Q2 2020 Gran Tierra Energy Inc Earnings Call
[music] good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's results conference call for the second quarter Twentytwenty.
My name is common I'll be your coordinator for today at this time effect, if I'm tired and I'll listen only mode.
Moving their initial remarks, we'll we'll conduct a question answer session for securities analyst and institutions instructions will be provided at that time for you to fuel for questions.
If at any time during the call you require audio assistance. Please press star zero and closed coordinate or will be happy to assist you I will like to remind everyone that this conference call is being webcast and recorded today Wednesday August 20, pointing at 11 am eastern time.
Today's discussion May include 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 imports on this claimants with regard to this information and reconciliations of any non-GAAP measures discussed on today's call.
Or borrow oil equivalent or the OE amounts are based on our working interest sales before royalties.
Finally, this earnings call is property of Gran Tierra energy Inc. any call being a rebroadcasting of this call is expressly forbidden without their rates in concern of Gran Tierra energy.
I would now I'll turn the conference call over to Gary Gary President and Chief.
Executive Officer of Gran Tierra Miss gives repealed go ahead.
Thank you Karen.
Good morning, and welcome to Grant your second quarter 2000, 2020 results conference call.
My name is Gary Good President and Chief Executive Officer, and with me today are Ryan Ellson, Our executive Vice President and Chief Financial Officer.
Tony Berlin, our Chief operating officer.
We issued a press release yesterday that included detailed information about our second quarter 2020 results, which is available on our website.
On our first conference call first quarter coal, we outlined several measures we have taken in response to the unprecedented volatility facing our industry.
Including our decisive action.
The swiftly shut in and economic production defer capital expenditures and implement cost saving initiatives.
The team has made significant progress on lowering operating and gionee costs and done a great job managing the crisis on all fronts.
We also continue to enhance.
And monitor Ur Cobot 19 safety measures.
And ensure health and protection of our communities and employees and stakeholders.
As we move forward.
We remain agile.
Executing our strategy and our plan.
We believe Gran Tierra.
Is well positioned to thrive in 2021 at above.
I'll now turn the call over to Ryan Ellson.
Good morning, everyone.
Our oil production in second quarter was 2165 barrels per day was down 32% from the first quarter 2020.
During Q2 volumes were impacted by deferred development drilling shut in of higher cost production wells and wells that were offline waiting routine mechanic workovers and suspend production disorienting put seven blocks in southern through them a region due to force majeure related to the local farmers blockade current production is approximately 19000.
Those and be a we predict since March 2020 in response to the global economic downturn and lower commodity prices grain tier rapidly implemented cost saving initiatives significant progress has been made on lowering costs to the renegotiation of vendor contracts and optimization of personnel and rental equipment as a real.
Hello, Gran Tierras reduce operating costs in cash DNA costs by 43%, 30% respectfully since the first quarter. The more the majority of these cost structures are structural reductions and are expected to be maintained given where oil prices recover further.
Furthermore, as result of ongoing cost saving initiatives. We also expect per well drilling working capital cost reduced by 30% ordinarily and 18% cost Jack compared to 2019.
During the quarter Gran Tierra allows us to successfully completed the semiannual redetermination of the company's credit facility. The borrowing base limit was reaffirmed 225 245 million from the burden of 300 million. We're also granted relief under certain financial covenants until October 1st 2021.
On the VIP front Grand your collective totaled 25 million VT, an income tax receivable from the government government during the second quarter and realize the company received another 21 million and the further 30 to 40 million is expected to be collected for the ended the year, resulting in a forecasted totaled 70 $66 million we collected in 2020.
For the quarter, our net loss was 371 million compared to net loss of 252 million in the prior quarter, primarily due to a noncash impairment of 398 million on the company's oil and gas properties as a result of significant lower oil prices.
Adjusted EBITDA was 18 million with funds from operations between 6 million.
With this year's oil price volatility logistical challenges good 19, Gran tierra elected to significantly reduce the quarter's activity levels preserve liquidity and balance sheet strength Q2, Capex was only 5 million a decrease of 89% compared to the prior quarter.
Operating expenses of $9.62 per view, we were down 21% from the prior quarter due to lower power generation cost reduction rental equipment and cost savings attributed to lower activities. Workover expenses were 71 cents per view, we don't 85% from the prior quarter due to lower activity.
Doug stage expenses were $1.60 for beauty up from $1.52 per view, we in the prior quarter due to higher pipeline sales.
During the quarter, we entered into additional points when oil prices had just provide further downside production gains near term low price environment by securing three way Brent coal as a total of 11000 BOE per day is no hedged for the second our from 2020 in summary, we have taken aggressive actions predictor balance sheet and cash flows given the right.
And volatility fees in the industry, we've achieved significant reductions and offer in DNA costs, and we're well positioned to thrive in 2021 and beyond I'll now turn the call over to Tony Our Chief operating officer discuss our operational highlights.
Thanks, Ryan and good morning, everyone.
With the recent recovery in oil prices and tightening of differentials, we have initiated the required activities to safely resumed several operations throughout our Colombian portfolio in strict accordance with covert 19 protocols.
I do want to note that the evolving situation with the covert 19 pandemic may impact the timing of the planned activities and the resulting volumes and scheduling of incremental production additions.
At Acordionero plans call for the first Workover rig to begin operations during the third quarter of 2020.
The second Workover rig to startup in the fourth quarter of 2020.
A total of eight to 10 offline wells are expected to be worked over to restart production by 2020 year end.
Operations are conducted in sequential order is the rig moves from one well to the next.
The total combined productive capacity of the 10 highest priority wells for Workovers is estimated to be approximately 3500 barrels of oil per day.
On the development drilling front wondering if you're drilling rig is expected to restart operations during the fourth quarter of 2022 drill one to two new oil wells by 2020 year end.
These new wells are expected to begin production through the course of the first quarter 2021.
The drilling rig is forecast to continue drilling new development oil wells adequate in Aero throughout 2021 with the next for planned wells scheduled to be drilled from the new South West pad.
Each of these new wells is expected to have an initial initial oil productive capacity of approximately 550 barrels of oil per day initial 30 day average rate. That's in line with the performance of wells drilled in the field over the last year.
Moving to the Putumayo Workover rig is expected to start operations during fourth quarter 2020 to work over two to four wells that caused the ACO volume.
Thats oriented the restarted this block is expected during the second half of 2020.
The blocks working interest productive capacity is estimated to be approximately 3600 barrels of oil per day.
Lastly, the restarted the majority of a minor fields is expected over the course of the second half 2020.
These fields combined working interest productive capacity is estimated to be approximately 1900 barrels of oil per day.
In summary, the internal initiatives, we undertook during the severe downturn of 2020, we're focused on portfolio optimization differing short cycle investments and pacing projects to allow the safe resumption of operations when oil prices recovered and strict over 19 safety protocols were in place.
We are analyzing multiple scenarios focused on maximizing returns and free cash flow in 2021.
And to optimize the ultimate recovery free cash flow and long term value from all assets.
We believe our robust asset base will resume average production in excess of 30000 barrels of oil equivalent per day in 2021 based on current assumptions, including commodity prices remaining at current levels and that there is no further global economic shutdown from the Coven 19 pandemic next year.
I'll now turn the call back to the operator, and we'll be happy to answer any questions. Carmen Group. Please go ahead.
Thank you, ladies and gentlemen, willing now conduct a question and answer session for securities analysts.
Question. Please press Destocking, followed by the one on your touched on.
You will hear a tone acknowledging what.
Questions will be Paul in the order Andy I received.
Im showing you lift your handset air units because on the compressing any tools.
One moment please for our first question.
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Our first question is all stance on with RBC. Please go ahead.
Yes, good morning, guys.
Just three questions if I may arduous rattle them off and then let you come back have you given capex guidance for the second half and also.
Thank you haven't given much indication on the cost of the wells says he can give some guidance on the cost to the loans that they really helpful. And also the so the cost as a work has said that we can see how perhaps opex not the hiring key full within it is in Q2 in Q3.
And then the final question with them.
Given good disclosure on the tax rebates or tax.
Receivables I was just wondering about current liabilities, how how much about it and they could be on entering the second half. Thank you. Thank you.
Alex Tony here I'll take the first two and I'll, let Ryan kick the last one so cost the wells in Acordionero for drilling new wells, we're estimating around two and half million dollars drill complete equip anti.
As mentioned Thats, a pretty significant reduction from 2019, and just showing continued improvement as we execute repeated programs in that field.
In terms of the cost of Workovers for the second half.
We are projecting roughly $2 million in the third quarter, and then $8 million in the fourth quarter.
And all of these are obviously opex related workovers, so per well kind of in that $802 million range, depending on the scope of work for each well.
And then with respect to tax rebates.
The question was out of those are coincide with our current liabilities.
Yes, yes, 70, you've given us.
Our attend the money Thats coming back to you as I was just wondering innovative clarity on on the other the money going the other line I mean is the current.
Liabilities is it reasonable size.
Yeah. The good current liabilities is since if you look what we had.
At June Thirtyth, that's been reduced level 30 million since June thirtyth.
And who would most of all vendors all caught up.
Right Okay.
Okay and then just a final question if I may be the Capex guidance of 25 to 35 I mean, if you think not just stretch given that we're just starting August now or do you think thats still a good number.
We think thats a reasonable number I think the reality is it is still complex will coordinate team protocols and timing.
But I think Thats a fair range.
Thank you guys.
Thanks.
Thank you. Our next question comes from one or writing with Neal Hot.
[noise] I'm wanting guys I was wondering from the reserves perspective is just quantify.
Joe asset.
Hi, I'm youre right to the reserves position.
Yes, I think is just on the asset impairment is the big driver with the impairment and you'll see some of our peers, who report under IRS took write downs in Q1.
Because were us GAAP, we want to use one pier reserves and it's the trailing 12 months and so is really just.
Calculation for the price into the first day of the the trailing 12 months.
So there are typically is a disconnect between the reserve value.
Reserve evaluators.
And our value, especially and that's driven by both the volumes as well as the price, especially when you have a large spread between your one be in year to be reserves and looks into an unfortunate we can as user won't be reserves.
Okay. So you don't see significant reduction of GP reserves this year.
No.
Okay, great. Thanks. Thanks.
Thanks.
Okay.
On a local with Metlife. Please go ahead.
Good morning. Thank you for taking my question I would like some kind of from you guys talk us through the national numbers. So we have some figures like the EBITDA can mainly on the parties from the case it that was 17 million into part.
Then we have the tax refunds 25 million on their on into Capex.
Yeah, I think that we already know, but it still has to figure out how to go from the EBITDA generation to their free cash flow define us cash flow from a patient this topic that it's about $2 million and then match that we did declining gosh that was about 22 million without a significant movement in.
In that so again, if you could help US bridge this difference it would be great.
Yes, and just walking through the from the EBITDA that really the adjusted EBITDA to the our fund for reported number the biggest differences roads to adjusted EBITDA left the interest for the quarter.
And sensor guesses through the funds will number that we quoted.
And then on the on the second one change of working capital Yeah. The biggest change was the cash did go down but then two drivers.
Is our accounts receivable went up quite a bit and thats essentially a use of cash. If you look at the end of March were on 7 million and we want to over 50 million dollar change and not just because oil prices were a lot higher at June that money was received in July.
And then also there's a fairly significant reduction in our in our payable balance.
Okay.
And then.
Second question on this is and your guidance you said that you were kind of funds from operations of 25 to 35 million on topics of also 25, but if idea I would like also to match that we'd like to patients of the gas position until year end.
Yes, so we don't forecast cash position in our in our guidance and our guidance luggage dissent on my last comment is the guidance is fluid just based on the on on the ground realities of Goldman if you need to make sure that we keep our employees we would use out we operate.
And we know we're we're doing that and so we need to be it's a staggered program. It's a cautious program.
And also we won't have is.
But our contractors employees and communities a risk.
Okay, but is it started to say that.
That's what I've got this fund flow operation you define it let the capital expenditures, it's going to we are new to our free cash flow out we've got to be roughly stable cash position here, yet or out of that any revenue goes I don't know maybe pay taxes are not included there.
Yes, a tax refunds are not included in there so that would be additive to the cash positions.
I don't know that however, other changes we have in our working capital they are and whatnot, but that all else being equal of everything else is saying that would be additive to our cash position.
Okay. Thank you very much.
Thank you.
Thank you. Our next question is from Alejandro naming Sally Smith and I am.
Okay.
Yes, good morning, gentlemen.
Just to follow up on on the previous question on the cash flow and because I think Tony in his remarks was saying that you are basically declining for free cash flow at the field level, but then when we go through the corporate level basically you seem to be willing to spend every dollar that comes.
From cash flow from operations into Capex also trying to understand how these were particularly with all the on strategies that you probably describe.
Yes.
Really the guidance that we have is we have a range of capital between 25 35 in a range of funds flow from 25 35.
So thats our the field of other corporate level. That's after interest Thats after June et cetera.
Yeah. It does that does that does thus line just trying to understand the rationale for basically spending every dollar from the cash flow from operations when you're talking about all of these uncertainties.
On the ground the macro level and so on and you also have added that situation.
Yes, and the uncertainties. The you know there's number of offerings that we are the it's above were committing to this entire program depending on what happens with oil price depending on what happens with covert 19, there are a number of law firms.
Okay. That's great. Thank you and by the end those into the reason why we are doing this is.
You know if you look at strip price for next year. This this is the way that we maximize free cash flow over an 18 month period.
Okay. So basically he had trying to get you to take advantage of what you see on this trip bright for next year to maximize to cashman.
Correct correct.
The largest by quarter by quarter over an 18 month period. This maximizes free cash flow. Good sets. It gives us out much higher starting production profile in Q1 of the next year.
Okay, that's something that's it thank you.
Thank you.
Our next question is coming along with home.
Good morning. So this like a follow up calls with previous questions. Just wanted to understand what are the main assumptions behind.
EBITDA of $45 million to $65 million in terms of Opex royalties on our first production of the here, especially for the second house.
The real questions related to accounts payable continues to be higher $116 million. My questions. Here is how would you expect this account any general working capital to evolve.
Over the next quarters.
On my next question is related to reduce and comment on your current cash levels.
Okay on the on the first point.
The all the guidance that we have is what's in the press release.
And so and really the number one driver on there is Brent price Larry said, what we've done as we've tried to be very transparency and lay out all the activities that we want to do and the biggest change in that as far is.
What we can't be certain is on is the timing of those activities, but just to give.
All of our stakeholders idea of as far as the productive capacity of the assets that's laid out in the press release.
And then on the working capital movements Youre, a few balances come down substantially from year end.
Thank you if you look at the end of.
29 team, we had approximately $195 million now XOMA 116, you know we did receive the additional VP refunds in July which was used to reduce payables.
And then was the current cash balance was about our Q3 results.
But I wouldn't expect a significant change.
Okay. Thanks.
Thank you.
Thank you. Our next question, if some Josef Schachter Schachter energy.
Good morning, guys, Hi, one question for Ryan on for Gary Ryan.
The gap as you talked about the impairment.
For the quarter of 399 million what are the rules in the states for reversing revert reverting those back like in Canada, where we got 50 or $60.
Barrel, many Canadian companies talk about underpinning, our 51 or one they would be able to have involve the reversal of those impairments what are the rules for the states and what price do you need 50, 50, 560 brand to start seeing that impairment reversal.
Yes. It was great question under Us GAAP there is no reversal once it's gone is gone.
Okay.
Okay.
And then for dairy with the problem with the farmer is still ongoing other production out. This is this more of a political thing where.
Colombia is not getting money from the state.
And it's almost like it will drag out past the U.S. selection and here.
Uh huh.
Yes, and then the Obama policy and helping Columbia comes back and then that's when the money might show up the Columbia that to play Kate.
Support the pharma is this a U.S. political drag on or is this something that Columbia can resolve internally.
Yeah I.
I think it's it's really.
Related to the Coker growers and the eradication program, which has been ongoing even through the.
The pandemic the.
What's caused the slowdown is the ability to have discussions open discussions across the table from the farmers because there are programs or there are programs in place to help.
Help the farmers moved to a different crop.
Substitution program.
The issue is then being able to sit down and talk.
And we participate in that we help we helped.
Support the government with the programs and so I don't think that it's really Joseph related to the U.S. election, I think it's more being able to have face to face discussions and they are ongoing they've been re initiated and so.
As Tony said, we're in a position that we're getting ready to start the the reactivation in the southern put to my over most of this has occurred and so we're confident that it will be something that can be managed.
Regardless of what happens in the U.S. election.
Okay, So you're saying that the U.S. funding to Colombia is still in place.
And so that they have the funds to work workouts something with the farmers.
Yeah, and that's just one source of funding there there are numerous sources of funding okay Super Thanks, very much guys.
Thanks.
Thank you. Our next question comes from gaming Nicholson from Credit Suisse.
Hi, Thanks for the call and thanks for taking my question.
I just have a question on your covenants.
And here we negotiated.
Thank you agreement can you provide a little bit more detail on what does.
Covenants will be in.
2021, and what your current leveraged EBITDAC.
Ratio is now at the second quarter 2020, and if theres any step downs in that required a lot.
Into 2021 thanks.
Yeah. This is the main thing and.
We have more detail in our in our debt note and really the main thing is the total debt to EBITDA.
Total debt to EBITDA.
Was.
Previously it was four times.
And that's been we've received covenant relief until October Onest through we wouldn't have to do the calculation until the end of the year. So would be the end of 2021 is when we would need to be in comply with us. If we are do you do have a more constructive oil price environment and we're comfortable.
We wouldn't.
Exceeds the covenant.
We can actually get older the governor early period.
Okay. Thank you you know your it looks like your debt to EBITDA was wrong with a little over seven times.
The second quarter is that correct.
No our trailing 12 months adjusted EBITDA were about four times.
Okay, that's true men as where everything's on trailing basis.
Okay, and so you're expecting that to spike up.
Like I guess, what are you have joined what's your forecasted EBITDA plenty based on your EBITDA guidance is around seven times or someone that is that correct.
Yes, yes is it because really we have so the higher EBITDA quarters falling off from this would have been the trailing 12 months is we have the higher EBITDA quarter is falling off from 29 team and replaced with the lower price environment in 2020.
And then you don't have any covenant leverage covenants until the end of 2021 is that correct.
Correct.
Beaten comes with the credit facility.
So based on our current forecast.
We'll be onside without by the end of next year.
Okay. Okay. Thanks very much.
Thank you.
Okay. Thank you. This concludes our Q and a session I will like to turn the call back to Gary do you do for his final remarks.
I'd like to once again, thank everyone 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.
Thank you, ladies and gentlemen for participating in todays program. You may now disconnect have a good day.
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