Gran Tierra Energy 10Q 2009 Q1 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


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

		FOR THE QUARTERLY PERIOD ENDED March 31, 2009


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 10th 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 submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232-405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. YES ¨ NO ¨

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

Large Accelerated Filer x	Accelerated Filer o
Non-Accelerated Filer o	(do not check if a smaller reporting company) Smaller Reporting Company o

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 May 1, 2009, the following numbers of shares of the registrant’s capital stock were outstanding: 203,799,912 shares of the registrant’s Common Stock, $0.001 par value; one share of Special A Voting Stock, $0.001 par value, representing 10,675,396 shares of Gran Tierra Goldstrike Inc., which are exchangeable on a 1-for-1 basis into the registrant’s Common Stock; and one share of Special B Voting Stock, $0.001 par value, representing 26,897,645 shares of Gran Tierra Exchangeco Inc., which are exchangeable on a 1-for-1 basis into the registrant’s Common Stock.

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION

ITEM 1.	FINANCIAL STATEMENTS	3

ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19

ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	31

ITEM 4.	CONTROLS AND PROCEDURES	31

ITEM 4T.	CONTROLS AND PROCEDURES	32

	PART II - OTHER INFORMATION

ITEM 1.	LEGAL PROCEEDINGS	32

ITEM 1A.	RISK FACTORS	32

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

ITEM 3.	DEFAULTS UPON SENIOR SECURITIES	43

ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF THE SECURITY HOLDERS	43

ITEM 5.	OTHER INFORMATION	43

ITEM 6.	EXHIBITS	43

SIGNATURES		43

EXHIBIT INDEX		43

PART I - FINANCIAL INFORMATION

ITEM 1 - FINANCIAL STATEMENTS

Gran Tierra Energy Inc.

Condensed Consolidated Statements of Operations and Retained Earnings (Accumulated Deficit) (Unaudited)

(Thousands of U.S. Dollars, Except Share and Per Share Amounts)

	Three Months Ended March 31,
	2009			2008

REVENUE AND OTHER INCOME
Oil and natural gas sales	$	33,151		$	20,749
Interest		414			70
		33,565			20,819
EXPENSES
Operating		7,086			2,527
Depletion, depreciation and accretion		27,529			3,064
General and administrative		5,125			4,133
Derivative financial instruments loss (Note 10)		-			1,184
Foreign exchange (gain) loss		(20,222	)		14
		19,518			10,922

INCOME BEFORE INCOME TAXES		14,047			9,897
Income tax recovery (expense) (Note 7)		85			(5,221	)
NET INCOME AND COMPREHENSIVE INCOME		14,132			4,676
RETAINED EARNINGS (ACCUMULATED DEFICIT), BEGINNING OF PERIOD		6,984			(16,511	)
RETAINED EARNINGS (ACCUMULATED DEFICIT), END OF PERIOD	$	21,116		$	(11,835	)

NET INCOME PER SHARE — BASIC		0.06			0.05
NET INCOME PER SHARE — DILUTED		0.06			0.04
WEIGHTED AVERAGE SHARES OUTSTANDING - BASIC (Note 5)		238,907,060			96,984,978
WEIGHTED AVERAGE SHARES OUTSTANDING - DILUTED (Note 5)		248,914,219			119,127,570

(See notes to the condensed consolidated financial statements)

Gran Tierra Energy Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(Thousands of U.S. Dollars)

	March 31,		December 31,
	2009		2008

ASSETS
Current Assets
Cash and cash equivalents	$	147,710	$	176,754
Accounts receivable		33,537		7,905
Inventory		2,628		999
Taxes receivable		2,538		5,789
Prepaids		1,563		1,103
Derivative financial instruments (Note 10)		146		233
Deferred tax assets (Note 7)		1,222		2,262

Total Current Assets		189,344		195,045

Oil and Gas Properties (using the full cost method of accounting)
Proved		402,366		380,855
Unproved		353,454		384,195

Total Oil and Gas Properties		755,820		765,050

Other Assets		2,252		2,502

Total Property, Plant and Equipment (Note 4)		758,072		767,552

Long Term Assets
Deferred tax assets (Note 7)		3,245		10,131
Other long-term assets		1,599		1,315
Goodwill		98,210		98,582

Total Long Term Assets		103,054		110,028

Total Assets	$	1,050,470	$	1,072,625

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current Liabilities
Accounts payable (Note 8)	$	16,590	$	21,134
Accrued liabilities (Note 8)		11,526		12,841
Current taxes payable		25,686		28,163
Deferred tax liability (Note 7)		-		100
Asset retirement obligation - current (Note 6)		475		-

Total Current Liabilities		54,277		62,238

Long term liabilities		25		40
Deferred tax liability (Note 7)		183,124		213,093
Deferred remittance tax		940		1,077
Asset retirement obligation (Note 6)		4,180		4,251

Total Long Term Liabilities		188,269		218,461

Commitments and Contingencies (Note 9)
Subsequent Event (Note 13)
Shareholders’ Equity
Common shares (Note 5)		226		226
(199,786,010 and 190,248,384 common shares and 39,533,780 and 48,238,269 exchangeable shares, par value $0.001 per share, issued and outstanding as at March 31, 2009 and December 31, 2008, respectively)
Additional paid in capital		755,726		753,236
Warrants		30,856		31,480
Retained earnings		21,116		6,984

Total Shareholders’ Equity		807,924		791,926

Total Liabilities and Shareholders’ Equity	$	1,050,470	$	1,072,625

(See notes to the condensed consolidated financial statements)

Gran Tierra Energy Inc.

Condensed Consolidated Statements of Cash Flows (Unaudited)

(Thousands of U.S. Dollars)

	Three Months Ended March 31,
	2009				2008

Operating Activities
Net income		$	14,132			$	4,676
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depletion, depreciation and accretion			27,529				3,064
Deferred taxes			(3,982	)			621
Stock based compensation			1,125				448
Unrealized loss on financial instruments			87				693
Unrealized foreign exchange gain			(18,298	)			-
Settlement of asset retirement obligations (Note 6)			(52	)			-
Net changes in non-cash working capital
Accounts receivable			(25,260	)			(12,189	)
Inventory			(57	)			214
Prepaids			(460	)			(86	)
Accounts payable and accrued liabilities			(3,176	)			5,934
Taxes receivable and payable			774				5,778

Net cash (used in) provided by operating activities			(7,638	)			9,153

Investing Activities
Oil and gas property expenditures			(21,627	)			(6,530	)
Long term assets and liabilities			(299	)			(8	)

Net cash (used in) investing activities			(21,926	)			(6,538	)

Financing Activities
Proceeds from issuance of common stock			520				5,220

Net cash provided by financing activities			520				5,220

Net (decrease) increase in cash and cash equivalents			(29,044	)			7,835

Cash and cash equivalents, beginning of period		176,754		18,189

Cash and cash equivalents, end of period	$	147,710	$	26,024

Cash	$	22,877	$	26,024
Term deposits		124,833		-
Cash and cash equivalents, end of period	$	147,710	$	26,024

Supplemental cash flow disclosures:
Cash paid for taxes	$	1,540	$	-
Non-cash investing activities:
Non-cash working capital related to capital additions	$	8,413	$	10,739

(See notes to the condensed consolidated financial statements)

Gran Tierra Energy Inc.

Condensed Consolidated Statements of Shareholders’ Equity (Unaudited)

(Thousands of U.S. Dollars)


	Three Months Ended March 31, 2009				Year Ended December 31, 2008

Share Capital
Balance beginning of period		$	226			$	95
Issue of common shares			-				131

Balance end of period		$	226			$	226


Additional Paid-in-Capital
Balance beginning of period		$	753,236			$	72,458
Issue of common shares			457				663,405
Issue of stock options in a business combination			-				1,345
Exercise of warrants			624				12,864
Exercise of stock options			63				72
Stock based compensation expense			1,346				3,092

Balance end of period		$	755,726			$	753,236


Warrants
Balance beginning of period		$	31,480			$	20,750
Issue of warrants			-				23,594
Exercise of warrants			(624	)			(12,864	)

Balance end of period		$	30,856			$	31,480

Retained Earnings (Accumulated Deficit)
Balance beginning of period		$	6,984			$	(16,511	)
Net income			14,132				23,495

Balance end of period		$	21,116			$	6,984

Total Shareholders’ Equity		$	807,924			$	791,926

(See notes to the condensed consolidated financial statements)

Gran Tierra Energy Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

1. Description of Business

Gran Tierra Energy Inc., a Nevada corporation (the “Company” or “Gran Tierra”) is a publicly traded oil and gas company engaged in acquisition, exploration, development and production of oil and natural gas properties. The Company’s principal business activities are in Colombia, Argentina and Peru.

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 March 31, 2009, the results of its operations and cash flows for the three month periods ended March 31, 2009 and 2008.

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, 2008 included in the Company’s 2008 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 27, 2009. The Company’s significant accounting policies are described in Note 2 of the consolidated financial statements which are included in the Company’s 2008 Annual Report on Form 10-K and are the same policies followed in these unaudited interim consolidated financial statements, except as disclosed below.

Inventory

Crude oil inventories at March 31, 2009 and December 31, 2008 are $2.5 million and $0.8 million, respectively. Supplies at March 31, 2009 and December 31, 2008 are $0.1 million and $0.2 million, respectively.

New Accounting Pronouncements

In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 157 “Fair Value Measurements” (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value under US GAAP and expands disclosures about fair value measurements. This statement is effective for fiscal years beginning after November 15, 2007. In February 2008, the FASB issued FASB Staff Position (“FSP”) SFAS 157-2 which delays the effective date of SFAS 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), until fiscal years beginning after November 15, 2008, and interim periods within those fiscal years. These nonfinancial items include assets and liabilities such as reporting units measured at fair value in a goodwill impairment test, asset retirement obligations and nonfinancial assets acquired and liabilities assumed in a business combination. In October 2008, the FASB also issued FSP SFAS 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active,” which clarifies the application of SFAS 157 in an inactive market and illustrates how an entity would determine fair value when the market for a financial asset is not active. Effective January 1, 2008, the Company adopted SFAS 157 for financial assets and liabilities. The partial adoption of SFAS 157 for financial assets and liabilities did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows. See Note 10 for information and related disclosures. Effective January 1, 2009, the Company adopted the provisions for nonfinancial assets and nonfinancial liabilities that are not required or permitted to be measured at fair value on a recurring basis, which include those measured at fair value in goodwill impairment testing, indefinite-lived intangible assets measured at fair value for impairment assessment, nonfinancial long-lived assets measured at fair value for impairment assessment, asset retirement obligations initially measured at fair value, and those initially measured at fair value in a business combination. The adoption of SFAS 157 related to these items on January 1, 2009 did not materially impact the Company’s consolidated financial position, results of operations or cash flows.

In December 2007, the FASB issued SFAS 141 (R), “Business Combinations”, and SFAS 160, “Non-controlling Interests in` Consolidated Financial Statements”. SFAS 141 (R) requires an acquirer to measure the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at their fair values on the acquisition date, with goodwill being the excess value over the net identifiable assets acquired. SFAS 160 clarifies that a non-controlling interest in a subsidiary should be reported as equity in the consolidated financial statements. The calculation of earnings per share will continue to be based on income amounts attributable to the parent. SFAS 141 (R) and SFAS 160 are effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited and the provisions are applied prospectively. The adoption of these statements on January 1, 2009 did not have a material effect on the Company’s consolidated financial statements but these changes may affect potential future business combinations.

In March 2008, the FASB issued SFAS 161, “Disclosures about Derivative Instruments and Hedging Activities”. SFAS 161 requires companies with derivative instruments to disclose information that should enable financial statement users to understand how and why a company uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133, Accounting for Derivative Instruments and Hedging Activities and how derivative instruments and related hedged items affect a company's financial position, financial performance and cash flows. SFAS 161 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The adoption of this statement on January 1, 2009 did not have a material effect on the Company’s consolidated financial statements.

In April 2008, the FASB issued FSP 142-3, “Determination of the Useful Life of Intangible Assets”. FSP 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under SFAS No. 142, “Goodwill and Other Intangible Assets”. FSP 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption is prohibited. The adoption of this statement on January 1, 2009 did not have a material impact on the Company’s consolidated financial statements.

In June 2008, the FASB ratified the consensus reached on EITF 07-05, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock”. Emerging Issues Task Force “EITF” 07-05 clarifies the determination of whether an instrument (or an embedded feature) is indexed to an entity’s own stock, which would qualify as a scope exception under SFAS 133. EITF 07-05 is effective for financial statements issued for fiscal years beginning after December 15, 2008. Early adoption for an existing instrument is not permitted. The adoption of this EITF on January 1, 2009 did not have a material effect on the Company’s consolidated financial statements.

In December 2008, the SEC released Final Rule, Modernization of Oil and Gas Reporting to revise the existing Regulation S-K and Regulation S-X reporting requirements to align with current industry practices and technological advances. The new disclosure requirements include provisions that permit the use of new technologies to determine proved reserves if those technologies have been demonstrated empirically to lead to reliable conclusions about reserve volumes. In addition, the new disclosure requirements require a company to (a) disclose its internal control over reserves estimation and report the independence and qualification of its reserves preparer or auditor, (b) file reports when a third party is relied upon to prepare reserves estimates or conducts a reserve audit and (c) report oil and gas reserves using an average price based upon the prior 12-month period rather than period-end prices. The provisions of this final ruling are effective for disclosures in Gran Tierra’s Annual Report on Form 10-K for the year ended December 31, 2009. Early adoption is not permitted. Gran Tierra is currently assessing the impact that the adoption will have on the Company’s disclosures, operating results, financial position and cash flows.

3. Segment and Geographic Reporting

The Company’s reportable operating segments are Colombia and Argentina based on a geographic organization. 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 not significant at this time and is included as part of the Corporate segment. The accounting policies of the reportable operating segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on profit or loss from oil and natural gas operations before price risk management and income taxes.

Effective November 14, 2008, the Company completed its acquisition of Solana Resources Limited (“Solana”), an international resource company engaged in the acquisition, exploration, development and production of oil and natural gas in Colombia with its head office located in Calgary, Alberta, Canada. The results of Colombia and Corporate segments include the operations of Solana subsequent to its acquisition on November 14, 2008.

The following tables present information on the Company’s reportable geographic segments:

	Three Months Ended March 31, 2009
(Thousands of U.S. Dollars except per unit of production amounts)	Colombia		Argentina			Corporate			Total
Revenues	$	30,275	$	2,876		$	-		$	33,151
Interest income		224		40			150			414
Depreciation, depletion & accretion		25,923		1,530			76			27,529
Depreciation, depletion & accretion - per unit of production		30.36		18.26			-			29.36
Segment income (loss) before income tax		17,581		(446	)		(3,088	)		14,047
Segment capital expenditures	$	17,932	$	448		$	786		$	19,166


	Three Months Ended March 31, 2008
(Thousands of U.S. Dollars except per unit of production amounts)		Colombia			Argentina				Corporate				Total
Revenues		$	19,365		$	1,384			$	-			$	20,749
Interest income			62			5				3				70
Depreciation, depletion & accretion			2,467			567				30				3,064
Depreciation, depletion & accretion - per unit of production			11.46			13.07				-				11.84
Segment income (loss) before income tax			14,267			(673	)			(3,697	)			9,897
Segment capital expenditures		$	8,149		$	416			$	589			$	9,154


	As at March 31, 2009
(Thousands of U.S. Dollars)	Colombia			Argentina				Corporate				Total
Property, plant & equipment		$	725,854		$	27,045			$	5,173			$	758,072
Goodwill			98,210			-				-				98,210
Other assets			49,081			9,853				135,254				194,188
Total assets		$	873,145		$	36,898			$	140,427			$	1,050,470

	As at December 31, 2008
(Thousands of U.S. Dollars)		Colombia			Argentina				Corporate				Total
Property, plant & equipment		$	735,208		$	27,882			$	4,462			$	767,552
Goodwill			98,582			-				-				98,582
Other assets			44,554			8,868				153,069				206,491
Total assets		$	878,344		$	36,750			$	157,531			$	1,072,625

The Company’s revenues are derived principally from uncollateralized sales to customers in the oil and natural gas industry. The concentration of credit risk in a single industry affects the Company’s overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. In 2009, the Company has one significant customer for its Colombian crude oil, Ecopetrol S.A., a Colombian government agency. In Argentina, the Company has one significant customer, Refineria del Norte S.A.

4. Property, Plant and Equipment

	As at March 31, 2009							As at December 31, 2008
(Thousands of U.S. Dollars)	Cost		Accumulated DD&A			Net book value		Cost		Accumulated DD&A			Net book value
Oil and natural gas properties
Proved	$	468,775	$	(66,409	)	$	402,366	$	419,539	$	(38,684	)	$	380,855
Unproved		353,454		-			353,454		384,195		-			384,195
		822,229		(66,409	)		755,820		803,734		(38,684	)		765,050
Furniture and fixtures and leasehold improvements		2,042		(1,035	)		1,007		1,979		(848	)		1,131
Computer equipment		2,666		(1,552	)		1,114		1,791		(526	)		1,265
Automobiles		196		(65	)		131		163		(57	)		106
Total capital assets	$	827,133	$	(69,061	)	$	758,072	$	807,667	$	(40,115	)	$	767,552

During the three months ended March 31, 2009, the Company capitalized $0.6 million (year ended December 31, 2008 - $1.9 million) of general and administrative expenses related to the Colombian full cost center, including $0.2 million (year ended December 31, 2008 - $0.4 million) of stock based compensation expense, and $0.1 million (year ended December 31, 2008 - $0.8 million) of general and administrative expenses in the Argentina full cost center, including $41,000 (year ended December 31, 2008 - $0.1 million) of stock based compensation.

The unproved oil and natural gas properties at March 31, 2009 consist of exploration lands held in Colombia, Argentina and Peru. As at March 31, 2009, the Company had $344.7 million (December 31, 2008 - $375.9 million) in unproved assets in Colombia, $4.4 million (December 31, 2008 - $4.7 million) of unproved assets in Argentina and $4.3 million (December 31, 2008 - $3.6 million) of unproved assets in Peru. These properties are being held for their exploration value and are not being depleted pending determination of the existence of proved reserves. Gran Tierra will continue to assess and allocate the unproved properties over the next several years as proved reserves are established and as exploration dictates whether or not future areas will be developed.

5. Share Capital

The Company’s authorized share capital consists of 325,000,002 shares of capital stock, of which 300 million are designated as common stock, par value $0.001 per share, 25 million are designated as preferred stock, par value $0.001 per share (collectively, “common stock”), and two shares designated as special voting stock, par value $0.001 per share. As at March 31, 2009, outstanding share capital consists of 199,786,010 common voting shares of the Company, 28,658,384 exchangeable shares of Gran Tierra Exchange Co., and 10,875,396 exchangeable shares of Goldstrike Exchange Co. The exchangeable shares of Gran Tierra Exchange Co, were issued upon acquisition of Solana. The exchangeable shares of Gran Tierra Goldstrike Inc. were issued upon business combination between Gran Tierra Energy Inc., an Alberta corporation, and Goldstrike, Inc., which is now the Company. Each exchangeable share is exchangeable into one common voting share of the Company. The holders of common stock are entitled to one vote for each share on all matters submitted to a 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. Holders of exchangeable shares have substantially the same rights as holders of common voting shares.

Warrants

At March 31, 2009, the Company has 6,257,016 warrants outstanding to purchase 3,128,508 common shares for $1.25 per share, 18,370,386 warrants outstanding to purchase 9,185,193 common shares for $1.05 per share and 7,145,938 warrants assumed upon the acquisition of Solana to purchase 7,145,938 common shares for CDN$2.10 per share.

Stock Options

As at March 31, 2009, the Company has a 2007 Equity Incentive Plan, formed through the approval by shareholders of the amendment and restatement of the 2005 Equity Incentive Plan, under which the Company’s board of directors is authorized to issue options or other rights to acquire shares of the Company’s common stock. On November 14, 2008, the shareholders of Gran Tierra approved an amendment to the Company’s 2007 Equity Incentive Plan, which increases the number of shares of common stock available for issuance thereunder from 9,000,000 shares to 18,000,000 shares.

The Company grants options to purchase common shares to certain directors, officers, employees and consultants. Each option permits the holder to purchase one common share at the stated exercise price. The options vest over three years and have a term of ten years, or the grantee’s end of service to the Company, whichever occurs first. At the time of grant, the exercise price equals the market price. For the three months ended March 31, 2009, 43,820 common shares were issued upon the exercise of 43,820 stock options (three months ended March 31, 2008 – 74,167). The following options are outstanding as of March 31, 2009:

	Number of			Weighted Average
	Outstanding			Exercise Price
	Options			$/Option
Outstanding, December 31, 2008		11,406,870			$	2.13
Granted in 2009		500,000				2.37
Exercised in 2009		(43,820	)			(1.41	)
Forfeited in 2009		(81,668	)			(2.34	)
Outstanding, March 31, 2009		11,781,382			$	2.14

The weighted average grant date fair value for options granted in 2009 was $1.43. The intrinsic value of options exercised for the three months ended March 31, 2009 was $75,890 (three months ended March 31, 2008 - $143,709)

The table below summarizes stock options outstanding at March 31, 2009:

	Number of		Weighted Average		Weighted
	Outstanding		Exercise Price		Average
Range of Exercise Prices ($/option)	Options		$/Option		Expiry Years
0.50 to 1.00		1,097,502	$	0.80		6.6
1.01 to 1.30		1,779,999		1.26		7.7
1.31 to 2.00		470,752		1.76		7.7
2.01 to 3.00		7,942,571		2.40		9.3
3.01 to 10.00		490,558		4.38		7.2
Total		11,781,382	$	2.14		8.7

The aggregate intrinsic value of options outstanding at March 31, 2009 is $6.2 million based on the Company’s closing stock price of $2.51 for that date. At March 31, 2009, there was $7.1 million of unrecognized compensation cost related to unvested stock options which is expected to be recognized over the next three years.

For the three months ended March 31, 2009, the stock-based compensation expense was $1.3 million (three months ended March 31, 2008 - $0.6 million) of which $1.0 million (three months ended March 31, 2008 - $0.3 million) was recorded in general and administrative expense and $0.1 million was recorded in operating expense in the consolidated statement of operations (three months ended March 31, 2008 – $0.1 million). For the three months ended March 31, 2009, $0.2 million of stock based compensation was capitalized as part of exploration and development costs (three months ended March 31, 2008 – $0.2 million).

The fair value of each stock option award is estimated on the date of grant using the Black-Scholes option pricing model based on assumptions noted in the following table. The Company uses historical data to estimate option exercises, expected term and employee departure behavior used in the Black-Scholes option pricing model. Expected volatilities used in the fair value estimate are based on historical volatility of the Company’s stock. The risk-free rate for periods within the contractual term of the stock options is based on the U.S. Treasury yield curve in effect at the time of grant.

	Three Months Ended March 31,
	2009			2008
Dividend yield ($ per share)	$nil			$nil
Volatility (%)		97	%	75% to 92%
Risk-free interest rate (%)		0.62	%		2.05	%
Expected term (years)	3 years			3 years
Estimated forfeiture percentage (% per year)		10	%		10	%

Weighted average shares outstanding

	Three Months Ended March 31, 2009
Weighted average number of common and exchangeable shares outstanding		238,907,060
Shares issuable pursuant to warrants		9,903,126
Shares issuable pursuant to stock options		2,750,940
Shares to be purchased from proceeds of stock options		(2,646,907	)
Weighted average number of diluted common and exchangeable shares outstanding		248,914,219

Income (loss) per share

For the three months ended March 31, 2009, options to purchase 504,850 common shares were excluded from the diluted income per share calculation as the instruments were anti-dilutive. For the three months ended March 31, 2008, options to purchase 200,000 common shares were excluded from the diluted income per share calculation as the instruments were anti-dilutive.

6. Asset Retirement Obligation

As at March 31, 2009 the Company’s asset retirement obligation was comprised of a Colombian obligation in the amount of $3.7 million (December 31, 2008 - $3.5 million) and an Argentine obligation in the amount of $1.0 million (December 31, 2008 - $0.8 million). Changes in the carrying amounts of the asset retirement obligations associated with the Company’s oil and natural gas properties were as follows:

(Thousands of U.S. Dollars)	Three Months Ended March 31, 2009			Year Ended December 31, 2008
Balance, beginning of period	$	4,251		$	799
Liability assumed in a business combination		-			3,148
Settlements		(52	)		(334	)
Liability incurred		332			615
Foreign exchange		(32	)		(29	)
Accretion		156			52
Balance, end of period	$	4,655		$	4,251

Asset retirement obligation - current	$	475		$	-
Asset retirement obligation - long term		4,180			4,251
Balance, end of period	$	4,655		$	4,251

7. Income Taxes

The income tax expenses (recoveries) reported differ from the amount computed by applying the Canadian statutory rate to income before income taxes for the following reasons:

	Three Months Ended March 31,
(Thousands of U.S. Dollars)	2009			2008
Income before income taxes	$	14,047		$	9,897
		29.00	%		32.12	%
Income tax expense expected		4,074			3,179
Benefit of current period tax losses not recognized		2,001			161
Foreign currency translation adjustments		(5,159	)		-
Depreciation on inflationary adjustments		(52	)		-
Impact of tax rate changes on deferred tax balances		-			124
Impact of foreign taxes		97			3,508
Enhanced tax depreciation incentive		(712	)		(545	)
Stock based compensation		276			83
Non-deductible items		303			34
Previously unrecognized tax assets		619			(1,323	)
Partnership income pick-up in the United States		(1,532	)		-
Total income tax expense (recovery)	$	(85	)	$	5,221


	As at
(Thousands of U.S. Dollars)	March 31, 2009			December 31, 2008
Deferred tax assets
Tax benefit of loss carryforwards	$	10,830		$	16,905
Book value in excess of tax basis		742			1,228
Foreign tax credits and other accruals		9,106			9,595
Capital losses		1,043			1,419
Deferred tax assets before valuation allowance		21,721			29,147
Valuation allowance		(17,254	)		(16,754	)
	$	4,467		$	12,393

Deferred tax assets - current	$	1,222		$	2,262
Deferred tax assets - long-term		3,245			10,131
	$	4,467		$	12,393

Deferred tax liabilities
Current - book value in excess of tax basis	$	-		$	(100	)
Long-term - book value in excess of tax basis		(183,124	)		(213,093	)
	$	(183,124	)	$	(213,193	)

Net deferred tax liabilities	$	(178,657	)	$	(200,800	)

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 law, therefore, no further remittance tax liabilities will be accrued. The historical balance which was included in the Company’s financial statements as of March 31, 2009 was $0.9 million (December 31, 2008 - $1.1 million).

The Company has accrued no amounts as of March 31, 2009, for the potential payment of interest and penalties. For the three months ended March 31, 2009, 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 subject to income tax examinations for the calendar tax years ended 2005 through 2008 in all jurisdictions.

As at March 31, 2009, the Company has deferred tax assets relating to net operating loss carryforwards of $15.9 million (December 31, 2008 - $17.0 million) and capital losses of $1.0 million (December 31, 2008 – $1.4 million) before valuation allowances. Of these losses, $15.9 million (December 31, 2008 - $17.0 million) are losses generated by the foreign subsidiaries of the Company. Of the total losses, $1.0 million (December 31, 2008 - $1.4 million) will begin to expire by 2011 and $15.9 million of net operating losses (December 31, 2008 - $17.0 million) will begin to expire thereafter.

8. Accounts Payable and Accrued Liabilities

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

	As at March 31, 2009
(Thousands of U.S. Dollars)	Colombia			Argentina			Corporate			Total
Property, plant and equipment		$	12,484		$	329		$	119		$	12,932
Payroll			751			217			389			1,357
Audit, legal, consultants			-			103			744			847
General and administrative			1,496			119			213			1,828
Operating			10,222			930			-			11,152
Total		$	24,953		$	1,698		$	1,465		$	28,116


	As at December 31, 2008
(Thousands of U.S. Dollars)	Colombia			Argentina			Corporate			Total
Property, plant and equipment		$	11,654		$	1,254		$	4		$	12,912
Payroll			978			435			921			2,334
Audit, legal, consultants			-			126			1,351			1,477
General and administrative			1,193			52			898			2,143
Operating			13,309			1,800			-			15,109
Total		$	27,134		$	3,667		$	3,174		$	33,975

9. Commitments and Contingencies

Leases

Gran Tierra holds four categories of operating leases: office, compressor, vehicle and housing. Future lease payments at March 31, 2009 are as follows:

	Payments Due in Period
	As at March 31, 2009
Contractual Obligations	Total		Less than 1 Year		1 to 3 years		3 to 5 years		More than 5 years
(Thousands of U.S. Dollars)
Operating leases	$	4,401	$	1,590	$	2,331	$	470	$	10
Drilling and Completion Services		1,095		975		120		-		-
Total	$	5,496	$	2,565	$	2,451	$	470	$	10

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. 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

Ecopetrol and Gran Tierra Energy Colombia Ltd. “Gran Tierra Colombia”, the contracting parties of the Guayuyaco Association Contract, are engaged in a dispute regarding the interpretation of the procedure for allocation of oil produced and sold during the long term test of the Guayuyaco-1 and Guayuyaco-2 wells. There is a material difference in the interpretation of the procedure established in Clause 3.5 of Attachment-B of the Guayuyaco Association Contract. Ecopetrol interprets the contract to provide that the extended test production up to a value equal to 30% of the direct exploration costs of the wells is for Ecopetrol’s account only and serves as reimbursement of its 30% back-in to the Guayuyaco discovery. Gran Tierra Colombia’s contention is that this amount is merely the recovery of 30% of the direct exploration costs of the wells and not exclusively for benefit of Ecopetrol. There has been no agreement between the parties, and Ecopetrol has filed a lawsuit in the Contravention Administrative Court in the District of Cauca regarding this matter. Gran Tierra Colombia filed a response on April 29, 2008 in which it refuted all of Ecopetrol’s claims and requested a change of venue to the courts in Bogota. At this time no amount has been accrued in the financial statements as the Company does not consider it probable that a loss will be incurred. Ecopetrol is claiming damages of approximately $4.1 million. To the Company’s knowledge, there are no other legal proceedings against Gran Tierra.

10. Financial Instruments, Fair Value Measurements and Credit Risk

The Company’s financial instruments recognized in the balance sheet consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and derivative financial instruments. 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. As at March 31, 2009, 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’s revenues are derived principally from uncollateralized sales to customers in the oil and natural gas industry. The concentration of credit risk in a single industry affects the Company’s overall exposure to credit risk because customers may be similarly affected by changes in economic and other conditions. In 2009, the Company has one significant customer for its Colombian crude oil, Ecopetrol. In Argentina, the Company has one significant customer, Refineria del Norte S.A.

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 retained earnings (accumulated 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 ending February 2010, 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.

	As at March 31,
(Thousands of U.S. Dollars)	2009			2008
Realized financial derivative (gain) loss	$	(87	)	$	491
Unrealized financial derivative loss		87			693
Derivative financial instruments loss	$	-		$	1,184

	As at March 31,			As at December 31,
Assets	2009			2008
Derivative financial instruments	$	146		$	233

Certain of Gran Tierra’s assets and liabilities are reported at fair value in the accompanying balance sheets. The following tables provide fair value measurement information for such assets and liabilities as at March 31, 2009 and December 31, 2008.

The carrying values of cash and cash equivalents, accounts receivable and accounts payable (including accrued expenses) included in the accompanying consolidated balance sheets approximated fair value at March 31, 2009 and December 31, 2008. These assets and liabilities are not presented in the following tables.

As at March 31, 2009

Fair Value Measurements Using:

Quoted

Significant

Prices in

Other

Significant

Active

Observable

Unobservable

Carrying

Total Fair

Markets

Inputs

Amount

Value

(Level 1)

(Level 2)

(Level 3)

Financial Assets

(Thousands of U.S. Dollars)

Crude oil collar

146

As at December 31, 2008

Fair Value Measurements Using:

Quoted

Significant

Prices in

Other

Significant

Active

Observable

Unobservable

Carrying

Total Fair

Markets

Inputs

Amount

Value

(Level 1)

(Level 2)

(Level 3)

Financial Assets

(Thousands of U.S. Dollars)

Crude oil collar

233

SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. As presented in the table above, this hierarchy consists of three broad levels. Level 1 inputs on the hierarchy consist of unadjusted quoted prices in active markets for identical assets and liabilities and have the highest priority. Level 2 and 3 inputs have lower priorities. The Company uses appropriate valuation techniques based on the available inputs to measure the fair values of assets and liabilities. When available, Gran Tierra measures fair value using Level 1 inputs because they generally provide the most reliable evidence of fair value.

The Company uses a Level 2 method to measure the fair value of its crude oil collars. The fair values of the crude oil are estimated using internal discounted cash flow calculations based upon forward commodity price curves, quotes obtained from brokers for contracts with similar terms or quotes obtained from counterparties to the agreements. The Company does not have any other assets or liabilities whose fair value is measured using Level 1 or 3 methods.

The following methods and assumptions were used to estimate the fair values of the assets and liabilities in the table above.

Level 1 Fair Value Measurements

The Company does not have any assets or liabilities whose fair value is measured using this method.

Level 2 Fair Value Measurements

Crude oil collars — The fair values of the crude oil collars are estimated using internal discounted cash flow calculations based upon forward commodity price curves, quotes obtained from brokers for contracts with similar terms or quotes obtained from counterparties to the agreements.

Level 3 Fair Value Measurements

The Company does not have any financial assets or financial liabilities whose fair value is measured using this method.

11. Credit Facilities

Effective 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 of a subsidiary, Gran Tierra Colombia, 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. As a result of Standard Bank Plc’s review of Gran Tierra’s Mid-Year 2007 Independent Reserve Audit, the Company has received preliminary approval to increase the borrowing base to $20 million; however, this has not been pursued further as the additional credit is not required at this time. The facility includes a letter of credit sub-limit of $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 the assets of Gran Tierra Colombia. Under the terms of the facility, the Company is required to maintain and is in compliance with specified financial and operating covenants. Gran Tierra 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 September 30, 2006 Independent Reserve Evaluation Report projected aggregate net share of Colombian production after royalties for the three-year term of the Facility. As at March 31, 2009, no amounts have been drawn-down under this facility.

Following the acquisition of Solana, effective November 14, 2008, Gran Tierra obtained access to an additional credit facility with BNP Paribas. The facility has a maturity date of December 20, 2010. The borrowing base is currently $26 million, based on the current value of petroleum reserves of the subsidiary, Solana Petroleum Exploration (Colombia) Ltd., up to a maximum of $100 million. The facility includes a letter of credit sublimit of $5 million. Amounts drawn down under the facility bear interest at the Eurodollar rate plus a margin for each quarter dependent on production for the previous quarter as follows: 3.125% for production less than 1,500 barrels of oil per day; 2.875% for production between 1,500 and 3,000 barrels of oil per day; 2.625% for production between 3,000 and 5,000 barrels of oil per day; and 2.375% for production over 5,000 barrels of oil per day. The facility is secured primarily by the assets of Solana Petroleum Exploration (Colombia) Ltd. Under the terms of the facility, the Company is required to maintain and is in compliance with specified financial and operating covenants. As at March 31, 2009, no amounts have been drawn-down under this facility.

Both Standard Bank Plc and BNP Paribas provided consent letters with regard to Gran Tierra’s acquisition of Solana, specifically providing that the acquisition would not trigger any change in control provisions under the respective facilities. The letters of consent provided by the banks each contain a number of conditions which effectively limit the time period of the consent to June 12, 2009. The Company is currently working with both banks to determine the appropriate facility going forward.

12. Related Party Transaction

On February 1, 2009, the Company entered into a sublease for office space with a company, of which two of Gran Tierra’s directors are shareholders and directors. The term of the sublease runs from February 1, 2009 to August 31, 2011 and the sublease payment is $7,050 per month plus approximately $4,000 for operating and other expenses. The terms of the sublease are consistent with current market conditions in the Calgary, Alberta, Canada real estate market.

13. Subsequent Event

In April 2009, the Company signed an agreement with a third party for the sale of Gran Tierra’s interests in the Guachiria Norte, Guachiria, and Guachiria Sur blocks in Colombia. The sale closed on April 16, 2009. Principal terms include consideration of $7.0 million, prior to adjustments related to settlement of outstanding issues between the third party and Gran Tierra’s subsidiary, Solana, comprising an initial cash payment of $4.0 million at closing, followed by 15 monthly installments of $200,000 each beginning June 1, 2009 and extending through August 3, 2010. Gran Tierra will retain a 10% overriding royalty interest on the Guachiria Sur block in the event of a discovery, designed to reimburse 200% of Gran Tierra’s net costs for previously acquired seismic data. Gran Tierra has agreed to assume any environmental liabilities existing on the properties at the date of sale, estimated at $1.2 million.

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.

The following discussion of our financial condition and results of operations should be read in conjunction with the Financial Statements as set out in Part I – Item 1 of this Quarterly Report on Form 10-Q, as well as the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission on February 27, 2009.

Overview

We are an independent international energy company incorporated in the United States and engaged in oil and natural gas exploration, development and production. We are headquartered in Calgary, Alberta, Canada and operate in South America in Colombia, Argentina and Peru.

In September 2005, we acquired our initial oil and gas interests and properties, which were in Argentina. During 2006, we increased our oil and gas interest and property base through further acquisitions in Colombia, Argentina and Peru. We funded acquisitions of our properties in Colombia and Argentina 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.

Effective November 14, 2008, we completed the acquisition of Solana Resources Limited (“Solana”). Upon completion of the transaction, Solana became an indirect wholly-owned subsidiary of Gran Tierra. Solana is an international resource company engaged in the acquisition, exploration, development and production of oil and natural gas. Solana is incorporated in Alberta, Canada with its head office in Calgary, Alberta. At the date of acquisition, Solana held various working interests in nine blocks in Colombia and was the operator of six of those blocks, four of which contained producing assets. As a result of the acquisition, Gran Tierra increased its working interest in two of the producing blocks and has a working interest in seven new blocks.

The oil and gas industry has been adversely impacted by the downturn in the global economy and the decline in crude oil prices. Although our revenue has been negatively affected by these lower oil prices, our current liquidity position has mitigated the impact of these adverse market conditions. 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 facilities, barring unforeseen events. We also have the ability to defer or cancel portions of our capital expenditure program should our operating cash flows decline as a result of further reductions in crude oil prices.

Financial and Operational Highlights (1)

	Three Months Ended March 31,
	2009		2008		% Change

Production - Barrels of Oil Equivalent per Day		10,417		2,843		266

Barrels of Oil Equivalent Prices Realized	$	35.36	$	80.20		(56	)

Revenue and Interest ($000's)	$	33,565	$	20,819		61

Net Income ($000's)	$	14,132	$	4,676		202

Net Income Per Share - Basic	$	0.06	$	0.05		20

Net Income Per Share - Diluted	$	0.06	$	0.04		50

Capital Expenditures ($000's)	$	19,166	$	9,154		109

	As at March 31,		As at December 31,
	2009		2008		% Change

Cash & Cash Equivalents ($000's)	$	147,710	$	176,754		(16	)

Property, Plant & Equipment ($000's)	$	758,072	$	767,552		(1	)

(1) The Financial and Operating Highlights include the operations of Solana subsequent to its acquisition on November 14, 2008.

Financial Highlights for Three Months Ended March 31, 2009

In the first quarter of 2009, production of crude oil and natural gas (net after royalty and inventory adjustments) averaged 10,417 barrels of oil equivalent per day, an increase of 266% over the same period in 2008, due mainly to production from three new development wells in the Costayaco field in the Chaza Block in Colombia where Gran Tierra has a 100% working interest subsequent to the acquisition of Solana.

·	Increased production offset partially by lower oil prices resulted in a 61% increase in total revenues over the same period in 2008.

Net income for the three months ended March 31, 2009 tripled from the same quarter of last year mainly due to higher revenues from operations and a foreign exchange gain of $20.2 million, resulting primarily from the translation of a deferred tax liability recorded on the purchase of Solana, partially offset by increased depletion expense related to the Solana acquisition and higher production levels.

·	On a per share basis, net income increased by 20% as the impact of improved earnings was partially offset by a 146% increase in weighted average shares outstanding to 239 million shares during the current quarter compared with 97 million shares in the same period last year.

·	Oil and gas property expenditures for the first quarter of 2009 include further development drilling in the Costayaco field, the drilling of the Puinaves - 2 exploration well in the Guachiria Norte Block and acquisition of 3D seismic in the Guachiria Sur block all in Colombia.

·	Our cash position of $147.7 million at March 31, 2009 decreased from $176.8 million at December 31, 2008 as a result of first quarter capital expenditures and cash used in operating activities.

·	Property, plant & equipment as at March 31, 2009 was $758.1 million, a slight decrease from December 31, 2008, primarily as a result of increased depletion, depreciation and accretion (“DD&A”), offsetting the current quarter capital additions.

Consolidated Results of Operations

	Three Months Ended March 31,
Consolidated Results of Operations (1)	2009			2008			% Change
(Thousands of U.S. Dollars)
Revenue	$	33,151		$	20,749			60
Interest		414			70			491
		33,565			20,819			61

Operating expenses		7,086			2,527			180
Depletion, depreciation and accretion		27,529			3,064			798
General and administrative expenses		5,125			4,133			24
Derivative financial instruments loss		-			1,184			(100	)
Foreign exchange (gain) loss		(20,222	)		14			-
		19,518			10,922			79

Income before income taxes		14,047			9,897			42
Income tax recovery (expense)		85			(5,221	)		(102	)
Net income	$	14,132		$	4,676			202

Production, Net of Royalties

Oil and NGL's ("bbl") (2)		935,048			258,682			261
Natural gas ("mcf")		49,028			808			-
Total production ("boe") (2) (3)		937,499			258,722			262

Average Prices

Oil and NGL's ("per bbl")	$	35.27		$	80.21			(56	)
Natural gas ("per mcf")	$	3.45		$	0.41			741

Consolidated Results of Operations ("per boe")

Revenue	$	35.36		$	80.20			(56	)
Interest		0.44			0.27			63
		35.80			80.47			(56	)

Operating expenses		7.56			9.77			(23	)
Depletion, depreciation and accretion		29.36			11.84			148
General and administrative expenses		5.47			15.97			(66	)
Derivative financial instruments loss		-			4.58			(100	)
Foreign exchange (gain) loss		(21.57	)		0.05			-
		20.82			42.22			(51	)

Income before income taxes		14.98			38.25			(61	)
Income tax expenses		0.09			(20.18	)		(100	)
Net income	$	15.07		$	18.07			(17	)

(1) Consolidated results of operations include the operations of Solana subsequent to its acquisition on November 14, 2008.

(2) 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 liquid (“NGL”) volumes are converted to boe on a one-to-one basis with oil.

(3) Production represents production volumes adjusted for inventory changes.

Consolidated Results of Operations for the Three Months Ended March 31, 2009 compared to the Results for the three Months Ended March 31, 2008

The net income for the three months ended March 31, 2009 amounted to $14.1 million, or $0.06 per share, an increase of 202% from the same period in 2008. Higher oil revenues, a $20.2 million foreign exchange gain primarily due to the translation of deferred taxes, and a decrease in income taxes contributed to the increase in net income. These factors were partially offset by increases in operating expenditures due to higher Colombian production, increased depletion expense associated with the acquisition of Solana and higher production levels, and increased general and administrative expenses due to expanded activities. Net income from the first quarter of 2008 included a loss of $1.2 million from derivative financial instruments.

As a result of the Solana acquisition, we increased our working interest to 100% in Costayaco and 70% in Juanambu, in Colombia, which resulted in increased production, revenue, operating costs, and DD&A in Q1 2009.

Our revenue and interest increased 61% to $33.6 million for the three months ended March 31, 2009 compared to $20.8 million in the same period in 2008 due to an increase of 261% in crude oil production partially offset by a decrease in crude oil prices.

Crude oil and NGL production for the three months ended March 31, 2009 increased to 935,048 barrels compared to 258,772 barrels for the same period in 2008 due mainly to the inclusion of production from four wells in the Costayaco field, including Solana’s 50% share of production, and production from Juanambu – 1 in the Guayuyaco Block including Solana’s 35% share of production. In the first quarter of 2008, Colombia production included production from Costayaco – 1 and Juanambu – 1 along with production from the Santana Block. Average realized crude oil prices for the quarter decreased to $35.27 per barrel from $80.21 per barrel for the first three months of 2008 reflecting lower WTI oil prices.

Operating expenses for the first quarter of 2009 amounted to $7.1 million, a 180% increase from the same period in 2008 due primarily to the increased production in Colombia. However, for the three months ended March 31, 2009, the fields in Colombia with high production wells and lower operating expenses resulted in operating expenses of $7.56 per boe, a 23% decline from the same period in 2008.

DD&A expense for the first three months of 2009 increased 798% to $27.5 million due to higher production levels as well as amortization of $20.9 million related to the fair value of Solana’s property, plant and equipment recorded upon its acquisition in 2008. A 148% increase in the average depletion rate to $29.36 per boe for the three months ended March 31, 2009 was primarily due to the significant additions to the proved depletable cost base partially offset by higher proved reserves in Colombia.

General and administrative (“G&A”) expenses of $5.1 million for the three months ended March 31, 2009 were 24% higher than the same period in 2008 due to increased employee related costs reflecting the expanded operations in Colombia and the 2008 option grants.

A foreign exchange gain of $20.2 million for the first quarter of 2009 primarily represents a $18.9 million foreign exchange gain resulting from the translation of a deferred tax liability recorded on the purchase of Solana. This deferred tax liability, a monetary liability, is denominated in the local currency of Colombia and as a result, a foreign exchange gain has been calculated on conversion to the US dollar functional currency.

Derivative financial instruments loss in the three months ended March 31, 2008 was $1.2 million from the costless collar financial derivative contract for crude oil prices entered into pursuant to the terms and conditions of Gran Tierra’s credit facility. There were no net gains or losses related to derivative financial instruments for the three months ended March 31, 2009.

Income tax recovery (expense) for the first three months ended March 31, 2009 amounted to a recovery of $0.1 million compared to income tax expense of $5.2 million recorded in the same period in 2008. Earnings in the first quarter of 2009 included a non-taxable foreign exchange gain of $20.2 million arising primarily from the translation of deferred tax liabilities related to the Solana acquisition.

Segmented Results of Operations

Our operations are carried out in Colombia, Argentina and Peru and we are headquartered in Calgary, Alberta, Canada. Our reportable segments include Colombia, Argentina and Corporate with the latter including the results of our initial activities in Peru. For the three months ended March 31, 2009, Colombia generated 90.9% of our revenue and other income and reflects the operations of Solana subsequent to its acquisition on November 14, 2008.

Segmented Results – Colombia

	Three Months Ended March 31,
Segmented Results of Operations – Colombia (1)	2009			2008		% Change
(Thousands of U.S. Dollars)
Revenue	$	30,275		$	19,365		56
Interest		224			62		261
		30,499			19,427		57

Operating expenses		6,098			1,610		279
Depletion, depreciation and accretion		25,923			2,467		951
General and administrative expenses		1,607			1,022		57
Foreign exchange (gain) loss		(20,710	)		61		-
		12,918			5,160		150

Segment income before income taxes	$	17,581		$	14,267		23

Production, Net of Royalties

Oil and NGL's ("bbl") (2)		851,271			215,337		295
Natural gas ("mcf") (2)		49,028			-		-
Total production ("boe") (2) (3)		853,722			215,337		296

Average Prices

Oil and NGL's ("per bbl")	$	35.36		$	89.93		(61	)
Natural gas ("per mcf")	$	3.48		$	-		-

Segmented Results of Operations ("per boe")

Revenue	$	35.46		$	89.93		(61	)
Interest		0.26			0.29		(10	)
		35.72			90.22		(60	)

Operating expenses		7.14			7.48		(4	)
Depletion, depreciation and accretion		30.36			11.46		165
General and administrative expenses		1.88			4.75		(60	)
Foreign exchange (gain) loss		(24.26	)		0.28		-
		15.12			23.97		(37	)

Segment income before income taxes	$	20.60		$	66.25		(69	)

(1)	Segmented results of operations for Colombia include the operations of Solana subsequent to its acquisition on November 14, 2008.

(2)	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. NGL volumes are converted to boe on a one to one basis with oil.

(3)	Production represents production volumes adjusted for inventory changes.

Segmented Results of Operations – Colombia for the Three Months Ended March 31, 2009 compared to the Results for the Three Months Ended March 31, 2008

For the three months ended March 31, 2009, income before income taxes from Colombia amounted to $17.6 million compared to $14.3 million recorded for the same period in 2008, primarily the result of increased production of crude oil and a $20.7 million foreign exchange gain, as explained above, partially offset by lower net realized prices, increased operating expenses, DD&A and G&A. On a per barrel basis, the pre-tax income for the three months ended March 31, 2009 was $20.60 versus $66.25 recorded for the same period in 2008.

For the three months ended March 31, 2009, production of crude oil and NGLs increased by 295% to 851,271 barrels compared to 215,337 barrels for the same period in 2008. These production levels are after government royalties ranging from 8% to 20% and third party royalties of 2% to 10%.

Gran Tierra’s Colombian operating results for the three months ended March 31, 2009 are principally impacted by new oil production resulting from the successful 2008 development program in Costayaco including 4 development wells and the inclusion of production from the Solana acquisition. The three months ended March 31, 2008 included production from Costayaco – 1, Juanambu – 1 and the Santana Block.

Our production in the first quarters of 2008 and 2009 was impacted by political and economic factors in Colombia. In the first quarter of 2008, sections of one of the Ecopetrol pipelines were blown up by guerillas, which temporarily reduced our deliveries to Ecopetrol, resulting in higher than average Colombia crude oil inventories at March 31, 2008. Ecopetrol was able to restore deliveries within one to two weeks of these attacks. On November 24, 2008, we temporarily suspended production operations in the Costayaco and Juanambu oil fields. This was as a result of a declaration of a state of emergency and force majeure by Ecopetrol, due to a general strike in the region where our operations are located, resulting in higher than average Colombia crude oil inventories at December 31, 2008. On January 12, 2009, crude oil transportation resumed in southern Colombia as a result of the lifting of the strike at the Orito facilities operated by Ecopetrol.

The incremental production volumes from Solana properties for the three months ended March 31, 2009 were 442,394 barrels of oil and 49,028 mcf of natural gas. Due to the high cost to transport oil produced from the Guachiria Norte and Guachiria Blocks in Llanos Basin, acquired from Solana in Colombia, production was shut in February 2009. In April 2009, Gran Tierra signed an agreement with a third party for the sale of Gran Tierra's interests in the Guachiria Norte, Guachiria, and Guachiria Sur blocks. The sale closed on April 16, 2009. Principal terms include consideration of $7.0 million, prior to adjustments related to settlement of outstanding issues between the third party and Gran Tierra's subsidiary, Solana, comprising an initial cash payment of $4.0 million at closing, followed by 15 monthly installments of $200,000 each beginning June 1, 2009 and extending through August 3, 2010. Gran Tierra will retain a 10% overriding royalty interest on the Guachiria Sur block in the event of a discovery, designed to reimburse 200% of Gran Tierra's net costs for previously acquired seismic data. Gran Tierra has agreed to assume any environmental liabilities existing on the properties at the date of sale, estimated at $1.2 million.

Revenue and interest were negatively impacted by significantly declining net realized crude oil prices. The average net realized prices for crude oil, which are based on WTI prices, decreased by 61% to $35.36 per barrel for the three months ended March 31, 2009. The combination of increased production partially offset by the effects of lower realized prices resulted in our revenue levels from Colombia for the three months ended March 31, 2009 increasing by 57% to $30.5 million.

Operating expenses increased to $6.1 million from $1.6 million in the same period last year. The increased operating expenses resulted from the increase in producing wells and the inclusion of the Solana operations acquired in 2008. However, the increased production resulted in a reduction of operating expenses on a per barrel basis to $7.14 compared to $7.48 per barrel incurred for the same period last year.

For the three months ended March 31, 2009, DD&A expense increased to $25.9 million from $2.5 million recorded for the same period in 2008. Increased production levels coupled with a higher depletable cost base including Solana properties, partially offset by higher reserve levels, accounted for the increase in DD&A expense. The incremental DD&A expense recorded as a result of Solana’s acquisition was $20.9 million. Although our Colombian proved reserves increased significantly over those at March 31, 2008 as a result of our successful exploration and development activities, we also invested much of our 2007 and 2008 capital spending on the Colombian development program. Our acquisition of Solana in the fourth quarter of 2008 further increased our proved reserves and our depletable cost base. Thus, the increase in DD&A expense was due to the significant increases in the depletable basis for the fair value of the Solana proved reserves acquired and future capital expenditures associated with the development of the undeveloped proved reserves at March 31, 2009. These future capital expenditures are for further development well drilling and related infrastructure costs to deliver the increased production volumes from Costayaco. On a per boe basis, the DD&A expense in Colombia for the current quarter was $30.36, an increase of 165% from the same quarter last year due to the factors described above.

Higher management and administrative expenses incurred to manage the increased level of development and operating activities resulting from the successful 2008 development activities and the acquisition of Solana and increased stock-based compensation expense resulted in G&A expense increasing to $1.6 million for the three months ended March 31, 2009 from $1.0 million incurred for the same period in 2008. On a per barrel basis, the G&A expense decreased by 60% to $1.88 for the current quarter compared to the same quarter in 2008 due to higher production.

Foreign exchange gain for the three months ended March 31, 2009 includes a foreign exchange gain of $20.7 million of which $18.9 million resulted from the translation of a deferred tax liability recognized on the purchase of Solana. This deferred tax liability, a monetary liability, is denominated in the local currency of the Colombian foreign operations and as a result, a foreign exchange gain has been calculated on conversion to the US dollar functional currency. For every 1.0 Colombian peso change in the exchange rate as compared to the U.S. dollar, an exchange gain or loss of $70,000 is estimated.

Capital Program - Colombia

In addition to undertaking oil exploration efforts to further define the potential of our acreage in Colombia, Gran Tierra’s focus for the first quarter of 2009 was to further develop the Costayaco field to increase our production. In support of this strategy, our capital expenditures in Colombia amounted to $17.9 million for the three months ended March 31, 2009. Included in this amount was $7.0 million in capital expenditures related to the Solana properties subsequent to the acquisition.

During the three months ended March 31, 2009, we spent $1.9 million to complete the Costayaco – 6 development well, which drilling had commenced in 2008, and $5.7 million to drill the Costayaco - 7 development well. Testing is continuing into the second quarter of 2009.

For the three months ended March 31, 2009, we also spent $7.9 million on activities on our other blocks including:

		·	Rio Magdalena Block – commencement of long-term testing of Popa-2 well at a cost of $0.9 million.
		·	Guachiria Sur Block – acquisition of 115 square kilometers of 3D seismic for a cost of $3.3 million.
		·	Guachiria Norte Block – drilling of the Puinaves - 2 exploration well, which was dry, at a cost of $2.2million.

During the three months ended March 31, 2008, we spent $8.1 million on capital projects. We completed drilling Costayaco - -2 and Costayaco -3 and commenced drilling Costayaco -4 for a total cost during the quarter of $6.5 million. Additional capital expenditures in the first quarter of 2008 included seismic costs of $0.8 million for a 35 square kilometer 3-D seismic program in the Azar Block, and a 42 kilometer 2-D seismic program in the Chaza Block and leasehold improvements of $0.7 million for new office space in Bogota.

Segmented Results – Argentina

	Three Months Ended March 31,
Segmented Results of Operations - Argentina	2009			2008			% Change
(Thousands of U.S. Dollars)
Revenue	$	2,876		$	1,384			108
Interest		40			5			700
		2,916			1,389			110

Operating expenses		954			902			6
Depletion, depreciation and accretion		1,530			567			170
General and administrative expenses		527			569			(7	)
Foreign exchange loss		351			24			-
		3,362			2,062			63

Segment loss before income taxes	$	(446	)	$	(673	)		(34	)

Production, Net of Royalties

Oil and NGL's ("bbl") (1) (2)		83,777			43,385			93

Average Prices

Oil and NGL's ("per bbl")	$	34.33		$	31.92			8

Segmented Results of Operations ("per boe")

Revenue	$	34.33		$	31.90			8
Interest		0.48			0.12			300
		34.81			32.02			9

Operating expenses		11.39			20.79			(45	)
Depletion, depreciation and accretion		18.26			13.07			40
General and administrative expenses		6.29			13.12			(52	)
Foreign exchange loss		4.19			0.55			662
		40.13			47.53			(16	)

Segment loss before income taxes	$	(5.32	)	$	(15.51	)		(66	)

(1) NGL volumes are converted to boe on a one-to-one basis with oil.

(2) Production represents production volumes adjusted for inventory changes.

For the three months ended March 31, 2009 a pre-tax loss from Argentina amounted to $0.4 million compared to a pre-tax loss of $0.7 million recorded in the same period in 2008. The improvement resulted primarily from a concerted effort to control operating and G&A costs.

Crude oil and NGL production, after 12% royalties, increased to 83,777 barrels for the three months ended March 31, 2009 compared to 43,385 barrels for the same period in 2008. The increase resulted from the successful completion and testing of the Proa – 1 exploration well in the Surubi block in the third quarter of 2008 with sales commencing in the fourth quarter of the year. Natural gas production is used for operating power generation with any excess production sold in the market.

Due to the local regulatory regimes, the price we currently receive for production from our blocks is between $35 and $42.50 per barrel. Furthermore, currently all oil and gas producers in Argentina are operating without sales contracts. A new withholding tax regime was introduced in Argentina without specific guidance as to its application. Producers and refiners of oil in Argentina have been unable to determine an agreed sales price for oil deliveries to refineries. Along with most other oil producers in Argentina we are continuing deliveries to the refineries and are negotiating a price for deliveries made after March 31, 2009. The Provincial Governments have also been hurt by these changes as their effective royalty take has been reduced by the lower sales price. We are working with other oil and gas producers in the area, as well as Refiner S.A. and provincial governments, to lobby the federal government for change.

With regulated crude oil prices, the change in our revenues over the same quarter in 2008 has been reflective of changes in our production levels. Revenues of $2.9 million generated in the three months ended March 31, 2009 compared to $1.4 million for the same period in 2008.

The increase in total expenses over the first quarter of 2008 was also attributable to higher production levels as well as expanded operations. Operating expenses for the three months ended March 31, 2009 on a boe basis decreased to $11.39 from $20.79 for the same period in 2008. Likewise, DD&A expense increased, on a boe basis, to $18.26 as compared to $13.07 for the same period in 2008 and was attributable to higher production levels, and an increased depletable cost pool, offset partially by additional proved reserves. G&A expenses remained constant as compared to the same period in 2008. On a per boe basis, G&A decreased to $6.29 from $13.12 for the same period in 2008 as a result of increased production.

Capital Program - Argentina

Capital expenditures for the three months ended March 31, 2009, amounted to $0.4 million. The company had not budgeted significant capital expenditures in Argentina for the first quarter of 2009. Capital expenditures in Argentina for the three months ended March 31, 2008, were $0.4 million. Costs include facilities upgrades in the Palmar Largo area, exploration land lease costs and capitalized G&A including non-cash stock-based compensation expense.

Segmented Results – Corporate

	Three Months Ended March 31,
	2009			2008			% Change
Segmented Results of Operations – Corporate
(Thousands of U.S. Dollars)
Interest	$	150		$	3			4,900

Operating expenses		34			15			127
Depletion, depreciation and accretion		76			30			153
General and administrative expenses		2,991			2,542			18
Derivative financial instruments loss		-			1,184			(100	)
Foreign exchange loss (gain)		137			(71	)		(293	)
		3,238			3,700			(12	)

Segment loss before income taxes	$	(3,088	)	$	(3,697	)		(16	)

Segmented Results of Operations - Corporate

In addition to the expenditures associated with the maintenance of Gran Tierra’s headquarters in Calgary, Alberta, Canada, and cost of compliance and reporting under the securities regulation, the results of the Corporate Segment include the results of our initial operations in Peru.

G&A Expenses

The increase in G&A expenses over the same period in the prior year was mainly attributable to higher stock-based compensation expense due to increased option grants.

Loss (Gain) from Derivative Financial Instruments

	As at March 31,
(Thousands of U.S. Dollars)	2009			2008
Realized financial derivative (gain) loss	$	(87	)	$	491
Unrealized financial derivative loss		87			693
Derivative financial instruments loss	$	-		$	1,184

	As at March 31,			As at December 31,
Assets	2009			2008
Derivative financial instruments	$	146		$	233

In accordance with the terms of the credit facility with Standard Bank Plc, in February of 2007 we entered into a costless collar financial derivative contract 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.

For the three months ended March 31, 2008, we recorded a loss of $1.2 million due to the high WTI crude oil price.

Foreign Exchange Loss (Gain)

The foreign exchange loss (gain) results from the translation of foreign currency denominated transactions to US Dollars.

Capital Program – Corporate

The $0.8 million in capital expenditures for the three months ended March 31, 2009 for the Corporate Segment included expenditures of $0.7 million for Peru on our exploration blocks 122 and 128. The costs incurred mainly related to drilling feasibility and geological studies on the blocks. For the first three months of 2008, capital expenditures of $0.6 million related mainly to acquisition of technical data through aeromagnetic-gravity studies in Peru, which began in 2007 and was continued into 2008.

Liquidity and Capital Resources

At March 31, 2009, we had cash and cash equivalents of $147.7 million compared to $176.8 million at December 31, 2008. We believe that our cash position and access to unutilized credit facilities with a borrowing base of $33 million and no debt will provide us with sufficient liquidity to meet our strategic objectives and fund our planned capital program for at least the next 12 months. In accordance with our investment policy, cash balances are invested only in United States or Canadian government backed federal, provincial or state securities with the highest credit ratings and short term liquidity.

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 of a subsidiary, Gran Tierra Colombia., 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. As a result of Standard Bank Plc’s review of our Mid-Year 2007 Independent Reserve Audit, we have received preliminary approval to increase our borrowing base to $20 million; however, this has not been pursued further as the additional credit is not required at this time. The facility includes a letter of credit sub-limit of $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 the assets of our subsidiary, Gran Tierra Colombia. Under the terms of the facility, we are required to maintain and are in 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 September 30, 2006 Independent Reserve Evaluation Report projected aggregate net share of Colombian production after royalties for the three-year term of the Facility. As of March 31, 2009, no amounts have been drawn-down under this facility.

Following the acquisition of Solana, effective November 14, 2008, we obtained access to an additional credit facility with BNP Paribas. The facility has a maturity date of December 20, 2010. The borrowing base is currently $26 million, based on the current value of petroleum reserves of the subsidiary, Solana Petroleum Exploration (Colombia) Ltd., up to a maximum of $100 million. The facility includes a letter of credit sublimit of $5 million. Amounts drawn down under the facility bear interest at the Eurodollar rate plus a margin for each quarter dependent on production for the previous quarter as follows: 3.125% for production less than 1,500 barrels of oil per day; 2.875% for production between 1,500 and 3,000 barrels of oil per day; 2.625% for production between 3,000 and 5,000 barrels of oil per day; and 2.375% for production over 5,000 barrels of oil per day. The facility is secured primarily by the assets of Solana Petroleum Exploration (Colombia) Ltd. Under the terms of the facility, we are required to maintain and are in compliance with specified financials and operating covenants. As of March 31, 2009, no amounts have been drawn-down under this facility.

Both Standard Bank Plc and BNP Paribas have provided consent letters with regard to our acquisition of Solana, specifically providing that the acquisition would not trigger any change in control provisions under the respective facilities. The letters of consent provided by the banks each contain a number of conditions which effectively limit the time period of the consent to June 12, 2009. We are currently working with both banks to determine the appropriate facility going forward.

The following provides an analysis of our cash in-flows and out-flows during the three months ended March 31, 2009 and 2008:

Cash Flows

During the three months ended March 31, 2009, our cash and cash equivalents decreased by $29.0 million due to cash outflows from operations of $7.6 million, cash outflows from investing activities of $21.9 million and cash inflows from financing activities of $0.5 million. Net cash used in operating activities was affected by the significant increase in crude oil production and offset by the decrease in prices as well as increases in receivables related to oil sales.

During the three months ended March 31, 2008, our cash and cash equivalents increased by $7.8 million due to cash inflows from operations of $9.2 million, cash outflows from investing activities of $6.5 million and cash inflows from financing activities of $5.2 million. Net cash provided by operating activities was affected by the significant increase in crude oil production and prices offset by the increases in receivables related to oil sales.

Off-Balance Sheet Arrangements

As at March 31, 2009, we had no off-balance sheet arrangements.

Contractual Obligations

Gran Tierra holds three categories of operating leases namely office, vehicle and housing. Future lease payments and other contractual obligations at March 31, 2009 are as follows:

	Payments Due in Period
	As at March 31, 2009
Contractual Obligations	Total		Less than 1 Year		1 to 3 years		3 to 5 years		More than 5 years
(Thousands of U.S. Dollars)
Operating leases	$	4,401	$	1,590	$	2,331	$	470	$	10
Drilling and Completion Services		1,095		975		120		-		-
Total	$	5,496	$	2,565	$	2,451	$	470	$	10

Related Party Transactions

In connection with the Solana acquisition, we acquired additional office space of 4,441 square feet used by Solana as its headquarters in Calgary. The lease payments under the lease are $8,975 per month and operating and other expenses are approximately $4,000 per month. The lease expires on April 30, 2014. On February 1, 2009, we entered into a sublease for that office space with a company, of which two of Gran Tierra’s directors are shareholders and directors. The term of the sublease runs from February 1, 2009 to August 31, 2011 and the sublease payment is $7,050 per month plus approximately $4,000 for operating and other expenses. The terms of the sublease are consistent with current market conditions in the Calgary real estate market.

Outlook

Business Environment

Our revenues have been negatively impacted by the recent decline in crude oil prices. Crude oil prices are volatile and unpredictable and are influenced by concerns about financial markets and the expected adverse impact of the slowing worldwide economy on oil demand growth. However, based on projected production, prices, costs and our current liquidity position, 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 facilities, barring unforeseen events or a further 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, disposition of assets, or issuance of equity.

The credit markets, including the commercial paper markets in the United States, have recently experienced adverse conditions. Although we have not been materially impacted by these conditions, continuing volatility in the credit markets may increase costs associated with renewing or increasing our credit facilities, or affect our, or third parties we seek to do business with, ability to access those markets.

Our future growth and acquisitions may depend on our ability to raise additional funds through equity and debt markets. Increases in the borrowing base under our credit facilities 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. Should we be required to raise debt or equity financing to fund capital expenditures or other acquisition and development opportunities, such funding 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 our 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 facilities.

2009 Work Program and Capital Expenditure Program

Gran Tierra’s 2009 work program is intended to create both growth and value in our existing assets through increasing our reserves and production, while retaining the financial flexibility, with a strong cash position and no debt, to pursue acquisition opportunities if aligned strategically with corporate objectives.

Gran Tierra is currently evaluating the optimum production plateau for the Costayaco field taking into consideration reserves, reservoir performance, good operating practice, and net present value of the project. Accordingly, we are revising the planned production plateau for Costayaco to 19,000 barrels of oil per day (“BOPD”) gross, and extending the plateau period to approximately four years. Economic modeling shows no material reduction in value in producing reserves at this new plateau. We are expecting to maintain an average consolidated company production rate between 14,000 to 16,000 BOPD net after royalty for the balance of 2009.

Gran Tierra’s planned capital program has been revised to $160 million for exploration and production development operations in Colombia, Peru, and Argentina for 2009. Approximately $145 million is allocated to Colombia, with $115 million for development drilling and associated facilities construction and approximately $30 million for exploration drilling and new seismic data acquisition. This budget includes the drilling of four exploration wells in Colombia, and three additional development wells following Costayaco-7 in the Costayaco field.

Gran Tierra will continue to explore our large land position encompassing 5.6 million net acres through a program that anticipates four exploration wells in Colombia in the second half of 2009, as well as multiple seismic programs in Colombia and Peru in preparation for additional exploration drilling in 2010. We expect our capital expenditure program for 2009 will be fully funded from cash flow and cash on hand.

We will continue to monitor our capital spending during 2009. We have the flexibility to defer or cancel portions of our capital program in response to a drop in WTI from the current levels of approximately $45 to $55 per barrel of oil.

Outlook – Colombia

Gran Tierra reported the recent drilling completion of Costayaco-7 at the northern limit of the Costayaco Field. Testing is to be initiated in mid-May and is expected to take approximately 2 weeks. Costayaco-8, a development well located 600 meters south of Costayaco-1, is expected to begin drilling on May 8th, with drilling expected to take approximately one month. Costayaco-9 and 10 are scheduled to follow this year.

New infrastructure construction is planned to continue, including support facilities, crude gathering lines, water lines, two pumping stations, and storage batteries. We are currently evaluating the optimum production plateau for the field taking into consideration reserves, reservoir performance and good operating practice and the net present value of the project. Current plans for the Costayaco field contemplate reaching a plateau of 19,000 BOPD gross in the fourth quarter of 2009, and maintaining that plateau for approximately four years.

In addition to the ongoing Costayaco field development activities, new seismic acquisition and one exploration well is currently budgeted for 2009 in the Chaza Block. The Rio Mocoa prospect is scheduled to be drilled to the west of the Costayaco field in the fourth quarter of 2009. A second prospect, Moqueta, is planned for early 2010.

Gran Tierra plans to carry out an active exploration and development program on our other blocks in Colombia, including:

Drilling one exploration well in the Mecaya block and two exploration wells in the Catguas B block.

Additional seismic programs in the Azar, San Pablo and Rio Magdalena blocks.

	·	Long term production tests on the Popa-2 gas-condensate discovery in the Rio Magdalena block.

	·	Upgrades to facilities.

Following the completion of 400 kilometers of seismic reprocessing in 2008 in the Putumayo West A and B Technical Evaluation Areas, Gran Tierra made application for three exploration and exploitation licenses on the highest potential prospects in these two areas. Negotiations with the ANH have recently been completed for these new exploration licenses in the Putumayo basin, two of which are on trend with the Costayaco Field discovery. The Piedemonte Norte Block, encompassing 78,743 acres, lies southwest of the Chaza Block where the Costayaco field is located. The Piedemonte Sur Block, encompassing approximately 73,897 acres, is located immediately west of the Orito Field, the largest oil field in the Putumayo Basin. Further south, the Rumiyaco Block, encompassing 82,625 acres in the central Putumayo Basin, is also pending approval. Upon final approval by regulatory authorities, Gran Tierra will have a 100% working interest and be operator of these prospective blocks. These new blocks will be the focus of exploration drilling efforts by Gran Tierra in 2010.

Outlook – Argentina

Gran Tierra is the largest exploration landholder in the Noroeste Basin of northern Argentina. We have a working interest in eight blocks of land, seven operated by Gran Tierra, encompassing approximately 1.6 million gross acres, or 1.3 million net acres. Gran Tierra drilled one exploration well in 2008, Proa-1, resulting in the discovery of the Proa oil field. The work program for 2009 consists of conducting nine workovers of existing producing wells, and facilities upgrades. A 162 square kilometer 3D seismic acquisition in the Chivil and Surubi Blocks to define additional structural and stratigraphic traps on the Proa oil field discovery trend is currently being deferred. Additional exploration drilling is contemplated in 2010 once the 3D seismic program is acquired. Production is expected to be maintained at approximately 1,000 BOPD, net after royalty, in 2009. Total 2009 capital planned for Argentina is $5 million.

Outlook - Peru

Gran Tierra has expanded its environmental impact assessment on Blocks 122 and 128 in the Marañon Basin of northeastern Peru to include stratigraphic test drilling which is expected to expedite the exploration process in 2010. The environmental impact assessment for Block 128 has been submitted to the Peruvian government for review and approval; Gran Tierra anticipates the submission for Block 122 to follow in the second quarter.

These assessments are in preparation for a 500 kilometer 2D seismic survey expected to be acquired in the fourth quarter of 2009 and the first quarter of 2010 over 16 principal leads amongst the 24 leads identified on the two blocks. Stratigraphic test drilling on up to four prospects is expected to take place in 2010 also. In addition, a pre-feasibility engineering field development study is scheduled to be completed in the first half of 2009 to assist with planning in the event a commercial discovery is made in 2010. Total 2009 capital planned for Peru is $10 million.

Critical Accounting Estimates

The preparation of financial statements under generally accepted accounting principles (“GAAP”) in the United States requires management to make estimates, judgments 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. On a regular basis we evaluate our assumptions, judgments and estimates. We also discuss our critical accounting estimates with the Audit Committee of the Board of Directors.

We believe that the assumptions, judgments and estimates involved in the accounting for oil and gas accounting and impairment, reserves determination, asset retirement obligation, share-based payment arrangements, goodwill impairment, warrants and income taxes have the greatest potential impact on our condensed consolidated financial statements. These areas are key components of our results of operations and are based on complex rules which require us to make judgments and estimates, so we consider these to be our critical accounting estimates. Historically, our assumptions, judgments and estimates relative to our critical accounting estimates have not differed materially from actual results.

Our critical accounting estimates are disclosed in Item 7 of our 2008 Annual Report on Form 10-K, filed with the Securities and Exchange Commission on February 27, 2009, and have not changed materially since the filing of that document.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our principal market risk relates to oil prices. Essentially 100% of our revenues are from oil sales at prices which are defined by contract relative to WTI 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 financial derivative contract 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. At March 31, 2009, the value of this costless collar was $146,000, compared to $233,000 at December 31, 2008. A hypothetical 10% increase in WTI price on March 31, 2009 would cause the value to decrease by approximately $7,000, and a hypothetical 10% decrease in WTI price on March 31, 2009 would cause the value to increase by approximately $309,000. This compares to a hypothetical 10% increase in WTI price on December 31, 2008 would cause the value to decrease by approximately $229,000, and a hypothetical 10% decrease in WTI price on December 31, 2008 would cause the value to increase by approximately $345,000.

We consider our exposure to interest rate risk to be immaterial as we hold only cash and cash equivalents. 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 facilities with Standard Bank Plc or BNP Paribas, 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, or government securities of the United States or Canadian federal governments such as Guaranteed Investment Certificates or Treasury Bills. 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 WTI. 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% 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

(a) Evaluation of Disclosure Controls and Procedures

Disclosure Controls and Procedures

We have established disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or Exchange Act) 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.

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 l3a-15(e) of the Exchange Act. Based on their evaluation, our principal executive and principal financial officers have concluded that Gran Tierra's disclosure controls and procedures were effective as of March 31, 2009 to ensure that the information required to be disclosed by Gran Tierra in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission ("SEC") rules and forms and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

During the quarter ending on March 31, 2009, there was no change in Gran Tierra’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, Gran Tierra’s internal control over financial reporting.

ITEM 4T – CONTROLS AND PROCEDURES

Not applicable.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Ecopetrol and Gran Tierra Colombia, the contracting parties of the Guayuyaco Association Contract, are engaged in a dispute regarding the interpretation of the procedure for allocation of oil produced and sold during the long term test of the Guayuyaco-1 and Guayuyaco-2 wells. This matter was reported in our Annual Report on Form 10-K for the year ended December 31, 2008, filed with the Securities and Exchange Commission on February 27, 2009.

ITEM 1A. RISK FACTORS

The risks relating to our business and industry, as set forth in our Annual Report on Form 10-K for the fiscal year ended December 31, 2008, filed with the Securities and Exchange Commission on February 27, 2009, are set forth below, and the risks that reflect substantive changes from the risk factors in the Form 10-K are designated by an asterisk (*).

Risks Related to Our Business

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

Our business focuses on the oil and gas industry in a limited number of properties, initially in Colombia, Argentina, and Peru, with the intention of expanding elsewhere into other countries. Larger companies have the ability to manage their risk by diversification. However, we 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 was more diversified.

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 and existing credit facilities will be sufficient only to fund our currently planned activities. We will require additional capital to continue to operate our business beyond our current planned activities and to expand our exploration and development programs to additional properties. We may be unable to obtain additional capital required.

When we require additional capital we plan to pursue sources of 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. The current situation in world capital markets has made it increasingly difficult for companies to raise funds. If we do succeed in raising additional capital, future financings may be dilutive to our stockholders, as we could 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 factors such as the capital markets (both generally and in the oil and gas industry in particular), 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 cash flow from operations, is not sufficient to satisfy our capital needs (even to the extent that we reduce our activities), we may be required to cease our operations.

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, Shane O’Leary, our Chief Operating Officer, Rafael Orunesu, our President of Gran Tierra Argentina SA, and Edgar Dyes, our President of Gran Tierra 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 retain staff that 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. If we are unable to attract and retain key personnel, our business may be adversely affected.

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. 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, and 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.

For example, starting on November 21, 2008, we were forced to reduce production in Colombia on a gradual basis, culminating on December 11, 2008 when we suspended all production from the Santana, Guayuyaco and Chaza blocks in the Putumayo Basin. This temporary suspension of production operations was the result of a declaration of a state of emergency and force majeure by Ecopetrol due to a general strike in the region. In January 2009, the situation was resolved and we were able to resume production and sales shipments.

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 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.

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 endeavor to use the business relationships of our management and board of directors 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 we fail to make the cash calls required by our joint venture partners in the joint ventures we do not operate, we may be required to forfeit our interests in these joint ventures. If our strategic relationships are not established or maintained, our business prospects may be limited, which could diminish our ability to conduct our operations.

In addition, our partners may not be able to fulfill their obligations, which would require us to either take on their obligations in addition to our own, or possibly forfeit our rights to the area involved in the joint venture. In cases where we are not the operator of the joint venture, the success of the projects held under these joint ventures is substantially dependent on our joint venture partners. The operator is responsible for day to day operations, safety, environmental compliance and relationships with government and vendors.

We have various work obligations on our blocks that must be fulfilled or we could face penalties, or lose our rights to those blocks if we do not fulfill our work obligations. Failure to fulfill obligations in one block can also have implications on the ability to operate other blocks in the country ranging from delays in government process and procedure to loss of rights in other blocks or in the country as a whole.

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. 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. 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.

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 inefficiencies, which could diminish our profitability.

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.

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 caused us to incur significant 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 controls 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.

At year end 2007 and during the first three quarters of 2008, we had a material weakness in our internal control over financial reporting. Significant resources were required to remediate this weakness. If we have one or more additional material weaknesses in the future, there is a possibility that this could result in a restatement of our financial statements or impact our ability to accurately report financial information on a timely basis, which could adversely affect our stock price. Further, the presence of one or more material weaknesses could cause us to not be able to timely file our periodic reports with the SEC, which could also result in law suits or diversion of management's attention from our business.

Integration of Gran Tierra and Solana’s Businesses, Personnel and Financial Controls May Be More Difficult Than Expected, Which Could Strain the Combined Company’s Operations.

In 2009, Gran Tierra will need to undertake significant efforts to integrate its personnel, accounting and other systems, and operations. This can be difficult to do and will require significant management and other resources. For example, the combined company will be subject to the requirements of the Sarbanes-Oxley Act of 2002, to which Solana has not been subject. If there are difficulties in integrating Solana’s systems into the Gran Tierra systems so that the combined company cannot meet all of its requirements under the Sarbanes-Oxley Act, this could cause a significant diversion of management’s attention from running the business, may cause us to report one or more material weaknesses in our internal control over financial reporting, may cause other failures to comply with the Sarbanes-Oxley Act, or may be expensive in legal, financial or other costs to cause our company to become compliant, any of which could be time-consuming or costly and may also place undue strain on the personnel, systems and resources of our company and cause the stock price of our company to decline.

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 have interests in five oil producing basins in Colombia - in the Middle Magdalena, Lower Magdalena, Llanos, Putumayo and Catatumbo basins. The Putumayo and Catatumbo regions have 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. In March and April of 2008, sections of one of the Ecopetrol pipelines were blown up by guerillas, which temporarily reduced our deliveries to Ecopetrol in the first quarter of 2008. Ecopetrol was able to restore deliveries within two weeks of these attacks and currently there are no interruptions to our deliveries.

Continuing attempts to reduce or prevent guerilla activity may not be successful and guerilla activity may 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.

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

Oil sales in Colombia are made mainly to Ecopetrol. While oil prices in Colombia are related to international market prices, lack of competition and reliance on a limited number of customers for sales of oil may diminish prices and depress 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 two customers. The lack of competition in this market could result in unfavorable sales terms which, in turn, could adversely affect our financial results . Currently all operators in Argentina are operating without sales contracts. We cannot provide any certainty as to when the situation will be resolved or what the final outcome will be.

Our 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

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 operate our business in Colombia, Argentina and Peru, and expect 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, social unrest, strikes by local or national labor groups, interference with private contract rights (such as privatization), extreme fluctuations in currency exchange rates, high rates of inflation, exchange controls, changes in tax rates 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. South America has 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, including the imposition of additional taxes. 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.

Starting on November 21, 2008, we were forced to reduce production in Colombia on a gradual basis, culminating on December 11, 2008 when we suspended all production from the Santana, Guayuyaco and Chaza blocks in the Putumayo Basin. This temporary suspension of production operations was the result of a declaration of a state of emergency and force majeure by Ecopetrol due to a general strike in the region. In January 2009, the situation was resolved and we were able to resume production and sales shipments.

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. Subsequently, Argentina experienced a period of GDP growth, normalized inflation, and strengthened public finances. However, there is no guarantee of economic stability. The economy faltered and the government experienced some difficulty in 2008. Inflation has been rising and government popularity has dropped, due to the economic situation and the unpopularity of some of the programs the government tried to implement to deal with it. The government applied export controls to agricultural products which were highly unpopular and caused demonstrations and labor strikes across the country.

The crude oil and natural gas industry in Argentina is subject to extensive regulation including land tenure, exploration, development, production, refining, transportation, and marketing, imposed by legislation enacted by various levels of government and with respect to pricing and taxation of crude oil and natural gas by agreements among the federal and provincial governments, all of which are subject to change and could have a material impact on our business in Argentina. The Federal Government of Argentina has implemented controls for domestic fuel prices and has placed a tax on crude oil and natural gas exports.

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.

Our agreements with Refiner S.A. expired on January 1, 2008, and renegotiation, though currently underway, has been delayed due to the introduction of a new withholding tax regime for crude oil and refined oil products exported and sold domestically in Argentina. Currently all oil and gas producers in Argentina are operating without sales contracts. The new withholding tax regime was introduced without specific guidance as to its application. Producers and refiners of oil in Argentina have been unable to determine an agreed sales price for oil deliveries to refineries. Also, the price for refiners’ gasoline production has been capped below the price that would be received for crude oil. Therefore, the refineries’ price offered to oil producers reflects their price received, less taxes and operating costs and their usual mark up. Along with most other oil producers in Argentina, we are continuing deliveries to the refinery. In our case we are negotiating sales on a spot price basis with several refineries. The Provincial Governments have also been hurt by these changes as their effective royalty take has been reduced and capital investment in oilfields has declined. We are working with other oil and gas producers in the area, as well as Refiner S.A., and provincial governments, to lobby the federal government for change.

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 eligibility to receive foreign aid from the United States is dependent on its progress in stemming the production and transit of illegal drugs, which is subject to an annual review by the President of the United States. Although Colombia is currently eligible for such aid, Colombia may not remain eligible in the future. A finding by the President that Colombia has failed demonstrably to meet its obligations under international counternarcotics agreements 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 Colombian assets. Accordingly, the imposition of the foregoing economic and trade sanctions on Colombia would likely result in a substantial loss and a decrease in the price of our common stock. The United States may impose sanctions on Colombia in the future, and we cannot predict the effect in Colombia that these sanctions might cause.

Maintaining Good Community Relationships and Being a Good Corporate Citizen may be Costly and Difficult to Manage.

Our operations have a significant effect on the areas in which we operate. In order to enjoy the confidence of local populations and the local governments, we must invest in the communities where were operate. In many cases, these communities are impoverished and lacking in many resources taken for granted in North America. The opportunities for investment are large, many and varied; however, we must be careful to invest carefully in projects that will truly benefit these areas. Improper management of these investments and relationships could lead to a delay in operations, loss of license or major impact to our reputation and share price.

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 3.05 pesos to one US dollar to 3.51 pesos to the US dollar, a fluctuation of approximately 15%. Exchange rates between the Colombian peso and US dollar have varied between 2,632 pesos to one US dollar to 1,648 pesos to one US dollar since September 1, 2005, a fluctuation of approximately 60%.

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. The Central Bank may require prior authorization and may or may not grant such authorization for our Argentine subsidiaries to make dividend payments to us and there may be a tax imposed with respect to the expatriation of the proceeds from our foreign subsidiaries.

We Must Maintain Effective Registration Statements For All of Our Private Placements of Our Common Stock.

We are required to file Post Effective Amendments to our registration statements periodically in accordance with the Registration Rights Agreements for our 2005 and 2006 private placements of units. Amending and keeping these registration statements effective is costly and diverts management’s attention from running our business. Failure to maintain these registration statements could result in the loss of ability for some shareholders to trade their shares, and could affect the price of our stock.

Risks Related to Our Industry

Unless We are Able to Replace Our Reserves, and Develop Oil and Gas Reserves on an Economically Viable Basis, Our Reserves, Production and Cash Flows May Decline as a Result.

Our future success depends on our ability to find, develop and acquire additional oil and gas reserves that are economically recoverable. Without successful exploration, development or acquisition activities, our reserves and production will decline. We may not be able to find, develop or acquire additional reserves at acceptable costs.

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 may not be able to do 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.

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 may not be able to obtain, sustain or renew such licenses. Regulations and policies relating to these licenses and permits may 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.

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 exploration expenditures 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.

Estimates of Oil and Natural Gas Reserves that We Make May Be Inaccurate and Our Actual Revenues May Be Lower and Our Operating Expenses may be Higher 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.

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 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.

If Oil and Natural Gas Prices Decrease, We May be Required to Take Write-Downs of the Carrying Value of Our Oil and Natural Gas Properties.

We follow the full cost method of accounting for our oil and gas properties. A separate cost center is maintained for expenditures applicable to each country in which we conduct exploration and/or production activities. Under this method, the net book value of properties on a country-by-country basis, less related deferred income taxes, may not exceed a calculated “ceiling”. The ceiling is the estimated after tax future net revenues from proved oil and gas properties, discounted at 10% per year. In calculating discounted future net revenues, oil and natural gas prices in effect at the time of the calculation are held constant, except for changes which are fixed and determinable by existing contracts. The net book value is compared to the ceiling on a quarterly basis. The excess, if any, of the net book value above the ceiling is required to be written off as an expense. Under SEC full cost accounting rules, any write-off recorded may not be reversed even if higher oil and natural gas prices increase the ceiling applicable to future periods. Future price decreases could result in reductions in the carrying value of such assets and an equivalent charge to earnings.

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. For example, on February 7, 2009 we experienced an incident at our Juanambu 1 well, involving a fire in a generator, resulting in total damage to equipment estimated at $500,000, and production in the amount of approximately $125,000 being deferred due to shutting down production facilities while dealing with the incident. 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. Incidents such as these can lead to serious injury, property damage and even loss of life. 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.

Our Inability to Obtain Necessary Facilities and/or Equipment 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 or equipment 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 or equipment 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.

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 require a reserve account for these potential costs in respect of our current properties and facilities at this time, and have booked such reserve on our financial statements. 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 decommissioning costs could impair our ability to focus capital investment in other areas of our business.

Drilling Oil and Gas Wells and Production and Transportation Activity Could be Hindered by Earthquakes and 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, 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.

The majority of our oil in Colombia is delivered by a single pipeline to Ecopetrol and sales of oil could be disrupted by damage to this pipeline. Once delivered to Ecopetrol, 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.

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, particularly during the months November through February when the area is subject to periods of heavy rain and flooding. While storage facilities are designed to accommodate ordinary disruptions without curtailing production, delayed sales will delay revenues and may adversely impact our working capital position in Argentina. Furthermore, a prolonged disruption in oil deliveries could exceed storage capacities and shut-in production, which could have a negative impact on future production capability.

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

Oil and natural gas are commodities whose prices are determined based on world demand, supply and other factors, all of which are beyond our control. World prices for oil and natural gas have fluctuated widely in recent years. The average price for WTI in 2000 was $30 per barrel. In 2006, it was $66 per barrel, in 2007 it was $72 per barrel and in 2008 it was $100 per barrel. However, the average price for March 2009 was $48.08 per barrel, demonstrating the inherent volatility in the market. We expect that prices will fluctuate in the future. Price fluctuations will have a significant impact upon our revenue, the return from our oil and gas 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. 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.

In addition, oil and natural gas prices in Argentina are effectively regulated and during 2008 were substantially lower than those received in North America. Oil prices in Colombia are related to international market prices, but adjustments that are defined by contract with Ecopetrol, the purchaser of most of the oil that we produce in Colombia, may cause realized prices to be lower than those received in North America.

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 have 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.

Policies, Procedures and Systems to Safeguard Employee Health, Safety and Security May Not be Adequate

Oil and natural gas exploration and production is dangerous. Detailed and specialized policies, procedures and systems are required to safeguard employee health, safety and security. We have undertaken to implement best practices for employee health, safety and security; however, if these policies, procedures and systems are not adequate, or employees do not receive adequate training, the consequences can be severe including serious injury or loss of life, which could impair our operations and cause us to incur significant legal liability.

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.

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;

·	changes in the market and/or WTI price 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 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 operations 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 ability to produce the 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.

Gran Tierra may not have sufficient shares to acquire other businesses or assets.

The number of shares of Gran Tierra common stock outstanding or reserved for issuance under Gran Tierra’s outstanding exchangeable shares, warrants and options is approximately 270 million shares, leaving only approximately 30 million shares available to use for the purpose of acquiring additional businesses or assets. Gran Tierra may not have sufficient shares of its common stock authorized and available for issuance to acquire additional businesses without a vote of its stockholders, which could delay or prevent the consummation of additional transactions.

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

On 8 separate dates beginning on January 15, 2009 and ending on March 31, 2009, we sold an aggregate of 786,817 shares of our common stock for an aggregate purchase price of $1,263,354. These shares were issued to 5 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.

On February 19, 2009, we issued 108,730 shares of our common stock to a holder of exchangeable shares, which were issued by a subsidiary of Gran Tierra in a share exchange on November 10, 2005, and were exchanged for shares of our common stock. The shares were issued to this holder in reliance on Regulation S promulgated by the SEC as the investor was not a resident of the United States.

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: May 8, 2009

/s/ Dana Coffield

By: Dana Coffield

Its: Chief Executive Officer

Date: May 8, 2009		/s/ Martin Eden
		By: Martin Eden
		Its: Chief Financial Officer

EXHIBIT INDEX

Exhibit

No. Description Reference

2.1		Arrangement Agreement, dated as of July 28, 2008, by and among Gran Tierra Energy Inc., Solana Resources Limited and Gran Tierra Exchangeco Inc.		Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, filed with the SEC on August 1, 2008.

2.2	Amendment No. 2 to Arrangement Agreement, which supersedes Amendment No. 1 thereto and includes the Plan of Arrangement, including appendices.	Incorporated by reference to Exhibit 2.2 to the Registration Statement on Form S-3 (Reg. No. 333-153376), filed with the SEC on October 10, 2008.

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 Amending 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	Certificate Amending Articles of Incorporation.	Incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2008 (File No. 000-52594).

3.6	Certificate Amending Articles of Incorporation.	Incorporated by reference to Exhibit 3.2 to the Current Report on Form 8-K filed with the Securities and Exchange Commission on November 19, 2008 (File No. 000-52594).
3.7	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 September 22, 2008 (File No.000-52594).
4.1	Reference is made to Exhibits 3.1 to 3.7.

10.1	Amendment No. 3 to Participation Agreement, dated as of December 31, 2008, by and among Gran Tierra Energy Colombia, Ltd., Gran Tierra Energy Inc. and Crosby Capital, LLC.	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on January 7, 2009.

10.2	Amendment No. 1 and Waiver to Credit Agreement, dated as of January 1, 2009, by and among Gran Tierra Energy Colombia, Ltd., Gran Tierra Energy Inc., Argosy Energy, LLC and Standard Bank Plc.	Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed with the SEC on January 7, 2009.


10.3	Release of Partnership Pledge Agreement, dated as of January 1, 2009, by and among Gran Tierra Energy Inc., Argosy Energy, LLC and Standard Bank Plc.	Incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed with the SEC on January 7, 2009.

10.4	Release of GP Pledge Agreement, dated as of January 1, 2009, by and between Gran Tierra Energy Inc. and Standard Bank Plc.	Incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K, filed with the SEC on January 7, 2009.

10.5	Partnership Pledge Agreement, dated as of January 1, 2009, by and among GTE Colombia Holdings LLC, Argosy Energy, LLC and Standard Bank Plc.	Incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K, filed with the SEC on January 7, 2009.

10.6	GP Pledge Agreement, dated as of January 1, 2009, by and between GTE Colombia Holdings LLC and Standard Bank Plc.	Incorporated by reference to Exhibit 10.6 to the Current Report on Form 8-K, filed with the SEC on January 7, 2009.

10.7	Offer Letter between Gran Tierra Energy Inc. and Shane P. O’Leary dated January 26, 2009	Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed with the SEC on February 4, 2009.

10.8	Employment Agreement between Gran Tierra Energy Inc. and Shane P. O’Leary dated as of January 26, 2009.	Incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed with the SEC on February 4, 2009.

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
Constraining
Legalese
Litigous
Readability	H.S. sophomore Avg

Gran Tierra Energy (GTE) 10-Q2009 Q1 Quarterly report

Content analysis