Good afternoon, ladies and gentlemen, and welcome to the Gran Tierra Energy's results conference call for the quarter and year ended December 31, 2013. My name is Glen, 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.
I would like to remind everyone that this conference call is being webcast and recorded today, Wednesday, February 26, 2014, at 4:00 p.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 estimated or forward-looking production and financial information or results, are based on management's current expectations and are subject to a 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 carefully review and consider the various disclosures made by Gran Tierra Energy and its reports filed with the Securities and Exchange Commission, including those risks set forth in Gran Tierra Energy's quarterly report on Form 10-Q for the year ended December 31, 2013, filed with the Securities and Exchange Commission, February 25, 2014.
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 regulation.
Today's conference call also includes the non-GAAP measure funds flow from operations. The press release disseminated by Gran Tierra Energy this morning includes a reconciliation of this non-GAAP item with the company's GAAP net income or loss, as well as information about why management believes this measure is useful in evaluating the company's performance, and is available on Gran Tierra Energy's website, www.grantierra.com.
All dollar amounts mentioned in today's conference call are in U.S. dollars, unless otherwise stated.
Finally, this earnings call is the property of Gran Tierra Energy, Incorporated. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy.
I'd now turn the conference over to Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy. Mr. Coffield, please go ahead.
Thank you, Glen. Good afternoon, and thank you for joining us for Gran Tierra Energy's fourth quarter and fiscal year end 2013 results conference call. With me today is Shane O' Leary, our Chief Operating Officer; and James Rozon, our Chief Financial Officer. Yesterday, we disseminated a press release that included detailed financial information about the fourth quarter and full year 2013.
In addition Gran Tierra Energy’s 2013 report on Form 10-K for the 12 months ending December 31, 2013 has been filed on EDGAR and is 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; James will then take a few minutes to discuss key aspects of this year’s financial results; Shane will then provide an operational overview and outlook followed by closing remarks.
Gran Tierra Energy achieved record annual production in 2013 of 22,267 barrels of oil equivalent per day net after royalty and after inventory changes representing a 32% increase from the average production in 2012. Reserve growth last year was outstanding not only replacing production, but adding new reserves to new record levels based on Gran Tierra Energy’s 2013 year end United States Securities and Exchange Commission reserves calculations.
Total proved net after royalty reserves increased 4% to approximately 42 million barrels of oil. Total proved plus probable reserves net after royalty increased 99% essentially doubling to approximately 112 million barrels of oil equivalent and total proved plus probable plus possible reserves net after royalty increased 113% more than doubling to approximately 184 million barrels of oil equivalent.
Gran Tierra Energy replaced 117% of oil produced in 2013 after producing the record 8 million barrels of oil net after royalty or 10 million barrels of oil working interest.
With our year end reserves, the waiting of our oil versus gas reserves was 95% for 1p, 97% for 2p, 94% for 3p. Based on these reserves and Gran Tierra Energy’s 2013 total working production, our 1p, 2p and 3p reserve like indices grew significantly to 5.2 years, 12.5 years and 20.4 years respectively.
In 2013, Gran Tierra Energy continued to focus on developing or producing conventional light oil fields including Costayaco and Moqueta. On the Chaza Block in Colombia, we drilled and completed the Moqueta-10 and 11 development wells, Costayaco-18 development well as oil producers, commenced drilling the Moqueta-12 development well and the Zapotero-1 and Corunta-1 exploration wells. Corunta-1 had to be abandoned before group reaching target reservoir due to drilling problems. We intend to redrill this well late this year. We expect that Zapotero-1 exploration wells to reach total depth in March. We also continued to (inaudible) fund Costayaco and Moqueta fields.
Highlights of 2013, in Peru include extending Bretaña-1 exploration well with a horizontal sidetrack, testing the sidetrack at 3,095 barrels of oil per day completing a preliminary Front End Engineering Design or FEED study for the Bretaña field development and completing a 382 kilometer 2-D seismic program to provide a more detailed map of the Bretaña structure, along with maturing a separate independent exploration lead on Block 95.
With the results of this work, Gran Tierra Energy has successfully added 58 million barrels net after royalty 2P reserves and 105 million barrels net after royalty 3P year end 2013 reserves for the Bretaña field dramatically impacting our corporate 2P and 3P reserves and reserve life indices.
In Recôncavo Basin in Brazil, we finished developments drilling activities in Moqueta field where we are now have production capacity of 2000 barrels a day that are actually producing only 800 to 1000 barrels a day due to gas burning restrictions which we will be working on to mitigate this year. In addition, we drilled several horizontal wells in oil saturated tight sands and shales, which we subsequently fracture-stimulated.
We have recovered our first oil on one test but have not yet achieved commercially viable flow rates. We’re discontinuing with fracture stimulation operations ongoing at the GTE-8 well. In addition, we added three new exploration blocks -- onshore blocks to our core operating area in the Recôncavo Basin in 2013 Brazil Bid Round 11 where we now have a material contiguous land position in this new play.
In Argentina, on the Puesto Morales block we commenced drilling a second horizontal multi-stage fracture stimulated well into the Loma Montosa formation to further evaluate this new play with results expected in the second quarter of this year. The workovers we recently implemented on our wells in the Noroeste Basin were successful and are yielding increased production rates. Currently, a rig is -- rig pre-drilling the Proa-3 development well is being mobilized with spud anticipated at the end of March.
Now, in addition to our operational success, our balance sheet remains strong and debt free. Funds flow from operations was a record $353 million. Working capital including cash and cash equivalents was $246 million at December 31, 2013 a $23 million increase from year end 2012.
Looking forward to 2014, we are expecting this year’s capital program to be funded from cash and cash flow from operations, at current oil prices and production levels. Clearly, 2013 was a most successful year in our nine-year history and 2014 is off to another strong start.
Let me now turn the call over to James Rozon to discuss our 2013 financial results.
Thank you, Dana, and good afternoon everyone.
Our operational success last year has translated into another year of financial success allowing us to retain a strong balance sheet to continue funding our growth strategy.
Revenue and other income in 2013 was $724 million, a 24% increase from 2012 due to increased production, partially offset by decreased average realized oil prices. The average price received per barrel of oil decreased by 7% to $90.61 from $97.31 from 2012.
During 2013, 49% of our oil and gas volumes sold in Colombia were to a customer where the realized price is adjusted for trucking costs related to a 1,500 kilometer route. The effect on the Colombian realized oil price was a reduction of approximately $12.55 per barrel to $92.21 per barrel as compared to delivering all of our Colombian oil through the OTA pipeline.
Operating expenses in 2013 was $149 million or $18.34 per BOE comparative $125 million or $20.20 per BOE in 2012. For 2013, a decrease in the operating cost per BOE was more than offset by increased production. Operating expenses per BOE decreased in 2013, primarily due to OTA transportation costs and other trucking costs not incurred for those volumes subject to alternative transportation arrangements. For these volumes, ownership is transferred at the wellhead and the associated transportation paid by the purchaser is netted to arrive at a realized price. The estimated net effect of OTA pipeline disruptions on Colombian transportation costs for 2013 was a reduction of $1.39 per BOE.
Depletion, depreciation, accretion and impairment, or DD&A, expenses in 2013 were $267 million compared to $182 million in 2012. DD&A expenses in 2013 include a $31 million ceiling test, impairment loss in our Argentina cost center due to a decrease in reserves as a result of deferred investment and in conclusive water flood results on the Puesto Morales Block and a $2 million ceiling test, impairment loss in our Brazil cost center.
DD&A expenses in 2012 included a $20 million ceiling test, impairment in our Brazil cost center related to seismic and drilling cost on Block BM-CAL-10. On a per BOE basis, the depletion rate increased by 12% to $32.87 from $29.44 in 2012, increased impairment losses and increased cost in the depletable base were only partially offset by increased proved reserves.
General and administrative, or G&A, expense decreased by 9% to $53 million. Increased employee-related costs reflecting extended operations were more than offset by higher G&A allocations to operating expenses and capital projects within the business units. G&A expenses per BOE in 2013 were $6.57 compared to $9.52 in 2012 due to an increased production and higher G&A allocation to operating expenses and capital projects. Other gain of $9 million in 2012 related to a value-added tax recovery, this gain resulted from the completion of a reorganization of companies and their branches in the Colombian reporting segment during the fourth quarter of 2012.
Included in 2013 results is a foreign exchange gain of $12 million which included an unrealized non-cash foreign exchange gain of $19 million. The unrealized foreign exchange gain in 2013 was a result of a net monetary liability position in Columbia combined with a weakening of the Colombian peso. This was partially offset by foreign exchange losses resulting from a net monetary asset position in Argentina and the weakening of the Argentina peso.
Income tax expense was $136 million for 2013 compared to $98 million in 2012. The increase was primarily due to higher taxable income in Colombia and Brazil. In Brazil, a net payment of $54 million from a third-party in connection with the termination of a farm-in agreement resulted in a current tax expense of approximately $10 million during the third quarter of 2013.
We had net income in 2013 of $126 million compared with $100 million in 2012. In 2013, increased oil and natural gas sales and foreign exchange gains and lower G&A expenses were partially offset by increased operating DD&A and income tax expenses other loss in the absence of other gain recorded in 2012.
Funds flow from operations increased by 9% to $353 million in 2013 from $324 million in 2012. The increase was primarily due to increased oil and natural gas sales and lower G&A expenses and realized foreign exchange losses partially offset by increased operating and income tax expenses including a $10 million non-recurring tax expense in Brazil on the proceeds of a termination of a farm-out agreement. A reconciliation to net income is included in our 2013 earnings press release.
Cash and cash equivalents were $425 million at December 31, 2013, compared with $213 million at December 31, 2012. The change in cash and cash equivalents during 2013, was primarily the result of funds flow from operations of $353 million, a $168 million change in net assets and liabilities from operating activities, proceeds from oil and gas properties of $60 million and proceeds from issuance of common stock of $4 million partially offset by capital expenditures of $367 million and $1 million increase in restricted cash.
As required by Colombian tax law, Gran Tierra Energy has an obligation to pay the remaining balance of the Colombian 2013 taxes payable and 2014 tax installments of approximately $115 million in the first half of 2014.
In summary, Gran Tierra Energy remains financially strong and we expect that our 2014 capital program of $467 million was to be funded from existing cash on hand and cash flow from operations at current production and commodity price levels.
That concludes my comments. I would now like to turn the call to Shane for an update of Gran Tierra Energy’s 2014 capital plan and outlook.
Thank you, James.
In 2014, Gran Tierra Energy anticipate spending $467 million on exploration and development opportunities allocating $243 million to Colombia, $148 million to Peru, $31 million to Brazil, $44 million to Argentina and $2 million for corporate activities.
Gran Tierra Energy’s Colombian program includes drilling six gross exploration wells and eight gross appraisal and development wells. The appraisal and development wells are primarily focused on continued appraisal and development in Moqueta field and further optimization at Costayaco recovery.
With respect to Moqueta, we are expecting a general development coming at the end of March, which will greatly facilitate the further exploitation and appraisal of this field.
In addition, we plan on acquiring 2-D seismic on Cauca 6, Cauca 7 and Putumayo 10, Sinu-1, Sinu-3 and Verdeyaco and 3-D seismic acquisition over the (inaudible) Putumayo-1 Block, to mature leads in prospects for drilling in 2014 and beyond.
In Colombia, Gran Tierra Energy anticipates getting $118 million on drilling activities and $71 million on G&G. In addition to the above exploration activity, we are trying to spend approximately $54 million on facilities there.
With approved budget of $148 million, we plan to drill a water disposal well and an appraisal well in the southern portion of Bretaña field. In addition, crude oil processing and loading facilities are expected to be completed. In order to initiate and estimate 2,500 barrel of oil per day of long-term test production in September of 2013.
On Block 107, we plan to complete a 311 kilometer 3-D seismic program of the total Peru 2014 budget approximately $83 million is allocated for drilling costs and $65 million for seismic acquisitions service cost.
The Brazil capital spending program of $30 million were focused on facilities work at Tiê field along with the continued study of two unconventional resources play to core analysis, geochemistry study, 3-D seismic, reprocessing and evaluating ongoing fracture stimulation test results.
These and other activities have directed at establishing, the commercial viability of the resource opportunity in oil saturated tight sand stones and shales in Recôncavo basin. Approximately $22 million dedicated to G&G and facilities were seismic acquisition on the newly acquired Blocks 86, 117 and 118 in the Recôncavo basin.
Work program for Argentina in 2014 includes drilling two gross development wells, in addition we are planning to conduct six workorders. One of the development wells in Puesto Morales field in the Neuquen Basin and we will continue to test the horizontal well concept to exploit the Loma Montosa formation.
The initial horizontal test conduced last year using horizontal multi-switch frac technology tested an initial 800 barrels of oil per day.
Second development well is the Proa-3 well in the Northern Surubi block which will be a follow-up to the prolific Proa-2 well, which initially tested 6,300 barrels per day. Of the $44 million capital budget for Argentina $18 million will be spent on drilling.
Excluding potential exploration success, production in 2014 is expected to average between 30,000 and 31,000 barrels of oil equivalent per day gross working interest with no pipeline disruptions assuming a 4% contingency for a potential disruptions and $95 average price per Brent production is expected to average approximately between 23,500 and 24,500 barrels oil equivalent per day net after royalty.
That concludes my comments. I’d like to turn the call over to Dana for concluding remarks.
Thank you, Shane.
Gran Tierra Energy is extremely excited about the successful addition of booked reserves on the Bretaña discovery in Peru. However, we also continue to be focus on managing Costayaco field, the development of Moqueta field another opportunities in Colombia to bridge us to the onset of production growth in Peru.
Gran Tierra Energy’s asset portfolio was stronger than ever with Costayaco remaining our base, Moqueta providing near term growth and Bretaña providing mid term growth. While in parallel, we continue to execute on Gran Tierra Energy’s high impact exploration program with very significant exploration prospects to be drilled in 2015 and 2016 in Peru.
Numerous catalysts are pending this year in Colombia, the interest rate results from this equatorial exploration well on March. We are planning to drill the Eslabón Norte Shallow exploration well in the second quarter and the Eslabón Norte Deep and the Cabañas Norte exploration wells in the third quarter. In Peru, we continue to plan for initiation of Bretaña long-term test oils in September. And to drill Bretaña Sur well in the southern portion of the field with the intent to shift the majority of the possible reserves into the probable category before year end.
We would like to thank all our stakeholders for their continued support of Gran Tierra Energy and our vision for continued substantial and sustained growth for the years to come.
That concludes our prepared comments for this morning. We will now be pleased to answer any questions you might have. Over to you Glen.
Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session for securities analysts. (Operator Instructions) One moment please, for your first question. And that question comes from the line of John Malone, Mizuho Securities. Please proceed.
John Malone - Mizuho Securities
Yes. Good afternoon gentlemen. So Dana you read that the water differentials you’ve seen in Colombia because of the alternative transport arrangements. Is that something you think will be sustained going forward? What will it take you to get back to something I know the prices that are closer to world prices?
The differentials we’re experiencing -- Gran Tierra is experiencing is because of our additional trucking and try to undertake because the main pipeline, the OTA pipeline has been out of service for so much of the year -- last year and last quarter. That pipeline is now up and running as we speak today whereas we can’t predict how not just be open or down in the coming year.
The other factor has been an negative in the last few months is the -- the second pipeline we have in Southern Ecuador has been out of service and is undergoing repairs, so expecting that to be up and running again in the third quarter. So the reality is we’re expecting to continue relaying on trucks in the coming months and here peaces process is on going in Colombia and we’re in a position where you just -- we can’t really predict how long, how present these continuing disruptions will be on OTA.
John Malone - Mizuho Securities
Okay, okay. And then just switching gear for a moment. Could you just give me some more in sense in timing on the prospect delineation, you named some of the really attractive prospects in Peru. Can you give an idea, how you’re going to delineate those numbers over a period of time. And also, if anything you can say about the -- when your peers had some very attractive wells over to the East of your -- from a southern Peruvian blocks. Anything you could say on those.
Yes, we’re looking at drilling four to five exploration wells in Peru on different independent new exploration prospects. With the first to be drilled on Block 107 in (inaudible) in the second half of next year. There is specific drilling schedule still being worked on, but it’s going to have it drilled and evaluated before year end next year.
And then the subsequent wells will follow into 2016. So that’s a very robust program, it’s independent prospects very large in size multi 100 million barrel respective of resource potential in each. What’s interesting about the Block 107 well that we’re going to drill next year is in the same sub basin on the opposite side.
(inaudible) just announced an oil discovery. So again that’s a same kitchen area, same resource rock, same rocks they will be targeting. So on centers producing the geologic risk the chance of success on our prospect, that’s very good news for us, very good news for Peru, I think it’s highlighting again the tremendous upside that Peru is presenting to company that’s now being targeted by active exploration drilling.
John Malone - Mizuho Securities
Okay. Thank you.
And your next question comes from the line of Nathan Piper with RBC. Please proceed.
Nathan Piper - RBC
Hi, guys. Thanks very much. Two questions from me if I may, first of all, has to do with the expectations on Zapotero. Clearly not having the full access to everything you are having to drill quite extended wells and hasn’t worked, so Zapotero maybe in sidetrack, how much are you going to be able to find out from this well and not in that context what would be a success and could you -- would you be able to do anything like production testing or deliverability assessment from this well?
Yes, we -- because of the fact that we don’t yet have Global Environmental Permit, we’re drilling even with our very technically challenging long reach wells from our exploration wells locations and are really at the limits of the great capability today, the main reason for the current drilling failure.
Now, Zapotero we just set casing and we’re just getting ready to drill out, if you haven’t already started, I guess we’re still waiting on this one get ready to drill out. So, we’re -- next week to two weeks, our intent is to get into the reservoir with Zapotero and our hope is of course to find reservoir and then find oil in that reservoir. And wells designed to be tested and production tested.
So, we -- so that in March we should know where the reservoir is, whether it has oil in it or not and then have subsequent to testing have good reservoir data on that. Again, this is a well that’s being drilled low and outside our known area of oil outside of our reserve area. So we will -- our intent of course is to prove doing additional reserves for this field, so we do not yet to know the limits of the field.
Nathan Piper - RBC
Understood. But once you have the permit, I guess you then proceed with drilling the well you talked about in Moqueta. Is there a chance of doing any more like the appraisal drilling from a location this year, are you pretty much set what you’re going to do from a drilling perspective when we look at it?
From the existing locations I think we’re essentially done, we are still expecting the Global Environmental Permit at the end of this quarter earliest next quarter, in the next couple of months. And then with that we will then be able to build the road, build -- appropriate locations -- drilling locations. And then begin proper development drilling appraisal program. And then we could add, our intent is to add additional wells later this year but at this point from existing locations we’re not going to be drilling any additional long reach wells, although we are (inaudible), we drilling that.
Nathan Piper - RBC
Understood. And probably think of the approvals, to think about Peru now, where you do have lots of drilling sand and although it’s a quite far away. And can you speak to how the approval process in Peru which is (inaudible) I guess and the fact that how that’s progressing over the last two years where I guess we’re hoping for things to happen faster?
Yes, we haven’t seen progress in last few years until really just recently and the government has really taken upon sales implement changes -- change regulatory environment the permitting process to accelerate activity. And nearly in the last three or five months we’re seeing some dramatic improvements, we are going to drill a lot of disposal well, I think we’re going to start drilling in April, on the Bretaña drilling pad, we got that approval and passed on a few months, that approval has taken years before, so it’s a dramatic improvement. We just got another --
Yes. We moved the drilling locations to drill those -- the southern well and that’s what about three months to change the permit from one location in the north that we have permitted to changes to the south that took about three months that would have taken years in the old permitting system.
So we are seeing very real and very substantial improvements as we speak and we’re obviously very excited about this and it bodes very well. Our programs as well as industry in general in Peru.
Nathan Piper - RBC
Great. And one final one if I may. The new oil discoveries you’ve made Miraflor Oeste and Mayalito I mean two questions production from those discoveries an additional to your production guidance for this year and secondly, what kind of potential do you think they have?
I think the potential is relatively modest it covers our basics they really sort of help replace reserve help maintain production levels. So they are the part of the budget this year relatively modest numbers not game changers but they’re part of our plan for this, budget for this year.
Nathan Piper - RBC
Understood, thank you very much.
And your next question comes from the line of Marcus Sequeira with Deutsche Bank. Please proceed.
Marcus Sequeira - Deutsche Bank
Hi, good afternoon thank you very much for taking my questions. I have one question regarding OpEx, we saw an increase in OpEx in the quarter especially Colombia and Argentina. Just wondering if you elaborate a bit on what drove this increase and what kind of levers we should be looking for the rest of the year? And then going back on the transportation, if you could tell us how much of a production in this quarter was truck via, was transported via truck versus pipelines? Thank you.
So in terms of increasing OpEx in the quarter-over-quarter so there was an increase mostly driven by increase workover cost in Argentina, there were some workovers that were carried out in fourth quarter that increased that portion of our OpEx cost. So that’s the biggest effect or largest effect in the quarter. Basically looking forward 2014 we’re budgeting a similar level of OpEx for BOE, I believe our year-to-date was $18.34 and we’re budgeting just above that just below $19.
Marcus Sequeira - Deutsche Bank
And what about, sorry what about the OpEx in Colombia also had an increase during the quarter?
Just one minute. So the increase in Colombia also was driven by, there were two factors but also workovers both in Costayaco and Moqueta increased our operating cost by about $1.24 each that was partially offset by a decrease in transportation cost associated with not moving volumes with the OTA, but also moving volumes to the coast. Again, looking forward for 2014, we’re budgeting similar operating cost per BOE in Colombia as we experienced in Q4.
And your next question comes from the line of Ian MacQueen with Paradigm Capital. Please proceed.
Ian MacQueen - Paradigm Capital
Two things, one is on Moqueta, from what I can see the production now is about 4300 barrels a day and I'm wondering ask you get the global development permit if there is a more significant ramp in production I'm not really modeling but if you could give some idea of what production might be in 2014 and 2015 from Moqueta that would actually help quite a bit?
Yes. We’re not really expecting this ramp up in fact this year, the reason being we need to get more pressures poured into reservoir which mean throwing water injection wells and re-injecting gas. So the ramp up in production in Moqueta really takes place next year. We’ll see modest growth this year perhaps up to 10% this year we’re 42, 43 now, we might get to 4900 or 5000 by the end of the year but the real ramp up would take place for next year when we have more pressure support in place.
Ian MacQueen - Paradigm Capital
And can you give me an idea of what that might be in 2015?
Well, ultimately we’re trying to get to about $7,000 or $8,000 a day from Moqueta and more if Corunta and Zapotero come in. So we haven’t released what it would be in 2015. But you can sort of correlate between where it is today and where we’re trying to get to and its probably going to be pretty close to something increment each year to get up to sort of $8,000 a day.
Ian MacQueen - Paradigm Capital
Okay prefect. That’s great, just for your information, the number was 6400 in 2015 and ramping up to 7,000 so I'm very comfortable with that. The other thing Shane, you said something which I haven’t heard before and just if you wouldn’t mind repeating it, you said something about 800 barrels a day from the Brazil well. How does that compare to expectations? I know you’re not spending a lot in Brazil that sounds better than what I would have expected in longer term maybe in 2015 may be that will spur you on to a little bit more work. What are your current thoughts?
We have the capability of producing 2,000 barrels a day in Brazil, but we’re restricted by gas play permit. And we’ve got a number of ideas. Well, first of all we’re lobbying the ANP to increase our flaring restriction that’s the first thing. We’re looking at a power -- gas to power option to -- we’re also looking at re-injection, so we’re looking at number of options to get around as gas flaring and then we can produce 2,000 barrels a day immediately. So and that’s pretty good cash flow for a company of our size, so we’re working on that.
One of the things we’re looking at on the new blocks is once we shoot the seismic this year, kind of look for some conventional targets that are similar in nature to the Tiê field. The Tiê field is producing from the conventional reservoir Sergi and Agua Grande reservoirs and the Recôncavo Basin. And we’re going to look for some of those targets on the new acreage as well. As well as looking at the unconventional because these small pools Tiê is about 4, 5 million barrel pool, are incredibly economic to develop you’re around lots of infrastructure and lighter oil and it’s close to tying points and that sort of thing. So yes, I mean we’re going to do a little more work on the new blocks and that was one of the reasons we were pretty aggressive in acquiring those blocks as we think this in good conventional potential.
Ian MacQueen - Paradigm Capital
Okay. That’s fantastic. Thanks very much guys.
And your next question comes from the line of Alan Knowles with Haywood Securities. Please proceed.
Alan Knowles - Haywood Securities
Hi, guys. Quite couple of questions, one on the Ecuador pipeline so with that being offline until Q3 you mentioned, does that put any stress on your trucking option at all as far as plains [ph] or is everything okay there? And then secondly, Mayalito and back to that part of the world, because of Mayalito coming in there, is there any plans to may be add some more activity in that block in 2014 that’s not currently in your program?
Now, the program is you said as it is and we’re very excited about initial exploration potential on that block. Now the other, the repair the integrity issue with also pipeline going south into Ecuador just with there also is lets say integrity issue around support set of river crossing seismic nothing to do with security issues that were yield to pipelines dealing with.
So anyway the answer to the other part of your question is the trucking, it’s not putting additional challenge or hurdle or burden on our trucking, our trucking operations are going very smoothly and in fact we have the capacity on any day to transport 100% of our crude by truck.
Now the other things we’re looking at doing also is changing some of the truck routes in particularly sales points to reduce costs and there is multiple also there are several different opportunities we’re looking to reduce cost associated with the trucking as well. So we hope to deliver results on that too in the coming quarter.
Alan Knowles - Haywood Securities
Okay. Great. Thanks very much.
At this time gentlemen we have no further questions. Please continue.
All right. Well, I like to thank everyone for your attention and support and we look forward to updating you on our next quarter. So thank you and have a great week.
Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect.
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