Gran Tierra Energy Inc. (AMEX:GTE) Q4 2023 Earnings Call Transcript February 20, 2024
Gran Tierra Energy Inc. beats earnings expectations. Reported EPS is $0.23, expectations were $-0.13. GTE isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, ladies and gentlemen. Welcome to Gran Tierra Energy’s Conference Call for Fourth Quarter and Year-End 2023 Results. My name is Olivia, and I’ll be your coordinator for today. At this time, all participants are on a listen-only mode. Following the initial remarks, we will conduct a question-and-answer session for securities analysts and institutions. Instructions will be provided at that time for you to queue for your questions. I would like to remind everyone that this conference call is being webcast and recorded today, Tuesday, February 20, 2024, at 11:00 a.m. Eastern Time. 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 and for reconciliations of any non-GAAP measures discussed on today’s call. Finally, this earnings call is the property of Gran Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry, please go ahead.
Gary Guidry: Thank you, operator. Good morning and welcome to Gran Tierra’s fourth quarter and year-end 2023 results conference call. My name is Gary Guidry, Gran Tierra’s President and Chief Executive Officer; and with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer; and Sebastien Morin, our Chief Operating Officer. This morning, we issued a press release that included detailed information about our fourth quarter and year-end 2023 results. In addition, Gran Tierra’s 2023 annual report on Form 10-K has been filed on EDGAR and is available on our website. Ryan and Sebastien will make a few brief comments, and then we will open the line for questions. I’ll now turn the call over to Ryan to discuss our financial results. Ryan, please go ahead.
Ryan Ellson: Good morning, everyone. We are delighted to announce that Gran Tierra successfully achieved its targets for 2023 in terms of production, funds flow from operations and free cash flow. These milestones underscore the quality of our assets and our unwavering commitment to operational excellence. Our focused efforts on asset development have yielded strong performance across various key metrics. Additionally, in 2023, we showcased our confidence in Gran Tierra’s future prospects by our purchasing 6.8% of our outstanding shares through our normal course issuer bid or NCIB program, demonstrating our dedication to create long-term shareholder value. We’re currently trading at a discount to our proved developed producing or PDP net asset value per share by about 46%.
Our average cost per each share purchase was $7 per share. Our many achievements during the year result in year-over-year production growth of 6%, strong reserves replacement ratios well above 100%, and the highest 1P, 2P and 3P year-end reserves in the company’s history. In another major milestone in 2023, Gran Tierra issued $488 million of new 9.5% senior secured amortizing notes due 2029 in exchange for its existing notes to improve our balance sheet, reduce overall leverage and provide additional financial flexibility by extending the maturity schedule to better align with expected future cash flows. Approximately 92% of holders’ bonds were exchanged, highlighting the support from bondholders. Subsequent to year-end, Gran Tierra issued an additional $100 million of 9.5% senior secured amortizing notes due 2029.
The company used a portion of these proceeds to repay $50 million of borrowings outstanding under our credit facility, which subsequently was terminated. Despite a net loss of $6 million in 2023, Gran Tierra achieved return on average capital employed of 15%, showcasing solid performance in capital utilization. Gran Tierra’s capital expenditures were at the low end of our guidance at $219 million, fully funded by funds flow from operations of $277 million or $8.27 per share, resulting in free cash flow of $58 million or $1.73 per share, demonstrating effective financial management and positive cash generation. Although 2023 adjusted EBITDA decreased by 17%, the company realized adjusted EBITDA of close to $400 million, indicating substantial operational resilience amid challenges with volatile oil prices.
Gran Tierra’s net sales for the year were $637 million compared to $711 million in 2022. This decrease was primarily driven by a 17% decrease in Brent price at higher Castilla and Vasconia differentials, partially offset by 7% higher sales volumes and lower transportation discounts in 2023. Despite a higher operating expenses in 2023, Gran Tierra effectively managed inflationary pressures, showcasing resilience in cost control and maintenance activities. One final item I would like to highlight was the successful completion of the Suroriente continuation agreement. By securing the continuation, Gran Tierra is committed to long-term capital projects and development programs with plans of optimizing oil recovery and value for the Suroriente Block.
A pipeline snaking through a desert canyon, representing a energy's transport infrastructure.
We believe the combination of Gran Tierra’s robust operational expertise in the Putumayo Basin and Ecopetrol’s technical knowledge will continue our joint success in the development of our Suroriente Block. I’ll now turn the call over to Sebastien Morin to discuss some of the highlights of our current operations.
Sebastien Morin: Thanks, Ryan. Good morning, everyone. I’ll briefly cover a few operational highlights from today’s press release as well as our recent press release regarding 2023 year-end reserves. Operationally, we are building off a successful year in 2023 to start off 2024 on a strong note. Since December 2023, Gran Tierra has drilled 4 oil wells in the Costayaco field in which we are seeing excellent initial production results. The first well Costayaco-56 has been on production since early January and has been producing a stable average rate of around 1,900 barrels of oil per day and a 2% water cut. A second well, Costayaco-57 was spud on January 6th and brought on production in late January. It has been producing at a stable average rate of around 1,100 barrels of oil per day and a 10% water cut. The third well [Technical Difficulty]
Operator: Ladies and gentlemen, pardon the interruption, speaker has been disconnected. Please hold while we reconnect the speaker.
Sebastien Morin: Being drilled and will be followed by the final well, Acordionero-128. All wells from this development program are expected to be drilled, completed and on production before the end of the first quarter of the year. Back down in the Southern Putumayo Basin, Gran Tierra intends to commence development drilling in the Cohembi oil field located in the Suroriente Block during the later half of the year. We plan to expand the block’s production facilities, increased gas power generation, construct new development well pads and make social investments in the area, all with the goal of substantial production growth in 2025 and 2026. From an exploration perspective, around 40% to 45% of Gran Tierra’s 2024 capital program will target high-impact, near field and low-risk exploration activities, including the drilling of six to nine exploration wells in Colombia and Ecuador, signifying our dedication to unlocking potential new reserves and fostering sustainable production growth.
Building on promising results from the 2022 exploration program, we plan to focus on short cycle time prospects in proven basins with established transportation infrastructure. In addition, as part of our 2024 capital program, we are currently in the early phases of execution to acquire 238 kilometers square of 3D seismic over the Charapa block in Ecuador and to pre-invest in advancing drilling licenses building pads for the 2025 exploration program in Colombia and Ecuador, which will set the stage for future growth opportunities for the company. On January 23rd, 2024, we were pleased to release our 2023 year-end reserve report as evaluated by McDaniel. 2023 saw the highest year-end reserves in our company’s history. 90 million barrels of oil equivalent 1P, 147 million of barrel oil equivalent 2P and 207 million barrels of oil equivalent 3P, and we achieved excellent reserve replacement of 154% 1P, 242% 2P and 303% 3P.
This also represented the fifth consecutive year that we achieved the 1P reserve growth. These results were driven by success with development drilling and waterflooding results in the Chaza Block, which contains the Costayaco and Moqueta fields and the Suroriente continuation agreement as outlined by Ryan. During ‘23, a combination of our strong reserves growth, ongoing reductions in debt and share buybacks allowed Gran Tierra to achieve net asset values per share before tax of $44.48 1P, up 288% from 2020 and $79.13 2P, up 144% from 2020. With this significant growth in our net asset values per share over the last three years, we believe Gran Tierra is well positioned to offer exceptional long-term stakeholder value. The success we achieved in 2023 also reflects our ongoing conversion of reserves from the probable approved category.
With 147 booked, proved plus probable undeveloped future drilling locations, Gran Tierra is well positioned to continue to grow the company’s production and reserves in 2024 and beyond. I will now turn the call back to the operator, and Gary and Ryan and I will be happy to take questions. Operator, please go ahead.
