Frontera Energy, the Toronto-based oil and natural gas producer with its principal operations in Colombia, lowered its full-year 2020 production target to 46,000 barrels per day of crude and equivalents, down 30% from a goal of 65,000 boe/d announced in December 2019, officials said during an Aug. 7 conference call.
CEO Richard Herbert said the company, which with 71,000 boe/d of full-year output in 2019 was Colombia's second largest oil and gas producer after state-controlled giant Ecopetrol, blamed the coronavirus pandemic for the revision and the "bleakest conditions seen in our industry in the last 40 years." The company's planned capital expenditure for 2020 has been cut by two thirds.
But executives insisted that after severe cost cutting Frontera now enjoys a strong cash balance and "can survive and even thrive." Frontera is the successor company to Pacific Rubiales, which sought bankruptcy protection and played a central role in opening up Colombia's heavy crude fields in eastern Meta province a decade ago.
Frontera executives scheduled the conference call to discuss its second-quarter 2020 results, which including a precipitous drop in Q2 production to 42,597 boe/d, down 42.7% from 74,385 boe/d in the year-ago period, and off 33% from 63,572 boe/d in 2020's first quarter.
The year-on-year slump in output was due to the "voluntary shut-in" of up to 15,000 boe/d of higher cost production due to lower crude prices attributed to the pandemic. In addition, Q2 2019's production figure included 9,975 boe/d from operations in Peru that were halted in early 2020 due to community blockades.
Although the company said improving crude prices in recent weeks had permitted it to reopen 60% of its shut-in output, it is projecting that output will remain roughly stable in the 40,000-43,000 boe/d range for the remainder of 2020, assuming Brent crude prices remain in the $45/b range.
The company posted a net loss of $67.8 million, compared with a profit of $227.8 million in the year-ago quarter, and a loss of $387.8 million in the quarter that ended March 31. Revenue for the most recent three-month period was $81.7 million, compared with $377.3 million in the year-ago period, and $236.9 million in Q1.
The company also said it has slashed overheads, including a 25% reduction in employees and cuts in salary and hours for non-managerial office and field personnel. It has also negotiated a 50% cost reduction in its leasing of Bogota office space. Total capex in Q2 was $16 million, down 75.4% from $65 million in Q1.
For the remaining two quarters of 2020, the company said capex will total between $20 million and $40 million, for a 2020 total of up to $120 million. As recently as early March, Frontera was targeting $325 million to $375 million in capex, projecting an average Brent crude price of $65/b. Instead, Brent plunged to $33/b in Q2, Herbert said.
There are no current plans to lift the force majeure declaration and resume production at Frontera's Peru property, Block 192. The measure was taken after a community blockade disrupted power supplies to operations. The company's contract for Block 192, which was set to expire on Sept. 2, will be extended for six months from the date the force majeure is lifted.
The company has prospects in Colombia, Ecuador and Guyana, where it owns interests in two offshore blocks now seeing the collection of seismic data. Although no chronology was offered for development, Herbert said the recent election of a new Guyana government should ease a logjam that this year has stymied drill plans.
