form10q.htm
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE QUARTERLY PERIOD ENDED September 30, 2011
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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FOR THE TRANSITION PERIOD FROM __________ TO __________
Commission file number 001-34018
GRAN TIERRA ENERGY INC.
(Exact name of registrant as specified in its charter)
Nevada
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98-0479924
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. employer identification number)
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300, 625 11th Avenue S.W.
Calgary, Alberta, Canada
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T2R 0E1
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(Address of principal executive offices)
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(Zip code)
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(403) 265-3221
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. YES x NO ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer x
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Accelerated Filer ¨
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Non-Accelerated Filer ¨
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(do not check if a smaller reporting company) Smaller Reporting Company ¨
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ¨ NO x
On November 1, 2011, the following numbers of shares of the registrant’s capital stock were outstanding: 261,161,809 shares of the registrant’s Common Stock, $0.001 par value; one share of Special A Voting Stock, $0.001 par value, representing 7,811,112 shares of Gran Tierra Goldstrike Inc., which are exchangeable on a 1-for-1 basis into the registrant’s Common Stock; and one share of Special B Voting Stock, $0.001 par value, representing 8,655,980 shares of Gran Tierra Exchangeco Inc., which are exchangeable on a 1-for-1 basis into the registrant’s Common Stock.
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PART I - FINANCIAL INFORMATION
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PART II - OTHER INFORMATION
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Gran Tierra Energy Inc.
Condensed Consolidated Statements of Operations and Retained Earnings (Unaudited)
(Thousands of U.S. Dollars, Except Share and Per Share Amounts)
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Three Months Ended September
30,
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Nine Months Ended September
30,
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2011
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2010
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2011
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2010
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REVENUE AND OTHER INCOME
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Oil and natural gas sales
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$ |
150,824 |
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$ |
84,110 |
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$ |
434,784 |
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$ |
260,759 |
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Interest
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209 |
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459 |
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888 |
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1,034 |
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151,033 |
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84,569 |
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435,672 |
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261,793 |
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EXPENSES
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Operating
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21,727 |
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19,401 |
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61,283 |
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39,028 |
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Depletion, depreciation, accretion and impairment (Note 5)
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49,852 |
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35,254 |
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160,174 |
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107,238 |
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General and administrative
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16,316 |
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10,977 |
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46,364 |
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27,848 |
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Equity tax (Note 8)
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- |
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- |
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8,271 |
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- |
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Financial instruments gain (Note 3)
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- |
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- |
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(1,522 |
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(44 |
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Gain on acquisition (Note 3)
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- |
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- |
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(21,699 |
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- |
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Foreign exchange (gain) loss
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(15,921 |
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16,320 |
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3,773 |
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33,740 |
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71,974 |
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81,952 |
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256,644 |
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207,810 |
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INCOME BEFORE INCOME TAXES
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79,059 |
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2,617 |
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179,028 |
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53,983 |
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Income tax expense (Note 8)
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(29,974 |
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(5,894 |
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(84,663 |
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(29,929 |
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NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)
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49,085 |
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(3,277 |
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94,365 |
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24,054 |
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RETAINED EARNINGS, BEGINNING OF PERIOD
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103,377 |
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48,256 |
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58,097 |
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20,925 |
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RETAINED EARNINGS, END OF PERIOD
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$ |
152,462 |
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$ |
44,979 |
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$ |
152,462 |
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$ |
44,979 |
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NET INCOME (LOSS) PER SHARE — BASIC
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$ |
0.18 |
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$ |
(0.01 |
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$ |
0.35 |
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$ |
0.10 |
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NET INCOME (LOSS) PER SHARE — DILUTED
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$ |
0.17 |
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$ |
(0.01 |
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$ |
0.34 |
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$ |
0.09 |
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WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC (Note 6)
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277,608,572 |
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254,951,642 |
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272,006,775 |
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252,487,462 |
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WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED (Note 6)
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284,026,236 |
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254,951,642 |
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279,485,895 |
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260,294,503 |
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(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Thousands of U.S. Dollars, Except Share and Per Share Amounts)
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September 30,
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December 31,
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2011
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2010
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ASSETS
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Current Assets
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Cash and cash equivalents
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$ |
226,370 |
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$ |
355,428 |
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Restricted cash (Note 11)
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2,990 |
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250 |
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Accounts receivable
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143,533 |
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43,035 |
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Inventory (Note 2)
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6,334 |
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5,669 |
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Taxes receivable
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21,200 |
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6,974 |
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Prepaids
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2,051 |
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1,940 |
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Deferred tax assets (Note 8)
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2,504 |
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4,852 |
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Total Current Assets
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404,982 |
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418,148 |
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Oil and Gas Properties (using the full cost method of accounting)
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Proved
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579,212 |
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442,404 |
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Unproved
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430,870 |
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278,753 |
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Total Oil and Gas Properties
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1,010,082 |
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721,157 |
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Other capital assets
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7,325 |
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5,867 |
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Total Property, Plant and Equipment (Note 5)
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1,017,407 |
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727,024 |
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Other Long Term Assets
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Restricted cash (Note 11)
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1,435 |
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1,190 |
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Deferred tax assets (Note 8)
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13,100 |
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- |
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Other long term assets
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250 |
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311 |
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Goodwill
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102,581 |
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102,581 |
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Total Other Long Term Assets
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117,366 |
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104,082 |
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Total Assets
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$ |
1,539,755 |
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$ |
1,249,254 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY
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Current Liabilities
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Accounts payable
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$ |
41,394 |
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$ |
76,023 |
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Accrued liabilities
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63,296 |
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32,120 |
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Taxes payable
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69,427 |
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43,832 |
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Asset retirement obligations (Note 7)
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357 |
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338 |
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Total Current Liabilities
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174,474 |
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152,313 |
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Long Term Liabilities
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Deferred tax liabilities (Note 8)
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211,245 |
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204,570 |
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Equity tax payable (Note 8)
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6,783 |
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- |
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Asset retirement obligations (Note 7)
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10,787 |
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4,469 |
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Other long term liabilities
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955 |
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1,036 |
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Total Long Term Liabilities
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229,770 |
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210,075 |
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Commitments and Contingencies (Note 9)
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Shareholders’ Equity
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Common shares (Note 6) (261,053,809 and 240,440,830 common shares and 16,575,092 and 17,681,123 exchangeable shares, par value $0.001 per share, issued and outstanding as at September 30, 2011 and December 31, 2010, respectively)
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5,971 |
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4,797 |
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Additional paid in capital
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975,298 |
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821,781 |
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Warrants (Note 6)
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1,780 |
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2,191 |
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Retained earnings
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152,462 |
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58,097 |
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Total Shareholders’ Equity
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1,135,511 |
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886,866 |
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Total Liabilities and Shareholders’ Equity
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$ |
1,539,755 |
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$ |
1,249,254 |
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(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Thousands of U.S. Dollars)
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Nine Months Ended September 30,
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2011
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2010
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Operating Activities
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Net income
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$ |
94,365 |
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$ |
24,054 |
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Adjustments to reconcile net income to net cash provided by operating activities:
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|
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Depletion, depreciation, accretion and impairment
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160,174 |
|
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107,238 |
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Deferred taxes (Note 8)
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(15,488 |
) |
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(28,026 |
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Stock-based compensation (Note 6)
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9,383 |
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5,424 |
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Unrealized gain on financial instruments (Note 3)
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(1,354 |
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(44 |
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Unrealized foreign exchange loss
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|
136 |
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|
27,136 |
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Settlement of asset retirement obligations (Note 7)
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(309 |
) |
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(263 |
) |
Equity taxes
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2,741 |
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- |
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Gain on acquisition (Note 3)
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(21,699 |
) |
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- |
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Net changes in non-cash working capital
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Accounts receivable
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(90,014 |
) |
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(35,195 |
) |
Inventory
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4 |
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1 |
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Prepaids
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224 |
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10 |
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Accounts payable and accrued liabilities
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(7,287 |
) |
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(8,402 |
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Taxes receivable and payable
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9,658 |
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9,455 |
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Net cash provided by operating activities
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140,534 |
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101,388 |
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Investing Activities
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Restricted cash
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|
260 |
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|
656 |
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Additions to property, plant and equipment
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(248,820 |
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(88,954 |
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Proceeds from disposition of oil and gas property
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- |
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1,600 |
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Cash acquired on acquisition (Note 3)
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7,747 |
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- |
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Proceeds on sale of asset backed commercial paper (Note 3)
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22,679 |
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|
- |
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Long term assets and liabilities
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|
63 |
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|
28 |
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Net cash used in investing activities
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(218,071 |
) |
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(86,670 |
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Financing Activities
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Settlement of bank debt (Notes 3 and 11)
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(54,103 |
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|
- |
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Proceeds from issuance of common shares
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|
2,582 |
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|
22,892 |
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Net cash (used in) provided by financing activities
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(51,521 |
) |
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|
22,892 |
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Net (decrease) increase in cash and cash equivalents
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(129,058 |
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|
37,610 |
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Cash and cash equivalents, beginning of period
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|
|
355,428 |
|
|
|
270,786 |
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Cash and cash equivalents, end of period
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|
$ |
226,370 |
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|
$ |
308,396 |
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Cash
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$ |
84,146 |
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$ |
223,320 |
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Term deposits
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|
142,224 |
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|
85,076 |
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Cash and cash equivalents, end of period
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$ |
226,370 |
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|
$ |
308,396 |
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Supplemental cash flow disclosures:
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Cash paid for interest
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|
$ |
1,604 |
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|
$ |
- |
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Cash paid for income taxes
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$ |
64,310 |
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|
$ |
42,024 |
|
Non-cash investing activities:
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|
|
|
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Non-cash working capital related to property, plant and equipment
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|
$ |
26,423 |
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|
$ |
30,747 |
|
(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)
(Thousands of U.S. Dollars)
|
Nine Months Ended
|
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Year Ended
|
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September 30, 2011
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December 31, 2010
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|
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Share Capital
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Balance, beginning of period
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$ |
4,797 |
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$ |
1,431 |
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Issue of common shares
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|
|
1,174 |
|
|
|
3,366 |
|
|
|
Balance, end of period
|
|
|
5,971 |
|
|
|
4,797 |
|
|
|
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|
|
|
|
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|
|
|
Additional Paid in Capital
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
821,781 |
|
|
|
766,963 |
|
Issue of common shares
|
|
|
142,109 |
|
|
|
19,119 |
|
Exercise of warrants (Note 6)
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|
|
411 |
|
|
|
24,916 |
|
Exercise of stock options (Note 6)
|
|
|
987 |
|
|
|
2,300 |
|
Stock-based compensation expense (Note 6)
|
|
|
10,010 |
|
|
|
8,483 |
|
|
|
Balance, end of period
|
|
|
975,298 |
|
|
|
821,781 |
|
|
|
|
|
|
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
2,191 |
|
|
|
27,107 |
|
Exercise of warrants (Note 6)
|
|
|
(411 |
) |
|
|
(24,916 |
) |
|
|
Balance, end of period
|
|
|
1,780 |
|
|
|
2,191 |
|
|
|
|
|
|
|
|
|
|
Retained Earnings
|
|
|
|
|
|
|
|
|
Balance, beginning of period
|
|
|
58,097 |
|
|
|
20,925 |
|
Net income
|
|
|
94,365 |
|
|
|
37,172 |
|
|
|
Balance, end of period
|
|
|
152,462 |
|
|
|
58,097 |
|
|
|
|
|
|
|
|
|
|
Total Shareholders’ Equity
|
|
$ |
1,135,511 |
|
|
$ |
886,866 |
|
(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
1. Description of Business
Gran Tierra Energy Inc., a Nevada corporation (the “Company” or “Gran Tierra”), is a publicly traded oil and gas company engaged in acquisition, exploration, development and production of oil and natural gas properties. The Company’s principal business activities are in Colombia, Argentina, Peru and Brazil.
2. Significant Accounting Policies
These interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The information furnished herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of results for the interim periods.
The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for interim condensed consolidated financial statements. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as at and for the year ended December 31, 2010 included in the Company’s 2010 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on February 25, 2011.
The Company’s significant accounting policies are described in Note 2 of the consolidated financial statements which are included in the Company’s 2010 Annual Report on Form 10-K and are the same policies followed in these unaudited interim consolidated financial statements, except as disclosed below. The Company has evaluated all subsequent events through to the date these condensed consolidated financial statements were issued.
Warrants
The Company issued warrants (“Replacement Warrants”) in connection with its acquisition of Petrolifera Petroleum Limited (“Petrolifera”) during March 2011 (Note 3). The Replacement Warrants expired unexercised during August 2011. These warrants were derivative financial instruments and were recognized at fair value in the consolidated balance sheet as a current liability and as part of the consideration paid for the acquisition. The fair value of the Replacement Warrants was determined using the Black-Scholes option pricing model and changes therein were recognized in net income when the changes occurred. The Company does not use derivative financial instruments for speculative purposes.
Inventory
Crude oil inventories at September 30, 2011 and December 31, 2010 are $4.3 million and $3.6 million, respectively. Supplies at September 30, 2011 and December 31, 2010 are $2.0 million and $2.1 million.
Recently Issued Accounting Pronouncements
Goodwill
In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”), "Intangibles – Goodwill and Other (Topic 350)." The update is intended to simplify how entities test goodwill for impairment. The update permits entities to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount and whether it is necessary to perform the two-step goodwill impairment test. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2011. The Company does not expect to early adopt this standard. The implementation of this update is not expected to materially impact the Company’s consolidated financial position, results of operations or cash flows.
Adopted Accounting Pronouncements
Business Combinations
In December 2010, the FASB issued ASU, "Business Combinations (Topic 850), Disclosures of Supplementary Pro Forma Information for Business Combinations." The update is intended to conform reporting of pro forma revenue and earnings for material business combinations included in the notes to the financial statements and expand disclosure of non-recurring adjustments that are directly attributable to the business combination. The pro forma revenue and earnings of the combined entity are presented as if the acquisition had occurred as of the beginning of the annual reporting period. If comparatives are presented, the pro forma disclosures for both periods presented should be reported as if the acquisition had occurred as of the beginning of the comparable prior annual reporting period only. This ASU is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The disclosure requirements of this ASU have been adopted by the Company.
Stock Compensation
In April 2010, the FASB issued ASU, "Compensation–Stock Compensation (Topic 718)." The update clarifies that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. This ASU is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2010. The implementation of this update did not materially impact the Company’s consolidated financial position, results of operations or cash flows.
3. Business Combination
On March 18, 2011 (the “Acquisition Date”), Gran Tierra completed its acquisition of all the issued and outstanding common shares and warrants of Petrolifera, a Canadian corporation, pursuant to the terms and conditions of an arrangement agreement dated January 17, 2011 (the “Arrangement”). Petrolifera is a Calgary-based crude oil, natural gas and natural gas liquids exploration, development and production company active in Argentina, Colombia and Peru. The transaction contemplated by the Arrangement was effected through a court-approved plan of arrangement in Canada. The Arrangement was approved at a special meeting of Petrolifera shareholders on March 17, 2011 and by the Court of Queen's Bench of Alberta on March 18, 2011.
Under the Arrangement, Petrolifera shareholders received, for each Petrolifera share held, 0.1241 of a share of Gran Tierra common stock, and Petrolifera warrant holders received, for each Petrolifera warrant held, 0.1241 of a Replacement Warrant to purchase a share of Gran Tierra common stock at an exercise price of $9.67 Canadian (“CDN”) dollars per share. The Replacement Warrants expired unexercised on August 28, 2011.
Gran Tierra acquired all the issued and outstanding Petrolifera shares and warrants through the issuance of 18,075,247 Gran Tierra common shares, par value $0.001, and 4,125,036 Replacement Warrants. Upon completion of the transaction on the Acquisition Date, Petrolifera became an indirect wholly owned subsidiary of Gran Tierra. On a diluted basis, upon the closing of the Arrangement, Petrolifera and Gran Tierra security holders owned approximately 6.6% and 93.4% of the Company, respectively, immediately following the transaction. The total consideration for the transaction was approximately $143 million.
The fair value of Gran Tierra’s common shares was determined as the closing price of the common shares of Gran Tierra as at the Acquisition Date.
The fair value of the Replacement Warrants was estimated on the Acquisition Date using the Black-Scholes option pricing model with the following assumptions:
Exercise price (CDN dollars per warrant)
|
|
$ |
9.67 |
|
Risk-free interest rate
|
|
|
1.3 |
% |
Expected life
|
|
0.45 Years
|
|
Volatility
|
|
|
44 |
% |
Expected annual dividend per share
|
|
Nil
|
|
Estimated fair value per warrant (CDN dollars)
|
|
$ |
0.32 |
|
The Replacement Warrants met the definition of a derivative. Because the exercise price of the Replacement Warrants was denominated in Canadian dollars, which is different from Gran Tierra’s functional currency, the Replacement Warrants were not considered indexed to Gran Tierra’s common shares and the Replacement Warrants could not be classified within equity. Therefore the Replacement Warrants were classified as a current liability on Gran Tierra’s condensed consolidated balance sheet. Furthermore, these derivative instruments did not qualify as fair value hedges or cash flow hedges, and accordingly, changes in their fair value were recognized as income or expense in the consolidated statement of operations and retained earnings with a corresponding adjustment to the fair value of derivative instruments recognized on the balance sheet. The financial instruments gain reflected in the consolidated statement of operations for the nine months ended September 30, 2011, includes a $1.3 million gain arising from the fair value of the expired Replacement Warrants.
The acquisition is accounted for using the acquisition method, with Gran Tierra being the acquirer, whereby Petrolifera’s assets acquired and liabilities assumed are recognized at their fair values as at the Acquisition Date and the results of Petrolifera have been consolidated with those of Gran Tierra from that date.
The following table shows the allocation of the consideration transferred based on the fair values of the assets and liabilities acquired:
(Thousands of U.S. Dollars)
|
|
|
|
Consideration Transferred:
|
|
|
|
Common shares issued net of share issue costs
|
|
$ |
141,690 |
|
Replacement warrants
|
|
|
1,354 |
|
|
|
$ |
143,044 |
|
|
|
|
|
|
Allocation of Consideration Transferred (1):
|
|
|
|
|
Oil and gas properties
|
|
|
|
|
Proved
|
|
$ |
58,457 |
|
Unproved
|
|
|
161,278 |
|
Other long term assets
|
|
|
4,417 |
|
Net working capital (including cash acquired of $7.7 million and accounts receivable of $6.4 million)
|
|
|
(17,223 |
) |
Asset retirement obligations
|
|
|
(4,901 |
) |
Bank debt
|
|
|
(22,853 |
) |
Other long term liabilities
|
|
|
(14,432 |
) |
Gain on acquisition
|
|
|
(21,699 |
) |
|
|
$ |
143,044 |
|
(1) The allocation of the consideration transferred is not final and is subject to change.
As shown above in the allocation of the consideration transferred, the fair value of identifiable assets acquired and liabilities assumed exceeded the fair value of the consideration transferred. Consequently, Gran Tierra reassessed the recognition and measurement of identifiable assets acquired and liabilities assumed and concluded that all acquired assets and assumed liabilities were recognized and that the valuation procedures and resulting measures were appropriate. As a result, Gran Tierra recognized a gain of $21.7 million, which is reported as “Gain on acquisition”, in the consolidated statement of operations. The gain reflects the impact on Petrolifera’s pre-acquisition market value of a lack of liquidity and capital resources required to maintain current production and reserves and further develop and explore their inventory of prospects. Subsequent to the initial allocation of the consideration reported in the first quarter of 2011, further assessment of Petrolifera’s tax position resulted in a reduction of the gain on acquisition to $21.7 million from $24.3 million previously reported. A corresponding adjustment was made to the net working capital deficiency assumed.
As part of the assets acquired and included in the net working capital in the allocation of the consideration transferred, the Company assigned $22.5 million in fair value to investments in notes that Petrolifera received in exchange for asset backed commercial paper (“ABCP”) with a face value of $31.3 million. On March 28, 2011, these notes were sold to an unrelated party for proceeds of $22.7 million after the associated line of credit was settled. When combined with the gain arising on the expiry of the Replacement Warrants, the financial instruments gain for the nine months ended September 30, 2011 was $1.5 million.
The associated ABCP line of credit that Gran Tierra assumed was with a Canadian Chartered Bank, to a maximum of CDN$23.2 million with an initial expiry in April 2012. Gran Tierra settled this line of credit immediately after the completion of the acquisition of Petrolifera for the face value of CDN$22.5 million in borrowings plus accrued interest.
Also upon the acquisition of Petrolifera, Gran Tierra assumed a second line of credit agreement (“Second ABCP line of credit”) with the same Canadian chartered bank to a maximum of CDN$5.0 million, which was fully drawn as at the Acquisition Date. This Second ABCP line of credit, which expired on April 8, 2011, was secured by ineligible master asset vehicles Classes 1 & 2 (“MAV IA 1 & 2”) notes with a face value of $6.6 million. Gran Tierra retained the option to settle the Second ABCP line of credit of CDN$5.0 million through delivery to the lender of the MAV IA 1 & 2 notes. Subsequent to the acquisition, Gran Tierra elected to record this second line of credit at fair value and planned at that time to settle the debt through delivery of the MAV IA 1 & 2 notes upon expiry. Accordingly, a value of $nil was recorded for the debt upon its acquisition. Gran Tierra settled such borrowings by delivery of the MAV IA 1 & 2 notes on April 8, 2011.
Gran Tierra also assumed a reserve-backed credit facility upon the Petrolifera acquisition with an outstanding balance of $31.3 million (Note 11). The amount outstanding under this credit facility was included as part of net working capital in the allocation of consideration transferred. This credit facility was repaid during August 2011, resulting in a total debt repayment of $54.1 million, when combined with the repayment of the CDN$22.5 million ABCP line of credit.
The pro forma results for the three months ended September 30, 2011 and the three and nine months ended September 30, 2011 and 2010 are shown below, as if the acquisition had occurred on January 1, 2010. Pro forma results are not indicative of actual results or future performance.
|
|
Three
Months
Ended
September
30,
|
|
|
Nine Months Ended September
30,
|
|
(Thousands of U.S. Dollars except per share amounts)
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Revenue and other income
|
|
$ |
97,535 |
|
|
$ |
444,867 |
|
|
$ |
303,547 |
|
Net (loss) income
|
|
$ |
(5,546 |
) |
|
$ |
61,542 |
|
|
$ |
25,994 |
|
Net (loss) income per share - basic
|
|
$ |
(0.02 |
) |
|
$ |
0.23 |
|
|
$ |
0.10 |
|
Net (loss) income per share - diluted
|
|
$ |
(0.02 |
) |
|
$ |
0.22 |
|
|
$ |
0.09 |
|
The supplemental pro forma earnings of Gran Tierra for the three and nine months ended September 30, 2011 were adjusted to exclude $4.4 million of acquisition costs recorded in general and administrative (“G&A”) expense and the $21.7 million gain on acquisition recognized in the 2011 results of Gran Tierra because they are not expected to have a continuing impact on Gran Tierra’s results of operations. The consolidated statement of operations for the nine months ended September 30, 2011 includes oil and natural gas sales of $22.3 million from Petrolifera for the period subsequent to the Acquisition Date. Petrolifera incurred a loss after tax of $2.8 million in the period since the Acquisition Date.
4. Segment and Geographic Reporting
The Company is primarily engaged in the exploration and production of oil and natural gas. The Company’s reportable segments are Colombia, Argentina and Peru based on a geographic organization. The Company’s operations in Brazil are not a reportable segment because the level of activity in Brazil is not significant at this time. In the three months ended March 31, 2011, Peru became a reportable segment due to the significance of its loss before income taxes compared with the consolidated results of operations. Prior year segmented disclosure has been conformed to this presentation with the Peru related results and asset information disaggregated from the “All Other” category. The All Other category represents the Company’s corporate activities and operations in Brazil.
The accounting policies of the reportable segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on income or loss from oil and natural gas operations before income taxes.
The following tables present information on the Company’s reportable segments and other activities:
|
Three Months Ended September 30, 2011
|
|
(Thousands of U.S. Dollars except per unit of production amounts)
|
Colombia
|
|
Argentina
|
|
|
Peru
|
|
All Other
|
|
Total
|
|
Oil and natural gas sales
|
|
$ |
133,475 |
|
|
$ |
15,188 |
|
|
$ |
- |
|
|
$ |
2,161 |
|
|
$ |
150,824 |
|
Interest income (expense)
|
|
|
130 |
|
|
|
(22 |
) |
|
|
6 |
|
|
|
95 |
|
|
|
209 |
|
Depletion, depreciation, accretion and impairment
|
|
|
34,916 |
|
|
|
6,508 |
|
|
|
7,375 |
|
|
|
1,053 |
|
|
|
49,852 |
|
Depletion, depreciation, accretion and impairment - per unit of production
|
|
|
25.53 |
|
|
|
21.62 |
|
|
|
- |
|
|
|
0.05 |
|
|
|
29.50 |
|
Segment income (loss) before income taxes
|
|
|
96,503 |
|
|
|
(1,623 |
) |
|
|
(8,432 |
) |
|
|
(7,389 |
) |
|
|
79,059 |
|
Segment capital expenditures
|
|
$ |
40,100 |
|
|
$ |
7,100 |
|
|
$ |
4,096 |
|
|
$ |
7,268 |
|
|
$ |
58,564 |
|
|
Three Months Ended September 30, 2010
|
|
(Thousands of U.S. Dollars except per unit of production amounts)
|
|
Colombia
|
|
|
Argentina
|
|
|
Peru
|
|
|
All Other
|
|
|
Total
|
|
Oil and natural gas sales
|
|
$ |
80,731 |
|
|
$ |
3,379 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
84,110 |
|
Interest income
|
|
|
301 |
|
|
|
- |
|
|
|
- |
|
|
|
158 |
|
|
|
459 |
|
Depletion, depreciation, accretion and impairment
|
|
|
33,916 |
|
|
|
1,208 |
|
|
|
16 |
|
|
|
114 |
|
|
|
35,254 |
|
Depletion, depreciation, accretion and impairment - per unit of production
|
|
|
28.78 |
|
|
|
18.08 |
|
|
|
- |
|
|
|
- |
|
|
|
28.31 |
|
Segment income (loss) before income taxes
|
|
|
8,305 |
|
|
|
(405 |
) |
|
|
(591 |
) |
|
|
(4,692 |
) |
|
|
2,617 |
|
Segment capital expenditures
|
|
$ |
22,084 |
|
|
$ |
12,289 |
|
|
$ |
7,080 |
|
|
$ |
6,233 |
|
|
$ |
47,686 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2011
|
|
(Thousands of U.S. Dollars except per unit of production amounts)
|
Colombia
|
|
Argentina
|
|
|
Peru
|
|
All Other
|
|
Total
|
|
Oil and natural gas sales
|
|
$ |
399,252 |
|
|
$ |
33,038 |
|
|
$ |
- |
|
|
$ |
2,494 |
|
|
$ |
434,784 |
|
Interest income
|
|
|
375 |
|
|
|
6 |
|
|
|
140 |
|
|
|
367 |
|
|
|
888 |
|
Depletion, depreciation, accretion and impairment
|
|
|
104,560 |
|
|
|
13,161 |
|
|
|
40,838 |
|
|
|
1,615 |
|
|
|
160,174 |
|
Depletion, depreciation, accretion and impairment - per unit of production
|
|
|
26.33 |
|
|
|
20.12 |
|
|
|
- |
|
|
|
0.06 |
|
|
|
34.45 |
|
Segment income (loss) before income taxes
|
|
|
228,118 |
|
|
|
(5,152 |
) |
|
|
(43,428 |
) |
|
|
(510 |
) |
|
|
179,028 |
|
Segment capital expenditures
|
|
$ |
136,580 |
|
|
$ |
25,859 |
|
|
$ |
29,670 |
|
|
$ |
37,046 |
|
|
$ |
229,155 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2010
|
|
(Thousands of U.S. Dollars except per unit of production amounts)
|
|
Colombia
|
|
|
Argentina
|
|
|
Peru
|
|
|
All Other
|
|
|
Total
|
|
Oil and natural gas sales
|
|
$ |
250,767 |
|
|
$ |
9,992 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
260,759 |
|
Interest income
|
|
|
520 |
|
|
|
19 |
|
|
|
- |
|
|
|
495 |
|
|
|
1,034 |
|
Depletion, depreciation, accretion and impairment
|
|
|
99,243 |
|
|
|
7,699 |
|
|
|
27 |
|
|
|
269 |
|
|
|
107,238 |
|
Depletion, depreciation, accretion and impairment - per unit of production
|
|
|
27.57 |
|
|
|
36.96 |
|
|
|
- |
|
|
|
- |
|
|
|
28.16 |
|
Segment income (loss) before income taxes
|
|
|
74,154 |
|
|
|
(6,158 |
) |
|
|
(1,082 |
) |
|
|
(12,931 |
) |
|
|
53,983 |
|
Segment capital expenditures
|
|
$ |
68,531 |
|
|
$ |
16,763 |
|
|
$ |
9,216 |
|
|
$ |
7,536 |
|
|
$ |
102,046 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As at September 30, 2011
|
|
(Thousands of U.S. Dollars)
|
Colombia
|
|
Argentina
|
|
|
Peru
|
|
All Other
|
|
Total
|
|
Property, plant and equipment
|
|
$ |
786,783 |
|
|
$ |
151,156 |
|
|
$ |
28,948 |
|
|
$ |
50,520 |
|
|
$ |
1,017,407 |
|
Goodwill
|
|
|
102,581 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
102,581 |
|
Other assets
|
|
|
255,399 |
|
|
|
36,766 |
|
|
|
8,384 |
|
|
|
119,218 |
|
|
|
419,767 |
|
Total Assets
|
|
$ |
1,144,763 |
|
|
$ |
187,922 |
|
|
$ |
37,332 |
|
|
$ |
169,738 |
|
|
$ |
1,539,755 |
|
|
As at December 31, 2010
|
|
(Thousands of U.S. Dollars)
|
|
Colombia
|
|
|
Argentina
|
|
|
Peru
|
|
|
All Other
|
|
|
Total
|
|
Property, plant and equipment
|
|
$ |
654,416 |
|
|
$ |
29,031 |
|
|
$ |
28,578 |
|
|
$ |
14,999 |
|
|
$ |
727,024 |
|
Goodwill
|
|
|
102,581 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
102,581 |
|
Other assets
|
|
|
155,798 |
|
|
|
15,220 |
|
|
|
18,575 |
|
|
|
230,056 |
|
|
|
419,649 |
|
Total Assets
|
|
$ |
912,795 |
|
|
$ |
44,251 |
|
|
$ |
47,153 |
|
|
$ |
245,055 |
|
|
$ |
1,249,254 |
|
The Company’s revenues are derived from uncollateralized sales to customers in the oil and natural gas industry. The concentration of credit risk in a single industry affects the Company’s overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions.
In 2011, the Company has one significant customer for its Colombian crude oil, Ecopetrol S.A. (“Ecopetrol”). Sales to Ecopetrol accounted for 87% of the Company’s oil and natural gas sales for the three and nine months ended September 30, 2011 and 96% of the Company's oil and natural gas sales for the three and nine months ended September 30, 2010.
In Argentina, the Company has three significant customers, Refineria del Norte S.A (“Refiner”), Shell C.A.P.S.A. (“Shell”) and YPF S.A. (“YPF”). Sales to Refiner, Shell and YPF each accounted for 3% of the Company’s oil and natural gas sales for the three month period ended September 30, 2011 and 3%, 3% and 2% of the Company’s oil and natural gas sales for the nine months ended September 30, 2011. Sales to Refiner accounted for 4% of the Company’s oil and natural gas sales in each of the three and nine months ended September 30, 2010.
5. Property, Plant and Equipment
|
|
As at September 30, 2011
|
|
|
As at December 31, 2010
|
|
(Thousands of U.S. Dollars)
|
|
Cost
|
|
|
Accumulated
depletion,
depreciation
and
accretion
|
|
|
Net book
value
|
|
|
Cost
|
|
|
Accumulated
depletion,
depreciation
and
accretion
|
|
|
Net book
value
|
|
Oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved
|
|
$ |
1,071,713 |
|
|
$ |
(492,501 |
) |
|
$ |
579,212 |
|
|
$ |
777,262 |
|
|
$ |
(334,858 |
) |
|
$ |
442,404 |
|
Unproved
|
|
|
430,870 |
|
|
|
- |
|
|
|
430,870 |
|
|
|
278,753 |
|
|
|
- |
|
|
|
278,753 |
|
|
|
|
1,502,583 |
|
|
|
(492,501 |
) |
|
|
1,010,082 |
|
|
|
1,056,015 |
|
|
|
(334,858 |
) |
|
|
721,157 |
|
Furniture and fixtures and leasehold improvements
|
|
|
6,537 |
|
|
|
(4,051 |
) |
|
|
2,486 |
|
|
|
5,233 |
|
|
|
(2,831 |
) |
|
|
2,402 |
|
Computer equipment
|
|
|
7,389 |
|
|
|
(3,070 |
) |
|
|
4,319 |
|
|
|
5,521 |
|
|
|
(2,358 |
) |
|
|
3,163 |
|
Automobiles
|
|
|
1,081 |
|
|
|
(561 |
) |
|
|
520 |
|
|
|
779 |
|
|
|
(477 |
) |
|
|
302 |
|
Total Property, Plant and Equipment
|
|
$ |
1,517,590 |
|
|
$ |
(500,183 |
) |
|
$ |
1,017,407 |
|
|
$ |
1,067,548 |
|
|
$ |
(340,524 |
) |
|
$ |
727,024 |
|
On August 26, 2010, the Company entered into an agreement to acquire a 70% participating interest in four blocks in Brazil. With the exception of one block which has a producing well, the remaining blocks are unproved properties. The agreement was effective September 1, 2010, subject to regulatory approvals, and the transaction was completed on June 15, 2011. Purchase consideration was $40.1 million and was recorded as a Corporate capital expenditure in 2011 and 2010. The 70% share of all benefits and costs with respect to the period between the effective date and the completion of the transaction were an adjustment to the consideration paid for the four blocks.
Depletion, depreciation, accretion and impairment ("DD&A") for the nine months ended September 30, 2011 includes an impairment loss of $40.8 million in Gran Tierra’s Peru cost center. This impairment loss relates to drilling and seismic costs from dry wells for two blocks, one of which was relinquished.
For the nine months ended September 30, 2010, a $3.7 million impairment loss was included in the Gran Tierra’s Argentina cost center. This impairment loss was a result of a redetermination of the income tax effect on the present value of future cash inflows used to determine the Argentina ceiling for that country’s ceiling test.
The amounts capitalized in each of the Company's cost centers during the nine months ended September 30, 2011 and the year ended December 31, 2010 were as follows:
|
|
Nine Months Ended September 30, 2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Thousands of U.S. Dollars)
|
|
Colombia
|
|
|
Argentina
|
|
|
Peru
|
|
|
Brazil
|
|
|
Total
|
|
Capitalized G&A, including stock based compensation
|
|
$ |
4,786 |
|
|
$ |
1,609 |
|
|
$ |
464 |
|
|
$ |
1,066 |
|
|
$ |
7,925 |
|
Capitalized stock based compensation
|
|
$ |
304 |
|
|
$ |
189 |
|
|
$ |
- |
|
|
$ |
133 |
|
|
$ |
626 |
|
|
|
Year ended December 31, 2010
|
|
(Thousands of U.S. Dollars)
|
|
Colombia
|
|
|
Argentina
|
|
|
Peru
|
|
|
Brazil
|
|
|
Total
|
|
Capitalized G&A, including stock based compensation
|
|
$ |
4,127 |
|
|
$ |
1,171 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,298 |
|
Capitalized stock based compensation
|
|
$ |
308 |
|
|
$ |
150 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
458 |
|
The unproved oil and natural gas properties at September 30, 2011 consist of exploration lands held in Colombia, Argentina, Peru, and Brazil, including additions related to Petrolifera’s assets. As at September 30, 2011, the Company had $301.6 million (December 31, 2010 - $228.8 million) of unproved assets in Colombia, $59.5 million (December 31, 2010 - $9.4 million) of unproved assets in Argentina, $28.0 million (December 31, 2010 - $28.2 million) of unproved assets in Peru, and $41.8 million (December 31, 2010 - $12.4 million) of unproved assets in Brazil for a total of $430.9 million (December 31, 2010 - $278.8 million). These properties are being held for their exploration value and are not being depleted pending determination of the existence of proved reserves. Gran Tierra will continue to assess unproved properties over the next several years as proved reserves are established and as exploration dictates whether or not future areas will be developed. This assessment will include an impairment review.
6. Share Capital
The Company’s authorized share capital consists of 595,000,002 shares of capital stock, of which 570 million are designated as common stock, par value $0.001 per share, 25 million are designated as preferred stock, par value $0.001 per share and two shares are designated as special voting stock, par value $0.001 per share. As at September 30, 2011, outstanding share capital consists of 261,053,809 common voting shares of the Company, 8,763,980 exchangeable shares of Gran Tierra Exchange Co., automatically exchangeable on November 14, 2013, and 7,811,112 exchangeable shares of Goldstrike Exchange Co., automatically exchangeable on November 10, 2012. The exchangeable shares of Gran Tierra Exchange Co, were issued upon acquisition of Solana Resources Limited (“Solana”). The exchangeable shares of Gran Tierra Goldstrike Inc. were issued upon the business combination between Gran Tierra Energy Inc., an Alberta corporation, and Goldstrike, Inc., which is now the Company. Each exchangeable share is exchangeable into one common voting share of the Company. The holders of common stock are entitled to one vote for each share on all matters submitted to a shareholder vote and are entitled to share in all dividends that the Company’s board of directors, in its discretion, declares from legally available funds. The holders of common stock have no pre-emptive rights, no conversion rights, and there are no redemption provisions applicable to the common stock. Holders of exchangeable shares have substantially the same rights as holders of common voting shares.
Warrants
At September 30, 2011, the Company had 6,298,230 warrants outstanding to purchase 3,149,115 common shares for $1.05 per share, expiring between June 20, 2012 and June 30, 2012. The 4,125,036 Replacement Warrants, issued upon the acquisition of Petrolifera (Note 3), to purchase 4,125,036 common shares for CDN$9.67, expired unexercised on August 28, 2011.
For the nine months ended September 30, 2011, 735,817 common shares were issued upon the exercise of 1,471,634 warrants (nine months ended September 30, 2010, 10,438,473 common shares were issued upon the exercise of 13, 731,008 warrants). Included in warrants exercised in the nine months ended September 30, 2010 were 7,145,938 warrants to purchase 7,145,938 common shares for $14.4 million, assumed on the acquisition of Solana in November 2008.
Stock Options
As at September 30, 2011, the Company has a 2007 Equity Incentive Plan under which the Company’s board of directors is authorized to issue options or other rights to acquire shares of the Company’s common stock. The number of shares of common stock available for issuance thereunder is 23,306,100 shares.
The Company grants options to purchase common shares to certain directors, officers, employees and consultants. Each option permits the holder to purchase one common share at the stated exercise price. The options vest over three years and have a term of ten years, or three months after the grantee’s end of service to the Company, whichever occurs first. At the time of grant, the exercise price equals the market price. For the nine months ended September 30, 2011, 695,881 common shares were issued upon the exercise of 695,881 stock options (nine months ended September 30, 2010 – 2,324,256). The following options were outstanding as of September 30, 2011:
|
Number of
|
|
Weighted Average
|
|
|
Outstanding
|
|
Exercise Price
|
|
|
Options
|
|
$/Option
|
|
Balance, December 31, 2010
|
|
|
10,943,058 |
|
|
|
3.49 |
|
Granted in 2011
|
|
|
3,920,996 |
|
|
|
8.17 |
|
Exercised in 2011
|
|
|
(695,881 |
) |
|
|
(2.93 |
) |
Forfeited in 2011
|
|
|
(387,501 |
) |
|
|
(6.46 |
) |
Balance, September 30, 2011
|
|
|
13,780,672 |
|
|
|
4.76 |
|
The weighted average grant date fair value for options granted in the nine months ended September 30, 2011 was $4.96 (nine months ended September 30, 2010 - $3.33). The intrinsic value of options exercised for the nine months ended September 30, 2011 was $3.5 million (nine months ended September 30, 2010 - $9.5 million).
The table below summarizes stock options outstanding at September 30, 2011:
|
|
Number of
|
|
|
Weighted Average
|
|
|
Weighted
|
|
|
|
Outstanding
|
|
|
Exercise Price
|
|
|
Average
|
|
Range of Exercise Prices ($/option)
|
|
Options
|
|
|
$/Option
|
|
|
Expiry Years
|
|
0.50 to 2.00
|
|
|
1,369,171 |
|
|
|
1.14 |
|
|
|
4.9 |
|
2.01 to 3.50
|
|
|
5,047,752 |
|
|
|
2.46 |
|
|
|
7.0 |
|
3.51 to 5.50
|
|
|
466,666 |
|
|
|
4.43 |
|
|
|
8.0 |
|
5.51 to 7.00
|
|
|
3,161,087 |
|
|
|
5.93 |
|
|
|
8.6 |
|
7.01 to 8.40
|
|
|
3,735,996 |
|
|
|
8.23 |
|
|
|
9.4 |
|
Total
|
|
|
13,780,672 |
|
|
|
4.76 |
|
|
|
7.8 |
|
The aggregate intrinsic value of options outstanding at September 30, 2011 is $16.9 million (December 31, 2010 - $49.9 million) based on the Company’s closing stock price of $4.77 (December 31, 2010 - $8.05) at that date. At September 30, 2011, there was $14.6 million (December 31, 2010 - $6.1 million) of unrecognized compensation cost related to unvested stock options which is expected to be recognized over the next three years. As at September 30, 2011, 6,089,622 (December 31, 2010 – 5,426,367) options were exercisable.
For the nine months ended September 30, 2011, the stock-based compensation expense was $10.0 million (nine months ended September 30, 2010 - $5.7 million) of which $8.5 million (nine months ended September 30, 2010 - $4.6 million) was recorded in G&A expenses, $0.9 million was recorded in operating expenses (nine months ended September 30, 2010 – $0.8 million) and $0.6 million of stock-based compensation was capitalized as part of exploration and development costs (nine months ended September 30, 2010 – $0.3 million).
The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model based on assumptions noted in the following table. The Company uses historical data to estimate option exercises, expected term and employee departure behavior used in the Black-Scholes option pricing model. Expected volatilities used in the fair value estimate are based on historical volatility of the Company’s stock. The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant.
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Dividend yield (per share)
|
|
$nil |
|
|
$nil |
|
|
$nil |
|
|
$nil |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
76 |
% |
|
|
85 |
% |
|
|
81 |
% |
|
|
90 |
% |
Risk-free interest rate
|
|
|
0.6 |
% |
|
|
0.3 |
% |
|
|
1.3 |
% |
|
|
0.4 |
% |
Expected term
|
|
4 - 6 years
|
|
|
3 years
|
|
|
4 - 6 years
|
|
|
3 years
|
|
Estimated forfeiture percentage (per year)
|
|
|
4 |
% |
|
|
10 |
% |
|
|
4 |
% |
|
|
10 |
% |
Weighted average shares outstanding
|
|
Three Months Ended
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
Weighted average number of common and exchangeable shares outstanding
|
|
|
277,608,572 |
|
|
|
254,951,642 |
|
|
|
272,006,775 |
|
|
|
252,487,462 |
|
Shares issuable pursuant to warrants
|
|
|
2,597,140 |
|
|
|
- |
|
|
|
2,743,224 |
|
|
|
3,877,754 |
|
Shares issuable pursuant to stock options
|
|
|
4,350,662 |
|
|
|
- |
|
|
|
5,504,270 |
|
|
|
3,929,287 |
|
Shares to be purchased from proceeds of stock options
|
|
|
(530,138 |
) |
|
|
- |
|
|
|
(768,374 |
) |
|
|
- |
|
Weighted average number of diluted common and exchangeable shares outstanding
|
|
|
284,026,236 |
|
|
|
254,951,642 |
|
|
|
279,485,895 |
|
|
|
260,294,503 |
|
Net Income per share
For the three months ended September 30, 2011, 4,040,996 options to purchase common shares (for the nine months ended September 30, 2011, 3,665,996 options to purchase common shares) were excluded from the diluted income per share calculation as the instruments were anti-dilutive.
For the three months ended September 30, 2010, options to purchase 11,442,689 common shares and 9,147, 972 warrants to purchase 4,573,986 common shares were excluded from the diluted income per share calculation as the instruments were anti-dilutive. For the nine months ended September 30, 2010, options to purchase 3,435,000 common shares were excluded from the diluted income per share calculation as the instruments were anti-dilutive.
7. Asset Retirement Obligations
As at September 30, 2011, the Company’s asset retirement obligations were comprised of Colombian obligations in the amount of $4.9 million (December 31, 2010 - $3.7 million), Argentine obligations in the amount of $5.8 million (December 31, 2010 - $1.1 million) and Brazilian obligations in the amount of $0.4 million (December 31, 2010 - $nil). As at September 30, 2011, the undiscounted asset retirement obligations were $27.2 million (December 31, 2010 - $8.7 million). Changes in the carrying amounts of the asset retirement obligations associated with the Company’s oil and gas properties were as follows:
|
|
Nine Months Ended
|
|
|
Year Ended
|
|
(Thousands of U.S. Dollars)
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Balance, beginning of year
|
|
$ |
4,807 |
|
|
$ |
4,708 |
|
Settlements
|
|
|
(309 |
) |
|
|
(286 |
) |
Disposal
|
|
|
- |
|
|
|
(720 |
) |
Liability incurred
|
|
|
1,256 |
|
|
|
719 |
|
Liability assumed in a business combination (Note 3)
|
|
|
4,901 |
|
|
|
- |
|
Foreign exchange
|
|
|
(1 |
) |
|
|
58 |
|
Accretion
|
|
|
490 |
|
|
|
328 |
|
Balance, end of period
|
|
$ |
11,144 |
|
|
$ |
4,807 |
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations - current
|
|
$ |
357 |
|
|
$ |
338 |
|
Asset retirement obligations - long term
|
|
|
10,787 |
|
|
|
4,469 |
|
Balance, end of period
|
|
$ |
11,144 |
|
|
$ |
4,807 |
|
8. Taxes
The income tax expense reported differs from the amount computed by applying the U.S. statutory rate to income before income taxes for the following reasons:
|
Nine Months Ended September 30,
|
|
(Thousands of U.S. Dollars)
|
|
2011
|
|
|
2010
|
|
Income before income taxes
|
|
$ |
179,028 |
|
|
$ |
53,983 |
|
|
|
|
35 |
%
|
|
|
35 |
% |
Income tax expense expected
|
|
|
62,660 |
|
|
|
18,894 |
|
Other permanent differences
|
|
|
(2,507 |
) |
|
|
4,721 |
|
Foreign currency translation adjustments
|
|
|
(1,100 |
) |
|
|
12,060 |
|
Impact of foreign taxes
|
|
|
(4,704 |
) |
|
|
(108 |
) |
Enhanced tax depreciation incentive
|
|
|
- |
|
|
|
(6,842 |
) |
Stock-based compensation
|
|
|
2,987 |
|
|
|
1,519 |
|
Increase in valuation allowance
|
|
|
33,404 |
|
|
|
4,536 |
|
Branch and other foreign income pick-up in the United States and Canada
|
|
|
(4,627 |
) |
|
|
(4,851 |
) |
Non-deductible third party royalty in Colombia
|
|
|
6,145 |
|
|
|
- |
|
Non-taxable gain on acquisition
|
|
|
(7,595 |
) |
|
|
- |
|
Total income tax expense
|
|
$ |
84,663 |
|
|
$ |
29,929 |
|
|
|
|
|
|
|
|
|
|
Current income tax
|
|
|
99,390 |
|
|
|
57,955 |
|
Deferred tax recovery
|
|
|
(14,727 |
) |
|
|
(28,026 |
) |
Total income tax expense
|
|
$ |
84,663 |
|
|
$ |
29,929 |
|
|
As at
|
|
(Thousands of U.S. Dollars)
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
Deferred Tax Assets
|
|
|
|
|
|
|
|
|
Tax benefit of loss carryforwards
|
|
$ |
61,518 |
|
|
$ |
27,527 |
|
Tax basis in excess of book basis
|
|
|
29,988 |
|
|
|
7,975 |
|
Foreign tax credits and other accruals
|
|
|
16,789 |
|
|
|
16,895 |
|
Capital losses
|
|
|
2,444 |
|
|
|
1,413 |
|
Deferred tax assets before valuation allowance
|
|
|
110,739 |
|
|
|
53,810 |
|
Valuation allowance
|
|
|
(95,135 |
) |
|
|
(48,958 |
) |
|
|
$ |
15,604 |
|
|
$ |
4,852 |
|
|
|
|
|
|
|
|
|
|
Deferred tax assets - current
|
|
$ |
2,504 |
|
|
$ |
4,852 |
|
Deferred tax assets - long term
|
|
|
13,100 |
|
|
|
- |
|
|
|
|
15,604 |
|
|
|
4,852 |
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities
|
|
|
|
|
|
|
|
|
Long-term - book value in excess of tax basis
|
|
|
(211,245 |
) |
|
|
(204,570 |
) |
|
|
|
|
|
|
|
|
|
Net Deferred Tax Liabilities
|
|
$ |
(195,641 |
) |
|
$ |
(199,718 |
) |
Equity tax for the nine months ended September 30, 2011 of $8.3 million represents a Colombian tax of 6% on the balance sheet equity recorded in the Company’s Colombian branches as at January 1, 2011. The equity tax is assessed every four years. The tax for the four-year period from 2011 to 2014 is payable in eight semi-annual installments over the four-year period but is expensed in the first quarter of 2011 at the commencement of the four-year period. The remainder of the equity tax liability at September 30, 2011 relates to an equity tax liability assumed upon the acquisition of Petrolifera.
As at September 30, 2011, the total amount of Gran Tierra’s unrecognized tax benefits was approximately $20.7 million (December 31, 2010 - $4.2 million), a portion of which, if recognized, would affect the Company’s effective tax rate. To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and are classified as a component of income taxes in the consolidated statement of operations. As at September 30, 2011, the amount of interest and penalties on unrecognized tax benefits included in current income tax liabilities in the condensed consolidated balance sheet was approximately $0.8 million. The Company had no interest or penalties included in the consolidated statement of operations for the three and nine months ended September 30, 2011 and 2010, respectively.
Changes in the Company's unrecognized tax benefit are as follows:
|
|
|
|
(Thousands of U.S. Dollars)
|
|
|
|
Unrecognized tax benefit at January 1, 2011
|
|
$ |
4,175 |
|
Reduction of tax position related to prior years
|
|
|
(257 |
) |
Additions to tax position related to the current year
|
|
|
16,758 |
|
Unrecognized tax benefit at September 30, 2011
|
|
$ |
20,676 |
|
The Company and its subsidiaries file income tax returns in the U.S. federal and state jurisdictions and certain other foreign jurisdictions. The Company is subject to income tax examinations for the calendar tax years ended 2005 through 2010 in most jurisdictions. The Company does not anticipate any material changes to the unrecognized tax benefits disclosed above within the next twelve months.
As at September 30, 2011, the Company has deferred tax assets relating to net operating loss carryforwards of $61.5 million (December 31, 2010 - $27.5 million) and capital losses of $2.4 million (December 31, 2010 - $1.4 million) before valuation allowances. Of these tax assets relating to losses, $51.5 million (December 31, 2010 - $20.5 million) are generated by the foreign subsidiaries of the Company. Of the total tax assets relating to losses, $0.1 million will expire in 2011 (December 31, 2010 - $nil), $1.2 million (December 31, 2010 - $nil) will begin to expire in 2012 and $62.7 million (December 31, 2010 - $28.9 million) will begin to expire thereafter.
9. Commitments and Contingencies
Leases
Gran Tierra holds four categories of operating leases: compressor, office, vehicle and equipment and housing. The Company pays monthly amounts of $0.2 million for compressors, $0.3 million for office leases, $16,000 for vehicle and equipment leases and $6,400 for certain employee accommodation leases in Canada, Colombia, Argentina, Peru, and Brazil.
Future lease payments at September 30, 2011, including the aforementioned operating leases, are as follows:
|
|
As at September 30, 2011
|
|
|
|
Payments Due in Period
|
|
Contractual Obligations
|
|
Total
|
|
|
Less than
1 Year
|
|
|
1 to 3
years
|
|
|
3 to 5
years
|
|
|
More
than 5
years
|
|
(Thousands of U.S. Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
$ |
9,436 |
|
|
$ |
5,612 |
|
|
$ |
3,239 |
|
|
$ |
585 |
|
|
$ |
- |
|
Software and telecommunication
|
|
|
2,017 |
|
|
|
1,221 |
|
|
|
754 |
|
|
|
42 |
|
|
|
- |
|
Drilling, completion, facility construction and oil transportation services
|
|
|
112,546 |
|
|
|
80,766 |
|
|
|
30,153 |
|
|
|
1,627 |
|
|
|
- |
|
Consulting
|
|
|
518 |
|
|
|
518 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
124,517 |
|
|
$ |
88,117 |
|
|
$ |
34,146 |
|
|
$ |
2,254 |
|
|
$ |
- |
|
Indemnities
Corporate indemnities have been provided by the Company to directors and officers for various items including, but not limited to, all costs to settle suits or actions due to their association with the Company and its subsidiaries and/or affiliates, subject to certain restrictions. The Company has purchased directors’ and officers’ liability insurance to mitigate the cost of any potential future suits or actions. The maximum amount of any potential future payment cannot be reasonably estimated.
The Company may provide indemnifications in the normal course of business that are often standard contractual terms to counterparties in certain transactions such as purchase and sale agreements. The terms of these indemnifications will vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amounts that may be required to be paid. Management believes the resolution of these matters would not have a material adverse impact on the Company’s liquidity, consolidated financial position or results of operations.
Legal Contingencies
Ecopetrol and Gran Tierra Energy Colombia Ltd. “Gran Tierra Colombia”, the contracting parties of the Guayuyaco Association Contract, are engaged in a dispute regarding the interpretation of the procedure for allocation of oil produced and sold during the long term test of the Guayuyaco-1 and Guayuyaco-2 wells. There is a material difference in the interpretation of the procedure established in Clause 3.5 of Attachment-B of the Guayuyaco Association Contract. Ecopetrol interprets the contract to provide that the extended test production up to a value equal to 30% of the direct exploration costs of the wells is for Ecopetrol’s account only and serves as reimbursement of its 30% back-in to the Guayuyaco discovery. Gran Tierra Colombia’s contention is that this amount is merely the recovery of 30% of the direct exploration costs of the wells and not exclusively for the benefit of Ecopetrol. There has been no agreement between the parties, and Ecopetrol has filed a lawsuit in the Contravention Administrative Court in the District of Cauca regarding this matter. Gran Tierra Colombia filed a response on April 29, 2008 in which it refuted all of Ecopetrol’s claims and requested a change of venue to the courts in Bogota. At this time no amount has been accrued in the financial statements as the Company does not consider it probable that a loss will be incurred. Ecopetrol is claiming damages of approximately $5.4 million.
Gran Tierra is subject to a third party 10% net profits interest on 50% of the Company’s production from the Costayaco field that arises from the original acquisition in 2006 of 50% of Gran Tierra’s interest in the Chaza Block Contract. There is currently a disagreement between Gran Tierra and the third party as to the calculation of the net profits interest. Gran Tierra and the third party have agreed to resolve this issue through an arbitration which is anticipated to be heard in Texas, in accordance with the rules of the American Arbitration Association, in the fourth quarter of 2011. At this time no amount has been accrued in the financial statements as the Company does not consider it probable that a loss will be incurred. The disputed amount at September 30, 2011 is $8.2 million.
Gran Tierra has several lawsuits and claims pending for which the Company currently cannot determine the ultimate result. Gran Tierra records costs as they are incurred or become probable and determinable. Gran Tierra believes the resolution of these matters would not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.
10. Financial Instruments, Fair Value Measurements and Credit Risk
The Company’s financial instruments recognized in the balance sheet consist of cash and cash equivalents, restricted cash, accounts receivable, accounts payable and accrued liabilities. The estimated fair values of the financial instruments have been determined based on the Company’s assessment of available market information and appropriate valuation methodologies. As at September 30, 2011, the fair values of financial instruments approximate their carrying amounts due to the short term maturity of these instruments.
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels. Level 1 inputs consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 and 3 inputs are based on significant other observable inputs and significant unobservable inputs, respectively, and have lower priorities. The Company uses appropriate valuation techniques based on the available inputs to measure the fair values of assets and liabilities. The Company does not have any assets or liabilities whose fair value is measured using the Level 1 or 2 methods.
Most of the Company’s accounts receivable relate to oil and natural gas sales and are exposed to typical industry credit risks. The Company manages this credit risk by entering into sales contracts with only credit worthy entities and reviewing its exposure to individual entities on a regular basis. The book value of the accounts receivable reflects management’s assessment of the associated credit risks.
The Company’s revenues are derived from uncollateralized sales to customers in the oil and gas industry. The concentration of credit risk in a single industry affects the Company’s overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. For the nine months ended September 30, 2011, the Company had one significant customer for its Colombian crude oil, Ecopetrol, and in Argentina the Company had three significant customers, Refiner, Shell and YPF.
Additionally, foreign exchange gains/losses result from the fluctuation of the U.S. dollar to the Colombian peso due to Gran Tierra’s deferred tax liability, a monetary liability, which is denominated in the local currency of the Colombian foreign operations. As a result, a foreign exchange gain/loss must be calculated on conversion to the U.S. dollar functional currency. A strengthening in the Colombian peso against the U.S. dollar results in foreign exchange losses, estimated at $98,000 for each one peso decrease in the exchange rate of the Colombian peso to one U.S. dollar.
11. Bank Debt and Credit Facilities
Effective July 30, 2010, a subsidiary of Gran Tierra established a credit facility with BNP Paribas for a three-year term which may be extended or amended by agreement between the parties. This reserve based facility has a maximum borrowing base up to $100 million and is supported by the present value of the petroleum reserves of the Company’s two subsidiaries with operating branches in Colombia – Gran Tierra Energy Colombia Ltd. and Solana Petroleum Exploration (Colombia) Ltd. The initial committed borrowing base is $20 million. Amounts drawn down under the facility bear interest at the U.S. dollar LIBOR rate plus 3.5%. In addition, a stand-by fee of 1.50% per annum is charged on the unutilized balance of the committed borrowing base and is included in G&A expense. Under the terms of the facility, the Company is required to maintain and was in compliance with certain financial and operating covenants. As at September 30, 2011, the Company had not drawn down any amounts under this facility.
As part of the acquisition of Petrolifera , Gran Tierra assumed a reserve-backed credit facility with an outstanding balance as at the Acquisition Date of $31.3 million. The Company repaid this credit facility on August 5, 2011. The credit facility bore interest at LIBOR plus 8.25% and was partially secured by the pledge of the shares of Petrolifera’s subsidiaries.
Interest Expense
Interest expense on the reserve-backed credit facility for the 140 day period from the Acquisition Date to August 5, 2011, the date the facility was repaid, was $1.6 million. This amount is recorded in the Condensed Consolidated Statements of Operations and Retained Earnings as part of G&A expense.
Restricted cash
Restricted cash comprises cash resources pledged to secure letters of credit. Letters of credit currently secured by cash relate to work commitment guarantees contained in exploration contracts. Restricted cash is classified between current and long term assets based on the expiration dates of the deposits underlying the letters of credit.
12. Related Party Transaction
On January 12, 2011, the Company entered into an agreement to sublease office space to a company of which Gran Tierra’s President and Chief Executive Officer serves as an independent director. The term of the sublease runs from February 1, 2011 to January 30, 2013 and, at $4,300 per month plus approximately $5,700 of operating and other expense, the terms are consistent with market conditions in the Calgary, Alberta, Canada real estate market.
On August 3, 2010, Gran Tierra entered into a contract related to the Peru drilling program with a company of which one of Gran Tierra’s directors is a shareholder and director. For the nine months ended September 30, 2011, $2.3 million was capitalized and at September 30, 2011, $0.1 million was included in accounts payable related to this contract, the terms of which are consistent with market conditions.
On February 1, 2009, the Company entered into a sublease for office space with a company, of which one of Gran Tierra’s directors is a shareholder and director. The term of the sublease ran from February 1, 2009 to August 31, 2011 and the sublease payment was $8,551 per month plus approximately $4,500 for operating and other expenses. The terms of the sublease were consistent with market conditions in the Calgary, Alberta, Canada real estate market.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
STATEMENT REGARDING FORWARD-LOOKING INFORMATION
This report contains forward-looking statements within the meaning of Section 27A of the United States Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our projected financial position and results, estimated quantities and values of reserves, business strategy, plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believes”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, those set out in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q. Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
The following discussion of our financial condition and results of operations should be read in conjunction with the Financial Statements as set out in Part I – Item 1 of this Quarterly Report on Form 10-Q, as well as the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 25, 2011.
OVERVIEW
We are an independent international energy company incorporated in the United States and engaged in oil and natural gas acquisition, exploration, development and production. We are headquartered in Calgary, Alberta, Canada and operate in South America in Colombia, Argentina, Peru, and Brazil.
Effective March 18, 2011, we completed the acquisition of Petrolifera Petroleum Limited ("Petrolifera"), a Canadian based international oil and gas company which owned working interests in 11 exploration and production blocks; three located in Colombia, three in Peru and five in Argentina.
On June 15, 2011, we completed the acquisition of a 70% participating interest in four blocks in Brazil. The agreement had an effective date of September 1, 2010. Purchase consideration totalled $40.1 million. With the exception of one block which has a producing well, the remaining blocks are unproved properties.
Highlights
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
|
|
2011
|
|
|
2010
|
|
|
% Change
|
|
|
2011
|
|
|
2010
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production - Barrels of Oil Equivalent ("boe") per Day (1)
|
|
|
18,369 |
|
|
|
13,536 |
|
|
|
36 |
|
|
|
17,033 |
|
|
|
13,949 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prices Realized - per boe
|
|
$ |
89.25 |
|
|
$ |
67.54 |
|
|
|
32 |
|
|
$ |
93.50 |
|
|
$ |
68.48 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue and Other Income ($000s)
|
|
$ |
151,033 |
|
|
$ |
84,569 |
|
|
|
79 |
|
|
$ |
435,672 |
|
|
$ |
261,793 |
|
|
|
66 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) ($000s)
|
|
$ |
49,085 |
|
|
$ |
(3,277 |
) |
|
|
- |
|
|
$ |
94,365 |
|
|
$ |
24,054 |
|
|
|
292 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share - Basic
|
|
$ |
0.18 |
|
|
$ |
(0.01 |
) |
|
|
- |
|
|
$ |
0.35 |
|
|
$ |
0.10 |
|
|
|
250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Per Share - Diluted
|
|
$ |
0.17 |
|
|
$ |
(0.01 |
) |
|
|
- |
|
|
$ |
0.34 |
|
|
$ |
0.09 |
|
|
|
278 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds Flow From Operations ($000s) (2)
|
|
$ |
72,817 |
|
|
$ |
37,185 |
|
|
|
96 |
|
|
$ |
227,949 |
|
|
$ |
135,519 |
|
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Expenditures ($000s)
|
|
$ |
58,564 |
|
|
$ |
47,686 |
|
|
|
23 |
|
|
$ |
229,155 |
|
|
$ |
102,046 |
|
|
|
125 |
|
|
|
As at
|
|
|
|
|
|
|
|
September 30, 2011
|
|
|
December 31, 2010
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalents ($000s)
|
|
$ |
226,370 |
|
|
$ |
355,428 |
|
|
|
(36 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Working Capital (including cash & cash equivalents) ($000s)
|
|
$ |
230,508 |
|
|
$ |
265,835 |
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant & Equipment ($000s)
|
|
$ |
1,017,407 |
|
|
$ |
727,024 |
|
|
|
40 |
|
(1) Gas volumes are converted to boes at the rate of six thousand cubic feet (“mcf”) of gas per barrel of oil, based upon the approximate relative energy content of gas and oil. The conversion ratio does not assume price equivalency and the price for a barrel of oil equivalent for natural gas may differ significantly from the price of a barrel of oil.
(2) Funds flow from operations is a non-GAAP measure which does not have any standardized meaning prescribed under generally accepted accounting principles ("GAAP"). Management uses this financial measure to analyze operating performance and the income (loss) generated by our principal business activities prior to the consideration of how non-cash items affect that income (loss), and believes that this financial measure is also useful supplemental information for investors to analyze our operating performance and financial results. Investors should be cautioned that this measure should not be construed as an alternative to net income (loss) or other measures of financial performance as determined in accordance with GAAP. Our method of calculating this measure may differ from other companies and, accordingly, it may not be comparable to similar measures used by other companies. Funds flow from operations, as presented, is net income adjusted for depletion, depreciation, accretion and impairment ("DD&A"), deferred taxes, stock-based compensation, unrealized gain on financial instruments, unrealized foreign exchange losses (gains), settlement of asset retirement obligations, equity tax, and loss (gain) on acquisition. Reconciliation from funds flow from operations to net income is as follows:
|
|
Three Months Ended September 30,
|
|
|
Nine Months Ended September 30,
|
|
Funds Flow From Operations - Non-GAAP Measure ($000s)
|
|
2011
|
|
|
2010
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
49,085 |
|
|
$ |
(3,277 |
) |
|
$ |
94,365 |
|
|
$ |
24,054 |
|
Adjustments to reconcile net income (loss) to funds flow from operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
|
|
|
49,852 |
|
|
|
35,254 |
|
|
|
160,174 |
|
|
|
107,238 |
|
Deferred taxes
|
|
|
(10,082 |
) |
|
|
(9,995 |
) |
|
|
(15,488 |
) |
|
|
(28,026 |
) |
Stock-based compensation
|
|
|
3,438 |
|
|
|
2,064 |
|
|
|
9,383 |
|
|
|
5,424 |
|
Unrealized gain on financial instruments
|
|
|
- |
|
|
|
- |
|
|
|
(1,354 |
) |
|
|
(44 |
) |
Unrealized foreign exchange (gain) loss
|
|
|
(15,966 |
) |
|
|
13,139 |
|
|
|
136 |
|
|
|
27,136 |
|
Settlement of asset retirement obligations
|
|
|
- |
|
|
|
- |
|
|
|
(309 |
) |
|
|
(263 |
) |
Equity taxes
|
|
|
(3,510 |
) |
|
|
- |
|
|
|
2,741 |
|
|
|
- |
|
Gain on acquisition
|
|
|
- |
|
|
|
- |
|
|
|
(21,699 |
) |
|
|
- |
|
Funds flows from operations
|
|
$ |
72,817 |
|
|
$ |
37,185 |
|
|
$ |
227,949 |
|
|
$ |
135,519 |
|
Operational Highlights and Developments
|
·
|
In the third quarter of 2011, oil and gas production (net after royalty and inventory adjustments) increased by 36% to 18,369 barrels of oil equivalent per day (“boepd”) net after royalty (“NAR”) compared with the third quarter of 2010. The production increase was mainly due to a full quarter of production of 2,559 boepd from Petrolifera’s properties, improved production from the Costayaco field and the absence of any pipeline or other operational disruptions. For the nine months ended September 30, 2011, oil and gas production increased by 22% to 17,033 boepd compared with the same nine month period of 2010. Production from Petrolifera’s properties was 1,688 boepd during this period.
|
|
·
|
Average prices realized per boe in the third quarter of 2011, increased by 32% to $89.25 compared with the third quarter of 2010. For the nine months ended September 30, 2011, the average price realized per boe increased by 37% to $93.50 from the comparable nine month period in 2010.
|
|
·
|
Successful Melero-1 exploration well on the Garibay Block in the Llanos basin, Colombia tested 922 gross barrels of oil per day.
|
|
·
|
Three exploration wells drilled in the Rinconada Norte Block of the Neuquen Basin, Argentina made new discoveries of oil, one of which tested 1,023 boe gross per day. A wholly-owned subsidiary of America Petrogas Inc. is the operator of the Rinconada Norte Block with a 65% working interest upon completing certain work program obligations, while we hold a 35% working interest.
|
|
·
|
We announced two farm-in agreements with Statoil do Brasil Ltda. ("Statoil") in a joint venture with PetróleoBrasileiro S.A. ("Petrobras"), in Brazil’s deepwater offshore Camamu-Almada Basin, subject to obtaining regulatory approval from Agência Nacional de Petróleo, Gás Natural e Biocombustíveis ("ANP").
|
|
·
|
Subsequent to end of the third quarter 2011, we announced an acreage swap in Colombia with a wholly-owned subsidiary of Compania Espanola de Petroleos, S.A. (“CEPSA”), resulting in additional exploration opportunities in the foothills of the Llanos Basin subject to obtaining regulatory approval from Colombia’s Agencia Nacional de Hidrocarburos (National Hydrocarbons Agency) (“ANH”).
|
Financial Highlights
|
·
|
Increased production levels and improved crude oil prices contributed to a 79% increase in revenue and other income to $151.0 million for the third quarter of 2011 compared with the third quarter of 2010. The same contributing factors increased revenue and other income by 66% to $435.7 million for the nine months ended September 30, 2011.
|
|
·
|
Increased oil and natural gas sales and a foreign exchange gain, partially offset by increased DD&A, operating and general and adminstrative ("G&A") expenses, resulted in net income of $49.1 million, or $0.18 per share basic and $0.17 per share diluted, for the third quarter of 2011. This compares with a loss of $3.3 million, or $0.01 per basic and diluted share, in the third quarter of 2010. Net income increased by 292% to $94.4 million, or $0.35 per basic share and $0.34 per diluted share, for the nine months ended September 30, 2011 compared with $24.1 million, or $0.10 per basic share and $0.09 per diluted share, in the comparable nine month period in 2010. The improvement in net income for the nine months ended September 30, 2011 is a result of increased oil and natural gas sales, a gain on the Petrolifera acquisition and a reduced foreign exchange loss, partially offset by an impairment loss recorded in the Peru cost center, a Colombian equity tax and increased DD&A, operating and G&A expenses.
|
|
·
|
Increased production levels and improved crude oil prices, partially offset by increased operating and G&A expenses, contributed to increased funds flow from operations for both comparative periods.
|
|
·
|
Cash and cash equivalents of $226.4 million at September 30, 2011 decreased from $355.4 million at December 31, 2010 primarily as a result of $248.8 million of capital expenditures and an increase in non-cash working capital of $87.4 million, partially offset by funds flow from operations of $227.9 million, during the nine months ended September 30, 2011.
|
|
·
|
Working capital (including cash and cash equivalents) was $230.5 million at September 30, 2011, which is a $35.3 million decrease from December 31, 2010, due mainly to lower cash and cash equivalents, partially offset by a $100.5 million increase in accounts receivable due to the timing of payments from Ecopetrol.
|
|
·
|
Property, plant and equipment as at September 30, 2011 was $1.0 billion, an increase of $290.4 million from December 31, 2010, as a result of additions from the Petrolifera acquisition and the 2011 capital expenditure program, partially offset by DD&A expense.
|
Business combination
On March 18, 2011 (the "Acquisition Date"), we completed the acquisition of all the issued and outstanding common shares and warrants of Petrolifera pursuant to the terms and conditions of an arrangement agreement dated January 17, 2011. Petrolifera is a Calgary-based crude oil, natural gas and natural gas liquids exploration, development and production company active in Argentina, Colombia and Peru. For further details reference should be made to Note 3 of the condensed consolidated financial statements.
The acquisition was accounted for using the acquisition method, with Gran Tierra being the acquirer, whereby Petrolifera’s assets acquired and liabilities assumed were recorded at their fair values as at the Acquisition Date and the results of Petrolifera were consolidated with those of Gran Tierra from that date.
The following table shows the allocation of the consideration transferred based on the fair values of the assets and liabilities acquired:
(Thousands of U.S. Dollars)
|
|
|
|
Consideration Transferred:
|
|
|
|
Common shares issued net of share issue costs
|
|
$ |
141,690 |
|
Replacement warrants
|
|
|
1,354 |
|
|
|
$ |
143,044 |
|
|
|
|
|
|
Allocation of Consideration Transferred (1):
|
|
|
|
|
Oil and gas properties
|
|
|
|
|
Proved
|
|
$ |
58,457 |
|
Unproved
|
|
|
161,278 |
|
Other long term assets
|
|
|
4,417 |
|
Net working capital (including cash acquired of $7.7 million and accounts receivable of $6.4 million)
|
|
|
(17,223 |
) |
|