PetroTal Corp. is pleased to announce the second export of Bretana crude oil into the Atlantic region through Brazil and the execution of crude oil price derivative contracts. All currency amounts are in United States dollars (unless otherwise stated).
• PetroTal has completed the initial implementation of its oil price hedging program for 2021. Approximately 590,000 barrels have been hedged, (representing approximately 16% of forecast oil production covering April 1, 2021 to December 31, 2021), in a Put structure with a $60/bbl strike;
• The Company completed the second Bretana oil export through Brazil, selling 225,000 barrels of oil at $61/bbl less a quality differential and commercial fees, similar to the first Brazilian export completed in December 2020; and,
• Physical sales from the 1.8 million barrels of oil in the Northern Oil Pipeline ("ONP") have commenced, with 360,000 barrels to be sold by Petroperu in April for $62/bbl less a $2.06/bbl quality differential, further reinforcing the strong demand for Bretana oil. This will result in PetroTal receiving an incremental true-up payment of approximately $20/bbl over the revenue booked from the original sale, including differential adjustments.
Executed Corporate Hedging Contract
In order to support the 2021 capital development program and mitigate Brent oil price downside risk prior to oil delivery, PetroTal has executed a 590,252 barrel Put option with a strike price of $60/bbl, for the period April 1, 2021 to December 31, 2021. The Company hedged these volumes based on the 2021 budget's monthly oil production profile and will look to layer on additional H2 2021 and H1 2022 hedges as production levels grow following commencement of drilling activity.
Second Oil Export Sale Through Brazil
The Company has completed a second oil export through Brazil of 225,000 barrels of oil, sold FOB Bretana. The oil was loaded into a series of barges at Bretana, destined for transport to a terminal near Manaus, Brazil. The sales invoice is based on the Brent oil price forecast for April 2021 of $61/bbl, and PetroTal has received full payment for this export.
Based on run rate cost assumptions, inclusive of royalties, operating and transportation costs, and export related fees, the Company estimates a netback of approximately $31/bbl, an improvement from the netback realized from the previously announced first export sale through Brazil in December 2020.
PetroTal has now executed a contract for additional Brazilian oil exports through to July 31, 2022 that will supplement existing sales arrangements using the ONP, providing flexibility in the sales program and production continuity.
Petroperu Hedging Program Update
For sales into the ONP, the Company is paid an initial price when oil is delivered to pump station #1 at Saramuro, with a true-up payment received approximately eight months later from Petroperu, based on the Brent price at the Bayovar port. To alleviate the oil price risk associated with PetroTal's monthly deliveries into the ONP, the monthly sales invoices are, pursuant to the previously announced amended oil sales contract with Petroperu, now priced based on the eight month Brent strip price forecast, and Petroperu has placed oil price Swaps for these sales to alleviate significant price adjustments.
With the Company's guidance and in accordance with the amended oil sales contract, Petroperu is facilitating commodity price hedge arrangements for the remaining 1.8 million barrels of oil in the ONP from previous deliveries, produced from Bretana in 2019 and 2020. These arranged volumes carry an average initial price of $44/bbl and are expected to reach the Bayovar port for export by Petroperu over the next six months from April 2021. The current incremental value of the arranged true-up payments to PetroTal, which is subject to change, is approximately $36 million, based on the March 25, 2021 forward Brent strip oil price forecast. As noted below, a Swap arrangement has been placed by Petroperu for the first 360,000 barrels.
Petroperu will continue to hedge the remaining arranged 1.4 million barrels and ongoing future deliveries into the ONP.
First True-up ONP Revenue Sale Tendered in April
The Company was advised that Petroperu has arranged a physical sale in April of 360,000 barrels arriving at the Bayovar port, at April's average Brent price less a $2.06/bbl quality differential. This represents approximately 20% of the arranged barrels that were subject to the contingent derivative liability in 2020. To assure price certainty for PetroTal in April, Petroperu has hedged this volume with a $62/bbl Swap.
Q1 2021 Operations and Financial Update
PetroTal will provide a Q1 2021 operations and financial update on April 7, 2021 followed by a general conference call shortly after. Details on how to participate will be available on our website listed below, prior to the call.
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
"We are very pleased to be able to execute our second Brazil shipment, demonstrating this is a viable offtake option that can scale up with operational pace and cost efficiency, based on production activity and ONP availability. Having the Brazilian offtake option ensures healthy commercial competition amongst all oil sales options. The associated commercial terms on all our recent liftings are an indicator of the continued high demand of Bretana crude.
We are also extremely happy to enter into the first phase of our 2021 hedging strategy, giving stakeholders greater confidence around our 2021 cash flow profile. We have an exciting operational program planned over the coming months and we look forward to updating our progress shortly."