2022 Capital Budget of US $120 million

RNS Number : 3992C

PetroTal Corp.

22 February 2022

 

PetroTal Announces a 2022 Capital Budget of US $120 million

Targeting a 100% growth rate in average oil production to between 17,500 and 19,500 bopd

Free cash flow pre debt service of $230 million

Calgary, AB and Houston, TX - February 22, 2022-PetroTal Corp. ("PetroTal" or the "Company") (TSX-V: TAL, AIM: PTAL and OTCQX: PTALF) is pleased to announce a fully funded 2022 capital program of $120 million that is expected to generate material free cash flow, allowing for an expected resumption of a dividend to shareholders by Q4 2022.  All amounts are quoted in US dollars.

2022 Key Highlights

· Invest $75 million in drilling and completing four horizontal development wells in 2022.  Inclusive of well 10H, which commenced production on January 31, 2022, a total of five new wells will commence production in 2022;

· Target a 2022 average production range between 17,500 bopd and 19,500 barrels of oil per day ("bopd") with an estimated exit December 2022 production rate of approximately 21,500 bopd;

· Generate an adjusted EBITDA¹ range of $340 to $365 million, assuming a 2022 average Brent price of $88/bbl and a $37 million net derivative true-up payment from oil arriving and being commercialized at Bayovar through the Northern Peruvian Pipeline ("ONP");

· Execute a facilities and infrastructure expansion program of approximately $43 million which includes a new diluent tank, additional separators, a power plant expansion, additional injection facilities and key process optimization projects;

· Generate free cash flow (before debt service)¹ of between $220 and $245 million in 2022;

· Repay $20 million of the 2021 $100 million bond issue in H1 2022;

· Redeem the balance of the bonds in Q3 2022, should cash and working capital levels permit;

· Assuming the entire bond is retired, PetroTal intends to reinstate a stable and rewarding return of capital program as early as Q4 2022; and,

· Allocate approximately $15 million in community social trust payments and direct community investment projects in 2022.

(1) See "Non-GAAP Financial Measures"

Drilling and Completion Budget

PetroTal will invest approximately $75 million to drill four separate producing development wells in 2022, and complete well 10H which commenced drilling in late 2021 and started production on January 31, 2022. The four new drills in the remainder of 2022 are 11H, 12H, and 13H in the south eastern part of the field and 14H in the north west.  These proved undeveloped wells were strategically selected to maximize production

increases, and to continue the extension of the reservoir boundaries.  Rig maintenance programs are budgeted to ensure a safe and stable drilling campaign.

Facilities Budget

In 2022, PetroTal will focus on developing necessary infrastructure needed to support continued growth.  Approximately $25 million is allocated for a new diluent tank, a three-phase separator unit including engineering and mechanical works, central processing facilities ("CPF-3") planning and construction costs, which will commence in April 2022 and enhance the water injection system with new water injection pumps.  This will enable the Company to manage diluent levels to avoid frequent diluent shipments and allow the field to process nearly 200,000 barrels of fluid when completed, which is expected to be by mid 2023. 

Over 20 key field infrastructure projects have been identified, totaling $18 million, which will be allocated for optimization, process/production improvement, power expansion, maintenance, and security projects.  These projects will be completed in priority of near-term need and are subject to changes given the material and logistical challenges caused by the COVID-19 pandemic.  

Block 107 Budget

A total of $2 million is budgeted in 2022 for Block 107 permits.  PetroTal expects approval of the Constitucion and Kametza (Osheki) permits in 1H 2022 and 1H 2023, respectively.  With these permit approvals, PetroTal will continue to evaluate the Company's deep portfolio of exploration assets for ways to maximize shareholder value.

Community Investment Budget

PetroTal will substantially increase its allocations to community investment in 2022.  An estimated $6 million will be dedicated towards the following key project areas:

· Direct social investments in programs, training and education - $0.8 million

· Diesel for electricity generation in Puinahua and other areas - $1.3 million

· Community river erosion control - $1.2 million

· Social space construction projects - $0.3 million

· Environmental innovation - $0.4 million

· Community relations projects - $1.9 million

In addition, the Company expects to generate material net revenue in 2022 and will contribute, on a fortnight basis, an estimated 2022 total of $9 million into community social trust payments assuming no disruptions to PetroTal's ability to produce or sell oil through the ONP, Brazil, Iquitos, or other sales routes planned in the future.  PetroTal believes this will create a long-standing alignment between the government, communities, and the Company.

Production Guidance

The Company generates various sensitivities for possible production downtime attributable to social and technical issues.  Considering the implementation of the social trust, the Company's current assessment of likely downtime, mostly due to social unrest, and the planned $120 million capital expenditure program, PetroTal's 2022 oil production is expected to range between 17,500 bopd and 19,500 bopd.  At the mid point of the range, PetroTal would produce about 6.6 million barrels of oil in 2022, representing a 100% production growth rate over 2021.  In addition, the Company expects to exit 2022 with production at approximately 21,500 bopd and with production materially surpassing the 20,000 bopd mark at certain flush production points during the year.

OPEX Guidance

OPEX run rates have increased over 2020 and 2021 levels due to increased activity, inflation pressures, and the Company's continued commitment to manage COVID-19, safety and security.  Summarized below are the estimated cost run rates expected in 2022:

Fixed and semi-variable lifting costs that scale with production - estimated at $2.8 million per month including:

· Fuel

· Well and various contract services

Variable transportation costs - $7.2/bbl or ($45 - $50 million for 2022)

· Gross diluent cost and diluent transportation - $4.2/bbl ($1.4/bbl net with diluent sales)

· Barging - $1.7/bbl

· Barging standby, diesel, and supervision - $1.3/bbl

The variable costs outlined above assume that PetroTal is able to sell oil consistently.  Interruptions to the ability to sell production may create material volatility to the above per barrel run rates if the Company produces into storage for an extended period of time.  Currently, PetroTal uses a 4% diluent blend into the oil mix to facilitate productivity, representing a gross cost of $4.2/bbl.  As oilfield dynamics change from increased oil production, the Company expects to reduce its diluent blend.  Lastly, tariffs, ONP fees, and differentials that are variable in nature are netted with revenue for financial statement and planning purposes.

Cash Flow Guidance

Assuming an $88/bbl average 2022 Brent price, the current run rate cost structure, and sales agreements for oil exports, PetroTal expects to generate $325 to $350 million of net operating income ("NOI") and between $340 and $365 million of EBITDA¹ inclusive of $37 million of derivative true-up settlements.   The resulting free cash flow (prior to debt service)¹ is expected to be between $220 - $245 million, thereby allowing the Company to facilitate full payout of the bonds in Q3 2022 and implement shareholder returns² by Q4 2022, along with maintaining a healthy cash balance.

(1) See "Non-GAAP Financial Measures"

(2)  The bonds restrict any shareholder returns until fully paid out

Quarterly Production and Capital Profile (Mid Case)

	Q1	Q2	Q3	Q4
Oil wells completed	1 (10H)	1 (11H)	2 (12H & 13H)	1 (14H)
Production (bopd)	16,300	15,000	20,500	21,000
CAPEX (millions)	$35	$35	$37	$13

PetroTal 2022 Budget Summary ($ millions, unless otherwise stated)

	Budget Range (Low - High Case)
Brent Price $/bbl (Feb 7, 2022 strip forecast)	$88.0
Production bopd	17,500 - 19,500
NOI	$325 - $350
G&A	$22
Derivative settlements (Feb 7, 2022 strip forecast)	$37
EBITDA	$340 - $365
CAPEX	$120
Free cash flow1	$220 - $245

1) See "Non-GAAP Financial Measures"

Reimplementation of a Return of Capital policy

PetroTal anticipates material free cash flow generation in 2022.  Based on $88/bbl Brent, free cash flow¹ is expected to range from $220 to $245 million prior to debt service, taxes, lease payments, hedge costs, factoring, and VAT.  In H1 2022, PetroTal intends to repay $20 million of the 2021 $100 million bond issue and $30 million in interest, factoring, lease payments and VAT. 

(1) See "Non-GAAP Financial Measures"

In Q3 2022, the Company expects to be in a position to retire the remaining $80 million in bonds with a 6% call premium of $5 million.  Interest saved for the remainder of the year will materially offset this prepayment charge thereby allowing PetroTal to implement a return of capital policy by Q4 2022.  When the bonds are fully repaid, the Company intends to reinstate a quarterly dividend (as was done in Q4 2019).

The Company notes that the above intention to reinstate a return of capital policy is dependent on a number of interplaying factors materializing as expected.

Hedging Update

During January and February 2022, the Company hedged approximately 1,100,000 barrels using a combination of puts with an $85/bbl strike and collars with a range of $63/bbl to $70/bbl allowing PetroTal to share in any continued commodity price increases.

In total, PetroTal has approximately 2.2 million barrels hedged, representing approximately 33% of the 2022 mid case production guidance, and in line with the Company's hedging strategy.

2022 EBITDA Sensitivities for Production Ranges ($ millions)

		Production (bopd)
Brent Price $/bbl	EBITDA Matrix	17,500	18,500	19,500	2022 derivative settlement
	$100	357	376	395	+63
	$95	332	350	367	+52
	$90	306	323	340	+41
	$85	281	297	312	+30
	$80	256	270	284	+19
	$75	233	246	259	+8
	$70	207	218	230	-3
	$65	182	193	203	-14

Assuming 2022 average production of 18,250 bopd, PetroTal will be in a position to fully cash fund its 2022 CAPEX program and all debt service, VAT, and lease obligations down to $60/bbl Brent while maintaining a liquidity buffer of approximately $25 million throughout 2022.

Updated Corporate Presentation

Please see PetroTal's website for an updated version of its corporate presentation.

2022 Guidance and Reserves Webcast

On February 22, 2022, please join the Company for a summary of 2022 guidance and 2021 year end reserves by clicking on the link below:

UK - 3:00pm, Calgary - 8:00am, Houston - 9:00am, Lima - 10:00am

https://webcasting.brrmedia.co.uk/broadcast/61f90806d0a01d0d75c3c4e0

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented

"We are excited to communicate our 2022 development plans to the market.  2022 will be a year of achievement and rewarding shareholders who continue to believe in our story and management team.  It is vital that we continue drilling wells and executing our 2P development plans by drilling proved-undeveloped locations that should allow future booked location upgrades, prevent base declines, and optimize water handling peaks based on our current infrastructure.  We will continue to deliver investment grade well results and manage our balance sheet prudently, as we have over the past four years our team has been together."

ABOUT PETROTAL

PetroTal is a publicly traded, tri‐quoted (TSXV: TAL, AIM: PTAL and OTCQX: PTALF) oil and gas development and production Company domiciled in Calgary, Alberta, focused on the development of oil assets in Peru.  PetroTal's flagship asset is its 100% working interest in Bretana oil field in Peru's Block 95 where oil production was initiated in June 2018. In early 2022, Petrotal became the largest crude oil producer in Peru. The Company's management team has significant experience in developing and exploring for oil in Peru and is led by a Board of Directors that is focused on safely and cost effectively developing the Bretana oil field. It is actively building new initiatives to champion community sensitive energy production, benefiting all stakeholders.

For further information, please see the Company's website at www.petrotal-corp.com , the Company's filed documents at www.sedar.com , or below:

Douglas Urch

Executive Vice President and Chief Financial Officer

[e-mail]

T: [phone]

Manolo Zuniga

President and Chief Executive Officer

[e-mail]

T: [phone]

PetroTal Investor Relations

[e-mail]

Celicourt Communications

Mark Antelme / Jimmy Lea

[e-mail]

T : 44 (0) 208 434 2643

Strand Hanson Limited (Nominated & Financial Adviser)

Ritchie Balmer / James Spinney / Robert Collins

T: 44 (0) 207 409 3494

Stifel Nicolaus Europe Limited (Joint Broker)

Callum Stewart / Simon Mensley / Ashton Clanfield

Tel: [phone]

Auctus Advisors LLP (Joint Broker)

Jonathan Wright

T: [phone]

READER ADVISORIES

FORWARD-LOOKING STATEMENTS: This press release contains certain statements that may be deemed to be forward-looking statements. Such statements relate to possible future events, including, but not limited to: PetroTal's business strategy, objectives, strength and focus, including executing 2P development plans to prevent base declines and optimize water handling peaks; the impact of social disruption on the Company's operations; drilling, completions, workovers and other activities and the anticipated costs and results of such activities; PetroTal's 2022 budget and financial/operational guidance; PetroTal's anticipated operational results for 2022 including, but not limited to, estimated or anticipated production levels, capital expenditures and drilling plans; the intention to redeem the outstanding bonds; PetroTal plans to deliver strong operational performance and to generate free cash flow and growth; capital requirements; the ability of the Company to achieve drilling success consistent with management's expectations; the ability of the Company to achieve near term production targets and operate at unrestricted levels; anticipated future production and revenue; drilling plans including the timing of drilling, commissioning, and startup and the impact of delays thereon; oil production levels, including average and exit production in 2022; sales expansion through alternative exports routes, including barging and trucking; the Company's proposals for collaboration with local communities; and future development and growth prospects.  All statements other than statements of historical fact may be forward-looking statements. In addition, statements relating to expected production, reserves, recovery, costs and valuation are deemed to be forward-looking statements as they involve the implied assessment, based on certain estimates and assumptions that the reserves described can be profitably produced in the future. Forward-looking statements are often, but not always, identified by the use of words such as "anticipate", "believe", "expect", "plan", "estimate", "potential", "will", "should", "continue", "may", "objective" and similar expressions.   Without limitation of the foregoing, future dividend payments, if any, and the level thereof, is uncertain, as the Company's dividend policy and the funds available for the payment of dividends from time to time is dependent upon, among other things, free cash flow financial requirements for the Company's operations and the execution of its growth strategy, fluctuations in working capital and the timing and amount of capital expenditures, debt service requirements and other factors  beyond the Company's control. Further, the ability of PetroTal to pay dividends will be subject to applicable laws (including the satisfaction of the solvency test contained in applicable corporate legislation) and contractual restrictions contained in the instruments governing its indebtedness. The forward-looking statements are based on certain key expectations and assumptions made by the Company, including, but not limited to, expectations and assumptions concerning the ability of existing infrastructure to deliver production and the anticipated capital expenditures associated therewith,  the ability of the Ministry of Energy to effectively achieve its objectives in respect of reducing social conflict and collaborating towards continued investment in the energy sector, reservoir characteristics, recovery factor, exploration upside,  prevailing commodity prices and the actual prices received for PetroTal's products, including pursuant to hedging arrangements, the availability and performance of drilling rigs, facilities, pipelines, other oilfield services and skilled labour, royalty regimes and exchange rates, the application of regulatory and licensing requirements, the accuracy of PetroTal's geological interpretation of its drilling and land opportunities, current legislation, receipt of required regulatory approval, the success of future drilling and development activities, the performance of new wells, the Company's growth strategy, general economic conditions and availability of required equipment and services. Although the Company believes that the expectations and assumptions on which the forward-looking statements are based are reasonable, undue reliance should not be placed on the forward-looking statements because the Company can give no assurance that they will prove to be correct. Since forward-looking statements address future events and conditions, by their very nature they involve inherent risks and uncertainties. Actual results could differ materially from those currently anticipated due to a number of factors and risks. These include, but are not limited to, risks associated with the oil and gas industry in general (e.g., operational risks in development, exploration and production; delays or changes in plans with respect to exploration or development projects or capital expenditures; the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to production, costs and expenses; and health, safety and environmental risks), commodity price volatility, price differentials and the actual prices received for products, exchange rate fluctuations, legal, political and economic instability in Peru, access to transportation routes and markets for the Company's production, changes in legislation affecting the oil and gas industry and uncertainties resulting from potential delays or changes in plans with respect to exploration or development projects or capital expenditures. In addition, the Company cautions that current global uncertainty with respect to the spread of the COVID-19 virus and its effect on the broader global economy may have a significant negative effect on the Company. While the precise impact of the COVID-19 virus on the Company remains unknown, rapid spread of the COVID-19 virus may continue to have a material adverse effect on global economic activity, and may continue to result in volatility and disruption to global supply chains, operations, mobility of people and the financial markets, which could affect interest rates, credit ratings, credit risk, increased operating and capital costs due to inflationary pressures, business, financial conditions, results of operations and other factors relevant to the Company. Please refer to the risk factors identified in the Company's annual information form for the year ended December 31, 2020 and management's discussion and analysis for the three and nine months ended September 30, 2021 which are available on SEDAR at www.sedar.com. The forward-looking statements contained in this press release are made as of the date hereof and the Company undertakes no obligation to update publicly or revise any forward-looking statements or information, whether as a result of new information, future events or otherwise, unless so required by applicable securities laws.

OIL REFERENCES: All references to "oil" or "crude oil" production, revenue or sales in this press release mean "heavy crude oil" as defined in NI 51-101.  All references to Brent indicate Intercontinental Exchange ("ICE") Brent. 

NON-GAAP FINANCIAL MEASURES: This press release contains financial terms that are not considered measures under generally accepted accounting principles ("GAAP") such as EBITDA and free cash flow that do not have any standardized meaning under GAAP and may not be comparable to similar measures presented by other companies. Management uses these non-GAAP measures for its own performance measurement and to provide shareholders and investors with additional measurements of the Company's efficiency and its ability to fund a portion of its future capital expenditures. EBITDA is calculated as consolidated net income (loss) before interest and financing expenses, income taxes, depletion, depreciation and amortization   and adjusted for G&A impacts and certain non-cash, extraordinary and non-recurring items primarily relating to unrealized gains and losses on financial instruments and impairment losses, including derivative true-up settlements.  PetroTal utilizes EBITDA as a measure of operational performance and cash flow generating capability.  EBITDA impacts the level and extent of funding for capital projects investments. Free cash flow is calculated as cash flow from operating activities less exploration and development capital expenditures and is calculated prior to all debt service, taxes, lease payments, hedge costs, factoring, and lease payments. Management uses free cash flow to determine the amount of funds available to the Company for future capital allocation decisions.

FOFI DISCLOSURE: This press release contains future-oriented financial information and financial outlook information (collectively, "FOFI") about PetroTal's budget and guidance, prospective results of operations, production and production capacity, free cash flow, revenue, NOI, adjusted EBITDA, debt repayment, liquidity, shareholder returns and components thereof, all of which are subject to the same assumptions, risk factors, limitations and qualifications as set forth in the above paragraphs. FOFI contained in this press release was approved by management as of the date of this press release and was included for the purpose of providing further information about PetroTal's anticipated future business operations. PetroTal disclaims any intention or obligation to update or revise any FOFI contained in this press release, whether as a result of new information, future events or otherwise, unless required pursuant to applicable law. Readers are cautioned that the FOFI contained in this press release should not be used for purposes other than for which it is disclosed herein. All FOFI contained in this press release complies with the requirements of Canadian securities legislation, including National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities. Changes in forecast commodity prices, differences in the timing of capital expenditures, and variances in average production estimates can have a significant impact on the key performance measures included in PetroTal's guidance. The Company's actual results may differ materially from these estimates.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this press release.

 

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