Gran Tierra Energy Inc. said Tuesday it has entered an agreement with Colombia’s Ecopetrol S.A. retaining the Canadian company’s operatorship of the Suroriente block for 20 more years with $123 million in initial investment.
Gran Tierra in 2019 acquired privately-operated Suroriente, which has since raised Gran Tierra’s gross oil production by 32 percent by this year, according to the multinational.
“The additional term of the contract allows long-term investment in infrastructure and work programs to enhance oil recovery efficiency in existing fields, and appraisal drilling to potentially prolong the life of the fields”, it said in a press release.
The initial capital funding in the deal is to be spent over three years from the extension’s effectivity date, to be determined after government approval of the contract, Gran Tierra said. The Calgary city-headquartered company expects to cover the investment from its internal cash flow.
“Since becoming the operator, Gran Tierra has been able to increase 100 percent gross oil production from an average of 6,203 barrels of oil per day (bopd) in February 2019 to an average of 8,167 bopd during first quarter 2023, an increase of 32 percent”, the release said.
Gran Tierra holds a 52-percent working interest in the Suroriente project and national oil company Ecopetrol owns the remaining 48 percent. Gran Tierra had a 15.83-percent interest before the 2019 acquisition.
Gran Tierra, whose common shares trade in Toronto, London and New York, said its Suroriente interest covered proved plus probable reserves of 6.1 million barrels of oil as of 2018.
It said the contract extension “further strengthens and consolidates Gran Tierra's position as a premier operator and the top contracted area holder in the Putumayo Basin and provides continuity to the Company's long-term business relationship with Ecopetrol”.
"The agreement represents a unique and significant opportunity in Colombia in terms of scale and upside potential while maintaining our long-term partnership with Ecopetrol in the prolific Putumayo Basin”, Gran Tierra president and chief executive Gary Guidry commented in Tuesday’s announcement.
Gran Tierra acquired the operatorship of Suroriente from Vetra Exploración y Producción Colombia S.A.S. (Vetra E&P). Besides Suroriente, the 2019 Colombian transaction initially valued at $104.2 million involved the sale to Gran Tierra of Vetra E&P’s 100-percent interest in Llanos-5 block, Vetra E&P’s 50-percent interest in Putumayo-8 block and Vetra Energía S.L.’s entire shares in its wholly-owned subsidiary Vetra Southeast S.L.U., according to a filing with the U.S. Securities and Exchange Commission.
Gran Tierra produced 31,700 barrels of oil per day on average in the first quarter of 2023.
“Production in the Suroriente Block averaged approximately 8,167 bopd gross (4,247 bopd WI) during the quarter, its second highest quarterly production average since second quarter 2015, despite no development wells being drilled since first quarter 2018”, it said in an operational update April 4.
Gran Tierra recorded its highest net income on record in 2022 at $139 million. Its output last year averaged 30,746 bopd, a 16-percent year-on-year increase driven by drillings in Colombia’s Acordionero and Costayaco fields. Gran Tierra collected $711.4 million from oil sales, up 50 percent from 2021, according to its results published February 21.
“Building on the successful development and exploration drilling in 2022, as previously forecast, Gran Tierra expects 2023 production of 32,000-34,000 bopd, a 4-11 percent increase from 2022”, it said in the full-year earnings report.
Gran Tierra traded 1.626 percent lower on the Toronto Stock Exchange, 1.11 percent lower on the New York Stock Exchange and flat on the London Stock Exchange in closing prices Tuesday.
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