Earnings call transcript: Parex Resources Q1 2025 beats estimates

Parex Resources Inc. reported its first-quarter 2025 earnings, surpassing expectations with an earnings per share (EPS) of $0.82. The results have prompted a positive market reaction, with the stock price rising by 7.58% in pre-market trading. According to InvestingPro analysis, the company maintains a GOOD financial health score, with particularly strong profitability metrics. The company also provided insights into its strategic initiatives and operational achievements, including a successful acquisition and exploration efforts. Based on comprehensive valuation analysis, Parex Resources currently appears undervalued in the market.

Key Takeaways

• Parex Resources exceeded EPS expectations with $0.82 for Q1 2025.
• Stock price increased by 7.58% following the earnings announcement.
• Successful acquisition and exploration activities bolster operational growth.
• Full-year production guidance set between 43,000-47,000 BOE per day.
• Focus on Enhanced Oil Recovery (EOR) and potential gas developments.

Company Performance

Parex Resources demonstrated robust performance in Q1 2025, with funds flow from operations reaching $122 million. The company’s strategic focus on low-risk exploration and efficient capital allocation is reflected in its operational results. The acquisition of Block 32 and exploration success in Southern Llanos and Block 74 highlight Parex’s commitment to growth.

Financial Highlights

• Funds flow from operations: $122 million
• FFO netback: $30.9 per BOE
• Capital expenditures: $57 million
• Working capital surplus: $69 million
• Cash position: $81 million

Earnings vs. Forecast

The company reported an EPS of $0.82, which exceeded market expectations. This performance marks a significant achievement compared to previous quarters, where the company faced challenges in meeting its targets.

Market Reaction

Following the earnings announcement, Parex Resources’ stock saw a notable increase of 7.58%, with the price rising to $11.36 from a previous close of $10.56. This surge reflects investor confidence in the company’s strategic direction and financial health. The stock offers an attractive dividend yield of 14.58%, significantly above industry averages. InvestingPro subscribers can access 8 additional key insights about Parex’s financial strength and market position, including detailed analysis of its valuation metrics and growth potential.

Outlook & Guidance

Parex Resources maintains its full-year production guidance of 43,000-47,000 BOE per day. The company is advancing its Enhanced Oil Recovery (EOR) techniques and exploring potential gas developments at La Belleza. The Hydra exploration well is planned for the second half of 2025, indicating continued focus on growth and innovation.

Executive Commentary

CEO Ahmad Molson emphasized the disciplined approach to performance, stating, "We are focused on delivering steady performance by applying a disciplined plan centered on lower-risk activities." COO Eric Ferland highlighted the efficiency of EOR, noting, "Of all things we could do, looking at EOR and fully developed fields with injection and infrastructure in place, it’s the most efficient thing and lowest risk thing we can do."

Risks and Challenges

• Market volatility in oil prices could impact revenue.
• Regulatory changes in Colombia may pose operational challenges.
• Exploration and development risks associated with new projects.
• Potential competition from other energy companies in the region.

Q&A

During the earnings call, analysts inquired about the reduction in rig count and potential mergers and acquisitions. The company clarified its focus on efficiency and openness to opportunities that maximize shareholder value. Additionally, questions about polymer flood expansion and gas monetization strategies were addressed, underscoring Parex’s strategic priorities.

Full transcript - Parex Resources Inc (PXT) Q1 2025:

Janet, Conference Operator: Thank you for standing by. My name is Janet, and I will be your conference operator today. At this time, I would like to welcome everyone to the Parex Resources Q1 Operating and Financial Results. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer Thank you.

I would now like to turn the call over to Mike Crofton, Senior Vice President of Capital Market and Corporate Planning. Please go ahead.

Mike Crofton, Senior Vice President of Capital Market and Corporate Planning, Parex Resources: Good morning, everyone, and welcome to Park Resources’ first quarter twenty twenty five conference call and webcast. On the call with me today are our President and Chief Executive Officer, Ahmad Molson our Chief Financial Officer, Cam Granger and our Chief Operating Officer, Eric Ferland. Please note that at any time, telephone participants on the call can press 1 to submit a question. As a reminder, this conference call includes forward looking statements as well as non GAAP and other financial measures with the associated risks outlined in our news release and MD and A, which can be found on the website or at www.cedarplus. Note that all amounts discussed today are in U.

S. Dollars unless otherwise stated. I’ll now turn the call over to Hamed. Please go ahead.

Ahmad Molson, President and Chief Executive Officer, Parex Resources: Thank you, Mike, and good morning, everyone. As we committed at the outset of the year, in 2025, we are focused on delivering steady performance by applying a disciplined plan centered on lower risk activities and high graded set of opportunities. So far this year, we are seeing strong base production from our core assets and have made progress on our 2025 plan, resulting in first quarter production volumes being in line with Additionally, with drilling activities currently in line with our budget, much of the groundwork to support production has been completed, including three key strategic items I’d like to highlight. First, we closed the tuck in acquisition at the end of thirty two, where we capture the remaining working interest on the block from the partner and gain full control.

We are excited about this addition to our portfolio, which we added at strong acquisition metrics. With low cost recompletion opportunities and immediate development inventory and that we can do this year, we see this area as a high quality and well positioned asset with both short term and long term upside. Second, we are realizing near field exploration results with two prospects so far this year yielding positive outcomes. Both successes are in the Southern Llanos, an area well known to Parex, where we were targeting lower risk, higher chances of success opportunities. Third, we continue to progress groundwork in the Putumayo, where we are focused on starting initial operations in the second quarter with significant proven oil in place.

We have now completed the contracts with our partner to commence work and our team is currently finalizing short term activities, while also continuing the assessment of the basin to identify investment areas with the best capital efficiency going forward.

Eric Ferland, Chief Operating Officer, Parex Resources: Overall, I’m pleased with our performance in the first quarter, where we have led the foundation that will enable us to deliver our plan as the year progresses. And despite our current activity plan largely remaining unchanged and supported by a strong suite of projects, we recognize the current market volatility and are monitoring it closely. With that, I’ll now turn it over to Eric to provide an operational update. Please go ahead, Eric. Thanks, Ahmad.

For Q1 twenty twenty five, production averaged 43,658 barrels of oil equivalent per day. These volumes are consistent with our expectations and reflective of lower activity levels and a modest capital outlay in the quarter. Our full year production guidance of 43,000 to 47,000 BOE per day remains unchanged. Turning to the second quarter, our activity levels are coming into a more normalized level with three rigs, two of which are operated, drilling multiple development wells from existing well pads. Given the infrastructure already in place, following drilling activity, we expect to be able to bring production on stream across parallel operations.

At Janus thirty four, we started drilling this program in the final days of the first quarter. And by the end of the second quarter, we expect to complete roughly six infill wells that will be supportive of our base production. At Janus thirty two, following completion of the acquisition, we began a recompletion and workover program, which is yielding positive results. In the second quarter, we also initiated a five well development campaign with three horizontals and two vertical producing wells planned. The first well in the program is expected to be completed in late Q2 with subsequent wells drilled thereafter.

As Ahmad mentioned, we’re excited to kick off this program, which should be one of the key drivers of growth in the second half. At Jan of seventy four, we saw encouraging results from our near field exploration program. There are two different prospects on the block that have been drilled to date with success. The first prospect was successfully drilled with production beginning in early May. This well is currently producing at roughly 1,200 barrels of oil a day with management assessing next steps and updating our interpretations.

A second prospect was drilled using a vertical well. Following initial results and a thorough assessment of the subsurface, we expect there to be two hydrocarbon bearing zones resulting in the program to drill two horizontal wells to maximize recovery. The first horizontal is currently being drilled with the first production expected in late May. Lastly, we are making steady progress in the Putumayo. Our teams are now on the ground, socializing plants and establishing relationships with local community stakeholders.

In the second quarter, we plan to move a workover rig to kick off operational activity with current plans to add a drilling rig in midsummer. While our activity plan for the second quarter is largely set, I would be remiss not to mention the conventional nature of our business, including the structure of our drilling and service contracts. I want to echo Ahmad’s comments on flexibility. We have assessed where capital could be scaled back if conditions were to worsen. But today, our conventional projects adding to our production base and have a strong operational netbacks.

With that, I’d invite Cam to please go ahead.

Cam Granger, Chief Financial Officer, Parex Resources: Thanks, Eric. For the quarter, funds flow provided by operations was $122,000,000 and our FFO netback was strong at $30.9 per BOE based on an average Brent oil price of $74.98 per barrel. During the quarter results were supported by narrowing Vasconia differentials which were positive for realization. Current taxes were $12,000,000 in the quarter given Columbia’s progressive tax and royalty system and at strip pricing we expect our full year effective current tax rate to be between 0% to 3%. Quarterly capital expenditures were $57,000,000 which was in line with lower activity levels.

As we look to the second quarter our capital forecast is expected to increase per our budgeted plan as Eric mentioned. Right now we expect to continue benefiting from Vasconia differentials helping to partially offset lower commodity prices. Alongside pricing volatility, we’re prudently running sensitivities on all of our projects to ensure capital allocation is optimized. During the quarter, we repaid $10,000,000 of bank debt. So at quarter end, we increased our working capital surplus to $69,000,000 and cash of $81,000,000 resulting in a strong balance sheet, which provides both liquidity and the ability to buffer economic headwinds.

With that, I will pass it over to Abad for some final remarks.

Ahmad Molson, President and Chief Executive Officer, Parex Resources: Thank you, Karam. Our progress year to date has been steady and I’m cautiously optimistic on our overall outlook, notably starting the development campaign in Janus thirty two as well as the positive exploration results, are supportive of production delivery and achieving our 2025 plan. We continue to be focused on evolving our portfolio to maximize shareholder value. For our base assets that provide portfolio stability, we are applying proven technology like water flooding, EOR and polymer injection as well as deploying cutting edge AI seismic interpretation that allowing us to visualize opportunities we couldn’t see in the past. Looking forward, we are focused on replicating our enhanced recovery techniques in the Putumayo, where we see seismic upside, potential to increase recovery factors and development expand our lower risk inventory with activities such as infill drilling and recompletion.

Ultimately, this is complementary to the longer term upside potential that we are working towards in the Anos Foothills alongside our strategic partner Ecopetrol. We are encouraged by the progress we are making on both these projects with them, the Putumayo and the Foothills and look forward to maintaining this momentum going forward go forward as they are key platforms to drive long term shareholder value. To end, I want to thank all our employees and contractors for their hard work. Furthermore, I’d like to thank our shareholders and partners for their ongoing support. This concludes our formal remarks.

I would now like to turn the call back to the operator to start the Q and A session for the investment community. Thank you.

Janet, Conference Operator: Your first question is coming from the line of Alejandro D’Amcelli with Jefferies. Please go ahead.

Alejandro D’Amcelli, Analyst, Jefferies: Yes. Good morning, gentlemen. Thank you very much for taking my questions. A couple of questions, if I may, please. I think when we look at the fourth quarter results, you were mentioning by this time, by the second quarter, you would have four rigs.

Now you have three rigs operating. So the question is, is this a timing situation or is this kind of you being a little bit more cautious in terms of the activity levels and trying to see how oil prices progress? And then the second question is, in the current situation with oil price and so on, what is your appetite for say inorganic activities, particularly given that there have been some reports about some Colombian producers looking to sell out?

Eric Ferland, Chief Operating Officer, Parex Resources: Thanks, Alejandro. I’ll answer the first question regarding the rig scheduling. I would say it’s a combination of things. The big one is the efficiency. For example, at at at the end of last year, we weren’t clear on the on the program for for Janus thirty two, and now we can put a more focused, more efficient program in place with multiple wells.

So that allows us to get some efficiencies and and complete our program. So for for that reason, we have we are we’re we have three rigs on the slate right now with the potential to add a fourth, but it’s it’s really just efficiencies and allowing us to drill campaign style focused delivery in a couple of core areas.

Alejandro D’Amcelli, Analyst, Jefferies: Okay. Thank you.

Eric Ferland, Chief Operating Officer, Parex Resources: And as

Ahmad Molson, President and Chief Executive Officer, Parex Resources: far as the question number two? So so let let me add to to to a bit of detail of the efficiency. An example of that is in Llano 32 right now, we’re minimizing rig moves where we’ll have one full time drilling rig, but we set up the pad in the last couple of months so we can do parallel completion workover work while the rig is drilling. So you get quicker wells on stream with workover rig and drilling rig working at the same time. On question number two, I’d like to reconfirm, we’re committed to Colombia.

So I know Jefferies has always a very good suit of opportunities worldwide, but the commitment is to Colombia. In Colombia, since I’ve been there, there’s always opportunity, but never really, really there. So we’ll be watching. We’re always looking for maximizing shareholder value. And if that comes organically, we’ll go after it.

If something really good value comes out in our organically in Colombia, we’re always open.

Alejandro D’Amcelli, Analyst, Jefferies: Okay. Thank you.

Janet, Conference Operator: Your next question is coming from the line of Konrad Bredesniewski with Peters and Company. Please go ahead.

Konrad Bredesniewski, Analyst, Peters and Company: Thanks for taking my question everyone. I have two questions. So one is just the realized pricing in Q1 was strong probably from the differentials tightening, but how do you see the outlook playing going forward on the Vasconi differential and then the realized pricing for ParEx? And then the second question I had was, is there any update on the polymer flood and potential expansion of that longer term at places like Capistero and Block 34?

Cam Granger, Chief Financial Officer, Parex Resources: Hey, Conrad. It’s Cam. Yeah. In terms of Vasconia, yeah, we’ve seen some positive developments there on Vasconia. In the first quarter, our differential was $2.26.

Right now, today, we’re we’re around that $2 differential. And, you know, going forward, what we forecast is is really around $3 differential for the rest of the year. So, so that’s the way we see it right now.

Eric Ferland, Chief Operating Officer, Parex Resources: And, Conrad, this is Eric. I’ll answer your second question. Yes. The polymer expansion is going very well. We have internal goals to have the Cabristero block on full polymer before the end of twenty five.

We are also working with our partner in Janos thirty four to commence polymer operations there and the initial stages of ordering equipment is underway. So we expect that polymer flood to start up in ’26.

Konrad Bredesniewski, Analyst, Peters and Company: And then just a quick follow-up. So along those lines, do you see potential for both waterflood and polymer in the Putumayo? Or is it mainly waterflood in the Putumayo?

Eric Ferland, Chief Operating Officer, Parex Resources: Well, we’re we’re looking at so going back, looking at all of the EOR technologies we’re looking at, you know, in in in Southern Casanari, we are looking at the polymer. We are also looking at surfactants and other other opportunities to increase recovery factor. We have an area with a billion barrels of oil in place and very high quality rock, and and we will leave no stone unturned to find the the best way to maximize recovery there. With that said, most of the work that we’re doing in Southern Casaneri from our modeling to our analysis to our expansion is is applicable to the Putumayo. A lot of the oil in the Putumayo is is a bit lighter, so it would be more conducive to both waterflood potential surfactants, some areas with polymer.

But everything we’re learning from a characterization and EOR perspective, our advancements, we’re looking at implementing that right away in the Putumayo in in fields that have a large very large oil in place and relatively low recovery factor on a worldwide standard. Did that answer your question, Konrad?

Konrad Bredesniewski, Analyst, Peters and Company: Yes. No, it did. That did. I

Ahmad Molson, President and Chief Executive Officer, Parex Resources: mean to put order of magnitude, these are the cheapest barrels we can get in terms of capital efficiency. Like, the total deployment in Capastera is how much, Eric?

Eric Ferland, Chief Operating Officer, Parex Resources: It it’s it’s in the 10 plus million dollars for capital. The the beauty of a lot of these EOR schemes is once you have all of the infrastructure in place to do a water flood, which we do, the rest is very simple and and is is kind of a pay as you go operation buying polymer, but the upfront capital investment is relatively low. Of all things we could do, looking at EOR and fully developed fields with with injection and infrastructure in place, it’s the most efficient thing and lowest risk thing we we can do.

Janet, Conference Operator: Your next question is coming from the line of Jeremy McCree with BMO. Please go ahead.

Jeremy McCree, Analyst, BMO: Hey, guys. Two quick questions here. The one is on your line of 74 prospect here. So it looks quite successful. I was curious if you could give some context in terms of what expectations were.

And if just given the success of this, does this change perhaps how you’re looking at go forward risk? I know the budget had assumed to pull back to very little risk, but just given some of the success, are you thinking about maybe adding a little bit more risk? And then second question is just going back to some of the M and A, just given where commodity prices have moved. And do you expect some things or more JVs to open up here in Colombia here as well too in terms of more acquisitions? I’ll leave it at that.

Eric Ferland, Chief Operating Officer, Parex Resources: Okay. I’ll I’ll answer the first question. With regards to the initial exploration results, you know, we we we decided to refocus, as Matt said, on on opportunities that have a high probability of success that that are close to infrastructure. So these are what we call our small e program. These are wells that have success rate of typically in the 50% range.

And so we’ve had success on these two wells. It’s gonna lead to at least three producing wells. So expectation wise, it’s always nice to get off to a strong start. You never know if you’re gonna drill your successful wells in midway, early in the year, but it’s it’s always great to start off with with successes. We’re gonna stay the course as far as that goes.

You know, the early success in the exploration has allowed us to optimize things a little bit. In other words, you get early success, you you can develop those, they add production early, and you don’t have to take as as much risk drilling exploration wells. So that’ll be our focus there. So our our program for the most part towards the end of the year is about developing what we’ve got to build the production and and meet our guidance, and secondly, set up for 26 testing concepts. So no big strategic shift.

We’re still chasing that. And, of course, long term, we’re looking at at the higher risk, higher reward opportunities in the foothills.

Ahmad Molson, President and Chief Executive Officer, Parex Resources: This is a good introduction. Second question. So so in terms of M and A, our biggest partnership is with Ecovetrol. We like to cement it in the foothills, and we keep working towards working together with Ecovetral. Ecovetral really have most of the running room of any other partner or company in Colombia.

So I do expect that flow of activities was Equatorial enough to stop in the coming years. With regards to private companies, I don’t know how things will turn. Like I know some people are trying to start processes, but at these prices, especially with companies for companies with debt, there’s a point where it’s hard for them to achieve whatever pricing they’re looking after, but we’ll be open. I do think that something we might be getting surprises just because of the low oil prices and the way the companies are leveraged in Colombia.

Jeremy McCree, Analyst, BMO: Okay. Thanks guys for your answers here. Thank you.

Janet, Conference Operator: Your next question is coming from the line of Nicolas Manojas with Ingelsnider. Please go ahead.

Alejandro D’Amcelli, Analyst, Jefferies: Congratulations on a solid start to

Nicolas Manojas, Analyst, Ingelsnider: the year. I wanted to ask about the prospect for are you still planning to drill the Hydra exploration well in the second half? And do you have any plans for developing the gas resource at La Belleza area?

Eric Ferland, Chief Operating Officer, Parex Resources: I’ll take that call. Thanks. It’s Eric. Yes. We are on track to drill Hydra in the second half of the year.

So we will be drilling that. We are currently also finalizing development plans with a plan to monetize the gas from the Lava Laza and looking at pipeline options and working with our partner there. So in in short order, we are looking to finalize our development plans to deliver that.

Mike Crofton, Senior Vice President of Capital Market and Corporate Planning, Parex Resources: One other thing I’d like to add, Nico, is that in our MD and A, you’ll see that the gas price in q one was $13, over $13 in MCF. And that really provides a lot of motivation for us to increase the gas resources in our portfolio.

Nicolas Manojas, Analyst, Ingelsnider: Yes. I’m aware of that. That’s why I asked the question. What would the potential cost and impact be of success exploration at Hydra and also the gas development at La

Eric Ferland, Chief Operating Officer, Parex Resources: You know, at at Hydra, I don’t wanna talk specifically about characterization of of internal sizes, but you could generally say it’s it’s kind of a lava laser or larger in in in size, and and it would have a a fairly material impact. In fact, that the result from that well would or or could change our infrastructure plans for the area. So we would like to get the results on that well before the final commitment for the pipeline. As far as commercialization, that is underway. You know, we are aware that these wells can deliver very high rates, you know, that they can easily deliver twenty, thirty, 40 million a day.

So it’s a matter of of putting together the right development plan with the right pipeline size and depending what contracts we can get. We see the price outlook very robust for years to come. So and and we are taking advantage of that. And so that should be coming a little clearer to us as we drill the Hydra well and and finalize plans before the end of twenty twenty five.

Ahmad Molson, President and Chief Executive Officer, Parex Resources: Great. Thank you very much.

Eric Ferland, Chief Operating Officer, Parex Resources: Thank you.

Janet, Conference Operator: I will now turn the call back over to Mike Crofton, Senior Vice President of Capital Market and Corporate Planning for closing remarks. Please go ahead.

Mike Crofton, Senior Vice President of Capital Market and Corporate Planning, Parex Resources: Thank you, operator. Thank you for all the participants on the call today. If you have any further questions, please feel free to contact us at Parex. Have a good day.

Janet, Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.

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