Good morning, everyone, welcome to Parex Resources second quarter earnings call and webcast. Yesterday, Parex released its unaudited financial and operating results for the quarter ended June 30th, 2021. Like all Parex disclosure documents, the complete financial statements and related MD&A are available on the company's website at www.parexresources.com and on SEDAR. Before turning the meeting over to Mr. Ken Pinsky, Chief Financial Officer of Parex Resources Inc., I would like to mention that this event is being recorded, so the recording will be available for playback on the company's website. Parex would like to remind everyone that remarks made during this session are subject to forward-looking statements, which involve significant risk factors and assumptions and have been fully described in the company's continuous disclosure reports.
The information discussed is made as of today's date and time, and Parex assumes no obligation to update or revise this information to reflect new events or circumstances except as required by law. Please note that at any time, participants on the webcast can submit their questions under the Ask a Question tab at the top of the webcast interface, and participants on the phone can press star one. I would now like to turn the meeting over to Parex Chief Financial Officer. Please go ahead, Mr. Pinsky.
Thank you, operator, and thanks to everyone on the line for joining myself and our CEO and President, Imad Mohsen, for our Q2 conference audio webcast. We appreciate your constant support of Parex Resources. Before we start our Q&A session, I would like to provide some highlights of our Q2 financial results and discuss our plans for the remainder of 2021. All values mentioned in this call are stated in U.S. dollars, unless we otherwise specify. I'll begin by saying that our priority during the COVID-19 pandemic still remains the health and safety of our employees, our contractors, and the communities neighboring our operations. Our Q2 production averaged 23,900 BOE per day, a 4% decrease from the previous quarter production due to the transportation blockades in Colombia that temporarily restricted supply to drilling and completion activities and our movements of oil within our fields.
Normal field operations were restored in June. At Present, Parex is operating four drilling rigs and assigned their crew. For the second quarter, our funds flow provided by operations totaled $132 million or CAD 1.03 per share basic. Our Q2 capital flows were $45 million, generating free funds flow of $87 million. With a portion of that free funds flow, we repurchased 4.2 million shares and thereby returned CAD 91 million to our shareholders. Parex had strong performance for the quarter with earnings of $92 million. We maintained financial strength of $353 million in cash and no debt. We exited the second quarter with working capital of $371 billion. Along with our credit facility undrawn of $200 billion, we have over $500 million or a half a billion of liquidity.
Parex reiterated its dedication to continue lowering our greenhouse gas emissions intensity per BOE from operated assets. The company's strategy in the short to mid-term will focus on optimizing carbon footprint, displacing carbon-intensive power sources, and increasing power generation from renewable sources. The long-term carbon strategy will gradually emerge as Parex evaluates the uncertainties it could face during the net energy transition and outlines sustainable pathways to achieving its net zero ambition. Parex is aspired to be among the least less carbon intensive oil and gas E&P companies, while continuing to deliver shareholder value and meet ongoing global energy demand. We entered into another strategic partnership with Ecopetrol, whereby Parex earned and operated 6% interest in two blocks in northern Colombia, Arauca and LLA-38.
Parex's independent qualified reserve engineer, GLJ, recognized company interest 2P reserves or proved plus probable reserves of 7.8 million barrels of light medium crude oil, along with future development capital of approximately $70 million. The initial work plan, which we hope to commence in 2021, will be funded by Parex and consists of drilling two development wells in the Arauca field and 1 exploration well and a further capital program of $75.8 million, which us and Ecopetrol will determine how to allocate. I would now like to pass the meeting over to our President CEO, Imad Mohsen, to go over the second half 2021 outlook. Please go ahead, Imad.
Thank you, Ken. Parex is in an exceptional financial position, as Ken explained, and doesn't currently have any hedging in place. That allows us to reap the full potential upside of strengthened oil prices. As we move into the second half of 2021, Parex will be focused on appraising our recent discoveries and expansion. Key projects include continuing our appraisal well program on Cabrestero, in which drilling commenced in June. Far, we are very encouraged by the initial results. Plans to start our significant capital program in Arauca province, beginning with at least six development and exploration wells in Cabrestero, followed by the Ecopetrol partnership work on Arauca block. On Fortuna, we are drilling a multilateral well, Perla Negra-1 , on the Olini formation. We are applying proven but new technologies Colombia to access areas with significant oil in place.
Accelerating the installation of facilities to enable the production of compressed natural gas for La Belleza discovery. We are expecting production to begin as the shifts break into four, and we expect to have initial results from our Planadas-1 exploration well in December. Initiating quarterly dividend of $0.125 per share. We believe this is a material milestone for Parex. Demonstrating our confidence in our portfolio and our commitment to shareholder return. With this brief overview, I'd like to turn the line back to the operator to start the Q&A session. Operator, over to you.
Thank you. Please press star one at this time if you have a question. You will be prompted for the participants to register for questions. The first question is from Adam Gill from Paradigm Capital. Please go ahead.
Thank you. Gentlemen, just in terms of the dividend, obviously it's a pretty small payout of your overall fund flow. I was just wondering if you could frame how you guys are thinking about potential dividend increases, what type of targets, whether it be earnings or fund flow, to potentially see that dividend go up over time. Thank you.
Yeah. Thanks, Adam. The dividend was instituted along with our buyback. That said, we want to demonstrate our return of capital mantra, which is what we've been operating off the past three years. We've bought back 20% of the stock net of any LTI or long-term incentive exercises, and therefore, issued some treasury stock. That's a big number of a stock of the share buyback. Going forward, the board wanted to have another lever to return capital to shareholders, and so we instituted the dividend. We have our annual strategy session with them in the fall. With that, we'll look at our five-year plans, where we think commodity prices are going, then how we want to return excess capital to shareholders. We always will have a return of capital strategy.
How the dividend will fit into that, with more clarity, we'll report back to the market in later in the fall after that strategy session. For now, the yield is about 2.5%-2.6%. It's kind of in the range, but we would see ourselves in time, potentially transferring some money from the buyback to the dividend. That is something we'll discuss with the board and along with our five-year plans.
Okay. Thank you.
Thank you. Once again, you may press star one if you have a question. There are no further questions. We do have a question now from Harry Nudelman from HDN Capital. Please go ahead.
Yes. Good morning. Perhaps you can just elaborate on the prior question. I guess, multiple parts. First off, how much cash would you like to keep on the balance sheet for the proverbial rainy day? The next question is, as you do this five-year plan, are you going to use different price assumptions and then from that, with the free cash you generate, determine whether a higher dividend, a variable dividend, and/or an accelerated buyback comes into play? Just any other clarity you can add, because it's remarkable that you can buy back 3% of your company and still build cash, and yet for all intent and purposes, the stock wouldn't know what you're doing.
Let me start with the first part of the question. In terms of the cash we have on the balance sheet, we don't want to keep increasing it infinitely. We are very comfortable with the levels we are at now. The tool to use the cash other than first our possible investment, is to return money to shareholders, and the tool for that is the buyback. Dividends is a fixed commitment on a much longer term. What the board will consider going forward in terms of what dividend levels, and if we increase it, at what pace. Beyond the commodity prices is also our long-term investment program, and how we want to grow the business and have a long-term sustained business that only goes in one direction. It is multifaceted. We do take always reasonable oil price in mind, which is What is it again? $65-$60?
We like to budget right now at around $60 a barrel, and we do run low case scenarios and we run high case scenarios.
Yeah. For me, it's not just low price, but that's in its combination.
Yeah. I think what I want to reiterate, and this is what we've been telling shareholders, is that we are an exploration and production company. We will drill exploration wells, not all of them will work, some will. In the past, they've worked really well, that has a lot of value for the shareholder. We're paying a dividend as a function of a return of capital, as opposed thinking of us as a dividend-paying company that is in the oil and gas business. That dividend is supplementary. As Imad said, we view it as a long-term commitment. Moving that around, I know some of our counterparts are talking variable dividends based upon commodity prices. They'd be more mature dividend payers than we have.
We're going to feel our way down and see what the shareholders want, and then see how we can look at this in a longer term in respect of a return on capital strategy.
Great. Thank you. Just an observation, if I may. It would appear that most investors throughout all of energy today don't believe in any terminal value for a myriad of reasons. My sense is that's the opportunity or one of the many opportunities here. To the extent that you contemplate buying back more stock quicker, the advantages are relatively obvious. Thank you.
Thank you. The next question is from Al Stanton from RBC. Please go ahead.
Yes, good evening, guys. Just a couple questions, if I may. The one variable that we weren't really talking about in a lower oil price environment is taxation. I'm curious to know what your views are with respect to the tax rate going forward and how that dovetails with turnover and spending, whether spending is now going to creep up with turnover. How does that all dovetail? Finally, just a question on the lessons learned in the past quarter, with respect to marketing and delivering your crude, whether there is any sort of silver lining in working out which routes, and which markets to sell it into to maximize realization. Thank you.
Thanks, Al. I'll answer your second question first with respect to what did we learn about the transportation disruptions. What we learned is that none of the oil and gas business industry was really, we weren't targeted directly. It was the transportation hubs that are upstream of our operations. What it really impacted was our ability to move supplies for drilling rigs, because at the time, we were actually moving into a bigger exploration program, so we were moving rigs around. That slowed us completely. If we're up and running on the pad, then we usually get word there's a disruption potentially coming or some action, and therefore, we can stock up for food and fuel for the rig and not be bothered. We were just caught in the middle of moving rigs.
In respect to production, what we know is from tying in by pipeline, most of what we call our Southern Cabrestero Area assets. We were about 35,000 bbl a day of what I'd say disruption-proof, which allows us to do whatever we want to do at any given time. That was positive, and we kind of thought that's what it was beforehand, because we planned for events that are unforeseen. We also got ourselves up to our run rate. We're at 48,000 bbl a day again today, which is the highest we've been since COVID, which we're quite happy with. We have four rigs in the field working. There's been no disruption. Colombia, sometimes it gets noisy, and especially if you look on Bloomberg, you can see things.
In the field, it was relatively calm except for that couple of weeks, 2-3 weeks, where we had some trucker union activities, which have now ceased and everybody's back to work. The government did a very good job, we thought, in addressing that, and working directly with the unions on what grievances they have. We are thankful to the Colombian government. They did a very good job. In respect to your first question, you were breaking up, but I think you're asking about the tax rates. The Colombian Congress is now debating a new tax bill. One of the things they're talking about is increasing the corporate rate to 35% from 31%. That incremental 4% will have some effect on us, but because we continue to invest in the country, it will be relatively minor.
I will recall that during the Santos, the previous president's regime, President Santos, we had tax rates as high as 40%. As long as you're investing in the country, it's like anything else. You're creating tax depletion offsets the tax. That's all I have to say about that, unless you have further questions.
Yes. I suppose the one bit that you might have missed was the relationship between CapEx and the oil price. Is that going to be reestablished?
Relationship we heard between our capital spend and the price of oil?
Yes.
Definitely, one of the things we wanted to do was actually, COVID slowed our exploration program down, and we are an exploration company, as I said. Imad, when he joined the company, looked at the opportunities and said, We need to catch up for 2020. We agreed, the board agreed, and that's what really drove our CapEx spend and increasing this year. Oil prices are helpful because you have the incremental cash flow, and as you heard, we do get questions on how much working capital you guys want to build. Imad, you have something to add?
Here, of course, at $100, there are more opportunities at $20, but the reality is most of our opportunities that we have in the pipeline are extremely robust at all kind of reasonable prices in the medium term. What happened is we had discoveries before COVID-19 that were not appraised yet. There were some delays last year. We see a lot of potential for development growth and appraisal, and we want to bring these opportunities forward. Most of the opportunities I mentioned in the chat today were discoveries made a year or two earlier, and that need to be appraised. You have 10, 20, 30 well development programs coming out of that. These opportunities, in our view, if the geology proves what we think is there, should be robust regardless of the price. Predictable oil price fluctuation.
Thank you.
Thank you. There are no further questions registered at this time on the phone lines. I would like to turn the meeting back over to Mr. Mohsen.
Thanks. Thank you for your interest in Parex. Your continued support for the company. For further information, we invite you to visit our website or call us. Thanks again, and have a good day.
Thank you. The conference has now ended. Please disconnect your lines at this time.