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Facing Low Oil Prices, Energy Firm Reduces 2020 Capex, Guidance

Streetwise Reports, Streetwise Reports
0 Comments| March 27, 2020

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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.

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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.

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from CIBC, Frontera Energy Corp., March 23, 2020

Analyst Certification:
Each CIBC World Markets Corp./Inc. research analyst named on the front page of this research report, or at the beginning of any subsection hereof, hereby certifies that (i) the recommendations and opinions expressed herein accurately reflect such research analyst's personal views about the company and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analysts employed outside the U.S. are not registered as research analysts with FINRA. These analysts may not be associated persons of CIBC World Markets Corp. and therefore may not be subject to FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.

Potential Conflicts of Interest:
Equity research analysts employed by CIBC World Markets Corp./Inc. are compensated from revenues generated by various CIBC World Markets Corp./Inc. businesses, including the CIBC World Markets Investment Banking Department. Research analysts do not receive compensation based upon revenues from specific investment banking transactions. CIBC World Markets Corp./Inc. generally prohibits any research analyst and any member of his or her household from executing trades in the securities of a company that such research analyst covers. Additionally, CIBC World Markets Corp./Inc. generally prohibits any research analyst from serving as an officer, director or advisory board member of a company that such analyst covers.

In addition to 1% ownership positions in covered companies that are required to be specifically disclosed in this report, CIBC World Markets Corp./Inc. may have a long position of less than 1% or a short position or deal as principal in the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon.

Recipients of this report are advised that any or all of the foregoing arrangements, as well as more specific disclosures set forth below, may at times give rise to potential conflicts of interest.

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

For important disclosure footnotes for companies mentioned in this report that are covered by CIBC World Markets Inc., click here.


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