Unassociated Document
As
filed
with the Securities and Exchange Commission on August
8,
2006
Registration
No. 333-132352
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
AMENDMENT
NO. 2 TO
FORM
SB-2
REGISTRATION
STATEMENT
UNDER
THE
SECURITIES ACT OF 1933
GRAN
TIERRA ENERGY INC.
(f/k/a
Goldstrike Inc.)
(Name
of Small Business Issuer in Its Charter)
Nevada
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1311
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98-0479924
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(State
or Other Jurisdiction of
Incorporation
or Organization)
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(Primary
Standard Industrial
Classification
Code Number)
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(I.R.S.
Employer Identification
No.)
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300,
611-10TH
AVENUE
S.W.
CALGARY,
ALBERTA T2R
0B2
CANADA
(403)
265-3221
(Address
and Telephone Number of Principal Executive Offices)
(Address
of Principal Place of Business or Intended Principal Place of
Business)
DANA
COFFIELD
PRESIDENT
& CHIEF EXECUTIVE OFFICER
300,
611-10TH
AVENUE
S.W.
CALGARY,
ALBERTA, CANADA T2R 0B2
(403)
265-3221
(Name,
Address and Telephone Number of Agent for Service)
Copy
to:
LOUIS
W. ZEHIL, ESQ.
MCGUIREWOODS
LLP
1345
AVENUE OF THE AMERICAS, 7TH
FLOOR
NEW
YORK, NEW YORK 10105-0106
(212)
548-2100
Approximate
Date of Commencement of Proposed Sale to the Public: From time to
time as determined by the selling stockholders after the effective date of
this
Registration Statement.
If
any of
the securities being registered on this form are to be offered on a delayed
basis pursuant to Rule 415 under the Securities Act of 1933, other than
securities offered only in connection with dividend or interest reinvestment
plans, check the following box.
x
If
this
form is filed to register additional securities for an offering pursuant to
Rule
462(b) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ¨
If
this
form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
this
form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
statement number of the earlier effective registration statement for the same
offering. ¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please
check the following box. ¨
The
registrant hereby amends this registration statement on such date or dates
as
may be necessary to delay its effective date until the registrant shall file
a
further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933, as amended, or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
The
information in this prospectus is not complete and may be changed. We may not
sell these securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer to sell
these securities and it is not soliciting an offer to buy these securities
in
any state where the offer or sale is not permitted.
Subject
to completion, dated August 8, 2006
Prospectus
Gran
Tierra Energy Inc.
22,821,417
shares of common stock
This
prospectus relates to the offering by the selling stockholders of Gran Tierra
Energy Inc. of up to 22,821,417 shares of our common stock, par value $0.001
per
share. Those shares of common stock include 15,547,606 shares of common stock
and 7,273,811 shares of common stock underlying warrants, issued to certain
investors in three private offerings. We are registering the offer and sale
of
the common stock, including common stock underlying warrants, to satisfy
registration rights we have granted to the selling stockholders.
We
will
not receive any proceeds from the sale of common stock by the selling
stockholders. We may receive proceeds from the exercise price of the warrants
if
they are exercised by the selling stockholders. We intend to use any proceeds
received from the selling stockholders’ exercise of the warrants for working
capital and general corporate purposes.
The
selling stockholders have advised us that they will sell the shares of common
stock from time to time in the open market, on the OTC Bulletin Board, in
privately negotiated transactions or a combination of these methods, at market
prices prevailing at the time of sale, at prices related to the prevailing
market prices, at negotiated prices, or otherwise as described under the section
of this prospectus titled “Plan of Distribution.”
Our
common stock is traded on the OTC Bulletin Board under the symbol “GTRE.OB”
On
August
4, 2006
the
closing price of the common stock was $3.45
per
share.
Investing
in our common stock involves risks. Before making any investment in our
securities, you should read and carefully consider risks described in the
Risk
Factors beginning on page 4 of this prospectus.
You
should rely only on the information contained in this prospectus or any
prospectus supplement or amendment. We have not authorized anyone to provide
you
with different information.
Neither
the Securities and Exchange Commission nor any state securities commission
has
approved or disapproved of these securities or determined if this prospectus
is
truthful or complete. Any representation to the contrary is a criminal
offense.
This
prospectus is dated ,
2006
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Page
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SUMMARY
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1
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RISK
FACTORS
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4
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SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
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17
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SELLING
STOCKHOLDERS
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USE
OF PROCEEDS
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27
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DETERMINATION
OF OFFERING PRICE
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MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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DIVIDEND
POLICY
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MANAGEMENT’S
DISCUSSION AND ANALYSIS
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29
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BUSINESS
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39
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DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
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49
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SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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53
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EXECUTIVE
COMPENSATION
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55
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CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
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58
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PLAN
OF DISTRIBUTION
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58
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DESCRIPTION
OF SECURITIES
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61
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LEGAL
MATTERS
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65
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EXPERTS
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WHERE
YOU CAN FIND MORE INFORMATION
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CHANGES
IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE |
65
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CONSOLIDATED
FINANCIAL STATEMENTS |
F-1 |
SUMMARY
This
summary highlights information contained elsewhere in this prospectus but might
not contain all of the information that is important to you. Before investing
in
our common stock, you should read the entire prospectus carefully, including
the
“Risk Factors” section and our financial statements and the note thereto
included elsewhere in this prospectus.
For
purposes of this prospectus, unless otherwise indicated or the context otherwise
requires, all references herein to “Gran Tierra,” “we,” “us,” and “our,” refer
to Gran Tierra Energy Inc., a Nevada corporation, and our
subsidiaries.
Our
Company
On
November 10, 2005 (the “Closing Date”), Goldstrike Inc. (the previous public
reporting entity), Gran Tierra Energy Inc., a privately held Canadian
corporation (“Gran Tierra Canada”) and the holders of Gran Tierra Canada’s
capital stock entered into a share purchase agreement, and Goldstrike and Gran
Tierra Goldstrike, Inc. (“Goldstrike Exchange Co.”), a Canadian subsidiary of
Goldstrike, entered into an assignment agreement. In these two transactions,
the
holders of Gran Tierra Canada’s capital stock acquired shares of either
Goldstrike common stock or exchangeable shares of Goldstrike Exchange Co.,
and
Goldstrike Exchange Co. acquired substantially all of Gran Tierra Canada’s
capital stock. Additionally, Goldstrike changed its name to Gran Tierra Energy
Inc. with the management and business operations of Gran Tierra Canada,
remaining incorporated in the State of Nevada. Following this transaction,
Goldstrike Exchange Co. acquired the remaining shares of Gran Tierra Canada
outstanding after the initial share exchange for shares of common stock of
Gran
Tierra Energy Inc. using the same exchange ratio as used in the initial
exchange, and Gran Tierra Canada became a wholly-owned subsidiary of Gran Tierra
Energy Inc.
Goldstrike
Inc. was incorporated on June 9, 2003 in the State of Nevada and commenced
operations as an exploration stage company to pursue opportunities in the field
of mineral exploration. Goldstrike was engaged in the acquisition, and
exploration of mineral properties with a view to exploiting any discovered
mineral deposits that demonstrate economic feasibility. Goldstrike owned a
100%
undivided interest in 32 contiguous mineral claim units located in British
Columbia, Canada. Immediately following the share exchange described above,
Goldstrike disposed of its mineral claims and its resulting operations consisted
primarily of the operations of Gran Tierra Canada before the share exchange.
Recent
Developments
In
the
above-described transactions between Goldstrike and the holders of Gran Tierra
Canada common stock, Gran Tierra Canada shareholders were permitted to elect
to
receive, for each share of Gran Tierra Canada’s common stock: (1) 1.5873016
exchangeable shares of Goldstrike Exchange Co. (and ancillary rights), or
(2) 1.5873016 shares of common stock of Goldstrike, or (3) a
combination of Goldstrike Exchange Co. exchangeable shares and Goldstrike
common
stock. All of Gran Tierra Canada’s shares were, through a series of exchanges,
exchanged for shares of Goldstrike and/or exchangeable shares of Goldstrike
Exchange Co. Each exchangeable share of Goldstrike Exchange Co. is exchangeable
into one share of our common stock.
The
share
exchange between the former shareholders of Gran Tierra Canada and the
former
Goldstrike brought the assets, management, business operations and business
plan
of the former Gran Tierra into the framework of the company formerly
known as
Goldstrike and it is treated as a recapitalization of Gran Tierra for
financial
accounting purposes. Accordingly, the historical financial statements
of
Goldstrike before the share purchase and assignment transactions will
be
replaced with the historical financial statements of Gran Tierra Canada
before
the share exchange in all future filings with the SEC.
Before
the share purchase and assignment transactions and in contemplation of such,
Goldstrike provided Gran Tierra Canada with financing to allow Gran Tierra
Canada to acquire properties in Argentina on September 1, 2005. Goldstrike
derived the funds necessary to provide this financing from the proceeds of
the
initial closing of a private offering of its securities, described in more
detail below. Gran Tierra Canada’s financing was evidenced by a loan agreement
and promissory note dated September 1, 2005, under which Goldstrike
committed to loan Gran Tierra Canada up to $8,337,916, of which Gran Tierra
Canada borrowed an initial $6,665,198.30.
On
September 1 and October 7, 2005, Goldstrike completed closings on a first
private placement offering to accredited investors raising $9,353,507 from
the
sale of 11,691,884 units of Goldstrike’s securities, each unit consisting of one
share of common stock and a warrant to purchase one-half share of common
stock.
Canaccord Capital Corporation received $52,178 in cash and 250,000 shares
of
Goldstrike’s common stock in payment of fees for services to Goldstrike as
placement agent. The proceeds from the September 1, 2005 closing of the sale
of
Goldstrike’s units were used to fund the September 1, 2005 loan from Goldstrike
to Gran Tierra Canada. Proceeds derived from the October 7, 2005 closing
were
used to increase Goldstrike’s loan commitment to Gran Tierra Canada from
$8,337,916 to $9,313,492, and Gran Tierra Canada borrowed an additional $800,000
from Goldstrike.
On
October 27, 2005, Goldstrike completed a first closing on a second private
placement offering of units to accredited investors in which it sold 1,250,000
units for consideration of $1,000,000. Goldstrike used the proceeds of the
October 27, 2005 closing to increase its loan commitment to Gran Tierra Canada
from $9,313,492 to $10,313,492. Gran Tierra Canada borrowed an additional
$700,000 under the Goldstrike loan commitment. The original loan agreement
between Goldstrike and Gran Tierra Canada specified that the original bridge
loan amount would be deemed forgiven on the date of the merger. On October 27, 2005, Goldstrike
completed a
first closing on a second private placement offering of units to accredited
investors in which it sold 1,250,000 units for consideration of
$1,000,000. Goldstrike used
the proceeds of the October 27, 2005 closing to
increase its loan commitment to Gran Tierra Canada from $9,313,492
to
$10,313,492. Gran
Tierra Canada then
borrowed an additional $700,000 under the Goldstrike loan
commitment. The
terms of the original agreement for the loan commitment stated that the amounts
borrowed by Gran Tierra Canada under the loan
commitment would be deemed forgiven upon the
consummation of the merger between Goldstrike and Gran Tierra Canada.
However,
on November 11, 2005
Goldstrike and Gran Tierra Canada agreed to amend the terms of the agreement
to
provide that all amounts borrowed under the loan commitment would remain
outstanding after the merger, and that the promissory note evidencing such
amounts would be amended to a demand note without a stated due date. Gran Tierra has
executed an
amended and restated bridge loan promissory note and an amendment to the
loan
agreement. This loan
is currently outstanding. We have not presented
the note to Gran Tierra Canada or otherwise
made a demand on
Gran Tierra Canada to pay
any portion of the outstanding principal or accrued interest on the
loan.
Following
the Closing Date, on December 14, 2005, we completed a sale of units in a
second
closing of the second offering to accredited investors. In this second closing
of the second private offering, we sold an additional 1,343,222 units for
consideration of $1,074,578. The net proceeds from the second closing of
the
second offering were used for working capital and general corporate purposes.
In
total, we sold 2,593,222 units for an aggregate of $2,074,578 in the second
private offering.
A
final
sale of unregistered shares of common shares to accredited investors was
completed on February 2, 2006. In this third offering, we sold 762,500
shares of our common stock and warrants to acquire 381,250 shares of common
stock for consideration of $610,000. We also issued 250,000 shares of common
stock as a finder’s fee in conjunction with the private offerings. On February
2, 2006, two investors from the February 2, 2006 offering exercised warrants
underlying a total of 250,000 shares of our common stock.
Argosy
Acquisition
On
June
20, 2006, we acquired all of the limited partnership interests of Argosy
Energy
International (“Argosy”) and all of the issued and outstanding capital stock of
Argosy Energy Corp. (“AEC”), a Delaware corporation and the general partner of
Argosy. We paid $37.5 million in cash, issued 870,647 shares of our common
stock and granted participation rights (including overriding royalty interests
and net profit interests) in certain Argosy assets valued at $1
million. Argosy, a Utah limited partnership, holds a diverse portfolio
of
producing properties, drill-ready prospects and exploration acreage in
Colombia.
Argosy’s
oil production averaged approximately 987 barrels per day (after royalty)
during
the fourth quarter of 2005. Argosy’s remaining proven reserves at December 31,
2005 are estimated by Huddleston & Co., independent reserve engineers, at
2.34 million barrels (net after royalty). Royalty rates are 20% and 8% for
Argosy’s producing properties. Argosy’s net land position is approximately
153,000 acres.
Increase
in Authorized Shares
On
June
1, 2006, we filed a Certificate of Amendment to our Articles of Incorporation
with the Secretary of State of the State of Nevada increasing our authorized
capital stock from 80,000,001 shares to 325,000,001 shares, which
include:
·
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300,000,000
shares of common stock, par value $0.001,
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·
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25,000,000
shares of preferred stock, par value $0.001, and
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·
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1
share, par value of $0.001, to be designated as Special Voting
Stock.
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The
amendment was approved unanimously by our Board of Directors and submitted
to
stockholders for approval. The amendment was consented to and approved
by the
written consent, in lieu of a meeting, of the holders of a majority of
our
issued and outstanding shares eligible to vote.
Recent
Financing Activity
On
June
20, 2006, we completed the sale of 43,336,051 units of our securities,
deriving
gross proceeds of $65,004,076. Each unit consisted of one share of our
common
stock and a warrant to purchase one-half share of our common stock for
a period
of five years at an exercise price of $1.75 per whole share. On June 29,
2006,
we conducted a second closing of the offering of units of our securities,
deriving additional gross proceeds of $5,454,944 from the sale of 3,636,629
additional units. On June 30, 2006, we conducted a final closing of the
offering
of units of our securities, deriving additional gross proceeds of $4,540,980
from the sale of 3,027,320 additional units. In connection with the three
closings of the offering, we sold a total of 50,000,000 units for gross
proceeds
totaling $75,000,000.
Corporate
Information
Goldstrike
Inc., now known as Gran Tierra Energy Inc., was incorporated under the laws
of
the State of Nevada on June 6, 2003. Our principal executive offices are located
at 300, 611 - 10th
Avenue
S.W., Calgary, Alberta, Canada. The telephone number at our principal executive
offices is (403) 265-3221. Our website address is www.grantierra.com.
Information contained on our website is not deemed part of this
prospectus.
The
Offering
Common
stock currently outstanding (1)
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95,455,759 shares
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Common
stock offered by the selling stockholders
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15,547,606
shares
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Common
stock issuable upon exercise of Warrants
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35,156,915 shares
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Common
stock oustanding after the offering (2)
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130,612,674
shares
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Use
of Proceeds
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We
will not receive any proceeds from the sale of common stock offered
by
this prospectus.
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OTC
Bulletin Board Symbol
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GTRE.OB
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(1)
Includes 15,547,606 shares of common stock which will not be available to
trade
publicly until the registration statement of which this prospectus is a part
is
declared effective by the SEC, 16,984,127 shares of common stock which are
issuable upon the exchange of exchangeable shares of Goldstrike Exchange
Co.
which will not be registered under the registration statement and 50,000,000
shares of common stock which will not be available to trade until registered
under a separate registration statement.
(2)
Assumes the full exercise of all 35,156,915 remaining warrants.
RISK
FACTORS
Investing
in our common stock involves a high degree of risk. You should carefully
consider the risks below before making an investment decision. Our business,
financial condition or results of operations could be materially adversely
affected by any of these risks. In such case, the trading price of our common
stock could decline and you could lose all or part of your investment.
Risks
Related to Our Business
We
are a
new enterprise engaged in the business of oil and natural gas exploration and
development. The business of exploring for, developing and producing oil and
natural gas reserves is inherently risky. We will face numerous and varied
risks
which may prevent us from achieving our goals.
We
are a Development Stage Company With Limited Operating History for You to
Evaluate Our Business. We May Never Attain
Profitability.
We
are a
development stage company and have limited current oil or natural gas
operations. As an oil and gas exploration and development company with limited
operating history, it is difficult for potential investors to evaluate our
business. Our proposed operations are therefore subject to all of the risks
inherent in light of the expenses, difficulties, complications and delays
frequently encountered in connection with the formation of any new business,
as
well as those risks that are specific to the oil and gas industry. Investors
should evaluate us in light of the delays, expenses, problems and uncertainties
frequently encountered by companies developing markets for new products,
services and technologies. We may never overcome these obstacles.
Our
business is speculative and dependent upon the implementation of our business
plan and our ability to enter into agreements with third parties for the rights
to exploit potential oil and gas reserves on terms that will be commercially
viable for us.
Unanticipated
Problems in Our Operations May Harm Our Business and Our
Viability.
If
our
operations in Argentina and Colombia are disrupted and/or the economic
integrity of these projects is threatened for unexpected reasons, our business
may experience a setback. These unexpected events may be due to technical
difficulties, geographic and weather conditions, business reasons or otherwise.
Because we are at the beginning stages of our development, we are particularly
vulnerable to these events. Prolonged problems may threaten the commercial
viability of our operations. Moreover, the occurrence of significant unforeseen
conditions or events in connection with our acquisition of operations in
Argentina and Colombia may cause us to question the thoroughness of our due
diligence and planning process which occurred before the acquisitions, which
may
cause us to reevaluate our business model and the viability of our contemplated
business. Such actions and analysis may cause us to delay development efforts
and to miss out on opportunities to expand our operations.
We
May Be Unable to Obtain Development Rights We Need to Build Our Business, and
Our Financial Condition and Results of Operations May
Deteriorate.
Our
business plan focuses on international exploration and production opportunities,
initially in South America and later in other parts of the world. Thus far,
we
have acquired interests for
exploration and development in four properties in
Argentina and seven properties in Colombia. In the event that we do not succeed
in negotiating additional property acquisitions, our future prospects will
likely be substantially limited, and our financial condition and results
of
operations may deteriorate.
Our
Lack of Diversification Will Increase the Risk of an Investment in Our Common
Stock.
Our
business will focus on the oil and gas industry in a limited number of
properties, initially in Argentina and Colombia, with the intention of expanding
elsewhere in South America and later into other parts of the world. Larger
companies have the ability to manage their risk by diversification. However,
we
will lack diversification, in terms of both the nature and geographic scope
of
our business. As a result, factors affecting our industry or the regions
in
which we operate will likely impact us more acutely than if our business
were
more diversified.
Strategic
Relationships Upon Which We May Rely are Subject to Change, Which May Diminish
Our Ability to Conduct Our Operations.
Our ability
to successfully bid on and acquire additional properties, to discover reserves,
to participate in drilling opportunities and to identify and enter into
commercial arrangements with customers will depend on developing and maintaining
close working relationships with industry participants and on our ability to
select and evaluate suitable properties and to consummate transactions in a
highly competitive environment. These realities are subject to change and may
impair Gran Tierra’s ability to grow.
To
develop our business, we will endeavor to use the business relationships of
our
management to enter into strategic relationships, which may take the form of
joint ventures with other private parties or with local government bodies,
or
contractual arrangements with other oil and gas companies, including those
that
supply equipment and other resources that we will use in our business. We may
not be able to establish these strategic relationships, or if established,
we
may not be able to maintain them. In addition, the dynamics of our relationships
with strategic partners may require us to incur expenses or undertake activities
we would not otherwise be inclined to in order to fulfill our obligations to
these partners or maintain our relationships. If our strategic relationships
are
not established or maintained, our business prospects may be limited, which
could diminish our ability to conduct our operations.
Competition
in Obtaining Rights to Explore and Develop Oil and Gas Reserves and to Market
Our Production May Impair Our Business.
The
oil
and gas industry is highly competitive. Other oil and gas companies will compete
with us by bidding for exploration and production licenses and other properties
and services we will need to operate our business in the countries in which
we
expect to operate. This competition is increasingly intense as prices of oil
and
natural gas on the commodities markets have risen in recent years. Additionally,
other companies engaged in our line of business may compete with us from time
to
time in obtaining capital from investors. Competitors include larger, foreign
owned companies, which, in particular, may have access to greater resources
than
us, may be more successful in the recruitment and retention of qualified
employees and may conduct their own refining and petroleum marketing operations,
which may give them a competitive advantage. In addition, actual or potential
competitors may be strengthened through the acquisition of additional assets
and
interests.
We
May Be Unable to Obtain Additional Capital that We Will Require to Implement
Our
Business Plan, Which Could Restrict Our Ability to
Grow.
We
expect
that our current capital and our other existing resources will be sufficient
only to provide a limited amount of working capital, and the revenues generated
from our properties in Argentina and Colombia will not alone be sufficient
to
fund our operations or planned growth. We will require additional capital
to
continue to operate our business beyond the initial phase of our current
activities and to expand our exploration and development programs to
additional properties. We may be unable to obtain additional capital required.
Furthermore, inability to attain capital may damage our reputation and
credibility with industry participants in the event we cannot close previously
announced transactions.
Future
acquisitions and future exploration, development, production and marketing
activities, as well as our administrative requirements (such as salaries,
insurance expenses and general overhead expenses, as well as legal compliance
costs and accounting expenses) will require a substantial amount of additional
capital and cash flow.
We
will
immediately require such additional capital and we plan to pursue sources of
such capital through various financing transactions or arrangements, including
joint venturing of projects, debt financing, equity financing or other means.
We
may not be successful in locating suitable financing transactions in the time
period required or at all, and we may not obtain the capital we require by
other
means. If we do succeed in raising additional capital, the capital received
through our past private offerings to accredited investors may not be sufficient
to fund our operations going forward without obtaining additional capital
financing. Furthermore, future financings are likely to be dilutive to our
stockholders, as we will most likely issue additional shares of common stock
or
other equity to investors in future financing transactions. In addition, debt
and other mezzanine financing may involve a pledge of assets and may be senior
to interests of equity holders.
Our
ability to obtain needed financing may be impaired by such factors as the
capital markets (both generally and in the oil and gas industry in particular),
our status as a new enterprise without a demonstrated operating history, the
location of our oil and natural gas properties in developing countries and
prices of oil and natural gas on the commodities markets (which will impact
the
amount of asset-based financing available to us) and/or the loss of key
management. Further, if oil and/or natural gas prices on the commodities markets
decrease, then our revenues will likely decrease, and such decreased revenues
may increase our requirements for capital. Some of the contractual arrangements
governing our operations may require us to maintain minimum capital, and we
may
lose our contract rights (including exploration, development and production
rights) if we do not have the required minimum capital. If the amount of capital
we are able to raise from financing activities, together with our revenues
from
operations, is not sufficient to satisfy our capital needs (even to the extent
that we reduce our operations), we may be required to cease our
operations.
We
May Be Unable to Meet Our Capital Requirements in the Future, Causing Us to
Curtail Future Growth Plans or Cut Back Existing Operations.
We
may
need additional capital in the future, which may not be available to us on
reasonable terms or at all. The raising of additional capital may dilute our
stockholders’ interests. We may need to raise additional funds through public or
private debt or equity financings in order to meet various objectives including
but not limited to:
§ |
pursuing
growth opportunities, including more rapid expansion;
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§ |
acquiring
complementary businesses;
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§ |
making
capital improvements to improve our infrastructure;
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§ |
hiring
qualified management and key employees;
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§ |
responding
to competitive pressures;
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§ |
complying
with licensing, registration and other requirements;
and
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§ |
maintaining
compliance with applicable laws.
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Any
additional capital raised through the sale of equity may dilute stockholders’
ownership percentage in us. This could also result in a decrease in the fair
market value of our equity securities because our assets would be owned by
a
larger pool of outstanding equity. The terms of securities we issue in future
capital transactions may be more favorable to our new investors, and may include
preferences, superior voting rights, the issuance of warrants or other
derivative securities, and issuances of incentive awards under equity employee
incentive plans, which may have a further dilutive effect.
Furthermore,
any additional financing we may need may not be available on terms favorable
to
us, or at all. If we are unable to obtain required additional financing, we
may
be forced to curtail our growth plans or cut back our existing
operations.
We
may
incur substantial costs in pursuing future capital financing, including
investment banking fees, legal fees, accounting fees, securities law compliance
fees, printing and distribution expenses and other costs. We may also be
required to recognize non-cash expenses in connection with certain securities
we
may issue, such as convertible notes and warrants, which will adversely impact
our financial condition.
If
We Fail to Make the Cash Calls Required by Our Current Joint Ventures
or Any
Future Joint Ventures, We May be Required to Forfeit Our Interests in
Such Joint
Ventures and Our Results of Operations and Our Liquidity Would be Negatively
Affected.
If
we
fail to make the cash calls required by our joint ventures, we may be required
to forfeit our interests in such joint ventures, which could substantially
affect the implementation of our business strategy. In connection with our
joint
venture in Palmar Largo, we have placed approximately $400,000 in escrow
to
secure future obligations. This amount is scheduled to be returned to the
company in October 2006 unless we are delinquent in any payments. We are
required to make periodic cash calls in connection with our joint venture
activity. If we fail to make the cash calls required in connection with the
joint ventures, we will be subject to certain penalties and eventually would
be
required to forfeit our interest in the joint venture.
We
May Not Be Able To Effectively Manage Our Growth, Which May Harm Our
Profitability.
Our
strategy envisions expanding our business. If we fail to effectively manage
our
growth, our financial results could be adversely affected. Growth may place
a
strain on our management systems and resources. We must continue to refine
and
expand our business development capabilities, our systems and processes and
our
access to financing sources. As we grow, we must continue to hire, train,
supervise and manage new employees. We cannot assure you that we will be able
to:
§ |
expand
our systems effectively or efficiently or in a timely manner;
|
§ |
allocate
our human resources optimally;
|
§ |
identify
and hire qualified employees or retain valued employees; or
|
§ |
incorporate
effectively the components of any business that we may acquire in
our
effort to achieve growth.
|
If
we are
unable to manage our growth and our operations our financial results could
be
adversely affected by inefficiency, which could diminish our profitability.
Our
Business May Suffer If We Do Not Attract and Retain Talented
Personnel.
Our
success will depend in large measure on the abilities, expertise, judgment,
discretion integrity and good faith of our management and other personnel in
conducting the business of Gran Tierra. We have a small management team
consisting of Dana Coffield, our President and Chief Executive Officer, James
Hart, our Vice President, Finance and Chief Financial Officer, Max Wei, our
Vice
President, Operations, and Rafael Orunesu, our Vice President, Latin America.
The loss of any of these individuals or our inability to attract suitably
qualified staff could materially adversely impact our business. We may also
experience difficulties in certain jurisdictions in our efforts to obtain
suitably qualified staff and retaining staff who are willing to work in that
jurisdiction. We do not currently carry life insurance for our key
employees.
Our
success depends on the ability of our management and employees to interpret
market and geological data correctly and to interpret and respond to economic
market and other conditions in order to locate and adopt appropriate investment
opportunities, monitor such investments and ultimately, if required,
successfully divest such investments. Further, our key personnel may not
continue their association or employment with Gran Tierra and we may not be
able
to find replacement personnel with comparable skills. We have sought to and
will
continue to ensure that management and any key employees are appropriately
compensated; however, their services cannot be guaranteed. If we are unable
to
attract and retain key personnel, our business may be adversely affected.
Our
Management Team Does Not Have Extensive Experience in Public Company Matters,
Which Could Impair Our Ability to Comply With Legal and Regulatory
Requirements.
Our
management team has had limited U.S. public company management experience or
responsibilities, which could impair our ability to comply with legal and
regulatory requirements, such as the Sarbanes-Oxley Act of 2002 and applicable
federal securities laws including filing required reports and other information
required on a timely basis. Our management may not be able to implement and
affect programs and policies in an effective and timely manner that adequately
respond to increased legal, regulatory compliance and reporting requirements
imposed by such laws and regulations. Our failure to comply with such laws
and
regulations could lead to the imposition of fines and penalties and further
result in the deterioration of our business.
We
may not be Able to Continue as a Going Concern.
Our
consolidated financial statements have been prepared on a going concern
basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. We have a history of operating losses
that are
likely to continue in the future. We have included an explanatory paragraph
in
Note 1 of our audited financial statements for the year ended December
31, 2005
and for the most recent quarter ended March 31, 2006, to the effect that
our
significant losses from operations and our dependence on equity and debt
financing raise substantial doubt about our ability to continue as a going
concern. Our accumulated deficit at March 31, 2006 was $3,438,628. Our
financial statements do not include any adjustments that might be necessary
should we be unable to continue as a going concern.
Our
operations must begin to provide sufficient revenues to improve our working
capital position. If we are unable to become profitable and cannot generate
cash
flow from our operating activities sufficient to satisfy our current obligations
and meet our capital investment objectives, we may be required to raise
additional capital or debt to fund our operations, reduce the scope of our
operations or discontinue our operations.
Risks
Related to our Prior Business May Adversely Affect our
Business.
Before
the share exchange transaction between Goldstrike and Gran Tierra Canada,
Goldstrike’s business involved mineral exploration, with a view towards
development and production of mineral assets, including ownership of 32 mineral
claim units in a property in British Columbia, Canada and the exploration of
this property. We have determined not to pursue this line of business following
the share exchange, but could still be subject to claims arising from the former
Goldstrike business. These claims may arise from Goldstrike’s operating
activities (such as employee and labor matters), financing and credit
arrangements or other commercial transactions. While no claims are pending
and
we have no actual knowledge of any threatened claims, it is possible that third
parties may seek to make claims against us based on Goldstrike’s former business
operations. Even if such asserted claims were without merit and we were
ultimately found to have no liability for such claims, the defense costs and
the
distraction of management’s attention may harm the growth and profitability of
our business. While the relevant definitive agreements executed in connection
with the share exchange provide indemnities to us for liabilities arising from
the prior business activities of Goldstrike, these indemnities may not be
sufficient to fully protect us from all costs and expenses.
Risks
Related to Our Industry
Our
Exploration for Oil and Natural Gas Is Risky and May Not Be Commercially
Successful, Impairing Our Ability to Generate Revenues from Our
Operations.
Oil
and
natural gas exploration involves a high degree of risk. These risks are more
acute in the early stages of exploration. Our expenditures on exploration may
not result in new discoveries of oil or natural gas in commercially viable
quantities. It is difficult to project the costs of implementing an exploratory
drilling program due to the inherent uncertainties of drilling in unknown
formations, the costs associated with encountering various drilling conditions,
such as over pressured zones and tools lost in the hole, and changes in drilling
plans and locations as a result of prior exploratory wells or additional seismic
data and interpretations thereof. If exploration costs exceed our estimates,
or
if our exploration efforts do not produce results which meet our expectations,
our exploration efforts may not be commercially successful, which could
adversely impact our ability to generate revenues from our
operations.
We
May Not Be Able to Develop Oil and Gas Reserves on an Economically Viable Basis,
and Our Reserves and Production May Decline as a
Result.
To
the
extent that we succeed in discovering oil and/or natural gas reserves, we cannot
assure that these reserves will be capable of production levels we project
or in
sufficient quantities to be commercially viable. On a long-term basis, Gran
Tierra’s viability depends on our ability to find or acquire, develop and
commercially produce additional oil and gas reserves. Without the addition
of
reserves through exploration, acquisition or development activities, our
reserves and production will decline over time as reserves are produced. Our
future reserves will depend not only on our ability to develop then-existing
properties, but also on our ability to identify and acquire additional suitable
producing properties or prospects, to find markets for the oil and natural
gas
we develop and to effectively distribute our production into our
markets.
Future
oil and gas exploration may involve unprofitable efforts, not only from dry
wells, but from wells that are productive but do not produce sufficient net
revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery
of
drilling, completion and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and various
field operating conditions may adversely affect the production from successful
wells. These conditions include delays in obtaining governmental approvals
or
consents, shut-downs of connected wells resulting from extreme weather
conditions, problems in storage and distribution and adverse geological and
mechanical conditions. While we will endeavor to effectively manage these
conditions, we cannot be assured of doing so optimally, and we will not be
able
to eliminate them completely in any case. Therefore, these conditions could
diminish our revenue and cash flow levels and result in the impairment of our
oil and natural gas interests.
Estimates
of Oil and Natural Gas Reserves that We Make May Be Inaccurate and Our Actual
Revenues May Be Lower than Our Financial Projections.
We
will
make estimates of oil and natural gas reserves, upon which we will base our
financial projections. We will make these reserve estimates using various
assumptions, including assumptions as to oil and natural gas prices, drilling
and operating expenses, capital expenditures, taxes and availability of funds.
Some of these assumptions are inherently subjective, and the accuracy of our
reserve estimates relies in part on the ability of our management team,
engineers and other advisors to make accurate assumptions. Economic factors
beyond our control, such as interest rates and exchange rates, will also impact
the value of our reserves. The process of estimating oil and gas reserves is
complex, and will require us to use significant decisions and assumptions in
the
evaluation of available geological, geophysical, engineering and economic data
for each property. As a result, our reserve estimates will be inherently
imprecise. Actual future production, oil and natural gas prices, revenues,
taxes, development expenditures, operating expenses and quantities of
recoverable oil and gas reserves may vary substantially from those we estimate.
If actual production results vary substantially from our reserve estimates,
this
could materially reduce our revenues and result in the impairment of our oil
and
natural gas interests.
Drilling
New Wells Could Result in New Liabilities, Which Could Endanger Our Interests
in
Our Properties and Assets.
There
are
risks associated with the drilling of oil and natural gas wells, including
encountering unexpected formations or pressures, premature declines of
reservoirs, blow-outs, craterings, sour gas releases, fires and spills. The
occurrence of any of these events could significantly reduce our revenues or
cause substantial losses, impairing our future operating results. Gran Tierra
may become subject to liability for pollution, blow-outs or other hazards.
We
will obtain insurance with respect to these hazards, but such insurance has
limitations on liability that may not be sufficient to cover the full extent
of
such liabilities. The payment of such liabilities could reduce the funds
available to us or could, in an extreme case, result in a total loss of our
properties and assets. Moreover, we may not be able to maintain adequate
insurance in the future at rates that are considered reasonable. Oil and natural
gas production operations are also subject to all the risks typically associated
with such operations, including premature decline of reservoirs and the invasion
of water into producing formations.
Decommissioning
Costs Are Unknown and May be Substantial; Unplanned Costs Could Divert Resources
from Other Projects.
We
may
become responsible for costs associated with abandoning and reclaiming wells,
facilities and pipelines which we use for production of oil and gas reserves.
Abandonment and reclamation of these facilities and the costs associated
therewith is often referred to as “decommissioning.” We have not yet determined
whether we will establish a cash reserve account for these potential costs
in
respect of any of our current properties or facilities, or if we will satisfy
such costs of decommissioning from the proceeds of production in accordance
with
the practice generally employed in onshore and offshore oilfield operations.
If
decommissioning is required before economic depletion of our properties or
if
our estimates of the costs of decommissioning exceed the value of the reserves
remaining at any particular time to cover such decommissioning costs, we may
have to draw on funds from other sources to satisfy such costs. The use of
other
funds to satisfy such decommissioning costs could impair our ability to focus
capital investment in other areas of our business.
Our
Inability to Obtain Necessary Facilities Could Hamper Our
Operations.
Oil
and
natural gas exploration and development activities are dependent on the
availability of drilling and related equipment, transportation, power and
technical support in the particular areas where these activities will be
conducted, and our access to these facilities may be limited. To the extent
that
we conduct our activities in remote areas, needed facilities may not be
proximate to our operations, which will increase our expenses. Demand for such
limited equipment and other facilities or access restrictions may affect the
availability of such equipment to us and may delay exploration and development
activities. The quality and reliability of necessary facilities may also be
unpredictable and we may be required to make efforts to standardize our
facilities, which may entail unanticipated costs and delays. Shortages and/or
the unavailability of necessary equipment or other facilities will impair our
activities, either by delaying our activities, increasing our costs or
otherwise.
We
are Not the Operator of All Our Current Joint Ventures and Therefore
the Success
of the Projects Held Under Joint Ventures is Substantially Dependent
On Our
Joint Venture Partners.
As
our
company does not operate all the joint ventures we are currently involved
in, we
do not have a direct control over operations. When we participate in decisions
as a joint venture partner, we must rely on the operator’s disclosure for all
decisions. Furthermore, the operator is responsible for the day to day
operations of the joint venture including technical operations, safety,
environmental compliance, relationships with governments and vendors. As
we do
not have full control over the activities of our joint ventures, our results
of
operations are dependent upon the efforts of the operating
partner.
We
May Have Difficulty Distributing Our Production, Which Could Harm Our Financial
Condition.
In
order
to sell the oil and natural gas that we are able to produce, we will have to
make arrangements for storage and distribution to the market. We will rely
on
local infrastructure and the availability of transportation for storage and
shipment of our products, but infrastructure development and storage and
transportation facilities may be insufficient for our needs at commercially
acceptable terms in the localities in which we operate. This could be
particularly problematic to the extent that our operations are conducted in
remote areas that are difficult to access, such as areas that are distant from
shipping and/or pipeline facilities. In
certain areas, we may be required to rely on only one gathering system, pipeline
or trucking company, and, if so, our ability to market our production would
be
subject to their reliability and operations. For example, our revenues in
November and December of 2005 decreased as a result of bad weather which
affected the roads and the ability of the trucking company to make deliveries.
These factors may affect our ability to explore and develop properties
and to store and transport our oil and gas production and may increase our
expenses.
Furthermore,
future instability in one or more of the countries in which we will operate,
weather conditions or natural disasters, actions by companies doing business
in
those countries, labor disputes or actions taken by the international community
may impair the distribution of oil and/or natural gas and in turn diminish
our
financial condition or ability to maintain our operations.
Our
Oil Sales Will Depend on a Relatively Small Group of Customers, Which Could
Adversely Affect Our Financial Results
The
entire Argentine domestic refining market is small and export opportunities
are
limited by available infrastructure. As a result, our oil sales in Argentina
will depend on a relatively small group of customers, and currently, on
just one
customer in the area of our activity in the country. During 2005, we sold
all of
our production to Refinor S.A.. The lack of competition in this market
could
result in unfavorable sales terms which, in turn, could adversely affect
our
financial results.
Drilling
Oil and Gas Wells Could be Hindered by Hurricanes, Earthquakes and Other
Weather-Related Operating Risks.
We
are
subject to operating hazards normally associated with the exploration and
production of oil and gas, including blowouts, explosions, oil spills,
cratering, pollution, earthquakes, hurricanes, labor disruptions and fires.
The
occurrence of any such operating hazards could result in substantial losses
to
us due to injury or loss of life and damage to or destruction of oil and
gas
wells, formations, production facilities or other properties. During
November and December of 2005, our operations were negatively effected by
heavy
rains and flooding in Northern Argentina. This caused trucking delays which
prevented delivery of oil to the refinery for several days.
As
the majority of current oil production in Argentina is trucked to a local
refinery, sales of oil can be delayed by adverse weather and road conditions.
While storage facilities are designed to accommodate ordinary disruptions
without curtailing production, delayed sales will delay revenues and may
adversely impact the company’s working capital position. Furthermore, a
prolonged disruption in oil deliveries could exceed storage capacities
and
shut-in production, which could have a negative impact on future production
capability.
Prices
and Markets for Oil and Natural Gas Are Unpredictable and Tend to Fluctuate
Significantly, Which Could Reduce Profitability, Growth and the Value of Gran
Tierra.
Oil
and
natural gas are commodities whose prices are determined based on world demand,
supply and other factors, all of which are beyond our control. World prices
for
oil and natural gas have fluctuated widely in recent years. The average price
for West Texas Intermediate oil in 1999 was $22 per barrel. In 2002 it was
$27
per barrel. In 2005, it was $57 per barrel. We expect that prices will fluctuate
in the future. Price fluctuations will have a significant impact upon our
revenue, the return from our reserves and on our financial condition generally.
Price fluctuations for oil and natural gas commodities may also impact the
investment market for companies engaged in the oil and gas industry. Although
during 2005 market prices for oil and natural gas have risen to near-record
levels, these prices may not remain at current levels. Future decreases in
the
prices of oil and natural gas may have a material adverse effect on our
financial condition, the future results of our operations and quantities of
reserves recoverable on an economic basis.
Our
Foreign Operations Involve Substantial Costs and are Subject to Certain
Risks
Because the Oil and Gas Industries in the Countries in Which We Operate
are Less
Developed.
The
oil
and gas industry in Argentina and in South America is not as developed
as the
oil and gas industry in North America. As a result, our exploration and
development activities may take longer to complete and may be
more expensive than similar operations in North America. The availability
of technical expertise, specific equipment and supplies may be more limited
than
in North America. We expect that such factors will subject our international
operations to economic and operating risks that may not be experienced
in North
American operations. In addition, oil
and
natural gas prices in Argentina are effectively regulated and as a result
are
substantially lower than those received in North America. Our average
gas price
for 2005 in Argentina was $1.50/mcf and our oil price was $37.80 per
barrel.
This means that our revenue and gross profit will be lower compared to
similar
production levels in North America.
Negative
Economic, Political and Regulatory Developments in Argentina, Including
Export
Controls May Negatively Effect our Operations.
The
Argentine economy has experienced volatility in recent decades. This volatility
has included periods of low or negative growth and variable levels of inflation.
Inflation was at its peak in the 1980’s and early 1990’s. In late-2001 there was
a deep fiscal crisis in Argentina involving restrictions on banking
transactions, imposition of exchange controls, suspension of payment of
Argentina’s public debt and abrogation of the one-to one peg of the peso to the
dollar. For the next year, Argentina experienced contractions in economic
growth, increasing inflation and a volatile exchange rate. Currently, GDP
is
growing, inflation is normalized, and public finances are strengthened.
However,
there is no guarantee of economic stability. Any de-stabilization may seriously
impact the economic viability of operations in the country or restrict
the
movement of cash into and out of the country, which would impair current
activity and constrain growth in the country.
On
June
3, 2002, the Argentine government issued a resolution authorizing the
Energy
Secretariat to limit the amount of crude oil that companies can export.
The
restriction was to be in place from June 2002 to September 2002.
However, on June 14, 2002, the government agreed to abandon the limit
on crude
export volumes in exchange for a guarantee from oil companies that
domestic
demand will be supplied. Oil companies also agreed not to raise natural
gas
and related prices to residential customers during the winter months and
to maintain gasoline, natural gas and oil prices in line with those in
other South American countries. Any future regulations that limit the
amount of
oil and gas that we could sell or any regulations that limit price
increases in Argentina and elsewhere could severely limit the amount of our
revenue and affect our results of operations.
The
United States government may impose economic or trade sanctions on
Colombia that
could result in a significant loss to us.
Colombia
is among several nations whose progress in stemming the production
and transit
of illegal drugs is subject to annual certification by the President
of the
United States. Although Colombia has received a 2006 certification, there
can be no assurance that, in the future, Colombia will receive certification
or
a national interest waiver. The failure to receive certification
or a national
interest waiver may result in any of the following:
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all
bilateral aid, except anti-narcotics and humanitarian aid,
would be
suspended,
|
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·
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the
Export-Import Bank of the United States and the Overseas
Private
Investment Corporation would not approve financing for
new projects in
Colombia,
|
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·
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United
States representatives at multilateral lending institutions
would be
required to vote against all loan requests from Colombia
, although such
votes would not constitute vetoes,
and
|
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·
|
the
President of the United States and Congress would retain
the right to
apply future trade sanctions.
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Each
of
these consequences could result in adverse economic consequences
in Colombia and
could further heighten the political and economic risks associated
with our
operations there. Any changes in the holders of significant government
offices
could have adverse consequences on our relationship with the Colombian
national
oil company and the Colombian government’s ability to control guerrilla
activities and could exacerbate the factors relating to our foreign
operations.
Any sanctions imposed on Colombia by the United States government
could threaten
our ability to obtain necessary financing to develop the Colombian
properties or
cause Colombia to retaliate against us, including by nationalizing
our Colombian
assets. Accordingly, the imposition of the foregoing economic and
trade
sanctions on Colombia would likely result in a substantial loss and
a decrease
in the price of our common stock. There can be no assurance that
the United
States will not impose sanctions on Colombia in the future, nor can
we predict
the effect in Colombia that these sanctions might cause.
Guerrilla
activity in Colombia could disrupt or delay our operations, and we
are concerned
about safeguarding our operations and personnel in
Colombia.
A
40-year
armed conflict between government forces and anti-government insurgent
groups and illegal paramilitary groups - both funded by the drug
trade
- continues in Colombia. Insurgents continue to attack civilians
and violent guerilla activity continues in many parts of
the country.
We,
through our acquisition of Argosy Energy International, have interests in
three regions of Colombia - in the Middle Magdalena, Llanos and Putamayo
regions. The Putamayo region has been prone to guerilla activity
in the past. In
1989, Argosy’s facilities in one field were attacked by guerillas and operations
were briefly disrupted. Pipelines have also been targets, including
the
Trans-Andean export pipeline which transports oil from the Putamayo
region.
There
can
be no assurance that continuing attempts to reduce or prevent guerilla
activity
will be successful or that guerilla activity will not disrupt our
operations in
the future. There can also be no assurance that we can maintain the
safety of
our operations and personnel in Colombia or that this violence will
not affect
our operations in the future. Continued or heightened security concerns
in
Colombia could also result in a significant loss to
us.
Increases
in Our Operating Expenses will Impact Our Operating Results and Financial
Condition.
Exploration,
development, production, marketing (including distribution costs) and regulatory
compliance costs (including taxes) will substantially impact the net revenues
we
derive from the oil and gas that we produce. These costs are subject to
fluctuations and variation in different locales in which we will operate, and
we
may not be able to predict or control these costs. If these costs exceed our
expectations, this may adversely affect our results of operations. In addition,
we may not be able to earn net revenue at our predicted levels, which may impact
our ability to satisfy our obligations.
Penalties
We May Incur Could Impair Our Business.
Our
exploration, development, production and marketing operations are regulated
extensively under foreign, federal, state and local laws and regulations.
Under
these laws and regulations, we could be held liable for personal injuries,
property damage, site clean-up and restoration obligations or costs and other
damages and liabilities. We may also be required to take corrective actions,
such as installing additional safety or environmental equipment, which could
require us to make significant capital expenditures. Failure to comply with
these laws and regulations may also result in the suspension or termination
of
our operations and subject us to administrative, civil and criminal penalties,
including the assessment of natural resource damages. We could be required
to
indemnify our employees in connection with any expenses or liabilities that
they
may incur individually in connection with regulatory action against them.
As a
result of these laws and regulations, our future business prospects could
deteriorate and our profitability could be impaired by costs of compliance,
remedy or indemnification of our employees, reducing our profitability.
Environmental
Risks May Adversely Affect Our Business.
All
phases of the oil and natural gas business present environmental risks and
hazards and are subject to environmental regulation pursuant to a variety of
international conventions and federal, provincial and municipal laws and
regulations. Environmental legislation provides for, among other things,
restrictions and prohibitions on spills, releases or emissions of various
substances produced in association with oil and gas operations. The legislation
also requires that wells and facility sites be operated, maintained, abandoned
and reclaimed to the satisfaction of applicable regulatory authorities.
Compliance with such legislation can require significant expenditures and a
breach may result in the imposition of fines and penalties, some of which may
be
material. Environmental legislation is evolving in a manner we expect may result
in stricter standards and enforcement, larger fines and liability and
potentially increased capital expenditures and operating costs. The discharge
of
oil, natural gas or other pollutants into the air, soil or water may give rise
to liabilities to foreign governments and third parties and may require us
to
incur costs to remedy such discharge. The application of environmental laws
to
our business may cause us to curtail our production or increase the costs of
our
production, development or exploration activities.
Our
Insurance May Be Inadequate to Cover Liabilities We May
Incur.
Our
involvement in the exploration for and development of oil and natural gas
properties may result in our becoming subject to liability for pollution,
blow-outs, property damage, personal injury or other hazards. Although we will
obtain insurance in accordance with industry standards to address such risks,
such insurance has limitations on liability that may not be sufficient to cover
the full extent of such liabilities. In addition, such risks may not, in all
circumstances be insurable or, in certain circumstances, we may choose not
to
obtain insurance to protect against specific risks due to the high premiums
associated with such insurance or for other reasons. The payment of such
uninsured liabilities would reduce the funds available to us. If we suffer
a
significant event or occurrence that is not fully insured, or if the insurer
of
such event is not solvent, we could be required to divert funds from capital
investment or other uses towards covering our liability for such events.
Our
Business is Subject to Local Legal, Political and Economic Factors Which are
Beyond Our Control, Which Could Impair Our Ability to Expand Our Operations
or
Operate Profitably.
We
expect
to operate our business in Argentina and Colombia, and to expand our operations
into other countries in the world. Exploration and production operations in
foreign countries are subject to legal, political and economic uncertainties,
including terrorism,
military repression, interference with private contract rights (such as
privatization), extreme fluctuations in currency exchange rates, high rates
of
inflation, exchange controls and other laws or policies affecting environmental
issues (including land use and water use), workplace safety, foreign investment,
foreign trade, investment or taxation, as well as restrictions imposed on
the
oil and natural gas industry, such as restrictions on production, price controls
and export controls. Central
and South America have a history of political and economic instability. This
instability could result in new governments or the adoption of new policies,
laws or regulations that might assume a substantially more hostile attitude
toward foreign investment. In an extreme case, such a change could result
in
termination of contract rights and expropriation of foreign-owned assets.
Any changes in oil and gas or investment regulations and policies
or a
shift in political attitudes in Argentina and Colombia or other countries
in
which we intend to operate are beyond our control and may significantly hamper
our ability to expand our operations or operate our business at a profit.
For
instance, changes in laws in the jurisdiction in which we operate or expand
into
with the effect of favoring local enterprises, changes in political views
regarding the exploitation of natural resources and economic pressures may
make
it more difficult for us to negotiate agreements on favorable terms, obtain
required licenses, comply with regulations or effectively adapt to adverse
economic changes, such as increased taxes, higher costs, inflationary pressure
and currency fluctuations.
Local
Legal and Regulatory Systems in Which We Operate May Create Uncertainty
Regarding Our Rights and Operating Activities, Which May Harm Our Ability to
do
Business.
We
are a
company organized under the laws of the State of Nevada and are subject to
United States laws and regulations. The jurisdictions in which we intend to
operate our exploration, development and production activities may have
different or less developed legal systems than the United States, which may
result in risks such as:
§ |
effective
legal redress in the courts of such jurisdictions, whether in respect
of a
breach of law or regulation, or, in an ownership dispute, being more
difficult to obtain;
|
§ |
a
higher degree of discretion on the part of governmental authorities;
|
§ |
the
lack of judicial or administrative guidance on interpreting applicable
rules and regulations;
|
§ |
inconsistencies
or conflicts between and within various laws, regulations, decrees,
orders
and resolutions; and
|
§ |
relative
inexperience of the judiciary and courts in such
matters.
|
In
certain jurisdictions the commitment of local business people, government
officials and agencies and the judicial system to abide by legal requirements
and negotiated agreements may be more uncertain, creating particular concerns
with respect to licenses and agreements for business. These licenses and
agreements may be susceptible to revision or cancellation and legal redress
may
be uncertain or delayed. Property right transfers, joint ventures, licenses,
license applications or other legal arrangements pursuant to which we operate
may be adversely affected by the actions of government authorities and the
effectiveness of and enforcement of our rights under such arrangements in these
jurisdictions may be impaired.
We
are Required to Obtain Licenses and Permits to Conduct Our Business and
Failure
to Obtain These Licenses Could Cause Significant Delays and Expenses That
Could
Materially Impact Our Business.
We
are
subject to licensing and permitting requirements relating to drilling for
oil
and natural gas. We cannot assure you that we will be able to obtain, sustain
or
renew such licenses. We cannot assure you that regulations and policies
relating
to these licenses and permits will not change or be implemented in a way
that we
do not currently anticipate. These licenses and permits are subject to
numerous
requirements, including compliance with the environmental regulations of
the
local governments. As we are not the operator of all the joint ventures
we are
currently involved in, we may rely on the operator to obtain all necessary
permits and licenses. If we fail to comply with these requirements, we
could be
prevented from drilling for oil and natural gas, and we could be subject
to
civil or criminal liability or fines. Revocation or suspension of our
environmental and operating permits could have a material adverse effect
on our
business, financial condition and results of operations.
Challenges
to Our Properties May Impact Our Financial Condition.
Title
to
oil and natural gas interests is often not capable of conclusive determination
without incurring substantial expense. While Gran Tierra intends to make
appropriate inquiries into the title of properties and other development rights
we acquire, title defects may exist. In addition, we may be unable to obtain
adequate insurance for title defects, on a commercially reasonable basis or
at
all. If title defects do exist, it is possible that we may lose all or a portion
of our right, title and interest in and to the properties to which the title
defects relate.
Furthermore,
applicable governments may revoke or unfavorably alter the conditions of
exploration and development authorizations that we procure, or third parties
may
challenge any exploration and development authorizations we procure. Such rights
or additional rights we apply for may not be granted or renewed on terms
satisfactory to us.
If
our
property rights are reduced, whether by governmental action or third party
challenges, our ability to conduct our exploration, development and production
may be impaired.
Foreign
Currency Exchange Rate Fluctuations May Affect Our Financial
Results.
We
expect
to sell our oil and natural gas production under agreements that will be
denominated in United States dollars and foreign currencies. Many of the
operational and other expenses we incur will be paid in the local currency
of
the country where we perform our operations. Our
production is generally invoiced in United States dollars, but payment
is also
made in Argentine and Colombian pesos, at the then-current exchange rate.
As
a
result, we are exposed to translation risk when local currency financial
statements are translated to United States dollars, our company’s functional
currency. Since
we
began operating in Argentina (September 1, 2005), the rate of exchange
between
the Argentine peso and US dollar has varied between 2.96 pesos to one US
dollar
to 3.206 pesos to the US dollar, a fluctuation of approximately 14%. Exchange
rates between the Colombian peso and US dollar have between 2,330 pesos
to one
US dollar to 2,746 pesos to one US dollar during the second quarter of
2006.
As currency exchange rates fluctuate, translation of the statements
of
income of international businesses into United States dollars will affect
comparability of revenues and expenses between periods.
Exchange
Controls and New Taxes Could Materially Affect our Ability to Fund Our
Operations and Realize Profits from Our Foreign
Operations.
Foreign
operations may require funding if their cash requirements exceed operating
cash
flow. To the extent that funding is required, there may be exchange controls
limiting such funding or adverse tax consequences associated with such funding.
In addition, taxes and exchange controls may affect the dividends that we
receive from foreign subsidiaries.
Exchange
controls may prevent us from transferring funds abroad. For example, the
Argentine government has imposed a number of monetary and currency exchange
control measures that include restrictions on the free disposition of funds
deposited with banks and tight restrictions on transferring funds abroad,
with
certain exceptions for transfers related to foreign trade and other authorized
transactions approved by the Argentine Central Bank. We cannot assure you
that
the Central Bank will not require prior authorization or will grant such
authorization for our Argentine subsidiaries to make dividend payments to
us and
we cannot assure you that there will not be a tax imposed with respect to
the
expatriation of the proceeds from our foreign subsidiaries.
We
Will Rely on Technology to Conduct Our Business and Our Technology Could Become
Ineffective Or Obsolete.
We
rely
on technology, including geographic and seismic analysis techniques and economic
models, to develop our reserve estimates and to guide our exploration and
development and production activities. We will be required to continually
enhance and update our technology to maintain its efficacy and to avoid
obsolescence. The costs of doing so may be substantial, and may be higher than
the costs that we anticipate for technology maintenance and development. If
we
are unable to maintain the efficacy of our technology, our ability to manage
our
business and to compete may be impaired. Further, even if we are able to
maintain technical effectiveness, our technology may not be the most efficient
means of reaching our objectives, in which case we may incur higher operating
costs than we would were our technology more efficient.
Risks
Related to Our Common Stock
The
Market Price of Our Common Stock May Be Highly Volatile and Subject to Wide
Fluctuations.
The
market price of our common stock may be highly volatile and could be subject
to
wide fluctuations in response to a number of factors that are beyond our
control, including:
§ |
dilution
caused by our issuance of additional shares of common stock and other
forms of equity securities, which we expect to make in connection
with
future capital financings to fund our operations and growth, to attract
and retain valuable personnel and in connection with future strategic
partnerships with other companies;
|
§ |
announcements
of new acquisitions, reserve discoveries or other business initiatives
by
our competitors;
|
§ |
fluctuations
in revenue from our oil and natural gas business as new reserves
come to
market;
|
§ |
changes
in the market for oil and natural gas commodities and/or in the capital
markets generally;
|
§ |
changes
in the demand for oil and natural gas, including changes resulting
from
the introduction or expansion of alternative fuels;
and
|
§ |
changes
in the social, political and/or legal climate in the regions in which
we
will operate.
|
In
addition, the market price of our common stock could be subject to wide
fluctuations in response to:
§ |
quarterly
variations in our revenues and operating
expenses;
|
§ |
changes
in the valuation of similarly situated companies, both in our industry
and
in other industries;
|
§ |
changes
in analysts’ estimates affecting our company, our competitors and/or our
industry;
|
§ |
changes
in the accounting methods used in or otherwise affecting our
industry;
|
§ |
additions
and departures of key personnel;
|
§ |
announcements
of technological innovations or new products available to the oil
and
natural gas industry;
|
§ |
announcements
by relevant governments pertaining to incentives for alternative
energy
development programs;
|
§ |
fluctuations
in interest rates, exchange rates and the availability of capital
in the
capital markets; and
|
§ |
significant
sales of our common stock, including sales by the investors following
registration of the shares of common stock under the registration
statement of which this prospectus is a part and/or future investors
in
future offerings we expect to make to raise additional capital.
|
These
and
other factors are largely beyond our control, and the impact of these risks,
singularly or in the aggregate, may result in material adverse changes to the
market price of our common stock and/or our results of operation and financial
condition.
Our
Operating Results May Fluctuate Significantly, and These Fluctuations May Cause
Our Stock Price to Decline.
Our
operating results will likely vary in the future primarily from fluctuations
in
our revenues and operating expenses, including the coming to market of oil
and
natural gas reserves that we are able to develop, expenses that we incur, the
prices of oil and natural gas in the commodities markets and other factors.
If
our results of operations do not meet the expectations of current or potential
investors, the price of our common stock may decline.
We
Do Not Expect to Pay Dividends In the Foreseeable
Future.
We
do not
intend to declare dividends for the foreseeable future, as we anticipate that
we
will reinvest any future earnings in the development and growth of our business.
Therefore, investors will not receive any funds unless they sell their common
stock, and stockholders may be unable to sell their shares on favorable terms
or
at all. Investors cannot be assured of a positive return on investment or that
they will not lose the entire amount of their investment in our common
stock.
Applicable
SEC Rules Governing the Trading of “Penny Stocks” Limit the Trading and
Liquidity of Our Common Stock, Which May Affect the Trading Price of the Common
Stock.
Shares
of
common stock may be considered a “penny stock” and be subject to SEC rules and
regulations which impose limitations upon the manner in which such shares may
be
publicly traded and regulate broker-dealer practices in connection with
transactions in “penny stocks.” Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). The penny stock rules require
a broker-dealer, before a transaction in a penny stock not otherwise exempt
from
the rules, to deliver a standardized risk disclosure document that provides
information about penny stocks and the risks in the penny stock market. The
broker-dealer must also provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements showing the
market value of each penny stock held in the customer’s account. In addition,
the penny stock rules generally require that before a transaction in a penny
stock, the broker-dealer make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements may have
the
effect of reducing the level of trading activity in the secondary market for
a
stock that becomes subject to the penny stock rules which may increase the
difficulty investors may experience in attempting to liquidate such
securities.
SPECIAL NOTE
REGARDING FORWARD-LOOKING STATEMENTS
This
prospectus contains forward-looking statements within the meaning of Section
27A
of the Securities Act of 1933, as amended (the “Securities Act”), and Section
21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
This prospectus includes statements regarding our plans, goals, strategies,
intent, beliefs or current expectations. These statements are expressed in
good
faith and based upon a reasonable basis when made, but there can be no assurance
that these expectations will be achieved or accomplished. These forward looking
statements can be identified by the use of terms and phrases such as “believe,”
“plan,” “intend,” “anticipate,” “target,” “estimate,” “expect,” and the like,
and/or future-tense or conditional constructions “may,” “could,” “should,” etc.
Items contemplating or making assumptions about, actual or potential future
sales, market size, collaborations, and trends or operating results also
constitute such forward-looking statements.
Although
forward-looking statements in this prospectus reflect the good faith judgment
of
our management, forward-looking statements are inherently subject to known
and
unknown risks, business, economic and other risks and uncertainties that may
cause actual results to be materially different from those discussed in these
forward-looking statements. Readers are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
prospectus. We assume no obligation to update any forward-looking statements
in
order to reflect any event or circumstance that may arise after the date of
this
prospectus, other than as may be required by applicable law or regulation.
Readers are urged to carefully review and consider the various disclosures
made
by us in our reports filed with the Securities and Exchange Commission which
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, results of operation and cash flows. If
one
or more of these risks or uncertainties materialize, or if the underlying
assumptions prove incorrect, our actual results may vary materially from those
expected or projected.
SELLING
STOCKHOLDERS
This
prospectus covers shares, including shares underlying warrants, sold in our
recent private equity offerings to “accredited investors” as defined by Rule
501(a) under the Securities Act pursuant to an exemption from registration
provided in Regulation D, Rule 506 under Section 4(2) of the Securities
Act. The selling stockholders may from time to time offer and sell under this
prospectus any or all of the shares listed opposite each of their names below.
We are required, under a registration rights agreement, to register for resale
the shares of our common stock described in the table below.
The
following table sets forth information about the number of shares beneficially
owned by each selling stockholder that may be offered from time to time under
this prospectus. Certain selling stockholders may be deemed to be “underwriters”
as defined in the Securities Act. Any profits realized by the selling
stockholder may be deemed to be underwriting commissions.
The
table
below has been prepared based upon the information furnished to us by the
selling stockholders as of March 7, 2006. The selling stockholders identified
below may have sold, transferred or otherwise disposed of some or all of their
shares since the date on which the information in the following table is
presented in transactions exempt from or not subject to the registration
requirements of the Securities Act. Information concerning the selling
stockholders may change from time to time and, if necessary, we will amend
or
supplement this prospectus accordingly. We cannot give an estimate as to the
number of shares of common stock that will be held by the selling stockholders
upon termination of this offering because the selling stockholders may offer
some or all of their common stock under the offering contemplated by this
prospectus. The total number of shares that may be sold hereunder will not
exceed the number of shares offered hereby. Please read the section entitled
“Plan of Distribution” in this prospectus.
We
have
been advised, as noted below in the footnotes to the table, none
of the
selling stockholders are broker-dealers and 13
of
the
selling stockholders are affiliates of broker-dealers. We have been advised
that
each of such selling stockholders purchased our common stock and warrants in
the
ordinary course of business, not for resale, and that none of such selling
stockholders had, at the time of purchase, any agreements or understandings,
directly or indirectly, with any person to distribute the related common
stock.
The
following table sets forth the name of each selling stockholder, the nature
of
any position, office, or other material relationship, if any, which the selling
stockholder has had, within the past three years, with us or with any of our
predecessors or affiliates, and the number of shares of our common stock
beneficially owned by such stockholder before this offering. The number of
shares owned are those beneficially owned, as determined under the rules of
the
SEC, and such information is not necessarily indicative of beneficial ownership
for any other purpose. Under such rules, beneficial ownership includes any
shares of common stock as to which a person has sole or shared voting power
or
investment power and any shares of common stock which the person has the right
to acquire within 60 days through the exercise of any option, warrant or right,
through conversion of any security or pursuant to the automatic termination
of a
power of attorney or revocation of a trust, discretionary account or similar
arrangement.
Unless
otherwise indicated, the stockholders listed in the table below acquired
their
shares in the private offerings. The percentage of common stock outstanding
is
based upon a total of 95,455,759 shares of common stock outstanding, which
includes 16,984,127 exchangeable shares of Goldstrike Exchange Co. issued
to
holders of Gran Tierra Canada’s common stock. Shares underlying warrants
exercisable within 60 days of June 30, 2006 are considered for the purpose
of
determining the percent of the class held by the holder of such warrants,
but
not for the purpose of computing the percentages held by others. We have
assumed
all shares reflected on the table will be sold from time to time. Because
the
selling stockholders may offer all or any portion of the common stock listed
in
the table below, no estimate can be given as to the amount of those shares
of
common stock that will be held by the selling stockholders upon the termination
of any sales of common stock.
Beneficial
ownership is calculated based on 95,455,759 shares of our common stock
outstanding as of June 30, 2006, which includes 16,984,127 exchangeable shares
of Goldstrike Exchange Co. issued to holders of Gran Tierra Canada’s common
stock. Beneficial ownership is determined in accordance with Rule 13d-3 of
the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage of ownership of that person,
shares of common stock subject to options or warrants held by that person
that
are currently exercisable or become exercisable within 60 days of June 30,
2006
are deemed outstanding even if they have not actually been exercised. Those
shares, however, are not deemed outstanding for the purpose of the table.
The
persons and entities named in the table have sole voting and sole investment
power with respect to the shares set forth opposite the stockholder’s name,
subject to community property laws, where applicable.
|
|
Shares
of
Common
Stock
Owned
Before
the
Offering
|
|
Shares
of
Common
Stock
Being
Offered
|
|
Shares
of
Common
Stock
Owned
Upon
Completion
of
the
Offering (a)
|
|
Percentage
of
Common
Stock
Outstanding
Upon
Completion
of
Offering
|
|
Amaran
Tyab1
|
|
|
7,500
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
Arleen
Agate2
|
|
|
72,375
|
|
|
46,875
|
|
|
25,500
|
|
|
*
|
|
Arnie
Charbonneau3
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Arthur
Ruoff4
|
|
|
48,000
|
|
|
48,000
|
|
|
—
|
|
|
—
|
|
Aton
Select Fund Ltd.5
|
|
|
937,431
|
|
|
937,431
|
|
|
—
|
|
|
—
|
|
Bank
Sal. Oppenheim jr. & Cie (Switzerland) Ltd.6
|
|
|
3,187,500
|
|
|
3,187,500
|
|
|
—
|
|
|
—
|
|
Barbara
Jean Taylor7
|
|
|
149,982
|
|
|
149,982
|
|
|
—
|
|
|
—
|
|
Barry
R. Balsillie8
|
|
|
233,730
|
|
|
75,000
|
|
|
158,730
|
|
|
*
|
|
Bashaw
Fertilizer Ltd.9
|
|
|
112,500
|
|
|
112,500
|
|
|
—
|
|
|
—
|
|
Bayford
Investments, Ltd.10
|
|
|
150,000
|
|
|
150,000
|
|
|
—
|
|
|
—
|
|
Beattie
Homes Ltd.11
|
|
|
149,982
|
|
|
149,982
|
|
|
—
|
|
|
—
|
|
Bela
Balaz12
|
|
|
29,978
|
|
|
29,978
|
|
|
—
|
|
|
—
|
|
Ben
T. Morris13
|
|
|
138,750
|
|
|
93,750
|
|
|
45,000
|
|
|
*
|
|
Bernie
Broda14
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Betty
Wong15
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Canaccord
Capital Corporation16
|
|
|
250,000
|
|
|
250,000
|
|
|
—
|
|
|
—
|
|
Catherine
E. Coffield17
|
|
|
75,000
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
Chad
Oakes18
|
|
|
644,957
|
|
|
374,972
|
|
|
269,985
|
|
|
*
|
|
Chestnut
Capital Partners II LLC19
|
|
|
300,000
|
|
|
300,000
|
|
|
—
|
|
|
—
|
|
Clive
Mark Stockdale20
|
|
|
48,000
|
|
|
48,000
|
|
|
—
|
|
|
—
|
|
Code
Consulting Ltd.21
|
|
|
75,000
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
Dale
Foster22
|
|
|
191,825
|
|
|
37,472
|
|
|
154,353
|
|
|
*
|
|
Dana
Quentin Coffield23
|
|
|
1,834,662
|
|
|
44,978
|
|
|
1,789,684
|
|
|
1.87
|
%
|
Danich
Investments, Ltd.24
|
|
|
65,625
|
|
|
65,625
|
|
|
—
|
|
|
—
|
|
Daniel
Todd Dane25
|
|
|
849,977
|
|
|
749,978
|
|
|
99,999
|
|
|
*
|
|
Don
A. Sanders26
|
|
|
720,000
|
|
|
375,000
|
|
|
345,000
|
|
|
*
|
|
Donald
A. Wright27
|
|
|
1,658,730
|
|
|
750,000
|
|
|
908,730
|
|
|
*
|
|
Donald
V. Weir and Julie E. Weir28
|
|
|
258,750
|
|
|
93,750
|
|
|
165,000
|
|
|
*
|
|
Earl
Fawcett29
|
|
|
65,625
|
|
|
65,625
|
|
|
—
|
|
|
—
|
|
Edward
Antonsen30
|
|
|
142,500
|
|
|
60,000
|
|
|
82,500
|
|
|
*
|
|
Edward
Armogan31
|
|
|
18,000
|
|
|
18,000
|
|
|
—
|
|
|
—
|
|
Edward
C. Grant32
|
|
|
74,982
|
|
|
74,982
|
|
|
—
|
|
|
—
|
|
Edwin
Lau33
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Elizabeth
J. Fenton34
|
|
|
37,500
|
|
|
37,500
|
|
|
—
|
|
|
—
|
|
Eric
Pederson35
|
|
|
65,625
|
|
|
65,625
|
|
|
—
|
|
|
—
|
|
Faccone
Enterprises Ltd.36
|
|
|
76,875
|
|
|
46,875
|
|
|
30,000
|
|
|
*
|
|
Gary
Gee Wai Hoy and Lily Lai Wan Hoy37
|
|
|
72,357
|
|
|
46,857
|
|
|
25,500
|
|
|
*
|
|
George
L. Ball38
|
|
|
198,750
|
|
|
93,750
|
|
|
105,000
|
|
|
*
|
|
George
Vernon Symons39
|
|
|
44,978
|
|
|
44,978
|
|
|
—
|
|
|
—
|
|
Grant
Hodgins40
|
|
|
72,357
|
|
|
46,857
|
|
|
25,500
|
|
|
*
|
|
Greg
Crowe41
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Gregg
Sedun42
|
|
|
337,472
|
|
|
187,472
|
|
|
150,000
|
|
|
*
|
|
Hans
Rueckert43
|
|
|
40,500
|
|
|
40,500
|
|
|
—
|
|
|
—
|
|
Henry
Polessky44
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Hollyvale
Limited45
|
|
|
55,500
|
|
|
30,000
|
|
|
25,500
|
|
|
*
|
|
Humbert
B. Powell III46
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
James
E. Anderson47
|
|
|
75,000
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
James
Fletcher48
|
|
|
45,000
|
|
|
45,000
|
|
|
—
|
|
|
—
|
|
James
L. Harris49
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Jamie
Gilkison50
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Janet
R. Denhamer51
|
|
|
37,472
|
|
|
37,472
|
|
|
—
|
|
|
—
|
|
Jason
Soprovich Realty Inc.52
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Jeffrey
J. Scott53
|
|
|
2,513,861
|
|
|
674,972
|
|
|
1,838,889
|
|
|
1.92
|
%
|
Jim
and Kathleen Gilders54
|
|
|
93,728
|
|
|
93,728
|
|
|
—
|
|
|
—
|
|
|
|
Shares
of
Common
Stock
Owned
Before
the
Offering
|
|
Shares
of
Common
Stock
Being
Offered
|
|
Shares
of
Common
Stock
Owned
Upon
Completion
of
the
Offering (a)
|
|
Percentage
of
Common
Stock
Outstanding
Upon
Completion
of
Offering
|
|
Jim
Anderson55
|
|
|
7,500
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
John
and Jodi Malanga Jt Ten.56
|
|
|
63,000
|
|
|
37,500
|
|
|
25,500
|
|
|
*
|
|
John
W. Seaman57
|
|
|
29,998
|
|
|
29,998
|
|
|
—
|
|
|
—
|
|
Joseph
Grosso58
|
|
|
75,000
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
Ken
Wong59
|
|
|
72,375
|
|
|
46,875
|
|
|
|
|
|
|
|
Kent
Kirby60
|
|
|
7,500
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
Kent
Milani61
|
|
|
15,000
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
Kyung
Chun Min62
|
|
|
32,700
|
|
|
7,500
|
|
|
|
|
|
|
|
Lamond
Investments Ltd63
|
|
|
187,500
|
|
|
187,500
|
|
|
—
|
|
|
—
|
|
Lindsay
Bottomer64
|
|
|
37,500
|
|
|
37,500
|
|
|
—
|
|
|
—
|
|
Lisa
Streu65
|
|
|
84,375
|
|
|
84,375
|
|
|
—
|
|
|
—
|
|
LSM
Business Services Ltd.66
|
|
|
76,875
|
|
|
46,875
|
|
|
|
|
|
|
|
Mahmood
Mangalji67
|
|
|
7,500
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
Mark
E. Cline68
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Michael
Graham69
|
|
|
60,000
|
|
|
60,000
|
|
|
—
|
|
|
—
|
|
Michael
J. Stark70
|
|
|
187,472
|
|
|
187,472
|
|
|
—
|
|
|
—
|
|
Michael
Paraskake71
|
|
|
63,000
|
|
|
37,500
|
|
|
|
|
|
|
|
Michael
F. Schaefer72
|
|
|
750,000
|
|
|
750,000
|
|
|
—
|
|
|
—
|
|
Nadine
C. Smith and John D. Long, Jr73
|
|
|
2,065,761
|
|
|
937,500
|
|
|
1,128,261
|
|
|
1.18
|
%
|
Neil
Davey74
|
|
|
7,500
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
Nell
Dragovan75
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Nick
DeMare76
|
|
|
187,472
|
|
|
187,472
|
|
|
—
|
|
|
—
|
|
North
Group Limited77
|
|
|
60,000
|
|
|
60,000
|
|
|
—
|
|
|
—
|
|
Perfco
Investments Ltd.78
|
|
|
2,412,302
|
|
|
525,000
|
|
|
1,887,302
|
|
|
1.97
|
%
|
Postell
Energy Co Ltd79
|
|
|
37,500
|
|
|
37,500
|
|
|
—
|
|
|
—
|
|
Professional
Trading Services SA80
|
|
|
937,500
|
|
|
937,500
|
|
|
—
|
|
|
—
|
|
Prussian
Capital Corp81
|
|
|
75,000
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
Richard
M. Crawford82
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
Richard
Machin83
|
|
|
63,750
|
|
|
37,500
|
|
|
|
|
|
|
|
Rick
MacDermott84
|
|
|
247,478
|
|
|
187,478
|
|
|
|
|
|
|
|
Rob
Anderson85
|
|
|
153,750
|
|
|
153,750
|
|
|
—
|
|
|
—
|
|
Robert
A. Fenton86
|
|
|
37,500
|
|
|
37,500
|
|
|
—
|
|
|
—
|
|
Robert
D. Steele87
|
|
|
549,960
|
|
|
112,500
|
|
|
437,460
|
|
|
*
|
|
Robert
K. Macleod88
|
|
|
69,999
|
|
|
45,000
|
|
|
|
|
|
|
|
Ron
Carey89
|
|
|
74,978
|
|
|
74,978
|
|
|
—
|
|
|
—
|
|
Rowena
M. Santos90
|
|
|
72,375
|
|
|
46,875
|
|
|
|
|
|
|
|
Samuel
Belzberg91
|
|
|
468,750
|
|
|
468,750
|
|
|
—
|
|
|
—
|
|
Sanders
1998 Childrens Trust92
|
|
|
187,500
|
|
|
187,500
|
|
|
—
|
|
|
—
|
|
Sanders
Opportunity Fund (Inst) LP93
|
|
|
1,520,904
|
|
|
721,329
|
|
|
799,575
|
|
|
|
|
Sanders
Opportunity Fund LP94
|
|
|
475,971
|
|
|
225,546
|
|
|
250,425
|
|
|
|
|
Sanovest
Holdings Ltd.95
|
|
|
577,500
|
|
|
202,500
|
|
|
375,000
|
|
|
|
|
Sara
Tyab96
|
|
|
7,500
|
|
|
7,500
|
|
|
—
|
|
|
—
|
|
Sean
Warren97
|
|
|
33,750
|
|
|
33,750
|
|
|
—
|
|
|
—
|
|
Standard
Bank PLC 98
|
|
|
1,875,000
|
|
|
1,875,000
|
|
|
—
|
|
|
—
|
|
Strong
Branch Ventures IV, LP99
|
|
|
450,000
|
|
|
450,000
|
|
|
—
|
|
|
—
|
|
Suljo
Dzafovic100
|
|
|
15,000
|
|
|
15,000
|
|
|
—
|
|
|
—
|
|
Tammy
L. Gurr101
|
|
|
28,125
|
|
|
28,125
|
|
|
—
|
|
|
—
|
|
The
Brewster Family Trust102
|
|
|
46,875
|
|
|
46,875
|
|
|
—
|
|
|
—
|
|
The
MacLachlan Investments Corporation103
|
|
|
187,500
|
|
|
187,500
|
|
|
—
|
|
|
—
|
|
Tom
Chmilar104
|
|
|
45,000
|
|
|
45,000
|
|
|
—
|
|
|
—
|
|
Tom
Rebane105
|
|
|
22,500
|
|
|
22,500
|
|
|
—
|
|
|
—
|
|
Ursula
Kaiser106
|
|
|
37,500
|
|
|
37,500
|
|
|
—
|
|
|
—
|
|
Verne
G. Johnson107
|
|
|
1,232,725
|
|
|
187,478
|
|
|
1,045,247
|
|
|
1.09
|
%
|
VP
Bank (Switzerland) Ltd.108
|
|
|
1,187,550
|
|
|
937,500
|
|
|
|
|
|
|
|
|
|
Shares
of
Common
Stock
Owned
Before
the
Offering
|
|
Shares
of
Common
Stock
Being
Offered
|
|
Shares
of
Common
Stock
Owned
Upon
Completion
of
the
Offering (a)
|
|
Percentage
of
Common
Stock
Outstanding
Upon
Completion
of
Offering
|
|
Walter
A. Dawson109
|
|
|
401,587
|
|
|
300,000
|
|
|
101,587
|
|
|
*
|
|
Wayne
Hucik110
|
|
|
65,625
|
|
|
65,625
|
|
|
—
|
|
|
—
|
|
Wildcat
Investments Ltd.111
|
|
|
75,000
|
|
|
75,000
|
|
|
—
|
|
|
—
|
|
William
Lowe112
|
|
|
93,750
|
|
|
93,750
|
|
|
—
|
|
|
—
|
|
William
McCluskey113
|
|
|
393,750
|
|
|
393,750
|
|
|
—
|
|
|
—
|
|
1053361
Alberta Ltd.114
|
|
|
491,865
|
|
|
262,500
|
|
|
229,365
|
|
|
*
|
|
1087741
Alberta Ltd.115
|
|
|
47,978
|
|
|
47,978
|
|
|
—
|
|
|
—
|
|
666977
Alberta Ltd.116
|
|
|
12,000
|
|
|
12,000
|
|
|
—
|
|
|
—
|
|
893619
Alberta Ltd.117
|
|
|
149,972
|
|
|
149,972
|
|
|
—
|
|
|
—
|
|
954866
Alberta Ltd.118
|
|
|
30,000
|
|
|
30,000
|
|
|
—
|
|
|
—
|
|
*
Less
than 1.0%.
(a)
Assumes all of the shares of common stock to be registered on this registration
statement, including all shares of common stock underlying warrants held
by the
selling stockholders, are sold in the offering by the selling
stockholders.
________________
1
Includes
5,000 shares of common stock and warrants to acquire an additional 2,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering.
2
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
3
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
4
Includes
32,000 shares of common stock and warrants to acquire an additional 16,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
5
Includes
624,954 shares of common stock and warrants to acquire an additional 312,477
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Werner Keicher and David Dawes have the power to vote and
dispose of the shares being registered on behalf of Aton Select Fund
Ltd.
6
Includes
2,125,000 shares of common stock and warrants to acquire an additional 1,062,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. R. Grelant and U. Fricher have the power to vote and dispose
of
the shares being registered on behalf of Bank Sal. Oppenheim Jr.
7
Includes
99,988 shares of common stock and warrants to acquire an additional 49,994
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
8
Includes
50,000 shares of common stock and warrants to acquire an additional 25,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 158,703 exchangeable shares issued on November 10,
2005
in connection with the share exchange.
9
Includes
75,000 shares of common stock and warrants to acquire an additional 37,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Richard
Groom has the power to vote and dispose of the common shares being registered
on
behalf of Bashaw Fertilizer Ltd.
10
Includes
100,000 shares of common stock and warrants to acquire an additional 50,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Ronald
Brimacombe has the power to vote and dispose of the common shares being
registered on behalf of Bayford Investments, Ltd.
11
Includes
99,988 shares of common stock and warrants to acquire an additional 49,994
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. William K. Beattie has the power to vote and dispose of the
shares being registered on behalf of Beattie Homes Ltd.
12
Includes
19,985 shares of common stock and warrants to acquire an additional 9,993
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering.
13
Includes
62,500 shares of common stock and warrants to acquire an additional 31,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 30,000 shares of common stock and warrants to acquire an additional
15,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration statement. Mr.
Morris is an affiliate of a broker-dealer.
14
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
15
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
16
250,000
shares of common stock issued as a finder’s fee for services rendered as our
placement agent. Canaccord Capital Corporation is an affiliate of a
broker-dealer. David J. Horton has the power to vote and dispose the shares
being registered on behalf of Canaccord Capital Corporation.
17
Includes
50,000 shares of common stock and warrants to acquire an additional 25,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Ms. Coffield is the mother of Dana Coffield, who serves as
our
President, Chief Executive Officer and as a member of the board of directors.
18
Includes
249,981 shares of common stock and warrants to acquire an additional 124,991
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 179,990 shares of common stock and warrants to acquire an additional
89,995 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
19
Includes
200,000 shares of common stock and warrants to acquire an additional 100,000
shares of common stock at an exercise price of $1.25 per share, which were
immediately exercised, acquired in the third offering. Joseph F. Floccari
has
the power to vote and dispose of the common shares being registered on
behalf of
Chestnut Capital Partners II LLC.
20
Includes
32,000 shares of common stock and warrants to acquire an additional 16,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Mr. Stockdale is an affiliate of a broker-dealer.
21
Includes
50,000 shares of common stock and warrants to acquire an additional 25,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Lance
Tracey has the power to vote and dispose of the common shares being registered
on behalf of Code Consulting Ltd.
22
Includes
24,981 shares of common stock and warrants to acquire an additional 12,491
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 79,365 exchangeable shares issued on November
10, 2005
in connection with the share exchange. Also
includes 49,992 shares of common stock and warrants to acquire an additional
24,996 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
23
Includes
29,985 shares of common stock and warrants to acquire an additional 14,993
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 1,689,683 exchangeable shares issued on November
10,
2005 in connection with the share exchange. Mr. Coffield serves as our
President, Chief Executive Officer and as a member of the board of directors.
Also
includes 66,667 shares of common stock and warrants to acquire an additional
33,334 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
24
Includes
43,750 shares of common stock and warrants to acquire an additional 21,875
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Danny
Remenda has the power to vote and dispose of the common shares being registered
on behalf of Danich Investments, Ltd.
25
Includes
499,985 shares of common stock and warrants to acquire an additional 249,993
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 66,666 shares of common stock and warrants to acquire an additional
33,333 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
26
Includes
250,000 shares of common stock and warrants to acquire an additional 125,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Mr. Sanders is an affiliate of a broker-dealer. Includes
200,000 shares of common stock and warrants to acquire an additional 100,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
Gran Tierra’s private offering in June, 2006, which shares and warrants are not
being registered pursuant to this registration statement. Also includes
30,000
shares of common stock and warrants to acquire an additional 15,000 shares
of
common stock at an exercise price of $1.25 per share held by Mr. Sanders
as
trustee for the beneficial ownership of the Tanya Jo Drury Trust, acquired
in
the Gran Tierra’s private offering in June, 2006, which shares and warrants are
not being registered pursuant to this registration
statement.
27
Includes
500,000 shares of common stock and warrants to acquire an additional 250,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 158,730 exchangeable shares issued on November
10, 2005
in connection with the share exchange. Also
includes 500,000 shares of common stock and warrants to acquire an additional
250,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
28
Includes
62,500 shares of common stock and warrants to acquire an additional 31,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. John and Julie Weir are affiliates of a broker-dealer.
Includes
100,000 shares of common stock and warrants to acquire an additional 50,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
Gran Tierra’s private offering in June, 2006, which shares and warrants are not
being registered pursuant to this registration statement. Also includes
10,000
shares of common stock and warrants to acquire an additional 5,000 shares
of
common stock at an exercise price of $1.25 per share, held by IRA for the
benefit of Julie Weir/Pershing LLC as Custodian, acquired in the Gran Tierra’s
private offering in June, 2006, which shares and warrants are not being
registered pursuant to this registration statement.
29
Includes
43,750 shares of common stock and warrants to acquire an additional 21,875
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
30
Includes
40,000 shares of common stock and warrants to acquire an additional 20,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Also
includes 55,000 shares of common stock and warrants to acquire an additional
27,500 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
31
Includes
12,000 shares of common stock and warrants to acquire an additional 6,000
shares
of common stock at an exercise price of $1.25 per share, acquired in the
second
offering.
32
Includes
49,988 shares of common stock and warrants to acquire an additional 24,994
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering.
33
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
34
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
35
Includes
43,750 shares of common stock and warrants to acquire an additional 21,875
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
36
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Mario
Faccone has the power to vote and dispose of the common shares being registered
on behalf of Faccone Enterprises. Also
includes 20,000 shares of common stock and warrants to acquire an additional
10,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
37
Includes
31,238 shares of common stock and warrants to acquire an additional 15,619
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
38
Includes
62,500 shares of common stock and warrants to acquire an additional 31,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Mr. Ball is an affiliate of a broker-dealer. Also
includes 70,000 shares of common stock and warrants to acquire an additional
35,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
39
Includes
29,985 shares of common stock and warrants to acquire an additional 14,993
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
40
Includes
31,238 shares of common stock and warrants to acquire an additional 15,619
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
41
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering.
42
Includes
124,981 shares of common stock and warrants to acquire an additional 62,491
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 100,000 shares of common stock and warrants to acquire an additional
50,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
43
Includes
27,000 shares of common stock and warrants to acquire an additional 13,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
44
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
45
Includes
20,000 shares of common stock and warrants to acquire an additional 10,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Jeremy
Spring has the power to vote and dispose of the common shares being registered
on behalf of Hollyvale Limited. Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
46
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Mr. Powell is an affiliate of a broker-dealer.
47
Includes
50,000 shares of common stock and warrants to acquire an additional 25,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
48
Includes
30,000 shares of common stock and warrants to acquire an additional 15,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
49
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
50
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
51
Includes
24,981 shares of common stock and warrants to acquire an additional 12,491
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
52
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Jason
Sprovich has the power to vote and dispose of the common shares being registered
on behalf of Jason Soprovich Realty, Inc.
53
Includes
349,981 shares of common stock and warrants to acquire an additional 174,991
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 100,000 shares of common stock and warrants to
acquire
an additional 50,000 shares of common stock at an exercise price of $1.25
per
share, acquired in the second offering. Includes 1,688,889 exchangeable
shares
issued on November 10, 2005 in connection with the share exchange. Mr.
Scott
serves as our Chairman of the Board. Also
includes 100,000 shares of common stock and warrants to acquire an additional
50,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
54
Includes
62,485 shares of common stock and warrants to acquire an additional 31,243
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering.
55
Includes
5,000 shares of common stock and warrants to acquire an additional 2,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
second
offering.
56
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. John and Jodi Malanga are affiliates of a broker-dealer.
Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, held
by
IRA for the benefit of Jodi Malanga/Pershing LLC as Custodian, acquired
in the
Gran Tierra’s private offering in June, 2006, which shares and warrants are not
being registered pursuant to this registration
statement.
57
Includes
19,999 shares of common stock and warrants to acquire an additional 9,999
shares
of common stock at an exercise price of $1.25 per share, acquired in the
second
offering.
58
Includes
50,000 shares of common stock and warrants to acquire an additional 25,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
59
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
60
Includes
5,000 shares of common stock and warrants to acquire an additional 2,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
second
offering.
61
Includes
10,000 shares of common stock and warrants to acquire an additional 5,000
shares
of common stock at an exercise price of $1.25 per share, acquired in the
second
offering.
62
Includes
5,000 shares of common stock and warrants to acquire an additional 2,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering. Also
includes 16,800 shares of common stock and warrants to acquire an additional
8,400 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
63
Includes
125,000 shares of common stock and warrants to acquire an additional 62,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Robert
Lamond has the power to vote and dispose of the common shares being registered
on behalf of Lamond Investments Ltd.
64
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering.
65
Includes
56,250 shares of common stock and warrants to acquire an additional 28,125
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
66
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Lloyd
Guenther has the power to vote and dispose of the common shares being registered
on behalf of LSM Business Services Ltd. Also
includes 20,000 shares of common stock and warrants to acquire an additional
10,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
67
Includes
5,000 shares of common stock and warrants to acquire an additional 2,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering.
68
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
69
Includes
40,000 shares of common stock and warrants to acquire an additional 20,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
70
Includes
124,981 shares of common stock and warrants to acquire an additional 62,491
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
71
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
72
Includes
250,000 shares of common stock and warrants to acquire an additional 125,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 250,000 shares of common stock and warrants to acquire
an additional 125,000 shares of common stock at an exercise price of $1.25
per
share, acquired in the second offering.
73
Includes
625,000 shares of common stock and warrants to acquire an additional 312,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 978,261 shares of Goldstrike Inc., the former
public
reporting company. Ms. Smith serves as a member of our board of directors.
Also
includes 100,000 shares of common stock and warrants to acquire an additional
50,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
74
Includes
5,000 shares of common stock and warrants to acquire an additional 2,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering.
75
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering.
76
Includes
124,981 shares of common stock and warrants to acquire an additional 62,491
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
77
Includes
40,000 shares of common stock and warrants to acquire an additional 20,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Tom Kusumoto has the power to vote and dispose of the common
shares being registered on behalf of North Group Limited.
78
Includes
350,000 shares of common stock and warrants to acquire an additional 175,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 1,587,302 exchangeable shares issued on November
10,
2005 in connection with the share exchange. Mr. Dawson, a member of our
board of
directors, is the sole owner of Perfco Investments Ltd. Mr. Dawson has
sole
investment and voting power over the shares of common stock owned by Perfco
and
disclaims beneficial ownership of such shares. Also
includes 200,000 shares of common stock and warrants to acquire an additional
100,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
79
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Jeffrey
Scott, Chairman of our Board of Directors, is the President of Postell Energy
Co. Ltd. and
has
the power to vote and dispose of the common shares being registered on its
behalf.
80
Includes
625,000 shares of common stock and warrants to acquire an additional 312,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Rene Simon has the power to vote and dispose of the common
shares being registered on behalf of Professional Trading Services
SA.
81
Includes
50,000 shares of common stock and warrants to acquire an additional 25,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Cary
Pinkowski has the power to vote and dispose of the common shares being
registered on behalf of Prussian Capital Corp.
82
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
83
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 17,500 shares of common stock and warrants to acquire an additional
8,750 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
84
Includes
124,985 shares of common stock and warrants to acquire an additional 62,493
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 40,000 shares of common stock and warrants to acquire an additional
20,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
85
Includes
62,500 shares of common stock and warrants to acquire an additional 31,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 40,000 shares of common stock and warrants to acquire
an additional 20,000 shares of common stock at an exercise price of $1.25
per
share, acquired in the second offering.
86
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
87
Includes
75,000 shares of common stock and warrants to acquire an additional 37,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 80,000 shares of common stock and warrants to acquire an additional
40,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
88
Includes
30,000 shares of common stock and warrants to acquire an additional 15,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 16,666 shares of common stock and warrants to acquire an additional
8,333 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
89
Includes
49,985 shares of common stock and warrants to acquire an additional 24,993
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
90
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 17,000 shares of common stock and warrants to acquire an additional
8,500 shares of common stock at an exercise price of $1.25 per share, acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration
statement.
91
Includes
312,500 shares of common stock and warrants to acquire an additional 156,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
92
Includes
125,000 shares of common stock and warrants to acquire an additional 62,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Sanders 1998 Childrens Trust is an affiliate of a
broker-dealer. Don Weir
has the power to vote and dispose of the common shares being registered on
behalf of Sanders 1998 Children’s Trust. Sanders 1998 Children’s Trust does not
have any agreements, arrangements or understandings with any other persons,
either directly or indirectly to dispose of the common stock being
registered.
93
Includes
480,886 shares of common stock and warrants to acquire an additional 240,443
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 533,050 shares of common stock and warrants to acquire an additional
266,525 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration statement. Sanders
Opportunity Fund (Inst) LP is an affiliate of a broker-dealer. Don
Sanders has the power to vote and dispose of the common shares being registered
on behalf of Sanders Opportunity Fund (Inst) LP.
94
Includes
150,364 shares of common stock and warrants to acquire an additional 75,182
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Sanders Opportunity Fund LP is an affiliate of a
broker-dealer. Also
includes 166,950 shares of common stock and warrants to acquire an additional
83,475 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration statement.Don
Sanders has the power to vote and dispose of the common shares being registered
on behalf of Sanders Opportunity Fund LP.
95
Includes
62,500 shares of common stock and warrants to acquire an additional 31,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 72,500 shares of common stock and warrants to
acquire
an additional 36,250 shares of common stock at an exercise price of $1.25
per
share, acquired in the second offering. Also
includes 250,000 shares of common stock and warrants to acquire an additional
125,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration statement.Tom
and
Hydri Kusumoto have the power to vote and dispose of the common shares
being
registered on behalf of Sanovest Holdings Ltd.
96
Includes
5,000 shares of common stock and warrants to acquire an additional 2,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering.
97
Includes
22,500 shares of common stock and warrants to acquire an additional 11,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering.
98
Includes
1,250,000 shares of common stock and warrants to acquire an additional
625,000
shares of common stock at an exercise price of $1.25 per share, acquired
in
the second offering. Roderick Frasier and Manuel Gonzales have the power to
vote and dispose of the common shares being registered on behalf of Standard
Bank PLC.
99
Includes
300,000 shares of common stock and warrants to acquire an additional 150,000
shares of common stock at an exercise price of $1.25 per share, which were
immediately exercised, acquired in the third offering. Joseph F. Floccari
has the power to vote and dispose of the common shares being registered
on
behalf of Strong Branch Ventures IV, LP.
100
Includes
10,000 shares of common stock and warrants to acquire an additional 5,000
shares
of common stock at an exercise price of $1.25 per share, acquired in the
second
offering.
101
Includes
18,750 shares of common stock and warrants to acquire an additional 9,375
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering.
102
Includes
31,250 shares of common stock and warrants to acquire an additional 15,625
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Jim
Brewster has the power to vote and dispose of the common shares being registered
on behalf of The Brewster Family Trust.
103
Includes
125,000 shares of common stock and warrants to acquire an additional 62,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. The MacLachlan Investments Corporation is an affiliate
of a
broker-dealer. Peter Brown has the power to vote and dispose of the common
shares being registered on behalf of The MacLachlan Investments
Corporation.
104
Includes
30,000 shares of common stock and warrants to acquire an additional 15,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
105
Includes
15,000 shares of common stock and warrants to acquire an additional 7,500
shares
of common stock at an exercise price of $1.25 per share, acquired in the
second
offering.
106
Includes
25,000 shares of common stock and warrants to acquire an additional 12,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
107
Includes
124,985 shares of common stock and warrants to acquire an additional 62,493
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 895,238 exchangeable shares issued on November
10, 2005
in connection with the share exchange. Also
includes 100,006 shares of common stock and warrants to acquire an additional
50,003 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration statement. Mr.
Johnson serves as a member of our board of directors.
108
Includes
625,000 shares of common stock and warrants to acquire an additional 312,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Also
includes 166,700 shares of common stock and warrants to acquire an additional
83,350 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration statement. Daniel
Lacher has the power to vote and dispose of the common shares being registered
on behalf of VP Bank (Switzerland) Ltd.
109
Includes
200,000 shares of common stock and warrants to acquire an additional 100,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Includes 101,587 exchangeable shares issued on November
10,
2005 in connection with the share exchange. Mr. Dawson serves as a member
of our
board of directors.
110
Includes
43,750 shares of common stock and warrants to acquire an additional 21,875
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
111
Includes
50,000 shares of common stock and warrants to acquire an additional 25,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Bruce
Nurse has the power to vote and dispose of the common shares being registered
on
behalf of Wildcat Investments Ltd.
112
Includes
62,500 shares of common stock and warrants to acquire an additional 31,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering.
113
Includes
262,500 shares of common stock and warrants to acquire an additional 131,250
shares of common stock at an exercise price of $1.25 per share, acquired
in the
third offering. Mr. McCluskey is an affiliate of a broker-dealer.
114
Includes
175,000 shares of common stock and warrants to acquire an additional 87,500
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Includes 79,365 exchangeable shares issued on November
10, 2005
in connection with the share exchange. Also
includes 100,000 shares of common stock and warrants to acquire an additional
50,000 shares of common stock at an exercise price of $1.25 per share,
acquired
in the Gran Tierra’s private offering in June, 2006, which shares and warrants
are not being registered pursuant to this registration statement. Glen
Gurr, President of 1053361 Alberta Ltd. has sole voting and investment
power
over these shares.
115
Includes
31,985 shares of common stock and warrants to acquire an additional 15,993
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Wade
MacBain has the power to vote and dispose of the common shares being registered
on behalf of 1087741 Alberta Ltd.
116
Includes
8,000 shares of common stock and warrants to acquire an additional 4,000
shares
of common stock at an exercise price of $1.25 per share, acquired in the
first
offering. Serge
Bonnet has the power to vote and dispose of the common shares being registered
on behalf of 666977 Alberta Ltd.
117
Includes
99,981 shares of common stock and warrants to acquire an additional 49,991
shares of common stock at an exercise price of $1.25 per share, acquired
in the
first offering. Dale
Foster has the power to vote and dispose of the common shares being registered
on behalf of 893619 Alberta Ltd.
118
Includes
20,000 shares of common stock and warrants to acquire an additional 10,000
shares of common stock at an exercise price of $1.25 per share, acquired
in the
second offering. Scott
Harkness has the power to vote and dispose of the common shares being registered
on behalf of 954866 Alberta Ltd.
USE
OF PROCEEDS
We
will
not receive any proceeds from the sale by the selling stockholders of our common
stock. We will receive approximately $9,092,264 if the selling stockholders
exercise their warrants in full. The warrant holders may exercise their warrants
at any time until their expiration, as further described in the “Description of
Securities.” Because the warrant holders may exercise the warrants in their own
discretion, we cannot plan on specific uses of proceeds beyond application
of
proceeds to general corporate purposes. These proceeds will be used for general
corporate purposes and capital expenditures. We have agreed to bear the expenses
in connection with the registration of the common stock being offered hereby
by
the selling stockholders.
DETERMINATION
OF OFFERING PRICE
The
selling stockholders will determine at what price they may sell the offered
shares, and such sales may be made at prevailing market prices, or at privately
negotiated prices.
MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our
common stock was first cleared for quotation on the NASD OTC bulletin board
on
November 11,
2005
and has been trading since that time under the sumbol "GTRE.OB."
As
of June 30, 2006, there were approximately 566 holders of record
of shares of our common stock (including holders of exchangeable shares).
On August
4, 2006, the last reported sales price of our shares on the OTC bulletin
board was $3.45. For
the
periods indicated, the following table sets forth the high and low bid prices
per share of common stock. These prices represent inter-dealer quotations
without retail markup, markdown, or commission and may not necessarily represent
actual transactions.
Quarter
Ended
|
|
High
|
|
Low
|
|
September
30, 2006 (through August 4) |
|
$
|
3,70 |
|
$
|
2.60 |
|
June
30, 2006
|
|
$ |
5.12
|
|
$ |
2.57
|
|
March
31, 2006
|
|
$ |
6.06
|
|
$ |
2.94
|
|
December
31, 2005
|
|
$
|
2.83
|
|
$
|
1.01
|
|
As
of the
date hereof, there are 95,455,759 shares of common stock issued and outstanding,
which number includes shares of common stock issuable upon exchange of the
exchangeable shares of Goldstrike Exchange Co. issued to former holders of
Gran
Tierra Canada’s common stock.
Equity
Compensation Plan
Securities
authorized for issuance under equity compensation plans as of December 31,
2005
are as follows:
Plan
category
|
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
|
Weighted-average
exercise price of outstanding options, warrants and
rights
|
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|
|
(a)
|
|
(b)
|
|
(c)
|
Equity
compensation plans approved by security holders
|
|
1,940,000
|
|
$1.12
|
|
60,000
|
Equity
compensation plans not approved by security
holders
|
|
|
|
|
|
—
|
Total
|
|
1,940,000
|
|
—
|
|
60,000
|
Equity
compensation plans approved by our stockholders include our 2005 Equity
Incentive Plan, under which our board of directors is authorized to issue
options or other rights to acquire up to 2,000,000 shares of our common stock.
The shares of common stock underlying awards granted under the 2005 Equity
Compensation Plan include options to acquire 1,600,000 shares of common stock
at
an exercise price of $0.80 per share, granted on November 10, 2005 and options
to acquire 340,000 shares of common stock at an exercise price of $2.62 per
share, granted on December 15, 2005. The compensation committee will determine
the period of time during which an option may be exercised, except that no
option may be exercised more than ten years after the date of
grant.
DIVIDEND
POLICY
We
have
never declared or paid dividends on the shares of common stock and we intend
to
retain future earnings, if any, to support the development of the business
and
therefore do not anticipate paying cash dividends for the foreseeable future.
Payment of future dividends, if any, will be at the discretion of our board
of
directors after taking into account various factors, including current financial
condition, operating results and current and anticipated cash needs.
MANAGEMENT’S
DISCUSSION AND ANALYSIS
The
following discussion should be read in conjunction with the attached financial
statements and notes thereto. Except for the historical information contained
herein, the matters discussed below are forward-looking statements that involve
certain risks and uncertainties, including, among others, the risks and
uncertainties discussed below.
Overview
Gran
Tierra is an independent international energy company involved in oil and
natural gas exploration and exploitation. We plan to continually increase our
oil and natural gas reserves through a balanced strategy of exploration
drilling, development and acquisitions in South America. Initial countries
of
interest are Argentina, Colombia and Peru.
Gran
Tierra took its current form on November 10, 2005 when the former Gran Tierra
Energy Inc, a privately held corporation in Alberta (“Gran Tierra Canada”), was
acquired by an indirect subsidiary of Goldstrike Inc, a Nevada corporation,
which was publicly traded on the NASD Over-the-Counter Bulletin Board.
Goldstrike adopted the assets, management, business operations, business plan
and name of Gran Tierra Canada. The predecessor company in the transaction
is
the former Gran Tierra Canada; the financials of the former Goldstrike were
eliminated at consolidation. This transaction is accounted for as a reverse
takeover of Goldstrike Inc. by Gran Tierra Canada.
We
currently hold a non-operating (14%) interest in joint ventures involving
several producing fields in the Noroeste basin of Argentina (Palmar Largo),
as
well as a 50% interest in two minor properties, one producing natural gas and
associated liquids from a single well (Nacatimbay) and one non-producing
property (Ipaguazu). The oil we produce in Argentina is light oil without high
quantities of impurities. The gas we produce contains a small amount of CO2,
but
not enough to impact production or selling price. We acquired these interests
on
September 1, 2005. Before the acquisition, we had no oil and gas interests
or
properties. The acquisition was funded through a series of private placements,
initially advanced to Gran Tierra Canada as a loan from the former
Goldstrike.
Our
ability to continue as a going concern is dependent upon obtaining the
necessary
financing to acquire oil and natural gas interests and generate profitable
operations from our oil and natural gas interests in the future. We
incurred a net loss of $1.2 million for the period ended March 31, 2006,
negative cash flows from operations of $2.0 million, and, as at March 31,
2006,
had an accumulated deficit of $3.4 million. We expect to incur substantial
expenditures to further our capital investment programs and our cash flow
from
operating activities may not be sufficient to satisfy our current obligations
and meet our capital investment objectives. These circumstances raise
substantial doubt about our ability to continue as a going concern. Our
financial statements as at and for the period ended March 31, 2006 have
been prepared on a going concern basis, which contemplates the realization
of
assets and the settlement of liabilities and commitments in the normal
course of
business.
To
address our ability to continue as a going concern, we have raised
additional capital through the sale and issuance of common shares. In addition,
we may seek financing in the form of a credit facility with commercial
banks. We also plan to expand our portfolio of production, development,
step-out and exploration opportunities using additional capital raised
and cash
provided by future operating activities.
If
these
efforts are insufficient or unsuccessful, we will be required to curtail
future plans, reduce operations and rely on existing properties for revenue.
We
may be required to liquidate our assets and wind-up our operations.
Net
loss
for the first quarter of 2006 was $1,218,948, equivalent to a loss of $0.03
per
share. This compares to a loss of $496 for the first quarter of 2005. Per
share
calculations for the first quarter of 2006 are based on basic weighted
average
shares outstanding of 44,176,362 at March 31, 2006. Gross revenue was
$1,184,617, royalties for the quarter totaled $134,987 and net revenues
were
$1,049,629. Production and sales from Nacatimbay were suspended on March
1,
2006. Expenses totaled $2,211,120 for the quarter, reflecting costs for
a full
quarter of operations at Palmar Largo, two months of operations at Nacatimbay
and general and administrative expenditures in Calgary, Canada and Buenos
Aires,
Argentina. Cash flow from operations was negative $1,962,800. Capital
expenditures totaled $452,910 for the quarter, bringing total net capital
to
$8,404,913 after depletion, depreciation and accretion expense of $362,475.
Capital expenditures for the quarter related mainly to activities at Palmar
Largo, plus office furniture and equipment purchases. Our financing activities
contributed $799,539.
Net
loss
for 2005 was $2,219,680, equivalent to a loss of $0.16 per share. These
calculations are based on basic weighted average shares outstanding of
13,538,149. Gross revenue, representing four months of oil and gas operations,
totaled $1,244,589 and was negatively impacted by extraordinary weather
conditions in Northern Argentina, which reduced deliveries in November
and
December. Royalties for the year totaled $185,292 and net revenues were
$1,059,297. Expenses totaled $3,308,205, reflecting costs relating to the
November 10, 2005 share exchange, four months of operating costs, and twelve
months of general and administrative expenses. Cash used by operations
was
$1,876,638. Capital expenditures totaled $8,775,327 and included the initial
acquisition costs for the Argentina assets and costs associated with drilling
activities. Financing activities contributed $13,206,116 to Gran
Tierra.
Recent
Developments
We entered
into a Securities Purchase Agreement dated May 25, 2006 with Crosby Capital
LLC
to acquire all of the limited partnership interests of Argosy Energy
International and all of the issued and outstanding capital stock of Argosy
Energy Corp. On June 20, 2006, we closed the Argosy acquisition and paid
consideration to Crosby consisting of $37.5 million cash, 870,647 shares
of our common stock and overriding and net profit interests in certain of
Argosy’s assets valued at $1 million.
Argosy
holds a diverse portfolio of producing properties, drill-ready prospects
and
exploration acreage in Colombia. Argosy’s oil production averaged approximately
987 barrels per day (net after royalty) during the fourth quarter of 2005.
Remaining proven reserves at December 31, 2005 are estimated by Huddleston
&
Co., independent reserve engineers, at 2.34 million barrels (net after royalty),
according to an independent reserve assessment. Royalty rates are 20% and
8% for
Argosy’s producing properties. The
Argosy acquisition is expected to add production of approximately 856 barrels
per day of oil to our current production. Argosy
has a staff of approximately 74 (12 staff in Bogota, 62 field personnel),
and a portfolio of drilling opportunities.
Property
Summary
We are
the operator and hold interests in 7 blocks in Colombia. The Santana
and Guayuyaco blocks are currently producing. The Rio Magdalena,
Talora, Chaza, Primavera and Mecaya blocks are in their exploration
phases.
Santana
The
Santana Contract area covers 1,120 acres and includes 4 producing fields -
Linda, Mary, Miraflor and Toroyaco - and 15 wells. Activities are governed
by terms of an Association Contract with Ecopetrol, and we are the
operator. The properties are subject to a 20% royalty and we
hold a 35% interest in all fields with the exception of the Inchyaco-1 well
in the Mary field, where we hold a 25.83% working interest.
Ecopetrol holds the remaining interests. The Block has been
producing since 1991; a total of 20.2 million barrels (gross) have been produced
to date (to December 31, 2005). Production (net after royalty)
averaged 405 barrels per day during June 2006. Remaining proven reserves
net to Gran Tierra (after royalty) are estimated at 1.626 million barrels
(at
December 31, 2005).
Oil
is
sold to Ecopetrol and is exported via the Trans-Andean pipeline. Oil
quality is approximately 26 degrees API. Oil prices are defined by
contract and are related to a West Texas Intermediate reference. By
contract, 25% of sales are denominated in pesos and 75% in US
dollars.
Guayuyaco
The
Guayuyaco Block covers 52,365 acres and comprises the area surrounding the
4 producing fields of the Santana Contract area. The Guayuyaco Block is
governed by an “Adjacent Play” Association Contract with Ecopetrol, providing a
royalty of 8%. We are the operator and have a 35% participation
interest. Solana also has a 35% participation interest and Ecopetrol has
a 30% participation interest. The Guayuyaco field within the Block
was discovered in 2005. Two wells are now producing, with Guayuyaco-1 on
stream in February 2005 and Guayuyaco-2 on stream in September
2005. Remaining proven reserves net to us (after royalty) are
estimated at 0.711 million barrels (at December 31, 2005). Production
(net after royalty) averaged 395 barrels per day during June 2006. Oil
quality and sales terms are comparable to Santana oil and volumes are similarly
transported via the Trans-Andean pipeline for export.
A
combined 2D and 3D seismic survey was acquired over the Block in
2005. Ecopetrol may back-in to a 30% participation interest in
any new discoveries in the Block.
Rio
Magdalena
Argosy entered
into the Rio Magdalena Association Contract in February 2002. The Rio
Magdalena contract area covers 144,670 acres. We are the operator,
and according to terms of the contract, we are obligated to drill two
exploration wells prior to February, 2007. The first of these wells,
Popa-1, has been drilled and is currently in a testing phase. According to
the terms of the Association Contract, Ecopetrol may back-in for a 30%
participation at commerciality, and a sliding scale royalty applies, currently
at 8%.
Chaza
The
Chaza
Block covers 80,242 acres and is governed by terms of an Exploration &
Exploitation Contract with the government agency ANH, reflecting re-vamped
and
improved fiscal terms. The Chaza Contract was signed June 2005 and defines
a 6 year exploration period and 24 year production period. One well is
planned for 2006. We are the operator and have a 50% participation
interest. Solana also has a 50% participation interest.
Talora
The
Talora Exploration & Exploitation Contract was signed September 2004,
providing for a 6 year exploration period and 24 year production period.
The Talora contract area covers 108,333 acres. We are the operator and
have a 20% participation interest. PEI also has an 80% participation
interest.
Primavera
The
Primavera Exploration & Exploitation contract was signed May 2006. The
Primavera contract area covers 359,072 acres. We are the operator and have
a 15% participation interest. Chaco Resources also has a 55% participation
interest and Expet also has a 30% participation interest.
Mecaya
The
Mecaya Exploration & Exploitation contract was signed June 2006. The
Mecaya contract area covers 74,128 acres. We are the operator and have a
15% participation interest. MCP also has a 55% participation interest and
Expet also has a 30% participation interest.
Vinalar
Acquisition
On
February 28, 2006 we announced an agreement to purchase a 50% participation
in
the El Vinalar Block from Golden Oil Corporation. Closing of the Golden
Oil
acquisition was initiated on June 20, 2006, with a total consideration of
$950,000. According to terms of the purchase, we agreed to fund up to $2.7
million of the cost of a planned sidetrack well in the Block. The acquisition
is
expected to add immediate production of 44 barrels of oil per day (net
after
royalty).
Increase
in Authorized Shares
On
June
1, 2006, we filed a Certificate of Amendment to our Articles of Incorporation
with the Secretary of State of the State of Nevada increasing our authorized
capital stock from 80,000,001 shares to 325,000,001 shares, which
include:
·
|
300,000,000
shares of common stock, par value $0.001,
|
·
|
25,000,000
shares of preferred stock, par value $0.001, and
|
·
|
1
share, par value of $0.001, to be designated as Special Voting
Stock.
|
Recent
Financing Activity
On
June
20, 2006, we completed the sale of 43,336,051 units of our securities,
deriving
gross proceeds of $65,004,076. Each unit consisted of one share of our
common
stock and a warrant to purchase one-half share of our common stock for
a period
of five years at an exercise price of $1.75 per whole share. On June 29,
2006,
we conducted a second closing of the offering of units of our securities,
deriving additional gross proceeds of $5,454,944 from the sale of 3,636,629
additional units. On June 30, 2006, we conducted a final closing of the
offering
of units of our securities, deriving additional gross proceeds of $4,540,980
from the sale of 3,027,320 additional units. In connection with the three
closings of the offering, we sold a total of 50,000,000 units for gross
proceeds
totaling $75,000,000.
On
February 15, 2006, we made an offer to Compania General de Combustibles
S.A.,
referred to as CGC, to purchase its interests in eight different
properties in
Northern Argentina. The purchase of any of the CGC properties would
be separate
from the purchase of any other CGC property included in the offer,
with the
exception of four minor properties, which must be purchased together.
The total
consideration for the acquisition of all eight of the properties
would have been
$37.8 million pursuant to the offer we made to CGC.
According
to the terms of the initial offer, the offer would have expired
on April 30,
2006. However, the offer was extended and eventually expired on
July 31, 2006.
We intend to renew the offer for the properties in the future.
Completion
of the acquisitions was subject to various authorizations within
Argentina,
including court approval for the sale of the eight interests in
the properties.
Pursuant to the terms of the offer, court approval was required
to be obtained
by July 31, 2006, which consent has not been obtained at this time.
The
CGC
properties consist of four minor properties which are not subject
to the rights
of first refusal of the joint venture partners in those properties
and four
properties which are subject to rights of first refusal. The total
cash
consideration for the four minor, non-producing properties is $2.1
million.
These four interests include a 93.18% participation in the Valle
Morado Block, a
100% interest in the Santa Victoria Block and the remaining 50%
interest in the
Nacatimbay and Ipaguaza Blocks (where we currently hold 50% interests).
If our
offer is extended and if court approval occurs prior to the expiration
of the
offer, we would acquire these properties as they are not subject
to partner
rights of first refusal. However, we cannot assure you that these
events will
occur.
The
four
properties subject to rights of first refusal include a 75% participation
in
each of the El Chivil Block and the Surubi Block, a 17.85% interest
in the
Palmar Largo joint venture (where we currently hold a 14% interest)
and a 5%
participation in the Aguarague joint venture. In connection with
these
properties, we may also be required to receive third-party consents
in
connection with the assignment of contracts. The offer to purchase
all of the
CGC interests has expired and we have not received the required
court approvals
by the deadline for such approvals. In addition, the acquisition
of the
interests in these properties would also be subject to the right
of first
refusal. We cannot assure you that these events will
occur.
Plan
of Operations
In
Argentina, we plan to participate in our current joint venture activities.
One
well is planned for the year, at El Vinalar. A total of three well
workovers is
planned at Palmar Largo, to be funded from project cash flow. We will
be
conducting a review of production enhancement and exploration opportunities
at
Nacatimbay and Ipaguazu. In addition to current projects, we will pursue
new
ventures that may add production, development and exploration opportunities
in
the country.
In
Colombia, we are currently planning to drill three wells prior to year-end
in
2006 - in the Rio Magdalena, Chaza and Talora Blocks. The Popa-1 well,
in the
Rio Magdalena Block, was recently drilled and is currently in a testing
phase.
Funding for this work program will be substantially provided from cash
flow.
Further drilling is anticipated into 2007, with a total of seven additional
wells planned over the coming twelve months.
Work
and
spending activities planned for Peru in 2006 are minor.
Our
recent financing in June, 2006 provided funds for the Argosy and Vinalar
acquisitions and for planned work programs during the year. Any CGC
acquisitions
will be funded from the company’s existing cash balance and/or from a debt
facility that is currently being negotiated.
Based
on
projected production, prices and costs, we believe that our current
cash
position plus cash flow from operations is sufficient to sustain planned
activity through 2006. New business opportunities may require additional
equity
and/or debt financing for acquisitions and/or significant work
programs.
We
have
not entered into any commodity derivative arrangements or hedging transactions.
We may enter into some swap and/or hedging arrangements in conjunction
with
future debt financing. We have no off-balance sheet
arrangements.
Results
of Operations for the Three Months ended March 31,
2006
Revenues
Production
after royalties for the quarter averaged 274 barrels per day of oil from
Palmar
Largo. Production at Nacatimbay was suspended on March 1, 2006 due to
low flow
conditions. A remedial work program is being assessed to restore production.
Production at Nacatimbay averaged 3 barrels per day of condensate and
476
thousand cubic feet per day of natural gas after royalties for the period
January 1 to February 28, 2006, resulting in average production of 2
barrels per
day of condensate and 312 thousand cubic feet per day of gas for the
quarter.
Oil sales at Palmar Largo averaged 292 barrels per day after royalties.
Natural
gas sales at Nacatimbay averaged 262 thousand cubic feet per day after
royalties
for the period.
Gross
revenue for the first quarter of 2006 was $1,136,867 at Palmar Largo
and $47,750
at Nacatimbay, totaling $1,184,617 for the first quarter of 2006. The
average
sales price for Palmar Largo oil was $ 38.13 per barrel, and was $1.64
per
thousand cubic feet of natural gas at Nacatimbay.
Net
revenue for the first quarter of 2006 was $1,049,629, reflecting an average
royalty rate of 12% of production revenue minus transportation and storage
costs.
No
revenue was recorded for the company in the first quarter of
2005.
Cost
of Sales and Gross Profit
Operating
expenses totaled $353,080 for the first quarter of the 2006, representing
a full
quarter of operations at Palmar Largo, and two months of operations at
Nacatimbay. This equates to an average operating cost of $13.45 per barrel
of
oil equivalent (based on net barrels of oil equivalent and a natural
gas/liquids
conversion of 20 to 1). Operating expenses reflect the impact of a two
well
workover program over the first quarter of 2006.
Gross
profit for the period ended March 31, 2006, was $696,549.
As
we did
not have oil and gas operations in the first quarter of 2005, there were
no
operating costs or gross profit for the period ended March 31,
2005.
Other
Operating Expenses
Depreciation
and depletion for the period ended March 31, 2006, was $361,205, and
accretion of asset retirement obligation was $1,270 for a total of $362,475
of
other operating expenses during the period ended March 31, 2006. The
majority of
this cost represents the depletion of the acquisition cost for the Argentina
properties. There was no depreciation, depletion and accretion recorded
in the
first quarter of 2005.
Remaining
operating expenses for the first quarter of 2006 were principally
general and administrative in nature, totaling $1,591,029. Of this amount,
legal
costs, accounting expenses and consulting costs were $1,001,852. The
majority of
these costs were associated with audit activities, share registration,
and
marketing initiatives, many of which are non-recurring in nature. Salaries
and
benefits were $360,731 and travel costs were $54,603. Office and other
expenses
totaled $173,843. Total general and administrative expenses for the period
ended March 31, 2005 totaled $3,469.
Foreign
exchange gain was $95,464 for the quarter ended March 31,
2006.
Net
Income (Loss) Available to Common Shares
Net
loss
for the first quarter of 2006 was $1,218,948, equivalent to a loss of
$0.03/share. These results reflect a full quarter of operating activities.
This
compares to a loss of $496 for quarter ended March 31,
2005.
Results
of Operations for 2005
Revenues
Production
after royalties of 12% for the year averaged approximately 298
barrels
of liquids per day; 293 barrels per day of oil from Palmar Largo and 5
barrels
per day
of
condensate from
Nacatimbay. Oil sales at Palmar Largo were reduced to an average of 206 barrels
per day due to severe weather conditions in Northern Argentina, as extreme
rainfall and poor road conditions curtailed tanker truck traffic through
November and December. Oil inventory increased to 13,948 barrels by December
31,
2005 as a result. Natural gas sales at Nacatimbay averaged 494
thousand cubic feet per day, after 12% royalty.
Since
the
date of acquisition, September 1, 2005, gross revenue for 2005 was
$1,115,954 at
Palmar
Largo and $128,635
at
Nacatimbay, totaling $1,244,589 for the year. Average sales price for Palmar
Largo oil was $37.80
per
barrel. Average sales prices at Nacatimbay were $37.58
per
barrel of condensate and $1.50 per
thousand cubic feet of natural gas. Oil and natural gas prices are effectively
regulated in Argentina.
Net
revenue for the year was $1,059,297, reflecting an average royalty rate of
12%
of production revenue minus transportation and storage costs.
Operating
Expenses
Operating
expenses totaled $395,287 for the year, representing four months of operations
in Argentina. This equates to an average operating cost of $8.90 per barrel
of
oil equivalent (natural gas conversion 20 to 1).
Depreciation,
depletion and amortization for the period was $462,119. The majority of
this cost represents the depletion of the acquisition cost for the Argentina
properties.
Remaining
operating expenses for the year were general and administrative in nature,
totaling $2,482,070. Of this amount, legal costs, accounting expenses and
consulting costs were $1,482,824. The majority of these costs were associated
with the share exchange on November 10, 2005 and related activities. Salaries
and benefits were $594,585 and travel costs were $168,134. Office, insurance
and
other expenses totaled $236,527.
Foreign
exchange gain was $31,271 for the period.
Net
Income (Loss) Available to Common Shares
Net
loss
for 2005 was $2,219,680, equivalent to a loss of $0.16/share. These results
reflect four months of operating activity, twelve months of business activity
and significant costs relating to the November 10, 2005 share
exchange.
Liquidity
and Capital Resources
Liquidity
Gross
capital expenditures in the first quarter of 2006 were $452,910, predominantly
for the development of the Argentina properties, and office equipment in
both
Calgary and Argentina. There were no capital expenditures in the first
quarter
of 2005.
Gross
capital expenditures in 2005 were $8,775,327, predominantly for the acquisition
cost of the Argentina properties. The purchase price for the Argentina
acquisition was $7,032,714 plus post-closing adjustments of $708,955. The
majority of remaining capital expenditures relates to Gran Tierra’s share of the
cost of drilling one well at Palmar Largo.
During
the first quarter of 2006, we funded the majority of our capital expenditures
and operating expenditures from cash balances existing at the end of 2005,
which
were received through three private placements of equity in Gran Tierra
in late
2005. We conducted a private placement of shares which closed on February
2,
2006 with proceeds of $762,500. Our cash balance at March 31, 2006 was
$510,285
compared to $2,221,456 at December 31, 2005.
During
2005, we funded the majority of our capital expenditures from funds received
through three private placements of equity in Gran Tierra. Total equity from
common shares was $13,206,116. A total of 14,285,106 units consisting of one
common share at $0.80 per share plus one warrant to purchase one half share
at
$0.625 per half share were issued during 2005 through private placements for
gross proceeds of $11,428,084. The funds were used to acquire the Argentina
properties and to provide working capital for the company. Our cash balance
at
year-end was $2,221,456 and net working capital was $2,656,504.
Operating
activities used $1,876,638 during 2005, and investing activities used
$9,108,022. Cash used in investing activities was primarily for acquisition
of
our properties in Argentina. We have $400,427 in restricted cash that is
currently being held in escrow with
our
partners in the Palmar Largo joint venture, in order to secure future cash
calls
relating to the joint venture which
include both operating expenses and capital expenditures. The escrow account
is
scheduled to be terminated in October, 2006 and the cash balance is to
be
released to us at that time. Although the escrow may be terminated, we
will
continue to be subject to cash calls relating to the joint venture and
the term
of the escrow account may be extended if we become delinquent in payment
of cash
calls prior to October. Cash calls for 2006 are expected to total $2.1
million
and are expected to be covered by revenues from Palmar
Largo.
Cash
used
by operating activities was funded primarily through financing activities,
namely the sale of equity securities noted above. The primary reasons for
our
operating deficit were large expenses related to our financings and share
exchange with Goldstrike Inc., and having revenues from operations for
only four
months of the year (from September 1).
We
believe that our current operations for 2006 can be maintained from existing
cash balances and cash flows from production. At December 31, 2005, our
cash balance was approximately $2.2 million dollars. Net revenues are expected
to total approximately $12 million for 2006. Corresponding expenditures for the
year are expected to total $18 million, including capital expenditures
of $11
million and operating expenditures of approximately $3 million and general
and
administrative expenses of approximately $4 million, including Calgary,
Argentina and Colombia operations.
If
we are
successful in new business development activites, we may require equity
and/or
debt financing to fund acquisitions as well as associated capital programs.
We
have office lease commitments in Calgary and Argentina of approximately
$6,824
and $2,000 per month respectively.
Our
current liabilities consist of cash calls payable to partners, which are
paid on
a weekly basis and general operating costs. We currently do not carry any
debt
facilities with banks or other financial institutions.
Future
growth and acquisitions will depend on our ability to raise additional funds
through equity and/or debt markets. We have recently been involved in financing
initiatives in order to support acquisition initiatives, which have brought
us additional production and cashflow. Our
initiatives to raise debt or equity financing to fund capital expenditures
or
other acquisition and development opportunities may be affected by the market
value of our common stock. If the price of our common stock declines, our
ability to utilize our stock either directly or indirectly through convertible
instruments for raising capital could be negatively affected. Also, raising
funds by issuing stock or other equity securities would further dilute our
existing stockholders, and this dilution would be exacerbated by a decline
in
stock price. Any securities we issue may have rights, preferences and privileges
that are senior to our existing equity securities. Borrowing money may also
involve pledging some or all of our assets.
Off-Balance
Sheet Arrangements
For
the
fiscal quarter ended March 31, 2006 and the year ended December 31,
2005, we did not have any off-balance sheet arrangements as defined in
Item 303(c) of Regulation S-B, promulgated by the SEC.
Critical
Accounting Estimates
Use
of Estimates
The
preparation of financial statements under generally accepted accounting
principles (“GAAP”) in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Oil
and Gas Accounting-Reserves Determination
The
process of estimating reserves is complex. It requires significant judgments
and
decisions based on available geological, geo-physical, engineering and economic
data.
To
estimate the economically recoverable oil and natural gas reserves and related
future net cash flows, we incorporate many factors and assumptions
including:
§ |
expected
reservoir characteristics based on geological, geophysical and engineering
assessments;
|
§ |
future
production rates based on historical performance and expected future
operating and investment
activities;
|
§ |
assumed
effects of regulation by governmental agencies;
and
|
§ |
future
development and operating costs.
|
We
believe these factors and assumptions are reasonable based on the information
available to us at the time we prepare our estimates. However, these estimates
may change substantially as additional data from ongoing development activities
and production performance becomes available and as economic conditions
impacting oil and gas prices and costs change.
Management
is responsible for estimating the quantities of proved oil and natural gas
reserves and for preparing related disclosures. Estimates and related
disclosures are prepared in accordance with SEC requirements and generally
accepted industry practices in the US as promulgated by the Society of Petroleum
Engineers.
Reserve
estimates, including the standardized measure of discounted future net cash
flow
and changes therein, are prepared at least annually by independent qualified
reserves consultants.
The
board
of directors oversees the annual review of our oil and gas reserves and related
disclosures. The board meets with management periodically to review the reserves
process, results and related disclosures and appoints and meets with the
independent reserves consultants to review the scope of their work, whether
they
have had access to sufficient information, the nature and satisfactory
resolution of any material differences of opinion, and in the case of the
independent reserves consultants, their independence.
Reserve
estimates are critical to many of our accounting estimates,
including:
§ |
Determining
whether or not an exploratory well has found economically producible
reserves.
|
§ |
Calculating
our unit-of-production depletion rates. Both proved and proved developed
reserves estimates are used to determine rates that are applied to
each
unit-of-production in calculating our depletion expense. Proved reserves
are used where a property is acquired and proved developed reserves
are
used where a property is drilled and
developed.
|
§ |
Assessing,
when necessary, our oil and gas assets for impairment. Estimated
future
cash flows are determined using proved reserves. The critical estimates
used to assess impairment, including the impact of changes in reserves
estimates, are discussed below.
|
Oil
and Gas Accounting-Impairment
We
evaluate our oil and gas properties for impairment on a quarterly basis. We
assess estimated discounted future cash flows to determine if properties are
impaired on a cost center basis. If the 10% discounted future cash flows for
a
cost center are less than the carrying amount, the cost center is impaired
and
written down to its fair value.
We
assessed our oil and gas properties for impairment at the end of 2005 and found
no impairments were required based on our assumptions.
Cash
flow
estimates for our impairment assessments require assumptions about
reserves.
It
is
difficult to determine and assess the impact of a decrease in our proved
reserves on our impairment tests. The relationship between the reserves estimate
and the estimated discounted cash flows is complex because
of the necessary assumptions that need to be made regarding future production
rates, future prices and future costs. Under full cost accounting, a ceiling
test is performed to ensure that unamortized capitalized costs in each cost
center do not exceed their fair value. An impairment loss is recognized in
net
earnings when the carrying amount of a cost center is not recoverable and the
carrying amount of the cost center exceeds its fair value. A cost center is
defined as a country. Capitalized costs, less accumulated depreciation (carrying
value) are limited to the sum of: the present value of estimated future net
revenues from proved oil and gas reserves, less future development costs and
taxes using a discount factor of 10%; plus the cost of properties not being
amortized; plus the lower of cost or estimated fair value of unproven properties
included in the costs being amortized; less income tax effects related to the
differences between the book and tax basis of the properties. If unamortized
capital costs within a cost center exceed the cost center ceiling, the excess
shall be charged to expense and separately disclosed during the period in which
the excess occurs. As a result, we are unable to provide a reasonable
sensitivity analysis of the impact that a reserves estimate decrease would
have
on our assessment of impairment.
Asset
Retirement Obligations
We
are
required to remove or remedy the effect of our activities on the environment
at
our present and former operating sites by dismantling and removing production
facilities and remediating any damage caused. Estimating our future asset
retirement obligations requires us to make estimates and judgments with respect
to activities that will occur many years into the future. In addition, the
ultimate financial impact of environmental laws and regulations is not always
clearly known and cannot be reasonably estimated as standards evolve in the
countries in which we operate.
We
record
asset retirement obligations in our consolidated financial statements by
discounting the present value of the estimated retirement obligations associated
with our oil and gas wells and facilities. In arriving at amounts recorded,
numerous assumptions and judgments are made with respect to ultimate settlement
amounts, inflation factors, credit adjusted discount rates, timing of settlement
and expected changes in legal, regulatory, environmental and political
environments. The asset retirement obligations we have recorded result in an
increase to the carrying cost of our property, plant and equipment. The
obligations are accreted with the passage of time. A change in any one of our
assumptions could impact our asset retirement obligations, our property, plant
and equipment and our net income.
It
is
difficult to determine the impact of a change in any one of our assumptions.
As
a result, we are unable to provide a reasonable sensitivity analysis of the
impact a change in our assumptions would have on our financial results. We
are
confident, however, that our assumptions are reasonable.
Deferred
Income Taxes
We
follow
the liability method of accounting for income taxes whereby future income tax
assets and liabilities are recognized based on temporary differences in reported
amounts for financial statement and tax purposes. We carry on business in
several countries and as a result, we are subject to income taxes in numerous
jurisdictions. The determination of our income tax provision is inherently
complex and we are required to interpret continually changing regulations and
make certain judgments. While income tax filings are subject to audits and
reassessments, we believe we have made adequate provision for all income tax
obligations. However, changes in facts and circumstances as a result of income
tax audits, reassessments, jurisprudence
and any
new legislation may result in an increase or decrease in our provision for
income taxes.
New
Accounting Pronouncements
In
November 2004, the Financial Accounting Standards Board (“FASB”) issued
Statement 151, Inventory
Costs.
This
statement amends Accounting Research Bulletin (“ARB”) 43 to clarify
that:
§ |
abnormal
amounts of idle facility expense, freight, handling costs and wasted
material (spoilage) should be recognized as current-period charges;
and
|
§ |
the
allocation of fixed production overhead to inventory based on the
normal
capacity of the production facilities is required.
|
The
provisions of this statement are effective for inventory costs incurred during
fiscal years beginning after June 15, 2005. We do not expect the adoption of
this statement will have any material impact on our results of operations or
financial position.
In
December 2004, the FASB issued Statement 153, Exchanges
of Nonmonetary Assets,
an
amendment of Accounting Principles Bulletin (“APB”) Opinion 29, Accounting
for Nonmonetary Transactions.
This
amendment eliminates the exception for nonmonetary exchanges of similar
productive assets and replaces it with a general exception for exchanges of
nonmonetary assets that do not have commercial substance. Under Statement 153,
if a nonmonetary exchange of similar productive assets meets a
commercial-substance test and fair value is determinable, the transaction must
be accounted for at fair value resulting in the recognition of any gain or
loss.
This statement is effective for nonmonetary transactions in fiscal periods
that
begin after June 15, 2005. We do not expect the adoption of this statement
will
have any material impact on our results of operations or financial
position.
In
March
2005, the FASB issued Financial Interpretation 47, Accounting
for Conditional Asset Retirement Obligations (“FIN
47”). FIN 47 clarifies that the term conditional asset retirement obligation as
used in FASB Statement No. 143, Accounting
for Asset Retirement Obligations,
refers
to a legal obligation to perform an asset retirement activity in which the
timing and (or) method of settlement are conditional on a future event that
may
or may not be within the control of the entity. The obligation to perform the
asset retirement activity is unconditional even though uncertainty exists about
the timing and (or) method of settlement. Thus, the timing and (or) method
of
settlement may be conditional on a future event. Accordingly, an entity is
required to recognize a liability for the fair value of a conditional asset
retirement obligation if the fair value of the liability can be reasonably
estimated. FIN 47 also clarifies when an entity would have sufficient
information to reasonably estimate the fair value of an asset retirement
obligation. FIN 47 is effective no later than the end of fiscal years ending
after December 15, 2005. The adoption of this statement has not had a material
impact on our results of operations or financial position.
In
June
2005, the FASB issued Statement 154, Accounting
Changes and Error Corrections,
which
replaces APB Opinion 20 and FASB Statement 3. Statement 154 changes the
requirements for the accounting and reporting of a change in accounting
principle. Opinion 20 previously required that most voluntary changes in
accounting principles be recognized by including the cumulative effect of the
new accounting principle in net income of the period of the change. In the
absence of explicit transition provisions provided for in new or existing
accounting pronouncements, Statement 154 now requires retrospective application
of changes in accounting principle to prior period financial statements, unless
it is impracticable to do so. The Statement is effective for fiscal years
beginning after December 15, 2005. We do not expect the adoption of this
statement will have a material impact on our results of operations or financial
position.
In
September 2005, the Emerging Issues Task Force (“EITF”) reached a consensus on
Issue No. 04-13, Accounting
for Purchases and Sales of Inventory with the Same Counterparty.
This
issue addresses the question of when it is appropriate to measure purchase
and
sales of inventory at fair value and record them in cost of sales and revenues
and when they should be recorded as exchanges measured at the book value of
the
item sold. The EITF concluded that purchases and sales of inventory with the
same counterparty that are entered into in contemplation of one another should
be combined and recorded as exchanges measured at the book value of the item
sold. The consensus should be applied to new arrangements entered into and
modifications or renewals of existing agreements, beginning with the second
quarter of 2006. We do not expect the adoption of this statement will have
a
material impact on our results of operations or financial position.
In
February 2006, the Financial Accounting Standards Board (FASB) issued statement
155, Accounting
for Certain Hybrid Financial Instruments - an amendment of FASB Statements
no.
133 and 140
. This
statement resolves issues addressed in Statement 133 Implementation Issue
no. D1
“Application of Statement 133 to Beneficial Interests in Securitized Financial
Assets.” This implementation guidance indicated that entities could continue to
apply guidance related to accounting for beneficial interests in paragraphs
14
and 362 of Statement 140, which indicate that any security that can be
contractually prepaid or otherwise settled in such a way that the holder
of the
security would not recover substantially all of its recorded investment
should
be subsequently measured like investments in debt securities classified
as
available for sale or trading, and may not be classified as held to maturity.
Also, Implementation issue D1 indicated that holders of beneficial interests
in
securitized financial assets that are not subject to paragraphs 14 and
362 of
Statement 140 are not required to apply Statement 133 to those beneficial
interests, pending further guidance. Statement 155 eliminates the exemption
from
Statement 133 for interests in securitized financial assets. It also allows
the
preparer to elect fair value measurement at acquisition, at issuance or
when a
previously recognized financial instrument is subject to a remeasurement
event.
We do not expect the adoption of this statement will have a material impact
on
our results of operations or financial position.
In
March
2006, the FASB issued statement 156 Accounting
for Servicing of Financial Assets - an amendment of FASB Statement No.
140.
Under
statement 140, servicing assets and servicing liabilities are amortized
over the
expected period of estimated net servicing income or loss and assessed
for
impairment or increased obligation at each reporting date. This statement
requires that all separately recognized servicing assets and servicing
liabilities be initially measured at fair value, if practicable. Subsequent
measurement of servicing assets and servicing liabilities at fair value
is
permitted, but not required. If derivatives are used to mitigate risks
inherent
in servicing assets and servicing liabilities, those derivatives must be
accounted for at fair value. Servicing assets and servicing liabilities
subsequently measured at fair value must be presented separately in the
statement of financial position and there are additional disclosures for
all
separately recognized servicing assets and servicing liabilities. We do
not
expect the adoption of this statement will have a material impact on our
results
of operations or financial position.
In
June
2006, the FASB issued interpretation No. 48, Accounting
for Uncertainty in Income Taxes - an interpretation of FASB Statement
No.
109.
This
interpretation clarifies the accounting for uncertainty in income taxes
recognized in a company’s financial statement in accordance to FASB Statement
No. 109. Recognition of a tax position should be based on whether it
is more
likely than not that a tax position will be sustained. The tax position
is
measured at the largest amount of benefit that is greater than 50% likely
of
being realized upon settlement. This interpretation is effective for
fiscal
years beginning after December 15, 2006. We do not expect the adoption
of this
statement will have material impact on our results of operations or financial
position.
BUSINESS
On
November 10, 2005, the Closing Date, Goldstrike, Inc., the previous public
reporting entity, Gran Tierra Canada and the holders of Gran Tierra Canada’s
capital stock entered into a share purchase agreement, and Goldstrike and
Goldstrike Exchange Co. entered into an assignment agreement. In these two
transactions, the holders of Gran Tierra Canada’s capital stock acquired shares
of either Goldstrike common stock or exchangeable shares of Goldstrike Exchange
Co., and Goldstrike Exchange Co. acquired substantially all of Gran Tierra
Canada’s capital stock. Additionally, Goldstrike changed its name to Gran Tierra
Energy Inc. with the management and business operations of Gran Tierra Canada,
but remains incorporated in the State of Nevada. Following this transaction,
Goldstrike Exchange Co. acquired the remaining shares of Gran Tierra Canada
outstanding after the initial share exchange for shares of common stock of
Gran
Tierra Energy Inc. using the same exchange ratio as used in the initial
exchange, and Gran Tierra Canada became a wholly-owned subsidiary of Gran
Tierra
Energy Inc.
In
the
above-described transactions between Goldstrike and the holders of Gran Tierra
Canada common stock, Gran Tierra Canada shareholders were permitted to elect
to
receive, for each share of Gran Tierra Canada’s common stock: (1) 1.5873016
exchangeable shares of Goldstrike Exchange Co. (and ancillary rights), or
(2) 1.5873016 shares of common stock of Goldstrike, or (3) a
combination of Goldstrike Exchange Co. exchangeable shares and Goldstrike
common
stock. All of Gran Tierra Canada’s shares were, through a series of exchanges,
exchanged for shares of Goldstrike and/or exchangeable shares of Goldstrike
Exchange Co. Each exchangeable share of Goldstrike Exchange Co. is exchangeable
into one share of our common stock.
The
share
exchange between the former shareholders of Gran Tierra Canada and the former
Goldstrike is treated as a recapitalization of Gran Tierra for financial
accounting purposes. Accordingly, the historical financial statements of
Goldstrike before the share purchase and assignment transactions will be
replaced with the historical financial statements of Gran Tierra Canada before
the share exchange in all future filings with the SEC.
Company
Overview
Following
the above-described transactions, our operations and management are
substantially the operations and management of Gran Tierra Canada prior to
the
transactions. We are in the early stages of growth of our operations. The
former
Gran Tierra Canada was formed by an experienced management team in early
2005,
which collectively has over 100 years of hands-on experience in oil and natural
gas exploration and production in most of the world’s principal petroleum
producing regions. Our objective is to acquire and exploit international
opportunities in oil and natural gas exploration, development and production,
focusing on South America. We made our initial acquisition of oil and gas
producing and non-producing properties in Argentina in September 2005 for
a
total purchase price of approximately $7 million.
Industry
Introduction
The
international oil and gas industry is extremely diverse and offers distinct
opportunities for companies in different countries. The fundamentals of the
industry, however, are common:
§ |
Oil
and gas reserves tend to be distributed in a pyramid
pattern.
The distribution of oil and gas reserves is generally depicted as
a
“pyramid” with the greatest number of fields being smaller fields and with
very few large fields. Because of their size, the large fields are
more
easily located - most have already been discovered and tend to be,
though
are not always, the most economical to produce.
|
§ |
Oil
and gas companies tend to be distributed in a pyramid
pattern.
Oil and gas companies tend to be distributed in a pattern that is
similar
to that of oil and gas reserves. There are many small companies and
few
very large companies. Large companies tend to operate at the top
of the
resource pyramid, where rewards are larger but fewer. Smaller companies
tend to operate at the base of the resource pyramid, where rewards
are
smaller but plentiful. Furthermore, large companies tend to divest
smaller, non-core assets as they grow, and tend to acquire smaller
companies that have reached a critical mass, perpetuating a cycle
of
growth.
|
§ |
In
a mature producing area with a mature industry, the entirety of the
resource pyramid is being explored and developed by both small and
large
oil and gas companies.
Maturity is typically a function of time and market forces. Government
policy can have an important role, encouraging or discouraging the
full
potential of the resource base and industry.
|
§ |
By
its nature, finding and producing oil and gas is a risky
business.
Oil and gas deposits may be located miles below the earth’s surface. There
is no guarantee, despite the sophistication of modern exploration
techniques, that oil or gas will be present in a particular location
without drilling. Additionally, there is no guarantee that a discovery
will be commercially viable without follow up drilling, nor can there
be
any guarantee that such follow up drilling will be successful. There
is
also no guarantee that reserves once established will produce at
expected
rates. Furthermore, adverse political events and changing laws/regulations
can threaten the economic viability of oil and gas activity, the
safety
and security of workers, or the reputation of a company that conducts
business outside of more stable countries. The effective management
of
risk is integral to the oil and gas
industry.
|
§ |
The
oil and gas industry is capital intensive. Investment
decisions are based on long time horizons - the typical oil and gas
project has a life of greater than 20 years. Economics and value
are based
on a long-term perspective.
|
§ |
The
production profile for a substantial majority of oil and gas reservoirs
is
a declining trend. Production
from an oil or gas field with a fixed number of wells declines over
time.
That decline rate varies depending on the reservoir and well/development
characteristics but in general, steepest declines are earlier in
the
production life of the field. Typically, production falls to a point
where
revenues are insufficient to cover operating costs (the project reaches
its economic limit) and the field is
abandoned.
|
§ |
Production
levels in a field can be maintained by more intensive drilling and/or
enhancement of existing wells and such efforts are usually made to
offset
the natural decline in production.
A
low price environment, budgetary constraints or lack of imagination
can
prevent companies from taking appropriate action to offset a natural
decline in production, however, this can present a significant opportunity
for new operators in a high price environment. While
production levels may be maintained for a period of time by more
intensive
drilling, such efforts can only be maintained for short periods of
time
and may not be effective. Moreover, such efforts may also be economically
unfeasible and may be impermissible under rules and regulations applying
to the field.
|
New
Opportunities for Smaller Companies
Several
forces are at work in today’s energy industry which provide a significant
opportunity for smaller companies, like Gran Tierra. The greatest opportunity
is
in countries where resource opportunities have been undervalued or overlooked
or
have been considered immaterial or uneconomic by larger companies, and/or where
governments are moving to realize the potential at the base of the resource
pyramid by attracting smaller companies.
Company
Business Plan
Our
plan
is to build an international oil and gas company, sensibly and aggressively,
by
positioning in countries where a smaller company can proliferate. Our initial
focus is South America, specifically Argentina, Colombia and Peru.
Gran
Tierra is applying a two-pronged approach to growth, establishing a base of
production, development and exploration assets by selective acquisitions and
achieving future growth through drilling. We intend to duplicate this business
model across countries in South America and across regions within these
countries, continually.
A
key to
our business plan is positioning - being in the right place at the right time
with the right resources. The fundamentals of this strategy are described in
more detail below:
§ |
Position
in countries that are welcoming to foreign investment, that provide
attractive fiscal terms and/or offer opportunities that have been
previously ignored or undervalued;
|
The
pace
of oil and gas exploration and development in countries around the world is
dictated by geology and market forces and the intermediary impact of government
policy and regulation. These factors have combined today to create opportunities
in South America. The initial countries of interest to Gran Tierra are Argentina
- where activity has historically been dominated by the national oil company;
Colombia - which has restructured its energy policies to appeal to smaller
foreign companies; and Peru - which is entering a new phase of exploration
activity.
§ |
Engage
qualified, experienced and motivated professionals;
|
Gran
Tierra’s management consists of three senior international oil and gas
professionals most recently with EnCana Corporation of Canada and a fourth
member most recently with Pluspetrol in South America. The management team
represents over 100 years of broad and progressive international experience,
in
South America and across the globe. International experience provides an
awareness of the fundamentals of opportunity and risk, of problems and
resolutions, of what can or cannot be done by when, and what resources are
needed to get the job done. It also brings with it a network of professional
relationships that can be drawn upon to bring new business to Gran
Tierra.
The
qualifications of our board of directors complement the international experience
of the management team, providing an entrepreneurial, financial and market
perspective of the business of Gran Tierra by a group of individuals with
successful track records overseeing the strategic growth of development stage
public and private companies. In addition, the board is responsible
for overseeing our financial reporting and corporate governance policies
and reviewing management’s compensation.
As
of
June 30, 2006, we had eighty-eight full-time employees, seven in
Calgary, seven in Buenos Aires and seventy-four in Colombia (12 staff in
Bogota plus 62 field personnel). All employees had previously worked with
members of our management team; six employees were formerly with EnCana
Corporation. Qualified geophysicists, geologists and engineers are in short
supply in today’s market; our management has demonstrated the ability to attract
qualified professionals.
Our
success equally depends on a strong support network in the legal, accounting
and
finance disciplines, both at a corporate level and a local level. Gran Tierra’s
aggressive business plan means a succession of acquisition and operating
agreements in addition and concurrent financings, all requiring significant
outside support. We have quickly transitioned from a private company with
no employees in January 2005, through an initial acquisition in September,
a
share exchange and trading in the US market in November 2005 and subsequent
transactions, and we intend to maintain this pace. Our accomplishments to date
are an indication of the capabilities of our support network.
§ |
Establish
an effective local presence;
|
Our
management believes that establishing an effective local presence is essential
for success - one that is familiar with the local operating environment,
with
the local oil and gas industry and with local companies and governments in
order
to establish and expand business in the country. We have established our
office
in Buenos Aires and have engaged qualified and respected local management
and
professionals. We intend to establish offices in all countries where we operate.
We expect our presence in Buenos Aires and recently acquired presence in
Colombia to bring new and increasing opportunities.
§ |
Create
alliances with companies that are active in areas and countries of
interest, and consolidate initial land/property positions;
|
Our
initial acquisitions in Argentina and Colombia have brought us to the
attention of other companies in the country, including partners, former
employers and associates. We hope to build on these business relationships
to
bring other opportunities to us, and we expect to continue to build new
relationships in the future. Such cooperation effectively multiplies our
business development initiatives and develops synergies within the local
industry.
§ |
Build
a balanced portfolio of production, development, step-out and more
speculative exploration opportunities;
|
Our
initial acquisitions in Argentina and Colombia provide a base of production
to
provide immediate cashflow and upside drilling potential. We are now focusing
on
expansion opportunities in Argentina, Colombia and Peru, which are expected
to
include both low and higher risk projects, with working interests that achieve
an optimal balance of risk and reward.
The
most
effective risk mitigation in international oil and gas is diversification,
and
the highest chance of success results from a diverse portfolio of independent
opportunities. We are moving purposefully in the regard.
§ |
Assess
and close opportunities expeditiously;
|
We
assess
many oil and gas opportunities before we move to advance one; it is necessary
to
assess the technical, economic and strategic merits quickly in order to focus
our efforts. This approach to business often provides a competitive advantage.
During 2005, we evaluated more than 70 potential acquisition
opportunities.
§ |
Do
business in familiar countries with familiar people and familiar
assets.
|
Our
business model is a bringing together of peoples’ knowledge and relationships
into a single entity with a single purpose. We cannot compete with the
international oil and gas industry on an open tender basis. Assets and
opportunities that are offered globally will receive a premium price and chance
of success for any one bidder is low. Our approach is based on niche
opportunities for buyer and seller, where the combination of our strategic
relationships, established technical know-how and access to capital provide
a
compelling opportunity to act opportunistically.
Proprietary
Deal Flow
Our
access to opportunities stems from a combination of experience and industry
relationships of the management team and board of directors, both within and
outside of South America. Deal flow is critical to growing a portfolio
efficiently and effectively, to capitalize on Gran Tierra’s capabilities today,
and into the future as we grow in scale and our needs evolve.
Company
Financial Fundamentals
A
brief
discussion of our financial fundamentals is provided below. Potential investors
are encouraged to read the following information in conjunction with all of
the
other information provided in this prospectus.
Our
financial results present the former Gran Tierra Canada as the predecessor
company in the share exchange with Goldstrike on November 10, 2005. The
financial performance of the former Goldstrike was eliminated at consolidation.
Gran Tierra financials therefore present the activities of the former Gran
Tierra Canada before the share exchange, including the initial Argentina
acquisition on September 1, 2005.
Financial
results for 2005 are defined by three principal events: the Argentina
acquisitions on September 1, 2005, a series of private placements of common
stock of Gran Tierra associated with the acquisitions, and the share exchange
between the former holders of common shares of Goldstrike Inc. and Gran Tierra
Energy Inc. on November 10, 2005.
The
Argentina Acquisitions
We
acquired participating interests in three joint ventures on September 1, 2005.
We made a formal offer to purchase the Argentina assets of Dong Won S.A
(Argentinean branch of the Korean company) on May 30, 2005, that was accepted
on
June 22, 2005. The total acquisition cost was approximately $7 million. Our
initial offer covered interests in five properties; preferential acquisition
rights were exercised on two properties but the major property of interest
to
Gran Tierra and two minor properties became available to us. All properties
are
located in the Noroeste Basin region of Northern Argentina.
§ |
Palmar
Largo Joint Venture - Gran Tierra participation 14%, Pluspetrol (Operator)
38.15%, Repsol YPF 30%, Compañia General de Combustibles (“CGC”)
17.85%.
|
§ |
Nacatimbay
Concession - Gran Tierra participation 50%, CGC (Operator)
50%.
|
§ |
Ipaguazu
Concession - Gran Tierra participation 50%, CGC (Operator)
50%.
|
Palmar
Largo is the principal property, producing approximately 293 barrels per
day of oil net to Gran Tierra (after 12% royalties). Acquisition cost for
Palmar Largo was $6,969,659 and translated to a cost of $9.89 per barrel of
proved reserves based on an estimate of remaining proven reserves of 705,000
(net before royalties) at June 1, 2005. This equates to $11.24 per barrel on
reserves of 620,400 after 12% royalties. Minor volumes of natural gas and
associated liquids are produced from a single well at Nacatimbay; the Ipaguazu
property is non-producing. Total acquisition cost for these two properties
was
$63,055.
The
Argosy
Acquisition
On
June
20, 2006, we acquired all of the limited partnership interests of Argosy
Energy
International (“Argosy”) and all of the issued and outstanding capital stock of
Argosy Energy Corp. (“AEC”), a Delaware corporation and the general partner of
Argosy. Argosy’s oil production averaged approximately 987 barrels per day
(after royalty) during the fourth quarter of 2005. Argosy’s remaining proven
reserves at December 31, 2005 are estimated by independent reserve engineers
at
2.34 million barrels. Royalty rates are 20% and 8% for Argosy’s producing
properties. Argosy’s net land position is approximately 153,000
acres.
Financing
The
initial seed round of financing for the former Gran Tierra Energy (the Canadian
company) occurred in April and June 2005, raising approximately $1.9 million
to
fund our initial activities. Gran Tierra had no oil and gas revenue until
September 1, 2005. We made a series of private placements of common shares
beginning on August 31, 2005 to fund the Argentina acquisitions and to provide
general working capital. A total of approximately $11.4 million was initially
raised during 2005 from the issuance of approximately 14.3 million units
consisting of one share of Gran Tierra at $0.80 per share plus one warrant
to
purchase one-half share at $0.625 per half-share. At December 31, 2005, our
outstanding cash balance was approximately $2.2 million.
The
Share Exchange
The
share
exchange between Goldstrike Inc. and the shareholders of the former Gran Tierra
Energy Inc. (the Canadian corporation) occurred on November 10, 2005, bringing
the assets, management, business operations and business plan of the former
Gran
Tierra into the framework of the company formerly known as Goldstrike Inc.,
a
publicly traded company.
Prior
Goldstrike Business
In
connection with our recent share exchange between Goldstrike inc. and the
shareholders of the former Gran Tierra Energy Inc. (the Canadian corporation),
Goldstrike transferred to Dr. Yenyou Zheng all of the capital stock of
Goldstrike’s wholly-owned subsidiary, Leasco. Leasco was organized to hold
mineral assets located in the Province of British Columbia. Those assets
consist
primarily of 32 mineral claims covering approximately 700 hectares. As a
result
of the transfer, this line of business is owned by Dr. Yenyou Zheng, through
his
ownership of Leasco, and we will not pursue any of those mineral claims.
Markets
and Competition
We
market
our own share of production in Argentina. Production from Palmar Largo is
a high
quality oil and is transported by pipeline and truck to a nearby refinery.
Prices are defined by a multi-year contract. Minor volumes of natural gas
and
liquids from Nacatimbay are also sold locally. All sales are denominated
in
pesos but refer to reference or base prices in US dollars. Our average oil
price
for 2005 was $37.80 per barrel and our average natural gas price was $1.50
per
thousand cubic feet.
Argentina
has one of the largest integrated gas transmission systems in South America,
with a relatively mature gas market. The first Argentine gas exports began
in
January 1997, and increased steadily through the rest of the 1990’s with the
implementation of several other export pipelines. Domestic gas sales contracts
were converted to pesos in January 2002 and had a significant effect on the
economics of gas based assets. At the time, on many gas fields, operational
expenditure exceeded revenues. As a result, investment on gas assets was cut
drastically during 2002, and this trend continued in 2003. In 2004, Argentina
suffered a deficit in domestic gas production, brought on by a combination
of
high demand and the limited level of investment in the country's gas assets
and
infrastructure in the post-crisis years. As a result of regulated gas price
increases implemented by the Argentine government in 2004, gas development
activity picked up during the year. Sales are expected to continue to increase
gradually over the next few years. On March 25, 2004, the Argentine government
introduced Resolution 265 that decreed gas exports must be restricted to give
preference to domestic demand. The move was in response to a deficit in domestic
gas production (brought on by an increase in demand). All of our gas is sold
in
the domestic Argentina market. We sell 50% directly to Refinor, an Argentine
refinery, and 50% to Energy Consulting S.A., a local gas marketing
company.
The
oil
and gas industry is highly competitive. We face competition from both local
and
international companies in acquiring properties, contracting for drilling
equipment and securing trained personnel. Many of these competitors have
financial and technical resources that exceed those of Gran Tierra, and we
believe that such companies have a competitive advantage in these
areas.
Regulation
The
oil
and gas industry in Argentina (and in South America) is heavily regulated.
Rights and obligations with regard to exploration and production activities
are
explicit for each project; economics are governed by a royalty/tax regime.
Various government approvals are required for property acquisitions and
transfers, including, but not limited to, meeting financial and technical
qualification criteria in order to be a certified as an oil and gas company
in
the country. Oil and gas concessions are typically granted for fixed terms
with
opportunity for extension. Concession rights for our principal property - Palmar
Largo - extend to the year 2017 and may be extended an additional ten years.
The
Nacatimbay concession currently expires in 2022 and the Ipaguazu concession
in
2016; each is extendible for ten years.
Oil
and
gas prices are effectively controlled and are established by decree or according
to specified formulae. A tax on oil exports sets an effective cap on prices
within the country; gas prices are set by statute and reflected in contract
terms.
The
pace
of bureaucracy in Argentina tends to be slow in comparison to North American
standards and legal structures are less mature, but the overall business
environment is supportive of foreign investment and we believe is continuing
to
improve. Changes in regulations or shifts in political attitudes are beyond
our
control and may adversely impact our business. Operations may be affected in
varying degrees by government regulations with respect to restrictions on
production, price controls, export controls, income taxes and environmental
legislation.
Future
Activity
We
plan
to continue assessing production and exploration opportunities that can provide
a base for growth. We are currently assessing opportunities in Argentina,
Colombia and elsewhere in South America which, if consummated, could
substantially increase reserves and production.
Environmental
Compliance
Our
activities are subject to existing laws and regulations governing environmental
quality and pollution control, in Canada and in the foreign countries where
we
maintain operations. Our activities with respect to exploration, drilling and
production from wells, natural gas facilities, including the operation and
construction of pipelines, plants and other facilities for transporting,
processing, treating or storing gas and other products, are subject to stringent
environmental regulation by provincial and federal authorities in Argentina.
Costs
related to environmental compliance totalled $6,559 in 2005. Risks are
inherent in oil and gas exploration and production operations, and we can give
no assurance that significant costs and liabilities will not be incurred in
connection with environmental compliance issues. We cannot predict
what effect future regulation or legislation, enforcement policies issued,
and
claims for damages to property, employees, other persons and the environment
resulting from our operations could have.
Employees
At
June
30, 2006, we had eighty-eight full-time employees - seven located in
the Calgary corporate office, seven in Buenos Aires and seventy-four in
Colombia (12 staff in Bogota and 62 field personnel). None of our employees
are
represented by labor unions, and we consider our employee relations to be
good.
Corporate
Information
Goldstrike
Inc., now known as Gran Tierra Energy Inc., was
incorporated under the laws of the State of Nevada on June 6, 2003. Our
principal executive offices are located at 300, 611-10th Avenue S.W., Calgary,
Alberta, Canada. The telephone number at our principal executive office is
(403) 265-3221.
Additional
Information
We
are
required to comply with the informational requirements of the Exchange Act,
and
accordingly, we file annual reports, quarterly reports, current reports,
proxy
statements and other information with the SEC. You may read or obtain a copy
of
these reports at the SEC’s public reference room at 100 F Street, N.E., Room
1580, Washington, D.C. 20549. You may obtain information on the operation
of the
public reference room and their copy charges by calling the SEC at
1-800-SEC-0330. The SEC maintains a website that contains registration
statements, reports, proxy information statements and other information
regarding registrants that file electronically with the SEC. The address
of the
website is http://www.sec.gov.
We
have
filed with the SEC a registration statement on Form SB-2 under the Securities
Act to register the shares offered by this prospectus. The term “registration
statement” means the original registration statement and any and all amendments
thereto, including the schedules and exhibits to the original registration
statement or any amendment. This prospectus is part of that registration
statement. This prospectus does not contain all of the information set forth
in
the registration statement or the exhibits to the registration statement.
For
further information with respect to us and the shares we are offering pursuant
to this prospectus, you should refer to the registration statement and its
exhibits. Statements contained in this prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete,
and you should refer to the copy of that contract or other documents filed
as an
exhibit to the registration statement. You may read or obtain a copy of the
registration statement at the SEC’s public reference facilities and Internet
site referred to above.
Description
of Property
Offices
We
currently lease office space in Calgary, Alberta and in Buenos Aires, Argentina,
and maintain temporary office space in Quito, Ecuador. The Calgary lease covers
a term of five years (beginning February, 2006), with monthly lease payments
of
$6,824. Our Buenos Aires lease is for two years beginning March,
2006, with
monthly lease payments of $2,000 and our Quito lease is on a month-to-month
basis. The condition of properties is excellent.
Oil
and Gas Properties
Palmar
Largo
The
Palmar Largo joint venture encompasses several producing oil fields in the
Noroeste Basin of Argentina. Approximately 39 million barrels of oil (gross
before royalties) have been recovered from the area since 1984. A total of
16
(gross) wells are currently producing. Gran Tierra’s share of remaining proved
reserves at December 31, 2005 is 580,976 barrels (net after 12% royalties)
according to an independent reserve assessment.
Our
share
of production at Palmar Largo averaged 293 barrels per day (net after
12% royalties) over the September 1 to December 31, 2005 period. Sales for
the period were significantly less than production and inventories increased
as
a result, as oil deliveries were disrupted in November and December due to
heavy
rainfall in the region, which made roads impassable for tanker trucks. Sales
averaged 206 barrels per day and oil inventory reached approximately 14,000
barrels at year-end. The average sales price for Palmar Largo oil was $37.80
per
barrel. The average operating cost was $10.11 per barrel of oil equivalent
(on a
net production basis).
The
joint
venture partners at Palmar Largo conducted a 3-D seismic survey over a portion
of the area in 2003 and identified several exploration prospects and leads.
One
exploration well was drilled in late-2005 but did not indicate commercial
quantities of oil. A portion of the drilling costs for this well was factored
into the purchase price for Palmar Largo. A twin of an existing well was also
recently drilled and completed. The Ramon Lista-1001 well commenced drilling
in
September 2005 and reached its target depth in late-December. Production from
the well was initiated in early February 2006 at 299 barrels per day
(gross after 12% royalty) or 42 barrels per day net to Gran
Tierra (after 12% royalty). No additional wells are planned for
2006.
Our
participation at Palmar Largo provides us with a reliable cashflow stream and
a
base for expansion in the region and in the country.
Nacatimbay
Production
from the Nacatimbay oil, gas and condensate field began in 1996. A single well
is currently producing. Natural gas is sold into the adjacent pipeline grid
at
regulated prices and liquids are sold locally. Over the September 1 to December
31, 2005 period, natural gas sales averaged 494 thousand cubic feet per day
(net after 12% royalty). Total liquids production averaged 5
barrels per day for the period (net after 12% royalty). Average sales
prices at Nacatimbay were $37.58 per barrel of condensate and $1.50 per thousand
cubic feet of natural gas. The average operating cost was $10.11 per barrel
of
oil equivalent (on a net production basis, natural gas conversion 20 to 1).
Reserves associated with current activities at Nacatimbay are limited according
to an independent reserve assessment, with shut-in of the field expected to
occur in 2006.
Gran
Tierra will be assessing the production potential of the block in 2006,
including opportunities to extend production from the existing
well.
Ipaguazu
The
Ipaguazu oil and gas field was discovered in 1981 and produced approximately
100
thousand barrels of oil and 400 million cubic feet of natural gas until
2003. No producing activities are carried out in the field at this time. The
Ipaguazu block has not been fully appraised, leaving scope for both reactivation
and exploration in the future.
Reserves
Summary
Estimated
Reserves (1)
Net
to Gran Tierra, After 12% Royalty, at December 31,
2005
|
|
Oil
(thousand
barrels)
|
Natural
Gas
(million
cubic feet)
|
Liquids
(thousand
barrels)
|
|
|
|
|
|
Palmar
Largo
|
Nacatimbay
|
Nacatimbay
|
Proved
Developed
|
462
|
24.5
|
1.72
|
Proved
Undeveloped
|
119
|
—
|
—
|
Total
Proved
|
581
|
24.5
|
1.72
|
(1)
Reserves certified by Gaffney, Cline and Associates, as of February
2006.
Gran
Tierra had no reserves at December 31, 2004.
Proved
reserves for Palmar Largo do not include the full impact of the Ramon Lista-1001
well, which commenced production in early-2006. Royalty is levied at 12% of
gross production revenue less transport costs.
Our
acquisition of Palmar Largo was based on an estimate of proved reserves at
June
1, 2005 of 620,400 barrels net to Gran Tierra. Year-end proved reserves of
580,976 barrels plus June 1 through December 31 production of 63,360 thousand
barrels translates to a proved reserves balance of 644,336 barrels at June
1,
representing a variance of less than 4% for actual reserves versus estimated
reserves at June 1, 2005.
Production
Summary
Production
Net
to Gran Tierra, After 12% Royalty, September 1 - December 31,
2005
|
Oil -
Palmar Largo
|
Natural
Gas - Nacatimbay
|
Liquids
- Nacatimbay
|
|
(average
price)
|
(thousand
cubic feet per day)
|
(average
price)
|
|
293
|
$37.80/barrel
|
494
|
$1.50/thousand
cubic feet
|
5
|
Gran
Tierra had no production in 2004.
Productive
Wells
Productive
Wells
Gran
Tierra, December 31, 2005
|
(Number
of wells)
|
Oil
|
Natural
Gas
|
Total
|
|
Gross(1)
|
Net(2)
|
Gross(1)
|
Net(2)
|
Gross(1)
|
Net(2)
|
Palmar
Largo
|
16
|
2.2
|
—
|
—
|
16
|
2.2
|
Nacatimbay
|
—
|
—
|
1
|
0.5
|
1
|
0.5
|
Ipaguazu
|
—
|
—
|
—
|
—
|
—
|
—
|
Total
|
16
|
2.2
|
1
|
0.5
|
17
|
2.7
|
(1)
Represents the total number of wells at each property.
(2)
Represents
our interest in the total number of
wells at each property.
Acreage
Acreage
Gran
Tierra, December 31, 2005
|
(Acres)
|
Developed
|
Undeveloped
|
Total
|
|
Gross(1)
|
Net(2)
|
Gross(1)
|
Net(2)
|
Gross(1)
|
Net(2)
|
Palmar
Largo
|
301,700
|
42,238
|
—
|
—
|
301,700
|
42,238
|
Nacatimbay
|
36,600
|
18,300
|
—
|
—
|
36,600
|
18,300
|
Ipaguazu
|
43,200
|
21,600
|
—
|
—
|
43,200
|
21,600
|
Total
|
381,500
|
82,138
|
—
|
—
|
381,500
|
82,138
|
(1)
Represents the total acreage at each property.
(2)
Represents
our interest in the total acreage
at each property.
Drilling
Activity
Drilling
Activity
Gran
Tierra, 2005
|
(Number
of wells)
|
Productive
|
Dry
|
Total
|
|
Gross(1)
|
Net(2)
|
Gross(1)
|
Net(2)
|
Gross(1)
|
Net(2)
|
Exploration
|
—
|
—
|
1
|
0.14
|
1
|
0.14
|
Development
|
1
|
0.14
|
—
|
—
|
1
|
0.14
|
Total
|
1
|
0.14
|
1
|
0.14
|
2
|
0.28
|
(1)
Represents the total number of wells at which there is drilling
activity.
(2)
Represents
our interest in the total number of
wells at which there is drilling activity.
Present
Activities
We
are
not currently engaged in any drilling activity or extraordinary work programs
in
our areas of operations.
Legal
Proceedings.
From
time
to time we may become a party to litigation or other legal proceedings that
are
part of the ordinary course of our business, involving routine litigation
that
is incidental to our business. Currently, no legal claims or proceedings
are
pending against us (i) which claim damages in excess of 10% of our current
assets, (ii) which involve bankruptcy, receivership or similar proceedings,
(iii) which involve federal, state or local environmental laws, or
(iv) which involve any of our directors, officers, affiliates, or
stockholders as a party with a material interest adverse to us. To our
knowledge, no proceeding against us is currently contemplated by any
governmental authority.
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Executive
Officers and Directors
Name
|
|
Age
|
|
Position
|
Dana
Coffield
|
|
47
|
|
President
and Chief Executive Officer; Director
|
James
Hart
|
|
51
|
|
Vice
President, Finance and Chief Financial Officer; Director
|
Max
Wei
|
|
55
|
|
Vice
President, Operations
|
Rafael
Orunesu
|
|
49
|
|
Vice
President, Latin America
|
|