Frontera says it intends to invest approximately $200-$295 million (USD) during 2021, with $110-$130 million in development capital focused on the company’s Colombian base, with$30-40 million to drill two exploration wells in the VIM-1 block, and to complete seismic and preparatory work in Ecuador in advance of potential drilling in 2022.

In Guyana, the company plans to spend $40-90 million in total, principally for the Kawa-1 exploration well on the Corentyne block during the second half of 2021 and $15-25 million for Berbice Port construction.

Frontera is forecasting full year Colombian production of 40,500 – 42,500 boe/d and 2021 exit production of approximately 43,000 boe/d while anticipating operating EBITDA of $275-$325 million.

Board Member Orlando Cabrales Segovia is the new Chief Executive Officer, effective March 15, 2021, replacing Richard Herbert who has served as Chief Executive Officer for the last three years. Frontera said in a statement that the appointment of Mr. Cabrales reflects the significant progress that the company has made to shape its operations as a focused Colombian producer with strong local partnerships, significant regional exploration projects, and material infrastructure assets serving the broader industry and communities. After March 15^th Mr. Herbert will continue acting in an advisory capacity to ensure an orderly transition with a focus on Guyana.

“I am very pleased to pass the leadership baton to Orlando, who I have known for many years and deeply respect. I have every confidence that the future prospects for Frontera under his leadership are bright. I look back upon the achievements of the Frontera leadership team, supported by our Board, over the past three years since I became CEO with genuine pride. We have enhanced the culture of Frontera as evidenced by its improved health and safety performance and ethical reputation; Colombian upstream operations have been transformed by reducing costs and focusing on value over volumes; and the acquisition of CGX and joint venture interests in key exploration blocks including the Corentyne and Demerara blocks offshore Guyana, the VIM-1 block in the Lower Magdalena Valley, Colombia and exploration blocks in Ecuador has given Frontera a strong portfolio of renewal options for the future. I wish Orlando every success in taking Frontera forward in the next phase of its development,” said outgoing CEO Richard Herbert.

Mr. Cabrales joined Frontera’s Board of Directors in November 2018 and has over 30 years of experience in the public and private energy sector in Colombia, including serving as Vice Minister of Energy of the Ministry of Mines and Energy in Colombia between 2013 and 2014 and as the President of the ANH from 2011 to 2013. Mr. Cabrales held senior roles at BP in Latin America and has been on the boards of numerous companies in Colombia including Isagen S.A., Tuscany Drilling, Cenit and ISA. Mr. Cabrales earned an undergraduate degree in Law from Pontifical Javeriana University and a Master’s degree in Philosophy from Boston College. Concurrent with his appointment as CEO, Mr. Cabrales will continue as a director of Frontera.

“Since the new Frontera emerged in November 2016, Frontera has made tremendous progress. The team has improved Frontera’s performance and reputation, exited underperforming assets and agreements, driven down costs, and maintained a strong production and financial profile throughout this transformation,” said incoming CEO Orlando Cabrales.

“Today, Frontera is a more streamlined business with a sustainable portfolio of value-producing assets in Colombia and a highly prospective exploration portfolio in Guyana, Colombia and Ecuador. Combined with a relentless focus on operational efficiency, our goal is to create maximum value for shareholders. Our 2021 plan has been developed with these strategic goals in mind. I very much look forward to being a direct part of the management team in the next exciting phase of Frontera.”

“Both personally and on behalf of the Board, I want to thank Richard for all that has been achieved on his watch as CEO. Great progress has been made over the past three years, and Frontera has many great opportunities before it,” said Chairman of the Board Gabriel de Alba.

“As Frontera enters the next stage in its evolution, the Board sought a leader with the deep Colombian-based leadership experience, extraordinary reputation and relationships, and the ability to forge strategic partnerships with international oil and gas and infrastructure companies. The Board believes that Orlando brings these strengths and many others, which will help realize Frontera’s full value potential. We are extremely proud of the advances this Company has already made over the past three years to right-size itself, relentlessly drive down costs, and create an operating culture that has been recognized this year as one of the world’s most ethical. Frontera is a company with significant value across its assets and we look forward to the contributions of our leadership team as we execute our plan for 2021.”

Frontera also announced last week that the company intends to file with the TSX a notice of intention to commence a normal course issuer bid for its Common Shares (the “NCIB”). If accepted by the TSX, Frontera would be permitted under the NCIB to purchase, during a 12-month period, up to 5,197,612 Common Shares, representing approximately 10% of Frontera’s “public float” (as calculated in accordance with TSX rules). The NCIB will be made in accordance with the rules of the TSX through the facilities of the TSX or alternative trading systems, if eligible. Frontera believes that, from time to time, the market price of its Common Shares may not fully reflect the underlying value of its business and future prospects and financial position. In such circumstances, Frontera may purchase for cancellation outstanding Common Shares, thereby benefitting all shareholders by increasing the underlying value of the remaining Common Shares. At the present time, the Board believes that an NCIB is a more effective way to deliver value to shareholders when compared to cash dividends.

Under its normal course issuer bid that expired on October 17, 2020, Frontera was authorized to repurchase for cancellation 6,532,400 Common Shares and Frontera purchased for cancellation 2,941,128 Common Shares between October 18, 2019 and October 17, 2020 at a volume weighted average price of C$9.788 per share. Purchases were made on the open market.

Frontera’s 2021 Guidance

While preparing its 2021 Guidance, Frontera considered options to increase production in Colombia this year. Frontera has a stable 2P reserve base and a large pool of assets, from which Frontera identified the best combination of wells and drilling to deliver the highest capital efficiency. Various production and capex scenarios were reviewed that would have seen increased production and EBITDA through higher development capex, particularly in its key heavy oil field Quifa. The Company believes its 2021 capital plan optimizes both capital efficiency and free cash flow after development capex in 2021 and beyond.

Frontera developed its 2021 guidance using an average 2021 Brent price of $60/bbl and an exchange rate of 3,500 Colombian Pesos per US dollar. Given the current oil price environment above $60/bbl Brent, every one dollar average annual increase to our $60/bbl Brent price assumption for 2021 would increase Operating EBITDA by approximately $10 million (including hedging).

2021 Guidance Metrics

Capital Program

Frontera expects its total 2021 capital program to be approximately $200-$295 million on a consolidated basis. This total includes approximately $110-$130 in development capital to maintain Frontera’s production volumes – a significant reduction on a per barrel basis compared to previous years. Development costs for the 2021 budget are expected to be approximately 40%-50% lower than 2019 due to cost efficiencies and process improvements Frontera achieved in 2020.

The Company expects based on presently available information that the total cost of the Guyana exploration program in 2021 will be approximately $90 million, principally to drill the Kawa-1 well offshore Guyana, with its share of that cost depending on whether or not it elects to pursue strategic options, and $15-25 million for Berbice Port (Guyana) construction. Frontera anticipates spending $30-$40 for exploration in Colombia including drilling two exploration wells in VIM-1 and to complete seismic and preparatory work in Ecuador in advance of potential drilling in 2022. The Company anticipates generating operating EBITDA of $275-$325 million.

Production and Production Costs

Frontera’s 2021 Plan anticipates a production exit rate of approximately 43,000 boe/d and average annual production of 40,500 – 42,500 boe/d, all from Colombia. Production costs are expected to average $10-$11 per boe, below full year 2020. Included in this guidance, Frontera may recognize a portion of its post-termination remediation costs in Peru as 2021 operating costs with an impact of approximately $0.50/boe.

Transportation Costs

Transportation costs are expected to average $10.50 – $11.50 per boe in 2021, in line with full-year 2020. This includes the impact of the sale of the oil inventory in Peru of approximately $0.50 per boe and the expected impact of additional take or pay contracts stemming from the pipeline settlement announced on November 17, 2020 (approximately $0.20 per boe on a full year basis assuming the settlement is approved around mid-year).

Colombia Update 

In the VIM-1 block, in the Lower Magdalena Valley, Frontera (50% W.I.) and Parex (Operator, 50% W.I.), completed the permitting and approval process and progressed the development plan concept including gas commercialization and infrastructure requirements for the exciting La Belleza-1 light oil and natural gas discovery.

Regulatory approval to extend the current VIM-1 block boundaries by approximately 32,000 acres was recently received. Building on the success of the La Belleza discovery, the Joint Venture anticipates drilling two additional exploration wells in the VIM-1 block in 2021. In addition, Frontera plans to begin additional preliminary work in the VIM-22 block ahead of drilling in 2022.

In 2021, Frontera plans to drill at least 19 wells in Quifa and 15 wells in CPE-6. At this activity level, development costs at Quifa, its largest field, have been lowered to $8/boe in 2021, down 60% from $20/boe in 2019. The Company expects steady production volumes in the heavy oil business unit, backstopped by production from CPE-6 that is expected to increase by approximately 40% this year due to further drilling and construction of additional water-handling facilities. In Frontera’s light and medium oil business unit, Frontera plans to drill two wells in the Coralillo field as part of the continued development of the Guatiquia block.

Parex Resources and CNE Oil & Gas, a subsidiary of Canacol Energy, were awarded four areas, with associated investments estimated at approximately US$ 40 million.

“The signing of these four contracts, which represent an associated investment of approximately 40 million dollars, are a sample of how the government’s policies for the reactivation of the hydrocarbon sector have worked, because after 5 years without signing new exploration and production contracts, we will close 2020 with 30 new contracts thanks to the Continuous Area Nomination Process. This sector will continue to be the core of the sustainable reactivation as a gateway to investment and employment generation, as well as the fundamental axis of our energy self-sufficiency,” said Minister of Mines and Energy, Diego Mesa Puyo.

Above photo: Rafael Pinto of Parex Resources signs contracts for the third cycle of the PPAA in ANH offices. Photo: ANH

“The result of the third cycle of the PPAA is the reflection of a sector that has remained active and in force, despite the challenges posed by the pandemic and the price crisis and also of the stake that companies like Parex and Canacol have made in the Colombian industry. We already have great expectations for the fourth cycle, the Colombia Round 2021, which will present an attractive offer of opportunities, the revision of the contractual terms and the simplification of the processes,” added Armando Zamora Reyes, President of the ANH.

The first two cycles of the PPAA awarded 26 areas with investment commitments of $950 million dollars. A total of 70 areas were offered, with an award success rate of 37%.

The third cycle completes 30 awarded areas with associated investments of nearly one billion dollars.

The fourth cycle of the PPAA, the Colombia 2021 Round is expected to present an attractive offer of opportunities based on geological knowledge, the redefinition and release of the land map, the simplification of the terms of reference, a more efficient selection process of contractors, done in a joint construction with the industry and other stakeholders.

The La Belleza-1 exploration well on the VIM-1 block (Frontera 50% WI, Parex 50% WI, operator) was drilled to a total depth of 11,680 feet. A total of 179 feet (155 feet total vertical depth) of potential hydrocarbon bearing reservoir was encountered in the Cienaga De Oro formation and drilling operations were stopped to allow testing of the open hole section. The well was tested under natural flowing conditions and over a 328-hour period, the well produced a total of 32,728 bbls of 43-degree API oil, 147 mmcf of natural gas and 3,996 barrels of water.

“We are excited that the first well with our partner Parex in the Lower Magdalena Valley has been a success. Testing results from the La Belleza-1 well on the VIM-1 block are very encouraging, especially given the limited capacity of the testing equipment on site. The well’s combination of light oil and natural gas complements our overall portfolio mix of light and heavy crudes and our strategic goal to increase the portion of natural gas in our production profile,” said Frontera CEO Richard Herbert.

“We recently started the drilling of the Asai-1 exploration well on the Guama block, also in the Lower Magdalena Valley where we are targeting liquids and natural gas. Over the course of 2020 and beyond, Frontera will look to increase its natural gas production in the Lower Magdalena Valley where we have excess gas processing capacity at the La Creciente field. It is encouraging to start 2020 with exploration success, as we are targeting significant high impact exploration activities in Colombia, Ecuador and Guyana this year.”

The average flow rate during the test was 2,395 bbl/d and 10.7 mmcf/d of gas (4,272 boe/d combined) at an average water cut of 12%. The flow rate during the final 24 hours of the test was 2,696 bbl/d and 11.8 mmcf/d of gas (4,766 boe/d combined) at an average watercut of 10%. The initial shut in wellhead pressure recorded at the start of the test was 4,700 psi and the wellhead pressure during the test period remained relatively flat at 3,700 psi with the producing rate during the test limited by the testing facilities on location.

Bottom hole flowing pressures during the test remained relatively stable at approximately 6,000 psi indicating an average drawdown of 14%. The initial bottom hole pressure recorded at the start of the test was 7,031 psi and the final extrapolated pressure at the end of the 174-hour buildup was 7,011 psi. The well will be flow tested for one additional week followed by an extended 30-day pressure buildup period which will provide additional information on the final reservoir pressure.

The joint venture partners are evaluating options to drill one or two additional delineation wells in the second half of 2020 from the existing La Belleza well pad. The partners are also evaluating different options for gas commercialization and infrastructure requirements. Production guidance for 2020 does not include any volumes associated with production from the La Belleza well or the VIM-1 block.

Additionally, also in the Lower Magdalena Valley of Colombia, Frontera has recently spud the Asai-1 exploration well on the Guama block (Frontera 100% WI, operator), targeting a primary objective oil, natural gas condensate and natural gas structure in the Porquero formation at approximately 12,000 feet. The well is expected to take approximately 75 days to drill with results expected in May 2020.

Photo courtesy Frontera Energy

Ecopetrol has a 50% stake in the discovery, with Parex holding the remaining 50%. The find was made at a depth of between 2,042 meters and 2,177 meters and contains crude oil that, according to Ecopetrol, is lighter than typical heavy Colombian oil.

Extraction efforts will be aided by the the fact that the Coyote-1 well is located relatively near company operations at fields including La Cira-Infantas, Lisama, and Colorado in addition to the refinery in Barrancabermeja, which sits around 25 kilometers away.

“This new finding shows that we are on the right track in our goal of increasing reserves,” said Felipe Bayón Pardo, president of Ecopetrol. He added that the Coyote-1 well “confirms the potential of the department of Santander, in the heart of our industry, where oil production began almost a century ago.”

(Image credit: Ecopetrol)

Ecopetrol holds a 50% interest in the well, which is operated and 50% controlled by Parex Resources, a Canadian exploration and natural resources company based in Calgary. The company said that the Boranda find comes with the “competitive and operational advantage” of being nearby two crude receiving stations, Payoa and Provincia, and the large Barrancabermeja refinery located on the banks of the Magdalena River in Santander.

According to Ecopetrol, this is the fourth discovery that it has an interest in made in the past four months. “This new discovery forms part of Ecopetrol’s strategy,” said the company in a statement. “One of its focuses is on exploration in regions near production fields. Boranda is in the production range of the Aullador and Cristalina fields to the southwest, and Pavas-Cachira to the northeast.”

The other finds have been offshore, with Ecopetrol participating in deepwater discoveries in the Colombian Caribbean at the Purple Angel well and the Gulf of Mexico at the Warrior well. An Ecopetrol subsidiary, Hocol, also recently participated in a find in the Colombian Caribbean at the Bullerengue Sur-1 well.

After adopting a conservative strategy last year in terms of capital expenditures, the company has said it plans to more than double its exploration investment this year compared to 2016. With a 2017 exploration budget of $652 million USD, Ecopetrol is planning to drill 17 wells this year along with its partners. Six of these are expected to be drilled offshore (six in Colombian waters and one in the U.S. Gulf of Mexico) with 11 being located on land throughout Colombia.

“The exploration campaign will be stepped up significantly in regions of high prospectivity,” said Ecopetrol CEO Juan Carlos Echeverry earlier this month in a statement. “Investment in exploration will rise from $280 million USD to $650 million USD, thus increasing offshore wells from 2 to 6 and onshore wells from 5 to 11 from 2016 to 2017. Enhanced recovery will continue to leverage additional reserves in mature fields. We stress that a strong cash position allows us to assess opportunities for inorganic growth in the Ecopetrol Business Group’s reserves.”