Good morning, ladies and gentlemen, and welcome to Gran Tierra Energy's Conference Call for Fourth Quarter and Year End 2022 results. My name is Andrea 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 institution. Instruction will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, February 22nd, 2023, at 11 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 advisories and disclaimers with regard to this information and for reconciliations of any non-GAAP measures discussed on today's call. 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. I will now like to turn the conference call over to Gary Guidry, President and Chief Executive Officer of Gran Tierra. Mr. Guidry, please go ahead.

Thank you, Andrea. Good morning and welcome to Gran Tierra's fourth quarter and year end 2022 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. Yesterday, we issued a press release that included detailed information on our fourth quarter and year end 2022 results. In addition, Gran Tierra's 2022 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, and then we will open the line for questions. Ryan, please go ahead.

Thanks Gary. Good morning everyone. We are very pleased to announce that Gran Tierra achieved several company financial records in 2022. Our excellent performance in 2022 was driven by our successful development and exploration drilling, water flooding programs, field performance, and disciplined cost management, combined with strong oil prices. Our many achievements during the year resulted in year-over-year production growth of 16%, strong reserves replacement ratio well above 100%, and the highest annual figure in the company's history for net income, funds flow from operations, and free cash flow. After reduced exploration activity during 2020 and 2021, the company made several key exploration discoveries during 2022, which provide confidence in our geological understanding of the basins. Through our successful results from development and exploration drilling, waterflooding programs, and fuel performance, we're able to increase reserves in 1P, 2P, and 3P categories, which Rob will describe. During 2022, our net income was $139 million, the highest on record as a result in our earnings per share on both the basic and diluted basis coming in at $0.38 per share. Our adjusted EBITDA was $490 million and was $1.34 on a basic per share basis. Funds flow from operations were $366 million, resulting in free cash flow of $129 million, both of which were also records for the company. Funds flow from operations for the year was $1 on a basic per share basis. Gran Tierra's on budget capital spend totaled $237 million for the year and was balanced between exploration and development activities, which resulted in reserves and profitable production growth year-on-year. In 2022, Gran Tierra continued its commitment to reduce debt resulting in a reduction of $88 million in debt and $173 million in net debt. The company finished the year with $127 million in cash and net debt to…

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 2022 year-end reserves. Operationally, we are building off a successful year in 2022 to start off 2023. Down in the Putumayo Basin of Colombia and the Chaza Block, we have commenced our Moqueta drilling campaign with the first well being drilled in late 2022, which was the first well drilled in the field since 2016. Moqueta-25, the second development well in the 2022-2023 Moqueta drilling campaign reached its planned total depth on January 15th, 2023. This well has been completed and was put on production on February 1st. Producing on jet pump, the well has averaged 383 barrels of oil per day unstimulated. We plan to stimulate the well during Q2 of this year. The third Moqueta development well, Moqueta-26, was spud on February 9th, 2023 and is expected to reach its planned total depth before the end of February. In addition to Moqueta-25 and 26, the company plans to drill and complete one to two more development wells in Moqueta over the next four to five months. Also, in the Chaza Block, the first well, the Costayaco six-well 2023 development drilling program was spud on January 25th, 2023 and reached its planned total depth on February 2nd. Reservoir quality was as expected in this planned down-dip water injection well. The second well was spud on February 7th, 2023 and reached its planned total depth. All wells in the Costayaco drilling program are expected to be drilled by late second quarter 2023 and completed -- and put on production or injection before the end of third quarter 2023. In the south of the Putumayo Basin, the Suroriente Block's production averaged approximately 8,620 barrels of oil per…

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session for securities analysts. [Operator Instructions] Our first question comes from Adam Gill with Paradigm Capital. Please go ahead.

Good morning. Two questions for me. First off, on operating costs. We've seen escalation over 2022 given power costs rising and increased workover activity. That said, do you believe you've hit a plateau on OpEx? And what drivers could lower OpEx going forward?

Yes, thanks Adam. I think we have hit a plateau. We think our operating costs on a gross basis will be similar in 2023 compared to 2022. Our production will be higher, so on a per unit basis, we'll see those costs come down.

Okay, great. And the second question was just on Suroriente and the contract expiring mid-year 2024, is there any precedence on contract renewal? And what could the upfront commitments look like to ensure that this asset stays in the portfolio?

Yes, there are multiple precedents in the country of contract renewal. We do have clauses in our contract for renewal and we are in discussions with Ecopetrol on trying to achieve that before the expiry.

Any thoughts on timing of when that could be completed?

No, no real -- just before expiry. We're working as diligently as we can and it's mutual with Ecopetrol because both companies see benefits of continuing the programs that we've started over the last couple of years.

Okay, great. Thank you, gentlemen.

Thank you.

Thank you. Our next question comes from Oriana Covault with Balanz. Please go ahead.

Hi, good morning. This is Oriana Covault with Balanz. I had three questions, if it's okay to go one-by-one, that would be great. First, with regards to the Vasconia and Castilla pricing discounts, I noticed that they remained at big levels through the fourth quarter. So, just wondering what are you observing so far during the year? And what is driving the wider discounts? And how are you including this in your 2022 -- 2023 guidance?

Yes. Thanks. And I'll take that. On the Vasconia and Castilla, they started to widen at the end of last year as pointed out and it's continued into January. It's starting to tighten a little bit in February. And the main driver is really just a lack of heavy oil demand, especially with China. And I think with China reopening, we started to see those differentials narrow and it's right around what we have budgeted right now. We expect them to be wide in Q1, Q2, and then narrow into Q3 and Q4. And that's really what we forecasted.

Got it. Thank you. And following -- I noticed in the introduction of a new risk factor in your 10-K regarding the adverse impact that certain acquisitions may have in the business. So, just wondering if you could further elaborate on this? And more precisely, if you're looking into new jurisdictions aside from Ecuador and what type of transactions would make sense for Gran Tierra?

Yes, I think that's just a risk factor. I think most E&P companies do have that within their disclosure. And I think for us, we're -- part of our job is always to optimize the portfolio. So, we are very happy to either acquire new assets portfolio or sell assets that are in our portfolio. We're always looking to optimize. So, it could be within Colombia or outside of Colombia, again, that will give either buyers or sellers.

Perfect. And just one final one. We noted that ending cash position came a bit shy of the $190 million that you had guided with the third quarter report. So, if you could share any additional color on this?

Yes, two drivers on that. One, Brent price came in quite a bit lower than we originally forecasted, but also the differentials. So, those were much -- much wider than we had forecasted. It was both -- if you look at Vasconia, the historical average -- five-year average is about $3 and it widened all the way up to $10 at one point. And Castilla, the five-year average is closer to $7 to $8 and it widened all the way up to $18, $19. So, that really hurt us in the quarter. And the rest is really just explained from working capital movements.

Perfect. That would be from my end. Thank you.

Thank you.

Our next question comes from Josef Schachter with Schacter Energy Research. Please go ahead.

Thank you very much. Good morning Gary, Ryan and Rob. Congratulations on all the progress you made this year. A few questions. The first one will go with Ryan. Where do you see the target debt level that you'd like? You're down below 1:1 debt to EBITDA. If we see 85 to 90 per average for Brent in 2023, you'll generate $70 million to $100 million of free cash flow, plus you have the $100 million or so, $126 million on the balance sheet, how do you see debt in terms of where you want it to be going forward? Is there a target from the 589 that you have on the balance sheet on December 31, 2022? Is there a number you want to have? And at that point, you say that's the amount of debt that should be in this going forward? Or do you want to keep on knocking debt down to zero and not have debt at all? Just trying to get in my head how much money will be left over after that to increase growth via exploration and development, or by more stock buybacks, et cetera?

Yes, it's a good question. I think we're comfortable with net debt-to-EBITDA of one-times. In the 0.8 times to one-times is really our comfort range. I think when we look at our gross debt, right now we're about 580 is -- our target would be between 500 and 550. And we think that will be a right capital structure for the company of our size currently.

Okay. Next question, in the releases in your government document on page nine, you talked about the exploration blocks. And you put a single star, double star there. And you have, I think, it's two, four, six, eight, eight with one-star, which says exploration is suspended due to licensing restrictions, security issues, or social reasons. Do you see any changes to that in 2023? Or is this -- and do you get extensions from the government so that you can keep these properties for future use once things settle down there?

Yes, I think the short answer to that is we're -- on a continuous basis, we're working with the government and with the communities. The ones that are suspended are issues with communities, and it's an ongoing process. We've not given up really on any of our top priority exploration projects. But there are some that we may in the end relinquish. But I can assure you that it's none of our top priorities going forward. And so, it's -- I think the short answer is everything that we want to do, we're doing and we'll achieve that over the next one to three years.

Okay. Lastly, Gary again, as a shareholder and as somebody who's been a fan of the company and the opportunity in Colombia and Ecuador, you see a lot of the stocks in Colombia have a discount to valuations. And as you highlighted with your colleagues in the presentation about the discount NAV, and as Ryan mentioned, selling or buying is possible. Is the barrel cheaper on Bay Street and Wall Street than spending money? And is there interest in potentially selling some assets and then doing a substantial issuer bid and waking everybody up to the underlying value that is currently being ignored?

Yes, again, the short answer, I think, is on a continuous basis, we're looking at how we create value. Ryan mentioned the debt levels. If we have discoveries that we see long-term will develop, we'll adjust accordingly in terms of our balance sheet. We also are looking at other basins around the world. We've all seen the large companies starting to divest non-core assets, which we believe, in many cases a company of our size and our portfolio, we can create a lot of value regardless of the valuations on the stock price. We look at it as we're in this business for the long-term, long-term being the next five years, not the next five weeks. And we will direct our efforts both on our current assets and new assets that we diversify into in other basins, other assets. And I think you hit a good point. We also are looking at -- we'll look at opportunities to bring in other partners and things that we're doing to dilute our interest. But everything we have in our portfolio today, we really like and we really believe that we can create value, and we're just looking to expand that portfolio.

Okay. Thanks very much for taking my questions and I'll be rooting for more breakthroughs in 2023. Thanks very much.

Thank you.

Thank you. Our next question comes from Alexandra Symeonidi from William Blair. Please go ahead.

Hi, thank you for taking my question. Most of my questions have been answered. I just have one. If you have estimated total tax in 2023, given your guidance for production and your estimate for oil prices and the discounts. So, tax that would include the surcharge and the non-deductibility of royalties. Have you made that calculation, that estimate?

Yes, estimate tax based off of $85 Brent and again paid on differentials and what pricing used. But we'd expect our current tax to be $110 million to $130 million.

And this includes several royalties, or what you need to pay for the royalties? I mean the non-deductibility--?

Yes, that our current tax bill for to 2023, which will be paid in two installments in 2024.

Thank you. Our next question comes from Philip Skolnick with Eight Capital. Please go ahead.

Thanks. Good morning. Just going back to Suroriente. If you were to get the contract renewal, how do we think about the reserve adds with respect to that? And also, would there be any potential changes to this year's CapEx budget, maybe production target?

Yes, I think the answer, Phil, is our plans for Suroriente would be to expand the waterflood. We've done a lot of work over the last few years. In terms of the capital program, there would be some minor adjustments. But the we would look more at a three-year type plan to expand the waterflood to increase some of the development drilling in the block. So, you wouldn't see a major change in the capital program this year. But over the next three years, we would focus a lot of effort on increasing reserves. We are taking a look at what would change in our reserve base going forward. But we don't want to be premature in waiting for the contract actually to be signed. And we're working mutually with Ecopetrol and trying to put that program together.

Got it. Understood. Just finally, just I know in the past, recent past, you've said that the environmental permitting process, it's basically been business as usual. Is that still the case?

It has. And we've been working very diligently with communities on blockades and other interruptions. And we've seen some progress, I think, is the way to say that. But in terms of permitting and environmental studies, we -- it's business as usual in Colombia and in Ecuador. We're quite excited about our discoveries in Ecuador. As Rob mentioned, we see some real opportunity there to expand what we're doing across the border in Ecuador as well.

Great. Thank you.

Thank you. Our next question comes from Luke Davis with RBC. Please go ahead.

Thanks. Good morning. You guys have pile of [ph] wells coming on this year. Just wondering if you can speak a little bit to the expected cadence of production volumes maybe quarterly and where you expect to exit the year at? And also, just wondering if you have any contribution expected from any of the exploration wells that are included in the program?

Thanks Luke. Yes, I think the cadence -- as Rob mentioned, we're doing a lot of development drilling in the first half of the year. So, those will be brought on in Q2 and into Q3. So, we expect a steady ramp up for the year and extend the year around 34,000 barrels or so.

Got it. And anything from those exploration wells or is that just potential upside?

Potential upside.

Yes. Okay. The only other thing I was wondering about is just buybacks, how you're thinking about that? Is that going to be sort of a portion of free cash flow that you're sweeping into buybacks? Do you have an aggregate target that you're looking to hit or how are you thinking about that currently?

Yes, we bought back 6.2%, 6.3% of our stock last year, and we have approval currently up to around 10%. So, especially when we traded at such a substantial discount to our NAV, we definitely like to max out the NCIB and then look to renew.

Got it. That’s it for me. Thanks.

Awesome. Thanks Luke.

Thank you. Our next question comes from Juan Cruz with Morgan Stanley. Please go ahead.

Hi, good morning everybody and thanks for the call. I just wanted to clarify just quickly, you guys were talking about debt levels going forward. And on the third quarter call, you had indicated to the market that you have bought back about $20 million worth of the 2025 bonds. It's my understanding that those are still outstanding. Just wanted to see if there's any reason for them not being canceled yet, considering your targets? If you can comment on that, that would be great.

Yes, we hold those bonds ourselves. And the only reason why we didn't cancel them is we want to make sure that there was no adverse impacts as far as index inclusion. So, from accounting treatment and really the economic reality is we're holding those bonds, our debt is $580 million, and we used that to have the $300 million bonds assigned for index inclusion.

I understand. Okay. But from your perspective, there's no intention of reselling those bonds back into the market?

No. No. There is not.

They're in treasury and that would remain in treasury for index inclusion purposes?

Correct.

Okay. Thank you.

They're already at liquid enough, so we don't want to do anything anymore to average.

Thank you. Our next question comes from Roman Rossi with Canaccord Genuity. Please go ahead.

Thank you very much for taking my question. Just a couple. The first one is regarding the buyback program. I just wanted to check what happened if you reached the limit of the program? Are you able to initiate a new one? And the second one is, last year, you mentioned you wanted to have a cash balance of around $100 million. I just wanted to check if that's the guidance change? Thank you.

Yes, we can renew the program once we fulfill -- once we buy up to the maximum, which we would look at renewing afterwards, which would be good for a year. And then on the cash balance, we always target $75 million to $100 million in a cash balance. And that hasn't changed.

Okay, perfect. Thank you very much.

Thank you.

Thank you. Our next question comes from Chris Dechiario with Marathon Asset Management. Please go ahead.

Yes, hi. Thanks for the call. Just wondering, I mean, what your current view is or outlook is on potential restrictions on exploration going forward? I know there's been a lot of talk from various people in Colombia. It's sort of hard to tell where it's going to end up. But I mean, how are you looking at that? And does that affect your plans? Is that affecting maybe your thoughts on acquiring assets outside of Colombia? Give your thoughts on that.

Yes, we have a great portfolio of exploration lands, and we have plenty of work in front of us for the next five to five years. We also have some very exciting lands in Ecuador as well. So, in terms of exploration, we realize there have been some announcements in Colombia about no new exploration lands. We get that. But it's no impact on what we're doing in our five-year plan as we go forward in Colombia. I mentioned Ecuador, the answer to your question is, we are looking at some other basins. We have a very strict criteria in what we invest in globally. And we are looking at some opportunities in Africa, the Middle East, where we believe that we can not only expand our value portfolio, but diversify and mitigate risk. And so, the answer to your question is we're very happy with our exploration in Colombia, but we're also looking at other opportunities in other basins.

Great. Thanks.

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

Thank you. Thank you, Andrea. I would again like to thank everyone for joining us today. We look forward to speaking with you over the next quarter and update you on our ongoing process -- progress. Thank you.