Edison Investment Research Limited
London, UK, 25 May 2022
Canacol Energy (CNE): Shift towards high-impact drilling
Canacol’s recent independent prospective resources audit has assigned 7.6tcf to the company’s Lower and Middle Magdalena Valley (LMV and MMV) assets, up from 1.7tcf in 2021 and with 6.6tcf sitting in the untapped MMV. This will be key to the company’s success as it looks beyond its core LMV producing area to secure its targeted reserves replacement ratio of 200% per year (on average). The company’s first test of the MMV will be the Pola-1 well spudding in Q322, targeting 470bcf of mean gross risked prospective resources. Success here would be transformational given that Canacol currently holds 607bcf of 2P reserves. We believe the share price does not reflect the exploration upside and value the company at C$6.29/share, more than double the current share price.
Our total net asset value (NAV) is based on a combination of 2P reserves and additional ‘to be developed’ risked reserves that we expect to be added over the next five years. We calculate the core NAV at C$2.24/share, to which we add C$4.05/share for additional risked reserves to arrive at our valuation of C$6.29/share, more than double the current share price. We believe the share price does not fully reflect the potential upside from exploration.
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