Frontera Energy Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 11, 2023

There are 10 speakers on the call.

Operator

Good morning.

Speaker 1

My name is Sergio, and I'll be your conference operator today. Welcome to Frontera Energy's 2nd Quarter 2023 Operating and Financial Results Conference Call. All lines are currently on mute I would now like to remind you that this conference call is being recorded today and is also available through audio webcast on the company's website. There will be a time for questions following the speakers' remarks. Analysts and investors are reminded Any additional questions can be directed to the company at irfronteraenergy.

Speaker 1

Ca. This call contains forward looking information within the meaning of applicable Canadian security laws relating to activities, events Although the company believes the assumptions are reasonable, forward looking information is not a guarantee of future performance. Forward looking information is subject to several risks and The company's MD and A for the quarter ended June 30, 2023, and the company's annual information form dated March 1, 2023 and other documents it files from time to time with securities These material assumptions and other factors that could influence actual results. Any forward looking information speaks only as of the date on which is stated and it is made, and the company claims any intent or obligation to update any forward looking I would now like to turn the call over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy.

Speaker 1

Mr. De Alba, you may begin your conference.

Speaker 2

Thank you, operator. Good morning, everyone, and welcome to Frontera's 2nd quarter 2023 earnings call. Joining me on today's call are Orlando Cabrales, Frontera's CEO and Rene Burgos, Frontera's CFO. Also available to answer questions at the end of the call, we have Victor Vega, VP, Field Development, Reservoir Management and Exploration Alejandra Bonilla, General Counsel Ivan Arevalo, Bifi Operations and Regatta Campagnaro, Bifi Marketing, Logistics and Business Sustainability. Frontera continued to efficiently execute its financial, operating and strategic plan in the 2nd quarter For its 3 core businesses, in the company's Colombia and Ecuador upstream onshore business, Production, cost, operating EBITDA and CapEx are between 2023 guidance At 80 per barrel average Brent prices for the year.

Speaker 2

In its potentially transformational Guyana Exploration business, Frontera and joint venture partner CGX Energy safely concluded its planned 2 well exploration program For the current time block, I announced an old discovery at Wave 1 well offshore Guyana. With the conclusion of the drilling campaign for Wave 1, the joint venture has complied with its exploration commitments under the Corentyne Petroleum Prospecting License. Wave 1 is the 2nd discovery in the current time block following the Cabo 1 light oil condensated discovery in 2022. In its standalone and growing Colombian Midstream business, I'd like to take a moment to discuss an important development In the company's efforts to unlock value of the sum of its parts. As you likely saw in from Terra's earnings release last night, Subsequent to the quarter, Puerto Vallarta entered into an agreement to connect the Puerto Vallarta Liquids Terminal in Cartagena With Ecopetrol's Cartagena refinery known as Reficar, Puerto Vallarta will build, operate and maintain The 6.8 kilometer 18 inches bidirectional hydrocarbon flow line, which will have a normal capacity Of 84,000 barrels per day, the connection will be capable of handling imported and domestically produced crudes and other hydrocarbons.

Speaker 2

The agreement is the result of many years of effort by the team and marks a significant milestone For the continued development of the Cartagena Bay, a strategic activity hub for Colombia And Frontera is excited about its strategic project with Reficar and for the future of its growing and standalone midstream business. Frontera remains committed to generating even more value for shareholders by unlocking the zone of its parts. I will now turn the call over to Orlando Cabrales, Frontera's CEO and our CFO, Rene Burgos, Who will share their views on Frontera's 2nd quarter results and the performance of our 3 core businesses. Orlando?

Speaker 3

Gracias Gabriel. Good morning, everyone. Proterra delivered positive second quarter results. We increased our average daily production by 1% to approximately 42,000 BOE per day For the quarter, as we successfully brought production back online following the resolution of third party road blockage That occurred during the Q1, an increase quarter handling capacity at Qifan and CP6, Where production improved 8.4%. We also grew natural gas liquids production by 41% To approximately 1800 BOE per day through increased gasoline rejection at B1.

Speaker 3

At CP6, we recently achieved daily record production of 6 1177 barrels per day. We deployed approximately $155,000,000 in capital Pending primarily to drill 19 development wells at Quifa, CP6 and Puilio, Improved flow lines, build a storage tank and other facilities to double water handling capacity at CP6, Drilled 2 exploration wells in Colombia and complete grade 1 exploration drilling activities. Taking a closer look at our 3 core businesses. In our Colombia and Ecuador Upstream Business, Proterra produced 41,436 BOE per day from its Colombian operations. We drilled 19 equivalent wells In the Q2, at Keypath CP6 and Coelho blocks and 1 injector well at the CP6 block.

Speaker 3

And we currently have 2 drilling rigs, 1 work order rig active at our Kifa CT6 I'm Jose Guaititia Blocks in Colombia. Production from Quifa and Cahuba fields Average approximately 18,408 barrels per day of heavy crude In the quarter, up 9.4% compared to the Q1. The company drilled 12 production wells, including 7 wells at Kifa and 5 wells at Kahua As I have mentioned before, increasing water handling capacity is key To Frontera's efforts to grow production at Kifan, where our current water handling capacity is approximately 1.6 1,000,000 barrels of water per day in Chile. In 2023, we began commissioning Saara, Our reverse osmosis water treatment facility with an estimated 1,000,000 barrels of water per day, nameplate capacity. Every additional 100,000 barrels of water, 100, 100, increases our Net production at Kifa by 1200 barrels per day.

Speaker 3

As of July Of this year, the plant has processed 7,600,000 barrels of water as part of its commissioning program. This is a 5 fold increase in treated volumes compared to April of this year, Providing irrigation source water to the companies nearby through our Loyando's palm oil plantation. In Ecuador, Frontera's share of production was 613 barrels per day of 1,000,000 crude oil for the 3 months ended June 30, Compared to 1,005 barrels in the prior quarter. On the Frontera operated Perico block, We drilled the G2 appraisal well in July, discovering 48 feet Of net pay in the lower Newshan and 24th Net pay in the OGENE made information. The well has been successfully completed With initial production rates of approximately 1200 barrels of 30.5 degree API Good quarter.

Speaker 3

Pre drilling activities and civil works are underway in advance of drilling The Handiagapu exploration well, which the company expects to spot this small. Turning now to our midstream Colombian business. We continue our efforts to unlock Shareholder value from our 3 core businesses. Building on Gabriel's earlier comments about the connection agreement between Puerto Vallarta and Replica, I will add that construction of the connection is expected to begin in the second half this year And take approximately 12 to 18 months to complete an anticipated total cost of approximately $30,000,000 The connection will enhance Porto Bahia's position As a strategic infrastructure asset and deliver additional revenue generation opportunities, not only for Corto Bahia and Reticar, But also for the local communities of Peru and Cartagena and South Colombia. I would like to thank our partners at Refica and Ecopetrol for their dedication to completing the connection agreement with us I look forward to exploring the full potential of the connection in the coming months years.

Speaker 3

Regarding our midstream business results, total ODL volumes pumped were approximately £3,000 per day in the 2nd quarter, Up 8% compared to the Q1. Puerto Bahia Liquids Liquid volumes were approximately $74,000 per day during the Q2 of the year, Up 17% compared to the Q1. Adjusted midstream EBITDA The second quarter was $30,800,000 compared with $28,200,000

Operator

in the 1st year.

Speaker 3

The increase quarter over quarter was driven by both higher volumes transported through OBL Now our Galliano Exploration business. As Gabriel mentioned And as you are all aware, during the quarter, Frontera and CGX announced that the joint venture discovered 210 feet of hydrocarbon buried sands in the San Antonio Horizon confirmed by wireline loss An extensive core samples. The rock and fluid properties of the Santomian Are currently being analyzed by independent third party laboratory to define net sales On a basis for the evaluation of this interval, the JV also updated It's previously announced discovery in the Maastrichtian and the Campania intervals to 77 feet of net pay. Two examples were retrieved from the Campania Amaustrutia indicating The presence of light crudes in the companion and sweet medium crude oil in demonstration. The JV data acquisition program included wireline logging, NPT fluid samples And Sidewalk course throughout the various intervals.

Speaker 3

Over the next 2 months, Results will be integrated into the geologic and geophysical models to form an updated view Of the entire northern portion of the quarantine block. The northern portion of the quarantine block includes the Shanu complexes This is powered by the Kawah 1 and Wave 1 wells and our prospective Central Channel Complex, Which is yet to be our leader. The JV is excited by the definite presence of oil In the most recent and campenia and the presence of hydrocarbons in the sarzonia and believes There is a significant potential in the growth. Speaking of Guyana, subsequent to the quarter, Proterra CGX entered into an agreement to amend the quarantine block JOA between the companies to cover the unexpected additional cost Okay. Way went well.

Speaker 3

Due to delays associated with the delayed release of the rig by a third party, Costs associated with a lost sampling tool and the drilling of the bypass well. As a result of this agreement, if the maximum amount is transferred by CDX, The company will have 72.7 percent participating interest and CGS will have At 27.3 percent participating interest in the block. I would now like to turn the call over to Helene Burgos, Frontera's CFO. Helene? Thank you,

Operator

Orlando. Also, thank you very much, Gabriel, for the introduction. And good morning, everybody. Thank you for participating, for the interest in our company and for your ongoing support. I'd like to take a moment to highlight a few Key financial aspects of our 2nd quarter results.

Operator

In the Q2, the company recorded net income of roughly $80,000,000 Which compares with

Speaker 3

a net loss of $11,300,000 in the prior quarter.

Operator

The company's 2nd quarter net income included $35,500,000

Speaker 4

of a

Operator

net recovery from asset retirement obligations and impairment expenses resulting mainly The company's sale of its interest and asset in the C1 Block and the corresponding reduction in asset retirement obligations A $14,300,000 in income from associates related to our interest in the OREO pipeline Any $17,000,000 foreign exchange gain, including a $9,000,000 realized gain related to our FX management program. These were partially offset by finance and income tax expenses of approximately 18,400,000 Operating EBITDA for the quarter was $116,500,000 compared to $92,000,000 in the 1st quarter. This represents a 27% increase in quarter over quarter operating EBITDA, primarily as a result of Higher sales volume during the quarter and the realized gain on our FSGS Management contract. The company continues to actively manage its inventories in Colombia and expects to continue to benefit As at June 30, the company had a total inventory balance Of approximately 1,400,000 barrels, including roughly 900,000 barrels in Colombia, This represents a decrease of around 200,000 barrels compared to Q1. On the cost side, production and transportation costs per barrel totaled approximately $14 $11.40 respectively.

Operator

This compares with $12.11.20 net per quarter. The increase in costs quarter over quarter Was primarily a result of foreign exchange impacts related to the almost 10% appreciation of the Colombian peso during the quarter. Also impacting higher energy and internal transportation costs and additional costs related to additional activity for both services. I would like to provide a refresher

Speaker 3

on our

Operator

cost exposure to the Colombian peso. About 75% of our OpEx And 30% of our transportation costs are denominated in Colombian pesos. As I mentioned earlier, the Colombian peso appreciated 10% during the quarter. Since then and due today, we have depreciated another 4%. The company is a top down focus on cost control, and this includes ongoing review for the prioritization of activities And full year engagement to enhance cost of investors as well as a disciplined hedging program to help mitigate this impact on fluctuations.

Operator

I will review key details of our hedging program shortly. Cash generation for the quarter was strong, With cash flow from operations totaling $184,000,000 compared with approximately $1,000,000 in the prior quarter, The increase in quarter over quarter cash provided by operating activities was primarily due to higher production, Higher sales volumes include inventory sales and realized foreign exchange gains, partially offset by lower Brent oil prices. From an investment standpoint, the company spent $154,900,000 in capital expenditures during the Q2, Including $72,800,000 related to the Regeneron Weight 1 exploration well. Additionally, the company spent $26,700,000

Speaker 3

in debt service payments.

Operator

I will take a second to give you a quick update On our investments related to our potential transformational crude oil exploration program. We expect to be in the lower end of the capital guidance of approximately $190,000,000 to $195,000,000 and as of the end of the second quarter, the expected additional cash outlays are estimated at around $40,000,000 to 50,000,000 As of the Q2, the company reported a total cash position of 214,000,000 Compared to $183,000,000 as of the Q1 of 2023, The company finished with a strong balance sheet and healthy credit measures, including low LTM net leverage of 0.4 times. I would like to highlight during the quarter, the company borrowed $20,000,000 under a new working capital facility loan. This facility matures by December of this year. This working capital loan is an important milestone for the company as it marks the first time The company has successfully gained access to traditional bank funding markets in an effort to optimize its sources of capital funding.

Operator

Lastly, I would like to also give you an update on our risk management strategy. From data usage derivatives should remain stable as exposure to oil price And for an exchange volatility, consistent with the strategy, the company entered into new put hedges totaling roughly 2,100,000 barrels Order roughly 40% of our Fisher production for the year, and this will help protect a portion of the company's production through November At prices between $70 $79 per Brent

Speaker 3

per barrel. Frontera

Operator

has also entered into foreign exchange Rate hedges totaled roughly $120,000,000 or approximately 40% of our estimated capital exposure for the second half of twenty twenty three. We use zero cost collars that protect the company at the 43 level With a price cap above the 4,900 level Colombian peso rate. We believe these provide the company with visibility I would now like

Speaker 3

to turn the call back to Orlando for his closing remarks. Thank you, Ernest. Before I wrap up today's call, I would like to highlight that during the quarter, we released our 2022 We also announced that the company achieved 102% of its 2022 ESG goals. In 2022, we invested in 218 projects That benefit more than 73,100 people in Colombia, Ecuador and Peru, We offset 52% of our greenhouse gas emissions. We reduced water consumption at our operations by 15%.

Speaker 3

We achieved a total recordable injury rate of 0.82 at our operation, And this is the best health and safety performance in Frontera's history. I'm incredibly proud of the entire Frontera team for their dedication to safe operations. For 2023, we have set ambitious ESG targets. We aim to neutralize 50% Of our greenhouse gas emissions through carbon trades, we plan to inaugurate our 1st solar farm At CP6, we will continue commissioning our Sahara well treatment facility at Kifan, And we aim to recycle 15% of our operational water use. And we aim to preserve an additional 1,000 hectares of biological corridors in Casanare and Metra.

Speaker 3

With that, I would like to conclude by saying thank you to Javier and Rene for the comments, and thank you everyone Thank you for attending our call. I will now turn the call back to our operator. We will open the call up for questions.

Speaker 1

Thank you. Ladies and gentlemen, we will now begin the question and answer Your first question comes from Anne Noem from Bank of America. Please go ahead.

Speaker 5

Good morning. Good afternoon. Thank you very much for the call and congratulations on good results. My first question has to do with the linking of the Puerto Vallarta Liquids Terminal With Reficar, congratulations. I think that's something you've been focused on for a long time.

Speaker 5

My question is, Is there any commitment on the part of Reficar or Ecopetrol to use this in any capacity? Or are you will you be looking for contracts From 3rd parties. That's my first question. I don't know if you want to answer that, and I have 2 others.

Speaker 3

No, why don't you go ahead with the other ones?

Speaker 5

Okay. So the second question is, I just didn't get all of the information when you talked about The water treatment capacity particularly at Kifa, I think you said that for every 100,000 additional, I want to say, is it barrels or gallons of water treatment you can increase oil production by 1200 barrels per day? And I think you might have already achieved something there. So just wanted a little bit of clarification on that. And then the third question is just on Guyana.

Speaker 5

I know you said You're currently evaluating all the results that you have. What are the different options after 2 months? Is it possible that you will make additional investments there? Or Are there a variety of options you're looking at?

Speaker 3

Okay. Let me start. Thank you for The questions, let me start with the first one, addressing the Puerto Maria connection Well, as I mentioned, I believe these are significant value creation opportunity For the company, so we are very excited about that. We still have 12 to 18 months to go to build The pipeline that connects the 2 facilities, There is a growing opportunity given the expansion of the refinery In Cartagena, which will need additional volumes to be refining in the facility, There is a take and pay agreement. Rates have been already negotiated.

Operator

And again,

Speaker 3

these are very exciting opportunities. These are significant Value creation opportunity for the company. On the second question, yes, Is every 100,000 of water that we can handle in the Sahara facility, There is an increase of 1200 barrels net production. So that is a number Net core Proterra, 1200 barrels per day. So every 100,000 It drives 1200.

Speaker 3

So that That is Paul from Darren and his patients. The facility as it is designed is going to benefit KIFA, the KIFA Association, but also the Ruiari Association, the Ruiari Spirit. But at the end, the benefit for Frontera is $1200,000,000 And I think the third question was about Cayano. Yes, as we mentioned, we are in the process of finalizing All the information that we got from the well, It is very positive that we got significant new additional data from the world. And as we move forward, we of course will consider different strategic options as we have indicated before For the quarantine license.

Speaker 5

Okay, great. Thank you.

Speaker 1

Thank you. Your next question comes from Roman Rosi from Canaccord Genuity. Please go ahead.

Speaker 6

Good morning. Thanks for taking my questions and congratulations on the deal you closed this quarter. I have a couple just on Wuxana. So I see that you changed your CapEx guidance. So I assume this is just related to Wuxana, right?

Speaker 6

And then the second one is related to the pending technical information for the well. Where are you Expecting to have the net pay for the primary target?

Speaker 3

Can you repeat Can

Operator

you repeat your first question? The first part on CapEx.

Speaker 6

Yes. Because it seems you changed your CapEx guidance for 2023, right?

Speaker 3

No, no. We haven't changed the CapEx guidance For 2023, so this is still the same.

Operator

So the original guidance, we updated our guidance related to the Lugana, I think it was in May, June because of the additional costs that we've discussed in the prior call. But we have not updated guidance. And what

Speaker 3

I alluded in My note

Operator

was that we expect to be in the lower range of the updated guidance for Guyana Between $190,000,000 to $185,000,000 Was that a second question?

Speaker 6

Regarding the technical information?

Speaker 3

Yes. So, yes, thanks for the question. Maybe as we indicated before In the previous press release that we made on the web results, we are going to take 2 to 3 months to finalize all the integration. Basically, we still are going to be within that timeframe. We are making progress On preparing the data by the 3rd party, but then as we alluded also before, we have a lot of data, not just For the companion, but also mainly for the Sarutonian, there's a lot of information that we have to analyze and integrate.

Speaker 3

So we are We're on track and we are making good progress. We have adult data and we are with the same time frame that we had indicated before, only 2 to 3 months After the release of the information.

Speaker 6

Okay. Thank you very much.

Speaker 1

Thank you. Your next question comes from Jacob Stenfield from Ashmore. Please go ahead.

Speaker 7

Hi, good morning. Congrats on the results. I had two questions. The first one was on the NCIB. I think it expired in March.

Speaker 7

Can you talk about whether you're planning on renewing it or whether you're able to repurchase stock? That's My first question. And the second one is just on, if you could just go over your sort of capital allocation plans for the second half of the year in terms of how much CapEx you have remaining and any other plans in terms of capital use and whether this Agreement with on Reficar and the port changes your CapEx guidance for the rest of the year?

Operator

Those are really questions and thank you, Jacob. In your first question about the NCIB, I think that we have said before that we are extremely focused on unlocking value to our stakeholders And that for us has taken multiple different avenues. This year, the focus has still been on key investments into our platform, including the significant investments in TD6, The investments related to the to our potential transformational Cuyana exploration program, to the extent that we have any update on Additional NTAV activity that remains at the Board's discretion, and we'll keep the market appraised and updated as that actually comes through. Again, the focus is on value creation for our stakeholders, and clearly NCIB that has been a significant use Of that. On the guidance, we are our guidance remains the same.

Operator

I think year to date, we allocate roughly $286,000,000 So you should expect to see the remainder of that being consumed. As it relates to the The Letica connection, I would say 2 things. The timing of the cash flow doesn't necessarily kind of tie together With the current guidance that we have today, there will be some additional expenditures that we will need to do. But as you may recall, we did have funding allocated as part of our original our refinancing initiative with Reficar on the Reficar, sorry, with Fuentes Bahia That would allow us to fund that investment directly from those sources. So that would be the update that I would share with you, Jacob, I can clean up my answers if you want to clarify any other portion that I could address for you.

Speaker 7

Okay. Just I guess 2 quick Clarification. So you didn't purchase any stock in the Q2?

Operator

No, we have not.

Speaker 7

Okay. Right. Okay. And then on the on this take or pay that you mentioned, maybe it's too Early to say, but due to what the financial impact would be for the midstream business once it's up and running?

Operator

This is not a take or pay, it's a take or pay, it's a take and pay. We believe that,

Speaker 3

I guess, I think what Orlando alluded to

Operator

This connection should provide additional economic activity of all sorts into the bay and particularly into our port. So we would expect that this would certainly have a very important impact. And as we start refining numbers, we will give the market a quicker update This matters, and we expect to do that shortly. Great.

Speaker 3

Thanks. Yes.

Speaker 1

Thank you. Your next question comes from Orianna Kobold from Ballant. Please go ahead.

Speaker 8

Hi, thanks for taking my question. This is Ana Gold with Valens. I had a follow-up with regards to production and perhaps Key drivers for the second half of the year. Just looking at your light and medium crude production and as well as Your Ecuador crude production dropped during the quarter and natural gas. So just to understand Of the moving parts and how should we expect for light and medium crude to recover perhaps to average levels seen in 2022?

Speaker 8

And is this natural gas volumes should be like the new normal going on? Or what should we expect from that end? Thanks.

Speaker 3

I think that the expectation thank you for the question. The The expectation is that certainly, we are very comfortable that we will be within the guidance that we provide to the market. As we have indicated, we are having positive results during the Q2 in terms Our capacity to increase water handling in the heavy oil field with Sahara and doubling the capacity in the CP6, We have achieved record production at CP6. So very positive There is a good indication that we'll also provide to you in our press release about the appraisal well that we finished the G2 well It's Federico block that Frontera operates. So no more to say on that at this point in time, given that it is coming from Production since yesterday.

Speaker 3

And we continue to manage decline in our light medium oil assets. So again, there is no change in the guidance, and we feel very comfortable about that.

Speaker 8

Great. Thank you. And maybe just one clarification, going back to the CapEx needs. And I'm understanding that due to some timing of cash flows that wouldn't necessarily match your CapEx, you might see some Additional cash outlays. So if you could perhaps clarify in which order should we see it?

Speaker 8

And is this only due because of the increased participation in quarantine and or also because of some Initial payments associated with the Reficar connection. Thank you. Yes. No, I'm just thinking of the timing of cash Because you haven't made any changes or updates to your full year CapEx after June, that was completely clear. But You have this Reficar announcement, and you mentioned some additional cash outlays through the year.

Speaker 8

So should we expect any changes in Forward, and what could explain this is because of the increased participation in quarantine, like a marginal increase there Over this transfer of 4.7 percent participation, just to understand if this CapEx figure that we're seeing through The remainder of the year should stick.

Operator

So let me just provide this clarity. So if you go to our MD and A and you look at our guidance, we have not updated our Colombia and Ecuador guidance expenditures. There has been no change there. Also, there has been no change in the Cuyana exploration because that guidance already reflects the our expected Total investments are around $190,000,000 to $195,000,000 Yes, but currently we expect them in 2022. So the numbers may get a little different.

Speaker 3

Yes, but the fact that we are increasing our participating interest in the current license doesn't Okay. So As it relates to

Operator

my comment on the cash outlays, what I wanted to provide clarity was what is the remaining amount of cash that we need to disperse From the Q2 onward to finish the investment in Guilana according to our guidance, Corina.

Speaker 3

Okay. The question

Operator

On the forward, there could be some amount of CapEx this year, but that amount of CapEx will be relatively small And it would impact our guidance because the construction period now begins. So I and we would expect to provide you guys with better clarity on that Probably during the next call, but as of right now, it does not change my guidance with respect to the CapEx.

Speaker 8

Perfect. That's very clear. Thank you very much, guys.

Speaker 3

Thank you.

Speaker 1

Thank you. Your next question comes from Sara Constantine from Summer Moon. Please go ahead.

Speaker 4

Good morning. Congratulations on a great quarter. I had basically two questions since some of my haven't previously answered. So my first one is Clearly, the market is kind of undervaluing your company on a sum of all parts. You have 3 main businesses and Seems like they're fairly heavily discounted when you look at your market cap.

Speaker 4

Has there been any consideration of taking your midstream business and spinning it off As a separate entity and having its own, I guess, ticker symbol. And I guess my second question is, given Elevated rent pricing. I know previously you all had more significant puts In place to protect your cash flow, have you considered potentially putting in a more year long schedule for puts to maintain the $80 plus Brent pricing? Thank you.

Speaker 3

Let me take the first one and I can take the second one. So on the on your first one, it's a good question. And the way I need to answer that is that We are permanently looking at opportunities and some deep options to To maximize value for our shareholders. And definitely, as you said, I mean, some of the parts of our 3 core businesses I was not reflected in the market of the company. So, Ana, as you could see, I mean, we are delivering on the 3 core businesses.

Speaker 3

So the upstream, Colombia and Ecuador, we are giving our guidance in terms of cost, production, EBITDA at $80 of Brent. We have positive developments in the midstream segment. We also have significant progress on the Guyana side. So we are delivering on the 3 core business of the company and certainly the solid product doesn't affect the current value of the market revenue and I sold. So we are, I mean, permanently and believe me, as management and our Board looking to those opportunities To fully maximize the volume for our shareholders.

Operator

And on your hedging question, it's a great point. I would add that we are very pragmatic with our hedges. So that is you need to strike a balance between the cost of the hedge And the effectiveness of the hedge, so what we try to do and I think what we've done through this year is provide certainty into our Particularly in a year that included a significant amount of investment from our end, we will continue to exploit that because I do believe that it helps providing visibility to ourselves and managers, but also you guys as our investors, and if the timing is correct and the technical work, we would love to enter into longer dated hedges. Right now, we're kind of striking the proper balance between bread price, budget and kind of value.

Speaker 4

All right. Well, thank you very much.

Speaker 1

Thank you. Your next question comes from Christine Guillermo from BrickHouse Ventures. Please go ahead.

Speaker 9

Hello. Yes, my questions were regarding the quarantine license itself in Guyana. So the first question is, what is the total accumulated sunk cost in the license to date That would be recoverable if this license rolls into a production license. And also, you currently fulfilled all your commitments on the exploration stage of the license. How much time do you have before the license converts over to a production license?

Speaker 9

And I'm assuming that there would have to be a commitment then to bring a development on. And again, that's an assumption. So I'm looking for clarity from you on what the process is going forward for this license if you continue to hold it.

Speaker 3

I would let me start by, Cristina, thank you for your questions.

Operator

I think, I mean, my

Speaker 3

first reaction would be, as we said, we are, I mean, analyzing the significant amount of data that we got from the well. So that will take As I indicated before, like a couple of months. So that will give us a better perspective On the block, on the potential of the block and how to move into the forward basis. To say something More I mean to say something more than that is going to be, I mean, difficult at this point in time. And as I said, I mean, and as we have indicated before, we Normally, I'm currently looking to strategic options for the quarantine drop.

Speaker 3

But that is where we are concentrated right now. And any potential move After this phase, we'll be subject to the analysis that we are conducting to the results of the analysis that we are conducting today.

Speaker 9

Yes. But again, like I'm just wondering what the Some cost is today because if this does roll forward, that is going to be recoverable. So I know you can't give me a resource potential right now, but you should be able to give me

Operator

what the sunk cost is. Look, I can say that anything in our financial statements, the JV and we consolidated JV as of 2019, we invested roughly $440,000,000 from Bouygues.

Speaker 3

That should give you a sense of

Operator

investment Into particularly Quorum 10 Block, more or less?

Speaker 9

So that would include the 3 wells, because I'm looking back to Eagle, because I'm assuming Eagle would also be profitable to all the sites?

Operator

This is only this is only look, this is the aggregate number that we have related to The CDX is remember we consolidated CDX following 2019. Some of the other investments We're prepared and no longer are sitting in the balance sheet. So I'm just giving you a balance sheet that comes today. We include roughly $440,000,000 Which includes, I would say, roughly $400,000,000 of investments in our 2 wells, which is the We won well and also the power won well, and there will be another X amount of investments related to the port. I'm just giving you a number Just to give you a sense of the capital invested following the JV into the 2 key Exploration program wells that we've done since 2019.

Speaker 9

Okay. Yes, I just because at one time, Suresh Narayan, the CEO Of CGX, I had mentioned that $700,000,000 had been spent, and I'm trying to figure out What portion of the 700 goes to quarantine?

Operator

So why don't we take it back Certainly, Emily, we can follow-up with you. It's a good question, Kristine, so we'll get back to you.

Speaker 8

Yes. Okay. Thank you.

Speaker 1

Yes. Thank you. There are no further questions at this time. Should you have any further questions, please email irfroterraenergy. Ca.

Speaker 1

This concludes the call. Thank you all

Speaker 3

for participating.

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Key Takeaways

  • Frontera delivered a 27% increase in operating EBITDA to $116.5 million in Q2 2023, with average daily production rising 1% to approximately 42,000 BOE per day.
  • The Sahara reverse osmosis water treatment facility at Kifa has reached 1 million barrels per day capacity, driving a 5× increase in treated volumes since April and adding 1,200 bpd of net oil production per 100,000 barrels of water handled.
  • A take-and-pay agreement has been signed to build an 18-inch, 6.8 km bidirectional pipeline linking the Puerto Bahia Liquids Terminal with Ecopetrol’s Reficar refinery, creating an 84,000 bpd transport line at an estimated $30 million capex over 12–18 months.
  • In Guyana, the Wave 1 well confirmed hydrocarbons in multiple horizons, fulfilling the Corentyne license’s exploration commitments and potentially boosting Frontera’s stake to 72.7% after cost-sharing amendments with CGX Energy.
  • Q2 financials included a net income of $80 million versus a Q1 loss of $11.3 million, cash flow from operations of $184 million, a strong balance sheet with net leverage of 0.4×, and hedges covering ~40% of production at $70–79 per barrel.
A.I. generated. May contain errors.
Earnings Conference Call
Frontera Energy Q2 2023
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