Frontera Energy Corporation (FEC) Earnings Call Transcript

Thanks, Vanessa. Morning, everybody, and welcome to the conference call covering Frontera's operating and financial results for the third quarter of 2026. With me today are Orlando Cabrales, Frontera's CEO, and Andrés Sarmiento, Frontera's CFO; Alejandra Bonilla, General Counsel, and Renata Campagnaro, VP Commercial and Projects, are also here and will be available for questions at the end. Appreciate all of you joining us. I'll start my remarks by pointing out that the third quarter results at Frontera reflect an infrastructure platform delivering improved financial performance and cash flow from its high-value, high-growth assets. Adjusted EBITDA rose 16% year-over-year, reaching $34.8 million, and net income came in at $11.7 million. ODL keeps supplying a steady stream of cash distributions, with $25.6 million in ODL dividends received net of taxes during the quarter and $52.4 million year-to-date. Puerto Bahía keeps cementing its role as a strategic energy and logistics hub on Colombia's Caribbean coast, with meaningful opportunities for growth and long-term value creation. On near-term catalysts, the LNG project, supported by the take-or-pay agreement with Ecopetrol, remains on track to begin operations in February 2027. That project puts the company in position to help tackle Colombia's growing natural gas supply deficit and opens the door to additional third-party demand. At the same time, during the quarter the company sanctioned phase II of the LPG project, with operations targeted to begin in 2028. Beyond those projects, the company keeps assessing further opportunities, among them a gas-fired power generation plant anchored by the LNG project. It also keeps evaluating organic and inorganic growth opportunities at the general cargo terminal in order to realize its upside potential and strengthen its position in the dry cargo segment. Taken together, all these initiatives give Frontera a clear path to increase EBITDA and grow cash flow, all while investing in a high-value asset base with long-term contracts and preserving a conservative balance sheet. I'd now like to hand the call over to Orlando, Frontera's CEO, and Andrés Sarmiento, Frontera's CFO, who will share their views on our third quarter results. Orlando?

Alright, I'll pick up from there. Thanks, Gabriel, and good morning to all of you for being on today's call. Results for the third quarter show solid performance across our infrastructure assets along with steady progress executing our growth projects. I'll begin with Puerto Bahía. Port revenues came in at $15.6 million during the third quarter, versus $14.6 million in the previous quarter and $12 million in the third quarter of 2025. The general cargo terminal drove that growth, posting an increase of more than 21% quarter-over-quarter. RoRo units handled at the port totaled 49,575, while break bulk volumes rose to 15,303 tons. LPG volumes more than tripled from the prior quarter, hitting 13,792 tons of throughput. We also signed new short-term take-or-pay agreements during the quarter covering roughly 10,000 bpd of additional diesel and fuel oil imports into Colombia, which reflects thermal power generation needs tied to El Niño. In addition, four tanks were signed under take-or-pay arrangements with Ecopetrol, initially for fuel oil and other fuels. Moving to our ODL pipeline investment, transported volumes rose to about 242,000 bpd, and our share of ODL income came to $17.2 million. On the LNG regasification project, execution continues in line with plan, and it now stands at 71% complete. During the quarter we moved forward on jetty modifications, civil works for the connection to the gas pipeline system, and procurement of the mooring systems. Start of operations is expected in February 2027 under the take-or-pay agreement with Ecopetrol, beginning with regasification of 126 million cubic feet per day and rising to 300 million cubic feet per day after the first two years. Project cost is estimated at between $80 million and $100 million. To meet the contract, Puerto Bahía has contracted Excelerate Energy for a floating storage and regasification unit lease with capacity of roughly 500 million cubic feet per day, for an initial term of seven years, with an option to extend for another five to eight years. Given the ongoing conflict in the Arabian Gulf, Excelerate plans to deploy another FSRU from its portfolio to serve the terminal near term, which ensures the project starts operations on schedule in 2027. We will also launch an open process soon aimed at identifying incremental third-party LNG volumes, drawing on Colombia's growing natural gas supply deficit, weather-driven supply pressures linked to El Niño conditions, and the added regasification capacity the FSRU provides. On LPG, operations began in March 2026 with handling capacity of up to 10,000 tons per month; phase II has now been sanctioned, with the EPC contract awarded for a 29,500-ton refrigerated LPG storage facility, targeting operations in 2028. Lastly, we are assessing an entry into power generation anchored by the LNG project, including possible development of a 150 MW to 300 MW thermal power plant; that remains under evaluation and depends on securing firm energy obligations, regulatory approvals, environmental permits, and long-term commercial arrangements prior to a final investment decision. We're also still looking at organic opportunities that could reinforce where we stand in dry cargo. At this point I'd like to hand things over to Andrés Sarmiento, who serves as CFO of Frontera.

Thanks, Orlando and Gabriel, and good morning, everyone. We're grateful, as always, for the interest you show in the company and the support you give us. I want to take a moment to highlight a few important financial items from our third-quarter results. Adjusted EBITDA for that quarter was $34.8 million, compared with $30.5 million in the previous quarter and $30.1 million in the third quarter of 2025 — a 16% increase year-over-year. Our adjusted EBITDA margin was 52%. Net income from continuing operations came to $11.7 million, or $0.17 per share, compared with a net loss of $4 million in the prior quarter and net income of $17.6 million in the third quarter of 2025. Revenue plus other income came to $33 million, up from $31.3 million the quarter before and $27.9 million during the same period last year. Operating activities from continuing operations generated $21.5 million in cash this quarter, compared with $26 million in the previous quarter and $20.6 million in the third quarter of 2025. Turning to the balance sheet and liquidity, the company had $83.9 million in cash and cash equivalents as of September 30, 2026. Debt and lease liabilities combined reached $191.1 million. Net debt came in at $107.2 million, down from $114.2 million as of June 30, 2026, and from $123.7 million at December 31, 2025. Turning to financing, Bancolombia gave the green light to a $30 million revolving facility for Puerto Bahía, and by now we've drawn the whole thing across three $10 million disbursements between June and July. After the quarter closed, in October, Bancolombia also released $7.7 million under a separate term facility. This entire loan carries interest paid yearly, with principal due as a single lump sum at maturity. Those funds are being used to cover capital expenditures on our LNG project. During the trailing 12 months, distributable cash flow from infrastructure came to $87 million. As of September 30, 2026, that figure compares with $78.8 million at June 2026 and $77.9 million one year earlier. What accounts for these variances is the timing of ODL distribution payments across periods, not any shift in underlying operating performance. Capital expenditures from continuing operations totaled $19.5 million in the quarter, versus $7.8 million in the previous quarter and $3.9 million in the third quarter of 2025, and reached $28.3 million across the nine months. We put $17.7 million into the LNG project, mostly for jetty modifications—civil work to hook it up to the gas pipeline network, access platforms, and other gear needed for FSRU operations—plus buying mooring equipment and mooring systems. Puerto Bahía's other investments came to $1.8 million, covering the LPG project, cargo terminal facilities, and software licenses. At this point I'll turn the call back over to Orlando.

Thanks, Andrés. Before I wrap up today's call, I want to restate that Frontera is moving forward with its growth projects to boost asset value and cash flow generation. The LNG project at Puerto Bahía remains on schedule to begin operations in February of 2027, along with phase II of the LPG project, with longer-term opportunities in power generation and the dry cargo. With that, I'd like to close by thanking Gabriel and Andrés for their remarks, and thank you all for joining our call. I'll now hand the call back to our operator.

Hi, everyone. Thanks for the chance to ask something. I'm wondering whether you can give any guidance about how much extra EBITDA we should expect once LNG begins flowing in February 2027.

Yes, thanks for asking. We haven't shared that with the market so far, but early next year would certainly be a good moment to offer guidance to the market the way we usually do; however, as of right now, we haven't given any financial metrics on the project yet.

Okay. Got it. Thank you.

Thank you.

Morning, everyone. I've got a question about ODL. For quite a few years now, ODL has stayed pretty much flat, but with the government having changed recently and it seeming likely that new auctions will take place for leases and mineral rights, how do you see things going, and is it possible for us to return to growth?

Well, no — I'd say ODL is genuinely a great business. As you mentioned, it's been quite steady across the years, with dividends that have also been very steady over that period. The pipeline sits in a very good location, and the fields supplying it account for 30% of Colombia's production and 70% of the country's 1P reserves. So its location is excellent, and the added volumes we saw between last quarter and the third quarter came mostly from Caño Sur, a new field operated by Ecopetrol. As you said, the hope is that under the new government there will be policies far friendlier to business for the oil and gas sector, which is becoming a fundamental sector for the economy and for the new government. We might expect, then, more exploration activity in the country and a catching up from where we stood before the last government.

Okay, thank you. I have just a couple of follow-up questions. Regarding LPG, it is ramping up well and we are beginning to see those volumes arrive. I was wondering whether you have provided any formal guidance on what EBITDA would look like once that project is fully ramped.