Gran Tierra Spotlights 4Q Earnings, Operating Results

Gran Tierra announced financial and operating results for the quarter and year ended December 31, 2010. All dollar amounts are in United States dollars unless otherwise indicated.

Highlights for the year include:

  • Record average annual production of 14,325 barrels of oil per day ("BOPD") net after royalty ("NAR"), a 13% increase in average daily oil production from 2009, and record fourth quarter average production of 15,792 BOPD NAR;
  • Record proved reserves of 23.6 million barrels of oil ("MMBO") NAR, after producing 5.2 MMBO NAR during 2010;
  • Record proved plus probable (2P) reserves of 31.0 MMBO NAR, and record proved plus probable plus possible (3P) reserves of 47.3 MMBO NAR;
  • Record revenue and other income for the year of $374.5 million, an increase of 42% from $263.7 million for 2009;
  • Record funds flow from operations of $203.4 million compared to $159.5 million for 2009;
  • Net income of $37.2 million or $0.15 per share basic and $0.14 diluted, compared to net income of $13.9 million or $0.06 per share basic and $0.05 diluted in 2009;
  • Cash and cash equivalents of $355.4 million at December 31, 2010 compared to $270.8 million at December 31, 2009. Gran Tierra Energy remains debt free;
  • Acquired 70% working interest and operatorship in four blocks in the Recôncavo Basin of Brazil, pending regulatory approval;
  • Successfully drilled and tested the Moqueta-1, -2 and -3 exploration and delineation wells in the Moqueta oil discovery in Colombia;
  • Successfully bid on 3 exploration blocks encompassing 1.5 million gross acres in Colombia's Open Round 2010; and
  • Acquired a 20% interest in 6.7 million gross acres in three contiguous blocks adjacent to Gran Tierra Energy's existing blocks 122 and 128 in Peru and acquired a 60% working interest and operatorship in Block 95 in the Marañon Basin, all pending regulatory approval.

"In 2010, Gran Tierra Energy successfully executed on its strategic initiative to enter Brazil and continued to grow its land position in Colombia and Peru. In parallel, successful execution of our exploration and development programs resulted in record levels of production, reserves and cash flow, in spite of delays to programs driven primarily by certain extended permitting processes," said Dana Coffield, President and CEO of Gran Tierra Energy. "The successful execution of our strategy to date has positioned Gran Tierra Energy with a very strong debt-free balance sheet, a vast land position in four countries, and a significant exploration drilling campaign budgeted in 2011. The recently announced arrangement agreement to acquire all the issued and outstanding shares and warrants of Petrolifera Petroleum Limited has the potential to significantly expand an already diverse portfolio of drilling opportunities and new venture initiatives to further complement our business growth in the coming years," concluded Coffield.

Fourth Quarter and Fiscal 2010 Financial Highlights:

Revenue and interest increased by 17% to $112.7 million for the three months ended December 31, 2010 compared to $96.3 million for the same period in 2009. For the year ended December 31, 2010 revenue and interest increased by 42% to $374.5 million compared to $263.7 million for the same period of the previous year. Increased revenue for the fourth quarter and year ended 2010 reflect a 7% and 13% increase in oil production, respectively, primarily due to increased production from the continued development of the Costayaco field in the Chaza Block in Colombia. The average price received per barrel of oil in the fourth quarter of 2010 increased by 9% to $77.25 per barrel from $70.94 per barrel in the fourth quarter of 2009, and increased by 25% to $71.19 per barrel for the year ended December 31, 2010 from $56.79 per barrel for the same period in 2009.

Operating expenses increased by 30% to $20.4 million for the quarter ended December 31, 2010 compared to $15.7 million for the same quarter in 2009. On a per barrel basis, operating expenses for the fourth quarter of 2010 increased by 20% to $13.93 per barrel compared to $11.61 per barrel for the same period in 2009. For the year ended December 31, 2010, operating expenses increased by 46% to $59.4 million compared to $40.8 million for the same period in 2009. On a per barrel basis, operating expenses for the year ended December 31, 2010 increased by 28% to $11.27 per barrel compared to $8.81 per barrel for the same period in 2009. The 2010 increase in operating expenses is due to increased production in Colombia, an expanded workover program in the Costayaco field, and additional transportation costs related to pipeline maintenance in the fourth quarter.

Depletion, depreciation, accretion and impairment expense ("DD&A") for the quarter ended December 31, 2010 increased by 39% to $56.3 million from $40.4 million for the same quarter in 2009. DD&A on a per barrel basis was 27% higher at $38.44 per barrel compared to $29.84 per barrel for the fourth quarter of 2009. DD&A for the year ended December 31, 2010 was $163.6 million, or $31.02 per barrel, compared to $135.9 million, or $29.35 per barrel, for the same period in 2009. The increases were mainly due to a $17.9 million write-down in the fourth quarter of 2010 related to the suspension of drilling and planned abandonment of the Valle Morado sidetrack well in Argentina.

General and administrative expenses ("G&A") increased by 30% to $12.4 million for the quarter ended December 31, 2010 compared to $9.6 million for the same period in 2009. On a per barrel basis, G&A expenses in the fourth quarter of 2010 increased by 20% to $8.46 per barrel compared to $7.07 per barrel in the third quarter of 2009. G&A expenses for the year ended December 31, 2010 were $40.2 million, or $7.63 per barrel, compared to $28.8 million, or $6.22 per barrel, for the same period in 2009.

Included in the fourth quarter 2010 results is a $16.9 million foreign exchange gain compared to the $12.6 million foreign exchange gain recorded in the same quarter of 2009. For the year ended December 31, 2010, Gran Tierra Energy recorded a $16.8 million foreign exchange loss compared to a foreign exchange loss of $19.8 million in the same period in 2009. These gains and losses are primarily unrealized exchange gains and losses arising from the translation of a deferred tax liability denominated in Colombian pesos into the U.S dollar functional currency. The strengthening in the U.S. dollar against the Colombian peso of 6% in both the fourth quarter of 2010 and 2009 resulted in the foreign exchange gains, while a decline in the U.S. dollar of 6% in 2010 and 9% in 2009 resulted in foreign exchange losses for the years.

Net income for the fourth quarter of 2010 was $13.1 million compared to net income of $30.8 million for the same period in 2009. On a per share basis, net income was $0.05 per share basic and $0.04 per share diluted, compared to $0.13 per share basic and $0.12 per share diluted in the fourth quarter of 2009. For the year ended December 31, 2010, net income was $37.2 million compared to net income of $13.9 million for the same period in 2009. Net income for the year ended December 31, 2010 was $0.15 per share basic and $0.14 per share diluted compared to net income of $0.06 per share basic and $0.05 per share diluted for the same period in 2009.

Balance Sheet Highlights:

Cash and cash equivalents were $355.4 million at December 31, 2010 as compared to $270.8 million at December 31, 2009. Working capital increased to $265.8 million at December 31, 2010, as compared to $215.2 million at December 31, 2009. Shareholders' equity increased to $886.9 million at December 31, 2010 from $816.4 million at December 31, 2009, and Gran Tierra Energy had no outstanding long-term debt as of December 31, 2010.

Production Highlights:

Average daily consolidated light and medium crude oil production for the three months ended December 31, 2010 increased 7% to 15,792 BOPD NAR compared to 14,714 BOPD NAR for the same period of 2009. Average daily consolidated light and medium crude oil production for the year ended December 31, 2010 increased 13% to 14,325 BOPD NAR compared to 12,662 BOPD NAR for the year ended December 31, 2009. The increase in production is due primarily to increased production from the continued development of the Costayaco field in the Chaza Block in Colombia where Gran Tierra Energy has a 100% working interest.

Average daily Colombian production of light and medium crude oil for the three months ended December 31, 2010 increased 8% to 14,969 BOPD NAR compared to 13,836 BOPD NAR for the same period in 2009. Average daily Colombian production of light and medium crude oil for the year ended December 31, 2010 increased 15% to 13,547 BOPD NAR compared to 11,738 BOPD NAR in 2009.

Average daily Argentine production of light and medium crude oil for the quarter ended December 31, 2010 decreased 6% to 823 BOPD NAR compared to 878 BOPD NAR for the same period in 2009. Average daily Argentine production of light and medium crude oil for the year ended December 31, 2010 decreased 16% to 778 BOPD NAR compared to 924 BOPD NAR in 2009.

Reserve Highlights

As previously announced, externally audited proved oil reserves (as per SEC Reserves Definitions) net after royalty to Gran Tierra Energy as of December 31, 2010 increased to approximately 23.6 MMBO, a 7% increase compared to 22.1 MMBO proved reserves as of December 31, 2009. Probable reserves are approximately 7.4 MMBO and possible reserves are approximately 16.3 MMBO. Total 3P reserves are approximately 47.3 MMBO.

As per Canadian National Instrument 51-101 - Standards of Disclosure for Oil and Gas Activities and the reserves definitions in the Canadian Oil and Gas Evaluation Handbook, oil reserves net after royalty to Gran Tierra Energy as of December 31, 2010 are approximately 23.3 MMBO proved, 7.3 MMBO probable, and 16.2 MMBO possible. Total 3P reserves are approximately 46.8 MMBO. This compares to reserves as of December 31, 2009 of 21.4 MMBO proved, 5.4 MMBO probable and 11.1 MMBO possible, and total 3P reserves of approximately 37.9 MMBO.

2011 Work Program and Capital Expenditure Program

In December 2010, prior to the finalization and announcement of the Petrolifera Petroleum Limited ("Petrolifera") acquisition, Gran Tierra Energy announced the details of its 2011 work program. This work program is intended to create both growth and value in Gran Tierra Energy's existing assets by increasing its reserves and production from exploration and development activities funded with cash and cash flow, while remaining debt free so that Gran Tierra Energy can be positioned to undertake new development opportunities and to pursue additional acquisition opportunities. Capital commitments and other exploration and development opportunities arising from the pending Petrolifera acquisition were not contemplated in the original capital program and may have an impact on the amount, allocation and timing of capital expenditures for each country. The effect of the pending acquisition on the capital program is being assessed on an ongoing basis.

Excluding potential exploration success, production in 2011 is expected to grow to between 16,000 and 18,000 BOPD net after royalty.

Gran Tierra Energy has planned a 2011 capital spending program of $299 million for exploration and development activities in Colombia, Peru, Argentina and Brazil. Planned capital expenditures in Colombia are $148 million, $56 million in Peru, $40 million in Argentina, and $55 million in Brazil.

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