Frontera Energy Corporation (TSX: FEC) has delivered estimated third quarter 2019 production of 70,200 boe/d (barrels of oil equivalent per day) in-line with 2019 year to date production of 70,820 boe/d, both of which are above the high end of Frontera’s annual production guidance range of 65,000 to 70,000 boe/d. So far in October, production is over 73,000 boe/d reflecting stable production from Colombia and Peru. Production was weighted over 97% to Brent exposed oil prices, which averaged $62.03/bbl, with Colombia production receiving Vasconia prices, which averaged $2.30/bbl discount to Brent during the third quarter of 2019. This compares to an average Brent oil price in the second quarter of 2019 of $68.47/bbl and a Vasconia discount of $2.03/bbl.
Colombia production averaged an estimated 63,700 boe/d in the third quarter of 2019 a decrease of 1% compared to the second quarter of 2019, reflecting the impact of growth in the heavy oil business unit offset by the managed decline in our light and medium oil and natural gas business units.
The heavy oil business unit saw production growth in excess of 4% quarter over quarter benefiting from increases at Quifa SW where production increased to over 50,000 bbl/d on a gross basis, the highest level since 2015. Continued development drilling and facilities optimization at Quifa SW will help sustain production from the block into 2020. During the third quarter of 2019, 23 development wells were drilled at Quifa, three more than planned, as Frontera continues more efficient drilling in the field and executing the 2019 drilling program with one less rig than originally planned.
The Hamaca field on the CPE-6 block has more than doubled production since the start of the year to over 2,100 bbl/d during the third quarter of 2019. Frontera plans to add a second drilling rig in the field during the fourth quarter of 2019, targeting production growth to more than 3,000 bbl/d by year end as additional water treatment and disposal capacity is added. Five development wells and one successful exploration well were drilled on the CPE-6 block during the third quarter of 2019. In July 2019, Frontera began drilling the Coplero-1 exploration well on the CPE-6 block, adjacent and to the south east of the Hamaca exploitation area. On July 30, 2019, the well reached a MD of 3,150 feet, encountering 8 feet of net oil pay in the Carbonera-7 formation. Petrophysical analysis of the open-hole logs indicate a clean sand system with 32% porosity, permeability of 2.3 Darcys, water saturation of 40% and clay content of 1.6%. The well was completed on August 6, 2019 with an electrical submersible pump and is currently producing at 132 bbl/d of 11-degree API oil with an 85% water cut. To date the well has produced 8,022 bbls. Frontera has planned two additional exploration wells on the CPE-6 block, Galope-1 and Contrapunteo-1, to further delineate the Coplero-1 discovery during the fourth quarter of 2019.
The light and medium oil and natural gas business units had minimal activity during the third quarter, with only two development wells drilled as Frontera awaits permitting and construction of a new drilling pad on the eastern flank of the Coralillo field in the Guatiquia block. Development drilling is expected to re-commence in the first quarter of 2020. During the third quarter of 2019 one development well was drilled in the Coralillo field on the Guatiquia block and is awaiting testing.
At Cubiro, the water flood pressure maintenance and development drilling campaign has been deferred as Frontera re-evaluates the Copa field reservoir model following the Copa Norte 10 water injection well encountering oil earlier this year. During the third quarter one development well was drilled on the Copa field in the Cubiro block.
The natural gas business unit will see a work-over and well service program initiated during the fourth quarter of 2019 with the potential for new natural gas and potential liquids volumes from exploration drilling. Exploration is targeted from the VIM-1 block, where Frontera is in the process of acquiring a 50% participating interest subject to ANH approval, with the La Belleza-1 well currently drilling (with results expected by year end), and from the Guama block expected in 2020. Frontera is targeting to increase production from the Lower Magdalena Valley where it has an underutilized natural gas plant at La Creciente which would lead to an increased contribution of natural gas and liquids in the overall production profile of Frontera.
Frontera drilled 31 wells during the third quarter of 2019, including 30 development wells and one exploration well. During the fourth quarter of 2019, Frontera expects to drill 29 wells including 24 development wells (17 at Quifa including four vertical step-out wells and one multilateral well, four at CPE-6, and three at Sabanero), and five exploration wells (La Belleza-1 on the VIM-1 block, two on CPE-6, and two at Sabanero).
Shareholder Enhancement Initiatives
With the upcoming dividend of C$0.205 per share payable on October 16, 2019, total 2019 dividends to date will amount to $108 million. Frontera’s dividend policy is to pay a quarterly dividend of approximately $15.0 million, during periods in which Brent oil prices sustain an average price of $60/bbl or higher. The declaration of any specific dividend, the actual amount, the declaration date, the record date, and the payment of each quarterly dividend will be subject to the discretion of the Board of Directors.
Frontera uses a combination of Brent oil price linked purchased put options, zero cost collars, put spreads and three-way collars to protect Frontera’s balance sheet and capital program within hedging limits set by the Board of Directors.
For the fourth quarter of 2019, Frontera has hedged an estimated 60% of expected net production with floor oil prices between $57.00/bbl and $60.00/bbl and a ceiling price of $75.43/bbl.
For the first quarter of 2020, Frontera has hedged an estimated 40% of expected net production with floor prices between $55.00/bbl and $58.64/bbl and a ceiling price of $75.58/bbl. This includes an estimated 15% of expected net production being hedged using put spreads with strike prices of $47.00/bbl and $57.00/bbl.
For the second quarter of 2020, Frontera has hedged an estimated 30% of expected net production with floor prices between $55.00/bbl and $57.00/bbl and a ceiling price of $74.68/bbl. The estimated 30% of expected net production being hedged using put spreads (10%) and three-way collars (20%) have strike prices between $45.00/bbl and $47.00/bbl and $55.00/bbl and $57.00/bbl.
Notice of Third Quarter 2019 Results
Frontera has announced a third quarter 2019 operational update and notice of financial results and conference call. Third quarter 2019 results will be released after market on Thursday, November 7, 2019 followed by a conference call for investors and analysts on Friday, November 8, 2019 at 8:00 a.m. (MDT), 10:00 a.m. (EST/GMT-5). Participants will include Gabriel de Alba, Chairman of the Board of Directors, Richard Herbert, Chief Executive Officer, David Dyck, Chief Financial Officer and select members of the senior management team.
Analysts and investors are invited to participate using the following dial-in numbers:
|Participant Number (International/Local):||(647) 427-7450|
|Participant Number (Toll free Colombia):||01-800-518-0661|
|Participant Number (Toll free North America):||(888) 231-8191|
A replay of the conference call will be available until 11:59 p.m. (EST/GMT-5) Friday, November 22, 2019.
|Encore Toll Free Dial-in Number:||1-855-859-2056|
|Local Dial-in Number:||(416)-849-0833|