Earnings call transcript: Canacol Energy Q4 2024 shows record EBITDAX

Canacol Energy reported a robust financial performance for the fourth quarter of 2024, with significant increases in key metrics such as EBITDAX and revenues. The company highlighted its strategic focus on operational efficiency and market expansion plans, which contributed to its strong results. According to InvestingPro data, the company’s stock has delivered an impressive 29.83% return over the past year, supported by a solid financial health score of 2.62. Despite these positive outcomes, the stock market reaction was muted, with Capricorn Energy’s stock experiencing a slight decline.

Key Takeaways

• Canacol Energy achieved a record EBITDAX of $296 million, up 25% from the previous year.
• Q4 2024 revenues, net of royalties, rose by 23% to $98.3 million.
• The company maintained a strong operational margin of 77%.
• Capital investments decreased significantly, aligning with the company’s efficiency goals.
• Canacol plans to enter the Bolivian market in 2026, aiming for regional expansion.

Company Performance

Canacol Energy demonstrated strong performance in Q4 2024, with a record EBITDAX of $296 million, a 25% increase from 2023. With a market capitalization of $2.73 billion and trailing twelve-month EBITDA of $1.59 billion, the company realized natural gas prices of $6.99 per 1,000 standard cubic feet and achieved netbacks of $5.41 per 1,000 standard cubic feet, marking a 32% rise from the previous year. The operational margin remained robust at 77%, reflecting the company’s focus on efficiency and cost management. InvestingPro analysis shows the company maintains strong liquidity with a current ratio of 1.41, while offering investors an attractive dividend yield of 5.97%.

Financial Highlights

• Revenue: $98.3 million (23% increase YoY)
• Adjusted funds from operations: $52.1 million (68% increase YoY)
• Adjusted EBITDAX: $76.1 million (43% increase YoY)
• Capital investment: $122 million (43% decrease YoY)

Outlook & Guidance

Trading at a P/E ratio of 5.17, Canacol Energy has set an ambitious capital program for 2025, ranging between $143 million and $160 million. The company expects to average gas and oil sales of 305 million standard cubic feet per day and projects an EBITDA of $264 million to $312 million. For deeper insights into Canacol Energy’s valuation and growth potential, InvestingPro subscribers can access comprehensive financial analysis and additional ProTips in the exclusive Pro Research Report, part of the coverage of over 1,400 top stocks. Additionally, Canacol plans to drill up to 11 exploration wells and is preparing to enter the Bolivian market in 2026, aiming to expand its regional footprint.

Executive Commentary

• "We’re pleased to report that this past year was a record breaking one for Canacol Energy," stated Charles Gamba, CEO.
• "Our emphasis on operational efficiency continues to strengthen our financial results," noted Jason Bednar, CFO.
• "We aim to expand our regional footprint and diversify our resource base," added Charles Gamba, CEO.

Risks and Challenges

• The Colombian natural gas market is experiencing tight supply, which could impact future sales.
• Potential volatility in natural gas prices may affect profitability.
• The company’s expansion into the Bolivian market presents operational and regulatory challenges.
• Capital expenditure reductions, while beneficial for cost control, may limit future growth opportunities.

Q&A

During the earnings call, analysts focused on Canacol’s strategies for replenishing PDP reserves and the company’s compliance with loan agreements. Executives also clarified their plans for entering the Bolivian market and addressed tax payment expectations.

Full transcript - Capricorn Energy PLC (CNE) Q4 2024:

Conference Moderator: Good day, and welcome to the Canaccol Energy Year End twenty twenty four Financial Results Conference Call. All participants will be in listen only mode. After today’s presentation, there will be an opportunity to ask questions. We will only be taking questions from the webcast side today. Please note this event is being recorded.

I would now like to turn the conference 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 fourth quarter and fiscal year twenty twenty four 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 is important to mention that the comments on this call, Mechanical Senior Management, can include projections of the corporation’s future performance. These projections near 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 for the Corporation’s fiscal year twenty twenty four results. Mr. Jason Bednar, our CFO, will then discuss financial highlights for the fourth quarter of twenty twenty four.

Mr. Gamba will close with a discussion on the corporation’s outlook for the remainder of 2025. At the end, we will have a Q and A session. We 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 fourth quarter and fiscal year end twenty twenty four conference call. We’re pleased to report that this past year was a record breaking one for Canacol Energy with Evidax reaching a new high of $296,000,000 20 5 percent higher than the EVDAX recorded in 2023. Our realized natural gas prices for the year were $6.99 per 1,000 standard cubic feet, which generated netbacks of between $5.41 per 1,000 standard cubic feet, 32% higher compared to last year, all the while maintaining a strong operational margin of 77%. In 2024, we averaged 165,000,000 standard cubic feet per day equivalent of gas and oil sales, which included an average of 157,000,000 standard cubic feet per day of natural gas. Through our disciplined approach to capital management, we will continue investing in key projects focusing on increasing our EBITDAX generation and reserves base as well as reducing our debt.

During 2024, we invested $122,000,000 in capital, 43% lower compared to the previous year and lower than our 2024 guidance of $138,000,000 This reduction is attributed to drilling and cost efficiency efforts during the course of the year. These capital efficiencies combined with our strong financial performance enable us to close the year with a cash position of $79,000,000 Strong commodity pricing combined with our focus on cost reduction and production optimization have been essential to maximize our response to market dynamics and achieve these strong results. From drilling perspective, we drilled a total of five exploration wells and five development wells with four out of the five exploration wells and all of development wells being successful. We’re also releasing our oil and gas reserves and deemed volumes for the fiscal year ending 12/31/2024. Through our exploration and development drilling efforts, we achieved a 2P reserve replacement ratio of 85% with 53,000,000,000 cubic feet in new discoveries.

This brings our total 2P reserves to five ninety nine billion cubic feet of gas equivalent. The net present value of the future net revenues from our 2P reserves discounted at 10% is now estimated at US2.6 billion dollars before tax and US2 billion dollars after tax. These figures represent an increase of 2113% respectively compared to 2023 year end. The before tax value translates to Canadian dollars 109 per share of reserve value and Canadian dollars per share of 2P net asset value, highlighting the strong intrinsic value of our reserve portfolio. Furthermore, with a reserve index of ten point two years, our 2P reserves will sustain long term production, supporting our ongoing development and future exploration projects.

Finally, we’re pleased to share the results of the corporate sustainability assessment conducted by S and P Global. In this rigorous evaluation, we achieved a total score of 75 points, ranking us as the fourth best company out of 165 participants in the global oil and gas business, upstream and integrated sector in the entire world. We achieved an eighth place in the environmental dimension, improving three positions from last year fourth place in social dimension, improving eight positions from last year and for the second consecutive year, we ranked first in governance. I’ll now turn the presentation over to Jason Bednar, our CFO, who will discuss twenty twenty four fourth quarter results.

Jason Bednar, Chief Financial Officer, Canacol Energy: Thanks, Charles. The fourth quarter of twenty twenty four was another very strong quarter for us with record EBITDAX generation and netbacks. Our realized natural gas price net of transportation reached $7.81 per Mcf during the three months ended 12/31/2024, with operating expenses averaging $0.45 per Mcf, 26% lower compared to the same period in 2023. Building on this cost efficiency and supported by our strong realized pricing, we achieved record natural gas operating net backs of $6.12 per Mcf, which is 39% higher year over year and being the highest quarterly net back in the corporation’s history. Our emphasis on operational efficiency continues to strengthen our financial results, enabling us to keep costs and capital expenditures in check, while preserving strong operational and financial metrics.

At the same time, as Charles noted, Columbia’s tight natural gas supply reinforces our solid commercial approach, which balances stable long term take or pay contracts with healthy interruptible sales exposure. During the fourth quarter of twenty twenty four, we generated total revenues net of royalties and transportation expenses of $98,300,000 which were 23% higher compared to the $79,700,000 for the same period in 2023. Adjusted funds from operations for the quarter totaled $52,100,000 a 68% increase from the $31,000,000 in the same period of 2023, largely driven by higher EBITDAX. Adjusted EBITDAX rose significantly by 43% reaching $76,100,000 for the three months ended 12/31/2024 compared to $53,100,000 for the same period in 2023. This increase was driven primarily by higher operating netbacks for natural gas.

The corporation realized a net loss of $25,400,000 for the three months ended 12/31/2024, compared to a net income of $29,900,000 in the same period of 2023. The net loss for the three months and year ended 12/31/2024, is a result of a noncash deferred income tax expense of $28,900,000 as compared to a noncash deferred income tax recovery of $31,700,000 in 2023, offset by an increase in EBITDAX. Q4 twenty twenty four deferred tax expense is mainly driven by the foreign exchange impact on the corporation’s unused tax pools and capital pools. Our accrued capital expenditures for the three months ended 12/31/2024, was $28,600,000 60 percent down from $72,200,000 in Q4 twenty twenty three. This reduction reflects lower spending on warehouse inventory drilling, completion workovers and related costs and land and seismic acquisition aligning with the corporation’s commitment to capital efficiency.

Our strategic investments and operational efficiencies have allowed us to achieve a return of capital employed of 18% for the fourth quarter, a significant improvement compared to 11% reported in the same period of 2023. This reflects our disciplined approach to prioritizing high return projects and optimizing capital allocation, ensuring that each investment contributes meaningfully to our financial performance. As of 12/31/2024, the corporation had $79,200,000 in cash and cash equivalents, marking its strongest cash position since Q3 of twenty twenty two, along with a working capital surplus of $45,500,000 Further, as announced on February 24, alongside our guidance, the cash position at that date still remained at $79,000,000 and I’m pleased to provide an update that as of today the cash position remains at approximately $80,000,000 With this strong liquidity, the corporation is well suited to address both current and future operational requirements, while preserving the financial flexibility needed to seize strategic opportunities and sustain long term growth. I’d also like to highlight our declining leverage ratio, which was approximately 2.9 times at both year end 2023 and 03/31/2024. That leverage ratio fell consistently throughout 2024 and at December ’30 ’1, ’20 ’20 ’4 stood at 2.31 times as a result of both record EBITDA and a very strong cash position and indeed lower than the 2024 guidance we issued at the start of the year of between 2.4 to 2.8 times.

One of the corporation’s 2025 objectives is to reduce our debt levels. The Macquarie two year term loan remains drawn at $50,000,000 and begins terming out in four equal quarterly installments of $12,500,000 with the first of such payments scheduled for December 2025. In addition to that, the corporation will continue to monitor its prospective free cash flow throughout the year with the goal of potential further debt repayments or bond buybacks while balancing its capital programs and successful exploration developments. As of the end of the fourth quarter, we are fully compliant with all financial covenants, which include the following: First, the consolidated leverage ratio of 3.2 times in currency and 3.5 times maintenance based our current leverage ratio of 2.31 is well inside this covenant The second covenant is a minimum consolidated interest coverage ratio of 2.5 times. Our current coverage ratio is at 5.1, which is well above the minimum required.

And finally, a consolidated current ratio requirement of minimum one 1x and we currently stand at 1.7x. As such, we’re well inside all of our financial restrictions. This concludes my comments. I’ll hand it back to Charles now.

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Thanks, Jason. In 2025, our focus is fivefold. Firstly, maintaining and growing Canacol’s EBITDA generation and reserves through higher commodity pricing and investment in drilling, workover and new facilities projects. Secondly, drilling high impact gas exploration opportunities in both the Lower And Middle Magdalena Valleys. Third, reducing our debt.

Fourth, laying the groundwork to be able to commence operations in Bolivia in 2026. And fifth and finally, continue the corporation’s commitment to its ESG strategy. We published our 2025 guidance in February announcing a capital program ranging from $143,000,000 to $160,000,000 Throughout the year, we expect the average natural gas and oil sales between 305,000,000 standard cubic feet per day of gas equivalent with natural gas sales projected to be between 293,000,000 standard cubic feet per day. We expect commodity prices to remain strong throughout the rest of this year and into next year and hence lowered our take or pay volumes to 111,000,000 standard cubic feet per day in order to maximize our exposure to the higher priced spot on the sales market. We anticipate wellhead natural gas prices, including both take or pay and interruptive volumes, net of transportation to range between $7.33 and $7.65 per 1,000 standard cubic feet.

By maintaining disciplined capital allocation and operational efficiencies, we expect to sustain netbacks between $5.81 and $6.19 per 1,000 standard cubic feet, resulting in an EBITDA forecast of $264,000,000 to $312,000,000 for 2025. It’s important to note that a $1 change in the cost of interruptible gas pricing impacts EBITDA by $9,000,000 to $14,000,000 highlighting our ability to capture opportunities in the market under higher pricing. In 2025, we also plan to increase our exploration activities in both the Lower And Middle Magdalena Valley basins as part of our long term commitment to maintain and growing the corporation’s reserves and production base. We intend to drill up to 11 exploration wells, including 10 new wells in the Lower Magdalena Valley and one in the Middle Magdalena Valley. High impact wells include the Natia II well, where we are planning to penetrate the primary CDO target shortly, having found significant reserves already in the overlying Porquero formation.

Second high impact well would include the Valiente well located in the Middle Magdalena Valley. Additionally, we will continue to optimize output by installing more compression, processing facilities and executing workovers in key producing areas. Through this multi tiered drilling approach, which includes high impact exploration, near field tie ins and ongoing development work, we expect to continue positioning ourselves as the largest independent supplier to Colombia’s natural gas market for the long term. Looking ahead, we see significant exploration potential with over 7,500,000,000,000 cubic feet of risk perspective resource on our current exploration portfolio spread across the Lower And Middle Magdalena values of Colombia. For a disciplined capital approach to capital management, we will continue investing in key projects focusing on increasing our EBITDAX generation and reserve base as well as reducing our debt.

Outside of Colombia, we are progressing with our strategic entry into Bolivia. We have signed three exploration contracts, the Aranales, Ovais and Florida Estate, and one field redevelopment contract, TETA, all located in the prolific gas producing Sub Andean Basin of Bolivia. These contracts are pending congressional ratification and formalization to establish the effective dates, which we anticipate to achieve in September of this year. We’re currently preparing to apply for the environmental permit for Tita and developing our plans for the field’s redevelopment with the intention to begin investments in field reactivation activities in 2026. Although the Sub Andean Basin is underdeveloped in terms of resource, it benefits from an existing export pipeline network into Brazil, creating a very favorable environment for commercialization of any gas we can bring back onto production or find.

By leveraging our technical expertise and proven ability to commercialize gas, we aim to expand our regional footprint and diversify our resource base. Thank you for your attention and we look forward to updating you on our progress in the coming months. We’re now ready to take questions.

Conference Moderator: We will now begin the question and answer session.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you. The first question we have today is from Omar Seolia from Oppenheimer. How will the company replenish its PDP reserves and how easy or how fast can you currently not producing 1P reserves turn into production?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Thanks, Omar. The way we typically increase our PDP reserves, generally, we through in field work such as workovers of existing wells, which open new producing zones in the well, currently producing wells. The installation of compression in the field, which lowers the dry down pressure on the reservoir, so we can suck more gas and push more gas out of the well. These two activities are always ongoing in our operations and always result in increases of PDP reserves from existing wells. The second way to increase PDP, of course, is to bring on new production from new wells and new discoveries, which we have done so far this year in the example of SIKU2, for example, LULO3 and hopefully bringing Natiya two on by year end.

So through those two activities, in field work related to working over existing wells and the installation of compression as well as bringing on new wells, we managed to increase and replace our PDP reserves on a yearly basis.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Charles. The next question is from Peter Bowley from Jefferies. You have $12,500,000 in short term debt under the senior term loan with Macquarie. Can you remind us the amortization profile of this loan? And can you confirm production levels have been sufficient to not trigger an accelerated amortization event under the Teal accredited agreement?

Jason Bednar, Chief Financial Officer, Canacol Energy: Sure. Thanks, Carolina. So the Macquarie load of $50,000,000 was taken out in September of twenty twenty four. There is no debt repayments for the first twelve months. As such, the first quarterly installment, as I mentioned earlier, is in December of twenty twenty five and it’s four equal quarterly installments of the $12,500,000 with the last one being in September 2026.

Production levels sufficient? Yes, there is the production levels have not dipped below any form of accelerated amortization for any month since inception to date. And for those that aren’t aware, should it trigger, which once again, we do not expect that to happen, it would simply pay out in six payments beginning in October 2025. So essentially, it payout over the final six months instead of the final twelve months, but we’re not anticipating that.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: There’s another question from Peter. Can you share an update on Natilla two and when you target knowing results?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Yes, Peter. We’re currently running casing in the well to isolate the gas that we have already discovered within the Shilohor Porquero formation. And once we’ve completed that casing operation, we will commence drilling again to deepen the well through the primary target, which is the Cienaga De Oro. These operations should take between four to five weeks.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: The next question is from Alexander Emery from S and P Global Plates. Can you provide more color on your plan for your Bolivian blocks this year? We understand Canacol signed the four contracts with Bolivia’s Energy Ministry in January.

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Yes. In Bolivia, we are waiting for the ratification of the four contracts by Congress. We anticipate that to occur in September of this year. In the meantime, we are preparing the environmental all the paperwork to submit for environmental permitting of the Tetha block so that we can start operations in Tetha next year. And those operations would include workovers of existing wells, testing of existing wells, the construction of early production gas treatment facilities and the construction of a short flow line to tie those wells into the export line to Brazil.

So that’s the status of Bolivia. We’re aiming to have production from Bolivia hopefully exit in 2026.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Next question is from Alejandro Andrade from JPMorgan. On the tax side, can you remind us the expected cash payment for 2025? To clarify, you do not need to get rebates from the government, but simply will make a lower payment, correct?

Jason Bednar, Chief Financial Officer, Canacol Energy: Yes. As our guidance press release roughly a month ago stated, the tax installment that we will pay in Q2 total $18,000,000 of which $12,000,000 is a prepayment related to 2025 tax. And of course, we have roughly $1,000,000 a month comes off our revenue checks being like 2% or 2.5%. So it’s not a big number. And no, we don’t expect any rebates.

Anything we have overpaid essentially just rolls into a credit for the next year and thus lowers that year’s taxes due.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Jason. The next question is from Oriana Kovals from Valens. In your reserve reports, we see your price forecast for the next five years with revisions to close to 40% versus 2024 report. Can you shed additional color on what are you seeing behind your expectations? And if you’re using any benchmark reports for forecasts?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Yes. This reflects the not only the current market dynamics in Colombia where there is a shortfall of gas supply, but also the cost of imported and regasified LNG into Colombia. So essentially the benchmark that applies to Colombia, specifically the landing point of the spec terminal located in Cartagena, parallels that of Brazilian imported LNG pricing at a premium of about 10% to 15% given the relatively small loads that Colombia can accept. So that forecast going forward reflects current market conditions, which are being driven by the shortage of gas and the relatively high cost of imported LNG into Colombia tied to Brazilian import benchmark.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Charles. We have a question from Aleister Alexander from Scenarios Investment and Management. When it comes to reducing debt, what is your priority, buying back bonds or reducing the RCS?

Jason Bednar, Chief Financial Officer, Canacol Energy: Well, first of all, as I mentioned, we do have some scheduled Macquarie payments, right, which is not dissimilar from the RCF perhaps. Obviously, the quickest way to delever post that would be to buy back bonds at a discounted rate. So that’s certainly on the radar. And any excess cash flow, I suspect will be allocated to a mix of both whether it’s the RCF or the bond buyback. It’s entirely possible and perhaps likely that we will be extending the term of the RCF also.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: We have a question from Bernardo Carvajal from Farragones Capital. Thank you for the webinar. Are you considering any sale of assets to help deleverage?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: No, we are not.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: The next question is from Andres Castillo from Kratos Capital Partners. Please talk us about how you see pricing of natural gas evolving vis a vis the price of imported LNG via Cartagena or Buenaventura?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Yes. I mean, the only practical in the mid to near term and that’s the next five to six years, the only potential source of new imported volumes of LNG would be through the expansion of the spec terminal in Cartagena. That’s a fairly limited capacity terminal at the moment. So there’s not a lot of potential in the near to midterm to significantly increase imports of LNG into Colombia. So we expect, again, as I mentioned in an earlier question, that imported LNG pricing in Colombia will certainly be at a premium to Brazilian benchmarks and international benchmarks in general, given the relatively small volumes that are involved and the smaller ships that are used at higher cost to import gas into Colombia.

With respect to the Buenaventura terminal on the Pacific Coast, that project has now been on the books for at least fifteen years. Technically, extremely difficult to achieve given having to cross the Western Andes with a gas pipeline. So that project remains very distant in any terms of potential outlook, certainly well beyond ten years.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: We have one last question from Ezequiel Fernandez from Valance. How will Canacol fund the expansion into Bolivia? Would this require an equity injection or does Canacol plan to raise more debt possibly non recourse?

Charles Gamba, President and Chief Executive Officer, Canacol Energy: Yes. As I mentioned in response to the earlier question, the only activity we have planned next year is the some reactivation activities associated with the Tetha gas field. And that would involve essentially the workover of up to five existing wells, the installation of some production treatment facilities and a relatively short flow line to tie the facilities into the export line. We anticipate that that will cost approximately $12,500,000 in total And the result of that investment would be commercializing gas production. So certainly in the near term, 2026, relatively small investment into Bolivia simply to reestablish production from that existing gas field.

Going forward, 2027 and beyond, we would start drilling new wells in both that existing gas field as well as start exploring some of the three other blocks over the next five years. We expect cash flow from Tita as a result of next year’s activities and essentially relatively minimal amounts of new cash into Bolivia once Tita is up and cash flowing.

Carolina Orozco, Vice President of Investor Relations, Canacol Energy: Thank you, Charles. This was the last question. Thanks everyone for joining us today. We appreciate your time and interest and we look forward to connecting with you again on our next call. Have a great day.

Conference Moderator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.