Gran Tierra Reports 4Q:16 and YE:16 Results

Instant Max AI

(Gran Tierra Energy Inc., 30.Jan.2017) – Gran Tierra Energy Inc. announced its financial and operating results for the fourth quarter and year ended December 31, 2016. Unless otherwise expressly stated, all reserves and resources values have been calculated in compliance with Canadian National Instrument 51-101 – Standards of Disclosure for Oil and Gas Activities (“NI 51-101”) and the Canadian Oil and Gas Evaluation Handbook (“COGEH”) and are based on the company’s 2016 year-end estimated reserves as evaluated by the company’s independent qualified reserve evaluator McDaniel & Associates Consultants Ltd. in a report with an effective date of December 31, 2016.

Key Highlights

— Announced two successful strategic acquisitions in the Ecopetrol 2016 Bidding Round in the Putumayo Basin on November 28, 2016, which are expected to close by end of first quarter 2017.

— Increased average WI production before royalties in 2016 to 27,062 barrels of oil equivalent per day (BOEPD), 16% higher than 2015’s average WI production before royalties of 23,401 BOEPD.

— Increased average WI production before royalties in fourth quarter 2016 to 31,031 BOEPD, 34% higher than fourth quarter 2015’s average WI production before royalties of 23,138 BOEPD.

— Increased net asset value to $4.852 per share, based on before tax net present value (NPV) discounted at 10% of 2P reserves, and year-end 2016 net working capital deficit and long term debt of $220.4 million (including convertible senior notes).

— Demonstrated ongoing strong financial performance in 2016, with full year average operating, transportation and general and administrative (G&A) expenses on a per BOE basis decreasing by 9%, 37% and 28%, respectively, compared to 2015, while fourth quarter 2016 operating netback1 of $20.79 per BOE increased 31% relative to the third quarter 2016.

— Successfully drilled and cased the Acordionero-7 development oil well and spud the Acordionero-8i development water injection well during the fourth quarter of 2016, both of which pushed down the depth of the lowest known oil in Acordionero’s reservoirs.

— Continued evaluating an exciting new oil play in Costayaco’s “A” Limestone, where the Costayaco-9 and 19 wells continue to produce an average of 527 and 1,587 barrels of oil per day (bopd), respectively (2017 year-to-date), from the “A” Limestone with virtually no water; commenced drilling of the Costayaco-28, Gran Tierra’s first dedicated “A” Limestone horizontal well, which continues with testing expected to begin on or around March 15, 2017; a second horizontal well, Costayaco-29, is expected to spud immediately after Costayaco-28 and is planned to test the “A” Limestone in a different part of the Costayaco structure.

— Continued drilling in the “N” Sands and “A” Limestone exploration plays in the Putumayo Basin, and spud the Confianza-1 exploration well on January 17, 2017, which is designed to test both formations.

— Maintained financial flexibility with an increased committed borrowing base of $250 million, of which only $90 million was drawn as of December 31, 2016.

Message to Shareholders

Gary Guidry, President and Chief Executive Officer of Gran Tierra, commented “During 2016, Gran Tierra successfully transformed its portfolio by delivering on our strategy of building a high-quality, diversified suite of assets in Colombia with high netback production, low base production declines, an expanded drilling inventory and a large resource base. Now that we have transformed the portfolio, our focus is on execution. With our delivery of strong production growth in fourth quarter 2016, we are demonstrating that Gran Tierra has created a sustainable business model which we expect to be fully funded point-forward by forecasted cash from operating activities. Since we operate over 90% of our production, Gran Tierra also has significant control and flexibility on capital allocation and timing.

We transformed our portfolio through four strategic, accretive acquisitions in Colombia in 2016 (three completed, one pending), which established a dominant land position in the highly prospective, underexplored Putumayo Basin and a new core area in the prolific Middle Magdalena Valley Basin. Our high quality asset base now has 74% of its 2P reserves contained in three large operated, conventional, onshore Colombian oil assets: Acordionero, Costayaco and Moqueta.

As we reported on January 23, 2017, this transformed portfolio delivered, during 2016, proved (1P), proved plus probable (2P) and proved plus probable plus possible (3P) WI reserves growth of 51%, 91% and 146% respectively, compared to 2015. Our inventory of net undrilled development locations has grown to 36 (2P) and 54 (3P) during the year. We are also pleased that we were able to increase our 2P reserve life index from 7.8 years to 11.1 years3. This robust set of assets is now expected to have visibility to 2018 WI production greater than 40,000 BOEPD by 2018, based on the 2P forecast. With our large resource base, we also plan to drill 30 to 35 exploration wells over the next three years, which are all expected to be funded by cash from operating activities. Our exploration campaign is designed to test the majority of our portfolio of prospective resources with these wells, including our now dominant Putumayo position in the emerging “N” Sand and “A” Limestone oil play fairways.

We believe Gran Tierra ended 2016 on a strong note by delivering strong production growth in fourth quarter 2016, as we realized the first full three months of production from the PetroLatina acquisition which closed August 23, 2016. Fourth quarter 2016 WI production averaged 31,031 BOEPD, an increase of 34% from fourth quarter 2015’s level of 23,138 BOEPD and an increase of 20% from the prior quarter. Commensurate with our increased production, our funds flow from operations1 saw a substantial increase of 54% in fourth quarter 2016 to $36.2 million compared with $23.5 million in the Prior Quarter.

Oil prices increased in fourth quarter 2016, with Brent prices averaging $51.13 per barrel, a 9% increase from the prior quarter, while Gran Tierra’s realized oil price also rose by 9% to $31.89 per BOE in the same time period. Gran Tierra continued to be successful in driving down combined operating and transportation expenses to $11.10 per BOE in the fourth quarter, a decrease of 17% from the prior quarter. We believe our low cost structure and growing production base allow us to be successful in a variety of pricing environments. Our ongoing focus on cost reductions allowed us to increase our operating netback in fourth quarter 2016 to $20.79 per BOE, up 31% from the prior quarter, a larger increase than the 9% increase in the Brent oil price over the same period.

Financial and operating highlights for the year include:

Production:

— WI production before royalties for the quarter averaged 31,031 BOEPD, or 26,263 BOEPD NAR, compared with 25,835 BOEPD WI production before royalties and 21,980 BOEPD NAR in the Prior Quarter. WI annual production before royalties for 2016 averaged 27,062 BOEPD, or 23,187 BOEPD NAR, compared with 23,401 BOEPD WI annual production before royalties or 19,489 BOEPD NAR in 2015.

— Sales volumes for the fourth quarter were 26,477 BOEPD compared with 21,485 BOEPD in the Prior Quarter. Sales volumes increased due to higher working interest production (5,196 BOEPD) and a reduction of inventory (709 BOEPD), partially offset by higher royalty volumes (913 BOEPD). Annual sales volumes were 23,954 BOEPD compared with 18,260 BOEPD in 2015.

— Gran Tierra expects 2017 average WI production before royalties to be 34,000 to 38,000 BOEPD from the Company’s assets in Colombia and Brazil, which would represent an increase of 26% to 40% from our 2016 average WI production before royalties of 27,062 BOEPD. The 2017 guidance includes 1,200 to 1,500 BOEPD of production from Brazil. The Company’s production guidance only includes forecasted volumes from existing operations and expected development projects; no volumes are assumed for any exploration success. Financial:

— Funds flow from operations(1) was $105.0 million for the year ended December 31, 2016 compared with $107.6 million in 2015, and, for the fourth quarter, $36.2 million compared with $23.5 million in the Prior Quarter.

— Net loss was $465.6 million, or $1.45 per share basic and diluted, for the year ended December 31, 2016 compared with $268 million, or $0.94 per share basic and diluted, in 2015. The increase in net loss was primarily due to higher impairment losses. Impairment losses increased by $183.1 million, net of income tax recovery, compared to 2015. For the fourth quarter, net loss was $127.4 million, or $0.36 per share basic and diluted, compared with $229.6 million, or $0.71 per share basic and diluted, in the prior quarter. Impairment losses decreased by $76.1 million, net of income tax recovery, compared with the prior quarter.

— At December 31, 2016, cash and cash equivalents (including current restricted cash) were $33.5 million, working capital deficiency (including cash and cash equivalents) was $23.3 million and $90 million was outstanding on the company’s revolving credit facility. The working capital deficiency was primarily a result of current tax related to a one-time restructuring.

— Average realized prices decreased to $28.38 per BOE for the year ended December 31, 2016 from $34.06 per BOE in 2015, but for the fourth quarter increased to $31.89 per BOE from $29.28 per BOE in the prior quarter.

— Operating expenses decreased to $8.51 per BOE for the year ended December 31, 2016 from $9.31 per BOE in 2015, primarily as a result of Colombian operating cost savings, partially offset by the effect of the weakening of the U.S. dollar against local currencies in South America. Workover expenses increased by $0.46 per BOE compared with the prior year. Excluding workover expenses, operating costs decreased by $1.26 per BOE to $6.28 per BOE. For the fourth quarter, operating expenses decreased to $8.50 per BOE from $10.93 per BOE in the prior quarter, primarily as a result of workover expenses of $1.92 per BOE compared with $4.30 per BOE in the Prior Quarter. Excluding workover expenses, operating costs per BOE were consistent with the prior quarter.

— Transportation expenses decreased to $3.12 per BOE for the year ended December 31, 2016 from $4.96 per BOE in 2015 primarily due to a lower percentage of volumes sold using pipelines, and the use of alternative transportation routes, which had lower costs per BOE than the routes used in 2015. For the quarter, transportation expenses increased to $2.60 per BOE from $2.47 per BOE in the prior quarter. The increase was primarily due to a lower percentage of sales at the wellhead, 50% in the current quarter, compared with 56% in the prior quarter.

— G&A expenses per BOE for the year ended December 31, 2016 decreased to $2.66 per BOE from $3.67 per BOE in 2015.

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