Conference Transcript - GTE 2026-03-04

Operator

Good morning, ladies and gentlemen, and welcome to Grand Tierra Energy's conference call for fourth quarter and year-end 2025 results. My name is Shannon, and I will be your coordinator for today. At this time, all participants are in a listening-only mode. Following the initial remarks, we will conduct a question-and-answer session for securities analysts and institutions. Instructions will be provided at that time for you to queue up for questions. I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, March 4th, 2026 at 11 o'clock a.m. Eastern Time. Today's discussion may include certain forward-looking information, oil and gas information, and non-GAAP financial measures. Please refer to the earnings and operational update for press release we issued yesterday for important advisories and disclaimers with regard to this information and for reconciliations of any non-GAAP measures discussed on today's call. Finally, this earnings call is the property of Grand Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Grand Tierra Energy. I will now turn the conference call over to Gary Guidry, President and Chief Executive Officer of Grand Tierra. Mr. Guidry, please go ahead.

Gary Guidry, CEO

Thank you, Shannon. Good morning and welcome to Grand Tierra's fourth quarter and year-end 2025 results conference call my name is Gary Guidry grant here is president and chief executive officer and with me today are Ryan Elson our executive vice president and chief financial officer and Sebastian Morin our chief operating officer yesterday we issued a press release that included detailed information about our fourth quarter and year-end 2025 results in addition Grand Tierra's Energy's 2025 annual report on Form 10K has been filed on EDGAR and is available on our website. Ryan and Sebastian will make a few brief comments and we will then open the line for questions. I'll now turn the call over to Ryan to discuss our financial results.

Ryan Ellson, CFO

Thanks Gary and good morning everyone. The company has recently successfully executed a bond exchange of our 9.5 percent senior secured amortizing notes due in 2029 with a participation rate of approximately 88 demonstrating high investor confidence in the company's strategy combined with our prepayment agreement and recent Simonette disposition we are entering 2026 with a meaningfully enhanced liquidity position and a stronger balance sheet subsequent to year end we amended and expanded our existing prepayment agreement adding up to 175 million incremental capacity plus 25 million dollar accordion and was our primary source of liquidity to support the 2029 notes exchange concurrently we determined we terminated our columbia credit facility however kept our 75 million canadian facility in place importantly this improved maturity profile enhanced liquidity position allow us to shift from near-term refinancing considerations to disciplined optimistic debt reduction with extended runway provided from the debt exchange we can actively pursue bond buybacks and extractive discounts while continuing to allocate capital to the highest return development opportunities across the portfolio accelerating deleveraging without sacrificing asset progression or long-term value creation Additionally, we are very pleased to announce our entry into Azerbaijan, which we view as a compelling and a capital-efficient addition to our portfolio. Partnering with SOCAR provides an early, scaled entry into a stable and supportive jurisdiction with established infrastructure and the long production history. This opportunity aligns with our strategy of pursuing risk-negated growth in proven basins, where our operating model and technical expertise can drive value. Given Azerbaijan's role in supplying energy to European markets, we see meaningful long-term strategic potential from this entry. From a hedging standpoint, we continue to layer in hedges to support cash flow stability in 2026. Oil volumes are approximately 50% hedged throughout the year, using a mix of three-ways, collars, and puts, with an average floor around $60, balancing downside production with upside exposure. For gas, we have ACO swaps covering, on average, 14,200 GJs per day at approximately $2.77 per GJ for 2026. Our 12-month rolling program maintains disciplined coverage levels while preserving price upside. Turning now to our financial results for the year, during 2025, Grand Sierra realized a net loss of $193 million, or $5.45 per share, which included non-cash ceiling test impairment losses of $136 million compared to net income of $3.2 million or $0.10 per share in 2024. Grand Tierra's capital expenditures increased slightly by $8 million or 3% to $256 million compared to 2024 due to the higher number of wells drilled during the year in Colombia, Ecuador, and Canada. The company realized adjusted EBITDA of $284 million, a decrease of 23% from $367 million in 2024. 2025 fund flow from operations were $178 million, or $5.02 per share, compared to $225 million in 2024. Both these decreases were commensurate with the decrease in Brent oil price. The company generated net cash provided by operating activities of $313 million, an increase of 31% from $239 million in 2024. The company had $83 million in cash and cash equivalents as at December 31st, 2025, a decrease compared to a cash balance of $103 million as at December 31st, 2024. In addition, the company has its cane craft facility fully undrawn with a capacity of $75 million Canadian. During 2025, the company bought back $21.3 million in face value of the company's 2029 senior notes. Grand Tierra's net oil and gas sales for the year were $597 million, a slight decrease of 4% compared to 2024. Total 2025 operating expenses were $249 million compared to $202 million in 2024, representing a 23% increase, while operating expenses per BOE were $15.17, 6% lower when compared to 2024. The increase in total operating expenses in 2025 was a result of higher operating costs in Ecuador, driven by a production ramp-up in 2025, and a full-year contribution from our Canadian operations. Taken together, we have had a very busy start to the year with all these corporate actions, repositioning the company for a strong 2026 and beyond. I'll now turn the call over to Sebastian Moore and discuss some of our highlights of our current operations.

Sebastien Morin, COO

Thanks, Ryan. Good morning, everyone. I will start with our 2025 year-end reserves. On January 28, 2026, we announced our year-end reserves as evaluated by McDaniels. The results reinforce the strength, depth, and optionality embedded in our portfolio. In South America, we delivered greater than 100% reserve replacement on both a PBT and QP basis, driven by exploration success and strong asset performance. For 2025, we reported 142 million barrels of oil equivalent of 1T reserves, 258 million barrels of oil equivalent of 2T reserves, and 329 million barrels of oil equivalent of 3T reserves. South American reserves replacement was 101 for PDP, 101% for PDP, 61% for 1P, and 105% for 2P. These outcomes were supported by multiple exploration discoveries in Ecuador, discipline management of our low-declined Colombian assets, and successful integration of our Canadian operations into a diversified multi-basin portfolio. In Canada, certain natural gas reserves were reclassified to contingent resources due to current low gas prices under reserve booking standards. as operator of the majority of our assets we retain the flexibility to reallocate capital toward high return quick payout gas development in a stronger price environment and we remain constructive on long-term natural gas demand given lng expansion and structural growth and power demand our pdp reserves continue to generate meaningful cash flow that supports key leveraging while our broader inventory including approximately 0.3 tcf and unrisked 3c contingent resources in the glauconitic formation and 0.4 pcs of 3c gas reserves across our canadian assets provide substantial long-term gas development optionality the organic and inorganic growth achieved over the past several years has created a runway of highly economic development opportunities improvement plays with established infrastructure with canadian operations now fully integrated approximately 18 of production 19 of 1p reserves and 22 of 2p reserves are attributable to natural gas and canada represents 39 of 1p and 44 of 2p reserves this diversification enhances resilience across commodity cycles while preserving capital allocation flexibility From a valuation perspective, year-end 2025 NAV per share was $22.51 before tax and $13.51 after tax on a 1P basis and $51.09 before tax and $31.17 after tax on a 2P basis. Compared to our current share price, this reflects a meaningful discount of 2-5 times across all NAV categories. In terms of production, Grand Tierra achieved a 2025 average working interest production of 45,709 barrels per day, representing a 32% increase from 2024, due to a positive exploration well-drilling result in Ecuador and full-year production from our Canadian operation, which was partially offset by lower production in southern Colombia and Ecuador as a result of two major export pipeline disruptions and the moqueta field being shut in due to trunk line repairs during the third quarter of 2025 operationally we are building off a successful year in 2025 to start off 2026 on a strong note as ryan noted previously with the company fulfilling all 2025 ecuador commitments and the soriente carried work program well underway we are entering a new phase focused on generating cash flow and maximizing the value of our diversified portfolio from a development standpoint we are excited to share that we recently drilled the rahu 2 well on the surriente wall targeting the northern extent of the kohembe field the well is producing approximately 790 barrels of oil per day at less than one percent water cut and is performing ahead of our initial expectation the result further delineates the field and supports the broader development potential of kohembe to the north rahu 2 also advances our surriente capital carry commitment which we expect to complete by mid-2026 to close our operational focus remains on portfolio longevity asset quality and disciplined execution with the addition of azerbaijan our portfolio now spans four countries six basins and three continents further enhancing diversification the company continues to be supported by a strong pdp foundation meaningful 1p and 2p reserves and a consistent track record of progressing resources from 2p to 1p and ultimately into producing with assets as we advance our operational and financial objectives, we remain steadfast in our commitment to safe, responsible operations and supporting the communities in which we work. With a stronger capital structure and a clear focus on free cash flow and debt reduction, we believe 2026 marks an important step in enhancing the long-term value of Grand Tierra. I will now turn the call back to the operator and Gary, Ryan and I will be happy to

Operator

take questions. Operator, please go ahead. Thank you. Ladies and gentlemen, we will now conduct up the question and answer session for securities analyst. If you have a question, please press the star key followed by one one on your touchstone phone. You will then hear an automated message advising your hand is raised. Your questions will be polled in the order they are received. Please ensure you lift the handset if you're using a speakerphone before pressing any keys. One moment, please, for your first question. Our first question comes from the line of David Round with Stiefel. Your line is now open. Great. Thank you. Thanks. Thanks, everyone.

David Round, Analyst — Stiefel

probably an obvious one to start, but maybe can you just talk about your exposure to near-term prices, please? Specifically, if you can just mention sort of how and when your sales are priced. Secondly, a bit of a follow-on. I appreciate this is all new, but I mean, I see your CapEx guidance is the same in your base case and your high case, but that's up to $75. dollars. So I'm wondering, $80 plus, does that change? At what point does your thinking around capital allocation change? And a third one, just on Azerbaijan, please, if you wouldn't mind just sort of giving us an idea on potential capital allocation there, please. Thank you.

Ryan Ellson, CFO

Great. Thanks, David. Yeah, with respect to pricing, you're right, it is fairly new. And the way our pricing works is we're paid in colombia we're paid just on the monthly average rent price and in ecuador we're paid at m minus one which is really the the month of lifting we get paid the prior month pricing is how we get as far as the the pricing and in canada we're paying on the average of wti for the month and so right now in just for sensitivities you know we do have a sensitivity in our corporate deck if you look at the low case mid case and high case you're right that at the 75 high case we're generating it's about 130 million dollars of free cash flow and capital expenditures are uh relatively flat actually they're the same across all categories and i think right now it's too early to say what we do with additional funds but we're our capital program for 2026 it's pretty well set so i think this would really you know we would expect any material changes at all for 2026 it really is help us with our planning for for 2027 we're very focused on on debt reduction free cash flow generation and so i think any excess free cash either go with cash on the balance sheet or repurchasing our outstanding debt okay and And then with respect to Azerbaijan, we are still willing to get the PSC ratified. So really capital, we'll come up with capital guidance for Azerbaijan. It's really a 2027 and beyond with some capital this year, but most likely some gravity that we'll shoot in Azerbaijan.

David Round, Analyst — Stiefel

Okay, makes sense. Maybe I can just sneak another quick one just on OPEX. looks like actually a pretty meaningful reduction in OPEX in 26 how much of that is structural savings that we can assume will persist and are there any deferrals we just need to be aware of there yeah so from a they're mostly all

Sebastien Morin, COO

structural components even in Canada we've reduced as a whole about 10% per year on a structural basis so the integration of I3 has been significant And the same goes in Colombia and Ecuador. And a lot of that is moving from our diesel to gas to power as we develop the field in Ecuador.

David Round, Analyst — Stiefel

Brilliant. Thank you.

Operator

Thank you. Our next question comes from the line of Joseph Schachter with Searcy. Your line is now open.

Joseph Schachter, Analyst — Searcy

Good morning, everyone, and thanks for taking my questions. First one for Ryan. Ryan, with all these higher prices, and you mentioned in your hedge book, How much incremental hedges have you put on, and are you stretching that into 27? Is this war premium giving the ability to add hedges at very attractive prices?

Ryan Ellson, CFO

Yeah, I think for this year, we have about 5% of our production hedge. We have started to add a few in the Q1 of 2027. I think the reality is obviously front month is quite a bit higher, but the curve is steeply backward-dated. But we are continuing to look at hedges for the latter half of the year, but more so into next year. As I said, we're about 50% hedged already this year. We may do some short-term options, take advantage of it, get above that 50% probably through puts over the next couple of months. But that really is about it, again, with the curve so steeply backward dated.

Joseph Schachter, Analyst — Searcy

Next one, the disruption on the pipelines in the south for Colombia. And then the recent announcements of the Americans being involved with the Ecuadorian military. Is there any concern about Ecuador production? And has there been a recovery from the pipeline disruptions in southern Colombia?

Gary Guidry, CEO

Thanks, Joseph. I think the answer to that is there's no disruption in Ecuador. We're currently starting our water injection pilot test. We are working with the government to tie into the Oslo pipeline going forward. And with the border disruption, the border being closed between Colombia and Ecuador, we have multiple ways to export our crude from Colombia. And so now it's all being exported directly from Colombia as opposed through the OTA and the SOTE lines. And so no disruption to production or exports. It's just different rooting.

Joseph Schachter, Analyst — Searcy

So has production come up materially? What would production be now versus what it was during Q4?

Gary Guidry, CEO

In Ecuador, we're still at the 8,500, 9,000 barrels a day. But we are quite enthusiastic. We're already seeing response from the injection in the fields that we're on, but our plans are to start water injection pilots in all of our fields.

Joseph Schachter, Analyst — Searcy

Okay, and in Colombia, production now versus Q4?

Sebastien Morin, COO

Yeah, Joseph, it's pretty much flat. So as we manage the water flood at Costa Yaco and Moqueta, we're doing some optimizations on both the water floods, and Moqueta is actually backed up over 1,100 barrels a day. So, you know, we're essentially flat for Q4 to Q1 now.

Joseph Schachter, Analyst — Searcy

Okay, super. Thanks for answering my questions.

Operator

Thank you. Our next question comes from the line of Rob Mann with RBC Capital Markets. Your line is now open.

Rob Mann, Analyst — RBC Capital Markets

Hey, morning, guys. Thanks for taking my questions. My first one just surrounds the Simonette disposition in the context of your production guidance for this year. It sounds like operations are trending positively so far, but would you anticipate a small change to your production guidance range upon deal close or look

Gary Guidry, CEO

to maintain your current guidance? Yeah, well, we will revise our guidance once we've closed that transaction, which will happen here over the next week or two going forward. And so it's not material, but it is an effective date of January 1st, 2026. Okay, great. Thanks, Eric. Just one

Rob Mann, Analyst — RBC Capital Markets

more for me if I could. Can you just remind us of your activity in Clearwater this year and is there any potential to accelerate or expand the program there just following assignment at disposition, the planned activity there? Thanks. Yeah, so right now we're doing some

Sebastien Morin, COO

more core work studies, essentially cost optimization studies for when we go to full field development. And to your point, you know, we have an existing pad with room for up to four to six wells. So So that's all in the planning stages that we can pull off of the shelf of the presentation.

Rob Mann, Analyst — RBC Capital Markets

Great.

Operator

Thanks, guys. Thank you. Our next question comes from the line of Alejandra Andrade with J.P. Morgan. Your line is now open.

Alejandra Andrade, Analyst — J.P. Morgan

Hi. How are you? You mentioned debt reduction. I was wondering what would be your target in terms of debt reduction and when do you think it's feasible to achieve that? Thank you.

Ryan Ellson, CFO

Yeah, longer term, we're targeting net debt to EBITDA one times, and we're targeting that for 2028. It obviously continues on pricing, and pricing, like today, that accelerates quite quickly.

Alejandra Andrade, Analyst — J.P. Morgan

Great, thank you.

Operator

Thank you. Our next question comes from the line of Chris DiCario with BTIG. Your line is now open.

Chris DiCario, Analyst — BTIG

Yeah, hi, good morning. Just, I guess, a couple of follow-up questions on topics that have already been asked. On the hedging program, you mentioned, I think, an average floor price of $60. Just what's the average ceiling price now that we have prices, at least in the near term, where they are? I guess my first question.

Ryan Ellson, CFO

Yeah, about $74 is the ceiling. Okay, thank you.

Chris DiCario, Analyst — BTIG

And then just following up on Alejandra's question, And, I mean, to the extent, you know, your focus now on free cash flow and debt reduction going forward, to the extent perhaps we'll have, you know, a little bit higher oil prices for longer, how do you think about sort of, you know, share buybacks versus net debt reduction or debt reduction? I mean, you know, to the extent things end up better than your guidance, sort of how do you think of allocating between the two?

Ryan Ellson, CFO

Yeah, good question. I think if you look at where the bonds yield right now, we're very focused on debt reduction. And our first choice would be to repurchase outstanding debt. And then you recall in the exchange that we just did, any restricted payments that go out, we have to do two to one for debt reduction versus share buybacks. So if we were to buy back $10 million worth of shares, we'd be obligated to buy back $20 million versus debt. So you can see the emphasis on the debt reduction.

Chris DiCario, Analyst — BTIG

Yeah, great. That's helpful. Thank you. You're welcome.

Operator

Thank you. Gentlemen, there are no further questions at this time. Please continue.

Gary Guidry, CEO

Thank you, Operator.

Sebastien Morin, COO

Once again, I'd like to thank everyone for joining us today.

Gary Guidry, CEO

I would like to also take this opportunity to thank the entire Grand Tierra team for their commitment and their hard work in 2025, while thanking stakeholders for their continued support. We look forward to speaking with you next quarter and update you on our ongoing progress. Thank you.

Operator

This concludes today's conference. Thank you for your participation. You may now disconnect.