Gran Tierra Energy Inc. — Q2 2022 Form 10-Q
Business and period: International oil and gas exploration and production company with assets in Colombia and Ecuador. This report covers the quarter and six months ended June 30, 2022. Amounts below are U.S. dollars; figures are rounded to millions unless stated otherwise.
Financial and operating results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Oil sales | $205.8m | $96.6m | $380.4m | $192.1m |
| Income (loss) before tax | $91.6m | ($8.4m) | $145.3m | ($37.2m) |
| Net income (loss) | $53.0m | ($17.6m) | $67.1m | ($55.0m) |
| EPS, basic and diluted | $0.14 | ($0.05) | $0.18 | ($0.15) |
| Funds flow from operations (non-GAAP) | $103.6m | $23.3m | $190.9m | $52.2m |
| Capital expenditures | $65.2m | $37.4m | $106.7m | $74.8m |
| Free cash flow (non-GAAP) | $38.4m | ($14.1m) | $84.3m | ($22.6m) |
- Q2 NAR production was 23,215 barrels per day, up 22% year over year; sales were 22,847 BOPD, up 24%. Management attributed production growth to drilling and workovers at Acordionero and Costayaco.
- Q2 average Brent was $111.98/bbl versus $69.08; average realized price was $98.98/bbl versus $57.54. Operating netback, a non-GAAP measure, rose to $163.8m ($78.77/bbl) from $67.4m ($40.13/bbl).
- Operating expenses rose 50% to $39.5m in Q2, reflecting more workovers and higher power-generation costs. Transportation expense fell 16% to $2.5m. DD&A increased 46% to $42.2m.
- Q2 adjusted EBITDA, a non-GAAP measure, was $140.1m versus $36.3m. Derivative loss was $5.2m in Q2; first-half derivative loss was $26.6m. All commodity-price derivatives expired June 30, 2022.
- First-half operating cash flow was $247.0m, compared with $79.2m in 2021. Investing cash outflow was $95.7m and financing cash outflow was $67.5m; cash, cash equivalents and restricted cash ended at $114.5m.
Balance sheet, liquidity and material changes
- At June 30, cash and cash equivalents were $108.6m; current assets were $148.8m and current liabilities $210.7m.
- The company repaid the $67.5m revolving-credit balance during Q2; the facility was terminated after quarter-end. At June 30, long-term debt on the balance sheet was $595.9m, including $600m aggregate principal of senior notes due 2025 and 2027, net of issuance costs, and lease obligations. Shareholders’ equity was $371.7m.
- Compared with December 31, 2021, cash increased from $26.1m, current debt fell from $67.0m net carrying value to zero, and total shareholders’ equity increased from $302.1m. Taxes receivable declined substantially, while current taxes payable increased.
- Q2 oil sales increased 113% year over year, primarily due to higher Brent prices and sales volumes. For the first half, oil sales rose 98%; higher operating costs, taxes, differentials and royalty burden partly offset stronger prices and production. First-half effective tax rate was 54%, versus (48)% in the prior-year period.
Outlook, risks and contingencies
- Management said cash on hand, operating cash generation and borrowings under a planned new credit facility should support strategic objectives and the planned capital program for the next 12 months and beyond, assuming current oil-price trends and production levels. The company planned to replace the terminated facility with a smaller one and may access capital markets to finance or refinance its senior notes. No specific production, earnings or capital-spending guidance is provided in the filing text.
- Key exposures include oil-price volatility and differentials, Colombian peso and Canadian dollar movements, operating and transport disruption, local blockades or protests, political and regulatory conditions, inflation, and execution and reserve-replacement risks. The filing also identifies COVID-19 and geopolitical and global-market uncertainty.
- Pending claims include a dispute with Colombia’s National Hydrocarbons Agency over high-price-share royalties. Management believes resolution of pending matters will not materially adversely affect the company; outcomes cannot be predicted with certainty. Letters of credit and other credit support for work commitments and other requirements totaled $105.1m.
- Management reported compliance with applicable revolving-facility covenants at quarter-end and termination. It warned that a facility default could trigger a default under the senior-note indentures. Disclosure controls were deemed effective, and no material change in internal control was reported.
Important facts for investors to verify
- Whether and on what terms Gran Tierra secured the planned replacement credit facility, and its ability to refinance the $600m senior notes as they mature.
- Whether cash generation and the stated liquidity outlook hold if oil prices, production, differentials, costs or taxes change.
- Customer concentration: two Colombian customers accounted for 55% and 44% of Q2 sales volumes.
- Progress and costs of the drilling and workover program, including the exploration well reported dry at quarter-end.
- Collection and timing of tax receivables, tax payments, and resolution of the ANH royalty dispute and other contingencies.
- Non-GAAP measures are company-defined and may not be comparable across issuers; assess them alongside GAAP results and cash flows.