Ladies and gentlemen, thank you for joining the PetroTal Q2 2025 Results Webcast. Your presenters today will be Manolo Zúñiga, President and Chief Executive Officer, and Camilo McAllister, Chief Financial Officer. Questions can be submitted via the platform during the webcast, and the presenters will do their best to answer as many as possible within the time allotted. I will now hand over to Manolo and Camilo to commence with the presentation. Please take it away.
Thank you, Jimmy, and good morning, everyone, and thank you for joining PetroTal's Q2 2025 results webcast. My name is Manolo Zúñiga, and I am the President and CEO of PetroTal, and I'm joined today by Camilo McAllister, our Executive Vice President and Chief Financial Officer. Today, we will be walking through the financial and operational results that we published overnight. If you access this webcast via the link included in today's press release, you should be seeing our slide presentation on your screen. Before we get started, I'd like to point out that there are disclaimers located at the end of the main presentation and also on our website. We encourage you to review those after the prepared remarks. Turning to slide two, you will see our usual snapshot of key financial and operational highlights.
On the left side of the slide, we have summarized some key production data for both 2024 and 2025. As we mentioned in our press release this morning, we have revised our production guidance down slightly to a range of 20,000- 21,000 bbl of oil per day. We had to revise our production guidance lower for a few reasons, including failures to the electric submersible pumps in four of our wells at Bretaña. Thankfully, our operations team responded quickly to replace the pumps by mid-July, but we probably lost around 1,000 bbl per day off our annual average as a result of the pump failures. We have also experienced delays in the commissioning of our new drilling rig, which has pushed back the start of our drilling program at Block 131.
We're exploring several options to try and resume drilling by the end of the year, but any production additions from these wells will now contribute to our 2026 numbers. When we released guidance back in January, we had assumed Block 131 would add between 2,000 and 4,000 bbl per day by the end of 2025. That is another 500- 1,000 bbl per day that we lost off our annual average. The right-hand side of this slide also shows our updated EBITDA and CapEx guidance. We have revised 2025 EBITDA guidance down from around $245 million to a range of $170 million- $185 million. I would like to point out that at least $50 million of that reduction is due to lower oil prices, with the balance due to lower sales volumes.
Our capital expenditure guidance is also down substantially from $140 million previously to a range of $80 million- $100 million. The delay is assuming our drilling program accounts for around $35 million- $40 million of that cut, but our team has also responded quickly to lower oil prices in the second quarter by deferring a number of projects that were included in our original budget. Here at PetroTal, we're very focused on matching our spending with our cash flow net of dividends, and I think our updated guidance today reflects that. You have hopefully worked out from our press release that our free cash flow is essentially unchanged compared to our original guidance that we released back in January. On slide 3, we have updated our production graph to show PetroTal's 2025 production through the month of July.
We have now produced just over 4.5 million bbl this year, which is 17% ahead of the same time last year. Unfortunately, this is a little behind our production guidance, but we're still pleased with our operational results so far this year. Overall, the Bretaña field continues to perform well despite a lack of drilling activity. We discussed this a little bit in our press release this morning, but river levels in the Amazon Basin are tracking higher than normal heading into dry season. You may recall that last year, our exports were severely restricted due to lower river levels. I am keeping my fingers crossed, but if river levels remain healthy, we should be able to maintain close to full exports throughout the dry season, which is currently settling in.
Last year, Bretaña production averaged just 12,750 bbl per day in August and September due to export restrictions, but we're currently producing around 8,500 bbl per day at Bretaña. If we keep that going, our third-quarter numbers should be very good. Turning to slide 4, I just wanted to discuss the main projects that are still contributing to our capital program in 2025. Even though we have not been drilling throughout the middle of the year, we have still been very active in the field with a few major projects that will set us up for 2026 and beyond. First of all, we're looking forward to beginning our work order program at Block 131 as soon as next week, as this will be some of the first real technical work that we have been able to do at the Los Angeles field.
The goal of the work order program is to reperforate producing zones in three of the existing wells, as well as opening new sands never opened before, and install new pumps that will ideally boost production and give us valuable insights into the durability of the reservoir. This information will help us fine-tune our future drilling program once a rig is available. For our erosion control, we are moving ahead with preparation work for the first breakwater. The main barge has arrived at Bretaña, where we expect to begin piling activities within the next two weeks. As we mentioned in our press release this morning, our staging yard was flooded for about six weeks in March and April, so we're working to make up some lost time in the second half of the year.
Also, at Bretaña, our major field infrastructure project for the remainder of the year and into Q1 2026 will be the completion of the L2 platform extension. We are still waiting for a key MEA or modified EIA approval before we can fully commence work on this project, but this platform will accommodate the surface infrastructure for our next 10 development wells. Although we haven't finalized our 2026 capital program yet, this project will need to be completed before we can start drilling again at Bretaña. You may recall that a big reason we had planned to drill Block 131 first this year was to give us time to complete the L2 platform at Bretaña. I will now turn the call over to Camilo to provide commentary on our financial results.
Thank you, Manolo, and I will start by discussing some key highlights from our second quarter financials, which hopefully you have had the time to review this morning. The table on slide five summarizes key financial information and the operational data for the second quarter. Our production volumes were down 10% compared to the prior quarter, but we are still tracking about 15% higher than the same period last year. As you're probably well aware, Brent oil prices have dipped sharply lower in the second quarter. These were the lowest realized prices that PetroTal has received since the first half of 2021, when we were still producing less than 10,000 bbl of oil per day.
Fortunately, our business is in a much better shape than it was back then, and we still managed to report an adjusted EBITDA net back of more than $23 per 1 bbl and free cash flow of more than $27 million. As you can also see in the bottom two rows of this table, PetroTal remains well capitalized to manage a period of lower oil prices. We had $142 million of cash on our balance sheet on June 30th, which includes approximately $32 million held in escrow for the erosion control loan that we announced back in May. Our available cash reserves are essentially unchanged relative to the prior quarter and up around $15 million compared to the same period last year. On slide 6, we have prepared a waterfall chart to give you a sense of the key factors that are contributing to our reduction in EBITDA guidance this year.
I won't spend too long on this chart, but the main point is that most of the drop in our EBITDA guidance comes down to oil prices. We had originally built the forecast around a $75 per 1 bbl assumption, but prices come in lower and the outlook has also softened. That shift has a meaningful impact on our numbers. I would like to point out that our expectations for lower sales volumes have certainly contributed to the reduction in guidance as well. However, the magnitude of the impact is much smaller than it is for oil pricing. In fact, we have nearly been able to offset the impact of lower sales volumes through improvements to our cost structure and some minor derivative income. Overall, we have executed well. Even if oil prices haven't quite played along, despite that headwind, we remain focused and optimistic about what is ahead.
Wrapping up with slide number seven, I would just like to end with a high-level discussion of our capital allocation philosophy. There is no doubt that some of the decisions we have made to defer and cancel capital projects in 2025 will impact our plans for 2026, but that is a trade-off we have to make as oil prices move lower. Here at PetroTal, we are proud of our track record of profitable growth. If you have followed our story for a while, you probably understand this has been a challenging project at times, but Bretaña is a world-class asset, and we have delivered excellent results for our investors over the past years. As the company and this asset continue to mature, we remain fully committed to delivering returns that meet or exceed our cost of capital, ensuring our investments create lasting value for our shareholders.
For most of the past five years, oil prices have traded above $80 per 1 bbl, and our investment decisions have been relatively straightforward. The forward strip prices are trading below $70 per 1 bbl, especially next year, and we have to be more disciplined with our capital. You may have also noticed that our most recent reserve report, which is publicly available on our website, assumes we will invest over $350 million on our existing reserve base over the next two years. I don't think I would be speaking out of school if I told you we are extremely unlikely to spend that much money if oil prices continue to trade below $70 per 1 bbl. With that in mind, our team is actively conducting a comprehensive review of our future development program.
While horizontal wells remain a core part of our strategy, we are also exploring several less visible but high-impact opportunities to enhance returns, such as facility optimizations and well-design improvements. Our goal is to present the board with a refreshed field development plan by year-end, ideally with input from a newly appointed full-time Chief Operating Officer. That wraps up my prepared remarks, and I would like to turn the call over to Jimmy.
Thank you. First question, can you offer any general comments on the direction higher or lower of CapEx spending in 2026 relative to 2025?
Thank you for that question. I think at this stage, and given that I just mentioned that we are in the process of working on that field development plan, it's early. We are going through those exercises right now, and of course, the pace of investment will depend on a number of factors, including oil prices, also how quickly we can update our water handling facilities at Bretaña, the results at Block 131, and the new exciting opportunities or investments that we're looking at on well designs and water handling. At this stage, I would not give an indication of 2026 CapEx.
What has been the reason for the delay with the new drill rig?
It's been mostly the supply chain to get some key parts for the rig while we do the commissioning. We're working on that, and we expect to have it in Peru at the operations probably at the beginning of 2026, or hopefully sooner.
What gives you confidence the rig will be in country to start drilling in early 2026? Could there possibly be further delays?
We have actually improved the team that is managing this project, and they give the confidence that we'll be able to deliver as we expect now. We have the right team now working on this.
In today's press release, you mentioned regulatory considerations. Could you please clarify what specific regulations or processes you're referring to?
You know, the key one is the modified EIA, known as the MEA, and the reason for that is that we are, to be able to continue developing this field, we have had to expand the camp, and that required that study, and it's been taking longer than expected. Although, as we know, in Peru, permits take a long time. We'll be back in Lima next week to continue pushing that. The expectation now is for this permit to come in in August, maybe September, and you can get a sense then that everything is pushed. Given our current oil prices, you know, it's not really affecting us. It's just delaying things.
This question pertains to river levels and sales capacity. Is there a minimum river level that would still enable full evacuation capacity in the second half of the year?
Some of you keep track of, in the website, how the river levels are going. It has changed quite a bit from last year. That was one of the, I think, worst historical dry seasons. Now, the levels are helping quite a bit, as mentioned in the notes. We're expecting to be able to manage close to full capacity. There's always going to be a need to lower some, but as mentioned, we are ahead from last year.
Manolo, maybe I might add, the issue with the river also has to do with how full you fill the barges. I think the constraint here is that we have enough barges to fill them with less volume, but still deliver total production. That helps us.
Indeed. You know, the fleet that our trading company has increased quite a bit. We have a large volume to be able to move things, so even if they fill them up at 80%, we're okay.
What were the main reasons that PetroTal decided not to bid for lots 64 and 192?
You know, for us to be able to deploy fresh capital in other projects with so many opportunities that we have in our own, I think it was not smart at the moment to try to jump in those projects. There are, you know, social, environmental issues. Although some people in the government themselves, you know, were hoping that we were getting involved in those, we decided that it was not good for our investors for us to get and risk money there yet. We continue to look at opportunities even in Ecuador. Again, it took us a long time to do our first purchase with the Los Angeles field in Block 131, which we're now finally going to start doing the work orders and eventual drilling. We need to strike at the right time. You know, that's key. We also talk about capital discipline. That's a key one on the M&A side.
Do you expect changes in government policies towards the oil industry after the next presidential elections in Peru in April of next year? If so, what kind of changes would benefit PetroTal in particular?
In politics, as we all know, it's difficult to predict things. I believe there are like 40 candidates for next year's elections. If anyone, unless it's extreme left, things should, I hope, improve. We've been working to change some of the key regulations to fast-track permits, and we see how our MEA is again delayed. I'm expecting that whoever comes in will be supportive of that, especially given the positive impact that we have caused in the Punahou District and the Obrado region with the benefit of all of the cannon and the 2.5% social trust fund. Now they see that a well-run oil project does benefit everyone, and that's going to help to make those changes.
Thank you. Just a reminder, if you would like to ask a question, please submit it via the platform. On to our next question. Has there been any progress in finding a partner apart from the 20% interest Gran Tierra already has for Lot 107? If the first well is to be drilled in the second half of 2026, what is the latest time that PetroTal needs to have a partner in place, or can it go alone?
You know, we have a couple of companies reviewing the information right now, and we're very diligent on trying to get a partner to come in. We can actually drill the well later in 2026, and usually, PERUPETRO will give you an extension if they see that you are now getting very close to drill. For that, you need to show that you are now getting mobilizing equipment and so on. We still have time, and I'm glad that we have not one but two companies looking at the information.
Has the royalty rate for Block 131 been officially approved and changed?
Not yet. It's in process. Approvals usually take time as they have to be approved not only by PERUPETRO and the Ministry of Energy and Mines, but also the Finance Ministry, and eventually it goes to the country president to sign the supreme decree authorizing PERUPETRO to modify it. We're still halfway in the process, but I'm expecting that it should be done before year-end. The royalty that is now at 23.8% should drop, I think, just below 10%. It's quite an impact. It will improve the net backs in Los Angeles, which of course is needed to be able to deploy capital drilling wells.
Including water handling, cellars, et cetera, what is the current maintenance CapEx per year to keep production flat?
That's a good question. It's obviously a lot lower than our guidance for this year. A lot of it depends on integrity investments that we have to make on repairs from when the operations began. You have to go back in time and remember that we started as an early production facility, and there are things that we're having to revisit and reinvest to make sure they are more permanent and long-term. That is part of that, you know, initial, let's call it $50 million of maintenance, and that would be an answer to that question.
Yeah, and this year is a good example of how noble the Bretaña field is. We've been, we have not had a new well since early in the year, and we were able to maintain production. That helps. That gives us the needed pause to really look into the future CapEx to try to continue developing the field very carefully. The idea would be to be below $100 million.
Manolo, Camilo, thank you for your time. There are no further questions at this point, so I'll hand back to you for closing remarks.
I want to thank all of the listeners and investors that have been supporting the company. We're working very hard to make sure that next time we have more exciting news for all of you. All the best. Thank you.
Thank you.