Gran Tierra Energy Inc. Announces Third Quarter 2018 Results and
Operational Update Highlighted by Record Company Production and Net
Income
Gran Tierra Energy Inc.
("Gran Tierra" or
the "Company") (NYSE American:GTE)(TSX:GTE)(LSE:GTE) today
announced the Company's financial and operating results for the
third quarter ended September 30, 2018 ("
the
Quarter"). All dollar amounts are in United States
("
U.S.") dollars unless otherwise indicated.
Production amounts are on an average working interest before
royalties ("
WI") basis unless otherwise indicated.
Per barrel ("
bbl") of oil equivalent
("
BOE") amounts are based on WI sales before
royalties. For per BOE amounts based on net after royalty
("
NAR") production, see Gran Tierra's Quarterly
Report on Form 10-Q filed November 1, 2018, available on the
Company's website at
www.grantierra.com/investor-relations/financial-reports.
Key Highlights
Operational and Development
- Achieved record production of 36,170 BOE per day
("BOEPD"); the Company remains on track to be
within full year 2018 production guidance of 36,500 to 38,500
BOEPD
- Acordionero production facility expansion and additional
development drilling on track and on budget
- Commenced drilling on the South Pad in Acordionero, which is
designed to test the southern reservoir extent
- Spudded the Ayombero-2 well on October 31, 2018, to begin
appraisal of Ayombero's mean unrisked prospective oil resources of
66 million bbl2
Financial
- Strong financial performance in the Quarter: record high net
income of $75 million ($0.19 per share, basic), funds flow from
operations1 of $85 million ($0.22 per share, basic), EBITDA
of $117 million and annualized return on capital employed of
18%
- For the first 9 months of 2018, the Company has generated net
income of $113 million ($0.29 per share, basic), funds flow from
operations of $254 million ($0.65 per share, basic) and EBITDA of
$308 million
- Exited the Quarter with $130 million of cash and cash
equivalents, an undrawn $300 million credit facility, 0.8 times net
debt1 to the Quarter's annualized funds flow from operations, and
0.6 times net debt to the Quarter's annualized EBITDA
- Active quarter with capital expenditures of $101 million; funds
flow from operations in the Quarter was $16 million lower than
capital expenditures due to a large amount of facilities capital
expenditures and the one-time purchase of turbine generators for
the gas to power project in Acordionero during the Quarter; the
Company also had an active drilling program, including running two
rigs at Acordionero for a portion of the Quarter; however,
forecasted full-year 2018 funds flow from operations is still
expected to more than cover forecasted full-year 2018 capital
- Gran Tierra expects the 2018 capital program of $320 to $330
million to be fully funded by cash from operating activities in
2018 of $330 to $340 million (excluding acquisitions), based
on year to date 2018 results and a forecasted Brent oil price
of $75.00 per bbl in fourth quarter 2018
- Continued significant exposure to Brent oil price strength with
oil representing 100% of total Company production in the
Quarter
- Subsequent to September 30, 2018, the Company's common stock
was listed on and commenced trading on the London Stock
Exchange
- Gran Tierra is planning Capital Markets Days in New York City
on January 30 and in London on February 1, 2019
Exploration
- Exciting second half 2018 exploration well drilling program in
progress:
- Chilanguita-1 well on the Putumayo Alea 1848A Block has been
drilled and cased; testing of the A-Limestone and N Sand is
underway
- Exploration drilling is underway at the PUT-7 Block where the
Company is currently drilling the Pomorroso-1 well at a depth of
10,106 feet, to be followed by the Pecari, Tajinos and Northwest
multi-zone prospects which all target the A-Limestone and the U and
N Sands
- Juglar-2 well was drilled in the Middle Magdalena Valley
("MMV") Basin and has been cased to test the La
Paz formation
Other
- Gran Tierra recently received a 2018 Social Responsibility
award at the "Women as Game Changers" event hosted by the Society
of Petroleum Engineers Colombia, which recognizes the achievements
of women in the oil and gas sector
1 Net debt is defined as face value of debt,
less cash and cash equivalents. Funds flow from operations and
earnings before interest, taxes and depletion, depreciation and
accretion ("DD&A") ("
EBITDA") are non-GAAP measures and do not have
standardized meanings under generally accepted accounting
principles in the United States of America
("GAAP"). Refer to "Non-GAAP Measures" in this
press release.2 Assigned by the Company's independent qualified
reserves evaluator McDaniel & Associates Consultants Ltd.
(“McDaniel”) as of April 30, 2018.
Message to Shareholders
Gary Guidry, President and Chief Executive
Officer of Gran Tierra, commented: "We are pleased to have
delivered another quarter of record production. Gran Tierra’s
strategy remains focused on full-cycle economic returns with an
emphasis on profitable production and reserves growth to create
long term shareholder value. As a result, our cash flows are
increasing along with our production and we continue to expect our
2018 capital program to be fully funded by cash from operating
activities. With the current oil price and our low cost structure
we are very well positioned to generate free cash flow in 2019 and
beyond.
We have continued our efforts to further enhance
our existing portfolio of high quality and operated oil assets by
consolidating in our core Putumayo and MMV Basins. We have recently
increased our WI from 55% to 100% in the PUT-1 Block, which
contains the Vonu-1 A-Limestone discovery well and is potentially
prospective for further carbonate and sandstone oil opportunities
in the prolific Cretaceous Villeta group. We have also acquired a
60% WI in the VMM-2 Block in the MMV Basin, located near our
existing MMV assets. We believe these transactions were executed at
attractive metrics and will support our future growth
initiatives.
We are poised for further profitable growth in
fourth quarter 2018 and into 2019, as we expect production at
Acordionero to continue its strong growth trajectory. We are also
excited to begin the appraisal program at Ayombero, where we
spudded the Ayombero-2 well on October 31, 2018, and are planning
follow-up wells in the coming months.
After our successful first three quarters of
2018, we are excited about our multiple potential catalysts in the
fourth quarter of 2018 and into early 2019:
- Planned completion and testing of:
- The Chilanguita-1 exploration well in Alea 1848A Block,
targeting the A Limestone and the N Sand
- The Juglar-2 exploration well in the MMV La Paloma Block,
targeting the La Paz formation
- Forecasted ongoing ramp up in Acordionero production with four
new development oil wells in the South Pad to test the southern
extent of the main reservoirs, in tandem with the ongoing expansion
of the production facilities and waterflood
- Planned drilling of:
- Three to four appraisal wells at Ayombero, which could convert
La Luna carbonate prospective oil resources into reserves
- Four exploration wells in PUT-7 Block, targeting A-Limestone
and N-Sand with one well already spud
On behalf of our Board of Directors and the Gran
Tierra team, I want to thank all of our stakeholders for their
continued support. We believe that our focused strategy continues
to deliver results on several fronts in our multi-horizon, proven
hydrocarbon producing basins. Gran Tierra is well-positioned for
ongoing profitable growth through the rest of 2018 and into
2019."
Record Company Production
- Achieved a new Company milestone: record average Colombia
production of 36,170 BOEPD in the Quarter, on track with the
Company's internal forecast and 11% higher than 32,570 BOEPD in
third quarter 2017
- Increased the Quarter's Colombia production by 60% from second
quarter 2015 when the strategy to refocus Gran Tierra on Colombia
began, which represents an annualized growth rate of 20%
- Forecasted to be within full year 2018 production guidance of
36,500 to 38,500 BOEPD, which would be annual growth from the 2017
average of 16% to 23%, with the continued ramp up in Acordionero
oil production expected during fourth quarter 2018
- The record production was despite some pump failures during the
Quarter; these pump failures impacted quarterly production by
approximately 1,000 BOEPD and increased the Company's workover
costs during the Quarter; several of the pumps had a run life of
over three years; however, some of the pumps failed prematurely and
as a result of power failures; the Company expects to improve power
reliability with its gas to power project to be completed in
Acordionero in the second quarter of 2019 and is working with its
vendors to ensure increased run life on its pumps
Operational Update
- MMV Development and New Drilling
- Continued Strong Performance at Acordionero, 100%
WI
- Record Production: Since acquiring the
Acordionero field in August 2016, Gran Tierra has increased its
production 299% to a record high average rate during the Quarter of
18,885 BOEPD; Acordionero's production averaged 20,464 BOEPD in
September 2018
- Free Cash Flow3: From the
acquisition date of August 23, 2016 until September 30, 2018,
the MMV assets have generated $420 million in oil and natural gas
sales and $327 million of operating netback3, while the Company
made capital investments in these assets of $230 million; the MMV
assets have self-funded the active Acordionero development program,
including a major investment in facilities
- Active 2018 Development Program:
- During the Quarter, seven wells were drilled on two different
pads with record low drilling costs and times achieved for the
field
- During fourth quarter 2018, Gran Tierra expects a high level of
development activity focused on drilling on the South Pad to test
the southern reservoir extent; four oil producers are expected to
be drilled and brought on production before 2018 year-end
- The central processing facilities expansion is progressing,
with two new storage tanks brought on line during the Quarter and
additional facilities planned to be commissioned during fourth
quarter 2018, including a third new storage tank and a new truck
loading facility with capacity of up to 30,000 BOEPD; construction
of a gas-to-power facility is on track to be operational by second
quarter 2019
- Enhanced Oil Recovery: the Company has significantly
increased water injection capacity and forecasts that total water
injection capacity of 40,000 bbl per day should be achieved during
the second quarter of 2019
- Planned Follow-up Appraisal Drilling at Ayombero, Midas
Block, 100% WIProgress in La Luna Formation, conventional,
naturally fractured carbonate oil resource play:
- The Ayombero-1 pad has been expanded to accommodate the future
drilling of up to six new wells
- Gran Tierra is planning to drill three to four Ayombero follow
up appraisal wells in the fourth quarter of 2018 and first quarter
2019; the Ayombero-2 well was spudded on October 31, 2018
- The planned objectives of the appraisal wells include:
- Appraise the La Luna formation in two prospective reservoirs
(Galembo and Pujamana); the Pujamana is not yet tested but appeared
prospective in Ayombero-1
- Potentially add production by 2018 year end
- Potentially convert some of Ayombero's unrisked gross WI mean
prospective oil resources of 66 million bbl4 into reserves by
year-end 2018
- Juglar Deep Exploration Well, La Paloma Block, 100%
WI
- The well was drilled into the top of the secondary target in
the La Luna carbonate, confirming oil charge; due to drilling
difficulties, further drilling in the La Luna was suspended and the
well has been cased to test the primary target in the La Paz
formation
- Putumayo Basin Appraisal and Exploration
- Exploration in Putumayo 7 ("PUT-7") Block, 100%
WI
- Gran Tierra is currently drilling the Pomorroso-1 exploration
well, which is designed to target the A-Limestone and the U and N
Sands using the 3D seismic acquired in 2017
- The Pecari, Tajinos and Northwest multi-zone exploration
prospects are planned to be drilled from the same drilling pad
following the Pomorroso-1 well; these three exploration wells are
planned to target the same potential zones as the Pomorroso-1 and
to be drilled during fourth quarter 2018 and first quarter
2019
- Chilanguita-1 Exploration Well, Alea 1848A Block, 100%
WI
- This exploration well was successfully drilled during the
Quarter and has been interpreted as prospective in the A-Limestone,
and N and U Sands and testing has commenced
- Planned 3D Seismic Program
- Gran Tierra plans to acquire a large 3D seismic survey with
forecasted completion in mid-2019; the survey is planned to cover
341 square kilometers across the Alea 1848A, Nancy-Burdine-Maxine,
PUT-4 and PUT-25 Blocks
- This 3D seismic program is designed to assist with planning
future multi-zone exploration drilling on these blocks, including
the A-Limestone and the N Sand
- Other
- On October 19, 2018, there was an act of sabotage to one of the
Company's flow lines close to the Costayaco operations, in the
outskirts of Villagarzon, Putumayo; no one was injured from Gran
Tierra or the local communities; however, three members of the
Civil Defense authorities did sustain minor injuries; the damaged
flow line was repaired and back in operation within 24 hours; the
appropriate authorities are investigating as to who was responsible
and the Company is cooperating fully with the authorities in their
investigation
3 Operating netback and free cash flow are
non-GAAP measures and do not have a standardized meaning under
GAAP. Refer to "Non-GAAP Measures" in this press release.4 Assigned
by the Company's independent qualified reserve evaluator McDaniel
as of April 30, 2018.
Strong Financial Performance in the
Quarter
- Net income of $75 million compared with net income of $20
million in the second quarter 2018 (the "Prior
Quarter")
- Funds flow from operations5 decreased by 10% to $85 million
compared with the Prior Quarter, primarily as a result of higher
current tax expense, but increased 54% from third quarter 2017
- Oil and gas sales increased by 7% compared with the Prior
Quarter to $175 million and were up 69% compared with third quarter
2017
- Operating netback5 decreased by 2% compared with the Prior
Quarter to $37.52 per BOE and increased by 59% relative to third
quarter 2017, whereas Brent prices increased only 46% since third
quarter 2017
- Operating expenses increased by 6% to $8.81 per BOE compared
with the Prior Quarter and increased by 20% compared with third
quarter 2017
- Workover expenses increased 51% to $3.93 per BOE compared with
Prior Quarter and increased by 118% per BOE compared with third
quarter 2017, as a result of the unusual replacement of 9 electric
submersible pumps
- Quality and transportation discount decreased by $0.97 per BOE
to $9.55 per BOE compared with $10.52 per BOE in the Prior Quarter
and decreased by $1.53 per BOE compared to $11.08 in the third
quarter 2017
- Transportation expenses increased by $0.21 per BOE to $2.25 per
BOE compared with $2.04 per BOE in the Prior Quarter due to the use
of alternative transportation routes which had higher costs per
BOE, but was more than offset by lower transportation
discounts
- Cash general and administrative ("G&A")
expenses decreased to $1.10 per BOE compared with $1.75 per BOE in
the Prior Quarter
5 Funds flow from operations and operating
netback are non-GAAP measures and do not have standardized meanings
under GAAP. Refer to "Non-GAAP Measures" in this press release.
Continued Consolidation of Putumayo and
MMV Basins
- Gran Tierra continues to seek value-enhancing opportunities to
consolidate in the Company's core operating areas; during and
subsequent to the Quarter, Gran Tierra completed the two following
acquisitions, which are complementary to the Company's existing
asset base:
- An additional 45% WI in the PUT-1 Block, which includes the
Vonu-1 A-Limestone discovery well; Gran Tierra owns the remaining
55% WI and operates the block; this transaction gives Gran Tierra
full control over the block and allows the Company to better
leverage its existing infrastructure at Costayaco; in addition to
further appraisal of the Vonu discovery, Gran Tierra believes that
the PUT-1 Block may be prospective for other carbonate and
sandstone resources; the Vonu-1 well pump failed during the Quarter
and the Company is assessing options to restore its production back
to 800 - 1,000 BOEPD
- A 60% WI and contract operatorship in the VMM-2 Block in the
MMV Basin; VMM-2 is adjacent to a portion of Gran Tierra's existing
MMV Basin acreage and has an existing discovery at Mono Arana
- Consideration for the two transactions consists of:
- Cash of approximately $45 million ($47 million prior to
purchase price adjustments), of which $17 million was paid in the
Quarter and the remaining $28 million paid in fourth quarter
2018
- A gross overriding royalty on the PUT-1 Block, payable to the
seller
- Metrics on an aggregate basis for these acquisitions are
summarized in the following table:
Proved
plus Probable ("2P") Oil Reserves (million bbl)6 |
5.15 |
Cost per
2P BOE ($/BOE) |
8.76 |
6 Based on the Company's estimated reserves as
evaluated by the Company's independent qualified reserve engineer
McDaniel in a report with an effective date of July 31, 2018.
Financial and Operational Highlights
(all amounts in $000s, except per share and BOE
amounts)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Three Months Ended June 30, |
|
2018 |
2017 |
|
2018 |
2017 |
|
2018 |
|
|
|
|
|
|
|
|
Net
Income |
$ |
75,295 |
|
$ |
3,130 |
|
|
$ |
113,456 |
|
$ |
9,094 |
|
|
$ |
20,300 |
|
Per Share – Basic |
$ |
0.19 |
|
$ |
0.01 |
|
|
$ |
0.29 |
|
$ |
0.02 |
|
|
$ |
0.05 |
|
Per Share – Diluted |
$ |
0.18 |
|
$ |
0.01 |
|
|
$ |
0.28 |
|
$ |
0.02 |
|
|
$ |
0.05 |
|
|
|
|
|
|
|
|
|
Oil and
Gas Sales |
$ |
175,118 |
|
$ |
103,768 |
|
|
$ |
476,792 |
|
$ |
294,555 |
|
|
$ |
163,446 |
|
Operating
Expenses |
(29,511 |
) |
(21,931 |
) |
|
(78,019 |
) |
(60,547 |
) |
|
(26,732 |
) |
Workover Expenses |
(13,106 |
) |
(5,390 |
) |
|
(25,922 |
) |
(17,919 |
) |
|
(8,327 |
) |
Transportation Expenses |
(7,505 |
) |
(6,038 |
) |
|
(21,024 |
) |
(19,472 |
) |
|
(6,522 |
) |
Operating
Netback(1) |
$ |
124,996 |
|
$ |
70,409 |
|
|
$ |
351,827 |
|
$ |
196,617 |
|
|
$ |
121,865 |
|
|
|
|
|
|
|
|
|
G&A
Expenses Before Stock-Based Compensation |
$ |
3,679 |
|
$ |
6,965 |
|
|
$ |
17,254 |
|
$ |
22,138 |
|
|
$ |
5,593 |
|
G&A
Stock-Based Compensation |
10,132 |
|
1,686 |
|
|
19,919 |
|
4,738 |
|
|
6,609 |
|
G&A
Expenses, Including Stock Based Compensation |
$ |
13,811 |
|
$ |
8,651 |
|
|
$ |
37,173 |
|
$ |
26,876 |
|
|
$ |
12,202 |
|
|
|
|
|
|
|
|
|
EBITDA(1) |
$ |
116,668 |
|
$ |
60,491 |
|
|
$ |
307,534 |
|
$ |
163,663 |
|
|
$ |
102,278 |
|
|
|
|
|
|
|
|
|
Funds
Flow from Operations(1) |
$ |
85,015 |
|
$ |
55,128 |
|
|
$ |
254,312 |
|
$ |
151,074 |
|
|
$ |
94,549 |
|
|
|
|
|
|
|
|
|
Capital
Expenditures |
$ |
101,463 |
|
$ |
71,694 |
|
|
$ |
258,551 |
|
$ |
175,719 |
|
|
$ |
84,394 |
|
|
|
|
|
|
|
|
|
Average Daily Volumes (BOEPD) |
|
|
|
|
|
|
|
WI
Production Before Royalties |
36,170 |
|
32,570 |
|
|
35,553 |
|
31,305 |
|
|
35,400 |
|
Royalties |
(7,571 |
) |
(5,055 |
) |
|
(7,222 |
) |
(5,052 |
) |
|
(7,202 |
) |
Production NAR |
28,599 |
|
27,515 |
|
|
28,331 |
|
26,253 |
|
|
28,198 |
|
Decrease
(Increase) in Inventory |
60 |
|
(68 |
) |
|
(403 |
) |
(64 |
) |
|
(296 |
) |
Sales |
28,659 |
|
27,447 |
|
|
27,928 |
|
26,189 |
|
|
27,902 |
|
Royalties, % of WI Production Before
Royalties |
21 |
% |
16 |
% |
|
20 |
% |
16 |
% |
|
20 |
% |
|
|
|
|
|
|
|
|
Per BOE |
|
|
|
|
|
|
|
Brent |
$ |
75.97 |
|
$ |
52.18 |
|
|
$ |
72.68 |
|
$ |
52.59 |
|
|
$ |
74.90 |
|
Quality
and Transportation Discount |
(9.55 |
) |
(11.08 |
) |
|
(10.14 |
) |
(11.38 |
) |
|
(10.52 |
) |
Royalties |
(13.91 |
) |
(6.38 |
) |
|
(12.79 |
) |
(6.69 |
) |
|
(13.17 |
) |
Average
Realized Price |
52.51 |
|
34.72 |
|
|
49.75 |
|
34.52 |
|
|
51.21 |
|
Transportation Expenses |
(2.25 |
) |
(2.02 |
) |
|
(2.19 |
) |
(2.28 |
) |
|
(2.04 |
) |
Average
Realized Price Net of Transportation Expenses |
50.26 |
|
32.70 |
|
|
47.56 |
|
32.24 |
|
|
49.17 |
|
Operating
Expenses |
(8.81 |
) |
(7.32 |
) |
|
(8.08 |
) |
(7.07 |
) |
|
(8.28 |
) |
Workover
Expenses |
(3.93 |
) |
(1.80 |
) |
|
(2.70 |
) |
(2.10 |
) |
|
(2.61 |
) |
Operating
Netback(1) |
37.52 |
|
23.58 |
|
|
36.78 |
|
23.07 |
|
|
38.28 |
|
G&A
Expenses |
(1.10 |
) |
(2.33 |
) |
|
(1.80 |
) |
(2.59 |
) |
|
(1.75 |
) |
Severance
Expenses |
(0.30 |
) |
(0.39 |
) |
|
(0.21 |
) |
(0.14 |
) |
|
(0.32 |
) |
Equity
Tax |
— |
|
— |
|
|
— |
|
(0.14 |
) |
|
— |
|
Realized
Foreign Exchange Gain (Loss) |
0.06 |
|
(0.04 |
) |
|
(0.02 |
) |
(0.13 |
) |
|
(0.11 |
) |
Realized
Financial Instruments (Loss) Gain |
(3.20 |
) |
0.10 |
|
|
(2.73 |
) |
0.18 |
|
|
(3.03 |
) |
Interest
Expense, Excluding Amortization of Debt Issuance
Costs |
(1.98 |
) |
(1.12 |
) |
|
(1.87 |
) |
(1.00 |
) |
|
(2.05 |
) |
Interest
Income |
0.22 |
|
0.10 |
|
|
0.22 |
|
0.11 |
|
|
0.19 |
|
Current
Income Tax Expense |
(5.73 |
) |
(1.45 |
) |
|
(3.78 |
) |
(1.58 |
) |
|
(1.51 |
) |
Cash
Netback(1) |
$ |
25.49 |
|
$ |
18.45 |
|
|
$ |
26.59 |
|
$ |
17.78 |
|
|
$ |
29.70 |
|
|
|
|
|
|
|
|
|
Share Information (000s) |
|
|
|
|
|
|
|
Common
Stock Outstanding, End of Period |
391,339 |
|
386,873 |
|
|
391,339 |
|
386,873 |
|
|
390,018 |
|
Exchangeable Shares Outstanding, End of
Period |
— |
|
7,899 |
|
|
— |
|
7,899 |
|
|
1,135 |
|
Weighted
Average Number of Common and Exchangeable Shares Outstanding -
Basic |
391,210 |
|
394,771 |
|
|
391,186 |
|
397,439 |
|
|
391,054 |
|
1 Operating netback, EBITDA, funds flow
from operations and cash netback are non-GAAP measures and do not
have a standardized meaning under GAAP. Refer to "Non-GAAP
Measures" in this press release for descriptions of these non-GAAP
measures and reconciliations to the most directly comparable
measures calculated and presented in accordance with GAAP.
Corporate Presentation:
Gran Tierra's Corporate Presentation has been
updated and is available on the Company website at
www.grantierra.com.
Conference Call
Information:
Gran Tierra Energy Inc. will host its results
conference call for the Quarter on Friday, November 2,
2018. Details of the conference call are as follows:
Date: |
Friday, November 2, 2018 |
Time: |
11:00 a.m. Eastern Time (9:00 a.m. Mountain Time) |
North America: |
+ 1-844-348-3792 (Toll-Free) |
United Kingdom: |
+ 44 (0)80 0028 8438 |
International: |
+ 1-614-999-9309 |
Interested parties may also access the live
webcast on the investor relations page of Gran Tierra’s website at
www.grantierra.com. An archive of the webcast will be available on
Gran Tierra’s website until November 9, 2018. In addition, an audio
replay of the conference call will be available on Gran Tierra's
website following the call until November 6, 2018. To access the
replay, dial toll-free 1-855-859-2056 (North America), or
1-404-537-3406 (outside of Canada and USA), conference ID:
8391157.
Contact Information
For investor and media inquiries please contact:
Gary GuidryChief Executive Officer
Ryan EllsonChief Financial Officer
Rodger TrimbleVice President, Investor Relations
+1-403-265-3221
info@grantierra.com
About Gran Tierra Energy
Inc.
Gran Tierra Energy Inc. together with its
subsidiaries is an independent international energy company focused
on oil and natural gas exploration and production in Colombia. The
Company is focused on its existing portfolio of assets in Colombia
and will pursue new growth opportunities throughout Colombia,
leveraging our financial strength. The Company’s common stock
trades on the NYSE American, the Toronto Stock Exchange and the
London Stock Exchange under the ticker symbol GTE. Additional
information concerning Gran Tierra is available at
www.grantierra.com. Information on the Company's website does not
constitute a part of this press release. Investor inquiries may be
directed to info@grantierra.com or (403) 265-3221.
Gran Tierra's Securities and Exchange Commission
filings are available on the SEC website at http://www.sec.gov and
on SEDAR at http://www.sedar.com and UK regulatory filings are
available on the National Storage Mechanism website at
www.morningstar.co.uk/uk/nsm.
Forward-Looking Statements and Legal
Advisories:
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"), which can be identified by such
terms as “expect,” “plan,” “guidance,” “project,” “will,”
“believe,” and other terms that are forward-looking in nature. Such
forward-looking statements include, but are not limited to, the
Company's expectations, capital program, future sources of funding
for capital expenditures and guidance, including for certain future
production estimates, the Company’s strategies and the Company’s
operations including planned operations, oil prices and oil
production.
Statements relating to "reserves" and
“resources” are also deemed to be forward-looking statements, as
they involve the implied assessment, based on certain estimates and
assumptions, including that the reserves or resources described can
be profitably produced in the future.
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 risk profile of planned exploration
activities, the effects of drilling down-dip, the effects of
waterflood and multi-stage fracture stimulation operations, the
extent and effect of delivery disruptions, equipment performance
and costs, actions by third parties, 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: prices and
markets for oil and natural gas are unpredictable and tend to
fluctuate significantly; Gran Tierra’s operations are located in
South America and unexpected problems can arise due to guerilla
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 ability to replace reserves and
production and develop and manage reserves on an economically
viable basis; 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 current global economic and credit market conditions may
impact oil prices and oil consumption more than Gran Tierra
currently predicts, 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, 2018 and its
Quarterly Reports. These filings are available on the SEC website
at http://www.sec.gov and on SEDAR at www.sedar.com. 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.
All forward-looking statements included in this
press release 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 set forth in
this press release 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. 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. These projections may also be considered to contain
future-oriented financial information or a financial outlook. The
actual results of Gran Tierra’s operations for any period will
likely 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 financial
measures as further described herein. These non-GAAP measures do
not have a standardized meaning under GAAP. Investors are cautioned
that these measures should not be construed as alternatives to net
income or 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. Each non-GAAP financial measure is presented along
with the corresponding GAAP measure so as to not imply that more
emphasis should be placed on the non-GAAP measure.
Operating netback as presented is defined as oil
and gas sales less operating and transportation expenses. See the
table entitled Financial and Operational Highlights above for the
components of consolidated operating netback and corresponding
reconciliation. A reconciliation from oil and gas sales to
operating netback for the MMV assets is as follows:
|
MMV assets - acquisition date until September 30,
2018 |
(Thousands of U.S. Dollars) |
|
Oil and natural
gas sales |
$ |
419,840 |
|
Operating
expenses |
(10,899 |
) |
Workover
expenses |
(42,568 |
) |
Transportation
expenses |
(39,174 |
) |
Operating
netback |
$ |
327,199 |
|
Cash netback as presented is defined as net
income before DD&A expenses, deferred income tax (recovery)
expense, amortization of debt issuance costs, unrealized foreign
exchange gains and losses, loss on sale, non-cash operating and
G&A expenses and unrealized financial instruments gains and
losses. Management believes that operating netback and cash netback
are useful supplemental measures for investors to analyze financial
performance and provide an indication of the results generated by
Gran Tierra's principal business activities prior to the
consideration of other income and expenses. A reconciliation from
net income to cash netback is as follows:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Three Months Ended June 30, |
Cash
Netback (Non-GAAP) Measure ($000s) |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
Net
income |
|
$ |
75,295 |
|
|
$ |
3,130 |
|
|
$ |
113,456 |
|
|
$ |
9,094 |
|
|
$ |
20,300 |
|
Adjustments to reconcile net income to cash
netback |
|
|
|
|
|
|
|
|
|
|
DD&A expenses |
|
51,630 |
|
|
35,279 |
|
|
137,698 |
|
|
93,968 |
|
|
46,607 |
|
Deferred income tax (recovery) expense |
|
(36,769 |
) |
|
13,760 |
|
|
(118 |
) |
|
36,664 |
|
|
23,169 |
|
Amortization of debt issuance costs |
|
816 |
|
|
643 |
|
|
2,329 |
|
|
1,868 |
|
|
843 |
|
Unrealized foreign exchange (gain) loss |
|
(672 |
) |
|
(1,380 |
) |
|
(133 |
) |
|
(304 |
) |
|
1,583 |
|
Loss on sale |
|
— |
|
|
— |
|
|
292 |
|
|
9,076 |
|
|
292 |
|
Non-cash operating expenses |
|
142 |
|
|
66 |
|
|
558 |
|
|
197 |
|
|
284 |
|
Non-cash G&A expenses |
|
10,133 |
|
|
1,686 |
|
|
19,919 |
|
|
4,738 |
|
|
6,609 |
|
Unrealized financial instruments (gain) loss |
|
(15,560 |
) |
|
1,977 |
|
|
(19,329 |
) |
|
(3,693 |
) |
|
(4,898 |
) |
Cash
netback |
|
$ |
85,015 |
|
|
$ |
55,161 |
|
|
$ |
254,672 |
|
|
$ |
151,608 |
|
|
$ |
94,789 |
|
EBITDA, as presented, is defined as net income
adjusted for DD&A expenses, interest expense and income tax
expense or recovery. Management uses this financial measure to
analyze performance and income or loss generated by our principal
business activities prior to the consideration of how non-cash
items affect that income, and believes that this financial measure
is also useful supplemental information for investors to analyze
performance and our financial results. A reconciliation from net
income to EBITDA as follows:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Three Months Ended June 30, |
EBITDA -
Non-GAAP Measure ($000s) |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
Net
income |
|
$ |
75,295 |
|
|
$ |
3,130 |
|
|
$ |
113,456 |
|
|
$ |
9,094 |
|
|
$ |
20,300 |
|
Adjustments to reconcile net income to EBITDA |
|
|
|
|
|
|
|
|
|
|
DD&A expenses |
|
51,630 |
|
|
35,279 |
|
|
137,698 |
|
|
93,968 |
|
|
46,607 |
|
Interest expense |
|
7,404 |
|
|
3,989 |
|
|
20,274 |
|
|
10,415 |
|
|
7,375 |
|
Income tax (recovery) expense |
|
(17,661 |
) |
|
18,093 |
|
|
36,106 |
|
|
50,186 |
|
|
27,996 |
|
EBITDA |
|
$ |
116,668 |
|
|
$ |
60,491 |
|
|
$ |
307,534 |
|
|
$ |
163,663 |
|
|
$ |
102,278 |
|
Funds flow from operations, as presented, is net
income adjusted for DD&A expenses, deferred tax expense or
recovery, stock-based compensation expense, amortization of
debt issuance costs, cash settlement of RSUs, unrealized foreign
exchange gains and losses, financial instruments gains or losses,
cash settlement of financial instruments and loss on sale.
Management uses this financial measure to analyze performance and
income or loss generated by our principal business activities prior
to the consideration of how non-cash items affect that income or
loss, and believes that this financial measure is also useful
supplemental information for investors to analyze performance and
our financial results. A reconciliation from net income to funds
flow from operations is as follows:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
Three Months Ended June 30, |
Funds
Flow From Operations (Non-GAAP) Measure ($000s) |
|
2018 |
|
2017 |
|
2018 |
|
2017 |
|
2018 |
Net
income |
|
$ |
75,295 |
|
|
$ |
3,130 |
|
|
$ |
113,456 |
|
|
$ |
9,094 |
|
|
$ |
20,300 |
|
Adjustments to reconcile net income to funds flow from
operations |
|
|
|
|
|
|
|
|
|
|
DD&A expenses |
|
51,630 |
|
|
35,279 |
|
|
137,698 |
|
|
93,968 |
|
|
46,607 |
|
Deferred tax (recovery) expense |
|
(36,769 |
) |
|
13,760 |
|
|
(118 |
) |
|
36,664 |
|
|
23,169 |
|
Stock-based compensation expense |
|
10,275 |
|
|
1,752 |
|
|
20,477 |
|
|
4,935 |
|
|
6,893 |
|
Amortization of debt issuance costs |
|
816 |
|
|
643 |
|
|
2,329 |
|
|
1,868 |
|
|
843 |
|
Cash settlement of RSUs |
|
— |
|
|
(33 |
) |
|
(360 |
) |
|
(534 |
) |
|
(240 |
) |
Unrealized foreign exchange (gain) loss |
|
(672 |
) |
|
(1,380 |
) |
|
(133 |
) |
|
(304 |
) |
|
1,583 |
|
Financial instruments (gain) loss |
|
(4,874 |
) |
|
1,675 |
|
|
6,840 |
|
|
(5,211 |
) |
|
4,768 |
|
Cash settlement of financial instruments |
|
(10,686 |
) |
|
302 |
|
|
(26,169 |
) |
|
1,518 |
|
|
(9,666 |
) |
Loss on sale |
|
— |
|
|
— |
|
|
292 |
|
|
9,076 |
|
|
292 |
|
Funds
flow from operations |
|
$ |
85,015 |
|
|
$ |
55,128 |
|
|
$ |
254,312 |
|
|
$ |
151,074 |
|
|
$ |
94,549 |
|
Presentation of Oil and Gas Information
BOEs have been converted on the basis of 6
thousand cubic feet ("Mcf") of natural gas to 1
barrel of oil. BOEs may be misleading, particularly if used in
isolation. A BOE conversion ratio of 6 Mcf: 1 barrel 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 barrel would be misleading as an
indication of value.
Unless otherwise expressly stated, all reserves
and resources values 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"). All reserves,
resources and production are on a WI before royalties basis unless
otherwise indicated.
Estimates of net present value contained herein
do not necessarily represent fair market value of resources.
Estimates of resources and future net revenue for individual
properties may not reflect the same level of confidence as
estimates of resources and future net revenue for all properties,
due to the effect of aggregation.
This press release contains certain oil and gas
metrics, including operating netback and cash netback, 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.
Prospective Resources
Prospective Resources are those quantities of
petroleum estimated, as of a given date, to be potentially
recoverable from undiscovered accumulations by application of
future development projects. Prospective Resources have both an
associated chance of discovery and a chance of development. Not all
exploration projects will result in discoveries. The chance that an
exploration project will result in the discovery of petroleum is
referred to as the "chance of discovery." Thus, for an undiscovered
accumulation the chance of commerciality is the product of two risk
components-the chance of discovery and the chance of development.
There is no certainty that any portion of the Prospective Resources
will be discovered. If discovered, there is no certainty that it
will be commercially viable to produce any portion of the
Prospective Resources.
The estimates of Prospective Resources provided
in this press release are estimates only and there is no guarantee
that the estimated Prospective Resources will be recovered. Actual
resources may be greater than or less than the estimates provided
in this press release and the differences may be material. There is
no assurance that the forecast price and cost assumptions applied
by McDaniel in evaluating Gran Tierra's Prospective Resources will
be attained and variances could be material. There is no certainty
that any portion of the Prospective Resources will be discovered.
If discovered, there is no certainty that it will be commercially
viable to produce any portion of the Prospective Resources.
Estimates of Prospective Resources are by their
nature more speculative than estimates of proved reserves and would
require substantial capital spending over a significant number of
years to implement recovery. Actual locations drilled and
quantities that may be ultimately recovered from our properties
will differ substantially. In addition, we have made no commitment
to drill, and likely will not drill, all of the drilling locations
that have been attributable to these quantities.
The Prospective Resources in this press release
are classified as “mean” representing the arithmetic average of the
expected recoverable volume. It is the most accurate single point
representation of the volume distribution.
Estimates of the Company's Prospective Resources
in the Ayombero Prospect are prepared by McDaniel in accordance
with NI 51-101 and COGEH as of April 30, 2018.
Prospective Resources within the Ayombero
prospect are estimated based on 3D seismic and the drilling of the
Ayombero-1 well, as well as production from the Chuira field.
Prospective Resources have been assigned to three horizons within
the La Luna formation: the Galembo, the Pujamana and the
Salada.
Positive factors for the Ayombero Prospective
Resources include:
- Thick, good quality reservoir exists within the La Luna
formation, based on testing of the Ayombero-1 well to date. Gran
Tierra is currently producing oil from the Galembo member.
- The Ayombero-1 well is believed to be producing from the same
structure as the wells in the Chuira field, from which Gran Tierra
has existing production.
Negative factors for the Ayombero Prospective
Resources include:
- The structure is complex, with potential seal risks in certain
areas.
- Poor quality of data obtained in 3D seismic shoots to
date.
Chance of Discovery/Development
Through an evaluation of the risks that are
relevant to the Ayombero Prospective Resources, which are described
herein, McDaniel has determined that the chance of discovery is 67%
(area with lower seal risks) and 37% (area with higher seal risks),
with the chance of development at 90%. The corresponding chance of
commerciality is 60% (lower seal risks) and 33% (higher seal
risks).
Prospect Maturity
The prospective resources associated with the
Ayombero structure have been sub-classified as a “prospect”. COGEH
defines "prospect" as a potential accumulation within a play that
is sufficiently well defined to present a viable drilling
target.
Other Information
Given the uncertainty of discovery associated
with such Prospective Resources, costs and timelines to production,
as well as recovery technologies, cannot be determined at this
time.
Disclosure of Resources Information and
Cautionary Note to U.S. Investors
In this press release, the Company uses the term
Prospective Resources. The SEC guidelines strictly prohibit the
Company from including Prospective Resources in filings with the
SEC. 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 forms
can also be obtained from the SEC website at www.sec.gov or by
calling 1-800-SEC-0330.
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