A June 5 research note indicated that Canacol Energy Ltd. (CNE:TSX; CNNEF:OTCQX) agreed to sell its conventional oil assets for CA$40 million (CA$40M). By doing so, it lowers its future development capital cost burden by CA$45M and also relieves itself of CA$25.6M of associated exploration commitments. "Overall, we believe that Canacol will be a financially stronger and more focused company after completing the sale," noted Ian Macqueen, Eight Capital analyst.
The deal terms are, for one, Arrow Exploration will acquire the outstanding shares of Carrao Energy, a Canacol-owned subsidiary, for CA$20M in cash and CA$20M of Arrow common shares. Carrao assets are the LLA 23 block, the Oso Pardo field on the Santa Isabel block, the Mono Ara๑a field on the VMM-2 block, the Capella field on the Ombu block and other minor, nonoperated blocks.
Additionally, Arrow will acquire a 50% interest in an undeveloped block in Colombia's Llanos basin from Samaria Exploration and Production for a consideration of US$10M in Arrow shares.
The closing date of both transactions is in mid-July, on which Canacol will distribute CA$20M of Arrow stock to shareholders and put $20M of cash into the treasury.
Eight Capital has a Buy rating and a CA$7.25 per share target price on Canacol, whose stock is trading at around CA$4.20 per share. "As the company gets closer to its goal of ramping production to 230 million cubic feet per day, we expect its share price to rerate."
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Disclosures from Eight Capital, Canacol Energy Ltd., June 5, 2018
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