EUR 850.00 For Business Accounts Only

Morningstar | Gran Tierra Enters Ecuador

Gran Tierra Energy is an independent energy company engaged in the acquisition, exploration, development, and production of oil and gas properties in Colombia. Gran Tierra recently changed its strategic approach, which is aimed at expanding and diversifying its portfolio of exploration, development, and production opportunities in Colombia (an area that remains relatively unexplored), while divesting its other South American assets.Like peers, Gran Tierra faces an uphill struggle coping with lower oil prices. The company relies on discoveries to increase its future resource potential. However, depressed crude prices have forced capital spending cuts, stalling exploration activities that could lead to future resource discoveries in Colombia. As a result, the company’s average proven and probable reserve replacement ratio averaged 165% (excluding the impact of divestitures) over the past three years, indicating that the company is replacing production with new reserves. But the current replacement rate is still not enough. The acquisition of PetroLatina adds approximately 53 thousand barrels of oil equivalent per day of additional reserves. However, it is expected to only provide additional production over the current longevity of Gran Tierra's current reserves and not materially extend the company's production life. Unless new discoveries are made, we expect the current proven and probable crude reserves in Colombia will be depleted within the next decade.Gran Tierra maintains a strong balance sheet, and its exploration activities could drive significant growth in a better oil price environment. However, these projects aren’t economic with crude prices entrenched at current levels, so the timing of any resource discovery is highly uncertain. Accordingly, we believe the market is putting too much emphasis on the company's resource potential, and the stock looks fairly valued.