Monday, June 20, 2016

Canacol Update from the field

This is from a newsletter writer Chen Lin from 'What is Chen buying" via the Stockhouse message board.

 The missing part of CNE story I learned during my trip is that investors will not wait till 2018 to see the huge jump in profits. Many things can happen in between. They are planning to sell some compressed natural gas this year, about 10-15 MCF/day. They are planning more gas for thermal generation(25-30 MCF/day) and micro LNG plant (5-10 MCF/day) some time next year. Plus the current pipeline has about 10-15 extra capacity and likely additional 10-15 next year when a new compressor is installed. So there are a lot of incremental increases coming in the next 12 month.

In the meantime, CNE is likely having its eyes on the bankruptcy sale of Pacific. CNE is probably keen on the La Creciente field of Pacific Exploration. It is right next to VM19 with all the infrastructure built already. I don't know when the field is up for sale, but it will likely increase CNE gas output significantly. In the process, CNE will also consolidate the whole area.

As a side note, when I was in Bogota, it suddenly started to rain heavily. I ran into a coffee shop. Nobody spoke English there I finally found the manager who spoke good English to help. It turned out he is the well known oilman Nelson Contreras, who used to be the second man in command of Pacific Rubiales! We had long and interesting talk about the industry. He was born in Venezuela and he believed Venezuela is heading to a civil war very soon, which is very bullish for oil. He probably has his eyes on some world class oil fields there after socialists driven out of the office... I wish him luck!

When I was leaving, he offered his advice on Columbia energy companies, he told me that Canacol is the most successful energy companies in Columbia, period! This is for people doing the math. Canacol production increase possibilities in the next two years. You may have questions why Canacol is willing to take price at below the nation spot price? Jobo station was recently upgraded to 100 MCF/day to fill the national pipeline. The cost for upgrade was about $60 million and I was told the operator Promigas SA will seek to get their money back in 5 years and turn the operation to Canacol.

If you add additional profit margin, toll of 100 million in 5 years is not unreasonable. That will take 10- 20% off Canacol profit margin. Selling gas locally will not need to be process through the facility and net net is pretty good for Canacol. In addition, Conoco is fracking the La Luna shale this year, it is estimated to contain 50 to 200 billion barrel of oil in place, net to CNE is anywhere from 17 to 70 billion oil in place. These are huge numbers but require high oil price to make it working. It is a free "call option". Plus CNE also has a lot of light oil targets ready to drill when the oil price recovers. 

Selling gas to energy starved areas of Colombia is quite profitable!

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