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

Thank you. Are there any questions from any registered shareholders or proxyholders regarding that motion? 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 3, 2023. 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.

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 and the management information circular of the company dated April 3, 2023.

I second the motion.

Are there any questions from any registered shareholders or proxyholders? The final item of business is to arrange for the termination of the formal portion of the meeting following the announcement of 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. Chair, I make that motion.

I second the motion.

Thank you. As voting has previously -- has been previously enabled for all motions on the Computershare virtual platform, if a shareholder attending virtually has not yet voted, please do so now. If you're attending the meeting in person, you should have completed your ballot when you entered the meeting. If you have not yet submitted your ballot, please provide it to the scrutineers now. I will pause briefly to allow final voting. [Voting]

Voting is now closed. The voting page on the Computershare virtual platform will now disappear, and your votes will automatically be submitted. I will now pause to receive voting confirmation from the scrutineers. I've been advised by the scrutineers that all resolutions have been approved by more than the requisite majority. Therefore, I declare all resolutions carried. Particulars of the votes cast on each matter may be obtained from the Secretary of the meeting. I direct that the results of the poll on the scrutineer's report be included with the minutes of this meeting. The results on the appointment of directors will be press released in accordance with the policies of the TSX, and the results on all of the matters considered at this meeting will be disclosed in a report filed on Parex's profile on SEDAR. I will now pause and address questions related to the matters of the AGM that have been submitted, if any.

There are none.

Thank you. In adherence to the approved termination motion, I declare the meeting terminated. With the formal portion of the meeting complete, I would now like to invite Mr. Mohsen to provide our business update, which will be followed by time for any questions you may have.

Good morning, everyone. I'd like to thank you all for attending, both in person and online. It's nice to see you all. It's probably one of -- my first AGM in person, in fact. So great having you. My name is Imad Mohsen, and I am Parex CEO. This morning, I'm pleased to provide you with an update on our growth strategy in Colombia and then take questions. Before I start my presentation, I want to take a moment to echo Wayne's comments about Paul and Ken. After 14 years of service, Paul is ending his time on the board. I want to thank him for his professionalism, wisdom and fantastic service. Yesterday, Ken announced his retirement, which shall take effect in quarter -- Q4 this year. Ken has been a pioneer in the Canadian oil and gas sector in terms of debt-free strategy and return of capital. He has always been an advocate for the shareholder and has successfully led Parex through high and low oil prices while keeping a measured approach. While he's not gone yet, I do want to take this opportunity to formally thank Ken, thank you, for his service as this will be his last AGM. Over the last 2 years, we have put our Colombia-focused strategy into motion. taking decisive steps to become the country's largest independent oil and gas producer with increased operatorship. We have expanded our portfolio in terms of product type and land position, created a pipeline of projects by growing our resource base and investing in proven technology to ensure sustainable growth. And we continue to deliver exceptional shareholder return, including expanding our returns with the introduction of regular dividends. These actions have enabled our transition from primarily a single asset company to a Colombia-wide operator and positioned us for growth, both in terms of production and more importantly, value. In December, we had the Capital Markets Day, we reiterated our Colombia focus strategy. And the question is, why Colombia? Put simply, we see it as the preferred jurisdiction to invest within with a robust risk reward profile that's based on substantial resource potential, high netback environment that has underdeveloped basins, established industry with substantial underutilized infrastructure and stable operating environment. Colombia is an OECD member. It respects contracts and is very committed to the free movement of capital. To me, I see Colombia as that forgotten hydrocarbon El Dorado paradise. It's been exploited not nearly as much as other onshore basins. It reminds me of North America or Europe 50 years ago. And this creates a unique opportunity for Parex to bring industry-proven technology from elsewhere and further harvest its resources. So how does that translate in real life? You can see on this graph that our commitment to Colombia has translated both in a stronger track record with successful history of growing production and reserves on both an absolute and per share basis year after year. Now this combination of growing the production and reducing the share count has enabled Parex to improve our funds flow. You can see that throughout multiple commodity price scenarios and changing regimes what kind of trend we managed to deliver here. And all of this has resulted in a greater than 1/3 reduction in outstanding shares -- thank you, Ken -- and introduction of a sustainable and growing dividend. To date, more than CAD 1.3 billion have been returned to shareholders since 2017. One approach working with community sets us apart as the preferred operator in Colombia represents a competitive advantage that enables our success. And I'd like to share with you that when I was interviewing to join Parex, the attitude of Parex company with a heart was, for me, a huge, huge differentiator. It made the difference. This is a company that really cares, from the employees to the top of the Board. And by working collaboratively, we have successfully generated shared benefits with local communities. This helped create a solid symbiotic relationship with those communities and thus, enable operational continuity for our company in the most difficult parts of Colombia. In particular, I'm proud of ESG initiatives, some of which include Cabrestero solar farm. Not only does this solar farm add energy to the grid, but in line with Parex philosophy of investing in greener future, it makes business sense. It saves us money even compared to electricity from the grid, and it powers our facility. There's Plan Padrino, and that relates to my comment about the company that cares. This is driven by the employees, and they help build houses for underprivileged community members changing their life. To date, we've built 17 homes, improving the lives of 17 families. In fact, drastically changing it. Water for all, and this program is focused on building infrastructure to enable access to clean water for communities in Colombia. Since 2017, we helped over this 30,000 people gain access to clean water. So this translates in being recognized externally for our ESG efforts. As an example, in April, MSCI reconfirmed our AA rating. To put it in perspective, this is the same rating as one key investor told me that Royal Bank of Canada has, a reputable, big 6 financial institution. This is not an easy feat to achieve for an oil and gas company. Our track record for success, both on and above ground, makes me confident in our ability to profitably grow the business moving forward. We are doing that by focusing on 3 pillars. First, exploitation through technology. Colombia oil and gas industry has not historically fully embraced proven technology used elsewhere in the industry. Parex is actively changing that narrative. We are going after onshore -- our exploration portfolio has transformational potential. And it is a competitive advantage for Parex that doesn't exist with traditional unconventional players. Our growth strategy culminates in minimized decline rates, lower maintenance capital and greater capital efficiency. Now one thing is strategy, and of course, there's delivery, and a critical element by acquiring high-quality land, equipment, technology and most importantly, highly skilled people in a countercyclical market. Notably, in 2021, we increased our land base fourfold, making us the largest land owner in Colombia. The benefits of high grading our portfolio and expanding our target base translates into scalability of our investment and technology and also our exploration efforts. Last year, we shared this 3 years plan. And I'd like to emphasize that the trend continues for years to come beyond the 3 years. The plan projects production growth of 15% this year in 2023 and 5% in '24 and '25 and beyond. And that excludes any benefits of exploration success, which we're counting on, by the way. This plan also increases capital efficiency through technology and infrastructure elements. I want to point out the yellow line here. That presents our capital. As you can see, we are now at the extremely important inflection point. In '20 and '21, we invested heavily. We built the foundation by investing in waterflood to minimize the decline rate, reducing maintenance capital. We invested a lot in infrastructure to open up areas with significantly higher capital efficiency than just mere infill in other wells, elder fields. And we also paid M&A cost, carry cost, which basically runs through our plan and ends in '24. All this culminates in increased production while reducing capital -- total capital going forward. So production goes up, capital goes down, and the time is now. So the combination of our efforts has resulted in increased production at lower capital cost and increased free cash flow, all while reducing the share count. So this delivers exponential growth to the shareholder on a per share basis and available free cash flow, as you see in the left table. And as I mentioned earlier, our 3-year plan doesn't take credit for the exploration successes that we better deliver while accounting for approximately $50 million spend per year. Colombia is unique. Because of the civil strife, we have world-class [ targets ] left behind. They've been untouched for decades, and this puts us in a very privileged position to target prospects that normally only are available to the majors, offshore, deepwater and they are at our doorsteps now. As a result, our exploration portfolio has the potential to create step change growth for the company with more than 15 high-impact prospects that are targeting more than 20,000 barrels a day of production potential. Our ability to drill a catalyst while every 3, 4 months is a unique proposition. This differentiates us compared to unconventional North American producers that don't have that possibility to change overnight. So to wrap up, we have a strong record of success, both above and below ground in Colombia. And over the last 2 years, we have taken measured steps to progress our strategy, which has brought us to an inflection point. This is a very historical time for Parex. As a result, we are now better positioned than ever to harvest the full value of our world-class portfolio. Our main focuses are cementing our ESG leadership performance making technology and infrastructure investments to lower decline rates and enable improved capital efficiency, targeting some of the world's best exploration opportunities that are typically only available to majors, offshore deepwater, and continuing to deliver exceptional shareholder returns. Parex has been creating foundations for profitable, sustainable growth. We have the right people, technologies and expertise to drive long-term success for all our stakeholders. With that, I'd like to end by thanking the Board, shareholders and our employees, many of whom are here today.

Thank you, Imad. Are there any questions from -- in person? We do not have any questions online. With that, we will conclude the business update portion of the AGM. Thank you very much for coming. And we'll be here to talk to you and welcome you [ to Parex ]. Thank you very much.