PetroTal, the Peruvian focused E&P company, has announced that its £14.1 million placing, as announced on June 12 2020, has now been completed and trading on AIM in the 141,203,891 new Common Shares, issued pursuant to the Placing will commence June 18. All monetary amounts in this release are in United States dollars, unless otherwise indicated.
Financial and Operational Update
Further to the announcement of June 12, 2020 concerning the three year arrangement with Petroperu the Company provides a further update on the current financial and operational status of the Company.
Petroperu and the Company have agreed to structure the contingent liability due to Petroperu under the Bretana field oil sales contract and oil swap contracts with Petroperu into a liability to Petroperu to be paid by PetroTal over a three year period.
At May 31, 2020, approx. 2.1 million barrels ('mmbbls') of oil produced by PetroTal and sold to PetroPeru under the Contracts were either in the pipeline or storage tanks.
The amount of this contingent liability to Petroperu will be definitively determined when the security arrangements for PetroTal's obligations are finalized, expected to be within the next 30 days. Based on current Brent oil prices, the liability is expected to be approx. $26 million, as determined by the difference between the current Brent oil price and the previously booked sales prices for the 2.1 mmbbls that PetroTal has sold to Petroperu up to May 31, 2020. PetroTal will be required to make equal monthly payments, for 36 months, to Petroperu based on the amount of the liability so determined.
The above-mentioned liability could be adjusted as PetroTal benefits from the higher forecast oil prices in the second half of 2020 and into 2021, when the underlying barrels are physically sold by Petroperu. The eventual sale by Petroperu of PetroTal's oil at currently forecasted Brent prices would see the liability drop by $7 million to approximately $19 million. A recent Platt's article showcases this possibility, when it reported that Petroperu has finalized arrangements to sell to BP 420,000 barrels of Bretana oil on July 10, 2020, based on the immediately prevailing 10-day average Brent price, less a quality differential of approximately 3.5%. The liability adjustment is further showcased by the fact that the remaining oil is not expected to be sold by Petroperu until October 2020 and into early 2021, when we expect higher Brent oil prices.
Under the original terms of the Oil Sales Contract, invoices submitted to Petroperu for oil sales were payable 180 days after submission which, at the time, reflected the time estimated for the oil to transit the Northern Oil Pipeline ('ONP') and be sold by Petroperu. The amendment to the invoice terms to 240 days reflects an updated estimate of this transit time.
To support the Company's liquidity, all prior invoices submitted by PetroTal under the Oil Sales Contract have been factored, at a nominal cost, through local Peruvian banks utilizing a facility arranged by Petroperu. As per the terms of a typical factoring facility, at the end of the 240 day period Petroperu will pay the due amount to the local Peruvian banks. PetroTal will continue to factor future invoices on the same terms. The extension of the invoice terms from 180 to 240 days is not expected to have any impact on the timing of PetroTal's cash flows from oil sales.
To ensure all suppliers were fully aligned with the Company's development strategy, the Company insisted they provide attractive payment terms for their services. This has allowed the Company to execute on time and budget from day one and expects to continue doing so.
The Company has accounts payable and accrued liabilities of approximately $49 million, excluding the contingent liability to Petroperu. Of this amount, $33.7 million represents accounts payable, with 47% of the amount not due until subsequent quarters, up to Q2 2021. Accruals for various projects underway total $10.8 million with expected due dates ranging from Q3 2020 to Q2 2021. The balance of $4.7 million is value-added tax ('VAT') that will be offset against VAT collected on subsequent oil sales. Most of the amounts owed relate to the Company's drilling program in late 2019 and early 2020, along with construction of the central processing facilities at Bretana.
The current amount owing to our suppliers is approx. $18 million. In coordination with our suppliers, $6.6 million of this amount is expected to be paid by the end of June to facilitate the re-opening of the Bretana oil field in early July 2020.
As referred to in the Announcement, taking into account the collection of oil sales invoices related to oil sales in March, April and May, 2020 in the next few weeks and the net proceeds of the Placing, PetroTal will have cash of approximately $28 million; leaving the business well funded to continue the development of the Bretana oil field, albeit at a slower pace. The credit facility mentioned in the Announcement will further position the Company to complete Bretana's development and secure the required hedging strategy.
Bretana oil field
While the Bretana oil field remains shut in, operating costs at the field are minimal at approximately $0.1 million per month. The Company is confident in its ability to ramp up activity at Bretana, ahead of the planned reopening in July, to ensure the oil field will return to normal operating status.
Bretana production and development
At the time of the shut in of the Bretana oil field in early May, the Company was producing approximately 11,433 barrels of oil per day ("bopd") from seven wells. Comparatively, in Q1 2020, PetroTal produced 9,688 bopd, up 25% from 7,767 bopd in Q4 2019. From April 1, 2020 to May 3, 2020, when the oilfield was shut in due to the Peruvian government Covid-19 health directive, average production was 11,465 bopd. Due to the field shut down, average first half production will be 6,934 bopd.
When the field reopens, the Company expects that the production level attained at the time of field shut down will be achieved, following a short period of production evaluation.
Subject to the Brent oil price remaining at or above approximately $40 per barrel, the Company plans to drill another production well in Q4 2020 and anticipates average production of 9,100 bopd for 2020, inclusive of 11,190 during the second half of 2020.
Other capital projects, including further expansion of the central processing facilities and drilling an additional water disposal well, are currently deferred.
Appointment of Broker
The Company has announced the appointment of Auctus Advisors LLP as Joint Broker with immediate effect. Stifel Nicolaus Europe Limited remains as Joint Broker and Strand Hanson as Nominated & Financial Adviser.