PetroTal Corp. is pleased to announce its financial and operating results for the three and nine months ended September 30, 2020 ("Q3 2020").
Q3 2020 Operational Highlights
- On July 15, 2020, PetroTal recommenced oil field operations after the COVID-19 government-imposed shut down on May 7, 2020, and production returned to 11,500 bopd shortly thereafter;
- As a preemptive measure, the Bretana oil field was shut down on August 9, 2020 due to social unrest against the government outside the field camp that resulted in a violent confrontation between protestors (intending to occupy the Bretana facilities) and the police. The social unrest was conducted by protestors seeking government assistance against the COVID-19 crisis; and,
- As a result of the indigenous communities and government bodies reaching an agreement that will see increased funding for the local communities, on September 28, 2020, PetroTal recommenced oil field operations, and production again was restored to the pre-shut down level of 11,500 bopd.
Q3 2020 Financial Highlights
- Revenue decreased to $7.6 million ($35.56/bbl) compared to $9.8 million ($22.87/bbl) in Q2 2020, due to lower oil production as a result of social unrest in Q3 2020. However, this was in part, offset by higher oil prices, with the average Brent oil price increasing to $44.32/bbl from $29.19/bbl for Q2 2020;
- Royalties to the Peruvian government were $0.2 million (3.2% of revenue) compared to $0.1 million (1.3% of revenue) for Q2 2020;
- Operating costs were $2.5 million ($11.64/bbl) compared to $2.4 million ($5.67/bbl) for Q2 2020, reflecting consistent quarterly costs not directly impacted by lower production;
- Transportation costs were $2.5 million ($11.90/bbl) compared to $4.5 million ($10.50/bbl) for Q2 2020, reflecting the variable cost nature associated with lower production;
- Cash flow used by operations was $0.5 million compared to $0.9 million generated by operations in Q2 2020;
- Net operating income was $2.3 million ($10.86/bbl) compared to net operating income of $2.8 million ($6.40/bbl) in Q2 2020;
- The Company had cash of $9.8 million at the end of Q3 2020 compared to $20.4 million at the end of Q2 2020. The majority of the cash reduction is attributed to a $9.4 million reduction in accounts payable during Q3 2020;
- The Company's contingent derivative liability relating to oil sold to Petroperu was reduced to $17.0 million at September 30, 2020 from $22.3 million at June 30, 2020, as a result of higher oil prices in Q3 2020. This contingent liability relates to the timing difference between when Petroperu provides an initial payment for the oil and when the final settlement price is calculated. The amount of the ultimate liability will be crystallized when the oil is actually sold by Petroperu, which is expected to commence in December 2020 and continue into 2021; and,
- The contingent liability pertaining to the Brent oil price reduction has been structured into a three-year payment arrangement ("Arrangement") with Petroperu (the "Parties"):
- The amount of this contingent liability to Petroperu will be definitively determined when the security arrangements for PetroTal's obligations are finalized;
- The Arrangement allows PetroTal to settle the obligations to Petroperu now while still allowing the Company to benefit from higher oil prices forecasted by the Brent forward strip pricing curve, when the physical oil sales occur;
- The Parties have agreed to extend the one-year Oil Sales Contract to three years upon expiry of the current term in December 2020;
- The Parties established a framework to ensure that future oil sales under the Oil Sales Contract have adequate hedge protection to avoid future downside losses; and,
- The Parties have agreed to further amendments to the Oil Sales Contract for lower pipeline tariffs and fees during periods of low oil prices.
Events subsequent to September 30, 2020
After PetroTal recommenced oil field operations on September 28, 2020, the wells were quickly brought into full operation at the pre shut-down level of 11,500 bopd. The indigenous communities and government bodies have reached an agreement that will see increased funding for the local communities. Oil deliveries have commenced to the Iquitos refinery and, on a limited basis, to the Northern Oil Pipeline ("ONP") until social issues affecting the ONP are fully resolved. In order to manage oil inventory levels, production is currently intentionally constrained to 5,000 bopd, until such time as the ONP is operational. The Company's stringent COVID-19 protocols continue to ensure that the camp remains safe;
In October 2020, the Company sold 192,000 barrels of oil to the Iquitos refinery and the ONP at pump station #1, thereby generating revenues of $5.5 million (net of transportation and fees), which has been paid to the Company;
Discussions with Petroperu are continuing with respect to finalizing the contingent liability Arrangement, and the agreement is expected to be completed in the coming weeks;
The Company continues to diligently pursue a robust credit facility that will enhance liquidity and enable the Company to continue investment in the Bretana oil field for development growth; and,
PetroTal has been assessing other oil export options and has signed a contract with an international oil trader for a pilot shipment to export 120,000 barrels into the Atlantic region using the Amazon river through Brazil. The shipment will be sold FOB Bretana, priced at the forward month Brent ICE price, and paid within two weeks of loading at Bretana. There are no subsequent oil price adjustments.
At November 19, 2020, PetroTal has cash resources of $9.8 million, with accounts payable and accrued liabilities of approximately $39.3 million, a reduction of $1 million from September 30, 2020. Ongoing payments will be managed from expected oil field revenues and internal cash resources. Pursuant to contractual terms with our suppliers, approximately 46% of the amount are not due until into 2021.
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
"Whilst the last few months have been challenging, from both a COVID-19 and a social unrest perspective, we believe we have now turned the corner. Although we continue to restrict current production to 5,000 bopd, in order to manage our inventory levels, we are confident that we can increase production back to 11,500 bopd once the ONP reopens.
"We are pleased that the indigenous communities and government bodies have reached an agreement that will see increased funding for the local communities, and we look forward to continuing our strong working relationship with national, regional & local governments and the communities nearby Bretana as well as their indigenous leaders.
"We are pleased to sign an agreement with an international oil trader for the pilot export sale of 120,000 barrels of oil into the Atlantic region, diversifying our oil export options. We also aim to secure a credit facility in due course, which has the potential to enhance the Company's liquidity, so we can continue investment in the Bretana oil field for development growth. In closing, I would like to thank all our stakeholders for their continued support, during what has been a challenging period for the Company. We remain upbeat about the potential of the Bretana field and are firmly focused on delivering value for all those involved in the Company."