Frontera Energy Moves To Defend Against Low Petroleum Prices
Petroleum producer Frontera Energy Corporation (TSX: FEC) last week announced responses to the lower oil price environment caused by excess global supply and the Coronavirus COVID-19 pandemic, including a reduction in the 2020 capital plan and acceleration of cost savings initiatives. In connection with these cost savings initiatives, and in an effort to streamline the organization, David Dyck has resigned as Chief Financial Officer, effective March 31, 2020. Dyck will remain with the company for an interim period to assist with transitional matters. On April 1, 2020, Alejandro Piñeros, who previously served as Corporate Vice-President of Strategy & Planning, became Frontera’s Chief Financial Officer.
“In light of the recent rapid decline in oil prices and the impact of the COVID-19 pandemic on the world economy, Frontera is taking swift and decisive measures to protect our people, balance sheet and cash flow in order to best position ourselves when we emerge from the current environment. By virtue of our strong capital discipline, we started this year with a robust cash position, which we are protecting through reduced capital expenditures, additional savings and efficiency improvements, thus managing the risk of an extended period of weaker commodity prices, said board chairman Gabriel de Alba.
Frontera Energy announced that it is currently reducing planned 2020 capital expenditures by around 60% to a range of $130 to $150 million. Those expenditures will be primarily focused on development and maintenance activities in the company’s core assets of Quifa SW, CPE-6 and its light and medium oil business unit in Colombia. Consistent with the company’s long-time focus on disciplined investing, this revised capital plan has been developed with the goal of optimizing production while maximizing the cash balances of the company during this period of lower oil prices. Frontera indicated that it will remain flexible with respect to capital allocation as events unfold in the coming months.
With these changes, revised average annual production in 2020 is expected to be in the range of 55,000 to 60,000 boe/d, a decrease of only 8% compared to 2020 guidance despite the significant decrease in capital expenditures. Frontera has deliberately shut-in a number of wells that are not economic to operate at current prices and will monitor operations continuously to optimize cash generation.
“I’m proud of our team’s accelerated actions to significantly reduce our planned capital expenditures in 2020 and identify further opportunities to decrease operating expenditures across our production portfolio. As a first step, planned 2020 capital expenditures are being reduced by around 60%, focusing on activities that generate positive cash returns at current oil prices. Our investment priorities will be essential well workovers and critical maintenance until market conditions improve and prices have recovered,” said CEO Richard Herbert.
“Frontera is absolutely committed to maintaining its focus on health, safety and the environment. We continue to monitor the rapidly changing COVID-19 outbreak. We have internal protocols and procedures in place and are following national health guidelines to ensure the safety and well-being of our employees in our fields and offices. I would like to join with Gabriel in thanking David for all his contributions to Frontera.”
Frontera is also actively working to reduce production, transportation and G&A costs, and will provide further information on the results of those initiatives as the financial goals are achieved.
Frontera has continued to hedge its production for the remainder of the current year. For the period of March to December 2020, Frontera has, to date, hedged 7.31 million barrels with a combination of Brent oil price-linked purchased put options, zero cost collars, put spreads, and three-way collars. Assuming a flat Brent oil price of $30.00/bbl, the current value of the hedge position is approximately $77 million.
|Type of Instrument||Term||Benchmark||Open
|Put options||Mar. 2020||Brent||0.08||55|
|Put options||Apr. 2020||Brent||0.3||47|
|Put options||Mar-Apr. 2020||Brent||1.49||35|
|Collars||Mar. 2020||Brent||0.46||58.1 / 73.75|
|3-ways||Apr. to Sep. 2020||Brent||3.57||48.6 / 58.6 / 74.5|
|Put Spread||Mar. to Dec. 2020||Brent||1.41||48.5 / 58.5|