Parex Resources TSE: PXT said it is moving through a major expansion in Colombia, with management outlining a series of acquisitions, partnerships and drilling programs that it expects will nearly double the company’s production base and make it the country’s largest independent exploration and production company.
On the company’s earnings call, President and Chief Executive Officer Imad Mohsen said Parex executed “a series of strategic transactions” in the first half of 2026 intended to increase scale, expand the company’s portfolio and improve the durability of its business.
The largest of those transactions is Parex’s planned $725 million acquisition of Frontera, which Mohsen said adds roughly 37,000 barrels of oil equivalent per day of production. He described the deal as “highly accretive,” with “strong industrial logic and compelling synergies,” and said it would increase the company’s reserves inventory and improve long-term production visibility.
Parex also announced an expanded partnership with Ecopetrol in Colombia’s Magdalena Basin. Under that agreement, Parex can earn a 50% participating interest in the Casabe and Llanito blocks through a $250 million gross capital investment commitment over five years, with no upfront acquisition cost. Mohsen said the mature fields currently produce about 15,000 barrels per day and offer upside through enhanced oil recovery, waterflood optimization and development drilling.
Production Expected to Improve Through Second Quarter
Chief Operating Officer Eric Furlan said first-quarter production averaged just under 45,000 barrels of oil equivalent per day. Although current output was below first-quarter levels, Furlan said Parex expects standalone production to improve through the remainder of the second quarter and exit the period “at or above 45,000 boe per day.”
Furlan said that expected growth will be supported mainly by Putumayo operations and exploration success at Block 111. He highlighted the Arauca Block, where wells are showing strong performance, and said the company is nearly finished with a multilateral pilot that is expected to begin testing in the coming weeks.
In Block 111, Parex has drilled six exploration wells so far, with four delivering positive results in separate areas. One well has started initial production at approximately 1,500 barrels per day of oil, while the remaining wells have shown encouraging indicators, including oil on logs. Testing is expected to begin in the coming days.
Furlan said all Block 111 exploration wells were delivered on budget at approximately $2 million each, including drilling, pad and mobilization costs. He said that represents about a 65% reduction from typical exploration well costs of roughly $6 million per well, helped by a fast-moving rig and streamlined well and pad design.
Parex is advancing a multi-well development program across three fields, with sustained production expected in late in the second quarter of 2026. The company plans up to seven development and appraisal wells in the second half of the year and has identified more than 15 prospects on existing seismic surveys.
Transformed Business Guidance Points to Higher Cash Flow
Chief Financial Officer Cameron Grainger said first-quarter results were “strong on an underlying basis” despite non-recurring items. Funds flow provided by operations totaled $114 million, or $1.18 per share, during the quarter.
The quarter included $17 million of one-time costs, including a $7 million temporary corporate wealth tax, $7 million in site restoration costs — much of which Parex expects to recover through insurance — and about $3 million in project-specific general and administrative expenses.
Grainger said Parex made a tactical decision early in the second quarter to unwind its hedge positions, which he said has so far improved participation in the current commodity price environment.
The company also completed a $500 million placement of senior unsecured notes due in 2031. The 8.5% notes were priced at par and were “strongly oversubscribed,” according to Grainger, who said the financing was a logical step as the Frontera transaction adds debt to Parex’s previously simple balance sheet structure.
Looking ahead, Parex said it expects to maintain a strong credit profile, high liquidity and a medium-term target net debt-to-EBITDA ratio of 0.5 times or lower.
For the second half of 2026, reflecting the anticipated impact of the Frontera acquisition and Ecopetrol partnership, the company expects funds flow netbacks of approximately $30 to $33 per barrel of oil equivalent, based on a $90 Brent oil assumption. Parex expects second-half funds flow of $475 million to $525 million and capital expenditures of $275 million to $295 million.
Grainger cautioned that coming quarters are expected to include non-recurring integration, transition and financing costs that may affect reported funds flow figures.
Management Outlines Capital Allocation Priorities
Mohsen said the transformed Parex is expected to have average production of 82,000 to 91,000 barrels of oil equivalent per day after the strategic transactions are completed. He said the company’s land position would exceed 7.9 million acres, with “significant long-life reserves.”
Management said Parex’s capital allocation priorities include targeting 3% to 5% growth from base production, advancing high-impact exploration opportunities, maintaining a stable dividend and directing excess free cash flow primarily toward debt reduction.
In response to a question from Roth Canada analyst Jamie Somerville about 2027 capital spending, Mohsen said the company’s long-term vision is to generate 3% to 5% base growth through enhanced oil recovery, near-field exploration and appraisal, while maintaining exposure to larger upside opportunities. He said capital spending will depend on oil prices, but described $500 million as a reasonable starting point for the pro forma Parex and Frontera business, excluding Magdalena assets, in a $70 oil environment.
VIM-1 Gas Asset Seen as Future Cash Generator
Somerville also asked about VIM-1, where Parex is increasing its interest through the Frontera deal. Furlan said the La Belleza-3 well has been completed, appears successful on logs and is about to be tested. He said the well was drilled to support a longer-term blowdown period and provide higher near-term liquids recovery.
Furlan said Parex expects to begin pipeline work over the next year and proceed to sales from La Belleza. The company is also moving a rig to drill another prospect on the block, which is expected to target high-liquids gas.
Mohsen called VIM-1 one of his “favorite assets” and said it could become “one of our big cash cows” for the combined company once the pipeline is ready. Furlan confirmed that startup of the gas blowdown is more likely in the second half of 2027 than the first half.
Leadership Change Noted
In closing remarks, Mohsen said Parex’s path forward is focused on optimizing the base business, capturing integration synergies, growing production through Ecopetrol partnerships, advancing high-impact exploration in the Llanos Foothills and maintaining disciplined capital allocation.
He also recognized Chairman Wayne Foo, who is retiring from the board. Mohsen said Foo, a founder and former chief executive of Petro Andina and Parex Resources, helped shape the company over 23 years and has served as board chair since 2017.
About Parex Resources TSE: PXT
Parex Resources Inc engages in exploration, development, and production of crude oil. The company brings technology utilized in the Western Canada Sedimentary Basin to South American basins with large oil-in-place potential. Majority of the company's properties are focused in Colombia, where it pays a royalty or tax to the government for its operations. Parex depends on a team of geologists and geophysicists, in partnership with technologies such as 3D seismic surveying, to help exploration efforts.
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