Q2 2024 Gran Tierra Energy Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to Grand Tier Energy's results conference call for the second quarter 2024.

Michelle: My name is Michelle, and I'll 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.

Operator: Following the initial remarks, we will conduct a question and answer session for securities analysts and institutions. Today's discussion may include certain forward-looking information, as well as certain non-GAAP financial measures.

Michelle: 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, Thursday, August 1st, 2024 at 11 a.m. Eastern Time.

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

Michelle: 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-GAP measures discussed on today's call.

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

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

Michelle: 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 Guidry, President and Chief Executive Officer of Grantier. Mr. Guidry, please go ahead. Thank you.

Gary Guidry: Thank you, operator.

Gary Guidry: 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: Ryan and Sebastian will make a few brief comments, and then we will open the line for questions.

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

Ryan Ellson: 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.

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

Gary Guidry: Further, Grand Tier achieved operating net back of $113 million, which is up from $105 million in the prior quarter, and adjusted EBITDA 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.

Gary Guidry: This decision was driven by 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.

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 Costillaco development wells.

Gary Guidry: As of June 30th, the company had a cash balance of $115 million and net debt of $521 million. Share buybacks continue to be a key area in which we allocate our free cash flow. Since January 1st, 2023, Gran Tierra has repurchased approximately 3.9 million, or 11% of the outstanding shares. During the quarter, Gran Tierra repurchased approximately 400,000 shares.

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.

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 area of Guayana. 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. We are very pleased about our first half results, and there are still many more catalysts in the second half of 2024.

Speaker Change: We're very pleased about our first half results, and there are still many more cattle in the second half of 2024.

Gary Guidry: Lastly, I want to highlight that we also issued an S3 yesterday, updating our shelf prospectus, which was set to expire in August 2024. This filing is routine in nature, and the timing of its issuance is a direct result of the timing of the expiry date. The process renews our S3 shell prospectus for a further three years. I'll now turn the call over to Sebastien to discuss our operational highlights from our second quarter.

Sebastien Morin: barrels of oil per day, an increase of 2% compared to the prior quarter and up 4% on a per share basis since the second quarter of 2023. 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. 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 Tarapa structure. Our 3D seismic data will further delineate reserves, underpin future drilling locations scheduled for 2025, and support future development planning. Thank you.

Gary Guidry: 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.

Speaker Change: The river levels have now returned to normal conditions, allowing for use of our preferred shorter delivery routes for the second half of 2024.

Gary Guidry: Note that although the Bee Limestone was not a primary target,

Speaker Change: It had positive shows while drilling, indicating it may be connected to a productive fracture network. The completion install will allow for efficient multi-zone selective stimulation, production, and commingling of the basal tenosan, t-san, and D-line stilling.

Speaker Change: 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.

Gary Guidry: Upon finishing the drilling of the Boca Chico Norte J-1 well, the rig was moved over to the Tarrapa block on July 14th.

Gary Guidry: The Tarapa B6 well was spud, with the primary target being the Hoya information.

Gary Guidry: We anticipate finalizing drilling and completion operations early in August, with testing planned to begin immediately afterwards.

Speaker Change: I'll now turn the call back to the operator and we will be happy to answer any questions. Operator, please go ahead.

Operator: Thank you. Ladies and gentlemen, we will now conduct the question and answer session for securities analysts. If you have a question, please press the star key, followed by 11 on your touchtone phone. You will then hear an automated message advising your hand is raised. Your questions will be polled in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any keys.

Speaker Change: Thank you. Ladies and gentlemen, we will now conduct the question and answer session for securities analysts. If you have a question, please press the star key, followed by 1-1 on your touchtone phone.

Speaker Change: You will then hear an automated message advising your hand is raised. Your questions will be polled in the order they are received. Please ensure you lift the handset if you are using a speakerphone before pressing any keys. One moment please for your first question.

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

Analyst: 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.

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

Speaker Change: Perfect.

Speaker Change: [inaudible]

Ryan Ellson: you know, utilize those losses in a higher tax rate environment. That's the first one, but it also allowed us to accelerate some of these long-term receivables that we had. So although we had to book a current tax expense, there was no cash outflow; we actually netted the payable that was generated from that refiling with the long-term receivables that we had. So really, there's an acceleration of those receivables, and allows us to collect further money, you know, 65 million over the next three years.

Speaker Change: you know, utilize those losses in a higher tax rate environment.

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

Speaker Change: Great, thanks.

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

Analyst: Hi, thank you for taking my question. Can you hear me? Yeah, we hear you.

Diego Espinosa: Hi, thank you for taking my question. Can you hear me?

Analyst: Perfect. Just have a couple of questions. First one is that GAPEX, right now, you have around $120 million. How much do you expect to spend during the second half of the year? 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.

Diego Espinosa: 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 Ellson: Okay, great. Yeah, on 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 with respect to working capital, yeah, a lot of that working capital release was due to tax filings and moving the long-term receivable into current receivable, sorry, long-term into current, so we don't expect that to reverse the following quarter, but it was more of a one-time item.

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.

Analyst: Thank you very much. It's great.

Sebastien Morin: and Sebastien Morin.

Diego Espinosa: Perfect.

Sebastien Morin: Thank you very much. Thank you.

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

Speaker Change: Thank you. Gentlemen, there are no further questions at this time. Please continue.

Gary Guidry: 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 updating 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.

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