The latest moves of Frontera Energy in response to depressed oil prices and its ability to endure the downturn are addressed in a CIBC report.
In a March 23 research note, CIBC analyst Dave Popowich reported that Frontera Energy Corp. (FEC:TSX; FECCF:OTCMKTS) reduced its 2020 capex budget and production guidance in response to weak oil prices.
Specifically, the Canadian oil and gas exploration and production firm removed about $200 million from its capex budget for the year and is keeping a "skeleton budget for the remainder of the year."
Frontera's revised 2020 production guidance is 55,000–60,000 barrels of oil equivalent a day, down from 60,000–65,000 before. The company expects to slash capital spending to $130–150 million from $325–375 million previously.
Popowich highlighted that Frontera has a healthy cash balance, $328 million at year-end 2019, but its margins are "razor thin, if not zero or negative, at current spot oil prices." As such, it is expected that the company can endure a brief, but not a protracted, period of weak oil prices.
"The duration of the downturn will be critical," Popowich added. "Frontera will be in danger of tripping debt covenants and/or having difficulty meeting its existing financial commitments within six months at current oil prices."
Popowich noted that assuming a flat $30 per barrel Brent oil price, Frontera could benefit from about $77 million worth of hedging gains throughout 2020, but it has fixed costs to cover related to transportation and leases.
In other news, relayed Popowich, Frontera's chief financial officer David Dyck will leave the company as of April 1, and the vice president of strategy and planning, Alejandro Pineros, will assume that role.
CIBC has a Neutral rating and a CA$8 per share price target on Frontera Energy, the current share price of which is about CA$3.21.
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Disclosures from CIBC, Frontera Energy Corp., March 23, 2020
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Important Disclosure Footnotes for Frontera Energy Corporation (FEC.TO)
· 2g CIBC World Markets Inc. expects to receive or intends to seek compensation for investment banking services from these companies in the next 3 months: Frontera Energy Corporation
· 3a These companies are clients for which a CIBC World Markets company has performed non-investment banking, securities-related services in the past 12 months: Frontera Energy Corporation
· 3c CIBC World Markets Inc. has received compensation for non-investment banking, securities-related services from these companies in the past 12 months: Frontera Energy Corporation
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