Gran Tierra Energy Inc (GTE) 2024 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's results Conference Call for the First Quarter 2024. My name is Shannon, and I will be your coordinator for today. (Operator Instructions) I would like to remind everyone that this conference call is being webcast and recorded today, Thursday, May second, 2024 at 11:00 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, any 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. Israel, please go ahead.

Thank you, operator. Good morning and thanks for joining Gran Tierra's First Quarter 2024 Results Conference Call. My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Nelson, our Executive Vice President and Chief Financial Officer; and Sebastian Morin, our Chief Operating Officer on Wednesday, May 1, 2024.

We issued three press releases that included detailed information about our first quarter 2024 results, which are available on our website. Brian and Sebastian will now make a few comments brief comments, and we'll open the line for questions immediately following this earnings call at 10:00 AM Mountain time noon Eastern time, we will be holding our Annual General Meeting of stock of shareholders. During that meeting, I will give a brief overview of Gran Tierra where the Company is heading, I invite you to join us for this call. Dial-in instructions can be found on our website.

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

Thank you. Good morning, everyone. Gran Tierra had a great start to 2024. During the first quarter, we have completed a substantial portion of our development plan and are now focused on our 2024 exploration campaign along with the development of this oriented block.

During the quarter, Gran Tierra delivered $74 million of funds flow up 24% from the first quarter of 2023, which resulted in $2.34 of funds flow per share after incurring approximately $55 million in capital expenditures, the Company generated free cash flow of approximately $19 million. Adjusted EBITDA was $95 million for the quarter, up from $93 million in the prior quarter.

As at March 31, 2024, the Company had a cash balance of $127 million and net debt of $510 million. The 12-month trailing net debt to adjusted EBITDA was 1.3 times and is expected to be less than 1 times by year end from a combination of increased adjusted EBITDA and lower net debt. During the quarter, the company issued an additional $100 million of 9.5% senior notes and received cash proceeds of $88 million with a portion of the funds. We fully repaid the outstanding balance on the Company's credit facility of $36 million and the facility was terminated. Gran Tierra January oil sales of $158 million, up 9% from the first quarter of 2023 due to higher sales volumes and lower hysteria Vasconia and Oriente orientated differentials.

Looking at pricing. During the quarter, Brent averaged $81.76 per barrel, up 1% from the prior quarter. The Company's quality and transportation discounts per barrel during the quarter were $15.36, which significantly narrowed from $18.45 from the first quarter of 2023. The Company's operating netback was $35.37 per barrel, up 1% from the first quarter of 2023. Gran Tierra has repurchased approximately 1 million shares during the quarter since January first, 2023, the company has repurchased approximately 3.3 million shares or 10% of the shares issued outstanding as at January 1, 2023 from free cash flow, we are very pleased how we have started 2024, and we are having excellent results in our core assets under waterflood. The balance sheet is in excellent shape, and we're very excited about the air one exploration well, which Sebastian will highlight.

I'll now turn the call over to Sebastian, discuss our operational highlights from our first quarter results.

Thanks, Ryan, and good morning, everyone. As Ryan mentioned capital expenditures of $55 million were higher than the prior quarter of $39 million and down from $71 million compared to the first quarter of 2023. During the quarter, we completed our accordion ARO Drilling Program in the majority of our Costayaco program, achieving approximately 16% reduction in drilling costs. A savings of approximately $3.8 million between both programs.

Total average working interest production during the quarter was 32,242 barrels of oil per day, an increase of 3% over the prior quarter despite deferred production of approximately 1,000 barrels of oil per day as a result of social disruptions at the accordion narrow field post disruption. The field was rapidly ramped back up without issue and is now back producing over 17,000 barrels of oil per day per expectations.

In particular, we are very pleased about the successful drilling program in Costayaco that confirmed the company's reservoir interpretation and extended the field significantly to the north and to the south. The four wells drilled in the north had a combined initial 30-day production rate of 5,707 barrels of oil per day unstimulated and on jet pump. Currently work has commenced to install the final selective completions conducts zonal testing and stimulation as well as installation of the final optimized artificial lift, which we expect will increase production.

Further to note, Costayaco was originally discovered in 2007, our 2024 program has increased production to the highest level since 2017. As highlighted in the press release, we initiated our high impact exploration program with the arrow on a one well, which was spud on the Genencor block in early April. We are very excited about the initial open-hole logging results of the well, which is drilling to a bottom hole location 1.5 kilometers away across a fault from the bulk check a one well, optical one had an initial 90 day production rate in the basal tenor of greater than 1,100 barrels of oil per day and continues to produce at approximately 850 barrels of oil per day 20 degree API oil. It less than 1% water cut and has recovered over 330,000 barrels of oil since June 2023.

Basil 10A is the geologic equivalent to the Ensign in Colombia located 20 kilometers to the north are mapped area of closure and rock properties observed in aero one-to-one compares well to the MB. field at the end of 2023, the MB. field has produced 28 million barrels of oil and as remaining reserves of 25 million 1P, 54 million 2P, and 95million 3P. Given these observations, we are very excited to finalize drilling operations at Hera one to one run casing and start testing in the next few weeks.

Looking to financial metrics Gran Tierra's operating expenses increased by 2% to $48 million compared to the prior quarter, primarily due to higher workovers offset by lower lifting costs, primarily related to power generation optimizations in Costayaco Accordino and KMB. fields.

The Company's transportation expenses increased by 16% to $4.6 million when compared to the prior quarter. During the quarter. Gran Tierra utilized longer distance delivery points due to low river levels in Colombia caused by dry El Nino conditions resulting in higher transportation costs.

Today, we are excited to also announce the release of our 2023 sustainability report. I will go through some key highlights below. However, I invite you to visit our website and go through the report in its entirety. 2023 was the safest year in company history with over 17 million work hours without any incidents causing lost time since June 9, 2022, again, Gran Tierra's reforestation efforts. The Company has planted over 1.6 million trees and has conserved preserved or reforecasted at approximately 4,500 hectares of land since 2018. This is equivalent to sequestering 20 years of our current greenhouse gas emissions. Gran Tierra is reducing greenhouse gas emissions at its facilities through gas-to-power projects that conserve excess natural gas that would otherwise be flared using the gas instead to power generation. In 2023, Gran Tierra's gas-to-power projects generated approximately 70% of the total energy used in all of the Company's operations. Gran Tierra has started 2024 on a strong footing, and we look forward to continuing to ramp production through our ongoing waterflood optimization initiatives.

New well completions, an exciting near field exploration program. I'll now turn the call back to the operator and we will be happy to answer any questions. Operator, please go ahead.

Thank you.(Operator Instructions) Our first question is from the line of Anne Milne with Bank of America. Your line is now open.

And good morning, everyone, and congratulations on your good first quarter. My questions have to do with your outlook for the rest of 2024 on in terms of your OpEx expenses and transportation expenses and were and possibly some information on the social disruptions that you mentioned at Accordino. Do you think that's just one-time is something that could come back just to have a little bit of a sense of what we could expect for the rest of the year? Thanks.

So I'll start from bottom up in response to our accordion. Arrow actually had a lot of major changes in Colombia. And we don't expect this to come back because the way that the social disruption was handled actually created relationships. And so I think we're back on track on that side of things that Accordino from a workovers perspective, that's what really impacted our OpEx the most. And as we go throughout the year, those will reduce. So looking really forward to that.

And then on the lifting side, our power generation costs are coming down as we implement these optimization projects. So we should see an improving trend there as well.

Okay. Thank you.

Our next question comes from the line of Phil Skolnick with Eight Capital. Your line is now open.

Yes, thanks. Good morning. Just on on there I wanted discovery. How do we how should we think about it in terms of it looks like it's hard to size, it's like QMB, but I guess in terms of how many wells kind of time lines and ultimate productivity potential and kind of cost kind of how we think about the cost growth over the years and when you develop this

Yes. Thanks, Phil. I think the why we're so excited it is a direct analog to call him big. And in terms of closure size, in terms of fault trapping in terms of deposition. And so the thickness of this reservoir, very similar to what Colombia is very prolific wells, as you've seen at CO MP, just as Sebastian mentioned, a kilometer and a half away. We have a well on production in the same formation that that's 1,000 barrel a day. Well, that's still producing 850 barrels a day, it's cumed almost 400,000 barrels. So it's it is not without it. That has the information that we're basing this off of.

If you look at it, the closure on this structure. As we we talked about pre-drill, it's about 11,000 acres of closure, very similar to Colombia. And when we look at this, that's why we're excited the volumes that we would expect waterflooding. It's very similar geology with waterflood. I think the way you would look at this is a 50 well type development in terms of recoveries we're using that same analogue of 50 million to 100 million barrels that you're seeing, it can be on a reserve basis and it's near infrastructure. And so we're excited because we can very rapidly start appraising this field and go on production as we're pricing and sold itself. It's very exciting.

It sounds like, I guess just on the 50 wells, how many of those would be water injection?

Yes, I think you also noted you would have something because this is a it's a reservoir that's 20, 30 feet thick and very continuous as well, as we're seeing it go heavy, we're getting quick reservoir response from our injection. The one thing that we're not sure of that we're going to look at very, very closely is can we use horizontal wells in the reservoir like this, and that might end up being less wells, but 11,000 acres, 50 wells that's going to put you on a 160 to 200 acre spacing. The viscosity here that we're seeing at Boca to go is better than oh handy. So everything about it is exciting to us in terms of the analog on the analog reservoir continuity. We're excited to get on with testing.

Thanks. Great.

Thank you. Our next question comes from the line of Orianna cobalt with balance. Your line is now open.

Hi. Thanks for taking my questions. This is a difficult with balance. I have two questions. If we may go one by one that the first one is that you mentioned you plan to reduce net leverage towards the onetime and on the back of increased adjusted EBITDA and lower net debt. So if you could remind us what are you targeting in terms of net debt? And how do you expect it to reduce it from current levels and the buybacks or are doing something with the shorter bond shutdown. That will be helpful. Things to understand.

Yes, on the net debt, we'd expect if you look at the free cash flow generation throughout the year, we did expect our cash balance to build. And we'd expect our cash balance to build another probably $50 million from where we're at right now. And our adjusted EBITDA increased. So that would get us to that around that 1 times net debt to EBITDA ratio.

Perfect. And just picking up on that last note in terms of higher cash position and increased free cash flow generation seen that in the second more favorable, more favorable pricing backdrop, do you in terms of any excess cash uses, any update from the M&A front in Canada? Or where do you expect to use these incremental?

Yes, I think we will continue to look at it just in capital allocation, in general, from buybacks, debt reduction to M&A. We continue to look at all those options. And then as things progress, we'll look at the best way to allocate that capital. And we always like to make sure that we actually have the cash flow before we spend it. So once the money is in the door there, then we'll we'll talk about it.

And thank you very much. Congratulations from the quarter.

Thank you for your.

Thank you. Our next question comes from the line of Roman Cannacord Rossy with Canaccord Genuity.

Your line is now open.

Good morning and thanks for taking my questions. Congrats on the three quarters. So the first one is regarding the share buybacks right now. And I just wanted to understand what you're expecting in the coming quarters because your share has not proceed significantly.

So do you have any Pacific price where you would stop buying back shares? Maybe I don't know the PDP. value or the loan-to-value per share?

Yes, I think, you know, the share price has performed well, but those from a low starting point. So we've gone from trading that 50% of PDP up to 70% to 80% and so we think it's still great value to continue to buy back stock.

Okay. Sensitive. And a second question regarding tax. I think you will be paying the bulk of the 2023 taxes next quarter. Can you give us a sense on what your Factive?

So as far as cash flow? Yes, it's very members. We do prepay a lot of tax withholding tax in 2020 and 2023, we paid a lot of withholding tax, so the tax outflow will be around $20 million.

Okay, awesome. Thank you.

Ran through Thank you.

Thank you. Our next question comes from the line of Alejandra undrawn, a co-lo with JPMorgan.

Your line is now open.

Hi. Thanks for taking my questions. I had two questions. First on the power generation cause just clarifying, you said so 70% is now coming from gas. In your case, your own gas?

Correct. And the remainder, it would be spot. Just a reminder of a breakdown and then on M&A, drilling a little bit more in terms of opportunities. So you've been discussing Canada and Colombia. Could Argentina also be of interest to you guys. Thanks.

So the remaining 30% of power generation comes from either diesel run generation on our facilities or actually connected to the power grids in Colombia and so we're trying to displace the diesel from our power generation facilities.

We Level 500 Mcf of gas for CNG, supplemented by mostly where we don't have the exposure to the spot price. And I think probably the question was yes,

Yeah.

And then on the M&A front, yes, Argentina is not on our radar right now, but I think Anke.

Thank you.

Thank you.

Our next question comes from the line of Derek Jellinek with Bloomberg Intelligence. Your line is now open.

Hi. Thank you for taking my questions. Just a couple for me. Please on could you talk about the process specifically the time line? How long did they last?

And by the bucket, the blockade was around 10 days.

10 days. So that's in March, right?

Correct.

Correct.

Perfect. Thank you. And another one is on water optimization program. Are you in any way impacted by the drought scope currently in Colombia?

No, because we take the majority of our makeup water from from deep deep sources. So we actually produce the water from different different reservoirs and bring them up into our our water, flexible reservoirs.

Amazing Thank you so much. That's all for my thinking.

Thank you.

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

Thank you. I would again like to thank everyone for joining us today, and we look forward to speaking with you next quarter for update. And if you are able, please call in for our annual general meeting at 10 A.M. Mountain time.

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