Edison Investment Research Limited
London, UK, 23 June 2020
Edison issues update on Canacol Energy (CNE)
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.
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.
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