Q3 2020 Parex Resources Inc Earnings Call

All participants please standby your conference is ready to begin.

Good morning, everyone and welcome to parts resources third quarter earnings call and webcast yes.

Yesterday parts released its unaudited financial and operating results for the quarter ended September 32020, like all parts disclosure documents complete financial statements and related Mdna are available on the company's website at www Dot Pyrex resources Dot com and on C.

Darren.

Before turning the meeting over to Mr., Dave Taylor, President and CEO of parts Resources, Inc. I would like to mention that this event is being recorded so the recording will be available for playback on the company's website part.

Our next I would like to remind everyone that remarks made during this session are subject to forward looking statements, which involve significant risk factors and assumptions and have been fully described in the company's continuous disclosure reports.

The information discussed is made as of today's date and time and parts assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law.

Please note that at any time participants on the webcast can submit their questions under the ASCII question Todd at the top of the webcast interface and participants on the phone can press star one.

I would now like to pass the meeting to par its president and CEO. Please go ahead Mr. Taylor.

Thank you operator, and thanks to everyone on the line for joining myself senior leadership team for our Q3 conference audio webcast.

Appreciate your support parts resources [noise].

For Q and a session I'd like to provide some highlights of our Q3 financial results and discuss our plans for the remainder of 2020 for 2021 [noise].

I'll begin by stating our priority during the coldest pandemic remains a health and safety of our employees or contractors.

And he's neighboring our operations [noise].

To minimize social interactions, we changed our operating procedures and reduced field activity, which impacted both capex and production in Q3.

Three production averaged just over 44300 barrels of oil equivalent per day, and 8% increase from the previous quarter production of about 44850 barrels of oil equivalent per day, where we voluntarily shut in production.

The third quarter was highlighted by strong operating netbacks of U.S. dollar $23 per barrel of oil equivalent and funds flow from operations of 79 million U.S. or Canadian 76 cents per basic share.

Q3 capital expenditures were approximately 18 million and our earnings were [noise].

It was 27.6 million or Canadian 27 cents per basic share.

Free funds flow in the U.S. $62 million, approximately we repurchased 2.3 million shares and returned 31 million Canadian to our shareholders [noise].

Company maintain its financial strength was 353 million in cash and no debt, we exited the third quarter with working capital of approximately 371 million U.S.U.S. 20 million 200 million of Undrawn credit facility.

The company also publish a six sustainability report highlighted our industry, leading environmental health safety and social performance.

[noise] for 2020 parts has done an exceptional financial position in the industry as the company continues to maintain its best in class balance sheet with working capital of 371 million U.S. [noise].

In early March we took decisive action to protect our financial position to weather the ongoing crisis as well as take advantage of potential growth opportunities that may arise.

As we move into Q4 will be focused on delivering a 35 to 45 million U.S. program that includes.

So can development drilling and completions.

That seemed to be I am one level, Lisa discovery with civil works and long lead items related to facilities [noise].

Drilling the pain, one horizontal exploration well on the Fortuna block in the Middle Magdalena Basin that's.

Spudding up around two appraisal well also in the Middle Magdalena Basin.

Finally, we plan to repurchase 6.4 million shares in Q4 filling the 10% Nancy I'd be annual limit for approximately 14 million total shares that we will have reduced this.

This year.

That will reduce our 2020 basic shares for approximately $131 million for $143 million on December 31st 2019.

For 2021 guidance I'd like to briefly outline our plan for 2021 [noise].

Average production is expected to be in the range of 47 to 49000 Boe per day.

Capital expenditures will be approximately 165 to 185 million U.S. split between maintenance development unpredictable and exploration of new growth programs.

And finally, returning capital to shareholders by buying back another 10% of its outstanding share count by approximately 13 million shares.

Finally, I'd like to report that up to 44 to 40 years in the industry energy, including nearly 10 years with cars. Mr. Lead to Stefano is retiring as president and country manager of parts, Colombia [noise] Mr.

Mr to Stefano will remain at its current position until the formally retires at the end of December 2020.

He has been instrumental in part success, especially in building relationships with the communities where we operate.

Wish him best in his retirement.

In conjunction with Mr to Stefano his retirement Perks has also announced promotional mr. Daniel for Arrow to President and country manager of Par's Columbia effective December Onest 2020.

As for arrows been with US for 20, there's about 23 years in the upstream oil and gas business in various technical and leadership positions. Most recently as senior Vice President of Columbia Operation.

He has been a key leader as far as Colombia and prior in our predecessor company the trend in Argentina.

Throw 2020, Danielle has been working closely with lead to transition on the Colombian leadership responsibilities [noise], but.

With this brief overview I'd like to turn the line back to the operator to start Q and a session that over to you.

Certainly thank you.

Hi Star one at this time, if you have a question.

There will be a brief thoughts whether participants register thank you for your patience.

[noise]. The first question is from Al Stanton with RBC. Please go ahead.

Yes, hi.

Good evening guys.

I just saw something about the mindset that for next year I mean, just looking through the quarterly numbers 2019, and Osats like Q1 of this year production.

50000 barrels a day 54000 barrels a day and yet for the next year.

47 to 49 to that's flat from.

The fourth quarter is always one I was wondering.

Whether that's something that suggested you're just being conservative and you're going to be your numbers well, whether perhaps there is actually a bit of a change in mindset within the sector and and you know you got less desire to ramp up production, perhaps keep more cash on the balance sheets and slightly more cautious as you go into next year having enjoyed.

Quite a tough 2020.

Yeah, Dave I'll, Oh address that.

As you know in a low price environment were not really being rewarded for absolute growth anymore.

Single digit growth appropriate in the current climate.

Sales of 47 to 49 that we're forecasting for 2021.

So then we have capital allocation decisions and.

As we've given a range of 165 to 185 million of capital going back into a into the ground and we can break that out would buy into maintenance and development for the absolute growth, which you know we just alluded to we prefer the lower absolute growth.

Second bucket is organic growth capital exploration appraisal and then third would be inorganic acquisition opportunities and finally buying back barrels using our existing buyback program. So I'll talk a little bit about each one of those different items. So if you look at it the maintenance and development capital for us.

<unk> growth.

Objective right now is really to preserve the existing barrels in this low price environment.

Voluntarily curtailing production in the second quarter this quarter allowed us to reset our base a little bit pushed feel plateaus out by a couple of years, but gives us the optionality to ramp up activity with a with a price recovery.

Second thing would be the spending capital on our core competency of exploring at appraising.

We have a very high quality exploration portfolio. When we believe as it's actually prudent right now to be looking for new barrels that NAV and future development inventory one.

Prices recover so so we have a new discovery level lease as well for example, we have no reserves booked their loss potential. So we want to get that appraised also a 2021.

New barrels.

If we look at our current share price. We could also buy are all high quality barrels back for $70 per barrel fully developed and we believe this is a pretty unique opportunity to buy back stock at our barrels which are some of the best in the world and return capital to shareholders I'll start and our plan to buy back 10% of the stock in 2020.

One.

And we can do all three of these things within the cash flow from operations of 40 to $45 Brent.

Dscone differentials.

And then ultimately that leaves us with our strong balance sheet to 370 million roughly working capital Undrawn line of 200 million for inorganic acquisition opportunities, but it's important to understand that those types of growth opportunities have to compete for capital with organic opportunities and must have the ability to actually improve our.

Business significantly so.

That's kind of the philosophy or are the way, we're thinking about the business going forward.

And why we've we've targeted the program that we have and the guidance for 2021.

Yes, Hello, I lied one more thing is if you look at our guidance in our press release, what we're really focused on that had been focused on for quite some time as per share growth.

You look at our production per share growth in 2021, we're forecasting a 14% increase while maintaining the same working capital spend on debt adjusted production for sure growth were going up by 14%.

We think that's pretty attractive for our peer group and that's really the number we look at.

Offline growth is I know something that people want to see as well, sometimes but right now the investors want look at production per share growth.

And if I may just one quick follow up question just looking at the vintages of exploration acreage is there are there any ticking clock saga, you or other people, where there are commitments to drill in.

2021, where.

Having cash and may be accessed through rig might.

Those sweet.

Yeah, we continually look at the.

Competitor landscape out there to see if there's farm in opportunities. We we know there is some available and we are actively looking at them.

Our own acreage you know we plan a activity over the over the period of the exploration term and we don't have any issues with respect to our own acreage getting things done, but we know some competitors may have some challenges.

That's great. Thanks, guys.

Thank you.

Once again, please press star one at this time, if you have a question.

[noise] there are no further questions registered on the phone lines I will turn the meeting back over to Mr. Taylor.

Thank you I'd like to take this opportunity to thank you for your interest in parks and continued support of the company for further information. We invite you to visit our website or call us. Thank you again and have a good day.

Thank you.

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