Q4 2022 Parex Resources Inc Earnings Call
Speaker 2: you
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Speaker 1: All participants please stand by your conference is ready to begin. Good morning everyone and welcome to PowerX Resources fourth quarter 2023 conference call and webcast. Please note that at any time participants on the webcast can submit their questions under the ask a question tab at the top of the webcast.
Speaker 3: On the call with me today are Ahmad Moulton, Parks' President and Chief Executive Officer, Ken Pinsky, Chief Financial Officer, Eric Berlin, Chief Operating Officer, and Ryan Fowler, Senior Vice President of Exploration.
Speaker 3: As a reminder, this conference call includes forward-looking statements and non-GAAP and other financial measures with the associated risks outlined in our news release and MD&A which can be found on our website at cedar.com. All amounts discussed today are US dollars unless otherwise stated. Please go ahead Ahmad. often forget to turn on a red light when your monitor
Speaker 4: Thank you, Mike. Good morning everyone and thank you for joining us on today's call.
Speaker 4: I'm extremely pleased and proud of what our team has accomplished over the last year.
Speaker 4: Before I turn it over to Ken to provide an update on our financial results for last year
Speaker 4: I wanted to highlight some of the key milestones delivered during the year, which are progressing all three pillars of our strategy.
Speaker 4: First, we are delivering sustainable growth.
Speaker 4: through exploitation and implementation of industry proven, but new to Columbia technology such as horizontal drilling, synthetic drilling, fluid and water flood.
Speaker 4: This approach has translated to average full year production of over 52,000 barrels a day, which represented an increase of 23% per share year over year.
Speaker 4: We are also diversifying our portfolio into liquid rich fields.
Speaker 4: In 2022 we progress our strategic partnership with Eco petrol signing a memorandum of understanding to partner on 13 blocks along the outlook prolific hotel sent in the 2022 forgotE congressmanig intake on March 12.
Speaker 4: We are excited about this MOU which will allow us both to capture synergies and maximize existing infrastructure in developing gas volumes in the area.
Speaker 4: In addition to this partnership, we are leading development in liquid rich place in the Magdalena basin such as VIM1 and VIM4-3 where we also see world class resource potential.
Speaker 4: Lastly
Speaker 4: 2022 was an instrumental year in progressing high impact prospects within our exploration portfolio, including the 18 blocks we captured in late 2021.
Speaker 4: In December , we outlined the significant running room that now exists within PyXion's portfolio, which will allow us to drill a high-impact target every three to four months. We have successfully built a pipeline of opportunities that provide exposure to outsize returns and depth change growth.
Speaker 4: So the steps we took throughout 2022 have built the strategic foundation for sustainable growth to enable higher capital efficiency in 2023 and beyond.
Speaker 4: I will now hand it over to Ken who will discuss our full year results before I make some remarks on the current situation in Northern Nianos as well as the outlook for 2023.
Speaker 5: Please go ahead, Kim. Thank you, Emad.
Speaker 6: For the full year 2022, we generated record funds flow provided by operations or FFO of US $725 million.
Speaker 6: The full year 2022, we generated record funds flow provided by operations or FFO of US $725 million, which was up 26% in 2021.
Speaker 6: Now on an adjusted basis, fund slope from operations was $825 million US and in Canadian dollars that's over Canadian $1 billion.
Speaker 6: The $100 million adjustment during Q4 reflects the restructuring of our corporate organization for better operational and income tax efficiencies as we previously announced.
Speaker 6: FFO was higher in 2022 due to higher production volumes and commodity pricing seen throughout the year. With strong financial results and a very positive outlook, we continue to add to our industry-leading return of capital record.
Speaker 6: In 2022, we returned roughly 36% of our adjusted FFO to shareholders through dividends and share repurchases. Quite likely in 2017, that the def Russell DODt's
Speaker 6: Throughout the year we purchased 220 million US worth of shares to complete our fourth consecutive full normal process issuer bid or NCIB.
Speaker 6: And we brought our fully diluted share count to roughly 110 million shares at year end, which is a 33% decrease since 2017.
Speaker 6: Through the lower share count and our cash flow growth, we have grown the regular dividend from Canadian $0.12.50 per share per quarter to Canadian $0.37.50 per share per quarter as the board approved for our Q1 2023 dividend.
Speaker 6: For the remainder of the year, we plan to continue to utilize our NCIB to return free funds flow back to shareholders and we have already repurchased 1.6 million shares so far.
Speaker 6: Over the past five years, cumulatively we have returned Canadian $1.3 billion to our shareholders through dividends and share repurchases, which represents over 50% of the company's current market capitalization.
Speaker 6: In 2023, we plan to continue reinforcing our long-term capital allocation framework, which is to return greater than or equal to one-third of our total fund slope operations to shareholders and thereby target the return of 100% of our free cash flow to the shareholder.
Speaker 6: I would now like to turn the call back to you Matt for some final remarks.
Speaker 4: Thank you so much Ken. It's really hard to be upset about the highest income, cash distribution, and profits in our history.
Speaker 4: I now want to make some brief comments on our operations in Northern Indiana before talking about our outlook for 2023.
Speaker 4: In late January this year, we proactively shut in operations at our capacity block and halted drilling activities at our ARAUCA block. These decisions were not made lightly and these decisions were based on heightened security concerns in the area related to ongoing peace talks.
Speaker 4: Since that time, our team in Colombia has been actively engaged, engaging stakeholders at all levels, including community leaders, regional governors, ministerial executives, and security agencies to support a timely resolution. One of PERC's key differentiators and biggest strengths is our ability to build strong relationships based on mutual trust and respect with community stakeholders.
Speaker 4: Does this differentiator that has enabled perks to consistently succeed?
Speaker 4: in regions where others have faced challenges.
Speaker 4: and it is what makes me cautiously optimistic that a resolution will be achieved in the coming month.
Speaker 4: All of our facilities have been secured and are ready to be restarted and our communities are eager to return to work.
Speaker 4: Once it is safe for our employees and contractors to do so, we look forward to restarting our operation.
Speaker 4: In setting our production guidance this year, we proactively widened our raise to account for above ground factors such as what we're seeing in Capuchos.
Speaker 4: As well as increase our downtime contingency for the same reason
Speaker 4: Today, we remain comfortable with our annual guidance range. That being said, capacitors being shut in puts pressure on the top end of our annual guidance range.
Speaker 4: We do think that these short-term challenges are balanced out by the peace process taking place.
Speaker 4: which we will expect will drive stability in Colombia over the long term.
Speaker 4: excluding the shutdown situation I am excited about the opportunities coming from our portfolio
Speaker 4: Our base operations in Southern Nianus are delivering very strong results.
Speaker 4: We spot the Chermoia well, a high impact prospect in January . The well is making significant progress and is at roughly 12,000 feet right now and we currently expect preliminary results.
Speaker 4: in the second quarter.
Speaker 4: We are seeing great success at VIM1 with our gas cycling strategy, which is the first project of its kind for barracks.
Speaker 4: The use of gas cycling has already enabled us to double liquid production to 4,000 barrels a day growth.
Speaker 4: We see the potential to more than double that amount again and we are currently considering options to expand the facility. This is a proof of concept on how we will develop liquid rich gas fields such as Windford 3 and General Woodhouse.
Speaker 4: We see the potential to more than double that amount again and we are currently considering options to expand the facility. This is a proof of concept on how we will develop liquid rich gas fields such as Windford III and the Jansfitt foothills so it's very important for barracks.
Speaker 4: With all of this upside, we continue to view Colombia as the number one place to invest capital. Based on the opportunities that are in front of us and the robust risk reward profiles, we see that rivals any other jurisdiction I know in the world. Following a successful year in which we delivered the highest earnings in our 12-year history, I want to thank our employees in Calgary and Colombia.
Speaker 4: and I am excited about what is to come for 2023. I would also like to take the time to thank our shareholders for their continued support.
Speaker 4: This concludes our formal remarks. I would now like to turn the call back to the operator to start the Q&A session for the investment community. Thank you all.
Speaker 4: This concludes our formal remarks. I would now like to turn the call back to the operator to start the Q&A session for the investment community. Thank you all. Thank you. We will now take questions from the telephone lines.
Speaker 1: Please press star 1 at this time if you have a question.
Speaker 1: There will be a brief pause while participants register for questions. We thank you for your patience.
Speaker 1: Our first question is from Adam Gill from Paradigm Capital. Please go ahead.
Speaker 3: Good morning. I have three questions about CAPACCHO's given the success late last year completing the Mirador formation. So first off, what's your best estimate when production can be restored in the field as well as completing drilling of the Eroka 8-well to the north and do you expect protest interruptions in this area will be more problematic than in your other blocks?
Speaker 6: Good morning Adam, it's Eric Ferlin here. As we outlined in the statements, we are working actively in the area trying to resume operations. We are ready to resume operations as soon as we feel security is at a point to bring our employees in. All the equipment is there so we can resume drilling.
Speaker 6: in Araujo and mobilization of equipment immediately as soon as that happens. The same with production. Now bec...
Speaker 1: All participants, please stay on the line. The moderator will be back shortly.
Speaker 1: I'm so sorry for the interruption. So the moderator is back in the call. So you may proceed.
Speaker 6: Okay, so I don't know, Adam, if you heard any of my response, but let me try again if we did get cut off. The main point in the Northern Janos is all the equipment is there, all the facilities are ready to start up. The second we find the security situation acceptable, the Parx.
Speaker 6: We will resume operations and as we said, we expect that to happen during the quarter and things are advancing in the area. From our perspective in 2023, it hasn't changed our plans. We are still really excited about the area.
Speaker 6: We see these as some growing pains in the area, given some of the changes in Columbia, but it hasn't changed our overall outlook on the potential and the excitement we have for the area.
Speaker 1: Thank you. So once again, please press star 1 at this time for any questions or comments. And we do have Adam Gill for Parading Care.
Speaker 6: That expansion, which was really gas handling and ability to increase our gas capability was nearing completion. It will delay it for the amount of time that we are shut in, but we don't expect anything further beyond that.
Speaker 3: Okay, sounds good. And then lastly, what's the pace of timing for additional Miradore re-completions over 2023 and 2024?
Speaker 6: You know, we'll look at them as a need to add scenarios. So we have a certain, after this next facility expansion, we're going to be in the 7,000 plus net range for capability. And then we will re-complete, we have multiple wells that we can re-complete in different zones. We're going to be doing some of that testing immediately on some of the wells that are currently not active. We don't, sorry.
Speaker 6: But we will add those in as we need to be to keep the facility full.
Speaker 3: Okay, sounds good. I'll pass it back to the operator.
Speaker 3: Sounds good. I'll pass it back to the operator. Thank you.
Speaker 1: So once again, ask all participants to again press star 1 if you have any questions or comments. Our following question is from Anthony Lanton from Barclays. Please go ahead. If you have any questions or comments, please go ahead and press star 1 if you have any
Speaker 3: Hey guys, thanks a lot for taking my questions this morning. I just wanted to get an understanding. So production right now is just under 51,000 BoEs. Can you, you know, how do you sort of think of production coming back online, whether it's later this quarter, early Q2, and then how you kind of see production trending through the year and what are the sort of different levers that could see a trend towards the lower higher end of the range?
Speaker 6: Thanks for the question. Yeah, as for production as we go forward, we're roughly in the 51 range for Q1, but as we noted, we also have 3,000 to 5,000 barrels a day net coming on, either this week or this week.
Speaker 6: or in a very near term. And that really is driven by Roomba, VIM1 expansion and Block 34. So, you know, we see ourselves being into the guidance range of 57 to 63 in Q2 with quarterly growth throughout the rest of the year.
Speaker 3: Gotcha, okay that's helpful. And then maybe just on Kia ora, can you just remind us of the potential upside associated with your high impact targets?
Speaker 7: Morning, Tony. It's Ryan Fowler. Good morning, Tony.
Speaker 7: We don't typically talk specifically about the size of targets.
Speaker 7: on our prospects but Chirimoya is a very large four-way closure that has significant resource potential and it would be the largest prospect currently in our portfolio.
Speaker 7: So we're very lucky to be able to get on that early in the process here.
Speaker 7: We're 12,000 feet down, so we've done a lot of the heavy lifting already in this well. And now the next 6,000 feet is going to see us drill through three different reservoir targets.
Speaker 7: So we've done a lot of the heavy lifting already in this well. And now the next 6,000 feet is going to see us drill through three different reservoir targets. So that's all going to happen in Q2.
Speaker 3: Okay, got it. Now that's helpful. That's it for me. I'll turn it back. Thanks.
Speaker 3: Okay, got it. No, that's helpful. That's it for me. I'll turn it back. Thanks Thank you.
Speaker 1: And once again, please press star 1 at this time for any questions or comments.
Speaker 1: The following question is from Conrad Berresnicki from Peters and Co. Ltd. Please go ahead. The following question is from
Speaker 3: Good morning everyone. I was just wondering with respects to shareholder returns how you balance or think about increasing the base dividend versus share buybacks and then maybe further to that point what metrics do you use to determine your shares are undervalued and buybacks make sense.
Speaker 8: Hi Conrad, it's Ken. Good question and thank you. You know, with any company that pays a regular dividend, the board would like to see that regular dividend to grow.
Speaker 8: So, you know, over the last 18 months to two years we have grown that regular dividend, as I suggested or noted in my little campaign, by over two times or three times now.
Speaker 8: And we'll continue to look to grow that regular dividend on a prudent basis because it has to be, as you know, sustainable in different commodity price scenarios and different protection scenarios.
Speaker 8: Therefore, the focus is on the regular dividend with the buyback then making up the rest of our free cash flow target and returning back to the shareholder 100% of our free cash flow.
Speaker 8: At commodity prices at $80 and above, we look to be able to do a full 10% buyback as well as pay that 37.5 cent dividend which is up from 25 cents the previous quarter.
Speaker 8: Is that an answer to your question?
Speaker 3: Yep, no it does. And then just the last question, you talked about the potential expansion of VIB1 with La Beliza and the gas injection. Is that something that we could expect later in the year or is that more of a 2024 timeframe?
Speaker 6: We're working on that right now during the final facilities design. We've got compressors already on order so timeline would be kind of end of this year to do the expansion. It's really facility related at this point. We have more than enough injection and production capability to double our current operation. We'll talk talks real quick after the finalChange ofpers italics isn't the lungs point to last one.
Speaker 6: So we are doing things two fold. One, optimizing what we currently have, how much more can we get through the system, and then moving forward with an expansion.
Speaker 6: to at least double and we're evaluating crippling the facility.
Speaker 9: That's all the questions I have. I'll pass it back to the moderator. Thank you,
Speaker 1: Thank you. Our following question is from John Fender sizing shareholder. Please go ahead.
Speaker 10: Good morning and thanks for taking my question. It's actually Jan van der Weerst's and I know it's hard to pronounce.
Speaker 10: I was just curious to obtain more information about the consequences and effect on the company of the tax reforms which will become effective from 1 January .
Speaker 8: I can take that call. It's Ken, the CFO . In our MD&A page 21-22, we talk about the tax reform and the impact. To summarize, our effective tax rate this year, if I look at...
Speaker 8: After tax, which are funds flow from operations, which is on an after tax basis, and our tax bill was around 23%. And going forward into 2023, with some of the planning we've done, we're looking at an effective tax rate at current prices of around 23 to 27%. So a little bit of change potentially, but not as significant as what was first talked about.
Speaker 8: depend upon your reserves, your capital spent and commodity prices.
Speaker 4: So I hope that gives you some color there. And Jan, let me add to this that your name sounds very Dutch to me, so not difficult to pronounce at all. Thank you very much.
Speaker 4: And Jan, let me add to this that your name sounds very Dutch to me, so not difficult to pronounce at all. Thank you very much. Thank you.
Speaker 3: Thank you. Our following question is from Mike Murphy from BMO Capital Markets. Please go ahead. Yeah, good morning guys. I think Eric answered my first question, but relating to the disruptions in the Northern Yanez, with the ELN having a bigger presence near your ARAUCA block relative to Capaccio's. Yeah!
Speaker 3: Do you think there's a chance you'll be able to get Capaccio's back online before you resume drilling out of Raucha or do you think this will happen simultaneously?
Speaker 4: I think there is a likelihood it happens indeed, that's a very good point. The driver for assuming operation in our experience has always been the more economic activities you have in an area, the more the population is pressing to go back to work and to have good business. Thank you Distribution Program.
Speaker 4: Capaccio has much more of a base of operation and people at impact than Arakkah where we just started. We just started the world. So both that and the different concentration of ELN would let me to know maybe you'll get Capaccio first and a couple of weeks later Arakkah. Any thoughts on that part?
Speaker 11: Okay, that's great, Color. Thanks. Thank you.
Speaker 1: Once again, please press star 1 at this time for any questions or comments.
Speaker 1: And we have no further questions registered at this time. I would now like to turn the meeting back over to Mike.
Speaker 6: Thank you very much, operator. This concludes our Q4 conference call. Please feel free to reach out to PARCS if you have any additional questions, and have a great day.
Speaker 1: The conference has now ended.
Speaker 1: Please disconnect your lines at this time and we thank you for your participation.