Otter Tail Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 7 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's Results Conference Call for the Q3 of 2023. My name is Shannon, and I will be your coordinator for today. At this time, all participants are in a listen only mode. Following the initial remarks, we will conduct a question and answer session for securities analysts and institutions. Instructions will be provided at the time for you to queue up for questions.

Operator

I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, November 1, 2023, at 11 o'clock am Eastern Time. Today's discussion may include certain forward looking information as well as certain non GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important disclaimers with regard to this information And reconciliations of any non GAAP measures discussed on today's call, any production volumes are based on working interest sales before royalties. Finally, this earnings call is the property of Gran Tierra Energy Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy.

Operator

I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry, please go ahead.

Speaker 1

Thank you, operator. Good morning, and thanks for joining Gran Tierra in our Q3 2023 results conference call. My name is Gary Goodry, President and Chief Executive Officer. And with me today are Ryan Nelson, Executive Vice President and Chief Financial Officer And Rob Wills, our Vice President of Asset Management. On Tuesday, October 31, 2023, We issued 3 press releases that included detailed information on our Q3 2023 results, another release Announcing the appointment of Sebastian Moran, our new Chief Operating Officer and a separate press release Announcing the intention to make a normal course issuer bid for our common shares, all of which are available on our website.

Speaker 1

We are very pleased to welcome Sebastian back to Gran Tierra and the new position of Chief Operating Officer. Sebastian has a proven track record of delivering value added results and demonstrated excellent mentorship and communication skills. Sebastian was integral in Gran Tierra becoming best in class in drilling, operations and execution of our capital programs. Sebastian will be focused on continuous improvement and optimization of our capital investments and our operating costs And we'll be leading the functional integration of asset management plans to achieve optimum value for all of the company's assets. Ryan and Rob will now make a few brief comments, and then we will open the line for questions.

Speaker 1

I'll now turn the call over to Ryan to discuss key financial highlights from our Q3 results. Ryan?

Speaker 2

Good morning, everyone. Gran Tierra had another solid quarter. Our financial position remains robust and we continue to focus on maximizing operational efficiency and managing costs effectively to ensure Sustainable growth and profitability. During the quarter, Gran Tierra delivered $79,000,000 of funds flow, which is up 49% from the prior quarter And results in $2.37 of funds flow per basic share. After incurring approximately $43,000,000 in capital expenditures, the company generated Free cash flow of approximately $36,000,000 Adjusted EBITDA was $119,000,000 for the prior quarter, up from $97,000,000 in the prior quarter.

Speaker 2

As of September 30, 2023, the company had a cash balance of $123,000,000 and net debt of 499,000,000 On the liability management front, we are very pleased with the successful completion of our bond exchange offering subsequent to the quarter, Which we believe is highly beneficial for both Gran Tierra and our stakeholders. The company's balance sheet is now stronger due to an improved amortization The bond exchanges in tandem with our solid operating cash flow Provide additional financial flexibility and a stronger platform as we execute our strategy of delivering profitable production growth, free cash flow generation and value creation We intend to continue to high grade our portfolio through our integrated strategy of acquiring, exploring, developing, Producing and enhancing the high quality oil and gas assets. Also subsequent to the end of the quarter, the company entered into oil hedges covering approximately 15,000 barrels Through put options from October 1, 2023 to March 31, 2024 with a floor price of $80 Brent, with no ceiling for a premium of $3 per barrel. Gran Tier's average production for 3rd quarter was 33,940 BOE per day, which was slightly up from the prior quarter. Gran Tierra's production in the quarter was the company's highest Quarterly average for the total production since Q2 2019.

Speaker 2

Looking to pricing during the quarter, the Brent oil price averaged $85.92 per barrel, up 11% from the prior quarter. The company's quality and transportation discount narrowed to $11.83 per barrel down from $14.10 per barrel in the prior quarter. The company's operating netback was $40.87 per barrel, up 18% from the prior quarter. During the quarter, we also announced that we had completed and met all the conditions associated with this orientated continuation. While we are very We'll update a 20 year extension on the block.

Speaker 2

We're even more excited about the development corridor this opens for future growth. Between 3 oil discoveries in 2022 and the Sorrente We have secured a strong portfolio of organic development opportunities. In the South Putumayo, We have the Alea 1848 A block where we discovered the Rose field and we have the Sorrente block which includes the Coembie field as underwater flood. To the south of the border in Ecuador we have the Trapa block which has a Trapa Norte discovery and the Chinangi block which includes the Boca Chico discovery. This large contiguous development quarter will be a key focus of the company and provide a long runway for Our future capital projects and production growth.

Speaker 2

Finally, as Gary mentioned at the opening of this call, we are pleased to announce our intention to resume our normal course issuer bid, Which will allow us to purchase up to 10% of the public float of common shares over the next 12 months. I'll now turn the call over to Gary to discuss It's Dharam to discuss our operational highlights from our Q3 results.

Speaker 3

Good morning, everyone. As Ryan mentioned, During the quarter, we incurred $43,000,000 in capital expenditures, which were lower than the prior quarter's level of $66,000,000 As a result of no wells being drilled during the quarter due to our development program having been completed in the first half of twenty twenty three. In terms of upcoming activity following our successful 2023 development campaigns at Acordionero and the Northern extension of the Castaico field, We are accelerating our development program and plan to commence drilling at both of these fields in December 2023. In terms of asset performance, The water floods across our 4 core assets continue to be effective at increasing ultimate oil recoveries and we are excited to resume drilling by the end of this year. We are also delighted that we closed the Siri anti block extension agreement during the quarter as we believe this block will be a key growth area for the company over the coming years.

Speaker 3

As seen in our mid year reserve update, the success in our water floods And the extension of the Syrian Tea Block agreement resulted in record highs in the company's proven and proven plus probable oil reserves for the company. We added proven reserves of 16,000,000 barrels and proven plus probable of 26,000,000 barrels Since the end of 2022. Upon completion of the development drilling program in Casiaco expected in March 2024, The company plans to move the drilling rig to Ecuador to begin the exploration drilling program. I'll now turn the call back to the operator We'll be happy to answer any questions. Operator, please go ahead.

Operator

Thank you. Ladies and gentlemen, we will now conduct You will then hear an automated message advising your hand is raised. Your questions will be pulled in the order they are received. Our first question comes from the line of Roman Rossy with Canaccord Genuity. Your line is now open.

Speaker 4

Thank you. Good morning, everyone, and thanks for taking my question. Congrats on a great quarter. So I have a few questions if we can go sequentially. The first one, what's your view on crude differentials in the coming quarters?

Speaker 4

Do you anticipate more pressure now that Venezuela crude will be entering the market?

Speaker 2

Yes, it's a good question. I think there's a few things that could happen and some Venezuelan crude enter the market as well as the Trans Mountain pipeline opening up in Canada, Which could put a little additional pressure. We expect them to be around these levels, maybe they will widen You know a dollar or so, but we don't expect any major blowouts.

Speaker 4

Okay, great. And Regarding CapEx, Rob mentioned that you spent $41,000,000 What should we expect for the last quarter of the year? And then Additionally, in the breakdown of the CapEx, you have a $16,300,000 line with the other. Can you give us more color on what that includes?

Speaker 2

So, on the first you broke up a little bit on the Second question here, what was the second part of the question? I heard

Speaker 1

the first part about Q4

Speaker 2

CapEx, but I missed the second part.

Speaker 4

Okay. The second part is regarding, in the breakdown of CapEx, you have a line that's other that includes 16,300,000 If you can give us more color on that.

Speaker 2

Yes. Part of that was just I think some pre investment just for our Coming Q4 and Q1 drilling program, sometimes in these areas the pads take a long time to build, so there's a lot of pre investment that needs to go in And order some of the long lead items for the drilling program, that would be the bulk of it. And then for the Second half sorry for Q4, I think we expect capital expenditures in the $30,000,000 to $40,000,000 range.

Speaker 4

Awesome. And just the last one. Regarding energy costs, We are seeing that due to El Nino prices are increasing, but do you expect additional pressure in the coming quarters? Or do you think that

Speaker 1

Yes. We are seeing increased energy prices of the electricity. We're making an effort and have been over the last several years to remove ourselves from the grid, generate our own electricity Using natural gas, those efforts will continue and accelerate into next year. So part of our capital spending next year Is on using natural gas as a fuel and generating as much electricity as we can. Everything across the board, we're seeing In Colombia, on fuels drive us to be efficient and diesel costs going up, electricity costs going up.

Speaker 1

And so everybody benefits by us generating our own electricity using our own fuels.

Speaker 4

Great. Thank you very much.

Speaker 1

Great. Thank you.

Speaker 5

Thank you.

Operator

Our next question comes from the line of Joseph Schachter with Schachter Energy Research. Your line is now open.

Speaker 6

Thank you very much. Congratulations on the quarter and also the debt restructuring, which Took away a little bit of the concern, so congratulations on that. Given you're going to probably spend as you mentioned earlier in the prior questions, About US220 $1,000,000 this year. With the free cash flow, you mentioned the NCIB, are you also thinking of paying down that credit Facility of $49,000,000 as well in terms of the focus to knock that down?

Speaker 2

Yes. I think the Grant facility does repay fairly quickly. We're amortizing that over 10 months and it's fully repaid by August next year. So we already have a fairly aggressive program on that as far as repayment. And then similar to this year, the first half capital program is going to be weighted Towards the development program.

Speaker 2

So as Rob mentioned, we're starting to rig in the Cuadineiro and Costa Yako end of this in December of this year. So we expect quite a bit of CapEx in the first half of the year and then trail off similar this year, we'll generate the free cash flow in the second half of the year. But we are ready the worst case scenario that the traffic area facility is repaid fully by August of next year.

Speaker 6

Okay. Second question, you talk and hear about success in 2 places in Ecuador. Are any of those wells on production? Or is this something that will come on In first half twenty twenty four.

Speaker 1

Yes. We continue to produce about 1200 to 1500 barrels a day. We will continue producing throughout. We don't ever anticipate stopping. We would be producing more today, but we're collecting information on reservoirs.

Speaker 1

These are new discoveries. They're very prolific wells And we're quite excited. We're quite excited about getting out and seeing just how big these are. We You may have noticed that we deferred a couple of wells. We had some blockades.

Speaker 1

We're in Ecuador long term and so we're working through What those blockades are about and we shifted that capital in those wells back up to our Costa Yacro field where we've had some really good results.

Speaker 2

And Joseph, in our new slide deck too, we actually have a slide in there that just shows where the discoveries are along with the Sorrento to Scott extension And the Rose discovery, which really shows the corridor of future growth, which kind of highlights where we are and what Gary is talking about.

Speaker 6

Super. Last one for me. When do you expect to have your guidance for 2024 and CapEx budget etcetera?

Speaker 1

That will be after the New Year. We're working through that now as a management team. We'll be discussing that with our Board of Directors By 1st, 2nd week of December and we'll release that guidance after the 1st of the year.

Speaker 6

Thanks very much for everything. And again, congratulations.

Operator

Thank you.

Speaker 2

Thank you.

Operator

Our next question comes from the line of Orianna Kowal Balance, your line is now open.

Speaker 5

Hi. Thanks for taking my question. This is Rodionka with Balance. I just had 2 quick follow ups. The first one with regards to the extension of the Cerroiante agreement.

Speaker 5

We noticed that there's a shift in your working interest after 2024. It will be going down to 47%, so From the current 52%. So just any color or thoughts that you can provide in terms of this ready agreement and the cash consideration that you paid? And

Speaker 2

yes, that is on that, it was really a negotiation. And so that was what we negotiated. And coupled with that though, if you look at the OpEx right now, if we do all pay $6 per barrel, Now that will increase to a maximum of $11 So there's some give and takes in the negotiation.

Speaker 5

Got it. Understood. And just one last final one or clarification. Was this negative part The restricted payment basket for dividend payment was appeared following the exchange transaction that you carried through last quarter. Just thinking on potential David, yes, just thinking on the restricted payment And potential uses for digital payments in potential free cash flow generation, are we secured or are there restrictions?

Speaker 2

Yes, there are restrictions still. And so really, we meet certain criteria And that's based on free cash flow generation, net debt to EBITDA under 1.5 times, and a few other than The maximum that we have for restricted payments, in our case, which would be share buybacks not dividends would be $50,000,000 per annum, which doesn't roll forward. And then also a general basket per annum of $10,000,000

Speaker 5

Okay. Perfect. Thank you very much for your participation on solid quarter.

Speaker 2

Great. Thank you.

Operator

Thank you. Gentlemen, there are no further questions at this time. Please continue.

Speaker 1

Thank you, operator. I would like to thank everyone once again for joining us. We look forward to speaking with you in the next quarter And I appreciate you dialing in. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

Powered by Quartr
Earnings Conference Call
Otter Tail Q3 2023
00:00 / 00:00