Gran Tierra Energy's Q3 2025: Contradictions Emerge on Prepayment Terms, Ecuador Production, and Debt Strategy

Guidance:

• Expect to finish 2025 strong with an exit rate of 47,000–50,000 BOE/day.
• Forecasting the lower end of 2025 annual production guidance due to deferred barrels; recovery underway (current ~45,200 BOE/day).
• 2026 budget will reduce capital expenditures and prioritize free cash flow generation and deleveraging.
• New $150M prepayment facility (plus conditional $50M) and increased $75M Canadian facility to strengthen liquidity.

Business Commentary:

• Production Growth and Challenges:
• Gran Tierra Energy Inc. reported average production of 42,685 BOE per day for Q3 2025, up roughly 30% from the previous year.

• This growth was driven by the Canadian acquisition and exploration success in Ecuador. However, production was temporarily impacted by external events like landslides and pipeline repairs, leading to deferrals.

• Financial Strength and Liquidity Improvement:

• The company secured a new prepayment agreement, receiving an initial advance of $150 million with the potential for another $50 million, backed by Ecuadorian crude production.

• This agreement enhances the company's balance sheet and financial flexibility, with a 4-year structure at a competitive cost.

• Operational Success in Ecuador:

• In Ecuador, Gran Tierra achieved record production, exceeding 5,000 barrels of oil per day in August and 6,000 barrels per day in October.

• This success is attributed to the delivery of the Conejo A-1 and A-2 wells and the discovery of new oil reserves, positioning the company for future growth.

• Strong Cash Flow and Capital Investment:

• Gran Tierra generated $48 million in operating cash flow for Q3, a 39% increase from Q2.

• The capital expenditure was focused on high-return projects in Colombia, Ecuador, and Canada, resulting in numerous discoveries and facility expansions.

• Strategic Focus on Free Cash Flow and Deleveraging:

• The company is shifting its focus to generating free cash flow and deleveraging following the completion of exploration commitments.
• The 2026 budget will emphasize free cash flow generation, with potential asset sales to optimize the portfolio and reduce debt.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted operational strength and record and recovering production (e.g., 'production back above 45,200 BOE/d' and expected exit 47,000–50,000 BOE/d), generated $48M operating cash flow (up 39% vs Q2), and secured a $150M prepayment facility to strengthen the balance sheet.

Q&A:

• Question from David Round (Stifel, Nicolaus & Company, Incorporated, Research Division): First one, just on Suroriente, please. You seem to have seen and experienced a very sudden production response there. Can you just talk about what exactly has happened as that program has been going on over the course of this year? What of the new production is due to new wells? What is waterflood? And how sustainable is it?
  Response: Injection on the North pattern (≈5,000 bbls/day) plus key workovers (e.g., Cohembi-20 upsized) produced a rapid response in Darcy sand; results are sustainable and will be increased with the planned six additional wells.

• Question from David Round (Stifel, Nicolaus & Company, Incorporated, Research Division): On the prepayment facility, how does that work in terms of availability once the repayments start?
  Response: The $150M is drawn upfront and repaid linearly over four years, with each Ecuador lifting repaying a portion.

• Question from Josef Schachter (Schachter Energy Research Services Inc.): You have on Slide 26 that Ecuador potential could be between 11,000 and 19,000. Does that include the last two wells? What timeline were you using to get to that? Do you need to put waterflood in? Do you have enough water? Guidance of how Ecuador grows?
  Response: The 11k–19k range excludes the Conejo discovery; the plan assumes Basal Tena waterflood development, water supply is available, and development work will begin in 2026 after commitments are fulfilled.

• Question from Josef Schachter (Schachter Energy Research Services Inc.): On deleveraging levers: do you need $75–80 Brent, Ecuador >10k BOE/d, or noncore Canadian asset sales to reduce debt to target levels? How do you see the levers and timing to get there?
  Response: Primary plan is to delever via free cash flow from base operations (with major capex and exploration commitments behind us); portfolio optimization and asset sales remain incremental options.

• Question from Josef Schachter (Schachter Energy Research Services Inc.): Will you provide numeric targets (e.g., debt reduction milestones) so investors have guideposts?
  Response: A clear road map and budget with targets will be provided in mid-December.

Contradiction Point 1

Prepayment Facility Terms

It involves clarification on the terms and conditions of a financial agreement, which could impact investor understanding of the company's financial strategies and commitments.

How to expect next year's production given ongoing drilling and development? - David Round (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: The prepayment facility involves drawing the total $150 million initially, with subsequent repayments every time we lift oil in Ecuador. The repayments will be made linearly over the course of the 4-year facility, with amortization evenly spreading the principal repayment over the term. - Ryan Ellson(CFO)

Regarding the prepayment facility, can you describe how it might work or its estimated cost? Is it too early to discuss? - Anne Jean Milne (BofA Securities)

2025Q2: Commitment to sell oil for future prepayments, 4-year term, competitive terms, not a huge grind on cash flows. - Ryan Ellson(CFO)

Contradiction Point 2

Ecuador's Production Potential

It impacts expectations regarding the production capacity and growth potential of a significant asset, which could influence investor perceptions of the company's growth prospects.

Can Ecuador achieve its 19,000 BOE/day production potential, and if so, what are the timeline and requirements for waterflood implementation? - Josef Schachter (Schachter Energy Research Services Inc.)

2025Q3: The guidance provided does not include the Conejo discovery and is based on waterflooding the Basal Tena. We have a water source in the stacked pays and are working on field development plans with the Ecuadorian ministry. Now that all exploration commitments are fulfilled, we will focus on development, which will begin in 2026. - Gary Guidry(CEO)

Can you elaborate on production details? - David Matthew Round (Stifel)

2025Q2: The guidance does not include the Conejo discovery. It does include additional production from the Lower Shushufindi. So the point is by the end of 2025, we're going to be at about 20,000 barrels a day. And as we get into 2026, we expect to be at 25,000 barrels a day. - Gary Guidry(CEO)

Contradiction Point 3

Debt Reduction Strategy

It involves differing explanations of the company's strategy for debt reduction, which is a critical aspect of financial management and investor expectations.

What strategies are available to resolve the debt issue, and is debt-to-equity conversion a possibility in this decade? - Josef Schachter (Schachter Energy Research Services Inc.)

2025Q3: The company is focused on generating free cash flow starting from 2026. The exploration and facility expansion commitments from this year are largely behind us. optimizing the portfolio through asset sales may contribute incrementally to the process, but the primary focus remains on leveraging operational capabilities for debt reduction. - Ryan Ellson(CFO)

How do you balance cash preservation against share repurchases given market solvency concerns? - unidentified analyst (Santander Asset Management)

2025Q1: Most cash flow went to debt reduction, with a modest share buyback program. The company is dynamically adapting its capital allocation strategy in light of recent volatility. - Ryan Ellson(CFO)

Contradiction Point 4

Water Injection and Production Response at Suroriente

It involves differing explanations of the factors contributing to the production response at Suroriente, which is crucial for understanding the company's operational strategy and production expectations.

Can you explain the recent production increase at Suroriente, the factors behind it, and whether it is sustainable? - David Round (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: The production increase at Suroriente is attributed to two primary factors: the initiation of water injection and well upside through successful workovers. - Sebastien Morin(COO)

Regarding Acordionero and the water flood optimization program, what remains to be done and what are the expectations following these initial results? - Rob Mann (RBC Capital Markets)

2025Q1: Sebastien Morin: The program continues with daily surveillance and optimization of wells in each sector. Quick cycle times are used for workover rigs and slickline units. This approach aims to enhance well performance and maintain Acordionero's production. - Sebastien Morin(COO)

Contradiction Point 5

Production Growth Expectations

It involves changes in production growth expectations, which are crucial for investor projections and company performance evaluation.

What are your expectations for production numbers next year given ongoing drilling and development? - David Round (Stifel, Nicolaus & Company, Incorporated, Research Division)

2025Q3: We expect production to grow in 2025, driven by a strong drilling and development program that adds to the current production base. - Ryan Ellson(CFO)

Where will production be in 2026 and 2027, given strong reserves and active development programs? - Anne Milne (Bank of America)

2024Q4: We expect production to grow 5% to 10% annually, with a 293 million BOE 2P reserve base. - Ryan Ellson(CFO)