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
quarter ended September 30, 2019 ("
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 5, 2019.
Key Highlights
- Third Quarter Average Production: Was 32,918
BOE per day ("BOEPD"); approximately 3,000
BOEPD was impacted by temporary downtime due to electric
submersible pump ("ESP") replacements, facility
commissioning and water injection ramp up; current production is
approximately 34,000 BOEPD, with 5 to 6 additional wells expected
to be brought on production before the end of 2019
- Positive Results from Acordionero Waterflood:
Acordionero waterflood accelerated during the Quarter with
significant incremental water injection (averaging over 30,000 bbls
of water injected per day ("bwipd") and peaking
over 40,000 bwipd) and substantially reduced gas production
following the commissioning of the upgraded Central Production
Facility ("CPF") expansion; the Company plans to
be re-injecting excess gas beyond consumption by 2019 year-end;
Gran Tierra is encouraged by the waterflood response in terms of
increased pressure and production responses; indications look
positive for incremental reserve additions associated with the
completion of the CPF expansion and waterflood response
- Expansion of the Acordionero Field: The
AC-54 development well is the farthest south well drilled in the
Acordionero field to date and encountered 348 of net pay (measured
depth) and is expected to be on production by November 30,
2019
- Continued Optimization of Other Waterfloods:
Waterflood optimization continued in the Quarter at Costayaco with
an injector conversion and two well stimulations; the CYC-39 well
was tested in the Caballos Sand and commingled with the T Sand and,
during September 16 - October 28, 2019, produced at stabilized
rates of 1,159 bbls of oil per day ("bopd") of 30
degree API oil, a gas-oil ratio ("GOR") of 115
standard cubic feet per stock tank bbl ("scf/stb")
and a watercut of 45% on ESP; at Cohembi, water injection has
increased from 15,000 to over 22,000 bwipd since securing
operatorship in March 2019, where the instantaneous voidage
replacement ratio ("VRR") is well over 1.0 and
reservoir pressure is rising; this result in Cohembi, along with
continued waterflood response in Moqueta, further demonstrate the
Company's waterflood expertise and the long-term benefit of stable
cash flow generation from waterflood projects
- Shifting to Free Cash Flow with Sustainable
Growth: Gran Tierra has made significant investments to
build the foundation for expected free cash flow in 2020 and
beyond, investing $211 million at Acordionero from January 2018 to
September 2019 in facilities and water injection wells; these
investments are expected to allow Gran Tierra to lower operating
costs per BOE and increase future production growth
- Ayombero Activity Recommences in Fourth Quarter
2019: Remedial work on the three Ayombero wells has
commenced in November 2019
- Near-Term Potential Exploration Catalysts:
Tautaco-1 exploration well on LLA-10 is currently drilling ahead;
Cocona-1 well (follow-up appraisal to Vonu-1 A-Limestone well) on
PUT-1 is scheduled to spud before 2019 year-end
- Updated Corporate Presentation: The Company's
Corporate Presentation has been updated, including
information about Acordionero's waterflood response, and is
available on the Company website at www.grantierra.com
Message to Shareholders
Gary Guidry, President and Chief Executive
Officer of Gran Tierra, commented: "Gran Tierra has completed the
key investments required to underpin expected significant future
free cash flow for shareholders. We forecast Gran Tierra to
generate free cash flow - after development and exploration capital
- in fourth quarter 2019 and full-year 2020. At a forecasted $60
per bbl Brent oil price, we are projecting free cash flow(1) of $75
million to $100 million during 2020, which we plan to use for net
debt reduction and share buybacks.
With the Acordionero facility expansion capital
investment behind us, we forecast significantly lower operating
costs per BOE ahead. Despite the substantial investment in
Acordionero since the acquisition in 2016, the field has generated
$187 million of free cash flow(1). We operate over 95% of our
asset base which provides Gran Tierra tremendous flexibility in
terms of controlling future capital costs in response to a
potentially volatile oil price environment.
While the reduction in production during the
Quarter was unfortunate, we view this situation as temporary as we
are now seeing the waterflood at Acordionero responding to the
designed injection. The response across the field is matching
internal reservoir simulation modeling estimates and provides
better visibility to forecast and optimize production and long-term
recovery. Our underlying asset value has not changed, and with the
successful implementation of the waterflood and step-out appraisal
extensions in Acordionero, we believe it has increased.
The Company is in an excellent position with low
decline, high netback and long life conventional assets, which are
capable of delivering a strong free cash flow profile and visible
growth in production and reserves. We have grown Proved Plus
Probable reserves by 163% over the last three years and we expect
to continue that trend. We also have two near term potential
exploration catalysts - we plan to spud the Cocona-1 well on PUT-1
before the end of the year and look forward to the drilling results
from Tautaco-1 on LLA-10, which is currently drilling ahead."
Financial Highlights
- Net loss for the Quarter was $29
million and net income for the nine months of 2019 was $12
million
- Adjusted EBITDA(1) was $68 million
for the Quarter and $260 million for the nine months of 2019
- Funds flow from operations(1) was
$59 million ($0.16 per share, basic) for the Quarter and $223
million ($0.59 per share, basic) for the nine months of 2019
- At September 30, 2019, net
debt(1) to Adjusted EBITDA was 1.8 times on a trailing 12 month
basis (on a trailing 12 month basis, net income was $1 million and
Adjusted EBITDA was $340 million); at $60 per bbl Brent, the
Company expects to generate free cash flow(1) in fourth quarter
2019 and full-year 2020 and plans to decrease net debt to Adjusted
EBITDA
- Oil and gas sales were $132 million
for the Quarter and $443 million for the nine months of 2019
- Operating netback(1) was $27.34 per
BOE for the Quarter and $30.17 per BOE for the nine months of
2019
- Operating expenses were $11.77 per
BOE for the Quarter, compared to $8.81 per BOE in third quarter
2018 as a result of higher power generation, field operations,
maintenance and freight logistics costs, coupled with lower
production volumes; a significant portion of the Company's
operating expenses are fixed
- Workover expenses for the Quarter
were $3.63 per BOE, down from to $3.93 per BOE in third quarter
2018 as a result of lower frequency of ESP failures
- Transportation expenses were $1.05
for the Quarter, down from $2.25 per BOE in third quarter 2018 due
to higher volumes sold at the wellhead
- As expected, the Quarter was
capital intensive due to the substantial completion of the 3D
seismic program in the Putumayo, and the completion of facilities
and accelerated activity at Acordionero; due to the drilling
efficiencies achieved during the Quarter, the Company was able to
drill development wells in record time and shift wells scheduled
for fourth quarter 2019 into the Quarter
- Returned $38 million to
stockholders between January 1 and September 30, 2019 through
buybacks of 20.1 million shares of common stock (5.2% of
outstanding shares of common stock as of January 1, 2019)
Operations
UpdateAcordionero (100% WI, Operator)
- During the Quarter, 10 wells were
drilled focusing on an optimized waterflood program to maximize
ultimate oil recovery and long-term value (4 producers, 3 water
injectors and 3 water source wells)
- The AC-54 development well is the
farthest south well drilled in the Acordionero field to date and
located outside the previously established southern boundary of the
Proved plus Probable ("2P") and 2P plus Possible
("3P") original-oil-place mapping for the field;
the AC-54 encountered 348 feet of oil pay (measured depth) and is
expected to be placed on production by the end of November 2019;
the AC-54 appears to be similar to the AC-37 well, which is located
to the north of AC-54 and is the second farthest south well drilled
in Acordionero; the AC-37 well had initial production (averaged
over 30 days) of 944 bopd, a GOR of 305 scf/stb and water cut of
less than 1% on ESP; during October 2019, the AC-37 had average
production of 796 bopd, a GOR of 300 scf/stb, water cut of less
than 1% and had cumulative oil production of approximately 187,000
bbls after 221 days of production
- From the acquisition date of August
23, 2016 until September 30, 2019, Acordionero has generated $697
million in oil and natural gas sales and $545 million of operating
netback(1), while the Company made capital investments in this
field of $358 million, which equals free cash flow(1) from the
field of $187 million over this time period; Acordionero has
self-funded its active development program, including the major
investment in facilities
- Drilling efficiencies continue to
be achieved, with AC-49 drilled in record drill time of 5 days and
AC-47 drilled and completed for a total cost of $2.6 million
- Water injection at Acordionero
continues to ramp-up, averaging over 30,000 bwipd and on-schedule
to exceed 40,000 bwipd in the coming months
- Gran Tierra is observing a positive
impact on reservoir pressure, which would support increased oil
production rates from current and future oil producers and ultimate
oil recovery efficiency from all of the reservoirs
- The CPF expansion, water injection
facilities and gas to power turbines continue operating with
increasing reliability
- The AC-48's Lisama E Sand was
tested in the Quarter with good initial rates; pressure build up
results showed low permeability and boundaries suggesting potential
channel sand deposition; the Lisama E has been commingled with the
Lisama C and the well is now on production; Gran Tierra believes
Lisama E opportunities exist throughout the field and the learnings
from AC-48 will be applied to future development
Suroriente (52% WI and
Operator)
- The Cohembi oil field in the Suroriente Block continues to
respond positively to increased water injection and pump
optimizations; gross water injection averaged over 21,000 bwipd in
the Quarter, up 29% from second quarter 2019, and up from a level
of 14,500 bwipd when Gran Tierra assumed operatorship on March 1,
2019; the Company is planning to increase gross water injection to
40,000 bwipd by the end of 2019
- Since assuming operatorship we have been able to increase gross
production by over 1,000 bopd without drilling a well
- As part of an expanded waterflood program, activities have
commenced to expand the Cohembi water treatment, injection and
processing facilities; this expansion is expected to boost water
injection capacity from a current 21,000 bwipd to 60,000 bwipd;
targeted completion for the first phase of expansion is scheduled
to be in fourth quarter 2019
Chaza Block - Costayaco (100%
WI)
- The CYC-39 and 40 wells encountered unswept oil in the Caballos
and T Sands; an ESP is currently being installed in the CYC-40
- For the remainder of 2019, the Company intends to complete the
drilling of the CYC-41 well
- With the success of CYC-39 and CYC-40, along with an updated
reservoir simulation model, we have identified a number of
additional development well locations to optimize oil recovery and
value
Ayombero-Chuira (100% WI)
- Gran Tierra remains encouraged by early results from Ayombero-1
well: since a workover in July 2019, the well has produced on
natural flow at an average rate of 202 bopd of 18.5 degree API oil,
a GOR of 198 scf/stb, a watercut of 0.14% and 1,482 pounds
per square inch of tubing head pressure; the well has total
cumulative oil production to date of 80,556 bbls
Exploration
UpdatePutumayo Basin
- Cocona-1, PUT-1 (100% WI): This well, which
was originally called the Vonu Este-1, is on track to spud in late
November 2019 from the Vonu Este pad; one of the well's planned
targets is the A-Limestone; Cocona-1 is planned as the first
follow-up appraisal well to the Vonu-1 well, which has been Gran
Tierra's most successful A-Limestone well to date: the Vonu-1 well
has produced approximately 830,000 bbls of oil from the A-Limestone
(from June 2017 to September 2019) and is still producing over 400
BOEPD; the Costayaco-19 well in the Chaza Block, has produced
approximately 740,000 bbls of oil from the A-Limestone (from May
2016 to September 2019)
- 3D Seismic Program Update (341 Square
Kilometers): Seismic recording operations on the Alea
1848A, Nancy-Burdine-Maxine, PUT-4 and PUT-25 blocks are now
complete; this program is the largest seismic program ever
conducted in the Putumayo Basin; interpretation is currently
underway which is expected to help Gran Tierra better define
further development of the Nancy field and multiple exploration
prospects across all four blocks
Llanos Basin
- Tautaco-1, LLA-10 (50%
WI): Gran Tierra is participating in this non-operated
exploration well which is currently drilling
Financial and Operational Highlights
(all amounts in $000s, except per share and BOE
amounts)
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
|
2019 |
2018 |
|
2019 |
2018 |
|
|
|
|
|
|
Net (Loss)
Income |
$ |
(28,833 |
) |
$ |
75,295 |
|
|
$ |
11,686 |
|
$ |
113,456 |
|
Per Share -
Basic |
$ |
(0.08 |
) |
$ |
0.19 |
|
|
$ |
0.03 |
|
$ |
0.29 |
|
Per Share - Diluted |
$ |
(0.08 |
) |
$ |
0.18 |
|
|
$ |
0.03 |
|
$ |
0.28 |
|
|
|
|
|
|
|
Oil and Gas
Sales |
$ |
132,491 |
|
$ |
175,118 |
|
|
$ |
443,049 |
|
$ |
476,792 |
|
Operating
Expenses |
(35,603 |
) |
(29,511 |
) |
|
(104,119 |
) |
(78,019 |
) |
Workover Expenses |
(10,979 |
) |
(13,106 |
) |
|
(30,025 |
) |
(25,922 |
) |
Transportation
Expenses |
(3,179 |
) |
(7,505 |
) |
|
(16,167 |
) |
(21,024 |
) |
Operating
Netback(1) |
$ |
82,730 |
|
$ |
124,996 |
|
|
$ |
292,738 |
|
$ |
351,827 |
|
|
|
|
|
|
|
G&A Expenses
Before Stock-Based Compensation |
$ |
7,645 |
|
$ |
3,679 |
|
|
$ |
24,782 |
|
$ |
17,254 |
|
G&A Stock-Based
Compensation (Recovery) Expense |
(8 |
) |
10,132 |
|
|
1,092 |
|
19,919 |
|
G&A Expenses,
Including Stock Based Compensation |
$ |
7,637 |
|
$ |
13,811 |
|
|
$ |
25,874 |
|
$ |
37,173 |
|
|
|
|
|
|
|
Adjusted
EBITDA(1) |
$ |
67,930 |
|
$ |
110,340 |
|
|
$ |
260,005 |
|
$ |
295,489 |
|
|
|
|
|
|
|
Funds Flow from
Operations(1) |
$ |
59,021 |
|
$ |
85,015 |
|
|
$ |
222,740 |
|
$ |
254,312 |
|
|
|
|
|
|
|
Capital
Expenditures |
$ |
116,495 |
|
$ |
101,463 |
|
|
$ |
310,579 |
|
$ |
258,551 |
|
|
|
|
|
|
|
Average Daily Volumes (BOEPD) |
|
|
|
|
|
WI Production Before
Royalties |
32,918 |
|
36,170 |
|
|
35,454 |
|
35,553 |
|
Royalties |
(5,155 |
) |
(7,571 |
) |
|
(5,929 |
) |
(7,222 |
) |
Production
NAR |
27,763 |
|
28,599 |
|
|
29,525 |
|
28,331 |
|
(Increase) Decrease in
Inventory |
(58 |
) |
60 |
|
|
65 |
|
(403 |
) |
Sales |
27,705 |
|
28,659 |
|
|
29,590 |
|
27,928 |
|
Royalties, % of WI
Production Before Royalties |
16 |
% |
21 |
% |
|
17 |
% |
20 |
% |
|
|
|
|
|
|
Per BOE |
|
|
|
|
|
Brent |
$ |
62.03 |
|
$ |
75.97 |
|
|
$ |
64.75 |
|
$ |
72.68 |
|
Quality and
Transportation Discount |
(10.05 |
) |
(9.55 |
) |
|
(9.90 |
) |
(10.14 |
) |
Royalties |
(8.19 |
) |
(13.91 |
) |
|
(9.19 |
) |
(12.79 |
) |
Average Realized
Price |
43.79 |
|
52.51 |
|
|
45.66 |
|
49.75 |
|
Transportation
Expenses |
(1.05 |
) |
(2.25 |
) |
|
(1.67 |
) |
(2.19 |
) |
Average Realized Price
Net of Transportation Expenses |
42.74 |
|
50.26 |
|
|
43.99 |
|
47.56 |
|
Operating
Expenses |
(11.77 |
) |
(8.81 |
) |
|
(10.73 |
) |
(8.08 |
) |
Workover
Expenses |
(3.63 |
) |
(3.93 |
) |
|
(3.09 |
) |
(2.70 |
) |
Operating
Netback(1) |
27.34 |
|
37.52 |
|
|
30.17 |
|
36.78 |
|
G&A
Expenses |
(2.53 |
) |
(1.10 |
) |
|
(2.55 |
) |
(1.80 |
) |
Severance
Expenses |
(0.05 |
) |
(0.30 |
) |
|
(0.11 |
) |
(0.21 |
) |
Realized Foreign
Exchange (Loss) Gain |
(0.14 |
) |
0.06 |
|
|
(0.03 |
) |
(0.02 |
) |
Realized Financial
Instruments Loss |
(0.31 |
) |
(3.20 |
) |
|
(0.23 |
) |
(2.73 |
) |
Interest Expense,
Excluding Amortization of Debt Issuance Costs |
(3.76 |
) |
(1.98 |
) |
|
(2.89 |
) |
(1.87 |
) |
Interest
Income |
0.04 |
|
0.22 |
|
|
0.07 |
|
0.22 |
|
Current Income Tax
Expense |
(1.01 |
) |
(5.73 |
) |
|
(1.44 |
) |
(3.78 |
) |
Cash
Netback(1) |
$ |
19.58 |
|
$ |
25.49 |
|
|
$ |
22.99 |
|
$ |
26.59 |
|
|
|
|
|
|
|
Share Information (000s) |
|
|
|
|
|
Common Stock Outstanding,
End of Period |
366,982 |
|
391,339 |
|
|
366,982 |
|
391,339 |
|
Weighted Average Number
of Common and Exchangeable Shares Outstanding - Basic |
372,195 |
|
391,210 |
|
|
379,701 |
|
391,186 |
|
Weighted Average Number
of Common and Exchangeable Shares Outstanding -
Diluted |
372,195 |
|
427,948 |
|
|
372,195 |
|
427,417 |
|
(1) Net debt is defined as face value of debt,
less cash and cash equivalents. Net debt, funds flow from
operations, operating netback, return on average capital employed,
free cash flow, cash netback, earnings before interest, taxes and
depletion, depreciation and accretion ("DD&A")
and adjusted earnings before interest, taxes and depletion,
depreciation and accretion ("EBITDA") and EBITDA
adjusted for loss on redemption of Convertible Notes and loss or
gain on investment ("Adjusted EBITDA") are
non-GAAP measures and do not have standardized meanings under
generally accepted accounting principles in the United States of
America ("GAAP"). Cash flow refers to the GAAP
line item “net cash provided by operating activities”. Free cash
flow refers to the GAAP line item “net cash provided by operating
activities”, less capital expenditures. Refer to "Non-GAAP
Measures" in this press release.(2) Operating netback in the
context of updated 2019 guidance is a non-GAAP measure and does not
have a standardized meaning under GAAP. Refer to "Non-GAAP
Measures" in this press release for a description. The GAAP measure
is oil and gas sales price. Estimated oil and gas sales price is
calculated by subtracting 2019 forecasts of transportation and
quality discount and royalties from the 2019 budget Brent oil price
forecast as outlined in the relevant table above. Estimated 2019
operating netback is calculated by subtracting 2019 forecasts of
transportation and quality discount, royalties, operating costs and
pipeline transportation from the 2019 budget Brent oil price
forecast as outlined in the relevant table above.(3) G&A
expense includes stock based compensation expense
Conference Call
Information:
Gran Tierra will host its third quarter 2019
results conference call on Wednesday, November 6, 2019, at
9:00 a.m. Mountain Time, 11:00 a.m. Eastern Time. Interested
parties may access the conference call by dialing +1-844-348-3792
or +1-614-999-9309 (North America), 0800-028-8438 or 020-3107-0289
(United Kingdom) or 01-800-518-5094 (Colombia). The call will also
be available via webcast at www.grantierra.com.
Corporate Presentation:
Gran Tierra's Corporate Presentation has been
updated and is available on the Company website at
www.grantierra.com.
Contact Information
For investor and media inquiries please contact:
Gary GuidryPresident & Chief Executive Officer
Ryan EllsonExecutive Vice President & Chief 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 and
Ecuador. The Company is focused on its existing portfolio of assets
in Colombia and Ecuador and will pursue new growth opportunities
throughout Colombia and Latin America, 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,” "forecast", “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, budget, capital program,
capital expenditures and guidance, including for certain future
production, net cash provided by operating activities (described in
this press release as cash flow), net debt, total capital, free
cash flow in fourth quarter 2019 (assuming a $65 per bbl Brent oil
price) and 2020 (assuming a $60 per bbl Brent oil price), operating
netback and operating and workover expense estimates, the Company’s
strategies and the Company’s operations including planned
operations, oil prices and oil production and anticipated benefits
from the Acordionero Projects.
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; volatility or declines
in the trading price of our common stock; 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 for the year ended December 31, 2018
filed February 27, 2019 and its Quarterly Reports on Form 10-Q.
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 2019 future production, net
cash provided by operating activities (described in this press
release as cash flow), net debt, total capital, free cash flow in
fourth quarter 2019 (assuming a $65 Brent oil price) and 2020
(assuming a $60 Brent oil price), operating netback and operating
and workover expenses 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.
Cash netback as presented is defined as net
income before DD&A expenses, deferred income tax expense,
amortization of debt issuance costs, unrealized foreign exchange
gains and losses, loss on sale, non-cash operating and general and
administrative ("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, |
Cash Netback -
(Non-GAAP) Measure ($000s) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net (loss)
income |
|
$ |
(28,833 |
) |
|
$ |
75,295 |
|
|
$ |
11,686 |
|
|
$ |
113,456 |
|
Adjustments to
reconcile net (loss) income to cash netback |
|
|
|
|
|
|
|
|
DD&A expenses |
|
49,812 |
|
|
51,630 |
|
|
164,430 |
|
|
137,698 |
|
Deferred income tax expense (recovery) |
|
8,472 |
|
|
(36,769 |
) |
|
31,752 |
|
|
(118 |
) |
Amortization of debt issuance costs |
|
789 |
|
|
816 |
|
|
2,574 |
|
|
2,329 |
|
Unrealized foreign exchange loss (gain) |
|
6,412 |
|
|
(672 |
) |
|
5,303 |
|
|
159 |
|
Loss on redemption of Convertible Notes |
|
11,305 |
|
|
— |
|
|
11,305 |
|
|
— |
|
Non-cash operating expenses |
|
— |
|
|
142 |
|
|
— |
|
|
558 |
|
Non-cash G&A (recovery) expense |
|
(8 |
) |
|
10,132 |
|
|
1,092 |
|
|
19,919 |
|
Unrealized financial instruments loss (gain) |
|
11,355 |
|
|
(15,560 |
) |
|
(5,165 |
) |
|
(19,329 |
) |
Cash
netback |
|
$ |
59,304 |
|
|
$ |
85,014 |
|
|
$ |
222,977 |
|
|
$ |
254,672 |
|
EBITDA, as presented, is defined as net income
adjusted for DD&A expenses, interest expense and income tax
expense or recovery. Adjusted EBITDA is defined as EBITDA adjusted
for loss on redemption on convertible notes and loss or gain on
investment. 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 and Adjusted EBITDA as follows:
|
|
Three Months Ended September 30, |
|
Nine Months Ended September 30, |
EBITDA - (Non-GAAP)
Measure ($000s) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net (loss)
income |
|
$ |
(28,833 |
) |
|
$ |
75,295 |
|
|
$ |
11,686 |
|
|
$ |
113,456 |
|
Adjustments to
reconcile net (loss) income to EBITDA and Adjusted
EBITDA |
|
|
|
|
|
|
|
|
DD&A expenses |
|
49,812 |
|
|
51,630 |
|
|
164,430 |
|
|
137,698 |
|
Interest expense |
|
12,153 |
|
|
7,404 |
|
|
30,655 |
|
|
20,274 |
|
Income tax expense (recovery) |
|
11,521 |
|
|
(17,661 |
) |
|
45,675 |
|
|
36,106 |
|
EBITDA |
|
$ |
44,653 |
|
|
$ |
116,668 |
|
|
$ |
252,446 |
|
|
$ |
307,534 |
|
Loss on redemption of Convertible Notes |
|
11,305 |
|
|
— |
|
|
11,305 |
|
|
— |
|
Investment loss (gain) |
|
11,972 |
|
|
(6,328 |
) |
|
(3,746 |
) |
|
(12,045 |
) |
Adjusted
EBITDA |
|
$ |
67,930 |
|
|
$ |
110,340 |
|
|
$ |
260,005 |
|
|
$ |
295,489 |
|
Funds flow from operations, as presented, is net
income adjusted for DD&A expenses, deferred tax expense,
stock-based compensation expense, amortization of debt
issuance costs, cash settlement of RSUs, non-cash lease expense,
lease payments, 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, |
Funds Flow From
Operations -(Non-GAAP) Measure
($000s) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
Net (loss)
income |
|
$ |
(28,833 |
) |
|
$ |
75,295 |
|
|
$ |
11,686 |
|
|
$ |
113,456 |
|
Adjustments to
reconcile net (loss) incometo funds flow from
operations |
|
|
|
|
|
|
|
|
DD&A expenses |
|
49,812 |
|
|
51,630 |
|
|
164,430 |
|
|
137,698 |
|
Deferred tax expense (recovery) |
|
8,472 |
|
|
(36,769 |
) |
|
31,752 |
|
|
(118 |
) |
Stock-based compensation (recovery) expense |
|
(8 |
) |
|
10,275 |
|
|
1,092 |
|
|
20,477 |
|
Amortization of debt issuance costs |
|
789 |
|
|
816 |
|
|
2,574 |
|
|
2,329 |
|
Cash settlement of RSUs |
|
— |
|
|
— |
|
|
— |
|
|
(360 |
) |
Non-cash lease expense |
|
472 |
|
|
— |
|
|
1,366 |
|
|
— |
|
Lease payments |
|
(755 |
) |
|
— |
|
|
(1,603 |
) |
|
— |
|
Unrealized foreign exchange loss (gain) |
|
6,412 |
|
|
(672 |
) |
|
5,303 |
|
|
159 |
|
Financial instruments loss (gain) |
|
12,285 |
|
|
(4,874 |
) |
|
(2,890 |
) |
|
6,840 |
|
Cash settlement of
financial instruments |
|
(930 |
) |
|
(10,686 |
) |
|
(2,275 |
) |
|
(26,169 |
) |
Loss on redemption of Convertible Notes |
|
11,305 |
|
|
— |
|
|
11,305 |
|
|
— |
|
Funds flow from
operations |
|
$ |
59,021 |
|
|
$ |
85,015 |
|
|
$ |
222,740 |
|
|
$ |
254,312 |
|
Free cash flow, when presented in the context of
targeted 2020 free cash flow, is defined as GAAP “net cash provided
by operating activities” less projected 2020 capital spending.
Management believes that free cash flow is a useful supplemental
measure for management and investors to in order to evaluate the
financial sustainability of the Company's business. Gran Tierra is
unable to provide a quantitative reconciliation of forward-looking
free cash flow 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.
Presentation of Oil and Gas Information
BOEs have been converted on the basis of 6
thousand cubic feet ("Mcf") of natural gas to 1
bbl 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.
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.
References to thickness of “oil pay” or of 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.
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