The company recorded $208.9 million in net sales, a slight increase from $194.5 million in Q1 2024. Total production for the quarter averaged 39,912 barrels of oil equivalent per day (boe/d), up from 38,193 boe/d in the previous quarter. Heavy crude oil production increased to 24,839 barrels per day, while light and medium crude oil production remained stable at 12,583 barrels per day.

Frontera’s $2.8 million net loss is an improvement over its $8.5 million net loss in Q1.

Operational netback per barrel of oil equivalent (boe) improved to $46.40, up from $43.97 in Q1 2024. The company’s operating EBITDA also saw an increase to $110.3 million from $97.2 million in the previous quarter.

Capital expenditures for Q2 2024 were reported at $80.2 million, up from $69.4 million in Q1 2024 but significantly lower than the $154.9 million recorded in Q2 2023. Frontera generated $149.8 million in cash from operating activities, up substantially from $65.6 million in the previous quarter.

Frontera continues to advance its exploration activities in Guyana, working with its joint venture partner and engaging in discussions with the Government of Guyana. The company is exploring strategic options for the Corentyne block with the support of investment bank Houlihan Lokey.

Frontera Energy Corporation is a Canada-based oil and gas company focused on exploration and production in Latin America. The company’s primary operations are in Colombia, Ecuador, and Guyana.

Above photo: Frontera Energy’s Quifa field in Meta, Colombia (courtesy Frontera)

The figures included in this report were extracted from the Company’s unaudited financial statements. The financial information is expressed in billions of Colombian pesos (COP), or US dollars (USD), or thousands of barrels of oil equivalent per day (mboed) or tons, as noted. For presentation purposes, certain figures in this report were rounded to the nearest decimal place.

In words of Felipe Bayón Pardo, CEO of Ecopetrol:

“The results for the third quarter of 2021 confirm Ecopetrol’s technical, operational, and financial capacity to seize the favorable price environment. They also evidence the benefits of the structural adjustments that we have implemented in response to recent challenges. With the culmination of the purchase of a controlling 51.4% stake in Interconexión Eléctrica (“ISA”), the quarterly figures include the consolidated results of this subsidiary for one month, which represents a transformational milestone that allows us to present the results of the new Ecopetrol Group for the first time.

During this quarter, we continued delivering record results, with a consolidated revenue of COP 23.3 trillion, a net income of COP 3.8 trillion and an EBITDA of COP 10.4 trillion (EBITDA margin of 44%). In the first nine months of the year, our consolidated revenue amounted to COP 60.0 trillion, a net income of COP 10.6 trillion (6.3 times the net income generated throughout 2020), and an EBITDA of COP 28.0 trillion (EBITDA margin of 47%).

On the commercial front, we highlight the improvement in the realization price of our crude oil basket, which went from 38.4 USD/Bl in the third quarter of 2020 to 68.0 USD/Bl in the third quarter of 2021, demonstrating the good results of the strategy for diversification of destinations and close relation with our customers, in addition to the operational flexibility of the company by consolidating the delivery at place (DAP) mechanism. Additionally, we highlight the signing of diesel and motor gasoline supply contracts with wholesale distributors, a milestone that represents a referent for the industry and marks the beginning of a new commercial stage that consolidates the liquid fuels distribution chain in the country.

Exploration

The Liria YW12 well stands out, which proved the presence of hydrocarbons in a new structure near a production field, being a milestone that continues to drive our exploration activity in the Piedemonte Llanero. Ecopetrol and its partners completed 10 wells during the first nine months of the year, exceeding the target of 9 wells for 2021. The accumulated production of the exploratory assets accounted for more than 1.2 million boe at the end of the third quarter of 2021 (4,517 boed on average), with 67% of the production corresponding to oil and 33% to gas. Additionally, in August the Flamencos-1 and Boranda discoveries, located in the Middle Magdalena Valley, were declared commercial, which are part of the “Near Field Exploration” strategy in areas close to existing infrastructure that seeks the incorporation of production and reserves in a short period of time. In the international field, and in line with the growth and geographic diversification strategy of the Ecopetrol Group, our subsidiary, Ecopetrol Óleo e Gás do Brasil, acquired a 30% stake in the block S-M-1709, located in the Santos basin in Brazil during the “Rodada 17” bidding session organized by the National Petroleum Agency (ANP for its Portuguese acronym). The acquisition of this block, which will be operated by Shell, is focused on the basins with the highest potential in the continent.

Production

The Ecopetrol Group continues its recovery path, after experiencing a significant impact during the first half of the year associated with operating restrictions in the Castilla field and the public order situation in Colombia. During the third quarter, production reached 683.6 mboed, accounting for a growth of 3.5% when compared to the second quarter. Some of the relevant milestones of the quarter are: i) full production stabilization in the Castilla field, ii) normalization of production, previously affected by roadblocks due to public order disturbances in the second quarter of the year, and iii) the contribution from the new Flamencos-1 and Boranda commercial discoveries. Given the average production level for the quarter and the projections for the fourth quarter of the year, we estimate the 2021 yearly production to be around 680 mboed.

Natural gas and LPG

Production experienced an increase of 3.5% in the third quarter of 2021 compared to the same period of the previous year, as a result of higher sales volumes from Ecopetrol, Hocol, and Permian, primarily associated with a recovery in demand. During the third quarter, the contribution of gas and LPG to the Group’s total production was 20.6%, with a combined EBITDA margin of 60.0%.

Permian

Operations continue to advance according to plan, employing 4 drill rigs and 2 completion crews. We drilled 22 wells in this quarter, for a total of 69 so far this year. In addition, 16 new wells started production, for a total of 91 wells in production (22 in 2020 and 69 in 2021). It is worth highlighting that the level of production of the operation already exceeds 50.0 mboed, generating 24.4 mboed before royalties for Ecopetrol in the third quarter (equivalent to net 18.9 mboed after royalties).

Unconventionals

In terms of the Comprehensive Research Pilot Projects in Unconventional Reservoirs (PPII) Kalé and Platero, we continue advancing with the work schedules according to plan. On October 29, we submitted PPII-Kalé’s Environmental Impact Assessment (EIA) to the National Authority for Environmental Licensing (ANLA for its Spanish acronym), and on July 8, we conducted the first territorial dialogue and environmental monitoring as requirements for filing PPII-Platero’s EIA. To date, 450 dialogue and educational meetings have taken place within the influence area.

Midstream

In the midstream segment, during the quarter we transported 1,012.2 mbd, which represented a recovery of 52.3 mbd compared to the immediately previous quarter. The volume transported during the first nine months of the year was 993.3 mbd, a decrease of 2.0% compared to the same period of 2020, as a result of a lower production of crude oil in the country, mainly in the Llanos area.

In terms of renewable energy self-generation in the segment, in September we started operating six new solar plants at the stations of Baranoa, Miraflores, Mansilla, Tocancipá, Yumbo, and Pereira, in order to reduce approximately 513 tons of CO2 per year, also in line with our decarbonization targets by 2050. Similarly, we finished the construction of the San Fernando Solar Park last October 22, 2021, which will provide 61 MWp of available capacity and it is considered the largest renewable energy self-generation facility in the country.

Regarding transportation disputes, the agreement announced by Frontera, CENIT and Bicentenario on November 17, 2020, was approved by the Administrative Tribunal of Cundinamarca by means of an order that was notified on November 5 of 2021. It is important to mention that the agreement has a favorable opinion from the Attorney General’s Office (Procuraduría General de la Nación), received on March 24, 2021, also, it puts an end to all disputes between the parties regarding to the transportation contracts for the Bicentenario Pipeline and the Caño Limón – Coveñas Pipeline, as well as other contracts for storage and port services. With this agreement, all existing arbitration proceedings arising from these disputes are concluded.

Downstream

The downstream segment continued with the positive trend observed throughout 2021, with a consolidated throughput of 358.0 mbd and an integrated gross margin of 9.5 USD/Bl as of September 2021. This segment closed the third quarter with a throughput of 353.8 mbd and an integrated gross margin of 9.0 USD/Bl, respectively. These results are largely attributable to: i) the improvement of the refined products basket, in line with the generalized increase in demand due to the reactivation of the productive sector, ii) selling of inventories due to a favorable price environment and the positive operating performance at the Barrancabermeja refinery, iii) the adoption of commercial strategies at Esenttia to mitigate the weakening of the Polypropylene Margin, iv) the stability of Invercolsa as a result of higher natural gas sales and installations, and v) the segment’s cash cost stability. The aforementioned, despite the operational events originated at the Cartagena refinery during the quarter, which have already been solved.

ISA Acquisition

In the new electric power transmission and toll roads segment (which arose out of our acquisition of ISA) only consolidates one month of results into the quarter, we highlight the following: i) in the electric power business, the entry into operation of three projects (in Chile, Brazil, and Colombia), as well as the granting of the Environmental license for the UPME07-2017 Sabanalarga-Bolívar 500 kV project in Colombia, and ii) in the road concessions business, the construction of eight projects continued in Colombia and Chile, which will add 246 km to the existing road network.

It is important to note that a Transition Management Office (TMO) was established, which has made possible the transition process from ISA to the consolidation and reporting of the Ecopetrol Group. The main efforts in the last 12 weeks since the acquisition have been focused on ensuring compliance with the legal and regulatory requirements associated with accounting consolidation, reporting, and financial planning processes, as well as matters related to compliance and corporate governance. The next steps will be aimed at prioritizing opportunities and synergies to accelerate the capture of joint value.

Environmenta, Social, Governance

In TESG, we continued to make progress in each pillar of the strategy throughout the year.

In the environmental front, particularly in renewable energy projects, Ecopetrol was included as a relevant participant in the Colombian Hydrogen roadmap launched by the Ministry of Mines and Energy on September 30. Moreover, we highlight the contract entered with South Pole on August 6, 2021, who will be our structuring partner for the Nature-Based Solutions projects, and the Cooperation Agreement signed with The Nature Conservancy, which seeks to leverage the implementation of the Ecopetrol Group’s decarbonization plan. As of September 2021, we had fulfilled 79% of the goal established for 2021 within the framework of the “Sembrar Nos Une” national initiative with 3,149,716 trees planted.

In the social dimension, during the first nine months of the year, the Company allocated social investment resources for a total of COP 269 billion in strategic and mandatory investments. Similarly, by means of the “Obras por Impuestos” (Works in lieu of Taxes) mechanism, we completed 25 projects by the end of the third quarter, with a total value of COP 201 billion, mainly focused on the improvement of roads and endowments to student residences. Additionally, Ecopetrol’s Diversity and Inclusion Program was granted the Equipares-Icontec Silver Seal, highlighting the communications efforts carried out within the framework of this program due to its coherence, assertiveness, connection, and impact as a fundamental pillar for the strategy.

In corporate governance, the TMO team appointed within the Company has been presenting on a regular basis the developments around the successful incorporation of ISA into the Ecopetrol Group to the Board of Directors, in line with our commitment to advance in a transition that ensures the continuity of the strategy and the robustness of Ecopetrol and ISA’s governance principles. Identifying and aligning the best practices of both companies will ensure the implementation of a corporate governance structure that stands out for its experience and transparency. Last October 22 of 2021, ISA’s extraordinary General Shareholders’ Meeting took place, in which new Directors were appointed and Ecopetrol exercised its right to nominate candidates in virtue of the controlling position it currently holds on ISA.

In digital transformation, we have captured benefits in the digital agenda for a total of USD 36.5 million by the end of the third quarter of 2021, with advancements in the digital agenda, digital factories, intelligence, and innovation projects.”

Ecopetrol is the largest company in Colombia and one of the main integrated energy companies in the American continent, with more than 17,000 employees. In Colombia, it accounts for more than 60% of hydrocarbon production, and most of the hydrocarbon transportation, logistics, and refining systems, and has leading positions in petrochemicals and gas distribution. With the acquisition of 51.4% of ISA’s shares, it participates in energy transmission, management of real-time systems (XM) and the Concesión Costera Barranquilla – Cartagena. At the international level, Ecopetrol focuses on strategic basins on the American continent, with E&P operations in the United States (the Permian basin and the Gulf of Mexico), Brazil and Mexico, and through ISA and its subsidiaries it has leading positions in the transmission business in Brazil, Chile, Peru and Bolivia, in road concessions in Chile, and in telecommunications.

So instead let’s look elsewhere.

Colombia’s COVID numbers are still far too high, a new record last Thursday. Fortunately we haven’t had to go the Peruvian route of tripling the official death-count, however at the same time the country is edging up the global table and on a daily basis is within the top ten of new fatalities. Nonetheless, the country is planning to re-open over the next week or so. City mayors are already drawing up their ‘Reactivation plans’ for the economy. This will include colleges and bars, and there will also be less testing for both domestic and international flights.

There is of course some trepidation: the vaccination program is moving ahead slowly but in a structured fashion. Fortunately, Colombia has a very young population when compared with the developed world and therefore the elderly and vulnerable have been inoculated relatively quickly. Before long, the <50’s will be called and hopefully that will mean that death rates will come down quickly.

________________________________________

One area that has been impacted by COVID and the more recent disturbances is the oil sector, with production being hit just at the moment when global prices are returning to respectable levels.

Whilst the Ministry of Mines reported that at the end of 2020, Colombia still had 6.3 years of reserve life, unchanged from 2019; the fact is that this is the consequence of 2020 production being the lowest since 2010 and also that the reserve figure for 2020 is actually lower than that registered in 2018.

The latest export data for April provides little conclusive evidence given the easy comparison with 2020. There was a rise of 108% FOB to $800 million USD – however there was a decline of 27% in terms of tonnage which fell to 2 million tons. According to Tanker Trackers there has been a pickup in May due to Chinese demand and refineries coming back online, but the market will await the formal data from DANE (Colombian statistics agency) in a few weeks.

Rupert’s opinions & analysis as an independent expert contributor are his own and not necessarily those of Finance Colombia or the BVC.

At a micro level we find logistical problems for all producers, from Ecopetrol down to smaller operators such as Geopark and Frontera, being caused by the recent demonstrations and road blockages. None of this helps the overall situation. On top of the logistical issues, Ecopetrol has also suffered a downgrade from S&P who removed their investment grade rating, however analysts don’t feel it will impact capex in the short-medium term.

Whilst oil is threatening to become the new coal in terms of popularity, it is important for Colombia in the short term to maintain production at optimal levels in order to capitalize on the anticipated forthcoming global economic rebound.

________________________________________

Another area affected by the recent protest is that of urban employment – the anticipation was that in April there would be a continuation of the downward trend, however that wasn’t to be the case.

Consensus was for a 16.4% reading, down from 16.8% in March – however the final number was 17.4%. That is much lower than the 23.47% in April 2020, however if we dial back further to April 2019 we find 11.14%.

Some of the impact is unquestionably due to the recent upheaval however there has been a more general sluggishness ever since the COVID crisis started to abate. The caveat as ever is that close to 50% of Colombian employment is ‘informal’ and therefore water-tight analysis is very complicated.

The same has been true of Total Unemployment which gauges the whole country. In April 2019 the number was 10.33%, in 2021 it was 15.05%. These numbers also reveal another separate weakness in the system: women continue to suffer disproportionately. A year ago we can see that the overall number was at 14.6% (Male 11.9%, Female 18.4%) – today we find that for men the number remains at 11.9% whilst those for women have risen to 19.9%.

There have been various announcements from both the national and regional administrations with regards to employment programs however the proof will be in the pudding, especially when it comes to women.

________________________________________

Market flows for the month of May were impacted by the formal re-balance from the COLCAP to the MSCI COLCAP. Volume on that day totaled US$250 million, the highest for some considerable time.

Foreigners were the most active during the month with 43.6% of total volume – after that it was AFPs (17.5%) & Brokerage Firms (17%). In terms of direction, foreigners were the only sizable net sellers (US$75mn) – AFPs took up the slack with US$77mn in net purchases. The other sectors were relatively neutral in terms of buys/sells.

________________________________________

Finally returning to the current crisis, President Duque insists that Tax Reform II will be one of consensus and Finance Minister Restrepo repeated that it is the highest priority…but observers are already asking why is it taking so long ?

There is frustration at the apparent lack of progress, given the amount of items that have been ruled out of the reform, this should have been a fairly quick process. If the option of repatriating some of the international reserves is to be ignored then there is only a short list of resources that can be used.

There is little hope of the bill even being presented before Congress heads to the beach in a few weeks and Finance Minister Restrepo has already alluded to that. However this needs to be on the table as soon as they return in July. S&P has acted, Moody’s has indicated displeasure, and Fitch is just one notch from moving Colombia to junk – it’s time to finish with the consultancy and submit the bill.

________________________________________

That is about it for today – remember these are just themes that jump out at me – please refer to your local analyst, economist, salesperson or soothsayer for more details.

My regards to all,

Roops

 Date: 21-25 June 2021

Organizer: Vostock Capital

Web site: https://bit.ly/3xhxHBS

The 3rd Colombia Oil & Gas Online Business Congress and 1-2-1 meetings is an international business platform, bringing together flagship oil and gas companies from Latin America and world suppliers for the industry. The Colombia Oil & Gas 2021 Online Business Congress enables executives to continue networking, share ideas and experience, & work out anti-crisis solutions in a safe virtual format.

Request the brochure

Congress Highlights:

 250+ decision-makers of Oil and Gas industry from Colombia and all-over Latin America

Colombia, Ecuador, Brazil, Peru, Argentina, etc., as well as government officials, regulatory bodies, project owners, technology and service providers, international and local investors

 Strategic Opening Session – Government Plans to Strengthen the Oil and Gas Industry in Colombia in the Post-Pandemic Times

New governments strategies, plans of projects initiators, operators, and investors

 Major Oil and Gas Projects of Colombia and LATAM: Status and Updates in Current Economic Situation

Upcoming, ongoing, and planned projects in the region; identification of the new strategies of the key companies to survive in this new economic situation?

• Breakthrough Innovations for Oil and Gas Industry in the region

Innovative technologies, equipment, and services, discussions on what technology is needed for the optimization of the projects.

• Attracting Potential Investors and Financial Opportunities to the Oil and Gas Industry in Colombia and LATAM.
• Hotline with business experts!

Ask your burning questions, call for advice, and share your experience during and after sessions!

 Online 1-2-1 Meetings and Business Networking

Connect with industry leaders while working from home

Request the brochure

 Among the regular participants: EcoPetrol, Biomax, ANH, Campetrol, CEPSA, Emerald Energy, ConocoPhillips, CleanEnergy Resources, Canacol, Trafigura, GranTierra Energy, TGI, InterOil, ProGasur, PromiGas, Equion, Hupecol, Mompos Oil, PDVSA, Refineria Sebastopol, Proma, Chevron, Repsol, Terpel, NGEC, Tenaris, MCDERMOTT, Frontera, Shell, Petrobras, Interoil, Garrido, AECOM, Montagas, ABC, CruzSur, Siemens, Wattle, Petro Colombia, Halliburton, Sacyr, Mansarovar, Spiecapag, Bridgemaster, Tracerco, TPC, IBM, Posneft, Honeywell, Tecpetrol and many more.

Organizing Committee Contact:
Catalina Velasco,

LatAm Marketing Manager
cvelasco@vostockcapital.com

Official website: https://bit.ly/3xhxHBS 

Sponsored content

Click here for more information or to register.

Online Forum participants will benefit from

• Prescheduled One-on-One meetings in virtual rooms
• Prescheduled brief presentations and meetings
• Online platform that allows to ask, comment, discuss in a chat room or by video call
• Closed One-on-One chat rooms with all participants available
• Closed Online VIP-club for C-suite
• Enlarged delegations from Latin America Oil & Gas companies
• ZOOM-cocktail party and other options for informal networking!

Forum highlights:

• Online One-on-One Meetings and Business Networking – connect with industry leaders while working from home.
• Online networking, virtual bar and zoom-cocktail party, online VIP-club for C-suite, and a lot more.
• Hotline with business experts: Ask your burning questions, call for advice, and share your experience during and after sessions.
• 400+ senior executives of growth and major Oil and Gas companies from Colombia and the rest of Latin America, investment projects, technological leaders, and industry experts
• Strategic plenary session and discussion: Colombia´s oil and gas industry revival. What are the most effective short-term and long-term anti-crisis and risk management strategies? What is the best strategy in the time of uncertainty and turbulence?
• Special focus: interactive parallel technical discussions – pose your burning questions about geological exploration, uncapping unconventional resources and monetizing oil and gas to your peers from Oil and Gas companies from Colombia and Latin America
• Innovation for Colombia´s Oil and Gas Industry: How to optimize costs and improve efficiency in current market situation?
• Case Studies. Success formulas and candid tips from industry leaders: productivity growth, optimization of production processes, and much more

A safe online platform: Stay connected with colleagues and experts from your home office

Among the regular participants: EcoPetrol, Biomax, ANH, Campetrol, CEPSA, Emerald Energy, ConocoPhillips, CleanEnergy Resources, Canacol, Trafigura, GranTierra Energy, TGI, InterOil, ProGasur, PromiGas, Equion, Hupecol, Mompos Oil, PDVSA, Refineria Sebastopol, Proma, Chevron, Repsol, Terpel, NGEC, Tenaris, MCDERMOTT, Frontera, Shell, Petrobras, Interoil, Garrido, AECOM, Montagas, ABC, CruzSur, Siemens, Wattle, Petro Colombia, Halliburton, Sacyr, Mansarovar, Spiecapag, Bridgemaster, Tracerco, TPC, IBM, Posneft, Honeywell, Tecpetrol and many more.

Organizing Committee:
Vostock Capital Team,
Tel:     +7 495 109 9 509
Fax:    +44 207 231 1600
Email: events@vostockcapital.com
Web:  https://colombiaoilandgas.co/

1. Delivering sustainable levels of production and reserves in Frontera’s core Colombian operations;
2. Ensuring that the capital expenditures in core operations have strong financial returns;
3. Pursuing continuous operational improvements and greater cost efficiencies;
4. Creating opportunities for future growth in production and reserves through new exploration and development activities.

These objectives, combined with flexible capital allocation, are expected to enable the company to maximize shareholder returns. Annual budgets are developed and scrutinized throughout the year and changed if necessary, in the context of project returns, product pricing expectations, and the balancing of project risks and time horizons.

Outlook for Operating EBITDA in Excess of Capital Expenditures Provides Excess Cash for Maximizing Shareholder Value

“Frontera’s 2020 plan demonstrates the Company’s continued confidence in its ability to generate strong excess cash with EBITDA significantly exceeding capital expenditures. Our midpoint operating EBITDA guidance of $425 million is $75 million above the midpoint of capital expenditures guidance. The capital program continues to invest $250 million per year to sustain production and reserves in Colombia. We are investing an additional $75 million in major exploration opportunities offshore Guyana and onshore in Ecuador and Colombia which is targeted to deliver production and reserves growth, for the Company over the medium-term,” said Gabriel de Alba, Chairman of the Board of Directors.

“As announced in our third quarter 2019 results, Frontera has had a strong 2019 and remains on track to deliver fiscal year results that are at the favorable end of guidance metrics. Year to date, we have made dividend distributions to shareholders of $108 million and the Company’s balance sheet remains very strong with over $442 million of total cash, including restricted cash, at the end of the third quarter, added de Alba.

Frontera also announced the appointment of Mr. René Burgos Díaz to the Board of Directors. With this appointment, the company’s board is at eight members, all of whom are independent. Mr. Burgos Díaz is a financial markets executive with approximately 20 years of experience in investment management, leveraged financing, restructuring and financial advisory expertise across multiple industries and geographies, specifically in Latin America. Mr. Burgos Díaz’s career has included the position of Director in the Emerging Markets team at CarVal Investors, a leading global alternative investment management firm with $10 billion in assets under management. Prior to CarVal Investors, Mr. Burgos Díaz also held roles at Deutsche Bank and Bank of America, including the role of Director with Deutsche Bank’s Emerging Markets Structured Credit Trading team. Mr. Burgos Díaz holds a Bachelor of Business Administration, Accounting and Finance from the Universidad de Puerto Rico.

“I would also like to welcome René Burgos Díaz to Frontera’s Board of Directors. He will be joining the Board as an independent director and as our eighth member. René is very knowledgeable about Frontera and the Latin America oil and gas sector, particularly through his time at CarVal Investors. His understanding of the Company, combined with significant capital markets’ knowledge, makes René a valuable addition to our Board,” said de Alba.

 Transformational Exploration Opportunities to be Executed in 2020 in Colombia, Guyana and Ecuador

Frontera CEO Richard Herbert added: “Frontera built on its track record of delivery in 2019, with stable production, focused reduction of costs and strong cash generation. We have also grown our portfolio with new exploration opportunities in Colombia, Ecuador, and Guyana, providing Frontera with excellent growth opportunities in the future.”

“Our 2020 plan reflects the continuing benefits of cost savings and efficiency projects combined with exciting exploration opportunities. During 2020 the company plans to test some of its most promising exploration opportunities, for natural gas in northern Colombia in the first quarter, exploration in the CPE-6 heavy oil block in Colombia in the second quarter, exploration offshore Guyana in the third quarter and our first exploration well in Ecuador in the fourth quarter.”

“Our expected 2020 production reflects the impact of the scheduled expiry of the service contract on Block 192 in Peru in March 2020. Even with a lower assumed Brent oil price of $60/bbl for 2020, we are maintaining our operating EBITDA and capital expenditures guidance with our original 2019 plan, as we again generate more cash than is needed to sustain and grow the business. In Colombia, we will invest in growing production from CPE-6 following successful exploration and horizontal development well drilling in 2019. With the availability of a new well pad, we will resume appraisal drilling on the Coralillo light and medium oil field in the Guatiquia block and continue our successful efforts to mitigate decline in the Quifa field,” added Herbert.

2020 Guidance Metrics:

Frontera expects to deliver 2020 Operating EBITDA guidance that is flat with original 2019 guidance, despite an 8% decrease to its Brent oil price assumption of $60/bbl in 2020 compared to $65/bbl in 2019. The company has used an average oil price differential in 2020 of $4.00/bbl, slightly above realized differentials in 2019, reflecting improved production in Venezuela and the impact of International Marine Organization 2020 regulations. The Brent less WTI spread is estimated at $5.00/bbl for the purposes of estimating high priced royalties paid in kind at Quifa.

Average annual production in 2020 is expected to be in the range of 60,000 to 65,000 boe/d. Peru production will be impacted by the scheduled expiry of Frontera’s service contract for Block 192 in March 2020. Frontera is entitled to sell pipeline inventory following the relinquishment of the contract which will result in sales volumes in 2020 in Peru being similar to those in 2019.

2020 Capital Expenditure Program:

Capital expenditures are expected to be flat in 2020 compared to 2019 with an increasing mix of exploration growth capital and a reduction in facilities and infrastructure spending.

Development Drilling Projects:

• Facilities expansion at CPE-6 combined with continued horizontal well development drilling expected to increase average production from 1,500 bbl/d in 2019 to over 4,000 bbl/d in 2020, with exit rate 2020 production targeted at over 6,000 bbl/d.
• Continued deployment of AICD subsurface water diversion devices throughout the Quifa development drilling program as well as continued vertical and deviated development drilling with the purpose of expanding the Quifa field limit.
• Appraisal drilling at Cajua in the ongoing evaluation of a new field area within the Quifa North block.
• Continued development of Coralillo field on the Guatiquia block with appraisal drilling to evaluate the eastern part of the block with the potential for multiple productive reservoir intervals.
• Evaluation of the updated reservoir model of the Copa fields within the Cubiro block to recommence the water flood pressure maintenance project or additional development drilling.

Exploration Projects:

• Near field exploration in Colombia, on existing producing blocks, building on successes in 2019, where the Company has a success rate of over 90% on blocks including CPE-6, Sabanero, Quifa North, and Mapache.
• The drilling of two exploration wells offshore Guyana, one well on each of the Demerara and Corentyne blocks, expected during the third and fourth quarters. The Company, along with its joint venture partner, CGX Energy Inc., expects to select drilling locations for each block during the first half of the year. Additionally, during the first half of 2020 the Company will be providing a resource report for the two blocks offshore Guyana.
• In Ecuador, the Company will drill the Jandaya-1 exploration well on the Perico block, expected in the fourth quarter, as well as the acquisition, interpretation and processing of a 3D seismic program on the Espejo block.
• Drilling in the Lower Magdalena Valley on the Guama block targeting natural gas and natural gas liquids with the Asai-1 exploration well and Asai Shallow-1 exploration well.
• Continued exploration drilling to the north and south of the Hamaca field on the CPE-6 block, following on from exploration successes during 2019.

Hedging Program:

For 2020, Frontera has, to date, hedged approximately 30% of expected production with a combination of Brent oil price linked purchased put options, zero cost collars, put spreads, and three-way collars at strike prices above $55/bbl Brent between January and September 2020. In order to hedge oil prices, Frontera says it will use a variety of financial instruments on a go-forward basis sufficient to protect the company’s capital program and financing costs, as well as potential future dividends.

Update on Normal Course Issuer Bid and Dividend:

During October and November 2019, the Company repurchased 722,300 shares at an average price C$10.71/share or  $5.9 million under the company’s ongoing Normal Course Issuer Bid which expires on October 17, 2020.

On November 7, 2019, the company announced a regular quarterly dividend of C$0.205 to be paid on or about January 17, 2020 to shareholders of record on January 3, 2020.

As previously announced, the principal amount outstanding under the bridge loan is convertible at a price of USD $0.22 per share (being the US dollar equivalent of CDN $0.29, which was the closing price of the common shares of CGX prior to the December 4, 2018 announcement of the amendment to the bridge loan).

As a result of conversion of the loan, Frontera will acquire an additional 40,000,000 common shares of CGX (representing approximately 17.23% of the issued and outstanding common shares on a non-diluted basis). Immediately prior to the conversion of the loan, Frontera beneficially owned and/or exercised control or direction over 157,383,129 common shares (representing approximately 67.78% of the issued and outstanding common shares on a non-diluted basis), and if all convertible securities held by Frontera were exercised, 212,392,155 common shares (representing approximately 73.95% of the issued and outstanding common shares on a partially-diluted basis).

Immediately following the conversion of the bridge loan, Frontera will beneficially own and/or exercise control or direction over 197,383,129 common shares (representing approximately 72.51% of the issued and outstanding common shares on a non-diluted basis), and if all convertible securities held by Frontera were exercised, 212,392,155 common shares (representing approximately 73.95% of the issued and outstanding common shares on a partially-diluted basis).

CGX Energy is a Canadian-based oil and gas exploration company focused on the exploration of oil in the Guyana- Suriname Basin. Frontera Energy Corporation is a Canadian public company and a explorer and producer of crude oil and natural gas, with operations focused in South America. Frontera has a diversified portfolio of assets with interests in more than 40 exploration and production blocks in Colombia, Peru, Ecuador and Guyana.

The Llanos-99 block includes 134,900 acres within the prolific Llanos basin in Colombia on trend with fields that produce medium to light crude oil from the C-5 and C-7 zones within the Carbonera formation. The company has preliminarily identified two prospective locations on the block with plans to start the environmental permitting process for the required 3D seismic program as soon as practicable with the goal of an exploration well to be drilled in 2021. Under the terms of the award of the block, Frontera is committed to undertaking a 61 km² 3D seismic survey and one exploration well.

Richard Herbert, Chief Executive Officer of Frontera commented: “We are pleased with the initial results of the ANH bid round and look forward to participating in the ongoing permanent process in Colombia where we expect to see two more bid rounds in 2019. The Llanos-99 block is a typical medium and light oil block in the Llanos basin, which is the core area of Frontera’s portfolio and where we have had a significant amount of exploration success in the past.”

Frontera also announced that its board of directors has declared a dividend of $0.205 Canadian dollars per common share, which will be paid on or about July 17, 2019 to shareholders of record at the close of business on July 3, 2019. The company’s board of directors also amended its dividend policy to increase the quarterly dividend by 20% from US$12.5 million to approximately USD $15 million during periods in which Brent oil prices sustain an average price of USD $60/bbl or higher. The declaration and payment 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 Company’s board of directors.

The dividend is designated as an eligible dividend under the Income Tax Act of Canada.

The dividend is eligible for Frontera’s dividend reinvestment plan to provide shareholders of Frontera who are resident in Canada with the option to have the cash dividends declared on their common shares of Frontera reinvested automatically back into additional shares, without the payment of brokerage commissions or service charges. Participation in the Plan is optional.

The results of the director election vote are set out below:

Richard Herbert, Chief Executive Officer of Frontera, commented: “Frontera stabilized its core production base in 2018 as Frontera Energy began enhancing the portfolio to deliver growth. As planned, we replaced over 100% of produced reserves in 2018, which was enabled by the completion of the Quifa water handling expansion project, as well as exploration successes at Alligator and Coralillo in the Guatiquia block and Jaspe in the Quifa North area. Significant investment in Colombia in 2018 has contributed to a strong start in 2019, particularly in the Quifa SW field with new water handling facilities in operation. In addition, after last year’s interruptions, production from Block 192 in Peru has recently restarted. As it returns to peak levels, total company production is the strongest it has been in over a year. With solid production and cash flow generation, we are executing a number of initiatives to drive production and reserves growth including; successfully being awarded two highly prospective blocks in an exploration bid round in Ecuador, and testing the deliverability of natural gas production from our Z-1 block, offshore Peru. We are also very excited by upcoming drilling on the VIM-1 block in Colombia and on the Corentyne block offshore Guyana later this year.”

The Toronto based company with significant petroleum assets in Colombia and other parts of South America, also announced last week that it has acquired 101,316,916 common shares of CGX Energy Inc. (TSXV:OYL) in connection with the rights offering previously announced by CGX on February 1, 2019. The aggregate purchase price for the common shares was $25,329,229 (or $0.25 per common Share). As consideration for providing a standby commitment in connection with the rights offering, the company also received 15,009,026 5-year warrants to purchase up to 15,009,026 common shares at an exercise price equal to $0.415 per common Share.

Prior to the issuance of the common shares and the warrants, Frontera owned or exercised control over 56,066,213 common shares on a non-diluted basis (representing approximately 48.29% of the issued and outstanding common shares on a non-diluted basis) and 96,066,213 common shares on a partially-diluted basis, assuming the conversion of the US$8,800,000 bridge loan, but excluding the rights to acquire common shares under the Rights Offering then held by Frontera (representing approximately 61.54% of the issued and outstanding common shares on a partially-diluted basis).

Immediately after the issuance of the common shares and warrants, Frontera owns or exercises control over 157,383,129 common shares on a non-diluted basis (representing approximately 67.78% of the issued and outstanding common shares on a non-diluted basis) and 212,392,155 common shares on a partially-diluted basis, assuming the exercise or conversion of the warrants and the US$8,800,000 bridge loan (representing approximately 73.95% of the issued and outstanding common shares on a partially-diluted basis), resulting in a 12.41% increase in Frontera’s holdings of common shares on a partially-diluted basis.

Dividends

• On December 5, 2018, Frontera Energy’s Board of Directors declared a dividend, payable on January 17, 2019 of C$0.33 per share (approximately $25 million in aggregate), to common shareholders of record on January 3, 2019.
• On March 13, 2019, Frontera Energy’s Board of Directors declared a dividend, payable on or about April 16, 2019 of C$0.165 (approximately $12.5 million in aggregate), to common shareholders of record on April 2, 2019.

Gabriel de Alba, Chairman of the Board of Directors of Frontera Energy, commented: “Thanks to substantial progress by the Frontera team in 2018, Frontera Energy is better positioned than ever to deliver returns to shareholders. With improved capital allocation and a plan to sustain production and reserves from our existing production base at current levels for the next five years – both of which we’re already delivering on – Frontera can generate sufficient cash flow to drive growth initiatives in the upstream business, as well as take steps to further enhance shareholder returns, as oil prices permit. Continuing on our progress in reducing G&A in 2018, we are pursuing additional opportunities to improve the efficiency and cost structure of the business, especially in the field, and to monetize non-core assets.  These actions will generate additional cash flow and capital for growth and enhanced equity returns. Frontera is off to a positive start in 2019. Production is strong, Brent oil prices are averaging close to $63.00/bbl, in line with our guidance, and Frontera Energy is currently benefiting from narrow oil price differentials.”

FOURTH QUARTER AND FULL YEAR 2018 HIGHLIGHTS

Strong Fourth Quarter Operational and Financial Results

• Production averaged 71,924 boe/d, an increase of 8% compared to the third quarter of 2018 and a 3% increase compared to the fourth quarter of 2017.
• Oil production represented over 95% of total company production in the fourth quarter of 2018, compared to 94% in the third quarter of 2018 and 92% in the fourth quarter of 2017.
• Net loss of $116.6 million ($1.17/share) in the fourth quarter of 2018 includes $143.9 million of non-recurring charges relating to payments under terminated pipeline contracts, impairments on infrastructure investments, oil and gas assets and on the carrying values of investments in associates offset by the benefit of the reversal of provisions related to high-price clause. This compares to a net loss of $32.5 million ($0.33/share) in the fourth quarter of 2017 which included a net benefit $63.8 million from the reversal of a provision related to high-price clause, offset by impairments on oil and gas assets and transmission line assets. Refer to notes 7 and 26 of the consolidated financial statements for more detail.
• Operating EBITDA of $118.4 million was 27% higher than the prior quarter and 13% higher than the prior year quarter.
• General and administrative expenses (“G&A“) of $21.8 million in the fourth quarter of 2018 declined 5% from the third quarter of 2018 and 11% from the fourth quarter of 2017, reflecting the benefit of Frontera Energy’s ongoing focus on efficiency and cost reduction projects throughout the organization.
• Capital expenditures of $156.4 million were 26% higher than in the third quarter of 2018 and 41% higher than the fourth quarter of 2017, as anticipated, reflecting the completion of the Quifa SW water handling expansion project which has added over 3,000 bbl/d to Company production so far in 2019.
• Cash used by operating activities of $3.5 million in the fourth quarter of 2018 reflected the normalization of timing of accounts receivable and payable through the cash management process.
• Frontera Energy repurchased for cancellation 1.3 million shares at a cost of $13.3 million (C$13.87/share) under its normal course issuer bid during the fourth quarter of 2018. To date Frontera Energy has repurchased for cancellation 2.4 million shares at a cost of $24.9 million (C$13.96/share), representing 47% of the authorized buyback under the normal course issuer bid.
• Total cash, including restricted cash, was $588.4 million as at December 31, 2018, down 25% from the third quarter of 2018 and down 9% compared to December 31, 2017.
• Hedged on approximately 27% of expected 2019 production after royalties using put options with a Brent price of $55.00/bbl.

2018 Operational and Financial Results

• Frontera’s 2P Reserves as at December 31, 2018, were 154.9 MMboe after royalties, which was 0.4% higher than at the end of 2017.
• Frontera Energy achieved a 2P Reserves Replacement Ratio of 103% based on 2018 production after royalties of 23.6 MMboe.
• Frontera Energy’s 2P Reserve Life Index increased to 6.8 years in 2018 from 6.1 years in 2017.
• Net present value of 2P reserves discounted at 10%, before taxes, was $2.2 billion at the end of 2018, a decrease of 13% compared to 2017. The decrease reflects lower heavy oil price assumptions of $3.00/bbl over the first 10 years, partially offset by an increase of $0.80/bbl in light oil price assumptions. Heavy oil represents 62% of proved plus probable reserves, light oil 36% and natural gas 2%.
• Net present value of proved plus probable reserves discounted at 10%, after taxes, was $1.9 billion, a decrease of 1% compared to 2017.
• 2018 production averaged 71,032 boe/d before royalties (63,187 boe/d after royalties) within the annual guidance range of 70,000 to 72,000 boe/d before royalties (63,000 to 65,000 boe/d after royalties).
• Net loss of $259.1 million ($2.59/share) in 2018 includes $327.0 million of non-recurring charges relating to payments under terminated pipeline contracts, impairments on infrastructure investments, oil and gas assets and on the carrying values of investments in associates offset by the benefit of the reversal of provisions related to high-price clause. This compares to a net loss of $216.7 million ($2.17/share) in 2017 which included $27.2 million of non-recurring charges relating to impairments offset by the reversal of a provision related to high-price clause. Please refer to notes 7 and 26 of the consolidated financial statements for more detail.
• Operating EBITDA in 2018 increased by $28.7 million, or 7%, to $422.5 million compared to the prior year.
• Oil and gas sales and other revenue of $1.4 billion in 2018 were 15% higher compared to the prior year. Net sales for the year (including the impact of realized losses on risk management contracts, royalties, and diluent costs) decreased by 2% compared to 2017.
• Operating netback for 2018 was $25.98/boe, 14% higher than $22.79/boe in 2017.
• Frontera Energy generated $312.0 million in cash provided by operating activities in the year compared to $314.4 million in the prior year, contributing to a strong balance sheet with a total cash position, including restricted cash, of $588.4 million as at December 31, 2018.
• Capital expenditures during 2018 were $446.1 million compared to $236.4 million in the prior year.