Q2 2020 Gran Tierra Energy Inc Earnings Call
My name is common I'll be your coordinator for today.
At this time, all participants are not listen only mode.
A window initial remarks, we'll we'll conduct a question answer session for securities analysts and institutions.
Instructions will be provided at that time for you to appeal for questions.
Yeah.
Anytime during the call your require audio assistance. Please press star zero and quality coordinator, we'll be happy to assist you I will like to remind everyone that this conference call is being webcast every quarter today Wednesday, Oh, that's 20, pointing at 11 am eastern time.
Today's discussion May include forward looking information as well as certain non-GAAP financial measure.
Please refer to the earnings and operational update press release, we issued yesterday for imports on display month with regard to this information and reconciliations of any non-GAAP measures discussed on today's call.
Or borrow.
Selling or the Oh eat amongst our based on our working interest salespeople and royalty.
Finally, this earnings call is property of Gran Tierra energy Inc. any called being old Rebroadcasting of this call is expressly forbidden without there we've been concerned of Gran Tierra energy.
I would now I'll turn the conference call over to Gabby, Thethree, President and Chief I guess Executive Officer I'll grab Gerald you didn't go ahead.
Thank you Carmen.
Good morning, and welcome to Gran Tierra second quarter, 2000, 2020 results conference call.
My name is Gary good read President and Chief Executive Officer.
And with me today are Ryan Ellson, or executive Vice President and Chief Financial Officer.
And Tony Brooklyn, Our Chief operating officer.
We issued a press release yesterday that included detailed information about our second quarter 2020 result, 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 on economic production.
Capital expenditures and implement cost saving initiatives.
The team has made significant progress on lowering operating and DNA cost and done a great job managing the crisis on all fronts.
We also continue to enhance and monitor Ur Cobot 19 safety measures.
And then sure health and protection of our communities and employees and stakeholders.
[music].
As we move forward.
We remain agile.
Executing our strategy and our plan.
We believe Gran Tierra.
As well position to thrive.
2021 and above.
I'll now turn the call over to Ryan Olson.
Good morning, everyone.
Our oil production in second quarter was 2165 barrels per day was down 32% from the first quarter 2020.
During Q2 boys were impacted by deferred development drone shut in of higher cost production levels and wells that were off one waiting routine macalik workovers and sustained production. So we're going to put seven walks in southern through Tomorrow region due to force majeure would do the local farmers want to current production was approximately 19000.
Before we predict since March 2020 in response to the global economic downturn and lower commodity prices grant here are rapidly implemented cost saving initiatives significant progress has been made on lowering cost to the renegotiation of vendor contracts and optimization of personnel and rental equipment as a result.
All Gran Tierras reduce operating costs from cost you need caused by 43%, 3rd% respectfully since the first quarter. The more the majority of these cost structures are structural reductions and are expected to be maintained your world prices recover further.
Furthermore, as result of ongoing cost saving initiatives. We also expect spur world drone wish you capital cost produced by 30%, though to coordinate arrow and 18% cost yard compared to 29 feet.
During the quarter grounds, you're also so successfully completed the semiannual redetermination of the company's credit facility. The Bowen basin limit was resumed to 25 245 million from the Berlin 300 million. We're also granted relief under certain financial covenants until October 1st 2021.
On the VIP front grants your quarter totaled 45 million view T., 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 caught the before the end of your resulting in a forecasted totaled 70 66 million to be collected 2020.
Furthermore, our net loss was 371 million compared to net loss of 252 million in prior quarter, primarily due to a non cash impairment 398 million on the company's Willem gas properties as a result of significant lower oil prices.
Adjusted EBITDA was 18 million with funds from operation between 6 million.
With this year's oil price volatility logistical Jones with Goldman 19, Gran Tierra elected to significant do six quarters activity levels preserve liquidity and balance sheet strike Q2, Capex was only 5 million a decrease of 89% compared to the prior quarter.
Operating expenses of nine doors 62 cents 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.
<unk> expenses were $1.60 per view, we approved over 52 per view, we in the prior quarter due to higher pipeline sales.
During the quarter, we entered into additional points when it will price had just provide further downside production gains near term low price environment by secure in three way Brent coal total of 11000 BOE per day no hedged for the second half from 2020 in summary, we have taken aggressive actions predictor balance sheet and castles given the recent.
All two will be facing the industry, we've achieved significant reductions in offer in June a cost 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 or 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 resume several operations throughout our Colombian portfolio in strict accordance with cobot 19 protocols.
You 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, and the second Workover rig just started up in the fourth quarter of 2020.
A total of eight to 10 off line wells are expected to be worked over to restore 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 2020 to 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 out Acordionero through 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 additional 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 for Tomorrow.
Workover rig is expected to start operations during fourth quarter 2020 to work over two to four wells at cost Yacov audience.
Thats Oriente 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 covert 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 shut down 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, I will now conducting a question and answer session for Securities honestly. If you have a question. Please press the star followed by the one on your touched on.
Well here, it's gone up knowledge and got request no questions will be Paul in the order day I received me essential are you lift your handset if you're using a speaker phone before pursuing any case.
One moment please for our first question.
Yes.
Our first question all Samsung with RBC. Please go ahead.
Yes. Good morning, guys I'm, just three questions. If I may alter our just rattle them off and then let you come back [laughter] you given capex guidance for the second half and also.
<unk>.
You haven't given much indication on the cost of the well. So she can give some god from a cost of the wells I'd be really helpful. And also the sort of cost as a work has this or that we can see how perhaps opex might be hiring key fall within it is in Q2 in Q3.
And then the final question with them.
Given good disclosure on the tax rebates or tax fraud receivables I was just so wondering about current liabilities, how how much of it but it and they could be on has during the second half I keep thinking.
[noise], Alex Tony here I'll take the first two and I'll, let Ryan kick the last one so cost of 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're 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 you know kind of in that 802 million dollar range, depending on the scope of work for each well.
And then with respect to ER docs rebates.
Through the question was Oh, <unk> I was I coincided with our current liabilities.
Well, yes, yes, I mean, you you've given us.
Hi, rich on the money that's coming back to you I was just wondering for better clarity on the on the other.
The money going the other way I mean is the current.
Liabilities is it reasonable side.
Yeah. The grew liabilities since if you look what we had.
At June Thirtyth.
Thats been reduced level 30 million since June thirtyth.
And who would most of all vendors all called <unk>.
Okay and then just a final question if I may be the Capex guidance of 25 to 35, I mean, you think about to stretch given that we're just starting August now or do you think that's still a good number.
We think that's a reasonable number I think it. The reality is you know that it is still complex would you know coordinate team protocols and timing.
I think that's a fair range.
Thank you guys.
And so.
Thank you. Our next question comes from Warner riding with Neal Hot.
[laughter].
Morning, guys I was wondering from the reserves perspective.
<unk>.
[laughter], we'll have.
To the reserves position.
Yeah, I think too just on the asset impairment is.
The big driver with impairment and you'll see some of our peers, who report under IRS took write downs in Q1, you don't because were U.S. GAAP, we only use one pier reserves and it's the trailing 12 months and so it's really just a.
Calculation for the price since the first day of the the trailing 12 months and so there are typically the disconnect between the reserve value.
Oh 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 being your to be reserves.
Look said were unfortunate we can as user wants to be reserves.
Okay. So you don't see significant reduction of GP reserves is this year.
No.
[noise], okay, great. Thanks. Thanks.
Thanks.
Okay.
And I spoke with Metlife. Please go ahead.
Good morning. Thank you for taking my question I would like to something from you guys. It to walk us through the actual number. So we are some figures like baby dove can medium difficulties from the cases that was seven can be done in the first.
Then we have the tax refund 75 million on their on interest topics.
I think that we already know, but it's still hard to figure out how to go from JV destination to their free cash flow defined as cash flow from a bridge on this topic, but it's about 10, we done Donna.
And then much that we did declining gosh doesn't was about 22 million without significant movement in that so.
If you can you put the Kuzbass bridge this difference it would be paid.
Yes, just walking through the from the EBITDA that really the the adjusted EBITDA to the our funds for reported number the biggest differences roads. The adjusted EBITDA left the interest for the quarter.
And since we got so to 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 that's essentially the use of cash. If you look at the end of March were on 7 million and Wynnewood were 15 million dollar change and that's just because oil prices were a lot higher June that money was received in July.
And then also you know there's a fairly significant reduction in our payable balance.
Okay. That's it.
Second question on this and your guidance you said that you were kind of funds from operations 25 synthetic by immediately got Big. So also 25 35, India I would like also to match that we do think patients off the cost position until year end.
Yes, we did we don't forecast cash position in our in our guidance and our guidance luggage. The said on my last comment is the guidance is fluid just based on the on on the ground realities of gold might view, we need to make sure that would keep our employees who agrees that we offer.
Is it safe and you know, we're we're doing that and so we need to be it's a staggered program. It's a cautious program and lots and we want to hub is separate our contractors employees and communities risk.
Okay, but is it started to say that.
Got it funds flow operation you define it let the capital expenditure, it's going to be a neutral on free cash flow and we've got to they are appropriate stable cash position entering into or out of that and I.
I don't know maybe could.
Not included there.
A tax refunds are not included in there so that would be additive to the cash positions.
I love. It. However, other changes we have and are 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 Demichelis at least with an ideal.
Yes, good morning Gentleman's.
Just to follow up on on the previous question on the cash flow and because I think Tony He's remark was saying that you are basically guiding for free cash flow I just feel level, but then when would go to 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.
These were particularly with all the uncertainties that you could be described.
Yes.
So 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 that's our the fuel the less of a corporate level. That's after interest that's after June et cetera.
Yes, Doug Doug 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 not democracy I would also on and you also have added that situation.
Yes, and the uncertainties. The you know there's a number of law firms that we have is all we're committed to this entire program depending on what happens with oil price depending on what happens with Covidien 18, there are number a a law firms.
Okay, that's great thinking and but and the other thing through the reason why we are doing this.
As 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 was trying to choose to take advantage of what you see the strip price for next year to maximize to cashman.
Correct correct.
And the is the largest like where like were over an 18 month period. This maximizes free cash flow goods that it gives us out much higher starting production profile in Q1 next year.
Okay, that's summed up the thinking.
Thank you.
Our next question is from big along with home.
Hello, Good morning.
Oh, good like a follow up calls the previous questions. Just wanted to understand what are the main assumptions behind Davy top off $45 million to $65 million in terms of opex royalties on copper production, because youre expecting for the second how.
The real questions related to accounts payable continues to be higher what happened on $16 million. My question is how would you expect lease accounting working capital to evolve over the next quarters.
My next question is related to review can comment on your current cash levels.
Okay on the on the first point you know 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 drugs parents and lay out all the activities that we want to do and the biggest change that is as far is what we can't be certain is on the is the timing of.
As activities, but just to give you 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 balance of come down substantially from year end.
I think if you look at the end of.
20 night team, we had to approximately a $195 million nodes on 116.
We did receive the additional view a few refunds in July which was used to reduce payables.
And then we'll have the current cash balance ones will grow to our Q3 results.
But I wouldn't expect a significant change.
Okay.
Thank you.
Thank you. Our next question is some Josef Schachter webshots or energy.
Good morning, guys. One question for Brian Im on for Gallery Ryan.
The gap as you talked about the impairment.
For the quarter.
399 million.
What are the rules in the states for reversing a reverse reverting those back like <unk>, and Canada, where we got 50 or $60.
Carl many Canadian companies talk about under any of 51 on one they would be able to have a reversal of those impairment what are the rules for the states and what price do you need 50, 50 560 Brent.
Just started seeing that impairment reversal.
Yeah, It's great question under Us GAAP there is no reversal once it's gone has gone.
Okay.
Okay.
And then for dairy with the problem with the farmer is still ongoing other production out a this is this more of a political thing where Colombia is not getting money from the state.
It's almost like it will drag out past the U.S. election and here.
Uh huh.
Yes, and then the Obama policy of helping Columbia comes back and then that's when the money might show up the Columbia that to placate.
That support the farmers. This is a U.S. political drag on or is this something that Columbia can resolve internally.
Yeah.
<unk>.
I think it's it's really a related to the Coca 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 a a substitution program.
The issue is been 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 and they've been re initiated and so.
As Tony said, we're in a position that we're getting ready to start 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 and work out 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 Jamie Nickel Tong from Credit Suisse.
Hi, Thanks for the call and thanks for taking my question I.
I just have a question on your covenants.
And your we negotiated.
Bank agreement can you provide a little bit more detail on what those covenants will be in.
2021, and what your current leveraged EBITDAX.
Ratio is now at the second quarter 2020, and if Theres any step downs in that required a lot for 20 into 2021. Thanks.
Yeah. This is the main thing and.
We have lot detail in our in our debt note and really the main thing is the the total debt to even though.
Total debt to EBITDA was.
Previously it was four times and that's been we've received covenant relief until October Onest. So rude, we wouldn't have to do the calculation until the ended the year. So it'd be the end of 2021 is when we would need to be in comply with us.
If we are they do have a more constructive oil price environment and we're comfortable that we wouldn't.
Exceed the Covenant you know, we can actually get over to the governor early period.
Okay. So you you know your it looks like your.
Debt to EBITDA was rot was a little over seven times.
The second quarter is that correct.
Oh, no our trailing 12 months or adjusted EBITDA wearable four times.
Okay, and then as where everything's on trailing basis.
Okay, and so you're expecting that to spike up.
Like I guess, what I calculated which are forecasted EBITDA Optionality 20 based on your EBITDA guidance is around seven times are little more than that is that correct.
Yeah, Yeah, 'cause it because really we have so the higher EBITDA quarters falling off from just with it being the trailing 12 months is with the higher EBITDA quarters 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.
Okay, correct intimating that comes with the credit facility.
So it's based on our current forecast.
We will be on side without but into next year.
Okay. Okay. Thanks very much.
Thank you.
And thank you. This concludes todays <unk> session I will like to turn the call back to Gary 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 ongoing progress. Thank you very much.
Thank you, ladies and gentlemen for participating in today's program. You may now disconnect have a good day.
[music].