CALGARY, ALBERTA–(Marketwired – May 11, 2016) – Canacol Energy Ltd. (“Canacol” or the “Corporation”) (TSX:CNE)(BVC:CNEC)(OTCQX:CNNEF) is pleased to report its financial and operating results for the three months ended March 31, 2016. Dollar amounts are expressed in United States dollars, except as otherwise noted.
“We got off to a strong start in the first quarter of 2016, and the second quarter of 2016 is even stronger”, reported Charle Gamba, President and CEO of Canacol. “During the quarter ended March 31, 2016, realized contractual gas sales increased by 20% to 11,220 boepd versus last quarter, while production and transportation expenses decreased by 65% to $4.11/boe compared to $11.82/boe year over year via a series of cost cutting measures implemented in 2015.
Production growth continues to be very strong into the second quarter, with realized contractual corporate oil and gas sales averaging approximately 20,000 boepd since April 21, 2016, a 78% increase over the average of 11,220 boepd for the previous quarter ending March 31, 2016, attributed to completion of the Promigas S.A. pipeline expansion. We anticipate realized gas sales alone to average approximately 90 MMscfpd (15,790 boped) for the remainder of 2016, with gas sales generating approximately $153 million in gross revenues for the year.
Management’s focus on reducing costs and increasing production resulted in a 9% increase in corporate netbacks to $23.90/boe for the quarter ending March 31, 2016, compared to $21.96/boe last quarter despite a 20% drop in WTI prices during the same period. In addition to increasing production, sales, and netbacks, and lowering production costs and G&A, we also successfully drilled the Oboe 1 well which tested at a combined rate of 66 MMscfpd (11,579 boepd).
For the rest of 2016 the management team will focus on drilling two new gas exploration wells, Nispero-1 and Nelson- 6, which, along with the successful Oboe-1 well, are targeting 100 Bcf of unrisked recoverable resource potential allowing us to sign new gas sales contracts. We’ll also continue a series of low cost workovers on existing light oil wells to maintain oil production with no new planned oil drilling activity, however, Canacol maintains a very large light oil drilling program that can be reactivated quickly should world oil prices reach stable level’s that actually justify investment in Colombian oil projects.”
Highlights for the three months ended March 31, 2016
(Production is stated as working-interest before royalties)
Financial and operational highlights of the Corporation include:
- Adjusted funds from operations for three months ended March 31, 2016 increased 59% to $13.5 million compared to $8.5 million for the three months ended December 31, 2015. Adjusted funds from operations are inclusive of results from the Ecuador IPC. The increase in adjusted funds from operation is primarily the result of additional sales related to the Promigas pipeline expansion, reductions in production and transportation expenses and lower general and administrative expenses, offset by decrease in benchmark crude oil prices. This significant increase in adjusted funds from operations was posted despite realized contractual gas sales for the first quarter of 2016 being less than half of current sales volumes.
- The Corporation had a comprehensive income of $0.5 million for the three months ended March 31, 2016 compared to a comprehensive loss of $84.5 million for the three months ended December 31, 2015. This is the first profitable quarter for the Corporation in over a year and marks a return to profitability moving forward as Canacol’s gas sales volumes continue to increase.
- Average corporate operating netback for the three months ended March 31, 2016 increased 9% to $23.90/boe compared to $21.96/boe for the three months ended December 31, 2015 despite a 20% drop in average WTI prices. The increase in average corporate operating netback is mainly attributable to increase in high netback gas sales and reductions in production and transportation expenses, offset by decrease in benchmark crude oil prices. Average corporate operating netbacks are inclusive of results from the Ecuador IPC.
- Average realized contractual sales volumes increased 20% to 11,220 boepd for the three months ended March 31, 2016 compared to 9,359 boepd for the three months ended December 31, 2015 primarily due to increase in gas production in Esperanza and VIM-5 as a result of the additional sales related to the Promigas pipeline expansion.
- Average production volumes increased 21% to 10,933 boepd for the three months ended March 31, 2016 compared to 9,064 boepd for the three months ended December 31, 2015 primarily due to increase in gas production in Esperanza and VIM-5 as a result of the additional sales related to the Promigas pipeline expansion.
- Total Petroleum and natural gas revenues for the three months ended March 31, 2016 increased 30% to $22.7 million compared to $17.4 million for the three months ended December 31, 2015. Adjusted petroleum and natural gas revenues, inclusive of revenues related to the Ecuador Incremental Production Contract (the “Ecuador IPC”) (see full discussion in MD&A), for the three months ended March 31, 2016 increased 17% to $29 million compared to $24.9 million for the three months ended December 31, 2015. The increase in revenues reflects the additional sales related to the Promigas pipeline expansion, offset by decrease in benchmark crude oil prices.
- Production expenses decreased 30% to $3.4 million for the three months ended March 31, 2016 compared to $4.9 million for the three months ended December 31, 2015, even though production increased 21% from 9,064 boepd to 10,933 boepd. Despite a 53% decrease in LLA-23 oil production year over year, LLA-23 production expenses have dropped to $9.33/bbl, down 31% from the $13.58/bbl posted for the same quarter in 2015. The decrease is primarily due to the Corporation’s cost-cutting initiatives of centralizing the production, loading, and water disposal operations from the different fields within the LLA-23 block to the Pointer platform, lower renegotiated operating costs and the devaluation of the Colombian peso versus the United States dollar.
- The Oboe-1 well reached a total depth of 9,750 feet measured depth (“ft md”) on February 7, 2016, encountering 158 feet of net gas pay with average porosity of 23% within multiple stacked sandstone reservoirs in the primary Cienaga de Oro (“CDO”) target, representing the thickest gas pay encountered in the CDO in the VIM-5 discovery thus far. Three separate reservoir intervals were successfully tested during the three months ended March 31, 2016 at a combined rate of 66 MMscfpd (11,579 boepd) of dry gas.
- Capital expenditures including acquisitions for the three months ended March 31, 2016 was $15.5 million, while adjusted capital expenditures including acquisitions, inclusive of amounts related to the Ecuador IPC, was $15.9 million.
- At March 31, 2016, the Corporation had $30 million in cash and $62 million in restricted cash and was onside with all of its banking covenants.
Financial | Three months ended March 31, | ||||||||
2016 | 2015 | Change | |||||||
Total petroleum and natural gas revenues, net of royalties | 22,700 | 26,429 | (14 | %) | |||||
Adjusted petroleum and natural gas revenues, net of royalties, including revenues related to the Ecuador IPC (2) | 29,000 | 32,811 | (12 | %) | |||||
Cash provided by (used in) operating activities | 7,249 | (2,011 | ) | n/a | |||||
Per share | – basic ($) | 0.05 | (0.02 | ) | n/a | ||||
Per share | – diluted ($) | 0.05 | (0.02 | ) | n/a | ||||
Adjusted funds from operations (1)(2) | 13,451 | 10,922 | 23 | % | |||||
Per share | – basic ($) | 0.08 | 0.10 | (20 | %) | ||||
Per share | – diluted ($) | 0.08 | 0.10 | (20 | %) | ||||
Net income (loss) and comprehensive income (loss) | 461 | (15,638 | ) | n/a | |||||
Per share | – basic ($) | – | (0.14 | ) | n/a | ||||
Per share | – diluted ($) | – | (0.14 | ) | n/a | ||||
Capital expenditures, net, including acquisitions | 15,548 | 62,482 | (75 | %) | |||||
Adjusted capital expenditures, net, including acquisitions and capital expenditures related to the Ecuador IPC (1)(2) | 15,949 | 68,778 | (77 | %) | |||||
March 31, 2016 | December 31, 2015 | Change | |||||||
Cash | 30,015 | 43,257 | (31 | %) | |||||
Restricted cash | 62,033 | 61,721 | 1 | % | |||||
Working capital surplus, excluding non-cash items (1) | 29,439 | 46,310 | (36 | %) | |||||
Bank debt | 248,848 | 248,228 | – | ||||||
Total assets | 681,285 | 668,349 | 2 | % | |||||
Common shares, end of period (000’s) | 159,384 | 159,266 | – | ||||||
Operating | Three months ended March 31, | ||||||||
2016 | 2015 | Change | |||||||
Petroleum and natural gas production, before royalties (boepd) | |||||||||
Petroleum (3) | 4,526 | 7,448 | (39 | %) | |||||
Natural gas | 6,407 | 3,502 | 83 | % | |||||
Total (2) | 10,933 | 10,950 | – | ||||||
Petroleum and natural gas sales, before royalties (boepd) | |||||||||
Petroleum (3) | 4,578 | 7,636 | (40 | %) | |||||
Natural gas | 6,329 | 3,462 | 83 | % | |||||
Total (2) | 10,907 | 11,098 | (2 | %) | |||||
Realized contractual sales, before royalties (boepd) | |||||||||
Natural gas | 6,642 | 3,462 | 92 | % | |||||
Colombia oil | 2,856 | 5,932 | (52 | %) | |||||
Ecuador tariff oil (2) | 1,722 | 1,704 | 1 | % | |||||
Total (2) | 11,220 | 11,098 | 1 | % | |||||
Operating netbacks ($/boe) (1) | |||||||||
LLA-23 (oil) | 8.78 | 18.71 | (53 | %) | |||||
Esperanza (natural gas) | 27.53 | 22.72 | 21 | % | |||||
VIM-5 (natural gas) | 21.75 | – | n/a | ||||||
Ecuador (tariff oil) (2) | 38.54 | 38.54 | – | ||||||
Total (2) | 23.90 | 20.56 | 16 | % |
(1) | Non‐IFRS measure – see “Non‐IFRS Measures” section within MD&A. | |
(2) | Inclusive of amounts related to the Ecuador IPC – see “Non-IFRS Measures” section within MD&A. | |
(3) | Includes tariff oil production and sales related to the Ecuador IPC. |
Outlook
The Corporation has budgeted two remaining gas exploration wells (Nispero-1 and Nelson-6) for the remainder of 2016, in addition to the Oboe-1 well drilled in January 2016 which tested at a combined rate of 66 MMscfpd. The successful Oboe-1 well, and the two additional gas exploration wells, are targeting a combined 100 billion cubic feet of recoverable resource potential on an unrisked basis. It is anticipated that the Nispero-1 well will be drilled early in the third quarter of 2016, followed by the Nelson-6 well in the fourth quarter of 2016. The objective for the low risk Nelson-6 well will be to production test, for the first time, the shallow Porquero sandstone reservoir which sits above the productive Cienaga de Oro sandstone reservoirs within the Nelson field. All four Nelson wells drilled to date have encountered gas charged Porquero sandstone reservoir, and have displayed good gas shows while drilling and up to 60 feet of interpreted gas pay on open-hole logs. The objective of the gas exploration program in 2016 is to prove up sufficient new reserves to sign a new 100 MMscfpd take or pay gas sales contracts, which will commence in 2018 after the construction of a new pipeline.
Additional capital spending is budgeted for five light oil well work-overs on Canacol’s LLA23 concession, as a follow up to the successful workover program initiated in mid-2015. Should world oil prices recover to a stable level above $50/bbl, the Corporation may choose to drill one or all of the four high graded, drill ready exploration prospects mapped on 3D seismic on its LLA-23 concession. All four prospects are high graded on the basis of their very close proximity to the flow line affording rapid and inexpensive tie-in in the event of discovery. Approximately $ 2.9 million is budgeted for the Corporations joint venture in Ecuador. The majority of the remaining budgeted capital expenditures relate to facilities and equipment to support and bolster Canacol’s recent dramatically expanded gas production. The $58 million capital budget does not include payments related to the Corporation’s capital lease of the newly commissioned Jobo gas processing facility. Total budgeted 2016 capital expenditures are well within the Corporation’s anticipated 2016 adjusted funds from operations and opening January 1, 2016 working capital of $46.3 million.
Canacol estimates that average net before royalty oil and gas production for 2016 will range between 16,000 and 17,000 boepd. Realized contractual gas sales will average approximately 75 MMscfpd (13,160 boepd) including approximately 90 MMscfpd from April 21, 2016 forward at an anticipated average realized price of $5.60/Mcf ($31.92/boe), with an average netback of approximately $4.56/Mcf ($26.00/boe), generating approximately $153 million of gross revenues. Additionally, Canacol anticipates Colombian oil production to average approximately 2,300 bopd and Ecuador oil production of approximately 1,300 bopd in calendar 2016, both without the drilling of any additional oil wells. Total corporate hydrocarbon sales are anticipated to average between 18,500 and 19,000 boepd from May 1, 2016 until year end.
Total corporate EBITDAX is anticipated to be approximately $135 million for calendar 2016, which represents a Consolidated Leverage Ratio of less than 2.0, despite realized contractual gas sales for the period of January 1, 2016 to April 20, 2016 being less than half of current volumes. Should world oil prices achieve stable levels above $50/bbl, the Corporation will restart its light oil exploration and drilling programs, which will increase EDITDAX associated with oil sales.
The Corporation’s has filed its unaudited interim condensed consolidated financial statements and related Management’s Discussion and Analysis as of and for the three months ended March 31, 2016 with Canadian securities regulatory authorities. These filings are available for review on SEDAR at www.sedar.com.
Canacol is an exploration and production company with operations focused in Colombia and Ecuador. The Corporation’s common stock trades on the Toronto Stock Exchange, the OTCQX in the United States of America, and the Colombia Stock Exchange under ticker symbols CNE, CNNEF, and CNEC, respectively.