Good morning. Thank you for standing by. At this time, I would like to welcome everyone to the Parex Resources 2025 Operational and Financial Results Conference Call. Today's conference is being recorded. 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 would like to ask a question during this time, simply press the star key followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. At this time, I would like to turn the conference over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning. Please go ahead.
Good morning, everyone. Welcome to Parex Resources' 4th quarter 2025 conference call and webcast. My name is Mike Kruchten. 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 1 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 our website or at SEDAR+.ca. Note that all amounts discussed today are in US dollars unless otherwise stated. I will now turn the call over to Imad. Please go ahead.
Thank you, Mike, and good morning, everyone. As we reflect on 2025, I'm pleased to share that this year was defined by disciplined execution, meaningful strategic progress, and strong shareholder returns, all of which further strengthened our foundation and positioned Parex for sustained long-term value creation. During the year, we delivered full-year average production of approximately 45,000 barrels a day to achieve our budgeted guidance range. This outcome reflects our strong asset base, consistent operational uptime, and ability to grow efficiently with capital spend. At our Cabrestero and Blocks 34 assets, enhanced recovery initiatives continued to perform as designed. Optimized waterflood patterns combined with polymer injection programs are enabling us to effectively manage decline rates and maximize recovery, reinforcing the long-term life nature of these assets and reducing our year-on-year sustained capital requirements.
At Block 32, the Takema acquisition completed early last year has been highly successful. Since assuming full control, we increased peak production to more than 3x pre-acquisition levels, have added significant reserves, and recently drilled a complex multilateral well, the first in Colombia. This is a clear example of our execution capability, where we acquired a high-quality asset, with identified upside, applied our basin operational knowledge, and scaled efficiently. On the exploration front, our high-quality prospect funnel continues to generate strong results. Our 2025 near field exploration program delivered a 75% success rate, reflecting strategic refinements to our exploration approach and our ability to deliver repeatable near field successes. With our strategic partner, Ecopetrol, we made clear progress to strengthen our alignment and grow future production. In the Putumayo, we successfully gained operational access and started drilling activities. These blocks are sizable and underexplored.
With more than 1.8 billion barrels of oil in place, our strategy is already seeing promising results and is positioning us for significant inventory growth by moving from vertical production to multilaterals. Eric will touch on this further, giving it importance and potential. In the Llanos Foothills, we formalized our strategic alliance and strengthened our position in a truly world-class basin with pre-drill work underway. With all of the puzzle pieces now in place, we are excited to start our first foothill well later this year. A high-impact growth opportunity and an alignment with our gas and exploration strategies. On the financial front, we remain focused on shareholder returns. We returned $134 million in 2025, bringing total capital return over the last eight years to CAD 2 billion.
Additionally, through ongoing share repurchase programs, we have reduced the diluted share count by over 40%. A significant achievement that enhances per-share value and sets our long-term track record apart from our peers. Eric, over to you.
Thanks, Imad. In the fourth quarter, production averaged 48,606 BOE per day, achieving our planned growth profile for the second half of the year and enabling us to meet our guidance. This was driven by strong results from our base assets, in addition to successful growth in Llanos Block 32 and Block 74. With a front-end-weighted activity plan for 2026, we currently have six rigs running, five operated by Parex and one on Block 34. Our year-to-date production is roughly 46,000 BOE per day, with additive operations coming out of LLA-32, where a multilateral horizontal well was just drilled and completed, and in the Putumayo region, where we are seeing encouraging results across multiple plays.
At Block 32, we have successfully drilled Colombia's first four-leg multilateral well, representing a major technical milestone for Parex. This well is expected to deliver strong production by maximizing reservoir contact and driving enhanced capital efficiency. Beyond its immediate production contribution, this success serves as proof of concept to be used in the Putumayo region, where it has the potential to unlock significant value. Let me expand. Today in the Putumayo, we're advancing work across 3 distinct blocks, achieving results that exceed our expectations and provide a clear line of sight to substantial additions to our development inventory. Firstly, at the Arida block, our initial well has 1,700 feet of horizontal length and is currently producing 600 barrels of oil per day gross. A second horizontal injection well has just been completed and will begin injection shortly.
Importantly, what makes this 600 barrel per day rate exciting is that this is a shallow horizontal well, meaning it is low cost. Leveraging a combination of our horizontal and multilateral drilling experience, we're optimistic that we can draw on established North American plays, such as the Clearwater Formation, to design and implement multilateral producer injection patterns to unlock this block. This block has over 1 billion barrels of oil in place with relatively low recovery factor, implying strong torque to enhance recovery initiatives with any gains in recovery, providing an opportunity to meaningfully expand recoverable reserves. The next phase will involve drilling a multilateral producing well to test this concept. Secondly, at the Area Sur block, we are targeting efficient, low-cost recompletes. Our most recent success has produced at a strong initial rate of 1,500 barrels per day gross.
These types of opportunities are what drew us to this farming area. We are excited by the potential we see. Thirdly, at the Occidente block, our first well has delivered encouraging logging results. Further confirmation of the down dip oil extension will translate into incremental locations and development upside. Across all three blocks, we're pleased with the progress to date and look forward to building this momentum into our next update. Switching gears on the near-term exploration front, we are building our near field exploration success with programs such as LLA-111, where we are using a streamlined cost-efficient rig to minimize capital intensity. We have had positive log results on the first well of the program and will be testing in the near term. Success here could provide even more visible inventory ahead of 2027.
Turning to our 2025 reserves report, the assessment was positive, with results reinforcing a sustainable outlook across all categories, PDP, 1P and 2P. We grew reserves per share, realized over 100% reserves replacement, including notable 152% in 2P, and realized FD&A recycle ratios that were 2x or higher. In addition to the standard reserves auditor price deck, we asked our reserves auditor to evaluate our after-tax net asset value per share using a constant $70 per barrel Brent price, equivalent to approximately $65 per barrel WTI. Under this pricing scenario, the resulting Canadian dollar net asset values per share are CAD 23 on a PDP basis, CAD 28 on a 1P basis, and CAD 39 on a 2P basis, demonstrating the strong underlying value of the asset base.
It has been a solid start to 2026 for us operationally, and I'm confident in our plan that has multiple independent projects to add high-quality inventory and grow reserves. With that, I'd invite Cam to please go ahead.
Thanks, Eric. We generated strong financial results in 2025 despite a softer commodity price environment than seen in years past. For the quarter, funds flow provided by operations or FFO was $123 million or $1.28 per share. Despite a Brent oil price in the low 60s, we had fourth quarter production growth as well as improving production expense and lower current tax relative to the prior quarter that helped FFO. Compared to the prior quarter, production expense benefited from new production that improved fixed costs absorption in addition to corporate efficiency initiatives that were implemented to reduce fixed and variable costs, as well as a low amount of absolute current tax. Regarding commodity pricing, in short order, Brent has moved to over $80 per barrel due to global issues compared to our budget, which was released at $60 per barrel.
While our core benchmark price has improved, part of this gain is being offset by wider heavy oil differentials, with Vasconia being at upwards of $8 per barrel. This widening re-reflects ongoing expectations around incremental heavy oil supply, primarily from Venezuela. Further, any reassessment of our guidance would require commodity prices to be sustained at these higher levels. In the meantime, our operational and capital programs are progressing as planned, and our full year 2026 production and capital guidance remains unchanged, underpinned by higher commodity prices and the strength of our balance sheet. I will now pass it over to Imad for his final remarks.
Thank you, Cam. As we look ahead to 2026, I'm pleased with the progress we are making across our portfolio, which is inventory-rich and supported by strategic acreage expansion and ongoing prospect replenishment that we have done. I'm particularly excited about the ongoing development in the Putumayo, with results to date surpassing our expectation.
I can add 111 to that. As Eric mentioned, our farming strategy has been validated, our technical thesis strengthened, and our view of the meaningful upside potential into clearer focus. Today, we have a compelling combination of low-risk development, near field exploration, and selective step out opportunities, all supporting base production stability with modest growth potential. Overlaying this foundation, we retain exposure to some of the most attractive onshore exploration opportunities globally in the Llanos Foothills. This is where we plan to spot the wild, but on trend with existing discoveries, a milestone that has been in the making for years and provides an undeniable high impact growth opportunity for Parex. With a strong start to 2026 and a constructive operating backdrop, we see Parex approaching a compelling inflection point.
On that note, I want to sincerely thank our employees, communities, and shareholders for their continued support, which plays a crucial role in driving our shared success. To conclude my final remarks, I would like to comment on our recently announced M&A activity and more importantly, why we believe Parex is uniquely positioned to acquire and optimize Colombian assets. For example, when we consider Frontera Energy's Colombia E&P assets, it is Parex view that our existing partnership with Frontera provides valuable insights. Through our partnership at VIM-1, we have direct experience with Frontera's assets and capable people, particularly across basins where our operations overlap. In addition, our long-standing partnership with Ecopetrol reinforces our confidence that we can create a win-win outcomes for the future of joint assets like Quifa. Combined with our proven track record of applying technology and technical excellence.
A successful combination would position us to unlock the full potential of a combined portfolio. Our clean balance sheet position is a competitive advantage. This provides us with access to a competitive cost of capital and the flexibility to deploy leverage opportunistically. Our robust foundations access across operations, marketing, tax, and other key functions, which should enable us to capture the highest amount of potential synergies. We are positioned to drive meaningful upsides through operational efficiencies, streamlined administration, as well as optimize marketing and tax strategies to maximize shareholder value. In summary, a portfolio combination would immediately create the largest independent Colombian focused energy company, delivering greater scale, enhancing capital efficiency, and achieving accretion across all key metrics. It would also optimize capital allocation, further strengthen the resilience of our platform for sustainable long-term growth and strategic exploration.
With view M&A in Colombia as a natural extension of our strong position there. We are confident in our ability to unlock significant value for all shareholders. I'll now turn it over to Mike to make a short legal comment before the Q&A session. Go ahead, Mike.
Thank you for your attention today. Before we move to the Q&A portion of the call, I want to reiterate that we are committed to maintaining transparent and timely communication with the investment community regarding strategic opportunities, including potential M&A activity. That said, given the current circumstances, we will not be providing additional commentary or taking questions on our proposal to acquire Frontera Energy's Colombian E&P assets at this time. This concludes our formal remarks. I would like to turn the call back to the operator to start the Q&A session for the investment community. Thank you.
Thank you. We will now begin the question and answer session. If you have dialed in or would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. We'll pause just a moment. We'll take our first question from Jamie Somerville at Roth Canada.
Good morning. Thanks. With regards to differentials, I know there's a lot of, you know, moving parts there, but I'm wondering if you could give your view on what a reasonable outlook is for the rest of the year, whether you think those differentials will come back in again?
Hey, Jamie, it's Cam. you know, it's really hard to say. you know, before the Iran crisis, we were seeing differentials, as we said, around $8 per barrel. it's still early. We don't really have any visibility at this time on how the Iran situation is gonna impact things going forward. we don't really have that clarity right now.
Okay, thanks. We will make our own assumptions and stay in touch. Maybe on a different subject, operationally, I'm curious about the multilateral targets. I guess Colombia traditionally has produced a lot of oil from high porosity, high permeability, lighter oil reservoirs, including in the areas like Llanos 32 and Orito. These are multi-zone areas, and I'm just kind of guessing that maybe you're targeting some of the zones that have more difficult reservoirs.
I'm wondering if you can kind of comment on why you see an opportunity for multilaterals from a technical point of view, how much improved drilling speeds contributes to that and what you're seeing that gives you confidence from contractors globally and in Colombia, and you know what you think the size of the prize that you're going after is maybe?
Thanks, Jamie. It's Eric here. You're correct in your first statements. Colombia is generally known for really high quality reservoirs that are supported with water aquifer and produce at high rates. There are very large opportunities in some of the reservoirs that are slightly lower quality. The one we're specifically referencing is in the Putumayo, in the Llanos area. It's the uphole Pepino Reservoir. It's at about 2,500 feet TVD on average. It's a thick sandstone package. It has an area that was historically produced the highest quality area in this entire play, which represents about a third of the entire play through vertical development. Those were very prolific wells. It did recover about 30 million barrels from that limited development.
We're approaching this Pepino from two perspectives. One, that original area that was developed was never waterflooded. It was essentially primary produced and shut in. We are going to waterflood, repressure that, and get that online. The so-called halo area, where two-thirds of the oil is in place, has many penetrations that tested oil rates from vertical wells. Not fantastic oil rates. What we were trying is to try the first single horizontal well to test how a horizontal may be able to be used to exploit this halo area that contains a larger component of the oil in place. The first well is performing exceptionally well with the rates that we're discussing here. It's a very easy well to drill. Our next step is to try and approach...
It's a different type of play than something like the Clearwater, where they're targeting higher quality reservoir but with very, very heavy oil. Here we're targeting lower quality reservoir, but with very good quality oil, 25 API type oil. We're trying to look at the same kinds of technique where we're going to go ahead and drill multilateral wells, expose the reservoir with single wellbores to, you know, five, 10, 15 thousand feet of exposed area. This first well that's producing 600 barrels a day has about 1,700 feet exposed. We're at the early stages. We need to delineate what is a very large area and a very large oil in place. It's very exciting for us. The drilling, the first concept to test was the drilling of the well.
It went very, very well and showed that we could drill these wells for very low cost. The next step is as we said, we've got a horizontal well now on injection or about to commence injection, and we're going to spud shortly a multilateral well, all open hole, with a similar type of well style as the Clearwater, but see if we can exploit this reservoir. We see that throughout the Putumayo. Sure, the best of the low-hanging fruit was captured early on. But we're talking not tier three or four reservoir here. We're talking still high-quality reservoirs here with what we're chasing, definitely. We're quite excited about the whole opportunity here and in the rest of the Putumayo.
Thanks, Eric.
Let me add a couple of things here to the logic. If I take the multilateral in Azogue, for example, the productivity is just gigantic. We're talking about thousands of barrels with minimum drawdown, yeah, less than 2% drawdown. The reason we're doing it, for example, there is not to increase productivity as such. It's to be able to drain a large area of the reservoir with limited number of wells. To give you an order of magnitude, I don't know, it takes maybe close to $5 million to get to the 12,000 feet target in Azogue. Every lateral costs us less than $1 million. Having four terals there is much cheaper than drilling four horizontals, yeah. It's capital efficiency driven.
In the Putumayo, as Eric said, the core area is very decent. In fact, Ecopetrol produced more than 1 million barrels per well, trades starting above 1,000 barrels when the well field was fully pressurized. That's not Clearwater-like productivity with vertical wells. That's really very good quality. Now, Once we do repressurize the reservoir back to close to original with waterflood, your productivity goes up. The one we drilled right now was to test what would productivity now be before pressurization starts, and it's exceeded our expectation. Also prepares us to going outside the core area, which has produced so far 35 million barrels, close to maybe 10% recovery. I don't know the exact in places. You go to outside that to what Eric...
The extension area is, like, multiple times bigger than this one. If we-- And it's never been produced commercially. If we can unlock that with very high capital efficiency multilaterals, that creates an additional economic incentive to do it. Again, these are... I would say if I combine the reservoir quality and productivity, these are still conventional reservoirs, yeah. We're not talking anything that's in the unconventional realm, but we do wanna increase the capital efficiency. Does that make sense, Eric? Yes.
That's great. Thank you very much, and congratulations. congratulations and good luck with all of that.
As a reminder, if you would like to ask a question, please press star 1. We'll pause again for just a moment. There are no further questions at this time. I will now turn the conference back over to Mike for closing remarks.
Thank you very much for joining us on our Q4 call. If you have any further questions, please feel free to contact us at Parex. Have a great day.
This concludes today's conference call. Thank you for your participation. You may now disconnect.