1 June 2020
Gran Tierra Energy Inc. Announces Completion of Credit Facility Redetermination, Additional Oil Hedges and Operational Update
CALGARY, Alberta, June 01, 2020 (GLOBE NEWSWIRE) — Gran Tierra Energy Inc. (“Gran Tierra” or the “Company”) (NYSE American:GTE)(TSX:GTE)(LSE:GTE) today is pleased to announce the completion of the semi-annual redetermination of the Company’s bank-syndicated credit facility. All dollar amounts are in United States (“U.S.”) dollars, unless otherwise indicated. The Company and the syndicate of lenders party to the credit facility have agreed to amend the credit facility (the “Amendment”) effective as of June 1, 2020, as follows:
| (i) | Redetermination of borrowing base limit to $225 million from the prior limit of $300 million; |
| (ii) | Grant of relief under financial covenants until October 1, 2021 (the “Covenant Relief Period”), including relief from compliance with the ratio of Total Debt1 to EBITDAX1 during the Covenant Relief Period; and |
| (iii) | Amendment of the interest rate to either, at the borrower’s option, the London Inter-Bank Offered Rate (LIBOR) plus a spread ranging from 2.9% to 4.9%, or base rate plus a spread ranging from 1.9% to 3.9%, with such spread, in each case, dependent upon the Company’s Senior Secured Leverage Ratio1. Based on the Company’s current Senior Secured Leverage Ratio, the interest rate would equal 3.2% under the first option and 2.2% under the second option. |
The credit facility matures in November 2022. The Amendment does not impact the Company’s current bonds outstanding.
Additional Hedges Secured, Strong Hedge Position In-Place: The Company has entered into additional oil price hedges and now has 11,000 barrels (“bbl”) of oil per day (“bopd”) hedged for the second quarter of 2020 and 9,000 bopd hedged for the second half of 2020. Gran Tierra’s current hedges are summarized in the following table:
| Type of Instrument & Period | Volume (bopd) | Sold Put ($/bbl)* | Purchased Put ($/bbl)* | Sold Call ($/bbl)* |
|---|---|---|---|---|
| Collar: April 1 to June 30, 2020 | 6,000 | n/a | $55.00 | $69.05 |
| 3-Way: April 1 to June 30, 2020 | 5,000 | $25.00 | $35.00 | $38.93 |
| 3-Way: July 1 to December 31, 2020 | 9,000 | $25.28 | $34.72 | $41.46 |
*Weighted Average
Operations Update
Current Production
Gran Tierra remains focused on the ongoing production and waterflooding of the Company’s core assets at Acordionero, Costayaco and Moqueta. Consistent with management’s expectation, during the second quarter of 2020 to-date, Gran Tierra’s total working interest production has averaged approximately 21,000 bopd.
Acordionero (100% Working Interest, Operator)
- Currently, wells awaiting workovers represent productive capacity of over 5,000 bopd; these wells are expected to remain off-line during the low-price environment; if oil markets stabilize at current levels or higher during the second half of 2020, Gran Tierra plans to commence workover operations to restore these wells to production.
- Production from the remaining wells has stabilized at 11,000 bopd during the second quarter of 2020 to-date, with downtime of only approximately 3%; the low downtime reflects excellent reliability from the field’s gas-to-power generation so far during the second quarter of 2020 to-date; the stabilization of production, with little to no natural decline, is indicative of positive reservoir response to the ongoing waterflood at Acordionero; this production provides an excellent base to grow production and cash flow from future workovers and development drilling; looking forward, Gran Tierra forecasts that future development wells in Acordionero will cost less than $2 million dollars to drill, complete and tie-in.
Ayombero (100% Working Interest, Operator)
- During the second quarter of 2020, the Company completed a pressure build up test (“PBU“) on the Ayombero-1 well, with positive results; the Ayombero-1 well first started producing on March 5, 2018, has produced a cumulative 117,000 bbl of oil to date and has been producing at an average rate of 175 bopd with no water; the estimated initial reservoir pressure was 7,772 pounds per square inch (“psi”) when Ayombero-1 first started producing and, based on the PBU, current reservoir pressure is estimated at 7,330 psi; the minimal decrease of only 6% in estimated reservoir pressure supports management’s estimate that Ayombero-1 is connected to a potentially large field.
- The Ayombero-Chuira structure is estimated to contain gross working interest mean prospective oil resources2 of 63 million bbl unrisked and 29 million bbl risked, as evaluated by the Company’s independent qualified reserves evaluator McDaniel & Associates Consultants Ltd. (“McDaniel”) in a report with an effective date of July 31, 2018.
Message to Stakeholders
Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented: “We are very pleased that our bank syndicate continues to be supportive of Gran Tierra during these volatile times. We expect the Company to have sufficient liquidity for the remainder of 2020, since we plan to spend less than anticipated funds flow from operations and have a strong hedge position. The credit facility was drawn to $204 million as at March 31, 2020 and, due to the low forecasted expenditures, the expected positive funds flow from operations at current pricing and the recovery of tax receivables in the range of $50 million to $80 million over the next six months, the Company expects the amount drawn on the credit facility to decrease by the end of 2020.
Furthermore, the waiver of the Total Debt1 to EBITDAX1 covenant until the fourth quarter of 2021 allows the Company greater flexibility to focus on value creation for all stakeholders. Ongoing tax refunds from the Colombian government are expected to further strengthen our balance sheet through the course of 2020.
We forecast that the Company currently has the productive capacity to produce over 30,000 bopd with the future completion of workovers in Acordionero, resumption of production in the Suroriente Block and restart of production from our minor fields for an expected cost of less than $10 million. We expect all shut-in fields and facilities to return to prior production levels once Brent oil prices stabilize and return to a range of $35 to $40/bbl. We continue to prioritize financial strength, liquidity and long-term value creation and believe we will exit strongly from this current period of economic turmoil.”
1 These non-GAAP measures are defined in the Credit Agreement, dated as of September 18, 2015, by and among Gran Tierra Energy Inc., Gran Tierra Energy International Holdings Ltd., the Bank of Nova Scotia, Societe Generale and the lenders party thereto, as amended (the “Credit Agreement”). The Credit Agreement and all amendments thereto are available as exhibits to Gran Tierra’s SEC filings. Total Debt means all debt of Gran Tierra and its subsidiaries party to the credit facility on a consolidated basis. EBITDAX means the sum of consolidated net income plus the following expenses or charges to the extent deducted from consolidated net income: interest, income taxes, depreciation, depletion, amortization, exploration expenses and other similar noncash charges, minus all noncash income added to consolidated net income. Senior Secured Leverage Ratio means the ratio of secured total date to EBITDAX.
2 All Ayombero-Chuira resources values and ancillary information contained in this press release have been calculated in compliance with Canadian National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101“) and the Canadian Oil and Gas Evaluation Handbook (“COGEH“) and in respect of prospective resources are based on the estimated prospective resources as evaluated by the Company’s independent qualified reserve evaluator McDaniel in a report with an effective date of July 31, 2018 (the “GTE McDaniel Prospective Resources Report“). Refer to “Prospective Resources” in this press release for more information.
Contact Information
For investor and media inquiries please contact:
Gary Guidry
President & Chief Executive Officer
Ryan Ellson
Executive Vice President & Chief Financial Officer
Rodger Trimble
Vice President, Investor Relations
+1-403-265-3221
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 and Ecuador. The Company is focused on its existing portfolio of assets in Colombia and Ecuador and will pursue new growth opportunities throughout Colombia and Latin America, leveraging our financial strength. The Company’s common stock trades on the NYSE American, the Toronto Stock Exchange and the London Stock Exchange under the ticker symbol GTE. Additional information concerning Gran Tierra is available at www.grantierra.com. Information on the Company’s website (including the Sustainability Report) 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 filings are available on the SEC website at http://www.sec.gov and on SEDAR at http://www.sedar.com and UK regulatory filings are available on the National Storage Mechanism website at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.
Forward-Looking Statements and Legal Advisories:
This press release contains opinions, forecasts, projections, expectations 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”), which can be identified by such terms as “expect,” “plan,” “guidance,” “forecast,” “project,” “will,” “forward,” “believe,” “should,” “could,” “allow” and other terms that are forward-looking in nature. Such forward-looking statements include, but are not limited to, the Company’s expectations regarding its capital program, credit facility, the recommencement of production and development activity, certain operational matters, the future cost to drill, complete and tie-in certain wells, liquidity and access to capital, future plans when oil prices increase, the state of the Company following the current period of economic turmoil, the Company’s strategies and the Company’s operations including planned operations, benefits of government programs, including government tax refunds, the impact of the COVID-19 pandemic, and the impact of disruptions to operations and the decline in industry conditions.
Statements relating to “resources” are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, including that the resources described can be profitably produced in the future. Please read “Prospective Resources” later in this press release.
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: the unprecedented impact of the COVID-19 pandemic; disruptions to local operations; the decline in oil and gas industry conditions and commodity prices; the severe imbalance in supply and demand for oil and natural gas; the unpredictability and volatility of prices and markets for oil and natural gas; the accuracy of productive capacity of any particular field; the timing and impact of any resumption of operations; unexpected problems arising due to guerilla activity or local blockades or protests in South America, where Gran Tierra’s operations are located; technical difficulties and operational difficulties, which could impact the production, transport or sale of our products; geographic, political and weather conditions, which could impact the production, transport or sale of our products; 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 ability to replace reserves and production and develop and manage reserves on an economically viable basis; the accuracy of testing and production results and seismic data, pricing and cost estimates (including with respect to commodity pricing and exchange rates); the risk profile of planned exploration activities; the effects of drilling down-dip; the effects of waterflood and multi-stage fracture stimulation operations; the extent and effect of delivery disruptions, equipment performance and costs; actions by third parties; 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 current global economic and credit market conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts, which could cause Gran Tierra to further modify its strategy and capital spending program; volatility or declines in the trading price of our common stock or bonds; the risk that Gran Tierra does not receive the anticipated benefits of government programs, including government tax refunds; Gran Tierra’s ability to comply with financial covenants under its credit facility once the Covenant Relief Period expires; Gran Tierra’s ability to reduce the amount drawn on the credit facility; 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 Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 and Annual Report on Form 10-K for the year ended December 31, 2019, many of which are beyond the Company’s control. These filings are available on the SEC website at http://www.sec.gov and on SEDAR at www.sedar.com.
The forward-looking statements contained in this press release are based on certain assumptions made by Gran Tierra based on management’s experience and other factors believed to be appropriate. Gran Tierra believes these assumptions to be reasonable at this time, but the forward-looking statements are subject to risk and uncertainties, many of which are beyond Gran Tierra’s control, which may cause actual results to differ materially from those implied or expressed by the forward looking statements. In particular, the unprecedented nature of the current economic downturn, pandemic and industry decline may make it particularly difficult to identify risks or predict the degree to which identified risks will impact Gran Tierra’s business and financial condition. 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 law.
The estimates of funds flow from operations and future production set forth in this press release 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 provided to give the reader a better understanding of the potential future performance of the Company in certain areas and 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. 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 will likely 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 operational and 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.
Disclosure of Oil and Gas Information:
BOEs have been converted on the basis of six thousand cubic feet (“Mcf“) natural gas to 1 bbl of oil. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl 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 bbl would be misleading as an indication of value.
References to a formation where evidence of hydrocarbons has been encountered is not necessarily an indicator that hydrocarbons will be recoverable in commercial quantities or in any estimated volume. Gran Tierra’s reported production is a mix of light crude oil and medium and heavy crude oil for which there is not a precise breakdown since the Company’s oil sales volumes typically represent blends of more than one type of crude oil. Well test results should be considered as preliminary and not necessarily indicative of long-term performance or of ultimate recovery. Well log interpretations indicating oil and gas accumulations are not necessarily indicative of future production or ultimate recovery. If it is indicated that a pressure transient analysis or well-test interpretation has not been carried out, any data disclosed in that respect should be considered preliminary until such analysis has been completed. References to thickness of “oil pay” or of a formation where evidence of hydrocarbons has been encountered is not necessarily an indicator that hydrocarbons will be recoverable in commercial quantities or in any estimated volume.
Certain terms used in this press release but not defined are defined in NI 51-101, CSA Staff Notice 51-324 –Revised Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities (“CSA Staff Notice 51-324“) and/or the COGEH and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and the COGEH, as the case may be.
Prospective Resources
Prospective resources are those quantities of petroleum estimated, as of a given date, to be potentially recoverable from undiscovered accumulations by application of future development projects. Prospective resources have both an associated chance of discovery and a chance of development. Not all exploration projects will result in discoveries. The chance that an exploration project will result in the discovery of petroleum is referred to as the “chance of discovery.” Thus, for an undiscovered accumulation the chance of commerciality is the product of two risk components-the chance of discovery and the chance of development. There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources.
Unless otherwise specified, estimates of the Company’s prospective resources are based upon the GTE McDaniel Prospective Resources Report. The estimates of prospective resources provided in this press release are estimates only and there is no guarantee that the estimated prospective resources will be recovered. Actual resources may be greater than or less than the estimates provided in this in this press release and the differences may be material. There is no assurance that the forecast price and cost assumptions applied by McDaniel in evaluating Gran Tierra’s prospective resources will be attained and variances could be material. There is no certainty that any portion of the prospective resources will be discovered. If discovered, there is no certainty that it will be commercially viable to produce any portion of the prospective resources.
Estimates of prospective resources are by their nature more speculative than estimates of proved reserves and would require substantial capital spending over a significant number of years to implement recovery. Actual locations drilled and quantities that may be ultimately recovered from our properties will differ substantially. In addition, we have made no commitment to drill, and likely will not drill, all of the drilling locations that have been attributable to these quantities.
The prospective resources in this press release are classified as “mean” representing the arithmetic average of the expected recoverable volume. It is the most accurate single point representation of the volume distribution.
Ayombero-Chuira Structure Prospective Resources
Estimates of the Company’s prospective resources in the Ayombero-Chuira structure are prepared by McDaniel in accordance with NI 51-101 and COGEH as of July 31, 2018. For a discussion of Gran Tierra’s interest in the Ayombero-Chuira structure, the location of the Ayombero-Chuira structure, the product type reasonably expected, and other relevant information regarding the Ayombero-Chuira structure please see Gran Tierra’s Statement of Reserves Data and Other Oil and Gas Information on Form 51-101F1 dated effective as at December 31, 2019 and the Annual Report on Form 10-K for the year ended December 31, 2019, each available on SEDAR at www.sedar.com.
Prospective resources within the Ayombero-Chuira structure are estimated based on 3D seismic and the drilling of the Ayombero-1 well, as well as production from the Chuira field. Prospective resources have been assigned to three horizons within the La Luna formation: the Galembo, the Pujamana and the Salada.
Positive factors for the Ayombero-Chuira Structure Prospective Resources include:
- Thick, good quality reservoir exists within the La Luna formation, based on testing of the Ayombero-1 well to date. Gran Tierra is currently producing oil from the Galembo member.
- The Ayombero-1 well is believed to be producing from the same structure as the wells in the Chuira field, from which Gran Tierra has existing production.
Negative factors for the Ayombero-Chuira Structure Prospective Resources include:
- The structure is complex, with potential seal risks in certain areas.
- Poor quality of data obtained in 3D seismic shoots to date.
Chance of Discovery/Development
Through an evaluation of the risks that are relevant to the Ayombero-Chuira structure prospective resources, which are described herein, McDaniel has determined that the overall chance of discovery is 51%. The corresponding chance of development is 90%.
Prospect Maturity
The prospective resources associated with the Ayombero-Chuira structure have been sub-classified as a “prospect”. COGEH defines “prospect” as a potential accumulation within a play that is sufficiently well defined to present a viable drilling target.
Other Information
Given the uncertainty of discovery associated with such prospective resources, costs and timelines to production, as well as recovery technologies, cannot be determined at this time.
Disclosure of Reserve Information and Cautionary Note to U.S. Investors
In this press release, the Company uses the term prospective resources. The SEC guidelines strictly prohibit the Company from including prospective resources in filings with the SEC. Investors are urged to consider closely the disclosures and risk factors in the Company’s Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and in the other reports and filings with the SEC, available from the Company’s offices or website. These forms can also be obtained from the SEC website at www.sec.gov or by calling 1-800-SEC-0330.