(Canacol Energy Ltd., 16.May.2018) – Canacol Energy Ltd. announced plans to divest of non-core Colombian conventional oil assets, among other management objectives for 2018.
These objectives include: 1) sell an average of 114 to 129 MMscfpd of gas and 1,700 bopd (“barrels of oil per day”), 2) execute the necessary investments in drilling, facilities, and flowlines to ensure that the productive capacity of the Corporation is greater than 230 MMscfpd by December 1, 2018, 3) execute a four well exploration and appraisal drilling program to build reserves and 4) divest the Corporation’s non‐core Colombian conventional oil assets to focus on the exploration and commercialization of our significant Colombian gas reserves and resource base.
Highlights of the capital spending program aimed at ensuring that the Corporation achieves 230 MMscfpd of gas production capability by December 2018 include: 1) the drilling of four exploration and appraisal wells and three development wells, 2) expansion of the Corporation’s gas gathering and processing facilities at Jobo, and 3) various workovers of its existing gas wells. The Corporation also expects to acquire new 3D seismic data on its VIM‐5 contract to continue building its gas exploration drilling portfolio. Approximately 97% of the originally announced $80 million budget for 2018 is dedicated to spending on the Corporation’s gas assets, with the remainder on its oil assets, and will be fully funded from existing cash and cash flows.
Subsequent to March 31, 2018, the Corporation completed a private offering of senior unsecured notes in the aggregate principal amount of $320 million and has used the net proceeds to fully repay the outstanding amounts borrowed under its existing credit facility in the amount of $305 million plus accrued interest.
By replacing the credit facility of $305 million, the Corporation benefits from: (i) replacing the current term loan that bears an interest rate of fluctuating three month Libor +5.5% (which currently totals approximately 8%, as the three month Libor has been increasing materially during the last 14 months), to a fixed coupon of 7.25%, which provides both a reduction and certainty of debt expenses in an extremely volatile interest rate environment; (ii) deferring the quarterly $23.5 million amortization of the existing credit facility beginning in March 2019, for a bullet maturity in May 2025; (iii) an administratively less burdensome note indenture that will not require collateral or quarterly certification of maintenance covenants (only incurrence‐based covenants); (iv) no cash required to be held in a debt service reserve account as is required under the current credit facility (these amounts are scheduled to total approximately $25 million later in 2018 under the existing credit facility); and (v) achieving certain other operational and financial flexibilities, including the ability for the Corporation to pay a dividend.
With respect to the drilling program, the Corporation successfully drilled and completed the Pandereta‐3 and Chirimia‐1 appraisal wells as gas producers, with the Gaiteros‐1 exploration well resulting in a dry hole. The remainder of the drilling program includes three exploration wells and one development well. The first of the three remaining exploration wells, Breva‐1, was spud in late April 2018 and is currently being cased and completed as a Porquero gas discovery. The remaining exploration wells include the Borojo‐1 well, which will spud in early June 2018, followed immediately by the Canahuate‐East well. The final development well in the 2018 drilling program is Canahuate‐West, which will be drilled following the Canahuate‐East well.
As previously announced, forecast realized contractual gas and oil sales, which include contractual gas downtime for 2018, are anticipated to average between 21,700 and 24,300 boepd, which include 114 and 129 MMscfpd of gas, respectively, and approximately 1,700 bopd of annualized oil production. Upon a successful sale of the Colombian oil assets, this annualized oil production forecast would be revised accordingly. The base range for gas production assumes that the Promigas S.A. expansion, which will add 100 MMscfpd of transportation capacity between the Corporation’s gas processing facilities located at Jobo and the markets of Cartagena and Barranquilla, is delayed and does not materialize as of December 1, 2018. The upper range for gas production assumes that the Promigas S.A. expansion is completed on December 1, 2018, as currently planned, and that the Corporation sells additional natural gas in the interruptible market throughout 2018.
Based on the Corporation’s current portfolio of 2018 gas contracts, the average sales price, net of transportation costs where applicable, is approximately $4.75/Mcf. The Corporation has awarded a contract to build and install a new gas processing module at its Jobo gas facility to process an additional 100 MMscfpd of gas, which will raise the gas treating capability of the Jobo facility to 300 MMscfpd by December 2018.
The Corporation will purchase and operate the new gas processing module with funds sourced from existing cash and cash flows including the release of funds from the prior credit facility’s debt service reserve account, which is no longer required under the new senior unsecured notes.
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