TIDMPTAL
RNS Number : 2463M
PetroTal Corp.
07 May 2020
PetroTal Announces Temporary Shut In of Bretana Oil Field Due to
COVID-19 Pipeline Closure
PetroTal provides update on financing arrangements
Calgary and Houston - May 7, 2020 - PetroTal Corp. ("PetroTal"
or the "Company") (TSX--V: TAL and AIM: PTAL) announces that the
Northern Oil Pipeline ("ONP") operated by PETROPERU S.A.
("Petroperu") has been shut down by a public health directive from
the Peruvian government, thereby resulting in PetroTal having to
shut in the Bretana oil field as a result of storage capacity
limitations. Additionally, PetroTal provides an update on financing
initiatives to accommodate the impact of oil price reductions
occurring from oil sales at the Bretana oil field in Block 95 in
Peru. All monetary amounts in this release are in United States
dollars.
Highlights
-- The health department of the Peruvian government issued a
directive for COVID-19 prevention in high risk areas and for high
risk individuals;
-- Petroperu temporarily shuts down pipeline operations to comply with this directive;
-- PetroTal temporarily shuts in Bretana oil field operations
due to storage capacity limitations;
-- The Company's planned capital expenditure for 2020 continues to be deferred;
-- Reduce compensation for Management and Directors by 20%;
-- Oil field shutdown will trigger significant cost reductions
of operating, transportation and general and administrative
costs;
-- Resulting from the global oil price reduction, the Company
has a contingent derivative liability of $42 million at March 31,
2020;
-- The actual liability of the oil price difference
determination is expected to be lower due to the projected
improvement in oil prices when physical sales occur in Q3 and Q4,
and;
-- PetroTal advises of financing discussions for a multi-year
settlement of the contingent liability.
Pipeline and Bretana Oil Field Shut Down
PetroTal has been notified by Petroperu, the operator of Peru's
ONP that it has temporarily shut down the pipeline as a result of a
directive from the Peruvian government intended to combat the
spread of COVID-19 in the communities adjacent to the pipeline
operations. The directive states that no employees over the age of
60 or with serious chronic diseases, should be working in the high
risk regions of Peru. Although Petroperu has filed an appeal with
the Peruvian government to allow the pipeline to resume operations
on the basis that it is an essential service, it is not clear how
long the pipeline operations will remain suspended. PetroTal has
commenced steps to temporarily shut down oil production at the
Bretana oil field due to storage capacity limitations. The shut
down is being managed to ensure that operations can be returned to
full production levels in an orderly manner upon reopening of the
ONP. As a consequence of this directive, PetroTal will necessarily
move to significantly curtail all costs related to oil field
operations, as the Company moves into a temporary hibernation mode.
PetroTal is pleased to report that no COVID-19 cases have been
reported at the Bretana oil field.
Additional Cost Reductions
The Company announces that, in addition to ongoing cost
rationalization of operating, transportation and capital
development costs, PetroTal has reduced overall general and
administrative costs by approximately 20%. This includes
company-wide salary cuts, including cash compensation reductions of
20% for management and directors. The Company continues to
prudently manage its cash resources and is exploring ways to
further reduce its cost structure, as needed. The temporary Bretana
oil field shut down in response to the public health directive
gives PetroTal the opportunity to reduce costs more than if
production was voluntarily shut in, and the Company will
temporarily layoff all but essential personnel at the field and
offices.
Financial Update
On May 27, 2019, PetroTal entered into a Pipeline Transportation
Service Contract with Petroperu, a state-owned company, to have
access to Peru's ONP that included an oil swap arrangement ("Swap
Contract") that allowed PetroTal to deliver volumes of its Bretana
oil by barge to the ONP Pump Station No.1 ("PS#1"), located at
Saramuro, in exchange for equivalent volumes of Petroperu's premium
supreme residual oil at the port of Bayovar. The Company delivered
a total of approximately 580,000 barrels of Bretana oil to PS#1
pursuant to this arrangement before it expired in early December
2019.
On December 23, 2019, PetroTal entered into a new Sales Contract
with Petroperu whereby all the Bretana oil delivered at PS#1 is
sold to Petroperu at a monthly average reference price of ICE Brent
minus $4 per barrel. As of March 31, 2020, PetroTal has delivered a
total of approximately 1.2 million barrels of Bretana oil to PS#1
pursuant to the Sales Contract.
It can take up to eight months for Bretana oil to reach the
Bayovar port where it can be stored for a further four months
before it is ultimately sold by Petroperu. The Swap and Sale
Contracts enable the Company to receive oil sales revenue earlier,
improving PetroTal's liquidity. When the oil is ultimately sold by
Petroperu at Bayovar, PetroTal will be subject to a valuation
adjustment based on the actual price achieved by Petroperu, whether
higher or lower as compared to the price received at the time of
delivery to PS#1.
On a monthly basis, the Company tracks the impact of fluctuating
oil prices on volumes sold under both the Swap Contract and Sales
Contract, as a commodity derivative and, as a result of the recent
drastic drop in oil prices, the contingent liability accruing under
these contracts is approximately $18 million and $24 million,
respectively, at the end of March 2020. Given the current ONP
timetable, it is expected that Bretana oil delivered pursuant to
the Swap Contract will be sold by Petroperu in late Q3 2020, and
Bretana oil delivered pursuant to the Sales Contract will be sold
by Petroperu commencing in Q4 2020, at which time the contango
effect forecasts a higher Brent oil price, which would result in a
lower liability. The current shut in status of the ONP could result
in these physical oil sales occurring further into the future.
Under the terms of the Sales Contract, the Company is required to
settle this contingent liability when the balance exceeds $10
million.
The Company is in discussions to facilitate an arrangement that
is expected to result in this contingent liability, when
crystallized, to be paid over a three year period from future cash
flow. This is an effective way to settle these obligations now,
thereby allowing the Company to realize the favorable impact of the
expected future higher oil prices when the physical oil sales
occur. As specific details are finalized, more information on this
potential source of finance will be announced in due course. The
Company continues to assess other financing alternatives to ensure
it has the necessary funding for its operations.
Manolo Zuniga, President and Chief Executive Officer,
commented:
"PetroTal continues to support initiatives to ensure the
Peruvian government provides the support needed during this
pandemic, just as other countries have done. In the meantime, we
continue to work on securing the necessary financial backing to
ensure we are properly funded and emerge stronger from this crisis.
PetroTal appreciates the ongoing dedication of all employees and
the support for our business during these challenging times of the
pandemic impact."
ABOUT PETROTAL
PetroTal is a publicly--traded, dual--quoted (TSXV: TAL and AIM:
PTAL) oil and gas development and production company domiciled in
Calgary, Alberta, focused on the development of oil assets in Peru.
PetroTal's flagship asset is its 100% working interest in Bretaña
oil field in Peru's Block 95 where oil production was initiated in
June 2018, six months after acquisition. Additionally, the Company
has large exploration prospects and is engaged in finding a partner
to drill the Osheki prospect in Block 107. The Company's management
team has significant experience in developing and exploring for oil
in Northern Peru and is led by a Board of Directors that is focused
on safely and cost effectively developing the Bretaña oil
field.
For further information, please see the Company's website at
www.petrotal-corp.com , the Company's filed documents at
www.sedar.com , or contact:
Douglas Urch
Executive Vice President and Chief Financial Officer
Durch@PetroTal-Corp.com
T: (713) 609-9101
Manolo Zuniga
President and Chief Executive Officer
Mzuniga@PetroTal-Corp.com
T: (713) 609-9101
Celicourt Communications
Mark Antelme / Jimmy Lea
petrotal@celicourt.uk
T : 44 (0) 208 434 2643
Strand Hanson Limited (Nominated & Financial Adviser)
James Spinney / Ritchie Balmer
T: 44 (0) 207 409 3494
Stifel Nicolaus Europe Limited (Joint Broker)
Callum Stewart / Simon Mensley / Ashton Clanfield
Tel: +44 (0) 20 7710 7600
Numis Securities Limited (Joint Broker)
John Prior / Emily Morris
T: +44 (0) 207 260 1000
READER ADVISORIES
FORWARD--LOOKING STATEMENTS: This press release contains certain
statements that may be deemed to be forward--looking statements.
Such statements relate to possible future events, including, but
not limited to: PetroTal's business strategy, objectives, strength
and focus; the Company's ability to resume operations in accordance
with developing public health efforts to contain COVID-19;
additional cost reductions; and liability under the Swap Contract
and Sales Contract and the settlement of such liability . All
statements other than statements of historical fact may be
forward--looking statements. Forward-- looking statements are
often, but not always, identified by the use of words such as
"anticipate", "believe", "expect", "plan", "estimate", "potential",
"will", "should", "continue", "may", "objective" and similar
expressions. The forward--looking statements are based on certain
key expectations and assumptions made by the Company. Although the
Company believes that the expectations and assumptions on which the
forward--looking statements are based are reasonable, undue
reliance should not be placed on the forward--looking statements
because the Company can give no assurance that they will prove to
be correct. Since forward--looking statements address future events
and conditions, by their very nature they involve inherent risks
and uncertainties. Actual results could differ materially from
those currently anticipated due to a number of factors and risks.
These include, but are not limited to, risks associated with the
oil and gas industry in general (e.g., operational risks in
development, exploration and production; delays or changes in plans
with respect to exploration or development projects or capital
expenditures; the uncertainty of reserve estimates; the uncertainty
of estimates and projections relating to production, costs and
expenses; and health, safety and environmental risks), commodity
price volatility, price differentials and the actual prices
received for products, exchange rate fluctuations, legal, political
and economic instability in Peru, access to transportation routes
and markets for the Company's production, changes in legislation
affecting the oil and gas industry and uncertainties resulting from
potential delays or changes in plans with respect to exploration or
development projects or capital expenditures. In addition, the
Company cautions that current global uncertainty with respect to
the spread of the COVID-19 virus and its effect on the broader
global economy may have a significant negative effect on the
Company. While the precise impact of the COVID-19 virus on the
Company remains unknown, rapid spread of the COVID-19 virus may
continue to have a material adverse effect on global economic
activity, and may continue to result in volatility and disruption
to global supply chains, operations, mobility of people and the
financial markets, which could affect interest rates, credit
ratings, credit risk, inflation, business, financial conditions,
results of operations and other factors relevant to the Company.
Please refer to the risk factors identified in the Company's annual
information form for the year ended December 31, 2018 and
management's discussion and analysis for the three and nine months
ended September 30, 2019 which are available on SEDAR at
www.sedar.com. The forward--looking statements contained in this
press release are made as of the date hereof and the Company
undertakes no obligation to update publicly or revise any
forward--looking statements or information, whether as a result of
new information, future events or otherwise, unless so required by
applicable securities laws.
FOFI DISCLOSURE: This press release contains future--oriented
financial information and financial outlook information
(collectively, "FOFI") about PetroTal's temporary shut down of
operations, the anticipated resumption of operations, storage
capacity, cost reductions, pipeline transportation arrangements,
liability under the Swap Contract and Sales Contract and components
thereof, all of which are subject to the same assumptions, risk
factors, limitations and qualifications as set forth in the above
paragraphs. FOFI contained in this press release was approved by
management as of the date of this press release and was included
for the purpose of providing further information about PetroTal's
anticipated future business operations. PetroTal disclaims any
intention or obligation to update or revise any FOFI contained in
this press release, whether as a result of new information, future
events or otherwise, unless required pursuant to applicable law.
Readers are cautioned that the FOFI contained in this press release
should not be used for purposes other than for which it is
disclosed herein.
Neither the TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this press release.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
STRSSASIWESSEFI
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