(Frontera, 7.Feb.2019) — Frontera Energy Corporation announces an investor day and corporate update, including developments related to the Parex farm-in agreement, executive appointment, hedging, and the Corcel arbitration and the Caño Limón and Bicentenario pipelines. All values in this news release and the company’s financial disclosures are in United States dollars, unless otherwise noted.
The company will be hosting an investor and analyst day today, Thursday February 7, 2019 from 9 a.m. until 1 p.m. EST in Bogota which will be webcast via the company’s website. Those wishing to participate in the webcast should pre-register for the event using the link on the company’s website www.fronteraenergy.ca.
As part of the investor and analyst day, the company will be presenting forward looking production profiles which highlight stable core production in Colombia at over 65,000 boe/d before royalties from the existing producing asset base in Colombia. With a known inventory of risked exploration opportunities and development potential, the Company is targeting to grow production in Colombia to over 85,000 boe/d before royalties by the end of 2023.
The company will also provide an update on its ongoing operational improvements and efforts to improve its cost structure. In the first quarter of 2019, the company initiated a comprehensive review of its field operations with the goal of improving operational efficiency to drive operating and capital cost savings throughout its portfolio. Lastly, the company will be highlighting a number of technical improvement initiatives, which have optimized the drilling of wells and fluid management practices within the Quifa and Guatiquia fields.
Farm-In with Parex Resources Inc.
Frontera signed a farm-in agreement with Parex Resources Inc., which is subject to Agencia Nacional de Hidrocarburos (ANH) approval. Under the agreement, Frontera has received a 50% working interest in the VIM-1 Block in the Lower Magdalena Valley basin in Colombia in exchange for funding 100% of the first $10 million of the drilling, testing and completion costs of the La Belleza-1 exploration well, after which costs on the block will be split 50/50 with Parex.
The farm-in presents an exciting growth opportunity for Frontera and it is currently expected that the well will commence drilling during the second quarter of 2019. Capital expenditures associated with the farm-in agreement were included as part of the exploration capital budget for 2019.
The company announces the appointment of Carlos Alberto Vargas Medina as Chief Operating Officer, effective February 11, 2019. Mr. Vargas brings to the Company over 26 years of technical and leadership experience in global oil and gas operations, most recently with Ecopetrol where he was the Vice President of Transformation. Prior to that Mr. Vargas spent over 23 years specializing in drilling, completions and well operations at Equion Energia in Colombia and BP plc in Colombia, Argentina and Bolivia.
As of February 6, 2019, the Company has hedged approximately 18% of expected 2019 Colombia Net Production, using put options with a strike price of $55/bbl Brent. The cost of the put option premiums has been $2.7 million. This provides downside oil price protection for 44% of budgeted Q1 2019 production, 19% of budgeted Q2 2019 production and 5% of budgeted Q3 2019 production. Consistent with Frontera’s risk management goals and priorities, the put option strategy helps protect the Company's capital program, finance costs, as well as potential future dividends without limiting the upside benefits of higher oil prices.
Corcel Arbitration, Caño Limón and Bicentenario Update
The Company is pleased to announce that it was notified by the Consejo de Estado, Colombia's highest administrative court, that such court has rejected ANH's request to annul the panel's December 6, 2017 ruling on the Corcel arbitration. As such, the arbitrators ruling in favour of Frontera remains upheld.
The Company has been given notice of the commencement of arbitration proceedings relating to the termination of its contractual commitment with Cenit Transporte y Logistica de Hidrocarburos S.A. (CENIT) to transport oil through the Caño Limón pipeline (CLC) and its contractual commitment with Oleoducto Bicentenario de Colombia S.A.S (Bicentenario) to transport oil through the Bicentenario pipeline (BIC). The Company believes it has a very strong legal case and intends to defend itself vigorously. Frontera also intends to claim recovery of damages, among others, (i) in respect of the of approximately $130 million dollars in respect of BIC for payment claims for letters of credit improperly drawn, service prepayments, and outstanding service credits, and (ii) in respect of CLC for the release of approximately $32 million in restricted cash for tariff overcharges.