Gran Tierra Energy Inc (GTE) 2017 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's results conference call for the second quarter 2017. My name is Andrew and I will be your coordinator today. (Operator Instructions) I would like to remind everyone that this conference call is being webcast and recorded today, Friday, August 4, 2017, at 11 a.m. Eastern time.

Today's discussion may include certain forward-looking information, oil and gas information and non-GAAP financial measures. Please refer to the earnings press release and operational update press release we issued yesterday for important disclaimers with regard to the information and reconciliations of any non-GAAP measures discussed on today's call. Finally, this earnings call is the property of Gran Tierra Energy Inc. Any copy or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy.

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

Thank you, Andrew. With me today is Ryan Ellson, our Chief Financial Officer. I'll make a few brief comments, and then Ryan will summarize some of the financial highlights, and then we'll open the line to questions.

After completing the new discovery testing in the first quarter, we've caught up on our development production growth program in both the Middle Mag Valley and the Putumayo-7 Block. We're on track with some exciting exploration in the second half. And at Vonu, the exploration well, we confirmed light oil in both the Villeta U and the A Limestone.

Most exciting is the Costayaco-29 horizontal. We learned quite a bit from Costayaco-28. The wellbore mechanics gave us confidence that we could drill long horizontal wells underbalanced. This ultimately will lower our development cost. We also have the confidence to run multiple packers to divert conventional acid stimulation. From the reservoir, we have tested the toe of the well and confirmed permeability for micro fracturing well away from the major faulting. We've confirmed virgin pressures. And we've confirmed clean oil production. Our next well, Costayaco-30, is a vertical to develop the Caballos and the T sand. And we will be collecting extensive data on the A Limestone.

I'll now turn the call over to Ryan Ellson.

Good morning, everyone. Our second quarter results reflect our commitment to capital discipline, self-funded operations and our focus on full cycle profitability. Our funds flow from operations were $51 million with capital expenditures of $58 million. Funds flow was up 13% from the first quarter despite weaker oil prices due to our top quartile operating netback and the continued efforts of our team to control costs.

During the quarter, we also repurchased 4 million common shares of Gran Tierra stock, pursuant to our normal course issuer bid. On June 1, our credit facility was increased by 20% to $300 million. The undrawn capacity on our credit facility at quarter-end of $145 million, combined with the $53 million of cash on hand, resulted in current liquidity of approximately $200 million.

Gran Tierra is tightening guidance for 2017 average production, and we expect it to be in the range of 33,300 to 34,300, adjusting for sale of our Brazil business unit effective June 30, 2017. This 2017 average production would represent an increase of 23% to 27% from our 2016 average production. We have also narrowed the range of our projected 2017 capital program to $200 million to $225 million, which we expect to be funded from cash flow from operations. We're currently producing approximately 34,000 BOE per day and expect fourth quarter 2017 average production range of 35,000 to 37,000 BOE per day.

I will turn the call back to the operator, and Gary and I will be happy to take questions.

(Operator Instructions) Our first question comes from Nathan Piper with RBC Capital.

A quick question on the second horizontal CYC-29. And when would we expect the long-term test of that well to take place? Would you plan to press release that individual event? And also, what were the implications for well costs and therefore, the number of wells you might drill next year, given you're drilling -- given you're building more pads to drill up the A Limestone currently? Secondly, just a bit of an outlook on OpEx once you put the gas-to-power in place on Costayaco. And lastly, are there any follow-on opportunities on PUT-1 following your Vonu success?

Okay. The answer to the first question is we're in the process of pulling the stimulation tubing. The rig is on site and we're rigging up to pull that completion. We expect to have it on production for the long-term cleanup of the first 6 stages towards the end of next week. And I think the implications, Nathan, is we could've comfortably continued drilling underbalanced, good hole conditions. And we're quite comfortable that 6,000-feet horizontals are achievable over the long term. So where we think that we'll really cut down on our development cost is the number of wells that it will take. We are going to collect some key data on Costayaco-30. We expect to have that well drilled in the September time frame and have all of the data. We'll integrate that, and then look to a long-term continuous horizontal program. I think the answer to your gas-to-power, we're on track and we expect to have the commissioning in November. That's according to schedule. That's about as fast as we can go on that. And what was your third question?

Just is there any follow-on work on Vonu, if this opens up something bigger for you, we might see some more follow-on drilling on PUT-1?

Right. Under the guidelines of the ANH, we're in the long-term testing period. We actually drilled that well from a pad on Costayaco. There will be follow-on drilling. Both the U and the A Limestone, we believe, are looking quite interesting on the structure. But the ultimate target that excited us on the Vonu well is the end sands. I'm not sure when we'll actually get to the end sands, but it's confirmed our seismic that the amplitudes are thick end sands. And that's a test that we still need to get to. But having the success that we've seen in both the U and the A, we will be looking at a long-term drill from the Putumayo-1 Block, the adjacent block, and start looking at the infrastructure. There are lots of implications to that in terms of we have an active program in Costayaco. But we'll move that one along as quickly as possible. I'll also say, you've seen in our Investor Day presentations, the Putumayo-1 Block has quite a bit of our prospective resource in the end sands, now the A Limestone, and confirmation of the U. So we've got quite an emphasis on what we're doing. The timing of appraisal wells, we're looking at how we can build a tab on the actual Putumayo-1 Block and continue that appraisal program. But that's all under study now.

If I could then -- just a few [semantics] then on the CYC-29 well. So you're cleaning it up now effectively and it should be on long-term tests in a matter of weeks, i.e., some point through August?

Yes, it will take us a week to get the ESP in the well and start that cleanup and we'll see how that goes. We've only stimulated 60% of the well. We thought it was quite important to test the toe. So we're a pretty good distance away from the major fault that traps the rest of the Villeta. And it not only looks very productive, but we think it's quite important to test the toe of the well, well away from the major faulting and fracturing. And so it's key information. The question is will we go back and stimulate the rest? We'll see how the test goes. And it will require another workover to go in and pull the ESP to complete the final 4 stimulation zones. And we'll make that decision in a month or 2.

(Operator Instructions) Our next question comes from Jenny Xenos with Canaccord Genuity.

You have narrowed your CapEx guidance for the year. I'm wondering which activities specifically were impacted by that. I noticed that a couple of exploration wells are going to get pushed into 2018 now. Could you comment on that, please?

Yes, on that, Jenny, for the CapEx (inaudible), there's really 2 components of the tightening of the range. First component is, you're right, one of the wells that has been deferred until 2018 will be Prosperidad. The other thing that we have is we've actually been doing -- it's the same program, but we actually have been much more efficient, Acordionero wells, we're drilling those for much cheaper than we had forecasted. So it's really 2 components, deferral of Prosperidad as well as just doing things cheaper.

But development drilling, otherwise, is not being impacted by it at all?

No, we've actually added Costayaco-30 to test. Like Gary had mentioned, it's the Caballos location that we have, but it's also -- it's in more of the northern part of the field, and we're going to get some very important information from the A Limestone up there.

And our next question comes from Isuru Sen with Radiant.

A question on kind of a little bit macro. Other than oil price fluctuations, what are the major risks that you see to Gran Tierra's value and value creation process?

Yes, the philosophy that we use is we have a low cost structure. We continue to try to improve that. And our program that we set out with at the first part of this year is really not a 2017 program, it's a 3-year exploration program. Our engine, of course, is our development drilling. We're on track. We don't see any implications to that. So financing our 30 to 40 exploration wells, we believe that we're in good shape. We do have some hedges on our capital program. I think the answer to your question is the macro oil price, we believe that it will continue to be volatile. But we're on a 3-year exploration program funded by cash flow. We're in much better shape in 2018. The development drilling program, as Ryan said, we're on a continuous program at Acordionero. We're looking at a continuous program at Costayaco. And we will be operating from a much stronger cash flow base in 2018 with a higher average developed production. Ryan, did you want to add to that?

Yes, the only thing I'd add is just I'll refer you to our 10-K and our 10-Q for a full disclosure of more of the macro risk that we see facing the business.

And is there, I guess, in particular, Colombia has -- the peace deal is probably very positive, but the support for that seems to be a little challenged and financing for that seems challenged. What's the risk to operations in the Putumayo, given the potential -- given the changes that are going on there?

I think the government have a real emphasis. They have appointed a minister specifically to the post-conflict, Minister Pardo. We're working on several fronts to support the government in those efforts. Of course, we're very active in the Putumayo Basin. And it really is, as stated by President Santos, it really is about the economy in the region and providing jobs. We're well placed to support the government in those efforts from our civil works to our active exploration program, with a real emphasis in the Putumayo. We've announced a joint project with Conservation International, we're supporting Conservation International in their efforts and the government's efforts for reforestation in the region. And we're quite active in cleaning up the remnant oil spills in the area. The governments are active in the demining process. And I think, of course, there are always risks, but the emphasis that the government are placing on this, the real activity started when the peace agreement was signed, and we're trying to play as active of a supportive role for the government as we can. Ryan, did you want to add to that?

No, that's a great comment.

Gentlemen, there are no further questions at this time, please continue.

Okay. Well, thank you, Andrew. And we want to thank everyone for patience as we took a pause in Q1. It's the burden of having success with discoveries, but we've completed that. We're analyzing the reserve implications of the new discoveries we tested. And we're quite excited about the continued optimization of our programs, the real success in the Acordionero Field, and in the region, we see some opportunity. And more importantly, the Putumayo Basin. And so we have an active program. We look forward to communicating that over the second half of the year. And thank you for calling in.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes today's program. And you may all disconnect. Everyone, have a wonderful day.