TORONTO, May 6, 2020 /PRNewswire/ - Frontera Energy Corporation (TSX: FEC) ("Frontera" or the "Company") today reported financial and operational results for the first quarter ended March 31, 2020. All financial amounts in this news release are in United States dollars, unless otherwise stated.
First Quarter Operational and Financial Results:
Frontera's Program to Manage the COVID-19 Pandemic and the Current Oil Price Environment:
Gabriel de Alba, Chairman of the Board of Directors, commented:
"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 $361 million, hedges in the money, and $350 million of debt which is not due until June 2023. We are well positioned to deal with the unforeseen challenges now facing our industry and global economy. We have taken decisive measures in response to the global oversupply of crude oil and demand weakness arising from the COVID-19 pandemic including reduction of our 2020 capital plan and the temporary closure of uneconomic production. We are focused on protecting our people, balance sheet and cash flow against the potential of an extended period of weaker commodity prices or pandemic-related work stoppages. We are ready to restore production and resume growth once recovery begins."
Richard Herbert, Chief Executive Officer of Frontera, commented:
"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:
Oil production - Colombia
Oil production - Peru
Natural gas production - Colombia
Operating Netback (1)
Net sales realized price
Net sales (1)
Net (loss) income (2)
Per share – basic
Per share – diluted
General and administrative
Operating EBITDA (1)
Cash provided by operating activities
Total cash, including restricted cash (3)
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 $265 million of cash and cash equivalents, $30 million of short-term restricted cash and $66 million of long term restricted cash.
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 60,000 bwp/d, equivalent to oil production of 4,000 boe/d and 4,500 boe/d in preparation for future expansion.
In the Company's exploration project in the Lower Magdalena Valley, in the Guama block (Frontera 100% WI), the Asai-1 exploratory well was drilled and completed and is ready for testing. The integration of drilling data with petrophysical interpretation and wireline logs has identified multiple potential hydrocarbon bearing intervals in the Porquero Formation. Testing of the Asai-1 well is expected to commence once risk from COVID-19 to field personnel has passed.
Also in the Lower Magdalena Valley, in the VIM-1 block, the Company along with its partner, Parex Resources Inc., tested the La Belleza well in the Cienaga de Oro formation. As announced on February 6, 2020, the well was tested under natural flowing conditions and over a 328-hour period, the well produced a total of 32,728 bbls of 43 degree API oil, 147 mmcf of natural gas and 3,996 barrels of water. The average flow rate during the test was 2,395 bbl/d and 10.7 mmcf/d of gas (4,272 boe/d combined) at an average water cut of 12%. The flow rate during the final 24 hours of the test was 2,696 bbl/d and 11.8 mmcf/d of gas (4,766 boe/d combined) at an average watercut of 10%. The joint venture partners are evaluating options to drill additional delineation wells and evaluating different options for gas commercialization and infrastructure requirements.
In offshore Guyana (Frontera 33.33% WI), the newly acquired 3D seismic data over the northern portion of the Corentyne block is being processed. This new information will be used to produce an interpretable data set to mature prospects for future drilling in this exciting part of the basin, which lies adjacent to recent discoveries in Guyana and Suriname. The joint venture has been engaged in discussions with the Government of Guyana on alternative approaches to its work commitments in that country, so as to preserve the integrity of its licenses.
In Peru, the Company closed in production from offshore Z-1 block in January 2020. In Block 192, force majeure was declared and accepted by the regulator PeruPetro effective February 27, 2020. There is currently no production in Peru and operations have been reduced to a minimum.
Operational Outlook and Measures Taken to Manage the Lower Price Environment:
On March 23, 2020, in response to the lower oil price environment caused by excess global supply and the COVID-19 pandemic, the Company announced a reduced oil production forecast and a major reduction in capital expenditure for 2020. Since that date, oil prices have continued to trend lower and thus the Company is taking several further steps designed to safeguard its people, balance sheet, and cash flow through a potential "lower for longer" commodity price environment.
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 Colombia and 1,500 in Peru. Frontera is also helping to provide medicine and implementing medical brigades in its areas of influence. Additionally, the majority of the Company's employees are donating one-day of their salary, matched an equal amount by the Company, to help fund intensive care units and provide N95 masks and ventilators in Colombia.
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 $325 to $375 million. Ongoing capital expenditures will be focused upon activities that remain economic at low oil prices, primarily essential maintenance, well work-overs and activities that sustain production from higher netback fields. The Company has been reviewing its exploration commitments and alternatives with all governments, including requests for an extension of deadlines under these agreements. In Colombia, the ANH has issued a special decree to allow certain exploration commitments to be deferred by 12 months. Frontera has applied for extensions to the ANH to defer eligible Colombian exploration commitments and expects to receive a decision in the near-future. Frontera is in negotiations with governments in Peru and Ecuador to rephase exploration commitments in the light of the current crisis.
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 Colombia, production is being scaled-back at Quifa to reduce energy costs associated with the highest water cut wells. The impact will be to reduce Frontera's daily production in Quifa by approximately 5,000 bbl/d. Also in the heavy oil business unit, the Quifa satellite Cajua field has been shut down along with the Sabanero and Hamaca field in the CPE-6 block until conditions improve. In the light and medium oil area, the Cubiro block, Casimena Mapache, and Canaguaro fields have also been shut-in. 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 crisis started to intensify in March. The estimated shut-in volumes in Colombia are 14,000 - 15,000 bbl/d of current corporate production, and combined with the shut-in of Peru production, results in current Frontera production totals of 39,000 - 40,000 boe/d. Frontera does not expect the temporary shut-ins to affect future field performance and is planning to reactivate the shut-in production once market conditions start to improve.
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 4000:1 USD/COP from 3300:1 USD/COP in the original plan. Including reduced volumes related to the uneconomic production shut-ins, the Company believes it can reduce its total annual production costs by up to $100 million from its original plan.
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 March 2020, the Company asserted rights to cease payments for unused facilities ancillary to the Bicentenario/Caño Limon pipeline system, which is expected to reduce cash disbursements by approximately $30 million per annum.
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 $30 - 35 million below its original plan.
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.
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 December 5, 2019, and subsequently revised on March 23, 2020.
Frontera maintains a strong liquidity position with a total cash position of $361 million as of March 31, 2020, including restricted cash of $96 million. The Company has borrowings consisting of $350 million of long-term unsecured notes maturing in 2023. During the first quarter, due to the ongoing fall in crude oil prices, the credit ratings of the Company's unsecured notes were downgraded by Standard & Poors to B+ (from BB-) with a negative outlook and by Fitch to B- (from B+) with a negative outlook. The Company has no mandatory principal payments on its unsecured notes until 2023.
Frontera has a $60 million Unsecured Letter of Credit facility expiring May 17, 2020. The Company is in the process of replacing this facility with various uncommitted bilateral lines of credit.
For the first quarter of 2020, hedged volumes were 46,400 bbl/d on average, resulting in $16 million of hedging income. In April, Frontera hedged 45,333 bbl/d, yielding a further $16 million in oil hedging gains. Assuming a flat Brent oil price of $30/bbl, the current value of the April through December 2020 oil hedge position is approximately $57 million. The Company continues to pursue opportunities to manage its hedge book depending on market conditions.
The following is the current hedging portfolio as of the date of this release:
Type of Instrument
Notional Amount / Volume (bbl/d)
Total Average 2020
First Quarter 2020 Conference Call Details
The Company will host a conference call for investors and analysts to discuss its results on Thursday, March 7, 2020 at 8:00 a.m. (MST) and 10:00 a.m. (EST/GMT-5). Participants should use the following dial-in numbers:
Participant Number (Toll Free North America):
Participant Number (Toll Free Colombia):
Participant Number (International):
A replay of the conference call will be available until 11:59 p.m. (EST/GMT-5) Friday, March 20, 2020.
Encore Toll free Dial-in Number:
International Dial-in Number:
Frontera Energy Corporation is a Canadian public company and a leading explorer and producer of crude oil and natural gas, with operations focused in South America. The Company has a diversified portfolio of assets with interests in more than 40 exploration and production blocks in Colombia, Peru, Ecuador and Guyana. The Company's strategy is focused on sustainable growth in production and reserves. Frontera is committed to conducting business safely, in a socially and environmentally responsible manner. Frontera's common shares trade on the Toronto Stock Exchange under the ticker symbol "FEC".
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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 OPEC and non-OPEC countries and the procedures imposed by governments in response thereto); uncertainties associated with estimating and establishing oil and natural gas reserves; 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; geological, technical, drilling and processing problems; fluctuations in foreign exchange or interest rates and stock market volatility and the other risks disclosed under the heading "Risks and Uncertainties" in the Company's MD&A dated May 5, 2020 and under the heading "Risk Factors" and elsewhere in the Company's annual information form dated March 5, 2020 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 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 Net Sales. 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.
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
Net (loss) income
Income tax expense
Depletion, depreciation and amortization
Restructuring, severance and other costs
Share of income from associates
Foreign exchange loss (gain)
Unrealized (gain) loss on risk management contracts
Other loss (income), net
(in thousands of US$)
Financial and Operational results:
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.
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 Colombian Ministry of Mines and Energy.
American Petroleum Institute
Barrel(s) of oil
Barrel of oil per day
Refer to "Boe Conversion" disclosure above
Barrel of oil equivalent per day
Barrels of water per day
Million cubic feet
Million cubic feet per day
Net production represents the Company's working interest volumes, net of royalties and internal consumption
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