(Gran Tierra Energy Inc., 12.Mar.2015) – Gran Tierra Energy Inc. announced cost reductions in line with its strategy to preserve its strong balance sheet and maximize potential for future growth. All dollar amounts are in United States (U.S.) dollars unless otherwise indicated.
In addition to recently announced reductions in 2015 capital expenditures, the company has focused on reductions to Gran Tierra’s operating expenses and general and administrative costs and lower service and transportation costs. These cost reduction initiatives and increased working efficiencies will allow the company the flexibility and financial capacity to react to opportunities that may arise from a continuing low oil price environment as well as to be able to quickly return to drilling from its own inventory in an improving price scenario. Gran Tierra has identified a number of expected cost savings for 2015:
Gran Tierra has significantly reduced full-time employees. The reduction is expected to exceed 20% from previous staffing levels, to contribute to an overall projected 22% reduction from 2014 general and administrative costs, excluding one-time termination costs and after allocations to capital and operating expenses. A few replacements for certain positions may be considered in the future, but the majority will not be replaced in the current environment;
In 2015, Gran Tierra expects to realize $14 million in total budgeted labor cost savings associated with the reduced full-time employees and contractors, excluding one-time termination costs and before allocations to capital and operating expenses. On an annualized basis the budgeted labor cost savings are expected to be approximately $19 million before allocations to capital and operating expenses and excluding one-time termination costs; Gran Tierra is in ongoing negotiations with suppliers and service providers to achieve further savings that it expects to further reduce operating costs;
In Colombia , as a result of negotiations with Gran Tierra’s crude oil transporters and a planned increase use of pipelines instead of trucking to transport oil, reduced transportation costs are anticipated to result in the company realizing a net savings of approximately $5.20 per barrel of oil equivalent (BOE). Gran Tierra plans to ship approximately 75% of production via pipeline in 2015 compared to 48% shipped via pipeline in 2014. These plans are supported by decreased downtime experienced on the Oleoducto Transandino (OTA) pipeline and by new alternate arrangements for shipping via the Oleoducto de Crudos Pesados (OCP) pipeline through Ecuador . The OCP pipeline is the primary transportation alternative when OTA is not available. Gran Tierra has also negotiated trucking tariff reductions of between 5% and 8%.
Due to the continued low oil price environment, Gran Tierra expects to pay lower “High Priced Rights” royalties and current taxes in Colombia; and,
As a result of the strengthening of the U.S. dollar against the local currencies in countries where Gran Tierra operates, the company expects to realize significant savings for costs denominated in those local currencies.
Funds flow from continuing operations before effects of foreign exchange and inventory fluctuations and assuming 75% of Colombian production is delivered via pipeline is expected to be approximately:
- $85 to $105 million for 2015 assuming an average of Brent oil price of $50 for 2015 which corresponds to NAR production of 18,200 to 19,200 barrels of oil equivalent per day (BOEPD)
- $105 to $125 million for 2015 assuming an average Brent oil price of $55 for 2015 which corresponds to NAR production of 17,700 to 18,700 BOEPD; or,
- $135 to $155 million for 2015 assuming an average of Brent oil price of $60 for 2015 which corresponds to NAR production of 17,500 to 18,500 BOEPD.
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