Gran Tierra Energy Inc. (NYSE:GTE) reported a solid financial and operational performance for the second quarter of 2024, with a net income of $36 million, or $1.16 per share. The company's operating net back stood at $113 million, supported by oil sales of $166 million and an average Brent price of $85.03 per barrel. Gran Tierra revised its 2022 tax return to utilize long-term tax receivables, effectively avoiding cash outflow for current tax liabilities.
Capital expenditures for the quarter were $61 million, leaving the company with a cash balance of $115 million and net debt of $521 million as of June 30th. The company's production increased by 2% from the previous quarter, averaging 32,776 barrels of oil per day, while operating expenses decreased by 3%, and transportation expenses rose due to low water levels in the Magdalena River. Gran Tierra remains positive about the second half of 2024 and is on track with its capital plan, including drilling in Ecuador and infrastructure completion in the Suroriente block.
Key Takeaways
- Gran Tierra Energy reported a net income of $36 million, or $1.16 per share.
- The company saw an operating net back of $113 million and oil sales of $166 million.
- A revised 2022 tax return will offset current tax liabilities with no cash outflow.
- Capital expenditures were $61 million, with a cash balance of $115 million and net debt of $521 million.
- Production averaged 32,776 barrels of oil per day, a 2% increase from the prior quarter.
- Operating expenses decreased by 3%, while transportation expenses increased by 24%.
- Positive exploration results in the Chanangue Block and plans for drilling in Ecuador.
- Company reiterates guidance for the year and reports a comfortable capital expenditure outlook.
Company Outlook
- Gran Tierra plans to drill high-impact near-field exploration wells in Ecuador in the latter half of 2024.
- Infrastructure completion in the Suroriente block will lead to the drilling of five wells in Q4 2024.
- The company maintains a positive outlook for the second half of the year and is confident in its capital plan.
Bearish Highlights
- Transportation expenses have increased by 24% due to low water levels in the Magdalena River, impacting costs.
Bullish Highlights
- Operating net back of $113 million indicates strong profitability.
- Successful exploration in the Chanangue Block with multiple zones showing reservoir and net pay.
- Repurchase of approximately 400,000 shares during the quarter, indicating confidence in the company's value.
Misses
- There were no significant misses reported in the earnings call.
Q&A Highlights
- The company is pleased with the first half results and looks forward to upcoming catalysts, reiterating their guidance for the year.
- Gran Tierra was able to utilize $85 million in non-capital losses at a higher tax rate, resulting in an acceleration of long-term receivables and the ability to collect an additional $65 million over the next three years.
- The company is comfortable with their capital expenditure guidance and does not expect a reversal of working capital in the next quarter.
Gran Tierra Energy's Q2 earnings call showcased a company navigating its financial and operational challenges with strategic tax moves and a focus on exploration and production. With an optimistic outlook for the remainder of the year and a solid plan for capital expenditure, Gran Tierra Energy aims to continue its trajectory of growth and operational efficiency.
InvestingPro Insights
Gran Tierra Energy Inc. (GTE) has demonstrated resilience and strategic financial management in its Q2 2024 performance, aligning with the recent data and insights from InvestingPro. The company's revenue growth has been modest but consistent, with a 3.94% increase in the last twelve months as of Q2 2024, and a quarterly revenue growth of 4.88%. This steady growth underscores the company's ability to navigate market conditions and maintain a positive trajectory in sales.
InvestingPro Tips highlight that Gran Tierra is expected to grow its net income this year, which is in line with the reported net income of $36 million for Q2. Analysts on InvestingPro also predict that the company will be profitable this year, reinforcing the optimistic outlook presented in the earnings call.
However, the stock has experienced significant volatility recently, with a considerable price decline over the last week and month, reflecting a -16.79% and -23.39% total return respectively. This could be indicative of market reactions to broader economic factors or operational challenges specific to the company. Despite these short-term fluctuations, the stock has seen a large price uptick over the last six months, boasting a 51.87% total return, which may appeal to investors with a longer-term perspective.
The company's gross profit margin stands strong at 68.0%, suggesting that Gran Tierra is effectively managing its cost of goods sold and maintaining profitability. This aligns with the reported decrease in operating expenses and a strong operating net back of $113 million for the second quarter.
For investors interested in a deeper analysis, there are additional InvestingPro Tips available, which provide further insights into Gran Tierra's financial health, stock performance, and market expectations. As of now, there are six more InvestingPro Tips that can be accessed for Gran Tierra Energy Inc. at https://www.investing.com/pro/GTE, offering valuable information for making informed investment decisions.
Full transcript - Gran Tierra Energy BATS (GTE) Q2 2024:
Operator: Good morning, ladies and gentlemen. And welcome to Gran Tierra Energy Results Conference Call for the Second Quarter of 2024. My name is Michelle, and I’ll 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 questions. I would like to remind everyone that this conference call is being webcast and recorded today, Thursday, August 1, 2024, at 11 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 regards 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 will 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’s second quarter 2024 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 Sebastien Morin, our Chief Operating Officer. On Wednesday, July 31, 2024, we issued a press release that included detailed information on our second quarter 2024 results, which is available on our website. Ryan and Sebastien will make a few brief comments and then we will open the line for questions. Ryan, please go ahead.
Ryan Ellson: Thank you, Gary. Good morning, everyone. I will start off by saying that we’re very pleased with how Gran Tierra has wrapped up the first half of 2024. During the second quarter, we were able to begin our high-impact exploration campaign that started off with the previously announced discovery at Arawana. In addition, we have also progressed a number of our development programs, including initiating civil works in the Suroriente Block to kick off a five-well drilling campaign with the second rig in the second half of 2024. During the quarter, Gran Tierra delivered net income of $36 million or $1.16 per share. Further, Gran Tierra achieved operating net back of $113 million, which is up from $105 million in the prior quarter and an adjustment of $103 million, which was up from $95 million in the prior quarter. The company also strategically revised its 2022 tax return during the quarter to use its long-term tax receivable balance to offset current tax liabilities, rather than applying net operating loss carry forwards. This decision was driven by higher current and future tax rates and increased profitability in Colombia. As a result, the current tax expense increased by $28 million, but this was offset by long-term tax receivable, resulting in no cash outflow. We were able to preserve our net operating loss carry forwards of approximately $85 million for future periods, providing greater tax benefit in 2024 and in the future. This tax initiative also allowed us to recover $18 million of taxes receivable in 2024 and accelerate the recovery of an estimated $65 million of taxes receivable over the next three years. During the quarter, the company spent $61 million in capital expenditures, which were higher than the $55 million in the prior quarter due to the commencement of the 3D seismic program in Ecuador and the drilling campaign. We also installed the final completion and artificial lift systems in the Costayaco development wells. As of June 30th, the company had a cash balance of $115 million and net debt of $521 million. The 12-month trailing net debt to EBITDA, adjusted EBITDA, was 1.3 times and expected to be less than 1 times by the year-end 2024 from a combination of increased EBITDA and lower net debt. Gran Tierra generated oil sales of $166 million, up 5% from the prior quarter due to higher Brent pricing and narrow Castilla and Vasconia oil differentials. Looking at pricing during the quarter, Brent averaged $85.03 per barrel, up 4% from the prior quarter. The company’s quality and transportation discounts per barrel during the quarter were $12.79, which significantly narrowed from the $15.36 in the prior quarter. The company’s operating net back was $38.80 per barrel, up 10% from the prior quarter. Share buyer backs continue to be a key area in which we allocate our free cash flow. Since January 1, 2023, Gran Tierra has repurchased approximately 3.9 million or 11% of the outstanding shares. During the quarter, Gran Tierra has repurchased approximately 400,000 shares. We’re looking forward to the second half of the year, where we plan to drill the remainder of our high-impact near-field exploration wells in Ecuador, including drilling two wells to further appraise the exciting Arawana discovery. As part of the fast-track appraisal program at Arawana, the drilling schedule and civil works have been accelerated to allow the drilling of these two wells prior to year-end. From a development perspective, we are completing the civil works associated with building infrastructure in the Cohembi pad in the Suroriente block to begin drilling the five wells from the single pad in the fourth quarter of 2024. We are very pleased about our first half results, and there are still many more catalysts in the second half of 2024. Lastly, I want to highlight that we also issued an S-3 yesterday, updating our shelf perspectives, that was set to expire in August 2024. This filing is routine in nature and the timing of its issuance is a direct result of the timing of the expiry. The process renews our S-3 shelf perspectives for a further three years. I’ll now turn the call over to Sebastien to discuss our operational highlights from our second quarter.
Sebastien Morin: Good morning, everyone. As Ryan mentioned, capital expenditures of $61 million were higher than the prior quarter of $55 million and down from $66 million compared to the second quarter of 2023. Total average working interest production during the quarter was 32,776 barrels of oil per day, an increase of 2% compared to the prior quarter, and up 4% on a per share basis since the second quarter of 2023. During the second quarter of 2024, Gran Tierra installed selective completions, systematically stimulated multiple zones and added electrical submersible pumps at 56, 57, 58 and 59, which were drilled as part of our first half 2024 development campaign. While the temporary offline status of these wells for the planned selective completion did impact second quarter production by about 700 barrels per day, the improvements have resulted in enhanced production with rates exceeding initial peak rates with all wells now back online. Given the ongoing positive performance from our core fields on water floods and recent exploration success, we remain very comfortable with our 2024 production guidance. Looking to operating expenses, they decreased by 3% to $47 million compared to the prior quarter, primarily due to lower work over activities as a result of continued improvement in artificial lift reliability. On a per oil basis, operating expenses also decreased by 1% when compared to the prior quarter as the company continues to focus on pushing forward further cost savings and operational efficiency initiatives. The company’s transportation expenses increased by 24% to $5.7 million compared to the prior quarter of $4.6 million due to El Nino phenomena causing low water levels in the Magdalena River, resulting in Gran Tierra utilizing longer delivery points. The river levels have now returned to normal conditions, allowing for use of our preferred shorter delivery routes for the second half of 2024. Our exploration program and the Chanangue Block remain very active with the drilling and installation of a multi-zone selective completion at the Bocachico Norte-J1 well. Log and core data indicated reservoir and net pay in multiple zones, including the Basal Tena sand, the T-sand and B-limestone. Testing is now underway and expected to continue throughout the third quarter. Note that although the B-limestone was not a primary target, it had positive shows while drilling indicating it may be connected to a productive fracture network. The completion installed will allow for efficient multi-zone selective stimulation, production, and commingling of the Basal Tena sand, T-sand and B-limestone. In addition, the Arawana-J1 and Bocachico-J1 wells continue to yield strong production results with a combined 1,600 barrels of oil per day to 1,800 barrels of oil per day. Gran Tierra plants convert both wells from jet pump to electrical submersible pumping systems in the second half of 2024 to further increase production rates. Upon finishing the drilling of the Bocachico Norte-J1 well, the rig was moved over to the Charapa Block on July 14th. The Charapa B6 well was spudged, with the primary target being the Hollin formation. The well has reached total depth of 11,170 feet on July 31st after successfully logging and pouring the zones of interest. We are seeing very encouraging results in the Charapa B6 well, which has been poured with excellent oil shows throughout the Hollin formation. We anticipate finalizing drilling and completion operations early in August with testing planned to begin immediately afterwards. Following the drilling of the Charapa B6 well, the rig will begin drilling the Charapa B7 well from the same pad in the third quarter of 2024. Also on the Charapa Block, the 3D seismic program has been completed and the data is currently being processed. Preliminary interpretations of the high-quality 3D seismic data confirms potential prospectivity and additional areas of interest, including better definition and confidence in our reserve estimates over the Charapa structure. The 3D seismic data will further delineate reserves, underpin future drilling locations scheduled for 2025, and support future development planning. Overall, the company continues to follow through on the capital plan and is experiencing early success in the 2024 exploration campaign. We remain optimistic about the second half of 2024, where we are drilling some very exciting wells in both the Charapa and Chanangue Blocks. I’ll now turn the call back to the, Operator, and we will be happy to answer any questions. Operator, please go ahead.
Operator: Thank you. [Operator Instructions] Our first question comes from Alejandra Andrade with JPM. Your line is open.
Alejandra Andrade: Hi. Good morning. Thanks for taking my question. I just have two questions. First, I wanted to discuss a little bit the production outlook for the second half of the year. And then also, if you could give a little bit more color on all the tax moves that are happening in the numbers, that would be great? Thank you.
Ryan Ellson: I think we’re very, very pleased with our first half results and continue to look forward to our exciting catalysts that are coming. As we’ve just stated, both of our two new exploration wells are currently on testing, which we’re happy with. And so we continue to reiterate our guidance for the year.
Alejandra Andrade: Perfect.
Gary Guidry: And on the taxes, yeah, and probably, the best thing is if you look in the notes in the financial statements, we did put a reconciliation to try to explain some of the movements. But effectively, what we were able to do with the refiling is just to keep $85 million of non-capital losses. Those rates were done at a 35% tax rate, with the current rate being 50%. So we get -- and so we get the benefit of utilizing those losses in a higher tax rate environment. That’s the first one. But it also allowed us to accelerate some of these long-term receivables that we had. So although we had to book a current tax expense, there was no cash outflow. We actually netted the payable that was generated from that refiling with long-term receivable that we had. So really, there was acceleration of those receivables. It allows us to collect further money $65 million over the next three years.
Alejandra Andrade: Great. Thanks.
Ryan Ellson: You’re welcome.
Operator: Thank you. Our next question comes from Diego Espinoza with BTG Pactual. Your line is open.
Diego Espinoza: Hi. Thank you for taking my question. Can you hear me?
Ryan Ellson: Yeah. We hear you.
Diego Espinoza: Perfect. Just have a couple of questions. First one is that CapEx, right now you have around $120 million. How much do you expect to spend during the second half of the year? And in terms of working capital, we saw some relief during this quarter. Do you expect that this should be reversed during the next quarter or in the fourth quarter? That’s it.
Ryan Ellson: Great. Yeah. On the capital guidance, we’re comfortable with the guidance that we have in the market right now. So we think that’s a reasonable range given our first half results and our program for the second half. And then with respect to working capital, yeah, a lot of that working capital release was from the tax balance and moving the long-term receivable into current receivable. I’m sorry, long-term into current. So we don’t expect that to reverse the following quarter. But it was more of a one-time item this quarter.
Diego Espinoza: Perfect. Thank you very much.
Ryan Ellson: Great. Thank you.
Operator: Thank you. Gentlemen, there are no further questions at this time. Please continue.
Gary Guidry: Okay. Thank you, Operator. I would like to thank everyone once again for joining us today. We look forward to speaking with you over the next quarter and update you on our ongoing progress. Thank you very much.
Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.
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