Gran Tierra Energy(GTE) - 2019 Q1 - Quarterly Report

PART I Financial Statements Presents Q1 2019 unaudited consolidated financial statements, detailing $2.0 million net income and total assets of $1.82 billion Condensed Consolidated Statements of Operations (Q1 2019 vs Q1 2018) | Metric | Three Months Ended March 31, 2019 (Thousands of U.S. Dollars) | Three Months Ended March 31, 2018 (Thousands of U.S. Dollars) | | :--- | :--- | :--- | | Oil and Natural Gas Sales | $152,565 | $138,228 | | Total Expenses | $131,033 | $95,382 | | Income Before Income Taxes | $21,665 | $43,632 | | Net and Comprehensive Income | $1,979 | $17,861 | | Net Income Per Share (Basic & Diluted) | $0.01 | $0.05 | Condensed Consolidated Balance Sheet Highlights | Metric | As at March 31, 2019 (Thousands of U.S. Dollars) | As at December 31, 2018 (Thousands of U.S. Dollars) | | :--- | :--- | :--- | | Total Current Assets | $220,491 | $202,525 | | Total Oil and Gas Properties | $1,438,413 | $1,310,026 | | Total Assets | $1,824,748 | $1,676,584 | | Total Current Liabilities | $197,201 | $169,380 | | Long-Term Debt | $516,916 | $399,415 | | Total Liabilities | $799,089 | $646,834 | | Total Shareholders' Equity | $1,025,659 | $1,029,750 | - On February 20, 2019, the Company acquired interests in the Suroriente Block and Llanos-5 Block for $79.1 million cash consideration and a $1.5 million promissory note[28] - The company adopted the new lease accounting standard (ASC 842) on January 1, 2019, recognizing a $3.8 million right-of-use asset and a $4.2 million lease liability[23][27] - During Q1 2019, the company repurchased and canceled 2,586,295 shares of common stock under its 2018 and new 2019 share repurchase programs[33][34] Management's Discussion and Analysis of Financial Condition and Results of Operations Analyzes Q1 2019 financial condition and operations, highlighting 12% production growth, stable $75.5 million funds flow, and $94.5 million capital expenditures Financial and Operational Highlights Highlights Q1 2019 with 12% NAR production growth to 31,664 BOEPD, $2.0 million net income, stable $75.5 million funds flow, and new country entry into Ecuador Q1 2019 Key Metrics vs. Q1 2018 | Metric | Q1 2019 | Q1 2018 | % Change | | :--- | :--- | :--- | :--- | | Production NAR (BOEPD) | 31,664 | 28,189 | 12% | | Sales (BOEPD) | 31,833 | 27,203 | 17% | | Net Income (Millions of U.S. Dollars) | $2.0 | $17.9 | (89)% | | Funds Flow From Operations (Millions of U.S. Dollars) | $75.5 | $74.7 | 1% | | EBITDA (Millions of U.S. Dollars) | $92.5 | $88.6 | 4% | | Capital Expenditures (Millions of U.S. Dollars) | $94.5 | $72.7 | 30% | - Operating expenses per BOE increased by 37% to $12.14 compared to Q1 2018, due to higher power generation and equipment rental costs at the Acordionero Field[67] Results of Operations Analyzes operational performance, noting 12% NAR production growth, 10% sales increase to $152.6 million, and operating netback decrease to $36.08 per BOE Operating Netback per BOE (Q1 2019 vs Q1 2018) | Metric (per BOE) | Q1 2019 ($/BOE) | Q1 2018 ($/BOE) | | :--- | :--- | :--- | | Average Realized Price | $53.25 | $56.46 | | Operating Expenses | ($12.14) | ($8.89) | | Workover Expenses | ($2.20) | ($1.84) | | Transportation Expenses | ($2.83) | ($2.86) | | Operating Netback | $36.08 | $42.87 | - DD&A expenses increased to $21.96 per BOE from $16.12 per BOE in Q1 2018, due to a higher depletable cost base[87] - G&A expenses before stock-based compensation decreased by 16% on a per BOE basis to $2.75, resulting from headcount optimization and higher recoveries[88] - The effective tax rate for Q1 2019 was 91%, significantly higher than the 59% in Q1 2018 and the Colombian statutory rate of 33%, primarily due to valuation allowance, foreign translation adjustments, and non-deductible royalties[41][94][95] Capital Expenditures Q1 2019 capital expenditures totaled $94.5 million, primarily for development drilling and completions in Colombia, with 8 wells spud Q1 2019 Capital Expenditures Breakdown | Category | Amount (Millions of U.S. Dollars) | | :--- | :--- | | Exploration | $32.584 | | Development: Drilling & Completions | $53.490 | | Development: Facilities | $6.694 | | Development: Other | $1.721 | | Total | $94.489 | - In Q1 2019, the company drilled 6 development wells and 2 exploration wells in Colombia[99] Liquidity and Capital Resources Details March 31, 2019 liquidity, including $32.7 million cash and $186 million available on a $300 million credit facility, with all debt covenants met Debt and Liquidity Position (as of March 31, 2019) | Component | Amount (Millions of U.S. Dollars) | | :--- | :--- | | Cash and Cash Equivalents | $32.740 | | Revolving Credit Facility (Drawn) | $114.000 | | Senior Notes | $300.000 | | Convertible Notes | $115.000 | - The company has a revolving credit facility with a borrowing base of $300 million, of which $186 million was available to be drawn at quarter-end[103] - The company is required to maintain a debt-to-EBITDAX ratio below 4.0x (credit facility) and 3.5x (Senior Notes), and an EBITDAX-to-interest expense ratio of at least 2.5x, with all covenants met[105] - The company held commodity price derivatives for 10,000 bopd for the remainder of 2019, consisting of 5,000 bopd in purchased puts and 5,000 bopd in collars[107] Quantitative and Qualitative Disclosures About Market Risk Outlines company's exposure to market risks from volatile oil prices, foreign currency fluctuations, and interest rate changes, mitigated by derivative contracts - The company's principal market risk is from volatile oil prices, as most revenues are tied to ICE Brent[118] - Foreign currency risk arises from Colombian peso-denominated expenses and tax liabilities, and Canadian dollar-denominated G&A expenses[120] - Interest rate risk exists due to the floating interest rates on the revolving credit facility, which had an outstanding balance of $114.0 million at quarter-end[123] - The company uses commodity price and foreign currency derivative contracts to reduce cash flow volatility and provide a base level of cash flow for capital spending[119][121] Controls and Procedures Management concluded disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting during Q1 2019 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[125] - There were no material changes in the company's internal control over financial reporting during the first quarter of 2019[126] PART II Legal Proceedings Disputes with Colombia's ANH over high-price royalty calculation, with a potential liability of up to $55.6 million, though a loss is not considered probable - The company is in a dispute with the ANH over the calculation of the HPR royalty, with a potential liability of up to $55.6 million as of March 31, 2019[44] - No amount has been accrued for this contingency as management does not consider it probable that a loss will be incurred[44] Risk Factors New risk factor highlights uncertainties in Ecuador's legal, social, political, and economic environment following recent exploration rights award - A new risk factor has been identified related to the company's recent award of exploration rights in Ecuador, a country where it has not previously operated[130] - Risks in Ecuador include potential political and economic instability, changes in laws hostile to foreign investment, nationalization, and contract termination[130] Unregistered Sales of Equity Securities and Use of Proceeds Details Q1 2019 issuer purchases of 2,586,295 shares at $2.38 per share under the 2018 and new 2019 share repurchase programs Issuer Purchases of Equity Securities (Q1 2019) | Period | Total Shares Purchased | Average Price Paid per Share (U.S. Dollars) | | :--- | :--- | :--- | | Jan 1-31, 2019 | — | — | | Feb 1-28, 2019 | — | — | | Mar 1-31, 2019 | 2,586,295 | $2.38 | | Total | 2,586,295 | $2.38 | - The 2018 share repurchase program expired on March 11, 2019[133] - A new share repurchase program (the "2019 Program") commenced on March 13, 2019, allowing the purchase of up to 19,353,951 shares[134] Exhibits Lists all exhibits filed with Form 10-Q, including corporate documents, acquisition agreements, and required CEO/CFO certifications - Lists various Sale and Purchase Agreements dated February 20, 2019, for assets including Suroriente, PUT-8, and LLA-5[136] - Includes CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act[136] Signatures