Canacol Energy Ltd. (TO:CNE) recently provided market guidance for 2018 with capex and production guidance broadly in line with market expectations. Capex guidance is set at US$80m, realised contractual gas sales at 114-129mmscfd and oil sales at an average 1,700bod. Primary objectives for 2018 include: 1) investments in drilling, facilities and flowlines to underpin production capacity in excess of 230mmscfd by 1 December 2018; 2) a four-well, gas-focused E&A programme; and 3) divestment of legacy conventional oil assets to complete the transition to a pure-play, gas-focused Colombian E&P. Consensus expects US$177m EBITDA in 2018 and 122mmscfd of realised gas sales.
2018 capital programme set at US$80m
Canacol’s 2018 capital budget is to be funded from existing cash resources (Q317 cash and restricted cash US$90.8m, net debt US$203.9m) and cash flow. Highlights include: 1) drilling four E&A wells and three development wells at a total cost of US$33m; 2) facilities expansion and equipment at US$17m; and 3) seismic, workovers and other costs at US$30m. 97% of forecast spend is to be directed to the group’s gas assets, with complete divesture of the company’s Colombian oil portfolio expected in 2018.
Pure-play Colombian gas E&P
Realised gas sales are expected to be in the 114-129mmscfd range in 2018, with the upper end assuming that the Promigas pipeline expansion (100mmscfd of transportation capacity) is delivered on 1 December 2018. The lower end assumes a delay into 2019. Canacol’s current portfolio of 2018 gas contracts, net of transportation costs, is approximately US$4.75/mcf. 2017 was a successful year for gas exploration and we expect a material increase in 2P gas reserves, which should push 2P gas reserve life beyond the current c 8 years based on 2018 production.
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