Gran Tierra Increases Revenues by 44% in 2Q10
Gran Tierra announced financial and operating results for the quarter ended June 30, 2010. All dollar amounts are in United States dollars unless otherwise indicated.
Highlights for the quarter include
- Confirmed oil discovery at Moqueta-1 exploration well in the Chaza Block in Colombia. Initial testing without a pump flowed 349 barrels of oil per day (BOPD), in addition to successful gas testing in a more shallow reservoir interval. Subsequent drilling and logging of the Moqueta-2 delineation well suggests net oil pay has increased to 44 feet and gross oil column height has increased to 105 feet in the Caballos reservoir;
- Quarterly production of 13,234 BOPD net after royalty (NAR), a 5% increase in average daily oil production from the same period in 2009 of 12,611 BOPD NAR. Oil production is down from 14,908 BOPD NAR average in Q1 2010 due to certain well pump failures and required recompletions in Argentina and Colombia, and by the OTA pipeline in Colombia being offline for 7 days in the second quarter;
- Revenue and other income for the quarter of $84.1 million, a 44% increase over the same period in 2009;
- Net income of $17.4 million or $0.07 per share basic and diluted, compared to net loss of $28.2 million or $0.12 per share basic and diluted in the same period in 2009;
- Funds flow from operations of $44.3 million compared to $36.0 million for the same period in 2009;
- Cash and cash equivalents were $293.2 million at June 30, 2010 compared to $270.8 million at December 31, 2009. Gran Tierra Energy remains debt free;
- Working capital increased to $278.7 million at June 30, 2010 compared to $215.2 million at December 31, 2009;
- Awarded three blocks (Putumayo-10, Cauca-6 and Cauca-7) in the 2010 Colombia Bid Round administered by Colombia's National Hydrocarbon Agency; and
- Received Environmental Impact Assessment ("EIA") approval for seismic and drilling operations for Block 128, Maranon Basin, Peru.
"The oil discovery at Moqueta and our success in the 2010 Colombia bid round were the highlights of another strong quarter," said Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy Inc. "We have increased our anticipated capital expenditures for 2010 as we add two delineation wells at Moqueta and revise our drilling campaigns in Colombia, Peru and Argentina. These revisions include drilling up to six additional exploration wells in Colombia, initiating exploration drilling in Peru, and drilling a significant well in Argentina. Our focus in Colombia and Peru is on finding additional oil reserves, while our focus in Argentina is on defining the gas resource potential of our lands. In addition, upon completion of pump repairs and several recompletions, we expect to return production to our projected range of 14,000 - 16,000 barrels of oil per day net after royalties."
Second Quarter 2010 Financial Highlights:
Revenue and interest increased 44% to $84.1 million for the three months ended June 30, 2010 compared to $58.5 million in the same period in 2009 due to an increase of 5% in crude oil production and an increase of 36% in crude oil prices. For the six months ended June 30, 2010, revenue and interest increased 92% to $177.2 million compared to the same period in 2009 due to increased crude oil production in Colombia and an increase of 58% in crude oil prices.
Operating expenses for the second quarter of 2010 amounted to $9.5 million, a 7% increase from the same period in 2009, due to expanded operations and increased production levels in Colombia. For the three months ended June 30, 2010, operating expenses on a barrel of oil equivalent ("BOE") basis were $7.83, a slight increase from $7.74 for the same period in 2009. Operating expenses for the six months ended June 30, 2010 increased to $19.7 million, a 23% increase from the same period last year. Operating expenses on a BOE basis for the first six months of 2010 were $7.69, compared to $7.64 for the same period in 2009.
Depletion, depreciation and accretion expense ("DD&A") for the current quarter decreased to $31.6 million, compared to $32.7 million for the same quarter in 2009. On a BOE basis, DD&A for the three months ended June 30, 2010 was $26.00 compared to $28.49 in the same period in 2009. This 9% decrease was primarily due to higher proved reserves in Colombia in 2010 used to calculate DD&A. For the first six months of 2010, DD&A increased by 20% to $72.0 million, primarily due to increased production levels in Colombia. DD&A for the first half of 2010 was $28.09 per BOE, a decrease from $28.80 per BOE for the same period in 2009 primarily due to higher proved reserves.
General and administrative expense ("G&A") of $9.6 million for the three months ended June 30, 2010, was 37% higher than the same period in 2009. G&A of $16.8 million for the six months ended June 30, 2010 was 38% higher than the same period in 2009. G&A expenses per BOE increased 29% to $7.88 for the current quarter compared to $6.12 for the same quarter in 2009. G&A per BOE expenses increased 13% to $6.55 for the six months ended June 30, 2010 compared to $5.81 for the same period in 2009. The increases reflect the company's expanded operations, and are partially offset by increased production levels on a BOE basis.
A foreign exchange loss of $3.1 million was recorded in the second quarter of 2010, of which $1.3 million is an unrealized non-cash foreign exchange loss. This compares to the $33.7 million foreign exchange loss recorded in the same quarter of 2009, of which $31.0 million is an unrealized non-cash foreign exchange loss. For the first half of 2010, a foreign exchange loss of $17.4 million was recorded, of which $14.0 million is an unrealized non-cash foreign exchange loss, compared to a foreign exchange loss of $13.5 million, of which $12.7 million is an unrealized non-cash foreign exchange loss in the same period in 2009. The unrealized foreign exchange losses arise primarily as a result of the translation of a deferred tax liability. The deferred tax liability is denominated in Colombian pesos and the decline in the U.S. dollar against the Colombian peso of 1% in the current quarter (6% for the six months ended June 30, 2010) and 16% for the three months ended June 30, 2009 (4% for the six months ended June 30, 2009) resulted in the foreign exchange losses.
Net income for the second quarter of 2010 was $17.4 million, or $0.07 per share basic and diluted, compared to a net loss of $28.2 million, or $0.12 per share basic and diluted, for the same period in 2009. For the first half of 2010, net income of $27.3 million, or $0.11 per share basic and $0.10 per share diluted, was recorded compared to a net loss of $14.1 million, or $0.06 per share, for the same period in 2009.
Balance Sheet Highlights:
The company reported cash and cash equivalents of $293.2 million at June 30, 2010 as compared to $270.8 million at December 31, 2009. Working capital increased to $278.7 million at June 30, 2010, as compared to $215.2 million at December 31, 2009. Shareholders' equity increased to $865.8 million at June 30, 2010 from $816.4 million at December 31, 2009, and the company had no outstanding long-term debt as of June 30, 2010.
On July 30, 2010, Gran Tierra Energy signed a credit facility with BNP Paribas. The facility is a reserve based lending agreement for up to $100 million, with an initial committed borrowing base of $20 million.
Average daily consolidated light and medium crude oil production for the three months ended June 30, 2010 increased 5% to 13,234 BOPD NAR compared to 12,611 BOPD NAR for the same period in 2009.
Production for the first half of 2010 averaged 14,066 BOPD NAR. The GTE target for average production for 2010 is 14,000 to 16,000 BOPD NAR. Second quarter production was below the target range due to certain well pump failures and required recompletions in Argentina and Colombia and by the OTA pipeline being offline for 7 days in the second quarter in Colombia. Efforts are underway to secure a second service rig to accelerate workovers and recompletions in Colombia. Average production for 2010 is still expected to fall within Gran Tierra Energy's projections of 14,000 to 16,000 BOPD NAR.
Average daily Colombian production of light and medium crude oil for the three months ended June 30, 2010 increased 8% to 12,515 BOPD NAR compared to 11,632 BOPD NAR for the same period in 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 Argentine production of light and medium crude oil for the quarter ended June 30, 2010 decreased 27% to 719 BOPD NAR compared to 979 BOPD NAR for the same period in 2009.
Gran Tierra Energy has increased its 2010 capital spending program to $223 million, up from an original budget of $195 million, for exploration and development activities in Colombia, Peru, Argentina and business development activities in Brazil. Planned capital expenditures are $143 million in Colombia, $32 million in Peru, and $45 million in Argentina.
In June 2010, Gran Tierra Energy was awarded three blocks (Putumayo-10, Cauca-6 and Cauca-7) in the 2010 Colombia Bid Round administered by Colombia's National Hydrocarbon Agency. Bid contracts are expected to be finalized by October 2010. Putumayo-10 is expected to enable Gran Tierra Energy to leverage its existing knowledge of its Piedemonte Norte and Piedemonte Sur Blocks to expand its exploration portfolio in a proven trend, while Cauca-6 and Cauca-7 provide new frontier exploration opportunities for the company. These awards more than double the company's acreage position in Colombia to 2.5 million gross acres, or 2.2 million net acres.
Gran Tierra Energy expects to drill seven exploration wells this year in Colombia; the company expects to have between three and four drilling rigs active in Q4 2010.
Moqueta-1 Exploration Well, Chaza Block
In June 2010, Gran Tierra Energy completed initial testing on the Moqueta-1 exploration well in the Chaza Block in Colombia, approximately 5 kilometers north of the Costayaco field. Reservoir data and fluid samples showed 53 feet of hydrocarbon pay, including 26 feet of net oil pay in the Lower Caballos Formation. Gran Tierra Energy anticipates the initiation of long term oil testing and early production in the first quarter of 2011.
The Moqueta-2 delineation well was drilled in July from the existing Moqueta-1 pad and the well has been logged. Initial data interpretation suggests net oil pay has increased to 44 feet and gross oil column height has increased to 105 feet. Testing operations have commenced.
Costayaco Field, Chaza Block
In June 2010, Gran Tierra Energy completed logging operations and initiated production testing of Costayaco-11. Costayaco-11 was drilled in the northern portion of the Costayaco field in Colombia, and is expected to be used as a Caballos and T-sand producer and subsequently as a water-injector to provide pressure maintenance in the T-Sandstone reservoir. Costayaco-11 was tied in and put on production in early July.
Taruka-1 Exploration Well, Piedemonte Sur Block
Taruka-1, scheduled to be drilled in the Piedmonte Sur Block has been delayed until Q4 2010 due to the need to contract an additional rig for the operation as a result of the Moqueta oil discovery and the need to retain a rig at Moqueta for additional delineation drilling.
La Vega Este-1 Exploration Well, Azar Block
La Vega Este-1, scheduled to be drilled on the Azar Block has been delayed until Q4 2010 due to delays in the permitting process.
Nabueno-1 Exploration Well, Guayuyaco Block
Nabueno-1, scheduled to be drilled on the Guayuyaco Block has been delayed until Q1 2011 due to presence of nearby indigenous communities and the requirement for community consultations before the application for the drilling permit can be made.
Rumiyaco-1 Exploration Well, Rumiyaco Block
Rumiyaco-1, scheduled to be drilled on the Rumiyaco Block is still expected to be drilled in Q4 2010.
Rio Blanco-1 Exploration Well, Piedmonte Norte Block
Rio Blanco-1, scheduled to be drilled in the Piedmonte Norte Block has been delayed until Q2 2011 due to delays with the permitting process for seismic acquisition required to mature the prospect to drillable status and additional permitting requirements by the Ministry of Environment.
Three additional wells have been added to the 2010 exploration drilling program
Popa-3 is currently being drilled to evaluate an oil prospect on the Rio Magdalena Block. The company had previously announced divestment plans for its 40% working interest in the Block, but this divestment has been canceled. In addition, a 9% working interest held by one of the participants in the Block has been transferred to the remaining participants. As a result, Gran Tierra Energy remains the operator and has a 44 % working interest in the Rio Magdalena Block.
Pacayaco-1 is scheduled to drill an oil prospect on trend with the recent Moqueta-1 discovery in the Chaza Block in Q4 2010.
Costayaco East-1 is scheduled to be drilled in Q3 2010. This well is expected to test an oil prospect located southeast of the Costayaco Field.
During the second quarter of 2010, 76 Km(2) of 3-D seismic data were acquired in the Azar Block to evaluate the Florida West lead, along with 93 Km(2) of 3-D seismic data acquired in the Rumiyaco Block to evaluate the Rumiyaco-1 lead.
VM.x-1001 Well, Valle Morado Block
In June 2010, Gran Tierra Energy began drilling rig mobilization for the VM.x-1001 well in the Valle Morado Block, in Argentina. Drilling of this re-entry in the Valle Morado gas field in the Noroeste Basin, is scheduled to commence in the third quarter of 2010. Testing is expected to be initiated by the end of the fourth quarter of 2010. Gas plant refurbishment plans have been initiated and are expected to be completed in parallel with the drilling and completion operations.
Santa Victoria Block - Seismic Campaign
Gran Tierra Energy is currently waiting for approval of the EIA of the 200 square kilometer 3D seismic program. We expect to have this permit approved and commence operations in Q3, 2010.
The EIA approval for seismic and drilling operations has been approved for Block 128, Maranon Basin, Peru. Amendments to this approval are being reviewed. Seismic crew mobilization commenced at the end of the second quarter, with drilling of up to four wells in Peru expected to begin in the fourth quarter of 2010 and continuing into early 2011.
Exploration drilling is expected to commence with Kanatari-1 in Block 128 in Q4, 2010 followed by Pichico-1 in Block 122. A total of four wells have been budgeted for the two blocks, and a total of five locations have been permitted.
Seismic acquisition has begun on Block 128, with 480 kilometers of 2D data expected to be acquired on blocks 128 and 122.
Gran Tierra Energy continues to evaluate a variety of new venture exploration and development opportunities in both the onshore and offshore of Brazil.
On August 3, 2010, Walter Dawson resigned as a director of Gran Tierra Energy. The resignation was effective at the close of business on August 4, 2010.
"It is with regret that we announce the resignation of Walter Dawson who has been a valued Board member of Gran Tierra Energy since inception in 2005," said Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy Inc. "Mr. Dawson's role as part of the founding team, utilizing his insight and experience gained over the years, along with his valued contribution to the growth of the company, will be missed."
On a related matter, on August 3, 2010, Gran Tierra executed an agreement with a drilling company of which Walter Dawson is an officer. As part of the agreement, Gran Tierra has contracted the company to be drilling operator for the Peru drilling program expected to commence in the fourth quarter of 2010.
- Gran Tierra Receives 'Outperform' Rating After Revealing Exploration Plans (Jun 15)
- Gran Tierra Energy Reveals $38.6 Million Net Loss (Aug 05)
- Gran Tierra Touts Record Production in Colombia (Apr 17)