PetroTal Announces 2021 Year-End Financial & Operating Results

Source: www.gulfoilandgas.com 4/28/2022, Location: South America

PetroTal Corp. (TAL) (PTAL) (PTALF) (“PetroTal”) is pleased to announce its financial and operating results for the year and three months (“Q4”) ended December 31, 2021.

Selected financial, reserves and operational information is outlined below and should be read in conjunction with the Company’s audited consolidated financial statements (“Financial Statements”), management’s discussion and analysis (“MD&A”) and annual information form (“AIF”) for the year ended December 31, 2021, which are available on SEDAR at www.sedar.com and on the Company’s website at www.PetroTal-Corp.com. Reserve amounts presented herein were derived from an independent reserves report (the “NSAI Report”) prepared by Netherland, Sewell & Associates, Inc. (“NSAI”) effective December 31, 2021. All amounts herein are in United States dollars (“USD”) unless otherwise stated.

2021 Significant Milestones and Highlights

- Achieved production of 8,966 barrels of oil per day (“bopd”) and sales of 8,449 bopd, up 58% and 48%, respectively, from 2020;

- Recorded a 5th straight quarter of production growth; reaching 10,147 bopd in Q4 2021 from 9,508 bopd in Q3 2021;

- Achieved a four year Company target of 20,000 bopd in mid December 2021 underpinned by strong production rates from the newly drilled 8H and 9H wells in late Q3 and Q4 2021 that each reached over 8,500 bopd, respectively;

- Generated record net operating income (“NOI”) and EBITDA(a) in 2021 of $105 million and $90 million, up approximately 3.6x and 5x, respectively, from 2020;

- Generated record funds flow provided by operations(a), before changes in working capital of $86.7 million, up over 5x from 2020;

- Grew proved plus probable (“2P”) and proved plus probable plus possible (“3P”) reserves by 53% and 39%, respectively, to 78 and 147 million barrels of oil (“bbl”);

- Material progression of 2P after tax net present value discounted at 10% (“NPV-10”) reserve value per share of $1.23, up 62% from 2020;

- Generated 2021 proved (“1P”) and 2P reserve replacement ratios of 457% and 816%, respectively; and,

Created the framework for a social trust representing 2.5% of production, to create long standing alignment between communities and government, with a view to minimizing social downtime, maximizing social profitability, and developing community projects that will have a significant positive impact near the Company’s Bretana oilfield.

2021 Operational highlights

- Robust well results. Completed one deviated and two horizontal oil wells in 2021. Both horizontal wells had the longest laterals ever drilled in Peru with production rates in excess of 8,500 bopd during the first month, and both paying out in under two months. Well 7D, drilled as a deviated well in the spring of 2021, had rates in excess of 4,000 bopd and has produced over 0.5 million bbl in under one year.

- Infrastructure achievements. Achieved significant infrastructure milestones in 2021 with the completion of all major construction work on CPF-2 and the completion and coring of an additional water disposal well, essentially doubling water disposal capacity to 100,000 barrels of water per day and allowing the field to produce up to 26,000 bopd of oil.

- Material reserves increases. Delivered excellent 2021 reserve report upgrades with increases for 1P, 2P, and 3P reserves by 68%, 53%, and 39% to 37.4, 77.9 and 147.1 million barrels, respectively. In addition, PetroTal was able to decrease 2P Finding and Development Costs (“F&D”) by 6% to $4.68/bbl while adding seven 2P locations plus related infrastructure, leading to a record 2P after tax NPV-10 of just over $1 billion.

- Expanded Brazilian sales. Created a highly successful third sales route to market into the Atlantic region through Brazil that has surpassed the Northern Peruvian Pipeline (“ONP”) as the Company’s second most profitable sales route. The first pilot cargo, completed in December 2020 was 106,000 barrels, and during 2021 PetroTal built a strong trusted commercial relationship that will allow Brazilian shipments of 400,000 barrel cargos (without the need for diluent blending), thereby providing a safe and stable offtake of nearly 14,000 bopd at attractive netbacks.

- Social alignment mechanism established. In an effort to facilitate long standing alignment between the government and communities, PetroTal announced and submitted a proposal to the Peruvian Ministry of Energy and Mines for creation of a new social trust aimed to promote direct investments into the Loreto region. The fund will be based on 2.5% of crude oil production, payable over two week periods and calculated using the same methodology as Perupetro applies for royalties. The fund committee and investment legal entities are in the process of being created with full transparency and auditability to the public.

- 2021 capital program executed and optimized. PetroTal’s 2021 Capex investment totaled $82 million in 2021 compared to $42 million in 2020, which was significantly curtailed due to the COVID-19 pandemic.

2021 Financial highlights

- Leverage to kickstart development. Successfully executed a $100 million senior secured bond issue at the trough of the oil price commodity price cycle with payment terms and amortization optimized to impact the Company in a much stronger oil macro backdrop, allowing PetroTal to commence its 2021 capital program in March 2021 with a sound liquidity injection.

- Record net revenue. Delivered net revenue after differentials and royalties of $150 million ($48.70/bbl) compared to 2020 of $74 million ($35.58/bbl).

- Record net operating income. Generated record NOI and EBITDA(a) of $105 million ($34.03/bbl) and $90 million ($29.31/bbl), respectively, as compared to $28.9 million ($13.84/bbl) and $18.3 million ($8.77/bbl), respectively, in 2020.

- Successful 2021 capital program. Executed an $82 million Capex program (originally budgeted at $101 million), deferring some non-essential infrastructure projects into 2022 to match with higher Brent pricing and more fluid labor movement.

- Positive 2021 free cash flow. Generated annual net positive free cash flow(a) before changes in non cash working capital and debt service of $8.4 million, a first for PetroTal.

- True up revenue realized. Received true-up payments from Petroperu of approximately $28.6 million in 2021 from oil reaching the Bayovar port and being sold at a higher price than originally received at pump station 1 of the ONP, enhancing financial metrics, and provided tailwind liquidity throughout the year.

- Scalable lifting costs. Maintained total lifting costs between $5.1 and $5.5 million per quarter in 2021 demonstrating significant scalability as production grew 60% from Q4 2020 to Q4 2021. On an annualized basis lifting costs were $21.5 million ($6.99/bbl) for 2021 compared to $15.7 million ($7.51/bbl) in 2020.

- Variable costs impacted by higher Brent pricing. Diluent and barging costs were $23.7 million ($7.68/bbl) in 2021 as compared to approximately $14.3 million ($6.85/bbl) in 2020. Increased per barrel metrics are attributed to higher barging diesel, diluent, and floating storage costs in 2021, compared to 2020.

- Reduced G&A per barrel. 2021 G&A of $14.3 million ($4.63/bbl) compared to $10.6 million ($5.07/bbl) in 2020, demonstrating a per barrel reduction of 10% and less than a 10% burden on adjusted EBITDA margins.

- Record 2021 net income. 2021 net income was a record $63.2 million ($0.08/share) compared to a net loss of $1.5 million ($0.00/share) in 2020 driven by higher commodity prices, sales volumes and a derivative gain related to sales volumes moving through the ONP valued at a higher Brent price compared to initial entry into the ONP.

Operation and Financial Highlights Subsequent to December 31, 2021

- Leverage reduction. Due to early robust 2022 free cash flow generation and strong liquidity, PetroTal elected to repay $20 million of the original $100 million bond issue, on April 1, 2022, reducing its total long term debt to $80 million, thereby lowering future interest costs.

- Exceptional continued well performance. Achieved a 10 day record production level for well 10H of 10,050 bopd allowing the Company to set a new total production record of 20,891 bopd for February 2022, and well payout in under a month.

- CPF-2 approved. Received approval by Peruvian regulators for full commissioning and fluid processing of CPF-2 so that up to 26,000 bopd can be processed by PetroTal.

- Free cash flow focused 2022 budget. On February 22, 2022, PetroTal announced a $120 million fully funded capital program that could potentially generate up to $230 million of free cash flow in 2022, allowing the Company the optionality to redeem the remaining $80 million in bonds early and implement its return of capital to shareholders strategy in Q4 2022, subject to Board approval.

- TSX-V award winner and OTCQX Best Market upgrade. PetroTal was recognized as a top TSX Venture exchange performer for 2021 ranking 10th in the energy sector and in mid January 2022, PetroTal upgraded to the OTCQX Best Market in the United States under the ticker symbol PTALF.

- Establishment of the 2.5% social trust brings interim dispute. The establishment of the 2.5% social trust brought some anticipated demands from a minority group wanting to control the trust capital allocation process. This resulted in the Company’s oil loading dock been blocked for five weeks requiring the intervention of Peru’s Prime Minister and the government’s full attention to the area’s social disputes.

Operational and Financial Highlights for Q4 2021

- Continued production growth. PetroTal produced 10,147 bopd and averaged 7,242 bopd in sales, which was impacted by social disruptions at the ONP, along with intermittent downtime leading to constrained production schedules, compared to Q3 2021 production and sales of 9,508 bopd and 9,142 bopd, respectively.

- 20,000 bopd production target achieved. The Company, with boosts from well 8H and 9H, achieved a five day trailing production rate of 20,000 bopd ending December 15, 2021, reaching its long standing target only four years after commencing operations at the Bretana oil field.

- Completion of well 8H. Well 8H was completed in late Q3 2021 for under $12 million, had initial production rates in excess of 8,500 bopd, paying out in Q4 2021 from realized netbacks of over $38.00/bbl.

- Completion of well 9H. Well 9H, completed in early December 2021, achieved approximately 9,000 bopd in early testing, averaging 8,200 bopd for the subsequent ten-day period.

- Strong net operating income despite constrained sales. PetroTal generated $25.7 million in net operating income in Q4 2021, a decrease from $29.6 million in Q3 2021, driven by lower sales volumes stemming from social protests in November and December 2021.

- Capex optimization. The Company invested $26.6 million in Q4 2021, up slightly from the prior quarter due to ongoing consistent drilling activities in the second half of 2021.

- Continued and expanding Brazilian exports. PetroTal continued to utilize the Brazilian shipping route in Q4 2021, exporting 320,000 barrels in November and December 2021 compared to only 106,000 barrels in Q4 2020.

- Opex and Transportation cost flexibility. Lifting expense and direct transportation costs were $11.2 million ($16.82/bbl) in Q4 2021 compared to $12.6 million ($14.97/bbl) in Q3 2021, and $10.7 million ($21.23/bbl) in Q4 2020. During Q4 2022, the Company effectively utilized barges for oil storage to manage production and sales fluctuations during social disruptions.

- Strong Q4 2021 exit liquidity. Exited 2021 with strong balance sheet liquidity of $75.0 million in total cash and approximately $57.0 million of net debt which was approximately 0.63x net debt to 2021 EBITDA.

- Growing derivative asset. The exit Q4 2021 net derivative asset was $36.7 million, representing the mark to market value of oil in the ONP, corporate hedges, and ONP hedges.

Operation and Financial Highlights Subsequent to December 31, 2021

- Leverage reduction. Due to early robust 2022 free cash flow generation and strong liquidity, PetroTal elected to repay $20 million of the original $100 million bond issue, on April 1, 2022, reducing its total long term debt to $80 million, thereby lowering future interest costs.

- Exceptional continued well performance. Achieved a 10 day record production level for well 10H of 10,050 bopd allowing the Company to set a new total production record of 20,891 bopd for February 2022, and well payout in under a month.

- CPF-2 approved. Received approval by Peruvian regulators for full commissioning and fluid processing of CPF-2 so that up to 26,000 bopd can be processed by PetroTal.

- Free cash flow focused 2022 budget. On February 22, 2022, PetroTal announced a $120 million fully funded capital program that could potentially generate up to $230 million of free cash flow in 2022, allowing the Company the optionality to redeem the remaining $80 million in bonds early and implement its return of capital to shareholders strategy in Q4 2022, subject to Board approval.

- TSX-V award winner and OTCQX Best Market upgrade. PetroTal was recognized as a top TSX Venture exchange performer for 2021 ranking 10th in the energy sector and in mid January 2022, PetroTal upgraded to the OTCQX Best Market in the United States under the ticker symbol PTALF.

- Establishment of the 2.5% social trust brings interim dispute. The establishment of the 2.5% social trust brought some anticipated demands from a minority group wanting to control the trust capital allocation process. This resulted in the Company’s oil loading dock been blocked for five weeks requiring the intervention of Peru’s Prime Minister and the government’s full attention to the area’s social disputes.

Current Operations

The Company’s loading dock was re-opened on April 7, 2022 and PetroTal has been producing approximately 18,200 bopd over the last 10 days with priority sales going to Iquitos and Brazil thereafter. Until the ONP maintenance is completed, the Company will be managing production volumes to fit the Iquitos and Brazil sales threshold of nearly 16,000 bopd.

PetroTal is currently preparing to drill well 11H in early May with a late June or early July completion, at an estimated cost of $15.6 million.

Updated Corporate Presentation and upcoming investor update

PetroTal is excited to announce it will be hosting a virtual investor meeting on May 26, 2022 following the release of Q1 2022 results. The objective of management will be to provide updates on certain aspects of the Bretana asset and to communicate the Company’s short and long term strategy. The Company has provided an updated corporate presentation with these 2021 results, on its website.


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