(Frontera, 9.Nov.2023) — Frontera Energy Corporation (TSX: FEC) reported financial and operational results for the third quarter ended 30 Sep. 2023. 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’s three core businesses continue to deliver solid performance.
Frontera delivered strong operational and financial results from its upstream onshore business and capital spending returned to normal levels following the completion of Wei-1 operations. As a result, the company increased its total cash position, including restricted cash, to $221 million as of September 30.
Income from the company’s standalone and growing Colombia Midstream business increased 13% during the quarter and pre-construction activities have begun on the important pipeline connection between Frontera’s Puerto Bahia liquids terminal and the Cartagena Refinery.
In parallel with the third-party laboratory confirmation of our significant light oil and sweet medium crude discovery at Wei-1, the Joint Venture, with support from Houlihan Lokey, is reviewing strategic options for its potentially transformational Guyana exploration business, the Corentyne block, including a potential farm down, as it progresses its efforts to maximize value from its investments in Guyana.
Importantly, during the quarter, the company continued to drive costs out of its business, reducing its G&A by 4%. Building on this positive momentum and to better position the company for sustained long-term success, subsequent to the quarter, Frontera’s board of directors approved a restructuring plan that will improve organizational and operational efficiencies, reduce costs and better align the company’s workforce with current business needs, top strategic priorities, and key growth opportunities.
Frontera also plans to launch a NCIB to permit purchases of up to 10% of its outstanding float.
I am excited about the strong performance from Frontera’s three core businesses and the tangible steps the company is taking to surface value for shareholders.”
Orlando Cabrales, Chief Executive Officer (CEO), Frontera, commented:
“I am pleased with Frontera’s third quarter operational and financial results. We increased our operating EBITDA by 18% and our operating netback by 19% quarter over quarter, driven in part by a 16% increase in our net sales realized price.
Year-to-date, our production has averaged 41,477 boe/d. In the third quarter, we increased our heavy oil production by 15% due in part to increased water-handling at SAARA and increased natural gas liquids production by 100% compared to the same quarter last year. At CPE-6, we also delivered record quarterly average production of 5,803 bbl/d, up 13% quarter/quarter through development drilling, new flow lines, and expanded facilities. Recently, CPE-6 achieved record daily production of 6,435 bbl/d.
We achieved record safety results for the nine-months ended September 30, as our employees delivered the lowest recordable incident rate (TRIR) in company history. Additionally, the Company recycled 41.4% of all water used in our operations, offset 33% of our 2023 Colombian emissions, and preserved 1,367 hectares in the Serranía de Manacacías Park, in Entrerríos as we continue to responsibly meet our corporate and ESG objectives.
Finally, during the quarter, third-party laboratory analysis confirmed the presence of medium sweet crude oil in high-quality Maastrichtian cored reservoir at the Wei-1 well on the Corentyne block, offshore Guyana, confirming the significant potential of this block.”
Third Quarter 2023 Operational and Financial Summary:
|Q3 2023||Q2 2023||Q3 2022|
|Heavy crude oil production (1)||(bbl/d)||24,097||24,051||20,945|
|Light and medium crude oil production (1)||(bbl/d)||13,964||15,188||17,428|
|Total crude oil production||(bbl/d)||38,061||39,239||38,373|
|Conventional natural gas production||(mcf/d)||5,250||5,626||9,969|
|Natural gas liquids production (1)||(boe/d)||1,820||1,823||911|
|Total production (2)||(boe/d) (3)||40,802||42,049||41,033|
|Total inventory balance||(bbl)||1,330,418||1,434,508||1,137,913|
|Brent price reference||($/bbl)||85.92||77.73||97.70|
|Oil & gas sales, net of purchases (4)(5)||($/boe)||78.48||67.91||90.40|
|Premiums paid on oil price risk management contracts (6)||($/boe)||(0.59)||(0.80)||(1.30)|
|Net sales realized price (4)(5)||($/boe)||74.13||64.09||81.87|
|Production costs, net of realized FX hedge impact (4)(5)||($/boe)||(13.86)||(12.39)||(11.20)|
|Transportation costs, net of realized FX hedge impact (4)(5)||($/boe)||(11.73)||(10.89)||(10.70)|
|Operating netback per boe (4)||($/boe)||48.54||40.81||59.97|
|Oil and Gas Sales, net of purchases (7)||($M)||254,805||221,218||304,899|
|Premiums paid on oil price on risk management contracts||($M)||(1,930)||(2,600)||(4,393)|
|Net sales (7)||($M)||240,659||208,781||276,135|
|Net income (loss) (8)||($M)||32,582||80,207||(26,893)|
|Per share – basic||($)||0.38||0.94||(0.30)|
|Per share – diluted||($)||0.37||0.92||(0.30)|
|General and administrative||($M)||11,925||12,422||12,549|
|Outstanding Common Shares||Number of Shares||85,431,716||85,188,573||86,575,175|
|Operating EBITDA (7)||($M)||137,800||116,461||173,207|
|Cash provided by operating activities||($M)||153,957||183,560||120,804|
|Capital expenditures (7)||($M)||74,130||154,860||76,018|
|Cash and cash equivalents – unrestricted||($M)||189,190||180,294||253,550|
|Restricted cash short and long-term (9)||($M)||32,048||33,485||55,552|
|Total cash (9)||($M)||221,238||213,779||309,102|
|Total debt and lease liabilities (9)||($M)||525,517||532,273||533,077|
|Consolidated total indebtedness (Excl. Unrestricted Subsidiaries) (10)||($M)||409,853||415,395||412,926|
|Net Debt (Excluding Unrestricted Subsidiaries) (10)||($M)||271,508||286,675||205,625|
|1. References to heavy crude oil, light and medium crude oil combined, conventional natural gas and natural gas liquids in the above table and elsewhere in this news release refer to the heavy crude oil, light crude oil and medium crude oil combined, conventional natural gas and natural gas liquids, 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 of the company’s management’s discussion and analysis for the three months ended September 30, 2023 (the “Interim MD&A”), which will be filed on the Company’s profile on SEDAR+ at www.sedarplus.ca.|
|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 “Oil and Gas Information Advisories” section.|
|4. Non-IFRS ratio (equivalent to a “non-GAAP ratio”, as defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure (“NI 52-112”). Refer to the “Non-IFRS and Other Financial Measures” section.|
|5. 2022 prior period figures are different compared with those previously reported as a result of the exclusion of Promotora Agricola de los Llanos S.A. (“ProAgrollanos”) revenues and, production and transportation costs.|
|6. Supplementary financial measure (as defined in NI 52-112). Refer to the “Non-IFRS and Other Financial Measures” section.|
|7. Non-IFRS financial measure (equivalent to a “non-GAAP financial measure”, as defined in NI 52-112). Refer to the “Non-IFRS and Other Financial Measures” section.|
|8. Net income (loss) attributable to equity holders of the Company.|
|9. Capital management measure (as defined in NI 52-112). Refer to the “Non-IFRS and Other Financial Measures” section.|
|10. “Unrestricted Subsidiaries” as of 30 Sep. 2023, include CGX Energy Inc. (CGX), listed on the TSX Venture Exchange under the trading symbol “OYL”, Frontera ODL Holding Corp., including its subsidiary Pipeline Investment Ltd. (PIL), Frontera BIC Holding Ltd., and Frontera Bahía Holding Ltd., including its subsidiary Sociedad Portuaria Puerto Bahia S.A. On 11 Apr. 2023, Frontera Energy Guyana Holding Ltd. And Frontera Energy Guyana Corp. were designated as unrestricted subsidiaries.|
Third Quarter Operational and Financial Results:
- The Company recorded net income of $32.6mn ($0.38/share) in the third quarter of 2023, compared with net income of $80.2mn ($0.94/share) in the prior quarter and a net loss of $26.9 million (($0.30))/per share) in the third quarter of 2022. The Net income in the third quarter included operating income of $65mn, share of income from associates of $13.7mn, a foreign exchange gain of $4.3mn and finance income of $1.9mn, partially offset by finance expenses of $16.4mn, other expenses of $1.2mn and income tax expenses of $15.3mn.
- Production averaged 40,802 boe/d (consisting of 24,097 bbl/d of heavy crude oil, 13,964 bbl/d of light and medium crude oil, 5,250 mcf/d of conventional natural gas and 1,820 boe/d of natural gas liquids) in the third quarter of 2023, down 3% compared to 42,049 boe/d in the prior quarter and 41,033 boe/d in the third quarter of 2022. The decrease in production quarter-over-quarter was mainly the result of lower light and medium crude oil production in Colombia, driven in part by the relinquishment of the Neiva and Orito blocks (which produced approximately 587 boe/d net to Frontera) to Ecopetrol following the completion of the block’s production contract at the end of the second quarter of 2023, The decrease was partially offset by higher heavy oil crude production driven by another record quarterly CPE-6 production of 5,803 bbl/d due to positive development drilling and the reactivation of the Sabanero block on 1 Jul. 2022, and the successful Jandaya-1 well stimulation in Ecuador.
- Operating EBITDA was $137.8mn in the third quarter of 2023, up 18% compared with $116.5mn in the prior quarter and $173.2mn in the third quarter of 2022. The increase in operating EBITDA quarter-over-quarter was primarily a result of higher Brent oil prices and improved differentials during the quarter, partially offset by higher production and transportation costs.
- As of 30 Sep. 2023, the company had a total inventory balance in Colombia of 812,797 barrels, including 624,535 crude oil barrels and 188,262 barrels of diluent and others. This compared to 881,758 as of June 30, 2023, and 590,984 barrels as at 30 Jun. 2022. The decrease in inventory balance was primarily due to inventory drawn for export sales. Inventory balances in the third quarter related to Ecuador and Peru were 37,421 barrels and 480,200 barrels, respectively.
- Capital expenditures were $74.1mn in the third quarter of 2023, down 52% compared with $154.9mn in the prior quarter as expenditures related to drilling operations at Wei-1 wrapped up and $76mn in the third quarter of 2022. During the third quarter, the company drilled 14 development wells at its Quifa, Cajua and CPE-6 blocks as well as one exploration well, Perico Centro-1 (formerly Jandiayacu-1) on the Perico block in Ecuador. For the nine months ended 30 Sep. 2023, the company has executed $360.4mn in total capital spending, including $156.8mn in total capital spending related to the Wei-1 well.
- Cash provided by operating activities in the third quarter of 2023 was $154.0mn, compared with $183.6mn in the prior quarter and $120.8mn in the third quarter of 2022. Cash generation from operating activities remained strong due to stronger quarter over quarter Brent oil prices and $64.2mn in income tax and VAT recoveries.
- The Company reported a total cash position of $221.2mn as of 30 Sep. 2023, up 3% compared to $213.8mn as of 30 Jun. 2023, and $309.1mn as of 30 Sep. 2022. Subsequent to the quarter, the company also borrowed $18mn under a new Bancolombia working capital loan facility and immediately repaid in full the outstanding balance of $12mn under the Citibank working capital loan.
- The Company’s net sales realized price was $74.13/boe in the third quarter of 2023, up 16%, or $10.04/boe, compared to $64.09/boe in the prior quarter and $81.87/boe in the third quarter of 2022 primarily driven by the increase in the benchmark oil price and narrower differentials during the third quarter of 2023.
- Frontera’s operating netback was $48.54/boe in the third quarter of 2023, up 19% compared with $40.81/boe in the prior quarter and $59.97/boe in the third quarter of 2022 due to higher net sales realized price partially offset by higher production and transportation costs during the third quarter.
- Production costs, net of realized FX hedge impact, averaged $13.86/boe in the third quarter of 2023, up 12% compared with $12.39/boe in the prior quarter and $11.20/boe in the third quarter of 2022. The increase in production cost on a per barrel basis in the third quarter compared to the prior quarter is the result of higher energy costs, technical assistance and fuel consumption partially offset by lower well services costs.
- Transportation costs, net of realized FX hedge impact, averaged $11.73/boe in the third quarter of 2023, up 8% compared with $10.89/boe in the prior quarter and $10.70/boe in the third quarter of 2022. The increase in transportation cost quarter-over-quarter was mainly due to the annual increase in transportation tariffs and exchange rate impacts.
- In the company’s Colombia Midstream business, total Oleoducto de los Llanos Orientales S.A. (ODL) volumes pumped were 251,988 bbl/d during the third quarter of 2023, up 17% versus the third quarter of 2022.
- Puerto Bahia liquid volumes were 53,586 bbl/d during the third quarter down 11% compared to the third quarter of 2022, driven mainly by lower imported crude volumes. Puerto Bahia liquid revenues were $7.8mn during the third quarter, up 1% compared to the third quarter of 2022, mainly due to higher tariffs.
- Adjusted Midstream EBITDA in the third quarter of 2023 was $29.9mn, compared with $31.1mn in the prior quarter and $17.6mn in the third quarter of 2022.
- In the company’s exciting Guyana Exploration business, confirmed the discovery of 342 feet (104 meters) feet of total net pay discovered to date on North Corentyne. Results further demonstrate the potential for a standalone shallow oil resource development across the Corentyne block.
- Total costs associated for the Wei-1 well are now estimated to be within $185mn-190mn following the successful implementation of several initiatives. It is anticipated that Frontera’s actual direct and indirect WI will vary between 72.1% and 72.4%, and 93.3% and 93.4%, respectively. Final WI calculations will be determined in Dec. 2023 after close out of the Wei-1 well.
- From a shareholder initiatives standpoint, Frontera intends to implement a normal course issuer bid (“NCIB”) to permit purchase up to 10% of its public float over the next year subject to approval of the Toronto Stock Exchange (TSX).
Frontera’s ESG Strategy
The company continues to deliver on its ESG goals. In the nine months ended Sep. 2023, Frontera achieved a Total Recordable Incident Rate (TRIR) of 0.49, the best safety performance in Company history and below its 2023 TRIR objective of 0.74. During the third quarter Frontera, protected and preserved 1,367 hectares of land in the Serranía de Manacacías Park, Entrerríos. When combined with reforestation plantings and sustainable use projects, the Company has exceeded its goal of 1,000 hectares and totaling 5,994 hectares preserved.
As of 30 Sep. 2023, the company has recycled 41.4% of water used in its operation and has offset 33% of its 2023 Colombian emissions through the purchase of carbon credits. Additionally, the company continues to focus on bridging diversity, inclusion, and gender equity gaps. During the quarter, Frontera hired six locally trained community women as well operators through its oil and gas technical program called – Crece con Frontera.
As of Sep. 2023, Frontera has invested $2.1mn in 161 social projects, benefiting more than 33,000 people in Colombia, Ecuador and Peru. The company purchased $50.9 million from local suppliers and will accomplish its goal of purchasing $55mn locally in 2023.
Frontera’s Three Core Businesses
Frontera’s three core businesses include: (1) its Colombia and Ecuador Upstream Onshore business, (2) its standalone and growing Colombia Midstream business, and (3) its potentially transformational Guyana Exploration business offshore Guyana.
- Colombia and Ecuador Upstream Onshore
Production from the company’s Colombian operations in the third quarter averaged 40,150 boe/d (consisting of 24,097 bbl/d of heavy crude oil, 13,312 bbl/d of light and medium crude oil combined, 5,250 mcf/d of conventional natural gas and 1,820 boe/d of natural gas liquids), down 3% compared to 41,436 boe/d in the prior quarter, and up 1% compared to 39,829 boe/d in the third quarter of 2022. The decrease in production quarter-over-quarter was mainly the result of lower light and medium crude oil production in Colombia, driven in part by the relinquishment of the Neiva and Orito blocks (which produced approximately 587 boe/d, net to Frontera) to Ecopetrol following the completion of the block’s production contract at the end of the second quarter of 2023, partially offset higher heavy oil crude production driven by another record quarterly CPE-6 production of 5,803 bbl/d due to positive development drilling and the reactivation of the Sabanero block on 1 Jul. 2022.
In the third quarter of 2023, the company drilled 14 development wells, one injector well and completed well services at 21 others.
Year to date, the company has drilled 50 development wells and 2 injector wells and completed workover services at 61 others. Currently, the company has 3 drilling rigs, and 3 workover rigs active at its Quifa and CPE-6 blocks in Colombia.
Quifa Block: Quifa SW and Cajua
At Quifa, the company drilled 9 development wells in the third quarter 2023. Production averaged 17,836 bbl/d of heavy crude oil in the third quarter compared to 18,408 bbl/d in the second quarter of 2023. Year to date, Frontera has drilled 33 development wells at Quifa. Additionally, the company invested in new flow lines in the Quifa block to connect with the SAARA project.
The company’s current water handling capacity in Quifa is approximately 1.6 million bwpd.
During the third quarter, Frontera continued with its recommissioning efforts supporting SAARA, its reverse osmosis water treatment facility with an estimated 1 million bwpd nameplate capacity. As of Oct. 2023, the plant had processed 16.3 million barrels of water as part of its recommissioning program, providing irrigation source water to the company’s nearby ProAgrollanos palm oil plantation. The company is actively engaged in discussions with Ecopetrol to permanently bring the SAARA facility online under terms mutually acceptable to both parties.
At CPE-6, production averaged approximately 5,803 bbl/d of heavy crude oil in the third quarter, compared to 5,116 bbl/d in the second quarter of 2023. Subsequent to the quarter, the company achieved record daily production at CPE-6 of 6,435 bbl/d. During the quarter the company drilled 5 development wells and one injector well, invested in new flow lines, and the expanded and improved of development facilities, which the company anticipates will double water-handling capacity to 240,000 bbls/day in the block by the end of 2023.
Other Colombia Developments
At Guatiquia, production during the quarter averaged 6,763 bbl/d of light and medium crude compared with 7,239 bbl/d in the second quarter of 2023.
On the Cubiro Block production averaged 1,729 bbl/d of light and medium crude oil in the third quarter of 2023 compared with 1,915 bbl/d in the second quarter 2023.
At VIM-1 (Frontera 50% W.I., non-operator), production averaged 1,660 bbl/d of light and medium crude oil in the third quarter of 2023 compared to approximately 1,711 bbl/d of light and medium crude oil in the second quarter of 2023.
Colombia Exploration Assets
The company’s Colombian exploration focus remains on the Lower Magdalena Valley and Llanos Basins. In the third quarter, the company continued to process 163 square kilometers of 3D seismic data from the Llanos-99 block. In addition, the final PSTM volume was completed in Oct.. The company is progressing pre-seismic and pre-drilling activities related to social and environmental studies in the Llanos-119, LLA-99, CPE-6, and VIM-46 blocks.
Frontera’s share of production in Ecuador for the three months ended September 30, 2023, was 652 bbl/d of medium crude oil compared to 613 bbl/d in the prior quarter.
On the Perico block (Frontera 50% W.I. and operator), the company drilled the Perico Centro-1 (formerly Jandiayacu-1) well during the quarter, Petrophysical interpretation identified 19.5 feet of net pay in the Lower U sand, 7.5 feet in the Upper Hollin and 7.5 feet in the Main Hollin, with oil found in three intervals and initial tests delivering average production of approximately 800 bbl/d, of 28-degree API medium crude oil with 1% BSW. Clean-up activities are underway. The company believes that the Upper Hollin presents additional exploration or production opportunity. With the completion of drilling activities at the Perico Centro-1 well, the company has satisfied its four-well exploration commitment on the block.
The company also spudded and completed the Yin-2 appraisal well in the third quarter, discovering 48 feet of net pay in the Lower U sand and 24 feet of net pay in the Hollin main formation, with initial production rates of approximately 1,200 bbl/d of 30.5-degree API crude oil.
In addition, the Perico Norte A4 well was spudded on 8 Oct. 2023, reached a total depth of 11,433 feet (3,485 meters) and was completed on 4 Nov. 2023, with initial production rates of approximately 1,200 bbl/d of 29.4 degree API crude oil with 5% BSW.
The company continues to conduct long-term testing at the Jandaya-1, Tui-1 and Yin-1 exploration wells, as it prepares environmental impact assessments in advance of obtaining production environmental licenses.
2. Midstream Colombia
Frontera has investments in certain significant infrastructure and midstream assets, including storage, port and other facilities in Colombia as well as the company’s investments in certain pipelines which comprise its standalone and growing Colombia Midstream business (“Midstream Colombia Segment”). Frontera’s Midstream Colombia Segment principally includes the company’s 35% equity interest in the ODL pipeline through Frontera’s wholly owned subsidiary, PIL and the company’s 99.97% interest in Puerto Bahia.
Midstream Colombia Segment Results
The company’s Midstream Colombia Segment income was $17.3mn for the three months ended 30 Sep. 2023, up 13% compared with $15.2mn in the third quarter of 2022. For the three months ended 30 Sep. 2023, the Puerto Bahia liquids terminal revenues was $7.8mn compared with $7.7mn in the same period of 2022. The liquids terminal revenues during the third quarter of 2023, represented 60% of Puerto Bahia’s revenues, this increase can be attributed to higher revenues per barrel during 2023.
On the general cargo business, revenue increased 20% in the third quarter of 2023 compared to the same period in 2022, primarily driven by $1.2mn of additional revenues from the shorebase operation.
For the third quarter, ODL generated $39.2mn of net income. ODL total volumes pumped were 251,988 bbl/d during the third quarter, up 17% compared to the third quarter of 2022, driven by stronger crude oil volumes from [the Cano Sur block]. ODL results are recorded through the equity method in the company’s Interim Financial Statements as “Share of Income from associates”.
Cash provided by operating activities of the Midstream Colombia Segment for three months ended 30 Sep. 2023, was $19.2mn, up 33% compared to $14.4mn in the same period of 2022. The increase was mainly due to fluctuations in non-cash working capital.
|Three months ended|
|Nine months ended|
|Liquids port facility||7,838||7,727||24,491||22,420|
|FEC liquids port facility||2,093||1,777||5,660||5,165|
|Third party liquids port facility||5,745||5,950||18,831||17,255|
|General administrative expenses||(1,400)||(1,246)||(4,197)||(3,999)|
|Depletion, depreciation, and amortization||(1,441)||(1,345)||(3,992)||(4,384)|
|Restructuring, severance, and other costs||(298)||(57)||(1,101)||(1,113)|
|Puerto Bahia income from operations||3,525||4,055||10,750||9,487|
|Share of Income from associates ODL||13,726||11,166||41,643||29,908|
|Segment cash flow from operating activities||19,168||14,364||46,877||46,368|
|Three months ended|
|Nine months ended|
|Adjusted Midstream Revenue (1)||43,774||26,621||125,191||75,228|
|Adjusted Midstream Operating Cost (1)||(10,881)||(7,107)||(27,929)||(20,770)|
|Adjusted Midstream General and Administrative (1)||(3,015)||(1,926)||(8,132)||(6,123)|
|Adjusted Midstream EBITDA (1)||29,878||17,588||89,130||48,335|
|(1) Non-IFRS financial measure (equivalent to a “non-GAAP financial measure”, as defined in NI 52-112). Refer to the “Non-IFRS and Other Financial Measures”|
The following table shows the volumes pumped per injection point in ODL:
|Three months ended|
|Nine months ended|
|At Rubiales Station||179,310||140,958||168,290||136,942|
|At Jagüey and Palmeras Station||72,678||75,158||72,229||72,816|
The following table shows throughput for the liquids port facility at Puerto Bahia:
|Three months ended|
|Nine months ended|
|Third party volumes||39,797||44,285||50,238||47,777|
Puerto Bahia and Reficar Connection Update
Preconstruction activities are underway for Puerto Bahia’s 6.8-kilometre, 18-inch bi-directional hydrocarbon flowline. Once in service, the connection shall enable the continuous transport of crude oil and other hydrocarbons between Puerto Bahía’s port facility and the Cartagena Refinery.
Since the announcement in Aug. 2023, the connection project has already achieved notable milestones in various key areas including technical, environmental and social matters, financing and procurement.
3. Guyana Exploration
As announced on 9 Nov. 2023, Frontera and its Joint Venture partner, CGX, discovered of a total of 114 feet (35 meters) of net pay at the Wei-1 well and a total net pay of 342 feet (104 meters) discovered to date on the Corentyne block, approximately 200 kilometers offshore from Georgetown, Guyana.
The joint venture believes that the rock quality discovered in the Maastrichtian horizon in the Wei-1 well is analogous to that reported in the Liza Discovery on Stabroek block. Results further demonstrate the potential for a standalone shallow oil resource development across the Corentyne block.
The joint venture also announced that Houlihan Lokey, a leading global investment bank and capital markets expert, is supporting its active pursuit of strategic options, for the Corentyne block, including a potential farm down, as it seeks to develop this potentially transformational oil investment in one of the most attractive oil and gas destinations in the world today, Guyana. There can be no guarantee that the review of strategic options will result in a transaction.
Frontera also announces that the company intends to file with the TSX a notice of intention to commence a normal course issuer bid for its Common Shares (the “NCIB”). If accepted by the TSX, the company would be permitted under the NCIB to purchase, during a 12-month period, up to 3,872,358 Common Shares, representing approximately 10% of the company’s “public float” (as calculated in accordance with TSX rules). The NCIB will be made in accordance with the rules of the TSX through the facilities of the TSX or alternative trading systems, if eligible. Frontera believes that, from time to time, the market price of its Common Shares may not fully reflect the underlying value of its business and future prospects and financial position. In such circumstances, Frontera may purchase for cancellation outstanding Common Shares, thereby benefitting all shareholders by increasing the underlying value of the remaining Common Shares. The company remains committed to returning capital to shareholders and continues to consider future shareholder value enhancement initiatives.
Under its normal course issuer bid that expired on 16 Mar. 2023, Frontera was authorized to repurchase for cancellation 4,787,976 Common Shares and Frontera purchased for cancellation 4,270,100 Common Shares between March 17, 2022, and March 16, 2023, at a volume weighted average price of C$9.04 per share. Purchases were made on the open market.
As part of its risk management strategy, the company uses derivative commodity instruments to manage exposure to price volatility by hedging a portion of its oil production. The company’s strategy aims to protect 40-60% of the estimated NAR production using a combination of instruments, capped and non-capped, to protect the revenue generation and cash position of the company, while maximizing the upside, allowing the company to take a more dynamic approach to the management of its hedging portfolio. Consistent with this strategy, the company entered new put hedges during the quarter totaling 1,508,000 bbls to protect a portion of the company’s production through Jan. 2024. The following table summarizes Frontera’s hedging position as of 8 Nov. 2023.
|Term||Type of Instrument||Open Positions(bbl/d)||Strike PricesPut/Call|
The company is exposed to foreign currency fluctuations primarily arising from expenditures that are incurred in COP and its fluctuation against the USD. As of 8 Nov. 2023, the company had entered new positions of foreign currency derivatives contracts as follows:
|Term||Type of Instrument||Open Interest(US$ MM)||Strike PricesPut/ Call||Hedging Ratio|
|4Q-2023||Zero-cost Collars||60||4,320 / 4,914.49||40 %|
|1Q-2024||Zero-cost Collars||60||4,125 / 4,763.25||40 %|
|2Q-2024||Zero-cost Collars||60||4,125 / 4,763.25||40 %|