Parex Resources Targets 90,000 Bpd as Frontera Deal, Ecopetrol Projects Fuel Growth

Parex Resources TSE: PXT outlined a strategy centered on production growth, integration of acquired assets, expanded partnerships with Ecopetrol and a renewed exploration program in Colombia, according to a company presentation in Denver.

The Calgary-based, Toronto-listed Colombian oil and gas producer said it expects to exit the year producing more than 90,000 barrels of oil per day, up from about 45,000 barrels per day at the beginning of the year. The anticipated increase follows its acquisition of Frontera’s exploration and production assets and planned growth from projects with Ecopetrol.

The company described the current period as a year of transformation, citing three developments: a rebuilt exploration portfolio that is beginning to generate discoveries, the Frontera transaction, and the installation of what it characterized as a pro-oil-and-gas administration in Colombia.

Parex said it has a market capitalization of approximately $1.8 billion, or about C$2.7 billion, and C$900 million of debt. The company had previously been debt-free but financed its recent acquisition through bond issuance. It said leverage stands at roughly one times cash flow and that it aims to reduce it to about half a turn over the next two years.

Portfolio Scale and Capital Returns

The presenter said Parex has accumulated a land position of roughly 7 million to 8 million acres, with access to more than 10 billion barrels of original oil in place. About 90% of current production comes from fields in Colombia’s Llanos Basin, an area the company described as flat prairie terrain with a seasonal wet period that affects drilling and development schedules.

Parex’s core assets are intended to support an annual return target of 15% and base production growth of 3% to 5%, the company said. It plans to pursue that growth through field development, appraisal drilling and exploration while maintaining a dividend and directing excess free cash flow toward debt repayment.

The company said it has reduced its share count by more than 40% over the past six years and has returned C$2 billion to shareholders. This year, it expects to pay approximately C$100 million in dividends while applying free cash flow toward debt reduction. Parex also cited a dividend yield of 6%.

Management said the company historically invested about two-thirds of its funds flow from operations and directed a significant share of that capital toward projects intended to add reserves, production growth and asset duration.

Frontera Integration and Ecopetrol Projects

Parex said the Frontera acquisition closed June 1 and added mature, stable, low-decline assets. The company expects to generate synergies through general and administrative savings, tax optimization, crude marketing and lower diluent costs. It also expects capital reallocation from the acquired asset base into projects it considers more capital efficient within Parex’s portfolio.

The company reported production of 45,000 barrels per day in the first quarter and 54,000 barrels per day in the second quarter, which included one month of the Frontera assets. It expects average production in the mid-80,000-barrel-per-day range during the third quarter and approximately 90,000 barrels per day in the fourth quarter.

Parex also said it intends to obtain a dual listing in Colombia by year-end as it seeks greater visibility in the market.

Its expanded partnership with Ecopetrol includes projects in Northern Llanos, Magdalena, Putumayo and the Foothills. Parex said it typically funds a carried capital amount to earn a 50% interest in incremental production from certain Ecopetrol projects.

In Magdalena, Parex said it agreed to acquire a 50% interest in a mature field producing 15,000 barrels per day. The company expects to earn half of existing production and half of incremental output after drilling begins. Initial wells were anticipated for September and October, with Parex projecting an additional 7,000 to 8,000 barrels per day from the project. The company plans to use horizontal drilling, waterflooding, chemicals and polymers to improve recovery rates.

Exploration Plans

Parex divided its exploration approach between smaller, lower-cost prospects intended to provide near-term production and larger gas-focused opportunities with potentially longer-duration upside.

In the Eastern Llanos, where it holds approximately 1.5 million acres and a 100% working interest, Parex said it drilled six wells during the dry season and recorded four discoveries. Follow-up appraisal wells helped bring production from the area to more than 5,000 barrels per day. The company expects output to rise in increments of about 2,500 barrels per day through the remainder of the year as activity resumes in the dry season.

Over the next year, Parex plans to drill roughly 20 more wells in the trend, including about six exploration wells along with development and appraisal wells. The company said it has incorporated higher-resolution seismic data, machine learning and artificial intelligence into its exploration work.

Separately, Parex plans to spud its first Foothills exploration well in the autumn. The project is operated by Parex in a 50-50 partnership with Ecopetrol, although Parex will pay the full cost of the initial well. The company described the target as gas and condensate focused and located near existing infrastructure and the Bogotá market, where it said spot gas prices exceed $15 per Mcf.

Parex said its reported gas price in the most recent quarter was $12 per Mcf and that it sees the potential for higher Colombian gas prices amid a domestic supply shortage. The company said the Foothills opportunity is outside its base return target and could provide a larger step change in discovery size and production if successful.

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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