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Canacol Energy
BANCOLOMBIA ANALYSIS: EQUITY RESEARCH – Quarterly Earnings
Oil & Gas I May 15, 2015
Oil Prices and Lower Performance in LLA23 and Ecuador Impacted Results
The company published 1Q15 results reporting a weaker performance in volume both
QoQ and YoY. Although realization prices were slightly higher than expected
(USD34.9/barrel vs. 33.8E/barrel) reduced oil production in LLA-23 (4,512 boed vs. 4,953
in 4Q14) and Ecuador (1,704 boed vs. 1,967 boed in 4Q14) ended up generating a
greater-than-expected decline in total production (10,950 boed vs. 11,486E and 11,822 in
4Q14) and thus the financial performance was also weaker only offset by improvements
in production costs in some fields, mainly LLA-23.
Proof of this was the decline of 27% QoQ and 53% YoY, to USD27,1mn/COP63,694mn in
sales ex Ecuador, which ended up impacting income despite better performance of
operating costs and expenses (-36.6% QoQ and 17% YoY) to
USD24.2mn/COP56,856mn which soften the impact. It is important to note that this strong
quarterly decrease in revenues was due to three reasons: i) a decrease of 7.4% QoQ on
production, ii) a fall of 34% in the price of oil which led to the a 23% QoQ drop in the
average selling price of the company (average selling price doesn't fall at the same rate
that oil prices due to the company's share of natural gas) and iii) reported revenues don't
include Ecuador at a fixed rate, should it be included the decrease in revenues would
have been 25% QoQ. Regarding cost reductions we highlight a lower rate in LLA-23
(USD13.58/bbl vs. USD19.17/barrel in 4Q14 and USD11.72/barrel in 1Q14) that drove
overall costs down 30% QoQ and 16% YoY, to USD10.21/boe.
Thus, CNE reported an operating income of -USD3.7mn/-COP8,641mn, better than USD10.1mn/-COP23,657mn seen the previous quarter but significantly lower than 1Q14's
(USD20mn/COP46,800mn). Meanwhile, the EBITDA increased 28% QoQ but went down
YoY. Net income also improved QoQ but remained negative and was significantly below
the level posted in 1Q14.
Finally, during the quarter the company acquired the remaining 25% of E&P VIM-5 (field
where Clarinete was discovered) and VIM-19 contracts, adjacent to the Esperanza field.
This acquisition had a cost of USD18m/COP42,300mn paid issuing 8.7 mn shares, which
meant a dilution of 8%, plus USD5mn payable in September (which could be in cash or
shares) and some other costs attached to future revenues and reserves of Clarinete. This,
along with the payment of some accounts payable from the previous quarter and the
payment of debt principal for USD14.7mn/COP35,545mn negatively affected the quarter's
cash, with available cash falling to USD44.5mn/COP104,575mn.
Multiples & Financials*
Revenues
Operating income
EBITDA
Net income
P/E
EV/EBITDA
P/BV
2013
2014
2015E
2016E
2017E
138,933
(64,680)
(17,770)
(127,807)
(1.89)
(19.35)
0.98
211,319
69,522
108,262
9,937
60.62
6.20
1.50
195,581
(11,802)
78,888
(30,984)
(11.41)
6.06
0.95
289,390
56,554
167,105
18,733
18.88
2.57
0.91
372,550
114,270
237,746
63,173
5.60
1.31
0.78
* On fiscal year basis
Source: Bancolombia.
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SPECULATIVE BUY
Overview
Target Price (COP)
9,170
Actual Price(COP)
May 15, 2015
Upside
6,270
+46%
Range 52 weeks (COP)
Market Capitalization (COPmn)
Outstanding Shares (mn)
Float mn (without AFPs) (mn)
ADV 12 m (COPmn)
Target Price 12 months (COP)
Expected Return
Dividend Yield
Total Return
Bloomberg:
(2,955 - 13,600)
731,266
116.6
113.56
2,953
9,170
46.25%
n.a.
46.25%
CNEC CB
Canacol vs. COLCAP and TMX 12m (base 100)
120
100
80
60
40
20
Jan-14
Apr-14
Jul-14
CANACOL
Oct-14
COLCAP
Source: Bancolombia, Bloomberg.
Analyst
Name:
Phone:
E-mail:
Juan Camilo Dauder Sánchez
(574) 604 98 21
[email protected]
Name:
Phone:
E-mail:
Federico Pérez García
(574) 604 81 72
[email protected]
Jan-15
Apr-15
Toronto SX
Canacol Energy | Oil & Gas
May 15, 2015
Thus, CNEC's 1Q15 results account for a pronounced weakness brought about by the
situation of international oil prices but also the lower production in key oil fields such as
LLA-23 and Ecuador. Therefore, although the company's volumetric prospects are
positive, due to previously announced gas contracts, it has to be said that with no new oil
findings the company could soon become a natural gas player, which although positive as
it creates stability in revenues and cash flow could reduce the generation of value in a
context of recovery of oil prices.
We emphasize that a substantial improvement in results will only be seen from 2016 and
partially in 4Q15 when natural gas contracts start coming into operation.
From the meeting the company held this Friday to discuss their results there are some
key points we would like to highlight:
Risks on natural gas projects: In regard to the risks of a possible delay or
incapacity to supply the natural gas already contracted, but especially those
related to the construction of the pipeline from Clarinete to Jobo station, the
company does not foresee further risks as usually the major problems are
expected to come from environmental licensing, something the company don’t
require at the moment. Moreover, CNE has been able to negotiate 70% of the
lands required to extend the pipeline, and the design of the pipeline carefully
considered not touching community lands. Then, the company expects to have no
problems with pipeline development.
LLA-23: During the meeting the company emphasized the cost reduction obtained
in LLA-23 while remarked that in a better oil price scenario there would be room for
extending the exploration and development campaign in the field leaving room for
further efficiency in a per barrel basis.
Future impairments: In regard to the possibility of further asset impairments
related to lower oil price levels, the company indicated that those would come
primarily from and LLA-23 as Rancho Hermoso has already been impaired and
because they expect no impairment from natural gas assets. In our view, this
leaves the room open for a possible negative effect on reserves estimate in the
coming certification.
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Table 1 – Canacol 1Q15 results
USD k
1Q15
1Q14
Var % YoY
Revenues
27,104
57,252
-52.7%
COGS
24,194
29,206
-17.2%
Gross profit
2,910
28,046
-89.6%
Operating profit
-3,677
19,918
-118.5%
EBITDA
8,612
28,933
-70.2%
-15,638
19,438
-180.5%
-0.13
0.22
-159.1%
Gross margin
10.7%
49.0%
-3,825.1
EBIT margin
-13.6%
34.8%
-4,835.6
EBITDA margin
31.8%
50.5%
-1,876.2
Net margin
-57.7%
34.0%
-9,164.8
Net income
EPS
Source: Canacol Energy, Bancolombia.
Canacol Energy | Oil & Gas
May 15, 2015
Equity Sales
Equity Research
Rupert Stebbings
Jairo Agudelo
Equity Markets Vice President
Head of equity research
[email protected]
[email protected]
+574 6045138
+574 6047048
Natalia Agudelo Parra
Juan Camilo Dauder Sánchez
Equity Sales
Head Energy Analyst
[email protected]
[email protected]
+574 6045144
+574 6049821
Maria Paula Cortés Durán
Fixed Income
Head Financial & Small Cap
[email protected]
Pablo Caicedo
+571 353 6600 ext 37387
VP International Business
[email protected]
Diego Buitrago Aguilar
+571 488 6000
Energy Analyst
[email protected]
Economic Research
+571 7463984 ext 37307
Juan Pablo Espinosa
German Zúñiga Saavedra
Head of Economic Research
Infrastructure and Industry Analyst
[email protected]
[email protected]
+571 7463991 ext. 37313
+574 6047045
Alexander Riveros
Federico Perez Garcia
Senior Economist
Oil & Gas Junior Analyst
[email protected]
[email protected]
+571 7463980 ext 37303
+574 6048172
Research Assistant
Claudia Restrepo
Research Editor
[email protected]
+574 404 3809
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Canacol Energy | Oil & Gas
May 15, 2015
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