corporate presentation february 2020 - canacol energy · corporate presentation february 2020....
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Corporate PresentationFebruary 2020
Forward Looking Statements
This presentation may include certain forward looking statements. All
statements other than statements of historical fact, included herein,
including, without limitation, statements regarding future plans and
objectives of Canacol Energy Ltd. (“Canacol” or the “Corporation”),
are forward-looking statements that involve various risks,
assumptions, estimates, and uncertainties. These statements reflect
the current internal projections, expectations or beliefs of Canacol and
are based on information currently available to the Corporation. There
can be no assurance that such statements will prove to be accurate,
and actual results and future events could differ materially from those
anticipated in such statements. All of the forward looking statements
contained in this presentation are qualified by these cautionary
statements and the risk factors described above. Furthermore, all such
statements are made as of the date this presentation is given and
Canacol assumes no obligation to update or revise these statements.
Barrels of oil equivalent
Barrels of oil equivalent (boe) is calculated using the conversion factor
of 5.7 Mcf (thousand cubic feet) of natural gas being equivalent to one
barrel of oil. Boes may be misleading, particularly if used in isolation. A
boe conversion ratio of 5.7 Mcf:1 bbl (barrel) is based on an energy
equivalency conversion method primarily applicable at the burner tip
and does not represent a value equivalency at the wellhead.
Realized contractual sales
Represents net before royalty
USD
All dollar amounts are shown in US dollars, unless indicated otherwise2
Jobo-3July ‘19
Colombia’s Largest Independent Natural Gas Producer
3
Conventional Natural Gas In Colombia
1. Focused
• Conventional natural gas pure play focused in Colombia
2. Leader
• Largest supplier to the Caribbean Coast and largest independent producer country wide
3. Well Positioned
• Only active onshore gas operator with the most competitive cost structure
Creating Value For Shareholders
Competitive Advantages
1. Significant Upside
• World class assets with organic growth opportunities (2.6 TCF of resource upside)
2. Low Risk – High Reward
• Long term take or pay contracts with no exposure to world commodity prices
3. Strong Cash Flow Generation
• Low cost operator targeting significant free cash flow
• Return on Capital
• ~4.7% Dividend Yield
Return To Shareholders
Canacol’s Special Natural Gas Operating Model
4
Canacol’s supply ~25% of Colombia gas
Country gas demand ~ 1 BCF / +2-3% per yr.
Gas supply, x-Canacol Declining ~12% / yr.
Market Leader
The largest independent natural gas producer in supply deficient Colombia
Significant Sales Growth
Successful Exploration + Industry-Leading
F&D Cost
Highly Profitable
Low cost operator with robust netback margin
Significant free cash flow after capex
Significant Resource Potential
‘19e → ‘20e, ~37% growth 150 → >205 MMscf/d
‘20e → ‘23e, ~46% growth >200 → >300 MMscf/d
Exploration success 20/24 (83%)
3-yr. 2P F&D $0.67/Mcf
1
2
3
4
5
Canacol take or pay contracts $4.84/MMbtu(1)
215% of U.S. Henry Hub
Operating netback / margin $3.92(2) / 81%(2)
’20 capex <50% of annual EBITDAX
140 prospects/leads 2.6 TCF upside(3)
(1) As of 3Q ‘19. Represents realized gas contracts, net of transportation costs.(2) As of 3Q ‘19(3) Represents gross mean unrisked resources, Gaffney Cline & Associates 12/31/17 (no resource estimates for blocks awarded added in 2019)
Solving Colombia’s Natural Gas Supply Deficit
Bogota
Medellin
Cartagena
Barranquilla
Caribbean SeaHocol
60 km
Canacol gas blocks
Pipeline expansion
Existing gas pipelines
Strong demand for gas from Colombia’s Caribbean coast
• Demand ~425 MMcf/d
increasing 3% / yr.(2)
Terminal decline in Caribbean gas supply
• For 30+ yrs., the Guajira fields provided ~50% of gas supply
• Canacol is replacing the Guajira fields as the largest supplier of gas to the Caribbean coast
(1) Source: UPME Colombia Gas demand Forecast, December 2019
Cerro Matoso
Colombia´s natural gas demand 1999-2033(1)
In MMcf/d
5
Guajira fields
New Blocks
Awarded in 2019
Barranquilla
0
500
1,000
1,500
2,000
1999 2004 2009 2014 2019 2024 2029
History Low Medium High
Tracking Canacol-Gas
Large and growing land position
• 85k → 1.4 mm net acres
• 7 → 140 prospects & leads
• 2.6 TCF of prospective resources(2)
2P reserves in BCF
Large gas reserves base(1)
44
• BT NPV-10 $2.1 B(1)
• Added 696 BCF from ‘13 → ‘19
• 37% CAGR
(1) Working Interest reserves per the independent reserve report prepared by Boury Global Energy Consultants (“Boury”) effective Dec. 31, 2019, Reserves added and CAGR calculation include historic production
(2) Represents gross mean unrisked resources, Gaffney Cline & Associates 12/31/17, (no resource estimates for blocks awarded added in 2019)
In MMscf/d
• By ‘23, ~46% growth (>205→ >300 MMscf/d)
Robust sales growth
7
140
6
115 119 122 121
150
205
>300
3Q '18 4Q '18 1Q '19 2Q '19 '19e '20e '23e
+ ~46%
+ ~37%
0.1
0.7
1.1
1.4
7
44
140
0
50
100
150
200
250
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
'12-'13 '14-'16 '17-'18 Today
95
345372
411
505
559
624
0
100
200
300
400
500
600
700
'13 '14 '15 '16 '17 '18 '19
215
Average annualized natural gas salesIn MMcf/d
‘12 Acquired Shona Energy
• 80 km pipeline → Cerromatoso nickel mine
’16 190 km pipeline
‘17 82 km line Jobo → Bremen
• ’19 190 km line Jobo → Cartagena
‘23e 100 MMcf/d pipeline to Medellin
• 300 km pipeline south
Success Delivers Infrastructure Growth
Caribbean Sea
Medellin
Sincelejo
Bremen
Jobo Station
50 km
Canacol gas blocks
Pipeline expansion
Existing gas pipelines
7
Cartagena
Barranquilla
Guajira
16 70 81
113
150
205
>300
'12 '16 '17 '18 '19e '20e '23e
2020 Capital Plan: Modest Spending, Lots of Exploration Drilling
$114 MM
(1)
2020 focus
• Drill 12 wells: 9 exploration, 1 appraisal and 2 development wells
• Execute definitive agreement to construct a new gas pipeline from Jobo to Medellin
• Continue growing focus on ESG monitoring, reporting, and improvement
• Generate free cash to support dividends, share buy-back, and debt reduction
8
$ in MM
Maintenance and development drilling; $19
Exploration wells and seismic; $72
Facilities and infrastructure; $11
Admin, ESG and other; $12
Canacol’s Financial Policy
Canacol’s new quarterly dividend
• US $28MM per annum
• ~4.7% yield (as of Feb 25, 2020)
• First Record | payment date: 12/16/19 | 12/31/19
Return-focused, LT value from free cash flow
• Debt reduction
• Up to 14.1 MM share buyback in place
Conservative financial profile
• 2.3x consolidated leverage ratio(1) as at Sep 30, 2019
• 1.1x consolidated leverage ratio estimate: Dec 31, 2020
Capex plan targeting <50% of annual EBITDA
• $114 MM annual capex budget
• ~$265 MM EBITDA projection
9
TSX: CNE | BVC: CNE.C
‘20e Free Cash Flow Waterfall
US$MM
$270 $30
$40
$120
$80
Please see EBITDA and Funds from Operations disclosure in the forward lookingstatements located on page 2 of this presentation.
Assumes average annual gas production of 205 MMcf/d at $4.80/Mcf averagewellhead price.
$114
~$80
~$40
$265 ~$30
(1) Consolidated leverage ratio is the ratio of consolidated total debt, less cash andcash equivalents, to EBITDAX for the preceding 12 months.
Industry-Leading Exploration Success Utilizing AVO
1 KM
Uncalibrated 3D Calibrated 3D for AVO analysis
Arandala-1
Carambolo-1
AVO extraction over Porquero formation
Includes pay in ft. TVD
Discovery
Prospect
Nuez-1
Datil-1
Cacahuate-1
10
Toronja-114 ft.
Nelson-579 ft.
Nelson-639 ft.
Applying AVO to investigate presence of gas-charged sandstones
Breva-129 ft.
Canacol with AVO 22 for 24 (92%)Canacol total 27 for 31 (87%)
11
Land & Conventional Natural Gas Resource Upside
(1) Block/net acres includes 3 additional blocks acquired in ANH 2019 Bid Round PPAA-2. Blocks are not represented on the map
(2) Gross mean un-risked prospective resources for conventional natural gas report prepared by Gaffney Cline & Associates, effective 12/31/2017
(3) Track record reflects drilling success over period 2014 to present
Land(1)
• # Exploration contracts 8
• Net acres 1.4 MM
Running room along defined play fairways• Resource upside 2.6 TCF (2)
• # Prospects & Leads 140• # Gas fields 16• Processing capacity 330 MMcf/d
Track record (3)
• Exploration wells 20/24 (83%)• Development wells 8/8 (100%)• Total wells 28/32 (88%)
SSJN7CNE Operator
50%WI
VIM21100%WI
VIM19100%WI
VIM5100%WI
Esperanza100%WI
12
2020 Drilling Campaign
12 Wells – All 100% Interest Owned and Operated
Well Well Type 1Q 2Q 3Q 4Q
Rig 1
Nelson-14 Development
Clarinete-5 Development
Fresa-1 Exploration
Porro Norte-1 Exploration
Flauta-1 Exploration
Ocarina-2 Appraisal
Piccolo-1 Exploration
Cornamusa-1 Exploration
Rig 2
Milano-1 Exploration
Faisan-1 Exploration
Laguneta-1 Exploration
Saxofon-1 Exploration
3Q ‘19 Financial Highlights
Key data
Revenues $55.1 MM, +25% y/y
EBITDAX $46.0 MM, +28% y/y
83% margin
Funds from operations $36.4 MM, +41% y/y
Working capital surplus $49.1 MM
Cash & equivalents $33.4 MM
40% reduction in OPEX
From $0.40 → $0.24 / Mcf(1)
29% reduction in G&A
From $3.14 → $2.22 /boe(1)
13(1)From 3Q ‘18 to 3Q ‘19
$43,9
$25,8
$36,0
$55,1
$36,4
$46,0
Revenues FFO EBITDAX
3Q '18 3Q '19
3 months ended 9/30/18 vs. 9/30/19
US$ in MM
+25%
+41%
+28%
Remarkable Stable Natural Gas Operating Model
Historical sales price and operating netbacksIn $/MCF
$5,27
$4,65
$4,39
$5,52
$4,87 $4,83 $4,83 $4,84
$4,42
$3,85 $3,62
$4,53
$3,89 $3,80
$3,88 $3,92
'13 '14 '15 '16 '17 '18 2Q '19 9m ended '19
Sales price, net of transportation Operating netback
$4.80 guidance
14
US $ in MM, except CDN $/share
TSX $/share (Feb 25, 2020) CDN $4. 43
Basic share count(1) 178.9
Market capitalization(2) $ 594
Net debt(1) $ 340
Enterprise value $ 935
Insider ownership 22%
(1) As of Sep 30, 2019(2) Converted from CDN → USD exchange rate (0.76) as of Feb 25, 2020
Capitalization Quarter end 3Q 2019 liquidity snapshot
• Senior notes (7.25%, 2025) $320 MM
• Term loan (6.875%, 2022) $30 MM
Financial Summary
15
$4,6
$33,4
$49,1
Restricted cash Cash &equivalents
Working capitalsurplus
Corporate Social ResponsibilityWe change the life of our communities
Fundación Entretejiendo is born from our interest to improve the life quality of the communities in our areas of influence
Projects
‘18-’19 Investment US$3.1MM 44% CNE56% Allied 1
Masificación de Gas
In partnership with Surtigas, we provide natural gas to local communities (> 7,500 people will no longer cook with coal and wood)
Pisotón
Emotional education programs for children
Live the young voice
Community leadership
My Postobón Bike
facilitates access to schools
Health Brigades
Project structuring with royalties
resources
(1) Surtigas, Patrulla Aerea, Fundacion Postobon, Universidad del Norte, Fundacion a la Rueda Rueda, Universidad de los Andes, Fundacion CedeSocial, Universidad Piloto
16
16
APPENDIXUpcoming Drilling Activity
Clarinete-5 Development Well (PUD), VIM 5
18
Clarinete-1 Clarinete-2st Clarinete-4
Reservoir Cienaga de Oro Cienaga de Oro Cienaga de OroNet Pay (in ft. TVD) 148 127 297Porosity (%) 26% 23% 22%Test Rate (MMcf/d) 45 44 40
500 M
N
Clarinete Field (Depth Structure: Top CDO Blue SS3)
Clarinete-2ST
Well objective: Improve reservoir drainage (RF) ofunperforated gas-charged stratigraphic intervals in CDOreservoir sandstones situated in an up-dip structuralposition in the field
Clarinete-2STClarinete-1
Clarinete-4Clarinete-5
Section extract from field geostatic model. View from South
EW
PENETRATION PT FOR TOP BLUE SS3
CDO
Clarinete-1
Clarinete-4Clarinete-5
Clarinete-1Drilled 2015Current production 18 MMcf/dCumulative production 18 BCF
• Spud date March 2020
• Target depth 10,050 ft. MD
• Location target 30 ft. structurally up-dip and 770 m from Clarinete-4
• Cost (D&A) $3.9 MM
W E
19
Fresa-1 Exploration Well, VIM 21
Fresa-1 (Depth Structure: Top Intra CDO & AVO Extraction)
• Spud date April 2020
• Target depth 9,325 ft. MD
• Tie-in time Two weeks
• Cost (D&A) $3.9 MM
Well objective: Drill 3-way fault dependent closure to assess presence of CDO gas-charged reservoir sandstones supported by AVO methodology as defined on 3D seismic.
Fresa-1
BA
AVO event
Katana-1 (Fresa-1 Analogue)Reservoir Cienaga de Oro
Net Pay (Ft. TVD) 90
Porosity (%) 21.3
Test Rate (MMcf/d) Choke: 4.83 on 16/64”
Fresa-1
A
B
JOB-4 (11 BCF)
JOB-2
(D&A)
JOB-10 (15 BCF)
KAT-1 (2 BCF)
JOB-3 (D&A)
COR-2 (6 BCF) JOB-1 (7 BCF)
JOB-11 (17 BCF)
Penetration Pt. at
Top Intra CDO
1 KM
AVO event
JOB-8 (6 BCF)
JOB-9 (27 BCF)
Porro Norte-1 Exploration Well, VIM 5
20
A’
Line PO-1310-2011
A SAN BENITO-1
Porro Norte
Mid Miocene UC
Porro Norte-1
Porro-Norte-1 (Depth Structure: Top CDO) Well objective: Drill 4-way anticline with fault dependent upside to assess presence of gas in multiple stacked targets supported by AVO methodology as defined on 2D seismic.
• Spud date May 2020
• Target depth 12,353 ft. MD
• Reservoir targets CDO (Cicuco limestones)
Porquero & Tubara sandstones
• CDO Location target 600 ft. structurally up-dip and 1.5 km from Benito-1
• Tie-in time Six months
• Cost (D&A) $6.1 MM
Line PO-1040-2011
B’
BASEMENT
CIENAGA
Mid Miocene UC
Flauta
BASEMENT
Cicuco
Porro Norte
Mid Miocene UC
TUBARA
B Porro Norte-1
Contours 100’
3 Km
San Benito-1
Porro Norte-1
APPENDIXNatural Gas Is The Future
• Natural gas is a clean, efficient and competitive energy source. Its use helps to improve airquality in cities and reduce greenhouse gas emissions.
• Energy generation worldwide will be carried out mostly with natural gas.
Colombia´s natural gas demand 2000-2032(1)
MMscfpd
(1) UPME Gas Demand Projection, December 2019, Medium Case, (2) EIA
World energy production(2)
BTUs Trillions
Natural gas
Oil
Renewables
21
0
500
1,000
1,500
1999 2009 2019 2029
Power Residential Commercial
Industrial Petroleum Other
APPENDIXManaging Risks
Macro Risks
1. Geopolitical
• Market/sector-friendly Colombia President for the next 3 yrs.
2. Regulatory
• South America’s most stable democracy and regulatory framework
3. Commodity
• Near zero exposure to the commodity
Economic/Social Risks
1. Commercial
• Solid top tier off-takers
• Limited competitors
2. Economic
• Fixed price long term contracts provide security and stability
• Experienced and self-funded low cost operator
Operations Surface & Subsurface Risks
1. Operational
• Best industrial & safety practices
• Exceeding production and processing capacity
2. Reserves
• Discovered ~530 BCF in the last 8 yrs.
• Industry leading drilling success rate (87%)*
• Low F&D costs $0.32 - $0.67/Mcf
3. Resource
• Relatively unexplored acreage position with 140 prospects/leads representing 2.6 TCF in resource potential
* Represents exploration, appraisal and development drilling success rate 22
Carolina Orozco
Vice President, Investor Relations
+44 (0) 755.537.3873
Phil Heinrich
Investor Relations Manager
+1.403.269.1754
Mauricio Hernandez
Investor Relations Manager
+571.621.1747