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Good morning. My name is Brent, and I will be your conference facilitator today. Welcome to Frontera Energy's First Quarter 2020 Results Conference Call. [Operator Instructions] I would like to remind you that this conference call is being recorded today and is available through audio webcast on the company's website.After the speakers' remarks, there will be a question-and-answer session. Analyst 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 the actual results of the company to differ materially from those discussed in the forward-looking statements. Certain material assumptions were applied in formulating such forward-looking statements. These assumptions and factors that could cause actual results or events to differ materially from current expectations are disclosed in the company's Q1 MD&A dated May 5, 2020 under the headings Risks and Uncertainties and under the heading Risk Factors and elsewhere in the company's annual information form dated March 5, 2020. Any forward-looking statements speak only as of the date on which it is made, and the company disclaims any intent or obligation to update any forward-looking statements.I would now like to turn the call over to Mr. Gabriel De Alba, Chairman of the Board of Frontera Energy.
Thank you, operator. And thank you everyone for joining today's conference call to review Fonterra's First Quarter 2020 Financial Results. At Frontera, our consistent focus has been maximizing long-term shareholder returns, while preserving our strong balance sheet and conservative financial position. As a result, we began the second quarter with $361 million of cash and only $360 million in debt, which is not due until June 2023. We have worked hard to be in the position we are today. Under the leadership of our Board and CEO, we have created a new culture of financial discipline, both around capital and operating expenses.Last year alone, we implemented multiple cost savings initiatives across the company. Reducing our fuel cost base and then streamlining our organizational structure. This new culture have set the company well during the first quarter as a decline of global oil prices and the effects of the COVID-19 pandemic have reported across our industry.Frontera has continued to actively manage risk and protecting our balance sheet through decisive actions to reduce our 2020 capital plan temporarily closed, on economic production, further streamline spending and taking advantage of our hedging position. These actions including the additional steps announced today, have already started to show results and will help protect the company against the potential of an extended period of weaker commodity prices or pandemic related economic uncertainty. The Board and management are focused on protecting our people, balance sheet and cash flow, and position the company to restructure production and resume growth once recovery begins.I will now turn the call over to Richard Herbert, our CEO for additional details on our operating and financial results as well as some additional detail on current operating initiatives.
Thank you. Gabriel, and good morning, everybody. Thank you for joining our call today. I want to start with the most important topic at present, the measures which Fonterra is taking to protect the health and well-being of its workforce in the field and in the office. We have offices in 4 countries and then the normal operating conditions over 2500 employees and contractors, working in the field and in our transportation fleet.In Colombia, fortunately, we have not had any confirmed cases of COVID-19 yet in any of Frontera activities. The oil and gas industry here have been declared an essential industry by the government, which has allowed operations to continue albeit under difficult conditions. We have shut in some production which I will refer to later but this has been done on economic grounds, not health reasons.We have also stopped all drilling activities and are finishing a well worker's campaign after which we will not had the executive in Colombia, until conditions improve. We now have access to Corona virus testing which is going to help manage reputation of field staff. Our office in Bogota remains closed. The staff working from home under quarantine rules established by the Colombian government which has due to last until at least May 25.In Peru, we closed in production from the offshore Z-1 block in January and Block 190 onshore in early March. PetroPeru has suspended operation of the Bicentenario pipeline. So at present, we have no production in the country and operations have been reduced to a minimum. A small numbers staff in block 192 were evacuated during the last week after one of the operator came down with COVID-19 symptoms subsequently confirmed by testing. He is recovering in hospital, 3 colleagues also tested positive, who don't yet have symptoms. Limon and Kapau offices are closed.In Canada, the Toronto and Calgary office is a both closed and start the working from home. Frontera is fully with established protocols in all its areas of operations and has been actively engaged with local Government and communities, in the areas where we operate in supplying emergency help equipment and food rations to needy families. I would now like to discuss our first quarter operating results to highlight the progress our teams made in the early part of 2020, before the full impact of COVID-19 take effect. After that I will discuss our continued response to the present crisis, including the proactive measures we are implementing to manage the recent decrease in oil prices.During the first quarter of 2020, Frontera's total production averaged 63,572 barrels a day on an oil equivalent basis. We delivered Colombian production of 58,187 barrels a day, that is 60,741 barrels per day in the fourth quarter of last year. This result reflect stable production in our heavy oil block, partially offset by natural decline in large and medium oil and natural gas blocks which were accentuated by operational limitations as measures were introduced to limit the spread of because COVID-19 in Colombia.First quarter capital expenditures of $65 million were deliberately streamlined 51% from the fourth quarter, as we move to reduce activity and expenditure levels in response to the lower oil price environment. We drilled 18 development wells in the quarter; 13 in Keefer and 5 in CPE-6. In Keefer, positive results from these wells confirmed additional resource potential in the field. In the Hamaca field and the CPE-6 block, production reached the peak of 4,100 barrels per day, up from 3,500 barrels a day to the year-end.During the first quarter, we increased the water handling capacity of the Hamaca field facilities to 60,000 barrels of water per day. Equivalent to oil production of around 4,000 barrels to 4,500 barrels per day. When conditions permit we plan to continue our Phase development of this important resource and further increase production capacity. We also successfully tested DSIE exploration well in the lower Magdalena Valley, which is ready for testing once operations can we start. The integration of drilling texture with petrophysical interpretation and wireline logs identified multiple potential hydrocarbon bearing intervals in the Porquero Formation. The Asai discovery followed La Belleza discovery with partner Parex in the same region which had positive test results that we discussed in our previous operational update. We are waiting for an easing with the current restrictions to move ahead with appraisal of the La Belleza discovery.In Peru, production averaged 5,385 barrels per day in the first quarter down about 47% compared to 10,164 barrels per day in the fourth quarter. In Block 192, community action led to the suspension of production in early March. Post merger, we declared and accepted by the regulator Perupetro effective as of February 27 in Block 192.In offshore Guyana, our joint venture partner CGX Energy, I've been engaged in discussions with the government of Guyana on alternative approaches to its work commitments in that country to preserve the integrity of its licenses. Given the uncertainty surrounding the duration magnitude of COVID-19 and its related impact on oil and gas prices, we are withdrawing our previously announced full year 2020 guidance for average production, production costs per BOE, transportation cost per BOE, operating EBITDA and capital expenditures.The collapse in demand since March from COVID-19 crises has resulted in oil prices currently at historic lows. Frontera has reacted quickly to implement actions designed to protect our balance sheet and our future growth prospects. We are focusing our capital spending where it will generate positive economic return in the current environment. Capital expenditures will be limited to essential maintenance and well workers and sustaining production from higher net-back field plus we are reducing full year 2020 capital expenditures to a range of $80 million to $100 million down from our original plan for the year of $325 to $375 million. We are also under discussions with all the governments, where we are active on our exploration commitments in alternatives.In Colombia, the ANH has issued a special decree to allow certain exploration commitments to be deferred by 12 months. Frontera has applied for extensions to the ANH to defer eligible Colombian exploration commitment and it has had one application approved this week. The company expects to receive a decision on other blocks in the near future. As part of our focus on protecting our cash position, we have proactively moved shut in part of our production whilst Brent oil price and that clearly differentials are challenging field netbacks.In Quifa, an agreement with partner Ecopetrol, we have shut in the highest water-cut wells to reduce energy costs, affecting production in the field about 5,000 barrels per day, Frontera share. We have also shutting another heavy oilfield Cajua, Sabanero and Hamaca. In our light and medium oil area, we have temporarily shut down Cubiro, Casimena, Mapache, and Canaguaro fields. The combined effect has been in the shut current production volumes in Colombia of approximately 14,000 to 15,000 barrels per day. Frontera does not believe that the temporary shutting in an affect future field performance and is planning to reactivate set in production once market conditions improve.The shut in combined with the previously discussed production offline in Peru mean there are current production now totals around 39,000 to 40,000 barrels of oil equivalent per day.On the production and transportation cost side, we have accelerated multiple cost-cutting measures in response to the current environment, including renegotiation of tariffs and key contracted services and pipeline, treating of all truck tariffs, eliminating non-essential maintenance, subleasing storage capacity at Puerto Bahia, limiting staff and contractors to the minimum operational level and reducing our energy needs to lower water handling.About 80% of our production costs denominated in Colombian pesos which should be valued relative to the U.S. dollar.Overall, we expect production costs for the year to be about $100 million lower than our original plan including the effects of shut-in production. Additionally, in the first quarter, the company asserted rights to cease payments for unused facilities ancillary to the Bicentenario/Cano Limon pipeline system which is expected to result in lower cash outlays of around $30 million this year.During the first quarter, we also reduced our office headcount by 26% as a result of restructuring and simplifying assets on our organizational structure. Additionally, directors, executives and other management of the company, has taken cash compensation reductions of between 10% in 25%. As a result of these and other savings the company currently expects full year general and administrative expenses to be approximately $30 million to $35 million below our initial forecast. And finally we are suspending our dividend program consistent with our previously paying dividend payments to the price of Brent oil.We also do not intend to make additional share repurchases under our NCIB until market conditions improve.The Frontera team has taken strong and decisive actions to protect the company's balance sheet and assets and continues to monitor the situation closely. We will make any adjustments necessary to ensure we remain well positioned to restore production and investment once the recovery begin.We recognized a recovery from the economic shock posed by the COVID-19 virus could take time and we are focused on lowering our cost base and ensuring that the exciting growth opportunities in our portfolio can be tested and developed once the crisis is past. I would now like to turn the call over to Alejandro Pineros, our new CFO, who will take you through our financial details.
Thank you, Richard, and thank you everyone who has joined our call today. We generated positive operating EBITDA of $44 million in the first quarter versus $137 million in the fourth quarter of 2019, primarily due to lower global crude oil prices. First quarter Brent crude oil prices average $50.82 per barrel, 19% lower than the fourth quarter of 2019. The Company's hedging program realized gains of 15 million in the quarter partially offsetting the impact of lower oil prices. The company reported a net loss of $388 million compared to a net income of $69 million in the prior quarter primarily due to a noncash impairment charge of $151 million and then non-cash reduction of $168 million in deferred tax, income taxes both related to lower oil prices.As previously discussed, Frontera maintains its strong liquidity position with a total cash position of $361 million as of March 31, 2020 including restricted cash of $96 million. The Company has borrowings consisting of $350 million of long-term, unsecured notes maturing in 2023 and no mandatory near-term principal payments. We have an in-the-money hedging portfolio to help cushion against lower oil prices for the remainder of 2020. Subsequent to the quarter in April, our hedging position generated a further $60 million in hedging gains.We currently have an outstanding Brent linked risk management contracts protecting approximately 21,000 barrels per day of average production for the remainder of 2020. Assuming applied Brent oil price of $30, the value of the April through December 2020 oil hedge position is approximately $57 million. Combined with a net cash balance and flexibility with respect to our capital program, our hedging program further ensures that the company is positioned to maintain sufficient liquidity as we manage through this period of volatile oil prices.I will now turn the call back over to Richard for some closing comments.
Thank you, Alejandro. Building on our strong financial and operational position at the start of the year, we took important steps during the first quarter in response to the challenging and unpredictable events of the year. We are optimistic that energy markets will stabilize during 2020 but we had also prepared for an extended lower oil price environment, if necessary. We expect that our hedge position shutting the currently uneconomic production and continued cost savings will put us in a position to restore production and operations once recovery begin.Thank you all of you for attending our call today. I will now turn the call back to our operator who will open the call up for any questions that you may have.
[Operator Instructions] Your first question comes from Chris Dechiario with Marathon Asset Management.
Just a main question is really, you had a large drop in your cash balance between end of December to end of March and I'm just wondering if you could maybe bridges walk us through that drop and sort of I think obviously, at the $65 million in CapEx in the first quarter, but just sort of how we went from the cash we had it December to March. And then sort of given everything that you've just mentioned being at 39,000 barrels to 40,000 barrels a day and the cost cuts in the CapEx that's too close to 0, sort of, how do you expect that cash balance to evolve over the course of the year.
Yes, Chris. It's Richard here. Thank you for your question. I'll ask Alejandro to provide a few more details on housing the cash position has sort of resolved during the quarter but let me just make a few observations on it. I mean I think one of the key things to recognize is that all in our sort of normal ongoing stage, we were spending on average about $80 million to $90 million a quarter on CapEx and in fact we had a high CapEx spend [Technical Difficulty]
Ladies and gentlemen, please standby.
I think Richard dropped from the line, if you can hear me, I think I can help you with the answer that Richard was trying to address. I think during the first quarter, we clearly had a lower EBITDA number and -- so I think we have a lower EBITDA during the quarter. We also had higher capital expenditures during the quarter, above and beyond our EBITDA number. Also, we had the impact of some CapEx that was spent in the last year that and it was now paid during the first quarter. So more our working capital effect.We also incurred in some restructuring as a result of the reduction in personnel that was described and also during the first quarter, we had close to $21 million payments the NCIB program and dividends paid. So that explains the drop in our cash of close to $63 million.For your second question related how do we expect the cash to evolve that is going to be in a very subject to the evolution of the oil prices, but we are expecting that to preserve cash as much as possible. As we discussed, we have significantly lowered our capital program just to basically essential maintenance. We have stopped all drilling activity. So we're expecting that on the CapEx side, we will have reduce costs and also we are managing cost very, very tightly including their selling of some of the fields. So we are hoping that for the remainder of the year, we will manage to preserve cash as much as possible and to reduce the burden on our cash balances.
Great. And so just to make sure the sort of let’s call them onetime effects in the first quarter. You have a working capital effect on from CapEx, you had the restructuring costs and you had the dividends and stock buybacks which obviously are not going to happen going forward here until things recover. So those 3 things should I just assume that none of those 3 will reoccur in the second quarter and going forward?
Correct. We are the NCIB dividends have been suspended as we, as we mentioned, we are no they're expecting to have other restructuring cost, but that will depend on how the oil price will continue to evolve and most of the working capital effect has been impacted that in the first quarter.
Okay. Great. And then just a second question, if I may just I saw that I think there was some more activity on the Cano Limon pipeline and even the business scenario recently that would affect substantially your ability to use those for transportation, just wondering if that has a material fact on you or expected to have a material effect on you going forward here?
My understanding is that Cano Limon pipeline has been up. As you know, we have been a decreasing with the petrol over the cancellation of the shipper pay transportation contracts. So we will refrain from commenting on the details of that action.
There are no further questions at this time. Should you have any further questions please email ir@frontierenergy.ca. This concludes the call. Thank you all for participating. You may now disconnect.