Canacol Energy Ltd. Financial Analysis Report – Net Profit Growth

Date of Report: November 5, 2024

Financial Year: Three and Nine Months Ended September 30, 2024

Business Description

Canacol Energy Ltd. and its subsidiaries are primarily engaged in natural gas exploration and development activities in Colombia. The company’s core operations include the production of natural gas and LNG, as well as a smaller segment of crude oil production. Their primary geographic footprint is within the Lower Magdalena Valley basin in Colombia.

Industry Position

Canacol Energy Ltd. operates within the oil and gas industry, focusing specifically on natural gas. The company’s competitors include other natural gas producers in Colombia and the broader South American region. Canacol has positioned itself as a leading sustainable natural gas producer in the Americas, contributing significantly to Colombia’s energy supply.

Revenue Streams and Customer Base

The company’s revenue streams are primarily derived from natural gas and LNG sales, along with a smaller portion from crude oil sales. Canacol has a diverse customer base within Colombia, which includes both spot market buyers and long-term contract holders. The company’s competitive advantage lies in its sustainable production practices and its strategic location within a region with high natural gas demand.

Financial Statement Analysis

Income Statement

For the three months ended September 30, 2024, Canacol reported a 15% increase in total revenues, net of royalties and transportation expenses, amounting to \$87.9 million compared to \$76.6 million in the same period in 2023. The net income for the same period was \$10.3 million, a significant improvement from a net loss of \$0.5 million in 2023. Adjusted funds from operations also increased by 18% to \$57.9 million.

Balance Sheet

As of September 30, 2024, the company had \$67.1 million in cash and cash equivalents, a substantial increase of 70% from \$39.4 million as of December 31, 2023. Total debt increased by 7% to \$763.4 million, while the working capital improved to a surplus of \$62.1 million from a deficit of \$10.0 million at the end of 2023.

Cash Flow Statement

Cash flows provided by operating activities were \$21.7 million for the three months ended September 30, 2024, a significant decrease of 67% from \$66.2 million in the same period of 2023. However, for the nine months ended September 30, 2024, cash flows provided by operating activities increased by 73% to \$125.6 million.

Key Findings

Strengths

• Revenue Growth: Total revenues increased by 15% for the three months ended September 30, 2024.
• Net Income Improvement: The company reported a net income of \$10.3 million, reversing a loss from the previous year.
• Cash Position: Significant improvement in cash and cash equivalents, up 70% from the previous year.
• Sustainability Commitment: Canacol is a leader in sustainable natural gas production, with ambitious decarbonization goals.

Risks

• Operating Expenses: Natural gas and LNG operating expenses increased by 14% for the nine months ended September 30, 2024.
• Debt Levels: Total debt increased by 7%, which could impact financial flexibility.
• Production Capacity Restrictions: Decrease in production capacity due to issues at the Jobo gas treatment facility.

Special Activities

The company is engaged in several initiatives to improve profitability, such as the drilling of new wells (e.g., Chontaduro-3 appraisal well) and the installation of new compression facilities. Additionally, Canacol is focused on reactivating the RH-12 well to boost oil production.

Recommendations

For Current Investors

Hold the stock. The company is showing strong revenue growth and has significantly improved its net income. The commitment to sustainability and strategic initiatives in drilling and infrastructure indicate a positive outlook.

For Potential Investors

Consider buying the stock. Canacol’s strong performance in revenue growth and net income improvement, coupled with its leadership in sustainability, make it a compelling investment opportunity.

Disclaimer

The recommendations provided in this report are based on the financial data and information available as of September 30, 2024. Investors are advised to conduct their own due diligence and consider their financial situation and risk tolerance before making any investment decisions.