Canacol Energy - Fixed-contract gas prices protect cash flows

Canacol Energy has recently reported record annual production of 143mmscfd for FY19 in line with our estimates. Key drivers for an increase of 28% in production versus FY18 include the completion of the Jobo to Cartagena, 100mmscfd pipeline. Management expects production for 2020 to be c 205mmscfd and capex for the year of c US$114m. Although the oil and gas industry is facing severe headwinds, which include the impact of coronavirus on global energy demand and the Russia/Saudi Arabia oil price war, Canacol fundamentals remain protected due to fixed contract gas prices. As a consequence, the company is able to maintain its capex, production, EBITDAX guidance and dividend for FY20, while its peers had to resort to cuts to protect their balance sheets. Our 2P + risked exploration NAV has decreased by 2% to C$7.02/share, reflecting higher actual end-FY19 net debt of US$300m versus our estimate of US$271m.