Thank you for standing by. My name is Janet, and I will be your conference operator today. At this time, I would like to welcome everyone to the Parex Resources Q1 operating and financial results. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you'd like to withdraw the question, press star one again. Thank you. I would now like to turn the call over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning. Please go ahead.
Good morning, everyone, and welcome to Parex Resources' First Quarter 2025 Conference Call and Webcast. On the call with me today are our President and Chief Executive Officer, Imad Mohsen, our Chief Financial Officer, Cam Grainger, and our Chief Operating Officer, Eric Furlan. Please note that at any time, telephone participants on the call can press star one to submit a question. As a reminder, this conference call includes forward-looking statements as well as non-GAAP and other financial measures, with the associated risks outlined in our news release and MD&A, which can be found on the website or at www.siederplus.ca. Note that all amounts discussed today are in U.S. dollars unless otherwise stated. I'll now turn the call over to Imad. Please go ahead.
Thank you, Mike, and good morning, everyone. As we committed at the outset of the year, in 2025, we are focused on delivering steady performance by applying a disciplined plan centered on lower-risk activities and high-graded sets of opportunities. So far this year, we are seeing strong base production from our core assets and have made progress on our 2025 plan, resulting in first-quarter production volumes being in line with management's expectations. Additionally, with drilling activities currently in line with our budget, much of the groundwork to support production has been completed, including three key strategic items that I'd like to highlight. First, we closed the token acquisition at Llanos 32, where we captured the remaining working interest on the block from the partner and gained full control. We are excited about this addition to our portfolio, which we added at strong acquisition metrics.
With low-cost re-completion opportunities and immediate development inventory, and that we can do this year, we see this area as a high-quality and well-positioned asset with both short-term and long-term upside. Second, we are realizing near-field exploration results with two prospects so far this year yielding positive outcomes. Both successes are in the Southern Llanos, an area well known to Parex, where we were targeting lower-risk, higher chances of success opportunities. Third, we continue to progress groundwork in the Putumayo, where we are focused on starting initial operations in the second quarter with significant proven oil in place. We have now completed the contracts with our partners to commence work, and our team is currently finalizing short-term activities while also continuing the assessment of the basin to identify investment areas with the best capital efficiency going forward.
Overall, I'm pleased with our performance in the first quarter, where we have laid the foundation that will enable us to deliver our plan as the year progresses. Despite our current activity plan largely remaining unchanged and supported by a strong suite of projects, we recognize the current market volatility and are monitoring it closely. With that, I'll now turn it over to Eric to provide an operation update. Please go ahead, Eric.
Thanks, Imad. For Q1 2025, production averaged 43,658 barrels of oil equivalent per day. These volumes are consistent with our expectations and reflective of lower activity levels and a modest capital outlay in the quarter. Our full-year production guidance of 43,000-47,000 BOE per day remains unchanged. Turning to the second quarter, our activity levels are coming into a more normalized level, with three rigs, two of which are operated, drilling multiple development wells from existing well pads. Given the infrastructure already in place following drilling activity, we expect to be able to bring production on stream across parallel operations. At Llanos 34, we started drilling this program in the final days of the first quarter, and by the end of the second quarter, we expect to complete roughly six infill wells that will be supportive of our base production.
At Llanos 32, following completion of the acquisition, we began a re-completion and workover program, which is yielding positive results. In the second quarter, we also initiated a five-well development campaign with three horizontal and two vertical producing wells planned. The first well in the program is expected to be completed in late Q2, with subsequent wells drilled thereafter. As Imad mentioned, we're excited to kick off this program, which should be one of the key drivers of growth in the second half. At Llanos 74, we saw encouraging results from our near-field exploration program. There are two different prospects on the block that have been drilled to date with success. The first prospect was successfully drilled, with production beginning in early May. This well is currently producing at roughly 1,200 barrels of oil a day, with management assessing next steps and updating our interpretations.
A second prospect was drilled using a vertical well. Following initial results and a thorough assessment of the subsurface, we expect there to be two hydrocarbon-bearing zones, resulting in the program to drill two horizontal wells to maximize recovery. The first horizontal is currently being drilled, with the first production expected in late May. Lastly, we are making steady progress in the Putumayo. Our teams are now on the ground, socializing plans and establishing relationships with local community stakeholders. In the second quarter, we plan to move a workover rig to kick off operational activity, with current plans to add a drilling rig in mid-summer. While our activity plan for the second quarter is largely set, I would be remiss not to mention the conventional nature of our business, including the structure of our drilling and service contracts. I want to echo Imad's comments on flexibility.
We have assessed where capital could be scaled back if conditions were to worsen, but today our conventional projects are adding to our production base and have a strong operational net back. With that, I'd invite Cam to please go ahead.
Thanks, Eric. For the quarter, funds flow provided by operations was $122 million, and our FFO net back was strong at $30.90 per BOE, based on an average Brent oil price of $74.98 per barrel. During the quarter, results were supported by narrowing Vasconia differentials, which were positive for realization. Current taxes were $12 million in the quarter. Given Colombia's progressive tax and loyalty system and at strip pricing, we expect our full-year effective current tax rate to be between 0%-3%. Quarterly capital expenditures were $57 million, which was in line with lower activity levels. As we look to the second quarter, our capital forecast is expected to increase per our budgeted plan, as Eric mentioned. Right now, we expect to continue benefiting from Vasconia differentials, helping to partially offset lower commodity prices.
Alongside pricing volatility, we're prudently running sensitivities on all of our projects to ensure capital allocation is optimized. During the quarter, we repaid $10 million of bank debt. At quarter end, we increased our working capital surplus to $69 million and cash of $81 million, resulting in a strong balance sheet, which provides both liquidity and the ability to buffer economic headwinds. With that, I will pass it over to Imad for some final remarks.
Thank you, Cam. Our progress here to date has been steady, and I'm cautiously optimistic on our overall outlook, notably starting the development campaign in Llanos 32, as well as the positive exploration results. Our support of production delivery and achieving our 2025 plan. We continue to be focused on evolving our portfolio to maximize shareholder value. For our base assets that provide portfolio stability, we are applying proven technology like water flooding, EOR, and polymer injection, as well as deploying cutting-edge AI seismic interpretation that allows us to visualize opportunities we couldn't see in the past. Looking forward, we are focused on replicating our enhanced recovery techniques in the Putumayo, where we see seismic upside potential to increase recovery factors and development, expand our lower-risk inventory with activities such as infill drilling and re-completion.
Ultimately, this is complementary to the longer-term upside potential that we are working towards in the JANUS Foothills alongside our strategic partner, EcoPetrol. We are encouraged by the progress we are making on both these projects with them, the Putumayo and the Foothills, and look forward to maintaining this momentum going forward as they are key platforms to drive long-term shareholder value. To end, I want to thank all our employees and contractors for their hard work. Furthermore, I'd like to thank our shareholders and partners for their ongoing support. This concludes our formal remarks. I would now like to turn the call back to the operator to start the Q&A session for the investment community. Thank you.
At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We will just pause for a moment to file the Q&A roster. Your first question is coming from the line of Alejandro Demichelis with Jefferies. Please go ahead.
Yes. Good morning, gentlemen. Thank you very much for taking my questions. A couple of questions, if I may, please. I think when we look at the fourth quarter results, you were mentioning by this time, by the second quarter, you would have four rigs. Now you have three rigs operating. The question is, is this a timing situation, or is this kind of you being a little bit more cautious in terms of the activity levels and trying to see how oil prices progress? The second question is, in the current situation with oil price and so on, what is your appetite for, say, inorganic activities, particularly given that there have been some reports about some Colombian producers looking to sell out?
Okay. Thanks, Alejandro. I'll answer the first question regarding the rig scheduling. I would say it's a combination of things. The big one is efficiency. For example, at the end of last year, we weren't clear on the program for Llanos 32, and now we can put a more focused, more efficient program in place with multiple wells so that allows us to get some efficiencies and complete our program. For that reason, we have three rigs on the slate right now with the potential to add a fourth, but it's really just efficiencies and allowing us to drill campaign-style focused delivery in a couple of core areas.
Okay. Thank you.
As far as the question number two?
Let me add to a bit of detail of the efficiency. An example of that is in Llanos 32 right now, we're minimizing rig moves where we'll have one full-time drilling rig, but we set up the pad in the last couple of months so we can do parallel completion workover work while the rig is drilling. You get quicker wells on stream with workover rig and drilling rig working at the same time. On question number two, I'd like to reconfirm we're committed to Colombia. I know Jefferies has always a very good suite of opportunities worldwide, but the commitment is to Colombia. In Colombia, since I've been there, there's always opportunity, but it's never really, really there. We'll be watching. We're always looking for maximizing shareholder value, and if that comes organically, we'll go after it.
If something really good value comes out organically in Colombia, we're always open.
Okay. Thank you.
Your next question is coming from the line of Conrad Berezinski with Peters & Co. Please go ahead.
Thanks for taking my question, everyone. I have two questions. One is just the realized pricing in Q1 was strong, probably from the differentials tightening. How do you see the outlook playing going forward on the Vasconia differential and then the realized pricing for Parex? The second question I had was, is there any update on the polymer flood and potential expansion of that longer term at places like Cabristero and Block 34?
Hey, Conrad, it's Cam. Yeah, in terms of Vasconia, yeah, we've seen some positive developments there on Vasconia. In the first quarter, our differential was $2.26. Right now, today, we're around that $2 differential. Going forward, what we forecast is really around $3 differential for the rest of the year. That's the way we see it right now.
Conrad, this is Eric. I'll answer your second question. Yes, the polymer expansion is going very well. We have internal goals to have the Cabristero block on full polymer before the end of 2025. We are also working with our partner in Llanos 34 to commence polymer operations there, and the initial stages of ordering equipment is underway. We expect that polymer flood to start up in 2026.
Just a quick follow-up. Along those lines, do you see potential for both water flood and polymer in the Putumayo, or is it mainly water flood in the Putumayo?
We're looking at, so going back, looking at all of the EOR technologies we're looking at. In Southern Llanos, we are looking at the polymer. We are also looking at surfactants and other opportunities to increase recovery factor. We have an area with a billion barrels of oil in place and very high-quality rock, and we will leave no stone unturned to find the best way to maximize recovery there. With that said, most of the work that we're doing in Southern Llanos, from our modeling to our analysis to our expansion, is applicable to the Putumayo. A lot of the oil in the Putumayo is a bit lighter, so it would be more conducive to both water flood potential surfactants, some areas with polymer.
Everything we're learning from a characterization and EOR perspective, our advancements, we're looking at implementing that right away in the Putumayo in fields that have a large, very large oil in place and a relatively low recovery factor on a worldwide standard. Did that answer your question, Conrad?
Oh, yep. No, it did. That did. Thanks for taking my question.
I mean, to put order of magnitude, these are the cheapest barrels we can get in terms of capital efficiency. The total deployment in Cabristero is how much, Eric?
It's in the $10 million plus for capital. The beauty of a lot of these EOR schemes is once you have all of the infrastructure in place to do a water flood, which we do, the rest is very simple and is kind of a pay-as-you-go operation, buying polymer, but the upfront capital investment is relatively low. Of all things we could do, looking at EOR and fully developed fields with injection and infrastructure in place, it's the most efficient thing and lowest risk thing we can do.
Your next question is coming from the line of Jeremy McCrea with BMO. Please go ahead.
Hey, hi, guys. Two quick questions here. The one is on your Llanos 74 prospect here. It looks quite successful. I was curious if you could give some context in terms of what expectations were. Just given the success of this, does this change perhaps how you're looking at go forward risk? I know the budget had assumed to pull back to very little risk, but just given some of the success, are you thinking about maybe adding a little bit more risk? The second question is just going back to some of the M&A, just given where commodity prices have moved. Do you expect some things or more JVs to open up here in Colombia here as well too in terms of more acquisitions? I'll leave it at that.
Okay. I'll answer the first question. With regards to the initial exploration results, we decided to refocus, as Matt said, on opportunities that have a high probability of success that are close to infrastructure. These are what we call our small E program. These are wells that have a success rate of typically in the 50% range. We've had success on these two wells. It's going to lead to at least three producing wells. Expectation-wise, it's always nice to get off to a strong start. You never know if you're going to drill your successful wells midway or early in the year, but it's always great to start off with successes. We're going to stay the course as far as that goes. The early success in the exploration has allowed us to optimize things a little bit.
In other words, you get early success, you can develop those, they add production early, and you do not have to take as much risk drilling exploration wells. That will be our focus there. Our program, for the most part, towards the end of the year is about developing what we have got to build the production and meet our guidance. Secondly, set up for 2026 testing concepts. No big strategic shift. We are still chasing that. Of course, long term, we are looking at the higher risk, higher reward opportunities in the Foothills.
This is a good introduction. Second question. In terms of M&A, our biggest partnership is with EcoPetrol. We'd like to cement it in the Foothills, and we keep working towards working together with EcoPetrol. EcoPetrol really has most of the running room of any other partner or company in Colombia. I do expect that flow of activities with EcoPetrol not to stop in the coming years. With regards to private companies, I don't know how things will turn. I know some people are trying to start processes, but at these prices, especially for companies with debt, there's a point where it's hard for them to achieve whatever pricing they're looking after. We'll be open. I do think that something we might be getting surprises just because of the low oil prices and the way the companies are leveraged in Colombia.
Okay. Thanks, guys, for your answers here. Thank you.
Your next question is coming from the line of Nicas Manuez with Invesco. Please go ahead.
Congratulations on a solid start to the year. I wanted to ask about the prospect for are you still planning to drill the Hidra exploration well in the second half? Do you have any plans for developing the gas resource at La Bereza and that area?
I'll take that call. Thanks. It's Eric. Yes, we are on track to drill Hidra in the second half of the year. We will be drilling that. We are currently also finalizing development plans with a plan to monetize the gas from La Bereza and looking at pipeline options and working with our partner there. In short order, we are looking to finalize our development plans to deliver that. One other thing I'd like to add, Nico, is that in our MD&A, you'll see that the gas price in Q1 was $13, over $13 in MCF. That really provides a lot of motivation for us to increase the gas resources in our portfolio.
Yes, I'm aware of that. That's why I asked the question. What would the potential cost and impact be of success at exploration at Hidra and also the gas development at La Bereza?
You know, at Hidra, I do not want to talk specifically about characterization of internal sizes, but you could generally say it is kind of La Bereza or larger in size. It would have a fairly material impact. In fact, the result from that well would or could change our infrastructure plans for the area. We would like to get the results on that well before the final commitment for the pipeline. As far as commercialization, that is underway. We are aware that these wells can deliver very high rates, that they can easily deliver 20, 30, 40 million a day. It is a matter of putting together the right development plan with the right pipeline size. Depending on what contracts we can get, we see the price outlook very robust for years to come. We are taking advantage of that.
That should be coming a little clearer to us as we drill the Hidra well and finalize plans before the end of 2025.
Okay. Thank you very much.
Thank you.
I will now turn the call back over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning for closing remarks. Please go ahead.
Thank you, Operator. Thank you for all the participants on the call today. If you have any further questions, please feel free to contact us at Parex. Have a good day.
Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.