Parex Resources Inc. (OTCPK:PARXF) Q4 2019 Results Earnings Conference Call March 11, 2020 11:30 AM ET
Dave Taylor - President and CEO
Ken Pinsky - Chief Financial Officer
Conference Call Participants
Al Stanton - RBC
All participants please stand by, your meeting is ready to begin. Good morning, everyone. And welcome to the Parex Resources Fourth Quarter Earnings Call and Webcast. Yesterday Parex released its audited financial and operating results for the quarter and year end December 31, 2019. Like all Parex disclosure documents, the complete financial statements and related MD&A are available on the company's website and at www.parexresources.com and on SEDAR.
Before turning the meeting over to Mr. Dave Taylor, President and Chief Executive Officer of Parex Resources Incorporated, I would like to mention that the call is being recorded, so it will be available for playback on the company's website.
Parex would like to remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions and have been fully described in the company's continuous disclosure reports.
The information discussed is made as of today's date and time, and Parex assumes no obligation to update or revise this information to reflect new events or circumstances except as required by law. [Operator Instructions]
I would like to pass on the meeting to Parex President and CEO. Please go ahead, Mr. Taylor.
Thank you, Operator, and thanks to everyone on the line for joining myself and senior leadership team for our Q4 conference call and thanks for your support to Parex. Before we start today’s Q&A session, I would like to provide a brief overview to our shareholders on our financial results for the year ended 2019. I will then discuss 2020 guidance sensitivities that we have provided in yesterday’s press release.
I'd like to begin by stating that we're very happy with the underlying fundamental strength of our business in Columbia. Our core Southern Casanare oilfields continued to deliver in both reserves and production and are generating significant free cash flow. Our recent La Belleza discovery on the VIM-1 Block has been very encouraging with initial test rates of over 4,600 boes per day.
In 2019, the company delivered record funds flow from operations of US$571 million against CapEx of $208. This includes annual free cash flow of $362 million, year-over-year oil production growth of 19% per share, increasing our underlying value, as measured by our independently audited reserves, the highlights of which include proved year-over-year volume increases of 14%, proved plus probable year-over-year volume increase of 7% and FD&A cost on the proved reserves basis was $7.50 boe, including FDC with a recycle ratio of 3.9 times.
We also repurchased over 14.7 million shares returning $224 million to shareholders. We added new inventory to our portfolio with the awards of five blocks at the ANH Bid Round including two blocks, VSM-25 and 36, which provide an entry into a new base in the Upper Magdalena. We maintain a debt-free balance sheet with year-end working capital of $344 million, which provides multiple options for us to create value in our business in 2020.
In our Q4 news release, we provided a price sensitivity table to our original $60 Brent 2020 guidance. Overall, we're positioning our business to generate free cash flow on all Brent oil price scenarios. We are able to achieve this because of our efficient and low-cost Colombian operations which generate a positive operating net back in the low $20 per barrel Brent price range.
The highlights of our guidance sensitivities during periods of Brent oil prices in the $30 to $35 range are, full year production will be above the Q4 2019 average of 54,211 boes a day. We have a flexible capital program that will be adjusted to be less than forecast funds flow from operations. Our initial view is that the base 2020 CapEx program will be in the range $150 million to $160 million.
The ability to scale capital higher depending on oil prices and cost reductions by maintaining key projects front-end work programs and utilizing our unique position of being debt free cash rich to accelerate our share buyback program from 55,000 shares per day to up to 100,000 shares per day.
At the current share price and Brent oil price this provides us an opportunity to purchase high-quality proven plus probable barrels less than $6 of boe which generate a recycle ratio greater than 2 times.
Parex is exceptionally -- exceptional in our industry as the company continues to generate free cash flow, maintain the best-in-class balance sheet and return capital to shareholders. We exited 2019 debt-free with over $395 million in cash. This balance sheet strength provides significant optionality to invest in high-quality resource growth opportunities.
And with this brief introduction, I’d like to turn the line back to the Operator to start the Q&A session.
Thank you, Mr. Taylor. [Operator Instructions] And the first question is from participant. Please state your name and your company and proceed with your question.
All right. This is Al Stanton at RBC. So carryon guys. Can you hear me?
Al Stanton, yeah.
Yeah. Sure. Thank you. I think what you have done today is very getting in terms of providing the guidance on the disclosure. When do you enact the update, in terms of how long the oil price have to be at $36 and $40 before you instigate your plan, because certainly your peers have been criticized for trucking too fast. So how do you know what [inaudible]?
Hi, Al. It’s Ken. We've instituted the plan on the weekend. So we're managing our capital. Remember, though, we're not – we are deferring some things. We still have our development program at Capachos going. We still have a full program at Block 34 going. We still are doing our prep work on our exploration blocks that we had planned to drill sometime in ’20, some of those would be in the 2021 anyway. So we're still doing that. We're deferring our Aguas Blancas program. We're deferring our Middle Mag program right now. But we are still doing some front-end work.
At our La Belleza appraisal well at front-end work our facilities is still ongoing. So for some of the programs we have deferred and we will look at those later on and for others it’s business as usual. But you have to manage these things looking at what you see today which is a $35 Brent oil price.
And what does it means deals size, you highlighted at the end of last year you are looking at opportunities, does this create new opportunities or does this – are you slightly fearful?
Well, I think, we are going to wait and see what happens with opportunities coming to the table. I can see both sides of things. We were in a situation not that long ago where we were trying to possibly sell an asset into a down market and it didn't work out pretty well.
And I'm thinking a lot of companies are may have been considering bringing assets to the table may not want to do that. On the other hand, there may be situations where they are being forced to do. So it will be an interesting, I would say, next 30 days to 60 days to see what happens on that front.
Okay. Thanks, guys.
Thank you. There are no further questions registered at this time. I would now like to turn the meeting back over to Mr. Taylor.
Thank you. I would like to take this opportunity to thank you for your interest in Parex and your continued support to the company. For further information we invite you to visit our website or call us. Thanks again and have a good day. Operator?
That concludes this morning's conference call and webcast. If you would like to replay the call, please visit the Events page of the company's website under newsroom.com. Thank you and good-bye.