Release Date: November 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Canacol Energy Ltd (CNNEF, Financial) reported a record EBITDA of $86 million for Q3 2024, driven by efficient operations and favorable arbitration outcomes.
- The company achieved a 27% increase in netbacks to $5.25 per Mcf, maintaining strong operational margins of 78%.
- Canacol's strategic focus on the interruptible gas market has been effective, with realized natural gas prices increasing by 24% compared to the same period in 2023.
- The company successfully drilled several wells, including Chontadura-3 and Nispero-2, contributing to production capacity recovery.
- Canacol secured a $75 million senior secured term loan facility, enhancing financial flexibility for future growth and operational investments.
Negative Points
- Despite drilling the Cardamomo-1 exploration well, it did not result in a commercial discovery, highlighting exploration risks.
- Realized natural gas sales volumes were 10% lower in Q3 2024 compared to the same period in 2023.
- The company faced a non-cash deferred income tax expense of $5.3 million in Q3 2024 due to foreign exchange changes.
- Capital expenditures decreased to $23.9 million in Q3 2024 from $43.8 million in Q3 2023, reflecting reduced operational spending.
- The company is exposed to potential risks from peso devaluation, which could impact deferred tax expenses.
Q & A Highlights
Q: Can you provide details on the firm gas contract terms for 2025 and the expected contracted volume?
A: Approximately 20 million cubic feet per day of existing firm contracts will expire at the end of November. Gas demand remains strong, and while new firm contracts are being negotiated, the decision to execute them has not been made. The strategy is to keep volumes available for the interruptible market, where pricing is expected to be robust next year. - Charle Gamba, President & CEO
Q: Was the recent successful well a new development or previously reported?
A: The Nispero-2 well is an appraisal of the Nispero discovery made in 2019. Drilling was completed recently, and the well is being prepared for production, expected to start next week. - Charle Gamba, President & CEO
Q: Can you explain the working capital surplus and its future outlook?
A: The strong working capital balance is due to a robust EBITDA quarter and free funds from operations compared to a small CapEx of $23 million. The $85 million EBITDA includes a $14 million settlement from Promigas. Despite higher Q4 CapEx, the working capital position is not expected to unwind. - Jason Bednar, CFO
Q: When will the company start investing in Bolivia, and what are the expected amounts?
A: Investment is expected to begin by the end of this year, primarily in the Tita contract, with a planned investment of up to $12 million next year. This will focus on workovers, testing, and infrastructure construction to commence production and sales. - Charle Gamba, President & CEO
Q: Do you expect to achieve a reserve replacement ratio over 100% for 2024?
A: Yes, with the drilling of 11 wells, including exploration, development, and appraisal wells, along with workovers and compression installations, a reserve replacement ratio of approximately 120% is targeted for this year's program. - Charle Gamba, President & CEO
Q: What are the conclusions from the Cardamomo-1 results?
A: Although Cardamomo-1 did not find commercial gas quantities, it encountered a thick section of porous sandstones, which is positive for other prospects. The main issue was fault seal, and further analysis is underway to prepare for drilling other prospects next year. - Charle Gamba, President & CEO
Q: Can you provide a rule of thumb for the relationship between peso devaluation and additional tax incurred?
A: A 1% move in the peso results in approximately $4.5 million of deferred tax expense due to the devaluation of tax pools recorded in pesos. - Jason Bednar, CFO
Q: What is the timing for the $12 million CapEx in Bolivia?
A: The planned timing for the capital expenditure is the second half of 2025. - Charle Gamba, President & CEO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
