(By Balaseshan) CIBC World Markets Inc. analyst
Ian Macqueen upgraded rating of Canacol Energy Ltd. (TSE: CNE) to "sector performer" from "sector underperformer" given the potentially material nature of the LLA-23 discoveries.
Macqueen said Canacol encountered 70 feet of net oil pay in the Agueda 1 ST (10 feet in the Carbonera C7, 42 ft in the Lower Gacheta and 18 feet in the Ubaque). Pre-drill structural closure estimate was 180 acres. With 70 feet of pay encountered, the discovery could be material (up to 3.8 MMBbls net recoverable).
The Lower Gacheta was perforated over three intervals and produced at a gross rate of 1,832 Bbls/d at 0.6% water cut and 43 Mcf/d during a 48-hour test rate, the analyst noted. The company plans to complete the Lower Gacheta test and test the Ubaque zone.
Macqueen said LLA-23 oil has much better netbacks than the Rancho Hermoso Field (2x-3x). Netbacks for RH NRI oil are similar but LLA-23 oil will generate much better netbacks than RH Tariff oil.
The primary positive factor is that CNE keeps a lot more of the discovered oil in LLA-23. The analyst was carrying 0.9 MMBbls net risked and C$0.03/share for Agueda but have increased unrisked volume to 3.8 MMBbls and COS to 70%.
The brokerage increased its price target on shares of Canacol from C$0.35 to C$0.40.
CNE is trading up 3.08% at C$0.335 on Wednesday.