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Canacol maintains drilling pace into 2022

Canacol Energy 17 January 2022 Update
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Canacol Energy

Canacol maintains drilling pace going into 2022

Guidance update

Oil & gas

17 January 2022

Price

C$3.16

Market cap

C$558m

C$1.25/US$

Company reported net debt (US$m) at end-Q321

371

Shares in issue

176.7m

Free float

67%

Code

CNE

Primary exchange

TSX

Secondary exchange

BVC

Share price performance

%

1m

3m

12m

Abs

1.3

(19.7)

(14.1)

Rel (local)

(2.1)

(21.7)

(27.7)

52-week high/low

C$4.08

C$2.95

Business description

Canacol Energy is a natural gas exploration and production company primarily focused on Colombia.

Next events

2022 drill programme

January 2022

Pipeline contractor selection

Q122

Submit environmental licence

Q122

Analysts

James Magness

+44 (0)20 3077 5756

Elaine Reynolds

+44 (0)20 3077 5713

Canacol Energy is a research client of Edison Investment Research Limited

We have updated our valuation of Canacol Energy to reflect management guidance for 2022 and its preliminary expectations for 2021. Our valuation per share decreases to C$5.69 from C$6.12. Management expects gas sales for 2022 to be between 160mmscfd and 200mmscfd, with the midpoint in line with realised average sales for December 2021 of 183mmscfd. Capex of US$172m to US$209m will cover up to 12 exploration and development wells, three of which will step outside the company’s historical core area, as it targets a reserves replacement ratio of over 200%. Management will also focus on progressing work on the Jobo to Medellin pipeline, which will add 100mmscfd of sales capacity by the end of 2024.

Year end

Revenue* (US$m)

Adjusted EBITDAX**
(US$m)

Cash from
operations (US$m)

Net debt***
(US$m)

Capex****
(US$m)

Dividend yield (%)

12/19

220

166

108

300

(84)

1.4

12/20

247

188

152

299

(89)

5.7

12/21e

241

197

150

329

(108)

6.6

12/22e

255

197

158

428

(190)

6.6

Note: *Revenue net of transport expense and royalty. **Adjusted EBITDAX is before non-recurring or non-cash charges and exploration expense. ***Cash and equivalents minus short- and long-term debt. ****Forecasts based on 2020 reserves 2P production profile.

Stable sales and cash-flow generation

Canacol will invest US$172 to US$209m in capex in 2022, which will be fully funded from existing cash and 2022 operating cash flow. This will support gas sales capacity, which is currently 230mmscfd. The company expects an EBITDAX of US$163m to US$230m from its estimated gas sales range of 160mmscfd to 200mmscfd. Canacol has maintained its quarterly dividend at 5.2 US cents per share. The company strengthened its balance sheet in November, with the successful placing of US$500m in 5.75% senior notes due 2025, which were partially used to refinance existing debt (c US$380 at 7.25%).

2022 drilling moves further afield

The drilling programme will start in January 2022 and target up to 12 wells, mainly focusing on exploration, with up to eight exploration wells and four development wells. For the first time, Canacol will target a new deep gas conventional play in the Middle Magdalena Basin and will drill one well each in the SSJN-7 and VIM-33 blocks of the Lower Magdalena Basin.

Valuation: Significantly undervalued

Our risked exploration net asset value (RENAV) is based on a combination of 2P reserves and additional ‘to be developed’ risked reserves that we expect to be added over the next five years. We value the core NAV at C$2.86, to which we add C$2.83 for additional risked reserves, to arrive at our valuation of C$5.69/share, c 80% above the current share price. We believe the share price does not fully reflect the potential upside from exploration.

2022 guidance

In 2022 Canacol will focus on delivering a 12-well drilling programme, with an emphasis on exploration wells, as it targets a reserves replacement ratio (RRR) of more than 200%. To achieve this, the company will move beyond the VIM-5, VIM-21 and Esperanza licences for the first time and drill three wells in previously undrilled blocks. Exploration activities, including seismic, will contribute to the bulk of 2022’s capex, which is estimated to be US$172m–US$209m (cf to US$108m in 2021) and will be fully funded from existing cash and 2022 cash flow. The budget will also allow over US$7m in quarterly dividends. The company anticipates gas sales between 160mmscfd and 200mmscfd, with c 80% of sales being take-or-pay under the high-end guidance. Longer-term Colombian gas demand is expected to grow at a rate of 2–3% per year.

Management will also focus on progressing the Jobo to Medellin pipeline project by selecting a contractor and submitting the environmental licence by the end of Q122, and contracting an additional 45mmscfd of take-or-pay contracts by the end of Q322. The pipeline will increase the company’s sale capacity by 100mmscfd when it comes online at the end of 2024.

Eight gas compression units will be installed across Canacol’s gas fields in 2022, which the company estimates will increase recovery factors between 8% and10% and reduce field-level opex. We note the guidance for EBITDAX for 2022 implies there is an increase in corporate level operating costs (SG&A and other opex). See valuation and financials section below for impact of guidance on our forecasts.

The company is also committed to strengthening its ESG strategy and will provide its short- and medium-term carbon emission reduction targets, together with a projected timeline for achieving net-zero emissions, in H122.

2021 drill programme: Significant success at Aguas Vivas

Canacol has delivered its planned programme of 12 wells in 2021, with the final well, Clarinete 6, reaching total depth in mid- December. The major success of the programme was the Aguas Vivas-1 discovery, which was followed with two appraisal wells, and the company will integrate the results from these wells with existing 3D seismic to assess the extent of the accumulation. We expect these three wells will make a significant contribution to the company’s reserves replacement this year. Of the remaining five exploration wells drilled, two wells, San Marcos-1 and Siku-1, successfully encountered commercial hydrocarbons while three wells did not encounter commercial hydrocarbons. Flauta-1 and Milano-1 were plugged and abandoned, while Corneta-1 has been cased and suspended as a future water disposal well. This brings the company’s exploration and appraisal success rate for 2021 to 62%, somewhat below its average success rate over 2016–2020 of 90%.

Exhibit 1: Wells drilled in 2021

Block

Well

Well type

Esperanza

Milano-1

Exploration

San Marcos-1

Exploration

Cãnahuate-4

Development

Nelson-9

Development

VIM-21

Aguas Vivas 1

Exploration

Aguas Vivas 2

Appraisal

Aguas Viva 3

Appraisal

VIM-5

Flauta-1

Exploration

Oboe 2

Development

Corneto 1

Exploration

Siku-1

Exploration

Clarinete 6

Development

Source: Canacol Energy.

The final exploration well in the 2021 programme, Siku-1, encountered 33 ft of net gas pay in the primary Cienaga de Oro (CDO) reservoir and is expected to be tied into production in early 2022.

2022 programme: Building on reserves growth

The 2022 drilling programme will look to maintain the pace set in 2021 with a programme of up to 12 wells, and will continue Canacol’s focus on exploration, with up to eight exploration wells and four development wells planned. Three of the exploration wells will target previously undrilled blocks, two in the Lower Magdalena Basin and one in the Middle Magdalena Basin, and the programme will start in the third week of January with the Toronja-2 development well. The majority of the wells will target prospects defined on 3D seismic, supported by the amplitude versus offset technology that has accounted for the company’s historical exploration and appraisal success rate of 79%. In total, 470km of 3D seismic will also be acquired across the VIM-5 block as Canacol looks to identify further gas prospects for exploration drilling.

Exhibit 2: Canacol acreage

Source: Canacol Energy

Canacol holds a 100% operating position in the VMM-45 E&P contract in the Middle Magdalena Basin covering 611,00 net acres. The conventional gas play here is deeper than in the Lower Magdalena Basin and the wells take longer to drill and are more expensive (at c US$15m/well). The company is expecting to drill one well in VMM-45, in Q222, and it will take five months to drill, test and complete. The Pola-1 well sits less than 10km from the Transportadora de Gas Internacional (TGI) pipeline, which transports gas from Ecopetrol’s declining mature gas fields to the interior of Colombia. The pipeline has c 260mmscfpd of spare capacity, so any discovery can be quickly commercialised.

In the Lower Magdalena Valley, the company plans to drill Dividvi-1 on the VIM-33 E&P contract (100% working interest) and Natilla-1 on the SSJN-7 E&P Contract (50% WI). Dividvi-1 will target the CDO reservoirs that produce in the nearby Arjona and El Dificil gas condensate fields. The well can be tied into the TGI pipeline c 50km to the east in the case of success. Natilla is the largest of 10 prospects identified in SSJN-7 on 3D seismic acquired by Canacol in 2021.The Natilla-1 well will target gas in the CDO and Porquero sandstone on an exploration fairway between the company’s gas fields c 60km to the south and the Frontera operated La Creciente gas fields c 30km to the north.

Valuation and financials

We update our valuation to reflect management guidance for 2022 (adopting the midpoint of the range), its preliminary expectations for 2021 and Q321 results.

Exhibit 3: Old versus new forecasts

New

Old

Difference

Comment

Valuation (C$/share)

Core NAV

2.86

3.15

-9%

Lower volume sales in FY22–23, increased opex and higher capex

Additional reserves

2.83

2.97

-5%

No significant change

Valuation

5.69

6.12

-7%

Financial extracts (US$m, unless otherwise stated)

FY21

Volume sales (mmscfd)

183

180

2%

Pricing (US$/mmscfd)

4.35

4.35

0%

Revenue

241

237

2%

Slight increase due to higher sales volumes

EBITDAX

197

193

2%

Slight increase due to higher revenue

CFO

150

162

-7%

Most due to non-recurring items not included in previous forecasts

Capex

108

148

-27%

Lower exploration spend

FY22

Volume sales (mmscfd)

180

207

-13%

Lower % spot (interruptible) markets sales

Pricing (US$/mmscfd)

4.67

4.61

1%

Revenue

255

288

-12%

Lower sales volumes

EBITDAX

197

237

-17%

Lower revenue

CFO

158

200

-21%

Lower earnings due to lower revenue

Capex

190

171

12%

Higher exploration spend

FY22–25

Production

819

864

-5%

Lower volume sales in FY22–23 partially offset by higher sales in FY25

Capex

725

711

2%

Higher capex over FY22–25

Source: Canacol (guidance), Edison Investment Research

Volumes sales, EBITDAX and capex

Canacol expects volumes sales of 183mmscfd in FY21, which is slightly higher than our previous forecast of 180mmscfd, due to increased volume sales over September to December (average of 192mmsfd). We note that 22% of sales in FY22 came from the spot market (interruptible sales) and thus represent sales outside of longer-term contracts. The midpoint of guidance for FY22 is 180mmscfd, which is below our previous forecast of 207mmscfd. The midpoint assumes only 10% of sales come from the spot market. If the same level of sales were made in the spot market as in FY21, the volume sales in FY22 would be c 202mmsfd. We believe Canacol is cautious in its guidance due to the ongoing COVID-19 pandemic. We previously assumed plateau production of 235mmscfd in FY23. We now assume this is achieved in FY24.

Canacol expects EBITDAX (EBITDA excluding pre-licence costs and exploration impairment, stock-based payments and non-recurring costs) of US$197m in FY21, which is slightly above our previous forecast of US$193m. This difference is mostly due to the impact of the increase in revenue due to higher volume sales. The midpoint of guidance for FY22 is US$197m, which is below our previous forecast of US$237m. The difference is due to lower revenue (lower volume sales) combined with implied higher operating costs (SG&A and other opex). We estimate there is an almost 40% increase in these costs and extrapolate the increase across our forecast period.

Canacol expects capex of US$108m in FY21, which is significantly lower than our previous forecast of US$148m. This difference is mostly due to reduced exploration spend in the second half of FY21. The midpoint of guidance for FY22 is US$190m, which is above our previous forecast of US$171m. This difference is mostly due to exploration spend from FY21 deferred into FY22 (and beyond). In aggregate, we increase our capex forecasts over FY22–25 by 2%.

Exhibit 4: Volume sales/production forecasts (mmscfd)

Exhibit 5: Capex forecasts (US$m)

Source: Canacol, Edison Investment Research

Source: Canacol, Edison Investment Research

Exhibit 4: Volume sales/production forecasts (mmscfd)

Source: Canacol, Edison Investment Research

Exhibit 5: Capex forecasts (US$m)

Source: Canacol, Edison Investment Research

Implications for NAV

Our core NAV for Canacol decreases from C$3.15/share to C$2.76/share, as a result of the changes to our forecasts for volume sales, operating costs and capex. Our additional 2P reserves decreases very slightly (-2%), giving a total NAV of C$5.65 (from C$6.12 previously). The breakdown of our valuation is shown below.

Exhibit 6: Base case valuation

Asset

Number of shares: 192.1m**

Recoverable reserves

Net risked value

Country

Diluted WI

CoS

Gross

Net WI

NPV

Absolute

C$/share

 

%

%

bcf

US$/mcf

US$m

12.5%

Adjusted net (debt)/cash at end 2020*

(307)

(2.05)

SG&A and other opex - NPV of five years

(135)

(0.90)

Decommissioning provisions

(25)

(0.17)

Cash from assumed exercise of options

43

0.29

Producing assets

Esperanza

Colombia

100%

100%

200

200

1.38

275

1.84

VIM-21

Colombia

100%

100%

59

59

1.70

101

0.68

VIM-5

Colombia

100%

100%

378

378

1.26

475

3.18

Core NAV

 

 

 

637

637

 

427

2.86

Exploration/development upside

Five-year programme (assumes 200% RRR)

 

100%

70%

731

731

0.83

423

2.83

Total NAV

 

 

 

1,368

1,368

 

850

5.69

Source: Edison Investment Research. Note: *Adjusted for shares repurchased since year-end. **Fully diluted number of shares.

Discount sensitivity rate

We have used a generic discount rate of 12.5% in our valuation. This is in line with that used for funded, cash-generative E&Ps with operations in emerging markets, resulting in our valuation of C$5.65/share. At a 10% discount rate, it would increase to C$6.37/share. We provide a sensitivity to this key input below.

Exhibit 7: 2P and risked exploration NAV sensitivity (C$/share) to WACC

8.0%

10.0%

12.5%

15.0%

2P NAV

4.20

3.54

2.86

2.29

Risked NAV

7.02

6.37

5.69

5.12

Source: Edison Investment Research

Relative valuation

Canacol trades at a P/CF multiple of 4.3x in FY22e compared to its Canadian (junior) E&P peers on 4.9x and its North American E&P peers with South American operations on 3.2x. North American E&P peers with South American operations include Frontera Energy, Gran Tierra, Parex Resources, Petrotal and GeoPark; excluding Gran Tierra, which is an outlier, FY22e P/CF for this peer group becomes 3.6x.

Exhibit 8: Peer group valuation

Market cap (US$m)

EV
(US$m)

P/CF
FY21e (x)

P/CF
FY22e (x)

EV/EBITDA FY21e (x)

EV/EBITDA FY22e (x)

FCF yield FY21e (%)

FCF yield FY22e (%)

Net debt/
EBITDA FY21e (x)

Net debt/
EBITDA FY22e (x)

Div yield FY21e (%)

Prod growth FY22e (%)

EV/kboed FY21e (x)

Canacol

448

805

3.18

4.37

4.26

3.50

0.40

0.05

1.70

1.40

7.59

7.73

25.0

North American E&P peers with South American operations

902

1,165

2.08

3.21

3.57

2.57

6.33

0.26

1.03

0.75

0.59

22.24

37.2

Frontera Energy Corp

769

1,070

1.88

2.60

3.11

2.51

-1.30

0.18

0.89

0.72

0.00

6.30

28.1

GeoPark

788

1,406

2.35

4.57

4.79

3.69

8.50

0.15

2.06

1.59

0.77

-1.46

37.2

Gran Tierra Energy

317

991

0.93

1.54

3.84

2.60

17.52

0.43

2.76

1.87

0.00

18.95

37.1

Parex Resources

2,350

1,991

3.36

4.21

2.89

2.46

12.71

0.11

(0.48)

-0.41

2.18

13.78

42.4

Petrotal Corp

287

369

1.90

3.11

3.23

1.59

-5.76

0.41

(0.06)

-0.03

0.00

73.63

41.0

Canada

5,310

6,724

3.23

4.55

5.59

3.97

7.89

0.16

1.33

0.96

1.10

14.42

36.7

Junior E&P <30kboed

565

773

3.08

4.94

6.27

3.78

3.63

0.18

1.65

1.02

0.00

24.22

35.0

Cardinal Energy (Alberta)

600

766

3.82

5.65

6.45

4.66

11.56

0.19

1.58

1.14

0.00

5.70

39.6

Crew Energy

426

726

2.56

4.21

7.09

3.84

-5.77

0.23

2.58

1.40

0.00

22.61

27.3

Kelt Exploration

847

835

4.27

6.78

7.47

4.22

-2.76

0.04

(0.21)

-0.12

0.00

41.36

38.9

Obsidian Energy

436

758

2.21

2.65

3.64

3.24

12.07

0.22

1.71

1.53

0.00

11.40

30.9

Pipestone Energy Corp

699

897

3.75

7.20

6.41

3.38

-1.52

0.15

1.08

0.57

0.00

41.57

35.8

Surge Energy

380

657

1.89

3.18

6.55

3.32

8.22

0.26

3.18

1.61

0.00

22.66

37.4

Intermediate E&P >30kboed

1,613

2,101

3.14

4.55

5.27

3.82

7.41

0.14

1.33

0.99

1.29

12.90

36.0

Baytex Energy Corp

2,010

3,252

2.95

3.47

5.12

4.52

16.73

0.17

2.22

1.96

0.00

1.75

40.7

Birchcliff Energy

1,550

2,145

3.26

3.61

4.47

4.26

15.24

0.19

1.29

1.23

0.33

0.03

27.0

Frontera Energy Corp

769

1,070

1.88

2.60

3.11

2.51

-1.30

0.18

0.89

0.72

0.00

6.30

28.1

Nuvista Energy

1,505

1,993

3.21

6.15

6.78

4.00

2.67

0.14

1.89

1.11

0.00

28.54

38.2

Paramount Resources

2,912

3,357

4.22

7.34

8.06

4.66

6.17

0.09

1.57

0.91

0.71

11.99

40.9

Parex Resources

2,350

1,991

3.36

4.21

2.89

2.46

12.71

0.11

(0.48)

-0.41

2.18

13.78

42.4

Peyto Exploration & Development Corp

1,478

2,372

2.67

4.04

5.92

4.05

6.56

0.15

2.29

1.57

0.79

14.87

26.0

Tamarack Valley Energy

1,499

1,928

3.52

5.18

6.81

4.43

7.54

0.16

0.61

0.40

0.00

31.13

55.8

Large E&P >100kboed

14,130

17,770

3.47

4.22

5.42

4.32

12.16

0.17

1.06

0.87

1.81

7.97

39.0

ARC Resources

7,536

9,697

3.14

3.65

6.02

4.20

13.16

0.16

0.37

0.26

1.94

14.59

32.2

Canadian Natural Resources

57,755

71,492

4.95

5.41

5.66

5.45

12.44

0.12

1.41

1.36

3.07

5.34

58.0

Crescent Point Energy Corp

3,911

5,797

2.70

3.33

4.73

3.85

12.11

0.17

1.54

1.26

0.57

1.91

43.6

Enerplus Corp

2,965

3,819

3.19

4.30

5.36

4.05

8.93

0.17

0.41

0.31

1.00

6.81

33.4

Ovintiv

10,271

15,089

2.62

3.10

4.47

3.59

17.84

0.22

2.07

1.67

1.19

-3.30

28.1

Tourmaline Oil Corp

12,034

13,054

4.03

4.90

5.15

4.37

9.15

0.17

0.54

0.46

2.62

13.84

29.5

Whitecap Resources

4,436

5,440

3.63

4.84

6.54

4.72

11.50

0.17

1.11

0.80

2.28

16.64

48.6

US

16,831

21,335

3.78

5.00

6.05

4.67

9.88

0.17

1.57

1.18

1.03

9.84

56.1

RoW

3,629

4,997

2.83

2.82

3.29

2.81

16.44

0.31

1.11

0.97

2.24

14.66

58.0

Average

9,639

12,270

3.32

4.40

5.32

4.00

9.73

0.19

1.38

1.0

1.18

13.14

47.8

Source: Edison Investment Research, Refinitiv. Note: Prices at 13 January 2022.

Exhibit 9: Financial summary

 

US$m

2019

2020

2021e

2022e

Year-end December

 

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

219.5

246.8

240.9

254.6

Cost of sales (opex)

(17.1)

(18.0)

(15.2)

(18.4)

Gross profit

202.4

228.8

225.7

236.2

General & admin and other recurring expenses

(36.4)

(41.3)

(28.6)

(39.6)

EBITDAX*

 

166.0

187.5

197.0

196.5

Share based payments

(7.9)

(5.9)

(4.9)

(5.0)

Exploration expense

(3.0)

-

(12.0)

-

Other non-recurring

(3.2)

(8.7)

(10.1)

EBITDA

 

151.9

172.9

170.1

191.5

Depreciation

(54.3)

(64.5)

(68.1)

(67.0)

Operating Profit (before amort. and except.)**

 

103.8

117.1

124.0

124.5

Intangible amortisation

-

-

-

-

Exceptionals

(6.2)

(8.7)

(22.1)

-

Other

-

-

-

-

EBIT

97.6

108.4

102.0

124.5

Net interest

(32.9)

(31.0)

(33.9)

(34.3)

Profit Before Tax (norm)

 

70.9

86.1

90.2

90.2

Profit Before Tax (FRS 3)

 

64.7

77.4

68.1

90.2

Tax

(30.5)

(82.1)

(53.2)

(40.6)

Profit After Tax (norm)

40.4

3.9

37.0

49.6

Profit After Tax (FRS 3)

34.2

(4.7)

14.9

49.6

Average Number of Shares Outstanding (m)

178.3

180.6

178.2

176.7

EPS - normalised (c)

 

22.67

2.18

20.74

28.05

EPS - normalised fully diluted (c)

 

22.67

2.18

20.74

28.05

EPS - (IFRS) (US$)

 

0.19

(0.03)

0.08

0.28

Dividend per share (c)

0.05

0.21

0.20

0.20

Gross margin (%)

92.19

92.70

93.68

92.76

EBITDA margin (%)

92.19

92.70

93.68

92.76

Operating margin (before GW and except.) (%)

47.29

47.44

51.49

48.91

BALANCE SHEET

Non-current assets

 

620.8

596.3

624.2

747.6

Intangible assets

53.9

62.8

113.8

219.2

Tangible assets

506.1

524.8

498.6

498.7

Investments

60.8

8.7

11.7

29.7

Current assets

 

133.3

153.5

245.6

131.6

Stocks

-

-

-

-

Debtors

69.6

70.7

70.7

70.7

Cash

41.2

68.3

160.4

46.4

Other/ restricted cash

22.4

14.5

14.5

14.5

Current liabilities

 

(97.8)

(92.6)

(92.6)

(92.6)

Creditors

(89.6)

(85.4)

(85.4)

(85.4)

Short-term borrowings

(8.2)

(7.2)

(7.2)

(7.2)

Long-term liabilities

 

(413.5)

(449.8)

(570.7)

(553.6)

Long-term borrowings

(333.4)

(359.9)

(480.8)

(463.7)

Other long-term liabilities (inc. decomm.)

(80.1)

(89.9)

(89.9)

(89.9)

Net assets

 

242.7

207.4

206.5

233.0

CASH FLOW

Operating cash flow

 

108.4

152.3

150.2

157.7

Capex inc acquisitions

(84.3)

(89.0)

(108.0)

(190.5)

Financing expenses

(29.5)

(28.7)

(34.9)

(36.1)

Equity issued/(repurchased)

7.2

(2.3)

(8.0)

-

Dividends

(7.1)

(20.6)

(29.7)

(29.7)

Net cash flow

(5.3)

11.8

(28.7)

(96.9)

Opening net debt/(cash)

 

288.1

300.3

298.9

329.3

HP finance leases initiated

-

-

-

-

Other

(7.0)

(10.3)

-

-

Closing net debt/(cash)

 

300.3

298.9

329.3

428.0

Source: Canacol, Edison Investment Research. Note: *EBITDA excluding pre-licence costs and exploration impairment, stock-based compensation and non-recurring items; **operating profit excluding pre-licence costs and exploration impairment, and non-recurring items.


General disclaimer and copyright

This report has been commissioned by Canacol Energy and prepared and issued by Edison, in consideration of a fee payable by Canacol Energy. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

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Frankfurt +49 (0)69 78 8076 960

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Canacol Energy and prepared and issued by Edison, in consideration of a fee payable by Canacol Energy. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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