Profit and loss pulling in different directions

PetroTal (LSE:PTAL), the oil producer whose main asset is the Bretana field in northern Peru, published its third-quarter financial and operating results on Monday 9 November 2026. The numbers show a Business still generating cash from its wells but reporting a net loss of US$5.5m for the three months to 30 September, equivalent to US$5.27 per barrel. Figures are in US dollars.

The loss was driven by a US$14.9m charge on Commodity derivatives, the oil price hedges the company uses to protect its revenue. Of that, US$10.6m was unrealised, reflecting changes in the value of contracts still open, and US$4.8m was realised. Before those charges, adjusted EBITDA was US$33.7m, or US$31.96 per barrel, and free funds flow was US$21.2m.

About the company

PetroTal produces oil from the Bretana field in northern Peru. The field produces a large Volume of water with the oil, so handling and re-injecting water is central to operations. The company reports in US dollars and uses hedges to protect against falling prices.

Production and spending

Group output averaged 11,797 barrels of oil per day in the quarter, with sales of 11,446 barrels per day. Bretana contributed 11,465 barrels per day and the smaller Los Angeles field 332. Year-to-date production of 13,076 barrels per day was about 3% ahead of internal budget, according to the company's October operations update. Capital spending was US$11.8m in the quarter and US$27.4m so far this year.

The company is drilling the Bretana 25H development well, which was spudded on 21 September, as part of an eight-well campaign intended to restore production to about 20,000 barrels per day by the end of the first quarter of 2027.

Bretana produces large volumes of water alongside its oil, so water handling is central to output. Water injection averaged 187,000 barrels per day in September, up 6% on the previous month, after stimulation work on two injection wells. In the October update, chief executive Manuel Pablo Zuniga-Pflucker said PetroTal had delivered another solid quarter.

Hedges and the balance sheet

LSE:PTAL's hedges take the form of costless collars with a Brent floor of US$60 a barrel, a ceiling of US$78 and a cap of US$98. At 30 September they covered about 338,000 barrels for the rest of 2026 and 1.7 million barrels through 2027, and had a negative Fair Value of US$12.8m. In effect, the company has given up some upside from higher prices in exchange for protection if prices fall.

Total cash was US$151.4m at the quarter end, of which US$115.6m was unrestricted, compared with US$105.3m unrestricted at the end of June. After the quarter, LSE:PTAL repaid its US$36.6m BanBif-COFIDE loan. The repayment reduces unrestricted cash by about US$11m and removes US$3.9m of future interest.

Why it matters

For investors, the quarter illustrates the gap between accounting profit and cash generation in a hedged producer. The net loss largely reflects non-cash revaluation, while positive free funds flow and Debt repayment point to a firmer balance sheet. Whether production reaches 20,000 barrels per day on schedule is the main operational test, since higher volumes would spread fixed costs across more barrels. In October the company also signed a technical evaluation agreement with PeruPetro covering Area CXVII in the Marañón Basin, a desk-based study lasting 24 months, extendable by 12.

Reconciling EBITDA and the loss

Adjusted EBITDA of US$33.7m less the derivative charge of US$14.9m leaves about US$18.8m before depreciation, tax, interest and other items. The net loss of US$5.5m therefore reflects about US$24.3m of costs below EBITDA and the derivative loss. Of the derivative charge, US$10.6m was unrealised, so it did not involve cash in the quarter, and only US$4.8m was realised. If the unrealised portion is excluded, the loss would have been smaller.

Free funds flow of US$21.2m is the cash left after capital spending of US$11.8m.

Production and the drilling programme

Production of 11,797 barrels a day is below the target of about 20,000 barrels a day by the end of the first quarter of 2027, so the eight-well campaign aims to raise output by about 70%. Year-to-date output of 13,076 barrels a day was about 3% ahead of budget, so the current quarter's lower rate was expected in the plan. The Bretana 25H well, which began drilling on 21 September, is the first in a series of wells.

Water injection

Water injection of 187,000 barrels per day, up 6% from the previous month after stimulation of two injection wells, shows how much water moves through the system. Injecting water supports reservoir pressure and disposes of the produced water, so higher capacity helps oil output. The ratio of injected water to oil, of about 16 barrels of water for each barrel of oil on the quarter's average, shows why water handling is central to the field's operations.

The hedge terms

A costless collar sets a floor and a ceiling without paying a premium up front. The floor of US$60 protects Revenue if prices fall, and the ceiling of US$78 limits gains if prices rise, with a cap of US$98 shown as a further level. At a negative fair value of US$12.8m, the contracts would cost that amount to close at 30 September, which means the prices at the time were above the ceiling for part of the hedged volume. The hedges cover about 338,000 barrels for the rest of 2026 and 1.7 million barrels through 2027.

Cash

Unrestricted cash rose to US$115.6m from US$105.3m, an increase of US$10.3m, while total cash was US$151.4m. The difference of US$35.8m is restricted cash, which is set aside for specific purposes and is not freely available.

Risks and next steps

Drilling results may disappoint, and Bretana's remote location in the Peruvian Amazon makes logistics and export routes sensitive to river levels and pipeline availability. Hedge losses would increase if Brent rises above the US$78 ceiling, while unrealised gains could reverse quarter to quarter. Trade receivables eased to about US$47.5m from US$50.0m, while trade and other payables rose to about US$55.9m at 30 September from US$47.6m at the end of June, both unaudited. The company has not set a date for its next update, although its pattern has been a quarterly operations statement in the month after each quarter ends.