Gran Tierra Energy Inc (GTE) 2024 Q3 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Gran Tierra Energy Results conference call for the third quarter, 2024. My name is Shannon and I will 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 for securities analysts and institutions.

Instructions will be provided at the time for you to queue up for questions.

I would like to remind everyone that this conference is being webcast and recorded today Monday, November 4th 2024 at 11 o'clock 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 REBROAD CASTING 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 Grant's third 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 Sebastian Moran, our Chief Operating Officer on Monday, November 4th 2024. We issued a press release that included detailed information about our third quarter. 2024 results, which is available on our website, Ryan and Sebastian will now 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 some of the key financial highlights from our third quarter results. Right? Thanks Gary.

Good morning. Everyone. I want to start off by saying how excited we are that on October 31st 2024 Grantierra completed its acquisition of I Three energy. We believe the purchase of I three energy uniquely positions Grantierra as a premier diversified oil and gas company with assets in Canada, Colombia and Ecuador.

The I three acquisition has diversified Grand Sierra into Canada while adding 253 net booked drilling locations with an average 77% operatorship and production totaling 18,000 barrels of oil equivalent per day. Canadian land holdings equal almost 1.2 million gross acres and include 53 gross sections in the mountain and 144 gross sections in the Clearwater. Two of the most prolific plays in North America.

The I three acquisition has increased Grantis PDP reserves by 42 million barrels of oil equivalent or 96% 1 P by 88 million barrels of oil equivalent. An increase of 97% and two P by 174 barrels of oil equivalent. An increase of 119% grant here now has approximately 178 million BOE of one P and 322 million BOE of two P reserves with a one P reserve life index of 10 years and a two p reserve index of 18 years. We believe the currently depressed natural gas pricing we see in Western Canada will be alleviated as major LMG projects include LNG Canada are brought online along with increased electricity demand in North America.

In the short term, Grand Pierre will focus on developing the significant oil weighted opportunities in its canadian portfolio while still developing and appraising our high impact oil opportunities in South America.

We look forward to the integration of our teams are confident the combined company will have top tier technical and operational skill sets. Now on to the quarterly results grant tier generated 60 million of funds flow from operations or a dollar 96 per share which was up 31% from the prior quarter, mainly as a result of a of the one time tax adjustment that impacted the prior quarter adjusted EBIDA was 93 million compared to 103 million in the prior quarter. And during the quarter, Grantierra generated net income of $1 million.

As of September 30th 2024 the company had a cash balance of 278 million and net debt of 509 million. We do expect the cash balance to come down by approximately 170 million as a result of funding the I three acquisition, we continue to have long term net debt even a target of one times or less grant generates oil sales of 151 million down 9% from the prior quarter due to lower price and wider oil differentials. Speaking of pricing during the quarter, Brent averaged $78.71 per barrel down 7% from the prior quarter. The company's quality and transportation discounts per barrel during the quarter were $14.10 which were higher than the $12.79 in the prior quarter. This is the result of the widening differentials from all three of our benchmarks. Vasconia Castilla and Oriente.

Finally, the company's offering that back was $34.18 per barrel down 12% from the prior quarter. As mentioned previously due to the combined lower Brent pricing and higher differentials.

As a result of the I three acquisition announced on August 19th 2024 Grand Pierre was required to pause its share buyback program resulted only 370,000 shares repurchased during the quarter from January 1st 2023 to September 30th 2024 the company repurchased approximately 4 million shares or 12% of the shares issued and outstanding at January 1st 2023 from free cash flow as some of you as some of you may have seen this morning along with the results announcements. Gran Tierra also announced the tsx approval of the renewal of its normal course issuer bid. The new renewal reinforces Gran Tierra's commitment to continue to focus on share buybacks as a key component of our shareholders returns. I'll now turn the call over to Sebastian. Discuss our operational highlights from our third quarter results.

Good morning everyone and thank you Ryan. From a capital perspective during the quarter, we incurred capital expenditures of 53 million which were lower than the 61 million when compared to the prior quarter. This was primarily due to timing of our rig program where we only operated one drilling rig during the quarter compared to two in the prior quarter.

Total average working interest production during the quarter was 32,764 barrels of oil per day which was consistent with the prior quarter. During the quarter. The company had lower volumes in the accordion arrow field which were caused by increased downtime related to workovers. The decrease was partially offset by higher production in the Kaco field in Colombia and increased production from the Chenu and Toa blocks in Ecuador as a result of the successful exploration drilling campaign which I will touch upon later.

Gran Tierra's operating expenses decreased by 2% to 46 million compared to the prior quarter, primarily as a result of lower overall work over costs which were offset by higher lifting costs primarily associated with inventory fluctuations in Ecuador.

The company's transportation expenses decreased by 31% to 3.9 million compared to the prior quarter of 5.7 million due to the utilization of shorter distance delivery points. As reported in Q2 barging restrictions on the Magdalena River have now been resolved with increased water levels which have returned to sufficient levels for barging operations.

Operationally, we continue to progress the Cohembi Field development plan in the soI Ande block with civil works and facility construction progressing smoothly in preparation to commence our drilling program in later part of the fourth quarter, 2024 we are also currently working on increasing our fluid handling capacity at Aor and Arrow Field. With the water treatment facility expansion project expected to be completed in mid December.

The expansion will result in an addition of 21,500 barrels of water handling per day which represents a 35% increase in water treatment capacity.

This is consistent with our long term approach to optimizing our water flood performance. Grantierra has steadily increased total fluid production and water injection at Accordion arrow by 18% per year to continue growing and maintaining oil production while improving sweep efficiencies and recoveries.

Looking to exploration. The Terrata B seven well marks our sixth consecutive discovery in Ecuador. But on August 30th 2024 the trap of B seven well had an impressive initial 30 day production rate of 2043 barrels of oil per day. The highest of any of our Ecuador wells to date with less than 1% water cut and 25 AP I oil from the Basal Tena.

All the exploration success we have had in Ecuador has allowed us to achieve a major milestone of over 1 million barrels of cumulative oil production and this is only the beginning.

The drilling rig has now been moved from the Tara block and mobilized to the chenu block to drill two wells. The Zabaleta K one and Zabaleta Oeste K one exploration wells.

The Zabaleta K one well is located four kilometers to the east of AANA J one well drilled earlier this year and is 200 ft up structure.

Both wells will target the basal tenet formation as well as assess potential in the T sandd U, sand and B limestone.

We have also now completed the initial processing of our newly acquired seismic data over the TOA block which is currently being interpreted.

Preliminary interpretations of the high quality 3D data confirm potential prospectivity and additional areas of interest including better definition over the terrata structure.

The 3D data will further delineate reserves underpin future drilling locations scheduled for 2025 and further support future development planning.

Switching gears to Canada. The team is currently managing an active drilling and completion campaign in its core areas including the Clearwater where there are only two locations currently booked. The expectation is with further delineation drilling, we will continue to book drilling locations and increase reserves.

Other areas of drilling include the Simon at Dunvegan, the RBI NISC, the logical Cardium and WAPP Cardium place overall. The company is following through on its goal on driving long term value with a diversified portfolio of high quality assets and we look forward to finishing 2024 on a high note with the newly acquired assets in Canada exploration successes in Ecuador water flood optimization and expansions in our core Colombian fields. We are well positioned for growth in 2025 and beyond.

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. If you have a question, please press the star key followed by 11 on your touchtone phone. You will then hear an automated message advising your hand is raised. Your questions will be pulled in the order they are received. Please ensure you lift the handset if you're using a speaker phone before pressing any keys. One moment, please. For your first question, our first question comes from the line of Gregory Wiederrecht with RBC capital markets. Your line is now open.

Thanks. Thanks, good morning and thanks for the for the run down. Really? I had a couple of different sets of, of types of questions, but the first part is cash tax and cash tax came in higher than we were expecting. Now with the acquisition on your belt. I'm just wondering, you know, what your tax position will look like, particularly as you head into 2025.

Yeah, thanks. Yeah, I think the cash taxes came in just the oil prices, you know, continues in Colombia, still continues to hover, you know, above the threshold of the 15% cer taxx. So with oil prices currently where that we'd expect that to come down in the fourth quarter. Actually, we think we'll move down to 10% cer taxx. And looking at Canada, you know, Canada actually has a Alberta particular is a very favorable tax regime with only 23%. And so we would expect that to continue to decrease on the overall basis. We, we expect our tax rate to be lower in 2025 than in 2024.

Okay. That, that's helpful and then just related to the buyback. Yeah, I did see that you, you renewed the NC ID. Is that Ryan? How is that connected to the company? I mean, is that a function of pre casual generation opportunistic? How should we think about the buyback?

Yeah, I think on the, on the buyback is, you know, we did put a automatic share purchase plan so we'll continue to buy back stock. So even if we are in blackout, we can continue to buy. But I think if you look at in 2023 we really have funded that buyback through free cash flow. And so we expect that to continue in in the future. And for us, when we're trading that, you know, a discount to PDP, we think it's a great way to, you know, return capital to shareholders and increase long term that asset value.

Okay, thanks. And it's all obliged me just with the last one really comes back to the motivation and outlook for the company. Now with, with I three under your belt, can you just remind us, you know, you're thinking going into consummating that deal maybe from a reserve reserve life perspective, diversification really just want to understand what drove you to do it. Number one, and then number two is, is, is how we should maybe think even about an allocation of capital or focus as you go through, you know, 25 and beyond. Thanks very much.

Yeah, thanks. Thanks. I, I think the, the overall strategy of the company, we've been trying to find the right set of assets to enter Canada for a couple of years. I three provided that for us, the, the platform as well as the team.

And, and we really entered Western Canada to continue growing in the basin. It's really should be considered an entry into the basin. We see lots of opportunity on conventional and unconventional assets, but with a real emphasis on, on conventional for, for ourselves as a, as a company, we also see a diversification of both oil and gas. And that, that's one of the attractions that we see for this particular set of assets in terms of capital allocation. We're, we're in a very unique position. We have some recent discoveries which we think are material in Ecuador as well as some underdeveloped assets here in both the Clearwater, the Montney, the Simonet Montney and several other areas within the canadian portfolio. And so what you'll see from us in 2025 is, is allocating to the new Disco oil discoveries in, in Ecuador continued continued development of our, our mature water floods in, in Colombia as well as some, some very interesting things here, oil opportunities here in Western Canada that that would be our, our allocation near term. But we're, we're quite excited as as Ryan mentioned, we're quite excited about the underdevelopment of, of the assets here in Western Canada and we'll be pursuing those quite vigorously.

Understood. Thanks very much.

Thank you. Our next question comes from the line of Anne Milne of Bank of America. Your line is now open.

Good morning and congratulations on the closing of the I three acquisition. I have a couple of questions this morning one on your 2024 guidance. It looks like you right now are on the D A level anyway, right? Sort of in the middle, maybe slightly on the lower end for D A for the year, on the last 12 month basis. You think you'll end up in the middle of your sort of lower case guidance for 2024. And then just when will you have your any indications for 2025 guidance? I assume that's maybe towards the beginning of the year. That would be my first question.

Great. Yeah, thanks. And yeah, you, we're comfortable that we'll end up with within the guidance, you know, obviously oil price has been a little choppy, lasted a while. So, you know, that will have an impact in the last couple of months of the, of the year. But we, we're quite comfortable, we'll be in that range and then we expect to come out with guidance 2025 guidance in early January.

Okay. And could you talk to us a little bit about how your CapEx plan will change for 2025. I assume you'll be increasing because of the Canada acquisition. How much higher do you think you'll be for the year?

Yeah, I think we're, we're still working through our five year plan right now, but I think the way to look at Canada, as Gary mentioned, there's lots of opportunities in the, in the Canadian assets and you know, the the beauty of Canada, you know, which is different than, than Colombia and Ecuador, you know, a lot of it's half cycle economics, most of the capital is drilling wells. And so as we, you know, allocate capital, we expect to see commensurate increase in production. As Gary mentioned, we're targeting the oil weighted assets in 2025. So I would expect, you know, Canada to be essentially cash flow neutral as far as CapEx and cash flow.

Okay. Thank you. Also for this quarter, you had a slightly higher discount rate to Brent. Do you expect that to continue? Is there anything that could change that in the, in the fourth quarter of the year?

Yeah, and that discount is, is really just Vasconia, Castilla and Oriente all widened a little bit part of the widening differentials actually is because of the Trans Mountain pipeline in Canada, which is somewhat ironic. But that's one of the drivers of that, an extra 580,000 barrels of crude coming on the market, which is a natural competitor for the Colombian Ecuadorian crudes.

Well, that's interesting. ? Something so far away.

And then my last question, I know it's sort of really big picture but, given the attractive fields that you've acquired in Canada and the strong reserve base, do you have any idea of down the road, how you see a breakdown between, let's say production and cash flow in Canada versus South America? I mean, right now it's still going to be relatively small on ad a level, but I imagine that proportion will increase over time.

Yeah, there's two, you know, I guess there's two conflicting things there in the sense that, you know, we expect with all the discoveries that we've had in Ecuador, we expect Ecuador to grow quite a bit as well and with the oil weight in there, I would still expect, you know, South America to make up, you know, the majority of our, our adjusted ebita, you know, we can continue to grow, especially in the future in a more robust gas price environment. So I think that that that will, will evolve. But, you know, it's always, it's important for everyone to remember is that we're not going to stop developing in South America, Ecuador and Colombia are still core areas for us and we expect them to continue to grow as well.

Okay. And so South America will continue to be a majority going forward for the time being, for the time being.

Okay, great. Thank you very much. Thank you.

Our next question comes from the line of Peter Boley with Jeffrey's LLC. Your line is now open.

Thank you for the call. Thank you for taking my questions. First, in the context of a low 70s, Brent in 2025 do you still expect to pay your bond amortization in 2026 from free cash flow? And second, regarding capital allocation, how are you thinking about with your, with your 2029 bonds trading above the 22% yield? How are you thinking about capital allocation? And would bond buybacks ever be considered as part of your plan? Thank you.

Yeah, I think on the, the 2026 adverts, we're quite comfortable between cash on hand that we exit this year and then free cash flow in 2025 and 2026. Remember that advert conversation until the end of October? We're quite comfortable with, with that advert.

So we don't have a concern there and then on the capital allocation, we think right now we'll continue to, you know, focus on longevity of the assets and invest in the ground. And then, you know, we do have obviously the 25 maturity $25 million maturing in February of this year, which obviously will pay and then also the maturity 2026 and then, you know, like 2025 million in 2027. And we expect to fund all three of those with just cash on hand and free cash flow.

Keep in mind, remember, we do have a lot of flexibility on our capital allocation. Given that in South America, we have all of our asset, we operate all of our assets and in fact, all of our blocks, with the exception of one, we have 100%. So that gives us a lot of flexibility. And in Canada, we operate with 78% 77%. So again, still have some flexibility on capital allocation in Canada.

Great. Thank you.

Thank you.

Our next question comes from the line of Alejandra Andrade with JPM. Your line is open.

Hi, thanks so much for the call. I just had two quick questions first. I mean, I saw that you change a little bit the terms of the committed facility in Canada, 74 million maturing next year. I was wondering if there's any expectation to do something in Colombia as well in terms of committed lines. And then also how are you thinking about your hedging program for next year? That's it. Thanks.

Great. Thanks. Yeah, and the reason why we reduced the Canadian facility, the borrowing base support is quite a bit higher. We just don't have really a use of proceeds right for those funds right now. So we're treated as more of a working capital facility and instead of paying additional goes down by fees, we reduced the committed amount. So that, that was a conscious decision by Gran Tierra and, and we will continue to look at putting a similar facility on the Colombian assets as well. And you know, stay tuned for that. And then our hedging program, you know, we are looking at as we finalize our, our five year plan and capital allocation, we are looking at increasing our hedging program. You'll see, we do have a new corporate deck on our website that outlies outlays the, the hedges that we acquired with I three in particular, the gas hedges that they had in place are quite interesting for 2025. We'll continue looking at hedging, you know, 30% to 50% for the next six months and then 20% to 30% for the following six months on, on more of a systematic basis.

Great. Thank you.

You're welcome, gentlemen. There are no further questions at this time. Please continue.

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

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