Buyers beware...lots of bad news ahead yet to be disclosedToday Canacol has a lot of momentum but there are definite headwinds approaching.
1) Corzo 1 was spud October 1 and Canadonga was suppose to spud late November and there was no mention of either in Canacol's press release...this 100% means bad news, they don't want the bad news to dilute the good news from the acquisition so they didn't disclose the results or provide an update
2) Llanos production, According to the Company's press release in October "during the remainder of calendar 2014 the Corporation anticipates drilling two additional development wells and two exploration wells (Maltes 1 and the Pastor 1) subject to ANH approval." No word on any of these wells likely is a sign of more bad news to come. Junior companies' disclosure is so predictable, always assume the worst if you haven't heard anything prior to the timeline they laid out. If there was even a bit of good news to share in advance of the acquisition press release don't you think they would have shared it! There is only upside to positive drilling updates.
3) I also suspect they are also going to miss their production guidance given there has been no news on the LLA 23 development wells, this guidance has already been lowered once for 2014 so this will be another big negative to deal with
4) Ecuador, I don't think those incremental production agreements are making much sense right now to Canacol's counterparty, at $60 oil, paying out $38 per barrel to Canacol makes almost no sense. Don't be surprised if activity is suspended in Ecuador and if that happens there goes $40 million in EBITDA
5) The fact the stock started moving up so hard on Wednesday and Thursday before the news was released was just one more blow to Canacol's management credibility, they clearly leaked the news of the transaction and discovery, but no one will be able to prove it. It's just another gross bush league move that institutional investors will take note of and keep CNE at surpressed multiples versus its peers
6) No certainty that Canacol can meet the deliverability requirements for their gas contracts at the end of 2015, they will have to drill a least a couple development wells and there is still execution risk
7) Canacol's balance sheet is looking uglier, with the acquisition $30mm cash went out the door to OGX, next to Rubiales, Canacol is the most highly levered company in Colombia
On the positive side, there will be test results in January for the Clarinete 1 exploration well that they just acquired that has 145 ft of potential gas pay...market is obviously pricing it in that this discovery is going ot be even bigger than the Nelson field...smart money knows the old saying, sell on rumors (logs) and buy on news (test results).
So buyer beware, wouldn't be surprised if this stock is sub $2.00/share again early in the new year which would not be a good way to start off the year. Unless you are a day trader I would stay on the sidelines until managment discloses somemore key pieces of information that investors should be entitled to.
Best of the holidays to you all