Morningstar | Gran Tierra Reports Mediocre 2Q; Stock Remains in 3-Star Territory
No-moat Gran Tierra Energy reported second-quarter production volumes of 35.4 thousand barrels of oil equivalent per day, or mboe/d, a 17% increase from the year-ago period and a 3% increase sequentially. Even with the sale of Brazilian assets in early 2017, production increased on the back of heightened drilling activity in Colombia. Second-quarter production was in line with our expectations, which we lowered after the company's dismal 2017 results. June production averaged 36.4 mboe/d, which is in line with our third-quarter forecasts. The company expects to meet its full-year 2018 production target between 36.5 and 38.5 mboe/d, which we think remains a tad optimistic. Management also expects 2018 exit production to exceed 40 mboe/d, which also looks optimistic to us.We are maintaining our $2.75 (CAD 3.50) fair value estimate and no-moat rating for Gran Tierra Energy. The stock trades near $3.50 (CAD 4.50) per share, a significant premium to our fair value estimate. Unless new discoveries are made, we expect the current proven and probable crude reserves in Colombia will be depleted in approximately a decade. The PetroLatina acquisition does not afford the company much extended longevity in resource production; rather, it provides increases in near-term production levels. We believe exploration activities could drive growth in a better oil price environment. However, these activities are not economical, with crude prices entrenched at current levels, so the timing of additional discoveries is highly uncertain.
Gran Tierra Energy, together with its subsidiaries, is a company focused on oil and gas exploration and production in Colombia. Co. is primarily engaged in the exploration and production of oil and natural gas. Co. has one reportable segment based on geographic organization, Colombia. As of Dec 31 2017, Co. had total estimated proved reserves of 59.3 million barrels of oil and natural gas equivalent, consisting of 58.9 million barrels of oil and 2.1 million cubic feet of natural gas.
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