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Co. To Boost Natural Gas Production After Pipeline is Built
Research Report

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The Canadian company has already secured two contracts for three-quarters of the capacity of this new pipeline in Colombia, noted a Research Capital Corp. report.

Canacol Energy Ltd. (CNE:TSX; CNNEF:OTCQX) announced it will increase its natural gas production in 2025 after the new planned pipeline is built from the Jobo gas facility to Medellin in Colombia, where the company is the largest independent producer, reported Research Capital Corp. analyst Bill Newman in a November 11, 2022 research note.

Newman described the project and its implications. The 289-kilometer-long, 22-inch-in-diameter natural gas pipeline is to be funded, built, owned, operated, and maintained by Shanghai Engineering and Technology Corp. Pipeline capacity will start at 1,000,000 cubic feet per day (1 MMcf/d) but will be expandable via added compression. The pipeline is slated to be operational by December 2024.

Research Capital has a Buy recommendation and a CA$6.50 per share target price on Canacol Energy, the current share price of which is about CA$2.03.

With this new pipeline, Newman explained, Canacol gains the ability to increase its corporate production in 2025 to more than 300 MMcf/d from its current roughly 190 MMcf/d.

The Calgary, Canada-headquartered company is already capitalizing on this, having secured two take-or-pay contracts that together use 75 MMcf/d of the new pipeline's capacity. Canacol continues to negotiate additional contracts for the remaining 25 MMcf/d.

"Canacol's current focus is on exploration and development drilling in order to build reserves and production capacity ahead of the completion of the new pipeline," Newman wrote.

Q3/22 Results as Expected

The analyst also reported that Canacol's Q3/22 financial and operational results were in line with Research Capital's forecasts, and he presented the key numbers.

During the quarter, the energy firm's contracted natural gas sales production averaged 184.2 MMcf/d. This was slightly below sales production of 188 MMcf/d in the previous quarter. Fewer sales in August caused the Q3 decrease, and they were due to thermoelectric generators on the Atlantic coast needing maintenance and interruptible gas being temporarily reduced. Production, however, was back up after the quarter's end and in October averaged 186 MMcf/d.

Adjusted funds flow in Q3/22 was US$38.7M, above Research Capital's estimated US$32.8M. Net capital expenditures were US$50.1M.

Possible Near-Term Catalysts

Canacol is continuing its active exploration program, Newman noted. Along with currently tying in the Alboka 1 and Claxon 1 wells on the VIM 5 block, the company will soon spud the Saxafon 1 exploration well on the same block.

Plans also call for spudding the Chimela 1 exploration well on the VMM 45 block and preparing the location for the Dividivi 1 exploration well on the VIM 33 block.

In November, Canacol will spud the Natilla 1 exploration well on the SSJN 7 block. Drilling, completion and testing of it will require about 15 weeks.

Research Capital has a Buy recommendation and a CA$6.50 per share target price on Canacol Energy, the current share price of which is about CA$2.03.

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Disclosures For Research Capital Corp., Canacol Energy Ltd., November 11, 2022

Analyst Certification: I, Bill Newman, CFA, certify the views expressed in this report were formed by my review of relevant company data and industry investigation, and accurately reflect my opinion about the investment merits of the securities mentioned in the report. I also certify that my compensation is not related to specific recommendations or views expressed in this report. Research Capital Corporation publishes research and investment recommendations for the use of its clients. Information regarding our categories of recommendations, quarterly summaries of the percentage of our recommendations which fall into each category and our policies regarding the release of our research reports is available at or may be requested by contacting the analyst. Each analyst of Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst’s personal views and (ii) no part of the research analyst’s compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.

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