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spk02: Good morning and welcome to the Canada Coal Energy second quarter 2024 financial results conference call. All participants will be in a listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. You may submit questions throughout the event by connecting to the webcast. When in the webcast, place your question in the ask a question field. Questions will be addressed after the formal presentation has ended. Please note this event is being recorded. I would now like to turn the conference over to Karolina Orozco, Vice President of Investor Relations. Please go ahead.
spk01: Good morning and welcome to Canacold's second quarter 2024 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 by Canacold 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 US dollars. We will begin the presentation with our president and CEO, Mr. Charles Gamba, who will summarize highlights for the second quarter of 2024. Mr. Jason Bednar, our CFO, will then discuss financial highlights. Mr. Gamba will close with a discussion of the corporation's outlook for the remainder of 2024. At the end, we will have a Q&A session. We will now turn over the conference call to Mr. Charles Gamba, President and CEO of Canacol Energy.
spk03: Thanks, Carolina, and welcome everyone to Canacol's second quarter 2024 conference call. In the second quarter of 2024, we achieved record-breaking performance across multiple financial metrics. We realized record natural gas sales with prices of $6.84 per thousand standard cubic feet, which were 33% higher compared to the same period in 2023. Additionally, we generated record netbacks of $5.34 per thousand cubic standard feet, which were 36% higher compared to the second quarter of 2023. These factors... to a record quarterly EBITDA of $73 million. This outstanding performance highlights the strength of our business and ensures a robust near- and mid-term outlook. These strong results were driven by a high-priced gas market largely due to the El Nido phenomena that affected Colombia until the beginning of the second quarter. The resulting low reservoir levels led to increased electricity prices driving strong, interruptible natural gas prices. Furthermore, And currently, as the large material producing fields in Colombia operated by Ecopetrol continue to decline, the country has been showing consistent, robust gas market dynamics. Since mid-2021, we've seen gas sales prices consistently increasing quarter over quarter. Consequently, for the second consecutive quarter, we achieved historical record natural gas sales prices and netbacks, and we expect that to continue for the remainder of this year. Our commercial strategy adopted at the beginning of the year to enhance our exposure to the interruptible market proved successful under these conditions and has been a key factor in achieving our record performance. During the quarter, our realized natural gas sales averaged 159 million standard cubic feet per day, marking a 6% increase from the previous quarter. Our production capacity has been gradually increasing thanks to successful drilling, work over, and facilities activities throughout the year. to note that our exploration and development programs have experienced a 100% success rate so far this year. We continued our near-field low-risk drilling program with a successful Chantadouro 1 exploration well located on our VIM 21 block. Chantadouro 1 encountered 123 feet of net gas pay with an average per asset of 21% and tested up to 12 million standard cubic feet per day. Following this discovery, we drilled the Chantadouro 2 appraisal well which encountered 88 feet of natural gas pay, and also tested up to 12 million standard cubic feet per day. Both wells were tied into production and are produced into the Hobo gas facility. We've also completed the acquisition of the Metavel program, marking our third new 3D seismic survey since 2022. This allows the recently acquired Mayupa and Red Volante programs to significantly enhance our drilling portfolio with a range of large exploration prospects. Success in any of these areas could potentially unlock a new production area for Canacol, adding reserves and production capacity and supporting the growth of our gas business in the lower Magdalena Basin. During the quarter, we published our 2023 ESG Integrator Report, which reflects our commitment to meeting energy demand while protecting the environment and local communities. We firmly believe that focusing on natural gas ensures long-term sustainability while delivering enhanced value to our shareholders. Our ESG strategy is crafted to identify risks, implement solutions, and create long-term value. In 2023, we achieved scope one and two GHG emission intensities that were over 45% lower on average in our gas-focused peers and more than 75% lower on average in our oil-focused peers in North and South America. These accomplishments highlight our dedication to sustainability and our leadership in the industry. This commitment has been acknowledged by third-party ESG and sustainability rating agencies, where we retained an A rating in MSCI for the second consecutive year, and we're including the 2023 S&P Sustainability Yearbook. We also rank as the best company in corporate governance in the oil and gas upstream and integrated segment, and among the top 10% in our industry overall. We invite you to read our full 2023 ESG report and TCFD report, which are located on our website. I will now turn the presentation over to Jason Bedmeller, CFO, who will discuss our second quarter financials in more detail.
spk00: Thanks, Cheryl. As you mentioned, the second quarter of 2024 was another very good quarter with strong record pricing and netbacks from our producing operations. I realized gas price of $6.84 per MCF in the three months ended June 30, 2024. Yet again was the highest we've ever achieved in a quarter and represents a 33% increase from the same period in 2023 and a 6% increase from the three months ended March 31st, 2024. This increase in a realized gas price is twofold. Number one, it's due to a 19% increase in the average sales price of our firm fixed price take or pay contracts to an average net price net of transportation of $6.04 per MCF in 2024, up from $5.09 in 2023. And secondly, as Char already mentioned, due to the high interruptible prices. Driven by this strong pricing, we achieved record operating net back of $5.34 per MCF in the three months ended June 30, 2024, representing a 36% increase from the same period in 2023 and a 9% increase from the three months ended March 31, 2024. In addition to the robust pricing environment, our financial results were further bolstered by our ongoing commitment to operational efficiency aimed at reducing costs and capital expenditures while maintaining strong operational and financial performance. Despite inflation, our operating expenses for the three months ended June 30, 2024 stood at 41 cents per MCF. representing a 9% decrease from the first quarter of 2024 and a 34% decrease from the three months ended December 31st, 2023. Also, our GNA expenses for the three months ended June 30, 2024 were $0.47 per MCF compared to $0.57 per MCF for the first quarter of 2024 and $0.62 per MCF for the three months ended December 31st, 2023, representing a 17% and 24% decrease respectively. With respect to capital expenditures, our accrued capital expenditures for the three months ended June 30, 2024 was $34 million, representing a 6% decrease from the three months ended March 31, 2024, and a 53% decrease from Q4, 2023. As we mentioned during our last conference call, we have been focusing on enhancing efficiencies to reduce operational costs and capital expenditures. With these improved efficiencies, we are anticipating finishing the year with a capital expenditures of approximately $125 million, which is down from our originally announced CapEx budget of $138 million, without cutting any of our planned activities. This reflects our commitment to maintaining financial discipline while ensuring operational performance. Despite 14% lower realized natural gas sales volumes during the second quarter of 2024 compared to the same period in 2023, during the second quarter of 2024, we generated record total revenues, net of royalties and transportation expenses of $88.3 million, representing an 18% increase compared to $74.6 million for the same period in 2023. We also generated record adjusted EBITDAX and funds from operations. Adjusted EBITDAX increased 21% to $73.2 million for the three months ended June 30, 2024 compared to $60.7 million for the same period in 2023. And adjusted funds from operations increased 70% to $57.1 million for the three months ended June 30, 2024 compared to $33.7 million for the same period in 2023. As mentioned, these increases were primarily driven by higher average sales prices and out of transportation expenses. The corporation realized a net loss of 21.3 million for the three months ended June 30, 2024, compared to a net income of 40 million for the same period in 2023. The decrease in net income is driven by a non-cash deferred income tax expense of 42.6 million for Q2. which resulted from an 8% Colombian peso devaluation of our peso-denominated tax pools. While on the topic of taxes, Canacol ended 2023 with a net tax payable amount of $29 million relating to its 2023 profitable operations. During Q1 of 2024, we paid $20 million of taxes to the DN, During Q2, we paid an additional $13.3 million in taxes to total $33.3 million in taxes paid at June 30, 2024. I'm pleased to report that we are in good standing and compliant with the DN with respect to taxes. I'd also like to briefly mention our current tax expense, which can be found on our Statement of Operations and Comprehensive Income. Canicol recorded a current tax expense of $11.2 million in Q2, bringing the six-month total to $28.4 million. In the aggregate, we do not anticipate any further material current taxes to be recorded for the last six months of the year ending December 31, 2024. The recent financial performance led our return on capital employed to a significant upward trend, reflecting our strategic investments and operational efficiencies. By maintaining a focused approach on the high-return projects and prudent capital management, we have successfully enhanced our return on capital employed, delivering superior value. As announced on a press release during the quarter, we paid our scheduled semiannual interest coupon of $14.4 million US on our November 2028 senior notes. With respect to Canicol's November 2028 notes and February 2027 revolving credit facility, We are in compliance with all of our debt covenants and our leverage ratio has indeed fallen this quarter. Our net debt to EBITDA leverage ratio was 2.7 times on a trailing 12-month basis as at June 30, 2024, down from approximately 2.9 times at both year-end 2023 and Q1 2024. To refresh everyone's memory, our bond leverage covenant is at 3.25 times in current space. and the revolvers at 3.5 times maintenance covenant. As such, we're well inside those covenant restrictions. Also, our consolidated interest coverage ratio was 4.7 times on a trailing 12-month basis at June 30, 2024, which is well above the 2.5 times minimum interest coverage ratio required. I would like to emphasize we continually actively manage our liquidity position with prudence and foresight. On April 26, 2024, we announced the sale of over 60 million common shares of Arrow Exploration at a price of 0.185 pounds per share for a total of 13.3 million US dollars net of fees. To provide a refresher on our position with Arrow, holding shares in a publicly traded oil company was clearly a non-core asset for us. Out of the 60 million shares we held, 55 million were acquired in October 21st during their secondary listing on AIM with an initial cost basis of approximately 4.8 million U.S., including the associated warrants we later exercised. This position resulted in a fully tax-sheltered gain of approximately 7.5 million U.S. dollars. At June 30, 2024, we had a healthy cash position and cash equivalent position of $42.6 million and a positive working capital surplus. I think the $42.6 million cash is very notable given the March 31st cash balance is $25 million and there appear to be concerns about our ability to pay the semi-annual $14.5 million bond coupon payment in May, which of course we paid and yet we still ended up Q2 with nearly $43 million of cash. I'm also pleased to report that as of today, we still have approximately $45 million of cash. Given the cash balances and leverage ratios I just went through, once again, I'd like to respond to any possible rumors in the markets. Like an unequivocally state, Canacol has not hired a financial advisor, nor have we even spoken to one at any time during 2024, and we have not ever contemplated a restructuring. That concludes my comments. I will turn the presentation back to Cheryl.
spk03: Thanks, Jason. As we discussed during the last conference call, exploration drilling activities in 2023 met with limited success due to several factors. Primarily, our portfolio consisted of opportunities identified from legacy 3D seismic data. acquired over 10 years ago with the most promising prospects, such as Nelson, Clarinete, and Pandareta, our large purchasing fields, having already been drilled many years prior. The last major find we've made, in fact, was August's use in 2021. This led us to drill increasingly smaller exploration prospects and riskier as well in recent years. With the objective of revitalizing our exploration portfolio, we invested approximately $70 million in 2022 and the acquisition of three new 3D seismic programs. On the 469 square kilometer Red or Blonde 3D seismic program located on the northern part of our 100% operated VIMFM block, we have identified 14 large independent prospects and have just budged on one of the first and
spk02: Pardon me, we seem to have lost connection with our speaker. Please wait while we reconnect. © transcript Emily Beynon
spk05: © transcript Emily Beynon
spk02: Ladies and gentlemen, thank you for your patience. I'll now hand it over back to the management.
spk00: Hi, everyone. Sorry, it appears Cheryl is struggling to get back on the line, so I will finish the remainder of his presentation, and hopefully he can join us for the Q&A session. So having said that, with the objective of revitalizing our exploration portfolio, we invested approximately $70 million since 2022 in the acquisition of three new large 3D seismic programs. On the 469 square kilometer Redoblante 3D seismic program located on the northern part of our 100% operated VIM-5 block, we have identified 14 prospects that have just spot on one of the largest prospects, Cardamoma 1. from which we anticipate results in early September 2024. Secondly, on our 157 square kilometer MIUPA program located on our 100% operated SSJN7 block, we have identified 10 prospects in Leeds and we plan to drill the largest prospect, Natia, in the fourth quarter of 2024. Finally, last quarter we completed the Macau 3D seismic consisting of 85 square kilometers of seismic located in the southwestern part of our 100% operated BIM 5 block. We are now in the process of identifying and interpreting the new data from this program. With respect to our 2024 drilling activity, during the first half of the year we prioritized near field smaller, low-risk exploration opportunities in the vicinity of our hobo facilities, identified from the legacy 3D seismic data. We achieved 100% exploration development success rate in two of the discoveries of Pomelo and Chontaduro, allowing us to maintain relatively stable production from our core area. In early 2024, we successfully completed the Trontaduro 3 development well, which is currently on production. As we entered the second half of the year, we're starting the drilling program for one of our new portfolio of exploration prospects of the new 3D seismic programs. Yesterday, we spud the Cardamoma 1 exploration well located on our new Red Oblante 3D seismic program on our VIM 5 block. This prospect is a well-defined structure targeting the Cienarodoro Sandstone Reservoir, which is the main producing reservoir in our current producing fields in the Lower Mag Basin. This prospect holds similar reservoir characteristics to our current producing area, including AVO, which is a direct indicator of the presence of gas within the CDO Reservoir. We expect that it will take three to four weeks to drill and complete Cardamoma I. and anticipate having results in early September 2024. If successful, we will immediately appraise the discovery with up to three additional wells and plan to have the field on production by mid-November 2024. Success at Cardamomo could also add substantial reserves to our portfolio and potentially unlock a new gas-producing area for Canacol, as we have identified 13 nearby lookalike prospects to drill given success. We also plan to return to re-drill the Natia prospect on our 100% operated SSJN7 block in the fourth quarter of 2024 after having mechanical related drilling issues with Natia 1 last year, which prevented us from reaching the target zone and completing the well. Success at Natia 2 could also open up a new producing area as we have identified nine additional Natia lookalike prospects to drill. On the gas sales front for the month of July, we averaged 161 million cubic standard feet per day. And for the month of August to date, we have averaged 168 million cubic feet per day of gas sales. In summary, we remain focused on the following objectives. Number one, continue executing a comprehensive development exploration program on our core assets in the lower Magdalena Valley Basin to maintain growing canicoles natural gas reserves and production. Number two, maintain a low cost of capital, cash liquidity and balance sheet flexibility to invest for the long term. Thirdly, secure government approval of a fourth E&P contract in Bolivia that covers an existing gas field reactivation to begin development operations with a view to adding reserves and production commencing gas sales in 2025. And fourthly and lastly, continue with the corporation's commitment to our environmental, social, and governance strategy. Thank you for attention, and we will look forward to updating you on our progress in the coming months. That ends the presentation. We'll probably take a minute and get gathered up on questions here. Thank you.
spk04: Jason, I'm back on the line as well.
spk02: We will now begin the question and answer session. You may submit questions by connecting to the webcast and then placing your question in the ask a question field. The questions will be read and management will answer.
spk01: Thank you. The first question that we received is from Joseph Shafter. Can you provide information on the size of the target at Cardamomo 1? What do you see as the timing for landing the fourth contract in Bolivia and starting activity over there?
spk04: Hi, Kaylee. Can you hear me? I'm back on the line.
spk01: Yes, we can hear you, Charles.
spk04: Great. Thanks, Joseph. On this basis, it's targeting approximately 55-year DCF of gas reserves, and we expect to reach TD on quarter number one, the first one in Quebec, by the end of August. With respect to Bolivia, we expect that Congress will approve the fourth and final contract by the end of August as well, or early September. and we expect to be signing the three other contracts along with the current contract prior to year end.
spk01: Thank you, Charles. We have another question from Joseph Shafter as well. Can you go into the reasons for the large increase in crude production?
spk04: Yes, we have been successfully working over several of the existing wells at Rancho Hermosa. One of the earlier work that we did this year was the Rancho Hermosa 12 well. We completed that in the reservoir. And that well came on at about 1,300 barrels per day of oil. We're going to continue working over some additional wells here for the remainder of the year to keep production levels high as possible in Rancho Hermosa.
spk01: Thank you. The next question is from Joan Alcao from Seminario. Good morning. For how long will the company perceive $6 per MCF in contracted average prices?
spk00: Go ahead, Charles. Okay. I'll start with. Oh, sorry.
spk05: The question was.
spk01: The question is, for how long will the company perceive $6 per MCF in contracted average prices?
spk04: Yeah, I mean, 70% of our production is sold through taker pays, with average pricing close to $6. Also, we looked at the interoperable market and we see quite strong performance with respect to pricing. We expect that to strengthen over the short to near term as supply continues to dwindle, or excuse me, as patrols, fields decline in production. So we expect pricing in the spot market and interoperable not only through the remainder of 2024, but into 2025 and 2026. The regulator here in Columbia is predicting a deficit of 77 million cubic feet per day in the gas market next year for 2025. That's about 8% deficit with respect to demand. In 2026, the regulator is forecasting a deficit of 180 million cubic feet per day, which is almost 20% of
spk01: Thank you Charles. Please give us a couple of minutes while we assemble our roster of questions. Okay, we have a question from Alejandra Andrade from JP. For Cardamomo, do you need to develop additional infrastructure?
spk04: Given success, Cardamomo is located approximately 14 kilometers from our nearest connection point, which would be the Hidroka field. It would require us to lay a six-inch flow line which can take approximately two months. If that's the only thing we need to do is lay a flow line to connect it into our main gathering system and transport the gas to Hobo for processing.
spk01: Thank you, Charles. Please give us another two minutes, please. Just one more minute please. Okay. We have one question from Francisco Schumacher from Bank Trust. At what price are you seeing natural gas spot prices currently, considering electricity prices have reduced following the end of El Niño phenomenon?
spk04: Well, current spot pricing for the month of August is close to $7.50 a wellhead, plus transportation to the coast. And we're realizing approximately $9 to $10 delivered at the clients.
spk01: Thank you, Charles. We have another question. Just a second. From Rafael Ordonez from . Hello, Charles. Would you explain why the transportation cost went up during the quarter?
spk00: Sure, I can take this question. I'm sure you've noted that we only speak of gas prices and net of transportation. The transportation expense that you see on our income statement is a bit of a red herring. Very simply, some off-takers pay the transportation price themselves and it's embedded in the contract, hence we receive the price net of transportation. And on other ones, they'd pay us the gross price and we then pay the transportation expenses to get to that net of transportation gas sales price. And it's on that second category where under IFRS, we have to show those transportation expenses that we paid on a separate line on the income statement. So as such, it can vary from quarter to quarter or year to year, depending on which contracts or interruptible sales pay the transportation themselves or whether we pay it. So, you know, to avoid any confusion or noise, that's why we only speak of prices net of transportation, thus putting, you know, both those scenarios in an apples to apples comparison.
spk01: Thank you Jason. Again, please give us a couple of minutes as we're going to check we have any additional questions in our roaster. Okay, it seems we don't have any more questions today. Thank you again for your attention, and we look forward to updating you on our progress in the coming month, and please join us in our next conference call. Have a great day. You may now disconnect.
spk02: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
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