Q4 2022 Gran Tierra Energy Inc Earnings Call

February 22, 2023

The conference will begin shortly to raise and lower Johan during Q&A, you can dial star one one.

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Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's conference call for fourth quarter and year end 2022 results. My name is Andrea and I will 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.

At that time for you to queue up for questions I would like to remind everyone that this conference call is being webcast and recorded today Wednesday February 22nd 2023 at 11, a M eastern time.

This 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 issued yesterday for important advisories and disclaimers with regard to this information and for reconciliations 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 rebroadcast of this call is expressly forbidden without the written consent of Gran Tierra energy.

Now I'd like to turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry. Please go ahead.

Thank you Andrew.

Good morning, and welcome to Gran Tierra is fourth quarter and year end 2022 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.

Yesterday, we issued a press release that included detailed information on our fourth quarter and year end 2022 results. In addition, Gran Tierra <unk> 2022 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 and then we will open the line for questions. Brian . Please go ahead.

Thanks, Gary.

Everyone.

We're very pleased to announce that Gran Tierra achieved several company financial records in 2022, our excellent performance in 2022 was driven by our successful development and exploration drilling waterflood programs fueled performance and disciplined cost management combined with strong oil prices. Our many achievements during the year resulted in the year.

Year over year production growth of 16% strong reserves replacement ratio was well above 100% and the highest annual figures in the company's history for net income funds flow from operations and free cash flow.

I produced exploration activities during 2020 in 2021 the company made several key exploration discoveries during 2022 would provide confidence that our geological understanding of the basis through our successful results from our development and exploration drilling waterflood programs in fuel performance were able to increase reserves of one <unk>.

Categories, which Rob will describe.

During 2022, our net income was $139 million the highest on record results as our earnings per share on both a basic and diluted basis coming in at 38 per share or adjusted EBITDA was $490 million. It was $1 $30 34.

Basic per share basis.

<unk> from operations were $366 million, resulting in free cash flow of $129 million, both of which were also records for the company.

Funds flow from operations for the year was one dollar on a basic per share basis.

Gran Tierra is on budget capital spend totaled 237 million for the year and was balanced between exploration and development activities, which resulted in reserves and profitable production growth year on year.

In 2022, Gran Tierra confuse commitment to reduce debt, resulting.

And a reduction of $88 million in debt and $173 million of net debt. The company finished the year with $147 million in cash and net debt to adjusted EBITDA of nine times. The company also achieved the return on average capital employed of 27% during 2022.

Gran Tierra strong offering up back of $48 43 per barrel for the year was up 43% from $33 75 and 2021.

Before I hand, it over to Rob I want to mention some of our beyond compliance initiatives, where Gran tierra identified significant opportunities and benefits of the environment and communities. We voluntarily strive to go beyond what we were required to.

Protect the environment and provide social benefits. It was right thing to do and we're very proud of the company's track record at all aspects of our environmental social and governance stewardship in 2022 Gran Tierra in partnership with the woman World Womens Corporation.

And Andy personnel do you mind investigation across approximately 4300 hectares of land.

Moving forward the Jewish communities in several municipalities in Putumayo basin of Colombia, as part of the company's commitment to the United Nations guiding principles for business and human rights 95 human rates. During sessions were held in Colombia, and Ecuador in 2020, which include almost 500 employees contractors and suppliers Gran Tierra strives to maximize.

Local employment and development opportunities, which meet or exceed government requirements for local employment since 2015 Gran Tierra has created approximately 26000 labor opportunities in Colombia. The Kobe also created roughly 470 labor opportunities in Ecuador and 2022.

<unk> is also committed to work with the Colombia, and Ecuador in national and local governments and local communities to further their piece building efforts in 2022, the company invested over $4 6 million local and projects in Colombia, and Ecuador identified by the communities themselves to meet their needs. The projects include the improvement of agriculture production.

Cities.

Osborn entrepreneurship support community strengthening programs and infrastructure improvements to schools owns community centers. These are just some of the initiatives. We completed in 2022 and I highly recommend that you take a look at our 2022 sustainability report, which will be available on our website in the second quarter of this year I will now turn the call.

Over to Rob will discuss some of the highlights of our current operations.

Thanks, Ryan Good morning, everyone I'll briefly cover a few operational highlights from yesterday's press release as well as our recent press release regarding 2022 year end reserves operationally, we are building off a successful year in 2022 to start off 2023 down in the Putumayo basin of Colombia.

And the charter block, we have commenced our makita drilling campaign with the first well being drilled in late 2022, which was our first well drilled in the field since 2016.

<unk> 25, the second development well into 2022 2023 drilling campaign reached its planned total depth on January 15th 2023. This well has been completed and was put on production on February one.

Producing on jet pump well, it's averaged 383 barrels of oil per day on stimulated.

We plan to stimulate the well during Q2 of this year.

<unk> <unk> development, well, which had a 26 was spud on February nine 2023 and is expected to reach its planned total depth before the end of February . In addition from a kind of 25% and 26 the company plans to drill and complete one to two more development wells and makita over the next four to five months.

Also on the charter block the first well <unk> six well 2023 development drilling program was spud on January 25, 2023 and reached its planned total depth on February 2nd.

Quality.

It was as expected and as planned down dip water injection well the second well was spud on February seven 2023 and reached its planned total depth all wells and our cost cycle drilling program are expected to be drilled by late second quarter, 2023, and completed and put on production or injection before the end of <unk>.

<unk> third quarter 2023.

In the south of the Putumayo basin to Suriname blocks production averaged approximately 8620 barrels of oil per day gross in January 2023.

Marking the second highest monthly.

Production average since the second quarter of 2015.

This was achieved despite the fact that we have not drilled the voluntary Yankee since the first quarter of 2018.

Up in the Middle Magdalena Valley Basin of Colombia, the first well and according <unk> 10 to <unk>.

10% to 12, well 2023 development drilling program, our coronary <unk> 111 was spud on January 27, 2023 and reached its planned total depth on January 30th.

Well logs indicate about the reservoir pays on came in as expected.

We plan to complete this well and put on production before the end of February 2023, the second well planned injector was spud on February 5th and it's reached a total depth third well was spud on February 12.

The planned wells in this year's Cornell development program are expected to have been drilled completed and placed on production or injection by the end of second quarter 2023.

Finally, we also plan to continue to focus on the appraisal of new discoveries and new exploration drilling during 2023.

All while generating free cash flow to strengthen our balance sheet and returning capital to shareholders through potential share buybacks.

As for our 2022 year end oil reserves the company achieved significant growth in its 2022 year end, one key NPV 10 before tax.

Which increased by 26% compared to 2021 year and as well we achieved significant growth in our 2020 to yearend two P. NPV 10, before tax which increased by 25% compared to year on year.

These increases were driven by the successful development and exploration programs and a strong recovery in oil prices.

After reduced exploration activity during 2020 and 2021 the company made several key exploration discoveries during 2022, which helped the company achieve excellent reserves replacement ratios the.

The ratios are as follows.

126%, one P with one key reserve additions of $14 million.

148% <unk> with <unk> reserve additions of $17 million.

280% three P with <unk> reserve additions of 31 million Boe.

The material <unk> reserve additions were largely driven by success with developed drilling and waterflood results at a coronary <unk>. In addition to several exploration discoveries.

Material two P or three P reserve additions were in large measure due to the success of the company's 2022 exploration program, which made several independent discoveries by continuing to focus on a combination of reductions in <unk>.

Your combination of reductions in debt and per well capital cost maintaining low operating cost and completing share buybacks Gran tierra was able to achieve net asset values per share before tax of $4 62 for one P up 77% from 2021 seven.

$7 36 for two P up 56% from 2021.

With the significant growth in our net asset value per share in 2022, we believe criteria is well positioned to offer exceptional long term stakeholder value.

We believe our success on multiple fronts. During 2022 demonstrates Gran Tierra <unk> ability to be a full cycle oil and gas exploration development and production company focused on value creation for all our stakeholders.

I will now 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. If you have a question. Please press the star key followed by one one on your Touchtone phone you will hear a tone acknowledging your request.

<unk> will be pulled in the order they are received.

Im sure that you lift the handset if youre using a speakerphone before pressing any key one moment. Please for your first question.

Our first question comes from Adam Gill with paradigm capital. Please go ahead.

Good morning, two questions for me first off on operating costs, we've seen escalation over 2022, given power cost rising and increased workover activity.

Do you believe you've hit a plateau on Opex and what drivers could lower opex going forward.

Yes, I think.

We added a plateau, we think our operating cost on a gross basis will be similar in 2023 compared to 2022 oil production will be higher so on a per unit basis, we'll see those costs come down.

Okay, Great and the second question was just on sorry on <unk>.

And the contract expiring mid year 2024 is there any precedent on contract renewal and what could be upfront commitments look like to assure ensure this asset stays in the portfolio.

Yes, they're.

Multiple precedence in the country of contract renewal, we do have clauses in our contracts for renewal and we are in discussions with echo patrol on trying to achieve that.

For the expiring.

Any any thoughts on timing of when that could be completed.

No no real just before expiring we're working as diligently as we can and as mutual with Echo patrol because both companies see benefits of continuing the programs that we started over the last couple of years.

Okay, great. Thank you gentlemen.

Thank you.

One moment for our next question.

Our next question comes from Oriana cobalt with the lines. Please go ahead.

Hi, Good morning, <unk> I had a quick question if it's okay to go one by one that would be great.

First with regards to the Ghanaian gusty, Jeff Franklin discounts I noticed that you remain at peak levels to the fourth quarter. So just wondering what are you observing so far during the year and what is driving the wider discounts and how are you including in your.

Thank you Tony Thank you for your guidance.

Yes, I'll take that on the vessel wanted to see this carrier. These are the wide at the end of last year's pointed out and it's continued into January starting to tighten a little bit in.

In February the <unk>.

Main drivers really just <unk>.

Lack of heavy oil demand, especially with China, I think China reopening we started to see those.

Those differentials narrow and where it is right around what we have budgeted right now we expect them to be wide in Q1, Q2, and then narrow into Q3 and Q4 and Thats really what we forecasted.

Got it thank you Andrew following.

The introduction of a new risk factor in your 10-K.

Regarding the adverse impact that certain acquisitions may having today.

Wondering if you could further elaborate on this and more precisely if you are looking into new jurisdictions aside from Ecuador.

I mean, what type of transactions would make sense.

Yes, I think Thats, just a risk factor I think most E&P companies do have them within their disclosure and I think for US. We're a part of our job is always to optimize the portfolio. So we're very happy to either.

Acquire new assets portfolio or sell assets that are in our portfolio.

We're always looking to optimize so it could be within Colombia or outside of Colombia, again, either buyers or sellers.

Okay, and just one final one we noted that and then cash position came a bit.

190 million that you had guided with this second.

Quarter report.

If you could share any additional color on it.

Yes, two drivers on that one.

Brent price came in quite a bit lower than we had originally forecasted.

But also the differentials are those blew out much longer.

Wider than we had forecasted.

Both yogurt VESCO near the historical average five year average of about $3 and a wide and all the way up $10, one point and could.

Of the five year average closer to $78 and our wind all the way up to 18 $19. So.

Really hurt us in the quarter.

And the rest is really just explained from working capital movements.

Okay that would be coming in thank you.

Thank you.

One moment for our next question.

Our next question comes from Jeff, Hey, Josef Schachter with Schachter Energy Research. Please go ahead.

Thank you very much good morning, Gary Ryan then Rob.

Congratulations on that.

All the progress you've made this year.

A few questions. The first one I'll go with Ryan.

Where do you see the target debt level that you'd like you're down below one to one debt to EBITDA.

If we see.

85% to 90 per average for Brad.

In 2023, Youll generate $70 million to $100 million of free cash flow plus you have the $100 million or so $126 million on the balance sheet, how do you see that in <unk>.

Terms of where you want it to be.

Going forward is there a target.

From the $5 89.

On the balance sheet on December 31, 2002.

Is there a number you want to have at that point, you say, that's the amount of debt that should be in.

This going forward or do you want to keep on knocking that down to zero and not have that at all just trying to get my head.

How much money will be left over after that too.

<unk> increase.

Growth via exploration and development or buy them more side by stock buybacks, etc.

Yes. Good question I think we're comfortable with.

Net debt to EBITDA of one times.

The <unk> eight to one times is really our comfort range.

I think when we look at our gross debt.

Right now were about $5 80.

Our target would be between 500 and 550.

We think there'll be a right capital structure for a company of our size currently.

Okay.

Next question.

In the releases and your government document on page nine you talk about the exploration blocks.

You put a single star double star there.

And you have I think it's 24688 with with one Starwood says exploration was suspended due to licensing restrictions security issues or social reasons do you see any changes of that in 'twenty three.

And do you get extensions from the government.

So that you can.

Keep these properties for future use.

Things settle down there.

Yes, I think to answer that.

The short answer to that is.

Sure.

On a continuous basis, we're working with the government and with the communities.

The ones that are suspended or issues with communities.

And it's an ongoing process, we have not given up really.

Any of our our top priority exploration projects, but there are some that we may in the end.

Relinquish, but I can assure you that its none of our top our top priorities going forward and so.

I think the short answer is.

Everything that we want to do we're doing and we will achieve that over the next one to three years.

Okay.

Lastly, Gary again.

As a shareholder and as somebody.

He has been a fan of the company.

And the opportunity in.

In Colombia and Ecuador.

You see a lot of the stocks in Colombia have.

Discount to valuations and as you.

It highlighted that with your colleagues in the presentation about the discount to NAV.

And as Ryan mentioned selling or buying as possible.

Is the barrel cheaper on Bay Street Wall Street.

And then spending money in.

Is there.

Interest in potentially selling some assets and then doing a substantial issuer bid.

And waking everybody up to the underlying value that.

Currently being a daunting.

Yes.

Again, the short answer.

I think is on a continuous basis, we're looking at how we create value.

Ryan mentioned the debt levels. If we have discoveries that we we see long term will develop we will adjust accordingly in terms of our balance sheet. We also are looking at other basins around the world.

We've all seen.

The large companies starting to divest non core assets, which we believe.

In many cases, a company of our size and our portfolio, we can create a lot of value regardless of the valuations on.

The stock price, we look at it as we're in this business for the long term long term being the next five years not the next five weeks and we will direct our efforts.

Both on our current assets and new assets that we diversify into other basins. Other other assets and I think you hit a good point. We also are looking at it.

We'll look at opportunities to bring in other partners and things that we're doing to dilute our interest, but everything we have in our portfolio today, we really like and we really believe that we can create value and we're just looking to expand that portfolio.

Okay. Thanks.

Thank you very much for taking my question I'll be rooting for more breakthroughs in 2023, thanks very much.

Thank you.

Thank you one moment for our next question.

Our next question comes from Alexandra <unk> from William Blair. Please go ahead.

Hi, Thank you for taking my question.

My questions have been answered.

Yes.

Thank you.

You may begin.

In 2020.

Hi.

Production in Europe .

So that's one thing.

Sure sure.

Thank you.

Sure.

Hum.

Thank you Mike.

Yeah estimated tax based off of $85, Brent said again paid on differentials and what pricing use but we would expect our current tax to be a $110 million to $130 million.

Okay.

For that reason.

Yeah.

Yes.

Our current tax bill for towards 2023, which will be paid in two installments in 2024.

Thank you one moment for our next question.

Our next question comes from Phillip Skolnick with eight capital. Please go ahead.

Yes. Thanks, good morning, just going back to <unk>.

You are to get to contract renewal.

How do we think about the reserve adds.

With respect to that and also would there be any potential changes to this year's capex budget, maybe production target.

Yes, I think.

The answer Phil is our plans for <unk> would be to expand the waterflood, we've done a lot of work over the last few years.

In terms of the capital program, there would be some minor adjustments, but we.

We would look more at AR.

Three year type plan to expand the waterflood.

To increase some of the development drilling.

And the block so.

You wouldn't see a major change in the capital program this year, but over the next three years, we would focus a lot of effort on increasing reserves.

We are taking a look at what we would.

What would change in our reserve base going forward, but we don't want to be premature in.

Waiting for the contract to actual will be signed and we're working.

Mutually with Echo patrolled I tried to put that program together.

Got it understood just finally just.

I know in the past recent past, you've said that the environmental permitting process.

Basically been business as usual is that still the case.

It has.

And we've.

We've been working very diligently with communities on blockades in other interruptions.

We've seen some progress I think is the way to say that but in terms of permitting and environmental studies.

<unk>.

Business as usual in Colombia, and in Ecuador, We're quite excited about our discoveries in Ecuador.

As Rob mentioned, we see some some real opportunity there to expand what we're doing.

Across the border in Ecuador as well.

Okay, great. Thank you.

Thanks, a lot for our next question.

Our next question comes from Luke Davis with RBC. Please go ahead.

Thanks. Good morning, you guys have a pilot wells coming on this year. Just wondering if you can speak a little bit to the expected cadence of production volumes, maybe quarterly and where are you.

You expect to exit the year at and also just wondering if you have any contribution expected from any of the exploration wells that are included in the program.

Yes.

Thanks, Luke I think the cadence.

As Rob mentioned, we are doing lots of development drilling in the first half of the year. So those will be brought on in Q2 and into Q3. So we would expect a steady ramp up for the year and exit the year around 34000 barrels or so.

Got it.

And anything from those exploration wells or is that just.

Potential upside.

Central upside.

Yes, okay.

The only other thing I was wondering about is just buybacks how youre thinking about that is that going to be sort of a portion of free cash flow that youre sleeping into buybacks do you have a.

Aggregate target that Youre that Youre looking ahead or how are you thinking about that currently.

Yes, we bought back 626, 3% of our stock last year and we have approval currently up to around 10%, so, especially when we're trading at such a substantial discount to our NAV.

We definitely like the Max so the CIB.

And then look to renew.

Got it that's it for me thanks.

Thanks Lou.

Thank you one moment for our next question.

Our next question comes from Juan crews with Morgan Stanley . Please go ahead.

Hi, good morning, everybody and thanks for the call.

I just wanted to clarify just quickly you guys were talking about debt levels going forward.

And on the third quarter call.

Hi.

Indicating that the market that you had bought back about $20 million worth of 2025 bonds.

It's my understanding that those are still outstanding just wanted to see if there is any reason for them not been canceled yet considering your targets.

If you can comment on that that would be great.

Yes.

We hold we hold those bonds ourselves and there's no reason why we didn't cancel them is we want to make sure that there was no adverse impacts as far as index inclusion so from accounting treatment and really the economic reality is we're rolling those bonds. Our debt is $580 million and we just did that to have the three removals.

$300 million bar designed for index inclusion.

I understand okay.

But from your perspective, there is no intention of reselling those bonds back into the market no.

No.

There is not.

They are internationally and that will remain saturated for index.

Inclusion purposes.

Correct Okay.

Okay. Thank you.

Already in liquid enough. So we don't want to do anything anymore to average.

Okay.

Thank you our next question.

Our next question comes from Robyn Rafi with Canaccord Genuity. Please go ahead.

Thank you very much for taking my question.

Sure.

The first one is regarding the data I just wanted to check what's happening. Thank you reached the limits of the program are you able to initiate anyone and it's taking the money last year. You mentioned you wanted to have a cash balance of around $100 million.

I wanted to check you got a guidance change thank you.

Yes.

We can renew the program once we fulfill.

Once we buy up to the maximum which we would look at renewing afterwards, which will be good for a year.

And then on the cash balance, we always target $75 million to $100 million in Gaspar and our cash balance.

And that hasn't changed.

Okay perfect. Thank you very much.

Thank you. Thank you.

Our next question.

Our next question comes from Chris <unk> with Marathon asset management. Please go ahead.

Yeah, Hi, thanks for the call.

I'm just wondering what your current view is our outlook is on.

Potential restrictions on exploration going forward I know, there's been a lot of talk from various people in Colombia, it's sort of hard to tell where it's going to end up.

Hi, how are you looking at that and does that affect your plans is that affecting maybe your thoughts on ACOG.

Assets outside of Columbia.

So give me thoughts on that.

Yes.

We have a great portfolio.

Exploration lands and we have plenty plenty of work in front of us for the next.

Three to five years, we also have some some very.

Exciting lands in Ecuador, as well so in terms of exploration.

We realize there have been some announcements in Colombia about no new exploration lands, we get that.

But it's it's.

No impact on what we're doing in our five year plan as we go forward in Colombia.

I mentioned in Ecuador.

The answer to your question is if we are looking at some other basins, we have a very strict criteria and what we invest in.

Globally.

Hi.

We are looking at some opportunities in Africa, the middle East, where we believe that we can not only expand our.

Our value portfolio.

But diversify and mitigate risk and so the answer to your question is we're very happy with our exploration.

In Colombia, but we're also looking at other opportunities in other basins.

Great. Thanks.

Thank you gentlemen, there are no further questions at this time please continue.

Thank you thank you Andrea.

Again, I'd like to thank everyone for joining us today, we look forward to speaking with you over the next quarter and update you on our ongoing process.

Progress thank you.

The conference will begin shortly to raise and lower Johan during Q&A you can dial one one.

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Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's conference call for fourth quarter in <unk>.

Year end 2022 results my name is Andrea and I will 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 I would like to remind everyone that this conference call is being webcast and recorded today.

Wednesday February 22023 at 11, a M eastern time.

Finally, this earnings call is the property of Gran Tierra Energy, Inc. Any copying or rebroadcast of this call is expressly forbidden without the written consent of Gran Tierra energy and I'll now I'd like to turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry. Please go ahead.

Thank you Andrew.

Good morning, and welcome to Gran Tierra is fourth quarter and year end 2022 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.

Brian and Rob will make a few brief comments and then we will open the line for questions. Brian . Please go ahead.

Thanks, Gary Good morning, everyone.

We're very pleased to announce that Gran Tierra achieved several company financial records in 2022, our excellent performance in 2022 was driven by our successful development and exploration drilling waterflood programs field performance and disciplined cost management combined with strong oil prices. Our many achievements during the year resulted in the year.

Over year production growth of 16% strong reserves replacement ratio was well above 100% and the highest annual figures in the company's history for net income funds flow from operations and free cash flow.

After reduced exploration activity during 2020 in 2021 the company made several key exploration discoveries during 2022 would provide confidence that our geologic orders entered the basis through our successful results from our development and exploration drilling waterflood programs in fuel performance were able to increase reserves and one P to P. In <unk>.

Categories, which Rob will describe.

During 2022, our net income was 139 million the highest on record results as our earnings per share on both a basic and diluted basis coming in at 38 cents per share. Our adjusted EBITDA was $490 million. It was $1 $30 34 on a basic per share basis.

Funds from operations were $366 million, resulting in free cash flow of $149 million, both of which were also records for the company.

Funds flow from operations for the year was one dollar on a basic per share basis.

Tears on budget capital spend totaled 237 million for the year and was balanced between exploration and development activities, which resulted in reserves.

Profitable production growth year on year in.

In 2022, Gran Tierra confuse commitment to reduce debt, resulting.

And a reduction of $88 million in debt and $173 million and net debt. The company finished the year with $147 million in cash and net debt to adjusted EBITDA of <unk> nine times. The company also achieved the return on average capital employed of 27% during 2022.

Gran Tierra strong offering netback of $48 43 per barrel for the year was up 43% from $33 75 and 2021.

Before I hand, it over to Rob I want to mention some of our beyond compliance initiatives, where Gran tierra identified significant opportunities and benefits to the environment. The communities. We voluntarily strive to go beyond what we were required to protect the environment and provide social benefit is right thing to do we're very proud of the Companys track record at all aspects of our environmental social.

And governance stewardship in 2022 Gran Tierra in partnership with the woman World Womens Corporation carried out an anti personnel do you mind investigation across approximately 4300 hectares of land.

Moving forward the Jewish communities in several municipalities in Putumayo basin of Colombia, as part of the company's commitment to the United Nations guiding principles for business and human rights 95, human right stream sessions were held in Colombia, and Ecuador in 2020, which include almost 500 employees contractors and suppliers Gran Tierra strives to maximize.

Employment and development opportunities, which meet or exceed governor requirements for local procurement since 2015 Gran Tierra has created approximately 26000 labor opportunities in Colombia. The Kobe also created roughly 470 labor opportunities in Ecuador and 2022.

Gran Tierra is also committed to work with the Colombia, and Ecuador in national and local governments and local communities to further their piece building efforts in 2022, the company invested over $4 6 million locally and projects in Colombia, and Ecuador identified by the communities themselves to meet their needs. The projects include the improvement of agriculture production.

<unk>.

Osborn entrepreneurship support community strengthening programs and infrastructure improvements to schools owns community centers. These are just some of the initiatives. We completed in 2022 and I highly recommend that you take a look at our 2022 sustainability report, which will be available on our web site in the second quarter of this year I will now turn the call over to <unk>.

Rob will discuss some of the highlights of our current operations.

Good morning, everyone I'll briefly cover a few operational highlights from yesterday's press release as well as our recent press release regarding 2022 year end reserves operationally, we are building off a successful year in 2022 to start off 2023.

The Putumayo basin of Colombia, and the charter block, we have commenced our Mckenna drilling campaign with the first well being drilled in late 2022, which was our first well drilled in the field since 2016.

25, the second development well into 2022 2023 drilling campaign reached its planned total depth on January 15th 2023. This well has been completed and was put on production on February one producer.

Producing on jet pump well, it's averaged 383 barrels of oil per day on stimulated.

We plan to stimulate the well during Q2 of this year.

<unk> <unk> development, well, what kind of <unk> 26 was spud on February nine 2023 and is expected to reach its planned total depth before the end of February in addition to <unk> 25, and 26, the company plans to drill and complete one to two more development wells and makita over the next four to five months.

Also on the charter block the first well <unk> six well 2023 development drilling program was spud on January 25, 2023 and reached its planned total depth on February 2nd reservoir quality.

As expected and as planned down dip water injection well the second well was spud on February seven 2023, and <unk> planned total depth all wells in the cost cycle drilling program are expected to be thrilled by late second quarter of 2023, and completed and put on production or injection before the end of <unk>.

Third quarter 2023.

Salt of the Putumayo basin, the Suriname blocks production averaged approximately 8620 barrels of oil per day gross in January 2023.

Marking the second highest monthly.

Production average since the second quarter of 2015. This was achieved despite the fact that we have not drilled a well in theory Yankee since the first quarter of 2018.

Up in the Middle Magdalena Valley Basin of Colombia, the first well in the coronary <unk> 10 to <unk>.

10% to 12, well 2023 development drilling program, our coronary <unk> 111 was spud on January 27, 2023 and reached its planned total depth on January 30.

Well logs indicate that the reservoir pays on came in as expected the company plans to complete this well and put on production before the end of February 2023, the second well planned injector was spud on February 5th and it's reached a total depth third well was spud on February 12.

The planned wells in this year's coronary development program are expected to have been drilled completed and placed on production or injection by the end of second quarter 2023.

Finally, we also plan to continue to focus on the appraisal of new discoveries and new exploration drilling during 2023, all while generating free cash flow to strengthen our balance sheet and returning capital to shareholders through potential share buybacks.

As for our 2022 year end oil reserves the company achieved significant growth in 2022 year, Ed one key MTV touted before tax.

Which increased by 26% compared to 2021 yearend as well we achieved significant growth in our 2020 to yearend two P. NPV 10, before tax which increased by 25% compared to year on year.

These increases were driven by the successful development and exploration programs and a strong recovery in oil prices.

After reduced exploration activity during 2020 and 2021 the company made several key exploration discoveries during 2022.

The company achieved excellent reserves replacement ratios.

The ratios are as follows.

126%, one P with one key reserve additions of $14 million.

148% <unk> with <unk> reserve additions of $17 million Boe.

280% three P with <unk> reserve additions of 31 million Boe.

The material <unk> reserve additions were largely driven by success with developed drilling and waterflood and results at a coronary <unk> jaco.

In addition to several exploration discoveries.

You're a combination of reductions in debt and per well capital cost maintaining low operating cost and completing share buybacks Gran tierra was able to achieve net asset values per share before tax of $4 62 for one P up 77% from 2021 and $7 36 for.

<unk> up 56% from 2021 with.

With the significant growth in our net asset value per share in 2022, we believe criteria is well positioned to offer exceptional long term stakeholder value.

I will now turn the call back to the operator, and Gary Ryan and I will be happy to take questions. Operator. Please go ahead.

<unk> will be pulled in the order they are received.

Ensure that you lift the handset if youre using a speakerphone before pressing any key one moment. Please for your first question.

Our first question comes from Adam Gill with paradigm capital. Please go ahead.

Good morning, two questions for me first off on operating costs, we've seen escalation over 2022, given power cost rising and increased workover activity.

Do you believe you've hit a plateau on Opex and what drivers could lower opex going forward.

Yes. Thanks.

We added a plateau, we think our operating costs on a gross basis will be similar to 2023 compared to 2022 of our production will be higher so on a per unit basis, we'll see those costs come down.

Okay, Great and the second question was just on sorry on <unk>.

And the contract expiring mid year 2024 is there any precedent on contract renewal and what could be upfront commitments look like to assure ensure this asset stays in the portfolio.

Yes.

Multiple precedence in the country of contract renewal, we do have clauses in our contracts for renewal and we are in discussions with echo patrol on trying to achieve that before before the expiry.

Any any thoughts on timing of when that could be completed.

No no real just before expiring we're working as diligently as we can and Thats mutual with echo withdrawal because both companies see benefits of continuing the programs that we started over the last couple of years.

Okay, great. Thank you gentlemen.

Okay.

Thank you.

One moment for our next question.

Our next question comes from Oriana cobalt with bolt ons. Please go ahead.

Hi, Good afternoon. Good morning, this is <unk> I.

I had quick question if it's okay to go one by one that would be great.

Thank you Tony Thank you for your guidance.

Yes, I'll take that on the vast wanted to see if this is Kelly. Yes. These are the wide at the end of last year as pointed out and it's continued into January starting to tighten a little bit in in February .

The main driver is really just a lack of heavy oil demand, especially with China I think China reopening we started to see those those differentials narrow and it's right around what we have budgeted right now we expect them to be wide in Q1, Q2, and then narrow into Q3 and Q4 and Thats true.

What we forecasted.

Got it thank you.

Owen.

And the only thing introduction of a new risk factor in your 10-K.

The adverse impact that certain acquisitions may having today. So just wondering if you could further elaborate on this and more precisely if you are looking into new jurisdictions aside from Ecuador.

What type of transaction that would make sense.

Yes.

Yes, I think Thats, just a risk factor I think most E&P companies do you have that within their disclosure and I think for US. We're a part of our job is always to optimize the portfolio. So we're very happy to either.

All acquired assets portfolio or sell assets that are in our portfolio.

We're always looking to optimize so it could be within Colombia or outside of Colombia again, we'll give you the buyers or sellers.

Okay and just one final one we noted then and then cash position came a bit shy of the 190 million that you had guided.

Quarter report, so if you could share any additional color on it.

Yes.

Drivers on that one.

Brent price came in quite a bit lower than we had originally forecasted.

But also the differentials are those much longer much wider than we had forecasted.

Both Youll get best go near the historical average five year average of about $3 and a wide all the way up $10. One point efficacy of the five year average closer to $78 and our wind all the way up to 18, $19. So that really hurt us in the quarter.

And the rest is really just explained from from working capital movements.

Perfect that would be coming in thank you.

Thank you.

One moment for our next question.

Our next question comes from Jeff It Josef Schachter with Schachter Energy Research. Please go ahead.

Thank you very much good morning, Gary Ryan then Rob.

Congratulations on the.

All the progress you've made this year.

A few questions. The first one I will go with Brian .

Where do you see the target debt level that you'd like you're down below one to one debt to EBITDA.

We see.

85% to 90 per average for Brad.

2023, youll generate $70 million to $100 million of free cash flow plus you have the $100 million or so of $126 million on the balance sheet, how do you see that.

In terms of where you want it to be.

Going forward is there a target.

From the $5 89.

On the balance sheet on December 31, 2002.

Is there a number you want to have at that point, you say, that's the amount of debt that should be in.

This going forward or do you want to keep on knocking that down to zero and not have that at all just trying to get my head.

How much money, we will be left over after that too.

<unk> increase.

Growth via exploration development or buy them more side by stock buybacks, etc.

Yes, it's a good question I think we're comfortable with.

Net debt to EBITDA of one times.

The <unk> eight to one times is really our comfort range.

I think when we look at our gross debt.

Right now were about $5 80.

Our target would be between 500 and 550.

We think that will be a right capital structure for a company of our size currently.

Okay.

Next question.

In the releases and your government document on page nine you talked about the exploration blocks.

You put a single star double star there.

And you have I think it's 24688 with with one Starwood says exploration has been suspended due to licensing restrictions security issues or social reasons do you see any changes of that in 'twenty three.

Or is this and do you get extensions from the government.

So that you can.

Keep these properties for future use.

Things settle down there.

Yes, I think that the.

The short answer to that is.

Sure.

On a continuous basis, we're working with the government and with the communities.

The ones that are suspended or issues with communities.

And it's an ongoing process, we have not given up really.

Any of our our top priority exploration projects, but there are some that we may in the end.

Relinquish, but I can assure you that its none of our top our top priorities going forward and so.

I think the short answer is.

Everything that we want to do we're doing and we will achieve that over the next one to three years.

Okay.

Lastly, Gary again.

As a shareholder and as somebody.

He has been a fan of the company.

The opportunity in.

In Colombia and Ecuador.

You see a lot of the stocks in Colombia have.

Discount to valuations and <unk>.

It highlighted that with your colleagues in the presentation about the discount to NAV.

And as Ryan mentioned selling or buying as possible.

Is the barrel cheaper on Bay Street Wall Street.

And then spending money and.

Is there.

Interest in potentially selling some assets and then doing a substantial issuer bid.

And waking everybody up to the underlying value that.

Currently being Darren.

Yes.

Again, the short answer.

I think is on a continuous basis, we're looking at how we create value.

Ryan mentioned the debt levels. If we have discoveries that we we see long term, we will develop we will adjust accordingly in terms of our balance sheet. We also are looking at other basins around the world.

We've all seen.

The large companies starting to divest non core assets, which we believe.

In many cases, a company of our size and our portfolio, we can create a lot of value regardless of the valuations on.

The stock price, we look at it as we're in this business for the long term long term being the next five years not the next five weeks and we will direct our efforts.

Both on our current assets and new assets that we diversify into other basins. Other other assets and I think you hit a good point. We also are looking at it.

We'll look at opportunities to bring in other partners and things that we're doing.

Dilute our interest, but everything we have in our portfolio today, we really like and we really believe that we can create value and we're just looking to expand that portfolio.

Okay.

Thanks for taking my question was around I'll be rooting for.

More breakthroughs in 2023, thanks very much.

Thank you.

Thank you one moment for our next question.

Our next question comes from Alexandra <unk> from William Blair. Please go ahead.

Hi, Thank you for taking my question.

Questions.

Scott.

Thank you.

You may begin.

Stocks in 2020.

Guidance for production in Europe .

Sure.

Suck docs.

Sure.

Thank you.

Hum.

Thank you Matt.

Yeah estimated tax based off of $85 Brent did again paid on differentials and what pricing use but we would expect our current tax to be $110 million to $130 million.

Okay.

The royalties.

Thanks for that.

Yes.

Our current tax Bill for 2023, which will be paid in two installments in 2024.

Thank you one moment for our next question.

Our next question comes from Phillip Skolnick with eight capital. Please go ahead.

Yes. Thanks, good morning, just going back to <unk>.

You are to get to contract renewal how.

How do we think about the reserve adds.

With respect to that and also would there be any potential changes to this year's capex budget, maybe production target.

Yes, I think.

The answer Phil is our plans for <unk> would be to expand the waterflood, we've done a lot of work over the last few years.

In terms of the capital program, there would be some minor adjustments but.

We would look more at AR.

Three year type plan to expand the waterflood.

To increase some of the development drilling.

And the block so.

You wouldn't see a major change in the capital program this year, but over the next three years.

We would focus a lot of effort on.

Increasing reserves.

We are taking a look at what we would.

What would change in our reserve base going forward, but we don't want to be premature in.

Waiting for the contract to actual will be signed and we're working.

Mutually with Echo petroleum.

To put that program together.

Got it understood just finally just.

I know in the past recent past you've said that the environmental permitting process are basically been business as usual is that still the case.

It has.

And we've.

We've been working very diligently with communities on blockades in other interruptions in.

We've seen some progress I think is the greatest data, but in terms of permitting and environmental studies.

<unk>.

Business as usual in Colombia, and in Ecuador, We're quite excited about our discoveries in Ecuador.

As Rob mentioned, we see some some real opportunity there to expand what we're doing.

Across the border in Ecuador as well.

Okay, great. Thank you.

Thanks, a lot for our next question.

Our next question comes from Luke Davis with RBC. Please go ahead.

Thanks. Good morning, you guys have a pilot wells coming on this year. Just wondering if you can speak a little bit to the expected cadence of production volumes, maybe quarterly and.

Where you expect to exit the year at and also just wondering if you have any contribution expected from any of the exploration wells that are included in the program.

Thanks, Luke I think the cadence.

As Rob mentioned, we're doing a lot of the development drilling in the first half of the year. So those will be brought on in Q2 and into Q3, So we'd expect a steady ramp up for the year.

During the year around 34000 barrels or so.

Got it.

And anything from those exploration wells or is that just.

Potential upside.

Yes, okay.

The only other thing I was wondering about is just buybacks how youre thinking about that is that going to be sort of a portion of free cash flow that youre sleeping into buybacks do you have.

Aggregate target that Youre that Youre looking ahead or how are you thinking about that currently.

Yes, we bought back 626, 3% of our stock last year and we have approval currently up to around 10%, so, especially when we're trading at such a substantial discount to our NAV.

We definitely like Microsoft and CIB.

And then look to renew.

Got it that's it for me thanks.

Thanks Lou.

Thank you one moment for our next question.

Our next question comes from Juan crews with Morgan Stanley . Please go ahead.

Hi, good morning, everybody and thanks for the call.

I just wanted to clarify just quickly you guys were talking about debt levels going forward.

And on the third quarter call you had.

Indicated to the market that you had bought back about $20 million of lifestyle.

25 bonds.

Hey, Mike.

Understanding that those are still outstanding just wanted to see if there is any reason for them not been canceled yet considering your targets.

If you can comment on that that would be great.

Yes.

We hold we hold those bonds ourselves and there's no reason why we didn't cancel them is we wanted to make sure that there was no adverse impacts as far as index inclusion so from accounting treatment and really the economic reality is we're rolling those bonds. Our debt is $580 million and we just did that to have the $300 million.

$300 million bond design for index inclusion.

I understand okay.

But from your perspective, there is no intention of reselling those bonds back into the market no no.

No.

There is not.

Bearing treasury and that will remain pressured for index.

Inclusion purposes.

Correct.

Okay. Thank you.

Already in liquid enough. So we don't want to do anything anymore to average.

Yes.

Thank you our next question.

Our next question comes from Robyn Rafi with Canaccord Genuity. Please go ahead.

Thank you so much for taking my question.

Sure.

The first one is regarding the data I just wanted to check what's happening. Thank you lose the linear program are you able to initiate anyone undertaken last.

Last year, you mentioned you wanted to have a cash balance of around $100 million I just wanted to check your guidance change.

Thank you.

Thanks, Yes.

Can renew the program once we fulfill.

Once we buy up to the maximum which we would look at renewing afterwards, which will be good for a year.

And then on the cash balance <unk> always targeted $75 million to $100 million in Gaspar and our cash balances.

And that Hasnt changed.

Okay perfect. Thank you very much.

Thank you. Thank you one moment for our next question.

Okay.

Our next question comes from Chris <unk> with Marathon asset management. Please go ahead.

Yes, hi, thanks for the call.

I'm just wondering I mean, what what your current view is our outlook is on.

Potential restrictions on exploration going forward I know, there's been a lot of talk from various people in Colombia, it's sort of hard to tell where it's going to end up.

How are you looking at that and does that affect your plans is that affecting maybe your thoughts on acquiring assets outside of Columbia.

Sure.

So I guess any thoughts on that.

Yes.

We have a great portfolio of exploration lands and we have plenty plenty of work in front of us for the next.

Three to five years, we also have some very.

Exciting lands in Ecuador, as well so in terms of exploration.

Sure.

We realize there have been some announcements in Colombia about no new exploration lands, we get that.

But.

It has no impact on what we're doing in our five year plan as we go forward in Colombia.

I mentioned in Ecuador.

The answer to your question is if we are looking at some other basins, we have a very strict criteria and what we invest in.

Globally.

Hi.

We are looking at some opportunities in Africa, the middle East, where we believe that we can not only expand.

Our value portfolio.

But diversify and mitigate risk and so the answer to your question is we're very happy with our exploration.

In Colombia, but we're also looking at other opportunities in other basins.

Great. Thanks.

Thank you gentlemen, there are no further questions at this time please continue.

Thank you thank you Andrea.

Again, I'd like to thank everyone for joining us today, we look forward to speaking with you over the next quarter and update you on our ongoing process.

Thank you.

Q4 2022 Gran Tierra Energy Inc Earnings Call

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