Strong Stable Cash Position with Increased Production Volumes
TORONTO, Nov. 4, 2020 /PRNewswire/ - Frontera Energy Corporation (TSX: FEC) ("Frontera" or the "Company") today reported financial and operational results for the third quarter ended September 30, 2020. All financial amounts in this news release are in United States dollars, unless otherwise stated. During the third quarter, the Company acquired control of Infrastructure Ventures Inc. ("IVI"), the parent company of Puerto Bahia which owns and operates a bulk liquid and dry cargo port in Cartagena, Colombia. As a result, the Company now fully consolidates IVI's results in the Financial Statements, impacting the comparability of various financial metrics. Please see the section entitled the Acquisition of Infrastructure Ventures Inc ("IVI") in the Financial Statements for full details.
Third Quarter Operational and Financial Results:
- Third quarter production averaged 43,202 boe/d, all from Colombia, compared to second quarter 2020 production of 42,597 boe/d. In August, the Company brought back online most of the Colombian fields which it had shut-in earlier in the year. In Peru Block 192, production remained closed during the third quarter.
- The Company reported a net loss of $90 million ($0.93/share), compared to a net loss of $68 million ($0.70/share) in the second quarter of 2020. The loss in 3Q was primarily related to non-cash adjustments due to the acquisition of IVI.
- Production costs in the third quarter averaged $8.97/boe, compared to $9.03/boe in the second quarter of 2020 reflecting the Company's success in controlling costs in the current environment.
- Transportation costs averaged $9.89/boe in the third quarter, compared to $11.28/boe in the second quarter of 2020 largely as a result of the consolidation of IVI. In the third quarter of 2020, the acquisition of IVI lowered reported transportation costs by $0.94/boe compared to the second quarter of 2020. In addition, we have reclassified $8 million in third quarter expenses ($20 million year-to-date 2020) related to non-cash transportation ancillary contracts to Costs under terminated pipeline contracts.
- General & Administrative Expenses were $10.5 million in the third quarter, compared to $9.7 million in the second quarter, reflecting $1.2 million in additional costs as a result of the IVI consolidation.
- Operating EBITDA was $52 million compared to $38 million in the second quarter of 2020. Revenue increased due to sales volumes deferred from the second quarter (which resulted in an additional cargo in the third quarter) and improved Brent prices. In addition, production and transportation costs improved in the quarter.
- Capital expenditures in the third quarter were $3 million, versus $16 million in the second quarter of 2020 as the Company's focused on conserving cash during the quarter.
- The Company ended the third quarter of 2020 with total cash of $421 million, as compared to $395 million in the previous quarter. Of total cash, at the end of the third quarter, restricted cash totaled $161 million as compared to $139 million at the end of the second quarter of 2020. The consolidation of IVI resulted in an increase of $26 million of restricted cash and $2 million of cash and cash equivalents.
- The Company's total debt and lease liabilities ended the third quarter of 2020 at $557 million, including an increase in debt and lease liabilities due to the consolidation of $203 million of 2025 Puerto Bahia debt as a result of the IVI acquisition. The bank loan is non-recourse to Frontera (other than as provided for by the equity contribution agreement). Net debt (ex. Unrestricted Subsidiaries) was $113 million as of September 30, 2020.
Gabriel de Alba, Chairman of the Board of Directors, commented:
"Frontera continues to demonstrate operational and financial discipline against the backdrop of a difficult oil price environment. In the third quarter, the Company finished with higher production volumes, stable production costs, and a cash position virtually unchanged quarter over quarter. Purchasing a controlling interest in Puerto Bahia provides several benefits for Frontera: (i) it gives the Company authority to shape the strategic direction in order to release value from the port, and (ii) removes both the special voting provisions and a put option held by former shareholders which created potential uncertainty around the port. We believe the port is a unique asset, combining a liquids terminal with a dry cargo facility, in a strategic location. We will continue to explore means to maximize the value of the port, and Frontera's other midstream assets. Our focus in the fourth quarter remains on maintaining our production volumes and our strong balance sheet, while ensuring we are positioned for long-term growth and value creation."
Richard Herbert, Chief Executive Officer of Frontera, commented:
"In the third quarter, we brought back online and stabilized a portion of the production previously shut-in while maintaining the improvements in costs and processes achieved earlier in the year. Quarterly production was above the high end of our second half guidance while production costs remained stable. We achieved this while upholding our commitment to the health and well-being of our field and office staff and people in the local communities where we operate.
In Peru, with ongoing disruption caused by the pandemic and the closure of the Norperuano pipeline, we have maintained the fields in Block 192 shut-in throughout the quarter. Frontera has notified PeruPetro of the lifting of force majeure on July 30 and that the six-month extension of our service contract, which was negotiated in March, will now expire in February 2021.
We are affirming our guidance for the remainder of the year, adjusted for the recent consolidation of Puerto Bahia, as we expect stable operations and results for the remainder of 2020. Remaining work this year will include infrastructure investments in the Lower Magdalena Valley and other preparatory work in Colombia, Ecuador and Guyana for our future exploration and development projects. Our strategy is designed to give us flexibility for the future, depending on oil prices, while maintaining the highest capital discipline. We expect to release our 2021 capital budget and guidance in December."
Operational and Financial Summary:
Operational Results (1)
Oil production - Colombia
Oil production - Peru
Natural gas production - Colombia
Net sales realized price (4)
Production costs (5)
Transportation costs (6)(7)
Operating netback (7)(8)
Oil and Gas Sales
Net sales (8)
Net (loss) income(9)
Per share – basic
Per share – diluted
General and administrative
Operating EBITDA (7)(8)
Cash provided by operating activities (10)
Capital expenditures (11)
Total cash, including restricted cash
Total debt and lease liabilities
Consolidated total indebtedness (Excluding Unrestricted Subsidiaries) (12)
Net debt (Excluding Unrestricted Subsidiaries) (12)
1. Results not comparable to previous quarters due to IVI consolidation
2. Represents working interest production before royalties and total volumes produced from service contracts. Refer to the "Further Disclosures" section on page 25 of the MD&A.
3. Boe has been expressed using the 5.7 to 1 Colombian Mcf/bbl conversion standard required by the Colombian Ministry of Mines & Energy.
4. Per boe is calculated using sales volumes from development and producing ("D&P") assets.
5. Per boe is calculated using production.
6. Per boe is calculated using net production after royalties.
7. For the second quarter of 2020 the cost of the BIC Ancillary Agreements and CLC Ancillary Agreements cancelled and unpaid were reclassified as Cost Under Terminated Pipeline Contracts, refer to "Commitments and Contractual Obligations" section on page 20 of the MD&A for further details.
8. 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.
9. Net (loss) income attributable to equity holders of the Company.
10. Figures for 2019 have been revised to reflect the change in the accounting policy of interest paid as a financing activity instead of an operating activity. For further information on this adjustment, refer to Note 3b of the 2019 Annual Consolidated Financial Statements.
11. Capital expenditures includes 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"), Pacific Midstream Ltd., and Pacinfra Holding Ltd ("Pacinfra", including its subsidiary IVI).
In the upstream heavy oil business unit, we reactivated CPE-6 and the Quifa satellite Cajua field during the third quarter. Subsequently, the Sabanero block was shut-in due to ongoing issues partially stemming from Covid-19, in the surrounding communities.
In the light and medium district, we reactivated the Cubiro, Casimena, and Canaguaro blocks during the quarter. Subsequently, we performed successful workovers and stimulations on several key wells including Ardilla-3, Yatay-2, and Candelilla-6 wells.
Capital expenditures were $3 million in the quarter as stable production allowed us to defer some well service and workovers into the fourth quarter. In the fourth quarter, Frontera expects to ramp up activity and capital expenditures, including workover / well service work in key oil fields in Colombia and to begin construction on facilities in the Lower Magdalena Valley ("VIM"), well test in Asai and other projects in anticipation of next year's development plans. The Company initiated work with 1 rig in the third quarter and expects to have 4 rigs running during the quarter.
In Ecuador, Frontera continues working to obtain environmental permits to start exploration activities in the Perico block. The permit is expected to be received in late 2020 and the first well is planned for drilling in late 2021.
Operational activities in Guyana have been affected throughout most of 2020 due to the COVID-19 Pandemic. Our Joint Venture with CGX Energy continues to have constructive collaborative discussions with the regulatory authorities in Guyana regarding work commitments in that country.
In our midstream business, as previously disclosed, on August 6, 2020, Frontera closed an agreement with the International Finance Corporation and related funds (the "IFC") to purchase all of IFC's interests in IVI. IVI is the parent company of Sociedad Portuaria Puerto Bahia ("Puerto Bahia"), which owns and operates a bulk liquid and dry cargo port in Cartagena, Colombia. The acquisition terminated a put option and special governance rights held by the IFC. Therefore, Frontera has acquired control over the future strategic direction of the port with a view to unlocking material value for the Company. Frontera, through its wholly owned subsidiary Pacinfra, now owns approximately 71.57% of the issued and outstanding shares of IVI and as a result from the third quarter of this year is consolidating IVI in its financial results.
As of the third quarter of 2020, the Company now consolidates IVI / Puerto Bahia, including its $203 million of debt (non-recourse to Frontera) and $26 million of restricted cash.
The Company's debt as of September 30, 2020, is outlined in the table below.
Gross Debt (1)(2)
(-) 2025 Puerto Bahia Debt
(+) Risk Management Assets, net (3)
= Consolidated Total Indebtedness excluding 2025 Puerto Bahia Debt (4)
(-) Cash and Cash Equivalents (excluding unrestricted subsidiaries) (5)
= Net Debt excluding 2025 Puerto Bahia Debt
1. Gross debt is the sum of Long-term debt, Borrowings (2025 Puerto Bahia Debt), and Lease liabilities
2. Excludes $0.1 million of lease liabilities attributable to the Unrestricted Subsidiaries on the third quarter
3. Excludes $15.0 million of risk management liabilities attributable to the Unrestricted Subsidiaries on the third quarter
4. Consolidated Total Indebtedness per Frontera 2023 indenture definition
5. Excludes $21.0 million of cash attributable to the Unrestricted Subsidiaries.
Guidance Restatement for the Consolidation of IVI
On August 6, 2020, the Company released updated guidance for full-year and second-half 2020. At the time, the prevailing Brent oil price of close to $45/bbl was projected forward for the remainder of 2020. We are reaffirming our guidance only adjusting transportation costs for the acquisition of IVI and changes to accounting treatment of unused ancillary contracts. To make the guidance comparable given those changes, we have reduced transportation cost guidance in the full year by $2.0 per boe (to $11.0 - $12.0 per boe from $13.0 - $14.0 per boe) and in the second half by $4.0 per boe (to $9.5 - $10.5 per boe from $13.5 - $14.5 per boe).
Jan 1, 2020 -
Jan 1, 2020 -
Jul 1, 2020 -
Jul 1, 2020 -
Average Production (1)
46,000 - 48,000
40,000 - 43,000
$9.5 - $10.5
$8.0 - $9.0
$11.0 - $12.0
$9.5 - $10.5
Capital Expenditures (2)
$100 - $120
$20 - $40
1. Does not assume any production from Peru for July 1, 2020 through December 31, 2020.
2. Guidance includes Frontera's estimate of its share of costs of the 2020 Guyana exploration program, as joint venture partner, but does not include the consolidation impact of CGX share of those exploration costs.
During the third quarter, Frontera released its 2019 Sustainability Report along with a brand new ESG presentation, detailing its key environmental, social, and governance ("ESG") initiatives. The report and presentation are aligned with the Sustainability Accounting Standard Board framework and available at www.fronteraenergy.ca.
The goal of the hedging program is to protect the revenue generation and cash position of the Company. The forward hedging position was also increased in part to support restarting production and protect the break-evens of the previously shut-in fields. The Company has now hedged approximately 3.7 million bbls (approximately 100% of expected production) at Brent $35/bbl for the fourth quarter of 2020 and 3.8 million bbls at Brent $35 - $37/bbl for the first half of 2021.
The following is the current hedging portfolio as of the date of this release:
Type of Instrument
Notional Amount /
Total Average 2021
Third Quarter 2020 Conference Call Details
The Company will host a conference call for investors and analysts to discuss its results on Thursday, November 5, 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) Thursday, November 12, 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, ethically 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 a sustained low price of oil and natural gas, the ongoing impact of the COVID-19 pandemic on the Company's operations, the effectiveness or adequacy of the measures that the Company's has taken and continues to take to manage the COVID-19 pandemic and current oil price environment, estimates and/or assumptions in respect of the Company's capital expenditure program (including Company's guidance), production, costs, future income generation capacity, cash levels, the Company's exploration and development plans and objectives, including its drilling plans and the timing thereof, regulatory approvals, 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 lower 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 actions of OPEC and non-OPEC countries and the procedures imposed by governments in response thereto; 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 "Risks and Uncertainties" in the Company's MD&A dated November 3, 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 average production, production costs, transportation costs, capital expenditures, total cash and cash and cash equivalents), 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, Consolidated Total Indebtedness and Net Debt. These financial measures, toge