Gran Tierra Energy Inc. (GTE) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Gran Tierra Energy, Inc. Please note that today's webcast is being recorded. [Operator Instructions] It is now my pleasure to turn today's meeting over to Robert Hodgins, Chairman of Gran Tierra Energy, Inc. Mr. Hodgins, the floor is yours.

Thank you very much. Good morning, ladies and gentlemen, and welcome to the 2020 Annual Meeting of Stockholders of Gran Tierra Energy, Inc., which is being held by webcast in light of the public health concerns related to the ongoing COVID-19 pandemic. My name is Robert Hodgins, and I'm Chairman of the Board of Directors of Gran Tierra Energy, Inc. and I'll act as the Chairman of the 2020 Annual Meeting of Stockholders of Gran Tierra Energy, Inc. I'm pleased to have you join this webcast, and I want to also open by thanking Gran Tierra's Board of Directors, all of whom are joining us virtually today and to thank you as well to the members of the Gran Tierra management team who have also joined us. Diane Phillips, our Corporate Secretary, will act this Secretary for this meeting. It's now 11:31 A.M. Mountain Time, and the meeting will now officially come to order. We will proceed with the formal business of the meeting as set forth in your Notice of Annual Meeting and proxy statement. If you need a copy of the annual report or the proxy statement, the links are provided online. The agenda and rules of conduct have been provided on the virtual meeting website and outline how we will proceed with today's meeting. As stated in the rules of conduct, if you want to -- would like to submit a question, you may do so following the instructions on the meeting website. [Operator Instructions] Thank you for your cooperation with these rules. Will the Secretary please report at this time with respect to the record date stockholders' list and the mailing of the Notice of the Annual Meeting?

We have received an affidavit signed by Computershare that notice of this meeting, along with the related proxy and annual report materials, was mailed or made available on March 25, 2020, to Gran Tierra stockholders of record as of the close of business on March 10, 2020, our record date. A list of stockholders as of the record date is available for inspection by stockholders using the registered shareholder list link found on this webcast page.

At this time, I'd like to confirm that Dmitriy Podolny of Computershare will act as Inspector of Election at this meeting. He has taken and subscribed the customary oath of office to execute the duties of the Inspector of Election with strict impartiality. The function of the Inspector of Election is to decide on the qualification of voters, accept their votes and when balloting on all matters is completed, to tally the final vote. Polls are open. If you have not voted or wish to change your vote, you may do so now by clicking on the link provided online. Stockholders who have already voted and do not want to change their vote need not to take any action at this point. Will the Secretary please report at this time with respect to the existence of a quorum?

We will now proceed with the formal business of this meeting. There are 3 proposals to be considered by the stockholders at this meeting, which I will summarize and are more fully described in the proxy statement for this meeting, which has been filed with the Securities and Exchange Commission and mailed or made available to stockholders.

The first item of business is -- sorry.

No, go ahead.

The first item of business is the election of 8 Directors to serve until the 2021 Annual Meeting of Stockholders and until their successors are elected and qualified. This proposal is described in detail in the notice of proxy circular delivered to stockholders in connection with this meeting. The nominees for Directors are: Peter Dey, Gary Guidry, Evan Hazell, Robert Hodgins, Ronald Royal, Sondra Scott, David Smith and Brooke Wade. The second item of business is the ratification of the selection by the Audit Committee of the Board of Directors of KPMG LLP as the independent registered public accounting firm of the company for the fiscal year 2020. This proposal is described in detail on our notice and proxy statement delivered to the stockholders in connection with this meeting. Third item of business today is the advisory vote on the compensation of Gran Tierra's named executive officers as disclosed in the proxy statement.

As we have not received any questions on the proposals, the online voting will now be closed. The preliminary report of the Inspector of Election covering the proposals presented at this meeting is as follows: the nominees for election to the Board, Peter Dey, Gary Guidry, Evan Hazell, Robert Hodgins, Ronald Royal, Sondra Scott, David Smith and Brooke Wade have been duly elected. The proposal to ratify the appointment of KPMG LLP as the independent registered public accounting firm of the company for 2020 has been approved. The proposal to approve on an advisory basis the compensation of Gran's Tierra named executive officers as disclosed in the proxy statement has been approved. The final voting results of today's meeting will be reported on a Form 8-K and filed with the SEC within 4 business days of this meeting.

The 2020 Annual Meeting of Stockholders has now concluded. I'd like to thank all of you for attending today's meeting and for your interest you have shown in the shares of our company. Gary Guidry, President and CEO, will now make a presentation regarding the company's recent business and then entertain questions from stockholders. [Operator Instructions]

I have them here. Thank you, Bob. My name is Gary Guidry, President and Chief Executive Officer of Gran Tierra Energy. Here with me today are Ryan Ellson, Tony Berthelet and Roger Trimble, our Chief Financial Officer, Chief Operating Officer and Vice President of Investor Relations, respectively. We hope everyone are doing okay in these challenging times that we are experiencing. I'd like to give a brief overview of Gran Tierra and some of the actions that we've taken during 2020, specifically on the COVID-19 pandemic and the large drop in oil prices. The presentation that we're about to review is available on our website at grantierra.com. Starting on Slide 4, a snapshot of Gran Tierra. The company is focused in Colombia and Ecuador and we believe are the 2 most attractive investment destinations in the oil industry in South America. All of our production and reserves are in Colombia. Our 100% high-quality conventional oil assets diversified across several basins, 95%-operated, allowing us to control timing and allocation of our capital investments. We also have significant exploration upside in both Colombia and Ecuador. Our 2019 year-end oil reserves are 142 million barrels, which gives Gran Tierra a reserves life index of 12 years. Most importantly, we have the right people and the right assets to navigate the current challenges of 2020, and we believe we'll exit the current economic turmoil stronger than before. Turning to Slide 5. 2020 has turned -- proved to be one of the most challenging in the history of the oil industry, specifically COVID-19 shutting down the global economy. In addition, a brief Saudi Arabia-Russia price war back in March ended up with a supply imbalance of 15% to 20%. To put that into perspective, in the past, 1%, 2% imbalance has caused significant volatility in the market. So it's not surprising that this imbalance of 15% to 20% has resulted in a 50% decline in Brent since January 1 to the current $30 a barrel. In response, we took swift and decisive action on 4 fronts: first, we cut our 2020 capital program; second, we temporarily suspended production at some of our higher cost oil fields; third, we entered into some additional 2020 price hedges to protect further downside in case oil prices drop even further; and fourth, we significantly reduced our operating and general and administrative costs. Switching to Slide 6. Specific examples, our executive team has taken a 20% rollback in salary. Our Board of Directors has taken a 20% rollback in retainer fees, and most of our staff have taken rollbacks in salary up to 15%. We dramatically reduced our 2020 capital program from the original range of $200 million to $220 million to $60 million to $80 million for the year. Another reason we believe Gran Tierra can withstand near-term volatility is that we have high-quality assets, conventional oil, and all our major assets are under waterflood to maximize ultimate recovery, which have low base decline rates. Turning to Slide 7. Much of our management team at Gran Tierra has worked together before. The success of our strategy comes from a focus on proven, underdeveloped conventional hydrocarbon basins that have access to existing infrastructure and are located in countries where stable economic environments in competitive fiscal regimes are the norm. Both Colombia and Ecuador check all of these boxes and are also excellent jurisdictions for us to apply our tactical approach, which is using proven technologies such as modern drilling techniques and the ability to maintain flexibility and control by allocating capital investments where they create the most value. Now to Slide 8. The biggest challenges in the world -- that the world is facing today is COVID-19 pandemic. In response, we've implemented several safety protocols throughout our operations in Colombia, Ecuador and our headquarters here in Calgary, Alberta. Our employees, contractors and local communities where we operate are of the utmost importance in where we focus. Some of our safety initiatives include medical monitoring of our field staff, who continue to operate; disinfection of vehicles and workplaces; and our new shifting strategy, which allows our people to maintain appropriate social distancing. We are frequently in contact with all levels of the government and local communities to ensure that we are aligned on protocols and that everyone are informed of our safety policies. Now to Slide 9. Sustainability is what went into the principles that guide how we operate and the culture of the company. There are lots of details in our sustainability report, which is also available on our website. During 2019, our best year in terms of safety, we continue our excellent track record in 2020. On the environmental front, our major reforestation project in the Southern Putumayo region of Colombia in partnership with Conservation International is one of our milestones. On the social front, over 90,000 Colombians have benefited from Gran Tierra's social investments during 2019. This record demonstrates to our stakeholders that we honor our commitments. Now skipping to Slide 11. A brief update on our key assets. In general, large oil-in-place, which is where we focus. 800 million barrels of original oil-in-place in our 4 biggest assets: Acordionero, Costayaco, Moqueta and Cohembi. Major capital for the infrastructure is already invested in these 4 major assets. All 4 of these assets are under waterflood, the most common proven process for enhanced oil recovery. We inject water to maximize oil recovery by maintaining reservoir pressure and sweeping oil towards all of our producing wells. Every single percentage point of increased recovery efficiency adds another 8 million barrels of ultimate recovery. On to Slide 12. This slide provides more specifics around our current oil recoveries at our 4 major assets. The range of ultimate oil recovery factors are estimated by our independent reserves auditor, McDaniel & Associates, and are -- as of the end of 2019. As you can see, we have significant running room left in our key assets. Our biggest success in 2019 on the reserves front was at Acordionero, which is by far our biggest oilfield. We used seismic and appraisal drilling to prove up an additional 40 million barrels of oil-in-place. We increased proved ultimate recovery factor in the entire field by 3 percentage points from the implementation of our full field waterflood. Combined, we added 15 million barrels of proved reserves. This example of converting probable and possible reserves into proven are an example of what we expect in the future, substantial proved reserves in our 4 key properties. On to Slide 13, some specifics at Acordionero. During the second half of 2019, we fully implemented a field-wide waterflood after expanding the field's fluid handling facilities, a major capital project for the company. As you can see, we observed strong positive pressure responses across the field. This is what McDaniel looked at when they added the reserves at the end of 2019. On to Slide 14. We are focused on protecting the long-term value of our assets. While we have temporarily shut in some of our higher cost minor fields, we are collecting valuable data from these assets. We remain committed to the proper reservoir management of Acordionero, Costayaco and Moqueta, which together represent over 80% of our proved reserves. One of the keys to value preservation is optimization of costs. For example, we've been able to drive down the cost of new wells at Costayaco by 15%, for a new oil well at $2.3 million; and at Acordionero by 20%, now costing $1.4 million. Finally, Slide 15. In summary, Gran Tierra has taken decisive action to protect our balance sheet and our cash flows, swiftly reducing our 2020 capital program and by reducing both operating and general and administrative costs. Our company has high-quality conventional oil assets with a low decline production base, a low cost structure and the ability to control and allocate the timing of our capital. By focusing on the balance sheet and protecting our long-term value preservation, we believe that Gran Tierra will exit this period of economic turmoil stronger than before. So that concludes the formal presentation, and we'll now open the line and answer any questions.

The first question comes from [ Steven Wilson ] at Charles Schwab & Co. The unsecured debt has been trading at a significant discount at par. The repurchases of the unsecured senior debt permitted under the covenants of the debt agreement, does the company intend to pursue repurchasing of unsecured debt to permitting reduced debt levels? Ryan Ellson, our Chief Financial Officer, will take that question.

Yes. As expected, we have a number of restrictions within our credit facility. As a company, we try to optimize our capital structure. And there's a number of things that we're currently looking at.

So if there are no more questions, on behalf of the Board of Directors, the executive management team and all of the team at Gran Tierra, we want to thank you for your continued support. And we continue to do our best. We will talk to everyone at the next quarterly update. Thank you very much.

This concludes the meeting. You may now disconnect.