Gran Tierra Energy Inc (GTE) 2023 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Gran Tierra's Energy's Conference Call for Fourth Quarter and Year End 2023 results. My name is Livia, 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 with securities analysts and institutions. Instructions will be provided at that time for you to queue up for your questions. I would like to remind everyone that this conference call is being webcast and recorded today, Tuesday, February 20th, 2024, at 11 A.M. Eastern time.

Those discussion may include certain forward-looking information, oil and gas information and non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday form one advisories and disclaimers with regard to this information and for reconciliations, any non-GAAP measures discussed on today's call.

Finally, this earnings call is the property of Gran Tierra Energy, Inc. Any copying or broadcasting of this call, Chief Executive Officer of Gran Tierra. Mr. Guidry, please go ahead.

Thank you, operator. Good morning, and welcome to Gran Tierra's Fourth Quarter and Year End 2023 Results Conference Call. My name is Gary Guidry, Gran Tierra's President and Chief Executive Officer. And with me today are Ryan Belson, our Executive Vice President and Chief Financial Officer, and Sebastian Moran, our Chief Operating Officer. This morning, we issued a press release that included detailed information about our fourth quarter and year end 2023 results in addition, Gran Tierra's 2023 Annual Report on Form 10 K has been filed on EDGAR and is available on our website. Brian and Sebastian will make a few brief comments and then we will open the line for questions. I'll now turn the call over to Ryan to discuss our financial results.

Ryan, please go ahead.

Good morning, everyone. We are delighted to announce that Gran Tierra successfully achieved its targets for 2023 in terms of production funds, flow from operations and free cash flow. These milestones underscore the quality of our assets and our unwavering commitment to operational excellence. Our focus efforts on asset development have yielded strong performance across various key metrics.

Additionally, in 2023, we showcased our confidence in Gran Tierra's future prospects by repurchasing 6.8% of our outstanding shares through our normal course issuer bid or NCIB program demonstrate our dedication to creating long-term shareholder value. We're currently trading at a discount to our proved developed producing or PDP net asset value per share by about 46%. Our average cost of each -- for each share purchased was $7 per share.

Our many achievements and achievements during the year resulted in year over year production growth of 6%, strong reserves replacement ratios well above 100%, and the highest 1P, 2P and 3P year-end reserves in the company's history.

In another major milestone in 2023, Gran Tierra issued $488 million of new 9.5% senior secured amortizing notes due 2029 in exchange for its existing notes to improve our balance sheet, reduce overall leverage and provide additional financial flexibility by extending the maturity schedule to better align with expected future cash flows. Approximately 92% of holders of bonds were exchanged, highlighting the support from bondholders.

Subsequent to year end, Gran Tierra issued an additional $100 million of 9.5% senior secured amortizing notes due 2029. The company used a portion of these proceeds to repay $50 million of borrowings outstanding under our credit facility, which subsequently was terminated.

Despite a net loss of $6 million in 2023, Gran Tierra achieved a return on average capital employed of 15%, showcasing solid performance and capital utilization. Gran Tierra's capital expenditures were at the low end of our guidance at $219 million, fully funded by funds flow from operations of $277 million or $8.27 per share, resulting in free cash flow of $58 million or $1.73 per share, demonstrating effective financial management and positive cash generation.

Although 2023 adjusted EBITDA decreased by 17%, the company realized adjusted EBITDA of close to $400 million, indicating substantial operational resilience amid challenges with volatile oil price. Gran Tierra's net sales for the year were $637 million compared to $711 million in 2022. This decrease is primarily driven by a 17% decrease in Brent price and higher Kristian Vasconia differentials, partially offset by 7% higher sales volumes and lower transportation discounts in 2023 despite higher operating expenses, 2023 grand here, effectively managed inflationary pressures, showcasing resilience and cost control and maintenance activities.

One final item I would like to highlight was the successful completion of this orient a continuation agreement by securing the continuation Gran Tierra's commit to long-term capital projects and development programs with plans of optimizing oil recovery and value for this oriented block. We believe the combination Gran Tierra's robust operational expertise in the Putumayo Basin and Equatorial at withdrawals, technical knowledge will continue our joint success in the development of our U.S. oriented block.

I'll now turn the call over to Sebastian Warren to discuss some of the highlights of our current operations.

Thanks, Ryan. Good morning, everyone. I'll briefly cover a few operational highlights from today's press as well as our recent press release regarding 2023 year-end reserves. Operationally, we are building off a successful year in 2023 to start off 2024. On a strong note since December 2023, Gran Tierra has drilled four oil wells in the Costayaco field in which we are seeing excellent initial production results. First well, Costayaco 56 has been on production since early January and has been producing at stable average rate of around 1,900 barrels of oil per day and a 2% water cut. Second well, Costayaco 57, was spud on January sixth and brought on production in late January. It has been producing at a stable average rate of around 1,100 barrels of oil per day and a 10% water cut.

The third well -- (technical difficulty)

Ladies and gentlemen, pardon the interruption. Speaker has been connected, please hold while we reconnect the speaker.

-- being drilled and will be followed by the final well, the 140128, all wells from this development program are expected to be drilled completed and on production before the end of the first quarter of the year back down in the southern Putumayo Basin. Gran Tierra intends to commence development drilling in the heavy oil field located in the CNC block during the later half of the year, we plan to expand the blocks production facilities, increase gas power generation, construct, new development, well pads and make social investments in the area. All with the goal of substantial production growth in 2025 and 2026.

From an exploration perspective, around 40% to 45% of Gran Tierra's 2024 capital program will target high impact near field and low risk exploration activities, including the drilling of six to nine exploration wells in Colombia and Ecuador, signifying our dedication to unlocking potential new reserves and fostering sustainable production growth.

Building on promising results from the 2022 exploration program, we plan to focus on short-cycle time prospects in proven basins with established transportation infrastructure. In addition, as part of our 2024 capital program. We are currently in the early phases of execution to acquire 238 kilometers squared of 3D seismic over the Toroparu block in Ecuador and to pre-invest in advancing drilling licenses, building pads for the 2025 exploration program in Colombia and Ecuador, which will set the stage for future growth opportunities for the Company on January 23rd, 2024, we were pleased to release our 2023 year-end reserve report as evaluated by McDaniel 2023 saw the highest year-end reserves in our company's history, 90 million barrels of oil equivalent 1P, 147 millions of barrels of oil equivalent, 2P, and 207 million barrels of oil equivalent, 3P. And we achieved excellent reserve replacement of 154%, 1P, to 42%, 2P, and 303%, 3P.

This also represented the fifth consecutive year that we achieved the 1P reserve growth. These results were driven by success linked with development drilling and water flooding results in the Cheswick block, which contains the Costayaco and Moqueta fields and the sorry, intake continuation agreement as outlined by Ryan during 2023, a combination of our strong reserves growth, ongoing reductions in debt and share buybacks allowed Gran Tierra to achieve net asset values per share before tax of $44.48, 1P, up 288% from 2020; and $79.13, 2P, up 144% from 2020.

With the significant growth in our net asset value per share over the last three years. We believe Frontier is well positioned to offer exceptional long-term stakeholder value. The success we achieved in 2023 also reflects our ongoing conversion of reserves from the problem booked in the proved category with 147 booked proved plus probable undeveloped future drilling locations. Gran Tierra is well-positioned to continue to grow the Company's production and reserves in 2024 and beyond.

I will now turn the call back to the operator and Gary and Ryan and I will be happy to take questions. Operator, please go ahead.

(Operator Instructions) Gabor will proceed.

Thank you, ladies and gentlemen, and we'll now be conducting a question and answer at the security level. If we have any questions, please press star star key followed by one and on your touchtone phone. You will then hear an automated message. Advising your hand is raised your question will be polled in the order they are received. Please ensure that you lift your handset when you're using a speakerphone before pressing any keys. One moment, please, for the first question.

Roman Rossi, Canaccord Genuity.

Good morning and thanks for taking my questions. I have a couple to go one by one, let me handle the first one is regarding quality and transportation discount session before I hand the floor. So we still are 30% plus 30% have won our court have nothing to report there. I just wanted to know what you may know behind that in the new line where it will take time and 20 already corrected for 2024?

Yes, I think the -- can you hear me okay? Can you hear me now?

I can hear you. that very high level now that you're in Edmodo, it could.

Okay. Yes, I would call it just the differentials that mostly is just from the quality Vasconia and casino did widen during the fourth quarter. And so we have seen that fairly consistent into Q1. There has been substantial change from Q1 to Q4 and currently the SDI. differentials around $9 and Vasconia is around $5, which is a factor of what we budget for this year.

Okay. And do I think that there was any news regarding the money was MET well-anchored entering the market and to enter into Montana, do you think that do I have to change their spending and that will move the adoption of that may bring?

You have reached the voice mailbox from cable? (technical difficulty)

Yes.

And sorry, Roman, can you hear me? I think the question was is a result of Venezuela. Yes, that's part of that. And there's two issues is Venezuela, some additional potential crude from Venezuela as well as -- actually three, as well as as OPEC starts releasing some of their costs. We'd expect more of the heavy sours come to the market as well as the startup of the TMX line in Canada as we get more Canadian heavy crude to Tidewater. So it's a combination of those three factors, but it's it is really no surprise to us and it's right around in our budget numbers.

Okay, thank you. And a decent one. Well, I can't when regarding OpEx, we are not there was that on getting growth on a better last year than it has been lower than that because of the lower production in probably more newer and larger or even our inflationary or deflationary pressures there.

Yes, it was all just drive driven by the lower production. And so we expect our our gross operating cost to be flat to come down slightly in 2024, coupled with increased production. So we expect the per unit cost to drop.

(technical difficulty)

Hi, this is really an economic with thousands of pounds. I believe that there's a bit of a little bit behind there, but I would say I'm going to trying to, but I have a question and answer session. So the first one is regarding our outstanding CAD. Does not mean that you might be giving up, what would it be or various funds is not committing to the beginning of the year.

With respect to hedging, we did have 15,000 barrels hedged with a floor or we do still actually until the end of Q1 we have 15,000 barrels hedged with a floor of $80 with the put premiums around $3, which is really part of our physical contracts with the offtakers, we are looking at adding additional puts in for the remainder of the year, and we're just in the process of doing that.

And so that would take would obviously not be a big part of your thinking in terms of magazine publishing and commenting on the impact on the production side.

Yes, sorry, I missed the question. Broke up a little bit on the side.

Yes, like in some like what are your productions hedge an option gains after noon.

Yes. So we'd like to have -- looking out six to nine months, we'd like to have 30% to 50% hedged. And then after six nine months, 25% hedge on a rolling basis using input and really just looking for further downside protection. And you'll recall too, is one of the things we have is a very strong operational hedge given that we operate all of our production. So we have a lot of flexibility on our capital expenditures. To the extent that prices were decreases substantially, we very quickly kind of cut our capital program. So that's one way or another way we protect the business.

Got it. Well, just one last one from my side and from my side, you can comment on your enrollment, Brian, that March ninth, which arm you can have spoken about in a moment has value and has no impact. And I'm glad that this announcement has committed to actually import intimacy for us.

Yes, I think you know you our guidance out there. We're targeting year end net debt to EBITDA of 0.8 to 1.2 times. So we take the one-times, which is fairly consistent with what we've had in the past as a target, we continue to target that and we'd like to have cash on the balance sheet of anywhere between $50 million and $100 million. And that will fluctuate throughout the year, just with payments to governments, capital program, et cetera. But over the course of the year, we expect to average in that $50 million to $100 million range.

(technical difficulty) Your line is open.

Good morning, everyone. This is going to be a challenging call. If it breaks up, Ryan, if you could, on the right or you think Omni later and perhaps more of a risk question on you have in your own body in United. I found it I found and you had a very good thing about a very good if you add in the mind of all of you and you have a lot of success of post Q1 union. I'm yet to come. Everybody thinks are all of those houses are overused, exacting w e should expecting below. We have the number with no Mayor, no reorder rates, just gentlemen.

Yes. On that may I think it's, you know, the production is either Costayaco wells done exceeded our expectations, and that's one reason why we give a range. And so it's still early days on the wells. So we'll see how these wells progress. So over the next couple of quarters before I provide additional guidance, but we're still comfortable with the range right now.

And how many locations do you have minimal renovation in the area of auto here you go in?

Sorry, just to clarify that question in which area?

I'm talking about the incremental volume on the weekend that you see CYC. just like averaging one c. discovery consultant because Thiago?

Yes. So out of the 147 2P locations that we have, there is still room 26 locations identified for Costayaco Moqueta, for example, and then that's oriented. We've got an additional 30.

Okay, that's good. That's good because that's billions of, okay. What are fully what are the --

One of the things does a lot of the things that the specimen and team are looking at on co-CFO. We've got some very good results with our reservoir modeling and targeting unswept areas. That's what's outperforming it post the OpCo in the north, we have another area in the southern part of the reservoir along strike that we're going to drive that target this year. And so we're that's why we're excited about co-CFO.

Okay. Good luck, Ashwani one last one on one line, about [80] a pound with the flow of the lower one in the market. If I have amalgamated and have amassed over the past you've talked about may be tired about if you Erika, in Maine are required in order to analyze everything and Aliquot right frequently and fixed rate over time. I've always had a I'm going to add up for us, are the ones that are the new app entirely the company or the company?

Yes, the answer to that is that we are always looking for opportunity. We don't see anything specific at the moment that are our business development initiatives are all long term. And so we're looking always for ways to increase value of the company, but we don't have anything specific on the horizon.

Okay. That's it for me. Thanks very much. In the maintenance, very much in line with the successes in the drilling and the drilling. That's a result.

Thank you. (Operator Instructions) Ladies and gentlemen, pardon the interruption. Speakers has been disconnected, please hold while we reconnect.

Ladies and gentlemen, please continue to spend. My speaker has been disconnected. Please hold while we reconnect the speakers.

Hello?

Speakers, you're now back connected. William Blair, Alexandra Symeonidi.

Hi. Thanks for taking my question. And so you mentioned about $36 million of the $100 million that was used for the credit facility. Where will be the balance used?

Yes, yes. On - out of the $100 million, the net proceeds were around $88 million, $35 million went to repay the facility, as you pointed out, and the remainder would be cash on the balance sheet right now.

Alejandra underwriting, PM.

Hi. Thanks for taking the question. Just a quick one for me confirming that after you've repaid the committed line, you don't have any available lines at the moment, correct?

Correct. We repaid it and then terminated. We are looking at a working capital facility, which coincided better with the with the business and some of the ebbs and flows of our cash outflows and inflows. But right now, we have nothing in place where we're comfortable just with our our free cash flow and cash on the balance sheet banking.

Thank you. And gentlemen, there are no further questions at this time. Please continue.

Thank you, everyone, for joining us today, and we look forward to speaking with you over the next quarter and update you on our ongoing progress.

I would like to thank the entire Gran Tierra team for their hard work in 2023, the fantastic results and to our shareholders for their continued support.

Thanks, gentlemen.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.