Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Expressed in U.S. Dollars, unless otherwise indicated)
1. Description of Business
Gran Tierra Energy Inc., a Delaware corporation (the “Company” or “Gran Tierra”), is a publicly traded company focused on oil and natural gas exploration and production in Colombia.
2. Significant Accounting Policies
These interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The information furnished herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of results for the interim periods.
The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for interim unaudited condensed consolidated financial statements. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as at and for the year ended
December 31, 2017
, included in the Company’s
2017
Annual Report on Form 10-K, filed with the SEC on
February 27, 2018
.
The Company’s significant accounting policies are described in Note 2 of the consolidated financial statements which are included in the Company’s
2017
Annual Report on Form 10-K and are the same policies followed in these interim unaudited condensed consolidated financial statements, except as noted below. The Company has evaluated all subsequent events through to the date these interim unaudited condensed consolidated financial statements were issued.
Recently Adopted Accounting Pronouncements
Revenue from Contracts with Customers
The Company adopted Accounting Standard Codification ("ASC") 606
Revenue from Contracts with Customers
with a date of initial application of January 1, 2018 in accordance with the modified retrospective approach without using the practical expedients. Except for providing enhanced disclosures about the Company's revenue transactions, the application of ASC 606 did not have an impact on the Company’s consolidated financial position, results of operations or cash flows.
a) Significant Accounting Policy
The Company's revenue relates to oil and natural gas sales in Colombia. The Company recognizes revenue when it transfers control of the product to a customer. This generally occurs at the time the customer obtains legal title to the product and when it is physically transferred to the delivery point agreed with the customer. Payment terms are generally within
three
business days following delivery of an invoice to the customer. Revenue is recognized based on the consideration specified in contracts with customers. Revenue represents the Company's share and is recorded net of royalty payments to governments and other mineral interest owners.
The Company evaluates its arrangement with third parties and partners to determine if the Company acts as a principal or an agent. In making this evaluation, management considers if the Company obtains control of the product delivered, which is indicated by the Company having the primary responsibility for the delivery of the product, having ability to establish prices or having inventory risk. If the Company acts in the capacity of an agent rather than as a principal in transaction, then the revenue is recognized on a net-basis, only reflecting the fee realized by the Company from the transaction.
Tariffs, tolls and fees charged to other entities for use of pipelines owned by the Company are evaluated by management to determine if these originate from contracts with customers or from incidental arrangements.
In the comparative period, revenue from the production of oil and natural gas was recognized when the customer took title and assumed the risks and rewards of ownership, prices were fixed or determinable, the sale was evidenced by a contract and collection of the revenue was reasonably assured.
b) Significant Judgments
When determining if the Company acted as a principal or as an agent in transactions, management determines if the Company obtains control of the product. As part of this assessment, management considers detailed criteria for revenue recognition set out in ASC 606.
Recognition and Measurement of Financial Assets and Financial Liabilities
In January 2016, the FASB issued ASU 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2016-01 addressed certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01 was effective for annual reporting periods and interim reporting periods within those annual reporting periods, beginning after December 15, 2017. The implementation of this update did not impact on the Company’s consolidated financial position, results of operations or cash flows or disclosure.
In February 2018, the FASB issued ASU 2018-03, "Recognition and Measurement of Financial Assets and Financial Liabilities". ASU 2018-03 clarified certain aspects of the guidance in ASU 2016-01. ASU 2018-03 is effective for annual reporting periods beginning after December 15, 2017 and interim reporting periods within those annual reporting periods beginning after June 15, 2018. Early adoption is permitted upon adoption of ASU 2016-01.The amendments should be applied retrospectively with a cumulative-effect adjustment to the effective date of ASU 2016-01. The Company early adopted this update on January 1, 2018. The implementation of this update did not impact the Company’s consolidated financial position, results of operations or cash flows or disclosure.
Recently Issued but Not Yet Adopted Accounting Pronouncements
Leases
In January 2018, the FASB issued ASU 2018-01, "Land Easement Practical Expedient for Transition to Topic 842". ASU 2018-01 provides an optional transition practical expedient that, if elected, would not require an organization to reconsider their accounting for existing or expired land easements that were not previously accounted for as leases under Topic 840. The effective date and transition requirements for the amendment is the same as the effective date and transition requirements in Update 2016-02. The Company is planning to adopt ASU 2018-01 upon transition to ASU 2016-01 "Leases".
The Company is finalizing an assessment of its contract inventory using certain practical expedients to determine which contracts meet the definition of a lease. The next steps will include classifying leases as either financing or operating, establishing interest rates and determining the value of right-of-use lease assets and lease liabilities. The Company expects to apply the guidance of ASU 2016-02 using a modified retrospective transition approach.
3. Segment and Geographic Reporting
The Company is primarily engaged in the exploration and production of oil and natural gas. Commencing 2018, the Company has
one
reportable segment based on geographic organization, Colombia. Prior to the sale of the Company's Brazil business unit effective June 30, 2017 and Peru business unit effective December 18, 2017, Brazil and Peru were reportable segments. The "All Other" category represents the Company’s corporate activities, Mexico activities and Brazil and Peru activities until the date of sale.
The following tables present information on the Company’s reportable segments and other activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2018
|
(Thousands of U.S. Dollars)
|
Colombia
|
|
All Other
|
|
Total
|
Oil and natural gas sales
|
$
|
163,446
|
|
|
$
|
—
|
|
|
$
|
163,446
|
|
Depletion, depreciation and accretion
|
46,065
|
|
|
542
|
|
|
46,607
|
|
General and administrative expenses
|
7,213
|
|
|
6,000
|
|
|
13,213
|
|
Income (loss) before income taxes
|
51,029
|
|
|
(2,733
|
)
|
|
48,296
|
|
Segment capital expenditures
|
83,757
|
|
|
637
|
|
|
84,394
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017
|
(Thousands of U.S. Dollars)
|
Colombia
|
|
All Other
|
|
Total
|
Oil and natural gas sales
|
$
|
91,905
|
|
|
$
|
4,223
|
|
|
$
|
96,128
|
|
Depletion, depreciation and accretion
|
30,130
|
|
|
1,683
|
|
|
31,813
|
|
General and administrative expenses
|
5,229
|
|
|
4,284
|
|
|
9,513
|
|
Income (loss) before income taxes
|
21,598
|
|
|
(15,108
|
)
|
|
6,490
|
|
Segment capital expenditures
|
55,436
|
|
|
2,429
|
|
|
57,865
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018
|
(Thousands of U.S. Dollars)
|
Colombia
|
|
All Other
|
|
Total
|
Oil and natural gas sales
|
$
|
301,674
|
|
|
$
|
—
|
|
|
$
|
301,674
|
|
Depletion, depreciation and accretion
|
84,564
|
|
|
1,504
|
|
|
86,068
|
|
General and administrative expenses
|
14,022
|
|
|
10,351
|
|
|
24,373
|
|
Income (loss) before income taxes
|
112,180
|
|
|
(20,252
|
)
|
|
91,928
|
|
Segment capital expenditures
|
156,318
|
|
|
770
|
|
|
157,088
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017
|
(Thousands of U.S. Dollars)
|
Colombia
|
|
All Other
|
|
Total
|
Oil and natural gas sales
|
$
|
182,369
|
|
|
$
|
8,418
|
|
|
$
|
190,787
|
|
Depletion, depreciation and accretion
|
55,065
|
|
|
3,624
|
|
|
58,689
|
|
General and administrative expenses
|
10,061
|
|
|
8,164
|
|
|
18,225
|
|
Income (loss) before income taxes
|
58,742
|
|
|
(20,685
|
)
|
|
38,057
|
|
Segment capital expenditures
|
98,276
|
|
|
5,749
|
|
|
104,025
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at June 30, 2018
|
(Thousands of U.S. Dollars)
|
Colombia
|
|
All Other
|
|
Total
|
Property, plant and equipment
|
$
|
1,176,540
|
|
|
$
|
1,656
|
|
|
$
|
1,178,196
|
|
Goodwill
|
102,581
|
|
|
—
|
|
|
102,581
|
|
All other assets
|
175,563
|
|
|
165,745
|
|
|
341,308
|
|
Total Assets
|
$
|
1,454,684
|
|
|
$
|
167,401
|
|
|
$
|
1,622,085
|
|
|
|
|
|
|
|
|
As at December 31, 2017
|
(Thousands of U.S. Dollars)
|
Colombia
|
|
All Other
|
|
Total
|
Property, plant and equipment
|
$
|
1,096,833
|
|
|
$
|
2,391
|
|
|
$
|
1,099,224
|
|
Goodwill
|
102,581
|
|
|
—
|
|
|
102,581
|
|
All other assets
|
176,980
|
|
|
50,834
|
|
|
227,814
|
|
Total Assets
|
$
|
1,376,394
|
|
|
$
|
53,225
|
|
|
$
|
1,429,619
|
|
4. Property, Plant and Equipment
|
|
|
|
|
|
|
|
|
(Thousands of U.S. Dollars)
|
As at June 30, 2018
|
|
As at December 31, 2017
|
Oil and natural gas properties
|
|
|
|
|
Proved
|
$
|
3,014,725
|
|
|
$
|
2,810,796
|
|
Unproved
|
423,808
|
|
|
464,948
|
|
|
3,438,533
|
|
|
3,275,744
|
|
Other
|
19,086
|
|
|
26,401
|
|
|
3,457,619
|
|
|
3,302,145
|
|
Accumulated depletion, depreciation and impairment
|
(2,279,423
|
)
|
|
(2,202,921
|
)
|
|
$
|
1,178,196
|
|
|
$
|
1,099,224
|
|
The Company used an average Brent price of
$62.58
per bbl for the purposes of the
June 30, 2018
ceiling test calculations (
March 31, 2018
-
$56.92
,
December 31, 2017
-
$54.19
).
5. Debt and Debt Issuance Costs
The Company's debt at
June 30, 2018
and
December 31, 2017
was as follows:
|
|
|
|
|
|
|
|
|
(Thousands of U.S. Dollars)
|
As at June 30, 2018
|
|
As at December 31, 2017
|
Senior notes
|
$
|
300,000
|
|
|
$
|
—
|
|
Convertible notes
|
115,000
|
|
|
115,000
|
|
Revolving credit facility
|
—
|
|
|
148,000
|
|
Unamortized debt issuance costs
|
(16,870
|
)
|
|
(6,458
|
)
|
Long-term debt
|
$
|
398,130
|
|
|
$
|
256,542
|
|
Senior Notes
On
February 15, 2018
, Gran Tierra Energy International Holdings Ltd. ("GTEIH"), an indirect, wholly owned subsidiary of the Company, issued
$300 million
of
6.25%
Senior Notes due 2025 (the "Senior Notes"). The Senior Notes are fully and unconditionally guaranteed by the Company and certain subsidiaries of the Company that guarantee its revolving credit facility. Net proceeds from the sale of the Senior Notes were
$288.1 million
, after deducting the initial purchasers' discounts and commission and the offering expenses payable by the Company.
The Senior Notes bear interest at a rate of
6.25%
per year, payable semi-annually in arrears on
February 15
and
August 15
of each year, beginning on
August 15, 2018
. The Senior Notes will mature on
February 15, 2025
, unless earlier redeemed or repurchased.
Before
February 15, 2022
, GTEIH may, at its option, redeem all or a portion of the Senior Notes at
100%
of the principal amount plus accrued and unpaid interest and a make-whole premium. Thereafter, the Company may redeem all or a portion of the Senior Notes plus accrued and unpaid interest applicable to the date of the redemption at the following redemption prices:
2022
-
103.125%
;
2023
-
101.563%
;
2024
and thereafter -
100%
.
Interest Expense
The following table presents total interest expense recognized in the accompanying interim unaudited condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Thousands of U.S. Dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Contractual interest and other financing expenses
|
$
|
6,532
|
|
|
$
|
2,711
|
|
|
$
|
11,357
|
|
|
$
|
5,201
|
|
Amortization of debt issuance costs
|
843
|
|
|
620
|
|
|
1,513
|
|
|
1,225
|
|
|
$
|
7,375
|
|
|
$
|
3,331
|
|
|
$
|
12,870
|
|
|
$
|
6,426
|
|
6. Share Capital
On May 1, 2018, Gran Tierra Exchangeco Inc., a subsidiary of the Company, announced that it had established a redemption date of July 5, 2018 in respect of all of its outstanding exchangeable shares. Effective July 5, 2018, all remaining outstanding exchangeable shares of record on July 4, 2018 were acquired for purchase consideration of
one
share of Gran Tierra common stock, and on July 9, 2018, the Company retired and canceled
one
share of Special A Voting Stock and
one
share of Special B Voting Stock, which held voting rights in connection with those exchangeable shares. As a result,
no
shares of Special A Voting Stock and Special B Voting Stock remain outstanding.
|
|
|
|
|
|
|
|
|
Shares of Common Stock
|
Exchangeable Shares of Gran Tierra Exchangeco Inc.
|
Exchangeable Shares of Gran Tierra Goldstrike Inc.
|
Balance, December 31, 2017
|
385,191,042
|
|
4,422,776
|
|
1,688,889
|
|
Options exercised
|
319,462
|
|
—
|
|
—
|
|
Shares repurchased and canceled
|
(469,412
|
)
|
—
|
|
—
|
|
Exchange of exchangeable shares
|
4,976,426
|
|
(3,287,537
|
)
|
(1,688,889
|
)
|
Balance, June 30, 2018
|
390,017,518
|
|
1,135,239
|
|
—
|
|
On
March 7, 2018
, the Company announced that it intended to implement a share repurchase program (the “2018 Program”) through the facilities of the Toronto Stock Exchange ("TSX") and eligible alternative trading platforms in Canada. Under the 2018 Program, the Company is able to purchase at prevailing market prices up to
19,269,732
shares of Common Stock, representing approximately
5.00%
of the issued and outstanding shares of Common Stock as of
March 8, 2018
. Shares purchased pursuant to 2018 Program will be canceled. The 2018 Program will expire on
March 11, 2019
, or earlier if the
5.00%
share maximum is reached.
Equity Compensation Awards
The following table provides information about p
erformance stock units
(“PSUs”), deferred share units (“DSUs”), restricted stock units (“RSUs”) and stock option activity for the
six months ended June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PSUs
|
DSUs
|
RSUs
|
|
Stock Options
|
|
Number of Outstanding Share Units
|
Number of Outstanding Share Units
|
Number of Outstanding Share Units
|
|
Number of Outstanding Stock Options
|
Weighted Average Exercise Price/Stock Option ($)
|
Balance, December 31, 2017
|
6,131,951
|
|
455,768
|
|
122,090
|
|
|
8,960,692
|
|
3.65
|
|
Granted
|
3,544,001
|
|
131,888
|
|
—
|
|
|
1,996,526
|
|
2.51
|
|
Exercised
|
—
|
|
—
|
|
(120,268
|
)
|
|
(319,462
|
)
|
2.65
|
|
Forfeited
|
(213,160
|
)
|
—
|
|
(1,822
|
)
|
|
(491,475
|
)
|
5.42
|
|
Expired
|
—
|
|
—
|
|
—
|
|
|
(171,854
|
)
|
6.15
|
|
Balance, June 30, 2018
|
9,462,792
|
|
587,656
|
|
—
|
|
|
9,974,427
|
|
3.33
|
|
Stock-based compensation
expense
for the three and
six months ended June 30, 2018
, was
$6.9 million
and
$10.2 million
, respectively, and was primarily recorded in general and administrative ("G&A") expenses (three and
six months ended June 30, 2017
-
$2.0 million
and
$3.2 million
, respectively).
At
June 30, 2018
, there was
$23.0 million
(
December 31, 2017
-
$13.7 million
) of unrecognized compensation cost related to unvested PSUs and stock options which is expected to be recognized over a weighted average period of
1.8
years.
Net Income per Share
Basic net income per share is calculated by dividing net income by the weighted average number of shares of Common Stock and exchangeable shares issued and outstanding during each period. Diluted net income per share is similarly calculated except that the common shares outstanding for the period is increased using the treasury stock method to reflect the potential dilution that
could occur if outstanding stock awards were vested at the end of the applicable period plus potentially issuable shares on conversion of the convertible notes. Anti-dilutive shares represent potentially dilutive securities that are excluded from the computation of diluted income or loss per share as their impact would be anti-dilutive.
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Weighted average number of common and exchangeable shares outstanding
|
391,054,204
|
|
|
398,585,290
|
|
|
391,173,460
|
|
|
398,795,023
|
|
Shares issuable pursuant to stock options
|
4,894,633
|
|
|
—
|
|
|
2,420,509
|
|
|
625,631
|
|
Shares assumed to be purchased from proceeds of stock options
|
(4,308,138
|
)
|
|
—
|
|
|
(2,166,348
|
)
|
|
(604,563
|
)
|
Shares issuable pursuant to convertible notes
|
35,814,393
|
|
|
—
|
|
|
35,814,393
|
|
|
—
|
|
Weighted average number of diluted common and exchangeable shares outstanding
|
427,455,092
|
|
|
398,585,290
|
|
|
427,242,014
|
|
|
398,816,091
|
|
For the
three months ended June 30, 2018
,
5,240,018
options, on a weighted average basis, (
three months ended June 30, 2017
-
10,634,157
options) were excluded from the diluted income (loss) per share calculation as the options were anti-dilutive. For the
six months ended June 30, 2018
,
7,385,714
options, on a weighted average basis, (
six months ended June 30, 2017
-
9,616,800
options) were excluded from the diluted income per share calculation as the options were anti-dilutive. Shares issuable upon conversion of the
5.00%
Convertible Notes due 2021 ("Convertible Notes") were dilutive and included in the diluted income per share calculation. For the three and
six months ended June 30, 2018
, the numerator used in the computation of diluted earnings per share included net income for the period adjusted for interest on convertible debentures and amortization of debt issuance costs of
$1.7 million
and
$3.4 million
, respectively.
7. Revenue
Most of the Company's revenues are from oil sales at prices which reflect the blended prices received upon shipment by the purchaser at defined sales points or are defined by contract relative to ICE Brent and adjusted for Vasconia crude, quality and transportation discounts each month. For the three and
six months ended June 30, 2018
,
100%
(three and
six months ended June 30, 2017
-
100%
) of the Company's revenue resulted from oil sales. During the three and
six months ended June 30, 2018
, quality and transportation discounts were
14%
and
15%
, respectively, of the ICE Brent price (three and
six months ended June 30, 2017
-
21%
and
22%
, respectively). During the three and
six months ended June 30, 2018
, the Company's production was sold primarily to
three
major customers in Colombia (three and
six months ended June 30, 2017
-
four
).
As at
June 30, 2018
, accounts receivable included
$4.8 million
of accrued sales revenue which related to June 2018 production (
December 31, 2017
-
$11.1 million
which related to December 31, 2017 production).
8. Taxes
The Company's effective tax rate was
58%
in the
six months ended June 30, 2018
, compared with
84%
in the comparative period in
2017
. Current income tax expense was higher in the
six months ended June 30, 2018
, compared with the corresponding period in
2017
, primarily as a result of higher taxable income in Colombia. The deferred income tax expense of
$36.7 million
for the
six months ended June 30, 2018
, was primarily due to excess tax depreciation compared with accounting depreciation in Colombia.
For the
six months ended June 30, 2018
, the difference between the effective tax rate of
58%
and the
21%
U.S. statutory rate was primarily due to an increase to the impact of foreign taxes, valuation allowance, stock-based compensation, foreign currency translation and non-deductible third party royalty in Colombia.
For the comparative period in
2017
, the effective tax rate differed from the U.S. statutory rate of
35%
primarily due to an increase in the valuation allowance, which was largely attributable to losses incurred in the United States, Brazil and Colombia, as well as the impact of a non-deductible third-party royalty in Colombia, foreign and local taxes, and stock-based compensation. These items were partially offset by foreign currency translation adjustments and other permanent differences.
9. Contingencies
The Agencia Nacional de Hidrocarburos (National Hydrocarbons Agency) (“ANH") and Gran Tierra are engaged in ongoing discussions regarding the interpretation of whether certain transportation and related costs are eligible to be deducted in the calculation of an additional royalty (the "HPR royalty"). Based on the Company's understanding of the ANH's position, the estimated compensation which would be payable if the ANH’s interpretation is correct could be up to
$52.8 million
as at
June 30, 2018
. At this time
no
amount has been accrued in the interim unaudited condensed consolidated financial statements as Gran Tierra does not consider it probable that a loss will be incurred.
In addition to the above, the Company has a number of other lawsuits and claims pending. Although the outcome of these other lawsuits and disputes cannot be predicted with certainty, the Company believes the resolution of these matters would not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Gran Tierra records costs associated with these lawsuits and claims as they are incurred or become probable and determinable.
Letters of credit and other credit support
At
June 30, 2018
, the Company had provided letters of credit and other credit support totaling
$69.8 million
(
December 31, 2017
-
$76.0 million
) as security relating to work commitment guarantees contained in exploration contracts and other capital or operating requirements.
10. Financial Instruments and Fair Value Measurement
Financial Instruments
At
June 30, 2018
, the Company’s financial instruments recognized in the balance sheet consisted of: cash and cash equivalents; restricted cash and cash equivalents; accounts receivable; investments; derivatives, accounts payable and accrued liabilities, long-term debt and equity compensation award liability.
Fair Value Measurement
The fair value of certain investments, derivatives and equity compensation awards (PSU and DSU) liabilities are remeasured at the estimated fair value at the end of each reporting period.
The fair value of the short-term portion of the Company's investment in PetroTal Corp. ("PetroTal") (formerly Sterling Resources Ltd.) was estimated using quoted prices at
June 30, 2018
and the foreign exchange rate at that time. The fair value of the long-term portion of the investment restricted by escrow conditions was estimated using observable and unobservable inputs; factors that were evaluated included quoted market prices, precedent comparable transactions, risk-free rate, measures of market risk volatility, estimates of the Company's and PetroTal's costs of capital and quotes from third parties.
The fair value of commodity price and foreign currency derivatives is estimated based on various factors, including quoted market prices in active markets and quotes from third parties. The Company also performs an internal valuation to ensure the reasonableness of third party quotes. In consideration of counterparty credit risk, the Company assessed the possibility of whether the counterparty to the derivative would default by failing to make any contractually required payments. Additionally, the Company considers that it is of substantial credit quality and has the financial resources and willingness to meet its potential repayment obligations associated with the derivative transactions.
The fair value of the PSU liability was estimated based on option pricing model using inputs such as quoted market prices in an active market, and PSU performance factors. The fair value of the DSU liabilities was estimated based on quoted market prices in an active market.
The fair value of the Company's investment in PetroTal, derivatives and PSU and DSU liabilities at
June 30, 2018
, and
December 31, 2017
, was as follows:
|
|
|
|
|
|
|
|
|
(Thousands of U.S. Dollars)
|
As at June 30, 2018
|
|
As at December 31, 2017
|
Investment in PetroTal shares - current and long-term
|
$
|
47,956
|
|
|
$
|
44,202
|
|
Foreign currency derivative asset
|
930
|
|
|
302
|
|
|
$
|
48,886
|
|
|
$
|
44,504
|
|
|
|
|
|
Commodity price derivative liability
|
$
|
27,157
|
|
|
$
|
21,151
|
|
Equity compensation award liability - current and long-term
|
21,077
|
|
|
11,430
|
|
|
$
|
48,234
|
|
|
$
|
32,581
|
|
The following table presents gains or losses on financial instruments recognized in the accompanying interim unaudited condensed consolidated statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Six Months Ended June 30,
|
(Thousands of U.S. Dollars)
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Commodity price derivative loss (gain)
|
$
|
14,461
|
|
|
$
|
(1,545
|
)
|
|
$
|
19,455
|
|
|
$
|
(6,247
|
)
|
Foreign currency derivatives loss (gain)
|
1,945
|
|
|
98
|
|
|
(2,024
|
)
|
|
(639
|
)
|
Investment gain
|
(11,638
|
)
|
|
—
|
|
|
(5,717
|
)
|
|
—
|
|
Financial instruments loss (gain)
|
$
|
4,768
|
|
|
$
|
(1,447
|
)
|
|
$
|
11,714
|
|
|
$
|
(6,886
|
)
|
Investment gain for the three and
six months ended June 30, 2018
, related to the fair value gain on the PetroTal shares Gran Tierra received or subscribed for in connection with the sale of its Peru business unit in December 2017. For the three and six months ended
June 30, 2018
, this investment gain was unrealized.
Financial instruments not recorded at fair value include the Senior Notes and the Convertible Notes. At
June 30, 2018
, the carrying amounts of the Senior Notes and the Convertible Notes were
$288.6 million
and
$111.5 million
, respectively, which represented the aggregate principal amount less unamortized debt issuance costs, and the fair values were
$282.0 million
and
$143.8 million
, respectively. The fair value of long-term restricted cash and cash equivalents and the revolving credit facility approximated their carrying value because interest rates are variable and reflective of market rates. The fair values of other financial instruments approximate their carrying amounts due to the short-term maturity of these instruments.
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels. Level 1 inputs consist of quoted prices (unadjusted) in active markets for identical assets and liabilities and have the highest priority. Level 2 and 3 inputs are based on significant other observable inputs and significant unobservable inputs, respectively, and have lower priorities. The Company uses appropriate valuation techniques based on the available inputs to measure the fair values of assets and liabilities.
At
June 30, 2018
, the fair value of the current portion of the investment and DSU liability was determined using Level 1 inputs, the fair value of derivatives and PSUs was determined using Level 2 inputs and the fair value of the long-term portion of the investment restricted by escrow conditions was determined using Level 3 inputs. The table below presents the fair value of the long-term portion of the investment:
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
Year Ended
|
(Thousands of U.S. Dollars)
|
June 30, 2018
|
|
December 31, 2017
|
Opening balance, investment - long-term
|
$
|
19,147
|
|
|
$
|
—
|
|
Acquisition
|
—
|
|
|
19,091
|
|
Transfer from long-term (Level 3) to current (Level 1)
|
(4,787
|
)
|
|
—
|
|
Unrealized valuation gain
|
2,528
|
|
|
56
|
|
Unrealized foreign exchange loss
|
(1,586
|
)
|
|
—
|
|
Closing balance, investment - long-term
|
$
|
15,302
|
|
|
$
|
19,147
|
|
The Company uses available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the estimated amount the Company would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period end market rate. The credit spread is the Company’s default or repayment risk. The credit spread (premium or discount) is determined by comparing the Company’s Senior Notes, Convertible Notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for both public and private debt. The disclosure above regarding the fair value of the Convertible Notes was determined using Level 2 inputs based on the indicative pricing published by certain third-party services or trading levels of the Convertible Notes, which are not listed on any securities exchange or quoted on an inter-dealer automated quotation system. The disclosure in the paragraph above regarding the fair value of cash and restricted cash and cash equivalents, revolving credit facility and Senior Notes was based on Level 1 inputs.
The Company’s non-recurring fair value measurements include asset retirement obligations. The fair value of an asset retirement obligation is measured by reference to the expected future cash outflows required to satisfy the retirement obligation discounted at the Company’s credit-adjusted risk-free interest rate. The significant level 3 inputs used to calculate such liabilities include estimates of costs to be incurred, the Company’s credit-adjusted risk-free interest rate, inflation rates and estimated dates of abandonment. Accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value, while the asset retirement cost is amortized over the estimated productive life of the related assets.
Commodity Price Derivatives
The Company utilizes commodity price derivatives to manage the variability in cash flows associated with the forecasted sale of its oil production, reduce commodity price risk and provide a base level of cash flow in order to assure it can execute at least a portion of its capital spending.
At
June 30, 2018
, the Company had outstanding commodity price derivative positions as follows:
|
|
|
|
|
|
|
|
|
|
|
Period and type of instrument
|
Volume,
bopd
|
Reference
|
Sold Swap ($/bbl, Weighted Average)
|
Purchased Call ($/bbl, Weighted Average)
|
Swaps: July 1, to December 31, 2018
|
5,000
|
|
ICE Brent
|
$
|
55.90
|
|
n/a
|
|
Participating Swaps: July 1, to December 31, 2018
|
5,000
|
|
ICE Brent
|
$
|
52.50
|
|
$
|
56.11
|
|
The Company does not have any outstanding commodity price derivative positions relating to 2019.
Foreign Currency Derivatives
The Company utilizes foreign currency derivatives to manage the variability in cash flows associated with the Company's forecasted Colombian peso ("COP") denominated expenses. At
June 30, 2018
, the Company had outstanding foreign currency derivative positions as follows:
|
|
|
|
|
|
|
|
|
|
|
Period and type of instrument
|
Amount Hedged
(Millions COP)
|
U.S. Dollar Equivalent of Amount Hedged (Thousands of U.S. Dollars)
(1)
|
Reference
|
Purchased Call
(COP)
|
Sold Put (COP, Weighted Average)
|
Collars: July 1, 2018 to December 31, 2018
|
87,000
|
|
29,685
|
|
COP
|
3,000
|
|
3,107
|
|
(1)
At
June 30, 2018
foreign exchange rate.
11. Supplemental Cash Flow Information
The following table provides a reconciliation of cash, cash equivalents and restricted cash and cash equivalents with the Company's interim unaudited condensed consolidated balance sheet that sum to the total of the same such amounts shown in the interim unaudited condensed consolidated statements of cash flows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of U.S. Dollars)
|
As at June 30,
|
|
As at December 31,
|
|
2018
|
2017
|
|
2017
|
2016
|
Cash and cash equivalents
|
$
|
125,807
|
|
$
|
53,310
|
|
|
$
|
12,326
|
|
$
|
25,175
|
|
Restricted cash and cash equivalents - current
|
2,836
|
|
5,844
|
|
|
11,787
|
|
8,322
|
|
Restricted cash and cash equivalents -
long-term (included in other long-term assets)
|
2,282
|
|
9,897
|
|
|
2,565
|
|
9,770
|
|
|
$
|
130,925
|
|
$
|
69,051
|
|
|
$
|
26,678
|
|
$
|
43,267
|
|
Net changes in assets and liabilities from operating activities were as follows:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(Thousands of U.S. Dollars)
|
2018
|
|
2017
|
Accounts receivable and other long-term assets
|
$
|
(11,723
|
)
|
|
$
|
11,024
|
|
Derivatives
|
3,431
|
|
|
—
|
|
Inventory
|
(3,054
|
)
|
|
(47
|
)
|
Prepaids
|
(301
|
)
|
|
2,190
|
|
Accounts payable and accrued and other long-term liabilities
|
971
|
|
|
(6,179
|
)
|
Taxes receivable and payable
|
(27,318
|
)
|
|
(35,100
|
)
|
Net changes in assets and liabilities from operating activities
|
$
|
(37,994
|
)
|
|
$
|
(28,112
|
)
|
The following table provides additional supplemental cash flow disclosures:
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30,
|
(Thousands of U.S. Dollars)
|
2018
|
|
2017
|
Non-cash investing activities:
|
|
|
|
Net liabilities related to property, plant and equipment, end of period
|
$
|
62,009
|
|
|
$
|
56,044
|
|