Gran Tierra Energy Inc. — Q2 2021 Form 10-Q
Business and period: International oil and gas producer with operations in Colombia and Ecuador. This unaudited report covers the quarter and six months ended June 30, 2021; amounts are in U.S. dollars unless stated otherwise.
Financial and operating results
| Metric | Q2 2021 | Comparison |
|---|---|---|
| Oil sales | $96.6 million | Up 186% year over year; broadly level with Q1 2021 ($95.5 million) |
| Net loss | $17.6 million; $0.05 per share | Versus $370.6 million loss, or $1.01 per share, in Q2 2020 |
| Operating netback | $68.3 million; $40.66 per sales barrel | Versus $11.2 million; $6.40 per barrel, in Q2 2020 |
| Adjusted EBITDA | $36.3 million | Up 103% year over year; down 13% from Q1 |
| Funds flow from operations | $23.3 million | Up 290% year over year; down 20% from Q1 |
| Production NAR / sales | 18,976 / 18,454 BOPD | Production up 3% and sales down 4% year over year; production down 8% from Q1 |
Higher Brent prices and lower quality and transportation discounts drove the year-over-year oil-sales increase, partly offset by lower sales volumes. Average Brent was $69.08 per barrel, versus $33.39 a year earlier. Operating expenses rose 31% year over year in Q2, but six-month operating expenses fell 14% versus 2020. Q2 depletion, depreciation and accretion was $28.9 million, down 32% year over year. No property or goodwill impairment was recorded in the first half of 2021; the comparable 2020 period included $402.4 million of asset impairment and $102.6 million of goodwill impairment.
Cash flow and investment: For the six months, operating cash flow was $79.2 million, capital additions were $74.8 million, and cash flow after investing activities was positive $22.2 million, including $14.6 million of net proceeds from a PetroTal share sale. Cash, including restricted cash, rose by $6.0 million to $23.6 million. Funds flow from operations and adjusted EBITDA are non-GAAP measures.
Debt and liquidity: June 30 cash and cash equivalents were $20.0 million. The company had $175.0 million drawn on its revolving facility, with a $215 million borrowing base and $40 million of reported availability. It also had $300 million of 6.25% senior notes due 2025 and $300 million of 7.75% notes due 2027. Balance-sheet long-term debt, including lease obligations and net of issuance costs, was $759.8 million. Q2 included a $5.0 million revolver repayment; first-half repayments were $15.0 million.
Changes, outlook and risks
- Colombian national blockades disrupted production and transport during Q2. The company estimated approximately 597,000 barrels were deferred; blockades were resolved by quarter-end. Different routes contributed to higher transport costs versus Q1.
- Management forecast covenant compliance for at least the next year based on its then-current assumptions for Brent prices and production, while cautioning that those assumptions could change materially. The borrowing base was due for redetermination no later than November 2021.
- Covenant relief ran through October 1, 2021. During that period, the filing specifies a maximum senior-secured-debt-to-EBITDAX ratio of 2.5:1 and minimum interest coverage of 2.0:1 for the June and September 2021 tests. After relief, stated limits include total debt-to-EBITDAX of 4.0:1, senior secured debt-to-EBITDAX of 3.0:1, and interest coverage of at least 2.5:1. The company reported compliance with applicable covenants at June 30.
- For July–December 2021, commodity hedges covered 7,000 BOPD through three-way collars and 3,000 BOPD through swaps. Derivative liabilities were $26.6 million at June 30; first-half derivative losses were $44.9 million, including unrealized effects and settlements.
- COVID-19-related operating and transportation costs were $0.9 million in Q2 and $2.0 million in the first half. Management cited commodity-price volatility, possible borrowing-base reductions, covenant and refinancing risk, operational and transport disruption, and COVID-19 restrictions as uncertainties.
- The company sold 44% of its PetroTal holding during the first half, receiving $14.6 million net and recording a $5.1 million loss on sale; it retained approximately 17% of PetroTal. It reported pending claims, including a dispute with Colombia’s National Hydrocarbons Agency over high-price-share royalties, and stated it did not expect their resolution to have a material adverse effect. Letters of credit and other credit support totaled $103.5 million.
- No specific production, capital-spending, or earnings guidance is stated in the supplied filing text. The filing says there were no off-balance-sheet arrangements and that disclosure controls were effective at June 30, 2021.
Key facts for investors to verify
- Actual production recovery after the blockades, deferred-barrel status, and subsequent realized prices and discounts.
- November 2021 borrowing-base redetermination, revolver availability, and covenant compliance after covenant relief ends.
- Cash conversion versus capital spending and debt service, including the effect of hedge settlements.
- Hedge terms, future derivative cash settlements, and exposure to oil-price and Colombian-peso movements.
- Collection timing and recoverability of the $73.8 million in taxes receivable, plus developments in the ANH dispute and other contingencies.