Gran Tierra Energy Inc (GTE) 2024 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 2024. My name is Michelle 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, Thursday, August 1, 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 regards 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 S. 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's Second Quarter 2024 Results Conference Call. My name is Gary Guidry, President and Chief Executive Officer, and with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer, and Sebastien Morin, our Chief Operating Officer. On Wednesday, July 31, 2024, we issued a press release that included detailed information on our second quarter 2024 results, which is available on our website. Ryan and Sebastien will make a few brief comments and then we will open the line for questions. Ryan, please go ahead.

Thank you, Gary. Good morning to everyone. I will start off by saying that we're very pleased with our Gran Tierra has wrapped up the first half of 2024. During the second quarter, we were able to begin our high impact exploration campaign that started off with the previously announced Discovery (inaudible) award. In addition, we have also progressed a number of our development programs including initiating civil works in this oriented block to kick off a five well drilling campaign with the second rig in the second half of 2024.

During the quarter, Gran Tierra delivered net income of $36 million or $1.16 per share. Further, Gran Tierra achieved operating netback of $113 million, which is up from $105 million in the prior quarter, and adjusted EBITDA of $103 million, which was up from $95 million in the prior quarter. The company also strategically revised its 2022 tax return during the quarter to use its long term tax receivable balance to offset current tax liabilities rather than applying net operating loss carryforwards. This decision was driven by a higher current and future tax rates and increased profitability in Colombia. As a result, the current tax expense increased by $28 million, but this was offset by long-term tax receivable, resulting in no cash flow.

We were able to preserve our net operating loss carryforwards of approximately $85 million for future periods, providing greater tax benefit in 2024 and in the future. This tax initiative also allowed us to recover $80 million of taxes receivable in 2024 and accelerate the recovery of an estimated $65 million of taxes receivable over the next three years. During the quarter, the company spent $61 million in capital expenditures, which were higher than the $55 million in the prior quarter due to the commencement of the 3D seismic program in Ecuador and the drilling campaign.

We also installed the final completion and artificial lift systems in the Costayaco development wells. As of June 30, the company had a cash balance of $115 million and net debt of $521 million. The 12-month trailing net debt adjusted EBITDA was 1.3 times and is expected to be less than one times by the year end 2024 from a combination of increased EBITDA and lower net debt.

Gran Tierra oil sales of $166 million, up 5% from the prior quarter due to higher Brent pricing and narrow kind of steer and Vasconia oil differentials. Looking at pricing during the quarter, Brent averaged $85.3 per barrel, up 4% from the prior quarter. The company's quality transportation discounts per barrel during the quarter were $12.79, which can significantly narrow from the $15.36 in the prior quarter.

The company's operating netback was $30.80 per barrel up 10% from the prior quarter. Share buybacks continue to be a key area in which we allocate our free cash flow. Since January 1, 2023, Gran Tierra has repurchased approximately $3.9 million or 11% of the outstanding shares. During the quarter, Gran Tierra has repurchased approximately 400,000 shares. We're looking forward to the second half of the year, we plan to drill the remainder of our high impact near field exploration wells in Ecuador, including drilling two wells to further appraise the exciting (inaudible) discovery. As part of the fast-track appraisal program or one of the drilling schedule and civil works have been accelerated to allow the drilling of these two wells prior to year end.

From a development perspective, we are completing the civil works associated with the building infrastructure in Colombia pad that in this oriented block to begin drilling the five wells from single bad in the fourth quarter of 2024. We're very pleased about our first half results, and there are still many more catalysts in the second half of 2024.

Lastly, I want to highlight that we also issued S3 yesterday updating our shelf prospectus that was set to expire in August 2024. This filing is routine in nature and the timing of its issuance is a direct result of the timing of the expiry. The process renews our S3 shelf prospectus for a further three years.

I'll now turn the call over to Sebastien to discuss our operational highlights from our second quarter.

Hood morning, everyone. As Ryan mentioned, capital expenditures of $61 million are higher than the prior quarter of $55 million and down from $66 million compared to the second quarter of 2023. Total average working interest production during the quarter was 32,776 barrels of oil per day, an increase of 2% compared to the prior quarter and up 4% on a per-share basis in the second quarter of 2023.

During the second quarter of 2024, Gran Tierra installed selected completions, systematically stimulated multiple zones and added electrical submersible pumps across the [ACRO 56, 57, 58, and 59] which were drilled as part of our first half 2024 development campaign. While the temporary offline status of these wells for the planned selective completions did impact second quarter production by about 700 barrels per day, the improvements have resulted in enhanced production with rates exceeding initial peak rates with all wells now back online. Given the ongoing positive performance from our core fields on waterflood and recent exploration success, we remain very comfortable with our 2024 production guidance.

Looking to operating expenses, they decreased by 3% to $47 million compared to the prior quarter, primarily due to lower workover activities as a result of continued improvement in artificial lift reliability. On a per oil basis, operating expenses also decreased by 1% when compared to the prior quarter as the company continues to focus on pushing forward further cost savings and operational efficiency initiatives.

The company's transportation expenses increased by 24% to $5.7 million compared to the prior quarter of $4.6 million due to El Niño phenomenon causing low water levels in the Magdalena River, resulting in Gran Tierra utilizing longer delivery points. The river levels have now returned to normal conditions, allowing for use of our preferred shorter delivery routes for the second half of 2024.

Our exploration program in the Chenango block remain very active with the drilling and installation of a multi-zone selective completion at the Bocachico-Norte AJ1 well log and core data indicated reservoir and net pay in multiple zones, including the Basal Tena. The T-Sand and B Limestone testing is now underway and expected to continue throughout the third quarter.

Note that although the B Limestone was not a primary target, it had positive shows while drilling indicating it may be connected to productive fracture network. The completion install will allow for efficient multi-zone selective stimulation production and commingling of the Basal Tena T-Sand and B Limestone. In addition, the Arawana J1 and Bocachico J1 wells continue to yield strong production results with a combined 1,600 to 1,800 barrels of oil per day. Gran Tierra plants convert both wells from jet pump to electrical submersible pumping systems in the second half of 2024 to further increase production rates.

Upon finishing the drilling of the Bocachico-Norte J1 well, the rig was moved over to the [Toronto] block on July 14. The Trap of B6 wells is but with the primary target being the Holy information, the well has reached total depth of 11,170 feet on July 31 after successfully logging and coring the zones of interest. We are seeing very encouraging results in the drop of the six wells which has been cored with excellent oil shows throughout the Holy information. We anticipate finalizing drilling and completion operations early in August with testing plans to begin immediately afterwards.

Following the drilling of the Trap of B6 well, the rig will begin drilling the trap of B7 well from the same pad in the third quarter of 2024. Also a Metropolis block with 3D seismic program has been completed and the data is currently being processed. Preliminary interpretations of the high-quality 3D seismic data confirms potential prospectivity and additional areas of interest, including better definition and confidence in our reserve estimates over the trapeze structures. The 3D seismic data will further delineate reserves underpin future drilling locations scheduled for 2025 and support future development planning.

Overall, the company continues to follow through on the capital plan and is experiencing early success in the 2024 exploration campaign. We remain optimistic about the second half of 2024, where we are drilling some very exciting wells in both the Torrappa and Tenangay blocks.

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. Ladies and gentlemen, we will now conduct the question-and-answer session for securities analysts. (Operator Instructions) Alexandra Andre, JPM.

Hi, good morning. Thanks for taking my question. I just had two questions. First, I wanted to discuss a little bit production outlook for the second half of the year and then also could you give a little bit more color on all the tax moves that are happening in the numbers? That would be great. Thank you.

I think we're very, very pleased with our first half results and continue to look forward to our exciting catalysts that are coming. As we just stated, both of our two new exploration wells are currently on testing, which we're happy with. And so we continue to reiterate our guidance for the year.

Perfect.

And then on the taxes, yes, in probably the best thing is if you look in the notes and advance them as we did put a reconciliation to try to explain some of the movements. But effectively what we were able to do with the refiling is just to keep 85 million of noncapital losses. Those rates were done at 35% tax rate with the current rate being 50%.

So we get the benefit of the -- utilize those losses in a higher tax rate environment. That's the first one. But also allowed us to accelerate some of these long-term receivables that we had. So although we had to book a current tax expense, there was no cash outflow. We actually netted the payable that was generated from the refiling with long-term receivable that we had. So really there is acceleration of those receivables and allowed us collect further $65 million for the next three years.

Great

Thanks.

You're welcome.

Thank you. Diego Espinoza, BTG Pactual.

Hi, Thank you for taking my question. Can you hear me?

Yes, we can hear you.

Perfect. Just have a couple of questions. First one is that the CapEx right now you have around $100 million. How much you expect to spend during the second half of the year?

In terms of working capital, we saw some relief during this quarter. Do you expect that this should be a reversal or reverse during the next quarter or in the fourth quarter?

On the capital guidance, we're comfortable with the guidance that we have in the market right now. So we think that's a reasonable range given our first half results and our program for the second half and the respect of working capital, a lot of that working capital release was from the tax filings and accelerate moving that a long term receivable into current receivable as our long-term into current. So that we don't expect that to reverse in the following quarter with more of a one-time item this quarter.

Perfect. Thank you very much.

Thank you.

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

Okay.

Thank you, operator. I would like to thank everyone once again for joining us today. We look forward to speaking with you over the next quarter and update you on our ongoing progress. Thank you very much.

Thank you for your participation. This does conclude the program. You may now disconnect. Everyone have a great day.