Strong balance sheet position
$150 million of free cash flow delivered in nine months of 2022
Calgary, Alberta and Houston, Texas–(Newsfile Corp. – November 17, 2022) – PetroTal Corp. (TSXV: TAL) (AIM: PTAL) (OTCQX: PTALF) (“PetroTal” or the “Company“) is pleased to announce its financial and operating results for the three and nine months ended September 30, 2022 (“Q3 2022”).
Selected financial and operational information is outlined below and should be read in conjunction with the Company’s unaudited consolidated financial statements (“Financial Statements”), and management’s discussion and analysis (“MD&A”) for the three and nine months ended September 30, 2022, which are available on SEDAR at www.sedar.com and on the Company’s website at www.PetroTal‐Corp.com. All amounts herein are in United States dollars (“USD”) unless otherwise stated.
Q3 2022 Highlights
- Production in the quarter averaged 12,229 barrels of oil per day (“bopd”) with sales of 12,186 bopd (1.1 million barrels), despite being constrained as low river levels reduced barge capacity;
- Generated net operating income(1) (“NOI”) of approximately $62.3 million, EBITDA(1) of $57.6 million, and free cash flow(1) before all debt service of $37.0 million equating to a 44% free cash flow margin(2);
- Capital investment totaled $20.6 million, primarily to drill well 13H and key infrastructure projects;
- Petroperu exported approximately 720,000 barrels of oil to an international refiner, crystalizing for PetroTal over $64 million (including VAT) of true up revenue and reducing the amount of PetroTal’s oil in the Northern Peruvian Pipeline (“ONP”) to 2.4 million barrels;
- Demonstrated continued balance sheet strength with cash of $93 million at September 30, 2022, a net surplus(2) balance of $75.5 million. The Company remains in full compliance with all bond covenants as at September 30, 2022; and,
- On September 15, 2022, PetroTal welcomed two new Directors, Messrs. Luis Carranza and Jon Harris, and announced the retirement of Messrs. Gary Guidry and Ryan Ellson.
(1) Free cash flow defined as EBITDA less capital expenditures. Free cash flow margin defined as free cash flow divided by crude oil revenues. See “Selected Financial Measures”
(2) Net debt / surplus defined as (total cash + total trade and VAT receivables + total derivative assets) – (trade and VAT payables + total bond debt + total derivative obligations + total lease obligations)
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
“Having produced over 10.5 million barrels of oil since inception, we are on track to deliver average production growth of approximately 40% and almost $200 million in free cash flow in 2022. Although the Company encountered external transportation challenges, we expect to deliver double digit yearly production growth with potentially 40% plus free cash flow yields under current Brent oil forward strip pricing conditions. The high margin nature of our business should be at the forefront of investors’ sentiment, alongside our proven ability to execute technically.”
Selected Financial and Operational Highlights
|Three Months Ended||Nine Months Ended|
|(in thousands USD)||Sept 30, 2022||Sept 30, 2021||Sept 30, 2022||Sept 30, 2021|
|Crude oil revenues||84,164||44,781||295,350||119,946|
|Net operating income (1)||62,333||29,587||225,114||79,234|
|Commodity price derivative (gain)/loss||32,686||(293)||5,139||(18,658)|
|Diluted net income (US$/share)||0.00||0.02||0.18||0.07|
|Average production (bopd)||12,229||9,508||12,816||8,567|
|Average sales (bopd)||12,186||9,142||14,095||8,856|
|Average Brent price ($/bbl)||97.89||73.21||102.39||67.76|
|Contracted sales price, gross ($/bbl)||97.21||71.06||98.78||65.67|
|Funds flow provided by operations||46,205||18,648||112,636||42,742|
|Cash and restricted cash||93,018||57,655|
|1. Net operating income (“NOI”) and Netback represent revenues less royalties, operating expenses, and direct transportation.
2. Netback per barrel (“bbl”) and funds flow provided by operations do not have standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures for other entities. See “Selected Financial Measures” section.
3. Royalties in Q3 2022 include the value since January 1, 2022 inception for the 2.5% social trust initiative.
Q3 2022 Financial Highlights
Strong revenue profile. Oil revenue in Q3 2022 was $84.2 million ($75.07/bbl) compared to Q2 2022 of $118.4 million ($89.04/bbl) and Q3 2021 of $44.8 million ($53.24/bbl).
High margin operational cash flow. Generated NOI and EBITDA of $62.3 million ($55.60/bbl) and $57.6 million ($51.42/bbl), respectively, compared to $98.6 million ($74.12/bbl) and $93.4 million ($70.26/bbl), respectively, in Q2 2022 and $29.6 million ($35.18/bbl) and $26.1 million ($31.07/bbl), respectively, in Q3 2021.
Efficient capital deployment. Capital expenditures in the quarter totalled $20.6 million and were focused on drilling and completing well 13H. During the nine months ended September 30, 2022, the Company invested a total of $62.2 million, demonstrating capital flexibility under sales constraint conditions.
Robust free cash flow. Generated free cash flow before changes in non-cash working capital and debt service of $37.0 million ($33.03/bbl) in the quarter. Total free cash flow before changes in non-cash working capital and debt service for the nine months ended September 30, 2022 is nearly $150 million significantly strengthening the Company’s net surplus position by nearly $130 million.
Total operating costs under $10/bbl. The Company had lower gross total operating cost expense in the quarter of $10.1 million ($9.06/bbl) from $11.7 million ($8.82/bbl) in Q2 2022. Total quarterly lifting costs were $7.4 million ($6.62/bbl), a decrease from Q2 2022 of $8.4 million ($6.28/bbl) and an increase from Q3 2021 of $5.4 million ($6.47/bbl). Total transportation costs were $2.7 million ($2.44/bbl) a slight decrease from $3.4 million ($2.54/bbl) in Q2 2022 and a substantial decrease from $7.1 million ($8.50/bbl) in Q3 2021.
G&A on budget. Q3 2022 G&A was $4.7 million ($4.18/bbl) compared to $5.1 million ($3.87/bbl) in Q2 2022 and $3.4 million ($4.11/bbl) in Q3 2021.
Net income/loss. PetroTal posted net income of $2.6 million, a decrease from Q2 2022 net income of approximately $84 million, primarily from lower sales in the quarter, a non cash commodity price derivative loss of approximately $33 million, and royalty provision for the social trust.
Balance sheet in a cash surplus position. Net surplus was approximately $75.5 million as at September 30, 2022, consistent with the prior quarter and up substantially from Q3 2021, as defined internally by the Company.
Net derivative asset balance. The total net derivative asset on the balance sheet as at September 30, 2022 was $3.5 million, a decrease of $53.3 million from Q2 2022, as a result of reclassified true up revenue of $64 million realized in July 2022, along with other mark to market changes in the value of oil in the ONP. As at September 30, 2022 approximately 2.4 million barrels remained in the ONP.
Operational and Financial Highlights Subsequent to September 30, 2022
Excellent well 13H results. Well 13H successfully tested at over 8,000 bopd during its first week of production and has averaged approximately 6,200 bopd month to date ending November 14, 2022, which was slightly constrained during this period. At its current trend and assuming a $55/bbl netback, the well is on track to payout within 60 days. In addition, the technical team encountered the producing formation five meters higher near the end of the horizontal section of the well possibly increasing future oil in place and reserve estimates.
Commenced drilling well 12H. On October 16, 2022, the Company commenced drilling well 12H with a budgeted cost of $14 million and estimated completion in mid December 2022.
Slowly rising river levels in November. During the month of October, river levels in Brazil continued to be at record low levels, in some cases, exposing sand bars above the water level. This significantly impacted the Company’s ability to sell oil in the month of October limiting production to approximately 6,500 bopd. The Company expects to sell nearly 900 thousand barrels over November and December as river levels return to normal.
On November 10 and 11th, 2022 the Company was able to produce over 20,000 bopd.
2021 ESG report being finalized. Over the coming weeks PetroTal will release its second annual Sustainability Report covering the 2021 year. The Company is now calibrated to Sustainability Accounting Standards (“SASB”), Global Reporting Initiatives (“GRI”), and Sustainable Development Goal standards and is committed to being a sustainable energy leader in Peru. In 2021, the Company had zero hydrocarbon spills, delivered a scope 1 emissions intensity metric of 11.4 kg/bbl, and invested millions in various ESG projects as outlined in the report, showcasing the modest operational footprint that the Company has managed in the Loreto region.
Petroperu update. The Company continues to work with Petroperu’s management team to assess and negotiate payment of approximately $90 million of receivable value. On October 10, 2022 the government of Peru agreed to make a capital contribution to Petroperu of $1 billion in order to strengthen its financial capacity for continued operations, and provide $500 million of credit facility support. The priority of allocation is immediate fuel and energy needs in Peru, and the Company expects that the $64 million outstanding amount owed to the Company will be paid on a negotiated payment schedule.
The Company is adjusting Q4 2022, and therefore 2022 guidance based on October 2022 and early November river conditions into Brazil. Final 2022 guidance is now between 12,000 and 13,000 bopd for Q4 2022 and 2022 full year.
|Adjusted Guidance||Q1 (actual)||Q2 (actual)||Q3 (actual)||Q4||2022|
|Oil wells completed||1 (10H)||1 (11H)||0||2||4|
|Average Production (bopd)||11,746||14,467||12,229||12,000 – 13,000||12,000-13,000|
|USD millions, unless stated otherwise||Guidance|
|Realized Brent (USD/bbl)||~$80|
|Average Production (bopd)||12,000 – 13,000|
|Net operating income||$292|
|Net derivative settlements||$27|
|Free cash flow||$198|
PetroTal is excited to announce a corporate rebranding which includes a new vision, color scheme and logo design. Over the coming weeks we will be rolling out a new website with many new and exciting features for investors and or interested stakeholders. Further updates on this will be made when available.
Updated Corporate Presentation and investor webcast
Please see the Company’s newly designed investor presentation now posted at www.petrotal-corp.com.
Webcast link for November 17, 2022 at 8am MDT
PetroTal is a publicly traded, tri quoted (TSXV: TAL) (AIM: PTAL) and (OTCQX: PTALF) oil and gas development and production Company domiciled in Calgary, Alberta, focused on the development of oil assets in Peru. PetroTal’s flagship asset is its 100% working interest in Bretana oil field in Peru’s Block 95 where oil production was initiated in June 2018. In early 2020, PetroTal became the largest crude oil producer in Peru. The Company’s management team has significant experience in developing and exploring for oil in Peru and is led by a Board of Directors that is focused on safely and cost effectively developing the Bretana oil field. It is actively building new initiatives to champion community sensitive energy production, benefiting all stakeholders.
For further information, please see the Company’s website at www.petrotal-corp.com, the Company’s filed documents at www.sedar.com, or below:
Executive Vice President and Chief Financial Officer
T: (713) 609-9101
President and Chief Executive Officer
T: (713) 609-9101
PetroTal Investor Relations
Mark Antelme / Jimmy Lea
T : 44 (0) 208 434 2643
Strand Hanson Limited (Nominated & Financial Adviser)
Ritchie Balmer / James Spinney / Robert Collins
T: 44 (0) 207 409 3494
Stifel Nicolaus Europe Limited (Joint Broker)
Callum Stewart / Simon Mensley / Ashton Clanfield
Tel: +44 (0) 20 7710 7600
Auctus Advisors LLP (Joint Broker)
T: +44 (0) 7711 627449
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.
OIL REFERENCES: All references to “oil” or “crude oil” production, revenue or sales in this press release mean “heavy crude oil” as defined in NI 51-101. All references to Brent indicate Intercontinental Exchange (“ICE”) Brent.
FORWARD-LOOKING STATEMENTS: This press release contains certain statements that may be deemed to be forward-looking statements. Such statements relate to possible future events, including, but not limited to: PetroTal’s business strategy, objectives, strength and focus; drilling, completions, workovers and other activities and the anticipated costs and results of such activities; PetroTal’s revised 2022 guidance and budget including, but not limited to, estimated or anticipated production levels, capital expenditures and drilling plans; the intention to redeem the outstanding bonds and become debt free; a future robust capital return program; PetroTal’s plans to deliver strong operational performance and to generate free cash flow and growth; capital requirements and the Company’s ability to access capital on desirable terms and within required timelines; the ability of the Company to achieve drilling success consistent with management’s expectations; the ability of the Company to achieve near term production targets and operate at unrestricted levels; anticipated future production and revenue; drilling plans including the timing of drilling, commissioning, and startup and the impact of delays thereon; revised 2022 guidance; oil production levels and production growth, including average and exit production in 2022; future oil sales and sales expansion through alternative exports routes, including barging and trucking; the Company’s proposals for collaboration with local communities; future river water levels and their impacts on transportation systems; and future development and growth prospects. Forward-looking statements are often, but not always, identified by the use of words such as “anticipate”, “believe”, “expect”, “plan”, “estimate”, “potential”, “will”, “should”, “continue”, “may”, “objective” and similar expressions. The forward-looking statements are based on certain key expectations and assumptions made by the Company, including, but not limited to, expectations and assumptions concerning the ability of existing infrastructure to deliver production and the anticipated capital expenditures associated therewith, the ability of the Ministry of Energy to effectively achieve its objectives in respect of reducing social conflict and collaborating towards continued investment in the energy sector, reservoir characteristics, recovery factor, exploration upside, prevailing commodity prices and the actual prices received for PetroTal’s products, including pursuant to hedging arrangements, the availability and performance of drilling rigs, facilities, pipelines, other oilfield services and skilled labour, royalty regimes and exchange rates, impact of inflation on costs, the application of regulatory and licensing requirements, the accuracy of PetroTal’s geological interpretation of its drilling and land opportunities, current legislation, receipt of required regulatory approval, the success of future drilling and development activities, the performance of new wells, future river water levels, the Company’s growth strategy, general economic conditions and availability of required equipment and services. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses; and health, safety and environmental risks), commodity price volatility, price differentials and the actual prices received for products, exchange rate fluctuations, legal, political and economic instability in Peru, wars (including Russia’s war in Ukraine), access to transportation routes and markets for the Company’s production, changes in legislation affecting the oil and gas industry and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. The ongoing war between Russia and Ukraine has the potential to threaten the supply of oil and gas from the region. The long-term impacts of the war between these nations remains uncertain. In addition, the Company cautions that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impact of the COVID-19 virus on the Company remains unknown, rapid spread of the COVID-19 virus may continue to have a material adverse effect on global economic activity, and may continue to result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, increased operating and capital costs due to inflationary pressures, business, financial conditions, results of operations and other factors relevant to the Company. Please refer to the risk factors identified in the Corporation’s annual information form (filed April 28, 2022) and MD&A (filed November 17, 2022) (the “MD&A”), which are available on SEDAR at www.sedar.com. The forward-looking statements contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.
SHORT-TERM PRODUCTION RATES: References in this press release to the initial week of production of well 13H and other short term production rates are useful in confirming the presence of hydrocarbons, however such rates are not determinative of the rate at which such wells will commence production and decline thereafter and are not indicative of long-term performance or of ultimate recovery. While encouraging, readers are cautioned not to place reliance on such rates in calculating the aggregate production for PetroTal. The Company cautions that such results should be considered to be preliminary.
SPECIFIED FINANCIAL MEASURES: This press release includes various specified financial measures, including non-GAAP financial measures, non-GAAP financial ratios and capital management measures as further described herein. These measures do not have a standardized meaning prescribed by generally accepted accounting principles (“GAAP”) and, therefore, may not be comparable with the calculation of similar measures by other companies. Management uses these non- GAAP measures for its own performance measurement and to provide shareholders and investors with additional measurements of the Company’s efficiency and its ability to fund a portion of its future capital expenditures. “Netback” (non-GAAP financial ratio) equals total petroleum sales less quality discount, lifting costs, transportation costs and royalty payments calculated on a bbl basis. The Company considers netbacks to be a key measure as they demonstrate Company’s profitability relative to current commodity prices. “Funds flow provided by operations” (non-GAAP financial measure) includes all cash generated from operating activities and is calculated before changes in non-cash working capital. “Adjusted EBITDA” (non-GAAP financial measure) is calculated as consolidated net income (loss) before interest and financing expenses, income taxes, depletion, depreciation and amortization and adjusted for G&A impacts and certain non-cash, extraordinary and non-recurring items primarily relating to unrealized gains and losses on financial instruments and impairment losses, including derivative true-up settlements. PetroTal utilizes adjusted EBITDA as a measure of operational performance and cash flow generating capability. Adjusted EBITDA impacts the level and extent of funding for capital projects investments. Reference to EBITDA is calculated as net operating income less G&A. “Free cash flow” (non-GAAP financial measure) is calculated as net operating income less G&A less exploration and development capital expenditures and is calculated prior to all debt service, taxes, lease payments, hedge costs, factoring, and lease payments. Management uses free cash flow to determine the amount of funds available to the Company for future capital allocation decisions. Please refer to the MD&A for additional information relating to specified financial measures.
FOFI DISCLOSURE: This press release contains future-oriented financial information and financial outlook information (collectively, “FOFI”) about PetroTal’s revised budget and guidance, prospective results of operations, production and production capacity, free cash flow, revenue, adjusted EBITDA, debt repayment, liquidity, shareholder returns and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was approved by management as of the date of this press release and was included for the purpose of providing further information about PetroTal’s anticipated future business operations. PetroTal disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein.
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