Value Microcaps Junior Energy

[dr_airtime]

CNE.TO - Final Results of Bottom-Up Valuation Model

See my last post. Here is a final summary of what I am seeing after incorporating tax depreciation (per-boe basis) and the 39%-43% marginal tax rate in Colombia.

If anyone else is interested in the model send me an ihub message with your email and I will email it. I can't reply to you in iHub as a non-paying user. Don't forget to return a similar favor in the future of course! You will need to be sophisticated in reviewing on-screen in excel to follow...

This is all done at $CAD 2.79 close today and a $CAD .80 dollar. Valuation in $USD and references to share price ("SP") in $CAD.

Valuation is done on all Gas 2P Reserves and conservative amount of oil production*

Pre-Tax
**Corporate: EV/NPV 10% pre-tax = 0.55X. Target SP of $6.87 (at 1.00X)
***Gas-only: EV/NPV 10% pre-tax = 0.90X. Target SP of $4.16

Post-Tax
**Corporate: EV/NPV 10% post-tax = 0.85X. Target SP of $3.70
****Blue Sky: NPV 10% post-tax of a BCF of Gas is $USD 3.3M/BCF. Clarienete best-estimate prospective resources are 209 BCF. This is another $5.91/share. $3.70 + $5.91 = $10.00+ potential.

Conclusion: $4.00 ceiling Canacol has hit twice is fundamentally 1.00X EV/NPV 10% post-tax at current oil prices. If Canacol hits success on their Clarienete step-out wells they are drilling this summer, can contract this gas out and Brent recovers to $80 there is blue-sky $10.00+ SP potential. since Canacol is taxable in Columbia (they only had $USD 11M of tax loss carry forward at the start of 2015) and future combined corporate-CREE tax rates are 43% from 2019+ a pre-tax valuation is meaningless, but have provided nonetheless

Reminder: this is a bottom-up model specific to Canacol and should be more accurate from NPV perspective than any analyst model you still have to take everything with a grain of salt. EV/NPV is just one way to look at a company.

*At June 30, 2013 Canacol had 23 MBOE of 2P reserves. I simply rolled forward trailing-twelve-month oil production and declined at 20%/year and 16 MBOE is produced for my valuation using $60 long term Brent. Very conservative.

**Corporate valuations incorporate gas + oil free cash flow plus corporate level G&A

***Gas only incorporates gas free cash flow + 100% of corporate level G&A. downside valuation approach that assumes no value for oil properties at current levels. I used 188 BCF of 2P reserves (Palmer, Nelson & Clarienete) for the valuation

***NPV 10% post-tax of a BCF of gas incorporates gas free cash flow (i.e. EBITDA less capex) less taxes I allocated to the 188 BCF of gas 2P reserves.