Q2 2024 Gran Tierra Energy Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to Grand Tier Energy Results Conference call for the second quarter of 2024. My name is Michelle, and I'll be your coordinator for today. At this time, all participants are on a listen-only mode.

Operator: The second quarter of 2024.

Operator: Quarter 2024. Today's discussion may include certain forward-looking information, as well as certain non-GAAP financial measures. Finally, this earnings call is the property of Gran Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy.

Michelle: My name is Michelle, and I will be your coordinator for today. At this time, all participants are in listening mode.

Michelle: Following the initial remarks, we will conduct a question-and-answer session for securities, analysts, and institutions. And Sharpen's will be provided at that time for you to queue up for questions.

Operator: 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.

Michelle: I would like to remind everyone that this conference call is being webcast and recorded today. Thursday, August 1, 2024, at 11 a.m. Eastern time.

Operator: I would like to remind everyone that this conference call is being webcast and recorded today, Thursday, August 1st, 2024 at 11 a.m. Eastern Time.

Michelle: 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 regards to this information and recommendations of any non-GAAP measures discussed on today's call. Any production volumes are based on working interest sales before royalties.

Operator: Today's discussion may include certain forward-looking information as well as certain non-GAAP financial measures.

Operator: Please refer to the Earnings and Operational Update press release we issued yesterday for important disclaimers with regards to this information and reconciliations of any non-GAAP measures discussed on today's call.

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

Operator: Any production volumes are based on working interest sales before royalties.

Michelle: Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy.

Operator: Finally, this earnings call is the property of Grand Tier Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Grand Tier Energy.

Michelle: I will now turn the conference call over to Gary Gidry, President Chief Executive Officer of Gran Tierra. Mr. Gidry, please go ahead.

Operator: I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Grand Tierra. Mr. Guidry, please go ahead. Thank you.

Gary Gidry: Thank you, operator.

Gary Gidry: Good morning and thanks for joining Gran Tierra's second quarter 2024 results conference call. My name is Gary Gidry, President and Chief Executive Officer. And with me today, Ryan Elson, our Executive Vice President and Chief Financial Officer, and Sebastian Moron, our Chief Operating Officer.

Speaker Change: Thank you, Operator.

Speaker Change: Good morning, and thanks for joining Grand Tierra's second quarter 2024 results conference call.

Gary Guidry: My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer, and Sebastien Morin, our Chief Operating Officer.

Gary Guidry: My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer, and Sebastian Morin, our Chief Operating Officer.

Gary Gidry: On Wednesday, July 31, 2024, we issued a press release that included detailed information on our second quarter 2024 results, which is available on our website. Ryan and Sebastian will make a few brief comments, and then we will open the line for questions.

Gary Guidry: On Wednesday, July 31st, 2024, we issued a press release that included detailed information on our second quarter 2024 results, which is available on our website.

Speaker Change: Ryan and Sebastien will make a few brief comments and then we will open the line for questions. Ryan, please go ahead.

Ryan Elson: Ryan, please go ahead. Thank you, Gary.

Ryan Elson: Good morning, everyone. I will start off by saying that we're very pleased with how Gran Tierra has wrapped up the first half of 2024. During the second quarter, we were able to begin our high impact exploration campaign that started off with the previously announced discovery of air water. In addition, we have also progressed a number of our development programs, including in the shading civil works in the story empty block, to kick off a five well-drolling campaign with the second rig in the second half of 2024. During the quarter, Gran Tierra delivered net income of $36 million, or $1.16 per share.

Ryan Ellson: Thank you, Gary. Good morning, everyone.

Speaker Change: I will start off by saying that we're very pleased with how Grand Tier has wrapped up the first half of 2024. During the second quarter, we were able to begin our high-impact exploration campaign that started off with the previously announced

Gary Guidry: Discovery and Arowana. In addition, we have also progressed a number of our development programs, including initiating civil works in the Soriente block to kick off a five-well drilling campaign with the second rig in the second half of 2024.

Speaker Change: During the quarter, Grand Tierra delivered net income of $36 million, or $1.16 per share.

Ryan Elson: Further, Gran Tierra achieved operating that back of $113 million, which is up from $105 million in the prior quarter, and adjusted in bit of $103 million, which was up from $95 million in the prior quarter. The company also strategically revises 2022 tax return during the quarter to use its long-term tax receivable balance to offset current tax liabilities rather than applying net operating lost carry force. This decision was driven by a higher current and future tax rates and increased profitability in Colombia. As a result, the current tax expense increased by $28 million, but this was offset by long-term tax receivable, resulting in no cash outflow.

Speaker Change: Further, Grand Theatre achieved operating net back of $113 million, which is up from $105 million in the prior quarter, at a just dividend of $103 million, which was up from $95 million in the prior quarter.

Gary Guidry: The company also strategically revised its 2022 tax return during the quarter to use its long-term tax receivable balance to offset current tax liabilities, rather than applying net operating loss carry-forwards. This decision was driven by higher current and future tax rates and increased profitability in Colombia.

Speaker Change: As a result, the current tax expense increased by $28 million, but this was offset by long-term tax receivable, resulting in no cash outflow.

Ryan Elson: We were able to preserve our net operating lost carryforwards of approximately $85 million for future periods, providing greater tax benefit in 2024 and in the future. This tax initiative also allowed us to recover $18 million of taxes receivable in 2024, and accelerate the recovery of an estimated $65 million of taxes receivable over the next three years. During the quarter, the company spent 61 million in capital expenditures, which were higher than the 55 million in the prior quarter due to the commencement of the 30 seismic program in Ecuador and the drilling campaign. We also installed the final completion and artificial list systems in the cost of the aqua development wells.

Gary Guidry: We were able to preserve our net operating loss carry forwards of approximately $85 million for future periods, providing greater tax benefits in 2024 and in the future. This tax initiative also allowed us to recover $18 million of taxes receivable in 2024 and accelerate the recovery of an estimated $65 million of taxes receivable over the next three years. Looking at prices during the quarter, Brent averaged $85.03 per barrel, up 4% from the prior quarter.

Gary Guidry: We were able to preserve our net operating loss carry forwards of approximately $85 million for future periods, providing greater tax benefit in 2024 and in the future.

Gary Guidry: This tax initiative also allowed us to recover $18 million of taxes receivable in 2024 and accelerate the recovery of an estimated $65 million of taxes receivable over the next three years.

Gary Guidry: During the quarter, the company spent $61 million in capital expenditures, which were higher than the $55 million in the prior quarter due to the commencement of the 3D seismic program in Ecuador and the drilling campaign. We also installed the final completion and artificial lift systems in the Costiaco development wells.

Ryan Elson: As of June 30th, the company had a cash balance of 115 million and net net of 521 million. The 12 month trailing net debt divina, adjust divina was 1.3 times and expected to be less than one times by the year end, 2024, from a combination of increased divina and lower net debt. Gran Tierra general oil sales, 166 million, up 5% from the prior quarter due to higher Brent pricing and narrow Castilla and Vasconia oil differentials. Looking at pricing during the quarter, Brent averaged $85.3 per barrel, up 4% from the prior quarter. The company's quality and transportation discounts per barrel during the quarter were $12.79, which can significantly narrow from the $15.36 in the prior quarter.

Gary Guidry: As of June 30th, the company had a cash balance of $115 million and net debt of $521 million.

Gary Guidry: The 12-month trailing net debt adjust EBITDA was 1.3 times and expected to be less than one times by the year-end 2024 from a combination of increased EBITDA and lower net debt.

Speaker Change: Grand Tierra Generator oil sales $166 million, up 5% from the prior quarter due to higher Brent pricing and narrow Castilla and Vascone oil differentials.

Gary Guidry: Looking at pricing during the quarter, Brent averaged $85.03 per barrel, up 4% from the prior quarter.

Ryan Elson: The company's operating net back was $38.80 per barrel, up 10% from the prior quarter. Shared by the backs continued to be a key area in which we'll get our free cash flow. Since January 1, 2023, Gran Tierra has repurchased approximately $3.9 million, or 11% of the outstanding shares. During the quarter, Gran Tierra has repurchased approximately $400,000 shares. We're looking forward to the second half of the year when we plan to drill the remainder of our high impact near field exploration wells in Ecuador, including going too well to further prey to the exciting air wind discovery.

Gary Guidry: Share buybacks continue to be a key area in which we allocate our free cash flow. Since January 1st, 2023, Grantera has repurchased approximately 3.9 million, or 11% of the outstanding shares. During the quarter, Grantera has repurchased approximately 400,000 shares.

Gary Guidry: We're looking forward to the second half of the year, when we plan to drill the remainder of our high-impact near-field exploration wells in Ecuador, including drilling two wells to further appraise the exciting air wine. As part of the Fast Track appraisal program at Arowana, the drilling schedule and civil works have been accelerated to allow the drilling of these two wells prior to year-end.

Ryan Elson: As part of the fast track appraisal program, marijuana, the drilling schedule and civil works have been accelerated to allow the drone of these two wells prior to your end. From a development perspective, we're completing the civil works associated with the building infrastructure in the Coimbe Bad. In this oriented block, to begin drilling the five wells from a single pad in the fourth quarter of 2024.

Gary Guidry: As part of the Fast Track appraisal program at Arowana, the drilling schedule and civil works have been accelerated to allow the drilling of these two wells prior to year end.

Ryan Elson: We're very pleased about our first half results, and there are so many more catalysts in the second half of 2024.

Ryan Elson: Lastly, I want to highlight that we also issued an S3 yesterday, updating our shelf perspectives that were set to expire in August 2024. This file is routine in nature, and the timing of its issuance is as direct results of the timing of the expiry. The process for news are S3 shelf perspectives for further three years.

Sebastian Moron: I'll now turn the call over to Sebastian to discuss our operational highlights from our second quarter, second quarter. Good morning, everyone. As Ryan mentioned, capital expenditures of 61 million were higher than the prior quarter of 55 million and down from 66 million compared to the second quarter of 2023. Total average working interest production during the quarter was 32,776 barrels of oil per day. An increase of 2% compared to the prior quarter and up 4% on a per share basis is the second quarter of 2023. During the second quarter of 2024, Grant here installed selective completion, systematically stimulated multiple zones, and added electrical submersible pumps across the Aqua 56, 57, 58, and 59, which were drilled as part of our first half 2024 development camp.

Gary Guidry: I'll now turn the call over to Sebastien to discuss our operational highlights from our second quarter.

Sebastien Morin: During the second quarter of 2024, Gran Tierra installed selective completions, systematically stimulated multiple zones, and added electrical submersible pumps at Costiaco 56, 57, 58, and 59, which were drilled as part of our first half 2024 development campaign. The company's transportation expenses increased by 24% to $5.7 million compared to the prior quarter of $4.6 million due to El Nino phenomena causing low water levels in the Magdalena River, resulting in Gran Tierra utilizing longer delivery points.

Sebastien Morin: During the second quarter of 2024, Grand Tierra installed selective completions, systematically stimulated multiple zones, and added electrical submersible pumps at Costiaco 56, 57, 58, and 59, which were drilled as part of our first half 2024 development campaign.

Sebastian Moron: While the temporary offline status of these wells for the planned collective completion did impact second quarter production by about 700 barrels per day. The improvements have resulted in enhanced production, with rates exceeding initial peak rates, with all wells now back online. Given the ongoing positive performance from our core fields on water floods and recent exploration success, we remain very comfortable with our 2024 production guidance. Looking to operating expenses, they decreased by 3% to 47 million compared to the prior quarter, primarily due to lower workover activities as a result of continued improvement and artificial lift reliability.

Sebastien Morin: Given the ongoing positive performance from our core fields on waterflood and recent exploration success, we remain very comfortable with our 2024 production guidance.

Sebastian Moron: On a per oil basis, operating expenses also decreased by 1% when compared to the prior quarter as the company continues to focus on pushing forward further cost savings and operational efficiency initiatives. The company's transportation expenses increased by 24% to 5.7 million compared to the prior quarter of 4.6 million due to El Nino phenomenon causing low water levels in the Magdalena River, resulting in Gran Tierra utilizing longer delivery points. The river levels have now returned to normal conditions, allowing for use of our preferred shorter delivery routes for the second half of 2024. Our exploration program and the Chimangade Block remained very active with the drilling and installation of a multi-zone selective completion at the Boca Chico Northeast J1 well.

Sebastien Morin: The company's transportation expenses increased by 24% to $5.7 million compared to the prior quarter of $4.6 million due to El Nino phenomena causing low water levels in the Magdalena River, resulting in Grand Tierra utilizing longer delivery points.

Sebastien Morin: Our exploration program in the Chenange block remained very active, with the drilling and installation of a multi-zone selective completion at the Boca Chico Norte J1 well. Log and core data indicated reservoir and net pay in multiple zones, including the Basal Tena San, the T-San, and B-Limestone.

Sebastian Moron: Login core data indicated reservoir and net-say in multiple zones, including the basal Tennis and the T-sense and B-limes zone. Testing is now underway and expected to continue throughout the third quarter. Note that although the B-limes zone was not a primary target, it had positive show as well drilling indicating it may be connected to a productive fraction network. The completion install will allow for efficient multi-zone selective stimulation, production, and commingling of the basal tennis and T-sense and B-limes zone. In addition, the Aeroana J1 and Boca Chico J1 wells continue to yield strong production results, with a combined 1,600 to 1,800 barrels of oil per day.

Sebastien Morin: Testing is now underway and expected to continue throughout the third quarter. Note that although the Bee Limestone was not a primary target,

Sebastien Morin: It had positive shows while drilling, indicating it may be connected to a productive fracture network. The completion installed will allow for efficient multi-zone selective stimulation, production, and commingling of the basal tenosan, t-san, and D-line filaments. In addition, the Arowana J-1 and Boca Chico J-1 wells continue to yield strong production results with a combined 1,600 to 1,800 barrels of oil per day. Also, on the Tarapa block, the 3D seismic program has been completed, and the data is currently being processed. Our 3D seismic data will further delineate reserves, underpin future drilling locations scheduled for 2025, and support future development planning.

Sebastien Morin: In addition, the Arowana J-1 and Boca Chico J-1 wells continue to yield strong production results with a combined 1,600 to 1,800 barrels of oil per day.

Sebastian Moron: Grant Aero Plants convert both wells from jet pump to electrical submersible pumping systems in the second half of 2024 to further increase production rate. Upon finishing the drilling of the Boca Chico Norte J1 well, the rig was moved over to the Trapa block on July 14. The Trapa B-6 well was spud, with the primary target being the Hoya information. The well has reached total depth of 11,170 feet on July 31 after successfully logging and pouring the zones of interest. We are seeing very encouraging results in the Trapa B-6 well, which has been corded with excellent oil shows throughout the Hoya information.

Sebastien Morin: with the primary target being the Hoya Information.

Sebastian Moron: We anticipate finalizing drilling and completion operations early in August, with testing plans to begin immediately afterwards. Following the drilling of the Trapa B-6 well, the rig will begin drilling the Trapa B-7 well from the same pad in the third quarter of 2024. Also on the Trapa block, the 3D seismic program has been completed, and the data is currently being processed. The preliminary interpretations of the high-quality 3D seismic data confirm potential prospectivity and additional areas of interest, including better definition and confidence in our reserve estimates over the Trapa structure. The 3D seismic data will further delineate reserves, underpin future drilling locations scheduled for 2025, and support future development planning.

Sebastien Morin: We anticipate finalizing drilling and completion operations early in August with testing planned to begin immediately afterwards.

Sebastien Morin: Following the drilling of the Tarapa B-6 well, the rig will begin drilling the Tarapa B-7 well from the same pad in the third quarter of 2024.

Sebastien Morin: Also on the Tarapa block, the 3D seismic program has been completed and the data is currently being processed.

Sebastien Morin: Preliminary interpretations of the high-quality 3D seismic data confirms potential prospectivity and additional areas of interest, including better definition and confidence in our reserve estimates over the Tarapa structures.

Sebastian Moron: Overall, the company continues to follow through on the capital plan and is experiencing early success in the 2024 exploration campaign.

Sebastien Morin: Overall, the company continues to follow through on the capital plan and is experiencing early success in the 2024 exploration campaign. We remain optimistic about the second half of 2024, where we are drilling some very exciting wells in both the Tarapa and Tanange blocks.

Sebastian Moron: Thank you, ladies and gentlemen.

Operator: We will now conduct the question-and-answer session for security's analysts. If you have a question, please press the star key, followed by one one on your touchstone phone. You will then hear an automated message advising your hand is raised. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you are using a speaker phone before pressing any keys. One moment, please, for your first question.

Operator: You will then hear an automated message advising your hand is raised. Your questions will be asked in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any keys.

Alejandra Andrade: Our first question comes from Alejandra Andrade with JPM. Your line is open. Hi, good morning. Thanks for taking my question. I just had two questions.

Speaker Change: Our first question comes from Alejandra Andrade with JPM. Your line is open.

Unnamed Participant: Hi, good morning. Thanks for taking my question. I just have two questions. First, I wanted to discuss a little bit the production outlook for the second half of the year. And then also, if you could give a little bit more color on all the tax moves that are happening in the numbers, that would be great. Thank you.

Alejandra Andrade: First, I want to discuss a little bit of production outlook for the second half of the year. And then also if you could give a little bit more color on all the tax moves that are happening in the numbers, that would be great. Thank you.

Ryan Elson: I think we are very pleased with our first half results and continue to look forward to our exciting catalysts that are coming. As we just stated, both of our two new exploration wells are currently on testing, which we are happy with. And so we continue to reiterate our guidance for the year. Perfect.

Ryan Ellson: If you look in the notes in the financial statements, we did put together a reconciliation to try to explain some of the movements. Effectively, what we were able to do with the refiling is just to keep $85M of non-capital losses. Those rates were done at a 35% tax rate, with the current rate being 50%. We get the benefit of

Ryan Elson: And on the taxes, yeah, and probably the best thing is if you look in the notes in the financial service, we did put a reconciliation to try to explain some of the movements. But effectively, what we were able to do with the refiling is just to keep 85 million of non-capital losses. You know, those rates were done at, you know, 35% tax rate with a current rate being 50%. So we get the benefit of the, you know, utilize those losses in a higher tax rate environment. That's the first one, but also allow us to accelerate some of these long-term receivables that we had.

Ryan Ellson: You know, those rates were done at, you know, 35% tax rate, with the current rate being 50%. So we get the benefit of the...

Ryan Ellson: you know, utilize those losses in a higher tax rate environment.

Ryan Ellson: [inaudible]

Alejandra Andrade: So, although we had the book of current tax expense, there was no cash outflow. We actually netted the payable that was generated from the refiling with long term receivable that we had. So really there's acceleration of those receivables and allow us collect further money to, you know, 65 million over the next three years. Great. Thanks. You're welcome.

Ryan Ellson: So really there's acceleration of those receivables and allows us to collect further money, you know, $65 million over the next three years.

Diego Espinosa: Thank you. Our next question comes from Diego Espinosa with BTG Pactful. Your line is open. Hi. Thank you for taking my question. Can you hear me? Yeah, we hear you. Perfect. Just have a couple of questions. First one is that the gap is right now; you have around 102 million dollars. How much you expect to spend during this second half of the year.

Unnamed Participant: Thank you. Our next question comes from Diego Espinosa with BTG Paxil. Your line is open.

Diego Espinosa: Great. Thanks.

Speaker Change: You're welcome. Thank you. Our next question comes from Diego Espinosa with BTG Patchwork. Your line is open.

Speaker Change: Yep, we hear you.

Diego Espinosa: Perfect. I just have a couple of questions. The first one is that GAPEX, right now you have around 120 million dollars. How much do you expect to spend during the second half of the year?

Ryan Elson: Anum. So, in terms of working capital, we saw some relief during this quarterly. We expect that this should be a reversal, a reverse during the next quarter or in the fourth quarter. That's it. Great. Yeah.

Ryan Ellson: In terms of working capital, we saw some relief during this quarter. Do you expect that this should be reversed during the next quarter or in the fourth quarter? That's it.

Speaker Change: In terms of working capital, we saw some relief during this quarter. Do you expect that this should be a reversal or reverse during the next quarter or in the fourth quarter? That's it.

Ryan Elson: On the capital guidance, we're comfortable with the guidance that we have in the market right now. So, we think that's a reasonable range given our first half results and our program for the second half. And then we respect the working capital. Yeah. A lot of that work out for a lease was from the tax violence and the accelerate moving to the long term receivable and the current receivable, sorry, long term, in the current. So, so that we don't expect that to reverse the following quarter, but was more of a one-time item this quarter. Perfect. Thank you very much.

Speaker Change: On the capital guidance, we're comfortable with the guidance that we have in the market right now. So we think that's a reasonable range given our first half results and our program for the second half.

Speaker Change: And then with respect to Work and Caliper, yeah, a lot of that Work Caliper release was from

Speaker Change: the tax filings and accelerate moving the long-term receivable in the current receivable. Sorry, long-term in the current. So, that, we don't expect that to reverse the following quarter, but it was more of a one-time item this quarter.

Operator: Thank you.

Ryan Ellson: Perfect

Operator: Gentlemen, there are no further questions at this time.

Operator: OPERATOR Gentlemen, there are no further questions at this time. Please continue.

Speaker Change: Thank you very much. Great, thank you. Thank you.

Gary Gidry: Please continue. Okay, thank you, operator.

Operator: Gentlemen, there are no further questions at this time. Please continue.

Gary Gidry: I would like to thank everyone once again for joining us today. We look forward to speaking with you over the next quarter and update you on our ongoing progress. Thank you very much.

Speaker Change: Okay, thank you, operator. I would like to thank everyone once again for joining us today. We look forward to speaking with you over the next quarter and update you on our ongoing progress. Thank you very much.

Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.

Operator: Thank you for your participation. This does include the program.

Operator: You may now disconnect everyone.

Operator: Have a great day.

Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.