Hello, ladies and gentlemen. Thank you for joining the PetroTal Q3 2024 results webcast. Your host today will be Manolo Zúñiga, President and CEO, and Camilo McAllister, Executive Vice President and CFO of PetroTal. At the end of the presentation, there will be a question and answer session, so please submit any queries you might have via the platform, and your host will try to answer as many of the questions as possible within the time allotted. I will now hand over to Manolo and Camilo for the presentation. Please take it away.
Thank you, Jimmy, and good morning, everyone. And thank you for joining PetroTal's third quarter 2024 webcast, where we are going to provide a brief summary of the financial and operational results that we released this morning before market open. My name is Manolo Zúñiga, and I am the President and CEO of PetroTal. I am joined today by Camilo McAllister, our Executive VP and Chief Financial Officer. If you have clicked on the link in the last evening's press release, you should hopefully see our slide presentation on your screen. But before I begin, I should mention that there are some disclaimers towards the end of the main presentation on our website, which I encourage you to read at your own leisure. Turning to slide two, we have summarized some key statistics of PetroTal.
Our company is listed on London's AIM Market, the Toronto Stock Exchange, and the US OTC, and this morning our market cap is approximately $430 million. PetroTal's flagship asset is a 100% working interest in the Bretaña oil field, which we have expanded from first production in mid-2018 to a recent peak of more than 20,000 bopd during the last month, the past month. Our production averaged just over 15,200 bopd in Q3 2024, which was down 3,000 bpd compared to the prior quarter, but up more than 4,000 bpd compared to the same period last year, and ahead of our guidance of 13,000 bopd .
Year to date, PetroTal has produced an average of 17,200 bopd , which puts us above the mid-range of the annual guidance we issued earlier this year. I would also like to point out that PetroTal has already returned more than $53 million to shareholders this year through dividends and buybacks. We're pleased to announce this morning that we have declared our regular quarterly base dividend of $0.015 per share. This is the seventh straight quarter that PetroTal has paid this dividend, and as Camilo will explain, it remains a key priority of our return strategy heading into 2025. We would now like to go through our Q3 2024 results while providing some updates on our recent drilling and production results, transportation and marketing initiatives, as well as financial numbers.
Please turn to slide three, where I just wanted to spend some time talking about river levels. If you have followed our story for a while, you know that the third quarter is typically the most challenging period of the year for PetroTal. We export 100% of our crude oil production on barges down the Ucayali River in what locally is known as the Puinahua Channel, which flows right in front of the Bretaña field. As a result, our sales volume tends to rise and fall with river levels at this time of the year. You may have seen in the news that 2024 brought a severe drought all across the Amazon River basin. The Department of Loreto, where our Bretaña field is located in northeast Peru, had to declare a state of emergency because key necessities such as food and fuel had difficulty reaching the capital of Iquitos.
With that in mind, our operational performance was truly remarkable this quarter. I am proud of our team for managing through such challenging conditions as we were able to produce almost 40% more than during last year's third quarter. As you can see in the green circle, river levels have rebounded strongly in the past two weeks, and our oil production has returned to a capacity of just over 21,000 bopd . We're optimistic that the worst is behind us and hope river conditions will be much better in 2025. Turning to slide four, we have updated our year-to-date production performance. As you can see with the green line, our cumulative production has been tracking ahead of last year's pace for the entire year.
As of the end of October, our cumulative production is now 23% ahead of the same time last year, and we're poised to finish the year strong now that production has returned to capacity at Bretaña. On slide five, we have updated recent results from our ongoing drilling campaign at Bretaña. PetroTal completed one production well in Q3 2024, which you can see in Well 28 on the left-hand side of the chart. This well only came on stream in the last two days of September, and we had to restrict it through the month of October as we managed field production in response to low river levels. However, now that Bretaña is back producing at capacity, we have opened the well back up and it's doing great.
Over the past two weeks, Well 28 has been producing an average of just over 5,000 bpd with very little water. If oil prices hold up, this well should pay out sometime in Q1 2025. Well 19H, which you can see just above, has already paid back one and a half times our investment, and that well only came on stream in June. We just finished drilling Well 21H last week and should bring it on production within the next few days. After that, we will drill Wells 22H and 23H before we pause the drilling program at Bretaña. You probably noticed in our press release that we have acquired a new drilling rig, which we will bring into Peru in Q1 2025. We're going to release our current drilling rig after it finishes Well 23H.
This will allow us to ramp up the erosion control project at Bretaña, where we will need the camp space to accommodate the staff associated with that project. We plan to provide full details of our 2025 capital program in mid-January, similar to last year. Moving to slide six, I just wanted to talk a little bit about PetroTal's marketing and transportation strategy, which is something we're constantly working to improve. During the third quarter, approximately 89% of our crude oil was sold through the Brazil export route, which ends at the city of Manaus on this map. We also sold about 11% of our oil to the Petroperú refinery at Iquitos, which is labeled number two in the center of this map.
We're working hard to open a new export route for our crude oil in 2025, including Yurimaguas and Conchán, which are labeled number six and seven on this map. Depending on oil prices and our expected cost structure, we may incorporate these options in our 2025 marketing strategy. Lastly, I want to mention that we continue to have discussions with Petroperú about facilitating crude oil sales through the ONP pipeline, which is labeled number one on this map. You have been following the news lately. You have probably seen that there are a lot of changes underway at Petroperú. We think this is an ideal time to find a solution that would benefit all stakeholders in the pipeline.
Obviously, we're one of those stakeholders, considering there are almost 1.9 MMbbl of Bretaña oil that still need to be sold on this route to be able to settle the corresponding final oil price derivative. But if we can be part of that permanent solution that would keep the pipeline flowing indefinitely, we will be happy to continue working with Petroperú. Of course, we will keep the market updated if the situation changes. I will now turn the call over to our CFO, Camilo McAllister, who will provide a brief update on our Q3 2024 financial results.
Thank you, Manolo, and thank you to everyone who has turned into our webcast today. I would like to start off by highlighting some of the key items from the press release and financial statements that were issued this morning with the visual support from slide seven. Manolo has already talked about our production volumes, but it's worth reiterating that our output increased 39% compared to the same period last year, averaging just over 15,000 bpd in the third quarter. Unfortunately, we have been producing these volumes into a declining oil price. The Brent benchmark averaged $77 and $74 per barrel in Q3 2024. This is a decrease of $6-$7 compared to the prior periods we are showing here. The reduction in oil prices has flowed through to our net operating income, which is down $5-$7 per barrel relative to prior periods.
It's worth pointing out that our unit costs are broadly flat relative to the same period last year, which is probably a better comparable than Q2 2024, given the fixed costs we bear when the river levels are low, as they were in Q3. Our third quarter EBITDA came in at $47.5 million, which is down 32% compared to Q2 2024, but it's up 20% compared to the same period last year. Year to date, in 2024, PetroTal has generated just over $188 million in EBITDA, putting the company in good shape to achieve our annual target of $200-$240. Now, you may recall that our 2024 guidance was originally based on Brent oil price assumption of $77 per barrel, and considering that we have averaged $78 per barrel year to date, we did not see any need to adjust our EBITDA guidance at this time.
Our net income amounted to $7.2 million in the second quarter. This is a decrease of $28 million compared to the prior quarter. The main reason for the decline in our net income was $17.5 million non-cash charge from an unrealized commodity derivative loss. This derivative loss is related to our historical oil sales agreement with Petroperú, which still holds 1.9 MM bbl of crude for sale in its pipelines and storage tanks. It's important to note that this unrealized non-cash loss contingent upon the eventual sale of oil volumes at the Bayovar terminal, and if this sale occurred, no payment is required. I would also like to point out that if oil prices rise, the projected loss could decrease, potentially benefiting our financial position.
Funds flow decreased to $6.5 million in Q3 2024, down from $36.3 million last quarter due to the combined impact of lower EBITDA and slightly higher CapEx. However, PetroTal has generated $84.5 million in free funds flow over the first nine months of 2024. This is in line with the same period last year and comfortably ahead of our guidance for annual after-tax free funds flow of $55 million. Our total cash balance increased to $133 million on September 30th, an increase of $37 million over the prior quarter, as PetroTal was able to accelerate the collection of some receivables into the third quarter. However, you may have also noticed that despite the substantial increase in our cash position, our net surplus has decreased by just over $40 million at the end of Q3 2024.
There are several drivers behind the reduction in our net surplus, including the change in our derivative liability with Petroperú that I discussed earlier. Our accounts payable have also been building as a result of our ongoing capital program, and we have been accruing tax liabilities that will become payable in 2025. With that in mind, I would like to take this opportunity to point out that our cash balance likely reached a medium-term high-water mark at the end of Q3. At current strip oil prices, I would expect PetroTal's cash balance to decline over the next few quarters as existing payables become due, as our spending ramps up on the erosion control project and Bretaña, and as accrued cash taxes become payable. We plan to provide additional details on our 2025 outlook in January. Notwithstanding these funding obligations, I would like to reiterate that PetroTal's liquidity remains strong.
In addition to a healthy cash position, PetroTal has access to more than $77 million in short-term credit facilities, which are completely undrawn today. Lastly, I would like to comment on our new drilling rig, which we mentioned in the press release this morning. The purchase of this drilling rig was financed through a lease agreement with a Peruvian bank with a term of 36 months and a payment of about $500,000 per month. We believe the new modern drilling rig will provide several key benefits for PetroTal, including savings on the day rate and standby fees, along with more flexibility to manage the pace of our drilling program. We expect to bear just over $3 million of one-time costs associated with the commissioning and transportation of the rig in the first half of 2025. Slide eight summarizes our dividend policy and amounts paid since inception.
As we announced this morning, PetroTal has declared a regular quarterly dividend of $0.25 per share. It's important to remember that since the dividend was initiated in the first quarter of 2023, we have returned a total of $110 million to shareholders, which amounts to $0.12 per share. We maintain optionality to issue top-up dividends in quarters for which our 12-month liquidity forecast exceeds internal targets. The dividend remains a key priority for PetroTal, and we look forward to paying a regular dividend for many quarters to come. PetroTal also maintains the option to repurchase shares under our ongoing normal course issuer bid. Although the pace of our share repurchases has moderated somewhat in Q3 2024, we have still repurchased and canceled nearly 18 million shares since the end of 2022, from a total investment of just over $8 million.
Our return of capital program currently prioritizes dividend sustainability while balancing the development capital requirements of our existing asset base, and with that in mind, we will continue to monitor the buyback levels. I would like to wrap up my comments, and PetroTal would like to thank you for your continuing investor support. I will now move on to questions.
Thank you, Camilo. I will now commence with the Q&A portion of the webcast. With the recent and planned increases in production due to expansion of extraction sites and new well developments, what measures are being implemented to ensure that this growth is matched by a corresponding increase in transportation and sales capacity to reach customers efficiently?
As the investors know, we've been looking at different routes, but for us, as PetroTal, and I have mentioned this to investors in the past, it's key that we go back to the ONP. My goal is that we should have about half of our production going east and half going west. That way, we have full flexibility of anything happen to each one of the routes. We can go and deliver oil to either one. ONP is key. We are working to get Petroperú fully engaged, and not only Petroperú, but even the finance ministry to bring a solution, as what we want to have is the ability to deliver oil at Pump Station Number One, get paid, and not having the risk of assuming a derivative on future oil prices. We think that we have a way of coming up with that.
The recent naming of the new management team of Petroperú gives me confidence that we will be able to engage them. I know the new GM well, and I'm hoping that we can work something out in the near future. But ONP is key for us.
Given the large and growing cash pile and the depressed share price, why isn't the company conducting tender offers to buy back large chunks of shares?
Good question and one that we always review every quarter. It's something that some of our peers in LATAM have been implementing recently, but remember, we always have to think about balancing the return of capital with our various funding obligations. And we still believe that our drilling program drives superior returns when compared to share buybacks. Also, we need to be cautious on the oil price outlooks, and especially in 2025 when we have the erosion control project and for the first time significant cash tax payments that we will be making. So we will continue to evaluate, but this is something that we have not bumped up recently.
Could you explain the benefits and savings that come with the new drilling rig? Given the leasing cost is only $500,000, where would that take the cost of drilling future wells under the new arrangement? I assume there would be some important savings compared to the current situation.
Indeed. We're going to see savings on the day rates and the standbys, improved uptime. The rig we've been using for the past few years was an old rig. Sometimes we would have issues with that rig, so it was time to bring a modern rig, and a modern rig that uses less fuel has less emissions, so for all of that, but more importantly for us is the increased flexibility over the drilling program. As you know and you've seen the structure maps of Bretaña, we continue to rig extended wells to be able to extract all of the growing reserves that we are finding in Bretaña alone, and then, of course, now we have a second field that we intend to go back, and once we sign the contract, maybe do some drilling as well.
Are there any updates on the CEPSA acquisition closing? What are plans for further drilling in Block 131 in 2025?
You know, I was just mentioning about the second field. That's the Los Angeles Field in Block 131 that we recently acquired from CEPSA. We're expecting in the release we mentioned closing before year-end, we're actually expecting to do that before the end of November. We're working very hard to come up with a good plan. Ideally, the government will support our efforts and lower the royalties that currently exist in Block 131. That'd be fantastic. I think they'll be willing to do that. As we will, typical of any acquisition, go in and rework some of the wells and see the possibility of doing what we've been doing in Bretaña.
OpEx appears to have been high this quarter because of the barging. Excluding the erosion work, would you expect OpEx in future periods to come back to previous levels? And with regards to next year, I'm aware that the budget has not been released, but where would we see CapEx directionally and compared to 2024?
Good. Thanks for that question. I think to begin, OpEx in the third quarter was. It kind of showed mixed changes. We had an increase of $800,000, and it was primarily due to higher expenses related to well maintenance on electrical submersible pumps, and as we were able to increase the volumes versus our guidance, that kind of raised the expectations that we had. Transportation costs actually decreased, and they were lower due to smaller delivery and consumption, and we didn't have to do a lot of the barging in our route to Brazil. That helped a lot. Specifically about erosion control, you probably saw that in the third quarter, we had a very little contribution to that in our numbers. In total, we had pre-purchased some steel for $7.3 million, and this is part of the OpEx.
Currently sitting in inventory, but as we move that out of the warehouses to begin the construction, it will be OpEx. In CapEx, there was only like $200,000. For next year, we're still working on the budget, but as you all know, erosion project will be undertaken in a year and a half, and it's going to be a mix between OpEx and CapEx. When we exclude that and we put out our new guidance on production, we should expect to see OpEx, the variable costs obviously go up as we need more energy and fluids handling capacity. Overall, they should be on a per barrel basis, similar, but we'll only know that when we finish the budget.
Thank you. The company is still not in a tax-paying position, but will become a taxpayer in 2025. How is the likely tax payable in 2025 affected by the additional spend on erosion control?
Well, they are different, of course. And the erosion control, like I just said, it's an 18-month project. It will be a significant use of our cash next year, north of $35 million. And our cash tax that will be payable will be in the order of about $25 million. So those two items alone represent a lot of our uses for next year.
And something to keep in mind, we're setting up five breakwaters, three of them on the community side. And as such, from an accounting point of view, they need to be considered OpEx. And that's why the OpEx looks like it's higher. But because it's OpEx, we can deduct from taxes, and that will help from that point of view.
Exactly.
Is PetroTal considering bidding on any of the lots offered by Petroperú?
You know, there's a number of blocks that Petroperú and Perupetro will be bidding out. There's some in Talara, although we're named PetroTal because I was born and grew up in Talara. And it's just completely different oil play. And we are now more used to working in the prolific jungle fields. Petroperú owns Block 64, for example, that is a discovery made by Oxy more than 10 years ago that has two wells that never came online, 44 API gravity oil. That'll be one that we can actually do what we have done so well in Bretaña. Our goal is to be able to replicate what we have done in Bretaña from a technical, financial, and social environmental point of view.
I think we have proven, as you see in this slide right now in front of you on the Q&A, we mentioned that we are energy that generates well-being for everyone. That's key. People are taking notice of that, especially the communities from Block 64 that sometimes call me to make sure that we are the ones selected by Petroperú to venture with it. We'll see.
This is just a reminder. If you'd like to ask a question, please submit it via the platform. Next question. As a regular dividend player with an increasingly institutional shareholder base, how do you think about increasing the scale and lowering the portfolio risk to achieve a lower risk profile? Is M&A a quicker route to achieve this?
We have actually acquired that small Los Angeles Field in part to be able to diversify inside Peru. We are always looking to acquire assets at a good value. The Los Angeles Field, we bought it for $5 million. By the time we officially take over, hopefully at the end of November, it's been paid out already. We're going to try to extract a lot of oil very economically. Bretaña, we continue to work in Bretaña. Now we are targeting the top Vivian Sand 1 that can also add a lot of value to us. We look for opportunities like that. We're always very careful.
So the idea of M&A, yes, it's always attractive, but we need to be very smart how we manage this because, as you mentioned in your question, it's the idea to lower the risk for all of the shareholders and make money.
Would PetroTal consider drilling exploration wells in your blocks without farming down your working interest?
In Block 107, it's more of a true wildcat drilling. That ideally, we should bring a partner. Interestingly, as we have explained in our presentations, the prior operator left us sufficient NOLs that even drilling the well, we could enjoy the benefit of those NOLs, and actually the well will be coming for free. That's actually a beauty. I like doing business like that. In Block 95, we always think about the idea of a string of pearls that we have with the idea of maybe finding another one or two Bretaña. That one will be something that we could handle ourselves in the future. Right now, we are so focused on making sure that we protect our camp with erosion control. We don't intend to drill any exploration wells.
It's good to see companies always reaching out to us because they would like to be part of that string of pearls as Bretaña that keeps growing since the time we took it over seven years ago.
Manolo, Camilo, thank you. There are no further questions at this time, so I'll now hand back to you for closing remarks.
As always, I want to appreciate and thank all of the investors that follow the story that have continued investing with us. I'm very happy that we continue committing to return of capital to investors. Dividends for us is extremely important, and we've been managing the company and setting up all of our future plans based on that criteria that truly this is to benefit everyone, especially our shareholders. Thank you so much.
Thanks, everyone.