Earnings call transcript: Frontera Energy Q2 2025 shows net loss amid strategic shifts

Frontera Energy Corp reported a significant net loss for Q2 2025, driven primarily by non-cash impairment charges. Despite this, the company highlighted strategic moves and cost-saving measures that could position it for future growth. The company’s stock price fell by 4.25% in after-hours trading following the announcement.

Key Takeaways

• Reported a net loss of $455.2 million due to non-cash impairment charges.
• Increased production to 41,055 barrels per day.
• Reduced production costs by 10.3% to $9.1 per barrel.
• Stock price declined by 4.25% in after-hours trading.

Company Performance

Frontera Energy’s Q2 2025 earnings call revealed a challenging quarter, marked by a substantial net loss attributed mainly to non-cash impairment charges. Excluding these charges, the company would have reported a net income of approximately $48 million. Despite the loss, Frontera Energy improved its production and reduced operational costs, signaling a strategic focus on efficiency and core operations, particularly in Colombia.

Financial Highlights

• Operating EBITDA: $36.1 million
• Adjusted Infrastructure EBITDA: $27.1 million
• Cash Balance: $197.5 million
• Average Brent sales price: $66.71 per barrel
• Returned over $144 million to shareholders in the past 12 months

Market Reaction

Frontera Energy’s stock fell by 4.25% after the earnings announcement, closing at $6.35. This decline reflects investor concerns over the reported net loss, despite positive operational improvements. The stock is trading between its 52-week high of $9.65 and low of $4.57, indicating volatility influenced by the broader oil market and company-specific developments.

Outlook & Guidance

Frontera Energy provided forward guidance with a production target of 39,541 barrels of oil equivalent per day for 2025. Capital expenditure is projected between $45 million and $65 million for development, with an additional $25 million allocated for exploration. The company aims for an operating EBITDA of $320 million to $360 million and adjusted infrastructure EBITDA between $110 million and $125 million.

Executive Commentary

CEO Orlando Cabrales emphasized the company’s commitment to maximizing asset value in Colombia, stating, "We continue to drive home the economic value of our assets in Colombia." Gabriel D’Alba, Chairman, reiterated the focus on stakeholder value, saying, "Our goal is to maximize value for all our stakeholders."

Risks and Challenges

• Continued global economic and oil market volatility could affect prices and demand.
• Execution risks associated with divesting non-core assets and focusing on core operations.
• Potential impacts of hedging strategies on financial performance.
• Challenges in maintaining cost reductions amid fluctuating oil prices.

Frontera Energy’s Q2 2025 earnings call highlighted both the challenges and strategic initiatives the company faces. While the net loss was significant, operational efficiencies and a strategic focus on core assets suggest potential for future growth. Investors will likely watch closely for further developments and impacts on the company’s financial health and market position. For a comprehensive analysis of Frontera Energy’s valuation, financial health, and growth prospects, access the detailed Pro Research Report available exclusively on InvestingPro, part of their coverage of over 1,400 stocks.

Full transcript - Frontera Energy Corp (FEC) Q2 2025:

Sergio, Conference Facilitator: Good morning. My name is Sergio, and I’ll be your conference facilitator today. Welcome to Frontera Energy’s Second Quarter twenty twenty five 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 speakers’ 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 irfronteraenergy.ca. This call contains forward looking information within the meaning of applicable Canadian securities 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 MD and A for the quarter ended June 2025 at the company’s annual information from dated 03/10/2025, 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 would now like to turn the call over to Mr. Gabriel D’Alba, Chairman of the Board of Frontera Energies.

Mr. D’Alba, please go ahead.

Gabriel D’Alba, Chairman of the Board, Frontera Energy: Thank you, operator. Good morning, everyone, and welcome to Frontera’s Second Quarter twenty twenty five Operating and Financial Results Conference Call. Joining me on today’s call are Orlando Cabrales, Frontera’s CEO and Rene 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 Ivan Arevalo, VP Operations and Renata Campagnano, 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, Conteira 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 $36,100,000 in operating EBITDA, generated $27,100,000 in adjusted infrastructure EBITDA and ended the quarter with a strong cash balance of $197,500,000 Additionally, the company prioritized returning capital to all investors via successful $80,000,000 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 align Transtera’s indenture with industry standards and offer targeted operational flexibility, supporting the delivery of sustainable business and reserve growth, including growth from inorganic transactions.

Subsequent to the quarter, Frontera completed a C91 million dollars substantial issuer bid, the largest in the company’s history. The SAB had a 92.6% 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 $3,500,000 in aggregate and initiated daily stock buybacks via a non core issuer bid program. Over the last twelve months, Frontera returned over 144,000,000 to shareholders through dividends and share buybacks and also reduced its senior unsecured notes principal by more than 20%, highlighting its commitment to returning capital to all investors. In Guyana, the ninety day consultation and negotiation period, which was established following the notice of intent sent to the government of Guyana has ended.

On July 23, the company received a letter reaffirming the government’s vision that the current 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 ninety 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 $430,000,000 related to our investment in the quarantine 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 end 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 shareholder value.

And 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, oil 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 Rene Burgos, Frontera’s CFO, who will share their views on our first quarter results. Orlando?

Orlando Cabrales, CEO, Frontera Energy: Thank you, Gabriel. Good morning, everyone, and thank you 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 oilfields and a successful well intervention program within our light and medium blocks and new commercialized volumes of natural gas production from the BIM-one block. During the quarter, we maintained our focus on operational improvements, reducing capital spending and cost and process efficiencies across our business, lowering our production costs by 10.3% to 9.1 per barrel quarter over quarter, driven by fewer well interventions and the implementation of new production technologies in the fields.

We also reduced our transportation costs by 5.7% 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 Quipa and CP6 blocks in Colombia and completed 22 well workovers in other areas. On the exploration front, our efforts now turn to the Guapo-one well, where preparation and permits were secured and drilling is expected in the second half of the year. Our stand alone and growing Colombian infrastructure business, which includes the company’s interest in ODL, generated an adjusted infrastructure EBITDA of $27,100,000 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 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 JV with Repreza Gascon, 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 has reached an agreement to divest its interest in the non core Perico and Espero 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 Proterra of $7,800,000 to us additional contingent consideration of $750,000 of Comperico achieving cumulative production of 2,000,000 barrels as from 01/01/2025.

The closing of the transaction pending regulatory approvals is expected to occur in the 2026. As a result, we are adjusting our 2025 production guidance to account for the impact of the Ecuador sale to 39,541 BOE per day. In light of the current oil price environment, we are also adjusting our capital expenditure guidance downwards by approximately $20,000,000 reducing development facilities CapEx to $45,000,000 to $65,000,000 and exploration CapEx to 25,000,000 reflecting our disciplined approach to capital spending and ability to identify ongoing operational efficiencies. Additionally, we are providing operating EBITDA guidance at 70 Brent price with a target of between $320,000,000 to $360,000,000 and revising our adjusted infrastructure EBITDA guidance to between $110,000,000 to $125,000,000 I would now like to turn the call over to Rene Urbos, Frontera’s CFO. Thank you, Anando, and thank you, Gabriel.

Good morning, everybody, and thank you as always for your support and interest for our company.

Gabriel D’Alba, Chairman of the Board, Frontera Energy: I’ll try to go through

Orlando Cabrales, CEO, Frontera Energy: you very quickly as I’d like just to take a moment to highlight a few key financial aspects of our quarterly results. For the second quarter, the company recorded an end of $455,200,000 or $5.89 per share. Our net loss in the quarter resulted primarily from noncash impairment charges totaling $477,000,000 related to the company’s interest in the content license in our Ecuador asset divestment. Excluding these impairment charges, the company’s net income for the quarter would have been approximately $48,000,000 Our operating EBITDA for the quarter was approximately $76,100,000 compared to $83,500,000 in the prior quarter for a 9% reduction. This was primarily due to lower Brent prices, which were 11% lower on a quarter over quarter basis, partially offset by the lower production and transportation costs, which highlights our operational discipline.

Moving on to our key operational performance indicators. In the quarter, we saw average Brent sales prices at $66.71 We continue to see strong demand for the company’s heavy crude barrels, which in turn has resulted in lower average supplemental differential on export sales of $1.69 This compares to the prior quarter of $4.38 and over $2 per barrel improvement. Our purchase fleet net margin associated with our dilution and transportation programs was $3.53 lower than the $3.81 for the prior quarter. These are the result of improvement in our dealer purchasing strategy. Reviewing our operating costs, our production, energy and transportation per barrel for the quarter totaled $25.34 This compares to $27.74 for the third quarter and over $2 reduction resulting primarily for improvement across all our cost categories.

The decrease in quarter over quarter production cost was primarily result of lower one ratio activities, as Eduardo highlighted, and the adoption of new fuel technologies focused on reducing water production at the wellhead. Energy costs also decreased during the quarter, mainly related to lower market prices and also lower consumption per barrel. Transportation costs also decreased as a result of reduced transported volumes resulting from higher domestic wellhead sales prices. In our Infrastructure business, adjusted EBITDA for the quarter was $27,100,000 which compares to $28,600,000 in the fourth quarter in the prior quarter. The quarter over quarter decrease was primarily due to higher operations of Ensada.

This happens as we compute the Red Rocket operations with water processing by Sensata up to over 50% on a portable basis, which was offset by positive results in the OREO segment. As of 06/30/2025, the company reported a total cash position of $197,500,000 including $184,900,000 of unrestricted cash and cash equivalents. Since the third quarter, the company did complete SID and the payment of approximately $56,000,000 to shareholders, which we will see 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, we use derivative instruments to manage exposure to oil price and benefit profitability. On the oil side, the company has entered into hedges, successfully securing up to 40% hedging ratio until December 2025 at pricing between $65 and $70 Brent, protecting against the drop in oil prices. Year to date, we have realized approximately $6,000,000 gains in managing activities, excluding premium costs, enhancing financial stability and in month to month marketing fluctuations. Santander has also covered 40% of the company’s expected peso exposure until the third quarter and 20% of its exposure to the fourth quarter, with floors at over the 4,200 peso level.

This provides the company with capital visibility and help mitigate impact from future fluctuations while allowing the business to deliver on its 2025 target. Finally, I’d like to provide an update on our Investor Valley initiative. In the second quarter, the company repurchased $80,000,000 of its 2028 notes through our cash tender and de principal station. Compere has paid approximately $10,500,000 in dividends year to date. And together with the second quarter results, the board has declared a quarterly dividend of 6.25¢ per share of Canadian to shareholders of record as of 10/02/2025 and to be paid on around October 15.

Regarding the company’s special issuer bid, SID from their repurchased $91,000,000 or $66,000,000 of its common shares with SID that is within July, which is in addition to the company’s 42,000,000 or 30,000,000 or 30,000,000 of common shares repurchased through the SIB that closed in January. The company is also currently repurchasing shares daily through automatic repurchase program, the NCIB that we recently launched in July. With that, I would like now to turn the call back to Ramon for a set of thoughts. Thank you, Jorge. 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, with Bromtera, 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, diligence and training. In the 2025, local suppliers accounted for over 11% of total purchases, reflecting the ongoing commitment to support local economic development. Additionally, we maintained a strong performance in child safety indicators, achieving a total recordable incident rate of 0.71% and also attaining a water reuse rate of 37.6% within our operational activities. With that, I would like to conclude by saying thank you to Gabriel and Renes for their comments, and thank you for everyone for attending our call. I will now turn the call back to our operator.

We will open up for questions.

Sergio, Conference Facilitator: Thank you. Ladies and gentlemen, we will now begin the question and answer Should you have a question, please press the star 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 press the star 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. Your first question comes from Zach Constantine from SMC. Please go ahead.

Zach Constantine, Analyst, SMC: Hi. Good morning. I have two questions. The first question is on Ecuador. I want to find out regarding the purchase price.

That seemed a little bit low. It worked out to be $8,000 per floating barrel. Can you maybe discuss how you achieved that price? And then I guess the second question on the NCIB. Appears we’ve 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 that we’d be buying back the maximum we could to increase the value for all shareholders. Thank you.

Orlando Cabrales, CEO, Frontera Energy: Good morning, Sarah. I apologize if we disconnect briefly. Can you repeat your first question and I can tackle the second question quickly. Could you please repeat your first question?

Zach Constantine, Analyst, SMC: Yes. The 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 $8,000,000 Is there some additional reasoning for that? Or is that the going rate for Ecuadorian assets? Because that seems kind of low if you compare it to U.

S. Market comps.

Orlando Cabrales, CEO, Frontera Energy: Got it. So I’ll tackle the first question. I’m not going to take second question. But on the first question on the NCIB, we are there are two rules associated with the NCIB as to how much we can buy. One is the one limited by float, and the second one is limited by our daily volume.

Our daily volume historically has been close to, I think, it’s up, like, call it 100, 150,000 shares, and we’re limited to buying up to 20% of that volume on a daily basis. We’ve instructed our VMO advisor into the SRE process to buy, you know, shares on a daily basis to try and hit that limit. But in essence, we’re somewhat limited as to how many shares we can buy by the nature of the end saving program itself. And that’s what we also do see, you know, the the and what we do for for the benefit of all our shareholders, we do the significant SABs where we’re not living on-site, but rather we just provide a number for every shareholder to participate in a matter that is, you know, equivalent. On the on the other sale, what I would say, look, think they talked us focused on our core operations or higher impact operations, which is Colombia.

You know, our goal entering our equivalent was to make it a material operation. The reality is that despite the best efforts, it never reached materiality. I mean, were aiming to get this to be an operation of 5,000 barrels plus, but we were struggling to keep it over 2,000. So 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 exclude our equal loading operations for the last six months compared to last year, our production is actually up in Colombia, around 4%, 5%, excluding Quechua, Right?

So we continue to kinda drive home the the economic value of our assets in Colombia, trying to get a lot more, you know, cost savings to really kinda drive that value. And to be consistent with our management of value over volumes. So I think that is, I mean, that disposal is consistent with that and, like I said, concentrated on the Colombian assets.

Zach Constantine, Analyst, SMC: Okay. Thank you for taking my questions.

Orlando Cabrales, CEO, Frontera Energy: Absolutely.

Sergio, Conference Facilitator: Thank you. Your next question comes from Peter Bolling from Jefferies. Please go ahead.

Peter Bolling, Analyst, Jefferies: Hi, thank you for the presentation and taking my question. In the MD and 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 you be considering other geographies?

Orlando Cabrales, CEO, Frontera Energy: No. I thank you for the question. I would start by saying that our current portfolio provides some very, very important opportunities just to take the the the Kifa the Kifa block. We have been working on on the on the SADA project, which is going to increase the the water handling of the of the field, which is currently being being implemented. And that provides some additional opportunities for growth in the in the in the keypad log as well as with the CP6 block, where we have been increasing also the water handling capacity of the field up to 380,000 barrels of water per day.

And that will allow us to increase further production in that block. Not to mention the Salanero field, which is also a heavy oilfield in the same similar, I mean, location, the two locations with Tiquefa. Our production there has been, I mean, higher than what we have expected. So those are, I mean, good opportunities in our heavy oil fields, which provides opportunities for growth. The other one is, 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 sales to the markets, 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, Parex, to afford the development in that area. So that is another one which I think that provides some opportunity. And as you said, I mean, regarding any other potential acquisitions or M and A opportunities, I mean, we are always looking for those opportunities to enhance value for all our stakeholders and would consider any opportunities that make sense to our shareholders and our stakeholders. Great.

Thank you.

Sergio, Conference Facilitator: Thank you. Your next question comes from Sergey Polshakov from Stifel. Please go ahead.

Sergey Polshakov, Analyst, Stifel: Hi, guys. Thanks very much for the presentation. I have a couple of questions here. It looks like we’ve 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

Peter Bolling, Analyst, Jefferies: can tell us a little

Sergey Polshakov, Analyst, Stifel: bit more about your 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.

Zach Constantine, Analyst, SMC: All right. I think I have a

Orlando Cabrales, CEO, Frontera Energy: couple of questions there. On the receivables, I think we have a receivable about $20,000,000 that we were expecting to receive this quarter, the cap for staff. We do have other income taxes receivables that’s related to our 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 $50,000,000 on a quarter over quarter basis.

And I think those two assets on their own somewhat reflect that. As to your question on our cash position, we did we have about a $197,000,000 of cash, which one eighty four is unrestricted. You gotta remember of that one eighty four, track roughly $66,000,000 because we just closed the the SAB in July, so those numbers do not reflect that SAB program. As to as to the bond and and and plans with the bond, but we’ve had really great conversations over the last, I would say, three, four months. We are bondholders.

We communicated our strategy. I think we’re gonna make a say that it’s more of the opportunities that are available, not to include other opportunities that, of course, could emerge because of the current 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, at this time, our focus is on delivering on the premise of the business, which is to maximize value for our stakeholders.

And I I would I would add I would add to that that, I mean, of course, I mean, 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 that absolutely, as I said, we have been I mean, we have demonstrated and we have delivered on it, we will be very open to consider additional initiatives like that one.

Sergey Polshakov, Analyst, Stifel: That’s great. And in terms of cash taxes for the first and the second quarter this year?

Orlando Cabrales, CEO, Frontera Energy: Well, you take a look at our we have one particular line. So we there’s two ways that we pay taxes, Sergey. So it’d be the one way kind of settle off at the end of the year, and then you have monthly, we have the withholding taxes. So I think that the best way to explain it is we roughly pay 5% 5.6% of our of our gross sales. So I think if you if you add up the year, and I think our our our releases, you’ve been approaching, you know, 400, 500, You can multiply that times times that 5%, 6%, and that’s how you get to that number.

But we it’s it’s within our our cash flow statement. So call it should be anywhere from, you know, $39 or something like that we paid. So that’s and that’s growth before the returns. Thank you. Thanks.

Sergio, Conference Facilitator: Thank you. There are no further questions at this time. I’ll turn it over to management for closing remarks.

Orlando Cabrales, CEO, Frontera Energy: Well, thank you. Thank you, everybody, for attending the call, and have a good day. Thank you, operator.

Sergio, Conference Facilitator: Ladies and gentlemen, this concludes today’s conference call. Thank you all for your participation. You may now disconnect.

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