Gran Tierra Energy's Q3 2025 Earnings Call: Contradictions Emerge on Ecuador Production Growth, Debt Strategy, and Capital Allocation Priorities

Guidance:

• Expect to finish 2025 at the lower end of the annual production guidance due to deferred barrels; current production averaging ~45,200 BOE/d and expected exit rate 47,000–50,000 BOE/d.
• 2026 budget to reduce capital expenditures and prioritize free cash flow generation and deleveraging.
• New Ecuador prepayment: $150M initial (plus $50M contingent), 4-year SOFR+3.8% with 3-month principal grace; Canadian facility increased to $75M extended to Oct 2027.
• Ecuador development (waterflood-based) to commence in 2026.

Business Commentary:

• Production Growth and Challenges:
• Gran Tierra reported an average production of 42,685 BOE per day in Q3 2025, up 30% year-on-year.
• The increase was primarily due to the Canadian acquisition and successful exploration in Ecuador.

• Temporarily production was impacted by externally driven events like landslides and pipeline repairs, resulting in a lower end of production guidance.

• Financial Strengthening:

• Gran Tierra secured a new prepayment agreement worth $150 million, with the potential for an additional $50 million.

• The agreement improved sales prices compared to previous crude oil sales contracts, fortifying the company's balance sheet and providing financial flexibility.

• Operational Success in Ecuador:

• The company achieved record production in Ecuador, surpassing 5,000 barrels of oil per day in August and 6,000 barrels in early October.

• Success was driven by the delivery of the Conejo A-1 well, which discovered significant oil reserves, and the ongoing waterflood project at Cohembi.

• Canadian Expansion and Execution:

• Gran Tierra drilled and brought two additional Lower Montney wells on stream in Canada, contributing to the overall production growth.
• The Canadian expansion aligned with the company's strategy to increase production and optimize operations from high-potential assets.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted operating cash flow of $48M (up 39% sequentially), production recovery to ~45,200 BOE/d and expected 47,000–50,000 BOE/d exit, described multiple exploration successes and discoveries in Ecuador, and announced a $150M prepayment facility improving liquidity—signals of operational momentum and balance-sheet strengthening.

Q&A:

• Question from David Round (Stifel, Nicolaus & Company, Incorporated, Research Division): On Suroriente you saw a sudden positive production response; what exactly happened, how much is from new wells vs waterflood, and how sustainable is it?
  Response: North‑pattern water injection (~5,000 BPD) plus key upsized workovers (e.g., Cohembi‑20 from ~500 to >2,000 BPD) drove the rapid response; high‑permeability (Darcy) sands yield quick, sustainable uplift.

• Question from David Round (Stifel, Nicolaus & Company, Incorporated, Research Division): Going into next year with continued drilling, should we expect production to be higher than the current level?
  Response: Yes—adding six additional wells in the field is expected to incrementally increase production above current levels.

• Question from David Round (Stifel, Nicolaus & Company, Incorporated, Research Division): On the prepayment facility, how does availability and repayment work once repayments start?
  Response: The $150M is drawn up front and repaid linearly over four years (SOFR+3.8%) with a 3‑month principal grace; repayments tied to each Ecuador lifting; additional $50M contingent on acquisition and reaching 10,000 BOE/d.

• Question from Josef Schachter (Schachter Energy Research Services Inc.): Slide 26 shows Ecuador potential of 11,000–19,000 BPD—does that include the last two wells; timeline to reach that; do you need waterflood and is water available?
  Response: The 11k–19k range does NOT include the Conejo discovery; the plan is Basal Tena waterflood using an existing water source; field development work will begin in 2026.

• Question from Josef Schachter (Schachter Energy Research Services Inc.): On deleveraging, what levers (Brent price, Ecuador production, asset sales) get you to target leverage (e.g., 1x) and timing before decade end?
  Response: Primary plan is to delever via free cash flow from operations (2026 focus); portfolio optimization and asset sales are incremental levers—no specific price or volume thresholds provided.

• Question from Josef Schachter (Schachter Energy Research Services Inc.): Will you provide concrete numeric targets or milestones (e.g., $100M–$150M figures) so investors can track progress?
  Response: Yes—management said the mid‑December budget will present a clear roadmap and targets for cash flow and deleveraging.

Contradiction Point 1

Ecuador Production Growth and Expectations

It involves differing expectations and timelines for production growth in Ecuador, which impacts investment decisions and future revenue projections.

How should we think about next year's production numbers? - [David Round](Stifel)

2025Q3: The company expects to continue increasing production into the development phase in Ecuador. With the addition of 6 more wells, they anticipate further production growth. - [Sebastien Morin](COO)

What factors are needed to reach 50,000 units? What would be required to achieve the 53,000 upper end of the forecast? - [Josef Schachter](SER)

2025Q2: The company has production capacity to reach the upper end of the guidance. Ramp-ups are expected, and successful results in areas like Cohembi, Costayaco, and Ecuadorian waterflooding will contribute to this. - [Gary Guidry](CEO)

Contradiction Point 2

Debt Reduction Strategy

It highlights differing strategies and timelines for debt reduction, which affects financial stability and investor confidence.

What are the key strategies to reduce debt to 1x target? - [Josef Schachter](SER)

2025Q3: The company is focused on generating free cash flow from 2026 onwards. They will optimize the portfolio through asset sales, but the primary focus is on leveraging base operations for deleveraging. - [Ryan Ellson](CFO)

Can you explain the project's progress timeline and how it proceeds after signing an MOU or production sharing agreement by year-end? - [Garrett Fellows](J.H. Lane Partners)

2025Q2: We believe that the net debt, including the acquisition of the upper Zakum field, will be approximately $1.1 billion at year-end 2022 based on this year's budget and plan, and drilled for 12 months. - [Ryan Ellson](CFO)

Contradiction Point 3

Ecuador Production Growth and Timing

It involves differing expectations and timelines for production growth in Ecuador, which is a key area of focus for the company's strategy.

What are your production expectations for next year? - [David Round](Stifel)

2025Q3: The company expects to continue increasing production into the development phase in Ecuador. With the addition of 6 more wells, they anticipate further production growth. - [Sebastien Morin](COO)

Given current production of 48,400 BOE/day, how will you achieve the lower end of your 47-53 BOE/day guidance range, and what are potential upside scenarios? - [Josef Schachter](SERSI)

2025Q1: It primarily includes acquisitions, our water flood expansion, particularly at Acordionero, and our exploration success in Ecuador. We expect to achieve the low end of our guidance range. - [Gary Guidry](CEO)

Contradiction Point 4

Capital Allocation and Share Buybacks

It involves differing priorities and strategies regarding capital allocation and share buybacks, which are crucial for shareholders and investors.

What are the key steps to reduce debt to 1x target? - [Josef Schachter](SER)

2025Q3: The company is focused on generating free cash flow from 2026 onwards. They will optimize the portfolio through asset sales, but the primary focus is on leveraging base operations for deleveraging. - [Ryan Ellson](CFO)

How do you balance preserving cash and share repurchases given stock performance and market concerns about solvency? - [Unidentified Analyst](Santander Asset Management)

2025Q1: Focus remains on reducing gross debt, with a modest share buyback program. Dynamic capital allocation considers recent market volatility. - [Ryan Ellson](CFO)

Contradiction Point 5

Debt Reduction and Shareholder Returns

It involves changes in the company's strategy for managing debt and returning capital to shareholders, which directly impacts financial health and investor relations.

What are the levers for reducing debt to 1x target? - [Josef Schachter](SER)

2025Q3: The company is focused on generating free cash flow from 2026 onwards. They will optimize the portfolio through asset sales, but the primary focus is on leveraging base operations for deleveraging. - [Ryan Ellson](CFO)

With free cash flow exceeding the debt target, how will you balance debt reduction and share repurchases? - [Josef Schachter](SER)

2024Q4: We plan to allocate 50% of additional free cash flow to debt reduction and 50% to share repurchases. - [Ryan Ellson](CFO)