PetroTal Corp. (TSXV: TAL) (AIM: PTAL) (OTCQX: PTALF) (“PetroTal” or the “Company“) is pleased to announce its financial and operating results for the three months ended March 31, 2022 (“Q1 2022”).

Selected financial, and operational information is outlined below and should be read in conjunction with the Company’s unaudited consolidated financial statements (“Financial Statements”), and management’s discussion and analysis (“MD&A”) for the three months ended March 31, 2022, which are available on SEDAR at www.sedar.com and on the Company’s website at https://petrotal-corp.com/. All amounts herein are in United States dollars (“USD”) unless otherwise stated.

Q1 2022 Highlights

• Achieved record quarterly production of 11,746 barrels of oil per day (“bopd”) and record quarterly sales of 15,518 bopd, up 60% and 80%, respectively, from Q1 2021, representing the Company’s sixth straight quarter of growth, despite production being either constrained or completely shut down during six weeks of the quarter due to social protests;

• Based on the 67 production days in the quarter, average production was 15,778 bopd;

• Completed well 10H on January 30, 2022, Peru’s longest ever horizontal well, with an all-in cost of $11.5 million that averaged 10,500 bopd over its first ten days, accumulating 251,320 barrels in the month of February 2022, delivering a pay back of four weeks;

• Achieved a new daily Company production record of 21,000 bopd twice in the month of February 2022;

• Received Ministry approval for the Company’s central processing facility (“CPF-2”) to operate Bretana to its maximum capacity range of 24,000 to 26,000 bopd allowing the Company significant running room for development;

• Generated record net operating income (“NOI”) and EBITDA(a) of $64.2 million and $58.7 million, respectively, more than tripling the equivalent amounts from Q1 2021;

• Generated record free cash flow(a) of $41.2 million before changes in non cash working capital and debt service, providing the Company with a liquidity buffer which allowed it to navigate the downtime experienced in March due to social unrest and repay $20 million of its long term debt, on April 1, 2022;

• Invested $17.5 million in capital expenditures, under budget by $18.5 million (50%) due to drilling delays from the March social protests. Of the $17.5 million invested, approximately 65% was related to drilling activities and the remainder mostly on infrastructure projects; and,

• On February 22, 2022, PetroTal announced a $120 million fully funded capital program that could potentially generate up to $230 million of free cash flow in 2022, allowing the Company the optionality to redeem the remaining $80 million in bonds early and implement its strategy of returning capital to shareholders in Q4 2022 or Q1 2023, subject to Board approval and economic viability.

Selected Financial and Operational Highlights

1. Net operating income obtained from revenues less royalties, operating expenses, and direct transportation.
2. Netback per barrel (“bbl”) and funds flow provided by operations do not have standardized meaning prescribed by GAAP and therefore may not be comparable with the calculation of similar measures for other entities. See “Selected Financial Measures” section.
3. Average production in Q1 2022 based on the 67 days of full or partial production was 15,778 bopd.

Q1 2022 Financial Results

Record net revenue. Delivered net revenue after differentials of $92.7 million ($66.41/bbl) compared to Q1 2021 of $32.4 million ($41.91/bbl) and Q4 2021 of $39.2 million ($58.90/bbl).

Record net operating income. Generated record NOI and EBITDA(a) of $64.2 million ($45.96/bbl) and $58.7 million ($42.05/bbl), respectively, as compared to $20.0 million ($25.87/bbl) and $16.4 million ($21.16/bbl), respectively, in Q1 2021 and $25.8 million ($38.61/bbl) and $21.8 million ($32.66/bbl) in Q4 2021.

Tactical Q1 2022 capital spend. Spent $17.5 million in capital expenditures focused on drilling and completing well 10H and advancing a number of small infrastructure projects. This was approximately half of what was budgeted for Q1 2022 due to deferral of drilling activity into Q2 2022 resulting from the social protest activity in March 2022.

Positive Q1 2022 free cash flow. Generated net positive free cash flow(a) before changes in non cash working capital and debt service of $41.2 million, which allowed the Company sufficient liquidity to execute its phase one debt reduction strategy and retire 20% of its long term debt on April 1, 2022.

Stable Q1 2022 lifting costs. Total lifting costs of $10.1 million ($7.20/bbl) were incurred in the quarter, in line on a per barrel basis with $5.5 million ($7.17/bbl) in Q1 2021, which included some elevated and one time COVID-19 mitigation costs, and slightly down from $5.1 million ($7.60/bbl) in Q4 2021.

Variable costs in line with expectations. Diluent and barging costs were $12.1 million ($8.68/bbl) in the quarter compared to $5.1 million ($6.61/bbl) in Q1 2021, driven by higher barging standby, diluent and diesel costs, and down from $6.15 million ($9.23/bbl) in Q4 2021. On a percentage basis, the Company’s Q1 2022 contracted Brent price has increased approximately 50% from Q1 2021 with core variable costs only up 31% from Q1 2021, on a per barrel basis.

G&A per barrel reductions. Q1 2022 G&A was $4.7 million ($3.38/bbl) compared to $3.6 million ($4.70/bbl) in Q1 2021 and $4.0 million ($5.95/bbl) in Q4 2021 representing a 28% and 43% reduction on a per barrel basis compared to Q1 2021 and Q4 2021, driven by higher sales.

Record Q1 2022 net income. Q1 2022 net income was a record $64.5 million surpassing the entire 2021 yearly amount, doubling the Q1 2021 level of $30.8 million and significantly exceeding $6.8 million in Q4 2021. This was driven by further increases in the derivative value of the Company’s crude in the ONP, and stable DD&A expense from an efficient cumulative investment in the Bretana project.

Net debt free. Q1 2022 net debt(cash) was ($9.2) million representing a net cash position as at March 31, 2022 as defined internally by the Company and not for bond covenant purposes.

Operation and Financial Highlights Subsequent to March 31, 2021

Social protest conclusion. The Company’s loading dock was re-opened on April 8, 2022 and PetroTal was producing two days later after freeing space in the oil storage tanks, averaging 17,411 bopd from April 9 until April 30, 2022 with priority sales going to Brazil exports and the Iquitos refinery. Exports through Brazil restarted on April 12, 2022 and totaled 355,312 barrels of oil during the month of April.

Robust production levels resumed. Current production from May 1, 2022 to May 23, 2022, has been approximately 15,724 bopd. Even with sales into the Northern Peruvian Pipeline (“ONP”) curtailed due to repairs by Petroperu, the Company’s production has been largely unconstrained due to upsized offtake options for Brazil exports and general supply to the Iquitos refinery.

Brazil shipments upsized and optimized. PetroTal is pleased to announce that it has secured Brazilian export sizes of nearly 500,000 barrels per month. In addition, with Iquitos now being able to accept 60,000 barrels per month, the Company can sell the equivalent of 18,000 bopd without requiring access to the ONP.

Diluent free Brazilian route. The Company has successfully completed a pilot Brazilian shipment without diluent and will be able to export to Brazil diluent free going forwards, saving the Company over $30 million per year in diluent costs and improving net operating income by approximately $10 million per year when considering the net impact of reduced revenue from diluent in sales.

Commenced drilling on well 11H. On May 7, 2022, PetroTal commenced drilling well 11H which has an approximate cost of $13.5 million, a total depth of around 4,300 meters, and includes a synthetic mud system. The estimated completion date will be in late June 2022 with flush production expected to impact July production levels.

Social trust working table established. PetroTal facilitated the formation of a working group consisting of various community and government leaders with a mandate of discussing and prioritizing community needs for the Puinahua district and to properly establish the proposed 2.5% social trust. The working table meets regularly and has been making progress on various administrative components related to its mandate of facilitating responsible dialogue to prioritize development issues in the Puinahua region.

ONP down for maintenance. As previously announced on April 28, 2022, the ONP remains shut down for maintenance to repair significant erosion damage. The estimated completion date is late September with operations estimated to resume in Q4 2022, thus deferring the next Bayovar oil delivery with associated true up revenue until approximately October 2022.

Liquidity remains robust. Total cash at March 31, 2022 was $52.9 million with $19.0 million unrestricted compared to $75.0 million at year end of which $45.0 million was unrestricted. Accounts receivable were $54.5 million from Q1 2022 sales, and lower payables of $41.3 million, due to field downtime in March from the social protests.

Deleveraging underway. Bondholders accepted PetroTal’s call provision notice regarding repayment of the $20 million in bonds dedicated to M&A activities. PetroTal made the payment on April 1, 2022 and now has $80 million in bonds remaining with no required amortization payments in 2022. The payment of $20 million was made from restricted cash, which on a proforma basis at March 31, 2022, represents $32.9 million of total cash with $19.0 million being unrestricted.

Guidance Revisions for 2022

Given that the social protest impact during the first four months of the year have already surpassed the 13% downtime assumed on our 2022 production guidance and have also delayed the Company’s 2022 drilling schedule, we have adjusted our 2022 guidance, now assuming a 5% social unrest impact for the remainder of the year plus the normal 5% technical downtime. Below is a summary of adjusted guidance for the year:

(1) Approximately $34 million in anticipated 2022 true-up revenue has now been deferred into 2023 as a result of the ONP maintenance.

Adjusted Guidance Summary

The cash flow impact of the 2,750 bopd reduction to the production guidance is more than offset by a higher Brent future price strip, which has maintained EBITDA and increased free cash flow estimates.

March’s downtime from the social protests contributed approximately 1,140 bopd to the production guidance reduction, with the remaining 1,620 bopd of the decrease related to the delayed drilling impact for the remainder of the year’s drilling schedule. The Q2-Q4 2022 drilling schedule now anticipates well 14H being drilled in late 2022 with completion deferred into early 2023. The Company expects to surpass production of 20,000 bopd, and will require use of the ONP route by Q4 2022, which coincides with its estimated maintenance completion.

The 2022 capital program has been reduced by approximately $9 million comprised of infrastructure project deferrals into 2023.

Updated Corporate Presentation and investor webcast

PetroTal is excited to announce it will be hosting an extended virtual investor meeting on May 26, 2022 at 9:00 am CT, following release of the Q1 2022 results. The objective of management will be to provide in depth information regarding certain aspects of the Bretana asset and to communicate the Company’s short and long term strategy. The Company has also provided an updated corporate presentation with the Q1 2022 results, on its website.

Link to PetroTal investor morning webcast

https://stream.brrmedia.co.uk/broadcast/6274f7b58eb4f178d1ef9592

Manuel Pablo Zuniga-Pflucker, President and Chief Executive Officer, commented:

“PetroTal was able to pivot through social downtime challenges extremely well while still showing quarter over quarter production growth and a revised 2022 budget that shareholders should be very excited about considering the drilling delays encountered in March. The social trust working table has been formed, met initially on May 3, 2022 and ongoing meetings will continue to advance the formal policy and procedure formation for the social trust. The positive response for this initiative has been overwhelming and we are excited about formalizing additional items as the year progresses.”

ABOUT PETROTAL

PetroTal is a publicly traded, tri quoted (TSXV: TAL) (AIM: PTAL) and (OTCQX: PTALF) oil and gas development and production Company domiciled in Calgary, Alberta, focused on the development of oil assets in Peru. PetroTal’s flagship asset is its 100% working interest in Bretana oil field in Peru’s Block 95 where oil production was initiated in June 2018. In early 2020, PetroTal became the largest crude oil producer in Peru. The Company’s management team has significant experience in developing and exploring for oil in Peru and is led by a Board of Directors that is focused on safely and cost effectively developing the Bretana oil field. It is actively building new initiatives to champion community sensitive energy production, benefiting all stakeholders.

For the full release, visit: http://www.petrotal-corp.com/