(Frontera, 15.Feb.2024) — Frontera Energy Corporation (TSX: FEC) announced its full year 2024 capital and production guidance, provides an update on its estimated fourth quarter 2023 and full year average daily production and provides and update on shareholder value initiatives, including the initiation of a quarterly dividend of CAD $0.0625 per share payable quarterly, following the release of year-end 2023 results. All values in this news release and the company’s financial disclosures are in United States dollars, unless otherwise noted.
Key 2024 Capital and Production Guidance Highlights:
- Anticipated $400mn-$450mn in consolidated Operating EBITDA at $80/bbl average Brent while investing $272mn-335mn in in total consolidated capital expenditures, a 32% decrease at the midpoint compared to 2023.
- Deploying $230mn-$280mn, including $35mn-$45mn exploration investments, in the company’s core Colombia and Ecuador Upstream business, a 10% decrease at the midpoint compared to 2023, to deliver 40,000-42,000 boe/d full year production for 2024.
- Investing $35mn-$45mn to drill three exploration wells including the high-impact Hydra-1 well in the VIM-1 block in Colombia and two wells in the Espejo Block in Ecuador and additional seismic and pre-drilling activities in Colombia.
- Investing $40mn-$50mn in the company’s standalone and growing Colombia Infrastructure business mainly to build the 6.8-kilometre, 18-inch pipeline connection between the Reficar Refinery and the company’s Puerto Bahia’s Liquids Terminal and to commission the SAARA Reverse Osmosis Water Treatment Facility at Quifa.
- Estimating total production costs, including both production and energy costs for 2024 to average $14.25 – $15.75, primarily driven by El Niño-related higher energy costs. Transportation costs for 2024 are forecasted to average $11.00 – $12.00 per boe.
- Hedging approximately 40% of the company’s estimated production after royalties at an average Brent price of $73.34 through June 2024, providing revenue visibility and reducing exposure to price volatility.
- Initiating a quarterly dividend of CAD $0.0625 per share payable quarterly, following the release of year-end 2023 results, subject to regulatory approval, and repurchasing up to 3.95 million common shares for cancellation through the company’s recently announced Normal Course Issuer Bid (NCIB).
- Considering future additional shareholder value enhancing initiatives, including additional dividends, distributions, or bond buybacks, based upon overall results of our businesses and the Company’s strategic goals.
Orlando Cabrales, Chief Executive Officer (CEO), Frontera, commented:
“In 2023, we delivered estimated average daily production of approximately 40,919 boe/d, in line with our guidance range, while deploying significant capital to successfully advance our exciting offshore Guyana exploration program.
Guided by our strategy of value over volumes and our track record of improving capital efficiency, in 2024 we will invest $272mn to $335mn in total capital, a 32% reduction compared to the midpoint of our 2023 guidance to generate $400mn to $450mn in consolidated Operating EBITDA at $80/bbl average Brent prices while sustaining an estimated 40,000 to 42,000 boe/d full year production.
Our 2024 capital and production plan is fully funded, protected by a prudent hedging program, and leans into the most productive and profitable assets within our portfolio, capitalizing on outstanding near field opportunities at our Quifa, CPE-6 and VIM-1 producing blocks, while delivering our quickest payback barrels with sustained future growth potential. We expect that our development program, together with our exploration investments led by our potentially high-impact Hydra-1 well in the VIM-1 block in Colombia, will deliver sustainable production and strong cash flows in 2024 and beyond.
Frontera has generated approximately $1.5bn in Operating EBITDA over the last three years with strong cash flow expected in 2024. Since 2018, we have also returned more than $305mn to shareholders via dividends and share buybacks. For 2024, the company, subject to regulatory approval, seeks to pay a CAD $0.0625 per share quarterly dividend following the release of year-end 2023 results in addition to its ongoing NCIB program announced last year. Additionally, the company’s strategic review process for our exciting Guyana exploration business is advancing, where a data room has been opened and management presentations are underway. At Frontera, we remain committed to unlocking the sum of our parts and driving shareholder returns.”
Summary of Frontera’s 2024 Capital and Production Guidance
| Guidance Metrics | Unit | 2023 Guidance | 2024 Full Year Guidance Frontera Consolidated |
| Average Daily Production (1) | boe/d | 40,000 – 43,000 | 40,000 – 42,000 |
| Production Costs (excl. energy costs) (2)(4) | $/boe | $12.50 – $13.50 | $8.50 – $9.50 |
| Energy Costs (2)(4) | $/boe | $5.75 – $6.25 | |
| Transportation Costs (3)(4) | $/boe | $10.50 – $11.50 | $11.00 – $12.00 |
| Operating EBITDA(5) at $80/bbl (6) | $MM | $425 – $475 | $400 – $450 |
| Upstream Operating EBITDA | $MM | $400 – $430 | |
| Infrastructure Operating EBITDA(7) | $MM | $15 – $25 | |
| Adjusted Infrastructure EBITDA(8) | $MM | $95 – $115 | |
| Development Drilling | $MM | $110 – $130 | $85 – $95 |
| Development Facilities | $MM | $75 – $85 | $95 – $115 |
| Colombia and Ecuador Development | $MM | $185 – $215 | $180 – 210 |
| Colombia and Ecuador Exploration | $MM | $50 – $60 | $35 – $45 |
| Other(9) | $MM | $25 – $30 | $15 – $25 |
| Total Colombia & Ecuador Upstream Capex | $MM | $260 – $305 | $230 – $280 |
| Colombia Infrastructure(10) | $MM | $5 – $10 | $40 – $50 |
| Guyana Exploration | $MM | $155 – $160 | $2 – $5 |
| Total Capital Expenditures (11) | $MM | $420 – $475 | $272 – $335 |
| Notes: | |
| 1 | The company’s 2024 average production guidance range does not include in-kind royalties, operational consumption, quality volumetric compensation or potential production from successful exploration activities planned in 2024. |
| 2 | Per-bbl/boe metric on a share before royalties’ basis. |
| 3 | Calculated using net production after royalties. |
| 4 | Supplementary financial measure (as defined in National Instrument 52-112 – Non-GAAP and Other Financial Measures (“NI 52-112“)). See “Advisories – Non-IFRS Financial and Other Measures”. |
| 5 | Non-IFRS financial measure (equivalent to a “non-GAAP financial measure”, as defined in NI 52-112). “Operating EBITDA” represents the operating results of the vompany’s [Colombia and Ecuador upstream] business, excluding the following items: restructuring, severance and other costs, certain non-cash items and gains or losses arising from the disposal of capital assets. See “Advisories – Non-IFRS Financial and Other Measures”. |
| 6 | Current Guidance Operating EBITDA calculated at Brent $80/bbl and COP/USD exchange rate of 4,100:1. |
| 7 | Includes Puerto Bahia (including FEC-related revenues), SAARA and Proagrollanos. |
| 8 | Reported Adjusted Infrastructure EBITDA (previously referred to as Adjusted Midstream EBITDA) is a non-IFRS financial measure used to assist in measuring the operating results of the Infrastructure business, including the proportional consolidation of the 35% equity investment in the ODL pipeline. |
| 9 | Other includes Sabanero Insurance, HSEQ activities and New Technologies |
| 10 | Colombia Infrastructure includes investments related to the Reficar connection, SAARA Reverse Osmosis Water Treatment Facility and safety, maintenance activities and operational optimizations in the Port. |
| 11 | Non-IFRS financial measure (equivalent to a “non-GAAP financial measure”, as defined in NI 52-112). See “Advisories – Non-IFRS Financial and Other Measures”. Capital expenditures excludes decommissioning. |
Enhancing Shareholder Returns
NCIB: Under the company’s current NCIB which commenced on 21 Nov. 2023, Frontera has repurchased 508,000 common shares for cancelation for approximately $3mn as of 14 Feb. 2024. The company is authorized to repurchase up to 3,949,454 of its common shares for cancellation, representing up to 10% of its outstanding float.
Quarterly Dividend: The Board of Directors has adopted a dividend policy to pay a dividend of CAD $0.0625 per share quarterly, following the release of year-end 2023 results. Dividend payments will be subject to quarterly review and approval by Frontera’s Board of Directors and the determination to pay such dividends will be based on, among other things, the company’s view of prevailing and prospective macroeconomic conditions and business performance. In addition, the payment of dividends is subject to the approval of the Toronto Stock Exchange, applicable law and the provisions of the indenture governing the company’s unsecured notes. Each dividend, if declared by the Board of Directors, is intended to be payable to shareholders of record at the close of business on the second trading day of the first calendar quarter following the date of declaration.
Frontera remains committed to unlocking value and enhancing shareholder returns and will continue to consider future shareholder value enhancement initiatives in 2024, including potential additional dividends, distributions, or bond buybacks, based on the overall results of our businesses and the company’s strategic goals.
About Frontera’s 2024 Capital, Production and Cash Flow Guidance
Frontera’s 2024 capital and production guidance is based on an average 2024 Brent price of $80/bbl, an average sales price oil differential of $4.50/bbl, and an exchange rate of 4,100 Colombian Pesos per US dollar.
Other key 2024 guidance highlights include:
- Estimated $35mn-$45mn in dividends, net of taxes, to be received from the ompany’s interest in the ODL pipeline.
- Debt service payments are estimated to be approximately $60mn-70mn for 2024, including a payment of approximately $32mn for interest associated with the company’s 2028 senior notes, and the repayment of the $18mn Bancolombia working capital loan.
- Pipeline Investment LTD (PIL) debt service payments include $15mn of amortization payments as well as interest payments on the facility. These amounts are net of additional committed funding, subject to certain conditions precedent, in connection with the construction of the Reficar pipeline.
| Upstream Business | ($mn) |
| Upstream Operating EBITDA | $400 – $430 |
| Cash Taxes(1) | $(10) – $(20) |
| Debt Service(2) | $(60) – $(70) |
| Upstream Capex | $(230) – $(280) |
| Upstream Free Cash Flow | $60 – $100 |
| Infrastructure Business | ($mn) |
| Infrastructure Operating EBITDA(3) | $15 – $25 |
| ODL Dividends, net of taxes | $35 – $45 |
| PIL Debt Service, net(4) | $(5) – $(10) |
| Infrastructure Capex | $(40) – ($50) |
| Infrastructure Free Cash Flow | $5 – 10 |
| Notes: | |
| 1 | Cash taxes paid including withholding taxes, VAT payments and estimated tax recoveries. |
| 2 | Debt service includes interest on the 2028 senior notes, working capital loans debt service payments, Petrosud debt service and leases. |
| 3 | Includes Puerto Bahia (including FEC-related revenues), SAARA and Proagrollanos. |
| 4 | PIL debt service is net of new funding in connection with the construction of the Reficar Connection of $30mn. |
Colombia and Ecuador Upstream Production and Operating Costs Guidance
In the Company’s core Colombia and Ecuador Upstream business, Frontera aims to deliver production of 40,000-42,000 boe/d, in-line with 2023, while decreasing capital investment by approximately 10% compared to 2023 levels to $230mn to $280mn.
The company will focus on its inventory of near-field development drilling opportunities at its Quifa, CPE-6 and VIM-1 producing blocks, invest in development facilities to enhance its water-handling capacity at CPE-6 and increase its gas processing capacity at VIM-1. Frontera’s capital program also includes $35mn-$45mn in exploration opportunities including drilling the high-impact Hydra-1 well in the VIM-1 block and two wells in Ecuador.
The company’s 2024 average production guidance range does not include in-kind royalties, operational consumption, volumetric compensation or, potential production from successful exploration activities planned in 2024. The company anticipates delivering $400mn to $430mn in Operating EBITDA in 2024 from its Upstream operations.
To provide enhanced clarity, as part of its 2024 Guidance, the company is providing additional details on its key operating cost drivers, including a breakdown of production-associated energy costs.
| In USD per barrel | 2023 | 2024 |
| Production Costs (ex. Energy Cost) | $8.25 – $8.75 | $8.50 – $9.50 |
| Energy Costs | $4.25 – 4.75 | $5.75 – $6.25 |
| Total Production Costs | $12.50 – $13.50 | $14.25 – $15.75 |
| Transportation Costs | $10.50 – $11.50 | $11.00 – $12.00 |
The company estimates 2024 production costs to average $8.50 – $9.50 per boe, excluding energy costs. This estimate represents a 6% increase compared to estimated 2023 production costs levels reflecting the additional well intervention and workover activity in lieu of drilling expenditures, cost associated to additional water handling and treatment capacity associated to SAARA and on-going inflationary pressures.
Energy costs, described as electricity consumption and the costs of localized energy generation, to average $5.75 – $6.25 per boe, representing a 33% increase compared to estimated 2023 energy costs levels, driven primarily by El Niño-related higher energy costs.
Transportation costs for 2024 are forecasted to average $11.00 – $12.00 per boe, compared to $10.50 – $11.50 per boe in 2023.
2024 Estimates Sensitivities
| Brent Crude Oil Price ($/bbl) | $70 | $80 | $90 |
| Consolidated Operating EBITDA ($MM) | $325 – $375 | $400 – $450 | $475 – $525 |
| Cash Taxes ($MM)(1) | $0 – $10 | $10 – $20 | $25 – $35 |
| Note: | |
| 1 | Cash taxes paid including withholding taxes, VAT payments and estimated tax recoveries. |
About Frontera’s 2024 Upstream Spending
Frontera’s anticipated total 2024 Colombia and Ecuador Upstream capital expenditures of $230-$280 million represents an approximately 10% decrease at the midpoint of the company’s 2023 capital budget. Capital expenditures will be directed to development and exploration activities as shown below.
Development Activities
Frontera anticipates spending approximately $85mn-$95mn to drill up to 62 wells (60 producer wells and 2 injector wells) in 2024 and approximately $95-$115 million on development facilities primarily in support of enhanced production capacities at VIM-1, CPE-6, and Quifa.
Colombia
- Quifa block: Frontera plans to drill 27 wells (26 producer wells and one injector well) in the Quifa SW field, and install additional flow lines in the Quifa block, including investments to increase water handling capacity via a connection to the SAARA project. At the Cajua field, Frontera plans to drill 11 producer wells.
- CPE-6 block: the company plans to drill 17 wells (16 producer wells and one injector well) and install additional flow handling and injector line facilities. In addition, the company plans to increase water handling capacity to 360,000 bbls/day. In 2023, the company doubled water handling capacity to approximately 240,000 bbls/day, which supported an increase in production to 5,487 boe/d in 2023, compared to 4,991 boe/d in 2022.
- VIM-1 block (Frontera 50% W.I., non-operator): the company plans to initiate Phase 1 expansion of La Belleza facilities and flow lines to increase gas processing capacity from 20,000 to 30,000 Mcf/day.
- Other fields: In Sabanero, the company expects to drill four production wells plus install additional injection facilities.
- Other Capex: The company plans to invest in new field production technologies to enhance operational efficiency and mitigate water production.
Ecuador
- Perico (Frontera 50% W.I. and operator): Building on the successful 2023 drilling and testing program in the new combined structural/stratigraphic U-sand play, Frontera intends to drill three wells and install additional flow lines and facilities.
Exploration: Colombia and Ecuador
In 2024, the company anticipates spending $35mn-$45mn on various exploration activities in Colombia and Ecuador including:
- Drilling the high-impact exploration Hydra-1 well in the VIM-1 Block (Frontera 50% W.I., non-operator) targeting gas and condensate. Frontera plans to utilize new seismic processing technology to drill this prospect, expected to be spud mid-year 2024.
- Drilling two wells in the Espejo block (Frontera 50% W.I., non-operator) in Ecuador, near the Pashuri-1 discovery in Lower U Ss. These two wells will satisfy the exploration commitments in the block.
- Acquire 3D seismic and complete pre-drilling activities and civil works at the Llanos-119 blocks, complete pre-drilling activities in the Llanos 99 block and pre-seismic activities in the VIM-46 block.
About Frontera’s 2024 Colombian Infrastructure Spending
In the company’s standalone and growing Colombia infrastructure business, the company expects to generate in 2024 between $15mn-$25mn in segment Operating EBITDA and between $95mn-$115mn in Adjusted Infrastructure EBITDA. Frontera anticipates investing $40mn-$50mn primarily to build the pipeline connection between Frontera’s liquids terminal at Puerto Bahia and the Cartagena Refinery.
- Puerto Bahia: The construction of the Reficar connection is anticipated to cost approximately $30mn. The connection will be built, operated, and maintained by Puerto Bahia and will have a capacity of up to 84,000 bbls/day. The connection will be capable of handling imported and domestically produced crudes. Frontera anticipates breaking ground in the first quarter of 2024 and connection start-up by end of 2024. Frontera is in the process of securing an additional $30mn in funding, subject to certain conditions precedent, for this project from its existing group of lenders led by Macquarie Group. The financing is expected to close this month.
- SAARA: During 2024, Frontera successfully completed the pilot phase of the SAARA project with Ecopetrol. Frontera intends to invest in the commissioning of the first phase of the project, the stabilization phase, to reach a minimum of 250,000 barrels of water per day available for the Quifa block, subject to final JV approval.
2024 Hedging Program
As part of its risk management strategy, Frontera uses derivative commodity instruments to manage exposure to price volatility by hedging a portion of its oil production. The company’s strategy aims to protect 40-60% of its estimated net after royalties’ production using a combination of instruments, capped and non-capped, to protect the revenue generation and cash position of the company, while maximizing the upside, allowing the company to take a more dynamic approach to the management of its hedging portfolio. Consistent with this strategy, the company entered new put hedges totaling 2,574,826 bbls to protect a portion of the company’s production through Jun. 2024. The following table summarizes Frontera’s 2024 hedging position as of 14 Feb. 2024.
| Term | Type of Instrument | Open Positions (bbl/d) | Strike Prices Put/Call |
| Jan 24 | Put | 13,823 | 80.00 |
| Feb 24 | Put | 13,601 | 72.00 |
| Mar 24 | Put | 13,497 | 72.00 |
| 1Q-2024 | Total Average | 13,641 | 74.76 |
| Apr 24 | Put | 14,711 | 72.00 |
| May 24 | Put | 14,586 | 72.00 |
| Jun 24 | Put | 14,667 | 72.00 |
| 2Q-2024 | Total Average | 14,653 | 72.00 |
The company is exposed to foreign currency fluctuations primarily arising from expenditures that are incurred in COP and its fluctuation against the USD. As of 14 Feb. 2024, the company had entered new positions of foreign currency derivatives contracts as follows:
| Term | Type of Instrument | Open Interest (US$ MM) | Strike Prices Put/ Call | Hedging Ratio | |
| 1Q-2024 | Zero-cost Collars | 60 | 4,125 / 4,763 | 40 % | |
| 2Q-2024 | Zero-cost Collars | 60 | 4,125 / 4,763 | 40 % | |
| Oct, 2024 | Forward | 17 | 4,386 |
Estimated 2023 Production
Frontera’s estimated 2023 average daily production of approximately 40,919 boe/d was in-line with the company’s 2023 production guidance of 40,000-43,000 boe/d and an approximately 1% decrease compared to the company’s 2022 average production. Frontera’s estimated average daily production for the fourth quarter was approximately 39,267 boe/d. The lower production during the quarter was primarily the result of lower planned drilling activity, and natural declines in the company’s light and medium oil fields. See the table below for production by product type.
| 2023 Year-End | |
| Heavy crude oil production (1) | 23,359 bbl/d |
| Light and medium crude oil combined production (1) | 14,856 bbl/d |
| Total crude oil production | 38,215 bbl/d |
| Conventional natural gas production (1) | 6,042 Mcf/d |
| Natural Gas liquids production (1) | 1,644 boe/d |
| Total production (2) | 40,919 boe/d (3) |
| Notes: | |
| 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 30 Sep. 2023 (the “MD&A”), which is available 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. |
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