Parex Resources (TSE:PXT) expects to exceed the upper end of its earlier Frontera acquisition synergy estimate in 2027, as it integrates the assets and directs more capital toward exploration and development in Colombia’s Eastern Llanos region.
The third quarter of 2026 was Parex’s first full quarter incorporating production from the acquired Frontera E&P assets. Production averaged more than 83,000 barrels of oil equivalent per day, while funds flow from operations totaled $196 million, executives said on the company’s earnings call.
President and CEO Imad Mohsen said Parex expects more than $50 million in additional free cash flow from synergies next year, above the high end of its previous $20 million to $50 million estimate. The company also maintained its second-half production outlook at the original guidance midpoint of 86,500 BOE per day.
Production Growth and Exploration
Chief Operating Officer Eric Furlan said production reached nearly 86,000 BOE per day in October. Parex expects to maintain upward momentum through the fourth quarter and finish the year within its full-year production guidance range.
In the Middle Magdalena region, Parex began earning 50% of base production at the Casabe and Llanito fields in late October under its agreement with Ecopetrol. Furlan said that represents approximately 7,000 barrels per day of net production. The company is pursuing water flooding, horizontal drilling and polymer surfactant applications to improve recovery and field performance.
At Block 111 in the Eastern Llanos, production is running at roughly 6,000 barrels per day but is constrained by transportation capacity, Furlan said. Parex is targeting approximately 2,000 barrels per day of incremental production there by year-end and plans to drill 20 exploration and development wells over the next 12 months.
To support growth in the area, Parex has sanctioned infrastructure including truck offloading facilities and a 10-inch pipeline with capacity of approximately 40,000 barrels per day. The company holds a 100% working interest across more than 1.6 million acres in the area, according to Furlan.
Mohsen said the company has recorded a 70% exploration success rate in Eastern Llanos this year and a 100% rate across the rest of its portfolio. He described the Eastern Llanos discoveries as Parex’s most significant exploration success since Llanos 34.
In gas, Furlan said a discovery at VIM-1 near the La Belleza field initially tested at 22 million cubic feet of gas and 3,000 barrels of oil per day. Parex expects to connect the well to the existing La Belleza facility by year-end. It is also targeting mid-2027 operation for a dedicated gas export pipeline that could allow it to sell up to 25 million cubic feet per day of currently reinjected gas.
Parex expects to spud its first Piedemonte exploration well in the Llanos Foothills before year-end. Mike Kruchten, senior vice president of capital markets and corporate planning, called it the company’s key large exploration well for the year.
Costs, Cash Flow and Synergies
Chief Financial Officer Cam Grainger said third-quarter funds flow was supported by commodity prices and the added Frontera production, but was offset by wider oil differentials, higher diluent, diesel and power costs, and appreciation of the Colombian peso.
A build of 315,000 barrels of crude inventory also reduced quarterly funds flow by an estimated $10 million. Those volumes were sold after the quarter ended, with the benefit expected in fourth-quarter results, Grainger said.
Management considers many of the current cost pressures temporary. Parex has implemented Colombian peso collars covering approximately 50% of its peso-denominated costs for the fourth quarter and has begun building a hedge position for 2027. Kruchten said the company’s initial view is that operating costs will be lower next year, assuming a lower oil price and increased production of lower-cost barrels.
Mohsen said more than half of the anticipated Frontera synergies come from taxation, with other savings expected in general and administrative expenses, supply chain, contracting and marketing. Some benefits captured this year were partly offset by integration, severance and transaction costs, he said.
Capital Allocation Priorities
Executives said Parex’s expanded portfolio has reduced its base production decline rate. Furlan put the rate at about 15%, while Mohsen said it was close to 25% last year. Lower declines can reduce the capital needed to maintain production, management said.
Asked about restarting share buybacks, Mohsen said Parex remains focused on strengthening its balance sheet, including bringing debt below “half a turn,” before restarting repurchases. Kruchten added that the company would also favor growth projects where their capital efficiency or valuation is more attractive than Parex’s current valuation.
Parex plans to discuss its portfolio and growth, free cash flow and balance sheet plans at a Capital Markets Day in Colombia on December 9.
About Parex Resources (TSE:PXT)
Parex is the largest independent oil and gas company in Colombia, focusing on sustainable conventional production. The Company’s corporate headquarters are in Calgary, Canada, with an operating office in Bogota, Colombia.
