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Gran Tierra Reports Fourth Quarter 2019 Results; 2020 Plans

Share Print Bookmark    |    Wednesday,February 26,2020

Gran Tierra Energy Inc. reported its Q4 and full year 2019 results. It also detailed its preliminary 2020 capital plan.

2020 Guidance Update

• Since the beginning of 2020, response to the coronavirus has caused a decrease in the Brent oil price and a widening of crude oil price differentials in Colombia; as a result, Gran Tierra has elected to amend the Company's planned 2020 capital budget by reducing capital by $25 million; Gran Tierra's 2020 revised capital budget is $175 to $195 million; the deferral of capital is primarily in exploration and infrastructure; if the economic headwinds persist into the second half of 2020, further deferrals of capital could be made; Gran Tierra operates 29 of its 32 blocks and has control over capital allocation timing
  
  
• Suroriente and PUT-7: Similar to the events of June 2019, local farmers have set up blockades in the southern Putumayo region to protest against the Colombian national government; the previous blockade in June 2019 lasted approximately three weeks; these protests are not directed at the oil industry or Gran Tierra; Gran Tierra has pro-actively shut-in its fields resulting in approximately 4,000 boepd being shut-in; the blockades have also prevented the drilling of two development wells in Cohembi; a rig is contracted but the Company is waiting for the blockades to be resolved before mobilizing the rig to the field
  
  
• 2020 expected free cash flow⁽⁶⁾ and the anticipated collection of approximately $100 million of value-added tax receivables will be used to reduce the amount drawn on the Company's credit facility

2019 Key Highlights

• Increased the Company's 1P reserves to 79 MMBOE (100% oil), representing 200% 1P reserves replacement, and grew 1P net present value ("NPV") discounted at 10% ("NPV10") to $1.5 billion before tax ($1.3 billion after tax) and 1P net asset value ("NAV") to $2.50 per share before tax⁽¹⁾ ($1.83 per share after tax⁽²⁾)
  
  
• Maintained the Company's 2P reserves at 142 MMBOE (100% oil) and increased 2P NPV10 to $2.9 billion before tax ($2.3 billion after tax) and 2P NAV to $6.23 per share before tax⁽¹⁾ ($4.49 per share after tax⁽²⁾)
  
  
• Gran Tierra's existing producing assets are forecast to generate free cash flow⁽³⁾ after development expenditures and taxes over the next five years of approximately $1.4 billion for 1P reserves, $2.1 billion for 2P reserves and $2.5 billion for 3P reserves; after adjusting for internally forecast general and administrative ("G&A") costs and interest⁽⁴⁾, the free cash flow⁽³⁾ potential over the next five years is approximately $1.1 billion for 1P reserves and $1.8 billion for 2P reserves
  
  
• Generated 2019 net income of $39 million ($0.10 per share basic and diluted), EBITDA⁽⁵⁾ of $364 million, adjusted EBITDA⁽⁵⁾ of $326 million, and funds flow from operations⁽⁵⁾ of $272 million ($0.72 per share basic and diluted)
  
  
• Fourth quarter 2019 capital expenditures of approximately $69 million were down 41% as expected from third quarter 2019's level of $116 million; this reduction reflects the completion of the extensive facilities expansion at Acordionero, which was required to fully implement that field's waterflood to enhance ultimate oil recovery
  
  
• Generated 2019 oil and gas sales of $571 million and $44.77 per BOE
  
  
• Achieved 2019 operating netback⁽⁵⁾ of $28.81 per BOE
  
  
• 2019 average production was 34,817 boepd (100% oil), in line with the revised 2019 guidance of 34,800 to 35,000 boepd
  
  
  • Production was negatively impacted in 2019 by downtime from electric submersible pump ("ESP") failures in Acordionero and the temporary shut-in of several wells in Acordionero with high gas-oil ratios
    
    
  • The ESP failure rate has significantly declined:
    
    
    • Following the completion of the Acordionero central processing facility expansion in second half 2019, the water injection facilities and gas-to-power turbines continue operating with increasing reliability
      
      
    • In fourth quarter 2019, there were 3 ESP failures in October, 3 in November and only 1 in December
      
      
    • This significant improvement in ESP performance is a result of increased power reliability and increased reservoir pressure due to the substantial ramp up in water injection at Acordionero starting in mid-2019
      
      
    • The increase in water injection in mid-2019 has significantly reduced gas production in Acordionero from a high of 18 million cubic feet per day ("mmcfd") down to the current 8 mmcfd, all of which is either consumed to generate power or re-injected into the reservoir for pressure maintenance
      
      
• Returned $38 million to shareholders during 2019 through the repurchase of 20 million common shares

Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented: "2019 was both an exciting and challenging year for Gran Tierra. Throughout the course of the second half of 2019, we accomplished the full implementation and growth of our waterflood in the Acordionero field, which is forecast to generate approximately $1.2 billion of free cash flow⁽³⁾ over the next five years and has a December 31, 2019, before tax 2P NPV10 of $1.8 billion. Our four core assets are all under waterflood at different stages of maturity and are forecast to generate significant free cash flow⁽³⁾ for the next several years.

"Our main challenge was a delay in the expansion of the production facilities in Acordionero which temporarily impacted this field's oil production rate. We have learned a number of operational lessons that will be applied to future projects.

"During 2020, we are deploying an integrated plan for free cash flow⁽⁶⁾ growth from our key producing areas, including a disciplined approach to leveraging our world class exploration portfolio. We are reducing our 2020 capital program to a new range of $175 to $195 million as a prudent response to the drop in world oil prices and widening differentials during 2020 to date.

"Our 2020 capital budget is a balanced, returns-focused program which prioritizes free cash flow⁽⁶⁾ generation and returns over the rate of development and production growth. We plan to prioritize debt reduction with our free cash flow⁽⁶⁾. We see material potential in our world class exploration portfolio located in highly prospective geological basins in Colombia and Ecuador. We have budgeted a measured, yet robust high-impact exploration campaign, mostly directed at our large landholdings in the Putumayo Basin of Colombia and Oriente Basin of Ecuador. Our 2020 plans are also aligned with Gran Tierra's 'Beyond Compliance Policy' which focuses on our commitments to environmental, social and governance excellence. When there are significant opportunities and potential benefits to the environment or communities, Gran Tierra voluntarily strives to go beyond what is legally required to protect the environment and provide social benefits, because it is the right thing to do."

Operations Update

• Acordionero: Gran Tierra's 2020 development drilling program of 12 to 14 wells is underway; the AC-55, -56,-57 and -58 oil wells have been drilled and cased:
  
  
  • AC-55 was brought on production January 24, 2020, setting a record time (from spud date to on production date) of 15 days; from January 24 to February 25, 2020, the well has produced at approximately 500 boepd
    
    
  • AC-56 was brought on production January 31, 2020; from January 31 to February 25, 2020, the well has produced at approximately 600 boepd
    
    
  • AC-57 was brought on production February 17, 2020; from February 17 to February 25, 2020, the well has produced at approximately 540 boepd
    
    
  • AC-58 was brought on production this week and is currently recovering completion fluids
    
    
• Voidage Replacement Ratio ("VRR"): Gran Tierra continues to actively manage the waterflood of the Acordionero field by sector, allowing for optimum water placement and field performance; the Acordionero field's current instantaneous and cumulative VRR's are 1.11 and 0.28, respectively, both representing increases of approximately 180% since June 2019
  
  
• Ayombero-Chuira: Snubbing unit operations at the Ayombero-2 and -3 wells have made significant progress in setting up the two wells for future operations; wellbore strings in the cased portions of the wells were both recovered successfully; the snubbing unit is currently at the Chuira-1 well, where the upper completion has been recovered; the well is currently flowing to surface and is cleaning up
  
  
• Putumayo Drilling Program: The five-well Putumayo development drilling program (3 in Costayaco, 2 in Cohembi) is projected to commence in March 2020 at Costayaco and later at Cohembi (Suroriente); four of the wells are targeting well-developed waterflooded horizons; the fifth well will be a horizontal producer targeting the less developed M2 Limestone at Costayaco; the drilling of the Cohembi wells and related spend will be deferred until the blockades are resolved
  
  
• Cocona-2 Exploration Well, PUT-1 Block: this well is targeting the fractured A-Limestone play trend, and the additional oil zones which were successfully encountered in the Vonu-1 exploration well; Cocona-2 has been drilled through the target formations to a planned total depth of 10,603 feet; currently well operations have been suspended due to mechanical failure associated with the drilling rig; a new rig has been sourced; based on encouraging results in the N Sand, A-Limestone and U Sand from logging while drilling and cuttings analysis, this well is expected to be put on production test in the first half of 2020, depending on rig scheduling
  
  
• Oil Hedging: Gran Tierra has ICE Brent oil hedges in place covering 6,000 bopd of production in first half 2020 with a floor price of $55 per bbl and a weighted average ceiling price of $69.05 per bbl
  
  
• Foreign Exchange Hedging: Gran Tierra has Colombian peso ("COP") hedges in place for 2020 of approximately $40 million equivalent, with a weighted average floor price of 3,305 COP per U.S. dollar and a weighted average cap price of 3,423 COP per U.S. dollar

HSE Update

Safety

• In 2019, Gran Tierra had its best safety record in terms of Lost Time Injuries ("LTI") and Total Recordable Injuries; the Company's 2019 LTI ratio of 0.02 was 80% below the industry average for Latin American exploration and production companies in 2019, as reported by the International Association of Oil and Gas Producers

Environment

• In partnership with the international non-governmental organization Conservation International, Gran Tierra has committed to reforesting 1,000 hectares of land and securing and maintaining 18,000 hectares of forest through the NaturAmazonas project in the Putumayo Basin; Gran Tierra's total NaturAmazonas investment in the Andes-Amazon rainforest corridor through this project is forecast to be $13 million over 5 years
  
  
• Gran Tierra has planted a total of 560,112 trees and has conserved, preserved or reforested 1,367 hectares of land through all of its environmental efforts

Reducing Green House Gas Emissions

• For the last 4 years, Gran Tierra has voluntarily released an assessment of its greenhouse gas ("GHG") emissions
  
  
• Gran Tierra is reducing GHG emissions at its facilities through gas-to-power projects that conserve excess natural gas, that would otherwise be flared, and uses it instead for power generation; in 2019, Gran Tierra completed a $25 million gas-to-power project at the Acordionero field, the company's single biggest producing asset; previously, gas-to-power projects were completed at the Moqueta field in 2018 and the Costayaco field in 2017
  
  
• The NaturAmazonas project alone is expected to sequester approximately 8.7 million tonnes of CO₂ over its lifetime