8/15/2025

speaker
Operator

Good morning, my name is Sergio and I'll be your conference facilitator today. Welcome to Frontera Energy's second quarter 2025 operating and financial results conference call. All lines are currently on mute to prevent any background noise. I would like to remind you that this conference call is being recorded today and is also available through an audio webcast on the company's website. Following the speaker's remarks, there will be a time for questions. Analysts and investors are reminded that any additional questions can be directed to Frontera following today's call at IR at fronteraenergy.ca. This call contains forward-looking information within the meaning of applicable Canadian security laws relating to activities, events, or developments the company believes or expects will or may occur in the future. Forward-looking information reflects the current expectations, assumptions, and beliefs of the company based on information currently available to it. Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information. The company's MDNA for the quarter ended June 2025, and the company's annual information from dated March 10, 2025, and the documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions, and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which it is made, and the company disclaims any intent or obligation to update any forward-looking information except as required by law. I will now like to return the call over to Mr. Gabriel De Alba, Chairman of the Board of Frontera Energies. Mr. De Alba, please go ahead.

speaker
De Alba

Thank you, operator. Good morning, everyone, and welcome to Frontera's second quarter 2025 Operating and Financial Results Conference call. Joining me on today's call are Orlando Cabrales, Frontera's CEO, and René Burgos Diaz, Frontera's CFO. Also available to answer questions at the end of the call, we have Victor Vega, VP Field Development, Reservoir Management and Exploration, Alejandra Bonilla, General Counsel, Ivana Cavalo, VP Operations, and Renata Campagnaro, VP Marketing, Logistics, and Business Sustainability. Thank you for joining us. Throughout the second quarter, despite ongoing volatility in the global economy and oil markets, Frontera remained focused on executing its strategic priorities. The company achieved strong operational results and completed important initiatives aimed at creating value for its shareholders and bondholders. The company delivered $76.1 million in operating EBITDA, generated $27.1 million in adjusted infrastructure EBITDA, and ended the quarter with a strong cash balance of $197.5 million. Additionally, the company prioritized returning capital to all investors via a successful $80 million tender offer and consent solicitation of its senior notes due in 2028. Through the consent solicitation, the company strengthened its financial flexibility and reduced outstanding debt obligations, reducing its upstream net debt by 20%. The amendments to the indenture allied Frontera's indenture with industry standards and offered targeted operational flexibility, supporting the delivery of sustainable business and reserve growth, including growth from inorganic transactions. Subsequent to the quarter, Frontera completed a Canadian $91 million substantial insurer bid, the largest in the company's history. The SIV had a .6% participation, demonstrating that the capital distribution strategy has proven to be effective and well received by the shareholders. The company also declared a quarterly dividend of $0.0625 per share, or approximately $3.5 million in aggregate, and initiated daily stock buybacks via a non-course insurer bid program. Over the last 12 months, Frontera returned over $144 million to shareholders through dividends and share buybacks, and also reduced its senior unsecured notes principle by more than 20%, highlighting its commitment to returning capital to all investors. In Guyana, the 90-day consultation and negotiation period, which was established following the 90-day consultation and negotiation period, the company received a letter reaffirming the government's vision that the current time license expired, but noted that it may consider a final meeting with the investors on a without prejudice basis in October 2025, and the joint venture will be informed as to whether such a meeting will occur in September 2025. Following the expiry of the 90-day consultation and negotiation period arising from the notice of intent, and in view of the uncertainty introduced by the government of Guyana, we have recognized an impairment of over $430 million related to our investment in the current time block in accordance with prudent accounting standards. The joint venture remains firmly of the view that its interest in and the license for the current time block remain in place and in good standing, and that the petroleum agreement has not been terminated. We remain committed to working with the government of Guyana to resolve these issues amicably, while preparing to assert and protect our legal and contractual rights to all available legal remedies as necessary. Looking ahead, Frontera will continue to consider all options to realize the full value of its assets and enhance their holdover value. In doing so, it will continue to consider initiatives in 2025 and beyond, including additional dividends, distributions, share or bond buybacks based on the overall results of the business, all prices, and the company's cash flow generation. Additionally, the company will consider all options to enhance the value of its common shares in the short term, and in so doing may consider other strategic initiatives or transactions. I'd like now to turn the call over to Orlando Cabrales, Frontera's CEO, and René Burgos, Frontera's CFO, who will share their views on our first quarter results. Orlando?

speaker
Frontera

Thank you, Gabriel. Good morning, everyone, and thank you

speaker
Gabriel

for joining us for today's call. Frontera's solid second quarter financial and operating results achieved despite the ongoing market volatility reflect the effective actions taken to deliver stakeholder value, maintain financial and operational flexibility, and reduce long-term leverage. We have increased our total production quarter over quarter to 41,055 barrels per day, driven by increased processing capacity at Sahara, investments in new flow lines in our heavy oil fields, and a successful well intervention program within our light and medium blocks, and new commercialized volumes of natural gas production from the B1 block. During the quarter, we maintain our focus on operational improvements, reducing capital spending and cost and process efficiencies across our business, lowering our production costs by .3% to $9.1 per barrel quarter over quarter, driven by freeware well interventions and the implementation of new production technologies in the fields. We also reduce our transportation costs by .7% to $11.62 per barrel quarter over quarter, driven by higher domestic wellhead sales. During the second quarter, the company drilled 26 development wells, mainly at our KIPA and CT6 blocks in Colombia, and completed 22 well workovers in other areas. On the exploration front, our efforts now turn to the Guapo 1 well, where preparation and permits were secured, and drilling is expected in the second half of the year. Our standalone and growing Colombian infrastructure business, which includes the company's interest in OVL, generated an adjusted infrastructure EBITDA of $27.1 million. At Puerto Bahia, the RefiCar connection was completed by the end of the quarter, and we are aiming for the first volumes to be transported during the third quarter of 2025. The connection is a strategic asset for the Cartagena Bay, offering higher throughput of hydrocarbons and the lowest transportation costs and superior logistics for the refinery of Cartagena. Other strategic investments in the port, including the LPG JB with Empresas Gascom, are progressing on schedule. The port is also pursuing additional investment opportunities that leverage its facilities and infrastructure for sustainable long-term growth. Following the end of the quarter, the company announced it had reached an agreement to divest its interest in the non-core Perico and Espejo fields in Ecuador. The transaction is consistent with our strategy of maximizing value over volumes and supports a stronger focus on our higher impact Colombia upstream operations. The divestment will provide the company a total cash consideration to Frontera of $7.8 million, plus additional contingent consideration of $750,000 upon Perico achieving cumulative production of 2 million barrels as from January 1, 2025. The closing of the transaction pending regulatory approvals is expected to occur in the second quarter of 2026. As a result, we are adjusting our 2025 production guidance to account for the impact of the Ecuador sale to 39,500 to 41,000 BOE per day. In light of the current oil price environment, we are also adjusting our capital expenditure guidance downwards by approximately $20 million, reducing development facilities capex to $45 to $65 million, and exploration capex to $25 to $35 million, reflecting our disciplined approach to capital spending and ability to identify ongoing operational efficiencies. Additionally, we are providing operating edit guidance at a 70-brill price with a target of between $320 million to $360 million, and revising our adjusted infrastructure edit guidance to between $110 to $125 million. I would now like to

speaker
Frontera

turn the call over to René Burgos, Frontera's CFO. Thank you, Orlando, and thank you, Ariel. Good morning, everybody, and thank you as always for

speaker
Ariel

your support and interest

speaker
Frontera

for

speaker
Ariel

our company. I'll try to go through very quickly, as I'd like just to take a moment to highlight a few key financial aspects of our portal results. In the second quarter, the company recorded an investment of $455.2 million, or $5.89 per share. Our net loss of the quarter resulted primarily from non-cash impermanent charges, so $477 million related to the company's interest in the Quarantine License and our Ecuadorian asset divestment. Including these impermanent charges, the company's net income for the quarter would have been approximately $48 million. Our operating cost for the quarter was approximately $76.1 million, compared to $83.5 million in the quarter for a 9% reduction. This was primarily due to lower print prices, which were 11% lower on the -over-quarter basis, partially upset by the lower production and transportation

speaker
Frontera

costs, which highlights our operational discipline. Moving on to our key

speaker
Ariel

results, we saw a lot of operational performance indicators. In the quarter, we saw average print sale prices at $66.71. We could see strong demand for the company's any referrals, which in turn has resulted in a lower average investment of differential on export sales of $1.69. This compares to the prior

speaker
Frontera

quarter of $4.38 and over $2 per barrel improvement. Our purchase group net margin associated with our dilution and transportation

speaker
Ariel

programs was $3.53, lower than $3.81 for the

speaker
Frontera

prior quarter. These are the results of improvement in our diluent purchasing strategy. Reviewing our operating costs, our production, energy, and transportation costs for the

speaker
Ariel

barrel for the quarter total $25.34. This compares to $27.74 for the prior quarter and over $2 reduction, resulting primarily for improvement across all of our cost categories. The decreasing -over-quarter production costs was primarily a result of lower-worn ratio activities, as I've already highlighted, and the adoption of new fuel technologies focused on reducing water production at the wellhead. Energy costs also decreased in

speaker
Frontera

the quarter, mainly related to lower market prices and also lower consumption per barrel. Transportation costs also decreased as a result of reduced transport volumes

speaker
Ariel

resulting from higher domestic wellhead sales prices. In our infrastructure business, adjusted EBITDA for the quarter was $0.271 million, which compares to $28.6 million in the prior quarter. The -over-quarter decrease was primarily due to higher operations of INSADA. This happens as we confuse the red-bobbist operations with water-purchasing bonds in SADA up to over 50% on a -over-quarter basis,

speaker
Frontera

which was offset by foster results in the portfolio segment. As of June 30,

speaker
Ariel

2025, the company reported a total cash position of $197.5 million, including $184.9 million of unrestricted cash in cash acquittals. As of the quarter, the company did complete its ID and the payment of approximately $66 million to shareholders, which will be reflected in the next quarter. We will touch on this further shortly. Turning now to risk management, our current risk management strategy supports our operations and planning. From there, I use derivative instruments to manage exposure to oil prices and oil effects. On the oil side, the company has entered into hedges, successfully securing up to 40% hedging ratio until December 2025 at prices between $65 and $70 per cent, protecting against a drop in oil prices. Here today, we have realized approximately $6 million in gains in energy activities, exerting premium costs, enhancing financial stability, and providing a maximum of marketing fluctuations. From there, I have also covered 40% of the company's expected special exposure until the third quarter and 20% of its exposure to the fourth quarter, with floors at over the $4,200 level. This is providing the company with cash availability and helps mitigate impacts on future fluctuations while allowing the business to deliver on the 2025 target. Finally, I'd like to provide an update on our Investor Valley initiative. In the second quarter, the company repurchased $80 million of 2020 notes through a cash tender and dispensable station. The company has paid approximately $10.5 million in dividends here today, and together with the second quarter results, the board has declared a quarterly dividend of 6.25 per share of Canadians, the shareholding record as of October 2nd, 2025, and to be paid on around October 16th. Regarding the company's special issuer bid, SAB from there repurchased $91 million Canadian or $66 million U.S. dollars of its common shares through SID that ended in July, which is in addition to the company's $42 million or $30 million Canadian or $30 million USD of common shares repurchased through the SAB that closed in January of this year. The company is also currently repurchasing shares daily through Automated Shared Purchase Forward, the NCIB, that we recently launched in July. With that, I will now turn the call back to Orlando for further thoughts.

speaker
Gabriel

Thank you, Rame. Before I conclude today's call, I would like to highlight that the company continues to advance toward its 2028 sustainability goals, as well as on the 2025 plan, with progress made on almost every goal during the second quarter. On the sustainability front, we are committed to following and promoting human rights within our operations, and we have launched the Business Network for Responsible Business Conduct to promote and share best practices in human rights, religions, and training. In the second quarter of 2025, local suppliers accounted for over 11% of total purchases, reflecting the ongoing commitment to support local economic development. Additionally, we maintain a strong performance in health and safety indicators, achieving a total recordable incident rate of .71, and also attaining a water reuse rate of .6% within our operational activities. With that, I would like to conclude by saying thank you to Gabriel and Rame for their comments, and thank you to everyone for attending our call. I will now turn the call back to our operator, who will open

speaker
Frontera

up for questions.

speaker
Operator

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please first start, followed by the one on your touch-tone phone. You will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please first start, followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question.

speaker
Frontera

Your first question comes from Sarah Constantine from SMC. Please go ahead. Alright,

speaker
Sarah Constantine

good morning. I have two questions. The first question is on Ecuador. I want to find out regarding the purchase price. It seemed a little bit low. It worked out to be $8,000 per flowing barrel. Could you maybe discuss how you achieved that price? I guess the second question on the NCIB appears we purchased back around $80,000 shares. I was curious why the NCIB has not been hit more aggressively given the stock is around $6. I was expecting to see double that. We did a buyback of $12 a share and I was hoping we'd be buying back the maximum we could to increase the value for all shareholders. Thank you.

speaker
Ariel

Hi, good morning Sarah. I apologize we disconnected briefly. Can you repeat your first question? I can tackle the second question quickly. Could you repeat your first question?

speaker
Sarah Constantine

Yeah, this first question was in terms of the Ecuador sale. I was a little bit surprised by the price because it worked out to be $8,000 per flowing barrel. I was curious why it was sold for $8 million. Is there some additional reasoning for that or is that the going rate for Ecuadorian assets? I think it's a little bit higher than the US market comps.

speaker
Frontera

Got it. I'll tackle the first question. I'm not going to

speaker
Ariel

answer the question. The first question on the NCIB, there are two rules associated with the NCIB as to how much we can buy. One is the one limited by our float and the second one is limited by our daily volume. Our daily volume historically has been close to 150,000 shares. We're limited to buying up to 20% of that volume on a daily basis. We've instructed our BMR advisor into the SAE process to buy shares on a daily basis, trying to hit that limit. But in essence, we're somewhat limited as to how many shares we can buy by the nature of the NCIB program itself. That's what we also do see and what we do for the benefit of all shareholders. We do the significant NCIBs where we're not living it on size, but rather we just provide an offer for every shareholder to participate in a matter that is equivalent. On the Ecuador sale, I would say, I think this helps us focus on our core operations, our higher impact operations, which is Colombia. Our goal and dream on Ecuador was to make it a material operation. The reality is that despite the best efforts, it never reached materiality. We were aiming to get this to be an operation of 5,000 barrels plus, but we were struggling to keep it over 2. As a result of that, we made the decision to move on and really focus on the assets that are delivering our portfolio. I would like to highlight that if you include our equality in operations for the last six months compared to last year, our production is actually up in Colombia around 4 or 5% excluding Ecuador. We continue to drive home the economic value of our assets in Colombia, trying to get a lot more cost savings to really drive that value.

speaker
Gabriel

And to be consistent with our mantra of value, value over volumes. I think that disposal is consistent with that and as René said, concentrated

speaker
Frontera

on the Colombian assets. Okay, thank you for taking my questions. Absolutely. Thank you. Your next question

speaker
Operator

comes from Peter Bowley from Jeffries. Please go ahead.

speaker
Peter Bowley

Hi, thank you for the presentation and taking my question. In the MD&A, you mentioned the company may consider maybe considering other strategic initiatives or transactions to enhance value. So in the context after divesting Ecuador, could you share a bit more color on what kinds of initiatives or transactions you might be considering? Is this like acquisitions, divestments, JVs? And would geographic focus continue to be mainly on Colombia or would

speaker
Frontera

you be considering other geographies? Thank you for the question. I would start by

speaker
Gabriel

saying that our current portfolio provides some very important opportunities. Just to take the KIFA, the KIFA block, we have been working on the Sahara project, which is going to increase the water handling of the field, which is currently being implemented, and that provides some additional opportunities for growth in the KIFA block, as well as with the CP6 block, where we have been increasing also the water handling capacity of the field up to 380,000 bottles of water per day. And that will allow us to increase further production in that block. Not to mention the Sabanero field, which is also a heavy oil field in the same similar location, close location to KIFA. Our production there has been higher than what we have expected. So those are important opportunities in our heavy oil fields, which provides opportunities for growth. The other one is, as we mentioned, the Guapo well in the B1 block. That is a very good opportunity. As we said, during the quarter we start again selling gas cells to the market, taking advantage of the window of opportunity we have in the gas market in Colombia, where prices are going up in a very significant way. We are working with our partner, Patix, to afford the development in that area. So that is another one which I think that provides some opportunity. As you said, regarding any other potential acquisitions or M&A opportunities, we are always looking for those opportunities to enhance value for all our stakeholders. And we would consider any opportunities that make sense to our

speaker
Frontera

shareholders and stakeholders. Great, thank you. Thank you. Ladies and gentlemen, as a reminder, if you have a question, please press star 1. Your next question comes from Sergey Bolshakov from

speaker
Operator

Stiefel. Please go ahead.

speaker
spk04

Hi guys, thanks very much for the presentation. I have a couple of questions here. It looks like we have seen a buildup in receivables over the quarter, which have negatively impacted the working capital. If you can elaborate on this a little bit, I think we would also appreciate if you can disclose the cash taxes for the first and the second quarter. Given quite a large cash balance, what are your intentions in terms of keeping this cash balance, potentially buying back some bonds? And if you can tell us a little bit more about how you think about the outstanding bond, given that it's trading at pretty low levels in terms of cash prices, the refinancing of this bond seems highly unlikely today at least. Thank you very much.

speaker
Frontera

All right, I think I have a couple of questions there on the

speaker
Ariel

receivables. I think we have a VAT receivable of about $20 million that we were expecting to receive this quarter. We do have other income taxes receivables that are related to our deferred tax asset values that we expect to receive later this year. So that's why you see the working capital moving positive. I think the shift was roughly $50 million on a -over-quarter basis. And I think those two assets on their own somewhat reflect that. As to your question on our cash position, we sit with about $197 million of cash, which $184 million is unrestricted. You've got to remember that $184 million you've struck roughly $66 million because we just closed the SID in July. So those numbers do not reflect the SID program. As to their bond and plans for the bond, we've had really great conversations over the last, I would say, three, four months with our bondholders. We communicated our strategy. I think we're going to just highlight some of the opportunities that are available, not to include other opportunities that, of course, could emerge because of the current modern environment. So right now our focus is on delivering on the business. We still have another three years left of our bond maturity. We will continue to be opportunistic regarding bond purchases, but at this time our focus is on delivering on the premise of the business, which is to maximize value for our stakeholders.

speaker
Gabriel

And I would add to that that, of course, we will consider that. And any decision would be made based on the overall results of the business, the oil prices, the cash flow generation of the business. So absolutely, as René said, we have been, I mean, as we have demonstrated and we have delivered on it, we will be

speaker
Frontera

very open to consider additional initiatives like that one. That's great. Thanks very much. And in terms of cash taxes for the first

speaker
spk04

and the second quarter of this year?

speaker
Ariel

Well, you can take a look at our, we have one particular line. There's two ways we pay taxes, Sergei. So the one way you kind of settle up at the end of the year and then you have the monthly, we have the cold and taxes. So I think that the best way to explain it is we roughly pay five percent, five or six percent of our gross sales. So I think if you add up the year, and I think our revenue is close to $400, $500, you can multiply that times that five percent, six percent, and then you get to that number. But we are winning our cash flow statement. So it should be anywhere from $39

speaker
Frontera

or something like that we paid. And that's growth before the returns. Thank you. Thanks. Thank you. There are no further questions at this time. I'll turn it over to management for closing remarks. Thank you. Thank you everybody for attending the call and have a good day. Thank you, Boris. Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation. You may now disconnect.

Disclaimer

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