First Quarter Operational and Financial Results:
- Production averaged 63,572 boe/d, which was 10% lower compared to the fourth quarter of 2019, and 6% lower than the first quarter of 2019. Production in
Colombia averaged 58,187 boe/d reflecting stable production in heavy oil blocks and natural declines in light and medium oil and natural gas fields, as well as the negative impact of measures introduced to limit the spread of COVID-19. InPeru Block 192, community actions led to the suspension of production in earlyMarch 2020 , with first quarter production inPeru averaging 5,385 boe/d. - Cash generated by operating activities was
$47 million , compared with$152 million in the fourth quarter of 2019 and$83 million in the first quarter of 2019, primarily due to a reduction in global crude oil prices. The Brent crude oil benchmark price averaged$50.82 /bbl for the first quarter of 2020, 19% below the fourth quarter of 2019 and 20% below the first quarter of 2019. - The Company reported a net loss of
$388 million ($4.04 /share), compared to a net income of$46 million ($0.47 /share) in the first quarter of 2019, primarily due to a non-cash impairment charge of$151 million , a non-cash reduction of$168 million in deferred income tax assets and a$20 million write-down of oil inventory, all items related to lower oil prices. - Operating EBITDA was
$44 million compared with$137 million in the fourth quarter of 2019, and$145 million in the first quarter of 2019. The Company's risk management program resulted in realized gains of$15 million on settled positions during the quarter which partially offset the impact of lower Brent oil prices. - Capital expenditures were
$65 million in the first quarter of 2020, 51% lower than the fourth quarter of 2019, and 7% lower than the first quarter of 2019, as the Company reduced its planned drilling and exploration activities in line with the lower oil price environment. During the quarter, the Company drilled 19 wells, including 18 development wells and one exploration well. - Operating netback was
$16.21 /boe, compared with$29.62 /boe in the fourth quarter of 2019, and$30.23 /boe in the first quarter of 2019. Lower benchmark prices and wider Vasconia differentials resulted in net sales realized price decreasing to$41.67 /boe for the first quarter. - A quarterly dividend of
C$0.205 /share, or$14 million , was paid onApril 16, 2020 , and the Company repurchased for cancellation 1,392,314 common shares at a cost of$10 million under its normal course issuer bid ("NCIB") program during the quarter.
Frontera's Program to Manage the COVID-19 Pandemic and the Current Oil Price Environment:
- As the gravity of the current COVID-19 pandemic started to become apparent, with its consequent impact on oil demand and prices, Frontera moved decisively to adopt a proactive strategy to manage through the crisis, enacting measures to protect its strong balance sheet while preserving flexibility and optionality for the future.
- A priority for Frontera has been to maintain a safe and healthy working environment in all of its operating areas, complying with all national health guidelines. In
Colombia , the oil and gas sector has been declared a strategic industry by the government which has allowed the Company to adapt its operating procedures and continue producing and transporting oil and gas. Across the Company, field teams have been reduced and staff in Frontera's offices are working from home. - Frontera has increased its support for local communities in
Colombia andPeru by providing safety, medical and food supplies. - The Company is focusing ongoing 2020 capital expenditures on activities that remain economic at low oil prices, primarily essential maintenance, well-workovers and activities that sustain production from higher netback fields.
- Frontera now expects full year capital expenditures will be in the range of
$80 to$100 million , down from the original plan of$325 to$375 million . - As a consequence of the very low oil prices in April, Frontera decided to temporarily shut-in production from certain fields in
Colombia with lower field netbacks. This includes the highest water cut wells in Quifa. The Company exited the first quarter with Colombian production of around 54,000 boe/d as a result of the slowdown in development drilling and workovers as the COVID-19 pandemic started to intensify in March. The volumes presently shut-in are between 14,000 - 15,000 bbls/d, including nearly 5,000 bbls/d in the Quifa field. Combined with the shut-in ofPeru production, current Frontera production totals 39,000 - 40,000 boe/d. The Company does not expect the shut-ins to affect future field performance and is planning to reactivate the shut-in production once market conditions improve. - The Company has taken significant steps to reduce production and transportation costs (outlined further in the release) and has also benefited from a weaker Colombian peso. During this period, the Company is proceeding to renegotiate service provider contracts and energy tariffs in order to rebase its field operating costs. Based on the revised production plan, Frontera expects it can reduce cash outlays by up to
$100 million in production costs and$30 million in transportation costs. - Frontera has taken steps to reduce its 2020 general and administrative ("G&A") expenses by
$30 -$35 million . The Company has made significant headcount reductions and directors, executives and other management of the Company have agreed to reductions in cash compensation between 25% and 10%. - The Company ended the first quarter of 2020 with cash and cash equivalents (including restricted cash) of
$361 million and no debt maturities until 2023. Assuming a flat Brent oil price of$30 /bbl, the current value of the April throughDecember 2020 oil hedge position is approximately$57 million . - Frontera is withdrawing all of its previously stated 2020 guidance. Additionally, given current oil prices, in accordance with its dividend policy the Company has suspended its dividend program and does not expect to make further share repurchases under its NCIB until conditions improve.
"Frontera has been managed to maximize long-term shareholder value regardless of the oil price environment without sacrificing one of the strongest balance sheets among our peers. Because of this disciplined approach, we began the second quarter with a strong cash position of
"The Coronavirus crisis and resultant collapse in oil demand has led to current oil prices at historically low levels and significant uncertainty in the outlook for the rest of this year. Through our hedging program, our operational response to shut-in production which is not economic at present, and our relentless focus on cost savings, we have acted quickly to protect the Company's cash position and future growth potential. The Company retains the flexibility to make further adjustments as required by the circumstances and is well positioned to restore production and investment once the peak of the crisis has passed and recovery begins."
Operational and Financial Summary:
Q1 2020 | Q4 2019 | Q1 2019 | |||||
Operational Results | |||||||
Average Production | |||||||
Oil production - | (bbl/d) | 56,150 | 58,517 | 63,052 | |||
Oil production - | (bbl/d) | 5,385 | 10,164 | 2,271 | |||
Natural gas production - | (boe/d) | 2,037 | 2,224 | 2,651 | |||
Total | (boe/d) | 63,572 | 70,905 | 67,974 | |||
Operating Netback (1) | |||||||
Net sales realized price | ($/boe) | 41.67 | 56.22 | 54.33 | |||
Production costs | ($/boe) | (12.48) | (13.76) | (11.40) | |||
Transportation costs | ($/boe) | (12.98) | (12.84) | (12.70) | |||
Operating netback | ($/boe) | 16.21 | 29.62 | 30.23 | |||
Financial Results | |||||||
Revenue | ($M) | 236,938 | 351,027 | 377,527 | |||
Net sales (1) | ($M) | 243,957 | 340,431 | 293,273 | |||
Net (loss) income (2) | ($M) | (387,809 | 69,408 | 46,187 | |||
Per share – basic | ($) | (4.04) | 0.71 | 0.47 | |||
Per share – diluted | ($) | (4.04) | 0.70 | 0.47 | |||
General and administrative | ($M) | 15,015 | 22,897 | 16,492 | |||
Operating EBITDA (1) | ($M) | 44,143 | 137,052 | 144,855 | |||
Cash provided by operating activities | ($M) | 46,541 | 151,575 | 83,155 | |||
Capital expenditures | ($M) | 64,676 | 132,452 | 69,219 | |||
Total cash, including restricted cash (3) | ($M) | 361,269 | 455,811 | 487,188 | |||
Working capital | ($M) | 67,715 | 71,356 | 160,077 | |||
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 the Company's heavy oil business unit, in the Quifa SW field, 13 successful horizontal wells were drilled in the first quarter of 2020, confirming additional potential in the field for future development drilling. Also in the heavy oil area, in the Jaspe field on the Quifa block, the Company's joint venture partner EcoPetrol approved field commerciality. Frontera is now working on plans to start the development phase of this new field when conditions improve. In the Hamaca field on the CPE-6 block, one vertical well and four horizontal wells were drilled in the first quarter of 2020. The field's average production in the first quarter was 3,537 bbl/d and production reached 4,100 bbl/d during February as a result of the completion of a water handling and disposal expansion project. The Company has now expanded the production capacity of CPE-6 to manage more than
In the Company's exploration project in the
Also in the
In offshore
In
Operational Outlook and Measures Taken to Manage the Lower Price Environment:
On
Health, Safety, and the Environment: During the current COVID-19 pandemic Frontera is prioritizing its efforts on the health and well-being of its workers and people in local communities. The Company's field teams have been reduced with an extension of work shifts to reduce personnel rotation, and the Company has back-up teams and contingencies in place. Office staff are working from home where stay-at-home measures have been implemented. All operations follow national health guidelines to ensure the safety and well-being of employees company wide. Frontera has increased its support for local communities with safety, medical and food supplies. The Company has donated more than 6,000 prevention kits to rural and indigenous families in
Capital Expenditures: The Company has further reduced total planned 2020 capital expenditures to a range of $80 to $100 million from the original plan of
Production Shut-ins: Given the current low oil prices, Frontera has moved to temporarily shut-in parts of its production from a number of its fields and will move to reactivate these fields back into production when market conditions improve. In
Production Cost Reductions: The Company has taken significant steps to reduce production costs by renegotiating key contractor tariffs, eliminating non-essential maintenance, limiting staff and contractors to minimal operational levels during the crisis, and reducing water handling and injection volumes to facilitate cost reductions. Frontera has benefited from lower energy costs and the depreciation of the Colombian Peso ("COP") versus the US dollar. Approximately 80% of production costs (and significant transportation and G&A costs) are denominated in Colombian pesos, which has devalued to an exchange rate of approximately 4000:
Transportation Cost Reductions: The Company is implementing a number of initiatives to reduce transportation costs through the rest of the year, including renegotiating pipeline and services tariffs, freezing all truck tariffs, and subleasing spare storage capacity at Puerto Bahia. In
General and Administrative Cost Reductions: Frontera expects to reduce its general and administrative overhead through restructuring efforts resulting in a more efficient and leaner company structure, as well as through savings from a weaker Colombian peso. Year to date, the Company worked to reduce its office headcount by 26%. Additionally, directors, executives and other management of the Company have agreed to reductions in cash compensation between 10% and 25%. The Company currently expects full-year general and administrative expenses to be approximately
Suspension of Quarterly Dividend and Share Buyback Program: Consistent with the Board's previously stated quarterly dividend policy, which ties the quarterly dividend payments to the Brent oil price during the applicable quarter, the Company has suspended its dividend program. In addition, the Company does not expect to make any further share repurchases under its NCIB until market conditions improve.
Guidance Update:
Due to the ongoing unprecedented volatility in global crude oil prices, Frontera is withdrawing its previously announced full-year 2020 average production, production costs, transportation costs, operating EBITDA, and capital expenditures guidance as originally published in the news release on
Financial Liquidity:
Frontera maintains a strong liquidity position with a total cash position of
Frontera has a
Hedging Update:
For the first quarter of 2020, hedged volumes were 46,400 bbl/d on average, resulting in
The following is the current hedging portfolio as of the date of this release:
Term | Type of Instrument | Notional Amount / Volume (bbl/d) | Put/Call/Spreads $ |
April | Put options | 22,833 | 40 |
3-ways | 17,500 | 47/57/74 | |
Put Spread | 5,000 | 47/57 | |
Total April | 45,333 | ||
May | Put options | 11,167 | 30 |
3-ways | 17,500 | 47/57/74 | |
Put Spread | 5,000 | 47/57 | |
Total May | 33,667 | ||
June | 3-ways | 5,000 | 47/57/74 |
Put Spread | 17,500 | 47/57 | |
Total June | 22,500 | ||
Q2 2020 | Average Q2 | 33,833 | |
July | 3-ways | 22,133 | 50/60/75 |
August | 3-ways | 22,133 | 50/60/75 |
September | 3-ways | 22,133 | 50/60/75 |
Q3 2020 | Average Q3 | 22,133 | |
October | Put Spread | 8,000 | 50/60 |
November | Put Spread | 8,000 | 50/60 |
December | Put Spread | 8,000 | 50/60 |
Q4 2020 | Average Q4 | 8,000 | |
Total Average 2020 | 21,322 |
First Quarter 2020 Conference Call Details
The Company will host a conference call for investors and analysts to discuss its results on
Participant Number ( | 1-877-269-6007 |
Participant Number (Toll Free Colombia): | 01-800-518-5094 |
Participant Number (International): | 1-706-758-5395 |
Conference ID: | 2858496 |
Webcast: | www.fronteraenergy.ca |
A replay of the conference call will be available until
Encore Toll free Dial-in Number: | 1-855-859-2056 |
International Dial-in Number: | 1-404-537-3406 |
Encore ID: | 2858496 |
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, production, costs, future income generation capacity, the Company's exploration and development plans and objectives, including its drilling plans and the timing thereof, the impact of shut-ins on future field performance, ability to reduce production, transportation and G&A costs and the impact thereof, the ability of the Company to extend /negotiate alternative approaches to its work commitments, the ability of the Company to manage its various lines of credit, the Company's hedging program and its ability to mitigate the impact of lower oil prices, the payment and amount of future dividends and expectations regarding the NCIB and future usage) 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 capital expenditures, production costs and G&A ), 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 | ||||||
($M) |
|
|
| |||
Net (loss) income | (387,809) | 69,408 | 46,187 | |||
Finance income | (4,678) | (3,162) | (6,030) | |||
Finance expenses | 15,260 | 17,438 | 13,675 | |||
Income tax expense | 173,074 | (42,540) | 21,686 | |||
Depletion, depreciation and amortization | 88,020 | 89,753 | 93,146 | |||
Impairment | 148,134 | 3,389 | — | |||
Share-based compensation | 1,217 | (124) | 572 | |||
Restructuring, severance and other costs | 6,408 | 2,994 | 1,440 | |||
Share of income from associates | 8,406 | (24,398) | (23,498) | |||
Foreign exchange loss (gain) | 20,597 | 8,812 | (602) | |||
Unrealized (gain) loss on risk management contracts | (29,140) | 10,333 | 6,187 | |||
Other loss (income), net | 2,991 | 6,680 | (11,294) | |||
Non-controlling interests | 1,663 | (1,531) | 3,386 | |||
Operating EBITDA | 44,143 | 137,052 | 144,855 |
2020 | 2019 | |||||||||||
(in thousands of US$) | Q1 | Q4 | Q3 | Q2 | Q1 | |||||||
Financial and Operational results: | ||||||||||||
Operating EBITDA | 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.
Well Test Results and Production Levels
Disclosure of well tests results in this news release should be considered preliminary until detailed pressure transient analysis and well-test interpretations have been completed. Hydrocarbons can be seen during the drilling of a well in numerous circumstances and do not necessarily indicate a commercial discovery or the presence of commercial hydrocarbons in a well. There is no representation by the Company that the disclosed well results included in this news release are necessarily indicative of long-term performance or ultimate recovery. As a result, readers are cautioned not to place reliance on such rates in calculating the aggregate production for the Company or that such rates are indicative of future performance of the well.
In addition, 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.
Boe Conversion
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:
API | |
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 |
bwp/d | Barrels of water per day |
C$ | Canadian dollars |
mmcf | Million cubic feet |
mmcf/d | Million cubic feet per day |
Net Production | Net production represents the Company's working interest volumes, net of royalties and internal consumption |
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