Q2 2021 Gran Tierra Energy Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to the Gran Tierra Energy results conference call for the second quarter 'twenty 'twenty 1.

My name is Angie and I will be your coordinator for today.

At this time, all participants are in listen only mode.

Following the initial remarks, we will conduct a question and answers for security and analysts and institutions.

Instructions will be provided at that time for the Q.

For our questions.

At any time during the call you require other audio assistance. Please press star zero and a coordinator will be happy to assist you.

Now I'd like to remind everyone that this conference call is being recorded and webcast for today Wednesday August for 2021 at 11 o'clock a M eastern time.

Today's discussion may include certain 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 important disclaimers with regard to this information and reconciliation of any non-GAAP measures discussed on today's call.

Per barrel of oil equivalent or B O E amounts are based on the working interest sales before royalties.

Finally, this earnings call is property of Gran Tierra Energy, Inc.

Any copying or rebroadcast of this call is expressly forbidden.

Without the written consent of Gran Tierra.

I would now like to turn the conference over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry. Please go ahead.

Thank you Angie.

Good morning, and thanks for joining us on.

For Gran Tierra <unk> second quarter 2021 results conference call.

My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Nelson, Our executive Vice President and Chief Financial Officer.

And Rob will our vice president of asset management.

Yesterday, we issued a press release that included detailed information on our second quarter 2021 results, which are available on our website.

Ryan and Rob will make a few brief comments and then we will open the line for questions I will now turn the call over to Ryan to discuss some of the highlights from our second quarter results.

Thank you Gary good morning, everyone.

The last few press releases, we discussed how a number of protests on blockades across for MBS impact on several key transportation orders throughout the country during the second quarter, resulting in a temporary shut it in some of our wells in the world fuels as a result of these blockades just under 600000 barrels of oil production, we are deferred during the second.

I would like to point out that these barrels are often loss.

Will it be deferred.

We also expect a negative impact on the company's reserves as a result of it.

Yes.

As announced in mid July the Colombian government successfully negotiate at the end of the blockades in the areas that were affecting Gran Tierra has operations, we've been able to start restoring production drove our portfolio.

Our oil production in the second quarter was 23035 barrels per day down 6% from the first quarter. This drop is solely due to the temporary impact on walk age during the quarter.

Gran Tierra is on track for a strong second half on 2021 as we were forecasting second half 'twenty 'twenty..1 total production to average 30 to 32000 BOE per day, we're also reaffirming our 2021for production guidance of 27500 to 28500 view we predict.

By the end of the second quarter Gran Tierra. It further paid down on its credit facility balance to $175 million and 20 million in cash cash equivalents during Q, Duke Gran Tierra achieved a significant reduction to operating expenses <unk> operating expenses of $12.46 per barrel were down 9% relative to <unk>.

Through the first quarter of 2021, despite a reduction on the company's production. This decrease in operating expenses achieved mainly by lower power generation costs and the coordinator.

I'd also like to discuss a few increases other expenses incurred during the quarter due to the temporary impact of walk ins during the quarter Gran Tierra.

And some of its production to higher cost transportation alternatives as a result of these temporary alternative marketing arrangements with other cost the quality of the transportation discount was up $2.50 per barrel during the quarter to $11.54 per barrel relative to the prior quarter transportation expenses were also up 28.

During the quarter to $1.43 compared to the prior quarter.

With the resolution of the blockades, we have restored our normal lower cost transportation routes and reaffirm our 2021 full year forecast for quality and transportation discounts on each $10 and transportation expenses of $92.2.

G&A expenses before stock based compensation increased by 77 per barrel during the quarter compared with FERC or do this on a certain corporate costs and lower production, we're still affirming our reaffirmed our 2021 full year forecast for G&A expenses of $1.

$2.50 per barrel.

Second quarter Capex of 37 million was flat quarter on quarter for us and the development drilling operations completion Workovers other coordinator low cost Jack oilfields, we expect approximately 56 for 50% to 60% of our 2021 capital program of $130 million to $150 million has been spent during the first half of 'twenty 'twenty 1.

Our Q2 net loss significantly narrowed by 53% quarter over quarter to $18 million and our EBITDA improved.

Improved 34 million up from 16 million in the prior quarter.

Q2 funds from operations was $23 million down from Q1s $29 million due to the blockade driven drop in production and a temporary increase in expenses in terms of hedges for the second half year, we have hedges in place for 10000 barrels of oil per day with a weighted average floor of $57 per barrel.

Weighted average ceiling.

Price of $65.29.

During the quarter, we realized hedging losses of $24 million, but first half hedges have now rolled off as of July 1.

And have been replaced with much higher floor and ceiling prices.

In normal course, Gran Tierra has also filed a new shelf form S..3 other existing shelf filed on September 5.2018 was set to expire.

In summary, we are on track to achieve our 2021 guidance and our forecast for free cash flow of 100 to 120 million for the second half of the year, we continue to prioritize debt repayment and we are safely and diligently ramp backup operations throughout our portfolio with a constructive oil price environment.

Successful first half 2021 drilling program and the expiry of our first half 2021oil price hedges, we're very excited about the second half of 2021 and 'twenty 'twenty Jude on the I'll turn the call over to Rob will EPS and management to discuss our operational highlights.

Thank you, Brian and good morning, everyone.

On Accordant Arrow, we completed a total of 13 workovers during the quarter to restore wells that had gone offline. During the current Workover campaign. The average electric submersible pump replacement cost has decreased 57% from fourth quarter 2019 also on CT narrow the development drilling rig was accurate from the end of November.

For 2020 to mid May of this year drilling both producers and water injectors. We're pleased that the average cost per well a decrease 38% since 2019.

The 5 wells drilled from pads 6 resulted in a pacesetter well from spud to on production of $10.90 days at a time.

Total cost of $1.9 million.

We continue to believe that our prudent reservoir matters announcement for the coordinate with waterflood has allowed us to restore the field's production to a level last achieved 20 months ago with.

With strongly demonstrates the effectiveness of the waterflood.

Moving to the Putumayo.

Quick update on our infield development account joint campaign on <unk> III oil producers cut to yaacov.

<unk> 42, well is currently on production.

<unk> 40 to <unk>.

<unk> 44 wells are both expected to start production during August 2021.

Canada, we commenced a 6 well workover program during the quarter.

1 stimulation and 1 injector conversions were completed.

Remaining injector conversions and 2 producer Workovers are expected to be completed by early September.

Lastly, our facility expansion program is progressing as planned which is expected to allow additional production to be brought online in the second half of 2021 Workover rig is also currently running larger pumps and for oil wells for pump Upsizing program is being done in conjunction with debt facility SaaS.

Program.

Summary, we are pleased we've been able to safely resume operations after the blockades across our plumbing portfolio.

I'll now turn the call back to the operator, and we have to ask any questions. Operator. Please go ahead.

If you would like to ask an audio question. Please press star 1 on your telephone keypad again star 1 to ask on audio question.

To ask an audio question. Please press star 1.

Your first question comes from the line of Josef Schachter with Schachter energy.

Good morning, Gary a.

A couple of questions for me number 1.

I'm not sure. If this is probably for potentially for Ryan or Rob.

The asset impairment that you took a year ago $398 million.

A lot of Canadian companies Domestics have been reversing that some part of that it's probably go on because of your production, but what is the stance in terms of repurchasing the impairments and what if theres any conditions what are those conditions before youll really reverse that to the balance sheet.

Good morning Joseph.

Because we follow U S GAAP under U S. GAAP once the write off happens, it's gone, whereas under <unk> you get the rate that backup.

Okay.

For us we would be writing that backup for sure.

Okay. So that's not going to occur in the future debt second the big increase Youre looking for in terms of production.

For the second half of 30 to 32000 and the number of 23000 now where he is production in August just to get a feel that.

The ramp up is occurring where are you now and in terms of your overall production.

Yes, we're at 29000 barrels a day now that we've resumed production after the blockades were lifted.

The remainder to get us above 30.

Comes from bringing on on wells that we've drilled.

And Workovers and the pump upsizing that Rob mentioned.

Hey.

Lastly, if I can.

And the economy kind of exiting they're talking about teacher strikes there on that they're pretty powerful union.

Is that affecting the recovery of the Colombian economy, and do you see any any impact on your company.

<unk> on for many more months.

Yes.

It's now moved from blockading and protest too.

Government discussions with.

The protesters in the protest committee.

We're back to normal operations, both on the in the Middle Magdalena and the Putumayo, but.

We are also actively involved with our community programs assisting.

The government every everywhere, we can and so I think Joseph.

The bottom line as it did hurt the economy of Colombia, No question about that and the government are taking it quite serious to try to resolve some of the issues that are that have come up over the last 18 months with especially with Covid and the.

The economic downturn for.

They caused a lot of these these protest and so it is a serious.

The government is taking it seriously, but we see that we're back to normal operations.

And back to an assist mode.

Well I'm glad to see a big pickup in production and we'll look forward to much better quarters going forward. Thanks very much Gary.

You bet.

Your next question comes from the line of Al Stanton with RBC.

Yes, good evening guys a couple of questions. If I may I'll, just see them sequentially.

On taxation.

Receivable on the balance sheet, but I was wondering what guidance you can give us for a day.

Maybe for the end of the year old, Wisconsin for next year Rich as revenues are starting to go up on Spendings no.

Should share is the tax on getting to whitecap.

The biggest launch.

Early in 2022.

Yes, I'll touch on that 1 with the taxes, we still have the receivable will position and given our and so at the end of <unk>.

Last year, we had approximately $90 million, we expect the balance to be around $40 million. This year.

Just with prices, where it's at so really a net cash inflow of over $50 million.

Our notes in our 10-Q.

Youll see that reconciliation for me getting balance as to any balance because we do baby for you on goods as you point out.

Bolt on some of the Opex on Capex and there is also withholding tax on some of the revenue, which increases that and conduct receivables, but we factor that all in sales were.

$50 million cash inflow in 2021 looking out to 2022.

With our existing tax pools and losses.

We'll expect to have minimal taxes in 2022.

And then gradually increase from there depending on spending after point during 2022.

Okay.

And you mentioned spending and also earlier on you mentioned that your share.

<unk> filing which looks to the mall.

I was wondering you gave the impression just now on the call debt. It was just paperwork on something you would have done with the expiry of the previous shelf.

I think more interest than that should we be expecting.

Something imminent.

Yes, I know historically, what we've always had like most companies on the shelf in place ours was set to expire in September and just do it's always easier to do it just when we get the quarter out. So we did a month earlier than we normally would have.

So I would just put it in the normal course category.

Okay.

Thanks, guys.

Thanks Al.

Your next question comes from the line of Phil Skolnick with 8 capital.

Yeah. Thanks, good morning.

How are you thinking about next year.

Free cash flow and debt reduction and you have on exploration program also that you're gonna be commencing so.

Kind of I guess that and how are you now and then how you kind of get to that path for 40, plus thousand barrels a day that you Reserve report on a outlines here kept for getting too.

Yes.

We are continuing on the exploration side with the permitting.

Trying to compress that timeline and getting ready for exploration both in Ecuador, we have some quite exciting exploration just across the border with some.

Yes.

As you know.

Discovery.

For us the border that we look to appraise and.

Cross the rest of our portfolio the Jan on the Middle Magdalena and the.

Putumayo and so I think the answer to your question Phil is.

Next year as you can see from our financial outlook.

Totally different world than it was a year ago.

With what.

Quite a bit of our debt paid off.

Free cash flow.

At current prices at strip prices.

We will be directing some of that too to our exploration portfolio thats quite exciting.

We're ready to go.

But there are things that we're doing this year to get ready for next year.

Okay. Thanks.

Your next question comes from the line of David Herzberg with Stifel.

I. Thank you for the call I was wondering if you could.

Tell us if you have any hedges in place for the first half of 'twenty, 2 and if not.

Perhaps some comments too.

Youre thinking about that in terms of hedging some production in terms of timing and perhaps what price you might be looking to achieve.

Yes, I think the answer to that is we don't have any hedges in 2022.

We will look at that towards the end of this year.

We hedged the first half of this year to bring production back on which we successfully did.

And a.

A modest hedge for the second half we don't have any plans at the moment for 2022.

As we look at our long range plan, our 5 year plan.

We'll be discussing that over the next couple of months.

And address it then.

Thank you.

Your next question comes from the line of Patrick O'connell with Alliance Bernstein.

Hi, guys. Thanks, so much for the call because that's a little bit about the cost side of the equation that this quarter.

On a little bit elevated on lower production and some other onetime items.

Can you talk about the confidence of getting into those ranges that you've laid out on the updated budget I think the opex came up just a tad but everything else is kind of in line. So how confident are you that you'll be able to bring those costs down for the second half of the year.

Yes, Thanks Patrick.

We're very confident.

About 70, 65% to 70% of our our operating costs are fixed and so we got hit in this quarter just with the lower production of the blockades. The team did do a very good job suspending contracts to try to minimize the cost burn during the quarter, but you can only move so quick in a situation like that.

And then if.

If you look our transportation costs, we did have to move some of our barrels through different routes, both a higher a higher quality discount.

Well as higher transportation costs.

And that was just to keep the barrels move in.

Yes.

On the oil prices, where they are out there, we're still high margin barrels to sell at that level.

But it was.

Painful using some of those routes were back to normal course operations using all the routes that we normally have used in the past.

Thanks, Brian Okay helpful.

Thanks, Patrick.

Your next question comes from the line of Al Cheng with Citi.

Hey, guys. Thanks for the call just a few questions for my ads I know at some point you were evaluating alternatives for your remaining Petra <unk> stake just wondering is that something still being discussed or has there been any movement on that front.

The answer to that is we always look at all of our portfolio.

And we have no immediate plans.

But we on a continuous basis look at debt position long term.

It's.

It's not something that we will keep for the next 5 years.

But we also are very happy and pleased with what the management team at Petro Tal are doing there.

They're doing a great job.

Good assets.

The long term.

We will continue to evaluate.

Okay got it that's very helpful and on the Covenant relief period, why does the first testing data after that expires is that as of October 1st for the end of fourth quarter.

Yes, good questions at the end as of October 1 so really the first test will be in February.

So first off.

We are things, we look for and we're very comfortable will be other covenant relief effective October 1.

Okay understood and then just wanted to clarify given the balance on the credit facility is currently 175 million are you still expecting on closeout the year on the 60.70 million range.

Correct, yes.

Understood Super helpful. Thank you guys.

Great. Thanks.

Your next question comes from the line of Robyn Ross on low risk with balance capital.

Good morning, Mr. <unk> from balance capital. Thank you for taking my question.

So just to clarify.

Clarify on deep.

Production guidance.

Yeah.

<unk> debt to achieve the midpoint of guidance you'd need to sustain 32000 barrels per day.

Can you confirm this.

For discount.

That's correct, we confirm that yes.

For the second half year is 30% to 32000.

For the second half of it yes.

Awesome.

I'll follow up maybe on royalties, we understand that this quarter. It was tighter due to H BR.

So what can we expect branded pace.

75 on a per barrel.

Yes, reasonable effective royalty rate is around 16% to 18%.

At that level.

Even if Brent based on $75 per barrel.

Correct, yes.

Okay Awesome. Thank you guys.

Thank you.

Ladies and gentlemen, we have reached the allotted time for questions I would now like to turn the floor back to management for any additional or closing remarks.

Thank you Angie I would like to thank everyone for joining us today, and we look forward to speaking with you over the next quarter and update as we have progress. Thank you very much.

Thank you for participating in today's conference call. You May now disconnect your lines at this time.

Net.

[music].

Yes.

Yes.

[music].

Yes.

Okay.

Okay.

Okay.

Hi.

For fiscal <unk>.

[music].

Net.

[music].

Okay.

Yes.

Okay.

[music].

Moving on.

Okay.

Okay.

Okay.

Yes.

Okay.

Yeah.

[music].

Yes.

Okay.

No.

Okay.

Okay.

On that.

Okay.

[music].

Okay.