Gran Tierra Energy Inc. — Q1 2021 Form 10-Q
Business and period: International oil and gas exploration and production company with assets in Colombia and Ecuador. This unaudited report covers the three months ended March 31, 2021; financial amounts below are U.S. dollars.
Financial and operating performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Oil sales | $95.5 million | $86.1 million |
| Net loss | $37.4 million; $0.10 per share | $251.6 million; $0.69 per share |
| Cash from operations | $41.9 million | $5.5 million |
| Capital expenditures | $37.4 million | $44.3 million |
| Production, net after royalties | 20,533 BOPD | 25,371 BOPD |
| Operating netback, non-GAAP | $63.4 million; $34.73/bbl | $37.5 million; $16.56/bbl |
| Adjusted EBITDA, non-GAAP | $41.9 million | $34.5 million |
| Funds flow from operations, non-GAAP | $29.0 million | $22.2 million |
Oil sales rose 11% year over year despite sales volumes falling 18%, primarily because Brent prices increased 21% and crude differentials narrowed. Average realized price increased 37% to $52.34/bbl. Operating expenses fell 34%, reflecting operating improvements and new supplier contracts. The company reported no oil-and-gas ceiling-test impairment in either quarter; Q1 2020 included $102.6 million of goodwill impairment and $3.9 million of inventory impairment.
Balance sheet and liquidity
At March 31, 2021, cash and cash equivalents were $21.6 million, and restricted cash was $3.2 million. The company had $180 million drawn on its revolving facility, $300 million of 6.25% senior notes due 2025, and $300 million of 7.75% notes due 2027. Reported long-term debt, including lease obligations and net of unamortized issuance costs, was $764.8 million. The revolver borrowing base was $215 million, leaving $35 million available. The company repaid $10 million of revolver borrowings during the quarter.
Current assets were $113.2 million versus current liabilities of $127.5 million. Cash, cash equivalents and restricted cash increased by $7.3 million during the quarter. Investing cash outflow was $23.5 million, including $37.4 million of capital additions and $14.6 million of net proceeds from selling PetroTal shares.
Material changes, outlook and risks
- Compared with Q1 2020, production declined 19%, while higher oil prices and lower operating costs improved operating netback and adjusted EBITDA. Net loss narrowed substantially, also reflecting the absence of the prior-year goodwill impairment and a smaller PetroTal investment-related loss.
- Compared with Q4 2020, production rose 5%, sales volumes rose 4%, and oil sales increased 47%, mainly due to higher Brent prices. Adjusted EBITDA rose to $41.9 million from $22.2 million.
- No specific production, earnings or capital-spending guidance is provided in the supplied filing text. Management forecast covenant compliance for at least the next year based on current Brent-price and production assumptions, but cautioned that both can change materially.
- Amended credit-facility covenants provide relief through October 1, 2021; the company reported compliance at quarter-end. The borrowing base was scheduled for redetermination no later than May 2021 and could be reduced. Covenant failure could trigger acceleration of revolver debt and potentially affect the senior notes.
- Commodity derivatives generated a $23.7 million accounting loss in Q1, including $13.4 million of cash settlements. Foreign-exchange loss was $13.1 million. The PetroTal holding was valued at $33.8 million; the company sold 44% of its interest during the quarter, recording a $5.1 million sale loss.
- COVID-related operating and transportation costs were $1.1 million. The company disclosed ongoing lawsuits and claims, including a dispute with Colombia’s National Hydrocarbons Agency over high-price-share royalties; management said resolution was not expected to materially affect consolidated results. Letters of credit and other credit support totaled $104.4 million.
- Key broader exposures include oil-price and demand volatility, COVID-19 restrictions, Colombian and Ecuadorian operating and political conditions, production and transportation disruptions, and access to financing. Two Colombian customers accounted for 68% and 31% of Q1 sales volumes.
Important facts for investors to verify
- May 2021 borrowing-base redetermination outcome and covenant headroom, particularly as covenant relief approaches expiration.
- Whether forecast oil prices, production and cash generation support debt service and planned capital spending.
- Production recovery, well results and operating-cost trends following the 2020 activity reductions.
- Realized oil prices, derivative settlements and the extent to which hedges limit upside or protect cash flow.
- Collection and timing of the $79.6 million in taxes receivable, and developments in the ANH royalty dispute.
- Customer concentration and continued access to transportation routes and export markets.
Operating netback, adjusted EBITDA and funds flow from operations are non-GAAP measures and may not be comparable with similarly named measures at other companies.