(Frontera, 3.May.2022) — Frontera Energy Corporation (TSX: FEC) reported financial and operational results for the first quarter ended 31 March 2022. All financial amounts in this news release are in United States dollars, unless otherwise stated.
Gabriel de Alba, Chairman of the Board of Directors, commented:
“Frontera continued to deliver strong performance results in the first quarter of 2022 in-line with full year production guidance of 40,000-43,000 boe/d and annual EBITDA guidance of $575-$625 million at $90/bbl Brent. As the Company has uncapped exposure to higher oil prices, every $10/Bbl increase in average Brent price for the year equals approximately $100 million additional EBITDA. Frontera expects our first quarter operational momentum to continue throughout the rest of the year which is expected to drive higher production and profitability in subsequent quarters.
The Company recently renewed its NCIB program for the purchase of up to 10% of our public float and is reviewing other opportunities to enhance shareholder returns. Importantly, Frontera was recognized for the second straight year by Ethisphere as one of the 2022 World’s Most Ethical Companies and the Company was certified by Great Place to Work as the only oil and gas company with an outstanding work environment. Frontera was also recognized as one of the best places to work for women in Colombia among the 2021 GPTW ranking.”
Orlando Cabrales, Chief Executive Officer (CEO), Frontera, commented:
“Frontera reported strong financial results in the first quarter of 2022. We increased production by 6.5% to 41,100 boe/d, recorded net income of $102.2 million, increased our operating netback by 22% and our net sales realized price by 17%. We delivered EBITDA of $132.8 million, down quarter over quarter due to the timing of cargo sales in Q1 impacting volumes sold in Colombia and an increase in inventory which will be sold in subsequent quarters according to nomination and scheduling of cargos.
Operationally, we executed $113.5 million in capital expenditures on the Kawa-1 exploration well in Guyana, on discoveries at the Jandaya-1 and Tui-1 exploration wells in Ecuador and we maintained a high-level of execution of development drilling in our base Colombia operations. During the quarter, we began integrating the PetroSud assets into our operations, which we anticipate will contribute to achieving the Company’s production guidance. Subsequent to the quarter, Frontera completed the acquisition of PCR’s 35% working interest in Colombia’s El Dificil block. Frontera now holds a 100% working interest in the El Dificil block which, when combined with our acquisition of PetroSud’s interests in Entrerrios and Rio Meta Blocks, will generate approximately US$12-$15 million of annual EBITDA. The Company hedged 40% of its 2022 production at $70/bbl floors with full upside exposure and also completed 100% of its foreign exchange hedges for 2022 to protect downside and allow for upside exposure. Finally, the Company is reviewing opportunities for increased production in the second half of the year.”
First Quarter 2022 Operational and Financial Summary
|Q1 2022||Q4 2021||Q1 2021|
|Heavy crude oil production (1)||(bbl/d)||21,214||20,912||20,997|
|Light and medium crude oil production (1)||(bbl/d)||17,248||16,300||18,294|
|Total crude oil production||(bbl/d)||38,462||37,212||39,291|
|Conventional natural gas production (1)||(mcf/d)||9,530||4,663||5,227|
|Natural gas liquids production (1)||(boe/d)||966||575||391|
|Total production (2)||(boe/d) (3)||41,100||38,605||40,599|
|Oil and gas sales, net of purchases (4)||($/boe)||90.42||75.12||58.18|
|Realized (loss) gain on risk management contracts||($/boe)||(1.06)||(1.87)||(3.53)|
|Net sales realized price (5)||($/boe)||81.66||69.53||50.44|
|Production costs (6)||($/boe)||(13.48)||(12.71)||(10.06)|
|Transportation costs (7)||($/boe)||(9.74)||(9.02)||(11.30)|
|Operating netback (4)||($/boe)||58.44||47.80||29.08|
|Oil and gas sales, net of purchases||($M)||229,569||269,525||180,956|
|Realized (loss) gain on risk management contracts||($M)||(2,682)||(6,692)||(10,980)|
|Net sales (4)||($M)||207,345||249,491||156,883|
|Net income (loss)(8)||($M)||102,228||629,376||(14,126)|
|Per share – basic||($)||1.08||6.60||(0.14)|
|Per share – diluted||($)||1.05||6.40||(0.14)|
|General and administrative||($M)||14,656||12,144||13,202|
|Operating EBITDA (4)||($M)||132,770||148,323||69,158|
|Cash provided by operating activities||($M)||114,980||113,482||47,393|
|Cash and cash equivalents – unrestricted||($M)||257,373||257,504||248,237|
|Restricted cash short and long-term||($M)||66,146||63,321||161,230|
|Total debt and lease liabilities||($M)||558,281||560,135||534,656|
|Consolidated total indebtedness (Excl. Unrestricted Subsidiaries) (4)(9)||($M)||410,161||416,883||361,699|
|Net Debt (Excluding Unrestricted Subsidiaries) (4)(9)||($M)||199,303||207,578||139,327|
|1. References to heavy crude oil, light and medium crude oil combined, natural gas liquids, or conventional natural gas production in the above table and elsewhere in this news release refer to the heavy crude oil, light and medium crude oil combined, natural gas liquids, and conventional natural gas, respectively, product types as defined in National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”).|
|2. Represents W.I. production before royalties. Refer to the “Further Disclosures” section on page 24 of the management’s discussion and analysis for the three months ended 31 March 2022 (the “MD&A”).|
|3. Boe has been expressed using the 5.7 to 1 Mcf/bbl conversion standard required by the Colombian Ministry of Mines & Energy. Refer to the “Further Disclosures – Boe Conversion” section on page 24 of the MD&A.|
|4. Non-IFRS financial measure. Refer to the “Non-IFRS Measures” section on page 10 of this news release and page 15 of the MD&A. This section also includes a description and details for all per boe metrics included in operating netback.|
|5. Per boe is calculated using sales volumes, excluding volumes purchased from third parties.|
|6. Per boe is calculated using production.|
|7. Per boe is calculated using net production after royalties.|
|8. Net income (loss) attributable to equity holders of the company.|
|9. “Unrestricted Subsidiaries” include CGX Energy Inc., Frontera ODL Holding Corp., including its subsidiary Pipeline Investment Ltd., Frontera BIC Holding Ltd., Frontera Bahía Holding Ltd., including its subsidiary Sociedad Portuaria Puerto Bahía S.A..|
First Quarter Operational and Financial Results:
- Production averaged 41,100 boe/d, up 6.5% compared to 38,605 boe/d in the prior quarter and 40,599 boe/d in the first quarter of 2021. See the table above for production by product type for the prior quarter and first quarter of 2021. Frontera’s daily production on 2 May 2022 was approximately 41,900 boe/d (consisting of approximately 22,100 bbl/d of heavy crude oil, 16,800 bbl/d of light and medium crude oil, 11,400 mmcf/d of conventional natural gas and 1,000 bbl/d of natural gas liquids). The company’s year-to-date average to 2 May 2022 was approximately 41,300 boe/d (consisting of approximately 21,500 bbl/d of heavy crude oil, 17,100 bbl/d of light and medium crude oil, 9,700 mmcf/d of conventional natural gas and 1,000 bbl/d of natural gas liquids).
- Operating EBITDA was $132.8mn in the first quarter of 2022 compared with $148.3mn in the prior quarter and $69.2mn in the first quarter of 2021. The decrease in operating EBITDA quarter over quarter was due to the timing of cargos which impacted volumes sold in Colombia resulting in an inventory build, while benefiting from higher Brent oil prices. The company reiterates its 2022 operating EBITDA guidance of $575-$625mn at $90/bbl Brent.
- The Company reported a total cash position of $323.5mn at 31 March 2022 compared to $320.8mn at 31 December 2021.
- The company’s restricted cash position was $66.1mn at 31 March 2022 compared to $63.3mn at 31 December 2021. The company anticipates releasing additional restricted cash in 2022 as the company continues to optimize its credit lines.
- Cash provided by operating activities was $115.0mn in the first quarter of 2022, compared with $113.5mn in the prior quarter and $47.4mn in the first quarter of 2021.
- At March 31, 2022, the company had a total inventory balance of 1,434,111 bbls compared to 807,061 bbls at 31 December 2021. The increase in inventory balance in the first quarter is a result of one less cargo sold during the first quarter compared to the previous quarter which the Company expects will be sold in subsequent quarters.
- The company has various uncommitted bilateral credit lines. As of 31 March 2022, the company had increased its uncollateralized credit lines to $106.9mn, an increase of $17.3mn compared to 31 December 2021.
- On 15 March 2022, Frontera announced plans to renew its Normal Course Issuer Bid (“NCIB”) for the purchase of up to 4,787,976 common shares, representing ~10% of the company’s public float during the 12-month period commencing 17 March 2022, and ending 16 March 2023. As of 2 May 2022, Frontera has purchased for cancellation 1,246,400 common shares at a volume weighted average price of C$14.39 per share, excluding brokerage fees. Under the company’s previous NCIB that expired on 16 March 2022, Frontera purchased for cancellation 4,243,600 common shares at a volume weighted average price of C$7.38 per share, excluding brokerage fees.
- Capital expenditures were $113.5mn in the first quarter of 2022, compared with $135.5mn in the prior quarter and $14.4mn in the first quarter of 2021. Capital expenditures during the quarter included exploration activity in support of the Kawa-1 exploration well, offshore Guyana, light and medium crude oil discoveries in Ecuador at the Jandaya-1 and Tui-1 exploration wells and maintaining a high-level of execution of development drilling in the company’s base Colombia operations.
- The company recorded net income of $102.2mn or $1.08/share in the first quarter of 2022, compared with net income of $629.4mn or $6.60/share in the prior quarter and a net loss of $14.1 million or $0.14/share in the first quarter of 2021. The decrease in net income quarter over quarter was mainly due to an impairment reversal of $586.7mn that occurred in the fourth quarter of 2021.
- The Company’s operating netback was $58.44/boe, up 22% compared with $47.80/boe in the prior quarter and $29.08/boe in the first quarter of 2021 primarily due to higher net sales realized prices, partially offset by higher production costs.
- The Company’s net sales realized price was $81.66/boe in the first quarter of 2022, up 17%, compared to $69.53/boe in the prior quarter and $50.44/boe in the first quarter of 2021. The increase was mainly the result of higher Brent benchmark prices, lower differentials compared with the previous quarter, lower loss on risk management contracts (first quarter 2022 only includes premiums paid for the position expired during the period), and reduction in dilution costs due to replacement of the dilution service by volumes purchased, partially offset by higher cash royalties resulting from oil price increases.
- Production costs averaged $13.48/boe in the first quarter of 2022, compared with $12.71/boe in the prior quarter and $10.06/boe in the first quarter of 2021. The increase in production costs was mainly due to increased energy costs which added approximately $1.50/bbl, additional well services and maintenance costs.
- Transportation costs averaged $9.74/boe, compared with $9.02/boe in the prior quarter and $11.30/boe in the first quarter of 2021. The increase in transportation costs was mainly due to one-time prepaid services recorded as lower transportation costs during the fourth quarter of 2021 following the implementation of the conciliation agreement entered into with Oleoducto Bicentenario de Columbia S.A.S. and Cenit Transporte y Logistica de Hidrocaburos S.A.S. to resolve certain transportation dispute.
- The company recorded a realized loss on risk management contracts of $2.7mn in the first quarter of 2022 compared with a realized loss of $6.7mn in the prior quarter and a loss of $11mn in the first quarter of 2021. The realized loss on risk management contracts was primarily due to cash paid for the purchase of put options during the quarter. Subsequent to March 31, 2022, the company entered into new put hedges totaling 1,410,000 bbls to protect the company’s 2022 capital program at a $70/bbl strike price. The company’s 2022 hedges do not cap upside price potential. See the Hedging Update section below for more information.
- On 15 March 2022, Frontera was recognized for the second straight year by Ethisphere, a global leader in defining and advancing the standards of ethical business practices, as one of the 2022 World’s Most Ethical Companies. Frontera is the only honouree in the Oil and Gas, Renewables category. In 2022, 136 honourees were recognized spanning 22 countries and 46 industries. Additionally, Frontera was certified by Great Place to Work (“GPTW”) as the only oil and gas company with an outstanding work environment. Frontera was also recognized as one of best places to work for women in Colombia among the 2021 GPTW ranking.
CGX and Frontera to Host Informational Virtual Presentation
On 9 May 2022, at 11:00 am ET, senior operational and technical team members from CGX and Frontera will host a virtual informational presentation on the Guyana-Suriname basin, the offshore Corentyne block, integrated Kawa-1 exploration well results and insights ahead of the Wei-1 exploration well. Participants are encouraged to submit questions in advance to email@example.com or firstname.lastname@example.org.
Questions may also be submitted during the informational presentation. The joint venture cordially invites all shareholders, stakeholders, investors and media to attend the virtual presentation.
CGX continues to assess several strategic opportunities to obtain additional financing to meet the costs of the drilling program.
Frontera’s production increase of 6.5% or 2,495 boe/d compared to the prior quarter was a result of organic growth across the portfolio and 1,226 boe/d (consisting of 4,874 Mcf/d of conventional natural gas, 324 bbl/d of light and medium crude oil, and 47 bbl/d of natural gas liquids) added through the completion of 100% of the shares of Petroleos Sud Americanos S.A. on 30 December 2021. Growth in natural gas liquids production mainly at the VIM-1 block, increased light and medium crude oil production mainly from the Guatiquia block, and increased heavy crude oil mainly in CPE-6 block delivered additional production volumes during the quarter.
Currently, the company has four drilling rigs and four workover rigs active at its operations in Colombia and one rig at the Perico block in Ecuador. In the first quarter of 2022, the company drilled 14 development wells in Colombia and one exploration well in Ecuador, and completed 38 workovers and well services.
Production at Key Fields
At Quifa, current production is approximately 17,000 bbl/d of heavy crude oil (including both Quifa and Cajua). The company drilled 12 development wells at Quifa in the first quarter of 2022.
At Guatiquia, current production is approximately 8,800 bbl/d of light and medium crude oil. In the first quarter of 2022, Frontera initiated production from the Coralillo-15 and Coralillo-13 development wells. Subsequent to the quarter, the Coralillo SE-01 well was completed in the Lower Sand and Barco formations and a production test is underway.
At CPE-6, current production is approximately 4,700 bbl/d of heavy crude oil. In the first quarter, the company drilled the HAM-102D well, which is currently under evaluation.
At VIM-1 (Frontera 50% W.I., non-operator), current production is approximately 1,300 boe/d, consisting of approximately 3,100 mmcf/d of conventional natural gas and 750 bbl/d of natural gas liquids. In the first quarter of 2022, the operator completed the construction of gas processing facilities which are expected to be operational in the second quarter. Additionally, the operator anticipates spudding the La Belleza-2 development well in the second quarter.
Subsequent to the quarter, on 27 April 2022, Frontera completed the previously announced acquisition of the 35% working interest (“W.I.“) in Colombia’s El Dificil block held by PCR Investments S.A. (a wholly-owned subsidiary of Petroquímica Comodoro Rivadavia S.A. (PCR)) for a total aggregate cash consideration of approximately US$13mn. The PCR transaction was subject to customary closing conditions and approval of the transaction by the Agencia Nacional de Hidrocarburos which has now been received.
During the quarter, Frontera announced that it had made discoveries at the Jandaya-1 and Tui-1 exploration wells on the Perico block (Frontera 50% W.I. and operator) in Ecuador. The Jandaya-1 well encountered a total of 78 feet of net pay across three hydrocarbon bearing reservoirs. The Tui-1 exploration well encountered a total of 125 feet of net pay across seven hydrocarbon bearing reservoirs. Production from the Jandaya-1 and Tui-1 exploration wells is being delivered to a nearby access point on Ecuador’s main pipeline system for sale to export markets and the first parcel from this production will be exported in May. Frontera and its partner are currently evaluating subsequent activities in the Perico block, including a potential development drilling plan for both the Jandaya and Tui fields.
Production in Ecuador for the three months ended 31 March 2022, was 279 bbl/d of light and medium crude oil.
In the Espejo block, (Frontera 50% W.I. and non-operator), the company is currently acquiring 60 sq km of 3D seismic and anticipates spudding the first exploration well on the block, called the Espejo Norte-1, in the second half of 2022.
As part of its risk management strategy, the company uses derivative commodity instruments to manage exposure to price volatility by hedging a portion of its oil production. The company’s strategy aims to protect 40%-60% of the estimated production to protect the revenue generation and cash position of the company while maximizing upside. In 2022, Frontera is only using put options, which allows the company to capture the full upside price benefit while offering efficient downside hedging. The following table summarizes Frontera’s hedging position as of 26 April 2022.
First Quarter 2022 Conference Call Details
A conference call for investors and analysts will be held on 4 May 2022 at 11:30 a.m. Eastern Time. Participants will include Gabriel de Alba, Chairman of the Board of Directors, Orlando Cabrales, Chief Executive Officer, Alejandro Piñeros, Chief Financial Officer and other members of the senior management team.
Analysts and investors are invited to participate using the following dial-in numbers:
Participant Number (Toll Free North America): 1-888-256-1007
Participant Number (Toll Free Colombia): 01-800-518-3328
Participant Number (International): 1-647-484-0478
Conference ID: 1655563
Webcast Audio: www.fronteraenergy.ca
A replay of the conference call will be available until 11:59 p.m. Eastern Time on 11 May 2022.
Encore Toll free Dial-in Number: 1-647-436-0148
International Dial-in Number: 1-888-203-1112
Encore ID: 1655563