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Good morning. My name is Lisa, and I will be your conference call facilitator today. Welcome to the Frontera Energy Fourth Quarter and 2017 Year-end 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 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. Factors that could cause actual results or events to differ materially from current expectations are disclosed under the heading, Risk Factors, and elsewhere 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. I would now like to turn the meeting over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy. Please go ahead.
Thank you, Lisa, and good morning, everyone. The team has joined in this morning from Bogota, following the announcement of Frontera's exceptional 2017 financial and operational results, the successful exploration results so far in 2018 and the exciting news of new additions to the senior executive team that will execute the long-term plan and mission of Frontera. Today, I'm joined by Barry Larson, our CEO; Alejandro Pineros, our acting CFO; Camilo Valencia, our VP of Operations; Erik Lyngberg, our VP of Exploration; and Duncan Nightingale, our VP of Development. On behalf of the board, we're excited to add 2 high-caliber senior executives of quality; Richard Herbert and David Dyck, who are also with us and will start on April 2. Frontera continues to move forward having largely completed our restructuring and turnaround efforts, with the focus now shifting to growth. Under this strong framework, Richard Herbert has been selected by the board as ideal CEO to maximize the value from our assets, and lead the process required to bring growth and new developments on screen. Having been a member of the board, Richard is intimately aware of the team and the assets of Frontera. He has been key putting together and is very comfortable with our plans and objectives for 2018 and beyond. His experience will also help maximize the investment and exploration initiatives being undertaken. Richard returns to Bogota where we he previously led operations for BP, and he also brings 36 years of global oil and gas industry experience, also including time at Talisman and Phillips Petroleum. David Dyck brings as a CFO a successful track record of international senior management of oil and gas companies, combined with Canadian public company reporting and disclosure knowledge. These are critical to Frontera, going forward. David brings 30 years of experience, including leading the financial turnaround as CFO of Penn West, and also experience of Marathon Oil, Western Oil Sands and presidency of Ivanhoe. 2017 was a year of transformation for Frontera. As the team restructured operations, conducted an asset review, and focused on our production and investment strategy of value over volumes, we are now set up for 2018 and beyond. The team has delivered an outstanding operational and financial results for 2017. The team has met or exceeded all of our guidance metrics on exit-rate production, operating EBITDA and capital expenditures, leading to the generation of $120 million of net cash flow provided by operating activities in excess of capital expenditures. As you can see on the Slide 4, the 2017 performance has strengthened the balance sheet and operations, such that Frontera can now position itself for growth in 2018 and beyond. A healthy exploration program combined with investment in infrastructure assets has positioned the company for significant reserve additions in 2018 that will lead production growth in 2019, and value creation in our operations and our midstream assets. On behalf of the board, we would like to congratulate Barry and our exceptional team for delivering such outstanding results in the fourth quarter and throughout 2017. I will now like to turn the call over to Barry and the team who will go through the highlights of the quarter and update of our reserves, outlook for 2018, and some of our recent operational successes. Thank you, Barry.
Thank you, Gabriel. Before I start with our results, I would like to extend my sincere appreciation to Gabriel and the board for their support over the last 14 months, and I would like to say thank you to all the talented people and the teams I had the pleasure of working with, as we restructured what is now Frontera.When I started, I had an open and flexible mandate to operationally restructure the company as a proper upstream oil and gas, following the financial restructuring undertaken in 2016. I feel this mission has been accomplished, and I am very comfortable handling -- handing the company off to Richard and David who can take credit for all the future successes of the company, as they execute on the long-term plan. Our production profile is stable, and we're investing to position the company for growth in 2018 and beyond.The tremendous effort that was put into the understanding of our assets in the early part of 2017 really started to deliver results in the fourth quarter of 2017, and into the first quarter of 2018. We have doubled the capital program in 2018, up to between $450 million and $500 million. However, the bulk of our investments in 2018 are expected to add reserves, but not contribute to production growth until 2019, given lead times and start-up.The way we look at our capital program is that it takes between $200 million to $250 million per year in maintenance capital, which targets to keep production and reserves flat, while our infrastructure spending will be split equally between our heavy and light-oil assets, which will position them for modest growth going forward. And our exploration spending looks to add reserves and production growth. A prime example is with our core heavy-oil asset at Quifa, where we have previously spoken to increasing initial oil rates on new wells. This had led us to planning $80 million to $90 million water-handling expansion project during 2018 that will enable the company to maintain its moderate growth in the field over the medium term. During 2018, we will be increasing the water-handling capacity at Quifa by 40% or about 430,000 barrels a day of fluid with the start-up expected in the fourth quarter.The other major driver in increased CapEx in 2018 is high-impact exploration in both Colombia and Peru. In Colombia, we're few weeks away from spudding the Acorazado-1 well on Llanos 25 block in the foothills. The well is expected to take 90 to 120 days to drill, and cost between $35 million to $50 million. Analog wells in the Cusiana-Cupiagua complex average over 8 million barrels of oil recovery, and had initial production rate between 5,000 and 10,000 barrels per day. Geologically, we carry the risk in this well at over 35% chance of success. However, drilling to these depths in the foothills is mechanically complex. As a result, we have contracted the best 3000 horsepower rig in Colombia, the Helmerich & Payne Rig 900, and we brought in Exceed well management from Aberdeen as project managers. They are a highly experienced drilling team consisting of senior management and engineering staff, most of whom previously worked with BP in Colombia and have drilled dozens of successful wells in Cusiana-Cupiagua. Our exploration in Peru is offshore where we will spud the Delphin well in the second quarter on Block Z1. The well is close to the existing Corvina production platform and is expected to take 40 to 60 days to drill, targeting multiple potential oil and gas zones. Upon success, we would target to bring production on stream in the fourth quarter of 2018. I'll now turn the call over to Camilo Valencia, our VP of operations, who will go through our operating highlights.
Thank you, Barry. 2017 was a year of stabilization, where we were successful in maintaining a net production between 70,000 and 75,000 barrels of oil equivalent per day, and exited the year at 71,000 net barrels of oil equivalent a day. We achieved this with only spending $236 million in CapEx, which enabled us to drill and complete 94 development wells, initiate further 5 wells, and execute 3 exploration wells in 2017. During the fourth quarter of 2017, we drilled and complete 39 development wells, and executed 32 workovers and well services. Our operations teams in Peru showed their ability in December, as they ramped the production up quickly, following the settlement of a blockade reaching an exit rate of -- in Peru of 9,140 barrels oil a day net.We are targeting similar levels of production in 2018 between [ 76,000 ] to 70,000 barrels of oil equivalent per day, with 2 exceptions: one, due to the higher oil price environment and according with the high price close of our association contract with Ecopetrol, we are required to pay approximately 1,500 barrels of oil a day additional Ecopetrol participation in the Quifa block, assuming a yearly average barrel price of $63 per barrel. Second, as disclosed in our filings, we have been subject to a community blockade in the Cubiro block in Colombia, which has cost us above 510 net barrels oil a day in average of the year. Despite this challenge, we maintained a balanced production mix between light and heavy oils, and work hard to keep our cost structure stable by coming up with innovative ways to manage our operations. I will now turn it over to Erik who will go through the 2017 results.
Thank you, Camillo. In 2017, we replaced 105% of our produced 2P reserves through the drill bit, enhancing our reserves base in line with our strategy of value over volumes, the net effect being that our overall 1P reserves represent 74% of total company 2P reserves for 2017 as compared to 69% in 2016. This also enabled the company to increase the before tax net present value of 2P reserves by 9%. Overall, volumetric 2P reserves decreased by 10% because of performance and legacy issues at our La Creciente natural gas asset and at Orito. There are several catalysts being undertaken in 2018, which could make this year significant from a reserves-growth perspective, including exploration successes we have already encountered at Alligator-2 and Jaspe-6D, the implementation of water flood pressure maintenance project, broader light oil portfolio, increased water-handling capacity at Quifa, and most importantly, exploration drilling at the Acorazado prospect on Llanos 25 block in Colombia and Z1 block offshore Peru. Success at Acorazado would lead to a further 1 to 2 follow-up wells on Llanos 25 block. I will now turn the call over to Duncan to go over some of the detail on our recent near-field exploration successes.
Thank you, Erik. Our in-field development drilling and near-field exploration successes in 2017, and so far in 2018, are a testament to our continued focus on adding valuable barrels. We have remapped our core producing assets and developed new history match reservoir models that have allowed us to successfully place new development well and extend the previous limits of some core fields.For example, in Quifa Southwest field, we undertook a vertical well-drilling campaign that has extended the 3-feet boundary of the field and allowed us to replace Frontera's net production in 2017 from the Quifa field. In addition, our recent exploration success at the Jaspe-6D well in the northern area of the Quifa block has provided us with encouraging signs, subject to further appraisal in 2018 that we'll be able to develop Jaspe field and potentially declare commerciality in late 2018.We are also looking at the Cajua and Sabanero fields as a potential extension of the Quifa Southwest field, and potentially resulting in another core development area for Frontera. It is still early days, but with some additional water treatment capacity added to the area in Q4 2018, we anticipate that we should be able to increase production and develop the new areas proven by the recently drilled vertical wells and improve the overall economics at the Quifa North fields. The company is also evaluating additional drilling, completion and production optimization techniques to increase the recovery factor. Frontera will also be drilling a further 8 vertical wells on the Quifa field, aimed at expanding the field limits further and incorporating new reserve adds. Frontera has also been very successful in 2017, and continuing into 2018, with our light-to-medium oil assets at Guatiquia, with appraisal extending the field limits, and recent exploration success on the Alligator 1 and 2 wells. We suspected that this block contained a new play concept near the Avispa-Ardilla-Ceibo or ACA area, and we used our learnings from the Alligator-1 well to develop a predictive reservoir model, which is successfully guiding us in the development of the current pools and the new Alligator discovery. An additional 3 developments wells will be drilled at Alligator in 2018 and at least 4 more development wells into the proven ACA field. We drilled the Ardilla 4 well in the first quarter of 2018, which was expected to be a water-injected well, but encountered the oil water contacts significantly lower than previously encountered. Prudent reservoir management and development of ACA along with an analysis of the reservoir pressures has also revealed that the pressure support from the natural aquifer is proving to be better than expected, which will likely delay the need for a full water-flood program until 2020. I will now hand it over to Alejandro Pineros for a review of our financial results.
Thank you, Duncan. In 2017, our operational teams were focused and delivered -- on delivering the results to drive returns and optimize the cash generation capacity of our assets. Our net cash provided by operating activities in 2017 was $356 million compared to cash used by operating activities in 2016 of a $120 million. In the fourth quarter, Frontera generated $167 million in net cash provided by operating activities while investing $111 million in capital expenditures. The company generated a loss attributable to equity holders of $33 million in the quarter, reflecting asset impairment related to the annual reserve process and the impact of mark-to-market risk management contracts. The balance sheet remains extremely strong with over $644 million of total cash, cash equivalents and restricted cash, offset by $250 million of -- $250 million of long-term debt, which does not mature until 2021.Our G&A cost remains stable around the -- around 4 barrel -- $4 per barrel, and we successfully completed the corporate reorganization of our Colombian entities, which are expected to streamline our operations and eliminate legal entity redundancies. Our leverage metrics are strong, with a debt-to-book cap just above 16% and net-debt-to-operating EBITDA at 0.1x. As a result of our financial strength, in the fourth quarter, we were upgraded by Fitch to B+ from B with a stable outlook, and to BB- with a stable outlook by S&P. Our expected EBITDA for 2018 is between $375 million to $425 million with a production range between 65,000 and 70,000 barrels per day, assuming Brent prices at $63.04 and hedge losses for $68 million.We will continue to protect the balance sheet and our capital program from fluctuations in oil prices with over 50% of production hedged in 2018 between January and October. I will now turn it back to Barry for some comments.
Thank you, Alejandro. As you can see, our new strategy combined with our people and our assets are delivering. Frontera is just getting started, and there is a lot of value to be unlocked going forward. I would now like to introduce you to Richard Herbert, the incoming CEO of Frontera, for a few comments.
Barry, thank you very much. Good morning, everybody. I really just want to say that I'm very pleased to be taking over from Barry, and to be working in Latin America again. As our Chairman said in his introduction, I've had several extensive periods of my career working in this region, including 5 years in Colombia, and also running businesses in Colombia and Peru. So I'm very pleased to be back here again. Frontera is an exciting company, with a very experienced leadership and an impressive operations capability. I think, with our strong production base, and the exciting exploration prospects, some of which we heard about in this call, both in Colombia and Peru, we have a very positive future. I know that Barry and his team have focused in the past on stabilizing the company and addressing the cost base, and we are now well positioned for disciplined growth. So I feel that I'm joining at a very interesting time. I look forward to meeting the investment community in the coming weeks and months. And now I would like to hand back to Lisa, who will take us through the Q&A session.
[Operator Instructions] Our first question comes from the line of Jenny Xenos from Canaccord Genuity.
I have just few questions, please. First of all, what do you expect the company's production and cash flow generating capacity to be towards year-end 2018 and into 2019, when your water flood projects start to take effect? And secondly, could you please confirm that your production guidance for 2018 exclude exploration success?
Yes. To the second question first. Yes, we do not have any exploration volumes in the production forecast. And as we've guided, we expect exit production to be in the 65,000 closer to the 70,000 barrel a day range.
And 2019?
It's going to be -- in 2019, we look at the company as being stable with our maintenance capital investments on our existing reserves. Production growth will come out of exploration.
Our next question comes from the line of René Burgos from CarVal.
Great numbers. Barry, it's hard to see you go. Thank you very much for all the hard work. I had a couple of questions for you guys. One is, could you actually help me think through your EBITDA guidance and kind of the math behind those numbers. Second, I also wanted to get a sense of, when you were thinking about your reserve report, you said you drilled 39 wells that was towards the end of the year. If you would've gotten the whole entire benefit of those wells being drilled, either by the end of the year or -- sorry, by the end of the year, what would've been the impact of that or some of the recent news that you would've -- that you just recently discussed on your reserve report?
Thanks Rene, the -- the -- to the second question first on the wells drilled in the fourth quarter. It's hard to say what it would look like. We're limited by water handling capacity at Quifa. Hence, the requirement for the expenditures going forward this year, so that we can ramp -- bring this -- bring those on, bring new production on with the increased water. So it's really hard to say what impact that would've had in 20 -- at the end of 2018. And for EBITDA, I'm going to let Alejandro answer it.
Yes. On EBITDA, basically, we are -- our upside is kept for the hedge program that we have in place close to $68 million that we are not receiving for the hedge program, but we have in place that is limiting the upside on the EBITDA.
But then what is the base Brent price that you're using? You said it's $63 is the Brent price that you're using?
$63.04.
Okay, And actually, I'll take one last question. Any update on the negotiations behind the pipeline discussions and things for that matter that you guys announced? I know that you had something with the IFC. I'm just curious if there's any new time line or any new discussions with your willing to share at this point?
No, we can't say where we are. All I can say is that negotiations are going the way we expect them, they're progressing. We still maintain that we should have something to announce in the first half -- by the end of the first half.
[Operator Instructions] Our next question comes from the line of Jason Wangler from Imperial Capital.
Was just curious on the 2018 guidance. Things seem to be pretty much in line. But I noticed that the production and transportation cost kind of maybe crept up a bit, at least on the high end of the guidance. Could you maybe just discuss that and if you still see some opportunities to drive those down as you go forward?
Yes. I think the simple answer to that is in the fourth quarter, third and fourth quarter was the price increase this year. We lost approximately 1,500 to 2000 barrels a day to the high-price share payments in the Quifa field.
[Operator Instructions] Our next question comes from the line of Shahin Amini from Pareto Securities.
A quick one. Richard, where are you going to be based?
I'm sorry, I'm sorry, I missed the question, could you repeat it?
So question to Richard Herbert, I'm just wondering -- congratulations on your new post. Where are you going to be based?
Oh! where am I going to be based? Thank you for your kind words. Simple answer, I'm going to be best in Bogotá, because Colombia is very much the center of what Frontera does and -- so I will be moving here in the next -- some -- in the next few weeks.
Our next question comes from the line of Ian Macqueen from Eight Capital.
Just wondering if you can go through the dispute with the ANH over the Corcel block. How the outcome actually affects, both your view of what might happen in the future -- on other blocks, and I believe you also hold some current liabilities on your balance sheet to cover a potential loss, which didn't occur. Can you go over some of those details.
Hi, Ian. This is Duncan Nightingale speaking. As far as the Corcel path issue is concerned, Frontera, as you probably know, has a very, very successful outcome, which has allowed us to reverse some of the liability that we had with respect to that. So I think it's probably remiss of me to go into the absolute politics of how the decision was made, but it was an extremely successful outcome for Frontera, and it's been a very, very positive situation with respect to reversing any potential liability that was attached with that.
And is it too early to say, whether or not you could reverse or change the current liabilities that are on your balance sheet, like you'd -- I assume you would be working towards that, but perhaps it's too early?
Yes. Exactly, and it's too early to comment on that substantially. But we are working with the ANH and their technical groups to make sure that we have a positive outcome if at all possible.
There are no further questions at this time. This concludes the call. Thank you all for participating.