Q2 2022 Parex Resources Inc Earnings Call

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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 accept this conference is being recorded so it's closer to home that don't go as you see.

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

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

Even though that at anytime participants on the webcast can submit their questions on <unk>.

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. That's Parex. Please go ahead Mike.

Thank you operator, and good morning, everyone on our COO.

With me today are Ken Pinsky Chief.

Chief Financial Officer, and Eric Furlan, Chief operating officer.

Please note that the Martin Wilson, President and Chief Executive Officer will be unable to join US today as he is currently overseas in Lebanon.

Patterns for the first time since the start of a cold.

19.

Got it.

As a reminder, this conference call includes forward looking statements.

GAAP and other financial measures.

Sure.

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

All amounts disclosed today are in U S dollars.

Unless otherwise noted please go ahead Ken.

Thanks, Mike and good morning, everyone in the second quarter 2022, we generated record funds from operations of $228 million, but again, that's in U S dollars, which is up 73% over the comparative quarter and 11% from the prior quarter.

Sure basis, that's $2 53.

Asia.

Which is a record for us as I said on a year to date basis parks have stood at 178 million of free funds flow.

We are proud to say, 100% of that has been directed towards dividends and share buybacks as we can.

Continues to be debt free.

Production for the quarter was pre leased and approximately 51100 boe's per day up 16% from the comparative quarter in 2021.

Production was relatively consistent with the prior quarter, primarily due to well timing and higher than expected downtime and this was previously announced.

The change in our balance sheet strength on a working capital surplus of $312 million.

It is our expectation that working capital will decrease in the third quarter due to the timing of capital expenditures as well as the acceleration of our share buyback program.

And in late June .

As we move through 2022, we continue to be driven by our long term capital allocation framework, which is to return at least one third of our total bunny slope operations to our shareholders, which equates to 100% of free funds flow.

This year, we have increased the regular dividend twice, which now allows us to Canadian dollar per share on an annualized basis.

Furthermore, we are complete through 75% of our 2022 normal course issuer bid.

Alternatively, they already purchased eight seven out of 11 8 million shares. So far this year, we will purchase the full 10% and the remainder of the year.

Eric will now provide an overview of the investments being made.

And where do we see production increases coming in the back half of the year followed by some final remarks by Mike Our outlook. Please go ahead, Sir Thanks, Ken.

Today parks is making strategic investments across our portfolio to grow production right now we have seven active rigs on operator blocks and three on block 34.

In the general space, and we are accelerating infill drilling and waterflood optimization of the camera sterile block as well as executing near field exploration.

Moving drilling rigs to southern channels feels complete short cycle, all participant opportunistic production ads that are expected to spud in Q3 successfully drilled into multiple prospective formations, where we are actively testing multiple zones in Gabon chose.

We have completed several months on our first of all can block well are on track to begin drilling operations before year end, which will be a key area for 2023 plants.

And then Magdalena basin, we continue to assess the exploitation potential of a variety of block we have drilled the first ever horizontal well on the block and are testing. This month at the Fortuna block, we're actively drilling into one of the prospective formations.

Well will be completed in the third quarter, we're off to will do a full evaluation of four zones.

So far we have seen that multiple technologies that we're using such as horizontal drilling advanced stimulations.

Fedex drilling mud, providing us operational benefits.

Needless to say, we were busy and focused on putting the pieces in place to achieve our annual guidance of 54050 6000 Boe per day with an exit rate of 60000 Boe per day.

This would mark record production levels for the company at a clear shift to a multi field operator in line with our long term ambition.

Back to you Mike.

Thanks, Eric.

Take a moment to highlight the release of our eighth annual sustainability report, which is set to be released in the coming weeks in accordance with global reporting initiative standards aligned with the sustainability accounting standards Board standard sizes.

Data reported on the task force for climate related financial disclosure recommendations.

I would encourage everyone to watch for their release, which highlight sustainability actions undertaken by the entire <unk> team.

As we continue to be a top tier ESG.

Warmer.

Going forward.

This quarter's record results show, how an unhedged part, which is benefiting from the current favorable commodity price environment, we're continuing to return significant capital to shareholders through dividends and share buybacks as well as strategically investing in our operated fields increased production.

Today. The company is on track to complete our current normal course issuer bid in CIB by the end of the quarter, which marked the fourth straight year, we were we.

We have purchased 10% of our public float has a growing dividend in place and based on our guidance numbers is expected to grow production nearly 30% on a per share basis. This year.

We feel the company is uniquely positioned given our compelling valuation we made the decision in late June to accelerate our 'twenty two share buyback program as Ken mentioned underlying the confidence that we have in parks assets people and capabilities to execute our strategy.

With that I would like to thank everyone for your continued support of parts and then also like to thank our employees listening for their continuous hard work.

This concludes our formal remarks, I would like now to turn the call back to the operator.

Q&A session for the investment community. Thank you.

Thank you you May now press star one instead of a question.

You have a question from Chris Jones from Haywood Securities. Please go ahead.

Hey, good morning, guys, Ken I wanted to start with cash return. This quarter, you returned about 70% of your free cash flow, including dividend and the buyback and you've acknowledged you're planning to go ahead and complete the remaining authorization. So I'm curious about your capital return framework.

The return of about 100% of your free cash flow how should we how should we think about the pace and timing of dividend increases and is there a general passwords the base dividends or specials.

We're just wondering about your views on that.

Yeah. Thanks, Chris you know we have done a special in the past last second quarter, we did a special dividend really to manage our working capital we don't want to see working capital grow much beyond the $325 million to $50 million Mark.

So we used a special dividend to manage that.

The board does favor a regular dividend increases at this point versus specials. So you know going forward, we saw unique opportunity with our valuation to two.

The buybacks are completed earlier than the end of the year.

The board has a strategy session at the end of September and we'll look at other return of capital.

Frame ideas that we may have things, we can do we could increase the regular dividend essentially there or keep it in place until next year.

Talk about dividends when we announce our budget to the market, which typically is the third quarter.

You know release.

So that's kind of how we're thinking about it.

But as we the overall framework is a free funds flow from operations about two thirds of Capex. One third split you know assuming at $80 $90 per barrel of oil.

The current frame economic framework that we have today and then that one third of funds slowed that is 100% of our free funds flow that that goes back to the shareholder through a buyback or a dividend.

So that's how we kind of think of it today and most likely longer term.

Okay great.

And maybe if I could ask one more maybe this one is for Eric This regarding exploration and appraisal drilling here in Q3, just wondering when you expect results from some of those projects.

So we are kind of in the middle of the start of our testing here or in the middle of our testing on several wells the timing didn't work out for a fulsome release right now with our with our quarter end, but we do expect to complete most of the testing here in the next couple of weeks.

Okay, and then so results would be sometime in <unk>.

In September or that sort of leak into Q4, yes.

Yeah that would be ideal.

We'd like to provide an operational update as we get back to work here in the autumn.

Okay. Thank you.

Thank you as a reminder, you May press star one if you have a question.

The next question is from <unk> from <unk>. Please go ahead.

Yeah.

Hi, good morning, Thanks for taking my question.

First I wanted to go I had two questions your dining Kathy first of all.

We noticed that increasing commitments do for doing so.

So just curious if you were thinking of accelerating anymore extended time for a later stage and this mostly in connection with the recently awarded and you got in the 2021 bidding round.

Uh huh.

We couldn't catch the first question in respect of the work on the 2021 bid round blocks. We have started some permanent work on that.

Most of that work that it takes us about 12 months before we really start to kick off our capital on newly awarded blocks. So our.

Our focus right now is the blocks that were awarded in 2020 in 2019, 2021 where permitting and we hope to see some drilling on those blocks in 2023, which we'll announce our 2023 budget in November of 2022.

Would you repeat your first question Don please.

Yes, it was.

Regarding the increase in Canadian and U R.

And MD&A in page 20.

Looking with the numbers for the second quarter compared with the first quarter anytime marginally increasing commitments. So just quick just was curious.

This was due to some acceleration in exploration plans in Canadian dollars.

Sure.

But no that balance basically is all our commitments both for A&H or Colombian regulator awarded blocks plus our roca farming commitment deck patrol, which we'll start working on this year in the fourth quarter with a rig move against me a railcar.

Lots to commence drilling operations there and then it also includes some Pos blocks that get awarded.

We continue to work on work with the regulator and transferring commitments.

We've Columbia is very flexible in how you move your commitments are up but.

Some of the increase would have to be respected side blocks in 2021, but I wouldn't say anything was accelerated.

I think it's key to note that.

Increasing commitments doesn't impact our overall capital that we'll be spending will be able to fit it in with our existing capital framework.

Alright. Thanks.

And maybe just one last one regarding these 2021 beat inbound.

With regards to penta coming in and how do you see it.

Joseph potential risks.

Oh I didn't know what it blocks.

Any any potential changes that could come in from licensing or permits.

Just perhaps having a more clear perspective in terms of what are the next steps.

With this round.

Locks anywhere.

Yeah.

Thank you well the blocks are all signed.

So we're convinced we're moving forward on permitting work.

What we call EIA or environmental assessment work.

Right now Theres been no change in anything that we've seen so far.

They are announcing their vacate office I believe August 7th there'll be announcing their final cabinet members, which is a pretty key and then going forward, we'll start to see some policies.

They have not talked about anything about taking away blocks. They just said that they potentially it won't have any future bid rounds.

But we'll see where a key part of the industry.

As I pointed out were taxable in Colombia, so it's pretty much our existence because he being successful.

And we pay royalties in Colombia does you know combined if you look on a U S. Dollar basis parts itself will provide to the Colombian economy or government authorities.

700 million U S.

Its material so you know.

We like we like to tell them, what we hear so far as far as how they're looking at the approach with with business going forward and we'll just we'll see what happens here as they start to.

Rollout policy.

Okay.

That's very clear thank you very much.

Yeah.

Thank you.

As a reminder, you May press star one if you have a question.

Yeah.

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

[noise]. Thank you very much and that concludes our meeting.

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

Yeah.