18 December 2017
Gran Tierra Energy Inc. Announces 2018 Guidance: 20 to 27% Production Growth within Cash Flow
CALGARY, Alberta, Dec. 18, 2017 (GLOBE NEWSWIRE) — Gran Tierra Energy Inc. (“Gran Tierra” or the “Company”) (NYSE American:GTE) (NYSE MKT:GTE) (TSX:GTE), a company focused on oil and gas exploration and production in Colombia, is pleased to announce its 2018 capital budget and production guidance. All dollar amounts are in United States (“U.S.“) dollars and all production volumes are on a working interest before royalties (“WI“) basis, unless otherwise indicated.
Highlights
- Gran Tierra expects 2018 average production of 36,500 to 38,500 barrels of oil equivalent per day (“boepd“), representing organic growth of 20 to 27% over 2017 year to date average production1 and an increase of 39 to 47% over 2016 average production1
Gran Tierra’s production guidance includes only forecasted volumes from existing operations and expected development projects and no volumes are assumed for any exploration success - 2018 capital budget of $250-270 million
- 2018 cash from operating activities2 forecast of $265-285 million at $57/barrel (“bbl“) Brent oil price
- Gran Tierra has significant control and flexibility on capital allocation and timing as the Company operates over 90% of its production, 15 out of its 16 blocks in the Putumayo Basin3 and 4 out of its 4 blocks in the Middle Magdalena Valley Basin (“MMV“)
With the Company’s operated, low cost, high netback, and low decline asset base, Gran Tierra’s focus is on organic production growth and drilling 30 to 35 exploration wells over the next three to five years, all expected to be funded from expected cash from operating activities2 - Based on current evaluations of the Company’s portfolio of exploration and development opportunities, Gran Tierra anticipates average annual production growth of 12 to 20% in 2019 over forecasted average annual production for 2018
- If oil prices meaningfully exceed Gran Tierra’s 2018 forecast, the resulting increase in cash from operating activities2 may be directed to accelerated capital spending, the repayment of debt or share buybacks under our previously announced Normal Course Issuer Bid; alternatively, if oil prices drop materially below the Company’s forecast, Gran Tierra has the ability to moderate the rate of spending accordingly due to the Company’s high operated interest across the asset portfolio
2018 Capital Budget and Expenses
Gran Tierra is forecasting the following ranges for the Company’s 2018 capital budget, all to be invested in Colombia:
| 2018 Budget | Forecast | Low Case | High Case | |||
| Brent Oil Price ($/bbl) | 57.00 | 45.00 | 65.00 | |||
| Cash from Operating Activities2 ($ million) | 265-285 | 220-240 | 300-320 | |||
| Total Capital ($ million) | 250-270 | |||||
| Development (19-21 gross wells) | 100-105 | |||||
| Exploration (8-11 gross wells) | 80-90 | |||||
| Facilities | 50-55 | |||||
| Seismic & Studies | 20 | |||||
- Based on the midpoint of the guidance, the 2018 capital budget is forecasted to be directed approximately 60% to development and 40% to exploration
- Approximately 30-35% of the 2018 development capital program is expected to be directed at facilities, with approximately 75% of this investment dedicated to the ongoing facilities expansion at the Acordionero field that is forecasted to increase its production capacity up to 45,000 barrels of fluid per day (“bfpd“) by end of second quarter 2018
- The 2018 capital program assumes up to 4 drilling rigs being active during the year
Gran Tierra expects approximate 2018 expenses to be in the following ranges (barrel oil equivalent = “boe“):
| 2018 Budget | Forecast |
| Brent Oil Price ($/bbl) | 57.00 |
| Expenses ($/boe) | |
| Transportation and Discount | 12.00 – 14.00 |
| Royalties | 7.00 – 8.00 |
| Operating Costs | 7.50 – 8.50 |
| General and Administrative | 2.00 – 3.00 |
| Interest and Financing | 1.00 – 2.00 |
| Taxes | 3.00 – 4.00 |
Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented “During 2017, we have successfully executed our strategy of delivering profitable organic production growth with our diversified portfolio of exploration and development assets in Colombia. Our 2018 capital budget is expected to build on the operational momentum achieved by our team in 2017 and to be fully funded from cash from operating activities2. With our returns-focused capital program, we plan to deliver strong organic production and reserves growth as we drill development and exploration oil wells throughout our extensive Colombian opportunity set. With our robust portfolio of reserves, we have the ability to adjust the pace of development to changes in the oil price. We can accelerate our cash flow funded capital program if oil prices increase significantly in 2018 or decrease capital investment if oil prices drop materially below our forecasts.
“In the Middle Magdalena Valley Basin (“MMV“), we anticipate an ongoing ramp-up in production at our Acordionero field, where results to date have exceeded our original expectations. At Acordionero, we expect to continuously drill both production and water injection wells throughout 2018 and beyond, while fully implementing a waterflood program for enhanced oil recovery during 2018. We also plan to be generating our own power from associated natural gas production and injecting water from non-potable subsurface water production.
“In the Putumayo Basin, we expect to further delineate the exciting A-Limestone and N-Sandstone plays by continuing to drill a mix of development, appraisal and exploration wells. With the key acquisitions completed in 2016, we believe Gran Tierra is well positioned in the most prospective fairways of this proven, under-explored basin. We are the largest landholder in the Putumayo Basin with 16 blocks and approximately 1.1 million gross acres (0.9 million net acres) of land and our extensive and proprietary seismic database allows optimization of capital allocation and focused regulatory approval.
“Today, we are also announcing strategic farm-ins on the Alea 1848-A and 1947-C Blocks in the Putumayo Basin which will increase Gran Tierra’s WI in both blocks to 75% and designate the Company as operator.3 The Alea farm-ins are a continuation of Gran Tierra’s focused strategy of further building our high-quality, diversified portfolio to efficiently create value in the multi-horizon, proven hydrocarbon producing basins of Colombia. We expect these farm-ins to provide drill-ready prospects targeting the multi-zone potential of the N, U and T Sands and the A-Limestone. This further consolidation of our commanding land position in the prolific Putumayo Basin will add additional prospective resources to Gran Tierra’s portfolio and enhance our ability to execute the drilling of exciting exploration prospects over the next three to five years.
“We believe that Gran Tierra has a self-funding sustainable business model with the portfolio to deliver significant growth in per share values in terms of net asset value, production, reserves and cash flow. We operate and control virtually all of our exploration and development program, which provides flexibility in our capital expenditures. We will continue to review and evaluate our capital spending program with a strict and disciplined focus on returns.”
Additional Details of 2018 Capital Budget
2018 Development Capital Budget ($155 – $165 Million)
- Acordionero (MMV):
Drill 12 wells: 8 development, 3 water injection and 1 water source
Central processing facility expansion: increase water injection capacity up to 40,000 barrels of water per day, fluid handling capacity up to 45,000 bfpd and truck loading capacity up to 30,000 barrel of oil per day (“bopd“)
Expand gas to power project using associated natural gas production
Waterflood implementation expansion: previous injectivity and facility pilot tests proven successful and waterflood now into full development
In 2018, the field is expected to generate free cash flow
In 2019, there are no major facility costs expected in Acordionero and, with a higher anticipated production base in 2019, the field is expected to generate significant free cash flow - Putumayo Basin and Minor Fields:
Drill 7-9 development wells
8-10 workovers/reactivations and stimulations
2018 Exploration Capital Budget ($95 – $105 Million)
Gran Tierra’s 2018 exploration program is targeted mainly at drilling in proven basins with known oil accumulations and stacked pays. The Company believes that this approach increases chances of success and significantly lowers the risk of drilling dry holes.
- Putumayo Basin:
Drill 5-6 exploration wells targeting prospects with multi-zone potential, including carbonates (A, B and M2 Limestones) and N Sand
Commence three 3D seismic surveys covering a total of approximately 250 square kilometers - Llanos Basin:
Drill 1-2 exploration wells - MMV:
Drill 1-2 exploration wells - Sinu Basin:
Drill 1 exploration well
2018 Hedging Program
Gran Tierra has 10,000 bopd of oil hedges in place for 2018, representing approximately 26-27% of forecasted production. These ICE Brent hedges are composed 50% of swaps (weighted average floor of $55.90/bbl) and 50% of participating swaps (weighted average floor of $52.50/bbl, weighted average call of $56.11/bbl); the participating swaps allow Gran Tierra to participate in 100% of the upside over the call strike while retaining a firm floor price. Foreign exchange hedges are also in place on approximately 27% of expected Colombian peso (“COP“) exposure. These hedges are collars with a floor of 3,000 COP/U.S. dollar (“USD“) and a weighted average cap of 3,107 COP/USD.
Strategic Farm-Ins: Alea 1848-A and 1947-C Blocks, Putumayo Basin (Gran Tierra 75% WI and Operator)3
Gran Tierra has entered into two agreements to acquire, subject to approval from the Agencia Nacional de Hidrocarburos (“ANH“), additional WI’s in the Alea 1848-A and 1947-C Blocks in the Putumayo Basin. Under the terms of the agreements, Gran Tierra will increase its position to 75% WI in each of the blocks and will carry the farmor on current contract phase obligations, to a combined maximum of $4.8 million. The applications for approval to be submitted to the ANH will include the appointment of Gran Tierra as operator of these blocks.
The Alea 1848-A & 1947-C Blocks are expected to provide drill-ready prospects targeting the multi-zone potential of the N, U and T Sands and the A-Limestone. Gran Tierra has already mapped several prospects on existing Company 2D and 3D seismic data.
1Colombia only, adjusted for sale of Brazil assets effective June 30, 2017; average 2017 Colombia only production through September 30, 2017 was 30,398 boepd.
2“Cash from operating activities” refers to the GAAP line item “net cash provided by operating activities”.
3Subject to ANH regulatory approval; Gran Tierra currently operates 13 of its 16 blocks in the Putumayo Basin; after approval of the Alea farm-ins, Gran Tierra would operate 15 of its 16 blocks in the Putumayo.
Contact Information
For investor and media inquiries please contact:
Gary Guidry
Chief Executive Officer
Ryan Ellson
Chief Financial Officer
Rodger Trimble
Vice President, Investor Relations
403-265-3221
info@grantierra.com
About Gran Tierra Energy Inc.
Gran Tierra Energy Inc. together with its subsidiaries is an independent international energy company focused on oil and natural gas exploration and production in Colombia. The Company also has business activities in Peru, which are expected to be sold pursuant to an agreement dated November 9, 2017, subject to certain conditions, including a successful financing by the purchaser. The Company is focused on its existing portfolio of assets in Colombia and will pursue new growth opportunities throughout Colombia, leveraging our financial strength. The Company’s common shares trade on the NYSE American and the Toronto Stock Exchange under the ticker symbol GTE. Additional information concerning Gran Tierra is available at www.grantierra.com. Information on the Company’s website does not constitute a part of this press release. Investor inquiries may be directed to info@grantierra.com or (403) 265-3221.
Gran Tierra’s Securities and Exchange Commission (“SEC“) filings are available on the SEC website at http://www.sec.gov and on SEDAR at http://www.sedar.com.
Forward Looking Information Advisory
This press release contains opinions, forecasts, projections, and other statements about future events or results that constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and financial outlook and forward looking information within the meaning of applicable Canadian securities laws (collectively, “forward-looking statements“). All statements other than statements of historical facts included in this press release regarding our financial position, estimated quantities and net present value of reserves, business strategy, plans and objectives for future operations, capital spending plans and those statements preceded by, followed by or that otherwise include the words “believe”, “expect”, “intend”, “anticipate”, “forecast”, “budget”, “will”, “estimate”, “target”, “project”, “goal”, “plan”, “should” or similar expressions are forward-looking statements. Such forward-looking statements include, but are not limited to, the Company’s capital budget, drilling and capital program including the changes thereto along with the expected costs and the allocation of capital and drilling including trends, infrastructure schedules and the expected timing of certain projects and the portion of the capital program being represented by Colombia; the Company’s operations; future projected or target production and the growth of production including the product mix of such production and expectations respecting production growth, expected future net cash provided by operating activities (described in this press release as “cash from operating activities”); our strategy regarding changing oil prices; expected cost savings; anticipated capital expenditures, including the location and impact of capital expenditures, our business strategies; our ability to grow in both the near and long term and the funding of our growth opportunities; the plans, objectives, expectations and intentions of the Company regarding production, exploration and exploration upside, development; Gran Tierra’s financial position including liquidity and financial capacity, and the future development of the Company’s business. The forward-looking statements contained in this press release reflect several material factors and expectations and assumptions of Gran Tierra including, without limitation, that Gran Tierra will continue to conduct its operations in a manner consistent with its current expectations, the accuracy of testing and production results and seismic data, pricing and cost estimates (including with respect to commodity pricing and exchange rates), rig availability, the effects of drilling down-dip, the effects of waterflood and hydraulic stimulation operations, the extent and effect of delivery disruptions and the general continuance of current or, where applicable, assumed operational, regulatory and industry conditions including in areas of potential expansion, the receipt of approval from the ANH and the ability of Gran Tierra to execute its current business and operational plans in the manner currently planned. Gran Tierra believes the material factors, expectations and assumptions reflected in the forward-looking statements are reasonable at this time but no assurance can be given that these factors, expectations and assumptions will prove to be correct.
Among the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements in this press release are: sustained or future declines in commodity prices and potential resulting future impairments and reductions in proved reserve quantities and value; Gran Tierra’s operations are located in South America, and unexpected problems can arise due to guerrilla activity; technical difficulties and operational difficulties may arise which impact the production, transport or sale of our products; geographic, political and weather conditions can impact the production, transport or sale of our products; the risk that current global economic and credit conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts; the ability of Gran Tierra to execute its business plan; the risk that unexpected delays and difficulties in developing currently owned properties may occur; the timely receipt of regulatory or other required approvals for our operating activities; the failure of exploratory drilling to result in commercial wells; unexpected delays due to the limited availability of drilling equipment and personnel; the risk that oil prices could decline, or current global economic and credit market conditions may impact current oil prices or expectations regarding future oil prices and oil consumption, which could cause Gran Tierra to further modify its strategy and capital spending program; and the risk factors detailed from time to time in Gran Tierra’s periodic reports filed with the Securities and Exchange Commission, including, without limitation, under the caption “Risk Factors” in Gran Tierra’s Annual Report on Form 10-K filed March 1, 2017 and its other filings with the SEC. These filings are available on the SEC website at http://www.sec.gov and on SEDAR at http://www.sedar.com. Although the current guidance, capital spending program and long term strategy of Gran Tierra is based upon the current expectations of the management of Gran Tierra, should any one of a number of issues arise, Gran Tierra may find it necessary to alter its business strategy and/or capital spending program and there can be no assurance as at the date of this press release as to how those funds may be reallocated or strategy changed and how that would impact Gran Tierra’s results of operations and financing position.
All forward-looking statements are made as of the date of this press release and the fact that this press release remains available does not constitute a representation by Gran Tierra that Gran Tierra believes these forward-looking statements continue to be true as of any subsequent date. Actual results may vary materially from the expected results expressed in forward-looking statements. Gran Tierra disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities laws. Gran Tierra’s forward-looking statements are expressly qualified in their entirety by this cautionary statement.
The estimates of future production, net cash provided by operating activities (described in this press release as “cash from operating activities”) and certain expenses may be considered to be future-oriented financial information or a financial outlook for the purposes of applicable Canadian securities laws. Financial outlook and future-oriented financial information contained in this press release about prospective financial performance, financial position or cash flows are based on assumptions about future events, including economic conditions and proposed courses of action, based on management’s assessment of the relevant information currently available, and to become available in the future. In particular, this press release contains projected operational information for 2018 and 2019. These projections contain forward-looking statements and are based on a number of material assumptions and factors set out above. Actual results may differ significantly from the projections presented herein. These projections may also be considered to contain future-oriented financial information or a financial outlook. The actual results of Gran Tierra’s operations for any period could vary from the amounts set forth in these projections, and such variations may be material. See above for a discussion of the risks that could cause actual results to vary. The future-oriented financial information and financial outlooks contained in this press release have been approved by management as of the date of this press release. Readers are cautioned that any such financial outlook and future-oriented financial information contained herein should not be used for purposes other than those for which it is disclosed herein. The Company and its management believe that the prospective financial information has been prepared on a reasonable basis, reflecting management’s best estimates and judgments, and represent, to the best of management’s knowledge and opinion, the Company’s expected course of action. However, because this information is highly subjective, it should not be relied on as necessarily indicative of future results.
Oil and Gas Disclaimer
BOEs have been converted on the basis of 6 thousand cubic feet (“Mcf”) of natural gas to 1 barrel of oil. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 barrel is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared with natural gas is significantly different from the energy equivalent of six to one, utilizing a BOE conversion ratio of 6 Mcf: 1 barrel would be misleading as an indication of value.