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Executives

Dana Coffield _ President and CEO

Martin Eden – CFO

Analysts

Nathan Piper – RBC Capital Markets

Rafi Khouri – Raymond James

Ian Mackwey of CIBC World Markets

Alan Knowles – Haywood Securities, Inc.

Isaru Rashem - Equinox Partners

Neal Dingmann – Wunderlich Securities

Gran Tierra Energy, Inc. (GTE) Q3 2010 Earnings Conference Call November 8, 2010 10:00 AM ET

Operator

Good morning and welcome to Gran Tierra Energy’s result conference call for the three months ended September 30, 2010. My name is Shanelle 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 security 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, Monday, November 8, 2010, at 10 o’clock 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 provision of the Private Securities Litigation Reform Act of 1995.

Such statements may be identified by words such as anticipate, belief, estimate, expect, intent, 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 filed with the SEC on November 5, 2010. And its annual report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission, February 26, 2010. If one or more of these risk 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 they may be required by applicable law or regulation.

Today’s conference call also includes non-GAAP measures; funds flow from operations, the press release, disseminated by Gran Tierra Energy last night, includes a reconciliation of this non-GAAP item with the company’s GAAP net-income 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 at 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, Inc. Any copying or rebroadcasting of this call is expressly forbidden without the written consent of Gran Tierra Energy. I will now turn the conference over to Dana Coffield, President and Chief Executive Officer of Gran Tierra Energy. Mr. Coffield, please go ahead.

Dana Coffield

Good morning and thank you for joining us, for Gran Tierra Energy’s third quarter 2010 results conference call. With me today is Martin Eden, our Chief Financial Officer. On November 4, we disseminated a press release that included detailed financial information about the quarter. In addition, Gran Tierra Energy’s 2010 report on Form 10-Q for the three months ending September 30, 2010 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. Martin will then take a few minutes to discuss key aspects of this quarter's financial results. I will then provide an operational overview and outlook followed by closing remarks.

The third quarter was highlighted by Gran Tierra Energy’s entry into Brazil.

Federal delineation at the Moqueta oil discovery in Colombia, an extension of our exploration portfolio in Peru. Gran Tierra Energy production sales in the third quarter averaged 13,367 barrels of oil per day net after royalty, comprised of 12,641 barrels of oil per day in Colombia and some 126 barrels of oil per day in Argentina. This is a 3% increase compared to the same quarter in 2009 and an increase from the second quarter 2010 production of 13,234 barrels of oil per day.

This pressure was below our guidance of 14 to 16,000 barrels of oil per day due to the 22 days of downtime on the Ecopetrol operated pipeline during the quarter. We do expect to finish the balance of the year within our guidance range.

Funds flow from operations up $37.2 million for the current quarter and $135.8 million for the nine months ended September 30, 2010, attributed to our cash and cash equivalence balance of $308.4 million at the end of the third quarter. Gran Tierra Energy continues to remain debt free.

Now I'll give us the company's (inaudible) on the Moqueta-2 delineation well on the Chaza block in Colombia. The results are very encouraging as the net oil pay increased to 44 feet from 26 feet encountered in Moqueta-1. Subsequent to the end of the quarter, the Moqueta-3 delineation well more than doubled the net oil pay encountered through 118 feet.

In the same month Gran Tierra Energy announced an entry into Brazil through the acquisition of a 70% working interest and operatorship of four (inaudible) trucks blocks in the prolific onshore of the Reconcavo basin. Earlier this year, a discovery was made on one of the four blocks and is increasing at approximately 500 barrels of oil per day gross of high quality light oil.

In Peru, Gran Tierra Energy expanded its position in the Maranon Basin through the acquisition of a 20% working interest in three blocks, which are contiguous to the company’s three blocks in Peru. The transaction with Consol Phillips significantly increases our exploration portfolio in the region.

In addition to this acquisition, we have been actively acquiring new seismic and completing additional drilling permits. As a result, three more exploration wells are planned for the fourth quarter of 2010, two in Colombia and one in Peru. We currently have four drilling rigs contracted in preparation for our busy fourth quarter with drilling operations in Colombia, Peru and Argentina with further drilling being planned throughout 2011.

Now let me turn the call over to Martin Eden to discuss the financial results. Martin?

Martin Eden

Thanks, Dana and good morning. everybody. I will now discuss some of the key line items included in the Gran Tierra Energy third quarter 2010 financial results.

Revenue and interest income for the third quarter of 2010 was $84.6 million, a 12% increase from 2009. This was due to an increase of 3% in crude oil production and an 8% increase in crude oil prices. The average price received per barrel of oil increased by 8% to $68.12 per barrel for the three months ended September 30, 2010 from $63.12 per barrel from the same period in 2009.

Operating expenses for the third quarter of 2010 amounted to $19.4 million, a 113% increase from the same period in 2009 due to expanded operations, increased workovers and increased transportation costs.

For the quarter ended September 30, 2010, operating expenses on a BOE basis increased by 104%, $15.58 due to the impact of the workovers and higher costs. Operating expenses for the nine months ended September 30, 2010 increased to $35 million, a 56% increased from the same period last year, also as a result of expanded operations, increased workovers and increased transportation costs.

On a BOE basis for the nine-month period, operating expenses increased by 34% to $10.25 compared to $7.64 in the same period of 2009. Again, due to higher cost, it's more than offset the increased production.

Workover costs were approximately $4.50 per barrel during the current quarter resulting from factoring operations from Costayaco-1 and Costayaco-3 and we’re number one, which we anticipate will increase future productivity from both wells by over 1,000 barrels per day per oil.

Looking forward to the fourth quarter, we anticipate two additional workovers before year-end. Depletion, depreciation and accretion expense or DD&A for the current quarter of $35.3 million was comparable to the DD&A recorded in the same quarter in 2009. On a BOE basis, DD&A has decreased by 4% to $28.31 for the third quarter of 2010 compared to the same quarter in 2009 due to higher proved reserves.

General and administrative expenses of $11 million for the three months ended September 30, 2010 were 55% higher than the same period in 2009 due to increased costs reflected in the company’s expanded operations.

G&A expenses on a BOE basis increased 48% to $8.81 for the current quarter compared to $5.94 for the third quarter of 2009. The foreign exchange loss of $16.3 million was recorded in the third quarter of 2010 with $13.1 million is an unrealized non-cash foreign exchange loss. This compared to the $18.9 million foreign exchange loss recorded in the same quarter of 2009. For the nine months, ended September 30, 2010 the foreign exchange loss at $33.7 million was recorded, at which $27.1 million is an unrealized non-cash foreign exchange loss. Now this compares to the $32.4 million foreign exchange loss, which was recorded in the first nine months of 2009.

Again, these unrealized foreign exchange losses arise primarily as a result of the translation of the deferred tax liability. The deferred tax liability is denominated in Colombian pesos and the decline in the U.S. dollar against the Colombian Peso, 6% in the current quarter or 12% for the first nine months of 2010, which compares to 11% in the previous, in the same quarter of 2009 and 14% for the first nine months of September 30, 2009. And this decline in the U.S. dollar has resulted in the foreign exchange losses.

For the quarter, the company recorded a net loss of $3.3 million or $0.01 per share basic and diluted. This compares to a net loss of $2.8 million in the same quarter of 2009. For the nine months ending September 30, 2010, net income of $24.1 million or $0.10 per share basic and $0.09 per share diluted was recorded, compared to a net loss of $16.9 million or $0.07 per share basic and diluted for the same period in 2009.

Funds flow from operations in the third quarter was $37.3 million compared to $53.1 million in the same quarter in 2009. For the nine months ended September 30, 2010, funds flow from operations was $135.8 million compared to $109.7 million for the same period in 2009 is reflecting the increase in crude oil production and increasing oil prices.

As noted in our press release 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 and realized gain or loss on financial instruments and unrealized foreign exchange gains or losses. The reconciliation to net income is included in our third quarter 2010 earnings press release.

Our cash and cash equivalents were $308.4 million at September 30, 2010 compared to $270.8 million at December 31, 2009. Our cash and cash equivalents increased by $37.6 million due to funds flow from operations of $135.8 million and funds from financing activities of $22.9 million, which more than offset increases a working capital of $34.4 million in cash out flows for investing activities of $86.7 million.

Working capital, including cash and cash equivalents increased to $270.2 million at September 30, 2010 as compared to $215.2 million at December 31, 2009. Accounts Receivable normally includes two months of Colombia oil sales except at year-end when there is traditionally less than one month of oil sales outstanding as Ecopetrol settles all other outstanding amounts.

Gran Tierra continues to be debt free. On July 30, 2010 as Gran Tierra signed a credit facility with BNP Paribas. The facility is a reserve based lending agreement for up to a $100 million with an initial committed borrowing base of $20 million.

In summary, Gran Tierra Energy remains financially strong with the expectation that our 2010 exploration and development capital program will be fully funded with internally generated cash flow and cash on hand at 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

All right. Thank you, Martin. As mentioned in the introduction, Gran Tierra Energy further delineated in the Moqueta oil discovery and has continued to work on its capital programs in Peru, Argentina and Brazil. We have not yet determined the size limit of the Moqueta oil discovery and as a result, we are continuing our delineation drilling and anticipate spreading the Moqueta-4 delineation well in early December to further evaluate the size that was discovery. The Moqueta-4 delineation well will be located approximately 1.5 kilometer Southwest of the Moqueta-1 discovery well.

On the exploration side, Gran Tierra Energy has begun drilling the Pacayaco-1 exploration well in the Chaza Block. This well is 8.5 kilometers Southwest of Moqueta-1 and on the same short fill trend as the Moqueta discovery.

In early December, we anticipate spreading the Turuka-1 exploration well located in the Piedemonte Sur Block. At the Costayaco fields, Gran Tierra Energy intends to drill Costayaco-12 and 13. Costayaco-12 will be drilled as an oil producer at the Northern end of the Costayaco field. Once completed the intent is to convert this well to a large injector to enhance reservoir pressure and optimize oil recovery from the fields. Costayaco-13 will be drilled on the Southern flank of the field with the intention of draining the Southern portion of the field.

In Peru, in addition to securing at 20% interest in the contiguous (inaudible) blocks of 123, 124 and 129, Gran Tierra acquired 257 kilometers to the seismic block 128 to fulfill the second exploration period. We began seismic operations in October on block 122 with completion expected in January 2011.

Drilling in Peru is expected to commence with the Kunatari-1 well in mid-December of 2010 on block 128 to be followed by the Pacheco-1 well on block 122 in the first quarter of next year. The rig has arrived in Peru and is currently in route to block 128.

In Argentina, the company began preparations for drilling a sidetrack to the Valle Morado 1001 gas well in the Valle Morado block. The well was originally drilled by a previous operator using 2D seismic data with subsequent 3D seismic data interpretation indicating the well was drilled on the flank of the structure. By track operations have been initiated to direct the drilling towards the structural high.

Plans for gas plants refurbishment have been initiated and will be completed in parallel with the drilling and completion operations. To further capitalize on the improved gas market in Argentina we are also evaluating the gas potential of the Santa Victoria exploration block. We have received appropriate approval for the acquisition of 200 square kilometers of 3D seismic on the Santa Victoria block with the intent to mature exploration target for potential 2011 drilling.

In Brazil, documents have been submitted to the national regulator, the ANP for approval of the assignment of 70% working interest in operatorship of four blocks to Gran Tierra Energy. In parallel, a 3D seismic program is currently being acquired over three of the blocks in preparation for both exploration and development drilling activities in 2011. Our entry into Brazil has provided Gran Tierra Energy with undeveloped reserves to develop additional conventional exploration opportunities to evaluate new play types to test with horizontal drilling in 2011.

In completion, we continue to successfully build a solid foundation of land, reserves, production and cash flow, while hydrating our exploration portfolio, which is being tested to create additional value for all our stakeholders. We continue to develop additional organic growth initiatives on our existing land for the coming years as well.

Our proven approach to financial management. coupled with our experience in finding and developing new oil reserves has served shareholders well and we plan to continue this success into the future. We look forward to communicating our progress as we proceed through the end of 2010 and into 2011.

That concludes our prepared remarks for this morning. We will now be pleased to answer any questions you have. Shannelle?

Question-and-Answer Session

Operator

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session for Security Analysts. (Operator Instructions) And your first question comes from the line of Nathan Piper of RBC.

Nathan Piper - RBC Capital Markets

Good morning, Chaps. A couple of questions. First of all on Moqueta and then Peru. On Moqueta, based on what you’ve seen so far and let me start putting some numbers in for next year, what would you assess the production and potential of Moqueta given the drilling you've completed to date and what do you think it could go to if Moqueta-4 comes in?

Dana Coffield

Well what we're doing now is designing and getting ready for the flow lines from Moqueta to the Costayaco facilities. It looks like it's going to be a six-inch pipeline, which will have a very large production capacity, in excess of 10,000 barrels per day. Having said that, that is not our intent to produce at those levels given what we know today. We don't know the size of the field so we actually don't know what our pressure levels will be. We are going to initiate long-term testing in the latter part of first quarter next year. That production will be intermittent (inaudible) wells. So our production levels for next year from Moqueta will be relatively low for the year. As far as actual numbers, I don't have real numbers to give you at this time.

Nathan Piper - RBC Capital Markets

Thank you and then just to move on to Peru briefly. Now that you've completed the 2D seismic, what have you learned from it or what you have interpreted based on the data you've acquired to date? And can you give us some kind of indication on the size of the structure that you're going to drill and are you still convinced that the current well location that you've picked is the best one following the new information?

Dana Coffield

Yes, we’ve acquired, the 2D seismic data we have acquired at this point is just on the block, the seventh block, 128. We don't actually have the data yet on 122, however we're very excited about the seismic data we see. (inaudible) gravity data. What the seismic data shows is actually a fairly thick sedimentary section, which our interpretation is we are, and this is an interpretation that we are seeing the cretaceous section on the seismic data, which is the primary (inaudible) reservoir into it, in the Meranon Basin of (inaudible) basins in general in the region.

We're excited about that. Again the seismic data indicates we are on the West side of the block from the West flank of the arch so they are rising up to the surface of the arch so I guess the initial IV data is positive and we're proceeding with the first well location as originally picked.

Nathan Piper - RBC Capital Markets

Can you constrain how positive you are? I mean, are you 100 million barrels positive or 300 or?

Dana Coffield

The perspective, we're not changing physically, we’re not changing our perspective resource, risk perspective resource potential so we remain very excited on the scale of the potential here.

Nathan Piper - RBC Capital Markets

Thank you very much.

Operator

Your next question comes from the line of Rafi Khouri of Raymond James

Rafi Khouri – Raymond James

Yes, thank you. Good morning, everyone. Dana, I was wondering if you could give us a bit more sort of color looking out post the end of second quarter, next year? You're going to have four rigs drilling this quarter. You've got wells lined up on the exploration fronts until mid-2011. Now looking at your portfolio, even in Colombia alone, you've indicated the past 60 to 70 potential leads/prospects, can we expect a similar drilling activity for the next couple of years in Colombia on the exploration front or less or more?

Dana Coffield

The comparable level of exploration drilling in Colombia, we're working on our portfolio budget right now, as we speak. We should have news or have a crew in December so we'll have news by the end of December on the exact program. But Colombia specifically we would expect between 5 and 10 exploration wells in the coming year and then I would assume a similar number the following year. Argentina and Peru, it’s less certain how many wells. We'll certainly drill anywhere from one to at least one, if not up to four wells including the first three wells, the big ones (inaudible) successful.

In Argentina we haven't decided yet from the seismic data, it's hasn't been hard hit. We haven't decided whether it will be extraordinaire or not. Although we will in Brazil be adding wells or drilling new wells, so we'll see an increase in our overall program because of our Brazil activities. We can see anywhere from two to six wells or sort of in that range in Brazil.

Rafi Khouri - Raymond James

Perfect and one slightly different question. On the sort of theme of the acquisitions similar to what you made in Peru, if they were to be companies that are looking to farm out assets in what other countries that you're working in would you require Gran Tierra to get operatorship before you'd look at that farming into other assets or is that something you might accept not being operator if the quality of the asset was good enough to justify that?

Dana Coffied

That's correct. Our preference is to operate but if there's a technical reason or if there’s a reason why the other company would be the better operator, then we're happy to let the other company be the operator. In general, we would prefer to operate but that's not an absolute requirement.

Rafi Khouri - Raymond James

Perfect. Thank you very much.

Operator

Your next question comes from the line of Ian Mackwey of CIBC World Markets

Ian Mackwey - CIBC World Markets

Morning guys. A couple of questions. One, the production downfall at Costayaco, is that where you'll make up the additional production to meet with your guidance for 2010? So it's just a question of more on time in Costayaco will get you to your guidance for 2010?

Dana Coffield

That's right. The production shortfall was due to the pipeline destruction

Ian Mackwey - CIBC World Markets

Right.

Dana Coffield

So assuming the pipeline isn’t disrupted we'll have no problems reaching, should have no problems reaching the guidance range.

Ian Mackwey - CIBC World Markets

Okay, perfect. A question on operating costs. You did say that workovers represented about 450 in the operating costs for this quarter but they did jump from a level of about, let’s see now, 791 per barrel to 1558? Is there anything else that is kind of a one time non-expected event that occurred in the quarter?

Dana Coffield

There is some additional trucking that added to the costs because of the pipeline shutdown that we experienced but was primarily driven by the increased cost of the workovers, yes.

Ian Mackwey - CIBC World Markets

Okay. G&A, on a quarterly basis it's gone up, obviously you're more active in other areas. Do you have kind of a forecast of what it might be on a quarterly basis? It was about 11 million this quarter, is that a reasonable number to be using going forward?

Martin Eden

It's a reasonable number. Sorry Dana.

Dana Coffield

I don’t have the specific forecast of numbers to give you. The reason for the increase is because of our expanded staffing in Peru, and Argentina and Brazil of the new office.

Ian Mackwey - CIBC World Markets

On a go forward, 11 million a quarter, seems like a reasonable number?

Dana Coffield

Yes.

Ian Mackwey - CIBC World Markets

Okay. One other question which is, I did notice that there was a higher level of gas production this year, or this quarter and I do see that you went from last year 20 barrels BOE equivalent to six BOE equivalent. Is the gas just from Garibay or was there any particular reason that the gas seemed to spike up a little bit this quarter?

Dana Coffield

Yes, it is from Garibay and there was a significant amount of down time at Garibay. We are shutting for nine months because the dew content of the gas, liquid content of the gas wasn't meeting pipeline specifications.

Ian Mackwey - CIBC World Markets

Okay.

Dana Coffield

But now we're getting lower consistent production from Garibay, hence the higher number.

Ian Mackwey - CIBC World Markets

So your expectations are pretty much the same for that asset? It was just a slightly different event this quarter?

Dana Coffield

Yes.

Ian Mackwey - CIBC World Markets

Okay. Last question, two last questions. One is on Valle Morado, do you have any update or any new information on either gas pricing or any potential new contracts you could enter and as time goes on probably it looks more positive on the gas price but do you have any?

Dana Coffield

Yes. I don't have any new information other than to reiterate that the gas markets are very strong. Recent gas sales contracts have been for around $5 BTU. The significant supply and demand inbound from Argentina for energy in general and gas specifically. We see the market remaining strong. I don't have any specific new numbers to give you.

Ian Mackwey - CIBC World Markets

Okay. That's good and the last thing. The capital budget forecast, which was in your last presentation, was still for $223 million. Obviously it's going to be difficult to spend that amount with the balance coming in Q4, do you have a number for 2010 that would be a more reasonable estimate for the total year or even just the quarter for Q4?

Dana Coffield

I don't have the number but you're correct that would be aggressive to get that spent so it would be below that level.

Ian Mackwey - CIBC World Markets

Okay and are they kind of on par with the other quarters?

Dana Coffield

They’re saying this quarter is going to be higher because of our activity in Peru with the rig drilling and then our additional exploration drilling in Colombia.

Ian Mackwey - CIBC World Markets

Okay. I'll look at the numbers and get back to you on that but thanks very much, guys. Appreciate it.

Dana Coffield

Yes. You're welcome.

Operator

Your next question comes from the line of Alan Knowles of Haywood Security.

Alan Knowles – Haywood Securities, Inc.

Morning, guys. Can you, with the workovers you've done, can you tell us what the production capability is now? Are you getting back up to that 15,000 after royalty number now?

Dana Coffield

The workover is unrelated to our 15,000 target. That was due to the pipeline destruction. Our individual loyalties have a capability of increasing 5,000 barrels a day with the pumps. We're not doing that though because it damages the reservoir. The workovers, any tracks that we've done on individual workovers have added about 1,000 barrels a day of production from those individual wells but it's not going to impact the overall field production capacity because we're attempting to maintain it at plateau with 19,000 gross, 13,000 barrels. So we're not trying to increase our plateau pressure fields with the workovers. We're trying to maintain the plateau level.

Alan Knowles - Haywood Securities, Inc.

So based upon what's you’ve seen with the response of these workovers and the reservoir performance, do you see the plateau period maybe extending past your original thoughts previously?

Dana Coffield

No, that will be more dependent on the success of our water-injection program. The mini-track exceeded our expectations, got better results than we expected in terms of maintaining plateau over a period of time. It’s really going to be more dependent on the water flood program we started to implement two months ago I guess for the T-Sandstone. Water flood is intended to maintain reservoir pressure and enhance reservoir in a key sense. That would have more impact on plateau field life than the mini-tracks we’ve been doing.

Alan Knowles - Haywood Securities, Inc.

Yeah, okay and then on Moqueta you're acquiring some seismic over the North part of the prospect area? When would you be in a position to say that you've found more drilling locations areas, if there are?

Dana Coffield

It's bit of an awkward situation. We’re actually doing two seismic programs because there are indigenous communities in the area we have to do indigenous consultations which adds approximately six months to the permitting process. We cannot at this point acquire 3D seismic over the fields or the trends. So proceeding in timing for the 3D's that won't start until next year. In the interim, what we're doing is shooting 2D seismic programs where we have access to shoot the 2D and we're doing that right now, as we speak and also say first quarter we'll have a better view of the shape of the structure.

So with that tied into the additional delineation drilling we'll have more information on the aerial extent of the field.

Alan Knowles - Haywood Securities, Inc.

Okay. Thanks very much.

Dana Coffield

Thanks.

Operator

Your next question comes from the line of Isaru Rashem of Equinox Partners

Isaru Rashem - Equinox Partners

Morning, guys. Thanks for the update. Wanted to touch on the cost increases on the operating level. I guess once the workovers are complete should the production expenses go back down to the $8 per barrel level or with the, obviously with the depreciation maybe that is going to be a higher level? So what should we expect going forward now?

Martin Eden

I think if you look at the nine months numbers that should be a good guide on going forward. It's about average for the nine months. That should be good wanting to project what's going forward.

Isaru Rashem - Equinox Partners

And you don't think there will be more workovers needed to maintain the low rates at the existing operations?

Dana Coffield

We will need more workovers. What we were doing in the last three was a new technology. There were some problems in submitting it so we expect on a go forward basis to be, for the workovers to be, those costs to be significantly reduced from the costs they did incur.

Isaru Rashem - Equinox Partners

I see and other question is on the royalty side, currently I am seeing your royalty side close to about 30%, is that right?

Martin Eden

Yes. The government royalties are about, at least on cost about 25%, 26% because of the, remember in September 2009, we started paying this high price royalty on our Costayaco field so a combine on Costayaco, they're about 25%, 26%.

Isaru Rashem - Equinox Partners

And we should base that (inaudible) going forward for the company wide; I guess it depends on success? If you find a lot of oil in Colombia and you don't pay that higher royalty in the first period?

Martin Eden

Yes, that rates based, sort of based on the 17,000 barrels a day and about $80 WTI.

Isaru Rashem - Equinox Partners

Excellent. Thank you, guys.

Dana Coffield

Thanks, Isaru.

Operator

Your next question comes from the line of Neal Dingmann of Wunderlich Securities.

Neal Dingmann – Wunderlich Securities

Morning, guys, callers. Say Dana just a question on Moqueta. Is there more plans to drill up thoughts about seismic or we get to shoot more as (inaudible) around that area and what you see on that fourth well or what's your plans are?

Dana Coffield

I'm sorry. Could you repeat the question again?

Neal Dingmann - Wunderlich Securities

You know the Moqueta discovery area? Where do you see it, I guess the question is really where do you sit with seismic, will you have to shoot some more further down the line? Obviously, you're going to be drilling the delineation well after that? Does that mean there's no more seismic in that area or would that help at some point?

Dana Coffield

Yes, we are shooting at the seismic program literally on the whole trend to the Pucayaco to the West to Moqueta on the Southern block and then actually continuing to VerdeYaco, which is on the adjacent block to the East so it's going to be essentially a continuous seismic program but because of permeating issues we've had to break it up. We're doing some (inaudible) right now, as we speak and then we will shoot 3D seismic next year and have that complete 3D seismic coverage over the entire trend.

Neal Dingmann - Wunderlich Securities

I see. Would you refer to that before that’s due that you couldn’t go to that entire area yet with 3D?

Dana Coffield

Correct.

Neal Dingmann - Wunderlich Securities

Got it. Got it. Okay and then just one final question. Just over in Argentina. You know on the Sante Victoria or the Valle Morado block, now once you see and it sounds like you're doing EIS there on the first block and you're doing some things on the second? Once you see those results, how soon could you possibly begin some sort of drilling operations or what sort of expectations for 2011 over there from the drilling standpoint?

Dana Coffield

For the Santa Victoria block, we could be drilling in the second half of next year. Actually, I'll qualify that and say fourth quarter next year. Now that's dependent upon the results of the seismic program we're acquiring right now. The Valle Morado we're drilling right now, it's a very deep well so we'll have those, as soon as we get to the depth and can begin testing that would be probably in the first quarter, towards the end of the first quarter to begin testing.

Neal Dingmann - Wunderlich Securities

Right. So any new production there would qualify under that at a nice price regime over there, right with the higher competitive prices?

Dana Coffield

That's correct. In fact, we already have the Gas Plus certification for the Valle Morado and the Santa Victoria block where we're shooting seismic would qualify but we don't have that certified yet. But what we're doing at Valle Morado would be certified under the Gas Plus program.

Neal Dingmann - Wunderlich Securities

Perfect. Thanks, guys.

Operator

Gentlemen, there are no further questions at this time. Please continue.

Dana Coffield

All right, well thank you, Shanelle. I'd like, once again to thank everyone for joining us today and we look forward to speaking with you next quarter to update you on our progress and the exciting plans we have next year. So thank you again, everyone for joining us.

Operator

Ladies and gentlemen, that concludes our presentation. Thank you for your participation. You may now have a great day. You may now disconnect.

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