Q4 2020 Gran Tierra Energy Inc Earnings Call
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Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy conference call for our fourth quarter and year end 'twenty 'twenty results. My name is Mary and then it would be York of argue nadir for today at this time all participants are in a listen only mode. Following the initial remarks, we will conduct the question and answer.
Session for of Securities analysts and institutions instructions will be provided at the time for you to queue up for questions. If at any time during the call you require audio assistance. Please press star zero and a coordinator will be happy to us of few I would like to remind everyone that this conference call.
It is being webcast and recorded today Thursday February of 'twenty, five 'twenty 'twenty, one at 11, a M eastern time.
Today's discussion may include certain forward looking information oil and gas information and non-GAAP financial measures. The recent.
Please refer to GAAP earnings and operational update press release, we issued yesterday for Inc. From important bargains advisor East and disclaimers with regard to this information and 40 conciliation of any non-GAAP measures discussed on today's call.
Finally, this earnings call is the property of bank share of energy incorporated.
Any copying or the broadcasting of this call is expressly forbidden without there you can consent of <unk> energy.
I will now turn the conference call over at the very Guitry, President and Chief Executive Officer of Gran Tierra. Mr Gate. Mr. Guidry. Please go ahead.
Thank you Mary.
Good morning, and welcome the Gran Tierra is fourth quarter year end 2020 results from conference call.
My name is Gary Guidry Gran.
As President and Chief Executive Officer.
And me today are Ryan Nelson, our executive Vice President and Chief Financial Officer.
And Rob will our vice president of asset management.
We issued a press release yesterday that included detailed information on our fourth quarter and year end 2020 results.
In addition, Gran Tierra of 2020 annual report on form 10-K has been filed on Edgar and is available on our website.
Brian and Rob will make some brief comments and then we will open the line for questions I will now turn the call over to Brian for a discussion of our financial results.
Thank you Gary.
Good morning, everyone.
With the unprecedented impact of the COVID-19, pandemic and the crash of World oil prices Gran Tierra took decisive actions during the first half of 2020, the shut in minor fields curtail drilling activity and defer work.
Of course in order to protect the company's balance sheet and liquidity, while still achieving the 2020 average production of approximately 23000 barrels a day.
And the low price environment, we made the prudent decision north of maximize production, but the deferred production the oil prices began to rebound in the second half of 2020 and now into 2021. We did this will maintain the proper reservoir management and protecting the long term value of.
Assets as evidenced by our strong reserve replacement in 2020.
Gran Tierra is Q4 capital spend totaled $40 million, which was significantly up from $7 million in Q3, which were reflected the reserve of activities primarily in the coordinated field. We also accelerated certain budget first half 2021 capital expenditures into the fourth quarter to maximize operational efficiencies.
At the end of the year of 190 million withdraw of the letter of credit facility compared to a balance on the credit facility of $200 million at the end of Q3. Our next RVO Redetermination will be in May and prices have significantly increased since our last redetermination.
During 2020.
Through both direct tax refunds in value added tax on oil sales, we collect the total VIP in the income tax receivable of approximately $114 million, which was an important source of liquidity during the last year, which allowed us to strengthen our balance sheet.
We were also able to achieve significant reductions in operating and G&A costs, we reduced growth years gross cash G&A cost, 32% in 2000 $20 million to $23 million down from $33 million in 2019 or the <unk>.
Net basis total operating and G&A costs decreased $92 million from $237 million of 2000 $19 million to $145 million and 2020 of 39% reduction. The majority of these cost reductions represent structural improvement in operations, which we expect to maintain as oil prices continue to recover.
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Furthermore, in Q4 as a result of ongoing cost saving initiatives GT was successful as successfully reduce per well drilling capital costs and completion costs. The coordinated by approximately 18% of 52% respectively compared to 2019. The company also expects future per well drill.
The depletion cost reduced by approximately 20% the cost compared to 2020.
2019.
We were also very pleased that the company achieved material proved developed producing or PDP reserve additions in 2020, and particularly in the company's core assets. As a result of continued positive reservoir responses from waterflood are excellent PDP reserves replacement ratio was 133% with PDP.
Reserve additions of 11 million barrels.
Our total proved or <unk> the additions of $8 3 million barrels gave us a strong one P reserve replacement ratio of 100%, resulting in 79 million barrels of one P reserves at year end 2020.
At December 31, 2020 are one of the net present value discounted at 10% was $1 2 billion before tax and a one P. Before tax net asset value of NAV per share was 150.
The $1 15 per share.
Well, our total proved plus probable or two P before tax of NAV with.
With $3 25 per share all of that in the U S dollars.
Looking at the 2021, our capital budget as a balanced returns focused program, which prioritizes free cash flow generation and debt reduction we have allocated a modest amount of the advent to advance exploration related activities of our high impact exploration portfolio, which we hope to accelerate in 2022 of our 2020.
One program will continue to focus on optimizing our four core assets under waterflood, while maximizing the long term value of all of our assets.
We see a clear path to lowering our net debt to EBITDA at the under two given our annualized Q4 EBITDA of over $300 million, our free cash flow.
And tax refunds, we also reiterate our 2021 guidance EBIT of Brent stays at 60 to $65 or goes higher well above our 2021 budget of $49 per barrel. We bought the remaining disciplined in applying the extra free cash flow to debt reduction of instead of ramping up our capital program.
We entered into Brent oil hedges on 15000 barrels per day during the first half of 2021 with a weighted average floor of $45 and a ceiling of $51 38.
To provide downside production since 70% to 80% of of the company's 2021 capital investment is projected to occur during the first half of 2021.
Gran Tierra has 7000 barrels a day hedged for the second half of 2021 with a weighted average $455 75 per barrel in the ceiling of $63 18.
With increasing production and a lower percentage hedged in the second half of 2021 allows us to continue to work in higher prices at levels, we do not anticipate even a few months ago and participate potentially much higher commodity prices.
Subsequent to Q4 on January of 'twenty, One we announced the sale of 109 million shares in the petrochemical for proceeds of approximately $15 million proceeds were applied the general working capital.
Gran Tierra is still the 137 million shares which are worth approximately $37 million U S.
2020 was certainly a challenging year for Gran Tierra and the industry for the Gran Tierra, we took decisive actions and of our stronger and leaner company going forward. The impressive reserve replacement ratio in the two P. Net present value of reserves discount of 10% of approximately 2 billion. Despite a significant decrease in the price forecast used by the reserve value.
Later is a testament to the quality of the assets and the excellent reservoir management and cost ultimate optimizations by the team I will now turn the call over to Rob will to discuss some of the highlights of our current operations.
Thanks, Brian Good morning, everyone all of <unk>.
The cover a few operational highlights from yesterday's press release and provide some updates of current activity we have.
Very proud to announce that the company achieved its first year with the lost time incident.
<unk> frequency of zero during which the company lost 15 million LTI free person hours.
The LTI ratings zero is a remarkable achievement in any year and particularly in 2020, while activity levels included field suspensions in the first half of 2020, followed by the restarts of these fields. During the second half of 2020, all while abiding by our strict real class COVID-19 safety protocols.
GTS LTI reading of zero was well below industry averages.
<unk> <unk> for Latin America, and 0.3 for North American exploration production companies in 2019 as reported by the International Association of oil and gas producers and it wasn't the top percentile in any region globally.
Early in 2020, we implemented enhanced COVID-19, preventative measures with a focus on reducing the spread of COVID-19 to protect our employees contractors and communities living near our operations.
I'd also like to touch on our partnership with the international non governmental organization Conservation International.
Of committed Reforesting, one thousands of hectares of land and securing and maintaining 18000 hectares of forest.
Sure Amazonas project in the Putumayo basin.
Gran Tierra is total natural Amazonas investment in the Andes Amazon rainforest corridor through this project is forecasted to be $13 million over eight years.
Gran Tierra is planted 803000 trees and has conserved preserved of Reforested one.
624 hectares of land through all of the environmental efforts.
The natural Amazon's project alone is expected to sequester approximately eight 7 million tons of Cotwo over its lifetime, which is equivalent to 215 billion passenger miles driven for the energy use of $10 million typical homes during one year.
Moving onto operations.
We are reiterating our 2021 guidance of 28000 to 30000 barrels of oil per day.
Which delivered annual growth of 24% to 33%.
At the coordinator of Gran Tierra is utilizing to Workover rigs and continues to work over oil wells that went offline during the decline in oil prices during 2020 in order to restore them to production in connection with the improving oil price environment.
I'd also like to highlight the year to date ESP failures at a coronary <unk> are down 50% versus last year's failure count.
We restarted development drilling of the core narrow on November 30 of 2020 net since drilled eight wells comprised of six producers to injectors out of the.
10, well program at the new southwest pad all six producers are currently on production and all 10 southwest.
Pad wells are scheduled to be thrilled by the end of February.
I'd like to highlight that the accordion of 169, well achieved a record cycle time from spud to on production of 11 five days at a total drill and complete cost of only $1 9 million.
The combination of the Workover and drilling programs as a result in the court narrows. The total working interest production, averaging approximately 13000 barrels oil per day during February 2021 month to date.
I also want to mention that of coordinating working gross production dipped below 10000 barrels of oil per day in the early part of the second half of 2020 due to last year's temporary suspension of Workover development drilling activities. Carneros production has now returned to the production levels realized in February 2020, with minimal capital spend.
<unk> efforts are underway to restart development drilling during early second quarter 2021, with a three well program. The rig is currently stacked on location over the plan Kusiak of 42 infill oil well location.
I'll now turn it back to the operator, and Gary Ryan and I will be happy to take questions. Operator. Please go ahead.
Thank you, ladies and gentlemen of we will now conduct the question and answer session for Securities Inc.
If you have a question. Please press the star key followed by the one on your thoughts going forward.
You won't hear with Cowen acknowledging your request your questions will be Paul in the ordinary day RBC.
I am sure you lift the handset if you're using a speaker phone before passing any Q1 moment. Please.
The question.
Sure.
Your first question comes from the line of Gavin Wylie from from Deutsche Bank. Your line is now.
Open.
Yes. Thank you. Good morning, guys. Just I had a couple of questions just looking at capital spending profile through the year I wanted to know how that looks I mean is it is it weighted.
In spite of the first half of the year or perhaps by quarter.
Just kind of how the breakdown looks and I guess in connection with that is how do you see production of evolving through 2021 to meet your guidance that you've put out here at the 28 to 30000 BOE per day is there is it a pretty balanced growth sort of.
Profile of steady state or is there actually a step change that you are expecting at some point that we can be looking for and then just the last question is as we look into Q1 and Q2 do you have a rough sense of how many workovers youre looking to perform.
On the individual quarters, that's it thanks.
Thanks, Kevin I would expect the capital expenditures that we expect will of 70% to 80% over capital expenditures to occur in the first half of the year.
And about 50% of that to be in Q1 Q1 of the the heavy capital program just with the expenditures in the coordinated as we do the drilling program. The team as Rob mentioned has done a great job of accelerating the speed that we're drilling the wells without really access.
The rates the capital spend as you know in the Q1 as well. So so Q1 will be the the most heavy program.
We've accepted production it really will be.
The change in the second half of Q2, just as we bring the additional coordinator of wells on <unk> as well as start to bring on both the new drills as well as the Workovers, but also the cost of Jaco wells as well.
And then just just on the Workover front.
Of the Workovers.
Many of the Workovers as zero.
We were not we don't have the well failures and but most of the workovers are going to happen the one.
As Rob mentioned as the wells down in a coordinator.
And those of all of you on by the end of this quarter or first part of next quarter. So then the note we're.
We're expecting this to be normal course after that.
And if I can ask a follow up on the on the accordion narrow side I think you mentioned something thats quite impressive as the drilling time that you guys have been able to reduce to bring those costs down is that going to allow you to potentially keep the same budget level, but actually end up drilling a couple of more wells. This year. I mean is it too early to make that call or are you starting to build confidence around potentially adding more drilling at the same cost.
Yeah.
Yes, Hi, Kevin It's Rob, Yes, yes definitely.
Did honestly.
The forecast into our 2020 of the budget.
Cost savings in drilling completion of our wells this year, but we're.
We're definitely doing better than we had budgeted so.
The guy that heads up the team that's responsible for developing these pools out of yes, I would love to see.
Some.
Additional wells to drill but.
But as Brian mentioned of the focus this year will be on using excess cash flow towards.
The strengthening our balance sheet debt reduction of out but.
Yes, yes, Brian Gary allowed us to drill a few additional wells here with the additional with the money and the savings that would be that.
That would be the greatest wells I think what you saw Gavin and our reserves released last month.
Strong reserves.
The additions in terms of moving into proven.
And the and held the line on probable a lot of that of the coordinator of the waterflood performance, we have quite of bit of emphasis on that and.
Thank Rob and the team have done a great job of optimizing that waterflood, even during 2020.
In terms of conformance of where were injecting water and what we're working on now is better performance on our pumps youll see in our press release.
We're trying some different constant drive to get longer run life. So.
Orion is exactly correct, our target of zero on Workovers, and we're getting very comfortable that we're getting the right equipment in place we're getting water in the right places.
I believe you would have seen that thats reflected in our reserves last month.
I appreciate the additional details thank you.
Next question comes from the line of Joseph Jester from sector Research. Your line is now open.
Thank you very much good morning, Gary and good morning, guys.
A few areas from me just wanted to go a little more on the production side you did 19 511 in Q4.
You show on the right up average production for January one to <unk> 25 of 23 of four to eight and then there was a couple of wells still to come on from the 10, well southwest pad and then potentially another five producers from pad six day.
Could you go into a little more detail of when you expect those to be on.
Rob.
Yes of course, our Julien.
Julien, yes sort of.
Southwest.
Pad drilling.
Of the 10 wells that we drilled two in late 2020 and the eight this year all of those wells will be on production by.
Middle of March.
And then our pads six five well.
Drill program of <unk>, six which is free.
Forecast would be complete by the end of April you would expect that all of those wells will be on production by mid May.
And as we said our cycle times are really getting tightened out.
The 11 five days from spud to on production. So there is not a big lag between.
Finishing the drilling of our gamma production. So yes, so all of the southwest pad wells on production by.
Mid March all of the tax six the five well program there all of those wells on production by by mid day.
And then of course size Ryan mentioned before we do we do we still have work to of Workover rigs.
Bringing it of coronary obviously, one primarily focused on the new drills the ones focusing on bringing wells.
Back up and so we still have.
We still have about 2500 barrels per day of oil production behind pipe of the core narrow just waiting on the workover rig to get to them.
And we expect all of that to be up in backlog of production.
As Brian mentioned.
By boat.
In early April.
Yeah.
Joseph of as you can imagine.
It's never a straight line I think of you look at our production alone in February has gone anywhere from 23, 5% to as high of $25 five depending on the day and so we are comfortable in our annual guidance.
But when we look at individual months in certain time periods it looks more choppy.
Okay second question from me.
The debt repayment.
The prices, where they are you're probably generating an extra 20 $30 million.
The us of cash flow of your budget.
And youre looking at debt repayment.
Is the choice to go and pay down the.
The.
The committed credit facility or are there of the bonds of the <unk>.
25 of 2027 bonds are the trading at such a discount.
You would end up doing better buying bonds in the open market, how do you approach that and whats your thinking there.
Yes, it's a good question and something obviously that we always have the way as far as.
As you know the credit facility and really the RVO market has been changing a lot and so it is complex.
As the indices as the industry has seen more challenging having an RVO that gets re determined every six months as opposed to a longer term source of capital.
So it is something the.
When we do look at reducing debt as I've mentioned before Q1 is the most capital intensive program just with the drilling program, but when we do look at.
Repaying debt you're spot on that there is a number of variables that we need to consider.
Okay.
<unk> is the next time of renegotiation is.
Really driven by the end of May.
At the end of next year, So may of this year.
Q2 is excess Q.
Q2 cash flow.
It's going to probably be used to pay that down to hopefully get the tenor of the play along again. My last question is do you have.
I haven't talked much about exploration of while again sort of at that time, given the financial the.
The price of oil and and where the balance sheet that the cash flow is.
But do you have any obligations from that.
Within 2021, 2022 and have you had success negotiating with the government to get those extensions sort of it you don't lose those opportunities.
Yes.
The short answer to that is we are still moving all of our projects forward in terms of the regulatory and <unk>.
The regulatory approvals to.
Drill the top part of our portfolio and it's a very exciting portfolio both in the.
The middle Mag in the Putumayo, one of the extension into Ecuador, and as you might imagine the regulatory process has slowed down in both Colombia, and Ecuador over the last year.
We are not facing any imminent deadlines on our exploration our plans are to resume drilling to finish all of the the regulatory approvals and access.
And resumed drilling in early 2022, so the the short answer.
Joseph is we are not facing any any deadlines and we are still moving everything forward.
Okay Super Thanks, very much for the clarity and much appreciate it and I. Appreciate you taking my questions I have a good day guys anytime thanks.
Gentlemen, there are no further questions at this time Gary.
Do you have any closing remarks.
Yes. Thank you. Thank you operator.
I just want to thank everyone. It's been a.
A difficult year I think is both Robin and Ryan summarized the.
Team did a great job managing through that.
We've put on hedges at the end of the end of the.
Fourth quarter of last year and resumed our field.
Production and we're quite excited about what 2021 is bringing.
So I. Thank you for your patience and your support and we will keep you posted as the quarter quarter of matches. So thank you for your time Goodbye.
Ladies and gentlemen, this concludes today's conference call. Thank you all for your participation you may now disconnect.
Okay.
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Yes.
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Revenue.
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The team.
Sure.
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