Gran Tierra Energy Inc. Price & Performance (GTE)

Mr. Giffrey, please go ahead. Thank you, operator. Good morning, and welcome to Gran Tierra's Gran quarter year end twenty twenty four results [indiscernible] My name is Gary Gidrey.

Gran Tierra's President and Chief Executive Officer. And with me today Ryan Elson, our Executive Vice President and Chief Financial Officer and Sebastian Morin, our Chief Operating Officer. This morning, we issued a press release that included detailed information about our fourth quarter and year end twenty twenty four results. In addition, Gran Tierra Energy's 2024 Annual Report on Form 10 ks has been filed on EDGAR and is available on our website. Ryan and Sebastian will 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 our financial results. Good morning, everyone. We closed 2024 with record highs across all reserve categories and delivered our highest ever quarterly production in Q4. Setting a solid foundation for future growth. While 2024 was dedicated to investing in resource capture, 2025 and beyond we focus on execution. In particular unlocking the full potential of our extensive oil weighted portfolio, which holds over two ninety three million BOE of 2P reserves. We are also pleased to confirm that Gran Tierra successfully met its average production guidance target for 2024. In 2024, Gran Tierra Gran confidence in the company's future prospects by repurchasing 6.7% of our outstanding shares through our normal course issuer bid program, showing our dedication to long term shareholder value creation.

So Compared to our current 1P net asset value of $35.23 per share, repurchases remain the strategic and efficient way to return capital to our shareholders while reinforcing our commitment to long term value creation. In terms of production, Grand Tier averaged 20 achieved 2024 average working age production of 34,710 BOE per day, represented a 6% increase from 2023. Due to positive exploration results in Ecuador and two months of production caused by downtime related to workovers and deferred production from blockades in Sorrenta during the quarter. Building on the company's successful development drilling in 2024, and integrating our recently acquired Canadian assets, we expect 2025 production of 47,000 to 53,000 BOE per day. This projected 2025 production increase is expected to result from our 2025 development joint program of five to seven gross wells in Sorrente, two to three appraisal wells in Ecuador as well as six gross development wells in Canada. Turning to exploration, we plan to allocate roughly 25% of our total capital program to exploration, which equates to six to eight exploration wells in 2025. With four of those wells being allocated to Ecuador, we expect to fully meet our our Ecuador exploration commitments before the end of the year.

Recall, when we entered Ecuador, we did not pay for the land, but rather committed to drilling 14 exploration wells. At the end of the year, that commitment is fulfilled and will move to the development phase of the contracts. During 2024, Grand Pier realized net income of $3,000,000 or $0.1 compared to a net loss of $6,300,000 dollars per share in 2023. Gran Tierra's capital expenditures increased slightly by $7,700,000 or dollars or 3% to $234,000,000 compared to 2023 due to a higher number of wells drilled during the year which is fully funded by the company's 2024 net cash provided by activities of $239,000,000 The company realized adjusted EBITDA of $367,000,000 a decrease of 8% from $399,000,000 in 2023. 2024 funds from operations were $223,000,000 or $7.02 per share compared to $277,000,000 in 2023. Both of the decreases were commensurate with a decrease in the Brent prices. The company had $103,000,000 in cash and cash equivalents as at 12/31/2024, an increase compared to a cash balance of $62,000,000 at the end of twenty twenty. Three. Looking forward, Gran Tierra is targeting $600,000,000 gross debt by the end of twenty twenty six and $500,000,000 by the end of twenty twenty seven, resulting in net debt target net debt to EBITDA of less than one times.

We originally paid the remaining twenty twenty five bonds outstanding and plan to pay the 2026 amortization through cash on hand and available credit facilities. Gran Tierra's net oil sales for the year were $622,000,000 a slight decrease of 2% compared to 2023. Total 2024 operating costs were $2.00 $2,000,000 compared to $187,000,000 in 2023, representing an 8% increase, while operating expenses for Boe were $16.14 2% higher when compared to 2023. The increase in 2024 was primarily as a result of higher workovers removal of diesel subsidies in Colombia and higher natural gas and electricity costs in 2024. Despite higher operating expenses 2024, Gran Tierra effectively managed inflationary pressures, showing the resilience in cost control and maintenance activities. I'll now turn the call over Sebastian Moore to discuss some of the highlights of our current operations.

Thanks, Ryan. Good morning, everyone. Will briefly cover a few operational highlights from the press release. As well as discuss the highlights from our 2024 year end reserves. Operationally, are building off a successful year in 2024 to start off 2025 on a strong note. As Ryan mentioned, 2024 was focused on resource capture and 2025 and beyond will be focused on production growth while paying off debt. The capital program and its allocation has been formulated with that in mind.

We are excited to have commenced drilling in Colombia at the Sorrente Block.

With the first well on the Klimhimbi North pad spudding on February 10. Production is expected by the end of the first quarter of twenty twenty five. In Ecuador, are currently drilling the first exploration well of our six to eight well program with the Ijuana Sir B1 exploration well spud on February 4.

In Canada, the development plan with our new joint venture partner Logan Energy, has commenced with the first two horizontal wells being drilled at Simonette.

Both wells are currently being stimulated and expected to be on stream by the end of the first half 2025. In Q4 of twenty twenty four, we drilled five new wells in the Clearwater at East Dawson and Walrus. Has confirmed the quality of our acreage in the Clearwater play. All of the wells are now on stream and cleaning up. In addition, we're currently participating in a water flood pilot at Martin Hills with the drilling of a four lead multilateral injector, which spud on February 13. And is expected to be online in the first half of twenty twenty five.

Moving on to our year end reserves. On 01/23/2025, we are pleased to release our 2024 year end reserve report. As evaluated by McDaniel. 2024 saw the highest year end reserves in our company's history. Dollars 167,000,000 of barrel oil equivalent one peak 93,000,000 barrel oil equivalent 2P three eighty five million barrels oil equivalent 3P. And we achieved excellent reserves replacement results of 702% for 1P 1250% for 2P and 1500% for 3P. This also represented the sixth consecutive year These results are underpinned by multiple exploration discoveries in Ecuador, continued success in managing our low decline Colombian assets and our new country entry into Canada. The organic and inorganic portfolio growth creates a future runway of highly economic development opportunities and proven plays with access to infrastructure. Furthermore, with the addition of Canada, Gran Tierra is well positioned for long term commodity cycles with approximately 20% of its production, 23% 1P reserves and 26% 2P reserves now attributed to natural gas. Canada now represents 46% of 1P and 51% of 2P reserves compared to Gran Tierra's total reserves. We also achieved a year end 2024 NAV per share of $35.23 before tax and $19.51 after tax 1P and $71.14 before tax and $41.03 after tax of 2P.

Looking at where Gran Tierra's current share price trades this is a significant discount across all of the company's NAVs per share categories and why we are focused on share buybacks as a key pillar of shareholder returns. [indiscernible] [indiscernible] 3P on a per barrel basis [indiscernible] relative cost when it comes to adding barrels to the portfolio. To close, I would like to point out that with a robust and diverse portfolio of assets, with two twenty seven 1P four forty one-2P identified undeveloped well locations Gran Tierra is poised to capitalize on emerging opportunities and deliver value to all our stakeholders. As we continue to profitably advance our operational and financial goals, We remain deeply committed to the well-being of our employees and the communities where we operate. Recognizing their essential role in our success. We are looking forward to 2025 and how it sets Gran Tierra up for success for years to come. I will now turn the call back to the operator and Gary, Ryan and I will be happy to take questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session for securities analyst. Our first question comes from the line of Ann Milne with Bank of America. Your line is now open. Hi, good morning. Gary, Ryan, everyone else and the team. Thank you for the call. I have three very different questions. The first one has to do with your higher cost of sales in 2024.

Maybe you could give us an idea of going forward, if you think that will go back down to previous levels in 2025, And also incorporating, I guess, the Ecuadorian and the Canadian costs as well.

That's the first question. Second question is, if you were to look forward including these assets for '26 and 2027, where do you think you might see production at that point in time? Obviously, your reserve levels are really strong. And you do have a development program. Just looking forward a little bit more. And then the third question is, I think I've asked you this before, but maybe you could just remind me, the sale of production from all three of your regions that more from Canada. I think most of it is domestic. But maybe you could say about that, which is not domestic where it goes? Same question on Ecuador and Colombia. Obviously having in the back of my mind impact of potentially higher tariffs.

Hey, Ann, thanks for the questions. Yes, with respect to the higher costs in 2024, would you expect those to trend down in 2025. We got hit with a number of things in 2024. Part of it was removal of the diesel subsidies in Colombia, but also just the increase of natural gas and we're a buyer of natural gas to generate power. And so there were and just higher electricity costs in general across the country. So that impacted and we also have about 75% of our costs are fixed. So as we ramp up production especially in Ecuador, these are all satellite fields right now. We don't have a ton of wells drilled in Ecuador. As we move to more permanent facilities and we're starting to generate gas power in Ecuador as well, we would expect those units actually to come down, the unit cost in that quarter come down. And really, they'll probably lead the pack as far as lower operating costs. So we do expect that to decrease in 2025 and into 2026 as well. Looking out to 2026, we have guidance this year for 47,000 to 53,000 barrels.

We're quite comfortable that we can grow 5% to 10% with this asset base. A lot of that depends on capital allocation, of course. We try to get the right balance between reinvestment in the portfolio and portfolio longevity, but also having that production growth. But as you point out, we have $293,000,000 BOE of 2P reserves So I think that's a great proxy for the resource potential in the company and production profile growth in the company. And again, with 25% of that being natural gas, a lot would of that depends on natural gas prices, which obviously we expect to increase in Canada, we sell most of our production domestically. And I think what's happened, if you look at the tariff talk, obviously, there's tariff talk in Colombia as well as in Canada. We're quite well insulated. If you look what happened to all of our oil in Canada is light oil, which is consumed domestically, a lot of it is diluent. And if you look what happened to heavy oil or light oil spreads in Canada, they widened both by about $1 with the tariff talks. And what was happening in South America, differentials have tightened by $3 You know, Vasco is going $5 to $2 right now.

And so and we produce 10 times amount more production in South America than in Canada. So the diversification does help us and we'd actually be a net benefiter of tariffs to the extent that they do come in.

Okay. So The higher let's say, price because of the lower differentials, would be more than offset the potential tariff increase.

Exactly. Exactly. And also in Canada, we expect if tariffs were to come in, WTI should widen a little bit, increase, which would offset some of that, but also it would be we think it'd be quite negatively back on the K and D, which you seen the dollars at $0.7 right now. And we get paid in Canadian dollars and our costs here in dollars Okay. And where do you sell in Canada the natural gas? Natural gas, we sell domestically and we sell it to BP. Okay. So you're you were to take it all together, you expect minimal impact from tariffs if they were to be implemented?

Correct. To be honest, we think a net positive to the company.

Okay.

Thanks very much. Welcome to the country, but positive for Okay.

Thank you. Our next question comes from the line of Harrison Locke with Stifel.

Hi all. Thanks for taking my question today. Just a couple from me.

Firstly, I'm interested in the capital structure. And looking forward ahead of this year, we expect any changes here?

Secondly, how has the integration gone with the i3 asset package? Has there been any surprises here for you guys? And do you see any scope for realizing synergies over time with this? Appreciate it's a different asset base, but with the corporate stuff, if we can have some color around that, please?

Yes. I'll take the first question. Gary will take the question. When you look at our current capital structure, if you look in 2026, we have $186,000,000 maturing. So we expect fund that through cash on hand and maybe some of our available credit facilities if required. But keeping the enterprise value constant, we should see that value move over to equity holders. So we would think that's what we're targeting, I mean, reducing our total net debt as well. So we are focused on that and we think we have a great free cash flow in business to make those changes. Organically just through free cash flow.

And then on integration with i3, we're very pleased that essentially all of the team came across from i3 We completely integrated not just a Canadian asset team, integrated throughout the company. The benefit of that that really we see is a very large benefit taking things that are happening in the Western Canadian Basin to Colombia to Ecuador and vice versa, being able to bring some of our team that are operating in Colombia and Ecuador to Canada for that training. And so we see it as a huge benefit and a step forward for the company And the integration has gone quite well.

Okay. Fantastic, guys.

That's all from myself. So thank you very much.

Thank you.

Our next question comes from the line of Alejandra Andrade with JPMorgan. Your line is now open. Hi, good morning. Thanks for taking my question. I just had two questions. First, I wanted to ask, if we were to separate kind of the Colombia business versus the others, just if you could talk a little bit about discounts in Colombia specifically. And then also, I know you discussed in the past the possibility of additional committed lines. I just wanted to see kind of where were you in that process of negotiating an additional line?

Yes. Thanks for the questions. Yes, with Columbia, the Vasconia discount last year was around $5 It's narrowed to $2 and Castilla has gone from $8 to $9 to $5 to $6 So we've seen a significant tightening of those discounts And not to talk of tariff talks, a result of tariff talks on Canada and Mexico, but also just a drop in production. From Mexico as well. So you've really seen some of the heavier crudes tighten up in Colombia. As you know, there's lots of waste to get your barrels to Tidewater. So it's a natural counterparty to make up some of the shortfall seen globally on the heavies. And then as far as line, yes, we're still working on that. We expect we obviously have an undrawn facility and Canada for $50,000,000 and that's really capped at our choice just to minimize our standby costs. The borrowing base is quite a bit high. Potential borrowing base is quite a bit higher. And then we are still looking at adding on a working line for Colombia. We expect to have that closed this quarter. Or early next.

Great. Thank you so much.

Thank you.

Our next question comes from the line of Rob Mann with RBC Capital Markets. Your line is now open.

Hey, good morning team. Thanks for Just two quick ones for me here.

The first being, is there any additional information on the Iguan exploration well that you can share at this time? And secondly, although natural gas is a relatively small portion of your portfolio, you touched on it a bit there, Ryan, but just curious if you could give us your expectations for the impact of LNG Canada Phase one coming online this year?

That's all for me.

Thanks.

Great, Rob. I'll take the first one on Edwana. We've got the well cased and we're just into completion program now. So in the next coming weeks testing will be coming next.

And with respect to natural gas, yes, yes, this year, we still think natural gas to be fairly choppy. When we purchased i3, it was taking a long term view on natural gas. So I think the budget that we're using for this year is $2.5 CAD of ACO pricing. And we do have a fairly large hedge position, so we're hedged at over that level. So longer term, we're very bullish on natural gas. Short term, we expect 2025 to be a little choppy. As you point out, Shell LNG will obviously have a huge impact taking about 10% of the domestic production production to export markets.

Thank you. Our next question comes from the line of Joseph Schachter with SER. Your line is now open.

Good morning. Gary, Ryan and Sebastian. First question for Ryan. Thank you for the guidance on the debt goal net debt of $600,000,000 at the end of twenty five. If there is free cash flow above that, if prices improve, What is the goal to knock down debt faster or narrow the discount given the cheapness on the NAV. Do you see more NCIB or more debt or or kind of a balance between the two. Yes, great question. Yes, a balance between the two. Yes, we plan to put 50% of our free cash flow additional free cash flow to debt reduction and 50% to share repurchases. Okay.

One for Gary.

I gather there's an election in [indiscernible] Are we looking at issues there between right and left and politics impacting the oil patch or or is it a central government that will continue along the same way which has worked out well for you in terms of building the business there. Yes. I think the first round would just occur a couple of weeks ago. President NABOA did better than expected in the first round. Achieved a higher percentage of the vote It's going to the second round and we fully expect him to win the election going forward. And so continue with the conservative conservative approach, business friendly approach in the country.

Okay, good. A question for Sebastian. In the supporting material for the Annual Report, you break down the reserves there by country. And at the end of twenty twenty three, just under $70,000,000 for Colombia, technical revisions, production, number is 63 well, I'll say 64,000,000 at the end of the year, Is the program that you have this year able to stabilize that Or should we be modeling in declines there, but increases in Ecuador and Canada?

No, I think you should be able to model that and maintain our whole reserve replacement plan outlined for the year. So feel quite comfortable with maintaining that.

Okay.

Last one again, this one for Gary.

The market is not being rentized today to the stock.

Any thoughts there of things that can be done sell non core assets The stock was down below $7 $7.39 now.

Any thoughts there on market reaction and what you can do to get more shareholder support.

Yes. I think the one Ryan just mentioned we're going to continue buying back our stock trading at a significant We always look at non core assets to shore up number one, shore up the balance sheet but also consolidate in some other areas in Western Canada, We're doing quite well with the drill bit in Colombia and Ecuador and we'll continue that going forward. But I think the answer to your question is the only the primary tool in our toolbox [indiscernible] is to continue to buy back shares.

Okay. Thanks for the answer.

Thank you. Gentlemen, there are no further questions at this time. Please I would like to once again thank everyone for joining us today. I'd like to also take this opportunity to thank Grant Tierra team for the commitment and all of the hard work during 2024 and thanking our shareholders for their continued support.

We look forward to speaking with you in the next quarter and update you on our ongoing Thank you.

This concludes today's conference call. [indiscernible] [indiscernible]