CNE - Canacol

[petec]

Canacol is a gas E&P operating in Colombia and listed in Colombia and Canada.

 

Most of the major gas fields in Colombia are in decline or projected to enter decline soon. Canacol has a resource in the Middle Magdalena with 2.6tcf of potential resource and where they have an 85% exploration well success rate and a 100% development well success rate.

 

They produce 200-220 mcf/d today which is sold on long term take or pay contracts at a wellhead price of $4.80. This is below the landed price of LNG but won't rise because LNG does represent a cap.

 

They have projects on the go to add 180mcf/d of new production by YE23, driving a >15% 4y CAGR: a 100mcf/d pipeline to Medellin and two gas-to-power projects right on their doorstep for 40mcf/d each. The contracts on these are expected to have similar economics as the existing ones with long maturities.

 

They have to invest to drill to support the new production. After this investment, in 2020, they expect to produce $80m in free cash flow which will be allocated $28m to dividend, $15m to debt reduction, and probably the remaining $37m to buybacks (they are buying back as much as they can at the moment, 46k shares/day, which coincidentally at the current price is about $37m/year).

 

This works out at a free cash flow yield of 17%, split 6% dividend, 8% buyback, and the rest to debt reduction, on top of the growth.

 

If the equity doesn't entice you the 2025 bond yields 12%, but the minimum piece is $200k.