PetroTal Announces Q1 2022 Financial and Operating Results
Achieved record production, free cash flow and sales volumes in quarter
Calgary, Alberta and Houston, Texas--(Newsfile Corp. - May 26, 2022) - PetroTal Corp. (TSXV: TAL) (AIM: PTAL) (OTCQX: PTALF) ("PetroTal" or the "Company") is pleased to announce its financial and operating results for the three months ended March 31, 2022 ("Q1 2022").
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 the three months ended March 31, 2022, which are available on SEDAR at www.sedar.com and on the Company's website at https://petrotal-corp.com/. All amounts herein are in United States dollars ("USD") unless otherwise stated.
Q1 2022 Highlights
Achieved record quarterly production of 11,746 barrels of oil per day ("bopd") and record quarterly sales of 15,518 bopd, up 60% and 80%, respectively, from Q1 2021, representing the Company's sixth straight quarter of growth, despite production being either constrained or completely shut down during six weeks of the quarter due to social protests;
Based on the 67 production days in the quarter, average production was 15,778 bopd;
Completed well 10H on January 30, 2022, Peru's longest ever horizontal well, with an all-in cost of $11.5 million that averaged 10,500 bopd over its first ten days, accumulating 251,320 barrels in the month of February 2022, delivering a pay back of four weeks;
Achieved a new daily Company production record of 21,000 bopd twice in the month of February 2022;
Received Ministry approval for the Company's central processing facility ("CPF-2") to operate Bretana to its maximum capacity range of 24,000 to 26,000 bopd allowing the Company significant running room for development;
Generated record net operating income ("NOI") and EBITDA(a) of $64.2 million and $58.7 million, respectively, more than tripling the equivalent amounts from Q1 2021;
Generated record free cash flow(a) of $41.2 million before changes in non cash working capital and debt service, providing the Company with a liquidity buffer which allowed it to navigate the downtime experienced in March due to social unrest and repay $20 million of its long term debt, on April 1, 2022;
Invested $17.5 million in capital expenditures, under budget by $18.5 million (50%) due to drilling delays from the March social protests. Of the $17.5 million invested, approximately 65% was related to drilling activities and the remainder mostly on infrastructure projects; and,
On February 22, 2022, PetroTal announced a $120 million fully funded capital program that could potentially generate up to $230 million of free cash flow in 2022, allowing the Company the optionality to redeem the remaining $80 million in bonds early and implement its strategy of returning capital to shareholders in Q4 2022 or Q1 2023, subject to Board approval and economic viability.
Selected Financial and Operational Highlights
|Three Months Ended || |
|(in thousands USD)||Mar 31, 2022||Mar 31, 2021||Dec 31, 2021|
|Crude oil revenues||92,752||32,356||39,243|
|Net operating income (1)||64,194||19,969||25,726|
|Commodity price derivative (gain)/loss||(21,014)||(22,512)||5,622|
| Diluted net income (US$/share) ||0.07||0.04||0.01|
|Average production (bopd)(3)||11,746||7,331||10,147|
|Average sales (bopd)||15,518||8,578||7,242|
|Average Brent price ($/bbl)||97.49||61.06||79.79|
|Contracted sales price, gross ($/bbl)||88.02||58.88||77.46|
|Funds flow provided by operations(3)||5,743 ||4,467||34,714|
|Cash and restricted cash||52,886||75,824||74,459|
- Net operating income obtained from revenues less royalties, operating expenses, and direct transportation.
- Netback per barrel ("bbl") and funds flow provided by operations do not have standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures for other entities. See "Selected Financial Measures" section.
- Average production in Q1 2022 based on the 67 days of full or partial production was 15,778 bopd.
Q1 2022 Financial Results
Record net revenue. Delivered net revenue after differentials of $92.7 million ($66.41/bbl) compared to Q1 2021 of $32.4 million ($41.91/bbl) and Q4 2021 of $39.2 million ($58.90/bbl).
Record net operating income. Generated record NOI and EBITDA(a) of $64.2 million ($45.96/bbl) and $58.7 million ($42.05/bbl), respectively, as compared to $20.0 million ($25.87/bbl) and $16.4 million ($21.16/bbl), respectively, in Q1 2021 and $25.8 million ($38.61/bbl) and $21.8 million ($32.66/bbl) in Q4 2021.
Tactical Q1 2022 capital spend. Spent $17.5 million in capital expenditures focused on drilling and completing well 10H and advancing a number of small infrastructure projects. This was approximately half of what was budgeted for Q1 2022 due to deferral of drilling activity into Q2 2022 resulting from the social protest activity in March 2022.
Positive Q1 2022 free cash flow. Generated net positive free cash flow(a) before changes in non cash working capital and debt service of $41.2 million, which allowed the Company sufficient liquidity to execute its phase one debt reduction strategy and retire 20% of its long term debt on April 1, 2022.
Stable Q1 2022 lifting costs. Total lifting costs of $10.1 million ($7.20/bbl) were incurred in the quarter, in line on a per barrel basis with $5.5 million ($7.17/bbl) in Q1 2021, which included some elevated and one time COVID-19 mitigation costs, and slightly down from $5.1 million ($7.60/bbl) in Q4 2021.
Variable costs in line with expectations. Diluent and barging costs were $12.1 million ($8.68/bbl) in the quarter compared to $5.1 million ($6.61/bbl) in Q1 2021, driven by higher barging standby, diluent and diesel costs, and down from $6.15 million ($9.23/bbl) in Q4 2021. On a percentage basis, the Company's Q1 2022 contracted Brent price has increased approximately 50% from Q1 2021 with core variable costs only up 31% from Q1 2021, on a per barrel basis.
G&A per barrel reductions. Q1 2022 G&A was $4.7 million ($3.38/bbl) compared to $3.6 million ($4.70/bbl) in Q1 2021 and $4.0 million ($5.95/bbl) in Q4 2021 representing a 28% and 43% reduction on a per barrel basis compared to Q1 2021 and Q4 2021, driven by higher sales.
Record Q1 2022 net income. Q1 2022 net income was a record $64.5 million surpassing the entire 2021 yearly amount, doubling the Q1 2021 level of $30.8 million and significantly exceeding $6.8 million in Q4 2021. This was driven by further increases in the derivative value of the Company's crude in the ONP, and stable DD&A expense from an efficient cumulative investment in the Bretana project.
Net debt free. Q1 2022 net debt(cash) was ($9.2) million representing a net cash position as at March 31, 2022 as defined internally by the Company and not for bond covenant purposes.
Operation and Financial Highlights Subsequent to March 31, 2021
Social protest conclusion. The Company's loading dock was re-opened on April 8, 2022 and PetroTal was producing two days later after freeing space in the oil storage tanks, averaging 17,411 bopd from April 9 until April 30, 2022 with priority sales going to Brazil exports and the Iquitos refinery. Exports through Brazil restarted on April 12, 2022 and totaled 355,312 barrels of oil during the month of April.
Robust production levels resumed. Current production from May 1, 2022 to May 23, 2022, has been approximately 15,724 bopd. Even with sales into the Northern Peruvian Pipeline ("ONP") curtailed due to repairs by Petroperu, the Company's production has been largely unconstrained due to upsized offtake options for Brazil exports and general supply to the Iquitos refinery.
Brazil shipments upsized and optimized. PetroTal is pleased to announce that it has secured Brazilian export sizes of nearly 500,000 barrels per month. In addition, with Iquitos now being able to accept 60,000 barrels per month, the Company can sell the equivalent of 18,000 bopd without requiring access to the ONP.
Diluent free Brazilian route. The Company has successfully completed a pilot Brazilian shipment without diluent and will be able to export to Brazil diluent free going forwards, saving the Company over $30 million per year in diluent costs and improving net operating income by approximately $10 million per year when considering the net impact of reduced revenue from diluent in sales.
Commenced drilling on well 11H. On May 7, 2022, PetroTal commenced drilling well 11H which has an approximate cost of $13.5 million, a total depth of around 4,300 meters, and includes a synthetic mud system. The estimated completion date will be in late June 2022 with flush production expected to impact July production levels.
Social trust working table established. PetroTal facilitated the formation of a working group consisting of various community and government leaders with a mandate of discussing and prioritizing community needs for the Puinahua district and to properly establish the proposed 2.5% social trust. The working table meets regularly and has been making progress on various administrative components related to its mandate of facilitating responsible dialogue to prioritize development issues in the Puinahua region.
ONP down for maintenance. As previously announced on April 28, 2022, the ONP remains shut down for maintenance to repair significant erosion damage. The estimated completion date is late September with operations estimated to resume in Q4 2022, thus deferring the next Bayovar oil delivery with associated true up revenue until approximately October 2022.
Liquidity remains robust. Total cash at March 31, 2022 was $52.9 million with $19.0 million unrestricted compared to $75.0 million at year end of which $45.0 million was unrestricted. Accounts receivable were $54.5 million from Q1 2022 sales, and lower payables of $41.3 million, due to field downtime in March from the social protests.
Deleveraging underway. Bondholders accepted PetroTal's call provision notice regarding repayment of the $20 million in bonds dedicated to M&A activities. PetroTal made the payment on April 1, 2022 and now has $80 million in bonds remaining with no required amortization payments in 2022. The payment of $20 million was made from restricted cash, which on a proforma basis at March 31, 2022, represents $32.9 million of total cash with $19.0 million being unrestricted.
Guidance Revisions for 2022
Given that the social protest impact during the first four months of the year have already surpassed the 13% downtime assumed on our 2022 production guidance and have also delayed the Company's 2022 drilling schedule, we have adjusted our 2022 guidance, now assuming a 5% social unrest impact for the remainder of the year plus the normal 5% technical downtime. Below is a summary of adjusted guidance for the year:
|Adjusted Guidance||Q1 (actual)||Q2||Q3||Q4||2022|
|Oil wells completed||1 (10H)||1 (11H)||1 (12H)||1 (13H)||4|
|Average Production (bopd)||11,746||~13,500||~16,600||~20,000||~15,500|
|In USD millions||Original Budget||Adjusted Budget|
|Contracted Brent (USD/bbl)||$88||$102|
|Average Production (bopd)||18,250 (13% downtime)||15,500 (22% downtime)|
|Net operating income||$335||$351|
|Net derivative settlements(1)||$37||$13|
|Free cash flow||$230||$231|
(1) Approximately $34 million in anticipated 2022 true-up revenue has now been deferred into 2023 as a result of the ONP maintenance.
Adjusted Guidance Summary
The cash flow impact of the 2,750 bopd reduction to the production guidance is more than offset by a higher Brent future price strip, which has maintained EBITDA and increased free cash flow estimates.
March's downtime from the social protests contributed approximately 1,140 bopd to the production guidance reduction, with the remaining 1,620 bopd of the decrease related to the delayed drilling impact for the remainder of the year's drilling schedule. The Q2-Q4 2022 drilling schedule now anticipates well 14H being drilled in late 2022 with completion deferred into early 2023. The Company expects to surpass production of 20,000 bopd, and will require use of the ONP route by Q4 2022, which coincides with its estimated maintenance completion.
The 2022 capital program has been reduced by approximately $9 million comprised of infrastructure project deferrals into 2023.
Updated Corporate Presentation and investor webcast
PetroTal is excited to announce it will be hosting an extended virtual investor meeting on May 26, 2022 at 9:00 am CT, following release of the Q1 2022 results. The objective of management will be to provide in depth information regarding certain aspects of the Bretana asset and to communicate the Company's short and long term strategy. The Company has also provided an updated corporate presentation with the Q1 2022 results, on its website.
Link to PetroTal investor morning webcast
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
"PetroTal was able to pivot through social downtime challenges extremely well while still showing quarter over quarter production growth and a revised 2022 budget that shareholders should be very excited about considering the drilling delays encountered in March. The social trust working table has been formed, met initially on May 3, 2022 and ongoing meetings will continue to advance the formal policy and procedure formation for the social trust. The positive response for this initiative has been overwhelming and we are excited about formalizing additional items as the year progresses."
PetroTal is a publicly traded, tri‐quoted (TSXV: TAL) (AIM: PTAL) (OTCQX: 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. In early 2020, PetroTal became the largest crude oil producer in Peru. 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. It is actively building new initiatives to champion community sensitive energy production, benefiting all stakeholders.
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
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.
Notes to Press Release
(a) See "Specified Financial Measures".
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; the impact of social disruption on the Company's operations; drilling, completions, workovers and other activities and the anticipated costs and results of such activities; PetroTal's revised 2022 guidance and budget including, but not limited to, estimated or anticipated production levels, capital expenditures and drilling plans; the intention to redeem the outstanding bonds; PetroTal plans to deliver strong operational performance and to generate free cash flow and growth; capital requirements; 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 and operate at unrestricted levels; anticipated future production and revenue; drilling plans including the timing of drilling, commissioning, and startup and the impact of delays thereon; oil production levels, including average and exit production in 2022; sales expansion through alternative exports routes, including barging and trucking; the Company's proposals for collaboration with local communities; and future development and growth prospects. 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. 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, impact of inflation on costs, 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, wars (including Russia's military actions in Ukraine), 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. Ongoing military actions between Russia and Ukraine have the potential to threaten the supply of oil and gas from the region. The long-term impacts of the actions between these nations remains uncertain. 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, increased operating and capital costs due to inflationary pressures, business, financial conditions, results of operations and other factors relevant to the Company. Please refer to the risk factors identified in the Corporation's most recent annual information form and MD&A, 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.
SHORT-TERM PRODUCTION RATES: References in this press release peak production, initial 10 days of production and other 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.
SPECIFIED FINANCIAL MEASURES: This press release includes various specified financial measures, including non-GAAP financial measures, non-GAAP financial ratios and capital management measures as further described herein. These measures do not have a standardized meaning prescribed by generally accepted accounting principles ("GAAP") and, therefore, may not be comparable with the calculation of similar measures 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. "Netback" (non-GAAP financial ratio) equals total petroleum sales less quality discount, lifting costs, transportation costs and royalty payments calculated on a bbl basis. The Company considers netbacks to be a key measure as they demonstrate Company's profitability relative to current commodity prices. "Funds flow provided by operations" (non-GAAP financial measure) includes all cash generated from operating activities and is calculated before changes in non-cash working capital. "Adjusted EBITDA" (non-GAAP financial measure) is calculated as consolidated net income (loss) before interest and financing expenses, income taxes, depletion, depreciation and amortization and adjusted for G&A impacts and certain non-cash, extraordinary and non-recurring items primarily relating to unrealized gains and losses on financial instruments and impairment losses, including derivative true-up settlements. PetroTal utilizes adjusted EBITDA as a measure of operational performance and cash flow generating capability. Adjusted EBITDA impacts the level and extent of funding for capital projects investments. Reference to EBITDA is calculated as net operating income less G&A. "Free cash flow" (non-GAAP financial measure) is calculated as net operating income less G&A less exploration and development capital expenditures and is calculated prior to all debt service, taxes, lease payments, hedge costs, factoring, and lease payments. Management uses free cash flow to determine the amount of funds available to the Company for future capital allocation decisions. Please refer to the MD&A for additional information relating to specified financial measures.
FOFI DISCLOSURE: This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about PetroTal's revised budget and guidance, prospective results of operations, production and production capacity, free cash flow, revenue, adjusted EBITDA, debt repayment, liquidity, shareholder returns 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.
To view the source version of this press release, please visit https://www.newsfilecorp.com/release/125348