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spk01: Good morning, ladies and gentlemen, and welcome to Grand Tierra Energy's results conference call for the first quarter of 2023. 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 that time for you to queue up for questions. I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, May 3, 2023, at 11 o'clock a.m. 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 Grand Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Grand Tierra Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Grand Tierra. Mr. Guidry, please go ahead.
spk10: Thank you, Shannon. Good morning, and thanks for joining Granteer's first quarter 2023 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 Rob Will, our Vice President of Asset Management. On Tuesday, May 2nd, 2023, we issued a press release that included detailed information on our first quarter 2023 results, which is available on our website. Ryan and Rob will make a few brief comments, and then we will open the line for questions. Immediately following this earnings call at 10 a.m. Mountain Time and 12 noon Eastern Time, we will be holding our annual general meeting of stockholders. During the meeting, I will give an overview of Grand Tierra and where the company is heading. We invite you to join us after this call. Dial-in instructions can be found on our website. I'll now turn the call over to Ryan.
spk09: Thank you Gary. Good morning everyone. Grand Tierra achieved a strong quarter by delivering $60 million of funds flow while delivering on our front end loaded development program, which saw the drilling of 14 development wells out of the total 2023 budget plan for 18 to 23 development wells. Given the increased activity during the quarter, Grand Tierra spent $71 million on capital expenditures which exceeded fund flow slightly by $11 million. By completing the majority of our development program in the first three months of 2023, we expect to benefit from higher oil production rates for the remainder of the year and with the goal of maximizing our production and cash flow in 2023. Over the last 12 months, we generated net income of $115 million, adjusted EBITDA of $459 million, funds flow of $339 million, and free cash flow of $73 million. This free cash flow allowed us to execute on our share buyback plan and strengthen our balance sheet via bond buybacks. During the quarter, Grand Tierra purchased approximately 13.1 million shares for a total purchase price of $10.7 million, an average price of approximately $0.82 per share. We also exited the year with a healthy net debt to adjust to EBITDA ratio of one times. As part of Grand Tierra's ongoing commitment to reduce its net debt during the quarter, The company bought back $8 million in face value of Grand Tierra's 6.25% senior notes. The cost of the 2025 bond buyback was approximately $6.8 million, representing a discount of about 15% to the face value of the 2025 bonds. The company exited the quarter with $106 million of cash on the balance sheet and net debt of $466 million, with their credit facility remaining completely undrawn. During Q1, The Brent price averaged $82 per barrel, down 16% from one year ago, and down 7% from the prior quarter. The company's quality and transportation discounts narrowed to $18.45 per barrel, down from $19.74 per barrel in the prior quarter, and up from $12.56 per barrel one year ago. The Kaseya oil differential increased to $15.17 from $6.38 per barrel in the corresponding period in 2022. Castilla is the benchmark for our coordinated production. The Vasconia differential increased to $7.87 from $3.60 in the corresponding period of 2022. Vasconia is the benchmark for our Putumayo production. The good news is that differentials narrowed in March this year and continued to narrow in April. The current Vasconia differential is down to approximately $6.50 per barrel, and the Castilla differential is down to approximately $11.50. Even more encouraging is in the last couple of days, differentials have narrowed to $10.50 and $5.50 for Castilla and Vasco, respectively. Oil prices continue to remain volatile, and Brent has sold off the last couple of weeks. Whilst Brent averaged $82 in Q1, it hit a low of $73 and a high of $87. So the recent volatility is nothing new. Grand Tierra's total production for the quarter was 31,611 BOE per day, up 8% from one year ago and decreased 3% compared to the prior quarter. The company's second quarter production to date, 2023, is approximately 32,400 BOPD, and we are on track on our targets this year. The company's operating net back was $35.18 per barrel, down 33% from one year ago and down 9% from the prior quarter. Changes in funds flow and operating net back were largely driven by the decrease in Brent oil price and the widening of the quality and transportation discounts over the same time period. We're very pleased with our recent announced agreement with Equipatrol, the national oil company of Columbia, by which Grantier and Equipatrol renegotiated the agreement for the Soriente Block in the Putamayo Basin, which was scheduled to end in mid 2024. Grantier will continue to be the operator of the Soriente Block and is committing to a capital investment program of $123 million over a three-year period from the agreement's effective date, expected to be funded by grant carers' internal cash flows. The agreement provides an opportunity to add significant value as well as economic life to Soriente by continuing the duration for 20 years. The additional term of the agreement allows long-term investment in infrastructure and work programs to enhance oil recovery efficiency in existing fields and appraisal drilling to extend the life of the fields. Lastly, we're happy to report that Grand Tierra has issued the company's 2022 sustainability report, creating long-term value and delivering on our environmental, social, and government's commitments, which can be found on the company's website at www.grandtierra.com.esg. I'll now turn the call over to Rob to discuss some of the operational highlights from our first quarter results.
spk13: Thanks, Ryan. Good morning, everyone. During the quarter, Grand Terra has completed a significant portion of its 2023 development campaign with the drilling of 14 development wells in three of our major fields, which have been producing oil at rates that are in line with our expectations. In our core narrow field, development drilling resumed in January 2023 with a 10-well program. Eight of the wells were drilled by the end of the quarter. As a result of the program and continued good performance of the field's enhanced oil recovery via water flood, Quartanero has averaged approximately 19,200 barrels of oil per day during second quarter to date 2023, which is the highest level since May 2019. During the quarter, Granterra achieved a new water injection record of approximately 65,000 barrels of water injected per day, up from 59,895 barrels of water injected per day in first quarter 2022. The polymer pilot The polymer flood pilot continues to progress and was expanded with the start-up of a second polymer injection well during the quarter. We plan to follow up with a third polymer injection well planned for second quarter 2023. We are excited about the early results and expect the Cordonero's polymer flood pilot to increase the field's ultimate oil recovery. Our Cusiaco development campaign saw four wells drilled during the quarter. Two producers are currently being completed. with time expected in early May 2023, and two water injection wells are completed and expected to begin injection during second quarter 2023. Two additional producers and one additional injector remain to be drilled as part of the Casiaco development plan for 2023. Completion and stimulation of the producing wells and water flood optimization through additional injection are expected to continue to grow production in Casiaco throughout the year. Two wells were drilled during the quarter, and both are on production and awaiting stimulation. Two additional development wells are planned in 2023, along with two conversions of existing wells into injectors that are expected to grow production and optimize the water flood in Moqueta. The drilling of all these wells is a testament to our team's commitment to operational excellence and their ability to execute our capital program efficiently. We are also excited with our plans to recommence exploration drilling during the second half of 2023, with the drilling of four wells in Ecuador, three in the Xarapa Block to appraise the discovery of the Ho'in Formation, and one in the Shenang'e Block. Granterra has completed the selection process and secured a drilling rig, which the company plans to mobilize from Colombia to Ecuador. Granterra expects to drill between four to six exploration wells in 2023 in Colombia and Ecuador combined. Finally, we continue to see positive results from our ongoing water floods across our operations, primarily in Sirianti and Coronero, and are beginning to see positive results in our Palmer flood in Coronero. I'll now turn the call back to the operator, and we'll be happy to answer any questions. Operator, please go ahead.
spk01: 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 touch-tone 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 speakerphone before pressing any keys. One moment please for your first question. Our first question comes from the line of Joseph Schachter with Surfy. Your line is now open.
spk11: Good morning, Gary, Ryan, and Rob. I have two questions. On slide 35 of your new presentation, you highlight three of the exploration wells, Rose One, Boca Chico, and Xalapa. Could you guys go into a little bit of detail of what the prize is in terms of the size, potential production of the wells, and what timeline, if you're successful with those volumes, come on? Um, would they be in 23 or, uh, or later or more in, uh, or into 2024? That's the first question.
spk10: Okay. Yeah. The first question we're, we're going through, uh, to issue a mid-year reserve update on, on everything that we're doing, Joseph. Uh, but, but the answer to your question is the pre-drill estimates on, on Boca Chico. and rows were the 5 to 15 million barrel type reserve range. We haven't seen anything that deters us from that original pre-drill estimate. On Chirapa Norte, we're quite excited about that discovery. It was a very prolific producer, and it's the target of some of our appraisal and exploration work this year. But it could be, in our estimate internally, unaudited by McDaniel in the 10 to 30 million barrel range.
spk11: Super. If you are successful with those wells, could they impact your volumes in Q4 of 23? Yes, they could. Okay. Last one for me is the 10 for 1 reverse split. When do you see that happening after getting TSX approval? Do you have a date in mind?
spk10: Yeah, it will, assuming shareholders approve it in our AGM later this morning. And with approval, it will occur early to mid next week. Okay, super.
spk11: That's it for me. Thanks very much for answering our questions.
spk01: Thank you. Our next question comes from the line of Phil Skolnick with Eight Capital. Your line is now open.
spk04: Yeah, thanks. Good morning. Just on Sororiente, can you, you know, how should we think about that $123 million over the next three years and the impact on your growth profile?
spk09: Yeah, I think it's a good question. I think, you know, we're excited with that block. As you know, we haven't drilled well in that block since 2018. And even without drilling the well on that block, just with the successful wrap-up of the water injection, we hit the highest rate since 2015. So it's a great field, as you know. And so I think for us, we're very comfortable that we'll start drilling next year. And it'll be a disciplined program, really focused on development drilling at first. We have a lot of the facility expansions done. So we'll start drilling next year and we expect to get the field up to, you know, net to Grand Tierra in that 7,000 to 10,000 barrel day range.
spk04: Perfect. Thank you.
spk09: Over the next coming years.
spk04: Okay, great. Thanks.
spk01: Thank you. Our next question comes from the line of Roman Rossi with Canaccord Genuity. Your line is now open.
spk06: Hey, good morning, everyone. Thanks for taking my question. So I have a question regarding the increase in DNA. You mentioned in your filing that the increase was due to higher costs due to innovation projects and . So can you give us more color on that and what should we expect for the rest of the year?
spk09: And so it was breaking up a little bit on this side, but it was a question with respect to was it DDNA?
spk06: Yes, the increase in G&A.
spk09: Oh, G&A, G&A. Yeah, a lot of that was some one-time costs coming through in the first quarter. So we would expect that to trend down throughout the year.
spk06: So we should expect something similar to what we saw last year?
spk09: Correct, correct. And on a per barrel basis, we expect it to be lower just with the increased volumes.
spk06: Okay, awesome. Thank you very much, Ryan. Thank you.
spk01: Thank you. Our next question comes from the line of Adam Gill with Paradigm Capital. Your line is now open.
spk03: Thank you. Good morning, gentlemen. Just back to the Ecuador exploration, can you just give us a quick rundown of the timing of SPUD and when you expect results on the exploration program this year?
spk10: Yeah, a spud will be later in the summer in Ecuador, and we should have continuing results through the end of the year.
spk03: And is this two- to four-well exploration program just going to be one rig?
spk10: One rig, yeah.
spk03: Okay. And then just last one on that, how many – I was just going to ask, how many potential zones did you see in the two blocks on the first two exploration wells for completion?
spk10: We saw three in the Boca Chico well and two to three in Chirapa Norte. We still have hopes for the carbonates. We've yet to test those, and it's going to take some more appraisal Appraisal and exploration, drilling, and both of those blocks. But two to three in each of the wells.
spk03: Okay, great. That's my question. Thank you.
spk01: Thank you.
spk03: Thank you.
spk01: Our next question comes from the line of Oriana Kovalt with Balance. Your line is now open.
spk08: Hi, thanks for taking my question. This is Oriana Kovalt with Balance. I had a couple of questions. First, if you could share more insights into the kickoff of sales coming from Ecuador and operations in general, maybe production-wise, pricing and costs. How is the operation coming along vis-a-vis your expectations?
spk09: Yeah, I think on the expectations, you know, we're right on target for our expectations on the development in Ecuador and production costs. You know, as you know, Costs always look a little bit high when you just have one well producing. We have a fairly large pad that we're going to drill two more wells off of, and it will be used to shared facilities. So as we drill additional wells, we expect our costs to come down dramatically. But overall, as Gary mentioned, we're really excited about the prospectivity and our results to date. You know, the Trapa Norte well continues to be a strong performer, light oil, close to infrastructure. So we're very, very excited about Ecuador, and that's why we're committing to drill four wells in the second half of the year this year.
spk08: Awesome. Maybe just following up on, and mostly seeing like recent price volatility international and wider discounts, although slightly compressed in the last month and for the London crude. Are you thinking of entering any type of hedging contract or doing any changes in that area?
spk09: Yeah. Pricing has tightened quite a bit. The differentials have. Like I mentioned, Brent has been, as you know, very volatile in Q1. know is a low of 73 which is you know we're testing right now and you know as of today and a high of 87 so we expect that to remain you know brent to remain volatile in the quarter and we are looking at uh placing some hedges in for the second half of the year perfect and just um one last one um just um we've heard about some exploration license being relinquished in in the country and and
spk08: taking into account perhaps the focus on continued looking opportunities across either Colombia or elsewhere, do you see this could be some type of assets that you would be interested in, or how is that agenda in terms of opportunities moving along for Gran Tierra?
spk10: Yeah, I think you probably saw Exxon exiting some of their acreage in the Magdalena Valley It's a continuous process in Columbia. Under the current regulations, you're able to relinquish land that's non-prospective or transfer those commitments to other blocks. And for us, it's a continuous basis. I would say that we have the land that we want for the next few years. We're in the process, just started last year, the process of exploring those lands, and we're having very good success And so we're very happy with our exploration position where we sit today. And so nothing unusual going on. It's business as usual in Columbia in terms of us executing the programs that we've had underway for the last several years.
spk08: Thank you very much.
spk01: Thank you. Thank you. Our next question comes from the line of Alejandra Andrade with JP Morgan. Your line is now open.
spk05: Hi, good morning. Thank you so much for taking my question. My question was related to capital allocation going forward. We saw some bond buybacks in a small amount in the first quarter in addition to some share buybacks. Just wondering kind of what the priorities are going forward in the year and how do you envision those two programs? Thank you.
spk09: Yeah, it's a good question. I think on the allocation, I think if you look at the restrictions that we have under a normal course issuer bid, we've essentially maxed out the amount of shares that we can buy back under the normal course issuer bid, which can't be renewed until August. So really the focus will be continued strength on the balance sheet through the repurchase of bonds.
spk05: Great, thanks. Thank you.
spk01: You're welcome. Our next question comes from the line of Alejandro Domitilis with now security. Shilano, it's now open.
spk02: Yes, thank you very much. Good morning, guys. Just one clarification question, please. In your previous update, operational update on the 4th of April, you were indicating that production today for the second quarter was running at 33,700 barrels a day. But now with the update yesterday, you're indicating that that's around $32,400. So trying to understand where are those volumes kind of going out from because, as you said in the presentation, you have put more wells into production at the end of the quarter. Everything is going well. So trying to understand that difference.
spk13: Yeah, it's Rob here. If you look at our production, we've wrapped up our 10-well cordonero drilling program this year with six producers and four injectors. And we were extremely pleased with the results of our cordonero drilling program. We averaged well above tight curve at a cordonero, drilled some great wells up in the north part of the pool there. largely on swept parts of the reservoir. But those wells, new wells do tend to come on really strong and they do fall off a bit and then flatten out. So there was some flush production from those new wells. So some of those volumes you saw there were probably right at the time we're getting flushed volumes. So it's come off a little bit. And of course right now we're in the process of completing and stimulating are Castiaco drilling program wells. And we're extremely pleased with the rates we're seeing from Castiaco. So as we get those wells tested, stimulated, initially they're on jet pumps, and then we switch them over to ESP pumps. So we expect to see another boost in our production over the next few months if those wells come on production as well. So overall, we're extremely pleased with our drilling programs this year, both at Coronero and Castiaco, and Moqueta, seeing great rates in all of them. So you will see over the year, production rates will kind of bounce up and fall off a little bit as these new wells come on.
spk12: But overall, we're beating our tight curves in all our drilling programs and very pleased.
spk09: We're very comfortable with the guidance that we have out in the market. As Rob said, the drilling results have been great. A lot of times, the average production, we just put that out, we'll put a release out just to keep the market informed. And that's going to fluctuate a lot. It fluctuates a lot on a daily basis by a couple thousand barrels. So that's just the reality of it. But we're very comfortable with our average annual guidance.
spk14: So just to be clear, those five wells that you have put on production on a cordonero now have been stabilized after that kind of flash production initially coming out? Yeah.
spk13: Yeah, they're definitely stabilizing. It was six producing wells. We drilled this cordonero. There was four injectors in it. Yeah, they're definitely stabilizing now. But overall, like I said, we were well above type curves in those wells, very, very pleased with the results.
spk12: And, yeah, they're starting to stabilize now. And we still have the wells to bring on in Costa Rica as well as in Maqueda as well.
spk02: Okay, that's great. Thank you.
spk01: Thank you. Our next question comes from the line of Manuel Mundia with Aquila Asset Management AG. Your line is now open.
spk07: Yes, thank you for taking my question. And I just would like to ask, given the recent volatility, and as you already commented, the situation with the Brent, if maybe there is a chance that the guideline that you gave for 2023 may be revised downward a bit, at least in terms of free cash flow, because as we see, the discount applied to your prices went up and the prices are going down. So just a bit of color on that one, if it's possible.
spk09: Yeah, no, we think it's premature. I think that, again, if we go back to the first quarter, you know, Brent averaged 82, which was, you know, we had our budget was 85. You know, differentials were a little bit tighter than we had budgeted. But again, during Q1, Brent went a low of 73 to a high of 87. So we're 73 today. So, you know, it's a very volatile business. We're still very bullish on the supply-demand fundamentals, and we think the second half of the year is going to be very, very strong.
spk06: Okay. Thank you very much.
spk09: Thank you.
spk01: Thank you. Gentlemen, there are no further questions at this time. Please continue.
spk10: Thank you, Shannon. I'd like to thank everyone again for joining us today. We hope to see everyone shortly for our annual general meeting of stockholders and look forward to speaking with all of you next quarter. and update you on our ongoing progress. Thank you.
spk01: This concludes today's conference call. Thank you for participating. You may now disconnect.
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