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Good morning, everyone, and welcome to Parex Resources second quarter earnings call and webcast. Yesterday, Parex released its unaudited financial and operating results for the quarter ended June 30, 2020. Like all Parex disclosure documents, the complete financial statements and related MD&A are available on the company's website at www.parexresources.com and on SEDAR.Before turning the meeting over to Mr. Dave Taylor, President and CEO of Parex Resources, Inc, I would like to mention that this event is being recorded so the recording will be available for playback on the company's website. Parex would like to remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions and have been fully described in the company's continuous disclosure reports. The information discussed is made as of today's date and time, and Parex assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law. [Operator Instructions] I would now like to pass on the meeting to Parex's President and CEO. Please go ahead, Mr. Taylor.
Thank you, operator. And thanks to everyone on the line for joining myself and the senior leadership team for our Q2 conference call. We appreciate your support of Parex Resources. Before we start our Q&A session, I'd like to provide some highlights of our Q2 financial results and discuss our plans for the remainder of 2020. I begin by stating our priority during the COVID-19 pandemic remains the health and safety of our employees, our contractors and the communities where we operate. To minimize social interactions, we changed our operating procedures and reduced field activity, which impacted both CapEx and production in Q2. Our office staff in Bogata and Calgary continued to work primarily from home. In the second quarter, our financial results were strong despite declining global oil prices and ongoing market uncertainty. As a result of voluntary shut-ins, Q2 production averaged around 40,900 barrels per day, a 25% decrease from the previous quarter. Parex cash netback was $9.96 per BOE, generating funds flow of $39 million or $0.28 a share. With limited operational activity, our capital expenditures were $5 million, and we repurchased 1.1 million shares. The company maintained its financial strength with $334 million in cash and no debt. We exited the second quarter with working capital of $339 million and $200 million of undrawn credit facility. For 2020 outlook, Parex is in exceptional financial position in the industry as the company continues to maintain a best-in-class balance sheet with liquidity exceeding $500 million. In early March, we took decisive action to protect our financial position and to weather the ongoing crisis as well as take advantage of potential growth opportunities that may arise. As stated at the last quarterly conference call, production levels in the second half of 2020 will be dependent on commodity prices showing stabilization.During Q2, we began to observe greater visibility to stronger netbacks, providing options for the company to, firstly, plan a gradual restart of production volumes from shut-in fields, which were reduced to preserve value. Currently, we're producing approximately 44,000 barrels of oil per day and targeting Q3 average production in the range of 42,000 to 44,000 barrels of oil equivalent per day.Secondly, we're going to resume our capital expenditure programs, and that's contingent on ensuring the welfare of our staff and the community surrounding our operations. We estimate CapEx to be in the range of $65 million to $70 million for the second half of 2020, with the priority being Southern Casanare quarry at completions and development wells. Advancing the VIM-1 La Belleza discovery with civil works initial facilities and long lead items. And finally, drilling a brand appraisal well in Fortuna exploration well in the Middle Magdalena Basin. We will continue to review and evaluate business development opportunities in Colombia as well as other jurisdictions.With this brief overview, I'd like to turn the line back to the operator to start the Q&A session. Operator, over to you.
[Operator Instructions] Our first question is from Phil Skolnick from Peak Capital (sic) [ Eight Capital ].
Eight Capital. Just a couple of questions. First, on the CapEx. It's a little bit lower than what you had preguided, assuming that's because of the whole COVID-19 situation. But how is activity looking now for you? And how should we think about it? I mean it is commodity prices driven. Is that really kind of the key risk? Is there anything COVID-related that kind of could still be a bit of a headwind?
Yes, as I was mentioning, Phil, there's still concern around the communities where we operate and the safety of our employees and those people in the communities. So it's taking some time to get back to work in some of those areas where communities don't want outside people coming in. So we're very cautious about that and taking our time. So the capital program has some contingencies on us being able to get back into those communities and get fully started up. Having said that, on Block 34, we have 2 nonoperated rigs drilling now. We're getting ready to spud 1 on our Cabrestero block here shortly. We've had construction operations going on in the field in Andina to complete the flow line. And we're getting ready to get started our completion work at Aguas Blancas and the drilling of the 2 wells in the Middle Magdalena Basin. So we do have plans to do that work that I outlined, the $65 million to $70 million, but some of it is contingent on getting into the communities.
I would say that the contingent piece is more around the exploration and growth capital than the development capital, Phil. We're not too concerned [indiscernible].
Okay. Perfect. Yes, that was going to be another question. Just on the M&A opportunities, how are those looking? Is it still a wide bid/ask spread out there?
I think we're going to continue to see a discrepancy between the expectations of buyers and sellers. But I think I would say, generally, we're starting to see a few more opportunities come to the table. I think some more distressed situations are starting to show up. And so we are evaluating things that fit our criteria.
Okay. And just a final one. Just on transportation costs, they were lower this quarter with the increased wellhead sales. Is that transportation cost or anything there that -- is that a new trend? Or is that just because of the higher sales that happened?
Yes. It's just because of the higher wellhead sales we stopped doing cargoes after April so May and June had no cargoes. And cargoes, we incur the transportation cost to the port. Wellhead sales, we don't incur them, so we don't report them. They're netted out as a differential. So you'll start to see transportation costs in Q2 go up as we have 2 cargoes, August and September. And so therefore, you'll see a shift between differential and transportation costs. But it all kind of makes the same Brent minus transportation differential number. So it will be consistent with a bit of an improvement in Q3 because Vasconia has tightened right up in about June.
[Operator Instructions] Our next question is from Gavin Wylie with Scotiabank.
So just a quick question for me on taxes. We've seen a couple of the Colombian guys announce that they've got some VAT recoverable and then also some tax credits that are being layered in for the second half of the year. I'm just wondering if you guys have anything like that coming for second half of this year in terms of credits that will be counted against cash taxes?
Gavin, a question on cash taxes. We didn't have the big VAT receivable like some of our competitors, and we don't know why they did, but we never really had it. We just keep collecting ours kind of on an ongoing basis. We had a tax recovery in the second quarter because effectively our first quarter taxes and second quarter taxes combined equaled the first half of the year tax, and that's how you do your tax accrual effectively. And so in the second quarter, we just effectively had a recovery due to lower realizations, price realizations and therefore, lower taxable income.Q3 and Q4, we're expecting to have taxes in the range of $7 million to $8 million per quarter. So that will build up our tax payable balance again. As far as credits go, we did receive a small credit in respect of a program that we're doing in Aguas Blancas through a government program, but I think it was $2 million or $3 million, so nothing significant.And the government has announced a few programs like that, but -- and we are taking advantage of them. But I don't see it as anything significant or anything you have to model. And there's -- and you can't really book them until you actually have gotten confirmation that you will receive them. So I hope that answers your question.
Our next question is from Al Stanton with RBC.
Can I just talk a bit about production? Or can you talk a bit about production in terms of what is restraining it at the moment? I know COVID is an issue. But just looking at some of the big numbers, Capachos is running at sort of perhaps half capacity at 5 to 6, Rumba is [ 1,500,000 ] barrels a day. And it's 0, and if you look at March to May, there's been 30,000 barrels a day of gross production loss. So I almost feel that you could go back and switch some of it on quite easily. And I suppose my question is are you going to? And then also, with respect to your current comment about 44,000 barrels a day, that seems to be at the top of your range for Q3. Should we be looking towards the top end of your range in the second half?
Eric, you want to?
I'll answer that. It's Eric here. As far as production goes, as we indicated earlier, when we had the big downturn in price and the elimination of netback, we started shutting everything in, SoCa was a big focus on us, both in the op and nonop. We started taking production down. That was to preserve the quality barrels we had. We saw no reason to pull them down at essentially no value. And then we had the whipsaw effect with the price of oil and started turning things back on. That is continuing today. But it does take some time and with the other fields like Rumba, et cetera, that is also the same case. So we turned everything down, we send everyone home and then bringing them all back is -- takes more time and is more difficult during these COVID times. So what would be a typical 1-week startup of a field like a smaller field like Rumba, it can take several weeks. But we are proceeding down that track. We don't have -- as far as bringing fields back on production, we don't have any big surprises. They're coming back on production, a few lost wells. And so we're continuing down that path. Of course, the other part of this is we also stopped a lot of the capital program and development programs. So in the SoCa area, for example, we're probably going to deliver just over half of our capital program for 2020 compared to what we originally had planned. So that is a bit of a slowdown. And your final question on Capachos and Andina. For the most part, Capachos and Andina has been held back while we wait on final infrastructure. As a company, we have a policy to not flare gas or minimize any kind of gas flaring. And although there's no permit restrictions to produce Capachos and Andina, as you indicated, it has much higher capability. We've kept it essentially choked back or idled back while we wait for that final infrastructure in place. And we are nearing the start-up of that final infrastructure in the next couple of weeks, mainly that pipeline that allows us to conserve all the gas. So I hope that answered all of your questions. Let me know if there's anything else.
Thank you. We have no further questions on the phone. I will now turn the meeting over to Mr. Taylor.
Thank you, operator. I'd like to take this opportunity to thank you for your interest in Parex and your continued support of the company. For further information, we invite you to visit our website or call us. Thank you again, and have a great day.
Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.