Parex Resources Stock

Hello, everyone. Thank you for joining us, and welcome to the Parex Resources Q3 2026 Operational and Financial Results. [Operator Instructions] I will now hand the conference over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning. Mike, please go ahead.

Good morning, and welcome to Park Resources Third Quarter 2026 Conference Call and Webcast. On the call with me today are our President and Chief Executive Officer, Imad Mohsen; our Chief Financial Officer, Cam Grainger, and our Chief Operating Officer, Eric Furlan. [Operator Instructions] As a reminder, this conference call includes forward-looking statements as well as non-GAAP and other financial measures, but the associated risks outlined in our news release and MD&A, which can be found on our website or at sedar+.ca. Note that all amounts discussed today are in U.S. dollars, unless otherwise stated. I will now turn the call over to Imad. Please go ahead. .

Thank you, Mike, and good morning, everyone. The third quarter marks an important milestone for Parex, representing our first full quarter of integrated operations following the acquisition of Frontera E&P assets. Together with the addition of production from the Middle Mag, through our partnership with Ecopetrol, we have fundamentally changed the scale of our business, delivering a step change in production and establishing a stronger foundation. .

I'd like to share 3 key highlights from our quarter. First, integration of the Frontera assets is progressing well. We are leveraging the expertise of our combined teams and tracking towards gains across G&A, marketing, procurement and tax, with synergies expected to ramp up in the fourth quarter. As our integration progresses, we are forecasting even greater synergies in '27. Given our current progress, we expect the next year, we will deliver the higher range of our previous estimates -- we will deliver over the higher range of our previous estimate of $20 million to $50 million.

Beyond this, we are identifying opportunities to drive greater capital efficiency across our expanded portfolio, improving our financial performance. Second, our organic growth pipeline is strong, supported by recent exploration results.

This year, we have had a 70% exploration success rate in Eastern Llanos and 100% success rate across the rest of our portfolio. I'm very encouraged by the size and the potential of our Eastern Llanos discoveries. We believe they represent our most significant exploration success Llanos 34. While current production is constrained by infrastructure capacity, we see substantial upside as we advance our development, operation and [indiscernible] strategy. Eric will provide more detail on these plans shortly. Third, operational momentum continues to build, supported by strong production from our asset base across the portfolio.

We expect to meet our production guidance for the second half of the year, and to end '26 with our highest production ever. We are also getting close to spudding our first Llanos foothill exploration well, a significant growth catalyst expected in 2027. As we look ahead, the strength of our recent exploration results and the growing potential of our transformed portfolio, reinforces our optimism about the future. We believe Parex is entering in an exciting new phase. We have an opportunity to grow faster, make our business much larger and realize the full value of our portfolio throughout much more capital-efficient investments.

With that, I'll turn over to you, Eric. Please go ahead. .

Thanks, Imad. In the third quarter, production averaged over 83,000 BOE per day, reflecting our first full quarter of Frontera volumes. With production at nearly 86,000 BOE per day in October, we expect to maintain this upward momentum throughout the fourth quarter, positioning us to exit 2026 strong and deliver within our full year guidance range. .

Let's look at what's driving this momentum. Following the spudding of our first wells at Casabe and Llanito in the Middle Magdalena, we began earning 50% of the base production in late October as part of our agreement with Ecopetrol, which represents approximately 7,000 barrels per day of net production. As we realize the full rates in the last 2 months of the year, these low decline volumes will strengthen our production base. In these fields, we are also pursuing opportunities to enhance recovery and optimize field performance.

This will be through water flooding, horizontal drilling and polymer surfactant applications to support our long-term growth. At Block 111 in the Eastern Llanos, we have the strong sense of optimism. Production is currently sustained at roughly 6,000 barrels per day and constrained by egress. While wet season conditions limit our ability to accelerate activity as fast as we would like, follow-up work in accessible areas this quarter has further strengthened our confidence in the field's growth potential.

With the dry season approaching late in the fourth quarter, we plan to ramp up activity in the New Year, targeting approximately 2,000 barrels a day of incremental production by year-end. To support growth in 2027, we plan to drill 20 new exploration development wells over the next 12 months, highlighting the scale of this area where we hold 100% working interest across more than 1.6 million acres.

To help unlock this new corridor, we are sanctioned and are progressing with the construction of new infrastructure, including tuck offloading facilities and a 10H pipeline with capacity of approximately 40,000 barrels per day. This investment will establish a multi-field production hub to support the area's growth and long-term development. Turning to gas. We continue to advance our strategy, supported by a new discovery at BM1 near the [indiscernible] field during the quarter. Initial testing delivered encouraging rates of 22 million cubic feet per day of gas and 3,000 barrels a day of oil or roughly 6,600 BOE per day.

We expect to tie in the well to the existing La Belleza facility by year-end to begin production, which based on testing today has strong condensate to gas ratio. Building on this success, we are advancing plans for a dedicated gas export pipeline in the area targeted for operation by mid-2027. The pipeline will support increased field production and allow us to monetize up to 25 million cubic feet a day of currently reinjected gas, capitalized on attractive pricing in Columbia's supply-constrained domestic market.

Lastly, following the commencement of civil works in the Piedmont in Colombia's Llanos foothills, we are preparing to spud our first [ big well ] by year-end, providing further visibility into gas growth in 2027. With that, I'll turn it over to Cam..

Thanks, Eric. Funds flow from operations, or FFO, for the third quarter was $196 million, supported by strong commodity pricing and added production from Frontera's assets, offset by wider oil differentials, higher diluent and diesel costs, higher power costs and Colombian peso appreciation. FFO was also temporarily reduced by a crude oil inventory build of 315,000 barrels during the quarter, which had an estimated impact of $10 million. These volumes were sold after quarter end and the associated FFO benefit will be reflected in our fourth quarter results.

Production remains in line with management expectations, with our second half production outlook maintained at the original guidance midpoint of 86,500 BOE per day. We have achieved significant exploration success across our portfolio, creating opportunities to accelerate growth. In response, we are strategically increasing capital across several areas of the portfolio to maintain operational continuity for follow-up activities, setting us up favorably for 2027.

We have also revised our broader financial outlook to reflect evolving market conditions. These primarily include increased commodity price volatility relating to significant wider differentials in Brent and WTI, which is strongly correlated to Columbia's Vasconia benchmark. The current environment has also contributed to higher operating costs, driven by increased diluent and diesel expenses associated with higher oil prices. Seasonal El Nino conditions resulting in higher power costs and appreciation of the Colombian peso.

We view many of these pressures as transitory rather than structural. As commodity prices moderate and market conditions normalize, we would expect crude oil differentials in certain operating cost pressures, particularly those linked to oil prices to moderate. Accordingly, we believe the current cost environment is not fully representative of our underlying cost structure. To manage our exposure to currency movements, we have implemented Columbian peso collars covering approximately 50% of our Columbian peso denominated costs for the fourth quarter of 2026, and have begun building a hedge position for 2027.

Operationally, we continue to look for ways to improve efficiency, including exploring new fuel and electricity options. From a marketing perspective, we are also finding ways to get more value from our lighter crude by using it for diluent blending to improve margins. We acknowledge that these represent many moving parts, and we are focused on providing more clarity around underlying assumptions to improve predictability moving forward. In parallel, we continue to advance the integration of the Frontera transaction and bring the Middle Magdalena assets into our operating portfolio.

We recognize that these assets carry a relatively higher underlying operating cost structure, creating an opportunity for Parex to aggressively optimize the combined portfolio. Our focus is on aligning operations, improving efficiencies and leveraging our broader operating platform to drive down operating costs over time. As we work through this process, our priority remains on translating our expanded production base into stronger margins and increased free cash flow.

Disciplined capital allocation and strong operational execution will remain central to our approach as we continue to optimize the portfolio. These efforts position us to generate higher free cash flow in Q4 compared to Q3. With that, I'll turn it back to Imad for closing remarks.

Thank you, Cam. As we approach year end, we are focused on completing the integration of our businesses, delivering our 2026 plan, and building for 2027 and beyond. Looking ahead, I'm very confident in Parex growth potential, activity delivered in '26 has helped to fundamentally reshape our portfolio. We strengthened our position to deliver near-term production, growth while pursuing larger opportunities that could take business to the next level.

Importantly, we believe the broader outlook is increasingly favorable. This is supported by a strong commodity price environment and more constructive policy and investment climate in Colombia. Combined with our expanded portfolio, strong operational foundation and many organic growth opportunities, we believe Parex is well positioned to create significant long-term value.

On December 9, we look forward to hosting our Capital Market Day in Colombia. We will present opportunities in our larger portfolio and our plans to grow production increase free cash flow and strengthen our balance sheet. To close, I want to recognize the hard work and commitment of our employees through the period of significant transformation for Parex. The integration of Frontera has been substantial undertaking but we are making steady progress and remain focused on realizing the full potential of the combined companies.

I also thank our shareholders for their continued support and confidence in our team and strategy. This concludes our formal remarks. I would now like to turn the call back to the operator to start the question-and-answer session for the investment community.

[Operator Instructions] Your first question comes from the line of Greg Pardy with RBC Capital Markets.

I know it's still early and you're probably in your budgeting process, so I don't want to steal anything away from the Capital Markets Day. But in broad strokes, what does -- what is '27, 2027 E&D, what does the program look like? And maybe what are the -- perhaps the biggest contrast with, transactions, obviously, dominated a lot of what you're doing.

Greg, it's Mike Kruchten. Thanks for the question. I think as we look forward, our outlook for 2027. What we've done is really establish a new base for Parex. And we see this as a much lower decline base than what we had before. I think the key change for '27 will be allocating capital to what we feel are very capital efficient, high growth projects with large margins, and that's primarily in the Eastern Llanos.

Okay. Very good. And then, Mike, maybe if you'll oblige me, just a little bit on the exploration side then. You guys referred to, I think, Piedmont and so forth. Is there any other high impact exploration we should be focused on for next year?

Well, certainly, the key, well, which is going to -- we expect it to start before year-end is the Piedmont. That's really our first well into the foothills, what we call the Triangle Zone, very exciting for us. That is, I guess, our key large exploration well for the year.

Can I add to that, that the program in the 111 Eastern Llanos and in general because we have multiple blocks there. We're talking 15 exploration wells. These are shallow cheap wells. So probably all put together will cost as much as one Piedmont well, but if you look at the volumes they're pursuing and success rate we expect, they also have combined a significant impact on our reserve base and ability to produce and grow.

So another thing which will change next year is if you followed our story today, we've been building the base for next year's production and guidance. And one part which will have, for example, is the gas sales. We are connecting the belleza and the new discovery in Labonita, all the way to the coast, where today's spot prices are crazy, we're talking $30 Mbbtu. But I mean we -- like -- if you look at the longer-term trend, you're thinking more closer to $15 MBBTU, but even that to get that kind of volumes through the pipeline to market, and we've already did all the investments, including the pipeline, which is tariff-based will also add to our free cash flow.

Finally, I want to reemphasize the investments in technology like polymer, which together with the previous investment in waterflood are helping our reducing our maintenance capital by reducing the decline rates.

I'll just add, Greg, you asked about the big change going in '27, Imads' comments, I mean, what we've been doing so far is building the base following the decline, taking our base assets to a 15% decline or lower. 27% is going to look like a lot of grassroots exploration and development growth. We're excited about our 111 program as as Imad talked about. We have an early start there. We are going to build egress that will not constrain us like this year. So look to '27 as growth year with growth coming through the...

Maybe I want to add one last thing. These new volumes coming from places like the Eastern Llanos have significantly lower OpEx and have the best probably netback we have in the whole portfolio, both because of the quality of the light oil is used as diluent and solvent that's premium, but also because of lack, almost no water, so that means your energy costs are minimum. In fact, all of the ones we have right now in Eastern Llanos are flowing -- natural flow. So there is like multiple impacts on cash flow by getting all these areas on production after the investments we've been doing last year and now in the dry season between Q4 and Q1 next year.

Okay. Yes. Look, you've referred multiple times to the -- just to your decline rates. So there's been a big focus in the company in recent years, but as you mentioned, water flooding, polymer flooding and so forth. So when you look at the combined portfolio in 2027 in terms of natural decline post Frontera and Magdalena and so forth, what does your decline look like now versus maybe it would have been a year ago?

I mean, Greg, it's Eric here. We would look at our base decline at 15%, and maybe that will shallow up further from there. What are the big changes, obviously, over the last years, Parex, historical large fields are in the shallow decline mode just due to natural progression, polymer and water flood EOR. So those are flattening. And the Frontera assets are performing very, very well. They're performing consistent with what we believed when we entered deal with Fontera and they are helping lower that decline further.

And the same applies to the assets we got in the Mag. Farming was Ecopetrol, that probably's similar to the declines of the Frontera assets?

Yes. They are -- the Frontera and mid-Mag assets are on the lower end of our combined 15%. So they are -- the maturity and EOR efforts of our legacy assets, plus adding in all the shallow decline assets has really flattened our base decline.

So if I compare to last year to complete your question, like last year was close to 25%. A couple of years ago, it was north of 30%, to be now at 50% decline rate by the addition of all these assets and the investments we made makes our cash flow much more predictable in a way on a longer duration period as well as reducing significantly our maintenance capital.

[Operator Instructions] Your next question comes from the line of Daniel Guardiola with BTG.

Mike. I have a couple of questions. One is on cost inflation. I would like to know if you can share with us how much of the cost pressure that we saw in the Q is generally temporary, as you highlighted, due to FX appreciation, wider differentials versus actual structural factors associated with the newly acquired asset base of Fontera. And perhaps, more importantly, what level of the cost should investors consider sustainable heading into 2027. So that's on costs.

Daniel, it's Cam Grainger here. Just on the cost pressures we're facing. In terms of -- there's really 2 components. It's the FX, the Colombian peso appreciation, which -- when we look at our netback, it's basically added in the quarter kind of $3 as far as cost there. And then also on the power side, power prices contributed about $2 as well. So those pressures, we think will subside here over time. But those are the 2 components that were -- 2 pressures we're facing right now.

So 2 things on that. One is, I mean, you're very familiar, your bank in particular is very familiar on how much hedges right now trade for long-term electricity prices, which are probably half of today's peak. So the market expects that over time, these costs will go down [indiscernible] fuel costs. Some of the costs are related to the higher oil price. So that the reverse is true now that the oil prices are going down. .

And on foreign exchange, we do take loss of hedges on that, too. Some of them are coming, like I think, 50% in quarter 4.

Yes.

Yes. So -- and finally, I think the bet -- on an average basis, these new volumes we're getting from all these discoveries, whether there are Eastern LLanos or selling gas out of them have very low cost per barrel, I would say, 5x less than the average barrel, OE outside.

Which will balance off our total portfolio as we added Frontera volumes that tend to have higher operating costs. So our growth will help stabilize the overall OpEx for the company.

For 2027, our initial view is we will have lower op cost than where we currently stand. And there's a couple of key factors there. If you just assume a lower oil price in '27 that will help reduce the op cost and then adding the new lower cost barrels as Imad said, Eastern Llanos, the gas production will also contribute to lower costs.

I have another question on Frontera. And I know, Imad, you touched on this in the presentation, and its own synergies, provide a breakdown of where the expected additional savings from these acquisitions are coming from. And so far, how much of these total synergies have already been captured and when we should expect to see the full benefit to flow to your EBITDA.

So if you look at the synergies, some of them come through the taxation, I would say, more than half then you have synergies coming from G&A. That's just starting because we are, in fact, busy with some rationalization of the duplicated positions in the company. There are synergies related to supply chain and contracting, and we've seen some of these start to come together.

I mean I'll give you an example of one tariff contract where we doubled the income from that. So there are a number of things coming together on all these fronts. Did I forget anything big here? And marketing. Marketing, we're doing very well. We started to replace the napth that Frontera used to buy with our own lighter oil so that you mix 2 oils that were overspec on underspec and you can go into the pipeline without spending money on it, I'd say, $1 a barrel or so.

So if you add all that, I would say, in '27, we'll be above the 50 million upper end of initial estimate. This year, we already captured a good part of these numbers I'm talking to you about. However, it was partially offset also by the one-off cost of integration severance and the transaction itself, yes. So you probably wouldn't see all of that. The factors you'll see is a limited amount of that this year in terms of costs because you don't have the full year when you run some of these numbers. But next year, we expect more than $50 million of free cash flow extra.

And just the last one to add on capital allocation. We have spoken many times in the past that your priority right now for the free cash flow is to deleverage your balance sheet. But considering now where your leverage is right now, I wanted to ask you and also considering the market reaction right now, perhaps you may also consider to reactivate your buyback.

On the personal level, I can tell you this is a buying opportunity. There is a balance between buybacks as such, which I think from -- if you look at the math, it makes complete sense you're spot on. And the desire we have internally and with the board, but also from other investors to say, it's a very volatile world. Why don't we first bring our debt to below half a turn and then use that after that moment to restock buybacks. I think we're still more on the safe side where we -- I think this market reaction will not last forever, but a stronger balance sheet will. And we need to just stay consistent with ourselves on that front.

Daniel, one more thing is certainly, as we look forward into 2027, I think we view if we can add growth projects at a better, I'll say, capital efficiency or a better valuation than our current valuation, we also would have a preference for capital allocation to growing our overall business.

So 1 -- 2 more points. I think when we invest this year, I don't know more than $120 million in carry activities, we're paying back $60 million of liability or $70 million of liability this year. So in addition to the debt repayments, we're delivering this year, we are reducing our liabilities. So we're using this opportunity also to make the company a little bit safer. The biggest synergy in my view on Frontera that doesn't come out in direct numbers is the capital allocation. We moved so far 3 rigs, probably 4 to come from wells that would deliver 150 barrels a day for, let's say, $1.5 billion, $1.5 million to places like Eastern Llanos where the wells will probably [ cost completed ] $3 million base, so double, but they will produce anywhere between 1,000 and 3,000 barrels a day.

So -- and -- and that capital allocation question, you will also see in the capital efficiency next year and beyond because, yes, we have very, very good opportunities now to deploy our capital on the combined optimized portfolio versus 2 separate entities.

There are no further questions at this time. I will now turn the call back to Mike Kruchten for closing remarks.

Thank you, operator. I appreciate everyone joining our call today. If you have any further questions, feel free to reach out to me. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Thank you. Hello everyone, thank you for joining us and welcome to the PARICS Resources Q2 2026 Operational and Financial Results. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. will now hand the conference over to Mike Cructon, Senior Vice President of Capital Markets and Corporate Planning. Mike, please go ahead.

Thank you. Good morning everyone and welcome to Park Resources second quarter, two thousand twenty six conference call and webcast. My name is Mike Crofton and on the call with me today are our president and chief executive officer, Ahmad Molson, our chief financial officer, Cam Granger, and our chief operating officer, Eric Furrier. Please note that any time telephone participants on the call can press star 1 to submit a question. As a reminder, this call includes forward-looking statements as well as non-GAAP and other financial measures, with the associated risks outlined in our news release and MD&A, which can be found on our website or at cdarplus.ca. Note that all amounts discussed today are in U.S. dollars, unless otherwise stated. I'll turn the call over to Ahmad. Please go ahead. Thank you, Mike, and good morning, everyone.

Over the first half of 2026, Barracks completed major transactions to become Colombia's largest independent EMP company. This has resulted in the company nearly doubling its production guidance to roughly 86,000 barrels per day at the midpoint. and expanding our footprint to over 7.9 million acres. With these transactions behind us, our focus shifts to capturing synergy and delivering strong operational performance. first the front-end transaction is officially closed with the integration of integration processing smoothly. This major acquisition has added stable production, both top tier technical talent to our team and significantly added to our long-term reserves. Today's updated reserves report information reinforces our acquisition thesis and validates our capital allocation strategy. As we continue to evaluate the portfolio, foundational work is already underway to unlock operational and strategic synergies that will generate compounding efficiencies over time. Second, our Magdalena partnership with Egg Patrol has closed and we have secured all regulatory approvals. through a $250 million five-year capital program and zero upfront acquisition costs.

They have secured a 50% interest in the Casabianito blocks, which have significant oil in place. So pressure momentum is building as we prepare to begin turning our first walls, which will trigger our 50% participation. And the block is currently roughly 15,000 bars a day of production growth. Beyond current volume, this acreage offers significant long-term upside through water flood optimization, EOR, and development drilling. Third on the organic front, they are very encouraging. We are very encouraged by our recent success in Eastern 111, where we have delivered four discoveries so far in 2026. Our team views this area as highly prospective, and we are actively developing a multi-year development and egress strategy with plans to drill up to 20 wells over the next 12 months to grow and expand this region.

Looking ahead to the second half of 2026, I'm energized by our operational momentum, especially as we prepare to spot our Piedmont exploration prospect in the foothills, which represents a major growth opportunity for Barracks. With that, I'll turn it over to Eric. Please go ahead, Eric.

Thanks Ahmad. In the second quarter, production averaged over 54,000 BOE per day, supported by the first month of Frontera volumes. Today we are building positive operational momentum. Starting with Frontera, the assets have delivered strong operational performance since closing, and we are actively evaluating the broader portfolio to optimize production and drive field level efficiencies. In the Magdalena Basin, we are completing initial activities to drill our first wells in the Casabe and Janito programs. The initial rig is expected to begin moving shortly, and we are excited to initiate these campaigns, which are expected to add stable, low decline production and establish a new core operating and development area for PAREX. At POC 111, current production is averaging over 5,000 barrels per day, with seasonal weather constraints temporarily limiting output. To support long-term production growth and address seasonal weather challenges, we're advancing a phased egress expansion plan that will scale alongside drilling success.

As Ahmed mentioned, Over the next 12 months, we plan to drill up to 20 exploration and development wells. This is supported by plans for ongoing seismic acquisition to continuously replenish our exploration inventory. Together, these initiatives provide a clear pathway toward growing long-term production capacity with significant running room ahead. This quarter we also released our pro forma reserves evaluation, marking a significant milestone as both PDP and 1P reserves increased by more than 80%. These results validate our acquisition thesis for Frontera and Magdalena assets and highlight the value created through these transactions. Looking ahead, our capital allocation priority is clear. Leverage the bulk of the free cash flow generated by these foundational assets to continue investing in BioAXIS high-quality exploration and development inventory.

We are energized by our current production, which is averaging over 83,000 DOE per day and puts Pyrrhax on a clear upward trajectory for the second half of 2026. With that, I'll turn it over to Cam. Thanks Eric. Our second quarter results mark an inflection point positioning the company for the.

generation as the benefits of our transformed business take hold. Adjusting for 59 million of one time transaction fees and realized hedging losses, second quarter results were strong. As previously communicated, these temporary integration and transition costs along with the disclosed hedging losses were anticipated and should be excluded to provide a clearer view of and financial performance. Looking ahead, we are reaffirming our second half 2026 guidance which fully incorporates the contributions of both the Frontier Acquisition and the Echo Patrol Partnership at a $90.00 Brent assumption for the second half of the year we expect funds flow from operations of $475 to $525 million against capital expenditures of 275 to 295 million, recognizing that actual results will vary depending on where oil prices settle. While While market conditions continue to evolve, we are closely monitoring the factors impacting cost and pricing. Elevated energy prices, partly driven by El Nino weather patterns, along with Colombian peso appreciation, are placing upward pressure on production costs, which are now trending toward the upper end of our guidance range. At the same time, VASCONIA differentials have widened in recent months, impacting projected realized pricing.

Despite these factors, our expanded production base and expected strong operating performance should support significant pre-cash flow generation. As integration progresses for Frontera and we start operations at the Magdalena assets, our team is focused on portfolio optimization and cost synergies. This focus will drive compounding efficiencies and expand our free cash flow profile, giving us the flexibility to reinvest in organic growth, strengthen our balance sheet and return and capital to shareholders. To finish from a reporting lens, we are pleased to announce that we have published our 12th annual sustainability report, underscoring our ongoing commitment to environmental stewardship, community partnerships and strong governance across our operations in Columbia.

With that, I'll turn it back to Ahmad for closing remarks. Thanks, Cam. To close, I want to reiterate the scale of the transformation on the way at Barracks. Today's business is positioned to unlock a deep portfolio of development and exploration catalysts to generate substantial free cash flow. This is establishing the parks as a premium growth story in the global energy sector. Capturing synergies and integrated recent, to deliver on this vision, we remain highly focused on three core priorities. Capturing synergies, number one, and integrating recent acquisitions to build operational base. Number two is building on our exploration momentum in the eastern Llanos. establishing a new operating area for Pyrex, and number three, advancing high-impact exploration in the Janus foothills, starting with the Pied-de-Monte prospectus vault.

I have never felt more confident about the direction of our company as a heading. Building on our expanded acid base and multiple growth engines, PARX is well positioned to sustain its momentum through the second half of the year and beyond. As we move forward, I want to thank our employees, partners, shareholders, board of directors, and local host communities for their continued trust and support. The strategic progress we are celebrating today is a direct result of the hard work and collaboration of many. That concludes our formal remarks, and I'll now turn the call back to the operator for any questions.

We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. There are no further questions at this time.

We'll now turn the call back to Mike Crechton for closing remarks. Thank you, Operator. We look forward to updating our investors with how PARX is progressing, a step change in our portfolio. Thank you very much. Please feel free to contact us if you have additional questions. Take care.

This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Everyone, I'd ask you to take your seats if you're in the room. Thank you for joining us, and welcome to the Annual General and Special Meeting of Shareholders of Parex Resources Inc. The meeting will now come to order. My name is Wayne Foo, and I am the Board Chair of Parex. With the approval of the meeting, I will also act as chair of the meeting.

This year's meeting is being held in a hybrid format to allow registered shareholders and duly appointed proxy holders to attend the meeting in person or virtually through the Lumi virtual shareholder meeting platform. Registered shareholders and duly appointed proxy holders attending virtually will be able to vote and 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 Lumi virtual platform. Questions related to 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.

I'd like to now introduce the other directors who have joined us in person here today. I would ask that each director stand when their name is called: Lynn Azar, Alberto Consuegra, Mona Jasinski, Jeff Lawson, Bob MacDougall, Glenn McNamara, Carmen Sylvain; and Imad Mohsen, Parex's President and Chief Executive Officer.

I'd also like to introduce the other executives of Parex in attendance today, Eric Furlan, Chief Operating Officer; Cam Grainger, Chief Financial Officer; Mike Kruchten, Senior Vice President, Capital Markets and Corporate Planning; Josh Share, Senior Vice President, Corporate Services; Katie Bernard, Senior Vice President, New Ventures; and Daniel Ferreiro, President and Country Manager of Parex Colombia.

As this will be my final Annual General Meeting, I'd like to thank my fellow directors, management and our shareholders for their continued support. It's -- with the [ precursor ] company, it's been 23 years now, and it's been a great ride. It's been a privilege to serve in this role, and I'm confident that the company is well positioned for continued success.

I'm also pleased to welcome Glenn McNamara as incoming Chair. His experience and leadership will serve the Board and the company well.

I will ask Candace Herman to act as Secretary of the meeting and Nazim Nathoo of the Odyssey Trust Company of Canada to act as scrutineer of this meeting. So that all business matters are covered within a reasonable period of time, we have prearranged movers and seconders for certain resolutions. This procedure is not intended to discourage participation but rather to expedite proceedings.

After the formal business of the meeting, I will pause to address any questions submitted through the virtual portal, specifically those related to the AGM. We've previously mailed to the shareholders the meeting materials and financial statements of the company for the year ended December 31, 2025, and the auditor's report thereon. I ask -- I direct that copies of the documents mailed to the shareholders, along with the confirmation of mailing of such documents provided by Odyssey be kept by the secretary with the minutes of the 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 holders 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 in-person ballot and by way of a vote cast on the Lumi virtual platform. I understand that the scrutineers have tabulated all the votes received prior to the voting cutoff. Thank you to our shareholders who have voted in advance. If you have previously voted, you do not need to vote again. By voting again, you will revoke any previous vote made prior to the voting cutoff. I will now ask Odyssey to open the balloting for registered shareholders and duly appointed proxy holders voting on the Lumi virtual platform for all resolutions.

The polls are now open. At this point, all registered shareholders and duly appointed proxy holders attending the meeting virtually that have properly logged in with their control numbers or user name and who wish to vote will be able to see on their screen all motions being brought forth at this meeting. These include a motion to terminate the meeting, which will be enacted after the announcement of the voting results on the matters considered at the meeting. Please register your votes by selecting the for, against or withheld buttons as applicable next to each of the resolutions. If you are 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 scrutineer now.

Details of the votes cast on all matters may be obtained from the secretary after the meeting. I direct that the scrutineers' report on all matters be annexed to the minutes of the meeting as a schedule.

The first item of business is the presentation to shareholders of the financial statements of the company for the fiscal year ended December 31, 2025, and the auditor's report thereon. A copy of the financial statements has been mailed to each registered shareholder and is also available 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.

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

I second the motion.

Are there any questions from any registered shareholders or proxy holders? The next item of business is the election of directors.

I nominate Lynn Azar, Alberto Consuegra, Sigmund Cornelius, Mona Jasinski, Jeff Lawson, Bob MacDougall, Glenn McNamara, Imad Mohsen and Carmen Sylvain, 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 Corporation Act and the bylaws of the company.

I second the nominations.

Are there any questions from any registered shareholders or proxy holders?

The next item of business is the appointment of auditors.

I move 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.

Are there any questions from any registered shareholders or proxy holders?

The next item of business is the approval of unallocated options issuable under the company's stock option plan for a 3-year period.

I move that the ordinary resolution as set forth on Page 24 of the Information Circular dated March 24, 2026, approving all unallocated options under the company's stock option plan for a 3-year period be approved.

I second the motion.

Are there any questions from any registered shareholders or proxy holders?

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 March 24, 2026. 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 in the information circular of the company dated March 24, 2026.

I second the motion.

Are there any questions from any registered shareholders or proxy holders?

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 this meeting.

Mr. Chair, I make that motion.

I second the motion.

As voting has been previously enabled for all motions on the Lumi virtual platform, if a shareholder attending virtually has not voted yet, please do so now. If you are 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 scrutineer now. I will pause briefly to allow final voting.

[Voting]

Voting is now closed. The voting page on the Lumi virtual platform will now disappear, and your votes will automatically be submitted. I will now pause to receive voting confirmation from the scrutineer.

Thank you, Nath. I've been advised by the scrutineer that all resolutions have been approved by more than the requisite majority. Therefore, I declare the resolutions carried. Details of the votes cast on each matter may be obtained from the Secretary of the meeting. I direct that the results of the poll and the scrutineers' 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 Toronto Stock Exchange and the results on all 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 being none, in adherence with the approved termination motion, I declare this meeting terminated. Thank you to our registered shareholders and duly appointed proxy holders for joining us in person or virtually. That concludes the formal business of the meeting, and I will now turn the meeting over to our Chief Executive Officer, for a corporate strategy update.

Hello, everyone. It's an honor to thank Wayne for all the great things he's done for us. Wayne founded Parex, in fact, after he founded Petro Andina. Not many people discover or make multi-hundred million dollar or $1 billion companies twice. And if you have time to discuss with Wayne, all the other great things he's done before, you need to save like a couple of hours. There is an amazing, amazing history of a man. He's -- he had an impact on all our lives in Parex. But I would say also to have that positive impact on tens of thousands of people down in Colombia. That's fully in line with his values. And that's an accomplishment of a man to say I look back at my life, and I helped tens of thousands of people have much, much better life than otherwise. So you can be very proud Wayne, thank you for that. I owe him a lot. My wife, [ Mika ], is there. When I was interviewing for Parex, I told her, they're never going to take me. I don't know anybody in that Board in Canada and never worked in longer. They just want to have somebody with colors for the diversity slide the consultants give.

But Wayne saw something. We had very similar values, including delivering excellence business-wise, but also having the stakeholders benefit from it. And somehow it clicked and somehow that was the first time he trusted me. And I appreciate that far away through in the middle of COVID to someone sitting in Holland, yes. There -- after that, at different points, he also would come to me and say, "Now that you've passed this and that milestone, I can relax. I trust you to run the company." And yesterday is like -- you're on with it, which is lots of weight, but that's the person Wayne is. When you're worried about joining a founder company, you are worried about being micromanaged, you are worried about the history, worried about the interaction. And I would say the interaction with Wayne, as Board Chair and the founder of Parex has been exemplary. I learned tons from him, and he would be generous with advice, but very careful never to take away the accountability. And thank you for that, Wayne.

So Wayne was Founder, Chair and CEO, I wouldn't pretend that his shoes ever will be filled. But I'll do my best to continue that route. And you chose your time. Yes. Yes, but you knew, like, the share price will be up there, and we'll double the company, of course, this week. So thank you so much, Wayne. There will be more talk this afternoon when we have a small reception to say thank you to Wayne.

Where are we now? We -- I know we're careful here, we say positioned -- we are the largest independent company in Colombia. We were the largest before the mergers and the 2 deals and now we're just far, far the largest and largest in terms of value creation, not only production, not only market cap. We have a wonderful portfolio with growth run rate and fantastic exploration upside as well as a track record of being fair to our shareholders and return of capital to them. And that's while being good neighbors, while having good ESG track record where we leave the places better than we get into them. That's how we think about the stuff.

So if you ask me about the investment case for Parex, I would say, if you look at many of the Canadian equivalents we have, they would deliver the first part. Usually, people have -- the good companies will have track record of value delivery on base assets. We aim for more than 15% annual shareholder return. Probably much higher at these oil prices, but you cannot count on them forever. And that's through 3% to 5% base growth using proven technology and dividend and now repayment of debt. But what distinguishes Parex is we can do all that and spare enough capital to have a chance every year, I would say, 50-50 to double the company by drilling transformational exploration prospects. And we shouldn't forget that Parex was built on exploration.

So the success, the cash flow, Llanos 34, the history we discovered all that, and we want to keep doing it. So this slide, the part of it, which is probably a little bit repetitive because I've been showing that slide for 4 years. It's exactly the same slide about our strategy. But somebody told me a long time ago, a good strategy doesn't change every 6 months. And the fact that we're maintaining the strategy that is proving that's working for us. So one of the core things when we decided to focus on Colombia was that the technology used in the country was still very much behind what you see in Europe and North America and Middle East. Most of the mature areas in the world. So there was lots of low-hanging fruit, where experts in our company would say, but why aren't we doing waterflood or horizontal, God forbid a multilateral drilling, the second one in the history of the country as we speak, and polymer flood, surfactants, all that was really either rarity or nonexistent.

And given that the last year, conventional oil and gas replaced reserves in the world was 1986. Last 50 years of reserves, additions and production came from the things I just mentioned, which is use of technology to increase recovery factor. This thing has proven itself over and over again and physics doesn't stop at the borders of Colombia. So we decided to learn, bring the expertise, the contracting capability, break the psychological barriers to try these things, and they paid off handsomely.

The second part of our strategy has to do with exploration and some of it we pivoted into low-risk, high payout exploration in the last couple of years that's been working fantastically. And the other part, which also feeds into the gas strategy, where we saw upcoming shortage 3, 4 years ago in gas in Colombia had to do with developing the VIM field, which soon we will be owning 100% of and the foothill exploration, which is I would say, the heartland of onshore gas in Colombia. So this strategy still works. In fact, it's been proven more and more necessary for the company. And good part of the reason why we did these 2 additional transactions is to have the base income and the base production to enable us to either deploy technology across a bigger base or to fund the exploration and other at-risk activities with less volatility for the company.

So the strategy remains. I want to give you a small example here. This is a field which is -- we call Cabrestero because this is where the line of Llanos 34 block ends, and we operate it 100%. In '21, the base black line was our internal forecast. Then we started doing waterflood that cost us $370 million and it paid off handsomely already since, increasing production to a peak of close to 15,000. Now the beauty of building waterflood is when you tuck in polymer to it, adding another wedge of benefit, that only cost us $10 million in capital and some OpEx. So this is what technology does. This is how the word replaced the reserves and production worldwide. You have that black line and suddenly you have the gray and green line coming.

On the exploration side, we are, by far, the biggest landowner in Colombia on par with Ecopetrol, the state-owned company. And that's because we decided before the elections in '22 to say, let's go and do a land grab. And we did it at fantastic terms, at minimum terms, in fact, in terms of tax and commitment when everybody was worried about COVID. And we spent the last 3, 4 years maturing these prospects. We had environmental impact assessment, consultation with local communities. We shot seismic. Then we looked at the wiggly lines a lot. And we came up with a huge number of very good prospects. In fact, right now, we are looking at 140 prospects and the funnel adds another 30 to 40 per year.

Now out of that funnel, we basically try to high grade them and we end up with 20 to 30 drill-ready projects. How much do we drill on average, 7 or 8 out of the 30. And that's one of the reasons why the -- we had potential for very, very accretive, very profitable projects. But with our capital limitations, we are capital constrained in an opportunity rich environment in Parex alone. So that's where the story starts on why do you want to add, for example, Frontera assets to this. This is an example of the gas story I was telling you. Netback on gas today in Colombia is $11 or so per MMBtu for gas connected to pipe. When you track it, we get $9 at well head, unthinkable for North America. And that's because there's a shortage. And the shortage is not getting any better in the next 2, 3, 4, 5 years.

So the beauty here is we started talking to Ecopetrol about this making evaluations years ago. And we managed to agree basically to through a couple of agreements, farm-ins, et cetera, to homogenize the whole foothill trend, except of that small area in the middle, which was used to produce 450,000 barrels of liquids peak at 3 Bcf a day. So we have with Ecopetrol the whole trend, 50-50. I like to be a partner with the government because everybody has a stake. And they trusted us to operate, which is a huge honor for a company the size of Parex, 10x smaller than Ecopetrol, because of the excellence of the people in terms of social access, drilling and willingness to provide capital -- exploration capital. And we have agreement also to use existing infrastructure, whether it's treatment facilities or pipelines to go straight to market.

When I talk about the possibility to double the company overnight, yes, any of these discoveries has the potential to add another Parex. And we will do that. We will do it in a paced way so that we don't have too much money at risk at any given year. And as a percentage of the total, the bigger company we have now has less exposure by doing the same level of activities. So that fits the strategy. So the way we look at things in terms of the lower risk up to the higher risk, we have now a very robust base, the cash cows, Llanos 34, Cabrestero, Capachos, to some extent, Quifa, CPE-6, Magdalena. These are fields that will last for decades, providing cash flow with minimum investment.

We invested a lot, in fact, already in these fields like Llanos 34 and capped to reduce the decline rate. And the idea is you'll have relatively moderate or low decline fields, delivering cash for a long time. So our shareholders are confident and comfortable we will pay them there dividend and also our bond holders get their interest, and we have the money to fund the business, almost at any reasonable oil price. And then on top of that, we have now built a good development inventory. Part of it through the partnerships in Ecopetrol, like the Putumayo and Magdalena, part of it towards the acquisition like CPE-6 and existing fields like Capachos or VIM-1. And these are predictable infill wells, waterfloods, the type of technology I talked about before, polymer surfactant.

Then we have the near field, the 30 drillable targets a year. And these are looking really interesting because they make lots of money in terms of quick payback, good production. These are not meant to replace long-term reserves, but every year, they generate amazing amount of value. And on top of that, there's a footed transformational opportunities I talked about. We aim to drill 1 to 2 wells a year, call it, 1.5 well a year, 1 rig. To have that exposure that option value to jump at any time that normal and conventional companies cannot do.

So if I look at the coming catalysts, and I know it's a strategy presentation, but some of you here also care about the short term. We need to close and integrate the transaction with Frontera. I dare say the hardest is behind us in terms of closing, and we need to go through the papering of it. The -- we need to progress some of the very promising discoveries we're having in Small 'E', near field exploration, get going on drilling in the Magdalena where the timing of that will affect when we start to get half of the existing production, which is significant and get on with the development plan there. But that spud date for me is a catalyst and drilled the foothill well, which we have high hopes for.

There will be Colombian elections in June this year. And the way I look at it is we work very well with the last -- current left government, and we will keep working with, let's say, a successor, if it stays on the left. But if it does swing to the right and if you see some neighboring countries, that has a very positive effect on the share price. So we're ready for both, and we'll take the upside on share price.

So what have we done with the Frontera acquisition. Now we have much bigger company, much more stable base to that pyramid with the production coming from Frontera. And we can deploy the technologies and the skills we've been investing in for the last few years, a much bigger footprint. We have more running room. There's more potential for capital allocation. Frontera had 1 million acres to our 6 million because they didn't get acreage in the last 6 years. Which meant they had less choice on where to deploy their capital than we did. So you're merging an opportunity-rich company who is capital constrained with another company which is opportunity poor, but very cash flow generative. And that's the industrial logic for it. Then you get much stronger combination for the 2.

There's lots of synergies. Some of it are tax, some of it are dilution of marketed oil, some of it are just G&A. If you think about the executives of Frontera staying with the mothership and other areas. And I would say there's synergy in terms of talent. There are areas where Frontera have been doing best-in-class delivery. I would think about the operational performance, cost of their horizontal drilling, for example, in Quifa is unequaled. There are areas where Frontera has things we would love to learn from. Many of these opportunities I was talking about, need good people to run, and now we're having much bigger pool to choose from.

The value of the deal is just was already fantastic at $65 a barrel when we were evaluating it. I would say, given that the effective date of the transaction is January 1, 2026, and they are unhedged. We -- a little bit of luck doesn't hurt. So with today's oil price, yes, this is beyond good for our shareholders. And I can say that they voted already for the deal like 2 weeks ago. And the whole combination will create, I believe, very sustainable shareholder returns.

I would say a similar story in the Magdalena. And the question I got from analysts was why did they even do that because if you look at the numbers, we are getting access to huge in-place volumes, more than 3 billion barrels where we can use the technology. We pay $125 million carry capital, but we get half of 15,000 barrels a day of production and production income. And basically, that should more than pay for the $125 million carry capital over 5 years, yes, that we are committing to. And the logic here is we sat down with Ecopetrol and we looked for a win-win. And the reality is this -- these fields were not high on their priority in terms of capital deployment.

So the do-nothing case would have led over 3, 4, 5 years to -- especially when we were talking about the deal at $65 to the wells not being economic. So -- and the projects and specific technologies we committed to deploying on these fields would generate a growing production, which means higher per barrel margin, which means more benefit for both companies and job security for the people working there. And yes, they calculated that they would rather have 50% of a growing production over 20 years than 100% of declining production over 3 or 5.

Now financially, this makes a fantastic sense for us. And of course, with the oil prices jumping the way they did, it became even more so. And -- but the idea here is to benefit our partner, the stakeholders in both assets and our shareholders. And that was the basis for this deal. So we are joined at the hip with Ecopetrol, but the reality is all of Colombia is joined at the hip with Ecopetrol. So I don't see more company risk being close to Ecopetrol than operating in Colombia. Ecopetrol is Colombia. And we are working with them and now, as I mentioned, is Magdalena, but we have a long history of operating in Northern Llanos and Capachos where we're producing 8,500 barrels a day gross. And where they a year or 2 ago, extended our lease there by 15 years.

The Putumayo is an extremely promising area where we are deploying technology and capital, and we think that will be one of the areas where we will have a stable predictable set of development opportunities that the new scale of the company would require campaign drilling, campaign developments. And the foothills that I mentioned before that -- a good part of the country's politicians, the industry is looking at as the solution, the potential solution to the gas crisis in the country.

At the time of the acquisition, our valuation was 33,000 per barrel flowing, 20,000 was what we paid for Frontera EV and 16,000 for the Magdalena. Now of course, with the oil price going up, our valuation is probably north of 40,000 today. And the other 2 numbers didn't move, probably, I'd say the Frontera number net of what they'll make until closing is going down over time. So this is beyond accretive. And I think, the timing of it will help all Parex shareholders.

It completely changes the size of Parex, and it's a new company today. It's double the company it used to be with lots of upside inventory. And we have ways to invest the cash while returning more so, I would say, through debt payment to shareholders than we ever did before.

So if you look at the history of Parex, we had the first phase, which was a direct result of exploration success. It was a growth phase and first, some smaller fields and Llanos 34 trend and Cabrestero. And this golden age meant, lots of profit to the people who invested early in the company.

Came the second phase where the challenge was how do you deal with the decline of the biggest field in Parex that was responsible for more than 80% of the cash flow and 3/4 of the production, if you add Llanos 34 and Cap. And there was lots of doubt there that Parex will follow the same route and other companies that would just failed to replace that big field and become half what they are.

Now the strategy I mentioned before, which was let's use technology, drill horizontals over water, use waterflood, reduce decline, become our own mainly operated company. That was that phase. And we were learning while doing. Running behind the decline at 30% a year, while finding other opportunities to do. And I remember the fear in the eyes of Daniel, when I told him, our capital on operated fields will multiply by factor 4, get your access social execution people ready because that's what it takes, yes. And people jumped to the challenge.

So over that period, we managed to stabilize the company, replace all production and reserves, distribute $1.5 billion to the shareholders for buybacks and through dividend. While building the capability of the company that's sustainable in the future, and that could take on the 2 acquisitions today. And that period, combined with the 2 transactions is putting us at Phase III, a new beginning. And I'm glad to be here today at that point where we -- the sky is the limit for Parex.

This is how we compare in terms of -- compare to oil producers. The first set of numbers is our competitors in Colombia. And we did not want to be mean, so we didn't put the market cap, just the production numbers. And you can see, we became by far the force to reckon with in Colombia when it comes to public-private partnership in developing oil and gas. To the right, you see how we compare to the oil-weighted companies in -- I'm talking about mid-cap producers in Toronto Stock Exchange. Again, we are becoming much more relevant as a company on the TSX. And Mike would also try to put us on the Colombian secondary listing to get access to the funds allocated capital there.

So yes, it's good to be relevant. We -- our market cap today will be the fourth biggest company in Colombia. So it took lots of work of lots of people in this room to close these transactions to work on midnight and beyond. And people knew the value of urgency, given that the political environment, the oil prices going up and just to make sure these things close before anybody changes their mind. But once you close the transaction and you think, okay, now we can breathe the real work starts.

So we have to keep optimizing the base business, which is much bigger, integrate the companies without losing value. We want to get the best of all these companies, all these assets and not just duplicate Parex or triplicate Parex. Want to have 1 plus 1 plus 1 equals 6. We will continue the high impact growth in the foothills and disciplined capital allocation, which I mentioned before was the rationale for some of these deals. And we don't like debt at Parex. So yes, you'll see the debt that we accumulated to buy Frontera reduce very quickly in the next few years.

So it is a new chapter. We're all excited about it. And the value proposition doesn't change. It's a company where you are paid to wait, make a very decent return and on the base predictable part of the portfolio, but also has a promise of repeating the first growth spurt you saw in Parex's history at any point in time. And the best time to buy is just 1 week before we announce that discovery. Thank you. Mr. Chairman, do you want to?

Sure, one final -- yes, I think that Imad gave a fairly comprehensive discussion there. But what I like about the story is the part where we go from discovery to distributions and now we have both. So that's great, love it. There are a couple of people who wandered in that I see familiar faces. I'd just like to acknowledge one of them. And [ Glen Russell ] came in and is sitting at the far end of the room. [ Glen ] was the first chair of Petro Andina. So if you want to look for long service he's my rival. And Glenn said when we started the company, he used to run with a Mark Twain quote said, "There's a time in every boy's life when you should go and explore for treasure." And the treasure hunt, [ Glen ], when you looked at the slide, the treasure was there. So thank you for your help at the start and all of you came along the way and I hope that I have a chance later in the day or here to just meet with you and express appreciation for your support. Thank you. I think that's it. Is it? With no questions, off we go.

Hello, everyone. Thank you for joining us, and welcome to Parex Resources Q1 2026 Operational and Financial Results. [Operator Instructions] I will now hand the conference over to Mike Kruchten, Senior Vice President, Capital Markets and Corporate Planning. Mike, please go ahead.

Good morning. On the call with me today are our President and Chief Executive Officer, Imad Mohsen; our Chief Financial Officer, Cam Grainger; and our Chief Operating Officer, Eric Furlan. [Operator Instructions] As a reminder, this conference call includes forward-looking statements as well as non-GAAP and other financial measures with the associated risks outlined in our news release and MD&A, which can be found on our website or at sedarplus.ca. Note that all amounts discussed today are in U.S. dollars unless otherwise stated.

I'll now turn the call over to Imad. Please go ahead.

Thank you, Mike, and good morning, everyone. Over the first half of 2026, Parex executed a series of strategic transactions that have positioned us to become Colombia's largest independent E&P company. These transactions were designed to add complementary assets that enhance our scale, deepen our portfolio and strengthen the profitability and duration of our business for long-term growth. Starting with the Frontera transaction for $725 million, this $725 million acquisition adds roughly 37,000 barrels equivalent a day of highly accretive production with strong industrial logic and compelling synergies. It materially increases our reserves inventory and strengthens long-term production visibility while being secured at an attractive valuation.

Importantly, we are bringing in a deep bench of core technical talent and operational capabilities that will further strengthen our organization and enhance our ability to execute across the large asset base. The transaction also supports more efficient capital allocation across the portfolio, enabling us to direct free cash flow from mature assets toward our highest return development and exploration opportunities.

Secondly, the expanded partnership with Ecopetrol with Magdalena in the Magdalena Basin. We have entered into an agreement with Ecopetrol that allows Parex to earn a 50% participating interest in the Casabe and Llanito blocks in Colombia's Magdalena Basin through $250 million gross capital investment commitment over 5 years with no upfront acquisition cost. The transaction further expands our strategic partnership with Ecopetrol and reinforces our long-standing collaboration in Colombia. These mature fields currently produce approximately 15,000 barrels a day and offer significant long-term upside through enhanced oil recovery, waterflood optimization and development drilling initiatives.

The transaction provides a proven operating base with clear path to incremental production growth, leveraging Parex's established track record of enhancing recovery through the application of proven technologies. Upon completion of these strategic transactions, Parex is expected to become the largest independent Colombian-focused exploration and production company with average production of 82,000 to 91,000 BOE a day, nearly doubling corporate production, alongside a land position exceeding 7.9 million acres and significant long-life reserves. This expanded business provides a scale, inventory depth and financial capacity to drive superior long-term returns while enabling more disciplined allocation toward our highest return opportunities.

With that, I'll now turn it over to Eric to speak on our current operations. Eric, please go ahead.

Thanks, Imad. In the first quarter, production averaged just under 45,000 BOE per day. While current production levels are below Q1 averages, we expect stand-alone production to improve throughout the remainder of the second quarter and exit at or above 45,000 BOE per day. This growth will be supported primarily in our Putumayo operations and the continued advancement of our exploration success at Block 111. With the constructive commodity price environment, our base plan continues to advance, while select high-value opportunities are being accelerated on an opportunistic basis to enhance returns and free cash flow.

Our operations in the Putumayo continue to progress with particular excitement around the Orito block, where our wells are demonstrating strong performance. We nearly finished our multilateral pilot, which we expect to start testing in the coming weeks. In Block 111, Parex has drilled 6 exploration wells to date, with 4 delivering positive results across separate areas. One well has already commenced initial production at approximately 1,500 barrels per day of oil. The remaining wells have shown encouraging indicators, including oil on logs, with testing expected to start in the coming days.

All 6 exploration wells were delivered on budget at approximately $2 million all in, including drilling, pad and mobilization, representing an approximate 65% reduction versus typical exploration well costs of around $6 million per well. This improvement was driven by a fast-moving rig and streamlined well and pad design, reflecting the strong execution and coordination of our teams. With these results, Parex is advancing a multi-well development program across 3 fields with sustained production expected in late Q2 2026, up to 7 development and appraisal wells planned for the second half of this year.

Based on the successful start of this campaign, we have identified over 15 prospects on existing seismic surveys. We plan to continue building future runway with this trend with additional 3D seismic activity planned in the future and expect exploration-focused drilling in the eastern Llanos to recommence in 2027. While our stand-alone production base remains strong, the second half of the year represents a meaningful step change in scale as we consolidate the Frontera portfolio and start our work programs in the Magdalena Basin.

For the Frontera portfolio, in anticipation of closing, the company has initiated integration planning to ensure smooth transition. Following close of the transaction, Parex will review the acquired portfolio to optimize development and enhanced oil recovery opportunities while prioritizing safe, reliable operations. The transaction is also expected to generate synergies in marketing and tax, among other areas, supporting enhanced efficiency and stronger long-term returns. For the new Magdalena assets, we're working towards completing initial activities to drill the first wells in the Casabe and Llanito programs. A key near-term milestone is spudding the wells on each block as this is a contractual requirement to enter into production participation for each area.

Lastly, we continue to progress our Foothills exploration program. We are in the early stages of work in the Piedemonte prospect, with several work scheduled to commence this quarter in preparation for a fall 2026 spud. As a reminder, this is the type of exploration where we see game-changing potential and enhanced risk and reward profile. While the start of 2026 has been more modest than anticipated, we remain confident in our trajectory, supported by a portfolio that is better positioned than ever to deliver high-quality inventory and multiple independent development and growth projects.

With that, I'll turn it over to Cam.

Thanks, Eric. Our financial performance this quarter serves as a bridge toward the significantly larger cash-generating capacity of the transformed Parex business. First quarter 2026 results were strong on an underlying basis despite the impact of nonrecurring items. Funds flow provided by operations, or FFO, totaled $114 million or $1.18 per share during the quarter. Our Q1 results included a $17 million of onetime nonrecurring costs consisting of a $7 million temporary corporate wealth tax, a $7 million in site restoration costs, much of which we expect to recover through insurance and approximately $3 million in project-specific G&A expenses.

Early in the second quarter, we made the tactical decision to unwind our hedge positions, a decision that has so far enhanced participation in the current commodity price environment. The timing of our strategic transactions has been advantageous with commodity prices at current levels, enhancing the value of deals executed. Specifically, the January 1 effective date of the Frontera acquisition is expected to contribute a meaningful amount of incremental free cash flow, helping reduce the net consideration.

Another key financial milestone in the first half was the successful placement of $500 million of senior secured unsecured notes due in 2031. The 8.5% notes were priced at par and were strongly oversubscribed, reflecting strong support from the credit markets and confidence in our transformed Colombia-focused company. Given the addition of debt to our otherwise simple balance sheet structure following the Frontera transaction, this financing is a logical step. Going forward, we expect to maintain a strong credit profile with high liquidity and a medium-term target net debt-to-EBITDA ratio of 0.5x or lower.

The second half 2026 guidance, which reflects the anticipated impact of both the Frontera acquisition and the Ecopetrol partnership transaction showcases the cash flow profile of the transformed business. Based on a $90 Brent assumption, we expect FFO netbacks of approximately $30 to $33 per BOE. On a half year basis, FFO is expected to be between $475 million and $525 million and capital expenditures to range between $275 million and $295 million. Please note that the coming quarters are expected to include nonrecurring integration transition and financing costs, which may impact reported FFO numbers.

Looking ahead, our capital allocation priorities are clear. Parex is focused on optimizing capital allocation across its diversified portfolio, targeting 3% to 5% growth from base production, plus continuing to advance high-impact exploration opportunities with significant long-term potential. This is while also maintaining a stable dividend and directing excess free cash flow primarily toward debt reduction.

With that, I'll turn it back to Imad for closing remarks.

Thanks, Cam. To close, I want to reiterate the transformation that's underway at Parex and the scale of the opportunity. Today's Parex is positioned to deliver a deep portfolio of development and exploration opportunities, generate substantial free cash flow, expand reserves and establish the company as one of the leading growth opportunities in the global oil and gas sector.

Our path forward is centered on 5 priorities: optimizing the base business to maximize value, deliver reliable production growth and leverage proven technology; capturing integration synergies from our recent transactions and strengthening the overall scale of the portfolio; growing production through the execution of our Ecopetrol partnership in the Putumayo and Magdalena; advancing high-impact exploration in the Llanos Foothills, starting with the Piedemonte prospect this fall; and lastly, keeping a disciplined capital allocation framework while maintaining dividends and paying down debt. We are confident this approach will create meaningful long-term value for shareholders and all stakeholders.

Our partnership with Ecopetrol represents one of the company's most important strategic pillars going forward. Today, the relationship is broader and stronger than ever, spanning from Capachos, Putumayo, Magdalena, Foothills and Quifa. Beyond expanding our operational footprint, these partnerships reflect a shared long-term commitment to Colombia and align Parex with one of the region's leading energy operators. With respect to Frontera, I would like to sincerely thank Orlando, his management team, the Board of Directors and all employees for their hard work, professionalism and dedication in building Frontera into the company it is today.

We are excited to welcome many new colleagues to Parex and are confident that the next chapter for the combined company will be a strong and successful one. With increased scale, financial flexibility and portfolio depth, Parex is better positioned to deliver profitable growth and long-term value creation over time. As we move forward, I also want to thank our employees, partners, shareholders, Board of Directors and the communities where we operate for their continued trust, commitment and support. The progress we are making is the result of the dedication and collaboration of many people.

Before I conclude my remarks, I would like to recognize our Chairman, Wayne Foo, who is retiring from our Board of Directors. Wayne has been instrumental in shaping Parex over the past 23 years as a founder and the former Chief Executive of both Petro Andina, Parex's predecessor and Parex Resources. Wayne established the foundation strategy and culture that have defined the company's success. He has continued to guide Parex as the Chair of the Board since 2017.

On behalf of the Board, management team, employees and shareholders, I want to thank Wayne for his exceptional leadership, vision and dedication. His contributions have been instrumental in building Parex into what it is today, and his impact on the organization will be everlasting. We wish Wayne and his family all the very best in his retirement. That concludes our formal remarks.

I'll now turn the call back to the operator for questions from the investment community.

[Operator Instructions] Your first question comes from Jamie Somerville of ROTH Canada.

Can you hear me?

Yes.

Imad, congrats on these deals in particular. And thank you for the guidance for the second half of the year. I'm just wondering if we can ask about looking out into 2027. I think Cam said something that, did you suggest we can expect 5% to 10% kind of annual growth going forward? And is that relevant to 2027? And then on the CapEx side, looking into 2027, you have all this carry capital. And obviously, it depends a lot on exploration activity, but is $0.5 billion or more of CapEx in 2027, a reasonable expectation?

So our long-term vision for the combined company is to have 3% to 5% base growth that we do basically using our normal EOR activities and near-field exploration appraisal with exposure to transformational upside that can be much higher than that. Now in our view, the CapEx really depends on the oil price. So if I take the pro forma of Parex plus Frontera without the Magdalena assets at $70 environment, that was $500 million, yes.

Now of course, oil price stay above $100, you have a little bit more flexibility and more opportunistic short payout projects. You can add to that $500 million. Oil price goes below that, might go the other direction. And there's some money that will go into Magdalena as well. So high level, we're not putting guidance out now, but I think the $0.5 billion number order of magnitude is a good start point. And of course, as we get to know the assets in more detail and build our plans for next year, you'll get a more detailed guidance. Does that answer your question now, James?

Yes, that's very helpful. And then just an asset that is maybe not super material, but you have -- I think you're increased -- doubling your interest in the VIM-1 asset. Is there still a plan there to ramp up gas production maybe in 2027?

Just before Eric answers on the plan, it is one of my favorite assets. I really love it. Go ahead.

We just -- in VIM, so we just completed the La Belleza 3 well. That well is positioned to -- and it looks successful on logs, and we're about to test it. That well was drilled to help sustain a longer-term blowdown period and also provide near-term higher liquids recovery. Over the next year, we are commencing a pipeline and expect to proceed to sales in -- from La Belleza. So that plan has remained unchanged. We're also drilling another prospect currently. We're moving the rig to drill an additional prospect on the block that is also expected to be a high liquids gas well in anticipation of the blowdown and the very strong market prices for gas in Colombia.

So just to give you an idea, like today's producing wells -- well, one well, is producing the equivalent of 30 million scfs a day with more than 3,000 barrels of liquid. So we're talking about 9,000 BOE or so for the combined company.

Correct. Yes.

Now if we -- once we drill that third well with additional certainty and we start to blowdown the well towards the market, getting the netback higher than netback on oil in my view or similar depending on the oil prices. So this is a real cash generator for next year and beyond as soon as the pipeline is ready. So that's why even if that additional prospect doesn't pan out, we have a very good cash generation.

And our plan is we're spending like $6 million a year on water handling and treatment. So one of these wells could become a water injector if they don't produce and cut significantly that OpEx bill. So as an asset for both Frontera and Parex and the new Parex, I think this will be one of our big cash cows coming forward. And with almost no decline.

Yes. It will be flat for a number of years.

Just to clarify in terms of start-up of that gas blowdown, it's probably more second half 2027 thing rather than first half?

Correct.

Do you know, firstly, invite people?

[Operator Instructions] There are no further questions at this time. I will now pass the conference back to Mike Kruchten, Senior Vice President, Capital Markets and Corporate Planning.

Thank you very much for joining the call today. If you have further questions, you can always reach out at Parex, and we'll be happy to help you. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning, and thank you for standing by. At this time, I would like to welcome everyone to the Parex Resources 2025 Operational and Financial Results Conference Call. Today's conference is being recorded.

[Operator Instructions]

At this time, I would like to turn the conference over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning. Please go ahead.

Good morning, everyone, and welcome to Parex Resources Fourth Quarter 2025 Conference Call and Webcast. My name is Mike Kruchten, and on the call with me today are our President and Chief Executive Officer, Imad Mohsen; our Chief Financial Officer, Cam Grainger; and our Chief Operating Officer, Eric Furlan.

[Operator Instructions]

As a reminder, this conference call includes forward-looking statements as well as non-GAAP and other financial measures with the associated risks outlined in our news release and MD&A, which can be found on our website or at sedarplus.ca. Note that all amounts discussed today are in U.S. dollars unless otherwise stated. I will now turn the call over to Imad. Please go ahead.

Thank you, Mike, and good morning, everyone. As we reflect on 2025, I'm pleased to say that this year was defined by disciplined execution, meaningful strategic progress and strong shareholder returns, all of which further strengthened our foundation and position Parex for sustained long-term value creation. During the year, we delivered full year average production of approximately 45,000 barrels a day to achieve our budgeted guidance range. This outcome reflects our strong asset base, consistent operational uptime and ability to grow efficiently with [indiscernible] .

At our Cabrestero and Block-34 assets, enhanced recovery initiatives continue to perform as designed. Optimized waterflood patterns combined with polymer injection programs are enabling us to effectively manage decline rates and maximize recovery enforcing the long-term life nature of these assets and reducing our year-on-year sustaining capital requirements. At Block 32, the Frontera acquisition completed early last year has been highly successful. Since assuming full control, we increased peak production to more than 3x pre-acquisition levels, have added significant reserves and recently drilled a complex multilateral well, the first in Colombia. This is a clear example of our execution capability where we acquired a high-quality asset was identified upside, applied our basin operational knowledge and scaled efficiently. On the exploration front, our high-quality prospect funnel continues to generate strong results. Our 2025 near field exploration program delivered a 75% success rate, reflecting strategic refinements to our exploration approach and our ability to deliver repeatable near-field successes.

With our strategic partner, Ecopetrol, we made clear progress to strengthen our alignment and grow future production. In the Putumayo, we successfully gained operational access and started drilling activities. These blocks are sizable and underexplored. With more than 1.8 billion barrels of oil in place, our strategy is already seeing promising results and positioning us for significant inventory growth by moving from vertical production to multilaterals. Eric will touch on this further giving its importance and potential. In the Llanos Foothills, we formalized our strategic alliance and strengthened our position in a truly world-class basin with predrill work underway. With all of the puzzle pieces now in place, we are excited to start our first foothill well later this year. A high impact growth opportunity and alignment with our gas and exploration strategies.

On the financial front, we remain focused on shareholder returns. We returned USD 134 million in 2024, '25, bringing total capital return over the last 8 years to CAD 2 billion. Additionally, through ongoing share repurchase programs, we have reduced the diluted share count by over 40% with significant achievement that enhances per share value and sets our long-term track record apart from our peers. I'll hand over to you.

Thanks, Imad. In the fourth quarter, production averaged 48,606 BOE per day, achieving our planned growth profile for the second half of the year and enabling us to meet our guidance. This was driven by strong results from our base assets in addition to successful growth in the Llanos 32, in Llanos Block 32 and Block 74. With a front-end weighted activity plan for 2026, we currently have 6 rigs running, 5 operated by Parex and one on Block 34. Our year-to-date production is roughly 46,000 BOE per day with additive operations coming out of LLA-32, where a multilateral horizontal well was just drilled and completed and in the Putumayo region, where we are seeing encouraging results across multiple plays.

At Block 32, we have successfully drilled Columbia's first four-leg multilateral well, representing a major technical milestone for Parex. This well is expected to deliver strong production by maximizing reservoir contact and driving enhanced capital efficiency. Beyond its immediate production contribution, this success serves as proof of concept to be used in the Putumayo region where it has the potential to unlock significant value. Let me expand. Today in the Putumayo, we are advancing work across 3 distinct blocks, achieving results that exceed our expectations and provide a clear line of sight to substantial additions for development inventory. Firstly, at the Orito block. Our initial well has 1,700 feet of horizontal length and is currently producing 600 barrels of oil per day gross. A second horizonal injection wells has just been completed and will begin injection shortly.

Importantly, what makes this 600-barrel per day rate exciting is that this is a shallow horizontal well, meaning it is low cost. Leveraging a combination of our horizontal multilateral drilling experience. We're optimistic that we can draw an established North American plays, such as the Clearwater formation, to design and implement multilateral producer injection patterns to unlock this block. This block has over 1 billion barrels of oil in place with relatively low recovery factor, implying strong torque to enhance recovery initiatives with any gains in recovery providing an opportunity to meaningfully expand recoverable reserves. The next phase will involve drilling a multilateral producing well to test this concept.

Secondly, at the Area Sur block, we are targeting efficient low-cost recompletes. Our most recent success has produced at a strong initial rate of 1,500 barrels per day gross. These types of opportunities are what drew us to this farming area, and we are excited by the potential we see. And thirdly, at the Occidente block, our first well has delivered encouraging logging results. Further confirmation of the down dip oil extension will translate into incremental locations and development upside. Across all 3 blocks, we are pleased with the progress to date and look forward to building this momentum into our next update. Switching gears on the near-term exploration front, we are building our near-field exploration success with programs such as Llanos 111 where we are using a streamlined, cost-efficient rig to minimize capital intensity. We have had positive log results on the first well of the program and we'll be testing in the near term. Success here could provide even more visible inventory ahead of 2027.

Turning to our 2025 reserves report. The assessment was positive with the results reinforcing a sustainable outlook. Across all categories, PDP, 1P and 2P, we grew reserves per share, realized over 100% reserves replacement, including notable 152% in 2P, and realized FD&A recycle ratios that were 2x or higher. In addition to the standard reserves auditor price deck, we asked our reserves auditor to evaluate our after-tax net asset value per share using a constant $70 per barrel Brent price, equivalent to approximately $65 per barrel WTI. Under this pricing scenario, the resulting Canadian dollar net asset values per share are $23 on a PDP basis, $28 on a 1P basis, and $39 on a 2P basis demonstrating the strong underlying value of the asset base. It has been a solid start to 2026 for us operationally, and I'm confident in our plan that has multiple independent projects to add high-quality inventory and grow reserves. With that, I'd invite Cam to please go ahead.

Thanks, Eric. We generated strong financial results in 2025 despite a softer commodity price environment than seen in years past. For the quarter, funds flow provided by operations or FFO, was $123 million or $1.28 per share. Despite a Brent oil price in the low 60s, we had fourth quarter production growth as well as improving production expense and lower current tax relative to the prior quarter that helped FFO. Compared to the prior quarter, production expense benefited from new production that improved fixed cost absorption in addition to corporate efficiency initiatives that were implemented to reduce fixed and variable costs as well as a low amount of absolute current tax.

Regarding commodity pricing, in short order, Brent has moved to over $80 per barrel due to global issues compared to our budget, which was released at $60 per barrel. While our core benchmark price has improved, part of this gain is being offset by wider heavy oil differentials with Vasconia being at upwards of $8 per barrel. This widening reflects ongoing expectations around incremental heavy oil supply, primarily from Venezuela. Further, any reassessment of our guidance would require commodity prices to be sustained at these higher levels. In the meantime, our operational and capital programs are progressing as planned, and our full year 2026 production and capital guidance remains unchanged, underpinned by higher commodity prices and the strength of our balance sheet. I will now pass it over to Imad for his final remarks.

Thank you, Cam. As we look ahead to 2026, I'm pleased with the progress we are making across our portfolio, which is inventory rates and supported by strategic acreage expansion and ongoing prospect replenishment that we have done. I am particularly excited about the ongoing development in the Putumayo with results to date surpassing our expectations. And I can add 111 to that. As Eric mentioned, our farming strategy has been validated. Our technical thesis strengthened and our view of the meaningful upside potential into clearer focus.

Today, we have a compelling combination of low-risk development, near-field exploration and selected step-out opportunities all supporting based production stability with modest growth potential. Overlaying this foundation, we retain exposure to some of the most attractive onshore exploration opportunities globally in the Llanos Foothills. This is where we plan to spud the well that's on trend with existing discoveries, a milestone that has been in the making for years and provides an undeniable high-impact growth opportunity for Parex. With a strong start to 2026 and a constructive operating backdrop, we see Parex approaching a compelling inflection point. On that note, I want to sincerely thank our employees, communities and shareholders for their continued support which plays a crucial role in driving our shared success.

To conclude my final remarks, I would like to comment on our recently announced M&A activity and more importantly, why we believe Parex is uniquely positioned to acquire and optimize Colombian assets. For example, when we consider Frontera Energy's Colombia E&P assets, it is Parex's view that our existing partnership with Frontera provides valuable insights. Through our partnership at VIM-1, we have direct experience with Frontera's assets and capable people, particularly across basins where our operations overlap. In addition to our long-standing partnership with Ecopetrol reinforces our confidence that we can create a win-win outcomes for the future of joint assets like Quifa combined with our proven track record of applying technology and technical excellence. A successful combination will position us to unlock the full potential of the combined portfolio.

Our clean balance sheet position is a competitive advantage. This provides us with access to a competitive cost of capital and the flexibility to deploy leverage opportunistically. And our robust foundation to access across operations, marketing, tax and other key functions, which should enable us to capture the highest amount of potential synergies. We are positioned to drive meaningful upside through operational efficiencies, streamlined administration as well as optimized marketing and tax strategies to maximize shareholder value.

In summary, a portfolio combination would immediately create the largest independent Columbian [focused] energy company, delivering greater scale, enhancing capital efficiency and achieving accretion across all key metrics. It would also optimize capital allocation further strengthens the resilience of our platform for sustainable long-term growth and strategic exploration.

We view M&A in Colombia as a natural extension of our strong position there. And we are confident in our ability to unlock significant value for all shareholders. I'll now turn it over to Mike to make a short legal comment before the Q&A session. Go ahead, Mike.

Thank you for your attention today. Before we move to the Q&A portion of the call, I want to reiterate that we are committed to maintaining transparent and timely communication with the investment community regarding strategic opportunities, including potential M&A activity. That said, given the current circumstances, we will not be providing additional commentary or taking questions on our proposal to acquire Frontera Energy's Colombian E&P assets at this time. This concludes our formal remarks.

I would like to turn the call back to the operator to start the Q&A session for the investment community. Thank you.

[Operator Instructions]

And we'll take our first question from Jamie Somerville at ROTH Canada.

With regards to differentials I know there's a lot of moving parts there, but I'm wondering if you could give your view on what a reasonable outlook is for the rest of the year whether you think those differentials will come back in again?

Jamie, it's Cam. It's really hard to say. Before the Iran crisis, we were seeing differentials as we said, around $8 per barrel. It's still early. We haven't -- we don't really have any visibility at this time on how the Iran situation is going to impact things going forward. We don't really have that clarity right now.

Okay. We will make our own assumptions and stay in touch. Maybe on a different subject, operationally, I'm curious about the multilateral targets. I guess, Colombia traditionally has produced a lot of oil from high porosity, high permeability, lighter oil reservoirs, including in the areas like Llanos 32 and Orito but these are multi-zone areas. And I'm just kind of guessing that maybe you're targeting some of the zones that have the more difficult reservoirs.

I'm wondering if you can kind of comment on how you -- why you see an opportunity for multilaterals from a technical point of view? How much improved drilling speeds contributes to that and what you're seeing that gives you confidence from contractors globally and in Colombia? And what you think the size of the prize that you're going after is maybe?

Okay. Thanks, Jamie. It's Eric here. You're correct in your first statements. Columbia is generally known for really high-quality reservoirs that are supported with a water aquifer and produce at high rates. But there are very large opportunities in some of the reservoirs that are slightly lower quality. So the one we're specifically referencing is in the Putumayo and the Orito area. It's the uphole [ Patino ] reservoir. It's at about 2,500 feet TBD on average. It's a fixed sandstone package. It has an area that was historically produced the highest quality area in this entire play, which represents about 1/3 of the entire play through vertical development. And those were very prolific wells. It did recover about 30 million barrels from that limited development.

And so we're approaching this [Patino] from 2 perspectives. One, that original area that was developed was never waterflooded. It was essentially primarily produced and shut in. So we are going to waterflood, repressure that and get that online. And then the so-called halo area where 2/3 of the oil is in place has many penetrations that tested oil rates from vertical wells. Not fantastic oil rates. So what we were trying is to try the first single horizontal well to test how a horizontal may be able to be used to exploit this halo area that contains a larger component of the oil in place. The first well is performing exceptionally well with the rates that we're discussing here. It's a very easy well to drill.

Our next step is to try and approach -- it's a different type of play than something like the Clearwater, where they're targeting higher-quality reservoir with very, very heavy oil. And here, we're targeting lower quality reservoir but with very good quality oil, 25 API type oil. But we're trying to look at the same kinds of technique where we're going to go ahead and drill multilateral wells, expose the reservoir with single wellbores to 5,000, 10,000, 15,000 feet of exposed area. And this first well that's producing 600 barrels a day has about 1,700 feet exposed. So we're at the early stages. We need to delineate what is a very large area and a very large oil in place. But it's very exciting for us. The drilling -- the first concept to test was the drilling of the well. It went very, very well and showed that we could drill these wells for very low cost.

The next step is we -- as we said, we've got a horizontal well now on injection or about to commence injection. And we're going to spud shortly a multilateral well, all open hole with a similar type of well style as the Clearwater, but see if we can exploit this reservoir. So we see that throughout the Putumayo. Sure, the best of the low-hanging fruit was captured early on. But we're talking not Tier 3 or 4 reservoir here. We're talking still high-quality reservoirs here with what we're chasing. Definitely -- and we're quite excited about the whole opportunity here and in the rest of the Putumayo.

Thanks, Eric. Let me add a couple of things here to the logic. If I take the multilateral in Azogue for example, the productivity is just gigantic. We're talking about thousands of barrels with minimum drawdown, yes, less than 2% draw down. So the reason we're doing it, for example there, is not to increase productivity as such, is to be able to drain a large area of the reservoir with limited number of wells. To give you an order of magnitude, I don't know, it takes maybe close to $5 million to get to the 12,000 feet target in Azogue and every lateral cost of less than $1 million. So having 4 laterals there is much cheaper than drilling 4 horizontals, yes? So it's capital efficiency driven.

In the Putumayo, as Eric said, the core area is very decent. In fact, Ecopetrol produced more than 1 million barrels per well at rates starting above 1,000 barrels when the well field was fully pressurized. That's not Clearwater like productivity with vertical wells. That's really very good quality. Now we are -- once we do repressurize the reservoir back to close original with waterflood, your productivity goes up. The one we drilled right now was to test what would productivity now be before pressurization starts and exceeded our expectation and also prepares us to going outside the core area, which has produced so far 35 million barrels, close to maybe 10% recovery. I don't know the exact places. But you go to outside that to what -- the extension area is like monetizes bigger than this one. So if we -- and it's never been produced commercially.

So if we can unlock that with very high capital efficiency, multilaterals that creates an additional economic incentive to do it. Again, these are, I would say, if I combine the reservoir quality and productivity, these are still conventional reservoirs. We're not talking anything that's in conventional realm, but we do want to increase the capital efficiency. Does that make sense, Eric?

Yes.

And there are no further questions at this time. I will now turn the conference back over to Mike for closing remarks.

Thank you very much for joining us on our Q4 call. If you have any further questions, please feel free to contact us at Parex. Have a great day.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.

Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today.

At this time, I'd like to welcome everyone to the Parex Resources Third Quarter Operational and Financial Results Conference Call. [Operator Instructions]

I'd now like to turn the conference over to Mike Kruchten, Senior Vice President of Capital Markets and Corporate Planning. Please go ahead.

Good morning, everyone, and welcome to Parex Resources Third Quarter 2025 Conference Call and Webcast. My name is Mike Kruchten, and on the call with me today are our President and Chief Executive Officer, Imad Mohsen; our Chief Financial Officer, Cam Grainger; and our Chief Operating Officer, Eric Furlan.

[Operator Instructions]

As a reminder, this conference call includes forward-looking statements as well as non-GAAP and other financial measures with the associated risks outlined in our news release and MD&A, which can be found on our website or at sedarplus.ca. Note that all amounts discussed today are in U.S. dollars unless otherwise stated.

I'll now turn the call over to Imad. Please go ahead.

Thank you, Mike, and good morning, everyone. Throughout the quarter, we have made steady progress across our portfolio, successfully executing our ambitious activity plan and delivering strong results. With the majority of our planned activity now complete or underway, that momentum is translating into stronger production performance and positioning us to deliver a Q4 production average that exceeds the top end of our annual guidance.

At our core assets, Cabrestero and LLA-34, continue to see strong reservoir performance through application of secondary recovery and EOR programs that are maximizing recovery rates from the field. At Llanos 32, where we completed the Tuck-In acquisition in March, we've quickly demonstrated our ability to unlock value and deliver superior performance as the fields operator. While Eric will provide more details on the momentum underway, I will say that our disciplined execution was -- has already translated into steady production gains with current rates now exceeding 3x what we inherited at the time of acquisition.

Turning to exploration, where performance this year has been strong. We delivered 5 near-field successes at LLA-74, underscoring that our strategy is generating tangible in-year production gains. And we are now looking ahead to our VIM-1 exploration prospects with results anticipated by year-end. Our financial performance for the quarter was strong despite a softer price environment. Our top quartile netbacks reflect the strength of our operating model and durability of our business, driven by favorable Colombian crude oil differentials and continued internal cost optimization.

With that, I'll now turn it over to Eric to provide an operational update.

Thanks, Imad. In Q3 2025, production averaged 43,953 BOE per day, generally in line with our expectations. Building on the milestones Imad highlighted, we're now seeing strong performance carry into Q4 with October production averaging 49,300 BOE per day, representing a 12% month-over-month increase from September. This growth stems from the exceptional execution of our teams against a demanding second half activity plan, and I want to recognize their efforts.

Let's take a closer look at some of the key performance highlights. At Cabrestero, we are building on the successful completion of the waterflood phase and are now executing our full field polymer implementation plan. With the project now 80% complete, we are on track to achieve full implementation by year-end. At Llanos 34, we continue to apply lessons learned from Cabrestero with ongoing optimization and waterflood expansion currently underway.

By year-end, we also expect to complete the initial polymer implementation at 2 patterns on the field. At Block 32, we've seen strong production ramp-up, driven by disciplined execution. In the quarter, we delivered 4 successful development and appraisal wells, growing production from 4,000 BOE per day when we first took operatorship in April to over 12,000 BOE per day today.

What's even more encouraging for LLA-32 is that we progress our activity, we are gaining valuable insights into the field, revealing even greater running room than we initially anticipated. We are looking forward to results in Q4 when we plan to spud a well in the northern part of the field, which, if successful, will derisk additional areas and expand future drillable inventory.

At Capachos, our activity is progressing as planned with the first 2 -- with the first of a 2-well development campaign complete. The first well's performance has been strong with drilling underway for the second well. At the Putumayo, we are making steady progress with our activity plan set to commence in the fourth quarter. We are currently mobilizing 2 rigs and expect to spud 2 wells with commencing a waterflood pilot process and the other applying horizontal drilling concepts. The results will provide valuable baseline production data to refine and optimize our 2026 development strategy.

And lastly, turning to exploration. As Imad mentioned, we spud the Guapo prospect located on the VIM-1 block in mid-October. This prospect is targeting gas and condensate, and the success here will help derisk nearby contingent prospects, confirm our egress plans for the area and solidify our gas strategy in the basin. We look forward to having preliminary results by year-end.

Our near-field exploration program continues to deliver. With the fifth well now online in Block 74, the block success is contributing production in excess of 5,000 BOE per day and demonstrating the value of targeting low-risk, high success prospects. As we look ahead to 2026, we're using our sizable land position to build a robust funnel of opportunities to sustain this performance.

Overall, we have made strong progress over the quarter, and we remain focused on operational execution to ensure we maintain momentum into 2026.

With that, I'd invite Cam to please go ahead.

Thanks, Eric. Despite a lower price environment, we continue to deliver strong financial performance in the quarter. Funds flow provided by operations grew modestly to $105 million, and our FFO netback was steady at $26.07 per BOE based on an average Brent oil price of $68.17 per barrel. Also supporting netbacks has been an improved operated production expense profile. While we have recently seen a slight uptick in power costs, they remain at normalized levels and have been supported by the team's ongoing efforts to deliver internal optimizations, which are proving successful.

For Q4, we have hedged roughly 25% of our planned production, utilizing a Brent put spread at $60 and $65 per barrel, which is providing insulation for our cash profile in an environment where we continue to see global volatility. Current taxes were $11 million for the quarter. Given Columbia's progressive tax and royalty system and at strip pricing, we expect our full year effective current tax rate to be between 5% to 8%. Capital spending for the quarter totaled $80 million, reflecting our increased activity levels.

We expect expenditures to remain at similar levels through year-end, but we may look to deploy incremental capital to carry our momentum into 2026. The decision will depend on upcoming well results where ongoing success could support additional follow-up drilling. We remain fully funded with our capital program advancing, a regular dividend covered and a modest level of share repurchases continuing.

Our balance sheet remains exceptionally strong, underpinned by ample liquidity and financial flexibility. This solid financial position enables us to execute our strategic priorities with confidence while remaining, maintaining resilience in varying market conditions.

With that, I will pass it over to Imad for some final remarks.

Thank you, Cam. As we've highlighted throughout the call, we are well positioned to meet our annual production guidance and finish the year strong. The team remains focused on sustaining momentum and leveraging near-term opportunities to capture additional value and position Parex for a strong start to 2026. Achieving this has taken focused discipline and teamwork across the organization, and I want to thank all our employees and partners for their hard work and commitment.

With that, I'll turn it over to Mike for closing remarks.

Thank you again for your attention today. Before we move to the Q&A portion of the call, I want to state that we are committed to providing timely updates to the investment community on our proposed acquisition of GeoPark. But given the current situation, at this time, we will not be providing any further comments or taking questions on this matter.

This concludes our formal remarks. I would like to turn the call back to the operator and start the Q3 earnings Q&A session for the investment community. Thank you.

[Operator Instructions] Our first question will come from the line of Greg Pardy with RBC Capital Markets.

I had a couple of questions, but the first is maybe just to get a better sense of what the trajectory looks like on from a unit operating cost standpoint. I know there's been some volatility. It was a lot lower in 2Q. It's up in 3Q. Just wondering how we should think about that in more of a normalized state.

Greg, it's Cam. Yes. So we had an uptick in OpEx in the quarter compared to Q2. That's driven by a few things. Power costs in August and September increased and that impacted our non-operated LLA-34 field. Those have subsided in October and normalized. We also had the Colombian peso increase about 5% over Q2. And then we also had a small nonrecurring adjustment that we recorded in the quarter. So that's what was really kind of driving that increase of $2.50. Looking forward to Q4, with flush production coming from our operated fields and power costs more in line, we're thinking -- we're expecting our OpEx number to be around $12 to $13 per barrel.

And maybe I'll ask this question in a bit of a roundabout way. But let's just say you owned 100% of Block 34, what would be the plan? How would -- perhaps how would the development plan change from -- maybe what's in place currently?

So let me answer that. And first, it will be a very good plan. But other than that, I'd refer back to Mike's comment. We'd rather right now not talk about the GeoPark offer because there's lots going on, and we'd rather not talk about it or answer question.

[Operator Instructions] And that will conclude our question-and-answer session. I'll hand the call back to Mike for any closing comments.

Thank you very much, operator. If you have any questions, please feel free to contact me at parexresources.com. Thanks for joining us today.

That will conclude our call today. Thank you all for joining. You may now disconnect.