PetroTal Announces 2023 Capital Investment Budget of US$125 million

PetroTal release

Calgary, AB and Houston, TX – January 16, 2023—PetroTal Corp. (“PetroTal” or the “Company“) (TSX-V: TAL, AIM: PTAL and OTCQX: PTALF) is pleased to announce a fully funded 2023 capital investment program of $125 million that is expected to generate significant after-tax, pre debt service free cash flow of $55 million in 2023.  Combined with the year-end 2022 cash balance of over $100 million, other working capital inflows, and contracted 2023 cash inflows of $57 million from Petroperu, the Company expects to have approximately $240 million of available cash to repay the Company’s debt, accrued interest, and initiate a capital return program to shareholders through a combination of share buybacks and dividends.  All amounts are quoted in US dollars.

2023 Key Highlights and Objectives^(1,2)

• Target 2023 production growth of 15% to 19% above 2022 levels, equivalent to 14,000 and 15,000 barrels of oil per day (“bopd”) with similar associated sales volumes. Should additional sales capacity become available mid-year, the Company may be able to increase late 2023 production to approximately 17,000 bopd;
• Generate EBITDA of $220 million, based on the forward strip price of Brent oil for 2023 (at Dec 30, 2022), representing an average of $84/bbl;
• Drill and complete three horizontal development wells and one water disposal well in 2023, and complete two workovers of previously drilled wells;
• Invest in production infrastructure to support future development and production, including additional oil storage and water injection systems, the construction of a new west drilling platform (“L2 West Platform”), enabling future drilling until the end of 2025 and spending on erosion control for the Company’s site;
• Generate after-tax free cash flow (before all debt service) of approximately $55 million, net of an estimated $40 million in corporate tax and related obligations;
• Become debt free in Q1 2023 from full payout of the remaining $80 million in bonds and thereafter maintain a minimum liquidity balance of $50 million, distributing out available cash that exceeds this amount through a share buyback and dividend program;
• Allocate an estimated $7.5 million in social trust payments in 2023 and another $10 million in other G&A related community projects.

1. See “Non-GAAP Financial Measures”
2. The Company’s bonds restrict any shareholder returns until fully paid out 

Drilling and Completion Summary

PetroTal will invest approximately $69 million in drilling and workover activities in 2023.  The Company’s first operation will include a new water disposal well to enable the Company to have approximately 120,000 barrels of water per day (“bwpd”) disposal capacity throughout 2023 and 140,000 bwpd by Q4 2023 once pumping infrastructure installation has been completed.  PetroTal will subsequently drill wells 14H and 15H between mid-February 2023 and the end of June 2023.  Drilling of the Company’s third horizontal well in Q4 2023 will enable sales maximization should the Northern Peruvian Pipeline (“ONP”) be operational near the end of 2023, and/or Brazilian sales exports expansion targets are achieved.

Facilities Budget

In 2023, PetroTal will focus on water management facilities, erosion control, construction of the L2 West Platform, and finish a new oil/diluent storage tank.  PetroTal was thoughtful in the composition and quantum of its 2023 facilities budget ensuring critical infrastructure is completed earlier in 2023 with more flexible projects starting in H2 2023.

Block 95 Expansion Budget

A total of $3 million is budgeted for permit approvals and seismic preparation for the Block 95 expansion. During 2022, the Company was able to better technically assess the potential of its broad portfolio of Block 95 leads verifying various exciting subsurface features.  While waiting for permit approvals, PetroTal will continue to evaluate the Company’s deep portfolio of exploration assets for ways to maximize shareholder value.

Community Investment Budget

PetroTal will allocate nearly $18 million in 2023 for social and community programs comprised as follows:

• 5% social trust – approximately $7.5 million (various projects as approved by the trust)
• $10 million in G&A and OPEX allocated to the following key projects in the community:
  • Community erosion control,
  • New community lodging infrastructure,
  • Process facilities for agricultural products in Puinahua,
  • Diesel supply for Bretana community power generation; and,
  • Bretana community electricity generator maintenance.

PetroTal’s recently signed trust addendum unifies and aligns local communities in the operating district together as one.  As a result of these successful negotiations, we anticipate a significant reduction in social unrest driven downtime in 2023, signaling an alignment between communities, the Government of Peru and the Company. 

Production Guidance

PetroTal forecasts an average production and sales range of 14,000 bopd to 15,000 bopd for 2023.  The production forecast considers a 5% social unrest driven downtime assumption, no access to the ONP, a constrained dry low river season (starting in mid Q3 2023 running until mid Q4 2023), and a barge route normalization period in January 2023.  Current production in the field from January 8 to 14, 2023 has averaged 11,506 bopd as barge transportation routes have started to normalize from extensive December 2022 backlogged oil loadings.

Guidance on Operating Expenses

The Company is anticipating total Operating Expenses (“OPEX”) to be under $9.00/bbl for 2023.  Expected fixed and variable OPEX run rates have increased over 2022 levels, due to a higher producing well count, power needs and inflation pressures.  Materially offsetting these increases are significant savings on barging, diluent, and COVID-19 costs compared to prior years.

Fixed lifting costs totaling approximately $37 million ($7.55/bbl) for 2023 and include:

• Fuel
• Various field and camp contract services

Variable transportation costs totaling $5 million ($1.02/bbl) for 2023 and include:

• Gross diluent costs and diluent transportation – $0.50/bbl
• Barging – $0.52/bbl

Variable transportation costs will be negligible in 2023 as no ONP oil sales are forecast.  The Brazilian export sales are FOB Bretana and all transportation costs are deducted in the net realized oil price.

Cash Flow Guidance⁽¹⁾

Assuming an $84/bbl average 2023 Brent oil price, PetroTal expects to generate $255 million of net operating income (“NOI”) and $220 million of EBITDA, net of $27 million of G&A ($5.10/bbl), and $7 million of G&A related community and social costs.  The resulting after tax free cash flow¹ (prior to all debt service) is expected to be $55 million and is net of approximately $40 million of expected corporate tax in 2023.

1. See “Non-GAAP Financial Measures”

 2023 Quarterly Production and Capital Profile (Mid-point)

	Q1	Q2	Q3	Q4	Total
Oil wells completed		2 (14H & 15H)		1 (16H)	3
Workovers completed			2 (2XD & 1XD)		2
Water disposal wells	1 (4WD)				1
Average Production (bopd)	13,500	15,000	13,500	16,250	14,500
Total CAPEX (millions)	$40	$41	$22	$22	$125

PetroTal 2023 Budget Summary ($ millions, unless otherwise stated)⁽¹⁾

	Budget Range (Mid-point)
Brent Price ($/bbl)	$84.1
Production (bopd)	14,500
NOI	$255
G&A	($34)
Derivative settlements	($2)
EBITDA	$220
Tax	($40)
CAPEX	($125)
2023 Free cash flow	$55
December 31, 2022 unrestricted cash	+ $104
Anticipated warrant exercise proceeds	+ $10
Petroperu scheduled payments	+ $57
Other forecast net working capital inflows	+ $15
Total accessible cash in 2023 (prior to all debt service and return of capital)	$241

1. See “Non-GAAP Financial Measures” 

Returning material cash to shareholders in 2023

Subject to market conditions and quarterly review, PetroTal anticipates returning all available cash in excess of $50 million to shareholders in 2023, through a combination of share buybacks and a material/progressive dividend policy.  The Company will commence its return of capital program post retirement of the Company’s corporate bonds of $80 million, which is expected to occur by the end of Q1 2023.  A normal course issuer bid and dividend declaration could commence in March 2023, in accordance with the Toronto Stock Exchange trading policies.

Q4 2022 Production and Operations Update

PetroTal’s Q4 2022 oil production was approximately 954,400 barrels (10,374 bopd), reflective of constraints during much of October and November 2022 due to low river levels, and the river blockade.  Once the river blockade was cleared, the Company was able to ramp production from 1,667 bopd to 20,301 bopd in just two days and subsequently produce an average of 20,766 bopd from December 15 to 31, 2022.  PetroTal exited the year producing 23,709 bopd on December 31, 2022 and was able to fill a backlog of barges that were on standby nearby the field.  Production in 2022 averaged 12,200 bopd, representing 36% growth over 2021’s average of 8,966 bopd.

The Company’s first drilling operation in 2023 will be to drill and core its fourth water disposal well (“4WD”) at a cost of approximately $16 million and with an estimated completion by the end of March 2023.  The Company anticipates exporting approximately 245,000 barrels to Brazil and Iquitos in January 2023 and is in discussions to sell approximately 450,000 barrels in February.

Well 12H continues to naturally flow at strong rates having produced at an average rate of 6,012 bopd since January 8, 2023.  The well has averaged 3,861 bopd during its first 27 days of production, with the majority of time being off pump to clean out drilling fluids.

Liquidity Update

At December 31, 2022, the Company had approximately $120 million in total cash, of which $16 million is restricted.  At the end of 2022, accounts payable were approximately $64 million, and estimated accounts receivable were $105 million, with $75 million from Petroperu and $30 million of current receivables from the Company’s Brazilian trading partner.  As announced on December 9, 2022, PetroTal finalized a repayment schedule with Petroperu related to the $64 million true-up revenue owed to the Company from the June 2022 Bayovar export.  PetroTal has now received payments totaling $16.1 million, with remaining monthly payments expected until full repayment on August 1, 2023.

Pareto Securities 2023 London Conference and Private Investor Event

PetroTal will present at the upcoming Pareto Securities London Conference on January 18, 2023.  An updated corporate presentation can be found on the Company’s website: www.petrotal-corp.com.

In addition, PetroTal will host a private investor event in London on January 19, 2023 which is now fully subscribed.  The Company will post the presented materials on its website shortly after the meeting.

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:

“The approved 2023 budget allows PetroTal to return a large portion of its current market capitalization to shareholders, while still delivering meaningful annual production growth in a tactical way.  The Company’s 2023 budget uses an average $84/bbl Brent oil forecast, and has the flexibility, should oil prices be lower, to adjust non-core components of its capital program.  Similarly, it allows for production flexibility in the event that oil export conditions improve during the year.  This will ensure return of capital stability in 2023 and beyond.”