Frontera Energy Corporation New FEC

CALGARY, AB, Feb. 15, 2024 /PRNewswire/ - Frontera Energy Corporation (TSX: FEC) ("Frontera" or the "Company") today announced its full year 2024 capital and production guidance, provides an update on its estimated fourth quarter 2023 and full year average daily production and provides and update on shareholder value initiatives, including the initiation of a quarterly dividend of CAD $0.0625 per share payable quarterly, following the release of year-end 2023 results. All values in this news release and the Company's financial disclosures are in United States dollars, unless otherwise noted. 

• Anticipated $400-$450 million in consolidated Operating EBITDA at $80/bbl average Brent while investing $272-335 million in total consolidated capital expenditures, a 32% decrease at the midpoint compared to 2023.
• Deploying $230-$280 million, including $35-$45 million exploration investments, in the Company's core Colombia and Ecuador Upstream business, a 10% decrease at the midpoint compared to 2023, to deliver 40,000-42,000 boe/d full year production for 2024.
• Investing $35-$45 million to drill three exploration wells including the high-impact Hydra-1 well in the VIM-1 block in Colombia and two wells in the Espejo Block in Ecuador and additional seismic and pre-drilling activities in Colombia.
• Investing $40-$50 million in the Company's standalone and growing Colombia Infrastructure business mainly to build the 6.8-kilometre, 18-inch pipeline connection between the Reficar Refinery and the Company's Puerto Bahia's Liquids Terminal and to commission the SAARA Reverse Osmosis Water Treatment Facility at Quifa.
• Estimating total production costs, including both production and energy costs for 2024 to average $14.25 – $15.75, primarily driven by El Niño-related higher energy costs. Transportation costs for 2024 are forecasted to average $11.00 - $12.00 per boe.
• Hedging approximately 40% of the Company's estimated production after royalties at an average Brent price of $73.34 through June 2024, providing revenue visibility and reducing exposure to price volatility.
• Initiating a quarterly dividend of CAD $0.0625 per share payable quarterly, following the release of year-end 2023 results, subject to regulatory approval, and repurchasing up to 3.95 million Common Shares for cancellation through the Company's recently announced Normal Course Issuer Bid (NCIB).
• Considering future additional shareholder value enhancing initiatives, including additional dividends, distributions, or bond buybacks, based upon overall results of our businesses and the Company's strategic goals.

"In 2023, we delivered estimated average daily production of approximately 40,919 boe/d, in line with our guidance range, while deploying significant capital to successfully advance our exciting offshore Guyana exploration program.

Guided by our strategy of value over volumes and our track record of improving capital efficiency, in 2024 we will invest $272 to $335 million in total capital, a 32% reduction compared to the midpoint of our 2023 guidance to generate $400 to $450 million in consolidated Operating EBITDA at $80/bbl average Brent prices while sustaining an estimated 40,000 to 42,000 boe/d full year production.

Our 2024 capital and production plan is fully funded, protected by a prudent hedging program, and leans into the most productive and profitable assets within our portfolio, capitalizing on outstanding near field opportunities at our Quifa, CPE-6 and VIM-1 producing blocks, while delivering our quickest payback barrels with sustained future growth potential. We expect that our development program, together with our exploration investments led by our potentially high-impact Hydra-1 well in the VIM-1 block in Colombia, will deliver sustainable production and strong cash flows in 2024 and beyond. 

Frontera has generated approximately $1.5 billion in Operating EBITDA over the last three years with strong cash flow expected in 2024. Since 2018, we have also returned more than $305 million to shareholders via dividends and share buybacks. For 2024, the Company, subject to regulatory approval, seeks to pay a CAD $0.0625 per share quarterly dividend following the release of year-end 2023 results in addition to its ongoing NCIB program announced last year. Additionally, the Company's strategic review process for our exciting Guyana exploration business is advancing, where a data room has been opened and management presentations are underway. At Frontera, we remain committed to unlocking the sum of our parts and driving shareholder returns."

NCIB: Under the Company's current NCIB which commenced on November 21, 2023, Frontera has repurchased 508,000 common shares for cancelation for approximately $3.0 million as of February 14, 2024. The Company is authorized to repurchase up to 3,949,454 of its common shares for cancellation, representing up to 10% of its outstanding float.

Quarterly Dividend: The Board of Directors has adopted a dividend policy to pay a dividend of CAD $0.0625 per share quarterly, following the release of year-end 2023 results. Dividend payments will be subject to quarterly review and approval by Frontera's Board of Directors and the determination to pay such dividends will be based on, among other things, the Company's view of prevailing and prospective macroeconomic conditions and business performance. In addition, the payment of dividends is subject to the approval of the Toronto Stock Exchange, applicable law and the provisions of the indenture governing the Company's unsecured notes. Each dividend, if declared by the Board of Directors, is intended to be payable to shareholders of record at the close of business on the second trading day of the first calendar quarter following the date of declaration.

Frontera remains committed to unlocking value and enhancing shareholder returns and will continue to consider future shareholder value enhancement initiatives in 2024, including potential additional dividends, distributions, or bond buybacks, based on the overall results of our businesses and the Company's strategic goals.

Frontera's 2024 capital and production guidance is based on an average 2024 Brent price of $80/bbl, an average sales price oil differential of $4.50/bbl, and an exchange rate of 4,100 Colombian Pesos per US dollar.

Other key 2024 guidance highlights include:

• Estimated $35-$45 million in dividends, net of taxes, to be received from the Company's interest in the ODL pipeline.
• Debt service payments are estimated to be approximately $60-70 million for 2024, including a payment of approximately $32 million for interest associated with the Company's 2028 senior notes, and the repayment of the $18 million Bancolombia working capital loan.
• Pipeline Investment LTD ("PIL") debt service payments include $15 million of amortization payments as well as interest payments on the facility. These amounts are net of additional committed funding, subject to certain conditions precedent, in connection with the construction of the Reficar pipeline.

In the Company's core Colombia and Ecuador Upstream business, Frontera aims to deliver production of 40,000-42,000 boe/d, in-line with 2023, while decreasing capital investment by approximately 10% compared to 2023 levels to $230 to $280 million.

The Company will focus on its inventory of near-field development drilling opportunities at its Quifa, CPE-6 and VIM-1 producing blocks, invest in development facilities to enhance its water-handling capacity at CPE-6 and increase its gas processing capacity at VIM-1. Frontera's capital program also includes $35-$45 million in exploration opportunities including drilling the high-impact Hydra-1 well in the VIM-1 block and two wells in Ecuador.

The Company's 2024 average production guidance range does not include in-kind royalties, operational consumption, volumetric compensation or, potential production from successful exploration activities planned in 2024. The Company anticipates delivering $400 to $430 million in Operating EBITDA in 2024 from its Upstream operations.

To provide enhanced clarity, as part of its 2024 Guidance, the Company is providing additional details on its key operating cost drivers, including a breakdown of production-associated energy costs.

The Company estimates 2024 production costs to average $8.50 - $9.50 per boe, excluding energy costs. This estimate represents a 6% increase compared to estimated 2023 production costs levels reflecting the additional well intervention and workover activity in lieu of drilling expenditures, cost associated to additional water handling and treatment capacity associated to SAARA and on-going inflationary pressures.

Energy costs, described as electricity consumption and the costs of localized energy generation, to average $5.75 - $6.25 per boe, representing a 33% increase compared to estimated 2023 energy costs levels, driven primarily by El Niño-related higher energy costs.

Transportation costs for 2024 are forecasted to average $11.00 - $12.00 per boe, compared to $10.50 - $11.50 per boe in 2023.

Frontera's anticipated total 2024 Colombia and Ecuador Upstream capital expenditures of $230-$280 million represents an approximately 10% decrease at the midpoint of the Company's 2023 capital budget. Capital expenditures will be directed to development and exploration activities as shown below.

Frontera anticipates spending approximately $85-$95 million to drill up to 62 wells (60 producer wells and 2 injector wells) in 2024 and approximately $95-$115 million on development facilities primarily in support of enhanced production capacities at VIM-1, CPE-6, and Quifa.

• Quifa block: Frontera plans to drill 27 wells (26 producer wells and one injector well) in the Quifa SW field, and install additional flow lines in the Quifa block, including investments to increase water handling capacity via a connection to the SAARA project. At the Cajua field, Frontera plans to drill 11 producer wells.
• CPE-6 block: the Company plans to drill 17 wells (16 producer wells and one injector well) and install additional flow handling and injector line facilities. In addition, the Company plans to increase water handling capacity to 360,000 bbls/day. In 2023, the Company doubled water handling capacity to approximately 240,000 bbls/day, which supported an increase in production to 5,487 boe/d in 2023, compared to 4,991 boe/d in 2022.
• VIM-1 block (Frontera 50% W.I., non-operator): the Company plans to initiate Phase 1 expansion of La Belleza facilities and flow lines to increase gas processing capacity from 20,000 to 30,000 Mcf/day.
• Other fields: In Sabanero, the Company expects to drill four production wells plus install additional injection facilities.
• Other Capex: The Company plans to invest in new field production technologies to enhance operational efficiency and mitigate water production.

• Perico (Frontera 50% W.I. and operator): Building on the successful 2023 drilling and testing program in the new combined structural/stratigraphic U-sand play, Frontera intends to drill three wells and install additional flow lines and facilities.

In 2024, the Company anticipates spending $35-$45 million on various exploration activities in Colombia and Ecuador including:

• Drilling the high-impact exploration Hydra-1 well in the VIM-1 Block (Frontera 50% W.I., non-operator) targeting gas and condensate. Frontera plans to utilize new seismic processing technology to drill this prospect, expected to be spud mid-year 2024.
• Drilling two wells in the Espejo block (Frontera 50% W.I., non-operator) in Ecuador, near the Pashuri-1 discovery in Lower U Ss. These two wells will satisfy the exploration commitments in the block.
• Acquire 3D seismic and complete pre-drilling activities and civil works at the Llanos-119 blocks, complete pre-drilling activities in the Llanos 99 block and pre-seismic activities in the VIM-46 block.

In the Company's standalone and growing Colombia infrastructure business, the Company expects to generate in 2024 between $15-$25 million in segment Operating EBITDA and between $95-$115 million in Adjusted Infrastructure EBITDA. Frontera anticipates investing $40-$50 million primarily to build the pipeline connection between Frontera's liquids terminal at Puerto Bahia and the Cartagena Refinery.

• Puerto Bahia: The construction of the Reficar connection is anticipated to cost approximately $30 million. The connection will be built, operated, and maintained by Puerto Bahia and will have a capacity of up to 84,000 bbls/day. The connection will be capable of handling imported and domestically produced crudes. Frontera anticipates breaking ground in the first quarter of 2024 and connection start-up by end of 2024. Frontera is in the process of securing an additional $30 million in funding, subject to certain conditions precedent, for this project from its existing group of lenders led by Macquarie Group. The financing is expected to close this month. 
• SAARA: During 2024, Frontera successfully completed the pilot phase of the SAARA project with Ecopetrol. Frontera intends to invest in the commissioning of the first phase of the project, the stabilization phase, to reach a minimum of 250,000 barrels of water per day available for the Quifa block, subject to final JV approval.

As part of its risk management strategy, Frontera uses derivative commodity instruments to manage exposure to price volatility by hedging a portion of its oil production. The Company's strategy aims to protect 40-60% of its estimated net after royalties' production using a combination of instruments, capped and non-capped, to protect the revenue generation and cash position of the Company, while maximizing the upside, allowing the Company to take a more dynamic approach to the management of its hedging portfolio. Consistent with this strategy, the Company entered new put hedges totaling 2,574,826 bbls to protect a portion of the Company's production through June 2024. The following table summarizes Frontera's 2024 hedging position as of February 14, 2024.

The Company is exposed to foreign currency fluctuations primarily arising from expenditures that are incurred in COP and its fluctuation against the USD. As of February 14, 2024, the Company had entered new positions of foreign currency derivatives contracts as follows:

Frontera's estimated 2023 average daily production of approximately 40,919 boe/d was in-line with the Company's 2023 production guidance of 40,000-43,000 boe/d and an approximately 1% decrease compared to the Company's 2022 average production. Frontera's estimated average daily production for the fourth quarter was approximately 39,267 boe/d. The lower production during the quarter was primarily the result of lower planned drilling activity, and natural declines in the Company's light and medium oil fields. See the table below for production by product type.

Frontera Energy Corporation is a Canadian public company involved in the exploration, development, production, transportation, storage and sale of oil and natural gas in South America, including related investments in both upstream and infrastructure facilities. The Company has a diversified portfolio of assets with interests in 27 exploration and production blocks in Colombia, Ecuador and Guyana, and pipeline and port facilities in Colombia. Frontera is committed to conducting business safely and in a socially, environmentally, and ethically responsible manner.

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This news release contains forward-looking information within the meaning of Canadian securities laws. Forward-looking information relates to activities, events, or developments that the Company believes, expects, or anticipates will or may occur in the future. Forward-looking information in this news release includes, without limitation, statements relating to the Company's expectations regarding operational and financial progress throughout the year; statements regarding the declaration and payment of quarterly dividends, estimates and/or assumptions in respect of corporate strategy, statements relating to the Company's guidance and objectives for 2024 (including production levels, intended capital investments, production costs, energy costs, transportation costs, operating EBITDA, average Brent prices, capital expenditures and certain income taxes payable by the Company); statements regarding the Company's ability to service its current debt facilities; statements regarding the Company's water handling capacity and anticipated growth in production, including expectations regarding expected impacts of the Company's reverse osmosis water treatment facility (SAARA); anticipated exploration, development and drilling activities and seismic acquisition; statements regarding the construction of the Company's connection project; statements regarding expected production and cash flows; expectations regarding opportunities of the Corentyne block; expectations regarding possible shareholder enhancement initiatives; statements regarding the Company's ESG strategy and the impact thereof;  and expectations with respect to the Company's hedging strategy. All information other than historical fact is forward-looking information.

Forward-looking information reflects the current expectations, assumptions and beliefs of the Company based on information currently available to it and considers the Company's experience and its perception of historical trends, including expectations and assumptions relating to commodity prices and interest and foreign exchange rates; the current and expected impacts of the COVID-19 pandemic, actions of the Organization of Petroleum Exporting Countries ("OPEC") and the impact of the Russia-Ukraine conflict and the Israel-Palestine conflict, and the expected impact of measures that the Company has taken and continues to take in response to these events; expectations regarding the Company's ability to manage its liquidity and capital structure and generate sufficient cash to support operations, capital expenditures and financial commitments; the performance of assets and equipment; the Company's ability to achieve the increased oil and water handling capacity at Quifa in the time frames indicated; the availability and cost of labor, services and infrastructure; the execution of exploration and development projects; the receipt of any required regulatory approvals and outcome of discussions with governmental authorities; the success of the Company's hedging strategy; and the impact and success of the Company's ESG strategies.

Although the Company believes that the assumptions inherent in the forward-looking information are reasonable, forward-looking information is not a guarantee of future performance and accordingly undue reliance should not be placed on such information. Forward-looking information is subject to a number of risks and uncertainties, some that are similar to other oil and gas companies and some that are unique to the Company. The actual results may differ materially from those expressed or implied by the forward-looking information, and even if such actual results are realized or substantially realized, there can be no assurance that they will have the expected consequences to, or effects on, the Company. The Company's annual information form dated March 1, 2023, its annual management's discussion and analysis for the year ended December 31, 2022, and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions and other factors that could influence actual results and such factors are incorporated herein by reference. Copies of these documents are available without charge by referring to the company's profile on SEDAR+ at www.sedarplus.ca. All forward-looking information speaks only as of the date on which it is made and, except as may be required by applicable securities laws, the Company disclaims any intent or obligation to update any forward-looking information, whether as a result of new information, future events, or results or otherwise.

Certain information included in this news release may constitute future oriented financial information and/or financial outlook (collectively, "FOFI") within the meaning of applicable Canadian securities laws. Such FOFI has been prepared by management to provide an outlook of the Company's activities and results and may not be appropriate for other purposes. Management believes that the FOFI has been prepared on a reasonable basis, reflecting management's reasonable estimates and judgments; however, actual results of the Company's operations and the resulting financial outcome may vary from the amounts set forth herein. Any FOFI speaks only as of the date on which it was made, and the Company disclaims any intent or obligation to update any FOFI, whether as a result of new information, future events or otherwise, unless required by applicable laws.

This news release contains various "non-IFRS financial measures" (equivalent to "non-GAAP financial measures", as such term is defined in NI 52-112) and "supplementary financial measures" (as such term is defined in NI 52-112), which are described in further detail below. Such financial measures do not have standardized IFRS definitions. The Company's determination of these financial measures may differ from other reporting issuers, and they are therefore unlikely to be comparable to similar measures presented by other companies. Furthermore, these financial measures should not be considered in isolation or as a substitute for measures of performance or cash flows as prepared in accordance with IFRS. These financial measures do not replace or supersede any standardized measure under IFRS. Other companies in our industry may calculate these financial measures differently than we do, limiting their usefulness as comparative measures.

The Company discloses these financial measures, together with measures prepared in accordance with IFRS, because management believes they provide useful information to investors and shareholders, as management uses them to evaluate the operating performance of the Company. These financial measures highlight trends in the Company's core business that may not otherwise be apparent when relying solely on IFRS financial measures. Further, management also uses non-IFRS measures to exclude the impact of certain expenses and income that management does not believe reflect the Company's underlying operating performance. The Company's management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period and to prepare annual operating budgets and as a measure of the Company's ability to finance its ongoing operations and obligations.

Set forth below is a description of the non-IFRS financial measures and supplementary financial measures used in this news release.

EBITDA is a commonly used non-IFRS financial measure that adjusts net (loss) income as reported under IFRS to exclude the effects of income taxes, finance income and expenses, and DD&A. Operating EBITDA is a non-IFRS financial measure that represents the operating results of the Company's primary business, excluding the following items: restructuring, severance and other costs, post-termination obligation, payments of minimum work commitments and, certain non-cash items (such as impairments, foreign exchange, unrealized risk management contracts, and share-based compensation) and gains or losses arising from the disposal of capital assets. In addition, other unusual or non-recurring items are excluded from operating EBITDA, as they are not indicative of the underlying core operating performance of the Company.

Since the three and six months ended June 30, 2022, the Company changed the composition of its Operating EBITDA calculation to exclude certain unusual or non-recurring items as post-termination obligations and payments of minimum work commitments, which could distort future projections as they are not considered part of the Company's normal course of operations.

The equivalent historical non-GAAP financial measure to 2024 operating EBITDA guidance is operating EBITDA for the year ended December 31, 2022. The most recent period for which financial results are available is the nine months ended September 30, 2023. Net income (loss) is the most directly comparable financial measure to operating EBITDA.

Capital expenditures is a non-IFRS financial measure that reflects the cash and non-cash items used by the Company to invest in capital assets. This financial measure considers oil and gas properties, plant and equipment, infrastructure, exploration and evaluation assets expenditures which are items reconciled to the Company's Statements of Cash Flows for the period.

Production Cost Per Boe, Energy Cost Per Boe, Transportation Cost Per Boe

Production costs mainly includes lifting costs, activities developed in the blocks, and processes to put the crude oil and gas in sales condition and excludes energy costs. Production cost per boe is a supplementary financial measure that is calculated using production cost divided by production (before royalties).

Energy costs mainly includes electricity consumption and the costs of localized energy generation. Energy cost per boe is a supplementary financial measure that is calculated using energy cost divided by production (before royalties).

Transportation costs includes all commercial and logistics costs associated with the sale of produced crude oil and gas such as trucking and pipeline. Transportation cost per boe is a supplementary financial measure that is calculated using transportation cost divided by net production after royalties.

Adjusted Infrastructure EBITDA

Adjusted Infrastructure EBITDA refers to the Adjusted EBITDA for the Infrastructure segment including the proportional consolidation of the 35% equity investment in the ODL pipeline accounted for using the equity method for consolidated financial statement purposes. Adjusted Infrastructure EBITDA is a non-IFRS financial measure used to assist in measuring the operating results of the Infrastructure Segment business.

Reported production levels may not be reflective of sustainable production rates and future production rates may differ materially from the production rates reflected in this news release due to, among other factors, difficulties or interruptions encountered during the production of hydrocarbons.

The term "boe" is used in this news release. Boe may be misleading, particularly if used in isolation. A boe conversion ratio of cubic feet to barrels is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In this news release, boe has been expressed using the Colombian conversion standard of 5.7 Mcf: 1 bbl required by the Colombian Ministry of Mines and Energy.

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SOURCE Frontera Energy Corporation