Q3 2020 Gran Tierra Energy Inc Earnings Call
So the Gran Tierra Energy's results conference call for the third quarter 2020, My name is Victor and I'll be your coordinator for today.
At this time all participants are in a listen only mode. Following the initial remarks, we will conduct a question and answer session for securities analysts and institutions instructions will be provided at that time for you to queue up for questions. If at any time during the call you require audio assistance.
Just press Star zero, and a coordinator will be happy to assist you.
I would like to remind everyone that this conference call is being.
The webcast and recorded today Tuesday November Thirtyth 2020 at 11 am Eastern time.
Today's discussion may include certain forward looking information as well as certain non-GAAP financial measures Peter.
Please refer to the earnings and operational update press release, we issued yesterday 21 disclaimer with regards to the information and reconciliation of any non-GAAP measures discussed in today's call.
Per barrel of oil equivalent or B O E amounts are based on working interest sales before royalties I know.
This earnings call is the property of Gran Tierra energy Inc. any copying or Rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra energy.
I'll now turn the conference call over to Gary and good drink.
President and Chief Executive Officer of Gran Tierra Mr. Guidry. Please go ahead.
Thank you operator, and good morning to everyone, you'll you'll find our quarterly results on our website at Gran Tierra Dot com.
With me today are Ryan Ellson, our executive Vice President and Chief Financial Officer.
Ryan will be giving an overview of the quarter and the path that we're on Tony.
Tony birth, let our chief operating officer will give a summary of the operating activities and then well open the line to questions over to you Ryan.
Good morning, everyone.
Order last call, we outlined aggressive actions, we undertook to productive balance sheet and cash flows given the recent volatility for use by the oil and gas industry. We have achieved significant reductions in operating and unit costs, and we're well positioned for 2021 and beyond.
We also discussed how we have initiated the required activities to safe, we resume several operations rotor Columbian portfolio and strict accordance with our COVID-19 protocols production is now beginning to ramp up and development and work over activities are underway.
We are pleased with the progress or Gran Tierra has achieved with the safe reserve operations. The safety of our style contractors and local communities, where we operate is paramount.
We commend the team for their excellent work during the many challenges of 2020 and their diligent management of COVID-19 safety protocols, which has allowed an earlier restarted development activities than we originally forecast one of our key objectives is finished 2020 strong order set up for four construct important 21.
We believe we are well positioned to withstand the current volatile environment and <unk> with our low base decline conventional oil asset base and the operational control for capital allocation retirement, well, maintaining a low cost structure, ensuring the safety of our people no I'll discuss some of the production and financial highlights.
Oil production in the third quarter was 18944 barrels per day down 6% from Q2 current production is approximately 22000 barrels per day through.
Through both direct refunds from the Colombian government and beauty on a wheel sales Gran Tierras quarterly total beauty, an income tax receivable of approximately 97 million during 2020.
By the end of the third quarter Gran Tierra had also paid those girls. So the balance of 200 million compared to 200 million at the end of Q2 and had 21 billion of cash and cash equivalents.
During Q3, G.'s combined operated Workover and transportation expenses of $12.63 per barrel were down 31% relative to the first quarter of 2020, Ginnie cost were down 8% on a per barrel basis over the same timeframe.
On an aggregate basis. These expenses decreased 56 million in Q1 of this year to 27 million in Q3, a 53% reduction.
The majority of these cost reductions represent structural improvements in operations, which are expected to be maintained in a rising oil price environment.
As a result of ongoing cost saving initiatives, we also expect future per well drilling and completion costs to be reduced by approximately 30% in accordance <unk> and 40% cost Yahoo compared to 2019.
The significant oil price volatility and logistical challenges due to coordinate gene grant your electric usury capital expenditures at a relatively low $7 million. Our Q3 net loss was 108 million, including non cash ceiling test impairment of 105 million users.
These results are improving roads Q twos that loss of 371 million, which included non cash ceiling test impairment of 398 million.
These non cash impairments result from Citi significantly lower oil prices, though Kurt and the respective rolling trailing 12 month period.
Q3, adjusted EBITDA was 22 million up from Q twos 18 million cubic feet Q3's funds flow from operations 8 million up from Q2 6 million were in excess of Q3's capital expenditures.
During the quarter, we entered into additional oil price hedges to further down downside protection against near term low price environment by securing three way Brent coerced a total of 11000 barrels per day is hedged for the fourth quarter of 2000 29000 barrels per day for the first half of 2021.
In summary, we have taken aggressive actions productive balance sheet and cash flows given the recent volatility facing the industry. We have achieved significant reductions and offer in June a cost and we are well positioned for 2021, I'll now turn the call over to Tony Jeep <unk>, Chief operating officer to discuss our operational highlights. Thanks.
Thanks, Ryan and good morning, everyone.
At Acordionero, the first Workover rig restarted operations on September Onest and is currently on its fourth Workover.
Just first Workover rig is forecast to continue operations in the field through the end of 2020 and into the first quarter of 2021.
A second Workover rig has now started up at Acordionero to accelerate workover activity. These.
These workover rigs are expected to return production by 2020 year end on a total of eight to 10 wells, which went offline during the first half of 2020. The total combined productive capacity of the 10 highest priority wells for Workover is estimated to be approximately 3500 barrels of oil per day.
We also expect to restart development drilling at Acordionero during the fourth quarter, we plan to drill one to two wells.
New oil wells by 2020 year end.
These new wells are expected to begin production during the first quarter 2021.
The drilling rig is then forecast to continue drilling new development oil wells at Acordionero throughout 2021.
The next 10 planned wells eight oil producers and to water injectors are scheduled to be drilled from the newly constructed south west pad.
Each of these new wells is expected to have an initial oil production rate of approximately 550 barrels of oil per day.
Moving to the per ton mile. We're pleased that the gland be field commenced production on August 28, after a previous shut in due to local farmer blocking.
Prior to the blockades in late February 2020 activities are underway to expand nickel hanby water treatment injection and processing facilities under a two phased expansion program.
The combined phased expansion would be expected to significantly boost gross water injection capacity to potentially increase ultimate oil recovery.
Lastly, I'd look at it gradually continue to optimize the waterflood during the quarter and oil production and water injection were inline with expectations.
In summary, we are pleased that we have been able to safely resume operations in strict accordance with COVID-19 safety protocols that we have put in place.
I'll now turn the call back to the operator, and we will be happy to answer any questions. Operator. Please go ahead.
Thank you as a reminder, ladies and gentlemen to ask a question you need to press star one on your telephone to withdraw your question just press the pound key.
Please stand by when we compare the Q nay roster.
And our first question will come from the line of Warner writing from Peel Hunt you may begin.
Good morning, guys.
So in spite of production having.
Restarted in front back at 40, Youve equities, obviously remaining stubbornly low because of concerns around get that position. So I don't have a specific question per se, but I'd be more interested to hear your plans on how you're going to meaningfully reduce your debt. So that equity holders can can see some transera file.
So that part of the capital structure.
Yes, all take us out of that I think when you look out to <unk>.
So Q4 here you know obviously the objective as Tony mentioned is to come to work over program in accordance Arrow.
As well as costs Jaktwo and development drilling in accordance Arrow and so you know the company looks a lot different at 20 to 30000 barrels a day that does a 22000 barrels a day from a free cash flow perspective. So ultimately you know there's been nothing changed at the asset base as far as original oil in place et cetera.
This is really just a timing issue June due to your very challenging 2000, 22020 with a you know a pandemic and the price war. So the underlying asset quality is there and in a rising oil price environment, we do expect to generate more free cash flow, which ultimately we use to reduce our debt.
Uh-huh.
Okay all right. Thank you.
Thank you. Our next question will come from the line of Leo Han from eight capital you may begin.
And my guys. Thanks for taking my question Hi, it's not really the last quarter. Just wondering were seeing a lot of industry consolidation here in North America, whether it's incredibly aliskiren Khanna with Synovus Husky, just wondering if you could sort of comment on the outlook on the consolidation trend in Latin America, and how do you see Gran Tierra player.
Yes. Thanks.
Sure.
I think.
It across the industry.
You're starting to see consolidation, it's not just the Permian, it's not just western Canada.
You've seen Occidental petroleum, so over $700 million worth of assets.
To a private equity firm back from in Colombia.
And we fully fully expect the consolidation in the industry to continue its been a.
A tough year for the entire industry, but it don't let that mask.
The overarching the overarching climate change the transition.
Transition of energies.
And to do that I think the industry or are facing unprecedented.
[noise] obstacles I guess obstacles is the best word or headwinds.
Sure.
Capital in the market and so.
The consolidation in the Permian is certainly welcome by the industry. It's.
Hopefully going to end up in a in a better manner.
Folio.
And different reasons for different consolidations.
Slowly and we don't expect we don't expect Latin America in general to be any different it's a matter of sustainability.
Yeah Thats excellent color just a just a quick follow up I think last time on top of this the bid ask spread change the markets on buyers sellers are pretty high do you still see that as the case today or do you see that kind of start generic down now.
Okay.
I think the bid ask spread is always you know, it's tough to pin that down, especially when rates have been so volatile, but I think what you've seen is you know to have to get around that challenge is companies essentially merging with zero premiums and I think that's I think we would expect to see.
Little to no premiums going forward.
Thanks appreciate the color Thats it for me.
Thank you. Our next question comes the line of David well from BMO capital markets.
You may begin.
Hi, guys.
Just one on the debt I think you've got the next Redetermination. This month. So I was wondering if you can say anything about expectations, there and whether because you are quite late and agree on the last redetermination, whether you've already self that the borrowing base reduction given that the prices we've seen this year.
Yeah.
And then there was also talked in the last set of results.
Possibly prepayment facilities is.
Is there any updates around around those please.
Yeah, that's on the growing base.
You know part of.
The objective is to have the Boeing be done by the end of November.
So we've just started that process.
It's a good reminder, all everything is relative if you look at last on them started read the reserve Redetermination process.
Brent was $18 in April so prices are more constructive, but it's a challenging time for not just the sector, but for the banks as well with their exposure to energy. So as we have more information on that we'll certainly were Lisa.
We're always open to other source of liquidity you mentioned prepays that is one source.
There is also potential of you know far modes asset sales et cetera, right now we're looking at all sources of liquidity to strengthen the balance sheet for the benefit of all stakeholders.
Okay, that's great and cannot just maybe just thoughts one the acordionero and apologies if I missed it but are you able to just say how you expect to see production ramp up there are there are at least the next couple of months.
Yeah, you bet, it's Tony here.
So as as we mentioned in our press release, we're targeting eight to 10 hyped up productivity wells that basically during this first and second quarter late first quarter and through the second quarter as as wells went down we chose not to repair those so really it's about continuing base waterflood optimization and then layering in.
Shut in production.
And as I mentioned were in our fourth Workover and we'll look to continue that activity through the remainder of the quarter to build that production gap.
Okay. Okay, great. Thank you.
Thank you our next question comes line.
Al Stanton from RBC.
May begin.
Yes, good evening guys. So I.
Just want to go back to some of the guidance you gave earlier in the year for second half spending it was things like Capex of 25 to 35 million I suppose based on what we spent in Q3. Those numbers are now sort of 18 to 28 I was wondering if patches skill reasonable guidance and then also.
With respect to money coming in there was commentary about.
Tax rebates I was wondering if they were flying in Q4 as you previously anticipated.
Then tying that all together I. Appreciate you you've had your covenants relax, but there is still the one outstanding one which I think is.
EBITDA to interest which has to be at two times I was wondering if that has any consent fee in the fourth quarter.
Yes, I'll touch on that.
With respect to the guidance, there's no changes to our previously issued guidance.
With respect to the.
Hey, those vector capital with respect to.
On the EBITDA.
If you look at our Fabs room for upstream and think we're fairly robust disclosure in there based on our current forecast we expect to be in compliance, but you are as you know with you know the the challenges in the market right now things are volatile. So I would encourage you to take a look at it.
Our financial statements and the disclosure in there.
And then.
The last question sort of last question all the time.
Yes.
Actually bid.
Please would come in as we anticipated.
And you know right.
Right now most of the lumpy amount to have come in during this quarter and going forward on all of our sales. We do have you do you charge or sale. So that really is when we get them monthly from our customers.
And if I may can I just ask one last question I've seen the cost coming down on transportation.
And that's not reflected in a in a lower realizations I was wondering how the dynamics of the local oil market or whether you're happy with but.
Well head prices that space effectively.
Who we are we actually improved our netback.
Both accordant narrow and in store into during the quarter.
In accordance Arrow it started in July and in sort into certain in September. So we're quite happy with their current arrangements that we have and also have been very pleased with the current differentials. Both you know as you know with the shortage of heavies worldwide differentials have continued to tighten they were fairly.
During the quarter and Weve, even tighten more in the last week or so.
Thanks, guys.
Thanks.
Thank you. Our next question will come from the line of Josef Schachter from Schachter Energy you may begin.
Good morning, Thanks for taking my call.
During two questions right now what is the situation with sort of coated in Colombia and are they facing the same kind of issues.
Issues, where we're getting like in Europe, where there's more caseload and they're going into quarantine again, and if such a thing was what's happening what would that do to impact your your activity plans in Q4 and going forward.
If there was an acceleration of the caseload and more of a corn seed situation.
Okay. Thanks, Thanks Joseph.
Rob.
No Colombia is not seeing a significant spike that is occurring and Europe.
I think the the country has done a good job of the way they manage.
Managed code in the country, we operated throughout.
Tony and the team have have made crude changes from the very beginning by putting protocols in place and so are our view is we are gradually bringing our staff and Bogota.
Back into the office, but throughout the throughout all of the cobot outbreak we continue to operate.
Our fields that are economic and so we're very comfortable with our teams protocols that are that are in place too.
To move people and logistically around the country that to ship oil through.
Throughout the country.
And we.
We we monitor it closely but the answer to your first question is no not seeing the same thing is happening in Europe and that and the second is we don't anticipate any impact with what we have in place.
Okay Super and it's starting to really go into the cover.
Is if we have if the questions are about the debt if we see Brent at 45 50, the extra capital would not go into more activity would go to pay down debt and then on the other side of the coin. If we saw Brett go to 35 or 30.
Because of all the issues that may be more covert unless demand would you re restrain your spending and would you cut back and what price point would you should be watching for for the activity level to be pulled back.
Yes.
I think the answer to that.
Does affairs.
Back in August September as as things started stabilizing we had hedges in place we put more hedges in place before we started reactivating fields and the anticipation was through the middle of next year.
We're comfortable that we have hedges in place to reactivate fields and start ramping production naturally we like the rest of the industry watch it our our.
Pressure point is 25 to $30 a barrel.
Where we have to reverse that and we we watch that closely because it cost us money.
To shut in fields and.
The first part of your question as that that's at at what does our pressure point on the downside we're comfortable even.
Even with today's volatility that we have we have the financial instruments in place the second.
The first part of your question is at 45 to 50.
The beauty of our portfolio is we effectively operate everything and so we have the ability.
Turning to allocate capital.
And you're exactly right that at 45 to $50 a barrel, we will manage our development and our operations going forward into next year as well and that's that's really what Tony and the team watch.
Okay Super Thanks, very much that does it for me.
Thank you. Our next question will come from the line.
On the go Oh spina from Compass, you may begin.
Yes, Hello, guys I hope.
Three questions. The first Juanita if you can give us some color on opex going forward you have been spending between $20 million to $25 million per quarter. So my question here is what is a more sustainable level going forward.
The second question is if you have any exit production target with all their development plans that you have on the third question is if you can confirm that your expected capex for the fourth quarter will be between $25 million to $30 million is that correct. Thank you.
I'll take the tone here I'll take the Opex question.
Start off with that so.
Yes, we as we come into the fourth quarter clearly, we're going to continue with some of the Meyer field Reactivations.
So looking at lifting cost forecast coming into the quarter I would expect us to be in that 20 million range to 22 somewhere in that.
Range.
On the Workover cost, obviously, we're going to continue to accelerate the workover activity on those suspended wells. So some of that cost will increase as we continue that workover. That's the split between capital and Opex for for that activity. So in the fourth quarter, Yes, we will see some incremental costs, but there will be barrels coming with that so you want to.
Herbie OE basis.
We like to stay relatively flat so that's guidance on Opex and then in terms of they exit targets.
No much will depend on how things go with coated managing coded and continuing that activity.
But.
So you know on that we'll provide more formal guidance come.
Coming up but yes, we are at 22000 barrels now and we look to continue to add production, both through minor fields and and some of the workover activities.
And then on that Tony mentioned, we do have a fairly significant amount of fixed costs will 70 or 70% of our costs are fixed so as we ramp up production, we would expect to get the benefit into into the end of this year and into next year and our capital guidance was 25.
35 million.
Thank you Larry.
Thank you.
Our next question comes from the line of Ivan Fernandes from pick that you may begin.
Hi, guys. Thanks for the color.
Couple of questions on the T. refunds could you tell us exactly what was the total collected during all need at third quarter I guess the language isn't it a bit I guess it would have included though told were in early November in the in the language you put in the press release.
Yes.
We only included in here just for the year to date and that year to date was as of September Thirtyth.
Okay.
Right. So what was the total for the third quarter.
That is a good question.
You just because I was reading the language on the second quarter.
And it doesn't quite make it easy to to calculate the total up to that point.
You want to come back to that one yeah I'll come back to that one sure. Okay. Sure. The second question is on the recalculation of the lending base for numbers over the sorry, I joined the call little late so I'm not sure I already commented on this but let me just tell us how those conversations are going I think the next calculation is on Nov correct.
Yes, and we just we just kicked off the process. So as we have more news will walk data update the market.
So you can give us any any any ceiling to how all the reaction has been so far.
Or would you ever essentially.
Process literally the process has just started but I think you put in context of the last redetermination prices are up quite a bit higher our costs are down and we're we're comfortable with our reserve base.
As our descended okay [noise].
Great. So again I don't want to open up the call. So I guess you guys would like maybe to email, yes, you put in third quarter that would be fine.
Yes, actually the amount collected just during the third quarter was $50 million and that's a combination of revenue as well as direct refunds.
Okay, and do you have any kind of expectations for the fourth quarter, we teach.
The big four Q4, most of it I had mentioned earlier most of its coming through the revenue side of things and depending on pricing, we would expect between 10 and $15 million.
Okay. Thanks, a lot guys. Thanks.
Thank you.
As a reminder, that star one for questions.
Our next question comes line of blood cancer from Eaton Vance you may begin.
Hi, guys. Thanks for the time.
Just a few questions from me. The first one is I was just looking through the cash flow statement looking capital and especially the accounts payable line item has been quite a large driver.
For the year to date period, a specific there's a line item on under cash flow from investing activities I think was 69 million.
For the year to date period.
Can you can explain what that is.
Yes that really is I think if you look at Q4 of last year.
You know there is a very heavy spend and in Q1 of this year was fairly heavy spend relative to our funds flow.
We're expecting a more of a balanced quarter, but then prices fall out at the end of February.
So really that's the unwinding of the payables. So now we've gotten all of our vendors current.
Do the payables related to Capex spend those done yes. It is.
Good Capex and Opex, but the majority would be capex.
Okay. So there's there's not there's not a concern you know if your suppliers wanting to collect foster because it is concerned on the company.
No no no. It was just up getting all those those payables current and you know there was a little more.
Our industry, including our suppliers felt a lot of stress in the dark days of April may and June.
So I think there everyone is feeling some stress during that period no yards. The bars are in good shape and we have everyone caught up.
Okay.
Next question, how did you had mentioned earlier.
That you know you have certain levers for liquidity farm outs and asset sales being a couple of them I guess you didn't mention them, but can you give.
Maybe just some numbers around or just some details on what the options are.
You know how fast could you execute on those plans and on a farm my point I mean, obviously, you've got the capital plan quite a bit.
It makes sense to maybe farm out just so that someone can on someone else can carry the capex and you're not maybe harming some of the assets by under investing in them.
Yes, two questions as far as timing.
He said if the market is quite volatile, but we're continuing to look at those auctions and one of them it could be either sale of some reserves or.
A.
Farm out or farm into some of our exploration loans.
I think we'd look at both of those options I think from from our core assets from a development. So I think we're very comfortable we're maintaining proper reservoir management on a coordinator ocaw's geochemical and sort out there so to the extent that we could accelerate some of the expiration with someone else's money, we would absolutely something that we would do.
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But what I mean, what would be the trigger for that decision. I mean, you know things are pretty tough right now so why not do it now.
Yeah Yeah.
Ooh.
We are we are looking at the process.
And.
And as we have any updates on that we'll certainly let the market know.
Okay, and just a couple more questions is there a weekly to hedge the vasconia discounts that if that widens out and then on the sell off that can kind of put that yourself.
Yes, one of the challenges you know, we do overhead hedges with our syndicate and right now our syndicate doesn't have the capacity to have US go here, but it is something that we'll continue to look at.
Okay and then the last question I I wasn't joined a few minutes late I'm not sure. If you touched on this but you know.
Former for all these work over programs what is your production going to be.
Yes, Tony here, so we've talked about adding roughly 3500 barrels of production.
Some of which we've already added to get to that 20000 barrel production rate today. So.
So that's kind of the target that were looking at with the eight to 10 highest producer wells that are currently shut in.
And that'll get revenue than the new drilling or anything that's.
That's correct.
So how do I, how do I reconcile that 22000, but that's how deep lots that you were doing a year ago.
Well I think the big part is we stopped drilling we stopped our development drilling and accord narrow and some other things we're planning and so that's that's really just deferred production that will catch up once once.
We start drilling Tony and the team are working on that now.
And we expect to resume production before the end of the year.
And we do have other production behind pipe, we will work over in Q4 Q1 of next year.
As well as some other fuels will bring on in a more constructive environment.
Construction lending what.
Better pricing better pricing.
Okay all right. Thank you.
Thank you.
And gentlemen, there are no further questions at this time please continue.
Okay. Thank thank you operator, and thanks, everyone for participating in today's conference call. It's been a very unusual year. We thank you for your patience and your support and we look forward to talking to you. After the next quarter. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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