Q4 2021 Gran Tierra Energy Inc Earnings Call
Good morning, ladies and gentlemen.
Welcome to Gran Tierra Energy's conference call for fourth quarter and year end 2021 result.
My name is Livia and I'll be a conference call to any of what 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. Please press star zero and a coordinator will be happy to assist you.
I would like to remind everyone that this conference call is being webcast and recorded today Wednesday February 23rd 2022 at 11, a M eastern time.
Today's discussion may include certain forward looking information oil and gas information and non-GAAP financial measures.
Please refer to the earnings and operational update press release, we used yesterday for important advisories and disclaimers with regard to the information and for a reconciliation of any non-GAAP measures discussed on today's call.
Finally, this earnings call is the property of Gran Tierra Energy, Inc.
Any copying or pay Pal casting up this call is expressly forbidden without the written consent of Gran Tierra energy.
I will now turn the conference call over to Mr. Gary Guidry, President and Chief Executive Officer of guns, Yeah. So kidney. Please go ahead.
Thank you operator.
Good morning, and welcome to Gran Tierra is fourth quarter and year end 2021 results conference call.
My name is Gary Guidry, Gran Tierra is 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.
We issued a press release yesterday that included detailed information about our fourth quarter and year end 2021 results. In addition, Gran Tierra is 2021 annual report on Form 10-K has been filed on Edgar and is available on our website.
Brian and Rob will make a few brief comments to summarize and provide context and then we will open the line for questions.
I'll now turn the call over to Ryan over to you Ryan.
Thanks, Gary.
Morning, everyone.
After the many challenges in 2020 that the world face 2021 was a year of strong recovery for the energy industry in Gran Tierra are top tier low decline onshore conventional asset base continued to prove its high quality is the company returned to strong growth in 2021, our production proved reserves.
Funds flow from operations free cash flow and after tax net asset value or NAV per share all saw increases from the previous year. We continued to show strong reserve replacement ratios on both approved and proved developed producing basis driven by our successful on budget development programs and waterflood initiatives.
Which Rob will describe later.
During 2021, our net income was 42 million the highest realized since 2018, while our adjusted EBITDA was $242 million funds flow from operations were $186 million, resulting in free cash flow of $37 million, which was the highest GT has achieved since 2012.
Gran Tierra is on budget capital spend to $150 million for the year and focused on development activities.
You may recall that a year ago, we made a commitment to reduce our credit facility balance and we were able to repay approximately 123 million jewelry in 2020 , one resulting in the credit facility balance at the end of the year of $68 million with cash and cash equivalents of $26 million with forecasted free cash flow during 2022, we plan to or credit.
Facility completely paid off before the end of June this year.
During 2021 through direct tax refunds in value added tax on our oil sales Gran Tierra collected a net cash inflow of $21 million compared to $55 million net collections in 2020.
Gran Tierra, a strong operating netback of $34 13 per barrel for the year was up 146%.
From $13 86 in 2020.
Looking to 2022, we announced a capital budget of $220 million to $240 million allocated 70% to development value optimization of existing assets and 30% the high impact exploration in Colombia and Ecuador.
We are forecasting production of approximately 31000 barrels of oil per day, the midpoint of our guidance, which is a 19% increase over 2021 with current production being approximately 30000 barrels per day or.
Our balance sheet has strengthened significantly and with the substantial capital expenditures incurred in 2017 to 2019 behind us, we're well positioned for material free cash flow in 2022 and beyond.
At $80 per barrel, Brent were forecast and year end 2022, net debt to EBITDA of approximately one times free cash flow of $180 million before exploration and $110 million after exploration.
Gran Tierra <unk> 2022 exploration campaign of up to six to seven wells, we fully funded from internally generated cash flow and designed to focus on near field prospects in proven basins with access to infrastructure infrastructure, providing short cycle times from discovery to bring production on stream. We're also very excited to be drilling our first ex.
<unk> well in Ecuador and 2022.
We have entered into Brent oil hedges on 9000 barrels of working interest production. During the first half of 2022 and no hedges beyond mid year. These hedges represent just under 30% of our forecasted first half 2022 production, providing downside production as we execute most of our development Act.
<unk> and pay off our credit facility.
Weighted average ceiling of the hedges is approximately $87 per barrel with a floor of $75 50 per barrel, which has allowed you to participate in the significant recent oil price rally. We will continue to look at layer in some hedges for the second half of 2022.
Before I hand, it over to Rob already mentioned some of our beyond compliance policy initiatives.
Gran Tierra identified significant opportunities and benefits to the environment and communities. We voluntarily strive to go beyond was legally required to protect the environment and provide social benefits because it's the right thing to do in 2021 for the first time GTE reported scope to greenhouse gas or <unk> emissions. In addition to scope one emissions in the companies.
Yearly Ghd emissions report the 2022 results on overall <unk> emission reduction in excess of 60% relative to 2019, and wood, which was achieved via the company's gas to power projects and additional operational efficiencies.
Starting in 2016 with conservation International we committed to Reforesting 1000 hectares of land and securing and maintaining 18000 hectares of forest through our flagship natural Amazonas project over a five year period, and southern Colombia for context, 19000 hectares about 48000 American football fields over the life of the project.
As expected $8 7 million tonnes of Cotwo will be sequestered.
In 2021, Gran Tierra, continuing with the stringent implementation of COVID-19 protocols by conducted approximately 65000, PCR and antigen test and ended the year with a very low positivity rate of 7% among its employees Gran Tierra also acquired and donated COVID-19 vaccines for all employees in Colombia.
Gran Tierra is committed to work with Columbian national and local governments and local communities to further their peace building efforts in 2021, the company invested $2 9 million local projects identified by the communities to meet their needs. The projects include the installation of cemetery units for rural families and infrastructure improvements to local schools rural roads and <unk>.
'twenty, one as part of its commitment to the UN guiding principles for business and human rights Gran Tierra continue with its humanitarian demand efforts in the Putumayo cleared a total of 31000 hector's in partnership with local communities.
These are just some of the initiatives we've undertaken in 2021 and I highly encourage everyone to take a look at our <unk> sustainability report, which will be available in the second quarter of 2022, I will now turn the call over to Rob will discuss some of the highlights of our current operations.
Thanks, Brian Good morning, everyone.
I'll briefly cover a few operational highlights from yesterday's press release as well as our recent press release regarding year end reserves.
Provide an overview of some of our key activities for 2022.
We're very pleased with the performance of our high quality conventional oil and gas assets. During 2021 as Brian mentioned all of our major assets are being waterflood to optimize recovery and value from each field are summarized in our recent press release. The company achieved material proved developing proved developed producing or.
PDP reserve additions in 2021, as a result of excellent waterflood performance and successful on budget development drilling campaigns at Accordant Aero and <unk> are excellent PDP reserves replacement ratio was 148% with PDP reserves additions up $14 three.
3 million barrels.
Our total proved or <unk> reserves additions of 11 9 million barrels gave us a strong one key reserves replacement ratio of 123%, resulting in a grand total of 81 million barrels remaining proved reserves at year end 2021 deeply.
Equally important to enhancing and increasing oil and gas reserves, we focus on the optimum long term value for each asset as a result of our successful development program as well as the strong recovery in oil prices, our proven net present value or NPV discounted at 10% before tax increased 36% comps.
Year to year end 2020 to $1 6 billion.
Resulting in a proven net asset value or NAV.
Of $2 61 per share before tax.
Our proven plus probable or <unk> NPV 10, before tax increased 22% compared to year end 2020 to $2 4 billion.
Resulting in a <unk> and a.
A $4 72 per share before tax.
Why do we focus so much on water flooding.
Combined our four major oil assets have roughly 800 million barrels of oil in place on a gross basis were about 700 million barrels on a working interest basis, which means for each percentage point of improved recovery, we achieved from our waterflood operations, we can potentially add another 7 million barrels of working interest reserves.
Or about 9% of our current proved reserves.
Gran Tierra is for major oil assets. According arrow cuts Yaacov makita Siri anti all of which are on waterflood and our conventional low decline oil reservoirs represent 84% of the company's proved reserves and 70% of our <unk> reserves as Ryan mentioned, we have a continuous program of optimizing both opera.
<unk> and capital cost structures across the company.
The ongoing material cost reductions for development drilling completions and workovers in the coronary oilfield Gran Tierra is largest oil asset will allow further downspacing drilling to enhance both water recovery net asset value.
The company drilled 20 developed wells and Accordant Arrow. During 2021. These new wells are drilled for an average cost of approximately $1 1 million per well a 27% reduction from the 2020 average cost at a 42% reduction from the 2019 average.
These new wells completions costs averaged approximately $7 million per well down 14% from the 2020 average and down 41% from the 2019 average.
Gtt's largest asset our coronary waterflood in the Middle Magdalena Valley is currently producing at approximately 16000 barrels per day of oil and can you. Just continues to see strong waterflood performance indicated by stable reservoir pressures water cuts and gas oil ratios as well as strong oil rates.
By the end of Q1 2022, all water injection wells will have natural started whereby water injection can be selectively control into the different Lasalle uptown units, resulting in a more efficient waterflood and increase recoveries. According our water injection capacity currently sits at approximately 43000 barrels per day and is being.
<unk> increased to 60000 barrels per day by Q3 2022 to allow for optimized waterflood management as additional wells are drilled this year.
Waterflood to GTS other three major fields cost yaacov, when Canada and Syria.
All continued to perform strongly voice.
Bush replacement ratios.
Barrels of fluid injected as a ratio of barrels barrels of fluid withdrawn are all at or near unity, ensuring stable reservoir pressures leading to strong waterflood performance.
All get's major water floods have significant drilling potential to enhance and increase the remaining oil reserves and value in 2022 and beyond 'twenty.
<unk> two will see 14 to 16, new drills at a coronary $4 to fiber cost yaacov and three a mckenna and.
In addition to the waterflood optimization and drilling initiatives that are core narrow in 2022, we are very excited to have initiatives that design and implementation of <unk>.
Enhanced oil recovery polymer pilot, which we plan to have operational in the second half of 2022. The gold a pilot is to prove the economic benefit of thickening and check of water with Palmer and improve the waterflood sweep efficiency and one or two waterflood patterns to it.
Kris sweep efficiency, which should result in incremental recoverable oil barrels is created by bringing the viscosity of the water closer in line with the higher cost of oil.
We are posting efforts now turning capital why are we focusing efforts and allocating capital to pilot testing polymer flooding.
Successful polymer floods can enhance oil recovery by five 5% to 10% of original oil in place upon a successful pilot.
We run for approximately 12 months, a broader polymer floods that you've rolled out starting in late 2023 or early 2024 in the broader patterns portion of the pool. We have recently completed independent third party laboratory testing utilizing reservoir core at oil samples recently obtained at a coronary the lab testing.
As indicated significant incremental oil recovery should be obtainable with additional polymer two are injected water in line with other polymer floods worldwide incremental oil recoveries and the pattern portion of pool could potentially be in the range of 5% to 10% similar lab work has been kicked off to determine the feasibility of potential polymer.
Palmer setback and flooding at our cost Jaco and <unk> fields.
Ill turn the call back to the operator, and Gary Ryan and I will be happy to take questions. Operator. Please go ahead.
Thank you, ladies and gentlemen, we will now conduct a question and answer session for securities analysts.
Have a question. Please press the star key followed by the one on your Touchtone phone.
So in acknowledging your request.
Question will be pulled into order.
Please ensure you alyssa, hence that if youre using a speakerphone before question Keith.
One moment. Please for your first question.
Okay.
First question coming from the line of Joseph <unk> with <unk>. Your line is open.
Thank you very much good morning, Gary and Ryan.
And Rob got a bit of a cold so.
I have two areas I would like to chat about.
First of all with Roger.
With prices.
Where they are right now potentially there'll be an extra $100 billion, assuming it holds for the year.
Are you looking at using that to improve the balance sheet. Once the <unk> is paid off or would you use that.
To buy in the open market some of the outstanding debt. How do you how do you see using any incremental windfall cash flow versus what you've got in your budget.
Given these prices that are $20 higher than your.
Hi case in your forecast.
Thanks Joseph.
It's Ryan I think it's.
Right now our objective is to get our net debt to EBITDA of under $500 million, which we think would be in Q4, Q3 Q4, depending on price and as you mentioned at that time.
A number of things that we'd look at whether it's bond buybacks or share repurchases.
Would be the focus.
Okay.
Okay.
On buybacks.
Share repurchases, Okay, and then for Gary.
I'm reading a lot about the political situation.
Situation in Colombia, where the.
The left wing Gustavo Petro seems to be in the lead in the polls from the articles.
And the comments in the media seem to say that he's anti energy.
Will this affect your capex spending.
We'll.
<unk> talked about raising royalties as he talked about not approving.
In certain areas environmentally sensitive areas.
Drilling opportunities or drilling.
Provable processes.
Do you see the political situation evolving in Colombia, and how do you see that potentially impacting your operations. After the election. If he is the winner.
Yes.
I think the easiest way to describe that as we have.
Regulatory approval for everything we're doing this year and beyond.
In terms of what.
Petro has said is that he has against any new any new exploration any new leasing lands, we're very comfortable with the inventory that we have.
Going forward and we have committed to the government.
To execute programs on those lands and we will fulfill those commitments. We have also expanded into Ecuador.
The putumayo and the extension into Ecuador, the oriented basin, we're quite excited that we're going to be kicking off an exploration program south of the border as well and so I think there.
There are two elections coming up the first is the.
The parliament or the Congress elections will happen in March and then the presidential elections in May and June .
Overall.
We believe that Columbia will stay conservative in terms of their approach to business in terms of all of the business friendly environment that we have.
Seen over the last couple of years and we're quite proud of as Ryan summarized we're proud of what we're doing and we will continue to do regardless of who is the president going forward. It's we do it because it's the right thing to do.
Okay, well, that's it for me and thanks, very much and congratulations on the improvement over the last year.
Thank you.
Your next question comes from coming from the line up and Milton <unk> with Bank of America. Your line is open.
Good morning, Thank you very much for the call.
Couple of questions, Although Joseph asks to very good ones right before me.
On your reserves congratulations on the very good numbers that you posted it does sound that you're drilling program is going to be focused primarily on areas prevent areas that you already have so would you expect.
Going forward that any changes or additions to your reserve numbers would come from existing fields as opposed to new discoveries at least in the short term maybe my first question.
I think the easiest way to describe that as Rob Rob summarized our water floods are doing very well, we're looking at going beyond that with the pilot tests on polymer and so we'll continue to drill and enhance in the field that we have but we're also targeting near field exploration.
<unk>.
We see things on seismic that tie right into infrastructure and I think we will continue.
Inc.
Continue to focus our exploration around our large fields as well.
And so the answer to your question is we will continue.
Drilling in the field that we have just because the performance is doing so well.
Okay excellent.
Can you also just mentioned.
Our equity investment in orientation.
What has been the track record of of Sterling and Ecuador in terms of from first oil to commercial.
Amortization I think it's not too long, but I was wondering if you have any data on that.
Yes, it's very similar to two.
To Colombia to the Putumayo in particular.
There is a very good road system Theres very good pipeline infrastructure and so.
The time from a discovery, even the testing part of that the oil can be sold and we were already operating in Ecuador, We ship a lot of our oil through Ecuador.
For export purposes, So we're quite familiar with the country and with the infrastructure structure Thats in place and so the cycle time is very short.
Okay, great. Thank you.
Then the third and last question I have is on GHT emissions.
Just just sort of two points on this.
You mentioned that you are trying to conserve your excess natural gas and using it for power generation I was wondering if you could give a little bit more information on that and second is how do you or would you consider buying carbon credits. Thank you.
Yes.
The answer to the gas.
We've.
Invested significant amount of money over the last five years.
Most of that was in place by the end of 2019, so that investment is behind us and our major fields and that investment was.
Turbines gas turbines to utilize natural gas what we're doing at the moment as we're going through some of our remote fields and putting in power generation and the smaller remote deals and our objective is to get to 100%, 100% power generation from natural gas and terms.
Of credits, we're not at the moment looking into carbon credits what we're looking into is expanding what we're doing Ryan mentioned the reforestation projects, we're quite proud of that.
We're looking at some other other things that we can actually do that.
<unk> compliments.
Our activities in Colombia, and Ecuador, as well in the agricultural areas.
Areas and in cooperation with the government of Colombia, They have some some big plants big programs and we're very supportive of what they're doing.
In addition to the things that we're doing on our own.
Great. Thank you so much.
Okay.
And our next question coming from the line of David Herzberg with Stifel. Your line is now open.
Good morning, and thank you for the call and Youre Andrew Your annual report you illustrate the percentage of oil sold through your three sales and transportation channels pipelines wellhead in trucks and I was wondering if you could provide some color with respect to how you envision the percentage of oil sold through these channels.
Do you expect that to change at all in 2022 from 2021.
Yes, yes.
In 2022, we would expect a significant change.
Some of the oil because all of our oil is eventually goes through pipelines and sometimes youll, we've either sold to wellhead, there eventually truck to pipelines or we.
Truck ourselves to a pipe to an inlet the pipeline and so we don't anticipate any changes in 2022.
So so so those percentages that you have illustrated over the last three years for example, the 12% or your stabling transport transported through pipelines and 34% at wellhead and 54, because there was a difference in 2020 versus 2021. So are you suggesting that 2002.
'twenty two will look very much like 2021.
Correct, yes.
Okay towards FY 'twenty, one as a better proxy looking forward.
Great. Thank you.
Alright.
Thanks.
Our next question coming from the line of Oriental Cobalt with balanced capital. Your line is open.
Hi, Good afternoon. This is Terry Nichols from Darren Thanks for taking my question.
I have a couple of questions. If you don't mind.
Can you kind of go may not be going one by one so far.
The first one if you could provide us further color in terms of cash bonds and then this year given your investment plan when do you see cash balance.
Yes, I think with respect to the cash balance.
Obviously price is a huge impact I think if you look at $80 oil price environment, the cash balance would end around $120 million to $140 million.
And for each $10 increase in Brent price adds about $60 million of free cash flow, which consume can go to the balance sheet.
Perfect.
More regarding on your exploration plan.
You could elaborate more.
In your filings Tony One last quick one in.
In one well.
For a quarter or so.
He can provide further detail.
Which area do you expect.
Number already includes greedy ill take network.
Yes, I think on the exploration drilling program.
In our latest slide deck, we have a pretty good chart in there that shows where we are where the timing of the wells and we're drilling the wells.
So in Ecuador.
You look we're going to drill two to three wells in Ecuador, one well in the middle Mag and three wells in the Putumayo really starting in May and June .
This year.
And again these are all near existing fields.
Cause access infrastructure.
There is really no seismic plan for 2022, we have all the seismic that we need and in fact some of the few of the wells in the Buda mile are being drilled off the seismic that we actually shot in 2019.
Perfect that sounds great and one last one from my side.
Regarding the Capex breakdown for 2021.
Peter if you could perhaps provide more information.
How much were thankful for exploration in facilities that would be very helpful. Thank you.
Yes, it is 70% is going into development and 30% into exploration.
And really if you look at the development.
About half of the development will be going into the coordinator.
<unk> and the remainder into cost Jaco and Mckesson.
So sorry, just for the last one I was referring to 2021 .
Like for the last year, how much went to exploration.
Yes.
Most all of our dollars we're in.
We had very little exploration dollars in 2000 22021, it was all development expenditures.
Okay perfect. That's very helpful. Thanks again.
Youre welcome.
And our next question coming from the line of Alexandra <unk> with William Blair. Your line is open.
Hi, Thank you for taking my question and congratulation on the strong results today.
I wanted to ask a follow up on political.
And I have some more questions. So the first one would be.
Basically how do you see the risk of license no kidding.
Okay.
Batesville wins and.
Also regarding thoughts for how long did you still have the license when when did your license you spend.
Yes.
Short answer to that is it's not a matter of just renewing licenses to get a license we've committed to work.
Whether thats drilling exploration were all shooting seismic and so.
We don't see any risk of us fulfilling our commitments nor the government.
Not asking companies alike, Gran Tierra and others to fulfill their work commitments in the country I think what Petro has said publicly is he's against any new licenses and a new lands.
Being issued and so.
The answer to your question is.
We believe that we have a commitment in the country to do work on the lands that we have and will fulfill those commitments. So that risk is very low.
Okay. Thank you and can you also remind me until then once your license expire for <unk> for example.
Yes, our licenses on exploration date.
They vary in terms of time.
Gordon Arrow, Rob is 2039, 2039, so we have lots and lots of time.
And Theres also.
Clauses in our contracts to extend those for up to 10 years, if we if we choose to do so.
Okay.
John .
How about the other skus at about.
Same time.
Got you.
Coast to coast the alcohol market are in the 2000 <unk> as well.
We have plenty of time, which is why we're continuing to develop in those fields. The one contract that is near term.
As the co hem b, the Cerro oriented it's our fourth largest asset and we've assumed in all of our values and all of our reserves that that contract will not be renewed in 2024.
Although.
That may happen, we're not counting on that happening going forward.
Okay. Okay. That's helpful. Thank you and can you remind me producer water injection right accordion narrow I think you mentioned within the presentation.
I missed that.
Current.
Current water injection of the Carnero approximately 43000 barrels per day water, Okay, and we plan on ramping that up to 60000 barrels a day by Q3 2022.
As we drill additional wells and of course over the next few years, we will continue to ramp up as we continue to drill additional wells.
Okay, and then for exploration.
Is it mostly accordion narrow that you plan to drill exploration wells.
The other channels as well.
No it's across all of the basins.
We're drilling some.
Couple of wells in Ecuador, the Putumayo.
In the Middle Magdalena Valley, as well and so it's three different areas.
Yeah. So it's a balance you would say between two to three <unk>.
Balanced yes.
Okay. Thank you and my last question would be regarding transportation cost IC. That's your transportation costs are.
Solar versus your.
Colombian peers like Frontera for example.
Why is that Thomson transportation around once once a $2 per barrel is this correct in what way is it solo versus Europeans.
Okay.
But part of that is one of our transportation routes are a little bit lower costs. We don't use a lot of the the pipeline infrastructure in Colombia as you know the pipeline costs are quite high.
We use mostly if you look at the Putumayo, we actually.
Truck down to Ecuador, so a much much lower cost, which brings down our costs. So.
The transportation costs do come off of our our revenue price. So if you look at our guidance, it's around $10 of transportation quality discount, what we assume and that comes off of revenue.
Okay, Okay that makes sense.
And then from it disconnected to Ecuador, and then from there it's connected to the pipeline.
You actually truck down to Ecuador, and it goes into OCB pipeline, then it goes to the esmerelda support the deepwater port in Ecuador.
Okay.
Okay. Thank you very much.
Thank you.
Our next question coming from the line of Bourbon Rosenbaum with Seaport Global Your line is open.
Hi, Thanks for taking my question and congratulations on the strong results I just one question.
The water flooding and the polymer tests for 2022 this part of the.
Is it included in your 2022.
Capex guidance and.
Regardless of any there is not what is that what you're expecting to spend on that in 2022.
Yes, we have yes.
Yes, Thanks, Doug.
Absolutely we have included the costs in our <unk>.
'twenty two.
Our capital budget.
Thirdly the pile.
Pilot is a fairly modest cost.
Approximately.
A couple of $9 $2 million say approximately two.
To pull off the pilot.
As far as initial Costco.
Maybe a little bit more about actually including with some of the polymer costs. So it's quite a modest cost pilot, obviously, when we put a successful pilot and.
As we go into a full field polymer flood hopefully in late 2023 early 2024, obviously the cost would be much more significant but by that time will prove noted.
Works and giving us some excellent incremental recovery there. So we're quite excited about this because it's.
Palmer of course is used throughout the world and it is also used.
Extensively in Colombia, as well and very similar pool. This pool with it is cost of the oil.
Coronary <unk> pools should respond very well to.
Polymer which has already been.
Illustrated in the LIBOR.
Excellent. Thank you.
I'm not showing any further questions at this time I would now like to turn the call back over to Mr. <unk> for any closing remarks.
Thank you operator.
I would like to thank everyone for joining us today, and we look forward to updating you over the quarter and as we progress. It is an exciting year and we are.
We're very appreciative of your support thank you.
Ladies and gentlemen that does conclude our conference for today.
Thank you for your participation you may now disconnect.
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On a trailing 12 months.
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