Gran Tierra Energy Inc. ("
Gran Tierra" or the
"
Company")
(NYSE American:GTE)(NYSE
MKT:GTE)(TSX:GTE)(LSE:GTE), a company focused on oil
exploration and production in Colombia and Ecuador, today announced
the Company's 2019 year-end reserves as evaluated by the Company's
independent qualified reserves evaluator McDaniel & Associates
Consultants Ltd. ("
McDaniel") in a report with an
effective date of December 31, 2019 (the "
GTE McDaniel
Reserves Report") and an operational update.
All dollar amounts are in United States
("U.S.") dollars and all reserves and production
volumes are on a working interest before royalties
("WI") basis. Production is expressed in barrels
("bbl") of oil per day ("bopd")
or bbl of oil equivalent ("boe") per day
("boepd"), while reserves are expressed in bbl,
boe or million boe ("MMBOE"), unless otherwise
indicated. All reserves values, future net revenue and ancillary
information contained in this press release have been prepared by
McDaniel and calculated in compliance with Canadian National
Instrument 51-101 – Standards of Disclosure for Oil and Gas
Activities (“NI 51-101”) and the Canadian Oil and
Gas Evaluation Handbook ("COGEH") and derived from
the GTE McDaniel Reserves Report, unless otherwise expressly
stated. The following reserves categories are discussed in this
press release: Proved ("1P"), 1P plus Probable
("2P") and 2P plus Possible
("3P").
Commenting on Gran Tierra's 2019 year-end
reserves, operational update and future plans, Gary Guidry,
President and Chief Executive Officer of Gran Tierra, said: “The
last three years have been transformational for Gran Tierra, as we
have focused the Company on long life, low decline oil assets under
waterflood. During this time, we invested a significant amount of
capital, predominately in the Acordionero field, and acquired
additional WI in and operatorship of the Suroriente Block. This
large capital investment is now behind us. With our strategy, we
have positioned the Company for significant potential free cash
flow1 generation in all reserve cases, by materially advancing our
waterflooding efforts in our four core assets. We believe Gran
Tierra's assets are truly world-class, showing waterflood response,
low decline rates, and requiring minimal capital expenditures going
forward. As a result of our focused 2019 activity, all of these
assets realized material reserves growth. In 2020, we have elected
to reduce capital expenditures relative to 2019 levels, in order to
emphasize free cash flow1 generation, rather than significant
production growth. We forecast 2020 average production of 35,500 to
37,500 boepd for the Company."
Highlights
2019 Year-End Reserves and
Values
|
|
Net Present
Value at10% Discount |
Net Asset
Value Per Shareat 10% Discount |
Reserves |
Reserves |
Before Tax |
After Tax |
Before Tax |
After Tax |
Category |
MMBOE |
$ million |
$ million |
$/share2 |
$/share3 |
1P |
79 |
1,546 |
1,298 |
2.55 |
1.88 |
2P |
142 |
2,914 |
2,276 |
6.28 |
4.54 |
3P |
186 |
3,815 |
2,896 |
8.73 |
6.23 |
|
|
|
|
|
|
- Realized material 1P reserves
growth across the Company's four core assets as a result of
waterflooding
- Achieved 1P reserves replacement of
200% with 1P reserves additions of 25.3 MMBOE, with 1P NPV10 before
tax increasing 15% from 2018 year-end, despite a decrease in
McDaniel forecast price assumptions
- Acordionero, Suroriente, Costayaco
and Moqueta now represent 83% of Gran Tierra's 1P reserves
- Significant increase in 1P reserves
of 15.3 MMBOE at Acordionero due to waterflood performance
- Proved Developed Producing reserves
account for 51% of 1P reserves and 1P reserves account for 55% of
2P reserves, demonstrating the potential stability of the Company's
reserves base
- Optimized waterflood performance
and development plan in Suroriente led to strong accelerated
reserves gains
- Gran Tierra's mature waterflood
assets, Costayaco and Moqueta, continued to grow and deliver value,
adding 4.1 MMBOE in 2P reserves
- Future development costs
("FDC") are forecast to be $386 million for 1P
reserves and $566 million for 2P reserves
- Realized a 17% increase in 2P
reserve life index to 12 years and a 38% increase in 1P reserve
life index to 7 years
Gary Guidry, President and Chief Executive
Officer of Gran Tierra, further commented: "In the GTE McDaniel
Reserves Report, Gran Tierra's assets are forecast to generate free
cash flow1 after development expenditures and taxes over the next
five years of approximately $1.4 billion for 1P reserves, $2.1
billion for 2P reserves and $2.5 billion for 3P reserves. After
adjusting for internally forecast general and administrative
("G&A") costs and interest4, the free cash
flow1 potential over the next five years is approximately $1.1
billion for 1P reserves and $1.8 billion for 2P reserves. At a more
conservative forecast Brent oil price flat at $60/bbl, the free
cash flow1 based on 2P reserves, after development expenditures and
taxes, and internally forecast interest and G&A costs is
projected to be approximately $1.4 billion over the next five
years.
Our most exciting accomplishment in 2019 has
been the full implementation and growth of our waterflood in the
Acordionero field in Colombia's Middle Magdalena Valley Basin. Our
2019 capital program focused on Acordionero and achieved 1P
reserves growth of 59%, which was a 15.2 MMBOE increase from 2018
year-end, and represented 241% 1P reserves replacement at this best
in class asset. Acordionero is forecast to generate approximately
$1.2 billion of free cash flow1 over the next five years and to
have a December 31, 2019, 2P net present value
("NPV") discounted at 10%
("NPV10") before tax of $1.8 billion.
Along with the growth and success at
Acordionero, the Suroriente Block in Colombia's Putumayo Basin has
proven itself to be an important acquisition with respect to value
creation. After consolidating our WI in Suroriente in first quarter
2019, as well as assuming operatorship of this key block, Gran
Tierra began a rigorous campaign to increase water injection and
optimize the waterflood through existing wells. By increasing
injection by more than 50% to over 21,000 bbl water injected per
day (100% gross basis) within months of taking over operatorship of
Suroriente, Gran Tierra demonstrated the large unrealized potential
in this block, with minimal capital expenditure while growing WI
oil production by 24% to 4,100 bopd by the end of 2019. Through
these efforts, we achieved incremental WI reserves additions of 3
MMBOE (1P), 4 MMBOE (2P) and 3 MMBOE (3P), excluding the effects of
acquiring additional working interest. This asset is forecast to
generate free cash flow1 of $328 million over the next five
years.
We continue to see growth and positive results
in our two mature Putumayo waterflood assets, Costayaco and
Moqueta. During 2019, Gran Tierra focused efforts on identifying
unswept oil areas and optimizing the waterfloods in both of these
assets. Guided by reservoir simulation models, the Company executed
a successful waterflood optimization and infill development
drilling campaign which resulted in new high oil cut producing
wells and 2019 reserves additions for these assets of 3 MMBOE (1P)
and 4 MMBOE (2P). We believe that the continued success of these
mature waterfloods is indicative of the exciting future for the
growth and significant cash flow potential which may exist in our
early stage waterflood assets at Acordionero and Suroriente.
We are excited and pleased that Gran Tierra has
taken the appropriate steps to not only demonstrate the
extraordinary value which sits within our portfolio, but that we
have secured a low risk path to capture this value in the near term
through waterflooding. This strategy allows us to generate
significant cash flow for a strong balance sheet, shareholder
returns and reinvestment.
We believe that Gran Tierra now has visible
near-term free cash flow1 from our existing asset base beginning in
2020, even after funding a modest discretionary exploration program
from our world-class exploration portfolio planned for this
year.”
Operational Update
- Average production for 2019 was
34,817 boepd, consistent with the latest guidance of 34,800 to
35,000 boepd for 2019
- Gran Tierra commenced its 2020 12
to 14 well drilling program at Acordionero in early January
2020:◦ The results for the first two wells met expectations
in terms of the reservoir encountered and costs to drill◦ The
first oil well drilled, the AC- 55, has recently commenced
production and during January 27, 2020, produced at a rate of 528
bopd, with a water cut of 12% and gas-oil ratio of 140 standard
cubic feet per bbl◦ The AC-55's water cut has been falling
steadily as the well continues to clean up on electric submersible
pump◦ The AC-55 also set a new field record for least amount
of time between spud to on-production date of 15 days
- Snubbing unit operations at the
Ayombero 2 and 3 wells have made significant progress in setting up
the two wells for future operations; wellbore strings in the cased
portions of the wells were both recovered successfully; next, the
snubbing unit will be moving to the Chuira 1 well to commence
wellbore recovery operations
- The five well Putumayo development
drilling program is projected to commence in late February 2020 at
Cohembi and Costayaco; four of the wells are targeting
well-developed waterflooded horizons, the fifth well will be a
horizontal producer targeting the less developed M2 Limestone at
Costayaco
- The Cocona-1 exploration well was
spud on the PUT-1 Block on November 27, 2019; the well was drilled
to an intermediate casing point at a depth 6,741 feet; during the
cementing operation, the casing parted at 766 feet; to ensure the
well objective was not compromised, the original wellbore was
abandoned
- The Cocona-2 exploration well was
then spud on December 22, 2019, from a second cellar at the same
pad site as the Cocona-1; Cocona-2 is an appraisal drill of the
fractured A Limestone play trend, and the additional oil zones
which were successfully encountered in the Vonu-1 exploration
well
- Cocona-2 has been drilled through
the target formations to a planned total depth of 10,603 feet;
currently well operations have been suspended, due to mechanical
failure associated with the drilling rig; based on encouraging
results in the N Sand, A Limestone and U Sand from logging while
drilling and cuttings analysis, the well is expected to be put on
production test by the end of first quarter 2020
Future Net Revenue
Future net revenue reflects McDaniel’s forecast
of revenue estimated using forecast prices and costs, arising from
the anticipated development and production of reserves, after the
deduction of royalties, operating costs, development costs and
abandonment and reclamation costs but before consideration of
indirect costs such as administrative, overhead and other
miscellaneous expenses. The estimate of future net revenue below
does not necessarily represent fair market value.
Consolidated Properties at December 31, 2019 |
Proved (1P) Total Future Net Revenue ($
million) |
Forecast Prices and Costs |
Years |
SalesRevenue |
TotalRoyalties |
OperatingCosts |
FutureDevelopmentCapital |
AbandonmentandReclamationCosts |
FutureNetRevenueBeforeFutureTaxes |
FutureTaxes |
FutureNetRevenueAfterFutureTaxes* |
2020-2024(5 Years) |
3,391 |
|
(486 |
) |
(914 |
) |
(385 |
) |
(2 |
) |
1,604 |
|
(210 |
) |
1,394 |
|
Remainder |
1,419 |
|
(163 |
) |
(688 |
) |
(1 |
) |
(60 |
) |
507 |
|
(143 |
) |
364 |
|
Total
(Undiscounted) |
4,810 |
|
(649 |
) |
(1,602 |
) |
(386 |
) |
(62 |
) |
2,111 |
|
(353 |
) |
1,758 |
|
Total
(Discounted @ 10%) |
3,446 |
|
(481 |
) |
(1,051 |
) |
(346 |
) |
(23 |
) |
1,545 |
|
(247 |
) |
1,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Properties at December 31, 2019 |
Proved Plus Probable (2P) Total Future Net Revenue ($
million) |
Forecast Prices and Costs |
Years |
SalesRevenue |
TotalRoyalties |
OperatingCosts |
FutureDevelopmentCapital |
AbandonmentandReclamationCosts |
FutureNetRevenueBeforeFutureTaxes |
FutureTaxes |
FutureNetRevenueAfterFutureTaxes* |
2020-2024(5 Years) |
4,844 |
|
(686 |
) |
(1,056 |
) |
(566 |
) |
(1 |
) |
2,535 |
|
(472 |
) |
2,063 |
|
Remainder |
4,168 |
|
(562 |
) |
(1,299 |
) |
(1 |
) |
(75 |
) |
2,231 |
|
(59 |
) |
2,172 |
|
Total
(Undiscounted) |
9,012 |
|
(1,248 |
) |
(2,355 |
) |
(567 |
) |
(76 |
) |
4,766 |
|
(531 |
) |
4,235 |
|
Total
(Discounted @ 10%) |
5,580 |
|
(780 |
) |
(1,371 |
) |
(496 |
) |
(19 |
) |
2,914 |
|
(638 |
) |
2,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Properties at December 31, 2019 |
Proved Plus Probable Plus Possible (3P) Total Future Net
Revenue ($ million) |
Forecast Prices and Costs |
Years |
SalesRevenue |
TotalRoyalties |
OperatingCosts |
FutureDevelopmentCapital |
AbandonmentandReclamationCosts |
FutureNetRevenueBeforeFutureTaxes |
FutureTaxes |
FutureNetRevenueAfterFutureTaxes* |
2020-2024(5 Years) |
5,822 |
|
(830 |
) |
(1,186 |
) |
(675 |
) |
(1 |
) |
3,130 |
|
(659 |
) |
2,471 |
|
Remainder |
5,992 |
|
(871 |
) |
(1,795 |
) |
(1 |
) |
(82 |
) |
3,243 |
|
(953 |
) |
2,290 |
|
Total
(Undiscounted) |
11,814 |
|
(1,701 |
) |
(2,981 |
) |
(676 |
) |
(83 |
) |
6,373 |
|
(1,612 |
) |
4,761 |
|
Total
(Discounted @ 10%) |
7,072 |
|
(1,013 |
) |
(1,645 |
) |
(581 |
) |
(18 |
) |
3,815 |
|
(918 |
) |
2,897 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*The after-tax net present value of the
Company's oil and gas properties reflects the tax burden on the
properties on a stand-alone basis. It does not consider the
corporate tax situation, or tax planning. It does not provide an
estimate of the value at the Company level which may be
significantly different. The Company's financial statements. when
available for the year ended December 31, 2019, should be consulted
for information at the Company level.
Total Company WI Reserves
The following table summarizes Gran Tierra’s NI
51-101 and COGEH compliant reserves in Colombia derived from the
GTE McDaniel Reserves Report calculated using forecast oil and gas
prices and costs.
|
Light andMediumCrude Oil |
Heavy CrudeOil |
ConventionalNatural Gas |
2019 Year-End |
Reserves Category |
Mbbl* |
Mbbl* |
MMcf** |
MBOE*** |
Proved Developed Producing |
22,119 |
17,948 |
1,061 |
40,244 |
Proved Developed Non-Producing |
3,182 |
— |
— |
3,182 |
Proved Undeveloped |
10,714 |
24,313 |
950 |
35,185 |
Total Proved |
36,015 |
42,261 |
2,011 |
78,611 |
Total Probable |
24,328 |
39,230 |
1,436 |
63,797 |
Total Proved plus Probable |
60,343 |
81,491 |
3,447 |
142,408 |
Total Possible |
21,499 |
21,854 |
1,581 |
43,617 |
Total Proved
plus Probable plus Possible |
81,842 |
103,345 |
5,028 |
186,025 |
|
|
|
|
|
*Mbbl (thousand barrels of oil).**MMcf (million cubic
feet).***MBOE (thousand BOE).
NPV Summary
Gran Tierra's reserves were evaluated using
McDaniel's commodity price forecasts at January 1, 2020. It should
not be assumed that the NPV of cash flow estimated by McDaniel
represents the fair market value of the reserves.
Total Company |
Discount Rate |
($ millions) |
0% |
5% |
10% |
15% |
20% |
Before tax |
|
|
|
|
|
Proved Developed Producing |
1,053 |
955 |
874 |
806 |
749 |
Proved Developed Non-Producing |
58 |
46 |
38 |
32 |
27 |
Proved Undeveloped |
999 |
787 |
634 |
520 |
433 |
Total Proved |
2,110 |
1,788 |
1,546 |
1,358 |
1,209 |
Total Probable |
2,657 |
1,849 |
1,368 |
1,061 |
853 |
Total Proved plus Probable |
4,767 |
3,637 |
2,914 |
2,419 |
2,062 |
Total Possible |
1,605 |
1,180 |
901 |
709 |
573 |
Total Proved plus
Probable plus Possible |
6,372 |
4,817 |
3,815 |
3,128 |
2,635 |
After tax |
|
|
|
|
|
Proved Developed Producing |
967 |
872 |
795 |
730 |
676 |
Proved Developed Non-Producing |
46 |
37 |
30 |
25 |
21 |
Proved Undeveloped |
744 |
588 |
473 |
387 |
321 |
Total Proved |
1,757 |
1,497 |
1,298 |
1,142 |
1,018 |
Total Probable |
1,894 |
1,321 |
978 |
756 |
606 |
Total Proved plus Probable |
3,651 |
2,818 |
2,276 |
1,898 |
1,624 |
Total Possible |
1,109 |
815 |
621 |
487 |
392 |
Total Proved plus
Probable plus Possible |
4,760 |
3,633 |
2,897 |
2,385 |
2,016 |
|
|
|
|
|
|
Total Company WI Reserves Reconciliation
|
Proved |
Proved plusProbable |
Proved plusProbable plusPossible |
|
MBOE |
MBOE |
MBOE |
December 31, 2018 |
66,004 |
142,300 |
204,138 |
Extensions |
6,965 |
10,815 |
14,477 |
Technical Revisions |
14,977 |
(4,275) |
(29,971) |
Discoveries |
123 |
166 |
251 |
Acquisitions |
3,882 |
7,224 |
10,903 |
Economic Factors |
(613) |
(1,095) |
(1,046) |
Production |
(12,727) |
(12,727) |
(12,727) |
December 31, 2019 |
78,611 |
142,408 |
186,025 |
Reserve Life Index
|
2019* |
Total Proved |
7 |
Total Proved plus Probable |
12 |
Total Proved
plus Probable plus Possible |
15 |
|
|
*Calculated using average fourth quarter 2019 WI production of
32,924 boepd.
Future Development Costs
FDC reflects McDaniel's best estimate of what it
will cost to bring the proved undeveloped and probable reserves on
production. Changes in forecast FDC occur annually as a result of
development activities, acquisition and disposition activities, and
changes in capital cost estimates based on improvements in well
design and performance, as well as changes in service costs. FDC
for total 2P Colombia reserves decreased to $566 million at
year-end 2019 from $575 million at year-end 2018. The decrease in
FDC in 2019 was predominantly attributed to costs incurred in 2019
to develop the following properties: Acordionero, Moqueta, and
Costayaco.
($ millions) |
Total Proved |
Total Proved Plus Probable |
2020 |
155 |
174 |
2021 |
187 |
256 |
2022 |
36 |
101 |
2023 |
7 |
34 |
2024 |
— |
— |
Remainder |
1 |
1 |
Total
(undiscounted) |
386 |
566 |
|
|
|
($) millions |
Proved |
Proved plusProbable |
Proved plusProbable plusPossible |
Acordionero |
128 |
128 |
128 |
Suroriente |
49 |
81 |
86 |
Chaza Block (Costayaco & Moqueta) |
69 |
93 |
101 |
Other |
140 |
264 |
361 |
Total
FDC Costs (undiscounted) |
386 |
566 |
676 |
|
|
|
|
*See "Disclosure of Oil and Gas Information -
Oil and Gas Metrics"
Forecast prices
The pricing assumptions used in estimating NI
51-101 and COGEH compliant reserves data disclosed above with
respect to net present values of future net revenue are set forth
below. The price forecasts are based on McDaniel’s standard price
forecast effective January 1, 2020 and 2019. McDaniel is an
independent qualified reserves evaluator and auditor pursuant to NI
51-101.
|
Brent Crude Oil |
WTI Crude Oil |
Year |
$US/bbl |
$US/bbl |
|
January 1, 2020 |
January 1, 2020 |
2020 |
$67.00 |
$61.00 |
2021 |
$67.83 |
$63.24 |
2022 |
$69.19 |
$65.55 |
2023 |
$70.57 |
$67.39 |
2024 |
$71.98 |
$68.73 |
|
|
|
About Gran Tierra Energy Inc.
Gran Tierra Energy Inc. is an international oil
and gas exploration and production company, headquartered in
Calgary, Canada, incorporated in the United States, trading on the
NYSE American (GTE), the Toronto Stock Exchange (GTE) and the
London Stock Exchange (GTE), and operating in South America. Gran
Tierra holds interests in producing and prospective properties in
Colombia and prospective properties in Ecuador. Gran Tierra has a
strategy that focuses on establishing a portfolio of producing
properties, plus production enhancement and exploration
opportunities to provide a base for future growth.
Gran Tierra's Securities and Exchange Commission filings are
available on the SEC website at www.sec.gov and on SEDAR at
www.sedar.com.
Contact Information
For investor and media inquiries please contact:Gary Guidry,
Chief Executive OfficerRyan Ellson, Executive Vice President &
Chief Financial OfficerRodger Trimble, Vice President, Investor
RelationsTel: +1.403.265.3221For more information on Gran Tierra
please go to: www.grantierra.com.
1 Free cash flow is not a defined term under
generally accepted accounting principles in the United States of
America ("GAAP") and is called future net revenue
in the GTE McDaniel Reserves Report. The non-GAAP term of free cash
flow, after development expenditures and taxes over the next five
years, reconciles to the nearest GAAP term of oil and gas sales,
which is called sales revenue in the GTE McDaniel Reserves Report.
Refer to "Future Net Revenue" in this press release for the
reconciliations between sales revenue and future net revenue. Gran
Tierra is unable to provide a quantitative reconciliation of free
cash flow after development expenditures and taxes, as adjusted for
forecast G&A costs, over the next five years, a quantitative
reconciliation of free cash flow after development expenditures,
taxes, interest and G&A costs over the next five years or a
quantitative reconciliation of free cash flow over the next five
years generated from each of Acordionero and Suroriente to its most
directly comparable forward-looking GAAP measure because management
cannot reliably predict certain of the necessary components of such
forward-looking GAAP measure. Gran Tierra is also unable to provide
forward-looking oil and gas sales, the GAAP measures most directly
comparable to such measures of free cash flow, due to the
impracticality of quantifying certain components required by GAAP
as a result of the inherent volatility in the value of certain
financial instruments held by the Company and the inability to
quantify the effectiveness of commodity price derivatives used to
manage the variability in cash flows associated with the forecast
sale of its oil production and changes in commodity prices. Refer
to "Oil and Gas Metrics" in this press release for a description of
how this non-GAAP measure is calculated.2 Based on December 31,
2019 before tax NPV10 of $1.5 billion for 1P reserves, $2.9 billion
for 2P reserves, and $3.8 billion for 3P reserves, minus estimated
year-end 2019 net debt of $610 million, [comprised of working
capital surplus of $108 million, senior notes of $600 million
(gross), and reserves-based credit facility of $118 million
(gross)], divided by the number of shares of Gran Tierra's common
stock issued and outstanding at December 31, 2019 of 367.0 million,
respectively. Estimated net working capital and debt at December
31, 2019, prepared in accordance with GAAP.3 Based on December 31,
2019 after NPV10 of $1.3 billion for 1P reserves, $2.3 billion for
2P reserves, and $2.9 billion for 3P reserves, minus estimated
year-end 2019 net debt of $610 million, [comprised of working
capital surplus of $108 million, senior notes of $600 million
(gross), and reserves-based credit facility of $118 million
(gross)], divided by the number of shares of Gran Tierra's common
stock issued and outstanding at December 31, 2019 of 367.0 million,
respectively. Estimated net working capital and debt at December
31, 2019, prepared in accordance with GAAP.4 Internally forecast
G&A costs of $170 million and interest of $126 million in each
case.
FORWARD LOOKING STATEMENTS
ADVISORY
This press release contains opinions, forecasts,
projections, and other statements about future events or results
that constitute forward-looking statements within the meaning of
the United States Private Securities Litigation Reform Act of 1995,
Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, and
financial outlook and forward looking information within the
meaning of applicable Canadian securities laws (collectively,
"forward-looking statements"). Such forward-looking statements
include, but are not limited to, the Company’s strategies,
operations including planned operations and developments, ability
to fund the Company's exploration program over a period of time,
infrastructure schedules, waterflood plans, growth of referenced
reserves, forecast prices, five-year expected oil and gas sales and
free cash flow and net revenue, estimated recovery factors and
production growth.
The forward-looking statements contained in this
press release reflect several material factors and expectations and
assumptions of Gran Tierra including, without limitation, that Gran
Tierra will continue to conduct its operations in a manner
consistent with its current expectations, the accuracy of testing
and production results and seismic data, pricing and cost estimates
(including with respect to commodity pricing and exchange rates),
rig availability, the effects of drilling down-dip, the effects of
waterflood and multi-stage fracture stimulation operations, the
extent and effect of delivery disruptions, and the general
continuance of current or, where applicable, assumed operational,
regulatory and industry conditions including in areas of potential
expansion, and the ability of Gran Tierra to execute its current
business and operational plans in the manner currently planned.
Gran Tierra believes the material factors, expectations and
assumptions reflected in the forward-looking statements are
reasonable at this time but no assurance can be given that these
factors, expectations and assumptions will prove to be correct.
Among the important factors that could cause
actual results to differ materially from those indicated by the
forward-looking statements in this press release are: sustained or
future declines in commodity prices and potential resulting future
impairments and reductions in proved and probable reserve
quantities and value; Gran Tierra's operations are located in South
America, and unexpected problems can arise due to guerrilla
activity; technical difficulties and operational difficulties may
arise which impact the production, transport or sale of our
products; geographic, political and weather conditions can impact
the production, transport or sale of our products; the risk that
current global economic and credit conditions may impact oil prices
and oil consumption more than Gran Tierra currently predicts; the
ability of Gran Tierra to execute its business plan; the risk that
unexpected delays and difficulties in developing currently owned
properties may occur; the timely receipt of regulatory or other
required approvals for our operating activities; the failure of
exploratory drilling to result in commercial wells; unexpected
delays due to the limited availability of drilling equipment and
personnel; the risk that oil prices could continue to decline or be
volatile, or current global economic and credit market conditions
may impact current oil prices or expectations regarding future oil
prices and oil consumption, which could cause Gran Tierra to
further modify its strategy and capital spending program; and the
risk factors detailed from time to time in Gran Tierra’s periodic
reports filed with the Securities and Exchange Commission,
including, without limitation, under the caption " Risk Factors" in
Gran Tierra's Annual Report on Form 10-K filed February 27, 2019
(as amended April 16, 2019) and its other filings with the SEC.
These filings are available on the SEC website at
http://www.sec.gov and on SEDAR at www.sedar.com. Guidance is
uncertain, particularly when given over extended periods of time,
and results may be materially different. Although the current
capital spending program and long term strategy of Gran Tierra is
based upon the current expectations of the management of Gran
Tierra, should any one of a number of issues arise, Gran Tierra may
find it necessary to alter its business strategy and/or capital
spending program and there can be no assurance as at the date of
this press release as to how those funds may be reallocated or
strategy changed and how that would impact Gran Tierra's results of
operations and financing position.
Statements relating to “reserves” are also
deemed to be forward-looking statements, as they involve the
implied assessment, based on certain estimates and assumptions,
including that the reserves described can be profitably produced in
the future.
All forward-looking statements are made as of
the date of this press release and the fact that this press release
remains available does not constitute a representation by Gran
Tierra that Gran Tierra believes these forward-looking statements
continue to be true as of any subsequent date. Actual results may
vary materially from the expected results expressed in
forward-looking statements. Gran Tierra disclaims any intention or
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise,
except as expressly required by applicable securities laws. Gran
Tierra’s forward-looking statements are expressly qualified in
their entirety by this cautionary statement.
The estimates of future production, free cash
flow after adjusting for internally forecast G&A and interest
and certain expenses may be considered to be future-oriented
financial information or a financial outlook for the purposes of
applicable Canadian securities laws. Financial outlook and future
oriented financial information contained in this press release
about prospective financial performance, financial position or cash
flows are based on assumptions about future events, including
economic conditions and proposed courses of action, based on
management’s assessment of the relevant information currently
available, and to become available in the future. In particular,
this press release contains projected operational and financial
information for 2020 and for the next five years to allow readers
to assess the Company’s ability to fund its programs. These
projections contain forward-looking statements and are based on a
number of material assumptions and factors set out above. Actual
results may differ significantly from the projections presented
herein. The actual results of Gran Tierra’s operations for any
period could vary from the amounts set forth in these projections,
and such variations may be material. See above for a discussion of
the risks that could cause actual results to vary. The
future-oriented financial information and financial outlooks
contained in this press release have been approved by management as
of the date of this press release. Readers are cautioned that any
such financial outlook and future-oriented financial information
contained herein should not be used for purposes other than those
for which it is disclosed herein. The Company and its management
believe that the prospective financial information has been
prepared on a reasonable basis, reflecting management’s best
estimates and judgments, and represent, to the best of management’s
knowledge and opinion, the Company’s expected course of action.
However, because this information is highly subjective, it should
not be relied on as necessarily indicative of future results.
Non-GAAP Measures
This press release includes non-GAAP measures
which do not have a standardized meaning under GAAP. Investors are
cautioned that these measures should not be construed as
alternatives to net loss or other measures of financial performance
as determined in accordance with GAAP. Gran Tierra's method of
calculating these measures may differ from other companies and,
accordingly, they may not be comparable to similar measures used by
other companies.
Unaudited Financial Information
Certain financial and operating results included
in this press release, including debt, net debt, working capital,
capital expenditures, and production information, are based on
unaudited estimated results. These estimated results are subject to
change upon completion of the Company's audited financial
statements for the year ended December 31, 2019, and changes could
be material. Gran Tierra anticipates filing its audited financial
statements and related management's discussion and analysis for the
year ended December 31, 2019 on or before February 27, 2020.
DISCLOSURE OF OIL AND GAS
INFORMATION
Gran Tierra's Statement of Reserves Data and
Other Oil and Gas Information on Form 51-101F1 dated effective as
at December 31, 2019, which will include further disclosure of its
oil and gas reserves and other oil and gas information in
accordance with NI 51-101 forming the basis of this press release,
will be available on SEDAR at www.sedar.com on or before February
27, 2020.
Estimates of net present value and future net
revenue contained herein do not necessarily represent fair market
value. Estimates of reserves and future net revenue for
individual properties may not reflect the same level of confidence
as estimates of reserves and future net revenue for all properties,
due to the effect of aggregation. There is no assurance that the
forecast price and cost assumptions applied by McDaniel in
evaluating Gran Tierra’s reserves will be attained and variances
could be material.
All evaluations of future net revenue contained
in the GTE McDaniel Reserves Report are after the deduction of
royalties, operating costs, development costs, production costs and
abandonment and reclamation costs but before consideration of
indirect costs such as administrative, overhead and other
miscellaneous expenses. It should not be assumed that the estimates
of future net revenues presented in the in this press release
represent the fair market value of the reserves. There are numerous
uncertainties inherent in estimating quantities of crude oil,
reserves and the future cash flows attributed to such reserves. The
reserve and associated cash flow information set forth in the GTE
McDaniel Reserves Report are estimates only.
BOEs have been converted on the basis of six
thousand cubic feet (“Mcf”) natural gas to 1
barrel of oil. BOEs may be misleading, particularly if used in
isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an
energy equivalency conversion method primarily applicable at the
burner tip and does not represent a value equivalency at the
wellhead. In addition, given that the value ratio based on the
current price of oil as compared with natural gas is significantly
different from the energy equivalent of six to one, utilizing a BOE
conversion ratio of 6 Mcf: 1 bbl would be misleading as an
indication of value.
References to a formation where evidence of
hydrocarbons has been encountered is not necessarily an indicator
that hydrocarbons will be recoverable in commercial quantities or
in any estimated volume. Well test results should be considered as
preliminary and not necessarily indicative of long-term performance
or of ultimate recovery. Well log interpretations indicating oil
and gas accumulations are not necessarily indicative of future
production or ultimate recovery. If it is indicated that a pressure
transient analysis or well-test interpretation has not been carried
out, any data disclosed in that respect should be considered
preliminary until such analysis has been completed.
Definitions
Proved reserves are those reserves that can be
estimated with a high degree of certainty to be recoverable. It is
likely that the actual remaining quantities recovered will exceed
the estimated proved reserves.
Probable reserves are those additional reserves
that are less certain to be recovered than proved reserves. It is
equally likely that the actual remaining quantities recovered will
be greater or less than the sum of the estimated proved plus
probable reserves.
Possible reserves are those additional reserves
that are less certain to be recovered than Probable reserves. There
is a 10% probability that the quantities actually recovered will
equal or exceed the sum of Proved plus Probable plus Possible
reserves.
Certain terms used in this press release but not
defined are defined in NI 51-101, CSA Staff Notice 51-324 - Revised
Glossary to NI 51-101 Standards of Disclosure for Oil and Gas
Activities (“CSA Staff Notice 51-324”) and/or the
COGEH and, unless the context otherwise requires, shall have the
same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and
the COGEH, as the case may be.
Oil and Gas Metrics
This press release contains a number of oil and
gas metrics, including free cash flow, NAV per share, reserve life
index, reserves per share and reserves replacement, which do not
have standardized meanings or standard methods of calculation and
therefore such measures may not be comparable to similar measures
used by other companies and should not be used to make comparisons.
Such metrics have been included herein to provide readers with
additional measures to evaluate the Company's performance; however,
such measures are not reliable indicators of the future performance
of the Company and future performance may not compare to the
performance in previous periods.
- Before tax and after tax free cash
flow are non-GAAP terms and are called before tax and after tax
future net revenue, respectively, in the GTE McDaniel Reserves
Report. The non-GAAP term of before tax free cash flow reconciles
to the nearest GAAP term of oil and gas sales, which is called
sales revenue in the GTE McDaniel Reserves Report. Before tax
future net revenue is calculated by McDaniel by subtracting total
royalties, operating costs, future development capital, abandonment
and reclamation costs from sales revenue. After tax free cash flow
is calculated by McDaniel by subtracting future taxes from before
tax future net revenue. Refer to "Future Net Revenue" in this press
release for the applicable reconciliation. Management uses free
cash flow as a measure of the Company's ability to fund its
exploration program.
- NAV per share is calculated as NPV
discounted at 10% (before or after tax, as applicable) minus
estimated net debt, divided by the number of shares of Gran
Tierra's common stock issued and outstanding. Management uses NAV
per share as a measure of the relative change of Gran Tierra's net
asset value over its outstanding common stock over a period of
time.
- Reserve life index is calculated as
reserves in the referenced category divided by the referenced
estimated Colombia production. Management uses this measure to
determine how long the booked reserves will last at current
production rates if no further reserves were added.
- Reserve per share is calculated as
reserves in the referenced category divided by number of shares of
Gran Tierra's common stock issued and outstanding as at December
31, 2019. Management uses this measure to determine the relative
change of its reserve base over its outstanding common stock over a
period of time.
- Reserves replacement is calculated
as reserves in the referenced category divided by estimated
referenced production. Management uses this measure to determine
the relative change of its reserve base over a period of time.
Disclosure of Reserve Information and
Cautionary Note to U.S. Investors
Unless expressly stated otherwise, all estimates
of proved, probable and possible reserves and related future net
revenue disclosed in this press release have been prepared in
accordance with NI 51-101. Estimates of reserves and future net
revenue made in accordance with NI 51-101 will differ from
corresponding estimates prepared in accordance with applicable U.S.
Securities and Exchange Commission (“SEC”) rules and disclosure
requirements of the U.S. Financial Accounting Standards Board
(“FASB”), and those differences may be material. NI 51-101,
for example, requires disclosure of reserves and related future net
revenue estimates based on forecast prices and costs, whereas SEC
and FASB standards require that reserves and related future net
revenue be estimated using average prices for the previous 12
months. In addition, NI 51-101 permits the presentation of reserves
estimates on a “company gross” basis, representing Gran Tierra’s
working interest share before deduction of royalties, whereas SEC
and FASB standards require the presentation of net reserve
estimates after the deduction of royalties and similar payments.
There are also differences in the technical reserves estimation
standards applicable under NI 51-101 and, pursuant thereto, the
COGEH, and those applicable under SEC and FASB requirements.
In addition to being a reporting issuer in
certain Canadian jurisdictions, Gran Tierra is a registrant with
the SEC and subject to domestic issuer reporting requirements under
U.S. federal securities law, including with respect to the
disclosure of reserves and other oil and gas information in
accordance with U.S. federal securities law and applicable SEC
rules and regulations (collectively, "SEC requirements").
Disclosure of such information in accordance with SEC requirements
is included in the Company's Annual Report on Form 10-K and in
other reports and materials filed with or furnished to the SEC and,
as applicable, Canadian securities regulatory authorities. The SEC
permits oil and gas companies that are subject to domestic issuer
reporting requirements under U.S. federal securities law, in their
filings with the SEC, to disclose only estimated proved, probable
and possible reserves that meet the SEC's definitions of such
terms. Gran Tierra has disclosed estimated proved, probable and
possible reserves in its filings with the SEC. In addition, Gran
Tierra prepares its financial statements in accordance with United
States generally accepted accounting principles, which require that
the notes to its annual financial statements include supplementary
disclosure in respect of the Company's oil and gas activities,
including estimates of its proved oil and gas reserves and a
standardized measure of discounted future net cash flows relating
to proved oil and gas reserve quantities. This supplementary
financial statement disclosure is presented in accordance with FASB
requirements, which align with corresponding SEC requirements
concerning reserves estimation and reporting.
Investors are urged to consider closely the
disclosures and risk factors in the Company's Annual Report on Form
10-K, Quarterly Reports on Form 10-Q and in the other reports and
filings with the SEC, available from the Company's offices or
website. These reports can also be obtained from the SEC website at
www.sec.gov.
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