Petrotal Corp
XTSX:TAL
Earnings Call Analysis
Summary
Q2-2023
PetroTal reported a strong quarter, with oil production hitting a record of 19,000 barrels per day, a 16% increase from Q1 2023, despite some operational constraints. Lifting costs decreased to $4.2 per barrel, contributing to a significant improvement in operational efficiency. The company's financial performance strengthened, boasting a positive net income of $46.6 million, marking the 14th consecutive profitable quarter. Reaffirming its 2023 guidance, PetroTal updated its cash flow projection to $230 million in EBITDA, with capital expenditures slightly up to $130 million. It also plans to offer a higher dividend of $0.025 per share in Q3 2023 thanks to robust performance. Meanwhile, the company anticipates ending the year with $67 million in cash, after repaying the $20 million revolving credit facility, effectively becoming debt-free.
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Hello, everyone. Welcome to the PetroTal Q2 2023 Results Call. Your hosts today will be Manolo Zuniga, CEO and Doug Urch, CFO of PetroTal. There will be a Q&A session after the presentation. So if you would like to ask a question, please submit it via the online platform, and the team will do their best to answer it in the time available.
I will now hand over to Manolo and Doug. Please take it away.
Thank you, Jimmy. And good day everyone and thank you for joining the PetroTal 2023 second quarter webcast. We will provide a brief summary of our second 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 Zuniga, 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 clicked 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 seeing them 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 in 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 U.S. OTC, having a market cap of approximately $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.
The second quarter of 2023 was a record selling quarter as we have produced at or above 20,000 barrels of crude sales for the quarter and achieved tremendous growth rate in both production and sales over Q1, 2023 driving us really significant EBITDA net income and free cash flow.
But first, build some [ph] more new assets. The Bretana field northwestern Peru first delivered first commercial product in mid-2018 and has since grown from zero to over 20,000 barrels of oil per day in past five years. Currently 2022 to year end $2 billion or 97 million roubles (phon) which have an after tax 2P NPV gain per share or $1.75. The field currently has 16 producing oil wells and three water disposal wells capable of disposing approximately 18,000 barrels of water per day each. The company is capable to deliver all of this from a relatively small 20-acre footprint from currently 16,000 acre in size and with Scope 1 CO2 emissions of approximately 11.4 kilograms per barrel as of 2021.
The company was really well positioned for most of the quarter, with the well flowing at 7,900 barrels oil per day for the 19 days in June at an average 1,940 barrels oil per day for our 30-day period from June 12 to July 11. The initial carrying enterprise value of oil will pay out 182,000 [ph] mark and will be considered [Indiscernible] company structured oil wells from ordinary production standpoint.
Once the drilling was completed on block 15H [ph] finished, we will move the report for the CEO for the foundry support minerals at an average cost of $1.6 million each with rate [Indiscernible] time. Initial rates seen by each of these two new well have responded well, and are strong thus far in the range of 600 to 845 barrels for day. At those again will achieve the annual outflow of around two months.
PetroTal sales over their launches with three people who sales routes has seen in our 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. Finally late in 2023, the company will final a test shipment using [Indiscernible] nature of that [Indiscernible] with Peru. The company estimate, it should change [ph] and believe it will ship across the 4,000 barrels of oil per day at around incredible important [Indiscernible] operating company across the Nordic also in LaTam.
We're very excited to communicate details of our second quarter 2023 results and to reiterate our [Indiscernible] and announced return at [Indiscernible]on Page 12 we'll cover the inception.
Slide 3 summarizes key and selected Q2 2023 highlights. From an operational perspective, during the first quarter we delivered record 19,000 barrels of oil per day with corresponding record 18,180 barrels of oil per day in sales. This was a production increase of 16% over Q1 2023, despite being significantly production constrained for our mid to early-June.
In Q2, 2023, we invested approximately $26 million of CapEx, focused on drilling and completing wells 4WD and 14H, along with other continuing infrastructure projects, based on Q2, 2023 being slightly under our projected Q2, 2023 statement. The company invested and embrace steadily [Indiscernible] in the first half of 2023, with productions from L2 West Platform and further erosion control costs. Last quarters of the year has little bit devastating orders due to [Indiscernible] or check in budgets.
From a, per barrel perspective, this second quarter, the company delivered strong unit operating results, compared to the previous Q1 2023 and Q4, 2022 results.
Lifting costs were $4.2 per barrel, in the quarter versus $5.6 in Q1, 2023 due to higher sales volumes. Transportation costs were $1.6 per barrel versus $2.1 in Q1, 2023, as a result of shipping our 91% of sales through Brazilian route. All in, the company was able to achieve a total OpEx per barrel cost of $5.8 per barrel versus the prior quarter $7.7 per barrel. This was the first time, the company was able to generate total OpEx of $106 per barrel, and showcases how sustainable our [Indiscernible] infrastructure is.
In Slide 4 we showcased the company its full year production guidance of between 14,000 and 15,000 barrels oil per day. We're hoping to see higher bigger level as communicated last history. However, this has not been case as seen on Slide 4. Mineral levels near the Ketos are well below seasonal than averages and have close [Indiscernible] oil cargos in the recent weeks is expected to carry some Q3 and into early October. This is in line with company's original budget and forecast at this time.
Slide 5 shows the latest retention structure path. The company is currently producing at a constrained rate and we delivered just over 11,500 barrels [Indiscernible] July, 2023 due to March [Indiscernible] our contracted drilling rig is still undergoing maintenance and which should really entering in September 2023, focusing on [Indiscernible] kind of wells to finish once the [Indiscernible] started as of [Indiscernible] will finish.
The company intends to start drilling well in [Indiscernible] early-2023 with an additional water disposal well early in 2024. Those locations that we see on the [Indiscernible] as you seen on Slide 5.
As for the third quarter, we have updated our commercial Slide 2 includes an additional offtake route we are currently analyzing for sales at [Indiscernible]. Now that we have expanded our production fleet and we did aligned goals with our Brazilian shipper. The company is now currently focused on reducing total rig time on the Brazilian route. The company still leading with its partners' economics, our dedicated storage further out [Indiscernible] that would allow the company to continue production with guidances [ph]. We just made a commercial decision on this in 2024 as we continue examining the economic and technical aspects of this project.
Slide 6 also shows sample cargo routes the company's examining which improve the in Ecuador, the unit port owned by large station number five and one Port of Manaus takes solid pricing with initial section of the O&P and indicating an overall regular maintenance in 2019. So these other ramps commercial and PetroTal anticipates another extra port to operator of offtake availability.
Moving to Slide 7, we always want to remind investors about the company's unique and simple value proposition but most important is our commitment to shareholder to deliver material year-over-year production growth while being able to maintain and grow our robust internal capital progress. And the team has [Indiscernible] cash flow delivers and ask Urch little detail for. But in our perspective is strong for support in our wealth of acts, natural water flushing port, and provide long-term, will [Indiscernible] normalized for price reduction as shown in the corresponding factors in slide of our appropriate representation.
I will now turn over to the immediately to our CFO Doug Urch, who will provide brief financial aspects. [Indiscernible]
Thank you Manolo. I'm Doug Urch, PetroTal's CFO and we'd like to start off highlighting a few select financial items from our recent press release and financial statements with visual support from Slide 8.
From a balance sheet standpoint, PetroTal exited the quarter with over $92.6 million of total cash and is in a $98 million net surplus position considering other working capital amounts including short and long-term debt. The ending Q2, 2023 cash balance of $92.6 million includes a short-term debt draw on our revolving credit facility of $20 million, which the company repaid in early August 2023.
The company delivered solid and, in some cases, record financial metrics in the quarter with approximately 1.68 million barrels of oil sales in the quarter compared to just under 1.1 million barrels in Q1, 2023.
Following is a short summary on key, P&L line items.
Net revenue of 95.2 million, which represents $56 per barrel contracted Brent price in the quarter with $78 per barrel, compared to $80 per barrel in Q1 with the Brazilian transportation differentials and backwardation reconciled in the realized net revenue per barrel amounts
Royalties for the quarter were $8.9 million or $0.0529 per barrel including Social Trust provisions. This was down slightly on a per barrel basis from Q1, 2023. Total gross OpEx in the quarter was $9.8 million or $5.80 per barrel compared to $8.7 million or $7.70 per barrel in Q1 of 2023. Note this is the first time total OpEx per barrel has been below $6 per barrel.
Net operating income of $76.6 million representing $45.53 per barrel compared to $53.5 million or $47 per barrel in Q1 of 2023. Q2, 2023 free funds flow before all debt service and changes in non-cash working capital of $37.8 million up from $7.9 million in the prior quarter. Positive net income for the quarter of approximately $46.6 million compared to $16.9 million in Q1, making it the 14th consecutive quarter of positive net income for the company. That represented $0.051 per share of income.
The company is reiterating its 2023 production guidance as Manolo has already mentioned. Cash flow guidance was lifted slightly to $230 million of EBITDA with corresponding minor increases to CapEx, now $130 million in CapEx. The company still estimates $85 million of after-tax free funds flow and the increase of $30 million from the original 2023 guidance.
We've been somewhat conservative in our Q3 and Q4, 2023 Brent price assumptions at around $80 per barrel and hopefully the robust, and macro-oil environment outperforms our estimates, which would enhance free cash flow further.
We have expanded our free cash flow matrix slide to include a broader range of yearly production amounts as shown on the right of Slide 9.
Slide 10 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 $67 million in cash, compared to our previous estimates of $50 million. Note that this includes repayment of the $20 million revolving credit facility in August, leaving the company debt free.
During Q2, 2023, the company successfully declared and paid its first dividend of $0.015 per share and repurchase 583,000 shares for approximately $330,000. The company also successfully formulated its minimum cash policy, which will be used as a mechanical way to top up returns to shareholders, as PetroTal's hotel's cash position becomes more robust in the long-term.
PetroTal is now very pleased to announce the enactment of this program and has approved the dividend of $0.025 per share based on Q2 2023 results, which will be paid in Q3, 2023. This represents an additional $0.10 cents per share -- sorry, $0.01 per share over the base of $0.015 per share ex and record dividend dates are August 30 and 31 respectively, and the cash dividend expected on September 15, 2023.
During the last two weeks in July, the company has increased its buyback volume in excess of 110,000 shares per day. Roughly double what it was in June. The company executes purchases in accordance with TSX limits and a soft dollar cap of approximately $1 million per month.
To conclude, the company has delivered a record quarter in Q2, 2023 and is continuing with its high yield return of capital plan. The company believes that we'll continue to execute on time and on budget and continued with pure investment considerations in the short term and long-term.
Slide 11 summarizes our re research coverage targets in U.S. dollars per share and our reserve report valuation metrics on a fair share basis.
I thank you for your continuing investor support. I'll now turn it back to Cellcourt for the Q&A session.
Doug, thank you. First question, how is existing well performance adjusting the company's view on reserve assumptions? Has performance had a positive or negative impact relative to what was used in the 2022 assessment?
Manolo, are you available?
Yeah. And can you repeat the question? For we're down in the communication. Can you repeat please?
Yes, apologies. How is existing well performance adjust the company's view on reserve assumptions? Has performance had a positive or negative impact relative to what was used in the 2022 assessment?
Yeah, that's good question. The wells are performing as we expected. As our investors know, last year we had a big jump on the different categories of reserve. And things are looking that it should stay about the same at this time around, because wells are performed as expected.
We have always mentioned that we are targeting in 2P case. And maybe in the future as the more data is collected, we can enhance that somewhat. But yeah, things are looking good.
Thank you. You have indicated that the L2 West platform would be approved in Q2, 2023. What are the news here? Is it approved? When is the money to be used?
Yeah, as we mentioned, the L2 West platform will be ready in September. And we'll ready to move the brick we start drilling again, so that projects are undergoing right now on the way and on schedule.
Why was only $0.3 million used on share buybacks during Q2 instead of the whole limit?
Well, in Q2 we essentially were trying out the program that started in the latter part of May. And given the some of our backoffice processes that need to be set up and associated with the buybacks. We slowed things down a little bit, but as we can see we have ramped up to the full limit in July and we'll continue on with that.
Could you refresh our memories with regards to the $22 million outstanding Petraperu receivables which relate to oil delivered to the O&P in early 2022? Why have these not been paid yet and what needs to happen so that this amount is paid?
Petroperu had their credit facilities frozen in early-2022. And in the past, this is how we've previously been paid was through their credit facilities by Petroperu once oil entered the O&P. We are still waiting for the credit to return, so that payment is assured. As of now, this hasn't happened and hence why we're no longer putting oil into the pipeline until the credit facility issue has been resolved.
Of the $100 million of receivables at the end of June, $57 million relates to Brazil. Has this amount been paid now?
Yes, they have been paid. All the receivables are current.
Would the company consider hedging some production if oil continues to strengthen?
Possibly. Our hedging right now is extremely expensive, which is why the company has taken a pause on new corporate hedges. However, if oil goes high enough, it may be prudent to lock some barrels in if we feel the economics are compelling enough.
Could you elaborate on how river levels constrain barge capacity? Is it certain stretches of the river which cause the problem? What is the minimum level required for a barge to pass safely while fully loaded?
As seen in Slide 4, on the right hand side, the graph, on the right axis, vertical axis, you can see the actual delivery levels. In the yellow horizonal line, it's around three meters. And as you have seen in the -- the line that is circled, we will be covering around five meters that in different sections, especially when you have those sandbars in a draw. And so it's surface specifically spot that the pilots need to be very careful at [Indiscernible].
So to avoid any issues, it will at the barges to 70% or 60% on depending how they see this levels moving up or down. And hopefully as we mentioned, things will settle down in the next couple of months and if we can increase, it will proceed again. And keep in mind that last year, we were filling that barges at less 40% of the capacity because of low oil levels. And this year is looking at that, but that's why we are conservative on our guidance and we are ready, we can ready on the guidance for this year.
Are you planning more buybacks before this calendar year end, as there is some additional tax in Canada on buybacks from the beginning of 2024 calendar year?
Yes, we are continuing our buyback program as part of our long-term return of capital program. The tax on the company, the Canadian tax on the company is immaterial for the amount we're buying back, which is approximately $3 million per quarter.
Can you elaborate a little on what you mean when you write the source and value accretive M&A opportunities in North and South America? Have you looked at specific countries, blocks, et cetera?
We have, and we continue to look at, as [Indiscernible] will be passed. We focus each region when you compare the potential in M&A with finer [ph] oil field that is such a wonderful field because of economics. But we always looking and looking for the right opportunity at the right time, something that we really add value to the company. And so another I say challenge or maybe opportunity. But we'll be very careful.
Thank you. [Operator Instructions] Onto the next question. On Slide 24, you have stated that the used CapEx can deliver 20,000 barrels a day. But previously you stated 26,000 barrels a day. What should we put in this downgrade? Do you know it's expect your existing CapEx to deliver 26,000 as previously stated?
No. The reason that we mentioned the, the 20,000 is in that ballpark. And we just managed to just to bridge. We know that we can -- we have proven that we can deliver 20,000 barrels of oil per day. We're just managing the expectations. The idea is to continue growing production capacity beyond 26,000 that we have now.
Thank you. Could you please explain the situation with O&P and the Petroperu credit line? Why not pump now and get paid later at least with 2,000 to 3,000 barrels a day in the pipeline during dry season and low level -- low river levels?
Well, as mentioned, Petroperu still owe us an outstanding amount of $20 million from oil we put into the pipeline in February 2022. So shipping additional barrels to them without their factory lines in place would be too risky at this point.
Thank you. What drove the reduction in 2023 G&A from $34 million to $32 million provided on Slide 6?
Essentially delays in hiring new headcount among other small factors that were considered in our latest forecast in July of 2023.
Thank you. Manolo. Doug, there are no further questions at this time. So I'll hand back over to you for closing remarks.
Well, we just thank our investors. We hope you, you see that we continue to deliver on everything that we promised five and a half years ago. And one of the key is of course we will return capital. I believe that the board believes that the way we have set up dividend plan, it makes a lot of sense. And what we have announced today, tapping an extra $0.01 per share is proof for our commitment.
After all, when I was raising initial capital, I'll always say that, time [Indiscernible] was going to be a free cash flow machine for years to come. And now I'm very happy that we were delivering on that with the return [Indiscernible]. So thank you so much for all the support. We'll continue growing company. And we will make sure that we can take some of these challenges through November and so on and actually continue grow the company for the future. Thank you so much.
Thank you, everyone.