Good morning. My name is Samara, and I'll be your conference facilitator today. Welcome to Frontera Energy's second quarter 2022 operating and financial results conference call. All lines are currently on mute to prevent any background noise. This call is scheduled for 60 minutes. I would like to remind you that this conference call is being recorded today and is also available through audio webcast on the company's website. Following the speaker's remarks, there will be time for questions. Analysts and investors are reminded that any additional questions can be directed to the company at ir@fronteraenergy.ca. This call contains forward-looking information within the meaning of applicable Canadian securities laws relating to activities, events or developments the company believes or expects will or may occur in the future. Forward-looking information reflects the current expectations, assumptions and beliefs of the company based on information currently available to it.
Although the company believes the assumptions are reasonable, forward-looking information is not a guarantee of future performance. Forward-looking information is subject to a number of risks and uncertainties that may cause the actual results of the company to differ materially from those discussed in the forward-looking information. The company's MD&A for the quarter ended June 30th, 2022, and the company's annual information form dated March 2nd, 2022, and other documents it files from time to time with securities regulatory authorities describe the risks, uncertainties, material assumptions and other factors that could influence actual results. Any forward-looking information speaks only as of the date on which it was made, and the company disclaims any intent or obligation to update any forward-looking information except as required by law. I would now like to turn the call over to Mr. Gabriel de Alba, Chairman of the Board of Frontera Energy. Mr.
de Alba, please go ahead.
Yeah, thank you, operator. Thank you everyone for joining today's conference call to review Frontera's second quarter 2022 operating and financial results. Joining me on the call are Orlando Cabrales, Frontera's CEO, and René Burgos, Frontera's CFO. René was appointed as Frontera's CFO on June 3rd, 2022. Prior to his appointment as CFO, René served as director on Frontera's board since 2019. René is a financial markets executive with over 20 years of experience in investment management, leveraged finance, restructuring, and financial advisory expertise across multiple industries and geographies, specifically in Latin America. We are fortunate to have such a qualified candidate in René to fill this important executive leadership role. I would like to also emphasize that René has, you know, already made a very positive impact to the company.
René's two years as a key member of Frontera's board, including his participation in Frontera's Audit Committee and Compensation and Human Resources Committee, have helped give him key insights into the company and its financial structure and has already allowed him to seriously excel in this critical role. René clearly understands the shareholders' perspective and will continue to work with the board of directors and the company to unlock value. Also available to answer questions at the end of the call, we have Victor Vega, VP, Field Development, Reservoir Management and Exploration. Alejandra Bonilla, General Counsel. Iván Arévalo, VP, Operations. And Renata Campagnaro, VP, Marketing, Logistics and Business Sustainability. Thank you again everybody for joining. Frontera continued to perform ahead of plan, substantially delivering on its financial and operational objectives in the first six months of 2022.
The company also extended its track record of ESG delivery and focused on enhancing shareholder returns through the ongoing normal course issuer bid share buyback and the CAD 65 million substantial issuer bid. Subsequent to the quarter, Frontera announced a transaction with CGX Energy that once the transaction closes, will provide an increase in the company's working interest in the Corentyne block in offshore Guyana to 68% and secure funding of up to $130 million for the joint venture's second exploration well, Wei-1, which is anticipated to be spud in October 2022. We're doing this work in one of the most exciting exploration basins in the world.
In light of the company's strong operational and financial performance in the H1 of this year and the momentum the company expects to carry on to the H2 of the year, Frontera is tightening its 2022 production guidance to between 41,000 barrels- 43,000 barrels per day. Increasing its operating EBITDA guidance to between $675 million-$700 million as a result of an increase in the assumed Brent prices at $100 per barrel. Frontera looks forward to advancing its existing inventory of development and exploration opportunities in the H2 of the year. I'll now turn the call to Orlando Cabrales, Frontera's CEO, and our CFO, René Burgos, who will share their view on our second quarter results. Please, Orlando.
Thank you. Thank you, Lauren, and good morning, everyone, and thank you for taking the time to join us this morning. I'm very pleased with Frontera's strong financial and operating results in the second quarter of 2022. Compared to the first quarter of this year, we increased production by 1% to 41,586 BOE per day. We improved our operating netback by 16% to $68.01 per BOE. We increased our net sales realized price by 12% to $90.50 per BOE. We grew our cash provided by operating activities by 114% to $246.6 million. We generated $190.7 million in EBITDA.
The last time the company delivered this level of EBITDA was in the fourth quarter of 2015. This is the fourth consecutive quarter of growth in these important metrics. On the production side, we increased natural gas production by 9% to just over 10,000 Mcf per day, in line with our ESG objectives. On August first, achieved a daily production record for the CPE-6 block of over 5,300 BOE per day. In Ecuador, we saw our first production in May and June of more than 28,000 net barrels. We continue to focus on reducing costs across our portfolio. Despite inflationary pressures, production costs averaged $12.65 per BOE in the second quarter, down 6% compared to the prior quarter.
The decrease in production cost was mainly due to quarter-over-quarter decreases in well-service activity, as well as lower energy prices. Transportation costs averaged $10.84 per BOE in the second quarter, up 11% compared with the prior quarter. The increase in transportation costs was mainly due to additional volumes transported in Ecuador during the second quarter, as well as the initiation of the Bicentenario pipeline take-or-pay commitment and to lower costs during the prior quarter due to non-recurring savings related to Ocensa take-or-pay contract. Overall, the company believes it will reduce operating costs in the H2 of 2022 due to lower energy costs and planned reduction in well services activities. The company reiterates its 2022 cost guidance, including production costs of between $11-$12 per BOE, and transportation costs of between $10-$11 per BOE.
On the investment side, we continue to unlock opportunities within our portfolio with drilling successes during the quarter in Guyana at Kawa-1 and in Ecuador at Jandaya-1. In Colombia, we began pre-seismic and pre-drilling activities related to social and environmental impact studies in anticipation of upcoming exploration activities at the VIM-46 block, Llanos-99, Llanos-119, and CPE-6 blocks in the H2 of 2022 and the H1 of 2023. In Guyana, we recently announced a transaction with CGX that increases our working interest in the block and secures up to $130 million in funding for the Wei-1 exploration well.
As a result, we anticipate increased total capital expenditure for the year of between $435 million-$495 million. Finally, I would like to highlight that during the second quarter, we released our 2021 sustainability report, which details the achievement of 98% of our 2021 ESG targets and includes our 2022 ESG goals. Speaking of 2022 objectives, in the second quarter, we neutralized 52% of our total emissions in Colombia. Additionally, the company reduced its CO₂ emissions in the second quarter by 31,000 tons of CO₂, and 69,160 tons in the H1 of 2022.
Frontera's CO₂ decrease in the H1 of 2022 is a reduction of approximately 12% of Frontera's total 2021 CO₂ emissions. I would now like to turn the call over to René Burgos, Frontera's Chief Financial Officer.
Thank you, Orlando. I'm very excited to join Frontera's executive team, and I'm pleased to be here for today's call with all of you. Look forward to connecting with all of you in the near future. Complementing what Gabriel and Orlando said earlier, Frontera continues to deliver on its financial targets and objectives. The company finished the quarter with a strong balance sheet and healthy credit metrics, including low LTM leverage of 0.3 times. The company generated over $246 million in cash from operations during the second quarter, benefiting from the very strong oil price environment. During the quarter, the company also continued to strategically deploy capital, investing over $70 million in exploration, production and development facilities in Colombia and Ecuador.
Funding $41 million in debt service obligations, including our final $20 million payment under Puerto Bahía, returning $20 million to investors via the NCIB program, and investing $20 million in our potential transformative exploration opportunity in Guyana, just to name a few of our investments. As of June 30, the company closed with $353 million in cash, including restricted cash, a $30 million increase from the prior quarter. Consistent with our commitment to enhance shareholder value, during the quarter, Frontera launched a CAD 65 million substantial issuer bid. We closed the SIB, proceeded by way of a modified Dutch auction procedure with a tender price range from CAD 11-CAD 13 per share. The SIB expires on August 8. Preliminary results indicate a tender price of CAD 12 per share.
Frontera expects to take up and pay for 5.4 million shares or approximately 5.8% of the total number of Frontera's issued and outstanding shares as of June 30th. After the cancellation of the shares taken up and paid, Frontera anticipates that the remaining shares outstanding will now be 87.2 million shares. Final results of the SIB will be confirmed by press release tomorrow. We also expect to reinitiate our NCIB program today. Before handing over back to Orlando for his closing remarks, I would like to take a minute to touch on certain recent events. On August 8th, the incoming government introduced a new tax reform bill. Several aspects of this new legislation includes proposals impacting the oil sector, such as a high-price export tax on crude oil sales, as well as other adjustments to the tax code.
We are currently analyzing the potential impacts of the proposed tax bill on our business, and we'll keep investors updated on the potential impacts from this legislation as it develops. I would now like to turn the call back to Orlando.
Thank you, René, for sharing your thoughts. Looking ahead to the H2 of the year, Frontera has a healthy balance sheet, a sizable amount of cash on hand, low debt balances, low leverage, and we continue to manage operating costs during a time of rising inflationary pressures. We remain on track to optimize capital efficiency and free cash flow after development CapEx. We will maintain a strong capital discipline and a targeted investment approach. With that, I would like to conclude by saying thank you to Gabriel and René for the comments, and thank you everyone for attending our call. I will now turn the call back to our operator, who will open the call up for questions.
Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question, and we'll pause for just a moment to allow everyone an opportunity to signal for questions. We'll take our first question from Roman Rossi with Canaccord Genuity. Please go ahead.
Good morning, and thanks for taking my questions. Congratulations on these good results. I have a couple of questions. I know that you mentioned that you are still analyzing the impact of the tax reform, but I wanted to ask you, what's the percentage of production that you actually export?
We export 92% of our production.
Perfect. Regarding the other issue there is non-deductibility of royalties, right? So how much of your royalties are paid in cash? Because it seems that only those royalties will be impacted on this reform.
No, I mean, as René said, we are analyzing the proposal coming from the current government. I would say that there are, I mean, a couple of comments on that. The first one is it is a proposal. It has to go through to Congress. There is going to be a debate within Congress in probably two or three months. That is stage number one. Number two, the two proposals that may have an impact on the oil industry is the first one is the what they call the export tax, which basically try to captures the upside in the oil prices.
The second one is the non-deductibility of royalties in the income tax of companies which has applied in Colombia for a couple of decades. Those are the two proposals addressed, to put it that way, to the oil sector. We will see. We are analyzing that. We will be, I mean, very on top of the discussions in Congress through our, I mean, the participation in the different trade associations, in the Oil and Gas Trade Association, in the Business Trade Association, ANDI, which is the largest one in the country. Through these associations, we will be actively participating in that.
Maybe the last comment I would make is that the oil and gas sector has already what we call in Colombia a high price participation formula in the contracts not only with ANH but also with Ecopetrol whereby we pay in cash or in kind that high price participation formula. The price by which that formula is triggered is around $48-$50 which is the one that the government is proposing. We have already that. That is already in place in Colombia. The discussion will be coming and we will be on top of that.
Roman Rossi, to perhaps just answer your point directly, if you go to our MD&A, and I'll point you to page, I think it's 6, we break down our royalties cash and royalties in-kind. You get a sense of your question of how much is paid in kind versus in cash.
Mm-hmm.
Okay. Thank you. Thank you very much. Just an additional one. I see that on your updated guidance, you are also increasing the development drilling CapEx. Where are you expecting to deploy these development additional CapEx?
That is mainly driven by the Wave-One well in Guyana, and also some development CapEx in Colombia, which is associated with additional activity in the CPE-6 block. I mean, there have been very good results in the CPE-6 block recently as we disclosed it, as we announced it. We have record production in the CPE-6 block. There is a additional drilling activity in the block.
Okay. Thank you very much for taking my questions. Congratulations again.
Thank you.
We'll take our next question from Oriana Covault with Balanz Capital. Please go ahead.
Hi. Good morning. Thanks for taking my questions. First, I wanted to point out or if you could comment more on the production figures for this quarter. They seem to have come in flat with respect to first quarter. Just to understand, what drove this and how should we expect production going forward, given this timing production guidance.
Well, I think, I mean, the only thing I would say, Oriana, thank you for your question, is yes, it is up 1%. So that is good. I think the message to the market is that we are tightening the range in our production guidance, no? That gives you an indication of where we are going in terms of production for the whole year.
Got it. Maybe follow up with regards to the capital budget. We noticed this increase in development activities and in exploration, more precisely in Colombia and Ecuador. Just to confirm, would it be a change to the initially budgeted wells, the 65 development wells, or are you seeing also some inflationary pressures driving these higher development CapEx?
Certainly, I mean, the inflationary pressures are there. I mean, we are part of the market, and we are experiencing that. As I said, I mean, we have been very disciplined in terms of CapEx management as well as our cost base structure. We are handling that situation, tackling that. We hope to keep that under control, but certainly the pressure is there. The increase, I mean, just to reiterate what I said earlier, is that increase in the development CapEx for Colombia is mainly driven by that additional activity.
Got it. Perfect. Just one final one from my side. We noticed this change in the midstream revenue, and it certainly was an impact with respect to last quarter. Perhaps if you could comment a bit more, what should we expect in midstream revenues for the upcoming quarters?
Your question is revenues related to the midstream?
Yeah, because we noticed a significant decrease. Like it was compensated with higher intercompany. Just to understand what drove and I understand there are some changes going on in the midstream segment. If you could clarify, how should we expect this to go going forward?
The take-or-pay.
I was gonna highlight that the main difference from this year to prior years, particularly in midstream, was Frontera because of the financing had a take-or-pay contract. That take-or-pay has now left. I think the numbers you're seeing now, particularly as it relates to the port, are more traditional for a standalone port operation, you know, for ongoing business. We should expect increasing revenues as the port continues to operate. You know, as you know, the port that we have in Puerto Bahía is the largest handler of, you know, truckload cargo. We're focusing on expanding our capability from the dry port and also increasing volumes related to the liquid port as we discussed in earlier calls.
I would say that the numbers now are driven mainly by, you know, that reduction activity related to the take or pay contract.
That is correct. I mean, that is basically the elimination of the take-or-pay contract that Frontera had with Puerto Bahía. Just to highlight what René said, that is that we are taking, I mean, several actions, several initiatives to make the Puerto Bahía business a self-sustaining business going forward. There are, I mean, some initiatives, very important strategic initiatives going on to make that self-sustaining. Nothing to report at this point in time, but we are working on that.
Perfect. Thank you very much for taking my questions. Congratulations for the quarter.
Thank you.
Thank you.
As a reminder, it's star one to ask a question. We'll take our next question from Matias Lesnik with Fundamental. Please go ahead.
Hi. Good morning, and thank you for taking my question. I would like to ask about two topics. The first one is about the increase in the CapEx guidance. Just, I want to understand better what's driving the increase in development spending because it's showing a 25% increase, and you're saying that it's because of an increase in drilling activity. How many new wells are you planning with this CapEx number, and how much of that increase is inflation?
I would say, Matias, and René can complement here, is as I said before, the addition in the development CapEx is mainly driven by that additional activity in CPE-6. We are drilling five additional wells in CPE-6. In terms of the inflationary pressure that you mentioned, we are keeping the same rigs that we had before in our operations. That has mitigated the impact of higher rates in the market that you can see today. The continuation of the campaign with the same rigs has helped us to navigate through these inflationary pressures.
Okay. Thank you. How are you seeing the CapEx inflation for next year?
CapEx inflation for next year.
Orlando, would you?
Look, I think that this is, it's a very timely question. Right now we are communicating with our suppliers and having structured discussions about how to, one, minimize overall cost and also optimize the logistics that we're looking to put in place. So I think it's. You know, we do that through, you know, master service agreements, standby rigs, just so that we can also mitigate any cost. I mean, we're a player in the market. As to, you know, we are seeing some price inflation for next year. I think it's too early to tell. We will communicate or update you guys on guidance on costs. But what I would say is like to this year we're reiterating our CapEx guidance. We are...
Sorry, updating our CapEx guidance and reiterating our operating costs and transportation at the levels that we had prior.
I would highlight, René, that this year we are starting earlier than other years our planning process for the following year. The rationale for doing that is exactly that one. I mean, try to mitigate the impact of the inflation that we are seeing in the market.
Yes. Orlando and René, this is Gabriel de Alba, and I would like to emphasize that indeed management has presented well ahead of plan, and the board is working already and has provided approvals to management, so that we can already schedule and contract what will be CapEx for next year. Therefore, we are limiting, you know, potential increases by acting early.
Exactly. That is correct, Gabriel.
Okay. Thank you. Just one last question on my side. How many shares are remaining to be bought under the NCIB program?
How many shares are remaining? Hold on. I actually have the numbers here.
He's saying, yes, we have the number here. It's 10% of the total.
It's the total, but we already bought about. I don't know. Brent, if you're on the line, if you can answer that question, because I know you have the number off the top of your head.
Sure. We've repurchased about 2 million shares. We have about 3 million, a little bit less, available to us under the NCIB.
Okay. Thank you very much.
Is that your question, Matias?
Yes. Yes. Thank you.
Yeah, that will be obviously on NCIB. Certainly as you know, the board and management look at the cash, we can also consider other alternatives.
Okay. Thank you.
As a reminder, it's star one to ask a question. It appears there are no additional questions at this time.
Okay. Thank you. Thank you, operator, and thank you for attending the call.
Thank you.
This concludes today's call. Thank you for your participation. You may now disconnect.