Q2 2026 Parex Resources Inc Earnings Call

Speaker #1: Hello everyone. Thank you for joining us, and welcome to the Parex Resources Q2 2026 operational and financial results call. After today’s prepared remarks, we will host a question-and-answer session.

Speaker #1: If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning.

Speaker #1: Mike? Please go ahead.

Speaker #2: Thank you. Good morning, everyone, and welcome to Parex Resources' Q2 2026 conference call and webcast.

Speaker #3: My name is Mike Kruchten, and on the call with me today are our President and Chief Executive Officer Imad Mohsen, our Chief Financial Officer Cam Grainger, and our Chief Operating Officer Eric Furlan.

Speaker #3: Please note that at any time, telephone participants on the call can press star one to submit a question. As a reminder, this call includes forward-looking statements as well as non-GAAP and other financial measures.

Speaker #3: With the associated risks outlined in our news release and MD&A, which can be found on our website or at cedarplus.ca, note that all amounts discussed today are in U.S. dollars.

Speaker #3: Dollars, unless otherwise stated. I'll now turn the call over to Imad. Please go ahead.

Speaker #4: Thank you, Mike. And good morning, everyone. Over the first half of 2026, Parex completed major transactions to become Colombia's largest independent E&P company. This has resulted in the company nearly doubling its production guidance to roughly 86,000 barrels per day, at the midpoint.

Speaker #4: And expanding our footprint to over 7.9 million acres. With these transactions behind us, our focus shifted to capturing synergy and delivering strong operational performance.

Speaker #4: First, the frontier transaction is officially closed with the integration of integration processing smoothly. This major acquisition has added stable production both top-tier technical talent to our team and significantly added to our long-term reserves.

Speaker #4: Today's updated reserves report information reinforces our acquisition thesis and validates our capital allocation strategy. As we continue to evaluate the portfolio, foundational work is already underway to unlock operational and strategic synergies that will generate compounding efficiencies over time.

Speaker #4: Second, our Magdalena partnership with Ecopetrol has closed, and we have secured all regulatory approvals. Through a $250 million, five-year capital program and zero upfront acquisition costs, we have secured a 50% interest in the Casablanca and Nitro blocks, which have significant oil in place.

Speaker #4: Operational momentum is building as we prepare to begin turning our first wells, which will trigger a 50% participation in the blocks, currently roughly $15,000 a day of production gross.

Speaker #4: Beyond current volumes, this acreage offers significant long-term upside through water flood optimization. EOR and development drilling. Third, on the organic front, there are very encouraging we are very encouraged by our recent success in eastern Llanos at Llanos 111, where we have delivered 4 discoveries so far in 2026.

Speaker #4: Our team views this area we are actively developing a multi-year development and egress strategy with plans to drill up to 20 wells over the next 12 months to grow and expand this region.

Speaker #4: Looking ahead to the second half of 2026, I'm energized by our operational momentum, especially as we prepare to spud our Piedmont exploration prospect in the foothills, which represents a major gross opportunity for Parex.

Speaker #4: With that, I'll turn over I'll turn it over to Eric. Please go ahead, Eric.

Speaker #5: Thanks, Imad. In the second quarter, production averaged over 54,000 BOE per day, supported by our first month of Frontier volumes. Today, we are building positive operational momentum.

Speaker #5: Starting with Frontera, the assets have delivered strong operational performance since closing, and we are actively evaluating the broader portfolio to optimize production and drive field-level efficiencies.

Speaker #5: In the Magdalena basin, we're completing initial activities to draw first wells in the Casablanca and Genito programs. The initial rig is expected to begin moving shortly, and we are excited to initiate these campaigns, which are expected to add stable, low-decline production, and establish a new core operating and development area for Parex.

Speaker #5: At Block 111, current production is averaging over 5,000 barrels per day, with seasonal weather constraints temporarily limiting output. To support long-term production growth and address seasonal weather challenges, we're advancing a phased egress expansion plan that will scale alongside drilling success.

Speaker #5: As Imad mentioned, over the next 12 months we plan to drill up to 20 exploration and development wells. This is supported by ongoing seismic acquisition plans to continuously replenish our exploration inventory.

Speaker #5: Together, these initiatives provide a clear pathway toward growing long-term production capacity, with significant running room ahead. This quarter, we also released our pro forma reserves evaluation.

Speaker #5: Marking a significant milestone, both PDP and 1P reserves increased by more than 80%. These results validate our acquisition thesis for the Frontera Magdalena assets and highlight the value created through these transactions.

Speaker #5: Looking ahead, our capital allocation priority is clear: leverage the bulk of the free cash flow generated by these foundational assets to continue investing in Parex's high-quality exploration and development inventory.

Speaker #5: We are energized by our current production, which is averaging over $83,000 BOE per day, and puts Parex in a clear upward trajectory for the second half of 2026.

Speaker #5: With that, I'll turn it over to Cam.

Speaker #6: Thanks, Eric. Our second quarter results mark an inflection point, positioning the company for significantly higher cash generation as the benefits of our transformed business take hold.

Speaker #6: Adjusting for $59 million of one-time transaction fees and realized hedging losses, second quarter results were strong. As previously communicated, these temporary integration and transition costs, along with the disclosed hedging losses, were anticipated and should be excluded to provide a clearer view of underlying operational and financial performance.

Speaker #6: Looking ahead, we are reaffirming our second half 2026 guidance, which fully incorporates the contributions of both the Frontera acquisition and the Ecopetrol partnership. At a $90 Brent assumption, for the second half of the year, we expect funds flow from operations of $475 to $525 million against capital expenditures of $275 to $295 million.

Speaker #6: Recognizing that actual results will vary depending on where oil prices settle. While market conditions continue to evolve, we are closely monitoring the factors impacting costs and pricing.

Speaker #6: Elevated energy prices, partly driven by El Niño weather patterns, along with Colombian peso appreciation, are placing upward pressure on production costs, which are now trending toward the upper end of our guidance range.

Speaker #6: At the same time, Vasconia differentials have widened in recent months, impacting projected realized pricing. Despite these factors, our expanded production base and expected strong operating performance should support significant free cash flow generation.

Speaker #6: As integration progresses for Frontera and we start operations at the Magdalena assets, our team is focused on portfolio optimization and cost synergies. This focus will drive compounding efficiencies and expand our free cash flow profile.

Speaker #6: Giving us the flexibility to reinvest in organic growth, strengthen our balance sheet, and return capital to shareholders. To finish, from a reporting lens, we are pleased to announce that we have published our 12th annual sustainability report.

Speaker #6: Underscoring our ongoing commitment to environmental stewardship, community partnerships, and our strong governance across our operations in Colombia. With that, I'll turn it back to Imad for closing remarks.

Speaker #4: Thanks, Cam. To close, I want to I want to reiterate the scale of the transformation on the way at Parex. Today's business is positioned to unlock a deep portfolio of development and exploration catalysts to generate substantial free cash flow.

Speaker #4: This is establishing Parex as a premium growth story in the global energy sector. Capturing synergies and integrating recent acquisitions to deliver on this vision, we remain highly focused on three core priorities: capturing synergies, number one, and integrating recent acquisitions to build our operational base.

Speaker #4: Number two is building on our exploration momentum in the Eastern Llanos, establishing a new operating area for Parex. Number three is advancing high-impact exploration in the Llanos foothills, starting with the Piedemonte prospect this fall.

Speaker #4: I have never felt more confident about the direction our company is heading. Building on our expanded asset base and multiple growth engines, Parex is well positioned to sustain this momentum through the second half of the year and beyond.

Speaker #4: As we move forward, I want to thank our employees, partners, shareholders, board of directors, and local host communities for their continued trust and support.

Speaker #4: The strategic progress we are celebrating today is a direct result of the hard work and collaboration of many. That concludes our formal remarks, and I'll now turn the call back to the operator for any questions.

Speaker #1: We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

Speaker #1: To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality.

Speaker #1: If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. There are no further questions at this time.

Speaker #1: I will now turn the call back to Mike Kruchten for closing remarks.

Speaker #5: Thank you, operator. We look forward to updating our investors on how Parex is progressing and the step change in our portfolio. Thank you very much. Please feel free to contact us if you have additional questions.

Speaker #5: Take care.