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Gran Tierra Energy, Inc. (NYSEMKT:GTE)

Q4 2009 Earnings Call Transcript

February 26, 2010 10:00 am ET

Executives

Dana Coffield – President and CEO

Martin Eden – CFO

Analysts

Neal Dingmann – Wunderlich Securities

Cristina Lopez – Macquarie

Jamie Somerville – Genuity Capital Markets

David Dudlyke – Thomas Weisel

Alan Knowles – Haywood Securities

Alexander Klein – Dundee Securities

Ian Macqueen – Verdant Partners

Sergio Torres – JP Morgan

Operator

Good morning, ladies and gentlemen and welcome to the Gran Tierra Energy results conference call for the three and 12 months ended December 31, 2009. My name is Fiona and I will be your coordinator for today. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session for securities, analysts and institutions. Instructions will be provided at that time for you to queue up for questions. (Operator Instructions)

I would like to remind everyone that this conference call is being webcast and recorded today, Friday, February 26, 2009, at 10 a.m. Eastern Standard Time. Please be advised that in addition to historical information, certain comments made during this conference call, particularly those anticipating future financial performance, business prospects and overall operating strategies constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may be identified by words such as anticipate, believe, estimate, expect, intend, predict and hope or similar expressions.

Such statements, which include estimates or forward-looking predictions and financial information or results are based on management's current expectations and are subject to any number of factors and uncertainties which could cause actual results to differ materially from those described in the forward-looking statements.

Listeners are urged to careful review and consider the various disclosures made by Gran Tierra Energy in its reports filed with the Securities and Exchange Commission, including those risks set forth in Gran Tierra Energy's annual report on Form 10-K for the year ended December 31, 2009, filed with Securities and Exchange Commission on February 26, 2009.

If one or more of these risks or uncertainties materialize or if the underlying assumptions prove incorrect Gran Tierra Energy's actual results may vary materially from those expected or projected. Listeners are urged not to place undue reliance on forward-looking statements made in today's conference call. Gran Tierra Energy assumes no obligation to update these forward-looking statements other than as may be required by applicable law or regulations.

Today's conference call also includes the non-GAAP measure funds flow from operations. The press release determined by Gran Tierra Energy includes a reconciliation of this non-GAAP item in the company's GAAP net income/loss as well as information about why management believes this measure is useful in evaluating the company's performance.

All dollar amounts mentioned in today's conference call are in U.S. dollars unless otherwise stated. Finally, these earnings call – this earnings call is the property of Gran Tierra Energy, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy.

I will now like to turn the conference over to Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy. Mr. Coffield, please go ahead.

Dana Coffield

Thank you, Fiona. Good morning and thank you for joining us for Gran Tierra Energy's fourth quarter and full year 2009 results conference call. With me today is Martin Eden, our Chief Financial Officer.

Last time, we disseminated a press release that included detailed financial information about the quarter and full year 2009. In addition, Gran Tierra Energy's 2009 report on Form 10-K for the three and 12 months ending December 31, 2009 will be filed on EDGAR either later today or on Monday and will be available on our website at www.grantierra.com.

I'm going to begin today by talking about some of the key developments for the quarter and year. Martin will then take a few minutes to discuss key aspects of this quarter and year's financial results. I will then return with an operational overview and outlook followed by closing remarks.

Gran Tierra Energy achieved record annual production in 2009 of 12,684 barrels of oil per day net after royalty representing a 248% increase from the average 2008 production. We also experienced positive result growth to a record 22.1 million barrels of crude oil reserves, net after royalty calculated in accordance with SEC requirements.

We replaced 163% of oil produced in 2009 after producing 4.6 million barrels of oil. Funds flow from operation of $159.5 million contributed to a cash and cash equivalence balance of $270.8 million. Operationally, 2009 was extremely busy year.

In Columbia, we continue development of the Costayaco Field in the Chaza Block by drilling four development wells, three of which were completed as producers. As previously noted, one of the wells C7 did not flow hydrocarbons. A significant milestone was obtained ahead of schedule in August of 2009 when Costayaco Field obtained plateau production of 19,000 barrels of oil per day gross or approximately 13,000 barrels a day of oil net after royalty.

Two exploration wells were drill in Columbia in 2009, one in Llaanos basin and one in the Putumayo basin but unfortunately both were dry. In Argentina, along with completing a variety of successful workovers on existing producing wells, we tested the discovery well in the Valle Morado natural gas field that was discovered in 1990s. They subsequently set in the year 2000.

This well was tested approximately 7 million standard QPF gas per day with approximately 3,500 barrels of water per day. We believe we have identified the source of the water. We will be undertaking operations this year to try to seal off the water zone and then really side track well to top of the structure which was missed by the discovery well.

In Peru, we successfully completed deal worth of both social and environmental impact assessments for blocks 122 and 128. In addition, a field development feasibility study and various zoological studies were undertaken in preparation for drilling in 2010. We currently expect the environmental premise will be issued in the first quarter of this year.

In addition to the 15% increase in crude oil reserves to the record 2.1 [ph] billion barrels I previously mentioned, Gran Tierra Energy booked probable reserves the 5.8 million barrels of oil and possible reserves of 11.5 million barrels of oil at year end 2009, again, calculated in accordance with SEC requirements.

Now, the result, the work undertaken in Valle Morado Field in 2009, we also reported record levels of SEC compliance net after royalty, gas reserves as well including proved gas reserves of 1.9 billion cubic feet, probable gas reserves of 1.7 billion cubic feet and possible gas reserves of 34.5 billion cubic feet.

Finally, we strengthened our management team, our business development team and our exploration team with additions of oil and gas professionals with experience around the world. We also opened a business development office in Rio de Janeiro in Brazil, also further broaden our search for material new venture opportunities.

Overall, this is a strong year financially and operationally as Gran Tierra Energy successfully developed its reserves, grew its production and undertook a variety of technical and commercial initiatives in preparation for 2010 exploration program.

Let me now turn the call over to Martin Eden to discuss the financial results.

Martin Eden

Thanks, Dana, and good morning everybody. Financially, 2009 was a very strong year for Gran Tierra Energy. Gran Tierra Energy obtained another record quarterly production level in the fourth quarter of 2009, averaging 14,714 barrels of oil per day. Net after royalty comprised of 13,836 barrels of oil per day in Columbia and 878 barrels of oil per day in Argentina.

This is a 14% increase compared to the third quarter of 2009. Annual production in 2009 averaged a record 12,684 barrels of oil per day, net after royalty a 248% increase over 2008 production, primarily due to the full year impact of the acquisition of Solana Resources and continued development of the Costayaco field in Columbia.

Revenue and interest income in 2009 was $263.7 million, a 131% increase from 2008. The impacts of increased production was partially offset by the effects of low oil prices. The average price received per barrel of oil decreased by 33% to $56.73 per barrel for the year ended December 31, 2009 from $84.78 per barrel from the same period in 2008.

Operating expenses for the year were $40.8 million and on a per barrel basis declined 59% to $8.81 compared to $19.2 million or $14.44 per barrel in 2008. The decline in operating expenses is largely due to increased production which reduced fixed operating cost per barrel.

General and administrative costs were $28.8 million in 2009 compared to $18.6 million in 2008. But on a per barrel basis, cost improved to $6.22 compared to $13.97 barrel in 2008. This improvement is a function of higher production which was partially offset by increased employer related cost related to our expansion of our operations. Depletion – sorry– depletion depreciation and accretion expense increased to $135.9 million or $29.35 per barrel in 2009 compared to $25.7 million or $19.34 per barrel in 2008.

Increased production levels along with amortization expense of $102.5 million related to the fair value of property, plant and equipment related to Solana accounted for the increase. The net impact of these practice resulted in net income of $13.9 million in 2009 compared with net income of $23.5 million in 2008.

Funds flow from operations for the year was a $159.5 million compared to $49.4 million in 2008. Funds flow from operations is a non-GAAP measure based on GAAP net income or loss, adjusted for depletion, depreciation and accretion, deferred taxes, stock-based compensation, unrealized gain or loss on financial instruments and unrealized foreign exchange gains or losses. A reconciliation to net income is included in our fourth quarter and year-end 2009 earnings press release.

Our cash and cash equivalents increased by $94 million to a record $270.8 million due to the funds flow from operations of $159.5 million, changes in operating working capital of $6 million and financing activities of $4.9 million, which more than offset cash outflows for investing activities of $76.4 million. Gran Tierra continues to debt free.

In summary, Gran Tierra Energy remain financially strong with the expectation of our 2010 exploration and development capital program of $195 million will be fully funded from internally generated cash flow of current oil prices and production levels.

That concludes my comments. I would now like to turn the call back to Dana for an update on Gran Tierra Energy’s 2010 capital plan and outlook.

Dana Coffield

Thank you, Martin. Looking at 2010 Gran Tierra Energy will be undertaking its largest capital program in company history, which is expected to be funded with internally generated cash flow at current price levels in oil price.

We anticipate spending $195 million on exploration and development opportunities, allocating a $129 million to Columbia, $41 million to Peru and $23 million to Argentina, with reminder going to business development opportunities in Brazil.

The program is focused on oil exploration in Columbia and Peru, and the evaluation of a shut-in [ph] gas field in Argentina. Our Columbia program includes drilling seven exploration wells in Putumayo basin, along with the seismic acquisition program on six blocks in preparation for additional exploration drilling in 2011.

We also intend to spend $47 million in Columbia on development activities including the drilling of one water injector, crude gathering lines, storage batteries and Costayaco electrification and field support facilities.

Argentina’s work program consists of a re-enter and sidetrack of Valle Morado discovery well, which was previously suspended in 2000 after initially pricing $21 million standard cubic feet per day.

Gas sales prices in Argentina have been steadily rising over the last year with recent sales contracts reported to be approximately $5 per million Btu. We expect to initiate sales of $5 to $6 million standard cubic feet of gas per day shortly at $2.90 per million Btu.

These sales will be suspended in the third quarter, when well operations are initiated, once the true productive capacity of the field is determine, we intend to negotiate a new gas sales contract. Infrastructure is in place at Valle Morado field to handle 30 million standard cubic feet of gas per day.

In Peru upon approval of environmental permits of 554 kilometer 2D seismic acquisition survey will begin in the second quarter. We anticipate drilling up to four stratographic test wells on four prospects, two on each block commencing late in the second quarter.

Average 2010 production guidance continues to be between 14,000 and 16,000 barrels of oil per day net after royalty. This includes approximately 13 to 15,000 barrels of oil per day from Columbia and approximately 1,000 barrels of oil equivalent per day in Argentina.

Later we’ll include a modest and unexpected gas product. It is important to note that this number excludes any potential early production from possible exploration success this year.

In conclusion, Gran Tierra Energy is continue to build the world class international oil and gas team operating a vast transition in three countries with a prospect portfolio that will provide drilling opportunities for years to come. This team has had tremendous success binding and developing new reserves, growing production and generating substantial cash flow with which to continue excluding Gran Tierra’s growth strategy in coming years.

This history of success of Gran Tierra Energy and value creation for our stakeholders is a result of our talented team has established record globally focusing their collective experience in Latin America. We would like to thank all our stakeholders for their continued support of Gran Tierra Energy.

That concludes our prepared comments for this morning. We would now be pleased to answer any questions you might have. Fiona?

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Neal Dingmann of Wunderlich Securities. You may proceed.

Neal Dingmann – Wunderlich Securities

Good morning, guys. How are you doing? Let’s say, Dana, I was wondering, how many fracs are you drilling now and kind of what do you think, Dana, and I understand the problem you’d outlined. I was wondering kind of the math, so you have plenty of supply this year?

Dana Coffield

At the moment we have one rig drilling or operating and that would be the rig join the development well, we are now drilling in Columbia. Now about initially drilling with the second rig and that would be for our first exploration well, Dantayaco [ph]. So in April one rig will be finishing and the second rig will be – March, sorry, in March one rig will be finishing another rig will be starting.

We’ll then have a different rig for our drilling campaign in Peru, while the different rig for our well in Argentina and a later part of the year will probably have a second rig in Columbia going. So in total of these four to five different rigs for the full year, for all our programs, at any one time it make only the two or three running at any one time.

Neal Dingmann – Wunderlich Securities

Got it. It sounds like. It sounds to me that open up Peru activity just a little bit. I’m wondering on that mark 122 or 128. What is that growth, I know, what point the growth acreage or even net acreage with pretty large, how to secure that, we will come at, what sort of time around that for well, once you drill these four wells, how many more then to secure, a good part of that acreage?

Dana Coffield

You know, with one of the blocks we are executing the program on schedule the other is as we have accelerate the schedule, we are trying to get these wells drilled as quickly as we can to test the concept there, the exploration concept.

With the drilling of these, we maybe of course drilled one well on each block, so we more than fulfilling our obligations and that will allow us to retain the block for another two years after the drilling. Before there was time to do additional exploration or delineation work as a case maybe.

Neal Dingmann – Wunderlich Securities

Got it. Then last question on the proven assets. As far as take away in that area the infrastructure pipeline, I mean what sort of the I guess the mindset if to see what sort of develops there and then if there is enough productions to demand at that point you would put infrastructure in or what’s kind of your thought on that?

Dana Coffield

We have done this pre – this ability study for different sizes and then we make a discovery. And for modest that discovery, we can actually transport crude upstream to the existing pipeline system. For a large discovery, we would have to build a new pipeline. And like by small and large, it’s a very big list number it’s possibly depends on oil quality and reservoir productivity rigs. But we actually have two options. One is small case to transport crude by river upstream by March or two, large case we would have to go to new pipeline of approximately 200 kilometers, depends where on our block the discovery would be located.

Neal Dingmann – Wunderlich Securities

And Dan, you would find that whole pipeline yourself or bring in somebody to try to take this point?

Dana Coffield

It would be hard to say at this point. Ideally, we have a pipeline contractor pay for – building pay for charges in tariff. But it’s premature to really say how we do that.

Neal Dingmann – Wunderlich Securities

Okay. Okay. I’ll turn it back to queue. Thanks, Dan. Nice quarter.

Dana Coffield

Thank you.

Operator

Our next question comes from the line of Cristina Lopez of Macquarie. You may proceed.

Cristina Lopez – Macquarie

Hi, guys. Just a couple financial questions and then some operational questions as well. I will start off with the financial one. Looking at your cash taxes for the quarter, it looks that you had a large Q4 adjustment. Can you address sort of where you expect cash excess potentially be going through 2010?

Dana Coffield

Well, we only pay tax in Columbia, so we would still expect the taxes to be 33% Columbian right and then we have 30% special deduction on eligible capital expenditure in Columbia. Does that answer your question?

Cristina Lopez – Macquarie

Okay. For operating cost as I look at it on per barrel basis there is a big jump from Q3 to Q4, again it’s not an actual adjustments just for Q4 for the year or do you expect those backs on a per barrel basis to then go forward at sort of a 11.50 to $12 dollar basis?

Dana Coffield

Yeah. It depends on the number of worker as we do in the quarter but I think our annualized commitment is of this eight goals and is kind of indicative of what we would expect are going forward basis.

Cristina Lopez – Macquarie

Okay. And then Dana for crude, do you have licenses in place now for the drilling of your well?

Dana Coffield

No. we don’t. We are waiting our licenses for both the size rig and the drilling permits and in fact, it’s one license when approval done it together one package and where we are expecting approvals from most developments this month – sorry, this quarterly.

Cristina Lopez – Macquarie

And do have more defined cost estimates for what you expect the wells to cost you and prove now?

Dana Coffield

We have not yet awarded the rig contract but we expecting well costs in the range of $4 million each.

Cristina Lopez – Macquarie

And no change from previous expectation?

Dana Coffield

Right.

Cristina Lopez – Macquarie

And finally, can you speak about opportunities in Brazil and what you are seeing right now for potential opportunities to gain operations in the country?

Dana Coffield

Yeah. There is couple of expects that we continue to look for opportunities in Brazil in the onshore and in the shallow water. The opportunities are currently looking at include basically joint venture type opportunities with operators in the country today as well as various asset type cells. The one piece of our position that is not proceeding there is the overview of take rigs for the big round big round is installed for a rather proper reasons the big round process is not forward but we will continue to look at onshore and shallow water opportunities with existing players in the country.

Cristina Lopez – Macquarie

And if you get a timeframe of when you would expect to have some sort of operations on the industry, is this more three to six months timeframe or six to twelve months timeframe?

Dana Coffield

I have to say nine, time I hope, is to be establish the year in Brazil. I don’t for this perhaps this year second half but hopefully this year.

Cristina Lopez – Macquarie

Perfect. Let someone ask questions. Thanks guys.

Dana Coffield

Thanks.

Operator

Our next comes from the line of Jamie Somerville of Genuity Capital Markets. You may proceed.

Jamie Somerville – Genuity Capital Markets

Good morning, everyone. I am just wondering in some of the production guidance. Can you tell us what’s the 14 to 16,000 barrels a day equates to on a pre-royalty basis?

Dana Coffield

Pre-royalty, that would be 22 to 24,000 barrels a day growth so in that level part.

Jamie Somerville – Genuity Capital Markets

Perfect. So I am just wondering the $8 for Boe operating costs rough guidance that Martin just gave, can I confirm that Boe of net production or is it a gross production pre-royalty?

Dana Coffield

It’s based on the net production. So it’s probably 880 which is the annual amount is what you can expect going forward.

Jamie Somerville – Genuity Capital Markets

Perfect. Thank you. And then I am just wondering, can you provide, may be you have given already but the realized prices for Q4, for split between Columbia and Argentina, is that possible?

Dana Coffield

It is in Columbia, it’s $72 and $73 and then Argentina, it was 42, 64.

Jamie Somerville – Genuity Capital Markets

And then just to add in terms of the cash balance, obviously, there are lots of working capital adjustments in Q4 or had a positive impact on the cash balance. I am just wondering – excuse me, whether you expect that to be adjusted back in future quarters or whether the payables and receivables are now at a level where you expect that to be maintained?

Dana Coffield

It would decline slightly because at the year end, we only got 20 days receivables from Columbian oil sales. Typically, we have 60 days receivables in cash balance. So at the end of the year Ecopetrol in this case split up pay their receivables up to December the 10, so just left 20 days receivables at the year end. But by Q1, we backed to 60 days receivables.

Jamie Somerville – Genuity Capital Markets

Okay. Perfect. Those just some help keeping for me. Thank you very much.

Dana Coffield

Okay. Thanks.

Operator

(Operator Instructions) Our next question comes from the line of David Dudlyke of Thomas Weisel. You may proceed.

David Dudlyke – Thomas Weisel

Yeah. Good morning, everyone. Christina, cover of majority my questions. If I could circle back on Peru then you said that its one environmental package and you expect that to be approved within a calendar month. You have a fairly producer amount 2D to capture. Can I presume but you will – do you plan for basically drill in parallel for the seismic program I capture, the high grade seismic program to capture the data that you require for the driven locations. It seems a lot of seismic to capture and yet, spot well before the media?

Dana Coffield

That's correct, Dave. We can do it in parallel. We are permitting locations we already permitted locations based on the high revolution gravity survey we acquired. So the well locations, we permitted five are based on the high revolution gravity. The seismic is going to – at the end of the day it's going to help us and throughput results for the drilling. Like as that answer for that question.

David Dudlyke – Thomas Weisel

Okay. Okay. And with regard to said you, yes, to water contract for the drilling rate and can I – at least ask a question, I know Foscani [ph] are planning a 550 horsepower heavy portable rate to be deployed Q2 in Peru. Would that be a stretch who mentioned but that might be rig there you will be looking at?

Dana Coffield

So I can comment little later.

David Dudlyke – Thomas Weisel

Yeah.

Dana Coffield

We are come back yet.

David Dudlyke – Thomas Weisel

Okay. But do you have presumably your confident since you put in the press release, but you can indeed make your time line?

Dana Coffield

I confidently can give you the time line, yeah.

David Dudlyke – Thomas Weisel

Okay. And it just to remind that, you describe I think in the previous conference calls, these $4 million wells is stratographic wells, correct?

Dana Coffield

Yes.

David Dudlyke – Thomas Weisel

And can you just pause, for myself remind me, what you can achieve in terms of data from those well. But you – overall what you cannot achieve in such a well relative to a typical exploration well?

Dana Coffield

What we cannot do is undertake production testing. And we've not complete the well as a producer.

David Dudlyke – Thomas Weisel

Okay.

Dana Coffield

Which because of the root locations doesn't really matter.

David Dudlyke – Thomas Weisel

Fine.

Dana Coffield

What we can do.

David Dudlyke – Thomas Weisel

But…

Dana Coffield

You have to be connected with well bored diameters so we will be acquire incremental logs get prosody and then to have touch. We will also be able to use NDT tool to get fluid sample to get pressure data to get temperature data.

David Dudlyke – Thomas Weisel

Okay.

Dana Coffield

NDT tool you can actually get nominal production rate and permeability.

David Dudlyke – Thomas Weisel

Indeed. Indeed. Okay.

Dana Coffield

So we will get a good data to set on the foods we just won't have a long-term press and test.

David Dudlyke – Thomas Weisel

Not as well. The inside you have names it was precisely that tool I wanted to know if you could actually run NDT in the well together your sample and you have greats and everything.

Dana Coffield

Yeah.

David Dudlyke – Thomas Weisel

Good. If I may just a quick question on when I’m going to press release you talked about unexpected type potential in I guess the SIU?

Dana Coffield

That’s right.

David Dudlyke – Thomas Weisel

Obviously you have tested is what but touched. Can you give us some ideas to have some scale of that tie potential relative to the horizon that you might well, what the typical horizon that you have counted within the well? Just you give us favor?

Dana Coffield

Pay a large above (inaudible) from show main page on.

David Dudlyke – Thomas Weisel

Indeed.

Dana Coffield

And I actually came on to actual net sands or net pay sand, we haven’t touch it is own, but it is thicker that we had no reserves in the original one or new, one well associated with that dumb. Sort of it will be I think incremental addition it's not going to be – something double size of the field recognize that but it will be a nice addition if we are successful and testing it?

David Dudlyke – Thomas Weisel

Okay. But it although have thank you very much.

Dana Coffield

Thanks. Thanks, David.

Operator

Our next question comes from the line of Alan Knowles of Haywood Securities. You may proceed.

Alan Knowles – Haywood Securities

Hi, can you just if you can give us any color on the prospect of taking away to cap on all crises in Argentina or seeing that cap move up?

Dana Coffield

No. I can't. It needs to be raised; it should be raised to increase investment countries. (inaudible).

Alan Knowles – Haywood Securities

Okay. Thanks.

Operator

(Operator Instructions) Our next question comes from the line of Alexander Klein of Dundee Securities. You may proceed.

Alexander Klein – Dundee Securities

Good morning, guys. Just a quick question on your guidance for 2010, you drove this when on move development well, wondering if production or potential production for that well is included in your 14000, 16000 estimate?

Dana Coffield

Yes.

Alexander Klein – Dundee Securities

Okay. and can you give us a sense of why the range on the guidance are expecting workovers to be done at Costayaco that will housing downtime of correction, and what's the reason for the wide variation?

Dana Coffield

It's just the variation in operations through the year. Every well undergoes workover activity at different times through the year so we have different maintenance projects for these well and different maintenance products for plateau field. So we have never known exactly what we are going to get.

Alexander Klein – Dundee Securities

Okay.

Dana Coffield

So we are comfortable with that range and comfortable in that range through the year. But day to day (inaudible) thus that variation in production.

Alexander Klein – Dundee Securities

Okay. Now with regard to Peru, you have mentioned that you have got 20 other leads on your blocks in Peru presumably identified from Arial and mechanic surveys. If you are sure of drilling the stratographic wells that doesn’t work out for those which go away or is there future drilling to be done even if the first stratographic wells don’t work?

Dana Coffield

it depends on the net, I will say we drilled the dry holes is depend on the nature of the dry holes versus that we found reservoir and we have found reservoir. And become reservoir and we found oil shows in the reservoir and there is still the exploration potential on the blocks that we pursue the other needs to refine our exploration with the new size we were acquiring. But in Peru, we'll drill these wells in town, absolutely no reservoir, absolutely no indication of hydrocarbons. Then it would be difficult to continue exploring. It depends on the nature of this successful payer with early drilling but not. We would continue.

Alexander Klein – Dundee Securities

All right. Okay. And is there any risk at this point that the plans – but they at the – the wells will have to be moved back or are you pretty confident that you are going to get the environmental approvals to go ahead?

Dana Coffield

There's always risk in all our wells, whether it's Argentina, Peru or Columbia, of slippage and the timing, based on the timing of the government approvals. So that risk is always there but there are a couple of things that are on track.

Alexander Klein – Dundee Securities

Okay. Thanks.

Dana Coffield

You're welcome.

Operator

Your next question comes from the line of Ian Macqueen of Versant Partners. You may proceed.

Ian Macqueen – Verdant Partners

Good morning, guys. Just two quick questions, the first is on G&A expenses. Obviously, you got some new people. Just with respect to timing, how can we forecast that in the future? Can you give us some guidance on that?

Dana Coffield

Essentially, fully staff, now. We have few more positions to fill and – a few more here in Calgary. We don't see a lot of new additions on staff, is that what you are asking?

Ian Macqueen – Verdant Partners

Yeah. I'm just – on a propelled basis or kind of on gross basis. The number is almost $10 million for the quarter on a gross basis. Is that a reasonable number for the quarter going forward?

Dana Coffield

Probably, yes, yeah.

Ian Macqueen – Verdant Partners

Okay. And with respect to the operating cost that you saw in this past quarter because they are substantially higher. Can you give some guidance on what specific events caused the increase?

Dana Coffield

It's probably due to the tenure of walkovers actually. And, so they tend to go up and down in each quarter, depending on different activities that we do so. Again, we, today 880 was probably a reasonable estimate going forward but it will be effected by – if we do walkovers or when we do the walkovers.

Ian Macqueen – Verdant Partners

Okay. So nothing in particular – it's just timing more than anything else.

Dana Coffield

That's right. And transportation effects – it could me more trucking, it increases operating expenses but generally it should be evened out over the year.

Ian Macqueen – Verdant Partners

Thanks for that, guys.

Dana Coffield

Okay. Thanks Ian.

Operator

Our next question comes from the line of Sergio Torres of JP Morgan. You may proceed.

Sergio Torres – JP Morgan

Good morning. I have a question about the natural decline rate for your fuels in Columbia. I know you are reaching a plateau there. And I was wondering if it's too early to think about the natural decline rate, and if we have a number, or expected or an estimate that you could share with us? That would be great.

Dana Coffield

Right now – the short answer is only to know for the field, individual wells on adjacent field decline pass point 25%. For year, there is some variation. In the cost circle field, we are cruising from, each well board cruises from only one of two different reservoir, so, as one of the reservoir versus the Cabayos becomes depleted.

We can then bring on production from the overlying reservoir, the TSand [ph] and anyone – one well board. We are seeing some pressure declines in the TSand, the over line reservoir whereas the underline reservoir, we continue to have very strong prices from the vertical.

I guess what I am trying to say is for the Costayaco field, we will be able. We said we have to maintain the plateau productions certainly through this year and into next year; we just need more reservoir performance before we could say, how long we can maintain this plateau, before the field goes into decline.

Sergio Torres – JP Morgan

Okay. Thanks. And just a quick follow-up, the president of the ANH, Dr. Zamora was in New York yesterday. And he mentioned an interesting thing that – you would at least new for me and I would like to know if you were aware of it. He mention that the Columbian Government would like to have a long pipeline going from Putamayo to the North and connect with the main pipeline infrastructure there for the export market, I was wondering, if you were aware of such project – you had a sense of how much institutional support there was for it and what needed to be the trigger for it to materialize?

Dana Coffield

Yeah. There is a tremendous pressure to increase the transportation capacity of the pipeline systems in Columbia, overall because of the huge undeveloped resource that exists in the heavy oil belt in Eastern Columbia, Eastern Llanos, Eastern Putumayo.

So they need more pipeline capacities – the one that you just mentioned, Dr. Zamora mentioned, is one of the options for the Putumayo. One of that catches with that segment, though is furthermore at the far north of Columbia. That pipeline system that already exists is a bottleneck. So these are expanded in the lower Magdalena valley as well.

The other option is to expand the existing pipeline vest across the ND – the (inaudible) pipeline. So there's actually two options on the table for expanding the structure for the Putumayo basin.

Sergio Torres – JP Morgan

And that decision do you think, it would be – will have to be made by Ecopetrol who is the owner of most of the infrastructure there or would have to be so that they can buy more freight – the private investment.

Dana Coffield

The only way – I would expect to be a combination of both. To do it, though, you need to find and get into the reserves first to justify it. So reality is the – and comment upon the EMP sector, the old companies to find the reserves that justify the pipeline.

Sergio Torres – JP Morgan

Right. Understood. Thank you, Dana.

Dana Coffield

Yeah. Thank you, Sergio.

Operator

With no further questions in the queue, I would now like to turn the conference back over to Mr. Dana Coffield for final remarks. You may proceed.

Dana Coffield

Hi. Thank you. Thank you, Fiona. I would like to once again thank everyone for joining us today. We look forward to speaking with you next quarter to update you on our progress. Have a great weekend. Bye.

Operator

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.

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Source: Gran Tierra Energy, Inc. Q4 2009 Earnings Call Transcript
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