Natural Gas Investors: This 1 Stock Is on the Brink of Greatness!

Canacol Energy Ltd: the perfect stock for RRSP and TFSA investors looking for a growth stock.

| More on:
Burning gas and electric cooker rings

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

Canacol (TSX:CNE) is engaged in natural gas exploration and development activities in Columbia. The company holds an interest in Oleoducto Bicentenario de Columbia, which owns a pipeline linking the Llanos basin oil production to the Cano Limon oil pipeline system.

Its share price is up 15.87% year to date with a 52-week low of $3.65 and a 52-week high of $5.05.

An interpretation of the numbers

For the six months ended June 30, 2019, the company reported an acceptable balance sheet with a growth in assets of $7 million driven by additions to PP&E of $17 million. Its liabilities decreased $2 million from $500 million to $498 million, driven by a reduction in deferred tax liabilities of $5 million and trade and other payables by $5 million. Retained earnings are negative $14 million, which improved from $(22) million the prior year. When the company achieves positive retained earnings, it will indicate to investors its cumulative net income exceeds its cumulative net loss.

The company reports a decrease in revenues from $109 million in 2018 to $101 million in 2019. This is largely driven by a decrease in petroleum revenues of $15 million. Despite this, the company reported a pre-tax net income of $23 million, which is up from the pre-tax loss in 2018 of $8 million. Net income is $8 million for the period, which is up from $(17) million the prior year.

Looking at the company’s cash flow statement indicates another strong period of operating cash flows, which were down to $34 million from $39 million the same period last year. It increased capital-expenditure spending in 2019 to $38 million from $22 million in 2018. Canacol did not withdraw any long-term debt in 2019 compared to a $320 million withdrawal and $305 million pay-down in 2018. Th ending cash balance is $29 million.

But wait, there’s more

Looking at the company’s notes to its financials indicate a couple of important items.

Firstly, the company recognized $9 million of exploration and evaluation assets as development and production assets. This is important for investors to note, as it is prompted by the company discovering two natural gas reserves: Acordeon-1 and Ocarina-1, which occurred on its VIM-5 block.

Secondly, the company sold its working interest in the Sabanas flowline for net proceeds of $12 million, which resulted in a loss on sale of assets of $0.8 million. The company also recognized $4.3 million of revenue in the consolidate statements of operations since ownership of Sabanas began, which returned $2.3 million in cash to the company on $14 million of expenditures. Overall, the company realized a net gain on the use and subsequent sale of the asset.

Thirdly, the company paid off its credit facility in 2018 by using the proceeds from the senior notes issued the same year. During fiscal 2018, the entirety of the $305 million syndicated term loan was repaid, and it entered another agreement for a $30 million secured term loan. The proceeds from the $30 million loan were used to purchase the Jobo 2 natural gas processing facility (previously financed) and to expand its Jobo 3 plant.

Foolish takeaway

Natural gas investors looking to bet on a company that will reap the rewards from an increase in natural gas prices should consider buying shares of Canacol. It’s financial statements indicate strong cash balance, an almost positive retained earnings and solid revenues.

With the discovery of additional natural gas reserves, the company is on track to growing its business and deliver greater value to shareholders.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Chen Liu has no position in any of the stocks mentioned.

More on Energy Stocks

Group of industrial workers in a refinery - oil processing equipment and machinery
Energy Stocks

Up by 25%: Is Cenovus Stock a Good Buy in February 2023?

After a powerful bullish run, the energy sector in Canada has finally stabilized, and it might be ripe for a…

Read more »

A worker overlooks an oil refinery plant.
Energy Stocks

Cenovus Stock: Here’s What’s Coming Next

Cenovus stock has rallied strong along with commodity prices. Expect more as the company continues to digest its Husky acquisition.

Read more »

A stock price graph showing growth over time
Energy Stocks

What Share Buybacks Mean for Energy Investors in 2023 and 1 TSX Stock That Could Outperform

Will TSX energy stocks continue to delight investors in 2023?

Read more »

Arrowings ascending on a chalkboard
Energy Stocks

2 Top TSX Energy Stocks That Could Beat Vermilion Energy

TSX energy stocks will likely outperform in 2023. But not all are equally well placed.

Read more »

Gas pipelines
Energy Stocks

Suncor Stock: How High Could it Go in 2023?

Suncor stock is starting off 2023 as an undervalued underdog, but after a record year, the company is standing strong…

Read more »

oil and natural gas
Energy Stocks

Should You Buy Emera Stock in February 2023?

Emera stock has returned 9% compounded annually in the last 10 years, including dividends.

Read more »

grow money, wealth build
Energy Stocks

TFSA: Investing $8,000 in Enbridge Stock Today Could Bring $500 in Tax-Free Dividends

TSX dividend stocks such as Enbridge can be held in a TFSA to allow shareholders generate tax-free dividend income each…

Read more »

oil and natural gas
Energy Stocks

3 TSX Energy Stocks to Buy if the Slump Continues

Three energy stocks trading at depressed prices due to the oil slump are buying opportunities before demand returns.

Read more »