Gran Tierra Energy 10Q 2007 Q3 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

		FOR THE QUARTERLY PERIOD ENDED September 30, 2007

o		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 000-52594

GRAN TIERRA ENERGY INC.

(Exact name of registrant as specified in its charter)

Nevada		98-0479924
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

300, 611 10^th Avenue SW Calgary, Alberta, Canada		T2R 0B2
(Address of principal executive offices)		(Zip code)

(403) 265-3221

(Registrant’s telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and “large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES o NO x

On October 31, 2007, the total number of outstanding shares of our common stock and outstanding exchangeable shares of Gran Tierra Goldstrike Inc., which are exchangeable into our common stock, was 95,018,579. Of this total, there were outstanding 80,231,276 shares of common stock and 14,787,303 shares of common stock issuable upon the exchange of exchangeable shares. In addition, we had outstanding one share of special voting stock, through which the holders of exchangeable shares may exercise their voting rights with respect to Gran Tierra Energy Inc. The special voting stock generally votes together with the common stock on all matters on which the holders of our common are entitled to vote. The trustee holder of the share of special voting stock has the right to cast a number of votes equal to the number of then outstanding exchangeable shares.

TABLE OF CONTENTS

			Page
PART I FINANCIAL INFORMATION			3

ITEM 1 FINANCIAL STATEMENTS			3

ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			18

ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			27

ITEM 4. CONTROLS AND PROCEDURES			28

ITEM 4T. CONTROLS AND PROCEDURES			28

PART II — OTHER INFORMATION			29

ITEM 1. LEGAL PROCEEDINGS			29

ITEM 1A. RISK FACTORS			29

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			42

ITEM 3. DEFAULTS UPON SENIOR SECURITIES			42

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS			42

ITEM 5. OTHER INFORMATION			42

ITEM 6. EXHIBITS			42

SIGNATURES			43

EXHIBIT INDEX			43

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

Gran Tierra Energy Inc.
Condensed Consolidated Statement of Operations and Accumulated Deficit (unaudited)
Stated in US dollars

	Three Months Ended September 30,						Nine Months ended September 30,
	2007			2006			2007			2006

REVENUE AND OTHER INCOME
Oil sales	$	7,992,648		$	5,221,226		$	15,892,368		$	8,293,620
Natural gas sales		-			(1,918	)		35,494			65,301
Interest and other		46,082			175,641			377,432			195,816
		8,038,730			5,394,949			16,305,294			8,554,737
EXPENSES
Operating		2,613,474			1,259,888			6,719,453			2,702,507
Depletion, depreciation and accretion		1,848,954			1,449,694			6,549,852			2,324,158
General and administrative		2,964,865			1,506,439			7,583,721			3,998,196
Liquidated damages (Note 5)		-			261,182			7,366,949			261,182
Derivative financial instruments (Note 10)		116,596			-			793,580			-
Foreign exchange (gain) loss		(85,637	)		273,684			(91,772	)		277,526
		7,458,252			4,750,887			28,921,783			9,563,569

INCOME(LOSS) BEFORE INCOME TAX		580,478			644,062			(12,616,489	)		(1,008,832	)
Income tax expense (recovery)		(511,219	)		710,417			(1,985,918	)		848,200
NET INCOME (LOSS)	$	1,091,697		$	(66,355	)	$	(10,630,571	)	$	(1,857,032	)

ACCUMULATED DEFICIT, beginning of period		(19,765,652	)		(4,010,357	)		(8,043,384	)		(2,219,680	)
ACCUMULATED DEFICIT, end of period	$	(18,673,955	)	$	(4,076,712	)	$	(18,673,955	)	$	(4,076,712	)

NET INCOME (LOSS) PER COMMON SHARE - BASIC AND DILUTED	$	0.01		$	(0.00	)	$	(0.11	)	$	(0.03	)
Weighted average common shares outstanding - basic		94,683,878			95,455,759			95,112,226			63,043,998
Weighted average common shares outstanding - diluted		107,597,185			95,455,759			95,112,226			63,043,998

(See notes to the consolidated financial statements)

Gran Tierra Energy Inc.
Condensed Consolidated Balance Sheet (Unaudited)
Stated in US dollars

	September 30, 2007			December 31, 2006
ASSETS
Current assets
Cash and cash equivalents	$	8,048,401		$	24,100,780
Restricted cash (Note 2)		-			2,291,360
Accounts receivable		11,562,103			5,089,561
Taxes receivable		3,048,850			404,120
Inventory		605,092			811,991
Prepaids		204,703			676,524
Total Current Assets		23,469,149			33,374,336
Oil and gas properties, using the full cost method of accounting
Proved		41,510,680			37,760,230
Unproved		18,130,875			18,333,054
Total Oil and Gas Properties		59,641,555			56,093,284
Other assets		649,450			614,104
Total Property, Plant and Equipment (Note 4)		60,291,005			56,707,388
Long term assets
Deferred tax asset		1,557,138			444,324
Long term investment and other		1,554,053			379,678
Goodwill		15,005,083			15,005,083
Total Long Term Assets		18,116,274			15,829,085
Total Assets	$	101,876,428		$	105,910,809
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable (Note 8)	$	8,852,043		$	6,729,839
Accrued liabilities (Note 8)		3,856,998			9,199,820
Liquidated damages (Note 5)		-			1,527,988
Current taxes payable		1,446,928			1,642,045
Total Current Liabilities		14,155,969			19,099,692
Long term liabilities		2,066,081			412,929
Deferred tax liability (Note 7)		10,500,817			9,875,657
Derivative financial instruments (Note 10)		793,580			-
Asset retirement obligation (Note 6)		388,108			327,752
Total Long Term Liabilities		13,748,586			10,616,338
Shareholders' equity
Common shares (Note 5)		94,898			95,455
(80,111,276 common shares and 14,787,303 exchangeable shares, par value $0.001 per share, issued and outstanding)
(2006 common and exchangeable shares respectively 78,789,104 and 16,666,661)
Additional paid in capital		71,805,151			71,311,155
Warrants		20,745,779			12,831,553
Accumulated deficit		(18,673,955	)		(8,043,384	)
Total Shareholders' Equity		73,971,873			76,194,779
Total Liabilities and Shareholders' Equity	$	101,876,428		$	105,910,809

(See notes to the consolidated financial statements)

Gran Tierra Energy Inc.
Condensed Consolidated Statement of Cash Flow (unaudited)
(Stated in US dollars)

	Nine Months Ended September 30,
	2007			2006

Operating Activities
Net loss	$	(10,630,571	)	$	(1,857,032	)
Adjustments to reconcile net loss to net cash provided
by operating activities:
Depletion, depreciation and accretion		6,549,852			2,324,158
Deferred tax liability		(487,654	)		123,193
Stock based compensation		636,619			203,306
Liquidated damages		7,366,949			-
Asset retirement obligation		-			(9,218	)
Unrealized loss on financial instruments		793,580			-
Net changes in non-cash working capital
Accounts receivable		(6,472,542	)		(1,044,052	)
Inventory		206,899			110,073
Prepaids and other current assets		471,821			(185,586	)
Liquidated damages		(1,527,988	)		-
Accounts payable and accrued liabilities		4,617,930			1,601,685
Taxes receivable and payable		(2,839,848	)		957,404
Net cash provided by operating activities		(1,314,953	)		2,223,931
Investing Activities
Restricted cash		1,010,409			(12,216,835	)
Business combination, net of cash acquired		-			(38,217,930	)
Property and equipment additions		(10,073,112	)		(6,011,735	)
Long term assets and liabilities		478,777			(28,940	)
Change in non-cash working capital due to investing activities		(6,580,483	)		-
Net cash used in investing activities		(15,164,409	)		(56,475,440	)
Financing Activities
Proceeds from issuance of common stock		426,983			70,826,137
Net cash provided by financing activities		426,983			70,826,137

Net decrease in cash and cash equivalents		(16,052,379	)		16,574,628
Cash and cash equivalents, beginning of period		24,100,780			2,221,456
Cash and cash equivalents, end of period	$	8,048,401		$	18,796,084

Supplemental cash flow disclosures:
Cash paid for interest	$	11,861		$	35,194
Cash paid for taxes	$	-		$	-

(See notes to the consolidated financial statements)

Gran Tierra Energy Inc.
Condensed Consolidated Statement of Shareholders' Equity (unaudited)
(Stated in US dollars)


	September 30, 2007			December 31, 2006

Share Capital
Balance beginning of period	$	95,455		$	43,285
Issue of common shares		392			52,170
Cancelled common shares		(949	)		-
Balance End of Period	$	94,898		$	95,455

Additional paid-in-capital
Balance beginning of period		71,311,155			11,807,313
Issue of (cancelled) common shares		(417,846	)		59,190,356
Redemption of warrants		275,223			52,991
Stock based compensation expense		636,619			260,495
Balance End of Period	$	71,805,151		$	71,311,155

Warrants
Balance beginning of period		12,831,553			1,408,429
Cancelled warrants		(435,566	)		11,476,115
Repriced warrants to settle penalties		8,625,014			-
Redemption of warrants		(275,222	)		(52,991	)
Balance End of Period	$	20,745,779		$	12,831,553

Accumulated Deficit
Balance beginning of period		(8,043,384	)		(2,219,680	)
Net loss		(10,630,571	)		(5,823,704	)
Balance End of Period	$	(18,673,955	)	$	(8,043,384	)

Total Shareholders' Equity	$	73,971,873		$	76,194,779

(See notes to the consolidated financial statements)

Gran Tierra Energy Inc.

Notes to the Consolidated Financial Statements (unaudited)

Expressed in US dollars unless otherwise stated

1. Description of Business and Going Concern

Gran Tierra Energy Inc., a Nevada corporation (the “Company” or “Gran Tierra”) is a publicly traded oil and gas exploration and production company with operations in Argentina, Colombia and Peru. On November 10, 2005, Goldstrike, Inc. (“Goldstrike”), the previous public reporting entity, was acquired in a reverse merger by Gran Tierra Energy Inc. (“Gran Tierra Canada”), a privately-held Alberta corporation. In this transaction, the holders of Gran Tierra Canada’s capital stock acquired shares of either the Company’s common stock or exchangeable shares of a subsidiary of the Company which are exchangeable for shares of the Company’s common stock. This transaction resulted in Gran Tierra Canada becoming a wholly-owned subsidiary of the Company, and Goldstrike (now the Company) changing its name to Gran Tierra Energy Inc. with the management and business operations of Gran Tierra Canada, but incorporated in the State of Nevada.

The Company’s ability to continue as a going concern is dependent upon obtaining the necessary financing to acquire, explore and develop oil and natural gas interests and generate profitable operations from its oil and natural gas interests in the future. The Company’s financial statements as at and for the nine months ended September 30, 2007 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $10,630,571 for the nine months ended September 30, 2007 and had an accumulated deficit of $18,673,955 as at September 30, 2007. The Company expects to incur substantial expenditures to further its capital investment programs and the Company’s existing cash balance and cash flow from operating activities may not be sufficient to satisfy its current obligations and meet its capital investment commitments.

To provide financing for Gran Tierra’s ongoing operations, the Company secured a $50 million credit facility with Standard Bank Plc on February 28, 2007, which will provide additional financing for the Company’s future operations. As at September 30, 2007, the Company has not drawn-down on this facility.

The Company’s intention is to build a portfolio of oil and natural gas production, development, and exploration opportunities using the capital raised during 2006, cash provided by future operating activities and by using the available credit facility. However, the Company may need to secure additional sources of capital to fund its future operating activities.

Should the going concern assumption not be appropriate and the Company is not able to realize its assets and settle its liabilities and commitments in the normal course of operations, these consolidated financial statements would require adjustments to the amounts and classifications of assets and liabilities, and these adjustments could be significant.

2. Significant Accounting Policies

These interim unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the interim consolidated financial statements, and revenues and expenses during the reporting period. In the opinion of the Company’s management, all adjustments (all of which are normal and recurring) that have been made are necessary to fairly state the consolidated financial position of the Company and its subsidiaries as at September 30, 2007, the results of its operations for the three and nine month periods ended September 30, 2007 and 2006, and its cash flows for the nine month periods ended September 30, 2007 and 2006.

The note disclosure requirements of annual consolidated financial statements provide additional disclosures to that required for interim consolidated financial statements. Accordingly, these interim consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements as at and for the year ended December 31, 2006 included in the Company’s 2006 Annual Report on Form 10-KSB. The Company’s significant accounting policies are described in note 2 of the consolidated financial statements which are included in the Company’s 2006 Annual Report on Form 10-KSB.

Restricted cash

During the second quarter of 2007, investors holding 948,853 units exercised their right to have Gran Tierra return to them their purchase price for the securities held in escrow. Funds of $1,280,951, held in escrow by the Bank of America were refunded to the investors in June, 2007, and the securities were cancelled by the Company. No other investors have the right to cause the Company to return their purchase price for securities.

During the first quarter of 2007, the $1,009,009 held as a letter of credit for work commitments in Peru was returned to Gran Tierra. The Export Development Canada organization put a guarantee in place on the Company’s behalf which resulted in the return of the restricted cash.

Earnings (loss) per share

Basic earnings (loss) per share calculations are based on the income (loss) attributable to common shareholders for the period divided by the weighted average number of common shares issued and outstanding during the period. The diluted earnings (loss) per share calculation is based on the weighted average number of common shares outstanding during the period, plus the effects of dilutive common share equivalents. This method requires that the dilutive effect of outstanding options and warrants issued should be calculated using the treasury stock method. This method assumes that all common share equivalents have been exercised at the beginning of the period (or at the time of issuance, if later), and that the funds obtained thereby were used to purchase common shares of the Company at the average trading price of common shares during the period. For the nine month period ended September 30, 2007, options to purchase 3,435,000 common shares and warrants to purchase 34,290,821 common shares were excluded from the diluted loss per share calculation as the instruments were anti-dilutive. For the three month period ended September 30, 2007, 189,830 warrants to purchase 94,915 common shares were excluded from the diluted earnings per share calculation as the instruments were anti-dilutive. For the three and nine month periods ended September 30, 2006, options to purchase 1,830,000 common shares and warrants to purchase 35,156,915 common shares were excluded from the diluted loss per share calculation as the instruments were anti-dilutive.

Accounting for Oil and Gas Derivatives Instruments

The Company follows the provisions of SFAS No.133,“Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”). SFAS 133 requires the accounting recognition of all derivative instruments as either assets or liabilities at fair value. Under the provisions of SFAS 133, the Company may or may not elect to designate a derivative instrument as a hedge against changes in the fair value of an asset or a liability (a “fair value hedge”) or against exposure to variability in expected future cash flows (a “cash flow hedge”). The accounting treatment for the changes in fair value of a derivative instrument is dependent upon whether or not a derivative instrument is a cash flow hedge or a fair value hedge, and upon whether or not the derivative is designated as a hedge as noted above. Changes in fair value of a derivative designated as a cash flow hedge are recognized, to the extent the hedge is effective, in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of a derivative instrument designated as a fair value hedge, to the extent the hedge is effective, have no effect on the statement of operations due to the fact that changes in fair value of the derivative offsets changes in the fair value of the hedged item. Where hedge accounting is not elected or if a derivative instrument does not qualify as either a fair value hedge or a cash flow hedge, changes in fair value are recognized in earnings as other income or expense. The Company’s derivative instruments currently do not qualify as either a fair value hedge or a cash flow hedge.

New and Pending Accounting Pronouncements

In February 2006, the FASB issued Statement 155, Accounting for Certain Hybrid Instruments, which amends Statement 133, Accounting for Derivative Instruments and Hedging Activities, and Statement 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities. Statement 155 permits fair value re-measurement for any hybrid financial instrument that contains an embedded derivative that otherwise would require bifurcation from its host contract in accordance with Statement 133. Statement 155 also clarifies other provisions of Statement 133 and Statement 140. This statement is effective for all financial instruments acquired or issued in fiscal years beginning after September 15, 2006 and its adoption on January 1, 2007 did not have material impact on the Company’s consolidated financial statements.

In July 2006, the FASB issued FIN 48 (FASB Interpretation Number) Accounting for Uncertainty in Income Taxes with respect to FAS 109 Accounting for Income Taxes regarding accounting for and disclosure of uncertain tax positions. This guidance seeks to reduce the diversity in practice associated with certain aspects of the recognition and measurement related to accounting for income taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The interpretation requires that the Company recognize the impact of a tax position in the financial statements if that position is more likely than not of being sustained on audit, based on the technical merits of the position. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure. In accordance with the provisions of FIN 48, any cumulative effect resulting from the change in accounting principle is to be recorded as an adjustment to the opening balance of accumulated deficit. This interpretation is effective for fiscal years beginning after December 15, 2006 and its adoption on January 1, 2007 did not have a material impact on the Company’s consolidated financial statements and did not require the Company to record any amounts in the financial statements.

In September 2006, the FASB issued Statement 157, Fair Value Measurements. Statement 157 defines fair value, establishes a framework for measuring fair value under US generally accepted accounting principles and expands disclosures about fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007. The Company does not expect the adoption of this statement will have a material impact on its results of operations or financial position.

In December 2006, the FASB issued Staff Position (FSP) EITF 00-19-2, Accounting for Registration Payment Arrangements. FSP EITF 00-19-2 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument or other agreement, should be separately recognized and measured in accordance with FASB Statement No. 5, Accounting for Contingencies. This FSP is effective for fiscal years beginning after December 15, 2006. The Company early adopted this FSP during the year ended December 31, 2006 and recorded $1,258,065 in liquidated damages as an expense in the consolidated statement of operations and deficit and the same amount in accrued liabilities at December 31, 2006. During the nine month period ended September 30, 2007 the Company expensed an additional amount of $7,366,949. As at September 30, 2007, the Company had an accumulated expense for liquidated damages of $8,625,014. Pursuant to an amendment of terms of Registration Rights Payments with respect to the associated shareholder agreement, the Company’s shareholders waived the right to settle the liquidated damages in cash and in lieu agreed to an amendment of the exercise price of the warrants from $1.75 to $1.05 on June 27, 2007, and an extension of one year in the term for the warrants. The settlement of the liquidated damages is reflected as an increase to the value of the warrants included in the shareholders’ equity section of the consolidated balance sheet.

In February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (FAS 159). FAS 159 permits an entity to elect fair value as the initial and subsequent measurement attribute for many financial assets and liabilities. Entities electing the fair value option would be required to recognize changes in fair value in earnings. Entities electing the fair value option are required to distinguish on the face of the statement of financial position, the fair value of assets and liabilities for which the fair value option has been elected and similar assets and liabilities measured using another measurement attribute. FAS 159 is effective for the Company’s fiscal year 2008. The adjustment to reflect the difference between the fair value and the carrying amount would be accounted for as a cumulative-effect adjustment to retained earnings as of the date of initial adoption. The Company does not expect the adoption of this statement will have a material impact on its results of operations or financial position

3. Segment and Geographic Reporting

The Company’s reportable segments are Argentina and Colombia. The Company is primarily engaged in the exploration and production of oil and natural gas. Peru is not a reportable segment because the level of activity on these land holdings is insignificant at this time.

The Colombia assets were acquired on June 20, 2006. Therefore the comparable segmented information for 2006 includes the operations for Colombia and the results of 102 days operations (June 21 - September 30) in September 2006. The following tables present information on the Company’s reportable geographic segments:

	Three months ended September 30, 2007										Three months ended September 30, 2006
	Corporate			Colombia		Argentina			Total		Corporate			Colombia		Argentina		Total

Revenues	$	23,071		$	5,920,024	$	2,095,635		$	8,038,730	$	172,923		$	3,616,833	$	1,605,193	$	5,394,949
Depreciation, Depletion & Accretion		35,273			1,285,700		527,981			1,848,954		12,939			1,042,235		394,520		1,449,694
Segment Income (Loss) before income tax		(2,288,545	)		3,451,209		(582,186	)		580,478		(843,230	)		1,385,560		101,732		644,062
Segment Capital Expenditures	$	19,224		$	694,743	$	27,984		$	741,951	$	31,844		$	2,009,063	$	2,577,000	$	4,617,907

	Nine months ended September 30, 2007											Nine months ended September 30, 2006
	Corporate			Colombia		Argentina			Total			Corporate			Colombia		Argentina		Total

Revenues	$	185,965		$	10,210,297	$	5,909,032		$	16,305,294		$	193,098		$	4,077,035	$	4,284,604	$	8,554,737
Depreciation, Depletion & Accretion		87,950			4,830,133		1,631,769			6,549,852			34,295			1,164,560		1,125,303		2,324,158
Segment Income (Loss) before income tax		(13,353,674	)		2,195,484		(1,458,299	)		(12,616,489	)		(2,852,257	)		1,560,233		283,192		(1,008,832	)
Segment Capital Expenditures	$	152,136		$	8,904,228	$	1,016,748		$	10,073,112		$	107,172		$	2,086,063	$	3,818,500	$	6,011,735

PP&E by Segment, Net

	Period ended September 30, 2007								Year ended December 31, 2006
	Corporate		Colombia		Argentina		Total		Corporate		Colombia		Argentina		Total
Property, Plant & Equipment	$	451,868	$	40,348,184	$	19,490,953	$	60,291,005	$	387,682	$	36,274,088	$	20,045,618	$	56,707,388
Goodwill		-		15,005,083		-		15,005,083		-		15,005,083		-		15,005,083
Total	$	451,868	$	55,353,267	$	19,490,953	$	75,296,088	$	387,682	$	51,279,171	$	20,045,618	$	71,712,471

4. Property, Plant and Equipment

	As at September 30, 2007							As at December 31, 2006
			Accumulated			Net Book				Accumulated			Net Book
	Cost		DD&A			Value		Cost		DD&A			Value
Oil and natural gas properties
Proved	$	52,253,423	$	(10,742,743	)	$	41,510,680	$	41,191,274	$	(3,431,044	)	$	37,760,230
Unproved		18,130,875		-			18,130,875		18,333,054					18,333,054
Furniture and Fixtures		791,356		(506,489	)		284,867		289,353		(47,637	)		241,716
Computer equipment		627,022		(307,981	)		319,041		912,645		(592,646	)		319,999
Automobiles		67,843		(22,301	)		45,542		69,499		(17,110	)		52,389
Total Capital Assets	$	71,870,519	$	(11,579,514	)	$	60,291,005	$	60,796,825	$	(4,088,437	)	$	56,707,388

As of September 30, 2007, the unproved oil and natural gas properties consist of lands held in both Colombia and Argentina. The Company has $15.0 million in unproved assets in Colombia, $3.0 million of unproved assets in Argentina and $0.1 million in unproved assets in Peru as of September 30, 2007. These properties are being held for their exploration value. The Company has capitalized $764,464 (2006 - nil) of general and administrative costs in the Colombian asset value during 2007.

As a result of the completion of an independent reserve audit by reserve auditors and internal assessments relating to the Company’s exploration and drilling program in the first half of 2007, the Company has increased its proved reserves.

For the Costayaco oil discovery, the Company’s independent reserve auditors have allocated to Gran Tierra proved reserves of 2.7 million barrels of oil. The discovery of the Costayaco field in the Chaza Block, located in the Putumayo Basin of Colombia, was the result of drilling the Costayaco-1 exploration well in the second quarter of 2007.

For the Juanambu discovery, the Company’s independent reserve auditors have allocated to the Company proved reserves of 0.1 million barrels of oil. The discovery of the Juanambu field in the Guayuyaco Block, also located in the Putumayo Basin of Colombia was the result of drilling the Juanambu-1 exploration well early in 2007.

As a result of the adjustments and production for the first half of 2007, the Company’s estimate of proved reserves, net of royalties, as of September 30, 2007, stands at 5.4 million barrels of oil. This contrasts to Gran Tierra’s December 31, 2006 proved reserves of 3.0 million barrels of oil.

5. Share Capital

	Number of Shares			Amount
Balance, December 31, 2006		95,455,765		$	95,455
Exchangeable shares retracted		(1,879,268	)		(300	)
Issued on retraction of exchangeable shares		1,879,268			300
Redemption of warrants		391,667			392
Cancelled shares		(948,853	)		(949	)
Balance, September 30, 2007		94,898,579		$	94,898

Share capital

Share capital consists of 80,111,276 common voting shares of the Company and 14,787,303 exchangeable shares of Goldstrike Exchange Co. (collectively, “common stock”). Each exchangeable share is exchangeable only into one common voting share of the Company. The holders of common stock are entitled to one vote for each share on all matters submitted to a stockholder vote and are entitled to share in all dividends that the Board of Directors, in its discretion, declares from legally available funds. The holders of common stock have no pre-emptive rights, no conversion rights, and there are no redemption provisions applicable to the common stock.

Warrants

As at December 31, 2006 the Company had warrants outstanding to purchase 7,236,311 common shares for $1.25 per share and warrants outstanding to purchase 27,920,604 common shares for $1.75 per share.

During the second quarter of 2007, investors holding 948,853 units, comprising 948,853 common shares and warrants to purchase 474,427 common shares, exercised their right to have the Company return to them the purchase price for the securities held in escrow. The funds of $1,280,951, held in escrow by the Bank of America were refunded to the investors to complete this transaction during June, 2007, and the units were cancelled.

In connection with settlement of liquidated damages relating to a delay in registration of units issued in June 2006, as described in the “Registration Rights Payments” section below, the Company amended the terms of the warrants issued to stockholders in June 2006 by adjusting the exercise price from $1.75 to $1.05 and extending the term of the warrants by one year to June 2012.

As at September 30, 2007, the Company had warrants outstanding to purchase 7,221,311 common shares for $1.25 per share, warrants outstanding to purchase 94,915 common shares for $1.75 per share, and warrants outstanding to purchase 26,974,595 common shares for $1.05 per share.

Registration Rights Payments

The shares and warrants have registration rights associated with their issuance pursuant to which the Company agreed to register for resale the shares and warrants. In the event that the registration statements are not declared effective by the Securities and Exchange Commission (“SEC”) by specified dates, the Company was required to pay liquidated damages to the purchasers of the share and warrants.

The 15,047,606 units issued in the fourth quarter of 2005 and first quarter of 2006 had liquidated damages payable in the amount of 1% of the purchase price for each unit per month payable each month the registration statement was not declared effective beyond the mandatory effective date (July 10^th, 2006). The total amount recorded at December 31, 2006, for these liquidated damages was $269,923. There are no further liabilities associated with these shares. As of February 14, 2007, the first registration was declared effective by the SEC.

In June, 2006, the Company sold an aggregate of 50 million units of its securities at a price of $1.50 per unit in a private offering for gross proceeds of $75 million, pursuant to three separate Securities Purchase Agreements, dated June 20, 2006, and one Securities Purchase Agreement, dated June 30, 2006 (collectively, the “2006 Offering”). Each unit comprised one share of Gran Tierra’s common stock and one warrant to purchase one-half of a share of Gran Tierra’s common stock at an exercise price of $1.75 for a period of five years, resulting in the issuance of 50 million shares of Gran Tierra’s common stock. In connection with the issuance of these securities, Gran Tierra entered into four separate Registration Rights Agreements with the investors pursuant to which Gran Tierra agreed to register for resale the shares and warrants (and shares issuable pursuant to the warrants) issued to the investors in the offering by November 17, 2006. The second registration statement was declared effective by the SEC on May 14, 2007. Gran Tierra had accrued $8.6 million in liquidated damages as of that date.

On June 27, 2007, under the terms of the Registration Rights Agreements, the Company obtained a sufficient number of consents from the signatories to the agreements waiving Gran Tierra’s obligation to pay in cash the accrued liquidated damages. The Company agreed to amend the terms of the warrants issued in the 2006 Offering by reducing the exercise price of the warrants to $1.05 and extending the life of the warrants by one year, in lieu of a cash payment for liquidated damages. The revised fair value of the warrants was determined using a Black-Scholes warrant pricing model based on a 25% volatility rate, which reflects a typical volatility rate used to value this type of financial instrument. The $8,625,014 of liquidated damages has been recorded as an expense in the consolidated statement of operations in the amounts of $7,366,949 million during the nine months ended September 30, 2007, and $1,258,065 million in the fourth quarter of 2006, with a corresponding liability recorded on the consolidated balance sheet. The revision in the fair value of the warrants resulting from the amendment to the terms of the warrants amounted to $8,625,014 (equivalent to the amount of the liquidated damages) and has been reflected on the consolidated balance sheet as an increase to the warrant value included in shareholders’ equity and a settlement of the liability for liquidated damages.

Stock options

As at September 30, 2007, the only equity compensation plan approved by the Company’s stockholders is its 2005 Equity Incentive Plan, under which the Company’s board of directors is authorized to issue options or other rights to acquire up to 2,000,000 shares of the Company’s common stock. The following stock options were granted during 2007: January 2, 2007, options to purchase 225,000 shares of common stock at an exercise price of $1.19 per share; February 22, 2007, options to purchase 415,000 shares of common stock at an exercise price of $1.27; and April 2, 2007, options to purchase 210,000 shares of common stock at an exercise price of $1.29 per share. As of September 30, 2007, 3,435,000 stock options are outstanding (December 31, 2006 - 2,700,000 stock options were outstanding). The options cannot be exercised, and will be rescinded, if the Company’s stockholders do not approve an increase in the number of shares authorized under the 2005 Equity Incentive Plan sufficient to permit the issuance of the shares issuable upon exercise of these additional stock options. At the Company’s Annual Meeting held October 10, 2007, the shareholders approved an amendment and restatement of the 2005 Equity Incentive Plan, now named the 2007 Equity Incentive Plan, which amendment and restatement included the increase in the number of shares authorized for issuance under the plan to 9,000,000.

The Company has granted options to purchase common shares to certain directors, officers, employees and consultants. Each option permits the holder to purchase one common share at the stated exercise price. The options vest over three years and have a term of ten years, or end of service to the Company, which ever occurs first. At the time of grant, the exercise price equals the market price. The following options have been granted:

	Number of			Weighted Average
	Outstanding			Exercise Price
	Options			$/Option
Outstanding, December 31, 2006		2,700,000		$	1.09
Cancelled		(115,000	)	$	(2.42	)
Granted, January 2, 2007		225,000		$	1.19
Granted, February 22, 2007		415,000		$	1.27
Granted, April 2, 2007		210,000		$	1.29
Outstanding, September 30, 2007		3,435,000		$	1.07

The table below summarizes unexercised stock options at September 30, 2007:

	Number of		Weighted
	Outstanding		Average
Exercise Price ($/option)	Options		Expiry Years
$0.80		1,420,000		8.12
$1.19		225,000		9.27
$1.27		1,580,000		9.19
$1.29		210,000		9.51
Total		3,435,000		8.89

Total stock-based compensation expense included in general and administrative expense in the consolidated statement of operations for the nine months ended September 30, 2007, was $636,619. For the three months ended September 30, 2007, the Company had accrued an expense of $250,298. The Black-Scholes option pricing model was used to determine the fair value of the option grants with the following assumptions:

Dividend yield ($ per share)	$	-
Volatility (%), average		80	%
Risk-free interest rate (%)		4.5	%
Expected life (years)		3.0
Forfeiture percentage (% per year)		10	%
The weighted average fair value per option	$	0.67

Earnings Per Share
	Three months ended September 30, 2007
Weighted-average number of common shares outstanding		94,683,878
Shares issuable pursuant to stock options		3,435,000
Shares issuable pursuant to warrants		34,195,906
Shares to be purchased from proceeds of stock options and warrants		(24,717,599	)
Weighted-average number of diluted common shares outstanding		107,597,185

6. Asset Retirement Obligations

Changes in the carrying amounts of the asset retirement obligations associated with the Company’s oil and natural gas properties are as follows:

	Nine months ended		Year ended
	September 30, 2007		December 31, 2006
Balance, beginning of period	$	327,752	$	67,732
Obligations assumed with property acquisitions		-		209,314
Accretion		18,498		5,061
Obligations assumed with development activities		40,291		45,645
Effect of foreign exchange		1,567		-
Balance, end of period	$	388,108	$	327,752

7. Income Taxes

The Company has accumulated losses of approximately $22.0 million that can be carried forward and applied against future taxable income. A valuation allowance of $8,874,697 has been taken for the potential income tax benefit associated with the losses incurred by the Company, due to uncertainty of utilization of the tax losses.

The provision for income taxes reflects an effective tax rate that differs from the corporate tax rate for the following reasons:

	Nine months ended September 30,
	2007			2006
Loss before income taxes	$	(12,616,489	)	$	(1,008,832	)
Statutory income tax rate		32.12	%		34	%
Income tax benefit expected		(4,052,416	)		(343,003	)
Stock-based compensation		204,482			69,124
Tax losses in other jurisdictions, not recognized		1,862,016			1,122,079
Income tax expense (recovery)	$	(1,985,918	)	$	848,200

The deferred income tax liability of $10,500,817 on the balance sheet is related to Colombia and Argentina assets, for the following items:

	As at September 30, 2007
Property, Plant and Equipment	$	41,166,607
Average Tax Rate		32.12	%
Total Deferred Tax		13,222,714
Less Amortization		(2,721,897	)
Net Deferred Tax	$	10,500,817

The Company calculates two taxes for its business activities in Argentina. First, a minimum presumed income is calculated by applying a one percent tax rate to taxable assets as of the end of the period. If the tax on minimum presumed income exceeds income tax payable during the year, the excess is considered a prepayment of future income taxes due over the next ten year period. Second, a ‘third party tax substitutable’ is recorded. The government ensures each company, with foreign ownership, withholds taxes based on the assumption that profits will be transferred to the owners. If profits are not transferred, the taxes paid may be used to offset tax liabilities in the future.

The Company was required to calculate a deferred remittance tax in Colombia based on 7% of profits which are not reinvested in the business on the presumption that such profits would be transferred to the foreign owners up to December 31, 2006. As of January 1, 2007, the Colombian government rescinded this requirement, therefore, no further remittance tax liabilities will be accrued. The historical balance which was included on the Company’s financial statements as of December 31, 2006, as part of the Deferred Remittance Taxes, was $1,462,226. The Company’s legal advisors are reviewing the new requirements to determine whether the balance can be removed from the financial records. No decision has been made as of November 5, 2007.

The Company recognizes potential accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense in the condensed consolidated statement of operations. This is an accounting policy election made by the Company that is a continuation of the Company’s historical policy and will continue to be consistently applied in the future. The Company has accrued no amounts as of September 30, 2007, for the potential payment of interest and penalties. During the three and nine months ended September 30, 2007, the Company has not recognized any amounts in respect of potential interest and penalties associated with uncertain tax positions. The Company or one of its subsidiaries files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and other foreign jurisdictions. The Company is no longer subject to U.S. federal income tax and various state jurisdiction examinations for years before 2004. For the Company’s Canadian subsidiary, all years are subject to income tax examinations by tax authorities commencing with 2005. The Company’s Colombian subsidiary is no longer subject to income tax examinations by tax authorities for years before 2003. The Company’s Argentine subsidiary is no longer subject to income tax examinations by tax authorities for years before 2005.

8. Accrued Liabilities and Accounts Payable

The balance in accrued liabilities and accounts payable are comprised of the following:

	As at September 30, 2007								As at December 31, 2006
	Corporate		Colombia		Argentina		Total		Corporate		Colombia		Argentina		Total
Capital expenditures	$	26,304	$	1,488,280	$	337,863	$	1,852,447	$	-	$	5,344,339	$	5,521,714	$	10,866,053
Withholding taxes		-		121,354		-		121,354		-		-		-		-
Payroll related expenses		79,954		447,144		49,634		576,732		664,957		333,679		313,589		1,312,225
Audit, legal, consultants		950,171		102,909		65,515		1,118,595		715,332		-		290,915		1,006,247
General and administrative		182,012		263,997		12,511		458,520		-		-		-		-

Operating costs		-		7,830,024		751,369		8,581,393		-		2,745,134		-		2,745,134
	$	1,238,441	$	10,253,708	$	1,216,892	$	12,709,041	$	1,380,289	$	8,423,152	$	6,126,218	$	15,929,659

Accounts Payable								8,852,043								6,729,839

Accrued Liabilities								3,856,998								9,199,820
							$	12,709,041							$	15,929,659

9. Commitments and contingencies

Leases

Gran Tierra holds three categories of operating leases: office, vehicle and housing. The Company pays $21,390 office lease costs per month, $7,262 vehicle lease costs per month and $2,474 to lease housing as an employee benefit in Argentina and Colombia each month. Future lease payments at September 30, 2007 are as follows:

Year	Cost
2007, Remainder	$	85,588
2008		267,581
2009		182,676
2010		159,112
2011		13,259
Total Lease Payments	$	708,217

The Company entered into four capital leases in 2006 for office equipment in Calgary, Canada and has recorded the related assets and amortization as part of property, plant and equipment. The leases expire between 2008 and 2011. As of September 30, 2007 capital lease related assets were valued at $24,819 (net of amortization of $14,891). Total monthly payments for 2007 are approximately $1,029.

Year	Cost
2007, Remainder	$	3,837
2008		9,924
2009		4,817
2010		4,135
2011		1,046
Total minimum lease payments		23,759
Less amount representing interest		2,142
Less amount included in current liabilities		10,483
	$	11,134

Guarantees

Corporate indemnities have been provided by the Company to directors and officers for various items including, but not limited to, all costs to settle suits or actions due to their association with the Company and its subsidiaries and/or affiliates, subject to certain restrictions. The Company has purchased directors’ and officers’ liability insurance to mitigate the cost of any potential future suits or actions. Each indemnity, subject to certain exceptions, applies for so long as the indemnified person is a director or officer of one of the Company’s subsidiaries and/or affiliates. The maximum amount of any potential future payment cannot be reasonably estimated.

The Company may provide indemnifications in the normal course of business that are often standard contractual terms to counterparties in certain transactions such as purchase and sale agreements. The terms of these indemnifications will vary based upon the contract, the nature of which prevents the Company from making a reasonable estimate of the maximum potential amounts that may be required to be paid. Management believes the resolution of these matters would not have a material adverse impact on the Company’s liquidity, consolidated financial position or results of operations.

Contingencies

As of September 30, 2007 the contracting parties of Guayuyaco Association Contract, Ecopetrol and Argosy Energy International (“Argosy”), a wholly owned subsidiary of the Company, are working to clarify the procedure for allocation of oil produced and sold during the long term test of the Guayuyaco-1 and Guayuyaco-2 wells. Ecopetrol has advised Argosy of a material difference in the interpretation of the Guayuyaco Association Contract. Ecopetrol interprets the contract to provide that the extended test production of up to 30% of the direct exploration costs of the wells is for Ecopetrol’s account only and serves as reimbursement of its 30% back in to the Guayuyaco discovery. Argosy’s contention is that this amount is the recovery of an amount equal to 30% of the direct exploration costs of the wells and not exclusively for the benefit of Ecopetrol. While Argosy believes its interpretation of the Guayuyaco Association Contract is correct, the resolution of this issue is outstanding pending agreement among the parties or determination through legal proceedings. The estimated value of the disputed extended test production is $2,361,188 with possible costs shared of 50% ($1,180,594) with the Company’s joint venture partner in the contract. No amount has been accrued in the financial statements related to this disagreement because the Company believes the probability of incurring this liability is low at this time.

10. Financial Instruments and Credit Risk

The Company’s financial instruments recognized in the balance sheet consist of cash and cash equivalents, accounts receivable, taxes receivable, accounts payable, current taxes payable, and accrued liabilities. The estimated fair values of the financial instruments have been determined based on the Company’s assessment of available market information and appropriate valuation methodologies; however, these estimates may not necessarily be indicative of the amounts that could be realized or settled in a market transaction. The fair values of financial instruments approximate their book amounts due to the short-term maturity of these instruments. Most of the Company’s accounts receivable relate to oil and natural gas sales and are exposed to typical industry credit risks. The Company manages this credit risk by entering into sales contracts with only credit worthy entities and reviewing its exposure to individual entities on a regular basis. The book value of the accounts receivable reflects management’s assessment of the associated credit risks.

The Company recognizes the fair value of its derivative instruments as assets or liabilities on the balance sheet. None of the Company's derivative instruments currently qualify as fair value hedges or cash flow hedges, and accordingly, changes in fair value of the derivative instruments are recognized as income or expense in the consolidated statement of operations and deficit with a corresponding adjustment to the fair value of derivative instruments recorded on the balance sheet. Under the terms of the Credit Facility with Standard Bank (Note 11), the Company was required to enter into a derivative instrument for the purpose of obtaining protection against fluctuations in the price of oil in respect of at least 50% of the June 30, 2006 Independent Reserve Evaluation Report projected aggregate net share of Colombian production after royalties for the three-year term of the Facility. In accordance with the terms of the Facility, the Company entered into a costless collar derivative instrument for crude oil based on West Texas Intermediate (“WTI”) price, with a floor of $48.00 and a ceiling of $80.00, for a three-year period, for 400 barrels per day from March 2007 to December 2007, 300 barrels per day from January 2008 to December 2008, and 200 barrels per day from January 2009 to February 2010.

During the nine months ended September 30, 2007, the Company recognized an unrealized loss on derivative instruments of $793,580 (2006 - nil).

11. Credit Facility

On February 28, 2007, the Company entered into a Credit Facility with Standard Bank Plc. The Facility has a three-year term which may be extended by agreement between the parties. The borrowing base is the present value of the Company’s petroleum reserves up to maximum of $50 million. The initial borrowing base is $7 million and the borrowing base will be re-determined semi-annually based on reserve evaluation reports. The Facility includes a letter of credit sub-limit of up to $5 million. Amounts drawn down under the Facility bear interest at the Eurodollar rate plus 4%. A stand-by fee of 1% per annum is charged on the un-drawn amount of the borrowing base. The Facility is secured primarily on the Company’s Colombian assets. The Company was required to enter into a derivative instrument for the purpose of obtaining protection against fluctuations in the price of oil in respect of at least 50% of the June 30, 2006 Independent Reserve Evaluation Report projected aggregate net share of Colombian production after royalties for the three-year term of the Facility. Under the terms of the Facility, the Company is required to maintain compliance with specified financial and operating covenants. As at September 30, 2007, the Company has not drawn-down on this facility.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statement Regarding Forward-Looking Information

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated quantities and net present values of reserves, business strategy, plans and objectives of our management for future operations, covenant compliance and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct nor can we assure adequate funding will be available to execute our planned future capital program. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, those set out in Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

Overview

We are an independent international energy company involved in oil and natural gas exploration, development and production. We plan to continually increase our oil and natural gas reserves through a balanced strategy of exploration drilling, development and acquisitions in South America. Initial countries of interest are Argentina, Colombia and Peru.

We took our current form on November 10, 2005 when the former Gran Tierra Energy Inc, a privately held corporation in Alberta (“Gran Tierra Canada”), was acquired by an indirect subsidiary of Goldstrike Inc, a Nevada corporation, which was publicly traded on the OTC Bulletin Board. Goldstrike adopted the assets, management, business operations, business plan and name of Gran Tierra Canada. The predecessor company in the transaction was the former Gran Tierra Canada; the financial information of the former Goldstrike was eliminated at consolidation. This transaction is accounted for as a reverse takeover of Goldstrike Inc. by Gran Tierra Canada. We currently intend to list on one or more foreign or domestic stock exchanges; however, there is no assurance that we will be able to do so.

Prior to September 1, 2005, we had no oil and gas interests or properties. In September 2005 and during 2006 we acquired oil and gas interests and properties in Argentina, Colombia and Peru.

Acquisitions of properties in Colombia and Argentina were funded through a series of private placements of our securities that occurred between September 2005 and February 2006 and an additional private placement that occurred in June 2006.

In the fourth quarter of 2005 and the first quarter of 2006 we sold 15 million units of our securities for gross proceeds of $12 million, less issue costs of $800,000, for net proceeds of $11.2 million. Each unit consisted of one share of common stock and a warrant to purchase one half of a common share for five years at an exercise price of $1.25 per whole share.

In June, 2006 we sold 50,000,000 units of our securities for total proceeds of $75,000,000, less issue costs of $6,306,699, for net proceeds of $68,693,301. Each unit consisted of one share of common stock and one warrant to purchase one half common share for five years at an exercise price of $1.75 per whole share. On June 27, 2007, under the terms of the Registration Rights Agreements, we agreed to amend the terms of the warrants issued in the 2006 offering by reducing the exercise price of the warrants to $1.05 and extending the life of the warrants by one year.

During the second quarter of 2007, investors holding 948,853 units, comprising 948,853 common shares and warrants to purchase 474,426 common shares, exercised their right to have us return to them their purchase price for the securities. The net proceeds from the sale of the securities amounting to $1,280,951, held in escrow by the Bank of America were refunded to the investors to complete this transaction during June, 2007, and the securities cancelled.

Effective February 28, 2007, we secured a $50 million credit facility with Standard Bank Plc. The credit facility has a three-year term and an initial borrowing base of $7 million. Funds available under our bank credit facility are limited to the amount of the borrowing base, as determined by the bank semi-annually. No amounts have been drawn-down under the facility.

We currently generate the majority of our revenue and cash flow from the production and sale of crude oil in Argentina and Colombia. The selling prices for our crude oil production are based on international oil prices, which historically have been volatile. In 2007, our production may be subject to natural production declines, and our revenues may be impacted by international oil prices, which are uncertain. Results from operations may also be affected by drilling efforts and planned remedial work programs. Our drilling and work plans for 2007 are expected to be funded from available cash, anticipated cash flow from operations, and our bank credit facility. Oil price declines combined with unexpected costs may require additional equity and/or debt financing during the year. Increases in the borrowing base under our credit facility are dependent on our success in increasing oil and gas reserves and dependent on future oil prices.

Our financial results for the three and nine months ending September 30, 2007 as compared to the three months and nine months ended September 30, 2006 are principally impacted by acquisitions of oil and gas interests in Argentina and Colombia in the second and fourth quarters of 2006, which affected our results of operations. Our financial condition has also been affected by the equity financings described above.

A summary of selected production and sales information for the three and nine months ended September 30, 2007 and 2006 is presented in the following table:

	Three Months Ended September 30,
	2007						2006
	Argentina		Colombia		Total		Argentina		Colombia		Total
Production, net of royalties
Oil (Bbls)		52,957		87,401		140,358		31,172		64,743		95,915
NGLs (Bbls)		-		-		-		-		-		-
Gas(Boe)		-		-		-		-		-		-
Oil, Gas and NGLs (Boe) (1)		52,957		87,401		140,358		31,172		64,743		95,915
Average Prices
Oil (Per Bbl)	$	41.67	$	67.99	$	58.26	$	41.27	$	57.47	$	52.21
NGLs (Per Bbl)		-		-		-		-		-		-
Gas (Per Mcf)		-		-		-		-		-		-

	Nine Months Ended September 30,
	2007						2006
	Argentina		Colombia		Total		Argentina		Colombia		Total
Production, net of royalties
Oil (Bbls)		160,599		181,957		342,556		82,719		72,618		155,337
NGLs (Bbls)		4,165		-		4,165		180		-		180
Gas(Boe)		1,133		-		1,133		1,036		-		1,036
Oil, Gas and NGLs (Boe) (1)		165,897		181,957		347,854		83,935		72,618		156,553
Average Prices
Oil (Per Bbl)	$	38.89	$	58.26	$	49.22	$	41.06	$	57.44	$	48.72
NGLs (Per Bbl)	$	37.07		-	$	37.07	$	38.13		-	$	38.13
Gas (Per Mcf)	$	2.09		-	$	2.09	$	1.64		-	$	1.64

(1) Gas volumes are converted to barrels of oil equivalent ("Boe") at the rate of 20 thousand cubic feet ("Mcf") of gas per barrel of oil based upon the approximate relative values of natural gas and oil. Natural Gas Liquids (NGLs") volumes are converted to Boe on a one-to-one basis with oil.

Results of Operations for the Three and Nine Months ended September 30, 2007 and 2006

The comparison of the financial and operational results for the three and nine months ended September 30, 2007 to the same periods in 2006, is impacted primarily by the increases that occurred to our operational assets due to properties acquired during 2006 and as a result of recent increased production from two new oil field discoveries in Colombia.

In Argentina, we initially held a 14% working interest (WI) in Palmar Largo (oil production), a 50% WI in Nacatimbay (production of natural gas and condensate) and a 50% WI in Ipaguazu (exploration land). These assets are reflected in the results for the three and nine month periods ended September 30, 2006. During November and December of 2006 we acquired the following additional working interests in Argentina, which further impacted the financial and operational results for the three and nine month periods ended September 30, 2007.

Ø	an additional 50% WI in Nacatimbay
Ø	an additional 50% WI in Ipaguazu

Ø	50% WI in El Vinalar (oil production)
Ø	100% WI in Chivil (oil production)

Ø	100% WI in Surubi (exploration land)
Ø	100% WI in Santa Victoria (exploration land)

Ø	93.2% WI in Valle Morado (exploration land)

As a result of the completion of an independent reserve audit by reserve auditors and internal assessments relating to our exploration and drilling program in the first half of 2007, we have increased our proved reserves.

For the Costayaco oil discovery, our independent reserve auditors have allocated to us proved reserves of 2.7 million barrels of oil. The discovery of the Costayaco field in the Chaza Block, located in the Putumayo Basin of Colombia, was the result of drilling the Costayaco-1 exploration well in the second quarter of 2007.

For the Juanambu discovery, our independent reserve auditors have allocated to us proved reserves of 0.1 million barrels of oil. The discovery of the Juanambu field in the Guayuyaco Block, also located in the Putumayo Basin of Colombia, was the result of drilling the Juanambu-1 exploration well early in 2007.

As a result of the adjustments and production for the first half of 2007, our estimate of proved reserves, net of royalties, as of September 30, 2007, stands at 5.4 million barrels of oil. This contrasts to our December 31, 2006 proved reserves of 3.0 million barrels of oil.

In Colombia, production from our new discovery wells Costayaco-1 and Juanambu-1 increased daily production by 414 barrels per day over the prior quarter, 453 barrels per day over the same quarter in the prior year and 166 barrels per day over the same nine month period ended September 30, 2006.

Prior to June 20, 2006 we did not own any properties in Colombia. On June 20, 2006 we acquired Argosy Energy International L.P. and became the operator of nine blocks in Colombia. The Santana and Guayuyaco blocks are currently producing. The Rio Magdalena, Talora, Chaza, Primavera, Azar and Mecaya blocks are in their exploration phases. The addition of these assets to our portfolio impacted the results for the nine months ended September 30, 2007 as compared to the prior year same period.

Revenues and Other Income

	Three months ended					Nine months ended				Change from Prior Year
	September 30,					September 30,				Three month			Nine month
	2007		2006			2007		2006		period			period
Oil Sales	$	7,992,648	$	5,221,226		$	15,892,368	$	8,293,620	$	2,771,422		$	7,598,748
Natural Gas Sales		-		(1,918	)		35,494		65,301		1,918			(29,807	)
Interest and Other		46,082		175,641			377,432		195,816		(129,559	)		181,616
Total	$	8,038,730	$	5,394,949		$	16,305,294	$	8,554,737	$	2,643,781		$	7,750,557

The increase in revenue realized in the three and nine month periods ended September 30, 2007 as compared to the prior year periods is attributed primarily to the additional properties acquired during 2006 and recent increased production from two new oil field discoveries in Colombia. Although interest income increased in the nine month period ended September 30, 2007 over the same period in 2006, decreasing cash balances over 2007 as we executed our capital expenditure program have resulted in lower interest income earned in the third quarter of 2007 as compared to the same period in 2006. The cash balances were sourced from the June 2006 private equity issuance.

In Argentina, crude oil production after 12% royalties for the three and nine month periods ended September 30, 2007 was 52,957 and 160,599 barrels, respectively, compared to 31,172 barrels and 82,719 barrels, respectively, for the three and nine month periods ended September 30, 2006. The difference in production can be primarily attributed to the additional properties acquired during 2006 and the production from the Puesto Climaco-2 sidetrack well drilled in the first quarter of 2007.

In Argentina, oil sales after 12% royalties were 50,687 and 150,676 barrels for the three and nine months ended September 30, 2007, respectively, compared to 38,824 and 104,286 barrels for the three and nine month periods ended September 30, 2006, respectively. The difference between the results for the three and nine months ended September 30, 2007 and the same periods in 2006 can be primarily attributed to the additional properties acquired during 2006 and the production from the Puesto Climaco-2 well.

In Argentina, oil revenue, net of an average production royalty of 12 %, for the three and nine months ended September 30, 2007 was $2.1 million and $5.9 million, respectively. Oil revenue for the same periods in 2006 was $1.6 million and $4.3 million, respectively. Our net loss before income tax from Argentina operations for the three and nine month periods ended September 30, 2007 was $0.6 million and $1.5 million, respectively, due primarily to planned workovers and maintenance activities compared to net income of $0.1 million and $0.3 million for the corresponding periods in 2006.

Average sales price for oil sales during the three and nine months ended September 30, 2007 was $41.67 and $38.89 per barrel compared to $41.27 and $41.06 for the same period in 2006. Average sales prices at Nacatimbay for natural gas sales were $2.09 per Mcf for the each of the three and nine months ended September 30, 2007 compared to $1.64 for the same periods in 2006. Although oil pricing determination is based on West Texas Intermediate (“WTI”) price, oil and natural gas prices are effectively regulated in Argentina.

In Colombia, production after royalties was 87,401 and 181,957 barrels for the three and nine months ended September 30, 2007, respectively. Following the acquisition on June 20, 2006 there was production of 64,743 and 72,618 barrels from Colombia for the same periods during 2006. The 2006 production represents a full quarter’s production for the third quarter and 102 days of production for the nine month period.

In Colombia, sales after royalties were 86,494 and 172,228 barrels for the three and nine months ended September 30, 2007, respectively. For the same periods in 2006, Colombian sales after royalties were 62,928 and 70,980 barrels, respectively.

In Colombia, oil revenue, net of royalties, was $5.9 million and $10.0 million for the three and nine month periods ended September 30, 2007, respectively, reflecting royalty rates of 20% for the Santana block and 8% for the Guayuyaco, Juanambu, and Costayaco blocks. The average sales prices for oil during these periods were $67.99 and $58.26 per barrel, respectively. Our segment income before tax from the Colombian operations was $3.5 million and $2.2 million for the three and nine month periods ended September 30, 2007, respectively. The increase was due to the impact of new well production in the Guayayaco and Chaza Blocks during the third quarter of 2007 with total production from these two blocks amounting to 42,385 barrels.

We earned interest income of $46,082 and $377,432 in the three and nine month periods in 2007 on our cash deposits from our financing in June 2006, compared to $175,641 and $195,816 in the corresponding 2006 periods. Although interest income increased in the nine month period ended September 30, 2007 over the same period in 2006, decreasing cash balances over 2007 as we executed our capital expenditure program have resulted in lower interest income earned in the third quarter of 2007 as compared to the same period in 2006. The cash balances were sourced from the June 2006 private equity issuance.

We expect our revenues to increase as we describe in “Liquidity and Capital Resources”.

Operating Expenses

	Three months ended				Nine Months ended				Increase from Prior Year
	September 30,				September 30,				Three month		Nine month
	2007		2006		2007		2006		period		period
Operating Expenses	$	2,613,474	$	1,259,888	$	6,719,453	$	2,702,507	$	1,353,586	$	4,016,946
Cost per barrel	$	18.62	$	13.14	$	19.32	$	17.26	$	5.48	$	2.05

The current year operating costs are higher than in the same periods of 2007 due to workovers undertaken in the current year. Argentina’s operating costs were $31.59 per barrel for the three months ended September 30, 2007, which included $12.99 per barrel of costs associated with workover projects. Argentina’s operating costs were $27.10 per barrel for the nine months ended September 30, 2007 representing budgeted workover costs undertaken to sustain production. Colombia’s operating costs were $12.22 per barrel and $10.76 per barrel for the three and nine months ended September 30, 2007. Colombia’s operating costs were $5.98 per barrel and $7.27 per barrel for the three and nine months ended September 30, 2006. The current year operating costs are higher than in the same periods of 2007 due to workovers undertaken in the current year.

We expect our operating costs to increase as we describe in “Liquidity and Capital Resources”.

Depletion, depreciation and accretion

	Three months ended				Nine Months ended				Increase from Prior Year
	September 30,				September 30,				Three month		Nine month
	2007		2006		2007		2006		period		period
Cost	$	1,848,954	$	1,449,694	$	6,549,852	$	2,324,158	$	399,260	$	4,225,694

The increases in depletion, depreciation and accretion expense reflect the addition of properties acquired in Colombia and Argentina during 2006 and their associated increased production in 2007 over the previous year. The depletion rate for 2007 is approximately $27 per barrel in Colombia and $10 per barrel in Argentina.

We expect our depletion rate in Colombia to decrease as we describe in “Liquidity and Capital Resources”.

General and Administrative

	Three months ended				Nine Months ended				Increase from Prior Year
	September 30,				September 30,				Three month		Nine month
	2007		2006		2007		2006		Period		period
Cost	$	2,964,865	$	1,506,439	$	7,583,721	$	3,998,196	$	1,458,426	$	3,585,525

The increase in general and administrative costs for the three and nine months ended September 30, 2007 compared to the same periods in 2006, was due to the increased level of activity related to our business resulting from the acquisition of the Argosy properties in Colombia and additional properties in Argentina, Sarbanes Oxley compliance related costs and increased stock compensation due to increased grants.

Liquidated Damages

	Three months ended				Nine months ended				Change from Prior Year
	September 30,				September 30,				Three month			Nine month
	2007		2006		2007		2006		Period			period
Liquidated damages		-	$	261,182	$	7,366,949	$	261,182	$	(261,182	)	$	7,105,767

Liquidated damages expensed in 2007 relate to liquidated damages payable to our stockholders as a result of the registration statement for 50 million units sold in the second quarter of 2006 not becoming effective within the period specified in the share registration rights agreements for those securities. We expensed a further $1,258,065 in the fourth quarter of 2006. This registration statement became effective on May 14, 2007.

On June 27, 2007, under the terms of the Registration Rights Agreements, we obtained a sufficient number of consents from the signatories to the agreements waiving our obligation to pay in cash the accrued liquidated damages. We agreed to amend the terms of the warrants issued in the 2006 offering by reducing the exercise price of the warrants from $1.75 to $1.05 and extending the life of the warrants by one year.

The $8.6 million liquidated damages have been recorded as expense in the consolidated statement of operations in the amounts $4,132,150 and $3,234,799 in the first and second quarters of 2007, respectively, and $1,258,065 in the fourth quarter of 2006. The amendment to the terms of the warrants has been reflected as an increase of $8.6 million in the value of warrants recorded on the consolidated balance sheet.

Unrealized Loss from Derivative Instrument

	Three months ended				Nine months ended				Increase from Prior Year
	September 30,				September 30,				Three month		Nine month
	2007		2006		2007		2006		period		period
Cost	$	116,596		-	$	793,580		-	$	116,596	$	793,580

Under the terms of the Credit Facility with Standard Bank, we were required to enter into a derivative instrument for the purpose of obtaining protection against fluctuations in the price of oil in respect of at least 50% of the June 30, 2006 Independent Reserve Evaluation Report projected aggregate net share of Colombian production after royalties for the three-year term of the Facility. In accordance with the terms of the Facility, we entered into a costless collar derivative instrument for crude oil based on WTI price, with a floor of $48.00 and a ceiling of $80.00, for a three-year period, for 400 barrels per day from March 2007 to December 2007, 300 barrels per day from January 2008 to December 2008, and 200 barrels per day from January 2009 to February 2010.

During the three and nine months ended September 30, 2007, we recognized an unrealized loss on these derivative instruments as reflected in the table above.

Foreign Exchange (Gain) Loss

	Three months ended					Nine months ended					Increase from Prior Year
	September 30,					September 30,					Three month			Nine month
	2007			2006		2007			2006		period			period
(Gain) Loss	$	(85,637	)	$	273,684	$	(91,772	)	$	277,526	$	(359,321	)	$	(369,298	)

The foreign exchange gain for the three and nine month periods ended September 30, 2007 arose primarily from translation of local currency denominated transactions in our South American operations into US dollars against a US dollar which was significantly weaker than the same periods of 2006.

Income Tax

	Three months ended					Nine months ended					Increase from Prior Year
	September 30,					September 30,					Three month		Nine month
	2007			2006		2007			2006		period		period
Income Tax expense (recovery)	$	(511,219	)	$	710,417	$	(1,985,918	)	$	848,200	$	1,221,636	$	2,834,118

The income tax recovery recorded for the three and nine month periods ended September 30, 2007 has been generated mainly by previously unrecognized Colombian tax incentives related to prior years and previously unrecognized tax assets related to Argentina loss carryforwards from prior years. This compares to a tax expense for the three and nine months ended September 30, 2006 as a result of net income generated by the Colombian and Argentine operations.

Capital Expenditures

During the three months ended September 30, 2007, we spent $0.7 million on capital projects. During the nine months ended September 30, 2007, we spent $10.1 million on capital projects.

In Argentina, capital expenditures for the nine months ending September 30, 2007, were $1.0 million. We incurred costs of $0.6 million to complete the Puesto Climaco-2 sidetrack well in the Vinalar Block which was drilled in December 2006. Capital expenditures also include the acquisition and reprocessing of seismic in several areas.

In Colombia, capital expenditures for the nine months ending September 30, 2007, were $8.9 million. We drilled the Juanambu-1 and Costayaco-1 wells for a net cost of $5.9 million. We drilled the following wells in Colombia which were dry and abandoned: Laura-1, Soyona-1 and Cachapa-1. The drilling costs for these wells were paid by our partners and the wells were drilled at no cost to Gran Tierra. We drilled the Caneyes-1 well, which was dry and abandoned, at a cost to us of $1.7 million. For the three months ended September 30, 2007, we incurred an additional $0.6 million preparing two new well locations for drilling in the Chaza Block. We incurred costs of $0.7 million on other projects in Colombia during 2007.

Liquidity and Capital Resources

As of September 30, 2007, our cash balance was $8.0 million and our current assets (including cash balance) less current liabilities was $9.3 million, compared to cash of $24.1 million and current assets less current liabilities of $14.3 million at December 31, 2006. We also have a credit facility with a bank that provides for borrowing in an amount based on the present value of our petroleum reserves, up to a maximum of $50 million.

The accounts receivable balance at September 30, 2007 increased $6.5 million to $11.6 million from $5.1 million at December 31, 2006. We reclassified a number of tax receivable balances totaling $2.2 million previously reported in accounts receivable to taxes receivable at December 31, 2006. The Argentine receivable balance decreased, as at September 30, 2007, by $1.2 million from that at December 31, 2006 due to partner payment collections for joint capital projects during 2007. The Colombian receivable balance increased by $9.0 million, as at September 30, 2007, due to increased production revenue receivable related to the new wells Costayaco-1 and Juanambu-1 and cash calls requested from joint venture partners for capital expenditures on joint projects.

Taxes receivables, net of taxes payable, decreased by $1.1 million in the third quarter due the receipt of a $1.0 million tax refund due to the Colombian operations for 2006. We reclassified a number of tax categories totaling $2.2 million which were previously reported in accounts receivable as at December 31, 2006. Offsetting this adjustment was a net increase of $0.6 million due to increases in the Argentine VAT tax refunds due to us and in the Argentine income tax carryforward balance.

Current liabilities decreased by $5.0 million for the nine month period ended September 30, 2007, primarily due to a reduction of $4.5 million in accrued liabilities due to the settlement of payables for Argentine property acquisition costs and drilling costs recorded in December 2006.

During the nine months ended September 30, 2007 we reduced our cash balances by $16.1 million. We had cash outflows of $1.3 million from operating activities due to use of cash to fund operational workovers on wells in both Colombia and Argentine, increased Sarbanes Oxley related expenditures, which were offset in part by increased revenues in the third quarter of 2006 from the new wells in Colombia and changes in non-cash working capital as described above. We had cash inflows of $0.4 million inflow from financing activities as a result of the issuance of common shares upon exercise of warrants. Also, we had a $15.2 million outflow from investing activities including oil and gas property expenditures of $10.1 million relating to our drilling and other oilfield activities primarily in Colombia and changes in non-cash working capital due to investing activities as described above.

Effective February 28, 2007, we entered into a credit facility with Standard Bank Plc. The facility has a three-year term which may be extended by agreement between the parties. The borrowing base is the present value of our petroleum reserves up to maximum of $50 million. The initial borrowing base is $7 million and the borrowing base will be re-determined semi-annually based on reserve evaluation reports. The facility includes a letter of credit sub-limit of up to $5 million. Amounts drawn down under the facility bear interest at the Eurodollar rate plus 4%. A stand-by fee of 1% per annum is charged on the un-drawn amount of the borrowing base. The facility is secured primarily by our Colombian assets. Under the terms of the facility, we are required to maintain compliance with specified financial and operating covenants. We were required to enter into a derivative instrument for the purpose of obtaining protection against fluctuations in the price of oil in respect of at least 50% of the June 30, 2006 Independent Reserve Evaluation Report projected aggregate net share of Colombian production after royalties for the three-year term of the Facility.

During 2007, we planned to drill ten wells, conduct several workovers of existing wells, and conduct technical studies on our existing acreage.

In Argentina, we completed the Puesto Climaco-2 side track well in the first quarter of 2007.

In Colombia, we scheduled eight new wells for drilling in 2007, consisting of the Laura-1 exploration well in the Talora Block, the Caneyes-1 exploration well in the Rio Magdalena Block, the Soyona-1 and Cachapa-1 exploration wells in the Primavera Block, the Juanambu-1 and Floresta-1 exploration wells in the Guayuyaco Block, the Costayaco-1 exploration well in the Chaza Block, and the Piedra-1 exploration well in the Talora block. We drilled the Laura-1 well in January 2007, the Caneyes-1 well in February 2007, the Soyona-1 well in April and the Cachapa-1 well in March 2007. The four wells were plugged and abandoned.

We drilled successful wells in the Chaza and Guayayaco areas. We drilled the Juanambu-1 well in March 2007 and encountered hydrocarbon shows in four zones. Testing established the presence of a significant oil accumulation. We drilled and tested the Costayaco-1 well, which also indicated a significant accumulation of oil in a number of zones. Consequently, our proven reserves in Colombia have substantially increased. As a result, the depletion rate per barrel for Colombia decreased substantially in the third quarter of 2007. We put these wells on production in the third quarter of 2007 but require final government commerciality approval for Juanambu-1 production. We expect the production from these two wells to increase revenues, net of operating costs, for the remainder of the year. We expect to incur additional development costs as facilities are upgraded in both locations to facilitate production. In addition, we have initiated planning for field development as a result of the Costayaco and Juanambu discoveries. We are planning two development wells at Costayaco based on available seismic data. We commenced a new 3-D seismic data acquisition program over the Costayaco structure to optimize positioning of future drilling locations.

In Peru, operations in 2007 included technical studies of Block 122 and Block 128 and the initiation of an aero magnetic and gravity survey over both blocks. This program commenced in the fourth quarter of 2007 and we expect it to be completed in 2008. We expect expenditures for 2007 to be $1.3 million of which $0.2 million has been spent to September 30, 2007.

In addition to current projects, we may pursue new ventures in South America, in areas of current activity and in new regions or countries. There is no assurance additional opportunities will be available, or if we participate in additional opportunities that those opportunities will be successful. Based on projected production, prices and costs, we believe that our current operations and capital expenditure program can be maintained from cash flow from existing operations, cash on hand, and our credit facility, barring unforeseen events or a severe downturn in oil and gas prices. Should our operating cash flow decline, we would examine measures such as reducing our capital expenditure program, issuance of debt, or issuance of equity.

Future growth and acquisitions will depend on our ability to raise additional funds through equity, warrant exercises and/or debt markets. During 2005 and 2006 we completed financing initiatives to support recent acquisition initiatives, which have also brought additional production and cash flow into our company. Increases in the borrowing base under our credit facility are dependent on our success in increasing oil and gas reserves and on future oil prices. Additional funds will be provided to us if holders of our warrants to purchase common shares decide to exercise the warrants.

Our initiatives to raise debt or equity financing to fund capital expenditures or other acquisition and development opportunities may be affected by the market value of our common stock. If the price of our common stock declines, our ability to utilize our stock to raise capital may be negatively affected. Also, raising funds by issuing stock or other equity securities would further dilute our existing stockholders, and this dilution would be exacerbated by a decline in stock price. Any securities we issue may have rights, preferences and privileges that are senior to our existing equity securities. Borrowing money may also involve further pledging of some or all of our assets that are not currently pledged under our existing credit facility.

Critical Accounting Estimates

The preparation of financial statements under generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our critical accounting estimates are disclosed in Item 6 of our 2006 Annual Report on Form 10-KSB and have not changed materially since the filing of that document except as follows.

Warrants

We follow the fair-value method of accounting for warrants issued to purchase our common stock. The change of $8.6 million in the fair value of warrants issued in the 2006 Offering, arising from the amendment to the terms of the warrants in connection with the settlement of the liability for liquidated damages, was determined using a Black-Scholes warrant pricing model based on a 25% volatility rate, which reflects a typical volatility rate used to value this type of financial instrument.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal market risk relates to oil prices. We have not hedged these risks in the past. Essentially 100% of our revenues are from oil sales at prices which are defined by contract relative to West Texas Intermediate and adjusted for transportation and quality, for each month. In Argentina, a further discount factor which is related to a tax on oil exports establishes a common pricing mechanism for all oil produced in the country, regardless of its destination.

In accordance with the terms of the credit facility with Standard Bank Plc, which we entered into on February 28, 2007, we entered into a costless collar derivative instrument for crude oil based on West Texas Intermediate (“WTI”) price, with a floor of $48.00 and a ceiling of $80.00, for a three-year period, for 400 barrels per day from March 2007 to December 2007, 300 barrels per day from January 2008 to December 2008, and 200 barrels per day from January 2009 to February 2010. At September 30, 2007, the value of this costless collar was a loss of $793,580. A hypothetical 10% increase in WTI price on September 30, 2007 would cause the loss to increase by approximately $1,862,024, and a hypothetical 10% decrease in WTI price on September 30, 2007 would cause the loss to decrease by approximately $163,276.

We consider our exposure to interest rate risk to be immaterial. Interest rate exposures relate entirely to our investment portfolio, as we do not have short-term or long-term debt. However, if we draw down amounts under our credit facility with Standard Bank Plc, we will incur interest rate risk with respect to the amounts drawn down and outstanding. Our investment objectives are focused on preservation of principal and liquidity. By policy, we manage our exposure to market risks by limiting investments to high quality bank issuers at overnight rates. We do not hold any of these investments for trading purposes. We do not hold equity investments.

Foreign currency risk is a factor for our company but is ameliorated to a large degree by the nature of expenditures and revenues in the countries where we operate. We have not engaged in any formal hedging activity with regard to foreign currency risk. Our reporting currency is U.S. dollars and essentially 100% of our revenues are related to the U.S. price of West Texas intermediate oil. In Colombia, we receive 75% of oil revenues in U.S. dollars and 25% in Colombian pesos at current exchange rates. The majority of our capital expenditures in Colombia are in U.S. dollars and the majority of local office costs are in local currency. As a result, the 75:25 percent allocation between U.S. dollar and peso denominated revenues is approximately balanced between U.S. and peso expenditures, providing a natural currency hedge. In Argentina, reference prices for oil are in U.S. dollars and revenues are received in Argentine pesos according to current exchange rates. The majority of capital expenditures within Argentina have been in U.S. dollars with local office costs generally in pesos. While we operate in South America exclusively, the majority of our spending since our inauguration has been for acquisitions. The majority of these acquisition expenditures have been valued and paid in U.S. dollars.

ITEM 4. - CONTROLS AND PROCEDURES

Not applicable.

ITEM 4T - CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This term refers to the controls and procedures of a company that are designed to provide reasonable assurance that information required to be disclosed by a company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within the required time periods.

We maintain disclosure controls and procedures that have been designed to provide reasonable assurance that information related to Gran Tierra is recorded, processed, summarized and reported on a timely basis. We review these disclosure controls and procedures on a periodic basis.

Our management, including 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 15d-15 of the Exchange Act. Based on their evaluation of our disclosure controls and procedures, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures are effective in ensuring that material information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the SEC 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 based on the definition of “disclosure controls and procedures” as defined in Rule 15d-15 promulgated under the Exchange Act.

(b) Changes in Internal Control over Financial Reporting

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the third quarter of 2007 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

There has been no change in the status of legal proceedings as reported under item 3 in the Company’s 2006 Annual Report on Form 10-KSB.

ITEM 1A. RISK FACTORS

We were a “small business issuer” until the end of 2006, and consequently filed an Annual Report on Form 10-KSB for our fiscal year ended December 31, 2006. Form 10-KSB does not require that we include risk factors. Consequently, listed below are the risk factors which relate to Gran Tierra.

Risks Related to Our Business

We are a new enterprise engaged in the business of oil and natural gas exploration and development. The business of exploring for, developing and producing oil and natural gas reserves is inherently risky. We will face numerous and varied risks which may prevent us from achieving our goals.

We are a Company With Limited Operating History for You to Evaluate Our Business. We May Never Attain Profitability.

We have limited current oil or natural gas operations. As an oil and gas exploration and development company with limited operating history, it is difficult for potential investors to evaluate our business. Our proposed operations are therefore subject to all of the risks inherent in light of the expenses, difficulties, complications and delays frequently encountered in connection with the formation of any new business, as well as those risks that are specific to the oil and gas industry. Investors should evaluate us in light of the delays, expenses, problems and uncertainties frequently encountered by companies developing markets for new products, services and technologies. We may never overcome these obstacles. Our accumulated deficit as of September 30, 2007 is $18,673,955.

Our business is speculative and dependent upon the implementation of our business plan and our ability to enter into agreements with third parties for the rights to exploit potential oil and gas reserves on terms that will be commercially viable for us.

Unanticipated Problems in Our Operations May Harm Our Business and Our Viability.

If our operations in South America are disrupted and/or the economic integrity of these projects is threatened for unexpected reasons, our business may experience a setback. These unexpected events may be due to technical difficulties, operational difficulties which impact the production, transport or sale of our products, geographic and weather conditions, business reasons or otherwise. Because we are at the beginning stages of our development, we are particularly vulnerable to these events. Prolonged problems may threaten the commercial viability of our operations. Moreover, the occurrence of significant unforeseen conditions or events in connection with our acquisition of operations in South America may cause us to question the thoroughness of our due diligence and planning process which occurred before the acquisitions, which may cause us to reevaluate our business model and the viability of our contemplated business. Such actions and analysis may cause us to delay development efforts and to miss out on opportunities to expand our operations.

We May Be Unable to Obtain Development Rights We Need to Build Our Business, and Our Financial Condition and Results of Operations May Deteriorate.

Our business plan focuses on international exploration and production opportunities, initially in South America and later in other parts of the world. Thus far, we have acquired interests for exploration and development in eight properties in Argentina, eight properties in Colombia and two properties in Peru. In the event that we do not succeed in negotiating additional property acquisitions, our future prospects will likely be substantially limited, and our financial condition and results of operations may deteriorate.

Our Lack of Diversification Will Increase the Risk of an Investment in Our Common Stock.

Our business will focus on the oil and gas industry in a limited number of properties, initially in Argentina, Colombia and Peru, with the intention of expanding elsewhere in South America and later into other parts of the world. Larger companies have the ability to manage their risk by diversification. However, we will lack diversification, in terms of both the nature and geographic scope of our business. As a result, factors affecting our industry or the regions in which we operate will likely impact us more acutely than if our business were more diversified.

Strategic Relationships Upon Which We May Rely are Subject to Change, Which May Diminish Our Ability to Conduct Our Operations.

Our ability to successfully bid on and acquire additional properties, to discover reserves, to participate in drilling opportunities and to identify and enter into commercial arrangements will depend on developing and maintaining effective working relationships with industry participants and on our ability to select and evaluate suitable properties and to consummate transactions in a highly competitive environment. These realities are subject to change and may impair Gran Tierra’s ability to grow.

To develop our business, we will endeavor to use the business relationships of our management to enter into strategic relationships, which may take the form of joint ventures with other private parties or with local government bodies, or contractual arrangements with other oil and gas companies, including those that supply equipment and other resources that we will use in our business. We may not be able to establish these strategic relationships, or if established, we may not be able to maintain them. In addition, the dynamics of our relationships with strategic partners may require us to incur expenses or undertake activities we would not otherwise be inclined to in order to fulfill our obligations to these partners or maintain our relationships. If our strategic relationships are not established or maintained, our business prospects may be limited, which could diminish our ability to conduct our operations.

Competition in Obtaining Rights to Explore and Develop Oil and Gas Reserves and to Market Our Production May Impair Our Business.

The oil and gas industry is highly competitive. Other oil and gas companies will compete with us by bidding for exploration and production licenses and other properties and services we will need to operate our business in the countries in which we expect to operate. This competition is increasingly intense as prices of oil and natural gas on the commodities markets have risen in recent years. Additionally, other companies engaged in our line of business may compete with us from time to time in obtaining capital from investors. Competitors include larger, foreign owned companies, which, in particular, may have access to greater resources than us, may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations, which may give them a competitive advantage. In addition, actual or potential competitors may be strengthened through the acquisition of additional assets and interests.

We May Be Unable to Obtain Additional Capital that We Will Require to Implement Our Business Plan, Which Could Restrict Our Ability to Grow.

We expect that our cash balances and cash flow from operations will be sufficient only to provide a limited amount of working capital, and the revenues generated from our properties in Argentina and Colombia will not alone be sufficient to fund our operations or planned growth. We will require additional capital to continue to operate our business beyond the initial phase of our current activities and to expand our exploration and development programs to additional properties. We may be unable to obtain additional capital required. Furthermore, inability to obtain capital may damage our reputation and credibility with industry participants in the event we cannot close previously announced transactions.

Future acquisitions and future exploration, development and production activities, as well as our general overhead expenses (including salaries, travel, office, consulting, audit and legal costs) will require a substantial amount of additional capital and cash flow.

When we require such additional capital we plan to pursue sources of such capital through various financing transactions or arrangements, including joint venturing of projects, debt financing, equity financing or other means. We may not be successful in locating suitable financing transactions in the time period required or at all, and we may not obtain the capital we require by other means. If we do succeed in raising additional capital, the capital received through our past private offerings to accredited investors may not be sufficient to fund our operations going forward without obtaining additional capital financing. Furthermore, future financings are likely to be dilutive to our stockholders, as we will most likely issue additional shares of common stock or other equity to investors in future financing transactions. In addition, debt and other mezzanine financing may involve a pledge of assets and may be senior to interests of equity holders. We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, securities law compliance fees, printing and distribution expenses and other costs. We may also be required to recognize non-cash expenses in connection with certain securities we may issue, such as convertibles and warrants, which will adversely impact our financial condition.

Our ability to obtain needed financing may be impaired by such factors as the capital markets (both generally and in the oil and gas industry in particular), our status as a new enterprise with a limited history, the location of our oil and natural gas properties in South America and prices of oil and natural gas on the commodities markets (which will impact the amount of asset-based financing available to us) and/or the loss of key management. Further, if oil and/or natural gas prices on the commodities markets decrease, then our revenues will likely decrease, and such decreased revenues may increase our requirements for capital. Some of the contractual arrangements governing our exploration activity may require us to commit to certain capital expenditures, and we may lose our contract rights if we do not have the required capital to fulfill these commitments. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs (even to the extent that we reduce our operations), we may be required to cease our operations.

If We Fail to Make the Cash Calls Required by Our Current Joint Ventures or Any Future Joint Ventures, We May be Required to Forfeit Our Interests in Such Joint Ventures and Our Results of Operations and Our Liquidity Would be Negatively Affected.

If we fail to make the cash calls required by our joint ventures, we may be required to forfeit our interests in such joint ventures, which could substantially affect the implementation of our business strategy. We were required to place $400,000 in escrow to secure future cash calls in conjunction with the acquisition of our interest at Palmar Largo in Argentina, which funds have now been returned to us. However, in the future we will be required to make periodic cash calls in connection with our Palmar Largo joint venture and other joint ventures where we are not the operator, or we may be required to place additional funds in escrow to secure our obligations related to our joint venture activity. If we fail to make the cash calls required in connection with the joint ventures, whether because of our cash constraints or otherwise, we will be subject to certain penalties and eventually would be required to forfeit our interest in the joint venture.

We May Not Be Able To Effectively Manage Our Growth, Which May Harm Our Profitability.

Our strategy envisions expanding our business. If we fail to effectively manage our growth, our financial results could be adversely affected. Growth may place a strain on our management systems and resources. We must continue to refine and expand our business development capabilities, our systems and processes and our access to financing sources. As we grow, we must continue to hire, train, supervise and manage new employees. We may not be able to:

	•		expand our systems effectively or efficiently or in a timely manner;

	•		allocate our human resources optimally;

	•		identify and hire qualified employees or retain valued employees; or

	•		incorporate effectively the components of any business that we may acquire in our effort to achieve growth.

If we are unable to manage our growth and our operations our financial results could be adversely affected by inefficiency, which could diminish our profitability.

Our Business May Suffer If We Do Not Attract and Retain Talented Personnel.

Our success will depend in large measure on the abilities, expertise, judgment, discretion, integrity and good faith of our management and other personnel in conducting the business of Gran Tierra. We have a small management team consisting of Dana Coffield, our President and Chief Executive Officer, Martin Eden, our Vice President, Finance and Chief Financial Officer, Max Wei, our Vice President, Operations, Rafael Orunesu, our President of Gran Tierra activities in Argentina, and Edgar Dyes, our President of Gran Tierra activities in Colombia. The loss of any of these individuals or our inability to attract suitably qualified staff could materially adversely impact our business. We may also experience difficulties in certain jurisdictions in our efforts to obtain suitably qualified staff and retaining staff who are willing to work in that jurisdiction. We do not currently carry life insurance for our key employees.

Our success depends on the ability of our management and employees to interpret market and geological data successfully and to interpret and respond to economic, market and other business conditions in order to locate and adopt appropriate investment opportunities, monitor such investments and ultimately, if required, successfully divest such investments. Further, our key personnel may not continue their association or employment with Gran Tierra and we may not be able to find replacement personnel with comparable skills. We have sought to and will continue to ensure that management and any key employees are appropriately compensated; however, their services cannot be guaranteed. If we are unable to attract and retain key personnel, our business may be adversely affected.

We may not be Able to Continue as a Going Concern.

Our consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. We have a history of net losses that may continue in the future. We have included an explanatory paragraph in Note 1 of our audited financial statements for the year ended December 31, 2006, and unaudited financial statements for the period ended September 30, 2007 to the effect that our dependence on equity and debt financing raises substantial doubt about our ability to continue as a going concern. Our accumulated deficit at September 30, 2007 was $17.9 million. Our financial statements do not include any adjustments that might be necessary should we be unable to continue as a going concern.

Our operations must begin to provide sufficient revenues to improve our working capital position. If we are unable to become profitable and cannot generate cash flow from our operating activities sufficient to satisfy our current obligations and meet our capital investment objectives, we may be required to raise additional capital or debt to fund our operations, reduce the scope of our operations or discontinue our operations.

Risks Related to our Prior Business May Adversely Affect our Business.

Before the share exchange transaction between Goldstrike and Gran Tierra Canada, Goldstrike’s business involved mineral exploration, with a view towards development and production of mineral assets, including ownership of 32 mineral claim units in a property in British Colombia, Canada and the exploration of this property. We have determined not to pursue this line of business following the share exchange, but could still be subject to claims arising from the former Goldstrike business. These claims may arise from Goldstrike’s operating activities (such as employee and labor matters), financing and credit arrangements or other commercial transactions. While no claims are pending and we have no actual knowledge of any threatened claims, it is possible that third parties may seek to make claims against us based on Goldstrike’s former business operations. Even if such asserted claims were without merit and we were ultimately found to have no liability for such claims, the defense costs and the distraction of management’s attention may harm the growth and profitability of our business. While the relevant definitive agreements executed in connection with the share exchange provide indemnities to us for liabilities arising from the prior business activities of Goldstrike, these indemnities may not be sufficient to fully protect us from all costs and expenses.

Maintaining and improving our financial controls may strain our resources and divert management’s attention, and if we are not able to report that we have effective internal controls our stock price may suffer.

We are subject to the requirements of the Securities Exchange Act of 1934, or the Exchange Act, including the requirements of the Sarbanes-Oxley Act of 2002. The requirements of these rules and regulations have increased, and we expect will continue to increase, our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and may also place undue strain on our personnel, systems and resources. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. This can be difficult to do. As a result of this and similar activities, management’s attention may be diverted from other business concerns, which could have a material adverse effect on our business, financial condition and results of operations. In addition, if we are unable to report in our Annual Report on Form 10-K for 2007 that we maintain effective internal control over financial reporting, investor confidence in our management may decrease, which could have an adverse effect on our stock price.

Risks Related to Our Industry

Our Exploration for Oil and Natural Gas Is Risky and May Not Be Commercially Successful, Impairing Our Ability to Generate Revenues from Our Operations.

Oil and natural gas exploration involves a high degree of risk. These risks are more acute in the early stages of exploration. Our expenditures on exploration may not result in new discoveries of oil or natural gas in commercially viable quantities. It is difficult to project the costs of implementing an exploratory drilling program due to the inherent uncertainties of drilling in unknown formations, the costs associated with encountering various drilling conditions, such as over pressured zones and tools lost in the hole, and changes in drilling plans and locations as a result of prior exploratory wells or additional seismic data and interpretations thereof. If exploration costs exceed our estimates, or if our exploration efforts do not produce results which meet our expectations, our exploration efforts may not be commercially successful, which could adversely impact our ability to generate revenues from our operations.

We May Not Be Able to Develop Oil and Gas Reserves on an Economically Viable Basis, and Our Reserves and Production May Decline as a Result.

To the extent that we succeed in discovering oil and/or natural gas, reserves may not be capable of production levels we project or in sufficient quantities to be commercially viable. On a long-term basis, our company’s viability depends on our ability to find or acquire, develop and commercially produce additional oil and gas reserves. Without the addition of reserves through exploration, acquisition or development activities, our reserves and production will decline over time as reserves are produced. Our future reserves will depend not only on our ability to develop then-existing properties, but also on our ability to identify and acquire additional suitable producing properties or prospects, to find markets for the oil and natural gas we develop and to effectively distribute our production into our markets.

Future oil and gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include delays in obtaining governmental approvals or consents, shut-downs of connected wells resulting from extreme weather conditions, problems in storage and distribution and adverse geological and mechanical conditions. While we will endeavor to effectively manage these conditions, we cannot be assured of doing so optimally, and we will not be able to eliminate them completely in any case. Therefore, these conditions could diminish our revenue and cash flow levels and result in the impairment of our oil and natural gas interests.

Estimates of Oil and Natural Gas Reserves that We Make May Be Inaccurate and Our Actual Revenues May Be Lower than Our Financial Projections.

We will make estimates of oil and natural gas reserves, upon which we will base our financial projections. We will make these reserve estimates using various assumptions, including assumptions as to oil and natural gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. Some of these assumptions are inherently subjective, and the accuracy of our reserve estimates relies in part on the ability of our management team, engineers and other advisors to make accurate assumptions. Economic factors beyond our control, such as interest rates and exchange rates, will also impact the value of our reserves. The process of estimating oil and gas reserves is complex, and will require us to use significant decisions and assumptions in the evaluation of available geological, geophysical, engineering and economic data for each property. As a result, our reserve estimates will be inherently imprecise. Actual future production, oil and natural gas prices, revenues, taxes, development expenditures, operating expenses and quantities of recoverable oil and gas reserves may vary substantially from those we estimate. If actual production results vary substantially from our reserve estimates, this could materially reduce our revenues and result in the impairment of our oil and natural gas interests.

Drilling New Wells Could Result in New Liabilities, Which Could Endanger Our Interests in Our Properties and Assets.

There are risks associated with the drilling of oil and natural gas wells, including encountering unexpected formations or pressures, premature declines of reservoirs, blow-outs, craterings, sour gas releases, fires and spills. The occurrence of any of these events could significantly reduce our revenues or cause substantial losses, impairing our future operating results. We may become subject to liability for pollution, blow-outs or other hazards. We will obtain insurance with respect to these hazards, but such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. The payment of such liabilities could reduce the funds available to us or could, in an extreme case, result in a total loss of our properties and assets. Moreover, we may not be able to maintain adequate insurance in the future at rates that are considered reasonable. Oil and natural gas production operations are also subject to all the risks typically associated with such operations, including premature decline of reservoirs and the invasion of water into producing formations.

Decommissioning Costs Are Unknown and May be Substantial; Unplanned Costs Could Divert Resources from Other Projects.

We may become responsible for costs associated with abandoning and reclaiming wells, facilities and pipelines which we use for production of oil and gas reserves. Abandonment and reclamation of these facilities and the costs associated therewith is often referred to as “decommissioning.” We have determined that we do not require a significant reserve account for these potential costs in respect of any of our current properties or facilities at this time but if decommissioning is required before economic depletion of our properties or if our estimates of the costs of decommissioning exceed the value of the reserves remaining at any particular time to cover such decommissioning costs, we may have to draw on funds from other sources to satisfy such costs. The use of other funds to satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.

Our Inability to Obtain Necessary Facilities Could Hamper Our Operations.

Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment, transportation, power and technical support in the particular areas where these activities will be conducted, and our access to these facilities may be limited. To the extent that we conduct our activities in remote areas, needed facilities may not be proximate to our operations, which will increase our expenses. Demand for such limited equipment and other facilities or access restrictions may affect the availability of such equipment to us and may delay exploration and development activities. The quality and reliability of necessary facilities may also be unpredictable and we may be required to make efforts to standardize our facilities, which may entail unanticipated costs and delays. Shortages and/or the unavailability of necessary equipment or other facilities will impair our activities, either by delaying our activities, increasing our costs or otherwise.

We are not the Operator of All Our Current Joint Ventures and Therefore the Success of the Projects Held Under Joint Ventures is Substantially Dependent On Our Joint Venture Partners.

As our company does not operate all the joint ventures we are currently involved in, we do not have a direct control over operations. When we participate in decisions as a joint venture partner, we must rely on the operator’s disclosure for all decisions. Furthermore, the operator is responsible for the day to day operations of the joint venture including technical operations, safety, environmental compliance, relationships with governments and vendors. As we do not have full control over the activities of our joint ventures, our results of operations are dependent upon the efforts of the operating partner.

We May Have Difficulty Distributing Our Production, Which Could Harm Our Financial Condition.

To sell the oil and natural gas that we are able to produce, we have to make arrangements for storage and distribution to the market. We rely on local infrastructure and the availability of transportation for storage and shipment of our products, but infrastructure development and storage and transportation facilities may be insufficient for our needs at commercially acceptable terms in the localities in which we operate. This could be particularly problematic to the extent that our operations are conducted in remote areas that are difficult to access, such as areas that are distant from shipping and/or pipeline facilities. In certain areas, we may be required to rely on only one gathering system, trucking company or pipeline, and, if so, our ability to market our production would be subject to their reliability and operations. These factors may affect our ability to explore and develop properties and to store and transport our oil and gas production and may increase our expenses.

Furthermore, future instability in one or more of the countries in which we will operate, weather conditions or natural disasters, actions by companies doing business in those countries, labor disputes or actions taken by the international community may impair the distribution of oil and/or natural gas and in turn diminish our financial condition or ability to maintain our operations.

Our Oil Sales Will Depend on a Relatively Small Group of Customers, Which Could Adversely Affect Our Financial Results

The entire Argentine domestic refining market is small and export opportunities are limited by available infrastructure. As a result, our oil sales in Argentina will depend on a relatively small group of customers, and currently, on just one customer in the area of our activity in the country. During 2006, we sold all of our production in Argentina to Refinor S.A. The lack of competition in this market could result in unfavorable sales terms which, in turn, could adversely affect our financial results.

Oil sales in Colombia are made to Ecopetrol, a government agency. While oil prices in Colombia are related to international market prices, lack of competition for sales of oil may diminish prices and depress our financial results.

Drilling Oil and Gas Wells and Production and Transportation Activity Could be Hindered by Hurricanes, Earthquakes and Other Weather-Related Operating Risks.

We are subject to operating hazards normally associated with the exploration and production of oil and gas, including blowouts, explosions, oil spills, cratering, pollution, earthquakes, hurricanes, labor disruptions and fires. The occurrence of any such operating hazards could result in substantial losses to us due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties. During November and December of 2005, our operations in Argentina were negatively effected by heavy rains and flooding in Northern Argentina. This caused trucking delays which prevented delivery of oil to the refinery for several days.

As the majority of current oil production in Argentina is trucked to a local refinery, sales of oil can be delayed by adverse weather and road conditions. While storage facilities are designed to accommodate ordinary disruptions without curtailing production, delayed sales will delay revenues and may adversely impact the company’s working capital position. Furthermore, a prolonged disruption in oil deliveries could exceed storage capacities and shut-in production, which could have a negative impact on future production capability.

All of our current oil production in Colombia is transported by an export pipeline which provides the only access to markets for our oil. Without other transportation alternatives, sales of oil could be disrupted by landslides or other natural events which impact this pipeline.

Prices and Markets for Oil and Natural Gas Are Unpredictable and Tend to Fluctuate Significantly, Which Could Reduce Profitability, Growth and the Value of Gran Tierra.

Oil and natural gas are commodities whose prices are determined based on world demand, supply and other factors, all of which are beyond our control. World prices for oil and natural gas have fluctuated widely in recent years. The average price for West Texas Intermediate oil in 2000 was $30 per barrel. In 2006, it was $66 per barrel. We expect that prices will fluctuate in the future. Price fluctuations will have a significant impact upon our revenue, the return from our reserves and on our financial condition generally. Price fluctuations for oil and natural gas commodities may also impact the investment market for companies engaged in the oil and gas industry. Although during 2007 market prices for oil and natural gas have remained at high levels, these prices may not remain at current levels. Furthermore, prices which we receive for our oil sales, while based on international oil prices, are established by contract with purchasers with prescribed deductions for transportation and quality differences. These differentials can change over time and have a detrimental impact on realized prices. Future decreases in the prices of oil and natural gas may have a material adverse effect on our financial condition, the future results of our operations and quantities of reserves recoverable on an economic basis.

Our Foreign Operations Involve Substantial Costs and are Subject to Certain Risks Because the Oil and Gas Industries in the Countries in Which We Operate are Less Developed.

The oil and gas industry in South America is not as efficient or developed as the oil and gas industry in North America. As a result, our exploration and development activities may take longer to complete and may be more expensive than similar operations in North America. The availability of technical expertise, specific equipment and supplies may be more limited than in North America. We expect that such factors will subject our international operations to economic and operating risks that may not be experienced in North American operations. In addition, oil and natural gas prices in Argentina are effectively regulated and as a result are substantially lower than those received in North America. Our average price for oil in Argentina for 2007, year to date, was $38.89 per barrel, net of royalties and selling costs compared to the average West Texas Intermediate price of $66.78 per barrel for the period. Oil prices in Colombia are related to international market prices, but adjustments that are defined by contract with Ecopetrol, a government agency and the purchaser of all oil that we produce in Colombia, may cause realized prices to be lower than those received in North America, meaning that our revenue and gross profit may be lower compared to similar production levels in North America. Our average oil price in Colombia for 2007, year to date, was $58.26 per barrel, net of royalties and selling costs.

Negative Economic, Political and Regulatory Developments in Argentina, Including Export Controls May Negatively Affect our Operations.

The Argentine economy has experienced volatility in recent decades. This volatility has included periods of low or negative growth and variable levels of inflation. Inflation was at its peak in the 1980’s and early 1990’s. In late-2001 there was a deep fiscal crisis in Argentina involving restrictions on banking transactions, imposition of exchange controls, suspension of payment of Argentina’s public debt and abrogation of the one-to one peg of the peso to the dollar. For the next year, Argentina experienced contractions in economic growth, increasing inflation and a volatile exchange rate. Currently, GDP is growing, inflation is normalized, and public finances are strengthened. However, there is no guarantee of economic stability. Any de-stabilization may seriously impact the economic viability of operations in the country or restrict the movement of cash into and out of the country, which would impair current activity and constrain growth in the country.

On June 3, 2002, the Argentine government issued a resolution authorizing the Energy Secretariat to limit the amount of crude oil that companies can export. The restriction was to be in place from June 2002 to September 2002. However, on June 14, 2002, the government agreed to abandon the limit on crude export volumes in exchange for a guarantee from oil companies that domestic demand will be supplied. Oil companies also agreed not to raise natural gas and related prices to residential customers during the winter months and to maintain gasoline, natural gas and oil prices in line with those in other South American countries. Any future regulations that limit the amount of oil and gas that we could sell or any regulations that limit price increases in Argentina and elsewhere could severely limit the amount of our revenue and affect our results of operations.

The United States Government May Impose Economic or Trade Sanctions on Colombia That Could Result In A Significant Loss To Us.

Colombia is among several nations whose progress in stemming the production and transit of illegal drugs is subject to annual certification by the President of the United States. Although Colombia has received a 2006 certification, there can be no assurance that, in the future, Colombia will receive certification or a national interest waiver. The failure to receive certification or a national interest waiver may result in any of the following:

	•		all bilateral aid, except anti-narcotics and humanitarian aid, would be suspended,

	•		the Export-Import Bank of the United States and the Overseas Private Investment Corporation would not approve financing for new projects in Colombia,

	•		United States representatives at multilateral lending institutions would be required to vote against all loan requests from Colombia , although such votes would not constitute vetoes, and

	•		the President of the United States and Congress would retain the right to apply future trade sanctions.

Each of these consequences could result in adverse economic consequences in Colombia and could further heighten the political and economic risks associated with our operations there. Any changes in the holders of significant government offices could have adverse consequences on our relationship with the Colombian national oil company and the Colombian government’s ability to control guerrilla activities and could exacerbate the factors relating to our foreign operations. Any sanctions imposed on Colombia by the United States government could threaten our ability to obtain necessary financing to develop the Colombian properties or cause Colombia to retaliate against us, including by nationalizing our Argosy assets. Accordingly, the imposition of the foregoing economic and trade sanctions on Colombia would likely result in a substantial loss and a decrease in the price of our common stock. There can be no assurance that the United States will not impose sanctions on Colombia in the future, nor can we predict the effect in Colombia that these sanctions might cause.

Guerrilla Activity in Colombia Could Disrupt or Delay Our Operations, and We Are Concerned About Safeguarding Our Operations and Personnel in Colombia.

A 40-year armed conflict between government forces and anti-government insurgent groups and illegal paramilitary groups - both funded by the drug trade - continues in Colombia. Insurgents continue to attack civilians and violent guerilla activity continues in many parts of the country.

We, through our acquisition of Argosy Energy International, have interests in three regions of Colombia - in the Middle Magdalena, Llanos and Putumayo regions. The Putumayo region has been prone to guerilla activity in the past. In 1989, Argosy’s facilities in one field were attacked by guerillas and operations were briefly disrupted. Pipelines have also been targets, including the Trans-Andean export pipeline which transports oil from the Putumayo region.

There can be no assurance that continuing attempts to reduce or prevent guerilla activity will be successful or that guerilla activity will not disrupt our operations in the future. There can also be no assurance that we can maintain the safety of our operations and personnel in Colombia or that this violence will not affect our operations in the future. Continued or heightened security concerns in Colombia could also result in a significant loss to us.

Increases in Our Operating Expenses will Impact Our Operating Results and Financial Condition.

Exploration, development, production, marketing (including distribution costs) and regulatory compliance costs (including taxes) will substantially impact the net revenues we derive from the oil and gas that we produce. These costs are subject to fluctuations and variation in different locales in which we will operate, and we may not be able to predict or control these costs. If these costs exceed our expectations, this may adversely affect our results of operations. In addition, we may not be able to earn net revenue at our predicted levels, which may impact our ability to satisfy our obligations.

Penalties We May Incur Could Impair Our Business.

Our exploration, development, production and marketing operations are regulated extensively under foreign, federal, state and local laws and regulations. Under these laws and regulations, we could be held liable for personal injuries, property damage, site clean-up and restoration obligations or costs and other damages and liabilities. We may also be required to take corrective actions, such as installing additional safety or environmental equipment, which could require us to make significant capital expenditures. Failure to comply with these laws and regulations may also result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties, including the assessment of natural resource damages. We could be required to indemnify our employees in connection with any expenses or liabilities that they may incur individually in connection with regulatory action against them. As a result of these laws and regulations, our future business prospects could deteriorate and our profitability could be impaired by costs of compliance, remedy or indemnification of our employees, reducing our profitability.

Environmental Risks May Adversely Affect Our Business.

All phases of the oil and natural gas business present environmental risks and hazards and are subject to environmental regulation pursuant to a variety of international conventions and federal, provincial and municipal laws and regulations. Environmental legislation provides for, among other things, restrictions and prohibitions on spills, releases or emissions of various substances produced in association with oil and gas operations. The legislation also requires that wells and facility sites be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Compliance with such legislation can require significant expenditures and a breach may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner we expect may result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to foreign governments and third parties and may require us to incur costs to remedy such discharge. The application of environmental laws to our business may cause us to curtail our production or increase the costs of our production, development or exploration activities.

Our Insurance May Be Inadequate to Cover Liabilities We May Incur.

Our involvement in the exploration for and development of oil and natural gas properties may result in our becoming subject to liability for pollution, blow-outs, property damage, personal injury or other hazards. Although we will obtain insurance in accordance with industry standards to address such risks, such insurance has limitations on liability that may not be sufficient to cover the full extent of such liabilities. In addition, such risks may not, in all circumstances be insurable or, in certain circumstances, we may choose not to obtain insurance to protect against specific risks due to the high premiums associated with such insurance or for other reasons. The payment of such uninsured liabilities would reduce the funds available to us. If we suffer a significant event or occurrence that is not fully insured, or if the insurer of such event is not solvent, we could be required to divert funds from capital investment or other uses towards covering our liability for such events.

Our Business is Subject to Local Legal, Political and Economic Factors Which are Beyond Our Control, Which Could Impair Our Ability to Expand Our Operations or Operate Profitably.

We expect to operate our business in Argentina, Colombia and Peru, and to expand our operations into other countries in the world. Exploration and production operations in foreign countries are subject to legal, political and economic uncertainties, including terrorism, military repression, interference with private contract rights (such as privatization), extreme fluctuations in currency exchange rates, high rates of inflation, exchange controls and other laws or policies affecting environmental issues (including land use and water use), workplace safety, foreign investment, foreign trade, investment or taxation, as well as restrictions imposed on the oil and natural gas industry, such as restrictions on production, price controls and export controls. Central and South America have a history of political and economic instability. This instability could result in new governments or the adoption of new policies, laws or regulations that might assume a substantially more hostile attitude toward foreign investment. In an extreme case, such a change could result in termination of contract rights and expropriation of foreign-owned assets. Any changes in oil and gas or investment regulations and policies or a shift in political attitudes in Argentina, Colombia, Peru or other countries in which we intend to operate are beyond our control and may significantly hamper our ability to expand our operations or operate our business at a profit.

For instance, changes in laws in the jurisdiction in which we operate or expand into with the effect of favoring local enterprises, changes in political views regarding the exploitation of natural resources and economic pressures may make it more difficult for us to negotiate agreements on favorable terms, obtain required licenses, comply with regulations or effectively adapt to adverse economic changes, such as increased taxes, higher costs, inflationary pressure and currency fluctuations.

Local Legal and Regulatory Systems in Which We Operate May Create Uncertainty Regarding Our Rights and Operating Activities, Which May Harm Our Ability to do Business.

We are a company organized under the laws of the State of Nevada and are subject to United States laws and regulations. The jurisdictions in which we intend to operate our exploration, development and production activities may have different or less developed legal systems than the United States, which may result in risks such as:

	•		effective legal redress in the courts of such jurisdictions, whether in respect of a breach of law or regulation, or, in an ownership dispute, being more difficult to obtain;

	•		a higher degree of discretion on the part of governmental authorities;

	•		the lack of judicial or administrative guidance on interpreting applicable rules and regulations;

	•		inconsistencies or conflicts between and within various laws, regulations, decrees, orders and resolutions; and

	•		relative inexperience of the judiciary and courts in such matters.

In certain jurisdictions the commitment of local business people, government officials and agencies and the judicial system to abide by legal requirements and negotiated agreements may be more uncertain, creating particular concerns with respect to licenses and agreements for business. These licenses and agreements may be susceptible to revision or cancellation and legal redress may be uncertain or delayed. Property right transfers, joint ventures, licenses, license applications or other legal arrangements pursuant to which we operate may be adversely affected by the actions of government authorities and the effectiveness of and enforcement of our rights under such arrangements in these jurisdictions may be impaired.

We are Required to Obtain Licenses and Permits to Conduct Our Business and Failure to Obtain These Licenses Could Cause Significant Delays and Expenses That Could Materially Impact Our Business.

We are subject to licensing and permitting requirements relating to drilling for oil and natural gas. We cannot assure you that we will be able to obtain, sustain or renew such licenses. We cannot assure you that regulations and policies relating to these licenses and permits will not change or be implemented in a way that we do not currently anticipate. These licenses and permits are subject to numerous requirements, including compliance with the environmental regulations of the local governments. As we are not the operator of all the joint ventures we are currently involved in, we may rely on the operator to obtain all necessary permits and licenses. If we fail to comply with these requirements, we could be prevented from drilling for oil and natural gas, and we could be subject to civil or criminal liability or fines. Revocation or suspension of our environmental and operating permits could have a material adverse effect on our business, financial condition and results of operations.

Challenges to Our Properties May Impact Our Financial Condition.

Title to oil and natural gas interests is often not capable of conclusive determination without incurring substantial expense. While we intend to make appropriate inquiries into the title of properties and other development rights we acquire, title defects may exist. In addition, we may be unable to obtain adequate insurance for title defects, on a commercially reasonable basis or at all. If title defects do exist, it is possible that we may lose all or a portion of our right, title and interest in and to the properties to which the title defects relate.

Furthermore, applicable governments may revoke or unfavorably alter the conditions of exploration and development authorizations that we procure, or third parties may challenge any exploration and development authorizations we procure. Such rights or additional rights we apply for may not be granted or renewed on terms satisfactory to us.

If our property rights are reduced, whether by governmental action or third party challenges, our ability to conduct our exploration, development and production may be impaired.

Foreign Currency Exchange Rate Fluctuations May Affect Our Financial Results.

We expect to sell our oil and natural gas production under agreements that will be denominated in United States dollars and foreign currencies. Many of the operational and other expenses we incur will be paid in the local currency of the country where we perform our operations. Our production is primarily invoiced in United States dollars, but payment is also made in Argentine and Colombian pesos, at the then-current exchange rate. As a result, we are exposed to translation risk when local currency financial statements are translated to United States dollars, our company’s functional currency. Since we began operating in Argentina (September 1, 2005), the rate of exchange between the Argentine peso and US dollar has varied between 2.89 pesos to one US dollar to 3.23 pesos to the US dollar, a fluctuation of approximately 11%. Exchange rates between the Colombian peso and US dollar have varied between 1,914 pesos to one US dollar to 2,640 pesos to one US dollar since September 1, 2005, a fluctuation of approximately 28%. As currency exchange rates fluctuate, translation of the statements of income of international businesses into United States dollars will affect comparability of revenues and expenses between periods.

Exchange Controls and New Taxes Could Materially Affect our Ability to Fund Our Operations and Realize Profits from Our Foreign Operations.

Foreign operations may require funding if their cash requirements exceed operating cash flow. To the extent that funding is required, there may be exchange controls limiting such funding or adverse tax consequences associated with such funding. In addition, taxes and exchange controls may affect the dividends that we receive from foreign subsidiaries.

Exchange controls may prevent us from transferring funds abroad. For example, the Argentine government has imposed a number of monetary and currency exchange control measures that include restrictions on the free disposition of funds deposited with banks and tight restrictions on transferring funds abroad, with certain exceptions for transfers related to foreign trade and other authorized transactions approved by the Argentine Central Bank. We cannot assure you that the Central Bank will not require prior authorization or will grant such authorization for our Argentine subsidiaries to make dividend payments to us and we cannot assure you that there will not be a tax imposed with respect to the expatriation of the proceeds from our foreign subsidiaries.

We Will Rely on Technology to Conduct Our Business and Our Technology Could Become Ineffective Or Obsolete.

We rely on technology, including geographic and seismic analysis techniques and economic models, to develop our reserve estimates and to guide our exploration and development and production activities. We will be required to continually enhance and update our technology to maintain its efficacy and to avoid obsolescence. The costs of doing so may be substantial, and may be higher than the costs that we anticipate for technology maintenance and development. If we are unable to maintain the efficacy of our technology, our ability to manage our business and to compete may be impaired. Further, even if we are able to maintain technical effectiveness, our technology may not be the most efficient means of reaching our objectives, in which case we may incur higher operating costs than we would were our technology more efficient.

Risks Related to Our Common Stock

The Market Price of Our Common Stock May Be Highly Volatile and Subject to Wide Fluctuations.

The market price of our common stock may be highly volatile and could be subject to wide fluctuations in response to a number of factors that are beyond our control, including:

	•		dilution caused by our issuance of additional shares of common stock and other forms of equity securities, which we expect to make in connection with future capital financings to fund our operations and growth, to attract and retain valuable personnel and in connection with future strategic partnerships with other companies;

	•		announcements of new acquisitions, reserve discoveries or other business initiatives by our competitors;

	•		fluctuations in revenue from our oil and natural gas business as new reserves come to market;

	•		changes in the market for oil and natural gas commodities and/or in the capital markets generally;

	•		changes in the demand for oil and natural gas, including changes resulting from the introduction or expansion of alternative fuels; and

	•		changes in the social, political and/or legal climate in the regions in which we will operate.

In addition, the market price of our common stock could be subject to wide fluctuations in response to:

	•		quarterly variations in our revenues and operating expenses;

	•		changes in the valuation of similarly situated companies, both in our industry and in other industries;

	•		changes in analysts’ estimates affecting our company, our competitors and/or our industry;

	•		changes in the accounting methods used in or otherwise affecting our industry;

	•		additions and departures of key personnel;

	•		announcements of technological innovations or new products available to the oil and natural gas industry;

	•		announcements by relevant governments pertaining to incentives for alternative energy development programs;

	•		fluctuations in interest rates, exchange rates and the availability of capital in the capital markets; and

•

significant sales of our common stock, including sales by the investors following registration of the shares of common stock under the registration statement relating to our June 2006 private placement of units, and/or future investors in future offerings we expect to make to raise additional capital.

These and other factors are largely beyond our control, and the impact of these risks, singularly or in the aggregate, may result in material adverse changes to the market price of our common stock and/or our results of operation and financial condition.

Our Operating Results May Fluctuate Significantly, and These Fluctuations May Cause Our Stock Price to Decline.

Our operating results will likely vary in the future primarily from fluctuations in our revenues and operating expenses, including the coming to market of oil and natural gas reserves that we are able to develop, expenses that we incur, the prices of oil and natural gas in the commodities markets and other factors. If our results of operations do not meet the expectations of current or potential investors, the price of our common stock may decline.

We Do Not Expect to Pay Dividends In the Foreseeable Future.

We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business. Therefore, investors will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all. Investors cannot be assured of a positive return on investment or that they will not lose the entire amount of their investment in our common stock.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On 13 separate dates beginning on July 26, 2007 and ending on September 18, 2007, we issued an aggregate of 391,667 shares of our common stock for an aggregate purchase price of $414,251. These shares were issued to 18 holders of warrants to purchase shares of our common stock upon exercise of the warrants. The shares were issued to these holders in reliance on Section 4(2) under the Securities Act, in that they were issued to the original purchasers of the warrants, who had represented to us in the private placement of the warrants that they were accredited investors as defined in Regulation D under the Securities Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS

None.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

See Index to Exhibits at the end of this Report, which is incorporated by reference here. The Exhibits listed in the accompanying Index to Exhibits are filed as part of this report.

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 8, 2007		/s/ Dana Coffield
		By: Dana Coffield
		Its: Chief Executive Officer


Date: November 8, 2007		/s/ Martin Eden
		By: Martin Eden
		Its: Chief Financial Officer

EXHIBIT INDEX

Exhibit
No.	Description	Reference
3.1	Articles of Incorporation.	Incorporated by reference to Exhibit 3.1 to the Form SB-2, as amended, filed with the Securities and Exchange Commission on December 31, 2003 (File No. 333-111656).

3.2	Certificate Amending Articles of Incorporation.	Incorporated by reference to Exhibit 3.2 to the Form SB-2, as amended, and filed with the Securities and Exchange Commission on December 31, 2003 (File No. 333-111656).

3.3	Certificate Amending Articles of Incorporation.	Incorporated by reference to Exhibit 3.4 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 10, 2005 (File No. 333-111656).

3.4	Certificate of Amendment to Articles of Incorporation.	Incorporated by reference to Exhibit 3.5 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 1, 2006 (File No. 333-111656).

3.5	Amended and Restated Bylaws of Gran Tierra Energy Inc.	Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 13, 2007 (File No.000-52594).

10.1	2007 Equity Incentive Plan	Incorporated by reference to Exhibit 99.1 to the Registration Statement on Form S-8 filed with the Securities and Exchange Commission on October 19, 2007 (File No. 333-146815).

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer	Filed herewith.

31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer	Filed herewith.

32	Section 1350 Certifications.	Filed herewith.

Positive
Negative
Uncertain
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Legalese
Litigous
Readability	H.S. sophomore Avg

Gran Tierra Energy (GTE) 10-Q2007 Q3 Quarterly report

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