Q2 2021 Parex Resources Inc Earnings Call

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[music]. This conference is being recorded surgical sales at all as you see.

All participants thank you for standing by the conference is ready to begin.

Good morning, everyone and welcome to Parex resources second quarter earnings call and webcast yesterday Parex released its.

How did it financial and operating results for the quarter ended June 30th 2021 like all Parex disclosure documents the complete financial statements and related MD&A are available on the company's website at www Dot Parex resources Dot com and on SEDAR.

Before turning the meeting over to Mr. Ken Pinsky, Chief Financial Officer of spiritual 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.

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 company's continuous disclosure reports.

The information discussed is made as of today's date and time and Parex assumes no obligation to update or revise this information to reflect new events or circumstances.

Sept as required by law.

So there's no doubt that anytime participants on the webcast can submit their questions on dirty ask a question tab at the top of the webcast interface and participants on the phone can press star 1.

I'd like to turn the meeting over to Parex Chief Financial Officer. Please go ahead Mr. Penske.

Thank you operator, and thanks to everyone on the line for joining myself and our CEO our president.

For our Q2 conference webcast.

We appreciate your constant support and parts of Europe.

Before we start our Q&A session I would like to provide.

Highlights of our Q2 financial results and discuss our plans for remainder.

'twenty 1.

Oh about you'd mentioned in this call are stated in U S dollars unless otherwise specified.

I'll begin by saying that our priority during the COVID-19 pandemic still remains the health and safety of our employees, our contractors and the communities.

Moving to our operations.

Our Q2 production to average 43900 Boe's per day, a 4% decrease from the previous quarter production due to the transportation piece.

In Colombia, the circular restricted supplies for drilling and completion activities and are moving into oil.

In our fields.

The oil field operations were restored in June and if president parks operating 4 drilling rigs and aside for crude.

For the second quarter, our funds flow provided by operations totaled $132 million or $1.3 Canadian per share basis.

Q2 capital expenditures were $45 million.

Generally in free funds flow of $87 million.

First about free funds flow, we repurchased 4.2 million shares, thereby returned Canadian 91 billion to our shareholders.

Parex had strong performance for the quarter were 39.

$82 million.

Maintaining financial strength of 350 free bleeding cash and no debt.

We exited the second quarter with working capital of 371 day.

Along with our credit facility Undrawn 200 billion.

We have over 500, where half a billion liquidity.

Parts reiterated this dedication to continue lowering our greenhouse gas emissions intensity per Boe per.

Albeit assets the company's strategy in the short to mid term, we're focused on optimizing carbon footprint displacing carbon intensive power sources and income.

Leasing power generation from renewable sources.

But long term carbon strategy will gradually emerge as far as the uncertainty there could face during the energy transition and outlined sustainable pathways to achieving net zero fishing.

Forex is as far as along the east less carbon intensive oil and gas companies will continue to deliver shareholder value.

Global Energy Tibet.

We entered into another strategic partnership with Air patrol, whereby parts earns an operating 6% interest in 2 blocks in northern Colombia, a roca.

L. A 30 day.

As independent qualified reserve.

Engineered G L. J recognize company interest to 2 P reserves or proved plus probable reserves of $7.8 million barrels of light crude oil along with future dollar total of approximately $70 million.

The initial work plan, which we hope to commence in 2021 will.

It will be fun to find parts. It consists of drilling 2 development wells in there relative to you all.

1 exploration well and a further capital program of study 548 billion, which also that control will determine how to allocate.

I would now like to pass the meeting over to our President and CEO I'm not going to go into the second half 2021.

Please go ahead.

Thank you Ken.

Parex is an exceptional financial position of Cemex day doesn't currently up and you have to.

In place so that allows us to reap the full potential upsides strikes since the oil price.

As we move into the second half of 'twenty, 1 products would be focused on appraising, our recent discoveries and extensions.

P projects into it.

Continuing our appraisal program will give us too.

We're still and commenced in July so far we are very encouraged by the initial results.

Love to start our significant.

Got the program or all of the problem.

Beginning with at least 60000 net exploration wells in Kombucha.

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I hope your throat partnership work.

Our Alco book.

Oh for tuna.

Drilling a multilateral well relative to grow along with all the new formation.

We are applying proven about new technologies Columbia.

Assets areas with significant oil in place.

Accelerating the installation of facilities to enable the production of natural gas for a level as a discovery.

Expecting production to begin that just stick to drive things before and we expect to have initial results are not a swap exploration of oil.

Remember.

Michelle Inc quarterly dividend.

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<unk> 12 in the house on a per share. We believe this is mature and modest total for parex.

Demonstrating our confidence in our portfolio and our commitment to shareholder returns.

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

Thank you.

Please press star 1 at this time east have question.

There won't be a brief pause while the participants register for questions. Thank you for patience.

The first question is from Adam Gill from paradigm capital. Please go ahead.

You gentlemen, just in terms of the dividend obviously, it's a it's a pretty small payout of your overall funds flow I was just wondering if you could frame. How you guys are thinking about you know potential dividend increases what type of targets, whether it be earnings or funds flow to potentially see that dividend go up over time. Thank you.

Yeah. Thanks, Adam.

The the dividend was instituted along with our buyback as Beth said, we wanted to demonstrate our return of capital.

True, which is what we see operating over the past 3 years, we've bought back.

40% of the stock net of any LTI or gone through its center extra exercises and therefore issued from Treasury stock. So that's a big number of our stock.

Bye bye.

And going forward. The board wanted to have another lever to return capital to shareholders and so we instituted the dividend.

Our our annual strategy session with them. It is our fault and with that we will look at our 5 year plan where.

Where do we think commodity prices are going up and what how we want to return excess capital to shareholders. We always will have a return of capital strategy.

And how that dividend will fit into that.

It would more clarity, we'll report back to the market and later in the fall after that strategy session.

But for now the yield is about 2 and a half to $2.6 per cent.

Kind of as a in the range, but you know we would we would see ourselves in time, you know potentially trying to take somebody from the buyback to the dividend.

It's something we'll discuss with the board.

Or by surplus.

Okay. Thank you.

Yeah.

Thank you once again you May press Star 1 if you have a question.

There are no further questions. We do have a question now from Henry nobleman from each day on capital. Please go ahead.

Oh, yes. Good morning, perhaps you can just elaborate on the prior question are you going to be I guess.

Multiple parts first off how much cash would you like to keep on the balance sheet.

For the proverbial rainy day.

The next question is as you do this 5 year plan.

Are you going to use different price assumptions and then from that with the free cash you generate determined whether a higher dividend.

<unk> dividend <unk>, an accelerated buyback comes into play.

Any other clarity you can add because it's remarkable that you can buy back 3 per cent of your company and still build cash.

And yet for all intents and purposes, the stock wouldn't know what youre doing.

So let me start with the first part of the question in terms of the cash we hold the balance sheet.

Well, we don't want to keep cruising at a piece of it. So we are very comfortable with the levels. We are at now.

The total debt.

The guidance although the.

First our profits of the business.

Is its return money to shareholders in the total.

That is the buyback.

The fixed commitment for a much longer term.

What the board would consider going forward in terms of.

What different levels.

That's what day.

Beyond the commodity price is also our long term investment program.

And how we want to grow the business and have a long term sustainable business.

The only goes in 1 direction so it's multifaceted.

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Take all of it.

Reasonably a reasonable.

Oil price in mind, which is the.

What does it take that 50.560.

We like the budget breaks out around $60 per barrel and we do run locations barrels or anybody hotcakes circumstance, but but for me it's small loans.

Our next question is coordination.

Yeah, and I think what I want to reiterate this is telling shareholders is that we are in exploration and production company, we will drill exploration wells and not all of them will work, but some willing in the past they've worked really well and that has a lot of value for the shareholder.

So we're paying a dividend as a function of our return of capital as opposed to thinking outside of a dividend paying company debt.

And do you like that business. So you know that dividend is supplementary.

And I've said it is a long term EBITDA as a long term commitment.

So moving that around.

Our counterparts are talking variable dividend based upon commodity prices.

They'd be more mature dividend payers that we have and so we're going to feel our way down and see where the.

See what the shareholders wanted us to see how well we could look at this in the longer term irrespective of a return of capital strategy.

Great. Thank you just an observation if I may it would appear that most investors throughout all of energy today don't believe in any terminal value for a myriad of reasons and my sense is that's the opportunity for 1 of the many opportunities here so to the extent that you contemplate buying back more stock quicker.

The advantages are relatively obvious.

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Thank you.

The next question is from Al Stanton from RBC. Please.

Please go ahead, yes, exactly yes.

Yes. Good evening guys just a couple of questions if I May festival.

The 1 variable that we are really talking about kind of lateral price.

Taxation, so I'm curious to know more.

Your views are with respect to the tax rate going forward and how that dovetails with 10 over in spending where the spending is not going to creep up huh.

So having said that on desktop and then finally, just a question on the lessons learned from the past quarter with respect to marketing and to delivering your crude whether that means that each of the silver lining in working out.

Which routes are which market has decided it didn't pay to maximize utilization.

Yeah.

Thanks Al I'll answer your second question first with respect to what did we learn about the transportation disruptions.

You know what we've learned is that.

None of the oil and gas business industry was really talked with them. We weren't targeted directly at was the transportation hubs that are upstream of our operations and what it really impacted was our ability to move supply for drilling rigs. So at the time, we were actually will begin to a bigger exploration program. So we're moving rigs around and that slowed.

That slowed us completely.

If we're up and running on the pad that we usually get worried there is a disruption potentially coming with some action and therefore, we can stock up per food appeal for the railroad and not be bothered. We're just caught in the middle of moving rigs in respect of production.

We know is from you know Ty again, I'm quite pipeline most of what we call our southern catheter area assets.

We were about 35000 barrels a day, but would I say disruption proof.

<unk> allows us to do whatever you want to do at any given time.

And that's and that was positive and we kind of thought that's what it was beforehand, because we plan for.

Better off per se.

And we also got ourselves up to our run rate. We're at 48000 barrels a day again today, which is the highest it's been since you know COVID-19, which we're quite happy with it we have 4 rigs in the field working there's been no disruption so columbia, sometimes it gets noisy and especially if you look on Bloomberg you can get you.

You can see things, but in the field. It was relatively calm except for a couple of weeks 2 to 3 weeks free Hot So trucker union activities, which are analyses and everybody back to work and the government did a very good job we started addressing that.

<unk> been working directly with each day.

So we are thankful for the Columbian government debt at very good job.

In respect to your first question you were breaking up but I think you're asking about tax rates and the.

Colombia Congress is now debating if these tax bill 1 of the things we're talking about is increasing the corporate 35 per cent 30 watt per se that incremental 4% will have some effect on us, but because we continue to invest in a country it would be relatively buyer.

I recall that during the Santos the previous President's regime, President Santos, we had tax rates as high as 40 per cent.

You know as long as you're investing in the country.

Anything else, you're creating tax applicable.

Tax depletion gossip attacks so.

That's all I have to say about that what's your first question.

Yes, I suppose the 1 benefit you might have missed was the.

The relationship between Capex and the oil price is.

Is that going to be reestablished.

Relationship, we heard between cash or capital spend that's price of oil.

You know that definitely what are the things you wanted to do was actually you know COVID-19 slow our exploration programs out and we are an exploration company.

And bad when he joined the company and looked at the opportunity sets that we need to catch up for 2020, we agree or degree and that's what really drove our capex spend at increasing.

Increasing this year, yes oil prices are helpful. Because you're out there for us for cash flow and as you heard we do get questions on how much working capital do you guys want it built so unless you have something that yeah.

I mean here of course.

Probably there are more.

Opportunities that that's what P. But the reality is most of our opportunities.

We have in the pipeline.

They are robust.

Or kind of visible price.

So.

What's happened is we have discovery before COVID-19.

We're not afraid yet.

There was some delays last here.

We see lots of potential for developing growth of appraisal and we wound up with these opportunities.

Most of the opportunity as I mentioned in the chats, a day, where discovery, maybe a year or 2 day earlier and that needs to be upgraded.

Yep that's plenty.

Well development program coming out of that.

These opportunities are you sure.

If it does urology.

First of all these things because there should be a robust regardless.

Right.

Yeah predictable.

Price fluctuations.

Thank you.

Yeah.

Thank you.

Don't have further questions registered at this time on the phone lines I would like to turn the meeting back over to Mr. Morton.

Okay.

So thank you for your interest.

Baird.

Uh huh.

Okay.

And your continuous support.

For further information, we invite you to visit our website.

Thanks, again and have a good day.

Thank you the conference has now ended.

Please disconnect your lines at this time and thank you for your participation.