Canacol Energy Full Year 2024 Earnings: Revenues Beat Expectations, EPS Lags

Canacol Energy Ltd. (TSX:CNE) has released its full-year 2024 earnings, revealing a mixed bag of results that highlight both the company's strengths and its challenges. The Calgary-based energy company reported a 19% year-over-year increase in revenue, exceeding analyst expectations by 1.1%. However, the company's earnings per share (EPS) fell short of estimates, reporting a net loss of US$32.7 million for the year ended December 31, 2024, compared to a net income of US$86.2 million in 2023.

The revenue growth was driven by higher average sales prices for natural gas and liquefied natural gas (LNG), which increased by 28% to $6.99 per Mcf for the year ended December 31, 2024, compared to $5.41 per Mcf for the same period in 2023. This price increase offset a decrease in realized natural gas and LNG sales volume, which decreased by 12% to 156.7 MMcfpd for the year ended December 31, 2024, compared to 178.3 MMcfpd for the same period in 2023.

The company's adjusted EBITDAX increased by 25% to $296.1 million for the year ended December 31, 2024, compared to $236.8 million for the same period in 2023. This increase was mainly due to an increase in natural gas and LNG operating netback, which increased by 32% to $5.41 per Mcf for the year ended December 31, 2024, compared to $4.11 per Mcf for the same period in 2023. The increase in operating netback was due to an increase in average sales prices, net of transportation expenses, offset by an increase in royalties.

However, the company's net loss for the year ended December 31, 2024, was primarily due to a non-cash deferred income tax expense of $77.2 million, compared to a non-cash deferred income tax recovery of $103.6 million in 2023. This significant increase in deferred income tax expense contributed to the net loss, despite an increase in EBITDAX.

The impact of this net loss on Canacol Energy's financial health and future prospects is multifaceted. On one hand, the company's adjusted EBITDAX increased by 25% to $296.1 million for the year ended December 31, 2024, indicating strong operational performance. Additionally, the company's natural gas and LNG operating netback increased by 32% to $5.41 per Mcf, driven by higher average sales prices. These factors suggest that Canacol Energy has a robust operational foundation and is well-positioned to capitalize on strong gas market dynamics in 2025.

However, the net loss and the associated deferred income tax expense highlight potential challenges in the company's financial management and tax strategy. The company's cash and cash equivalents as of December 31, 2024, were $79.2 million, and it had a working capital surplus of $45.5 million. While these figures indicate a degree of liquidity, the net loss and deferred income tax expense may impact the company's ability to invest in growth opportunities and reduce debt. The company's debt-to-equity ratio is 2.27, and its debt-to-EBITDA ratio is 2.55, indicating a relatively high level of leverage. This leverage, combined with the net loss, may limit the company's financial flexibility and increase its risk profile.

Looking ahead, Canacol Energy is focused on maintaining and growing its EBITDA generation and reserves via both higher commodity pricing and investment in drilling, workover, and new facilities projects. The company plans to optimize its production and increase reserves by drilling up to 11 exploration and three development wells, installing new compression and processing facilities as required, and completing workovers of producing wells in its key gas fields. These development and exploration activities are planned to support the company's robust EBITDA generation and allow it to capitalize on strong gas market dynamics in 2025.

In summary, while Canacol Energy's operational performance remains strong, the net loss and deferred income tax expense present challenges to the company's financial health and future prospects. The company will need to address these issues to maintain its financial stability and continue to grow. Investors should closely monitor the company's progress in addressing these challenges and its ability to capitalize on strong gas market dynamics in 2025.