Q2 2022 Frontera Energy Corp Earnings Call
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Good morning. My name is Samara and I'll be your conference facilitator today. Welcome to Frontera Energy's second quarter 2022 operating and financial results conference call.
All lines are currently on mute to prevent any background noise.
This call is scheduled for 60 minutes. I would like to remind you that this conference call is being recorded today and is also available through audio webcasts on the company's website.
Following the speaker's remarks, there will be time for questions. Analysts and investors are reminded that any additional questions can be directed to the company at ir-at-frontier-energy.ca.
This call contains forward-looking information within the meaning of applicable Canadian securities laws relating to activities, events, or developments the company believes or expects will or may occur in the future.
Forward-looking information reflects the current expectations, assumptions, and beliefs of the company based on information currently available to it.
Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance.
Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information.
The company's MD&A for the quarter ended June 30, 2022, and the company's annual information form, dated March 2, 2022, and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions, and other factors that could influence actual results.
Any forward-looking information speaks only as of the date on which it was made.
And the company disclaims any intent or obligation to update any forward-looking information except as required by law.
I would now like to turn the call over to Mr. Gabrielle de Alba, Chairman of the Board of Frontera Energy. Mr. de Alba, please go ahead.
Thank you, operator, and thank you everyone for joining today's conference call to review from Terra's second quarter 2022 operating and financial results.
Joining me on the call are Orlando Cabrales, Frontera's CEO , and Rene Burgos, Frontera's CFO .
Renee was appointed at Frontera CFO on June 3, 2022.
Prior to his appointment as CFO , Bernice served as Director on Frontera's board since 2019.
Renee is a financial markets executive with over 20 years of experience in investment management leverage finance
restructuring, and financial advisory expertise across multiple industries and geographies, specifically in Latin America.
We are fortunate to have such a qualified candidate in Renee to fill this important executive leadership role.
I would like to also emphasize that Renee has already made a very positive impact to the company.
Ernesto years as a key member of Frontera's board, including his participation in Frontera's audit committee and compensation and human resources committee, have helped give him key insights into the company and its financial structure.
and has already allowed him to seriously excel in this critical role.
where Nate clearly understands the shareholder's perspective and will continue to work with the board of directors and the company to unlock value.
Also available to answer questions at the end of the call, we have...
Victor Vega, VP, Field Development, Reservoir Management and Exploration.
Alejandro Bonilla, General Counsel.
Ivan Arevalo, VP Operations.
and Renata Campagnaro, BP Marketing, Logistics, and Business Sustainability.
Thank you again everybody for joining.
From there, continue to perform ahead of plan.
substantially delivering on its financial and operational objectives in the first six months of 2022.
The company also extended its track record of ESG delivery and focused on enhancing shareholder returns.
through the ongoing normal course, E-Share Bead, Share Buyback, and the 65 million Canadian substantial E-Share Beads.
Subsequent to the quarter, Frontera announced a transaction with CX that, once the transaction closes, will provide an increase in the company's working interest in the current time block in offshore Guyana to 68 percent and secure funding of up to $130 million for the joint venture's second expiration well. We won.
which is anticipated to be spot in October 2022.
We're doing this work in one of the most exciting exploration bases in the world.
In light of the company's strong operational and financial performance in the first half of this year and the momentum the company expects to carry onto the second half of the year, Frontera is.
tightening its 2022 production guidance to between 41,000 to 43,000 barrels per day, and increasing its operating EBITDA guidance to between 675 million to 700 million as a result of an increase in the assumed brand prices at 100 per barrel.
Frontera looks forward to advancing its existing inventory of development and exploration opportunities in the sacred house of the year.
I'll now turn the call to Orlando Cabrales, Frontera's CEO , and our CFO , Renee Burgos, who will share their view on our second quarter results.
Please, Orlando.
Thank you, thank you, Gloria, and good morning everyone, and thank you for taking the time to join us this morning.
I'm very pleased with Frontera's strong financial and parental results in the second quarter of 2022.
Compared to the first quarter of this year,
We increase production by 1%.
to 41,586 BOE per day.
We improved our operating netback by 16%
$68.01 per BOE
We increase our net sales, realized price.
By 12%
90 dollars 50 cents per BOE.
We grew our cash provided by operating activities by 114%.
to $246.6 million.
Are we generated?
$190.7 million in EBITDA. The last time the company delivered this level of EBITDA was in the fourth quarter of 2015.
This is the fourth consecutive quarter of growth in this important matrix.
For the production site...
We increased natural gas production by 9% to just over 10,000 MCF per day.
In line with our ESG objectives,
and on August 1st achieved a daily production record for the CP6 block of over 5300 BOE per day.
In Ecuador, we saw our first production in May and June of more than 28,000 net barrels.
We continue to focus on reducing costs across our portfolio.
Despite inflationary pressures, production costs average
$12.65 per BOE in the second quarter.
down 6% compared to the prior quarter.
The decrease in production costs was mainly due to quarter over quarter decreases in well service and activity as well as lower energy prices.
Transportation costs averaged $10.84 per BOE in the second quarter.
up 11% compared with the prior quarter.
The increasing transportation costs was mainly due to additional volumes transported in Ecuador through the second quarter.
as well as the initiation of the Vicente Nario timeline taken
and to lower costs during the prior quarter due to non-recurring savings related to the central take-or-pay contract.
Overall, the company believes it will reduce operating costs in the second half of 2022.
due to lower energy costs and plant reduction in world services activities.
The company rates its 2022 cost guidance.
including production costs of between $11 to $12 per BOE.
and transportation costs of between $10 to $11 per VOE.
On the investment side,
We continue to unlock opportunities within our portfolio with three new successes during the quarter in Guyana at Cabo 1 and in Ecuador at Gin 1.
In Colombia we began pre-cycling and pre-trilling activities.
related to social and environmental impact studies in anticipation of upcoming exploration activities at the BIM 2022, sorry 2022.
BM46 block
Janus 99
JAMOS 119 and CP6 blocks in the second half of 2022 and the first half of 2023.
And in Guyana, we recently announced a transaction with CTX.
that increases our working interest in the blog and secures up to $130 million in funding for the Wave 1 exploration blog.
As a result, we anticipate increased total capital expenditure for the year of between $435 million to $495 million.
Finally, I would like to highlight that during the second quarter we will have our 2021 sustainability report.
which details the achievement of 98% of our 2021 ESG targets and includes our 2022 ESG goals.
Speaking of 2022 objectives, in the second quarter we neutralized 52% of our total emissions in Colombia.
Additionally, the company reduced its CO2 emissions in the second quarter by 31,000 tons.
of CO2 and 69,160 tons in the first half of 2022.
Frontera CO2 decreased in the first half of 2022 is a reduction of approximately 12% of Frontera's total 2021 CO2 emissions.
I would now like to turn the call over to René Burgos, Bonderas Chief Financial Officer.
Thank you, Hernando. I'm very excited to join from the Zetas Executive Team, and I'm pleased to be here for today's call with all of you.
Look forward to connecting with all of you in the near future.
Complementing what Gabrielle had said earlier, from Zeta continues to deliver on its financial targets and objectives.
The company finished the quarter with a strong balance sheet.
and healthy credit metrics, including low LPM leverage of 0.3 times.
The company generated over $246 million in capital operations during the second quarter, benefiting from the very strong WordPress environment.
During the quarter, the company also continued to strategically deploy capital, investing over $70 million in exploration, production, and development facilities in Corangne, Ecuador.
funding 41 billion in debt service obligations including our final $20 million payments under a million-dollar contribution.
We are turning $20 million to investors via the NCEP program.
and investing 20 million in our potential transformative exploration opportunity in Louisiana, just to name a few of our investments.
Class of June 30th, the company closed with $353 million in cash, including restricted cash.
A $30 million dollar increase from the paracorder.
Consistent with our commitment to enhance shareholder value, during the quarter, for our launch, a 65 million Canadian substantial issuer bid.
ACID flows the SIB, preceded by way of a modified Dutch auction procedure, with a tender price range from $11 to $13 for sure Canadian.
The SIB expires on August 8.
Preliminary results indicate a tender price of $12 Canadian per share.
Frontera expects to pick up and pay for 5.4 million shares or approximately 5.8% of the total number of Fronteras issued and outstanding shares as of June 30.
After the cancellation of the shares taken up and paid, from there anticipates that the median shares ascending will now be 87.2 million shares.
Final results of the SMD will be confirmed by press release. Tomorrow, we also expect to initiate our NCID program today.
People heavy over back.
To Orlando for his closing remarks, I would like to take a minute to touch on certain recent events.
On August 8th, the incoming government introduced a new tax reform bill.
Several aspects of this new legislation include proposals impacting the oil sector, such as a high price, expert tax on crude oil sales, as well as other adjustments to the tax code.
We are currently analyzing the potential impacts of the proposed tax bill on our business and we will keep the investors updated on the potential impacts from this legislation as it develops.
I would now like to turn the call back to Orlando.
Thank you, Rene, for sharing your thoughts. Looking ahead to the second half of the year, Frontera has a healthy balance sheet, a sizeable amount of cash on hand, and a total of $2.5 million.
No death balances, no leverage.
And we continue to manage operating costs during a time of rising inflationary pressures.
We remain on track to optimize capital efficiency and free cash flow after developing CAPEX.
We will maintain a strong capital discipline and a targeted investment approach.
With that, I would like to conclude by saying thank you to Gabriela and Danez for the comments and thank you everyone for attending our call.
I will now turn the call back to our operator who will open the call to ask for questions.
Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad.
If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star 1 to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we'll take our first question from Roman Rossi with canicord genuity. Please go ahead.
Good morning and thanks for taking my questions. Congratulations on these good results. So I have a couple of questions. I know that you mentioned that you are still analyzing the impact of the tax reform, but I wanted to ask you, what's the percentage of production that you actually export?
We export 92% of our production.
Perfect. And regarding the other issue there, it's non-disruptibility of royalties, right? So
how much of your royalties are paid in cash because it seems that only those royalties will be impacted by other coordinator their social media.
on this. I will call.
Well, as René said, we are analyzing the proposal coming from the current government.
And I would say that there are a couple of comments on that. The first one is...
It is a proposal, it has to go through Congress.
So there is going to be a debate within Congress in volume two or three months.
That is study number one. Number two, the two proposals that may have an impact on the oil industry
is the first one is what they call the export tax.
which basically tries to capture the upside in the oil prices.
And the second one is the non-doubtability of royalties in the income tax of companies, which has applied in Colombia for a couple decades.
So those are the two proposals addressed to put it away to the oil sector.
So we will see, we are analyzing that. We will be very on top of the discussions in Congress through our participation in the different trade associations, in the oil and gas trade association, in the business trade association, which is the largest one in the country. So through these associations, we will be actively participating in that. And maybe the last comment I would make is...
is that the oil and gas sector has already
what we call in Colombia a high price participation formula in the contracts, not only with AMH, but also with the Cope Teatro, whereby we pay in cash or in kind that high price participation formula, the price by which that formula is triggered is around $48, $50, which is the one that the government is proposing. So we have already that.
That is already in place in Colombia. So the discussion will be coming and we will be on top of that. And, Roman, just to perhaps answer your point directly, if you go to our mDNA, and I'll point you to page, I think, it's six, we break down our PAD cash and PAD in-kind, so you get a sense of your question of how much is paid in-kind versus in cash.
Okay, thank you. Thank you very much. And just an additional one. I see that on your updated guidance you are also increasing the development drilling topics.
So, where are you expecting to deploy this development?
additional topics.
That is mainly driven by the waveform welding in Guyana.
And also some development in CAFEX in Colombia which is associated with additional activity in the CP6 block. I mean there have been very good results in the CP6 block recently as we disclosed it, as we announced it. We have record production in the CP6 block so there is additional drilling activity in the block. Thank you so much.
Okay, thank you very much for taking my questions and congratulations again.
Thank you, Rohan.
We'll take our next question from Oriana Koval with Belong. Please go ahead.
Hi, good morning. Thanks for taking my questions. First, I wanted to point out if you could comment more on the production figures for this quarter. They seem to have come in flat with respect to first quarter, so just to understand what drove this and how should we expect production going forward given this time production guidance. Good.
I think the only thing I would say, Orellana, for your question is yes, it is at 1%.
So that is good. And I think the message to the market is that we are tightening the range in our production guidance. So that gives you an indication of where we are going in terms of production for the whole year.
And maybe follow up with regards to the capital budget. We noticed this increase in development activities and exploration more precisely in Columbia and Ecuador. So just to confirm, would it be a change to the initially budgeted wells, the 65 development wells, or are you seeing also some inflationary pressures driving these higher development calamities?
Certainly, the flash operations are there. We are part of the market and we are experiencing that.
As I said, we have been very busy in terms of CAPEX management as well as our cost-based structure.
So we are handling that situation, tackling that, so we hope to keep that under control, but certainly the pressure is there.
But the increase, I mean just to reiterate what I said earlier, is that the increase in the development coverage
Fort Columbia is mainly driven by that additional gate.
Got it, perfect. And just one final one from my side. We noticed this change in the mid-stream revenue and it certainly was an impact with respect to last quarter. So perhaps if you could comment a bit more what should we expect in mid-stream revenues for the upcoming quarters.
Your question is revenue is related to the midstream.
Yeah, because we noticed a significant decrease. It was compensated with higher intercompany, but just to understand what drove and I understand there are some changes going on in the midstream segment, so if you could clarify how should we expect this to go in forward.
So I was going to highlight that the main difference from this year to prior years, particularly in this stream, was from there, because of the financing had a peak or pay contract that peak or pay has no last.
And I think the numbers you're seeing now, particularly as it relates to the port, are more traditional for a stand-down port operation for ongoing business. We should expect increasing revenues as the port continues to operate.
You know as you know the port that we have in Porto Aella is the largest handler of you know I don't know a court you know sort of cargo We're focusing on expanding our capability from the drive port and also increasing volumes related to the to the liquid port as we discussed in earlier calls, but the I would say that the numbers now
are driven mainly by, you know, a that reduction of activity related to the take or pay contractors. That is correct, Rene. I mean that is basically the elimination of the take or pay contract that Trontera has with Porto Aías. But just to highlight what Rene said, is that we are taking several actions, several initiatives.
to make the Puerto Ayala business a self-sustaining business going forward. So there are I mean some initiatives, very important strategic initiatives going on to make that self-sustaining. So nothing to report at this point in time, but we are working on that.
Thank you very much for taking my questions. Congratulations for the quarter.
Thank you.
And as a reminder, itís star one to ask a question. Weíll take our next question from Mathias Lesnick with Fundamentals. Please go ahead.
Hi, good morning. Thank you for taking my question. I would like to ask about two topics. The first one is about the increase in the CapEx items. It's just, I want...
to understand whether the
What's driving increasing development in the development building because it's showing a 25% increase and you're saying that because of an increasing
in drilling activity, but how many new worlds are you planning with this CAFEX number and how much of that increases is inflation?
One second.
I would say Matias.
The second complement here is, as I said before, the addition in the dibbonomic cap is mainly treated by data as a traditional activity in CP6.
We are creating five additional walls in CP6.
And in terms of the inflationary pressures, as you mentioned, we are keeping the same Ch harb then refuel our mates, coming up Kitchen Washington in 30 seconds, I'm
that we had before in our operation. So that has mitigated the impact of hydro rates in the market that you can see today. So the continuation of the campaign with the same risks has helped us to navigate through this inflationary process.
How are you seeing the CABEC inflation for the next year?
We have a question for next year. Look, I think that this is a very timely question.
Right now we are communicating with our suppliers and having structured discussions about how to one, minimize overall cost and also optimize the logistics that we're looking to put in place. So I think it's...
We do that through master service agreements, standby rigs, just so that we can also mitigate any cost. I mean, we're a player in the market. We are seeing some pricing sessions for next year. I think it's too early to tell. And we will communicate or update you guys on guidance on costs. But what I would say is that to this year, we're reiterating our capex guidance, updating our capex guidance, and reiterating our costs, operating costs and transportation at the levels that we have prior. And I would highlight, Renada, this year. And I would highlight this year, the Hostos Network Committeesuptas by the Nously shrouditing algorithm, which lets you create
We are starting earlier than other years our planning process for the following year. So, and the rationale for doing that is exactly that one. I mean try to mitigate the impact of the inflation that we are seeing in the market.
Orlando and Rene, I would like to, this is Gabriel D'Alba again, I would like to emphasize that indeed management has presented well ahead of plan and the board is working already and has provided approvals to management so that we can already schedule and contract what will be a capx for next year. Therefore we are limiting potential increases by acting early.
Exactly, that is correct, Gabriel. Okay, thank you. Just one last question on my side. How many shares are remaining to be bought under the NCID program?
How many shares are remaining? I have actually half of them here. You said, yes, we have the number here. It's 10% of the total. It's less than total, but we already bought a power. I don't know, Brent, if you're on the line, if you can answer that question, because I know you have the number on the top of your head.
We've repurchased about 2 million shares. We have about 3 million, a little bit less available to us under the NCIB.
Okay. Thank you very much.
Yes, yes, thank you.
that will be that will be only on NCIB
Certainly as the board and management look at the cash, we can also consider other alternatives.
Okay, thank you.
At the reminder, it's star 1 to ask a question.
It appears there are no additional questions at this time.
Okay, thank you, thank you, operator, and thank you for attending the call.
Thank you.
And this concludes todayís call. Thank you for your participation. You may now disconnect.
Thank you for your participation. You may now disconnect.
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