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 June 30, 2020 ("
the
Quarter"). All dollar amounts are in United States
("
U.S.") dollars and 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 August 4,
2020.
Key Highlights:
- Production: The
Quarter's production averaged 20,165 BOE per day
("BOEPD"), down 32% from first quarter 2020
("the Prior Quarter"); with the unprecedented
impact of the COVID-19 pandemic and the related crash in world oil
prices, Gran Tierra took decisive actions during the Quarter to
protect the Company's balance sheet and liquidity; as a result, oil
production was impacted by deferred development drilling, shut-in
of higher cost production and wells that were left off-line
awaiting routine mechanical workovers; the suspension of production
at the Suroriente and PUT-7 Blocks in the southern Putumayo region
due to force majeure related to a local farmers' blockade also
reduced volumes; current production is approximately 19,000
BOEPD
- Achieved Significant
Reductions in Costs: Since March 2020, in response to the
global economic downturn and lower commodity prices, Gran Tierra
rapidly implemented cost saving initiatives throughout the Company;
significant progress has been made on lowering costs through the
renegotiation of vendor contracts and optimization of personnel and
rental equipment; as a result, Gran Tierra has reduced operating
costs and cash general and administrative
("G&A") costs by 43% and 30%, respectively,
from the Prior Quarter; the majority of the cost reductions are
structural reductions in the Company's operations, which are
expected to be maintained even if oil prices recover further; as a
result of ongoing cost saving initiatives, the Company also expects
per well drilling and completion capital costs to be reduced by
approximately 30% at Acordionero and 18% at Costayaco compared to
2019
- Successful Redetermination
of the Credit Facility & Covenant Waiver Until October
2021: During the Quarter, Gran Tierra successfully
completed the semi-annual redetermination of the Company's
bank-syndicated credit facility; the borrowing base limit was
re-determined to $225 million from the prior limit of $300 million
and the Company was granted relief under certain financial
covenants until October 1, 2021 (the "Covenant Relief
Period"), including relief from compliance with the ratio
of Total Debt* to EBITDAX* during the Covenant Relief Period
- VAT & Income Tax
Refunds Received: at the end of the Prior Quarter, Gran
Tierra had total value-added tax ("VAT") and
income tax receivables of $138 million; during the Quarter, the
Company collected a total of $25 million in VAT and income tax
refunds; during July 2020, the Company received another $21 million
in tax refunds and expects to collect another $30 to $40 million
before the end of 2020; therefore, Gran Tierra forecasts total
collection in the range of $76 to $86 million in VAT and
income tax refunds during 2020
- Capital
Expenditures: With 2020's oil price volatility and
logistical challenges due to COVID-19, Gran Tierra elected to
significantly reduce the Quarter's activities; the Quarter's
capital expenditures were only $5 million; while the Quarter's net
loss was $371 million (including oil and gas property impairment of
$398 million), funds flow from operations(1) was a positive $6
million, which more than covered capital expenditures
- Operations
Resumption: Gran Tierra forecasts the following activities
during the course of second half 2020:
- With the recent recovery in oil prices and tightening of
differentials, Gran Tierra has initiated the required activities to
safely resume several operations throughout the Company's Colombian
portfolio, in strict accordance with COVID-19 protocols; the
evolving situation with the COVID-19 pandemic may impact the timing
of the planned activities and the resulting amount and timing of
incremental production additions
- Acordionero Workover and Development Activities to
Resume (100% WI):
- Workovers: plans call for a restart of the
routine workover program, with the first workover rig to begin
operations during third quarter 2020, and a second workover rig
starting up in fourth quarter 2020; a total of 8-10 offline wells
are expected to be worked over to restore production by 2020
year-end; the wells can only be worked over one at a time in
sequence; the total combined productive capacity of the 10 highest
priority wells for workover is estimated to be approximately 3,500
bbl of oil per day ("BOPD") with weighted averages
for water cut of 13%, gas-oil ratio of 639 standard cubic feet per
bbl and API oil gravity of 17 degrees (based on 30-day averages
prior to each well going offline earlier this year)
- Development Drilling: one drilling rig is
expected to restart development drilling operations during fourth
quarter 2020 to drill 1-2 new oil wells by 2020 year-end; these new
wells are expected to begin production during first quarter 2021;
the drilling rig is forecast to continue drilling new development
oil wells at Acordionero throughout 2021; the next four planned
wells are scheduled to be drilled from the new southwest pad; each
of these new wells is expected to have an initial oil production
rate of approximately 550 BOPD (initial 30-day average rate), in
line with the strong performance of wells drilled in the field over
the last year
- Costayaco/Vonu Workovers to Resume (100% WI):
a workover rig is expected to start operations during fourth
quarter 2020 to workover 2-4 wells; the wells can only be worked
over one at a time in sequence; the total combined productive
capacity for the four priority wells for workover is estimated to
be approximately 1,000 BOPD with weighted averages for water cut of
44%, gas-oil ratio of 811 standard cubic feet per bbl and API oil
gravity of 29 degrees (based on 30-day averages prior to each well
going offline earlier this year)
- Suroriente Block (52% WI) to Resume
Production: restart of this block is expected during
second half 2020; the block's WI productive capacity is estimated
to be approximately 3,600 BOPD (based on the 30-day average prior
to the block being shut-in earlier this year)
- Majority of Minor Fields to Resume Production:
the restart of the these fields is expected during second half
2020; these fields' combined WI productive capacity is estimated to
be approximately 1,900 BOPD (based on 30-day averages prior to the
shut-ins earlier this year, which were done to reduce costs and
preserve value and liquidity)
- Financial Guidance for
Second Half 2020 (based on the resumption of operations
described above):
- Brent Oil Price: $41.00-45.00/bbl
- Capital Expenditures: $25-35 million (new
Acordionero southwest drilling pad & 1-2 new wells)
- Operating Netback(1): $55-75
million
- EBITDA(1): $45-65
million
- Funds Flow from
Operations(1): $25-35 million
- Hedges In Place To Protect
Cash Flows: Realized oil price hedging gains totaled $17
million during the first half of 2020; the Company has entered into
additional oil price hedges and has a total 11,000 BOPD hedged for
the second half of 2020 (average floor price of $35.68/bbl, average
ceiling price of $43.43/bbl) as follows:
Type of Instrument & Period |
Volume (BOPD) |
Sold Put ($/bbl) |
Purchased Put ($/bbl) |
Sold Call ($/bbl) |
Premium ($/bbl) |
Collars: July 1, to December 31, 2020 |
4,000 |
25.00 |
35.00 |
37.72 |
n/a |
Collars: July 1, to December 31, 2020 |
3,000 |
25.00 |
35.00 |
44.25 |
1.00 |
Collars: July 1, to December 31, 2020 |
1,000 |
25.00 |
32.50 |
39.50 |
n/a |
Collars: July 1, to December 31, 2020 |
3,000 |
32.50 |
38.33 |
51.52 |
0.97 |
- Gran Tierra Positioned to
Thrive in 2021: The Company's initiatives during the
severe downturn of 2020 were focused on portfolio optimization,
deferring short-cycle investments, and pacing projects to allow the
safe resumption of operations when oil prices recovered and strict
COVID-19 safety protocols were implemented; the Company is
analyzing multiple scenarios focused on maximizing returns and free
cash flow in 2021, and to optimize the ultimate oil recovery, free
cash flow and long-term value from all assets; Gran Tierra believes
its robust asset base will resume average production in excess of
30,000 BOEPD in 2021, based on current assumptions, including
commodity prices remaining at current levels and that there is
minimal global economic disruption from the COVID-19 pandemic next
year
Key Financial Metrics for the
Quarter:
- Net loss was $371 million compared with a net loss of $252
million in the Prior Quarter, primarily due to a non-cash
impairment on the Company's oil and gas properties as a result of
significantly lower oil prices ($398 million)
- Adjusted EBITDA(1) was $18 million, compared with $35 million
in the Prior Quarter
- Funds flow from operations(1) of $6 million ($0.02 per share,
basic) decreased by 73% compared with the Prior Quarter, as a
result of lower production and a 34% decrease in the Brent oil
price, as well as a widening of differentials; capital expenditures
totaled $5 million, a decrease of 89% compared to the Prior
Quarter
- Oil and gas sales were $34 million, down 61% from $86 million
in the Prior Quarter, due to the decreases in production and oil
prices
- Operating netback(1)(2) decreased to $5.65 per BOE, which was
caused mostly by the 34% drop in the Brent oil price from the Prior
Quarter, while other cost components such as transportation
expenses and the quality and transportation discount remained
relatively unchanged; the drop in the Quarter's royalties to $1.63
per BOE, down from the Prior Quarter's $5.61 per BOE, partially
offset the negative impact of the crash in oil prices
- Operating expenses of $9.62 per BOE were down 21% from $12.17
per BOE in the Prior Quarter due to lower power generation costs,
reduction in rental equipment and cost savings attributed to the
lower activities
- Workover expenses were $0.71 per BOE, down 85% from $4.64 per
BOE in the Prior Quarter due to lower activity
- Transportation expenses were $1.68 per BOE, up from $1.52 per
BOE in the Prior Quarter, due to higher pipeline sales
Operations Update
Acordionero (100% WI and
Operator)
- During the Quarter, no development wells were drilled, however
production from the remaining wells stabilized at approximately
11,000 BOPD during the Quarter, with downtime of only approximately
1%; the low downtime reflects excellent reliability from the
field's gas-to-power generation; the stabilization of production is
indicative of effective waterflood response due to proactive
pattern balancing; this base production response provides an
excellent platform to grow production and cash flow from future
workovers and development drilling
- At the end of the Quarter, a total of 14 oil wells require
workovers to restore production; given the recent strong recovery
in the Brent oil price, the Company is planning on restarting a
workover program during third quarter 2020
Suroriente (52% WI and
Operator)
- Gran Tierra plans to restart production from Suroriente during
second half 2020
- The Cohembi and other oil fields in the Suroriente Block were
producing at approximately 3,600 BOPD (WI) prior to the blockades,
as the field was continuing to positively respond to increased
water injection and pump optimizations
- Prior to the blockades in late February 2020, activities were
underway to expand the Cohembi water treatment, injection and
processing facilities under a two-phased expansion program; the
combined phased expansion would be expected to boost gross water
injection capacity from 19,000 to 60,000 bbl of water per day
Ayombero-Chuira (100% WI and
Operator)
- Gran Tierra remains encouraged by results from the Ayombero-1
well, which continues to show stable production which averaged 158
BOPD for the Quarter on natural flow and has total cumulative oil
production to date of 124,000 bbl
- Ayombero-2 and -3 remain suspended and ready for the next phase
of operations to recover the wellbores; Gran Tierra continues
detailed planning for the next phase of operations but plans to
await further recovery in oil prices before restarting development
activities
Moqueta (100% WI and
Operator)
- During the Quarter, Gran Tierra continued to optimize the
waterflood at Moqueta, where oil production and water injection
were in-line with expectations
- On June 21, 2020, Moqueta was shut-in immediately after a leak
was detected in the pipeline that transports the field's production
to Costayaco; repairs were made during July 2020 and the field was
brought back on production on July 27, 2020; the temporary shut-in
of Moqueta is expected to cause an immaterial reduction in the
Company's total 2020 average production of approximately 400 BOPD;
Moqueta is currently producing approximately 3,000 BOPD
Message to Shareholders
Gary Guidry, President and Chief Executive
Officer of Gran Tierra, commented: "With the unprecedented
volatility facing our industry during the COVID-19 pandemic and the
related imbalance in world oil supply and demand, Gran Tierra took
decisive action to protect our balance sheet and cash flows. We
swiftly reduced our 2020 capital program and implemented cost
saving initiatives throughout the Company. The team has made
significant progress on lowering operating and G&A costs, and
done a great job managing the crisis on all fronts. We
believe we are well-positioned to withstand the current volatile
environment with our low base decline, conventional oil asset base
and the operational control for capital allocation and timing,
while maintaining a low cost structure. As we move forward, we
remain agile in the execution of our strategy as we plan to resume
development and workover activities in Acordionero and restart the
majority of shut-in oil fields during the second half of 2020. We
will safely and diligently commence operations with a key objective
of finishing 2020 strong to set up for an exciting 2021. We believe
that Gran Tierra is well-positioned to thrive in 2021 and
beyond."
Financial and Operational Highlights
(all amounts in $000s, except per share and BOE
amounts)
|
Three Months Ended June 30, |
|
Three Months Ended March 31, |
|
Six Months Ended June 30, |
|
2020 |
2019 |
|
2020 |
|
2020 |
2019 |
|
|
|
|
|
|
|
|
Net (Loss) Income |
$ |
(370,649 |
) |
$ |
38,540 |
|
|
$ |
(251,626 |
) |
|
$ |
(622,275 |
) |
$ |
40,519 |
|
Per Share -
Basic |
$ |
(1.01 |
) |
$ |
0.10 |
|
|
$ |
(0.69 |
) |
|
$ |
(1.70 |
) |
$ |
0.11 |
|
Per Share -
Diluted |
$ |
(1.01 |
) |
$ |
0.10 |
|
|
$ |
(0.69 |
) |
|
$ |
(1.70 |
) |
$ |
0.10 |
|
|
|
|
|
|
|
|
|
Oil and Gas
Sales |
$ |
33,824 |
|
$ |
157,993 |
|
|
$ |
86,079 |
|
|
$ |
119,903 |
|
$ |
310,558 |
|
Operating
Expenses |
(18,424 |
) |
(33,733 |
) |
|
(32,285 |
) |
|
(50,709 |
) |
(68,516 |
) |
Workover
Expenses |
(1,361 |
) |
(12,757 |
) |
|
(12,303 |
) |
|
(13,664 |
) |
(19,046 |
) |
Transportation
Expenses |
(3,226 |
) |
(4,885 |
) |
|
(4,037 |
) |
|
(7,263 |
) |
(12,988 |
) |
Operating
Netback(1)(2) |
$ |
10,813 |
|
$ |
106,618 |
|
|
$ |
37,454 |
|
|
$ |
48,267 |
|
$ |
210,008 |
|
|
|
|
|
|
|
|
|
G&A Expenses
Before Stock-Based Compensation |
$ |
5,237 |
|
$ |
9,268 |
|
|
$ |
7,440 |
|
|
$ |
12,677 |
|
$ |
17,137 |
|
G&A Stock-Based
Compensation Expense (Recovery) |
1,292 |
|
(627 |
) |
|
(2,055 |
) |
|
(763 |
) |
1,100 |
|
G&A Expenses,
Including Stock Based Compensation |
$ |
6,529 |
|
$ |
8,641 |
|
|
$ |
5,385 |
|
|
$ |
11,914 |
|
$ |
18,237 |
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA(1) |
$ |
17,851 |
|
$ |
97,351 |
|
|
$ |
34,516 |
|
|
$ |
52,367 |
|
$ |
191,264 |
|
|
|
|
|
|
|
|
|
Funds Flow from
Operations(1) |
$ |
5,974 |
|
$ |
88,269 |
|
|
$ |
22,227 |
|
|
$ |
28,201 |
|
$ |
163,719 |
|
|
|
|
|
|
|
|
|
Capital
Expenditures |
$ |
4,747 |
|
$ |
99,595 |
|
|
$ |
44,277 |
|
|
$ |
49,024 |
|
$ |
194,084 |
|
|
|
|
|
|
|
|
|
Average Daily Volumes
(BOEPD) |
|
|
|
|
|
|
|
WI Production Before Royalties |
20,165 |
|
35,340 |
|
|
29,527 |
|
|
24,846 |
|
36,744 |
|
Royalties |
(1,757 |
) |
(6,147 |
) |
|
(4,156 |
) |
|
(2,957 |
) |
(6,322 |
) |
Production
NAR |
18,408 |
|
29,193 |
|
|
25,371 |
|
|
21,889 |
|
30,422 |
|
Decrease (Increase) in
Inventory |
858 |
|
84 |
|
|
(521 |
) |
|
169 |
|
127 |
|
Sales |
19,266 |
|
29,277 |
|
|
24,850 |
|
|
22,058 |
|
30,549 |
|
Royalties, % of WI
Production Before Royalties |
9 |
% |
17 |
% |
|
14 |
% |
|
12 |
% |
17 |
% |
|
|
|
|
|
|
|
|
Per BOE |
|
|
|
|
|
|
|
Brent |
$ |
33.39 |
|
$ |
68.32 |
|
|
$ |
50.82 |
|
|
$ |
42.10 |
|
$ |
66.11 |
|
Quality and
Transportation Discount |
(14.10 |
) |
(9.02 |
) |
|
(12.75 |
) |
|
(12.23 |
) |
(9.94 |
) |
Royalties |
(1.63 |
) |
(10.38 |
) |
|
(5.61 |
) |
|
(3.62 |
) |
(9.66 |
) |
Average Realized
Price |
17.66 |
|
48.92 |
|
|
32.46 |
|
|
26.25 |
|
46.51 |
|
Transportation
Expenses |
(1.68 |
) |
(1.51 |
) |
|
(1.52 |
) |
|
(1.59 |
) |
(1.95 |
) |
Average Realized Price
Net of Transportation Expenses |
15.98 |
|
47.41 |
|
|
30.94 |
|
|
24.66 |
|
44.56 |
|
Operating
Expenses |
(9.62 |
) |
(10.44 |
) |
|
(12.17 |
) |
|
(11.10 |
) |
(10.26 |
) |
Workover
Expenses |
(0.71 |
) |
(3.95 |
) |
|
(4.64 |
) |
|
(2.99 |
) |
(2.85 |
) |
Operating
Netback(1)(2) |
5.65 |
|
33.02 |
|
|
14.13 |
|
|
10.57 |
|
31.45 |
|
G&A Expenses
Before Stock-Based Compensation |
(2.73 |
) |
(2.87 |
) |
|
(2.81 |
) |
|
(2.78 |
) |
(2.57 |
) |
Severance
Expenses |
(0.01 |
) |
(0.08 |
) |
|
(0.50 |
) |
|
(0.29 |
) |
(0.14 |
) |
Realized Foreign
Exchange Gain |
0.75 |
|
0.31 |
|
|
0.75 |
|
|
0.75 |
|
0.02 |
|
Realized Financial
Instruments Gain (Loss) |
5.67 |
|
(0.35 |
) |
|
1.31 |
|
|
3.14 |
|
(0.20 |
) |
Interest Expense,
Excluding Amortization of Debt Issuance Costs |
(6.41 |
) |
(2.98 |
) |
|
(4.51 |
) |
|
(5.31 |
) |
(2.50 |
) |
Interest
Income |
— |
|
0.12 |
|
|
0.13 |
|
|
0.08 |
|
0.08 |
|
Other
Loss |
— |
|
— |
|
|
— |
|
|
— |
|
— |
|
Net Lease
Payments |
(0.01 |
) |
0.01 |
|
|
(0.01 |
) |
|
— |
|
0.01 |
|
Current Income Tax
Expense |
0.20 |
|
0.15 |
|
|
(0.11 |
) |
|
0.02 |
|
(1.63 |
) |
Cash
Netback(1) |
$ |
3.11 |
|
$ |
27.33 |
|
|
$ |
8.38 |
|
|
$ |
6.18 |
|
$ |
24.52 |
|
|
|
|
|
|
|
|
|
Share Information
(000s) |
|
|
|
|
|
|
|
Common Stock Outstanding, End of Period |
366,982 |
376,636 |
|
366,982 |
|
366,982 |
376,636 |
Weighted Average Number
of Common and Exchangeable Shares Outstanding - Basic |
366,982 |
379,942 |
|
366,982 |
|
366,982 |
383,492 |
Weighted Average Number
of Common and Exchangeable Shares Outstanding -
Diluted |
366,982 |
415,757 |
|
366,982 |
|
366,982 |
419,307 |
*These non-GAAP measures are defined in the
Credit Agreement, dated as of September 18, 2015, by and among Gran
Tierra Energy Inc., Gran Tierra Energy International Holdings Ltd.,
the Bank of Nova Scotia, Societe Generale and the lenders party
thereto, as amended (the "Credit Agreement"). The
Credit Agreement and all amendments thereto are available as
exhibits to Gran Tierra's SEC filings. Total Debt means all debt of
Gran Tierra and its subsidiaries party to the credit facility on a
consolidated basis. EBITDAX means the sum of consolidated net
income plus the following expenses or charges to the extent
deducted from consolidated net income: interest, income taxes,
depreciation, depletion, amortization, exploration expenses and
other similar noncash charges, minus all noncash income added to
consolidated net income. Senior Secured Leverage Ratio means the
ratio of secured total date to EBITDAX.(1) Net debt is defined as
face value of debt ($789 million), less cash and cash equivalents
($17 million). Net debt, funds flow from operations, operating
netback, return on average capital employed, cash netback, earnings
before interest, taxes and depletion, depreciation and accretion
("DD&A") ("EBITDA") and
EBITDA adjusted for goodwill and asset impairment, unrealized
foreign exchange gain or loss, stock based compensation expense or
recovery, other loss and unrealized financial instruments gain or
loss ("Adjusted 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 for descriptions of these non-GAAP measures and
reconciliations to the most directly comparable measures calculated
and presented in accordance with GAAP.(2) Operating netback as
presented is defined as oil and gas sales less operating, workover
and transportation expenses. See the table entitled Financial and
Operational Highlights above for the components of consolidated
operating netback and corresponding reconciliation.
Conference Call
Information:
Gran Tierra will host its second quarter 2020
results conference call on Wednesday, August 5, 2020, 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 Guidry President & Chief Executive
Officer
Ryan Ellson Executive Vice President & Chief
Financial Officer
Rodger Trimble Vice 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 (including the Sustainability Report) 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
https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Forward-Looking Statements and Legal
Advisories:
This press release contains opinions, forecasts,
projections, expectations 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,”
"objective," “will,” “believe,” "should," "could," "allow" and
other terms that are forward-looking in nature. Such
forward-looking statements include, but are not limited to, the
Company's expectations regarding its capital program, 2020 and 2021
outlook, the benefits of reduced capital spending and G&A
expenses, the benefits of derivative transactions, well
performance, production, including the restart of production, and
future development costs, liquidity and access to capital, future
plans when oil prices increase, the Company’s strategies and
results thereof, the Company’s operations including planned
operations, the use and the availability of certain tax refunds,
the Company’s guidance, including future production, operating
netback, EBITDA and funds flow from operations, and the impact of
the COVID-19 pandemic, disruptions to operations and the decline in
industry conditions.
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: the
unprecedented impact of the COVID-19 pandemic and the actions of
OPEC and non-OPEC countries and the procedures imposed by
governments in response thereto; disruptions to local operations;
the decline and volatility in oil and gas industry conditions and
commodity prices; the severe imbalance in supply and demand for oil
and natural gas; prices and markets for oil and natural gas are
unpredictable and volatile; the accuracy of productive capacity of
any particular field; the timing and impact of any resumption of
operations; Gran Tierra’s operations are located in South America
and unexpected problems can arise due to guerilla activity or local
blockades or protests; 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
ability of Gran Tierra to execute its business plan and realize
expected benefits from current initiatives (including a reduction
of the capital program); 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 accuracy of
testing and production results and seismic data, pricing and cost
estimates (including with respect to commodity pricing and exchange
rates); 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; 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 or bonds; the
risk that Gran Tierra does not receive the anticipated benefits of
government programs, including government tax refunds; Gran
Tierra’s ability to comply with financial covenants in its credit
agreement; 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 Quarterly Report for the quarter ended
March 31, 2020 and Annual Report on Form 10-K for the year ended
December 31, 2019, many of which are beyond the Company's control.
These filings are available on the SEC website at
http://www.sec.gov and on SEDAR at www.sedar.com. The unprecedented
decline in oil prices and related reduction in the Company's
capital program has significantly reduced the Company’s forecasted
Covenant EBITDAX.
The forward-looking statements contained in this
press release are based on certain assumptions made by Gran Tierra
based on management's experience and other factors believed to be
appropriate. Gran Tierra believes these assumptions to be
reasonable at this time, but the forward-looking statements are
subject to risk and uncertainties, many of which are beyond Gran
Tierra's control, which may cause actual results to differ
materially from those implied or expressed by the forward looking
statements. The risk that the assumptions on which the 2020 and
2021 outlook are based prove incorrect may increase the later the
period to which the outlook relates. In particular, the
unprecedented nature of the current economic downturn, pandemic and
industry decline may make it particularly difficult to identify
risks or predict the degree to which identified risks will impact
Gran Tierra's business and financial condition. 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 law.
The estimates of future production, operating
netback, EBITDA, funds flow from operations and certain 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 provided to give the reader a better
understanding of the potential future performance of the Company in
certain areas and 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 the second half of 2020 and 2021. 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
operational and 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, goodwill and asset impairment,
deferred income tax expense or recovery, stock-based compensation
expense or recovery, amortization of debt issuance costs, non-cash
lease expense, lease payments, unrealized foreign exchange gains
and losses, financial instrument gains or losses, loss on
redemption of Convertible Notes and cash settlement of financial
instruments. 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 (loss) income to cash netback is as follows:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
Three Months Ended March 31, |
Cash Netback -
(Non-GAAP) Measure ($000s) |
2020 |
2019 |
|
2020 |
2019 |
|
2020 |
Net (loss) income |
$ |
(370,649 |
) |
$ |
38,540 |
|
|
$ |
(622,275 |
) |
$ |
40,519 |
|
|
$ |
(251,626 |
) |
Adjustments to
reconcile net (loss) income to cash netback |
|
|
|
|
|
|
|
DD&A expenses |
42,484 |
|
51,697 |
|
|
99,778 |
|
114,618 |
|
|
57,294 |
|
Goodwill impairment |
— |
|
— |
|
|
102,581 |
|
— |
|
|
102,581 |
|
Asset impairment |
398,458 |
|
— |
|
|
402,362 |
|
— |
|
|
3,904 |
|
Deferred tax (recovery) expense |
(76,200 |
) |
14,957 |
|
|
(41,594 |
) |
23,280 |
|
|
34,606 |
|
Stock-based compensation expense (recovery) |
1,292 |
|
(627 |
) |
|
(763 |
) |
1,100 |
|
|
(2,055 |
) |
Amortization of debt issuance costs |
1,092 |
|
947 |
|
|
1,936 |
|
1,785 |
|
|
844 |
|
Non-cash lease expense |
481 |
|
894 |
|
|
971 |
|
894 |
|
|
490 |
|
Lease payments |
(460 |
) |
(848 |
) |
|
(975 |
) |
(848 |
) |
|
(515 |
) |
Unrealized foreign exchange (gain) loss |
(1,544 |
) |
2,174 |
|
|
19,255 |
|
(1,109 |
) |
|
20,799 |
|
Financial instruments loss (gain) |
164 |
|
(18,340 |
) |
|
52,582 |
|
(15,175 |
) |
|
52,418 |
|
Cash settlement of financial instruments |
10,856 |
|
(1,125 |
) |
|
14,343 |
|
(1,345 |
) |
|
3,487 |
|
Cash
netback |
$ |
5,974 |
|
$ |
88,269 |
|
|
$ |
28,201 |
|
$ |
163,719 |
|
|
$ |
22,227 |
|
EBITDA, as presented, is defined as net (loss)
income adjusted for DD&A expenses, interest expense and income
tax expense or recovery. Adjusted EBITDA is defined as EBITDA
adjusted for goodwill and asset impairment, unrealized foreign
exchange gain or loss, stock based compensation expense or
recovery, other loss and unrealized financial instruments gain or
loss. Management uses this financial measure to analyze performance
and (loss) income 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 (loss) income to
EBITDA and Adjusted EBITDA as follows:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
Three Months Ended March 31, |
|
Twelve Month Trailing June 30, |
EBITDA - (Non-GAAP)
Measure ($000s) |
2020 |
2019 |
|
2020 |
2019 |
|
2020 |
|
2020 |
Net (loss) income |
$ |
(370,649 |
) |
$ |
38,540 |
|
|
$ |
(622,275 |
) |
$ |
40,519 |
|
|
$ |
(251,626 |
) |
|
$ |
(624,104 |
) |
Adjustments to
reconcile net (loss) income to EBITDA and Adjusted
EBITDA |
|
|
|
|
|
|
|
|
|
DD&A expenses |
42,484 |
|
51,697 |
|
|
99,778 |
|
114,618 |
|
|
57,294 |
|
|
210,193 |
|
Interest expense |
13,365 |
|
10,564 |
|
|
26,175 |
|
18,502 |
|
|
12,810 |
|
|
50,941 |
|
Income tax (recovery) expense |
(76,575 |
) |
14,468 |
|
|
(41,671 |
) |
34,154 |
|
|
34,904 |
|
|
(18,540 |
) |
EBITDA |
$ |
(391,375 |
) |
$ |
115,269 |
|
|
$ |
(537,993 |
) |
$ |
207,793 |
|
|
$ |
(146,618 |
) |
|
$ |
(381,510 |
) |
Goodwill impairment |
— |
|
— |
|
|
102,581 |
|
— |
|
|
102,581 |
|
|
102,581 |
|
Asset impairment |
398,458 |
|
— |
|
|
402,362 |
|
— |
|
|
3,904 |
|
|
402,362 |
|
Unrealized foreign exchange (gain) loss |
(1,544 |
) |
2,174 |
|
|
19,255 |
|
(1,109 |
) |
|
20,799 |
|
|
22,167 |
|
Stock-based compensation expense (recovery) |
1,292 |
|
(627 |
) |
|
(763 |
) |
1,100 |
|
|
(2,055 |
) |
|
(433 |
) |
Other loss |
— |
|
— |
|
|
— |
|
— |
|
|
— |
|
|
12,886 |
|
Unrealized financial instruments loss (gain) |
11,020 |
|
(19,465 |
) |
|
66,925 |
|
(16,520 |
) |
|
55,905 |
|
|
33,957 |
|
Adjusted
EBITDA |
$ |
17,851 |
|
$ |
97,351 |
|
|
$ |
52,367 |
|
$ |
191,264 |
|
|
$ |
34,516 |
|
|
$ |
192,010 |
|
Funds flow from operations, as presented, is net
(loss) income adjusted for DD&A expenses, goodwill and asset
impairment, deferred tax expense or recovery, stock-based
compensation expense or recovery, amortization of debt
issuance costs, non-cash lease expense, lease payments, unrealized
foreign exchange gains and losses, financial instruments gain or
loss and cash settlement of financial instruments. Management uses
this financial measure to analyze performance and income 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 (loss) income to funds flow from operations
is as follows:
|
Three Months Ended June 30, |
|
Six Months Ended June 30, |
|
Three Months Ended March 31, |
Funds Flow From
Operations - (Non-GAAP) Measure
($000s) |
2020 |
2019 |
|
2020 |
2019 |
|
2020 |
Net (loss) income |
$ |
(370,649 |
) |
$ |
38,540 |
|
|
$ |
(622,275 |
) |
$ |
40,519 |
|
|
$ |
(251,626 |
) |
Adjustments to
reconcile net (loss) income to funds flow from
operations |
|
|
|
|
|
|
|
DD&A expenses |
42,484 |
|
51,697 |
|
|
99,778 |
|
114,618 |
|
|
57,294 |
|
Goodwill impairment |
— |
|
— |
|
|
102,581 |
|
— |
|
|
102,581 |
|
Asset impairment |
398,458 |
|
— |
|
|
402,362 |
|
— |
|
|
3,904 |
|
Deferred tax (recovery) expense |
(76,200 |
) |
14,957 |
|
|
(41,594 |
) |
23,280 |
|
|
34,606 |
|
Stock-based compensation expense (recovery) |
1,292 |
|
(627 |
) |
|
(763 |
) |
1,100 |
|
|
(2,055 |
) |
Amortization of debt issuance costs |
1,092 |
|
947 |
|
|
1,936 |
|
1,785 |
|
|
844 |
|
Non-cash lease expense |
481 |
|
894 |
|
|
971 |
|
894 |
|
|
490 |
|
Lease payments |
(460 |
) |
(848 |
) |
|
(975 |
) |
(848 |
) |
|
(515 |
) |
Unrealized foreign exchange (gain) loss |
(1,544 |
) |
2,174 |
|
|
19,255 |
|
(1,109 |
) |
|
20,799 |
|
Financial instruments loss (gain) |
164 |
|
(18,340 |
) |
|
52,582 |
|
(15,175 |
) |
|
52,418 |
|
Cash settlement of financial instruments |
10,856 |
|
(1,125 |
) |
|
14,343 |
|
(1,345 |
) |
|
3,487 |
|
Funds flow from
operations |
$ |
5,974 |
|
$ |
88,269 |
|
|
$ |
28,201 |
|
$ |
163,719 |
|
|
$ |
22,227 |
|
Gran Tierra is unable to provide forward-looking
net income and oil and gas sales, the GAAP measures most directly
comparable to the non-GAAP measures, such as Adjusted EBITDA and
funds flow from operations and operating netback, respectively, 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 forecasted
sale of its oil production and changes in commodity prices.
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.
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. Gran Tierra's reported production is a mix
of light crude oil and medium and heavy crude oil for which there
is not a precise breakdown since the Company's oil sales volumes
typically represent blends of more than one type of crude oil. 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. 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.
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.
These metrics are calculated as described in this press release and
management believes that they are useful supplemental measures for
the reasons described in this press release.
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.
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