PetroTal Q2 2026 Earnings Call Transcript

PetroTal (TSX: TAL ) reported second-quarter financial results on Thursday. The transcript from the company's second-quarter earnings call has been provided below. This content is powered APIs. For comprehensive financial data and transcripts, visit Access the full call at Summary PetroTal remains the largest oil producer in Peru with 110 million barrels of 2P reserves and plans to restart its development drilling program in Q4 2026 to reach production levels of over 20,000 barrels per day.

The company reported Q2 2026 production of 12,557 barrels per day, down from Q1 2026, but benefited from increased Brent oil prices, improving net operating income and adjusted EBITDA by 24% from the previous quarter. PetroTal plans to increase its available cash position from $105 million to approximately $120 million by year-end 2026, despite increased capital expenditures for its drilling program. Operational improvements include mitigating production declines through equipment upgrades and expanding water handling capacity to sustain production levels.

Management is focused on operational cost reductions and potential reinstatement of dividends, contingent on ongoing high oil prices and successful drilling outcomes. Full Transcript Mark, Operator Hello and thank you for joining PetroTal's Q2 webcast. Your presenters today are Manolo Zuniga, 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 available.

Manolo, thank you. Manolo Zuniga, President & CEO Thank you, Mark, and good morning everyone, and thank you for joining PetroTal's Q2 2026 webcast where we're going to discuss the financial and operational results we released overnight. My name is Manolo Zuniga 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 to this morning'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 after our prepared comments on slide 2. Before we get into the quarter's results, I want to step back and remind everyone why we believe PetroTal represents a compelling investment, starting with the asset itself. PetroTal is the largest oil producer in Peru.

2 billion of net present value, NPV10, against 32 million barrels produced to date, so we are still in the early innings of developing this field. Our track record speaks for itself. Since inception we have invested $675 million in Peru, generated over $1 billion of EBITDA, returned more than $150 million to shareholders, and also tripled the size of our Bretana oil field. Turning to the catalysts ahead of us, we're excited to restart our development drilling program in the fourth quarter of this year as we target a return to previous production levels of more than 20,000 barrels per day.

Considering our production has recently been tracking around our annual guidance of 12,000 barrels per day, we expect to show significant growth in production over the next few months. We believe successful execution of this multi-well program represents a meaningful re-rate opportunity for the stock. On the right-hand side of this slide you can see our current production, financial, and capital market snapshot. First half of the year production averaged 13,726 barrels per day, ahead of our 12,000 bopd annual guidance.

5 million of total debt, a strong net cash position. As a reminder, our 2026 guidance called for adjusted EBITDA of $110 to $120 million and capital expenditures of $80 to $90 million. On slide 3, I'd like to give an update on our operations at Bretana and our preparations for the resumption of development drilling. In mid-July, we began a pulling campaign at Bretana to replace producing tubing and electric submersible pumps in up to five wells.

This work is already helping to mitigate production declines and sustain our production levels in the second half of the year. Turning to our development drilling program, preparations remain on track as we have increasing confidence in an early October spud. The Estrella rig, which we have contracted for an eight-well campaign, is now in Peru and we hope to have it at Bretana by the end of this month. As you can see on this map, we have highlighted the first two wells in our upcoming drilling program, wells PT and PV, circled in red in the north half of the Bretana structure.

1 million barrels of oil. We look forward to notifying the market once the first well has spud, and we remain focused on returning PetroTal to sustainable production growth in 2027. On slide 4, I want to show you how we get to our 20,000 barrels per day production target for 2027 well by well. The grey shaded area on the left shows our historical production base at Bretana and Los Angeles going back to January of 2021.

You can see the periodic steps up as new wells have come online, followed by natural base declines in between drilling campaigns. That decline has continued through 2026, consistent with what we have discussed on prior calls as we paused development drilling. The color layers on the right-hand side of the chart show our production recovery profile as our eight-well drilling program comes online beginning with our first spud in October. Each color band represents one new well added sequentially to the base as our drilling and completion crew moves down the program.

This production plot has been built using the median type curve from the 19 horizontal wells we have already drilled at Bretana, so this reflects the actual proven productivity we have demonstrated in this field. As you can see, as each well is layered on top of the declining base, our total production builds through 2027, reaching a monthly average rate of 20,000 barrels per day by the middle of next year. I believe you will probably see us show daily production rates of 20,000 barrels per day by the first quarter of 2027, but it may take us until the middle of next year to sustain production at that level for a month or more.

As mentioned before, the first two locations offset the 10H well. You may recall that this well delivered the highest initial production of any of the 19 wells we have drilled to date—a 30-day average rate of just over 9,000 barrels per day. Being able to target offset locations near one of our best performing wells gives us real confidence in the productivity of these first two new wells. However, as you can see on slide 4, we are assuming that these new wells will average just 5,000 barrels of oil per day.

Before handing the call to Camilo, I would like to remind our investors that PetroTal's proposition is that we should be able to replicate Bretana's success more than once, especially now, using all the experience we have acquired during the past eight years. I look forward to not only reporting on Bretana's production revamp, but also about future similar opportunities that some of our investors have repeatedly asked about. With that, I will now hand the call over to Camilo to discuss our financial results. Camilo McAllister, EVP & CFO Thank you, Manolo.

Turning to slide 5, we have laid out PetroTal's financial performance for the second quarter, compared both to the prior quarter and to the same period last year. Production averaged 12,557 barrels per day in Q2, which was down 16% from Q1 2026 and down 40% from Q2 2025. As we've discussed, this reflects our natural decline in our production base during a pause in our development drilling, and it is a trend we will reverse shortly. Despite these lower volumes, our netback economics tell a much stronger story.

56 per barrel year over year, and that flowed through to our bottom line. 59 respectively over those same periods. This is a really good illustration of how our business is built to capture upside when oil prices strengthen. On costs, our operating expenses were essentially flat quarter over quarter in total dollar terms at $11 million.

11 is a function of spreading a relatively fixed cost base across fewer barrels. It is not a deterioration in underlying cost structure. 5 million; that is up 24% from Q1 2026. On a year-over-year basis, it was down modestly, reflecting the substantially higher production base in Q2 2025.

4 million, up 26% quarter over quarter and 19% year over year. 2 million non-cash impairment charge related to the sale of the Amazonia 1 drilling rig. Excluding that item, our underlying earnings continue to strengthen alongside higher realized pricing. 7 million, which puts us in good shape to hit our annual guidance of $110 to $120 million.

6 million, with the bulk of our capital spending expected in the second half of the year as our development drilling program gets underway. We ended the quarter with $137 million of total cash, including $105 million of available cash. Available cash was up modestly from Q1 and Q2 2025 levels. On slide 6 we show our full-year 2026 guidance summary, which you'll also find in our corporate presentation, so I won't spend too much time walking you through every line, but I do want to use it to frame where our cash position is headed for the balance of the year.

As we discussed on the last slide, our available cash position was largely flat throughout the first half of the year, ending Q2 at $105 million. That reflects two significant cash outflows in the first six months: first, a sizable tax payment, and second, the retirement of a lease liability associated with our former drilling rig following its sale. We usually tend to see large cash outflows in March and April as we settle our prior year tax bill. 6 per barrel Brent assumption, we expect to generate $180 million of net operating income and about $170 million of EBITDA for the full year, and this is all after operating costs, G&A, and realized derivative losses or gains.

Against that we are planning for $85 million of capital expenditures. That represents a meaningfully more active back half of the year as our development drilling program ramps up, along with about $24 million of accrued tax and finance expenses. That leaves approximately $8 million of after-tax free funds flow for the year with no cash dividends contemplated in this guidance. Now putting it all together, even accounting for that step up in capital spending in the second half, and after the tax- and lease-related draws we saw in the first half, we expect to build our available cash position from approximately $105 million today to approximately $120 million by year-end.

That reflects the combination of production growth, continued strength in oil prices, and our disciplined cost control, and it's all a good illustration of the cash-generative power of this business even while we're funding our next leg of growth. So with that I will turn the call back over to Mark. Please let us know if you have any questions. Mark, Operator Thank you, Camilo.

First question. Does the company have any optionality to extend the new drill rig beyond the eight-well campaign? Manolo Zuniga, President & CEO Indeed we do have the optionality. Let's keep in mind that the company has always drilled proved locations.

Right now we have a total of 13 proved locations. So of course we intend to continue drilling. On a 2P basis we have a total of 22 locations, so basically doubling the size of the field. So that gives you an idea.

And the rig that has come all the way from Colombia, the owners want to keep it busy as long as possible. Mark, Operator Thank you. When is the pulling campaign expected to be completed and where do you see production leveling off to after that? Manolo Zuniga, President & CEO We should complete the campaign by the end of the month.

As I mentioned in my remarks, the idea is to level off the rates, overcoming some of the declines. So the idea is to keep it up about the same levels as now. Mark, Operator Okay, next question. Is the purchaser of the Amazonia 1 rig the same person or contractor doing the drilling in the fall?

Manolo Zuniga, President & CEO No, it's not. The purchaser of the drilling rig is a company from Romania, a drilling services company from Romania, and the rig is right in that country right now. Mark, Operator What's the status of true-up payments from Petro Peru for the oil in the ONP pipeline? Manolo Zuniga, President & CEO You know, now that we have a new government in Peru led by Keiko Fujimori, the Petro Peru issue has been discussed thoroughly by the government.

So we will see how we can resolve that. Mark, Operator Okay, thank you, Manolo. With flooding from El Nino predicted to start in December, will the company have to accelerate the erosion control program? Manolo Zuniga, President & CEO I think I mentioned in the last webcast, El Nino phenomenon— it rains quite a bit in the northwest part of Peru, on the Pacific coast, while in the Andes and in the jungle many times it's dry.

So actually we expect the river levels to be lower and we will manage that as we need to. We are careful to manage the erosion issues and we expect the project to restart soon. Mark, Operator Okay. Given the logistical challenges in getting a rig to site, is the plan still to aim for a flat production profile around 20,000 barrels per day or would you be more inclined to drill at a faster pace?

Manolo Zuniga, President & CEO The wells drill at the normal pace, so it cannot go faster. You have to be very careful when drilling the wells. But the idea is to drill one after another. That's the idea.

Mark, Operator Can you please talk a little about the current water processing situation? For example, when will additional water disposal wells be required? When will more processing capacity need to be added? Manolo Zuniga, President & CEO You may remember that when we provided guidance at the beginning of the year, we mentioned that our water handling we were estimating to be at 170,000 barrels of water per day.

We've been able to improve that to about 180,000 now, a little beyond that, which is one of the reasons we are able to maintain the current production levels. And the idea is then to step up those volumes as time goes by, from 180,000 to 200,000, 240,000 and so on. As we have more wells, we need to manage more fluids. Mark, Operator Thank you.

In order to drill out remaining 2P and 3P locations at Bretana, will additional land and/or permits be required? And if so, what's the likely time frame to obtain these? Manolo Zuniga, President & CEO We don't need more permits. The modified EIA that took us such a long time to get allows us to drill the entire 3P campaign that we have, plus additional wells.

And we already bought some land just in case. But the concept that we're managing now is to be able to develop fully the field with the current existing area that we have. Mark, Operator Okay, next question. The tendering process for erosion control has taken longer than expected.

Any reason for this? What's the contractor market like for erosion control activities? Manolo Zuniga, President & CEO This is a great question. It has taken a little bit longer than we've expected.

We are still on track to receiving proposals by the middle of August, evaluate them and kind of get going back in September. This is, of course, a project that had already begun. So any company that will restart the construction and the piling wants to do visits to the sites. They want to review all the engineering work.

They want to make sure that none of the learnings from the previous contractor happen again. So they are taking their time and we're doing it very rigorously. Mark, Operator Thank you. Camilo, are you in a position to give us a steer on the expected costs to get to water injection capacity of 320,000?

Camilo McAllister, EVP & CFO Not at this moment. This is part of the studies that are being carried out as we speak. Mark, Operator Okay. When would you expect the riverbank work to be completed?

Given the new contractor, where would you see CapEx in 2027, incorporating the drilling campaign, the river work and water handling? Camilo McAllister, EVP & CFO Yes, definitely. The riverbank work will be completed by 2027. In terms of CapEx guidance for next year, it's still too early to say, but you know, we will have an active drilling program.

As Manolo mentioned, we still have 13 P1 locations to be drilled. And, you know, this initial contract with Estrella will take care of the first eight. And if you remember, each well takes about, you know, 45 to 50 days to drill and we plan to do them back to back. So we plan to be very busy in 2027.

Mark, Operator Okay, next question. Some time ago you mentioned in a conference call that you were going to focus on operational cost reductions. Can you elaborate a bit more on what's been done so far and how this impacts Brent breakeven price?