Canacol Energy Ltd. is pleased to report its financial and operating results for the three and nine months ended September 30, 2022. Dollar amounts are expressed in United States dollars, with the exception of Canadian dollar unit prices (“C$”) where indicated and otherwise noted.
Highlights for the three and nine months ended September 30, 2022
• Realized contractual natural gas sales volumes decreased 3% to 184.2 MMscfpd for the three months ended September 30, 2022 and increased 3% to 184.7 MMscfpd for the nine months ended September 30, 2022, compared to 190.6 MMscfpd and 179.9 MMscfpd for the same periods in 2021, respectively. Average natural gas production volumes decreased 3% to 186.7 MMscfpd for the three months ended September 30, 2022 and increased 3% to 186.8 MMscfpd for the nine months ended September 30, 2022, compared to 192.4 MMscfpd and 181.7 MMscfpd for the same periods in 2021, respectively. The decease during the three months ended September 30, 2022 is mainly due to a decrease in the demand of spot sales volumes. The increase during the nine months ended September 30, 2022 is mainly due to an increase of natural gas sales volumes contracted under firm contracts in 2022.
• Total natural gas revenues, net of royalties and transportation expenses increased 3% and 13% to $67.7 million and $199.9 million for the three and nine months ended September 30, 2022, compared to $65.5 million and $176.4 million for the same periods in 2021, respectively. The increase during the three months ended September 30, 2022 is mainly attributable to higher natural gas realized sales price, net of transportation expenses. The increase during the nine months ended September 30, 2022 is mainly attributable to higher sales volumes and higher natural gas realized sales prices, net of transportation expense.
• Adjusted EBITDAX increased 4% and 11% to $56 million and $160.8 million for the three and nine months ended September 30, 2022, compared to $53.8 million and $145.2 million for the same periods in 2021, respectively.
• Adjusted funds from operations increased 1% to $38.7 million and $111.6 million for the three and nine months ended September 30, 2022, compared to $38.2 million and $110.2 million for the same periods in 2021, respectively.
• The Corporation realized a net loss of $4.5 million and a net income of $13.6 million for the three and nine months ended September 30, 2022, compared to a net income of $8.8 million and $8.2 million for the same periods in 2021, respectively. A non-cash deferred tax expense was recognized of $11.1 million and $10.9 million during the three and nine months ended September 30, 2022, compared to a deferred tax expense of $2.9 million and $12.6 million for the same periods in 2021, respectively. The deferred tax expense was primarily due to the impact of the devaluation of the Colombian Peso (“COP”) foreign exchange rate on the value of unused tax losses and cost pools.
• The Corporation’s natural gas and LNG operating netback increased 7% to $3.73 per Mcf in the three months ended September 30, 2022, compared to $3.49 per Mcf for the same period in 2021. The increase is mainly due to an increase in average sales prices, net of transportation expenses of $4.76 per Mcf during the three months ended September 30, 2022, compared to $4.43 per Mcf for the same period in 2021. The increase was offset by higher operating expenses per Mcf during the three months ended September 30, 2022.
• Net capital expenditures for the three and nine months ended September 30, 2022 were $50.1 million and $123.2 million, respectively. Net capital expenditures included non-cash adjustments related mainly to decommissioning obligations of $4.4 million and $8.9 million, respectively, for the three and nine months ended September 30, 2022.
• As at September 30, 2022, the Corporation had $92.5 million in cash and cash equivalents and $75.3 million in working capital surplus.
Sustainability
As indicated in the Corporation’s 2021 Environmental, Social and Governance (“ESG”) Integrated Report released on June 28, 2022, Canacol currently leads the industry as one of the cleanest oil and gas producers in both Colombia and North America with Scope 1 and 2 greenhouse gas (“GHG”) emissions that are 80% lower than our oil focused peers and 50% lower than our gas focused peers, on average. Canacol’s ambition is to continue to lead the oil and gas industry in Colombia in terms of supplying the increasing energy demands of Colombians while reducing carbon emissions, exploring avenues for renewable energy generation, fostering national energy self-sufficiency, and catalyzing the growth and development of Colombia’s economy and its people. Canacol fully supports global goals to meet the Paris Agreement targets as well as Colombia’s commitment to a 51% reduction in emissions by 2030, of which natural gas will play a crucial role in a fair and equitable energy transition. The Corporation’s objective on ESG matters is to improve the quality of life of millions of people through the exploration, production and supply of conventional natural gas in Colombia. Alongside this, the Corporation is focused on generating value for its stakeholders in a sustainable, collaborative, co-responsible, respectful and transparent way. With the Corporation’s transition to natural gas, it now has an environmentally friendly value proposition that contributes to the reduction of CO2 emissions in Colombia and provides for a more efficient use of environmentally preferable resources.
The Corporation continues to support its communities in essential social projects such as access to water and utilities, local economic projects, construction and improvement of public and community infrastructure, technical and university scholarships amongst others.
The Corporation has strong corporate governance standards and procedures, which are aligned with best global practices and trends, and uses control mechanisms that protect shareholder’s interests, respect and promote human rights, guarantee ethical behavior, integrity and transparency, ensure regulatory compliance and minimize risk.
For 2022 and beyond, the Corporation is committed to continue developing and maintaining a robust ESG strategy and, as such, is implementing a six-year plan with the following four priorities:
1. A cleaner energy future - deliver natural gas under the highest environmental and operational efficiency standards.
2. A safe and committed team - maintain best-in-class health and safety practices and promote a diverse and inclusive culture.
3. Transparent and ethical business - adopt best practices, incorporate governance, encourage respect for human rights and ensure ethics and integrity in everything Canacol does.
4. Sustainable development - promote and maintain close and transparent relationships that guarantee communities’ growth and quality of life.
Outlook
To date, the Corporation has met the following objectives: 1) the drilling of nine of the total twelve exploration and development wells with the last three wells to be drilled in Q4 2022; 2) the acquisition of 470 square kilometers of 3D seismic on the Corporation’s VIM-5 block to expand its exploration prospect inventory; 3) the purchase of rental facilities equipment and the installation of gas compression to lower operating expenses and increase recovery factors, respectively; 4) the selection of Shanghai Engineering and Technology Corp. (“SETCO”) to construct a pipeline from Jobo to Medellin, Colombia which will add 100 MMscfpd (with expansion potential up to 200 MMscfpd) of new gas sales to the interior in late 2024, resulting in Canacol being responsible for 30% (up to 40%) of Colombia’s domestic gas supply; 5) the return of capital to shareholders in the form of dividends and common share buybacks. The Corporation also continues to focus on its ESG strategy to achieve scope 1 and 2 GHG emissions intensities that are at least 50% lower on average than its gas focused peers (and 80% lower on average than oil focused peers) in North and South America. The Corporation will continue to execute on these objectives for the remainder of 2022 and into 2023.
