PetroTal Announces Q3 2021 Financial and Operating Results
PetroTal delivers 8% production growth, robust net operating income, continued balance sheet strength, and operational excellence from well 8H performance
Calgary, Alberta and Houston, Texas--(Newsfile Corp. - November 18, 2021) - PetroTal Corp. ("PetroTal" or the "Company") (TSXV: TAL) (AIM: PTAL) (OTC Pink: PTALF) is pleased to announce its financial and operating results for the nine and three months ("Q3") ended September 30, 2021.
Selected financial and operational information is outlined below and should be read in conjunction with the Company's unaudited consolidated financial statements ("Financial Statements"), and management's discussion and analysis ("MD&A") for Q3 2021, which are available on SEDAR at www.sedar.com and on the Company's website at www.PetroTal‐Corp.com. All amounts herein are in United States dollars ("USD") unless otherwise stated.
- Achieved Q3 2021 production of 9,508 barrels of oil per day ("bopd"), within 2% of Q3 2021 guidance and 8% above Q2 2021 production of 8,839 bopd, under constrained production levels;
- Generated record daily oil production of 16,140 barrels on September 24, 2021, demonstrating PetroTal's ability to handle increased fluid levels, in advance of CPF-2 final commissioning;
- Attained payback on the recently drilled well ("8H") in approximately 40 days from completion;
- Commenced drilling well 9H on September 23, 2021, PetroTal's longest reach horizontal well to date. The well is estimated to cost approximately $15.5 million with first production estimated in early December 2021;
- Q4 2021 production guidance is now revised to approximately 12,500 bopd due to a drilling delay for 9H that required a sidetrack resulting from recalibration and optimization of the new synthetic mud system;
- Current average production is approximately 11,775 bopd, over the five days ending November 16, 2021;
- Updated 2021 EBITDA(1) guidance is between $105 - $110 million for 2021, up materially from the original 2021 $90 million budget and includes deferred 9H production into 2022, along with timing delays in the realization of the positive true-up revenue from the Petroperu operated North Peruvian Pipeline ("ONP") sales at the Bayovar Port;
- Achieved continued net income for the sixth consecutive quarter, $15.0 million in Q3 2021, approximately 32% above Q2 2021 net income of $11.4 million, as a result of higher oil production, higher oil prices and derivative gains;
- The Company has outlined its intended capital allocation strategy for the next five years and is prioritizing continued field development and debt repayment followed by dividends and or share buybacks thereafter; and,
- PetroTal continues to play a key role as liaison between the communities and the Peruvian government towards a revised social profit contract that, upon ratification, is expected to lead to overall community support.
(1) For a description of EBITDA, see Reader Advisories - Non-GAAP Measures below.
Q3 2021 Webcast conference call
The Company will be hosting a conference call on November 18, 2021 at 9:00am Houston time. The link for the live webcast is below:
Selected Financial Highlights
|Three Months Ended||Nine Months Ended|
|(in thousands USD)||Sept 30, 2021||Sept 30, 2020||Sept 30, 2021||Sept 30, 2020|
|Crude oil revenues||$||44,781||$||6,933||$||119,946||$||46,591|
|Net operating income||29,587||2,324||79,234||22,889|
|Commodity price derivative (income)/loss||(293||)||(4,399||)||(18,658||)||17,757|
|Net income (loss)||14,970||3,224||57,129||(12,199||)|
|Basic and diluted net income (loss)(US$/share)||0.02||0.00||0.07||(0.02||)|
|Average production (bopd)||9,508||2,444||8,567||5,428|
|Average sales (bopd)||9,142||2,327||8,856||5,777|
|Average Brent price ($/bbl)||73.46||43.34||67.76||40.90|
|Contracted sales price, gross ($/bbl)||71.06||43.15||65.67||42.50|
|Funds flow provided by (used in) operations(1)||18,648||(5,588||)||42,742||9,023|| |
|Cash and restricted cash||57,655||9,788|
(1) Funds flow provided by (used in) operations and netback do not have any standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures for other entities. See "Non-GAAP Measures".
Q3 2021 Selected Operational Highlights
Q3 2021 production guidance under restricted flow conditions early in quarter. Production averaged 9,508 bopd for Q3 2021 compared to guidance of 9,655 bopd and 8% above Q2 2021 production of 8,839 bopd. PetroTal currently has nine producing wells and two water disposal wells.
Commenced production of well 8H on September 4, 2021. The well was drilled and completed at a final cost of $11.8 million, 3% under revised budget, has produced over 400,000 bbls of oil in the first 60 days of production, and paid out in 40 days. The robust performance of the 8H well enabled PetroTal to meet Q3 2021 production guidance with the well delivering 7,700 bopd for 25 days in September 2021. This contributed materially in the quarter to offset the constrained production from pipeline disruptions that impacted PetroTal delivering into the ONP in July and August 2021.
New horizontal well 9H. PetroTal commenced drilling well 9H on September 29, 2021. The drilling operation is progressing well, however challenges encountered with the new mud system, required a sidetrack and a recalibration of the mud formula. The completion date of the well is delayed by approximately three weeks and the well cost increased by $1.7 million to approximately $15.5 million. The revised estimated completion date of the 9H well is now in early December 2021, pushing approximately 170,000 barrels of flush production into January 2022, and resulting in revised guidance for Q4 2021.
Revised Q4 2021 guidance. PetroTal has updated 2021 guidance as shown below, due to the 9H drilling delay and the slightly constrained production levels in November to match with barging availability and continued closure of the ONP. Additionally, capital expenditures will be lower due to COVID-19 limitations relating to worker capacity in the oil field, resulting in deferral of minor infrastructure projects into 2022.
|2021 Guidance Summary||New||Previous||Variance|
|Realized 2021 Brent Price ($/bbl)||$71.80/bbl||$67.30/bbl||$4.50|
|2021 Production Range (bopd)||9,500 - 10,500||10,000 - 11,000||(500)|
|Q4 2021 Production (bopd)||12,500 - 13,500||16,000 - 16,500||(3,000) - (3,500)|
|2021 Exit Production (bopd)||15,000 - 16,000||17,000 - 18,000||(2,000)|
|Oil Wells Commenced||4||4||0|
|Oil Wells Completed||3||3||0|
|Net operating income||$120 - $125 million||$155 - $160 million||($30 - $35 million)|
|EBITDA||$105 - $110 million||$140 - $145 million||($30 - $35 million)|
|CAPEX||$92.0 million||$100 million||($8 million)|
Sales and marketing update. One Brazilian export was concluded in Q3 2021 for approximately 226,000 barrels. The sale was processed during record low river levels, which constrained the barging activity in the quarter and delayed additional cargos. PetroTal anticipates an additional 300,000 - 350,000 barrels to be sold via the Brazilian route in Q4 2021. Access to the Brazil export route plays a key role in keeping production volumes stable during disruptions in ONP service.
CPF-2 entering final stages of completion. CPF-2 is in the final weeks of completion of the crude processing facility, along with increased water disposal system, and expects commissioning in mid January 2022.
Q3 2021 Selected Financial and Corporate Highlights
Continued strong liquidity position. PetroTal's overall liquidity position continues to be strong with a $57.7 million ($26.7 million restricted) ending total cash position at September 30, 2021 compared to $79.5 million ($25.4 million restricted) at June 30, 2021. Accounts receivable and payables increased in Q3 2021 to $26.0 and $40.6 million, respectively, from $20.1 and $38.6 million, respectively, in Q2 2021. Given PetroTal had additional capital spending intensity in Q3 2021 over Q2 2021, and payable balances remained relatively flat, this demonstrates that the Company used less vendor financing in Q3 2021 compared to previous quarters. PetroTal reported net debt of approximately $53.2 million for bond covenant purposes which corresponded to a 0.54x Net Debt to EBITDA ratio as at September 30, 2021, significantly below the bond covenant maximum.
Realized revenue. Strong Brent levels in Q3 2021 resulted in revenue after differentials and transportation fees of $44.8 million ($53.24/bbl), an increase of 5% over $42.8 million ($53.20/bbl) in Q2 2021.
Continued robust Net Operating Income ("NOI"). PetroTal generated $29.6 million ($35.18/bbl) of NOI in the quarter, flat over Q2 2021, due to higher realized Brent prices and increased oil production, offset by higher diluent and barging costs.
Operating costs. Operating costs increased quarter over quarter to $12.6 million ($14.97/bbl) for Q3 2021 from $10.8 million ($13.45/bbl) in Q2 2021 due to increased barging storage costs from the temporary pipeline pump station closure. In addition, diluent and diesel costs continued to increase in conjunction with Brent oil price.
Capital expenditures ("CAPEX"). Capital expenditures for Q3 2021 totaled $26.1 million, up 17% from Q2 2021 of $22.1 million as a result of additional drilling activity. Approximately 70% of Q3 2021 capital expenditures were drilling related as the Company drilled and completed well 8H, implementing the latest autonomous inflow control device technology for its completion. Necessary modifications to the water disposal system were completed in Q3 2021 and the field can now actively dispose of approximately 80,000-100,000 barrels of water per day with direct line connections to disposal wells now in place. Year to date capital expenditures were $55.6 million, approximately $20 million below guidance due to well 9H having a delayed start from additional water disposal optimization work in Q2 2021, and certain other minor infrastructure projects deferred into Q4 2021 and Q1 2022. Q4 2021 has a revised estimated Capex of approximately $36 million compared to previous guidance of $44 million.
Positive free cash flow generation year to date. PetroTal is pleased to announce it generated $6.0 million in free cash flow for the nine months year to date in 2021 (before changes in working capital and after capex, interest and factoring costs). The Company expects to end 2021 in a free cash flow neutral position pivoting to a substantial and ongoing free cash flow generation profile in 2022 and beyond.
Continued net income. Net income for Q3 2021 was $15.0 million versus $11.4 million in Q2 2021. Based on low depletion charges from $210 million invested in the Bretana asset since 2018, favorable commodity prices and a strong operating cost structure, continued positive earnings are anticipated. This is the sixth straight quarter of net income for PetroTal which positions it well, from a retained earnings perspective, to adopt a robust future return of capital policy.
Derivative asset. As at September 30, 2021, 3.1 million barrels of oil have been sold into the ONP and remain in the pipeline or storage tanks awaiting final sale by Petroperu. This has generated an estimated $38.1 million derivate asset as at September 30, 2021, which will be realized as true-up proceeds when these barrels reach the Bayovar Port and sold by Petroperu.
Hedging update. At September 30, 2021, and from October 2021 until June 2022 PetroTal has approximately 1.5 million barrels hedged corporately, at prices ranging between $60 and $70/bbl Brent. The 2022 hedges represent approximately 25% of H1 2022 forecast production and use put options allowing PetroTal to realize further Brent upside in 2022.
Q3 2021 Other Selected Highlights
Free cash flow(1) allocation intention. Based on continued robust commodity prices, PetroTal anticipates material free cash flow over from Bretana over the next three to five years. The free cash flow allocation strategy most beneficial to shareholders is to first reduce debt when a prudent cash window in mid to late 2022 presents itself. Upon elimination of the Company's debt burden, PetroTal intends to implement a dividend and/or share buyback strategy late in 2022 as cash balances are anticipated to grow substantially.
(1) For a description of free cash flow, see Reader Advisories - Non GAAP Measures below.
ONP pump stations update. PetroTal advises that pump station 5 has not yet resumed operations and pump station 1 has recently been shut down as the Indigenous protests escalate. Currently PetroTal is still able to continue producing due to the availability of the Brazilian sales route, however, if the protests persist beyond November 30, 2021, production will have to be curtailed. Peruvian government representatives are currently discussing a peaceful resolution.
Community relations update. In an effort to facilitate alignment between government and community, PetroTal has taken the initiative and submitted a proposal to the Peruvian Ministry of Energy and Mines as well as PeruPetro, outlining a new proposed Social Fund ("The Fund") which will require a modification of the existing license contract for Block 95. The Fund aims to promote investments so the Loreto Region can once again produce over 100,000 bopd. Highlights are as follows:
- The Fund will be based on 2.5% of crude oil production, calculated using the same methodology as PeruPetro applies for royalty purposes;
- A trust will be created to ensure transparent use of the funds into the local communities, for the benefit of all and without discrimination; and,
- The trust will be audited by an independent agency.
The Fund should entitle PetroTal to:
- A 10 year increase to the license term;
- Fewer social disruptions for smoother production operations; and,
- Better alignment on long term production goals, growth, and development plans by the Peruvian government, communities, and PetroTal shareholders.
In addition to The Fund, PetroTal is also promoting that one fifth of the Canon, which is equivalent to approximately 18.75% of the value of the production that goes to the Loreto Region, be redistributed to the producing districts. To accomplish this, the current Canon distribution law for the Loreto Region will need to be updated. The outcome will allow the respective local municipalities, where production originates, to receive much higher amounts of Canon allowing them to increase their budgets at least tenfold.
Updated Corporate Presentation. Please see PetroTal's website for an updated version.
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented
"We are pleased to report another strong quarter from both technical and financial perspectives. During the quarter, our operational team delivered a near record setting well in 8H allowing PetroTal to achieve a record daily field production high of 16,140 bopd, a level previously unseen at PetroTal. We also demonstrated operational excellence by testing our facilities at full capacity of fluid volumes with great results. The 9H drill is proceeding nicely with continued learning and operational calibration for the synthetic mud system. From a commercial perspective, we continue to successfully navigate social headwinds demonstrating leadership with initiatives that are proving valuable in H2 2021 and should provide a lasting and more stable alignment between the Government and communities."
PetroTal is a publicly traded, tri‐quoted (TSXV: TAL) (AIM: PTAL) (OTC Pink: PTALF) oil and gas development and production company domiciled in Calgary, Alberta, focused on the development of oil assets in Peru. PetroTal's flagship asset is its 100% working interest in Bretana oil field in Peru's Block 95 where oil production was initiated in June 2018, and in early 2020 became the second largest crude oil producer in Peru. Additionally, the Company has large exploration prospects and is engaged in finding a partner to drill the Osheki prospect in Block 107. The Company's management team has significant experience in developing and exploring for oil in Peru and is led by a Board of Directors that is focused on safely and cost effectively developing the Bretana oil field.
Executive Vice President and Chief Financial Officer
T: (713) 609-9101
President and Chief Executive Officer
T: (713) 609-9101
PetroTal Investor Relations
Mark Antelme / Jimmy Lea
T : 44 (0) 208 434 2643
Strand Hanson Limited (Nominated & Financial Adviser)
Ritchie Balmer / James Spinney / Robert Collins
T: 44 (0) 207 409 3494
Stifel Nicolaus Europe Limited (Joint Broker)
Callum Stewart / Simon Mensley / Ashton Clanfield
Tel: +44 (0) 20 7710 7600
Auctus Advisors LLP (Joint Broker)
T: +44 (0) 7711 627449
FORWARD-LOOKING STATEMENTS: This press release contains certain statements that may be deemed to be forward-looking statements. Such statements relate to possible future events, including, but not limited to: PetroTal's business strategy, objectives, strength and focus, including the Company's five year plan and the anticipated benefits thereof; future consolidation activity and organic growth; future intentions with respect to debt reduction and return of capital to shareholders, including dividends and share buybacks; drilling, completions, workovers and other activities and the anticipated costs and results of such activities; the ability of the Company to achieve drilling success consistent with management's expectations; the ability of the Company to achieve near term production targets; anticipated future production and revenue; drilling plans including the timing of drilling, commissioning, and startup; startup plans for oil and water treatment infrastructure, including the timing of startup plans and the impact of delays thereon; oil production levels, including average production and exit production in 2021; the 2021 capital program and budget, including drilling plans; expectations regarding accrued drilling costs on deferred wells and allocation of flush production benefits; the timing of river embankment erosion work; COVID-19 surveillance and control process; hedging program, the terms thereof, and the Company's expectations regarding its hedged positions; cargo loading and shipments, including the timing of loading and shipping and expectations regarding sales from cargo shipments; the Company's expectations regarding net operating income, netbacks and free cash flow; the Company's long-term sustainability objectives and targets, and the timing thereof; the Company's proposals for continuous investment in the energy sector and collaboration with local communities; and future development and growth prospects. All statements other than statements of historical fact may be forward-looking statements. In addition, statements relating to expected production, reserves, recovery, costs and valuation are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "believe", "expect", "plan", "estimate", "potential", "will", "should", "continue", "may", "objective" and similar expressions. Without limitation of the foregoing, future dividend payments, if any, and the level thereof, is uncertain, as the Company's dividend policy and the funds available for the payment of dividends from time to time is dependent upon, among other things, free cash flow financial requirements for the Company's operations and the execution of its growth strategy, fluctuations in working capital and the timing and amount of capital expenditures, debt service requirements and other factors beyond the Company's control. Further, the ability of PetroTal to pay dividends will be subject to applicable laws (including the satisfaction of the solvency test contained in applicable corporate legislation) and contractual restrictions contained in the instruments governing its indebtedness. The forward-looking statements are based on certain key expectations and assumptions made by the Company, including, but not limited to, expectations and assumptions concerning the ability of existing infrastructure to deliver production and the anticipated capital expenditures associated therewith, the ability of the Ministry of Energy to effectively achieve its objectives in respect of reducing social conflict and collaborating towards continued investment in the energy sector, reservoir characteristics, recovery factor, exploration upside, prevailing commodity prices and the actual prices received for PetroTal's products, including pursuant to hedging arrangements, the availability and performance of drilling rigs, facilities, pipelines, other oilfield services and skilled labour, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the accuracy of PetroTal's geological interpretation of its drilling and land opportunities, current legislation, receipt of required regulatory approval, the success of future drilling and development activities, the performance of new wells, the Company's growth strategy, general economic conditions and availability of required equipment and services. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses; and health, safety and environmental risks), commodity price volatility, price differentials and the actual prices received for products, exchange rate fluctuations, legal, political and economic instability in Peru, access to transportation routes and markets for the Company's production, changes in legislation affecting the oil and gas industry and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. In addition, the Company cautions that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impact of the COVID-19 virus on the Company remains unknown, rapid spread of the COVID-19 virus may continue to have a material adverse effect on global economic activity, and may continue to result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, inflation, business, financial conditions, results of operations and other factors relevant to the Company. Please refer to the risk factors identified in the MD&A and the most recent annual information form which are available on SEDAR at www.sedar.com. The forward-looking statements contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
OIL AND GAS INFORMATION: References in this press release to short‐term production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rates at which such wells will commence production and decline thereafter and are not indicative of long term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for PetroTal. The Company cautions that such results should be considered to be preliminary.
OIL REFERENCES: All references to "oil" or "crude oil" production, revenue or sales in this press release mean "heavy crude oil" as defined in NI 51-101. All references to Brent indicate Intercontinental Exchange ("ICE") Brent.
NON-GAAP MEASURES: This press release contains financial terms that are not considered measures under generally accepted accounting principles ("GAAP") such as EBITDA, netback, funds flow provided by (used in) operations and free cash flow that do not have any standardized meaning under GAAP and may not be comparable to similar measures presented by other companies. Management uses these non-GAAP measures for its own performance measurement and to provide shareholders and investors with additional measurements of the Company's efficiency and its ability to fund a portion of its future capital expenditures. EBITDA is calculated as consolidated net income (loss) before interest and financing expenses, income taxes, depletion, depreciation and amortization adjusted for certain non-cash, extraordinary and non-recurring items primarily relating to unrealized gains and losses on financial instruments and impairment losses. PetroTal utilizes EBITDA as a measure of operational performance and cash flow generating capability. EBITDA impacts the level and extent of funding for capital projects investments. Netback is calculated by dividing net operating income by barrels sold in the corresponding period. Funds flow provided by operations, is a non-GAAP measure that includes all cash generated from operating activities and is calculated before changes in non-cash working capital. A reconciliation from cash provided by operating activities to funds flow provided by operations is included in the MD&A.
FOFI DISCLOSURE: This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about PetroTal's five year plan, debt reduction, dividends and share buybacks; prospective results of operations, production and production capacity, 2021 capital program and budget, free cash flow, liquidity and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was approved by management as of the date of this press release and was included for the purpose of providing further information about PetroTal's anticipated future business operations. PetroTal disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein. All FOFI contained in this press release complies with the requirements of Canadian securities legislation, including National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities.
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
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