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Good morning. My name is Sarah, and I'll be your call facilitator today. Welcome to the Frontera Energy's First Quarter 2018 Results Conference Call. [Operator Instructions] This call is scheduled for 60 minutes.I would like to remind you that this conference call is being recorded today and is also being webcast on the company's website. [Operator Instructions]Analysts and investors are reminded that any additional questions or concerns can be directed to the company at ir@fronteraenergy.ca. This call contains forward-looking statements, which reflect the current expectations or beliefs of the company based on information currently available.Forward-looking statements are subject to a number of risks and uncertainties that may cause an actual results of the company to differ materially from those discussed in the forward-looking statements.Factors that could cause actual results or events to differ materially from the current expectations are disclosed under the heading Risk Factors and also in the company's annual information form dated March 27, 2018.Any forward-looking statement speaks only as of the date on which it is made, and the company disclaims any intent or obligation to update any forward-looking statement, except as may be required by applicable securities laws.I would now like to turn the meeting over to Mr. Gabriel de Alba, Chairman of the Board at Frontera Energy. Please go ahead.
Thank you, Sarah, and good morning, everyone. Thank you for attending today's conference call to review Frontera's first quarter 2018 operational and financial results. I'm joined by Richard Herbert, our CEO; and David Dyck, our CFO.I would like to congratulate Richard and David for executing a seamless transition over the past month, as our team continues to deliver on the execution of our 2018 strategy and initiatives. The results continued to be very positive, with a strong quarter of production growth and 100% exploration successes so far this year.We have the assets and the people in place to execute Frontera's strategy of profitable and sustainable growth in production, reserves and cash generation. While we continue to drive for operating efficiencies, we are now positioning the company for production and reserves growth in 2018 and beyond.I would now like to turn the call over to Richard, who will go through the highlights of the quarter.
Thank you, Gabriel, and good morning, everyone. Firstly, I'd like to thank Barry Larson and all our talented people for their help during my transition from the board to the CEO position.As I start my tenure at Frontera, we are very busy as we pursue our 2018 theme: positioning for growth. We are in a more positive oil price environment than in recent years, as Brent averaged $67 per barrel in the first quarter and is now trading above $75 per barrel. The positive impact of these higher prices is expected to be magnified when our current hedges roll off at the end of October of this year. And our CFO, David Dyck, will speak to this in more detail later.We have increased revenue and margins due to better pricing and lower costs, and the Vasconia oil price differential has traded at $3.80 per barrel so far this year, better than our annual assumption of between $5 and $5.50 per barrel, taking advantage of positive dynamics in the heavy crude market.Frontera was able to grow total company net production after royalties by 3% quarter-over-quarter to 66,227 barrels of oil equivalent per day, of which 55% was light and medium oil, despite the impact of 1,361 barrels per day of high-priced royalties paid in kind, which compares with only 104 barrels per day in the fourth quarter of 2017, which is equivalent to 2% of production. Total company light and medium oil production growth was 11% in the first quarter compared to the fourth quarter, driven by operations on Block 192 in Peru. Operations there were reinstated following community issues in the fourth quarter of 2017, and production has been stable at 8,600 barrels per day net to Frontera so far in 2018. In addition, social issues at Cubiro during Q1 have now been resolved, and this also improved production in the first quarter. Overall production remains on track to meet our goal of 65,000 to 70,000 barrels of oil equivalent per day in 2018.In our drilling operations, in the first quarter we drilled 33 development wells and 3 exploration wells. Frontera currently has 6 drilling rigs in operation, with 3 in our heavy oil areas and 3 in our light and medium oil areas. We are planning to drill 25 development wells in the second quarter and have started drilling the Acorazado-1 exploration well on the Llanos 25 block in Colombia.In our heavy oil segment, we have recently started a major project to construct fluid handling facilities that will enable Frontera to reactivate a number of shut-in wells at Quifa Southwest and improve efficiency and costs at Cajua. This project is expected to be fully operational by early in 2019.I would now like to move to exploration, whereas Gabriel mentioned, we had exceptional 100% success on our light and medium oil Guatiquia block in Colombia in the first quarter with 2 new oil discoveries, Alligator-2 in February and Coralillo-1 in March. As we progress through 2018, we will continue to appraise and evaluate these new discoveries.And although they are not large, they can be put on production very quickly at good flow rates. For example, Coralillo-1 has been producing for the last 2 weeks at an average rate of 1,000 barrels per day of 15-degree API oil.From a high-impact exploration perspective, we started drilling at our Acorazado-1 location in the Llanos foothills of Columbia on April 22, targeting a large structure which lies on trend with the giant Cusiana and Cupiagua fields. We have already drilled down to 7,000 feet, and are on track with predrill estimates, which will deliver the well in between 90 and 120 days. We expect to spud the Delfin Sur-1 well offshore Peru in the third quarter. Each of these wells has the potential to add materially to our resources in 2018 and provide production growth in 2019.These exploration initiatives, combined with the water and oil-handling capacity expansions in the Quifa area, will drive production growth in the short and medium term. And I look forward to reporting on further progress as the company executes these projects.On the strategic front, Frontera continues to work on several transactional initiatives that have the potential to create significant value. We are currently analyzing alternatives for reducing our current financing costs, increasing operating and financial flexibility and to address future operational commitments.We continue to negotiate to achieve a material restructuring of certain ship-or-pay transportation contracts in Colombia, the impact of which is emphasized by the fact that during the first quarter, the Bicentenario pipeline was offline for 81 days compared to 56 days in the fourth quarter.We are also working on initiatives to increase the value of our noncore assets, with discussions ongoing for the T2 and T3 pipeline projects at Puerto Bahia. In Peru, as I mentioned earlier, we have restored production at Block 192 to nearly 9,000 barrels of oil per day and expect to be able to grow production on the block until the contracts expire exploration in June of next year.I'm actually traveling to Peru later today to meet with key government and industry representatives, with the expectations of continuing a dialogue with them on obtaining a new contract on the block.I would now like to turn the call over to David Dyck, our Chief Financial Officer, who will go over the financial highlights of the first quarter.
Thank you, Richard, and good morning, everyone. First, let me say I'm delighted and honored to be part of the Frontera team and to participate in the growth and value-creation opportunities we have in front of us.I'm pleased to reiterate our annual guidance metrics for net production of between 65,000 and 70,000 BOEs per day, operating EBITDA of between $375 million and $425 million and capital expenditures of between $450 million and $500 million for the year.The unchanged annual guidance reflects an average 2018 Brent oil price assumption of $63 per barrel. If current Brent oil price trends continue for the remainder of 2018, the company anticipates delivering financial results that will exceed current expectations, despite having 60% of our production hedged until the end of October 2018.For the first quarter of 2018, total sales after realized risk management contracts decreased 26% to $249.5 million compared to $335.3 million in the first -- fourth quarter of 2017. The decrease was primarily due to temporarily lower sales volumes.Now let me explain this a little further. Richard just highlighted that we were able to increase production volumes by 3% in the quarter to 66,227 BOEs per day. Sales volumes for the quarter, however, were almost 14,000 BOEs per day lower at 52,440 BOEs per day, a difference of 21%.Now historically, our sales volumes have averaged 3% to 5% lower than actual net production as a result of internal consumption, primarily used for power generation in the field. There were 3 other factors in the quarter, however, that led to this larger discrepancy. First, oil inventory increased in Colombia by 522,700 barrels as a result of an oil cargo which finished loading on April 2, 2018. These volumes, although produced in the quarter, were not recorded as sales in the first quarter of 2018, but rather will be reflected as sales in the second quarter of 2018. The sales value of these barrels totaled approximately $31 million.Second, inventory increased in Peru as the ramp up in production on Block 192 was higher than our sales entitlements based on the existing ownership of line fill in the pipeline. Inventories in Peru are expected to continue to build until the fourth quarter of 2018, at which point the company's share of line fill and sales volumes will more closely match production volumes. Last, there was a settlement of an overlift of approximately 270,000 barrels relating to the fourth quarter of 2017.The increase in inventory during the first quarter and settlement of volumes sold during the previous quarter had a follow-on impact to margins relating to other key financial metrics, including operating EBITDA and FFO. Despite the impact of reduced sales volumes, which primarily related to the timing of events as between quarters, the company continues to expect to deliver operational and financial results that meet annual guidance expectations.First quarter operating EBITDA of $86 million was 18% lower than $105 million in the previous quarter. Lower operating EBITDA was also primarily due to temporarily lower sales volumes as previously noted as well as higher realized risk management costs. Our operating netback was $24.42 per BOE, 3% higher than in the fourth quarter, as we lowered production cost by 5% per BOE and transportation cost by 11%, offset by lower realized prices, higher royalties and higher diluent costs.Adjusted FFO for the first quarter of 2018 was $34 million or $0.69 per share, a 64% decrease compared to $95 million and $1.89 per share in the fourth quarter of 2017. Lower adjusted FFO was primarily due to lower operating EBITDA, as we just explained, of $19 million, the fact that we did not receive any dividends from investments in associates during the first quarter of 2018 and we received about $36 million in fourth quarter of 2017, and higher downtime on the Bicentenario pipeline represented by additional cost of $11.2 million for the quarter.Let me touch on our hedging position for a minute. Our oil price hedges were put in place at a time when the time was coming out of restructuring and when it was necessary to protect the balance sheet and capital program. The opportunity costs associated with the necessity to hedge equates to a $42 million realized hedge loss in the quarter. However, if higher oil prices persist as we hope they do and as evidenced by the forward oil price curve, we will continue to benefit from approximately 35% unhedged oil volumes.It is also critical to remember that as we move through the remainder of 2018, Frontera will receive higher realized prices in Q3 as hedged dealings are about $5 higher than in the first quarter, and we currently have no volumes hedged in November and December.Frontera's balance sheet remains very strong, with a total cash balance including restricted cash of $696 million and positive working capital of $343 million at March 31, 2018. We are not looking to raise equity capital, and our exit notes have never been a long-term solution and we will address this going forward. We continue to focus on G&A cost improvement, and have kicked off an internal project looking at improving our operational efficiencies and reducing fixed costs.I'll now turn the call back over to Richard for some closing comments.
Thank you, David. I'd like to echo the comments of our chairman earlier. We have the strategy, the assets and the people that are delivering. In my view, Frontera is just getting started and there is a lot of value to create going forward. Thank you to all of you for attending our call today. And David and I look forward to meeting many of you soon.I'd now like to turn the call back to Sarah to take any questions that you might have.
[Operator Instructions] Your first question comes from the line of Ian Macqueen from Eight Capital.
Just a couple of questions. On overlift, obviously, it's difficult to figure out what's going to happen with respect to inventories, so you could build or sell inventories, and we wouldn't necessarily know it. But can you give us an idea on your overlift or underlift balance that might be outstanding as of today?
Ian, yes, good morning. We're probably not going to comment on specific inventory positions. But let me just hand that off to David to see if he's got any additional comments on that.
Okay.
Ian, it's David. Yes, in terms of the overlift and underlift, I mean, that's a phenomenon that occurs on a regular basis and it's difficult to certainly budget or predict. And so we really can't give any further details on that.
Okay, that's fine. Okay, the next questions are all kind of technical, so I don't know if Duncan is also available as well. But on Alligator-2, in the press release, it said there was 6% drawdown and 40% water cut. To me, that sounds like a pretty spectacular well. Just wondering if you can fill in a little bit more detail, just because the drawdown is very low, but the water cut is probably a little higher than I expected. Can you give -- shed more light on that well?
Yes. Ian, it's Richard here. We actually have pretty much the whole team here. So whatever questions people have got, we have the experts here to answer them. So Duncan is waiting to talk to you about Alligator-2.
Thank you, Richard. Yes. Good morning, Ian. Duncan speaking here. The 6% drawdown that you're referring to in the press release is entirely correct. And your assumption regarding water volumes and better porosities and permeabilities is totally correct. Just to put that in context, we normally have about a 30%, 40% drawdown in the nearby ACA field wells. But due to the exceptional porosity and permeability and deliverability of the reservoir, we did not need to go to those higher levels. The well is still performing in terms of optimization, so there may come a time in the future when we have to raise the drawdown. But at the moment, that 6% drawdown is delivering exceptional flow rates.
Yes, it sounds great. Also, with respect to Jaspe number 6D, obviously, that was a positive result. That area is a new area for you guys. Are you limited by water handling and facilities to get that well or that area on production? What is the plan for the Jaspe area given that you've seen success in the first well? And when could we expect production from that area?
Okay. Yes, regarding Jaspe-6, as you know, that was a new discovery for us up in the northwest corner of the Quifa block. Exceptionally good results there, very, very good porosities, good permeabilities, good net pay thickness. And with our partners, Ecopatrol, we will be embarking upon an appraisal program this year, which is likely to be composed of 2 to 3 appraisal wells with the intention, if possible, to move forward to a declaration of commerciality before the end of this year or maybe early 2019. As far as the development plan goes at the moment, Ian, it's too early really to comment in too much detail. But we do have a significant number of follow-on locations already identified. As far as water handling facilities are concerned, obviously, it's a new discovery. So there's nothing present there at the moment. So we are evaluating the cost benefit of bringing the water down to Cajua or initially bringing it via truck maybe down to Quifa. So it depends really on where the benefits lie, but very, very good porosity, good permeability, low water saturations. So we look forward to continuing the appraisal and development of that field in the very near future.
Great. One last question, if you don't mind. You really haven't talked much about the Delfin Sur well in Peru. Can you provide a little bit more background and detail on that field and the prospects? I mean...
Yes, I can. I will -- oh, okay.
Delfin Sur, Ian, I'm just going to hand over to Erik and he will give you an update on what the plans for the well are.
Yes, Ian, it's Erik here. Thanks, David -- Richard. The well will spud in Q3 here. It's a potential -- we're targeting a oil-gas accumulation on a separate structure from the adjacent producing field, and it's expected to spud in Q3 about a 12,000-foot well.
And that's from an existing -- from the existing platform? And is that 1 block?
It's a platform that we brought into the block with a rig that's going to be installed on the platform. The platform can be easily converted to production in the success case.
Yes, Ian, this is Richard speaking. Just to sort of reaffirm what Erik said there. The exploration, what is being drilled, [ off a ] fixed platform that has already been installed. So the rig is being mobilized onto the platform now. In the event of a discovery, we have the option to develop this field through the existing facilities on the nearby Corvina platform. So this would be effectively like a platform tieback into an existing producing field. So that makes it, a, quite cheap to develop; and b, quite fast -- very quick to develop.
Your next question comes from the line of Jenny Xenos from Canaccord Genuity.
I have a few questions, if I may. Maybe I'll start with Acorazado. Could you give us a little bit more color on how drilling is progressing, whether you've encountered any challenges to date? You've mentioned that you're currently at about 7,000 feet. So does that mean that things have been progressing fairly smoothly?
Yes, Jenny, good morning, and yes, thank you for your question. I think as was mentioned in the call, Acorazado at the moment is drilling entirely to plan. We had a look at the time depth curve just 2 days ago and we are drilling exactly as we had predicted. That said, we of course we're in the easy part of the well at the moment. The shallow section is relatively straightforward. I have drilled a lot of wells in that trend in the past in my BP days, and we haven't reached the troublesome -- more troublesome formations of the Carbonera, which are deeper. However, we have a very strong drilling team here and we have done a lot of planning for this well. So we have a high confidence that we're going to be able to drill it. I don't know, Erik, if you want to add any more color for Jenny on this?
No. I think to date, the well has been drilling as expected. There has been no issues and going according to plan. So very happy with how it's going so far.
Erik, at what depth do you expect to encounter these deeper, more troublesome formations?
They'll occur in -- between 8,000 to 9,000 feet and then 10,000 to about 11,500 feet, with another section just above the potential reservoir section, around 15,000 feet. And that's the challenge -- the way we've designed the well with multiple casing strings is to contain those potential problematic areas.
And you're referring to overpressure?
No. It's more wellbore integrity issues related to the tectonic stress-strain -- stress and strain regime that we find ourselves in.
Okay, great. Perfect. And maybe, Erik, since I have you on the line, so far you've had great exploration success at Guatiquia. What does it mean for your interpretation of the area's potential?
The results have been great so far, and we continue to incorporate the results into our geological and our seismic interpretation model going forward. Alligator -- as an example, Alligator-1 proved the geological concept; the follow-up well, Alligator-2, basically found a predicted better reservoir and permeability and porosity. So from that perspective, I'm confident that we're starting to unlock the key technical challenges on that block going forward.
How significant can this area be? Can you comment at all on that?
Not at this time.
Okay, fair enough. And I'll say, how many more...
Sorry, Jenny. I'm just saying I don't think it's that appropriate for us to talk about what the potential could be from some successful exploration because obviously, we want to understand this area ourselves and understand what further potential there could be in the area. So we won't say too much at this stage.
How many more wells are you hoping to drill in this area this year, then?
Well, the current plan is we've just sanctioned some further development activity in this area, so that's a combination of wells and facilities to make sure we can keep up with the success of the wells that have been drilled. And then beyond that, we are reviewing the plans for more exploration in this area.
Okay, great. And Richard, could you give us a little bit more color on what's happening in Peru specifically with the Block 192 extension year? You mentioned that you were continuing the dialogue with the government. But what does that really mean? Where are you at?
It's hard for me to tell you that today, Jenny, having just arrived in the company. And as I said in my opening comments, I'm actually leaving for Peru this afternoon. And after a visit to the block over the weekend, I will be in Lima early next week talking to 2 people in the government and in an international oil company. So I think it will be more appropriate to answer that question when I've had a bit more time to get familiar with this topic. But, obviously, we have a contract which expires in June of next year. We're continuing to operate that very successfully. And we will -- and we're continuing to look at the options that we have for how we stay in a relationship with that block. And I'll give you an update on that in the future.
Okay, sounds good. Then if I may, a question for David, please. This quarter, you had no dividends from associates, while in Q2, I believe, you're expecting a $30 million payment. How should we think of dividends for the rest of the year?
Yes. Thank you, Jenny. The dividends are not paid quarterly, and so it's just really a timing issue. They're generally paid twice a year. And so this may be an issue that we'll just have to address as we move forward quarter over quarter. So it's really a timing difference, and we highlighted it because of the impact of the change between Q4 of 2017 and Q1 of 2018.
So you're expecting a payment in Q2. And then is it fair to say that there's likely another one then coming around Q4? You said twice a year you'll get paid?
Yes, there will be one coming toward the end of the year. I just can't tell you right now when exactly that will be.
No, that's good enough. That's fair enough.
As we have done in this quarter, if there's any anomalies in terms of timing, we'll be certain to draw your attention to them.
[Operator Instructions] Your next question comes from the line of René Burgos from CarVal.
I have a few questions for you guys. Just for modeling purposes, as you guys continue to build up on these exploration successes, how should we be thinking about resource for next year? And I don't know, maybe the specifics you cannot give us, but how come [ toward to the year ] you already at this point replace reserves? And also as you continue with these exploration successes, how should we be thinking them translating into actual production?
René, good morning. Thank you for your welcome and for your question. Let me just start with an answer, and then I think I'll turn it over to Duncan to just talk about what the sort of, the development plans are for our exploration successes. Obviously, it's still fairly early days. We're talking about some 2 exploration wells that have just been drilled in the first quarter. But as I've said in my introductory comments, we have the benefit here that we have infrastructure for production. And so we are able to put these wells into production quite quickly. And I'll just -- Duncan if he's able to say anything that would help to guide you a little bit on sort of the timing of that. So Duncan, over to you.
Okay, thank you, Richard. Yes, it's a very difficult question to try and quantify, to be honest with you, René, because building on the successes of the reservoir optimization and infill drilling we've had this year, we're obviously setting ourselves up for technical reserve adjustments, subject to the reserve auditing process at the end of this year. We're also continuing on with the exploration successes. There are certain evaluations, as you obviously know, that have to take place to quantify the bore size and the reservoir performance, which is work that needs to be conducted over the coming months. And again, that -- this set us up, hopefully, for new reserves to be booked. But again, subject to reserve auditing consideration at the end of this year. In addition to that, we've built up a fairly large inventory of drilling locations in our heavy oil assets as a result of the vertical wells that you know about on Quifa and Cajua. So again there we're continuing the evaluation, the assessment of the reservoir performance. But I think we have certainly a very good drilling inventory of opportunities in our light/medium as well as our heavy oil assets. But the actual magnitude of reserves to be booked, I think that needs to be considered very carefully over the next few months with our reserve auditors.
So maybe let me ask the question differently. So at this point -- and I'm hoping that you can understand the frustration coming from our end, and we've been long term investors for U.S. at this point. As I think about the work that you did towards the end of last quarter, the optimization work that was done last year, the less water cut in some of the fields, the exploration successes, production is certainly not reacting. So I'm just trying to get a better sense of, when is production going to benefit from all of these different initiatives and reserves because we are -- from this, have not seen the benefit, despite the fact of all these great news that you guys continue to post out. So I'm just trying to match A and B to get to C. And right now, I just don't get to that. So I don't know if you can give me any sort of additional color that will help me in -- as I marry all these 2 concepts together. And by the way, I need to caveat this by saying that I'm not an oil expert. I'm slowly becoming one.
What we have signaled for this year, René, is -- in our guidance, is that our production will end the year between 65,000 and 70,000 barrels a day. And obviously, the composition of that comes from all of these different fields that Duncan was talking about. I think, at this stage, we're still relatively early in the year. We're talking about the first quarter, and I think it's too soon to sort of talk about any more details as to sort of where this production could come from and what could be the impact on reserves and so forth. I think we would rather say at this stage that we have good confidence in our guidance production for the year. We continue to invest. We're continuing to see good news from both our production assets, but also from the exploration program. And when we're ready to sort of make any adjustments to that, we will signal it. But for this quarter, we're saying that we're unchanged.
Okay. So for the time being, that's okay, but I would expect a more fulsome answer in the coming months and quarters. So next question would be cost. You ended up in your lower end of the cost this quarter. So is it fair to say that we should expect cost to be moving -- sticking around this level? Or do you think that toward the end of year it would average out to your projection? Because again, you were hinting that production cost and transportation cost were going to be closer to $20 -- between $24 and $28, just in round numbers. And clearly, you came on the closer end to $24. So how should we be modeling those numbers for the rest of the year?
Well, I think on production costs, I'm going to ask David to give you a sense of sort of what direction they're trending in. Obviously, we have a lot of different elements that are feeding into this, particularly on the transportation side. But let me ask David to give you some views on where this is headed.
Yes, René, it's David. Certainly, we're encouraged with the performance in the first quarter in being able to reduce costs. And as I said in my comments, we continue to look at a number of initiatives, not only on the corporate cost, but on the field cost to drive those down. And so we're still very comfortable with the range. Obviously, our job is to try to beat our guidance. And so that's what we're targeting to do. And to your point that you made earlier, as we have more information as we move forward, I think we can start to narrow ranges and be more specific on our guidance for the balance of the year, and then ultimately, start to look forward into 2019. But it's premature at this point.
So then, is there any seasonality in your cost numbers then? Is the first quarter the lowest cost quarter for whatever reason? Is that a fair statement?
At this point, I think we're probably going to be pretty flat quarter-over-quarter. Maybe I'll just ask Alejandra to comment a little further on that.
Yes. Usually, there are some costs that come in the fourth quarter that are more significant. And there are some contracts that are closing in the fourth quarter and the first quarter benefits for a little bit of seasonality of lower costs in our production.
Okay. And my last question, you guys are sitting on a significant amount of cash. I think by my calculations, and I may be wrong, it's over 1/3 of your market cap is in cash. What are you guys thinking about cash? And I know you mentioned a couple of initiatives. But I would like to kind of get a better sense of the timing of these initiatives. And what shall we be expecting over the next several months?
René, I think on how we're going to deploy that cash, as and when we're ready to deploy it, obviously, we'll be able to announce that. But at this stage, we can't signal forward exactly how we intend to use it. I mean, we have some options in our midstream area where we can make some investments, but we have also linked those to some of the restructuring of our transportation agreements. And so the timing on that is not something we can talk about today. And equally, as we look at our upstream portfolio, obviously, we need the flexibility to react to, for example, the outcome of an exploration well like Acorazado, which could have a big impact. So I don't think it's possible, unfortunately, to give you a very specific idea of how we're going to spend that cash today. But you can be assured that we will spend it in a very prudent and disciplined way when we do come around to spending it.
Okay. So my last one is, on the IFC, is that contract still in place? Because I know that was signed a long time ago and I know that it had different thresholds. Any changes on the IFC contract?
Yes, René. Let me just pass over to Jorge Fonseca to give you an answer on that.
No changes. So far no changes. [indiscernible] all in place.
Your next question comes from the line of Anton Sussland from Sussland & Company.
.I had a few questions that are really regarding finance. And in the press release, there was a statement saying that the company is currently analyzing alternatives for reducing its current financing costs, increasing operating and financial flexibility and maybe raising capital to address future operational commitments. So the questions I had were the following. At the moment, there's a $250 million loan which is quite expensive and you have a lot of cash. The first question is, can you sort of pay back this loan? The second one is, there were a lot of divestitures that were talked about in the former times of Pacific Rubiales, a lot of midstream and nonoperating assets that you wanted to divest. Are these divestitures going to go ahead? Also related to the previous questions, today, you see that in the E&P sector, a lot of companies are aiming to be free cash flow-positive, that the investments need to be financed, CapEx needs to be financed out of operating cash flow. Should you not be in that state at the moment? And with oil prices being at $70, I don't think you should be raising capital but you should be really more divesting some of these nonoperating assets midstream [ ports ] and things like that I don't think should be in that. Shouldn't that be the source of funding for your additional projects? A third question is hedging. Does it makes sense to hedge when oil is at $40 and $50 a barrel, and then to say we stop hedging when the oil is at such high levels? And then the last question is really from a shareholder perspective. The stock price has been terrible. I mean, the performance of PDVSA bonds is basically almost in line with the one of Frontera shares. What are you going to do to put the stock higher? I mean, it's really underperforming significantly to peers. So it's really a lot of questions regarding finance. I guess, shareholders are really less interested in operations and drilling and all that. But in the short term, how do you get to free cash flow-positive? How do you sort of make the stock price go up?
Well, Anton, thank you. That's a lot of questions. You have a lot of things on your mind. And I'd like to reassure you that as David and I start working here, we have the same questions on our minds. So it's still quite early days for us. I'm going to ask David in a minute to just talk about the position with our current bonds and how we think about those and what options we have going forward on those relative to our cash position. I think I'd -- to address your question on the midstream assets, I would just make the point, we have been divesting midstream assets. And we announced another disposition in the first quarter of a noncore midstream asset that is gone. Obviously, we're looking at our portfolio and the ones that remain, I think what I would just say today is that, in some cases, it makes more sense to hold on to some of these assets and actually potentially invest a little bit in them to actually position them for sale. So we will -- we're looking for value here. We're not in a fire sale. So we will address that at the appropriate time. I think with respect to your comment about being free cash flow-positive, obviously, I mean, that is a situation that we would all like to be in sort of eternally if it was possible. We were free cash flow-positive last year. This year, we have some bigger projects that we're investing in, including the water handling facilities at Quifa that I mentioned. And also, we're drilling 2 big exploration wells. So it's the nature of the upstream business. It tends to be a bit lumpy with capital going in. And so this year, we won't be free cash flow-positive probably at the end of the year. But certainly, our intent going forward is to look at our cash position and make sure that we're investing in a prudent way relative to the cash that's coming from our operations. I'll ask David to comment on the position with our hedges as well and how we might think about hedges going forward. Obviously, we are in a position that's historical, we locked into the hedges we've got now for the reasons that David explained earlier. But as we go forward, David will give you some thoughts on the future. And finally, on the stock price, well, I think it's our job to make the company perform. And it's other people's jobs to make the stock price perform. And I'm not sure that I can answer that question, except to sort of go and ask you all to buy some more stock. So with that, let me hand over to David, please.
Thanks, Richard, and hi, Anton. Yes, you've got some great questions there, and it's all about reducing our financing cost. And I alluded to it in my comments that -- and you're quite right, our existing exit notes are -- have a fairly high coupon. They also have some significant limitations in our ability to conduct business in what I would consider a normal course, but the bonds were put in place because we needed to get those bonds in place at that time. And those bonds do have some callable features later this year, and so we're looking at that in relation to our overall financing structure -- or financial structure in our financing plans, and that's really what we were alluding to in our press release that everyone knows that those exit bonds were put in place as a temporary measure to get us through a time period that was difficult. We're coming out of that difficult time period. We've got a lot of activities in the field, and so we need the flexibility within our capital structure to run our business. And so that's really what we're looking to in terms of not only financial flexibility going forward, but reducing our overall borrowing costs through a different structure. The -- as to the hedging piece, right now, again, under those bonds, we're limited. And so we don't have any flexibility until we actually take those bonds out and refinance them. But having said that, we're well-aware of where the oil price is today. We're well-aware of the opportunities that we would have to put additional risk management strategies in place. And so we're very -- we're evaluating those very closely. We're in discussions with our board on those issues, and we will do what's prudent to protect our ability to fund our capital programs and to cover our costs on a go-forward basis.
Okay. And maybe just a follow-up. To help the share price, I mean, definitely, a dividend would be nice to have with almost $500 million or $550 million in cash, and probably the company could start paying dividends, no?
Well, again, Anton, under our current financial -- financing structure, we're precluded from paying any dividends under those exit notes. And I think that Richard's comments on -- our cash resources relative to the initiatives that he talked about in his comments earlier, I think are -- I think that cash position is entirely appropriate and prudent, given some of the things that we have in front of us, including funding our ongoing exploration development programs.
Okay. But then you want to keep the Bahia port and all these midstream assets that seem to be unrelated with exploration and production?
I mean, whether we keep something or don't keep it, I mean, these are strategic decisions that we'll take, Anton. Our focus, as we've signaled in the last -- through the restructuring, is to bring Frontera back to being primarily an exploration and production company. But we still have investments in midstream. And as I said earlier, the decisions that we take on those will be focused on value, not on the necessity of just changing the shape of the portfolio. So as and when we make decisions on that, we'll let you know. But at this stage, we feel there's more value by holding onto these assets in the near term, while looking longer term at how they fit within our strategy.
Okay. And maybe a last question, if I may, is one of the reasons I think why the share price is so low is that there's very low liquidity. When you look at the volume of shares traded per day, it is really minimum. What are the steps that you're planning to take to increase the liquidity of the stock and increase the volume that is traded on a daily basis? Are you going to talk to more big banks, do more roadshows or things like that? Because today the stock is basically untradable. There's so little volume that no big investor can sort of say, okay, I want a big -- I want to put a position in the stock price.
Yes, Anton, we all understand the issue we have on liquidity. Let me hand over to David again to address your question.
Yes, Anton, I think that the best thing we can do to improve our liquidity and increase the cycling of stock through people actively trading is to execute on our strategy. And we're in the business of producing oil and selling it and making a profit and putting up returns for our shareholders. And we trust that with the activities we've got ongoing, that we can reward our shareholders accordingly. But they've got to buy and sell the stock. And we've got 50 million shares out there, and there's not very many that are trading right now. We're going to be implementing or we're considering implementing a stock split, which hopefully will help. We have a very focused and active Investor Relations program that is targeted to meet and to talk to not only our existing stakeholders, but looking for new stakeholders and get them to be interested in what we're doing.
There are no further questions at this time. Should you have any further questions please e-mail ir@fronteraenergy.ca. This concludes the call. Thank you for your -- participating. You may now disconnect.