Q1 2022 Parex Resources Inc Earnings Call

Hum.

Okay.

Please standby your conference will begin momentarily to ask a question. Please wait for the moderator to start the conference then press Star one system, Tony will be heard when you request has been accepted to cancel your question Press Star two.

Specialty coffee holes come off hot soup, the buff bowls in guests still want to use it while I take it on my desk I thought you did a coffee house and done that you did you see stem golf Yamaha because I told them one day. They exited D point you did it looks like there's still a few years. So it was due.

[music].

Okay.

Yeah.

Okay.

Okay.

Okay.

[music].

Uh huh.

Okay.

Yeah.

Please standby your conference will begin momentarily to ask a question. Please wait for the moderator to start the conference then press Star one system, Tony will be heard when you request has been accepted to cancel your question Press Star two.

Specialty coffee a hard one.

All participants please standby your conference is ready to begin.

Good morning, everyone and welcome to Parex resources fourth quarter, 2022 conference call and webcast.

Please note that it's not.

And anytime that participants on the webcast can submit their questions under the ask a question tab at the top of the webcast interface and participants on the phone can press star one.

I would now like to turn the call over to Mike Kruchten Senior Vice President of capital markets and corporate planning of parents at Parex. Please go ahead Mike.

Thank you operator, and good morning, everyone.

On the call with me today are Matt.

Our next President and Chief Executive Officer Officer, Ken.

Ken.

You bet.

Eric Furlan, Chief operating Officer, Ryan Fowler Senior Vice President of exploration.

I would like to remind you that this conference call.

Statements non-GAAP and other financial.

Associated risks outlined in our news.

Our release and MD&A, which can be found on our website or SEDAR dot com.

I'll now discuss today are in U S dollars unless otherwise stated.

Traditionally.

The conference call.

The shareholders to participate in our annual general meeting however.

However, given the virtual nature of that event.

Exciting material increases to coal production guidance return of capital partners wanted to hold a call to review our record quarter and provide some context, how we are growing parks in 2022.

2023, and the long term.

Please go ahead.

Thank you, Mike and good morning, everyone.

We believe the box is positioned to take advantage of the opportunity that lies ahead.

We have set the company up so quickly deploy capital to meaningfully grow production and therefore funds flow in environments, where our supply is constrained.

Unique proposition.

You can do this while we increase our returns on capital including Ultra.

Our track record of industry, leading share buybacks and increasing our quarterly dividend.

Last year.

Is it just hasn't been stress tested and robust as robust even in low commodity price environment.

Kevin will discuss our first quarter results as well, our sort of capital Trust us as a framework.

I made some remarks on our guidance.

Although as you folks.

The Houston the power plant.

As Russ was production by year end.

Please go ahead.

Thanks Mark.

First quarter results were very strong we generated record funds from operations of U S $205 million, which is up 64% quarter over quarter and 22% from the prior quarter quarterly net income was U S 153 billion well production averaged approximately 51700 <unk>.

Per day, which is up 10% quarter over quarter or 4% from the prior quarter.

We continue to have a strong balance sheet with no debt and working capital in the U S $287 million, which we did we reduced during the quarter through the acceleration of our planned 2022 share buyback, which is nearly 50% complete already and their procurement of long lead inventory items as we look to ramp up production this year and into 2023.

Our focus is building our trucks track record of returning capital to shareholders and improving the long term strength of our business.

2022 share buyback plans repurchased a full 10% of or you can.

And of course issue.

Yes.

Which is expected to reduce our fully diluted shares to around $110 million at the end of the year.

Which compares to approximately 165 million fully diluted shares in 2017. This represents an over 30% reduction of our total shares outstanding with the past five years, while still growing our annual production from 35000 barrels a day in 2017 to 55000 barrel a day target for 2022.

The topic of share buybacks, we're now ratcheting up the quarterly dividend as you look to fulfill our long term capital allocation framework, which is to return at least one third of our total funds flow from operations to shareholders, which represents approximately 100% of free funds flow, we define free plus probably slow as funds flow from operations plus capital expenditures.

Yesterday, we announced a substantial nearly 80% increased our interim dividend to <unk> 25 Canadian per share per quarter.

We believe this makes us competitive among dividend paying companies extremely competitive when you look at both the NCI B plus the dividend.

Now I'd like to turn things back to Mike for some final remarks.

Thank you Charles.

On our last conference call I said that.

I'm excited for what was to come for Baxter in 2022, as well as its long term prospects.

I think it was yesterday's release, we are demonstrating that person living with these problems.

My excitement and optimism for the company has never been higher.

For the future.

We are updating our full year capital expenditure guidance to $5 2 million.

Midpoint.

Which is expected to generate exit production rate.

With over 60000 barrels a day.

So that's us.

It's a fantastic 2023 years.

Given our prior decisions to secure rigs under long term fixed.

Contract.

Chris.

Two hours South came below do you have numbers acquiring all these items like casings or both and compresses.

Box is extremely well positioned to execute on our own.

Uh huh.

Our capital guidance increase in Gulf trace into the auto space.

Primarily.

Although Brexit activities.

$14 million to acquire a low teens.

Eventually items, we ordered earlier, which will enable us.

The efficient execution of our multiyear program to grow.

Actively worked to minimize the effects of inflation and supply chain constraints.

Secondly, a $13 million to increase short cycled.

Our low risk projects.

The production of ours.

That's where we think we can pay off.

David I would throw a little crazy ethics.

Third were.

Adding $55 million that optimize drilling sequence.

Emphasis on waterflood exploration that can give us there.

Yes.

As we progress following through with our capital allocation framework for 2020 two we have I heard that was fun.

The return of at least one third of our free flow.

From operations to shareholders.

Cases were at least two thirds.

We reinvested into the business and the two primary things.

Reimbursement is required for cash flow growth and for us to replenish and high grade our development eventually for the long term ethical vessels producer.

That's reimbursed first months also supports the future return of capital activity.

Yeah.

Yes.

In summary.

In 2022, we think we can deliver 17% production growth combined with the share buyback 10% of our float.

Hosting a nearly 30% production growth on a per share basis.

So underlying our faith in our long term business and deliver cash returns to shareholders.

We have now doubled the dividends to a dollar per share.

Like all numbers.

This delivers a yield of over 4%.

We think of the story for buyers, it's quite compelling for our investors.

Energy specific investors or is it early.

With that I'd like to thank everyone for their combined sports Burks I remind shareholders that our annual general meeting is being held after this quota.

And Washington.

I would like to also thank our employees listening in for their continuous hard work.

Sure.

And that is a team effort.

This concludes our formal remarks.

I would like to turn the call back to the operator to start the Q&A session four vessels.

Thank you all.

Thanks, Jim.

Please press star one at this time you can have a question there'll be a brief pause while the participants register for questions. Thank you for your patience.

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

Thank you good morning, gentlemen, two questions for me first off as you you've increased your capital how do you plan to approach and started drilling on some of the.

Lands that were won in the 2021 bid round and the second question was.

You know as as you think about you know additional returns to shareholders going forward, what's the preference between increasing the base dividend or doing another special dividend. Thank you.

This is a this is Ryan senior VP exploration and to answer your question about how we're going to explore the new blocks, we acquired in 2021.

The process of exploration in Colombia starts with access to the land and the acquisition of the environmental licenses required to drill and typically that takes a year and sometimes more.

We have a few of the blocks of the 18 that we think we might have access by the end of this year and so we're hopeful that we'll be drilling our first wells into that program in the animal space and in 2022, but for the most part that program in terms of drilling will start in 2023.

Thanks Ryan.

With respect to the return of capital we've got the regular dividend up 25 cents per quarter, Adam well keep that in place for 2022, we don't expect any changes to that.

I will do the full 10% share buyback is the expectation to manage working capital we would look to a special dividends at the end of the year, if that's what we need to do.

Okay, great. Thank you.

Yes.

Thank you.

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

Yeah.

Our next question is from Oriana cohort with Bill and please go ahead.

Hi, Thanks for taking my question, sorry, I know with salaries and congratulations on the good quarter results I've had.

Couple of questions. So maybe if we could go first.

Are there any thoughts you can share about the VESCO and your differential we were under the impression they should've been wider during the quarter and I kind of saw that in your press release that this wasn't the case. So if you could share any insights that would be very helpful.

Yeah. Thank you, it's Mike Kruchten speaking.

Her best Gonia like many of the differentials are basing markers. They can vary quite widely throughout the time period, we have seen them go from about three to $4 up to about $6 throughout the quarter, but it seems to settle back down into that $4 Mark recently.

So you know which is fairly consistent where we were really over the last 12 months.

Thank you and then maybe just following upon on quality and commercial discounts.

Could you what explains this perhaps I missed it but what explains this quality premium you received during the quarter I thought I saw it in some of the pages in the earnings release.

Okay.

Well.

We typically get that's going to your trees around WTO.

And our crew typically has about a one dollar discount of Dod.

It also depends upon the refineries demand for that quality of crude since its low sulfur.

So really you know we don't look at it as a premium that we can measure we're a price taker and sometimes its a premium and sometimes there's a discount but it's around that kind of what's going on with trade around.

And then we have a transportation cost against that so you know, we typically looked at a Brent minus 13 or $14 at the wellhead and we get better information or M. DNA, that's including transportation.

Yeah.

Perfect. Thanks, that's very clear maybe one last one you mentioned in the MD&A and the sustainability Solar farm project. So just if you could share some of our information about days is that embedded in your budget for 2022, how much will it cost estimate the savings that he could generate that that would be helpful too.

<unk>.

Sure we're very happy to have these solar projects are commissioned this year.

What it does for us is reduce our greenhouse gas intensity.

As it helps displaced some of the have your fuels such as diesel that we were using previously the power facility. So we will be generating the power and I'll go straight to.

Our operating energy that we require for the facility.

As for cost, it's really a flow through agreement, where we pay the power cost to the provider.

Perfect. Thanks that was all from my side, Thank you and again congratulations on a good quarter.

Thank you.

There are no further questions registered at this time I would like to turn the meeting back over to you Mr. Christian.

Thank you operator on behalf of partners. Thank you for joining US this morning have a good day.

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