Ladies and gentlemen, thank you for joining the PetroTal Reserves Update webcast. Your speakers today will be Manolo Zuniga, CEO, and Doug Urch, CFO of PetroTal. Following the presentation, there will be a Q&A session. If you have a question, please don't hesitate to ask it via the platform. The team will do their best to answer as many as possible in the time provided. I will now hand over to Manolo to start the presentation.
Thank you, Jimmy. Good day, everyone, and thank you for joining the PetroTal 2022 year-end reserve update conference call, where we will provide a brief summary of our latest reserves profile. If anyone wants further information on the company, please see our website for additional materials. My name is Manolo Zuniga, and I'm the President and CEO of PetroTal. If you have clicked on the link in last evening's press release, you should hopefully have signed up to the webcast, so you may see the slides on your screen. If you are having issues seeing them, please contact petrotal@Celicourt.uk, and they will be able to assist you. Before I begin, I need to mention that there are some disclaimers towards the end of the presentation, which I would urge you to read at your own leisure.
As shown in slide two, PetroTal is an onshore Peru-focused oil company and Peru's largest crude oil producer. The company's listed on London's AIM, the TSX Venture Exchange, and soon to be the Toronto Stock Exchange and the U.S. OTC, having a market cap of approximately $475 million before the talk started. We have a 100% working interest in the Bretaña oil field, which we have expanded from minimal production to over 25,000 barrels of oil per day capacity in late June 2022, with our estimated 2023 production guidance set at a conservative range of 14,000-15,000 barrels of oil per day to account for river levels and marching downtimes throughout the year.
The Bretaña field has produced over 11.5 million barrels of oil since inception and has now 14 producing oil wells and a third water disposal well currently being drilled and completed. PetroTal sells oil via barges to three critical sales routes and seen in our 3D country map. Two of which are trading with the pipeline assumed being inactive throughout 2023. Our first sales priority route is via the Amazon River to the major terminal at Manaus, Brazil, which currently has a capacity of up to 16,000 barrels of oil per day with a full barge fleet and normal river levels. This route currently delivers the strongest economics. Second is our route to the nearby Iquitos refinery, where we sell around 1,500 barrels of oil per day.
As you will see in the upcoming slides, the Bretaña field continues to deliver significant reserve growth to shareholders with the company's current valuation only recognizing the value from the producing wells, leaving all other reserve categories as upside available to shareholders for free. Slide three summarizes some key assumptions changes since the 2021 year-end reserve report. 2P and 3P well counts have increased by seven each, taking total 2P locations to 29 and 3P locations to 36, providing the company another two to five years of additional drilling inventory, depending on development pace. There was significant growth in the before and after-tax NPV10 cash flows, now ranging from $800 million-$3.8 billion. On a per-share basis, material increases were seen in every category, with the company's current valuation only reflecting a blow-down value with no new additional drilling.
Included in this year's reserve report are additional costs for the 2.5% social trust, the 5% employee profit-sharing tax, and additional erosion control and abandonment CapEx due to higher well counts. Slide four highlights key areas of growth and corresponding metrics. 2P reserves increased by 24% to 96.7 million barrels and had a 2022 reserve replacement ratio of 418%. Including past production, the field's estimated ultimate recovery, or EUR, is now over 108 million barrels from a 2P perspective, and it's only in the 6th year of operation. The initial 2P estimates were just over 37 million barrels in 2017, which demonstrates the robust durability from this asset by our management team.
1P and 3P reserves also grew to over 45 and 168 million barrels, representing an increase of 22% and 14% respectively. The growth in 3P reserves give us the opportunity to continue growing 2P reserves some more. As I have mentioned in the past, eventually the spread between the 1P and 3P volumes should narrow towards the 2P category. The NSAI production profile now has a 3P peak production estimate of 37,000 barrels of oil per day, with a development option to flatten peak production to optimize future facilities investment.
The 2P case generates a peak production profile near 25,000 barrels of oil per day from 2024 until 2028, with CapEx well under $100 million per year during this time. As stated in prior updates, PetroTal is a free cash flowing machine in the long run, with the 3P production profile now over 10,000 barrels of oil per day to near license expiry in 2041. 2P recovery factor increased from 22%- 24% due to the continuing strong demonstrated natural aquifer support conditions providing a significant natural water flood sweep under primary development. This, in turn, helped generate an after-tax NPV10 of one and a half billion dollars in the 2P development case.
The company has F&D per barrel matrix under $5 per barrel in all three reserve cases which include abandonment, additional erosion control, and required water handling and disposal infrastructure needed to accommodate the peak production profile. Using a $45 per barrel netback, the company generates recycle ratios in excess of 10x in our 2P case. Slide five shows the updated Bretaña structural map at the top of the Viga formation, showing the location of all existing producers in black, pad or proved and developed locations in white, 2P or probable locations in red, and 3P or possible locations in purple. As explained in the past, we took a conservative approach of delineating the field as a step at a time, always drilling pad locations, proving up the 2P, and upgrading the 3P locations.
The chart showing the historical growth in reserve demonstrates that this was the correct approach, especially as initially we did not have capital to spare. We're now completing the 4WD well, which was also core. We'll then start the 14H well later this month. Some of you may remember that our initial 2P recovery factor was set at 11.5%. We always knew we could more than double it. Now that the latest recovery stands at 24%, the team is focused in surpassing the 30% recovery factor mark. Slide six shows the price deck that was used, which is based on the average of three accredited Canadian reserve evaluators.
On the forward six year average, the company's using a price deck that was $10 per barrel higher than the prior year, a material contributor to the higher NPV10 value seen in this latest reserve report. Slide seven provides a summary of the reserves, including the associated costs and resulting NPV10 by category for the past three years. The reserve report showcases how PetroTal continues to perform exceptionally well while navigating somewhat unique operating challenges. The reserve cases assume a fully functioning OMP or pipeline, which we continue working towards with Petroperú to have it fully functional. We're very happy to have Bretaña surpass the 100 million 2P EUR mark, and I can assure you that the team will strive to continue increasing Bretaña's ultimate recovery and achieving the valuation shown in the 2P net present value category.
I would like to thank you for your continued investor support, and will now turn it back to Celicourt for the Q&A session. Thank you.
Thank you, Manolo. Just a reminder to people, please submit your questions via the platform, and we'll get those asked for you. First question, can you tell us what amount the dividend will be and when it will be initiated?
Subject to cash availability and full bond repayment, we are aiming for a declaration in Q1 2023, with payment in early to mid-April.
G&A expenses are expected to increase from $20 million last year to $34 million in 2023. Both overhead expenses and community projects have substantially increased. What are the reasons for this?
We have many additional G&A costs in 2023. First, our commitment to the community has increased by $4 million-$5 million, with the bulk of the costs being related to erosion control for the community. We may potentially try to recap some of the investment from the government, but we are not counting on it. In addition, we converted some contractors to full-time employees, as it was actually more economical to do so. These costs have shifted from OpEx and our CapEx to G&A this year. Finally, we are investing in a new ERP system, which are one-time dollars in-invested for 2023.
What would be the production capacity of the field after the drilling of three wells in 2023 and before taking into account eventual disruptions due to social unrest and low water levels?
We expect the field to still have a capacity of about 26,000 barrels of oil per day.
Thank you. Could you provide further details about the following investments for 2023? The L2 West platform, additional production and water handling equipment, and what is the rationale for these investments?
Well, on the L2 West platform, it will allow us to continue drilling. Of course, always drilling the pad locations and proving up the probable locations. We're running out space on the existing L2 platform that was set up many years ago by Gran Tierra before we came in. Now with the well count growing, we are having to build this new L2 West platform that is, you know, inside the camp. About the water handling capacity, keep in mind that I have always indicated the key concept in Bretaña, like any other strong aquifer support field, is the handling of fluids. The larger the factory to process fluids, the more we can recover and more we can produce.
Therefore through time, we're gonna have to add additional water injection wells and water handling facilities.
Can you provide more clarity on the social trust percentage? 2.5% has been mentioned today, and in prior press releases, the 2023 free cash flow guidance provided for a 5% social trust.
The 2.5% is the social trust amount as announced in late 2021. The 5% relates to an employee profit-sharing tax that is split between local employees at PetroTal and the government. It is triggered when the company reaches a certain taxability status. Until now, we have not had to pay that 5% profit sharing. The law in Peru, and it's only for the employees in Peru, you can receive up to 18 salaries, and any remaining monies, go to the government. In a sense, sort of a tax.
Were there any conversations held with CNPC Peru in the past?
No. We have not had conversations with CNPC.
When do you expect to repay the bond?
We expect to repay the bond in Q1 2023, but as mentioned in our presentations, it's subject to cash balances and collection of receivables along the way.
Please comment on the Peru riots and political system and how likely this comes to a peaceful conclusion without installing a far-left government or a new constitution?
Well, I imagine that everybody has seen on TV, some of the riots caused by extreme left groups in the southern part of Peru. Mostly supported, as the even the president herself saying, supported by the narcos and illegal miners. You know, we're expecting that this will eventually reach a settlement. The big push is to accelerate the elections now set for next April 2024. The idea is to have those elections by the end of 2023. They are asking also for the resignation of the president. The president, keep in mind, used to be the partner of Castillo, the ex-president that was kicked out by Congress. The extreme left feel like she's a traitor to their cause.
They always talk about changing the constitution. The constitution is well set in Peru. Right now is there's a big debate in Congress about how to manage that. I don't expect any of that will have an impact on our operations.
What is causing the additional required spend on riverbank erosion control?
Well, we have to be proactive. You know, the... these are strong rivers. We have taken a decision that we might as well bring a long-term solution. We have seen, nearby communities suffering because of the erosion. We need to attack that because eventually it could also impact us.
You only have reserves booked out at Bretaña. Do you have any type of reserves or resources at Block 107?
Actually, you look at our corporate presentations in Block 107, you'll see that we have prospective resources also certified by Netherland, Sewell. Then on the other structures located in Block 95, we show our internal numbers. Those are the ones that we want to do some seismic because we expect that in Block 95, we may find one, two, maybe three other Bretañas, given that the Bretaña field was filled to the spill point. Therefore, the oil should have continued migrating south. If there is traps in those structures or there's closure, they should be full of oil as well.
What is the timeline for increasing the Brazil barging capacity to 20,000 barrels per day?
Well, you know, we continue to have discussions with Novum, our trading company, to see how best we can manage that. Both parties, of course, want to maximize the exports. We need to take care of all of the logistics. We were trying to have something on a very definitive plan for later this year.
Is there any update on the OMP and whether Petroperú is close to establishing operations and their own social fund to help stop the sabotaging that's continuing to occur with the OMP?
You know, unfortunately, Petroperú is not making much progress on that regard. We are providing support to them in the... but something that is encouraging. You know, today the Minister of Energy and Mines is in Talara, opening the Talara, the new Talara refinery, which should start refining at a third capacity. That refinery eventually needs to have the oil from the jungle. Keep in mind that two of those blocks in the jungle are owned by Petroperú. All of that should entice Petroperú to find a permanent solution to the pipeline. With the support of the government, including bringing some security to protect the pipeline. All of that, of course, will help us tremendously achieve our goals of producing 25,000 barrels per day on a consistent basis.
How large a dividend might the company be able to declare in March?
Well, that's still subject to, as I mentioned earlier, the collection of some receivables, cash position of the company, and timing of the bond payout. Not in a position to make a comment on that any further.
How much of the Bretaña NPV10 is at risk of being reinvested into the exploration prospects as opposed to being distributed to shareholders?
You know, I always tell investors that the permitting process in Peru, which is extremely slow, you know, sort of, takes care of management being able to allocate a lot of the available cash flow to exploration. For example, to do the seismic in Block 95, I don't expect to get the permit probably until the end of next year, if we're lucky. The seismic will be done in 25. You know, Because of that, the exploration pace unfortunately is gonna be slow. I would prefer to be able to find out, for example, how much oil we have in all of these structures in Block 95 and do a fully integrated development plan. That won't happen. From that point of view, investors should relax, you know.
We have seen prior left-leaning presidents in South America introduce new taxes and duties on resource companies to increase the monies received by the government. Can your license terms be changed in the future to increase these taxes?
Our contracts are known as contracts law on themselves. So they can only be modified by mutual agreement. They cannot be on a one-sided basis. For example, even on the proposal to include the 2.5% social trust fund, I had to convince Perupetro S.A. to open the license contract to include that. Initially, they were reluctant to do that. It cannot change. Now, this is protected by the hydrocarbon law, which is protected by the current constitution. There was a prior question about the constitution and, you know, now you see the importance that things should stay stable in Peru. This morning, Moody's have already downgraded the rating in Peru, put it on a negative tone, because of the talk about the constitution.
Peru fought very hard, to achieve investment grade , and I doubt that they will do things that will impact that in the future. Which as I mentioned before, we should be okay.
Both 1P and 2P reserves increased with the update. Within the 1P reserves, only the Proved Developed Producing categories saw significant movement, and Proved Undeveloped category did not see an increase in reserves. Can you explain why this is, as surely Proved Undeveloped reserves should have increased if Proved Developed reserves increased?
Well, the reason for that is that the well count for the 2P location, the probable locations, stay the same. These wells on average produce about 3 million barrels. You have seven wells times three, that's 21. That's what we had before also. You know, give you an idea of how things shape up.
When might sales to the Pucallpa refinery restart?
Well, you know, the Pucallpa refinery is something that Petroperú is trying to put back on production. That refinery had been idle for the last several years because it was in private hands on a company that went under. The process took quite a while. Now it's back in Petroperú's hands. Interestingly enough, early last month, I went to Peru. I visited with the Minister and the Vice Minister of Hydrocarbons, and they actually asked me if PetroTal would be interested of selling oil into the Pucallpa refinery. Of course, I told them that we would be very happy to have an additional market that could initially take 3,000 barrels and maybe go up to 6,000. It's Petroperú, the one managing this. It usually takes time.
We have told them that, yes, we're interested. They need to do their work. Ideally, we could do that as something like this by the end of this year. You can imagine, having that additional market will be, very good for us.
Manolo, Doug, thank you. There are no further questions at this time. I'll hand back to you for closing remarks.
Well, thank you so much, to all of the investors, for all of the support. For the ones that listen to this webcast, you know, I hope you see, how consistent, we have been, with our messaging since we started the company. We intend to continue being like that, very upfront, and very consistent and transparent in our messages. You know, thank you so much to everybody.