Q3 2019 Earnings Call
On the motive following the initial remarks, we will conduct a question and answer session for securities at least an institution instructions will be provided at that time for you to do you up for questions. If it anytime during the call you acquire audio systems. Please press star zero and a card you need or will be happy to see skewed I would like to remind everyone that disconnect.
In school is being webcast and recorded to be Wednesday November 629 team at 11 am Eastern time. Today's discussion may include certain forward looking information as well a certain non D. E. B financial measures. Please refer to their names and operational update press release, if what you should yesterday for imported disclaimers big part.
To this information and you're going to need just not any Monte he measures discussed on today's call.
Our oil equivalent or the old E amounts are based upon a working interest interest thieves before royalties. Finally this earnings call is the property of Gran Tierra energy incorporated and any copying or be bought costing of these qualities expressly forbidden without any weekend concept that the at IDT energy I will now turn to call.
Rental rates and Mr., Gary degree, President and Chief Executive Officer, Afghans here, Mr. You'd be please go ahead.
Good morning, and welcome to Gran Tierras third quarter 2019 results conference call.
My name is very good very.
Chief Executive Officer, and today with me are Ryan Ellson, our executive Vice President and Chief Financial Officer.
And Tony personnel that.
Our new Chief operating officer.
She had a press release today yesterday.
Included detailed information about our third quarter 2019 result.
Which is available on our website.
After a few brief comments, we will open the lines for questions.
Super to the Gran Tierra team, Tony joined US in October and brings over 20 years of multi disciplinary upstream oil and gas experience.
Eight years of executive level leadership experience.
So in summary, senior management roles focused on production operations asset development, and including implementation and optimization of Waterfloods.
With our board biggest fields accord Merrill.
Daqo well get a nickel hamby, all under waterflood, Tony his extensive experience and implementing an improving waterfloods to maximize ultimate oil recovery makes him a valuable addition to the team.
We're planning to ramp up production across all of our portfolio.
I'll now turn the call over to Ryan Ellson our CFO .
And to discuss the financial highlights for the quarter.
Good morning, everyone.
I'll make some brief Coleman's motor Q3 results are all production was through 2918 barrels per day with approximately 3000 barrels per day impacted by temporary downtime due to <unk> electric submersible pump or U.S.P. replacement facility commissioning and water injection ramble current production is approximately 34.
Olson barrels per day, and we expect to bring five to six additional oil wells on production before the end of the or.
For the quarter, our net loss was 12 million adjusted EBITDA was 68 million funds flow from operational and 59 million.
During the first nine months of 20 like T.. We also returned 30 million to stockholders through buybacks of 20.1 million shares are almost 5% of outstanding shares.
Our balance sheet remains strong with their net debt to adjusted EBITDA at the end of Q3. So at 1.8 times on a trailing 12 months basis. It is expected to decrease in 2020 .
Oil and gas sales for the quarter were 132 million you continue to have top quartile offering up box, we are offering that back for the quarter being $27.34 per view we.
As expected in Q3 was capital intensive due to the substantial completion of the three D. Seismic program, you tomorrow and the completion of facilities and accelerate activity that accordant merrell through the drilling efficiencies. Our team achieved during Q3, we were able to drill drill the wells in record time and shift wells scheduled for Q4 into Q3.
We've now completed the key investments required to underpin expected significant future free cash flow for all shareholders and stakeholders, we forecast Q.
We're going to Judy will generate free cash flow after development and exploration in Q4 in full year 2020 at $60. Brent we are projecting free cash flow of 75 million to 100 million jury 2020, which we plan to use for net debt reduction share buybacks.
With the board management expansion capital investment behind US, we forecast forecast significantly lower operating costs per barrel ahead.
Despite the substantial investment coordinator since the acquisition 2016, the fuel has generated a 187 million of free cash flow.
Well the reduction in production during the quarter was unfortunate we do the situation has tempered as we're now seeing the water for the ordinary responding to the design injection or underlying asset value has not changed and what successful division of the waterflood and support appraisal extensions a quarter and now we believe the field asset value has increased.
The company is an excellent position with low decline in high netback and long life assets, which are capable of delivering a strong free cash flow profile and visible growth in production and reserves were going to plus probable reserves were 163% will go up three years and we expect to continue that trend. We also to near term exploration costs.
Yes, we funds for the quarter, one well on the put one walk before you ended the year and we're looking forward to the drawing results from the talk well on the L. only 10 walk which is currently drilling.
I'll now turn the call over the Tony or Chief operating officer to discuss our operational highlights.
Thanks, Ryan Good morning, everyone to begin I'd like to review some significant operational highlights for the quarter.
Waterflood acordionero accelerated as planned with significant incremental water injection.
Averaging over 30000 barrels water injection per day with rates up to 40000 barrels.
We have substantially reduce gas production following the commissioning of the expanded central processing facility were CPF.
We plan to be rejecting excess gas consumption by the end of the month and we are encouraged by Waterfloods response, and Acordionero in terms of both increased pressure and production responses.
Indications are looking positive for incremental reserve additions at year end due to the contingent of the Cts expansion and waterflood response that is matching internal reservoir simulation modeling estimates.
We're also very surgical preliminary results from Acordionero 54.
This development wells, the southernmost well drilled in the Acordionero field to date and is located outside the previous establish foundry southern boundary of GP and treaty original on place mapping for this year.
Acordionero 54 encountered 340 feet royalty on a measured depth basis and is expected to placed on production by the end of November .
54 appears to be similar to the Acordionero 37, well, which is located approximately 250 meters to the north of 54.
The Acordionero 37 wells placed on DSP artificial lift and had initial 30 day average production of 944 barrels oil per day of 30 degree apiay crude with minimal water.
Looking at the rest of our portfolio.
Waterflood optimization continued in Q3 across the echo within injected conversion and two wells simulations.
In addition, the costs you have to 39 wells, we've tested in the bias and and Comingled with that she said.
Produced it stabilize reached over 1160 barrels of oil per day.
What are kind of 45% on SP artificial lift.
This crude is also 30 degree.
I Columbia, Missouri, too sure oriented watch.
Interjection has increased from 15000 to over 22000 barrels of water injectors per day since we secured operatorship in March of this year.
We're now seeing the reservoir pressure increase.
This resulted for heavy along with continued Waterford responsible Quetta further demonstrate Gran Tierras waterflood expertise in the long term benefit Steven cash flow generation from water flood projects.
We have been able to add over 1000 barrels oil per day in the field without drilling wells in securing operation.
And finally, we're also excited to have activity re commensurate I'm barrel this quarter remedial work on the three I'm barrel wells has commenced this month.
And we will be utilizing an important stepping rig to assist in workover operations.
I'll now turn the call back to the operator, we'll be happy to answer any questions. Operator. Please go ahead.
Thank you, ladies and gentlemen, we will now conduct the question and answer session for Securities analyst.
Yeah. The question. Please press star followed by the number one on your tax Touchtone phone. If you will hear a tolling acknowledging your request your questions will be pulled in the order. The RBC you can sure you'd be the handset if you're using a speaker phone before pressing the Keith one moment. Please for your first question.
Your first question comes from the line of Ian Macqueen of eight capital. Your line is open.
Morning, guys. Just a quick question I know you didn't give 2020 guidance, but with respect to capital spent 10 2019, so far its.
311 million and your guidance is for 333 40 million.
For the year.
Do you still maintain that guidance the the difference being.
Somewhere around 29 million of Capex for for Q4.
You are on many of you we out when we did accelerate some capex into Q3, we expect the guidance for Q4 to be anywhere between 30, and 50 million depending on if we can accelerate some of the things from Q1 into Q4.
Okay. Okay.
Great and then again I know you didn't give guidance for her 2025.
But your free cash flow profile suggests that either costs are going to be quite a bit lower capital is going to be quite a bit lower can you kind of give us Anton on some numbers because I think generally the streets.
What a bit lower on free cash flow then what your your guidance is for.
Yeah, that's a great great question.
In the release, who we mentioned how we spent over a couple of hundred million dollars in accordance there over the last couple of years I think when you look go to 2020 all that capital it is not re occurring.
It was for the 40 megawatt gas to power. The 15 injectors water source wells facilities et cetera, we don't have that capital in 2020. So there really is development drilling in 2020, which will until some wells in accordance narrow a few and cost yacov and a few insourcing and Dave So very little facility.
Opex slots on the capital side on the operating cost side, we do expect about 45% of our cost us your power generation costs, we expect that to significantly reduce in 2020, just as we generate our own power using our.
Our gas supply power facilities that we commissioned in Q4 or into Q3.
Okay.
That's great and on that's an opex.
So you and you will probably provide guidance in sometime early December I think as you usually would.
Yes.
We're meeting with our board on on the our long range plan or five year planning and the 2020 budget in early December so it'll be Africa.
Okay perfect. Thanks, guys.
Thanks.
Your next question comes from the line of algorithm Donna WBLS. Your line is open.
Good morning general ones like vertical.
My first question goes a little bit to have you done numbers I'm trying to reconcile them.
Two you had like the one on they've millenium for your first six months light up to 64, your non loans, which would imply a 52 million EBITDA. Those should we assume that there were restatements during the first six months on could you give us more deals on the.
Yes.
Made driver there's two things one the main drivers we put on an adjusted EBITDA number oak.
And really that is taking out the impact of the revaluation of our investment in petrochemical.
As you as Im sure, where we own about 36% of a trx view the company that we mark to market each quarter, so that create a lot of noise and EBITDA and so that's why we showed the nine months adjusted EBITDA number to take that noise out and we also in our adjusted EBITDA number we back though were $11 million in la.
Cost associated with the repurchase of our convertible bonds, which we did in the quarter.
Right.
Well the overcome converts are going to to your debt.
So when you should the fitness and seven though it was to bring down the 114 million on the revolver. You also can there are the premium which is of course onto their little before your shares you also bought back no mailing of your source.
However, given the circumstances that have happened you give them burning causes and you just throw another 50 million on the reward revolver to do just pay down so I understand that use it kind of your equity ship I don't know how do you see the creators are they can do situation, which is reflected in one prices.
Yes, and part of the driver of the drawn the credit facility was just really accelerating if you look at our funds flow from operations compared to our Capex in Q3, we moved it just lagoon through the efficiencies Weve moves on the Capex from Q4 into Q3 and then.
What we've tried to been very clear the in Q4 and in 2020, we do expect on generating free cash flow to pay down debt.
So I feel the from from the free cash flows of your.
Guiding the idea would be to pay first the revolver before people on doing buybacks.
In the erosion said the the free cash will be used for debt reduction.
And share buybacks.
We would like to pay off the revolver.
Okay. Thank you.
Okay.
Your next question comes from the line of Josef Schachter up Shafter Energy Your line is open.
This has been a two quarter issue with the Britney on the power generation and Acordionero was there delays in terms of the equipment coming and why.
And now that you've got it working you put in the comment in the oil production.
Average volumes that you expect production to begin to increase.
Fourth quarter are you still looking for a number like 38000.
But your exit in 29 team how do you feel about the wells coming on in our there's still quite a few wells you've got production up to 34000, our there's still more wells to be brought on.
Yes.
Power generation.
We.
We took a little bit longer than than expected on.
Converting the well pads, the actual producing well pads over to power we had the facilities the water injection all converted over the summer and the reason that we took a bit longer is due to be careful and to to make sure that we didnt have any shutdowns.
Which causes us problems with with pumps et cetera, So that was really a.
A delayed that we self imposed in terms of.
Forecast and where we're going what we tried to be very clear on as it were now seeing the response from the water waterflood, we're seeing the pressure response.
And we're starting to do speed up comps were starting to increase production.
Those were those responses were not really.
And a position to say how fast will do that over the next two quarters, but what we are comfortable in saying is everything is happening as expected. It's just a matter of timing as we said last quarter.
We are quite certain and where we're going with this field, we're quite certain that the field reserves are growing the value is growing it's just a matter of the timing on the response of the waterflood and we're starting to see that now.
We mentioned were at 34000 barrels a day, we've got a couple of thousand barrels a day of production to bring on.
It's it's a little bit slower and where we're operating socializing.
Workover rigs and timing wise, but we're we're bringing that couple of thousand barrels of Onstream as fast as we can.
And Joe So there are few additional wells to we just TV to cost Jaco 41, we just.
GDP accord narrow 54.
If you look your cost Jaco 41.
We mentioned the press release based on logs were similar to the 39, which was a 1000 barrels a day well and 54 is pretty exciting well.
Just have logs, but we will be Justin here, shortly but really pushes the accordant arrow field to the so and if you look in our our updated corporate presentation. There's some real insightful slides shows why we're very comfortable in the waterflood response as well as where a coordinated 54 is located in the structure.
As you recall in the southern part of the fueled the seismic is a great and so this is we're pushing much further too so.
Okay.
Are you planning to do more and see IP.
In Q4, or you're going to hold off.
Where the stock has given that.
Hello, the market's taken.
News production.
Negatively are you going to be.
More active or less active in terms of VNC Ivy.
As of today were Max owed under and CRB up to 5%.
Okay are you planning to ask for an additional one from the exchanges.
Yes, we can adjust for renewable we're working through that right now.
We're working through that right now.
Okay. That's it for me.
Jeff I think the statement that we made with free cash flow. We are we're absolutely looking at it using that for for share buybacks.
So to answer your question is yes, yes in 2012.
Yes, yes.
Okay. Thank you very much.
Your next question comes from the line of Chelsea Colon of Egan. Your line is open.
Hi, just have a couple of questions.
My first one is related to the production guidance for the year I'm curious why you Havent revised down the guidance as it seems at this point in order.
To achieve.
Your revised guidance from last quarter, you have got pretty significant increase in park.
You likely.
And then my second question is related to see revolver. It.
Mentioned in the knows that it's reserve based borrowing and there's going to be reassessment. This month. So I'm wondering what your expectations are I'm not in any color you could provide on whether you're expecting the availability to increase or decrease as a result.
Uhhuh restarted production guidance on what Weve tried to do as good as transparent as possible is so years actuals for the first nine months would you point out and here is what our current production is and we plan on bringing on five to six additional well before the end of year. So we'd expect our.
Our guidance to be within.
3% of the guidance previously given three anywhere between two and 4%. It is really comes down to as Gary mentioned, the ramp up in the coordination and bringing on those wells.
And with respect to the revolver. We're in the process. We are objective with the keep at 300 million available.
Okay and can you just remind me when the drawn amounts come due with what's the maturity of the.
2021.
Okay. Thank you.
Your next question comes from the line of go see Silva of BTG Pactual. Your line is open.
Hi, gentlemen, thanks for answering the questions and I would I was wondering if you could share. It does what's the current level of production at Acordionero. Because you said that the current level has it totally started for K, but.
I would like to understand how is of course, you know as of now.
And if you could share some detail on whats compose is the workover expenses that that can be important BNL.
And that would be for now.
Thanks, Jose it's Tony here.
Construction any party narrows, just over 16000 barrels per day.
Yes.
The question on Workover costs, but what was could you repeat that please.
Yes, but I was wondering what what comprises and and that's either so what's there.
And finally trying to have some visibility in and how that would be moving going forward. If you expect the current levels and to be maintained or to be reduced.
Yeah, I would expect Workovers those are really probably for DSP replacements. So.
If we were to add reserves then the SP then workover costs are capitalized. These are really predominately early in two years fewer placements.
And as as we have more stable power, which we're seeing now we do expect that number to decrease in the future.
Okay that makes sense.
Just another question basically you guys have an internal not official cap on a net leverage.
Of around 1005 times, though Dallas flipped to basically it usually mentioned we are a bit higher now and we could maybe even be a little bit high on the fourth quarter.
Then the you do have any visibility.
On the how this would be moving and if you would be willing to cenci, our internal cap to little bit higher and visibility here on the net leverage.
Yeah really as a target that we try to be under 1.5.
And if you look at this quarter go what we would expect with a large facility program with all the capex it but you don't get the associated production with it until the future. So that's why we're really talking about $75 million to $100 million of free cash flow for next year to get below that 1.5.
Target.
Okay. So the 1.5 would then be like let's say, a 2020 yearend target and that correct it could be a little bit higher between now and that.
Correct.
That's correct. Okay. Just so last question I'm sorry to bother.
Do you have any visibility on the working capital for for the last quarter, because there was some negative impact in third quarter.
Could you comment a little bit done on the working capital and how you see it.
Yes, Big driver in working capital, we have a receivable building.
Love It relates to our VP.
As you know in Colombia, with your view tea on our.
So of services and products. So we're looking not quite him back that view, it's worth $100 million of U.T., we had.
At the end of September .
Yes.
Thank you very much.
Thank you.
Your next question comes from the line of Nikolai men tissue Ashby for some insight investment your line is open.
Hi, many thanks for that for the presentation.
I told you to returning back to the production I think in one of the production updates back in July .
After you solve problems with a kind of demonstrations your 15 and put them up.
The production then was also 34000 barrels today and it was expected just to increase after that I was just wondering since July two so now.
Has that been they need other decreases in production like any other wells that you had to pointing out the pumps that broke it down.
And that you had to sort of place just to check on that.
And the second one on the five to six new wells could you repeat at least what's the expected.
Induction you see from from the new wells coming.
Potentially.
But then I think well aligned with that.
Sure I'll answer the first part of that question then Tony can answer the second part.
In terms of what did we forecast last summer.
The the part that we're quite comfortable with as all the other big fields and they're performing as as forecasted because are mature.
Mature waterfloods that were simply expanding where we were a bit on certain on our on our forecast was that a quarter narrow because we were behind on the water injection project and we've explained that was a labor issue and not a conscious decision that we made.
That put ourselves in that position, it's really was catch up and forecasting how quickly we would see the response.
Was was it was a bit of a challenge and we.
We see the visibility.
Getting clear for US now, we're not comfortable from a a reservoir simulation from all the engineering modeling to say exactly what's going to happen next month, but what we are comfortable saying as that over the next couple of quarters. It we're going to continue increasing production as the pressure response in the field and so.
That's that's really the we're read on guidance that Ryan was explaining.
And there's really no no change and our views on how that Acorda narrow field is responding and the rest of the fields or are on target. So that's the first part of the question and Tony will answer the second yes nicolette.
With respect to the five or six additional wells to come on we've got a couple of the new wells that will be coming on Brian talked about those in the analytically now and then we've also got some seasonal becoming one in the fourth quarter.
Three to five wells, depending on timing and equipment availability, which would account for about 1500.
Okay.
Thats, the kind of totals up to five or six wells.
Yes.
Okay. Then took 10 barrels there was for the Workover wells and then additional cost Jaco and Accordant arrow, yet both of those looks like there in that 500000 barrel of theirs.
Mhm mhm.
Kevin just there's some back to the to the first question. So since since July basically.
Do you imply that you have seen kind of decline in the existing wells.
And now you're stands at the seating.
Increasing has that kind of water injection start them.
Production should increase funnel is that on the thing that that was the decline basically from the.
Yes, yes dancers actually yeah.
Since since July August when we Tony mentioned, we ramped our water injection up to the 30000 barrel a day rate.
We're now starting to see the the pressure increased across the structure and that's really what we're where we were waiting to see where we're now would that those pressure responses able to produce at higher rates and that's what we're literally over the last 334 weeks.
I've been able to start doing well and that will continue that will continue.
As we we rent continued ramp our water injection up to the 40000 plus barrels per day that does that answer your question.
Okay. That's fine thank very much.
We have a follow up question from Chelsea Cowen Your line is open.
Hi.
To provide the average production by mountains and third quarter and more recently if possible just to maybe give more context, the situation and the timing of events.
Yes, Brian per month, we don't publish but the and age does well published for the entire country production by fuel.
And they have actuals all up there for July and August .
You can see you go back as far as you want and they should have their September numbers available shortly.
Okay, and when you say that current production is 34000 barrels per day, you mean like today in November .
Correct.
Okay.
Okay. Thank you.
Thanks.
Gentlemen, there are no further questions at this time you may continue.
Thank you operator, I'd like to thank everyone. Once again for joining us today, and we look forward to speaking with all of you over the next quarter to update you on our ongoing progress. Thank you very much.
Ladies and gentlemen, this concludes today's conference call. Thank you all for joining do you may now disconnect.