Updating our view of Canacol Production 2013


A couple of weeks ago we published a variation of this graph based on the production guidance that Canacol published at that time. Canacol being Canacol the picture was not crystal clear and so we made some assumptions to fill in the blanks. Now with 4Q12 results, the picture is not perfect but it is clearer. The principal assumption that we made was that Ecuador would have what the company calls Non-Tariff production i.e. not Tariff which is their word for what amounts to an oil services contract to operate a well for a set fee per barrel. It is now clear that that is not the case and Ecuador will be only an oil services contract which the company says is higher margin than their Colombian contract.

The December 2012 number is pro-forma as if gas-producing acquisition Shona had been part of Cancacol for the entire month, rather than simply from December 20th, the day of the closing. The February number is just up to the 10th of the month.

Bottom-Line: Qualitatively what has changed is that Non-Tariff growth is now dependent on Colombia and that means, besides exploration success, success with environmental licensing. Talisman recently came out and said flatly that things are getting betterand it is clear from the pace of exploration announcements late last year that licenses were being issued so perhaps this is less of a challenge than it might have been last year.

Another interesting note is that when we tweeted about the 4Q12 announcement yesterday we said that January and early February production numbers were good news. In fact the graph makes it clear they are not. We compared to the January and February numbers to 4Q12 official production numbers (which only have about 10-days’ worth of Shona) instead of comparing to the proforma December numbers. This graph shows that production so far this year is actually down from December 2012, perhaps due to increased guerilla activity especially in the country’s south where some of the company’s production is located.

Note that this time we assumed Tariff production was flat between December and February 10th at the 4Q12 level. The company did not publish these figures for the monthly indicators. It did indicate that Ecuador Tariff production was increasing and Colombia Tariff production has clearly been decreasing so it seemed fair to assume it was overall flat.