Cannacord Target $1.35 Canacol Energy (CNE : TSX : C
.90) - Buy - Target:C$1.35
Annual general meeting & operational update
We maintain our BUY rating and C$1.35 target price. Canacol is exposed to extensive conventional medium/light oil exploration and production in the Llanos Basin and has a large inventory of heavy oil exploration lands in a very underexplored area of Colombia. Investment highlights Growth from drilling in 2012 -- Canacol continues to add new production on the company's Rancho Hermoso field through infill drilling. Three production locations will be drilled in 2012. Exploration adding production? On newly-acquired Llanos LLA23, the fault trend appears to extend from the adjacent Rancho Hermoso block. One well is due to be worked over in Q1/12 with seismic in H1/12 and drilling of new locations in Q3/12. Putumayo exploration plus heavy oil -- The company has an exploration program (farm-in) on two blocks which should see 3 or 4 wells drilled in 2012. In addition, the company continues heavy oil exploration on its 100%-owned lands near the Capella discovery, looking for more heavy oil development potential. Valuation Our C$1.35 target price is based on our net asset value estimate of $1.35 per share, which consists of
.48 per share of Proven plus Probable (2P) reserves plus
.87 per share of risked exploration upside. Risks Canacol faces typical exploration risk in the heavy oil belt of Colombia. While we have a risked view of the company's resource potential, there are no guarantees this potential will be realized prior to initial drilling.