Frontera Energy (TSE: FEC / FRA: 3PY3 / OTCMKTS: FECCF): Hit By Colombia Unrest But Sees Coming Profitability and Operational Improvements

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Canada based Frontera Energy Corporation (TSE: FEC / FRA: 3PY3 / OTCMKTS: FECCF) is focused on oil and natural gas (plus related investments) in Colombia, Ecuador, and Guyana. Recent unrest in parts of Colombia where the Company operates has impacted some operations or exploration efforts there. However, recent Guyana exploration efforts could be promising as the country has vast natural resources (forestry, mining and oil and gas) – albeit it’s uncertain whether the Company’s recent discoveries there are commercially viable.

Since 2015, oil companies operating off the Guyana coast have found more than 10 billion barrels of recoverable oil and gas – a tenth of the world’s conventional discoveries (Guyana Is Becoming A Top-Tier Oil Producer and Factbox: Offshore discoveries turn tiny Guyana into oil hotspot). The country is also the only English speaking country in South America with a legal system based on English common law and its corporate system based on the Canada Business Corporations Act.

The WSJ recently mentioned the Company’s more speculative Guyana joint venture partner in an article (As Oil Giants Retreat Globally, Smaller Players Rush In) about how the oil majors are still developing a handful of big oil and gas fields in Latin America. Increasingly, it is smaller, little-known oil firms who are moving into risky lesser explored regions and getting the fossil fuels out of the ground. These smaller oil players have lower costs and can quickly recoup their investment before the next oil price downturn.

OVERVIEW:

  • Frontera Energy is a Canadian public Company involved in the exploration, development, production, transportation, storage, and sale of oil and natural gas in South America, including related investments in both upstream and midstream facilities. We have a diversified portfolio of assets with interests in 31 exploration and production blocks in Colombia, Ecuador, and Guyana, and pipeline and port facilities in Colombia.
  • Frontera Energy has three core businesses: (1) its Colombia and Ecuador Upstream Onshore business, (2) its standalone and growing Colombia Midstream business, and (3) its potentially transformational Guyana Exploration business offshore Guyana.
Our Operations
  • On January 23, 2023 Frontera Energy and CGX Energy (CVE: OYL / FRA: GXCN / OTCMKTS: CGXEF) (see: CGX Energy (CVE: OYL / FRA: GXCN / OTCMKTS: CGXEF): A Speculative Guyana Oil Small Cap Stock), joint venture partners in the Petroleum Prospecting License for the Corentyne block offshore Guyana, announced the spud of the Wei-1 well, on the Corentyne block, approximately 200 kilometres offshore from Georgetown, Guyana. The Well, planned to be drilled to a total depth of 20,500 feet, to date has been successfully drilled to a depth of 19,142 feet (5,834 metres). The Wei-1 well is located approximately 14 kilometres northwest of the Joint Venture’s previous Kawa-1 light oil and condensate discovery. The Well has encountered oil-bearing intervals in the western channel fan complex of the northern portion of the Corentyne block in formations of Maastrichtian and Campanian ages.
Guyana Map

RECENT FINANCIALS / NEWS:

  • Frontera Announces First Quarter 2023 Results, Consolidated Financial Statements (Q1 Ending Mar 31) (PDF File) and Management Discussion and Analysis (PDF File)
    • Recorded a Net Loss of $11.3 Million
    • Generated Operating EBITDA of $91.9 Million
    • Delivered 41,586 Boe/d Q1 Average Daily Production,
      41,800 Boe/d YTD Average Daily Production,
      42,500 Boe/d March and April 2023 Average Daily Production
    • Generated $16.9 Million of Income and Adjusted Midstream EBITDA of $28.2 Million
      From Standalone and Growing Midstream Business
    • Drilled Wei-1 Well to 19,142 Feet (5,834 Metres) Measured Depth,
      Encountered Oil-Bearing Intervals
    • Repurchased 461,200 Common Shares for $4.2 Million Through NCIB
    • Recognized as One of the Most Ethical Companies in the World
      for a Third Consecutive Year by Ethisphere
    • Gabriel de Alba, Chairman of the Board of Directors: “…Consistent with its strategic priorities, the Company successfully refinanced Puerto Bahía’s existing legacy project finance debt via a new $120 million loan facility with a group of lenders led by Macquarie Capital, which extended the tenor of the borrowings and provided for up to $30 million in additional funding to pursue strategic investment opportunities within its Midstream business. With the refinancing complete, Frontera’s standalone midstream business is fully capitalized with funding to grow. Subsequent to the quarter, the Company designated Frontera Energy Guyana Holding Ltd. and Frontera Energy Guyana Corp. as unrestricted subsidiaries and released Frontera Energy Guyana Corp. as a note guarantor for its senior bonds due 2028. The designation is a positive forward step as the Company nears the completion of its exploration obligations in Guyana and supports ongoing capital discipline…”
    • Orlando Cabrales, Chief Executive Officer (CEO): “…I’m pleased with Frontera’s first quarter operational and financial results. Despite community blockades in early February which temporarily shut-in production at our Quifa and CPE-6 operations, the Company’s first quarter production was largely in-line with last quarter. YTD, we are delivering average daily production of approximately 41,800 boe/d and in March and April we averaged 42,500 boe/d. This is due to better than expected performance from our new Cajua wells where current gross average heavy oil production is 4,860 bopd, higher VIM-1 liquids and NGL production, better performance at CPE-6, Coralillo 1 and 3 wells, as well as the Tapiti-1 well.”
    • “The Company continues to focus on managing costs across the business. Frontera’s field breakeven of approximately $34 – $38/boe ensures operational resilience even in volatile market conditions and under varying oil price scenarios.”
    • “We expect improved profitability throughout the rest of the year as we advance our development portfolio in Colombia and Ecuador, increase Quifa and CPE-6 water-handling infrastructure and facilities as we lay the foundation for the Company’s path to grow production to 50,000 boe/d, leverage our advantaged transportation and logistics structure to maximize realized prices and mature our self-sustaining and growing midstream business…”
  • Frontera Energy ‘committed’ to Colombia amid sector unease (Bnamericas) May 2023
    • Corporate affairs director Andrés Sarmiento said operations at the Caguán 5 and Caguán 6 blocks in the Putumayo basin had been suspended for two years because of public order concerns. 
    • He added security issues had also impacted operations at the Quifa and CPE 6 production fields in Meta department. 
    • Frontera reported an US$11.3mn loss in the first quarter compared to a profit of US$102mn a year earlier. The figure was hit by higher exploration costs, impairment charges related to asset relinquishment and foreign exchange losses, among other factors. 
  • Latest Oil Discovery Offshore Guyana May Not Be Commercial (OilPrice.com) May 2023
    • CGX Energy Inc and the Frontera Energy Corporation, partners in the Corentyne Block, this week said in their respective first-quarter results releases that the Wei-1 well on the Corentyne block was successfully drilled and oil was encountered.  
    • “It is not yet certain that the hydrocarbons encountered to date in the Well are yet sufficient to underpin commercial development on the Northern portion of the Corentyne block,” CGX Energy said in its press release.
    • The uncertainty of whether the discovery could be commercially viable is a rare setback for explorers offshore Guyana, which has turned into one of the hottest new exploration provinces for many companies, including U.S. supermajor ExxonMobil.
  • Colombian $4 billion tax reform becomes law, duties on oil and coal hiked (Reuters) November 2022
    • The new law states that oil companies will be taxed an additional 5% when international prices are between $67.3 and $75 per barrel. That then becomes an additional 10% when prices are between $75 and $82.2 per barrel and then 15% if they climb any higher.
    • Coal companies will face similar extra charges when prices exceed certain thresholds. Oil and mining companies will also not be able to deduct the value of royalties from income taxes.

RECENT STOCK ANALYSIS:

  • Frontera Energy Management Is At It Again (TSX:FEC:CA) (Seeking Alpha) April 2023
    • Frontera Energy Corporation has a cash flow source.
    • Financing a successful commercial discovery in Guyana through to production will be a difficult task for Frontera Energy Corporation.
    • The limited number of neighboring operators who might be interested in this situation could instead lead to a war of attrition.
    • The Frontera Energy Corporation balance sheet ratios look decent.
    • South America is a risky place to do business. Companies present there often have discounted valuations.

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