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Good morning. My name is Christina, and I'll be your conference facilitator today. Welcome to Frontera Energy's First Quarter 2022 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 information within the meaning of applicable Canadian securities laws relating to activities, events or developments the company believes or expects will or may occur in the future. Forward-looking information reflects the current expectations, assumptions and beliefs of the company based on information currently available to it. Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance. Forward-looking information is 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 information. The company's MD&A for the quarter ended March 31, 2022, and the company's annual information form dated March 2, 2022, and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which it is made, and the company disclaims any intent or obligation to update any forward-looking information, except as required by law. I would now like to turn the call over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy. Mr. De Alba?
Thank you, Christina, and thank you, everyone, for joining today's conference call to review Frontera's first quarter 2022 operating and financial results. Joining me on today's call are Orlando Cabrales, Frontera's CEO; Alejandro Pineros, Frontera's CFO. And also available to answer questions at the end of the call, we have Victor Vega, VP of Field Development, Reservoir Management and Exploration. Frontera continued to deliver strong performance results in the first quarter of 2022, in line with full year production guidance of 40,000 to 42,000 barrels per day, an annual EBITDA guidance of $575 million to $625 million at $90 per barrel Brent. Frontera delivered EBITDA of $138 million in Q1. Importantly, due to the timing of cargo sales, which impacted volumes sold in the first quarter, Frontera accumulated a large inventory during the quarter, which would be sold in subsequent quarters. As per our 2022 guidance issued earlier this year, we continue to forecast annual EBITDA guidance of $575 million to $625 million at $90 per barrel Brent. And I would note that every additional $10 barrel increase in Brent price average for the year equals an estimate of approximately $100 million of additional EBITDA as the company has on cap exposure to higher oil prices. Frontera expects further operational momentum throughout the rest of the year, which will drive higher production and profitability in subsequent quarters. During the quarter, the company renewed its NCIB program for the purchase of up to 10% of the public float and is reviewing other opportunities to enhance shareholder returns. Also importantly during the quarter, Frontera was recognized for the second straight year by Ethisphere as one of the 2022 world's most ethical companies. The company was certified by Great Place to Work as the only oil and gas company with an outstanding work environment. And Frontera was also recognized as one of the best places to work for women in Colombia among the 2021 GPTW ranking. I'm very proud of Frontera's Board, management and employees for their efforts in these areas. I'm pleased to acknowledge the national and international recognition the company has earned. Finally, on behalf of Frontera and CGX joint venture, I am pleased to invite all shareholders, stakeholders, investors and media to attend a virtual information presentation hosted by senior operational and technical team members from Frontera and CGX on May 9, at 11:00 a.m. Eastern Time. The joint venture will discuss the Guyana Suriname Basin, the offshore Corentyne block, integrated Kawa-1 exploration well results and insights ahead of the Wei-1 exploration well. The joint venture appreciates the high level of interest in our Guyana activities, and we look forward to provide an update at our virtual presentation next week. I will now turn the call over to Orlando Cabrales, Frontera's CEO; and our CFO, Alejandro Pineros, who will share their views on the results. Orlando?
Thank you. Thank you again, and good morning, everyone, and thank you for taking the time to join us this morning. Frontera reported strong financial results in the first quarter of 2022. We increased production by 6.5%, recorded net income of $102.2 million, increased our operating netback by 22% and increased our net sales realized price by 17%. We also delivered EBITDA of $132.8 million, up to 92% compared to the first quarter of 2021, but down quarter-over-quarter due to the timing of cargo sales in the first Q impacting volumes sold in Colombia and an increase in inventory, which will be sold in subsequent quarters according to regular nomination and typical scheduling of cargoes. Operationally, we executed $113.5 million in capital expenditures on the Kawa exploration well in Guyana, on discovery at the Jandaya-1 and Tui-1 exploration wells in Ecuador. And we maintain a high level of execution of development drilling in our base Colombian operations. During the quarter, we began integrating the Petrosud assets into our operations, which we anticipate will contribute to achieving the company's production guidance. Subsequent to the quarter, Frontera completed the acquisition of PCR's 35% working interest in Colombia's el Dificil block. Frontera now holds a 100% working interest in el Dificil block, which when combined with our acquisition of Petrosud's interest in Entrerrios and Rio Meta blocks will generate approximately $12 million to $50 million of annual EBITDA. The company hedged 40% of its 2022 production at $70 per barrel floors with full upside exposure and also completed 100% of its foreign exchange hedges in connection with 40% of the peso-denominated cost for 2022. Importantly, the company is reviewing opportunities for increased production in the second half of this year. I would now like to discuss our first Q operational activities and results. In the first quarter of 2022, the company drilled 14 development wells and 1 exploration well in Ecuador and completed 38 work orders and well services. At Quifa, current production is approximately 17,000 barrels per day of heavy crude oil, including both Quifa and Cajua. In first Q, the company drilled 12 development wells at Quifa. At Guatiquia, current production is approximately 8,800 barrels per day of light and medium crude oil. In the first Q, Frontera initiated production from the Coralillo-15 and Coralillo-13 development wells. Subsequent to the quarter, the Coralillo Sureste well was completed in the lower Sand and Barco formations and production test is underway. At CPE-6 current production is approximately 4,700 barrels per day of heavy crude oil. In the first Q, the company drilled the [ HAM-102D well ], which is currently under evaluation. At VIM-1, Frontera 50% working interest as non-operator, current production is approximately 1,300 BOE per day. In the first quarter, the operator completed the construction of gas processing facilities, which are expected to be operational in the second quarter. Additionally, the operator anticipates the starting La Belleza-2 development well in the second quarter of the year. Subsequent to the quarter, on April 27 this year, Frontera completed the previously announced acquisition of the 35% working interest in Colombia's el Dificil block held by PCR investments for a total aggregate cash flow generation of approximately $30 million. The PCR transaction was subject to customary closing conditions and approval of the transaction by the Nacional de Hidrocarburos, which has now been received. Currently, the company has 4 drilling rigs and 4 workover rigs active at its operations in Colombia and 1 rig at the Perico block in Ecuador. Speaking of Ecuador, during the quarter, Frontera announced that it had made discoveries at the Jandaya-1 and Tui-1 exploration wells or the Perico block in Ecuador. The Jandaya-1 well encountered a total of 78 feet of net pay across 3 hydrocarbon bearing reservoirs. The Tui-1 exploration well encountered a total of 125 feet of net pay across 7 hydrocarbon bearing reservoirs. Production from the Jandaya-1 and Tui-1 exploration wells is being delivered to a nearby access point on Ecuador's main pipeline system for sale to export markets. Frontera and its partner are currently evaluating subsequent activities in the Perico block, including a potential development drilling plan for both the Jandaya and Tui fields. Production in Ecuador for the 3 months ended March 31 of this year was 279 barrels per day share before royalties of light and medium crude oil. Additional prospects on the Perico block have been identified and are being matured for future drill. In the Espejo block where Frontera holds a 50% working non-operator interest. The JV is currently acquiring 60 square kilometers of 3D seismic and anticipates spudding the first exploration well in the block called the Espejo Norte-1, in the second half of 2022. Frontera's acreage positioned an initial positive results in Ecuador provides the company with flexibility, optionality and a potential future platform for growth. I would now like to turn the call over to Alejandro Pineros, Frontera's CFO, to discuss our fourth quarter and year-end -- sorry, our first Q results.
Thank you, Orlando, and good morning to everyone in the call. As you heard, operating EBITDA was $132.8 million in the first quarter of 2022 compared with $148.3 million in the prior quarter due to the timing of cargoes, which impacted volumes sold in Colombia, resulting in an inventory build while benefiting from higher Brent oil prices. The company reiterates its 2022 operating EBITDA guidance of $575 million to $625 million at $90 per barrel Brent. The company reported a total cash position of $323.5 million at March 31, 2022, compared to $320.8 million at December 31, 2021. The company's restricted cash position was $66.1 million at March 31, 2022, compared to $63.3 million at December 31, 2021. The company anticipates releasing additional restricted cash in 2022 as the company continues to optimize its credit line. Cash provided by operating activities was $115 million in the first quarter of 2022 compared with $113.5 million in the prior quarter. At March 31, 2022, the company had a total inventory balance of 1,432,111 barrels compared to 807,061 barrels at December 31, 2021. The increase in inventory balance in the first quarter is a result of one less cargo sold during the first quarter compared to previous quarter, which the company expects to sell in subsequent quarters. The company has various uncommitted bilateral credit line. As of March 31, 2022, the company has increased its uncollateralized credit lines to $106.9 million credit line, an increase of $17.3 million compared to December 31, 2021. On March 15, 2022, Frontera announced plans to renew its normal course issuer bid for the purchase of up to approximately 4.8 million common shares, representing approximately 10% of the company's public float during the 12-month period commencing on March 17, 2022, and ending on March 16, 2023. As of May 2, 2022, Frontera has purchased for cancellation, 1,246,400 common shares at a volume weighted average price of CAD 14.39 per share, excluding brokerage fees. Under the company's previous NCIB that expired on March 15, 2022, Frontera's purchased for calculation, 4,243,600 common shares at a volume weighted average price of CAD 7.38 per share, excluding brokerage fees. Capital expenditures were $113.5 million in the first quarter of 2022 compared with $135.5 million in the prior quarter. Capital expenditures during the quarter included exploration activity at the Kawa-1 well offshore Guyana, light and medium crude oil discoveries in Ecuador at the Jandaya and Tui-1 exploration wells and maintaining a high level of execution of development drilling in the company's based Colombia operations. The company recorded net income of $102.2 million or $1.08 per share in the first quarter of 2022 compared with net income of $629.4 million or $6.6 per share in the prior quarter. The decrease in net income quarter-over-quarter was mainly due to an impairment reversal of $586.7 million that occurred in the fourth quarter of 2021. The company's operating netback was $58.44 per BOE at 22% compared with the prior quarter, primarily due to higher net sales realized prices, partially offset by higher production costs. The company's net sales realized price was $81.66 per BOE in the first quarter of 2022 at 17% compared to the prior quarter. The increase was mainly the result of higher Brent benchmark prices, lower differentials compared with the previous quarter, lower loss on risk management contracts and reduction in dilution costs due to the replacement of the dilution service by volumes purchased, partially offset by higher cash royalties resulting from oil price increase. Production costs averaged $13.48 per BOE in the first quarter of 2022 compared with $12.71 per BOE in the prior quarter. The increase in production cost was mainly due to increased energy costs, which added approximately $1.5 per barrel additional well services and maintenance costs. Transportation costs averaged $9.74 per BOE compared with $9.02 per BOE in the prior quarter. The increase in transportation cost was mainly due to onetime prepaid services recorded as lower transportation costs during the fourth quarter of 2021 following the implementation of the conciliation agreement entered into with Oleoducto Bicentenario de Colombia and Cenit Transporte and Logistica de Hidrocaburos to resolve certain transportation dispute. The company recorded a realized loss on risk management contracts of $2.7 million in the first quarter of 2022 compared with a realized loss of $6.7 million in the prior quarter. The realized bottom risk management contracts was primarily due to cash paid for the purchase of food options during the quarter. In light of higher oil prices, the sequent to March 31, 2022, the company entered into new put hedges totaling 1,410 000 barrels to protect the company's 2022 capital program at $70 per barrel at strike price with full upside exposure. The company's 2022 hedges do not cap upside price potential. The company also completed 100% of foreign exchange hedges for 2022 to protect downside and allow for upside exposure. I will like now to turn the call back over to our CEO, Orlando Cabrales.
Thank you, Alejandro. I would like to conclude today's call by highlighting Frontera's key advantages and value-creation opportunities. First, we have a strong balance sheet and a track record of capital discipline. We have recently recognized our bonds, secure additional lines of credit and unrestricted cash. And at $90 per barrel Brent, we anticipate generating between $575 million and $625 million in operating EBITDA and significant free cash flow this year. Second, we have a diversified portfolio of assets. We have a stable base Colombian assets with the diversity, flexibility and optionality with additional options in heavy crude at CPE-6 and light and medium crude oil at Coralillo and liquids-rich gas opportunities at B1. And we have had early production success in Ecuador at the Jandaya-1 and Tui-1 discoveries. Third, we are returning capital to shareholders. In 2021, we repurchased approximately 3.9 million common shares for $21.5 million under our previous NCIB. And in the first quarter, we launched a new NCIB for the repurchase of up to 10% of the public float. Since 2018, we have returned $207 million to shareholders through dividends and buybacks. Fourth, we have exciting low-risk exploration opportunities with recent discoveries in Ecuador, near-field exploration opportunities in the lower Magdalena basin in Colombia and a potentially transformational exploration opportunity with world-class potential and scale in offshore Guyana. Finally, we are an experienced operator with a proven track record in several basins with several operating and non-operating partnerships with recognized players in the region. We also have an infrastructure advantage through our strategic ownership position in the ODL pipeline and Puerto Bahía, liquids and dry terminal. And our independent marketing harm ensures access to infrastructure, superior sales prices and flexible market assets. With that, I would like to conclude by saying thank you to Gabriel and Alejandro for their comments, and thank you, everyone, for attending our call. I will now turn the call back to our operator, Christina, who will open the call up for questions.
[Operator Instructions] Your first question comes from the line of Anne Milne with Bank of America.
Congratulations on the good results. I have 2 questions this morning to start with. The first, just has to do with the inventory buildup that you had during the first quarter. You seem to indicate that it was 1 shipment or 1 cargo. The number seems quite large given where oil prices are. Could you maybe talk a little bit more about how this occurs? And if you can anticipate these shipments? I'm not sure it's just so you can capture higher prices when prices are higher, give us -- and what you were -- if this has already been sold for Q2 and maybe how many cargoes you have per quarter? The second question I have is on capital expenditures. I know your full year guidance is, I think it's $225 to $255, but you already spent $113 in the first quarter. Are you likely to update this plan? Or will CapEx drop substantially in the coming quarters?
On the first question on inventory build in Q1. I think the one thing that is unique that we think is in the strategic asset for Frontera that we carry our own sales of cargoes. It's a little bit different from other players who sell at the wellhead. So by selling at the port or doing directly our own selling of cargoes internationally. We believe -- we strongly believed when we know that we capture higher realized price that offset additional transportation costs by far. So by embarking in that process, we carry inventories throughout the system, not only fields, but also pipeline and the ports. And to give you an example, in the first half of 2022, we have sold 11 cargoes, 5 of them in the first quarter and 6 of them in the second quarter. So the timing of the cargoes varies from quarter-to-quarter. And when we have more cargoes, we recognized higher EBITDA, and that's the situation that we had between the previous quarter and this quarter. And just to give you more color, we saw the one cargo perhaps of the inventory that we did not sell in the first quarter resulted early in April. So it's part of our operational programming and scheduling and regular nomination of cargo. That's the first question. On the second question, on the capital expenditures, the number that you have for $225 to $255 is only for Colombia, while the 113 includes Guyana. So at this point, we're not thinking of updating our capital expenditures. We are in line with the guidance that we gave to the market. And as you might expect 113 in the first quarter is heavily impacted by the capital expenditures that we currently exploration well Kawa-1 in Guyana.
Your next question comes from the line of Oriana Covault with Balanz.
I had a first one just following up on to ratify regarding the inventories. This one cargo was already sold at April prices? Or should we expect that additional inventory to be contracted at upcoming oil prices?
It was sold on April prices.
Got it. Just another one that I had. You mentioned inflationary pressures in your energy costs. So should we -- and we see that lift in cost per barrel seems to be above your full year guidance. So how should we think of energy costs and alternatives that you might have to end lifting costs within guidance for Frontera?
Yes, as we said, I mean, energy costs represented about $1.5 per barrel for the first quarter. But we are not -- I mean, of course, we are not changing the guidance, and we are already seeing a decrease in the energy price in Colombia as of April, so that we are starting to see already a reduction in energy prices in Colombia.
Got it. And maybe just one last one on my side. Are there any updates you can share with regards to the Demerara commitments and the conversations that you had with the regulators?
We don't have, at this point in time, anything else to report apart from what we disclosed in the last quarter. Those conversations are still on line.
Your next question comes from the line of Roman Rossi with Canaccord Genuity.
Congratulations on the good results. So the first question has to do with the mix of gap. It seems that it has increased slightly around 6% as a result of Petrosuds integration. So how should we think the mix going forward?
I think we -- as we have mentioned in other opportunities, gas is an important part of our portfolio. The acquisition of Petrosud and in this quarter, we also completed the purchase of a 35% working interest of PCR in el Dificil is helping us. Gas is an important part of the portfolio in terms of ESG, and it's a very, very, very stable in terms of prices. In the short term, we don't expect a significant change in the participation in our portfolio or in the -- but it's very important to note that we have a significant acreage in the lower Magdalena Valley, which is the area. We have positive results in the past from being one in La Belleza. And we have also additional acreage that we have acquired with the VIM-22 block as well as the VIM-46 block and also with the block we have held for many years. So in the short term, we don't expect a significant change, but we expect that through additional exploration activities and development activities in the lower Magdalena Valley, we could potentially continue to increase our participation in gas.
And I have an additional one in regards to restricted cash. You mentioned in the release that you are anticipating releasing additional restricted cash during the year. So can you share any details on the amount that you expect to release during the course of the year?
Absolutely, Roman. I think basically, we have done a significant progress in this process. If you recall, we ended 2020 with $167 million of cash, we ended 2021 with around $56 million of restricted cash. So we did a significant progress during 2021 to create our credit lines, which right now amount to close to $106 million. So right now, the composition of restricted cash is mainly due to 2 things. One is the debt service reserve account that is tied to the [ YEM ] debt, that's around $30 million. And then the remaining portion is materially related to abandonment funds in Colombia. As we continue to increase our credit line, we expect to continue to release the part that is associated with abandonment funds, and we have made progress in adding additional credit lines that during the second quarter, we expect that additional cash will be released in connection with abandonment funds. So the specific amount we cannot say at this point, but this is a continuous effort. That's something that Frontera focuses very much, which is releasing restricted cash.
[Operator Instructions] We'll take our next question from [ Joe de Denado ], private investor.
I just had a question for Mr. De Alba regarding next week's virtual CGX meeting. And I just wanted to know if you will be present at that presentation?
I'll be present at that presentation. Yes, I'll be present at presentation. Thank you.
Your next question will come from the line Juan Cruz with Morgan Stanley.
Going back to the credit lines, can you tell us, again, what tenors are we talking about at these revolving lines, what kind of terms any interest, what have you been charged? And what are the some of the characteristics of these lines? And how much of those are drawn down at the moment, if any? Or you just haven't fully available?
I think of the $106 million that we have in credit lines for letters of credit, we have grown close to $86 million. So we have still a remaining portion to draw. That -- and we expect to draw a part of that in the second quarter, as I mentioned. The nature of this credit line is mostly bilateral commitments provided by lateral credit line that we hold with multiple banks. We have grade lines from BTG, when Colombia, City, BBA we're working with other banks to continue to increase credit lines. But most of them are bilateral. These are letters of credit that we need to post for the A&H mainly in connection with either exploration activities for abandonment activities. So that's the nature of this. In the past, we had other letters of credit that were cash collateralized, and we have been releasing restricted cash in connection with that. In terms of interest rates, they are relatively low between 2% and 3% in that neighborhood as this is kind of a contingent liability.
Okay. So can you repeat how much is drawn at the moment? Is that 86%, is it?
About $86 million, yes.
Okay. And you're expecting to be fully drawn?
We expect to be fully drawn, and we expect to continue increasing credit line.
And are these lines supposed to be 0 at any point during the year? Or are these long term? Can you keep the balances drawn for?
No I mean this is a letter of price, the second in liability. So it doesn't create a cash disbursement per se. So basically, this is something that we need to post for A&H. This is part of the continuation of business as we pick up new acreage and we develop more wells we're incurring additional abandonment costs and incurring additional exploration activities and as well as we executed exploration wells, we reduced the exploration commitment. So it's a working inventory, if you will that gets replenished. So we don't expect to go to 0 in the near term.
Got you. And these are unsecured no, not against reserves or anything like that?
Unsecured, not recur to research or anything. In the past, we had cash collateral, but the cash flow across right now is 0.
Your next question from Anne Milne with Bank of America.
Yes, I have a follow-up question. Sorry, I have to ask this. It's May. And I think at the end of this month, we have the first round of votes. The differential between the that the 2 main factions seems to have narrowed quite a bit. I was just wondering if you have any updated views on the outcome or if you are protecting your income statement balance sheet or taking any actions in anticipation of this election?
So thank you for your question. I mean I think it's too soon to say what the election results might mean for Colombia or the Colombia oil and gas industry. But we do believe and strongly believe that the oil and gas industry remains a very, very important integral part of the Colombian economy. And we expect that, that will continue in the future, the participation of the oil and gas industry in the Colombian economy is very, very significant. So we also believe that we have, I mean, an asset base which is diverse and includes interest in Colombia [indiscernible]. Thank you for the question.
[Operator Instructions] And we'll go to our next question from Josef Schachter with Schachter Energy Research.
Congratulations on a nice quarter, and this is my first time on one of your calls. So I appreciate the call and the details that you go into. I have just really one question. In North America, we're seeing a tightening up of rigs, the top tier rigs, fracking capability within the windows the companies want. Are you facing any long lead time issues? Are you having any supply chain issues? Do you need to order more pipe to make sure you have it when you need it. Can you maybe just give a little color to the logistics of operating in the countries you do?
For the question, I can tell you, as I mentioned in my remarks, we have 5 active drilling rigs in our operations, 4 in Colombia, one in Ecuador. And we also have 4 workover rigs in the operations. We have secured -- I can tell you that we have secured the number of rigs we need to deliver our plan for the year. And so that's what I can tell you now. We are comfortable from that perspective.
And are there any issues with drill pipe or any of the other services you need? Are they -- are pricing going up? Is availability within time lines changed at all?
No, the answer is no. We anticipate all the contracting of the different services, securing pipelines and the different services associated with our drilling program. So we were able to anticipate ourselves. And we are -- I mean we are secured to deliver the program this year.
[Operator Instructions] There are no further questions at this time. Should do you have any further questions, please e-mail ir@fronteraenergy.ca for today's call. Thank you all for participating.