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Canacol Energy Q1 2020: Below Expectations

Jun. 04, 2020 8:14 PM ETCanacol Energy Ltd (CNNEF), CNE:CA1 Comment
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Prime Value


  • Lower sales, due to lower volumes and price.
  • Funds from operations slightly below our estimates.
  • FCF generation is good, but still below our estimates.
  • COVID-19 will have an impact on its cash flow. However, we expect a stable dividend and ~$40MM of FCF this year vs $60MM in 2021.

Investment Thesis Summary

Founded in 1970, Canacol Energy (OTCQX:CNNEF) is a Canadian company engaged in the exploration and production of oil and gas focused onshore in Colombia and Ecuador. The company has become an industry-leading natural gas supplier to the Caribbean Coast.

Canacol is a key component of regional demand, Caribbean coast gas market, with an estimated ~50% market share. This was expected to increase materially in 2019 and 2020, with management forecasting production to ramp up to ~215 mmscfd by Q1 2020.

Please see our previous article for reference. Overall, Canacol looks focused on executing its solid plan expansion well. At this time, catalysts seem to be materializing, with no price reaction at all.

Q1 Earnings and 2020 outlook

  • Sales and production: Canacol has achieved strong sales volumes year on year. They grew sales 65% in terms of production and 48% in terms of revenue:

Source: Company data

Source: Company data

  • Operating netback: The Corporation's natural gas and LNG operating netback decreased 11% to $3.60 per Mcf in the three months ended March 31, 2020, compared to $4.03 per Mcf for the same period in 2019.

The decrease is due to lower spot market gas sales prices, net of transportation costs, and an increase in royalties per unit of $0.08 per Mcf due to increased natural gas volumes being produced at the Corporation's VIM-5 block, which is subject to a higher royalty rate.

The decrease is offset by a 27% reduction of operating expenses per Mcf to $0.22 per Mcf for the three months ended March 31, 2020, compared to $0.30 per Mcf for the same period in 2019:

Source: Company data

  • Capital Expenditures: The Corporation has experienced approximately a two-month delay in the rig move from the last drilled well of Clarinete 5 to its next

This article was written by

Prime Value profile picture
Value investor with contrarian bias, preferably towards small companies with predictable cash flows and good management. We used to contribute as "Dhandho Investor" and now we'll be contributing under Prime Value.

Analyst’s Disclosure: I am/we are long CNNEF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (1)

Bottom line They take there options in cash. They use to inflate their reserves to industry people via Sproule International Limited until they were caught.
Somewhere between Revolutionary Armed Forces of Colombia (Farc),United Self-Defense Forces of Colombia (AUC), Bacrims or criminal bands, National Liberation Army (ELN) you can begin your Colombia's armed groups risk.
Safeguarding your portfolio health in conflict coalition for a small energy company from Canada that all the above groups loath and think nothing of bombing your pipeline you also have media and pueblos indigenas backlash.
This management have a long history of destroying shareholders wealth a couple of them have a cease trade order against a company they raised money for and failed to report earnings.
If you goto sedar and pull their first year you will see a pattern of what they charge even for monthly for rents before you see their subsidiaries. Radial Energy/Benchmark Energy Corp vs Rancho Hermoso S.A.and inflating reserves via Sproule International Limited.
After you read their sedar info read Petyo,Vermillion, and Tourmaline financials .......

Their unregistered debt that is secured to assets that have no jurisdiction to stake claim is priceless
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