Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Parex Resources Inc (PARXF, Financial) reported an 80% year-on-year increase in free funds flow, driven by strong pricing realizations and reduced capital expenditures.
- The company is generating significant free funds flow from core areas like Cabrestero and Block 34, attributed to pre-investment activities in drilling patterns and facility investments.
- Encouraging results from water flooding and polymer injection pilot projects at Cabrestero and Block 34, with plans for full field expansion.
- Despite production shortfalls, Parex Resources Inc (PARXF) had a strong financial quarter with $181 million in funds flow from operations, supported by a $21 million one-time foreign exchange gain.
- The company maintains a working capital surplus of $34 million and cash reserves of $119 million, indicating strong financial health.
Negative Points
- Operational and reservoir challenges at Arauca have led to underperformance, causing a pause in the in-year drilling campaign.
- Production expenses remain elevated due to a strong Colombian peso, increased well service costs, and one-time maintenance and facility costs.
- The company's net income was reduced due to an increase in deferred tax expense, influenced by exchange rate movements.
- Production volumes are expected to remain flat in Q3 2024, with growth anticipated only in Q4 2024 and into year-end.
- The company has faced disappointing subsurface results and challenges in the first half of the year, impacting overall production and necessitating capital reallocation.
Q & A Highlights
Q: Given the situation in Arauca and production for this year, how should we think about production growth for 2025 and 2026?
A: (Imad Mohsen, President, CEO, Director) We will allocate capital where it makes sense and generates returns. While our exit rate for this year will be lower than initially planned, we are confident in the portfolio's long-term growth potential. Specific numbers for 2025 and 2026 will be determined during the budget planning process later this year.
Q: Were there any protests noted in Llanos 34 in Q2?
A: (Eric Furlan, COO) No significant social disruptions were noted. The disruptions we experienced were mainly due to power outages and a flooding event.
Q: Production costs have increased in Q2 versus Q1. Could you explain why?
A: (Sanjay Bishnoi, CFO) The increase was primarily due to one-time facility and road maintenance costs. While power prices have normalized, we expect production costs to remain between $12 to $13 per barrel for the year.
Q: With the pause in Arauca and focus on Llanos, do you foresee any increase in capital expenditures in the second half of the year?
A: (Imad Mohsen, President, CEO, Director) We expect our total CapEx for the year to be less than the midpoint of our guidance ($410 million). While there will be slightly more CapEx in the second half, it will not be a significant increase.
Q: Can you provide more details on the operational challenges faced in Arauca?
A: (Eric Furlan, COO) Arauca faced multiple challenges, including wellbore conditions, water intrusion, asphaltenes, and tighter rock than anticipated. We are working through these complexities and plan to reassess and optimize the field's potential over the longer term.
Q: What are the plans for the Capachos block and Block 32?
A: (Imad Mohsen, President, CEO, Director) We have shifted capital to Capachos and Block 32. At Capachos, we are drilling a follow-up well, and at Block 32, we have successfully drilled an extension to the field. These efforts are expected to add production and potential reserves in the second half of 2024.
Q: How did the company perform financially in Q2 2024?
A: (Sanjay Bishnoi, CFO) Despite production shortfalls, we had a strong quarter financially with $181 million in funds flow from operations, supported by strong realizations and a one-time foreign exchange gain. Net income was impacted by an increase in deferred tax expense due to exchange rate movements.
Q: What is the outlook for production and capital allocation for the rest of 2024?
A: (Imad Mohsen, President, CEO, Director) We are targeting production growth into year-end and expect to deliver to the lower end of our annual production guidance. We will continue to use our free funds flow to support share buybacks and regular dividends.
Q: What are the key operational highlights from Q2 2024?
A: (Eric Furlan, COO) Production averaged 53,568 BOE per day, relatively flat compared to Q1 2024. We saw strong initial performance from Arauca-8 but faced challenges later. We have reallocated capital to Capachos and Block 32 to offset Arauca volumes and add production in the second half of 2024.
Q: How is the company managing its capital and production expenses?
A: (Sanjay Bishnoi, CFO) We are focused on capital discipline to drive free funds flow. Despite elevated production expenses, we anticipate meeting our long-term capital allocation framework and returning 33% of total FFO through dividends and share buybacks.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
