Gran Tierra Energy Inc. announced the Company's financial and operating results for the quarter ended September 30, 2020 ("the Quarter").
Key Highlights:
- Production: The Quarter's production averaged 18,944 bbl per day ("BOPD"), down 6% from second quarter 2020 ("the Prior Quarter"); production during October 2020 averaged approximately 22,000 BOPD
- Collection of VAT & Income Tax Receivables: Through both direct refunds and value-added tax ("VAT") on the Company's oil sales, Gran Tierra has collected total VAT and income tax receivables of $97 million during 2020
- Credit Facility Paid Down and Cash Balance Increased: By the end of the Quarter, the Company paid down its credit facility balance to $200 million and had $21 million in cash and cash equivalents, compared to a balance on the credit facility of $207 million and cash and cash equivalents of $17 million at the end of the Prior Quarter
- Significant Reductions in Operating & G&A Costs: During the Quarter, Gran Tierra's combined operating, workover and transportation expenses ($12.63/bbl) were down 31% relative to first quarter 2020 ($18.33/bbl); the Company's cash general and administrative ("G&A") costs were down 8% on a per bbl basis over the same timeframe; on an aggregate basis, these expenses decreased from $56 million in first quarter 2020 to $27 million in this Quarter, a 53% reduction; the majority of the cost reductions represent structural improvements in the Company's operations, which are expected to be maintained even if oil prices recover further; as a result of ongoing cost saving initiatives, the Company also expects future per well drilling and completion capital costs to be reduced by approximately 27% at Acordionero and 18% at Costayaco compared to 2019
- Capital Expenditures and Net Loss: With the significant oil price volatility and logistical challenges due to COVID-19, Gran Tierra elected to keep the Quarter's capital expenditures at a relatively low $7 million; the Quarter's net loss was $108 million (including a non-cash ceiling test impairment of $105 million), as compared to the Prior Quarter's net loss of $371 million (including a non-cash ceiling test impairment of $398 million)
- Increase in Adjusted EBITDA and Funds Flow from Operations: Adjusted EBITDA(1) during the Quarter was $22 million, up from the Prior Quarter's $18 million; this Quarter's funds flow from operations(1) was $8 million (up from the Prior Quarter's $6 million), and completely covered the Quarter's capital expenditures
- Hedges In Place Designed To Protect Cash Flows: Realized oil price hedging losses totaled $3 million during the Quarter; the Company has the following oil price hedges in place:
Setting Up For A Strong 2021: The Company is analyzing multiple scenarios focused on maximizing returns and free cash flow in 2021, which will be used for debt reduction, and to optimize the ultimate oil recovery, free cash flow and long-term value from all assets
Message to Shareholders
Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented: "We are pleased with the progress that Gran Tierra has achieved with the safe restart of operations throughout our extensive Colombian portfolio. The safety of our staff, contractors and the local communities where we operate is always paramount. We commend our teams in Colombia, Canada and Ecuador for their excellent work during the many challenges of 2020 and their diligent management of COVID-19 safety protocols, which has allowed an earlier recommencement of development activities than originally forecast.
We also greatly appreciate the ongoing support that the Colombian government continues to provide the local oil industry, as evidenced by the ongoing payments of VAT and income tax refunds. These refunds have helped Gran Tierra to strengthen the Company's financial position and liquidity profile.
One of our key objectives is to finish 2020 strong to set up Gran Tierra for an exciting 2021. We believe we are well-positioned to withstand the current volatile environment with our low base decline, conventional oil asset base and the operational control for capital allocation and timing, while maintaining a low cost structure and the safety of our people."
Key Financial Metrics for the Quarter:
Net loss was $108 million compared with a net loss of $371 million in the Prior Quarter, primarily due to a non-cash ceiling test impairment of $105 million on the Company's oil and gas properties during the Quarter compared to a non-cash ceiling test impairment of $398 million in the Prior Quarter; these non-cash ceiling test impairments resulted from the significantly lower prescribed 12-month trailing average oil prices
Adjusted EBITDA(1) was $22 million, compared with $18 million in the Prior Quarter
Funds flow from operations(1) of $8 million ($0.02 per share, basic) increased by 35% compared with the Prior Quarter, as lower production was offset by a 30% increase in the Brent oil price, as well as a narrowing of differentials; capital expenditures totaled $7 million, an increase of 55% compared to the Prior Quarter, but down 83% from first quarter 2020
Oil sales were $53 million, up 57% from $34 million in the Prior Quarter, as higher Brent prices offset lower production volumes
Operating netback(1)(2) increased 204% from the prior quarter to $17.87 per bbl, largely driven by the 30% increase in Brent oil price; this improvement was partially offset by an increase in royalties to $3.35 per bbl, up from the Prior Quarter's $1.63 per bbl, which was driven by higher oil prices
Operating expenses of $11.27 per bbl were up 20% from $9.40 per bbl in the Prior Quarter due to one-time costs associated with the reactivation of the Suroriente Block and most minor fields during the Quarter; the Quarter's operating expenses were still down 7% from first quarter 2020 despite a reduction in volumes
Workover expenses were $0.62 per bbl, down 13% from $0.71 per bbl in the Prior Quarter, due to lower workover activity, and down 87% from first quarter 2020
Transportation expenses were $0.74 per bbl, down from $1.68 per bbl in the Prior Quarter due to no volumes being shipped through the OTA pipeline during the Quarter, and an adjustment relating to tariffs previously paid on the OTA pipeline
Operations Update
Acordionero (100% WI and Operator)
Gran Tierra forecasts the following activities during the fourth quarter 2020 and into 2021; the evolving situation with the COVID-19 pandemic, and the Company's strict adherence to COVID-19 safety protocols, may result in changes to the cost and timing of these planned activities and their potential incremental production additions:
The first workover rig restarted operations on September 1, 2020 and is currently on its fourth workover; this first workover rig is forecast to continue operations in the field through the end of 2020 and into first quarter 2021
A second workover rig up has started up at Acordionero to accelerate workover activity; a total of 8 to 10 offline oil wells are expected to be worked over by 2020 year-end to restore production; the total combined productive capacity of the 10 highest priority wells for workover is estimated to be approximately 3,500 BOPD, with weighted averages for water cut of 13%, gas-oil ratio of 639 standard cubic feet per bbl and API oil gravity of 17 degrees (based on 30-day averages prior to each well going offline earlier this year)
Development drilling is scheduled to commence during the fourth quarter; a drilling rig is expected to restart operations during fourth quarter 2020 to drill 1 to 2 new oil wells by 2020 year-end; these new wells are expected to begin production during first quarter 2021; the drilling rig is forecast to continue drilling new development oil wells at Acordionero throughout 2021; the next 10 planned wells (8 oil producers and 2 water injectors) are scheduled to be drilled from the new southwest pad currently under construction; each of these new wells is expected to have an initial oil production rate of approximately 550 BOPD (initial 30-day average rate), in line with the strong performance of wells drilled in the field during 2019 and first quarter 2020
Suroriente (52% WI and Operator)
Restart of production on this block commenced on August 28, 2020 and the Company is steadily ramping up production; the block's WI productive capacity is estimated to be approximately 3,600 BOPD (based on the 30-day average prior to the block being shut-in earlier this year)
Prior to the blockades in late February 2020, activities were underway to expand the Cohembi water treatment, injection and processing facilities under a two-phased expansion program; the combined phased expansion would be expected to boost gross water injection capacity significantly to potentially increase ultimate oil recovery
Majority of Minor Fields Resuming Production
The restart of the majority of minor fields has commenced and the fields are coming back online at rates higher than recorded just prior to the shut-ins; current production from these restarted minor fields is approximately 1,800 BOPD
Moqueta (100% WI and Operator)
During the Quarter, Gran Tierra continued to optimize the waterflood at Moqueta, where oil production and water injection were in-line with expectations
As previously announced in Gran Tierra's August 4, 2020 press release, on June 21, 2020, Moqueta was shut-in immediately after a leak was detected in the pipeline that transports the field's production to Costayaco; repairs were made during July 2020 and the field was brought back on production on July 27, 2020; the temporary shut-in of Moqueta impacted the Quarter's production by approximately 850 BOPD; Moqueta is currently producing approximately 2,600 BOPD
