Canacol Energy - Shares do not price in exploration upside

Canacol Energy’s H121 production averaged 176.3mmscfd, demonstrating its continued resilience as Colombia recovers from COVID-19, and was above the midpoint of management’s full year production guidance of 153–190mmscfd. In August, sales were 186mmscfd. The 2021 drilling programme of up to 12 wells is well underway at an estimated capex of US$98–140m, and has delivered a discovery at Aguas Vivas 1, which encountered the thickest net pay for the company to date. Canacol targets a reserves replacement ratio (RRR) of 200% annually, which we estimate requires an active drilling programme of c 12–16 wells per year over the next five years (assuming a 70% success rate), and discovering gas outside the current core producing acreage. Meanwhile, a new gas pipeline will open up the interior market in Colombia from 2024.