Gran Tierra Shines in 3Q10
Gran Tierra announced financial and operating results for the quarter ended September 30, 2010. All dollar amounts are in United States dollars unless otherwise indicated.
Highlights for the quarter include:
- Quarterly oil production of 13,367 barrels of oil per day ("BOPD") net after royalty ("NAR"), a 3% increase in average daily production from the same period in 2009 of 12,945 BOPD NAR;
- Revenue and other income for the quarter of $84.6 million, a 12% increase over the same period in 2009;
- Net loss of $3.3 million or $0.01 per share basic and diluted, compared to net loss of $2.8 million or $0.01 per share basic and diluted in the same period in 2009;
- Funds flow from operations of $37.2 million compared to $53.1 million for the same period in 2009;
- Cash and cash equivalents were $308.4 million at September 30, 2010 compared to $270.8 million at December 31, 2009. Gran Tierra Energy remains debt free;
- Working capital increased to $270.2 million at September 30, 2010 compared to $215.2 million at December 31, 2009;
- Acquired 70% working interest and operatorship in four blocks in the Recôncavo Basin of Brazil;
- Successfully drilled and tested the Moqueta-2 and Moqueta-3 delineation wells in the Moqueta oil discovery in Colombia;
- Initiated drilling location construction for the Moqueta-4 delineation well, and Pacayaco-1 and Taruka-1 exploration wells in Colombia;
- Initiated rig mobilization to Peru in preparation for drilling Gran Tierra Energy's first well in Peru in December, 2010;
- 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
- Initiated well workover operations at the VM.x-1001 discovery well in the Valle Morado gas field in preparation for sidetrack drilling operations in Argentina.
"Gran Tierra Energy executed a critical first step in our growth strategy in Brazil, with the acquisition of operated land containing undeveloped reserves, conventional exploration opportunities, and a new exploration concept that we intend to test next year. In parallel, we have continued with the successful delineation of our recent oil discovery at Moqueta in Colombia, and continue to ramp up our other exploration programs in Colombia and Peru. Finally, in Argentina we continue to evaluate the gas potential of our properties to leverage off rising gas prices in the country. As has been the case before, we continue to have an exceptional balance sheet, with a fully funded capital program and no debt," said Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy Inc.
Third Quarter 2010 Financial Highlights:
Revenue and interest increased 12% to $84.6 million for the three months ended September 30, 2010 compared to $75.4 million in the same quarter in 2009 due to increased crude oil production in Colombia and an increase of 8% in realized crude oil prices. For the nine months ended September 30, 2010, revenue and interest increased 56% to $261.8 million compared to the same period in 2009 due to increased crude oil production in Colombia and an increase of 35% in realized crude oil prices.
Operating expenses for the third quarter of 2010 amounted to $19.4 million, a 113% increase from the same period in 2009 due to expanded operations, increased workovers and increased transportation costs. For the three months ended September 30, 2010, operating expenses on a barrel of oil ("boe") basis increased by 104% to $15.58 due to the impact of workovers and higher costs. Operating expenses for the nine months ended September 30, 2010 increased to $39.0 million, a 56% increase from the same period last year, also as a result of expanded operations, increased workovers and increased transportation costs. Operating expense per boe increased 34% to $10.25 per boe compared to $7.64 per boe in the same period in 2009 due to higher costs which more than offset the increased production.
Depletion, depreciation and accretion expense ("DD&A") for the current quarter of $35.3 million was comparable to the DD&A expense recorded in the same quarter in 2009 due to similar production levels. However, for the first nine months of 2010, DD&A expense increased by 12% to $107.2 million due to increased production levels in Colombia. On a boe basis, DD&A has decreased by 4% to $28.31 for the third quarter of 2010 and 3% to $28.16 for the nine months ended September 30, 2010 compared to the same periods in 2009 due to higher proved reserves.
General and administrative expense ("G&A") of $11.0 million and $27.8 million for the three month and nine months ended September 30, 2010 were 55% and 45% higher, respectively, than in the same periods in 2009 primarily due to increased employee related costs reflecting expanded operations. G&A expenses per boe increased 48% to $8.81 for the current quarter, compared to $5.94 for the third quarter of 2009, and increased by 25% to $7.31 for the first nine months ended September 30, 2010 compared to $5.86 for the same period in 2009 due to the same reasons cited above, but partially offset by increased production levels..
A foreign exchange loss of $16.3 million was recorded in the third quarter of 2010, of which $13.1 million is an unrealized non-cash foreign exchange loss. This compares to the $18.9 million foreign exchange loss recorded in the same quarter of 2009, of which $20.3 million was an unrealized non-cash foreign exchange loss. For the nine months ended September 30, 2010, a foreign exchange loss of $33.7 million was recorded, of which $27.1 million is an unrealized non-cash foreign exchange loss, compared to a foreign exchange loss of $32.4 million, of which $33.0 million was an unrealized non-cash foreign exchange loss in the same period in 2009. The unrealized foreign exchange losses arose 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 6% in the current quarter (12% for the nine months ended September 30, 2010) and 11% for the three months ended September 30, 2009 (14% for the nine months ended September 30, 2009) resulted in the foreign exchange losses.
A net loss of $3.3 million or $0.01 per share basic and diluted was recorded for the third quarter of 2010, compared to a net loss of $2.8 million, or $0.01 per share basic and diluted, for the same period in 2009. For the nine months ended September 30, 2010, net income of $24.1 million, or $0.10 per share basic and $0.09 per share diluted, was recorded compared to a net loss of $16.9 million, or $0.07 per share basic and diluted, for the same period in 2009.
Balance Sheet Highlights:
The company reported cash and cash equivalents of $308.4 million at September 30, 2010 as compared to $270.8 million at December 31, 2009. Working capital increased to $270.2 million at September 30, 2010, as compared to $215.2 million at December 31, 2009. Shareholders' equity increased to $869.1 million at September 30, 2010 from $816.4 million at December 31, 2009, and the company had no outstanding long-term debt as of September 30, 2010.
Average daily consolidated light and medium crude oil production for the three months ended September 30, 2010 increased 3% to 13,367 BOPD NAR compared to 12,945 BOPD NAR for the same period in 2009.
Production for the nine months ended September 30, 2010 averaged 13,830 BOPD NAR. Gran Tierra Energy's target for average production in 2010 is 14,000 to 16,000 BOPD NAR. Third quarter production was below the target range due to the OTA pipeline in Colombia being offline for 22 days in the third quarter. 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 September 30, 2010 increased 5% to 12,641 BOPD NAR compared to 12,035 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 September 30, 2010 decreased 20% to 726 BOPD NAR compared to 910 BOPD NAR for the same period in 2009 due to natural declines.
Gran Tierra Energy's 2010 drilling program for the remainder of this year is anticipated to include development drilling in the Costayaco Field, delineation drilling in the Moqueta Field and additional exploration drilling. Gran Tierra Energy expects to have four drilling rigs active during the fourth quarter, 2010.
Costayaco Field, Chaza Block
A planned water injection facility was completed in September, 2010. Water injection commenced in Costayaco-5 into the T Sand for reservoir pressure maintenance to maximize oil recovery and ensure optimum plateau production recovery.
Gran Tierra Energy has decided to drill two more development wells in the Costayaco Field. Costayaco-12 will be located north of Costayaco-11 and is intended as a water injector in the longer term, but initially will be used as a producer to drain reserves in the northern portion of the field. Costayaco-13 will be located at the southern end of the Costayaco Field and is being drilled as a producer to drain the southern flank of the field.
Moqueta Discovery, Chaza Block
The Moqueta-3 appraisal well was successfully drilled and logged; oil bearing reservoirs were confirmed in the Villeta U and T Sandstones and Caballos reservoir sandstones with additional interpreted oil potential in the Villeta U Sandstone confirming a total hydrocarbon column in the Caballos Formation of 670 feet. Based on wire-line test data, the T sand reservoir has a gas cap with a 239 feet gas column and 408 feet oil column. The base of the oil column has not been found yet. The Caballos reservoir also has a gas cap with 110 feet of gas column and 560 feet of oil column.
Civil works for Moqueta-4 is currently underway. The anticipated spud date for Moqueta-4 is early December, 2010. Land negotiations associated with the Moqueta to Costayaco pipeline are currently underway with pipeline construction expected to commence by mid-December and first oil production late in the first quarter of 2011.
2010 Exploration Wells, Colombia
The Pacayaco-1 exploration well in the Chaza Block began drilling November 3, 2010. This well is targeting the same reservoir targets on the same structural trend as the recent Moqueta oil discovery. Preliminary results are expected in approximately one month. The Taruka-1 well in the Piedmonte Sur Block will be drilled by a heli-portable rig and construction for the well pad is underway. Taruka-1 is expected to spud in early December 2010.
Popa-3 Appraisal Well, Rio Magdalena Block
The Popa-3 well was drilled and logged and gas bearing reservoirs were identified in the Monserrate Formation. The well has been cased and suspended. A testing program will likely commence when a work-over rig is available. Documentation regarding the Popa Field commerciality was presented to Ecopetrol for evaluation in mid-September.
- Chaza Block: A 48 km 2D seismic survey was initiated over the Moqueta area to assist in the mapping of the Pacayaco prospect and assist with reserve evaluation mapping on the Moqueta structure. This survey is currently 80% complete. A more extensive 110 km2 3D seismic program will be acquired over the Moqueta discovery and nearby prospects when the necessary permitting approvals have been acquired.
- Chaza Block: 96 km2 of 3D seismic was initiated over the Rio Guineo lead and to assist with the mapping of leads recognized on 2D seismic and the evaluation of the Pacayaco prospect.
- Piedmonte Norte Block: A 70 km 2D seismic survey has been planned over the Rio Blanco prospect. Gran Tierra Energy is currently waiting on permitting approval to commence the seismic survey.
- Piedmonte Sur Block: Permitting approval was obtained to acquire an additional 20 km of 2D seismic over the Garza prospect to mature this prospect to drillable status.
- Putumayo-1 Block: Planning and submission of permitting approval has commenced for the acquisition of a 130 km2 3D seismic program. This program is expected to commence in December 2010.
Exploration drilling in the Marañon Basin is expected to commence mid-December 2010 with Kanatari-1 well in Block 128, followed by Pichico-1 in Block 122. The drilling rig is currently being mobilized to Block 128.
On Block 128, 257 km of 2D seismic was acquired in fulfillment of the second exploration period commitments. The EIA approval for seismic and drilling has been approved for Block 122. The seismic contractor is now mobilizing to Block 122 to commence seismic acquisition, with completion expected in January 2011.
Gran Tierra Energy 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. ConocoPhillips, operator of Blocks 123, 124 and 129 in the Marañon Basin, has acquired 606 km of 2D seismic in fulfillment of the second exploration period within Block 123 and the seismic crew has now been mobilized to Block 129 to begin acquisition of 304 km of 2D seismic.
In August 2010, Gran Tierra Energy established initial exploration and production position in Brazil by finalizing an agreement with Alvorado Petroleo S.A., whereby Gran Tierra Energy will receive a 70% working interest in four Blocks in the onshore Recôncavo Basin, Brazil. The transaction is subject to Gran Tierra Energy obtaining the customary regulatory approval from Brazil's Agencia Nacional de Petroleo Gas Natural e Biocombsutiveis ("ANP"). Under the terms of the agreement Gran Tierra Energy will become the operator of the four blocks and has committed to drill an exploration well in each Block and pay its working interest share of the 3D seismic program. 93 km2 of 3D seismic acquisition is currently underway to evaluate new potential drilling targets.
Gran Tierra Energy will also assume its working interest share of a light oil discovery which has an unaudited estimated gross recoverable resource of 6 million barrels of oil. Gran Tierra Energy anticipates drilling additional wells to further delineate this discovery. The gross production from this discovery is currently 500 BOPD (gross).
Gran Tierra Energy continues to evaluate other new venture exploration and development opportunities in both the onshore and offshore of Brazil.
Santa Victoria Block
On August 2, 2010, Gran Tierra Energy's Environmental Impact Assessment was approved for the acquisition of 200 km2 of 3D seismic. The seismic campaign will evaluate potential oil and gas prospects with the intent to mature exploration drilling opportunities for 2011. Seismic acquisition commenced in October and will continue through November, 2010.
VM.x-1001 Well, Valle Morado Block
The Valle Morado-1001 re-entry operations started in the third quarter of 2010, with integrity testing and remediation operations required for the sidetrack operations. Due to operational difficulties the initial side-track attempt was not successful. Currently the operation has been placed on standby pending the arrival of additional side-track equipment, before recommencing the side-track operation in fourth quarter, 2010.
The revamping of the Gas Treatment Facilities was started with engineering design, procurement and contracting. The completion of the plant overhaul is planned for May, 2011.
- 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)