Gran Tierra Acquires Strategic Assets in Putumayo and Llanos Basins
February 20, 2019 - 4:43 PM EST
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Gran Tierra Acquires Strategic Assets in Putumayo and Llanos Basins
CALGARY, Alberta, Feb. 20, 2019 (GLOBE NEWSWIRE) -- Gran Tierra Energy Inc. (“Gran Tierra” or the “Company”) (NYSE American:GTE)(TSX:GTE)(LSE:GTE), a company focused on oil exploration and production in Colombia, announced today it has entered into agreements with private companies (the “Vendors”) to acquire the Vendors’:
Working interest (“WI”) in and operatorship of the Suroriente Block (“Suroriente”), which would increase Gran Tierra’s WI in Suroriente from 15.83% to 52%
50% WI in and operatorship of the Putumayo-8 Block (“PUT-8”), which is contiguous with Suroriente and Gran Tierra’s PUT-31 Block (100% WI)
100% WI in the Llanos-5 Block (“LLA-5”), which is contiguous with Gran Tierra’s LLA-1, -10 and -70 Blocks, representing a new core area for the Company
The purchase price for this acquisition is $104.2 million, subject to certain adjustments and the satisfaction of certain customary conditions. All dollar amounts are in United States ("U.S.") dollars unless otherwise indicated.
All reserves, future net revenue and production are on a WI before royalties basis unless otherwise indicated. Transfer of operatorship is subject to regulatory recognition and the terms of any applicable joint operating agreements.
Key Acquisition Highlights
Highly strategic acquisition further strengthens and consolidates Gran Tierra’s position as the premier operator and top landholder in the Putumayo Basin, and makes the Company the operator of 100% of its Putumayo Blocks
Consistent with Gran Tierra’s focused strategy to grow the Company’s exploration, development and production opportunity portfolio within Colombia
As of December 31, 2018, the Vendors’ Suroriente WI had:(1) ° Proved plus probable (“2P”) reserves of 6.1 million barrels of oil (“MMbbls”) ° $175 million of 2P before tax free cash flow(2) forecasted over the next 5 years ° 2P before tax net present value discounted at 10% (“NPV10”) of $140 million ° 2P plus possible (“3P”) reserves of 8.1 MMbbls ° 3P NPV10 of $202 million
Current production of approximately 2,200 barrels (“bbl”) of oil per day (“bopd”)
By securing operatorship of Suroriente, Gran Tierra expects to accelerate waterflooding on the Block, which is forecasted to further increase value
Gran Tierra believes PUT-8 contains at least two exciting drill-ready exploration prospects, which could potentially be drilled in 2019 using existing pads. The addition of the LLA-5 Block compliments Gran Tierra’s existing acreage in the Llanos Basin and creates a contiguous land base of 620,000 gross acres (525,000 net acres) located near the prolific Cano Limon production complex and the Capachos block The acquisition is expected to be funded from cash on hand and existing credit facilities with no need for external financing
In order to maintain the Company’s currently strong balance sheet, Gran Tierra intends to reduce its 2019 capital program by approximately $30 million to $50 million, with an immaterial expected impact on the Company’s 2019 average production
Gran Tierra plans to provide updated 2019 guidance with the release of its fourth quarter and year end 2018 results on or before February 27, 2019
Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented “This highly strategic acquisition further consolidates our dominant position in the Putumayo Basin, with assets that are highly complementary to our existing land base, and adds a new core area in the Llanos Basin. A major US independent has also acquired a material position in the Putumayo and Llanos basins, offsetting Gran Tierra.
The acquisition immediately adds production, reserves, cash flow and drill-ready exploration prospects to our portfolio. We are excited by the opportunity to accelerate Suroriente’s already successful waterflood in the Cohembi N Sand field and to apply technical knowledge from this field to our N Sand plays across the Putumayo Basin.
This acquisition fits perfectly with Gran Tierra’s focused strategy by further expanding our portfolio in the proven, underexplored Putumayo Basin, with access to established infrastructure. We will also become the operator of 100% of our Putumayo asset base and have complete flexibility and control over the allocation of our capital in the Putumayo.”
Maps
Below are links to maps covering Gran Tierra’s expected updated acreage position in the Putumayo and Llanos Basins following this acquisition.
Acquisition metrics, based on the purchase price of $104.2 million, are expected to be approximately as follows:
Q1/2019 Average Production:
$47,364 per bopd
2018 Operating Netback(2)
$29.24 per bbl
December 31, 2018 2P Reserves(1):
$17 per bbl
December 31, 2018 3P Reserves(1):
$13 per bbl
2P Recycle Ratio
1.7 times
2019 2P Before Tax Cash Flow(2)
$33 million
Cash Flow Multiple
3.2 times
2020 2P Before Tax Cash Flow(2)
$55 million
Cash Flow Multiple
1.9 times
Notes: (1) Reserves and future net revenue information in this press release localized to Suroriente are derived from the Company’s estimated reserves as evaluated by the Company's independent qualified reserves evaluator McDaniel & Associates Consultants Ltd. (“McDaniel”) in accordance with Canadian National Instrument 51-101 – Standards for Oil and Gas Activities (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (“COGEH”) in a report with an effective date of December 31, 2018 (the “GTE McDaniel Reserves Report”) by a member of management who is a qualified reserves evaluator in accordance with NI 51-101 and COGEH as of the same date as Gran Tierra owned a 15.8% WI in Suroriente and such information in this press release was derived by proportionately allocating such information to the WI being acquired. (2) Free cash flow, cash flow and operating netback are non-GAAP measures and do not have standardized meanings under generally accepted accounting principles in the United States of America (“GAAP”). Refer to “Non-GAAP Measures” in this press release. Free cash flow is called net revenue in the GTE McDaniel Reserves Report. The non-GAAP terms of free cash flow and cash flow reconcile to the nearest GAAP term of oil and gas sales, which is called sales revenue in the GTE McDaniel Reserves Report. Refer to "Oil and Gas Metrics" in this press release for a description of how these non-GAAP measures are calculated.
Further Details of the Transaction
Gran Tierra’s indirect wholly-owned subsidiaries, Gran Tierra Resources Limited (“GTRL”) and Gran Tierra Energy Colombia, LLC, through its Colombian branch (“GTEC”), and its indirect partially-owned subsidiary Southeast Investment Corporation (“SIC”, and together with GTRL and GTEC the “Purchasers”), have today entered into sale agreements (collectively, the "SPA") with the Vendors, pursuant to which the Purchasers agreed to purchase from Vetra Energia S.L. all of the issued and outstanding shares of Vetra Southeast S.L.U. (“Vetra Southeast”), together with Vetra Exploracion y Produccion Colombia S.A.S.’s 50% working interest in PUT-8 and 100% working interest in LLA-5 and its entire interest in Suroriente, subject to the satisfaction of certain conditions as set out in the SPA (the “Transactions”). At the conclusion of the Transactions, Gran Tierra will, through SIC and its Colombian branch, which will be at that time an indirect wholly-owned subsidiary of Gran Tierra, hold a 52% working interest in Suroriente, with the remaining 48% working interest held by Ecopetrol S.A.
The Transactions related to Vetra Southeast, Suroriente and LLA-5 are planned to close shortly following the provision of notice to the Superintendence of Industry and Commerce of the Republic of Colombia, and is expected close on or before March 11, 2019. The Transactions related to Suroriente are expected to be closed immediately following the Transactions related to Vetra Southeast, at which time SIC will be an indirect wholly-owned subsidiary of Gran Tierra. The Transactions related to PUT-8 are subject to a right of first refusal.
Gran Tierra Energy Inc. together with its subsidiaries is an independent international energy company focused on oil and natural gas exploration and production in Colombia. The Company is focused on its existing portfolio of assets in Colombia and will pursue new growth opportunities throughout Colombia, leveraging our financial strength. The Company’s common shares trade on the NYSE American, Toronto Stock Exchange and London Stock Exchange under the ticker symbol GTE. Additional information concerning Gran Tierra is available at www.grantierra.com. Information on the Company's website does not constitute a part of this press release. Investor inquiries may be directed to info@grantierra.com or (403) 265-3221.
Gran Tierra's Securities and Exchange Commission filings are available on the Securities and Exchange Commission website at https://www.sec.gov and on SEDAR at http://www.sedar.com.
Forward Looking Statements and Legal Advisories:
This press release contains opinions, forecasts, projections, and other statements about future events or results that constitute forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and financial outlook and forward looking information within the meaning of applicable Canadian securities laws (collectively, "forward-looking statements"). The use of the words “forecast,” “expect,” “plan,” “guidance,” “intend,” "will" and "believes", derivations thereof and similar terms identify forward-looking statements. In particular, but without limiting the foregoing, this press release contains forward-looking statements regarding: the satisfaction of the conditions to the closing of the Transactions, our ability, and the ability of the other parties to the Transactions, to complete the Transactions, the anticipated benefits of the Transactions to Gran Tierra and its shareholders, 2019 cash-flow, five-year expected free cash flow and future net revenue. The forward-looking statements contained in this press release reflect several material factors and expectations and assumptions of Gran Tierra including, without limitation, that Gran Tierra will continue to conduct its operations in a manner consistent with its current expectations, the accuracy of testing and production results and seismic data, pricing and cost estimates (including with respect to commodity pricing and exchange rates), rig availability, the effects of waterflood and the general continuance of current or, where applicable, assumed operational, regulatory and industry conditions including in areas of potential expansion, and the ability of Gran Tierra to execute its current business and operational plans in the manner currently planned.
Among the important factors that could cause actual results to differ materially from those indicated by the forward-looking statements in this press release are: sustained or future declines in commodity prices and potential resulting future impairments and reductions in proved reserve quantities and value; Gran Tierra's operations are located in South America, and unexpected problems can arise due to guerrilla activity; technical difficulties and operational difficulties may arise which impact the production, transport or sale of our products; geographic, political and weather conditions can impact the production, transport or sale of our products; the risk that current global economic and credit conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts; the ability of Gran Tierra to execute its business plan; the risk that unexpected delays and difficulties in developing currently owned properties may occur; the timely receipt of regulatory or other required approvals for our operating activities; the failure of exploratory drilling to result in commercial wells; unexpected delays due to the limited availability of drilling equipment and personnel; the risk that oil prices could continue to fall, or current global economic and credit market conditions may impact oil prices and oil consumption more than Gran Tierra currently predicts, which could cause Gran Tierra to further modify its strategy and capital spending program; and the risk factors detailed from time to time in Gran Tierra's periodic reports filed with the Securities and Exchange Commission, including, without limitation, under the caption "Risk Factors" in Gran Tierra's Annual Report on Form 10-K filed February 27, 2018 and subsequent Quarterly Reports on Form 10-Q. These filings are available on the Securities and Exchange Commission website at http://www.sec.gov and on SEDAR at www.sedar.com.
Statements relating to “reserves” are also deemed to be forward-looking statements, as they involve the implied assessment, based on certain estimates and assumptions, including that the reserves described can be profitably produced in the future.
The forward-looking statements contained in this press release are based on certain assumptions made by Gran Tierra based on management's experience and other factors believed to be appropriate. Gran Tierra believes these assumptions to be reasonable at this time, but the forward-looking statements are subject to risk and uncertainties, many of which are beyond Gran Tierra's control, which may cause actual results to differ materially from those implied or expressed by the forward looking statements. All forward-looking statements are made as of the date of this press release and the fact that this press release remains available does not constitute a representation by Gran Tierra that Gran Tierra believes these forward-looking statements continue to be true as of any subsequent date. Actual results may vary materially from the expected results expressed in forward-looking statements. Gran Tierra disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable.
Non-GAAP Measures
This press release includes non-GAAP measures which do not have a standardized meaning under GAAP. Investors are cautioned that these measures should not be construed as alternatives to net loss or other measures of financial performance as determined in accordance with GAAP. Gran Tierra's method of calculating these measures may differ from other companies and, accordingly, they may not be comparable to similar measures used by other companies.
Operating netback as presented is defined as oil and gas sales less operating and transportation expenses. Management believes that operating netback is a useful supplemental measure for management and investors to analyze financial performance and provides an indication of the results generated by our principal business activities prior to the consideration of other income and expenses. A reconciliation from oil and gas sales to operating netback for the Transactions is as follows:
Year Ended December 31, 2018 ($/boe)
Oil and natural gas sales
49.91
Workover expenses
2.05
Lifting expenses
18.68
Transportation expenses
(0.06)
Total operating costs
20.67
Operating netback
29.24
Free cash flow as presented is defined as GAAP net cash provided by operating activities less projected capital spending. Management believes that free cash flow is a useful supplemental measure for management and investors to in order to evaluate the financial sustainability of the Company's business. Gran Tierra is unable to provide a quantitative reconciliation of forward-looking free cash flow to its most directly comparable forward-looking GAAP measure because management cannot reliably predict certain of the necessary components of such forward-looking GAAP measure.
DISCLOSURE OF OIL AND GAS INFORMATION
Gran Tierra's Statement of Reserves Data and Other Oil and Gas Information on Form 51-101F1 dated effective as at December 31, 2018, which will include further disclosure of its oil and gas reserves and other oil and gas information in accordance with NI 51-101 forming the basis of certain information in this press release, will be available on SEDAR at www.sedar.com on or before February 27, 2019.
Estimates of net present value and future net revenue contained herein do not necessarily represent fair market value. Estimates of reserves and future net revenue for individual properties may not reflect the same level of confidence as estimates of reserves and future net revenue for all properties, due to the effect of aggregation. There is no assurance that the forecast price and cost assumptions applied by McDaniel in evaluating Gran Tierra’s reserves will be attained and variances could be material.
All evaluations of future net revenue contained in the GTE McDaniel Reserves Report, are after the deduction of royalties, operating costs, development costs, production costs and abandonment and reclamation costs but before consideration of indirect costs such as administrative, overhead and other miscellaneous expenses. It should not be assumed that the estimates of future net revenues presented in this press release represent the fair market value of the reserves. There are numerous uncertainties inherent in estimating quantities of crude oil, reserves and the future cash flows attributed to such reserves. The reserve and associated cash flow information set forth in the GTE McDaniel Reserves Report or derived therefrom are estimates only.
BOEs have been converted on the basis of six thousand cubic feet (“Mcf”) natural gas to 1 barrel of oil. BOEs may be misleading, particularly if used in isolation. A BOE conversion ratio of 6 Mcf: 1 bbl is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the wellhead. In addition, given that the value ratio based on the current price of oil as compared with natural gas is significantly different from the energy equivalent of six to one, utilizing a BOE conversion ratio of 6 Mcf: 1 bbl would be misleading as an indication of value.
Definitions
Proved reserves are those reserves that can be estimated with a high degree of certainty to be recoverable. It is likely that the actual remaining quantities recovered will exceed the estimated proved reserves.
Probable reserves are those additional reserves that are less certain to be recovered than proved reserves. It is equally likely that the actual remaining quantities recovered will be greater or less than the sum of the estimated proved plus probable reserves.
Possible reserves are those additional reserves that are less certain to be recovered than probable reserves. There is a 10% probability that the quantities actually recovered will equal or exceed the sum of proved plus probable plus possible reserves.
Certain terms used in this press release but not defined are defined in NI 51-101, CSA Staff Notice 51-324 - Revised Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities (“CSA Staff Notice 51-324”) and/or COGEH and, unless the context otherwise requires, shall have the same meanings herein as in NI 51-101, CSA Staff Notice 51-324 and the COGEH, as the case may be.
Oil and Gas Metrics
This press release contains a number of oil and gas metrics, including cash flow, free cash flow, operating netback and recycle ratio, which do not have standardized meanings or standard methods of calculation and therefore such measures may not be comparable to similar measures used by other companies and should not be used to make comparisons. Such metrics have been included herein to provide readers with additional measures to evaluate the Transactions’ metrics; however, such measures are not reliable indicators of the future performance of the assets in question and future performance may not compare to the performance in previous periods.
Before tax cash flow and free cash flow are non-GAAP terms and are called net operating income and before tax net revenue in the GTE McDaniel Reserves Report, respectively. The non-GAAP term of before tax cash flow reconciles to the nearest GAAP term of oil and gas sales, which is called sales revenue in the GTE McDaniel Reserves Report. Before tax net revenue is calculated by McDaniel by subtracting total royalties, operating costs and abandonment and reclamation costs from sales revenue. Free cash flow is calculated by McDaniel by subtracting future development capital from net operating income. Management uses before tax cash flow and free cash flow as a measure of an oil and gas property’s capacity to provide funding for the Company.
Operating netback is calculated as described in this press release and used by management for the reasons described in this press release.
Recycle ratio is calculated as 2018 operating netback divided by the 2P acquisition metric per BOE. Management uses recycle ratio to assess the profitability per BOE of production from and oil and gas field relative to the field cost of acquiring that BOE.
Disclosure of Reserve Information and Cautionary Note to U.S. Investors
Unless expressly stated otherwise, all estimates of proved, probable and possible reserves and related future net revenue disclosed in this press release have been prepared in accordance with NI 51-101. Estimates of reserves and future net revenue made in accordance with NI 51-101 will differ from corresponding estimates prepared in accordance with applicable U.S. Securities and Exchange Commission (“SEC”) rules and disclosure requirements of the U.S. Financial Accounting Standards Board (“FASB”), and those differences may be material. NI 51-101, for example, requires disclosure of reserves and related future net revenue estimates based on forecast prices and costs, whereas SEC and FASB standards require that reserves and related future net revenue be estimated using average prices for the previous 12 months. In addition, NI 51-101 permits the presentation of reserves estimates on a “company gross” basis, representing Gran Tierra’s working interest share before deduction of royalties, whereas SEC and FASB standards require the presentation of net reserve estimates after the deduction of royalties and similar payments. There are also differences in the technical reserves estimation standards applicable under NI 51-101 and, pursuant thereto, the COGEH, and those applicable under SEC and FASB requirements.
In addition to being a reporting issuer in certain Canadian jurisdictions, Gran Tierra is a registrant with the SEC and subject to domestic issuer reporting requirements under U.S. federal securities law, including with respect to the disclosure of reserves and other oil and gas information in accordance with U.S. federal securities law and applicable SEC rules and regulations (collectively, “SEC requirements”). Disclosure of such information in accordance with SEC requirements is included in the Company's Annual Report on Form 10-K and in other reports and materials filed with or furnished to the SEC and, as applicable, Canadian securities regulatory authorities. The SEC permits oil and gas companies that are subject to domestic issuer reporting requirements under U.S. federal securities law, in their filings with the SEC, to disclose only estimated proved, probable and possible reserves that meet the SEC's definitions of such terms. Gran Tierra has disclosed estimated proved, probable and possible reserves in its filings with the SEC. In addition, Gran Tierra prepares its financial statements in accordance with United States generally accepted accounting principles, which require that the notes to its annual financial statements include supplementary disclosure in respect of the Company's oil and gas activities, including estimates of its proved oil and gas reserves and a standardized measure of discounted future net cash flows relating to proved oil and gas reserve quantities. This supplementary financial statement disclosure is presented in accordance with FASB requirements, which align with corresponding SEC requirements concerning reserves estimation and reporting.
