Gran Tierra Energy Q2 2024 Earnings Call Transcript

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August 1, 2024

There are 6 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's Results Conference Call for the Q2 2024. My name is Michelle, and I'll 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 being webcast and recorded today, Thursday, August 1, 2024 at 11 am 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 yesterday for important disclaimers with regards to this information and reconciliations of any non GAAP measures discussed on today's call. Any production volumes are based on working interest sales before royalties. Finally, this earnings call is the property of Gran Tierra Energy Inc.

Operator

Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy. I'll now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry, please go ahead.

Speaker 1

Thank you, operator. Good morning, and thanks for joining Gran Tierra's Q2 2024 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 Sebastian Moran, our Chief Operating Officer. On Wednesday, July 31, 2020 we issued a press release that included detailed information on our Q2 2024 results, which is available on our website.

Speaker 1

Ryan and Sebastian will make a few brief comments, and then we will open the line for questions. Ryan, please go ahead.

Speaker 2

Thank you, Gary. Good morning, everyone. I will start off by saying that we're very pleased with how Gran Tierra has wrapped up the first half of twenty twenty four. During the Q2, we were able to begin our high impact exploration campaign that started off with the previously announced discovery at Air Water. In addition, we have also progressed a number of our development programs including initiating civil works in the Sorrente block to kick off a 5 well drilling campaign with the 2nd rig in the second half of twenty twenty four.

Speaker 2

During the quarter, Gran Tierra delivered net income of $1,000,000 or $1.16 per share. Further, Gran Tierra achieved operating netback of $113,000,000 which is up from $105,000,000 in the prior quarter and adjusted EBITDA of $103,000,000 which was up from $95,000,000 in the prior quarter. The company also strategically revised its 2022 tax return during the quarter to use its long term tax receivable balance to offset current tax liabilities rather than applying net operating loss carryforwards. This decision was driven by higher current and future tax rates and increased profitability in Colombia. As a result, the current tax expense increased by 28,000,000 but this was offset by long term tax receivable resulting in no cash outflow.

Speaker 2

We were able to preserve our net operating loss carry forwards of approximately $85,000,000 for future periods, providing greater tax benefit in 2024 and in the future. This tax initiative also allowed us to recover $18,000,000 of taxes receivable in 2024 and accelerate the recovery of an estimated $65,000,000 of taxes receivable over the next 3 years. During the quarter, the company spent $61,000,000 in capital expenditures, which were higher than the $55,000,000 in the prior quarter due to the commencement of the 3 d seismic program in Ecuador and the drilling campaign. We also installed the final completion and artificial lift systems in the Costa Yako development wells. As of June 30, the company had a cash balance of $115,000,000 and net debt of $521,000,000 The 12 month trailing net debt to EBITDA, adjusted EBITDA was 1.3x and expected to be less than 1x by the year end 2024 from a combination of increased EBITDA and lower net debt.

Speaker 2

Gran Tierra generated oil sales of $166,000,000 up 5% from the prior quarter due to higher Brent pricing and narrow Castilla and Vasconia oil differentials. Looking at pricing during the quarter, Brent averaged $85.03 per barrel, up 4% from the prior quarter. The company's quality and transportation discounts per barrel during the quarter were $12.79 which can significantly narrow from the $15.36 in the prior quarter. The company's operating netback was $38.80 per barrel, up 10% from the prior quarter. Share buybacks continue to be a key area in which we allocate our free cash flow.

Speaker 2

Since January 1, 2023, Gran Tierra has repurchased approximately $3,900,000 or 11% of the outstanding shares. During the quarter, Gran Tierra has repurchased approximately 400,000 shares. We're looking forward to the second half of the year where we plan to drill the remainder of our high impact near field exploration wells in Ecuador, including drilling 2 wells to further appraise the exciting Erewana discovery. As part of the fast track appraisal program in Erewana, the drilling schedule and civil works have been accelerated to allow the drilling of these 2 wells prior to year end. From a development perspective, we're completing the civil works associated with the building infrastructure in the Colembi pad in the Sorrente block to begin drilling the 5 wells from single pad in the Q4 of 2024.

Speaker 2

We are very pleased about our first half results and there are still many more catalysts in the second half of twenty twenty four. Lastly, I want to highlight that we also issued an S-three yesterday, updating our shelf prospectus that was set to expire in August 2024. This filing is routine in nature and the timing of its issuance is a direct result of the timing of the expiry. The process renews our S3 shelf prospectus for further 3 years. I'll now turn the call over to Sebastien to discuss our operational highlights from our Q2.

Speaker 3

Good morning, everyone. As Ryan mentioned, capital expenditures of $61,000,000 were higher than the prior quarter of 55,000,000 dollars and down from $66,000,000 compared to the Q2 of 2023. Total average working interest production during the quarter was 32,776 barrels of oil per day, an increase of 2% compared to the prior quarter and up 4% on a per share basis since the Q2 of 2023. During the Q2 of 2024, Gran Tierra installed selective completions, systematically stimulated multiple zones and added electrical submersible pumps at Cossiaco 56, 57, 58 and 59, which were drilled as part of our first half twenty twenty four development campaign. While the temporary offline status of these wells with the planned selective completions did impact 2nd quarter production by about 700 barrels per day, the improvements have resulted in enhanced production with rates exceeding initial peak rates with all wells now back online.

Speaker 3

Given the ongoing positive performance from our core fields on waterflood and recent exploration success, we remain very comfortable with our 2020 4 production guidance. Looking to operating expenses, they decreased by 3% to $47,000,000 compared to the prior quarter, primarily due to lower workover activities as a result of continued improvement in artificial lift reliability. On a per oil basis, operating expenses also decreased by 1% when compared to the prior quarter as the company continues to focus on pushing forward further cost savings and operational efficiency initiatives. The company's transportation expenses increased by 24% to $5,700,000 compared to the prior quarter of $4,600,000 due to El Nino phenomena causing low water levels in the Magdalena River, resulting in Gran Tierra utilizing longer delivery points. The river levels have now returned to normal conditions, allowing for use of our preferred shorter delivery routes for the second half of twenty twenty four.

Speaker 3

Our exploration program in the Chenangay Block remained very active with the drilling and installation of a multi zone selective completion at the Boca Chico Norte J-one well. Log and core data indicated reservoir and net pay in multiple zones, including the basal tennis sand, the T sand and B limestone. Testing is now underway and expected to continue throughout the Q3. Note that although the B limestone was not a primary target, it had positive shows while drilling indicating it may be connected to a productive fracture network. The completion installed will allow for efficient multi zone selective stimulation, production and commingling of the basal tennis sand, T Sand and B Line still.

Speaker 3

In addition, the Arawana J1 and Boca Chico J1 wells continue to yield strong production results with the combined 1600 to 1800 barrels of oil per day. Gran Tierra plants convert both wells from jet pump to electrical submersible pumping systems in the second half of 2024 to further increase production rates. Upon finishing the drilling of the Boca Chico Norte J-one well, the rig was moved over to the Tarapa block on July 14. The Tarapa B-six well was spud with the primary target being the Hoya information. The well has reached total depth of 11,170 feet on July 31 after successfully logging and coring the zones of interest.

Speaker 3

We are seeing very encouraging results in the Tarapa B6 well, which has been cored with excellent oil shows throughout the Hoi An formation. We anticipate finalizing drilling and completion operations early in August with testing plans begin immediately afterwards. Following the drilling of the Trapah B6 well, the rig will begin drilling the Trapah B7 well from the same pad in the Q3 of 2024. Also on the Turapa block, the 3 d seismic program has been completed and the data is currently being processed. Preliminary interpretations of the high quality 3 d seismic data confirms potential prospectivity and additional areas of interest, including better definition and confidence in our reserve estimates over the terrapah structures.

Speaker 3

The 3 d seismic data will further delineate reserves, underpin future drilling locations scheduled for 2025 and support future development planning. Overall, the company continues to follow through on the capital plan and is experiencing early success in the 2024 exploration campaign. We remain optimistic about the second half of twenty twenty four, where we are drilling some very exciting wells in both the Tarapa and Tanangay blocks. I'll now turn the call back to the operator and we will be happy to answer any questions. Operator, please go ahead.

Operator

Thank you. Ladies and gentlemen, we will now conduct the question and answer session for securities Our first question comes from Alejandra Andrade with JPM. Your line is open.

Speaker 4

Hi, good morning. Thanks for taking my question. I just had two questions. First, I wanted to discuss a little bit the production outlook for the second half of the year. And then also if you could give a little bit more color on all the tax moves that are happening in the numbers, that would be great.

Speaker 4

Thank you.

Speaker 3

I think we're very pleased with our first half results and continue to look forward to our exciting catalysts that are coming. As we've just stated, both of our 2 new exploration wells are currently on testing, which we're happy with. And so we continue to reiterate our guidance for the year.

Speaker 4

Perfect.

Speaker 2

And on the taxes, yes, and probably the best thing is if you look in the notes in the financial statements, we did put a reconciliation to try explain some of the movements. But effectively, what we were able to do with the refiling is just to keep $85,000,000 of non capital losses. Those rates were done at 35% tax rate with the current rate being 50%. So we get the benefit of the utilize those losses in a higher tax rate environment. That's the first one, but also allowed us to accelerate some of these long term receivables that we had.

Speaker 2

So although we had to book a current tax expense, there was no cash outflow. We actually netted the payable that was generated from the refiling with long term receivable that we had. So really there was acceleration of those receivables and allows us to collect further money, dollars 65,000,000 over the next 3 years.

Speaker 4

Great. Thanks.

Speaker 2

You're welcome.

Operator

Thank you. Our next question comes from Diego Espinosa with BTG Pactual. Your line is open.

Speaker 5

Hi. Thank you for taking my question. Can you hear me?

Speaker 1

Yes, we hear you.

Speaker 5

Perfect. Just have a couple of questions. First one is that the CapEx, right now you have around $130,000,000 How much you expect to spend during the second half of the year? And in terms of working capital, we saw some relief during this quarter. Do you expect that this should be a reversal or reverse during the next quarter or in the 4th quarter?

Speaker 5

That's it.

Speaker 2

Great. Yes, on the capital guidance, we're comfortable with the guidance that we have in the market right now. So we think that's a reasonable range given our first half results and our program for the second half. And then with respect to working capital, yes, a lot of that work capital release was from the tax filings and accelerate moving to the long term receivable in the current receivable sorry, long term in the current. So that we don't expect that to reverse in the following quarter, but was more of a one time item this quarter.

Speaker 5

Perfect. Thank you very much.

Speaker 2

Thank you.

Operator

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

Speaker 1

Okay. Thank you, operator. I would like to thank everyone once again for joining us today. We look forward to speaking with you over the next quarter and update you on our ongoing progress. Thank you very much.

Operator

Thank you for your participation. This does conclude the program. You may now disconnect.

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Earnings Conference Call
Gran Tierra Energy Q2 2024
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