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1Q20 results for Frontera Energy

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World Pipelines,

Frontera Energy Corporation has reported financial and operational results for the first quarter ended 31 March 2020.

First quarter operational and financial results:

  • Production averaged 63 572 boe/d, which was 10% lower compared to the fourth quarter of 2019, and 6% lower than the first quarter of 2019. Production in Colombia averaged 58 187 boe/d reflecting stable production in heavy oil blocks and natural declines in light and medium oil and natural gas fields, as well as the negative impact of measures introduced to limit the spread of COVID-19. In Peru Block 192, community actions led to the suspension of production in early March 2020, with first quarter production in Peru averaging 5385 boe/d.
  • Cash generated by operating activities was US$47 million, compared with US$152 million in the 4Q19 and US$83 million in the 1Q19, primarily due to a reduction in global crude oil prices. The Brent crude oil benchmark price averaged US$50.82/bbl for the 1Q20, 19% below the 4Q19 and 20% below the 1Q19.
  • The Company reported a net loss of US$388 million (US$4.04/share), compared to a net income of US$46 million (US$0.47/share) in the 1Q19, primarily due to a non-cash impairment charge of US$151 million, a non-cash reduction of US$168 million in deferred income tax assets and a US$20 million write-down of oil inventory, all items related to lower oil prices.
  • Operating EBITDA was US$44 million compared with US$137 million in the 4Q19, and US$145 million in the 1Q19. The Company's risk management programme resulted in realised gains of US$15 million on settled positions during the quarter which partially offset the impact of lower Brent oil prices.
  • Capital expenditures were US$65 million in the 1Q20, 51% lower than the 4Q19, and 7% lower than the 1Q19, as the Company reduced its planned drilling and exploration activities in line with the lower oil price environment. During the quarter, the Company drilled 19 wells, including 18 development wells and one exploration well.
  • Operating netback was US$16.21/boe, compared with US$29.62/boe in the 4Q19, and US$30.23/boe in the 1Q19. Lower benchmark prices and wider Vasconia differentials resulted in net sales realised price decreasing to US$41.67/boe for the first quarter.
  • A quarterly dividend of CAN$0.205/share, or US$14 million, was paid on 16 April 2020, and the Company repurchased for cancellation 1 392 314 common shares at a cost of US$10 million under its normal course issuer bid (NCIB) programme during the quarter.

Frontera's programme to manage the COVID-19 pandemic and the current oil price environment:

  • As the gravity of the current COVID-19 pandemic started to become apparent, with its consequent impact on oil demand and prices, Frontera moved decisively to adopt a proactive strategy to manage through the crisis, enacting measures to protect its strong balance sheet while preserving flexibility and optionality for the future.
  • A priority for Frontera has been to maintain a safe and healthy working environment in all of its operating areas, complying with all national health guidelines. In Colombia, the oil and gas sector has been declared a strategic industry by the government, which has allowed the Company to adapt its operating procedures and continue producing and transporting oil and gas. Across the Company, field teams have been reduced and staff in Frontera's offices are working from home.
  • Frontera has increased its support for local communities in Colombia and Peru by providing safety, medical and food supplies.
  • The Company is focusing ongoing 2020 CAPEX on activities that remain economic at low oil prices, primarily essential maintenance, well-workovers and activities that sustain production from higher netback fields.
  • Frontera now expects full year CAPEX will be in the range of US$80 million - US$100 million, down from the original plan of US$325 to US$375 million.
  • As a consequence of the very low oil prices in April, Frontera decided to temporarily shut-in production from certain fields in Colombia with lower field netbacks. This includes the highest water cut wells in Quifa. 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 pandemic started to intensify in March. The volumes presently shut-in are between 14 000 - 15 000 bpd, including nearly 5000 bpd in the Quifa field. Combined with the shut-in of Peru production, current Frontera production totals 39 000 - 40 000 boe/d. The Company does not expect the shut-ins to affect future field performance and is planning to reactivate the shut-in production once market conditions improve.
  • The Company has taken significant steps to reduce production and transportation costs and has also benefitted from a weaker Colombian peso. During this period, the Company is proceeding to renegotiate service provider contracts and energy tariffs in order to rebase its field operating costs. Based on the revised production plan, Frontera expects it can reduce cash outlays by up to US$100 million in production costs and US$30 million in transportation costs.
  • Frontera has taken steps to reduce its 2020 general and administrative (G&A) expenses by US$30 million - US$35 million. The Company has made significant headcount reductions and directors, executives and other management of the Company have agreed to reductions in cash compensation between 25% and 10%.
  • The Company ended the 1Q20 with cash and cash equivalents (including restricted cash) of US$361 million and no debt maturities until 2023. Assuming a flat Brent oil price of US$30/bbl, the current value of the April through December 2020 oil hedge position is approximately US$57 million.
  • Frontera is withdrawing all of its previously stated 2020 guidance. Additionally, given current oil prices, in accordance with its dividend policy the Company has suspended its dividend programme and does not expect to make further share repurchases under its NCIB until conditions improve.

Gabriel de Alba, Chairman of the Board of Directors, commented: “Frontera has been managed to maximise 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 US$361 million, hedges in the money, and US$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 programme, 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.”

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