Canacol Energy Ltd. Reports a 41% Increase in Gas Sales and 62% Increase in Funds from Operations for Fiscal 2018

Source Press Release
Company Canacol Energy Ltd. 
Tags Strategy - Corporate, Financial & Operating Data
Date March 21, 2019

Canacol Energy Ltd. (“Canacol” or the “Corporation”) (TSX:CNE; OTCQX:CNNEF; BVC:CNEC) is pleased to report its financial and operating results for the three months and year ended December 31, 2018.  Dollar amounts are expressed in United States dollars, except as otherwise noted.

Charle Gamba, President and CEO of the Corporation, commented:  “Q4 2018 was another successful quarter for Canacol as we increased the Corporation’s realized contractual gas sales by 40% to 119.3 MMscfpd, up from 85.2 MMscfpd during the same period in 2017.  Additionally, our average gas sales price (net of transportation expenses) remained strong at $4.95/Mcf for Q4 2018, which is higher than Q3 2018 ($4.80/Mcf) and our prior guidance ($4.75/Mcf), and we also achieved a strong natural gas netback of $3.92/Mcf for Q4 2018, which is a margin in excess of 79%.  Our strong realized contractual gas sales and natural gas netback during Q4 2018 generated $28.7 million of funds from operations (compared to $16.6 million, a 73% increase from Q4 2017) despite a 73% decrease in Colombia oil production due to the sale of most of our conventional oil assets.

For 2019, management remains focused on 1) completing the expansion of the Jobo gas processing facility during the first quarter, which will lift gas treatment capacity from current levels of 200 MMscfpd to 330 MMscfpd in advance of the completion of the Promigas gas pipeline expansion scheduled to be completed by June 1, 2019, which will lift gas sales to approximately 215 MMscfpd from current levels of approximately 130 MMscfpd; 2) the drilling of eight exploration, appraisal and development wells in a continuous program targeting a 3P reserves replacement ratio of over 200%; and 3) execution of a definitive agreement to construct a new gas pipeline from Jobo to either Medellin or Cartagena/Barranquilla, thereby increasing the Corporation’s gas sales by an additional 100 MMscfpd in 2021 to a total sales level greater than 300 MMscfpd.”

Highlights for the three months and year ended December 31, 2018

(Production is stated as working-interest before royalties)

Financial and operational highlights of the Corporation include:

  • As announced on February 27, 2019, the Corporation’s conventional natural gas 1P reserves increased 16% since December 31, 2017, totalling 380 billion cubic feet (“Bcf”) at December 31, 2018 (226% 1P reserves replacement ratio). The Corporation’s conventional natural gas 2P reserves increased 11% since December 31, 2017, totalling 559 Bcf at December 31, 2018 (232% reserves replacement ratio);
  • 1P finding and development cost (“F&D cost”) was $0.55/Mcf and $0.84/Mcf for the one and three year periods ending December 31, 2018, respectively;
  • 2P F&D cost was $0.32/Mcf and $0.57/Mcf for the one and three year periods ending December 31, 2018, respectively;
  • The Corporation achieved a 7x and 4.8x 1P recycle ratio for the one and three year periods ending December 31, 2018, respectively;
  • The Corporation achieved a 12x and 7.1x 2P recycle ratio for the one and three year periods ending December 31, 2018, respectively;
  • Realized contractual gas sales increased 40% and 41% to 119.3 MMscfpd and 113.3 MMscfpd for the three months and year ended December 31, 2018, respectively, compared to 85.2 MMscfpd and 80.5 MMscfpd for the same periods in 2017, respectively.  Average natural gas production volumes increased 40% and 43% to 116.6 MMscfpd and 112.1 MMscfpd for the three months and year ended December 31, 2018, respectively, compared to 83 MMscfpd and 78.5 MMscfpd for the same periods in 2017, respectively.  The increases are primarily due to an increase in gas production as a result of the additional sales relating to the completion of the Sabanas pipeline;
  • Total natural gas and crude oil revenues net of royalties and transportation expenses for the three months and year ended December 31, 2018 increased 28% and 33% to $50.7 million and $204.2 million, respectively, compared to $39.8 million and $153.7 million for same periods in 2017, respectively.  The increases are mainly attributable to the increase of natural gas production, offset by a decrease of crude oil production due to the sale of the Corporation’s oil assets;
  • Funds from operations increased 73% and 62% to $28.7 million and $104.9 million for the three months and year ended December 31, 2018, respectively, compared to $16.6 million and $64.9 million for the same periods in 2017, respectively;
  • The Corporation realized an EBITDAX of $33.4 million and $138.6 million for the three months and year ended December 31, 2018, respectively, compared to $29.9 million and $126.1 million for the same periods in 2017, respectively;
  • The Corporation recorded a net loss of $16.3 million and $21.8 million for the three months and year ended December 31, 2018, compared to a net loss of $150.3 million and $148 million for the same periods in 2017, respectively.  The net losses were driven by non-cash charges such as depletion and depreciation, stock-based compensation expense and deferred income tax expense;
  • Net capital expenditures for the three months and year ended December 31, 2018 was $37.7 million and $127.6 million, respectively. Net capital expenditures included non-cash costs of $1 million and $22.7 million for the three months and year ended December 31, 2018, respectively;
  • During the three months ended December 31, 2018, the Corporation distributed $20 million to its shareholders by way of a return of capital via the distribution of 22,598,870 of common shares of Arrow Exploration Corp. (“Arrow Shares”). Through the return of capital, the registered shareholders of Canacol received 0.127 Arrow Shares per each common share owned on the record date, October 3, 2018;
  • During the three months ended December 31, 2018, the Corporation entered into a credit agreement for an amount of $30 million with Credit Suisse (the “2018 Credit Facility”). A portion of the proceeds from the 2018 Credit Facility totaling $24.2 million was used to purchase the Jobo 2 natural gas processing facility, previously held under a finance lease agreement. The residual proceeds will contribute to the completion of the Jobo 3 natural gas plant expansion; and
  • At December 31, 2018, the Corporation had $51.6 million in cash and $4.2 million in restricted cash.

Outlook

In 2018, Canacol became Colombia’s premier independent gas explorer and producer, second only in terms of gas production to Ecopetrol, the Colombian state oil and gas company.

The Corporation achieved significant growth in production and cash flows at margins in excess of 79%, whilst its explorationand development drilling programs continued to increase reserves at industry leading F&D costs.  With over 140 explorationprospects and leads identified on its 1.1 million net acres of exploration lands containing 2.6 TCF of gross mean unrisked prospective resources (Gaffney Cline and Associates April 2018), the Corporation anticipates maintaining robust production and reserves growth for many years to come.

Growth highlights from 2018 included:

  • Q4 2018 realized contractual natural gas sales of 119.3 MMscfpd, marking the fifth consecutive quarterly increase in realized contractual natural gas sales, and a 40% increase over Q4 2017 of 85.2 MMscfpd;
  • Natural gas revenues net of transportation expenses increased 42% to $195.7 million for the year ended December 31, 2018 compared to $138.1 million for the 2017 comparable period;
  • Funds from operations increased 62% to $104.9 million for the year ended December 31, 2018 compared to $64.9 million for the 2017 comparable period;
  • Continued drilling success that has yielded a historic 80% rate (12 for 15) of commercial gas discovery from our exploration programs and 100% (8 for 8) on gas development wells;
  • A 226% 1P reserves replacement ratio, and a 232% 2P reserves replacement ratio;
  • A 16% increase in 1P reserves to 380 Bcf, and an 11% increase in 2P reserves to 559 Bcf from December 31, 2017;
  • An industry leading 1P F&D cost of $0.55/Mcf and $0.84/Mcf for the one and three year periods ending December 31, 2018, respectively,
  • An industry leading 2P F&D cost of $0.32/Mcf and $0.57/Mcf for the one and three year periods ending December 31, 2018, respectively;
  • Achieved an industry leading 7x and 4.8x 1P recycle ratio for the one and three year periods ending December 31, 2018, respectively;
  • Achieved an industry leading 12x and 7.1x 2P recycle ratio for the one and three year periods ending December 31, 2018, respectively;
  • Completed the refinancing of the Corporation’s $305 million syndicated credit facility into $320 million of senior unsecured notes with a seven-year bullet payment at maturity, effectively reducing the interest rate and achieving greater operational and financial flexibility;
  • Divestment of most of the Corporation’s conventional oil assets in Ecuador and Colombia, becoming a gas focused Colombia player with little to no competition; and
  • Confirmed exploration upside of gross unrisked mean prospective resources of 2.6 TCF in over 145 identified prospects and leads for future exploration drilling.



Financial    Three months ended
 December 31, 
  Year ended
December 31, 
  2018    2017  Change    2018  2017  Change 
                   
Total natural gas and crude oil revenues, net of royalties and transportation expense    50,727    39,781    28    204,151    153,665    33 
                   
Funds from operations (1)    28,679    16,573    73    104,914    64,896    62 
Per share  – basic ($) (1)    0.16    0.09    78    0.59    0.37    59 
Per share  – diluted ($) (1)    0.16    0.09    78    0.59    0.37    59 
                   
Net loss and comprehensive loss    (16,272  )   (150,343  (89  %)    (21,835  (148,029  (85  %) 
Per share – basic ($)    (0.09  )   (0.85  (89  %)    (0.12  (0.85  (86  %) 
Per share – diluted ($)    (0.09  (0.85  (89  %)    (0.12  (0.85  (86  %) 
                   
EBITDAX (1)    33,440    29,857    12    138,630    126,084    10 
                   
Weighted average shares outstanding – basic    177,678    175,988      177,184    175,180   
Weighted average shares outstanding – diluted    178,977    177,881      178,681    177,000   
                   
Capital expenditures, net, including acquisitions    37,701    41,652    (9  %)    127,591    121,202   
                   
              Dec 31,
2018 
Dec 31,
2017 
Change 
                   
Cash and cash equivalents              51,632    39,071    32 
Restricted cash              4,196    27,919    (85  %) 
Working capital surplus              55,481    110,401    (50  %) 
Total debt              388,222    340,858    14 
Total assets              705,003    696,443   
                   
Common shares, end of period (000’s)              177,462    176,109   
                   
Operating    Three months ended 
December 31, 
  Year ended
December 31, 
  2018    2017  Change    2018  2017  Change 
                   
Natural gas and crude oil production, before royalties                   
Natural gas (Mcfpd)    116,616    83,043    40    112,102    78,461    43 
Colombia oil (bopd)    488    1,825    (73  %)    1,546    1,909    (19  %) 
Ecuador tariff oil (bopd) (2)    —    1,183    (100  %)    139    1,406    (90  %) 
Total (boepd) (2)    20,947    17,577    19    21,352    17,080    25 
                   
Realized contractual sales, before royalties (boepd)                   
Natural gas (Mcfpd)    119,284    85,215    40    113,261    80,513    41 
Colombia oil (bopd)    592    1,820    (67  %)    1,581    1,915    (17  %) 
Ecuador tariff oil (bopd) (2)    —    1,183    (100  %)    139    1,406    (90  %) 
Total (boepd) (2)    21,519    17,953    20    21,590    17,446    24 
                   
Operating netbacks ($/boe) (1)                   
Natural gas ($/Mcf)    3.92    3.56    10    3.80    3.89    (2  %) 
Colombia oil ($/bbl)    27.89    23.44    19    31.18    19.05    64 
Ecuador tariff oil ($/bbl) (2)    —    38.54    (100  %)    38.54    38.54    —   
Corporate ($/boe) (2)    22.51    19.21    17    22.27    19.96    12 
  1. Non-IFRS measures – see “Non-IFRS Measures” section within MD&A.
  2. Includes tariff oil production and sales related to the Ecuador IPC – see “Non-IFRS Measures” section within MD&A.

This press release should be read in conjunction with the Corporation’s audited consolidated financial statements and related Management’s Discussion and Analysis.  The Corporation’s has filed its audited consolidated financial statements and related Management's Discussion and Analysis as of and for the year ended December 31, 2018 with Canadian securities regulatory authorities.  These filings are available for review on SEDAR at .

Source: EvaluateEnergy® ©2019 EvaluateEnergy Ltd