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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Hello, ladies and gentlemen. Thank you for joining the PetroTal Q1 Results Call. Your speakers today will be Manolo Zúñiga, CEO; and Doug Urch, CFO. [Operator Instructions]
Please, take it away, Manolo.
Thank you, Jimmy. And good day, everyone, and thank you for joining the PetroTal 2023 first quarter webcast, where we will provide a brief summary of our first quarter 2023 operational and financial results. If anyone wants further information on the company, please see our website for additional materials.
My name is Manolo Zúñiga, and I'm the President and CEO of PetroTal. And I'm joined by my colleague, Doug Urch, Executive VP and CFO. If you have click on the link in last evening's press release, you should hopefully have signed up to the webcast, so you may see the slides on your screen. But you are having issues and then, please contact petrotal@celicourt.uk, and they will be able to assist you.
Before I begin, I need to mention that there are some disclaimers towards the end of the presentation, which I would urge you to read at your own leisure.
As shown in slide 2, PetroTal is an onshore Peru focused oil company that is just five years has become Peru's largest crude oil producer. The company is listed on London's AIM market, the Toronto Stock Exchange and the US OTC, having a market cap of approximately US$500 million. We have a 100% working interest in the Bretana oil field, which we have expanded from minimal production to over 25,000 barrels of oil per day in late June 2022, and have been averaging over 20,000 barrels of oil per day for almost 12 consecutive weeks. Year-to-date, Bretana has already produced over 2 million barrels of crude oil.
The Bretana field has year-end 2022 year end 2P reserves of 97 million barrels and has an after-tax 2P NPV-10 per share or US$1.75 and 15 producing wells and three water disposal wells capable of disposing of approximately 50,000 barrels of water per day each.
The company has been drilling its next horizontal well, 15H since April and is expected to have this well on production by mid-June 2023 for a cost of around $15 million. PetroTal sales oil load via barges to three critical sales routes as seen in our 3D country map. Our priority sales route is via the Amazon River to a major terminal at the Port of Manaus, Brazil, where recently, we have upsized capacity to 20,000 barrels of oil per day or 600,000 barrels per month with a bar fleet totaling 1.5 million barrels of capacity at normal river levels.
This route currently delivers the strongest economics and has been the main catalyst for the company to have delivered over 20,000 barrels of oil per day since the end of February 2023. We also sell oil to nearby Iquitos refinery where we sell around 1,500 to 2,000 barrels of oil per day at dated Brent prices.
Lastly, we have the barge to pipeline route to Bayovar via the Petroperu operated O&P pipeline for up to 20,000 barrels of oil per day. This route was recently announced up in April. However, PetroTal has not yet resumed shipping through the pipeline at this time. We're very excited to communicate details of our first quarter 2023 results and reiterate our newly announced return of capital program and recent management team enhancement with the decision of Mr. Jose Contreras who is now the company's Senior VP of Operations.
Slide 3 summarizes key and selected Q1 2023 highlights. From an operational perspective, during the first quarter we delivered just over12,190 barrels of oil per day with approximately 12,600 barrels of oil per day in sales. This was a production increase of 18% over Q4 2022, despite being significantly production constrained from month of January and February 2023.
Starting in late-February, when barging transportation normalized from earlier in the year, the company has been able to average over 20,000 barrels of oil per day. As of early-May 2023, the company has already made up the Q1 2023 production shortfall and is ahead of budget on a year-to-date basis.
During Q1 2023, we invested approximately $33 million of CapEx, focused on drilling and completing wells 4WD and 14H, along with other continuing infrastructure projects. As budgeted, our CapEx will be around this level in Q2, slightly dropping in Q3 and a slight increase in Q4 2023, as we complete our drilling program and remaining infrastructure projects.
Note that, the company has significant capital flexibility to defer or slow down certain projects, should bring price change from its current levels. From a, per barrel perspective, this first quarter, the company delivered strong unit operating results, compared to the previous Q4 2022 results.
Lifting costs were $5.6 per barrel, in the quarter versus 7.4% in Q4 2022, due to higher sales volumes and lower contracted fuel expenses in the quarter. Transportation costs were $2.1 per barrel versus 2.5% in Q4 2022, as a result of less floating storage and diesel costs. All in, the company was able to achieve a total OpEx per barrel cost of 7.7% versus the prior 9.9 per barrel, which is a very strong metric for the company.
The company is re-curating its full year guidance of between 14,000 and 15,000 barrels of oil per day, with a capital program of $125 million, and we'll assess any guidance adjustments in early August based on half year actuals. Based on the last days of production, we are confident we can outpace our first half production guidance and assess river level conditions for the upcoming dry season at that time.
Note that, the company will have significant production, behind pipe, going into December and is able to quickly ramp up should additional offtake options, come available. This was, after all, the overall strategy and ultimate goal when the decision of continuous drilling capital, allocation was made late last year. If additional offtake does become available in the near future, we can simply turn up the barrel and deliver higher production.
The company is currently drilling well in 15H, which in the right-hand map of slide 4 is shown just west of the 11H well. We expect this well to be on production in mid-to-late June 2023 and to perform strong and in line with previously drilled wells. We recently drilled and completed 12H and 14H wells, have been producing a slightly constrained rate of approximately 3,300 barrels of oil per day and 3,000 barrels of or per day, respectively, since the beginning of May and are in line with expectations.
We have updated our commercial on slide 5, to include some additional offtake routes, we are currently analyzing for sales liability. Now that we have expanded our barging fleet and created aligned goals with our Brazilian shipper. The company is now currently focused on reducing the total trip time on the Brazilian route. This includes dedicated offloading tankers near Manaus, so the current barging fleet can avoid unloading wait times at the current terminal. We estimate a commercial decision on this in the 2024 budget as we continue examining economic and technical aspects of these projects.
Slide 5 also shows some of the other routes, the company's examining, which includes the OCP in Ecuador, delivering oil by barge at [indiscernible] and/or at the port of Yurimaguas, hence bypassing the initial section of the O&P and even taking our auto directly to Lima as we did in 2019. Should these other routes be confirmed to be commercial and sustainable, the company anticipates another 20,000 barrels of oil per day of offtake availability.
With slide 6, we wanted to remind investors about the company's unique and simple value proposition. But most important is our commitment to shareholders to deliver material year-over-year production growth, while being able to maintain and grow a robust return of capital program underpin by a large free cash flow yields.
The company has drastically enhanced its balance sheet over the last year and is now in a position to allocate capital in different ways with a commitment to always deliver safe and operationally excellent production operations.
From a Danica perspective, with strong effort supporting our wells as a natural water floor pressure support to provide ultra-low decline rates once the wells normalizes from flat production, as shown in the corresponding type curve slide of our corporate presentation.
I will now turn over the meeting to our CFO, Doug Urch, who will provide a brief financial update.
Thank you, Manolo. I'm Doug Urch, PetroTal CFO, and I would like to start off highlighting a few select financial items from our recent press release and financial statements with visual support from slide 7.
From a balance sheet standpoint, PetroTal exited the quarter with over $71 million of total cash and a $71 million net surplus position considering other working capital amounts, including short and long-term debt. The ending Q1 2023 cash balance of $71 million is significant considering the company paid off $80 million in bonds during the quarter with regular receivable collections from Petroperu and our Brazilian export shipper, the company has been able to monetize long-dated working capital.
The company delivered solid financial metrics in the quarter with strong 1.13 million barrels in oil sales, an 18% increase as compared to just under one million barrels in Q4 2022.
Following is a summary on key profit and loss line items. Net revenue of $68.5 million, representing $6.31 a barrel. Contracted Brent in the quarter was $80.32 a barrel, compared to $88.22 per barrel in Q4 with the Brazilian transportation differentials and oil price backwardation reconciling the amounts.
Royalties for the quarter were $6.2 million, representing $5.49 per barrel and includes social trust provisions. This was down approximately 10% from Q4 2022 due to oil price variations. Total gross operating expenses in the quarter were $8.7 million, $770 per barrel, compared to $9.5 million, $9.92 per barrel in Q4, driven by lower fixed contracted costs in the current quarter. This resulted in net operating income of $53.5 million or $47 per barrel, compared to $48 million or $50 per barrel in Q4 of 2022.
Q1 2023 free funds flow before all debt service and changes in non-cash working capital of $7.9 million, up from $4.3 million in the prior quarter. Positive net income for the quarter of approximately $17 million compared to $37 million in Q4, making it the 13th consecutive quarter of positive net income for the company. Note that net income was down in the quarter due to an unrealized change in the derivative value of oil in the OMP pipeline.
On Slide 8, cash flow guidance. The company is reiterating its 2023 production guidance of 14,500 barrels of oil per day, a cash flow guidance of $220 million of EBITDA and $125 million of CapEx which will be further calibrated once Q2 2023 results become available in August 2023. PetroTal now estimates $85 million of after-tax free funds flow, an increase of $30 million from our original 2023 guidance due to greater than estimated tax loss carry-forwards.
We have now updated our free funds load matrix on Slide 8 to include the impact of the tax loss carry-forwards with almost every combination now generating positive free funds flow in 2023 without curtailing spending.
Slide 9 summarizes our cash sources and uses for 2023 and outlines our recently announced return of capital program. The company now expects to exit the year with $60 million to $70 million in cash compared to our previous estimates of $50 million. Applications and administrative approvals are proceeding as expected with the dividend and buyback program and with approvals expected shortly. The company expects to be able to purchase up to $3 million per quarter in shares considering exchange volume restrictions.
PetroTal is expecting to receive formal ex-dividend date from the TSX next week, and we'll provide a subsequent announcement of the USD$0.015 per share quarterly dividend payment that will be made in mid-June for shareholders on record at the end of May of 2023. Note that as per our recently announced return of capital policy, the amount in dividends could increase in the future, if available cash exceeds minimum liquidity requirements.
On Slide 10, in conclusion, we feel the company has an extremely attractive entry point for interested new stakeholders with an estimated annualized dividend yield of between 10% and 11% and trading just over the PDP blowdown value on a per share basis. PetroTal has demonstrated over the last 75 to 80 days that it is capable of a stabilized and significant sales stream using only two out of the three sales routes previously available to the company. We will continue to add shareholder value as cash builds throughout the year by a thoughtful capital allocation.
I thank you for your continuing interest investor support and now turn the call to Celicourt for the Q&A session.
Thank you. Why don't we have a specific date yet for the dividend payout?
The date will be determined awaiting a formal response from the TSX. So the date as was indicated in the past, we expected that payment to be June 15.
Last week, we had 42 million shares trade on the TSX almost double our average daily volume for 2023. Could this allow us to buy back more shares?
The limitation on the buyback of shares is not necessarily the -- well, it's more so tied to the volumes available in the market and the limitation set up by the exchange. We can only buy so many shares. So that's the balance that we're working within.
Will PetroTal issue special dividends with excess monies, what period will the special dividends be issued in with respect to the month in the calendar?
No specific dates can be identified at this point in time as it depends on the liquidity position of the company, as was mentioned in the press release. We will look at and announce further details as they become available and as the cash position grows.
What is the status on the USA listing upgrade?
We are not currently pursuing any upgrade on the US listing. We will look to enhance marketing in the US and assuming increased shareholder interest in the US may consider that. But at this point in time, there are no plans for any further upgrade from beyond the EPC listing.
And just as a reminder that we graduated to the TSX Board in February from the venture exchange last February.
Can you explain how the company will measure liquidity? Does it include restricted cash and will draws on the credit facility be considered?
Restricted cash will not be considered because it's not a liquid asset. So, -- and we will look to see what credit facilities that we have in place beyond the current $20 million facility. So, that is part of liquidity. It's a matter of looking at resources that are available and restricted cash would not be.
What is the buyback start date?
It will be sometime before the end of May.
What is the latest update on the availability of the O&P pipeline?
The O&P, although operational now, we have not yet started seeing volumes through until Petroperu's pipeline is active again. We also want to make sure that the pipeline hasn't suffered any more cuts or anything like that. And that's why in my remarks, I made the point to showcase that we may even look at bypassing that initial section or the fact that suffers the most damages. So, we're looking at all of that. The key word that I used on my remark was sustainability and that you need to keep in mind of that.
Thank you. When the water level is low, where is the most difficult part of the -- where is the most difficult part of the river, what is the section with the lowest water level? Will the tankers be able to travel interim analysis all times? Is it possible to barge into a ketos during dry season? What are the possible routes described earlier are not affected from low water levels, if any?
Something to keep in mind is that we are next to the equator. So, just as we go into Ecuador, we're in completely opposite seasons in the Peruvian side, maybe in the right season just north, you are in the wet season. And both are impacting the volumes in the Amazon River because you have waivers that are coming from the Ecuadorian side in Colombia into the Amazon River.
In the last year, most of the issues with the low water levels have been on the Brazilian side, not only the Peruvian side. And so that's why we've been very careful of not updating our production guidance until we have evidence of how the river is going to behave, how the rains are going to behave as the dry season starts just about now. So, in August, we should be able to tell you know about that value. And hopefully, everything goes back to normal, and we should be okay.
Why the tax loss carryforwards been revised upwards if no new tax losses have been generated in recent quarters?
That applies more so to the timing difference of losses that weren't needed for 2022 that become available for 2023.
Does free funds flow guidance of $85 million exclude debt repayment/raising, in which case, does this translate into $25 million of funds flow after the net $60 million debt repayment?
Free funds flow is basically EBITDA less CapEx, less tax. We paid off the debt with existing cash balances that we had in early 2022 from year end of 2020 -- year-end of 2022.
Will the share buyback run for a whole year?
Yes. Yes. It's a 12-month program and will be utilized throughout the year.
Are the local community trust agreements in place yet and have the payments commenced?
No. Unfortunately, the social trust fund, the bylaws for the trust fund has not yet been agreed. We're expecting to have a follow-up meeting. We have monetary [ph]parties later this week or next week. And I'm expecting that at that time, it will be all settled. Then we have to set a bit trust. My goal all alone has been to have all of these working by midyear.
Is there any update regarding the plan to drill two exploration wells next year in the Osheki prospect? Do you anticipate that it would be hard to find the possible fund out partner?
In the case of Block 107, we're pressing ahead with internal approval process. We have a situation where once we feel the well, in case it is a dry hole, some of the historical tax pools in Block 107, the entity will be available to use for Bretana. The net present value of those tax pools is approximately equal to the cost of the initial exploration well.
This essentially gives us some part of free looks, what we may have in Osheki [indiscernible]. And then, of course, if it is successful, those tax pools will be used in Block 107 as we drill the follow-up exploration well and future confirmation and development wells. We do get the opportunity of a free look Block 107, which is quite amazing.
Do you prefer dividends or special dividend increases or share buybacks in the future?
For the time being, we've approved approximately $3 million for buybacks, which is essentially what we believe is the maximum available at this point in time, considering our liquidity. If we have more free cash flow, we will consider amending the program. But for now and for the short-term, we would increase dividends along the way.
Will you be drilling Block 107 in 2024? And are you still looking for a partner? And if so, why don't you do it alone?
We are still working to obtain the permit to do the actual exploration well in Canada. And we may be able to obtain that permit as soon as we get more approval as well to move forward. We may be able to drill that well by -- before year-end 2024. I would give you a surprise that goes into 2025. I imagine and I have mentioned this several times in the past. As we get closer to drill the well, we may have people coming to calling us. In the meantime, I don't think people are going to have other looking at Block 107.
How much oil could be exported through Ecuador?
Well, at the moment, we are reviewing that option, is to connect to the OCP that is set up perfectly for our type of crude oil. We're thinking that we could send 5,000 barrels or even more than that. So -- and we are looking at doing a pilot later this year.
Would you consider a tender offer in addition to the share buyback program?
Not at this time.
Receivables balances, although lower than in December are still heightened have the levels of receivables, excluding Petroperu increased?
We continue to collect our scheduled payments from Petroperu and have not shipped any more oil to them. The increased receivables is as a result of increased sales to Brazil and Iquitos.
Thank you. [Operator Instructions] Did PetroTal sustained oil hedging losses in the past quarter and what percentage of our oil flows are hedged?
We had a mark-to-market valuation change, which is a non-cash change due to the lower oil prices related to the oil in the pipeline.
Thank you. There are no further questions at this time. So I will hand back to Manolo and Doug for closing remarks.
Well, as always, we both appreciate the investors' support and with the news of the dividends and share buybacks is always doing what we have committed to do, and we plan to continue doing that in the future quarters. Thank you so much.