PetroTal Corp. (PTAL) has announced its financial and operational results for the third quarter of 2024, indicating both achievements and challenges. The production averaged over 15,200 barrels of oil per day, surpassing the guidance and showing a year-over-year increase. Despite a decrease in free funds flow and net income due to various factors, the company has managed to return over $53 million to shareholders and plans to maintain its dividend policy.
PetroTal is also preparing for future investments, including a new drilling rig and the acquisition of the Los Angeles field, while keeping an eye on strategic opportunities in Block 64.
Key Takeaways
- Q3 production exceeded guidance with an average of over 15,200 barrels per day.
- PetroTal returned over $53 million to shareholders through dividends and buybacks.
- Q3 EBITDA stood at $47.5 million, with a net income of $7.2 million.
- The company announced plans for a new drilling rig to enhance efficiency from Q1 2025.
- PetroTal is finalizing the acquisition of the Los Angeles field in Block 131.
- Management is considering potential bids on Block 64 offered by Petroperu.
Company Outlook
- PetroTal expects a decline in cash reserves due to upcoming payables and a $35 million erosion control project.
- The company remains focused on maintaining dividend sustainability and advancing their drilling program.
Bearish Highlights
- Free funds flow decreased to $6.5 million in Q3, down from $36.3 million in the previous quarter.
- Net surplus fell by over $40 million due to increased liabilities.
- Cash reserves are anticipated to decline in the coming quarters.
Bullish Highlights
- Year-to-date production is on track to meet annual targets.
- The company has successfully increased production by nearly 40% compared to Q3 2023.
- Free funds flow for the first nine months totaled $84.5 million, surpassing annual guidance.
Misses
- Q3 saw a decrease in both EBITDA and net income compared to the previous quarter.
- The company faces challenges from drought conditions impacting operations.
Q&A Highlights
- CEO Manolo Zuniga discussed strategic plans, including potential bids on Block 64 and the acquisition of the Los Angeles field.
- The company is cautious about M&A opportunities, prioritizing shareholder value protection.
- PetroTal does not plan to drill new exploration wells in the near future, focusing instead on asset protection.
PetroTal Corp. has demonstrated resilience in the face of operational challenges, continuing to deliver shareholder value through consistent dividend payments and strategic acquisitions. The company's focus on operational efficiency and careful asset management positions it to navigate the complexities of the oil market while seeking growth opportunities.
Full transcript - None (PTALF) Q3 2024:
Jimmy Lea: Hello, ladies and gentlemen. Thank you for joining the PetroTal Q3 2024 Results Webcast. Your host today will be Manolo Zuniga, President and CEO; and Camilo McAllister, Executive Vice President and CFO of PetroTal. At the end of the presentation, there will be a question-and-answer session. So please submit any queries you might have via the platform and your host will try to answer as many of the questions as possible within the time allotted. I will now hand over to Manolo Zuniga for the presentation. Please take it away.
Manolo Zuniga: Thank you, Jamie, and good morning, everyone, and thank you for joining PetroTal's third quarter 2024 webcast, where we are going to provide a brief summary of the financial and operational results that we released this morning before market opened. My name is Manolo Zuniga and I am the President and CEO of PetroTal. I am joined today by Camilo McAllister, our Executive VP and Chief Financial Officer. If you have click the link in last evening's press release, you should hopefully see our slide presentation on your screen. But before I begin, I should mention that there are some disclaimers towards the end of the main presentation on our website, which I encourage you to read at your own leisure. Turning to Slide 2. We have summarized some key statistics for PetroTal. Our companies listed on London's AIM market, the Toronto Stock Exchange and the USOTC. And this morning, our market cap is approximately US$430 million. PetroTal’s flagship asset is a 100% working interest in the Bretaña oil field, which we have expanded from first production in mid-2018 to a recent peak of more than 20,000 barrels of oil per day during the last month -- in the past months. Our production averaged as over 15,200 barrels of oil per day in Q3 2024, which was down 3,000 barrels per day compared to the prior quarter, but up more than 4,000 barrels a day compared to the same period last year and ahead of our guidance of 13,000 barrels portfolio per day. Year-to-date, PetroTal’s has produced an average of 17,200 barrels of oil per day, which puts us above the mid-range of the annual guidance we issued earlier this year. I would also like to point out that PetroTal has already returned more than $53 million to shareholders this year through dividends and buybacks. We are pleased to announce this morning that we have declared our regular quarterly base dividend of $0.015 per share. This is the seventh straight quarter that PetroTal has paid this dividend. And as Camilo will explain, it remains a key priority of our return strategy cading into 2025. We would now like to go through our Q3, 2024 results by providing some updates on our recent drilling and production results, transportation and marketing initiatives, as well as financial numbers. Please turn to Slide 3, where I just wanted to spend some time talking about river labels. If you have follow our story for a while, you know that the third quarter is typically the most challenging period of the year for PetroTal. We export 100% of our crude oil production on barges down the Huallage River in a local is known as Yurimaguas [ph], which flows widely in front of the Bretaña field. As a result, our sales volume tend to rise and fall with river levels at this time of the year. You may have seen in the news that 2024 brought a severe drought all across the Amazon (NASDAQ:AMZN) River Basin. The Department of Loreto, where our Bretaña field is located in Northeast Peru has to declare -- had to declare a state of emergency because key necessities such as food and fuel had difficulty reaching the capital of Iquitos. With that in mind, our operational performance was truly remarkable this quarter. I am proud of our team for managing through such challenging conditions, as we were able to produce almost 40% more than during last year's third quarter. As you can see in the green circle, river levels have rebounded strongly in the past 2 weeks and our oil production has returned to a capacity of just over 21,000 barrels of oil per day. We're optimistic that the worst is behind us and river conditions will be much better in 2025. Turning to Slide 4. We have updated our year-to-date production performance. As you can see with the green line, our cumulative production has been tracking ahead of last year's pace for the entire year. As of the end of October, our cumulative production is now 23% ahead of the same time last year, and we're poised to finish the year strong, now that production has returned to capacity and Bretaña. On Slide 5, we have updated recent results from our ongoing drilling campaign at Britannia. PetroTal completed one production well in Q3, 2024, which you can see is well on the left-hand side of the chart. This will only come on stream in the last 2 days of September, and we had to restrict it through the most -- the month of October as we manage field production in response to low river levels. However, now that Bretaña is back producing at capacity, we have opened the well back up and is doing great. Over the past two weeks, well 20H has been producing an average of just over 5,000 barrels per day, with very little water. If oil prices hold up, these wells should pay out some time in Q1 2025. Well 19H, you can see just above has already paid back 1.5 times our investment, and that will only came on stream in June. We just finished drilling well 21H last week and should bring it on production within the next few days. After that, we will drill wells 22H and 23H before we pass the drilling program at Bretaña. You probably noticed in our press release that we have acquired a new drilling rig, which we will be bringing to Peru in Q1 2025. We're going to release our current treating rig as it finishes well 23H. This will allow us to ramp up the erosion control project at Bretaña where we will need the space to accommodate the staff associated with that project. We plan to provide full details of our 2025 Capital Program in mid-January similar to last year. Moving to Slide 6, I just wanted to talk a little bit about PetroTal's marketing and transportation strategy, which is something we're constantly working to improve. During the third quarter, approximately 89% of our crude oil was sold through the Brazil export route, which ends at the Manaus on this map. We also sold about 11% of our oil to the Petroperu refinery at Iquitos, which is label number 2 in the center of this map. We're working hard to open a new export routes for our crude oil in 2025 including Yurimaguas and Conchán, which are able number 6 and 7 on this map. Depending on oil prices and our expected cost structure, we may incorporate this options in our 2025 marketing strategy. Lastly, I want to mention that we continue to have discussion with Petroperu about facilitating crude oil sales to the ONP pipeline, which is label number 1 on this map. You have been following the news lately, you'll have probably seen that there are a lot of changes underway at Petroperu. We think this is an ideal time to find a solution that will benefit all the stakeholders in the pipeline. Obviously, we're one of those stakeholders, considering there are almost 1.9 million barrels of Bretaña oil that still needs to be sold from this route to be able to sell the corresponding final oil price derivative. But we can be part of that permanent solution that will keep the pipeline flowing indefinitely. We will be happy to continue working with Petroperu. Of course, we will keep the market updated if the situation changes. I will now turn the call over to our CFO, Camilo McAllister, who will provide a brief update on our Q3 2024 financial results. Thank you, Manolo, and thank you to everyone who has turned into our webcast today. And I would like to start off by highlighting some of the key items from the press release and financial statements that were issued this morning, with the visual support from Slide 7. Manolo has already talked about our production volumes, but it's worth reiterating that our output increased 39%, compared to the same period last year, averaging just over 15,000 barrels per day in the third quarter. Unfortunately, we have been producing these volumes into a declining oil price. The Brent benchmark averaged $77 and $74 per barrel in Q3 2024. This is a decrease of $6 to $7 compared to the prior periods, we are showing here. The reduction in oil prices has flowed through to our net operating income, which is down $5 to $7 per barrel, relative to prior periods. It's worth pointing out that our unit costs are broadly flat relative to the same period last year, which is probably a better comparable than Q2 2024, given the fixed cost we bear when the river levels are low as they were in Q3. Our third quarter EBITDA came in at $47.5 million, which is down 32% compared to Q2 2024, but its up 20%, compared to the same period last year. Year-to-date, in 2024, PetroTal has generated just over $188 million in EBITDA, putting the company in good shape to achieve our annual target of $200 million to $240 million. Now you may recall that our 2024 guidance was originally based on Brent oil price assumption of $77 per barrel. And considering that we have averaged $78 per barrel year-to-date, we did not see any need to adjust our EBITDA guidance at this time. Our net income amounted to $7.2 million in the second quarter. This is a decrease of $28 million, compared to the prior quarter. The main reason for the decline in our net income was $17.5 million non-cash charge from an unrealized commodity derivative loss. This derivative loss is related to our historical oil sales agreement with PetroPeru, which still holds 1.9 million barrels of crude over sale in its pipelines and storage tanks. It's important to note that these unrealized, non-cash loss contingent upon the eventual sale of oil volumes at the Bayovar terminal until this sale occurs, no payment is required. I would also like to point out that if oil prices rise, the projected loss could decrease, potentially benefiting our financial position. Free funds flow decreased to $6.5 million in Q3 2024, down from $36.3 million last quarter due to the combined impact of lower EBITDA and slightly higher CapEx. However, PetroTal has generated $84.5 million in free funds flow over the first nine months of 2024. This is in line with the same period last year and comfortably ahead of our guidance for annual after-tax free funds flow of $55 million. Our total cash balance increased to $133 million on September 30th, an increase of $37 million over the prior quarter as PetroTal was able to accelerate the collection of some receivables into the third quarter. However, you may have also noticed that despite the substantial increase in our cash position, our net surplus has decreased by just over $40 million at the end of Q3 2014. There are several drivers behind the reduction in the net surplus, including the change in our derivative liability with Petroperú that I discussed earlier. Our accounts payable have also been building as a result of our ongoing capital program and we have been accruing tax liabilities that will become payable in 2025. With that in mind, I would like to take this opportunity to point out that our cash balance likely reached a medium-term high watermark at the end of Q3. At current strip oil prices, I would expect PetroTal’s cash balance to decline over the next few quarters as existing payables become due as our spending ramps up on the erosion control project in Bretana and as accrued cash taxes become payable, we plan to provide additional details on our 2025 outlook in January. Notwithstanding, these funding obligations, I would like to reiterate that PetroTal's liquidity remains strong. In addition to a healthy cash position, PetroTal has access to more than $77 million in short-term credit facilities, which are completely undrawn today. Lastly, I would like to comment on our new drilling rig, which we mentioned in the press release this morning. The purchase of this drilling rig was financed through a lease agreement with a Peruvian bank with a term of 36 months and a payment of about $500,000 per month. We believe the new modern drilling rig will provide several key benefits for PetroTal, including savings on the day rate and standby fees, along with more flexibility to manage the pace of our drilling program. We expect to bear just over $3 million of onetime costs associated with the commissioning and transportation of the rig in the first half of 2025. Slide 8, summarizes our dividend policy and amounts paid since inception. And as we announced this morning, PetroTal has declared our regular quarterly dividend of $0.015 per share. It's important to remember that since the dividend was initiated in the first quarter of 2023, we have returned a total of $110 million to shareholders, which amounts to $0.125 per share. We've maintained optionality to issue top-up dividends in quarters for which our 12-month liquidity forecast exceeds internal targets. The dividend remains a key priority for PetroTal and we look forward to paying a regular dividend for many quarters to come. PetroTal also maintains the option to repurchase shares under our ongoing normal course issuer bid, although the base of our share repurchases has moderated somewhat in Q3 2024, we have still repurchased and canceled nearly 18 million shares since the end of 2022 from a total investment of just over 8 million. Our return of capital program currently prioritizes dividend sustainability while balancing the development capital requirements of our existing asset base. And with that in mind, we will continue to monitor the buyback levels. I would like to wrap up my comments and PetroTal would like to thank you for your continuing investor support. I will now move on to questions.
A - Jimmy Lea: Thank you, Camilo. I will now commence with the Q&A portion of the webcast. With the recent and planned increases in production due to expansion of extraction sites and new well developments, what measures are being implemented to ensure that this growth is matched by a corresponding increase in transportation and sales capacity to reach customers efficiently.
Manolo Zuniga: As the investors know, we've been looking at different routes but for us, as PetroTal, and I have mentioned this to investors in the past, is key that we go back to the O&P. My goal is that we should have about half of our production going east and half going west. In that way, we have full flexibility of anything happening to each one of the routes, we have -- we can go and deliver oil to either one. O&P is key. We are working to get Petroperu fully engaged, not only Petroperu but even the finance ministry to bring a solution. As what we want to have is the ability to deliver oil came station number one, get paid and not having the risk of assuming a derivative on future oil prices. And we think that we have a way of coming up with that. The recent naming of the new management team of Petroperu gives me confidence that we will be able to engage them. I know the new GM well, and I'm hoping that we can work something out in the near future. But O&P is key for us.
Jimmy Lea: Given the large and growing cash pile and the depressed share price, why isn't the company conducting tender offers to buy back large chunks of shares?
Camilo McAllister: Good question and one that we always review every quarter. It's something that some of our peers in LatAm have been implementing recently. But remember, we always have to think about balancing the return of capital with our various funding obligations and we still believe that our drilling program drives superior returns when compared to share buybacks. Also, we need to be cautious on the oil price outlook and especially in 2025, when we have the erosion control project and for the first time, significant cash tax payments that we will be making. So we will continue to evaluate, but this is something that we have not bumped up recently.
Jimmy Lea: Could you explain the benefits and savings that come with the new drilling rig -- given the leasing cost is only $0.5 million, where would that take the cost of drilling future wells under the new arrangement? I assume there would be some important savings compared to the current situation.
Manolo Zuniga: Indeed, we're going to see savings on the day rates and the standbys, improve uptime. The rig we've been using for the past few years, was an old rig. Sometimes we would have issues with that rig. So it was time to bring a modern rig. And a modern rig that uses less fuel, has less emissions for all of that. But more importantly for us is the increased flexibility over the drilling program. As you know, and you've seen the structure maps of Bretana, we continue to drill extended wells to be able to extract all of the growing reserves that we are finding in Bretana alone. And then, of course, now we have a second field that we intend to go back. And once we sign the contract, maybe do some drilling as well.
Jimmy Lea: Are there any updates on the CEPSA acquisition closing? What are plans for further drilling in Block 131 in 2025?
Manolo Zuniga: I was just mentioning about the second field, that's the Los Angeles field in Block 131 that we recently acquired from CEPSA. We're expecting -- in the release, we mentioned closing before year-end. We're actually expecting to do that before the end of November. We're working very hard to come up with a good plan. Ideally, the government will support our efforts and lower the royalties that currently exist in Block 131, that will be fantastic. I think they'll be willing to do that as we will typical of any acquisition go in and we work some of the wells and see the possibility of doing what we've been doing in Bretana.
Jimmy Lea: OpEx appears to have been high this quarter because of the barging. Excluding the erosion work, would you expect OpEx in future periods to come back to previous levels? And with regards to next year, I am aware that the budget has not been released, but where would we see CapEx directionally and compared to 2024?
Camilo McAllister: Good. Thanks for that question. I think to begin, OpEx in the third quarter was -- it kind of showed mix changes. We had an increase of $800,000, and it was primarily due to higher expenses related to well maintenance on electrical submersible pumps. And as we were able to increase the volumes versus our guidance, that kind of raised the expectations that we had. Transportation costs actually decreased, and they were lower due to smaller dealering consumption, and we didn't have to do a lot of demurrage in a route to Brazil. So that helped a lot. Specifically about erosion control, you probably saw that in the third quarter, we had a very little contribution to that in our numbers. In total, we had pre-purchased some steel for $7.3 million. This is part of the OpEx at currently sitting in inventory. But as we move that out of the warehouses to be in the construction, it will be OpEx. And in CapEx, there was only like $200,000. For next year, we're still working on the budget. But as you all know, Erosion project will be undertaken in 1.5 years and it's going to be a mix between OpEx and CapEx. So when we exclude that and we put out our new guidance on production, we should expect to see OpEx, the variable costs obviously go up, as we need more energy and fluid handling capacity, but overall, they should be on a per barrel basis, similar, but we'll only know that when we finish the budget.
Jimmy Lea: Thank you. The company is still not in a taxpaying position, but will become a taxpayer in 2025. How is the likely tax payable in 2025 affected by the additional spend on erosion control?
Manolo Zuniga: Well, they are different, of course, and the erosion control, like I just said, it's an 18-month project. It will be a significant use of our cash next year, a north of $35 million. And our cash tax that will be payable will be in the order of about $25 million, so those two items alone represent a lot of our uses for next year.
Camilo McAllister: And something to keep in mind, we're setting up five big waters, three of them on the community side. And as such, from an accounting point of view, they need to be considered OpEx. And that's why the OpEx looks like it's higher. But it has its OpEx, we can detect from taxes, and that will help from that point of view.
Manolo Zuniga: Exactly.
Jimmy Lea: Is PetroTal considering bidding on any of the lots offered by Petroperu?
Manolo Zuniga: There's a number of blocks that Petroperu and Perupetro will be beating out -- there are some in Talara, over named PetroTal because I was born at and [indiscernible] Talara, just completely different oil play, and we are now more used to working in the prolific jungle fields. Petroperu owns Block 64, for example, that is a discovery made by Occi more than 10 years ago that has two wells that never came online, 44 API gravity oil. That will be one that we can actually do what we have done so well in Bretaña. Our goal is to be able to replicate what we have done in Bretaña from a technical, financial and social environmental point of view. And I think we have proven. As you see in this slide right now in front of you on the Q&A, we mentioned that we are energy that generates well being for everyone, and that's key. And people are taking notice of that, especially the communities from Block 64 that sometimes call me to make sure that we are the one selected by Petroperú to venture with it, we’ll see.
Jimmy Lea: It’s just a reminder, if you'd like to ask a question, please submit it via the platform. Next (LON:NXT) question. As a regular dividend player with an increasingly institutional shareholder base, how do you think about increasing the scale and lowering the portfolio risk to achieve a lower risk profile? Is M&A a quicker route to achieve this?
Manolo Zuniga: Well, we have actually acquired that small Los Angeles field in part to be able to diversify inside Peru, and we are always looking to acquire assets at good value. The Los Angeles field, we bought it for $5 million. By the time we officially take over hopefully at the end of November, it's been paid out already. And we're going to try to extract a lot of oil very economically. Bretaña, we continue to work in Bretaña as now we are targeting the top maybe in San Juan that can also add a lot of value to us, and we look for opportunities like that. We're always very careful. So the idea of M&A, yes, is always attractive, but we need to be very smart how we manage this, because as you mentioned in your question, is that we have to lower the risk for all of the shareholders and make money.
Jimmy Lea: Would PetroTal consider drilling exploration wells and your blocks without farming down your working interest?
Manolo Zuniga: Well, in Block 107, it's more of a two-well cat drilling, that ideally, we should bring a partner. Interestingly, as we have explained in our presentation, the prior operator has sufficient NOLs even drilling the well, we could enjoy the benefit of both NOLs and actually, the well will be coming for free. So as I actually be -- I like doing business like that. And in Block 95, we always think about the idea of a field of Peru’s [ph] that we have with the idea of maybe finding another one or two refiners. That one will be something that we couldn't handle ourselves in the future. But right now, we are so focused on making sure that we protect our cap with erosion control. We don't intend to relating any exploration wells. And it's good to see companies always reaching out to us because they will be like to be part of that field of Peru’s as Bretaña that keeps growing since the time we took it over seven years ago.
Jimmy Lea: Manolo, Camilo, thank you. There are no further questions at this time. So I'll now hand back to you for closing remarks.
Manolo Zuniga: Well, as always, I want to appreciate and thank all investors that follow the story that have continued investing with us. I'm very happy to -- that we continue committing to return of capital to investors, dividends for us is extremely important, and we've been managing the company and setting up all of our future plans based on that criteria that truly eases to benefit everyone, especially our shareholders. Thank you so much.
Camilo McAllister: Thanks, everyone.
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