Company Increases Production Estimates to 20,000 BOPD Net in Second Half of 2009
CALGARY, Alberta – December 11, 2008 – Gran Tierra Energy Inc. (NYSE Alternext: GTE; TSX:GTE), a company focused on oil exploration and production in South America, today announced a capital spending program of US$198 million for exploration and production development operations in Colombia, Peru, and Argentina for 2009. This budget includes the drilling of seven exploration wells and six development wells in Colombia, in addition to seismic acquisition programs in Colombia, Peru, and Argentina. Production is expected to grow to approximately 20,000 barrels of oil per day (BOPD), net after royalty, in the second half of 2009, in contrast to previous expectations of approximately 15,000 BOPD, net after royalty.
Gran Tierra Energy currently has approximately US$140 million in cash and no debt. The 2009 work program and budget is expected to be executed using cash and cash-flow from operations, assuming a West Texas Intermediate oil price remaining above US$22 per barrel of oil in 2009.
Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy, stated, "In today's troubled markets, Gran Tierra Energy is extraordinarily well positioned to execute its work program and budget to develop its existing land base and grow its production from current undeveloped reserves, and simultaneously undertake an active exploration program to continue its growth strategy, within its available cash and cash flow from operations. As operator of 24 of its 26 blocks of land, encompassing 7.1 million gross acres in three countries, the company is well positioned to continue being a solid growth company in the international oil and gas arena."
Gran Tierra Energy is one of the largest exploration landholders in the Putumayo Basin of southern Colombia. The company has a working interest in 5 exploration licenses, in addition to two technical evaluation areas currently under consideration for conversion to exploration licenses. The total acreage encompasses 938,494 gross acres, or 828,064 net acres. Gran Tierra Energy is the Operator of all its Putumayo licenses.
Chaza Block (100% working interest)
The bulk of 2009 capital spending is scheduled to be dedicated to further developing the Costayaco field. Four additional development wells are budgeted for the year, Costayaco-7 through 10. In addition, one water injector well is scheduled to be drilled, and 3 existing well workovers undertaken. New infrastructure construction is planned to continue, including support facilities, crude gathering lines, water lines, two pumping stations and storage batteries.
A contemplated 100 kilometer new pipeline construction project connecting the Costayaco field to the Orito gathering facilities is being deferred. Recent pressure testing of the existing pipeline system and testing of friction reducers injected into the oil stream indicates the existing pipeline system can accommodate an estimated 15,000 BOPD gross from the Costayaco field with new pumps, in addition to crude from the other existing producing fields. Trucking capacity can handle an additional 10,000 BOPD capacity from the Costayaco field. This will allow 2009 production from Costayaco to grow to an estimated 25,000 BOPD gross in the second half of 2009 from the previous estimate of 15,000 BOPD for 2009.
By deferring the contemplated pipeline project, a savings of US$140 million is expected to be achieved in 2009. Although the anticipated peak plateau production of 35,000 BOPD in 2010 is expected to be reduced to an estimated 25,000 BOPD, this new production plateau is projected to begin sooner (in the second half of 2009) and is expected to extend for a longer period of time - to three years. An economic evaluation (after tax net present value) indicates that it is more economical to not build the pipeline for the Costayaco development when West Texas Intermediate oil price is below US$61 per barrel of oil. Environmental and engineering work completed to date can be used to reactivate the pipeline project quickly should additional reserves or economics warrant.
In addition to the ongoing Costayaco field development activities, new seismic acquisition and one exploration well are currently budgeted for the year in the Chaza Block. The Moqueta-1 prospect is scheduled to be drilled to the north of the Costayaco field in the second half of 2009.
Guayuyaco Block (70% working interest)
The Guayuyaco Block contains both the Guayuyaco and Juanambu producing fields. During 2009 a 50 Km2 3D seismic program is scheduled to be conducted over the Verdeyaco prospect. This seismic program straddles both the Guayuyaco Block and the Chaza block (30 Km2 of the 3D seismic program is expected to be acquired in the Guayuyaco Block and 20 Km2 is expected to be acquired in the Chaza block). In addition, the Juanambu-2 development well is scheduled to be drilled during the second quarter of 2009.
Azar Block (40% working interest)
During 2009, two seismic programs are planned for the Azar Block, a 40 Km 2D program and a 50 Km2 3D program. A long-term production test is being evaluated for the Palmera-1 heavy oil discovery and an exploration well (Yaniyaco-1) is planned to be drilled during the fourth quarter of 2009.
Mecaya Block (15% working interest)
During 2009 a work-over and long-term test of Mecaya-1 is planned. In addition, an exploration well (Mecaya-2) is planned to be drilled during the third quarter of 2009.
Santana Block (35% working interest)
During 2009 upgrades to the refinery are scheduled. No exploration activities are planned for the Santana block during 2009.
Putumayo West A and B Technical Evaluation Areas (100% working interest)
During 2009, Gran Tierra Energy expects portions of the Putumayo West A Technical Evaluation Area to be converted to one or more ANH exploration contracts with new seismic acquisition program commitments in 2009. In addition, a portion of the Putumayo West B Technical Evaluation Area is expected to be converted to an exploration license called the Rumiyaco Block, also with a new seismic acquisition program commitment for 2009.
Gran Tierra Energy has an interest in five blocks in the Llanos Basin; four operated and one non-operated, encompassing 391,280 gross acres, or 290,069 net acres.
Guachiria Block (70% net working interest)
Long term testing of the Los Aceites-1 discovery well is scheduled to continue into 2009. The 2009 scheduled expenditures include seismic reprocessing and environmental obligations. Additional drilling or facilities will be contingent on the long term testing results. Currently the well is producing approximately 1,200 BOPD gross (700 BOPD net after royalties) under natural flow with approximately 32% water cut.
Guachiria Norte Block (70% net working interest)
The 2009 scheduled expenditures include costs for an obligation exploration well that is expected to spud in February to further evaluate the stratigraphic trap potential of the area.
Guachiria Sur Block (70% net working interest)
The 2009 scheduled expenditures include a 115 Km2 3D seismic program to further map the stratigraphic trap potential of channel sands near the Los Aceites-1 discovery.
San Pablo (100% working interest)
The planned 2009 expenditures include costs to drill one obligation exploration well, Amatista-1.
Garibay (50% non-operated working interest)
The 2009 scheduled expenditures include a 100 Km2 3D seismic program to further define the exploration potential of the area.
Gran Tierra Energy is the Operator of three blocks in the Magdalena Basin; two in the Middle Magdalena Basin (Rio Magdalena and Talora Blocks) and one in the Lower Magdalena (Magangue Block) encompassing 273,651 gross acres, or 87,340 net acres.
Rio Magdalena Block (40% working interest)
During 2009 a 75 Km2 3D seismic program is planned over the new Popa gas-condensate discovery and an adjacent exploration prospect. A long-term production test is planned for the Popa-2 gas-condensate discovery. An exploration well, Cantarrana-1, is scheduled to be drilled during the third quarter of 2009.
Talora Block (20% working interest)
No exploration activities are planned for the Talora block during 2009.
Magangue Block (37.8% working interest)
A new compressor is currently being installed at the Guepaje gas field, which is forecast to produce an average of 2.7 million cubic feet per day (MMCF/D) gross, 0.8 MMCF/D net after royalty, during 2009. No exploration activities are planned for the Magangue block during 2009.
Catguas Block (50% working interest in Area A and 85% working interest in Area B)
During 2009 two exploration well commitments are scheduled to be fulfilled in Area B based on the results of new seismic data acquired in 2008.
Mara on Basin
Gran Tierra Energy is the Operator and holds a 100% working interest in two exploration blocks on the eastern flank of the Mara on Basin of northern Peru. Blocks 122 and 128 encompass 3.4 million acres of land over the crest of the Iquitos Arch, an area that has never before been tested by the drill-bit. Over one billion barrels of recoverable oil has been discovered to date in the Mara on Basin around the flanks of the Iquitos Arch. Gran Tierra Energy has identified 24 leads based on interpretation of a 20,000 linear kilometer airborne gravity and magnetic survey completed over the blocks in 2008.
Gran Tierra Energy has entered the second exploration period of both blocks 122 and 128. An environmental impact survey is currently being undertaken in preparation for a 500 kilometer 2-D seismic survey expected to be acquired in the fourth quarter of 2009 and into the first quarter of 2010 over the principal leads identified on the two blocks. Exploration drilling is expected to take place in the second half of 2010. In addition, a pre-feasibility engineering field development study is scheduled to be undertaken during 2009 to assist with early planning in the event a commercial discovery is made in 2010. Total 2009 capital budgeted for Peru is US$10 million.
Gran Tierra Energy is the largest exploration landholder in the Noroeste Basin of northern Argentina. The company has a working interest in eight blocks of land, seven operated by Gran Tierra Energy, encompassing approximately 1.6 million gross acres, or 1.3 million net acres. The company drilled one exploration well in 2008, Proa.x-1, resulting in the discovery of the Proa oil field. The work program for 2009 consists of conducting nine workovers of existing producing wells, facilities upgrades, and 162 Km2 of 3-D seismic acquisition in the Chivil and Surubi Blocks to define additional structural and stratigraphic traps on the Proa oil field discovery trend. One contingent development well, not included in the approved budget, may be drilled in the fourth quarter of 2009, depending on production performance of Proa.x-1. Additional exploration drilling is contemplated in 2010, based on the results of the 3-D seismic program, in concert with the development well. Production is expected to grow to approximately 1,000 BOPD, net after royalty, in 2009. Total 2009 capital budgeted for Argentina is US$10 million.
About Gran Tierra Energy Inc.
Gran Tierra Energy is an international oil and gas exploration and production company operating in South America, headquartered in Calgary, Canada and incorporated in the United States. The company holds interests in producing and prospective properties in Colombia, Argentina, and Peru. The company has a strategy that focuses on growing a portfolio of producing properties, plus production enhancement and exploration opportunities to provide a base for future growth. Gran Tierra Energy trades on the NYSE Alternext under the symbol "GTE" and on the Toronto Stock Exchange under the symbol "GTE".
Additional information concerning Gran Tierra Energy is available at www.grantierra.com , on SEDAR (www.sedar.com) and with the Securities and Exchange Commission (www.sec.gov).
Forward Looking Statements
The statements in this press release regarding Gran Tierra Energy's expectations, plans, projections and actions currently contemplated for 2009 and 2010 relating to its 2009 capital program and its exploration, drilling and production activities, are "forward-looking statements" within the meaning of the U.S. federal and Canadian securities laws, including Canadian Securities Administrators' National Instrument 51-102 Continuous Disclosure Obligations and the U.S. Private Securities Litigation Reform Act of 1995. Statements containing the words "estimates", "expects", "plans", "projects", "will", "scheduled", "forecast", "may", and variations of these words are forward-looking statements. These forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results or outcomes to differ materially from those contemplated by the forward-looking statements. Although, Gran Tierra Energy believes that the assumptions underlying, and expectations reflected in, these forward-looking statements are reasonable, it can give no assurance that these assumptions and expectations will prove to be correct.
Factors that could cause results to differ materially from those described in the forward-looking statements include: Gran Tierra Energy's operations are located in South America, and unexpected problems can arise due to guerilla activity, technical difficulties and operational difficulties which impact the production, transportation or sale of oil and gas; changing prices for crude oil may cause some scheduled projects or actions to become uneconomical, or may change Gran Tierra Energy's focus to other projects or actions which could be of more benefit to Gran Tierra Energy, which could cause projects or actions currently contemplated to be postponed or cancelled; unexpected problems due to technical difficulties, operational difficulties, and weather conditions; the current strike and state of emergency in Colombia may continue for longer than Gran Tierra Energy expects, which could impact Gran Tierra Energy's ability to complete testing and drilling on schedule and may also impact production, heightened unrest could imperil the safety and security of Gran Tierra Energy's assets and personnel despite the safety measures Gran Tierra Energy has put in place to address the current situation, which could also delay the testing and drilling and could also impact production; and those other risks found in the periodic reports filed by Gran Tierra Energy with the United States Securities and Exchange Commission, including in the section entitled "Risk Factors" in its Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on November 6, 2008, and available at the Securities and Exchange Commission's internet site www.sec.gov and on SEDAR at www.sedar.com.
All forward-looking statements in this press release are expressly qualified by information contained in each company's filings with regulatory authorities and, subject to its obligations under applicable securities laws, Gran Tierra Energy does not undertake to publicly update forward-looking statements, whether as a result of new information, future events or otherwise.