PetroTal Corp. is pleased to announce its financial and operating results for the three and nine months ended September 30, 2022 ("Q3 2022").
Q3 2022 Highlights
- Production in the quarter averaged 12,229 barrels of oil per day ("bopd") with sales of 12,186 bopd (1.1 million barrels), despite being constrained as low river levels reduced barge capacity;
- Generated net operating income(1) ("NOI") of approximately $62.3 million, EBITDA(1) of $57.6 million, and free cash flow(1) before all debt service of $37.0 million equating to a 44% free cash flow margin(2);
- Capital investment totaled $20.6 million, primarily to drill well 13H and key infrastructure projects;
- Petroperu exported approximately 720,000 barrels of oil to an international refiner, crystalizing for PetroTal over $64 million (including VAT) of true up revenue and reducing the amount of PetroTal's oil in the Northern Peruvian Pipeline ("ONP") to 2.4 million barrels;
- Demonstrated continued balance sheet strength with cash of $93 million at September 30, 2022, a net surplus(2) balance of $75.5 million. The Company remains in full compliance with all bond covenants as at September 30, 2022; and,
On September 15, 2022, PetroTal welcomed two new Directors, Messrs. Luis Carranza and Jon Harris, and announced the retirement of Messrs. Gary Guidry and Ryan Ellson.
Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:
"Having produced over 10.5 million barrels of oil since inception, we are on track to deliver average production growth of approximately 40% and almost $200 million in free cash flow in 2022. Although the Company encountered external transportation challenges, we expect to deliver double digit yearly production growth with potentially 40% plus free cash flow yields under current Brent oil forward strip pricing conditions. The high margin nature of our business should be at the forefront of investors' sentiment, alongside our proven ability to execute technically."
Selected Financial and Operational Highlights
Q3 2022 Financial Highlights
Strong revenue profile. Oil revenue in Q3 2022 was $84.2 million ($75.07/bbl) compared to Q2 2022 of $118.4 million ($89.04/bbl) and Q3 2021 of $44.8 million ($53.24/bbl).
High margin operational cash flow. Generated NOI and EBITDA of $62.3 million ($55.60/bbl) and $57.6 million ($51.42/bbl), respectively, compared to $98.6 million ($74.12/bbl) and $93.4 million ($70.26/bbl), respectively, in Q2 2022 and $29.6 million ($35.18/bbl) and $26.1 million ($31.07/bbl), respectively, in Q3 2021.
Efficient capital deployment. Capital expenditures in the quarter totalled $20.6 million and were focused on drilling and completing well 13H. During the nine months ended September 30, 2022, the Company invested a total of $62.2 million, demonstrating capital flexibility under sales constraint conditions.
Robust free cash flow. Generated free cash flow before changes in non-cash working capital and debt service of $37.0 million ($33.03/bbl) in the quarter. Total free cash flow before changes in non-cash working capital and debt service for the nine months ended September 30, 2022 is nearly $150 million significantly strengthening the Company's net surplus position by nearly $130 million.
Total operating costs under $10/bbl. The Company had lower gross total operating cost expense in the quarter of $10.1 million ($9.06/bbl) from $11.7 million ($8.82/bbl) in Q2 2022. Total quarterly lifting costs were $7.4 million ($6.62/bbl), a decrease from Q2 2022 of $8.4 million ($6.28/bbl) and an increase from Q3 2021 of $5.4 million ($6.47/bbl). Total transportation costs were $2.7 million ($2.44/bbl) a slight decrease from $3.4 million ($2.54/bbl) in Q2 2022 and a substantial decrease from $7.1 million ($8.50/bbl) in Q3 2021.
G&A on budget. Q3 2022 G&A was $4.7 million ($4.18/bbl) compared to $5.1 million ($3.87/bbl) in Q2 2022 and $3.4 million ($4.11/bbl) in Q3 2021.
Net income/loss. PetroTal posted net income of $2.6 million, a decrease from Q2 2022 net income of approximately $84 million, primarily from lower sales in the quarter, a non cash commodity price derivative loss of approximately $33 million, and royalty provision for the social trust.
Balance sheet in a cash surplus position. Net surplus was approximately $75.5 million as at September 30, 2022, consistent with the prior quarter and up substantially from Q3 2021, as defined internally by the Company.
Net derivative asset balance. The total net derivative asset on the balance sheet as at September 30, 2022 was $3.5 million, a decrease of $53.3 million from Q2 2022, as a result of reclassified true up revenue of $64 million realized in July 2022, along with other mark to market changes in the value of oil in the ONP. As at September 30, 2022 approximately 2.4 million barrels remained in the ONP.
Operational and Financial Highlights Subsequent to September 30, 2022
Excellent well 13H results. Well 13H successfully tested at over 8,000 bopd during its first week of production and has averaged approximately 6,200 bopd month to date ending November 14, 2022, which was slightly constrained during this period. At its current trend and assuming a $55/bbl netback, the well is on track to payout within 60 days. In addition, the technical team encountered the producing formation five meters higher near the end of the horizontal section of the well possibly increasing future oil in place and reserve estimates.
Commenced drilling well 12H. On October 16, 2022, the Company commenced drilling well 12H with a budgeted cost of $14 million and estimated completion in mid December 2022.
Slowly rising river levels in November. During the month of October, river levels in Brazil continued to be at record low levels, in some cases, exposing sand bars above the water level. This significantly impacted the Company's ability to sell oil in the month of October limiting production to approximately 6,500 bopd. The Company expects to sell nearly 900 thousand barrels over November and December as river levels return to normal.
On November 10 and 11th, 2022 the Company was able to produce over 20,000 bopd.
2021 ESG report being finalized. Over the coming weeks PetroTal will release its second annual Sustainability Report covering the 2021 year. The Company is now calibrated to Sustainability Accounting Standards ("SASB"), Global Reporting Initiatives ("GRI"), and Sustainable Development Goal standards and is committed to being a sustainable energy leader in Peru. In 2021, the Company had zero hydrocarbon spills, delivered a scope 1 emissions intensity metric of 11.4 kg/bbl, and invested millions in various ESG projects as outlined in the report, showcasing the modest operational footprint that the Company has managed in the Loreto region.
Petroperu update. The Company continues to work with Petroperu's management team to assess and negotiate payment of approximately $90 million of receivable value. On October 10, 2022 the government of Peru agreed to make a capital contribution to Petroperu of $1 billion in order to strengthen its financial capacity for continued operations, and provide $500 million of credit facility support. The priority of allocation is immediate fuel and energy needs in Peru, and the Company expects that the $64 million outstanding amount owed to the Company will be paid on a negotiated payment schedule.
Guidance Update
The Company is adjusting Q4 2022, and therefore 2022 guidance based on October 2022 and early November river conditions into Brazil. Final 2022 guidance is now between 12,000 and 13,000 bopd for Q4 2022 and 2022 full year.
PetroTal Rebranding
PetroTal is excited to announce a corporate rebranding which includes a new vision, color scheme and logo design. Over the coming weeks we will be rolling out a new website with many new and exciting features for investors and or interested stakeholders. Further updates on this will be made when available.
