This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk20: Good morning, ladies and gentlemen, and welcome to Grand Tierra Energy's results conference call for the second quarter of 2023. My name is Shannon, and I will be your coordinator for today. At this time, all participants are in listening mode. Following the initial remarks, we will conduct a question and answer session for securities analysts and institutions. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, August 2, 2023, at 11 o'clock a.m. Eastern Time. Today's discussion may include certain forward-looking state information, as well as certain non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important disclaimers with regard to this information and reconciliations of any non-GAAP measures discussed on today's call. Any production volumes are based on working interest sales before royalties. Finally, this earnings call is the property of Grand Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Grand Tierra Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Grand Tierra. Mr. Guidry, please go ahead.
spk24: Thank you, operator. Good morning and thank you for joining Granteer's second quarter 2023 results conference call. My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Elson, our Executive Vice President and Chief Financial Officer, and Rob Will, our Vice President of Asset Management. On Tuesday, August 1st, 2023, we issued two press releases that included detailed information on our second quarter 2023 results and about our mid-year 2023 reserves update, both of which are available on our website. Ryan and Rob will make a few brief comments, and then we will open the line for questions. I'll now turn the call over to Ryan.
spk07: Thanks, Gary. Good morning, everyone. During the first half of 2023, Grand Tierra completed its development campaign with a drone of 21 development wells in three of our major fields, which have been producing oil at rates in line or exceeding our expectations. Grand Tierra achieved another strong quarter by delivering $53 million of funds flow while incurring $66 million in capital expenditures, which were both broadly the same as the first quarter of this year. Adjusted EBITDA was $85 million compared to $89 million in the prior quarter. Both fund flow and adjusted EBITDA were negatively impacted by $13 million in realized foreign exchange loss during the quarter, which was caused by a strengthening of the Colombian peso versus the U.S. dollar. With the development campaign now complete, we expect capital expenditures to be lower for the second half of the year, while benefiting from the increased production from our new producing wells. Looking ahead, we are entering an exciting phase of growth where we are gearing up to drill exploration wells in Ecuador in the fourth quarter, of 2023, building on our successful 2022 exploration campaign. As of June 30th, 2023, the company had a cash balance of $69 million and net debt of $503 million. With a forecasted free cash flow in the second half of 2023, we expect to exit 2023 with over $150 million of cash. Looking to pricing, during the quarter, the Brent oil price averaged $77.73 per barrel, which was down 31% from one year ago and down 5% from the prior quarter. The company's quality and transportation discount narrowed to $14.10 per barrel, down from $18.45 per barrel in the prior quarter. The Castilla and Vasconia oil differentials have continued to narrow throughout 2023. During the second quarter, the Vasconia differential narrowed to $5.53 per barrel, down from $7.87 per barrel in the prior quarter, while the Castilla oil differential narrowed to $9.41 per barrel, down from $15.17 per barrel over the same time period. In July 2023, we have continued to see differentials narrowing, with the Vasconia differential down to $3.96 per barrel and the Castilla differential down to $6.64 per barrel. Grand Tiers average production for second quarter was 33,719 barrels per day, up 10% from one year ago, an increase of 7% compared to the prior quarter. The company's second quarter to date 2023 average production has been approximately 35,300. The company's operating net back was $34.58 per barrel, down 42% from one year ago and down 2% from the prior quarter. The drop in operating net back over the last year was largely driven by the decrease in oil price and the higher differentials over the time period. With the strong current production base, Brent oil price above $80 per barrel, narrow differentials, and the majority of capital expenditures behind us, we're very excited about the second half of the year. We're also pleased to announce we plan to invest again in the protection and conservation of the Indian Amazon rainforest in the Putamayo Basin of Columbia by extending our support to the Natural Amazonas Project. During the first six years of the project, Grand Tierra's initial investment of $13 million has already produced impactful results and benefited the environment and local communities, including the reforestation and restoration of over 14,000 hectares of land and planting of over 1.2 million trees. We look forward to our continued partnership with the NGO Conservation International and are excited to build upon the positive impacts we've already made with the Natural Amazonas project. I'll now turn the call over to Rob to discuss our mid-year 2023 reserve update and operational highlights from our second quarter results.
spk26: Good morning, everyone. During the second quarter of 2023, the core minerals production averaged approximately 18,000 barrels of oil per day, another strong quarter performance due to the successful 2023 drilling program and the ongoing prudent management of the enhanced oil recovery water flood scheme. As Ryan had indicated, the company has completed its 2023 development campaign. During the first half of 2023, the company drilled a total of 21 wells. In the quarter narrow, 10 wells were drilled. Six are on production, four are on water injection. In the Chaza block, Granterra has completed its drilling campaign at Kasiakou, which consists of seven wells, four of which are producers and three of which are water injectors. In Moketa, we drilled for production wells. Of particular note, the Cusiaco 54 well was drilled and is the most northern well drilled in the Cusiaco field. An excess of the well has resulted in the identification of multiple additional drilling opportunities to target unswept regions of oil. With our 2023 development campaign now complete, the company is pleased to provide a mid-year reserves update. The positive results announced in the reserves update are a testament to Grand Terra's operational success and our in-country relationships that have allowed the company to secure the Sirienti license continuation. We invite you to read the reserves update press release in its entirety on our website. As of June 30th, 2023, Grand Terra now has the highest reserves in the company's history. 94 million barrels of oil equivalent, or BOE, on a 1P basis. 150 million VOE on a 2P basis, and 212 million VOE on a 3P basis. In the first six months of 2023, the company added 16 million VOE of 1P, 26 million VOE of 2P, and 35 million VOE of 3P reserves, which allowed us to achieve reserve replacement ratios of 270% on a 1P basis, 433% on a 2P basis and 599% on a 3P basis. Despite a decrease in the Brent price forecast used in the mid-year 2023 McDaniel Reserves report relative to the 2022 year-end McDaniel Reserves report, for the first 2.5 years of the evaluation, the combination of our successful development drilling campaign, the Syrienti contract continuation, our focus on maintaining low operating costs, and our Share Buy Back program allowed Granterra to achieve increases relative to 2022 year end in net asset values before tax. Our 1P net asset value before tax is now $49.54 per share, up 7%, and our 2P NAV before tax is now $84.39 per share, up 15%. Costs associated with finding and developing these reserves, excluding changes in future development costs, and on a per BOE basis came in at $8.55 for 1P, $5.33 for 2P, and $3.86 for 3P. These mid-year reserve results are a testament to Grand Tierra's ability to operate as a full-cycle exploration and production company, which offers value to our stakeholders via the via the success we have achieved through the drill bit. I'll now turn the call back to the operator, and we will be happy to answer any questions. Operator, please go ahead.
spk20: Thank you. Ladies and gentlemen, we will now conduct a question and answer session for securities analysts. If you have a question, please press the star key followed by 11 on your touchtone phone. You will then hear an automated message advising your hand is raised. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment, please, for your first question. Our first question comes from the line of Alexandra Simeoneidi with William Blair & Company, United Kingdom. Your line is open. Hi.
spk18: Thanks for taking my questions.
spk17: I have three. If I may, I'll go ahead and ask one by one. I'm seeing higher taxes this quarter. I guess this is because of the last payment, last tax payment for the fiscal 22. Can you please provide some guidance for cash taxes for the second half of the year? This is my first question.
spk07: Thank you. The question was higher debt. Yeah, is really net debt a decrease?
spk17: For the taxes, sorry. Okay. So my question was about taxes. Yeah, so guidance for cash taxes for the second half.
spk07: Yeah, the only taxes that we pay in the second half are the withholding tax, which, you know, the reason that the Colombian government has increased the withholding tax, and that's really just a prepayment for the following year's taxes. And that works out to 8% of revenues.
spk17: Okay, perfect. Thanks very much. Very clear. Then the operating expenses at 15.86, we're running a bit above guidance. Do you expect the second half to converge? Because you have been saying about higher production in the second half, right?
spk07: Yeah. We expected operating costs per barrel to trend down throughout the year. Just with the average for the quarter, it was around 33.7 in Q2. We're at about $35,000 right now, so that will help. We are a little bit higher than we had forecasted originally, and that was just with the strength of the peso. But as our production increases, we expect our per unit cost to decrease.
spk17: Okay, great. Thank you. And my last question is about CAPEX. So given that the drilling campaign has finished for the year, Do you expect CAPEX to come at the lower end of the guidance for this year?
spk07: Yeah, our original guidance was 210 to 250 for the year. I think in our last release we lowered that to 210 to 230. So we narrowed the range, so we do expect it at the lower end of the range.
spk20: Okay.
spk16: Thank you.
spk20: Thank you. Thanks. Our next question comes from the line of Anne Milne with Bank of America. Your line is open. Anne Milne Thank you.
spk19: Congratulations on the results. Two questions I have. One is I noticed that you currently do not have any hedges in place, so I just wonder under what conditions or at what prices would you consider reinstating some hedges? And the second, I think you hinted at a little bit in the last question and answer, which was the stronger peso. How has that affected your, I guess, to what degree your cost basis, and is there anything you can do about that to mitigate it?
spk24: Yeah, on the hedging, we go through an annual process of looking at all of our assets over a five-year period. We're just starting that process, and you're correct, we are unhedged at the moment. So we'll evaluate that in the third and the fourth quarter here. depending on what we allocate for capital for 2024 and make those decisions, depending on the capital program, but also what our outlooks are. And we'll let Ryan answer the question on the Peso.
spk07: Yeah, the Peso obviously started the year, I think around $4,000, ran up all the way to $5,000. Now we're back down to around $4,000. So, you know, it is putting a little bit of cost pressure on. You know, we hadn't done our budget at $5,000. We've done it on $4,200. So it's not significantly higher than what we had budgeted. But it still is a negative impact, especially when 75% of our operating costs are in pesos. You know, inflation has tamed a little bit in Colombia. So that's offsetting some of the inflationary pressures. So it won't have a material impact on our results. You know, this quarter we did, you know, is predominantly because our payment of taxes in the second quarter, both in April and June. And that was really the payment of our 2022 taxes. And that's why you'll see in our results, we booked a large realized gain. And that was just the change in peso. So it was truly a realized gain because we did make that payment this quarter.
spk19: Okay.
spk20: Thank you very much.
spk07: Thanks, Anne.
spk20: Thank you. Our next question comes from the line of Roman Rossi with Canaccord Genuity. Your line is now open.
spk10: Good morning, and thanks for taking my question. Excellent additions on the reserve side. So I have a couple. I will go one by one. The first one, you mentioned that the NCIB was completed. I was wondering if you are expecting to renew it or if you are expecting to just hold cash in order to decrease the leverage ratio.
spk07: You know, on that question, we did max out the NCIB, and we can renew it sometime this month. And we would look to renew it. Even if we do renew it, we have lots of flexibility on whether we purchase shares on it or not. You know, last year we did repurchase 10% of our shares, but we would look to renew it.
spk10: Okay, awesome. And then adding to the capex question we had before, you need to spend around $83 million during the second half of the year to reach midpoint guidance. But you mentioned that the exploration campaign will only begin in fourth quarter, so we should expect a light capex in third quarter and a higher capex in the fourth?
spk07: Correct. Yeah, Q4 will probably be driven by the exploration wells. as well as building pads and getting ready for the 2024 development campaign, development and exploration campaign.
spk10: Perfect, thanks. And the last question is regarding the Castilla and Basconia credentials. We've seen that they have narrowed significantly. So what are we expecting for the second half of the year?
spk07: Yeah, I think, you know, we budgeted, you know, the number that we were forecasting is higher than what they currently have. Do you think you've but I think Castilla is close to, you know, $6 today. So it's narrowed quite a bit, and Vasconia is below $4. You know, we're forecasting around, you know, $7.50 for Castilla and around $4 for Vasconia for the second half. But the market is tighter than that right now.
spk11: Okay, great. Thank you, Ryan. Thank you.
spk20: Thank you. Our next question comes from the line of Joseph Schachter with Schachter Energy Research. Your line is now open.
spk22: Good morning, guys, and two questions. The first one for Ryan. You mentioned that net debt was 503, and you expected cash by year end to be $150 million, so up $82 million from where you are at June 30th. You've also, in the first half, did some buying of the six and a quarter senior notes, Feb 2025. Do you see using that money for buying back more bonds, or do you really have a strong need to want to see $150 million in cash on the balance sheet at year end? Or are there other purposes that you might find to use that for?
spk07: Yeah, it's a good question. I think it's, you know, we target to maintain a cash balance, you know, $75 to $100 million, and that will vary by quarter depending on activity. So we're comfortable with the 75 to a hundred million dollar cash balance. So we would look at where to deploy the, it was called the excess cash in the second half. And that could be a combination of bond repurchases, share repurchases, or just, you know, having a little extra cash to gear up for a more active 2024 program. Okay.
spk22: Where do you see the comfort zone on net debt, given your production levels and let's say in an $80 print number, do you want to see that number at 400 and then you're happy and you can leave it there? Where do you see the targeted debt number you want to have going forward in 2024?
spk07: Yeah, I think we'd like to get our gross debt down to 500 and our net debt, you know, around 400 to 425. We think that's a reasonable number, especially with our production base, the low capital requirements of our assets. We think that's a very manageable number.
spk22: Okay, super. Yeah, I agree with that. A question for Gary. In past presentations, you've mentioned that you were looking at diversifying into maybe MENA or other places around the world. Has there been much progress on that? And do you see 2024 maybe adding another leg to the stool of the business?
spk24: Yeah. The answer is yes. We continue looking at diversifying value-add acquisitions. It's a continuous process and will continue into 2024. So we see lots of things that are out there that could add value. We're sitting at a, trading at a half of our PDP. And you can see the transactions that are happening globally. There are not many transactions outside of Canada and North America in general, but I think the answer to your question is we will continue our process of looking for value-add.
spk22: And Maine is the main area, or are there other areas as well?
spk24: Yeah, we always look in the basins that we're in, in the countries that we're in. Colombia, Ecuador, but the targets for diversifying beyond those countries is definitely MENA.
spk22: Okay, so just to clarify what you said before. Thanks very much, Gary, and good luck for Q3. Look forward to seeing the results given the stronger commodity prices.
spk25: Thanks, Joseph.
spk20: Thank you. Our next question comes from the line of Oriana Kovalt with Balance. Your line is now open. Thank you.
spk15: Hi, thanks for taking my question. I had two questions. If we may go one by one, that would be great. First, on the operating side, we noticed a 9% sequential decrease in accordionero volumes. So just wondering if you could provide more insight into how are you seeing production growing across Ecuador and the Putumayo, and if you have any color that you could share in terms of what drove the accordionero lower production. On a quarter-over-quarter basis, sorry.
spk07: Yeah, I think part of that was just timing on when we brought on wells. So we had some flush production in the first quarter and then decreased in the second quarter. We also had some wells down during the quarter, which we subsequently have brought on, and that's where we see our production around that 35,000 barrels right now.
spk15: Perfect. And just going back to the CAPEX question, I just wanted to confirm whether the exploration program through the remainder of the year will only be concentrated in Ecuador. Just looking at the 2023 guidance and the plan of going into four to six wells between Colombia and Ecuador, I just wanted to confirm if we should expect to see anything coming from Colombia as part of the Sudoriente Continuation Program.
spk24: Yeah, the answer is yes. We're focused on Ecuador. We've had some really good success. We've drilled two wells, two discoveries, and we're looking for critical mass in Ecuador on the development side. We do have some very exciting things to drill in Colombia, but that will likely occur in our 2024 capital program.
spk14: Perfect. Thank you very much.
spk20: Thank you. Our next question comes from the line of Garrett Fellows with J.H. Lane Partners. Your line's now open.
spk08: Hey, guys. Thanks for taking the question. Can we just talk about plans to address the 2025 maturity, and would you guys perhaps use some of that excess cash to reduce the overall quantum of debt?
spk07: Yeah, it's a good question. Yeah, our base plan is that we repay them as we come new. And as you point out is that we will have some excess cash and we will look at deploying capital to the 2025s and targeting majorities.
spk01: Okay, thanks very much.
spk20: Thank you. Gentlemen, there are no further questions at this time. Please continue.
spk24: Thank you, Operator. I'd like to once again thank everyone for joining us today. We look forward to speaking with you next quarter and update you on ongoing progress. Thank you very much.
spk20: This concludes today's conference call. Thank you for participating. You may now disconnect. you Bye. Thank you. Bye. music music you you Good morning, ladies and gentlemen, and welcome to Grand Tierra Energy's results conference call for the second quarter 2023. My name is Shannon and I will be your coordinator for today. At this time, all participants are in listening mode. Following the initial remarks, we will conduct a question and answer session for securities analysts and institutions. Instructions will be provided at the time for you to queue up for questions. I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, August 2, 2023, at 11 o'clock a.m. Eastern Time. Today's discussion may include certain forward-looking state information as well as certain non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important disclaimers with regard to this information and reconciliations of any non-GAAP measures discussed on today's call. Any production volumes are based on working interest sales before royalties. Finally, this earnings call is the property of Grand Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Grand Tierra Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Grand Tierra. Mr. Guidry, please go ahead.
spk24: Thank you, operator. Good morning and thank you for joining Granteer's second quarter 2023 results conference call. My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Elson, our Executive Vice President and Chief Financial Officer, and Rob Will, our Vice President of Asset Management. On Tuesday, August 1st, 2023, we issued two press releases that included detailed information on our second quarter 2023 results and about our mid-year 2023 reserves update, both of which are available on our website. Ryan and Rob will make a few brief comments, and then we will open the line for questions. I'll now turn the call over to Ryan.
spk07: Thanks, Gary. Good morning, everyone. During the first half of 2023, Grand Tierra completed its development campaign with a drone of 21 development wells in three of our major fields, which have been producing oil at rates in line or exceeding our expectations. Grand Tierra achieved another strong quarter by delivering 53 million of funds flow, while incurring 66 million in capital expenditures, which were both broadly the same as the first quarter of this year. Adjusted EBITDA was 85 million compared to 89 million in the prior quarter. Both funds flow and adjusted EBITDA were negatively impacted by 13 million in realized foreign exchange loss during the quarter, which was caused by a strength in the Colombian peso versus the U.S. dollar. With the development campaign now complete, we expect capital expenditures to be lower for the second half of the year, while benefiting from the increased production from our new producing wells. Looking ahead, we're entering an exciting phase of growth where we're gearing up to drill exploration wells in Ecuador in the fourth quarter of 2023, building on our successful 2022 exploration campaign. As of June 30, 2023, the company had a cash balance of $69 million and net debt of $503 million. With a forecasted free cash flow in the second half of 2023, we expect to exit 2023 with over $150 million of cash. Looking at the pricing, during the quarter, the Brent oil price averaged $77.73 per barrel, which was down 31% from one year ago and down 5% from the prior quarter. The company's quality and transportation discount narrowed to $14.10 per barrel, down from $18.45 per barrel in the prior quarter. The Castilla and Vasconia oil differentials have continued to narrow throughout 2023. During the second quarter, the Vasconia differential narrowed to $5.53 per barrel, down from $7.87 per barrel in the prior quarter, while the Castilla oil differential narrowed to $9.41 per barrel, down from $15.17 per barrel over the same time period. In July 2023, we have continued to see differentials narrowing with the Vasconia differential down to $3.96 per barrel and the Castilla differential down to $6.64 per barrel. Grand Tiers average production for second quarter was 33,719 barrels per day, up 10% from one year ago, an increase of 7% compared to the prior quarter. The company's second quarter To date, 2023 average production has been approximately 35,300. The company's operating net back was $34.58 per barrel, down 42% from one year ago and down 2% from the prior quarter. The drop in operating net back over the last year was largely driven by the decrease in oil price and the higher differentials over the time period. With the strong current production base, Brent oil price above $80 per barrel, narrow differentials, and the majority of capital expenditures behind us, we're very excited about the second half of the year. We're also pleased to announce we plan to invest again in the protection and conservation of the Andean Amazon rainforest in the Putumayo Basin of Columbia by extending our support to the Natural Amazonas Project. During the first six years of the project, Grand Tierra's initial investment of $13 million has already produced impactful results from a benefited environment and local communities, including the reforestation and restoration of over 14,000 hectares of land and planting of over 1.2 million trees. We look forward to our continued partnership with the NGO Conservation International and are excited to build upon the positive impacts we've already made with the Natural Amazonas project. I'll now turn the call over to Rob to discuss our mid-year 2023 reserve update and operational highlights from our second quarter results.
spk26: Good morning, everyone. During second quarter 2023, Accord Narrow's production averaged approximately 18,000 barrels of oil per day, another strong quarter performance due to the successful 2023 drilling program and the ongoing prudent management of the enhanced oil recovery water flood scheme. As Ryan had indicated, the company has completed its 2023 development campaign. During the first half of 2023, the company drilled a total of 21 wells. In Accord Narrow, ten wells were drilled, six are on production, four are on water injection. In the Chatham block, Grand Terra has completed its drilling campaign at Casiaco, which consists of seven wells, four of which are producers and three of which are water injectors. In Moqueta, we drilled four production wells. Of particular note, the Casiaco 54 well was drilled and is the most northern well drilled in the Casiaco field. and the excess of the well has resulted in the identification of multiple additional drilling opportunities to target unswept regions of oil. With our 2023 development campaign now complete, the company is pleased to provide a mid-year reserves update. The positive results announced in the reserves update are a testament to Grand Terra's operational success and our in-country relationships that have allowed the company to secure the Sirienti license continuation. we invite you to read the reserves update press release in its entirety on our website. As of June 30th, 2023, Grand Terra now has the highest reserves in the company's history. 94 million barrels of oil equivalent or BOE on a 1P basis, 150 million BOE on a 2P basis, and 212 million BOE on a 3P basis. In the first six months of 2023, the company added 16 million VOE of 1P, 26 million VOE of 2P, and 35 million VOE of 3P reserves, which allowed us to achieve reserve replacement ratios of 270% on a 1P basis, 433% on a 2P basis, and 599% on a 3P basis. Despite a decrease in the Brent price forecast used in the mid-year 2023 McDaniel Reserves report relative to the 2022 year-end McDaniel Reserves report for the first 2.5 years of the evaluation. The combination of our successful development drilling campaign, the Syriente contract continuation, our focus on maintaining low operating costs, and our share buyback program allowed Granterra to achieve increases relative to 2022 year-end in net asset values before tax. Our 1P net asset value before tax is now $49.54 per share, up 7%. And our 2P NAV before tax is now $84.39 per share, up 15%. Costs associated with finding and developing these reserves, excluding changes in future development costs, and on a per BOE basis, came in at $8.55 for 1P, $5.33 for 2P, and $3.86 for 3P. These mid-year reserve results are a testament to Grand Tierra's ability to operate as a full-cycle exploration and production company, which offers value to our stakeholders via the success we have achieved through the drill bit. I'll now turn the call back to the operator, and we will be happy to answer any questions. Operator, please go ahead.
spk20: Thank you. Ladies and gentlemen, we will now conduct a question and answer session for securities analysts. If you have a question, please press the star key followed by 11 on your touchtone phone. You will then hear an automated message advising your hand is raised. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment please for your first question. Our first question comes from the line of Alexandra Simeoneidi with William Blair & Company, United Kingdom. Your line is open.
spk18: Hi, thanks for taking my questions.
spk17: I have three. If I may, I'll go ahead and ask one by one. I'm seeing higher taxes this quarter. I guess this is because of the last tax payment for the fiscal 22. Can you please provide some guidance for uh cash taxes for the second half of the year this is my first question higher debt yeah is really net debt a decrease for the taxes sorry so my question was about taxes yeah so guidance for cash taxes for the second half
spk07: Yeah, the only taxes that we pay in the second half are the withholding tax, which, you know, recently the Colombian government has increased the withholding tax, and that's really just a prepayment for the following year's taxes. And that works out to 8% of revenue.
spk17: Okay, perfect. Thanks very much. Very clear. Then the operating expenses at 15.86%, We're running a bit above guidance. Do you expect the second half to converge? Because you have been saying about higher production in the second half, right?
spk07: Yeah. We expect the operating cost per barrel to trend down throughout the year. Just with the average for the quarter, it was around $33,700 in Q2. We're at about $35,000 right now. So that will help. And then we did
spk17: know we are a little bit higher than we forecast originally and that was just with the strength of the peso but as our production increases we expect our per unit cost to decrease okay great thank you and my last question is about capex so given that the trading campaign has finished for the year do you expect capex to come at the lower end of the guidance for this year
spk07: Yeah, our original guidance was $210,000 to $250,000 for the year. I think in our last release, we lowered that to $210,000 to $230,000. So we narrowed the range. So we do expect it at the lower end of the range.
spk16: Okay. Thank you.
spk20: Thank you. Our next question comes from the line of Anne Milne with Bank of America. Your line is open. Thank you.
spk19: Congratulations on the results. Two questions I have. One is I noticed that you currently do not have any hedges in place, so I just wonder under what conditions or at what prices would you consider reinstating some hedges? And the second, I think you hinted at a little bit in the last question and answer, which was the stronger peso. How has that affected your, I guess, to what degree your cost basis, and is there anything you can do about that to mitigate it?
spk24: Yeah, on the hedging, we go through an annual process of looking at all of our assets over a five-year period. We're just starting that process. And you're correct, we are unhedged at the moment. So we'll evaluate that in the third and the fourth quarter here, depending on what we allocate for capital for 2024 and make those decisions, depending on the capital program. but also what our outlooks are. And we'll let Ryan answer the question on the PESO.
spk07: Yeah, the PESO obviously started the year, I think around $4,000, ran up all the way to $5,000. Now we're back down to around $4,000. So, you know, it has put a little bit of cost pressure on. You know, we hadn't done our budget at $5,000. We've done it on $4,200. So it's not significantly higher than what we had budgeted. But it still is a negative impact, especially with 75% of our operating costs are in pesos. You know, inflation has tamed a little bit in Colombia, so that's offsetting some of the inflationary pressures. So it won't have a material impact on our results. You know, this quarter we did, you know, is predominantly because our payment of taxes in the second quarter, both in April and June, and that was really the payment of our 2022 taxes. And that's why you'll see in our results, we booked a large realized gain, and that was just the change in peso. So it was truly a realized gain because we did make that payment this quarter.
spk19: Okay.
spk20: Thank you very much.
spk07: Thanks, Anne.
spk20: Thank you. Our next question comes from the line of Roman Rossi with Canaccord Genuity. Your line is now open.
spk10: Good morning, and thanks for taking my question. Excellent. additions on the reserve side so i have a couple i will go one by one uh the first one you mentioned that the ncib was completed i was wondering if you are expecting to renew it or if you are expecting to just hold cash in order to decrease the leverage ratio you know on that question we did max out the ncib and we and we can renew it uh sometime this month
spk07: And we would look to renew it. Even if we do renew it, we have lots of flexibility on whether we purchase shares on it or not. Last year, we did repurchase 10% of our shares, but we would look to renew it.
spk10: Okay, awesome. And then adding to the CapEx question we had before, you need to spend around $83 million during the second half of the year to reach midpoint guidance. But you mentioned that the exploration campaign will only begin in fourth quarter, so we should expect a light capex in third quarter and a higher capex in the fourth?
spk07: Correct. Yeah, Q4 will probably be driven by the exploration wells as well as building pads and getting ready for the 2024 development campaign, development and exploration campaign.
spk10: Perfect. Thanks. And the last question is regarding the Castilla and Baskonia experientials. We've seen that they have narrowed significantly. So what are we expecting for the second half of the year?
spk07: Yeah, I think, you know, we budgeted, you know, the number that we were forecasting is higher than what they currently have. I think Castilla is close to, you know, $6 today. So it's narrowed quite a bit and Baskonia is below $4. You know, we're forecasting around, you know, $7.50 for Castilla and around $4 for Masconia for the second half. But the market is tighter than that right now.
spk11: Okay, great. Thank you, Rand. Thank you.
spk20: Thank you. Our next question comes from the line of Joseph Schachter with Schachter Energy Research. Your line is now open.
spk22: Good morning guys. And two questions. The first one for Ryan, you mentioned that net debt was 503 and you expected cash by year end to be 150 million. So up 82 million from where you are at June 30th. You've also in the first half did some buying of the six and a quarter senior notes, Feb, 2025. Do you see using that money for buying back more bonds? Or do you really have a strong need to want to see $150 million in cash on the balance sheet at year end? Or are there other purposes that you might find to use that for?
spk07: Yeah, it's a good question. I think it's, you know, we target to maintain a cash balance, you know, $75 to $100 million, and that will vary by quarter depending on activity. So we're comfortable with a $75 to $100 million cash balance. So we would look at where to deploy what's called the excess cash in the second half. And that could be a combination of bond repurchases, share repurchases, or just, you know, having a little extra cash to gear up for a more active 2024 program.
spk22: Okay. Where do you see the comfort zone on net debt, given your production levels and let's say in an $80 print number, do you want to see that number at 400 and then you're happy and you can leave it there? Where do you see the targeted debt number you want to have? going forward in 2024?
spk07: Yeah, I think we'd like to get our gross debt down to 500 and our net debt, you know, around 400 to 425. We think that's a reasonable number, especially with our production base, the low capital requirements of our assets. We think that's a very manageable number.
spk22: Okay, super. Yeah, I agree with that. Question for Gary. In past presentations, you've mentioned that you were looking at diversifying into maybe MENA or other places around the world. Has there been much progress on that? And do you see 2024 maybe adding another leg to the stool of the business?
spk24: Yeah. The answer is yes. We continue looking at diversifying value-add acquisitions. It's a continuous process and will continue into 2024. So we see lots of things that are out there that could add value. We're sitting at a, trading at a half of our PDP. And you can see the transactions that are happening globally. There are not many transactions outside of Canada and North America in general, but I think the answer to your question is we will continue our process of looking for value-add.
spk22: And Maine is the main area, or are there other areas as well?
spk24: Yeah, we always look in the basins that we're in, in the countries that we're in. Colombia, Ecuador, but the targets for diversifying beyond those countries is definitely MENA.
spk22: Okay, so just to clarify what you said before. Thanks very much, Gary, and good luck for Q3. Look forward to seeing the results given the stronger commodity prices.
spk25: Thanks, Joseph.
spk20: Thank you. Our next question comes from the line of Oriana Kovolt with Balance. Your line is now open.
spk15: Hi, thanks for taking my question. I had two questions. If we may go one by one, that would be great. First, on the operating side, we noticed a 9% sequential decrease in accordionero volumes. So just wondering if you could provide more insight into how are you seeing production growing across Ecuador and the Putumayo, and if you have any color that you could share in terms of what drove the accordionero lower production. On a quarter-over-quarter basis, sorry.
spk07: Yeah, I think part of that was just timing on when we brought on wells. So we had some flush production in the first quarter and then decreased in the second quarter. We also had some wells down during the quarter, which we subsequently have brought on, and that's where we see our production around that 35,000 barrels right now.
spk15: Perfect. And just going back to the CAPEX question, I just wanted to confirm whether the exploration program through the remainder of the year will only be concentrated in Ecuador. Just looking at the 2023 guidance and the plan of going into four to six wells between Colombia and Ecuador, I just wanted to confirm if we should expect to see anything coming from Colombia as part of the Sur Oriente Continuation Program.
spk24: Yeah, the answer is yes. We're focused on Ecuador. We've had some really good success. We've drilled two wells, two discoveries, and we're looking for critical mass in Ecuador on the development side. We do have some very exciting things to drill in Colombia, but that will likely occur in our 2024 capital program.
spk14: Perfect. Thank you very much.
spk20: Thank you. Our next question comes from the line of Garrett Fellows with J.H. Lane Partners. Your line is now open.
spk08: Hey, guys. Thanks for taking the question. Can we just talk about plans to address the 2025 maturity, and would you guys perhaps use some of that excess cash to reduce the overall quantum of debt?
spk07: Yeah, it's a good question. Yeah, our base plan is that we repay them as we come new. And as you point out, we will look at deploying capital to the 2025s and targeting majorities.
spk20: Okay, thanks very much.
spk01: Thank you.
spk20: Gentlemen, there are no further questions at this time. Please continue.
spk24: Thank you, operator. I'd like to once again thank everyone for joining us today. We look forward to speaking with you next quarter and update you on ongoing progress. Thank you very much.
spk20: This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer