Frontera Energy Corporation announced the release of its Consolidated Financial Statements, Management Discussion and Analysis ("MD&A"), Annual Information Form and Form 51-101 F1 - Statement of Reserves Data and Other Oil and Gas Information for the Company for the year ended December 31, 2020.
Summary of Fourth Quarter and Year End Operational and Financial Results:
In 2020, in response to the lower oil price environment caused by decreased global oil and gas demand due to the COVID-19 pandemic, the Company took decisive steps to protect its balance sheet by significantly reducing its capital expenditures, focusing spending on its highest return assets and accelerating cost savings across the business.
The Company recorded a net loss of $497.4 million ($5.13/share), compared with net income of $294.3 million ($3.01/share) in 2019.
Frontera delivered full year production of 47,800 boe/d, lower compared to 70,875 boe/d in 2019, but on the high-end of the 46,000 - 48,000 boe/d range provided by the Company on August 6, 2020 in its guidance update to the market.
Production in Colombia was 46,461 boe/d in 2020 compared with 63,625 boe/d in 2019 as the Company proactively reduced its capital program, shut-in production, and mature fields naturally declined. In Peru, production from Block 192 was suspended in February 2020 with volumes remaining shut-in through the end of the year.
Cash provided by operating activities was $226.8 million, compared with $547.0 million in 2019, contributing to a total cash position at December 31, 2020, of $401.2 million, including $168.9 million of restricted cash.
Capital expenditures were $108.1 million in 2020, or a 69% decrease compared with $345.9 million in 2019, as the Company focused its 2020 capital budget on activities that remained economic at low oil prices, primarily consisting of essential maintenance, workovers and activities that sustained production from higher netback fields.
Operating EBITDA was $172.3 million compared to $586.2 million in 2019.
Production costs averaged $11.13/boe in 2020, or a 7% decrease compared with $11.99/boe in 2019. Production costs were $13.46/boe in the fourth quarter of 2020 compared to $8.97 boe in the third quarter of 2020 primarily due to minor operational and maintenance catch-up work including well maintenance that had been deferred from earlier in the year, remediation in Peru and a re-rating of the USD versus Colombian Peso during the fourth quarter.
Transportation costs averaged $11.27/boe in 2020, or a 10% decrease compared to $12.51/boe in 2019. Transportation costs averaged $10.93/boe in the fourth quarter of 2020 compared to $9.89 in the third quarter of 2020.
Operating netback averaged $15.84/boe, compared with $31.65/boe in 2019.
Gabriel de Alba, Chairman of the Board of Directors, commented:
"In 2020, Frontera took decisive steps to protect the Company's strong balance sheet against the impacts of collapsing oil prices brought on by the COVID-19 pandemic. The Company voluntarily shut-in higher cost production, reduced capital spending and accelerated cost reduction initiatives across the Company. Thanks to the Company's relentless pursuit of continuous operational improvements and greater cost efficiencies, Frontera exited 2020 with a total cash position including restricted cash of $401.2 million and is much better positioned for long-term value creation."
Richard Herbert, Chief Executive Officer of Frontera, commented:
"The decline in oil prices in 2020 and the uncertainty and challenges brought on by the pandemic, created an opportunity for Frontera to make substantive changes across the enterprise to become a stronger, more sustainable company. Thanks to the hard work of Frontera employees across the business, we reduced capital expenditures by 69% compared to 2019, we focused on our highest value production, we reduced production and transportation costs per barrel by 7% and 10% respectively and reduced G&A by 28%. We expect those cost efficiencies achieved in 2020 to be permanent, improving our cost structure and competitiveness going forward."
Board of Directors Update
After more than four years of service on Frontera's Board of Directors, Board Member Raymond J. Bromark has decided not to seek re-election to the Company's Board of Directors at the Company's next annual general meeting. Mr. Bromark will resign as chair of the Company's Audit Committee effective March 29, 2021 and existing Board Member Ellis Armstrong will be appointed as Chair of the Audit Committee from this date. To ensure a smooth transition, Mr. Bromark will remain a member of the Audit Committee until the next annual general meeting.
"I would like to thank Ray for his tireless service to the Board since he joined in November 2016," said Gabriel de Alba, Chairman of the Board of Directors. "I have personally appreciated Ray's commitment and steady voice of reason throughout his time on the Board. As Chair of the Audit Committee, Ray's passion and dedication have been instrumental in advancing the ethics and compliance culture at Frontera, culminating in Frontera's inclusion in Ethisphere's most ethical companies in the world list for 2021. On behalf of the Board, I'd like to thank Ray for everything he's done to help make Frontera a better and stronger company and I welcome Ellis as the new Chair of the Audit Committee who brings great experience to the role."
Agreement Reached to Resolve Outstanding Transportation Disputes in Colombia
In November 2020, Frontera, Cenit Transporte y Logística de Hidrocarburos S.A.S. ("CENIT") and Oleoducto Bicentenario de Colombia S.A.S. ("Bicentenario") separately announced that they had reached an agreement for the joint filing of a petition for a approval of a conciliation agreement which, upon completion, will resolve all the disputes pending among them, related to the Bicentenario Pipeline ("BIC Pipeline") and the Caño Limón – Coveñas Pipeline ("CLC Pipeline"), and will terminate all proceedings related to such disputes.
The arrangement is conditional upon approval of the conciliation arrangement under Colombian law which requires an opinion to be issued by the Office of the Attorney General of Colombia (Procuraduría General de la Nación) and approval of the Administrative Tribunal of Cundinamarca, an appeals court.
In 2020, the Company drilled 22 development wells in Colombia compared to 116 development wells in 2019, including 14 wells in the Quifa block, 6 wells in the CPE-6 block, one well in the Sabanero block and one well in the Canaguaro block. In the Lower Magdalena Valley of Colombia, the Company, through its joint venture on the VIM-1 block (Frontera 50% WI, Parex 50% WI, operator) announced successful testing results from the La Belleza-1 exploration well targeting the Cienaga De Oro formation. The Company also drilled the Asai-1 exploration well on the Guama block which discovered hydrocarbons but not in commercial quantities and was subsequently plugged and abandoned.
In Guyana, the Company, through its joint venture with CGX Energy Inc, continued to advance its exploration program in the fourth quarter in both the Corentyne and Demerara blocks with well locations being selected by the joint venture.
In the Corentyne block, plans are proceeding on the Kawa-1 exploration well. Well design is complete, procurement of long lead items is in advanced stages and key technical staff have been recruited. The joint venture plans to spud the Kawa-1 exploration well during the second half of this year.
In the Demerara block, the joint venture continues to advance its preparatory work for the Makarapan-1 exploration well (previously called Demerara-F). The previous February 12, 2021 deadline for drilling the Makarapan-1 exploration well was extended to February 11, 2022, subject to documentation.
On February 5, 2021, the Company's service contract for Block 192 expired as per its terms and the Company is no longer operating on the block. The Company has started remediation work in Block 192 and Z-1 block as it pursues its exit from Peru.