Member Info for tonynorstrom1

Https://www.investing.com/news/stock-market-news/earnings-call-gran-tierra-reports-growth-and-diversification-post-i3-energy-acquisition-93CH-3700996

"I3E publishing typos to the end." - not that it makes too much difference now - if you look at the end of the RNS - "Enquiries : Gran Tierra - Gary Guidry, Ryan Ellson " . i3e is not mentioned so you may want to address your editorial corrections to GTE.

"April 2024 high was 40p. Thing have moved on dramatically since then......."

I'm not saying it doesn't look promising but one thing that has not moved on from the 40p days is funding. David Hobbs promised "substantive news" on funding 6 months back which he has so far failed to deliver - just to keep it real!

A strangely worded RNS given the circumstances. The suspension part was expected around now plus or minus a few days, but "temporarily suspended pending an announcement" ?

Thoughts anyone ?

VernetLes,

What is the basis of you thinking Europa is going to up its stake in Antler ?

"Question 2, the allocation is limited to what other parties do. If people wanted all cash, they would be required to take their pro rata amount of GTE shares. Both the cash component and share component are fixed pools. If people wanted more shares, they would leave more cash in the pool for others to take."

This is the response from GTE clarifying how the mix and match will work - basically as stated in the scheme of arrangement and as suggested by "mix and match". For anyone hoping like me that GTE might provide more cash to fund the "all cash" option - they are not.

This was the response I got from GTE questioning the high Capex spend and apparent disconnect to production grow:

"Approximately 40-45% of the Company’s 2024 capital program is expected to be allocated to high impact near-field exploration activities and the drilling of 6 to 9 exploration wells in Colombia and Ecuador in the Base Case and High Case. Gran Tierra’s 2024 exploration drilling is planned to follow up on the encouraging results from the Company’s 2022 exploration program."

We associate very little risked production volume if any to exploration wells. As such this is where you are seeing the disconnect between the total capital program along with the production growth. The associated benefit of exploration success gets reflected in that of our 1P, 2P and 3P reserve growth, of which we are the leading E&P company in Colombia year-over-year.

In addition, we are a full cycle company. Meaning we also pay upfront facilities costs and civil costs for full field development. We are currently undertaking this for the Cohembi field which we were recently granted a 20-year extension. This is a key pillar of our production growth in Colombia.

Half cycle, and in a low commodity environment we guide individuals to maintenance capital of around $100 million to maintain current production levels.

Just placed my election for all cash - it will be interesting to see what if any additional cash investors will get - as I've said previously - I cannot see how it will work.

I don't see how the mix and match will work if its strictly mix and match - in short GTE shares were $8.66 when the scheme of arrangement was published - they're now about $6.30 - so you can elect to go all cash and get paid $8.66 for your GTE share shares or opt for more shares but pay $8.66 per share when the're worth only $6.30. Who on earth is going to pay $8.66 for GTE shares that you can currently buy on the market for $6.30 ?

Good news is that if your with Hargreaves Lansdown - you have until midday Monday to decide. The only sensible options in my opinion is to opt for all cash although I cannot see how your going to get anymore cash or sell out before i3e stop trading. I think the current SP (12.8p) reflects what the market think would will end up getting if you take the default option and sell your GTE shares at the current SP (about $6.30)

JMort,

I should add though that FCF is after the deduction of capex and the below is taken from their 2024 guidance so they have the option of cutting capex in order to fund interest payments. Another point that would need investigating is that the enormous Capex spend only increases production by 4% - I would want to know why.

"2024 Capital Expenditure Budget of $210-240 Million and Expected 2024 Cash Flow1 of $280-320 Million in Base Case"

"Forecast 2024 Production of 32,000-35,000 BOPD, Increases of 4% from 2023, 11% from 2022 and 28% from 2021"

The message I got from HL is that the mix and max option closes on the 21st. I'm clarifying whether it is close of business on monday the 21st or close of business today.

Does anyone happen to know ?

Debt could be a concern - best I can tell - they will have about $730m in long term debt including the recent notes with an interest rate of 9.5%. So they will have interest payments of around $70m a year.

If you go to the GTE presentation on the i3e website - take a look at slide 12. They run 3 cashflow projections based on $70, $80 & $90 (Brent). At $70 they guide to $20m to $90m of FCF. At $80 they guide to $40 to $110. If you take the bottom number from each - the guidance is $20m to $40m i.e. it doesn't cover the interest payments. It should be noted that brent is currently about $74.50.

This excludes the FCF from i3e, however to comment on the post above that says the debt will slowly be paid by the i3e cash cow - that's wishful thinking. If you go to the i3e presentation on the deal - they provide 2024 EBITDA guidance for i3e and GTE - Majid has taken the midpoint guidance for GTE (@ $80 brent) which gives a projection of $400m to $460m whereas i3e's number is around $50 -$55m based on strip and also WTI which is about $4 lower than brent. GTE generates massively more cash than i3e - why- because they produces around 33,000 bopd (nearly all oil) whereas if you convert i3e's 18,000 to 19,000 boepd to equivalent oil based on revenue, i3e would produce around 6500 bopd.

So in summary - it all depends on the Oil price. GTE is cheap largely because its debt pile is quite chunky.

JMort,

Your calculations look approximately correct - however, there are a couple of things you are not taking into account:

1) Exchange rate - I've seen on other US listed shares that i've held with HL in the past - exchange rates have not been particularly competitive which have eaten into gains

2) Dealing costs / buy sell spreads - the buy /sell spreads are typically far higher on foreign shares than UK AIM or FTSE listed shares which again eat into your gains.

In short - the break even price you have calculated is almost certainly higher than what you have calculated based on the the assumptions made.

Jun-Man,

I had obviously overlooked page 53 and the price fix - for some reason I thought the 1 share of GTE per 207 shares of i3e was fixed and the SP for the mix and match facility was floating. I realised that this was not the case when I saw the HL communication.

However, the all share option is currently worth about 10.5p whereas the all cash option is worth about 13.92p as you state. Realistically - who is going to go for the shares - I would suggest not many so it begs the question where the cash will come from to pay out the all cash option.

So the all cash option may not be all that logical as it looks to me you'll end up with the 10.43 per share and most of the GTE shares (1 per 207 shares of i3e)

The most logical option maybe to sell now which according to the price on HL is close to the current value of the offer net of dealing costs.

This is what the Hargreaves Lansdown site says on the mix and match option:

"You can elect to receive approximately a further 3.23178744p in cash per I3 Energy share instead of the Gran Tierra Energy Inc shares. This is in addition to the 10.43p per share."

This does appear to be a significant premium over the current SP of GTE and does not appear to be consistent with the scheme of arrangement. If Hargreaves have interpreted the scheme of arrangement correctly then the cash offer is worth over 30% more than the all share option (currently). No one is going to take the shares which means there will be little to no cash to pay out the all cash option.

Sharesahoy,

I think GTE shares might do quite well also - the shares appear cheap and I think the a acquisition of I3E increases the appeal.

I will look at the forms sent by my broker again (HL) to make sure I’m not missing something - but my initial reaction is that what you are proposing does not make sense. If you like GTE - take the cash and the 1 share for every 207 shares of I3E and then use the cash to buy GTE on the open market - as prices stand now you would end up with more shares of GTE. That could change depending on how GTE shares change between now and when the deal completes.

If you are that confident in GTE you could even sell I3E now and buy GTE and you are likely to end up with more shares than the mix and match option.

Would recommend you look at it again and try to make the best decision.

Continued:

The key point is that by virtue of their exceptionally advantageous locations, Pantheon Resources’ assets should be more valuable on a dollars-per-barrel basis than those acquired by Oil Search’s acquisition of Pikka/Horseshoe in 2017, other things being equal.

We believe that Oil Search’s acquisition of Pikka/Horseshoe provides the best valuation benchmark for the assets of Pantheon Resources, while recognizing that on a dollar-per-barrel basis, other thing being equal, Pantheon Resources assets should be more valuable to the extent that they are closer to both FID and core infrastructure.

The Pikka field was discovered by Armstrong Energy and Repsol with the drilling of Qugruk 3 discovery well in 2013. Armstrong and Repsol reported the Horseshoe discovery 32km south of Pikka in March 2017. The Horseshoe-1 and Horseshoe-1A wells were drilled between 2016 and 2017. Combined 1.2 billion barrels of oil, and potentially more, are expected to be recovered from the Pikka and Horseshoe units. ConocoPhillips announced the discovery of the Willow oilfield on 13 January 2017 within the Greater Mooses Tooth unit development. The Willow discovery wells, Tinmiaq 2 and 6, were drilled in early 2016 and encountered 72 feet and 42 feet of net pay, respectively, in the Brookian Nanushuk. ConocoPhillips expects to produce between 450 million and 800 million barrels of oil from Willow. The key point is to appreciate that the Brookian sequence was developed initially so far away from the Dalton Highway and the Trans Alaska Pipeline System because the well that unlocked the prospectivity of the Brookian sequence was drilled in the Greater Mooses Tooth unit development far away from that pipeline and highway (see Exhibit 9). There has never been an a priori geological rationale that would suggest that the resources of Pantheon Resources would not be equally as prospective as the resources that are significantly more westward. On the other hand, the resources of Pantheon Resources on an equivalent dollar-for-barrel basis should be expected to be much more valuable than those in the Pikka, Horseshoe and Greater Mooses Tooth (Willow) unit developments, due to the tremendously advantageous location of Pantheon Resources’ assets relative to the Trans Alaska Pipeline System and the Dalton Highway. As a final point to appreciate why the assets of Pantheon Resources were not explored, appraised and developed earlier given their proximity to infrastructure, it is essential to appreciate that within the Brookian sequence explorationists have been targeting stratigraphic targets that are essentially invisible without 3D seismic. From 2012 to 2015, Great Bear Petroleum, before being acquired by Pantheon Resources, acquired 1,043 square miles of proprietary 3D seismic data at a cost of approximately $80m which illuminated the subsurface within Pantheon Resources’ licence areas....

Continued:

M&A Value Reference – 2017 Pikka/Horseshoe Relevant M&A metric On 1 November 2017, Oil Search announced its entry into Alaska via a two-staged acquisition of Armstrong Energy’s 51% interest in the Pikka-Horseshoe discovery. We believe this is the most relevant acquisition to inform potential valuation metrics for Pantheon Resources.

Considerations Relating to Pikka/Horseshoe Valuation Reference source: GEOExpro Importantly, when Oil Search acquired its interest in the Pikka/Horseshoe fields those resources were at the appraisal stage prior to a final investment decision (“FID”). FID for the Phase 1 of the development of the assets acquired by Oil Search was announced on 16 August 2022 (source: Repsol). This is relevant because the underlying value of Pantheon Resources assets will be greater on a dollar-per-barrel basis, relative to those acquired by Oil Search, to the extent that we believe Pantheon Resources’ assets are closer to FID. Critically, Pikka/Horseshoe’s location is circa 70 miles west of the Trans-Alaska Pipeline System and the Dalton Highway, creating highly significant access challenges. That is relevant because it would imply the assets would be more valuable on a dollar-per-barrel basis if they benefited from Pantheon Resources’ advantageous location. For perspective, gravel roads built in the 1980s by ARCO are now the private property of ConocoPhillips (via the acquisition of ARCO), the operator of the Kuparuk unit (to the East of Pikka/Horseshoe). Santos merged with Oil Search on 1 December 2021. ConocoPhillips refused Santos’ $60 million offer for road access on the grounds that the offer was too low and failed to reflect that ConocoPhillips estimate that the road system has a replacement cost value of $1 billion (source: Alaska Business Magazine). This provides perspective to appreciate the significance of the benefit of the location of Pantheon Resources’ assets. Likewise, oil from Pikka/Horseshoe will be produced through the existing pipeline system for Kuparuk/Alpine, which is also private property operated by ConocoPhillips. Pipeline access will therefore be subject to tariffs. Note the “Pump Station 1” in Exhibit 7 is the beginning of the Trans Alaska Pipeline System. In comparison to Pikka/Horseshoe, Pantheon Resources’ assets have direct access to the Trans Alaska Pipeline System and the Dalton Highway. Pantheon Resources’ developments are not dependent on third-party access rights, which will improve their project economics and allow for expedited project developments.

Continued:

Strategic and Economic Considerations: The Megrez-1 well sits within the Ahpun development envelope and hence would be tied into the same production facilities – propelling value creation on a dollar-per-barrel basis upwards through efficient project development. The stark reality is that hostile acquisition risk is, in our view, something for Pantheon Resources’ shareholders to consider due to the value that stands to be unlocked via project funding/development vs. the current share price. We see success at Ahpun as means of strengthening the strategic hand of the company in that context. How can Pantheon Resources optimally maximise shareholder value through a resource development plan that brings forward the time value of money through rapid self-funded resource development? – A tremendous challenge given the commensurately tremendous scale of Pantheon Resources’ asset base. Ahpun East is a conventional, high-quality exploration target. By implication, the value of every barrel of oil discovered at Ahpun East will have a higher economic value than would be the case for a tight oil resource; specifically, under a success case at Ahpun East capex and opex per barrel are expected to be very low relative to comparable onshore assets in the USA and cash flow per barrel will be commensurately higher relative to comparable onshore assets in the USA. We estimate that under a success case at Ahpun East, based on Pantheon Resources’ estimated type curves and well costs, Ahpun East would have a resource value ranging from $4.42/b (based on a $60/b benchmark international oil price assumption and the full application of all state and federal taxes) to $9.42/b (based on a $80/b benchmark international oil price assumption before state and federal income tax). Key point: across a breadth of assumptions Ahpun East has potential to create very significant economic value for the shareholders of Pantheon Resources. We believe it is critical to appreciate that under a success case Ahpun East, based on the current best-estimate assumptions, will necessarily have a significantly lower breakeven oil price than the marginal cost of production in the US – the supplier that has dominated production growth globally for almost two decades.

Its a 20 page report but here's some highlights:

Comprehensive Update Note: Pantheon Resources anticipates commencing drilling operations at Megrez-1 in early November, with drilling operations expected to take approximately one month to reach total depth. We believe that Megrez-1 is by far the most exciting well ever drilled by Pantheon Resources due to our high confidence that the reservoir of the targeted Ahpun East Topsets (609 million barrels of prospective recoverable best estimate resources) will be of an exceptionally high quality – success would unlock correspondingly highly prolific and economic oil wells with extremely rapid payouts (4-5 months, based on our estimates). Independently of the result at Megrez-1, Pantheon Resources is progressing towards the commercialization of 1.56 billion barrels of discovered liquid recoverable resource (2C; independently certified; 3.28 bn boe inclusive of natural gas) – setting the scene for high-impact operational and financial newsflow into 2025 and beyond.

M&A Reference: In the section entitled “M&A Value Reference – 2017 Pikka/Horseshoe” we elaborate why we believe that i) Oil Search’s acquisition of Pikka/Horseshoe is the best valuation reference to inform the M&A valuation parameters for Pantheon Resources, and ii) the assets of Pantheon Resources should have a higher dollar-per-barrel valuation.

Significant Upside Potential: Our “Summary Page” highlights that the company is trading at $0.12/barrel (2C), while our funded success-case valuations range from $3.18-$9.42/barrel (aftertax; NPV10), depending on the asset, scenario and oil price assumption – compelling upside.

Highly Compelling Geology: We believe that the Megrez-1 well is by far the most exciting well ever drilled by Pantheon Resources. The Megrez-1 exploration well is targeting three stacked topsets, collectively referred to as Ahpun East (Ahpun Eastern Topsets). Under a success case, the best estimate of recoverable oil from the topsets is 609 million barrels (and 3.3 tcf of associated natural gas; source: Patheon Resources). Pantheon Resources has estimated that the chance of success at Ahpun East is 69%. The company has also stated that it expects the porosities at Ahpun East to range from 20-25% with permeabilities of 5-35 mD – exceptionally high reservoir qualities are anticipated. Sourced from the regionally ubiquitous and world class HRZ source rock, the reservoirs are expected to be filled to spill with hydrocarbons, specifically, with light oil. We believe that there are only two key geological risks i) a lack of trap effectiveness would allow oil to seep through the targets, albeit that risk will likely be specific to each horizon and is relatively well controlled in our opinion, and ii) reservoir quality may be lower than anticipated, albeit we have confidence that the reservoirs will be of a very high quality in an absolute sense (even if slightly less productive than expected)......