GTE - Gran Tierra Energy Inc. (GTE) Q3 2023 Earnings Call Transcript
2023-11-01 12:48:08 ET
Gran Tierra Energy Inc. (GTE)
Q3 2023 Earnings Conference Call
November 01, 2023 11:00 AM ET
Company Participants
Gary Guidry - President & Chief Executive Officer
Ryan Ellson - Executive Vice President & Chief Financial Officer
Rob Will - Vice President of Asset Management
Conference Call Participants
Roman Rossi - Canaccord Genuity
Josef Schachter - Schachter Energy Research
Oriana Covault - Balanz
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy’s Results Conference Call for the Third Quarter 2023. My name is Shannon and I will be your coordinator for today. At this time, all participants are in 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 up for a question.
I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, November 1, 2023, at 11:00 a.m. Eastern Time. Today’s discussion may include certain forward-looking information as well as certain non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important disclaimers with regard to this information and reconciliations of any non-GAAP measures discussed on today’s call.
Any production volumes are based on working interest sales before royalties. 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 would 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 thanks for joining Gran Tierra and our third quarter 2023 results conference call. My name is Gary Guidry, President and Chief Executive Officer. And with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer; and Rob Will, our Vice President of Asset Management.
On Tuesday, October 31, 2023, we issued three press releases that included detailed information on our third quarter 2023 results. Another release, announcing the appointment of Sebastien Morin, our new Chief Operating Officer and a separate press release announcing the intention to make a normal course issuer bid for our common shares, all of which are available on our website.
We are very pleased to welcome Sebastien back to Gran Tierra in the new position of Chief Operating Officer. Sebastien has a proven track record of delivering value-added results and demonstrated excellent mentorship and communication skills. Sebastien was integral and Gran Tierra becoming best-in-class in drilling, operations and execution of our capital programs.
Sebastien will be focused on continuous improvement and optimization of our capital investments and our operating costs and will be leading the functional integration of asset management plans to achieve optimum value for all of the company's assets. Ryan and Rob will now 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 key financial highlights from our third quarter results. Ryan?
Ryan Ellson
Good morning, everyone. Gran Tierra had another solid quarter. Our financial position remains robust, and we continue to focus on maximizing operational efficiency and managing costs effectively to ensure sustainable growth and profitability. During the quarter, Gran Tierra delivered $79 million of funds flow, which is up 49% from the prior quarter and result in $2.37 of funds flow per basic share.
After incurring approximately $43 million in capital expenditures, the company generated free cash flow of approximately $36 million. Adjusted EBITDA was $119 million for the prior quarter, up from $97 million in the prior quarter. As of September 30, 2023, the company had a cash balance of $123 million and net debt of $499 million.
On the liability management front, we are very pleased with the successful completion of our bond exchange offering subsequent to the quarter, which we believe is highly beneficial for both Gran Tierra and our stakeholders.
The company's balance sheet is now stronger due to an improved amortization schedule and less restrictive conditions. The bond exchanges in tandem with our solid operating cash flow provide additional financial flexibility and a stronger platform as we execute our strategy of delivering profitable production growth, free cash flow generation and value creation for our stakeholders. We intend to continue to high grade our portfolio through our integrated strategy of acquiring, exploring, developing producing and enhancing high-quality oil and gas assets.
Also, subsequent to the end of the quarter, the company entering the oil hedges covering approximately 15,000 barrels a day throughput options from October 1, 2023 to March 31, 2024, with a floor price of $80 Brent with no ceiling for a premium of $3 per barrel.
Gran's Tierra average production for third quarter was 33,940 boe per day, which was slightly up from the prior quarter. Gran Tierra's production in the quarter was the company's highest quarterly average for the total production since second quarter 2019. Looking at the pricing during the quarter, the Brent oil price averaged $85.90 per barrel, up 11% from the prior quarter. The company's quality and transportation discount narrowed to $11.83 per barrel, down from $14.10 per barrel in the prior quarter.
The company's operating netback was $40.87 per barrel, up 18% from the prior quarter. During the quarter, we also announced that we had completed and met all the conditions associated with this Suroriente continuation.
While we are very excited to obtain a 20-year extension on the block, we're even more excited about the development corridor this opens for future growth. Between three oil discoveries in 2022 and the Suroriente continuation we have secured a strong portfolio of organic development opportunities.
In the self mile, we have the ALEA-1848A Block, where we discovered the Rose field, and we have the Suroriente block, which includes the Cohembi field that's under waterflood. To the south of the border, in Ecuador, we have the Chaza Block, which has a Chaza Norte discovery and the Chanangue Block, which includes the Bococico discovery. This large contiguous development quarter will be a key focus of the company and provide a long runway for our future capital projects and production growth.
Finally, as Gary mentioned at the opening of this call, we are pleased to announce our intention to resume our normal course issuer bid, which will allow us to purchase up to 10% of the public flow to common shares over the next 12 months.
I'll now turn the call over to Gary to discuss -- to Rob to discuss our operational highlights from our third quarter results.
Rob Will
Good morning, everyone. As Ryan mentioned, during the quarter, we incurred $43 million in capital expenditures which were lower than the prior quarter's level of $66 million as a result of no wells being drilled during the quarter due to our development program having been completed in the first half of 2023.
In terms of upcoming activity, following our successful 2023 development campaigns at Acordionero and the northern extension of the Costayaco field, we are accelerating our development program and plan to commence drilling at both of these fields in December 2023.
In terms of asset performance, the waterfloods across our four core assets continue to be effective at increasing ultimate oil recoveries, and we are excited to resume drilling by the end of this year. We are also delighted that we closed the Suroriente block extension agreement during the quarter as we believe this block will be a key growth area for the company over the coming years.
As seen in our mid-year reserve update, the success in our waterfloods and the extension of the Suroriente block agreement resulted in record highs in the Company's Proved and Proven plus Probable oil reserves for the company. We added Proved reserves of 16 million barrels and Proven plus Probable of 26 million barrels since the end of 2022.
Upon completion of the development drilling program in Costayaco expected in March 2024, the company plans to move the drilling rig to Ecuador to begin the exploration drilling program.
I'll now turn the call back to the operator, and we'll be happy to answer any questions. Operator, please go ahead.
Question-and-Answer Session
Operator
Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session for securities analysts. [Operator Instructions] Our first question comes from the line of Roman Rossi with Canaccord Genuity. Your line is now open.
Roman Rossi
Thank you. Good morning everyone. Thanks for taking my question. Congrats on a great quarter. So I have a few questions if we can go sequentially. The first one, what's your view on through differentials in the coming quarters? Do you anticipate more pressure now that Venezuela crude will be entering the market.
Gary Guidry
Yes, it's a good question. I think there's a few things that could happen in some Venezuelan crude enter the market as well as the Trans Mountain pipeline opening up in Canada, which could put a little additional pressure. We expect them to be around these levels, maybe they will widen $1 or so, but we don't expect any major blowouts.
Roman Rossi
Okay. Great. And regarding CapEx, Rob mentioned that you spent $41 million, what should we expect for the last quarter of the year? And then additionally, in the breakdown of the CapEx you have up $16.3 million line with the other. Can you give us more color on what that includes?
Gary Guidry
So on the -- you broke up a little bit on the second question here. What was the second part of the question? I heard the first part of Q4 CapEx, but I missed the second part.
Roman Rossi
Okay. The second part is regarding in the breakdown of CapEx, you have a line that other, that includes US$16.3 million. If you can give us more color on that?
Gary Guidry
Yes. As far of that was just, I think, some pre-investment just for our upcoming Q4 and Q1 drilling program. Sometimes in these areas, the pads take a long time to build. So there's a lot of pre-investment that needs to go in, and order some of the long lead items for the drilling program. That would be the bulk of it.
And then for the second half -- sorry, for Q4, I think we expect capital expenditures in the $30 million to $40 million range.
Roman Rossi
Awesome. And just the last one. Regarding energy cost, we are seeing that due to El Nino, prices are increasing, but do you expect additional pressure in the coming quarters? Or do you think that energy prices up?
Gary Guidry
Yes. We are seeing increased energy prices of the electricity. We're making an effort and have been over the last several years to remove ourselves from the grid, generate our own electricity using natural gas. Those efforts will continue and accelerate into next year. So, part of our capital spending next year is on using natural gas as a fuel and generating as much electricity as we can.
Everything across the board, we're seeing in Colombia on fuels drive us to be efficient and diesel costs going up, electricity costs going up, and so everybody benefits by us generating our own electricity using our own fuels.
Roman Rossi
Thank you very much.
Gary Guidry
Thank you.
Operator
Thank you. Our next question comes from the line of Josef Schachter with Schachter Energy Research. Your line is now open.
Josef Schachter
Thank you very much. Congratulations on the quarter and also the debt restructuring, which took away a little bit of the concern. So, congratulations on that. Given you're going to probably spend as you mentioned earlier in the prior questions, about $220 million this year with the free cash flow, you mentioned the NCIB. Are you also thinking of paying down that credit facility of $49 million as well in terms of the focus to knock that down?
Ryan Ellson
I think the craft facility does repay fairly quickly. We're amortizing that over 10 months. It's fully repaid by August next year. So, we already have a fairly aggressive program on that as far as repayment. And then similar to this year, the first half capital program is going to be weighted towards the development program.
So, as Rob mentioned, we started a rig in Acordionero and Costayaco ended -- in December of this year. So, we expect quite a bit of CapEx in the first half of the year and then trail off somewhere this year, we'll generate the free cash flow in the second half of the year. But we already -- the worst case narrow that the facilities repaid fully by August of next year.
Josef Schachter
Okay. Second question, you're talking here about success in two places in Ecuador. Are any of those wells on production? Or is this something that will come on in first half 2024?
Gary Guidry
Yes. We continue to produce about 1,200 to 1,500 barrels a day. We will continue producing throughout, we don't ever anticipate stopping. We would be producing more today, but we're collecting information on reservoirs. These are new discoveries. They're very prolific wells and we're quite excited.
We're quite excited about getting out and seeing just how big these are. We -- you may have noticed that we deferred a couple of wells. We had some blockades we're in Ecuador long-term. And so we're working through what those blockades are about, and we shifted that capital in those wells back up to our Costayaco field, where we've had some really good results.
Ryan Ellson
And Joseph, our new slide deck too, we actually have a slide in there that just shows where the discoveries are along with the Suroriente extension, and the Rose discovery, which really shows the corridor of future growth highlights of where we are and what Gary is talking about.
Josef Schachter
Super. Last one for me. When do you expect to have your guidance for 2024 and CapEx budget, et cetera?
Gary Guidry
That will be after the New Year. We're working through that now as a management team. We'll be discussing that with our Board of Directors by the first, second week of December, and we'll release that guidance after the first of the year.
Josef Schachter
Super. Thanks very much for everything, and again, congratulations.
Operator
Thank you. Our next question comes from the line of Oriana Covault with Balanz. Your line is now open.
Oriana Covault
Hi. Thanks for taking my question. This is Oriana Covault with Balanz. I just had two quick follow-ups. The first one with regards to the extension of the Suroriente agreement. We noticed that there is a shift in your working interest at least after 2024, it will be going down to 47%, so from the current 52%. So just any color or thoughts that you can provide in terms of this Suroriente agreement and the cash consideration that you paid?
Ryan Ellson
And yes, that is -- on that, it was really a negotiation, and so that was what we negotiated. And coupled with that, though, if you look at the OpEx right now, [indiscernible] pay $6 per barrel, now that will increase to a maximum of $11. So there's some give and takes in the negotiation.
Oriana Covault
Got it. Understood. And just one last follow-on on clarification. Was this negative start the restricted payment basket for dividend payment? Was it clear disposal to change transaction that you carried through last quarter? Yeah. Just thinking on the restricted payment basket and proposal uses for dividend payment you’ve seen potential free cash flow generation? Was I clear, or there’s restriction as I say?
Ryan Ellson
Yeah, there are restrictions still. And so really, if we meet certain criteria, and that's based on free cash flow generation, net debt to EBITDA under 1.5 times than the maximum that we can have for restricted payments. In our case, which would be share buybacks, not dividends would be $50 million per annum, which doesn't roll forward and then also a general basket per annum of $10 million.
Oriana Covault
Okay. Perfect. Thank you very much and congratulations for the solid quarter.
Ryan Ellson
Great. Thank you.
Operator
Thank you. Gentlemen, there are no further questions at this time. Please continue.
Gary Guidry
Thank you, operator. I would like to thank everyone once again for joining us. We look forward to speaking with you in the next quarter and appreciate you dialing in. Thank you.
Operator
This concludes today's conference call. Thank you for participating. You may now disconnect.
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Gran Tierra Energy Inc. (GTE) Q3 2023 Earnings Call Transcript