Q1 2020 Earnings Call
The Gran Tierra Energy Resorts conference calls for the first quarter 2020.
My name is Christian I'll be your coordinator for today.
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I'd like to remind everyone that this conference call is being webcast them Acorda today Tuesday May 12, 2020 at 11 o'clock am Eastern standard time.
Today's discussion may include certain forward looking information as well, there's certain non-GAAP financial measures.
Please refer to the earnings and operational update press release, we issued yesterday for important disclaimers with regard to this information and reconciliations of any non-GAAP measures discussed on today's call.
Her barrels oil equivalent or be a week amongst our based on a working interest sale before routine.
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Any copy or Rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra image.
Well now turn the call conference call over to Gary Good <unk>, President and Chief Executive Officer of grants here Whiskey drink. Please go away.
Thank you operator [noise].
Good morning, and welcome to Gran Tierras first quarter 2020 results conference call.
My name is Gary good read President and Chief Executive Officer.
And with me today are Ryan Ellson, our executive Vice President and Chief Financial Officer, and Tony Berthelot, Our Chief operating officer.
We issued a press release yesterday that include a detailed information about our first quarter 2020 results, which is available on our website.
We appreciate you calling in today for the first quarter update and hope you are healthy and well.
We're living an unprecedented times for both the industry and our daily lives.
The last few months have clearly been challenging for the industry, but I'm confident we will come out of this even stronger.
We built the business that has flexibility.
Since we operate 95% of our asset base, we're able to be dynamic and how we respond to the volatile oil price environment.
We've taken immediate actions to position ourselves through this downturn and are laser focused on the things that we can control.
We have significantly cut or 2020 capital program.
And are actively managing our production by shutting in higher cost barrels.
We're confident we can quickly returned the shut in wells to production without reservoir damage or lasting impact.
We're also guarding our balance sheet with our hedges and continue to driver operating and GE in a cost reductions.
We're very focused on preserving long term value.
We believe we have a competitive advantage to withstand the current challenging environment, where they're low base decline conventional oil assets and our ability to control capital allocation and timing.
I will now turn the call over to Ryan and he'll discuss some of her financial highlights Ryan.
Good morning, everyone.
Oil production the first quarter was 29527 barrels per day down 10% from the fourth quarter 29 team. During Q1 volumes were impacted by suspended production up disorient input seven books in the southern put them our region due to a local farmers blockade deferred Goldman drilling shut in of higher cost production.
And wells that were off line a way to routine mechanical workovers. These wells or expect to remain off one during this low price environment.
During the quarter grants your quickly shift is focused from production growth and free cash flow generation to protecting the balance sheet and preserving long term value response to the significant decline world oil prices. The shifting focus was accomplished through just an oil production volumes deferring capital investments and further optimize optimization more.
One of our freedom Jumei costs significant progress has been made on Lorne operating costs through the renegotiation of vendor calling drugs.
<unk> discounts achieved to date. Furthermore, additional operating cost initiatives include personal and rental equipment all optimization.
In addition to reducing operating costs were benefiting from the recent depreciation of the Canadian dollar in Colombian peso, becoming pesos declined 18% versus U.S. dollar from the company's original budget estimate the majority of brings years operating costs, approximately 80% and unit cost within Colombia are denominated in Colombian pesos all.
DNA costs encounter denominated in Canadian dollars.
Grunge years executive and board of directors have taken a 20% reduction solar or tainer fees, respectively.
In addition, a number of cost optimization and efficiency measures are being implemented that will further reduce companies DNA cost levels consistent with lower anticipated activity levels. We expect these changes, resulting a reduction of 30% to 35% and unit cost compared to the company's original budget.
For the quarter or net loss was 252 million compared with net income 27 million in the prior quarter due to lower revenues, primarily from the clubs and oil prices unrealized loss on valuation investments goodwill impairment relating to acquisitions in 2006 in 2008, and the de recognition of deferred tax out.
So.
Adjusted EBITDA was 35 million and funds from operations were 22 million.
During the quarter, we entered into additional 2020 oil price hedges to further downside protect against near term low price environment for securing Costless Brent colors.
The new new hedges common ground years prior Brent oil hedges in place, which covers 6000 barrels of production. The first off 2020, I'm currently has approximately 50% of or production hedged.
Capital expenditures totaled 44 point Threemillion, a decrease of 36% compared to Q4 2019 spend given the low oil price environment. The remainder of the company's 2020 capital program is deferred and only minimal major maintenance expenditures plan for the rest of 2020.
I'd also like to quickly touch on the regulations issued by the Columbian government designed to support the oil industry. During this downturn degree 535 was issued by the Ministry of finance or to expedite expedite the recovery of value out of the tower and could docs receivables from docs authorities to ensure that such funds are received by companies in the short term we expect to reach.
Steve approximately $75 million in 2020.
Although we are facing more oil prices bolt oil markets, we grab your as a component competitive advantage to withstand the current Jones you environment with our low decline conventional asset base, our go to control capital allocation and our low cost structure, we've taken aggressive actions protector balance sheet and cost a little bit swift to reduce or 20 point.
<unk> program.
Good structural cost cost reductions through organizational organizational operational changes, we will continue to water answer the near and long term corn price environment and leverage our financial and operational flexibility to further adjust our plan should have become necessary. Lastly, we are in the process of the redetermination of our borrowing base and we expect.
This to be completed in may of this year.
I'll now turn the call over to Tony Chief operating officer discuss or operational highlights.
Thanks, Ryan and good morning, everyone.
As Ryan mentioned following the covert 19 old break and the resulting large decrease in all demand and prices Gran Tierra has elected to defer the majority of capital expenditures for the remainder of 2020, and just stock all drilling and Workover rigs.
We took swift action to shut in an economic production and if temporarily suspended fields with zero or negative netbacks at current oil prices.
We have taken precautions to minimize restart costs across all of these assets.
We remain focused on an ongoing production and waterflooding of our core assets, Acordionero, Costayaco and Moqueta, which represent 81% of Grantors working interest proved reserves as of December 31st 2019.
At Acordionero, we drilled a total of five development wells during the quarter.
All directed at optimizing our waterflood program to maximize ultimate recovery and long term value.
We continue to achieve drilling efficiencies with the Acordionero 59, well drilled completed and placed on production in 15 days.
We also drilled and completed Acordionero 57 for total capital cost of only $1.8 million.
Wells drilled at Acordionero have consistently been delivered a capital cost below $2 million per well this year.
Additional contract negotiations with vendors are forecast to further reduce infill drilling cost by approximately 20% to 30% once drilling restarts with price recovery.
At the ended the quarter, a total of nine oil wells required workovers to restore production we've elected to defer these workovers due to the current low low oil price environment.
If brent prices were to recover to a level above $30 per barrel, we will consider initiating these workovers.
In the surgery and say block the cool heavy field was producing at approximately 4000 barrels of oil per day prior to the farmers blockades.
Field was continuing to positively respond to increase water injection and pump optimizations.
Prior to the blockades in late February 2020 activities are underway to expand the Glenn be water treatment injection and processing facilities under a two phase expansion program.
The combined fees expansion is expected to Bruce boost gross water injection capacity from 19000 to 60000 barrels of water per day.
In summary, we've taken decisive action to protect our balance sheet cash flows swiftly, reducing our 2020 capital program.
We believe we have a competitive advantage to withstand the current challenging environment getting our given our low base decline conventional oil assets the ability to control capital allocation and low cost structure.
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 a question and answer session for Securities analysts you have a question. Please press the star key followed by the one on your Touchtone telephone.
You will hear tone acknowledging girl question.
Your question will be pulled in the order there was fee.
I'm teasing shored lift the handset if you're using a speaker phone before pressing in key.
One moment. Please so your first question.
[noise] and our first question comes from the line, David Brown with BMO capital markets. Your line is now open.
Hi, guys I'm, Ken I start with the work I was pleased I guess raising the question where it is because I was expecting these to to be trending down this quarter in let's see that.
A reasonable cost in Q1, then obviously you mentioned you got another nine wells down at the moment sorry.
It seems quite high I'm wondering if there were consistent issue and have you seen any improvement.
Yes, he and power trip to an issue before so.
We've seen any improvement also office securing a reliable power source.
Maybe a follow up.
I think you've got about bought doesn't bother they sound, let them I'm not what's in the previous announcements are correct me if I'm wrong that book.
What are you taking full costing in Q2.
In terms of additional production downtime.
Production that you could moves to work out because and as you maybe I'll just put the other part C.
Can you give some modest what workover costs, because we're talking about 5000 barrels a day.
No well, you've probably got somewhat and about 1000 barrels a day, which maturity payback quite quickly even at the at these prices.
Yeah, great. Thanks, David It's Tony here.
So.
Some of the Workover activity in the first quarter.
To be sure were unbudgeted.
Related to primarily due to send issues associated with Oh, causing a failure in the artificial lift equipment to those workovers. However, we did move forward because they were injector conversions that we wanted to get ahead just to be able to proactively manage.
What is your placement.
So that did come with some accelerated capital or cost associated with or without work.
In terms of power and how we're managing that we read the first six weeks of the year with a stable power generation.
And then we had a series of outages that were.
Two of them being linked and to being a unrelated events.
Since we've recovered from those and have.
You know improved our reliability of our power generation, we've been without a targeted failure.
Since that time, which would have been the end of February.
So again.
The the unfortunate part of that power outage has caused some additional wells to go down.
Which we as we've talked about nine wells at the ended the quarter that we'll be looking to repair.
In terms of costs, yes, we would agree that there is some some high volume wells here and it's really just about managing cash flow for the next quarter.
In terms of spending that money.
Capital cost to remove and repair and he SP or in that 800000 dollar range.
Depending on San keynote activity, but ultimately that's kind of rough budget of what we're looking at so yes. Some of these wells are quick payout and we were pretty closely with fight adds to add to determine when we would.
Initiate that activity again.
In terms of what Q2 looks like.
We have had a couple of additional failures in since the ended the quarter, but ultimately as you mentioned, we're still in that 4000 barrels of oil per day.
Four to 5000 barrels of oil today that are down currently awaiting workovers. So that should give you some indication based on a Q on average of about 15000 barrels of oil per day of where Rad.
And David just sorry on the Workovers and the current price environment you know.
We can make a return on some of that but we're not a huge hurry to get these barrels on the ground in a $30 oil price environment. So part of the US is just timing just to maximize returns in the future and also just there are restrictions within country covert 19 restrictions.
It is me does make it more difficult to move even a a workover regrown and so you know in the next four to six weeks, we'll reassess those workovers.
Okay that makes sense. Thank you.
Thank you.
And our next question comes from the line of James Hubbard with numerous your line is now open.
Hi, Thanks, guys two questions. Please.
So your cost seem a lot more valuable than maybe we would have expected.
A couple of months ago in that.
Maybe get into it you can cut your work of is the royalty obviously is.
The variability the discount exception I'm sorry.
I'm wondering where you think you can get your cash.
Breakeven Dallas in terms of some.
Cash net back so the bottom bottom line.
Because my.
I'm, just playing around and I may or may have the strong but it seems to me that you'll see if your workover is going to be de Minimis, then you'll find that about $30 about I'm. Just wondering if that's more or less what you think or if youre thinking about radically.
Different number them and then.
Expanding on that on the on the second question, if we stay in the current.
Price environment 20 to $30 and say you stay in your current mode of conserving as much as possible.
I'm wondering is that more decision nodes.
Cash flows or is it as you just alluded to and I've seen last question. This oil could be worth a lot more in the future will lead the in the ground and maximize value that way I'm wondering what the main driver is I hope you'll could also be by now.
Yes, Thanks, and all the will those are the first one yes. The the $30 number is a reasonable number we've been running our base case for this year is oilseeds at $30. Brent further the remainder of the year and so with that with our beauty refunds.
Income tax refunds sentra, we're comfortable we could manage the balance sheet and for the second question you you're spot on where does not a huge her to get barrels or the groundless environment 'cause once those barrels are gone there as you know they're gone for good.
And so we rode is to keep them in the ground right now.
Okay. Okay, great. Thank you.
Thanks.
Thank you.
Next question comes from the line up Alejandro de machetes with any you Securities. Your line is now open.
Okay.
Hey, guys.
Couple of questions just to choose to pull off from James questions here on your cost cost what you kind of run the numbers no without going up you know hobby lobby.
Really fun when do you think that did the cash costs could be I thought I'd be point in time and then the second question I mean in your press release, you do mention the distillation of their Redetermination and also the potential breaching the covenant. So maybe you can.
Give us some can engage on how those discussions are going on the redetermination of loan our noticeable in laser on the covenant.
Okay with respect to the cash costs. If you look at the combination we've shut in anything over higher cost fields relatively higher cost fields. So right now we're just producing from our three core processor is about 80% of or wont be reserves.
Cost Jaco Mocatta Andr coordinate arrow, we think the are our operating costs going forward are going to be in the dollar range on a blended basis.
Luckily the idea on the operating costs, you'll differentials have been moving around lots in Colombia, obviously, we can't control that Gexpro Brent price both from the from the cash cost bases. We think we've done a good job of really driving those down and law those reductions are structural changes.
On the second question on the Redetermination.
Because it's pretty clear the way we either in the financial statements management is.
Optimistic that will come up with a solution and we'll have a automobile come by the end of this month by I would say good conversations have been very positive and constructive.
And I mean comes off the headroom liquidity headroom that does you crop that use kind of credit lines have those being going forward.
No no. It's all part of the Redetermination process.
Okay. That's clear thank you.
Thank you.
Thank you.
And our next question comes from a line of Josef Schachter with sector Energy. Your line is now open.
Thank you very much and thank you for having the conference call and taking my questions.
In terms of the upside you've got the shutdown im sorry until that is unknown in terms of when they have to come back you mentioned Accordant General 20, $30 U.S. for Brad.
We were workovers, what prices would you need to start looking at raising production or you're looking at 35, 40, 45, and then how much production increments could you see from different areas.
Those prices to recover if they recover and let's say late Q3 Q4 of this year.
Yes, Thanks, <unk> Joseph its Ryan, Yes, I think go on the call you know oil has been very bold all not just the headline Brent number and debris Jive for in.
As well, but also differentials so I think we'd like to see some stability north of $30 before and really the order would be according narrow.
And then sort on day.
So I think north of $30. So in that 30 to $40 range, we'd look at the program for new drilling.
Tony mentioned the teams on a great job of getting cost on a coordinated with into sub $2 $2 million.
So those are very economic but again, we're not really going to accelerate those barrels overground in this environment. So going forward to resume development drilling it would be high thirtys low fortys.
Hi, Joe just add part of Suroriente the issues with the Coca farmers is still underway, that's not been resolved and that's a that's a second issue that's really driving when that feel comes online. In addition to what Ryan said on economics.
Okay, and whereas production right now.
Just to put that in context, yes, 21, 22000 barrels a day.
Super that's it for me. Thank you so much.
Thank you.
And our last question comes from a lot of Al Stanton with RBC. Your line is now open.
Yes. Some of these just over my Thunder I would say I was actually get into Oscar well production was doing at the moment.
Would you use 21 22 is as a decent average for the second quarter.
Yes, I think thats a good number.
And.
You've also spoken about preserving on Tim Boddy, but some of my concern Sarah.
I was this more me so I'm just wondering whilst its good <unk> leave some of the reserves and the guy.
Yes, that's a day age you do you need to generate some EBITDA. So I'm just wondering.
What are the pet foods all of a funding how have your covenants is is it just which speaks to the I'll be al.
And what the bondholders, one Tommy and as long as you keep paying interest is not enough or should I worry about the covenants for them as well.
Yeah.
As far as on the first question as far as Eva your 100% right.
But also look I'd mentioned do even right now we wanted to move a service where you work over these wells would the covert 19 restrictions or would it would be complicated to do.
And so and we expect that to be four to six four to six weeks out and then I said if current strip pricing you know is little North of 35, then we would look at doing those workovers. So we are exactly right. It definitely is finding the right balance.
And then on the second point to are on the RBL, we do have meetings based covenants that it we're not compliance it is a.
Event of default and then that's why we're working to lenders as we disclosed to get a waiver on those.
And then on the bonds there incurrence based covenants.
Oh, well watch does that mean in layman's terms. Please that we just good if we're in violation we just can't take on additional debt.
Okay. Thank you.
And can you just.
Good good.
Thank you and our next question comes from the line of Alexis painted with Stifel. Your line is now open.
Hi, good morning, and thank you for the cool.
Question on liquidity more of a sort of credit fund Bondholder question here you finished the quarter with about 40 million of cash.
Accounts receivable down to less than 10 million you up in the play out an issue with you will supply as during the quarter, we had a big drop and accounts payable.
And the way I calculated about 100 day decline and the average time that you pay 'em accounts, you pega supply as.
Which is sort of typical of this type of cycle. When you have no there's.
Another supplies.
You have about squeeze pause I calculate $96 million available still under the credit line multi that's subject to encourage test, but that backward looking which implies you have the ability to take them down.
Today, It seems unlikely you get to do so after the second quarter.
So in the context of all of them on to fight you have a coupon payment to I think in 11 days on the.
2027 notes wed you stand in terms of.
The puzzle here in terms of liquidity.
Have you drawn down further on your credit facility and can you give us a bit more color that you know as I alluded to with <unk> with respect to accounts payable, which looks like a big lots of big lots of cash flow joined the quota and finally in relation to that the 75 million you mentioned in VIP receipts expected for this year can you give us a sense of timing on those.
I think liquidity is off the becoming something of a critical question.
Yeah, Yeah with respect to the the payables you know we had a very active.
Q4 program.
You are aware and so it really is it's been one of those payables in the quarter.
So there is more normal course I once its.
Nervous suppliers as normal course payables that we paid.
And with respect to liquidity, we are $204 million drawn on the RBL, we still up $204 million drawn on that.
Not really is your next results will be able to the end of this quarter.
Could you sort of give a sense of your intentions for the upcoming coupon I'll say the bonds are trading at a price. It suggests the mechanics that you're not to make it.
We are we fully expect to make it.
Okay, great. Thank you.
Thank you.
Our next question comes from a line of Stephanie full caught with Oxys advisors. Your line is now.
Yeah, Hi, guys.
You Oh pushing questions.
First you talk about conclusion of 21 22009 today.
Assuming a coal prices and change assuming that the selling and distribution doesnt change you've done a good number for Q3 control on Sept. He did allow.
Then a question on tax.
So you talked I think about $75 million VIP that you expect to recover.
Twin to 20.
Ease of use with you because at some of that always it what remains to be recovered in Q3, Q4, Q3 Q2 configurable.
And lastly, you took about minimum maintenance capex again since you've been on price environment, what would that be more or less thank you.
Yeah, I'll take the Tony here.
I'll take that question on on Q3 Q4 production.
You know added $30 price environments as rise already mentioned.
No.
Two we understand better what's going to happen with coal that.
Policy relaxation.
Will drive what we do in terms of activity with the wells that are waiting on Workover activity right now.
So it's that's a difficult number to provide any kind of guidance on for this third and fourth quarter.
With respect to.
Oh, sorry, what was the was the second part of that question.
I was before going to divide that was around the minimum capex again, assuming no. He added all about.
Yes, so so the minimum capital expenditures that we plan to do for the rest of the year are a combination of some of the maintenance activity that we need to do you used to maintain the the the facilities and infrastructure, but also preparing for licensing and of future projects. So there's some capitalism.
Operator with that.
That will continue to spend just so that we continue to maintain the flexibility to reactivate and and get activity started again from a regulatory and and government perspective.
So it's about September you would say.
Pardon me.
10 million just to have some sort of sense for the number on a known it won't be that high I think we'd probably be in that $2 million to $5 million for the rest of the year associated with those costs. Yes. Okay. Thank you and lost the was around the 18, whether the sevenfold meeting that as you talk about doesn't come the end to being able to cool you.
You have already received some of that are that seem to come into Twoq threeq.
Yeah, you expect to come Q2, Q3, Q4, we Expectable 50 million over the next five months.
Right. Thank you and have you know cash stocks to comply talks to be made.
And the balance of the is it.
Upset.
Correct.
Cash taxes.
Okay.
<unk>.
Thank you.
Thank you.
And gentlemen, I'm not showing any further questions on the Palmer.
Okay. Thank you. Thank you operator.
I'd once again like to thank everyone for joining US today, we look forward to speaking with you over the next quarter to update you on our ongoing progress.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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