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Good morning. My name is Sylvie, and I will be your conference facilitator today. Welcome to Frontera Energy's First Quarter 2020 Operating and Financial 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 available through audio webcast on the company's website. [Operator Instructions] Analysts and investors are reminded that any additional questions 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 could cause actual results or events to differ materially from current expectations as disclosed in the company's QA MD&A released May 5, 2021, under the heading Risks and Uncertainties and under the heading Risk Factors and elsewhere in the company's Annual Information Form dated March 3, 2021. 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 statements. And now I would like to turn the call over to Mr. Gabriel De Alba, Chairman of the Board of Frontera Energy. Please go ahead, sir.
Thank you, Sylvie, and thank you, everyone, for joining today's conference call to review Frontera's first quarter 2021 operating and financial results. Joining me today in this call are Orlando Cabrales, Frontera's CEO; Alejandro Piñeros, Frontera's CFO; Duncan Nightingale, VP Field Development, Reservoir Management, Reserves and Exploration; and Ivan Arevalo, VP of Operations. Management and the Board continued with its solid execution on Frontera's strategy as a low-cost, high cash flow-generating Colombian E&P company. Having also large-scale potential offsite in Guyana and value-unlocking opportunities in our infrastructure assets in Puerto Bahia's dry and wet ports and the ODL pipeline. Under the leadership of Frontera's CEO, Orlando Cabrales, the company continues to generate free cash flow, has driven down costs, focused on value-generating exploration and production, and Frontera also continues to execute on its NCIB program. I'll now turn the call over to Orlando Cabrales who will discuss our first quarter 2021 operating and financial results.
Thank you, Gabriel, and good morning, everyone. I would like to start by saying that since joining the Frontera Board in November 2018 and becoming CEO in mid-March of this year, I have been proud to play a part in the company's evolution into a stronger, more competitive returns-focused business. Over the past 8 weeks, I have had the privilege of working side-by-side with Frontera's leadership, operational and administrative teams whose professionalism and business and operational acumen are truly, truly impressive. Our first quarter results demonstrate our team's continued progress in delivering value-focused production and operational efficiency. While I will leave the more detailed discussion of Q1 to Alejandro, I would highlight that we delivered solid first quarter results. Compared to the last quarter of last year, we increased our operational EBITDA by 94% to $69.2 million, decreased production per barrel cost by 22%, increased our operational netback by 114% and delivered production within our guidance range and ended the quarter with a strong cash position of $409 million, including restricted cash. I'm pleased with Frontera's continued progress in delivering value-focused production and operational efficiency. I'm also encouraged by the progress we have made to strengthen relationship with the banking community, which supports our efforts to optimize our balance sheet and efficiently manage cash levels. During and subsequent to the quarter, Frontera made significant progress on a number of strategic fronts. First, on March 24 of this year, the Procuraduría General de la Nación, the Attorney General Office of Colombia, recommended that the previously announced conciliation agreement between Frontera, CENIT and Bicentenario be approved. The favorable opinion represents the first of 2 stages of review of the conciliation agreement. If approved by the Administrative Tribunal of Cundinamarca, the second stage of the process will be completed, and the parties will be able to complete the settlement arrangement, resolving all the disputes between the parties related to the Bicentenario Pipeline and the Caño Limón-Coveñas Pipeline. Second, I'm excited about the advances we are making to realize our substantial exploration opportunities. On April 21 of this year, Frontera, through its majority-owned subsidiary and joint venture with CGX Energy, announced that CGX, as operator of the Corentyne block offshore Guyana, entered into an agreement with Maersk Drilling Holdings Singapore for the provision of a semisubmersible drilling unit, the Maersk Discoverer, and associated services to drill the Kawa-1 well. The joint venture is preparing to drill the offshore Kawa-1 well early in the third quarter of this year. The primary target for the Kawa-1 well is a Santonian-age, stratigraphic trap interpreted to be analogous to the discoveries immediately to the east on Block 58 in Suriname. The Kawa-1 well is anticipated to be drilled on a total depth of approximately 6,500 meters in a water depth of approximately 3,700 meters (sic) [ approximately 370 meters ]. In Colombia, through our joint venture partnership with Parex Resources in Colombia, we will execute a 2-well exploration program at VIM-1 to continue development of this exciting greenfield opportunity, and we continue to grow production in the CPE-6 block. And in Ecuador, we are progressing our exploration program in the Espejo and Perico blocks with our joint partner -- joint venture partner, GeoPark. Finally, we remain focused on delivering value-focused production and cash flow from the company's Colombian operations. Frontera's diverse asset base enable us to generate value-focused production and cash flow across our portfolio. Following delays in ramping up operational activities to start -- to the quarter in an effort to protect the company's cash position until clarity on improving oil price emerge, we currently have 5 active rigs, including 2 in CPE-6, one in La Creciente, one in Quifa and one in Coralillo. And we are in full swing to ramping up our drilling program and value-driven investments. I would now like to turn the call over to Alejandro Piñeros, our CFO, who will take you through our first Q 2021 financial results.
Thank you, Orlando. Production during the quarter averaged 40,599 barrels of oil equivalent per day, in line with production guidance, down 3% compared to 41,945 barrels of oil equivalent per day in Q4 2020. The slight decrease in Q1 '21 production compared to Q4 2020 was primarily due to natural declines in some of the company's natural -- some of the company's mature fields and reductions of water disposal volumes at Quifa, partially offset by an increase in production at CPE-6 from a new well drilled on the block. At the end of the first quarter, the company voluntarily and temporarily reduced production at Quifa as it seeks to identify additional water disposal options in the block. The company anticipates production returning to prior planned levels in the third quarter of 2021. Frontera expects to meet its full year guidance forecast of 40,500 to 42,500 barrels of oil equivalent per day. The company recorded a net loss of $14.1 million or $0.14 per share compared with a net income of $48.6 million or $0.50 per share in the prior quarter and a net loss of $387.8 million or $4.04 per share in the first quarter of 2020. The net loss in the current quarter was primarily driven by a loss of $19.8 million on risk management contracts, foreign exchange loss of $18.5 million and a noncash charge of $9.3 million from legal contingencies that were offset by operating income of $51.5 million due to the improvement in oil prices and higher margins earned on oil and gas sales volumes. Operating EBITDA was $69.2 million, up 94% compared with $35.6 million in the prior quarter and $47 million in the first quarter of 2020. Cash provided by operating activities was $47.4 million compared with $42.1 million in the prior quarter and $46.5 million in the first quarter of 2020. Capital expenditures were $14.4 million compared to $24.9 million in the prior quarter and $64.7 million in the first quarter of 2020. The decrease in capital expenditures in the first quarter compared to the prior quarter was primarily due to the delays in ramping up operational activities early in the quarter in an effort to protect the company's cash position until clarity on improving oil prices emerged. As of May 4, 2021, development activity is back to normal levels with 5 rigs running across Frontera's operations. The company expects this current level of activity and increased capital spending in line with our guidance ranges for 2021 to continue through the end of 2021. Production costs averaged $10.54 per BOE, in line with guidance. Production costs were down 22% compared with $13.46 per BOE in the prior quarter and $12.48 per BOE for the first quarter of 2020. Transportation costs averaged $10.89 per BOE, in line with our guidance. Transportation costs were essentially flat when compared with $10.93 per BOE in the prior quarter and down from $12.44 per BOE in the first quarter of 2020. Operating netback was $29.13 per BOE, up 114% compared with $13.59 per BOE in the prior quarter and $16.84 per BOE in the first quarter of 2020. Under the company's current normal-course issuer bid, NCIB, program, 262,000 common shares were purchased for $1.3 million for cancellation during the quarter. As of May 3, 2021, the company had purchased for cancellation a total of 768,800 common shares for $4 million with an additional 4.4 -- 4,428,812 common shares available for repurchase under the NCIB. The company's total cash position at March 31, 2021, was $409.4 million, of which $161.2 million is restricted cash. This compares to $401.2 million cash and $168.9 million restricted cash as at December 31, 2020. Frontera's restricted cash position decreased by $7.7 million from December 31, 2020, primarily due to impacts of foreign exchange. During the first quarter of 2021, the company increased credit lines with Bancolombia and Banco BTG Pactual to $39 million. These new uncommitted credit lines do not require cash collateral, and Frontera expects that these increased limits will enable the company to release additional restricted cash amount in the second quarter of 2021. Now for a quick update on our hedging position. Frontera uses a combination of Brent oil price linked purchased put options, zero cost collars, put spreads and 3-ways to protect the company's balance sheet and capital program within hedging limits set by the Board of Directors. Frontera has hedged more than 50% of its production for the remainder of 2021, and details of our hedging program can be found in our Q1 press release. I would like now to turn the call over to Gabriel.
Thank you, Alejandro. Thank you, Orlando. And again, thanks, everyone, for attending. I think we're now ready to also start our discussion and open the line for questions.
[Operator Instructions] And your first question will be from Anish Kapadia at Hannam.
I had a couple of questions around Guyana if you can help. First of all, could you just explain how the $25 million deed of guarantee will work in Guyana? Just talk a bit more around that structure and why that's in place. And my second question is more to do with your exposure into the Guyana wells. You've got some very significant cost exposure at the moment. Can you explain your thinking about -- around drilling these wells with your current equity versus potentially farming down to reduce some of the risks?
Let me take that question, part of that question and maybe the -- yes, I can start with that. Well, we consider -- we continue, sorry, to consider a range of strategic options to progress our exploration program in Guyana that should maximize and look to maximize the value for our shareholders. Our Guyana exploration guidance, as you know, for CapEx covers a range from $40 million to $90 million, which shows you that we are building in the flexibility to accommodate various strategic options to progress the exploration program. So at this point in time, Frontera is comfortable with the 33 participation interest on the block. We look forward through a joint venture with CGX to spud the Kawa-1 well early in the third quarter, as I already I mentioned in my remarks. We are excited about the Guyana Basin. It's a leading offshore oil opportunity that has attracted interest from some of the biggest oil and gas companies in the world. We are excited also about the world-class prospectivity of our blocks. So that is what I can say at this point in time. And the guarantee, as I mentioned in my remarks, we are targeting to spud the well in the third quarter. CGX signed this agreement with Maersk back in -- on April 21. So under that arrangement, Frontera provided a company -- a parent company guarantee. which covers the operating rates under the CGX Maersk contract. So that was the rationale of the guarantee, and that has sliding scales. So as we make progress on the execution of the contract, the amount of the guarantee will be reduced gradually to a minimum of $10 million. So I don't know, Gabriel, if you want to say anything more on that, but that would be my response to your question. Thank you for that.
I will just add to what Orlando has said that indeed, Frontera and CGX continue to move forward. It doesn't mean that there could be some other potential avenues in the context of the strategic opportunities, et cetera. But at the moment, we're comfortable, continue to move forward. And in the context of the warranty, it was well negotiated, it is normal course, and as Orlando has said, it gets reduced as progress takes place.
And just one quick follow-up on that. The -- you've got the option for a second well on the Demerara block. What's going to be the deciding factors to whether you go ahead with that second well? Is it whether you can get some extra funding in from a third party to drill it? Or is it to do with your success in the first well? Just trying to understand what would kind of -- what are the decision points that you have in terms of drilling that second well.
Orlando, you want -- I can start with the answer.
Yes, sure.
I mean we have not depended on third parties to conduct any of the current ongoing steps on exploration at both of the blocks, the Corentyne or Demerara. So we don't depend on third parties to execute on those blocks. Technically, the team has been very excited about what the analysis is delivering. But I think it's difficult to speculate what -- I mean, what would be the further steps. But from the Frontera side, and it has probably been disclosed, it's prepared to continue to move on it on a stand-alone basis.
[Operator Instructions] There are no other questions registered at this time. So should you have any further questions, please e-mail ir@fronteraenergy.ca. This concludes the call. Thank you all for participating. You may now disconnect your lines.