Earnings call transcript: Parex Resources Q2 2025 sees stock rise after solid performance

Parex Resources Inc. reported its Q2 2025 financial results, showcasing a robust performance that led to a 5.81% surge in its stock price. The company achieved earnings per share (EPS) of $0.50, alongside a revenue of $53.42 million. According to InvestingPro analysis, the company maintains a "GREAT" financial health score of 3.01, with particularly strong cash flow and profitability metrics. The stock currently appears undervalued based on InvestingPro’s Fair Value model. This performance, coupled with strategic operational advancements, has positively impacted investor sentiment, as evidenced by the stock’s movement.

Key Takeaways

• Parex Resources’ stock increased by 5.81% following the earnings announcement.
• EPS for Q2 2025 came in at $0.50, with revenue totaling $53.42 million.
• The company is progressing with significant drilling and exploration projects.
• Operational efficiencies and favorable market conditions bolstered performance.
• Strong focus on Colombian assets and financial flexibility highlighted.

Company Performance

Parex Resources demonstrated strong operational and financial performance in Q2 2025. The company reported an average production of 42,542 barrels of oil equivalent (BOE) per day, aligning closely with its annual guidance of 44,000 to 47,000 BOE per day. The firm’s strategic focus on low-risk development and efficiency improvements, such as optimized power generation and maintenance scheduling, contributed to its robust performance.

Financial Highlights

• Revenue: $53.42 million for Q2 2025.
• Earnings per share: $0.50.
• Funds flow from operations: $105 million.
• Quarterly capital expenditures: $89 million.
• Average Brent oil price: $67 per barrel.

Earnings vs. Forecast

The company reported an EPS of $0.50, reflecting a stable financial position. While specific forecast comparisons were not provided, the positive market reaction suggests that the results were in line with or exceeded market expectations.

Market Reaction

Parex Resources’ stock saw a notable increase of 5.81% following the earnings release, reaching a price of $16.03. This movement places the stock comfortably between its 52-week high of $21 and low of $10.30. The rise reflects investor confidence in the company’s strategic initiatives and strong performance.

Outlook & Guidance

Looking ahead, Parex Resources anticipates production growth in the second half of 2025. The company plans to drill 1-2 exploration wells in the Llanos Foothills in 2026 and is exploring opportunities in the Putumayo Basin. Additionally, a gas sales strategy for La Belleza is targeted for late 2026 or early 2027. With an attractive EV/EBITDA ratio of 1.72 and a free cash flow yield of 20%, InvestingPro analysis reveals 8 additional key insights about the company’s growth potential. Access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers, for detailed analysis of Parex Resources’ future prospects.

Executive Commentary

"Our objective for 2025 was to deliver low-risk development opportunities across our portfolio," stated Imad Molson, CEO. CFO Cam Granger added, "We remain fully funded with our capital program advancing," emphasizing the company’s strong financial position and strategic focus.

Risks and Challenges

• Fluctuations in oil prices may impact revenue.
• Political and regulatory changes in Colombia could affect operations.
• Exploration and production risks in new areas like the Putumayo Basin.
• Potential supply chain disruptions affecting project timelines.

Q&A

During the earnings call, analysts inquired about the exploration plans in the Putumayo Basin and the expected production exit rate, which the company confirmed to be in the high 40,000 BOE per day. Details on upcoming exploration wells for Hydra and Farallones were also discussed, providing insights into future growth strategies.

Full transcript - Parex Resources Inc (PXT) Q2 2025:

Conference Operator: Good morning, and welcome to the Parex Resources Q2 Operational and Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. As a reminder, today’s call is being recorded. I will now hand today’s call over to Mike Crofton, Senior Vice President of Capital Markets and Corporate Planning.

Please go ahead, sir.

Mike Crofton, Senior Vice President of Capital Markets and Corporate Planning, Parex Resources: Good morning, everyone, and welcome to Parks Resources second quarter twenty twenty five conference call and webcast. My name is Mike Crookton, and on the call with me today are our President and Chief Executive Officer, Emaud 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 our website or at www.sedarplus.ca. Note that all amounts discussed today are in U.

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

Imad Molson, President and Chief Executive Officer, Parex Resources: Thank you, Mike, and good morning, everyone. With the 2025 behind us, I’m pleased to say that we are seeing steady progress across the portfolio. At our core assets, Cabastero and Janus thirty four, secondary recovery and EOR programs are advancing as per our plan. Development drilling has begun at Janus thirty two and near field exploration success is being delivered in Southern Llanos. All of these are key activities supporting strong momentum for continued growth in the second half of the year.

Our financial results for the quarter were strong and our robust netback underscored the resilience of our business, even in a lower commodity price environment. Netback performance was supported by favorable Colombian crude differentials as well as lower production costs driven by external power pricing in addition to an ongoing internal optimization effort. I want to recognize our team’s internal efforts across several projects and initiatives where we are seeing real improvements in our cost structure and corporate processes. As noted at the start of the year, our program is back end weighted. In 2025, we expect to deliver steady production growth and achieve our annual guidance of 44,000 to 47,000 barrels of oil equivalent per day.

With an anticipated strong exit that will set us up favorably in 2026. This momentum will also position us to continue to generate meaningful free funds flow, fully funding our current capital program, sustaining a robust dividend and executing on our planned share buybacks with surplus cash flow that can further strengthen the balance sheet. With that, I’ll turn it over to Eric to provide an operational update. Please go ahead, Eric.

Eric Ferland, Chief Operating Officer, Parex Resources: Thanks, Matt.

Eric Ferland, Chief Operating Officer, Parex Resources: For Q2 twenty twenty five, production averaged 42,542 BOE per day. These volumes were generally consistent with our expectations. During the quarter, we achieved several key milestones that not only supported base production, but also positions to us to efficiently execute our activity plan for the remainder of the year. In LLA thirty four, we completed our six well infill drilling program, achieving timing cost improvements for the program utilizing a new generation rig. And at both LLA thirty four and Cabristero, we continue to progress our secondary recovery efforts via waterflood and are advancing our polymer injection programs at both blocks.

At LLA thirty two, following completion of the tuck in acquisition, in the second quarter, we launched a five well drilling campaign. With the first well completed in July, we are making steady progress and expect this block to be one of our key drivers of growth in the second half of the year. At Capachos, we are working on infrastructure upgrades to enhance production capacity for the block and intend to drill two development walls targeting established compartments over the remainder of the year. At LLA seventy four, we delivered encouraging results for our near field exploration program, where three wells are now producing a combined approximately 2,500 BOE per day. These opportunities are part of our small e program, which is focused on targeting prospects with high probability of success.

The wells have come on stream quickly with strong netbacks and are supporting in year production growth. In the second half of the year, we plan to drill at least two similar prospects and continue to build broader funnel of opportunities across the portfolio to replicate the success long term. Lastly, we are making progress in the Putumayo. In the second quarter, following community and stakeholder engagement, we reached the milestone of securing initial field access, and we have begun operations. We now have a workover rig that is progressing and expect to kick off our drilling campaign later this year.

Our objective is to test a number of concepts to optimize our 2026 program. With a continued focus on development and lower risk activities for the remainder of 2025, we anticipate steady increases in production as we execute our operational plans.

Cam Granger, Chief Financial Officer, Parex Resources: With that, I’d invite Cam to please go ahead. Thanks, Eric. For the quarter, funds flow provided by operations was $105,000,000 and our FFO netback was $26.9 per BOE based on an average Brent oil price of $67 per barrel. During the quarter, netbacks benefited from favorable oil pricing differentials, particularly tight Vasconia benchmark differentials, which we had originally budgeted at roughly $5 per barrel, but have seen an improvement to less than $2 per barrel since February. Also supporting netbacks has been an improved production expense or OpEx profile.

A key contributor to this has been lower power costs and ongoing internal optimizations. In 2024, power prices spiked significantly due to dry conditions that impacted hydroelectric generation capacity. This year, however, we are seeing power prices return to more normalized levels. Beyond the external pricing relief, we’ve also realized meaningful internal efficiency gains across our operations, further supporting improved OpEx numbers. Some examples of this include optimizing power generation and usage in key blocks, streamlining maintenance scheduling and enhancing staffing and security protocols.

For Q3, we have hedged roughly 50% of our planned production utilizing a Brent put spread at sixty dollars and sixty five dollars per barrel, which is providing insulation for a cash flow profile in an environment where we have seen recent global volatility. Current taxes were $9,000,000 for the quarter. Given Colombia’s progressive tax and royalty system and at strip pricing, we expect our full year effective current tax rate to be between 5% to 10%. This is slightly up from our previous forecast largely due to a better cash flow profile than we had originally projected supported by stronger netbacks. Quarterly capital expenditures totaled $89,000,000 consistent with our ramp up in activity.

Looking ahead to the third quarter, capital spending is expected to remain at similar levels while a lighter capital outlay is forecast for the fourth quarter. We remain fully funded with our capital program advancing, our regular dividend covered and a modest level of share repurchases continuing. Our balance sheet remains exceptionally strong, underpinned by ample liquidity and financial flexibility. This solid financial position enables us to execute our strategic priorities with confidence while maintaining resilience in varying market conditions. With that, I will pass it over to Ahmad for some final remarks.

Imad Molson, President and Chief Executive Officer, Parex Resources: Thank you, Cam. I want to reiterate our focus on building production momentum throughout the remainder of the year as we safely deliver our activity plan, which is back end weighted. Our operations have performed well year to date, and we continue to anticipate steady incremental production increases to meet our full year annual guidance. Our objective for 2025 was to deliver low risk development opportunities across our portfolio, demonstrating our ability to sustain production volumes while managing capital expenditures and ensuring strong shareholder returns. Halfway throughout the year, I’m pleased with our progress and believe we are on track to deliver.

Looking beyond 2025, we are actively advancing two major initiatives in both the Putumayo Basin, where we see significant untapped upside potential given the oil in place and the Iannos Foothills, where we are progressing exploration plans for 2026. The Anos Foothills remains one of Perix’s core opportunities with exceptional promise and represents a key component of our long term growth strategy. Lastly, I’m pleased to share that our eleventh annual sustainability report has been released. It highlights the meaningful work we are doing to manage our environmental impact, build mutually beneficial relationships with communities and uphold strong governance practices. Our commitment to our stakeholders remains unwavering, and our strategic focus continues to be exclusively on Colombia.

I want to thank all our employees and contractors for their hard work and their safety first approach. 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.

That concludes our second quarter conference call. Thank you for joining us, have a good day.

Mike Crofton, Senior Vice President of Capital Markets and Corporate Planning, Parex Resources: Operator, we’re ready for questions.

Conference Operator: Your first question is from Greg Pardy with RBC Capital Markets.

Greg Pardy, Analyst, RBC Capital Markets: Yes. Thanks. Good morning and thanks for the rundown. Just wondering if we could dig a little bit into planned activities in the Putumayo Basin. And then secondly, whether I know it’s you’re probably still framing what the program will look like, but what is your thinking around maybe a bigger E program in the Llanos Foothills in 2026?

Thanks very much.

Eric Ferland, Chief Operating Officer, Parex Resources: Talking about the plan for the Putumayo, we’re testing two key concepts. We’re testing the the use of horizontal drilling and and step out to check the extents of an existing pool. And we are also looking at a larger accumulation of oil in place that has never been subject to water flood or any kind of EOR. So we are commencing pilot immediately to repressure that reservoir. And, really, as as Ahmed indicated earlier, our goal is to test a number of concepts in 2025 to help build the program for 2026 and see where we wanna focus our capital.

As far as the Foothills program, we are advancing that as per our schedule. We expect to spud one to two exploration wells next year in in in the Foothills and are excited about this opportunity and and getting into an area that has really been overlooked for for a number of years.

Greg Pardy, Analyst, RBC Capital Markets: Okay. Terrific. And is it maybe too much to ask in terms of the bigger E program next year? Perhaps what working interest you’d be drilling those at? Or can you provide any description around those?

Or is it just too early at this point?

Imad Molson, President and Chief Executive Officer, Parex Resources: I mean, we do as a part of our harmonization agreement with Ecopetrol in the Foothills, we have a number of commitments to carry them. So my expectation that any foothills drilling next year will be to fulfill these carrier commitments. So it will be drilled at 100% with a 50% working interest.

Greg Pardy, Analyst, RBC Capital Markets: Okay, understood. Okay, thanks very much.

Conference Operator: Your next question is from Kevin Fiske with Scotiabank.

Eric Ferland, Chief Operating Officer, Parex Resources: Thanks for taking my question. Are you able to comment on what you’re expecting for an exit rate in 2025?

Mike Crofton, Senior Vice President of Capital Markets and Corporate Planning, Parex Resources: 02/2025, when we get to the fourth quarter, we certainly see our production growing off of our base, which, you know, we’re we provided we’re, you know, in the 40 fours, for July. So we’re gonna see that get to, you know, I would say in the high forties in order to meet our production target of 45 for the year.

Eric Ferland, Chief Operating Officer, Parex Resources: Perfect. That’s it for me.

Conference Operator: Your next question is from the line of Nicolas Manos with English and Schneider.

Eric Ferland, Chief Operating Officer, Parex Resources: Congratulations on a good quarter in a difficult environment. I have two questions about the exploration program. One, is the Hydra exploration well still on board for the second half of this year? And a related question about production at La La Belleza now? And how much cash is being reinjected?

And what are the plans for monetizing that gas?

Eric Ferland, Chief Operating Officer, Parex Resources: Okay. So let let’s talk about that block and and our long term program. So, yes, the Heathrow well is being drilled in in q four of this year. We are progressing that, and we don’t see any issues there. So we we are expecting to drill that well in 02/2025.

The results from that well and the implications on further opportunities in that block will will further define the infrastructure requirements for the area. We are planning, to commence with pipeline tie in of the VIM area to the overall system, so we can capture, what is really required gas in Colombia right now as they have a significant gas shortfalls. So we are we are putting in in place. We have already the environmental approvals to do so. So it’s just a matter of final sizing, and and I would expect that program to commence next year.

We are drilling the as I said, the Guacao well and the Lava Laza 3 wells setting up for a gas sales a gas sales strategy late twenty six, early twenty seven.

Imad Molson, President and Chief Executive Officer, Parex Resources: How how much liquids you’re producing today?

Eric Ferland, Chief Operating Officer, Parex Resources: Oh, and the liquids right now, I believe the latest number was about 2,100 barrels a day net liquids that we’re currently producing.

Eric Ferland, Chief Operating Officer, Parex Resources: And how much gas is being reinjected?

Eric Ferland, Chief Operating Officer, Parex Resources: This time, about 30,000,000 a day is being reinjected.

Eric Ferland, Chief Operating Officer, Parex Resources: Okay. And that could come on in late twenty six, ’twenty seven if all goes well?

Eric Ferland, Chief Operating Officer, Parex Resources: That is the plan right now. Again, that is pretty much a firm plan to go to a sales strategy here in the not too distant future. And it’s really a matter of finalizing pipeline size. And then we’d like to understand some of our exploration potential, not only the Guapa well, but potential follow ups to make And that final sizing

Eric Ferland, Chief Operating Officer, Parex Resources: one more exploration question, if I may. Is the Farallones prospect still part of your thinking for the one or two exploration wells in 2026?

Eric Ferland, Chief Operating Officer, Parex Resources: Yes. That will be a definite drill in 2026.

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

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

Conference Operator: At this time, there are no further audio questions. This does conclude today’s call. We thank you for joining, and you may now disconnect your lines.

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