Gran Tierra Energy Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; filed February 22, 2022. All dollar amounts are U.S. dollars. The company is an international oil and gas producer with operations in Colombia and Ecuador; all 2021 revenue came from Colombia.
Business context and operating performance
Gran Tierra reported 66.8 MMBOE of proved reserves at year-end, up 3% year over year; reserves were 100% oil. It drilled 19 development wells and three water injectors in 2021, with 18 development wells producing at year-end and one in progress. Average production rose 8% to 21,588 barrels per day net after royalty (NAR). Production and reserves remain concentrated: four Colombian fields generated 89% of production and represented 84% of proved reserves.
Key financial metrics
| Metric | 2021 | 2020 |
|---|---|---|
| Oil sales | $473.7 million | $237.8 million |
| Net income (loss) | $42.5 million | $(778.0) million |
| Net income (loss) per share, diluted | $0.12 | $(2.12) |
| Cash provided by operating activities | $244.8 million | $81.1 million |
| Adjusted EBITDA | $241.5 million | $96.5 million |
| Funds flow from operations | $186.5 million | $45.2 million |
| Capital expenditures | $149.9 million | $96.3 million |
| Free cash flow | $36.6 million | $(51.1) million |
| Cash and cash equivalents at year-end | $26.1 million | $13.7 million |
| Revolving credit facility balance | $67.5 million | $190.0 million |
| Senior notes principal | $600.0 million | $600.0 million |
Realized oil price increased 86% to $60.09 per barrel, while sales volumes increased 7% to 21,598 barrels per day. Operating netback, a non-GAAP measure, rose to $330.1 million, or $41.86 per barrel. Operating expenses were $132.3 million, up 18%; per-barrel costs increased to $16.79, partly because of higher electric-submersible-pump workovers. Interest expense was $54.4 million. The company recorded $48.8 million of derivative losses and $20.5 million of foreign exchange losses.
Year-end current assets were $101.8 million and current liabilities were $228.0 million. Reported total debt carrying value was $654.4 million; principal included $67.5 million drawn on the revolver and $600.0 million of notes, before applicable carrying-value adjustments. The revolver borrowing base was $150.0 million, of which $125.0 million was readily available and $25.0 million required majority-lender approval. The company reported covenant compliance at year-end.
Changes versus the prior year
- Revenue recovery reflected a 64% increase in average Brent pricing, higher sales volumes, and lower quality and transportation discounts.
- Net income swung to profit from a substantial 2020 loss, when the company recorded $560.3 million of oil and gas property impairment and $102.6 million of goodwill impairment. No such impairment was recorded in 2021.
- Operating cash flow increased by 202%, while capital spending rose 56% as drilling and development activity resumed.
- The company repaid $122.5 million on its revolving facility, reducing the balance to $67.5 million. The $600 million of senior notes remained outstanding.
- Proved undeveloped reserves declined from 26.2 to 24.8 MMBOE, reflecting conversion to producing reserves and downward technical revisions, partly offset by extensions and improved recovery.
Outlook, risks and contingencies
Gran Tierra budgeted $220–$240 million for 2022 capital spending: $160–$170 million for Colombian development, $40–$50 million for Colombian exploration, and approximately $20 million for Ecuador exploration. Management expected to fund the program from operating cash flow, contingent in part on Brent prices of at least $60 per barrel. The forecast included 20–25 Colombian development wells, four Colombian exploration wells, and two to three Ecuador exploration wells.
The revolving credit facility was due to mature November 10, 2022, with a borrowing-base redetermination due by May 2022. Management expected covenant compliance based on its outlook, but lower prices, production disruption, reduced borrowing capacity, or refinancing constraints could affect liquidity. The company’s 2022 hedging program included 9,000 barrels per day of positions for January–June, including swaps, collars, and deferred puts.
Key risks include volatile oil prices; operational concentration in a few Colombian fields; blockades, community opposition, security incidents, and transport disruptions; political, regulatory, environmental, and permitting uncertainty in Colombia and Ecuador; reserve-estimation uncertainty; and possible constraints on financing. COVID-19-related operating and transportation costs were $3.7 million in 2021. A dispute with Colombia’s hydrocarbons agency over transportation-cost deductions in high-price royalty calculations remained ongoing; management said resolution was not expected to materially affect the company. Other pending lawsuits and claims were also described as not expected to have a material adverse effect. The company reported an unqualified audit opinion and effective internal control over financial reporting.
Most important facts for investors to verify
- Whether the 2022 capital program was funded as planned, and how actual Brent prices, production, and spending compared with management’s assumptions.
- The outcome of the May 2022 borrowing-base redetermination and the refinancing or repayment of the revolver at its November 2022 maturity.
- Debt-service capacity, covenant headroom, and the effect of the $600 million senior notes due in 2025 and 2027.
- Actual production, reserve replacement, and progress converting proved undeveloped reserves into producing assets, particularly given field concentration and blockades.
- The realized cash and accounting effects of derivative positions, tax receivables, and the ANH high-price royalty dispute.
- The filing gives differing descriptions of Colombia’s share of proved reserves: 98% in the business section and 99% in MD&A; confirm the intended figure in the reserve disclosures.