PRODUCTION AVERAGED 35,682 BOE/D,
EXPECT 2021 EXIT RATE OF OVER 40,000 BOE/D
CASH PROVIDED BY OPERATING ACTIVITIES WAS
$87.4 MILLION, UP 84% COMPARED
TO Q1
OPERATING EBITDA WAS $84.8 MILLION, UP 23% COMPARED TO Q1
GUYANA PROSPECT KAWA-1 WELL TO BE SPUD
BY THE END OF AUGUST 2021
TORONTO, Aug. 11, 2021 /CNW/ - Frontera Energy
Corporation (TSX: FEC) ("Frontera" or the "Company")
today reported financial and operational results for the second
quarter ended June 30, 2021. All
financial amounts in this news release are in United States dollars, unless otherwise
stated.
Second Quarter Operational and Financial Results:
- Production averaged 35,682 boe/d compared to 40,599 boe/d in
the prior quarter and 42,597 boe/d in the second quarter of 2020.
See the table below for product type and prior quarter production
information. On July 16, 2021, the
Company revised its expected average daily production for the year
to 37,500-39,500 boe/d and anticipates a year-end exit rate of over
40,000 boe/d.
|
Q2
2021
|
Q1
2021
|
Q2
2020
|
Heavy crude oil
production (bbl/d)
|
17,241
|
20,997
|
22,533
|
Light and medium crude
oil production (bbl/d)
|
17,535
|
18,685
|
18,415
|
Conventional natural
gas production (mcf/d)
|
5,164
|
5,227
|
9,399
|
Total production
(boe/d)
|
35,682
|
40,599
|
42,597
|
- Cash provided by operating activities was $87.4 million, an increase of 84% compared with
$47.4 million in the prior quarter
and $102.3 million in the second
quarter of 2020. The Company reported a total cash position of
$486.6 million at June 30, 2021, including $63.4 million of cash that was utilized to repay
the 2023 Bond balance on July 7,
2021, and $128.3 million of
restricted cash.
- Operating EBITDA was $84.8
million, up 23% compared with $69.2
million in the prior quarter and $37.6 million in the second quarter of 2020 as
the Company benefited from attractive commercial differentials and
higher oil prices during the quarter.
- Operating netback was $32.83/boe,
up 12.7% compared with $29.13/boe in
the prior quarter and $14.31/boe in
the second quarter of 2020.
- The Company recorded a net loss of $25.6
million ($0.26/share),
compared with net loss of $14.1
million ($0.14/share) in the
prior quarter and a net loss of $67.8
million ($0.70/share) in the
second quarter of 2020. The net loss in the current quarter
included debt extinguishment costs of $29.1
million, total income tax expense of $37.9 million, and a total loss on risk
management contracts of $17.4
million, partially offset by $65.6
million of income from operations.
- The Company completed an offering of U.S.$400 million in senior unsecured notes at a
coupon rate of 7.875%, maturing in 2028 (the "2028 Unsecured
Notes"), increasing the size of the Bond, improving the Company's
debt covenants, extending the maturity and reducing the Company's
average cost of debt.
- Capital expenditures were $61.2
million in the second quarter of 2021, compared with
$14.4 million in the prior quarter
and $15.7 million in the second
quarter of 2020. The increase in capital expenditures in the second
quarter compared to the prior quarter was primarily due to
increased drilling activity as the Company drilled a total of 12
development wells at CPE-6, Quifa and La Creciente and increased
exploration activity in Guyana and
Colombia. The Company expects
increased capital spending during the second half of the year
in-line with its $245-$295 capital guidance range for the year.
- Production costs averaged $12.08/boe compared with $10.54/boe in the prior quarter and $9.03/boe in the second quarter of 2020. The
increase in production cost on a per barrel basis in the second
quarter compared to the prior quarter is primarily due to well
services conducted during the quarter, and reduced production
volumes quarter over quarter due to road blockades and localized
community-related delays, separate from the national strikes.
- Transportation costs averaged $10.84/boe compared with $10.89/boe in the prior quarter and down from
$11.28/boe in the second quarter of
2020.
- The Company recorded a realized loss on risk management
contracts of $24.9 million in the
second quarter of 2021 compared to a realized loss of $11.0 million in the first quarter of 2021 and a
gain of $39.9 million in the second
quarter of 2020. The realized loss is due primarily to the cash
settlement on 3-ways and put spread contracts paid during the three
and six months ended June 30, 2021 at
an average price of $69.01/bbl. In
the second quarter of 2021, the Company increased its hedged
production from 40% to 60% for the remainder of 2021, using
$60/bbl naked puts. The Company's
second half hedges do not materially cap upside price potential.
See the Hedging Update section below for more information.
- Under the Company's current Normal Course Issuer Bid which
commenced on March 17, 2021 ("NCIB")
program, the Company repurchased for cancellation 1,525,500 of its
common shares during the quarter at a cost of approximately
$8 million. During the first quarter
of 2021 the company repurchased 262,000 Common Shares for
$1.3 million for cancellation.
- At June 30, 2021, the Company had
a total inventory balance of 969,028 bbls compared to 1,183,035
bbls at March 31, 2021. Frontera's
oil inventory in Peru was 480,200
bbls at the end of Q2 2021 compared to 580,499 bbls at the end of
Q1 2021.
Gabriel de Alba, Chairman of
the Board of Directors, commented:
"Frontera made progress on a number of important fronts in
the second quarter of 2021. The Company increased cash provided by
operating activities to $87.4
million, up 84% compared to the first quarter. The Company
also refinanced its bonds at a lower interest rate while extending
the maturity to 2028, and through significant investor demand,
increased the size of the bond to $400
million. Frontera also bought back approximately 1.5 million
shares under its NCIB, secured an acreage extension to the CPE-6
block, reduced its restricted cash position by $33 million and released its 2020 Sustainability
Report and ESG goals. Subsequent to the quarter, the Company
increased its expected annual Operating EBITDA guidance to
$325-$375
million and, through its joint venture, prepared to spud the
Kawa-1 well in the Corentyne block, offshore Guyana which is expected to occur in the
coming days. I believe that the Kawa-1 well is one of the most
exciting exploration wells in the world with a potential discovery
serving as a key value creation catalyst."
Orlando Cabrales, Chief
Executive Officer (CEO), Frontera, commented:
"Frontera increased its operating EBITDA to $84.8 million, up 23% compared to the
first quarter and improved its operating netback to $32.83/boe, up 12.7% compared to the first
quarter despite temporary setbacks in production volumes. As of
August 9, five rigs were active
across Frontera's operations. In the second half of this year, the
Company anticipates increasing production at CPE-6 and Quifa.
Through its joint venture, the Company is drilling the Planadas-1
exploration well at VIM-1 and expects to begin initial production
of compressed natural gas from the La Belleza discovery in the
fourth quarter. In addition, the Company is thrilled that drilling
will begin shortly on the potentially transformational Kawa-1
well offshore Guyana."
Operational and Financial Summary:
|
|
|
|
|
|
|
Q2
2021
|
Q1
2021
|
Q2
2020
|
Operational
Results
|
|
|
|
|
|
|
|
|
|
Heavy crude oil
production
|
(bbl/d)
|
17,241
|
20,997
|
22,533
|
Light and medium crude
oil production
|
(bbl/d)
|
17,535
|
18,685
|
18,415
|
Total crude oil
production (1)
|
(bbl/d)
|
34,776
|
39,682
|
40,948
|
Conventional natural
gas production
|
(mcf/d)
|
5,164
|
5,227
|
9,399
|
Total production
(2)(3)
|
(boe/d)
(4)
|
35,682
|
40,599
|
42,597
|
|
|
|
|
|
Inventory
Balance
|
|
|
|
|
Colombia
|
(bbl)
|
488,828
|
602.536
|
840.893
|
Peru
|
(bbl)
|
480,200
|
580.499
|
852.892
|
Total
Inventory
|
(bbl
|
969,028
|
1,183,035
|
1,693,785
|
|
|
|
|
|
Oil & gas sales,
net of purchases (5)
|
($/boe)
|
64.54
|
58.18
|
24.96
|
Realized (loss) gain
on risk management contracts
|
($/boe)
|
(8.00)
|
(3.53)
|
12.19
|
Royalties
|
($/boe)
|
(0.53)
|
(1.96)
|
—
|
Diluent
costs
|
($/boe)
|
(0.26)
|
(2.13)
|
(2.53)
|
Net sales realized
price (6)
|
($/boe)
|
55.75
|
50.56
|
34.62
|
Production costs
(7)
|
($/boe)
|
(12.08)
|
(10.54)
|
(9.03)
|
Transportation costs
(8)
|
($/boe)
|
(10.84)
|
(10.89)
|
(11.28)
|
Operating netback
(9)
|
($/boe)
|
32.83
|
29.13
|
14.31
|
|
|
|
|
|
Financial
Results
|
|
|
|
|
|
|
|
|
|
Oil and Gas Sales,
net of purchases
|
($M)
|
200,581
|
180,956
|
81,701
|
Realized (loss) gain
on risk management contracts
|
($M)
|
(24,877)
|
(10,980)
|
39,885
|
Royalties
|
($M)
|
(1,640)
|
(6,110)
|
—
|
Diluent
costs
|
($M)
|
(803)
|
(6,614)
|
(8,273)
|
Net sales
(9)
|
($M)
|
173,261
|
157,252
|
113,313
|
Net
(loss)(10)
|
($M)
|
(25,648)
|
(14,126)
|
(67,760)
|
Per share –
basic
|
($)
|
(0.26)
|
(0.14)
|
(0.70)
|
Per share –
diluted
|
($)
|
(0.26)
|
(0.14)
|
(0.70)
|
General and
administrative
|
($M)
|
14,132
|
13,202
|
9,716
|
Operating EBITDA
(9)
|
($M)
|
84,771
|
69,158
|
37,608
|
Cash provided by
operating activities
|
($M)
|
87,391
|
47,393
|
102,256
|
Capital expenditures
(11)
|
($M)
|
61,214
|
14,365
|
15,651
|
Cash and cash
equivalents - unrestricted
|
($M)
|
358,325
|
248,237
|
256,135
|
Restricted cash short
and long-term
|
($M)
|
128,283
|
161,230
|
138,634
|
Total cash, including
restricted cash
|
($M)
|
486,608
|
409,467
|
394,769
|
Total debt and lease
liabilities
|
($M)
|
565,238
|
534,656
|
379,790
|
Consolidated total
indebtedness (Excl. Unrestricted Subsidiaries)
(12)
|
($M)
|
468,424
|
361,699
|
373,363
|
Net Debt (Excluding
Unrestricted Subsidiaries) (12)
|
($M)
|
138,701
|
139,327
|
128,882
|
|
1. Reference to crude
oil or natural gas production in the above table and elsewhere in
the MD&A refer to the light and medium crude oil and heavy
crude oil and conventional natural gas, respectively, product types
in National Instrument 51-101- Standards of Disclosure for Oil and
Gas Activities
|
2. Represents
working-interest production before royalties and total volumes
produced from service contracts. Refer to the "Further
Disclosures" section on page 23 of the MD&A.
|
3. Natural gas
liquids have not been presented separately because production for
such type was immaterial to the Company.
|
4. Boe has been
expressed using the 5.7 to 1 Colombian Mcf/bbl conversion standard
required by the Colombian Ministry of Mines &
Energy.
|
5. "Oil & Gas
sales, net of purchases" is a non-IFRS measure and includes
crude oil and natural gas sales, net of the cost of volumes
purchased from third-party. For further detail refer to the
"Non-IFRS Measures" section on page 15 of the
MD&A.
|
6. Per boe is
calculated using sales volumes from development and producing
("D&P") assets. Volumes purchased from third parties are
excluded.
|
7. Per boe is
calculated using production.
|
8. Per boe is
calculated using net production after royalties.
|
9. Refer to the
"Non-IFRS Measures" section on page 15 of the MD&A. This
section also includes a description and details for all per boe
metrics included in operating netback.
|
10. Net loss (income)
attributable to equity holders of the Company.
|
11. Capital
expenditures include costs, net of income from exploration and
evaluation ("E&E") assets.
|
12. Refer to the
"Non-IFRS Measures" section on page 15 of the MD&A.
("Unrestricted Subsidiaries") include CGX Energy
Inc.("CGX"), Frontera ODL Holding Corp., including its
subsidiary Pipeline Investment Ltd. ("PIL"), Frontera BIC
Holding, and Frontera Bahía Holding Ltd., including its subsidiary
Sociedad Portuaria Puerto Bahía S.A. ("Puerto
Bahia")".
|
Operational Update
Guyana
Frontera and majority-owned subsidiary and coventurer CGX, joint
venture partners in the Petroleum Prospecting Licenses for the
Corentyne and Demerara blocks offshore Guyana, intend to spud the Kawa-1 well in
Corentyne by the end of August 2021.
The Maersk Discoverer, a sixth-generation semi-submersible drilling
rig is currently on route from Trinidad and is expected at the Kawa-1
location on August 15, 2021. The
joint venture expects the Kawa-1 well will reach total depth in
approximately 85 days. As part of its contract with Maersk, the
joint venture also holds an option to drill an additional well.
The Kawa-1 well is located in the northeast quadrant of the
Corentyne block, approximately 200 kilometers offshore from
Georgetown. The water depth is
approximately 355 meters (1174 ft) and the expected total depth of
the Kawa-1 well is 6,685 meters (21,932 ft). The primary target of
the Kawa-1 well is a light oil, large Santonian slope fan complex
with an overlying Campanian fan in a combination structural and
stratigraphic trap. Trapping of hydrocarbons within Campanian to
Santonian aged sandstone reservoirs is expected to be provided by a
pinchout of the reservoir section updip.
The Kawa-1 well will also penetrate secondary objectives in a
shallower Campanian sand and a deeper Santonian sand which the
joint venture believes has additional hydrocarbon potential. The
stacked primary and secondary Kawa-1 targets are considered
analogous to the discoveries immediately adjacent to the Corentyne
block in Block 58 in Suriname.
Proximity of the Corentyne block to the Cretaceous Berbice
Canyon sediment source is interpreted to have concentrated
sandstone reservoirs in the North Corentyne area. Channelized,
stacked internal fan geometries evident on 3D seismic are
indicative of thick, stacked, coarser-grained sand reservoirs.
The joint venture has assembled a highly-qualified and
experienced team for the drilling campaign, with extensive deep
water drilling expertise from operations around the globe,
including the Guyana Basin.
Colombia
Production in the second quarter averaged 35,682 boe/d, down
approximately 12% compared with 40,599 boe/d in the prior quarter.
The reduction in production quarter over quarter was mainly due to
temporarily reduced water disposal volumes and community concerns
which delayed drilling a new injector well at Quifa and slower than
anticipated recovery of full production levels at CPE-6 following
the lifting of road blockades. These community concerns have now
been resolved.
Currently, the Company has three drilling rigs and two workover
rigs active at its Quifa, CPE-6 and Coralillo operations. In the
second quarter of 2021, the Company drilled 12 wells and completed
well services on 23 others.
At Quifa, reserves have been unaffected by the temporary
reduction in water disposal volumes. The Company is developing
other water disposal options for the benefit of long-term
production, including drilling a new injector well on the block.
The Company expects that once the new injector well is operational,
Quifa production will increase. Frontera expects to drill 10
development wells at Quifa in the second half of 2021.
At CPE-6, production has returned to pre shut-in levels of
approximately 3,600 boe/d. The Company continues to expect
increased production at CPE-6 by approximately 40% by the end of
the year (compared to 2020) through continued drilling and
construction of additional water-handling facilities.
During the quarter, the Agencia Nacional de Hidrocarburos agreed
to extend the CPE-6 boundary area by 115,869 net acres to the north
of the current CPE-6 boundary area, bringing the Company's total
acreage position to 645,626 net acres. The boundary extension
provides the Company with additional near-field exploration and
growth opportunities adjacent to its existing and expanding CPE-6
facilities.
On the VIM-1 Block (Frontera 50% W.I., Parex 50% W.I. and
operator) the joint venture is accelerating development for the La
Belleza discovery drilled in 2019, including the production of
compressed natural gas. Subject to timing, partner and regulatory
approval, the joint venture anticipates preliminary production of
approximately 7 million cubic feet/day plus liquids, for a total
equivalent production of 2,700 boe/d (gross) in Q4 2021.
The Basilea-1 well was drilled to a total depth of 10,864 feet
encountering gas shows through the shallower Porquero Formation and
has now been temporarily suspended. The drill rig has been moved to
the Planadas-1 location, approximately seven kilometers west of the
La Belleza discovery. The Planadas-1 exploration well was spud on
July 30, 2021 and is targeting
Cienaga de Oro limestones.
Ecuador
In Ecuador, seismic acquisition
planning and other preliminary activities continue in advance of
drilling in the Espejo block (Frontera 50% W.I., GeoPark 50% W.I.
and operator) and planning for the Jandaya-1 exploration well in
the Perico block (Frontera 50% W.I. and operator, GeoPark 50% W.I.)
in the fourth quarter of 2021 or the first quarter of 2022.
Peru
The Company continues to complete remediation work in Block 192
and the Z-1 block as it pursues its exit from Peru. At the end of the second quarter,
Frontera's oil inventory in Peru
was 480,200 bbls compared to 580,499 bbls at the end of the first
quarter of 2021. The Company expects to sell the remaining oil
inventory in Peru in 2021.
Production Guidance Revised
On July 16, 2021, the Company
announced that it expects average daily production of 37,500-39,500
boe/d for the year and anticipates a year-end exit rate of over
40,000 boe/d. This compares to 40,500-42,500 boe/d and
approximately 43,000 boe/d that the Company previously announced.
The Company has increased its annual Operating EBITDA guidance by
17% at the midpoint to $325-$375 million
from $275-$325
million as a result of stronger than expected Brent prices.
The Company also narrowed its total capital expenditure range to
$245-$295
million, reflecting the expected costs of the Kawa-1
exploration well offshore Guyana
as it continues to consider strategic options.
Bond Refinancing Completed
The Company's long-term borrowing consists of the 2028 Unsecured
Notes in the aggregate amount of $400.0
million, issued on June 21,
2021. The 2028 Unsecured Notes bear interest at a rate of
7.875% per year. The Unsecured Notes will mature in June 2028, unless earlier redeemed or
repurchased. Concurrent with the offering, the net proceeds of the
2028 Unsecured Notes were partially used to repurchase, at a
premium and including accrued interest, the total obligation under
the Company's previously issued 2023 Unsecured Notes, which were
set to mature in 2023. The remaining proceeds will be used for
general corporate purposes.
Frontera received tenders and consents from holders of
$287.8 million (or 82.24%) of the
aggregate principal amount of its 2023 Unsecured Notes, pursuant to
its previously announced cash tender offer and consent solicitation
made upon the terms and subject to the conditions set forth in the
Offer to Purchase and Consent Solicitation Statement dated as of
June 7, 2021, and the related Letter
of Transmittal. The notes tendered prior to the early tender date
were settled on June 21, 2021 and the
notes tendered after the early tender date and prior to the
expiration time were settled on July 7,
2021.
On July 7, 2021, the Company
redeemed all of the remaining 2023 Unsecured Notes. The Company's
long-term borrowing of $350.0 million
of 2023 Unsecured Notes was completely discharged on July 7, 2021.
Update on Credit Lines
The Company has various uncommitted bilateral letters of credit
lines. As of June 30, 2021, the
Company had issued letters of credit and guarantees for
exploration, operational, and transport commitments totaling
$72.7 million, with cash collateral
of $14.3 million. In July, the
Company increased the credit line with Banco BTG Pactual S.A. by an
additional $15 million. This new
uncommitted credit line does not require cash collateral, and as a
result, Frontera released $9.1
million of restricted cash early in the third quarter of
2021.
Update on the Company's Restricted Cash Position
As of June 30, 2021, Frontera's
restricted cash position was $128.3
million, a decrease of approximately $33 million compared to $161.2 million in the first quarter of 2021. The
decrease in restricted cash quarter over quarter is primarily due
to the release of $10.0 million of
abandonment funds that were replaced with letters of credit, the
release of $12.5 million in
exploration commitments due to the reduction in cash collateral
requirements under new letter of credit lines, the release of
$11 million due to a new agreement
with Citibank regarding cash collateral of letter of credits and
foreign exchange fluctuations. In the third quarter of 2021, the
Company anticipates releasing additional restricted cash as the
Company continues to optimize its credit lines.
Update on the Normal Course Issuer Bid
During the second quarter of 2021, the company repurchased for
cancellation 1,525,500 common shares at a cost of approximately
$8 million. As of Aug 9, 2021, the Company had repurchased for
cancellation a total of 2,225,500 million common shares at a cost
of $11.8 million with an additional
2,972,112 common shares available for repurchase under the NCIB.
Under its NCIB, Frontera may purchase up to 5,197,612 common shares
during the twelve-month period commencing March 17, 2021 and ending March 16, 2022, representing approximately 10% of
the Company's "public float", calculated in accordance with the
rules of the TSX as of March 11,
2021.
Hedging Update
As part of its risk management strategy, the Company uses
derivative commodity instruments to manage exposure to price
volatility by hedging a portion of its oil production. The
Company's strategy aims to protect 40%-60% of the estimated
production using a combination of instruments, capped and
non-capped, to protect the revenue generation and cash position of
the Company, while maximizing the upside. This diversification of
instruments allows the Company to take a more dynamic approach to
the management of its hedging portfolio. In 2021, the Company
executed a risk management strategy using a variety of derivatives
instruments, including 3 - ways, puts and put spreads primarily to
protect against downward oil price movements. The following table
summarizes Frontera's hedging position as of Aug 10, 2021.
Term
|
Instrument
|
Notional
Amount/
Volume (bbl/d)
|
Strike
Prices Put/ Call; Call
Spreads
|
3Q-21
|
3-Ways
|
1,957
|
37/47/62.9
|
Put
|
7,750
|
60
|
Put Spread
|
13,696
|
38.7/48.7
|
4Q-21
|
3-Ways
|
1,957
|
37/47/62.9
|
Put
|
7,543
|
60
|
Put Spread
|
13,630
|
40/50
|
Frontera releases its 2020 Sustainability Report and ESG
Goals
During the quarter, Frontera released its 2020 Sustainability
Report (the "Sustainability Report") and reaffirmed its
commitment to develop new visions for environmental, social and
governance ("ESG") approaches across its business.
Frontera's 2020 Sustainability Report highlights the progress the
Company has made to act consistently and transparently, to offer
quality employment, to promote a sustainable supply chain, to
contribute to the sustainable development of communities and to
work in harmony with the environment. The Sustainability Report is
a relevant tool for our stakeholders to track the Company's
progress towards achieving its ESG goals. Frontera's Sustainability
Report covers the period from January 1,
2020 to December 31, 2020.
Frontera's Sustainability Report can be accessed on the Company's
website at:
https://www.fronteraenergy.ca/sustainability-reports/.
Second Quarter 2021 Conference Call Details
A conference call for investors and analysts will be held on
Thursday, Aug 12, 2021 at
10:00 a.m. Eastern Time. Participants
will include Gabriel de Alba,
Chairman of the Board of Directors, Orlando
Cabrales, Chief Executive Officer, Alejandro Piñeros, Chief Financial Officer and
select members of the senior management team.
Analysts and investors are invited to participate using the
following dial-in numbers:
Participant Number
(Toll Free North America):
|
1-800-437-2398
|
Participant Number
(Toll Free Colombia):
|
01-800-518-0795
|
Participant Number
(International):
|
1-647-792-1240
|
Conference ID:
|
3330960
|
Webcast
Audio:
|
www.fronteraenergy.ca
|
A replay of the conference call will be available until
11:59 p.m. Eastern Time on
Aug 19, 2021.
Encore Toll free
Dial-in Number:
|
1-647-436-0148
|
International Dial-in
Number:
|
1-888-203-1112
|
Encore ID:
|
3330960
|
About Frontera:
Frontera Energy Corporation is a Canadian public company
involved in the exploration, development, production,
transportation, storage and sale of oil and natural gas in
South America, including related
investments in both upstream and midstream facilities. The Company
has a diversified portfolio of assets with interests in 39
exploration and production blocks in Colombia, Ecuador and Guyana, and pipeline and port facilities in
Colombia. Frontera is committed to
conducting business safely and in a socially, environmentally and
ethically responsible manner.
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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, the Company's exploration and development plans
and objectives, including its drilling plans and the timing
thereof, estimates and/or assumptions in respect of the Company's
capital expenditure program (including Company's guidance),
production levels, costs, future income generation capacity, cash
levels (including the timing and ability to release restricted
cash), regulatory approval, the impact of shut-ins and other work
in the field on future field performance, and the Company's hedging
program and its ability to mitigate the impact of changes in 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 a sustained low oil price environment due to the COVID-19
pandemic and the procedures imposed by governments in response
thereto and the actions of OPEC and non-OPEC countries); the
duration and spread of the COVID-19 pandemic and its severity, the
success of the Company's program to manage COVID-19; uncertainties
associated with estimating and establishing oil and natural gas
reserves and resources; liabilities inherent with the exploration,
development, exploitation and reclamation of oil and natural gas;
uncertainty of estimates of capital and operating costs, production
estimates and estimated economic return; increases or changes to
transportation costs; expectations regarding the Company's ability
to raise capital and to continually add reserves through
acquisition and development; the Company's ability to access
additional financing; the ability of the Company to maintain its
credit ratings; the ability of the Company to: meet its financial
obligations and minimum commitments, fund capital expenditures and
comply with covenants contained in the agreements that govern
indebtedness; political developments in the countries where the
Company operates; the uncertainties involved in interpreting
drilling results and other geological data; geological, technical,
drilling and processing problems; timing on receipt of government
approvals; fluctuations in foreign exchange or interest rates and
stock market volatility and the other risks disclosed under the
heading "Risk Factors" and elsewhere in the Company's annual
information form dated March 3, 2021
filed on SEDAR at www.sedar.com. Any forward-looking statement
speaks only as of the date on which it is made and, except as may
be required by applicable securities laws, the Company disclaims
any intent or obligation to update any forward-looking statement,
whether as a result of new information, future events or results or
otherwise. Although the Company believes that the assumptions
inherent in the forward-looking statements are reasonable,
forward-looking statements are not guarantees of future performance
and accordingly undue reliance should not be put on such statements
due to the inherent uncertainty therein.
This news release contains future oriented financial
information and financial outlook information (collectively,
"FOFI") (including, without limitation, statements regarding
expected average production), 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, Net Sales,
Oil & gas sales, net of purchases, Consolidated Total
Indebtedness and Net Debt. These financial measures, together with
measures prepared in accordance with IFRS, provide useful
information to investors and shareholders, as management uses them
to evaluate the operating performance of the Company. The Company's
determination of these non-IFRS measures may differ from other
reporting issuers, and therefore are unlikely to be comparable to
similar measures presented by other companies. Further, these
non-IFRS measures should not be considered in isolation or as a
substitute for measures of performance or cash flows prepared in
accordance with IFRS. These financial measures are included because
management uses this information to analyze operating performance
and liquidity. Prior period figures are different compared with
those previously reported as a result of the change in the
treatment of purchased volumes and cost of purchases according to
the new operating netback approach. Refer to the "Non-IFRS
Measures" section on page 13 of the MD&A for further
details.
Operating EBITDA
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, costs under terminated pipeline 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 loss is as
follows:
|
|
Three Months
Ended
|
($M)
|
June 30,
2021
|
March 31,
2021
|
June 30,
2020
|
|
|
|
|
Net loss
|
(25,648)
|
(14,126)
|
(67,760)
|
Finance
Income
|
(3,675)
|
(840)
|
(6,167)
|
Finance
expenses
|
13,747
|
13,587
|
11,728
|
Income tax
expense
|
37,869
|
13,280
|
1,161
|
Depletion,
depreciation and amortization
|
40,455
|
32,636
|
58,250
|
Impairment and
Others
|
(1,111)
|
(5,738)
|
3,329
|
Cost under terminated
pipeline contracts
|
—
|
—
|
8,391
|
Shared-based
compensation
|
3,142
|
1,317
|
1,316
|
Restructuring,
severance and other cost
|
1,535
|
381
|
6,302
|
Share of income from
associates
|
(9,805)
|
(9,786)
|
(23,336)
|
Foreign exchange
loss
|
48
|
18,488
|
2,535
|
Unrealized (gain)
loss on risk management contracts
|
(7,453)
|
8,838
|
36,011
|
Other loss,
net
|
3,182
|
9,601
|
2,668
|
Non-controlling
interests
|
3,373
|
1,520
|
3,180
|
Debt extinguishment
costs
|
29,112
|
—
|
—
|
Operating
EBITDA
|
84,771
|
69,158
|
37,608
|
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. For netback purposes, the
Company removes the effects of trading activities and Midstream
segment from its per barrel metrics. Refer to the "Operating
Netback" section on page 6 of the MD&A.
Net Sales
Net sales are 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 exclude sales
from port services, as it is not considered part of the oil &
gas segment, and 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.
Consolidated Total Indebtedness and Net Debt
Consolidated total indebtedness and net debt are used by the
Company to monitor its capital structure, financial leverage, and
as a measure of overall financial strength. Consolidated total
indebtedness is defined as long-term debt, plus liabilities for
leases and net position of risk management contracts, excluding
Unrestricted Subsidiaries. This metric is consistent with the
definition under the Company's Unsecured Notes (as defined in the
MD&A) for the calculation of certain conditions and covenants.
Net debt is defined as consolidated total indebtedness less cash
and cash equivalents. Both measures are exclusive of non-recourse
subsidiary debt (2025 Puerto Bahia Debt) and cash attributable to
the Unrestricted Subsidiaries.
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.
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 news
release, boe has been expressed using the Colombian conversion
standard of 5.7 Mcf: 1 bbl required by the Colombian Ministry of
Mines and Energy.
Definitions:
bbl(s)
|
Barrel(s) of
oil
|
bbl/d
|
Barrel of oil per
day
|
Bcf
|
Billion cubic
feet
|
boe
|
Refer to "Boe
Conversion" disclosure above
|
boe/d
|
Barrel of oil
equivalent per day
|
Mcf
|
Thousand cubic
feet
|
MMbbl
|
Million barrels of
oil
|
MMboe
|
Million barrels of
oil equivalent
|
W.I.
|
Working
Interest
|
Net
Production
|
Net production
represents the Company's working interest volumes, net of royalties
and internal consumption
|
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content:https://www.prnewswire.com/news-releases/frontera-announces-second-quarter-2021-results-301353855.html
SOURCE Frontera Energy Corporation