Strong Cash Position Supported by Lower Field Break-even Costs and Hedging Program
Reopening of Select Fields Stabilizing Production in Current Oil Price Environment
Acquisition of Infrastructure Assets Adds to Portfolio of Opportunities
Second Quarter Operational and Financial Results:
- Second quarter production averaged 42,597 boe/d, all from
Colombia , compared to first quarter 2020 production of 58,187 boe/d inColombia and 63,572 boe/d company wide. Production was lower in the second quarter due to the response to the COVID-19 crisis including voluntary shut-ins of higher cost production and the impact of declines from the curtailed capital program. In addition, inPeru Block 192, production remained offline through the second quarter, compared toPeru volumes of 5,385 boe/d in the first quarter of 2020. - Production costs in the second quarter averaged
$9.03 /boe, compared to$12.48 /boe in the first quarter of 2020, mainly due to lower production as a result of the voluntary shut-in of higher cost wells inColombia including the highest water cut wells in Quifa, and the closure of Block 192 inPeru . - Transportation costs averaged
$13.61 /boe, which includes$2.3 /boe in non-cash charges that are under dispute related to unused ancillary facilities, compared to$12.98 /boe in the first quarter of 2020. - General & Administrative Expenses fell to
$10 million in the second quarter, as compared to$15 million in the previous quarter. Year-to-date the Company has reduced office headcount by over one-quarter, reduced salaries and cash compensation for management and board members, and reduced hours for non-managerial office staff and field personnel. The Company also renegotiated the long-term contract on itsBogota office to reduce space by over 50%. - The Company reported a net loss of
$68 million ($0.70 /share), compared to a net loss of$388 million ($4.04 /share), in the first quarter of 2020. - Operating EBITDA was
$29 million compared to$44 million in the first quarter of 2020. Revenue was impacted by lower sales volumes, including the decision to build inventories for future sale in the third-quarter, and lower realized Brent oil prices. Offsetting the lower revenue, the Company's realized gains on risk management for the quarter were$40 million , including monetizing hedges that were fully in the money for the second half of the year for cash gains of$27 million . - Capital expenditures in the second quarter were
$16 million , versus$65 million in the first quarter of 2020 as the Company stopped development activity early in the quarter. - The Company ended the second quarter of 2020 with total cash of
$395 million , as compared to$361 million in the previous quarter. Of total cash, at the end of the second quarter, restricted cash totaled$139 million as compared to$96 million at the end of the first quarter of 2020.
"Frontera has continued to demonstrate a disciplined approach to help weather the current oil price environment. We have implemented a decisive and proactive strategy, which has helped us preserve our strong financial position in the second quarter in light of continuing uncertainty and price volatility. This disciplined approach resulted in finishing the quarter with a stable cash position, and robust hedges for the next 12 months. In addition, we increased our ownership and rights in
"In the second quarter, we shut-in uneconomic production, halted capital spending, and accelerated cost rationalization initiatives, while ensuring that the health and well-being of our field and office staff and people in local communities remained a top priority. We implemented several savings initiatives in the second quarter, including working with our key suppliers to extend payables and lower costs, and utilized Colombian government programs that accelerated tax refunds.
In April, we voluntarily shut-in 14,000 - 15,000 boe/d of higher cost Colombian production in certain heavy and light/medium oil fields. In July and August, with stronger oil prices, we brought back online about 60% of the original shut-in volumes. Further shut-in volumes will be brought back into production as conditions permit.
We took advantage of our shut-in production to significantly reduce the cost structure both in the field and in the corporate overhead. Quarter over quarter, we lowered production costs per unit by 28% and total general & administrative costs by 35%. Importantly we expect these cost efficiencies achieved this year to be permanent, improving our cost structure and competitiveness going forward.
The significant reduction in capital spending this year along with the remaining shut-in production has reduced our current production level to around 43,000 boe/d. Despite limited planned capital investment, we intend to sustain production in
Operational and Financial Summary:
Q2 2020 | Q1 2020 | Q2 2019 | ||
Operational Results | ||||
Average Production | ||||
Oil production - | (bbl/d) | 40,948 | 56,150 | 61,956 |
Oil production - | (bbl/d) | — | 5,385 | 9,975 |
Natural gas production - | (boe/d) | 1,649 | 2,037 | 2,454 |
Total | (boe/d) | 42,597 | 63,572 | 74,385 |
Sales Volumes | ||||
(boe/d) | 35,963 | 53,982 | 57,061 | |
(bbl/d) | — | 10,349 | 9,044 | |
Total | (boe/d) | 35,963 | 64,331 | 66,105 |
Inventory | ||||
(bbl) | 840,893 | 666,378 | 454,909 | |
(bbl) | 852,892 | 852,998 | 1,395,343 | |
Total | (bbl | 1,693,785 | 1,519,376 | 1,850,252 |
Operating Netback (1) | ||||
Net sales realized price | ($/boe) | 34.62 | 41.67 | 60.11 |
Production costs | ($/boe) | (9.03) | (12.48) | (11.17) |
Transportation costs | ($/boe) | (13.61) | (12.98) | (12.49) |
Operating netback | ($/boe) | 11.98 | 16.21 | 36.45 |
Financial Results | ||||
Revenue | ($M) | 81,701 | 236,938 | 377,347 |
Net sales (1) | ($M) | 113,313 | 243,957 | 361,596 |
Net (loss) income (2) | ($M) | (67,760) | (387,809) | 227,809 |
Per share – basic | ($) | (0.70) | (4.04) | 2.32 |
Per share – diluted | ($) | (0.70) | (4.04) | 2.29 |
General and administrative | ($M) | 9,716 | 15,015 | 18,207 |
Operating EBITDA (1) | ($M) | 29,217 | 44,143 | 179,665 |
Cash provided by operating activities | ($M) | 102,256 | 46,541 | 187,948 |
Capital expenditures | ($M) | 15,651 | 64,676 | 73,487 |
Total cash, including restricted cash (3) | ($M) | 394,769 | 361,269 | 485,634 |
Working capital | ($M) | 37,403 | 67,715 | 176,032 |
1. These metrics are Non-IFRS financial measures. Refer to the Advisories - "Non-IFRS Financial Measures" section below for further details. |
2. Net (loss) income attributable to equity holders of the Company. |
3. Includes |
Operational Update:
In July, with Brent prices improving and stabilizing at
In the second half of the year, the Company expects to maintain a disciplined approach to capital spending, with
In the VIM-1 Block, Frontera (50% W.I.) with
In
Production in Block 192 in
In offshore
(1) Field break-even estimated with assumed pricing differential of |
Financial Liquidity:
In the second quarter, the Company worked closely with its major suppliers to extend certain payables into the second half of the year. In May, the Company made the decision to monetize second-half 2020 crude oil hedges (that were fully in the money) for a cash gain of
Midstream Update
On
Guidance Update
On
Frontera expects second half 2020 capital expenditures between
In the second half of 2020, the Company expects the working capital cycle to normalize, with some additional payments to catch up on deferred payables. For year-end 2020, the Company is targeting to have minimum total cash of
The table below shows the Company's actual results for the six months ending
| ||||
Average Daily Production (1) | (boe/d) | 53,086 | 40,000 - 43,000 | 46,000 - 48,000 |
Production Cost (2) (3) | ($/boe) | |||
Transportation Cost (2) (4) (5) | ($/boe) | |||
Capital Expenditures (2) (6) | MM |
1. Does not include production from |
2. Does not include the consolidation impact from IVI. |
3. Calculated using production before royalties in the denominator as this most accurately reflects per unit production cost and is consistent with our peers. |
4. Calculated using production after royalties in the denominator as this most accurately reflects per unit transportation costs. |
5. Includes non-cash charges that are under dispute related to unused ancillary facilities of approximately |
6. Includes Frontera's estimate of its share of costs of the 2020 Guyana exploration program, as joint venture partner, but does not include the consolidation impact of CGX Energy Inc.'s share of those exploration costs. |
New Executive Promotions:
The Company announces the promotion of Mr.
Mr.
Hedging Update:
Frontera benefited in the second quarter from hedges on approximately 85% of production volumes. In the quarter, the Company re-balanced the risk management position for the remainder of the year by unwinding the 2020 position completely, replacing it with new instruments to provide additional protection near current oil price levels.
The goal of the hedging program is to protect the revenue generation and cash position of the Company. The forward hedging position was also increased in part to support restarting production and protect the break-evens of the previously shut-in fields. The Company has now hedged approximately 7.5 million bbls at Brent
The following is the current hedging portfolio as of the date of this release:
Term | Type of Instrument | Notional Amount / | Put/Call/Spreads $ |
July | Put Spread | 1,124,500 | 25/35 |
ZCC | 281,000 | 35/49.4 | |
Total July | 1,405,500 | ||
August | Put Spread | 1,085,500 | 25/35 |
ZCC | 271,000 | 35/49.4 | |
Total August | 1,356,500 | ||
September | Put Spread | 1,013,500 | 25/35 |
ZCC | 254,000 | 35/49.4 | |
Total September | 1,267,500 | ||
Q3 2020 | Total Q3 | 4,029,500 | |
October | Put Spread | 1,012,500 | 25/35 |
3-ways | 269,000 | 27/37/49 | |
Total October | 1,281,500 | ||
November | Put Spread | 850,000 | 25/35 |
3-ways | 273,000 | 27/37/49 | |
Total November | 1,123,000 | ||
December | Put Spread | 852,000 | 25/35 |
3-ways | 251,000 | 27/37/49 | |
Total December | 1,103,000 | ||
Q4 2020 | Total Q4 | 3,507,500 | |
Total 2020 | 7,537,000 | ||
January | 3-way | 461,000 | 25.5/35.5/50.3 |
Put Spread | 100,000 | 25/35 | |
Total January | 561,000 | ||
February | 3-way | 409,000 | 25.5/35.5/50.3 |
Put Spread | 100,000 | 25/35 | |
Total February | 509,000 | ||
March | 3-way | 465,000 | 25.5/35.5/50.3 |
Put Spread | 100,000 | 25/35 | |
Total March | 565,000 | ||
Q1 2021 | Total Q1 | 1,635,000 | |
April | 3-way | 457,000 | 25.5/35.5/51.8 |
Put Spread | 110,000 | 25/35 | |
Total April | 567,000 | ||
May | 3-way | 481,000 | 25.6/35.6/51.7 |
Put Spread | 110,000 | 25/35 | |
Total May | 591,000 | ||
June | 3-way | 452,000 | 25.6/35.6/51.7 |
Put Spread | 110,000 | 25/35 | |
Total June | 562,000 | ||
Q2 2021 | Total Q2 | 1,720,000 | |
Total Average 2021 | 3,355,000 |
Second Quarter 2020 Conference Call Details
The Company will host a conference call for investors and analysts to discuss its results on
Participant Number ( | 1-888-664-6392 |
Participant Number (Toll Free Colombia): | 01-800-518-4036 |
Participant Number (International): | 1-416-764-8659 |
Conference ID: | 66267364 |
Webcast: | https://produceredition.webcasts.com/starthere.jsp?ei=1344311&tp_key=3f68d73b40 |
A replay of the conference call will be available until
Encore Toll free Dial-in Number: | 1-888-390-0541 |
International Dial-in Number: | 1-416-764-8677 |
Encore ID: | 267364 |
About Frontera:
If you would like to receive News Releases via e-mail as soon as they are published, please subscribe here: http://fronteraenergy.mediaroom.com/subscribe.
Advisories:
Cautionary Note Concerning Forward-Looking Statements
This news release contains forward-looking statements. All statements, other than statements of historical fact, that address activities, events or developments that the Company believes, expects or anticipates will or may occur in the future (including, without limitation, statements regarding the impact of the reduce price of oil and natural gas, the impact of the COVID-19 pandemic on the Company's operations, the effectiveness or adequacy of the Company's program to manage the COVID-19 pandemic and current oil price environment, estimates and/or assumptions in respect of the Company's capital expenditure program (including Company's guidance), production, costs, future income generation capacity, cash levels, the Company's exploration and development plans and objectives, including its drilling plans and the timing thereof, regulatory approvals, the impact of shut-ins and other work in the field on future field performance, ability to reduce production, transportation and G&A costs and defer certain payments and the impact thereof, and the Company's hedging program and its ability to mitigate the impact of lower oil prices) are forward-looking statements. These forward-looking statements reflect the current expectations or beliefs of the Company based on information currently available to the Company. Forward-looking statements are subject to a number of risks and uncertainties that may cause the actual results of the Company to differ materially from those discussed in the forward-looking statements, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, the Company. Factors that could cause actual results or events to differ materially from current expectations include, among other things: volatility in market prices for oil and natural gas (including as a result of demand and supply shifts caused by the COVID-19 pandemic and the actions of
This news release contains future oriented financial information and financial outlook information (collectively, "FOFI") (including, without limitation, statements regarding expected average production, production costs, transportation costs, capital expenditures, total cash and cash and cash equivalents), and are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraph. The FOFI has been prepared by management to provide an outlook of the Company's activities and results, and such information may not be appropriate for other purposes. The Company and management believe that the FOFI has been prepared on a reasonable basis, reflecting management's reasonable estimates and judgments, however, actual results of operations of the Company and the resulting financial results may vary from the amounts set forth herein. Any FOFI speaks only as of the date on which it is made and the Company disclaims any intent or obligation to update any FOFI, whether as a result of new information, future events or results or otherwise, unless required by applicable laws.
Non-IFRS Financial Measures
This news release contains financial terms that are not considered in the International Financial Reporting Standards ("IFRS"): Operating EBITDA, Operating Netback, and
Management believes that EBITDA is a common measure used to assess profitability before the impact of different financing methods, income taxes, depreciation and impairment of capital assets and amortization of intangible assets.
EBITDA is a commonly used measure that adjusts net income (loss) as reported under IFRS to exclude the effects of income taxes, finance income and depletion, depreciation and amortization expense.
Operating EBITDA represents the operating results of the Company's primary business, excluding the items noted above, restructuring, severance and other costs, certain non-cash items (such as impairments, foreign exchange, unrealized risk management contracts, and share-based compensation) and gains or losses arising from the disposal of capital assets. In addition, other unusual or non-recurring items are excluded from operating EBITDA, as they are not indicative of the underlying core operating performance of the Company.
A reconciliation of Operating EBITDA to net income (loss) is as follows:
Three Months Ended | |||
($M) | 2020 |
| 2019 |
Net (loss) income | (67,760) | (387,809) | 227,809 |
Finance income | (6,167) | (4,678) | (5,469) |
Finance expenses | 11,728 | 15,260 | 14,644 |
Income tax expense | 1,161 | 173,074 | (156,772) |
Depletion, depreciation and amortization | 58,250 | 88,020 | 99,092 |
Impairment | 3,329 | 148,134 | 15,369 |
Share-based compensation | 1,316 | 1,217 | 1,145 |
Restructuring, severance and other costs | 6,302 | 6,408 | 2,048 |
Share of income from associates | (23,336) | 8,406 | (19,753) |
Foreign exchange loss (gain) | 2,535 | 20,597 | (1,681) |
Unrealized loss (gain) on risk management contracts | 36,011 | (29,140) | (6,460) |
Other loss (income), net | 2,668 | 2,991 | 497 |
Non-controlling interests | 3,180 | 1,663 | 9,196 |
Operating EBITDA | 29,217 | 44,143 | 179,665 |
2020 | 2019 | |||||
(in thousands of US$) | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 |
Financial and Operational results: | ||||||
Operating EBITDA | 29,217 | 44,143 | 137,052 | 124,586 | 179,665 | 144,855 |
Netbacks
Management believes that Netback is a useful measure to assess the net profit after all the costs associated with bringing one barrel of oil to the market. It is also commonly used by the oil and gas industry to analyze financial and operating performance expressed as profit per barrel. Operating Netback represents realized price per barrel plus realized gain or loss on financial derivatives, less production costs, transportation costs, royalties, and diluent costs, and shows how efficient the Company is at extracting and selling its product. Refer to the "Operating Netback" section on page 6 of the MD&A.
Net sales is a non-IFRS subtotal that adjusts revenue to include realized gains and losses from risk management contracts while removing the cost of dilution activities. This is a useful indicator for management as the Company hedges a portion of its oil production using derivative instruments to manage exposure to oil price volatility. This metric allows the Company to report its realized net sales after factoring in these risk management activities. The deduction of diluent cost is helpful to understand the Company's sales performance based on the net realized proceeds from production net of dilution, the cost of which is partially recovered when the blended product is sold. Net sales do not include the sales and purchases of oil and gas for trading as the gross margins from these activities are not considered significant or material to the Company's operations. Refer to the reconciliation in the "Sales" section on page 7 of the MD&A.
Please see the MD&A for additional information about these financial measures.
Oil and Gas Information Advisories
Reported production levels may not be reflective of sustainable production rates and future production rates may differ materially from the production rates reflected in this news release due to, among other factors, difficulties or interruptions encountered during the production of hydrocarbons.
Field break-even reflects the estimated Brent oil price per barrel required to generate an asset level Operating Netback of
The term "boe" is used in this news release. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of cubic feet to barrels is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In this MD&A, boe has been expressed using the Colombian conversion standard of 5.7 Mcf: 1 bbl required by the
Definitions:
bbl(s) | Barrel(s) of oil |
bbl/d | Barrel of oil per day |
boe | Refer to "Boe Conversion" disclosure above |
boe/d | Barrel of oil equivalent per day |
Mcf | Thousand cubic feet |
Net Production | Net production represents the Company's working interest volumes, net of royalties and internal consumption |
W.I. | Working Interest |
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