Good morning ladies and gentlemen and welcome to Gran Tierra Energy's Conference Call for Fourth Quarter and Year End 2021 Results. My name is Livia and I will be your conference 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 [indiscernible]. [Operator Instructions] I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, February 23, 2022, at 11:00 A.M. Eastern Time. Today's discussion may include certain forward-looking information, oil and gas information and non-GAAP financial measures. Please refer to the earnings and operational update press release we issued yesterday for important advisory and disclaimers with regard to the information and for a reconciliation of any non-GAAP measures discussed on today's call. Finally, this earnings call is the property of Gran Tierra Energy, Inc. Any copy or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy. I will now turn the conference call 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 Fourth Quarter and Year-end 2021 Results Conference Call. My name is Gary Guidry, Gran Tierra's President and Chief Executive Officer. And with me today are Ryan Ellson, our Executive Vice President and Chief Financial Officer; and Rob Will, our Vice President of Asset Management. We issued a press release yesterday that included detailed information about our fourth quarter and year-end 2021 results. In addition, Gran Tierra's 2021 annual report on Form 10-K has been filed on EDGAR and is available on our website. Ryan and Rob will make a few brief comments to summarize and provide context and then we will open the line for questions. I'll now turn the call over to Ryan. Over to you, Ryan.

Thanks, Gary. Good morning, everyone. After the many challenges in 2020 that the world faced, 2021 was a year of strong recovery for the energy industry and Gran Tierra. Our top-tier, low-decline, onshore, conventional asset base continued to prove it's high quality as the company returned to strong growth in 2021. Our production, proved reserves, funds flow from operations, free cash flow and after-tax net asset value or NAV per share all saw increases from the previous year. We continue to show strong reserve replacement ratios on both proved and proved developed producing basis, driven by our successful, on-budget development programs and waterflood initiatives which Rob will describe later. During 2021, our net income was $42 million, the highest realized since 2018, while our adjusted EBITDA was $242 million. Funds flow from operations were $186 million, resulting in free cash flow of $37 million which was the highest GT has achieved since 2012. Gran Tierra's on-budget capital spend totaled $150 million for the year and focused on development activities. You may recall that a year ago we made a commitment to reduce our credit facility balance and we were able to repay approximately $123 million during 2021 resulting in a credit facility balance at the end of the year of $68 million with cash and cash equivalents of $26 million. With forecasted free cash flow during 2022, we plan to have our credit facility completely paid off before the end of June this year. During 2021, through direct tax refunds and value-added tax on our oil sales, Gran Tierra collected a net cash inflow of $21 million compared to $55 million net collections in 2020. Gran Tierra's strong operating netback of $34.13 per barrel for the year was up 146% from $13.86 in 2020. Looking to 2022, we announced a…

Thanks, Ryan. Good morning, everyone. I'll briefly cover a few operational highlights from yesterday's press release as well as our recent press release regarding year-end reserves to provide an overview of some of our key activities for 2022. We are very pleased with the performance of our high-quality conventional oil and gas assets during 2021. As Ryan mentioned, all of our major assets are being waterflooded to optimize oil recovery and value from each field. As summarized in our recent press release, the company achieved material proved developed producing or PDP reserves additions in 2021 as a result of excellent waterflood performance and successful on-budget development joint campaigns at Acordionero and Costayaco. Our excellent PDP reserves replacement ratio was 148% with PDP reserves additions of 14.3 million barrels. Our total proved or 1P reserves additions of 11.9 million barrels gave us a strong 1P reserves replacement ratio of 123% resulting in a grand total of 81 million barrels of remaining proved reserves at year-end 2021. Equally important to enhancing and increasing oil and gas reserves, we focus on the optimum long-term value for each asset. As a result of our successful development program as well as the strong recovery in oil prices, our proven net present value or NPV discounted 10% before tax increased 36% compared to year-end 2020 to $1.6 billion, resulting in a proven net asset value, or NAV, of $2.61 per share before tax. Our proved plus probable or 2P NPV10 before tax increased 22% compared to year-end 2020 to $2.4 billion resulting in a 2P NAV of $4.72 per share before tax. Why do we focus so much on waterflooding. Combined, our four major oil assets have roughly 800 million barrels of oil in place on a gross basis or about 700 million barrels on a…

[Operator Instructions] And our first question coming from the line of Josef Schachter with Gran Tierra [ph]. Your line is open.

Thank you very much. Good morning, Gary and Ryan. I've got a bit of a cold. So I have two areas I would like to chat about. First one with Roger. With prices at Brent where they are right now, potentially, there'll be an extra $100 million assuming it holds for the year. Are you looking at using that to improve the balance sheet once the RBL has paid off? Or would you use that to buy in the open market some of the outstanding debt? How do you see using any incremental windfall cash flow versus what you've got in your budget given these prices that are $20 higher than your high case in your forecast?

Yes. Thanks, Josef. Yes, it's Ryan. Yes, I think it's -- right now, our objective is to get our net debt to EBITDA of under $500 million which we think would be in Q3, Q4, depending on pricing, as you mentioned. At that time, there's a number of things that we look at, whether it's bond buybacks or share repurchases; those would be the focus.

Okay. And then for Gary, I'm reading a lot about the political situation in Colombia where the leftwing Gustavo Petro seems to be in the lead in the polls from the articles. And the comments in the media seem to say that he's anti-energy. Will this affect your CapEx spending? Has he talked about raising royalties as he talked about not approving in certain areas, environmentally sensitive, native areas, drilling opportunities or drilling approval processes. How do you see the political situation evolving in Colombia? And how do you see that potentially impacting your operations after the election if he is the winner?

Yes. I think the easiest way to describe that is we have regulatory approval for everything we're doing this year and beyond. In terms of what Petro has said is that he's against any new exploration, any new leasing lands. We're very comfortable with the inventory that we have going forward. And we have committed to the government to execute programs on those lands and we will fulfill those commitments. We've also expanded into Ecuador, the Putumayo and the extension into Ecuador, the Oriente basin. We're quite excited that we're going to be kicking off an exploration program south of the border as well. And so I think there are two elections coming up. The first is the parliament or the Congress elections will happen in March and then the presidential elections in May and June. Overall, we believe that Colombia will stay conservative in terms of their approach to business in terms of all of the business-friendly environment that we have seen over the last couple of years and we're quite proud -- as Ryan summarized, we're proud of what we're doing and we will continue to do regardless of who's the President going forward. We do it because it's the right thing to do.

Good. That's it for me. And thanks very much and congratulations on the improvement over the last year.

Thank you.

Our next question coming from Anne Milne with Bank of America. Your line is open.

Good morning. Thank you very much for the call. A couple of questions, although Josef asked two very good ones right before me. On your reserves, congratulations on the very good numbers that you posted. It does sound that your drilling program is going to be focused primarily on areas -- proven areas that you already have. So would you expect going forward that any changes or additions to your reserve numbers would come from existing fields as opposed to new discoveries at least in the short term? That would be my first question.

I think the easiest way to describe that is, Rob summarized our waterfloods are doing very well. We're looking at going beyond that with the pilot test on polymer. And so we'll continue to drill and enhance in the field that we have but we're also targeting near-field exploration. We see things on seismic that tie right into infrastructure and I think we'll continue to focus our exploration around our large fields as well. And so the answer to your question is we'll continue drilling in the field that we have just because the performance is doing so well.

Okay, excellent. And you also just did mention your Ecuador investment in Oriente Putumayo. What has been the track record of other drilling in Ecuador in terms of from first oil to commercialization? I think it's not too long but I was wondering if you have any data on that.

Yes. It's very similar to Colombia, to the Putumayo in particular. There's a very good road system. There's very good pipeline infrastructure. And so the time from a discovery, even the testing part of that, the oil can be sold. And we're already operating in Ecuador. We shipped a lot of our oil through Ecuador for export purposes. And so we're quite familiar with the country and with the infrastructure that's in place. And so the cycle time is very short.

Okay, great. And then the third and last question I have is on GHG emissions. Just sort of two points on this. You've mentioned that you're trying to conserve your excess natural gas and using it for power generation. I was wondering if you could give a little bit more information on that. And second is, have you -- or would you consider buying carbon credits?

Yes. The answer to the gas, we've invested significant amount of money over the last five years. Most of that was in place by the end of 2019. So that investment is behind us in our major fields. And that investment was turbines, gas turbines, to utilize natural gas. What we're doing at the moment is we're going to some of our remote fields and putting in power generation in the smaller remote fields. And our objective is to get to 100% power generation from natural gas. In terms of credits, we're not at the moment looking into carbon credits. What we're looking into is expanding what we're doing. Ryan mentioned the reforestation projects. We're quite proud of that. We're looking at some other things that we can actually do to complement our activities in Colombia and Ecuador as well in the agricultural areas in cooperation with the government of Colombia. They have some big plans, big programs and we're very supportive of what they're doing in addition to the things that we're doing on our own.

Great. Thank you so much.

And our next question coming from the line of David Herzberg with Stifel. Your line is open.

Hi, good morning and thank you for the call. In your annual report, you illustrate the percentage of oil sold through your three sales and transportation channels, pipelines, wellhead and trucks. I was wondering if you could provide some color with respect to how you envision the percentage of oil sold through these channels. Do you expect it to change at all in 2022 from 2021.

Yes. Yes. I think in 2022, we would expect a significant change. Some of the -- because all of our oil eventually goes through pipelines and sometimes we either sell it to wellhead. They eventually truck to pipelines or we truck ourselves to a pipe to an inlet pipeline. And so we don't anticipate any changes in 2022.

So those percentages that you have illustrated over the last three years, for example, the 12% or you say volume transported through pipelines and then 34% at wellhead and 54% because there was a difference in 2020 versus 2021. So are you suggesting that 2022 will look very much like 2021?

Correct. Yes, 2021 is a better proxy looking forward.

Great, thank you.

Our next question coming from the line of Ariana Cobalt [ph] with Balanz Capital. Your line is open.

Hi, good afternoon. This is Ariana Cobalt [ph] from Balanz. I have a couple of questions. If you don't mind, I will not be going one by one. So just for the first one, if you could provide us further color on -- in terms of cash balance ending this year given your investment plan? Where do you see cash balance?

Yes. I think with respect to the cash balance, obviously, price has a huge impact. I think if you look at $80 oil price environment, the cash balance would end around $120 million to $140 million. And for each $10 increase in Brent price adds about $60 million of free cash flow which assume can go to the balance sheet.

Perfect. And more regarding on your exploration plan. If you could elaborate more, we see in your filings, $20 million for 2022 in one well for Ecuador. So if you could provide further detail in terms of which area do you expect it. And if this number already includes 3D and seismic work.

Yes. I think on the exploration drilling program, I think in our latest slide deck, we have a pretty good chart in there that shows the timing of the wells and when we're drilling the wells. And so in Ecuador, if you look at -- we're going to drill two to three wells in Ecuador, one well in the Middle Mag and three wells in the Putumayo really starting in May and June of this year. And again, these are all near existing fields with close access to infrastructure. So there's really no seismic plan for 2022. We have all the seismic that we needed. In fact, some of the -- few of the wells in the Putumayo are being drilled off the seismic that we actually shot in 2019.

Perfect, that sounds great. And one last one from my side. Regarding the CapEx breakdown for 2021, I couldn't find much detail. So if you could perhaps provide more information in terms of how much of that went into exploration and facilities, that would be very helpful.

Yes. 70% is going into development and 30% into exploration. And really -- and if you look at the development, about half of the development will be going into the Acordionero field and the remainder into Costayaco and Moqueta.

So sorry, just for the last one, I was referring to 2021. Like for the last year, how much went into exploration.

Almost all of our dollars were in development. We had very little exploration dollars in 2020, 2021. It was all development expenditures.

Okay, perfect. That's very helpful. Thanks, again.

Great. You're welcome.

Our next question coming from the line of Alexandra Symeonidi with William Blair. Your line is open.

Hi, thank you for taking my question and congratulations on the strong results today. I wanted to ask a follow-up on political risk. And I have two more questions. So the first one would be basically, how do you see the risk of license not getting renewed if Petro wins? And also regarding that for how long do you still have a license? When do your licenses end?

Yes. The short answer to that is it's not a matter of just renewing licenses. To get a license, we've committed to work, whether that's drilling exploration wells, shooting seismic. And so we don't see any risk of us fulfilling our commitments nor the government are not asking companies like Gran Tierra and others to fulfill their work commitments in the country. I think what Petro has said publicly is he's against any new licenses, any new lands being issued. And so the answer to your question is we believe that we have a commitment in the country to do work on the lands that we have and we'll fulfill those commitments. So that risk is very low.

Okay. And can you also remind me until when your license expire for Acordionero, for example?

Yes. Our licenses on exploration, they vary in terms of time. Acordionero, Rob, is...

2039.

2039. So we have lots of time. And there's also clauses in our contracts to extend those for up to 10 years, if we choose to do so.

Okay. And how about the others? Is it about same time, like, for example, Costayaco?

Costayaco, Moqueta in 2030 as well. So we have plenty of time which is why we're continuing to develop in those fields. The one contract that is near term is the Cohembi, the Suroriente. It's our fourth largest asset. And we've assumed in all of our values and all of our reserves that, that contract will not be renewed in 2024, although if that may happen, we're not counting on that happening going forward.

Okay, that's helpful. And can you remind me what is the water injection right now in Acordionero, I think you mentioned it in the presentation but I think I missed that.

Yes. Current water injection at Acordionero is approximately 43,000 barrels per day water. And we plan on ramping that up to 60,000 barrels a day by Q3 2022 as we drill additional wells. And of course, over the next few years, we'll continue to ramp up as we continue to drill additional wells.

Okay. And then for exploration, is it mostly Acordionero that you plan to exploration or the other fields as well?

No, it's across all of the basins. We're drilling some -- a couple of wells in Ecuador, the Putumayo and the Middle Magdalena Valley as well and so it's three different areas.

Yes. So it's balanced, you would say, between the three?

It's balanced, yes.

Okay. And my last question would be regarding transportation costs. I see that your transportation costs are lower versus your Colombian peers like Frontera, for example. Why is that something transportation around $1 to $2 per barrel? Is this correct? And why is it so low versus your peers in the region?

But part of that is, one, our transportation which are a little bit lower cost. We don't use a lot of the pipeline infrastructure in Colombia. As you know, the pipeline costs are quite high. What we use mostly, if you look at the Putumayo, we actually truck down to Ecuador. So much, much lower cost which brings down our cost. So the transportation costs do come off of our revenue price. So if you look at our guidance, it's around $10 of transportation quality discount of what we assume and that comes off of revenue.

Okay. Okay, that makes sense. And then from -- it is connected to Ecuador and then from there, it's connected to the pipeline?

We actually truck down to Ecuador and it goes into OCP pipeline, then it goes to the Esmeraldas port, the deepwater port in Ecuador.

Okay. Thank you very much.

Thank you.

Our next question coming from the line of Devin Rosenbaum [ph] with Seaport Global. Your line is open.

Hi, thanks for taking my question and congratulations on the strong results. Just one question. The water flooding and the polymer test for 2022, is this part of the -- is it included in the year 2022 CapEx guidance? And [indiscernible] not, what is -- what you're expecting to spend on that in 2022?

Yes. We have -- yes, thanks, Devin. We absolutely have included the costs in our 2022 capital budget. And it's a fairly -- the pilot is a fairly modest cost, approximately a couple of million dollars, $2 million, say, approximately to pull off that pilot as far as initial costs go and it will be little bit more than that, actually, including some of the polymer cost. So it's quite a modest cost to pilot. Obviously, when we perform a successful pilot and as we go into a full field polymer flood, hopefully, in late 2023, early 2024, obviously, the costs would be much more significant. But by that time, we'll prove how it works and giving us some excellent incremental recovery there. So I mean we're quite excited about this because it's -- polymer, of course, is used throughout the world and it's also used extensively in Colombia as well in very similar pool. So this pool within it's cost of oil at Acordionero, this pool should respond very well to polymer which has already been illustrated in the lab work.

Thanks a lot. Thank you.

I'm not showing any further questions at this time. I would now like to turn the call back over to Mr. Guidry for any closing remarks.

Thank you, operator. I would like to thank everyone for joining us today and we look forward to updating you over the quarter and as we progress. It's an exciting year and we're very appreciative of your support. Thank you.

Ladies and gentlemen, that concludes our conference for today. Thank you for your participation. You may now disconnect.