Frontera Energy Corporation (Frontera or the Company) has announced responses to the lower oil price environment caused by excess global supply and the COVID-19 pandemic, which includes a reduction in the 2020 capital plan and acceleration of cost savings initiatives.
In connection with these cost savings initiatives, and in an effort to streamline the organisation, including the executive team, David Dyck is stepping down as Chief Financial Officer, effective 31 March 2020. Mr. Dyck will remain with the Company for an interim period to assist with transitional matters. On 1 April 2020, Alejandro Piñeros, who currently serves as Corporate Vice-President of Strategy & Planning, will become Frontera's Chief Financial Officer.
Gabriel de Alba, Chairman of the Board of Directors, said:
"In light of the recent rapid decline in oil prices and the impact of the COVID-19 pandemic on the world economy, Frontera is taking swift and decisive measures to protect our people, balance sheet and cash flow in order to best position ourselves when we emerge from the current environment. By virtue of our strong capital discipline, we started this year with a robust cash position, which we are protecting through reduced capital expenditures, additional savings and efficiency improvements, thus managing the risk of an extended period of weaker commodity prices.
Frontera is implementing various initiatives to reduce capital costs and streamline the organisation. It is in this context that David Dyck is stepping down as Chief Financial Officer. I have had the pleasure of working with David over the past two years and would like to personally thank him for his great efforts and support as we have continued with Frontera's transformation.
On behalf of the Board, I welcome Alejandro Piñeros to the role of CFO. I have worked closely with Alejandro, and I am confident his deep expertise and familiarity with the business will be a tremendous asset during these important times."
Richard Herbert, Chief Executive Officer, commented:
"I'm proud of our team's accelerated actions to significantly reduce our planned capital expenditures in 2020 and identify further opportunities to decrease operating expenditures across our production portfolio. As a first step, planned 2020 capital expenditures are being reduced by around 60%, focusing on activities that generate positive cash returns at current oil prices. Our investment priorities will be essential well workovers and critical maintenance until market conditions improve and prices have recovered.
“Frontera is absolutely committed to maintaining its focus on health, safety and the environment. We continue to monitor the rapidly changing COVID-19 outbreak. We have internal protocols and procedures in place and are following national health guidelines to ensure the safety and well-being of our employees in our fields and offices.
“I would like to join with Gabriel in thanking David for all his contributions to Frontera."
2020 Revised Capital Plan and Other Cost Savings Initiatives
The Company is currently reducing planned 2020 capital expenditures by around 60% to a range of US$130 to US$150 million. Those expenditures will be primarily focused on development and maintenance activities in the Company's core assets of Quifa SW, CPE-6 and its light and medium oil business unit in Colombia. Consistent with the Company's long-time focus on disciplined investing, this revised capital plan has been developed with the goal of optimising production while maximising the cash balances of the Company during this period of lower oil prices. The Company will remain flexible with respect to capital allocation as events unfold in the coming months.
With these changes, revised average annual production in 2020 is expected to be in the range of 55 000 to 60 000 boe/d, a decrease of only 8% compared to 2020 guidance despite the significant decrease in capital expenditures. The Company has deliberately shut-in a number of wells that are not economic to operate at current prices and will monitor operations continuously to optimise cash generation.
The Company is also actively working to reduce production, transportation and G&A costs, and will provide further information on the results of those initiatives as the financial goals are achieved.
The Company has continued to hedge its production for the remainder of the current year. For the period of March to December 2020, the Company has, to date, hedged 7.31 million bbls with a combination of Brent oil price-linked purchased put options, zero cost collars, put spreads, and three-way collars. Assuming a flat Brent oil price of US$30.00/bbl, the current value of the hedge position is approximately US$77 million.
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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