fredag 22 april 2016
Mäklare om Canacol
Canacol Energy Ltd.
90 mmcf/d Production Target Achieved
Canacol announced that it has achieved its target of 90 mmcf/d, which we see setting up for a potential step-change in cash flow, significant free cash (> $40M), and 2016E production growth (+80%) in what still appears to be somewhat of an unpredictable commodity environment. At these levels of production, Canacol anticipates generating $153M in gross revenues (vs. our estimate of $148M) which we see translating into $102M of after-tax cash flow, well in excess of its expected capital expenditures of $52M.
We reaffirm our Sector Outperform rating on Canacol and one-year target price of $4.50 per share, based on our Risked NAVPS of $4.76 (previously $4.75). Our NAV incorporates 2P reserves that stand at 79 mmboe (80% Colombia gas) and the 90 mmc/ f production achieved at the end of Q1/16. 2016E guidance of 75 mmcf/d reaffirmed.
With the 90 mmcf/d target reached, Canacol reiterated its expected average gas production of 75 mmcf/d for 2016E, which is 2.6% higher than our estimated 73 mmcf/d. All-in production is expected to increase nearly 80% to 18,014 boe/d in 2016E versus 10,108 boe/d in 2015.
In the near-term, we see Canacol as one of the more catalyst- rich names with its upcoming reserve report associated with the success of the Oboe-1 gas well that was not included in the 2015 reserve report. In addition, we see potential catalysts around 2-4 gas exploration wells to be drilled in 2016E and potential award of the next 100 mmcf/d pipeline that would allow for another step-change in production in 2018E/19E.
Valuation – discount on cash flow multiple / NAV yet to reflect Oboe. Based on our 2P NAVPS estimate of $3.95 (previously $3.94), Canacol is trading at a P/NAV ratio of 101% vs. its peer average of 76%. It's important to note that our Base 2P NAV does not include the Oboe-1 results which we estimate could be 20%-30% accretive to our 2P NAV. Canacol is also trading at an EV/DACF of 5.6x and 3.7x for 2016E and 2017E, respectively, versus its peer group average of 10.0x and 5.5x.
Earnings Set to Inflect in Q2 /16E
We see the material increase in production as promoting an important transition for the company that will likely see a step - change / significant inflection point in the company’s future cash flow profile.
Under our base outlook , we anticipate Q1/16E CFPS o f $0.0 4 (vs . Q4/15 of $0.01) inclusive of total average production of 11,977 boe/d (38.5 mmcf/d gas). That said, as we roll into Q2/16E and in the context of our production outlook of 19,752 boe/d (including 85 mmcf/d gas), we expect CFPS to increase dramatically to ~$0.18 ($30M after - tax cash flow). Our estimate for Q2/16E is largely in line with Bloomberg consensus of $0.20.
Positive impact of higher gas pricing and improving netbacks.
Cash flow will also benefit directly from the higher contracted gas prices that Canacol has negotiated over the past year, on average increasing from $ 4.56/mcf in 2015 to an estimated average of $ 5.50 - $ 5.60/mcf for 2016E , and upwards of $6.00/mcf in 201 7E . Pricing is determined on a fix ed contract basis, with a built - in escalation factor making it largely insensitive to global oil and gas price fluctuations. Operating costs are generally quite low at ~$0.35/mcf which implies an overall gas netback of $4.50 - $4.75/mcf.
Due to the composition of their production (2016E 68% gas), Canacol maintains a low sensitivity to volatility in oil prices. A 33% change in Brent prices from our $30.00 - $40.00 scenario s only generate an 11% change in Canacol’s annual cash flow , which will still allow Canacol to generate enough cash flow for their planned 2016 capital program.