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 meeting is being recorded. Today's discussion may include certain forward-looking information, oil and gas information and non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important advisories and disclaimers with regard to this information for your reconciliation of any non-GAAP measures discussed in today's annual meeting. Finally, this annual meeting webcast is the property of Gran Tierra Energy. Any copying or rebroadcasting of this webcast is expressly forbidden without the written consent of Gran Tierra Energy. We will start the meeting with the company presentation by Gary Guidry, President and CEO. After the presentation, we'll have a general question-and-answer session. You can submit questions or comments at any time by clicking on the message icon. We will then proceed with the formal portion of the annual meeting. It is now my pleasure to turn today's meeting over to Gary Guidry of Gran Tierra Energy, Inc. Mr. Guidry, the floor is yours.

Thank you, operator. Hello, everyone, and welcome to Gran Tierra's Virtual Annual General Meeting. I'm Gary Guidry, President and CEO, and I'm pleased to provide you with a brief overview of the company and our performance during 2020 and so far in 2021. This slide deck is also available on our website at grantierra.com. For those of you that are new to Gran Tierra, we are 100% oil, we're diversified into several high-quality basins, we're 95% operated and focused in Colombia and Northern Ecuador. You can see from the table in the center that we have a proven plus probable reserve base of 133 million barrels, a net present value of $2 billion, which is equivalent to a net asset value before tax of $3.25 per share. All of the numbers that I will talk about today are U.S. dollars. You will also see from our press release yesterday that we've reaffirmed our production guidance of 28,000 to 30,000 barrels per day. And we also increased our financial outlook that is due to an increase in Brent prices compared to our budget when we originally forecasted, and hedges, price hedges that we put on in the second half of 2021. At the bottom of the table, you can see an increase in cash flow to $205 million to $225 million, a 35% increase for the year. You can also see that we're continuing to hold our capital program at $130 million to $150 million, which is our financial discipline in -- for the year. Next slide. 2020 was a challenging year for the world, for the industry and for Gran Tierra, but we're very proud of our team and the way we've handled the pandemic and the volatile oil prices during the year. In terms of the pandemic, our safety protocols allowed our people to continue operating in the communities where we operate and safely continue operating fields throughout the year. We also preserved our financial strength in a challenging time, decreasing our year-over-year operating and G&A cost by 39% or $92 million. We collected over $114 million in direct taxes through refunds and value-added tax on our oil sales. We successfully redetermined our and reinstituted our reserve-based lending facility, which is a testament to the strength and quality of our reserve base. We've reduced our operating and our capital cost, which is extremely important, and I'll talk about in subsequent slides. We also delivered on operational targets. Safety. It was our first year as a company to have a 0 lost time incidents, which is 15 million man-hours LTI-free. We also had material reserve additions during the year where -- including a year where we suspended our capital program, replacing 100% of our proven -- our production and our proven reserve category at a finding and development cost of $2.65. We also continued in our large high-quality waterflood assets, our reservoir management programs, which is extremely important and reflected in our year-end reserves increases. Moving on to 2021. It's really a year of returning to value growth for the company. In the first quarter, we had several financial achievements. First of all, for the year, a laser-sharp focus on reducing the debt that we used to purchase assets and build the infrastructure that's currently in place in our largest assets. We also have significant and structural cost reductions in both operating and transportation and our capital program, our capital investment. OpEx was reduced 19% year-over-year. We believe that a lot of that is permanent reductions in what we're doing. In terms of operational achievements, at the Acordionero field, we're at the highest production level since September of 2019. That's implementing our water injection and water flooding program, and going very well. At Costayaco, we've continued to reduce our drilling costs, and Moqueta and Suroriente resumed production. Extremely important to reduce our capital drilling and development costs to continue optimizing and increasing value and reserves in the future. We're on track to deliver strong results in 2021. Our revised guidance are due to strong Brent prices, but also hedges that we put on for the second half of 2021. You've seen the -- $205 million to $225 million of cash flow that we're forecasting but also a substantial increase in free cash flow, $65 million to $85 million. That acceleration in profitability will be used to reduce our debt. And we expect by the end of 2021, for RBL, reserve-based lending facility, to be down to $70 million to $90 million. We'll also continue to optimize waterfloods and more importantly, value and increased recoveries. From this chart, you can see that we have no near-term maturities in our debt. Our reserve-based lending facility is at $180 million. And as I mentioned, we expect to have that by the end of this year. We also have hedges in place. You can see from the table at the bottom of the page, we have 10,000 barrels a day hedged for the second half of the year, with a floor of $57 and a ceiling of $65, and the rest of our production is unhedged going into the second half of the year. Gran Tierra is uniquely positioned for value creation. Number one, a sustainable business model with significant booked reserves, we focus on 2P and 3P. Probable and possible reserves and large waterflood projects where the container or the total oil in place has been determined really boils down to good asset management and continuous increase in the recovery of those reserves. Robust free cash flow, a flexible and supportive government at Colombia has been very helpful, and sustainability in the country, disciplined financial strategy, prudent and discretionary capital programs are there because we operate 95% of our assets. Extremely important that we're able to allocate capital to the right places but also the timing. World-class developments. The Acordionero field, in particular, is very high-quality asset, but also we're in Colombia and in Ecuador because of the low-risk exploration potential, not only the potential but having in-house the seismic, the well data and all of the information we need to execute a program in basins where you have 6 to 7 different horizons to explore for. And finally, going beyond compliance. To us, that's a culture without -- within the entire company, where we don't just follow the rules, we do what's right and do what's right for the environment, for safety and for all people in the communities where we operate. Key objectives for 2021. One of the important things that is the top line, getting our operating netback. You can see from this table, from hedges in place and from the increase in Brent pricing, we have a 50% increase in our operating netback. You can also see that, again, capital discipline, we're sticking with our $130 million to $150 million. And you can see the RBL balance halving by the end of the year, $70 million to $90 million. And we still anticipate drilling 14 to 18 wells. What you can see from the bottom table is the cost structure and the profitability, we're very comfortable in the robustness of the fiscal terms that we have and the assets that we have to back that up. This is a snapshot of Gran Tierra's strategy. We're in Colombia and Ecuador because they fit our strategy. In particular, we're in proven under-explored hydrocarbon basins with established infrastructure and access to markets, strong, stable economic environment with a history and competitive fiscal regime. That strategy has led us to Colombia and to Ecuador, and it's allowed us to apply our tactics. And most importantly, being an operator allows us to apply proven technology, it allows us to allocate capital to the right places at the right time and also focus on our balance sheet. This slide really is a summary of everything you read in the news today about fossil fuels, about climate change. And the one thing I can tell you is we're committed as a company to supply oil and gas and the critical energy to -- and consumer products to society until viable alternatives are found. But the caveat there is it needs to be adaptive, efficient and sustainable. If you look at the EIA (sic) [ IEA ], the energy -- International Energy Agency's forecast on the left, oil is going to be a part of the energy mix for decades to come. With supplying energy needs, we also have to maximize value and our contribution to the E&P -- as an E&P company to shareholders. The second part is social investments, meaningful and sustainable impact in the communities and the countries where we operate and continuous improvement, improvement in terms of excellence, in terms of safety, And in terms of reducing emissions on a continuous basis. I won't outline all of the things that we're doing because they're very well documented in our sustainability report on our website. This slide really is to summarize, it's not just about operatorship, it's about what you do with it. Capital allocation and the principles and framework that we use at Gran Tierra. The first is a disciplined approach to managing leverage. The most important is to be able, in any environment, to fund your projects internally. And the second part of that is to manage our net debt-to-EBITDA to less than 1.5x. That's our target for 2022, and we're comfortable that we'll get there. The second part is returns-driven capital allocation. All of our projects compete for capital with the entire portfolio, and our target is an after-tax return, internal rate of return of 20%. And the final is to generate free cash flow. We're very comfortable in our cash flow and free cash flow estimates over the next 5 years, and it is quite substantial. Finally, health, safety and environment is a priority at Gran Tierra. Our achievements in 2020, I mentioned our first year of 0 lost time incidents in terms of -- as a company. That's 15 million person-hours. That includes -- that's in a year of a pandemic and a year where you're doing things that are not routine, such as suspending oilfields and restarting them, demobilizing drilling rigs and workover rigs and remobilizing those. They're all high-risk activities, and we're extremely proud of our record in a year where -- a year such as 2020 to have 0 LTI. And a robust response to COVID-19, protocols immediately put in place by our team has allowed us to continue operating throughout the year. The next slide is a snapshot of our ESG, our fact sheet. And what I'll tell you is for 6 years since our Board of Directors and management team had joined Gran Tierra, and every employee in the company, we focused on everything on this sheet. Starting with our flagship over 5 years of reforestation with Conservation International. The estimates in the center of the table, 8.7 million tons of CO2 reduction throughout the life of that project is quite impressive. You can see the statistics, the equivalent statistics to that. And we did not do that, that project, for any other reason than it's the right thing to do. It's the culture of the company, and it's the way we operate. Safety, we've talked about. We've had our best safety record in the company's history, and we fully intend to continue that. Emissions. One of the big things we do as a company is try to focus on sustainable long-term power generations. One of our main consumptions -- components of our operating cost, and a big way to do that is to generate your own electricity. It's a big commitment to -- big capital commitment to put the power generation and all the facilities to process the natural gas, especially in a remote location, but it's extremely effective in reducing diesel consumption. And it is also a way to consume natural gas and remove ourselves from the power grid in areas that aren't so remote. You can see on the top right, we've impacted over 214,000 people with our social programs, and we're quite proud of that. We've invested over $39 million to local companies in 2020. And our record of governance speaks for itself. ISS publish their ratings across the board, but you can see some of the highlights. I'll also refer you to our sustainability report, which can be accessed at grantierra.com/esg. That's the end of the presentation, and we'll open the floor to questions.

[Operator Instructions]

Okay. As there are no questions, we'll now proceed with the formal portion of our Annual General Meeting. We've been informed by the inspector of election that proxies have been received for 168,914,286 shares of the outstanding shares of Gran Tierra Energy common stock. Collectively, the votes for which these proxies were received represent approximately 46% of the total number of votes that may be cast by outstanding shares. As this does not constitute a quorum for the meeting to proceed today, we will adjourn the Annual General Meeting until 1:30 p.m. on Wednesday, June 2, 2021, to provide the company's stockholders additional time to vote their shares. The record date for determining stockholders' eligibility to vote for the Annual General Meeting, will remain the close of business on March 9, 2021. Stockholders who have already submitted a proxy do not need to vote again for the rescheduled Annual General Meeting, as proxies submitted will remain valid. Stockholders who have already submitted proxies and want to change their votes can update their vote in the manner set forth in the proxy statement dated March 25, 2021, and available on the company's website or sec.gov website. Your vote will be recorded at the rescheduled Annual General Meeting in accordance with your most recently submitted proxy. We will issue a press release with all of the details to attend the rescheduled meeting, which will be held virtually. Thank you for participating today, and I would encourage you to refer to our press release issued yesterday, May 4, 2021, and our updated corporate presentation, both of which can be found on our website at grantierra.com. Both documents provide an overview of the excellent financial and operating results, which Gran Tierra has achieved so far in 2021. Thank you.

This concludes the meeting. You may now disconnect.