Q3 2024 Gran Tierra Energy Inc Earnings Call
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Shannon: Good morning, ladies and gentlemen, and welcome to the Gran Tierra Energy's results conference call for the third quarter of 'twenty 'twenty. Four my name is Shannon and I will be your coordinator for today.
Shannon: At this time all participants are in a listen only mode.
Shannon: Following the initial remarks, we will conduct a question and answer session for securities analysts and institutions.
Shannon: Instructions will be provided at that time for you to queue up for questions.
I would like to remind everyone that this conference is being webcast and recorded today Monday November four 'twenty 'twenty four at 11 o'clock a M eastern time.
Shannon: Today's discussion may include certain forward looking information as well as certain non-GAAP financial measures.
Please refer to the earnings and operational update press release, we issued yesterday for important disclaimers with regard to this information and reconciliations of any non-GAAP measures discussed on today's call.
Shannon: Any production volumes are based on working interest sales before royalties.
Shannon: 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.
Speaker Change: I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra is it gets read. Please go ahead.
Gary Guidry: Thank you operator.
Gary Guidry: Good morning, and thanks for joining Gran Tierra is third quarter 2024 results conference call.
Gary Guidry: My name is Gary Good REIT, President and Chief Executive Officer, and with me today are Ryan Nelson, Our executive Vice President and Chief Financial Officer.
Gary Guidry: Bastian Morin.
Gary Guidry: Chief operating officer.
Gary Guidry: On Monday November four 2024, we issued a press release that included detailed information about our third quarter 2024 results, which is available on our website.
Gary Guidry: Ryan It's Sebastian will now make a few brief comments and then we will open the line for questions.
Gary Guidry: Now I'll turn the call over to Ryan to discuss some of the key financial highlights from our third quarter results right.
Ryan: Thanks, Gary.
Gary Guidry: Everyone I wanted to start off by saying how excited we are their October 31, 2020 for Gran Tierra completed its acquisition of <unk> energy. We believe the purchase of <unk> three energy uniquely positions Gran Tierra has a premier diversified oil and gas company with assets in Canada, Colombia and Ecuador.
Gary Guidry: Three acquisition is diversified Gran Tierra into Canada, well, adding 253 net book to grow in locations with an average 77% operator ship in production totaling 18000 barrels of oil equivalent per day.
Gary Guidry: Canadian landholdings equal almost 1.2 million gross acres and includes 53 gross sections in the Montney at 144 gross sections in the Clearwater two of the most prolific plays in North America.
Gary Guidry: We are through acquisition has increased Gran Tierra is PDP reserves by 42 million barrels of oil equivalent or <unk> 96 per cent. One P. By 88 million barrels of oil equivalent an increase of 97% and <unk> by 174 barrels of oil equivalent an increase of 119%.
Gary Guidry: Gran Tierra now has approximately 178 million Boe at one P M 342 million Boe to.
Ryan: <unk> reserves with a one P reserve life index of 10 years and a two P Reserve index of 18 years.
Ryan: We believe the currently depressed natural gas prices, we see in Western Canada will be alleviated as major LNG projects include LNG, Canada are brought online along with increased electricity demand in North America.
Ryan: In the short term Gran Tierra will focus on developing the significant oil weighted opportunities and its Canadian per oil was still developing in appraising, our high impact oil opportunities in South America.
Ryan: We look forward to the integration of our teams are confident the combined company will have top tier technical and operational skill sets now onto the quarterly results Gran Tierra generated 60 million of funds flow from operations of $1 96 per share, which was up 31% from the prior quarter, mainly as a result of it.
Ryan: The one time tax adjustment that impacted the prior quarter.
Ryan: Adjusted EBITDA was $93 million compared to 103 million in the prior quarter and during the quarter Gran Tierra <unk> generated net income of $1 million.
Ryan: As of September 32024, the company had a cash balance of $278 million and net debt of $509 million. We do expect the cash balance come down by approximately $170 million as a result of funding. The <unk> acquisition. We continue to have long term net debt to EBITDA target of one times or less growth.
Ryan: <unk> generated oil sales of $151 million down 9% from the prior quarter due to lower price and wider oil differentials.
Ryan: Speaking of pricing during the quarter, Brent averaged $78 71 per barrel down 7% from the prior quarter.
Ryan: The companys quality and transportation discounts per barrel during the quarter were $14.10, which were higher than the $12.79 in the prior quarter. This is a result of the widening differentials from all three of our benchmarks Vasco here just year end oriented.
Ryan: Finally, the company's operating netback was $34.18 per barrel down 12% from the prior quarter as mentioned previously due to the combined lower Brent pricing and higher differentials.
Ryan: As a result of the <unk> acquisition announced on August 19, 2020 for Gran Tierra was required to pause its share buyback program resulted only 370000 shares repurchased during the quarter.
Speaker Change: From January one 2023 to September 32024, the company repurchased approximately 4 million shares or 12% of the shares issued and outstanding at January one 2023 from free cash flow.
Gary Guidry: Some of you may have seen this morning, along with the results announcements.
Gary Guidry: <unk> also announced the <unk> approval of the renewal of its normal course issuer bid.
Gary Guidry: Renewal reinforces Gran Tierra is commitment to continue to focus on share buybacks as a key component of our shareholders' returns I'll now turn the call over to Sebastian discuss our operational highlights from our third quarter results.
Sebastian: Good morning, everyone and thank you Ryan from a capital perspective during the quarter, we incurred capital expenditures of $53 million, which were lower than the 61 million when compared to the prior quarter.
Ryan: This was primarily due to timing of our rig program, where we only operated one drilling rig during the quarter compared to two in the prior quarter.
Ryan: Total average working interest production during the quarter was 32764 barrels of oil per day, which was consistent with the prior quarter during.
Ryan: During the quarter.
Ryan: Company had lower volume and the accordion arrow here, which were caused by increased downtime related to Workovers. The decrease was partially offset by higher production in the cardiac with Gilead in Colombia and increased production from the <unk> and drop of blocks in Ecuador, as a result of the successful exploration drilling campaign, which I will touch upon later.
Ryan: Gran Tierra is operating expenses decreased by 2% to $46 million compared to the prior quarter, primarily as a result of lower overall workover costs, which were offset by higher lifting costs, primarily associated with inventory fluctuations in Ecuador.
Ryan: The company's transportation expenses decreased by 31% to $3 9 million compared to the prior quarter of $5 7 million due to the utilization of shorter distance delivery points as reported in Q2.
Ryan: <unk> restrictions on the Magdalena River have now been resolved with increased water levels, which have returned to sufficient levels for barging operations.
Ryan: Operationally, we continue to progress the cohan be field development plan and this oriented block.
Ryan: Works and facility construction progressing smoothly and preparation to commence our drilling program and later part of the fourth quarter 2024.
Ryan: We are also currently working on increasing our fluid handling capacity at accordion narrow field with the water treatment. This earnings expansion project expected to be completed in mid December.
Ryan: The expansion will result in an addition of 21500 barrels of water handling per day, which represents a 35% increase in water treatment capacity.
Ryan: This is consistent with our long term approach to optimizing our waterflood performance Gran Tierra has steadily increased total crude production and water injection at accordion arrow by 18% per year to continue growing and maintaining oil production, while improving sweep efficiencies and recoveries.
Ryan: To exploration its rapid seven well marks our sixth consecutive discovery in Ecuador.
Ryan: On August 32020 for the <unk> well had an impressive initial 30 day production rate of 2043 barrels of oil per day, the highest of any of our Ecuador wells to date with less than 1% water cut and 25 API oil from the Batesville tenant.
Ryan: All the exploration success, we have had in Ecuador has allowed us to achieve a major milestone of over 1 million barrels cumulative oil production and this is only the beginning.
Ryan: Our drilling rig has now been moved from niche rapid block and mobilized to the <unk> block to drill two wells. This athletic K, one and double that at OFC 8-K, one exploration wells.
Ryan: The <unk> one well is located four kilometers to the east of <unk> J, one well drilled earlier this year and as 200 feet up structure.
Ryan: Both wells will target the basal Turner formation as well as assess potential in the <unk> limestone.
Ryan: We have also now completed the initial processing of our newly acquired seismic data over the <unk> block, which is currently being interpreted drilled.
Ryan: Preliminary interpretations of the high quality <unk> data confirm potential prospects <unk> and additional areas of interest, including better definition over the throughout the structure.
Ryan: The <unk> data will further delineate reserves underpin future drilling location scheduled for 2025 and further support future development planning.
Ryan: Switching gears to Canada. The team is currently managing an active drilling and completion campaign in its core areas, including the Clearwater, where there are only two locations currently booked the expectation is with further delineation drilling we will continue to look drilling locations and increase reserves.
Ryan: Other areas of drilling include Simon and vegan the AMB miscue, the logical cardium and Wapiti Cardium place.
Ryan: Overall the company is following through on its goal on driving long term value with a diversified portfolio of high quality assets and we look forward to finishing 2024 on a high note with the newly acquired assets in Canada exploration successes in Ecuador, waterflood optimization and expansions in our core Colombian fields, we are well positioned for growth.
Ryan: In 2025 and beyond.
Ryan: I'll now turn the call back to the operator, and we will be happy to answer any questions. Operator. Please go ahead.
Speaker Change: Thank you, ladies and gentlemen, we will now conduct a question and answer session for securities analysts.
Speaker Change: If you have a question. Please press the star key followed by one one oriented Tom Tom.
Ryan: You will then hear an automated message advising your hand this raise your questions we'll be pulled in the order they are received.
Speaker Change: Please ensure you lift the handset if youre using the speaker phone before pressing any keys.
Speaker Change: Amit Please for your first question.
Amit: Our first question comes from the line of Greg Pardy with RBC capital markets. Your line is now open.
Greg Pardy: Thanks, Thanks, Good morning, and thanks for the rundown really had a couple of different sets of types of questions, but the first part is.
Greg Pardy: Cash tax and cash tax came in higher than we were expecting now with the acquisition under your belt I am just wondering what your tax position will look like particularly as we head into 2025.
Speaker Change: Yeah, Thanks, Greg I think the.
Greg Pardy: Cash taxes came in just oil prices continues in Colombia still confused over above the threshold of the 15% surtax, so with oil prices grow over that we would expect that to come down in the fourth quarter actually we think will move down to 10% surtax.
Ryan: Looking at Canada, as you know kind of action.
Ryan: <unk> is a very favorable tax regime with only 23% and so we would expect that to continue to decrease on an overall basis.
Ryan: We would expect our tax rate to be lower in 2025 and 2024.
Speaker Change: Okay. That's helpful. And then just related to the buyback, yes, I did see that you renewed the in CIB is that Brian how is that connected to the company. I mean is that a function of free cash flow generation opportunistic how should we think about the buyback.
Speaker Change: Yes, I think on the buyback is we did put our automatic share purchase plan. So we'll continue to buy back stock. So even if we are in blackout. We can continue to buy but I think if you look at it in 2023 really have funded that buyback through free cash flow.
Ryan: We'd expect that to continue in the future and for us when we're trading at a discount of Pvp, We think it's a great way to.
Ryan: Return capital to shareholders and increase long term net asset value.
Speaker Change: Okay. Thank you that's all obliged me just with the last one really comes back to the motivation.
Speaker Change: And outlook for the company now with <unk> engineered Bell can you just remind us your thinking going into.
Speaker Change: Consummating that deal maybe from a reserve reserve life perspective diversification really just wanted to understand what drove you to do it number one and then number two is is how we should maybe think even about an allocation of capital our focus as you go through 'twenty and beyond thanks very much.
Speaker Change: Yes. Thanks.
Speaker Change: The overall strategy of the company, we've been trying to find the right set of assets to enter Canada for a couple of years <unk> three.
Speaker Change: Provided that for us the platform as well as the team.
Speaker Change: And we really entered western Canada.
Speaker Change: To continue growing in the basin, it's really should be considered an entry into the basin.
Ryan: We see lots of opportunity on conventional and unconventional assets, but with a real emphasis on unconventional for ourselves as a company.
Ryan: We also see diversification of both oil and gas.
Ryan: And that's one of the attractions that we see for this particular set of assets in terms of capital allocation.
Ryan: We're in a very unique position we have some recent discoveries, which we think are material in Ecuador.
Ryan: As well as some underdeveloped assets here in both the Clearwater.
Ryan: The assignment at Montney and several other areas within the Canadian portfolio and so what Youll see from US in 2025 is allocating to the new discount oil discoveries in Ecuador continued.
Ryan: Continued development of our mature waterflood in Colombia, as well as some some very interesting things here oil opportunities here in western Canada that would be our our allocation near term, but we are quite excited as Ryan mentioned, we're quite excited about the.
Ryan: Under development of the assets here in Western Canada, and we will be pursuing those.
Ryan: Quite vigorously.
Speaker Change: Understood Thanks very much.
Speaker Change: Thank you and our next question comes from the line of Anne Melanie of Bank of America. Your line is now open.
Anne Melanie: Good morning, and congratulations on the closing of the ITG acquisition.
Anne Melanie: I have a couple of questions. This morning one.
Anne Melanie: On your 'twenty 'twenty four.
Anne Melanie: Guidance it looks like you right now are on the EBITDA level anyway right.
Anne Melanie: In the middle maybe slightly on the lower end for EBITDA for the year on a last 12 month basis, you think youll end up in the middle of your lower.
Ryan: Lower case.
Ryan: Guidance for 2024, and then just when will you have.
Ryan: Your any indications for 2025 guidance I assume that's maybe towards the beginning of the year that would be my first question.
Speaker Change: Great. Thanks, Ed.
Speaker Change: We're comfortable that we'll end up with it within the guidance you, obviously oil prices being a little choppy last little while so that will have an impact in the last couple of months of the year.
Speaker Change: But we're very comfortable will be in that range and then we expect to come out with.
Speaker Change: <unk> 2025 guidance in early January.
Speaker Change: Okay and could you talk to us a little bit about how your Capex plan will change for 2025, I assume you'll be increasing because of the Canada acquisition, how much higher do you think you'll be for the year.
Speaker Change: Yes, I think we're still working through our five year plan right now, but I think the way to look at Canada as Gary mentioned, there is lots of opportunities in the Canadian assets.
Speaker Change: And the beauty of Canada, which is different than Colombia and Ecuador.
Ryan: It's half cycle economics, most of the capital is drilling wells and so as we.
Ryan: Allocate capital, we expect to see a commensurate increase in production as Gary mentioned, we're targeting the oil weighted assets in 2025, So I would expect Canada to be essentially cash flow neutral as far as our capex and cash flow.
Ryan: Thank you.
Speaker Change: Also for this quarter, you had slightly higher discount rate to Brent.
Speaker Change: Do you expect that to continue is there anything that could change that in the fourth quarter of the year.
Speaker Change: Yes, and that discount is really just <unk> oriented they all widened a little bit part of the widening of differentials actually is because of the Trans mountain pipeline in Canada, which is somewhat ironic.
Speaker Change: But that's one of the drivers of that an extra 580000 barrels of crude cover on the market, which is a natural competitor for their Colombia, Ecuador and crudes.
Speaker Change: That's interesting have something.
Speaker Change: Yes.
Speaker Change: And then my last question I know its sort of really big picture, but.
Speaker Change: Given the tough the fields that you've acquired in Canada strong reserve base do.
Speaker Change: Do you have any idea of down the road, how you see a breakdown between let's say production and cash flow in Canada versus South America.
Speaker Change: Now, it's still going to be relatively small on the EBITDA level, but I imagine that proportion will increase over time.
Speaker Change: Yes, Theres two yes, there is.
Speaker Change: Two conflicting things are in the sense that we expect with all of the discoveries that we've had and therefore, we expected Ecuador to grow quite a bit as well and with the oil weighting there.
Speaker Change: Still expect South America to make up.
Speaker Change: The majority of our adjusted EBITDA.
Speaker Change: Kind of continuing to grow, especially in the future in a more robust gas price environment. So I think that will will evolve but.
Speaker Change: Yes. It is always important but I want to remember is that we're not going to stop developing in South America, Ecuador, and Colombia, So core areas for us and we expect them to continue to grow as well.
Speaker Change: Okay and so it tells me that we will continue to be a majority Clinton correct, yes for the time being.
Speaker Change: Definitely okay, great. Thank you very much thank you.
Speaker Change: Our next.
Speaker Change: Question comes from the line of Peter <unk> with Jefferies. LLC. Your line is now open.
Peter: Thank you for the call. Thank you for taking my questions first in the context of low Seventy's. Brent in 2025 do you still expect to pay your bond amortization in 2026 from free cash flow.
Speaker Change: And second it.
Speaker Change: Regarding capital allocation, how are you thinking about.
Speaker Change: With your 2029 bonds trading above the 2012% yield how are you thinking about capital allocation and what bond buybacks ever be considered as part of your plan. Thank you.
Speaker Change: Yes, I think on the <unk> amortization and we're quite comfortable between cash on hand that we'll exit this year and then free cash flow in 2020.
Speaker Change: <unk> remember that amortization. So at the end of October we're quite comfortable with that amortization. So we will have a concern there and then on the capital allocation.
Speaker Change: We think right now we will continue to.
Speaker Change: Focus on longevity of the assets and invest in the ground.
Speaker Change: And then we do have obviously the 25 maturity.
Speaker Change: $25 million maturing in February of this year, which obviously, we will pay and then also the maturing towards <unk> and then the <unk>.
Speaker Change: $20 million to $25 million in 2027, and we expect to fund all three of those.
Speaker Change: With this cash on hand, and free cash flow.
Speaker Change: Keep in mind remember, we do have a lot of flexibility on our capital allocation given that in South America, we have all of our asset we operate all of our assets.
Speaker Change: And in fact, all of our blocks with the exception of one we are a 100%. So that gives us a lot of flexibility and then Canada. We operate was 78%, 77%. So again saw some flexibility on capital allocation in Canada.
Speaker Change: Great. Thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Alexandra <unk> with J P. M. Your line is now open.
Speaker Change: Hi, Thanks, so much for the call I just had two quick questions first on the I saw that you.
Alexandra: Change a little bit the terms of the committed facility in Canada 74 million maturing next year was wondering if there is any expectation to do something in Colombia as well in terms of credit line and then also how are you thinking about your hedging program for next year.
Speaker Change: Thanks, Greg.
Alexandra: Thanks.
Alexandra: And the reason why we reduced the Canadian facility.
Alexandra: <unk> based support square a bit higher.
Speaker Change: We just don't have really a use of proceeds for those funds right now so.
Alexandra: Treated as more of a working capital facility and service paying additional standby fees, we reduced the committed amount.
Alexandra: It was a conscious decision by Gran Tierra.
Alexandra: And we will continue to look at putting a similar facility on the Colombian assets as well.
Alexandra: <unk>.
Alexandra: Stay tuned for that and then our hedging program. We are looking at as we finalize our five year plan and capital allocation. We are looking at increase our hedging program you will see we do have a new corporate deck on our website that outweighs OLED.
Alexandra: The hedges that we acquired with <unk> three in particular, the gas hedges that they have in place quite interesting for 2025, we will continue looking at June 30% to 50% for the next six months and then 20% to 30% for the following six months or more of a systematic basis.
Speaker Change: Great. Thank you.
Speaker Change: Youre welcome.
Speaker Change: Gentlemen, there are no further questions at this time please continue.
Speaker Change: I would like to thank everyone for joining us today, we look forward to speaking with you next quarter and update you on our ongoing progress. Thank you very much.
Speaker Change: This concludes today's conference. Thank you for your participation you may now disconnect.
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