Gran Tierra Energy Q1 2023 Earnings Call Transcript

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Provided by Quartr
May 3, 2023

Key Takeaways

  • Strong Q1 financials: Delivered $60 M of funds flow, $115 M net income over the past 12 months, adjusted EBITDA of $459 M and free cash flow of $73 M, ending the quarter with $106 M cash and a 1× net debt/EBITDA ratio.
  • Front-loaded development program: Spent $71 M in capex to drill 14 of 18–23 budgeted wells in Q1—slightly exceeding funds flow by $11 M—to boost production and cash flow for the remainder of 2023.
  • Production growth: Averaged 31,611 BOE/d in Q1 (up 8% YoY) with Q2 YTD production at ~32,400 BOPD and an operating netback of $35.18/BOE, supported by narrowing oil differentials in recent months.
  • Capital returns & balance sheet: Repurchased ~13.1 M shares for $10.7 M (avg. $0.82/sh) under the NCIB and bought back $8 M face value of 2025 bonds at a ~15% discount, while keeping its credit facility undrawn.
  • Portfolio extension & exploration: Secured a 20-year extension on the Sorrento block with a $123 M capex commitment and plans to drill 4–6 exploration wells in Colombia and Ecuador in H2 2023.
AI Generated. May Contain Errors.
Earnings Conference Call
Gran Tierra Energy Q1 2023
00:00 / 00:00

There are 10 speakers on the call.

Operator

Morning, ladies and gentlemen, and welcome to Gran Tierra Energy's Results Conference Call for the Q1 2023. My name is Shannon, and I will be your coordinator for today. At this time, all participants are in a listen only mode. Following the initial remarks, we will conduct a question and answer session for securities analysts and institutions. Instructions will be provided at that time for you to queue up for questions.

Operator

I would like to remind everyone that this conference call is It's being webcast and recorded today, Wednesday, May 3, 2023 at 11 o'clock a. M. Eastern Time. Today's discussion may include certain forward looking information as well as certain non GAAP financial measures. Please refer to the earnings and operational update press release we issued for important disclaimers with regard to this information and reconciliations of any non GAAP measures discussed on today's call.

Operator

Any production volumes are based on working interest sales before royalties. Finally, this earnings Call is the property of Grand Pier Energy Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Grand Pier Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr.

Operator

Guidry, please go ahead.

Speaker 1

Thank you, Shannon. Good morning, and thanks for joining Gran Tierra's Q1 2023 results conference call. My name is Gary Guidry, President and Chief Executive Officer. And with me today are Ryan Nelson, our Executive Vice President and Chief Financial Officer and Rob Wilt, our Vice President of Asset Management. On Tuesday, May 2, 2023, we issued a press release This includes detailed information on our Q1 2023 results, which is available on our website.

Speaker 1

Ryan and Rob will make a few brief comments and then we will open the line for questions. Immediately following This earnings call at 10 am Mountain Time and 12 noon Eastern Time, we will be holding our Annual General Meeting of Stockholders. During the meeting, I will give an overview of Gran Tierra and where the company is heading. We invite you to join us after this call. Dial in instructions can be found on our website.

Speaker 1

I'll now turn the call over to Ryan.

Speaker 2

Thank you, Gary. Good morning, everyone. Gran Tierra achieved a strong quarter by delivering $60,000,000 of funds flow while delivering on our front end loaded development program, We're showing the drilling of 14 development wells out of the total 2023 budgeted plan for 18 to 23 development wells. Given the increased activity during the quarter, Gran Tierra spent $71,000,000 on capital expenditures, which exceeded fund flow slightly by $11,000,000 By completing the majority of our development program in the 1st 3 months of 2023, we expect to benefit from higher oil production rates for the remainder of the year and with the goal of maximizing our production and cash flow in 2023. Over the last 12 months, we generated net income of 115,000,000 Adjusted EBITDA of $459,000,000 funds flow of $339,000,000 and free cash flow of $73,000,000 This free cash flow allowed us to execute on our share buyback plan and strengthen our balance sheet via bond buybacks.

Speaker 2

During the quarter, Gran Tierra purchased Approximately 13,100,000 shares for a total purchase price of $10,700,000 at an average price of approximately $0.82 per share. We also exited the year with a healthy net debt to adjusted EBITDA ratio of 1x. As part of Gran Tierra's ongoing to reduce its net debt during the quarter. The company bought back $8,000,000 in face value of Grand Tier 6.25 percent senior notes. The cost of the 2025 bond buyback was approximately $6,800,000 representing a discount of about 15% to the face value of the 2025 bonds.

Speaker 2

The company exited the quarter with $106,000,000 of cash on the balance sheet and net debt of $466,000,000 with our credit facility remaining completely undrawn. During Q1, the Brent price averaged $82 per barrel down 16% from 1 year ago And down 7% from the prior quarter. The company's policy and transportation discounts narrowed to $18.45 per barrel, Down from $18.74 per barrel in the prior quarter and up from $12.56 per barrel 1 year ago. The Castilla oil differential increased to $15.17 from $6.38 per barrel in the corresponding period in 2022. Castilla is the benchmark for our Cuadinero production.

Speaker 2

The Vasconia differential increased to $7.87 from $3.60 in the Corresponding period of 2022. Vasconia is the benchmark for our Putumayo production. The good news is that differentials narrowed in March this year and continue to narrow in April. The current Vasconia differential is down to approximately $6.50 per barrel and the Castilla differential is down to approximately $11.50 Even more encouraging is in the last couple of days differentials have narrowed to $10.50 $5.50 For Castilla and Vasco respectively. Oil prices continue to remain volatile and Brent has sold off the last couple of weeks.

Speaker 2

Whilst Brent averaged $82 in Q1, it hit a low of $73 and a high of $87 So the recent volatility is nothing new. Gran Tierra's total production for the quarter was 31,611 BOE per day, up 8% from 1 year ago and decreased 3% compared to the prior quarter. The company's 2nd quarter production to date, 2023, is approximately 32,400 BOPD and we are on track on our targets this year. The company's operating netback was $35.18 per barrel, Down 33% from 1 year ago and down 9% from the prior quarter. Changes in funds flow and operating netback were largely driven by the decrease in oil Brent oil price and the widening of the quality and transportation discounts over the same time period.

Speaker 2

We're very pleased with our recent announced agreement with Equitrol, the National Oil Company of Columbia, by which Gran Tierra have patrolled renegotiated agreement for the Sorrente block in the Putumayo Basin, which was scheduled to end in mid-twenty 24. Grand Care will continue to be the operator of Sorrente block and is committing to a capital investment program of $123,000,000 over a 3 year period from the agreements effective date expected to be funded by Grand Care's internal cash flows. The agreement provides an opportunity to add significant value as well as economic life To Sorrente by continuing the duration for 20 years. The additional term of the agreement allows long term investment in infrastructure and work programs to enhance oil recovery in existing fields and appraisal drilling to extend the life of the fields. Lastly, we are happy to report that Gran Tierra has issued the company's 2022 Creating long term value and delivering on our environmental, social and government commitments, which can be found on the company's website at I'll now turn the call over to Rob to discuss some of the operational highlights from our Q1 results.

Speaker 3

Thanks, Ryan. Good morning, everyone. During the quarter, Granterra has We completed a significant portion of its 2023 development campaign with the drilling of 14 development wells in 3 of our major fields, We have been producing oil at rates that are in line with our expectations. In our Cuadine Aerofield, development drilling resumed in January 2023 with a 10 well program. 8 of the wells were drilled by the end of the quarter.

Speaker 3

As a result of the program and continued good performance of the fields enhanced oil recovery Via water flood, Acordionero has averaged approximately 19,200 barrels of oil per day during second Quarter to date 2023, which is the highest level since May 2019. During the quarter, GranTerra achieved a new water injection record of approximately 65,000 barrels of water injected per day, up from 59,890 power Barils of water injected per day in Q1 2022. The polymer pilot, the polymer flood pilot Continues to progress and was expanded with the start up of a second polymer injection well during the quarter. We plan to follow-up with a third polymer injection well planned for Q2 2023. We are excited about the early results and expect the Coronero's Palmer flood pilot to increase the field's Ultimate Oil Recovery.

Speaker 3

Our Cusiakou development campaign saw 4 wells drilled during the quarter. 2 producers are currently being completed With time expected in early May 2023 and 2 water injection wells are completed and expected to begin injection during Q2 2023. Two additional producers and one additional injector remain to be thrilled as part of the Cauchyco development plan for 2023. Completion and stimulation Other producing wells and waterflood optimization through additional injection are expected to continue to grow production in Casciaco throughout the year. In Moqueta, Two wells were drilled during the quarter and both are on production and awaiting stimulation.

Speaker 3

2 additional development wells are planned in 2023 Along with 2 conversions of existing wells into injectors that are expected to grow production and optimize the water flood in Moqueta. The drilling of all these wells is a testament to our team's commitment to operational excellence and their ability to execute our capital program efficiently. We are also excited with our plans to recommence exploration drilling during second half twenty twenty three with the drilling of 4 wells in Ecuador, 3 in the Sherappa Block to appraise the discovery of the Oi'in formation and 1 in the Cinangi Block. Gran Tierra has completed the selection process and secured a drilling rig, which the company plans to mobilize from Colombia to Ecuador. Gran Tierra expects to drill between 4 to 6 exploration wells in 2023 in Colombia and Ecuador combined.

Speaker 3

Finally, we continue to see positive results from our ongoing waterfloods across our operations, primarily in Ceriente and Acordionero and are beginning to see positive results in our Palmer flood in Acordionero. I'll now turn the call back to the operator and we'll be happy to answer any questions. Operator, please go ahead.

Operator

Thank you. Ladies and gentlemen, we will now conduct a question and answer session for securities analysts. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. Our first question comes from the line of Joseph Schachter with Surfin.

Operator

Your line is now open.

Speaker 4

Good morning, Gary, Ryan and Rob. I have two questions. On Slide 35 of your new presentation, you highlight 3 of the exploration wells, Rose 1, Boca Chico and Shalafa. Could you guys go into a little bit of detail of what the price is in terms of the size potential production of the wells. And what time line if you're successful with those volumes Come on, would they be in 2023 or later or more into 2024?

Speaker 4

That's the first question.

Speaker 1

Okay. Yes. The first question, we're going through to issue a mid year reserve update On everything that we're doing, Joseph. But the answer to your question is the pre drill estimates on Boca Chico And Rose, we're the 5000000 to 15000000 barrel type reserve range. We haven't seen anything That deters us from that original pre drill estimate.

Speaker 1

On Chiropa Norte, we're quite excited About that discovery, it was a very prolific producer and it's the target of Some of our appraisal and exploration work this year, but it could be in our estimate internally Unaudited by McDaniel in the 10,000,000 to 30,000,000 barrel range.

Speaker 4

Super. If you are successful with those wells, could they impact your volumes in Q4 of 2023?

Speaker 1

Yes, they could.

Speaker 4

Okay. Last one for me is the 10 for 1 reverse split. When do you see that happening after getting TSX Approval, do you have a date in mind?

Speaker 1

Yes, it will assuming shareholders approve it And our AGM later this morning, and with the approval, it will occur early to mid next week.

Speaker 4

Okay, Super. That's it for me. Thanks very much for answering my questions.

Operator

Thank you. Our next question comes from the line of Phil Skolnick with 8 Capital, your line is now open.

Speaker 1

Yes, thanks. Good morning. Just on Cerro Eiente, can you how should we think about that 100 and $3,000,000 over the next 3 years and the impact on your growth profile.

Speaker 2

Yes, I think it's a good question. I think we're excited with that block. As you know, we haven't drilled a well in that block since 2018. And even without drilling a well on that block, just with the successful ramp up of the water injection, we had the highest rate since 2015. So it's a great field as you know.

Speaker 2

And so I think for us, we're very comfortable that we'll start drilling next year It will be a disciplined program really focused on development drilling at first. We have a lot of facility expansions done. So we'll start drilling next year We expect to get the field up to net to Grand Tierra in that 7000 to 10000 barrel a day range.

Speaker 4

Perfect. Thank you.

Speaker 2

Over the next coming years.

Speaker 1

Okay, great. Thanks.

Operator

Thank you. Our next question comes from the line of Roman Rossi with Canaccord Genuity. Your line is now open.

Speaker 5

Good morning everyone. Thanks for taking my questions. So I have a question regarding the increase in G and A. You mentioned in your In your filings that the increase was due to higher costs due to your application projects and lease obligation expenses. So can you give us more color on that and what should we expect for the rest of the year?

Speaker 2

And Suraj, it was breaking up a little bit on this side, but it was a question with respect to was it DD and A?

Speaker 5

Yes, today, increasing G and A.

Speaker 2

G and A. G and A. Yes, a lot of that was Some one time costs coming through in the Q1. So we would expect that to trend down throughout the year.

Speaker 5

So we should expect something similar to what we saw last year?

Speaker 2

Correct, correct. And on a per barrel basis, we expect it to be lower just with the increased volumes.

Speaker 5

Okay, awesome. Thank you very much, Ryan.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Adam Gill with Paradigm Capital. Your line is now open.

Speaker 6

Thank you. Good morning, gentlemen. Just back to the Ecuador exploration, can you just give us a quick Rundown of the timing of spud and when you expect results on the exploration program this year?

Speaker 1

Yes. Spud will be later in the summer, in Ecuador and we should have results Continuing results through the end of the year.

Speaker 6

And is this 2 to 4 well exploration program just going to be 1 rig?

Speaker 1

One rig, yes.

Speaker 6

Okay. And then just last one on that. Sorry, go ahead. I was just going to ask, how many potential Zones did you see in the two blocks on the first two exploration wells

Speaker 3

for completion?

Speaker 1

Yes, we saw 3 in the Boca Chica well and 2 to 3 in Chiropa Norte. We still have hopes for the carbonates. We've yet to test those and it's going to take some more Appraisal and exploration drilling in both of those blocks, but 2 to 3 in each of the wells.

Speaker 6

Okay, great. That's my question. Thank you.

Operator

Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Orianna Kowal with Balance. Your line is now open.

Speaker 7

Hi, thanks for taking my question. This is again of Cobalt with Balance. I had a couple of questions. First, if you could share more insights Into the kickoff of sales coming from Ecuador and operations in general, maybe production wise, pricing and costs, How is the operation coming along vis a vis your expectations?

Speaker 2

Yes. I think on the expectations, We're right on target for our expectations on the development in Ecuador and production costs. As you know, Costs always look a little bit high. We just have one well producing. We have a fairly large pad that we're going to drill 2 more wells off of and we'll use the shared facilities.

Speaker 2

So As we drill additional wells, we expect our costs to come down dramatically. But overall, as Gary mentioned, we're really excited about the prospectivity and our results to date. The Trappa Norte well continues to be a strong performer, light oil close to infrastructure. So we're very, very excited about Ecuador and That's why we're committing to drill 4 wells at the second half of the year this year.

Speaker 7

Awesome. Maybe just following up And mostly seeing like recent price volatility international and wider discounts although slightly compressing in the last month and for the London crude. Are you thinking of entering any type of hedging contract or doing any changes in that area?

Speaker 2

Yes. Pricing has tightened quite a bit, the differentials out. Like I mentioned, Brent has been as you know very volatile. I think In Q1, it was a low of 73, which is we're testing right now as of today and a high of 87. So we expect that to remain Brent's remained volatile in the quarter and we are looking at placing some hedges in for the second half of the year.

Speaker 7

Perfect. And just one last one. Just we've heard about Some exploration license being relinquished in the country and taking into account perhaps the focus on Continue looking opportunities across either Colombia or elsewhere. Do you see this could be some type of Assets that you would be interested in or how is that agenda in terms of opportunities moving along for Gran Tierra?

Speaker 1

Yes. I think you probably saw Exxon exiting some of Their acreage in the Magdalena Valley, it's a continuous process in Colombia. Under the current Regulations, you're able to relinquish land that's non prospective or transfer those commitments to other blocks. And for us it's a continuous basis. I would say that we have the lands that we want for the next few years.

Speaker 1

We're in the process just started last year the process of exploring those lands and we're having very good success. And so we're very happy with our exploration position where we sit today. And so Nothing unusual going on. It's business as usual in Colombia in terms of us executing the Programs that we've been had underway for the last several years.

Speaker 7

Perfect. Thank you very much.

Operator

Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Alejandra Andrade with JPMorgan. Your line is now open.

Speaker 7

Hi, good morning. Thank you so much for taking my question. My question was related to capital allocation going forward. We saw some bond buybacks in a small amount in the Q1 in addition to some share buybacks. Just wondering kind of how

Speaker 2

Yes, good question. I think on the allocation, I think if you look at the restrictions that we have under our normal course issuer We've essentially maxed out the amount of shares that we can buy back under the normal course issuer bid, which can't be renewed until August. So really the focus will be continued strength on the balance sheet through the repurchase of bonds.

Speaker 7

Great. Thanks.

Operator

Thank you. Our next question comes from the line of Alejandro Demetellis With now security, Shimon is now open.

Speaker 8

Yes. Thank you very much. Good morning, guys. Just one clarification question, please. In your previous update, operational update on the 4th April, you were indicating that production Today, for the Q2, it was running at 33,700 barrels a day.

Speaker 8

But now with the update yesterday, you're indicating that, That's around 32,400. So trying to understand where are those volumes kind of going out from? Because as you said in the presentation, you have put more wells into production at the end of the quarter. Everything is going well. So trying to understand That'd be fair.

Speaker 3

Yes, it's Rob here. If you look at our production, we've wrapped up our 10 well, coronary drilling program of this year with 6 producers and 4 injectors and we were extremely We averaged well above type curve at the Coronado, drilled some great wells up in the north part of the pool there And largely on Sweat Parts and Reservoir, but the those wells and new wells do tend to come on really strong and I do got to follow-up a bit and then flatten out. So we there was some flush production from those new wells. So some of those volumes you saw there were Probably right at the time we're getting flush volumes, so it's come off a little bit. And of course, right now, we're in the process of completing and Stimulating our Casciaco drilling program wells and we're extremely pleased with the rates we're seeing from Casciaco.

Speaker 3

So as we get those wells tested, stimulated, initially they're on jet pumps and then we switch them over to ESP pumps. So We expect to see another boost in our production over the next few months if those wells come on production as well. So overall, we're extremely pleased with our We've seen great rates in all of them. So you will see over the year production rates will kind of bounce up and Fall off a little bit as these new wells come on. But overall, we're beating our tight curves in all our drilling programs and Very pleased.

Speaker 2

We're very comfortable with the guidance that we have out in the market. As Rob said, the drilling results have been great. A lot of times the average production, we just put that out when we release out just to keep the market informed and that's going to fluctuate a lot. It fluctuates a lot on a daily basis by a couple of 1,000 barrels. So that's just the reality of it, but we're very comfortable with our average annual guidance.

Speaker 8

So just to be clear, those 5 wells that you have On production on our Cobianero now have been stabilized after that kind of flash production initially coming out?

Speaker 3

Yes. They're definitely stabilizing. We see our 6 producing wells we drilled this quarter, the quarter nearly with 4 injectors and yes, they're definitely stabilizing now. But overall, like We were well above Tycho as well as very, very pleased with the results. And yes, they're starting to stabilize now.

Speaker 2

And we still have the wells to bring on in Costa Jaco as well as in Maketa as well.

Speaker 8

Okay, that's great. Thank you.

Operator

Thank you. Our next question comes from the line of Manuel Mondia with Aquila Asset Management AG. Your line is now open.

Speaker 9

Yes. Thank you for taking my question. And I just would like to ask, given the recent volatility and as you already commented, the situation with the Brent, if maybe there is a chance The guideline that you gave for 2023 maybe revised downward a bit at least in terms of free cash flow because as we see The discount applied to your prices went up and the prices are going down. So just a bit of color on that one, if it's possible?

Speaker 2

Yes. No, we think it's premature. I think that again, if we go back to the Q1, Brent averaged 82, which is our budget was 85. Differentials were a little bit tighter than we had budgeted. But again, during Q1, Brent went a low of 73 to a high of 87.

Speaker 2

So we're 73 today. So it's a very volatile business. We're still very bullish on the supply demand fundamentals. We think the second half of the year is going to be very, very strong.

Speaker 1

Okay. Thank you very much.

Speaker 2

Thank you.

Operator

Thank you. Gentlemen, there are no further questions at this time. Please continue.

Speaker 1

Thank you, Shannon. I'd like to thank everyone again for joining us today. We hope to see everyone shortly for our Annual General Meeting of Stockholders I look forward to speaking with all of you next quarter and update you on our ongoing progress. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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