193)(3,421)(3,624)(4,004)(1,934)(1,686)(2,664)
Interest 127 51 12 29 35 18 24 57
Risk
management
contracts
Realized gain
(loss) (264) (472) (561) (841) 31 699 1,717 (928)
Unrealized
gain (loss) 328 3,417 1,085 (1,657) 564 (8,234)(1,751) 5,335
----------------------------------------------------------
44,191 36,050 18,844 21,100 20,508 5,074 10,253 19,153
----------------------------------------------------------

Expenses
Production 9,881 6,858 4,338 6,602 5,718 4,530 3,052 3,240
Depletion,
depreciation
and
accretion 13,847 9,955 5,974 8,491 8,393 6,089 6,441 7,252
Administrative 1,158 375 921 913 504 461 378 1,266
Transportation 7,314 4,677 2,516 975 1,283 1,047 825 1,011
Foreign
exchange loss
(gain) (1,484) (217) - 128 21 (259) (214) 371
Interest 72 72 70 95 173 125 99 155
Financing - - - 31 - - - 560
Stock-based
compensation 1,859 2,811 355 410 427 443 440 431
----------------------------------------------------------
32,647 24,531 14,174 17,645 16,519 12,436 11,021 14,686
----------------------------------------------------------

Tax expense
(recovery) 1,836 1,055 982 1,417 (1,336) 180 1,448 (101)
----------------------------------------------------------

Net income
(loss) 9,708 10,464 3,688 2,038 5,325 (7,542)(2,216) 4,968
----------------------------------------------------------

Operating
netback
($/bbl) (1)
Crude oil
sales price 70.96 74.83 70.51 71.20 62.77 53.50 41.52 51.24
Royalties 9.62 10.16 11.10 9.49 10.52 7.12 5.86 7.87
Production 13.77 13.42 14.08 17.29 14.75 16.68 10.60 9.57
Transportation 10.20 9.15 8.16 2.55 3.37 3.86 2.87 2.99
----------------------------------------------------------
Operating net
back 37.37 42.10 37.17 41.87 34.13 25.83 22.19 30.82
----------------------------------------------------------
Impact of risk
management
Contracts
Operating net
back 37.37 42.10 37.17 41.87 34.13 25.83 22.19 30.82
Risk
management
contracts (0.34) (0.92) (1.82) (2.20) 0.08 2.57 5.97 3.28
----------------------------------------------------------
37.03 41.18 35.35 39.67 34.21 28.40 28.16 34.10
----------------------------------------------------------
Average crude
oil sales
(bbl/day)
Cravoviejo 7,604 5,334 3,050 3,927 4,119 2,984 3,198 3,681
Cachicamo (2) 193 283 374 225 16 - - -
----------------------------------------------------------
7,797 5,617 3,424 4,152 4,135 2,984 3,198 3,681
----------------------------------------------------------
Capital
spending ($
thousands)
Drilling and
completions 8,744 16,737 13,172 2,282 4,313 2,271 5,325 8,427
Facilities and
roads 6,332 4,416 1,031 2,778 334 443 331 3,476
Seismic 1,559 2,615 1,312 180 12 - 3 347
Property
acquisition - - - 5,000 - - - -
Other 1,202 699 575 838 499 431 516 945
----------------------------------------------------------
17,837 24,467 16,090 11,078 5,158 3,145 6,175 13,195
----------------------------------------------------------

Funds flow from
operations ($
thousands) (3) 24,961 20,647 9,204 12,100 11,075 7,759 7,288 11,524
----------------------------------------------------------

Note:

(1) See Management Discussion and Analysis - "GAAP and Non-GAAP Measures".

(2) Cachicamo crude oil sales for part of the first quarter 2009 were from
well tests and credited against capital spending in these periods.
Cachicamo commercial crude oil production and sales began in
mid-September 2009.

(3) Funds flow from operations is a non-GAAP measure defined as cash from
operating activities before changes in non-cash working capital on the
consolidated statement of cash flow in the consolidated financial
statements. See Management Discussion and Analysis - "GAAP and Non-GAAP
Measures".


Total revenue is impacted by three factors being: oil sales volumes, crude oil sales prices and gains and losses from risk management contracts.

Oil sales volumes increased quarter over quarter through 2008 and 2010, except for: (i) the first and second quarters of 2009 when production and sales volumes were impacted in the first quarter by maintenance and water handling issues and in the second quarter of 2009 by pipeline transportation restrictions, and (ii) the first quarter of 2010 when the new sales agreement with HOCOL became effective resulting in an increase in the amount of the Corporation's production that was sold on a one month lag, resulting in higher oil inventories at the period end versus prior quarters. Oil sales volume increases were the result of beginning 2008 with three producing wells, the successful drilling program in 2008 and the re-completions in 2009 and additional drilling success in 2010.

During the third quarter of 2010, the Corporation sold approximately 100,000 barrels of oil that had been in inventory at the end of the second quarter. The Corporation had no inventory at the end of the third quarter. The Corporation had an over-lift position of approximately 50,600 barrels. A liability of approximately $3.7 million has been recorded on the balance sheet related to these volumes, which have not been included in the sales for the third quarter.

Crude oil prices declined significantly in the fourth quarter of 2008 and into the first quarter of 2009 before steadily recovering through the last three quarters of 2009 and into 2010.

In October 2008, the Corporation purchased puts which established a minimum WTI sales price of $75 per barrel for calendar year 2009 on 600 barrels per day. In April 2009, the Corporation added collars which established a minimum and maximum WTI sales price of $45 to $63 per barrel for the balance of 2009 on 700 barrels per day and $50 to $74 per barrel for calendar year 2010 on 1,300 barrels per day. The Corporation follows mark-to-market accounting for these risk management contracts and records on the balance sheet the market value of the then outstanding puts and collars. In January 2010, the Corporation added collars for 1,000 barrels per day from January to June 2011 with a minimum and maximum WTI sales price of $60 and $115.50 per barrel, respectively. The gain or loss realized by the Corporation during the period is recorded as a realized gain or loss from risk management contracts and the change in market values of the outstanding contracts at the end of the period is recorded as an unrealized gain or loss from risk management contracts.

Oil prices fell from the date of purchasing the puts in October 2008 to the end of the fourth quarter 2008, resulting in a gain on the puts which was slightly more than offset by the premium paid for the puts, resulting in a realized loss from risk management contracts in the fourth quarter of 2008. The fall in oil prices also resulted in an unrealized gain from risk management contracts in the fourth quarter of 2008, related to the puts outstanding at the end of the quarter.

Oil prices continued to fall in the first quarter of 2009 and then steadily recovered through the last three quarters of 2009 and into 2010. As a result of these movements in oil prices, gains were realized on the puts through the first three quarters of 2009 and losses were realized on collars in the third and fourth quarters of 2009. The unrealized gains on the puts in 2008 were reversed through 2009 and additional unrealized losses on the collars were recorded, resulting in unrealized losses from risk management contacts in three of the four quarters in 2009. The Corporation realized losses on its 2010 collars during the three quarters of 2010. These were offset by the reversal of unrealized losses as at December 31, 2009 resulting in unrealized gains during the three quarters of 2010.

Operating expenses generally increased quarter over quarter as a result of the growing oil production volumes, plus well work-over costs and disposal of oil residuals. On a per barrel basis, production expenses decreased due to costs being distributed over increased production volumes.

Transportation expenses generally increased quarter over quarter as a result of higher volumes sold. During 2009, transportation expenses only reflected trucking costs and the pipeline transportation portion was netted from crude oil sales prices. For 2010, pipeline transportation costs are segregated and presented under Transportation expenses. Temporarily restricted pipeline capacity during 2010 and third quarter 2009 increased crude oil trucking distances resulting in higher transportation costs.

LIQUIDITY AND CAPITAL RESOURCES

The Corporation's investment program for 2010 has been funded internally from a combination of its cash position and operating cash flows.

On May 25, 2010, the Corporation closed an initial public offering of its common shares and a secondary offering of common shares by C&C Investment Holdings, an affiliate of Denham Commodity Partners Fund IV LP (the "Offerings"). The Offerings consisted of a treasury offering by the Corporation of 7,647,059 common shares and a secondary offering of 4,117,647 common shares, in each case at a price of Cdn$8.50 per common share, for gross proceeds to the Corporation for the treasury offering of approximately US$60.7 million (CDN$65 million). Net proceeds related to the treasury offering to the Corporation were US$54.9 million.

In September 2008, the Corporation established a secured revolving credit facility for $15 million (the "Credit Facility"). The initial facility is for three years and bears interest at a rate equal to the three-month LIBOR (London Interbank Offer Rate) plus 3.375% per annum on the borrowed amount. The Credit Facility also has an annual fee of 1 percent on the unused portion of the Credit Facility. The Credit Facility is secured by a pledge over the shares of the Corporation's Colombian operating subsidiary. The borrowing base is reviewed at least semi-annually and was subsequently increased to $22 million. Drawings under this Credit Facility are made for a term of less than one year and would be classified as a current liability.

In January 2009, the Corporation borrowed $10 million on its Credit Facility. In October 2009, the Corporation repaid $5 million and renewed $5 million drawn on its Credit Facility at an interest rate of 3.7%. In December 2009, the Corporation repaid the $5 million outstanding on the Credit Facility.

The Corporation remains debt free and has been advised that the borrowing base for this Credit Facility could potentially be increased from its current borrowing base of $22 million to $30 million.

In August 2010, the Corporation established a line-of-credit in Colombia totaling $11.1 million (Col$20 billion). Under the terms, the first $5.6 million (Col$10 billion) advanced are uncollateralized and advances over this amount and up to $11.1 million are collateralized by term deposits. This line of credit bears interest at a floating rate. The Corporation had a working capital surplus of $69.4 million at September 30, 2010 compared to $7.1 million as at December 31, 2009, including cash amounting to $80.2 million (December 31, 2009 - $14.2 million). The increase in working capital is due to net cash proceeds of approximately $54.9 million from the initial public offering plus operating cash flows offset by the Corporation's ongoing investments in Colombia

All accounts receivables have been assessed for credit risk and no allowance for doubtful accounts is necessary at this time.

Accounts payable and accrued liabilities have increased since December 31, 2009 due to the timing of activity levels in Colombia.

C&C Energia's assets provide significant funds flow from operations and are the Corporation's largest source of liquidity. The Corporation has a history of generating funds flow from operations and has sufficient funds to meet its contractual obligations, commitments and current investment plans.

C&C Energia is listed on the Toronto Stock Exchange under the stock symbol CZE.

Contractual Obligations and Contingencies

The Corporation's current exploration commitments are as follows:

There are currently no outstanding work commitments on the Cravoviejo, Cachicamo or Morpho blocks.

The commitment on the Pajaro Pinto block amounts to $1.3 million and includes the drilling of an exploration well by September 2011. The Corporation completed a $1.6 million seismic program during the third quarter of 2010 and has plans to drill at least one well on this block in 2011.

Activities on the Coati block are currently suspended pending receiving a required environmental permit. The Coati-1 well must be drilled within four months of receiving the environmental permit, which the Corporation anticipates receiving by the end of 2010. The Coati-1 well is estimated to cost $10 million, which is well in excess of the $3.5 million under the work commitment.

On August 5, 2010, the Corporation converted the Andaquies block from a technical evaluation agreement to an exploration and production ("E&P") contract with the signing of a definitive agreement with the ANH. The Corporation has committed, within three years of being awarded the E&P Contract, to acquire 80 km of 2D seismic plus drill one exploratory well or acquire 100 km2 of 3D seismic for a total estimated cost of $5 million.

Pipeline takeaway capacity in Colombia, and particularly in the Llanos Basin, has become constrained as the country's production continues to grow. Subsequent to the end of the third quarter, the Corporation subscribed for a small equity participation of up to 0.5% in the new pipeline construction project, the Oleoducto Bicentenario de Colombia (the "OBC"), operated by Ecopetrol, which will link the Llanos basin oil production to the Cano Limon oil pipeline system. Construction on this project at the Banadia oil terminal is underway and construction on the OBC pipeline is expected to commence in 2011. The Corporation's capital commitment is approximately $5.2 million. In addition, the Corporation will fund its equity interest in the pipeline's ongoing operating costs and be eligible to receive any dividends declared by the Board of the project.

In March 2010, the Corporation entered a pipeline transportation ship-or-pay agreement to transport a minimum of 2,500 barrels of oil per day at a $5 per barrel rate for an initial five-year term. The Corporation has the option, subject to capacity, to increase the daily minimum volume by 1,000 barrels of oil per day at the same $5 per barrel rate. The contract initially contemplated a May 1, 2010 completion date for the building of the Cusiana loading facility. However, as at the date of this report, construction of the loading facility has not been completed and the Corporation had received notification suspending the contract. The Corporation is engaged in ongoing discussions with OCENSA to determine whether or not construction will proceed. C&C Energia is investigating alternative arrangements, which, in the event the contract is cancelled, could result in the commitments associated with this contract being terminated.

Transactions with Related Parties

Office rent for the nine month period ended September 30, 2010 of $14,982 (September 30, 2009 - $13,476) was paid to a Corporation of which a director of C&C Energia is also a director.

Off Balance Sheet Transactions

The Corporation has not entered into any off-balance sheet transactions.

Outstanding Share Data

The aggregate number of C&C Energia common shares, stock options and warrants outstanding at November 10, 2010 was 59,034,005 (common shares - 54,297,503; options - 4,263,568; warrants - 798,934).

RISKS AND UNCERTAINTIES

C&C Energia is exposed to a variety of risks, including but not limited to competitive, operational, political, environmental, and financial risks. There have been no significant changes in the three and nine month periods ended September 30, 2010 to the risks and uncertainties identified in the MD&A for the year ended December 31, 2009 contained in the Corporation's Prospectus and identified elsewhere in that Prospectus.

Sensitivities

The Corporation's net income and funds flow from operations are sensitive to changes in the price of crude oil, exchange rates and interest rates.

The following factors demonstrate the expected annualized impact on net income and cash flow from operations:

At September 30, 2010, had the forward WTI crude oil price increased or decreased by $1.00, the unrealized loss or gain on the foreign exchange contracts would change net income by approximately $0.1 million for the period.

As at September 30, 2010, had the U.S. dollar appreciated or depreciated by five percent against the Colombian peso, with all other variables held constant, net income for the period would have approximately increased $0.1 million or decreased $0.1 million. As at September 30, 2010, had the U.S. dollar appreciated or depreciated by one cent against the Canadian dollar, net income for the period would have approximately decreased $0.5 million or increased $0.6 million.

The Corporation's sensitivity to interest rates is currently immaterial.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The Corporation's financial statements are prepared in accordance with Canadian GAAP, which require management to make judgments, estimates and assumptions which may have a significant impact on the financial statements of C&C Energia. A summary of the Corporation's significant accounting policies can be found in Note 1 to the audited consolidated financial statements of C&C Barbados. The following is a discussion of those accounting policies and estimates that are considered critical in the determination of the Corporation's financial results.

Capital Assets - Full Cost Accounting

The Corporation follows the full cost method of accounting as described in Note 1 to the audited consolidated financial statements of C&C Barbados. Alternatively, the Corporation could follow the successful efforts method of accounting whereby all costs related to non-productive wells are expensed in the period in which they are incurred.

Under the full cost method of accounting, capitalized costs are subject to a country by country cost centre impairment test. Under the successful efforts method of accounting, the costs are aggregated on a property by property basis and the carrying value of each property is subject to an impairment test. These policies may result in a different carrying value for capital assets and a different net income. The Corporation has elected to follow the full cost method, which is the method most commonly followed.

Under full cost accounting, a limit is placed on the carrying value of the net capitalized costs in each cost centre in order to test impairment. Impairment exists when the carrying value of developed properties of a cost centre exceeds the estimated undiscounted future net cash flows associated with the cost centre's proved reserves. Costs relating to undeveloped properties are subject to individual impairment assessments until it can be determined whether or not proved reserves exist. If impairment is determined to exist, the costs carried on the balance sheet in excess of the discounted future net cash flows associated with the cost centre's proved plus probable reserves are charged to income.

Reserve Estimates

Reserve estimates can have a significant impact on net income and the carrying value of capital assets. The process of estimating reserves requires significant judgment based on available geological, geophysical, engineering, and economic data, projected rates of production, estimated commodity price forecasts and the timing of future expenditures, all of which are subject to interpretation and uncertainty. Reserve estimates impact net income through depletion expense and the application of impairment tests. Revisions or changes in reserve estimates can have either a positive or a negative impact on net income and can impact the carrying amount of capital assets.

Potential lenders may also use reserve estimates to assess the allowable borrowing base under a secured credit facility. Changes to the reserve estimates can result in borrowing base increases or decreases, which could impact the Corporation's financial position.

Asset Retirement Obligations

The Corporation recognizes the estimated fair value of future retirement obligations associated with capital assets as a liability. The Corporation estimates the liability based on the estimated costs to abandon and reclaim its net ownership in tangible long lived assets such as wells and the estimated timing of the costs to be incurred in future periods. Actual payments to settle the obligations may differ from estimated amounts.

Stock Based Compensation

The Corporation accounts for stock-based compensation using the fair-value method of accounting for stock options based on expected volatility, forfeiture, and option life estimates. Actual stock-based compensation may differ from estimated amounts.

Future Income Taxes

The Corporation recognizes a future income tax liability based on estimates of temporary differences between the book and tax value of its assets. An estimate is also used for both the timing and tax rate upon reversal of the temporary differences. Actual differences and the timing of reversals may differ from estimates, impacting the future income tax balance and net income.

RECENT ACCOUNTING PRONOUNCEMENTS

The Corporation has assessed new and revised accounting pronouncements that have been issued that are not yet effective:

In February 2008, the Canadian Accounting Standards Board ("AcSB") confirmed that effective January 1, 2011, Canadian GAAP for publicly accountable entities will be replaced in full with International Financial Reporting Standards ("IFRS") as promulgated by the International AcSB. Management is assessing the impact of adopting IFRS and has developed a plan to achieve convergence to IFRS by January 1, 2011. The Corporation has identified that the accounting and disclosure of capital assets, which includes the exploration and evaluation of oil properties, accounting for property, plant and equipment as well as asset impairment testing and asset retirement obligations are the areas that will have the greatest potential impact upon conversion. The Corporation will continue to monitor changes in the adoption of IFRS, as well as continue to assess the impact of these new standards on its financial statements.

In January 2009, the AcSB issued Section 1582, Business Combinations, which replaces former guidance on business combinations. Section 1582 establishes principles and requirements of the acquisition method for business combinations and related disclosures. This statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. Once adopted, this standard will impact the accounting treatment of future business combinations.

In January 2009, the AcSB issued Sections 1601, Consolidated Financial Statements, and 1602, Non-controlling Interests, which replaces existing guidance. Section 1601 establishes standards for the preparation of consolidated financial statements. Section 1602 provides guidance on accounting for a non-controlling interest in a subsidiary in consolidated financial statements subsequent to a business combination. These standards are effective on or after the beginning of the first annual reporting period beginning on or after January 2011 with earlier application permitted. Management does not expect the adoption of this section to have a material impact on the results of operations or financial position.

International Financial Reporting Standards

In February 2008, the AcSB confirmed the convergence of Canadian GAAP with FRS will be required for interim and annual financial statements effective for fiscal years beginning on or after January 1, 2011, including comparatives for 2010 and an opening balance sheet at January 1, 2010 showing the changes from Canadian GAAP to IFRS.

IFRS uses a conceptual framework similar to Canadian GAAP, but prescribes certain differences for recognition, measurement and disclosure principles which are outlined below under "Potential Impacts of IFRS Adoption".

C&C Energia commenced its IFRS conversion project in early 2009 and has completed an initial scoping phase, and established a project plan and project team, which includes key finance staff, management, external advisors and audit committee.



IFRS Conversion Project Plan
----------------------------

The IFRS conversion project plan consists of three phases as identified
below:

----------------------------------------------------------------------------
IFRS Conversion Project Phase Status
----------------------------------------------------------------------------
Phase 1 Initial Scoping Completed.

Identification of key differences
between Canadian GAAP and IFRS, and
high-level changes required in
accounting policies, systems and
processes.
----------------------------------------------------------------------------
Phase 2 Detailed Assessment and Completed.
Design

Comprehensive documentation and
analysis of changesin accounting
standards, policies, processes and
procedures, which expands on
scoping from Phase 1.
----------------------------------------------------------------------------
Phase 3 - Implementation In progress. To be completed during Q4
2010.
Implementation and execution of
changes identified and
prioritized from Phase 2.
----------------------------------------------------------------------------


Potential Impacts of IFRS Adoption

Significant differences that have been identified between Canadian GAAP and IFRS that will impact C&C Energia are:

- accounting for capital assets, including exploration and evaluation costs, development and producing costs, depletion and depreciation, impairment testing;

- asset retirement obligations;

- share-based payments; and

- an increased level of disclosure requirements.

These differences have been identified based on the current IFRS standards issued and expected to be in effect on the date of transition. Certain IFRS standards may be modified, and as a result, the impact may be different than the Corporation's current expectations. The project team is currently determining the financial statement impact of these standards. The impact on the consolidated financial statements is not reasonably determinable at this time.

First Time Adoption of IFRS ("IFRS 1")

The transition to IFRS requires the Corporation to apply IFRS 1, which prescribes requirements for preparing IFRS-compliant financial statements in the first reporting period after the changeover date (January 1, 2010). IFRS 1 includes a requirement for retrospective application of each IFRS as if they were always in effect. IFRS 1 also mandates certain exemptions for retrospective application and provides optional exemptions from retrospective application to ease the transition to IFRS in the transition year.

In July 2009, the International Accounting Standards Board approved amendments and released "Additional Exemptions for First-time Adopters", which prescribes transitional exemptions for oil and gas companies following full cost accounting. The amendment allows an entity that used full cost accounting under Canadian GAAP to elect, at its time of adoption, to measure exploration and evaluation assets at the amount determined under Canadian GAAP and to measure oil and natural gas assets in the development or production phases by allocating the amount determined under Canadian GAAP for those assets, to the underlying assets pro rata using reserve volumes or reserve values as of the date of transition, subject to an impairment test as prescribed under IFRS. This exemption will allow C&C Energia to apply IFRS to its full cost pools on a prospective basis, from date of transition to IFRS.

Impairment of Assets ("IAS 36")

IAS 36 uses the concept of cash generating units to accumulate asset carrying costs to test and measure impairment. Under IFRS, the Corporation will no longer test for asset impairment at the cost center level (country level) as permitted under the Canadian GAAP full cost guideline. IFRS will require impairment testing to be performed at the cash generating unit level, which is lower than the current cost center level.

In addition, IAS 36 uses a one-step approach for testing and measuring asset impairments, with asset carrying values being compared to the higher of: value-in-use and fair value less costs to sell. Value-in-use is defined as the amount equal to the present value of future cash flows expected to be derived from the asset. In the absence of an active market, fair value less costs to sell may also be determined using discounted cash flows. The use of discounted cash flows under IFRS to test and measure asset impairment differs from Canadian GAAP, which uses undiscounted cash flows as an initial first step to test impairment.

Under, under IAS 36, impairment losses that were previously recognized may be reversed where circumstances change such that the impairment is reduced. This differs from Canadian GAAP, which prohibits the reversal of previously recognized impairment losses.

The Corporation is currently evaluating the impact of this accounting standard but does not, at this time, expect to record any impairment losses upon conversion to IFRS.

Exploration and Evaluation Expenditures ("IFRS 6")

Oil and gas companies are required to account for exploration and evaluation expenditures in accordance with IFRS 6. This standard addresses the recognition, measurement, presentation and disclosure requirements for costs incurred in the exploration phase. Unlike Canadian GAAP, IFRS requires the identification and presentation of exploration and evaluation expenditures to be separated from developed and producing assets. In addition, C&C Energia will be required to perform an impairment test on exploration and evaluation expenditures when there is a determination that the expenditures have resulted in a technically feasible and commercially viable project. At that time, the expenditures would be tested for impairment, and then transferred to the developed and producing assets category. The Corporation is currently evaluating its policy options and applicable impact of these policies under IFRS.

Property Plant and Equipment ("IAS 16")

IFRS and Canadian GAAP contain the same basic principles of accounting for property, plant and equipment; however, differences in application do exist, specifically for oil and gas companies. IAS 16 requires costs recognized as property plant and equipment to be allocated to the significant parts of the asset and to amortize each significant component separately. This is a departure from Canadian GAAP for full cost oil and gas companies, and may increase the number of components to amortize separately, and could impact the amount of amortization expense. The Corporation is currently evaluating the impact of this accounting standard.

Under IAS 16, companies have the choice to account for property, plant and equipment under the cost model, or the revaluation model. It is expected that C&C Energia will choose and apply the cost model to account for its property, plant and equipment after transition to IFRS.

Borrowing Costs ("IAS 23")

IFRS requires the capitalization of borrowing costs that are associated with the construction and development of certain assets. Under Canadian GAAP, C&C Energia expenses all borrowing costs. Analysis of this standard is currently underway to determine a methodology and quantify the amount of borrowing costs that if any, will be capitalized under IFRS. Under IFRS certain borrowing costs may be capitalized to the balance sheet and not expensed as currently reported by the Corporation.

Decommissioning Costs ("IAS 37")

Under IFRS, the recognition criteria for contingent liabilities are much more explicit than Canadian GAAP and may potentially require the booking of additional liabilities associated with the asset retirement obligations of C&C Energia's oil and gas assets. Liabilities for decommissioning and restoration are recognized for both legal and constructive obligations. Under IFRS, the estimated liability is calculated at each reporting period using estimates of risk-adjusted future cash outflows, discounted using the risk free rate whereas under Canadian GAAP the estimated liability is estimated using a credit-adjusted rate, rather than a risk free rate.

Changes in the estimated timing of cash flows necessary to discharge the obligation are added to or deducted from the cost of the related asset and the adjusted amounts are amortized prospectively over the estimated useful life of the asset. The measurement of the present value of the estimate (arising due to different discount rates used) is likely to be higher under IFRS as compared to Canadian GAAP. However the difference is not known at this time.

In addition, the unwinding of the discount arising from the passage of time is recognized as a financing cost and not a part of depletion expense as is currently presented in C&C Energia's financial statements under Canadian GAAP.

Internal Controls over Financial Reporting and Disclosure

As part of C&C Energia's certification of internal controls process, as required under Canadian Securities Administrators' National Instrument 52-109, all entity level, information technology, disclosure and business process controls will be reviewed, updated as necessary and tested to reflect changes arising from C&C Energia's conversion to IFRS. Material changes identified will be mapped and tested to ensure that no material weaknesses or significant deficiencies exist as a result of the conversion to IFRS.

Information Systems

It is expected that the conversion to IFRS will have a minimal impact on the information system requirements. C&C Energia has initiated a plan to map IFRS accounting and reporting requirements to changes required in the accounting system which will be implemented and tested during 2010.

DISCLOSURE CONTROLS AND PROCEDURES OVER FINANCIAL REPORTING

The Corporation is in the process of evaluating the effectiveness and design of its disclosure controls and procedures. This process is expected to be completed by the year-end and will enable the Corporation to provide certification of C&C Energia annual filings in compliance with National Instrument 52-109 "Certification of Disclosure in Issuer's Annual and Interim Filings".

CAPITAL AND OUTLOOK

For the remainder of the year, the Corporation plans to continue its aggressive drilling and development program, with the spudding of an appraisal well, Carrazales-14, the testing of the Morpho-1 and Baco-1 wells and procurement and construction of the Cravoviejo centralized facilities. The Corporation will invest approximately $12 million in the fourth quarter in preparation for the 2011 drilling program. This includes approximately $7 million for the purchase of tubulars and $5 million in civil works.

Pipeline takeaway capacity in Colombia, and particularly in the Llanos Basin, has become constrained as the country's production continues to grow. Subsequent to the end of the third quarter, the Corporation subscribed for a small equity participation of up to 0.5% in the new pipeline construction project, the Oleoducto Bicentenario de Colombia (the "OBC") operated by Ecopetrol, which will link the Llanos basin oil production to the Cano Limon oil pipeline system. Construction on this project at the Banadia oil terminal is underway and construction on the OBC pipeline is expected to commence in 2011. The Corporation's capital commitment is approximately $5.2 million. In addition, the Corporation will fund its equity interest in the pipeline's ongoing operating costs and be eligible to receive any dividends declared by the Board of the project.

The Corporation has approved a capital investment budget for 2011 of between $130 and $145 million. The Corporation will invest funds on the following operations: seismic, $5 million; development drilling and completions, approximately $25 million; facilities, workovers and equipping, approximately $40 million; exploratory drilling, approximately $50 to $65 million; $10 million for various other projects. Production for 2011 is expected to range between 6,800 and 7,300 barrels per day from the Cravoviejo and Cachicamo With a strong balance sheet and robust cash flow, the Corporation has sufficient resources to fund its ongoing programs.



C&C ENERGIA LTD.
CONSOLIDATED BALANCE SHEETS
(unaudited)
(Thousands of United States dollars)

September 30, December 31,
As at 2010 2009
----------------------------------------------------------------------------

Assets
Current assets
Cash and cash equivalents $ 80,280 $ 14,231
Accounts receivable 23,865 12,746
Prepaids and deposits 494 561
Future income tax assets 1,007 220
----------------------------------------------------------------------------
105,646 27,758

Capital assets 165,643 133,873
Future income tax assets - 388
----------------------------------------------------------------------------
Total assets $ 271,289 $ 162,019
----------------------------------------------------------------------------

Liabilities and Shareholders' Equity
Current liabilities
Accounts payable and accrued liabilities $ 35,214 $ 14,824
Capital lease obligation - 90
Risk management contracts (Note 6) 906 5,736
----------------------------------------------------------------------------
36,120 20,650

Asset retirement obligations (Note 10) 6,885 3,731
Future income tax liability 3,291 2
----------------------------------------------------------------------------
46,296 24,383

Shareholders' equity
Common shares and warrants (Note 2) 172,243 108,809
Contributed surplus (Note 2) 3,136 3,073
Retained earnings 49,614 25,754
----------------------------------------------------------------------------
224,993 137,636
----------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 271,289 $ 162,019
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Commitments and contingencies (Note 11)
Subsequent events (Note 12)

See accompanying notes to these consolidated financial statements.


C&C ENERGIA LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
(unaudited)
(Thousands of United States dollars)

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------

Revenues
Oil $ 50,903 $ 23,882 $110,879 $ 50,356
Royalties (6,903) (4,004) (15,517) (7,624)
Gain (loss) on risk management
contracts (Note 6) 64 595 3,533 (6,974)
Interest income 127 35 190 77
----------------------------------------------------------------------------
44,191 20,508 99,085 35,835
----------------------------------------------------------------------------

Expenses
Production 9,881 5,718 21,077 13,300
Transportation 7,314 1,283 14,507 3,155
Depletion, depreciation and
accretion 13,847 8,393 29,776 20,923
Administrative 1,158 504 2,454 1,343
Foreign exchange (gain) loss (1,484) 21 (1,701) (452)
Interest 72 173 214 397
Stock-based compensation (Note 2) 1,859 427 5,024 1,310
----------------------------------------------------------------------------
32,647 16,519 71,351 39,976
----------------------------------------------------------------------------

Income (loss) before taxes 11,544 3.989 27,734 (4,141)

Equity and current income taxes 240 458 983 976
Future income tax expense
(recovery) 1,596 (1,794) 2,891 (684)

----------------------------------------------------------------------------
Net income (loss) 9,708 5,325 23,860 (4,433)

Retained earnings, beginning of
period 39,906 25,802 25,754 35,560
----------------------------------------------------------------------------

Retained earnings, end of period $ 49,614 $ 31,127 $ 49,614 $ 31,127
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Basic earnings (loss) per share
(Note 5) $ 0.18 $ 0.12 $ 0.49 $ (0.10)
Diluted earnings (loss) per share
(Note 5) $ 0.18 $ 0.12 $ 0.49 $ (0.10)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to these consolidated financial statements.


C&C ENERGIA LTD.
CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited)
(Thousands of United States dollars)

Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------

Operating Activities
Net income (loss) $ 9,708 $ 5,325 $ 23,860 $ (4,433)
Future tax expense (recovery) 1,596 (1,794) 2,891 (684)
Depletion, depreciation and
accretion 13,847 8,393 29,776 20,923
Unrealized foreign exchange (gain)
loss (1,721) (712) (1,909) (415)
Stock-based compensation 1,859 427 5,024 1,310
Unrealized loss (gain) on risk
management contracts (Note 6) (328) (564) (4,830) 9,421
----------------------------------------------------------------------------
24,961 11,075 54,812 26,122
Changes in non-cash working capital
(Note 7) (1,239) (2,260) (2,247) (14,185)
----------------------------------------------------------------------------
23,722 8,815 52,565 11,937
----------------------------------------------------------------------------

Financing Activities
Issuance of common shares - net of
underwriters' commission - - 61,050 -
Share issuance costs (356) - (2,577) -
Proceeds from bank debt - - 2,000 10,000
Repayment of bank debt - - (2,000) -
Changes in non-cash working capital
(Note 7) (15) (8) (5) 47
----------------------------------------------------------------------------
(371) (8) 58,468 10,047
----------------------------------------------------------------------------

Investing Activities
Expenditures on capital assets (17,837) (5,158) (58,394) (14,478)
Changes in non-cash working capital
(Note 7) (1,075) 867 11,533 (2,128)
----------------------------------------------------------------------------
(18,912) (4,291) (46,861) (16,606)
----------------------------------------------------------------------------
Impact of foreign exchange rate
changes on cash and cash
equivalents 1,586 (20) 1,877 13
----------------------------------------------------------------------------

Net change in cash and cash
equivalents 6,025 4,496 66,049 5,391

Cash and cash equivalents, beginning
of period 74,255 8,390 14,231 7,495

----------------------------------------------------------------------------
Cash and cash equivalents, end of
period $ 80,280 $ 12,886 $ 80,280 $ 12,886
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Cash and cash equivalents consist of:
----------------------------------------------------------------------------
Cash $ 76,519 $ 9,154 $ 76,519 $ 9,154
Cash equivalents $ 3,761 $ 3,732 $ 3,761 $ 3,732
----------------------------------------------------------------------------
----------------------------------------------------------------------------
Other cash flow information:
----------------------------------------------------------------------------
Cash taxes paid $ 81 $ 90 $ 225 $ 266
Cash interest paid $ 72 $ 102 $ 214 $ 271
Cash interest received $ 127 $ 26 $ 190 $ 68
----------------------------------------------------------------------------
----------------------------------------------------------------------------

See accompanying notes to these consolidated financial statements.


C&C ENERGIA LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2010 AND 2009
(UNAUDITED, ALL TABULAR AMOUNTS ARE EXPRESSED IN THOUSANDS OF UNITED STATES
DOLLARS, EXCEPT AS OTHERWISE NOTED)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

C&C Energia Ltd. ("C&C Energia" or the "Corporation"), formerly C&C Energy Canada Ltd. ("C&C Canada") was a private company, incorporated under the Alberta Business Corporations Act on February 28, 2005 for the purpose of investing in oil and gas assets in Colombia through its subsidiaries, C&C Energy (Barbados) Ltd. ("C&C Barbados") and Grupo C&C Energia (Barbados) Ltd. ("C&C Grupo") .

Under the terms of an Agreement and Plan of Reorganization ("Reorganization") dated May 14, 2010, among C&C Canada and the other shareholders of C&C Barbados, the Corporation acquired all of the shares of C&C Barbados, which holds 100% of the outstanding common shares of C&C Grupo.

As all of the entities (C&C Energia, C&C Barbados, and C&C Grupo) were under common control, and there has been no change in control as a result of the Reorganization, the interim consolidated financial statements have been prepared to represent the activities of all of the above entities from the date that each of them commenced operations.

The unaudited interim consolidated financial statements for C&C Energia as at and for the three and nine months ended September 30, 2010 should be read in conjunction with the C&C Canada's and C&C Barbados audited consolidated financial statements and related notes as at and for the year ended December 31, 2009, all of which has been prepared in accordance with Canadian GAAP. The notes to these interim consolidated financial statements do not conform in all respects to the note disclosure requirements of generally accepted accounting policies ("GAAP") for annual financial statements. These interim consolidated financial statements are prepared using the same accounting policies and methods of computation as disclosed in the consolidated financial statements as at and for the year ended December 31, 2009, except for the following:

Inventory

Inventories consists of crude oil in transit or in storage tanks at the balance sheet date and are valued at the lower of cost, using the weighted average cost method, or net realizable value. Costs include direct and indirect expenditures incurred in bringing the crude oil to its existing condition and location.

NOTE 2 - SHARE CAPITAL

Authorized

The authorized capital is comprised of an unlimited amount of common shares and preferred shares.



Common Shares

Common Share Continuity Number Amount
----------------------------------------------------------------------------
Balance at December 31, 2009 40,931,162 $ 50,559
2 for 1 share consolidation (20,465,581) -
Issued pursuant to C&C Energy (Barbados) Ltd.
share exchange agreement (1) 22,684,448 58,250
----------------------------------------------------------------------------
Balance at December 31, 2009 - restated for
reorganization 43,150,029 $108,809
----------------------------------------------------------------------------
Issued pursuant to option and warrant exercises 897,441 919
Issued pursuant to C&C Energy (Barbados) Ltd.
option surrender and share exchange
agreements (1) 583,231 4,042
Issued pursuant to stock split 421,875 -
Issued pursuant to private placement and share
exchange agreements (1) 1,597,868 3,946
Issued pursuant to IPO 7,647,059 60,749
Share issue costs - (6,222)
----------------------------------------------------------------------------
Balance at September 30, 2010 54,297,503 $172,243
----------------------------------------------------------------------------
----------------------------------------------------------------------------

(1) Pursuant to the Reorganization, all of the outstanding equity in C&C
Energy (Barbados) Ltd. was exchanged for common shares of the
Corporation, which aggregates to $66.2 million. See Note 9.


On May 25, 2010, the Corporation closed an initial public offering of its common shares consisting of 7,647,059 common shares at a price of Cdn$8.50 per common share for gross proceeds of approximately Cdn$65 million. Included in the September 30, 2010 common shares and warrants balance of $172.2 million is an amount of $2.6 million related to warrants issued on April 27, 2010. See Warrants section below.

Immediately prior to the public offering of common shares described above and under the terms of an Agreement and Plan of Reorganization dated May 14, 2010, among C&C Canada (renamed to C&C Energia Ltd., the "Corporation") and the other shareholders of C&C Energy (Barbados) Ltd., the Corporation acquired all of the not-owned shares of C&C Energy (Barbados) Ltd. in exchange for the issuance of 24,282,316 new common shares. The Corporation also entered into agreements with C&C Energy (Barbados) Ltd. and each of the option-holders of C&C Energy (Barbados) Ltd. who are not parties to the Reorganization, pursuant to which the option-holders exchanged their options for an aggregate of 293,639 newly issued shares of C&C Barbados and subsequently the Corporation acquired such shares in exchange for the issuance of an aggregate of 583,231 new common shares.



Contributed Surplus

Contributed Surplus Continuity Amount
----------------------------------------------------------------------------
Balance at December 31, 2009 $ 3,073
Stock-based compensation - former stock option plans 1,888
Transfer to common shares related to exercised stock options (4,961)
Stock-based compensation - 2010 Stock Option Plan 3,136
----------------------------------------------------------------------------
Balance at September 30, 2010 $ 3,136
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Stock Options

The Corporation's 2010 Stock Option Plan was approved on May 25, 2010 and provides for granting to officers, directors, employees and eligible service providers the option to purchase common shares of the Corporation. Stock options vest evenly over three years from the date of the grant and expire after five years from the date of grant. This Stock Option Plan also provided for replacement options issued on April 1, 2010 in substitution for stock options granted to executive officers under the former stock option plan which expire after seven years. All former stock option plans have been terminated.



Weighted Avg.
Exercise Price
Stock Option Continuity Stock Options Cdn $
----------------------------------------------------------------------------
Granted - replacement options 1,822,568 8.85
Granted 2,325,000 8.50
Forfeited (207,500) 8.50
----------------------------------------------------------------------------
Balance at September 30, 2010 3,940,068 8.66
----------------------------------------------------------------------------
----------------------------------------------------------------------------

The following summarizes information about stock options outstanding at
September 30, 2010:

Stock Options Outstanding Stock Options Exercisable
----------------------------------------------------------------------------
Weighted Average
Exercise Price Remaining Life Exercise Price
(Cdn$) Number (Years) Number (Cdn$)
----------------------------------------------------------------------------
8.50 2,117,500 4.6 - -
8.80 1,597,868 6.5 - -
9.23 224,700 6.5 - -
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Stock-Based Compensation

The fair value of the stock options granted has been estimated on their respective grant dates using the Black-Scholes option-pricing model using the following assumptions:



----------------------------------------------------------------------------
Risk-free interest rate 2.1% - 3.1%
Dividend rate 0%
Expected life 5.9 years
Volatility 76% - 94.5%
Forfeiture rate 5%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The weighted average fair value per stock option granted during the three and nine month period ended September 30, 2010 was Cdn$5.63 and Cdn$6.04 respectively, as at the date of the grant.

Warrants

Warrants issued on April 27, 2010, as part of the Reorganization and expiring after three years from date of issuance, entitle the holder thereof to purchase one Common Share at an exercise price of Cdn$6.04 per share.



Warrant Continuity Number Amount
----------------------------------------------------------------------------
Balance at December 31, 2009 - $ -
----------------------------------------------------------------------------
Issued pursuant to private placement 798,934 2,606
----------------------------------------------------------------------------
Balance at September 30, 2010 798,934 $ 2,606
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The fair value of each Warrant has been estimated on their respective issuance dates using the Black-Scholes option-pricing model using the following assumptions:



----------------------------------------------------------------------------
Risk-free interest rate 2.4%
Dividend rate 0%
Expected life 3 years
Volatility 88.9%
----------------------------------------------------------------------------
----------------------------------------------------------------------------


The weighted average fair value of all warrants issued during the nine month period ended September 30, 2010 was Cdn$3.47 per warrant. For the nine month period ended September 30, 2010, no warrants were exercised.

NOTE 3 - BANK DEBT

As at September 30, 2010 the Corporation had a secured revolving credit facility for $22 million. The facility is for three years effective September 2008. Letters of credit issued against this credit facility reduce the amounts available under the facility. At September 30, 2010 and under this credit facility, the Corporation had drawn $nil (December 2009 - $nil) and had letters of credit to guarantee work commitments for $2 million at a 3.125% annual interest rate.

During the three month period ended September 30, 2010, the Corporation established a line-of-credit in Colombia totaling $11.1 million (Col$20 billion). Under the terms, the first $5.6 million (Col$10 billion) advanced are uncollateralized and advances over this amount and up to $11.1 million are collateralized by term deposits. This line of credit bears interest at a floating rate. Letters of credit issued against this line-of-credit reduce the amounts available under the facility. At September 30, 2010, the Corporation had drawn no amounts under the Colombian line-of-credit and had letters of credit to guarantee work commitments for $2 million at a 1% annual interest rate.

NOTE 4 - CAPITAL MANAGEMENT

The Corporation's policy is to fund exploration and development capital with funds flow from operations, debt and equity. The Corporation considers its capital structure to include common shares and working capital deficiency (a non-GAAP measure the Corporation defines as outstanding bank debt plus current liabilities less current assets).

The Corporation is in compliance with the financial covenants contained in its credit facility agreement. The financial covenants, which are non-GAAP measures, are: to maintain a ratio under 3.0 of indebtedness to trailing twelve month earnings before interest, tax, depletion, depreciation and amortization (EBITDA) adjusted by the non-cash effect of risk management contracts; to maintain a current ratio greater than 1.0 (current assets plus unused bank debt divided by current liabilities excluding current non-cash risk management contracts balances); and to maintain at all times a minimum of $5 million in the aggregate in cash on hand and unused bank debt.

The Corporation has not paid or declared dividends since the date of incorporation, nor are any contemplated in the foreseeable future.

The Corporation's working capital, calculated as current liabilities less current assets, and common shares and warrants capital is summarized in the following table:



September December
As at 30, 2010 31, 2009
----------------------------------------------------------------------------
Bank debt $ - $ -
Current liabilities 36,120 20,650
Less: current assets (105,646) (27,758)
----------------------------------------------------------------------------
Working capital deficiency (surplus) $ (69,526) $ (7,108)
----------------------------------------------------------------------------
Common shares and warrants capital $ 172,243 $ 108,809
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 5 - PER SHARE NUMBERS

The following table summarizes the common shares used in calculating earnings (loss) per share:



Three months ended Nine months ended
September 30, September 30,
---------------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Weighted average common shares
outstanding - Basic 54,297,503 43,150,029 48,376,683 43,150,029
Dilutive effect of stock options
and stock purchase warrants 152,639 - 89,969 -
----------------------------------------------------------------------------
Weighted average common shares
outstanding - Diluted 54,450,142 43,150,029 48,466,652 43,150,029
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 6 - FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Corporation's financial assets and liabilities are comprised of cash and cash equivalents, risk management contracts, accounts receivable, deposits, accounts payable and accrued liabilities and bank debt. Risk management assets and liabilities arise from the use of derivative financial instruments. There have been no changes to the hierarchy classification during the three and nine months ended September 30, 2010.

Fair values of financial assets and liabilities, summarized information related to risk management positions, and discussion of risks associated with financial assets and liabilities are presented as follows:

Fair Value of Financial Instruments

The fair values of cash and cash equivalents, accounts receivable, deposits, accounts payable and accrued liabilities and bank debt approximate their carrying amount due to the short-term maturity of those instruments.

Risk management contracts are recorded at their estimated fair value based on the mark-to-market method of accounting, using quoted market prices or, in their absence, third-party market indications and forecasts.

When drawn, bank debt bears interest at a floating rate and accordingly the fair value approximates the carrying value.

The carrying value and fair value of these financial instruments at September 30, 2010 is disclosed below by financial instrument category:



Carrying Value Fair Value
Financial Instrument ($) ($)
----------------------------------------------------------------------------
Assets Held for Trading
Cash and cash equivalents 80,280 80,280

Loans and Receivables
Accounts receivable 23,865 23,865
Deposits 484 484

Liabilities Held for Trading
Risk management contracts 906 906

Other Liabilities
Accounts payable and accrued liabilities 35,214 35,214
Bank debt - -
----------------------------------------------------------------------------


Risk Management Contracts

The net income impact of realized and unrealized gains (losses) from risk management contracts, before income tax, is as follows:



Three months ended Nine months ended
September 30, September 30,
---------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Realized gains (losses) $ (264) $ 31 $ (1,297) $ 2,447
Unrealized gains (losses) 328 564 4,830 (9,421)
----------------------------------------------------------------------------
Gain (loss) on risk management
contracts $ 64 $ 595 $ 3,533 $ (6,974)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Risks Associated with Financial Assets and Liabilities

The Corporation has exposure to the following risks related to its financial instruments: commodity price, credit risk, liquidity risk and foreign currency risk. This note presents information about the Corporation's exposure to these risks, and the Corporation's objectives, policies and processes for measuring and managing these risks.

Commodity Price Risk

Commodity price risk is the risk that future cash flows will fluctuate as a result of changes in commodity prices. Significant changes in commodity prices can also impact the Corporation's borrowing base under its secured credit facility. Commodity prices for crude oil are impacted by world economic events that dictate the levels of supply and demand. From time to time the Corporation may attempt to mitigate commodity price risk through the use of financial derivatives.

The Corporation had the following risk management contracts outstanding at September 30, 2010:



Term Volume Price Benchmark
----------------------------------------------------------------------------
Oct 1, 2010 - Dec 31, 2010 1,300 Bopd $50 floor/$74 ceiling WTI
Jan 1, 2011 - Jun 30 2011 1,000 Bopd $60 floor/$115 ceiling WTI
----------------------------------------------------------------------------
----------------------------------------------------------------------------


At September 30, 2010, the Corporation had the forward WTI crude oil price increased or decreased by $1.00, the unrealized loss or gain on these contracts would change by approximately $0.1 million and would be reflected in net income.

Credit Risk

Credit risk is the risk that cash and cash equivalents, accounts receivable and deposits may not be collectible.

Cash and cash equivalents consist of bank balances and short term deposits maturing in less than 90 days. The Corporation manages credit risk related to short term deposits by investing only in Canadian or U.S. government treasury bills or term deposits at BNP Paribas and Royal Bank of Canada and, therefore, the Corporation considers these assets to have negligible credit risk.

Deposits are held with financial institutions maturing in less than one year.

A substantial portion of the Corporation's accounts receivable are with customers in the oil industry and are subject to normal industry credit risks. The carrying amount of accounts receivable reflects management's assessment of the credit risk associated with these accounts. Crude oil production is sold, as determined by market based prices adjusted for quality differentials.

Receivables from crude oil sales are normally collected 20 days after the month of production. The Corporation's policy to mitigate credit risk associated with crude oil sales is to establish marketing arrangements with large purchasers. The Corporation historically has not experienced any collection issues with its crude oil customers. As at September 30, 2010, the Corporation had receivables of $10.6 million from a large counterparty for crude oil sales.

As at September 30, 2010, none of the Corporation's accounts receivables are past due.

Liquidity Risk

Liquidity risk is the risk that the Corporation will not be able to meet its financial obligations as they become due. The Corporation manages liquidity risk by regularly updating cash flow budgets in order to monitor future capital requirements.

The Corporation prepares annual capital and operating budgets which are regularly monitored and updated as necessary. Crude oil production is closely monitored and various future production and price scenarios are reviewed and incorporated in the cash flow budgets.

Accounts payable are normally payable within 30 days and accrued liabilities will normally be payable within two to three months. The following are the contractual maturities of financial liabilities as at September 30, 2010:



less than 1-2 2-5
Financial Liabilities 1 Year Years Years Thereafter Total
----------------------------------------------------------------------------
Accounts payable and accrued
liabilities $ 35,214 - - - $35,214
Risk management contracts 906 - - - 906
----------------------------------------------------------------------------
$ 36,120 - - - $36,120
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Foreign Currency Risk

Foreign currency risk is the risk that future cash flows will fluctuate as a result of changes in foreign currency exchange rates. The Corporation is exposed to foreign currency fluctuations as some expenditures are denominated in Colombian pesos and Canadian dollars. The Corporation does not attempt to manage this exchange risk. As at September 30, 2010, had the U.S. dollar appreciated or depreciated by five percent against the Colombian peso, with all other variables held constant, net income for the three and nine month period ended September 30, 2010 would have approximately increased $0.1 million or decreased $0.1 million. As at September 30, 2010, had the U.S. dollar appreciated or depreciated by one cent against the Canadian dollar, net income for the three and nine month ended September 30, 2010 period would have approximately decreased $0.5 million or increased $0.6 million. The Corporation had no forward exchange rate contracts in place as at or during the three and nine months ended September 30, 2010 and 2009.

Interest Rate Risk

Interest rate risk arises from changes in market interest rates. The Corporation is exposed to interest rate cash flow risk on floating interest rate bank debt to the extent it is drawn. The Corporation's sensitivity to interest rates is currently immaterial.

NOTE 7 - CHANGES IN NON-CASH WORKING CAPITAL



Three months ended Nine months ended
September 30, September 30,
-----------------------------------------
2010 2009 2010 2009
----------------------------------------------------------------------------
Change in:
Accounts receivable $ (5,851) $(5,019) $(11,052) $(11,346)
Inventories 2,116 - - -
Prepaids and deposits 31 (18) 67 583
Accounts payable and accrued
liabilities 1,402 3.613 20,356 (5,452)
Capital lease obligation (27) 23 (90) (51)
----------------------------------------------------------------------------
$ (2,329) $(1,401) $ 9,281 $(16,266)
----------------------------------------------------------------------------
Changes related to:
Operating activities $ (1,239) $(2,260) $ (2,247) $(14,185)
Financing activities $ (15) $ (8) $ (5) $ 47
Investing activities $ (1,075) $ 867 $ 11,533 $ (2,128)
----------------------------------------------------------------------------
$ (2,329) $(1,401) $ 9,281 $(16,266)
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 8 - RELATED PARTY TRANSACTIONS

Office rent for the three months ended September 30, 2010 of $14,982 (September 30, 2009 - $13,476) and for the nine months ended September 30, 2010 of $29,861 (September 30, 2009 - $25,986) was paid to a company where a director of the Corporation is also a director, and are included in administrative expenses.

These transactions are measured at the exchange amount, which is the amount of consideration established and agreed to by the related parties.

NOTE 9 - INVESTMENT IN AND CONSOLIDATION OF C&C ENERGY (BARBADOS) LTD.

Under the terms of the Reorganization, among C&C Canada and the shareholders of C&C Barbados, the Corporation acquired all of the shares of C&C Barbados (which holds 100% of the outstanding common shares of C&C Grupo).

The investment in C&C Barbados was formerly accounted for on the equity basis of accounting. Equity accounting was discontinued with the Corporation consolidating the financial results C&C Barbados on May 25, 2010 as follows:



----------------------------------------------------------------------------
Cash and cash equivalents $ 22,617
Accounts receivable 8,908
Inventories 2,886
Prepaids and deposits 527
Future income tax assets 457
Capital assets 148,701
Risk management contracts 299
Accounts payable and accrued liabilities (26,286)
Intercompany 149
Current portion of capital lease obligation (27)
Risk management contracts (1,905)
Future income tax liability (106)
Asset retirement obligation (4,532)
Retained earnings (19,375)
----------------------------------------------------------------------------
Changes in net assets $ 132,313
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Investment in C&C Energy (Barbados) Ltd. Continuity:

----------------------------------------------------------------------------
Investment in C&C Energy (Barbados) Ltd. - Balance at
December 31, 2009 $ 58,542
Equity income in C&C Energy (Barbados) Ltd. from January 1,
2010 to May 25, 2010 7,533
Net equity in C&C Energy (Barbados) Ltd. (Note 2) 66,238
----------------------------------------------------------------------------
Investment in C&C Energy (Barbados) Ltd. - Balance at May 25,
2010 pre-Reorganization $ 132,313
----------------------------------------------------------------------------
----------------------------------------------------------------------------


NOTE 10 - ASSET RETIREMENT OBLIGATIONS

During the nine month period ended September 30, 2010 changes to asset retirement obligations were as follows:



Amount
----------------------------------------------------------------------------

Asset retirement obligations, balance at December 31, 2009 $ 3,731
Obligations incurred 1,537
Changes in estimates 1,431
Obligations cancelled (30)
Accretion expense 216
----------------------------------------------------------------------------
Asset retirement obligations, end of year $ 6,885
----------------------------------------------------------------------------
----------------------------------------------------------------------------


Changes in estimates were originated from revisions to the amounts of estimated cash flows and from the effect of changes in foreign exchange rate.

NOTE 11 - COMMITMENTS AND CONTINGENCIES

The Corporation has outstanding commitments amounting to $9.8 million on three exploration and production blocks. These commitments include drilling of an exploration well on the Pajaro Pinto block by September 2011 ($1.3 million net commitment); drilling of an exploration well on the Coati block within four months of receiving the environmental license ($3.5 net commitment); and acquisition of 80 km of 2D seismic plus drill one exploratory well or acquisition of 100 km2 of 3D seismic on the Andaquies block by August 2013 (net commitment $5 million).

In March 2010, the Corporation entered a pipeline transportation ship-or-pay agreement to transport a minimum of 2,500 barrels of oil per day at a $5 per barrel rate for an initial five-year term. The Corporation has the option, subject to capacity, to increase the daily minimum volume by 1,000 barrels of oil per day at the same $5 per barrel rate. The contract initially contemplated a May 1, 2010 completion date for the building of the Cusiana loading facility. However, as at the date of this report, construction of the loading facility has not been completed and the Corporation had received notification suspending the contract. The Corporation is engaged in ongoing discussions with OCENSA to determine whether or not construction will proceed. C&C Energia is investigating alternative arrangements, which, in the event the contract is cancelled, could result in the commitments associated with this contract being terminated.

These work commitments are in the normal course of the Corporation's exploration business and the Corporation plans to fund these with existing cash balances, cash flow from operations and available credit facilities.

The Corporation has issued guarantees totaling $4.5 million (December 31, 2009 - $2.8 million) to guarantee certain obligations on its exploration contracts. The guarantees are secured $4 million under the Corporation's credit facilities and the remaining by term deposits held by the banks which are included under prepaids and deposits on the Corporation's consolidated balance sheet.

The Corporation is involved in litigation and claims arising in the normal course of operations. Management is of the opinion that pending litigation will not have a material adverse impact on Corporation's financial position or results of operations.

NOTE 12 - SUBSEQUENT EVENTS

Subsequent to the end of the third quarter, the Corporation subscribed for a small equity participation of up to 0.5% in the new pipeline construction project, the Oleoducto Bicentenario de Colombia (the "OBC"), operated by Ecopetrol, which will link the Llanos basin oil production to the Cano Limon oil pipeline system. Construction on this project at the Banadia oil terminal is underway and construction on the OBC pipeline is expected to commence in 2011. The Corporation's capital commitment is approximately $5.2 million. In addition, the Corporation will fund its equity interest in the pipeline's ongoing operating costs and be eligible to receive any dividends declared by the Board of the project.

Contact Information

  • C&C Energia Ltd.
    Richard A. Walls
    President and Chief Executive Officer
    403-262-6046
    or
    C&C Energia Ltd.
    Ken Hillier
    Chief Financial Officer
    403-262-6046