Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's Results Conference Call for the Third Quarter 2019. My name is Joanna, 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 that time for you to queue up for questions. [Operator Instructions] I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, November 6, 2019 at 11 A.M. 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 that we issued yesterday for important disclaimers with regard to this information and reconciliations to any non-GAAP measures discussed on today's call. Per barrel of oil equivalent, or BOE, amounts are based on a working interest sales before royalties. Finally, this earnings call is the property of Gran Tierra Energy Incorporated and any copying or rebroadcasting of this call is expressly forbidden without any written consent of Gran Tierra Energy. I will now turn the conference over to Mr. Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry, please, go ahead.

Thank you, operator. Good morning, and welcome to Gran Tierra's third quarter 2019 results conference call. My name is Gary Guidry, Chief Executive Officer; and today with me are Ryan Ellson, our Executive Vice President and Chief Financial Officer; and Tony Berthelet, our new Chief Operating Officer. We issued a press release yesterday that included detailed information about our third quarter 2019 results, which is available on our website. After a few brief comments, we will open the line for questions. I'd first like to welcome Tony to the Gran Tierra team. Tony joined us in October and brings over 20 years of multidisciplinary upstream oil and gas experience, including eight years of executive level leadership experience. He has held several senior management roles, focused on production, operations, asset development and including implementation and optimization of Waterfloods. With our four biggest fields, Acordionero, Costayaco, Moqueta and Cohembi, all under Waterflood, Tony's extensive experience in implementing and improving Waterfloods to maximize ultimate oil recovery makes him a valuable addition to the team, where we're planning to ramp up production across all of our portfolio. I'll now turn the call over to Ryan Nelson, our CFO to discuss the financial highlights for the quarter.

Good morning, everyone. I'll make some brief comments about our Q3 results. Our oil production was 32,918 barrels per day with approximately 3,000 barrels per day, impacted by temporary downtime due to Electric Submersible Pump, or ESP replacements, facility commissioning and water injection ramp up. Current production is approximately 34,000 barrels per day, and we expect to bring five to six additional oil wells on production before the end of the year. For the quarter, our net loss was $12 million, adjusted EBITDA was $68 million and funds flow from operations was $59 million. During the first nine months of 2019, we also returned $38 million to stockholders through buybacks of 20.1 million shares or almost 5% of our outstanding shares. Our balance sheet remains strong with our net debt-to-adjusted EBITDA at the end of Q3 standing at 1.8x on a trailing 12-month basis, and this is expected to decrease in 2020. Oil and gas sales for the quarter were $132 million. We continue to have top quartile operating netbacks with our operating netback for the quarter being $27.34 per BOE. As expected, Q3 was capital-intensive due to the substantial completion of the 3D seismic program in the Putumayo and the completion of facilities and accelerated activity out of Acordionero. Due to the drilling efficiencies our team achieved during Q3, we were able to drill development wells in record time and shift wells scheduled for Q4 into Q3. We have now completed the key investments required to underpin the expected significant future free cash flow for all shareholders and stakeholders. We forecast GTE will generate free cash flow after development and exploration in Q4 and full-year 2020. At $60 Brent, we are projecting free cash flow of $75 million to $100 million during 2020, which we plan to use for…

Thanks, Ryan, and good morning, everyone. To begin, I'd like to review some significant operational highlights for the quarter. Waterflooded Acordionero accelerated as planned with significant incremental water injection. We're averaging over 30,000 barrels of water injection per day, with rates up to 40,000 barrels. We have substantially reduced gas production following the commissioning of the expanded Central Processing Facility, or CPF. We plan to be re-injecting excess gas beyond consumption by the end of the month and we are encouraged by the Waterflood response at Acordionero in terms of both increased pressure and production responses. Indications are looking positive for incremental reserve additions at year-end due to the conclusion of the CPF expansion and Waterflood response that is matching internal reservoir simulation modeling estimates. We are also very excited about preliminary results from Acordionero-54. This development well is the southern most well drilled in the Acordionero field to-date and is located outside the previous established boundary – southern boundary of 2P and 3P original-oil-place mapping for the field. Acordionero-54 encountered 348 feet of oil pay on a measured depth basis and is expected to be placed on production by the end of November. 54 appears to be similar to the Acordionero-37 well, which is located approximately 250 meters to the north of 54. The Acordionero-37 well was placed on ESP artificial lifts and had initial 30-day average production of 944 barrels of oil per day of 30-degree API crude with minimal water. Looking at the rest of our portfolio, Waterflood optimization continued in Q3 at Costayaco with an injected conversion and two-well simulations. In addition, the Costayaco-39 well was tested in the Caballos Sand and commingled with the T Sand and produced at stabilized rates of about 1,160 barrels of oil per day, at watercut of 45% on ESP artificial lift. This crude is also 30-degree. At Cohembi in the Suroriente block, water injection has increased from 15,000 to over 22,000 barrels of water injected per day since resecured operatorship in March of this year. We are now seeing the reservoir pressure increase. This results in Cohembi, along with continued Waterflood response in Moqueta further demonstrate Gran Tierra’s Waterflood expertise and the long-term benefit of stable cash flow generation from Waterflood projects. We have been able to add over 1,000 barrels of oil per day in the field without drilling the wells and securing operatorship. And finally, we are also excited to have activity recommence at Ayombero this quarter. Remedial work on the three Ayombero wells has commenced this month and we will be utilizing an imported seven rig to assist and work over our operations. I'll now turn the call back to the operator and we will be happy to answer any questions. Operator, please go ahead.

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session for securities analysts. [Operator Instructions] Your first question comes from the line of Ian Macqueen of Eight Capital. Your line is open.

Good morning, guys. Just a quick question. I know you didn't give 2020 guidance. But with respect to capital spent in 2019, so far, it's $311 million, and your guidance is for $330 million to $340 million for the year? Do you still maintain that guidance, the difference being somewhere around $29 million of CapEx for Q4?

Yes. On that, Ian, we have been – we did accelerate some CapEx into Q3. We expect the guidance for Q4 to be anywhere between $30 million and $50 million, depending on if we can accelerate some of the things from Q1 into Q4.

Okay. Great. And then, again, I know you didn't give guidance for 2020. But your free cash flow profile suggests that either costs are going to be quite a bit lower. Capital is going to be quite a bit lower. Can you kind of give us a hint on some numbers because then, generally, the Street's quite a bit lower on free cash flow than what your guidance is for?

Yes. That’s a great question. In the release, we mentioned how we spent over a couple of hundred million dollars in Acordionero over the last couple of years. I think when you look out to 2020, all of that capital is not reoccurring. That was for the 20-megawatt gas to power, the 15 injectors, water-source wells, facilities, et cetera. We don't have that capital in 2020. So it really is development drilling in 2020, which will entail some wells in Acordionero, a few in Costayaco, and a few in Suroriente. So very little facility CapEx. So that's on the capital side. On the operating cost side, we do expect about 25% of our cost is power generation costs. We expect that to significantly reduce in 2020, just as we generate our own power using our gas to power facilities that we commissioned in Q4 or end of Q3 [indiscernible] CapEx and OpEx.

So – and you will probably provide guidance in sometime early December, I think, as you usually would?

Yes. We're meeting with our Board on our long-range plan, our five-year planning and the 2020 budget in early December. So it will be after that.

Okay. Perfect. Thanks guys.

Thanks.

Your next question comes from the line of [indiscernible] of UBS. Your line is open.

Good morning, gentlemen, and thank you for the call. My first question goes a little bit to your EBITDA numbers. I'm trying to reconcile them. In Q2, you had like $208 million for your first six months, now you have $260 million for your nine months, which would imply $52 million EBITDA. Thus, should we assume that there were restatements during the first six months? And could you give us more details on that?

Yes. The main driver of – there's two things. One, the main drivers, we put an adjusted EBITDA number out. And really that is just taking out the impact of the revaluation of our investment in PetroTel. As I'm sure aware, we own 36% of TSX delisted company that we mark-to-market each quarter. So that created a lot of noise in EBITDA and that's why we showed the nine months adjusted EBITDA number to take that noise out. And we also – in our adjusted EBITDA number, we backed out about $11 million in losses associated with the repurchase of our convertible bonds, which we did in the quarter.

Right. I'm talking about your converts are going to your debt. So when you issued the 2027 notes, it was to pin down the $140 million on the revolver. You also tender the premium, which is, of course, until they alluded for your shares. You also bought back now 38 million of your shares. However, given the circumstances that have happened, you keep on burning cash and you just draw another $57 million on the revolver that you just paid down. So while I understand that you see kind of your equity chip. I don't know how you see that creators are taking this situation, which is reflected in bond prices?

Yes. And part of the driver of the drawn on the credit facility was just really accelerating. If you look at our funds flow from operations compared to our CapEx in Q3. We moved just sort of in order to do the efficiencies, we've moved some of that CapEx from Q4 into Q3. And that's why we've tried to have been very clear that in Q4 and in 2020, we do expect on free cash flow to paydown that debt.

So ideally from the free cash flow that you are guiding, the idea would be to pay first the revolver before keep on doing buybacks?

Yes. In our release, we said, the free cash flow we used for debt reduction and share buybacks, but we would like to pay off the revolver.

Okay. Thank you.

Your next question comes from the line of Josef Schachter of Schachter Energy. Your line is open.

This has been a two quarter issue with the – bringing on the power generation in Acordionero, was there delays in terms of the equipment coming in? Why – and now that you got it working, you put in the comment in the oil and production and the average volumes that you expect the production to begin to increase in the fourth quarter. Are you still looking for a number like 38,000 for your exit in 2019? How do you feel about the wells coming on? And are there still quite a few wells. You've got production up to 34,000? Are there still more wells to be brought on.

Yes. On the power generation, we took a little bit longer than expected on converting the well pads, the actual producing well pads over to power. We have the facilities – the water injection all converted over the summer. And the reason that we took a bit longer is to be careful and to make sure that we didn't have any shutdowns, which causes us problems with pumps, et cetera. And so that was really a delay that we self imposed. In terms of forecast and where we're going. What we try to be very clear on is that we're now seeing the response from the Waterflood. We're seeing the pressure response and we're starting to speed up pumps. We're starting to increase production with those responses. We're not really in a position to say how fast we'll do that over the next two quarters. But what we are comfortable in saying is, everything is happening as expected, it's just a matter of timing. As we said last quarter, we're quite certain in where we're going with this field. We're quite certain that the field reserves are growing, the value is growing. It's just a matter of the timing on the response of the Waterflood. And we're starting to see that now. We mentioned we're at 34,000 barrels a day. We've got a couple of thousand barrels a day of production to bring on. It's a little bit slower and where we're operating, socializing workover rigs and timing-wise, but we're bringing that couple of thousand barrels of on stream as fast as we can.

And Joe, there are a few additional wells, too. We list TDed the Costayaco-41, we just TDed Acordionero-54. If you look at Costayaco-41 that we mentioned in the press release based on logs, it’s similar to 39, which was 1,000 barrel a day well. And 54 is a pretty exciting well. We just have logs, but we'll be testing here shortly. But it really pushes the Acordionero field to the south. And if you look at our updated corporate presentation, there's some really insightful slides that shows why we're very comfortable in the Waterflood response as well where Acordionero-54 is located in the structure. As you recall, in the southern part of the field, the seismic isn't great. And so this is really pushing it much further to the south.

Okay. Are you planning to do more NCIB in Q4? Or are you going to hold off, given where the stock is, given how the market's taken this news of production negatively, are you going to be more active or less active in terms of the NCIB?

As of today, we're maxed out under our NCIB at the 5%.

Okay. Are you planning to ask for an additional one from the exchanges?

Yes. We can ask for a renewal. We're working through that right now. We're working through that right now.

Okay. That’s it for me.

Josef, I think the statement that we made with free cash flow, we’re absolutely looking at using that for share buybacks. So the answer to your question is yes.

Yes, in 2020.

Yes.

Okay. Thank you very much.

Your next question comes from the line of Chelsea Colon of Aegon. Your line is open.

Hi. Just have a couple of questions. My first one is related to the production guidance for the year. I'm curious why you haven't revised down the guidance as it seems at this point in order to achieve your revised guidance from last quarter, you'd have to have a pretty significant increase in 4Q that doesn't seem too likely? And then my second question is related to the revolver. It's mentioned in the note that it's reserve-based borrowing and there's going to be a reassessment this month. So I’m wondering what your expectations are on that? And any color you could provide on whether you're expecting the availability to increase or decrease as a result.

Yes. With respect to the production guidance, I think what we've tried to do is to be as transparent as possible as here is the actuals for the first nine months, which you correctly point out, and here is what our current production is. And we plan on bringing on five to six additional wells before the end of the year. So we'd expect our guidance to be within 3% of the guidance previously – anywhere between 2% and 4%, it just really comes down to – as Gary mentioned, the ramp-up in Acordionero and bringing on those wells. And with respect to the revolver, we're in the process. Our objective would be to keep it at $300 million available.

Okay. And can you just remind me when the drawn amounts come due? What's the maturity of the revolver?

2021.

Okay. Thank you.

Your next question comes from the line of Jose Silva of BTG Pactual. Your line is open.

Hi, gentlemen. Thanks for answering the questions. I was wondering if you could share with us what's the current level of production at Acordionero, because you said at the current level as a total is 34,000, but I would like to understand, how is Acordionero as of now? And if you could share some detail on what composes the workover expenses that you report on your P&L. That would be it for now.

Thanks, Jose. It's Tony here. Current production at Acordionero is just over 16,000 barrels per day.

Yes. And what – the question on workover costs. What was – could you repeat that please?

I was wondering what comprises in that figures, what's there. And trying to have some visibility on how this would be moving going forward, if you expect the current levels to be maintained or to be reduced?

Yes. With respect to workovers, those are really coming for ESP replacements. So if we were to add reserves then the ESP – then workover costs are capitalized. These are really predominantly going into ESP replacements. And as we have more stable power, which we're seeing now, we do expect that number to decrease in the future.

Okay. That makes sense. Just another question, basically you guys have an internal, not official cap on net leverage of around 1.5x. That's what you basically usually mention. We are a bit higher now, and we could maybe even be a little bit higher in the fourth quarter. Do you have any visibility on how this would be moving? And if you would be willing to change your internal cap a little bit higher, any visibility here on the net leverage.

Yes. It really is a target that we try to be under 1.5x. And if you look at this quarter, kind of what we would expect with a large facility program, you put all the CapEx in, but you don't get the associated production with it until the future. So that's why we're really targeting that $75 million to $100 million of free cash flow for next year to get below that 1.5x target.

Okay, so the 1.5x will then be like, let's say, a 2020 year-end target?

Correct.

And it could be a little bit higher between now and then?

Correct.

That's correct. Okay. Just a last question, I'm sorry to bother. Do you have any visibility on the working capital for the last quarter because there was some negative impact in third quarter? Could you comment a little bit on the working capital and how you see it?

Yes. A big driver in working capital, we have a receivable building, a lot of it relates to our VAT. As you know, in Colombia, we paid VAT in our – a lot of services and products. So we're looking at pulling back that VAT. It's about $100 million of VAT we had at the end of September.

Thank you very much.

Thank you.

Your next question comes from the line of Nikolay Menteshashvili from Insight Investment. Your line is open.

Hi. Many thanks for the presentation. Apology to returning back to the production, I think in one of the production updates back in July after you solved problems with a kind of the demonstrations you've seen in Putumayo that production then was also 34,000 barrels per day, and it was expected just to increase after. I was just wondering, since July to till now, have there been any other decreases in production, like any other wells that you had or any other comps that broke down and that you had to replace? Just to check on that. And the second one, on the five to six new wells, could you repeat, please, what's the expected production you see from the new wells coming potentially? Because I think we'll align with that?

Sure. I'll answer the first part of that question and then Tony can answer the second part. In terms of what did we forecast last summer. The part that we're quite comfortable with, as all of the other big fields, and they're performing as forecasted because they're mature, mature waterfloods that we're simply expanding, where we were a bit uncertain on our forecast was at Acordionero because we were behind on the water injection project, and we've explained that was a labor issue and a conscious decision that we made that put ourselves in that position. It really was catch up and forecasting how quickly we would see the response was a bit of a challenge, and we see the visibility getting clearer for us now. We're not comfortable from a reservoir simulation from all the engineering modeling to say exactly what's going to happen next month. But what we are comfortable saying is that over the next couple of quarters, we're going to continue increasing production as the pressure responds in the field. And so that's really the – where we're at on guidance that Ryan was explaining. And there's really no change in our views on how that Acordionero field is responding, and the rest of the fields are on target. And so that's the first part of the question, and Tony will answer the second.

Yes. Nicolay, with respect to the five to six additional wells to come on, we've got a couple of new wells that will be coming on, right, I talked about those in Costayaco and Acordionero, and then we've also got some ESPs that will be coming on in the fourth quarter, three to five wells, depending on timing and equipment availability, which would account for about 1,500 BOE a day. So that kind of totals up to five or six wells that we're bringing on at year end.

Okay.

Then 1,500 barrels a day was for the workover wells and in addition to Costayaco and Acordionero well as we mentioned.

Yes. And both of those look like they're in that 500 to 1,000 barrel a day rates.

Can I just turn back to the third question? So since July, basically, do you imply that you've seen kind of decline in the existing wells and now you started to seeing increasing as the kind of water injection stuff and production should increase from now? Is that understanding that there was a decline, basically from the…

Yes. The answer is, yes. Since July, August, when we – Tony mentioned, we ramped our water injection up to the 30,000 barrel a day rate, we're now starting to see the pressure increase across the structure. And that's really what we were waiting to see. We're now with those pressure responses able to produce at higher rates. And that's what we're literally over the last three, four weeks have been able to start doing with the wells, and that will continue. That will continue as we continue to ramp our water injection up to the 40,000 plus barrel a day. Does that answer your question?

Okay. That’s fine. Thank you very much.

We have a follow-up question from Chelsea Colon. Your line is open.

Hi. Would you be able to provide the average production by months in the third quarter and more recently, if possible, just to maybe give more context to the situation and the timing of events?

Yes. The production per month, we don't publish, but the ANH does publish for the entire country production by field. And they have actuals up there for July and August. You can see, you can go back as far as you want and they should have their September numbers available shortly.

Okay. And when you say that current production is 34,000 barrels per day, you mean like today in November?

Correct.

Okay. Thank you.

Thanks.

Gentlemen, there are no further questions at this time. You may continue.

Thank you, operator. I would like to thank, everyone, once again, for joining us today, and we look forward to speaking with all of you over the next quarter and update you on our ongoing progress. Thank you very much.

Ladies and gentlemen, this concludes today’s conference call. Thank you all for joining. You may now disconnect.