I will now hand the conference over to Mike Kruchten, Senior Vice President, Capital Markets and Corporate Planning. Mike, please go ahead.
Good morning. On the call with me today, our President and Chief Executive Officer, Imad Mohsen, our Chief Financial Officer, Cameron Grainger, 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 in MD&A, which can be found on our website or at cdarplus.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. Over the first half of 2026, Parks executed a series of strategic transactions that have positioned us to become Colombia's largest independent E&P company. These transactions were designed to add complementary assets that enhance our scale, deepen our portfolio, strengthen the profitability and duration of our business for long-term growth. Starting with the Frontera transaction for $725 million. This $725 million acquisition adds roughly 37,000 barrels equivalent today of highly accretive production with strong industrial logic and compelling synergies. It materially increases our reserves inventory and strengthens long-term production visibility while being secured at an attractive valuation. Importantly, we are bringing in a deep bench of core technical talent and operational capabilities that will further strengthen our organization and enhance our ability to execute across the large asset base.
The transaction also supports more efficient capital allocation across the portfolio, enabling us to direct free cash flow from mature assets to our highest return development and exploration opportunities. Secondly, the expanded partnership with Ecopetrol with the Magdalena in the Magdalena Basin. We have entered into an agreement with Ecopetrol that allows Parex Resources to earn a 50% participating interest in the Casabe and the Anito blocks in Colombia's Magdalena Basin through $250 million gross capital investment commitment over 5 years with no upfront acquisition cost. The transaction further expands our strategic partnership with Ecopetrol and reinforces our long-standing collaboration in Colombia. These mature fields currently produce approximately 15,000 barrels a day and offer significant long-term upsides through enhanced oil recovery, water flood optimization, and development drilling initiatives.
The transaction provides a proven operating base with clear paths to incremental production growth, leveraging Parex Resources' established track record of enhancing recovery through the application of proven technologies. Upon completion of these strategic transactions, Parex Resources is expected to become the largest independent Colombian-focused exploration and production company, with average production of 82,000 to 91,000 Boe a day, nearly doubling corporate production, alongside a land position exceeding 7.9 million acres and significant long life reserves. This expanded business provides the scale, inventory depth, and financial capacity to drive superior long-term returns while enabling more disciplined allocation toward our highest return opportunities. With that, I'll now turn it over to Eric to speak on our current operations. Eric, please go ahead.
Thanks, Imad. In the first quarter, production averaged just under 45,000 Boe per day. While current production levels are below Q1 averages, we expect standalone production to improve throughout the remainder of the second quarter and exit at or above 45,000 Boe per day. This growth will be supported primarily in our Putumayo operations and the continued advancement of our exploration success at Block 111. With the constructive commodity price environment, our base plan continues to advance while select high-value opportunities are being accelerated on an opportunistic basis to enhance returns and free cash flow. Our operations in the Putumayo continue to progress with particular excitement around the Arauca Block, where our wells are demonstrating strong performance and are nearly finished our multilateral pilot, which we expect to start testing in the coming weeks.
In Block 111, Parks has drilled 6 exploration wells to date, with 4 delivering positive results across separate areas. 1 well has already commenced initial production at approximately 1,500 barrels per day of oil. The remaining wells have shown encouraging indicators, including oil on logs, with testing expected to start in the coming days. All exploration wells were delivered on budget at approximately $2 million all-in, including drilling, pad, and mobilization, representing an approximate 65% reduction versus typical exploration well costs of around $6 million per well. This improvement was driven by a fast-moving rig and a streamlined well and pad design, reflecting the strong execution coordination of our teams. With these results, Parks is advancing a multi-well development program across 3 fields, with sustained production expected in late Q2 2026.
Up to seven development and appraisal wells planned for the second half of this year. Based on the successful start of this campaign, we have identified over 15 prospects on existing seismic surveys. We plan to continue building future runway with this trend, with additional 3-D seismic activity planned in the future and expect exploration-focused drilling in the Eastern Llanos to recommence in 2027. While our standalone production base remains strong, the second half of the year represents a meaningful step change in scale as we consolidate the Frontera portfolio and start our work programs in the Magdalena Basin. For the Frontera portfolio, in anticipation of closing, the company has initiated integration planning to ensure smooth transition. Following close of the transaction, our experts will review the acquired portfolio to optimize development and enhance oil recovery opportunities while prioritizing safe, reliable operations.
The transaction is also expected to generate synergies in marketing and tax, among other areas, supporting enhanced efficiency and stronger long-term returns. For the new Magdalena assets, we're working towards completing initial activities to drill the first wells in the Casabe and Genito programs. A key near-term milestone is spotting the wells on each block, as this is a contractual requirement to enter into production participation for each area. Lastly, we continue to progress our Foothills exploration program. We are in the early stages of work in the Piedemonte prospect, with several works scheduled to commence this quarter in preparation for a fall 2026 spud. As a reminder, this is the type of exploration where we see game-changing potential and enhanced risk and reward profile.
While the start of 2026 has been more modest than anticipated, we remain confident in our trajectory, supported by a portfolio that is better positioned than ever to deliver high-quality inventory and multiple independent development and growth projects. With that, I'll turn it over to Cam.
Thanks, Eric. Our financial performance this quarter serves as a bridge toward the significantly larger cash-generating capacity of the transformed Parex business. First quarter 2026 results were strong on an underlying basis despite the impact of non-recurring items. Funds flow provided by operations or FFO totaled $114 million or $1.18 per share during the quarter. Our Q1 results included $17 million of one-time non-recurring costs, consisting of a $7 million temporary corporate wealth tax, a $7 million insight restoration cost, much of which we expect to recover through insurance, and approximately $3 million in project-specific G&A expenses. Early in the second quarter, we made the tactical decision to unwind our hedge positions, a decision that has so far enhanced participation in the current commodity price environment.
The timing of our strategic transactions has been advantageous with commodity prices at current levels enhancing the value of deals executed. Specifically, the January 1st effective date of the Frontera acquisition is expected to contribute a meaningful amount of incremental free cash flow, helping reduce the net consideration. Another key financial milestone in the first half was the successful placement of a $500 million of senior secured unsecured notes due in 2031. The 8.5% notes were priced at par and were strongly oversubscribed, reflecting strong support from the credit markets and confidence in our transformed Colombia-focused company. Given the addition of debt to our otherwise simple balance sheet structure following this Frontera transaction, this financing is a logical step.
Going forward, we expect to maintain a strong credit profile with high liquidity and a medium-term target net debt to EBITDA ratio of 0.5 times or lower. The second half 2026 guidance, which reflects the anticipated impact of both the Frontera acquisition and the Ecopetrol partnership transaction, showcases the cash flow profile of the transformed business. Based on a $90 Brent assumption, we expect FFO net backs of approximately $30-$33 per Boe. On a half-year basis, FFO is expected to be between $475 million and $525 million, and capital expenditures to range between $275 million and $295 million. Please note that the coming quarters are expected to include non-recurring integration, transition, and financing costs, which may impact reported FFO numbers. Looking ahead, our capital allocation priorities are clear.
Parex is focused on optimizing capital allocation across its diversified portfolio, targeting 3% to 5% growth from base production, plus continuing to advance high-impact exploration opportunities with significant long-term potential. This is while also maintaining a stable dividend and directing excess free cash flow primarily toward debt reduction. With that, I'll turn it back to Imad for closing remarks.
Thanks, Cam. To close, I want to reiterate the transformation that's underway at Parex and the scale of the opportunity. Today's Parex is positioned to deliver a deep portfolio of development and exploration opportunities, generate substantial free cash flow, expand reserves, and establish the company as one of the leading growth opportunities in the global oil and gas sector. Our path forward is centered on 5 priorities: optimizing the base business to maximize value, deliver reliable production growth, and leverage proven technology. Capturing integration synergies from our recent transactions and strengthening the overall scale of the portfolio. Growing production through the execution of our Ecopetrol partnership in the Putumayo and Magdalena. Advancing high impact exploration in the Llanos Foothills, starting with the Piedemonte prospect this fall. Lastly, keeping a disciplined capital allocation framework while maintaining dividends and paying down debt.
We are confident this approach will create meaningful long-term value for shareholders and all stakeholders. Our partnership with Ecopetrol represents one of the company's most important strategic pillars going forward. Today, the relationship is broader and stronger than ever, spanning from Capachos, Putumayo, Magdalena, Foothills, and Quifa. Beyond expanding our operational footprint, these partnerships reflect a shared long-term commitment to Colombia and align Parex with one of the region's leading energy operators. With respect to Frontera, I would like to sincerely thank Orlando, his management team, the board of directors, and all employees for their hard work, professionalism, and dedication in building Frontera into the company it is today. We are excited to welcome many new colleagues to Parex, and are confident that the next chapter for the combined company will be a strong and successful one.
With increased scale, financial flexibility, and portfolio depth, Parex is better positioned to deliver profitable growth and long-term value creation over time. As we move forward, I also want to thank our employees, partners, shareholders, board of directors, and the communities where we operate for their continued trust, commitment, and support. The progress we are making is the result of the dedication and collaboration of many people. Before I conclude my remarks, I would like to recognize our Chairman, Wayne Foo, who is retiring from our board of directors. Wayne has been instrumental in shaping Parex over the past 23 years. As a founder and the former Chief Executive of both Petra and Dina, Parex predecessor and Parex Resources, Wayne established the foundation, strategy, and culture that have defined the company's success.
He has continued to guide Parex as the Chair of the Board since 2017. On behalf of the Board, management team, employees, and shareholders, I want to thank Wayne for his exceptional leadership, vision, and dedication. His contributions have been instrumental in building Parex into what it is today. His impact on the organization will be everlasting. We wish Wayne and his family all the very best in his retirement. That concludes our formal remarks. I'll now turn the call back to the operator for questions from the investment community.
We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from Jamie Somerville of Roth Canada. Your line is open. Please, go ahead.
Good morning. Can you hear me?
Yes.
Hi, Imad, and congrats on these deals in particular. Thank you for the guidance for the second half of the year. I'm just wondering if we can ask about looking out into 2027. I think Cam said something. Did you suggest we can expect 5%-10% kind of annual growth going forward? Is that, you know, relevant to 2027? On the CapEx side, looking into 2027, you have all this carry capital. Obviously it depends a lot on exploration activity, but is, you know, a half a billion dollars or more of CapEx in 2027 a reasonable expectation?
Our long-term vision for the combined company is to have 3%-5% base growth that we do basically using our normal EOR activities and near-field exploration appraisal, with exposure to transformational upsides that can be much higher than that. Now, in our view, the CapEx really depends on the oil price. If I take the pro forma of Parex plus Frontera, without the Magdalena assets, at $70 environment, that was $500 million, yeah. Now, of course, oil price stay above 100, you have a little bit more flexibility and more opportunistic short payout projects that you can add to that $500 million. Oil price goes below that, might go the other direction.
There's some money that will go into Magdalena as well. High level, we're not putting guidance out now, but I think the half a billion number, order of magnitude is a good start point. Of course, as we get to know the assets in more detail and build our plans for next year, you'll get a more detailed guidance.
Thank you.
Does that answer your question, Jamie?
Yeah, that's very helpful. Thank you. Just an asset that is maybe Not super material, but you have, doubling your interest in the VIM-1 asset. Is there still a plan there to ramp up gas production, maybe in 2027?
Just before Eric answers on the plan, it is one of my favorite assets. I really love it. Go ahead.
We, we just, you know, in VIM, we just completed the La Belleza 3 well. That well is positioned. It looks successful on logs, and we're about to test it. That well was drilled to help sustain a longer term blow down period and also provide near-term higher liquids recovery. Over the next year, we are commencing a pipeline and expect to proceed to sales from La Belleza. That plan has remained unchanged. We're also drilling another prospect. Currently, we're moving the rig to drill an additional prospect on the block that is also expected to be a high liquids gas, a gas well in anticipation of the blow down and very strong market prices for gas in Colombia.
Just to give you an idea, like today's producing wells, one well is producing the equivalent of 30 million scf a day, with more than 3,000 barrels of liquid. We're talking about 9,000 BOE or so for the combined company.
Correct. Yeah.
Now, if we Once we drill that third well with additional certainty and we start to blow down the well towards the market, getting the net back higher than net back on oil, in my view, or similar, depending on the oil prices. This is a real cash generator for next year and beyond, as soon as the pipeline is ready. That's why even if that additional prospect doesn't pan out, we have a very good cash generation. Our plan is, we're spending, like, $6 million a year on water handling and treatment. One of these wells could become a water injector if they don't produce and cut significantly that OpEx spend.
As an asset for both Frontera and Parex, the new Parex, I think this will be one of our big cash cows coming forward.
Yeah.
With almost no decline.
Yeah.
Perfect, thank you.
It will be flat for a number of years.
Just to clarify, in terms of startup of that gas blowdown, it's probably more second half 2027 thing rather than first half?
Correct.
Correct.
Thank you.
Do you know, firstly, invite people?
There are no further questions at this time. I will now pass the conference back to Mike Kruchten, Senior Vice President, Capital Markets and Corporate Planning.
Thank you very much for joining the call today. If you have further questions, you can always reach out at Parex, and we'll be happy to help you. Have a great day.
This concludes today's call. Thank you for attending. You may now disconnect.