Hello. Thank you for joining PetroTal's Q4 2025 webcast. Your presenters today are Manolo Zúñiga, President and CEO, and Camilo McAllister, CFO. As usual, questions can be submitted via the platform during the webcast, and we'll do our best to answer them in the time we have available. I'll now hand over to Manolo. Many thanks.
Thank you, Mark, and good morning, everyone, and thank you for joining PetroTal's year-end 2025 webcast, where we're going to discuss the financial and operational results we released overnight. My name is Manolo Zúñiga, and I am the President and CEO of PetroTal. I am joined today by Camilo McAllister, our Executive Vice President and Chief Financial Officer. If you have clicked on the link in this morning's press release, you should hopefully see our slide presentation on your screen. 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 after our prepared comments. On slide two, we have our usual summary of our key financial and operational metrics. In the left-hand column, we have highlighted key production data from 2025 and 2026.
In 2025, PetroTal delivered average production of approximately 19,500 barrels of oil per day, representing a 9% increase over 2024. However, production declined throughout the year with Q4 2025 production averaging approximately 15,300 barrels per day, reflecting operational constraints at Bretaña. As we have previously disclosed, these constraints are primarily related to water handling and reinjection capacity, which remains the key bottleneck to restoring the more than 5,000 barrels per day of shut-in oil production. Looking at 2026, we're off to a stable start with year-to-date production averaging approximately 15,000 barrels per day, including a small contribution from the Los Angeles field.
From a financial perspective, PetroTal generated Adjusted EBITDA of $166 million in 2025, and free funds flow of approximately $90 million, demonstrating the resilience of the business despite lower oil prices and reduced production in the fourth quarter. Importantly, we ended the year with a large available cash position of $112 million, which provides the flexibility required to execute our operational priorities in 2026. On slide three, we have a chart summarizing our reserve growth since the company began operations in 2018. While 2025 was a transition year operationally, I am pleased to report that our reserve volumes were largely unchanged. We maintained 60 million barrels of proven reserves and 110 million barrels of 2P reserves after having produced just over 30 million barrels from the Bretaña field to date.
Our development strategy continues to be supported by a robust technical model and a large original oil in place, which underpins our confidence in the long-term growth potential of the field. As we move into 2026, our focus is on restoring production momentum by resuming development drilling, which we believe will unlock further reserve upgrades over time. In our press release this morning, we announced that our board has approved the award of a contract to a third-party drilling contractor, a key step in resuming our development drilling program later this year. The Peruvian regulators have also approved our modified environmental impact assessment for the Bretaña field, which give us permission to drill up to 23 more development wells at the field.
As shown in slide four, based on the 2P forecast shown in dark blue, this will allow us to maintain a 20,000-25,000 barrels of oil per day plateau for several years, starting about a year from now. Water handling will of course play a key role in our ability to do so, which is something our new Chief Operating Officer is already working on. On slide five, I'd like to take a moment to provide an update on our erosion control project, which remains a critical component of protecting the long-term integrity of the Bretaña field. As many of you know, this is a significant infrastructure investment for the company, designed to safeguard our riverbank and ensure the long-term sustainability of our operations.
In the past week, we have made a decision to terminate our contract with the project's construction consortium due to non-compliance with contractual and execution requirements. Our focus now is on moving quickly and decisively to reestablish execution momentum. We have initiated a procurement process and expect to select a replacement contractor by June 1st. Once the new contractor is selected, we will be able to provide a revised project timeline and cost estimate. I would like to emphasize that this is a manageable execution issue, not a change to the strategic importance of the project. Strengthening the riverbank remains essential to the long-term development of Bretaña, and we are fully committed to completing this work to a high standard. With that, I will now hand the call over to Camilo to discuss our financial results.
Thank you, Manolo. Moving to slide number five, we have summarized PetroTal's financial performance for 2025. As Manolo mentioned, our average production for the year was 19,473 barrels per day, while the fourth quarter production averaged 15,258 barrels per day.
The company generated an Adjusted EBITDA of $166 million in 2025, and that compares to $237 million in 2024. Primarily, it's reflecting the lower realized oil prices and reduced production in the fourth quarter. Our net income for the year was $44 million, and that compares to $111 million in 2024. Now, despite these headwinds, PetroTal generated free funds flow of $90 million, which represents an improvement over 2024. This was all supported by a significant reduction in our capital expenditures, which totaled approximately $75 million in 2025, compared to over $170 million in 2024. In the fourth quarter specifically, Adjusted EBITDA was $18.5 million, reflecting the impact of lower production and oil prices during the period.
Finally, we ended the year with $139 million of total cash, which includes approximately $112 million of unrestricted cash, which provides a strong liquidity position heading into 2026. Wrapping up with slide seven, I want to briefly touch on our cash flow outlook at prevailing prices. As we have discussed in the past, PetroTal maintains a high degree of operating leverage relative to oil price fluctuations. While the move from our $60 per barrel budget guidance to the current $100 per barrel environment is a significant tailwind, it is important to remember our realized pricing at Bretaña is linked to ICE Brent month three. This means there's a natural delay before these triple-digit spot prices fully flow through our top line.
However, as these higher forward prices begin to settle into the three-month look ahead, the impact on our cash flow profile could be positive compared to the start of the year. While our focus is to remain disciplined and realize that the market volatility can shift quickly, the current environment could boost our liquidity. Accounting for the ICE Brent month three pricing, we expect that once the current $100 Brent environment is reflected in our sales cycle, our monthly cash flow could average approximately $17 million. This provides us with a robust cushion to execute our strategic priorities, even if prices normalize later in the year. Keep in mind that our production is expected to decline throughout the year from our current levels.
At our annual average production guidance of approximately 12,000 barrels of oil per day, you know, we would expect to generate average monthly cash flows of approximately $12 million if we were to assume $100 Brent oil pricing. However, I would like to stress that these numbers are for illustrative purposes only. No two months are exactly alike. I would also like to add that we're not making any changes to our guidance at this point. Commodity prices are very volatile at the moment, and it should go without saying that our revenue and cash flow can be expected to fluctuate with the price of oil.
Our priority in 2026 is to execute our cost efficiencies that we provided guidance on and our capital program of $80 million-$90 million, which will result in reinvesting in the business with a focus on what Manolo has already mentioned, which is expanding our water handling capacity at Bretaña, advancing the erosion control project, and resuming the development drilling by October 2026. Importantly, PetroTal remains in a strong financial position with no near-term capital commitments and a robust cash balance, allowing us to execute this plan while managing commodity price volatility. Over time, as production growth resumes and cash flow improves, we expect to revisit our return of capital framework. With that, I would like to now hand the call back to Mark, and please let us know if you have any questions?
Thank you very much, Camilo. Okay, first question: Are there any opportunities to increase water handling in 2026 in advance of the October drilling program?
Indeed, we are actually working to try to expedite the increase in the water handling capacity from the current 170,000 barrels per day to hopefully 240,000 by year-end. That'll be fantastic. Just to give you an idea, now an extra 70,000 barrels of water handling at a 10% water cut, that's you can have like 5,000 barrels more of handling. That's the importance of doing this. Which sort of matches the amount of oil we have now shut in because of water handling.
Thank you, Camilo. Are you expecting a considerable or negligible upward revision in cost to complete the erosion control project? What's caused the delay? Hopefully the $31.1 million has gone to good use.
Thank you. Thank you for this question, and you know, let me address it by probably just going back to what Manolo mentioned. You know, we had to take the decision to terminate our contract with the consortium due to non-compliance on their contractual execution requirements. The pace was not what we expected, and the safety performance as well. We have taken decisive action to intervene this and make some, you know, tough choices, but necessary changes. Now let's step back a minute. The erosion control project, you might all remember, was guided as an 18-month project with a range, an investment range between $65 million-$75 million. To date, if you take the middle of the range, $70 million, we have executed about $35 million. As of year-end it was $31 million.
As of today, it's roughly $35 million. That investment has been well made, and it's obviously there, and we've made progress. We wanna do it, we want to finish it, and we want to continue to execute on it. We need a new pair of hands to help us to do that, and we'll come back to the market when we have those details with a more precise timeline and revised cost.
Thank you, Camilo. Please, can you provide an update on Block 107, which needs two exploration wells drilled, completed before February 2027 expiry date. Is the plan to use the drill rig, that's mobilizing in Q2 this year to drill these Block 107 wells?
We're still working on the permit to be able to drill the well in Block 107. Recently Perupetro has given us an extension given the delay on the drilling permit, so that's very good. About the drilling rig we're taking to Peru, that's gonna be staying in Bretaña, as we have a lot of oil to be developed at Bretaña. We will need to bring somebody else, another rig to for Block 107. Of course, we are looking for a partner for Block 107.
Okay, next question. Now that the MEIA-d has been approved, are you in a position to begin construction of the new well cellars that were outlined in the original 2025 budget? And if so, has that work already begun?
Yes. You know, we are already working on it. We will have the cellars completed by the time we start drilling wells. The idea is to have cellars also to continue the drilling campaign the following year.
Okay. Thank you, Manolo. Are there any plans to drill at Block 131, which was producing 4,000 barrels a day a decade ago?
Given our focus on drilling in Bretaña, what we have decided to do is bring a partner for the Los Angeles field, that will be best. That's what we're working on, to bring somebody in to help us on that.
Next question. Can you give us an update on the approximately 1.9 million barrels still sitting in the ONP? Are there any active discussions around the sale or settlement of those volumes, particularly in light of the ProInversión process?
The oil is still sitting in the pipe. It's gonna stay there for quite a while. I've been in discussion with ProInversión, trying to help them. The idea, and then what they're trying to do is bring an international pipeline company to take over the pipe, and also, bring someone for Block 182, which could allow oil to start flowing again. It's gonna take some time.
Thank you. Will the first well to be drilled be a new production well or as a water injection well? Is there enough surface water handling capacity to enable a new water injection well to operate at full injection capacity?
The first wells are gonna be oil wells. We wanna increase production, so what will force us is to shut in some of the higher water cut wells. That's how, as I mentioned in my notes, we plan to be at more than 20,000 by next year. Eventually, and as I also mentioned, we intend to increase water handling capacity before year-end, so that will also help quite a bit. Eventually, we need to increase the water handling capacity from the 170,000 currently to 240,000 that I mentioned, eventually to 500,000, even 800,000 barrels per day of water handling.
Are there any intentions to hedge at these new oil prices?
Yes. We have been hedging since, you know, since December. We've executed hedges for about 1.5 million barrels of forward oil production through March of 2027, covering approximately 24% of our estimated production. These hedges have been primarily consisting of costless collars. On average, we have a Brent floor price of $60, you know, a ceiling of $73, and a cap of $93. We obviously continue to monitor opportunities as, you know, as the Iran conflict continues to be longer than everybody expected and the forward curve continues to increase. This is something that we are actively looking at, but so far we've hedged about 24%, you know, 24%-25% of our production.
Thanks, Camilo. There appear to be no further questions at this stage. Can I hand back to you, Manolo, for any closing remarks?
Yeah. Thank you, Mark, and as always, I would like to thank our investors. You know, we are working really hard to bring production back in Bretaña. As I mentioned, we intend to be above 20,000 a year from now, you know, and we will do that, and we will complete the erosion project as we intended. So thank you so much to everybody.
Thank you.