Q4 2023 Frontera Energy Corp Earnings Call
[music].
Good morning, My name is Lee and I'll be your conference facilitator today.
Welcome to front ore Energy's fourth quarter and year end 2023, operating and financial results Conference call.
All lines are currently on mute to prevent any background noise I would like to remind you that this conference call is being recorded today and is also available through audio webcast on the company's website.
Following the speakers remarks, there will be time for questions and.
Analysts and investors are reminded that any additional questions can be directed to front. There following todays call at IR upfront era energy dossier.
This call contains forward looking information within the meaning of applicable Canadian securities laws relating to activities events or developments. The company believes are expect real or media here 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.
Looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially.
That was discussed in the forward looking information.
The company's MD&A for the quarter ended December 31, 2020, and the company's annual information form dated March seven 2024, and other documents filed from time to time with Securities regulatory authorized authorities described the risks and uncertainties material assumptions and other factors that could.
<unk> actual results.
Any forward looking information speaks only as of the date on which it is made and the company disclaims any intent or obligation to update any forward looking information, except as required by law.
I'd now like to turn the call over to Mr. Gabriel de Alba Chairman of the board upfront there are energy Mr. Dealba. Please go ahead.
Thank you operator.
Morning, and welcome to from Paris, fourth quarter and year end 2023 earnings call.
Joining me on today's call.
Although this gabriele.
<unk> CEO.
If all goes well.
April.
Also available to answer your questions.
The end of the call.
Yes.
Victor Vega.
Field development work.
Blood management and exploration.
Has that would need yet.
Council.
Hello.
Operations.
Yes.
VP marketing logistics and business sustainability.
Thank you for joining us.
Well, Dan successfully achieve strategic capital.
Two targets that goes on.
<unk> core businesses in 2023.
It is Colombia, and Ecuador resulted in business.
Company delivered average daily production of over 49.
900 barrels of oil per day.
In light <unk> production.
Production guidance.
<unk> also generated operating EBITDA.
67 million at the higher end of guidance for 2020.
Our value center approach resulted in closing the year with a strong balance sheet.
Low leverage on our solid cash position.
Standalone ongoing infrastructure Columbia business.
This segment delivered strong results.
Reiterating the full year.
Adjusted EBITDA of $180 million and received 47 million and capital distributions from OBL.
If you're breaking ground soon we remain focused on development of the connection between the sooner you get it at the Hana with regard.
Further by yes, liquids terminal, which we expect will importantly increased throughput volumes drove liquid fourth on broad economic growth for the company in the Bay area.
So there is interest in building pipeline and important to buy yet.
A unique standalone infrastructure business provide shareholders with significant upside potential.
<unk> exploration business.
Tara and its joint venture partner <unk> energy continue to active effort in pursuing the strategic options, including a potential farm down to develop we think that the current <unk> block in El Sheikh again.
Following the announcement of a secret oil discovery in the <unk> block.
Data rooms open label.
Thermal management presentations have been completed.
Other ones are ongoing.
Looking ahead.
The significant maturing asset.
<unk> production.
Capital plan on some balance sheet position the company to deliver its 2034 objectives and drive value for shareholders from its three core separate businesses.
Reported rates of going to NPV program, and recently initiated dividend program for.
<unk> remains committed to enhancing shareholder return.
Although more the company.
We continue to consider future shareholder initiatives in 2024 and beyond.
Including potential additional dividend distributions or bond buybacks based on the overall results of our business and the company through strategic goal.
I'll now turn the call over to Ludwig.
From the CEO.
Paul <unk>, who will share with my views on our fourth quarter and full year results.
Endo.
Thank you. Thank you Gabriel good morning, everyone and thank you for taking the time to join US This morning.
We are going to present, a few slides to help us facilitate.
The understanding of the of our remarks.
Let me clients, we want strong financial and operational year for data at.
As the company continue to take steps to deliver additional value to shareholders.
In our Colombia, and Ecuador upstream onshore business.
We deliver average daily production of.
For 2919 Boe.
To date, we have.
The increase in our <unk> crude oil production of 9% year over year.
I'm also pleased with our continued efforts to be begin we manage our cost structure.
Despite the inflationary pressures.
River production costs transportation costs and capital expenditures within our 2023 guidance.
In total we safely and responsibly executed $285 million in capital expanding across our Colombia, and Ecuador upstream onshore business.
In 2023, we drilled 65 development wells.
Including two injector wells.
The key file CPC.
And Korea to blocks and completed 73, well integrations.
We advanced our re commissioning efforts.
Our reverse osmosis water treatment facility for Cooper.
By the end of 2023 drunk at process John.
On the 21 million barrels of water.
The commissioning program for.
For widely irrigation source water to frontera nearby per hour downloads.
<unk> oil plantations.
At the year of 2024, we successfully completed the pilot phase of this RF recycled withdrawal.
The company intends to invest in the commissioning of the first phase of the project.
As indication space.
Reach a minimum of 250000 barrels of water per day available for the key fault block.
Subject to final JV approval.
Targeting additional net production of up to 3000 barrels of oil per day, one target water levels on rich.
Additionally, Additionally, the company invested in the expansion and improvement of development facilities at CP six.
<unk> doubled our water handling capacity to 240000 barrels of water per day.
In 2024, we plan to further expand our water handling capacity for the block three.
360000 barrels of water per day.
These efforts will continue to support future production growth at the block.
Turning now to our 2023 year end reserves our.
Our commitment to value over volumes in our upstream, Colombia, and Ecuador business.
<unk> needs to deliver results as we close the year with about 109 million on 160 <unk>.
Bo.
India lumpy and Poopy gross reserves respectively.
We achieved our three year average gross reserves replacement ratio.
So 400 around 4% or lumpy reserves.
79% for two P reserves.
While maintaining our reserves life index for seven three years for the <unk> reserves.
In 11 years.
<unk> reserves.
The net present value of our <unk> reserves before tax and.
And discounted at 10% at December 31.
23.
<unk> estimated at $3 billion before tax or 'twenty one.
Be well.
Sure.
Notably the A&P pain.
<unk> increased by 2%.
As compared to 2022, driven by operational efficiencies.
And reduce future development costs and despite a decrease in the forecast oil price.
<unk>, we successfully replaced close to 100% of the blocks to be net reserves.
Reaching another.
While <unk> production record from the block of approximately 6200 Boe per day.
In Ecuador.
We increased we increased our <unk> reserves by close to 4 million barrels for a total of $4 seven medium.
Yes.
We expect to continue building on our recent wins in that world.
For 2024, we will invest $35 million to $45 million in exploration opportunities.
In Colombia, we expect to drill.
Impact hydro one exploration well.
In the second half of the year.
While in equity award, we will drill two additional wells in the <unk>, our non operated block with our JV partner geopolitics.
Additionally, we are also advancing three drilling and seismic investment.
Our <unk> 46.
<unk> 99, and John was 119, which we expect to drill in 2025.
We believe these near field exploration opportunities.
We load our reserves.
Setting us up for future growth.
In our Standalone and <unk> infrastructure business.
Transported over 200 243000 barrels per day.
Generating $285 million.
<unk> EBITDA.
<unk> generated approximately $20 million in 2023 EBITDA and.
Keith two significant amongst others.
The successful refinancing of the old legacy project finance debt.
And the signing of declination in agreement with Comerica.
During the first quarter Frontera anticipate breaking grounds.
On the connection.
With data how secure an additional $30 million in committed funding subject to certain conditions precedent in connection with these projects from existing group of lenders.
Led by Macquarie Group and expect connection a stockpile by the end of 'twenty 'twenty four.
For the full year, our infrastructure segment generated an adjusted <unk>.
<unk> EBITDA of $120 million.
<unk> hundred $54 million in segment cash flows from operations, including $47 million in distributions from ONEOK.
The strong profitability and cash flow generation capacities capacity of our stand alone and growing infrastructure business.
In our potentially transformational Guyana exploration business.
We successfully completed wave one the second well of our two well program.
We believe that approximately 500 to 600 million of E on.
With <unk>.
<unk> prospective resources are present in multiple <unk> in the northern portion of the current diesel.
We continue to work with our our advisors and exploring potential strategic alternatives, including a potential farm down.
Before turning the call over to Rene I would like to take a moment to its cost for in theater.
A strong sustainability performance in 'twenty three.
We achieved 100, 108% of our 2023 ESG rules.
We began operations of our first solar farm or a courtyard in December.
We expect will reduce CPC oil power consumption and offset 50% of the blocks its scope one emissions.
We have almost one quarter of the year in the books, we remain focused on executing our recently announced capital and production targets and continuing to deliver a strong operation.
Operational and financial resort results.
Maximize shareholder return.
I would now like to turn the call over to renewables rotate us CFO.
Thank you Wendell and thank you everyone for joining us today.
I'd like to take a moment to highlight a few key financial aspects of our full year results.
For the full year the company recorded net income of $183 million.
Our $2 27 per share.
The company's full year net income included operating income of $154 million.
Income from associates related to our audio investment of $53 million.
<unk> related to our hedging activity for $19 million.
Partially offset by net financial expenses of $45 million and income tax expense of $4 million.
During the year the company benefits from a deferred taxes of efficient helping reduce its overall package closure.
We will touch base again ended a little bit later.
Operating EBITDA for the year was approximately $467 million.
On the higher end of the guidance range presented for 'twenty three.
This was primarily as a result.
Better.
Better Brent oil prices as compared to in the budget.
Partially offset by higher differential.
Higher than expected production related energy costs unknown participant is now exiting.
Yes.
Okay.
Drilling down on our operating costs.
Our production and transportation cost per barrel for the year totaled $13 and 25% and $11 21, respectively.
In line with our guidance.
This compares to $12 an important thing.
And $10 44 in the prior year.
The increase in production costs year over year was primarily a result of inflationary pressures.
The FX volatility.
Higher electricity costs and higher fuel consumption.
In particular, we have seen a significant increase in our energy cost related to electricity prices.
Driven by the drier than expected weather with albeit from a near phenomenon.
And that actually resulted in a 34% increase in this line item.
With us seeing particularly the sharpest increase in the second half of the year.
We see energy prices.
Reaching the $5 per Boe.
Our guidance for 2024 provides additional clarity on energy prices given investors better insight into the key input.
Today electricity cost represents about 35% of our total energy costs.
We will continue to update the market on developments related to this critical input.
But as a point of reference we would like to highlight.
Energy costs for 2022.
Absolutely more normal year, which were approximately $3 50.
Moving on to cash generation cash generation for the year was strong.
With cash flow from operations totaling $411 $411 million.
Remaining strong due to the strong but oil price environment.
Partially offset by an increase in employment taxes during the year.
At year end 2023, however, the company closed with a $128 million income tax receivable associated with the foreign taxes.
And the company deferred tax asset position.
The company expected to recover approximately $100 million of the foreseeable through 2024.
Capital expenditure for the year were in line with our guidance at 443 million and included a $157 million in investments related to our potentially transformational.
Exploration business.
As of December 'twenty, three 'twenty three the company closed the year with total cash position of $199 <unk>.
Including $160 million of unrestricted cash.
Wrapping up I would like to provide an update on our <unk> spending our financing efforts.
Our risk management strategy and an update on our shareholder initiatives.
Total costs associated with the one well or $189 million.
Cash outflow headwinds related capex as of the end of 'twenty three are now estimated under $40 million.
With well costs now finalized from data has closed its direct working interest for the block at 70, 252%, resulting in an indirect working interest of 90, 342%.
On the financing front and as I alluded by both a number of again the company has successfully secured committed funding from the protected Liberty group led by Macquarie capital to support the strategic as I think our foot.
Connection project construction, Angola have disconnection to conduct this year.
We appreciate all of our bank effort and support.
On our current risk management strategy, we continue to show how the impact of our hedging discipline has benefited us.
And supported our operations and planning.
From Gary derivative instruments diminished exposure of oil prices and FX volatility.
On the oil side, the company entered into new putting hedges for $2 6 million barrel with put averaging $73 $36 per barrel.
We do have protected approximately 40% of the company after royalty estimate of production in June 2024.
From been able to enter into exchange rate hedges totaling $120 million.
While approximately 40% of our estimate of total exposure at above the 100 rental rates.
For the first half supplemental report.
These figures provide the company with visibility and will help mitigate future fluctuations all of the business to deliver on our targets.
Finally on our shareholder value initiatives under the current company MTB program, which commenced in November 'twenty, one 2023.
<unk> has repurchased approximately 600000 shares common shares for cancellation for approximately $3 7 million as of March seven 2024.
I would like to remind you that compare its authority to repurchase up to three 9 million shares.
Under the program.
With respect to our recently announced dividend from them, we pay a quarterly dividend of $6 25 Canadian per share to shareholders of record as of April 2nd 'twenty 'twenty, four and again payable on or around April 16, 2024.
With respect to bond buyback the company has repurchased one $5 million in notional of its 2028 senior secured notes.
As our chairman said that we'll continue to consider this a shareholder by the intensive initiatives, including 24 and beyond.
Including potential additional dividend distribution.
Distribution.
Buyback based on the overall results of our business entered vehicles.
I would like to now turn the call back to Adam.
Thank you Renee.
As you as you have heard from better have a very bcm successful 23, and we aim to build on that success in 2024.
<unk> provided some color floor 24 capital program.
We have a fully funded plan or 2024, delivering approximately $400 million to $450 million and consolidate operating EBITDA at $80 Brent prices.
Our plan will leverage our bankers transportation and logistic structure to maximize realized prices while.
We're also investing for future growth through facilities expansion and near field and high impact exploration.
We expect to generate consolidated free cash flow of approximately 65 to 100 $105 million from our core business.
In our Colombia on April upstream business, we are targeting production of approximately 40 to 42000 Boe.
Compared to 2023 and generate 400 to 430 medium.
In upstream operating EBITDA.
We will invest between $180 million to $210 million and development activities at 10% decrease in development spending.
We will also invest $35 million to $45 million in exploration activities.
15% to $25 million in OLED investments.
Mainly in the reactivation of the somewhat narrow block.
We funded primarily from proceeds related to insurance insurance teams.
We will focus on our inventory of near field development drilling opportunities.
Our core heavy oil fields.
In our drilling activities with our low cost well intervention program as we're lapping base in development facilities to increase water handling capacity and increase our gas processing at <unk> one.
We expect our upstream business to generate free cash flow between $60 million to $100 million.
Inclusive of 10 to 20 million in cash tax payments net of recoveries and debt service of $60 million to $70 million, which includes $32 million.
Our bond interest and $30 million related to debt service for local bank facilities.
For our growing on a standalone infrastructure business.
We are targeting an adjusted infrastructure EBITDA of approximately $95 million to $150 million for 2024.
<unk> 35 to 45 million in distributions for audio.
The segment is expected to generate free cash flow of approximately $5 million to $10 million inclusive of $30 million of net funding associated with the portfolio year reticle connection for your Capex.
Before closing we have prepared a slide.
<unk>, our current production and the buildup of the components supporting our 2024 production values.
Our starting point is the company's fourth quarter 33 average daily production rate of 30.
<unk> nine 2000 Boe per day.
Assuming an average decline rate of between 25% to 30%.
To sustain to sustain production the company would need to replace an annual average five to 6000.
Third day.
Or a rolling 2% to 3% of production personnel.
For internal development Capex program was designed to fully replace.
Our declining virals.
A combination of new wells.
As well as low cost decline management loan durations and.
From a strategic investment in facilities.
Our 2024, New World Conference program seeks.
<unk> seeks to replace between 80% to 85% of the expected decline.
Investing 105 to 100.
30 million.
60% to 65, new wells.
Focus primarily on our heavy oil assets.
On our us.
Each new well.
With an estimated cost of a procurement of approximately one $5 million to $2 million.
And targets and annualized production rate between 100, <unk> hundred 20.
Okay.
These wells are planned.
Another us.
So it will have on our rush and attractive under one year payback period.
Capital efficiency metric of 16 to $18000 third growing Barbara.
Under our lot cost declining management, well intervention program.
The company invests in way integrations.
Owners, overhauls and new technologies to reduce the impact of the natural decline and optimize the portfolio and the production rates.
For 2024, the company expects to invest approximately $15 million to $20 million in decline management activities with.
<unk> average investment third intervention ranging between 200 and $500000 goodwill are generating an additional 30 to 40.
Of annualized production.
Finally, we plan to invest $45 million, starting new projects, including our reserve Cosmos is water treatment facility.
Commissioning the first phase of deployment.
Which will enable the company to process a minimum of 250000 barrels of water.
<unk> thrown the keeper.
From the key problem.
Subject to final JV approval.
Leasing one processing sequences.
Our strong growth trend in the block and initiating phase one expansion offline nampa facility.
On fuel lines increased gas processing capacity.
For 8000 to 13000 million cubic feet per day.
This expertise capital expenditures not only for this production.
Let's set the foundation for further growth and expansion of these key assets.
For years to come.
Overall these capital projects.
Allow us to maintain production from last year of around 40% to 42000 Boe per day with 10% less capex.
We will advance our exciting exploration portfolio in Colombia and abroad.
We're investing 35% to $45 million in exploration opportunities, including the hiring but.
Well, new envelope and devoting aquila.
We really mature our self sustaining and growing infrastructure business.
The dirty calculation portfolio.
And so Laurie.
Three we continue to deliver on our operation operating and financial targets.
And expect to continue that trend in clinical in April.
We have a solid outlook, a strong balance sheet and exit comment on <unk> 17.
With that I would like to conclude by saying. Thank you below elevating performance and thank you everyone for attending our call I will now turn the call back to operate.
Thank you and at this time I would like to remind everyone in order to ask a question. Please press. The star then the number one on your telephone keypad.
For just a moment to compile the <unk> roster.
Your first question comes from the line of Yana Cabal from Merrill Lynch. Your line is open.
Hi, Thanks for taking my Crystal ball high teen.
I just had three brief questions if we get it and they go one by one that would be great.
The first one is related with quantity discount.
Especially looking at the average numbers for 2020 with well above what we are seeing.
So just how are these quality discounts evolving thus far in the year and what are your expectations for train four.
Hi, Thank you for the question.
Our discounts are.
At this time last year was roughly $5.
We realized $5 60.
That was $2022 30 in our guidance for 2024, we're seeing throughout the year better than we did last year.
So we're expecting with guidance was $4 50 different.
Okay.
Maybe more on the <unk>.
Syed.
Sorry, just one.
I was wondering if high.
Is there any update.
Additional color that you can provide in terms of how is the process plant.
However, lucky moving forward.
An estimated net debt and our estimate timeframe to hear more on this.
Got it.
As we told investors, we take 2024 event.
We have and the procurement that we got multiple presentations DDR opening and are currently havent been needed.
We'll look to very clearly show that.
Got it and just one final one you mentioned that you bought back.
That is carried bond buybacks or one for either you or about our philosophy of value. So.
Jeff.
Bonds continue to trade at.
Please count perhaps the PFM EBITDA have you can see that.
Moving more.
We aggressively in this respect in terms of returning value.
Would you say it's different stakeholders.
Ultimately capital accretion at the discretion of the board I think that our shares are even more disappointed that our bonds.
And our current bond prices. However, we believe it's important to create value for our shareholders on multiple fronts. So we were very happy that we were successful in acquiring $1 5 million.
During the quarter.
Got it that would be terminals I think you're right.
And once again, if you would like to ask a question simply press star followed by the number one on your telephone keypad.
And there are no further questions at this time should you have any further questions. Please E mail IR upfront Dara energy that CA. This concludes the call. Thank you all for participating you may now disconnect.
Yes.
Okay.
Thank you.
Yes.
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Yes.