Business context and reporting period
Gran Tierra Energy Inc. filed this Form 10-K for the fiscal year ended December 31, 2020 (not a standalone fourth-quarter report). The company explores for and produces oil and gas in Colombia and Ecuador; Colombia accounted for all proved reserves and revenue in 2020. All amounts below are U.S. dollars unless stated otherwise.
Financial and operating results
| Metric | 2020 | 2019 |
|---|---|---|
| Oil sales | $237.8 million | $571.0 million |
| Net income (loss) | $(778.0) million; $(2.12) per share | $38.7 million; $0.10 per share |
| Cash provided by operating activities | $81.1 million | $177.7 million |
| Funds flow from operations (non-GAAP) | $45.2 million | $272.4 million |
| Adjusted EBITDA (non-GAAP) | $96.5 million | $329.4 million |
| Capital expenditures | $96.3 million | $379.3 million |
| Average production, net after royalty | 20,072 bopd | 29,015 bopd |
| Average realized oil price | $32.23/bbl | $53.68/bbl |
| Operating netback (non-GAAP) | $115.4 million; $15.64/bbl | $367.4 million; $34.53/bbl |
Reported operating expenses were $111.9 million, or $15.16/bbl, versus $183.2 million, or $17.23/bbl, in 2019. The filing does not provide a single consolidated operating-margin percentage.
Debt and liquidity
At year-end, cash and cash equivalents were $13.7 million, with another $0.4 million of current restricted cash. Working capital surplus, including cash, was $20.2 million, down from $91.3 million. Debt principal comprised $190.0 million drawn on the revolving facility and $600.0 million of senior notes; balance-sheet long-term debt, after issuance-cost deductions and including lease obligations, was $774.8 million. The notes bear interest at 6.25% and 7.75% and mature in 2025 and 2027, respectively.
The revolver’s borrowing base was reduced from $300 million to $215 million during 2020; $190 million was drawn at year-end. Covenant relief ran through October 1, 2021. The company reported compliance with applicable covenants at December 31, 2020, but noted borrowing-base and covenant risks. Operating cash flow was below capital expenditures in 2020.
Material changes versus 2019
- Oil sales fell 58%, reflecting a 33% decline in Brent and a 31% decline in sales volumes; production was reduced amid the pandemic, low prices, and a local blockade affecting certain fields.
- The company recorded $560.3 million of oil and gas property ceiling-test impairment, $4.2 million of inventory impairment, and $102.6 million of goodwill impairment. These non-cash charges were major contributors to the annual loss.
- Operating expenses per barrel declined 12%, and G&A before stock-based compensation fell 32%, following cost reductions and field shut-ins.
- Proved reserves declined 4% to 65.0 MMBOE. Proved undeveloped reserves fell from 31.0 to 26.2 MMBOE.
- Revolving-facility borrowings increased from $118 million to $190 million. Cash from operations declined 54%; capital expenditures fell 75%.
Outlook, risks, contingencies, and unusual items
Management’s 2021 capital budget was $130–$150 million, including 14–18 Colombian development wells and exploration spending in Colombia and Ecuador. The company expected to fund the program from operating cash flow, with that expectation relying in part on Brent of at least $49/bbl. It expected about 98% of the budget to be allocated to Colombia and reported that 2021 drilling had begun.
Risks include oil-price and demand volatility, continuing COVID-19 effects, reserve and impairment uncertainty, concentrated Colombian operations, community and security disruptions, permitting and environmental exposure, and foreign-exchange movements. Management forecast covenant compliance under its stated price and production assumptions, but warned that liquidity and borrowing capacity could not be assured. The next borrowing-base redetermination was due by May 2021.
The company was discussing with Colombia’s hydrocarbons agency (ANH) whether certain transportation and related costs may be deducted in calculating high-price-share royalties; management did not expect resolution to materially affect the company, though the outcome was uncertain. Other pending claims were also described as not expected to have a material adverse effect. The company spent $1.3 million in 2020 on cleanup of historical spills in the Suroriente Block.
After year-end, Gran Tierra sold 44% of its PetroTal shareholding for approximately $14.8–$14.9 million and recorded a $5.1 million loss; it retained 17% of PetroTal’s outstanding shares. The financial statements received an unqualified audit opinion, and KPMG also reported effective internal control over financial reporting.
Most important facts for investors to verify
- Whether operating cash flow and oil prices support the $130–$150 million 2021 program without additional borrowing or spending cuts.
- The May 2021 borrowing-base redetermination, covenant headroom after October 1, 2021, and the company’s ability to service debt.
- Production recovery, realized prices and differentials, and performance of the concentrated Acordionero, Costayaco, Moqueta, and Cohembi fields.
- Reserve revisions and the potential for further impairments under changing commodity-price assumptions.
- The ANH royalty-cost dispute, collection of tax receivables, and any material changes in community, security, permitting, or environmental conditions.