Gran Tierra Energy has incredible exploration upside but my forecast only includes the development of fields where they have already confirmed commercial oil and gas. The primary driver over the next 18 months will be the Moqueta Field in Columbia. GTE made a lot of progress during the second quarter. Production will be limited during the testing phase this year then I expect the field to ramp up to 15,000 bopd by the end of 2012.
My updated forecast model and adjusted Fair Value estimate will be posted under the Sweet 16 tab late today. - Dan
Moqueta Field, Chaza Block
During the second quarter of 2011, Gran Tierra Energy completed the 6-inch diameter, 8-km flowline connecting the Moqueta oil discovery to existing Costayaco infrastructure. In addition, a parallel 4-inch gas line was completed that will be used to transport gas from Costayaco to Moqueta for anticipated gas injection for pressure support. First short-term test production occurred in June, 2011 and will continue throughout 2011 as we test the reservoir productivity and pressure response. Average production from the Moqueta field is expected to be modest, at approximately 500 BOPD for the second half of 2011 until gas compression facilities are installed. Production is expected to begin ramping up in 2012 to levels that will be determined once reservoir performance data has been acquired, the full aerial extent of the field has been determined, and the final development concept decided. New 3D seismic acquisition is expected to start in the third quarter to assist in refining the mapping of the Moqueta field and planning further delineation and development drilling.
The Moqueta-5 delineation well was drilled from the same well pad as the Moqueta-4 delineation well and reached total measured depth of 5,309 feet in April. Based on mud and electric logs and Repeat Formation Tester ("RFT") pressure data, the Caballos, T Sandstone and U Sandstone reservoirs appear to be saturated with oil with a total interpreted net pay of 167 feet. No water is evident on the logs. The reservoirs were penetrated approximately 50 feet deeper than in Moqueta-4, increasing the reserve potential of the field. Initial production tests at Moqueta-5 were conducted on the T Sandstone reservoir and will eventually be performed on all zones. Testing over 10 days resulted in production rates of 730 BOPD with a jet pump.
Moqueta-6, expected to spud in third quarter of 2011, will also be drilled as a deviated well from the Moqueta-4 surface location to further investigate the aerial extent of the oil columns encountered in the Villeta U, Villeta T and Caballos formation reservoirs. Subject to further drilling engineering work, the bottom hole location is approximately 600 meters northwest of Moqueta-4.
Planning is underway for Moqueta-7 which is expected to be drilled in the first quarter of 2012 at a new surface location approximately 1,750 meters west of Moqueta-4. This location will allow additional appraisal of the down dip extent of the field. Moqueta-7 could be used as an oil producer or water injector depending on the well results.
GTE
Re: GTE
From the GTE conference call to give you an idea of how significant the Moqueta Field can be.
Nathan Piper - RBC Capital Markets, LLC
A couple more follow-ups on the operations. First of all, on Moqueta, tell us the buildup on what Martin was chatting about and you've got a 20,000-barrel a day pipeline, I think, that you've now hooked up. You're saying that testing per well would be around about 500 to 700 barrels a day, but what I'm trying to understand is where do you think the long-term or where do you think the ramp up production rate will be per well? I think what you've told us previously, it was a bit like Costayaco, so if we would be thinking of 1,000 to 4,000 barrels a day per well, or is that a bit too optimistic?
Shane O’leary
The 750 barrels a day was only from the T Sand reservoir. We're testing them separately. We're trying to collect as much reservoir information as we can and so there's a flow period for a week or 2 and then a buildup period, and so on. So it's not a continuous flow yet either, and we'll be testing several of the wells in Moqueta. So if we're getting 750 from the T Sand, we'll probably get something like that from the Caballos. Maybe a little bit less. So yes, we're kind of looking at something in the order of 1,000-plus barrels per day from -- I don't expect we're going to get 20,000 barrels a day out of Moqueta. Of course, we don't know how big it is. We've sized the pipeline obviously for the maximum possible case but it'll be a sizable field. I mean, the average field size in Colombia is sort of 4 million to 5 million barrels and this will exceed that considerably.
Nathan Piper - RBC Capital Markets, LLC
Okay. But I mean, if some of us have got something like 15 million or 20 million barrels in our models, are we being a bit too presumptuous or just between us guys, do you think that's about right?
Shane O’leary
Well, you saw the GLJ year-end numbers and I'm trying to remember what their 3P was. I think they have something like 10 million barrels for 3P and I would say that you're going to see reserve growth in Moqueta as we continue to drill wells. I mean the GLJ report at the end of December did not have Moqueta-4 and 5 in it, for example. Those were both very good wells, so you'll see reserve growth at Moqueta.
Nathan Piper - RBC Capital Markets, LLC
Very good. I'm just looking at further down the track, to the Rumiyaco well. What's the sort of potential we should think about there and appreciate that Melero-1 is not terribly exciting but my guess is that Rumiyaco is a -- has a potential to be sizable, what kind of range would you put in for that?
Shane O’leary
Jason, can you tell me what you communicated to the marketplace about that? Jason, no, I guess, he's not -- but I mean, Rumiyaco is a really nice-looking structure in a great location. There's oil fields all around it so we have high expectations for it. I'd say it could be in sort of the 10 million-barrel-plus kind of range. I don't know exactly what we said but that would be what I would indicate.
Nathan Piper - RBC Capital Markets, LLC
A couple more follow-ups on the operations. First of all, on Moqueta, tell us the buildup on what Martin was chatting about and you've got a 20,000-barrel a day pipeline, I think, that you've now hooked up. You're saying that testing per well would be around about 500 to 700 barrels a day, but what I'm trying to understand is where do you think the long-term or where do you think the ramp up production rate will be per well? I think what you've told us previously, it was a bit like Costayaco, so if we would be thinking of 1,000 to 4,000 barrels a day per well, or is that a bit too optimistic?
Shane O’leary
The 750 barrels a day was only from the T Sand reservoir. We're testing them separately. We're trying to collect as much reservoir information as we can and so there's a flow period for a week or 2 and then a buildup period, and so on. So it's not a continuous flow yet either, and we'll be testing several of the wells in Moqueta. So if we're getting 750 from the T Sand, we'll probably get something like that from the Caballos. Maybe a little bit less. So yes, we're kind of looking at something in the order of 1,000-plus barrels per day from -- I don't expect we're going to get 20,000 barrels a day out of Moqueta. Of course, we don't know how big it is. We've sized the pipeline obviously for the maximum possible case but it'll be a sizable field. I mean, the average field size in Colombia is sort of 4 million to 5 million barrels and this will exceed that considerably.
Nathan Piper - RBC Capital Markets, LLC
Okay. But I mean, if some of us have got something like 15 million or 20 million barrels in our models, are we being a bit too presumptuous or just between us guys, do you think that's about right?
Shane O’leary
Well, you saw the GLJ year-end numbers and I'm trying to remember what their 3P was. I think they have something like 10 million barrels for 3P and I would say that you're going to see reserve growth in Moqueta as we continue to drill wells. I mean the GLJ report at the end of December did not have Moqueta-4 and 5 in it, for example. Those were both very good wells, so you'll see reserve growth at Moqueta.
Nathan Piper - RBC Capital Markets, LLC
Very good. I'm just looking at further down the track, to the Rumiyaco well. What's the sort of potential we should think about there and appreciate that Melero-1 is not terribly exciting but my guess is that Rumiyaco is a -- has a potential to be sizable, what kind of range would you put in for that?
Shane O’leary
Jason, can you tell me what you communicated to the marketplace about that? Jason, no, I guess, he's not -- but I mean, Rumiyaco is a really nice-looking structure in a great location. There's oil fields all around it so we have high expectations for it. I'd say it could be in sort of the 10 million-barrel-plus kind of range. I don't know exactly what we said but that would be what I would indicate.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: GTE
More upside in Brazel:
Ian Macqueen - CIBC World Markets Inc.
Great. And then on the exploration front, obviously, it's welcome news to see that you're doing some exploration in Brazil. Can you just go over again the target size, kind of rates and chance of success for the 2 exploration wells in Brazil?
Shane O’leary
It's a shale with a turbidite sand in it. It's never been tested with a horizontal well. I'd say it's not a Bakken-type thing. There's actually sand and mixed in with the shale so it's got more permeability and porosity, hopefully. So the idea is to drill horizontal wells into this or into this shale sand and see what it does. We know that it's charged with oil because there's been literally hundreds of vertical wells that have been penetrated this thing in the area. So we know it's got oil. It's just a question of will it flow at economic rates. Our hope is to get something like 300, 400 barrels, possibly, out of each of these wells. We have 20 locations mapped on 3D seismic on our blocks alone. So that's the reason we actually went into these blocks, it was for that upside. If it works, you do the math, 20 wells, 300, 400 barrels of oil, that's pretty material production for a company like Gran Tierra.
Ian Macqueen - CIBC World Markets Inc.
And have you given an idea what the target size would be?
Shane O’leary
No, not really. I mean, if you're getting 300, 400 barrels a day, maybe 10 million, 20 million barrels would be something that we would hope for.
Ian Macqueen - CIBC World Markets Inc.
Great. And then on the exploration front, obviously, it's welcome news to see that you're doing some exploration in Brazil. Can you just go over again the target size, kind of rates and chance of success for the 2 exploration wells in Brazil?
Shane O’leary
It's a shale with a turbidite sand in it. It's never been tested with a horizontal well. I'd say it's not a Bakken-type thing. There's actually sand and mixed in with the shale so it's got more permeability and porosity, hopefully. So the idea is to drill horizontal wells into this or into this shale sand and see what it does. We know that it's charged with oil because there's been literally hundreds of vertical wells that have been penetrated this thing in the area. So we know it's got oil. It's just a question of will it flow at economic rates. Our hope is to get something like 300, 400 barrels, possibly, out of each of these wells. We have 20 locations mapped on 3D seismic on our blocks alone. So that's the reason we actually went into these blocks, it was for that upside. If it works, you do the math, 20 wells, 300, 400 barrels of oil, that's pretty material production for a company like Gran Tierra.
Ian Macqueen - CIBC World Markets Inc.
And have you given an idea what the target size would be?
Shane O’leary
No, not really. I mean, if you're getting 300, 400 barrels a day, maybe 10 million, 20 million barrels would be something that we would hope for.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: GTE
GTE is debt free and trading at approximately 5X my cash flow per share estimte for 2011 and less than 4X my CFPS estimate for 2012 (based on a realized oil price of $90/bbl). I company with this kind of exploration upside should trade at a much higher multiple.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: GTE
From BMO Capital Markets:
Gran Tierra Energy – (GTE) - $5.36, down $0.27 – Analyst – Christopher Brown – Upgraded to Outperform – TP-$7.25 - Gran Tierra recently released Q2 results that were generally in line. At the time, Christopher highlighted the company’s lack of catalysts in Q3 as a concern given his belief that the company would be challenged to compete for investor attention in a volatile market. Although he continues to expect pressure on Gran Tierra’s share price over the current quarter, he recognizes this may also be an opportunity to accumulate a position in advance of a more active Q4 exploration program. Despite its lack of exploration success, the company has performed well at maintaining production from its developed assets. The company has provided guidance to an average net production range between 17,500 and 19,000 boe/d and he expects it will achieve 20,000 boe/d net in Q4 2011. Gran Tierra is financially well positioned with $211 million in cash and cash equivalents as of June 30, 2011. Christopher believes this should provide some confidence to shareholders that the company will not need to raise equity in the foreseeable future. With majority of Gran Tierra’s remaining exploration locations planned for (or expecting results in) Q4, there currently may be an opportunity to accumulate a position in the company, particularly as the share price has weakened in line with general market conditions. Even though the company lacks material catalysts in the near future, the share price trades at a 26% discount to our current target price. He maintains a cautious view on Peru and will continue to monitor unconventional exploration in Argentina. As such, he does not believe investors should pre-pay for this potential upside and (even on a risked basis) do not include it in his analysis. As the company’s weakened share price currently provides an attractive potential return to his target price, Christopher has upgraded his recommendation to Outperform.
Gran Tierra Energy – (GTE) - $5.36, down $0.27 – Analyst – Christopher Brown – Upgraded to Outperform – TP-$7.25 - Gran Tierra recently released Q2 results that were generally in line. At the time, Christopher highlighted the company’s lack of catalysts in Q3 as a concern given his belief that the company would be challenged to compete for investor attention in a volatile market. Although he continues to expect pressure on Gran Tierra’s share price over the current quarter, he recognizes this may also be an opportunity to accumulate a position in advance of a more active Q4 exploration program. Despite its lack of exploration success, the company has performed well at maintaining production from its developed assets. The company has provided guidance to an average net production range between 17,500 and 19,000 boe/d and he expects it will achieve 20,000 boe/d net in Q4 2011. Gran Tierra is financially well positioned with $211 million in cash and cash equivalents as of June 30, 2011. Christopher believes this should provide some confidence to shareholders that the company will not need to raise equity in the foreseeable future. With majority of Gran Tierra’s remaining exploration locations planned for (or expecting results in) Q4, there currently may be an opportunity to accumulate a position in the company, particularly as the share price has weakened in line with general market conditions. Even though the company lacks material catalysts in the near future, the share price trades at a 26% discount to our current target price. He maintains a cautious view on Peru and will continue to monitor unconventional exploration in Argentina. As such, he does not believe investors should pre-pay for this potential upside and (even on a risked basis) do not include it in his analysis. As the company’s weakened share price currently provides an attractive potential return to his target price, Christopher has upgraded his recommendation to Outperform.
Re: GTE
Item 5.02. Departure of Directors or Principal Officers; Election of Directors; Appointment of Principal Officers; Compensatory Arrangements of Certain Officers
On August 17, 2011, Julian Garcia resigned as President of Gran Tierra Energy, Colombia, effective immediately.
Effective as of August 17, 2011, the Board of Directors of Gran Tierra Energy Inc. appointed Duncan Nightingale President of Gran Tierra Energy, Colombia.
Mr. Nightingale, age 52, has served in Gran Tierra Energy’s Bogotá, Colombia office as its Senior Manager Project Planning and Exploration from January 2011 to present, and before that served in Gran Tierra Energy’s Calgary, Canada office as its Vice President of Exploration from September 2009 to January 2011. Prior to joining Gran Tierra Energy, Mr. Nightingale was Senior Vice President, Exploration & Production, at Artumas Group Inc., a Canadian oil and gas company focusing on exploration and development of hydrocarbon reserves in Tanzania and Mozambique, where he was responsible for Artumas Group’s exploration and production operations in Mozambique and Tanzania and management of its gas processing plant and power generation facility in Tanzania. Prior to Artumas Group, Mr. Nightingale was General Manager, Exploration & Production, with Dana Gas PJSC, a leading private sector natural gas company in the Middle East, where Mr. Nightingale was responsible for all of Dana Gas’s exploration and production operations, and was responsible for a multi-million dollar exploration and development program in Kurdistan. Prior to Dana Gas, Mr. Nightingale was with EnCana Corporation’s International Division from May 2002 until March 2007. From June 2002 until September 2003, he was the Country Manager in Qatar, responsible for managing EnCana’s activities in Qatar, including the execution of exploration programs and new venture activity. From October 2003 until June 2006, he had similar responsibilities in the Sultanate of Oman, where he served as EnCana’s Country Manager. Mr. Nightingale has a total of 30 years of corporate head office and resident in-country international operating experience, spanning all aspects of managing exploration programs, development and production operations, new business ventures, portfolio management and strategic planning. Mr. Nightingale graduated from the University of Nottingham in the U.K. with a Bachelor of Science degree with honors in Geology.
Mr. Nightingale currently receives an annual salary of CND$236,900, and is eligible to receive an annual bonus in an amount of up to 50% of his base salary, the exact amount to be determined by the Board of Directors of Gran Tierra Energy. In addition, pursuant to the terms of Mr. Nightingale’s employment arrangement with Gran Tierra, which does not have a specified duration: (i) Mr. Nightingale’s annual base salary will be reviewed annually; (2) Mr. Nightingale will be entitled to five weeks of paid vacation per year; and (3) Mr. Nightingale will be entitled to a separation payment in the event that the company terminates Mr. Nightingale’s employment without “cause” or Mr. Nightingale terminates his employment for “good reason,” each as defined in the employment arrangement. The separation payment is in the amount of one year of Mr. Nightingale’s base salary plus his bonus payment for the prior 12 month period, which would be payable in a lump sum within thirty (30) days of termination. In addition, Gran Tierra will enter into its standard form of indemnification agreement with Mr. Nightingale.
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Further, in connection with Mr. Nightingale’s expatriation assignment to Colombia, which currently is for three years ending December 31, 2013, Mr. Nightingale is entitled to receive additional payments and accommodations, including: (1) a hardship location payment of 20% of base salary; (2) goods and services differential of CDN$41,664 per year; (3) a company car with driver; (4) a club membership valued at USD$12,700 per year; (5) a housing and utilities allowance of CDN$7,853 per month; (6) Calgary property management fees of up to 16% of gross month rent each month; (7) amounts necessary to ensure that Mr. Nightingale’s income tax obligations are no more than if he remained employed in Calgary, Canada; (8) a CDN$6,000 allowance per year to travel back to Calgary, Canada; and (9) language training of a maximum of USD$11,200 per year.
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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 hereunto duly authorized.
Gran Tierra Energy Inc.
By: /s/ Martin Eden
Name: Martin Eden
Title: Chief Financial Officer
Dated: August 23, 2011
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