Gran Tierra Energy Inc (GTE) 2023 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's results conference call for the third quarter 2023. My name is Shannon, and I'll be your coordinator for today. (Operator instructions)

I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, November first, 2023, at 11 am Eastern Time. 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, and the production volumes are based on working interest sales before royalties.

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, operator. Good morning and thanks for joining Gran Tierra and our third quarter 2023 Results conference call. My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Ellson, Executive Vice President and Chief Financial Officer. And Rob Will our Vice President of Asset Management.

On Tuesday, October 31, 2023, we issued three press releases that included detailed information on our third quarter 2023 results. Another release announcing the appointment of Sebastien Morin, our new Chief Operating Officer, and a separate press release announcing the intention to make a normal course issuer bid for our common shares, all of which are available on our website.

We are very pleased to welcome Sebastian back to Gran Tierra and the new position of Chief Operating Officer, Sebastian has a proven track record of delivering value added results and demonstrated excellent mentorship and communication skills. Sebastian with interval and Gran Tierra becoming best in class and drilling operations and execution of our capital programs.

Sebastian will be focused on continuous improvement and optimization of our capital investments and our operating costs. And we'll be leading the functional integration of asset management plans to achieve optimum value for all of the company's assets. Ryan and Rob will now make a few brief comments, and then we will open the line for questions.

And I'll now turn the call over to Ryan to discuss key financial highlights from our third quarter results. Ryan?

Good morning, everyone. Gran Tierra had another solid quarter for our financial position remains robust and we continue to focus on maximizing operational efficiency and managing costs effectively to ensure sustainable growth and profitability.

During the quarter, Gran Tierra delivered $79 million of funds flow, which is up 49% from the prior quarter and resulted in $2.37 as the funds flow per basic share. After incurring approximately $43 million in capital expenditures, the Company generated free cash flow of approximately $36 million. Adjusted EBITDA was $119 million for the prior quarter, up from $97 million in the prior quarter. As of September 30, 2023, the company had a cash balance of $123 million and net debt of $499 million.

On the liability management front, we are very pleased with the successful completion of our bond exchange offering subsequent to the quarter, which we believe is highly beneficial for both Gran Tierra and our stakeholders. The company's balance sheet is now stronger due to an improved amortization schedule and less restrictive conditions.

The Bond exchanges in tandem with our solid operating cash flow, provide additional financial flexibility and a stronger platform as we execute our strategy of delivering profitable production growth, free cash flow generation and value creation for stakeholders. We intend to continue to high-grade our portfolio through our integrated strategy of acquiring, exploring, developing, producing and enhancing the high-quality oil and gas assets.

Also subsequent to the end of the quarter, the company entered into oil hedges covering approximately 15,000 barrels of day through put options from October 1, 2023 to March 31st, 2024, with a floor price of $80 Brent with no ceiling for a premium of $3 per barrel. Gran Tierra's average production through third quarter was 33,940 BOE per day, which was slightly up from the prior quarter. Gran Tierra's production the quarter was the company's highest quarterly average for the total production since second quarter 2019.

Looking at pricing during the quarter, the Brent oil price averaged $85.92 per barrel, up 11% from the prior quarter. The company's quality and transportation discount narrowed to $11.83 per barrel, down from $14.10 per barrel in the prior quarter. The Company's operating netback was $40.87 per barrel, up 18% from the prior quarter.

During the quarter, we also announced that we had completed and met all the conditions associated with this oriented continuation. Well, we are very excited to obtain a 20-year extension on the block, we're even more excited about the development corridor. This opens for future growth. Between three oil discoveries in 2022 and this oriented continuation we have secured a strong portfolio of organic development opportunities.

In the South Putumayo, we have the Alea 1848-A Block where we discovered the Rose Field and we have the Suroriente Block, which includes the Glanbia field as under waterflood. To the south of the border in Ecuador, with the drop of block, which has a drop in Norte discovery, terrainial block, which includes the Bocachico discovery. This large contiguous development quarter will be a key focus of the company and provide a long runway for our future capital projects and production growth.

Finally, as Gary mentioned, at the opening of this call, we are pleased to announce our intention to resume our normal course issuer bid, which will allow us to purchase up to 10% of the public float of our common shares over the next 12 months.

I'll now turn the call over to Gary discussed it -- to Rob to discuss our operational highlights from our third quarter results.

Good morning, everyone. As Ryan mentioned, during the quarter, we incurred $43 million in capital expenditures, which were lower than the prior quarter's level of $66 million as a result of no wells being drilled during the quarter due to our development program having been completed in the first half of 2023.

In terms of upcoming activity, following our successful 2023 development campaigns at accord narrow and the northern extension at the Costayaco field, we are accelerating our development program and plan to commence drilling at both of these fields in December 2023.

In terms of asset performance, the waterfloods across our four core assets continue to be effective at increasing ultimate oil recoveries, and we are excited to resume drilling by the end of this year.

We are also delighted that we closed to Suroriente Block extension agreement during the quarter as we believe this block will be a key growth area for the company over the coming years. As seen in our midyear reserve update, the success in our waterfloods and the extension of the Suroriente Block agreement resulted in record highs in the company's proven and proven plus probable oil reserves for the Company.

We added proven reserves of 16 million barrels and proven plus probable of 26 million barrels since the end of 2022. Upon completion of the development drilling program in Costayaco expected in March 2024 for the company plans to move the drilling rig to Ecuador to begin the exploration drilling program.

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

Thank you. Ladies and gentlemen, we will now conduct a question and answer session for securities analysts. (Operator instructions) One moment, please, for your first question.

Roman Rossi, Canaccord Genuity.

Thank you. Good morning, everyone, and thanks for taking my question. Congrats on a great quarter. So I have a few questions if we can go sequentially. The first one, what's your view on crude differentials in the coming quarters? Do you anticipate more pressure, now that Venezuela crude will be entering the market?

It's good question. I think there's a few things that could happen in some Venezuelan crude enter the market as well as the Trans Mountain pipeline opening up in Canada, which could lead to additional pressure you. We expect them to be around these levels. Maybe they widen, you know, a dollar or so, but we don't expect any major blowouts.

Okay, great. And regarding uptick, Rob, mentioned that it's been EUR41 million. And what should we expect for the last quarter of the year? And then additionally, in the breakdown of the CapEx, you have up $16.3 million on line with the other. Can you give us more color on what that include?

Sorry, on the further -- you broke up a little bit on the on the second question. What was the second part of the question? I heard the first part of account or CapEx. I missed the second part.

Okay. The second part is regarding in the breakdown of CapEx, you have a line that's other that includes USD16.3 million. If you can give us more color on that.

[They were just] some pre-investment despite our upcoming Q4 and Q1 drilling program. Sometimes you in these areas, the bad signal one kind of builds a lot of pre-investment that needs to go in and order some of the long-lead items for the drilling program that would be the bulk of it.

And then for the second half, sorry, for Q4, we expect capital expenditures in the $30 to $40 million range.

Awesome. And just the last one, regarding energy cost, we are seeing that due to El Nino prices are increasing, but do you expect additional pressure in the coming quarters? Or do you think that energy prices?

We are seeing increased energy prices of the electricity. We are making an effort and have been over the last several years to remove ourselves from the grid generator on electricity using natural gas. Those efforts will continue and accelerate into next year. So part of our capital spending next year is on using natural gas as a fuel and generating as much electricity as we can.

Everything across the board we're seeing in Colombia on fuels drive us to be efficient and diesel costs going up, electricity costs going up. And so everybody benefits by us, generating our own electricity using our own fuels.

Great. Thank you very much.

Joseph Schacter, Schacter Energy Research.

Thank you very much and congratulations on the quarter and also the debt restructuring, which took away a little bit of the concern. So congratulations on that. Given you're going to probably spend, as you mentioned in the prior call, questions on about $220 million US this year with the free cash flow you mentioned the NCIB, are you also thinking of paying down that credit facility of $49 million as well in terms of the focus to knock that down?

Yeah, I think the credit facility does repay fairly quickly. We're amortizing that over 10 months. It is fully repaid by August next year. So we already have a fairly aggressive program on that as far as repayment. And then similar to this year, the first half capital program is going to be weighted towards the development program. So as Rob mentioned, we started a rig and Acordionero and Costayaco ended in December of this year.

So we expect that CapEx in the first half of the year and then trail off similar this year will generate the free cash flow in the second half of the year. But we already we have -- the worst case now that the chapter of facilities repaid fully by August of next year.

Okay. Second question, are you talking here about success in two places in Ecuador. Are any of those wells on production or is this something that will come on in first half '24?

Yeah, we continue to produce about 1,200 to 1,500 barrels a day, we will continue producing throughout the we don't ever anticipate stopping. We would be producing more today, but we're collecting information on reservoirs. These are new discoveries. They're very prolific wells and we're quite excited.

We're quite excited about, getting out and seeing just how big these are we -- you may have noticed that we deferred a couple of wells. We had some blockades were in Ecuador long term. And so we're working through what those blockades are about and we've shifted that capital and those wells back up to our Costayaco field, where we've had some really good results.

And for those of you that are new slide deck to -- we actually have a slide that just shows where the discoveries are along with the Suroriente extension and the Rose discovery, which really shows the corridor future growth, who's got highlights where we are and what Gary is talking about.

Super. Last one for me. When do you expect to have your guidance for 2024 and CapEx budgets et cetera?

That would be, after the new year, we're working through that now as a management team will be discussing that with our Board of Directors by first second week of December, and we'll release that guidance after the 1 of the year.

Thanks very much for everything. And again, congratulations.

[Oriana Covault, balance]

Hi, thanks for taking my question. This was fully recovered with balance.

I just had two quick follow-ups, the first one with regards to the extension of the Suroriente agreement, and we noticed a bit of a shift in your working interest, at least after 2024, it will be going down to 47%, so from the current 52%. So just any color or thoughts that you could provide in terms of this [Canadian agreement] and the cash consideration that you paid.

That is -- on that is really a negotiation and that was what we've negotiated. And coupled with that, though, is if you look at the OpEx right now, we're dropping $6 per barrel now that will increase to a maximum of $11. So there's some give and takes in the negotiation.

Okay.

Understand. And just one last final one clarification, listening this negative or restricted payment basket for dividend payment was because of shared for the exchange transaction that mutated last quarter.

(Technical difficulty)

Yeah, just thinking on the restricted payment basket and potential uses for digital payments in potential free cash flow generation, our continued or their restriction.

Oh, yeah, there are there are restrictions still, really if we meet certain criteria and that's based on free cash flow generation, net debt to EBITDA under 1.5 times other than the maximum that we have restricted payments in our case, which would be share buybacks, not dividends would be $50 million per annum, which doesn't roll forward and then also a general basket per annum of $10 million.

Okay, perfect. Thank you very much.

Great, thank you.

Thank you.

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

Thank you, operator. I would like to thank everyone once again for joining us, and we look forward to speaking with you in the next quarter. And I appreciate you dialling in thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.