Good morning. My name is Sylvie, and I will be your conference facilitator today. Welcome to Frontera Energy's third quarter 2023 operating and financial results conference call. All lines are currently on mute to prevent any background noise. 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. There will be time for questions following the speaker's remarks. 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 expect 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 several 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 September 30, 2023, and the company's annual information form dated March 1, 2023, and other documents it files from time to time with securities regulatory authorities, describes 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 is 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.
Thank you, operator. Good morning, everyone, and welcome to Frontera's third quarter 2023 earnings call. Joining me on today's call are Orlando Cabrales, Frontera's CEO, and René Burgos, Frontera's CFO. 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. Frontera's three core businesses continue to deliver solid performance. In the company's Colombia and Ecuador upstream onshore business, production costs, operating EBITDA and CapEx are within 2023 guidance at $80 per barrel average Brent price for the year. The company delivered strong operational and financial results and increased its total cash position, including restricted cash, to $221 million as of September 30.
In its potentially transformational Guyana exploration business, Frontera and joint venture partner, CGX Energy, announced the discovery of 342 ft, 104 m of net pay at North Corentyne, confirming the significant potential of the Corentyne block. With the joint venture two well drilling program now complete, the joint venture, with support of Houlihan Lokey, a leading global investment bank and capital market expert, is actively pursuing strategic options for its potentially transformational Guyana exploration business, including a potential farm-down as it progresses its efforts to unlock value from its potentially transformational investment in Guyana. In its standalone and growing Colombia midstream business, income increased 14% during the quarter, and pre-construction activities have begun on the important pipeline connection between Frontera's Puerto Bahía liquids terminal to the Cartagena refinery.
Puerto Bahía will build, operate, and maintain the 6.8-km, 18-in bidirectional hydrocarbon flow line, which will have a nominal capacity of 34,000 barrels per day. The connection will be capable of handling imported and domestically produced crudes and other hydrocarbons. Importantly, during the quarter, the company continued to drive costs out of the business, reducing its G&A by 4%. Building on this positive momentum and to better position the company for sustained long-term success, subsequent to the quarter, Frontera's board of directors approved a performance improvement plan that will improve organizational and operational efficiencies, reduce operating costs, and better align the company's workforce with current business needs, top strategic priorities and key growth opportunities. Further, we'll conduct again an NCIB to permit purchases of up to 10% of its outstanding float.
I'm excited about the strong performance from Frontera's three key businesses and the tangible steps the company is taking to enhance value for its shareholders. I'll now turn the call over to Orlando Cabrales, Frontera CEO, and our CFO, René Burgos, who will share their views of Frontera's third quarter results and the performance of our three core businesses. Orlando?
Good morning. Thank you, Gabriel, and good morning, everyone. Frontera delivered a positive third-quarter results. Year to date, our daily production has averaged 41,477 BOE per day. Compared to the same period last year, we increased our heavy oil production by 15%, due in part to increased water handling at Sahara and increased natural gas liquid production by 100% compared to the same quarter last year. At CPE-6, we delivered record quarterly average production of 5,803 BOE per day, up 13% quarter-over-quarter, through development drilling, new flow lines, and expanded facilities. CPE-6 also recently achieved record daily production of 6,435 barrels per day.
Capital spending for the quarter was $74.1 million, primarily to drill 14 development wells at Quifa, Chaza, and CPE-6, as well as one exploration well in the Perico Block in Ecuador. The company has also invested in new flow lines in the Quifa Block to connect with the Sabanero project, and has also invested in improved development facilities to increase water handling capacity in the CPE-6 block. Taking a closer look at our three core businesses. In our Colombian Ecuador upstream business, Frontera produced 40,150 BOE per day from its Colombian operations. We currently have three drilling rigs and three workover rigs active at our Quifa and CPE-6 blocks in Colombia.
As I have mentioned before, increasing water handling capacity is key to Frontera's efforts to grow production at Quifa, where our current water handling capacity is approximately 1.6 million barrels of water per day. During the third quarter, Frontera continued its recommissioning efforts at Sabanero, its reverse osmosis water treatment facility, which has main plant capacity of up to 1 million barrels of water per day. As of October 2023, the plant had processed 16.3 million barrels of water as part of its recommissioning program, providing irrigation source water to the company's nearby Proagrollanos palm oil plantation. The company is actively engaged in discussions with Ecopetrol to permanently bring the Sabanero facility online under terms mutually acceptable to both companies.
In Ecuador, Frontera's share of production was 652 barrels per day of medium crude oil, compared to 613 barrels per day in the prior quarter. On the Frontera-operated Perico Block, we drilled the Perico Central-1 well during the quarter, with oil found in three intervals, and initial tests delivering average production of approximately 800 barrels per day of 28 degrees API medium crude oil. The company believes that the upper Eugene presents additional exploration and production opportunities. With the completion of drilling activities at the Perico Central-1 well, the company has satisfied its full well exploration commitment on the block. In addition, the Perico Norte-4 well was completed on November fourth of this year, with initial production rates of approximately 1,200 barrels per day of 29.4 degree API crude oil.
The company continues to conduct long-term testing at the Jandaya 1, Tui-1, and Wei- 1 exploration wells, as it prepares environmental impact assessments in advance of obtaining production environmental license. Turning now to the midstream Colombian business. We continue our efforts to unlock shareholder value from this core business. Building on Gabriel's comments about the pre-construction activities that are between Puerto Bahía and Reficar, I would add that once in service, the connection will enable the continuous transport of crude oil and other hydrocarbons between Puerto Bahía's port facility and the Cartagena refinery. Since the announcement in August 2023, the connection project has already achieved notable technical, environmental, social, financing, and procurement milestones. I would like to thank our partner at Reficar and Ecopetrol for their dedication to completing the connection agreement with us, and look forward to exploring the full potential...
of the connection in the coming months and years. Regarding our midstream business results, total ODL volumes pumped were approximately 252,000 barrels per day in the third quarter, up 17% compared to the third quarter of last year. Puerto Bahía liquids volumes were approximately 54,000 barrels per day during the third quarter, down 11% compared to the third quarter of last year, driven mainly by lower imported crude volumes. Puerto Bahía liquids revenues were $7.8 million during the third quarter, up 1% compared to the third quarter of 2022, mainly due to higher tariffs. Adjusted midstream EBITDA in the third quarter was $29.9 million, compared with $17.6 million in the third quarter of last year.
Before turning the call over to René, I would like to discuss our Guyana exploration business. As the joint venture announced yesterday, we have discovered a total of 114 ft, 35 m, of net pay at the Wei-1 well, and a total net pay of 342 feet, 104 meters, discovered to date on the Corentyne Block, approximately 200 kilometers offshore from Georgetown, Guyana. The Wei-1 well was targeted Maastrichtian, Campanian, and Santonian age stack sands within channel and fan complexes in the northern section of the Corentyne Block. As reported on June 28th of this year, the JV's data acquisition program at the Wei-1 well included wireline logging, MDT fluid samples, and sidewall coring throughout the various intervals.
Based on this data acquisition program and additional information provided through the independent laboratory analysis processes, the JV is pleased to report the following: In the Maastrichtian, Wei-1 test results confirmed 13 ft of net pay, high quality sandstone reservoir, with rock quality analogous with that reported in the Liza discovery on the Stabroek Block. Two examples retrieved from the Maastrichtian and log analysis confirmed the presence of sweet, medium crude oil with a gas oil ratio of approximately 400 standard cubic feet per barrel. These results demonstrate the potential for a standalone shallow oil resource development across the Corentyne Block. In the Campanian, petrophysical analysis confirmed 61 ft of net pay, almost completely contained in one contiguous sand body with good porosity and movable oil. Oil samples during MDT testing, as well as samples analyzed downhole, confirms the presence of light crude oil.
In the Santonian, petrophysical analysis confirmed 40 ft of net pay in blocky sands with indicators of oil in core samples. Although current interpretation of the Campanian Santonian horizons show lower permeability than the high-quality Maastrichtian, the JV believes these horizons may offer additional upside potential in the future. There were no safety or environmental incidents through Wei-1 well operations. As is normal, of course following discoveries such as those made by the JV at Wei and Corentyne, additional appraisal activities will be required before commerciality can be determined. Total costs associated for the Wei-1 well are now estimated to be within $185 million-$190 million, following the successful implementation of several initiatives. Final working interest calculation with our JV partner will be determined in December of this year after closeout of the Wei-1 well.
I would now like to turn the call over to René, Frontera's CFO.
Thank you, Orlando and Gabriel. Good morning, everybody. Thank you again for participating on our call, for your interest in our company, and your ongoing support. I'd like to take a moment to highlight a few key financial aspects of our third quarter results. In the third quarter, the company recorded net income of roughly $33 million. The company's third quarter net income included primarily operating income of $64 million, share of income from associates or investment in ODL of $14 million, partially offset by finance expenses of $16 million, and total income tax expenses of $33 million. This last expense included a $10 million tax provision related to certain 2020 withholding taxes. Operating EBITDA for the quarter was approximately $138 million.
This compares to $116.5 million in the second quarter, an 18% increase in quarter-over-quarter operating EBITDA, primarily as a result of higher Brent oil prices and improved differentials during the quarter, and partially offset by higher production and transportation costs. Drilling down on our operating costs, our operating and transportation costs per barrel during the quarter totaled $13.86 and $11.73, respectively. This compares with $11.20 and $10.70 in the current quarter. Year-to-date, our production and transportation costs per barrel totaled $12.77 and $11.27, respectively. This compares with $12.34 and $10.40 in the prior period.
The increase in production costs year-over-year was primarily a result of inflationary pressures, the impact of FX volatility, higher electricity costs, higher fuel consumption, partially offset by lower well service activity. On the transportation side, we have experienced higher costs associated with the annual increase in transportation tariffs, the impact of FX, FX volatility, and higher transported volumes resulting from the company's sales mix. This quarter, we have presented our production and transportation indicators to capture the impact of our FX hedging activities, which are a critical component of our company activity. Our FX hedging positions have contributed to an $0.80 per barrel and $0.20 per barrel benefit on our production and transportation costs, respectively. I will provide more information on our hedging activities in a minute.
Adding to our chairman's comments, and consistent with our restructuring plan, we remain committed to driving down costs out of our business. On the operating cost front, we have a top-down focus on cost control and continuously review for the prioritization of activities and enacting cost initiatives. Moving on, cash generation for the quarter was strong, with cash flows from operations totaling $154 million, compared with $184 million in the prior quarter. Cash generation from operating activities remains strong due to stronger quarter-over-quarter Brent oil prices, as well as $64 million in income tax and VAT recovery.
As of the third quarter, the company reported a total cash position of $221 million, including $109 million of unrestricted cash, up 3.5% compared to $214 million as of the second quarter of 2023. Prior to wrapping up, I would like to provide an update on our Guyana 2023 spending, our financing efforts, our risk management strategy, and our proposed NCIB program. Complementing Orlando's comments, costs associated for the Wei-1 well are now estimated to be within $180 million-$185 million. This follows the successful implementation of several cost reduction initiatives. Cash outflows remaining to our Guyana exploration program as of the end of the third quarter are expected around $15 million-$20 million.
Additionally, Frontera expects its indirect working interest will vary between 93.3% and 93.4%, with final working interest calculations to be determined in December 2023 as we close out Wei-1 well operations. We continue our efforts to grow our liquidity and funding alternatives. During the quarter, the company borrowed $18 million on their new 1-year working capital loan facility with Bancolombia. The company concurrently repaid in full its outstanding $12 million balance under the Citibank working capital loan announced in June of this year. Additionally, and subsequent to the quarter, the company signed via subsidiaries an LOI with Macquarie to fund a $30 million consortium in relation to the Puerto Bahía connection. We greatly appreciate all our banks' efforts and support. Onto our current risk management strategy.
Our strategy continues to show how our hedging discipline is supporting our operations and planning. Frontera uses derivative instruments to manage exposure to oil price and FX volatility. On the oil side, the company entered into new puts for approximately 1.5 million barrels, with puts averaging $79, $79 per barrel, with this helping protect approximately 40% of the company after royalties estimated production through December, and approximately 20% through January. Frontera has also entered into foreign exchange rate hedges totaling $180 million, or approximately 40% of our estimated fiscal exposure for the fourth quarter and through the first half of 2024. These hedges provide the company with visibility and will help mitigate future fluctuations and allow the business to deliver on its targets.
Lastly, from a shareholder interest standpoint, Frontera intends to implement a normal course issuer bid to permit the purchase of up to 10% of its public float, or approximately 3.8 million shares over the next year, as mentioned by Gabriel. It is subject to the approval of the TSX. With that, I think my part is completed. I will turn it now to Orlando for his wrap-up.
Thank you, René. Before I wrap up today's call, I would like to highlight that during the quarter, we achieved a total recordable incident rate of 0.49, which is the best safety performance in company history, and below our objective for the year of 0.74. Also during the quarter, protected and preserved 1,367 hectares of land in the Serranía de Manacacías Park, Entre Ríos. When combined with reforestation, plantings, and sustainable use projects, the company has exceeded its goal of 1,000 hectares for the year, and totaling close to 6,000 hectares preserved. The company also recycled 41.4% of water use in its operations, and has offset 33% of its Colombian emissions through the purchase of carbon credits.
I'm incredibly proud of the entire Frontera team for their dedication to safe and responsible operations. With that, I would like to conclude by saying thank you to Gabriel, 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, sir. Ladies and gentlemen, if you would like to ask a question, please press star followed by one on your touch-tone phone. You will hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by two. And if you are using a speakerphone, you will need to lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. Stand by while we compile the Q&A roster. Once again, ladies and gentlemen, please press star one at this time if you do have any questions. And your first question will be from Sara K onstantine at Boomtown. Please go ahead.
Good morning. Yes, I have five questions for you. I'm trying to give them to you all up front, and then start the order you guys want to answer them in. So I think the first one, I think, that everyone is asking is, in terms of the press release that was filed-
Hey, Sara, sorry. Could you, could you please get closer to your phone? We're having trouble hearing you. It's not, it's not clear.
Okay. Is this better?
Much better.
Okay. Okay, very good. Thank you. Yeah, so the first question that I think is everyone is asking at the moment is: What happened in terms of the Santonian assessment between the June press release, when we were saying there were 210 ft of hydrocarbon-bearing sands in the Santonian, and now we're seeing 40 in Wei? So that's the first question. And I guess the next couple questions are more related to the process you all will be running, such as, what types of entities have been reaching out for farm-ins? What is your plan if Houlihan is unsuccessful? And I guess another question is, in terms of Bluefin and Haimara, if those are successful results, what do you expect that will do for your plans?
Then I guess the last question is, in terms of the NCIB, the reason why we chose to do an NCIB versus a modified Dutch auction. I know you all did that in the previous year or two. So those are my questions.
Okay. So, I got three questions, no? So before you start with the first one.
Yeah.
Also, did you speak to Omega? Can you hear me again? Okay. So basically, the first question that you were asking is about the 200,
Yeah.
Net pay that we, or the, you know, the hydrocarbon bearing sands that we, that we published in the previous press release, and then what we are releasing right now. So as, as probably you know, when we mention hydrocarbon bearing sands, that's basically the total gross rock that you see in the well, when you log the well, when you go through the well and analyze all the data.
What you do after that, and it's customary in the industry, it's nothing new, is you actually incorporate a net pay calculation, which is based on some rock properties and cutoffs that you use, which is basically the porosity and the permeability cutoffs that are used based on the type of rock that you have, the analysis that you have, and consistent with the evaluation of the two wells, the Kawa well and the Wei well, in the Campanian and in the Maastrichtian.
So what we did was we took all of that volume, and then we said, okay, out of all of that volume that you have hydrocarbon bearing sands, with the cutoffs that we use, and confirming the information that we got from the core, which is the reason why we did not release the number at the time, because we were analyzing the core data. Then we looked at that, and that was the result that came out. So it's basically the next level of detail that you get in any kind of analysis of this kind in the wells. Right? So you go from gross, or the volume that is potential with the hydrocarbon bearing sands, and then you go into a more refined number, which is the net pay using some of the cutoffs. Okay?
Yes, and on your question about what we are thinking in terms of the Houlihan Lokey engagement, I think the first thing I would reiterate is that we remain, I mean, very excited about the results. As I said in my remarks, the results in the Maastrichtian demonstrate the potential for a standalone shallow oil resource development in the block. So we remain very excited about that. And the fact that we-
... that we engaged Houlihan Lokey, which is a leading investment bank, to look for strategic options, including a potential farm down, is indicative of that excitement based on the results that we have. We are getting ready in preparations for launching a potential process, but I wouldn't say any more on that, given that we are still in preparation for that. You know, if you want-
Yes, so we have the next question was on the NCIB versus modified Dutch auctions. I would say an NCIB program is very straightforward and quick, and easy one to implement. We're excited about launching that program. It would also help, you know, the liquidity for the stock, and that does not exclude any other future activities that we could do upon discussion with the board. But the immediate one is the NCIB, and upon the agency's approval, we will likely be kicking it off soon.
Okay. Yeah, I appreciate you responding to that. I guess one more question, kind of in relation to all that: Is there gonna be an updated resource report using all the information you now have, regarding what you think the potential is of all of the targets or, I guess, potential targets?
Your question is in relation to our resource report for Guyana platform, our Guyana business? Well, okay, as we will deliver a resource report for Colombian operations, as typical. That will be delivered probably in February. We'll probably announce the market that. As it relates to our efforts in Guyana, I think that we've been very clear. We are launching our farm-down process, and we're very excited and encouraged and appreciate the help with Houlihan Lokey, and we'll deliver news as they become available to our investors.
And we actually never—I mean, we never intended to have a resource report at this point of the process. But as you know, I mean, Canadian regulations are very strict in terms of disclosing any numbers, which has to be validated by a third party through a specific methodology. So we never intended to do that. I mean, what we have been doing is analyzing all the data that we got, which was a significant amount of data, so it has taken longer than what we expected. But again, I mean, very excited about what we found, and look forward for the next step in this journey.
Okay. Well, I appreciate it. Thank you for taking my questions.
You're welcome. Operator, any-
At this time, we have no other questions.
Any more questions, operator?
We have no other questions. Please proceed. We have no other questions. You may proceed with any closing comments.
Thank you, operator. Thank you. Thank you for organizing the call. Thank you, everyone, for attending the call.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending, and at this time, we do ask that you please disconnect your lines. Have a good weekend.