Parex Resources Inc. (PXT) Earnings Call Transcript & Summary

Hello, and welcome to the annual and special meeting of the stockholders of Parex Resources, Inc. Please note that today's meeting is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Mr. Wayne Foo, Chairman of the Board of Directors of Parex Resources Inc. Mr. Foo, you have -- the floor is yours.

Thank you, operator. Good morning, everyone. Thank you for joining us, and welcome to the annual general and special meeting of common shareholders of Parex Resources Inc. The meeting will now come to order. My name is Wayne Foo, and I am the Chairman of Parex. With the approval of the meeting, I will act as chairman of the meeting. Public health measures related to the COVID-19 crisis prevent us from holding our meeting in person. Therefore, it is now being hosted on the Lumi Virtual Shareholder Meeting platform. This allows registered shareholders and duly appointed proxy holders to vote and to submit questions and comments to the moderator to be read and addressed at the meeting. If you have a question or comment, please submit it through the system. Questions related for the motions before the meeting may be addressed during the meeting. All other questions will only be addressed during the question period at the end of the meeting. Before proceeding, I'd like to thank staff, and especially Courtney Johnson and [ Jansen Iamba ] for arranging the logistics for the meeting. When you do something for the first time, there are always hiccups, and it's nice to get started on time. I'll ask Bruce Alford to act as secretary of the meeting and Donald Santini of Computershare Trust Company of Canada to act as Scrutineer of this meeting. In order that the meeting covers all the business for which it was convened within a reasonable amount of time, we have prearranged with certain people to move and second certain resolutions. This procedure is not an attempt to discourage participation but merely a way to expedite proceedings. At the conclusion of the normal business of the meeting, I will call upon Mr. Taylor to conduct the first quarter Q&A session. We have previously mailed to the shareholders of the meeting -- we have previously mailed to the shareholders the meeting materials and the financial statements of the company for the year ended December 31, 2019, and the auditor's report thereon. I direct that copies of the documents mailed to shareholders, along with the confirmation of mailing of such documents provided by Computershare, be kept by the secretary with the minutes of this meeting. Further, the reading of the notice of the meeting has been dispensed with. Pursuant to the bylaws of the company, business may be transacted at this meeting if not less than 2 shareholders are present, owning or representing by proxy 25% of the shares entitled to be voted at the meeting. The scrutineer's report has now been received, and it shows that there is a quorum of shareholders present at the meeting. I declare that the meeting is regularly called and properly constituted for the transaction of business. We will now conduct each vote by way of votes cast on the Lumi platform and those submitted by proxy. Registered shareholders and duly appointed proxy holders will be asked to vote on each business item after the presentations of all business items. When you are asked to vote, you will receive a message on the Lumi virtual interface, requesting you to register your votes. You will only have a certain amount of time to do so when the polls are open. Please note that while the Lumi system permits voting by registered shareholders and duly appointed proxy holders, you should not use this feature to vote if you have already submitted a proxy as it will automatically cause your prior vote to be revoked. Particulars of the votes cast on all matters may be obtained from the secretary after the meeting. I direct that the scrutineer's report on all matters be annexed to the meeting -- to the minutes of the meeting, as is scheduled. The first item of business is the presentation to shareholders of the financial statements of the company for the fiscal year ended December 31, 2019, and the auditor's report thereon. A copy of the financial statements has been mailed to each registered shareholder, with a copy also located on the Lumi dashboard page. The next item of business is to fix the number of directors of the company to be elected at the meeting.

Mr. Chairman, I move that the number of directors to be elected at the meeting be fixed at 9 directors.

I second the motion.

Thank you. As previously noted, voting on this resolution will be conducted on the Lumi virtual platform once all of the motions for matters to be considered at the meeting have been made and seconded. The next item of business is the election of directors.

Mr. Chairman, I nominate, Lisa Colnett; Sigmund Cornelius; Robert Engbloom; Wayne Foo; G.R. (Bob) MacDougall; Glenn McNamara; Carmen Sylvain; David Taylor; and Paul Wright as directors of the company to hold office until the next annual election of directors or until their successors are elected or appointed. Subject to the provisions of the Business Corporations Act, Alberta, and the bylaws of the company.

I second the nominations.

Again, as previously noted, voting on this resolution will be conducted on the Lumi virtual platform once all of the motions for matters to be considered at the meeting have been made and second. The next item of business is the appointment of auditors.

Mr. Chairman, I vote that PricewaterhouseCoopers LLP, chartered professional accountants, be appointed auditors of the company until the next annual meeting or until their successors are appointed and that their remuneration, as such, be fixed by the Board of Directors.

I second the motion.

As previously noted, voting on this resolution will be conducted on the Lumi virtual platform once all of the motions for matters to be considered at the meeting have been made and seconded. The next item of business is to approve all unallocated options issuable under the company's stock option plan for a 3-year period.

Mr. Chairman, I move that the ordinary resolution, as set forth in the information circular dated April 10, 2020, approving all unallocated options issuable under the company stock option plan for a 3-year period be approved.

I second the motion.

Again, as previously noted, voting on this resolution will be conducted on the Lumi virtual platform once all of the motions for matters to be considered at the meeting have been made and seconded. The next item of business is an advisory, nonbinding resolution on the company's approach to executive compensation described in the information circular of the company dated April 10, 2020. Say on pay is not a requirement in Canada, but the Parex Board of Directors has made the decision to voluntarily put our compensation practices to a nonbinding vote again this year.

Mr. Chairman, I move that on an advisory basis and not to diminish the role and responsibilities of the Board of Directors of Parex, shareholders accept the company's approach to executive compensation as disclosed in the statement of executive compensation section in the management information circular of the company dated April 10, 2020.

I second the motion.

As previously noted, voting on this resolution will be conducted on the Lumi virtual platform once all of the motions for matters to be considered at the meeting have been made and seconded. The final item of business is to arrange for the termination of the formal portion of the meeting following the announcement of the voting results on the matters considered at the meeting. May I have a motion that the formal portion of the meeting be terminated following the announcement of the voting results on the matters to be considered at the meeting?

Mr. Chairman, I make that motion.

I second the motion.

Thank you. As previously noted, voting on this resolution will be conducted on the Lumi virtual platform once all of the motions for matters to be considered at the meeting have been made and seconded. Are there any questions on any of the motions from any registered shareholders or duly appointed proxy holders? All right. There being none on the platform, as mentioned, voting today will be conducted by electronic ballot. I will now take a moment to ask that the balloting be open to registered shareholders and duly appointed proxy boards. The polls are now open. At this point, all registered all registered holders and duly appointed proxy holders who have properly logged in with their control numbers or user name and who wish to vote will be able to see on the screen all motions being brought forward at this meeting, including a motion to terminate the meeting, which will be enacted after the announcement of the voting results on the matters considered at this meeting. The polls will be open for approximately 2 minutes. Please register your votes by selecting the for, against or withheld, as applicable, next to each of the resolutions. We will provide registered shareholders and duly appointed proxy holders approximately 1 more minute to complete the electronic ballots. [Voting]

The polls are now closed. The voting page will now disappear, and your votes will automatically be submitted. I would ask that the scrutineer compile a report regarding the results of voting on all business matters. I've been advised by the scrutineer that the ballots and proxies deposited for the meeting have been voted more than 50% in favor of all resolutions. Therefore, I declare all of the resolutions carried. I direct that the results of the poll be included with the minutes of this meeting, and the results of the voting will be announced in a press release in accordance with policies of the Toronto -- of the TSX. In adherence to the approved termination motion, I declare this meeting terminated. With formal portion of the annual meeting complete, I would now like to invite Dave Taylor, President of Parex, to begin the first quarter Q&A session.

Thank you, Wayne. Good morning, everyone. I am Mike Kruchten, Senior VP of Capital Markets and Corporate Planning. We will now transition into Parex's first quarter Q&A session. Yesterday, Parex released its unaudited financial operating results for the quarter ended March 31, 2020. Like all Parex disclosure documents, the complete financial statements and related MD&A are available on the company's website at parexresources.com and on SEDAR. I would like to mention that this event is being recorded, so the recording will be available for playback on the company's website. Parex would like to remind everyone that remarks made during this session are subject to forward-looking statements which involve significant risk factors and assumptions and have been fully described in the company's continuous disclosure reports. The information discussed is made of today's date and time, and Parex assumes no obligation to update or revise this information to reflect new events or circumstances, except as required by law. Please note that participants in this meeting must submit their written questions through the Lumi platform. There's no way of calling in a question during this meeting. Participants logged into the Lumi platform as guests will see an icon in the top center right area of their screen that resembles stacked papers. Clicking on the icon will open up a dialogue box at the bottom of the screen that will allow participants to submit their questions. I would like to now pass the meeting on to Parex President and CEO, Dave Taylor.

Thank you, Mike, and thanks to everyone on the line for joining myself and the senior leadership team for our Q1 conference audio webcast. We appreciate your support of Parex Resources. Before we start our Q&A session, I'd like to provide a brief overview to our shareholders on our response to the COVID-19 pandemic and falling oil prices, then provide some highlights of our Q1 financial results and discuss our plans for the remainder of 2020. I'd like to begin by stating that our priority during the COVID-19 pandemic has been the health and wealth of our employees, our contractors and the communities where we operate. To minimize our social interactions, we have changed our operating procedures and reduced field activity, which has impacted both CapEx and production. We have arranged for office staff to work remotely from home and now are hosting our first virtual AGM. Additionally, to support our communities, we have made financial donations to the Calgary Food Bank, and in Colombia, we have distributed over 3,000 food packages to families in need. In the first quarter, our operating and financial results were strong as the economic shocks caused by COVID-19 and the battle for market share between the world's largest oil producers were not felt until later in the quarter. We achieved average quarterly production of 54,295 barrels of oil equivalent per day, which was slightly higher than the Q4 2019 production of 54,221 barrels of oil equivalent per day. Parex cash netback in the first quarter remained a robust $20.63 per barrel, generating funds flow of $97 million or about $0.69 per share. Our CapEx expenditures were $71 million, and we repurchased 3.9 million shares for USD 51 million or CAD 71.6 million. Parex has entered this pandemic crisis in a position of financial strength with $397 million in cash and no debt. We exited the first quarter with working capital of $330 million and $200 million of undrawn credit facility. On April 2, 2020, we announced several measures to protect the company's financial position in response to the significant decrease in oil prices on the COVID-19 pandemic, including withdrawing the 2020 guidance, as set out on our March 10, 2020 news release; voluntarily shutting in high-cost mature fields and reducing production rates of major fields to preserve asset value; and maximize operating impacts. Production levels in the second half of 2020 will be dependent on commodity prices showing some semblance of stabilization. And finally, we suspended all remaining drilling programs for 2020. Parex is exceptional in our industry as the company continues to maintain a best-in-class balance sheet, cash on hand and no debt. We have taken immediate and decisive action to ensure the company is in a strong financial position, not only to weather the current crisis but also to take advantage of potential growth opportunities that may arise. Before we open for questions, I'd like to discuss some options that the company can pursue. Regarding production and CapEx, as we begin to see a stabilized realized price of above $25 a barrel, we would look to gradually restart production and add incremental CapEx. In April, our production was approximately 47,000 BOEs per day, and we're currently at 34,000 BOEs per day as we elected to reduce production volumes to preserve value. As for CapEx, our priority would be Southern Casanare completions and then advancing the VIM-1 La Belleza discovery with civil works, initial facilities, long lead items and potentially an appraisal well later in the year. Secondly, given the market volatility, we scaled back our share buyback purchases to about 25,000 shares per day. Our intention following blackout is to resume repurchasing approximately 25,000 barrels -- shares per day. We believe that at current valuation of about $6 per BOE of 2P reserves, this represents an excellent tool of creating value for shareholders. We see further realized oil price appreciation. As it improves, we would consider increasing the number of shares we purchase. Finally, acquisitions are still something we're interested in pursuing. We continue to review and evaluate business development opportunities in Colombia as well as other jurisdictions. With this brief introduction, I'd like to start the Q&A session by reading any submitted questions.

Can you provide a summary of which fields are shut in? Our legacy fields are shut in. So Kona, Las Maracas, Adalia, a number of other Casanare fields are currently shut in. Our Aguas Blancas and Boranda fields in the Middle Magdalena are shut in. And on Block 34, a couple of the smaller fields are shut in, satellite fields to the main fields. Our large fields, Tigana, Jacana are still on production, and they're just scaled back at this time. If you have any questions, please submit them through the Lumi. At the present time, we don't see any further questions. We'll wait another minute, and then terminate the meeting. We don't see any further questions, so I'd like to take this opportunity to thank you for your interest in Parex and your continued support of the company. For further information, we invite you to visit our website or call us. Thank you, again, and have a good day.

This concludes the meeting. You may now disconnect. Everyone, have a great day.

Thank you. Take care.