Q4 2020 Parex Resources Inc Earnings Call

This conference is being recorded so it's closer to home so it's all of us.

All participants please standby your conference is now ready to begin.

Good morning, everyone and welcome to Parex resources fourth quarter earnings call and webcast.

Yesterday, Parex released its unaudited financial and the operating results for the quarter ended December 31st 2020.

Like all Parex disclosure documents, the complete financial statements and related MD&A.

Are available on the company's website at.

All of your W. Dot P.

Pirates resources Dot com and on SEDAR.

Before turning the meeting over to Mr. Mike Crookston.

Parex resources senior Vice president of capital of market.

I would like to mention that this event is being recorded.

The recording will be available for playback on the company's website.

Parex 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 <unk> and the company's continuous disclosure reports.

The information discussed is made as of today's date and time.

On the Pirates assumes no obligation to update or revise this information to reflect the events or circumstances.

Except as required by law.

Please note that at anytime participants on the webcast can submit the questions under the asked the question tab at the top of the webcast interface and participants on the phone can press star one.

I would now like to pass on the meeting to parents senior Vice President of capital markets the corporate planning.

Please go ahead, Mr crew cab.

Thank you operator, and thanks to everyone on the line for joining myself and the senior leadership team for our Q4 and year end conference of audio webcast.

We appreciate your support of parks resources.

On the call today.

We have Amit Molson <unk>, new President and CEO, Ken Pinsky, Chief Financial Officer, and Eric Furlan, Our Chief operations Officer.

Before we start our Q&A session and we will provide a brief overview of our financial results for the year end 2020 I.

I will then discuss the 2021 guidance.

The future growth area and Mr. All of Molson.

Overview, just provide the introduction.

And the timing of parks.

Thanks, Mike I'll begin by stating that our priority during the COVID-19 pandemic continues to be the health and safety of our employees.

Our contractors and the communities neighboring our operations.

2020 was a year of turbulence and uncertainty of companies and industries worldwide.

<unk> continues to focus on its key success driving factors on balance sheet strength return of capital to shareholders and sustainability.

<unk> remains the strong financial position exiting 2020 with.

The results are as follows.

<unk> generated net income after tax from 2020 of 99 million U S 97 per share.

Our earnings were down from 2019 due to reduced global oil prices and reduced production volumes, but nevertheless, I was very pleased to report that income from 2020, given the challenges the industry of space further reporting net income this year very much shows the sustainability of our business in all commodity price scenarios.

2020 production average 46500 Boe per day of 12% reduction from the previous year production of 52006 hundred Boe's per day and that was attributable to voluntary shut in production from the COVID-19, pandemic and lower capital expenditures.

Our crude oil and natural gas reserves for 2020 were an increase of 18% in the PDP reserves per share a 14% increase of two P reserves per share we.

We generated G. P. <unk> P reserves funds flow from operations recycle ratio of approximately two five times.

Which is excellent considering restaurant prices average $43 a barrel of in 2020.

Lastly, our two P Reserve life Index was extended to 11 years, which added to our sustainability.

2020 was highlighted by parks, realizing strong operating net backs in this challenging commodity price here the operating netback of approximately U S $21 per Boe.

<unk> and funds flow provided by operations of approximately 277 million the U S.

That in 2020 capital expenditures of 121 journey.

<unk> generated free funds flow of of $156 million, we applied our free funds flow to repurchase approximately 10% of our float or $13 9 million shares.

'twenty marked the third year of the parks of renewed its normal course of issuer bid share buyback.

Since 2017 parks as repurchase approximately 34 million shares returning Canadian 643 million of to our shareholders, let's look at the share buyback along with our business results.

Since the end of 2017, our crude oil and natural gas reserves and production have increased materially on.

Working capital has doubled.

Don't have any bank debt and our share count has been significantly reduced.

Our acts of significant growth Optionality and financial resilience and we planned it that way, we exited 2020 of with working capital of U S. During the $20 million.

A $200 million Undrawn credit facility.

While the parks has no commodity price or out of hedges in place at the end of 2020 and the present.

Partial fully participate in the higher crude oil prices, we are seeing today.

You might come back to you.

Thank you for the <unk> 'twenty 'twenty overview of cat.

I will now discuss our 'twenty one guidance.

Parts of the exceptional financial position and the company continues to me the best in class balance sheet per full exposure to 2021 strip oil price. It as we move into 'twenty 'twenty, one parks will be focused on.

Repurchasing the maximum number of shares fulfilling the 10% and CIB annual limit for a total of $12 9 million shares.

In January and February of this year, we have already repurchased two 4 million shares.

The second delivering on our capital program of $165 million to $185 million.

The key components are advancing the vim, one that believes the discovery with two new wells Civil works and other infrastructure.

The further assess the block.

The next assessment of expanding our brand of play.

Delivering low cost high margin production and cash flow and evaluating the opportunities to expand our capital program and deploy a portion of our expected surplus of cash flow.

Lastly, we wanted to demonstrate top quartile ESG performance, which includes reducing greenhouse gas emissions working to improve the social conditions in the communities, where we operate and providing transparency in our governance.

With this brief overview.

To introduce you to them on molten parks as president and CEO Matt.

Matt joined <unk> following the retirement of Dave Taylor will remain an advisor to him out of Intel our AGM on May six.

Thank you everyone on the call.

I'm pleased talks.

The unfair I appreciate your support for the company.

As Mike mentioned, Iraq and category enjoying the parks in early February.

And I've spent the past month and things.

Shareholders I'm learning about the exciting opportunities within our portfolio.

Yeah in both kind of like probably you could say what the timing.

My vision for Parex continue to cause the strengths and our Colombian operation.

The foundation on which part of excellence.

Moving forward.

We will continue to evaluate new conventional oil and gas opportunities given the financial technical and social exercise vantages. The parents have developed.

We remain committed to the socially responsible company.

Alright, best in class shareholder returns.

I believe my experience in successfully applying the G. D C of approaches when you're talking about on par.

The existing S E P values and accelerate its transition.

I'm excited to assume the executive leadership position and look forward to closely working with our management team of employees.

We thank our shareholders partners and all the stakeholders, either virtually and hopefully in person this year.

With this introduction I would now turn on the life back to the operator to start the Q&A session.

Appraised of our overdue.

Thank you.

If you have a question. Please press star one on your devices keypad.

It'd be a brief pause while the participants register thank.

Thank you for your patience.

The.

The first question is from Travis Wood from National Bank Financial. Please go ahead. Your line is open.

Yeah, Good morning, guys Mike.

Mike you touched on kind of the pecking order of allocating that free cash on the capital allocation.

Allocation priorities, what are what needs to get to see the Capex go higher and maybe chase on some growth or rather what's holding that back in a in this kind of type of Brent environment.

Well you know there's a couple of things that we need to work through first one is actually getting access and you know we're still in a COVID-19 situation. So we need to ensure that we work safely with our community.

You know we are assessing what opportunities that we have that can enable us to accelerate some of that growth.

We feel we've under invested as Ken mentioned, we only spent under $40 million last year, which was less of a 50% of our funds flow from operations. So you know we'd be happy to take some of that of cash flow that we have this year, which is in surplus of after capex and our share by.

The back program and apply it to new projects. So we're in the process of doing that now.

So we're looking at if we want to accelerating cash flow, we're looking out of exploration and appraisal.

Versus just developing we we like to explore and as Mike said, regardless of if the high last year because of Covid.

We have some dogs, we could catch up but we're not ready to talk about that in any detail right now.

Okay, Okay, that's fair and could.

Could you I know it comes up now and again I'm around the dividend just sitting on this much free cash and in this type of environment on dividends special dividends.

Obviously, the number one priority continues to be the buyback as you highlighted but does that come up in the boardroom at all and in this type of environment.

Not really no.

We'd be talking to our shareholders all the time and all of our shareholders don't bring it up.

We get questions from the capital markets participants like yourself about would we consider it and I think we would consider it at some point, but right now I think we're happy with returning capital to the share buyback of we have been.

He has disconnected our share price was disconnected, we felt from where commodity prices are gone and the operation of underlying the business. So we still think it has good value for the the company to buyback of stock, but it is something that you know we of a strategy session every year with the with the board that's in the fall and so typically the Dod and other methods.

Return of capital get discussed, but it doesn't come up all the time, that's for sure and so we looked at it yet this fall.

Okay.

I appreciate that and for what it's worth I think the.

On your your investors are our clients appreciate the discipline around the capital Inc.

One of the.

Regions, performing well today as being strict on that Capex for for what it's worth so thanks for taking my questions. Okay. Thank you.

Thank you.

The next question is from Gavin Wylie Scotiabank Your line is open.

Yeah. Thanks, guys, just a bit of a follow up and then maybe a second question from me on that too is the base capital program that you've outlined in the guidance how is that spread through the year for 'twenty 'twenty. One just in terms of the the like.

Kind of of quarterly allocation basis, and then should use of Easter should you put the surplus cash.

The worker to work.

Does that Capex look in terms of adding into the program is that mostly going to be layered into kind of late Q3 by the time, you can actually get going or is it going to be Q4 guide just and then the last one is just around the exploration plans for the Llano space and you've kind of outlined nicely the middle Magdalena and in the lower Magdalena plans, but just wondering if you could give a little bit.

More of a description on the Llano spacing and if any of that excess cash and capex could go to to maybe accelerating some activity there. Thanks.

Thanks, Let's just answer the exploration program first we have on our line of course, our senior VP of exploration Ryan Fowler, Brian would you like to give a little bit of color on the exploration program in the aerospace on please.

Sure can you guys hear me.

You can okay, perfect Hi, Gavin.

You know, where we have a number of projects in the end of the space and debt are there working forward.

And.

The are there, they're actually spread all the way from the north to the south end of it.

None of them are sort.

Sort of reaching the key access point right away. We have we have two exploration wells that are that are in the in the program for 'twenty 'twenty, one we'd like that to be more and we're working towards that.

Hmm.

A lot of our land base in the animals now he's new blocks that we've acquired.

Since the 20th 19.

Bid rounds started up again and so our access on it takes it.

The year or two to really get moving on those blocks and so we're going to see that ramp up really more in 2022, but we do have we do have a couple of shocks planned for 2021.

Yeah, and then we have our exploration of course that are been one block coming up.

That's the rig moves off of rent out here in the next part from two and it goes to the Vim one block to continue the exploration of that I think one of the wells may be an appraisal well, but.

Oh I'm sorry on the following up on or about the Liza discovery.

Yeah, we have we have significant appraisal programs in both of them on and brand as you said in the in the lower Meg basin and the mid Mac.

And those of real technical catalyst for us this year in terms of things like adding capital as was mentioned by the end of last questioner.

Yes.

Potentially okay.

Gavin you mentioned the.

Capital spend the profile for your models you can basically think of it adds around $50 million of quarter and then you know we always leave ourselves. Some optionality for Q4, where are we tend to have success, sometimes we'd like to add additional capital to build on that success.

And just the final question was just on the if you can deploy some of that surplus is that mostly going to be in Q3 of Q4.

That would be correct. If we were going to do that we would talk to the market about it and we would give you time because with as to when we would deploy that yes.

I appreciate the color thanks, guys.

Thank you once again, please press star one on your telephone keypad. If you have the question.

Next question Al Stanton.

RBC. Please go ahead your line is open.

Yes. Good evening guys I think we're all just looking from the same information in slightly different ways.

It sounds like like E P.

In the slide Capex upgrades 200 million are just then so can you split that won't say between the <unk> and exploration.

And then also.

One of the things I was just looking on the documents today go of this morning, and you know you've got $420 million of of Capex for two P. You've called the 170 million of of exploration commit in the top of which of suspended so let's say of the I T. I mean, the sound like big numbers.

But you can cover the only 2021 cash flow. So can we go right back to the beginning of an Guy and then go what are we waiting for do you need to get in country to see what the opportunity. The all whether they had been organic or organic kind of appreciate you know it's the.

The the new chief exactly of that Hasnt been to the athletes, yes, I'm, assuming I'm, assuming no one's been in country for yeah. So you know in terms of.

The logistics you know do we need to get.

Because the possible to whatever we have in Canada and in progress down to the Bogota, and then pull the trigger or do you need the big of cash pile or are you just.

Just not seeing the opportunities do you want.

Well I.

I guess, what I'm, saying why are you sort of discipline.

While we are disappointed.

The way it is and that's the way it's always been and so it's got nothing to do with us going to Bogota, we'd be working in Colombia for 11 years, we have three of it folks down there we have daily communications with them, we love to go to Bogota work of their stuff from in person, but you know we can get along quite well.

Using virtual so no we are just being thoughtful and.

Prudent and working through our portfolio and looking at where things, we'd like to do and what we thought the most value as opposed to just rushing off Willy nilly of spending, but we tend to like to invest money. So that's the the comment back to you on that in respect of capital you made one comment about Mike gave a rough general of stick.

It's approximately $40 million to $50 million of quarter I E are a couple of programs EBIT throughout the year, we're still on that guideline and guidance that we gave originally which is $165 million to $185 million telco that is artificial guidance of this year. If we change. It we will tell you a bulk of that if that five of them will give programs the justification for that so.

You know.

We've given you a little bit of color of what we might want to do what we're working on but we don't want to go into more details of that right now.

Sorry about the.

Splits of the the one 625 between exploration and development.

Yeah. So when we really start by just November we released the based on $45 deck I think Brent at the time was around $42.

It was effectively about a 65% development 35 per cent exploration.

Okay.

Okay.

All of them well sit the white thank you.

Thank you.

There are no further questions registered at this time.

I will turn the call back to Mr. Cooper.

Okay.

Thank you operator, I would like to take this opportunity to thank you for your interest in <unk> and your continued support of the company.

For further information, we invite you to visit our website or contact myself. Thank you very much and have a good day.

Yeah.

Thank you. The conference has now ended please disconnect your lines at the time and we thank you for your participation.

Thank you.

Yeah.

You're welcome.