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Realised gas sales support dividend

Canacol Energy 23 June 2020 Update
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Canacol Energy

Realised gas sales support dividend

Operational update

Oil & gas

23 June 2020

Price

C$3.69

Market cap

C$664m

C$1.33/US$

Net debt (US$m) at 31 March 2020

334

Shares in issue

180.9

Free float

67%

Code

CNE

Primary exchange

TSX

Secondary exchange

BVC

Share price performance

%

1m

3m

12m

Abs

(7.0)

7.2

(17.3)

Rel (local)

(10.6)

(18.1)

(11.9)

52-week high/low

C$5.03

C$2.82

Business description

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

Next events

Drilling programme restart

June 2021

Analysts

Carlos Gomes

+44 (0)20 3077 5700

Elaine Reynolds

+44 (0)20 3077 5713

Canacol Energy is a research client of Edison Investment Research Limited

Canacol Energy is guiding to FY20 realised natural gas sales of 170–197mmscfd (cf 143mmscfd in FY19) as gas demand is picking up in Colombia while quarantine measures are lifted. The low case scenario assumes that spot sales (normally c 20% of the total) are not reactivated in 2020, and the high case scenario assumes they are reactivated in August 2020. We estimate a mid-case scenario of realised natural gas sales of 183mmscfd for the year, with sales in line with the last two weeks of May 2020 as reported by the company. Drilling operations have also resumed and the 2020 programme remains Canacol’s largest ever, despite a slimmed down programme from 12 to nine wells and lower capex for the year of US$108m. The company recently announced that it is maintaining its quarterly dividend of C$0.052/share. Our 2P + risked exploration NAV has decreased by 7% to C$6.55/share, reflecting the impact of lower gas sales demand in Colombia due to the COVID-19 pandemic.

Year-end

Revenue* (US$m)

Adj EBITDAX**
(US$m)

Cash from
operations (US$m)

Net debt***
(US$m)

Capex****
(US$m)

Yield
(%)

12/18

204.5

138.6

94.0

288.1

(75.5)

N/A

12/19

219.5

162.8

108.4

300.3

(84.3)

1.9

12/20e

255.7

214.9

200.5

265.8

(108.0)

7.4

12/21e

289.6

245.3

204.8

228.3

(110.7)

7.4

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 2P production profile.

Gas demand increasing

Canacol expects FY20 production to reach 197mmscfd, assuming spot demand increases and stabilises through July and August 2020. Even if demand does not return at this pace, management still guides to full year production of 170mmscfd based on its take or pay contracts. Realised contractual gas sales for the latter half of May were 181mmscfd. Meanwhile, an unusually dry winter and low reservoir conditions have increased demand for gas for thermoelectric power plants.

Exploration drilling from July 2020

After drilling the Nelson-14 and Clarinete-5 development wells, quarantine measures resulted in a two-month delay to the 2020 drilling programme. Drilling is due to restart in June with Pandereta-8, while a second rig is now expected to begin drilling in July at the first exploration well in the 2020 programme, Porro Norte-1.

Valuation: RENAV at C$6.55/share

Our base case valuation of Canacol stands at C$6.55/share. The company trades on an FY20e P/CF of 2.5x, lower than its Canadian peers on 3.3x and its peer group of North American E&Ps with South American operations on 2.8x. Canacol’s share price has only decreased by c 20% since January 2020, while its peer group with South American operations fell by 55%. The company has proved resilient due to its limited exposure to commodity price volatility, low levels of debt and high netbacks, and recently announced that it is maintaining its quarterly dividend at C$0.052 per share.

Colombian demand returns: FY20 guidance 197mmscfd

In Q120, Canacol realised record natural gas sales of 201.5mmscfd, up from 122mmscfd in Q119, primarily due to completion of the Jobo to Cartagena 100mmscfd pipeline in July 2019. This was interrupted by a country-wide shutdown between 26 March and 27 April in Colombia due to COVID-19, during which period there were virtually no gas sales.

Manufacturing and construction activities resumed on 27 April across the whole country and all remaining sectors re-opened on 1 June, except in Bogota, Cali and Cartagena where restrictions were lifted on 15 June 2020. Demand is therefore expected to increase and stabilise during July and August 2020 and under this scenario Canacol is guiding to full year production of 197mmscfd, with guidance of 170mmscfd in the event of spot demand not returning. Around 80% of Canacol’s annual sales are on take or pay contracts, with management estimating that these volumes account for c 162mmscfd. The balance is interruptible or spot sales. In the near term, gas demand is expected to rise, due to hydroelectric reservoirs being at a 20-year low following an unusually dry winter.

The company is planning to increase capacity further, with a 100mmscfd pipeline to Medellin expected on-line by H224 subject to signing the negotiated sales contract with a major utility, EPC contractor selection and financing. Potential future growth projects include the requirement for 30mmscfd from December 2021, subject to revision due to COVID-19, at the El Tesorito power plant, 7km south of Canacol’s facilities, and c 25mmscfd capacity in the Jobo/Cartagena/ Barranquilla pipeline between 2020 and 2022 if interruptible market demand is strong.

Exhibit 1: Pipeline schematic

Source: Canacol Energy

2020 drilling programme resumes

Canacol had been planning to drill 12 wells in 2020, including nine exploration wells. However, having successfully completed drilling of the Nelson-14 and Clarinete-5 development wells, the remainder of the drill programme had to be put on hold on 26 March as a result of the quarantine measures taken to limit the COVID-19 pandemic. This also meant that the anticipated arrival of a second rig was delayed until July 2020 and, taken together, these measures resulted in a downward revision to the 2020 programme, with Canacol now expecting to drill nine wells in 2020, five of which will be exploration wells. Despite this, the exploration programme is still the largest exploration investment in Canacol’s history.

The company’s success rate remains high, with an ongoing exploration and appraisal success rate of 83% delivered through the continued application of its amplitude versus offset (AVO) methodology.

Exhibit 2: Canacol map with 2020 drill targets

Source: Canacol Energy

The Pioneer 53 drilling rig was reactivated on 24 May 2020. It has since completed the Clarinete-5 development well and is now being mobilised to the Pandereta-8 development location, where it is expected to spud in the third week of June 2020, taking around five weeks to drill and complete. Clarinete-5 encountered 309ft of net gas pay in the primary Cienaga de Oro (CDO) reservoir and was tested at a rate of 43mmscfd. The well has now been tied into permanent production.

Exhibit 3: 2020 planned wells

Well

Well-type

Rig 1

Nelson-14*

Development

Clarinete-5*

Development

Pandereta-8

Development

Pandereta-4

Appraisal

Flauta-1

Exploration

Milano-1

Exploration

Rig 2

Porro Norte-1

Exploration

Fresa-1

Exploration

Piccolo-1

Exploration

Source: Canacol Energy. Note: *Wells already drilled.

The first well to be drilled by the second rig is expected to be exploration well Porro Norte-1 in VIM-5. The well will target a four-way anticline with fault dependent upside and will assess the presence of gas in multiple stacked targets including the CDO but also the Porquero and Tubara sandstones.

Prospective resources audit: 4.7tcf

In April 2020, Canacol provided an update to its prospective resources, based on an independent audit carried out by Gaffney, Cline & Associates (GCA) as of 31 December 2019. The report evaluated and estimated conventional natural gas prospective resources for 162 prospects and leads across all six of the company’s Lower Magdalena Valley exploration blocks and the recently acquired VMM-45 and VMM-49 exploration blocks in the Middle Magdalena Valley basin. The company aggregated the individual prospective resources to a gross unrisked mean of 4.7tcf, up from 2.6tcf as of 31 December 2017. Risked mean resources increased from 0.95tcf to 1.38tcf.

Valuation

Our 2P valuation incorporates discounted cash flows, reflecting monetisation of the company’s existing reserve base, adjusting for overheads, net debt and decommissioning provisions to arrive at a NAV. We also look at two additional valuation scenarios that include incremental reserves over and above 2P. Here we include ‘maintenance’ capex (largely 3D seismic, exploration and development wells and tie-in costs) required to add reserves to sustain a production plateau. Our DCFs utilise a standardised discount rate of 12.5%, but we provide sensitivities to this key assumption later in this note. Key model inputs for our valuation scenarios can be found in our initiation note published on 14 May 2019.

We have updated our forecasts to reflect Q120 results and incorporated the impact of COVID-19 on Canacol’s realised gas sales. As the company announced on 3 June 2020, realised contractual gas sales from January to May 2020 averaged c 180mmscfd, with Q120 sales of 201.5mmscfd, April 2020 sales of 136mmscfd and May 2020 sales of 158mmscfd. We assume a conservative 2020 annual sales scenario of c 183mmscfd, a mid-case scenario compared to the company’s guidance range of 170–197mmscfd. We assume that realised gas sales will remain in line with the second half of May of 181mmscfd, resulting in average realised gas sales of c 186mmscfd for Q320 and Q420. Given current uncertainty and a possible second wave of COVID-19, we decided to take a conservative view for our base case as we continue monitoring the market. Changes to our valuation also include management’s updated 2020 capex to US$108m to reflect the interruption in drilling activities during Colombia’s quarantine period. We also decrease our natural gas price assumption, net of transportation, from US$4.80/mcf to US$4.58/mcf to reflect lower demand for spot cargoes. The Q120 realised price net of transportation stood at US$4.54/mcf. Our base case valuation currently stands at C$6.55/share, reflecting a 7% decrease on our previous valuation of C$7.02/share.

Exhibit 4: Base case NAV breakdown

Recoverable reserves

Net risked value @ 12.5%

Asset

Country

Diluted WI

CoS

Gross

Net

NPV per mcf

NPV

2P

%

%

bcf

bcf

US$/mcf

US$m

C$/share

Net debt at end 2019

(300)

(2.03)

SG&A – NPV of 5 years

(90)

(0.61)

Decommissioning provisions

(16)

(0.11)

Cash from assumed exercise of options

56

0.38

Producing assets

Esperanza

Colombia

100%

100%

199

199

1.62

323

2.18

VIM-21

Colombia

100%

100%

56

56

2.08

117

0.79

VIM-5

Colombia

100%

100%

368

368

1.43

527

3.56

Core NAV

624

624

616

4.17

Exploration/development upside

Five-year programme (800bcf gross)

Colombia

100%

45%

800

800

0.98

353

2.39

Total NAV

1,424

1,424

969

6.55

Source: Edison Investment Research. Note: Number of shares = 180.9m + 16.0m = 196.9m (includes dilution from all share options)

The market appears to be undervaluing Canacol’s 2P reserve base and its prospective resource, despite historically high exploration and appraisal (E&A) success rates, currently at 83%. Exhibit 5 below shows the impact of our different valuation scenarios versus the current share price.

Exhibit 5: Edison valuation scenarios versus share price (base case at 12.5% WACC)

Source: Edison Investment Research. Note: Priced at 19 June 2020.

Discount rate sensitivity

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 a valuation of C$6.55/share. At a 10% discount rate, it would increase to C$7.30/share. We provide a sensitivity to this key input below.

Exhibit 6: 2P and risked exploration NAV sensitivity (C$/share) to WACC

8.0%

10.0%

12.5%

15.0%

2P NAV

5.62

4.91

4.17

3.54

Risked NAV (800bcf risked @ 45%)

8.00

7.30

6.55

5.93

Source: Edison Investment Research

Relative valuation

Canacol currently trades at a c 40% discount to our NPV12.5 base case scenario valuation of the company’s 2P reserve base plus prospective resources. Relative to Canacol’s peer group, the free cash flow yield in FY20e is high at 18.5%, supporting shareholder cash returns. Canacol trades at a P/CF multiple of 2.5x in FY20e, compared to its Canadian E&P peers on 3.3x and its North American E&P peers with South American operations on 2.8x. North American E&P peers with South American operations include Frontera Energy, Gran Tierra, Parex Resources, PetroTal and GeoPark. Since January 2020, Canacol’s share price has decreased by c 20%, while its peer group of North American E&Ps with South American operations has declined by 55%.

Exhibit 7: Share price performance of Canacol and its peers since January 2020

Source: Edison Investment Research, Refinitiv. Note: Prices as at 19 June 2020

We believe that Canacol’s outperformance relative to its peers is due to Canacol’s limited exposure to current commodity price volatility, its low levels of debt and high netbacks, which could help justify a lower cost of capital than our assumed 12.5%. We provide a sensitivity to this driver in Exhibit 6.

Exhibit 8: Peer group valuation table

Row Labels

Market cap
(US$m)

EV
(US$m)

P/CF
FY20e (x)

P/CF
FY21e (x)

EV/EBITDA
FY20e (x)

EV/EBITDA
FY21e (x)

FCF yield
FY20e (%)

FCF yield
FY21e (%)

Net debt/EBITDA
FY20e (x)

Net debt/EBITDA
FY21e (x)

Div yield FY20e (%)

Production
FY20 (kboed)

Prod growth
FY20e (%)

EV/kboed
FY20e (US$m/
kboed)

Edison estimates - Canacol

501

802

2.50

2.45

3.94

3.43

18.5%

18.8%

1.30

0.98

7.4%

32.1

51.4%

25.0

Canacol peer group

566

731

3.26

3.03

4.31

2.90

5.5%

25.2%

0.81

0.71

1.7%

33.4

12.3%

21.5

Frontera Energy

279

458

1.25

1.10

1.60

1.26

15.5%

27.3%

0.26

0.20

7.5%

50.3

-5.1%

9.1

GeoPark

606

945

11.87

3.58

7.15

4.64

-12.6%

9.7%

2.57

1.67

0.9%

40.7

5.2%

23.2

Gran Tierra Energy

148

872

2.27

1.54

5.19

4.35

-23.6%

-24.4%

3.58

3.00

0.0%

23.2

22.8%

37.6

Parex Resources

1,709

1,312

7.27

4.70

6.94

3.76

4.0%

9.2%

(2.09)

(1.13)

0.0%

44.6

12.2%

29.4

PetroTal

89

69

(6.37)

4.24

0.68

0.48

44.0%

104.3%

(0.26)

(0.18)

0.0%

8.3

26.5%

8.0

Canada

1,270

2,635

2.88

2.00

6.12

4.44

-3.8%

5.4%

3.76

2.75

2.0%

123.0

0.3%

16.0

Junior E&P<30kboed

110

301

2.75

1.92

6.39

4.97

-5.8%

-6.2%

4.50

3.52

1.5%

19.2

0.1%

16.0

Crew Energy

37

280

1.60

1.32

7.47

6.09

1.7%

-34.7%

7.20

5.88

0.0%

20.7

-7.2%

13.5

Pipestone Energy

72

230

2.98

2.53

8.54

6.87

-29.3%

-18.5%

5.38

4.33

0.0%

16.0

7.9%

14.4

Storm Resources

120

214

3.34

1.93

4.52

2.83

-0.3%

17.8%

2.03

1.27

0.0%

24.3

8.2%

8.8

Surge Energy

91

400

2.72

2.33

7.74

6.64

7.3%

-6.6%

6.44

5.52

7.0%

17.2

0.4%

23.2

Tamarack Valley Energy

130

291

1.54

1.54

3.26

3.37

3.3%

-3.3%

1.77

1.83

0.0%

19.7

-0.3%

14.7

TORC Oil & Gas

279

510

5.14

2.61

5.98

4.40

-8.1%

0.8%

2.80

2.06

3.2%

25.4

-0.3%

20.1

Yangarra Resources

42

185

1.95

1.15

7.23

4.56

-15.3%

1.2%

5.87

3.71

0.0%

10.9

-7.8%

17.0

Intermediate E&P>30kboed

361

783

2.68

1.78

5.44

3.72

-5.9%

12.5%

3.36

2.16

1.9%

55.8

0.4%

14.6

Advantage Oil & Gas

226

468

2.72

1.68

5.19

2.94

6.3%

3.4%

2.43

1.38

0.0%

45.1

0.7%

10.4

Africa Oil

374

509

0.87

1.50

1.17

1.64

109.8%

130.2%

(0.75)

(1.05)

0.0%

33.7

-2.2%

15.1

Baytex Energy

269

1,695

1.70

1.54

6.90

5.39

-13.6%

-18.7%

5.77

4.51

0.0%

73.8

3.5%

23.0

Birchcliff Energy

209

745

2.06

1.01

6.95

2.98

-46.4%

21.8%

4.87

2.09

8.2%

78.4

3.3%

9.5

Bonavista Energy

42

665

0.68

0.50

8.01

5.08

-17.2%

21.8%

7.50

4.76

0.0%

61.9

-9.3%

10.7

Canacol Energy

493

812

3.55

2.98

3.62

3.15

10.0%

11.3%

1.46

1.27

2.2%

32.3

12.1%

25.1

Enerplus

648

1,064

3.25

2.84

5.14

4.37

-1.8%

-0.6%

1.89

1.61

2.7%

87.0

-3.2%

12.2

Frontera Energy

279

458

1.25

1.10

1.60

1.26

15.5%

27.3%

0.26

0.20

7.5%

50.3

-5.1%

9.1

Kelt Exploration

216

511

3.68

2.14

7.34

5.83

-15.8%

-7.5%

4.18

3.32

0.0%

30.6

3.7%

16.7

Nuvista Energy

148

686

1.50

1.38

5.79

4.91

-19.2%

-13.9%

4.18

3.54

0.0%

50.8

-1.9%

13.5

Painted Pony Energy

56

324

3.07

1.20

3.06

1.07

-31.0%

12.5%

5.80

2.02

0.0%

47.9

-8.3%

6.8

Paramount Resources

148

644

4.54

1.37

7.63

4.78

-80.4%

-38.6%

6.00

3.76

0.0%

66.4

-3.0%

9.7

Parex Resources

1,709

1,312

7.27

4.70

6.94

3.76

4.0%

9.2%

(2.09)

(1.13)

0.0%

44.6

12.2%

29.4

Peyto Exploration & Development

239

1,072

1.41

0.97

6.81

4.90

-3.1%

17.2%

5.49

3.95

5.5%

78.4

3.4%

13.7

Large E&P>100kboed

4,742

9,678

3.48

2.60

7.37

5.51

3.7%

2.1%

3.82

3.22

3.1%

401.0

0.4%

19.2

ARC Resources

1,240

1,985

3.49

2.73

8.96

4.21

3.4%

7.4%

3.18

1.49

5.7%

152.0

2.5%

13.1

Canadian Natural Resources

20,371

37,387

9.34

5.06

14.43

8.05

-1.8%

2.8%

6.66

3.71

5.0%

1,124.8

2.9%

33.2

Crescent Point Energy

868

2,824

1.60

1.91

4.87

7.85

13.0%

-10.0%

4.02

6.48

2.7%

112.7

-0.5%

25.1

Ovintiv

2,788

9,782

1.55

1.88

4.42

5.33

0.9%

5.5%

3.16

3.81

2.4%

529.7

-4.5%

18.5

Seven Generations Energy

804

2,424

1.55

1.41

6.54

4.00

3.9%

-4.5%

4.20

2.57

0.0%

180.0

-1.3%

13.5

Tourmaline Oil

2,380

3,665

3.33

2.58

4.99

3.62

2.8%

11.2%

1.71

1.24

2.9%

306.8

3.3%

11.9

US

5,481

10,142

3.96

3.45

6.61

6.45

4.3%

-1.6%

3.09

3.15

1.6%

294.5

-3.5%

33.2

RoW

3,172

4,853

3.21

5.08

5.35

4.06

15.4%

26.2%

2.05

1.68

0.3%

89.1

6.7%

64.8

Average

3,439

6,268

3.44

3.22

6.08

5.19

3.8%

6.9%

2.98

2.61

1.6%

189.0

0.9%

32.2

Source: Edison Investment Research, Refinitiv. Note: Prices as at 19 June 2020

Financials

Canacol announced that it will invest an estimated c US$108m in capex in 2020 (versus US$114m in our previous note), which will be fully funded from existing cash and 2020 cash flow. We expect an EBITDAX of c US$210m for the year (vs our previous estimate of US$260m). Canacol’s budget also allows for a minimum of US$7m in quarterly dividends, as well as debt reduction in 2020. The company recently announced that it is maintaining its dividend for the quarter, demonstrating that despite lower realised sales in April and May 2020, free cash flow generation is resilient and allows for dividend maintenance. Even though we are taking a more conservative approach on average natural gas sales for the year of 183mmscfd (versus company guidance of 197mmscfd), as well as a lower realised price net of transportation of US$4.58/mcf (versus the company’s estimate of US$4.80/mcf), under our current assumptions the FY20 cash dividend stands at 45% of FCF, decreasing to c 42% in 2021 and 2022.

The company also expects a decrease in net debt/EBTIDA in the coming years, guiding to 1.3x net debt/EBITDA for year-end 2020, compared to 2.1x in December 2019. Our estimated net debt/EBITDA is in line with company guidance at 1.3x.

Exhibit 9: Free cash flow waterfall in FY20

Exhibit 10: Free cash flow forecast

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 9: Free cash flow waterfall in FY20

Source: Edison Investment Research

Exhibit 10: Free cash flow forecast

Source: Edison Investment Research

We also tested the impacts of Canacol’s low realised sales scenario of 170mmscfd. Under this assumption, and our pricing assumptions, FY20 EBITDAX would stand at c US$196m for the year. Our estimated net debt/EBITDA would be 1.5x and the FY20 cash dividend would stand at 64% of FCF. Free unlocated cash flow, post-annual cash dividend of US$28m, would remain positive at US$16m, showing that the company has some headroom if spot sales do not reactivate in 2020. Meanwhile, the company is well positioned to pursue its stated capital allocation programme of paying a dividend (no plans to reduce) and potential share buybacks.

Exhibit 11: Financial summary

 

US$m

 

2017

2018

2019

2020e

2021e

Year-end December

 

 

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue*

 

 

156.6

204.5

219.5

255.7

289.6

Cost of sales (opex)

(25.0)

(28.9)

(17.1)

(16.6)

(19.6)

Gross profit

131.6

175.6

202.4

239.0

270.0

General & admin

(26.5)

(28.2)

(29.0)

(24.2)

(24.8)

Share based payments

(11.6)

(8.5)

(7.9)

(8.1)

(8.3)

Exploration expense

(27.1)

(13.7)

(3.0)

(3.0)

(3.1)

EBITDA

 

 

130.2

138.6

162.8

214.9

245.3

Depreciation

(35.8)

(44.2)

(54.3)

(65.3)

(73.2)

Operating Profit (before amort. and except.)

 

 

(90.0)

41.9

97.6

138.4

160.7

Intangible amortisation

-

-

-

-

-

Exceptionals

-

-

-

-

-

Other

-

-

-

-

-

EBIT

(90.0)

41.9

97.6

138.4

160.7

Net interest

(26.3)

(34.5)

(32.9)

(29.4)

(27.7)

Profit Before Tax (norm)

 

 

(116.4)

7.3

64.7

109.1

133.0

Profit Before Tax (FRS 3)

 

 

(116.4)

7.3

64.7

109.1

133.0

Tax

(32.4)

(29.2)

(30.5)

(15.0)

(41.3)

Profit After Tax (norm)

(148.8)

(21.8)

34.2

94.1

91.6

Profit After Tax (FRS 3)

(148.8)

(21.8)

34.2

94.1

91.6

Average Number of Shares Outstanding (m)

175.2

177.2

178.3

180.9

180.9

EPS - normalised (c)

 

 

(84.95)

(12.32)

19.21

51.98

50.67

EPS - normalised fully diluted (c)

 

 

(84.95)

(12.32)

19.21

51.98

50.67

EPS - (IFRS) (US$)

 

 

(0.85)

(0.12)

0.19

0.52

0.51

Dividend per share (c)

-

-

-

-

-

Gross margin (%)

84.01

85.87

92.19

93.49

93.24

EBITDA margin (%)

84.01

85.87

92.19

93.49

93.24

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

(57.49)

20.48

44.48

54.13

55.47

BALANCE SHEET

Non-current assets

 

 

499.8

580.3

620.8

660.4

694.8

Intangible assets

43.9

39.6

53.9

116.8

181.3

Tangible assets

383.4

480.4

506.1

482.8

452.7

Investments

72.5

60.3

60.8

60.8

60.8

Current assets

 

 

196.7

124.7

133.3

152.8

190.4

Stocks

0.6

0.3

-

-

-

Debtors

50.4

68.2

69.6

69.6

69.6

Cash

39.1

51.6

41.2

60.8

98.3

Other/ restricted cash

106.6

4.6

22.4

22.4

22.4

Current liabilities

 

 

(86.3)

(69.3)

(97.8)

(97.8)

(97.8)

Creditors

(86.3)

(69.3)

(89.6)

(89.6)

(89.6)

Short-term borrowings

-

-

(8.2)

(8.2)

(8.2)

Long-term liabilities

 

 

(371.0)

(430.3)

(413.5)

(398.5)

(398.5)

Long-term borrowings

(294.6)

(339.7)

(333.4)

(318.4)

(318.4)

Other long-term liabilities (including decommissioning)

(76.4)

(90.6)

(80.1)

(80.1)

(80.1)

Net assets

 

 

239.1

205.4

242.7

316.9

388.9

CASH FLOW

Operating cash flow

 

 

65.3

94.0

108.4

200.5

204.8

Capex inc acquisitions**

(106.0)

(75.5)

(84.3)

(108.0)

(110.7)

Financing expenses

(21.2)

(36.0)

(29.5)

(30.0)

(28.6)

Equity issued

(1.9)

(3.7)

2.1

-

-

Dividends

-

-

(7.1)

(28.0)

(28.0)

Net cash flow

(63.8)

(21.2)

(10.4)

34.5

37.6

Opening net debt/(cash)

 

 

184.4

255.5

288.1

300.3

265.8

HP finance leases initiated

-

-

-

-

-

Other

(7.4)

(11.4)

(1.9)

0.0

-

Closing net debt/(cash)

 

 

255.5

288.1

300.3

265.8

228.3

Source: Edison Investment Research, Canacol Energy accounts. Note: *Edison revenue forecast net of royalties and transport expenses; Canacol reports revenues net of royalties before transport expenses. **215mmscfd and 315mmscfd plateau scenarios include materially higher capex.


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This report has been commissioned by Canacol and prepared and issued by Edison, in consideration of a fee payable by Canacol. Edison Investment Research standard fees are £49,500 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 2020 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.

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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

1,185 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 and prepared and issued by Edison, in consideration of a fee payable by Canacol. Edison Investment Research standard fees are £49,500 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 2020 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

1,185 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

1,185 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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