Canacol Energy Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
March 22, 2024

There are 9 speakers on the call.

Operator

Good day, and welcome to Canacol Energy's 2023 Year End Financial Results Conference Call. All participants will be in listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Carolina Orozco, Vice President of Investor Relations. Please go ahead.

Speaker 1

Good morning, and welcome to Canacol's Q4 2023 financial results conference call. This is Carolina Orozco, Vice President of Investor Relations. I'm with Mr. Charles Gamba, President and Chief Executive Officer and Mr. Jason Bednar, Chief Financial Officer.

Speaker 1

Before we begin, it is important to mention that the comments on Skolbe Mechanical 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 U. S.

Speaker 1

Dollars. We will begin the presentation with our President and CEO, Mr. Charles Gamba, who will summarize highlights from our Q4 and 2024 year end results. Mr. Jason Bednar, our CFO, will then discuss financial highlights.

Speaker 1

Mr. Gamba will close the discussion with the corporation's outlook for the remainder of 2024. At the end, we will have a Q and A I will now turn the call over to Mr. Charles Gamba, President and CEO of Canacol Energy.

Speaker 2

Thanks Carolina and welcome everyone to Canacol's Q4 2023 conference call. In 2023, the corporation achieved several important goals, including record EBITDA of $237,000,000 and 11% return on capital employed. This is achieved with average realized natural gas sales of 178,000,000 standard cubic feet per day within our guidance for 2023 of 160,000,000 to 206,000,000 standard cubic cubic feet per day. We also announced the entry to Bolivia with the award of 3 gas focused exploration contracts. Starting in August of 2023, we experienced some unexpected production capacity issues related to both well performance and a couple of our smaller gas fields and production facility related issues at our Jobo gas processing plant.

Speaker 2

To offset these issues, we drilled additional development wells between October December, executed a number of well workovers on existing producing wells, including those in the smaller fields that experienced premature water breakthrough and repaired the affected production facilities. Our internal reserves analysis as supported by our 2023 year end reserve support from our 3rd party auditors, which we released yesterday, confirmed that the reserves in our largest fields, those accounting for over 80% of our production base were not affected by these issues. These fields not only have been performing as predicted, but also recorded positive technical revisions to proven and proven plus probable gas reserves as of year end 2023 based on production performance. Our 2P after tax and PV-ten increased 34 percent to $1,800,000,000 at December 31, 2023, compared to $1,300,000,000 at December 31, 2022, primarily due to stronger wellhead gas pricing and the corporation's tax restructuring in the Q4 of 2022, the results of which have been incorporated into this year end 2023 reserves report. This has materially increased our estimated net asset value per share to $15.14 on approved and $40.24 on approved plus probable basis, in both cases, in Canadian dollars using after tax present values discounted at 10%.

Speaker 2

That means that our share price using a year to date average now represents a very large discount of 60% to 85% to those proved and proven press probable net asset value per share estimates. Our exploration drilling activities in 2023 met with limited success as evidenced by the fact that our reserves replacement ratio was 32% 31% for proven and proven plus probable reserves respectively. Exploration success at Dividi, Chemela and Loulo were offset by negative results at Pina Norte, Cereza and Fresa in our near field areas, as well as the inability to reach the target of the high impact Natillo-one exploration well on our SSJN-seven contract due to mechanical drilling issues. With respect to our achievements in ESG, we continue leading the industry as one of the cleanest oil and gas producers in both Colombia and North America. During 2023, through the continuous and successful implementation of our corporate ESG strategy, we achieved the distinction of being included in the S and P Global Sustainability Yearbook 2024 for high performance sustainable practices.

Speaker 2

Canacol was the best company in corporate governance in the oil and gas upstream and integrated segment and we ranked among the top 10% in our industry overall. We expect to be releasing our 2023 sustainability report during the month of May 2024. I'll now turn the presentation over to Jason Bednar, our CFO, who will discuss our Q4 financials in more detail.

Speaker 3

Thanks, Charles. We reported approximately $237,000,000 in adjusted EBITDAX for the full year of 2023, an 11% increase from 2022 and roughly in line with 11% increase in net revenues. These are strong financial results that allowed us to maintain our quarterly dividend throughout 2023 paying $26,000,000 to shareholders. Adjusted funds flow from operations was up 55 percent to $146,000,000 but the majority of the 55% increase due to the impact of a corporate restructuring that we undertook in the Q4 of 2022 in order to better optimize our business, which caused the one time $65,000,000 current tax expense in 2022. However, that corporate restructuring also increased our deferred tax asset base by $202,000,000 on a one off basis in 2022, which explains why our net income declined in 2023 relative to 2022, which had this large windfall deferred tax recovery.

Speaker 3

Looking at our operational results on a quarterly basis, our operating netback increased to $4.39 per Mcf in the Q4 of 2023, driven by strong realized prices of over $6 per Mcf, more than offsetting higher royalties and operating costs as we saw higher spot prices driven by high demand resulting from the El Nino phenomenon lowering rainfall and hydropower availability, as well as higher firm contract prices starting in December, with both these factors contributing to our expectations for continued strong prices and netbacks in 2024. The increase in operating expenses in the Q4 was due to a combination of factors, including previously delayed maintenance activities performed during Q4, an increase in water treatment costs during Q4 2023, which is expected to decrease in 2024 increased road maintenance costs a one time service cost relating to a compressor unit at the Hojo gas processing facility and of course inflation. OpEx is trending higher than we saw historically, but we expect to see a reversion from the very high levels seen in the Q4. To further highlight the strength and stability in our business and financial results, we want to highlight the return on capital employed implied by our financial statements over the last 5 years.

Speaker 3

This return on capital employed remained above 10% for a 4th year in a row at 11% for 2023. With respect to leverage, we were fully drawn on a revolver as at year end in order to maximize short term liquidity and flexibility. Our net debt to EBITDA leverage ratio was at 2.85 times on a trailing 12 month basis at December 31, up from 2.7 times at June 30 and 2.6 times at September 30. To refresh everyone's memory, our bond leverage covenant is at 3 0.25 in current space, and the revolver is at 3.5 times maintenance. As such, we're still well within those covenant restrictions.

Speaker 3

Finally, as of December 31, we had $39,000,000 in cash. Our 2024 guidance announcement didn't provide cash tax or after tax cash flow guidance, but I'd like to touch on that now given some of the recent questions I've had on this topic. On our low end 2024 guidance of $250,000,000 of EBITDA, I now expect 20.24 current tax expenses of approximately $35,000,000 That represents less than half of the $78,000,000 of current tax expense in the 2023 financial statements on a lesser amount of $237,000,000 of EBITDA for 2023. This, of course, is primarily a result of the corporate restructuring, which is now fully in place. We expect to fund our 2024 capital program from cash flow.

Speaker 3

However, the first half of 2024 does have some significant cash payments, including the January February payments of the Q4 20 20 3 CapEx relating to the active capital program that quarter. There are also the final tax payments relating to 2023 taxes as well as the prepayment of 2024 taxes as required under Colombian regulations that will be paid in the first half of twenty twenty four. However, given our expectations for lower current taxes going forward, we expect the cash requirement to be relatively short term, reverting through the second half of twenty twenty four and into twenty twenty five as we continue to utilize our now large deferred tax assets. That said, and with us now having fully drawn our revolving credit facility to facilitate these payments, we are increasingly of the view that cash liquidity and balance sheet preservation are corporate priorities. Therefore, as announced in our press release, we have made the difficult decision discontinue our quarterly dividend.

Speaker 3

Since initiating that dividend in late 2019, we paid out approximately US118 $1,000,000 over 17 quarters, amounting to an aggregate of CAD4.42 per share. However, it is now clear in our view that discontinuing the dividend in order to increase balance sheet flexibility and cash liquidity in the short term is in the best long term interest of all stakeholders. That concludes my comments. I'll hand it back to Charles.

Speaker 2

Thanks, Jason. For 2024, the corporation is focused on the following objectives. Firstly, the corporation aims to optimize its production and increase reserves by drilling up to 5 development wells, install new compression and processing facilities as required and work over operations of producing wells in the corporation's key gas fields. Secondly, we are planning to drill 4 exploration wells and continue acquiring 3 d seismic to add new reserves and production and to identify new drilling opportunities. Thirdly, maintaining a low cost of capital, cash liquidity and balance sheet flexibility to invest for the long term.

Speaker 2

As a result, we have delayed plans to drill our Polar 1 exploration well in the Middle Mag Basin to 2025 as we announced in our February guidance release. Fourthly, in Bolivia, we're targeting government approval of a 4th E and P contract that covers an existing gas fuel reactivation to begin development operations with a view to adding reserves in production and commencing gas sales in 2025. And lastly, we will continue with the corporation's commitment to its environmental, social and governance strategy. We expect to achieve all of these goals within the context of the budget and guidance that we announced in February of 2024, which is summarized on the slide shown here and in our investor presentation. We expect to generate between 2 $250,000,000 to $290,000,000 of EBITDA in 2024, representing year over year growth of 5% to 22%.

Speaker 2

While we believe that it makes sense to take a measured approach with lower exploration activities in the short term, it's important to reiterate that we and our 3rd party resource auditor have identified approximately 900 Bcf of risk exploration resource potential remaining on our current exploration acreage located in the middle Magdalena Valley, exposing us to considerable exploration upside continuing forward. For the past 6 months, we focused on development drilling to ensure that we have sufficient productive capacity to meet demand and potentially take advantage of strong pricing in the current spot market. Towards this end, I'm pleased to announce that we are currently in the process of bringing on to production our first exploration discovery of 20 24, the POMELO-one well, which encountered 96 feet of gas bay within the Cinaga de Oro reservoir, our main producing reservoir there at Jobo. We expect to spud our second exploration oil Trantadura 1 situated 5 kilometers to the north of Palmejo within the next two weeks. In the first half of twenty twenty four, our exploration activities are likely to be focused on smaller near field opportunities, such as Pomelo and Chantadura that could be quickly tied into production.

Speaker 2

In the second half, we anticipate drilling a pair of larger high impact prospects targeting larger reserve adds. We're now ready to take questions.

Operator

The first question comes from the line of Alejandro DeMichele with Jefferies. Please go ahead.

Speaker 4

Yes, good morning all. Thank you very much for taking my questions. Couple of questions if I may. Could you please update us on where production is currently for the corporation? And then the second question, Jason, you talked about the strong cash requirements in the first half of the year.

Speaker 4

So what kind of other initiatives apart from the dividend are you taking to restart the balance sheet? And can we see a situation where you breached that kind of covenant of the debt in the first half of the year?

Speaker 2

With respect to production, January February's gas sales averaged 156 1,000,000 standard cubic feet per day. And I'll allow Jason to respond to your second question, Alejandro.

Speaker 4

Thank you.

Speaker 3

Yes, sure. With respect to liquidity, so I mentioned that the 2 covenants are 3.25 times in current space and 3.5 times maintenance. We expect to be well within even the 3.25 times, perhaps not even reaching 3, given that, of course, the revolver is fully drawn and we still are at 2.85 times. In terms of additional liquidity, we do have, if you recall, an investment in Arrow Exploration. That, of course was the company that we sold our oil assets to in the fall of 2018, I believe.

Speaker 3

They've done a great job there. Share price has increased significantly recently and about 3 50%, I believe, since they listed on the AMEX change a couple of years ago. We hold 21% of that company, roughly 60,000,000 shares. That equates to about US20 $1,000,000 It's non core and that's a position that I could sell into some strong handed shareholders of theirs. And I suppose secondly, if we needed to, given some unusual payments, re taxes, etcetera, this year that won't exist next year.

Speaker 3

Given the guidance leverage ratios of 2.4 times to 2.8 times. I suspect they could put a small short term facility in place just to get through. But those would be the 2 main sources with respect to additional liquidity if required.

Speaker 4

Okay. That's fantastic. Thank you very much.

Operator

Next question comes from the line of Sergio Calci with UBS. Please go ahead. Thank you for the presentation guys. Actually both of my questions were answered, so nothing from me. Thanks.

Operator

Next question comes from the line of Ann Milne with Bank of America. Please go ahead.

Speaker 5

Thank you very much for the call. I just would like to ask you if you could go over some of the items you it was just too fast for me to get it all down that you have in terms of the cash uses you had that for the $200,000,000 drawdown that you've had of your revolver. I know you talked about $35,000,000 in taxes and corporate restructuring and a few others. If you could just go through that very quickly, I'd appreciate it. And the second question I have is, what would the conditions be for reinstating the dividend in the future?

Speaker 5

Thank you.

Speaker 3

I'll start with the dividend perhaps. The press release states that it was discontinued. That particular word was carefully chosen, I suppose. It's not canceled as it could return in the future. It's not suspended as I don't want to give false hope that it could return in the near term.

Speaker 3

The company several times has stated that debt reduction is a priority. And I think we would prefer to manage that as opposed to going back to a dividend in a near term basis, but it is something that could return at some point in time. Your first question, I think, was with respect to liquidity. So the Q4 CapEx was roughly $70,000,000 So what would that be, dollars 23,000,000 a month. Of course, the November December extra liquidity out of the system and we ultimately drew on the revolver.

Speaker 3

We do have about 30,000,000 dollars in cash currently. But if I were to compare $23,000,000 of CapEx by month for Q4 of 2023. Our low end guidance this year for CapEx is $137,000,000 We're still on track and I believe we'll be somewhere near that lower end guidance of CapEx and it's roughly half. So proportionately, it's more this year at the end of last year than it will be at the end of this year. We do have, as my opening comments discussed, that $78,000,000 in current tax, there's some final payments of that, that we have made.

Speaker 3

They're due on varying months. And then, of course, the prepayment of 2024 tax, which under Colombian regulation is a formula based on the average of the last 2 years' taxes. Those years, of course, were 20 22 2023. That was prior to the restructuring plan fully in place. As such, the prepayment of tax this year is relatively large compared to the prepayment of tax next year, which will be considerably smaller, like to the tune of $35,000,000 or $40,000,000 less small or smaller, I guess.

Speaker 3

Those were the biggest draws in terms of liquidity and hence the decision to take the revolver to the full $200,000,000

Speaker 5

Okay. And the $78,000,000 on current taxes, when I know you said it's due in varying months. Is it the first half of the year or the Q1 of the year?

Speaker 3

Yes, it's February, April and May. I think we probably have about $20,000,000 left to pay. Like it's not a the bulk of it has already been paid.

Speaker 5

Okay. So that's taxes, no dividends. We can calculate the interest expense because we see where it was in the Q1 on your financial statements and that would be fair to use for the at least for the first half of the year.

Speaker 3

I would caution you on the interest expense. When we refinance the bond, you're going to see additional on the P and L, you'll see additional interest expense as we amortize fees, etcetera, but that cash is already out the door. So look through the MD and A and find the actual cash expense or you could have a we could have a follow-up call after this if you want.

Speaker 5

Okay. And are you expecting any substantial changes in working capital either positive or negative?

Speaker 3

Not particularly. I guess, a disposition of Arrow shares, which would be roughly a $20,000,000 to working capital.

Speaker 5

Okay. Thank you. Appreciate it very much.

Speaker 3

You're welcome.

Operator

Next question comes from the line of Orianna Kowalz with Balazs. Please go ahead.

Speaker 6

Hi, thanks for taking my question. This is Elena Kowalz with Balanx. I had two questions. First on the reserves report, we noticed that the overall reserve replacement ratio was below the 100% and far below the average that we've seen in the last year. So I just wanted and mostly on the back of positive technical revisions, so and less so on discovery.

Speaker 6

So I wanted to understand the strategy going forward in terms of reserves. What are you targeting in terms of reserves replacement? And then how should we think of reserve provision seeing that, of course, CapEx is going to be cut significantly during this year? That's the first question.

Speaker 2

Yes. With respect to reserves replacement, as I mentioned in the context of my initial discussion, we had mixed results from our exploration program last year with a couple of small discoveries and some dry holes as well as the inability to reach 1 of the larger prospects due to mechanical issues while drilling. So typically we target a reserve a 2P reserve replacement ratio of 200% with our exploration programs. We are going to try and achieve that again this year within the context of the exploration program we currently have budgeted, which includes 4 exploration wells, the first of which we've just as I just mentioned was a discovery at Carmelo 1. So typically exploration success drives our reserve replacement ratio.

Speaker 2

Last year, we had mixed results with several dry holes. This year, we think we have a much better portfolio to drill, including some new wells off of new 3 d seismic surveys that we shot last year that we'll be drilling. So we're fairly optimistic that we will return to our historical hit rate of over 80% on the exploration front within the context of our capital program that we outlined in our guidance.

Speaker 6

Got it. Thank you. And maybe just on the production you mentioned the average sales volume for January and February are 156, that looks below your low end of guidance. So I just wanted to understand a bit more if you could provide color in terms of commercial strategy. I would have expected volumes start to recover more financially since January, especially seeing the pickup in demand and because of the new events.

Speaker 6

So how should we think of volumes and in the context of the guidance that you provided for the full year in the average volumes that you're running currently?

Speaker 2

Yes. Within the context of our published guidance, we expect to average between 160,000,000 and 180,000,000 cubic feet per day. So with additional exploration discoveries like the one we just announced today at POMELO 1, we expect to land within that range of average production for the entire 12 months of 2024 within the context of our published guidance.

Speaker 6

Okay. Understood. Thank you very much.

Operator

Next question comes from the line of Juan Cruz with Morgan Stanley. Please go ahead.

Speaker 4

Just wanted to clarify one thing. So from the CapEx that you have still pending from last year, which I guess amortizes at 23 per month or something like that, how much should we see in Q1 as being paid off? And how much in total? I guess your guidance is $138,000,000 to $150,000,000 or so. So what is the total CapEx expenditure expected for this year inclusive of what you still have left from 2023 is my first question.

Speaker 4

And second, you have $30 some 1,000,000 left in cash. The revolver is tapped out and you could sell assets for about $20,000,000 If need be, is there any other source of liquidity that you can use other than free cash flow assuming that you get there to make sure that you don't end up with too little cash on your balance sheet in Q1 or Q2? That will be helpful.

Speaker 3

Sorry, go ahead.

Speaker 4

No, no, I think that's probably most of it.

Speaker 3

Okay. Yes, sure. So $70,000,000 of CapEx in Q4 is about $23,000,000 a month, right? So a payable cycle would mean that the November December invoices are typically paid in January February. They have been paid, right?

Speaker 3

So there's no more outstanding relating to last year. The point was simply that if you look at this year's CapEx program at $137,000,000 divide that by 12, you'll have $11,500,000 a month. And of course, November December 2024 will be paid in January February 2025. So early this year, there would have been $23,000,000 per month instead of $11,500,000 per month, which for those 2 months would mean an extra $23,000,000 of cash out the door as compared to the 137,000,000 dollars So $137,000,000 plus that $23,000,000 when you look at it, the cash out the door would be $150,000,000 of relating to CapEx out the door in 2024 as opposed to the $137,000,000 dollars that you see. Obviously, when you receive a bill on December 31, you're not paying it that exact same day.

Speaker 3

With respect to liquid and sorry, once again, to be crystal clear, those have obviously already been paid. So they're not amortized throughout the remainder of the year or anything like that. With respect to additional liquidity above Arrow shares, I think I already answered that question. The most obvious one would be given our guidance of 2.4 to 2.8 times ending leverage ratio and currently at 2.85 times. If required or wanted, I believe I could set up a small working capital facility to enhance the first half of twenty 24 liquidity and deal with repaying that during the latter half or potentially Colombian tax regime works and prepaying your taxes, even at the modest $35,000,000 of income tax we expect to pay this year on 2 $50,000,000 of EBITDA, I expect we're going to have prepaid an additional roughly $17,000,000 relating to 2025, like that $35,000,000 is going to be an overpayment, which will carry over into 2025.

Speaker 3

And as such, the liquidity gets considerably better around year end and into the first half of twenty twenty five.

Speaker 4

Okay. And out of that working capital facility that you could potentially go into if needed, what kind of size are we talking about? Is it nominal? Is it $25,000,000 $50,000,000 How much do you think you have available to you if need be?

Speaker 3

Sorry, the size that I could take out?

Speaker 4

Yes, correct.

Speaker 3

I don't know, $20,000,000 $30,000,000 I mean, I could potentially take out like I've got a basket in my covenants where I could give security, which I don't expect to do and that could be in excess of $50,000,000 I could take out anything less than that, which I felt comfortable if I needed it.

Speaker 4

And the $20,000,000 to $30,000,000 that you could easily do, would that be against receivables or gas deliveries or

Speaker 3

I would expect it would be unsecured.

Speaker 4

Unsecured. Okay. Perfect. And lastly, if I may, what's the minimum cash balance that you feel comfortable holding given the dynamics now in the market, what do you need to do CapEx wise to replace reserves and the high prices for gas, etcetera, what is the level you think you feel comfortable and that the investment community should feel comfortable with seeing on the balance sheet?

Speaker 3

Yes. I mean, we usually run our models, whether short term or long term with about $20,000,000 cash on hand.

Speaker 4

Okay. Okay. All right. Thank you. Appreciate it.

Speaker 3

You're welcome.

Operator

Next question comes from the line of Albert Chang with Santander. Please go ahead.

Speaker 7

Hey, good morning guys. Thanks for the call. I was just looking for an update on the litigation surrounding the HOVO contracts. I mean, what's the status here and can you quantify the potential impact?

Speaker 2

No comment on ongoing litigation.

Speaker 7

Okay. And so no updates on the shareholder class action either?

Speaker 2

Nothing to update with respect to that.

Speaker 7

Got it. Thank you. And just a few business as usual questions. What is your plan threshold for maintaining contracted sales as a percentage of revenue for this year?

Speaker 3

Sorry, can you repeat that question, the percentage that we have under contract?

Speaker 7

Just your planned threshold for maintaining contracted sales just as a percentage of revenue for this year?

Speaker 3

I mean, our existing take or pay basket is 124,000,000 cubic feet a day, which is roughly 70% to 75% of the total sales anticipated.

Speaker 7

Got it. And you expect that to be kind of the going run rate for this year?

Speaker 3

Yes.

Speaker 7

Got it. And do you have any visibility into the Jobo facility maintenance? Just for this year as far as like planned stoppages or anything like that?

Speaker 2

I beg your pardon. Can you repeat the question, Albert?

Speaker 7

Just if you had any visibility into scheduled maintenance at Helvo for this year?

Speaker 2

Nothing outside of regular maintenance.

Speaker 7

Got it. And should we anticipate a ramp up in EBITDA and free cash flow this quarter given where Caribbean Coast spot is or is there a lag in the conversion to margin?

Speaker 3

I mean, the prices have been relatively healthy, probably somewhere in line with Q4 pricing. I think our average price that we anticipated for the for all of 2024 off the top of my head was in the $6.50 or $6.59 range. But the basket of contracts, I'll go back to that. So in 2022, our long term take or pay basket of contracts was about 4.54 net of transportation. In 2023, it was $5.09 and in 2024, that basket is $6.04 roughly 20% higher than it was last year, which makes sense if you had a look at our corporate presentation as the supply coming from the 3 largest fields in Colombia is in decline.

Speaker 3

There's more stress on supply and hence off takers are willing to pay higher prices. So we don't anticipate that to revert and as such we expect to have strong pricing and cash flows and EBITDA moving forward.

Speaker 7

Got it. Thank you. And just lastly, can you share any color on where your cash balances are now and where you see it at the end of the first half? And it also be helpful to know if you had any indication of interest or at least soft conversations with respect to that potential Arrow stake sale?

Speaker 3

Yes. I mean, the current cash balance already answered was $30,000,000 and there's abundant interest.

Speaker 2

Let me just clarify that last point, sorry, with respect to Aero. We've held a position, very good position, very happy with our position.

Operator

And the full time at 48 to 63.

Speaker 2

Sorry? Sorry, who was that?

Speaker 4

Okay.

Speaker 2

Anyways, we're holding we've held that position to see very good growth in that in their share price. So we continue as we always do to evaluate our position with respect to ARO ARO holding.

Operator

And our next question comes from the line of Devin Rosenblum with Seaport Global. Please go ahead.

Speaker 8

Hi. Thanks for taking my questions. You said it sounds like we can expect that CapEx number to be on that lower side of the 'twenty four guidance. But can you provide a bit more color just let's say breakdown, let's say it's around $140,000,000 between what the exploration wells and the production wells will cost as a percentage of that 140?

Speaker 3

It's in our year end guidance, which is developing maintenance of about $73,000,000 exploration wells, which include seismic and EIA permitting of about $48,000,000 And then there's other CapEx costs of about $17,000,000 to total the 137,000,000

Speaker 8

dollars Okay. Thank you. And last question, in the reserve report, I noticed there was no, I guess, PDP life index provided unlike last year's. And I imagine maybe that some of that has to do with the technical revisions. But if we add back the technical revisions, is it fair to say that the PDP Life Index is somewhere around 1.6, 1.7?

Speaker 2

PDP, correct, proven, total proven category. We're still maintaining an 8 year or so.

Operator

At this point, I'd like to hand the conference over to Carolina O'Rusco to take questions from the webcast.

Speaker 1

Thank you. We have a couple of questions about Bolivia. There's one from Christian Calderon from CAC Rivergate. Can you provide a general timeline progression to advance the Bolivia segment? And there's another question from Alexander Emery from S&P Global Platts, which is any work ongoing at your E and P blocks such as ad analysis in Bolivia or are all your contracts pending congressional approval?

Speaker 2

With respect to Bolivia, as we've mentioned, we're awaiting the approval of a 4th contract. We've had 3 exploration contracts approved by the Bolivian Congress. And we're waiting on the approval of a 4th contract, which is more of a reactivation contract of an existing shut in abandoned gas field. We expect to receive that approval sometime early in Q2, early to mid Q2 and we expect to commence operations, so to speak, or work, physical work probably in the latter part of Q4 of this year with main activities picking up primarily on the 4th contract in 2025. So at the moment, we're simply waiting for the 4th and final contract to be approved.

Speaker 2

On the existing three contracts, we're simply doing internal work, proving up the prospectivity of those blocks, defining the prospects we plan to drill in those exploration blocks.

Speaker 1

Thank you. We have another question from Augusto Rives from Macquarie. Do you discard share buybacks for 2024?

Speaker 3

Actually, the paperwork is on my desk to renew that, which we will. Having said that, given that the company's focus as once again repeated in a couple of press releases is respect to debt reduction. I wouldn't expect to see anything material during 2024 on a share buyback program.

Speaker 1

Thanks, Jason. We have another question from Kevin Salisbury from 91. Can you please provide a bridge as to why you believe drilling to reserves was less successful in 2023? And what your confidence level is around improving your hit rate in second half of twenty twenty four?

Speaker 2

Yeah, I think I mentioned already to a previous caller, we did experience a couple of dry holes last year in the near field area, as well as the inability to drill one of our higher impact prospects due to mechanical drilling issues, which did not allow us to reach the target. So as I mentioned this year, we're drilling off of new 3 ds that we shot last year. The portfolio looks very good. We've already just announced our first discovery at Pomelo and we expect to return to our traditional hit rate of around 80 plus percent from this year's portfolio. So we expect a better reserve at resulting from this year's exploration program.

Speaker 1

Thanks, Charles. And another question on exploration from Mark Agube from Blue Bay Asset Management. Could you explain in a bit more detail the exploration results that you've had at the start of the year? How much do you expect those wells to deliver in terms of 1,000,000 feet per day?

Speaker 2

At Pomelo 1, we just brought on production yesterday, for example, tied it into the production facility. It's currently producing 8,000,000 cubic feet a day. We intend to ramp production up to between 10,000,000 to 12,000,000 cubic feet per day today and tomorrow from that well, which is a very which is a good rate. It's a good discovery, but that's in the range of exploration deliverables or deliverables from our exploration portfolios.

Speaker 1

And we have a question from Kevin Salisbury from 91 as well. What is your position on bond buybacks in the second half of twenty twenty four? How much cash would you need on hand and what levels would you consider?

Speaker 3

Yes. I've got this question a lot recently. Obviously, we are keenly aware that the easiest way to delever is to buy back discounted bonds at these types of prices. Having said that, I don't expect there would be anything material in 2020 4 if we get around to it then. As I previously discussed, our liquidity position is considerably better near the end of the year and into 2025 with the prepayment of taxes, overpaying taxes in 2023, etcetera.

Speaker 3

Looking for anything big on that front during 2024.

Speaker 1

Thanks, Jason. With this, we finish today's conference call. Thank you everyone for participating and hope to see you during our next quarterly conference call.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Earnings Conference Call
Canacol Energy Q4 2023
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