UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | | | | |
☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
or
| | | | | | | | |
☐ | | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __________ to __________
Commission file number 001-34018
GRAN TIERRA ENERGY INC.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | | | | | | | |
Delaware
| | 98-0479924 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
900, 520 - 3 Avenue SW |
| Calgary, | Alberta | Canada | T2P 0R3 | |
(Address of principal executive offices, including zip code) |
(403) 265-3221
(Registrant'sRegistrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.001 per share | GTE | NYSE American |
Toronto Stock Exchange |
London Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting company, and emerging growth company in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
Large accelerated filer | ☐ | Accelerated filer | ☒ |
Non-accelerated filer | ☐ | Smaller reporting company | ☒☐ |
| | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
On OctoberApril 29, 2021, 367,144,5002022, 368,460,570 shares of the registrant'sregistrant’s Common Stock, $0.001 par value, were issued.
Gran Tierra Energy Inc.
Quarterly Report on Form 10-Q
Quarterly Period Ended September 30, 2021March 31, 2022
Table of contents
| | | | | | | | |
| | Page |
PART I | Financial Information | |
Item 1. | Financial Statements | |
Item 2. | Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | |
Item 4. | Controls and Procedures | |
| | |
PART II | Other Information | |
Item 1. | Legal Proceedings | |
Item 1A. | Risk Factors | |
| | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | |
Item 6. | Exhibits | |
SIGNATURES | |
| |
CAUTIONARY LANGUAGE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"“Exchange Act”). All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q regarding our financial position, estimated quantities and net present values of reserves, business strategy, plans and objectives of our management for future operations, covenant compliance, capital spending plans and benefits of the changes in our capital program or expenditures, our liquidity, the impacts of the coronavirus (COVID-19) pandemic and those statements preceded by, followed by or that otherwise include the words “believe”, “expect”, “anticipate”, “intend”, “estimate”, “project”, “target”, “goal”, “plan”, “budget”, “objective”, “could”, “should”, or similar expressions or variations on these expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct or that, even if correct, intervening circumstances will not occur to cause actual results to be different than expected. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, our ability to comply with covenants in our credit agreement and indentures and make borrowings under our credit agreement; our ability to obtain amendments to the covenants in our credit agreement so as to avoid an event of default under our credit agreement and senior notes; a reduction in our borrowing base and our ability to repay any excess borrowings; sustained or future declines in commodity prices and the demand for oil; sustained or future excess supply of oil and natural gas; potential future impairments and reductions in proved reserve quantities and value; continuationcontinued spread of the COVID-19 pandemicvirus and responses thereto, includingextensions of previously announced lockdowns and possible future restrictions against oil and gas activity in ColombiaColombia and Ecuador; our current operations are located in South America, and unexpected problems can arise due to guerilla activity, strikes, local blockades, protests, and other local conditions; technical difficulties and operational difficulties may arise which impact the production, transport or sale of our products; geographic, political and weather conditions can impact the production, transport or sale of our products; the Russian invasion of Ukraine; our ability to raise capital; our ability to identify and complete successful acquisitions, including in new countries and basins from our current operations; our ability to execute business plans; unexpected delays and difficulties in developing currently owned properties may occur; the timely receipt of regulatory or other required approvals for our operating activities; the failure of exploratory drilling to result in commercial wells; unexpectedthe effects of hedges; unexpected delays due to the limited availability of drilling equipment and personnel; current global economic and credit market conditions and the regulatory environment may impact oil prices and oil consumption differently than we currently predict, which could cause us to further modify our strategy and capital spending program; volatility or declines in the trading price of our common stock and the continued listing of our shares on a national stock exchange; and those factors set out in Part II, Item 1A "Risk Factors"“Risk Factors” in this Quarterly Report on Form 10-Q and Part I, Item 1A “Risk Factors” in our 20202021 Annual Report on Form 10-K (the "2020“2021 Annual Report on Form 10-K"10-K”), and in our other filings with the Securities and Exchange Commission (“SEC”). The unprecedented nature of the COVID-19 pandemic and volatility in the worldwide economy and oil and gas industry makes, including the unpredictable nature of the resurgence of cases, possible variants and governmental responses, it more difficult to predict the accuracy of forward-looking statements. The information included herein is given as of the filing date of this Quarterly Report on Form 10-Q with the SEC and, except as otherwise required by the federal securities laws, we disclaim any obligation or undertaking to publicly release any updates or revisions to, or to withdraw, any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any forward-looking statement is based.
GLOSSARY OF OIL AND GAS TERMS
In this document, the abbreviations set forth below have the following meanings:
| | | | | |
bbl | barrel |
BOPD | barrels of oil per day |
NAR | net after royalty |
Sales volumes represent production NAR adjusted for inventory changes. Our oil and gas reserves are reported as NAR. Our production is also reported NAR, except as otherwise specifically noted as "working interest production before royalties."
PART I - Financial Information
Item 1. Financial Statements
Gran Tierra Energy Inc.
Condensed Consolidated Statements of Operations (Unaudited)
(Thousands of U.S. Dollars, Except Share and Per Share Amounts) | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
OIL SALES (Note 8) | $ | 135,319 | | | $ | 53,142 | | | $ | 327,435 | | | $ | 173,045 | |
| | | | | | | |
EXPENSES | | | | | | | |
Operating | 37,567 | | | 20,721 | | | 92,623 | | | 84,673 | |
Transportation | 3,021 | | | 1,286 | | | 8,448 | | | 8,549 | |
COVID-19 related costs (Note 9) | 990 | | | 1,108 | | | 3,026 | | | 1,529 | |
Depletion, depreciation and accretion | 38,055 | | | 31,340 | | | 98,300 | | | 131,118 | |
Goodwill impairment (Note 5) | — | | | — | | | — | | | 102,581 | |
Asset impairment (Note 5) | — | | | 104,731 | | | — | | | 507,093 | |
General and administrative | 6,497 | | | 4,562 | | | 25,072 | | | 16,476 | |
Severance | — | | | 122 | | | 919 | | | 1,469 | |
Foreign exchange loss | 2,650 | | | 4,275 | | | 15,824 | | | 20,094 | |
Derivative instruments loss (gain) (Note 12) | 2,603 | | | (2,173) | | | 47,540 | | | (9,417) | |
Other financial instruments (gain) loss (Note 12) | (13,634) | | | 1,460 | | | (12,425) | | | 61,286 | |
Other loss | — | | | 67 | | | — | | | 67 | |
Interest expense (Note 6) | 13,608 | | | 14,029 | | | 41,355 | | | 40,204 | |
| 91,357 | | | 181,528 | | | 320,682 | | | 965,722 | |
| | | | | | | |
INTEREST INCOME | — | | | — | | | — | | | 345 | |
INCOME (LOSS) BEFORE INCOME TAXES | 43,962 | | | (128,386) | | | 6,753 | | | (792,332) | |
| | | | | | | |
INCOME TAX EXPENSE (RECOVERY) | | | | | | | |
Current (Note 10) | — | | | 637 | | | (14) | | | 560 | |
Deferred (Note 10) | 8,955 | | | (21,202) | | | 26,809 | | | (62,796) | |
| 8,955 | | | (20,565) | | | 26,795 | | | (62,236) | |
NET AND COMPREHENSIVE INCOME (LOSS) | $ | 35,007 | | | $ | (107,821) | | | $ | (20,042) | | | $ | (730,096) | |
| | | | | | | |
NET INCOME (LOSS) PER SHARE | | | | | | | |
| | | | | | | |
BASIC AND DILUTED | $ | 0.10 | | | $ | (0.29) | | | $ | (0.05) | | | $ | (1.99) | |
| | | | | | | |
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC (Note 7) | 366,992,802 | | | 366,981,556 | | | 366,985,646 | | | 366,981,556 | |
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED (Note 7) | 367,740,722 | | | 366,981,556 | | | 366,985,646 | | | 366,981,556 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
OIL SALES (Note 7) | | | | | $ | 174,569 | | | $ | 95,493 | |
| | | | | | | |
EXPENSES | | | | | | | |
Operating | | | | | 34,400 | | | 29,625 | |
Transportation | | | | | 2,834 | | | 2,506 | |
COVID-19 related costs | | | | | 535 | | | 1,139 | |
Depletion, depreciation and accretion | | | | | 40,963 | | | 31,318 | |
General and administrative (Note 10) | | | | | 12,336 | | | 10,488 | |
Foreign exchange (gain) loss | | | | | (3,725) | | | 13,083 | |
Derivative instruments loss (Note 10) | | | | | 21,439 | | | 23,698 | |
Other financial instruments gain (Note 10) | | | | | — | | | (1,405) | |
| | | | | | | |
Interest expense (Note 5) | | | | | 12,128 | | | 13,812 | |
| | | | | 120,910 | | | 124,264 | |
| | | | | | | |
| | | | | | | |
INCOME (LOSS) BEFORE INCOME TAXES | | | | | 53,659 | | | (28,771) | |
| | | | | | | |
INCOME TAX EXPENSE | | | | | | | |
Current (Note 8) | | | | | 20,827 | | | — | |
Deferred (Note 8) | | | | | 18,713 | | | 8,651 | |
| | | | | 39,540 | | | 8,651 | |
NET AND COMPREHENSIVE INCOME (LOSS) | | | | | $ | 14,119 | | | $ | (37,422) | |
| | | | | | | |
NET INCOME (LOSS) PER SHARE | | | | | | | |
| | | | | | | |
BASIC AND DILUTED | | | | | $ | 0.04 | | | $ | (0.10) | |
| | | | | | | |
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC (Note 6) | | | | | 367,386,664 | | | 366,981,556 | |
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED (Note 6) | | | | | 372,375,245 | | | 366,981,556 | |
(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Condensed Consolidated Balance Sheets (Unaudited)
(Thousands of U.S. Dollars, Except Share and Per Share Amounts)
| | | As at September 30, 2021 | | As at December 31, 2020 | | As at March 31, 2022 | | As at December 31, 2021 |
| ASSETS | ASSETS | | | | ASSETS | | | |
Current Assets | Current Assets | | | | Current Assets | | | |
Cash and cash equivalents (Note 13) | $ | 16,600 | | | $ | 14,114 | | |
| Cash and cash equivalents (Note 11) | | Cash and cash equivalents (Note 11) | $ | 58,707 | | | $ | 26,109 | |
Restricted cash and cash equivalents (Note 11) | | Restricted cash and cash equivalents (Note 11) | 1,142 | | | 392 | |
Accounts receivable | Accounts receivable | 26,431 | | | 8,044 | | Accounts receivable | 23,471 | | | 13,185 | |
Investment (Note 12) | 44,116 | | | 48,323 | | |
| Taxes receivable (Note 3) | Taxes receivable (Note 3) | 47,772 | | | 49,925 | | Taxes receivable (Note 3) | 34,774 | | | 45,506 | |
Other current assets | 17,141 | | | 13,459 | | |
Other current assets (Note 10) | | Other current assets (Note 10) | 20,140 | | | 16,609 | |
Total Current Assets | Total Current Assets | 152,060 | | | 133,865 | | Total Current Assets | 138,234 | | | 101,801 | |
| Oil and Gas Properties | Oil and Gas Properties | | | | Oil and Gas Properties | | | |
Proved | Proved | 833,069 | | | 797,355 | | Proved | 907,224 | | | 859,580 | |
Unproved | Unproved | 158,483 | | | 161,763 | | Unproved | 97,031 | | | 131,865 | |
Total Oil and Gas Properties | Total Oil and Gas Properties | 991,552 | | | 959,118 | | Total Oil and Gas Properties | 1,004,255 | | | 991,445 | |
Other capital assets | Other capital assets | 3,085 | | | 5,364 | | Other capital assets | 3,665 | | | 4,352 | |
Total Property, Plant and Equipment (Note 4) | Total Property, Plant and Equipment (Note 4) | 994,637 | | | 964,482 | | Total Property, Plant and Equipment (Note 4) | 1,007,920 | | | 995,797 | |
| Other Long-Term Assets | Other Long-Term Assets | | | | Other Long-Term Assets | | | |
Deferred tax assets | Deferred tax assets | 13,349 | | | 57,318 | | Deferred tax assets | 42,760 | | | 61,494 | |
Taxes receivable (Note 3) | Taxes receivable (Note 3) | 14,447 | | | 42,635 | | Taxes receivable (Note 3) | 22,026 | | | 17,522 | |
Restricted cash and cash equivalents (Note 13) | 3,532 | | | 3,409 | | |
Other | 3,233 | | | 16 | | |
Other long-term assets (Note 10) | | Other long-term assets (Note 10) | 20,967 | | | 12,497 | |
Total Other Long-Term Assets | Total Other Long-Term Assets | 34,561 | | | 103,378 | | Total Other Long-Term Assets | 85,753 | | | 91,513 | |
Total Assets | Total Assets | $ | 1,181,258 | | | $ | 1,201,725 | | Total Assets | $ | 1,231,907 | | | $ | 1,189,111 | |
| LIABILITIES AND SHAREHOLDERS' EQUITY | | | | |
LIABILITIES AND SHAREHOLDERS’ EQUITY | | LIABILITIES AND SHAREHOLDERS’ EQUITY | | | |
Current Liabilities | Current Liabilities | | | | Current Liabilities | | | |
Accounts payable and accrued liabilities | Accounts payable and accrued liabilities | $ | 114,785 | | | $ | 100,784 | | Accounts payable and accrued liabilities | $ | 150,907 | | | $ | 148,694 | |
Derivatives (Note 12) | 14,737 | | | 12,050 | | |
Current portion of long-term debt (Note 5) | | Current portion of long-term debt (Note 5) | 39,617 | | | 66,987 | |
Derivatives (Note 10) | | Derivatives (Note 10) | 18,875 | | | 2,976 | |
Taxes payable (Note 3) | Taxes payable (Note 3) | 5,938 | | | — | | Taxes payable (Note 3) | 7,546 | | | 6,620 | |
Equity compensation award liability (Note 7 and 12) | 2,132 | | | 805 | | |
Other (Note 6 and 10) | | Other (Note 6 and 10) | 16,392 | | | 2,710 | |
Total Current Liabilities | Total Current Liabilities | 137,592 | | | 113,639 | | Total Current Liabilities | 233,337 | | | 227,987 | |
| Long-Term Liabilities | Long-Term Liabilities | | | | Long-Term Liabilities | | | |
Long-term debt (Notes 6 and 12) | 735,411 | | | 774,770 | | |
Long-term debt (Notes 5 and 10) | | Long-term debt (Notes 5 and 10) | 587,769 | | | 587,404 | |
| Asset retirement obligation | Asset retirement obligation | 54,356 | | | 48,214 | | Asset retirement obligation | 55,478 | | | 54,525 | |
Equity compensation award liability (Note 7 and 12) | 11,469 | | | 3,955 | | |
Equity compensation award liability (Note 6 and 10) | | Equity compensation award liability (Note 6 and 10) | 17,436 | | | 13,718 | |
Taxes payable (Note 3 ) | | Taxes payable (Note 3 ) | 12,736 | | | — | |
Other long-term liabilities | Other long-term liabilities | 3,563 | | | 4,113 | | Other long-term liabilities | 7,370 | | | 3,397 | |
Total Long-Term Liabilities | Total Long-Term Liabilities | 804,799 | | | 831,052 | | Total Long-Term Liabilities | 680,789 | | | 659,044 | |
| Contingencies (Note 11) | 0 | | 0 | |
Contingencies (Note 9) | | Contingencies (Note 9) | 0 | | 0 |
| Shareholders' Equity | Shareholders' Equity | | | | Shareholders' Equity | | | |
Common Stock (Note 7) (367,038,454 and 366,981,556 shares issued and outstanding of Common Stock, par value $0.001 per share, as at September 30, 2021, and December 31, 2020, respectively) | 10,270 | | | 10,270 | | |
Common Stock (Note 6) (368,421,033 and 367,144,500 shares issued and outstanding of Common Stock, par value $0.001 per share, as at March 31, 2022, and December 31, 2021, respectively) | | Common Stock (Note 6) (368,421,033 and 367,144,500 shares issued and outstanding of Common Stock, par value $0.001 per share, as at March 31, 2022, and December 31, 2021, respectively) | 10,272 | | | 10,270 | |
Additional paid-in capital | Additional paid-in capital | 1,286,893 | | | 1,285,018 | | Additional paid-in capital | 1,289,162 | | | 1,287,582 | |
Deficit | Deficit | (1,058,296) | | | (1,038,254) | | Deficit | (981,653) | | | (995,772) | |
Total Shareholders' Equity | 238,867 | | | 257,034 | | |
Total Shareholders’ Equity | | Total Shareholders’ Equity | 317,781 | | | 302,080 | |
Total Liabilities and Shareholders’ Equity | Total Liabilities and Shareholders’ Equity | $ | 1,181,258 | | | $ | 1,201,725 | | Total Liabilities and Shareholders’ Equity | $ | 1,231,907 | | | $ | 1,189,111 | |
(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Condensed Consolidated Statements of Cash Flows (Unaudited)
(Thousands of U.S. Dollars)
| | | | | | | | | | | |
| Nine Months Ended September 30, |
| 2021 | | 2020 |
Operating Activities | | | |
Net loss | $ | (20,042) | | | $ | (730,096) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | |
Depletion, depreciation and accretion | 98,300 | | | 131,118 | |
Goodwill impairment (Note 5) | — | | | 102,581 | |
Asset impairment (Note 5) | — | | | 507,093 | |
Deferred tax expense (recovery) | 26,809 | | | (62,796) | |
Stock-based compensation expense (recovery) (Note 7) | 6,597 | | | (707) | |
Amortization of debt issuance costs (Note 6) | 2,682 | | | 2,774 | |
Unrealized foreign exchange loss | 16,945 | | | 22,335 | |
Derivative instruments loss (gain) (Note 12) | 47,540 | | | (9,417) | |
Cash settlements on derivatives instruments | (45,041) | | | 9,970 | |
Other financial instruments (gain) loss (Note 12) | (12,425) | | | 61,286 | |
Other non-cash loss | — | | | 2,026 | |
Cash settlement of asset retirement obligation | (483) | | | (199) | |
Non-cash lease expenses | 1,222 | | | 1,494 | |
Lease payments | (1,239) | | | (1,404) | |
Net change in assets and liabilities from operating activities (Note 13) | 17,956 | | | 23,288 | |
Net cash provided by operating activities | 138,821 | | | 59,346 | |
| | | |
Investing Activities | | | |
Additions to property, plant and equipment | (109,650) | | | (56,378) | |
Proceeds on disposition of investment, net of transaction costs (Note 12) | 14,632 | | | — | |
Changes in non-cash investing working capital (Note 13) | 709 | | | (69,549) | |
Net cash used in investing activities | (94,309) | | | (125,927) | |
| | | |
Financing Activities | | | |
Proceeds from debt, net of issuance costs (Note 6) | (125) | | | 88,382 | |
Repayment of debt (Note 6) | (40,000) | | | (7,000) | |
| | | |
Proceeds from exercise of stock options | 19 | | | — | |
Lease payments | (1,269) | | | (307) | |
Net cash (used in) provided by financing activities | (41,375) | | | 81,075 | |
| | | |
Foreign exchange loss on cash, cash equivalents and restricted cash and cash equivalents | (528) | | | (754) | |
| | | |
Net increase in cash, cash equivalents and restricted cash and cash equivalents | 2,609 | | | 13,740 | |
Cash, cash equivalents and restricted cash and cash equivalents, beginning of period (Note 13) | 17,523 | | | 11,075 | |
Cash, cash equivalents and restricted cash and cash equivalents, end of period (Note 13) | $ | 20,132 | | | $ | 24,815 | |
| | | |
Supplemental cash flow disclosures (Note 13) | | | |
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2022 | | 2021 |
Operating Activities | | | |
Net Income (Loss) | $ | 14,119 | | | $ | (37,422) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | |
Depletion, depreciation and accretion | 40,963 | | | 31,318 | |
Deferred tax expense | 18,713 | | | 8,651 | |
Stock-based compensation expense (Note 6) | 4,557 | | | 3,671 | |
Amortization of debt issuance costs (Note 5) | 887 | | | 881 | |
Unrealized foreign exchange (gain) loss | (4,839) | | | 13,003 | |
Derivative instruments loss (Note 10) | 21,439 | | | 23,698 | |
Cash settlements on derivatives instruments | (8,596) | | | (13,404) | |
Other financial instruments gain (Note 10) | — | | | (1,405) | |
| | | |
Cash settlement of asset retirement obligation | (5) | | | (169) | |
Non-cash lease expenses | 411 | | | 444 | |
Lease payments | (344) | | | (462) | |
Net change in assets and liabilities from operating activities (Note 11) | 16,520 | | | 13,128 | |
Net cash provided by operating activities | 103,825 | | | 41,932 | |
| | | |
Investing Activities | | | |
Additions to property, plant and equipment | (41,483) | | | (37,427) | |
Proceeds on disposition of investment, net of transaction costs (Note 10) | — | | | 14,632 | |
Changes in non-cash investing working capital (Note 11) | (1,803) | | | (708) | |
Net cash used in investing activities | (43,286) | | | (23,503) | |
| | | |
Financing Activities | | | |
| | | |
Repayment of debt (Note 5) | (27,525) | | | (10,125) | |
Proceeds from issuance of shares of Common Stock, net of issuance costs | 2 | | | — | |
Proceeds from exercise of stock options | 980 | | | — | |
Lease payments | (777) | | | (513) | |
Net cash used in financing activities | (27,320) | | | (10,638) | |
| | | |
Foreign exchange gain (loss) on cash, cash equivalents and restricted cash and cash equivalents | 478 | | | (446) | |
| | | |
Net increase in cash, cash equivalents and restricted cash and cash equivalents | 33,697 | | | 7,345 | |
Cash, cash equivalents and restricted cash and cash equivalents, beginning of period (Note 11) | 31,404 | | | 17,523 | |
Cash, cash equivalents and restricted cash and cash equivalents, end of period (Note 11) | $ | 65,101 | | | $ | 24,868 | |
| | | |
Supplemental cash flow disclosures (Note 11) | | | |
(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Condensed Consolidated Statements of Shareholders'Shareholders’ Equity (Unaudited)
(Thousands of U.S. Dollars)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
Share Capital | | | | | | | |
Balance, beginning of period | $ | 10,270 | | | $ | 10,270 | | | $ | 10,270 | | | $ | 10,270 | |
| | | | | | | |
Balance, end of period | 10,270 | | | 10,270 | | | 10,270 | | | 10,270 | |
| | | | | | | |
Additional Paid-in Capital | | | | | | | |
Balance, beginning of period | 1,286,235 | | | 1,283,798 | | | 1,285,018 | | | 1,282,627 | |
| | | | | | | |
Exercise of stock options | 10 | | | — | | | 18 | | | — | |
| | | | | | | |
Stock-based compensation (Note 7) | 648 | | | 607 | | | 1,857 | | | 1,778 | |
Balance, end of period | 1,286,893 | | | 1,284,405 | | | 1,286,893 | | | 1,284,405 | |
| | | | | | | |
Deficit | | | | | | | |
Balance, beginning of period | (1,093,303) | | | (882,562) | | | (1,038,254) | | | (260,287) | |
Net income (loss) | 35,007 | | | (107,821) | | | (20,042) | | | (730,096) | |
Balance, end of period | (1,058,296) | | | (990,383) | | | (1,058,296) | | | (990,383) | |
| | | | | | | |
Total Shareholders' Equity | $ | 238,867 | | | $ | 304,292 | | | $ | 238,867 | | | $ | 304,292 | |
| | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2022 | | 2021 |
Share Capital | | | | | | | |
Balance, beginning of period | | | | | $ | 10,270 | | | $ | 10,270 | |
Issuance of Common Stock (Note 6) | | | | | 2 | | | — | |
Balance, end of period | | | | | 10,272 | | | 10,270 | |
| | | | | | | |
Additional Paid-in Capital | | | | | | | |
Balance, beginning of period | | | | | 1,287,582 | | | 1,285,018 | |
| | | | | | | |
Exercise of stock options | | | | | 980 | | | — | |
| | | | | | | |
Stock-based compensation (Note 6) | | | | | 600 | | | 579 | |
Balance, end of period | | | | | 1,289,162 | | | 1,285,597 | |
| | | | | | | |
Deficit | | | | | | | |
Balance, beginning of period | | | | | (995,772) | | | (1,038,254) | |
Net income (loss) | | | | | 14,119 | | | (37,422) | |
Balance, end of period | | | | | (981,653) | | | (1,075,676) | |
| | | | | | | |
Total Shareholders’ Equity | | | | | $ | 317,781 | | | $ | 220,191 | |
(See notes to the condensed consolidated financial statements)
Gran Tierra Energy Inc.
Notes to the Condensed Consolidated Financial Statements (Unaudited)
(Expressed in U.S. Dollars, unless otherwise indicated)
1. Description of Business
Gran Tierra Energy Inc., a Delaware corporation (the "Company"“Company” or "Gran Tierra"“Gran Tierra”), is a publicly traded company focused on international oil and natural gas exploration and production with assets currently in Colombia and Ecuador.
2. Significant Accounting Policies
These interim unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"(“GAAP”). The information furnished herein reflects all normal recurring adjustments that are, in the opinion of management, necessary for the fair presentation of results for the interim periods.
The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for interim unaudited condensed consolidated financial statements. Accordingly, these interim unaudited condensed consolidated financial statements should be read in conjunction with the Company'sCompany’s consolidated financial statements as at and for the year ended December 31, 2020,2021, included in the Company's 2020Company’s 2021 Annual Report on Form 10-K.
The Company'sCompany’s significant accounting policies are described in Note 2 of the consolidated financial statements, which are included in the Company's 2020Company’s 2021 Annual Report on Form 10-K and are the same policies followed in these interim unaudited condensed consolidated financial statements. The Company has evaluated all subsequent events through to the date these interim unaudited condensed consolidated financial statements were issued.
3. Taxes Receivable and Payable
The table below shows the break-down of taxes receivable and payable, which are comprised of value added tax ("VAT"(“VAT”) and income tax:
| | | | | | | | | | | |
(Thousands of U.S. Dollars) | As at September 30, 2021 | | As at December 31, 2020 |
Taxes Receivable | | | |
Current | | | |
VAT Receivable | $ | 31,890 | | | $ | 35,977 | |
Income Tax Receivable | 15,882 | | | 13,948 | |
| $ | 47,772 | | | $ | 49,925 | |
Long-Term | | | |
VAT Receivable | $ | — | | | $ | 28,485 | |
Income Tax Receivable | 14,447 | | | 14,150 | |
| $ | 14,447 | | | $ | 42,635 | |
| | | |
Taxes Payable | | | |
Current | | | |
VAT Payable | $ | 5,938 | | | $ | — | |
| | | |
Total Taxes Receivable net of Taxes Payable | $ | 56,281 | | | $ | 92,560 | |
| | | |
| | | | | | | | | | | |
(Thousands of U.S. Dollars) | As at March 31, 2022 | | As at December 31, 2021 |
Taxes Receivable | | | |
Current | | | |
VAT Receivable | $ | 12,345 | | | $ | 21,918 | |
Income Tax Receivable | 22,429 | | | 23,588 | |
| $ | 34,774 | | | $ | 45,506 | |
Long-Term | | | |
Income Tax Receivable | $ | 22,026 | | | $ | 17,522 | |
| | | |
Taxes Payable | | | |
Current | | | |
VAT Payable | $ | 7,546 | | | $ | 6,620 | |
| | | |
Long-Term | | | |
VAT Payable | $ | 68 | | | $ | — | |
Income Tax Payable | 12,668 | | | — | |
| $ | 12,736 | | | $ | — | |
| | | |
Total Taxes Receivable net of Taxes Payable | $ | 36,518 | | | $ | 56,408 | |
| | | |
The following table shows the movement of VAT and income tax receivables for the period identified below:
| (Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | Net VAT Receivable | | Income Tax Receivable | | Total Net Taxes Receivable | (Thousands of U.S. Dollars) | Net VAT Receivable | | Income Tax Receivable | | Total Net Taxes Receivable |
Balance, as at December 31, 2020 | $ | 64,462 | | | $ | 28,098 | | | $ | 92,560 | | |
Balance, as at December 31, 2021 | | Balance, as at December 31, 2021 | $ | 15,298 | | | $ | 41,110 | | | $ | 56,408 | |
Collected through direct government refunds | Collected through direct government refunds | (518) | | | (14,228) | | | (14,746) | | Collected through direct government refunds | (149) | | | — | | | (149) | |
Collected through sales contracts | Collected through sales contracts | (70,881) | | | — | | | (70,881) | | Collected through sales contracts | (40,913) | | | — | | | (40,913) | |
Taxes paid (1) | Taxes paid (1) | 38,278 | | | 19,923 | | | 58,201 | | Taxes paid (1) | 29,674 | | | 9,703 | | | 39,377 | |
| Current tax expense | | Current tax expense | — | | | (20,827) | | | (20,827) | |
Foreign exchange loss | Foreign exchange loss | (5,389) | | | (3,464) | | | (8,853) | | Foreign exchange loss | 821 | | | 1,801 | | | 2,622 | |
Balance, as at September 30, 2021 | $ | 25,952 | | | $ | 30,329 | | | $ | 56,281 | | |
Balance, as at March 31, 2022 | | Balance, as at March 31, 2022 | $ | 4,731 | | | $ | 31,787 | | | $ | 36,518 | |
(1)VAT is paid on certain goods and services and collected on sales in Colombia at a rate of 19%
4. Property, Plant and Equipment
| | | | | | | | | | | |
(Thousands of U.S. Dollars) | As at September 30, 2021 | | As at December 31, 2020 |
Oil and natural gas properties | | | |
Proved | $ | 4,236,548 | | | $ | 4,106,768 | |
Unproved | 158,483 | | | 161,763 | |
| 4,395,031 | | | 4,268,531 | |
Other(1) | 32,779 | | | 32,135 | |
| 4,427,810 | | | 4,300,666 | |
Accumulated depletion and depreciation and impairment | (3,433,173) | | | (3,336,184) | |
| $ | 994,637 | | | $ | 964,482 | |
| | | | | | | | | | | |
(Thousands of U.S. Dollars) | As at March 31, 2022 | | As at December 31, 2021 |
Oil and natural gas properties | | | |
Proved | $ | 4,390,016 | | | $ | 4,302,473 | |
Unproved | 97,031 | | | 131,865 | |
| 4,487,047 | | | 4,434,338 | |
Other(1) | 34,998 | | | 34,943 | |
| 4,522,045 | | | 4,469,281 | |
Accumulated depletion and depreciation and impairment | (3,514,125) | | | (3,473,484) | |
| $ | 1,007,920 | | | $ | 995,797 | |
(1) The "other"“other” category includes right-of-use assets for operating and finance leases of $11.7$13.9 million, which had a net book value of $2.5$3.3 million as at September 30, 2021March 31, 2022 (December 31, 20202021 - $11.4$13.9 million, which had a net book value of $4.4$3.9 million).
5. Impairment
Asset impairment
(i) Oil and gas property impairment
For the three and nine months ended September 30,March 31, 2022, and 2021, the Company had no ceiling test impairment losses. For each of the three and nine months ended September 30, 2020, Gran Tierra had $104.7 million and $502.9 million of ceiling test impairment losses. The Company used an average Brent priceprice of $60.12$77.41 and $47.95 $43.31 per bbl for the September 30,March 31, 2022, and 2021 and 2020, ceiling test calculations, respectively.
(ii) Inventory impairment
For the three and nine months ended September 30, 2021, the Company had no inventory impairment. For the three and nine months ended September 30, 2020, the Company recorded $0.1 million and $4.2 million, respectively, of inventory impairment.
Goodwill impairment
The entire goodwill balance of $102.6 million was impaired during the nine months ended September 30, 2020, due to the reporting unit's carrying value exceeding its fair value due to the impact of lower forecasted commodity prices.
6.
5. Debt and Debt Issuance Costs
The Company'sCompany’s debt at September 30, 2021,March 31, 2022, and December 31, 2020,2021, was as follows:
| (Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | As at September 30, 2021 | | As at December 31, 2020 | (Thousands of U.S. Dollars) | As at March 31, 2022 | | As at December 31, 2021 |
Current | | Current | |
Revolving credit facility | | Revolving credit facility | $ | 40,000 | | | $ | 67,500 | |
Unamortized debt issuance costs | | Unamortized debt issuance costs | (383) | | | (513) | |
| | | $ | 39,617 | | | $ | 66,987 | |
| Long-Term | | Long-Term | |
6.25% Senior Notes, due February 2025 | 6.25% Senior Notes, due February 2025 | $ | 300,000 | | | $ | 300,000 | | 6.25% Senior Notes, due February 2025 | $ | 300,000 | | | $ | 300,000 | |
7.75% Senior Notes, due May 2027 | 7.75% Senior Notes, due May 2027 | 300,000 | | | 300,000 | | 7.75% Senior Notes, due May 2027 | 300,000 | | | 300,000 | |
Revolving credit facility | 150,000 | | | 190,000 | | |
Unamortized debt issuance costs | Unamortized debt issuance costs | (15,566) | | | (18,124) | | Unamortized debt issuance costs | (13,297) | | | (14,030) | |
Long-term debt | 734,434 | | | 771,876 | | |
| | | 586,703 | | | 585,970 | |
Long-term lease obligation(1) | Long-term lease obligation(1) | 977 | | | 2,894 | | Long-term lease obligation(1) | 1,066 | | | 1,434 | |
| | $ | 735,411 | | | $ | 774,770 | | | $ | 587,769 | | | $ | 587,404 | |
| | | $ | 627,386 | | | $ | 654,391 | |
(1) The current portion of the lease obligation has been included in accounts payable and accrued liabilities on the Company'sCompany’s balance sheet and totaled $2.9 million as at September 30, 2021March 31, 2022 (December 31, 20202021 - $3.3 million).
As at September 30, 2021,March 31, 2022, the borrowing base of the Company'sCompany’s Senior Secured Credit Facility (the "revolving“revolving credit facility"facility”) was $215 million.$150 million, with $125 million readily available and $25 million subject to approval by major lenders. The maturity date of the revolving credit facility is OctoberNovember 10, 2022, and the next re-determination is to occur no later than November 2021.May 2022.
TheUnder the terms of the credit facility, the Company is required to comply with various covenants, which were modified in response to market conditions including the COVID-19 pandemic until October 1, 2021 ("the covenant relief period"). During the covenant relief period, the Company's ratio of total debt to Covenant EBITDAX ("EBITDAX") was permitted to be greater than 4.0 to 1.0, Senior Secured Debt to EBITDAX ratio could not exceed 2.5 to 1.0, and EBITDAX to interest expense ratio for the trailing four-quarter periods measured as of the last day of the fiscal quarter ended September 30, 2021, was required to be 2.0 to 1.0. As of September 30, 2021, the Company was in compliance with all applicable covenants in the revolving credit facility.
Commencing on October 1, 2021, the Company must maintain compliance with the following financial covenants: limitations on Company'sthe Company’s ratio of debt to EBITDAXearnings before interest, taxes, depletion, depreciation and accretion and exploration expenses (“EBITDAX”) to a maximum of 4.0 to 1.0; limitations on Company'sCompany’s ratio of Senior Secured Debt to EBITDAX to a maximum of 3.0 to 1.0; and the maintenance of a ratio of EBITDAX to interest expense of at least 2.5 to 1.0. If the Company fails to comply with these financial covenants, it wouldwill result in a default under the terms of the credit agreement, which could result in an acceleration of repayment of all indebtedness under the Company'sCompany’s revolving credit facility. As of March 31, 2022, the Company was in compliance with all applicable covenants in the revolving credit facility.
Amounts drawn down under the revolving credit facility bear interest, at the Company'sCompany’s option, at the USD LIBOR rate plus a
margin ranging from 2.90% to 4.90%, or an alternate base rate plus a margin ranging from 1.90% to 3.90%, in each case based on the borrowing base utilization percentage. The alternate base rate is currently the U.S. prime rate. We pay a commitment fee on undrawn amounts under the revolving credit facility, which ranges from 0.73% to 1.23% per annum, based on the average daily amount of unused commitments.
The Company'sCompany’s revolving credit facility is guaranteed by and secured against the assets of certain of the Company'sCompany’s subsidiaries (the "Credit“Credit Facility Group"Group”). Under the terms of the revolving credit facility, the Company is subject to certain restrictions on its ability to distribute funds to entities outside of the Credit Facility Group, including restrictions on the ability to pay dividends to shareholders of the Company.
Interest Expense
The following table presents the total interest expense recognized in the accompanying interim unaudited condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Thousands of U.S. Dollars) | 2021 | | 2020 | | 2021 | 2020 |
Contractual interest and other financing expenses | $ | 12,701 | | | $ | 13,191 | | | $ | 38,673 | | $ | 37,430 | |
Amortization of debt issuance costs | 907 | | | 838 | | | 2,682 | | 2,774 | |
| $ | 13,608 | | | $ | 14,029 | | | $ | 41,355 | | $ | 40,204 | |
| | | | | | | | | | | | |
| | | Three Months Ended March 31, |
(Thousands of U.S. Dollars) | | | | | 2022 | 2021 |
Contractual interest and other financing expenses | | | | | $ | 11,241 | | $ | 12,931 | |
Amortization of debt issuance costs | | | | | 887 | | 881 | |
| | | | | $ | 12,128 | | $ | 13,812 | |
7.
6. Share Capital
| | | | | |
| Shares of Common Stock |
Balance, December 31, 20202021 | 366,981,556367,144,500 | |
Shares issued on option exercise | 56,8981,276,533 | |
Balance, September 30, 2021March 31, 2022 | 367,038,454368,421,033 | |
Equity Compensation Awards
The following table provides information about performance stock units (“PSUs”), deferred share units (“DSUs”), and stock option activity for the ninethree months ended September 30, 2021:March 31, 2022:
| | | PSUs | DSUs | | Stock Options | | PSUs | DSUs | | Stock Options |
| | Number of Outstanding Share Units | | Number of Outstanding Stock Options | Weighted Average Exercise Price/Stock Option ($) | | Number of Outstanding Share Units | | Number of Outstanding Stock Options | Weighted Average Exercise Price/Stock Option ($) |
Balance, December 31, 2020 | 23,273,404 | | 4,067,897 | | | 15,444,949 | | 1.50 | | |
Balance, December 31, 2021 | | Balance, December 31, 2021 | 30,365,196 | | 5,710,764 | | | 17,848,722 | | 1.20 | |
Granted | Granted | 13,428,840 | | 1,310,122 | | | 5,834,014 | | 0.80 | | Granted | 6,720,129 | | 344,464 | | | 2,721,929 | | 1.41 | |
Exercised | Exercised | (2,733,209) | | — | | | (56,898) | | 0.33 | | Exercised | (4,396,646) | | — | | | (1,276,533) | | 0.77 | |
Forfeited | Forfeited | (3,492,165) | | — | | | (1,628,591) | | 0.90 | | Forfeited | (47,572) | | — | | | (62,638) | | 1.95 | |
Expired | Expired | — | | — | | | (1,279,641) | | 3.17 | | Expired | — | | — | | | (1,173,714) | | 2.80 | |
Balance, September 30, 2021 | 30,476,870 | | 5,378,019 | | | 18,313,833 | | 1.22 | | |
Balance, March 31, 2022 | | Balance, March 31, 2022 | 32,641,107 | | 6,055,228 | | | 18,057,766 | | 1.15 | |
For the three and nine months ended September 30,March 31, 2022 and 2021 stock-based compensation expense was $1.1$4.6 million and $6.6$3.7 million, respectively (three and nine months ended September 30, 2020, expense of $0.1 million and recovery of $0.7 million, respectively).respectively.
At September 30, 2021,March 31, 2022, there was $14.2$31.1 million (December 31, 20202021 - $5.9$11.8 million) of unrecognized compensation costs related to unvested PSUs and stock options, which is expected to be recognized over a weighted-average period of 1.81.9 years. During the ninethree months ended September 30, 2021,March 31, 2022, the Company paid out $2.4 million for PSUs vested on December 31, 2021 (three months ended March 31, 2021 - $0.6 million for PSUs vested on December 31, 2020 (nine months ended September 30, 2020 - $3.2 million for PSUs vested on December 31, 2019)2020).
Net Income (Loss) per Share
Basic net income (loss) per share is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of shares of common stock issued and outstanding during each period.
Diluted net income (loss) per share is calculated using the treasury stock method for share-based compensation arrangements. The treasury stock method assumes that any proceeds obtained on the exercise of share-based compensation arrangements would be used to purchase common shares at the average market price during the period. The weighted average number of shares is then adjusted by the difference between the number of shares issued from the exercise of share-based compensation arrangements and shares repurchased from the related proceeds. Anti-dilutive shares represent potentially dilutive securities excluded from the computation of diluted income or loss per share as their impact would be anti-dilutive.
Weighted Average Shares Outstanding
| | | Three Months Ended September 30, | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2021 | 2020 | | 2021 | 2020 | | | 2022 | 2021 |
Weighted average number of common shares outstanding | Weighted average number of common shares outstanding | 366,992,802 | | 366,981,556 | | | 366,985,646 | | 366,981,556 | | Weighted average number of common shares outstanding | | 367,386,664 | | 366,981,556 | |
Shares issuable pursuant to stock options | Shares issuable pursuant to stock options | 1,574,305 | | — | | | — | | — | | Shares issuable pursuant to stock options | | 12,950,523 | | — | |
Shares assumed to be purchased from proceeds of stock options | Shares assumed to be purchased from proceeds of stock options | (826,385) | | — | | | — | | — | | Shares assumed to be purchased from proceeds of stock options | | (7,961,942) | | — | |
Weighted average number of diluted common shares outstanding | Weighted average number of diluted common shares outstanding | 367,740,722 | | 366,981,556 | | | 366,985,646 | | 366,981,556 | | Weighted average number of diluted common shares outstanding | | 372,375,245 | | 366,981,556 | |
For the three months ended September 30, 2021, 16,362,882March 31, 2022, 5,331,160 options, on a weighted average basis (three months ended September 30, 2020March 31, 2021 - all options), were excluded from the diluted income (loss) per share calculation as the options were anti-dilutive. For the nine months ended September 30, 2021 and 2020, all options on a weighted average basis were excluded from the diluted loss per share calculation as the options were anti-dilutive.
8.7. Revenue
The Company'sCompany’s revenues are generated from oil sales at prices that reflect the blended prices received upon shipment by the purchaser at defined sales points or defined by contract relative to ICE Brent and adjusted for Vasconia or Castilla crude differentials, quality, and transportation discounts each month. For the three and nine months ended September 30, 2021,March 31, 2022, 100% (three and nine months ended September 30, 2020March 31, 2021 - 100%) of the Company'sCompany’s revenue resulted from oil sales. During the three and nine months ended September 30, 2021,March 31, 2022, quality and transportation discounts were 16% and 15%, respectively,13% of the average ICE Brent price (three and nine months ended September 30, 2020March 31, 2021 - 22% and 27%, respectively)15%). During the three and nine months ended September 30, 2021,March 31, 2022, the Company'sCompany’s production was sold primarily to two major customers in Colombia, (threerepresenting 57% and nine43% of total sales volumes (three months ended September 30, 2020March 31, 2021 - two)two, representing 68% and 31% of total sales volumes).
As at September 30, 2021,March 31, 2022, accounts receivable included NaN of accrued sales revenue related to September 2021March 2022 production (December 31, 20202021 - $0.1 millionnil related to December 20202021 production).
9. COVID-19 Costs
The COVID-19 pandemic has resulted in additional ongoing operating and transportation costs related to COVID-19 health and safety preventative measures, including incremental sanitation requirements and enhanced procedures for trucking barrels and crew changes in the field. Below is a break-down of the costs:
| | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Thousands of U.S. Dollars) | 2021 | 2020 | | 2021 | | 2020 |
Operating expenses | $ | 881 | | $ | 1,012 | | | $ | 2,743 | | | $ | 1,433 | |
Transportation costs | 109 | | 96 | | | 283 | | | 96 | |
Total COVID-19 costs | $ | 990 | | $ | 1,108 | | | $ | 3,026 | | | $ | 1,529 | |
10.8. Taxes
The Company's effective tax rate was 397% 74% for the ninethree months ended September 30, 2021, March 31, 2022, compared to 8%(30)% in the comparative period of 2020.2021. Current income tax expense was in a recovery position$20.8 million for the ninethree months ended September 30, 2021, versus anMarch 31, 2022, compared to no current tax expense position for the comparative period in 2020, primarily as a result of changes in the previous estimationcorresponding period of presumptive minimum tax.2021, primarily due to an increase in taxable income. The deferred income tax expense for the ninethree months ended September 30, March 31, 2022, was mainly the result of tax depreciation being higher than accounting depreciation in Colombia. The deferred income tax expense in the comparative period of 2021 resulted from was the result of excess tax depreciation compared towith accounting depreciation and the use of tax losses to offset taxable income in Colombia. The deferred income tax recovery in the comparative period of 2020 was mainly the result of a ceiling test impairment loss in Colombia, partially offset by losses incurred in Colombia that are now fully offset by a valuation allowance.
For the ninethree months ended September 30, 2021,March 31, 2022, the difference between the effective tax rate of 397%74% and the 31% Colombian tax rate was primarily due to the non-deductibility of derivative instrument losses and financing costs; foreign currency translation adjustments, and stock based compensation. These were partially offset by a decrease in the valuation allowance and the non-taxable portion (50%) of the unrealized gain on PetroTal Corp. ("PetroTal") shares.
In the third quarter of 2021, Congressional authorities in Colombia enacted a new tax legislation, which includes an increase to the corporate income tax rate to 35% from 31%, effective January 1, 2022. Accordingly, the tax rates applied to the calculation of deferred income taxes, before valuation allowance, have been adjusted to reflect this change.
For the nine months ended September 30, 2020, the difference between the effective tax rate of 8% and the 32% Colombian tax rate was primarily due to an increase in the impact of foreign taxes, foreign translation adjustments, increase in the valuation allowance, other permanent differences, and non-deductible stock-based compensation.
For the non-deductibilitythree months ended March 31, 2021, the difference between the effective tax rate of goodwill impairment for(30)% and the 31% Colombian tax purposes,rate was primarily due to an increase in the impact of foreign taxes, foreign translation adjustments and the non-deductible portion (50%) of the unrealized loss on PetroTal Corp. ("PetroTal") shares.other permanent differences, which was partially offset by a decrease in valuation allowance.
11.9. Contingencies
Legal Proceedings
Gran Tierra has a number of lawsuits and claims pending, including a dispute with the Agencia Nacional de Hidrocarburos (National Hydrocarbons Agency) ("ANH"(“ANH”) relating to the calculation of high price share royalties. Although the outcome of these lawsuits and disputes cannot be predicted with certainty, Gran Tierra believes the resolution of these matters would not have a material adverse effect on the Company’s consolidated financial position, results of operations or cash flows. Gran Tierra records costs as they are incurred or become probable and determinable.
Letters of credit and other credit support
At September 30, 2021,March 31, 2022, the Company had provided letters of credit and other credit support totaling $102.4$105.7 million (December 31, 20202021 - $100.6$103.0 million) as security relating to work commitment guarantees in Colombia and Ecuador contained in exploration contracts and other capital or operating requirements.
12.10. Financial Instruments and Fair Value Measurement
Financial Instruments
Financial instruments are initially recorded at fair value, defined as the price that would be received to sell an asset or paid to market participants to settle liability at the measurement date. For financial instruments carried at fair value, GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels:
•Level 1 - Inputs representing quoted market prices in active markets for identical assets and liabilities
•Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the assets and liabilities, either directly or indirectly
•Level 3 - Unobservable inputs for assets and liabilities
At September 30, 2021,March 31, 2022, the Company’s financial instruments recognized on the balance sheet consistedconsist of cash and cash equivalents, restricted cash and cash equivalents, accounts receivable, investment, other long-term assets, accounts payable and accrued liabilities, current portion of long-term debt, derivatives, other short-term payables, long-term debt, long-term equity compensation awardreward liability long-term debt, and other long-term liabilities. The Company uses appropriate valuation techniques based on the available information to measure the fair values of assets and liabilities.
Fair Value Measurement
The following table presents the Company’s fair value measurements of investment, derivatives,its financial instruments as of March 31, 2022, and December 31, 2021:
| | | | | | | | | | | |
| As at March 31, 2022 | | As at December 31, 2021 |
(Thousands of U.S. Dollars) | | | |
Level 1 | | | |
Assets | | | |
Prepaid equity forward - current (2) | $ | 3,137 | | | $ | — | |
Prepaid equity forward - long-term(1) | 15,698 | | | 7,578 | |
| $ | 18,835 | | | $ | 7,578 | |
| | | |
Liabilities | | | |
DSUs liability - long-term(3) | $ | 9,506 | | | $ | 4,346 | |
6.25% Senior Notes | 277,875 | | | 273,672 | |
7.75% Senior Notes | 278,187 | | 271,500 | |
| $ | 565,568 | | | $ | 549,518 | |
Level 2 | | | |
Assets | | | |
Derivative asset(2) | $ | — | | | $ | 219 | |
Restricted cash and cash equivalents - long-term(1) | 5,253 | | | 4,903 | |
| $ | 5,253 | | | $ | 5,122 | |
Liabilities | | | |
Derivative liability | $ | 18,875 | | | $ | 2,976 | |
Revolving credit facility | 39,617 | | | 66,987 | |
PSUs liability - current (4) | 15,292 | | 2,710 |
PSUs liability - long-term(3) | 7,930 | | | 9,372 | |
| $ | 81,714 | | | $ | 82,045 | |
| | | |
Level 3 | | | |
Liabilities | | | |
Asset retirement obligation - current(4) | $ | 1,100 | | | $ | — | |
Asset retirement obligation - long-term | 55,478 | | | 54,525 | |
| $ | 56,578 | | | $ | 54,525 | |
(1)The long-term portion of restricted cash and Prepaid equity forward are included in the other long-term assets on the Company’s balance sheet
(2)Included in the other current assets on the Company’s balance sheet
(3)Long-term DSUs and PSUs liabilities are included in the long-term equity compensation award liability is remeasuredon the Company’s balance sheet
(4)Current portion of PSU liability and asset retirement obligation are recorded in other short-term liabilities on the Company’s balance sheet
The fair values of cash and cash equivalents, current restricted cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the estimatedshort-term maturity of these instruments.
The fair value of long-term restricted cash and cash equivalents approximate its carrying value because interest rates are variable and reflective of market rates.
Prepaid Equity Forward (“PEF”)
To reduce the Company’s exposure to changes in the trading price of the Company’s common shares on outstanding PSUs, the Company entered into a PEF. At the end of the term, the counterparty will pay the Company an amount equivalent to the notional amount of the shares using the price of the Company’s common shares at the valuation date. The Company has the discretion to increase or decrease the notional amount of the PEF or terminate the agreement early. As at March 31, 2022, the Company’s PEF had a notional amount of 12 million shares with a fair value of $18.8 million (As at December 31, 2021 - 10 million shares with a fair value of $7.6 million). During the three months ended March 31, 2022, the Company recorded a gain of $7.8 million on the PEF in general and administrative expenses (three months ended March 31, 2021- nil). The fair value of the PEF asset was estimated using the Company’s share price quoted in active markets at the end of each reporting period.
Investment in PetroTal
The estimated fair value of the Company's investment in PetroTal was $44.1 million at September 30, 2021 ($48.3 million at December 31, 2020), based on the closing stock price of PetroTal of $0.41 CAD ($0.25 CAD at December 31, 2020) and the foreign exchange rate at that date. During the nine months ended September 30, 2021, the Company sold 44% (109 million common shares) of its interest in PetroTal for cash proceeds net of transaction costs of $14.6 million, resulting in a loss on sale of $5.1 million. PetroTal is a publicly-traded energy company incorporated and domiciled in Canada engaged in exploration, appraisal, and development of crude oil and natural gas in Peru. PetroTal's shares are listed on the Toronto Stock Exchange Venture under the trading symbol 'TAL' and on the London Stock Exchange Alternative Investment Market under the trading symbol 'PTAL'. As at September 30, 2021, Gran Tierra holds approximately 137 million common shares representing approximately 17% of PetroTal's issued and outstanding common shares.
Commodity and Foreign Currency DerivativesDSU liability
The fair value of commodityDSUs liability was estimated using Company’s share price quoted in active markets at the end of each reporting period.
PSUs liability
The fair value of the PSUs liability was estimated based on a pricing model using inputs, such as Company’s share price and foreign currencyPSU performance factor.
Derivative asset and derivative liability
The fair value of derivatives is estimated based on various factors, including quoted market prices in active markets and quotes from third parties. The Company also performs an internal valuation to ensure the
reasonableness of third party quotes. In consideration of counterparty credit risk, the Company assessed the possibility of whether the counterparty to the derivative would default by failing to make any contractually required payments. Additionally, the Company considers that it is of substantial credit quality and has the financial resources and willingness to meet its potential repayment obligations associated with the derivative transactions.
PSUs and DSUs
The estimated fair value of the PSUs liability is based on a pricing model using inputs such as quoted market prices in an active market and PSUs performance factor. The fair value of DSUs liability is measured using quoted market prices in an active market.
The fair value of investment, derivatives, and PSUs and DSUs liability at September 30, 2021, and December 31, 2020, was as follows:
| | | | | | | | | | | |
(Thousands of U.S. Dollars) | As at September 30, 2021 | | As at December 31, 2020 |
Investment | $ | 44,116 | | | $ | 48,323 | |
| | | |
| | | |
| | | |
Derivative liability | $ | 14,737 | | | $ | 12,050 | |
PSUs and DSUs liability | 13,601 | | | 4,760 | |
| $ | 28,338 | | | $ | 16,810 | |
The following table presents gains or losses on derivatives and other financial instruments recognized in the accompanying interim unaudited condensed consolidated statements of operations:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
(Thousands of U.S. Dollars) | 2021 | 2020 | | 2021 | 2020 |
Commodity price derivatives loss (gain) | $ | 2,586 | | $ | (2,206) | | | $ | 47,435 | | $ | (12,983) | |
Foreign currency derivatives loss | 17 | | 33 | | | 105 | | 3,566 | |
Derivative instruments loss (gain) | $ | 2,603 | | $ | (2,173) | | | $ | 47,540 | | $ | (9,417) | |
| | | | | |
Unrealized PetroTal investment (gain) loss | $ | (13,616) | | $ | 1,055 | | | $ | (17,477) | | $ | 60,124 | |
Loss on sale of PetroTal shares | — | | — | | | 5,070 | | — | |
Financial instruments (gain) loss | (18) | | 405 | | | (18) | | 1,162 | |
Other financial instruments (gain) loss | $ | (13,634) | | $ | 1,460 | | | $ | (12,425) | | $ | 61,286 | |
| | | | | | | | | | | |
| | Three Months Ended March 31, |
(Thousands of U.S. Dollars) | | | | 2022 | 2021 |
Commodity price derivatives loss | | | | $ | 21,439 | | $ | 23,632 | |
Foreign currency derivatives loss | | | | — | | 66 | |
Derivative instruments loss | | | | $ | 21,439 | | $ | 23,698 | |
| | | | | |
Unrealized PetroTal investment gain | | | | $ | — | | $ | (6,475) | |
Loss on sale of PetroTal shares | | | | — | | 5,070 | |
Other financial instruments gain | | | | $ | — | | $ | (1,405) | |
Revolving credit facility and Senior Notes
Financial instruments not recorded at fair value includeat March 31, 2022, included the Company's 6.25% Senior Notes due 2025 (the "6.25% Senior Notes") and 7.75% Senior Notes due 2027 (the "7.75% Senior Notes")the Revolving Credit Facility (Note 5).
The fair value of the Revolving Credit Facility approximates its carrying value. The fair value of the Revolving Credit Facility is estimated based on the amount the Company would have to pay a third party to assume the debt, including the credit spread for the difference between the issue rate and the period-end market rate. The credit spread is the Company’s default or repayment risk. The credit spread (premium or discount) is determined by comparing the debt to new issuances (secured or unsecured) and secondary trades of similar size and credit statistics for public and private debt.
At September 30, 2021,March 31, 2022, the carrying amounts of the 6.25% Senior Notes and the 7.75% Senior Notes were $293.5$294.4 million and $291.7$292.3 million, respectively, which represented the aggregate principal amount less unamortized debt issuance costs, and the fair values were $262.6$277.9 million and $260.1$278.2 million, respectively. The fair value of long-term restricted cash and cash equivalents and the revolving credit facility approximated their carrying value because interest rates are variable and reflective of market rates. The fair values of other financial instruments approximate their carrying amounts due to the short-term maturity of these instruments.
GAAP establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. This hierarchy consists of three broad levels. Level 1 inputs consist of quoted prices (unadjusted) in active markets for identical assets and liabilities and have the highest priority. Level 2 and 3 inputs are based on significant other observable inputs and significant unobservable inputs, respectively, and have lower priorities. The Company uses appropriate valuation techniques based on the available inputs to measure the fair values of assets and liabilities.
At September 30, 2021, the fair value of the investment and DSUs liability was determined using Level 1 inputs. The fair value of the derivative and PSUs liability was determined using Level 2 inputs.
The Company uses available market data and valuation methodologies to estimate the fair value of debt. The fair value of debt is the estimated amount the Company would have to pay a third party to assume the debt, including a credit spread for the difference between the issue rate and the period-end market rate. The credit spread is the Company’s default or repayment risk. The credit spread (premium or discount) is determined by comparing the Company’s Senior Notes and revolving credit facility to new issuances (secured and unsecured) and secondary trades of similar size and credit statistics for public and private debt. The disclosure in the paragraph above regarding the fair value of cash and restricted cash and cash equivalents and Senior Notes was based on Level 1 inputs, and the fair value of credit facility was based on Level 2 inputs.Asset retirement obligation
The Company’s non-recurring fair value measurements include asset retirement obligations.obligation. The fair value of an asset retirement obligation is measured by reference to the expected future cash outflows required to satisfy the retirement obligation discounted at the Company’s credit-adjusted risk-free interest rate. The significant level 3 inputs used to calculate such liabilities include estimates of costs to be incurred, the Company’s credit-adjusted risk-free interest rate, inflation rates, and estimated dates of abandonment. Accretion expense is recognized over time as the discounted liabilities are accreted to their expected settlement value, while the asset retirement cost is amortized over the estimated productive life of the related assets.
Commodity Price Derivatives
The Company utilizes commodity price derivatives to manage the variability in cash flows associated with the forecasted sale of its oil production, reduce commodity price risk and provide a base level of cash flows to assure it can execute at least a portion of its planned capital spending.
At September 30, 2021,March 31, 2022, the Company had outstanding commodity price derivative positions as follows:
| | | | | | | | | | | | | | | | | | | | |
Period and type of instrument | Volume, bopd | Reference | Sold Put ($/bbl, Weighted Average) | Purchased Put ($/bbl, Weighted Average) | Sold Call ($/bbl, Weighted Average) | Swap Price ($/bbl, Weighted Average) |
Three-way Collars: October 1, to December 31, 2021 | 7,000 | | ICE Brent | 47.14 | | 57.14 | | 68.95 | | n/a |
Swaps: October 1, to December 31, 2021 | 3,000 | | ICE Brent | n/a | n/a | n/a | 56.75 | |
Foreign Currency Derivatives
The Company utilizes foreign currency derivatives to manage the variability in cash flows associated with the Company's forecasted Colombian peso ("COP") denominated expenses. At September 30, 2021, the Company had outstanding foreign currency derivative positions as follows:
| | | | | | | | | | | | | | | | | |
Period and type of instrument | Amount Hedged (Millions of COP) | U.S. Dollar Equivalent of Amount Hedged (Thousands of U.S. Dollars)(1) | Reference | Floor Price (COP, Weighted Average) | Cap Price (COP, Weighted Average) |
Collars: October 1, to December 31, 2021 | 3,000 | | 782 | | COP | 3,500 | | 3,630 | |
(1)At September 30, 2021 foreign exchange rate. | | | | | | | | | | | | | | | | | | | | | | | |
Period and type of instrument | Volume, bopd | Reference | Sold Swap ($/bbl, Weighted Average) | Sold Put ($/bbl, Weighted Average) | Purchased Put ($/bbl, Weighted Average) | Sold Call ($/bbl, Weighted Average) | Premium ($/bbl Weighted Average) |
Three-way Collars: April 1, to June 30, 2022 | 5,000 | | ICE Brent | — | | 64.00 | | 74.00 | | 91.72 | | — | |
Swaps: April 1, to June 30, 2022 | 3,000 | | ICE Brent | 80.77 | | — | | — | | — | | — | |
Deferred Puts: April 1, to June 30, 2022 | 1,000 | | ICE Brent | — | | — | | 70.00 | | — | | 4.00 | |
13.11. Supplemental Cash Flow Information
The following table provides a reconciliation of cash and cash equivalents and restricted cash and cash equivalents shown as a sum of these amounts in the interim unaudited condensed consolidated statements of cash flows:
| (Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | As at September 30, | | As at December 31, | (Thousands of U.S. Dollars) | As at March 31, | | As at December 31, |
| | 2021 | 2020 | | 2020 | 2019 | | 2022 | 2021 | | 2021 | 2020 |
Cash and cash equivalents | Cash and cash equivalents | $ | 16,600 | | $ | 21,808 | | | $ | 14,114 | | $ | 8,817 | | Cash and cash equivalents | $ | 58,707 | | $ | 21,225 | | | $ | 26,109 | | $ | 13,687 | |
| Restricted cash and cash equivalents - current | | Restricted cash and cash equivalents - current | 1,142 | | 424 | | | 392 | | 427 | |
Restricted cash and cash equivalents - long-term(1) | Restricted cash and cash equivalents - long-term(1) | 3,532 | | 3,007 | | | 3,409 | | 2,258 | | Restricted cash and cash equivalents - long-term(1) | 5,252 | | 3,219 | | | 4,903 | | 3,409 | |
| | $ | 20,132 | | $ | 24,815 | | | $ | 17,523 | | $ | 11,075 | | | $ | 65,101 | | $ | 24,868 | | | $ | 31,404 | | $ | 17,523 | |
(1)Included in other long-term assets on the Company’s balance sheet
Net changes in assets and liabilities from operating activities were as follows:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | 2021 | | 2020 | (Thousands of U.S. Dollars) | 2022 | | 2021 |
Accounts receivable and other long-term assets | Accounts receivable and other long-term assets | $ | (18,582) | | | $ | 31,108 | | Accounts receivable and other long-term assets | $ | (10,150) | | | $ | 3,803 | |
Derivatives | Derivatives | (2,427) | | | 694 | | Derivatives | (7,706) | | | 3,841 | |
Inventory | Inventory | (2,920) | | | (2,377) | | Inventory | 110 | | | (1,146) | |
Prepaids | Prepaids | 42 | | | (183) | | Prepaids | (269) | | | 157 | |
Accounts payable and accrued and other long-term liabilities | Accounts payable and accrued and other long-term liabilities | 14,417 | | | (57,621) | | Accounts payable and accrued and other long-term liabilities | 12,021 | | | 752 | |
Taxes receivable and payable | Taxes receivable and payable | 27,426 | | | 51,667 | | Taxes receivable and payable | 22,514 | | | 5,721 | |
Net changes in assets and liabilities from operating activities | Net changes in assets and liabilities from operating activities | $ | 17,956 | | | $ | 23,288 | | Net changes in assets and liabilities from operating activities | $ | 16,520 | | | $ | 13,128 | |
Changes in non-cash investing working capital for the ninethree months ended September 30, 2021,March 31, 2022, are comprised of an increasedecrease in accounts payable and accrued liabilities of $0.6$1.7 million and an increase in accounts receivable of $0.1 million (three months ended March 31, 2021, a decrease in accounts payable and accrued liabilities of $0.8 million and a decrease in accounts receivable of $0.1 million (nine months ended September 30, 2020, a decrease in accounts payable and accrued liabilities of $69.9 million and a decrease in accounts receivable of $0.3 million).
The following table provides additional supplemental cash flow disclosures:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | 2021 | | 2020 | (Thousands of U.S. Dollars) | 2022 | | 2021 |
Cash paid for income taxes | Cash paid for income taxes | $ | 20,433 | | | $ | 11,603 | | Cash paid for income taxes | $ | 9,703 | | | $ | 6,093 | |
Cash paid for interest | Cash paid for interest | $ | 37,259 | | | $ | 35,408 | | Cash paid for interest | $ | 10,042 | | | $ | 11,479 | |
| Non-cash investing activities: | Non-cash investing activities: | | Non-cash investing activities: | |
Net liabilities related to property, plant and equipment, end of period | Net liabilities related to property, plant and equipment, end of period | $ | 29,420 | | | $ | 7,805 | | Net liabilities related to property, plant and equipment, end of period | $ | 28,339 | | | $ | 28,003 | |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with the "Financial Statements"“Financial Statements” as set out in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as the "Financial“Financial Statements and Supplementary Data"Data” and "Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations” included in Part II, Items 7 and 8, respectively, of our 20202021 Annual Report on Form 10-K. Please see the cautionary language at the beginning of this Quarterly Report on Form 10-Q regarding the identification of and risks relating to forward-looking statements and the risk factors described in Part II, Item 1A "Risk Factors"“Risk Factors” of this Quarterly Report on Form 10-Q, as well as Part I, Item 1A “Risk Factors” in our 20202021 Annual Report on Form 10-K.
Financial and Operational Highlights
Key Highlights for the thirdfirst quarter of 20212022
•Net income in the thirdfirst quarter of 20212022 was $35.0$14.1 million or $0.10$0.04 per share basic and diluted, compared withto a net loss of $107.8$37.4 million or $(0.29)$(0.10) per share basic and diluted in the thirdfirst quarter of 20202021
•Income before income taxes in the thirdfirst quarter of 20212022 was $44.0$53.7 million compared to loss before income taxes of $128.4$28.8 million in the thirdfirst quarter of 20202021
•During the thirdfirst quarter of 2021,2022, we repaid $25.0$27.5 million of the amount drawn under the revolving credit facility and by April 29, 2022, we paid down the credit facility balance to $10.0 million
•Funds flow from operations(2) increased by 758%201% to $69.1$87.3 million compared to the thirdfirst quarter of 20202021 and increased 197%34% from the secondfourth quarter of 2021
•During the thirdfirst quarter, the Company generated $34.3$45.8 million of free cash flow(2), which was partially used for debt reduction, the highest since the fourth quarter of 2012
•Our thirdNAR production for the first quarter of 2022 was 22,833 BOPD representing an 11% increase compared to the first quarter of 2021, average production NAR was 23,372 BOPD (sales volumes - 23,833 BOPD),due to a 37% increase (sales volumes - 40% increase) from 17,051 BOPD (sales volumes - 17,066 BOPD)successful drilling and workover campaign in all major fields. Compared to the third quarter of 2020, and 23% increase (sales volumes - 29% increase) from the secondfourth quarter of 2021, which was impactedNAR production decreased by national blockadesa 3% due to higher royalties
•Sales volumes for the first quarter of 2022 were 22,730 BOPD representing a 12% increase from 20,271 BOPD in Colombia affecting productionthe first quarter of 2021, and a 4% decrease from major fieldsthe fourth quarter of 2021
•Oil sales were $135.3$174.6 million, 155%83% higher compared to $53.1$95.5 million in the thirdfirst quarter of 20202021, as a result of an increase in Brent price, offset by higher quality and transportation discounts. Oil sales increased by 40%19% compared with $96.6to $146.3 million in the secondfourth quarter of 2021 as a result of a 6%23% increase in Brent price, andslightly offset by a 29% increasedecrease in sales volumes
•Operating expenses increased 30% on aby $0.58 per bbl basis ($3.93 per bbl) compared to the third quarter of 2020 due to higher power generation costs in Acordionero and increased by 13% on a per bbl basis ($1.99 per bbl) compared to the secondfirst quarter of 2021 due to power generationan increase in operating activities and chemical costshigher expenses for chemicals used in our waterflood projects and decreased by $1.33 per bbl when compared to the fourth quarter of 2021 due to lower workovers
•Transportation expenses increased by 135%13% compared to the thirdfirst quarter of 20202021 due to higher truck tariffs. Compared to the fourth quarter of 2021, transportation expenses decreased by 1% as a result of higher volumes sold at wellhead during the national blockades resulting in utilization of more expensive transportation routes and increased 3% compared to the secondcurrent quarter of 2021
•Operating netback(2) increased by 204% and 39%, respectively,117% to $94.7$137.3 million compared to $31.1$63.4 million in the thirdfirst quarter of 20202021 and $68.3increased 32% compared to $103.7 million in the secondfourth quarter of 2021
•Adjusted EBITDA(2) increased by 274% and 125%, respectively,185% to $81.8$119.4 million compared to $21.9$41.9 million in the thirdfirst quarter of 20202021 and $36.3increased 46% compared to $81.5 million in the secondfourth quarter of 2021
•Quality and transportation discounts for the thirdfirst quarter of 20212022 increased to $11.51$12.57 per bbl compared to $9.49$8.98 per bbl in the thirdfirst quarter of 2020 as a result of higher differentials2021 and remained consistent when compared to $11.54decreased from $12.78 per bbl in the secondfourth quarter of 2021
•General and administrative expenses ("(“G&A"&A”) before stock-based compensation increased by 21%14% compared to the thirdfirst quarter of 2020, consistent with the2021 due to higher costs for special projects and an increase of operating activitiesin travel costs in the current period.quarter. When compared to the secondfourth quarter of 2021, G&A before stock-based compensation decreased by 24%8% due to the timing of certain costs incurred and expensed inlower accrued performance bonus for the priorcurrent quarter
•Capital additions for the thirdfirst quarter of 20212022 were $34.8$41.5 million, an increase of $27.5 million11% compared to the thirdfirst quarter of 20202021 and decreased slightlyincreased 3% from the $37.4$40.2 million incurred in the secondfourth quarter of 2021
| (Thousands of U.S. Dollars, unless otherwise indicated) | (Thousands of U.S. Dollars, unless otherwise indicated) | Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, | (Thousands of U.S. Dollars, unless otherwise indicated) | | Three Months Ended March 31, | | Three Months Ended December 31, |
| | 2021 | 2020 | % Change | | 2021 | | 2021 | 2020 | % Change | | | 2022 | 2021 | % Change | | 2021 |
| Average Daily Volumes (BOPD) | Average Daily Volumes (BOPD) | | Average Daily Volumes (BOPD) | | |
Consolidated | Consolidated | | Consolidated | | |
Working Interest ("WI") Production Before Royalties | 28,957 | | 18,944 | | 53 | | | 23,035 | | | 25,501 | | 22,864 | | 12 | | |
Working Interest (“WI”) Production Before Royalties | | Working Interest (“WI”) Production Before Royalties | | 29,362 | | 24,463 | | 20 | | | 29,493 | |
Royalties | Royalties | (5,585) | | (1,893) | | 195 | | | (4,059) | | | (4,531) | | (2,600) | | 74 | | Royalties | | (6,529) | | (3,930) | | 66 | | | (6,070) | |
Production NAR | Production NAR | 23,372 | | 17,051 | | 37 | | | 18,976 | | | 20,970 | | 20,264 | | 3 | | Production NAR | | 22,833 | | 20,533 | | 11 | | | 23,423 | |
Decrease (Increase) in Inventory | 461 | | 15 | | 2,973 | | | (522) | | | (105) | | 117 | | (190) | | |
(Increase) Decrease in Inventory | | (Increase) Decrease in Inventory | | (103) | | (262) | | (61) | | | 354 | |
Sales(1) | Sales(1) | 23,833 | | 17,066 | | 40 | | | 18,454 | | | 20,865 | | 20,381 | | 2 | | Sales(1) | | 22,730 | | 20,271 | | 12 | | | 23,777 | |
| Net Income (Loss) | Net Income (Loss) | $ | 35,007 | | $ | (107,821) | | 132 | | | $ | (17,627) | | | $ | (20,042) | | $ | (730,096) | | 97 | | Net Income (Loss) | | $ | 14,119 | | $ | (37,422) | | 138 | | | $ | 62,524 | |
| Operating Netback | Operating Netback | | Operating Netback | | |
Oil Sales | Oil Sales | $ | 135,319 | | $ | 53,142 | | 155 | | | $ | 96,623 | | | $ | 327,435 | | $ | 173,045 | | 89 | | Oil Sales | | $ | 174,569 | | $ | 95,493 | | 83 | | | $ | 146,287 | |
Operating Expenses | Operating Expenses | (37,567) | | (20,721) | | 81 | | | (25,431) | | | (92,623) | | (84,673) | | 9 | | Operating Expenses | | (34,400) | | (29,625) | | 16 | | | (39,708) | |
| Transportation Expenses | Transportation Expenses | (3,021) | | (1,286) | | 135 | | | (2,921) | | | (8,448) | | (8,549) | | (1) | | Transportation Expenses | | (2,834) | | (2,506) | | 13 | | | (2,867) | |
Operating Netback(2) | Operating Netback(2) | $ | 94,731 | | $ | 31,135 | | 204 | | | $ | 68,271 | | | $ | 226,364 | | $ | 79,823 | | 184 | | Operating Netback(2) | | $ | 137,335 | | $ | 63,362 | | 117 | | | $ | 103,712 | |
| G&A Expenses Before Stock-Based Compensation | G&A Expenses Before Stock-Based Compensation | $ | 5,444 | | $ | 4,506 | | 21 | | | $ | 7,133 | | | $ | 18,475 | | $ | 17,183 | | 8 | | G&A Expenses Before Stock-Based Compensation | | $ | 7,779 | | $ | 6,817 | | 14 | | | $ | 8,473 | |
G&A Stock-Based Compensation Expense (Recovery) | 1,053 | | 56 | | 1,780 | | | 1,873 | | | 6,597 | | (707) | | 1,033 | | |
G&A Stock-Based Compensation Expense | | G&A Stock-Based Compensation Expense | | 4,557 | | 3,671 | | 24 | | | 1,799 | |
G&A Expenses, Including Stock-Based Compensation | G&A Expenses, Including Stock-Based Compensation | $ | 6,497 | | $ | 4,562 | | 42 | | | $ | 9,006 | | | $ | 25,072 | | $ | 16,476 | | 52 | | G&A Expenses, Including Stock-Based Compensation | | $ | 12,336 | | $ | 10,488 | | 18 | | | $ | 10,272 | |
| Adjusted EBITDA(2) | Adjusted EBITDA(2) | $ | 81,804 | | $ | 21,884 | | 274 | | | $ | 36,299 | | | $ | 160,007 | | $ | 74,247 | | 116 | | Adjusted EBITDA(2) | | $ | 119,378 | | $ | 41,904 | | 185 | | | $ | 81,529 | |
| Funds Flow From Operations(2) | Funds Flow From Operations(2) | $ | 69,103 | | $ | 8,056 | | 758 | | | $ | 23,272 | | | $ | 121,348 | | $ | 36,257 | | 235 | | Funds Flow From Operations(2) | | $ | 87,310 | | $ | 28,973 | | 201 | | | $ | 65,137 | |
| Capital Expenditures | Capital Expenditures | $ | 34,839 | | $ | 7,354 | | 374 | | | $ | 37,384 | | | $ | 109,650 | | $ | 56,378 | | 94 | | Capital Expenditures | | $ | 41,483 | | $ | 37,427 | | 11 | | | $ | 40,229 | |
(1) Sales volumes represent production NAR adjusted for inventory changes.
(2) Non-GAAP measures
Operating netback, EBITDA, adjusted EBITDA, funds flow from operations, and free cash flow are non-GAAP measures whichthat do not have any standardized meaning prescribed under GAAP. Management views these measures as financial performance measures. Investors are cautioned that these measures should not be construed as alternatives to oil sales, net income (loss) or other measures of financial performance as determined in accordance with GAAP. Our method of calculating these measures may differ from other companies and, accordingly, may not be comparable to similar measures used by other companies. Disclosure of each non-GAAP financial measure is preceded by the corresponding GAAP measure so as not to imply that more emphasis should be placed on the non-GAAP measure.
Operating netback, as presented, is defined as oil sales less operating and transportation expenses. Management believes that operating netback is a useful supplemental measure for management and investors to analyze financial performance and provides an indication of the results generated by our principal business activities prior to the consideration of other income and expenses. A reconciliation from oil sales to operating netback is provided in the table above.
EBITDA, as presented, is defined as net income or loss adjusted for depletion, depreciation and accretion ("(“DD&A"&A”) expenses, interest expense and income tax expense or recovery. Adjusted EBITDA, as presented, is defined as EBITDA adjusted for goodwill impairment, asset impairment, non-cash lease expense, lease payments, unrealized foreign exchange gain or loss, stock-based compensation expense or recovery, other-non cash gain or loss, unrealized derivative instruments gain or loss, and other financial instruments gain or loss. Management uses this supplemental measure to analyze performance and income generated by our principal business activities prior to the consideration of how non-cash items affect that income and believes that this financial measure is
useful supplemental information for investors to analyze our performance and our financial results. A reconciliation from net lossincome (loss) to EBITDA and adjusted EBITDA is as follows:
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| Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, |
(Thousands of U.S. Dollars) | 2021 | 2020 | | 2021 | | 2021 | 2020 |
Net income (loss) | $ | 35,007 | | $ | (107,821) | | | $ | (17,627) | | | $ | (20,042) | | $ | (730,096) | |
Adjustments to reconcile net income (loss) to EBITDA and Adjusted EBITDA | | | | | | | |
DD&A expenses | 38,055 | | 31,340 | | | 28,927 | | | 98,300 | | 131,118 | |
Interest expense | 13,608 | | 14,029 | | | 13,935 | | | 41,355 | | 40,204 | |
Income tax expense (recovery) | 8,955 | | (20,565) | | | 9,189 | | | 26,795 | | (62,236) | |
EBITDA (non-GAAP) | $ | 95,625 | | $ | (83,017) | | | $ | 34,424 | | | $ | 146,408 | | $ | (621,010) | |
Goodwill impairment | — | | — | | | — | | | — | | 102,581 | |
Asset impairment | — | | 104,731 | | | — | | | — | | 507,093 | |
Non-cash lease expense | 408 | | 523 | | | 370 | | | 1,222 | | 1,494 | |
Lease payments | (384) | | (429) | | | (393) | | | (1,239) | | (1,404) | |
Unrealized foreign exchange loss | 3,465 | | 3,080 | | | 477 | | | 16,945 | | 22,335 | |
Stock-based compensation expense (recovery) | 1,053 | | 56 | | | 1,873 | | | 6,597 | | (707) | |
Other non-cash loss | — | | 2,026 | | | — | | | — | | 2,026 | |
Unrealized derivative instruments (gain) loss | (4,729) | | (6,546) | | | (3,066) | | | 2,499 | | 553 | |
Other financial instruments (gain) loss | (13,634) | | 1,460 | | | 2,614 | | | (12,425) | | 61,286 | |
Adjusted EBITDA (non-GAAP) | $ | 81,804 | | $ | 21,884 | | | $ | 36,299 | | | $ | 160,007 | | $ | 74,247 | |
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| | | | Three Months Ended March 31, | | Three Months Ended December 31, |
(Thousands of U.S. Dollars) | | | | | 2022 | 2021 | | 2021 |
Net income (loss) | | | | | $ | 14,119 | | $ | (37,422) | | | $ | 62,524 | |
Adjustments to reconcile net income (loss) to EBITDA and Adjusted EBITDA | | | | | | | | |
DD&A expenses | | | | | 40,963 | | 31,318 | | | 41,574 | |
Interest expense | | | | | 12,128 | | 13,812 | | | 13,026 | |
Income tax expense (recovery) | | | | | 39,540 | | 8,651 | | | (46,141) | |
EBITDA (non-GAAP) | | | | | $ | 106,750 | | $ | 16,359 | | | $ | 70,983 | |
Non-cash lease expense | | | | | 411 | | 444 | | | 445 | |
Lease payments | | | | | (344) | | (462) | | | (382) | |
Unrealized foreign exchange (gain) loss | | | | | (4,839) | | 13,003 | | | 4,934 | |
Stock-based compensation expense | | | | | 4,557 | | 3,671 | | | 1,799 | |
Other non-cash loss | | | | | — | | — | | | 44 | |
Unrealized derivative instruments loss (gain) | | | | | 12,843 | | 10,294 | | | (12,088) | |
Other financial instruments (gain) loss | | | | | — | | (1,405) | | | 15,794 | |
Adjusted EBITDA (non-GAAP) | | | | | $ | 119,378 | | $ | 41,904 | | | $ | 81,529 | |
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Funds flow from operations, as presented, is defined as net income or loss adjusted for DD&A expenses, goodwill and asset impairment, deferred tax expense or recovery, stock-based compensation expense or recovery, amortization of debt issuance costs, non-cash lease expense, lease payments, unrealized foreign exchange gain or loss, derivative instruments gain or loss, cash settlement on derivative instruments, other non-cash gain or loss and other financial instruments gain or loss. Management uses this financial measure to analyze performance and income generated by our principal business activities prior to the consideration of how non-cash items affect that income and believes that this financial measure is also useful supplemental information for investors to analyze performance and our financial results. Free cash flow, as presented, is defined as funds flow less capital expenditures. Management uses this financial measure to analyze cash flow generated by our principal business activities after capital requirements and believes that this financial measure is also useful supplemental information for investors to analyze performance and our financial results. A reconciliation from net lossincome (loss) to funds flow from operations, and free cash flow is as follows:
| | | Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, | | | | Three Months Ended March 31, | | Three Months Ended December 31, |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | 2021 | 2020 | | 2021 | | 2021 | 2020 | (Thousands of U.S. Dollars) | | | 2022 | 2021 | | 2021 |
Net income (loss) | Net income (loss) | $ | 35,007 | | $ | (107,821) | | | $ | (17,627) | | | $ | (20,042) | | $ | (730,096) | | Net income (loss) | | | $ | 14,119 | | $ | (37,422) | | | $ | 62,524 | |
Adjustments to reconcile net income (loss) to funds flow from operations | Adjustments to reconcile net income (loss) to funds flow from operations | | Adjustments to reconcile net income (loss) to funds flow from operations | | |
DD&A expenses | DD&A expenses | 38,055 | | 31,340 | | | 28,927 | | | 98,300 | | 131,118 | | DD&A expenses | | | 40,963 | | 31,318 | | | 41,574 | |
Goodwill impairment | — | | — | | | — | | | — | | 102,581 | | |
Asset impairment | — | | 104,731 | | | — | | | — | | 507,093 | | |
Deferred tax expense (recovery) | Deferred tax expense (recovery) | 8,955 | | (21,202) | | | 9,203 | | | 26,809 | | (62,796) | | Deferred tax expense (recovery) | | | 18,713 | | 8,651 | | | (50,634) | |
Stock-based compensation expense (recovery) | 1,053 | | 56 | | | 1,873 | | | 6,597 | | (707) | | |
Stock-based compensation expense | | Stock-based compensation expense | | | 4,557 | | 3,671 | | | 1,799 | |
Amortization of debt issuance costs | Amortization of debt issuance costs | 907 | | 838 | | | 894 | | | 2,682 | | 2,774 | | Amortization of debt issuance costs | | | 887 | | 881 | | | 1,127 | |
Non-cash lease expense | Non-cash lease expense | 408 | | 523 | | | 370 | | | 1,222 | | 1,494 | | Non-cash lease expense | | | 411 | | 444 | | | 445 | |
Lease payments | Lease payments | (384) | | (429) | | | (393) | | | (1,239) | | (1,404) | | Lease payments | | | (344) | | (462) | | | (382) | |
Unrealized foreign exchange loss | 3,465 | | 3,080 | | | 477 | | | 16,945 | | 22,335 | | |
Derivative instruments loss (gain) | 2,603 | | (2,173) | | | 21,239 | | | 47,540 | | (9,417) | | |
Unrealized foreign exchange (gain) loss | | Unrealized foreign exchange (gain) loss | | | (4,839) | | 13,003 | | | 4,934 | |
Derivative instruments loss | | Derivative instruments loss | | | 21,439 | | 23,698 | | | 1,298 | |
Cash settlements on derivative instruments | Cash settlements on derivative instruments | (7,332) | | (4,373) | | | (24,305) | | | (45,041) | | 9,970 | | Cash settlements on derivative instruments | | | (8,596) | | (13,404) | | | (13,386) | |
Other non-cash loss | Other non-cash loss | — | | 2,026 | | | — | | | — | | 2,026 | | Other non-cash loss | | | — | | — | | | 44 | |
Other financial instruments (gain) loss | Other financial instruments (gain) loss | (13,634) | | 1,460 | | | 2,614 | | | (12,425) | | 61,286 | | Other financial instruments (gain) loss | | | — | | (1,405) | | | 15,794 | |
Funds flow from operations (non-GAAP) | Funds flow from operations (non-GAAP) | $ | 69,103 | | $ | 8,056 | | | $ | 23,272 | | | $ | 121,348 | | $ | 36,257 | | Funds flow from operations (non-GAAP) | | | $ | 87,310 | | $ | 28,973 | | | $ | 65,137 | |
Capital expenditures | Capital expenditures | $ | 34,839 | | $ | 7,354 | | | $ | 37,384 | | | $ | 109,650 | | $ | 56,378 | | Capital expenditures | | | $ | 41,483 | | $ | 37,427 | | | $ | 40,229 | |
Free cash flow (non-GAAP) | Free cash flow (non-GAAP) | $ | 34,264 | | $ | 702 | | | $ | (14,112) | | | $ | 11,698 | | $ | (20,121) | | Free cash flow (non-GAAP) | | | $ | 45,827 | | $ | (8,454) | | | $ | 24,908 | |
|
Additional Operational Results
| | | Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | | Three Months Ended December 31, |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | 2021 | 2020 | % Change | | 2021 | | 2021 | 2020 | % Change | (Thousands of U.S. Dollars) | | 2022 | 2021 | % Change | | 2021 |
Oil sales | Oil sales | $ | 135,319 | | $ | 53,142 | | 155 | | | $ | 96,623 | | | $ | 327,435 | | $ | 173,045 | | 89 | | Oil sales | | $ | 174,569 | | $ | 95,493 | | 83 | | | $ | 146,287 | |
Operating expenses | Operating expenses | 37,567 | | 20,721 | | 81 | | | 25,431 | | | 92,623 | | 84,673 | | 9 | | Operating expenses | | 34,400 | | 29,625 | | 16 | | | 39,708 | |
| Transportation expenses | Transportation expenses | 3,021 | | 1,286 | | 135 | | | 2,921 | | | 8,448 | | 8,549 | | (1) | | Transportation expenses | | 2,834 | | 2,506 | | 13 | | | 2,867 | |
Operating netback(1) | Operating netback(1) | 94,731 | | 31,135 | | 204 | | | 68,271 | | | 226,364 | | 79,823 | | 184 | | Operating netback(1) | | 137,335 | | 63,362 | | 117 | | | 103,712 | |
| COVID-19 related costs | COVID-19 related costs | 990 | | 1,108 | | (11) | | | 897 | | | 3,026 | | 1,529 | | 98 | | COVID-19 related costs | | 535 | | 1,139 | | (53) | | | 668 | |
DD&A expenses | DD&A expenses | 38,055 | | 31,340 | | 21 | | | 28,927 | | | 98,300 | | 131,118 | | (25) | | DD&A expenses | | 40,963 | | 31,318 | | 31 | | | 41,574 | |
Goodwill impairment | — | | — | | — | | | — | | | — | | 102,581 | | (100) | | |
Asset impairment | — | | 104,731 | | (100) | | | — | | | — | | 507,093 | | (100) | | |
G&A expenses before stock-based compensation | G&A expenses before stock-based compensation | 5,444 | | 4,506 | | 21 | | | 7,133 | | | 18,475 | | 17,183 | | 8 | | G&A expenses before stock-based compensation | | 7,779 | | 6,817 | | 14 | | | 8,473 | |
G&A stock-based compensation expense (recovery) | 1,053 | | 56 | | 1,780 | | | 1,873 | | | 6,597 | | (707) | | 1,033 | | |
Severance expenses | — | | 122 | | (100) | | | — | | | 919 | | 1,469 | | (37) | | |
Foreign exchange loss | 2,650 | | 4,275 | | (38) | | | 91 | | | 15,824 | | 20,094 | | (21) | | |
Derivative instruments loss (gain) | 2,603 | | (2,173) | | 220 | | | 21,239 | | | 47,540 | | (9,417) | | 605 | | |
G&A stock-based compensation expense | | G&A stock-based compensation expense | | 4,557 | | 3,671 | | 24 | | | 1,799 | |
Foreign exchange (gain) loss | | Foreign exchange (gain) loss | | (3,725) | | 13,083 | | (128) | | | 4,653 | |
Derivative instruments loss | | Derivative instruments loss | | 21,439 | | 23,698 | | (10) | | | 1,298 | |
Other financial instruments (gain) loss | Other financial instruments (gain) loss | (13,634) | | 1,460 | | (1,034) | | | 2,614 | | | (12,425) | | 61,286 | | (120) | | Other financial instruments (gain) loss | | — | | (1,405) | | (100) | | | 15,794 | |
Other loss | Other loss | — | | 67 | | (100) | | | — | | | — | | 67 | | (100) | | Other loss | | — | | — | | — | | | 44 | |
Interest expense | Interest expense | 13,608 | | 14,029 | | (3) | | | 13,935 | | | 41,355 | | 40,204 | | 3 | | Interest expense | | 12,128 | | 13,812 | | (12) | | | 13,026 | |
| | 50,769 | | 159,521 | | (68) | | | 76,709 | | | 219,611 | | 872,500 | | (75) | | | | 83,676 | | 92,133 | | (9) | | | 87,329 | |
| Interest income | — | | — | | — | | | — | | | — | | 345 | | (100) | | |
| | Income (loss) before income taxes | Income (loss) before income taxes | 43,962 | | (128,386) | | 134 | | | (8,438) | | | 6,753 | | (792,332) | | 101 | | Income (loss) before income taxes | | 53,659 | | (28,771) | | 287 | | | 16,383 | |
| Current income tax expense (recovery) | — | | 637 | | (100) | | | (14) | | | (14) | | 560 | | (103) | | |
Current income tax expense | | Current income tax expense | | 20,827 | | — | | 100 | | | 4,493 | |
Deferred income tax expense (recovery) | Deferred income tax expense (recovery) | 8,955 | | (21,202) | | 142 | | | 9,203 | | | 26,809 | | (62,796) | | 143 | | Deferred income tax expense (recovery) | | 18,713 | | 8,651 | | 116 | | | (50,634) | |
| | 8,955 | | (20,565) | | 144 | | | 9,189 | | | 26,795 | | (62,236) | | 143 | | | | 39,540 | | 8,651 | | 357 | | | (46,141) | |
Net income (loss) | Net income (loss) | $ | 35,007 | | $ | (107,821) | | 132 | | | $ | (17,627) | | | $ | (20,042) | | $ | (730,096) | | 97 | | Net income (loss) | | $ | 14,119 | | $ | (37,422) | | 138 | | | $ | 62,524 | |
| Sales Volumes (NAR) | Sales Volumes (NAR) | | Sales Volumes (NAR) | | |
| Total sales volumes, BOPD | Total sales volumes, BOPD | 23,833 | | 17,066 | | 40 | | | 18,454 | | | 20,865 | | 20,381 | | 2 | | Total sales volumes, BOPD | | 22,730 | | 20,271 | | 12 | | | 23,777 | |
| Brent Price per bbl | Brent Price per bbl | $ | 73.23 | | $ | 43.34 | | 69 | | | $ | 69.08 | | | $ | 67.97 | | $ | 42.53 | | 60 | | Brent Price per bbl | | $ | 97.90 | | $ | 61.32 | | 60 | | | $ | 79.66 | |
| Consolidated Results of Operations per bbl Sales Volumes NAR | | Consolidated Results of Operations per bbl Sales Volumes NAR | | |
Oil sales | | Oil sales | | $ | 85.33 | | $ | 52.34 | | 63 | | | $ | 66.88 | |
Operating expenses | | Operating expenses | | 16.82 | | 16.24 | | 4 | | | 18.15 | |
Transportation expenses | | Transportation expenses | | 1.39 | | 1.37 | | 1 | | | 1.31 | |
Operating netback(1) | | Operating netback(1) | | 67.12 | | 34.73 | | 93 | | | 47.42 | |
| COVID-19 related costs | | COVID-19 related costs | | 0.26 | | 0.62 | | (58) | | | 0.31 | |
DD&A expenses | | DD&A expenses | | 20.02 | | 17.17 | | 17 | | | 19.01 | |
G&A expenses before stock-based compensation | | G&A expenses before stock-based compensation | | 3.80 | | 3.73 | | 2 | | | 3.87 | |
G&A stock-based compensation expense | | G&A stock-based compensation expense | | 2.23 | | 2.01 | | 11 | | | 0.82 | |
Foreign exchange (gain) loss | | Foreign exchange (gain) loss | | (1.82) | | 7.17 | | (125) | | | 2.13 | |
Derivative instruments loss | | Derivative instruments loss | | 10.48 | | 12.99 | | (19) | | | 0.59 | |
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Consolidated Results of Operations per bbl Sales Volumes NAR | | | | | | | | | |
Oil sales | $ | 61.72 | | $ | 33.85 | | 82 | | | $ | 57.54 | | | $ | 57.48 | | $ | 30.99 | | 85 | |
Operating expenses | 17.13 | | 13.20 | | 30 | | | 15.14 | | | 16.26 | | 15.16 | | 7 | |
Transportation expenses | 1.38 | | 0.82 | | 68 | | | 1.74 | | | 1.48 | | 1.53 | | (3) | |
Operating netback(1) | 43.21 | | 19.83 | | 118 | | | 40.66 | | | 39.74 | | 14.30 | | 178 | |
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COVID-19 related costs | 0.45 | | 0.70 | | (36) | | | 0.53 | | | 0.53 | | 0.27 | | 96 | |
DD&A expenses | 17.36 | | 19.96 | | (13) | | | 17.23 | | | 17.26 | | 23.48 | | (26) | |
Goodwill impairment | — | | — | | — | | | — | | | — | | 18.37 | | (100) | |
Asset impairment | — | | 66.71 | | (100) | | | — | | | — | | 90.80 | | (100) | |
G&A expenses before stock-based compensation | 2.48 | | 2.87 | | (14) | | | 4.25 | | | 3.24 | | 3.08 | | 5 | |
G&A stock-based compensation expense (recovery) | 0.48 | | 0.04 | | 1,100 | | | 1.12 | | | 1.16 | | (0.13) | | 992 | |
Severance expenses | — | | 0.08 | | (100) | | | — | | | 0.16 | | 0.26 | | (38) | |
Foreign exchange loss | 1.21 | | 2.72 | | (56) | | | 0.05 | | | 2.78 | | 3.60 | | (23) | |
Derivative instruments loss (gain) | 1.19 | | (1.38) | | 186 | | | 12.65 | | | 8.35 | | (1.69) | | 594 | |
Other financial instruments (gain) loss | (6.22) | | 0.93 | | (769) | | | 1.56 | | | (2.18) | | 10.97 | | (120) | |
Other loss | — | | 0.04 | | (100) | | | — | | | — | | 0.01 | | (100) | |
Interest expense | 6.21 | | 8.94 | | (31) | | | 8.30 | | | 7.26 | | 7.20 | | 1 | |
| 23.16 | | 101.61 | | (77) | | | 45.69 | | | 38.56 | | 156.22 | | (75) | |
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Interest income | — | | — | | — | | | — | | | — | | 0.06 | | (100) | |
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Income (loss) before income taxes | 20.05 | | (81.78) | | 125 | | | (5.03) | | | 1.18 | | (141.86) | | 101 | |
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Current income tax expense (recovery) | — | | 0.41 | | (100) | | | (0.01) | | | — | | 0.10 | | (100) | |
Deferred income tax expense (recovery) | 4.08 | | (13.50) | | 130 | | | 5.48 | | | 4.71 | | (11.24) | | 142 | |
| 4.08 | | (13.09) | | 131 | | | 5.47 | | | 4.71 | | (11.14) | | 142 | |
Net income (loss) | $ | 15.97 | | $ | (68.69) | | 123 | | | $ | (10.50) | | | $ | (3.53) | | $ | (130.72) | | 97 | |
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Other financial instruments (gain) loss | | | | | — | | (0.77) | | (100) | | | 7.22 | |
Other loss | | | | | — | | — | | — | | | 0.02 | |
Interest expense | | | | | 5.93 | | 7.57 | | (22) | | | 5.95 | |
| | | | | 40.90 | | 50.49 | | (19) | | | 39.92 | |
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Income (loss) before income taxes | | | | | 26.22 | | (15.76) | | 266 | | | 7.50 | |
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Current income tax expense | | | | | 10.18 | | — | | 100 | | | 2.05 | |
Deferred income tax expense (recovery) | | | | | 9.15 | | 4.74 | | 93 | | | (23.15) | |
| | | | | 19.33 | | 4.74 | | 308 | | | (21.10) | |
Net income (loss) | | | | | $ | 6.89 | | $ | (20.50) | | 134 | | | $ | 28.60 | |
(1) Operating netback is a non-GAAP measure whichthat does not have any standardized meaning prescribed under GAAP. Refer to "Financial“Financial and Operational Highlights—non-GAAP measures"measures” for a definition of this measure.
Oil Production and Sales Volumes, BOPD
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | | Three Months Ended December 31, |
| | 2021 | 2020 | | 2021 | 2020 | | | 2022 | 2021 | | 2021 |
Average Daily Volumes (BOPD) | Average Daily Volumes (BOPD) | | Average Daily Volumes (BOPD) | | | | |
WI Production Before Royalties | WI Production Before Royalties | 28,957 | | 18,944 | | | 25,501 | | 22,864 | | WI Production Before Royalties | | 29,362 | | 24,463 | | | 29,493 | |
Royalties | Royalties | (5,585) | | (1,893) | | | (4,531) | | (2,600) | | Royalties | | (6,529) | | (3,930) | | | (6,070) | |
Production NAR | Production NAR | 23,372 | | 17,051 | | | 20,970 | | 20,264 | | Production NAR | | 22,833 | | 20,533 | | | 23,423 | |
Decrease (Increase) in Inventory | 461 | | 15 | | | (105) | | 117 | | |
Increase in Inventory | | Increase in Inventory | | (103) | | (262) | | | 354 | |
Sales | Sales | 23,833 | | 17,066 | | | 20,865 | | 20,381 | | Sales | | 22,730 | | 20,271 | | | 23,777 | |
| Royalties, % of WI Production Before Royalties | Royalties, % of WI Production Before Royalties | 19 | % | 10 | % | | 18 | % | 11 | % | Royalties, % of WI Production Before Royalties | | 22 | % | 16 | % | | 21 | % |
Oil production NAR for the three and nine months ended September 30, 2021,March 31, 2022, increased by 37% and 3%, respectively,11% compared to the corresponding periodsperiod of 20202021 due to the successful drilling and workover campaign in all major fields, despite production disruptions during the second quarter of 2021 caused by national blockades in Colombia.fields. Compared to the prior quarter, oil production NAR increased 23% as the national blockades were resolved by the end of the second quarter of 2021.decreased 3% due to higher royalties.
Royalties as a percentage of production for the three and nine months ended September 30, 2021,March 31, 2022, increased compared with the corresponding periodsperiod of 20202021 and the prior quarter commensurate with the increase in benchmark oil prices and the price sensitive royalty regime in Colombia.
The Midas block includes the Acordionero, Mochuelo,Chuira, and Ayombero oil fields, and the Chaza block includes the Costayaco and Moqueta oil fields.
Operating Netback
| | | Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | | Three Months Ended December 31, |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | 2021 | 2020 | | 2021 | | 2021 | 2020 | (Thousands of U.S. Dollars) | | 2022 | 2021 | | 2021 |
| Oil Sales | Oil Sales | $ | 135,319 | | $ | 53,142 | | | $ | 96,623 | | | $ | 327,435 | | $ | 173,045 | | Oil Sales | | $ | 174,569 | | $ | 95,493 | | | $ | 146,287 | |
Transportation Expenses | Transportation Expenses | (3,021) | | (1,286) | | | (2,921) | | | (8,448) | | (8,549) | | Transportation Expenses | | (2,834) | | (2,506) | | | (2,867) | |
| | 132,298 | | 51,856 | | | 93,702 | | | 318,987 | | 164,496 | | | | 171,735 | | 92,987 | | | 143,420 | |
Operating Expenses | Operating Expenses | (37,567) | | (20,721) | | | (25,431) | | | (92,623) | | (84,673) | | Operating Expenses | | (34,400) | | (29,625) | | | (39,708) | |
Operating Netback(1) | Operating Netback(1) | $ | 94,731 | | $ | 31,135 | | | $ | 68,271 | | | $ | 226,364 | | $ | 79,823 | | Operating Netback(1) | | $ | 137,335 | | $ | 63,362 | | | $ | 103,712 | |
| (U.S. Dollars Per bbl Sales Volumes NAR) | (U.S. Dollars Per bbl Sales Volumes NAR) | | (U.S. Dollars Per bbl Sales Volumes NAR) | | |
Brent | Brent | $ | 73.23 | | $ | 43.34 | | | $ | 69.08 | | | $ | 67.97 | | $ | 42.53 | | Brent | | $ | 97.90 | | $ | 61.32 | | | $ | 79.66 | |
Quality and Transportation Discounts | Quality and Transportation Discounts | (11.51) | | (9.49) | | | (11.54) | | | (10.49) | | (11.54) | | Quality and Transportation Discounts | | (12.57) | | (8.98) | | | (12.78) | |
Average Realized Price | Average Realized Price | 61.72 | | 33.85 | | | 57.54 | | | 57.48 | | 30.99 | | Average Realized Price | | 85.33 | | 52.34 | | | 66.88 | |
Transportation Expenses | Transportation Expenses | (1.38) | | (0.82) | | | (1.74) | | | (1.48) | | (1.53) | | Transportation Expenses | | (1.39) | | (1.37) | | | (1.31) | |
Average Realized Price Net of Transportation Expenses | Average Realized Price Net of Transportation Expenses | 60.34 | | 33.03 | | | 55.80 | | | 56.00 | | 29.46 | | Average Realized Price Net of Transportation Expenses | | 83.94 | | 50.97 | | | 65.57 | |
Operating Expenses | Operating Expenses | (17.13) | | (13.20) | | | (15.14) | | | (16.26) | | (15.16) | | Operating Expenses | | (16.82) | | (16.24) | | | (18.15) | |
Operating Netback(1) | Operating Netback(1) | $ | 43.21 | | $ | 19.83 | | | $ | 40.66 | | | $ | 39.74 | | $ | 14.30 | | Operating Netback(1) | | $ | 67.12 | | $ | 34.73 | | | $ | 47.42 | |
(1) Operating netback is a non-GAAP measure whichthat does not have any standardized meaning prescribed under GAAP. Refer to "Financial“Financial and Operational Highlights—non-GAAP measures"measures” for a definition of this measure.
Oil sales for the three months ended September 30, 2021,March 31, 2022, increased by 155%83% to $135.3$174.6 million due to a 69%60% increase in Brent price and 40%12% higher sales volumes, partially offset by a 21%40% increase in the quality and transportation discounts as a result of the widening of the Castilla and Vasconia differentials compared to the corresponding period of 2020. Both the2021. Castilla and Vasconia differentials have widened from $4.65$3.99 and $3.01$2.40 in the third quarter of 2020 to $6.51 and $4.02 in the thirdfirst quarter of 2021 respectively. Forto $6.38 and $3.60 in the nine months ended September 30, 2021, oil sales increased by 89% to $327.4 million compared to the corresponding periodfirst quarter of 2020 due to a 60% increase in Brent price, higher sales volumes, and lower quality and transportation discounts.2022, respectively. Compared with the prior quarter, oil sales increased 40%19%, primarily as a result of a 6%23% increase in Brent price and lower quality and transportation discounts, partially offset by a 29% increase4% decrease in sales volumes.
The following table shows the effect of changes in realized price and sales volumes on our oil sales for the three and nine months ended September 30, 2021,March 31, 2022, compared to the prior quarter and the corresponding periodsperiod of 2020:2021:
| | | | | | | | | | | | | | | | | |
(Thousands of U.S. Dollars) | Third Quarter 2021 Compared with Second Quarter 2021 | | Third Quarter 2021 Compared with Third Quarter 2020 | | Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020 |
Oil sales for the comparative period | $ | 96,623 | | | $ | 53,142 | | | $ | 173,045 | |
Realized sales price increase effect | 9,162 | | | 61,106 | | | 150,930 | |
Sales volumes increase effect | 29,534 | | | 21,071 | | | 3,460 | |
Oil sales for the three and nine months ended September 30, 2021 | $ | 135,319 | | | $ | 135,319 | | | $ | 327,435 | |
| | | | | | | | | | | | | |
(Thousands of U.S. Dollars) | First Quarter 2022 Compared with Fourth Quarter 2021 | | First Quarter 2022 Compared with First Quarter 2021 | | |
Oil sales for the comparative period | $ | 146,287 | | | $ | 95,493 | | | |
Realized sales price increase effect | 37,757 | | | 67,487 | | | |
Sales volumes (decrease) increase effect | (9,475) | | | 11,589 | | | |
Oil sales for the three month ended March 31, 2022 | $ | 174,569 | | | $ | 174,569 | | | |
The average realized price for the three and nine months ended September 30, 2021,March 31, 2022, increased 82% and 85%63%, respectively, compared to the corresponding periodsperiod of 2020.2021. The increases wereincrease was commensurate with the rise in benchmark oil prices, and for the nine month period lower Vasconia and Castilla differentials, but for the three month period were partially offset by higher VasconiaCastilla and CastillaVasconia differentials. Compared to the prior quarter, the average realized price increased 7%28% due to higher benchmark oil prices offset by higherand lower Castilla and Vasconia differentials.
Operating expenses for the three and nine months ended September 30, 2021,March 31, 2022, increased $3.93 and $1.10by $0.58 per bbl to $37.6 million and $92.6$34.4 million or $17.13 and $16.26$16.82 per bbl, primarily due to increased operating activities and $0.44 per bbl higher power generation costsexpenses for chemicals used in Acordioneroour waterflood projects when compared to the corresponding periodsperiod of 2020. Lower operating activities during most of 2020 were attributed to the shut-in of higher-cost wells in response to the COVID-19 pandemic.2021. Compared to the prior quarter, operating expenses increased $1.99decreased by $1.33 per bbl from $25.4$39.7 million or $15.14$18.15 per bbl primarily due to higher costs associated with power generation and chemical costs in Acordionero and increasedlower workover activity.
We have options to sell our oil through multiple pipelines and trucking routes. Each option has varying effects on realized sales price and transportation expenses. The following table shows the percentage of oil volumes we sold in Colombia using each option for the three and nine months ended September 30,March 31, 2022, 2021, 2020, and the prior quarter:
| | | Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | | Three Months Ended December 31, |
| | 2021 | 2020 | | 2021 | | 2021 | 2020 | | | 2022 | 2021 | | 2021 |
Volume transported through pipeline | Volume transported through pipeline | 9 | % | — | % | | 9 | % | | 6 | % | 5 | % | Volume transported through pipeline | | — | % | — | % | | 26 | % |
Volume sold at wellhead | Volume sold at wellhead | 42 | % | 48 | % | | 24 | % | | 55 | % | 45 | % | Volume sold at wellhead | | 47 | % | 48 | % | | 24 | % |
Volume transported via truck to sales point | Volume transported via truck to sales point | 49 | % | 52 | % | | 67 | % | | 39 | % | 50 | % | Volume transported via truck to sales point | | 53 | % | 52 | % | | 50 | % |
| | 100 | % | 100 | % | | 100 | % | | 100 | % | 100 | % | | | 100 | % | 100 | % | | 100 | % |
Volumes transported through pipeline or via truck receive a higher realized price but incur higher transportation expenses. Conversely, volumes sold at the wellhead have the opposite effect of lower realized price, offset by lower transportation expenses.
Transportation expenses for the three months ended September 30, 2021,March 31, 2022, increased by 135%13% to $3.0$2.8 million and on a per bbl basis increased by 68%1% to $1.38$1.39 compared to the corresponding period of 2020 due to maintenance on the Impala terminal resulting2021. The increase in utilization of alternative transportation routes which had higher costs per bbl. For the nine months ended September 30, 2021, transportation expenses decreased by 1% to $8.4 million and on a per bbl basis decreased by 3% to $1.48 when compared to the corresponding period of 2020, as2021 was a result of higher truck tariffs and higher volumes sold at the wellhead during the current period which resultedtransported via truck in lower transportation costs.2022.
For the three months ended September 30, 2021,March 31, 2022, transportation expenses increaseddecreased by 3%1% compared to $2.9 million in the prior quarter due to increased sales volumes.higher volumes sold at wellhead. On a per bbl basis, transportation expenses decreasedincreased by 21%6% from $1.74$1.31 in the previous quarter due to the Company utilizing more favorable transportation routes as all blockades were lifted.higher truck tariffs and higher volumes transported via truck.
COVID-19 Costs
The COVID-19 pandemic has resulted in extra ongoing operating and transportation costs related to COVID-19 health and safety preventative measures, including incremental sanitation requirements and enhanced procedures for trucking barrels and crew changes in the field. For the three and nine months ended September 30,March 31, 2022, COVID-19 costs were $0.5 million entirely related to operating activities. For three months ended March 31, 2021, COVID-19 costs were $1.0$1.1 million and $3.0 million, respectively, comprised of $0.9 million and $2.7$1.0 million related to operating activities and $0.1 million and $0.3 million related to transportation activities. There were $1.1 million and $1.5 million COVID-19 costs for the three and nine months ended September 30, 2020, respectively, comprised of $1.0 million and $1.4 million related to operating activities and $0.1 million and $0.10.1 million related to transportation activities. For the prior quarter, COVID-19 costs were $0.9$0.7 million, comprised of $0.8 millionentirely related to operating and $0.1 million to transportation activities.
DD&A Expenses
| | | Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, | | Three Months Ended December 31, |
| | 2021 | 2020 | | 2021 | | 2021 | 2020 | | | 2022 | 2021 | | 2021 |
DD&A Expenses, thousands of U.S. Dollars | DD&A Expenses, thousands of U.S. Dollars | $ | 38,055 | | $ | 31,340 | | | $ | 28,927 | | | $ | 98,300 | | $ | 131,118 | | DD&A Expenses, thousands of U.S. Dollars | | $ | 40,963 | | $ | 31,318 | | | $ | 41,574 | |
DD&A Expenses, U.S. Dollars per bbl | DD&A Expenses, U.S. Dollars per bbl | 17.36 | | 19.96 | | | 17.23 | | | 17.26 | | 23.48 | | DD&A Expenses, U.S. Dollars per bbl | | 20.02 | | 17.17 | | | 19.01 | |
DD&A expenses for the three and nine months ended September 30, 2021,March 31, 2022, increased 21% and 25%, respectively,31% or $2.85 per bbl due to increased production compared to the corresponding periods of 2020. On a per bbl basis, DD&A expenses decreased by $2.60 and $6.22 per bbl, respectively, due to lowerhigher costs in the depletable base as a resultcompared to the corresponding period of ceiling test impairment losses recorded over the last three quarters of 2020.2021.
For the three months ended September 30, 2021,March 31, 2022, DD&A expenses increased 32%decreased 1% when compared to the prior quarter due to increasedlower production duringin the current quarter. On a per bbl basis, DD&A expenses were comparableincreased by $1.01 when compared to the previous quarter.
prior quarter due to higher costs in the depletable base.
Impairment
Asset impairment
(i) Oil and gas property impairment
For the three and nine months ended September 30, 2021, we had no ceiling test impairment losses. For the three and nine months ended September 30, 2020, we had $104.7 million and $502.9 million of ceiling test impairment losses. We used an average Brent price of $60.12 and $47.95 per bbl for September 30, 2021 and 2020, respectively, ceiling test calculations.
(ii) Inventory impairment
For the three and nine months ended September 30, 2021, we had no inventory impairment. For the three and nine months ended September 30, 2020, we recorded $0.1 million and $4.2 million, respectively, of inventory impairment.
Goodwill impairment
The entire goodwill balance of $102.6 million was impaired during the nine months ended September 30, 2020, due to the unit's carrying value exceeding its fair value as a result of the impact of lower forecasted commodity prices.
G&A Expenses
| | | Three Months Ended September 30, | | Three Months Ended June 30, | | Nine Months Ended September 30, | | | | Three Months Ended March 31, | | Three Months Ended December 31, | |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | 2021 | 2020 | | | 2021 | | 2021 | 2020 | | (Thousands of U.S. Dollars) | | | 2022 | 2021 | | 2021 | |
G&A Expenses Before Stock-Based Compensation | G&A Expenses Before Stock-Based Compensation | $ | 5,444 | | $ | 4,506 | | | | $ | 7,133 | | | $ | 18,475 | | $ | 17,183 | | | G&A Expenses Before Stock-Based Compensation | | | $ | 7,779 | | $ | 6,817 | | | $ | 8,473 | | |
G&A Stock-Based Compensation Expense (Recovery) | 1,053 | | 56 | | | | 1,873 | | | 6,597 | | (707) | | | |
G&A Stock-Based Compensation Expense | | G&A Stock-Based Compensation Expense | | | 4,557 | | 3,671 | | | 1,799 | | |
G&A Expenses, Including Stock-Based Compensation | G&A Expenses, Including Stock-Based Compensation | $ | 6,497 | | $ | 4,562 | | | | $ | 9,006 | | | $ | 25,072 | | $ | 16,476 | | | G&A Expenses, Including Stock-Based Compensation | | | $ | 12,336 | | $ | 10,488 | | | $ | 10,272 | | |
(U.S. Dollars Per bbl Sales Volumes NAR) | (U.S. Dollars Per bbl Sales Volumes NAR) | | | | | (U.S. Dollars Per bbl Sales Volumes NAR) | | | |
G&A Expenses Before Stock-Based Compensation | G&A Expenses Before Stock-Based Compensation | $ | 2.48 | | $ | 2.87 | | | | $ | 4.25 | | | $ | 3.24 | | $ | 3.08 | | | G&A Expenses Before Stock-Based Compensation | | | $ | 3.80 | | $ | 3.73 | | | $ | 3.87 | | |
G&A Stock-Based Compensation Expense (Recovery) | 0.48 | | 0.04 | | | | 1.12 | | | 1.16 | | (0.13) | | | |
G&A Stock-Based Compensation Expense | | G&A Stock-Based Compensation Expense | | | 2.23 | | 2.01 | | | 0.82 | | |
G&A Expenses, Including Stock-Based Compensation | G&A Expenses, Including Stock-Based Compensation | $ | 2.96 | | $ | 2.91 | | | | $ | 5.37 | | | $ | 4.40 | | $ | 2.95 | | | G&A Expenses, Including Stock-Based Compensation | | | $ | 6.03 | | $ | 5.74 | | | $ | 4.69 | | |
For the three and nine months ended September 30, 2021,March 31, 2022, G&A expenses before stock-based compensation increased by 21%14% to $7.8 million or $0.07 per bbl to $3.80 per bbl due to higher costs for special projects and 8%, respectively, consistent with an increase of operating activities in 2021travel costs in 2022 when compared to the corresponding periodsperiod of 2020. On a per bbl basis, for the three months ended September 30, 2021,2021. When compared to prior quarter, G&A expenses before stock-based compensation decreased by 14% to $2.48 as a result of higher sales volumes8% and increased by 5% to $3.24 for the nine months ended September 30, 2021, as a result of increased operating activities when compared to the corresponding periods of 2020. For the three months ended September 30, 2021, G&A expenses before stock-based compensation decreased by 24% to $5.4 million or 42% to $2.48were comparable on a per bbl basis compared to the prior quarter due to lower accrued performance bonus for the first quarter of 2022 due to timing of certain costs incurred and expensed in the prior quarter.fourth quarter 2021 bonus accrual.
G&A expenses after stock-based compensation for the three and nine months ended September 30, 2021,March 31, 2022, increased by 42% and 52% (2% and 49%18% or $0.29 per bbl), respectively,bbl, compared to the corresponding periodsperiod of 2020,2021, mainly due to higher stock-based compensation resulting from a higher share price. Compared to prior quarter, G&A expenses after stock-based compensation for the three months ended September 30, 2021, decreasedincreased by 28%20% or 45%$1.34 on a per bbl basis, compared with the prior quarter, due to the timing of certain costs incurred and expensedhigher stock-based compensation resulting from a higher share price in the priorcurrent quarter.
Foreign Exchange Gains and Losses
For the three and nine months ended September 30, 2021,March 31, 2022, we had a $2.7$3.7 million and $15.8 million, respectively, lossgain on foreign exchange compared to a $4.3 million and a $20.1$13.1 million loss for the corresponding periodsperiod of 2020.2021. Accounts receivable, taxes receivable, deferred income taxes, accounts payable, and investmentprepaid equity forward (“PEF”) are considered monetary items and require translation from local currency to U.S. dollar
functional currency at each balance sheet date. This translation was the primary source of the foreign exchange gains and losses in the periods.
The following table presents the change in the U.S. dollar against the Colombian peso and Canadian dollar for the three and nine months ended September 30, 2021,March 31, 2022, and 2020:2021:
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
| | 2021 | 2020 | | 2021 | 2020 | | | 2022 | 2021 |
Change in the U.S. dollar against the Colombian peso | Change in the U.S. dollar against the Colombian peso | strengthened by | strengthened by | | strengthened by | strengthened by | Change in the U.S. dollar against the Colombian peso | | weakened by | strengthened by |
2% | 3% | | 12% | 18% | | 6% | 9% |
Change in the U.S. dollar against the Canadian dollar | Change in the U.S. dollar against the Canadian dollar | strengthened by | weakened by | | strengthened by | strengthened by | Change in the U.S. dollar against the Canadian dollar | | weakened by | weakened by |
3% | 2% | | —% | 3% | | 2% | 1% |
Financial Instrument Gains and Losses
The following table presents the nature of our derivative and other financial instruments gains and losses for the three and nine months ended September 30, 2021,March 31, 2022, and 2020:2021:
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(Thousands of U.S. Dollars) | 2021 | 2020 | | 2021 | 2020 |
Commodity price derivatives loss (gain) | $ | 2,586 | | $ | (2,206) | | | $ | 47,435 | | $ | (12,983) | |
Foreign currency derivatives loss | 17 | | 33 | | | 105 | | 3,566 | |
Derivative instruments loss (gain) | $ | 2,603 | | $ | (2,173) | | | $ | 47,540 | | $ | (9,417) | |
| | | | | |
Unrealized PetroTal investment (gain) loss | $ | (13,616) | | $ | 1,055 | | | $ | (17,477) | | $ | 60,124 | |
Loss on sale of PetroTal shares | — | | — | | | 5,070 | | — | |
Financial instruments (gain) loss | (18) | | 405 | | | (18) | | 1,162 | |
Other financial instruments (gain) loss | $ | (13,634) | | $ | 1,460 | | | $ | (12,425) | | $ | 61,286 | |
| | | | | | | | | | | |
| | | Three Months Ended March 31, |
(Thousands of U.S. Dollars) | | | | 2022 | 2021 |
Commodity price derivatives loss | | | | $ | 21,439 | | $ | 23,632 | |
Foreign currency derivatives loss | | | | — | | 66 | |
Derivative instruments loss | | | | $ | 21,439 | | $ | 23,698 | |
| | | | | |
Unrealized PetroTal investment gain | | | | $ | — | | $ | (6,475) | |
Loss on sale of PetroTal shares | | | | — | | 5,070 | |
Other financial instruments gain | | | | $ | — | | $ | (1,405) | |
Income Tax Expense
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | | | Three Months Ended March 31, |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | 2021 | 2020 | | 2021 | 2020 | (Thousands of U.S. Dollars) | | 2022 | 2021 |
Income (loss) before income tax | Income (loss) before income tax | $ | 43,962 | | $ | (128,386) | | | $ | 6,753 | | $ | (792,332) | | Income (loss) before income tax | | $ | 53,659 | | $ | (28,771) | |
| Current income tax expense (recovery) | $ | — | | $ | 637 | | | $ | (14) | | $ | 560 | | |
Deferred income tax expense (recovery) | 8,955 | | (21,202) | | | 26,809 | | (62,796) | | |
Total income tax expense (recovery) | $ | 8,955 | | $ | (20,565) | | | $ | 26,795 | | $ | (62,236) | | |
Current income tax expense | | Current income tax expense | | $ | 20,827 | | $ | — | |
Deferred income tax expense | | Deferred income tax expense | | 18,713 | | 8,651 | |
Total income tax expense | | Total income tax expense | | $ | 39,540 | | $ | 8,651 | |
| Effective tax rate | Effective tax rate | 20 | % | 16 | % | | 397 | % | 8 | % | Effective tax rate | | 74 | % | (30) | % |
|
Current income tax expense was in a recovery position$20.8 million for the ninethree months ended September 30, 2021, versus anMarch 31, 2022, compared to no current tax expense position forin the comparativecorresponding period in 2020,2021, primarily due to changesan increase in the previous estimation of presumptive minimum tax.taxable income. The deferred income tax expense for the ninethree months ended September 30,March 31, 2022, was mainly the result of tax depreciation being higher than accounting depreciation in Colombia. The deferred income tax expense in the comparative period of 2021 resulted fromwas the result of excess tax depreciation compared with accounting depreciation and the use of tax losses to offset taxable income in Colombia. The deferred income tax recovery in the comparative period of 2020 was mainly the result of a ceiling test impairment loss in Colombia, partially offset by losses incurred in Colombia that are now fully offset by a valuation allowance.
For the ninethree months ended September 30,March 31, 2022, the difference between the effective tax rate of 74% and the 35% Colombian tax rate was primarily due to increase in the impact of foreign taxes, foreign translation adjustments, increase in the valuation allowance, other permanent differences, and non-deductible stock-based compensation.
For the three months ended March 31, 2021, the difference between the effective tax rate of 397%(30)% and the 31% Colombian tax rate was primarily due to the non-deductibility of derivative instrument losses and financing costs; foreign currency translation adjustments, and stock based compensation. These were partially offset by a decrease in valuation allowance and the non-taxable portion (50%) of the unrealized gain on PetroTal Corp. ("PetroTal") shares.
In the third quarter of 2021, Congressional authorities in Colombia enacted a new tax legislation, which includes an increase to the corporate income tax rate to 35% from 31%, effective January 1, 2022. Accordingly, the tax rates applied to the calculation of deferred income taxes, before valuation allowances, have been adjusted to reflect this change.
For the nine months ended September 30, 2020, the difference between the effective tax rate of 8% and the 32% Colombian tax rate was primarily due to an increase in the valuation allowance, the non-deductibilityimpact of goodwill impairment for tax purposes,foreign taxes, foreign translation adjustments and the non-deductible portion (50%) of the unrealized loss on PetroTal shares.
other permanent differences, which was partially offset by a decrease in valuation allowance.
Net Income and Funds Flow from Operations (a Non-GAAP Measure)
| (Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | Third Quarter 2021 Compared with Second Quarter 2021 | % change | Third Quarter 2021 Compared with Third Quarter 2020 | % change | Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020 | % change | (Thousands of U.S. Dollars) | First Quarter 2022 Compared with Fourth Quarter 2021 | % change | First Quarter 2022 Compared with First Quarter 2021 | % change | |
Net loss for the comparative period | $ | (17,627) | | | $ | (107,821) | | | $ | (730,096) | | | |
Net income (loss) for the comparative period | | Net income (loss) for the comparative period | $ | 62,524 | | | $ | (37,422) | | | |
Increase (decrease) due to: | Increase (decrease) due to: | | Increase (decrease) due to: | | |
Sales price | Sales price | 9,162 | | | 61,106 | | | 150,930 | | | Sales price | 37,757 | | | 67,487 | | | |
Sales volumes | Sales volumes | 29,534 | | | 21,071 | | | 3,460 | | | Sales volumes | (9,475) | | | 11,589 | | | |
Expenses: | Expenses: | | Expenses: | | |
Operating | Operating | (12,136) | | | (16,846) | | | (7,950) | | | Operating | 5,308 | | | (4,775) | | | |
Transportation | Transportation | (100) | | | (1,735) | | | 101 | | | Transportation | 33 | | | (328) | | | |
Cash G&A | Cash G&A | 1,689 | | | (938) | | | (1,292) | | | Cash G&A | 694 | | | (962) | | | |
Net lease payments | Net lease payments | 47 | | | (70) | | | (107) | | | Net lease payments | 4 | | | 85 | | | |
Severance | Severance | — | | | 122 | | | 550 | | | Severance | — | | | — | | | |
Interest, net of amortization of debt issuance costs | Interest, net of amortization of debt issuance costs | 340 | | | 490 | | | (1,243) | | | Interest, net of amortization of debt issuance costs | 658 | | | 1,690 | | | |
Realized foreign exchange | Realized foreign exchange | 429 | | | 2,010 | | | (1,120) | | | Realized foreign exchange | (1,395) | | | (1,034) | | | |
Cash settlements on derivative instruments | Cash settlements on derivative instruments | 16,973 | | | (2,959) | | | (55,011) | | | Cash settlements on derivative instruments | 4,790 | | | 4,808 | | | |
Current taxes | Current taxes | (14) | | | 637 | | | 574 | | | Current taxes | (16,334) | | | (20,827) | | | |
Other loss | Other loss | — | | | (1,959) | | | (1,959) | | | Other loss | — | | | — | | | |
COVID-19 related costs | COVID-19 related costs | (93) | | | 118 | | | (1,497) | | | COVID-19 related costs | 133 | | | 604 | | | |
Interest income | — | | | — | | | (345) | | | |
| Net change in funds flow from operations(1) from comparative period | Net change in funds flow from operations(1) from comparative period | 45,831 | | | 61,047 | | | 85,091 | | | Net change in funds flow from operations(1) from comparative period | 22,173 | | | 58,337 | | | |
Expenses: | Expenses: | | Expenses: | | |
Depletion, depreciation and accretion | Depletion, depreciation and accretion | (9,128) | | | (6,715) | | | 32,818 | | | Depletion, depreciation and accretion | 611 | | | (9,645) | | | |
Goodwill impairment | Goodwill impairment | — | | | — | | | 102,581 | | | Goodwill impairment | — | | | — | | | |
Asset impairment | Asset impairment | — | | | 104,731 | | | 507,093 | | | Asset impairment | — | | | — | | | |
Deferred tax | Deferred tax | 248 | | | (30,157) | | | (89,605) | | | Deferred tax | (69,347) | | | (10,062) | | | |
Amortization of debt issuance costs | Amortization of debt issuance costs | (13) | | | (69) | | | 92 | | | Amortization of debt issuance costs | 240 | | | (6) | | | |
Stock-based compensation | Stock-based compensation | 820 | | | (997) | | | (7,304) | | | Stock-based compensation | (2,758) | | | (886) | | | |
Derivative instruments gain or loss, net of settlements on derivative instruments | Derivative instruments gain or loss, net of settlements on derivative instruments | 1,663 | | | (1,817) | | | (1,946) | | | Derivative instruments gain or loss, net of settlements on derivative instruments | (24,931) | | | (2,549) | | | |
Other financial instruments gain or loss | Other financial instruments gain or loss | 16,248 | | | 15,094 | | | 73,711 | | | Other financial instruments gain or loss | 15,794 | | | (1,405) | | | |
Unrealized foreign exchange | Unrealized foreign exchange | (2,988) | | | (385) | | | 5,390 | | | Unrealized foreign exchange | 9,773 | | | 17,842 | | | |
Other Loss | — | | | 2,026 | | | 2,026 | | | |
Other loss | | Other loss | 44 | | | — | | | |
Net lease payments | Net lease payments | (47) | | | 70 | | | 107 | | | Net lease payments | (4) | | | (85) | | | |
Net change in net loss | 52,634 | | | 142,828 | | | 710,054 | | | |
Net income (loss) for the current period | $ | 35,007 | | 299% | $ | 35,007 | | 132% | $ | (20,042) | | 97% | |
Net change in net income (loss) | | Net change in net income (loss) | (48,405) | | | 51,541 | | | |
Net income for the current period | | Net income for the current period | $ | 14,119 | | (77)% | $ | 14,119 | | 138% | |
(1)Funds flow from operations is a non-GAAP measure whichthat does not have any standardized meaning prescribed under GAAP. Refer to "Financial and Operational Highlights—non-GAAP measures" for a definition and reconciliation of this measure.
Capital expenditures during the three months ended September 30, 2021March 31, 2022 were $34.8$41.5 million:
| | | | | |
(Millions of U.S. Dollars) | |
Colombia: | |
Exploration | $ | 6.63.7 | |
Development: | |
Drilling and Completions | 9.618.7 | |
Facilities | 6.32.5 | |
Other | 11.814.1 | |
| 34.339.0 | |
Corporate & Ecuador | 0.52.5 | |
| $ | 34.841.5 | |
During the three months ended September 30, 2021,March 31, 2022, we commenced drilling the following wells in Colombia:
| | | | | |
| Number of wells (Gross and Net) |
Development | 6.0 | |
Service | 2.0 | |
| |
8.0 | |
We spud twosix development wells and two water injection wells, of which five were in the Midas Block, both of whichand three were producingin the Chaza Block. Of the wells spud during the quarter three were completed, and three were in-progress as of September 30, 2021.March 31, 2022.
Liquidity and Capital Resources
| | | As at | | As at |
(Thousands of U.S. Dollars) | (Thousands of U.S. Dollars) | September 30, 2021 | | % Change | | December 31, 2020 | (Thousands of U.S. Dollars) | March 31, 2022 | | % Change | | December 31, 2021 |
Cash and Cash Equivalents | Cash and Cash Equivalents | $ | 16,600 | | | 18 | | | $ | 14,114 | | Cash and Cash Equivalents | $ | 58,707 | | | 125 | | | $ | 26,109 | |
| | Revolving Credit Facility | Revolving Credit Facility | $ | 150,000 | | | (21) | | | $ | 190,000 | | Revolving Credit Facility | $ | 40,000 | | | (41) | | | $ | 67,500 | |
| 6.25% Senior Notes | 6.25% Senior Notes | $ | 300,000 | | | — | | | $ | 300,000 | | 6.25% Senior Notes | $ | 300,000 | | | — | | | $ | 300,000 | |
| 7.75% Senior Notes | 7.75% Senior Notes | $ | 300,000 | | | — | | | $ | 300,000 | | 7.75% Senior Notes | $ | 300,000 | | | — | | | $ | 300,000 | |
The outbreak ofWe believe that our capital resources, including cash on hand, cash generated from operations and available capacity on our credit facility, will provide us with sufficient liquidity to meet our strategic objectives and planned capital program for the COVID-19 virus, which was declared a pandemic by the World Health Organizationnext 12 months and beyond, given current oil price trends and production levels. We may also pursue financing through capital markets. In accordance with our investment policy, available cash balances are held in March 2020, spread across the globeour primary cash management banks or may be invested in U.S. or Canadian government-backed federal, provincial or state securities or other money market instruments with high credit ratings and impacted worldwide economic activity. In 2020, global commodity prices declined significantly during the first half of 2020 due to disputes between major oil producing countries combinedshort-term liquidity. We believe that our current financial position provides us with the impact of the COVID-19 pandemicflexibility to respond to both internal growth opportunities and associated reductionsthose available through acquisitions. We intend to pursue growth opportunities and acquisitions from time to time, which may require significant capital, be located in global demand for oil. Governments worldwide, including those in Colombiabasins or countries beyond our current operations, involve joint ventures, or be sizable as compared to our current assets and Ecuador, the countries where we operate, enacted emergency measures to combat the spread of the virus. These measures, which include the implementation of travel bans, self-imposed quarantine periods and social distancing, have caused, and may continue to cause, material disruption to businesses globally resulting in an economic slowdown. While global commodity prices have improved since historic lows during the first half of 2020, the current challenging economic climate had and may continue to have significant adverse impacts on our Company including, but not exclusively:
•material declines in revenue and cash flows as a result of the decline in commodity prices;
•declines in revenue and operating activities due to reduced capital programs and the shut-in of production;
•impairment charges;
•inability to comply with covenants and restrictions in debt agreements;
•inability to access financing sources;
•increased risk of non-performance by our customers and suppliers;
•interruptions in operations as we adjust personnel to the dynamic environment; and
•inability to operate or delay in operations as a result COVID-19 restrictions in the countries in which we operate
Based on current forecasted Brent pricing and production levels, which can change materially in very short time frames, we forecasted to comply with the financial covenants contained in the revolving credit facility for at least the next year from the date of these financial statements. The amount available under our senior secured credit facility is based on the lender's borrowing base determination. The borrowing base is determined, by the lenders, based on our reserves and commodity prices. The next renewal of the borrowing base is in November 2021, and there is a risk that the lenders may reduce the borrowing base. In addition, our ability to borrow under the credit facility may be limited by the terms of the indentures for the 6.25% Senior Notes and 7.75% Senior Notes.
The risk of non-compliance with the covenants in the lending agreements and the risk associated with maintaining the borrowing base is heightened in the current period of volatility coupled with the unprecedented disruption caused by the COVID-19 pandemic. We currently expect to continue to meet the terms of the credit facility or obtain further amendments or waivers if and when required. We also expect to maintain the borrowing base at a level in excess of the amount borrowed. However, there can be no assurances that our liquidity can be maintained at or above current levels during this period of volatility and global economic uncertainty.
The situation is dynamic, and the ultimate duration and magnitude of the impact on the economy and the financial effect on our Company is not known at this time.operations.
As at September 30, 2021,March 31, 2022, the borrowing base of our Senior Secured Credit Facility (the "revolving“revolving credit facility"facility”) was $215$150 million, with the$125 million readily available and $25 million subject to approval by majority lenders. The next re-determination towill occur no later than May 2022. The maturity date of the borrowings under the revolving credit facility is November 2021. 10, 2022.
We are required to comply with various covenants, which have been modified in response to the recent market conditions and the COVID-19 pandemic. We have obtained relief from compliance with certain financial covenants, which expired on October 1, 2021 ("the covenant relief period"). During the covenant relief period, our ratio of total debt to EBITDAX was permitted to be greater than 4.0 to 1.0, our Senior Secured Debt to EBITDAX ratio could not exceed 2.5 to 1.0, and our EBITDAX to interest expense ratio for the trailing four-quarter periods measured as of the last day of the fiscal quarters ending as of the last day of the fiscal quarters ended September 30, 2021, was required to be at least 2.0 to 1.0. We are required to comply with various covenants, which as disclosed above, have been modified in response to the current market conditions and the COVID-19 pandemic. As of September 30, 2021, we were in compliance with all applicable covenants in the revolving credit facility.
After the expiration of the covenant relief period on October 1, 2021, we must maintain compliance with the following financial covenants: limitations on our ratio of debt to EBITDAX to a maximum of 4.0 to 1.0; limitations on our ratio of Senior Secured Debt to EBITDAX to a maximum of 3.0 to 1.0; and the maintenance of a ratio of EBITDAX to interest expense of at least 2.5 to 1.0. If we fail to comply with these financial covenants, it wouldwill result in a default under the terms of the credit agreement, which could result in an acceleration of repayment of all indebtedness under the Company'sCompany’s revolving credit facility. At March 31, 2022, we were in compliance with all applicable covenants.
Amounts drawn under the revolving credit facility bear interest, at the borrower'sborrower’s option, USD LIBOR plus a margin ranging from 2.90% to 4.90%, or base rate plus a margin ranging from 1.90% to 3.90%, in each case based on the borrowing base utilization percentage. The alternate base rate is currently the U.S. prime rate. We pay a commitment fee on undrawn amounts under the revolving credit facility, which ranges from 0.73% to 1.23% per annum, based on the average daily amount of unused commitments.
At September 30, 2021,March 31, 2022, we had $150.040.0 million drawn under the revolving credit facility. During the thirdfirst quarter of 2021,2022, we repaid $25.0$27.5 million of the amount drawn under the revolving credit facility.facility using cash flows from operations. Accordingly, we had $65.0110.0 million of availability under the revolving credit facility as of September 30, 2021.March 31, 2022. As of OctoberApril 29, 2021,2022, outstanding borrowings under our revolving credit facility were further reduced to $130.010.0 million using .cash flows from operations.
At September 30, 2021,March 31, 2022, we had a $300.0 million aggregate principal amount of 6.25% Senior Notes due 2025 and a $300.0 million aggregate principal amount of 7.75% Senior Notes due 2027 outstanding. An event of default under the revolving credit facility would result in a default under the indentures governing the senior notes, which could allow the noteholders to require us to repurchase all of the outstanding Senior Notes.
In accordance with our investment policy, available cash balances are held in our primary cash management banks or invested in U.S. or Canadian government-backed federal, provincial, or state securities or other money market instruments with high credit ratings and short-term liquidity.
Derivative Positions
At September 30, 2021,March 31, 2022, we had outstanding commodity price derivative positions as follows:
| | | | | | | | | | | | | | | | | | | | |
Period and type of instrument | Volume, bopd | Reference | Sold Put ($/bbl, Weighted Average) | Purchased Put ($/bbl, Weighted Average) | Sold Call ($/bbl, Weighted Average) | Swap Price ($/bbl, Weighted Average) |
Three-way Collars: October 1, to December 31, 2021 | 7,000 | | ICE Brent | 47.14 | | 57.14 | | 68.95 | | n/a |
Swaps: October 1, to December 31, 2021 | 3,000 | | ICE Brent | n/a | n/a | n/a | 56.75 | |
Foreign Currency Derivatives | | | | | | | | | | | | | | | | | | | | | | | |
Period and type of instrument | Volume, bopd | Reference | Sold Swap ($/bbl, Weighted Average) | Sold Put ($/bbl, Weighted Average) | Purchased Put ($/bbl, Weighted Average) | Sold Call ($/bbl, Weighted Average) | Premium ($/bbl Weighted Average) |
Three-way Collars: April 1, to June 30, 2022 | 5,000 | | ICE Brent | — | | 64.00 | | 74.00 | | 91.72 | | — | |
Swaps: April 1, to June 30, 2022 | 3,000 | | ICE Brent | 80.77 | | — | | — | | — | | — | |
Deferred Puts: April 1, to June 30, 2022 | 1,000 | | ICE Brent | — | | — | | 70.00 | | — | | 4.00 | |
At September 30, 2021, we had outstanding foreign currency derivative positions as follows:
| | | | | | | | | | | | | | | | | |
Period and type of instrument | Amount Hedged (Millions COP) | U.S. Dollar Equivalent of Amount Hedged (Thousands of U.S. Dollars)(1) | Reference | Floor Price (COP, Weighted Average) | Cap Price (COP, Weighted Average) |
Collars: October 1, to December 31, 2021 | 3,000 | 782 | COP | 3,500 | 3,630 |
(1) At September 30, 2021 foreign exchange rate.
At September 30, 2021,March 31, 2022, our balance sheet included $14.7$18.9 million of current liabilities related to the above outstanding commodity price and foreign currency derivative positions.
Cash Flows
The following table presents our primary sources and uses of cash and cash equivalents for the periods presented:
| | | Nine Months Ended September 30, | | Three Months Ended March 31, |
(Thousands of U.S. Dollars)
| (Thousands of U.S. Dollars)
| 2021 | 2020 | (Thousands of U.S. Dollars) | 2022 | 2021 |
Sources of cash and cash equivalents: | Sources of cash and cash equivalents: | | Sources of cash and cash equivalents: | |
Net loss | $ | (20,042) | | $ | (730,096) | | |
Net income (loss) | | Net income (loss) | $ | 14,119 | | $ | (37,422) | |
Adjustments to reconcile net loss to Adjusted EBITDA(1) and funds flow from operations(1) | Adjustments to reconcile net loss to Adjusted EBITDA(1) and funds flow from operations(1) | | Adjustments to reconcile net loss to Adjusted EBITDA(1) and funds flow from operations(1) | |
DD&A expenses | DD&A expenses | 98,300 | | 131,118 | | DD&A expenses | 40,963 | | 31,318 | |
Interest expense | Interest expense | 41,355 | | 40,204 | | Interest expense | 12,128 | | 13,812 | |
Income tax expense (recovery) | 26,795 | | (62,236) | | |
Goodwill impairment | — | | 102,581 | | |
Asset impairment | — | | 507,093 | | |
Income tax expense | | Income tax expense | 39,540 | | 8,651 | |
Other loss | Other loss | — | | 2,026 | | Other loss | — | | — | |
Non-cash lease expenses | Non-cash lease expenses | 1,222 | | 1,494 | | Non-cash lease expenses | 411 | | 444 | |
Lease payments | Lease payments | (1,239) | | (1,404) | | Lease payments | (344) | | (462) | |
Unrealized foreign exchange loss | 16,945 | | 22,335 | | |
Stock-based compensation expense (recovery) | 6,597 | | (707) | | |
Unrealized foreign exchange (gain) loss | | Unrealized foreign exchange (gain) loss | (4,839) | | 13,003 | |
Stock-based compensation expense | | Stock-based compensation expense | 4,557 | | 3,671 | |
Unrealized derivative instruments loss | Unrealized derivative instruments loss | 2,499 | | 553 | | Unrealized derivative instruments loss | 12,843 | | 10,294 | |
Other financial instruments (gain) loss | (12,425) | | 61,286 | | |
Other financial instruments gain | | Other financial instruments gain | — | | (1,405) | |
Adjusted EBITDA(1) | Adjusted EBITDA(1) | 160,007 | | 74,247 | | Adjusted EBITDA(1) | 119,378 | | 41,904 | |
Current income tax recovery (expense) | 14 | | (560) | | |
Current income tax expense | | Current income tax expense | (20,827) | | — | |
Contractual interest and other financing expenses | Contractual interest and other financing expenses | (38,673) | | (37,430) | | Contractual interest and other financing expenses | (11,241) | | (12,931) | |
Funds flow from operations(1) | Funds flow from operations(1) | 121,348 | | 36,257 | | Funds flow from operations(1) | 87,310 | | 28,973 | |
Proceeds from debt, net of issuance costs | — | | 88,382 | | |
Proceeds from issuance of Senior Notes, net of issuance costs | — | | — | | |
Proceeds from issuance of exercise of stock options | Proceeds from issuance of exercise of stock options | 19 | | — | | Proceeds from issuance of exercise of stock options | 980 | | — | |
Proceeds from issuance of shares of Common Stock, net of issuance costs | | Proceeds from issuance of shares of Common Stock, net of issuance costs | 2 | | — | |
Proceeds from disposition of investment, net of transaction costs | Proceeds from disposition of investment, net of transaction costs | 14,632 | | — | | Proceeds from disposition of investment, net of transaction costs | — | | 14,632 | |
Net changes in assets and liabilities from operating activities | Net changes in assets and liabilities from operating activities | 17,956 | | 23,288 | | Net changes in assets and liabilities from operating activities | 16,520 | | 13,128 | |
Changes in non-cash investing working capital | 709 | | — | | |
| | 154,664 | | 147,927 | | | 104,812 | | 56,733 | |
| Uses of cash and cash equivalents: | Uses of cash and cash equivalents: | | Uses of cash and cash equivalents: | |
Additions to property, plant and equipment | Additions to property, plant and equipment | (109,650) | | (56,378) | | Additions to property, plant and equipment | (41,483) | | (37,427) | |
| Repayment of debt | Repayment of debt | (40,000) | | (7,000) | | Repayment of debt | (27,525) | | (10,125) | |
| Debt issuance costs | (125) | | — | | |
| | Changes in non-cash investing working capital | Changes in non-cash investing working capital | — | | (69,549) | | Changes in non-cash investing working capital | (1,803) | | (708) | |
Settlement of asset retirement obligations | Settlement of asset retirement obligations | (483) | | (199) | | Settlement of asset retirement obligations | (5) | | (169) | |
Lease payments | Lease payments | (1,269) | | (307) | | Lease payments | (777) | | (513) | |
Foreign exchange loss on cash, cash equivalents and restricted cash and cash equivalents | (528) | | (754) | | |
Foreign exchange gain (loss) on cash, cash equivalents and restricted cash and cash equivalents | | Foreign exchange gain (loss) on cash, cash equivalents and restricted cash and cash equivalents | 478 | | (446) | |
| | (152,055) | | (134,187) | | | (71,115) | | (49,388) | |
Net increase in cash and cash equivalents and restricted cash and cash equivalents | Net increase in cash and cash equivalents and restricted cash and cash equivalents | $ | 2,609 | | $ | 13,740 | | Net increase in cash and cash equivalents and restricted cash and cash equivalents | $ | 33,697 | | $ | 7,345 | |
(1) Adjusted EBITDA and funds flow from operations are a non-GAAP measures which do not have any standardized meaning prescribed under GAAP. Refer to “Financial and Operational Highlights - non-GAAP measures” for a definition and reconciliation of this measure.
One of the primary sources of variability in our cash flows from operating activities is the fluctuation in oil prices, the impact of which we partially mitigate by entering into commodity price derivatives. Sales volume changes and costs related to operations and debt service also impact cash flows. Our cash flows from operating activities are also impacted by foreign currency exchange rate changes, the impact of which we partially mitigate by entering into foreign currency derivatives.changes. During the ninethree months ended September 30, 2021,March 31, 2022, funds flow from operations increased by 235%201% compared to the corresponding period of 20202021 primarily due to a significant increase in Brent price and increase in production,
which were partially offset by higher Castilla and Vasconia differentials and an increase in operating expenses and cash settlements on derivative instruments.
Off-Balance Sheet Arrangements
As at September 30, 2021, we had no off-balance sheet arrangements.
Contractual Obligations
At September 30, 2021, we had $150.0 million drawn under our revolving credit facility.
Except for noted above, as at September 30, 2021, there were no other material changes to our contractual obligations outside of the ordinary course of business from those as at December 31, 2020.
Critical Accounting Policies and Estimates
Our critical accounting policies and estimates are disclosed in Item 7 of our 20202021 Annual Report on Form 10-K and have not changed materially since the filing of that document.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Commodity price risk
Our principal market risk relates to oil prices. Oil prices are volatile and unpredictable and influenced by concerns over world supply and demand imbalance and many other market factors outside of our control. Most of our revenues are from oil sales at prices which reflect the blended prices received upon shipment by the purchaser at defined sales points or are defined by contract relative to ICE Brent and adjusted for quality each month.
We have entered into commodity price derivative contracts to manage the variability in cash flows associated with the forecasted sale of our oil production, reduce commodity price risk and provide a base level of cash flow in order to assure we can execute at least a portion of our capital spending.
Foreign currency risk
Foreign currency risk is a factor for our Company but is ameliorated to a certain degree by the nature of expenditures and revenues in the countries where we operate. Our reporting currency is U.S. dollars and 100% of our revenues are related to the U.S. dollar price of Brent or WTI oil. We receive 100% of our revenues in U.S. dollars and the majority of our capital expenditures is in U.S. dollars or is based on U.S. dollar prices. The majority of income and value added taxes, operating and G&A expenses in Colombia are in local currency. Certain G&A expenses incurred at our head office in Canada are denominated in Canadian dollars. While we operate in South America exclusively, the majority of our acquisition expenditures have been valued and paid in U.S. dollars.
We have entered into foreign currency derivative contracts to manage the variability in cash flows associated with our forecasted Colombian peso denominated costs.
Additionally, foreign exchange gains and losses result primarily from the fluctuation of the U.S. dollar to the Colombian peso due to our current and deferred tax liabilities, which are monetary liabilities, denominated in the local currency of the Colombian foreign operations. As a Smaller Reporting Company, weresult, a foreign exchange gain or loss must be calculated on conversion to the U.S. dollar functional currency.
Interest Rate Risk
Interest rate risk is the risk that future cash flows will fluctuate as a result of changes in market interest rates. We are exposed to interest rate fluctuations on our revolving credit facility, which bears floating rates of interest. At March 31, 2022, our outstanding balance under revolving credit facility was $40.0 million (December 31, 2021 - $67.5 million).
Further Information
See Note 11 in the Notes to the Condensed Consolidated Financial Statements (Unaudited) in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for further information regarding our derivative contracts, including the notional amounts and call and put prices by expected (contractual) maturity dates. Expected cash flows from the derivatives equaled the fair value of the contract. The information is presented in U.S. dollars because that is our reporting currency. We do not required to provide information under this Item 3.hold any of these derivative contracts for trading purposes.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or Exchange Act). Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by Gran Tierra in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report, as required by Rule l3a-15(b) of the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that Gran Tierra'sTierra’s disclosure controls and procedures were effective as of September 30, 2021.March 31, 2022.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended September 30, 2021,March 31, 2022, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
PART II - Other Information
Item 1. Legal Proceedings
See Note 119 in the Notes to the Condensed Consolidated Financial Statements (Unaudited) in Part I, Item 1 of this Quarterly Report on Form 10-Q, which is incorporated herein by reference, for any material developments with respect to matters previously reported in our Annual Report on Form 10-K for the year ended December 31, 2020,2021, and any material matters that have arisen since the filing of such report.
Item 1A. Risk Factors
There are numerous factors that affect our business and results of operations, many of which are beyond our control. In addition to information set forth in this quarterly report on Form 10-Q, including in Part I, Item 2 "Management's“Management’s Discussion and Analysis of Financial Condition and Results of Operations"Operations”, you should carefully read and consider the factors set out in Part I, Item 1A "Risk Factors"“Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.2021. These risk factors could materially affect our business, financial condition and results of operations. The unprecedented nature of the current pandemic and downturnthe volatility in the worldwide economy and oil and gas industry may make it more difficult to identify all the risks to our business, results of operations and financial condition and the ultimate impact of identified risks.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 6. Exhibits
| | | | | | | | | | | |
Exhibit No. | Description | | Reference |
| | | |
3.1 | | | Incorporated by reference to Exhibit 3.3 to the Current Report on Form 8-K, filed with the SEC on November 4, 2016 (SEC File No. 001-34018). |
| | | |
3.2 | | | Incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K, filed with the SEC on November 4, 2016 (SEC File No. 001-34018). |
| | | |
3.3 | | | Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on July 9, 2018 (SEC File No. 001-34018). |
| | | |
3.4 | | | Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the SEC on August 4, 2021 (SEC File No. 001-34018). |
| | | |
31.1 | | | Filed herewith. |
| | | | |
31.2 | | | Filed herewith. |
| | | |
32.1 | | | Furnished herewith. |
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH Inline XBRL Taxonomy Extension Schema Document
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.The cover page from Gran Tierra Energy Inc.'s’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2021,March 31, 2022, formatted in Inline XBRL (included within the Exhibit 101 attachments).
*Management contract or compensatory plan or arrangement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
GRAN TIERRA ENERGY INC.
| | | | | | | | |
Date: November 1, 2021May 3, 2022 | | /s/ Gary S. Guidry |
| | By: Gary S. Guidry |
| | President and Chief Executive Officer |
| | (Principal Executive Officer) |
| | | | | | | | |
Date: November 1, 2021May 3, 2022 | | /s/ Ryan Ellson |
| | By: Ryan Ellson |
| | Executive Vice President and Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |