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

Good morning, ladies and gentlemen, and welcome to the 2022 Annual Meeting of Stockholders of Gran Tierra Energy, Inc. which is being held by webcast. My name is Robert Hodgins, and I'm Chairman of the Board of Directors of Gran Tierra Energy, Inc. and will act as Chairman of the 2022 Annual Meeting of Stockholders of Gran Tierra Energy, Inc. I'm pleased to have you join this webcast, and I want to open by thanking Gran Tierra's Board of Directors who are joining us today and to thank you to the members of the Gran Tierra management team who have joined us as well. Phil Abraham, our Corporate Secretary, will act as Secretary for this meeting. It is 11:00 a.m., and the meeting has now officially come to order. We will proceed with the formal business of the meeting as set forth in your notice of your 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 would like to submit a question, you may do so by following the instructions on the meeting website. We ask that you limit yourself to 2 questions or comments and restrict your questions to matters of general interest to our shareholders. 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 Odyssey Trust Company that notice of this meeting, along with related proxy and annual report materials, was mailed or made available on March 25, 2022, to Gran Tierra's stockholders of record as of the close of business on March 8, 2022, 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 Jennifer Villareal of Odyssey Trust Company will act as inspector of the election at this meeting. She has taken and subscribed to the customary oath of office to execute the duties of inspector of election with strict impartiality. The function of the inspector of election is to decide upon the qualifications of voters, accept their votes and when balloting on certain matters is completed to tally the final votes. The 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 take any further action. Will the Secretary please report at this time with respect to the existence of a quorum?

We have been informed by the Inspector of Election that proxies have been received for 180,253,357 shares of the outstanding shares of Gran Tierra Energy, Inc. common stock. Collectively, the votes for which these proxies were received represent approximately 48.2% of the total number of votes that may be cast by the outstanding shares. This constitutes a quorum for the meeting today.

We will now proceed with the formal business of this meeting. There are 5 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 our stockholders. The first item of business is the election of 9 Directors to serve until the 2023 Annual Meeting of Stockholders and until their successors are elected and qualified. This proposal is described in detail in the notice and proxy statement delivered to stockholders in connection with this meeting. The nominees for directors are: Peter Dey, Gary Guidry, Evan Hazell, Robert Hodgins, Alison Redford, 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 2022. The 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. The fourth item of business today is the advisory vote and the preferred frequency of solicitation of stockholder advisory votes on the compensation of Gran Tierra's named executive officers' compensation as disclosed in the proxy statement and in accordance with SEC rules. The fifth item of business today is the approval of Gran Tierra Energy, Inc's. 2007 Equity Incentive Plan as amended, as more fully described in the proxy statement. [Voting]

We will now pause to address any stockholder questions we have received relating to these proposals. Seeing that there are no questions on the proposals, the polls for voting at our 2022 Annual Meeting 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, Alison Redford, 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 2022 has been approved. The proposal to approve, on an advisory basis, the compensation of Gran Tierra's named executive officers as disclosed in the proxy statement has been approved. The proposal to approve on an advisory basis solicitation of stockholder advisory votes on the compensation of Gran Tierra's named executive officers every year is carried. The proposal to approve Gran Tierra's Equity Incentive Plan, as amended, 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 within 4 business days of this meeting.

The 2022 Annual Meeting of Stockholders is now concluded. I want to thank all of you for attending today's meeting and for your interest you have shown in the affairs of our company. Gary Guidry, President and CEO, will now make a presentation regarding the company's recent business.

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 2021 and so far in 2022. Why Invest in Gran Tierra? On this slide, we summarized at a very high level what makes Gran Tierra such a great value proposition. First, we are continuing to strengthen our balance sheet by reducing our debt using free cash flow. Second, all of our core assets are under waterflood, which leads to higher oil recovery factors and lower natural decline rates, which has allowed us to achieve over 100% reserve replacement ratios over the past 2 years. Third but just as important as the first 2 points, we continue to operate in an environmentally and socially conscious manner as demonstrated by our ability to reduce our Scope 1 and 2 carbon emissions by 55% from 2019 to 2021. Fourth, in 2022, we are very excited to resume drilling potentially high-impact exploration wells in both Colombia and Ecuador, all of which will be funded by our strong free cash flow. Finally, at a corporate level, Gran Tierra has added over 108 million barrels of proven and 136 million barrels of proven plus probable reserves since our management team arrived in the company in 2015. These material reserve additions are a testament to our team's continued ability to increase the value of the company. On this next slide, we provide a company snapshot with several metrics and forecast. We have a high quality, conventional portfolio that is 100% oil, and we operate over 99% of our production giving us complete flexibility when it comes to our operational decisions. All our company production is in Colombia, and we also have a highly prospective exploration portfolio in Colombia and Ecuador. During 2021, Gran Tierra achieved a strong 148% proved developed producing and 123% total proved reserves replacement through successful development drilling, waterflood programs and enhancing field performance. At the end of 2021, our proved or 1P reserves were 81 million barrels with a net present value of $1.6 billion before tax or about USD 2.61 per share. Our proved plus probable or 2P reserves stood at 125 million barrels and an NPV of $2.4 billion or USD 4.72 per share. With these reserves and value metrics, Gran Tierra is well positioned to offer exceptional, long-term stakeholder value. On April 19 of this year, we provided updated guidance based on the strengthening of global oil prices. With our revised guidance which assumes an average Brent oil price this year of $95 a barrel, we expect operating netbacks between $50 and $52 a barrel and total cash flow between $410 million and $430 million. After accounting for our 2022 capital program, we expect to generate free cash flow of $180 million to $200 million in 2022. Even with significantly higher oil prices, we are remaining disciplined and continue to be committed to our existing 2022 capital program of $220 million to $240 million from which we have allocated $70 million to our exploration program. While we are confident in our exploration prospects, it is important to note that our production guidance of 30,500 to 32,500 barrels of oil per day does not factor in any exploration success. This next slide shows our drilling schedule. We are excited about our capital program, which includes the drilling of the first development wells in Moqueta since 2016, and our ongoing development programs in Costayaco and Acordionero which are both well underway. Our 2022 exploration program marks the start of Gran Tierra's drilling in Ecuador with 2 to 3 wells. In addition, we are excited to be restarting our exploration programs in Colombia with up to 3 wells in the Putumayo and another well in the Middle Magdalena Valley. Our team is very pleased to be restarting our exploration program after a 2-year pause because it potentially offers several high-impact catalysts over the next several months. Next slide, please. This slide illustrates how well Gran Tierra has performed in relation to its peers and Brent oil price. Since January 1, 2021, Gran Tierra share price has significantly outperformed each of the peer groups that we use to benchmark our performance. Next slide. With the increase in Brent oil pricing and our disciplined capital program, Gran Tierra is taking advantage of higher free cash flows to strengthen our balance sheet and reducing debt. In the first quarter of 2022, our funds flow was $87 million, up 201% from a year ago. Operationally, we have increased our oil production by 20% from a year ago with our development drilling programs in Costayaco and Acordionero well underway. Gran Tierra is on track to meet the midpoint of our guidance of 31,500 barrels of oil per day. Our water flooding activities in all of our major fields also continues to ramp up and increase ultimate oil recovery factors. Next slide. Gran Tierra as of today has $10 million owing on its credit facility. This represents a pay down of $57.5 million since the start of the year and $180 million since the start of 2021. We expect the remainder of the facility to be paid off by the end of June of this year. On to hedging, for Q2 2022, we have 9,000 barrels a day hedged with a weighted average floor of $75.81 and a ceiling of $87.62. This means that over 70% of our current oil production is currently reaping the full benefit of high oil prices. Gran Tierra currently remains unhedged for the second half of 2022, which would allow us for full participation in strong oil price. Next slide, please. As a management team, both at Gran Tierra and previous companies where we have worked together as a team, we've always had a strategy that focuses on jurisdictions that have proven, under-explored, conventional hydrocarbon basins; access to established infrastructure; strong, stable economic environment; and a highly competitive fiscal regime. Bottom line, both Colombia and Ecuador are excellent fits to our focused strategy as they meet all of these criteria. Next slide, please. Health, safety and environment, or HSE, is an integral part of Gran Tierra's culture, and we are always focused on operational excellence, safety and stakeholder returns. We are very proud of the fact that our safety performance is better than industry benchmarks and averages for both Latin America, North America exploration and production companies. From August 2020 to August 2021, Gran Tierra achieved 20 million lost time, incident-free person hours, a record for the company. Next slide, please. This next slide does a great job of summarizing some of our key environmental and social initiatives. In particular, we are very proud of our ability to reduce the company's greenhouse gas emissions by 55% relative to our benchmark year of 2019, which we were able to achieve through several natural gas to power projects. We are also very pleased to share with you some of Gran Tierra's many accomplishments from the past year in our 2021 Sustainability Report, which you can find on our website. From a social perspective, Gran Tierra awarded $53 million to local companies in 2021 for goods and services. And over the past 6 years, we have created over 23,000 local labor opportunities. Finally, we have had over 255,000 people participate in the benefits from our company-sponsored social programs over the past 4 years. We also continue to make progress on our programs to focus not only on being an excellent partner to communities but also leaving a permanent legacy of environmental stewardship and social responsibility in the regions where we work. Next slide, please. As mentioned earlier, our waterflooding projects continue to progress at all of our major fields, resulting in higher oil recovery factors and lower production decline rates. With around 800 million barrels of 2P original oil in place under waterflood, for every 1% increase in our recovery factors, we can expect an extra 8 million barrels of oil potential new reserves. The value created through improved oil recovery techniques, such as waterflooding is significant. And that is why we are excited about our polymer pilot project which I will discuss on the next slide. Polymer or chemical enhanced oil recovery can result in more oil being swept towards the producing wells versus waterflooding alone. That is why Gran Tierra views the polymer injection as the next logical step in a potential enhanced oil recovery program from our Acordionero and eventually, our other major fields. We are excited about what this pilot project can yield in terms of the potential for even higher oil recovery factors and oil production rates. We are expected to begin the Acordionero pilot project in early third quarter of 2022, where we plan to inject polymer in 1 of 2 waterflood patterns. The main objective of the polymer will be to determine whether this widely practiced, enhanced oil recovery technique will be successful in increasing Acordionero's ultimate oil recovery factors in remaining oil reserves. Next slide, please. Both our enhanced oil recovery and conventional development programs have allowed Gran Tierra reserves on a 1P and 2P basis to grow significantly since our management team took over in 2015. From 2015 to 2021, we have seen reserves replacement of 148% on a 1P basis and 187% on a 2P basis. Even when factoring in over 73 million barrels of oil produced over that time period, we've increased our reserves on a 2P basis from 61 million to 125 million barrels. Next slide, please. In Ecuador, during 2022, Gran Tierra expects to drill 2 to 3 exploration wells, targeting multi-zone prospects near existing fields and with access to infrastructure which has significant spare capacity. What makes Ecuador exciting is that our exploration prospects have the same geology as our Putumayo assets just across the border in Colombia, where Gran Tierra has achieved substantial success over the last several years. Just as important, our Ecuador blocks are in the heart of the already proven basin where over 6 billion barrels of oil have been produced over the last several decades. Given the close proximity, our Ecuador assets will also enjoy access to the infrastructure should discoveries be made. We are excited to be returning to exploration during 2022 and being able to offer more potential catalysts for our stakeholder value. This concludes our presentation. I thank all of you for your continued support, and we look forward to keeping you updated as we progress through 2022. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.