Continued Focus on Value over Volumes
Cash Generated by Operating Activities: $110 million, Cash Used in Investing Activities: $41 million
TORONTO, Nov. 13, 2017 /PRNewswire/ - Frontera Energy Corporation (TSX: FEC) ("Frontera" or the "Company") announced today the release of its interim condensed consolidated financial statements for the third quarter of 2017, together with its management discussion and analysis ("MD&A"). These documents will be posted on the Company's website at www.fronteraenergy.ca and SEDAR at www.sedar.com. The financial information contained herein is reported in United States dollars and is in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board, unless otherwise noted.
THIRD QUARTER 2017 HIGHLIGHTS AND OPERATIONAL UPDATE
Operational:
Financial:
Barry Larson, Chief Executive Officer of the Company, commented:
"Earlier this year Frontera undertook a comprehensive reservoir optimization and technical review of its producing assets. During the third quarter, these studies have begun to exhibit successful results. Additional value creating operational practices including pressure maintenance projects, dual completions and multi-lateral field development will be implemented over the next twelve months.
Planning and preparation for the Company's major exploration well on the Llanos 25 block continues, as the Company is currently bidding to secure the rig that will be used to spud its Acorazado-1 prospect in the first quarter of 2018. The expected cost for the initial well is estimated between $35 million and $50 million.
Looking forward, additional potential positive catalysts to unlock shareholder value include contract renegotiations, continued non-core asset dispositions, exploration drilling success, and continued cost control. We are excited to continue to implement strategic initiatives and undertake material exploration drilling designed to drive long term growth and unlock latent value."
Production:
Net Production Summary |
|||||
2017 |
2016 | ||||
Q3 |
Q2 |
Q1 |
Q4 |
Q3 | |
Oil and Liquids (bbl/d) |
|||||
Colombia |
58,836 |
61,535 |
62,180 |
60,150 |
64,946 |
Peru |
6,805 |
4,913 |
3,855 |
2,079 |
2,182 |
Total Oil and Liquids (bbl/d) |
65,641 |
66,448 |
66,035 |
62,229 |
67,128 |
Natural Gas (boe/d)(1) |
|||||
Colombia |
5,427 |
5,922 |
6,489 |
7,203 |
7,968 |
Total Natural Gas (boe/d) |
5,427 |
5,922 |
6,489 |
7,203 |
7,968 |
Total Equivalent Production (boe/d) |
71,068 |
72,370 |
72,524 |
69,432 |
75,096 |
(1) Colombian standard natural gas conversion ratio of 5.7 Mcf/bbl. | |||||
Additional production details are available in the MD&A. |
Financial Results:
2017 |
2016 | ||
Q3 |
Q2 |
Q3 | |
Total Sales ($ millions) |
307.1 |
299.5 |
308.7 |
Operating EBITDA ($ millions)(1) |
105.9 |
86.9 |
89.8 |
Operating EBITDA Margin (Operating EBITDA/Revenues)(1) |
34% |
29% |
29% |
Adjusted EBITDA ($ millions)(1) |
44.2 |
87.4 |
37.7 |
Adjusted EBITDA margin (Adjusted EBITDA/revenues)(1) |
14% |
29% |
12% |
Adjusted FFO ($ millions)(1) |
47.9 |
46.2 |
43.0 |
Net Loss ($ millions)(2) |
(141.1) |
(51.5) |
(557.1) |
Per share ? basic ($)(3) |
(2.82) |
(1.03) |
(176,835.08) |
Total Production (boe/d) |
71,068 |
72,370 |
75,096 |
Sales Volumes (boe/d) |
63,162 |
64,908 |
81,877 |
Average Shares Outstanding ? basic (thousands) |
50,005.8 |
50,005.8 |
3.2 |
(1) These metrics are Non-IFRS financial measures. See Advisories - "Non-IFRS Financial Measures" - below and "Non-IFRS Measures" on page 17 of the MD&A. |
(2) Net loss attributable to equity holders of the parent. |
(3) The basic and diluted weighted average numbers of common shares for the three months ended September 30, 2017 and 2016 were 50,005,832 and 3,150, respectively. |
Strategic Initiatives:
Asset Sales:
During the third quarter of 2017, the Company continued to monetize non-core assets. Below is a summary of all the non-core asset sales of exploration and production blocks executed within the past 12 months; many are pending final government approvals:
Assets Divested ($ millions) |
Cash Proceeds |
Commitments(1) |
SBLC / Collateral(2) |
Brazil Exploration Blocks |
5.5 |
76.4 |
42.5 |
Colombia Exploration Blocks(3,4) |
11.2 |
34.3 |
5.4 |
Colombia Production Blocks(5) |
2.1 |
12.9 |
0.8 |
Peru Exploration Blocks(4) |
17.3 |
22.7 |
2.8 |
Papua New Guinea(4) |
57.0 |
- |
- |
Petroelectrica de los Llanos(4) |
56.0 |
- |
- |
Total Divestments |
149.1 |
146.3 |
51.5 |
(1) Includes Exploration, Abandonment and Environmental Costs | |||
(2) Standby Letter of Credit and Released Collateral | |||
(3) Includes Major lands, Putumayo Basin and San Jacinto 7 block | |||
(4) Agreements have been signed, subject to closing | |||
(5) Includes Casanare Este and Cerrito |
Take-or-Pay Reduction Initiative:
Updated 2017 Guidance and Fourth Quarter 2017 Outlook:
Due to operational improvements and higher realized oil prices, Frontera is raising its guidance for 2017 Operating EBITDA for the second time this year to $300 to $350 million - representing a 13% increase from the midpoint of previous guidance of $275 to $300 million, and a 24% increase from the midpoint of initial 2017 Operating EBITDA guidance of $250 to 275 million. Guidance for 2017 exit production and annual capital expenditures remains unchanged at 70,000 to 75,000 barrels of oil equivalent per day and $250 to $300 million, respectively. Revised guidance places Frontera's capital expenditures below Operating EBITDA for 2017. The Company's assumptions described above are dependent on a base case average Brent oil price assumption for 2017 of $53/bbl and benchmark combined price differential of between $5.50/bbl and $6.00/bbl.
With a more active drilling program in the fourth quarter of 2017, Frontera expects oil production in Colombia to increase throughout the remainder of 2017. The Company plans to drill between 35 and 45 development wells, 2 to 4 exploration wells, and continue with an active workover and recompletion program in the fourth quarter of 2017.
From a financial perspective, the Company's strong balance sheet provides financial flexibility to unlock value for shareholders as we continue to focus on Operating EBITDA expansion. Some of the initiatives being considered include: contract renegotiations, non-core asset dispositions, continued cost control, and improved financial and covenant flexibility via debt refinancing or amendments. The Company's balance sheet remains extremely strong with $599.9 million of total cash, cash equivalents and restricted cash, offset by $250.0 million of long-term debt. Frontera also enjoys a strong oil hedge book with over 50% of our production hedged at an average floor of over $51 per barrel Brent for the next 11 months.
Third Quarter 2017 Conference Call Details:
A conference call for investors and analysts is scheduled for Tuesday, November 14, 2017 at 8:30 a.m. (Calgary time) and 10:30 a.m. (Toronto / Bogotá time). Participants will include Gabriel de Alba, Chairman of the Board of Directors, Barry Larson, Chief Executive Officer, Camilo McAllister, Chief Financial Officer and select members of the senior management team.
A presentation will be available on the Company's website prior to the call, which can be accessed at www.fronteraenergy.ca.
Analysts and investors are invited to participate using the following dial-in numbers:
Participant Number (International/Local): |
(647) 427-7450 |
Participant Number (Toll free Colombia): |
01-800-518-0661 |
Participant Number (Toll free North America): |
(888) 231-8191 |
Conference ID: |
9489889 |
Webcast: www.fronteraenergy.ca
A replay of the conference call will be available until 11:59 p.m. (Toronto / Bogotá time), Tuesday, November 28, 2017 and can be accessed using the following dial-in numbers:
Encore Toll Free Dial-in Number: |
1-855-859-2056 |
Local Dial-in-Number: |
(416)-849-0833 |
Encore ID: |
9489889 |
About Frontera:
Frontera is a Canadian public company and a leading explorer and producer of crude oil and natural gas, with operations focused in Latin America. The Company has a diversified portfolio of assets with interests in more than 25 exploration and production blocks in Colombia and Peru. The Company's strategy is focused on sustainable growth in production and reserves and cash generation. Frontera is committed to conducting business safely, in a socially and environmentally responsible manner.
The Company's common shares trade on the Toronto Stock Exchange under the ticker symbol "FEC".
If you would like to receive News Releases via e-mail as soon as they are published, please subscribe here: http://fronteraenergy.mediaroom.com/subscribe
Advisories:
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 estimates and/or assumptions in respect of production, revenue, cash flow and costs, reserve and resource estimates, potential resources and reserves and the Company's exploration and development plans and objectives) 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: uncertainty of estimates of capital and operating costs, production estimates and estimated economic return; uncertainties associated with estimating oil and natural gas reserves; failure to establish estimated resources or reserves; volatility in market prices for oil and natural gas; fluctuation in currency exchange rates; inflation; changes in equity markets; perceptions of the Company's prospects and the prospects of the oil and gas industry in Colombia and the other countries where the Company operates or has investments; uncertainties relating to the availability and costs of financing needed in the future; the uncertainties involved in interpreting drilling results and other geological data; and the other risks disclosed under the heading "Risk Factors" and elsewhere in the Company's annual information form dated March 14, 2017 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 levels, oil prices, 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 best 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, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any FOFI, whether as a result of new information, future events or results or otherwise.
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.
Non-IFRS Financial Measures
This news release contains financial terms that are not considered in IFRS. These non-IFRS measures do not have any standardized meaning, and therefore are unlikely to be comparable to similar measures presented by other companies. These non-IFRS measures should not be considered in isolation or as a substitute for measures of performance prepared in accordance with IFRS. These financial measures are included because management uses this information to analyze operating performance and liquidity. They are different from those measures disclosed in prior periods, reflecting the Company's new strategic focus on operational efficiency and capital discipline.
Operating and Adjusted EBITDA
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.
A reconciliation of Operating and Adjusted EBITDA to net earnings is as follows:
Three Months Ended |
Nine Months Ended | ||||||||
(in thousands of US$) |
2017 |
2016 |
2017 |
2016 | |||||
Net loss (1) |
$(141,115) |
$(557,068) |
$(184,159) |
$(1,576,671) | |||||
Adjustments |
|||||||||
Income tax expense |
12,134 |
20,381 |
25,703 |
38,953 | |||||
Depletion, depreciation and amortization |
87,802 |
113,802 |
287,184 |
490,285 | |||||
Impairment and exploration expenses |
74,000 |
423,913 |
86,712 |
1,113,599 | |||||
Finance costs |
7,207 |
22,943 |
18,690 |
124,748 | |||||
Restructuring and severance costs |
2,393 |
32,102 |
10,181 |
99,821 | |||||
Equity tax |
? |
? |
11,694 |
26,901 | |||||
Other expense/(income) |
8,487 |
2,792 |
639 |
(41,628) | |||||
Foreign exchange unrealized gain |
(6,705) |
(21,176) |
(9,993) |
(20,422) | |||||
Adjusted EBITDA |
44,203 |
37,689 |
246,651 |
255,586 | |||||
(Gain) loss valuation of unrealized hedge contracts |
43,567 |
18,514 |
(9,012) |
125,986 | |||||
Share of gain in equity-accounted investees |
(27,452) |
(10,720) |
(61,377) |
(67,093) | |||||
Gain (loss) attributable to non-controlling interest |
10,302 |
(2,304) |
19,616 |
10,203 | |||||
Share based compensation |
233 |
? |
486 |
(8,503) | |||||
Foreign exchange realized loss (gain) |
194 |
3,635 |
4,646 |
(2,298) | |||||
Fees paid on suspended pipeline capacity |
34,838 |
43,032 |
84,175 |
86,481 | |||||
Operating EBITDA |
$105,885 |
$89,846 |
$285,185 |
$400,362 | |||||
(1) Net loss attributable to equity holders of the parent. |
2017 |
2016 | ||||||
(in thousands of US$ ) |
Q3 |
Q2 |
Q1 |
Q4 |
Q3 |
Q2 |
Q1 |
Financial and Operational results: |
|||||||
Operating EBITDA |
105,885 |
86,857 |
92,442 |
44,275 |
89,846 |
120,452 |
190,064 |
Adjusted EBITDA |
44,203 |
87,389 |
115,058 |
(1,967) |
37,689 |
126,083 |
91,814 |
Netbacks
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 performances expressed as profit per barrel.
Adjusted Funds Flow from Operations
Management believes Adjusted FFO is a useful measure to assess operating performance and liquidity. Changes to non-cash working capital can include differences in timing of cash flows related to accounts receivable and accounts payable, which management believes reduces comparability among periods. This non- IFRS measure excludes assets retirement obligation settlements, one-time expenses for the Company not related to ongoing operations such as restructuring and severance costs, and expense/revenue from past assets.
Three Months Ended |
Nine Months Ended | |||
(in thousands of US$) |
2017 |
2016 |
2017 |
2016 |
Net cash provided (used) by operating activities |
110,306 |
(12,414) |
189,287 |
(56,450) |
Changes in non-cash working capital |
(65,733) |
22,846 |
(27,873) |
128,037 |
Deferred revenue net proceeds |
? |
? |
? |
75,000 |
Restructuring and severance costs |
2,393 |
32,102 |
10,181 |
99,821 |
Settlement of assets retirement obligations |
1,565 |
502 |
1,847 |
2,308 |
Loss (gain) from past assets |
(642) |
? |
(642) |
? |
Adjusted FFO |
47,889 |
43,036 |
172,800 |
248,716 |
Please see the Company's most recent Management's Discussion and Analysis, which is available at www.sedar.com for additional information about these financial measures.
Boe Conversion
The term "boe" is used in this news release. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of 5.7 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead.
Definitions
bbl |
Barrel of oil. |
bbl/d |
Barrel of oil per day. |
boe |
Barrel of oil equivalent. Boe's may be misleading, particularly if used in isolation. The Colombian standard is a boe conversion ratio of 5.7 Mcf:1 bbl and is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. |
boe/d |
Barrel of oil equivalent per day. |
Mbbl |
Thousand barrels. |
Mboe |
Thousand barrels of oil equivalent. |
MMbbl |
Million barrels. |
MMboe |
Million barrels of oil equivalent. |
Mcf |
Thousand cubic feet. |
Net Production |
Company working interest production after deduction of royalties. |
Total Field |
100% of total field production before accounting for working interest and royalty deductions. |
Gross |
Company working interest production before deduction of royalties. |
SOURCE Frontera Energy Corporation
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