Steppin On The High Priced Natural Gas

Steppin’ On The  High‐Priced Natural Gas September 2016 Generating near record cash flows  despite significant oil price volatility gas Forward L...
Author: Kristin Craig
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Steppin’ On The  High‐Priced Natural Gas

September 2016

Generating near record cash flows  despite significant oil price volatility

gas

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. Acres Acres represents gross acres Production and Reserves Production represents net before royalty Reserves represent 2P reserves and before tax NPV‐10 as of December 31, 2015 Exploration Resource Potential Exploration resource potential represent management’s estimate of net unrisked recoverable resource potential, unless indicated otherwise USD All dollar amounts are shown in US dollars, unless indicated otherwise

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Canacology A history of discovery

• Dual‐listed   

Supply‐scarce Caribbean  natural gas market

• Enterprise value • Ownership by insiders • ’16e guidance

Natural Gas

Light Oil S. Pacific Ocean

Shale Oil

Colombia

Light Oil

Ecuador Canacol 140

280

420

560

Km (1) 2016e average (2) Management’s estimate of net unrisked recoverable resource potential

• Year end 2015 2P reserves    

TSX and BVC $732 MM ~25% 16 – 17,000 boepd $135 MM EBITDAX $90 MM capex

79 MMboe

• Pre‐tax NPV‐10 • Contracted gas sales price(1) • 2P F&D cost

$1.4 B $5.61 / MMbtu $2.85/Boe

• + Mid‐year 2016 2P reserves 

+ 5 MMboe

• Substantial exploration resource potential(2)

~1,574 MMboe

• Blocks / gross acres

21 / 3.0 MM 3

Colombia’s Restless Gas Finder Canacol discovered more gas than all Colombia explorers, combined(1)

+47% CAGR in 2P reserves

• Dry natural gas – record cash flow

2P reserves in MMboe

79(2)

oil         gas

• ‘13 → present

4 discoveries (83% success) +302 BCF (+53 MMboe) • Gas produced ~31 BCF • Large gas reserves underpin gas sales contracts           to 2020 and beyond • Exploration resource 2.4 – 2.8 TCF(3) potential

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63% exploration success

43 35 23

65 

18

18 7 '09

8

11

20 17 

'11

'13

(1) Source: ANH, over the trailing 5‐yrs. (2) Excludes mid‐year 2016 2P reserves for Oboe 1 gas discovery (3) Management’s estimate of net unrisked resource potential 

'15

82%  gas

• Oil – when the price is right • ‘08 → present  • Oil produced • Matchless oil field developer • Portfolio

12 discoveries (57% success) ~18 MMbls 55 / 57 wells (96% success) 17 / 21 blocks (83% oil) ~2.2MM acres 1,057 MMbls(3) 4

A Passion To Explore, And A Drive To Produce

+31% projected CAGR in corporate sales 

Fixed priced gas contracts erase oil volatility

Expressed in boepd

‘16e sales mix 40,000 

High netback  natural gas 78%

+31%

16,500 

86%  insensitive

17,817 

Light oil 14%

11,746 

1Q '16

Tariff oil  8%

'16e avg.

2Q '16 cash sales(1)

Late '18 ‐ post new pipeline

• ‘15 → ’16e: +101% increase to EBITDAX ($67 → $135 MM)(2) ~40% reduction to G&A • Fixed price gas contracts erase oil volatility (1)  Includes deferred revenue cash receipts (2)  Budgeted $40/Bbl WTI



>80% operating margins for natural gas • • •

$5.60/Mcf avg. sales price $.30/Mcf operating costs $4.56/Mcf netback 5

Sleep Deprived Over Oil Prices? Not Canacol…

Oil prices at  zero?  Canacol generates >$100MM EBITDAX

Pursuing dry natural gas that features stable pricing

EBITDAX in US$ MM

$153 MM

 $12

$142 $130

Quarterly average MMbtu

$60

$118

 $10

$107 MM $45

 $8

CANACOL ‘16e avg.   $5.60/mcf 81% operating margin LT gas contracts w/ 2‐3%  price escalation

 $6

$30

 $4

EUROPE

 $2

USA CANADA

$15

$0/Bbl 1

 $‐ 2

3

WTI oil price sensitivity

4

5

6

Epic Gas Deficit On Colombia’s Coast  Canacol’s plan to boost gas production to solve supply shortfall

Chuchupa 1

2 Ballena

Caribbean Sea Barranquilla

• Supply decreasing 20% / yr. from 3 mature fields • ‐100 MMcf/d per year decline(1) 1 Chuchupa 2 Ballena 3 La Creciente

Reficar

Cartagena

2018→ Pipeline +100 MMcf/d

• Demand increasing 3% / yr. for the past 10‐yrs.              and projected to grow at 3‐4% through 2020e

2016 pipeline

3 La Creciente

65 MMcf/d

Canacol’s 5 gas fields

Jobo facility

• Canacol 2016e  • Gas EBITDAX 

90 MMcf/d $135 MM

Clarinete, Oboe, Nelson, Nispero, Palmer 25 MMcf/d

• Canacol 2018e→ • Gas EBITDAX/yr. 

Cerro Matoso mine

190 MMcf/d ~$300 MM

• By 2020e, Canacol aims to supply ~42% of the coast • Solve 77% of the Caribbean's supply shortfall 

30

60

90

120

Canacol          Gas pipeline       Km (1) Average annual decline for each of the trailing 2 years

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The Only Driller In Town Dominating the world’s most robust market for natural gas

Colombia’s gas pipeline network  Chuchupa

Ballena

• X‐Canacol, only 3 producing gas fields supply  the Caribbean

Barranquilla Cartagena

Caribbean Sea

La Creciente

Nelson Palmer Clarinete Oboe Nispero

Gas pipelines inaccessible to  supply‐scarce Caribbean

• Less than 5 exploration wells per year were  drilled in the area over the trailing 8‐yrs.(1) • 39 total exploration wells • 42% success (vs. Canacol 83%)

• X‐Canacol, ~340 MMCF/d supply shortfall by  2020e

8 (1)  ANH exploration wells drilled for Guajira onshore and offshore and Lower Magdalena Basins

↑ Reserves + ↑ Productive Capacity From 5 Gas Fields

VIM 5 100% WI

3D 

3D 

Oboe Clarinete Clarinete‐3

Esperanza/  VIM 21 100% WI

Nispero

Jobo

10 km 

Trombon‐1 Nelson Nelson‐6 Porquero 3D 

Palmer

Nelson‐8 CDO

Canacol’s fields & discoveries prospects / leads Top Cienaga de Oro time  structure map (5 X 3D seismic  merged (615km2), reprocessed  and remapped in 2016)

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Opportunity To Book Reserves Against By‐passed Pay  Nelson‐6 gas exploration well

Nelson Field’s shallow gas potential Porquero net pay map

B

N‐5 N‐4

Area  Avg. porosity GIIP

Nelson‐6

A

640 acres 29% 44 Bcf

A

N‐2

1,000

1,300

TOP PORQUERO

Porquero opportunity

N‐3

UP PORQUERO

1,600

M PORQUERO

Nelson‐6 1,900

B

2,200

NELSON  FAULT

TOP CDO BASEMENT

2,500

Nelson‐5 Porquero reservoir petrophysics Gross Thickness  Net pay Porosity 

153 ft 62 ft 31%

GWC‐5500’TVDSS

AVO event

• Up to 62 ft. reservoir net pay encountered in          existing Nelson wells • Oct 2016e spud of Nelson‐6

• Exploration target Shallow Porquero sandstone reservoirs  • Potential 31 Bcf EUR(1) • D&A / depth $4.1 MM / ~6,200 ft.  • Objective Test net pay to establish                   reservoir productivity  (1)   Management’s estimate of net unrisked resource potential

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Nelson Has More To Develop… Nelson‐8 gas development well

Nelson field’s 4 existing producers Gross sand Net pay Avg. porosity

383 ft. 167 ft. 23%

Nelson‐8

A

Cienaga de Oro depth structure map

B

1,000

N‐5 N‐4 1,300

1 km

N‐2

PORQUERO

N‐3

1,600

B

Nelson‐8

CIENAGA

1,900

NELSON  FAULT

A 2,200

GWC  ‐7,550 ft. 

BASEMENT

• Nov 2016e spud of Nelson‐8 • Target • Est. IP • Est. reserve re‐class • DC&C / depth

Cienaga de Oro                     reservoir sandstones  8 ‐ 12 mmcf/d ~14 BCF from PUD to PDP $6.3 MM / ~9,900 ft.

• $3.2 MM work‐over 4 wells starting in Sep ‘16 • Tubing upgrade (2 7/8” → 3 ½”) to extend well  productive life and optimize reserve recovery

• $4 MM upgrade Jobo facility and Nispero‐ Jobo flow line 11

Well #3 Into 163 BCF Discovery(1) Clarinete‐3 gas development well

Opportunities at Clarinete continue to multiply Cienaga de Oro depth structure map

CLA‐3

CLA‐2ST

B

Oboe‐1 1,500

GWC ‐6,415 ft.

M MIOCENE 1,650

L. ATTIC 1,800

RED SAND

B A

1,950

CLA‐2ST

500 M

BLUE SAND

Sub‐crop  edge

CLA‐3

CLA‐1

2,100

BASAL SAND

BASEMENT

AVO event

• 4Q ‘16 spud of Clarinete‐3 • • • •

Target Estimated IP Reserves re‐class DC&C / depth

Cienaga de Oro reservoir sandstones 10 ‐ 12 mmcf/d ~25 BCF from PUD to PDP $6.4 MM / ~10,000 ft. 

(1)  Represents 2P reserves as of December 31, 2015

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AVO Technology Is Helping Extend The Trend Trombon‐1 gas exploration well

Canacol’s Nispero‐1 tested 28 MMcf/d in Aug ’16

Trombon‐1 40 BCF unrisked resource potential(1) A

B

Sucre gas discoveries (‘77‐’80)

Trombon‐1

Nispero‐1

Sucre

B

MID MIOCENE

1,900

2,000

TOP CDO 2,100

Nispero‐1 Trombon‐1

INTRA CDO

2,200

2,300

2,400

BASEMENT

AVO event 500 M

• Sep 13, 2016 spud of Trombon‐1 • Exploration target

A

(1) AVO extraction: Top CDO to Top CDO +25ms 500 M

Cienaga de Oro                                reservoir sandstones • D&A / depth $4.8 MM / ~9,800 ft. TVD  • Risk mitigation ‐ AVO seismic attribute analysis (1)   Management’s estimate of net unrisked resources

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Investigate Potential For Established La Luna Play VMM 2 Mono Capuchino‐1 (“MC‐1”) oil exploration well

Offset to MA‐1’s La Luna, drill MC‐1 in Oct ‘16e

MA‐1 MC‐1

A

Top La Luna depth structure map

B

67% WI MC‐1 MA‐1

B

A N

MIOCENE  1,000

1 KM

LISAMA BASAL LISAMA UMIR 1,500

• Jan ‘13 MA‐1 discovery • 593 ft. MD La Luna  • IP  ~600 bopd from 335 ft. perforated interval

MA‐1 LA LUNA 2,000

SIMITRI

• MC‐1 spud Oct ’16e • Exploration target • Potential • D&A, net

MC‐1

1,630 ft. MD thick La Luna ~9 MMbls(1) $5.5 MM / ~11k ft. TVD

ROSABLANCA GIRON 2,500

500 M 500 M (1)   Management’s estimate of net unrisked resources

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2016e Revised Capital Plan Doubling the search for high‐priced natural gas

New Plan

Original Plan

• CAPEX $58 MM  3 natural gas wells  5 light oil work‐overs

• CAPEX $90 MM  6 natural gas wells  5 light oil work‐overs  1 oil exploration well

• Gas production facilities

• Gas production facilities

• Gas exploration 

• Gas exploration 

 Oboe‐1 well   Nispero‐1 well   Nelson‐6

 Oboe‐1 well test  Nispero‐1 well test

66 MMcf/d 28 MMcf/d

   

Sep 13 spud Oct estimated spud Nov estimated spud 4Q estimated spud

Trombon‐1 (exploration) Nelson‐6 (exploration) Nelson‐8 (development) Clarinete‐3 (development)

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Projecting 60%+ Drop In Debt Multiple

Record cash flows disintegrating Canacol’s debt multiple

Debt profile



Apollo

Debt to trailing actual 12‐month EBITDAX Debt to quarterly EBITDAX (annualized) 3.8x 3.4x

BNP

2.8x

Start: Eight equal  installments ●







2.3x ●







1.9x ●

1.8x

'16

Dec '17e

• BNP (term loan) • Apollo (sub notes)

'18e

Sep '19e

Dec '19e

$180 MM / L+4.75% $75 MM / L+8.50%

Dec '15

Mar '16

• ’16e guidance

Jun '16





1.7x

1.7x

1.5x

Sep '16e

Dec '16e

2017e



16 – 17,000 boepd $135 MM ebitdax 16

A Rare Dislocation in Equity Value

Buy Canacol at a discount to the                                                      value of our existing gas contracts  BT NPV‐10, US $MM 

in MM, except /share amounts

TSX share price (9/20/16) FD shares outstanding(1) $2,170 

Market capitalization(2) Net debt(3)

Stable production  under LT contracts

Enterprise value Cash + restricted cash(3)

CDN $4.16 164 US $517 $215 US $732 $88

$166  $193  $778

(1) Includes in‐the‐money options based on CDN 4.16/share price  (2) Converted from CDN → USD exchange rate (0.76) as of 9/20/16 (3) As of 6/30/16 and prior to the recently closed CDN $46.9 million private placement,  the Corporation had $25.3 million in cash and $62.5 million in restricted cash

$1,165 

$732 

EV

2P Gas

2p Oil

Possible Exploration Gas + Oil

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Contact

Calle 113 No. 7‐45 Torre B – Oficina 1501  Bogota, Colombia  +571.621.1747  IR‐[email protected]

8th Avenue Place 4500, 525 – 8th Avenue South West Calgary, Alberta T2P 1G1 Canada 214.235.4798 [email protected]

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