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, 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 August 7, 2019.
Financial Highlights
- Net income was $39 million ($0.10
per share, basic) compared with a net income of $2 million or $0.01
per share basic in the quarter ended March 31, 2019 ("the
Prior Quarter"); net income for the first six months of
2019 was $41 million
- EBITDA(1) increased by 24% to $115
million, up from $93 million in the Prior Quarter; for the first
six months of 2019, the Company has generated EBITDA of $208
million
- Funds flow from operations(1)
increased by 17% to $88 million ($0.23 per share, basic) compared
with $75 million ($0.19 per share, basic) in the Prior Quarter;
funds flow from operations for the first six month of 2019 was $164
million
- Returned $24 million to
stockholders between January 1 and June 30, 2019, through buybacks
of 10.4 million shares of common stock (2.7% of outstanding shares
of common stock as of January 1, 2019)
- At June 30, 2019, net debt(1)
to EBITDA was 1.4 times on a trailing 12 month basis (on a trailing
12 month basis, net income was $105 million and EBITDA was $394
million) and 1.2 times on the basis of the Quarter's annualized
results
- Achieved return on average capital
employed(1) of 15.5% during the Quarter
- Oil and gas sales increased by $5
million to $158 million, up from $153 million in the Prior
Quarter
- Operating netback(1) per BOE
increased by 10%, compared with the Prior Quarter, to $33.02 per
BOE
- Subsequent to the end of the
Quarter, Gran Tierra successfully repurchased and canceled
$114,997,000 out of its $115,000,000 convertible notes outstanding,
limiting future potential dilution
Operational Highlights & Updated
Guidance
- Acordionero-48 Well
Results: this well encountered 77 feet of oil pay within
the new Lisama E Sand, in an over-pressured reservoir; on
production test using a jet pump, this well has produced as
follows:
- During 115 producing hours (August
1-7, 2019), the well averaged 509 bbls of oil per day
("bopd") of 24 degree API oil, a watercut of 5.2%
and a gas-oil ratio ("GOR") of 153 standard cubic
feet per stock tank bbl ("scf/stb")
- In the last 24 hours (August 6-7,
2019), the well averaged 751 bopd of 24 degree API oil, a watercut
of 0.4% and a GOR of 115 scf/stb
- The Lisama E is located just below
the main Lisama A and C reservoirs, and although penetrated with
other wells in the Acordionero field, this well was the first
opportunity for the Company to test this new reservoir horizon
- Successful Expansion of
Acordionero Facilities: the commissioning of the expansion
of Acordionero's central processing and water injection facilities,
as well as the installation of gas-to-power turbines
("Acordionero Facilities Projects"), are complete,
allowing for a total oil production capacity of approximately
30,000 bopd
- Acordionero Water
Injection: has increased to approximately 28,500 bbls of
water injected per day ("bwipd") during the May to
July 2019 timeframe; the water source, handling, and injection
system has been successfully tested at 40,000 bwipd and is expected
to increase to that level on a sustained basis during August 2019;
with the planned increase in water injection, Gran Tierra forecasts
a positive impact on reservoir pressure, supporting increased oil
production rates from current and future oil producers and ultimate
oil recovery efficiency from all of the reservoirs
- The Quarter's Average
Production: was 35,340 BOE per day
("BOEPD"), which was impacted by the temporary
issues previously discussed in the Company's operations update
press releases on June 18, 2019 and July 10, 2019
- Updated 2019
Guidance: the Company has revised its expected 2019
production, total capital and cash flow guidance to ranges of
36,500-37,500 BOEPD, $330-340 million and $335-355 million,
respectively
- The Mono Araña-3
Well: was drilled as an extension/appraisal of the field
and encountered 125 feet of oil pay in the Lisama A Sand and 27
feet of oil pay in the Lisama C Sand; the well has been completed
and is expected to be placed on production test imminently
- Southern Putumayo
Production: Gran Tierra has continued to produce
approximately 4,500 BOEPD uninterrupted since the end of the
Quarter from the Suroriente and PUT-7 Blocks, where a temporary
blockade impacted production during the Quarter
- New Colombian Exploration
Acreage: Gran Tierra has won two blocks in the
recent Agencia Nacional de Hidrocarburos ("ANH")
bid round in Colombia, the LLA-85 Block in the Llanos Basin and the
VMM-24 Block in the Middle Magdalena Valley
("MMV") Basin
- Ecuador Exploration
Acreage: during the Quarter, Gran Tierra officially signed
contracts for the Company's three exploration blocks in Ecuador,
which are contiguous to Gran Tierra's Putumayo Basin assets in
Colombia
Message to Shareholders
Gary Guidry, President and Chief Executive
Officer of Gran Tierra, commented: "Despite temporary reductions in
production during the Quarter, Gran Tierra demonstrated ongoing
strong financial performance in terms of net income, EBITDA and
funds flow from operations while maintaining a strong balance
sheet. Subsequent to the end of the Quarter, we achieved an
important milestone with the successful commissioning of the
Acordionero Facilities Projects. These projects have been underway
for two years and are key to the long-term value of the Acordionero
asset by providing water supply and injection for enhanced oil
recovery, expanded fluid processing and reliable power generation
using produced natural gas. We have a similar waterflood expansion
project for enhanced oil recovery underway in the Southern
Putumayo, where our production is back onstream.
We are excited about recent results from the
AC-48 well which opens up a new Lisama E light oil development
using the same Acordionero infrastructure that we have just
expanded. With this recent well result, along with the waterflood
expansion and performance at the Acordionero and Cohembi fields, we
expect positive proved and probable reserve additions at year
end. The second half of 2019 has many potential catalysts,
including the drilling of 13-15 development and exploration wells,
with planned appraisal of the Lisama E Sand in Acordionero and
drilling of Vonu Este-1 well targeting fractured A-Limestone and
the U Sand.
With our facilities expansion now complete at
Acordionero and the planned completion of our large 3D seismic
program in the Putumayo during third quarter 2019, we forecast Gran
Tierra will generate free cash flow(1) in fourth quarter 2019 and
2020. Looking to 2020, we plan to focus on our sustainable free
cash flow profile which is forecasted to be used for net debt
reduction and share buybacks. We expect strong production and cash
flow growth into 2020 and beyond while maintaining an active
exploration program of six to 10 wells per year.
While the temporary reduction in production was
unfortunate, underlying asset value has not changed and the Company
is in an excellent position with a strong free cash flow profile,
visible production growth, strong balance sheet and a world class
exploration portfolio comprised of 34 blocks across four proven and
prolific basins in Colombia and Ecuador."
2019 Updated Guidance
Gran Tierra is revising its 2019 guidance as
follows:
2019 Budget |
Previous |
Revised |
Production (BOEPD) |
41,000-43,000 |
36,500-37,500 |
Brent Oil Price ($/bbl) |
65.00 |
65.00 |
Cash Flow(1) ($ million) |
375-395 |
335-355 |
Total Capital ($ million), Excluding
Acquisition |
320-340 |
330-340 |
Development Capital ($ million) |
215-225 |
230-235 |
Exploration Capital ($ million) |
105-115 |
100-105 |
Number of Development Wells (gross) |
26-30 |
28-32 |
Number of Exploration Wells (gross) |
6-8 |
4-5 |
Gran Tierra also updates its expected ranges of
2019 expenses and operating netback(1) as follows:
2019 Budget |
Previous |
Revised |
Brent Oil Price ($/bbl) |
65.00 |
65.00 |
Expenses ($/boe) |
|
|
Transportation & Quality Discount |
11.00 - 13.00 |
10.00 - 11.00 |
Royalties |
9.00 - 10.00 |
9.00 - 10.00 |
Oil and Gas Sales Price ($/boe) |
42.00 - 45.00 |
44.00 - 46.00 |
Operating Costs |
9.00 - 10.00 |
11.00 - 12.00* |
Transportation (Pipeline) |
1.50 - 2.00 |
1.50 - 2.00 |
Operating Netback(1,2) ($/boe) |
30.00 - 34.50 |
30.00 - 34.50 |
* Operating costs are expected to increase
relative to previous guidance due to a temporary reduction in
production and higher power generation, field operations
maintenance and equipment rental costs during the first half of
2019.
Financial Results - Further
Detail
- Gran Tierra has ICE Brent oil
hedges in place covering 10,000 bopd of production for the
remainder of 2019 with a floor price of $60 per bbl
- Additional information on the Quarter's expenses:
- Transportation Expenses: decreased
by 36% to $1.51 per BOE from $2.35 per BOE in the Prior
Quarter
- Operating Expenses: increased to
$10.44 per BOE compared with $10.09 per BOE in the Prior Quarter,
primarily due to lower production during the Quarter; these
expenses are expected to decrease with the successful commissioning
of the Acordionero Facilities Projects
- Workover Expenses: increased by
117% to $3.95 per BOE compared with $1.82 per BOE in the Prior
Quarter, primarily attributable to increased pump failures due to
unreliable power and higher GOR at Acordionero; these expenses are
expected to decline due to the start-up of Acordionero's
gas-to-power project and the increase in Acordionero's water
injection, which is forecasted to address the GOR issues
Operations Update
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 is
currently averaging 18,700 bwipd (up from 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
- As part of an expanded waterflood
program, activities have commenced with the expansion of the
Cohembi water treatment, injection and processing facilities; the
expansion is expected to boost water injection capacity from a
current 19,000 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 new CYC-39 well was targeting
suspected unswept T and Caballos Sands in the southern part of the
Costayaco field:
- From July 19 to August 4, 2019, the
well produced commingled from both zones at stabilized averages of
670 bopd of 30 degree API oil, a GOR of 129 scf/stb and a watercut
of 23% on jet pump
- Pressure build up tests were run on
both zones during their individual production tests; pressure
transient analysis indicates that the Caballos Sand may have skin
damage
- The well was shut in on August 5,
2019, in order to conduct a planned stimulation of the Caballos
Sand, after which the Company intends to run an electric
submersible pump to produce the two zones commingled
- For the remainder of 2019, the
Company intends to complete the drilling of the CYC-40 infill well
and to stimulate three wells (CYC-25. 18, 12i) and convert CYC-35
to injection
Mono Araña (100% WI)
- The appraisal program has commenced
with the completion of Mono Araña-3; four additional
development/appraisal wells are planned for the remainder of
2019
Ayombero-Chuira (100% WI)
- The Company has awarded a contract
to import a snubbing unit (equipment capable of working with high
pressures) to retrieve parted coiled tubing in both the AY-2 and 3
wells in order to continue with completion operations
- The AY-1 well continues to produce
on natural flow; during the month of July 2019, the well averaged
214 bopd of 18 degree API oil, a watercut of 0.1%, a GOR of 145
scf/stb and 1,521 pounds per square inch of tubing head
pressure
- Gran Tierra remains very encouraged
by the three Ayombero wells drilled to date which have confirmed
similar lithologies, oil saturations and over-pressure in the
Galembo Member of the La Luna Carbonate reservoir, suggesting
reservoir and structural continuity
Exploration Update
Putumayo Basin
- Vonu Este, PUT-1 (100%
WI): On track to spud in fourth quarter 2019; the well's
planned target is the A-Limestone. The Vonu-1 well has
produced approximately 800,000 bbls of oil from the A-Limestone
(from June 2017 to July 2019) and is still producing over 500
BOEPD; the Costayaco-19 well in the Chaza Block, has produced over
730,000 bbls of oil from the A-Limestone (from May 2016 to July
2019)
- 3D Seismic Program Update
(341 Square Kilometers): seismic acquisition operations
continue on the Alea 1848A, Nancy-Burdine-Maxine, PUT 4 and PUT 25
blocks; 30% of the seismic data has been recorded as of August 6,
2019, with the program expected to be fully recorded by September
30, 2019; this program is expected to be the largest seismic
program ever conducted in the Putumayo Basin; interpretation is
expected to begin during August 2019 and to continue as the data
recording is completed
Llanos Basin
- LLA-10 (50% WI):
Gran Tierra expects to participate in a non-operated exploration
well (50% WI) in the LLA-10 Block in the second half of 2019; Gran
Tierra's partner will pay 100% of the cost of the well
- LLA-85 (100% WI):
the Company has been awarded this block following the recent ANH
bid round; this block covers 136,400 acres within the Llanos Basin
in Colombia, and is on trend with fields that produce medium to
light crude oil from the Mirador, Une and Gacheta Formations; the
block is currently 65% covered with 3D seismic and the Company has
preliminarily identified four leads on the block
MMV Basin
- VMM-24 Block (100%
WI): the Company has also been awarded this block in the
ANH bid round; the block covers 26,867 acres contiguous to Gran
Tierra's core assets in the MMV Basin and is on-trend with the
Colon, Juglar and Acordionero oil fields, which produce medium
gravity crude oil from reservoirs such as the Umir, Lisama & La
Paz sandstones intervals; this block is close to Gran Tierra's
facilities and other existing infrastructure; the Company has
preliminarily identified two leads on the block
Ecuador (100% WI)
- Gran Tierra officially signed
participation contracts for three blocks located in Ecuador during
the Quarter; the three blocks are located in the Oriente Basin and
are approximately 140,000 acres in total area, creating a
contiguous acreage position extending from Gran Tierra's existing
assets in the Putumayo Basin in Colombia
- The Company is now one of the top
landholders in the play trend which extends from the Putumayo Basin
in Colombia through to the Oriente Basin in Ecuador; the Putumayo
and Oriente Basins are the same geological basin, with different
names due to the international border between Colombia and
Ecuador
Financial and Operational Highlights
(all amounts in $000s, except per share and BOE
amounts)
|
Three Months EndedJune 30, |
|
Three Months EndedMarch, 31 |
|
Six Months EndedJune 30, |
|
2019 |
2018 |
|
2019 |
|
2019 |
2018 |
Net Income |
$ |
38,540 |
|
$ |
20,300 |
|
|
$ |
1,979 |
|
|
$ |
40,519 |
|
$ |
38,161 |
|
Per Share - Basic |
$ |
0.10 |
|
$ |
0.05 |
|
|
$ |
0.01 |
|
|
$ |
0.11 |
|
$ |
0.10 |
|
Per Share - Diluted |
$ |
0.10 |
|
$ |
0.05 |
|
|
$ |
0.01 |
|
|
$ |
0.10 |
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
Oil and Gas
Sales |
$ |
157,993 |
|
$ |
163,446 |
|
|
$ |
152,565 |
|
|
$ |
310,558 |
|
$ |
301,674 |
|
Operating
Expenses |
(33,733 |
) |
(26,732 |
) |
|
(34,783 |
) |
|
(68,516 |
) |
(48,508 |
) |
Workover
Expenses |
(12,757 |
) |
(8,327 |
) |
|
(6,289 |
) |
|
(19,046 |
) |
(12,816 |
) |
Transportation
Expenses |
(4,885 |
) |
(6,522 |
) |
|
(8,103 |
) |
|
(12,988 |
) |
(13,519 |
) |
Operating
Netback(1) |
$ |
106,618 |
|
$ |
121,865 |
|
|
$ |
103,390 |
|
|
$ |
210,008 |
|
$ |
226,831 |
|
|
|
|
|
|
|
|
|
G&A Expenses
Before Stock-Based Compensation |
$ |
9,268 |
|
$ |
5,593 |
|
|
$ |
7,869 |
|
|
$ |
17,137 |
|
$ |
13,575 |
|
G&A Stock-Based
Compensation (Recovery) |
(627 |
) |
6,609 |
|
|
1,727 |
|
|
1,100 |
|
9,787 |
|
G&A Expenses,
Including Stock Based Compensation |
$ |
8,641 |
|
$ |
12,202 |
|
|
$ |
9,596 |
|
|
$ |
18,237 |
|
$ |
23,362 |
|
|
|
|
|
|
|
|
|
EBITDA(1) |
$ |
115,269 |
|
$ |
102,278 |
|
|
$ |
92,524 |
|
|
$ |
207,793 |
|
$ |
190,866 |
|
|
|
|
|
|
|
|
|
Funds Flow from
Operations(1) |
$ |
88,269 |
|
$ |
94,549 |
|
|
$ |
75,450 |
|
|
$ |
163,719 |
|
$ |
169,297 |
|
|
|
|
|
|
|
|
|
Capital
Expenditures |
$ |
99,595 |
|
$ |
84,394 |
|
|
$ |
94,489 |
|
|
$ |
194,084 |
|
$ |
157,088 |
|
|
|
|
|
|
|
|
|
Average Daily Volumes (BOEPD) |
|
|
|
|
|
|
|
WI Production Before
Royalties |
35,340 |
|
35,400 |
|
|
38,163 |
|
|
36,744 |
|
35,239 |
|
Royalties |
(6,147 |
) |
(7,202 |
) |
|
(6,499 |
) |
|
(6,322 |
) |
(7,045 |
) |
Production
NAR |
29,193 |
|
28,198 |
|
|
31,664 |
|
|
30,422 |
|
28,194 |
|
Decrease (Increase) in
Inventory |
84 |
|
(296 |
) |
|
169 |
|
|
127 |
|
(639 |
) |
Sales |
29,277 |
|
27,902 |
|
|
31,833 |
|
|
30,549 |
|
27,555 |
|
Royalties, % of WI
Production Before Royalties |
17 |
% |
20 |
% |
|
17 |
% |
|
17 |
% |
20 |
% |
|
|
|
|
|
|
|
|
Per BOE |
|
|
|
|
|
|
|
Brent |
$ |
68.32 |
|
$ |
74.90 |
|
|
$ |
63.90 |
|
|
$ |
66.11 |
|
$ |
71.04 |
|
Quality and
Transportation Discount |
(9.02 |
) |
(10.52 |
) |
|
(10.65 |
) |
|
(9.95 |
) |
(10.55 |
) |
Royalties |
(10.38 |
) |
(13.17 |
) |
|
(8.99 |
) |
|
(9.65 |
) |
(12.21 |
) |
Average Realized
Price |
48.92 |
|
51.21 |
|
|
44.26 |
|
|
46.51 |
|
48.28 |
|
Transportation
Expenses |
(1.51 |
) |
(2.04 |
) |
|
(2.35 |
) |
|
(1.95 |
) |
(2.16 |
) |
Average Realized Price
Net of Transportation Expenses |
47.41 |
|
49.17 |
|
|
41.91 |
|
|
44.56 |
|
46.12 |
|
Operating
Expenses |
(10.44 |
) |
(8.28 |
) |
|
(10.09 |
) |
|
(10.26 |
) |
(7.69 |
) |
Workover
Expenses |
(3.95 |
) |
(2.61 |
) |
|
(1.82 |
) |
|
(2.85 |
) |
(2.05 |
) |
Operating
Netback(1) |
33.02 |
|
38.28 |
|
|
30.00 |
|
|
31.45 |
|
36.38 |
|
G&A
Expenses |
(2.87 |
) |
(1.75 |
) |
|
(2.28 |
) |
|
(2.57 |
) |
(2.17 |
) |
Severance
Expenses |
(0.08 |
) |
(0.32 |
) |
|
(0.19 |
) |
|
(0.14 |
) |
(0.16 |
) |
Realized Foreign
Exchange (Loss) Gain |
0.31 |
|
(0.11 |
) |
|
(0.25 |
) |
|
0.02 |
|
(0.07 |
) |
Realized Financial
Instruments Loss |
(0.35 |
) |
(3.03 |
) |
|
(0.06 |
) |
|
(0.20 |
) |
(2.48 |
) |
Interest Expense,
Excluding Amortization of Debt Issuance Costs |
(2.98 |
) |
(2.05 |
) |
|
(2.06 |
) |
|
(2.50 |
) |
(1.82 |
) |
Interest
Income |
0.12 |
|
0.19 |
|
|
0.04 |
|
|
0.08 |
|
0.22 |
|
Current Income Tax
Expense |
0.15 |
|
(1.51 |
) |
|
(3.30 |
) |
|
(1.63 |
) |
(2.74 |
) |
Cash
Netback(1) |
$ |
27.32 |
|
$ |
29.70 |
|
|
$ |
21.90 |
|
|
$ |
24.51 |
|
$ |
27.16 |
|
|
|
|
|
|
|
|
|
Share Information (000s) |
|
|
|
|
|
|
|
Common Stock
Outstanding, End of Period |
376,636 |
|
390,018 |
|
|
384,493 |
|
|
376,636 |
|
390,018 |
|
Exchangeable Shares
Outstanding, End of Period |
— |
|
1,135 |
|
|
— |
|
|
— |
|
1,135 |
|
Weighted Average
Number of Common and Exchangeable Shares Outstanding -
Basic |
379,942 |
|
391,054 |
|
|
386,930 |
|
|
383,492 |
|
391,173 |
|
Weighted Average
Number of Common and Exchangeable Shares Outstanding -
Diluted |
415,757 |
|
427,455 |
|
|
386,946 |
|
|
419,307 |
|
427,242 |
|
(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,
cash flow, free cash flow, cash netback 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"). Cash flow refers to the GAAP
line item “net cash provided by operating activities”. 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.
Conference Call
Information:
Gran Tierra will host its second quarter results
conference call on Thursday, August 8, 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; our ability to raise
capital; 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.
Return on average capital employed as presented
is defined as earnings before interest and taxes
("EBIT"; annualized, if the period is other than
one year) divided by average capital employed (total assets minus
cash and current liabilities; average of the opening and closing
balances for the period).
|
|
Three Months EndedJune 30, |
|
As at June 30, |
|
As at March 31, |
Return on Average
Capital Employed - (Non-GAAP) Measure ($000s) |
|
2019 |
|
2019 |
|
2019 |
Net
income |
|
|
|
|
|
|
Adjustments to
reconcile net income to EBIT: |
|
$ |
38,540 |
|
|
|
|
|
Interest expense |
|
10,564 |
|
|
|
|
|
Income tax expense |
|
$ |
14,468 |
|
|
|
|
|
Earnings before
interest and income tax |
|
$ |
63,572 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
|
2,031,828 |
|
|
1,824,751 |
|
Less Current Liabilities |
|
|
|
$ |
189,186 |
|
|
$ |
197,201 |
|
Less Cash |
|
|
|
$ |
147,712 |
|
|
$ |
32,740 |
|
Capital
Employed |
|
|
|
$ |
1,694,930 |
|
|
$ |
1,594,810 |
|
Average Capital
Employed |
|
|
|
1,644,870 |
|
|
|
|
|
|
|
|
|
|
Annualized EBIT (multiplied by four) |
|
$ |
254,288 |
|
|
|
|
|
Divided by Average Capital Employed |
|
1,644,870 |
|
|
|
|
|
Return on Average
Capital Employed |
|
15.5 |
% |
|
|
|
|
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 EndedJune 30, |
|
Six Months EndedJune 30, |
|
Three Months EndedMarch, 31 |
Cash Netback -
(Non-GAAP) Measure ($000s) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
2019 |
Net income |
|
$ |
38,540 |
|
|
$ |
20,300 |
|
|
$ |
40,519 |
|
|
$ |
38,161 |
|
|
$ |
1,979 |
|
Adjustments to
reconcile net income to cash netback |
|
|
|
|
|
|
|
|
|
|
DD&A expenses |
|
51,697 |
|
|
46,607 |
|
|
114,618 |
|
|
86,068 |
|
|
62,921 |
|
Deferred income tax expense |
|
14,957 |
|
|
23,169 |
|
|
23,280 |
|
|
36,651 |
|
|
8,323 |
|
Amortization of debt issuance costs |
|
947 |
|
|
843 |
|
|
1,785 |
|
|
1,513 |
|
|
838 |
|
Unrealized foreign exchange (gain) loss |
|
2,174 |
|
|
1,875 |
|
|
(1,109 |
) |
|
831 |
|
|
(3,283 |
) |
Non-cash
operating expenses |
|
— |
|
|
284 |
|
|
— |
|
|
415 |
|
|
— |
|
Non-cash
G&A expense (recovery) |
|
(627 |
) |
|
6,609 |
|
|
1,100 |
|
|
9,787 |
|
|
1,727 |
|
Unrealized financial instruments (gain) loss |
|
(19,465 |
) |
|
(4,898 |
) |
|
(16,520 |
) |
|
(3,769 |
) |
|
2,945 |
|
Cash
netback |
|
$ |
88,223 |
|
|
$ |
94,789 |
|
|
$ |
163,673 |
|
|
$ |
169,657 |
|
|
$ |
75,450 |
|
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 June 30, |
|
|
|
Six Months Ended June 30, |
|
|
|
Three Months Ended March, 31 |
EBITDA - (Non-GAAP)
Measure ($000s) |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
2019 |
Net income |
|
$ |
38,540 |
|
|
$ |
20,300 |
|
|
$ |
40,519 |
|
|
$ |
38,161 |
|
|
$ |
1,979 |
|
Adjustments to
reconcile net income to EBITDA |
|
|
|
|
|
|
|
|
|
|
DD&A expenses |
|
51,697 |
|
|
46,607 |
|
|
114,618 |
|
|
86,068 |
|
|
62,921 |
|
Interest expense |
|
10,564 |
|
|
7,375 |
|
|
18,502 |
|
|
12,870 |
|
|
7,938 |
|
Income tax expense |
|
14,468 |
|
|
27,996 |
|
|
34,154 |
|
|
53,767 |
|
|
19,686 |
|
EBITDA |
|
$ |
115,269 |
|
|
$ |
102,278 |
|
|
$ |
207,793 |
|
|
$ |
190,866 |
|
|
$ |
92,524 |
|
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 EndedJune 30, |
|
Six Months EndedJune 30, |
|
Three Months EndedMarch, 31 |
Funds Flow From
Operations - |
|
2019 |
|
2018 |
|
2019 |
|
2018 |
|
2019 |
Net income |
|
$ |
38,540 |
|
|
$ |
20,300 |
|
|
$ |
40,519 |
|
|
$ |
38,161 |
|
|
$ |
1,979 |
|
Adjustments to
reconcile net incometo funds flow from
operations |
|
|
|
|
|
|
|
|
|
|
DD&A expenses |
|
51,697 |
|
|
46,607 |
|
|
114,618 |
|
|
86,068 |
|
|
62,921 |
|
Deferred tax expense |
|
14,957 |
|
|
23,169 |
|
|
23,280 |
|
|
36,651 |
|
|
8,323 |
|
Stock-based compensation expense (recovery) |
|
(627 |
) |
|
6,893 |
|
|
1,100 |
|
|
10,202 |
|
|
1,727 |
|
Amortization of debt issuance costs |
|
947 |
|
|
843 |
|
|
1,785 |
|
|
1,513 |
|
|
838 |
|
Cash settlement of RSUs |
|
— |
|
|
(240 |
) |
|
— |
|
|
(360 |
) |
|
— |
|
Non-cash lease expense |
|
894 |
|
|
— |
|
|
894 |
|
|
— |
|
|
— |
|
Lease payments |
|
(848 |
) |
|
— |
|
|
(848 |
) |
|
— |
|
|
— |
|
Unrealized foreign exchange (gain) loss |
|
2,174 |
|
|
1,875 |
|
|
(1,109 |
) |
|
831 |
|
|
(3,283 |
) |
Financial instruments loss |
|
(18,340 |
) |
|
4,768 |
|
|
(15,175 |
) |
|
11,714 |
|
|
3,165 |
|
Cash settlement of financial instruments |
|
(1,125 |
) |
|
(9,666 |
) |
|
(1,345 |
) |
|
(15,483 |
) |
|
(220 |
) |
Funds flow from
operations |
|
$ |
88,269 |
|
|
$ |
94,549 |
|
|
$ |
163,719 |
|
|
$ |
169,297 |
|
|
$ |
75,450 |
|
Free cash flow, when presented in the context of
updated 2019 guidance, is defined as GAAP “net cash provided by
operating activities” less projected 2019 capital spending. 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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