Earnings call transcript: Canacol Energy misses Q2 2025 forecasts, stock dips

Canacol Energy Ltd. reported its second-quarter 2025 earnings, revealing a significant miss on both earnings per share (EPS) and revenue expectations. The company posted an EPS of $0.41, falling short of the forecasted $0.7971, marking a surprise of -48.56%. Revenue reached $64.81 million, below the anticipated $85.02 million, resulting in a -23.77% surprise. Following the announcement, Canacol Energy’s stock price fell by 3.98%, closing at $2.01 in after-hours trading. According to InvestingPro analysis, the stock is currently trading below its Fair Value, with impressive gross profit margins of 38.13%.

Key Takeaways

• Canacol Energy’s Q2 2025 EPS and revenue missed forecasts significantly.
• The stock price declined by nearly 4% post-earnings announcement.
• The company remains profitable for the fourth consecutive quarter.
• Successful drilling of four new wells signals potential future growth.
• Expansion plans into Bolivia set for 2026.

Company Performance

Despite the earnings miss, Canacol Energy maintained profitability for the fourth consecutive quarter, with a net income of $13.9 million. The company achieved strong operating netbacks of $5.11 per Mcf, supported by realized natural gas prices of $6.77 per Mcf. Total natural gas and oil sales were 127 million standard cubic feet equivalent per day, reflecting the company’s robust operational capabilities despite temporary production disruptions due to local unrest. The company’s financial health shows promise, with InvestingPro data revealing a P/E ratio of 7.71 and substantial EBITDA of $1.46 billion in the last twelve months. For deeper insights into Canacol’s financial health and detailed analysis, investors can access the comprehensive Pro Research Report, available exclusively on InvestingPro.

Financial Highlights

• Revenue: $64.81 million, down from the forecasted $85.02 million.
• Earnings per share: $0.41, significantly below the expected $0.7971.
• Adjusted EBITDAX: $47.4 million.
• Adjusted funds from operations: $36.9 million.
• Capital expenditures: $57 million in Q2.

Earnings vs. Forecast

Canacol Energy’s actual EPS of $0.41 was a significant miss compared to the forecasted $0.7971, resulting in a surprise percentage of -48.56%. Similarly, revenue fell short by 23.77%, with actual figures at $64.81 million against an expected $85.02 million. This marks a notable deviation from previous quarters where the company had met or exceeded expectations, highlighting the impact of operational challenges and market conditions.

Market Reaction

The market reacted negatively to Canacol Energy’s earnings report, with the stock price dropping by 3.98% in after-hours trading. The share price closed at $2.01, moving further away from its 52-week high of $4.48. This decline reflects investor concerns over the earnings miss and the company’s ability to meet future forecasts amidst ongoing operational challenges. InvestingPro analysis indicates the stock is currently in oversold territory based on RSI metrics, trading at an attractive Price-to-Book ratio of 0.47. These metrics are among the 12+ additional ProTips available to InvestingPro subscribers.

Outlook & Guidance

Looking ahead, Canacol Energy plans to invest heavily in its annual capital expenditures, with guidance set between $143 million and $160 million, leaning towards the upper end. The company is focused on sustaining and growing its EBITDAX and reserves, with plans for high-impact gas exploration, including the drilling of the Valiente-one exploration well in October. Additionally, Canacol is preparing to enter the Bolivian market by 2026, indicating strategic growth ambitions.

Executive Commentary

CEO Charles Gamba highlighted the company’s continued profitability, stating, "We reported another profitable quarter," and emphasized the strong operating margins, adding, "Strong margins translated into adjusted funds from operations." Gamba also outlined future plans, saying, "We are laying the operational and commercial groundwork required to commence activities in Bolivia in 2026."

Risks and Challenges

• Operational disruptions due to local unrest may continue to impact production.
• Meeting future earnings forecasts could prove challenging given current performance.
• Expansion into new markets like Bolivia involves inherent risks and uncertainties.
• Volatile commodity prices may affect profitability and revenue stability.
• Capital expenditure requirements could strain financial resources if not managed carefully.

Q&A

During the earnings call, analysts probed into the company’s drilling plans, particularly regarding the high-impact nature of upcoming projects. Questions also focused on the challenges faced with the Natia II and III wells and potential liquidity sources from new well productions. The management clarified tax payment expectations and reassured stakeholders about future growth prospects.

Full transcript - Canacol Energy Ltd. (CNE) Q2 2025:

Conference Operator: You may submit questions today throughout the event by clicking in the Submit a Question box on your screen. Questions will be addressed after the formal presentation has ended. Please note that this event is also being recorded.

I would now like to hand the call over to Carolina Orozco, Vice President of Investor Relations. Please go ahead.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Good morning, and welcome to Canacol’s second quarter financial results conference call. This is Carolina Orozco, Vice President of Investor Relations. I am with Mr. Charles Gamba, President and Chief Executive Officer and Mr. Jason Bednar, Chief Financial Officer.

Before we begin, it’s important to mention that the comments on this call by Canacol’s senior management can include projections of the corporation’s future performance. These projections neither constitute any commitment as to future results nor take into account risks or uncertainties that could materialize. As a result, Canacol assumes no responsibility in the event that future results are different from the projections shared on this conference call. Please note that all finance figures on this call are denominated in U. S.

Dollars. We will begin the presentation with our President and CEO, Mr. Charles Gamba, who will summarize highlights from the corporation for the 2025. Mr. Jason Bettner, our CFO, will then discuss financial highlights.

Mr. Gamba will close with a discussion of the corporation’s outlook for the remainder of 2025. At the end, we will have a Q and A session. I will now turn over the call to Mr. Charles Gamba, President and CEO of Canacol Energy.

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Thanks, Carolina, and welcome everyone to Canacol’s second quarter twenty twenty five conference call. We reported another profitable quarter with realized natural average gas prices net of transportation of $6.77 per Mcf, given the favorable commodity pricing environment. Field operating costs held at $0.54 per Mcf, generating robust natural gas operating netbacks of $5.11 per Mcf with robust and stable operating margins of roughly 75%. Strong margins translated into adjusted funds from operations of $36,900,000 adjusted EBITDAX of $47,400,000 and a net income of $13,900,000 This last figure marks our fourth consecutive profitable quarter and a sharp turnaround from the net loss recorded in 2024. Total natural gas and oil sales during the quarter were 127,000,000 standard cubic feet equivalent per day, with 119,000,000 standard cubic feet per day corresponding to realized natural gas sales and thirteen eighty two barrels of oil per day.

With strong pricing and industry leading netbacks, Canacol remains well positioned to continue generating attractive results through the remainder of 2025. Operationally during the second quarter, we drilled a total of four successful wells consisting of two appraisal and two exploration wells, extending our track record of operational delivery and disciplined execution across our near field and rapid commercialization strategy in the Lower Magdalena Valley Basin. We drilled the Secoo III appraisal well, which encountered 200 feet of high quality CDO pay, and the Fresa IV appraisal well, which encountered 122 feet of gas charged CDO sandstones. On the exploration front, Zamia-one and Bourbon-one were also successful, encountering thirty two and one hundred and fifty seven feet of CDO pay respectively. These wells further add to our inventory of commercial opportunities.

Even though we drilled a total of four successful wells during this period, from a production standpoint, only Siku-three, which spudded on April 7, reached first gas within the quarter and contributed to mitigating the natural decline from base fields. The other wells, Zamia-one, Berbouin-one and Fresa-four were all spud by quarter end, but did not contribute to production volumes during Q2 as completions and tie ins extended into July. As a result, quarterly average production was lower than in Q1 reflecting the combined effect of natural base field decline and the timing of the new wells coming online post quarter. I’d like to provide additional context on our drilling activities in the Sucre Norte area. Drilling operations at SEMEA-one, BORWON-one and Palomino-one experienced temporary delays due to restricted site access caused by local unrest.

Once access was restored, our teams mobilized quickly to continue with the drilling activity in this area without further disruptions. Had these delays not occurred, production from these wells would likely have come online during Q2 as originally planned. That said, I’m pleased to report that CEMEA-one, Bourbon-one and FRESA-four are now tied in and flowing, bringing current gas sales to approximately 137,000,000 standard cubic feet per day. At Natia-two, the rig has been released as a forward plan, is being prepared to drill a new Natia III well targeting the gas charged sandstones encountered in the various sidetracks of the Natia II well. The new drilling plan will incorporate drilling techniques to address the difficulty in running production liner across the over pressured gas charged sands encountered in the Pork Arrow.

I am also pleased to announce that during the 2025, we published our 2024 integrated ESG and TCFD reports. We believe that strong ESG principles are essential to building a cleaner, more equitable and accountable energy future. We invite you to read our full reports, are available on our website. I’ll now turn over the presentation to Jason Bednar, our CFO, who will discuss twenty twenty five second quarter results in more detail.

Jason Bednar, Chief Financial Officer, Canacol Energy: Thanks, Charles. The 2025 was highlighted by resilient EBITDAX generation, strong netbacks and positive net income. Average realized natural gas prices net of transportation was $6.77 per Mcf with royalties and field operating costs at $1.12 and $0.54 per Mcf, respectively, resulting in operating netbacks of $5.11 per Mcf. These strong unit economics generated revenues net of transportation of $76,200,000 adjusted EBITDAX of $47,400,000 adjusted funds from operations of $36,900,000 and operating cash flow of $33,400,000 supported by positive net income of $13,900,000 for the quarter. That said, several financial metrics softened compared to the 2025 and the 2024.

As Cheryl noted, this variance is particularly partially explained by the timing of our drilling activities as production from our Supranorte wells, Zamia-one and Berboune and potentially Palomino-one was delayed following localized short unrest that impacted site access. Had those wells come on stream as scheduled, the year over year volume shortfall would have likely been significantly lower. Even so, firm pricing and disciplined cost control protected our margins and overall profitability. And with the Supranorte cluster now online, we expect both its volumes and financial contributions to strengthen throughout the remainder of the year. The second quarter was capital intensive with $57,000,000 in capital expenditures, 11,800,000.0 in cash tax payments and the scheduled $14,000,000 semiannual bond coupon payments.

As a result, cash and cash equivalents stood at $37,000,000 as at June 30. Capital expenditures during the quarter were fully funded from operating cash flow and existing cash on hand. I’d like to note that capital expenditures are weighted towards the front half of the year as the bulk of the high cost Natia II exploration well was absorbed in the first half spending. Looking ahead, while we intend to maintain an active drilling program in the second half, capital intensity is expected to ease. On the tax side, current tax expense was $9,300,000 for the first quarter and $23,900,000 for the 2025, both lower than prior year periods.

On a cash basis, tax payments were significantly lowered $11,800,000 for the quarter, representing an 85% reduction year over year. We continue to meet all financial covenants with ample headroom. As of June 30, our consolidated leverage ratio was 2.7 times below the 3.25 in currents and 3.5 times maintenance threshold. Our interest coverage ratio stood at 4.49 times, nearly double the 2.5 times minimum requirements, while the current ratio was 1.14 times keeping us above the one time minimum level under the Macquarie loan agreements. I’d like to note that due to average realized contractual natural gas and oil sales volumes falling below 130,000,000 cubic feet equivalent per day for two consecutive months and accelerated amortization clause in our credit agreement with Macquarie was triggered.

Consequently, the $50,000,000 term loan is scheduled to amortize in six equal monthly installments beginning 09/15/2025, unless the waiver is secured. The impact of the accelerated amortization clause is that the loan will be amortized in six months instead of twelve months. Nonetheless, as part of our continued liability management strategy, we are currently engaged in discussions with two separate banking groups looking to amend our non bond debt to better match our loan repayments with anticipated future cash flows over the course of 2026 to 2028. While we can’t share specifics at this stage, we expect to finalize agreements this September. We will make a public announcement once an amendment has been executed.

That concludes my comments. Back to you, Charle.

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Thanks, Jason. Looking ahead to the remainder of this year, our priorities remain firstly, a commitment to sustaining and growing Canacol’s EBITDAX and reserves base through a combination of commercial strategy, maximizing market pricing opportunities, and a disciplined capital program that channels investment towards high return drilling and workovers. Secondly, we will keep advancing with our program of high impact gas exploration prospects across the Lower And Middle Magdalena Valleys, which have the potential to add significant reserves and production capacity in the long term. For the remainder of the year, aside from drilling some smaller appraisal and exploration wells in and around Jobo that can be quickly monetized and contribute to production and cash flow, we will be drilling a high impact exploration well, Valiente-one, targeting potentially material gas and condensate reserves. The Valiente prospect is located on the VMM ten-twenty one contract located in the Middle Magdalena Basin where Canacol holds a 100% operated working interest.

The Valiente prospect is a large shallow structure located approximately five kilometers up dip into the south of the Opon gas field discovered in 1965 by City Service and later developed and produced by Amaco in 1997. Valiente 1 will be targeting the same productive sandstones of the La Paz formation that were productive at Opon but at significantly shallower depths of approximately 6,000 feet. The Corporation anticipates spudding the well in October with results before year end of this year. Thirdly, we are laying the operational and commercial groundwork required to commence activities in Bolivia in 2026, positioning Canacol to replicate its Colombian gas success in a new prospective and profitable gas market. In Bolivia, the corporation is awaiting ratification and formalization by Congress of three exploration contracts, Arenalis, Opay and Florida Estates and one field redevelopment contract, TITA, in order to establish the effective date of all four contracts.

The Corporation is currently preparing to apply for the environmental permit for TITA along with formulating development plans in order to commence field reactivation activities in 2026. Fourthly, we are focused on maintaining a strong and flexible capital structure to support long term growth and resilience. And finally, we continue with our commitment to leading ESG practices aimed at every molecule of natural gas we produce being delivered responsibly and sustainably. Thank you for your attention. We look forward to keeping you updated on our progress in the coming months.

And we’re now ready to take questions.

Conference Operator: We will now begin the question and answer session. You may submit questions by clicking in the Submit a Question box on your screen. Questions will be addressed in the order that they are received. At this time, I will now turn the call back over to Carolina Orozco for the question and answer session.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you. The first question comes from Stephane Shalin. Can we expect high impact drilling to take place this year? If positive, can you provide tentative calendar wells or any corresponding potential?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Yes, mentioned in the presentation the Valiente 1 exploration well in the Middle Magdalena Valley Of Columbia that has the potential to add material gas and condensate reserves prior to year end. We’re also drilling a fairly extensive program in the Lower Magdalena Valley consisting of the typical types of wells we’ve been drilling this year. That would include the Palomino-one well, which we’re just finishing drilling on the Sucre Norte area. That will be followed by the Fresa-five appraisal well, which we expect to be on production mid September, which will be followed by the Mariner-one exploration well, which we expect to be on production in mid October. Likewise, we’re drilling a development well in Clarinete, Clarinete 12, spudding that well early September.

We expect that well to be on in early October. Valiente, we will spud sometime in October with results by year end.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Charles. The next question comes from Peter Bolley from Jefferies. Can you confirm CapEx expected for the third Q and 2025?

Jason Bednar, Chief Financial Officer, Canacol Energy: Sorry, Carolina, can you repeat that question, please?

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Yes. This question comes from Peter Bolley from Jefferies. Can you please confirm CapEx expected for third Q and 2025?

Jason Bednar, Chief Financial Officer, Canacol Energy: Okay. Thank you. The guidance our annual guidance released in February was between $143,000,000 and $160,000,000 of CapEx. Expect to be closer near the upper end of that at 160,000,000 Q1 was 50,000,000 Q2 was 57,000,000 That would mean there is roughly what $53,000,000 left to go to hit the 160 Once again, my expectation is that will be the range we’re at, with it slightly weighted towards Q3, the remaining 53,000,000 towards Q3 as opposed to Q4.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thanks, Jason. The next question comes from Fibre Rodriguez from Fibre Investments. The question is, what’s the roadmap for Natilla three?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Natilla three, we’re currently just finalizing the drilling program, integrating the results of the Natilla 2 well and their sidetracks thereof to optimize the drilling program to try and better deal with some of the wellbore instability we encountered in the Porquero and the Tia-two. So once we’ve finalized the drilling program, we’ll be looking to approve the AFE internally and looking to drill that well early in 2026.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you. The next question is from Alexander Emery from S and P Global Platts. Can you provide us with more color on the work to be done in Bolivia next year and when you believe you might obtain the congressional approvals?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Yes, as I mentioned in the introduction, in my words, we’re currently waiting for the contracts to be ratified by Congress. That’s expected to occur after the elections later this month, sometime in late Q3 or early Q4 of this year. Simultaneously, we’re elaborating the environmental permits for the TITA field reactivation, which we expect to be granted early to mid year in 2026. And with those environmental permits in hand, commence the reentry and workover of some existing shut in gas wells in the Tita Field to bring those back on to production and production test those. And with positive results from those workovers, we will proceed to start to construct some facilities and start to commercialize the field in early twenty twenty seven.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Charles. The next question is from Bill Newman from Research Capital. Can you clarify the 5,000,000 cubic feet per day difference between produced gas, which was 124,000,000 feet per day and realized contractual sales, which were 119,000,000 feet per day in Q2. Was this due to line pack inventory build or under delivered take or pay volumes? And if so, should we expect some of these volumes to flow through as incremental sales in Q3?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: The difference between the gas production and gas sales in all quarters is related to the amount of gas we consume in compression.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Charles. Okay. The next question comes from Joshua Nemtzer from Nine Left Capital. Can you provide some color around what went wrong with Natya two? What would be done differently with Natya three cost and timeline?

What gives the team confidence that Natilla three will work given challenges and costs with Natilla two?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Natilla two encountered some wellbore stability issues in the Porquero, so we managed to drill the well without much difficulty, drill new formation that is. We did encounter five or six gas charged sands in each of the sidetracks we drilled in Natia II. Natia II did prove up the gas potential within the Porquero. However, the problem we ran into was wellbore instability after drilling the well impeded our ability to run production casing. So even though we drilled successfully, we were not able to run production liners successfully across those gas charge sands in order to production testing.

The Tier three is being designed primarily to deal with running production casing more easily. And towards that end, we will drill a wider diameter wellbore through the Porquero and run a narrower casing through the Porquero in order to maximize the success of running casing and production testing those Porquero sandstones. On the one hand Natia II confirmed a significant accumulation of gas within the Porquero. On the other hand, we had difficulties casing the Porquero due to instability resulting in the Tier three which will address those concerns.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Charles. The next question is from Alejandro Andrade from JPMorgan. Can you please confirm can you please comment on taxes? You paid a significant amount in the second Q. What is the expectation for the 2025?

Jason Bednar, Chief Financial Officer, Canacol Energy: Yes, thank you. We are down to essentially just the monthly withholding taxes of our monthly revenue checks that I’ve discussed many times in the range of historically 1,200,000.0 or $1,300,000 a month. The government just increased that withholding by a couple of percent. So it could be up to approximately $2,000,000 a month, but that would be it. And of course, that is to the credit of our prepaid tax accounts.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Jason. We have a question from Benjamin Rojas from Betej Pactual. Do you have any liquidity source in a stress period?

Jason Bednar, Chief Financial Officer, Canacol Energy: Thanks. I think the most obvious one that comes to mind is our recent wells that have come on production, which Cheryl has gone through extensively here being Zamia, Bourbon and Fresa. Whether it’s the press release or the MD and A discusses those wells coming on for an additional 25,000,000 cubic feet a day. Palomino, which the press release and MD and A outlook section discusses with an expectation of 10,000,000 to 12,000,000 cubic feet a day. So that would total up to 37,000,000.

But if I just did simple math on adding 30,000,000 cubic feet a day, to pick a round number of 12.5 in Mcf and sales price because these are sold above our over and above our take or pay volumes. That $12.50 net of royalties and net of operating expenses would approximate $10 in Mcf netback. So 30,000,000 cubic feet a day at a $10 netback would be about $300,000 a day. Thirty days, that’d be about $9,000,000 a month in additional cash flow and EBITDA. So that would be the most obvious source of additional liquidity.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Jason. Please give us a brief moment again while we assemble the roster.

Conference Operator: Carolina, you may continue.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Apologies. With this, we finish our Q and A session. We don’t have any more questions for today. Thank you all for participating in Canacol’s second quarter conference call, and we hope you all have a good day today.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation, and you may now disconnect.

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